Daiwa Joins Mizuho in Cutting Costs as Firms Trim at Least 500 More Jobs

Daiwa Securities Group Inc. (8601) and Mizuho Financial Group Inc. will deepen job cuts by trimming an additional 500 positions, reversing an expansion aimed at challenging Wall Street firms as Europe’s debt crisis persists.

Daiwa said yesterday it will trim 200 positions overseas after posting a fourth straight quarterly loss, while Mizuho plans to eliminate 300 more jobs at its brokerage arm following an 80 percent decline in the bank’s third-quarter profit. Samsung Securities Co. (016360) also plans to cut staff at its 100-person Hong Kong unit by more than half, it said today.

Asian financial firms are trimming costs as the contagion from Europe’s sovereign debt crisis, which has forced global rivals to announce more than 230,000 job cuts in the past year, spreads to the region. Japan’s biggest banks are also seeking ways to offset declining loan profitability as an export slump and stronger yen threaten an economic rebound at home.

“It’s wrong timing for the Asian firms,” Sandy Mehta, chief executive officer for Hong Kong-based Value Investment Principals Ltd., said by telephone. “I think you’ll see more scaling back by the brokerage firms basically because of poor investment banking business, share trading and IPO business. Everyone here is scaling back.”

Daiwa shares fell 1.1 percent to 271 yen at the 11 a.m. break in Tokyo Stock Exchange trading. Mizuho rose 0.9 percent to 116 yen. Japan’s benchmark Topix index rose 0.6 percent. Samsung Securities, South Korea’s largest brokerage by market value, climbed 2.6 percent to 62,900 won in Seoul.

Cut-Throat Competition

Samsung Securities will suspend brokerage services for Hong Kong shares as of today and reduce the unit’s research and sales workforce, according to an e-mailed statement. The office is the firm’s largest outside Korea.

“It may be a smart move for Samsung to retreat from Hong Kong’s cut-throat competition,” said Sohn Mi Ji, a Seoul-based analyst at Shinhan Investment Corp. “It needs to trim losses from the unit, which hasn’t been covering expenses.”

The firm may resume its Hong Kong operations when market conditions change, it said.

Daiwa’s net loss totaled 21.6 billion yen ($283 million) for the three months ended Dec. 31, compared with a profit of 1.2 billion yen a year earlier, the Tokyo-based brokerage said in a statement. The average estimate of seven analysts surveyed by Bloomberg was for a loss of 14.2 billion yen.

Chief Executive Officer Takashi Hibino, who took the post in April, is cutting jobs in Europe and Asia and trimming executive pay to cope with losses in those regions.

’Right Direction’

The brokerage in October said it would cut 100 positions in Asia outside of Japan and 200 jobs in Europe to save 40 billion yen a year. It also said Hibino and other top Daiwa executives will take pay cuts of as much as 40 percent until the end of March.

“While we’re not sure the cost cuts are enough, it’s still significant and moving in the right direction,” said Shiro Yoshioka, an analyst at Japaninvest Group Plc (3827) in Tokyo. “It’s uncertain at this point whether Daiwa can boost its top line under these market conditions.”

Revenue slid 21 percent to 92.9 billion yen for the three months ended Dec. 31 from a year earlier, led by a drop in trading income and brokerage commissions.

Trading profit plunged to 8.6 billion yen from 31.6 billion yen, the brokerage said. Commissions fell to 8.2 billion yen last quarter from 12.5 billion yen a year earlier. Equity and bond underwriting fees rose to 8.1 billion yen from 7.5 billion yen.

Worldwide Reductions

Daiwa’s headcount fell to 15,214 from 15,592 three months earlier, according to the statement. Job cuts abroad now total 500 and will help save the company about 60 billion yen a year. Daiwa said it plans to complete the reductions by the end of March.

Financial firms are cutting expenses as revenue from investment banking declines amid stricter regulations and Europe’s debt woes. Citigroup Inc. (C), the third-biggest U.S. bank by assets, last month announced 1,200 job reductions to save $600 million this year at its securities and banking division.

The latest announcement takes job cuts at Mizuho’s securities unit to 1,000 for the year ending in March. The bank yesterday said that it will also close 10 domestic branches for the division by May to cope with a “protracted severe management environment.”

Mizuho Securities Co. posted a loss of 36.7 billion yen for the three months ended Dec. 31, the unit’s biggest quarterly loss in at least five.

Japan Challenge

The positions being cut at Mizuho Securities are separate from the parent company’s plans, announced in November, to eliminate 3,000 positions by March 2016 through the merger of its corporate and retail lending units, said Masako Shiono, a Tokyo-based spokeswoman for the banking group.

“There’s a risk that Japan’s loan market will resume a downward trend depending on the nation’s economic growth, forcing the megabanks to increase lending overseas,” Natsumu Tsujino, an analyst at JPMorgan Chase & Co. in Tokyo, wrote in a note on Jan. 27. “Mizuho may have the best chance among the three banks to improve profitability given the substantial cost reduction expected from” the merger, Tsujino said.

Mizuho Financial Group’s net income dropped to 16.3 billion yen in the quarter ended Dec. 31 from 80.3 billion yen a year earlier. Quarterly earnings were calculated by subtracting first-half profit from nine-month figures reported in a statement yesterday.

The bank’s loan income dropped 5.4 percent last quarter from a year earlier to 254.5 billion yen. Fees and commissions fell 1.5 percent to 103.9 billion yen, while profit from sales of bonds and other securities more than doubled to 81.2 billion yen from 31 billion yen.

For the nine month period, net income fell 36 percent from a year earlier to 271 billion yen, led by declines in lending profit, Mizuho said in the statement. The bank kept its full- year profit forecast at 460 billion yen.

To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net; Shigeru Sato in Tokyo at ssato10@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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