Citigroup ( C) will restructure its consumer finance business in Japan and expects to record a loss from the unit when it reports fourth-quarter earnings next week.

The company said late Monday that due to recent changes in the operating environment, as well as consumer lending laws in the country, it expects to close approximately 85% of its 320 loan offices and 100 automatic loan machines in Japan. Citigroup has 25 retail bank branches in the country.

Citi plans to increase its consumer loan loss reserves by $375 million and will take a charge of $40 million -- both of which will be reflected in fourth-quarter earnings results, it said.

As a result of the restructuring, the Japan consumer finance unit will record a loss of $370 million, or 7 cents a share, for the fourth quarter. The company says it expects the business to be profitable in 2007.

Recent changes in Japanese tax laws will lower the maximum interest rate allowed on new consumer finance loans by 2010, which the company has previously said would affect its consumer finance business in the country.

But tax law changes aside, Citi has had a difficult time with its businesses in Japan. In 2004, Citi's private banking arm in Japan was virtually shut down. Regulators alleged that the company had misled customers, financed stock manipulation and kept shoddy records. Citi had apologized for its actions.

A spokeswoman for Citi declined to comment further on the issue.

Shares of Citi rose 28 cents to $55.05 on Monday. The stock fell 3 cents to $55.02 in after-hours trading.

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