Now Japan's banks join chase for funds

In one of the starkest illustrations of how the crisis that began in the West has spread to Asia, Japan's third-largest bank is trying to raise up to 400 billion yen (£2.74 billion) by selling preferred shares.

Insiders say the bank may begin selling the securities before the end of the year. Sumitomo Mitsui fell about 9% in Tokyo trading on concerns the capital-raising signals increasing losses on stocks and bad loans.

Japanese banks went into the crisis in relatively good shape, and with little exposure to the US subprime mess. Sumitomo put £500 million into Barclays in July, an investment that has halved in value after Barclays turned to Middle East investors to meet new capital requirements.

Mitsubishi UFJ invested $9 billion (£6.02 billion) in Morgan Stanley last month. Japan's lenders have been hit by plunging stock investment values and increasing bad loans as the economic downturn grips.

All the banks are now in a hunt for capital as Japan enters its first recession in seven years.Mitsubishi UFJ Financial Group plans to raise more than 900 billion yen selling shares while Mizuho Financial Group has flagged the sale of up to 300 billion yen in preferred securities.

Profits at Japan's three largest banks fell 64% to a combined 269.9 billion yen in the six months to September from a year earlier.

"Valuation losses on stocks and a fall in expected profit for this year and next year are forcing the banks to act," said Nomura analyst Keisuke Moriyama. But Sumitomo faces competition from the world's banks for fresh funds. Added Moriyama: "It may not be so easy for Sumitomo Mitsui to raise as much as 400 billion yen right now."

The banks' problems come as the Japanese economy shows increasing signs of stress. The number of companies filing for bankruptcy rose 14% to 1231 in October from a year earlier.