Daiwa Drafts Biggest Bonus Pool in Three Years on Profit

Daiwa Securities Group Inc., Japan’s second-biggest brokerage, boosted the bonus pool for its investment bankers and staff to the most in three years after posting its highest profit since 2006.

Daiwa increased funds set aside for June payouts by 83 percent to 22 billion yen ($226 million), according to the Tokyo-based company’s statement yesterday. Fourth-quarter net income more than quadrupled to 48.8 billion yen, surpassing the 25 billion yen average of 11 analysts’ estimates compiled by Bloomberg, as commissions and underwriting fees jumped.

The Japanese bank joins companies from Toyota Motor Corp. to Hitachi Ltd. in planning to raise compensation as a weakening yen boosts corporate earnings. Prime Minister Shinzo Abe’s push to end deflation has spurred a market rally that led to the best month since 1999 for equity investors in Japan and bolstered profit for rival Nomura Holdings Inc. It may also lead to average payouts of $16,400 next month for Daiwa staff.

“Bonuses in the securities industry swing wildly according to business performance, so it makes sense that Daiwa would raise the amount,” said Natsumu Tsujino, a Tokyo-based analyst at JPMorgan Chase & Co. “Having said that, it’s a bit of a surprise as their performance had been bad until recently and they’re cutting staff overseas.”

Chief Executive Officer Takashi Hibino, 57, is expanding the bonus pool even as he implements a program to eliminate 70 billion yen of expenses by March 2015.

Goldman Pay

Staffing costs slid 0.8 percent to 157 billion yen for the year ended March 31, Daiwa’s earnings statement showed. That’s about $117,000 per person, including administrative employees and senior executives at all its units. New York-based Goldman Sachs Group Inc.’s 2012 compensation expense, which includes salaries, bonuses, benefits and deferred awards, equated to about $399,500 per employee, based on figures on its website.

Daiwa pays bonuses to employees twice a year, and its spending may vary from the amount set aside. The firm had reserved 14.5 billion yen for the December bonus, and 12 billion yen for June 2012. It doesn’t disclose the amount paid, while Nomura doesn’t report the size of its bonus pool.

“We set aside an appropriate amount after talking with auditors,” Daiwa Chief Financial Officer Mikita Komatsu said in a press briefing in Tokyo. The firm will decide on the final amount after talks with its employees’ labor union, he said.

It employed 13,759 staff as of March 31, indicating a reduction of 102 positions from December.

Stimulus Boost

Shares of Daiwa fell 2.3 percent to 849 yen at the close in Tokyo as the Topix declined 0.4 percent after reports showed U.S. manufacturing and hiring slowed. Daiwa and Nomura have jumped more than 150 percent in the past six months as fiscal and monetary stimulus fueled trading of Japanese stocks and spurred companies to tap bond and equity markets for financing.

“Daiwa has wind in its sails,” said Katsunori Tanaka, a Tokyo-based analyst at Goldman Sachs. “Their strategy to focus on the mother market and retail business is well matched to the current market conditions.”

The securities firm raised its second-half dividend to 12 yen from 3 yen. Revenue increased 53 percent from a year earlier to 172.8 billion yen, it said.

Brokerage commissions climbed 75 percent to 20.6 billion yen. Trading profit increased 55 percent to 45.9 billion yen. Underwriting fees tripled to 8.5 billion yen.

More Underwriting

Banks have managed 1.73 trillion yen of equity offerings in Japan this year, the most since 2010, according to data compiled by Bloomberg. Corporate bond sales climbed to 3.2 trillion yen, the best start to a year since 2009.

Daiwa was the No. 1 underwriter of Japanese equity offerings last quarter, arranging transactions valued at 367.5 billion yen including the government’s sale of shares in Japan Tobacco Inc., the data show. It was ranked fifth in bond underwriting and No. 14 in advice on mergers and acquisitions involving Japanese companies.

Pretax loss from overseas operations narrowed to 385 million yen for the three months ended March 31, from 2.6 billion yen a year earlier, the brokerage said yesterday.

Nomura’s net income more than tripled to 82.4 billion yen last quarter, also led by brokerage commissions and investment banking, the Tokyo-based company said on April 26. The result exceeded the 56 billion yen average estimate of nine analysts.

Prime Minister Abe has been urging Japanese companies to increase salaries to help defeat more than a decade of deflation that has hobbled the world’s third-largest economy.

Toyota agreed in March to raise its annual average bonus by 16 percent to about 2.05 million yen, the biggest in five years, after the world’s largest automaker boosted its profit forecast. Mizuho Financial Group Inc., Japan’s third-largest bank by market value, said in March that it will increase its annual bonus pool for the first time in five years.

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