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Finance
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2000-06-19 08:46:00-04
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Japanese Banks increase Exposure to Stocks
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Japanese Banks increase Exposure to Stocks
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Credit rating agency, Fitch IBCA, says Japanese banks have increased their exposure to the stock market, making them vulnerable to market swings. Banks plagued by debt were the worst in terms of asset quality and could enjoy a slow, meandering recovery in concert with economy, Fitch said. Many such banks have sold stocks to help cover their large losses from non-performing loans, thus exhausting their hidden reserves in equity investments, leaving them highly vulnerable to stock market oscillations. 'In the past they could rely on hidden reserves to deal with such fluctuations but now these hidden reserves are virtually exhausted,' Fitch pointed out. With the Nikkei index at 17,000 points many banks have seen the unrealized profits from purchased stocks evaporate and have been forced to sell the stocks. The banks have dumped the stocks to create an accounting profit, but after the sale, have immediately repurchased the stock, thus raising their vulnerability to the market. New accounting rules, which will come into place April 1, 2001, will force the banks to report these losses if the benchmark indicators fall below 17,000 points. The Nikkei index ended Monday at 16,591.35, for example. Fitch reports that Japanese banks had improved their asset quality at the risk of over-exposure to the stock market. Bank credit ratings could not be improved until this risk was reduced, the agency said. Fitch said it had long argued that banks should not invest more than their core capital in the stock market.
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