(Bloomberg) -- Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc.’s shares fell the most on record on Monday as a stock-market rout sent Japanese banks tumbling.
MUFG, the nation’s biggest lender, saw its stock sink 18% at the close of trading in Tokyo, while Mizuho slid 20% and Sumitomo Mitsui Financial Group Inc. dropped almost 16%, also a record. The three companies lost about 12 trillion yen ($85 billion) in market value in the past two trading days.
Banks have been among the biggest casualties of the selloff as a flight to bonds sent yields down sharply, threatening to eat into interest income for the nation’s lenders. The Topix Banks Index plummeted 26% in the past two sessions, the most ever in Bloomberg-compiled data going back to 1983. The benchmark Topix dropped 12%, the most since the October 1987 crash.
The plunge in Japanese bank shares highlights how sensitive they are to swings in the interest-rate outlook. Bank stocks surged after the Bank of Japan lifted interest rates for the second time this year on July 31, but they’ve floundered since then as weak US economic data dragged down Treasury and Japanese government bond yields. Japan’s benchmark 10-year bond yield fell 20.5 basis points to 0.75%.
The drop in debt yields and other factors can “easily trigger selling as investors become aware of the possibility that banks’ earnings could be damaged,” said Tomoaki Kawasaki, senior analyst at IwaiCosmo Securities Co.
The steep downturn in bank shares underscores the challenges the BOJ faces in trying to “normalize” monetary policy after keeping interest rates near zero or negative for two decades to overcome deflation. The yen surged after the BOJ hike, pounding Japanese exporter shares and fueling a slide in the Topix and Nikkei stock gauges of more than 20% each from record highs reached last month.
The gains in the yen — which surged 3% against the dollar on Monday — also threaten to erode overseas earnings of big Japanese banks including MUFG, which generates more than half of its revenue abroad. The nation’s three biggest lenders are all on course to achieve record profits this fiscal year, helped by rising lending income, first-quarter results showed last week.
Shares of financial firms more broadly were also clobbered on Monday. An index for insurers was the worst performer in Tokyo, followed by the banks, while securities and commodity futures firms were the third worst.
Nomura Holdings Inc. dropped 19%, the biggest decline in Bloomberg-compiled data going back to 1974. Insurer Tokio Marine Holdings Inc. tumbled an unprecedented 20%.
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