Daiwa’s Profit Falls 45% on Brokerage Commissions, Trading

  • Joins SMBC Nikko after market turmoil battered industry
  • Stock slump is dissuading households from investing savings

Daiwa Securities Group Inc.’s first-quarter profit fell 45 percent as Japan’s stock-market slump led to a drop in brokerage commissions, underwriting fees and trading income.

Net income dropped to 24.6 billion yen ($233 million) in the three months ended June 30 from 44.8 billion yen a year earlier, the nation’s second-largest brokerage said in a statement on Wednesday.

Daiwa joins SMBC Nikko Securities Inc. in posting lower profit as individuals avoided trading stocks and investment-banking deals declined amid financial-market gyrations stemming from events including the U.K.’s vote to leave the European Union. Japanese equities have rebounded this quarter on expectations for fresh stimulus, with the central bank meeting later this week and Kyodo News reporting Wednesday that Prime Minister Shinzo Abe is planning a package of more than 28 trillion yen.

“The market has gradually digested the Brexit vote,” Chief Financial Officer Mikita Komatsu said at a briefing in Tokyo, adding that it led to the postponement of some mergers. “I feel the drop in retail brokerage activity has bottomed out,” he said of domestic business.

Lower Revenue

Here are key figures from the results:

  • Revenue fell 21 percent from a year earlier to 151.9 billion yen.
  • Brokerage commissions dropped 34 percent to 13.9 billion yen.
  • Trading profit declined 32 percent to 33.4 billion yen.
  • Underwriting fees decreased 40 percent to 5.4 billion yen.
  • Posted 1.4 billion yen overseas pretax profit, first in four quarters.

Nomura Holdings Inc., the nation’s largest brokerage, will report results on Thursday. SMBC Nikko, a securities unit of Sumitomo Mitsui Financial Group Inc., said Monday its first-quarter profit fell 50 percent to 10.8 billion yen.

Tokyo-based Daiwa and its competitors have been counting on fees and commissions from Japanese shifting more of their savings to investments as bank accounts offer almost zero interest. Yet households are still holding onto cash as the yen climbs and stocks retreat after four years of gains.

Stock transactions by individuals at exchanges in Tokyo and Nagoya dropped about 28 percent last quarter from a year earlier, and foreigners trimmed trades by 10 percent, according to Japan Exchange Group Inc.

Daiwa Chief Executive Officer Takashi Hibino expressed optimism last month that stocks will recover, predicting the Nikkei 225 Stock Average may reach 18,000 by the year’s end. The gauge has gained 7 percent to 16,664.82 this quarter. Shares of Daiwa closed 0.9 percent higher on Wednesday before the results, paring this year’s decline to 20 percent.

Investment-banking deals also slowed last quarter. Daiwa underwrote seven Japan share sales valued at 37.9 billion yen in the period, down from 14 transactions worth 226.8 billion yen a year earlier, data compiled by Bloomberg show.

On the bright side, the company said it posted its biggest overseas profit since 2009, fueled by fixed income, currencies and commodities trading in the U.S.

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