Sumitomo Mitsui takes over Citigroup’s troubled retail unit

SUMITOMO Mitsui, Japan’s second-largest lender, says it will purchase Citigroup’s Japanese retail operations.

WHEN Japanese regulators accused the local retail unit of Citigroup of improper lending practices in 2004 and ordered its private banking operations shut down, 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.

On Thursday, Sumitomo Mitsui (SMBC), Japan’s second-largest lender, said it would purchase Citi’s Japanese retail operations, leaving the New York bank to focus on corporate banking, investment banking and other institutional businesses in the world’s third-largest economy.

SMBC 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.

SMBC, the core banking unit of Sumitomo Mitsui Financial Group, will take over Citibank Japan’s retail business, including its deposits, 740,000 customers, branches, 1600 employees and network of ATMs in October next year. SMBC said it would merge Citi’s retail bank with its trust-bank unit, SMBC Trust Bank, which mainly consists of business taken over through SMBC’s acquisition of Societe Generale Private Banking Japan last year.

The Japanese lender will pay Citi ¥30 billion-¥50bn ($307 million-$512m) depending on the number of customers and deposits it inherits, according to people familiar with the matter. SMBC said it had no plan to cut jobs following the acquisition.

“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 on 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 were also attractive for SMBC.

Citigroup said in October that it would exit 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 ¥2bn.

Citigroup is separately in talks to sell its Diners Club credit card business in Japan to another local lender, sources say.

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 that it took the issue seriously and would take steps to avoid a repeat of the problems.

SMBC said it didn’t expect the problems to recur and 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,” Mr Kurumatani said.

The Wall Street Journal