(Repeat for additional subscribers)
Oct 22 (The following statement was released by the rating agency)
Fitch Ratings says that the earnings improvement at major Japanese securities firms is
likely to have continued into the second quarter of financial year ending March 2014 (Q2FYE14),
but it is not yet clear if the trend will be sustained beyond that because of market
The Japanese stock market turned around in December 2012 when Prime Minister
Shinzo Abe took office and the Tokyo Stock Price Index (TOPIX) gained about 40%
between then and end-September 2013. Positive market sentiment and accompanying
higher volatility boosted Nomura Holdings, Inc.'s (NHI) and Daiwa Securities
Group, Inc.'s (DSGI) quarterly core earnings comprising of fees & commissions
and trading gains in Q4FYE13 and Q1FYE14.
However, there remains uncertainty over the market environment in H2FYE14 and
thereafter, which may negatively impact investors' sentiment. Also, there has
been no solid recovery in the real economy, Fitch says in a review of major
Japanese securities firms.
Market uncertainty stems mainly from two factors: the scheduled increase in
Japan's consumption tax, and the US authorities' monetary policy. Any signs of
deterioration of the performance of the private sector, such as consumption
waning as a result of the tax increase, could hurt investor confidence in an
economic recovery and thus curtail further risk-taking. This would lead to lower
investment and transaction volumes, upon which the securities firms rely for fee
income. Additionally, the US authorities' exit from quantitative easing could
trigger a repatriation of capital by foreign investors, who hold about 30% of
the Japanese stocks.
The loss absorption capacities of NHI and DSGI compare favourably with global
universal banks. Fitch expects the entities' Value at Risk to increase slightly
in FYE14, given higher volatility in the financial market, but both firms are
likely to maintain a decent loss absorption capacity.
NHI and DSGI have maintained solid capital bases, with their respective Fitch
Core Capital (FCC) ratios at about 12% and 22%, respectively, at end-June 2013.
Nevertheless, Fitch expects no significant strengthening of internal capital
generation in the short to medium term, because of a still-fragile operating
environment and lack of clear evidence of sustainable improvement in Japan's
real economy, which is needed to accelerate further investment in the private
The special report titled "Review of Major Japanese Securities Firms" is
available on www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings' Report: Review of Major Japanese Securities Firms