Daiwa Closes London Convertible-Bond Principal Trading Desk

Daiwa Securities Group Inc. closed its London principal-trading desk for convertible bonds as Japan’s second-largest brokerage reviews the profitability of its operations abroad.

The firm shut the business this month, Misato Kinoshita, a Tokyo-based spokeswoman, said by phone today, while declining to comment on the size of the trading operation in the U.K. city.

Daiwa is shifting its focus to domestic investment banking and retail brokerage services while scaling back overseas. The strategy has helped to bolster profitability and was one of the reasons Moody’s Investors Service raised the Tokyo-based company’s credit rating last week.

“This is part of structural reform that Daiwa has been progressing in order to stabilize its overseas businesses,” Kinoshita said. “We will continue the reform.”

Daiwa is shrinking trading and sales operations in London, with at least six people at risk of redundancy, Reuters reported earlier.

Principal trading is the business of using a firm’s capital to buy and sell securities, while profiting on the spread and movement in prices. Fixed-income trading revenue at banks worldwide has been hampered in recent years by declining volatility.

Shares of Daiwa climbed 2.3 percent to 772.7 yen in Tokyo today, paring this year’s drop to 26 percent. The benchmark Topix index rose 2.6 percent and is down 5.1 percent in 2014.

Moody’s raised Daiwa’s credit rating by two levels to Baa1, prompted by profit improvements stemming from its shift in business strategy, the rating company said on Oct. 14. Daiwa reduced the number of employees overseas to 1,500 as of June from a peak of 2,487 three years earlier, Moody’s said.

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