TOKYO, Sep. 3, 2009 (Kyodo News International) -- Sumitomo Mitsui Financial (OOTC:SMFJY) Group Inc. is in talks with Daiwa Securities Group Inc. over their capital tie-up on Daiwa Securities SMBC Co., SMFG said Friday.

SMFG is considering selling its stake in Daiwa Securities SMBC, a securities house serving corporate investors, to Daiwa Securities Group, sources familiar with the matter said. The jointly owned unit is currently 60 percent by the Daiwa group and 40 percent owned by the Sumitomo Mitsui banking group.

SMFG is set to complete its planned purchase of Nikko Cordial Securities Inc. and part of Nikko Citigroup (NYSE:C) Ltd. from Citigroup Inc. of the United States as of Oct. 1. The deal will integrate Nikko Cordial and Nikko Citigroup into SMFG.

In tandem with the planned move, SMFG earlier proposed to the Daiwa side that Nikko Citigroup and Daiwa Securities SMBC be integrated as a new company at which SMFG will have a controlling equity stake, the sources said.

But the negotiations have stalled as the Daiwa side argued that Daiwa Securities should be allowed to have a controlling stake of the envisioned brokerage house.

Although SMFG and Daiwa Securities Group will maintain a friendly relationship, the two financial groups' collaboration in the securities business area will be reduced after they terminate capital ties at the existing venture.

The venture was launched in 1999 by the Daiwa group and Sumitomo Bank, a predecessor of SMFG.

The venture's establishment has since paved the path for other amalgamations between banking giants and major brokerage houses.

SMFG's two key rivals -- Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. -- have powerful brokerage houses under their wings.

SMFG has envisioned full-fledged management integration between the powerful banking group and the Daiwa securities group, but the strategy has not worked out, they added.