Tuesday, September 16, 2008

Japan Banking Stocks Post Worst Fall Since 1987

The fallout from the collapse of Lehman Brothers caused panicked selling of banking shares in Tokyo.

In its bankruptcy filing in New York, Lehman said it had outstanding loans worth $1.6 billion to seven Japanese banks, including Tokyo-based Aozora Bank, to whom it owes $463 million. Lehman also said it owed $289 million to Mizuho Corporate and $231 million to Shinsei, among other banks.

The disclosures helped spark a sharp sell-off of Japanese banking stocks on Tuesday [Monday was a holiday] in Tokyo, which as a group posted their biggest one-day loss since 1987. The declines were led by Aozora, whose shares plunged almost 16 percent.

Lehman’s Japanese unit also filed for bankruptcy in a Tokyo court. The division's total liabilities are estimated at $32.7 billion, making it the second-largest bankruptcy in Japanese history.

Japanese banks said Lehman’s figures greatly overstated their potential losses from Lehman’s collapse. They said they had limited their exposure by means of derivatives, collateral and selling parts of the loans to other investors.

To my friends in Tokyo, good luck with the derivative protection. Yikes. You do know that Lehman was a huge derivatives player, don't you?

-Robert Wenzel

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