Subprime losses clip profits at Sumitomo Trust

By David Dolan

TOKYO (Reuters) - Sumitomo Trust and Banking Co (8403.T), Japan's fifth-largest bank, said it will fall about 10 percent short of its full-year profit estimate, hurt by around $780 million in losses on subprime mortgage investments.

Japanese banks have avoided the massive write-downs that crippled Western rivals such as UBS AG (UBSN.VX) and Merrill Lynch & Co MER.N, but they haven't escaped unscathed.

Mizuho Financial Group Inc (8411.T), Japan's second-largest bank, last week became one of Asia's biggest subprime casualties, with losses on securitised investments and other products totalling $5.5 billion.

Sumitomo Trust said in statement net profit would likely come to 80 billion yen ($781 million) for the 12 months to March, down from the 90 billion yen it previously estimated. [nT18D6WMT6]

A spokesman for the bank, Kazutaka Ogata, said subprime-related investments and other products likely cost it around 80 billion yen ($780 million).

Much of the losses were related to complex products such as structured investment vehicles (SIV) the bank said in a statement.

An SIV bets on the spread between between short-term debt and long-term products such as asset-backed securities.

Sumitomo Trust said it was also hurt by poor performance by its domestic stock portfolio, which it had written down by 15 billion yen.

Japan's benchmark TOPIX index has fallen about 25 percent during the past year on concern about the credit crisis.

Spokesman Ogata said Sumitomo Trust was being aggressive in writing down the value of subprime-related investments. "We aimed to erase concern about the impact on our earnings," he said.

Investments related to troubled U.S. housing loans have cost global financial institutions as much as $215 billion as of December, but less than 7 percent of that has come from Asia, Japan's regulatory Financial Services Agency estimates.

The FSA estimates Japan's subprime-related exposure at about 1.5 trillion yen ($14.7 billion), less than half of what UBS has so far written down.

Shares of Sumitomo Trust finished little changed on Friday before the announcement.

($1=102.40 Yen)

(Editing by Rodney Joyce)