The fallout from last year’s forced closure of Citigroup’s private banking operations in Japan continues to hurt the firm’s private banking ...

The fallout from last year’s forced closure of Citigroup’s private banking operations in Japan continues to hurt the firm’s private banking results. Overall net profit in the second quarter of 2005 for Citigroup Private Bank was down 45 per cent to $83 million, compared with the same period a year ago.

The private banking business took a $45 million loss in Japan during the second quarter. Excluding this net profit fell by 4 per cent year-on-year. Citigroup said in a statement that revenue growth was offset by investment spending on front office sales and support.

The private bank said client business volumes rose 8 per cent, to $220 billion. Growth outside of Japan was 13 per cent, led by a 27 per cent increase in the US. Assets under fee-based management grew 18 per cent year-on-year.

The Smith Barney private client business, which is almost entirely based in the US, continues to be the driving force in Citigroup’s wealth management operations. Net profit at the private client brokerage rose to $213 million in the second quarter, a 13 per cent rise on an annual basis.

Citigroup said in a statement: “Revenue growth (at Smith Barney) reflects a 12 per cent increase in fee-based revenues, partially offset by a 5 per cent decline in transactional revenues due to lower client trading activity.”

Assets under fee-based management at Smith Barney increased 10 per cent, to $245 billion, and net flows were $5 billion for the quarter. The pre-tax margin of 24 per cent increased from the previous year and the previous quarter.

Overall, Citigroup’s wealth management unit saw an 11 per cent year-on-year fall in net profits to $322 million.