Japanese Bank Risk Rises on Losses From U.S. Subprime (Update1)
By Junko Fujita and Patricia Kuo
A man walks past an electronic stocks board Aug. 15 (Bloomberg) -- The risk of owning the bonds of Japan's biggest banks rose after Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. announced losses related to the U.S. subprime mortgage debacle.
Credit-default swaps tied to the bonds of Mitsubishi UFJ, Mizuho Financial Group Inc. and Sumitomo Mitsui rose by 7 basis points to 62 basis points today, according to Merrill Lynch & Co. A basis point is 0.01 percentage point.
Mitsubishi UFJ, Japan's largest bank, said it had unrealized losses of about 5 billion yen ($42.6 million) on investments related to U.S. subprime loans as of the end of July. Smaller Sumitomo Mitsui said it recorded ``several billion yen'' of losses in the three months to June 30, after selling about 350 billion yen in U.S. mortgage-backed securities, including some backed by subprime loans.
``Investors are still unable to grasp a clear picture of the subprime losses at Japanese banks,'' said Yasunori Kuroda, a fund manager at Sompo Japan Insurance Inc. who oversees about $4.9 billion of Japanese bonds. ``This uncertainty is making investors buy protection now.''
Mizuho Financial said last week it recorded a loss of 600 million yen from selling most of its 50 billion yen of subprime- related holdings.
Credit-default swaps based on the dollar-denominated subordinated debt of Bank of Tokyo-Mitsubishi UFJ Ltd., Mizuho Corporate Bank Ltd. and Sumitomo Mitsui Banking Corp. rose 7 basis points to 62 basis points, according to Merrill prices.
Asian Banks
The credit swap price means the cost to protect 1 billion yen of the banks' debt from default rose to 6.2 million yen. An increase in price suggests deterioration in investor confidence. Subordinated debt is one of the forms of capital which regulators require banks to hold to absorb losses.
Credit-default swap spreads also widened elsewhere in Asian. The five-year CDS for Oversea-Chinese Banking Corp. rose to 57 basis points from 50 yesterday. The cost to insure the debt of Kookmin Bank increased to 40 basis points from 35. ICICI Bank Ltd. reached 138 basis points today, up from 135 yesterday, according to ABN Amro Holding NV prices.
The five-year CDS on DBS Group Holdings Ltd., Singapore's biggest bank, increased by 5 basis points to 35 basis points today, according to Barclays Capital.
None `Spared'
``Credit-default swaps have indeed widened as global sentiment towards the banking and financial sector has suffered,'' said Bryan Ko, a vice-president at the fixed-income division of Morgan Stanley in Hong Kong. ``No bank has been spared. Pretty much any name you can think of has widened.''
Calyon, the investment banking unit of Credit Agricole SA, expects total losses tied to subprime mortgages to reach about $150 billion globally, Calyon's Hong Kong-based head of credit research Dilip Parameswaran said in a research note today.
Late payments on U.S. subprime mortgages made to borrowers with poor credit histories are at the highest since 2002, driving down the value of bonds backed by home loans and causing turmoil in credit markets.
The credit crunch forced hedge funds managed by Bear Stearns & Co. and Sowood Capital Management LP to liquidate last month, and has spread to stock markets, causing losses at computer-driven funds including those of Goldman Sachs Group Inc.
Basis Capital Fund Management Ltd. told investors losses at one of its hedge funds may exceed 80 percent as the U.S. subprime mortgage rout prompted creditors to force the Sydney- based company to sell assets.
To contact the reporter on this story: Junko Fujita in Tokyo
[email protected]
Last Updated: August 15, 2007 03:33 EDT