Japan's mega-banks eye profits

Resona was forced to seek a government bailout earlier this month. Story Tools

TOKYO, Japan -- Japan's top banks lost almost $40 billion in the past year, but see better times ahead as they tackle the cost of problem loans.

The top four banks -- Mizuho Financial Group, UFJ Holdings, Sumitomo Mitsui Financial Group and Mitsubishi Tokyo Financial Group -- expect to post combined net profits of $6 billion in the year to March 2004.

The four accounted for almost $31 billion of the losses racked up by the seven largest banking groups when they reported on Monday.

Huge losses on their share portfolios, combined with bad loan costs and the stagnant state of the Japanese economy pushed the big banks into the red for a second straight year.

Problem loans in the Japanese banking system are thought to total more than 40 trillion yen (about $340 billion).

But the banks claim they are aggressively cleaning up their bad loan problems and will be in the black this year.

In early trade Tuesday, bank shares are mixed. MTFG and SMFG are both steady, Mizuho is up about 1 percent and UFJ is 4.5 percent higher. Resona is down 4.5 percent.

On Monday, the top seven banking groups reported net losses of 4.62 trillion yen ($39.5 billion) for the year that ended on March 31.

Mizuho Financial Group, the world's biggest bank by assets, posted a net loss of 2.377 trillion yen ($20.3 billion), the worst result in Japanese corporate history.

But Mizuho says it expects to rebound this financial year, tipping a group net profit of 220 billion yen. It also plans to write off 340 billion yen in bad loans.

Mizuho said its three core banks -- Mizuho Bank, Mizuho Corporate Bank and Mizuho Trust & Banking -- lost a total of 924.95 billion yen on their equity holdings because of the slump in share prices.

UFJ Holdings said after the close Monday its group net loss last year was 608 billion yen ($5.2 billion), compared with 1.22 trillion yen a year earlier. It predicted a group net profit of 150 billion yen for the current year.

Mitsubishi Tokyo Financial Group said its group net loss was 161 billion yen ($1.38 billion), compared with 152 billion yen a year earlier. It sees a profit of 190 billion yen in the year ahead.

Sumitomo Mitsui Financial Group reported a net loss of 465 billion yen ($3.97 billion) but said it expected a profit of 150 billion this financial year.

Fifth-ranked Resona Holdings, which had to be rescued by the government earlier this month because of minimum capital problems, announced a group loss of 838 billion yen ($7.17 billion). That was triple an earlier forecast. It has yet to complete its earnings outlook for this year.

Mitsui Trust Holdings, the smallest of the top seven groups, lost 96.7 billion yen ($827 million), but is forecasting a group net profit of 75 billion yen this year.

Sumitomo Trust & Banking Co reported 73 billion yen in net losses.

Bank of Yokohama, the country's leading regional bank, reported a group net profit of 16.90 billion yen ($144 million), down 15 percent from 19.85 billion yen a year earlier.

Restructuring program

Shinsei Bank, Japan's first overseas-owned bank, stayed in the black for the third straight year, posting a parent-only net profit of 59.09 billion yen. It said it cut its bad loans to just 5.7 percent of the total.

Investors and analysts watched Monday's results closely to see whether tough accounting rules that prompted the government to rescue Resona are raising systemic risks, Reuters news agency reported.

According to Reuters, Resona's woes were magnified by what analysts saw as overly optimistic business forecasts and a high dependence on deferred tax assets (DTAs) -- expected tax credits on loan-loss provisions -- as capital.

In the last business year, the top four banks and Resona raised a total of two trillion yen in capital in an effort to prevent their capital adequacy ratios -- a key gauge of financial health -- from falling below the required 8 percent minimum.

Critics say the inclusion of DTAs undermines the quality of capital as DTAs only materialize as real assets when the borrowers that have taken up the bad loans in question are legally bankrupt and the bank itself has taxable profit.

As part of their restructuring program, Prime Minister Junichiro Koizumi and Economics and Financial Services Minister Heizo Takenaka have pressured banks to improve their performance and clean up their loan books.

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