Japanese Stocks Climb on Stress Test Report, Merger Speculation

By Patrick Rial

April 27 (Bloomberg) -- Japanese stocks climbed after the U.S. said most banks being given stress tests have adequate capital and on speculation two local lenders will merge.

Nomura Holdings Inc., Japan’s No. 1 brokerage, gained 1.3 percent even after reporting a $2.2 billion loss for the latest quarter. Shinsei Bank Ltd. and Aozora Bank Ltd. soared more than 9 percent after the Nikkei newspaper said the companies are in merger negotiations. Chugai Pharmaceutical Co., which sells the antiviral drug Tamiflu, was poised to rise after swine flu cases prompted the U.S. to declare a public health emergency.

“Gradually, some of the uncertainty surrounding the stress test results is abating,” Tomochika Kitaoka, a strategist at Tokyo-based Mizuho Securities Co., said in an interview with Bloomberg Television. “We could see rising confidence that banks will be able to obtain sufficient capital, whether through government funds or converting preferred shares.”

The Nikkei 225 Stock Average gained 47.71, or 0.6 percent, to 8,755.70 as of 9:20 a.m. in Tokyo. The broader Topix index climbed 7.98, or 1 percent, to 838.03.

The Federal Reserve released the methods it used to conduct stress tests of the biggest U.S. banks, while stopping short of any details that signaled how much new capital regulators will demand. The scenario included a 10.3 percent unemployment rate in 2010.

“Losses associated with the deepening recession and financial market turmoil have substantially reduced the capital of some banks,” the Fed report said. “Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized.”

Preferred Buyer

Nomura climbed 1.3 percent to 613 yen. Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 bank by market value, surged 4.2 percent to 3,220 yen. The lender was chosen as the preferred buyer of Citigroup Inc.’s Nikko Cordial Securities Inc. after making an offer of about 500 billion yen ($5 billion), people with knowledge of the matter said.

Shinsei Bank, the former Long Term Credit Bank of Japan which collapsed in 1998, soared 9.7 percent to 136 yen. Aozora, controlled by Cerberus Capital Management LP, rallied 17 percent to 138 yen. The companies are in merger talks with the goal of integrating operations in the summer of 2010, the Nikkei newspaper reported over the weekend. The banks declined to deny the report.

Chugai was bid higher by 7.4 percent to 1,738 yen on speculation its drug Tamiflu will be effective in dealing with swine flu. The company is partners with Roche Holding AG, the maker of Tamiflu. Japan Vilene Co., a face-mask producer, was bid higher by 4.9 percent to 427 yen. Drugstore operator Matsumotokiyoshi Holdings Co. added 2 percent to 1,697 yen.

Swine flu cases in the U.S. and Mexico led the Obama administration to declare a public health emergency and release stockpiles of medicine. Japan’s health ministry is checking supplies of influenza treatments and screening travelers from Mexico at airports for fever, Yoshio Namba, head of the office for pandemic influenza, said at a briefing in Tokyo yesterday. More than 80 people have died from the disease.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net