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Japan-Update

Toshiba woes dent financial sector's profits by nearly $2bn

Creditors maintain support while downgrading debt

TOKYO -- Six major Japanese financial institutions are expected to book Toshiba-related losses totaling more than 200 billion yen ($1.79 billion) for the fiscal year ended March 31 amid the conglomerate's struggles.

The list includes four financial groups that are key Toshiba creditors. The Japanese electronics powerhouse -- which is struggling to cope with massive losses incurred by its U.S. nuclear plant subsidiary, Westinghouse Electric -- is looking like a riskier borrower, with its net worth dropping into negative territory and its auditor refusing to sign off on twice-delayed April-December earnings. Major lenders have downgraded Toshiba on a borrower risk assessment scale, requiring them to boost their loan-loss reserves and thus reducing profits.

Mizuho Financial Group and Sumitomo Mitsui Financial Group each had nearly 180 billion yen in outstanding loans to Toshiba at the end of March through subsidiaries Mizuho Bank and Sumitomo Mitsui Banking Corp. Loans from Sumitomo Mitsui Trust Bank, owned by Sumitomo Mitsui Trust Holdings, add up to around 120 billion yen. Toshiba owes a combined 160 billion yen to Mitsubishi UFJ Financial Group units Bank of Tokyo-Mitsubishi UFJ and Mitsubishi UFJ Trust and Banking.

The four groups plan to expand their reserves against losses on these loans from billions of yen to tens of billions of yen, with MUFG reportedly on the high end in the 70 billion yen range. This is not as big a burden on the three megabanks as it is on the smaller Sumitomo Mitsui Trust Holdings, which plans to revise its fiscal 2016 net profit projection downward. Its current estimate is 170 billion yen.

The two MUFG units are considering lowering Toshiba another rung on the risk scale, which would require treating the company's debt as nonperforming but allow lending to continue. Any further downgrades, however, would flag Toshiba as being in danger of bankruptcy, potentially necessitating such steps as debt relief.

Aggregate losses of around 200 billion yen would amount to less than 10% of the four groups' total net profit estimate of roughly 2.3 trillion yen. The lenders are still willing to support Toshiba, expecting the sale of its memory unit to return the conglomerate to positive net worth. Toshiba's offer to put up Toshiba Memory shares as collateral is another point in the company's favor.

But Toshiba partner Western Digital opposes any acquisition of the memory business by a peer. This could bog down the sale and keep Toshiba's net worth in the red, leaving lenders in a difficult position.

Dai-ichi Life Insurance, a subsidiary of Dai-ichi Life Holdings, and Nippon Life Insurance are also set to suffer losses as Toshiba's fifth- and sixth-largest shareholders. Toshiba's troubles have weighed heavily on its shares, which stood at 241 yen apiece at the end of March. The insurers plan to write down the book value of their Toshiba holdings to market value, likely resulting in a combined loss of roughly 35 billion yen.

(Nikkei)

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