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Japanese banks confirmed Friday that their profits have been severely damaged by the economic downturn with Mizuho Financial Group Inc. (8411.TO), the nation's second largest banking group by assets, saying it fell deep into the red in the April-December period.

Citing inflated credit costs and a massive Y243.8 billion valuation loss from its equity holdings, Mizuho said it posted a group net loss of Y50.55 billion in the nine months ended Dec. 31, down from a net profit of Y393.03 billion in the same period a year earlier.

Group revenue also decreased to Y2.777 trillion from Y3.428 trillion during the period.

The Tokyo lender said it booked the valuation losses in the October-December quarter.

The result is a sign of how Japanese banks, which have been seen as relatively unscathed by the global financial turmoil, have been hurt by the deteriorating economy.

Japanese banks don't disclose third-quarter figures. But according to a calculation by Dow Jones Newswires based on Mizuho's three-month financial report, its losses came to Y145.12 billion in the third quarter from a profit of Y65.97 billion in the same period a year earlier.

The banking group lowered its profit estimates for the full year through March 31. It now expects a group net profit of Y100 billion, down from its previous forecast of Y250 billion. But it kept its operating revenue target of Y3.8 trillion.

"We had expected the poor results (from banks) but now we realize (how bad they really are)," said Shinichi Tamura, an analyst at Deutsche Securities, adding the coming fourth quarter will continue to be tough.

For Mizuho, Tamura noted the market environment will likely continue to derail its profits in the fourth quarter as the Nikkei 225 Stock Average index stays below its range in the third quarter.

The financial group's paper profits on investments turn to mark-to-market losses below that point. But the Nikkei 225 closed Friday down 3.1% at 7994.05. It has fallen 29% since the end of last September and 37% since the start of the fiscal year last April.

More corporate bankruptcy filings toward the end of the fiscal year could force Mizuho to book higher credit costs, the Deutsche analyst said.

Tamura, who has a rating of Buy for Mizuho, said until investors are assured that Mizuho will likely return to the black in the next fiscal year, uncertainty about the bank will remain.

Earlier this week, Mizuho's smaller rival, Sumitomo Mitsui Financial Group Inc. (8316.TO) released dismal results, but managed to post a profit thanks to higher interest income and smaller-than-expected credit costs.

Japan's largest bank, Mitsubishi UFJ Financial Group Inc. (8306.TO) will likely slip into the red for the quarter to Dec. 31 as it has already said it expects securities valuation losses totaling Y257 billion for the three month period. MUFG will report its results on Feb. 6.

Meanwhile, Resona Holding Inc. (8308.TO), Japan's fourth-largest bank, reported a 41% drop in net profit in the April-December period, posting Y114.66 billion from Y195.39 billion in the same period a year ago.

Japan's major trust banks, Sumitomo Trust & Banking Co. (8403.TO) and Chuo Mitsui Trust Holdings Inc. (8309.TO) also reported weak profits Friday. Sumitomo Trust posted a 62% decline in net profit to Y20.40 billion from Y53.85 billion a year ago. Net profits at Chuo Mitsui dropped 85% to Y9.17 billion from Y63.07 billion a year earlier. Both banks blamed impairment losses on equities and a decline in their fee businesses.

   All of the Japanese banks report their earnings results based on Japanese accounting standards. 
 

-By Atsuko Fukase, Dow Jones Newswires; 813-5255-2957; atsuko.fukase@dowjones.com

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