PRIVATE EQUITY | Cesar Tordesillas, Japan

Japan's mega banks suffer from heavy equity losses

Equity portfolios were the culprits.

That's as far as Japan’s three mega banks are concerned.

Their earnings were dragged down by heavy losses on this segment.

Combined stock-related losses at Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group more than tripled in April-September from a year earlier as the benchmark Nikkei average declined 12 per cent over the six-month period.

Shares in embattled Sharp Corp have plunged nearly 70 per cent since the start of the fiscal year as the firm struggled with competitive markets and a strong yen. Yet in September, MUFG and Mizuho, which hold stakes in the troubled TV maker, agreed to extend 360 billion yen (RM13.9 billion) in additional loans to the 100-year-old debt-ridden company.

“Although banks say they will make further reductions in stock holdings, they are unlikely to drastically cut their exposure in the short term as it’s hard to sell stocks in this market,” Chikako Horiuchi, director at Fitch Ratings in Hong Kong, said before the earnings announcements today. “So, their challenge is to come up with effective hedge measures.”

While banks are bound by law to limit their holdings to small stakes of under 5 per cent, they have a large number of holdings across many industries. That exposes them to the ups and downs in the Japanese economy, which shrank in the September quarter for the first time since last year.

“We have been continuously reducing equity holding. It’s a shame that we had to book such large (stock-related losses),” said Mizuho President Yasuhiro Sato.

In the quarter ended September, Mizuho’s net income plunged 99.8 per cent to 356 million yen, while MUFG, Japan’s biggest bank by assets, saw a 45 per cent slump to 107.6 billion yen.

SMFG booked a profit increase of 99 per cent to 213.2 billion yen, helped by investment gains from the trading of government bonds.

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