The nation’s Big Four securities firms saw pretax profits fall for the first half of the current fiscal year as business slackened after the discovery of their alleged involvement in a financial scandal, results released Oct. 23 showed.Nomura Securities Co. secured pretax profits of 49.3 billion yen for the first half of the current fiscal year to maintain its position as the nation’s top brokerage despite punitive measures that limited its business from early August. But Nomura and the three remaining Big Four brokerages — Daiwa Securities Co., Nikko Securities Co. and Yamaichi Securities Co. — all experienced profit declines compared to the same period last year, largely due to the scandal in which they allegedly paid financial favors to a “sokaiya” corporate racketeer.The Big Four, along with the nation’s 10 second-tier brokerages, released midterm earnings reports that showed all 14 companies suffered a decrease in operating revenue due to such factors as a drop in commission income and a sluggish stock market.Even Nomura, while raking in a profit for the April-September quarter still saw its pretax profits slide 29.4 percent from the same period last year, and its operations will remain partially sidelined for the rest of the calendar year due to its alleged loss compensation to a sokaiya.The other Big Four firms are also expected to receive administrative sanctions in upcoming months for similar payoffs to the same sokaiya. The firms saw pretax earnings fall on a year-on-year basis with results ranging from Yamaichi’s pretax losses of 2.7 billion yen to Daiwa’s pretax profits of nearly 19 billion yen, with company executives predicting that upcoming punishment would probably further hurt their financial position over the latter half of the business year.Many of the brokerages saw their earnings buoyed through increased commissions related to securities investment trusts, which helped offset the decline in commissions from securities and bond brokering. The Big Four said a drop in the issue of convertible bonds during the six-month period hurt their underwriting business.Meanwhile all second-tier brokerages except Kokusai Securities Co. posted net and pretax losses, a situation which most company officials attributed to a rapid appreciation of the yen which forced them to suspend the sale of foreign bonds.The number of individual small-lot investors, which are major clients for the smaller firms, did not grow, they said. These investors were being squeezed out of trading by institutional investors and foreign investors.Some smaller brokerages blamed their dismal earnings reports not only on low stock prices but also on the sokaiya scandal for damaging the reputation of the stock trading business in general. Yamatane Securities Co. posted midterm pretax losses for the eighth year in a row, while both Cosmo Securities Co. and Kankaku Securities Co. saw pretax losses for seven straight midterm reports.Ailing Sanyo Securities Co., which recorded pretax profits of 1.6 billion yen for the April-September period last year, plunged into the red with pretax losses of 4.3 billion yen.Sanyo, whose ratio of unfixed capital to various market and asset risks stood at 160.1 percent, the lowest of the 14 firms whose earnings were released Oct. 23, could sink further into trouble unless major financial institutions such as life insurers agree to extend continued financial support.
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