"Citi Will Sell Japan Units, Bolstering Its Capital
TOKYO — Citigroup said on Friday that it would sell its Japanese brokerage and investment banking units for $5.56 billion, securing much-needed capital before results expected next week from a government “stress test” of its financial health.
Citigroup, the recipient of about $45 billion in bailout money, will sell its Japanese securities arm and parts of its investment banking business to Sumitomo Mitsui Financial Group.
The overall transaction, including shareholdings and retained debt payments, is valued at 774.5 billion yen ($7.8 billion), Citigroup and Sumitomo Mitsui said. Citigroup said it would realize a loss of $200 million on the transaction, which would generate $2.5 billion in tangible common equity, a measure of financial health.
Citigroup’s sale of important businesses in Japan would reverse an ambitious, yet short-lived, push into the country. Just two years ago, the bank, based in New York, had spent about 1.6 trillion yen to acquire the Nikko Cordial franchise.
But Citigroup has been scrambling to raise capital after a year of crippling losses that has led to three bailouts, the last of which gave the government a 36 percent stake in the bank.
Vikram S. Pandit, Citigroup’s chief executive, called the sale “another step in the execution” of a strategy announced in January that would separate Citigroup’s main banking business from its other assets.
Citigroup’s sale in Japan includes Nikko Cordial Securities, a large brokerage firm, and parts of Nikko Citigroup, the investment banking unit of Citigroup in Japan.
The transaction does not include Nikko Asset Management, which is expected to be sold separately. The sale also leaves out Citigroup’s consumer banking and credit card assets in Japan, which Citigroup says it will keep.
The deal comes as United States regulators prepare to disclose results of the stress tests, which are assessing the banks’ ability to withstand a further deterioration in the economy.
With its purchase, Sumitomo Mitsui hopes to close the gap with the top brokerage house in Japan, Nomura Holdings. Nomura bought some of the operations of the failed investment bank, Lehman Brothers, last year.
Sumitomo Mitsui invested $745 million in the British bank Barclays last year and has had capital ties with Goldman Sachs since 1986. The Japanese bank said Friday that it would also work with Citigroup in the securities brokerage, sales and trading businesses.
Japanese banks have been looking to expand globally and increase fee revenue amid sluggish corporate activity at home. But losses on recent investments, as well as mounting bad loans and write-downs in the value of shareholdings, have battered their balance sheets.
On Friday, the biggest bank in Japan, Mitsubishi UFJ, said it expected to swing to a 260 billion yen loss for the year ending next March, compared with a previous forecast of a 50 billion yen profit. Mitsubishi UFJ, which invested $9 billion in Morgan Stanley last year, said its equities losses were likely to come to 520 billion yen.
Sumitomo Mitsui booked a loss of 390 billion yen in the year ended March 31. The bank said it was assessing the effects of the Citigroup deal on its finances."