SMBC Nikko bets on "Abenomics", plans first new branches in five years

Japan's SMBC Nikko Securities will expand its domestic retail branch network by more than 20 percent over the next three years as it bets that the new premier's economic policies will lift the stock market further, the head of the country's third-largest brokerage said.

Tetsuya Kubo, who became president of the brokerage arm of banking group Sumitomo Mitsui Financial Group Inc (SMFG) <8316.T> this month, said he wanted to open 25 new branches as part of an effort to increase retail client assets by one-third, to 30 trillion yen ($302 billion), by 2016.

The aggressive shift in strategy for SMBC Nikko, which has 109 branches and has not opened a new one in five years, could also mean tougher competition for Nomura Holdings Inc <8604.T> and Daiwa Securities Group Inc <8601.T>, Japan's two largest securities firms which have about 180 and 120 branches, respectively.

Kubo, 59, said there was a need to invest in the brokerage's retail network after years of tight cost controls under the previous owner Citigroup Inc , which sold the franchise, known as Nikko Cordial, to SMFG in 2009.

"Nikko is strong in retail but for the past several years we didn't really put resources into branches and staff," Kubo, previously chief financial officer of SMFG, told Reuters in an interview last week. His comments were embargoed for release on Monday.

"To be a winner over the long term there is a need to increase staff," Kubo said. Earlier this month, the company announced it would boost overall staffing by 600, to 8,600, under a three-year business plan.

A DIFFERENT LOOK

Kubo said he was confident that bold fiscal and monetary steps under Prime Minister Shinzo Abe, aimed at pulling the economy out of deflation, would continue to push stock prices higher.

He would not be surprised, he said, if the Nikkei stock average <.N225> reached 16,000 by the end of 2013. That would be a gain of another 20 percent for the benchmark from its close on Friday at 13,316.48, after already rallying some 50 percent since Abe was tipped as a candidate for premier in mid-November.

Kubo also noted a marked increase in interest from foreign investors during the final months of his tenure as the banking group's CFO, when the aggressive economic stimulus espoused under "Abenomics" set stocks rising and the yen tumbling.

While it was normal to be called on by asset managers in charge of Japan, he also started to get requests for meetings from global managers of equity funds.

"There was a different look in their eyes. They wanted to know what was happening in Japan, what had changed," he said.

Japanese individuals, which park the bulk of their $15 trillion worth of savings in bank deposits and other low-yielding instruments, have been a particularly hard sell for Japanese stock brokers and asset managers. Memories still linger of the collapse of Japan's asset bubble two decades ago, which hit retail investors hard.

Kubo sees SMBC Nikko's ties to its parent bank, which owns 100 percent of the broker, as a key advantage over independent securities firms such as Nomura and Daiwa in tapping the renewed retail investor interest in stocks.

The brokerage has attracted 1 trillion yen in assets through referrals from SMFG bank clients since becoming part of Japan's third-largest banking group, Kubo said.

Of the 7 trillion yen increase in retail assets the brokerage is targeting over the next three years, it hopes to capture another 1 trillion yen through such referrals from SMFG, which has 10 times the number of accounts as SMBC Nikko, he said.

($1 = 99.2400 Japanese yen)

(Editing by Edmund Klamann)