Media reports and eventual confirmation (by Mitsubishi UFJ) of contemplation of raising capital among Japan’s mega banks warrants far more discussion. As stated earlier, the reasoning of MUFJ (JP: 8306) (MTU: 5.19 -0.38%) is understandable (growth at almost any cost), but unacceptable for existing shareholders. For Mizuho (JP: 8411) (MFG: 4.21 -0.94%) and Mitsui Sumitomo (JP: 8316), however, it raises some very important questions with implications for the entire market.

What I’m most interested in here, is how bad the broad market sell-off — stocks are now down nearly 50% since the start of the new fiscal year — is impacting balance sheets, which will see (more) writedowns of shareholders’ equity. As the painful reality of global deleveraging sets further in, equities continue to be “re-priced.” We knew earnings estimates had to come down. What we didn’t know was that forex would be so damaging. Is the next step to learn that the steep and broad market fall has induced a further shaving of shareholder equity? This is a vicious spiral and almost Bermuda Triangle-like. More corporate failures are inevitable. Likewise for even deeper discounted valuations. That said, the bright side to all of this is that there certainly is a floor and it is held up strongly by the cross shareholdings. Yes, the selling will have to end for obvious reasons. And companies can help themselves by acquiring subsidiaries and maybe even competitors. Talk about timing for a golden era of inward M&A! So, given the precipitous fall, it is a no-brainer that we’re closer to the bottom. However, as I’ve been saying repeatedly, patient capital is a must. Anybody have capital and want to talk?