RPT-UPDATE 1-Citigroup in talks to sell Nikko antfactory-sources

(Repeats Wednesday story for additional subscribers) (Adds details, background)

By Alison Tudor and David Dolan

TOKYO, April 23 (Reuters) - Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) is in talks to sell a private equity unit in Japan, Nikko antfactory, as it seeks to comply with U.S. banking laws and raise cash to shore up its balance sheet against market turmoil, sources with direct knowledge of the matter said.

Citigroup (8710.T: Quote, Profile, Research, Stock Buzz) boosted its presence in Japan earlier this year by buying Japanese brokerage Nikko Cordial and listing on the Tokyo bourse.

The U.S. financial giant is now in the midst of reorganising its presence in the world's second-largest economy, including deciding the fate of Nikko Cordial's private equity activities.

The sale of Nikko antfactory is mainly being driven by U.S. banking law, which limits a financial group's control over a non-financial firm, the sources said. This means a private equity firm owned by Citigroup might be hamstrung when trying to turn around a portfolio company.

So to better manage its investments, Nikko antfactory could be transfered to another Citigroup affiliate, but more likely is that Nikko Cordial would sell its shares in Nikko antfactory to a Japanese financial institution, the sources said.

A sale would come at a fortuitous time for Citigroup, the largest U.S. bank, which has recorded more than $46 billion in write-downs and credit losses since mid-2007 when turmoil in financial markets became headline news. Citigroup's shares have more than halved in the last 12 months.

Citigroup's new chief executive, Vikram Pandit, is trying to sell assets and boost the firm's Tier 1 capital ratio, which measures the bank's ability to cover losses. Citigroup has already said it would sell its Diners Club International credit card network and most of its North American commercial lending and leasing business.