/www.bloomerg.com/ By Mariko Iwasaki
Tokyo, Nov. 29 (Bloomberg) -- Japan's central bank sparked a rally in lenders' shares 10 weeks ago when it revealed plans to buy stocks. When purchases begin today, there may be few sellers.
The Bank of Japan's plan to buy 2 trillion yen ($16 billion) in stock over ten months is designed to help banks reduce holdings of shares in other companies. Lenders say there are too many conditions on the purchases and a 15 percent drop in the Nikkei 225 Stock Average in the past year will force them to book losses on most sales.
``It is tough on our side to use (the BOJ plan) when the stock market is declining this much,'' said Shigemitsu Miki, president of Mitsubishi Tokyo Financial Group Inc., Japan's biggest bank by market value.
A previous government attempt to get banks to reduce their shareholdings also failed to find sellers. The Banks' Shareholdings Purchase Corp., set up by lenders in February to make off-market purchases of shares from banks, only spent 130 billion yen in its first round of share buying at the start of the year. The BOJ plan may not be much more popular, investors say.
``The impact on the overall market would be limited, because of certain restrictions,'' said Hiroaki Muto, who helps oversee $60 billion in assets at Nissay Asset Management Corp. The plan ``leaves investors with little conviction of how exactly the move will help banks in the long run.''
The BOJ purchases are more favorable than the bank stock-buying fund. That fund, run by lenders and guaranteed by the government, has rules requiring banks to set aside 8 percent of the value of shares sold to cover possible losses when its mandate ends.
Yet the BOJ buying also has strings. The central bank will buy only at market prices and only stocks banks hold in other companies that are rated at investment grade, or at BBB or above.
The Nikkei 225 Stock Average fell as much as 0.6 percent to 9,125 as of 9:40 a.m.
Book Value
Japan's seven biggest banks had paper losses from their shareholdings of 5.2 trillion yen as of Nov. 15, four times the 1.3 trillion yen in March, according to Daiwa Institute of Research.
``Stock prices are declining,'' said Terunobu Maeda, president of Mizuho Holdings Inc, at a press conference on Monday. ``At such times, it's difficult for us to sell.''
Resona Holdings Inc., formed by the merger of Daiwa Bank Ltd. and Asahi Bank Ltd. in March, may be tempted to sell if the price is right.
``We are planning to sell our stock to the BOJ in the first round, bearing in mind that we don't incur a loss,'' said Resona President Yasuhisa Katsuta at Monday's earnings briefing.
Banks that sell stocks which have lost their value have to realize all of those losses. When they hold onto them, they only need to deduct from their capital 60 percent of the difference between their book value and current market value.
``If the BOJ were to buy shares from banks at the book price, it may prompt lenders to be more aggressive in terms of selling their shares,'' said Nissay's Muto.
Bad Loans
While the central bank may not attract many sellers, the purchase plan has at least forced the government to come up with its own program to revive the banks and pushed the banks to look for other ways to bolster their capital.
Minister for Financial Services Heizo Takenaka will today release details of tighter controls, including the start of a review of what banks can count as capital, preparing the way for government seizure if they prove weak, according to a draft of the plan obtained by Bloomberg News. Japan's banks held 52.4 trillion yen of bad loans, the government estimated in March.
``The discussion on stockholdings has to be treated as part of the whole banking issue,'' said Hiroshi Mizutani, a fund manager with Asahi Life Management Co. ``It only makes sense how the stocks will be bought after their loans have been reassessed.''
Bank stocks plunged after Minister Takenaka announced his initial bank reform proposals on Oct. 30. Shares of Mizuho, the world's biggest bank by assets, soared as much as 16 percent the day after the BOJ plan was revealed on Sept. 18, and have fallen 45 percent since then. UFJ Holdings Inc., Japan's No. 4 bank, rose as much as 15 percent on Sept. 19, and have since plunged 51 percent before today.
UFJ shares today fell as much as 3.9 percent to 123,000 yen and were trading at 125,000 as of 9:48 a.m. on the Tokyo Stock Exchange. Mizuho shares fell as much as 2.9 percent to 134,000 yen, and were trading at 135,000 yen as of 9:48 a.m.
Alternative
One alternative plan, proposed by Democratic Party of Japan legislator Kouichi Ohtsuka and now being studied by Takenaka's ministry, is to have the central bank use its 2 trillion yen to buy shares of the banks themselves, shoring up their capital.
``There's hardly any incentive for banks to sell their shares to the Bank of Japan right now,'' Ohtsuka, a former central banker, told Japan's parliament earlier this month. However the BOJ spends its funds, some investors say the move has already had its positive effect.
``What the Bank of Japan was trying to achieve was to force the government into doing something,'' said Tony Roberts, who helps manage $800 million in Japanese equities at Perpetual Investment Management Co. in the U.K. ``The Bank of Japan has always looked to the government saying you're not doing enough on the bad loan problems.''