Citi Reaps Billions From Japan Sale

Citigroup Inc. said it is selling its Japanese retail brokerage to Sumitomo Mitsui Financial Group Inc. in a deal worth a total $7.9 billion as part of its ongoing efforts to sell non-core businesses and boost its capital ratios.
The deal comes at a time when Citigroup is under pressure to raise more capital based on the early results of the government's stress tests of lenders, people familiar with the situation have said.
Citigroup will reap 545 billion yen for the retail broker, Nikko Cordial Securities, as well as 28.5 billion yen from the sale of Japanese-listed shares it is offloading at the same time. The U.S. bank will also recover 201 billion yen of excess cash on the retail broker's balance sheet.
The New York-based bank expects to get a $2.5 billion equity boost from the transaction. As a result, Citigroup's Tier 1 capital ratio as of March 31 would have been lifted by 27 basis points on a pro forma basis.
Citigroup acquired Nikko Cordial Group for 1.6 trillion yen ($16.17 billion) in a series of deals completed in January 2008. It still owns Nikko Asset Management Co., which is being sold in a separate process, and Nikko's merchant-banking business. Citigroup expects to book an after-tax loss of about $200 million.
The move turns Sumitomo Mitsui into a major player in the domestic securities industry and illustrates how Japanese firms are consolidating their domestic position by snapping up the assets of foreign firms hit by the global financial crisis.
"The transaction announced today has the potential to reshape the financial services sector in Japan," said Doug Peterson, chief executive of Citigroup's Japanese businesses.
Hit by credit-related losses and pressured to streamline its sprawling global operations, put up for sale large parts of its Japanese business, including the retail brokerage Nikko Cordial Securities.
Sumitomo Mitsui will hold the keys to Nikko Cordial's 109 retail branches across Japan and a 7,000-strong army of salespeople, allowing it to market securities to one of the world's biggest sources of latent wealth, Japanese households, which are flush with $15 trillion, mostly in cash.
Nikko Cordial has acted as lead manager to about 700 listed Japanese companies. As part of the package, Sumitomo Mitsui will also get the Japanese equity and debt underwriting business of Citigroup's wholesale business. It now owns the well-known Nikko brand in Japan, meaning Citigroup will eventually have to rebrand its other operations in Japan which carry the Nikko name, a person familiar with the matter said.
Sumitomo Mitsui already owns a second-tier retail broker called SMBC Friend Securities and has an investment banking joint venture with Daiwa Securities Group named Daiwa SMBC Securities. Financial analysts say Sumitomo Mitsui will now have a complicated management structure. The bank said it will consider merging Nikko's wholesale business with Daiwa SMBC.
Sumitomo Mitsui's brokerage business has until now trailed behind its large Japanese commercial banking peers, Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group. The three so-called megabanks vied for Nikko Cordial.
Citigroup picked Sumitomo Mitsui from among the three bidders based on price, the structure of the deal but also because it agreed to distribute the U.S. bank's global products over its network.
MUFG was less likely to agree to such a global alliance because of its newly-inked joint venture with Citigroup rival Morgan Stanley, people familiar with the matter said. Mizuho might have considered teamwork but has been distracted by the integration of its own brokerage unit with affiliate Shinko Securities Co., they added.

Source: Wall Street Journal

Vikram Pandit may have to leave Citigroup

US regulators who are concluding “stress tests” on banks may remove Citigroup Inc chief executive Vikram Pandit, the New York Post reported, citing sources it did not identify further. The regulators may have to take such a step to show the government is taking as strong a stand on banks as it did with General Motors Corp when it removed Rick Wagoner, the paper said. Citigroup finance director Ned Kelly told the paper in an interview: “Replacing (Pandit) would be dramatically destabilizing both for Citi and the system”. “Our recent quarterly results reveal the underlying strength of the franchise and Vikram Pandit’s strategy at work to restore Citi to profitability,” a Citigroup spokeswoman told the paper. A Citigroup spokesman in Hong Kong declined to comment on the report. US Treasury Secretary Timothy Geithner’s visit to Citigroup’s offices a week and a half ago was simply to conduct a check-up on the bank, the paper said, citing people familiar with the meeting. On Monday, the Financial Times website said that senior Federal Deposit Insurance Corp officials have privately discussed who might replace Pandit if the bank needed more government aid. Successors being discussed by FDIC officials included CFO Ned Kelly, Gary Crittenden, his predecessor and chairman of the division containing the New York company’s non-core assets, and one of Citi’s new board members, FT had said, citing people close to the situation.

Source: FT

Citigroup is not likely to sell stake in HDFC

Citigroup doesn’t intent to sell its stake in India’s HDFC, said Keki Mistry, managing director of HDFC. The U.S. bank classified its 12 percent holding in HDFC under the group it refers to as Citicorp, which will hold businesses it wants to keep, Mistry said at an investor conference in Mumbai today. Citigroup Chief Executive Officer Vikram Pandit, struggling to revive the business and repay $45 billion of government aid, has been selling assets to raise capital. Still, Pandit said on Feb. 28 that the company will continue to own banking units in other countries, such as Banamex in Mexico. The bank has also said it was profitable in January and February. "We had a chat with them a month ago and they have kept the HDFC holding under Citicorp," Mistry said. At least four funds are willing to buy the stake if Citigroup opted to sell, he said. Mistry said HDFC’s loans may grow 20 percent in the fiacsl year ending March 2009. In the nine months ended December, its loans grew 22 percent. "We always set a target which we are comfortable with," Mistry said.

Citi seeks $750 mn for 80% of BPO arm

Citigroup is keen on selling an 80% stake in Mumbai-based captive business process outsourcing (BPO) arm Citigroup Global Services (formerly eServe International) for $700-750 million (Rs2,870-3,075 crore) and is in advanced negotiations with leading private equity investors for an all-cash deal.

a private equity investor is most likely to emerge as the buyer and strategic suitors, such as IBM Corp. and Tata Consultancy Services Ltd, (TCS) are likely to drop out of the race over terms being proposed by the seller. Unlike the Genpact deal, Citi is not willing to commit long-term business to the captive once a new shareholder comes in. Neither IBM nor TCS would be willing to put so much cash down without that commitment. When General Electric Co sold 60% in its Gurgaon-based captive BPO to PE firms General Atlantic and Oak Investment for $500 million, it also threw in a multi-year outsourcing contract as part of the deal.

(Source: Mint)