Japanese houses attack downgrades

NOMURA Securities and Yamaichi Securities both attacked Standard & Poor's downgrading of their credit ratings yesterday, which were based on poor forecasts for the Japanese equity markets.

S&P also cut ratings for Daiwa Securities and Nikko Securities.

The credit rating agency said the securities industry in Japan would continue to be hit by low market turnover and limited new equity offerings, making it hard for the companies to regain their previous earnings power. Deregulation and more competition would also take its toll, the agency said.

The outlook for all Nomura's long-term debt remained negative, S&P said. A spokesman for Nomura in London said: 'Our consolidated corporate earnings have started to improve. Contrary to S&P's views we do not think that financial liberalisation and the increase of competition will cause such a negative impact on our earnings.

'We are also more positive about the outlook for the Japanese economy and the further potential for financial businesses.'

S&P said it had cut the senior debt rating of Nomura to AA from AA+, Nikko's senior debt rating to A from A+ and Yamaichi's senior debt rating to A- from A. With Daiwa, S&P cut the short-term credit rating of two guaranteed units, Daiwa America Corp and Daiwa Europe Ltd to A-1 from A-1+. The senior debt rating of Daiwa was not changed.

Yamaichi was most exposed to the downturn in the securities industry, S&P said. Costs had been cut, but Yamaichi had not been able to reduce the gap between its earnings and those of its rivals, it said.

A spokesman for Yamaichi in London said: 'We're not very happy with the donwgrading. S&P have not taken account of our achievement in cutting outgoings, which have fallen from Y25bn a month to Y15bn. They also do not take account of the increase in activity for bonds, as opposed to equities. There is also an increase in our unit trust business, and the equity business is improving.'

S&P said Nikko's downgrade reflected poor prospects for increased earnings in the short term. S&P said Nikko had sharply cut costs, and reduced its break-even point. Nikko responded: 'This will have a very minor impact on our business. The A1 rating is still very strong.'

For Daiwa, S&P said the ratings cut took into account the fact that its earnings performance had improved recently, due partly to favourable trading gains and lower operating costs. 'The firm's capital base is strong and its leverage is low by international standards,' S&P said.