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To: long-gone who wrote (9096)	3/31/1998 11:43:00 AM
From: Alex	Read Replies (1) \| Respond to of 116759

Hocus pocus................... Stock price falls continue threatening Japan banks (Adds comments by Finance Ministry official Nakae) By Fumiko Fujisaki TOKYO, March 31 (Reuters) - Many Japanese banks will avoid a worst-case scenario of big losses in the business year which ends on Tuesday by adopting a new, controversial accounting method for shareholdings, analysts say. But asset quality pressures will continue to threaten Japanese banks given their huge exposure to stock market volatility and potential bad loans, the analysts say. The adoption of the new method, which the Ministry of Finance (MOF) decided to introduce from March 31, allows banks to evaluate share holdings at book value rather than market price, thus enabling them to avoid posting appraisal losses. Under the current accounting method, banks post appraisal losses if the market value of shares they hold in long-term portfolios falls below their book value at the end of the fiscal year, reducing the banks' annual profits. A senior MOF official said no major Japanese banks are insolvent at present. Sei Nakai, senior deputy director of the ministry's Banking Bureau, said, however, that this does not mean the ministry has ensured that the net worth of major banks will not become negative. Nakai also told Reuters Financial Television in an interview: ''Most banks will adopt book value-based accounting method. By doing so, they can attain the minimum 8.0 percent capital adequacy ratio (set by the Bank for International Settlements) regardless of stock prices at the end of the fiscal year... It has been a vice of Japan's financial system that banks earnings are affected by stock prices on March 31.'' Naoko Nemoto, an associate director at Standard & Poor's (S&P) for financial institution ratings, said the rating agency would keep a close watch on unrealised profits or losses held by banks to assess the real strength of banks' core capital, regardless of the accounting method they adopt. The Tokyo stock market's key barometer, the 225-share Nikkei average, finished the business year at 16,527.17, up 264.13 points from Monday but far below the 18,003 at which it closed on March 31, 1997. Unrealised profits on shareholdings at five of Japan's 19 biggest banks -- Daiwa Bank, Long-Term Credit Bank of Japan, Nippon Credit Bank, Yasuda Trust & Banking and Chuo Trust & Banking -- are estimated to have vanished at that level, while Fuji Bank may have posted a small net unrealised profit. Japanese banks and companies once sat on massive unrealised profits on shares bought long ago at low prices as part of cross-shareholdings aimed at cementing ties among firms. Such ties were once a pillar of Japan's postwar economic structure. But a seven-year stock market slump after asset prices collapsed at the start of the decade pushed up the book value of banks' shareholdings as banks sold stocks to cover appraisal stock losses and losses stemming from bad loans. Analysts estimate that each 1,000 point drop in the Nikkei slices a total 2.4 trillion yen ($18.1 billion) off the combined unrealised profits on shareholdings at Japan's top 19 banks. Several big banks have already said they will adopt the new method in order to use money it frees up to boost their disposal of problem loans. Daiwa Bank said it would alter the accounting method to lessen the impact of stock price declines on earnings results, a move which will help it to dispose of 380 billion yen in problem loans in 1997/98. That compared with the bank's earlier forecast of 192 billion yen. Sanwa Bank also said its problem loan disposal would increase to 940 billion yen in 1997/98 from an earlier forecast of 750 billion, aided by the new accounting method. Only three of Japan's 19 biggest banks -- Bank of Tokyo-Mitsubishi, Industrial Bank of Japan and Mitsubishi Trust & Banking Corp -- said they would keep using the current stock accounting method, analysts said. But adopting the new accounting method could send a signal that the financial health of a bank which does so is weak, analysts said. ''Having to resort to the use of such accounting legerdemain indicates the severe pressure the (Japanese) banking system is under,'' said rating agency Fitch IBCA. ''The government is making a real contribution to the stability of the banking system, by contributing capital, but it is questionable whether this represents the best use of taxpayers' money,'' the rating agency added. Analysts said Japan should instead seek to solve or ''buy up'' the nation's bad loan problem by using taxpayers' money and restructuring the banking sector. ''Japan's bad loan problem has not yet entered into the final stage... Unsolved and unclear factors remain surrounding banks,'' said Kouya Hasegawa, an analyst at Nikko Research Center. ''Exposure for other Asian countries could result in substantial losses, and potential losses on loans to troubled general contractors have not been covered yet.''