Sumitomo Mitsui is taking over Citigroup's c Japan brokerage businesses, both sides said Friday, as part of a bigger plan to restructure the struggling U.S. bank. The deal is Japan's first acquisition of a leading brokerage by a bank.
Sumitomo Mitsui Financial Group will acquire Nikko Cordial Securities and some parts of Nikko Citigroup's Japan operations for about 545 billion yen ($5.6 billion).
"It is an important step in the execution of Citigroup's strategy," Citigroup Vice Chairman Stephen Volk told reporters at a Tokyo hotel. "In executing our new strategy, we remain committed to our businesses in Japan, where we have over a century of experience."
Volk said Citigroup will lose about $200 million on the transaction compared to what it had spent to acquire Nikko Cordial a year ago. It is Japan's third-largest brokerage with managed assets of 25 billion yen ($260.4 million) and 111 branches.
The deal, intended to be completed by Oct. 1, also includes a cash transfer to Citigroup related to assets of the brokerage totaling some 201 billion yen, both sides said.
The widely expected move, which also includes the purchase of most of Nikko Citigroup's securities operations, is part of the ailing U.S. bank's global restructuring. Citigroup has said it is looking into selling its Japan brokerage operations.
The deal will make Sumitomo Mitsui the first Japanese bank to buy a top brokerage in Japan.
Two other of Japan's "megabanks" — Mitsubishi UFJ Financial Group and Mizuho Financial Group — had also been wooing Nikko Cordial. But they lost out in the end.
Sumitomo Mitsui can hope to expand its brokerage operations by acquiring Nikko Cordial, which operates in both individual and corporate sectors in Japan. The acquisition will allow Sumitomo Mitsui to come close in size to the nation's industry leader Nomura Holdings.
Sumitomo Mitsui President Teisuke Kitayama said the huge amount of individual savings in Japan provides an attractive market for financial products and needs for individual investments are growing.
"This deal marks a turning point in creating a new financial business model," he said.
Sumitomo Mitsui can also hope to gain some of Citi's expertise in global financing through the deal and will also maintain a partnership between Citigroup and Nikko Cordial.
The acquisition will not include some operations in Nikko Citigroup's securities business, Nikko Asset Management and other units, it said, and is an effort to best streamline the efficiency of Citigroup's overall business.
Douglas Peterson, a Nikko Citigroup director, said Citigroup boasts a century of history doing business in Japan and will continue to run its banking, credit card and other operations here.
"I am confident Citi will thrive in Japan for another 100 years," he said.
After reporting a quarterly loss of $8.29 billion, Citigroup last month reorganized into two entities, Citicorp and Citi Holdings. The first is focused on traditional banking around the world, while the second holds the company's riskier assets and tougher-to-manage non-core ventures, including Nikko Cordial.
Analysts have said that Pandit's reorganization allows Citigroup to sell or spin off the Citi Holdings assets to raise cash.
Citigroup has already begun scaling back its presence in Japan to cope with the global financial crisis. In December, it agreed to sell NikkoCiti Trust and Banking to Mitsubishi UFJ Trust and Banking in an all-cash deal worth 25 billion yen.