Citigroup may sell Nikko Cordial to Sumitomo Mitsui

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Citigroup Inc., rescued by three U.S. government bailouts, may sell its Japanese retail brokerage to Sumitomo Mitsui Financial Group Inc., two people with knowledge of the matter said.

New York-based Citigroup selected Sumitomo Mitsui as the preferred buyer for Nikko Cordial Securities Inc. after Japan’s second-largest bank by market value outbid rivals with an offer of about 500 billion yen ($5 billion), said the people, who declined to be identified as the negotiations are confidential.

Citigroup is selling assets after reporting more than $100 billion of credit losses and writedowns tied to the U.S. subprime-mortgage crisis, according to data compiled by Bloomberg. The U.S. bank paid 1.6 trillion yen for Nikko Cordial Corp., Japan’s third-largest securities firm, in January 2008.

“Citigroup doesn’t want to sell assets it just acquired and hasn’t seen much return on, but it’s facing a crisis,” Shinichi Iimura, an analyst at Merrill Lynch & Co. in Tokyo, said. “Nikko’s retail business must be attractive, but it’s questionable if a buyer could make any return on it.”

The two banks will discuss details including price, terms and a possible alliance, the people said. Citigroup may resume talks with Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, if the negotiations break down, the people said.

Tokyo-based spokeswomen Atsuko Yoshitsugu at Citigroup and Chika Togawa at Sumitomo Mitsui both declined to comment.

Sumitomo Mitsui, which operates a retail brokerage with 75 branches nationwide, will also discuss the acquisition and a possible Citigroup alliance with Daiwa Securities Group Inc., one of the people said, the bank’s partner and Japan’s second- biggest investment bank.

Citigroup in January put Nikko Cordial on a list of businesses flagged for eventual sale. An internal memo to employees in February said the bank aimed to find partners for Nikko Cordial and other units in Japan, or to sell them in an initial public offering.

Citigroup is also selling its Japanese asset-management business, Nikko Asset Management Co., and has invited bids from banks including Mizuho Financial Group Inc., four people familiar with the matter said earlier in April.

The U.S. government channeled $45 billion into Citigroup and agreed to take a 36 percent stake in the bank after it posted five straight quarterly losses. That losing streak ended April 17, when the bank posted a $1.6 billion profit for the first quarter on trading gains and an accounting benefit for companies in distress.

Nikko Cordial, formed in 1944, had 133.6 billion yen revenue for the nine months ended Dec. 31. The brokerage, with 111 branches in Japan, managed 25 trillion yen in client assets. Citigroup offered to buy Nikko Cordial in 2007 after the Japanese securities firm was battered by an accounting scandal. Nikko faced possible delisting from the Tokyo Stock Exchange after it was accused in 2006 of padding earnings, resulting in a 30 percent drop in its stock price in the seven weeks ended Feb. 1, 2007.