SRP looks at the financial results of two Japanes securities firms active in the structured products market.
Mitsubishi UFJ Morgan Stanley Securities
The investment banking arm of Mitsubishi UFJ Financial Group saw a recovery in operating profit of JPY385m ($3.6m) in its Q1 ending on 30 June from a loss of JPY2.6 billion a year ago, driving ordinary profit to JPY899m.
Operating revenues fell 8.1% to JPY48.6 billion while net operating revenue was down 7.2% to JPY47.8 billion year-on-year (YoY).
Commissions fell 11.3% to JPY23.9 billion YoY. The increase of JPY1.2 billion from brokerage commissions was offset by a JPY5 billion plunge of commissions and fees for underwriting, secondary distribution and solicitation for selling and others for professional investors.
By product, stocks, bonds and beneficiary certificates slumped by 24.2%, 35.5% and 38.7% to JPY5.4 billion, JPY 2.5billion and JPY7.7 billion YoY respectively. Meanwhile, others recorded a rise to JPY8.3 billion from JPY7.9 billion.
Net trading income was stable at JPY21.8 billion compared with a year ago while the income from stocks slightly dropped by JPY919m to JPY4.9 billion, and that from bonds and others increased by JPY1.35 billion to JPY16.9 billion.
Mitsubishi UFJ Morgan Stanley Securities has been the best-selling distributor for structured products in Japan since 2011, as SRP data shows. It has remained the most active during the past eight months with 67 products at JPY309 billion followed by Mizuho Securities, representing a market share of 19.15%.
Click here to view the 1Q 20 report.
Mizuho Securities
During the same quarter, the wholly-owned subsidiary of Mizuho Financial Group posted a net income of JPY14.6 billion, more than seven times the amount seen from January to March, as Japan began to reopen its economy following the turmoil triggered by Covid-19.
That figure increased approximately 11 times from the JPY1.3 billion year-on-year (YoY).
Operating revenue was stable at JPY94.8 billion while interest expenses slumped 43.8% to JPY14.3 billion quarter-on-quarter (QoQ) in the low interest rate environment, which resulted in a net operating revenue of JPY80.5 billion, up 18.9% QoQ, or up 26.9% YoY.
Operating income was at JPY19.2 billion, 2.6 times that of a quarter earlier and 8.4 times that of a year ago.
By instrument, equities contributed to a quarter share of the JPY42.4 billion commissions after rising 13.1% YoY, while bonds dropped 15.6% to JPY8.8 billion, which translates to a share of 20.7%. Beneficiary certificates and others grew 25.1% and 45.5% to JPY14.4 billion and JPY8.6 billion respectively.
On the consolidated balance sheet, derivatives receivables were down to JPY6.11 trillion from JPY6.22 trillion YoY, making up 67.3% of trading assets, while the payables dropped to JPY5.75 trillion from JPY5.95trillion, representing a 77.7% share of trading liabilities.
The broker-dealer this year distributed nine knockout and reverse convertibles non-flow notes with an average tenor of five years, which were tied to either the Nikkei 225 or the S&P 500, as SRP data shows. Four of them, issued by Municipality Finance, struck from April to June and had a barrier of -35% as well as an average fixed couple of 5.33%.
SRP registered 140 products Mizuho Securities distributed with strike dates from 2015 to 2019 with Svensk Exportkredit, Municipality Finance and Kommunalbanken as the most active issuers.
In an effort to enhance its interest rate derivatives activities, the securities firm in April combined the derivatives market office with the interest rate derivatives functions of the derivative trading department to ‘derivatives trading department’ under the fixed income business division.
Click here to view the 1Q 20 report.