Mizuho to raise capital; CBA warns on bad debts

By David Dolan and Mette Fraende

TOKYO/SYDNEY (Reuters) - Mizuho Financial Group (8411.T), Japan's second-biggest bank, said it plans to raise fresh capital reportedly worth $3.2 billion and Australia's No.2 lender warned it expects a big jump in bad loans as shockwaves from the global financial crisis rattle the region's banks.

Mizuho, which on Thursday posted a $402 million net loss for the second quarter, would be following in the footsteps of larger rival Mitsubishi UFJ Financial Group (8306.T), which said last month it would raise $10.5 billion to offset stock market losses.

Commonwealth Bank of Australia (CBA.AX) warned investors to expect a big jump in bad debts and voiced concerns over the economic outlook for at least the next 18 months.Asia-Pacific lenders have largely avoided the heavy losses on subprime mortgages that tore through Wall Street, but a weakening economy and plunging equity markets have taken a toll on the sector.

Mizuho, which lost $6.7 billion on subprime investments last year, said it would issue preferred securities to shore up its capital base but had yet to decide on the amount.

Earlier, the Nikkei newspaper reported Mizuho was considering raising 300 billion yen ($3.2 billion) by issuing the securities to several large Japanese insurance companies such as unlisted Dai-Ichi Mutual Life Insurance and Sompo Japan Insurance (8755.T).

"By boosting their capital, the banks will have more money to lend out. Whether or not they have anyone to lend the money to, that's another story," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

Mizuho kept its recently lowered forecast for full-year net profit of 250 billion yen, down 20 percent from a year earlier and less than half its original 560 billion yen estimate.

Mizuho shares closed down 6.6 percent, underperforming a 4.3 percent fall on the broad TOPIX Index and taking year-to-date losses to more than half.