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Japan’s MUFG to boost subprime write-downs sixfold

TOKYO - Mitsubishi UFJ Financial Group Inc, Japan’s largest bank, said it would write down the value of subprime-related investments by as much as 30 billion yen ($260 million) -- six times more than previously announced.

That write-down, combined with losses at credit card unit Mitsubishi UFJ Nicos Co Ltd, would likely cause the bank to fall 25 percent short of its full-year profit forecast of 800 billion yen, Japan’s Mainichi Shimbun newspaper said on Sunday.

Appraisal losses related to the subprime mortgage market had likely ballooned to 20 billion to 30 billion yen by the end of September, up from the 5 billion yen announced in August, said a bank official, who declined to be identified.

However the official said the bank had made no decision about lowering its full-year forecast.

The market shrugged off the news, and shares in the bank rose nearly 5 percent amid a rally in financial stocks.

Even with concerns about the subprime market, many investors were likely betting that bank shares had been oversold, said Soichiro Monji, chief strategist at Daiwa SB Investments, an asset management firm.

‘Bank stocks have been hit hard and a lot of this is factored in,’ Monji said.

Tokyo’s index of bank stocks IBNKS.has fallen about 20 percent over the last four months.

‘Even a slight increase in subprime losses from here is probably factored in,’ Daiwa SB’s Monji said.

Subprime, Sumitomo trust

MUFG is one of several Tokyo financial institutions to announce greater-than-expected losses from subprime investments in the last week.

Sumitomo Trust and Banking Co Ltd said on Monday it will likely fall short of its full-year forecast by a quarter and lowered its yearly dividend, in part because the subprime-related turmoil forced it to book a net loss on sales of overseas corporate loans.

Sumitomo Trust, Japan’s fifth-largest bank, now expects a group net profit of 90 billion yen for the year to March, down from its previous forecast of 120 billion yen. It lowered its full-year dividend by 1 yen to 17 yen.

MUFG’s exposure to subprime-related investments was 280 billion yen as of July, according to figures previously made available by the bank.

That compares with the 95 billion yen held by Sumitomo Mitsui Financial Group Inc, Japan’s third-largest bank, by the end of September.

Mizuho Financial Group Inc, Japan’s second-largest bank, said this summer it had sold off almost all of its subprime-related investments.

However, it later said that did not include holdings of its unlisted securities arm, which booked a first-half loss on Friday due to subprime-related losses.

Downward revision?

MUFG, which has forecast a group net profit of 800 billion yen for the year to March, will likely lower its estimate to around 600 billion yen due to the write-down and losses at Mitsubishi UFJ Nicos, the Mainichi newspaper said.

The bank said in May it expected its first-half group net profit to total 350 billion yen, but the Mainichi said it may post about 100 billion yen less than that, which would be more than a quarter below its target.

Mitsubishi UFJ Nicos, which is about two-thirds owned by the bank, said last month it expected a group net loss of 112 billion yen for the year to March, due to restructuring costs and increased reserves for interest repayments.

Mitsubishi UFJ Nicos, like other Japanese consumer lenders, has been hit hard by tougher moneylending laws and court rulings that have forced lenders to repay some of their interest charges to customers.

Shares of MUFG climbed 4.7 percent to finish at 1,091 yen, compared with a 5.5 percent gain in the Tokyo bank stock index.