TOKYO (Bloomberg) - Citigroup Inc., the recipient of $45 billion in US government rescue funds, plans to sell its Japanese brokerage units to Sumitomo Mitsui Financial Group Inc. for more than 500 billion yen ($5.2 billion), said two people with knowledge of the negotiations.

Sumitomo Mitsui, Japan's second-largest bank by market value, will buy Nikko Cordial Securities Inc. and part of Nikko Citigroup Ltd., the investment banking unit of Citigroup in Japan, said the people, who declined to be identified.

New York-based Citigroup, whose five straight quarterly losses ended in the first quarter, is selling units it deems non-essential to raise capital after the US government agreed to take a 36 percent stake.

The bank posted a $1.6 billion profit for the first quarter on trading gains and an accounting benefit for companies in distress.

"Yeah, I would say raising $5 billion is pretty necessary," said William Smith, founder of Smith Asset Management Inc. in New York who holds 200,000 Citigroup shares and has been critical of management since early 2007.

In Japan, Citigroup is shifting its resources to retail banking and investment banking from the brokerage business.

The acquisition of Nikko, Japan's third-largest brokerage, means Sumitomo Mitsui will be able to tap 66 trillion yen of individuals' assets and 302 branches throughout Japan.

Citigroup spokeswoman Atsuko Yoshitsugu in Tokyo declined to comment. Chika Togawa, a spokeswoman for Sumitomo Mitsui, also declined to comment.

Citigroup selected Sumitomo Mitsui as the preferred buyer for Nikko Cordial after the Japanese lender outbid rivals, two people who declined to be identified because the negotiations are confidential said on April 25.

Sumitomo Mitsui operates a retail brokerage with 75 branches nationwide. Sumitomo Mitsui has a close business relationship with Daiwa Securities Group Inc., Japan's second-largest brokerage. Nomura Holdings Inc., Japan's largest brokerage, had 59 trillion yen of retail assets and 172 branches as of March 31.

Nikko Cordial, formed in 1944, had 133.6 billion yen revenue for the nine months ended December 31.

The brokerage, with 111 branches in Japan, managed 25 trillion yen in client assets.

Citigroup offered to buy Nikko Cordial in 2007 after the Japanese securities firm was battered by an accounting scandal.

Nikko faced possible delisting from the Tokyo Stock Exchange after it was accused in 2006 of padding earnings, resulting in a 30 percent drop in its stock price in the seven weeks ended February 1, 2007.

Citigroup fell 4 percent in New York Stock Exchange composite trading to $2.95 as of 10.47 a.m. amid concern the bank, along with Bank of America Corp., may be forced by regulators to raise more capital.

Company executives are meeting with regulators to dispute results of examinations that show they need more money, the Wall Street Journal reported, citing unidentified people familiar with the matter.