MUFG seen mulling 6.7 billion pound capital raising by March

By Taro Fuse

TOKYO (Reuters) - Mitsubishi UFJ Financial Group, Japan's largest bank, is considering raising up to 1 trillion yen (6.7 billion pounds) to replenish its capital, people familiar with the matter said.

Japanese broadcaster NHK reported earlier that Mizuho Financial Group and Sumitomo Mitsui Financial Group Inc, the country's No. 2 and No. 3 banks, may also look to raise several hundreds of billions of yen.

Although Japanese banks have been relatively unscathed by the global credit crisis, the plunge in Japanese shares in the past few months is eating away at their capital bases because they hold a large amount of stock in client firms.

Mitsubishi UFJ also recently invested $9 billion (5.7 billion pounds) in U.S. investment bank Morgan Stanley, paid $3.5 billion to take full control of UnionBanCal Corp and spent about 150 billion yen to raise its stake in consumer lender Acom.

Mitsubishi UFJ has sounded out several investment banks about managing the capital raising, said the people, who spoke on condition of anonymity because nothing concrete has been decided and the deal is not yet public.

Japan's top bank may raise up to 1 trillion yen during the current business year to March through a combination of common shares and preferred securities, but the situation remains fluid given the shaky state of the stock market, the people said.

A spokesman at MUFG said nothing has been decided and would not elaborate. Spokeswomen for Mizuho and Sumitomo Mitsui both declined to comment.

The move to potentially raise funds comes as Japan's top banks watch their profits sliced into by a rise in bad-loan costs as the economy weakens and a sharp drop in the value of their shareholdings with the Nikkei stock average at a 5- year low.