UPDATE 2-Daiwa posts surprise loss as underwriting fees fall

* Jan-Mar net loss Y2.8 bln, vs Oct-Dec Y26.4 bln profit

* Revenues fall 36.5 pct on drop-off in share offering fees

* Loss due in part to asset write downs, tax-related charge

* Daiwa joins Nomura in underperforming global invest banks

* Prior to results, Daiwa shares close up 0.4 pct

(Adds fund manager, CFO comments)

By Junko Fujita

TOKYO, April 30 (BestGrowthStock) – Daiwa Securities Group (8601.T: ),
Japan’s second-largest brokerage, reported a surprise quarterly
loss on Friday, hit by a slide in fees to manage share offerings
and write downs of property and private equity investments.

The loss, Daiwa’s first in four quarters, highlights the
relatively weak position of its wholesale operations after
dissolving a 10-year-old investment banking joint venture with
Sumitomo Mitsui Financial Group (8316.T: ) late last year.

Daiwa also joined Nomura Holdings (8604.T: ) in underperforming
global rivals Morgan Stanley (MS.N: ) (Read more about the money market today. ), Goldman Sachs (GS.N: ) and
JPMorgan Chase & Co (JPM.N: ), which rode volatile U.S. credit
markets to much larger quarterly profits. [ID:nTOE63Q065]

While Nomura has been expanding aggressively in Europe and
Asia after buying Lehman Brothers’ operations in those regions
and building a presence in the U.S., Daiwa has taken a more
conservative approach with a focus on small investments in Asia.

“Nomura bought time (with the Lehman acquisition) and it has
to justify that it was not an overly expensive purchase by
delivering growth,” said Takeshi Osawa, senior fund manager at
Norinchukin Zenkyoren Asset Management.

“For Daiwa the market’s attention is on whether it can
steadily expand its business in Asia.”

For the January-March fiscal fourth quarter, Daiwa booked a
net loss of 2.8 billion yen ($29.8 million), following a profit
of 26.4 billion yen in October-December when it booked a big gain
on the sale of its stake in Sanyo Electric (6764.T: ).

Revenues tumbled 36.5 percent from the prior quarter to
116.55 billion yen, reflecting a drop-off in fees to manage share
offerings after a spike last year when Japanese companies rushed
to raise capital.

The loss, although smaller than the 17.4 billion yen loss
posted in the same quarter last year, was worse than market
expectations. Three analysts surveyed by Thomson Reuters I/B/E/S
had projected on average a profit of 2.5 billion yen.

Daiwa said it wrote down the value of property such as
branches and dormitories and private equity investments. It also
cited a write-off of deferred tax assets.

Some investors have expressed worries over Daiwa’s ability to
grow its investment banking operations on its own.

Daiwa Securities Capital Markets, Daiwa’s investment banking
arm, ranked as No.6 underwriter for equity offerings for Japanese
companies in the January-March quarter, down three notches from
the prior quarter, Thomson Reuters data showed.

This decline reflects Daiwa being unable to gain a larger
role in the $11 billion share sale by former ally SMFG.

The offering was global, but Daiwa was involved only in
Japanese portion, part of which was allocated to Nikko Cordial,
which Sumitomo Mitsui bought from Citigroup (C.N: ).

Daiwa Chief Financial Officer Nobuyuki Iwamoto said their
performance should be viewed from a long term perspective.

“Something like the investment banking business should be
looked at over the long term rather than quarterly,” Iwamoto told
a news conference. “Quarterly figures are volatile.”

Prior to the announcement, shares of Daiwa rose 0.4 percent
to 490 yen. Daiwa’s stock has risen 5 percent since the start of
the year, outperforming the securities sector subindex
(.ISECU.T: ), which is up nearly 2 percent.

Investing
(Reporting by Junko Fujita; Editing by Nathan Layne)

UPDATE 2-Daiwa posts surprise loss as underwriting fees fall