The Japanese mega-bank, Norinchukin, is planning a gradual sale of its vast foreign bond portfolio in order to limit the impact on market prices. This comes as the bank expects interest rate cuts in the U.S. and Europe to take longer than it previously expected, leading to increased losses from holding these low-yielding assets.
The planned divestment could total more than 10 trillion yen ($72 billion), or nearly half of Norinchukin’s 23 trillion yen in foreign bonds (about $150 billion. The bank will sell the bonds over the next year, with the sales expected to significantly increase its unrealized losses.
As a result, Norinchukin is now considering raising 1.2 trillion yen ($9 billion) to help stabilize its finances. However, finding investors willing to lend the bank such a large sum of money in these uncertain times may prove challenging.
The gradual liquidation strategy is an attempt by Norinchukin to minimize disruption to financial markets and avoid a disorderly liquidation. If successful, this approach could serve as a blueprint for other banks and institutional investors facing similar challenges due to the changing interest rate environment.
Nevertheless, it is clear that Japan’s banking sector is facing significant headwinds, with Norinchukin just one example of an institution grappling with the consequences of its past investment decisions in an increasingly uncertain global economic landscape.
