Cover Story-r1:AMM grid in qxp 12/24/09 9:35 AM Page 34
COVERSTORY
JAPAN’SCAPITALCONCERNS
In September the leaders of the G20 group of by Japan’s laggard banks. Barclays Capital domestic equity portfolio. Sumitomo Trust
nations committed their governments to had estimated that MUFG only needed to sold ¥8 billion.
“developing by end-2010 international raise another ¥400 billion to ¥500 billion. According to Fitch Ratings, Mizuho
agreed rules to improve both the quantity and The market attention is particularly reduced its equity holdings from a book value
quality of bank capital and to discourage focusing on Mizuho, given that it is in the of ¥2.8 trillion at the end of March,
excessive leverage”. most need of funds. Naoko Nemoto, representing 74% of Tier 1 capital, to ¥2.8
One consequence of that commitment was managing director for Japanese financial trillion, 52% of Tier 1 capital, by the end of
to highlight just how poorly the major institutions at S&P, is cool about the bank’s September.
Japanese banks are capitalised relative to the appeal, but notes that it might yet succeed In comparison SMFG’s portfolio, valued at
majority of their international peers. due to its established relationships. ¥2 trillion, hardly changed. It accounted for
While the largest Chinese banks mostly “In the case of SMFG, they raised ¥800 only 37% of Tier 1. MUFG’s shareholdings fell
have core tier-one ratios of above 9%, Japan’s billion, and explained they would purchase from about ¥3.9 trillion (52% of tier one
major banks have among the lowest. Nikko. With brokerage firms, there is some capital) to ¥3.8 trillion (43%).
According to a recent UBS report, Mizuho FG potential. But in Mizuho’s case, they didn’t
has 4.1%, Sumitomo Mitsui has 6.3%, have any growth stories. Nevertheless, they
TOUGHTIMESAHEAD
Sumitomo Trust has 6.4% and Mitsubishi UFJ could raise the money, because in Japan,
The capital problems of Japan’s major banks
has 6.8%. many investors and insurance companies
look set to continue well into 2010. A major
Standard & Poor’s places them even have close relations with a bank.”
problem the banks will face is convincing
worse. According to its new framework for
investors to keep buying into their new issues
tracking capital adequacy the banks all lie at
THEPITFALLSOFEQUITYPORTFOLIOS of equity.
among the bottom quintile of 45 large
A major reason why Japan’s megabanks score “Nobody wants these new issues, so it is all
international banks.
so poorly in league tables of capital is their arm-twisting,” says Ed Merner, president of
The ratings agency said that the global
reliance on large equity portfolios. These Atlantis Investment Research. “Maybe
average was 6.7%. Compared to this the most
portfolios constitute part of the banks’ cross- Mitsubishi can place theirs because they can
vulnerable, Mizuho Financial Group, had just
shareholding stakes in customers, which used twist a lot of arms, but the others will have
a 2% estimated ratio. This was below
to be essential bonding for business ties. trouble. And of course the brokers don’t want
Citigroup (2.1%) and UBS (2.4%).
A relic of the old keiretsu system, these to take the risk either. They can’t hold it. They
Fourth from the bottom was Sumitomo
cross-shareholdings became a curse last year have to dump it.”
Mitsui Financial Group (SMFG), with 3.5%.
when the stock market crashed in the wake of These capital worries compound another
Mitsubishi UFJ Financial Group (MUFG) was
an export collapse. The Nikkei 225 fell by pressing concern for Japan’s banks. Compared
sixth from the bottom, at 4.9%, only just
47% between end-July 2008 and the trough to regional peers, the country’s institutions
above Allied Irish Banks.
in March 2009. already face highly limited growth prospects.
Mitsubishi, Sumitomo Mitsui and Mizuho
“The big six banks saw the ¥16 trillion And as they are forced to retain more capital
trail their peers even after selling US$20
value of equity holdings shrink profits look set to suffer even more.
billion in common stock in the past year.
correspondingly, equivalent to 32% of their “In my own opinion, the Japanese market
Sumitomo Mitsui must wait until December
shareholders equity,” Graeme Knowd, will not perform as well as other markets in the
19 and Mizuho until January 10, before again
director of research at Morgan Stanley Japan region because of the capital deficient nature
tapping equity markets, having raised a
Securities, wrote in a report in November. of their financial system,” says Andy Brown,
combined $16 billion in the last six months.
This triggered a capital shortage, which head of financial institutions research for Asia
In November, MUFG beat them to the
“in turn restricted the ability of Japanese at UBS in Hong Kong.
trough by announcing a ¥1 trillion (US$11.1
banks to provide liquidity to the corporate “The Japanese loan market is shrinking,
billion) sale of 2.17 billion shares to
sector at a time of great need”. the fee business is not growing, and the
international and Japanese investors. The
Over the next six months, Mizuho sold overseas market is very volatile. So, personally,
scale of the offering was much larger than
¥150 billion on an acquisition cost (book I am very concerned whether MUFG and the
anticipated, sparking talk of a ‘race to the top’
value) basis, equivalent to about 5% of its other two megabanks will succeed in raising
more capital, particularly Mizuho, because its
earnings are weakest,” adds Nemoto.
ASIANBANKSWITHWEAKESTCORETIER1RATIOS
Yet there are some who believe that all the
noise is a storm in a teacup. Michael Taylor,
CoreTier CapitalNeeded %Dilutionof
Japan economist with Lombard Street
Country Rating 1Ratio (US$m) marketcap
Research in London, is one.
MizuhoFG Japan Neutral 4.1% 26,550 78%
“My understanding is that having gone
WooriFG Korea Notrated 4.7% 5,843 55%
through their problems, the Japanese banks
SumitomoMitsui Japan Buy 6.3% 9,755 25%
are reasonably well capitalised. They did not
SumitomoTrust Japan Buy 6.4% 2,438 24%
get involved in subprime and all that stuff, and
TaishinFHC Taiwan Sell 4.7% 590 24%
have not suffered massive write downs. The
MitsubishiUFJ Japan Neutral 6.8% 12,999 19%
bigger concern for the banks is the state of the
ShinhanFG Korea Notrated 5.7% 3,394 18%
Japanese economy, and the weak demand for
HuaXiaBank China Sell 6.2% 1,181 15%
borrowing,” he says.
ChuoMitsuiTrust Japan Buy 6.8% 992 15%
SOURCE: UBS AdditionalreportingbyPeterMcGill.
34 DEC2009/JAN2010 ASIAMONEY
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80