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Saturday, May 17, 2008

SMBC logs 77.2% plunge in profit to ¥83 billion


Staff writer

Sumitomo Mitsui Financial Banking Inc. said Friday that net profit at its banking unit, Sumitomo Mitsui Banking Corp., plunged 77.2 percent to ¥83 billion in the business year that ended in March as the U.S. subprime-loan upheaval eroded its profits.

However, the banking group's consolidated net profit rose 4.6 percent to ¥461.5 billion due partly to one-time gains earned from merging its leasing affiliates, which pushed up group profits by ¥100 billion.

Subprime-related losses at SMFB — Japan's third-biggest banking group in terms of assets — reached ¥93 billion in business 2007.

It also booked ¥30 billion in losses and reserves set aside to cover the deterioration of the so-called monoline insurers it hired to hedge its bond risk. The monolines insure trillions of dollars in bonds.

But because most of the losses were realized during the year to March, its remaining exposure to subprime-loan-related products fell to ¥5.5 billion as of the end of that month.

"The exposure (to such loans) has been reduced to a level that we are able to control," President Teisuke Kitayama said. "Further (subprime) impacts on our group in the current year (to next March), if any, will be very small."

Many Japanese banking groups and brokerages are suffering from exposure to subprime-loan-related products, but Sumitomo Mitsui is one of the few that were able to minimize the damage.

Although the group had ¥450 billion worth of securities products linked to U.S. subprime loans a year ago, it sold ¥350 billion of them in the April-June quarter last year — before the crisis erupted in August.

"We were able to reduce the risk," Kitayama said.

Separately, Resona Holdings Inc., the nation's fourth-largest bank by market value, said it booked a group net profit of ¥302.8 billion in the business year to March, down 54.5 percent from the year before.

The big plunge followed the booking of a one-time profit in business 2006 after it revised its accounting methods.

Because it avoided investing in high-risk securities products, Resona was effectively unscathed by the U.S. subprime crisis. As of the end of March, Resona said it only had ¥30 million worth of exposure to such loans.

"Our biggest business task is to repay public funds," Resona Chairman Eiji Hosoya said, referring to the public bailout it received in 2003.

Resona is in the process of a financial reconstruction. In 2003, the government injected about ¥3 trillion in taxpayer money into Resona to help bolster its crumbling capital base — a move that effectively nationalized the bank.

As of the end of March, Resona had ¥2.3 trillion worth of public funds to repay, and the bank said it is steadily repaying the funds as planned.



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