Japan’s Norinchukin eyes investment, posts $3.1 bn loss after sovereign debt sales

TOKYO :Japan’s Norinchukin Bank posted on Tuesday a net loss of $3.1 billion in the second quarter after realizing losses on its large holdings of foreign government bonds, which dropped in value as interest rates stayed higher than expected.
Norinchukin said it does not plan to raise additional capital beyond the 1.3 trillion yen ($8.45 billion) fundraise announced in August to shore up its finances.
Norinchukin’s results contrast with Japan’s mega banks, which posted record profit in their second-quarter earnings last week, driven by higher interest rates and increased corporate activity. This highlights concerns about Norinchukin’s failure to adequately hedge interest rate risk.
Norinchukin has focused on shrinking its balance sheet over the past six months and had the capital required to reshape its portfolio over the second half of the financial year, Chief Executive officer Kazuto Oku told a briefing.
“We believe we have secured our financial foundations,” Oku said.
Norinchukin, Japan’s main financial institution for farm, forestry and fishery cooperatives, primarily generates profit from securities investments rather than from lending.
The company is closely monitored as one of Japan’s largest institutional investors, managing 47 trillion yen in assets, as of end of September.
It has sought higher yields abroad amid Japan’s rock-bottom interest rates, but these bets unravelled as interest rates in the U.S. and Europe rose since 2022, slashing the value of bonds purchased during the low-rate period.
Norinchukin still had 1.5 trillion yen of unrealised losses on its bond holdings at the end of September, down from 2.2 trillion yen at end-March.
The bank will sell more than 10 trillion yen of bonds this financial year and expects net losses of 1.5 trillion-2 trillion yen over the period, CEO Oku said.
The sovereign bonds will be replaced by a mix of equities, domestic and foreign debt, project finance, and securitised products like collateralised loan obligations, Oku said.
Norinchukin has faced setbacks with securitized products before; during the 2009 global financial crisis, it had to raise 1.9 trillion yen in capital to cover losses from plummeting mortgage-backed securities.
($1 = 153.8300 yen)