Sumitomo Mitsui, Daiwa announce end of brokerage venture

TOKYO, Sept. 10 Kyodo -
Sumitomo Mitsui Financial Group Inc. and Daiwa Securities Group Inc. on
Thursday officially announced the termination of their capital tie-up for Daiwa
Securities SMBC Co., ending their 10-year brokerage joint venture for corporate
customers.
The decision follows SMFG's agreement in May to buy Nikko Cordial Securities
Inc. and part of Nikko Citigroup Ltd. from Citigroup Inc. of the United States.
The move is widely seen as having widened the differences in business
strategies of SMFG and Daiwa Securities Group.
SMFG, a major Japanese banking group, currently holds a stake of 40 percent in
the joint venture while Daiwa Securities Group holds the remainder.
Under their latest agreement, Daiwa Securities Group will buy the SMFG stake
for about 200 billion yen by the end of this year and borrow 100 billion yen
from SMFG's key banking unit Sumitomo Mitsui Banking Corp. for the purchase.
SMFG is set to complete the purchase of Nikko Cordial, a retail brokerage
house, and part of Nikko Citigroup, a wholesale brokerage house, from Citigroup
on Oct. 1.
Ahead of the planned purchase, SMFG had been in talks with Daiwa to integrate
Daiwa Securities SMBC and the Nikko Citigroup operations due to come under its
control into a new company in which SMFG would hold a controlling equity stake,
according to sources close to the matter.
But Daiwa was unwilling to lose control and the negotiations fell apart, they
said.
''For the coalition of bank and brokerage businesses, we thought it would be
better for future operations if a bank takes the initiative,'' SMFG Chairman
Masayuki Oku said at a press conference. But the difference in view between
SMFG and Daiwa on the matter was ''large,'' he said.
Daiwa Securities Group President Shigeharu Suzuki said at a separate press
conference that the joint venture has long operated under the leadership of
Daiwa, adding, ''There are not many businesses that we cannot conduct without
SMFG.''
SMFG now plans to position Nikko Cordial Securities at the core of its
brokerage business, while Daiwa Securities Group will review its strategy as an
''independent'' comprehensive brokerage company to catch up with industry
leader Nomura Holdings Inc.
SMFG will withdraw most of its executives and employees from Daiwa Securities
SMBC on Oct. 1.
Despite the termination of the brokerage venture, the two financial giants said
they will maintain friendly and trusting relations. Oku said SMFG intends to
explore the possibility of forming a new business alliance with Daiwa
Securities Group in the area of investment banking.
Daiwa Securities Group and SMFG agreed to maintain Daiwa Securities SMBC's
wholly owned private equity investment unit Daiwa Securities SMBC Principal
Investments Co. as a joint venture, which will be owned 60 percent by Daiwa
Securities Group and 40 percent by SMFG.
The joint venture was formed in 1999 by the Daiwa group and Sumitomo Bank, a
predecessor of SMFG.
==Kyodo