Plagued again by market missteps, Mizuho Financial Group, Japan's second-largest bank, is slipping further behind bigger rival Mitsubishi UFJ Financial Group, which posted its first profit in three quarters on Friday. Analysts believe the worst may be over for most big Japanese banks, which have been helped by a turnaround in the stock market and government stimulus to limit a surge in bankruptcies.
But Mizuho, which booked its fourth straight quarterly loss on Friday, appears to be the exception. The bank lost 640 billion yen ($6.72 billion) on toxic assets during the subprime crisis, and has now been hit by bad bets on credit default swaps. "Even if a rising tide lifts all boats, the problem we have with Mizuho is that they keep drilling holes to sink themselves," said Ismael Pili, Japan bank analyst at Macquarie Securities.
Japan's banks traditionally take stakes in their corporate clients to cement business ties, making them sensitive to stock-market swings. The benchmark Nikkei index, which hit a near 26-year low in March, rose 23 percent in April-June.
Analysts say Mizuho is now in danger of being outpaced by both Mitsubishi UFJ and Sumitomo Mitsui Financial Group, Japan's third-largest bank by assets. Both Mitsubishi UFJ and Sumitomo Mitsui have cut aggressive deals in the last year, aiming to add scale at home and abroad.
Mitsubishi UFJ last year took a 21 percent stake in Morgan Stanley, while Sumitomo Mitsui bought 2 percent of Britian's Barclays Plc Sumitomo Mitsui recently acquired Citigroup's Japanese brokerage, Nikko Cordial Securities. "What's Mizuho doing? It doesn't seem to be doing much. Strategically, it's not as aggressive as the other two megabanks," said Daniel Tabbush, Asia bank analyst at brokerage CLSA.
Mizuho reported a group net loss of 4.5 billion yen ($47.22 million) for the April-June period. That comes after a loss of 588.8 billion yen in the year to March 31. The results compare with expectations for a net profit of 23.2 billion yen, the average of two analyst forecasts. Most Japanese bank analysts do not give quarterly estimates. The bank said it was hit with a 88 billion yen loss on credit default swaps and stock-related derivatives in the quarter, instruments it bought to hedge against its heavy stock exposure.
Mitsubishi UFJ - like Sumitomo Mitsui a day earlier - returned to profit for the quarter. Mitsubishi UFJ said its April-June group net profit totalled 75.9 billion yen, slightly higher than Sumitomo Mitsui's results. That compares with expectations for a net profit of 59.2 billion yen, the average of two analyst forecasts.
The bank made a net gain of 30.2 billion yen on its stock portfolio. A gradually improving economy also helped. Although still weak, Japan's economy is likely to have posted a slightly better performance last quarter than had been thought just a month ago, the latest Reuters poll of economists shows.
Japan has offered about 50 trillion yen in stimulus, including 30 trillion yen in loan guarantees, to help contain bankruptcies. As a result, the total debt from corporate bankruptcies during the April-June quarter fell nearly 13 percent from the same period a year earlier, according to research firm Tokyo Shoko Research.
Separately Resona Holdings, Japan's fourth-largest bank, posted a 33 percent profit decline. The bank is the only major Japanese lender to remain profitable in every quarter last year. Unlike its bigger rivals, Resona has little exposure to the stock market. The bank also said it would buy back preferred shares worth 271.3 billion yen and raise 103.7 billion yen through a third-party allocation of new shares.
Aozora Bank, the mid-size lender majority owned by private equity firm Cerberus Capital Management, also reported its first profit in four quarters. Aozora is due to merge with rival Shinsei Bank. Shares of Mizuho finished up 1.4 percent after its results, while Mitsubishi UFJ gained 4.4 before it announced earnings. Mitsubishi UFJ shares traded in New York climbed 4.5 percent Friday morning, while Mizuho shares traded in New York slipped 1.5 percent.
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