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Japanese banks hemorrhage
By Shane Green, Herald Correspondent in Tokyo May 27 2003
Japan's troubled top seven banks reported a combined record loss of about ¥4.62 trillion ($60 billion) late yesterday, reinforcing warnings from the country's central bank that the world's second largest economy could plunge into crisis at any time.
The world's largest bank by assets, Mizuho Financial Group, lost the most - ¥2.38 trillion, the biggest loss in Japanese corporate history.
Japan's fifth largest bank, Resona - which is being bailed out by the Japanese Government - recorded the next largest loss of ¥838 billion.
Number two bank Sumitomo Mitsui Financial Group lost about ¥465 billion, while number three Mitsubishi Tokyo Financial Group booked a loss of about ¥161.5 billion.
The fourth biggest bank, UFJ Holdings, saw some improvement, with its loss reduced from about ¥1.2 trillion last year to ¥609 billion.
Although generally in line with expectations, the extent of the losses for the financial year ending March is a sharp reminder of the precarious state of Japan's financial system.
The governor of the Bank of Japan, Toshihiko Fukui, recently warned the country faced a crisis at any time "if appropriate solutions to the problems of financial institutions are not carried out".
The losses are primarily due to the decline in the value of the shareholdings held by the banks as the Tokyo stockmarket has gone into freefall, with the Nikkei 225 Stock Average losing almost one third in value over the financial year.
The banks are trying to shed their stockholdings and the Bank of Japan has promised to buy shares worth ¥3 trillion from them.
The losses also reflect the fact that - under pressure from the Government - the banks have begun disposing of the massive bad loans that have crippled the capacity of Japan's ailing economy to grow. The banks also appear to be applying tougher standards following the recent government decision to effectively nationalise Resona.
The Koizumi administration has been forced to pump up to ¥2 trillion into Resona.
Resona, burdened by bad loans and a reduced value in its shareholdings, sought government help after its capital-to-assets ratio fell below the required 4 per cent to about 3 per cent.
In the group's main banking arm, Resona Bank, the ratio had fallen to about 2 per cent.
One of the triggers was a hardline approach by the group's auditors on the amount of deferred tax assets Resona was relying on as capital.
All the banks that reported yesterday did not include large amounts of deferred tax assets. The big banks are also nowhere near the level of Resona's capital to assets ratio.
There were predictions of rebounds by the banks yesterday. But even with fewer shareholdings and reducing bad loans, they will be largely dependent on an elusive pick-up in the Japanese economy and an end to deflation.
After spluttering growth, the most recent GDP figures showed that the Japanese economy was becalmed. Despite growing pressure from within the ruling Liberal Democratic Party, Koizumi administration seems unlikely to formulate a stimulus package.
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