Nomura Holdings Inc (NMR) 2008 Q2 法說會逐字稿

Good day everyone and welcome to today's Nomura Holdings second quarter operating results for fiscal year ending March 2008 conference call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. During the presentation, all the telephone lines are placed for listen-only mode. The question and answer session and a brief electronic survey will be held after the presentation.

Please note that this telephone conference contains certain forward-looking statements and other projected results which involve known and unknown risks, delays, uncertainties and other factors not under the Company's control, which may cause actual results, performance or achievements of the Company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions.

With that, we'd like to begin the conference. Mr. Masafumi Nakada, please go ahead.

Thank you very much. Good evening ladies and gentlemen. Thank you for taking time out to join Nomura Holdings' conference call to reveal our financial results for the second quarter ending September 30, 2007. I am Masafumi Nakada, CFO of Nomura Holdings Inc. Let me first make a few comments before we go into the detailed discussion.

During the second quarter, we booked a heavy loss in the United States, and our Domestic business was also significantly affected by the turmoil in the growth of financial markets, sparked by the sub-prime loan programs, leading to a tough result for the quarter. That said we don't believe there have been any changes to the underlying long-term trend in businesses, other than the United States RMBS business.

The shift from the savings to the investment in Japan that has underpinned high growth remains unchanged, and our retail base is as strong as ever. Demand for investment trusts is strong. Sales of the My Story Distribution-type Fund by Nomura Securities were in line with the previous quarter, at over JPY320b. The number of Global High Interest Rate Currencies Funds launched in November saw sales of over [JPY100b] in the past three months.

In Domestic Retail, net assets inflow into investment trusts during the second quarter outstripped the first quarter. And the net asset inflow in Domestic Client Assets was also up quarter-on-quarter. Over 1.6m new accounts were opened in the second quarter, an increase over the 1.35m accounts opened in the first quarter. While there are concerns in the market for what the recent turmoil and the impact from investing in Japan's new financial instruments and [exchange low], we believe we should these issues will pose only a temporary low, and we expect high growth to continue over the medium to long term.

In the Wholesale business, Japanese corporate behavior continues to change. During the second quarter, equity financing took a direct hit from global market changes. But into the second quarter we had already worked on an IPO for Sony Financial Holdings, and we are optimistic about the outlook for equity financing and M&A in the second half of the fiscal year.

The structural changes that have underpinned our growth are continuing, and we have now clarified the direction we will take in the restructuring of -- with restructuring our U.S. operations. The whole Company is now focused on ensuring a rebound in earnings in the second half of the year. Last week, as announced in today's news release, the dividend for the second quarter will be JPY8.5 per share, in-line with our dividend policy.

So now, I will hand it over to Mr. [Hayak], for a detailed discussion of our financial results. Afterward, I will answer any questions you may have.

Thank you Mr. Nakada. I will now give you an overview of our financial results for the first half and second quarter of the fiscal year ending March 31, 2008.

Please turn to page five of the document titled Consolidated Results of Operations. This page provides you with consolidated financial highlights for the second quarter. Net revenue was JPY220.2b. Income before income taxes was minus JPY46.5b, and net income was minus JPY10.5b. These results stem from realized and unrealized losses related to our exit from the U.S. RMBS business, restructuring charges related to our focus on core businesses in the U.S. and unrealized losses on investments in equity securities held for operating purposes.

Please turn to page six. Net revenue for the first half of the fiscal year ending March 2008 was JPY600.9b. Income before income taxes was JPY96.4b and net income was JPY66.2b. As a result, ROE for the first half was 6.0%.

Before outlining the results of each business division, I would like to take a few moments to explain our U.S. RMBS business. Please turn to page seven. As announced recently, we have booked a loss of JPY73b in our U.S. RMBS business, due to realized and unrealized losses accompanying further deterioration in the U.S. RMBS market. We have reduced our U.S. RMBS exposure from JPY266b at the end of June to approximately JPY14b, about JPY100m of which is sub-prime related, thereby virtually completing our exit from the market.

Now please turn to page eight. Second quarter net revenue from all business segments totaled JPY200b, a decline of 43.3% compared to the prior quarter, and 21.8% year-on-year. Income before income taxes was minus JPY27.3b.

Please turn to page nine. In the business segment, total net revenue for the first six months of the year ending March 2008, Domestic Retail increased 12.5% compared to the same period last year. Global Banking declined 8.5% -- excuse me, Global Merchant Banking declined to 8.5%, Global Investment Banking declined 1.9%, and Asset Management increased 20.7%. While results were significantly impacted by the losses in the U.S. RMBS business, net revenue increased year-on-year.

Now, I will outline the results of each business division. Please turn to page 10. Domestic Retail net revenue of JPY103.3b and income before income taxes of JPY32.2b, represent year-on-year increases. Domestic Client Assets declined by JPY4 trillion from the end of June to JPY84.3 trillion, due primarily to a downturn in the stock market. Net asset inflow remained strong at JPY1.7 trillion, while the number of accounts with a balance increased to 4.066m.

Although turmoil and the global financial markets caused commissions for distribution of investment trusts to decline 10.7% from the first quarter to JPY35.4b, investment trust administration fees and other grew for the eleventh straight quarter. Sales credits dropped 38.2% quarter-on-quarter, to JPY20.5b, as sales of structured bonds weakened on the back of a sharp rise in the value of the yen. Stock brokerage commissions declined 8.2% from the prior quarter to JPY20.4b.

Please turn to page 11. Global Markets net revenue of JPY16.8b and income before income taxes of minus JPY67.7b represent declines from the prior quarter and year-on-year. In Fixed Income, net revenue declined to minus JPY40.6b, due to losses booked as a result of our exit from the U.S. RMBS business. Although order flow for structured bonds weakened, trading of credit derivatives and interest rate and currency-linked derivatives, mainly in Europe, contributed to revenue as we capitalized on revenue generating opportunities amid the volatile interest rate and currency markets.

In Equity, net revenue remained around the same level as the prior quarter, at JPY58.1b. Revenue from MPO transactions and block trades declined, while equity derivative trading was robust and Instinet revenue expanded. In addition, in view of the way in which transactions are carried out, a portion of Instinet revenue that to date was offset against commissions paid has been booked as revenue and expenses from the second quarter.

Please turn to page 12. Global Investment Banking reported net revenue of JPY10.8b and income before income taxes of minus JPY3.9b. The equity finance market for Japanese corporates remains weak during the second quarter, as a number of major M&A deals dropped off due to turmoil in the global financial markets. This resulted in a decline in deals contributing to revenue. However, in equity financing, we acted as lead manager in deals by Mitsui Trust Holdings and DA Office Investment Corporation. In M&A, we were financial advisor on a tender offer by Promise to acquire all the shares in Sanyo Shinpan Finance. We retained our high market share during the quarter, and ranked number one in both Global Equity and Equity-related (Japan) and M&A leaguetables for January to September 2007.

Please turn to page 13. Global Merchant Banking saw net revenue of JPY8.5b for the quarter, and income before income taxes of JPY5.4b. Realized gains were booked from the sale of Terra Firma investee companies and Sliontec by Nomura Principal Finance. Unrealized losses and gains were also booked due to the valuation on certain investee companies at fair value.

Please turn to page 14. Total assets under management in Asset Management remained virtually unchanged from the end of the first quarter, at JPY30.3 trillion. Amidst the tough external environment of a rising yen and weak stock market, sales of balanced funds such as the My Story Profit Distribution-type Fund, Global Three Assets Balance Fund and Nomura Six Assets Diversified Fund remain strong. In addition, newly launched funds such as the Nomura Global High Interest Rate Currencies Fund and Nomura Aqua Investment proved popular. In the investment advisory business, the balance of advisory contracts continued to increase steadily. However, unrealized losses on pilot funds and seed money for product development were also booked during the quarter. As a result, net revenue in Asset Management was JPY23.7b and income before income taxes was JPY7.7b.

Please turn to page 15. Other income before income taxes was minus JPY1b.

Please turn now to page 16. Non-interest expenses, excluding the effects of consolidation/deconsolidation of certain private investee companies, increased 10.9% from the prior quarter. Other expenses increased, due primarily to restructuring charges booked in relation to our focus on core businesses in the U.S.

That concludes the overview of results, based on the presentation materials. We would now like to open the lines to questions.

Thank you. (OPERATOR INSTRUCTIONS). We have no questions, Mr. Nakada.

Right. Thank you very much.