MUFG warns of $3.2bn share trading loss

Mitsubishi UFJ Financial Group said on Thursday that it would book a Y288bn ($3.2bn) loss on its share portfolio in the third ­quarter ending December.

The move brings the total loss that Japan’s largest banking group has suffered this fiscal year from the relentless fall in Japanese share prices to Y428bn.

The size of the writedown, which comes as the broad-based Topix index has fallen 34 per cent since last April, could force Japan’s largest banking group to revise down its full-year forecast for a second time.

“It’s big,” said Hironori Nozaki, banking analyst at Nikko Citigroup in Tokyo. “I don’t think it will necessarily lead to a [full-year net] loss, but it all depends on where the market closes at the end of March,” he said.

In October, MUFG said net profits would be 66 per cent lower than previously forecast, at Y220bn, on lower ordinary income of Y5,900bn. It blamed impairment losses on stocks as well as lower fee and trading income and higher credit costs.

MUFG said it was still assessing the impact of the latest writedown on its full-year results.

Japanese banks also face a possible deterioration in their capital ratios because of the sharp fall in share prices. MUFG had a tier one capital ratio of 7.63 per cent at the end of last September.

However, the company expected to be able to maintain its tier one capital ratio at 7.7 per cent because of its successful fundraising, Mr Nozaki said.

The bank has raised about Y800bn through a third party allotment of preferred shares and a public issue of common shares to boost its capital base, following its $9bn investment in Morgan Stanley last year.

The stock valuation losses also come after the government last month earmarked Y20,000bn of public funds to acquire stocks held by banks.

The measure is aimed at easing the impact of stock price falls on the banks’ capital and thereby encouraging them to extend credit amid Japan’s worsening economic slowdown.

Bank lending accelerated last month, rising 4.1 per cent year-on-year, following a 3.6 per cent rise in November.

However, the rise was accompanied by a 15 per cent decline in bank underwriting of commercial paper, which companies use for short-term borrowing.

Critics charge that banks should be required to lower their stock holdings further. The stock holdings of the top eight banks had dropped from a total of Y30,000bn six years ago to Y10,000bn, said Mr Nozaki.

But it is “obvious” banks should reduce their stock holdings further. Such holdings still represented more than 50 per cent of their capital and therefore increased volatility, which in turn affected lending, he said.

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