TOKYO: Japan's two-largest banks, Mitsubishi UFJ Financial Group and Mizuho Financial Group, cut their earnings outlooks by more than half yesterday, hit by growing bad-loan costs and a plunging local stock market.
Once thought to be relatively insulated from the global credit crisis, Japanese lenders are now facing a sharp downturn in profits, hurt by a brittle domestic economy and overexposure to a stock market that has lost near half its value this year.
Resona Holdings, Japan's fourth-largest bank, also cut its outlook, citing ballooning bad loan costs.
Analysts believe that Mizuho and some of its smaller rivals may need to follow industry leader Mitsubishi UFJ and raise new capital to safeguard against the global financial meltdown.
Mitsubishi UFJ said this week it would raise up to $10.6 billion to replenish a capital base depleted by the stock market's fall and a $9bn investment in Morgan Stanley.
Mitsubishi UFJ, which has spent about $14bn this year on acquisitions at home and in the US, cut its forecast by two-thirds. It now expects a group net profit of 220bn yen ($2.23bn) in the year to the end of March, compared to its previous forecast of 640bn yen.
Bad loan costs rose to 245bn yen in the six months to the end of September, while stock-related losses reached 75bn yen.
Traditionally Japanese lenders hold large stakes in their corporate clients as a means to cement their business relationship.
The value of those stocks - estimated at $250bn at end-March - has been shredded by the Nikkei share average's drop to a 26-year low this year.
Analysts have been particularly concerned about surging bankruptcies in Japan, which force lenders to increase their bad-loan costs, including provisions.
Mizuho, Japan's second-largest bank, said it now expects its group net profit to total 250bn yen ($2.5bn) in the year ending in March, down 55 per cent from its previous forecast of 560bn yen.
Japan's second-largest bank said it wrote down the value of its marketable securities by $1.4bn in the six months to September 30.
Mizuho also said it was hit with 130bn yen of bad-loan costs in the six months to end-September, due in part to the recent bankruptcy of US investment bank Lehman Brothers.
Mizuho has been unable to break a dismal cold streak. The bank racked up 645bn yen ($6.6bn) in subprime-mortgage-related losses in the last fiscal year, having been one of the few Asian firms to take big bets on the risky US credit products, whose collapse fueled a global credit crisis.
Resona, Japan's fourth-largest bank, cut its group net profit by 36pc to 160bn yen.
The bank expects bad loan costs to balloon to 152bn yen in the year to end-March, more than double its initial forecast of 60bn yen.
