Two of the nation’s three main brokerages on Friday said they sank deep into the red in the year that ended March 31, as sluggish share prices and competition from online and bank-affiliated brokers sent retail revenues plunging.
Daiwa Securities Group Inc., Japan’s second-largest brokerage, reported a consolidated net loss of 130.55 billion yen, in a dramatic turnaround from its 64.55 billion yen profit the previous year.
Total revenues fell 32 percent to 488.04 billion yen, reflecting sharp declines across the board in mainstay commissions revenue on securities transactions.
Nikko Cordial Corp., the nation’s third-largest brokerage, also reported a group net loss of 66.36 billion yen, against a net profit of 44.28 billion yen a year ago. Its revenues fell 34.9 percent year-on-year to 288.32 billion yen.
Individuals shied away from equity investments last year, warily watching as the benchmark 225-issue Nikkei average closed 15 percent down from its start a year ago.
Fierce price competition from online brokers further prevented securities firms from reaping substantial gains when depositors began transferring funds ahead of the expiration of the government’s full guarantee on bank deposits in March.
“Our earnings results this year are very severe due to the stagnant stock market,” said Shuichi Komori, senior managing director and chief financial officer at Daiwa Securities Group.
Nikko, meanwhile, was hit by the collapse of U.S. energy giant Enron Corp. in December. Enron’s failure triggered a wave of cancellations in a money management fund that was managed by a Nikko unit and contained Enron bonds.
The debacle reduced Nikko’s revenues last year by 1 billion yen to 2 billion yen, estimates Hajime Yamamoto, the brokerage’s executive director and chief financial officer.
“We failed to address the damage to our customer’s confidence, and that affected our group’s marketing operations,” Yamamoto said. “In April, we sensed a positive change, but with markets this uncertain, it is still hard to predict whether sales will grow.”
Neither Daiwa nor Nikko gave an estimate for the current business year.
The Japanese securities industry has room for growth. As of the end of March, the percentage of Japanese household assets invested in stocks was around 7.2 percent, according to the Bank of Japan.
But without a boost in share prices, analysts say the three main brokerage’s fortunes will be hard to reverse.
Online brokers, which charge lower commission rates and offer easy access to information are attracting experienced and affluent investors who are turned off by brokers’ aggressive promotion of shares, often at the expense of customers.
On a pretax basis, Daiwa suffered a 85.5 percent year-on-year fall in consolidated profit to 25.85 billion yen. The figure, which excludes extraordinary gains, is a key gauge of a brokerage’s strength in its core operations.
Nikko in a strategic alliance with U.S. financial conglomerate Citigroup, reported a consolidated pretax profit of 1.53 billion yen, down 98.4 percent from the previous year. Nikko cut its annual dividend payout from 9 yen to 3 yen per share.
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