Bloomberg News

Daiwa Posts Quarterly Loss, Cuts 200 Jobs as Trading Falls

February 02, 2012

(Updates with revenue in fifth paragraph.)

Jan. 31 (Bloomberg) -- Daiwa Securities Group Inc., Japan’s second-largest brokerage, said it will eliminate 200 jobs overseas after posting a fourth straight quarterly loss on lower brokerage commissions and trading income.

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 today. The average estimate of seven analysts surveyed by Bloomberg was for a loss of 14.2 billion yen.

Daiwa and larger rival Nomura Holdings Inc., slated to report earnings tomorrow, are facing eroding business as economic growth slows and Europe’s debt crisis destabilizes markets. 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.

“It may take some time to turn to a profit,” Koichi Niwa, a senior analyst at SMBC Nikko Securities Inc. in Tokyo, said before the results and job cuts were announced. “Daiwa may be required to implement further cost controls as this severe business environment continues.”

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, the brokerage said.

Trading profit plunged to 8.6 billion yen from 31.6 billion yen, Daiwa 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.

Headcount Reductions

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

Daiwa’s headcount fell to 15,214 from 15,592 three months earlier, it said in the statement. Total job cuts abroad now total 500. The company’s pretax loss from overseas operations widened to 8 billion yen last quarter from 6.8 billion yen a year earlier, it said.

Hibino and other top Daiwa executives will take pay cuts of as much as 40 percent until the end of March and the brokerage is cutting 100 positions in Asia outside of Japan and 200 jobs in Europe, the company said in October.

Investment Banking Declines

Equity and equity-linked offerings in Japan fell to 1.8 trillion yen last year from 5.5 trillion yen in 2010, according to data compiled by Bloomberg. Daiwa finished last year as the No. 2 underwriter of share sales behind Nomura, advancing from fifth in 2010, the data show.

Daiwa’s rank in advising on takeovers involving Japanese companies slipped to ninth last year from third in 2010. Hibino is forming partnerships to bolster operations in Asia as Japanese companies try to overcome the stagnant domestic economy and take advantage of a stronger yen by expanding in the region. Daiwa gets about 90 percent of its revenue from Japan, according to data compiled by Bloomberg.

The securities firm in September agreed with Tokyo-based Aozora Bank Ltd. to form a venture to help Japanese companies fund takeovers. The brokerage, which severed a 10-year alliance with Sumitomo Mitsui Financial Group Inc. in 2009, also struck an agreement in August with the Taiwanese government to encourage cross-border mergers and initial public offerings.

--With assistance from Shingo Kawamoto in ??. Editors: James Gunsalus, Chitra Somayaji

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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