Recent media reports of underperformance in Japan's banking and financial sector show that the effects of the U.S. subprime-mortgage crisis reach far and wide. They also show that tighter local regulations not only deter foreign investment but thwart domestic consumer-credit and lending.
In a first, the Financial Services Agency (FSA) surveyed 576 of the nation's financial institutions to assess the impact of the U.S. subprime mortgage crises. It determined that in the first half of fiscal 2007 institutions lost a combined 230 billion yen in investments related to U.S. home loans (about 17 percent of combined securitized holdings), reports Associated Press. Japan's top six banking groups have taken the brunt, racking up a combined 300 billion yen in investments involving assets based on loans in that market.
Earnings reports from the six groups show combined net profits plummeted 45 percent from the same period last year to 947.8 billion yen. Four of the six groups' combined losses due to U.S. housing loans are expected to reach 303 billion yen by the end of this fiscal year in March. Mizuho Financial Group Inc. forecasts the biggest loss at 170 billion yen, reports The Asahi Shimbun.
The six groups' combined operating profits rose 2.5 percent to 1.6 trillion yen (up 25.4 percent to 390.9 billion yen for Sumitomo Mitsui Financial Group), while net profits for the full year are forecast to fall by only 21 percent to 2.2 trillion yen. While the FSA downplays the possibility that U.S. housing-loan woes will seriously impact Japan's financial institutions, the general consensus is that global market reactions could lead to additional losses.
Resona Holdings Inc., for example, reports no subprime loan-related losses, yet it posted 10.1 billion yen in losses as a result of stock sales hurt by market fluctuations due to the crisis. Meanwhile, efforts to roll back deregulation championed by former Prime Minister Junichiro Koizumi seem to further exasperate the earning power of Japan's financial institutions.
Renewed bureaucratic regulating of mutual funds and consumer financing is also taking its toll on the industry. New rigorous disclosure rules requiring more paperwork for mutual-fund sales has halved the number of transactions and cut average sales by more than 1 trillion yen in October compared to the previous 12-month period, according to Bloomberg. While it notes that new interest-rate limits for finance companies - now 20 percent, the same as for banks - has disinclined both types of lenders to serve high-risk business borrowers, causing the number of small-business bankruptcies to more than double in recent months.
Newly tightened regulations are also being blamed for the lackluster performances of consumer-credit companies. Earnings at Mitsubishi UFJ Nicos Co., the consumer credit arm of Japan's largest bank group, Mitsubishi UFJ Financial Group Inc., fell by 60 billion yen, while Sumitomo Mitsui Financial Group Inc. reports a 44-billion-yen appraisal loss on its holding of shares in OMC Card Inc, says Asahi Shimbun.