Bank of New York Mellon Corp, Sumitomo Trust & Banking Co insurer T&D Holdings Inc are the remaining three contenders to buy Citigroup's Japanese asset management unit, the Nikkei business daily reported.
Citigroup is looking to sell Nikko Asset Management, Japan's third-largest fund manager with about $90 billion in assets under management, as part of efforts to recover from heavy losses in the global financial crisis.
Sources familiar with the matter have said the deal is likely to top $1 billion and had also earlier this month named investment bank Nomura as being among five firms bidding for Nikko Asset.
The sale would be the second stage of Citigroup's retreat from many of its Japanese assets. It has already sold Nikko Cordial and key investment banking assets to Sumitomo Mitsui Financial Group, the country's third-largest bank, for about $5.9 billion.
Citigroup also has plans to sell Japanese telemarketer Bellsystem24 Inc in a deal that could be worth around $1.5 billion, people familiar with the matter have told Reuters.
The Nikko Asset deal could intensify competition for Japan's $15 trillion in household assets, most of which is still largely parked in low-yielding deposit accounts.
Officials from BNY Mellon Asset Management Japan, Sumitomo Trust, Japan's leading trust bank, T&D Holdings and Citigroup declined to comment on the Nikkei report which did not cite sources.
BNY Mellon is the world's largest custodian and it manages $880 billion in assets. It manages about $130 billion in Japan and was also selected as one of the companies to actively manage foreign stocks for Japan's Government Pension Investment Fund, the world's largest pension which hold $1.5 trillion in assets.
T&D is a holding company for the country's No. 6 life insurer Taiyo Life Insurance Co and No. 8 insurer Daido Life Insurance Co.
The Nikkei also said a decision on the buyer will not likely occur until next month.
Nikko Asset has increased its independence since chief executive Tim McCarthy and president Bill Wilder, former head of Fidelity Investments Japan, joined the asset company in 2004.
Nikko Asset sells funds through a network of banks, Japan Post Bank, credit associations and securities, instead of just relying on group company, Nikko Cordial, for distribution.
Industry sources say Nikko Asset markets about 50 percent of its products through Nikko Cordial, while industry leader Nomura Asset Management and No. 2 Daiwa Asset Management market about 80-90 percent of their products through their brokerage affiliates.
Nikko Asset is strong in alternative asset products and derivatives, and is also the industry leader in Japan in developing exchange traded funds (ETFs), they say. It has 529 staff, including 60 fund managers, 18 traders and 37 analysts.
(Additional reporting by Sweta Singh in Bangalore and Michiko Iwasaki in Tokyo; Editing by Edwina Gibbs)