Japanese banks may have to realizesignificant losses on their seven billion dlrs in perpetual
floating rate notes after the recent collapse of the market,
bankers said.
    How much of a loss is realized in the current fiscal year
ending March 31 depends on the accounting treatment recommended
by the Finance Ministry. Ministry sources said the Ministry has
yet to decide what guidance to give Japanese banks in valuing
the perpetual floating rate notes they hold.
    The notes are held by Japanese city, trust, long-term and
regional banks, including their overseas branches.
    Roughly half of the Japanese banks assess foreign asset
portfolios on the basis of current market prices while the
others assess them at either the acquisition cost or the
current market price, whichever is lower, bankers said.
    With the market for such perpetuals non-existent, Finance
Ministry officials questioned the propriety of using nominal
quotations supplied by the notes' lead managers to determine
bank book losses.
    The Ministry is currently awaiting a legal judgement by the
National Tax Administration Agency on the propriety of using
such quotations, one official said.
    Banks using current market prices alone to value their
holdings can avoid realizing losses now because they can argue
that the market is non-existent and hope for a recovery next
year, bankers said.
    But those banks who use acquisition cost to value foreign
portfolios cannot look to the market, bankers said. The
acquisition cost is obviously higher than the market price,
whatever it may be, these banks must realize losses in the
current fiscal year.
 REUTER
