Asian Stocks Fall, Yen Gains on Concern U.S. Banks Need Capital

By Jonathan Burgos and Shani Raja

April 28 (Bloomberg) -- Asian stocks and U.S. futures fell after the Wall Street Journal reported Bank of America Corp. and Citigroup Inc. were told by U.S. regulators that they need more capital. Treasuries erased losses and the yen gained.

The MSCI Asia Pacific Index lost 2.1 percent to 87.32 at 3:38 p.m. in Tokyo as the report, which cited people familiar with the situation, said both banks are challenging the findings. Standard Chartered Plc slumped 3.7 percent in Hong Kong. Ping An Insurance (Group) Co., China’s second-largest insurer, sank 10 percent on lower profit. JFE Holdings Ltd., Japan’s No. 2 steelmaker, fell 6.8 percent after U.S. Steel Corp. reported a larger-than-estimated loss.

Speculation the worst of the credit crisis had passed contributed to a 24 percent rally in the MSCI Asia Pacific Index from a more than five-year low on March 9. An index of finance companies on the gauge slumped 1.4 percent, contributing the most to the measure’s decline today.

“The world has changed, and the capital dependency of these financial institutions is a lot different now,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. “Perhaps we’ve been a bit too euphoric in re-rating these companies too quickly.”

Japan’s Nikkei 225 Stock Average lost 2.7 percent to 8,493.77. Hong Kong’s Hang Seng Index sank 2.4 percent. All Asian markets fell except New Zealand, Indonesia, Vietnam and Pakistan.

Futures on the Standard & Poor’s 500 Index lost 1.6 percent. The gauge dropped 1 percent in New York yesterday as concern the swine flu outbreak will hurt travel, energy and hotel companies overshadowed gains in health care stocks.

Treasuries, Yen

Chugai Pharmaceutical Co. rose 1.9 percent in Tokyo, gaining for a second day on speculation the swine flu outbreak will boost sales of its Tamiflu antiviral drug. Trend Micro Inc., the world’s third-biggest maker of security software, climbed 5 percent after first-quarter profit unexpectedly increased. East Japan Railway Co., the nation’s largest rail operator, jumped 8.6 percent after saying it will buy back shares.

Treasuries erased losses, while the yen advanced to a six- week high against the euro and a four-week high versus the dollar as the Journal report enhanced demand for the safest assets. The benchmark 10-year Treasury note traded at a price of 98 22/32, having earlier fallen to 98 16/32.

Wells Fargo & Co, Fifth Third Bancorp and Regions Financial Corp. are all expected to need more capital, the Wall Street Journal reported.

“The article shocked the market because it came after U.S. regulators gave an assurance that the vast majority of U.S. banks did not need a capital increase,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

Steel Producers

U.S. Treasury Secretary Timothy Geithner indicated on April 21 that stress tests would show most of the 19 biggest U.S. banks have enough capital. Losses and writedowns from credit- related investments at the world’s biggest financial companies have swelled to more than $1.34 trillion since the start of 2007.

Standard Chartered, a British bank that makes 59 percent of its revenue in Asia, lost 3.7 percent to HK$105.60. National Australia Bank Ltd., the country’s biggest by assets, lost 3.4 percent to A$21.28 as first-half profit fell 0.9 percent on an increase in bad debts. Ping An dropped 10 percent to HK$44.75 after the company said first-quarter profit tumbled 72 percent as expenses climbed.

The rally in stocks since March has driven the average valuation of companies on the MSCI Asia Pacific Index to 19.5 times reported earnings, the highest since June 29, 2004, according to data compiled by Bloomberg.

Swine Flu

“The prevailing concern was whether the market had gone up too quickly,” said Pengana’s Schroders. “We’ve had swine flu as a dampener, and now this news about the stress tests has leaked out.”

JFE Holdings lost 6.8 percent to 2,615 yen. BlueScope Steel Ltd., Australia’s largest steelmaker, slumped 5 percent to A$2.49. U.S. Steel reported a first-quarter net loss that was more than twice analysts’ estimates and cut its dividend as prices plunged.

Chugai Pharmaceutical gained 1.9 percent to 1,880 yen, adding to yesterday’s 14 percent surge. Shikibo Ltd., a maker of antiviral textile materials, climbed a record 40 percent to 174 yen, extending the previous session’s 32 percent advance.

The World Health Organization raised its pandemic alert level for swine flu, spurring concern the spread of the disease will hurt government efforts to revive the global economy.

‘Silver Lining’

Korean Air Lines Co., South Korea’s largest airline, dropped 2.4 percent to 36,900 won. The company said yesterday it won’t cancel flights to Mexico, where flu-related deaths reached 149. Air China Ltd. slumped 7.4 percent to HK$3.23 in Hong Kong.

Trend Micro jumped 4.2 percent to 2,705 yen. Net income for the three months ended March 31 totaled 4.8 billion yen ($50 million), beating its forecast of 3.2 billion yen in profit, according to a preliminary earnings statement.

East Japan Railway jumped 7.6 percent to 5,500 yen after saying it will repurchase up to 30 billion yen ($311 million) of its own shares between April 30 and May 29.

“Investors are trying to find a silver lining even though there are still a lot of uncertainties surrounding the economy,” said Ivan Tham, Singapore-based head of funds management at the state-backed Kuwait Finance House, which has about $24 billion in assets.

To contact the reporters for this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net.