TOKYO - Mizuho
Securities Co is believed to have booked a loss of
200 million to 300 million yen (US$1.7 million to
$2.5 million) due to the subprime-loan problem in
the United States in its consolidated earnings for
the April-June quarter.
The brokerage had
started to trade various securitized loan products
in the US starting this year because parent Mizuho
Corporate Bank received a
financial-holding-company license in that country
at the end of last year.
Mizuho Securities
traded collateralized debt obligations, which
bundle various asset-backed
securities such as those backed by mortgages and
corporate loans meant to fund acquisitions.
But because subprime loans made up a
relatively small portion of the obligations, and
because the brokerage did not invest directly, the
impact on its earnings is seen as limited. Mizuho
Securities has now shed all of its
subprime-related debt obligations.
Doubts over rate increase Many
market participants who were previously confident
that the Bank of Japan (BOJ) would raise interest
rates this month are not so sure now, because of
growing uncertainty about the potential
repercussions of the US subprime fiasco.
According to an Economic Planning
Association survey last week, 26 of 35
private-sector economists believe the BOJ will
raise interest rates this month. But growing
concerns about an escalating global credit crunch
triggered by subprime-mortgage defaults could
change this outlook.
For instance, a chief
economist at a European brokerage now believes
that a rate hike will occur in September rather
than this month. "After supplying liquidity in the
market to alleviate concerns, the bank cannot
reverse itself by carrying out a rate hike to
absorb the liquidity," said the chief economist.
The BOJ injected 1 trillion yen into the
market on Friday and an additional 600 billion yen
on Monday, but on Tuesday it drained 600 billion
yen from the money supply.
Junichi Makino
at the Daiwa Institute of Research sees a 50-50
chance of a rate hike in August. But he believes
that if market turmoil continues leading up to the
central bank's two-day policy board meeting
beginning next Wednesday, it will forgo a rate
increase.
But some market observers, such
as Taro Saito at NLI Research Institute, insist
that the BOJ will go through with a rate hike in
August because of brisk economic conditions.
"Economic fundamentals are favorable, so the
current pessimism will reach a peak now and
eventually subside," he said.
With
preliminary April-June-quarter data on gross
domestic product due out on Monday, the central
bank will keep a close eye on economic and market
conditions for the time being.
Meanwhile, in South Korea ... The subprime rout has had a "limited" impact
on South Korea, Vice Finance Minister Kim
Seok-dong said this week, voicing confidence in
Asia's third-largest economy.
"At least
for now, we believe that the impact of the US
subprime mortgage issue on South Korea's financial
markets and institutions is limited," Kim said.
"South Korea's financial institutions have
a very small amount of direct exposure to the US
subprime mortgage loans, small enough for them to
avert any crisis."
Korean banks and
insurers invested a combined $850 million in US
subprime-mortgage-related bonds as of the end of
July, with their combined losses coming to a mere
$85 million, Kim said.
Kim discussed the
issue with officials from the Finance Ministry,
the central bank and the financial watchdog, after
Seoul stock markets plunged more than 4% at the
end of last week on the US subprime woes.
Fears of a global credit crunch emerged
when central banks in the United States, Europe,
Japan, Australia and Canada injected liquidity
into their banking systems because of soaring
short-term market rates.
The move came
after BNP Paribas, the leading lender in France,
said last Thursday that it froze three of its
asset-backed securities funds as soaring US
mortgage loan defaults made it impossible for them
to value the funds accurately.
South
Korea's institutions are likely to stay safe from
such loan defaults, since most of their
investments are related to bonds with relatively
high ratings, the South Korean policymaker said.
However, the government will take necessary
actions if any credit crunch emerges in the
domestic financial markets, he said.
"We
will inject liquidity immediately through
repurchase agreements or the central bank's loans
to financial institutions if any credit crunch is
feared to materialize in domestic markets," he
said.
Chinese bank allays fears In Beijing, China Merchants Bank (CMB), the
sixth-biggest lender on the Chinese mainland,
reported a 13.4% yield by selling its US
mortgage-backed securities, according to Ma
Weihua, president of the bank.
Ma rejected
media reports that the bank incurred a loss of 103
million yuan (US$13.6 million) in the US subprime
crisis from its investment in mortgage-backed
securities, saying the bank had sold out all the
securities last August and has not been exposed to
the US subprime lending market since then.
The Hong Kong- and Shanghai-listed bank
bought its US mortgage-backed securities in 2004
based on its judgement that the US real-estate
market might witness strong growth amid declining
interest rates.
The Chinese bank sold all
the securities last August as it sensed the
potential risks in the investment, because the US
housing market had boomed for two straight years
then, Ma said. Besides, he said, the 13.4% rate of
returns was good enough.
Ma did not reveal
the size of his bank's investment in the US
mortgage-backed securities, but the bank's interim
report released last Friday shows that mortgages
accounted for 77.5% of its retail loans at the end
of the said period.
The management holds
that the bad-loan ratio of the bank's mortgages is
quite low, according to Ma. He also made clear
that the bank has no outstanding loans to any
financial institutions that hold US
mortgage-backed securities.
Nevertheless,
Ma said, the US subprime crisis has sounded the
alarm for Chinese banks and that CMB will adopt a
more prudent policy for its mortgage business.
The CMB said in the interim report that
its net profit surged by 120.38% in the six months
of the year to reach 6.12 billion yuan.
The bank attributed the substantial profit
increase to the steady growth of commercial loans,
business expansion, assets structure adjustment,
widening interest-rate margin and continuously
rapid growth of non-interest business, such as
credit-card services, according to the statement.
Two of the "Big Four" state commercial
banks, however, have admitted to having been
affected by the subprime crisis, though neither
the Bank of China nor the China Construction Bank
has disclosed the extent of their exposure.
The current crisis began as
subprime-mortgage defaults started to spiral as a
result of higher interest rates and the bursting
of the US housing bubble. It has been dragging
down the world's major stocks for weeks and making
it difficult for US and European banks, which
bought much of the repackaged subprime debts, to
resell it as its value dropped with serial
defaults and bankruptcies. But experts hold
that the crisis has little impact on the Chinese
mainland because its exposure to the US subprime
lending market is relatively limited.
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