TOKYO -- Foreign operations have buoyed earnings at Japan's major securities brokerages, which are grappling with sluggish retail trading at home.
Sixteen out of 21 of Japan's main securities brokerages logged lower net profit in fiscal 2016 than the previous year, but the largest ones did well thanks to their role in overseas acquisitions and fixed-income trading in the U.S market. Second- and mid-tier brokerages are now also working to strengthen their businesses abroad.
Out of 16 second-tier, mid-tier and internet brokerages, only Kyokuto Securities recorded an increase in net profit. But among the five largest, only Daiwa Securities failed to secure higher profit. Mizuho Securities recorded an extraordinary gain in fiscal 2016 thanks to restructuring of its U.S. segment and more than tripled its net profit.
Japan's largest brokerages were supported by their foreign businesses. Aggregating results from the top five, commissions from trading leveled out but overseas segments recovered from pretax losses in fiscal 2015 to notch big profits for the year just ended.
Nomura Holdings' overseas segments accounted for about 30% of consolidated pretax profit, under U.S. accounting standards, at 88.1 billion yen ($788 million). "It is very relieving," CFO Takumi Kitamura said of the first such black ink in seven years. Profit from bond trading was greater than expected due to the sharp upswing in U.S. interests rates beginning the second half of the year. Increased trading of U.S. bonds also provided a tailwind for firms like Mizuho Securities.
Although Daiwa Securities' profit did not improve overall, its overseas business swung to a 13.4 billion yen pretax profit after recording a loss the previous year.
"The most prominent change is acquisitions," said Mikita Komatsu, senior executive managing director at Daiwa Securities. Large deals such as Komatsu's acquisition of American mining equipment manufacturer Joy Global with support from Mitsubishi UFJ Morgan Stanley Securities continued in fiscal 2016.
The overseas shift is expected to continue in the current year. Nomura is hiring several outside specialists in America in order to target acquisitions internationally. Daiwa is also procuring such talent in Europe and elsewhere. Each company is trying to improve profit through fixed-income trading as well as investment banking services like corporate financing and M&A advising.
The smaller brokerages are also searching for a solution to the flight from Japanese stock. Okasan Securities Group and Tokai Tokyo Financial Holdings both were able to narrow their profit drops thanks to better earnings from stock trading in the U.S. "Young people prefer U.S. stocks like Apple and Amazon rather than individual Japanese stocks," said Hiroyuki Shinshiba, president of Okasan Securities. Kyokuto Securities will continue to focus on bonds from emerging markets.