TOKYO -- The three Japanese megabanks are raising new capital for the first time since the global financial crisis of 2008, using a new financial instrument that complies with stiffer international banking standards.
The banks expect to issue around 3 trillion yen ($23.7 billion) worth of perpetual subordinated bonds through March 2019. The instrument's principal changes according the issuer's capital ratio. They are considered high quality and are to be treated as Tier 1 capital, which includes common stock.
Mitsubishi UFJ Financial Group was the first out of the gate, issuing 100 billion yen worth of the instruments in March. Sumitomo Mitsui Financial Group and Mizuho Financial Group procured 300 billion yen each via this route in July.
The three megabanks shored up their capital bases around the time of the financial crisis by issuing a huge amount of preferred securities. But the international capital adequacy framework known as Basel III is phasing out those securities from among qualifying core capital. Basel III requires large multinational banks to maintain Tier 1 capital ratios above a certain percentage to cushion against risks.
To secure the required capital ratios, the banks need to replace the preferred securities. Because issuing new common stock presents the risk of falling share prices, the banks chose perpetual bonds.
Over 3 trillion yen in preferred securities are in circulation, making up nearly 10% of the three banks' capital bases. The megabanks also might face requirements to further bolster capital bases.
Tier 1 capital ratios at the three banks slightly exceed those of large Western banks, Japan's Financial Service Agency says. But the ratios factor in unrealized gains from cross-held stocks, which the megabanks are shedding to prevent losses from falling share prices.