Japanese bank stocks tumble on SMFG loss warning

[April 10, 2009]  TOKYO (AP) -- Japanese financial stocks took a beating Friday on mounting capital concerns, after the country's No. 3 bank warned investors that it sank into the red in the just-ended fiscal year.

Shares of Sumitomo Mitsui Financial Group Inc, the smallest of Japan's three megabanks, faced a glut of sell orders and remained untraded for most of the day. The issue closed down 13.8 percent at 3,110 yen.

Its rivals weren't doing much better.

Mizuho Financial Group Inc. fell 9.6 percent, and Mitsubishi UFJ Financial Group Inc. retreated 1 percent despite overall market strength. The benchmark Nikkei 225 index rose 0.5 percent, extending Thursday's 3.7 jump.

Sumitomo Mitsui Financial Group, or SMFG, on Thursday unexpectedly cut its earnings guidance for last fiscal year, which ended March 31. It now expects to post a group net loss of 390 billion yen ($3.9 billion) instead of the 180 billion yen profit it had been projecting.

Major Japanese banks managed to weather the U.S. subprime mortgage crisis with far smaller losses than their Western counterparts, but they are now facing the painful impact of Japan's recession.

Cross-shareholding arrangements with domestic companies, commonly used to foster business ties, are proving toxic amid steep stock market declines. Bad loans are also mounting as more companies face bankruptcy.

To bolster its capital base, SMFG filed a shelf registration to issue up to 800 billion yen ($8 billion) in new shares.

"SMFG considers it necessary to enhance its capital base both in terms of quantity and quality in order to maintain its competitiveness notwithstanding any future changes that might occur in the global financial sector and to realize sustainable growth," the company said in a statement.

Credit Suisse responded by downgrading its rating on SMFG stock to "neutral," noting the high dilution impact of the new share issue and that it "will inevitably prove a negative incentive for the share price."

Moody's Investors Service highlighted capital woes at Mizuho Financial Group earlier this week when it cut the bank's credit ratings.

In an unusual move, Japan's central bank announced Friday that it will offer 1 trillion yen in subordinated loans to commercial banks in need of a capital boost.

The Bank of Japan said the emergency measure is aimed at major banks and some regional lenders with overseas operations. The size of the loans and interest rate for the first five years will be set by auction.

The situation at Japanese banks stands in contrast to the brightening outlook for some U.S. financial giants.

Wall Street surged Thursday to its highest level in two months after Wells Fargo & Co. said it expects first quarter earnings of $3 billion -- a figure that surpassed analysts' expectations thanks to a strong increase in its lending business.

[Associated Press; By TOMOKO A. HOSAKA]

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