Top Japan banks expect 895 bil. yen combined net profit in FY 2009

TOKYO, May 19 Kyodo -
(EDS: ADDING INFO)
Mitsubishi UFJ Financial Group Inc. and five other top Japanese banks expect
group net profits totaling 895 billion yen for the current fiscal year to next
March, in a turnaround from combined net losses of 1.18 trillion yen a year
earlier, according to earnings reports released by the six banking groups by
Tuesday.
The combined losses for fiscal 2008 ended March 31 was the first red figure in
five years for the six banks as the losses stemmed from write-downs on
securities investments and a sharp increase in bad-loan disposal costs amid the
deteriorating economy.
Although all six banks are expecting net profits for the current fiscal year,
the combined amount of their profit projections is the smallest since they
posted a profit of 730 billion yen as a whole in fiscal 2004.
On a parent-only basis, combined losses on their equity investments swelled
about 2.9 times from a year earlier to 1.45 trillion yen. Their bad-loan
disposal costs also jumped 4.5 times to 1.72 trillion yen as bankruptcies
increased amid the economic slump.
For fiscal 2009, Japan's largest banking group MUFG expects a net profit of 300
billion yen, in a reversal from the previous year's loss of 256.9 billion yen
while second-largest Mizuho Financial Group Inc. projects a profit of 200
billion yen in fiscal 2009, compared with a loss of 588.8 billion yen a year
earlier.
Third-largest lender Sumitomo Mitsui Financial Group Inc. anticipates a net
profit of 220 billion yen for fiscal 2009, against the previous year's loss of
373.4 billion yen.
Three smaller peers -- Sumitomo Trust & Banking Co., Chuo Mitsui Trust Holdings
Inc. and Resona Holdings Inc. -- reported losses or sharp declines in profits
in their net balances in fiscal 2008, and projected profits for the current
business year.
Given their dismal earnings in fiscal 2008, Japanese banks aim to restore their
financial strength through large-scale capital reinforcement.
Most recently, Mizuho said last week it will issue common shares to raise up to
600 billion yen. No. 3 lender Sumitomo Mitsui plans to raise up to 800 billion
yen of capital increases while MUFG has already raised about 400 billion yen.
Currently, the top three banks have sufficient capital bases under the current
regulations, with all of their capital adequacy ratios standing above 10
percent as of March 31.
In terms of more core capital mainly formed with common shares which owe no
repayment obligation, Japanese banks sharply pale compared with their Western
peers which have capital adequacy ratios of around 6-7 percent. Mizuho's
comparable core capital adequacy ratio stands at about 1 percent.
Accordingly, they have had to implement capital reinforcement largely through
the issuance of common shares.
Another issue facing Japanese banks is their vulnerability to stock market
fluctuations, as they have traditionally held stakes in clients to cement ties.
Banks have said they will reduce the amount of their cross shareholdings with
clients to reduce such vulnerability, but it appears to be not an easy task.
''Considering relationships with our clients, to be frank it is difficult,''
Teisuke Kitayama, Sumitomo Mitsui president, has said.
Keisuke Moriyama, an analyst at Nomura Securities Co., views problems linked to
the cross-shareholdings and bad-loans as ''deep-rooted.''
==Kyodo