Mizuho Won't Challenge Citigroup for Nikko, Officials Say

Mizuho Financial Group Inc., Japan's second-largest bank, abandoned a plan to challenge Citigroup Inc. for control of brokerage Nikko Cordial Corp. and will instead seek alliances with Citigroup, two Mizuho officials said.

Managers at Mizuho, which owns 4.8 percent of Nikko, may meet with their counterparts at New York-based Citigroup next month to discuss possible cooperation in advising on takeovers and underwriting bond and equity offerings, the people said, declining to be identified before an agreement is reached.

Nikko, Japan's third-largest brokerage, became subject of takeover speculation after an outside panel accused former managers of inflating profit, a charge that may cost the company its stock market listing. Citigroup, which owns 4.9 percent of Nikko, is in talks to raise its stake to 33.4 percent, according to people familiar with the discussions.

Mizuho abandoned plans to acquire Nikko because talks between the brokerage and Citigroup are already proceeding, one of the Mizuho officials said. Citigroup also operates an investment banking joint venture in Japan together with Nikko.

Tokyo-based Mizuho may reconsider should Japan's financial regulator encourage it to support Nikko, the person said.

Nikko Cordial had about 12,000 employees and 109 branches as of Dec. 31. It manages about 30 trillion yen of clients' assets. The brokerage posted net income of 30.9 billion yen in the quarter ended Dec. 31, almost double the median estimate among analysts surveyed by Bloomberg News.

Shares Rebound

Mizuho's Tokyo-based spokeswoman Masako Shiono wasn't immediately able to comment. Shinichi Wada, a spokeswoman for Nikko Cordial, declined to comment.

Shares of Nikko soared 13 percent yesterday after talks with Citigroup were reported, allaying concern that the brokerage may be delisted. The shares fell 1.5 percent to 1,343 yen as of 10:27 a.m. in Tokyo today.

The stock, which lost 28 percent of its value in two days after an inquiry led by Japan's former securities regulator on Jan. 30 said former managers padded earnings in 2004, has now almost completely reversed that decline.

Six top Nikko Cordial executives have been forced out since the securities watchdog on Dec. 18 said Nikko overstated earnings for the year ended March 2005. Moody's Investors Service, Standard & Poor's and Fitch Ratings have cut Nikko's credit ratings and the Tokyo Stock Exchange is investigating whether the wrongdoings are serious enough to warrant removing the stock.

source:www.bloomberg.com