GOLDMAN SACHS agreed yesterday to convert 100 billion yen worth of Sumitomo Mitsui Financial Group (SMFG) preferred shares into common stock, as part of the Japanese bank's preparation for tougher capital requirements.
The agreement, which comes as part of Japan's third largest bank's plans to raise up to 888.9bn (£6bn) yen through a public offering brings an end to a relationship dating back to 1986 when SMFG predecessor Sumitomo Bank bought a $500m stake in the-then capital-constrained private partnership.
When Sumitomo then needed capital to boost its funds in 2003, Goldman returned the favour pumping 150.3bn yen into the bank through preferred shares convertible into SMFG common stock.
Goldman is expected to sell the common shares. The move follows Citigroup's recent decision to sell its Japanese brokerage arm.
SMFG's capital raising is the latest in a string by Japan's banks and brokers amid concerns that global regulators will tighten capital requirements.
"We still don't know what the (Basel) rules are going to be, but this obviously puts SMFG closer to being past the post," said Brian Waterhouse, Japan bank analyst at brokerage CLSA.
Intended to help prevent another financial crisis, the new rules will emphasise a bank's core Tier 1 ratio, a measure of financial strength that is likely to be defined by common equity and excludes preference shares.
City A.M. Reporter