TOKYO (Reuters) - Citigroup
Inc is preparing to sell its Japanese retail banking
operations, a source with direct knowledge of the matter
said on Wednesday, as it waves the white flag on a
venture plagued by regulatory troubles and anemic
lending.
The company which pioneered 24-hour ATMs in Japan and was the only
foreign bank to make a major push into its retail banking sector is
throwing in the towel after failing to gain enough scale to justify
its costs.
Citigroup has also signaled a desire to refocus its overseas
strategy on growth markets and away from saturated mature markets
such as Japan, where it has been doing business for more than a
century.
Citi has approached Japan's top three lenders, Mitsubishi UFJ
Financial Group (MUFG) <8306.T>, Mizuho Financial Group <8411.T> and
Sumitomo Mitsui Financial Group (SMFG) <8316.T> about a sale, as
well as regional banks, said the source, who was not authorized to
discuss the matter publicly.
A Citigroup spokesman declined to comment. Representatives at MUFG
and Mizuho also declined to comment while a representative at SMFG
was not immediately available.
The U.S. bank will keep corporate and investment banking and trading
businesses in Japan, the source added.
Industry officials say it may be difficult to find a buyer for a
modest retail banking operation with weak loan demand and falling
interest margins, and which has had regular run-ins with regulators.
"The company has been penalized three times by regulators so there
are issues with compliance that would make us cautious," a senior
financial industry executive said. He asked not to be named because
of the sensitivity of the matter.
LAGGING IN LOANS
Citigroup had 33 retail branches and 3.6 trillion yen ($35 billion)
in deposits as of end-March, ranking 30th among 64 top-tier regional
banks in Japan. But its loan book, with an outstanding balance of
356.2 billion yen, was near the bottom of the list.
For the latest year to end-March it posted a 1.3 billion yen net
profit on revenue of 68.3 billion yen.
Lending has been sluggish in Japan overall, as corporations sitting
on massive amounts of cash are reluctant to borrow or invest
aggressively with domestic growth prospects looking limited, while
dull wage growth has left households cautious about spending.
Citibank Japan's deposits are split about evenly between yen- and
foreign currency-denominated funds, according to one source close to
the bank who was not authorized to speak with the media.
While it offers domestic mortgages and loans, its main appeal to
customers has been global services such as local currency
withdrawals from overseas ATMs, industry officials say.
Prospects for a sale could be dampened by worries that customers
would flee if their deposits changed hands to a Japanese lender and
they lost access to Citi's global banking network.
A source with direct knowledge of Citi's management said the bank
may need to offer a sweetener to attract buyers, such as allowing
customers continued access to overseas banking.
The bank has also faced persistent compliance problems. It was
penalized three times by regulators from 2004 to 2011 over
inadequate monitoring of transactions under anti-money laundering
rules and insufficient disclosure of risks in marketing financial
products.
After the latest regulatory action in December 2011, which resulted
in a one-month suspension of financial product sales, the unit
tapped former Sumitomo Mitsui Banking Corp executive Kazuya Jono to
become Citibank Japan CEO in June 2012.
Jono was replaced in June of this year by Peter Eliot, CEO of
Citigroup Japan Holdings Corp.
(1 US dollar = 102.9300 Japanese yen)
(Additional reporting by Taro Fuse, Takahiko Wada and Emi Emoto in
Tokyo, and David Henry in New York; Editing by Edmund Klamann, Jan
Paschal and Stephen Coates)
