UPDATE:SMFG,MUFG,Mizuho In Round 2 Nikko Cordial Bid-Sources

Japan's three megabanks Monday submitted offers to buy Nikko Cordial Securities Inc. in the second round of bidding, people familiar with the matter said Tuesday.

Sumitomo Mitsui Financial Group Inc. (8316.TO), Mitsubishi UFJ Financial Group Inc. (8306.TO) and Mizuho Financial Group Inc. (8411.TO) are bidding for the unit put up for sale by Citigroup Inc. (C), they said.

The Nikkei reported Tuesday morning that the price for Nikko Cordial Securities could reach Y400-500 billion.

MUFG, Japan's largest banking group, is still the leading candidate, but SMFG, the third largest by assets, has emerged as a leading contender, one person said.

Mizuho is considered least likely to win the bid given its currently weak financial capacity for investment, the people said.

Citigroup has put Nikko Cordial on the market because, like several major western banks, the financial meltdown is forcing it to sell off international assets once seen as central to growth.

For the Japanese megabanks, buying one of the country's leading brokerages would give a major boost to their retail brokerage business aspirations.

Last month, MUFG said it will merge brokerage unit Mitsubishi UFJ Securities, which is strong in the retail sector, with Morgan Stanley Japan by the end of March 2010.

SMFG has a close relationship with Daiwa Securities Group Inc. (8601.TO) through wholesale brokerage venture Daiwa Securities SMBC Co.; but in the retail sector, it only has the relatively small SMBC Friend Securities Co.

SMFG said earlier this month it intends to strengthen its capital base by raising up to Y800 billion through issuing common shares. The group said the capital boost is part of its "new business strategy," but declined comment specifically on what the cash was for.

Meanwhile, Mizuho, Japan's second biggest bank, said last month its brokerage unit, Mizuho Securities Co., will merge with Shinko Securities Co. (8606.TO) on May 7. Mizuho has delayed the deal a few times due in part to uncertainty surrounding the financial crisis.

-By Atsuko Fukase, Dow Jones Newswires; 813-6895-7567; [e-mail]