Bloomberg News

Daiwa Posts Third Quarterly Loss, Will Cut 300 Jobs Abroad

October 28, 2011

(Updates with Daiwa CFO’s comment in 11th paragraph.)

Oct. 28 (Bloomberg) -- Daiwa Securities Group Inc., Japan’s second-largest brokerage, posted a third straight quarterly loss and said it will cut more than 300 jobs overseas as trading and investment banking income declined.

The loss widened to 19.4 billion yen ($256 million) in the three months ended Sept. 30 from 4.2 billion yen a year earlier, Daiwa said in a statement in Tokyo today. It was bigger than the 13 billion yen average estimate of six analysts surveyed.

Daiwa and larger rival Nomura Holdings Inc., which may report its first quarterly loss since 2009 next week, are joining their U.S. rivals in seeing business erode as Europe’s debt crisis unsettles financial markets worldwide. Chief Executive Officer Takashi Hibino, who took the post in April, is cutting 100 positions in Asia outside of Japan and 200 jobs in Europe to stem losses in the regions, the company said today.

“Daiwa needs to focus on Japan and the rest of Asia, and it may want to reconsider if it really needs European business,” said Katsunori Tanaka, a Tokyo-based analyst at Goldman Sachs Group Inc. “Daiwa has a strong domestic retail business, and it’s a shame overseas losses are offsetting the gains in its home market.”

Trading profit fell to 14.9 billion yen last quarter from 34.2 billion yen a year earlier, Daiwa said in the statement. Underwriting fees declined to 4.8 billion yen from 5.3 billion yen, while brokerage commissions gained to 10.2 billion yen from 9.6 billion yen.

Pay Cuts

Hibino and other top executives will take pay cuts of as much as 40 percent until the end of March, the company said.

Shares of Daiwa have fallen 32 percent this year, more than the Topix Index’s 14 percent decline. They closed 1 percent lower at 286 yen today before the earnings announcement. Nomura has lost 39 percent this year.

Nomura will probably post a loss of 35 billion yen for the three months ended Sept. 30, its first in 10 quarters, according to the average estimate of seven analysts surveyed by Bloomberg ahead of earnings scheduled for release on Nov. 1.

Daiwa’s pretax loss from overseas operations widened to 7.1 billion yen last quarter from 3.8 billion yen a year earlier, according to today’s statement.

The company closed proprietary trading desks in Hong Kong, Taiwan and London, and may shut other unprofitable operations abroad, Chief Financial Officer Nobuyuki Iwamoto told reporters. The job cuts announced today will reduce payrolls to 1,100 in Asia and 700 in Europe.

‘Severe’ Environment

“It looks like the European crisis is settling down, but the essential problem remains,” Iwamoto said at the press conference. “The severe business environment will continue.”

Daiwa and Nomura have been tussling over shrinking equity underwriting business this year as Japanese companies shun stock-market fundraising following a record earthquake in March.

Equity and equity-linked offerings fell to 1.5 trillion yen so far this year from 4.7 trillion yen in the same period of 2010, according to data compiled by Bloomberg. Daiwa is ranked No. 2 manager of share sales behind Nomura, an improvement from fourth for the whole of 2010, the data show.

On takeover advice, Daiwa’s rank has slipped to ninth from third for all of last year. Hibino is forming partnerships to bolster operations in Asia as Japanese companies look to overcome domestic economic stagnation and take advantage of a stronger yen by expanding in the region.

Daiwa, which ended a 10-year investment banking tie-up with Sumitomo Mitsui Financial Group Inc. in 2009, agreed with Tokyo- based Aozora Bank Ltd. last month to form a venture to help Japanese companies fund takeovers. In August, Daiwa agreed with the Taiwanese government to encourage mergers and acquisitions and initial public offerings between Japan and Taiwan.

--With assistance from Shingo Kawamoto in Tokyo. Editors: Russell Ward, James Gunsalus

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

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


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