View from Tokyo: Brokers will have to bite bullet

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STOCKBROKING in Japan these days is about as lucrative as selling central heating in hell - and equally enjoyable. Just to prove the point, of the top 13 brokerages which announced their half-yearly results yesterday, all bar three reported losses. And even the top three which reported making a profit - Nomura, Daiwa and Nikko - registered 90 per cent declines from last year's figures.

Nomura, once the mighty giant of the Tokyo stock exchange, humbly announced a half-yearly profit of 900m yen ( pounds 4.5m). Daiwa and Nikko reported similarly small earnings, and the other member of the big four, Yamaichi, announced a loss of Y19.3bn.

And that is not all the bad news. The results announced yesterday for the half-year exclude losses made on the brokerages' own trading accounts. When these losses are included, all are in the red: Nomura by Y6.2bn and Yamaichi by a whacking Y29.9bn. So much for the big swinging swords of the Tokyo market.

Nor are things likely to get better by the end of the fiscal year. Turnover in the Tokyo market has bottomed out at about 200 million shares a day - a fraction of the activity in the hectic bubble years, and about half the level needed to keep the brokers' heads above water.

'The companies simply cannot survive on current turnover levels,' said Walter Altherr, financial analyst for WI Carr. 'Their cost bases have expanded too much, and the current cost-cutting is nowhere near large enough to have any real effect.'

Following the last big crisis to hit the Japanese stock market in the mid-1960s, employment at brokerage houses fell by about 30 per cent, Mr Altherr said. But he calculates that since the market started on its latest decline in 1989, only 6 per cent of the brokers' staff have been cut.

All the Japanese brokerage houses have been trying to prune costs over the past year, overseas and at home. A number of offices have been closed in smaller European markets, and staff have been cut from the larger offices: just this week Nomura announced lay-offs in its London office - albeit involving a mere 45 employees out of a total office of 770 people.

At home jobs are being cut as well, but those leaving are mostly badly paid secretarial staff. None of the brokers has yet made inroads into the more expensive employee brackets, not wanting to be seen to be the first to take on the lifetime employment guarantees for its core professionals. But eventually the brokers will have to bite the bullet. According to Kathy Matsui at Barclays de Zoete Wedd, Tokyo's stock market capitalisation has dropped to Y261,000bn, lower than it was in 1986. And turnover has fallen back to levels last experienced in 1983. The business simply is not there.

The big four have built up enough reserves in the boom years at the end of the 1980s to weather a few lean years, but the smaller brokerage houses face a bleaker future. 'There is no longer anything to stop some of the smaller firms going under, or being merged into bigger firms,' Mr Altherr said. And while the government has a strong commitment to help the banking system out of its current troubles, there is little sympathy for the brokers.