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Japan: Citi buys troubled local broker

Citi announced on October 2 that it would acquire the remaining shares in broker Nikko Cordial that it does not already own to make the company a wholly owned subsidiary. The move marks the first usage by a foreign firm of the new triangular merger legislation, which allows firms to use their shares rather than cash to make acquisitions and which has been available since May after a ban on the practice was rescinded.

The news has striking implications for the Japanese financial system. Most important, the marriage of an international firm of Citi’s size and a local broker with an established retail platform – Citibank has just 30 branches and sub-branches in Japan – creates a sizeable threat to both the megabanks and the newly created Japan Post bank, all of which will be aggressively targeting the estimated ¥1,500 trillion ($13 trillion) in Japanese household financial assets. The much vaunted switch from savings to investments that will come as Japan’s wealthy baby boomers retire is seen by politicians and banks as crucial to the revitalization of the country’s financial markets.

First of all, though, Citigroup Japan Holdings, the kabushiki kaisha (joint stock company) that owns Nikko Cordial and securities joint venture Nikko Citigroup, will have to work in conjunction with its new acquisition to rebuild investor faith.

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