Japan's Banks Count Cost of Us Sub-prime Crisis

Japan's megabanks are this week counting the cost of the US sub-prime crisis, with annual earnings reports showing combined losses for the last financial year edging towards ¥1 trillion (£4.9bn).

The combined cost of the write downs made by Japan's six largest banks is more than three times the amount estimated just six months ago, although still less than some banks such as UBS and Citigroup lost on their own.

Mitsubishi UFJ, Japan's biggest banking group, said today its earnings for the year up to March had fallen by almost 28% to ¥636.6bn, down from ¥881bn a year earlier.

The bank lost ¥123bn through exposure to the US mortgage crisis, well above January's estimate of ¥95bn.

But its losses paled in comparison to those of Mizuho, the country's second-biggest bank, which lost ¥645bn on the US housing market, halving its annual net profit.

Mizuho's president, Terunobu Maeda, described the results as "very regrettable". He told reporters today: "We have unfortunately topped the list for something we should never brag about."

Japan's banks are also hurting from stagnant lending, as firms shy away from capital investment amid the economic slowdown and a determination to avoid a repeat of the bad-loan meltdown of the 1990s.

Though lending grew at its fastest pace for a year in April, it remained low at just 1.2% higher than a year ago.

Concerns about the global credit crunch, as well as rising oil and raw material prices, were reflected in the Bank of Japan's decision yesterday to keep interest rates at 0.5%.

"We are looking closely at downside risks to the economy," the bank's governor, Masaaki Shirakawa, told reporters, lending weight to the consensus view that interest rates are unlikely to increase for at least the rest of the year.

Though sub-prime losses by Japan's top six banks were higher than expected, finance officials said they were confident the worst is over.

UBS has launched a rights issue after writing off more than £9bn in sub-prime losses. In contrast, Japan's banks have been able to absorb the cost of the sub-prime crisis through their operating profits.

"So far, there has been no serious threat to Japan's financial system," said Takafumi Sato of the Financial Services Agency, Japan's financial watchdog.