Trading Houses May Sit on $13 Billion Risk, Daiwa Says – Bloomberg

Among other assets at risk are Itochu’s stake in Brazil’s Namisa iron ore project and Drummond Co.’s Colombia coal venture, Narita said.

Itochu doesn’t foresee writedowns connected with the Colombia or the Namisa investments at this moment, said a company spokesman, who asked not to be named citing company policy. Regarding shale assets in the U.S., he said Itochu is re-examining areas not yet in production and doesn’t exclude some potential for additional writedowns.

Daiwa’s Iokibe has more to add to the potential writedown list, focusing on shale gas and oil.

They include U.S. investments by Marubeni and Mitsui into the Eagle Ford shale field. Mitsubishi’s shale gas projects in Canada carry risk as well, Iokibe said.

Marubeni is stress testing its assets according to standard accounting principles and will respond as needed, a Tokyo-based spokeswoman said, asking not to be named in line with company policy. She declined to discuss specific investments.

Writedown Trends

Mitsui is checking for writedown trends among its assets, but currently management doesn’t feel the need to recognize any such losses, said a Tokyo-based spokesman, also asking not to be named.

When looking at coal assets purchased since 2011, all five trading houses have “doubtful assets,” Daiwa’s Iokibe said.

In iron ore, the mines at risk of impairments are spread across Australia and Brazil, with Mitsubishi’s Jack Hills project and Sumitomo’s Mineracao Usiminas among them, he said.

Mitsubishi judges the appropriateness for writedowns based on accounting rules, the company said in an e-mailed response to questions, without specifying further.

A Sumitomo spokeswoman, when asked for comment, referred to Chief Executive Officer Kuniharu Nakamura’s statement at a Sept. 29 briefing that there was no chance of large additional writedowns to those the company already announced as long as commodity prices don’t drop “by a lot.”

via Trading Houses May Sit on $13 Billion Risk, Daiwa Says – Bloomberg.