* New issue to boost total number of shares by 30 pct
* Other financials hit by worries they will also issue shares
* Share fall 16 pct to five-month low (Recasts, adds details and background)
By David Dolan
TOKYO, Sept 25 (Reuters) - Shares of Nomura Holdings plunged 16 percent on Friday after a surprise $5.6 billion share sale plan that will heavily dilute current investors and raises questions about the expansion plans of Japan's largest brokerage.
The news also sparked concerns that Japan's major banks might look to bulk up their capital cushions by issuing new shares. Japan's index of bank stocks fell 4.6 percent.
Nomura has made an aggressive push to become a global investment bank as rivals struggle, last year buying Lehman Brothers' operations in Europe, Asia and the Middle East. But stinging investors for funds twice in just six months has upset some.
"What makes us worried is why Nomura has to increase its capital again on such a large scale right after raising funds in March," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"We are unclear about the purpose of the latest capital raising. That's why the market is depressed," Akino said.
Nomura said the issue, which will boost the number of outstanding share by about 30 percent, was to meet tougher capital requirements and for investments in its overseas operations.
The G20 grouping of rich and developing countries now meeting in Pittsburgh has pushed for global banks to increase their core tier 1 capital, a measure of financial strength that is largely made up of common shares and retained earnings.
PREEMPTIVE MOVE?
Some analysts described the fundraising as a preemptive move, given the likelihood for changes in global capital requirements.
"By raising this much capital now, they won't have to worry about meeting new global capital regulations, and on top of that they will still be able to expand their business," said Azuma Ohno, an analyst at Credit Suisse in Tokyo.
Japanese banks have in the past raised funds through issuing preferred securities and preferred shares, but neither of these count towards core tier-1 capital, which is likely to be the next global standard.
"In terms of meeting these (expected) standards, Japanese banks have a low core tier-1 ratio, compared with banks in Europe and the United States," said Soichiro Monji, chief strategist at the equity management department of Daiwa SB Investments.
"So it could be that further capital raising is necessary.... I think they will end up raising new capital," he said.
Nomura said fundraising would lift its tier-1 capital ratio by 5 percentage points. The firm, which does not disclose its core tier-1 ratio, said its tier-1 ratio was 12.7 percent as of the end of June.
For a graphic on various bank's tier-1 capital, click http://r.reuters.com/rec68d
COMING TO AMERICA
Analysts said the funds would also help Nomura build up its business in the United States, traditionally one of its weak spots.
"As a global firm, they have to do business in the United States. That could include bringing in new people and taking risks, whether through trading or counterparty risk. At present, they don't have the capital to allocate for that," Credit Suisse's Ohno said.
He said the brokerage was unlikely to make an acquisition in the United States at the moment, given the lack of buying opportunities.
The Tokyo-based firm was named as a primary dealer of U.S. Treasury securities in July, making it one of just 18 firms that deal directly with the U.S. Federal Reserve.
But despite some big name hires, the Japanese firm is unable to compete with Wall Street in the U.S. equity capital markets (ECM) business, the world's most important, bankers say.
Shares of Nomura spent the day flooded with sell orders, finally closing limit down at 573 yen, their lowest since April.
Shares of Nomura rival Daiwa Securities Group dropped 6.3 percent while Mizuho Financial Group, Japan's second-largest lender, fell 4.4 percent. ($1=91.27 Yen) (Additional reporting by Nathan Layne, Yumiko Nishitani and Chikafumi Hodo; Editing by Edwina Gibbs and Lincoln Feast)