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Citigroup Selling Its Japanese Retail Unit
From the Wall Street Journal of Fri, 26 Dec 2014 01:05:28 EST

TOKYO—Sumitomo Mitsui Banking Corp. said Thursday it would purchase Citigroup Inc. ’s Japanese retail operations, sealing the U.S. lender’s exit from a problematic, money-losing business that drew ire from Japanese regulators.

The Japanese lender will pay Citi between ¥30 billion and ¥50 billion (between $250 million and $417 million) depending on the number of customers and deposits it inherits, according to people familiar with the matter.

SMBC, the core banking unit of Sumitomo Mitsui Financial Group Inc., will take over Citibank Japan’s retail business including its deposits, 740,000 customers, branches, 1,600 employees and network of automated teller machines in October 2015.

SMBC said it would merge Citi’s retail bank with its trust-bank unit, SMBC Trust Bank Ltd., which mainly consists of business taken over through SMBC’s acquisition of Société Générale Private Banking Japan Ltd. last year. SMBC said it had no plans to cut jobs following the acquisition of the Citi unit.

The transaction ends a troubled era for Citi in Japanese retail banking and frees the New York bank to focus on corporate banking, investment banking and other institutional businesses in the world’s third-largest economy.

Japanese regulators accused Citi’s local retail unit of improper lending practices in 2004 and ordered its private banking operations shut down. At the time, Charles Prince , then Citi’s chief executive, bowed deeply before reporters and pledged to overhaul the bank’s controls.

But the bank never fully got its hands around the issue and over the next decade faced punishments from Japan’s Financial Services Agency over anti-money-laundering controls and other problems. Many Japanese customers switched to other private banks.

SMBC on Thursday said it believed it could make the unit profitable, in part by leveraging the deal to give its customers access to Citigroup’s 1.9 million automated teller machines globally.

“For current Citibank Japan customers, the service to be offered won’t change under our bank,” said Nobuaki Kurumatani, an SMBC executive, at a news conference Thursday. He said SMBC wanted to provide financial services such as asset management in foreign currencies to Citibank customers.

Citi’s retail business in Japan currently has about ¥2.4 trillion in deposits at 31 branches in major cities across the country. For decades, it has been the top Western bank in Japan, catering to Japanese who travel abroad and some foreign residents in Japan. Mr. Kurumatani said Citibank Japan’s ¥1 trillion of foreign-currency deposits also are attractive for SMBC.

Citigroup said in October it would exit from the Japanese retail business as part of its plan to scale back local operations in certain markets around the globe, such as Costa Rica and Egypt.

In the quarter ended in September, Citibank Japan posted a loss of about ¥2 billion.

Separately, Citigroup is in talks to sell its Diners Club credit-card business in Japan to another local lender, according to people familiar with the matter.

Citibank has had a presence in Japan for more than a century but hit a rough patch in recent years. Among several run-ins with regulators was a 2011 order by the Financial Services Agency to improve sales practices after Citigroup staff allegedly sold financial products such as investment trusts without disclosing the level of risk to customers. Citi said at the time it took the issue seriously and would take steps to avoid a repeat of the problems.

Sumitomo Mitsui said it didn’t expect the problems to recur and it would keep an eye on compliance.

“I can say there’s nothing problematic about our acquisition of Citi, and not that I’m saying Citi had an issue…but we want to reach the level that the regulators expect us to be at as a Japanese megabank,” SMBC’s Mr. Kurumatani said.



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