Japan's Shares Fall as Credit Concerns Reemerge, Sebon Fails

By Patrick Rial

Aug. 26 (Bloomberg) -- Japan's stocks dropped amid speculation American International Group Inc. will lose billions this quarter due to credit losses, reigniting concern financial markets will remain weak.

Sumitomo Mitsui Financial Group Inc., Japan's third-largest listed bank by assets, dropped 3.2 percent. Bank of Yokohama Ltd. fell the most in two weeks after HSBC Holdings Plc said rising bankruptcies will increase non-performing loans and reduce earnings. Mitsubishi Estate Co., Japan's second-biggest property developer, declined 2.3 percent after smaller rival Sebon Corp. filed for bankruptcy.

``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.

The Nikkei 225 Stock Average dropped 211.39, or 1.6 percent, to 12,667.27 as of 9:28 a.m. in Tokyo. The broader Topix index declined 24.00, or 1.9 percent, to 1,215.25.

Sumitomo Mitsui fell 21,000 yen to 643,000, erasing yesterday's gain. Mitsubishi UFJ Financial Group Inc., Japan's biggest listed bank, lost 3.6 percent to 801 yen. Bank of Yokohama, based in Japan's second-largest city, declined 3.5 percent to 606 yen.

New York-based 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.

Regional Bank Downgrades

Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, dropped 6.6 percent in New York 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.

Kentaro Kogi, a Tokyo-based analyst for HSBC, today cut his ratings on four regional banks including Bank of Yokohama, saying increasing bankruptcies among real-estate companies will drive up banks' provisions and costs to write off non-performing loans over the next two years.

Kogi slashed his recommendations on Bank of Yokohama and Fukuoka Financial Group Inc. to ``underweight'' from ``neutral'' and Chiba Bank Ltd. and Suruga Bank Ltd. to ``neutral'' from ``overweight.''

Asahi Homes Co. was offered lower by 20 yen, or 34 percent, to 38 after Sebon, which owns 85.25 percent of the company, filed for bankruptcy with 62.1 billion yen ($568 million) in debt. Asahi said in a statement the bankruptcy will not affect its finances.

Mitsubishi Estate Co., Japan's second-biggest property developer, declined 2.3 percent to 2,385 yen. Tokyo Tatemono Co. fell 3.2 percent to 547 yen.

Nikkei futures expiring in September fell 1.6 percent to 12,660 in Osaka and slumped 1.5 percent to 12,670 in Singapore.

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