SHANGHAI — Major Asian banks that have pulled themselves from the depths of their own economic crisis of the 1990s are showing now just how crucial a role they may play as the U.S. tries to restore health and confidence to its tottering financial system.
Japan's biggest bank said Monday that it planned to spend as much as $8 billion for a 20% stake in investment banking firm Morgan Stanley in New York. Mitsubishi UFJ Financial Group in Tokyo is one of a number of Asian banks that appear primed to seize buying opportunities.
For years, Asian nations have financed the heavy spending of the U.S. government and American consumers by investing much of their massive trade surpluses in U.S. government and corporate bonds.
With huge stockpiles of foreign reserves, China, Japan and other Asian countries have the wherewithal to plow much more money into distressed American assets in the coming months. Many Asian financial institutions, which a decade ago foundered from bad lending practices and mismanagement, today look a lot better than their U.S. counterparts.
But Washington's plan to borrow $700 billion to finance a banking system bailout could give foreign investors pause. On Monday the dollar plunged, signaling some global investors' concerns, analysts said.
The move by Tokyo-based Mitsubishi UFJ appears to be part of a previously announced strategy to expand in the U.S. Last month, it agreed to pay $3.5 billion for the 35% of UnionBanCal Corp., parent of San Francisco-based Union Bank, that it did not already own.
Meanwhile Monday, Japan's largest brokerage firm, Nomura Holdings, agreed to pony up $225 million for the Asian operations of Lehman Bros. Holdings Inc., which filed for bankruptcy protection last week.
"It says a lot about the strength of Japanese banks to be able to do this," Tu Packard, a senior economist at Moody's Economy.com, said of the Mitsubishi UFJ plan. "The Japanese have lots of experience dealing with troubled assets."
Morgan Stanley also had been in talks with China Investment Corp., China's sovereign wealth fund, which took a 9.9% stake in the U.S. investment bank last December. But an investment banker familiar with the discussions said there was not enough time to work out the regulatory and political issues involved in such a deal.
Like the Japanese, Chinese banks have plenty of experience with bad assets. Beijing has poured tens of billions of dollars over the years into its top state-owned banks to shore up their finances.
These banks had relatively small exposure to collapses such as that of Lehman Bros. The Industrial and Commercial Bank of China, the biggest lender, said it held about $152 million in Lehman bonds. That's a trifling amount for a bank that last month reported after-tax earnings of about $9.5 billion in the first half of this year.
The lender had more than $44 billion in cash and cash equivalents as of June 30. The Bank of China, which reported nearly $129 million in Lehman debt, said it had about $69 billion in cash at the end of June.
Although Chinese banks have been slow to expand overseas, they have picked up the pace in the last couple of years, along with many other Chinese companies. Industrial and Commercial Bank and others have invested in foreign banks and moved to set up branches overseas. Last year, China Minsheng Banking Corp. bought a 9.9% stake in the San Francisco-based parent of United Commercial Bank.
There is growing caution, though, in China and the rest of Asia about investing further in the United States. Spooked by the yearlong U.S. financial meltdown, Asian governments have slowed the pace of their purchases of American securities in recent months.
Still, five of the eight top foreign holders of U.S. government and public-sector debt are Asian countries, according to Moody's Economy.com.
China and Japan alone hold more than $1.7 trillion in U.S. Treasury and so-called agency bonds, mostly debt issued by mortgage giants Fannie Mae and Freddie Mac. That's nearly half of all the foreign holdings of long-term U.S. Treasury and agency debt.
The recent U.S. government takeover of Fannie and Freddie was partly prompted by a large sell-off in July of the companies' bonds by Asian investors, with Japan, China and South Korea accounting for a big part of that. Foreign investors were worried about the financial health of the private mortgage giants and were uncertain whether the U.S. would stand behind their debt.
Had the Treasury had not stepped in, there could have been an investor stampede out of such bonds and possibly other U.S. debt.
Some experts believe that Asian investors will be wary of substantially boosting their dollar holdings.
"I believe [China's] central bank will definitely decrease its proportion of dollars . . . and hold more gold and other currencies like the Euro," said Cao Jianhai, an economist at the Chinese Academy of Social Sciences in Beijing.
At the same time, he said, it's not likely there will be any big immediate change, because that would contribute to a weaker dollar and further erode the value of China's holdings.
If Asia substantially pulled back on its purchases of U.S. securities, there could be significant implications for Americans. If the U.S. government had to print more money to support its needs, that would feed inflation. The U.S. could entice overseas investors into continued purchases of American securities by offering higher yields, but that would increase borrowing costs for the U.S. government -- and pinch consumers with higher rates on mortgages and other loans.
But more likely than any sudden moves, analysts say, Asia will continue a gradual shift to diversify its holdings.
"I think the Asian countries by and large are committed to global financial stability," Packard said. "As they say, we are all joined at the hip."
Times staff writer E. Scott Reckard contributed to this report.