Will Sumitomo Mitsui buy Lehman assets in Japan?

Lehman Brothers Holdings is in talks to sell some Japan assets to Sumitomo Mitsui Financial Group in a bid to save its 1,300-employee operation in the country, three people familiar with the matter said.

Lehman Brothers Japan is also trying to sell assets including its equity, investment banking and real-estate businesses to Mitsubishi UFJ Financial Group and Barclays, two of the people said, declining to be identified as the discussions aren't public.

Banks worldwide are picking over Lehman's assets while headhunters target its employees, after the 158-year-old company filed for bankruptcy on Sept. 15. Sumitomo Mitsui and Mitsubishi UFJ have avoided the worst of the credit losses and writedowns that sank Lehman and Bear Stearns Cos. and forced Merrill Lynch to sell itself to Bank of America.

“Japan banks haven't been hurt as much by the subprime crisis, and their opportunities to grow revenues at home are declining,” said Naoki Fujiwara, who oversees about $720 million as chief fund manager at Tokyo-based Shinkin Asset Management. “This is a good chance to gain investment banking know-how.”

Sumitomo Mitsui, which invested 500 million pounds ($901 million) in Barclays in July, is also seeking to buy businesses from New York-based Lehman elsewhere in Asia, the people said. South Korea's financial regulator said Sept. 16 it suspended Lehman's local units.


Lehman's Asset Sales
Lehman will hire PricewaterhouseCoopers LLP as financial adviser for the sale of the unit in Japan, Lehman Brothers Japan President Akio Katsuragi told a meeting of about 100 creditors in Tokyo, according to two people who attended. PricewaterhouseCoopers' Tokyo officials were not available for immediate comment.

Sumitomo Mitsui spokeswoman Chika Togawa denied the bank is in talks to buy Lehman's local assets. Mitsubishi UFJ spokesman Takashi Takeuchi, Lehman spokeswoman Keiko Sugai and Barclays spokesman Yu Sakakibara declined to comment.

London-based Barclays agreed this week to buy Lehman's North American investment-banking unit for $1.75 billion. Private-equity firms Bain Capital LLC and Hellman & Friedman LLC are negotiating as a team to acquire Lehman's investment-management unit, according to people familiar with the discussions.

Tokyo-based Sumitomo Mitsui, which has a 40 percent stake in Daiwa Securities SMBC, is the only one of Japan's three biggest banks that lacks majority control over an investment-banking unit. The lender has reported about $910 million in losses on subprime-related investments since the start of April 2007, compared with more than $13 billion in such charges at Lehman and $52 billion at Merrill.


Japan's Biggest Bankruptcy
Sumitomo Mitsui paced gains by Japanese banks in Tokyo trading after U.S. stocks rallied the most in six years as the government considered a plan to shore up the financial system.

The lender rose 13 percent to close at 659,000 yen on the Tokyo Stock Exchange, the second-biggest gain among 84 stocks in an index tracking Japanese banks, which jumped 11 percent.

Lehman's main units in Japan filed for bankruptcy this week in the nation's biggest corporate collapse, listing about 4.7 trillion yen ($44 billion) of liabilities.

The company ranked 14th last year in underwriting Japanese stock sales and hasn't worked on any such transactions this year, according to data compiled by Bloomberg. Lehman was the ninth-biggest adviser on mergers and acquisitions in the country, advising on 13 deals, Bloomberg data shows.


Recruiters Knock
Lehman Brothers Japan President Katsuragi said this week the company wants to find a buyer and that Japanese firms are among the potential acquirers.

Discussions might fail unless Lehman is able to stem departures among its employees, the people familiar with the talks said. Recruitment firms are calling Lehman workers in Japan, trying to lure entire teams or departments, the people said.

The company's lawyers are seeking to file a revitalization plan, which will include a potential acquirer, to the Tokyo District Court by Sept. 26.

Lehman reported 12.4 billion yen of profit in Japan for the year ended March 31, up from 1.4 billion yen a year earlier. Revenue rose to 122 billion yen from 35.6 billion yen.

Brokerage commissions totaled 28.2 billion yen and trading profit was 4.3 billion yen, while Lehman earned 53.7 billion yen from fee businesses, including its merger advisory operations.


Should Sumitomo Mitsui decide not to buy out Lehman in Japan, which firm will most likely acquire it?