Sumitomo Mitsui Financial Group Inc., Japan's second-biggest banking company, said it is in talks to end a brokerage venture with Daiwa Securities Group Inc. after agreeing in May to buy $5.9 billion of assets from Citigroup Inc.

The companies said in separate statements that no final decision has been made.

Sumitomo Mitsui is building its own securities business to close the gap with Nomura Holdings Inc., Japan's largest brokerage, and Mitsubishi UFJ Financial Group Inc., which has allied itself with Morgan Stanley.

The banking company is to pay about $5.9 billion for Citigroup's retail brokerage unit in Japan and a part of the U.S. company's investment banking businesses in Tokyo.

"Daiwa will be a weaker business trying to survive as an independent company with competitors that have mostly strengthened," said David Threadgold, a Tokyo-based analyst at Fox-Pitt Kelton.

"MUFG is putting Mitsubishi UFJ Securities together with Morgan Stanley Japan; Nomura has beefed up with Lehman, and Daiwa's old partner will now be a competitor," he said.

Morgan Stanley and Mitsubishi UFJ are to merge their Japanese securities businesses by March, the two companies have said.

Nomura Holdings took over Lehman Brothers Holdings Inc.'s operations outside the Americas after the Wall Street firm went bankrupt in September.

In August, Sumitomo Mitsui said it would form its own investment banking unit by hiring staff from Citigroup's global banking and capital markets departments.

Daiwa, Japan's second-biggest brokerage, is to pay about 200 billion yen, or $2.2 billion, to buy Sumitomo Mitsui's 40% stake in their venture, the Nikkei newspaper has reported, citing people it did not identify.

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