* Citi Japan has struggled with compliance issues, achieving
* Citi had among the smallest of comparably sized banks'
* Japanese banking faces weak domestic loan demand
(Recasts with details on Citigroup's past compliance, cost
By Taiga Uranaka
TOKYO, Aug 20 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
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 signalled 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), Mizuho Financial Group
and Sumitomo Mitsui Financial Group (SMFG)
about a sale, as well as regional banks, said the source, who
was not authorised 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
"The company has been penalised 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
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
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 authorised to speak with
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
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 penalised 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)