Asian Stocks Extend Global Rout on AIG Downgrade; Banks Fall

By Chua Kong Ho and Shani Raja

Sept. 16 (Bloomberg) -- Asian stocks plunged the most in eight months, extending a global rout, as credit turmoil caused a debt-rating downgrade of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc.

Mitsubishi UFJ Financial Group Inc. slumped 7.7 percent, leading the steepest decline by Japanese banks since 1987, on concern loan losses will increase. Babcock & Brown Ltd., among Australia's biggest losers from the credit crisis, sank 34 percent. AIG, seeking funds to avoid bankruptcy, plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since September 2001. Nippon Mining Holdings Inc. lost 7.1 percent as oil and copper dropped.

``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide because commodities were down quite sharply last night too.''

The MSCI Asia Pacific Index declined 4.47, or 3.9 percent, to 111.14 at 3:49 p.m. in Tokyo, the biggest drop since Jan. 22. All 10 industry groups fell on the measure, which was set for its lowest close since Nov. 15, 2005. Japan's Nikkei 225 Stock Average dropped 5 percent to 11,609.72, its lowest since July 8, 2005. All Asian markets open for trading fell.

South Korea's Kospi Index tumbled 6.1 percent and index futures plunged, prompting a five-minute halt in program trading. The country said it may provide more funds to help stabilize financial markets. Taiwan asked funds and banks to buy shares to boost the island's equities.

Global Rout

The Bank of Japan added 1.5 trillion yen ($14.4 billion) into the financial system, while China cut interest rates for the first time in six years as weakening exports dimmed the outlook for growth. Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, when the MSCI Asia Pacific excluding Japan Index retreated 1.9 percent.

U.S. stocks tumbled, pushing the Standard & Poor's 500 Index down 4.7 percent, the most since the Sept. 11, 2001 terrorist attacks. S&P 500 futures lost 0.4 percent today.

Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis.

At least seven Japanese banks lent a total of $1.62 billion, according to the Chapter 11 filing by Lehman. Mitsubishi UFJ fell 7.7 percent to 792 yen, while Sumitomo Mitsui Financial Group Inc. declined 9.8 percent to 619,000 yen.

Lehman Investments

The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after ``Black Monday,'' when stock markets crashed around the world.

Babcock & Brown tumbled 34 percent to A$1.05. The stock has lost 96 percent this year after global credit markets seized up, cutting off access to cheap loans to finance acquisitions of ports, power stations and airports, which Babcock bundles into funds it manages.

Woori Finance Holdings Co., which controls South Korea's second-biggest bank, plunged a record 14 percent to 13,050 won. The country's firms have invested about $720 million in loans and securities linked to Lehman, regulators said yesterday.

Taiwan's Cathay Financial Holding Co. tumbled by its 6.9 percent limit to NT$51.30. The island has NT$80 billion ($2.5 billion) tied to Lehman-related securities.

AIG, the biggest U.S. insurer by assets, had its credit ratings downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat.

`Systemic Risk'

The ratings downgrades occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.

``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''

Nippon Mining, Japan's biggest copper producer, dropped 7.1 percent to 459 yen. Korea Zinc Co., the world's second-biggest zinc refiner, retreated 4.4 percent to 108,000 won, the lowest since Jan. 30 in Seoul. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, fell 3.2 percent to A$50.36.

Crude oil in New York tumbled in after-hours trading by as much as $4.15 a barrel to a seven-month low of $91.56 a barrel. Copper fell 2 percent, adding to yesterday's 1.8 percent drop. The Reuters/Jefferies CRB Index of 19 raw materials declined as much as 2.5 percent, erasing this year's gain.

PT Astra Agro Lestari, Indonesia's largest publicly traded plantation company, sank 12 percent to 10,800 rupiah, the biggest loss since October 2002. PT Perusahaan Perkebunan London Sumatra Indonesia, the second biggest, declined 10 percent to 2,825 rupiah. Palm oil futures dropped as much as 6.7 percent to 2,090 ringgit ($605) a metric ton in Kuala Lumpur.

To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.