Word: bankes
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Exactly two weeks after Mitsubishi UFJ Financial Group, Japan's top lender, tossed a $9-billion lifeline to Morgan Stanley - in exchange for a 21% stake - Mitsubishi UFJ is in need of some help itself. On Monday, Japan's largest bank said that it needs to raise $10.7 billion in capital and will be selling common and preferred shares. It was negative news following negative news. Less than one week ago, Mitsubishi UFJ downgraded its net profit for the first half of the year to about half of what it was last year at this time. Japan's Nikkei index...
Shares of Japan's top three mega-banks - so recently perceived as impervious to the subprime-sparked crisis - tumbled along with it, in what is now the biggest decline in bank shares in 21 years and the latest sign that the global economic crisis is spreading further into Japan's financial system. Mitsubishi UFJ and Mizuho Financial Group, Japan's second largest bank, led the fall with shares dropping 15%, followed by an 11% drop in the shares of Sumitomo Mitsui Financial Group, Japan's third-largest lender...
...Equity market declines are having a negative impact on the capital adequacy ratio of major banks," says Shinichi Ina, bank analyst at Credit Suisse Japan. "It will get worse in the short term because the other sectors are in severe situations, making it difficult for banks as lending amounts shrink and credit costs increase." But the new offerings have their risk. Large public shareholdings made banks vulnerable to market fluctuations during Japan's lost decade - after the real-estate and banking bubble burst in the 1990s - and the government intervened to buy shares to prevent further bank losses...
...Japan's banks have worked to reduce their shareholdings, but economists and bank analysts have mixed views on just how much exposure banks now have to stock price movement. Hironari Nozaki, a bank analyst at Nikko Citigroup, says that mega-banks should be stable even if the Topix plummets to 600 or the Nikkei 5,500. (they closed Monday at 746 and 7,162 respectively). "But," he says, "I don't want to imagine that situation...
There may be negative consequences, however, to this new round of intervention. As part of finalizing the details of the government's second stimulus package, Aso is also calling for changes to accounting rules, including a relaxation of capital adequacy requirements for banks and a suspension of the golden accounting rule of mark-to-market. Credit Suisse's Ina warns that fiddling with mark-to-market accounting (in which a bank's assets are assessed at market value) could have an affect on banks' financial earnings by "obscuring the realities." He warns that changing the current standard might "provide more...