Nov. 2 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc. led Japanese banks lower in Tokyo trading after analysts said Citigroup Inc. may be short of capital, triggering concerns about the health of the global financial industry.

Mitsubishi UFJ, Japan's largest publicly traded bank, slid 6 percent to 1,052 yen at the 3 p.m. close in Tokyo, its biggest drop in two weeks. The index tracking 85 Japanese banks slipped 4.9 percent, the worst performance among 33 industry groups making up the benchmark Topix.

Japanese bank stocks have plunged an average 25 percent this year, as the credit rout that hurt Citigroup, Merrill Lynch & Co. and UBS AG infected the nation's lenders. Citigroup slumped to a four-year low in New York after CIBC World Markets and Morgan Stanley recommended investors sell its shares.

``Citigroup's plunge, prompted by the analyst rating cuts, is bad news for lenders here even though they don't have the same degree of subprime exposure,'' said Soichiro Monji, who helps oversee $47 billion at Daiwa SB Investments Ltd. in Tokyo.

Asian bank stocks also fell. The MSCI Asia-Pacific Finance Index lost 3 percent, making it the worst performer among the 10 industry groups that make up the regional benchmark.

Asian Banks

DBS Group Holdings Ltd., Singapore's largest bank, lost 4 percent to S$21.70. The bank reported on Oct. 26 a mark-to-market loss of S$42 million ($29 million) on collateralized-debt obligations held by an off-balance-sheet vehicle.

Bank of China Ltd., the country's third biggest, slipped 2.7 percent to HK$5.05. The company said on Oct. 30 earnings growth slowed to 22 percent in the third quarter from 51 percent in the first half after a $322 million writedown on U.S. securities linked to subprime mortgages.

Credit Suisse analyst Susan Roth Katzke reduced her rating on Citigroup to the equivalent of hold from buy. Citigroup may have to sell assets, shrinking growth opportunities, because it needs to raise $30 billion of capital, CIBC said.

Citigroup fell 6.9 percent to $38.51 in composite trading on the New York Stock Exchange at 4 p.m. The U.S. bank's shares are scheduled to begin trading on the Tokyo Stock Exchange on Nov. 5.

``Financials were weak in the U.S. so sentiment must be pretty bad,'' said Yoji Takeda, who helps manage about $900 million at RBC Investment (Asia) Ltd. in Hong Kong. ``Japanese banks are less exposed to subprime, but their underlying fundamentals aren't that good in the medium-term.''

Writedowns

Resona Holdings Inc., Japan's fourth-largest bank, slid 8.1 percent to 204,000 yen, the third-biggest percentage decline on the MSCI World Index. Larger Mizuho Financial Group Inc. declined 5.8 percent and Sumitomo Mitsui Financial Group Inc. dropped 6 percent.

Japanese financial firms including Mitsubishi UFJ have said in the past month earnings were eroded by declines in the value of securities linked to U.S. subprime home loans.

Mitsubishi UFJ, which posted a record profit decline on losses at a credit-card unit earlier this week, said it will book a loss of 5 billion yen on investments linked to U.S. home loans to riskier borrowers. The bank will also write down the value of its subprime-related investments to 260 billion yen from 280 billion yen two months earlier.

Sumitomo Mitsui Financial, Sumitomo Trust & Banking Co. and Shinsei Bank Ltd. also said last month profits trailed expectations as holdings of securities linked to U.S. subprime mortgages eroded earnings.

Japanese banks remain relatively unscathed compared with global counterparts. The world's largest banks and securities firms announced more than $30 billion of charges in the third quarter, and the subprime meltdown cost Merrill Chief Executive Officer Stan O'Neal his job earlier this week.

O'Neal stepped down after the world's biggest brokerage said it would write down more than $8 billion in the value of collateralized debt obligations and posted a $2.24 billion third- quarter loss.

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net.; Finbarr Flynn in Tokyo at fflynn3@bloomberg.net

Last Updated: November 2, 2007 03:12 EDT