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2ND LD: SMBC to invest 100 billion yen in Barclays: sources.

TOKYO, June 20 Kyodo


Sumitomo Mitsui Banking Corp. has entered the final phase of talks with Barclays Plc to inject some 100 billion yen into the capital base of the major British bank hit hard by the U.S. subprime mortgage crisis, sources familiar with the matter said Friday.

The two banks are also considering starting tie-ups in the areas of banking services in Asian countries and asset management, the sources said, adding an agreement is expected later this month.

The deal, if concluded, would make the core banking arm of Sumitomo Mitsui Financial Group Inc. the second Japanese bank to come to the rescue of European or U.S. financial institutions whose capital bases have taken a serious blow due to the subprime woes.

Barclays has so far booked about 500 billion yen in losses in connection with the mortgage crisis and is reportedly considering procuring 4 billion pounds (840 billion yen) in fresh capital on the basis of a third-party share allotment scheme.

In addition to Sumitomo Mitsui, Asian and Middle Eastern sovereign wealth funds and others are expected to buy Barclay's new shares, the sources said.

Japanese financial institutions' credit costs due to the subprime mortgage woes are limited, compared with mammoth credit costs incurred by their U.S. and European peers, leaving the Japanese entities with financial leeway to invest in them.

Sumitomo Mitsui's domestic rivals are likely to follow suit with an eye to bolstering their overseas operations again. Since the burst of the bubble economy in the early 1990s, many Japanese banks scaled down their overseas business to focus on the disposal of bad loans.

In January, Mizuho Corporate Bank funneled $1.2 billion (130 billion yen) into the capital base of Merrill Lynch & Co. at the request of the major U.S. brokerage, which took a beating from the subprime turmoil.

Unlike the Mizuho deal designed to cash in on Merrill's lucrative dividend yields and capital gains from a possible future surge in its shares, Sumitomo Mitsui is keen on concluding business tie-ups with Barclays, known for its expertise in asset management and services for wealthy customers, to raise its profitability in overseas operations, the sources said.

Although Sumitomo Mitsui itself booked 130 billion yen in losses in connection with the subprime fiasco in the past business year to March 31, 2008, the losses are smaller than those incurred by European and U.S. banks.
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Publication:Japan Weekly Monitor
Date:Jun 23, 2008
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