Some Japanese banks have been holding auctions to rid themselves of bad credits before the fourth quarter ends on March 31, according to market players. Regulatory pressure is one reason given for the sales, but the prime driver seems to be merger plans among banks. Specific names of banks involved could not be determined by press time, but some of the credits being auctioned off include Owens Corning and Finova Group. The merging banks include Industrial Bank of Japan, Fuji Bank, and Dai-Ichi Kangyo Bank, which are forming Mizuho. Officials at IBJ and DKB declined to comment. Fuji officials did not return calls.
Dealers characterized the auction activity as "significant," but none could provide a ballpark for volume. One trader believes that crossover bond investors and investment banks are most likely the buyers. "The existing banks aren't adding to their positions in these names, because they already have big exposure," said a market watcher. "Bond investors are traditional high-yield players and are accustomed to looking at risky positions. Banks are more averse to it." The investment banks are looking at it from a yield standpoint: "If you can buy cheaply, it's easy to do the math and know what you'll recover," he said.
A dealer with a Japanese bank minimized the level of activity. "We're not part of it, and I doubt others would go out of their way because of year-end pressure," he said. "In the past it happened, but not as much anymore."