Standard & Poor’s addressed the recent weakness in the Japanese stock market, stating that “the current level of Japanese stock prices is within the tolerance of its counterparty ratings on Japanese banks and insurance companies.”
The Nikkei stock average dropped to a 17 year low today at 11,100 yen, a 15 percent fall in five months, and S&P warned that the lower stock prices of Japanese securities could limit the banks’ ability to pay dividends on preferred stock.
S&P’s analysis of the portfolio values of banks and insurers indicates that their value has dropped by about 0.4 percent since last April. While these declines are “within the tolerance range of existing bank ratings,” they are still cause for concern.
New accounting rules will require banks and insurers to to deduct 60 percent of unrealized securities losses from retained earnings. This in turn would limit their ability to pay dividends, and would give preferred shareholders, in many cases the Japanese government, voting rights.
S&P confirmed that it “maintains a negative outlook on its ratings on the preferred instruments of Japanese banks.”
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