No Laughing On the Way To the Bank

Never underestimate the ability of Japan's bank executives to mess up a good thing.

Mitsubishi UFJ Financial Group says it will raise as much as $11 billion by selling stock. If the usual herd mentality prevails, other Japanese banks are sure to follow.

A recent spending spree has left MUFG poorly equipped to absorb stock losses and the potential for loans to sour.


Associated Press
A pedestrian walks past a signboard of Mitsubishi UFJ Financial Group Inc., in Tokyo.
In the past month, Japan's biggest bank by assets has paid $9 billion for a stake in Morgan Stanley, spent about $3.5 billion for the balance of UnionBanCal it didn't own and raised its position in Japanese consumer-finance company Acom by $1.7 billion.

The bank also is sitting on $3.6 billion in unrealized losses on structured-product holdings, in addition to stakes in other companies, especially customers and companies that fall under the Mitsubishi keiretsu. Those holdings were valued at about $66 billion in June. Since then the Nikkei 225 Stock Average has nearly halved in value.

Stock-market losses and the spending could cut MUFG's Tier-I capital-adequacy ratio by 0.9 point, figures NikkoCitigroup. At the end of June the ratio stood at 7.33%.

It would be reassuring if Japan's banks were successful in going to the market for funds. Doing so will ensure the banks avoid all the strings that come attached to Japanese government aid that were imposed after bailouts in the late 1990s.

Still, after apparently learning from the bad-loan debacle that led to those bailouts, MUFG seems to have skipped the class on managing capital.