Stock investors wanted Japanese banks to get out from under US$425 billion in bad loans. Now that the government is pushing to make that happen, benchmarks are at their lowest levels in almost two decades and may slide further.
The index tracking banks such as UFJ Holdings Inc completed its biggest weekly slide in four years on concern a government bad-loan task force created this week may recommend seizing weak lenders and force their worst customers into bankruptcy.
"Some of the major banks will probably have to be nationalized at some point," said Scott McGlashan, who manages US$125 million in global equities at Jade Absolute Fund Managers in London. "That's probably very good in the long term, but it might cause markets to panic in the short term."
McGlashan said he bought shares of Sumitomo Trust & Banking Co. this week.
The Nikkei 225 Stock Average completed its biggest weekly drop since the five days ended July 26, falling 5.3 percent to 9,027.55. The average has lost about three-quarters of its value since climbing to a December 1989 peak. The broader TOPIX this week declined 4.8 percent to 891.60.
Elsewhere in Asia, exporters such as South Korea's Hyundai Motor Co and Hong Kong's Li & Fung Ltd may decline on concern slowing US economic growth and a lockout at US West Coast ports will erode their earnings.
Japan's Minister for Financial Services, Heizo Takenaka, said Thursday his task force will help the biggest lenders raise profits. A draft of those measures, which may include the use of public money to help them accelerate bad-loan disposals, may come as early as this month, he said. No other details were given.
"I agree with the hard-landing scenario even if that results in a short-term market crash," said Dai Nishiyama, who helps manage about US$22 billion of Japanese stocks at SG Yamaichi Asset Management Co. "In the long run, that's going to get all the cancer out of Japan."
Japanese banks held ?52.4 trillion (US$425 billion) of non-performing loans as of March 31, according to government data.
Meanwhile, Prime Minister Junichiro Koizumi may announce in the coming week a government economic package aimed at stemming price declines and restoring the financial system's health, a Nihon Keizai newspaper report said on Friday.
The TOPIX bank index, which tracks performances of 84 lenders, plunged 11 percent for the week, its biggest drop since the five days ended Aug. 28, 1998. UFJ and Mizuho Holdings Inc.
were the Nikkei's two worst performers in the week just ended.
Daiei Inc., the nation's third-biggest retailer, counts UFJ and Mizuho as its main lenders. Daiei must pay more than US$1 billion of debt.
Takenaka said no Japanese company is too big to fail and that unprofitable companies may have their credit turned off, the Washington Post reported in an article published in the International Herald Tribune on Friday.
Exporters such as Sony Corp. may decline after lower earnings forecasts from the US heightened concerns that demand from their biggest overseas market may slow.
EMC became the latest company to say it missed estimates. The world's biggest maker of computer-data storage systems joined Comerica Inc., Michigan's biggest bank, Advanced Micro Devices Inc. and Dow Chemical Co., which made their announcements Wednesday.
"We are in the middle of a profit recession that will have a worldwide impact," said Hakan Hedstrom, who manages about US$1 billion in Japanese equities as head of investment at Commerz International Management (Japan) Ltd. "The downward revisions for Japanese companies are not over yet."
RSS