Japanese set to bail out Barclays with £473m stake

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The bank is in line for a 100 billion yen (£473.4 million) capital injection from Sumitomo Mitsui Financial Group (SMFG) that would give the Japanese firm a stake in the British lender.

Barclays is expected to update the City on its plans next week - although sources suggest the numbers it is discussing with SMFG have yet to be finalised.

Barclays wants to raise cash by selling shares to foreign investors and existing shareholders, having suffered losses of £2.5 billion in the collapse of the US subprime mortgage market and subsequent credit crunch.

It does not want to follow rivals such as Royal Bank of Scotland and HBOS in launching a rights issue, and is in talks with several sovereign wealth funds in the Far East and Middle East.

China Development Bank and Tamasek last year ploughed £2.8 billion into the bank buying shares at 720p. They have seen the value of their investments more than halve as the share price collapsed. It fell 934p today to 306p.

Nevertheless, foreigners are queuing up to invest in Barclays as it tries to raise £4 billion to repair its balance sheet. Qatar's sovereign wealth fund is also considering backing a Barclays share issue.

SMFG will take a stake of two or three per cent in Barclays through a private placing of shares, and look to form an alliance in Asia and in the asset management business.

Tokyo's largest banks have said they want to be "silent investment partners" to large western banks needing help.

By contrast to British and US banks, Japanese lenders are in relatively good shape, having cleaned up their balance sheets after a decade of struggling with bad loans.

Now faced with a shrinking market at home, they are again seeking opportunities abroad, although analysts said SMFG should be bolder and take a bigger stake in Barclays. Mizuho Corporate Bank invested $1.2 billion (£60 million) in Merrill Lynch in January.

Barclays has written down £1.7 billion this year, less than RBS's £5.9 billion and HBOS's £4 billion, but enough to provide an entry opportunity for investment-hungry sovereign wealth funds.