Norinchukin, the Japanese bank owned by more than 4,000 agricultural and other co-operatives, is looking to raise up to Y1,000bn ($10.4bn) in fresh capital following a sharp drop in the value of its securities holdings.
The bank, known as Nochu, is looking to issue preference securities, but it said it was still in discussions with its members on how much it might be able to raise from them. The plan follows fundraisings by other Japanese banks trying to raise their capital buffers amid the ongoing global financial turmoil.
Nochu, Japan’s fourth largest bank by assets, was set up to provide financing to domestic agricultural, forestry and fisheries co-operatives. It has transformed itself into one of Japan’s biggest institutional investors.
The bank, which also has a reputation as Japan’s largest hedge fund, had an exposure to securitised products of Y6,823bn and made a loss of Y81bn on its investments in securitised products in the first half of the year to September.
Earlier this month Nochu lowered its full-year profit forecast from Y350bn to Y100bn. However, as late as this August, Nochu, which had total assets of Y61,085bn at the end of March, said it was planning to invest Y6,000bn more in securitised products, including asset-backed securities and collateralised debt obligations, over the next year or two.
The bank said on Wednesday it was reconsidering its investment policy and reviewing earlier plans to increase the ratio of investments in securitised products.
Nochu, whose depositors are also its main customers, began to face a decline in loan demand from the farming community in the 1960s and 1970s, when rapid industrialisation changed the structure of the country’s economy. It first turned to corporate lending, but soon ventured into the more profitable business of investing in overseas assets.
The fallout from its aggressive overseas investment strategy has attracted the attention of opposition politicians. In recent Diet testimony, the bank was taken to task by Japan’s Democratic party for its continued focus on securitised products, in spite of their huge fall in value and the turmoil they have created in global markets.
Sumitomo Trust, another Japanese lender, said on Wednesday it was also looking to raise capital by issuing preferred securities, although it is expected to raise a much smaller sum than Nochu.
Japan’s largest lender, Mitsubishi UFJ Financial Group, which spent $9bn on a 21 per cent stake in Morgan Stanley this year, is in the middle of raising about Y500bn through an issue of common shares, having already completed a Y390bn preference share issue.
At the same time as the fundraisings, Japan’s government is seeking to pass legislation to let it inject public funds into financial institutions.