Japan Stocks Sink on Bank Concern; Nikkei Slides to 7-Week Low

By Masaki Kondo

Jan. 21 (Bloomberg) -- Japanese stocks fell, driving the Nikkei 225 Stock Average to a seven-week low, on concern a prolonged economic slump will erode capital at banks and cash flows at manufacturers.

Sumitomo Mitsui Financial Group Inc., Japan’s third-largest listed bank, dropped 5.4 percent as speculation global banks need to bolster capital sent U.S. financial shares to an almost 14- year low yesterday. Mazda Motor Corp., Japan’s No. 4 carmaker, slid 5 percent after saying it applied for government aid to help pay salaries. Bridgestone Corp., the world’s biggest tiremaker, slumped 6.2 percent to a seven-year low after Credit Suisse Group reduced its 12-month price estimate on the stock.

The Nikkei 225 declined 164.15, or 2 percent, to 7,901.64 in Tokyo, the lowest close since Dec. 2. The broader Topix index fell 17.88, or 2.2 percent, to 787.15, with more than three stocks falling for each that rose.

“The deterioration of bank assets is deepening as the effect of the global economic slump spreads from securities to commercial real estate and credit-card loans,” said Hiroshi Morikawa, a senior strategist at Tokyo-based MU Investments Co., which manages about $14 billion. “Investors aren’t sure how much banks need to replenish their capital, so the situation looks like a bottomless pit.”

The Nikkei lost a record 42 percent last year, pushing two- thirds of its members to below their net worth, as global financial companies posted more than $1 trillion in writedowns and credit losses and the global economy slipped into recession.

Japan’s slump will be “very severe” and may last for three years, Hiroshi Yoshikawa, head of the government committee that charts the economic cycle, said in an interview this week. That would mark the country’s longest downturn in the postwar era.

Capital Concern

Sumitomo Mitsui sank 5.4 percent to 3,340 yen, while market leader Mitsubishi UFJ Financial Group Inc. lost 3.8 percent to 483 yen. T&D Holdings Inc., Japan’s biggest listed life insurer, fell 8.3 percent to 2,780 yen, while rival Mitsui Sumitomo Insurance Group Holdings Inc. plunged 11 percent to 2,175 yen, the worst performer on the MSCI World Index. The insurers chopped their annual earnings targets by more than 60 percent in November, in part because of writedowns on security holdings.

The Standard & Poor’s 500 Financials Index plunged 17 percent in New York yesterday to its lowest close since March 1995 on concern mounting losses will force companies to raise more capital.

Government Aid

Bank of America Corp., which last week posted its first quarterly loss since 1991, dropped 29 percent after Friedman, Billings, Ramsey Group Inc. said the bank needs at least $80 billion to restore its capital. State Street Corp., the largest money manager for institutions, tumbled 59 percent after its unrealized losses almost doubled as of Dec. 31 from three months earlier.

“Asian banks have much fewer toxic assets, but the general slowdown in the economy will increase their nonperforming loans,” said Yoji Takeda, who manages about $1.1 billion at RBC Investment (Asia) Ltd. in Hong Kong. “We’re still in a financial crisis, so there is some event risk there.”

Mazda slumped 5 percent to 152 yen, while bigger rival Nissan Motor Co. fell 5.5 percent to 309 yen. Mazda applied for the Japanese government’s subsidy program to pay salaries during production cuts in January, the company said today, confirming an earlier report in the Nikkei newspaper. Nissan wouldn’t confirm or deny the Nikkei report’s claim it would also seek aid.

Denso Corp., an auto-part affiliate of Toyota Motor Corp., slid 5.4 percent to 1,586 yen after saying it will reduce domestic production in the three months through March.

‘Shrinking Demand’

“Manufacturers can’t cope with rapidly shrinking demand,” MU’s Morikawa said. “Low factory utilization will likely force businesses to cut jobs and investment, which will make the economy even worse.”

Bridgestone slid 6.2 percent to 1,191 yen, the lowest close since October 2001 and leading tiremakers to the second-biggest drop among 33 industry groups on the Topix, after insurers. Credit Suisse yesterday cut its target price on the stock by 18 percent to 1,400 yen, saying “lucrative” sales of replacement tires will be weaker than expected in Japan, the U.S. and Europe.

Nikkei futures expiring in March retreated 2.2 percent to 7,870 in Osaka and slumped 2.4 percent to 7,870 in Singapore.

To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.