Japan's Nikkei Futures Slump on Reignited Credit Market Worries

By Patrick Rial

Aug. 26 (Bloomberg) -- Japan stock futures dropped in Chicago amid speculation American International Group Inc. will lose billions this quarter due to credit losses, reigniting concern financial market weakness will continue.

U.S.-traded receipts of Sumitomo Mitsui Financial Group Inc., Japan's third-largest listed bank by assets, tumbled 3.8 percent from the closing share price in Tokyo yesterday. Those of Mitsubishi UFJ Financial Group Inc., the biggest, fell 1.8 percent.

``With more bad news emerging on U.S. financial shares, it's natural to see the market here take a hit as well,'' Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Bank AG, said in an interview with Bloomberg Television.

Nikkei 225 Stock Average futures expiring in September closed in Chicago yesterday at 12,730, down from 12,870 earlier in Osaka and 12,865 in Singapore. The Bank of New York Japan ADR Index, which tracks the nation's American depositary receipts, lost 0.7 percent.

Yesterday, the Nikkei advanced 1.7 percent to 12,878.66 and the Topix index jumped 1.9 percent to 1,239.25, the first climb in a week for both gauges.

AIG may lose $2.41 billion this quarter on credit default swap writedowns, Thomas Gallagher, an analyst at Credit Suisse Group wrote in a report, sending the shares to a 13-year low.

Lehman Brothers Holdings Inc. reversed gains from the previous day, dropping 6.6 percent, after South Korea's financial regulator cautioned state-controlled banks from investing in overseas financial companies. Meanwhile, JPMorgan Chase & Co. tumbled after saying the value of its investment in Freddie Mac and Fannie Mae shares has tumbled by half this quarter.

Real Estate Purchases

Meanwhile, Morgan Stanley Japan revealed in filings with the financial regulator yesterday that it has been buying stakes in real estate companies including the bankrupt Urban Corp., Sumitomo Realty & Development Co. and Joint Corp.

Sebon Corp. became the latest Japanese developer to file for bankruptcy yesterday with 62.1 billion yen ($568 million) in debt. Unlisted Sebon owns 85.25 percent of listed affiliate Asahi Homes Co. Asahi said in a statement the bankruptcy will not affect its finances.

Toshiba Corp., Japan's biggest maker of nuclear reactors in terms of power capacity, and Mitsubishi Heavy Industries Ltd., Asia's largest power-equipment maker, may be active after General Electric Co. said it may lose Indian nuclear plant contracts to Japanese, French and Russian rivals if the U.S. legislature doesn't approve a deal with India soon.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.