Japan's March 11 earthquake will spark a surge in mergers, acquisitions and capital raising as companies cope with the disaster's aftermath, said the head of Daiwa Securities Group, helping the country's No 2 brokerage in its bid to make its Asian operations profitable for the first time.
"One result (of the disaster) is for Japanese companies to expand in Asia to diversify their business portfolios and they will need to raise money," Daiwa CEO Takashi Hibino, told Reuters in an interview. "The pace of that seems likely to increase and will probably become evident after the summer."
The value of deals in Daiwa's investment banking pipeline are four times greater than at the same time last year, even before the impact of the quake fully filters through to its business, said Hibino, who in April replaced Shigeharu Suzuki as chief. Companies are looking to hang on to customers nervous of further disruptions to supply chains from earthquakes and tsunami in Japan by dispersing their operations geographically.
Hibino, 55, expects this kind of business to swell in the second half of the business year that began in April, adding to the ongoing recovery in fee generating corporate actions. He expects Daiwa's Asian operations to make their first profit in the final quarter of this fiscal year.
Daiwa, which ended a 10-year investment banking joint venture with Sumitomo Mitsui Financial Group in 2009, is expanding in Asia, including China, Hong Kong and India, in an attempt to grab a bigger share of the region's investment banking fees as revenue from its established retail investment business at home contracts. The cost of hiring foreign bankers - Daiwa's employees overseas now exceed those in Japan - has, however, resulted in higher costs.
In the third quarter of the business year that ended on March 31, personnel and other general expenses rose 3.8 percent from the previous three months. Daiwa will release its full year results on April 26. The additional hands in Asia have so far added little to overall income, and it may take another three years for them to generate more revenue than Daiwa makes at home, Hibino conceded.
The brokerage is also trying to supplement its domestic business with online banking and other fee generating services. A big uptick in income from more cross border M&A, would help make its foreign operations contribute to the company's bottom liner sooner. It would also convince investors that Hibino was right to stick with his predecessor's plan for overseas expansion. An M&A surge would also be a boon for Daiwa's competitors, including its bigger domestic rival Nomura Holding's, and foreign banks that chase business from Japanese clients.
Last business year, Nomura led in Japan related investment banking, but was followed by J.P. Morgan in M&A advisory rankings, with Daiwa in seventh, according to league tables compiled by Thomson Reuters. In equity finance Goldman Sachs Group came in second ahead of Daiwa, which was one place lower.
Comments
Comments are closed for this article.