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Enron Collapse Hits Japan - 2001-12-07

The collapse of U.S. energy trading firm Enron has sent shock waves through Japan's money management industry, and an American investment bank is expected to scale down its Japanese operations.

Japanese asset managers are scrambling to regain public confidence following the failure of Enron, the U.S. energy giant. Investment funds offered by four Japanese money management firms contained Enron bonds in their portfolios. On news of Enron's failure, investors quickly sold billions of dollars worth of shares in the funds, which had been touted as extremely safe investments.

The sell-off lowered the overall value of the funds. And now, Japanese regulators are trying to restore confidence in the industry. They say they will ask Japan's investment trust association to issue a new set of rules concerning the management of funds, including more information disclosure.

Japan's fragile banking system is also being affected by Enron's failure, though Japanese officials say it is limited. Government regulators estimate that Japanese banks lent a total of $800 million to the power firm.

Tokyo is concerned about how Enron's collapse will affect a series of large Japanese power projects. Enron had plans to build four thermal power plants in Japan, but now officials say, the projects may be cancelled.

Japanese Industry Minister Takeo Hiranuma told reporters he has concerns. "Enron was planning large-scaled power projects in several locations in Japan," he said through a translator. "Now, people involved in the projects will be badly affected."

American investment bank Merrill Lynch is reportedly preparing to dismantle most of its Japan-based operations. According to reports in the Asian Wall Street Journal and the Financial Times newspaper, Merrill is planning to scale down its 28 branch operation and will lay-off more than 600 financial consultants.

Merrill Lynch has spent years building a business focused on small investors. But Japan's ailing economy, now officially in recession, and the country's weak stock market, have made Merrill's venture a money-loser.