Contagion Concerns Slam Japanese Financials as Toshiba Crashes 50% in 3 Days

After two days of total carnage in Toshiba stocks, bonds, and credit risk, the bloodbath continues with the once-massive Japanese company is collapsing once again in early trading – now down 50% in 3 days. Following the semiconductor and nuclear business catastrophes, the company had nothing to add regarding today’s crash but more worryingly the massive loss of market cap is spreading contagiously to Japanese financials with Sumi down 4%, and MUFG down almost 3%.

As we noted yesterday, Tsunukawa said that “I apologize to shareholders, business partners and all stakeholders for the trouble we have caused,” after Toshiba said cost overruns at U.S. nuclear reactors it is building were likely to force a write-down of as much as several billion dollars, clouding its turnaround plan after the 2015 accounting scandal. Specifically, the company said it may have to book several billion dollars in charges related to a U.S. nuclear power plant construction company acquisition, rekindling “concerns about its accounting acumen.”

The problem is that the nuclear business, together with the semiconductors, has been positioned as one of key pillars underpinning Toshiba’s growth which has been trying to shift away from its consumer electronics core. Alas, the latest gaffe now means that much of Toshiba’s growth is gone, and the stock price reflect that overnight, when Toshiba’s stock plunged by 20%, the most permitted, before it was halted for trading.

The derisking is weighing heavily on USDJPY…

And now, as Bloomberg reports, Japanese financials are tumbling on cross-default, contagion concerns…

Sumitomo Mitsui Trust Bank has highest capital exposure to Toshiba, with loans equaling 5.5% of the bank’s equity, analyst Shinichiro Nakamura writes in report.

SMTB would also suffer greatest earnings hit, with a Toshiba impairment charge of 100b-190b yen shaving ~9.9% off bank’s current profit for fiscal year to March 31: SMBC Nikko ests.

If Toshiba impairment charge reaches over 400b yen, banks may conduct debt/equity swap; would lower near-term earnings impact while carrying risk of preferred shares losing value

In 3rd scenario, Toshiba could undertake private placement with strategic partner; major banks would be limited to funding support but could be asked to waive claims

Sumitomo Mitsui Trust shares fall as much as 4%, MUFG -2.6%, Mizuho -2.4%, SMFG -2.4%