Asian Stocks, U.S. Futures Advance on Citigroup Speculation

By Shani Raja and Chan Tien Hin

Feb. 23 (Bloomberg) -- Asian stocks and U.S. futures rose on optimism that the U.S. government will raise its stake in Citigroup Inc., reducing the risk of bank failures. Treasuries and the dollar fell.

KB Financial Group Inc., which controls South Korea’s largest lender, gained 1.8 percent as the Wall Street Journal said Citigroup had proposed that the U.S. convert a large portion of its preferred shares into common stock in a transaction that wouldn’t cost taxpayers more money. Samsung Electronics Co. rose 1.7 percent in Seoul as the government pledged measures to bolster the economy. Ten-year Treasuries fell on reduced demand for safe-haven assets.

“News that the government is increasing its stake will inject some confidence to investors that no matter what happens, these mega banks will not be allowed to fail, and that what ever losses they have can be absorbed by the government,” said Nicole Sze, a Singapore-based investment analyst for Bank Julius Baer & Co, which manages $350 billion.

The MSCI Asia Pacific Index gained 0.6 percent to 76.49 at 12:59 p.m. in Tokyo, having earlier fallen 1.1 percent. The gauge lost 15 percent this year as the worsening economic slowdown hurt corporate profits. Most key Asian indexes rose, led by South Korea’s Kospi Index, which climbed 2 percent.

Japan’s Nikkei 225 Stock Average lost 0.9 percent to 7,350.50. Toshiba Corp., Japan’s biggest chipmaker, slumped 7.8 percent after the Yomiuri newspaper reported the company is considering raising funds to strengthen its finances. BlueScope, Australia’s largest steelmaker, tumbled 8 percent in Sydney after saying it may have a loss this half.

Government Action

Futures on the U.S. Standard & Poor’s 500 Index rallied 1.2 percent today following the Citigroup report. The gauge dropped 1.1 percent on Feb. 20. Citigroup tumbled 22 percent as Senator Christopher Dodd, chairman of the Banking Committee, said it may be necessary to nationalize some banks for “a short time.” The company’s Tokyo-listed shares dropped 2.9 percent to 232 yen.

The dollar dropped to $1.2914 per euro from $1.2826 late last week in New York. It declined to 92.88 yen from 93.35.

Governments have been stepping up measures to revive financial systems burdened with more than $1 trillion of writedowns and losses tied to U.S. credit investments. Bank of America Corp. and Citigroup have received a combined $90 billion in U.S. aid in four months.

Japan’s Norinchukin Bank said on Feb. 20 that it will raise 1.9 trillion yen ($20.2 billion) as it declared $10 billion of losses on asset-backed securities, the most by any Asian lender. That announcement helped drag the Nikkei down by 2.8 percent earlier today.

‘Deteriorating Profitability’

Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, lost 1.4 percent to 423 yen, having earlier risen 1.4 percent on the Citigroup report. Sumitomo Mitsui Financial Group Inc. lost 1.9 percent to 2,910 yen, after earlier rising 0.8 percent.

“It’s difficult to justify the enthusiasm for the plan, given that it indicates the actions taken to date have been inadequate in arresting the decline of the financial system,” said Tim Schroeder, who helps manage about $2.6 billion at Pengana Capital Ltd. in Melbourne. “We’re dealing with deteriorating profitability and balance sheets.”

KB Financial climbed 1.5 percent to 27,750 won. Samsung Electronics, the world’s largest memory-chip maker, rose 1.7 percent to 475,500 won in Seoul. South Korea is prepared to support its currency and add to a bank recapitalization fund should the economic slump worsen, Finance Minister Yoon Jeung Hyun said.

Yield on 10-year Treasuries increased one basis point to 2.81 percent, according to BGCantor Market Data. The price of the 2.75 percent security due in February 2019 fell 3/32, or $0.94 per $1,000 face amount, to 99 1/2. A basis point is 0.01 percentage point.

“It’s an unwinding of the flight to quality,” said Kazuaki Oh’e, a Tokyo-based debt salesman at Canadian Imperial Bank of Commerce, Canada’s fifth-biggest bank. Treasuries may give up gains from Feb. 20, when the 10-year notes rose 14/32, he said.

To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net.