Citigroup Inc. (C) has completed the sale of its Japanese brokerage Nikko Cordial Securities to Sumitomo Mitsui Financial Group as it continues to discard its non-core assets to come out of its liquidity crunch.
The transaction has a total cash value of $8.7 billion or ¥776 billion (at an exchange rate of ¥89.60 to US$1.00 as of Sept. 30, 2009). This includes a purchase price for the transferred business of ¥545 billion, equity securities held by Nikko Cordial Securities worth ¥30 billion and ¥201 billion of excess cash derived through the repayment of outstanding indebtedness to Citi.
Citi’s Institutional Clients Group advised Citigroup on this transaction. Citigroup will record an immaterial after-tax gain during the fourth quarter of 2009 as a result of this transaction.
Citi has also signed a strategic alliance with Sumitomo Group to build upon the long-standing partnership between Citigroup Global Markets, Japan and Nikko Cordial Securities to gain stronger access to its banking clients in Japan and beyond.
The deal is a win-win situation for both companies. Sumitomo Group will now have a stronger hold over its clients preventing the bank’s bigger rivals from getting stronger, while it would help Citigroup cushion the impact of bad loans and toxic assets.
Citigroup, once the largest U.S. bank by assets, fell behind last year after a series of acquisitions by rivals. The bank has been severely hurt by billions in losses and write-downs of problem loans and toxic assets.
The U.S. government injected $45 billion in bailout funds into the bank, $25 billion of which was recently converted to a 34% equity ownership stake. Top-level management at the company is conceiving plans to downsize the government’s stake in the company through a multibillion-dollar stock offering.
During the second quarter of 2009, Citigroup reported results separating the firm into Citicorp and Citi Holdings. The company is currently undergoing a major restructuring in its businesses and plans to hold down its assets and divest non-core businesses in Citi Holdings. Nikko Cordial was part of Citi Holdings.
Citigroup will release its third quarter 2009 earnings on Oct. 15, 2009 with a conference call scheduled later in the day to discuss its results. Ahead of its results, we maintain our Neutral recommendation on the stock.
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