Tokyo Stocks Fall 5%, Banks Fall

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

Stocks in Asia and in Japan fell as banks plunged after Lehman Brothers filed bankruptcy protection, Merrill Lynch was sold to Bank of America and AIG faced liquidity crunch. The U.S. financial crisis continues to deepen as more companies are ensnared. AIG, the largest insurance company may need to raise $75 billion in emergency funding, which increasingly looks unlikely. Seven banks in Japan have combined exposure of $1.6 billion to the failed investment banker Lehman Brothers.

[R]5:00AM New York, 7:00PM Tokyo – The Bank of Japan injects 2.5 trillion yen in to the financial system.[/R]

Stocks in Japan declined led by financial stocks on rising worries the failure of Lehman Brothers will have negative implications on the financial markets.

Market Sentiment

In Tokyo trading Nikkei 225 declined 4.95% or 605.04 to 11,609.72, and the broader Topix Index lost 5.1% or 59.63 to 1,117.57.

In the first section of the Tokyo Stock Exchange 11 billion shares worth 1.1 trillion yen were traded and in the second section 462 million shares valued at 4.4 billion yen changed hands.

Of the Nikkei 225 index shares 12 rose, 210 declined, and 3 were unchanged. Mitsubishi Motors Co. led advancers in the index shares with a rise of 8.55%.

Bank of Japan Sinks 2.5 Trillion Yen in Financial System

The Bank of Japan today pumped 2.5 trillion yen into the markets as part of a coordinated effort between the U.S. Federal Reserve, European Central Bank and the Swiss National Bank.

Banking analysts estimate seven Japanese banks have exposure of $1.62 billion to Lehman Brothers, the troubled investment bank that filed for bankruptcy protection.

Teikoku Databank Ltd also said on its Web site that Lehman Brothers Japan Inc. and Lehman Brothers Holdings Japan Inc. filed for bankruptcy in Tokyo District Court today with about 4 trillion yen in combined liabilities.

The Federal Reserve Bank yesterday also reported that it is adding $70 billion into the financial system, while the European Central Bank and the Bank of England and the Swiss National Bank made similar interventions.

According to the Bank of Japan, Japanese banks have largely overcome the non-performing loan problem after fifteen years of slow economic growth period. The report notes that the fiscal 2007 financial statements showed that credit costs were returning to expected average levels, however improvements in core profitability slowed.

However the bank believes that the quality of capital is not necessarily high enough given the continued high proportion of preferred securities and subordinated debts. On the overall, improvements in core profitability and the quality of capital remain crucial challenges for banks.

Global Banking Sector Sell-off

Banks in Japan dropped the most as investors worried that their exposure to Lehman and AIG will drag earnings in the sector. Mitsubishi UFJ dropped 8% to 792 yen and Sumitomo Mitsui Financial Group declined 9.8% to 619,000 yen.

Aozora dropped 16% after Lehman noted in its bankruptcy filing that the bank was the single largest unsecured creditor to Lehman. Aozora issued a statement that cited the error in the filing and said its exposure to Lehman is not more than $25 million as it has hedged most of the exposure.

Shinsei Bank Ltd plunged 16% to 314 yen.

In South Korea banks fell sharply after the Financial Services Commission noted that local banks have a total of $720 million loan exposure to Lehman Brothers. Kookimn Bank dropped 8% to 55,300 won and Woori Finance Holdings dropped 14% to 13,050 won.

Babcock & Brown Ltd in Sydney trading fell 34% to A$1.05 on the worries that recent Lehman bankruptcy filing will cut off access to funds to the infrastructure funds manager.

Banks in China and in Hong Kong trading fell as well. Industrial & Commercial Bank of China Ltd dropped 7% and Bank of China Limited declined 6.6%.

Banks in India plunged in the global sell-off. ICICI Bank dropped5.7% to 591.65 rupees, However, State Bank of India closed 6.1% higher after it dropped as much as 5%.

Tokyo Condo Offerings Fall 38% in August

Nikkei News reported on its Web site today that the number of new condominiums that were put onto the market slipped 38% to 2,041 units in August from the same period a year earlier in the Tokyo metropolitan region. In Osaka offerings however increased 7% in the period.

Gainers & Losers

Mitsubishi Motors Co. led advancers in the Nikkei 225 index shares with a rise of 8.55% followed by increases in Odakyu Electric Rail of 5.46%, in Yamaha Corp. of 4.90%, in G.S. Yuasa Corp. of 3.63%, and CSK Holdings Corp. of 3.46%.

Paper and pulp companies advanced. OJI Paper Co. gained 0.92%.

Shinsei Bank Ltd led decliners in the Nikkei 225 index shares with a fall of 16.04% followed by losses in Resona Holdings of 12.86%, in Tokio Marine HD of 12.70%, in Chuo Mitsui Trust of 11.71%, and Mitsui Fudosan of 11.65%.

Financial stocks continued to decline of lingering worries that credit market related losses will widen. Mizuho Financial Group slipped 10.68%, Chiba Bank of 8.84% and Fukuoka Financial of 9.73%.

Commodity stocks fell after crude oil prices traded below $100 per barrel. Inpex shed 11.13% as a result.