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Shares of Japanese banks such as Mitsubishi UFJ Financial Group slumped on Tuesday, hit in part by concern about their exposure to troubled U.S. mortgage finance agencies Fannie Mae [ FNM 0.5265 
+0.0 (+0.00%) ] and Freddie Mac [ FRE 2.82 +0.07 (+2.55%) ].
Japan's three largest banks -- Mitsubishi UFJ, Mizuho Financial Group and Sumitomo Mitsui Financial Group -- together had about 4.7 trillion yen (US$44.3 billion) in debt securities from the agencies as of the end of March, the Nikkei newspaper said.
Together, Fannie and Freddie finance about half of the homes in the United States. As U.S. mortgage defaults continue to rise, investors have become concerned the two agencies may need more funding.
Shares of Mitsubishi UFJ, Japan's biggest lender, slid 4 percent by the end of the morning session in Tokyo. Second-ranked Mizuho Financial dropped 3.5 percent while Sumitomo Mitsui gave up 3.6 percent.
Yet concern about the exposure was likely overdone, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, pointing out that the debt is not "subprime" but backed by mortgages made to borrowers with strong credit.
"If you think about it clearly, it is a bit of a misconception to say there will be any short-term damage from exposure to these loans," Ogawa said.
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