Japan banks will not support supbrime fund: sources

By Taro Fuse

TOKYO (Reuters) - Japan's top three banks plan to reject a request to help finance a U.S.-led subprime rescue fund because of concerns over putting their capital at risk, financial sources said.

Sumitomo Mitsui Financial Group (8316.T), Mitsubishi UFJ Financial Group (8306.T), and Mizuho Financial Group (8411.T) had each been asked to put up $5 billion in credit for the U.S.-led fund, which would have put Japanese banks among its top backers.

Citigroup Inc (C.N), Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N) initiated plans for the fund to prevent a fire sale of securities held by structured investment vehicles (SIVs) at the heart of the subprime mortgage crisis.

According to several financial sources, Japan's top three banks are worried about putting their capital at risk in the fund, especially in light of stricter Basel II rules on how much capital they must set aside to cover risk.

"We decided not to answer the U.S. request after considering the issue from the perspective of capital adequacy ratio guidelines including those set out in Basel II," an executive at one of Japan's top three banking groups told Reuters.

Japanese banks have hinted in the past few days that they were reluctant to extend credit for the fund, which is expected to be about $50 billion in size and ready to buy SIV assets in the coming weeks.

Masayuki Oku, president of Sumitomo Mitsui's core banking unit and head of Japan's banking lobby, said on Tuesday that his bank was cautiously considering the request and had not ruled out rejecting it.

Oku gave several reasons for the cautious stance including concerns over how difficult it would be to procure such a large amount of dollars and skepticism over the quality of the assets to be bought by the fund.

Oku also acknowledged that the recent slide in bank share prices was a factor. Japanese banking stocks were sold off sharply last week when it was first reported they were asked to place a large role in the fund.

(Reporting by Taro Fuse; Editing by David Cowell)