(Bloomberg) — Norinchukin Bank expects its annual loss to exceed its ¥1.5 trillion ($9.7 billion) projection as it steps up the disposal of unprofitable foreign bonds.
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The Japanese agricultural lender, one of the country’s largest institutional investors, shocked global markets in June when it said it plans to sell about ¥10 trillion of US and European sovereign bonds this fiscal year to stem losses from wrong-way bets on interest rates. It now aims to offload even more than that amount, having disposed of ¥7.5 trillion in the first half.
The higher losses and stepped up asset disposals come as Chief Executive Officer Kazuto Oku said he’s preparing for growing uncertainty, including the possibility of higher US interest rates.
The company posted a net loss of ¥893.9 billion in the six months ended Sept. 30, results showed on Tuesday. That compared with net income of ¥144.4 billion a year earlier.
Oku said a return to profit next fiscal year is in sight. The bank will further revamp its $304 billion investment portfolio in the second half, he said.
Norinchukin will invest in bonds, stocks and project finance, as well as securitized products such as collateralized loan obligations, Chief Financial Officer Taro Kitabayashi said.
The bank is a big investor in CLOs, which are packages of leveraged corporate loans. Its CLO holdings fell to ¥6.5 trillion as of September from ¥7.3 trillion in June, which the company said was largely due to redemptions.
Norinchukin started losing money on its overseas bond holdings when its foreign-currency funding costs surged beyond what it earned from the securities following the US Federal Reserve’s aggressive rate hikes in 2022.
The bank’s bond holdings stood at ¥26.9 trillion in September, down from ¥29.8 trillion three months earlier. Unrealized losses on bonds were ¥1.51 trillion in September, dropping from ¥2.3 trillion three months earlier.
Norinchukin isn’t the only Japanese bank that suffered losses from foreign bond holdings during the Fed’s hiking phase. Still, the timing and scale of its losses stood out, prompting questions over what went wrong.
In September, Japan’s agriculture ministry convened a panel of outside experts to examine Norinchukin’s investment and governance structure. The farm ministry has joint oversight over the bank with the Financial Services Agency.