GDP Estimate Lowered, Financials Rally

123jump.com Staff
12 Sep, 2008
New York City

Gross domestic products in Japan for three months ending in June was revised lower to a decline at annual rate of 3% compared to 2.4% decline in the previous estimate. Domestic demand was lowered from a decline of 0.6% to 0.7% and private residential investment was estimated at a decline of 3.5% from 3.4% loss in the preliminary estimate.

[R]5:00AM New York, 7:00PM Tokyo - Financial stocks lead Tokyo rally. The second quarter economic growth was revised lower to a decline of 3% form an earlier estimate of 2.4% shrinkage.[/R]

Japan market averages climbed after financial stocks cheered news that Lehman Brothers has approached the Bank of America as it seeks a buyer for the company.

Market Sentiment

In Tokyo trading Nikkei 225 rose 0.93% or 112.26 to 12,214.76, and the broader Topix Index increased 1.3% or 14.48 to 1,177.20, rising 0.5% for the week.

In the first section of the Tokyo Stock Exchange 25 billion shares worth 2.9 trillion yen were traded and in the second section 598 million shares valued at 4.8 billion yen changed hands.

Of the Nikkei 225 stocks 157 rose, 60 declined, and 8 were unchanged. Resona Holdings led advancers in the index shares with a rise of 12.29% on the hopes that Lehman Brothers may find a buyer and save the company from filing bankruptcy.
Lehman Brothers On the Block

Lehman Brothers, 151 years old investment banker may be forced to sell the company if it fails to find buyers for its key assets. The company is still facing mounting losses in its mortgage portfolio and may face financial ruin if it fails to attract significant investors.

Lehman, once the fourth largest investment bank and the largest mortgage securities underwriter has seen 95% of its value disappear as reported several billion dollars of losses in the last five quarters. The bank in the latest quarter reported record loss with a total of $16 billion in the last five consecutive quarters.

Korean Development Bank in recent negotiation with the bank could agree on terms and pulled out of the negotiations. After the release of losses this week, Citigroup and other banks lowered their rating on the company and Moody’s, a bond rating agency said that the company debt rating may be revised lower if it fails to find a strategic buyer a capital infusion in the immediate future. The negative views moved the event much faster than the company management could digest as the company stock lost more than 90% of its value in three trading session.

The Federal Reserve Bank in Washington may end up playing a key role in deciding the future of Lehman Brothers. The central bank is more concerned about the wider fallout in the financial markets and risks that interlinked between banks and other financial houses. Any prospective buyer will be looking for a guarantee similar to the one offered by the Fed during the sale of Bear Stearns to JP Morgan.

Such guarantee is less likely as the Fed evaluates its role after it negotiated the nationalization of two largest mortgage agencies Fannie Mae and Freddie Mac. Lehman may be allowed to fail or be sold at a fire sale price to another bank, the only question is which bank is brave to acquire Lehman and digest the balance sheet risk.

Japan’s Economy Declines 3% in Q2

The Cabinet Office reported today on its Web site that Japan’s gross domestic product fell at annual rate of 3% in the second quarter ended June 30 from its earlier forecast of a drop of2.4%.

Private demand slipped 0.6% and private consumption declined 0.5%, while private residential investment and private non-residential investment dropped 3.5% and 0.5% correspondingly. Exports in the quarter under review plummeted 2.5% while imports slid 2.6%.

Gainers & Losers

Resona Holdings led advancers in the Nikkei 225 index shares with a rise of 12.29% followed by increases in Tokyu Land Corp. of 9.28%, in Obayashi Corp. of 9.28%, in Sumitomo Heavy Industries of 8.74%, and Kawasaki Heavy Industries of 6.70%.

Other financial stocks surged leveraged by reports that Lehman has engaged Bank of America to take over the whole group. Fukuoka Financial advanced 6.20%, Chiba Bank gained 5.38%, and Mizuho Financial increased 5.17%.

Meija Seika led decliners in the Nikkei 225 index shares with a fall of 6.29% followed by losses in Suzuki Motors of 4.74%, in Tokai Carbon Co.of 4%, in Fuji Heavy Industries of 3.83%, and Kirin Holdings of 3.48.

Paper companies closed lower. Nippon Paper slumped 3.21% and Hokuetsu Paper tumbled 3.21%.

Technology stocks declined. Nikon Corp. declined 1.19% and Olympus dipped 0.96%.