Mizuho's Quiet NYSE Debut; Japan's Mega Banks' Stocks Slump

Mizuho Financial Group (MFG) -- Japan's second largest financial institution behind Mitsubishi UFJ Financial Group (MTU) -- debuted on the NYSE (NYX) yesterday, trading mostly in a narrow range after jumping 3% after opening. Unfortunately for anyone who bought at the top, there is renewed sell pressure on Japan's mega banks and other lending companies due to "weak" lending data released today.

Part of the problem with Mizuho's quiet first day of trading on the NYSE has to be blamed on its public relations. In fact, I knew of Mizuho's intent to list on the NYSE for months but somehow its decision and official start to trading nearly slipped past me. 108,500 shares were traded today, compared to 2.12 million for Mitsubishi UFJ which has a 3-month average of 1.257 million (according to Yahoo! Finance). Also, you can't blame U.S. traders for being focused on mid-term elections.

Another issue, which is somewhat hard to grasp (and which U.S. investors may be unaware of, or indifferent to), is both Mizuho and Mitsubishi UFJ have tremendous ADR-to-ordinary share ratios. In the case of Mizuho, its 500:1 and for Mitsubishi its 1,000:1. In Japan they basically trade in the equivalent of $10, or $100 increments.

Lastly, the euphoria behind Japanese stocks in general, and banking stocks specifically, has dwindled after significant share price appreciation during the past three years to May. There's hope that advances in overseas equities markets such as in Hong Kong and the U.S. will help bring more bullishness back to Japan, which has not been able to keep up with the rally.

The sell pressure I mentioned on Japan's mega banks and other lenders is largely due to another slowing of lending after the Bank of Japan raised rates in July -- its first time to do so in six years. Over the past three months, loan growth has slowed from 1.8% in August and 1.5% in September, to 1.1% in October. A Reuters article quotes a BoJ official who said the following at a briefing on the lending data release:

"Even though the growth in lending has moderated, bank lending is still in a steadily increasing trend."

You can't argue with that. I think part of the problem is the BoJ's closely watched tankan (short-term economic survey) -- the latest was released early last month -- in which Japan's largest companies said they expected to increase spending by 11.5% through the fiscal year ending March 2007. Either the borrowing just has happened yet, or maybe it won't happen, since these companies may be able to fund capex with retained earnings, or are issuing equity instead.

At any rate, the lending data moves Japan's bank and lending stocks. Mizuho's ordinary shares lost 0.70% today, trading as much as 2.1% lower, to close at ¥863,000. Mitsubishi UFJ lost 1.4%, also trading as much as 2.1% lower, to close at ¥1.42 million.

Another related matter is the fact that the lending data could be further reason for the BoJ not to raise rates this time (decision meeting on Nov. 16th) or even in December. Contrary to the thinking in the U.S., a rate hike is a good thing for Japanese banks, where the current short-term BoJ target rate is 0.25%. Japanese banks are lagging in profitability ratios and a key factor is the less favorable interest rate spread compared to global rivals.

Wednesday's ADR trading details: Mizuho opened at $14.90, traded between $14.80-$15.35 intra-day, and closed at $14.81. I calculated its ordinary share close in Tokyo to have an ADR equivalent value of $14.75 at the start of trading. Mitsubishi UFJ opened at $12.30 (having closed prior at $12.37), traded between $12.16-$12.30, and closed at $12.22. Its ordinary share close had an ADR equivalent of $12.21 at the start of trading.

The ADR equivalent closes for Mizuho and Mitsubishi UFJ's ordinary shares today at ¥118/US$1 are: $14.63 and $12.03, respectively.

Mizuho Fin. Grp. (Tokyo: 8411) and Mitsubishi UFJ Fin. Grp. (Tokyo: 8306) 1-year comparison chart (as of 11/8):

Disclosure: The author does not own a position in any companies mentioned in this article.