SUMITOMO Mitsui Financial Group Inc's third-quarter profit fell as the Japanese bank wrote down the value of United States mortgage investments by more than it predicted.

Net income declined 2.3 percent from a year earlier to 148.9 billion yen (US$1.4 billion) in the three months ended December 31. Japan's second-largest bank by market value recorded a 67-billion-yen loss on securities and loans related to the US subprime market, it said yesterday.

"I expect more write-offs at Sumitomo Mitsui and other major banks like Mitsubishi UFJ and Mizuho," said Hiromichi Tsuyukubo of Myojo Asset Management Japan Co in Tokyo.

Sumitomo Mitsui's writedown took mortgage-related losses at Japan's largest banks to US$1.6 billion - a fraction of the US$24.5 billion recorded by Merrill Lynch & Co. Sumitomo Mitsui, which has now written off about 90 percent of its subprime-related holdings, is interested in buying assets of US or European lenders, President Teisuke Kitayama said last month.

Bloomberg News calculated earnings by deducting first-half results from nine-month figures announced yesterday. Sumitomo Mitsui in November forecast a 55-billion-yen loss on investments linked to US subprime mortgages for the six months ending March 31.

Sumitomo Mitsui's third-quarter net interest income rose 6.8 percent to 292.6 billion yen from 274 billion yen a year earlier, according to calculations by Bloomberg. Net fees for the quarter rose 1.8 percent to 153.4 billion yen.

Costs for potential bad loans tripled to 94.9 billion yen for the quarter from 30.7 billion yen a year earlier, as the bank increased provisions for loans to smaller domestic companies. Sumitomo Mitsui had a 6.4-billion-yen loss on stockholdings for the three months ended December 31, from a gain of 12.8 billion yen a year earlier.

Sumitomo earns more from lending as individuals account for a greater share of its borrowers. Its net interest margin stood at 1.78 percent in the first half of the year.