Japanese Shares Drop as Lenders Slump on Deutsche Bank Concerns

  • Topix index posts biggest daily loss in almost three weeks
  • Bank stocks down 7.5 percent this week, most since April

What's the Next Play for Deutsche Bank?

Japanese shares slid, with the benchmark equity index erasing its gain for September, as escalating concerns over German lender Deutsche Bank AG’s capital troubles rippled across global markets.

The Topix’s 1.5 percent drop on Friday was its worst daily decline since Sept. 12. The gauge is down 2 percent for the week and 0.5 percent for the month. Deutsche Bank’s New York-listed shares tumbled after Bloomberg News reported about 10 hedge funds doing business with the lender have moved to reduce their financial exposure. The rout follows a request from U.S. authorities that Deutsche Bank pay $14 billion to settle claims the firm sold fraudulent mortgage-backed securities.

SecurityPercent ChangePrice
Topix-1.5%1,322.78
Nikkei 225-1.5%16,449.84
Yen-Dollar+0.1%100.95

“Anxiety is spreading,” said Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo. “The bad environment will enclose the whole market, and investors will feel they can’t buy Japanese shares either.”

Futures on the S&P 500 Index slid 0.4 percent. The underlying equity measure retreated 0.9 percent on Thursday as financial shares declined. A number of funds that clear derivatives trades with Deutsche Bank withdrew some excess cash and positions held at the lender, according to an internal bank document seen by Bloomberg News.

The International Monetary Fund said in June that Deutsche Bank may be the biggest contributor to systemic risk among the largest financial companies.

“It could be that the situation is not so serious as some people expect, but we don’t have any evidence or numbers, so we have to prepare for the worst,” said Soichiro Monji, general manager for the economic research department at Daiwa SB Investments Ltd. “If the situation becomes more clear, the concerns could retreat. But I’m not sure how long that will take.”

A gauge tracking Japanese banks dropped 2.4 percent, extending its slide for the week to 7.5 percent, its worst such loss since the five-day period to April 29. The measure has slumped 30 percent this year, putting it on course for its worst annual performance since the global financial crisis, after the Bank of Japan’s decision in January to adopt negative interest rates sparked a selloff on fears the central bank policy will curtail profits.

The BOJ is scheduled to release details of its planned government bond purchases for the coming month later Friday, which may help reveal where the central bank wants yields to be. The BOJ announced at its September policy meeting that it has decided to let the level of annual increases for the monetary base, previously set at 80 trillion yen, fluctuate depending on market circumstances.

Financials Slump

Mitsubishi UFJ Financial Group Inc., Japan’s largest lender, fell 2.1 percent, while Sumitomo Mitsui Financial Group Inc. lost 1.5 percent. Fukuoka Financial Group Inc. sank 5.2 percent, the worst performer on the Nikkei 225 Stock Average.

“Following the report about clients moving to reduce exposure on Deutsche Bank, the possibility of other financial institutions facing similar moves has surfaced,” said Hideyuki Ishiguro, a senior strategist at Daiwa Securities Co. in Tokyo. “Investors, especially foreigners, are moving to cut down on positions in the face of risks arising from European banks.”

The Topix’s decline this month has pared its gain for the three months ending Friday to 6.2 percent, the first quarterly advance this year, aided by companies including Nintendo Co., which soared 82 percent in the period. The stock helped boost the Topix Other Products Index 28 percent in the third quarter, the best performing industry group on the broader gauge.

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