Tough times for Nikko Securities Co., which is preparing to launch a joint venture with Citigroup Inc., may not be over yet, analysts say.

A report Standard & Poor's issued Wednesday said the Japanese securities firm is expected to report net losses for fiscal year 1998. Some of those losses will come from what is expected to be a $694 million restructuring charge.

Nikko reported $471 million in losses for the first half of the fiscal year.

"There is a strong possibility that Nikko will not be able to maintain its leading market position in the domestic securities industry," the report said.

A joint venture between Citigroup and Nikko, called Nikko Salomon Smith Barney Ltd., is set to begin operations before March 31 but could be up and running as soon as January, said Arda Nazarian, a spokeswoman for Citigroup's Salomon unit.

Nikko and Salomon's Japanese business would combine their capital markets and international operations. Retail and corporate businesses would remain with Nikko.

Travelers Group Inc. announced in June that it was buying a 9.5% stake in Nikko, which at the time was valued at $540 million. Travelers, which merged with Citicorp in October, also said it would purchase convertible bonds which would boost its share of the firm to 25%.

In addition, Travelers said it would invest $1.6 billion in the troubled Japanese securities firm, forming the Nikko Salomon joint venture. That firm will be 51% owned by Nikko Securities, with the remaining 49% owned by Salomon Smith Barney.

John Morris, a spokesman for Citigroup, said losses at Nikko were expected and disappointing results would not change Citigroup's strategy with the partnership. Nikko, he said, was "adjusting its business" for the long term.

"It doesn't change our thinking at all," Mr. Morris said.

Nikko is restructuring its business by closing overseas offices and consolidating its offices in Japan. The moves come in response to the Japanese banking crisis and to fit more closely with Salomon's business style, the S&P report said.

The credit ratings company also said it was considering a possible downgrade of Nikko's credit rating. Ernest Napier, a co-author of the report based in New York, could not be reached for comment.

But an analyst who asked not to be identified said it was likely Nikko would have had its BBB-plus credit rating downgraded had Citigroup not made its investment in the company.

David Berry, an analyst with Keefe, Bruyette & Woods Inc., said the weakening financial condition of Nikko could have an effect on Citigroup's interest in the firm-including enticing Citi to buy a larger stake if Nikko's share price falls.

A larger stake would be advantageous because competition in the huge Japanese financial market historically has been closed to foreign financial services companies, Mr. Berry said.

"They like Nikko a lot," he said. "The initial attraction was allying with one of the three largest securities firms in Japan. Wouldn't you like to have a part of that?"

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