Norinchukin Bank lays out plan for recapitalization
Norinchukin Bank, which by September 2023 had accumulated unrealized losses on bond positions of close to JPY 3trn, has published first quarter earnings for FY2024, and announced specific capital raising and conversion measures that it hopes will allow the bank to improve its investment portfolio during this fiscal year, and achieve stable profits from FY2025 onwards.
When you judge on these measures and analyze the data in the context of macro-economic developments (direction of interest rates in the US and Japan, as well as the JPY/USD exchange rate), please keep in mind that on May 22, with the publication of the annual results, Norinchukin Bank made the bold statement that the “Capital position continues to maintain soundness including unrealized losses”.
Norinchukin Bank has now resolved to redeem approximately JPY 700bn of perpetual subordinated loans and allocate a new issuance of JPY 736bn in lower-dividend rate stocks, both from and to members, on September 30, 2024. The Bank is currently finalizing the necessary procedures for this capital reallocation.
The Bank has also resolved to issue approximately JPY 600bn in fixed-term subordinated loans to its members during FY2024. Combined, these two measures will improve the Common Equity Tier 1 (CET1) Ratio by 2.7%.
Meanwhile, net assets kept shrinking over the past quarter, which is also attributable to the fact that net unrealized losses have actually increased by just over JPY 85bn from March to June, attributed to the rise in global interest rates and the depreciation of the yen during the quarter, which — as we have seen during the past week — might well reverse during the second quarter.
Norinchukin Bank’s market investment portfolio still stands at more than JPY 54trn, with over half of that in bonds and credit, which is just a little over JPY 2trn less than at fiscal year-end. Given that analysts predicted up to six US rate cuts during 2024, for which Norinchukin bulked up to benefit from increasing bond prices, the bank will clearly benefit from any monetary easing the Fed will allow from September onwards.
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