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Japan’s three megabanks will probably report a net loss for their 2008 business year, which ended Tuesday, due to sizable appraisal losses on shareholdings and increasing writeoff costs for bad loans as the recession deepens, industry sources said Saturday.

Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. are almost certain to report a consolidated net loss, and Mitsubishi UFJ Financial Group Inc. is also highly likely to report red ink.

If all three fall into the red, it would be for the first time since fiscal 2002, which ended on March 31, 2003.

The banking groups’ balance sheets were hurt in the just-ended business year also because of large losses on big investments they made in U.S. and European financial institutions, the sources said.

Mizuho Financial initially expected to report a net profit of about ¥100 billion. But it now sees more writedowns in the value of shares it holds through cross-shareholdings with its business partners.

The Mizuho group’s core member, Mizuho Corporate Bank, will report a loss of around ¥80 billion in preferred shares it bought from U.S. investment bank Merrill Lynch & Co. In addition, the group will need to increase loan-loss reserves, they noted.

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