Japan and Asia bailing out Yank banks?

HERE’S THE PROOF that Japanese banks have largely recovered from the overhang of non-performing debt from the era of the bubble economy, which burst to create an immense financial hangover.

The Times of London is reporting that the Big Three Japanese banks are interested in using their cash surpluses to bail out American firms at risk from their exposure in the subprime mortgage crisis.

Senior sources at the “big three” Tokyo megabanks told The Times that they had readied a combined cashpile of as much as $10 billion (£5 billion) and were open to negotiation with any struggling Wall Street bank that approached them for a cash infusion.

Mitsubishi UFJ (MUFJ), Mitsui Sumitomo Financial Group (SMFG) and Mizuho Financial – banks that have been scarred only very lightly by the sub-prime crisis in the United States – are understood to have already opened preliminary talks with several American firms.

One MUFJ insider said that his firm was planning to compete directly with the leading Asian sovereign wealth funds as a long-term investor in the troubled American banks.

Indeed, Mizuho joined with the Kuwait Investment Authority and the Korean Investment Corporation to provide $US 6.6 billion in cash to investment firm Merrill Lynch. Japanese press reports state that Mizuho’s contribution was roughly $US 1.2 billion, and that the members of the consortium which ponied up the funds would be given preferred stock without voting rights.

There is one troubling aspect to this situation, however:

The Japanese banks, flush with cash and desperate to find ways of raising their return on capital, are keen to become central players in what some predict will be an all-Asian solution to the sub-prime woes contorting America and Europe.

That’s exactly what got those banks in trouble in the first place, almost 20 years ago. Let’s hope that everyone has learned their lesson and is proceeding with caution this time.

Extra! Extra! Read All About It!

Reader Tomojiro sent along a link to the Japanese-language edition of the Yomiuri Shimbun, posted this afternoon, that makes one wonder what is going on at The Times of London.

According to The Times, a Mitsubishi UFJ insider told the reporter that the bank would be a serious player investing long-term in banks with subprime problems.

Yet the Yomiuri is saying that each of the Big Three has serious exposure to the subprime losses.

Here is a quick translation of the Yomiuri article:

Mitsubishi UFJ Losses in Subprime Debacle Roughly 50 Billion Yen ($US 465 Million)

The Mitsubishi UFJ financial group will record consolidated losses as high as 50 billion yen for the period from April to December 2007 due to their exposure to the subprime loan problem involving home loans for low-income borrowers in the U.S., it was learned on the 16th.

The losses have resulted from plummeting prices for subprime-related instruments in the bank’s portfolio, and will be officially announced at the end of the month.

Mitsubishi UFJ recorded 4 billion yen in subprime-related losses for the consolidated interim period ended September 2007, and announced their paper losses were as high as 23 billion yen at the end of October. The prices of securitized instruments have continued to fall, however. In addition to their investment in subprime-related instruments, the bank will suffer losses on their 80 billion yen investment in SIVs (Structured Investment Vehicles, i.e., financial institution-affiliated companies that sell commercial paper and medium-term notes and buy longer term debt instruments).

Subprime-related losses for the full fiscal year ending March 2008 are projected to swell to about 170 billion yen for the Mizuho Financial Group and about 87 billion yen for the Mitsui Sumitomo Financial Group. It was initially thought that Mitsubishi UFJ losses would be light, but the higher losses expected to emerge makes it likely the losses for the other major banks will grow as well.

Mizuho already has invested in Merrill Lynch, so if the Yomiuri report is true, it would mean that the Japanese banks are desperate to prop up the American companies to stanch their own bleeding, as Tomojiro suggested.

And–yet again–the Western media gets it very wrong about Japan. While those banks may be scraping together the funds to invest overseas, how could the Times of London come up with the idea that they have been “scarred only very lightly” by the subprime problem?