Are Japanese banks expecting another 'Black Monday'?

Mitsubishi UFJ Financial Group and Aozora Bank led the biggest decline among Japanese banks since the “Black Monday” market crash in 1987, after Lehman Brothers Holdings' collapse triggered a plunge in U.S. financial stocks and saddled Japanese lenders with some of the largest debts.

Mitsubishi UFJ, Japan's biggest bank, fell 10 percent, the most in at least seven years, on the Tokyo Stock Exchange. Aozora plunged by 20 percent.

The U.S. stock decline erased more than $600 billion in market value as financial shares in the Standard & Poor's 500 Index decreased the most since at least 1989, according to data compiled by Bloomberg. The largest single creditor listed in Lehman's Chapter 11 bankruptcy filing is Tokyo-based Aozora, owed $463 million.

“I'd expect the direct impact on Japanese names to be very modest, but they exist in a global financial system that's coming under a lot more pressure than anybody considered likely,” said David Threadgold, a bank analyst with Fox-Pitt Kelton Asia in Tokyo. “The bigger issue is the whole world is in trouble.”

The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after “Black Monday,” when stock markets around the world crashed.


Sumitomo Mitsui, Mizuho
Sumitomo Mitsui Financial Group, Japan's third-largest bank by market value, fell 11 percent to 608,000 yen while Mizuho Financial Group, the second-biggest, dropped 10 percent to 419,000 yen.

Tokyo-based Mizuho is owed $382 million by Lehman, the U.S. brokerage said in a statement. Masako Shiono, a spokeswoman for Mizuho, declined to comment on the statement.

Aozora's exposure due to Lehman was overstated in the U.S. firm's bankruptcy filing and may be less than $25 million, Chief Financial Officer Richard Layton said in a statement.

Financial stocks in South Korea also fell, led by Woori Finance Holdings, which controls the nation's second-biggest bank. Woori plunged 14 percent, the most since it began trading in June 2002, in Seoul.

An index tracking 54 of South Korea's financial companies dropped 8.9 percent, the biggest contributor among 19 industry groups to the benchmark Kospi index's 6.1 percent decline.

South Korea's Financial Services Commission said Korean firms have invested about $720 million in loans and securities linked to Lehman.

Kookmin Bank, the country's largest, fell 8.5 percent while Shinhan Financial Group, which controls the third-biggest lender, dropped 7.4 percent.

In Sydney, Commonwealth Bank of Australia fell 2.2 percent to A$41.07. The lender said its exposure to Lehman is less than A$150 million ($119 million).

The Sydney-based bank is “working with relevant parties in regard to its position,” Commonwealth said in a statement to the Australian stock exchange.


Will Asian banks lessen their exposure to finance institutions such as Lehman after this recent plunge in U.S. stocks? How will this affect, if ever, the banks' position in the global financial system?