Japanese Stocks Drop on Capital Concern; Gold Producers Surge

By Masaki Kondo

Feb. 23 (Bloomberg) -- Japanese stocks fell as the bankruptcy of lender SFCG Corp. stoked concern more financial companies will fail as the economy weakens. Sumitomo Metal Mining Co. led gains by gold producers as prices for the metal jumped.

Orix Corp., the nation’s largest non-bank lender, fell 8.2 percent. Mizuho Financial Group Inc., the Asian bank with the biggest subprime writedowns, slid 2.7 percent after Norinchukin Bank said it had losses on securities and will raise new funds. Sumitomo Metal added 6.1 percent as bullion exceeded $1,000 an ounce for the first time since March. Stocks trimmed losses after the Wall Street Journal said the U.S. government may increase its ownership of Citigroup Inc.

The Nikkei 225 Stock Average fell 64.64, or 0.9 percent, to 7,351.74 as of 12:39 p.m. in Tokyo, after losing as much as 2.8 percent. The broader Topix index retreated 7.68, or 1 percent, to 731.85, with more than two stocks slumping for each that rose.

“It’s increasingly clear Japan’s economy is in deep trouble, and SFCG’s collapse reflects that,” said Naoteru Teraoka, who helps oversee $21 billion at Tokyo-based Chuo Mitsui Asset Management Co. “We’ll likely see more financial companies report losses on securities writedowns and provisions for bad loans in coming months.”

The Nikkei has lost 16 percent in 2009, the second-worst performer in Asia after Vietnam, with $514 billion having been erased from the nation’s market value. Bankruptcies among Japan’s listed companies reached 33 last year, an annual postwar record according to Tokyo Shoko Research Ltd. Ten more companies have gone bust this year.

SFCG Failure

The Standard & Poor’s 500 Index fell 1.1 percent in New York on Feb. 20. Citigroup and Bank of America Corp. tumbled as Senator Christopher Dodd, chairman of the Banking Committee, said it may be necessary to nationalize some banks for “a short time.”

Citigroup is in talks with the government that may lead to the state owning as much as 40 percent of Citigroup’s common stock, the Wall Street Journal said, citing people familiar with the situation it didn’t identify.

SFCG, a Tokyo-based lender to small companies, today said it filed for protection from creditors with 338 billion yen in liabilities, making it Japan’s biggest bankruptcy in more than a year. The company’s finances worsened because of difficulties in collecting loans and getting credit, SFCG said.

Orix, which provides corporate loans and develops real estate, plummeted 8.2 percent to 2,185 yen, leading peers to the biggest drop among 33 industry groups on the Topix. Aiful Corp., Japan’s No. 1 consumer finance company by assets, dropped 15 percent to 109 yen, and has fallen by more than half this year.

“The collapse of SFCG will likely affect many small businesses,” Kenichi Hirano, general manager at Tokyo-based Tachibana Securities Co., said in an interview with Bloomberg Television. “Unless the government takes necessary steps promptly, the deeply troubled Japanese economy will plunge into even a worse state.”

Norinchukin’s Investment

Mizuho, Japan’s No. 2 listed bank, dropped 2.7 percent to 183 yen, extending its slump to a sixth day, while Sumitomo Trust & Banking Co. retreated 3.9 percent to 345 yen. Aozora Bank Ltd., controlled by Cerberus Capital Management LP, dived 7.8 percent to 94 yen.

Norinchukin, owned by more than 4,000 shareholders including farm, fishing and forestry cooperatives, lost at least $10 billion on overseas asset-backed securities following the collapse of the American housing market. It still had 6 trillion yen of such securities at the end of December, more than the market value of Wells Fargo & Co. The bank said it would raise 1.9 trillion yen in new funds.

Toshiba Corp., Japan’s biggest chipmaker, sank 6.1 percent to 216 yen, headed for the lowest close since February 1981. The company is considering raising more than 300 billion yen through a share sale, the Yomiuri newspaper reported on Feb. 20.

Sumitomo Metal Mining, Japan’s largest producer of gold, jumped 6.1 percent to 1,086 yen, and was the most actively traded stock by value in Tokyo. Mitsubishi Materials Corp., which produces gold, silver and copper, gained 2.6 percent to 234 yen. Gold rose 2.6 percent to $1,002.20 on Feb. 20 as investors flocked to the metal as a safe haven. Prices dipped 1.2 percent today.

Nikkei futures expiring in March fell 0.5 percent to 7,340 in Osaka and dropped 0.5 percent to 7,345 in Singapore.

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