Daiwa CEO Eyes Overseas Acquisition as Japan Prospects Ebb

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  • Posted on April 21, 2011

    Takashi Hibino, president and chief executive officer of Daiwa Securities Group Inc., poses for a photograph following an interview in Tokyo. Photograppher: Tomohiro Ohsumi/Bloomberg

    Daiwa Securities Group Inc. (8601), the Japanese brokerage that analysts estimate lost money last fiscal year, may acquire an overseas company to spur revenue growth, Chief Executive Officer Takashi Hibino said.

    Daiwa may seek to buy an asset or wealth management company or form a joint venture in India, South Korea or Brazil, Hibino, 55, said in an interview in Tokyo on April 19. Japan’s second- biggest brokerage also plans to form a Seoul-based affiliate as early as August that will underwrite and sell government bonds and derivatives, he said.

    Hibino, who took the post at the start of Daiwa’s fiscal year on April 1, plans to capitalize on economic growth elsewhere in Asia as a record earthquake dims prospects for Japan, which last year was overtaken by China as the world’s second-largest economy. Daiwa aims to increase revenue from Asia to 30 percent of the total this year from about 10 percent.

    “We’re making the whole of Asia our home market,” Hibino said. “If we just stick to Japan, the business pie would never expand enough.”

    Daiwa swung to a loss of 3.8 billion yen ($46 million) for the 12 months ended March 31, according to the median estimate of six analysts surveyed by Bloomberg News. That would compare with profit of 43.4 billion yen for the previous year. The Tokyo-based company will announce its earnings on April 26.

    Top Five

    Hibino said he aims to lift Daiwa to the top five equity underwriters in Asia, including Japan, within five years. The firm climbed to No. 11 among equity underwriters in the region this year from No. 25 in 2010, according to data compiled by Bloomberg.

    Global lenders including Deutsche Bank AG and Royal Bank of Scotland Group Plc are expanding wealth management teams in Asia as the number of millionaires climbs. Asians who own more than $1 million of financial assets rose 26 percent to 3 million in 2009, catching up with Europe for the first time, Mitsubishi UFJ Merrill Lynch PB Securities Co. said in September.

    Japan’s economy may shrink 3 percent in the current quarter as companies cut production and face supply-chain disruptions following the March 11 quake and tsunami, according to the median estimate of 18 economists surveyed by Bloomberg. Japan will grow 1.4 percent this year and Asia will expand 6.7 percent, the International Monetary Fund forecast on April 11.

    ‘Big Potential’

    Daiwa will hire more staff in India and South Korea to bolster investment banking operations including advising on cross-border mergers and acquisitions involving the two countries, Hibino said.

    “India has big potential. The market isn’t that mature and we can better compete there, especially in Mumbai,” Hibino said. “As for South Korea, the market is big enough to form an affiliate.”

    Daiwa shares declined 26 percent in the past year, more than the Nikkei 225 (NKY) Stock Average’s 11 percent drop, after the company ended a 10-year investment banking venture with Sumitomo Mitsui Financial Group Inc. in 2009. Daiwa rose 0.8 percent to 361 yen at 10:32 a.m. on the Tokyo Stock Exchange.

    Japan’s magnitude-9 earthquake and ensuing tsunami may discourage local companies from raising cash in equity capital markets because the catastrophe clouded their business outlook, Hibino said. Daiwa was scheduled to underwrite initial public offerings by drugmaker RaQualia Pharma Inc. and glass substrate maker AvanStrate Inc. Both companies canceled the share-sale plans and postponed listings because of the disaster.

    Turning to Retail

    To bolster revenue at home, Daiwa is seeking to expand its retail banking business after receiving a license from the Financial Services Agency on April l2. The firm will start lending money in a year and aims to collect 1 trillion yen of deposits from individuals in three years, Hibino said.

    Daiwa joins bigger rival Nomura Holdings Inc. (8604) in diversifying into retail banking to augment its brokerage services. Nomura aims to expand outstanding loans backed by clients’ investments sevenfold to 200 billion yen over five years, according to two executives this month who declined to be identified.

    The earthquake and tsunami, Japan’s worst postwar disaster, didn’t prevent Daiwa from planning to recruit more university graduates. The brokerage said this month it aims to hire 490 graduates next year, up from the 446 who joined on April 1.

    To contact the reporters on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net

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


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