Japan's Mizuho stung by $5.5 bln in subprime pain

By David Dolan

TOKYO (Reuters) - Japan's Mizuho Financial Group Inc (8411.T) cut a third off its earnings estimate for the year just ended, stung by $5.5 billion in subprime-related losses, mostly at its brokerage arm.

Mizuho's shares, which have lost about half their value over the past year, jumped 4.4 percent after Friday's announcement as investors bet the worst was over for the bank, although analysts say other Japanese lenders will have to reveal more losses.

Asian lenders have so far avoided the massive write-downs that crippled Western rivals such as UBS AG (UBSN.VX) and Merrill Lynch & Co MER.N, but Mizuho is one of the region's bigger subprime casualties.

Unlike other banks in Asia, where credit exposure is largely limited to straight investment, Mizuho arranged structured products and other risky investments through its brokerage wing, analysts say.

"Investors have been expecting further subprime-related losses, so this doesn't come as much of a surprise," said Shigemi Nonaka, special adviser at Polestar Investment Management.

"Japan's subprime exposure is still relatively small. You can't compare this to the likes of UBS."

Japan's second-largest bank said it now expected a net profit of 310 billion yen ($3.1 billion) for the year to March 2008, down from a previous estimate of 480 billion yen. [nT11DMWOW5]

Mizuho had originally forecast a net profit of 750 billion yen for the year but has pared that number three times on spiralling subprime losses.

Bad bets on the U.S. housing market likely cost the lender a total of 565 billion yen ($5.5 billion) in the year to March 2008, spokeswoman Masako Shiono said.

The bank has previously reported 345 billion yen in subprime losses for the nine months to December, meaning the damage swelled by 64 percent in the final quarter of the business year.

OTHERS TO SUFFER?

Subprime-related exposure at Japanese financial institutions is about 1.5 trillion yen ($14.7 billion), Japan's Financial Services Agency says, less than half of what UBS has so far written down.

The regulator estimates Asia's exposure to subprime investments is just 7 percent of the global bill, which it puts at $215 billion as of December.

While Mizuho has so far taken the biggest subprime hits in Japan, analysts said they expect rivals to also suffer.

"Mizuho will not be the last Japanese bank that revises forecasts down for the fiscal year," said Akiko Kudo, a credit analyst at Fitch Ratings in Tokyo.

Mitsubishi UFJ Financial Group Inc (MUFG) (8306.T), Japan's largest bank, has previously said it expected as much as 95 billion yen in subprime-related losses for the year to March.

However, brokerage CLSA Asia-Pacific Markets estimates MUFG has as much as 3 trillion yen in structured credit products outside Japan.

Sumitomo Mitsui Financial Group (8316.T), Japan's No.3 bank, reported 99 billion yen in subprime damage for the nine months to December.

"Mizuho's announcement will ... shift the attention to the potential for similar revisions at other major Japanese banks with sizeable subprime exposures -- especially MUFG," Jason Rogers, a credit analyst at Barclays Capital said in a research note on Friday.

TRADING LOSSES

Trading losses on securitised products at the bank's unlisted Mizuho Securities unit topped 400 billion yen ($3.9 billion) in the year just ended, having more than doubled in the January-March quarter.

That will likely push the brokerage to a net loss of 420 billion yen for the business year just ended, Mizuho said, a more than tenfold increase on a net loss of 27 billion yen Mizuho Securities reported in the first half. In the fourth quarter, the brokerage's net loss totalled 220 billion yen.

Mizuho jumped 5.2 percent on Friday, with most of the gain coming after the announcement. Its shares closed at 407,000 yen, outperforming a 2.7 percent rise in Tokyo's index of bank stocks .IBNKS.T

Mizuho's shares have fallen about 50 percent over the last 12 months, pushing the bank's value below that of smaller rival Sumitomo Mitsui.

The subprime damage has also forced the bank to push back a planned merger of Mizuho Securities and Mizuho affiliate Shinko Securities Co (8606.T) by at least a year, to 2009.

($1=101.77 Yen)

(Editing by Rodney Joyce)