Norinchukin Warns of $12 Billion Loss on Bonds, Replaces CEO
(Bloomberg) — Norinchukin Bank widened its loss forecast and named a new chief executive officer as the Japanese lender tries to recover from its foreign bond investment debacle.
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Taro Kitabayashi, who is currently chief financial officer, was chosen to become CEO on April 1, replacing Kazuto Oku, the bank said in a statement on Thursday, confirming reports from earlier this week.
Norinchukin said it may post a loss of as much as ¥1.9 trillion ($12.7 billion) in the year ending March, more than the ¥1.5 trillion it had previously projected. It expects to return to profit next fiscal year with net income somewhere between ¥30 billion and ¥70 billion.
The promotion of Kitabayashi, 54, comes after Norinchukin became one of the most prominent victims of a surge in US interest rates, which drove down the value of its foreign bond holdings and pushed its dollar-funding costs higher than the returns from those securities. He will face calls to diversify the bank’s $300 billion investment portfolio and bring in more outside talent.
“We would like to correct our portfolio that has been tilted toward interest-rate assets and balance that with non-rates assets,” Kitabayashi said at a news briefing in Tokyo. “This is a very heavy responsibility.”
In addition to the CEO, the bank announced a new lineup of top managers from internal ranks. It set up new director and senior managing officer roles to speed up decision-making and enhance risk management.
That comes after a government panel last month urged Norinchukin to diversify its portfolio, boost risk management and increase board members with experience in financial markets, including outsiders.
The bank will consider hiring outside professionals, a move that is “critical” at a time of intensifying competition for talent, Kitabayashi said. Norinchukin must reshape its portfolio in a way that makes it resilient to rate shocks in both directions, he said.
“The incoming CEO needs to show that the bank understands risk and is able to manage the myriad risks that it faces,” said Pri De Silva, a Bloomberg Intelligence senior credit analyst. “The new CEO would also need to steer the bank to reverse its negative carry-related ongoing losses and return the firm to consistent profitability.”
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