Stock portfolios haunt Japan`s banks

Japan's megabanks have posted steep falls in first-half profits, as losses on their vast stock portfolios offset gains from trading bonds.

Figures released on Wednesday by Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group showed that combined net income fell almost 40 per cent between April and September from a year earlier, as the banks wrote down stakes in floundering companies such as Sharp, Sony and Panasonic. More News From Financial Times
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Teeing up a new investment The falls are likely to increase regulatory pressure for big banks to keep whittling down their stock portfolios, which still account for about 2 per cent of total assets, on Bank of Japan data. Combined impairment charges for the trio were 535 billion yen (USD 6.7 billion), the biggest six-monthly toll since the aftermath of the Lehman crisis. Japan's tradition of cross-holdings was once seen as a source of strength, binding banks and their clients in mutually-supportive relationships. But in the years after the bursting of the stock bubble in 1989, steep falls in companies' stock prices proved to be a drain on capital. Banks have trimmed their holdings under the guidance of the regulator, which passed a law in 2001 capping financial institutions' equity holdings at 100 per cent of tier-one capital, while strongly encouraging banks to go lower. But progress has stalled since the middle of the decade, as banks have been reluctant to crystallise losses by selling into a stock market that has fallen in four of the past five calendar years, and is up just over 1 per cent so far in 2012. At SMFG, for example, the stock portfolio stood at an acquisition cost of 1.82 trillion yen at the end of the year to March 2012, little changed from the 1.84 trillion yen  the bank disclosed in March 2006. Last month, the bank reiterated a pledge to cut its stock holdings to 25 per cent of tier-one capital, from 29 per cent. But in the last fiscal year to March, as stocks mostly sunk amid fears over the eurozone, SMFG offloaded just 19 billion yen. Mizuho was the worst hit of the big three banks during the past six months, recording stock losses of 228 billion yen, almost four times as much as a year earlier. Yasuhiro Sato, the bank's chief executive, told reporters that he had set up a team to discuss paring the bank's portfolio. That may be welcomed by the Bank of Japan, which warned last month of the "great influence" on banks' profits of unrealised losses on stockholdings in its latest report on the stability of the country's financial system.