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Saturday, June 7, 2008

Securitized losses top ¥2 trillion

Survey of financial institutions shows subprime loan crisis has spread to other products

Staff writer

The combined losses incurred by Japan's 673 financial institutions on their holdings of securitized products, including those linked to U.S. subprime loans, amounted to ¥2.44 trillion at the end of March, the Financial Services Agency said Friday.

Of these losses, ¥850 billion was linked to U.S. subprime mortgage-related products and the remaining ¥1.59 trillion was incurred from other securitized products held by banks and other smaller deposit-handling financial firms.

"There were many losses from securitized products not related to the subprime loans," an FSA official told reporters. "This showed that the impact (of the subprime loan crisis) is spreading to various securitized products."

Of the ¥2.44 trillion in losses, ¥2.08 trillion was incurred by Japan's 35 major banks and banking groups, accounting for 85 percent of the total.

At the end of March, financial institutions still had ¥22.8 trillion worth of securitized products, including ¥1.02 trillion linked to U.S. subprime loans, the FSA survey showed.

Commenting on these figures, the FSA official, who talked on condition of anonymity, said the financial institutions need to control the risks they carry and the agency will continue to monitor further developments.

Financial firms' total losses from subprime-related products alone reached ¥850 billion, up from ¥600 billion at the end of December and ¥276 billion at the end of September.

Although major banks earlier said they booked a total of about ¥1 trillion of losses due to the subprime loan crisis, the FSA put the figure at ¥850 billion. The FSA official explained that some banking groups also included losses on other securitized products whose value declined due to the subprime woes.

The financial firms' holdings of subprime-related securitized products fell to ¥1.02 trillion from ¥1.52 trillion in December.

"It shows that many institutions sold, devalued the products or set aside reserves" in the last business year that ended in March, the FSA official said.

The financial watchdog said the overall amount of losses was still within the range that can be covered by the capital strength of the financial organizations and will have limited impact on their businesses.

The figures were compiled based on criteria proposed by the Financial Stability Forum, an independent group of regulators worldwide. It is the first time the FSA has compiled the survey based on the FSF criteria.

The FSA has disclosed a similar survey twice in the past since the U.S. subprime loan upheaval started last summer to grasp what impact it had on Japanese financial institutions.

The FSA compiled the data from 35 major banks, 110 regional banks and 528 "shinkin" credit banks and credit unions.

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The Japan Times

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