Domestic business confidence brightened somewhat in 1H FY2009, as the global credit crunch and financial turmoil receded, and government initiatives to promote fuel-efficient cars and green home electronics bore fruit. Market conditions and the economic environment certainly were not rosy, though, since weak capital spending and personal consumption continued to weigh on any recovery in domestic demand.
Daiwa Securities, the retail arm of the Daiwa Securities group, kept its eye on net asset inflow despite the difficult environment. Ordinary income reached Y22.4 billion in 1H, backed in part by a steady increase in the balance of assets under custody.
Meanwhile, Daiwa Securities SMBC, engaged in wholesale brokerage operations and principal investments, served as the lead manager for a number of jumbo new share offerings, helping commission income rise meaningfully. However, ordinary income was capped at Y6 billion, mainly by provisions for investment losses at Daiwa Securities SMBC Principal Investments.
As a result, Daiwa Securities Group reported ordinary income of Y24.8 billion and paid a dividend of Y5 per share in 1H FY2009.
The Group also raised roughly Y200 billion from its first new share offering in two decades in July 2009.
One of the lessons learned from the global financial crisis since September 2008 is the need for a stronger capital base at financial institutions. The recent new share offering has significantly bolstered the Group's capital base, ensuring a solid financial standing comparable to that of other major global financial institutions. We will use the proceeds to support aggressive expansion in growth fields, such as retail operations and overseas businesses, especially in Asia and other emerging markets.
On 10 September, Daiwa Securities Group Inc. and Sumitomo Mitsui Financial Group agreed to dissolve our partnership in a wholesale brokerage joint venture, while maintaining friendly and trusting relations. Under the agreement, Daiwa Securities Group will acquire all of its common shares currently held by Sumitomo Mitsui Financial Group. Daiwa Securities SMBC then plans to change its name to Daiwa Securities Capital Markets on 1 January, 2010.
Dissolving the joint venture contract and turning the wholesale brokerage business into a wholly-owned subsidiary will allow the business to be managed under the same corporate philosophy as the rest of the Group. We think this will lay the groundwork for faster decision-making and more efficient use of the Group's managerial resources, while simultaneously strengthening solidarity among executives and employees. Ultimately, we expect the move to increase the corporate value of the Daiwa Securities group.
Meanwhile, FY2009 marked the inaugural year of the Group's new three-year medium-term business plan, "Passion for the Best" 2011. Its vision is to establish the Daiwa Securities group as one of Japan's top companies by winning the trust and respect of all of our stakeholders-customers, shareholders, employees, and the society at large.
The medium-term business plan encompasses three primary goals: to concentrate managerial resources in the retail securities business, establish a sustainable business model for investment banking operations, and expand operations in Asia and other emerging markets. The plan targets ordinary income of at least Y200 billion and ROE of 10% or more for the group in FY2011.
In particular, Daiwa Securities Capital Markets, the wholesale arm, will concentrate human resources and capital on overseas businesses, especially in Asia, with an eye on expanding the scope of operations. To this end, we plan to quickly establish our Hong Kong subsidiary as the hub of a new earnings base capable of doubling earnings from the Asia/Oceania region.
Daiwa Securities, the retail arm, intends to keep expanding the balance of assets under custody and improving customer convenience in a bid for sustainable profit growth.
1H FY2009 was a six-month period marked by seminal events such as our first new share offering in 20 years and the end of our ten-year joint venture with Sumitomo Mitsui Financial Group. However, these major decisions entail no change in the policies under our medium-term business plan. Our executives and employees will continue their concerted efforts to achieve our current quantitative and qualitative goals.
The Group also makes it a priority to contribute to social and economic progress through our daily efforts to support customers in their portfolio management or corporate activity. To cite one example, we are arranging the issuance of Microfinance Bonds to help address poverty in developing nations. Through such activities, the Daiwa Securities group maintains its commitment to promoting the development of financial and capital markets and fulfilling its social responsibilities as a financial institution.
We look forward to your continued guidance and support.
December 2009
Shigeharu Suzuki
President and CEO
Daiwa Securities Group Inc.
