The new venture in Japan, 51 per cent owned by Nikko and 49 per cent by Salomon Smith Barney, will be set up on January 29 and will focus on investment banking for corporate customers.

"The joint venture will post profits from the initial year...the venture will return such profits to shareholders as much as possible," Nikko president Masashi Kaneko told an extraordinary meeting of its stockholders monitored by reporters.

He said it was better to team up with Citigroup, which has a global business network and financial expertise in areas such as investment information and new financial instruments, than to fight alone against competition arising from Japan's "Big Bang" reforms to liberalise the nation's financial markets.

At the meeting, shareholders approved Nikko's proposal to transfer its investment banking business -- trading for institutional investors, corporate finance, capital market and mergers and acquisitions operations -- to Salomon Smith Barney. Annual revenues from those businesses are worth 500 billion yen ($4.27 billion), Kaneko said.

Employees at the venture, Nikko Salomon Smith Barney Ltd (NSSB) will total about 1,100 after about 400 Nikko employees are transferred to the joint venture, a Nikko official said.

Nikko itself will focus on the retail securities business and the number of its employees, now totalling about 11,000 including those at overseas offices, will fall to 9,000 or so by next March through its restructuring efforts both at home and abroad, he said.

"There is a big gap between Japanese and Western firms in financial engineering technology," said Yushiro Ikuyo, a senior analyst at Commerz Securities (Japan). "Because of this, the new venture will enjoy its strength in Japanese markets for a while."

However, analysts said there were two major concerns about the venture -- whether quality Nikko employees transferred to the venture would remain in the new company amid the difference in corporate cultures, and whether the venture would harm business ties between Nikko and Mitsubishi corporate group companies.

Bank of Tokyo-Mitsubishi Ltd (BTM), which leads the Mitsubishi group, has expressed a negative view of the alliance as it will bring Nikko into the fold of Citigroup, which was born in October as a result of a mega-merger between Travelers Group and Citicorp.

BTM is Nikko's major shareholder, and many analysts had thought the bank would strengthen its links with Nikko during the `Big Bang' reform process.

Kaneko told shareholders on Thursday that BTM had sent Nikko a letter demanding an explanation of its planned tieup with Citigroup, but he played down that action.

He said: "The bank administrates corporate bonds our company has issued, so it is not surprising that the bank wants to know whether our company will be able to repay when our corporate bonds mature."