Barclays may get Japanese investment

Japan's Sumitomo Mitsui Financial Group may invest about $926 million (470 million pounds) in Barclays , people familiar with the matter said on Friday, as subprime-hit Western lenders increasingly turn to Asia for funding.

Japan's third-largest bank is also considering a business alliance with Barclays in Asia, according to the sources, who spoke on condition of anonymity as the deal has not been finalised.

Barclays, Britain's No.3 bank, has lost more than $5 billion in the U.S. subprime market and resulting credit crisis. It said this week it plans to sell billions of pounds worth of shares to new and existing shareholders to boost its funding.

Shares of Sumitomo Mitsui were little changed on the news, and some market participants said the investment was too small to become a major earnings driver.

"This is certainly an opportunity for Sumitomo Mitsui, but they don't seem to be taking full advantage of it," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.

"If they are going to do this properly, they will need to increase the size of their investment," Akino said.

After a decade of faltering under bad debt, Japanese banks have cleaned up their balance sheets and rebuilt their businesses. Now faced with a shrinking market at home, Tokyo's big banks are once again looking for opportunities abroad.

Asian lenders, which avoided the worst of the subprime crisis, are in a strong position to step in with funding for their overstretched Western rivals, analysts have said.

One of Asia's biggest subprime casualties, Japan's Mizuho Financial Group, earlier this year injected $1.2 billion into Merrill Lynch

Stricken U.S. bank Lehman Brothers almost struck a deal with Korean financial institutions as part of its $6 billion in fundraising, the Financial Times reported last week.

Sumitomo Mitsui is considering an investment of about 100 billion yen (470 million pounds) in Barclays, the sources told Reuters.

A spokeswoman for Sumitomo Mitsui, Chika Togawa, declined to comment.

SMALL STAKE

Sumitomo Mitsui will likely take a stake of several percent in Barclays through a private placement of shares, and look to form an alliance in Asia and in the asset management business, the Nikkei business daily said on Friday.

Kristine Li, a banking analyst at KBC Securities in Tokyo, said the deal was evidence that Japan's lenders are still too conservative about expanding overseas.

"It's very typical Japanese style: first you put a little capital in and try to do some kind of tie-up," Li said.

"I just don't think it's Western style and I don't think it will really deliver anything significant."

Ratings agency Standard & Poor's said in a report this month that Japanese banks need to improve their overseas strategies and increase investments abroad in order to gain ground on weakening Western lenders.

The $5 billion in credit-related losses at Barclays are less than a third of the damage taken by rival Royal Bank of Scotland Still, the British bank has one of Europe's leanest levels of capital adequacy.

Its ratio of Tier 1 capital, or core capital, was at 5.1 percent at the end of 2007, of the lowest in the region.

A Singapore source told Reuters this week that Barclays had approached Singapore sovereign fund Temasek and other existing shareholder, in an effort to bring in more cash.

Sovereign wealth funds are expected to buy a large proportion of the new shares, and Sumitomo Mitsui would likely be the only foreign bank to invest into Barclays, the Nikkei said.