Summary
Is there still room for a second independent integrated Securities House in Japan ?
Analysis
Japanese have a typical saying behind the concept Same bed, Different dreams (‘Dooshoo imu’) that has been widely used by Japanese medias to describe SMFG and Daiwa Securities group relationship. Daiwa securities CEO Shigeharu Suzuki insisted that Daiwa wanted to proceed their own way as a fully integrated independent securities house, in that sense wholesale and retail businesses are equally important. However Daiwa and SMFG do not share the same vision: key difference is Daiwa management does not believe financial conglomerate business model is what financial industry wants nowadays. Perhaps, but Japanese financial industry is heading toward financial financial conglomerates centered on the main three mega-banks therefore Daiwa will have to take bold steps to deliver and live up to its ambitions.
Credit rating agencies potential downgrade seems excessive, liquidity appears not to be a concern for Japan’s second largest brokerage, indeed Suzuki vowed that Daiwa is cash rich and could even withhold 2 years of malfunctioning short-term money market. He even emphasized that tie-up cancellation also have advantages such as creating new business opportunities. (This assumption seems questionable considering SMFG network).
The real question analysts should ask themselves is whether there is still room for a second fully independent brokerage in Japan.
I think the answer is yes pending some questions on the wholesale business side.
Why?
Because on the retail side Japanese financial industry only manages 20 to 24% of Japan household huge savings stock, Daiwa brand has ample room to grow and expand despite cutthroat competition at home.
On the wholesale side this is different story Daiwa will have to either consider a foreign partner or eventually join SMFG financial conglomerate vision. Suzuki said that Daiwa is not considering any kind of external tie-up but he also said many foreign financial institutions did show interest in working with Daiwa. Expect market to shift its attention to alternative foreign partners.
This last episode is just one amongst many of the long banks-brokerage integration saga which started in the early 90’s and is still ongoing. Elsewhere it already happened.
Meanwhile SMFG remain Daiwa Securities main bank. This is Japan; things take time to happen.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
