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Larger than expected losses reported by Nomura - 72.87 billion yen drop in the second quarter

According to the Nikkei, a survey of six analysts done by Thomson Reuters predicted a 2.81 billion yen quarterly loss for Nomura in the second quarter of fiscal 2008. Yesterday, Nomura released its figures, and they show a 72.87 billion yen loss in the July-September quarter. During that time, the firm’s revenue dropped 21% to 84.89 billion yen, as the global financial crisis put a pinch on brokerage commissions and the sales of investment products.

For the six months ending September 30, Nomura saw a 51.7% fall in total revenue, with a 49.5% slide in net revenue. As of September 30, the firm reports assets at 24.8 trillion yen, down by 477.9 billion yen at the end of March. The decrease is attributed to a decline in collateraized agreements. Liabilities stood at 22.9 trillion yen as of September 30, down 300 billion yen from the end of March - again, due to a decrease in collateralized financing.

Nomura’s first-half net loss stood at 149.5 billion yen. Read more

Darrel Whitten on the Nikkei’s nosedive

Over at Seeking Alpha, Darrel Whitten has published a must-read take on the Nikkei’s recent nosedive. Entitled “Japan’s ’80s ‘Bubble’ Has Completely Deflated - and Then Some,” the piece includes this incisive passage:

On Monday, October 27, 2008, the Nikkei 225 index closed at 7,162.90, its lowest point since October 7, 1982, before the infamous 1980s bubble began. The trailing P/E multiple for the Nikkei 225 was 8.58X and the forward multiple 9.53X, while the Nikkei 225 PBR was 0.87X, while forward dividend yield was 3.07% versus a historical dividend yield of 2.97%. The Nikkei’s earnings yield (inverse of the P/E multiple) was 10.47% on historical earnings and 9.92% on forward earnings, while the market’s ROE was 10.1% on trailing earnings and 9.1% on forward earnings—versus a JGB (Japanese government bond yield) of 1.47%. In other words, market valuations are also back to pre-bubble valuations that existed some 30 years ago.

The full article is here.

Blasts from the past as the Nikkei hits 26 year lows

Back in February 2007, Michigan [Democratic] Congressman John Dingell sent a letter to US President George W Bush entitled “Dingell to Bush: You Just Don’t Get It” (the letter is still on his website).

That letter called for the White House to pressure Japan into raising its interest rates, since low interest rates were allegedly¹ keeping the yen artificially weak (BOJ benchmark rates were raised to 0.50% in February 2007, where they stand today). At that time, Congressman Dingell wrote, “The auto industry doesn’t need a bailout- they need effective policies.”

Back then, the Wall Street Journal was reporting that “Toyota executives have expressed concern over the possibility of political backlash as it usurps market share from GM, Ford and Chrysler.”

Something tells me that worry has shifted, now that the yen is trading in the low-mid 90s against the dollar.

Then, in June 2007, the Bank of International Settlements declared the yen’s value to be “anamalous” (it was about 120-122 at that time). The BIS report included this line: “Given that Japanese retail investors hold the bulk of their wealth in yen, they are not as sensitive to the risk of a sudden rise in the value of the yen as leveraged investors who short the currency.”

While there is a good point in there, it ignores the fact that a stronger yen hurts export revenues (as does a decline in export growth, but that’s another story), which hurts share values, which hurts bonuses, and keeps wage growth low, which all in turn will hurt consumer spending - which accounts for about 55% of Japan’s GDP. Read more

Keidanren: Winter bonuses to fall for the first time since 2002

Earlier today, Keidanren (the Japan Business Federation) released a survey of major corporations showing that winter bonuses are set to decline for the first time in since 2002. The survey covered 109 companies in 21 industries that employ over 500 people and are listed on the first section of the Tokyo Stock Exchange.

The decline, however, is slight: Average winter bonuses for salaried employees are projected to be at 904,885 yen, down 0.03% from last year. In 2002, winter bonuses dropped 2.42%. The expected average bonuses at manufacturers moved up 0.3% to 919,461 yen, but fell 2.4% to 822,473 yen at non-manufacturing firms.

The largest percentage rises were seen in machinery and shipbuilding, at 5.64%, while the largest fall was in the steel industry, at 5.06%.

Bank of Japan downgrades regional economic assessments; chaos in the consumer credit industry on the way?

In its most recent quarterly Regional Economic Report, the Bank of Japan listed economic conditions as “downward” in all nine regions of the country for the first time since the report has been issued in 2005. The report sums up the past three months in stark language:

The pace of increase in exports slowed. Corporate profits continued to decrease mainly due to the deterioration in the terms of trade, and business sentiment became even more cautious. In this situation, business fixed investment remained more or less flat in some regions, but was generally decreasing recently. Private consumption was relatively weak, mainly due to sluggish growth in household income and the increase in prices of energy and food. Meanwhile, housing investment was flat. Under these circumstances, production was relatively weak.

With this report, as well as the global financial crisis, as a backdrop, it’s also worth noting that a recent Nikkei poll found that 21.8% of small and midsize firms surveyed reported that conditions for borrowing from banks have worsened over the past year. This figure was double that of the previous poll, conducted in March. Still, 69.9% of firms surveyed said that borrowing conditions had not changed. Read more

Convenience store sales up, Mos Burger in Indonesia, lower sales at Toyota and trouble with the iPhone

According to the Japan Chain Stores Association, sales at Japan’s convenience stores increased 6.6% in September from a year earlier. Total sales hit 624.0 billion yen, showing a rise for the fifth consecutive month, as customers continue to flock to convenience stores for their tobacco products. September’s figures follow a 7.5% rise in August.

Keeping watch of Japanese service brands moving overseas, Mos Burger has announced plans to move into the Indonesian market. According to the Nikkei, the firm intends to set up a joint venture capitalized at 2 million dollars. Masuya Holdings will contribute 70% of the funds, while Orix’s Indonesian subsidiary will chip in 20%. This leaves Mos with a 10% stake in the firm. Mos Burger intends to open 15 shops in Indonesia by 2011, with 50 or so being open ten years from now.

According to Attractors Lab, 62.2% of those folks in the market for a new condo in Japan believe that current prices are too high. This figure is up by 6.4% from July.

In the bad news category, Japanese steelmakers are set to cut production for the first time in three years, as demand from automakers has slowed. At the same time, Toyota’s sales are expected to slide for the first time in ten years, by 2%, in 2008.

Finally, the Nikkei is reporting that quality control problems with Apple’s iPhone are apparently “tarnishing” the firm’s image in Japan. Nikkei lists trouble with the “MobileMe” service, as well as faulty chargers, software glitches and the “freezing of the iPhone while in use” - I used to call that a “blue screen of death.” Any iPhone users out there to report?

Nikkei: 1.4% fewer job offers to 2009 university graduates, first decline in five years

According to a piece in this morning’s Nikkei, Japan’s corporations are planning to cut the number of jobs offered to graduating university students in 2009 for the first time in five years. In April 2008, the number of job offers made to new graduates was up 5.3% (Recruit had estimated that 2008 hirings would rise 13.0%, in a report that seemed a bit off on the statistics). The Nikkei survey estimates that job offerings to university students will be down 1.4% in 2009.

While Mizuho, Mitsui Sumitomo, Toshiba, Hitachi, Canon and Panasonic all aim to increase their numbers of new hires, and financial firms comprised five of the top ten places on the list of firms looking to increase their number of hires, the Nikkei notes that many financial firms intend to cut down on the hiring of new recruits:

Nomura Securities Co. aims to reduce job offers by 18.5% to 680. Daiwa Securities Group Inc. (8601) will cut its figure by 28.8% to 900. Sompo Japan Insurance Inc. (8755) plans to halve its job offers to 600, while Tokio Marine & Nichido Fire Insurance Co. made a 26.5% cut to 750. Many real estate and housing firms are also reining in their offers.

In addition, competition for talented graduates is intensifying, so corporate job offers have failed to keep up with initial hiring plans. Mitsui Engineering & Shipbuilding Co. (7003) had intended to hire 116 graduates, but will now take on only 87. NTT Data Corp. (9613) has made 550 offers, 50 less than planned.

The situation at Nomura makes sense, given that new employees will be brought in from the takeover of Lehman Brothers. Still, recruiting figures are often decided well in advance, and it is thus difficult to say that the reduction is fully due to Nomura’s recent acquisitions.

With two fewer weekend shopping days in September, Japan’s department store sales fall 4.7%

According to data released today by the Japan Department Stores Association, sales at the nation’s 279 department stores fell 4.7% in September, to about 524 billion yen. The 279 stores surveyed is one lower than a month ago, and sales have now been down for seven consecutive months on a year-on-year comparison basis.

One mitigating factor that has been ignored in media reports seen thus far is that September 2008 had 10 weekend days and holidays, while there were 12 weekend days and holidays in September 2007.

• Clothing: 37.1% of total sales, down 4.8%
• Personal Effects: 13.4% of total sales, down 8.8%
• Miscellaneous Goods: 15.3% of total sales, down 5.5%
• Household Goods: 5.0% of total sales, down 12.4%
• Food: 23.2% of total sales, up 0.2%
• Services: 1.1% of total sales, down 11.2%
• Other: 1.8% of total sales, up 7.2%
• Gift Certificates: 2.7% of total sales, down 10.0%

Of the major categories, only food sales saw an increase in September, and that was by just 0.2%. In August, all categories showed a decline as overall sales fell 3.1%.

In September, shoes and handbags saw an 8.8% decrease in sales, and it has been speculated that the luxury market has been taking a hit. Sales of shoes and handbags at department stores have declined for 13 straight months. Connected with that, sales of art and jewelry fell 6.4%, showing a decline for the 19th consecutive month.

Japan’s Consumer Confidence shows first rise in six months in September

After declining for five straight months and hitting an all-time low for the third month in a row in August, Japan’s Consumer Confidence Index finally showed a gain in September, moving up 1.3 points to 31.4. That score matched the figure seen in July.

The Consumer Confidence Index itself contains five scores, each of which is considered positive when above 50, and pessimistic when below the 50 mark. Here’s a breakdown for September figures, with the change from last month: Read more

Holiday Roundup: MUFG buys 21% of Morgan Stanley, Aso greenlights bailouts for regional banks, and foreign reserve funds to the IMF?

As Mitsubishi UFJ scored itself a sweetened deal to acquire a 21 percent stake of Morgan Stanley for about $9 billion in cash, Bloomberg’s William Pesek wonders if Japan should be buying gold instead of Morgans.

Pesek sums things up well in his final paragraph:

Whatever Mitsubishi UFJ decides, one thing is clear: The risk of buyer’s remorse has never been bigger in a global system that has never been so shaky.

To help manage the risks involved, MUFG is getting two-thirds of its investment in preferred stock.

Last October, when Japan brushed off the notion of using foreign reserves to seed a sovereign wealth fund, one government official told the media this:

…[I]t is not desirable for the government to manage foreign assets and invest in various ways aggressively…It is important that our reserve management has a neutral impact on markets.

Now we have Finance Minister (and Financial Services Minister) Shoichi Nakagawa saying, “If the IMF requires additional resources, Japan stands ready to supplement needed funds.” Those funds would come directly from Japan’s foreign reserves.

And earlier today, Nakagawa told reporters that Japan has not received “a direct request from the United States to buy additional U.S. Treasuries using its foreign reserves.” One assumes that US requests would be in line with IMF needs.

At the same time, the government and the Bank of Japan have said that they will put a freeze on selling any of the 2 trillion or so yen worth of bank shares that were bought up from 2002-2006.

Meanwhile, according to the Nikkei, “Prime Minister Taro Aso instructed Finance Minister Shoichi Nakagawa on Monday to consider protecting deposits fully in case of bank bankruptcy to help ease depositors’ concerns amid the global financial crisis.”

Finally, since today was Sports Day here in Japan, it’s fitting that the baseball season ended for our local team, the Tokyo Yakult Swallows, last night. It was good to see they boys win their final game last night, and to see Kousei Ono circle the bases in tears after hitting a game winning home run in his final at-bat. I was at about 20 games this year, and there weren’t too many wins in there. Here’s to hoping that some better business sense is put into the team in this offseason compared to the last.

Of course, that other Tokyo team will be going to the playoffs, but nobody watches them, right?

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