May 13, 2011 / 12:31 PM / 9 years ago

WRAPUP 3-Japan banks post Q4 losses, shares fall on Tepco plan

* Mizuho posts 8.8 bln yen qtrly loss, SMFG 39 bln yen loss

* Mizuho sees full-yr net profit 460 bln yen vs 379 bln SmartEstimate

* SMFG sees full-yr net 400 bln yen vs 397 bln SmartEstimate

* Banks say can’t estimate strength of quake-led loan demand

* Shares drop on worries over Tepco loans (Adds details on bank exposure to Tepco, Mizuho exec comment)

By Taiga Uranaka

TOKYO, March 13 (Reuters) - Mizuho Financial Group and Sumitomo Mitsui Financial Group expect core lending activities to remain sluggish this year, with little clarity so far about the strength of demand for loans related to earthquake reconstruction efforts.

Shares of Japan’s top banks fell on Friday after comments from the government’s top spokesman appeared to indicate banks may be asked to forgive some loans to Tokyo Electric Power , the operator of a crippled nuclear plant.

While the direct impact of the March 11 earthquake and tsunami has been relatively limited on the lenders, the ensuing stock market plunge, led by Tokyo Electric shares, dealt a blow to them.

Both Mizuho and SMFG fell into the red in the final quarter of the year just ended, hurt by losses on their holdings in Tokyo Electric and other stocks.

Mizuho Financial Group, Japan’s second-largest bank by assets, posted a loss of 8.8 billion yen ($108 million) for the three months ended in March versus a profit of 113 billion yen a year ago.

SMFG, Japan’s third-largest by assets, said its fourth-quarter net loss was 39 billion yen compared with a profit of 24 billion a year earlier.

“The stock market slumped and interest rates became unstable so the banks were hit by the market. They also suffered poor performance at their units, Mizuho at its securities unit and SMFG at its consumer finance unit,” said Chikako Horiuchi, analyst at Fitch Ratings in Tokyo.

TEPID OUTLOOK

For the year through March 2012, SMFG forecast a net profit of 400 billion yen ($4.9 billion), down 15.9 percent from the previous year and slightly above Thomson Reuters Starmine’s SmartEstimate of 396.7 billion yen.

The lender said the fall is mostly due to the absence of hefty bond gains that boosted SMFG and its bigger rivals in the previous financial year.

“We expect a certain degree of reconstruction-related loan demand, but we cannot tell how much it will be at this moment,” SMFG President Koichi Miyata told an earnings briefing.

“Excluding this, we don’t see a pickup in loan demand and we have to expect a flat growth in profits from corporate banking,” he said.

Mizuho forecast net profit of 460 billion yen this year, up 11 percent from the previous financial year and above Thomson Reuters Starmine’s SmartEstimate of 378.5 billion yen.

But the bank said the profit rise would be mostly due to the improvement of its Mizuho Securities unit and said its core commercial lending activities is expected to remain under pressure this year.

Central bank data showed on Thursday that Japanese bank lending fell 0.9 percent in April from a year earlier, extending its decline for a 17th consecutive month. [ID:nLJE7EU02M]

Weak commercial banking growth prospects at home are likely to put further pressure on the banks and hasten expansion of their overseas operations, which are not yet big enough to boost their profits.

SMFG said it aims to raise overseas earnings against total client businesses to about 30 percent over three years from 23 percent now by expanding its commercial banking business in Asia.

POTENTIAL BURDEN ON BANKS

Japanese bank shares fell after the top government spokesman, discussing a financial assistance plan for Tokyo Electric Power, said a distinction should be made between loans made before the March 11 earthquake and tsunami and those extended after the disaster. [ID:nL3E7GD0D0] [ID:nL3E7GD00W]

“Loans extended to Tokyo Electric after the accident are different, and this must be known well among the Japanese people,” Chief Cabinet Secretary Yukio Edano said, responding to a question of the possibility of banks forgiving loans.

“As for loans made before March 11, this is still a matter between private companies and I want to watch what I say. But, like you said, I don’t think it (banks not forgiving any loans made before March 11) would win the people’s understanding.”

The market interpreted his comments as an indication banks may be asked to forgive some loans. Shares of SMFG, the utility’s main creditor bank, dropped 3.8 percent, while Mizuho’s stock dropped 3 percent.

The core banking unit of SMFG and other lenders provided Tokyo Electric with 1.9 trillion yen in emergency loans in the immediate aftermath of the disasters.

The banks don’t disclose their loan balances to individual clients, but sources with knowledge of the matter say SMFG had a little less than 400 billion yen in loans to Tokyo Electric before the earthquake, while Mizuho and MUFG had a little under 200 billion yen each.

“We have not started any consideration yet because the scheme has not been finalized. Therefore, at this moment, we don’t have any plan, including debt-waiver, in mind,” Mizuho President Takashi Tsukamoto told a briefing in response to a question about the possibility of forgiving loans. (Additional reporting by Junko Fujita; Writing by Matthew Driskill; Editing by Muralikumar Anantharaman and Nathan Layne)

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