By David Dolan

TOKYO (Tstrich.com) - Just a year after plowing about $15 billion into bulking up its Japan business, Citigroup Inc looks to be mulling a sale of some of its Japanese units, a move that would likely spark a broad shift in Tokyo finance.

Citigroup, which reported an $8.3 billion quarterly loss on Friday, said it plans to split into two units and shed troubled assets. Both brokerage Nikko Cordial Securities and investment firm Nikko Asset Management will be bundled into a group of "non-core businesses," the bank said.

If Citigroup does sell the units -- as has been widely speculated, but so far denied -- a big Japanese bank would make a likely buyer, analysts and industry sources said.

Mitsubishi UFJ Financial Group (MUFG), Japan's largest bank, and second-ranked Mizuho Financial Group, are among those with most to gain from a purchase, though neither is flush with cash these days, hammered by rising bad-loan costs and sharp declines in their stock portfolios.

"The easiest one to put it together would be Mitsubishi," said one Tokyo bank analyst. "Mitsubishi UFJ Securities and Nikko Cordial Securities (would) make a massive securities company."

MUFG, which last year spent $9 billion on a 21 percent stake in Morgan Stanley, would consider buying both units if they come up for sale, the Yomiuri newspaper said on Saturday.

A Mitsubishi UFJ spokesman said the bank was not in talks with Citi about such a purchase. A spokesman for Mizuho declined to comment.

Third-ranked Sumitomo Mitsui Financial Group (SMFG), is an unlikely candidate due to its relationship with Daiwa Securities Group, Japan's No.2 broker, analysts said.

Citigroup has said it is committed to the units over "the next few years," a statement that may not jibe with the "non-core" rubric.

Analysts and insiders say a sale still could be on the cards, given the catastrophic size of Citigroup's losses.

"If the price is reasonable there will be a high level of interest in these assets," said Hiroshi Kondo, head of M&A at law firm Baker & McKenzie in Tokyo, adding the likely interest would come from Japanese firms looking to expand their customer base.

HERE'S THE DEAL

Control of Nikko Cordial, Japan's third-largest brokerage, would offer a network of about 110 branches across Japan and a well-known name to retail investors. Client assets totaled 28.2 trillion yen ($310 billion) at end-September.

But like its rivals, Nikko Cordial has been hit by slack investment demand from the global downturn. July-September net income fell by nearly half to 4.1 billion yen.

Citigroup initially purchased 61 percent of Nikko Cordial for around $8 billion in April 2007. The deal was its biggest takeover under then-CEO Charles "Chuck" Prince.

Prince had made expansion in Japan a top priority as the New York-bank pursued a "financial supermarket" strategy advanced by his former boss, Sanford "Sandy" Weill.

Citigroup, which later took complete control of Nikko Cordial and listed its shares in Tokyo in late 2007, aimed to tap Japan's estimated $15 trillion in household financial assets by bringing together its retail broking, investment banking and other units.

Widening subprime losses stalled that plan, however, and Citigroup said in December it would push back a planned merger of Nikko Cordial with investment bank Nikko Citigroup until 2010. The future of that move is even more uncertain now that Nikko Citigroup is classed as a "core" asset.

Nikko Asset, which had 10.8 trillion yen in assets under management at end-September, may be one of the longest awaited initial public offerings in Tokyo.

Sources told Tstrich.com last year Citigroup hired managers for the IPO, and expected shareholders to sell about 60 billion yen of stock in the offer, which could value the company at 200-300 billion ($2.2 billion-$3.3 billion).

Citigroup on Friday booked a $563 million intangible asset impairment charge related to Nikko Asset, a move that could indicate the U.S. bank is ready to sell the unit on the cheap.

"The asset management stuff is generally pretty easy to integrate," said one Asian financial analyst.

"It's generally fiduciary accounts, assets under management and not capital intensive. So I think that would be attractive for a number of bidders."

(Additional reporting by Nathan Layne and Emi Emoto)

(Editing by Ian Geoghegan)