14 February 2008

Subprime losses steadily eroding profits of Japan's financial firms

Subprime loan-related losses more than doubled to ¥600 billion at banks operating in Japan in the three months through December, the Financial Services Agency said Wednesday. The figure at the end of September was ¥276 billion.

An FSA survey revealed that the U.S. subprime loan crisis is steadily eroding the profits of Japan's financial firms despite optimism that their exposure is relatively limited compared with U.S. and European financial giants.

"The figures show that their financial results were affected by the turbulence on the financial market" between October and December, said an FSA official who briefed reporters. "Still, the amount of capital the financial organizations have shows they can deal with the losses."

As of the end of last March, Japanese banks booked a total of ¥49.4 trillion in capital.

According to the FSA survey, realized losses from the subprime loan-related products in 684 deposit-handling financial institutions in Japan ballooned to ¥442 billion in the nine months to December, compared with ¥141 billion in losses in the April-September period.

Of the ¥442 billion, losses worth ¥399 billion were booked by 38 major banks and banking groups in Japan — up from ¥122 billion as of September.

Unrealized losses from products linked to subprime loans increased by ¥23 billion to ¥158 billion at the 684 financial institutions, including 38 major banks, 110 regional banks and 536 credit banks and credit unions, based on their April-December financial results.

Their total unrealized profits from stockholdings plunged to ¥10.1 trillion as of December, down by ¥2.5 trillion from the end of September, the FSA survey showed.

The figure showed that falling stock prices in the past several months due to growing concerns over the outlook for the U.S. economy are also severely undercutting the financial health of Japanese banks.

© Graham Bishop