Citigroup will sell its Japanese asset management arm to Sumitomo Trust Banking in a $1.2 billion deal, the U.S. bank's latest asset sale to recoup losses from the financial crisis.
The deal will create a powerhouse in Japan's asset management industry, with combined assets of 34.5 trillion yen ($363 billion), while accelerating Citigroup's retreat from the world's second-largest economy.
Sumitomo Trust, Japan's fifth-largest bank, said on Thursday it would pay 112.4 billion yen for Nikko Asset Management, the country's third-largest fund manager and one of the key assets targeted by Citigroup when it bought the Nikko franchise in 2007.
Citigroup said the deal would bring it 75.6 billion yen in cash from its sale of a 64 percent interest. Minority shareholders are also expected to sell their holdings to Sumitomo Trust, Citigroup said in a statement.
The deal follows Citigroup's agreement in May to sell its retail broker Nikko Cordial and parts of its investment bank operations to Sumitomo Mitsui Financial Group (SMFG) for about $6 billion, and a much smaller deal earlier this month in which it parted with it trust bank arm.
Citigroup has been selling assets worldwide after taking $45 billion in U.S. bailout money in the wake of the credit crisis.
Sumitomo Trust said it would raise 109 billion yen through the issuance of preferred shares to strengthen its financial base and help finance the deal, which it expects to close on October 1.
POTENTIAL RETAIL TIEUP
Sumitomo Trust said it would hold talks with both SMFG and Nikko Cordial about a potential alliance in the retail business, adding that any deal could include capital ties.
It may also look to list Nikko Asset in a few years, realizing one of the fund manager's long-held goals.
We've known that Nikko Asset has been preparing itself to go public, Tetsuo Ohkubo, director and managing executive officer at Sumitomo Trust told a news conference. If the current economic environment would continue, we believe such a chance could arrive at the earliest in two to three years.
Asset management business is one of the few areas in Japan where financial firms see the opportunity for growth. Japanese households have about $15 trillion in savings, much of which is parked in low-yielding accounts.
But competition is fierce. In addition to Nomura Holdings and Daiwa Securities Group, overseas players like BlackRock Inc
and Barclays Plc are also looking to boost their presence in Japan.
Sumitomo Trust has about 26 trillion yen of assets under management. A good portion of that is managed on behalf of pension funds and other institutional investors, but its presence in the retail business is very small.
Acquiring Nikko Asset and its 8.8 trillion yen in assets would give it a solid footing in the retail market and as well as bolster its ability to develop new products for institutional investors.
But establishing an alliance with SMFG and Nikko Cordial is seen as key for Sumitomo Trust given that Nikko Asset sells about 50 percent of products targeting retail customers through its brokerage affiliate Nikko Cordial.
(Additional reporting by Yumiko Nishitani; editing by Michael Watson and Karen Foster)