Citi sells Nikko, though it is doubtful to cover stress test shortfall

It has been disclosed that Citigroup Inc executives are planning to raise cash in a move to ease demands from the U.S. stress tests on banks through the sale of its Japanese retail brokerage, Nikko Cordial, reported the Financial Times, citing people familiar with the matter.

It is also known that Citigroup was in talks with Sumitomo Mitsui Financial Group Inc (8316.T) over the sales of Nikko Cordial and part of Nikko Citigroup. The company expects the deal to be worth over 500 billion yen ($5.2 billion). However, Financial times states some people close to the issue forecast the sale of Nikko Cordial to reach approximately $7 billion.

Although it is unlikely that the sale of the brokerage will cover the whole capital shortfall identified by the stress tests, it will at least increase company’s tangible common equity, said bankers.

It is expected that U.S. officials will announce individual results of the "stress test" next week. Earlier this week, the Wall Street Journal printed assumptions that Citigroup might have to raise more capital once results of its stress test come out.