Business torrents

Japan’s two-largest banks, Mitsubishi UFJ Financial Group and Mizuho Financial Group, cut their earnings outlooks by more than half on Friday, hit by growing bad-loan costs and a plunging local stock market.

Once thought to be relatively insulated from the global credit crisis, Japanese lenders are now facing a sharp downturn in profits, hurt by a brittle domestic economy and overexposure to a stock market that has lost near half its value this year.

Resona Holdings, Japan’s fourth-largest bank, also cut its outlook on Friday, citing ballooning bad loan costs.

Underscoring the bleak outlook for the world’s No.2 economy, the Bank of Japan cut interest rates for the first time in seven years on Friday.

Analysts believe that Mizuho and some of its smaller rivals may need to follow industry leader Mitsubishi UFJ and raise new capital to safeguard against the global financial meltdown.

Mitsubishi UFJ said this week it would raise up to $10.6 billion to replenish a capital base depleted by the stock market’s fall and a $9 billion investment in Morgan Stanley

“Banks’ unrealized losses on their shareholdings will continue to increase as the stock market falls. That will hit into their tier-one capital, which would force them to raise funds,” said Reiko Toritani, senior director of financial institutions at credit agency Fitch Ratings.

Mitsubishi UFJ, which has spent about $14 billion this year on acquisitions at home and in the United States, cut its forecast by two-thirds freecreditreport. It now expects a group net profit of 220 billion yen ($2.23 billion) in the year to the end of March, compared to its previous forecast of 640 billion yen.

Bad loan costs rose to 245 billion yen in the nine months to the end of September, while stock-related losses reached 75 billion yen.

Traditionally Japanese lenders hold large stakes in their corporate clients as a means to cement their business relationship.

The value of those stocks — estimated at $250 billion at end-March — has been shredded by the Nikkei share average’s drop to a 26-year low this year.

BAD LOAN COSTS

Analysts have been particularly concerned about surging bankruptcies in Japan, which force lenders to increase their bad-loan costs, including provisions.

Mizuho, Japan’s second-largest bank, said it now expects its group net profit to total 250 billion yen ($2.5 billion) in the year ending in March, down 55 percent from its previous forecast of 560 billion yen.

Japan’s second-largest bank said it wrote down the value of its marketable securities by $1.4 billion in the six months to September 30. Japanese shares lost a further 24 percent in the month of October. 

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