Komazawa University Reveals Derivatives Trading Loss

[Mulboyne]

Asahi: University loses 15 billion yen in derivatives trading
Komazawa University in Tokyo said it lost more than 15 billion yen ($155.4 million) through derivatives trading, as the global financial crisis has now spread to Japan's education field. The losses forced the private university to take out loans worth 11 billion yen from Mizuho Bank, offering several plots and buildings as collateral, including the land for the Fukasawa Campus and the field for the university's baseball team, according to a property register. "Given the scale of our assets, the amount of investment (in derivatives trading) was too large," a Komazawa University official said Tuesday. "As none of the members in our university's management has detailed knowledge on financial products, we cannot deny that we were too optimistic." According to officials, the university concluded derivatives contracts worth about 10 billion yen, including interest rate swaps and currency swaps, with two foreign financial institutions last fiscal year...When the university closed its accounting books at the end of March this year, it suffered unrealized losses exceeding 5.3 billion yen...The total loss expanded to about 15.4 billion yen when the university canceled the contracts in October...Experts say Komazawa University is likely not the only school to have lost money in this manner...University management has become more difficult in Japan with the decrease in the number of children. An increasing number of universities have apparently started to use their schools' assets to deal in high-risk financial products to generate income...more...

[klimmer]

Yes I think Morgan Stanley sold them this.

[Mulboyne]

Bloomberg: Saizeriya to Book 14 Bln Yen Charge on Forex Derivative Losses

Saizeriya Co., an Italian restaurant chain operator in Japan, expects to book a 14 billion yen ($147 million) charge for losses on derivative foreign exchange contracts after the yen unexpectedly strengthened. Saizeriya said in a statement to the Tokyo Stock Exchange the losses came on two currency swap contracts that left the company positioned to benefit from a strong Australian dollar. The contracts were dated Oct. 22, 2007 and Feb. 7, 2008. The Australian dollar began a steep decline against the yen at the end of July after peaking at 104.24 yen on July 22. The Australian dollar was trading at 59.07 yen as of 3:30 p.m. in Tokyo today. The company, based in Yoshikawa, Saitama prefecture north of Tokyo, is currently assessing the impact of the charge on its full-year forecast.

[Mulboyne]

Asahi: University dismisses chief director over huge loss from derivatives trading

Komazawa University dismissed its chief director over a loss worth 15.4 billion yen ($172 million) from derivatives trading amid the global financial crisis. The decision to remove Nobuo Miyamoto from the top post was made at an extraordinary meeting of the board of directors at the private university, based in Tokyo's Setagaya Ward. "I'm sorry for producing the loss," Miyamoto said at the meeting. His job will be performed by the chancellor, Tetsuo Otani, for the time being. Four other managing directors of the board, including Otani and the president, also expressed their intention to resign. However, the board decided to keep them at their posts to prevent a void on the 22-member board just before entrance examinations. They will likely step down after the exams and graduation ceremony are held. It is extremely rare in Japan for the head of a university to be dismissed because of operations concerning its assets.

To cover the loss, the university has received 11 billion yen in bank loans using the land and buildings on its campus and the ground for its baseball team as collateral. The derivatives trading had been approved by the board of directors. On Nov. 17, the university set up an investigative committee, headed by an outside lawyer, which questioned those involved to uncover details about the loss. According to sources, the committee's report, dated Tuesday, recommended that the chief director and four managing directors on the board be dismissed from their posts. The report will soon be submitted to the Ministry of Education, Culture, Sports, Science and Technology. Komazawa University started derivatives trading, including currency swaps, in July last year with three financial institutions. However, the unrealized losses expanded due to the financial crisis stemming in the United States. In late October this year, the university canceled its contracts with the financial institutions, resulting in a loss of 15.4 billion yen.

The university, which had total assets worth 94 billion yen at the end of the last fiscal year, including 12.7 billion yen in cash and deposits, said it will likely be able to repay the loans. "There will be no (negative) influences on education and research (at the university)," a university official said. Losses from derivatives trading have also come to light at other universities. Nanzan Gakuen, a Nagoya-based operator of Nanzan University and other schools, suffered a loss of 3.4 billion yen, while Aichi University in Toyohashi, Aichi Prefecture, lost about 2.8 billion yen. Of 651 universities surveyed, 75, including junior colleges, were engaged in derivatives trading, according to a 2005 survey of the Promotion and Mutual Aid Corporation for Private Schools of Japan. Private universities have been taking financial risks with their assets in recent years, including derivatives trading, because university management has become more difficult with the decrease in the number of children and intensifying competition among schools. "Many universities should be worried about how to tide over the account settlement period in March next year," a university official said.