Daiwa Securities Group Inc. Q1 FY2026 earnings call

• Overall Consolidated Performance

  • Q1 FY2026 delivered all-division profit growth, with ROE reaching 12.7%. Net operating revenue hit 220.3 billion yen (up 11.4% QoQ), ordinary income hit 88 billion yen (up 31.4% QoQ), and profit attributable to parent owners hit 56.4 billion yen (up 13.2% QoQ), marking all-time historical highs for both revenue and income.
  • Stable earnings KPI (pays income) reached 62.8 billion yen, up 83.8% year-over-year, progressing significantly ahead of the 150 billion yen full mid-term plan final year target.

• Strategic Execution Progress

  • Wealth management's total asset consulting model, which identifies customer needs across investment management, asset succession, real estate, and corporate transactions rather than just selling products, drove growth in both asset-based (balance) and flow-based revenue, with sustained net asset inflows.
  • Accumulated AUM growth in the asset management division strengthened profitability, highlighting the resilience of the firm's stock-based business model.
  • Global Markets and Investment Banking successfully captured revenue opportunities from structural shifts including capital market reform and changing client needs.

• Key Operational Milestones

  • Overseas ordinary income reached a new record high of 13.1 billion yen, up 90% QoQ, with record results in Asia and North America driven by equity revenue growth, while M&A business in Europe remained sluggish due to geopolitical headwinds.
  • The firm completed the process of making Oryx Bank a 100% subsidiary, marking an important step in advancing its wealth-focused growth strategy.

1. Wealth Management Division: Net operating revenue was 88.2 billion yen, up 8.8% quarter-over-quarter (QoQ); ordinary income was 37.2 billion yen, up 12.4% QoQ. It achieved a record high asset-based revenue of 35.5 billion yen. Contracted AUM for rep account services reached a record 6,765 billion yen, with a net Q1 increase of 237.6 billion yen. The fixed cost coverage ratio based on asset-based revenue rose to 126%, and the total expense coverage ratio improved to 77.3%.
2. Daiwa Next Bank: Net operating income was 13 billion yen, up 16.2% QoQ; ordinary income was 7.2 billion yen, up 15.8% QoQ. Deposit balance expanded to 5.3 trillion yen, driven by wider interest margins from higher policy rates and collaborative deposit acquisition with Daiwa Securities.
3. Asset Management Division:

• Securities Asset Management: Net operating revenue was 21.2 billion yen, up 7.8% QoQ; ordinary income was 15.7 billion yen, up 37.6% QoQ. Publicly offered investment trust AUM managed by Daiwa Asset Management surpassed a record 43 trillion yen, with steadily growing investment advisory AUM including the Japan Post Insurance alliance.
• Real Estate Asset Management: Net operating revenue was 13.3 billion yen, up 47.2% QoQ; ordinary income was 9.8 billion yen, up 2.2% QoQ. AUM surpassed 1.8 trillion yen, hitting the FY2030 target ahead of schedule, with growth driven by property sales gains and REIT management income.
• Alternative Asset Management: Net operating revenue was 6.3 billion yen, ordinary income was 4.8 billion yen, with Q1 profits supported by capital gains from portfolio investment exits.

1. Global Markets and Investment Banking Division:

• Global Markets: Net operating revenue was 53.8 billion yen, up 4.9% QoQ; ordinary income was 18.1 billion yen, up 2.3% QoQ. Solid equity order flow from institutional and wealth management clients and effective position management drove strong results, while FICC order flows remained solid after the prior quarter's high.
• Investment Banking: Net operating revenue was 22.6 billion yen, down 6.1% QoQ; ordinary income was 3.2 billion yen, up 52.5% QoQ, with growth supported by large deal contributions.

• Fiscal year 2026 is the final year of the firm's mid-term management plan, and the strong Q1 performance marks a solid positive start to achieving the plan's targets, with overall progress running well ahead of plan.
• As of the Q1 update, wealth management continues to track at roughly the same pace as the Q1 average, while global markets got off to a slower start than the Q1 high average, though client activity remains solid.
• The firm targets to complete the merger of Oryx Bank as early as possible, pending negotiations and regulatory approvals with relevant stakeholders, with early synergies already expected from fund flows between existing and acquired banking subsidiaries.

• Geopolitical risks have caused sluggish M&A business performance in Europe, and ongoing uncertainty remains in the broader global market environment.
• Elevated volatility in both interest rates and currency markets continues to create uncertainty for market activity, though it has also driven increased client demand for hedging services that has benefited the firm's FICC business.
• Integration costs for the newly acquired Oryx Bank are expected to offset near-term profit upside, with no large one-off integration costs expected, but timing and regulatory requirements for the full merger remain uncertain, with gun-jumping regulations currently limiting pre-merger integration planning.

Q: The analyst asks for an update on April-July global markets equity earnings trends after the strong Q1 performance, plus updates on the Oryx Bank acquisition's capital ratio impact, near-term profit contribution, merger timeline, and interim subsidiary management. / A: Q1 equity revenue was solid across all three months, with strong order flow for both Japanese and U.S. equities driven by foreign institutional buying and strong Japanese retail demand for U.S. stocks. July has seen a slower start than the strong June quarter-end but order flow remains healthy. For Oryx Bank, there is no major update from the May announcement: gun-jumping regulations limit pre-merger collaboration, standalone 5-year average net income is ~20 billion yen with possible upside from higher interest rates, and integration costs are expected to offset near-term profits. The merger will be pursued as early as possible pending stakeholder approvals, with early synergies already available via inter-subsidiary fund flows.

Q: The analyst asks to confirm Q1 alternative asset profit growth came from portfolio exits, asks for exit plans in subsequent quarters, asks for a post-June update on FICC performance, and asks if large one-off integration costs will be recognized for the Oryx Bank acquisition. / A: Q1 alternative asset profit growth did come from several portfolio exits, and while exit plans exist for later quarters, no details can be disclosed publicly. FICC activity remains solid post-June, with growing demand for currency and interest rate hedging from clients amid higher volatility driving additional derivative income. July activity is expected to slow slightly due to the summer holiday season, but no major changes have occurred. No large one-off integration costs for Oryx Bank are expected, only minor miscellaneous integration expenses.

Q: The analyst asks why securities asset management profitability is currently so high and whether this high profitability is sustainable. / A: High profitability is driven by the business model: revenue scales directly with AUM growth while most costs are fixed, so incremental AUM growth flows directly to higher margins. This improvement has been consistent over the past 1-2 years, driven by sustained net inflows from attractive product offerings, growing AUM from the Japan Post Insurance advisory alliance, and improved earnings from the acquired Global X ETF business. The firm expects profitability will continue to improve as AUM grows.

Q: The analyst asks if market volatility has changed customer behavior for rep accounts, and asks about the firm's growth appetite for flow revenue amid strong balance growth. / A: Over 99% of rep account holders currently hold positive unrealized gains, and the product's long-term holding focus (average tenure is 11 years) means market volatility and geopolitical events have not triggered panic selling or large redemptions. The firm's total asset consulting approach focuses on addressing long-term customer needs rather than chasing short-term flow revenue. Inflow growth remains solid as customers shift surplus gains from real estate and other assets into long-term rep account investments, and the firm will continue to grow steadily by responding to customer needs rather than pursuing aggressive near-term flow targets.