Japan’s Brokers Now Seen Stronger Than U.S. Rivals

Japanese brokerages are expected to emerge much stronger from the stock market plunge than their Wall Street rivals, thus putting them in position to buy major stakes in U.S. securities firms, industry analysts say.

Japanese losses should be nowhere near as steep as those suffered by many U.S. firms, believed to have held large amounts of their own capital in individual stocks when Wall Street fell, they said.

“Their overall position will be much better. It’s frightening but true,” said Baring Securities analyst Ivo Felder.

U.S. firms that speculated heavily on takeover stocks and traded in smaller over-the-counter stocks also were hurt. One of those firms, L. F. Rothschild & Co., this week announced a $44-million loss.

Damage at the Japanese houses has been limited by a 1965 regulation restricting trading in securities on their own accounts to 20% of capital reserves, analysts said.

Not as Vulnerable

“The losses won’t be zero, but they won’t be huge,” said a spokesman for Nomura Securities, Japan’s largest brokerage.

“Structurally, they’re probably cushioned from the adverse impact of what’s going on by their own regulatory system,” said Brian Waterhouse, an analyst at brokers James Capel.

Profit from dealing on their own books also accounts for a lower percentage of total income at Japanese houses than at many foreign brokerages, analysts said. “Clearly, they are not as vulnerable,” said Simon Smithson, an analyst at the brokerage Kleinwort Benson.

The smaller scale of declines on the Tokyo market so far also has meant smaller losses, compared to those overseas. “The force of the hurricane that has been hitting the market is much less,” Smithson said.

The relatively slight damage suffered in recent slides and the possibility that the Tokyo market will recover more quickly means Japanese brokerages could soon be standing taller than their foreign rivals, analysts said.

“We could find them emerging with their relative position much enhanced,” Smithson said.

Japanese houses, eager to acquire stronger positions in the U.S. market, could go discreetly on the prowl for weakened U.S. financial institutions, some analysts said.

“Major Japanese houses are determined to take bigger shares in the U.S. market, either indirectly through tie-ups or directly through acquisitions when the time is right and the political climate favorable,” said Capel’s Waterhouse. “Although when the industry is hurting, the climate on Capitol Hill may not be conducive,” he added.

But some weakened U.S. firms could in fact seek out Japanese help. Wall Street sources said, for example, that Rothschild is looking for a buyer or a substantial capital injection to bolster its financial health.

“If there is no other way to survive. . . . It’s only natural to look to the greatest source of unspent wealth and that’s probably resident in Japan,” Waterhouse said.