Japan banks, insurers look at losses

Falling stocks in Tokyo, where the Nikkei has stabilized after falling 682 points on Wednesday, mean banks and insurers are holding losses on their books

By CNN's Alex Frew McMillan

TOKYO, Japan (CNN) -- Japanese banks and insurers face the prospect of unrealized stock losses flowing from weak stock markets.

The huge damages bill stemming from the terrorist attacks in the U.S. and a likely loss of consumer confidence will put further pressure on stock prices.

Six of Japan's 10-largest life insurers now have unrealized stock losses, according to a report in the Nihon Keizai Shimbun.

The decline in Tokyo stocks also means some of Japan's largest banks will likely post net losses for the first half of this business year.

The rapid decline of the Tokyo stock market in recent months has decimated the stock holdings of Japan's big banks and life insurers.

As of last business year, only two life insurers had latent stock losses, the Nihon Keizai Shimbun said.

Ten times the level of losses in March

Now a majority of the top 10 do. At Japan's 15 largest banks, unrealized stock losses total around $42 billion (5 trillion yen), according to the Nikkei. That's 10 times the level of losses they had in March.

Offset with unrealized gains on other holdings, the 15 big banks are thought to have net losses of more than 4 trillion yen.

If stocks continue to drop, life insurers may have problems with solvency and be forced to cancel policies.

Banks will also likely post losses for the first half of the fiscal year, which runs through September. They have to start realizing losses under new accounting rules.

Financial sector workers say they fear insurers and banks around the world will face large losses and possible collapse after the terrorist attacks in the United States.

Tokyo stabilizes Thursday after 6.6% drop

Japan's market has taken heavy losses, as investors sold off risky products like stocks.

Tokyo's key Nikkei index broke through the 10,000 barrier on Wednesday, falling 6.6 percent.

It dipped below 9,500 on Thursday, then stabilized. It was trading with a 0.12 percent gain at noon Thursday, over Wednesday's close, at 9,621.60.

Still, the decline in stock prices has pushed Dai-Ichi Mutual Life Insurance Co., Sumitomo Life Insurance Co., Fukoku Mutual Life Insurance Co. and Yasuda Mutual Life Insurance Co. to the point where they now have stock losses on their books.

Asahi Mutual Life Insurance Co. and Mitsui Mutual Life Insurance Co. were already faced with unrealized losses before the attacks in the United States.

Of Japan's 10 big life insurers, that leaves only Nippon Life Insurance Co. and Taiyo Mutual Life Insurance Co. with investment gains. Meiji Life Insurance Co. and Daido Life Insurance Co. are at break-even.

Life insurers have used unrealized gains on their large stock holdings to offset the difference between their holdings and the yields they promise to pay policyholders.

The declining market is making that impossible to do anymore. That means they might have to call in policies.

Life insurers have sold some stocks with losses to shore up paper gains. But stocks are declining faster than their gains can withstand.

Banks have used stock gains to offset operational losses and to meet their dividend payments. Investors worry they will drive stock prices further south as the new accounting rules force them to sell stock.