TOKYO - Goldman Sachs Group Inc. plans to invest $1.3 billion in Sumitomo Mitsui Financial Group Inc. in a deal that would give it access to fees and investment opportunities from among 100,000 corporate clients of Japan's second-largest bank.
Sumitomo Mitsui has also agreed to cover at least $1 billion of any losses Goldman makes on loans to its investment-grade customers, the companies said Wednesday. Those loan guarantees may help Goldman compete with Citigroup Inc. and J.P. Morgan Chase & Co., whose commercial banking arms can support loans to clients.
The deal, expected to close next month, would help Sumitomo Mitsui, which is disposing of more than $50 billion of nonperforming loans, satisfy regulatory demands for sufficient capital. For Goldman, it is part of an ongoing investment effort in Japan, where the company has bought golf courses, hotels, and other assets from delinquent borrowers in the past year in the hopes that it can sell them at a higher price.
"Goldman may be seeking to solidify its position in Japan by tapping clients of Sumitomo Mitsui," said Sadaharu Nagumo, who manages $169 billion at Japan Investment Trust Management Co. Goldman would buy $1.27 billion of preferred securities that pay annual interest of 4.5% and can be converted into shares starting in two years.
The companies also say they would work together on disposing of nonperforming assets and on restructuring the Japanese bank.
Increasing government scrutiny has prompted Japan's banks to raise funds to counter possible capital declines below levels recommended by regulators. Lenders there are on the hook for billions of dollars of loans.
"It's a very risky investment, because Sumitomo has asset quality problems and will have losses this year," said Naoko Nemoto, the director of financial institutional ratings at the Tokyo office of Standard & Poor's Corp.
But that has not stopped U.S. companies from seeking out opportunities there. Last month Merrill Lynch & Co. invested in a bad-loan venture with UFJ Holdings Inc., Japan's fourth-largest lender, also through preferred shares.
Sumitomo's ties with Goldman were forged in 1986, when Sumitomo Bank Ltd. invested $500 million for a 12.5% stake in the Wall Street partnership. When Sumitomo Bank merged with Sakura Bank Ltd. in 2001, Goldman acted as a financial adviser.
While Sumitomo Mitsui sold its last Goldman stake a year ago, its president, Yoshifumi Nishikawa, serves on the New York company's Japan advisory board. Goldman's Japan chairman, Akio Asuke, is the former deputy president at Sumitomo Mitsui.
