25.04.2009 10:48 UPDATE 3-SMFG in lead to buy Citigroup Japan assets-sources By Taro Fuse
TOKYO, April 25 (Reuters) - Sumitomo Mitsui Financial Group (News) (SMFG) has emerged as the likely buyer of Citigroup Inc' (News/Aktienkurs) s retail brokerage and investment banking operations in Japan after outbidding rivals with an offer of about $5.2 billion, two people with knowledge of the deal said.
Citigroup put Nikko Cordial, a retail broker with 109 branches, and a large portion of investment bank Nikko Citigroup up for sale as part of the struggling U.S. bank's global efforts to raise cash.
The deal could reshape the Japanese financial industry. Nikko had 25 trillion yen in client assets as of the end of December, second only to Nomura Holdings among brokers, while Nikko Citigroup is one of the country's top underwriters.
SMFG, Japan's third-largest bank, and larger rivals Mitsubishi UFJ Financial Group and Mizuho Financial Group all submitted offers for the assets in a bidding process that closed on April 20.
SMFG's offer of about 500 billion yen was the highest, prompting Citigroup to grant it exclusive negotiating rights, said the two people, who were not authorised to speak publicly about the transaction.
Along with Mitsubishi UFJ, SMFG had been seen as a strong contender, especially after announcing earlier this month that it would raise up to $8 billion by selling shares.
SMFG and Citigroup will now work towards agreeing on final terms of a deal, which is expected to include all of Nikko Cordial and the part of Nikko Citigroup that provides services to small and medium companies, the people said.
The talks do not include Nikko Asset Management, a fund management arm that Citigroup may sell off in a separate deal.
A spokesman for Nikko Citi Holdings, Citigroup's holding company in Japan, declined to comment. No one at SMFG could be reached for comment.
The Nikkei business daily and other Japanese media had also reported earlier that SMFG had won exclusive negotiation rights.
CITI'S EXIT
Citigroup spent about 1.5 trillion yen to acquire the Nikko Cordial franchise in a transaction completed early last year, aiming to expand in the world's second-largest economy.
But the U.S. bank, reeling from more than $85 billion of writedowns and credit costs since mid-2007, has been forced to retreat from that strategy and sell Nikko at what will likely be a considerable loss.
Globally it has divided its assets into Citicorp, which houses the businesses it considers its main operations, and Citi Holdings, which includes units and assets it is looking to shed, including Nikko Cordial and Nikko Asset.
Citigroup had originally designated Nikko Citigroup as a unit that it intended to hold on to. But it recently added part of its operations to the Nikko Cordial sale in order to fetch a higher price, sources have said.
Acquiring Nikko Cordial would fill a major gap in SMFG's business portfolio.
SMFG holds a 40 percent stake in Daiwa Securities SMBC, a venture with broker Daiwa Securities Group and one of Japan's leading investment banks.
But SMFG is relatively weak in retail broking. It owns SMBC Friend Securities, a second-tier securities firm that logged about 60 billion yen in sales in the past business year, or roughly a quarter the revenues generated by Nikko Cordial.
A sale of the Nikko assets to SMFG could mean a missed opportunity for Mitsubishi UFJ and Mizuho, both of which are aiming to bolster their brokerage operations.
Mitsubishi UFJ Financial Group and Morgan Stanley have announced plans to merge their Japanese brokerage units, while Mizuho is set to combine its broker unit with affiliate Shinko Securities.
(Additional reporting by Junko Fujita; Writing by Nathan Layne; Editing by Hugh Lawson and Alex Richardson)
((taro.fuse@thomsonreuters.com; +81-3-6441-1801; Reuters Messaging: taro.fuse.reuters.com@reuters.net)) Keywords: CITIGROUP/SMFG
(If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)
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