If you ever wanted to know just how far the U.S. mortgage mess reaches, look no further than Japan's second-largest bank, Mizuho Financial Group, Inc (MFG). The bank warned Friday that its securities trading unit lost 400 billion yen ($3.96 billion) in the twelve month period ending March 31; more than 209 billion yen ($2.1 billion) of that loss came since January 1st, the company said. Mizuho said that the losses were "due to mark downs related to securitization products amid the dislocation in the credit markets stemming from the U.S. subprime loan issues." The losses in the securities unit, Mizuho Securities Co., Ltd., will likely push the bank well below its original profit forecast of 480 billion yen ($4.7 billion) to 310 billion yen ($3.0 billion) -- a 35 percent hit to earnings, thanks almost entirely to U.S. mortgage exposure. The bank said its securities unit sold or wrote off the equivalent of $3.7 billion in collateralized debt obligations and residential mortgage-backed securities during the first 3 months of 2008. Via Bloomberg:
"Long term, we must question whether the Mizuho group is properly governing its securities arm," said Keisuke Moriyama, a Tokyo-based banking analyst at Nomura Holdings Inc. Mizuho waded into the business of repackaging and selling U.S. debt securities just as the market began showing signs of collapsing, hiring a team of bankers from Calyon, the investment bank of France's Credit Agricole SA, in December 2006. A year later, Mizuho suspended trading and creating U.S. collateralized debt obligations containing asset-backed securities or high-yield corporate loans.
During the go-go years of 2006 and part of 2007, Mizuho was among the world's top 20 issuers of mortgage-bond-backed CDOs. Investors, however, seemed unfazed by the news: the bank's shares rose 22 cents on the New York Stock Exchange on Friday to close at $7.81. Disclosure: The author held no positions in MFG when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.