U.S. Citigroup Inc. is selling its Japanese securities business, Nikko Cordial Securities Inc., to Sumitomo Mitsui Banking Corp. in a deal worth US$7.9 billion.

Citi announced Friday that it has reached a definitive agreement to sell Nikko Cordial to SMBC in a transaction valued at ¥774.5 billio, comprised of ¥545 billion for the purchase of the business, ¥28.5 billion for certain Japanese-listed equity securities held by Citi, and ¥201 billion of cash derived either through the retention of excess cash in Nikko Cordial Securities or repayment of its outstanding indebtedness to Citi.

The transaction is expected to generate approximately US$2.5 billion of tangible common equity for Citi at closing, with Citi expected to recognize an after-tax loss of approximately US$0.2 billion. The transaction is expected to close by the end of the fourth quarter, subject to regulatory approvals and customary closing conditions.

Under the terms of he deal, all of the operations and personnel of Nikko Cordial Securities and various other group companies (including Nikko Systems Solutions Ltd. and Nikko Business Systems Co., Ltd.), together with some of the operations and personnel of Nikko Citigroup Limited (including its domestic equity and debt underwriting business), will be transferred to SMBC. Citi’s ownership interests in Nikko Citigroup Limited, Nikko Asset Management Co., Ltd., and Nikko Principal Investments Japan Ltd. are not included in the transaction. A total of about 7,800 employees will be included in the transaction.

Additionally, Citi and Sumitomo Mitsui Financial Group have agreed to enter into an alliance that will provide SMFG with access to Citi’s global networks in corporate and investment banking, including M&A and sales and trading services, while continuing the longstanding partnership between Citi and Nikko Cordial Securities in originating and distributing capital markets products to investors in Japan and globally. The firms say they will also explore further opportunities to facilitate the development of new business opportunities, products and services.

IE