1H16 Better-Than-Expected Results Suggest Earnings Inflection Points; Positive For Japanese Banks

Lack of Term Premium Continues to Cost Japanese Banks with Limited Financial Flexibility

Sumitomo Mitsui Trust Holdings' More Stable Earnings Base Has yet to Offset Market Pressures

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Thematic (Sector/Industry)

Japan Financials / Thematic (Sector/Industry)

On Jan. 19, <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba Corp (6502 JP)</a> reported that it will likely book a combined noncash charge of up to JPY 700 billion, mainly for goodwill impairments on the U.S. nuclear business acquisition through its U.S. subsidiary, Westinghouse. The scale of impairment significantly exceeded the market expectation at the end of last year, as it is likely to push Toshiba’s thin net equity position of JPY 360 billion into a deficit, with potential delisting from the Tokyo Stock Exchange in sight.As the second-largest diversified industry group after Hitachi, Toshiba maintains a membership status within the Mitsui “zaibatsu” group, a cross-industry alliance of leading domestic companies dating back to the 16th century. According to a press report, as of the end of September 2016, Toshiba maintains a total of JPY 798.7 billion in loans outstanding, consisting of: (1) JPY 110 billion for Sumitomo Mitsui Banking Corporation (<a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial Group (8316 JP)</a>); (2) JPY 110 billion for Mizuho Bank (<a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group Inc (8411 JP)</a>); (3) JPY 102 billion for Bank of Tokyo Mitsubishi UFJ and Mitsubishi UFJ Trust (<a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ Financial Gro (8306 JP)</a>); and (4) JPY 75 billion for Sumitomo Mitsui Trust Bank (<a href="https://www.smartkarma.com/entities/19450" target="_blank" data-smartkarma-citation="entities:19450:1">Sumitomo Mitsui Trust Holdings (8309 JP)</a>).Anlayst: Mari Kumagai

On Jan. 19, Toshiba Corp (6502 JP) reported that it will likely book a combined noncash charge of up to JPY 700 billion, mainly for goodwill impairments on the U.S. nuclear business acquisition through its U.S. subsidiary, Westinghouse. The scale of impairment significantly exceeded the market expectation at the end of last year, as it is likely to push Toshiba’s thin net equity position of JPY 360 billion into a deficit, with potential delisting from the Tokyo Stock Exchange in sight.As the second-largest diversified industry group after Hitachi, Toshiba maintains a membership status within the Mitsui “zaibatsu” group, a cross-industry alliance of leading domestic companies dating back to the 16th century. According to a press report, as of the end of September 2016, Toshiba maintains a total of JPY 798.7 billion in loans outstanding, consisting of: (1) JPY 110 billion for Sumitomo Mitsui Banking Corporation (Sumitomo Mitsui Financial Group (8316 JP)); (2) JPY 110 billion for Mizuho Bank (Mizuho Financial Group Inc (8411 JP)); (3) JPY 102 billion for Bank of Tokyo Mitsubishi UFJ and Mitsubishi UFJ Trust (Mitsubishi UFJ Financial Gro (8306 JP)); and (4) JPY 75 billion for Sumitomo Mitsui Trust Bank (Sumitomo Mitsui Trust Holdings (8309 JP)).Anlayst: Mari Kumagai

Sumitomo Mitsui Financial Group (8316 JP)

Mitsubishi UFJ Financial (MUFG) (8306 JP)

Sumitomo Mitsui Financial Group (Sponsored Adr) (SMFG US)

Sumitomo Mitsui Financial Group (Sponsored Adr)

Tokyo Kiraboshi Financial Group (7173 JP)

Mitsubishi UFJ Financial (MUFG) ADR (MUFG US)

Minimal Impact From Larger Credit Loss on Toshiba; Maintaining FVE for Major Japanese Banks