Strengths and Challenges

(Case 2) Securitized products, etc.

A part of financial institutions in Europe and Americas once engaged in highly-leveraged trading business dealing with securitized products and credit-derivatives related products. These financial institutions incurred massive losses after the sharp decline of market value of securitized products, etc. evoked by the subprime crisis.

On the other hand, we have taken early and decisive measures, including substantial reduction of exposure related to subprime loan at the beginning of FY3/2008, just before the serious decline of market value. As a result, we have smaller exposure to securitized products, etc. and risks associated with the exposure is deemed to be extremely limited.

Also, in accordance with tightened capital requirement that would be introduced, "market risk equivalent" in risk-adjusted assets, or in other words, required capital for trading business, is expected to increase. Nevertheless, the percentage of market risk equivalent in our risk-adjusted assets is relatively low level of around 0.8% as of March 31, 2010. We, therefore, consider that impact from tightened capital requirement for market risks is extremely limited.

<Reference 1> Balance of securitized products (SMFG)