SMFG:Nikko buy to add up to Y40 billion/year

By David Dolan and Taro Fuse

TOKYO (Reuters) - Sumitomo Mitsui Financial Group (8316.T) expects its acquisition of Citigroup's Japanese brokerage to contribute as much as 40 billion yen ($424 million) a year to its earnings, the president of Japan's third-largest bank said on Wednesday.

The bank will also discuss the details of a possible alliance with Daiwa Securities Group (8601.T) once the brokerage completes a recently announced share offering, Teisuke Kitayama told the Reuters Japan Investment Summit.

Sumitomo Mitsui in May bought Citigroup's (C.N) Japanese broker and key investment banking units for 545 billion yen ($5.8 billion).

"The contribution of Nikko Cordial ... we estimate to be around 35 billion to 40 billion yen," Kitayama said.

However, on a net basis the bank is expecting an annual net profit contribution of about 20 to 30 billion yen a year, he said.

Sumitomo Mitsui has said it would form an alliance with Citigroup to gain access to its global corporate banking clients, and consider merging Nikko's wholesale businesses with its investment banking venture with Daiwa, Daiwa Securities

SMBC.

However, he said talks were not yet complete due to Daiwa's recent equity offering.

The Japanese bank last year paid about $1 billion for a 2 percent stake in Britain's Barclays Plc (BARC.L). It also has a long-standing relationship with U.S. investment bank Goldman Sachs Group (GS.N).

Kitayama said Sumitomo Mitsui had considered raising that stake when Barclays announced a rights offering late last year, but then the global credit crisis worsened.

"At that time internally we discussed (raising our stake) to some extent, but because of the drastic change in financial markets, we decided not to make further investment to maintain our capital."

Sumitomo Mitsui also said last month it would raise $9.4 billion by issuing new common shares, a record amount for a Japanese financial group in a deal driven by the recent rebound in financial stocks.

(For blogs from the Reuters Investment Summit, click on: blogs.reuters.com/summits/ )

(Reporting by David Dolan and Taro Fuse; Editing by Hugh Lawson)