2. Bankruptcy of Lehman Brothers and the global economic and financial crisis

The bankruptcy of U.S. investment bank Lehman Brothers on September 15, 2008 accelerated the global financial crisis caused by the U.S. subprime mortgage crisis. The financial turmoil caused serious dysfunction in financial and capital markets. It gave a crushing blow to the world economy, which fell into a global recession. In this situation, major U.S. and European financial institutions suffered from enormous losses related to subprime mortgage loans and related securitized products. In contrast, direct losses incurred by Japanese institutions investing in such securitized products was limited.

Nevertheless, the severe recession also affected the Japanese economy and the stock market. The financial sector faced unfavorable business results, specifically in a worsened profit/loss balance on stocks and increased credit-related costs. Sumitomo Mitsui Financial Group (SMFG) posted a consolidated net loss of 373.5 billion yen for fiscal year 2008, due principally to huge expenses for writing off stocks, increased provisions for loan-loss reserves in consideration of deteriorating economic outlooks, and conservative valuations for deferred tax assets.