TOKYO 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
"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.
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
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
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 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
Mizuho's shares have fallen about 50 percent over the last
12 months, pushing the bank's value below that of smaller rival
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.
(Editing by Rodney Joyce)