Japan's Sumitomo Mitsui Financial Group may invest about $926 million in British bank Barclays, people familiar with the matter said this morning, 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 has lost more than $5 billion in the US 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.
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 US 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 ($926 billion) in Barclays, the sources said. 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 today.
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.