S&P: Various Actions on Daiwa Securities, Daiwa SBCM.
Nov. 16, 1999-- Standard & Poor's today assigned its 'A-2' short-term rating to Daiwa Securities SB Capital Markets Co. Ltd. and raised the outlook on the company's long-term rating to stable from negative. The long-term rating on Daiwa SBCM remains triple-'B'.
At the same time, Standard & Poor's revised the outlook on its rating on Daiwa Securities Co. Ltd. to positive from stable. The long and short-term ratings on Daiwa Securities remain triple-'B'-minus and 'A-3', respectively.
To a large extent, the rating action on Daiwa SBCM reflects the general improvement in the operating environment for most sectors of the financial services industry in Japan over the past year. (see "Signs of Stabilization in the Japanese Banking Industry" published Oct. 27, 1999 by Standard and Poor's). The action also reflects the firm's solid operating performance and the progress that has been made in integrating the former wholesale operations of Daiwa Securities with the wholesale capital market activities of Sumitomo Bank Ltd. (BBB+/Negative/A-2).
Daiwa SBCM was set up in April 1999, as a joint venture between Daiwa Securities Group Inc. and Sumitomo Bank to engage in wholesale investment banking activities. The alliance with Sumitomo has given Daiwa SBCM the opportunity to broaden its customer base in various fields such as underwriting and initial public offerings (IPO).
The company maintains a sound balance sheet, mainly comprising liquid assets such as trading securities. Its capitalization is adequate for its current business profile: at September 1999 Daiwa SBCM's capital ratio, as defined by Financial Supervisory Agency standards, was 664%--significantly higher than the required level of 140%.
Furthermore, Standard & Poor's believes that the financial conditions of Japanese financial institutions are bottoming out and the pressure on the companies' asset quality and funding abilities has become less severe.
Capital market activity in Japan has been favorable this fiscal year due to higher trading volume and more active financing by corporates and financial institutions. In the first half of fiscal 1999, Daiwa SBCM's operating revenue of Y80 billion was higher than its target.
The outlook revision on the rating on Daiwa Securities reflects Daiwa group's ongoing restructuring efforts, receding liquidity pressures, and better earnings prospects. Daiwa Securities Group Inc., the parent of Daiwa Securities, has made progress in restructuring operations, largely by selling a substantial part of its overseas assets and by liquidating part of its investment securities portfolio and the assets of its affiliates.
Daiwa Securities has made progress in restructuring operations, largely by selling a substantial part of its overseas assets to Daiwa SBCM, and by liquidating part of its investment securities portfolio and the assets of its affiliates.
A major reason for Daiwa Securities' weak and unstable earnings in recent years has been its high level of fixed costs. These costs were reduced in the first half of fiscal 1999, during which Daiwa Securities, along with other firms, recorded its highest earnings since the collapse of the stock market in the early 1990s.
In particular, Daiwa Securities has benefited to a greater extent from increased sales of investment trusts compared to its peers. Although the company's income is still vulnerable to market conditions, higher accumulated customer assets should contribute to a more stable earnings stream over time.
Key factors affecting the ratings on Daiwa Securities are its success in improving its cost structure and in developing more stable and diversified revenue sources.
The full liberalization of brokerage commissions in October 1999 has thus far not substantially hurt Daiwa Securities' overall profits, despite some customers shifting toward cheaper online trading, Standard & Poor's said.---CreditWire -0-
RATING ASSIGNED, OUTLOOK REVISED TO FROM Daiwa Securities SB Capital Markets Co. Ltd. Counterparty credit rtg BBB/Stable/A-2 BBB/Negative/-- OUTLOOK REVISED Daiwa Securities Co. Ltd. Counterparty credit rtg BBB-/Positive/A-3 BBB-/Stable/A-3
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|Date:||Nov 16, 1999|
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