Citigroup Inc’s Japanese consumer finance arm plans to transfer new client loans to a unit of Promise Co as it scales back consumer lending in the country, two Citigroup officials familiar with the plan said.
Citigroup's CFJ KK agreed with Promise's Sanyo Shinpan Finance Co last week to refer loan applicants to the Fukuoka- based company, said the officials, who declined to be identified before a formal announcement next month.
Citigroup, which had 32 consumer finance branches and 540 automated loan machines in Japan as of June, plans to close them and transfer capital to more profitable areas as the nation's consumer lending industry contracts. The New York-based firm aims to dispose of $400 billion of global assets after reporting $55.1 billion in losses and writedowns related to the U. sub-prime- mortgage market collapse, more than any other bank.
“The consumer finance industry doesn't have a bright future in Japan,” said Makoto Haga, a Tokyo-based hedge fund manager at Wing Asset Management Co Still, “it's positive to see that the Japanese lender may be able to increase its loan assets as it seeks the advantage of scale to survive,” Haga said.
Japan’s consumer lenders are struggling to meet profit forecasts as revenue has fallen since lawmakers in 2006 lowered the maximum interest rate to 20 per cent, matching the highest rate for banks, from 29.2 per cent. Legislators said they aimed to end abusive lending practices and ease consumers' debt burden.
General Electric Co agreed on July 11 to sell its Tokyo- based Lake consumer finance unit and its local mortgage-loan and credit-card businesses to Shinsei Bank Ltd for 580 billion yen ($5.3 billion).
Testing' Partnership
CFJ may also sell part of its outstanding loans to Promise or Sanyo Shinpan, the people said. The Tokyo-based Citigroup unit had about 950 billion yen in outstanding credit as of March 31, according to estimates released by Promise. Promise has about 1.8 trillion yen in loans outstanding, including group companies.
“CFJ is not engaged in discussions to sell or transfer existing customer accounts to Sanyo Shinpan,” said Atsuko Yoshitsugu, a spokeswoman at Citigroup.
The two companies started limited testing of the loan-forwarding arrangement on August 26, the officials said. The plan may be expanded to include existing customers' loans from next month, they said.
“We are testing a program that provides convenient alternatives to customers interested in applying for credit from CFJ,” said Yoshitsugu, declining to comment further.
Early Retirement
Sanyo Shinpan spokesman Kenichi Kido confirmed that Citigroup began referring applications at its automated loan machines to the Promise unit on August 26. He declined to comment on other details of the agreement.
Citigroup offered all 1,350 employees at CFJ early retirement with two months salary in a memo distributed on June 16. Two people familiar with the plan said 570 employees applied after Citigroup extended a deadline for taking applications.
