In furtherance of its strategy to shed international operations,
) is eyeing the sale of its retail banking operations in Japan. It
has been rumored that the U.S.-based bank has approached around 10
financial institutions, which include Japan's top three lenders and
However, Citigroup offering retail services in Japan for a century
with 33 branches in the country would retain its commercial and
investment banking operations. Aimed at increasing the efficiency
of the company's overall business, the initiatives include
streamlining operations and optimizing footprints across
Regulatory pressure over Citigroup's global operations and concerns
of weak loan demand along with reducing interest margins
surrounding Japan's banking industry forced the bank to take such a
move. Though recently lending has increased, deposits still beats
loans balances, following the cautious nature of businesses and
households on spending.
As of Jun 30, 2014, Citibank Japan held total deposits of about
¥3.9 trillion ($38 billion). Moreover, Citibank Japan recorded a
loss of ¥910 million during the second quarter as compared with the
profit of ¥629 million in the prior-year period. Therefore, as part
of its cost-cutting measures, Citigroup planned to vend its
unprofitable retail business in Japan.
Over the past few years, Citigroup has been involved in a number of
divestitures and restructurings in its Japan operations. Since
2004, Citigroup has been under regulatory pressure to restructure
its Japanese operations, when it was forced to shut down its
private banking business in Japan, following inadequate money
Citigroup has been under the scrutiny of Japanese regulators due to
its lack of communication. Moreover, Japan's main banking
regulator, the Financial Services Agency (FSA), which had ordered
Citigroup to suspend business in 2011, also forced Citibank's Japan
chief executive - Darren Buckley at that time, to step down as the
company failed to disclose the level of risks of some financial
products such as investment trusts to clients while they were sold.
Therefore, FSA was open to investigate Citigroup's Japan units on a
regular basis to keep an eye on internal controls, business model
and financial-product sales structure improvement.
Similar Moves by Other Banks
In 2012, as part of its restructuring of global operations, HSBC
Holdings plc (
) started reducing private banking in Japan and finally closed down
all six of its remaining Japanese branches in July.
Further, Societe Generale divested its wealth management unit in
Japan to SMBC in Jul 2013. It followed Bank of America Merrill
Lynch's move to permit Mitsubishi UFJ Financial Group, Inc. (
) to take over the private banking joint venture completely, which
was announced in 2005. Notably, Bank of America Merrill Lynch is a
unit of Bank of America Corporation (
Citigroup operates in numerous markets worldwide. Therefore,
Michael Corbat after taking over Citigroup's Chief Execution
Officer (CEO) in 2012 planned to restructure, reduce or exit some
of the operations in 21 markets globally to enhance returns. Though
names of such markets were undisclosed, it was intimated that most
of these involve consumer businesses.
Since then, Citigroup announced its plans to exit consumer
businesses in countries including Honduras, Turkey, Romania,
Uruguay and Paraguay. Recently, the bank agreed to vend its
consumer-banking businesses in Greece and Spain.
Amid troubled tides, while Citigroup is encountering issues from
various fronts including the ongoing investigations related to the
Mexican fraud and the Federal Reserve's rejection of its 2014
capital plan, the deal will give the company some financial
On the capital front, Citigroup does not intend to resubmit its
2014 Capital Plan. However, the company is working to improvise the
loopholes of the plan and is preparing for the 2015 Capital Plan.
We believe the company is well positioned to resolve its internal
inefficiencies and setbacks. Further, we believe these streamlining
initiatives will bolster the company's capital position, reduce
expenses and drive operational efficiencies.
Citigroup currently carries a Zacks Rank #3 (Hold).
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