strategy announced in January that would separate Citigroup’s main banking business from its other assets

TO BE NOTED: From the NY Times:

"Citi Will Sell Japan Units, Bolstering Its Capital

By HIROKO TABUCHI

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."

the first option is to accelerate plans to sell unwanted businesses

TO BE NOTED: From the FT:

"Citigroup scrambles to raise capital

By Francesco Guerrera in New York

Published: April 28 2009 19:20 | Last updated: April 29 2009 00:29

Citigroup has told US regulators it could fill the capital shortfall identified in the government’s “stress test” by selling large businesses, asking more investors to convert their preferred shares into common stock and reducing its balance sheet.

Executives are trying to persuade the government Citi does not need more capital beyond its recent plans to bolster its battered balance sheet and cut costs.

However, with days to go before the results of the tests are announced, Citi, which has been bailed out three times by the authorities, is looking for ways to avoid receiving more government help if the authorities insist on an increase in capital.

Bank of America, another lender whose test has highlighted the need for funds, is in talks with regulators over its needs and the possibility of converting the government’s preferred shares into common stock, bankers said. Analysts have estimated BofA could require up to $70bn in extra capital.

Citi executives argue that divestitures, such as the planned $5.2bn sale of Japan’s Nikko Cordial to Sumitomo Mitsui, the possible expansion of an existing conversion offer, and cost-cutting would ensure it has enough capital to withstand the crisis.

People close to the situation said Citi could sell several units in Citi Holdings, the division that holds its non-core activities. Citi executives do not rule out shedding businesses deemed as core but argue that, if the company has to raise capital, the first option is to accelerate plans to sell unwanted businesses.

Citi has also looked at adding to its planned conversion of $52bn of preferred shares held by the government and other investors by including trust-preferred shares, although that idea was losing ground last night. Some insiders argue it could be difficult to persuade holders of such shares – a hybrid of debt and equity – to exchange them for common stock because they rank as debt and pay interest.

People close to the situation said both Citi and BofA were contesting some of the conclusions made in the stress tests. Citi executives, led by finance chief Ned Kelly, are believed to have told regulators the estimates for losses on credit cards – based on rising unemployment – are too high.

Citi is also asking regulators to take into account the capital boost it will receive from the expected sale of a majority stake in its brokerage unit Smith Barney to Morgan Stanley as well as the likely disposal of Nikko.

That deal is expected to generate an accounting loss, because Citi’s acquisition price for the business is higher than the likely sale price but it would still result in a cash boost for Citi.

People close to the situation cautioned that discussions between Citi, Treasury and the Federal Reserve were fluid and details of the plans could change ahead of the release of the results of the stress tests next week.

Some Citi executives believe the government may still have to convert more of its preferred shares into common stock, ­raising its holding above the 36 per cent it is due to take following the latest bail-out in February.

Citi shares closed down 5.9 per cent. BofA shares closed down 8.6 per cent at $8.15.

BofA declined to comment. Citi said its capital base was “strong”.

Additional reporting by Greg Farrell in Charlotte

Copyright The Financial Times Limited 2009"

spent 1.5 trillion yen ($14.96 billion) to acquire the franchise, so selling the assets at a little more than half that could result in a capital hit

TO BE NOTED: From Reuters:

"Citigroup may sell more Japan operations

Mon Apr 13, 2009 3:11pm EDT

By Taro Fuse and Emi Emoto

TOKYO (Reuters) - Citigroup Inc has told potential buyers of its Japanese retail brokerage arm that it may also be willing to sell its Japanese investment banking and asset management operations, sources familiar with the matter said.

While a sale would raise cash, Citigroup's capital level could suffer if the bank were forced to sell assets at too low a price, a big negative for a company reeling from more than $85 billion of writedowns and credit costs since mid-2007.

Citigroup put retail brokerage Nikko Cordial Securities up for sale in February. The bank may also sell all or part of its Nikko Citigroup investment banking and Nikko Asset Management fund management units, along with the retail brokerage, the sources said.

Jon Diat, a spokesman for Citigroup in New York, declined to comment.

Japan's Kyodo News, citing banking sources, reported earlier that the three Nikko businesses combined could be priced at 800 billion yen ($7.98 billion).

Citigroup spent 1.5 trillion yen ($14.96 billion) to acquire the franchise, so selling the assets at a little more than half that could result in a capital hit.

The sources, who requested anonymity because they were not authorized to speak publicly about the matter, said Citigroup hoped to fetch a higher price by selling the units together.

In February, Citigroup's efforts to sell Nikko Cordial drew interest from Japan's top three banks: Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group. Nikko Cordial has about 110 branches across Japan.

Now, Citigroup is wondering if adding additional assets to that sale would bolster demand. "Nikko Cordial on its own may only sell for about 400 billion yen," an executive at a Japanese bank told Reuters.

Citigroup shares were up 55 cents, or 18 percent, at $3.59 in Monday afternoon trade on the New York Stock Exchange.

SEEKING BIDS

Citigroup plans to seek bids for its Japanese investment banking operations on April 20, the sources said. It may opt to sell just part of Nikko Citigroup, they said.

The government has propped up Citigroup three times since October, and the bank has taken more than $45 billion of taxpayer money. The government is expected to become Citigroup's largest investor, with a potential 36 percent stake.

Citigroup 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 Management.

Until recently, the bank viewed Nikko Citigroup as a major unit that it intended to hold onto.

Nikko Citigroup is struggling amid the market downturn and a dearth of investment banking deals. Its net loss doubled to 14.5 billion yen for the nine months to end-December.

($1 = 100.238 yen)

(Reporting by Taro Fuse and Emi Emoto, editing by Matthew Lewis and John Wallace)"

are hardly likely to be falling over themselves to spend the $5bn to $9bn that the FT reckons the business would fetch

TO BE NOTED: From Alphaville:

"Playing chicken with Citi’s Nikko Cordial Posted by Gwen Robinson on Mar 30 11:37.

Citigroup’s latest moves, to sell off its Nikko Cordial brokerage business in Japan, has triggered speculation about the likely buyer of Japan’s third-biggest broker - not least because Japan’s big banks, either absorbed with their own problems or existing deals, are hardly likely to be falling over themselves to spend the $5bn to $9bn that the FT reckons the business would fetch.

Not only that, some analysts question whether the sale of Japan’s third-biggest broker - at a time when competition is heating up in what is still one of the world’s biggest capital markets - might be a sale too far for beleagured Citi, which could end up losing out if it has to sell the business at a knockdown price rather than holding onto it.

Morgan Stanley and Mitsubishi UFJ Group, Japan’s largest bank, are just merging their Japan brokerage businesses in an effort to take on industry leaders Nomura and Daiwa Securities. An enlarged Nomura, meanwhile, is still integrating the Japan operations of Lehman Brothers. Meanwhile, Japan’s stock markets have been doing far better than the relentlessly grim economic data might suggest, and even though the outlook for corporate earnings is bleak, “there’s enough action to go round - for now,” in the words of one broker.

Yet, Citi’s rush is on. After informal talks with potential bidders, including Japan’s top three banks, MUFG, Sumitomo Mitsui Financial Group and Mizuho (all of which have informally expressed interest) Citi has begun soliciting formal offers for Nikko Cordial and wants to select a buyer as early as the end of April, the FT reports on Monday.

As far as potential Japanese buyers go, the bottom line, in the eyes of one observer, is that “while none of them really want the business, nor do they want any of the others to have it - it’s a classic game of chicken”. Only the big banks would really be in a position to buy the business. Of the top three, SMFG is the one that lacks a real securities arm, though it has an investment banking joint venture with Daiwa. One logical possibility could see the revival of earlier speculation, back in February, that SMFG and Daiwa Securities were eyeing a joint bid for Nikko Cordial.

By bidding together, the two firms - which already have a close relationship - would be able to lower their individual costs, and share the risk of the investment, Japan’s Sankei newspaper reported in February, noting that a successful joint bid for Nikko Cordial would put more assets under the management of the Sumitomo Mitsui-Daiwa alliance than those held by Nomura, Japan’s number one broker.

For Citi, the auction for Nikko Cordial, which the US group acquired for about $13bn in cash and shares in a process that spanned several years and much angst, is part of a desperate drive to sell non-core assets and slim down. But the divestment of Nikko Cordial – one of Citi’s biggest overseas acquisitions – “would mark a retrenchment in Japan, an economy the US bank had long regarded as crucial to its international plans”, the FT notes.

Worse than that, the sale of Nikko Cordial could be counter-productive for Citi’s remaining Japan business - namely, its investment banking arm, Nikko Citigroup, which has relied partly on its Nikko Cordial client base to boost its presence in the country.

In addition, as the FT notes, selling Nikko Cordial shortly after Citi’s German retail bank and US brokerage unit could also fuel criticism that the crisis is forcing Citi’s CEO Vikram Pandit to shed some of the group’s best businesses. As Pandit well knows by now, however, it’s impossible to make everyone happy.

Related links:
Citi seeks Nikko Cordial bids - FT
Morgan Stanley, MUFG to merge Japan brokerages - Reuters
Japan’s stock markets are doing very well thank you - FT Alphaville
SMFG, Daiwa, may bid jointly for Nikko Cordial - Reuters

This entry was posted by Gwen Robinson on Monday, March 30th, 2009 at 11:37 and is filed under M&A, Capital markets. Tagged with mizuho, morgan stanley, MUFG, nikko citigroup, nikko cordial, SMFG."

Analysts have suggested that a fair price for Nikko Cordial would be between 300 billion yen and 400 billion yen ($3.07 billion and $4.09 billion)

TO BE NOTED: From the WSJ:

"MUFG Aims to Acquire Parts of Two U.S. Banks

• Article
• Comments

more in Asia »

By ALISON TUDOR and ATSUKO FUKASE

TOKYO -- Mitsubishi UFJ Financial Group Inc. is seeking to bulk up in financial services in Japan by securing parts of two U.S. banks, Morgan Stanley and Citigroup Inc., people familiar with the matter said.

The move comes at a time when the industry is shrinking and the balance sheet of MUFG, as Japan's largest bank by assets is known, looks stretched to analysts.

Associated Press

Businessmen walk by a Mitsubishi UFJ Financial Group logo in Tokyo. MUFG will likely merge its brokerage-firm unit with Morgan Stanley's Japan unit.

MUFG likely will announce a joint venture with Morgan Stanley in Japan as early as this week, with the Japanese bank taking a 60% stake in the entity, according to one of the people knowledgeable about the plans.

A Lifeline

In September, MUFG threw Morgan Stanley a lifeline by acquiring a 21% stake for $9 billion. At the time, however, financial analysts were unclear how MUFG benefited from what some viewed as a risky investment.

Aside from starting a joint venture with Morgan Stanley, MUFG also is vying for Citigroup's Japanese retail brokerage, according to the people familiar with the matter. Since Citigroup said in January that Nikko Cordial Securities Inc. was a noncore asset, Japan's three biggest banks -- MUFG, Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. -- have been expected to battle to acquire the country's third-biggest brokerage in terms of assets.

If MUFG brings both Morgan Stanley Japan Securities Co. and Nikko Cordial Securities under its wing, it could become the second-biggest brokerage in Japan, behind market leader Nomura Holdings Inc.

At present, the second-biggest is Daiwa Securities SMBC.

The moves could bring the predominantly commercial bank closer to the financial supermarket model that Citigroup is in the process of dismantling.

Discussions Continue

MUFG has said that it still is discussing with Morgan Stanley how to work together globally, including the possibility of cooperating in Japan. It declined to comment on its plans or on the possibility of bidding for Nikko Cordial.

Financial analysts expressed caution about MUFG's potential expansion. Looking for opportunities in this financial chaos is understandable as "there is a need to escape the confines of a mature, saturated market," said Ismael Pilli, an analyst at Macquarie Research. But he said he is concerned MUFG might overpay for these assets.

Analysts have suggested that a fair price for Nikko Cordial would be between 300 billion yen and 400 billion yen ($3.07 billion and $4.09 billion). Mr. Pilli suggested the price tag could rise as high as one trillion yen as competition intensifies.

Analysts said they don't expect the joint venture with Morgan Stanley to have a large impact on MUFG's earnings in the near term, as it will take time to integrate the businesses.

Write to Alison Tudor at alison.tudor@wsj.com and Atsuko Fukase at atsuko.fukase@dowjones.com"