MUFG may raise up to $10.6 bln in capital: sources

By Taro Fuse

TOKYO (Reuters) - Mitsubishi UFJ Financial Group (8306.T), Japan's largest bank, is considering raising up to 1 trillion yen ($10.6 billion) to replenish its capital, people familiar with the matter said.

Japanese broadcaster NHK reported earlier that Mizuho Financial Group (8411.T) and Sumitomo Mitsui Financial Group Inc (8316.T), 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 in U.S. investment bank Morgan Stanley (MS.N), paid $3.5 billion to take full control of UnionBanCal Corp UB.N and spent about 150 billion yen to raise its stake in consumer lender Acom (8572.T).

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.

Mitsubishi UFJ is considering raising around 600 billion yen in common shares, and another 100 to 300 billion yen in preferred securities, the Nikkei business daily reported.

Potential investors include funds from the Middle East and Asia, as well as Japanese institutions such as Nippon Life Insurance and Meiji Yasuda Life Insurance, the Nikkei said.

Alarmed by the sharp fall in Japanese share prices, the Japanese government also last week prepared measures to enable capital injections to banks by using public funds.

(Additional reporting by Hideyuki Sano, Dave Dolan and Nathan Layne; editing by Sue Thomas)