By Jason Simpkins
Citigroup Inc. (NYSE: C) Friday agreed to sell its Japanese brokerage arm, Nikko Cordial Securities, to Sumitomo Mitsui Financial Group (OTC: SMFJY) in a deal that will give Citi more capital to satisfy government demands.
Sumitomo Mitsui will pay about $5.5 billion (545 billion yen) for Citi's Nikko Cordial unit as part of a larger, $7.9 billion (774.5 billion yen) deal that also includes $287.2 million for Japanese-listed securities held by Citi. The deal, which is to be completed by Oct. 1, also includes a transfer of about $2 billion in excess cash from Nikko Cordial to Citi.
Nikko Asset Management, one of Citi's prime Japanese assets, was not included in the deal, as the bank plans to sell it off separately.
By relinquishing Nikko Cordial, Citi is giving up on its plans to extend its full-service financial operations in the world's second largest economy.
Citigroup acquired Nikko Cordial for $7.7 billion in April 2007, just months before the housing market began its epic collapse and toxic mortgage assets sucked the life out of what, at the time, was perhaps the largest and most powerful banking business in the world.
The great ambition of former Citigroup chief executive Charles "Chuck" Prince to make the company's full-service bank a force in the Pacific has now become the sacrificial lamb of current CEO Vikram S. Pandit, who is scrambling to build capital at the behest of the federal government.
Citigroup, which received $45 billion in taxpayer cash and furnished it with another $250 billion in balance sheet guarantees, was reportedly told by regulators administrating the government's bank stress tests to raise more capital as a shield against any further deterioration of the economy.
Citigroup officials argue that regulators haven't given the bank enough credit for the pending sales of its assets, such businesses as Smith Barney and Nikko Asset Management.
The sale of Nikko Cordial will bolster Citi's case as it disputes the results of the government stress tests with regulators, as it will boost the bank's Tier-1 capital ratio by approximately 27 basis points, according to Forbes magazine.
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