Loss provisions at Thai GMO-Z com Securities leading to dividend cut

During July, GMO Financial Holdings took additional provisions for doubtful accounts at GMO-Z com Securities (Thailand) for the second quarter of the fiscal year ending December 2024, and as a result, provided a dividend forecast that is significantly below the FY2023 payouts.

Margin Trading

During the second quarter, the share prices of multiple securities pledged by customers as collateral for margin transactions provided by GMO Financial Holdings’ Thai subsidiary plummeted. In response, the Thai subsidiary reviewed the recoverability of loans for margin transactions secured by these securities and decided to record an estimated allowance for doubtful accounts of JPY 4,505 million (preliminary) in selling, general and administrative expenses.

The Thai subsidiary launched its securities business in Thailand in November 2017, and provides cash trading and margin trading services for stocks listed on the Thai stock market. Since an incident of fraudulent trading involving securities accepted as collateral for margin transactions occurred at the subsidiary in November 2022, GMO Financial Holdings has been repeatedly recording significant allowance for doubtful accounts due to the sharp decline in the share prices of securities, resulting in JPY 7,287 million recognized as allowance for doubtful accounts in the consolidated balance sheet as of March 31, 2024.

The primary reasons for the materialization of credit risk at the Thai subsidiary are the concentration of margin financing to certain large customers, the concentration of collateral securities in certain stocks, and issues with our Thai subsidiary’s credit risk management system and GMO Financial Holdings’ governance over the risk management of overseas subsidiaries.

To mitigate credit risk, GMO Financial Holdings has been implementing measures to reduce overall margin trading balances, including the complete suspension of new margin purchases (new buy orders), tightening of loss-cut standards, and requesting large customers whose collateral securities are concentrated in certain stocks to repay funds and provide additional collateral.

On the other hand, due to contractual restrictions, GMO Financial Holdings was unable to take forceful measures against existing customers, and the company and its Thai subsidiary take it very seriously that they are once again in a situation where they have to record a large amount of allowance for doubtful accounts.

As of the end of November 2022, the outstanding balance of margin trading was THB 143 billion (JPY 62.6 billion), and as of the end of March 2024, it was THB 78 billion (JPY 34.1 billion). As of the end of June 2024, it was THB 52 billion (JPY 22.8 billion). In order to seek a fundamental solution, the Thai subsidiary has decided to terminate its margin trading services as of December 20, 2024. The subsidiary will continue to provide cash trading services and implement thorough cost reductions, while also considering its business strategy after the termination of margin trading services.

Dividend Reduction

GMO Financial Holdings’ basic policy is to pay dividends on a continuous and stable basis, while comprehensively considering shareholder returns and internal reserves, taking into account profitability, growth potential, and financial strength. For the fiscal year ending December 2024, the company’s goal is to pay dividends every quarter with a target payout ratio of 50% or more of net income attributable to owners of parent.

However, based on the loss provisions outlined above, GMO Financial Holdings has recorded a consolidated quarterly net loss attributable to owners of parent for the second quarter consolidated accounting period of the fiscal year ending December 2024. Taking this into consideration, the forecast dividend for the second quarter of the fiscal year ending December 2024 (June 30, 2024) is set at ¥2.00 per share, same as for the first quarter. For comparison, during FY2023, GMO Financial Holdings paid a total of JPY 32.80 in dividends (JPY 10.10/5.70/9.80/7.20).

GMO Financial Holdings stresses that both the loss provisions and the second quarter dividend for the fiscal year ending December 2024 are a forecast and are subject to formal resolution at the meeting of the Board of Directors scheduled to be held on August 5, 2024.

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