Daiwa Securities has closed down its proprietary trading desk for convertible bond in London as it moves to balance its foreign business activities and consolidate its position in the local market.
A Daiwa Securities spokesperson told SRP that the withdrawal responds to the ongoing re-alignment of the bank’s structure to address changes in the business environment as well as to stabilise its foreign business.
“We start to see the flow of capital from savings to investment in Japan, and hence we consider it as the most important market,” said the spokesperson. “We would like to consolidate our middle market departments and expand the range of products catering to the needs of clients, in which corresponding structured products would be included.”
As for Asia, market-making activities will continue unchanged once the convertible bond trading desk is closed but the bank is strengthening the collaboration with local securities companies including research coverage.
Restructuring
Daiwa Securities’ decision to reduce its foreign business is aimed at reallocating more resources to its retail and investment banking businesses in Japan. The bank purchased the global convertible bonds business and the Asian equity derivatives businesses from KBC Group in 2010, but retreated from the global over-the-counter (OTC) derivatives market and realigned its derivatives operations into warrants and convertible bonds.
However, the Japanese bank withdrew from the equity derivatives market in 2012 which was followed by the departure of the global head of derivatives and convertible bonds in Hong Kong, Dominique Blanchard, who left at the beginning of 2013 to join ANZ as global head of institutional sales. Two years down the road the Japanese bank has given up on its convertible bond plans.
Moody’s raised the credit rating of Daiwa Securities from Baa3 (equivalent to BBB-) to Baa1 (equivalent to BBB+) on 14 October for the increased earning capacity resulted from the improved business structure.
Daiwa Securities has also revealed that it is shifting its business strategy from reduction of fixed costs and expansion of stable revenue, to expansion of its sales structure focusing on the retail market in particular.
Daiwa Securities is one of the most active provider group of structured products in Japan. It has issued 39 products in 2014 year-to-date, generating $1,646m, which ranked third in local market in terms of sales volume.
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