By Jason Simpkins
Barclays PLC (ADR: BCS), the United Kingdom's fourth-largest bank, may get a $927 million cash infusion from Japan's Sumitomo Mitsui Financial Group Inc. by the end of the month. The investment, which will be made through the group's Sumitomo Mitsui Banking Corp. unit, underscores an evolving trend among large Japanese banks that have so far been unaffected by the subprime collapse.
Sumitomo Mitsui, Japan's second largest bank, has not confirmed the agreement, but its 100 billion yen investment will secure an approximate 2.3% stake in Barclays. Barclays was racked by the housing collapse that started last year and has since dragged the U.S. economy to near recession. Barclays' stock dropped 40% so far this year, as the bank took $3.35 billion in write-downs.
Last week, Barclays said it would seek out $7.8 billion in fresh capital from sovereign wealth funds, in a fresh share offering. Singapore's Temasek Holdings, China Development Bank, and the Qatar Investment Authority are among the sovereign wealth funds reported to be interested in Barclays.
"This fixes the problem quite neatly for them," Mike Trippitt, a banking analyst at Oriel Securities told The Independent. "They are signalling that at the moment there don't seem to be any further writedowns. If you have got sovereign wealth funds buying in with a medium-term view you might argue that it signals some visibility."
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Barclay's ratio of Tier 1 capital, a measure of financial strength, was at 5.1% at the end of 2007. Raising $8 billion would lift it to nearly 6%, analysts said.
Banks and securities firms have raised about $303 billion in the past year after almost $400 billion of write-downs and credit losses caused by the collapse of the U.S. subprime mortgage market, according to Bloomberg data.
Sumitomo Mitsui would be the second major Japanese bank to participate in the rescue effort of a Western financial institution struggling to emerge from the subprime crisis.
"This indicates that Japanese banks are in a safer position than their global peers and have surplus capital to invest," Masafumi Oshiden, a Tokyo-based fund manager at BlackRock Inc. (BLK), told Bloomberg. "It's a good move for them and I'd like to see them being even more aggressive."
In January, Mizuho Financial Group pumped $1.2 billion into Merrill Lynch & Co. Inc. (MER) through the purchase of preferred shares. And many analysts believe there is more investment to come as Japanese banks, which find themselves in a relatively strong position, become more assertive with their overseas acquisitions.
"Under these circumstances I think that Japanese financial institutions are in a position to take an aggressive attitude… it is a change that should be very much welcomed," Yoshimi Watanabe, Japan's financial services minister, told the Times Online.
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