Raw Japan

Pub wisdom about Japanese bank shareholdings

Shares of Japanese banks have taken such a kicking lately that one wonders if they’ll ever be able to walk straight again. Tokyo’s index of bank stocks has dropped 18 percent so far this year, on top of a 43 percent drubbing in 2008.

While not the spectacular decline and fall of a Bear Stearns or a Lehman Brothers, the stock slide is significant because Japan’s banks have little subprime exposure, relatively healthy balance sheets and fairly bouyant core profits.

The problem is their cross-shareholdings. Unlike Western rivals, Japanese banks take stakes in corporate clients to cement business ties, making them sensitive to swings in equity prices.

Tokyo’s top three banks have already raised nearly $21 billion in new capital to offset their stock losses, and may need more if the Nikkei’s slide continues.