Nikko Cordial, the Japanese brokerage unit of Citigroup, said its quarterly profit rose 72 percent from a year earlier, as growth at its asset management division overshadowed a loss at its investment banking arm.
The results came shortly after Citigroup, eager to cement its presence in the world's second-largest economy, said it had received approval to list its shares in Tokyo next month ahead of plans to acquire the 32 percent of Nikko it does not already own.
Nikko's upbeat earnings stand out in an industry hit by a 7 percent fall in Japan's benchmark Nikkei average during the July-September quarter and a 70 percent year-on-year fall in the value of equity finance deals.
Last week, industry leader Nomura Holdings posted its first quarterly loss in more than four years due to its exposure to the U.S. subprime loan crisis, while second-ranked Daiwa Securities Group saw its profit nearly halved by a drop in trading profits and a weak underwriting market.
Nikko, Japan's No. 3 broker, said it profited from growth in assets under management versus a year earlier and the sale of shares in Seibu Holdings. It also lacked direct exposure to the U.S. subprime loan market, which has burned some of its peers.
There is virtually no impact. Any impact has been indirect, Nikko Chief Financial Officer John Durkin told a news conference.
Nikko said group recurring profit -- pre-tax and excluding one-offs -- for July-September came to 25.44 billion yen ($223 million), up from 14.78 billion yen a year earlier and in line with figures issued by the broker last week.
The results are less flattering when compared with the prior quarter, with recurring profit slipping 29 percent as assets under management dropped and trading profits fell by about one-third due mainly to losses on trading shares.
Sales of investment trusts and brokerage commissions also weakened from the previous quarter.
There is no change to the trend of savings being shifted into investments but changes in the financial markets during the second quarter and other factors caused our customers to hold back from making transactions, Durkin said.
Nikko has a profitable mutual fund subsidiary, Nikko Asset Management, which has been able to steadily enlarge its assets under management by luring some of the country's estimated $13 trillion in household assets into investment funds.
Recurring profit in its asset management business nearly tripled year-on-year to 12.7 billion yen, helped also by a solid contribution from real estate affiliate Simplex Investment Advisors.
Its merchant banking arm, which handled the Seibu share sale, turned a profit of 7.3 billion yen from a loss a year earlier.
Both overshadowed a 5.4 billion yen loss at its investment banking division, which was hit by the drop-off in new share issues in Japan as well as lower trading profits amid unpredictable and volatile market conditions.
Nikko Citigroup, Nikko's investment banking joint venture with its U.S.-based parent, is also struggling to recover from an accounting scandal that tainted the group's image and caused it to lose underwriting mandates.
The scandal, which emerged in December and originated at its principal investment arm, was the start to a string of events that led to Citigroup taking a majority stake earlier this year.
Durkin said, however, that the impact of the scandal had decreased significantly from the first quarter to the second.
Prior to the earnings announcement, Nikko's shares closed up 0.6 percent at 1,642 yen.
Nikko shares have risen about 20 percent this year, boosted by Citigroup's offer to swap its shares at the equivalent of 1,700 yen in a bid to make it a wholly owned unit.
Tokyo's securities subindex (.ISECU.T: Quote, Profile, Research) has fallen 8 percent in the same period.