Questions and reassurances in the wake of March 11 quake, tsunami
TOKYO (MarketWatch) — Shares of Japan’s three megabanks were winners on the final trading day of the country’s fiscal year Thursday, briefly reviving from their selloff linked to this month’s multiple disasters that are likely to bring many changes for that sector.
Japan’s new fiscal year begins on Friday. In normal years, the end of the fiscal year often means a flurry of share buying, as Japanese funds window-dress their balance sheets. But 2011’s fiscal-year end was marred by extraordinary events, as the 9.0-magnitude earthquake and tsunami on March 11 triggered a still-ongoing nuclear emergency.
Bank shares plunged in the weeks following the disaster, as investors fretted about lenders’ exposure to Tokyo Electric Power Co. (JP:9501 466.00, 0.00, 0.00%) (TKECY 7.00, -1.50, -17.65%) , operator of the critically damaged Fukushima Daiichi nuclear-power plant that workers are still struggling to cool, and limit the spread of radiation.
Known as Tepco, the company could be facing compensation claims potentially reaching 10 trillion yen ($130 billion) in a worst-case scenario, according to an estimate by the Bank of America Merrill Lynch.
“Shareholders are very likely to be held liable, through capital reductions of a certain amount,” research analyst Yusuke Ueda wrote in the report. “But given the principle of maintaining stable supplies of electric power, a scheme involving a default on the company’s bonds is very unlikely to be adopted.” See report on estimate of claims against Japan’s Tepco.
And even in a worst-case scenario, analysts said, if Tepco were to default on its loans, Japan’s banking sector likely wouldn’t come crashing down.
“While we do not expect the banks to suffer losses on loans to Tepco, we estimate that a worst-case scenario of 100% losses on Tepco loans could trigger top-up capital issues but would not leave even the most exposed banks insolvent,” said Alastair Macdonald and Ismael Pili, analysts at Macquarie Capital Securities, in a report Tuesday.
Tepco said it’s already secured ¥2 trillion in emergency loans, but Chairman Tsunehisa Katsumata said at a press conference Wednesday that these won’t cover all of its expected costs. Tepco would discuss with the government how to address funding needs, he said.
“While banking confidentiality prevents disclosure of loans to specific borrowers, we estimate that total loan exposures for individual megabanks to Tepco following the expected new loan package could range between 1%-2% of total loans and 8%-25% of shareholders’ funds,” the Macquarie Capital Securities analysts said.
Shares of the three Japanese megabanks ended higher with the broader market Thursday: Mitsubishi UFJ Financial Group Inc. (JP:8306 384.00, +10.00, +2.67%) (MTU 4.54, -0.07, -1.52%) was up 2.7%, Mizuho Financial Group Inc. (JP:8411 138.00, +1.00, +0.73%) (MFG 3.37, -0.04, -1.17%) was up 0.7% and Sumitomo Mitsui Financial Group Inc. (JP:8316 2,586, +10.00, +0.39%) (SMFG 6.29, -0.02, -0.32%) was up 0.4%. See more on trading in Asia including Tokyo shares.
But Thursday’s gains only took the edge off recent sharp losses. Mitsubishi UFJ was still down 12.5% for the calendar year to date, and 15.2% in March. Sumitomo Mitsui lost 10.6% year to date, and 16.2% for March. Mizuho was down 9.8% year to day, and 17.9% in March.
Tepco’s shares ended flat after volatile trading in which they rose nearly 5% at one point. The company’s shares have lost three-quarters of their value in the trading days since the earthquake, down 78% in March.
Late Thursday, several hours after the market closed, Moody’s Japan K.K. cut Tepco’s debt ratings and kept them on review for possible further downgrades. Read more on Moody's downgrade of Tepco.
The Nikkei Stock Average (JP:NI225 9,755, +46.31, +0.48%) ended up 0.5%, and the broader Topix index added 0.4%. The Nikkei was down 4.6% year to date, after losing 8.2% in March. The Topix was down 8.6% in March, leaving it down 3.3% year to date.
Around the region, Hong Kong’s Hang Seng Index (HK:HANGSENG 23,528, +76.09, +0.32%) and Australia’s S&P/ASX 200 (AU:XJO 4,838, +15.73, +0.33%) both closed 0.3% higher, and South Korea’s Kospi (XX:$SEU 2,107, +15.32, +0.73%) gained 0.7%.
