Subprime Worries Grip Tokyo, Nomura Losses

123jump.com Staff
25 Oct, 2007
New York City

Stocks in Japan fell on the weakness in financial stocks and worries that the ongoing correction in U.S. housing market may generate more losses for banks in Japan. Nikkei 225 index fell 0.5% for the second day to close at 16,284. Nomura reported a loss of $620 million in the U.S. subprime loans and Mizuho Financial is liklely to declare a loss in the sector as well. Net income at Sony increased and Hond lifts its estimate for the fiscal 2008.

[R]6:00AM New York, 7:00PM Tokyo - Subprime losses and strong yen lead Japan down 0.45%. Japan attracts real estate investments from international investors.[/R]

In Tokyo trading Nikkei 225 slipped 0.45% or 74.22 to 16,284.17, while the broader Topix Index lost 1% or 15.79 to 1,548.07.

Of the Nikkei 225 stocks 87 rose, 131 fell and 7 were unchanged. 19 stocks shed 2%. Daiichi Sankyo led decliners, falling 10.29%, after it suspended two studies on its anti-clotting drug. Exporters also fell on rising yen. Canon declined 2.62%, Komatsu slid 2.62% and Toyota Motor Corporation tumbled 1.49%.

In the first section of the Tokyo Stock Exchange 17.4 billion shares worth 2.5 trillion yen changed hands and 299 million shares valued at 7.9 billion yen were traded in the second section.

Financial stocks fell again on the worries that banks are likely to face more losses and the full extent of the ongoing correction in the U.S. housing market is still not over. Investors are only now realizing that the correction in the housing market may take more than two to three years.

U.S. brokerage firm Merrill Lynch &Co yesterday reported largest quarterly loss in its 93-year history. Subprime loans and exposure to leverages loans losses totaled $8.4 billion in the third quarter.

Separately, September existing U.S. home sales fell 8% to 8-year low to annual rate of 5.04 million.

Nomura Holdings plunged the most in four years after reporting today that U.S. mortgage investments weighed the company down to a net loss of 10.5 billion yen from net income of 43.5 billion yen a year before for the three months ended September 30th. Nomura reported a loss of $620 million after trading $1.8 billion of subprime mortgage securities. Revenues declined from 464.5 billion to 469.2 billion yen. Nomura shed 1.19% at the close to 1,833 yen.

Mizuho Financial Group fell 24,000 yen or 4% to 588,000 yen to a two year low after Asahi news reported that the company is likely to report a loss in the U.S. subprime securities and still meet its earlier earnings target. The news report did not cite any source which company later declined to comment on.

Consultancy firm Jones Lang LaSalle reported yesterday first half property investment in Japan jumped 16% to $30 billion. It also added that Japan accounted for almost 55% of the total transaction volume for the first six months of the year, and overall cross-border volume in Japan’s property market tripled to $15 billion, compared to the overall $28.2 billion of investments in the Asia Pacific region.

Jones Lang LaSalle head of research Jane Murray told a news conference yesterday that there was heightened competition in Japan’s real estate sector. Commented Murray: “We will see further increased competition from local investors, which means that cross-border investors are going to have to be more creative in their strategies and consider value-added and opportunistic plays.”

According to the consultancy firm, Tokyo’s cap rate, which a yield on property investments and the five- year swap rate, stood at 1.56%. However, the cap rates are negative for Paris, London, Frankfurt and New York.

Commercial land prices in Japan rose for the first time in 16 years, while prices in Tokyo were up 24%, in Nagoya increased 18%, and in Osaka soared 14%.

Of the Nikkei 225 index shares, Shiseido Company Limited led the gainers, with a rise of 4.83% followed by rises in Konami Corp of 4.15%, in Alps Electric Company Limited of 3.27%, in Tokyo Dome of 3.2% and Oki Electric Industries of 3.11%

Realty stocks advanced after Jones Lang LaSalle reported investments in the property sector grew 16% in the first half of the year. Heiwa Real Estate Company firmed 1% and Tokyo Dome climbed 3.2%.

Of the stocks in the Nikkei 225 index, Daiichi Sankyo led the declining stocks tumbling 10.29%, followed losses of 9.09% in Nippon Suisan, 8.96% in Yahoo Japan Corp, 6.70% in Sumco and 5.42% in UBE industries.

Daiichi Sankyo slumped heaviest since September 2005 after reporting in a statement that tests of the anti clotting effects of their prasugrel drug and Bristol-Myers Squibb Company’s Plavix were dropped. The drug is developed with Eli Lilly &Company. The company is currently seeking approval in the U.S. to sell the drug in the first quarter of 2009.

Yahoo Japan Corp also fell after reporting net income in the second quarter declined 4% to 13 billion yen compared to a year ago and 19.4% from the previous quarter. However, in the first half net sales rose 17.2% to 117.7 billion yen, while operating income surged 21.9% to 57.9 billion yen.

Nintendo, the maker of Wii Console games, reported today first half net profit to September 30th soared 132.4 billion from 54.3 billion yen a year earlier, boosted by increases in sales to 694.8 billion yen from 299 million yen a year ago. The company revised its annual profit outlook to 275 billion from 245 billion yen estimated in July of this year.