TOKYO - The Wall Street Journal
Despite raising more than $20 billion from stock sales over the past year, Japan's big lenders and brokers may have to tap the capital markets for more funds in the next six months as regulators globally push for tighter capital requirements.
Japan's largest brokerage firm by revenue, Nomura Holdings Inc., was the latest in a long line undertaking a capital raising this year, after it priced its offer of 800 million shares Monday at a total of $4.8 billion, just months after raising $3 billion.
But with the Group of 20 nations in September agreeing to a tightening of capital requirements, and Japanese financial institutions trailing their Western rivals in terms of capital, Nomura won't be the last, analysts say. Next in line, they say, are Japan's major banks: Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc.
"Banks will likely try to raise [funds] as early as they can and as much as they can," said Shinichi Ina, an analyst with Credit Suisse.
The firms declined to comment on their individual plans. The G-20 also hasn't settled on details, so it's unclear what new standards might need to be met.
Japan's banks tend to have lower core Tier 1 capital ratios, which measure a bank's financial strength, than Western peers. For instance, MUFG, SMFG and Mizuho have core Tier 1 capital ratios of 6.3%, 5.5% and 3.4%, respectively, according to Credit Suisse estimates. In contrast, Tier 1 ratios at J.P. Morgan Chase & Co. and Deutsche Bank AG are around 8%, while Credit Suisse Group and HSBC Holdings PLC exceed that.
In the past year, Japan's major banks have raised around $19 billion by issuing common shares to shore up their capital. MUFG, Japan's largest bank by assets, raised more than $4 billion in December. No. 2 Mizuho raised $6 billion in July, and No. 3 SMFG raised more than $9 billion in June.
Among the big banks, MUFG is the only one that can issue common shares this year, because of a lock-up rule that prevents a Tokyo-listed company from doing so within 180 days of its last issuance. SMFG and Mizuho won't be able to issue new common shares before early in 2010, but may do so soon after the lock-up expires, analysts said.
The Nikkei Stock Average of 225 companies is up about 38% in the past seven months, making it a good environment to raise funds, analysts said. But in the past month, worries that banks will soon tap the markets have contributed to a fall in Japan banking shares. Those shares are down 13%, compared with the Nikkei's 5% drop.
"Japanese financial institutions are likely to build up a sufficient buffer when markets are stable, rather than waiting for capital-requirement rules to be tightened," said Masao Muraki, an analyst at Daiwa Securities SMBC.
New rules should be in place by the end of 2012. Some governments, like the U.K., are planning tough new liquidity requirements for banks and investment firms as well as proposing that core Tier 1 ratios exceed 4%.
Japan's largest brokerage firm by revenue, Nomura Holdings Inc., was the latest in a long line undertaking a capital raising this year, after it priced its offer of 800 million shares Monday at a total of $4.8 billion, just months after raising $3 billion.
But with the Group of 20 nations in September agreeing to a tightening of capital requirements, and Japanese financial institutions trailing their Western rivals in terms of capital, Nomura won't be the last, analysts say. Next in line, they say, are Japan's major banks: Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc.
"Banks will likely try to raise [funds] as early as they can and as much as they can," said Shinichi Ina, an analyst with Credit Suisse.
The firms declined to comment on their individual plans. The G-20 also hasn't settled on details, so it's unclear what new standards might need to be met.
Japan's banks tend to have lower core Tier 1 capital ratios, which measure a bank's financial strength, than Western peers. For instance, MUFG, SMFG and Mizuho have core Tier 1 capital ratios of 6.3%, 5.5% and 3.4%, respectively, according to Credit Suisse estimates. In contrast, Tier 1 ratios at J.P. Morgan Chase & Co. and Deutsche Bank AG are around 8%, while Credit Suisse Group and HSBC Holdings PLC exceed that.
In the past year, Japan's major banks have raised around $19 billion by issuing common shares to shore up their capital. MUFG, Japan's largest bank by assets, raised more than $4 billion in December. No. 2 Mizuho raised $6 billion in July, and No. 3 SMFG raised more than $9 billion in June.
Among the big banks, MUFG is the only one that can issue common shares this year, because of a lock-up rule that prevents a Tokyo-listed company from doing so within 180 days of its last issuance. SMFG and Mizuho won't be able to issue new common shares before early in 2010, but may do so soon after the lock-up expires, analysts said.
The Nikkei Stock Average of 225 companies is up about 38% in the past seven months, making it a good environment to raise funds, analysts said. But in the past month, worries that banks will soon tap the markets have contributed to a fall in Japan banking shares. Those shares are down 13%, compared with the Nikkei's 5% drop.
"Japanese financial institutions are likely to build up a sufficient buffer when markets are stable, rather than waiting for capital-requirement rules to be tightened," said Masao Muraki, an analyst at Daiwa Securities SMBC.
New rules should be in place by the end of 2012. Some governments, like the U.K., are planning tough new liquidity requirements for banks and investment firms as well as proposing that core Tier 1 ratios exceed 4%.
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