Sumitomo capital raising sparks Japanese bank spread widening

Japanese bank credit protection spreads widened this week as a capital-raising exercise by Sumitomo Mitsui Banking Corp (SMBC) sparked renewed fears that banks were trying to shore-up capital reserves ahead of their year-end results.

SMBC said earlier this week that it would raise ¥300 billion ($2.5 billion) via a convertible preference shares placement. Dealers said the cost of credit protection on SMBC’s senior debt widened 15bp to 95bp by Wednesday, but a general technical tightening on Japan’s credit default swap market helped keep SMBC’s spread from widening further. “Japanese credits are still on the tightening trend,” said one trader, pointing out that otherwise “banks could have widened much more”.

The cost of