By Anton Bridge
TOKYO (Reuters) -Daiwa Securities reported on Friday a near two-thirds jump in third-quarter net profit, driven by record quarterly income in its asset management division and a recovery in its investment banking arm.
The results show how Japan’s second largest brokerage and investment bank is capitalising on the accelerating shift from savings to investment among Japanese households and the swell in corporate action as Japanese companies look to improve corporate value.
Daiwa’s shares tacked on a 3% gain to 1,117 yen per share in afternoon trading, following the release of the results, to be up almost 5% on Friday. That compared with the broad market’s 0.25% rise.
Profit for the October-December period was 46.6 billion yen ($302.6 million), compared to 29.8 billion yen in the same period a year prior.
The return of sustained inflation in Japan has eaten away at savings, long held in deposit and checking accounts offering negligible returns, prompting individuals to transfer their savings to investment products.
And, in recent years, Daiwa and other securities firms have sought to secure a steady revenue stream from asset management fees that is insulated from the volatility of public markets.
Bigger rival Nomura Holdings will report its results on Feb. 5.
Record inflows to Daiwa’s stock investment trust products pushed the asset management division’s quarterly income to an all-time high of 29.2 billion yen, marking progress in the shift towards this fees-based business model.
“In the past our results tended to be bumpy based on market indicators, but this year’s results show a stable revenue base is taking root,” Daiwa CFO Kotaro Yoshida told a press conference in Tokyo.
The wealth management division broke a streak of two consecutive quarters of falling profits as individual investors invested more proactively following a subdued period triggered by the extreme volatility in the Japanese stock market in August last year.
Daiwa’s investment banking arm also recovered, booking record high M&A revenue over the quarter. However, this only produced a modest profit of 5.6 billion yen as Daiwa has rapidly expanded hiring of investment bankers over the past year, which has increased costs.
Domestic M&A revenue rose 34% on the previous quarter as Japanese firms’ need for growth investment financing and private equity firms’ buyout activity surged, but economic uncertainty in Europe has delayed the closing of overseas M&A deals, Yoshida said.
($1 = 154.0100 yen)
(Reporting by Anton Bridge; Editing by Christopher Cushing and Muralikumar Anantharaman)
