Tokyo, Oct 6: Japan's widening racketeer payoff scandal is distracting its top brokerages from urgent preparations for "Big Bang" financial reforms that will unleash fierce competition from foreign rivals and domestic banks.

Analysts say the country's "Big Four" brokers must decide quickly where to focus their operations ahead of the imminent opening of Japan's financial sector.

Big Japanese banks recently began unveiling tieups with foreign banks, return-on-equity targets and planned asset management and investment advisory services.

Analysts, however, say the big brokerages, with the possible exception of giant Nomura Securities Co Ltd, have shown few signs they are rising to Big Bang's challenges.

Moreover, foreign firms eyeing new business opportunities to be opened up by the reforms are aggressively courting the brokers' employees, in some cases offering a five-fold increase in salary, according to one industry source.

Despite such threats, the shadow of the scandal is making decision-making at the domestic brokerages even more difficult, especially since it has been triggering shake-ups in top management.

"Japan's top brokerages look like they are still struggling to work out clear strategies to cope with the Big Bang," said Ayako Sato, an analyst at UBS Securities Ltd.

If investigations drag on over illegal payoffs to "sokaiya" corporate racketeers, they may further delay decisive action to deal with deregulation, she said

.Last week, the president of Nikko Securities Co Ltd, Japan's third biggest brokerage, resigned to take responsibility for his role in Nikko's involvement with Ryuichi Koike, the racketeer at the hear of the payoff scandal.

With the Nikko president's resignation, all the heads of Japan's "Big Four" brokerages will have been replaced over the suspected illegal payoffs to Koike, as well as the president of Dai-Ichi Kangyo Bank Ltd (DKB).

The scandal, which comes just as Tokyo starts sweeping financial reforms to boost competition, has already ensnared the other three of the Big Four -- Nomura, Yamaichi Securities Co Ltd and Daiwa Securities Co Ltd -- as well as major commercial bank DKB.

Payoffs to sokaiya -- racketeers who extort money from firms by threatening to expose dubious business practices or disrupt their shareholders' meetings -- have been illegal since 1983, but firms have found it hard to sever underworld ties.

The Yamaichi probe has already expanded to the Singapore International Monetary Exchange (SIMEX), where Yamaichi was alleged to have made the profits used to pay off Koike.

Takehito Yamanaka, a senior analyst at SBC Warburg Japan, said the scandal was compelling customers to take a closer look at the quality of services offered by domestic brokers.

"In the past, the Big Four have offered similar products in the same business areas, in something of a herd mentality, even if some of the areas aren't profitable," he said.

He added, however, that there may be a silver lining to the scandal, especially for those snared early, as it had forced them to make drastic but necessary management reforms that may have been sidestepped if there had been no crisis to spur them.

Analysts cited a number of things brokerages could be doing to shore up their ranks.

A financial analyst at a Japanese brokerage said Yamaichi and Nikko in particular were losing money overseas and should seek links with foreign firms to cut costs.

Yamaichi officials countered, however, that the company changed its corporate structure earlier this year to streamline overseas operations.The brokerage has already decided to close three of its European offices -- an Italian subsidiary and two representative offices in Berlin and Madrid -- by next March.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.