Report: Sumitomo Mitsui at basic agreement to buy Citigroup brokerage units

Report: Sumitomo Mitsui, Citigroup near deal

TOKYO — Major Japanese bank Sumitomo Mitsui Financial Group Inc. has reached a basic agreement to buy a Japan-based brokerage unit from Citigroup Inc. for 500 billion yen ($5.2 billion), a newspaper said Tuesday.

Sumitomo Mitsui has been in talks over an acquisition of Nikko Cordial Securities Inc. from Citigroup as part of the ailing U.S. bank’s global restructuring, and an official announcement is expected within the next few days, The Nikkei business newspaper said, without citing sources.

If the deal materialized, Sumitomo Mitsui would be the first Japanese bank to buy a top brokerage in Japan, the Nikkei said.

Both Sumitomo Mitsui and Nikko Cordial declined to confirm the report, saying no decision has been made. Citigroup said it had no comment.

Two other of Japan’s “megabanks” — Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. — had also competed for Nikko Cordial. But they lost out to Sumitomo Mitsui, which last week became the top bidder and obtained a preferential status to negotiate with Citigroup, the Nikkei said.

Nikko Cordial, which Citigroup acquired just a year ago, is Japan’s third-biggest brokerage with managed assets of 25 billion yen ($260.4 million) and 111 branches.

Sumitomo Mitsui aims to expand its brokerage operations by acquiring Nikko Cordial, which operates in both individual and corporate services in Japan, and close in on the industry leader Nomura Holdings, Inc., the report said.

After reporting a quarterly loss of $8.29 billion, Citigroup last month reorganized into two entities, Citicorp and Citi Holdings. The first is focused on traditional banking around the world, while the second holds the company’s riskier assets and tougher-to-manage non-core ventures, including Nikko Cordial.

Analysts have said that CEO Vikram Pandit’s reorganization allows Citigroup to sell or spin off the Citi Holdings assets to raise cash.

Citigroup has already begun scaling back its presence in Japan to cope with the global financial crisis. In December, it agreed to sell NikkoCiti Trust and Banking Corp. to Mitsubishi UFJ Trust and Banking Corp. in an all-cash deal worth 25 billion yen.