Japanese banks' spreads widen following Nikkei tumble

Credit protection on the debt of Japan’s major banks widened this week as the Nikkei stock index hit a new 20-year low. Investors were concerned that the Nikkei 225 index's fall below the psychologically important 8,000 level - it plunged to 7,862.43 on Tuesday - would prompt banks to report larger-than-expected losses for the fiscal year due to their cross-share holdings.

The bid-offer spread on Bank of Tokyo Mitsubishi credit protection was quoted at 55-70bp on Friday, compared with 52/62bp last week. Sumitomo Mitsui Banking Corporation (SMBC) was quoted at a bid-offer spread of 90/105bp, out from 84/94bp last Friday; while Mizuho and UFJ both traded at 140/170bp on Friday, out from 135-155bp last week.

One trader noted that Mizuho credit default swaps were also hit when the bank scrapped plans to issue a portion of preferred shares to overseas investors

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