Citigroup will close most of its Japanese consumer finance branches and take a $370 million fourth-quarter loss in that unit because of new laws that makes it tougher for lenders to profit.
The largest U.S. bank will take a $40 million fourth-quarter charge, including costs to close 270 out of 320 branches and 100 of 800 automated loan machines.
Citigroup will also increase reserves by $375 million because of a change in law that has resulted in more borrowers seeking refunds of interest, spokesman Mike Hanretta said.
The expected fourth-quarter net loss is equal to 7 cents per share, Citigroup said. Citigroup expects the Japanese consumer finance unit to roughly break even in 2007, and thereafter be profitable as costs decline.
Profit from Japanese consumer operations totaled $445 million from Jan. to Sept. 2006, down 16% from a year earlier.
Citigroup has said recent changes in Japanese law will lower the rates that consumer finance lenders may charge on new loans by 2010. It has also said the Japanese consumer lending environment has grown hospitable since early 2005.
"These changes are very significant," Citigroup Chief Executive Charles Prince told investors last month. "And as we move to a different model, we along with the industry will have to access how that will work."
In 2004, Japanese regulators revoked Citigroup's private banking license, citing a breakdown in internal controls. Prince has been under pressure from many investors and analysts to lower
Citigroup's expenses, and increase revenue faster than costs.
The bank is scheduled to report fourth-quarter results on Jan. 19. Analysts polled by Reuters Estimates had projected profit of $1.07 per share. The company announced the charge and reserve increase after U.S. markets closed.