Citigroup Said to Weigh Sale of Japan Consumer-Bank Business

Aug 20, 2014 12:10 am ET

(Updates with comment from analyst in fourth paragraph.)

Aug. 20 (Bloomberg) -- Citigroup Inc., the firm that earns the most international revenue of any U.S. lender, is considering selling its consumer-banking business in Japan, two people with knowledge of the matter said.

The company has begun approaching Japanese firms including the three largest lenders, trust banks and regional lenders to gauge their interest, one of the people said, asking not to be named as the matter is confidential. New York-based Citigroup could start a bidding process next month, the people said.

Citigroup, whose 33 branches in Japan represent less than 1 percent of its global total, has pulled back from retail banking in markets with low returns, including Spain, Greece and Turkey. The U.S. bank, which has repeatedly been penalized by Japanese regulators in the past 10 years, would follow HSBC Holdings Plc and Standard Chartered Plc in scaling back in a country where loan profits are hampered by low interest rates.

Retail banking in Japan “isn’t profitable because interest rates remain low,” said Takashi Miura, an analyst at Credit Suisse Group AG in Tokyo. “Competition for home loans with major banks and regional banks is intense” and wealth management for individuals is less active than abroad, he said.

Selling the consumer-banking operations is only one option and nothing has been decided, the people said. Japan’s Financial Services Agency has been pressing Citigroup to build a sustainable and profitable business model in the country, one of the people said.

Shrinking Rates

Elisa Fukui, a spokeswoman for Citigroup in Tokyo, declined to comment. Public broadcaster NHK reported yesterday that the bank is reviewing options for the retail unit in Japan.

Years of deflation and monetary easing have left lenders in Japan with the lowest net interest margins in Asia. Citibank Japan Ltd. earned 1.34 billion yen ($13 million) in the year ended March, financial statements on the unit’s website show.

Citigroup’s history in Japan dates back to 1902, when a predecessor opened its first branch in Yokohama, according to its website. Apart from consumer banking, Citigroup does corporate and investment banking and trading in the country.

The U.S. firm exited the Japanese retail brokerage business in 2009, selling its Nikko Cordial Securities Inc. unit and part of its investment-banking operations to Sumitomo Mitsui Financial Group Inc.

Shares of Citigroup rose 0.4 percent to $49.70 in U.S. trading yesterday, paring this year’s decline to 4.6 percent. The KBW Bank Index of 24 companies is up 0.9 percent in 2014.

Regulatory Breaches

Led by Chief Executive Officer Michael Corbat, Citigroup has been bolstering compliance in Japan following regulatory breaches.

In December 2011, the FSA ordered the bank to suspend marketing of some products to individuals after it failed to fully explain their risks. Citibank Japan’s CEO at the time, Darren Buckley, stepped down. That same month, the regulator told Citigroup to halt some derivatives transactions after staff attempted to influence benchmark interest rates.

In 2010, the FSA fined Citigroup 23 million yen for filing late and erroneous reports. In 2004, the agency told the company to close its private-banking operations in Japan after failing to conduct proper checks against money laundering. Then-CEO Charles Prince bowed in apology in Tokyo over the matter.

Global banks are struggling to manage more of the 1,630 trillion yen of financial assets held by Japanese households.

HSBC withdrew from consumer banking in Japan in 2012, closing down six branches four years after starting that business to target “mass affluent” people. Standard Chartered began a withdrawal from wealth management in Japan in 2012.

--With assistance from Dakin Campbell in New York and Takahiko Hyuga and Monami Yui in Tokyo.