Subprime crisis to slow Mizuho-Shinko deal

The widening global subprime loan crisis has forced two brokerages affiliated with Mizuho Financial Group Inc. to consider postponing their merger, sources said.

A delay in the merger of Mizuho Securities Co. and Shinko Securities Co. could deal a serious blow to the financial group's plan to expand its securities operations.

As subprime loan-related losses are expected to widen at Mizuho Securities, the two brokerages will recalculate the share-swap ratio, possibly based on their financial results for the year ending March, the sources said.

That could put off the merger to April or beyond, they said.

Initially, the merger was set for January, with 343 shares in Shinko Securities to be swapped for one share in Mizuho Securities.

A source close to the talks said the two brokerages are looking to postpone the merger so that losses at Mizuho Securities won't put Shinko Securities shareholders at a disadvantage.

The privately owned Mizuho Securities is the nation's third-largest securities house, while Shinko Securities, listed on the Tokyo Stock Exchange's First Section, is the sixth-largest.

In terms operating revenue, the merged entity would rank third in the domestic securities industry.

For the six months through September, Mizuho Securities posted about 27 billion yen in group net losses owing to subprime loan-related losses at its London-based subsidiary.

The value of subprime loan-related securities held by the subsidiary plunged, forcing Mizuho Securities to book about 26 billion yen in related losses.

Losses at Mizuho Securities could widen because financial institutions are under pressure to evaluate the value of these securities, known as collateralized debt obligations, more conservatively, analysts said.

At Mizuho Financial Group, losses related to subprime loans are expected to total about 50 billion yen.

The subprime loan crisis is affecting the earnings of domestic financial institutions, even though analysts say they are relatively unscathed compared with their Western counterparts.

Nomura Holdings Inc. appears to be the hardest hit, with subprime loan-related losses expected to total 145 billion yen for the first nine months of this year.

The nation's largest securities house had undertaken "securitization" of subprime loans on its own in the United States as a way to diversify its earnings sources.

In the banking industry, Mitsubishi UFJ Financial Group Inc. is projecting about 25 billion yen in related losses for the six months through September.

It owned subprime loan-related securities worth about 260 billion yen as of the end of September.

Sumitomo Mitsui Financial Group Inc. also plans to book about 32 billion yen in related losses.

Shinsei Bank, Aozora Bank and the Norinchukin Bank, the central bank for agricultural cooperatives, are also expected to report losses related to subprime loans.(IHT/Asahi: November 13,2007)