The Great Debate UK

Nikko Cordial hard to swallow for SMFG


alex-smith– Alexander Smith is a Reuters columnist. The opinions expressed are his own –

The deal may have lifted the bank’s shares, but Sumitomo Mitsui Financial Group is biting off more than it can chew in buying retail brokerage Nikko Cordial and parts of Citigroup’s Japanese investment bank.

True, the deal doesn’t look too expensive at first glance. The $5.9 billion Japan’s third-largest bank is paying for Nikko Cordial is almost two-thirds lower than the $16.1 billion that Citi spent to secure the business last year. But at 1.5 times Nikko’s book value, it is still a substantial premium to market leader Nomura’s 0.81 times or number two Daiwa’s 1.02 times.

Moreover, the business isn’t profitable — Nikko Cordial lost $36.6 million last year, while the proportion of Nikko Citi’s losses which sit with the parts SMFG is buying (largely domestic equities and bonds) have not been revealed.