Japan Megabanks Hit by Subprime Losses Thursday January 31, 6:55 am ET By Chisaki Watanabe, Associated Press Writer
Japanese Megabanks Mitsubishi UFJ, Mizuho Say Profits Fell on US Subprime Losses
TOKYO (AP) -- Profits fell at Japanese megabanks Mitsubishi UFJ Financial Group and Mizuho Financial Group in the nine months through December because of exposure to the U.S. subprime mortgage crisis. With mortgage-related losses double its estimate in November, Mizuho said Thursday it was lowering its earnings projection for the fiscal year ending March 31.
Mitsubishi UFJ, Japan's largest banking group by assets, posted a net profit of 315 billion yen ($2.95 billion) in the nine months ended Dec. 31, down 54.4 percent from 691 billion yen in the same period a year earlier.
The company said it incurred losses of 55 billion yen ($515.17 million) from exposure to subprime loans and structured investment vehicles that sell short-term investments based on assets, such as property.
Its sales rose 10.4 percent to 4.76 trillion yen ($44.58 billion), compared with 4.31 trillion yen a year earlier for the April-December period. It did not break down quarterly figures.
MUFG left unchanged its earnings outlook for the full year, with its group net profit forecast at 600 billion yen ($5.62 billion).
Meanwhile, Mizuho Financial Group Inc. said its net profit fell 32.2 percent on year in the nine months through Dec. 31 as its securities unit suffered a huge decline from mortgage exposure.
Mizuho, Japan's No. 2 bank by market capitalization, said its net income tumbled to 393 billion yen ($3.68 billion) for the April-December period, down from 580 billion yen in the same period last year.
Sales for the period rose 19.8 percent to 3.43 trillion yen ($32.12 billion), the bank said. It did not issue separate figures for the most recent quarter.
Mizuho Financial Group suffered a loss of 345 billion yen ($3.23 billion) from the U.S. mortgage loan crisis for the nine months through December, two-thirds of that at its brokerage unit, Mizuho Securities. That was double the 170 billion yen loss Mizuho had estimated in November for the nine-month period.
It now estimates profits for the full year through March 31 at 630 billion yen ($5.90 billion), down from an earlier estimate of 830 billion yen ($7.77 billion) in profit.
Mizuho shares rose 0.6 percent to 498,000 yen, while MUFG shares rose 0.4 percent to 1,033 yen on the Tokyo Stock Exchange.
The companies announced financial results after the market closed.
Mounting concerns over write-downs at European banks By Mark Landler and Julia Werdigier
Wednesday, January 30, 2008
FRANKFURT: When UBS of Switzerland disclosed in October that it had written down $3.6 billion in the value of its mortgage-backed securities, it was praised by several analysts for biting the bullet.
Then, in December, it said it would write down $10 billion more, rattling those who follow the Swiss bank, but earning the grudging respect of some for trying to get a handle on the subprime fiasco.
On Wednesday, UBS warned it would mark down yet another $4 billion worth of securities, leading to the bank's first annual loss since it was formed in a merger in 1998. Now, all bets are off.
"This is shocking stuff," said Aye Idehen, a fund manager at Kleinwort Benson, a unit of Allianz in London, who holds UBS stock in his portfolio. "The worrying thing is there seems to be no end to this."
UBS is by far the most badly damaged of the big European banks by the credit crisis. But its disclosures are symptomatic of how this drama has unfolded in Europe: a steady drip of bad news, stoking fears of more to come and raising doubts about risk management - even apart from spectacular cases, like the trading disaster at Société Générale.
"This is going to be the pattern for European banks," said Simon Adamson, a banking analyst at CreditSights, a research firm in London. "They're going to keep reporting write-downs."
Adamson said he once hoped that the earnings season now under way in Europe would allow banks to draw a line under the subprime mess. But with the United States teetering on a recession and with the European economy slowing, he worries that the problems are mutating and spreading to less risky home mortgages, and even car loans and credit card debt.
"The trends are negative there, too," Adamson said. "European banks have exposure to these things that they don't even know about. We may have to go through another period of discovery."
UBS's four-paragraph statement was troubling in that regard. Of the $4 billion in additional write-downs, the bank said $2 billion was directly related to the subprime market, and $2 billion stemmed from other parts of the U.S. residential mortgage market. The bank did not give any details in advance of its 2007 results, which it will report on Feb. 14.
Kian Abouhossein, an analyst at JPMorgan, said he believed the write-downs were related to better-quality mortgages, issued to borrowers with a decent credit history, as well as to commercial-backed securities and exposure to bond insurance companies, known as monoline insurers.
The International Monetary Fund has warned about the spread of losses to better-quality mortgages. In an update of its Global Financial Stability Report, issued Tuesday, the IMF said the tumult in markets had reached a point where credit concerns now extended beyond the subprime sector.
Société Générale, which reported €2 billion, or $2.96 billion, of credit-related losses last week - in addition to its losses from unauthorized trading - said those losses were only partly linked to the mortgage market. Some €550 million came from exposure to American bond insurers.
BNP Paribas, Société Générale's larger French rival, said Wednesday that its fourth-quarter net income fell 42 percent to roughly €1 billion as a result of costs linked to the global credit crisis.
Deutsche Bank, which had $3.1 billion in write-downs last fall, will report its full-year results Feb. 7. Investors are eagerly awaiting those numbers, since its chief executive, Josef Ackermann, has called on banks to be more forthright. Analysts said they would not be surprised by additional charges, though Deutsche Bank seems to have escaped the brunt of the storm.
Privately, senior German bankers have also expressed fears that the subprime problem will spread to other forms of credit. State banks like WestLB have suffered heavy losses and remain fragile.
All told, European banks have absorbed at least $36 billion in write-downs and charges related to the credit crisis. That is less than the damage suffered by the two most affected U.S. banks, Merrill Lynch and Citigroup. But the UBS write-downs alone are almost as large as those of Citigroup.
In its statement, UBS warned it would lose $11.4 billion in the fourth quarter, more than Citigroup, and almost twice what analysts had expected. The bank's shares fell 2.1 percent in Zurich on Wednesday.
UBS, a bank once known for its conservative lending and investment policies, said in December that it had $29 billion of exposure to subprime assets. The latest losses are likely to renew concerns about the bank's risk-management policies. Switzerland's banking regulator has already said it plans to investigate how UBS managed to accumulate such losses.
"A lot of people in the market thought UBS drew a line under its exposure in December," said Christian Wiss, a banking expert at Fox-Pitt Kelton Cochran Caronia Waller in London. "Now they've come up with more losses. This is a completely new round of write-downs."
In a note to clients, analysts at Keefe, Bruyette & Woods said the new write-downs could weigh on the bank's reputation and harm the morale of employees, as well as relationships with clients in other businesses, like wealth management.
UBS, which ousted its chief executive in July, has warned that 2008 would be tough. To replenish its capital base, the bank agreed to sell a more than 10 percent stake to the Government of Singapore Investment Corp. and an unidentified investor in the Middle East.
It also plans to pay its dividend in stock instead of cash and to raise further capital through a resale of treasury shares.
The bank said its Tier 1 capital ratio, a measure of its financial stability and the strength of its balance sheet, was 8.8 percent as of Dec. 31. While that was above the minimum required by regulators, analysts said that its capital base remained vulnerable to further erosion due to potential additional write-downs and exposure extending beyond subprime assets.
"UBS is, by a long way, the most exposed to these things in Europe," Adamson of CreditSights said. "If they come out with further write-downs, are other parts of their franchise going to be damaged?"
Julia Werdigier reported from London.
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at http://www.iht.com/articles/2008/01/30/business/ubs.php
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