Japanese giant Mizuho joins others to raise funds

Tokyo/Dublin: Japan's Mizuho Financial Group joined banks around the world raising new capital yesterday and lenders from Australia to Ireland warned of tough times ahead in a deepening fin-ancial crisis.

Grim news from Asia was repeated in Europe, with earnings in retreat and warnings of rising bad debts as the credit crisis spreads to the real economy.

Bank of Ireland's profits fell by a third and it cancelled its cash dividend to shore up its capital. The bank said a sharp downturn in Ireland's property market will see losses on bad loans jump next year.

BoI shares rose 7 per cent by 0930 GMT as there had been worries it would need to raise extra capital, dealers said. European bank stocks were near flat in early trading.

French bank Natixis reported a worse than expected loss late on Wednesday and said its core investment banking unit had endured a torrid October.

The United States said it would not use a $700 billion bailout fund to cleanse bank balance sheets of bad mortgage debt.

US Treasury Secretary Henry Paulson said he preferred instead to focus on buying stakes in banks to encourage them to increase lending. Shares in Commonwealth Bank of Australia fell 6 per cent to a four year low after it warned investors to expect a big jump in bad debts and raised concerns over the outlook for at least the next 18 months.

Mizuho, Japan's second biggest bank, posted a $402 million loss yesterday and said it would issue preferred securities to shore up its capital base. One report said that could raise 300 billion yen ($3.2 billion).

Asia-Pacific lenders have largely avoided the heavy losses on subprime mortgages that tore through Wall Street, but a weakening economy and plunging equity markets have taken a toll on the sector and forcing some to raise funds.

"By boosting their capital, the banks will have more money to lend out. Whether or not they have anyone to lend the money to, that's another story," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

Mizuho followed in the footsteps of larger rival Mitsubishi UFJ Financial Group, which said last month it would raise $10.5 billion to offset stock market losses.

Mizuho, which lost $6.7 billion on subprime investments last year, did not say how much capital it would raise. The Nikkei newspaper said it was considering raising 300 billion yen by selling securities to several large Japanese insurance companies such as unlisted Dai-Ichi Mutual Life Insurance and Sompo Japan Insurance.

Shares down

Mizuho shares closed down 6.6 per cent, underperforming a 4.3 per cent fall on the broad TOPIX Index and taking year-to-date losses to more than half.

South Korean lenders are also planning to lift their capital ratios by selling bonds, according to the country's top financial regulator. The government will set up a new $7.2 billion state fund to invest in bonds.

Fallout from the crisis has devastated bank earnings around the world and there were scant signs of a quick recovery in profits.

CBA, which recently bought felow Australian bank BankWest from troubled UK player HBOS, said growing bad debt charges would make a major dent in its half-year earnings.

It blamed failed Wall Street investment bank Lehman Brothers and two collapsed local firms for much of the forecast increase in bad debt provisions. Japan's Aozora Bank was likely to become the country's first big bank to forecast an annual net loss, the Nikkei reported.

Bank of Ireland said its core tier 1 capital ratio increased to 6.3 per cent by September from 5.7 per cent in March, but that lags most European rivals after recent fundraisings across the continent.