TOKYO (Reuters) – Citigroup Inc plans to start auctioning its Japanese brokerage as early as this month, and the country’s top three banks are expected to bid in a deal likely to be worth up to US$3.4bn, sources with the knowledge of the matter said.
The sources, who spoke on condition of anonymity because the information is not yet public, said Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group are expected to place bids.
The sale of the Japanese retail brokerage was expected as Citigroup, saddled with $28.5 billion of net losses over 15 months, had said it would split into two units and shed troubled assets.
Nikko Cordial Securities and the asset management arm Nikko Asset Management are bundled into a group of ‘non-core businesses’.
The three Japanese banks already have brokerage units, but purchasing Nikko Cordial would allow them to close the gap with Nomura Holdings, the nation’s biggest brokerage.
The winner of the bid would gain a network of about 110 branches across Japan, and some analysts say the acquisition would add value to their business.
‘The brokerage business is good to have when the market is bullish. But we are in a difficult market and it could be a money losing business until the market recovers,’ said Kristine Li, a banking analyst at KBC Securities Japan.
Nikko Cordial last week reported a net loss of 850 million yen ($9.47 million) for April-December. Its client assets fell by 3 trillion yen to 25 trillion yen in December from September because of the stock market slump.
Li also said the potential acquisition would put more pressure on the banks’ capital, especially right after all three banks have boosted capital.
Nikko Cordial’s sale price is seen ranging from 100 billion yen to 300 billion yen, the sources said. Citigroup initially purchased a 61 percent stake in Nikko Cordial for around $8 billion in April 2007.
Citigroup could also sell its Japanese asset management unit, Nikko Asset Management, the sources said.
The U.S. bank agreed in December to sell its Japanese trust bank to a unit of Mitsubishi UFJ Trust & Banking, an arm of Mitsubishi UFJ Financial, for 25 billion yen.
Yoshito Shimoyama, a Tokyo-based spokesman for Citigroup, declined to comment.
Last month, Citigroup said it was committed to its Japanese brokerage and asset management units, rejecting media reports that it wanted to shed a big part of its Japanese business.
Citigroup had been on an aggressive push to expand in recent years, buying up Nikko Cordial and setting its sights on millions of affluent Japanese.
That expansion was stalled by the global credit crisis, raising questions about the firm’s ability to become a major player in Japanese financial services.
(Additional reporting by Jonathan Stempel, Sachi Izumi and Junko Fujita)