Japan's Sumitomo Mitsui Financial Group may invest about $926 million in British bank 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 finalized.
Barclays , Britain's No.3 bank, has lost more than $5 billion in the U.S. subprime market and resulting credit crisis.
Shares of Sumitomo Mitsui were little changed on the news, and some market participants said the investment was too small to be 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.
Having avoided the worst of the subprime crisis, Asian lenders 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.
Another 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 (US$926 billion) in Barclays, the sources told Reuters.
Chika Togawa, a spokeswoman for Sumitomo Mitsui, declined to comment.
The bank 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."
Barclays said this week it plans to sell billions of pounds worth of shares to new and existing shareholders to boost its funding.
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.