Norinchukin to Seek $10.5 Billion in Biggest Fundraising by Asian Company

27 Nov 2008 • by Natalie Aster

Norinchukin Bank, the Japanese agricultural bank stung by wrong-way bets on credit derivatives, will seek more than 1 trillion yen ($10.5 billion) in Asia’s biggest capital-raising since the global credit crisis began.

The lender, which reported a 95 percent drop in first-half profit today, hasn’t decided on the fund-raising method and will discuss it with members, it said in a statement. Norinchukin aims to raise the capital by March 31.

Chief Executive Officer Hirofumi Ueno, whose firm makes loans to rice farmers and fishermen, is asking for money as losses mount on investments tied to U.S. mortgages. The bank, founded in 1923, has transformed itself into Japan’s biggest investor in securities backed by assets such as auto loans and subprime mortgages, as near-zero domestic interest rates prompted Ueno to seek higher returns abroad.

“These guys are obviously afraid of large losses ahead and are seeking capital now,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo, whose parent company manages about $3.1 billion. “They had no business getting into such risky assets.”

Norinchukin’s net income dropped to 7.8 billion yen in the six months ended Sept. 30 from 143.6 billion yen a year earlier as it posted an 81.5 billion yen loss on asset-backed securities. The bank has 6.8 trillion yen of such securities at the end of September, almost equivalent to the market value of Charlotte, North Carolina-based Bank of America Corp.

Not Resigning

Norinchukin had unrealized valuation losses of 758.4 billion yen on asset-backed securities at the end of September, more than twice its 313.3 billion yen loss as of March. The Japanese lender said it had 9.7 billion yen in losses tied to subprime-related assets, with the remaining investments falling to 241.6 billion yen as of September.

Management at the bank may consider taking pay cuts as it asks members for funds, Ueno said at a briefing in Tokyo today.

“The most important responsibility I should take right now is to stabilize the bank’s financial basis by raising capital,” Ueno said at the press briefing, denying the possibility for his resignation.

Norinchukin joins Japan’s biggest banks in seeking to raise funds after declining markets eroded the value of investments. The three biggest lenders, including Mitsubishi UFJ Financial Group Inc., aim to collect more than $17 billion combined.

‘Increasing Risk’

Norinchukin said in October last year it planned to increase by about 3 trillion yen its investments in asset-backed securities, including debt backed by payments from credit-card and auto loans in the U.S. and Europe. Price declines had made the assets attractive, Toshiyuki Futaoka, the bank’s global head of strategic asset allocation, said at the time.

The increased investments prompted Standard & Poor’s to say in July it may downgrade Norinchukin’s credit rating of A+, the fifth-highest investment grade. Moody’s Investors Service said this month it may lower its rating on the bank.

S&P cited Norinchukin’s “increasing risk” from securities investments, saying such holdings totaled 36.2 trillion yen, equivalent to about 3.6 times its total loans, compared with an average securities-to-loans ratio of between 0.4 and 0.5 for other Japanese banks.

“The balance between risk volume and capitalization at Norinchukin is likely to worsen,” S&P said at the time.

The fund-raising announced today wouldn’t have an impact on the bank’s capital standing as long as the money comes from members, according to Naoko Nemoto, a Tokyo-based analyst at S&P.

Norinchukin had 58.1 trillion yen in assets at the end of September, down from 70.8 trillion yen in March 2006.

The bank was founded as a semi-governmental financial institution and was privatized in 1959, according to its Web site. Norinchukin had 4,260 shareholders at the end of March, made up of agricultural, fishery, forestry and related cooperatives.

The bank has branches in New York, London and Singapore and passes on returns from global investments to its members.

Source: Bloomberg