The credit crunch claimed its first victim among Japan's financial institutions today as hopes faded that Asia's largest economy would be relatively immune to the crisis.
Yamato Life Insurance went bust with debts of $US2.7 billion ($A3.95 billion), becoming the first Japanese insurer to be brought down by the worldwide financial turmoil, which sent Tokyo stocks plunging more than 10% today.
"Because of the global financial market chaos and the credit crunch, the value of our securities holdings rapidly fell. It was beyond our expectations," said the insurer's president, Takeo Nakazono.
"We have attempted to strengthen our risk management but we have come to this regrettable outcome," he told a press conference.
It is the first Japanese life insurer to fail in seven years, and only the eighth since the end of World War II. The credit crunch has also caused numerous bankruptcies in Japan's crumbling real estate sector.
The mid-size insurer made a filing with the Financial Services Agency today to ask for court protection, an official at the watchdog said.
The Tokyo-based company will take the necessary legal steps and seek court approval for rehabilitation.
Japanese government ministers rushed to reassure investors that the failure was an isolated incident.
The bankruptcy was due to Yamato's particular business strategy, and does not reflect the health of the industry as a whole, said Finance Minister Shoichi Nakagawa, who is also in charge of the financial services industry.
"The main reason for Yamato Life's situation is its unique scheme, under which the company used proceeds from high-yielding securities to cover losses from high-cost insurance operations," Nakagawa said in a statement.
"Our understanding is that the situation is different from other insurance companies. It is extremely regrettable that the company's situation has come to this," he said.
But investors did not appear so optimistic. Tokyo stocks suffered the biggest loss in two decades today, plunging 10.64% by the break as fears grew that authorities are unable to control the growing financial crisis.
Kaoru Yosano, minister for economic and fiscal policy, also played down concerns that other Japanese insurers could also go bust.
"I am not regarding the failure of Yamato Life as part of the global financial crisis," he told reporters.
Japanese financial institutions had so far escaped the worst of the global credit crisis, seizing the opportunity to expand overseas, buying stakes or assets from troubled Western banks.
Mitsubishi UFJ Financial Group Inc is buying up to 24.9% of ailing US investment bank Morgan Stanley while top broker Nomura is buying a swathe of Lehman's operations across Asia, the Middle East and Europe.
Japanese financial institutions are believed to have been more cautious than many of their European peers in investing in risky subprime assets because they are still recovering from their own crisis of bad loans in the 1990s.
