Nomura Holdings Inc (NMR) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to today's Nomura Holdings third 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. If you have any objections, you may disconnect at this point in time.

During the presentation, all the telephone lines are placed in a 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. To start, 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 review our financial results for the third quarter, ended December 31, 2007.

I am Masafumi Nakada, CFO of Nomura Holdings, Inc. Let me first make a few comments before we go into the detailed discussions.

The third quarter ROE recovered from the second quarter loss to 4.1%, but it is well below our target. We believe the business environment will continue to be challenging for the time being. However, we still maintain a healthy financial position, highlighted by our 8.6% shareholders' equity ratio. With this firm base, we will continue to effectively utilize our capital and other management resources to expand our acquired focused businesses.

As we announced today, we have established a new share buyback program for up to 25 million shares, to allow us to respond to the changing business environment.

Going forward, we will flexibly manage our capital policy, considering both investment opportunities and adequate capital, while continuing to proactively communicate with the market. In addition, the dividend for the third quarter will be JPY8.5 per share, in line with our dividend policy.

Now I will hand it over to Mr. [Hyman] for a detailed discussion of our financial results. Afterwards, 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 third quarter of the fiscal year ending March 31, 2008, using the document titled Consolidated Results of Operations. Please turn to page five.

This page provides you with consolidated financial highlights for the third quarter of the year ending March 31, 2008. Net revenue for the third quarter was JPY276.1 billion. Income before income taxes was JPY46.1 billion, and net income was JPY22.6 billion. As a result, ROE for the third quarter was 4.1%. Please turn to page six.

Third quarter net revenue from all business segments totaled JPY251.4 billion, an increase of 25.7% compared to the prior quarter, but an 18.6% year-on-year decline. Income before income taxes was JPY51.5 billion, a JPY78.7 billion increase from the previous quarter, but a JPY64.2% year-on-year decrease.

Now, I will outline the results of each business division. Please turn to page seven.

First, I will discuss domestic retail. Domestic retail recorded net revenue of JPY98.4 billion, and income before income taxes of JPY28.5 billion, both of which represent quarter-on-quarter and year-on-year declines. Domestic client assets declined by JPY3 trillion, from the end of September, to JPY81.3 trillion, due to a downturn in the stock market. However, net asset inflow remained steady, at JPY900 billion, for the number of accounts whose balance increased to JPY4.12 million.

Although turmoil in the global financial market caused commissions for distribution of investment trusts to decline 11.1% from the second quarter to JPY31.4 billion, we saw strong demand for products that accurately meet client needs, such as the Nomura New Global High Interest Rate Currencies Fund. Moreover, investment trust administration fees and other grew for the 12th straight quarter.

Sales credit rose 5.4% quarter-on-quarter to JPY21.6 billion, partly due to strong sales of Toyota Motor Credit Corporation bonds. Stock brokerage commissions fell 8.3% from the prior quarter, to JPY18.7 billion, due to the stock market decline. Please turn to page eight.

Global Markets net revenue of JPY103.2 billion, and income before income taxes of JPY24.4 billion represent significant recoveries from the previous quarter, as well as year-on-year increases. In fixed income, net revenue increased to JPY32.3 billion, partly due to firm interest rates and currency-linked derivative trading, particularly in Japan and Europe. In equity, net revenue remained firm at JPY68 billion. This was due to strong stock trading, solid equity derivative trading in Europe, as well as firm revenue from Instinet. Please turn to page nine.

I would now like to discuss a topic that is of high interest to investors. Regarding our strategy of focusing on core businesses in the US, we are currently in the process of reducing cost and bolstering our core business areas, all with the view of turning profitable in the fiscal year ending March 2009. As of the end of December, our RMBS-related exposure in the US is approximately JPY7.5 billion, while our CMBS related exposure is approximately JPY170 billion.

With respect to our structured credit business in Europe, derivative transactions with mono-line insurers exist for a portion of this business. As of the end of December, total exposure after provisions related to this business is approximately JPY79 billion, while we have approximately JPY42 billion of outside protection. Therefore, our effective exposure as of the end of December is roughly JPY37 billion. Although uncertainty in financial markets has increased since the start of 2008, we are properly managing risk exposure, including exposure to mono-line insurers. Now please turn to page ten.

Global Investment Banking reported net revenue of JPY20.8 billion, and income before income taxes of JPY5.7 billion. These results represent an increase compared to the previous quarter, but a decline from the same quarter of the previous year. During the period, overall equity finance volume declined, primarily due to the poor performance of the Japanese stock market. However, we acted as lead manager in a large IPO by Sony Financial Holdings, and several other deals, and retained our high market share. As a result, we ranked number one in the global equity and equity related league table for calendar year 2007.

In M&A, we were a financial adviser on the tender offer by Japan Tobacco for Katokichi, and acted as financial adviser in the management integration of TIS and INTEC Holdings. We also ranked number one in the M&A league table for calendar year 2007. Please turn to page 11.

Global Merchant Banking reported net revenue of minus JPY10.2 billion for the quarter, and income before income taxes of minus JPY12.3 billion. There were no exits during the quarter, and unrealized losses and gains were booked, due to the valuation of certain investee companies in Europe at fair value. Please turn to page 12.

Net revenue in Asset Management was JPY23.2 billion, and income before income taxes was JPY8.6 billion. Compared to the previous quarter, net revenue declined, while income before income taxes increased. Both net revenue and income before income taxes were lower compared to the same quarter of the previous year. Although the pace of sales of existing investment trusts slackened, partly due to the global turmoil in financial markets, as well as the implementation of the financial instruments and exchange law, sales of newly launched funds were generally robust, highlighted by the Nomura New Global High Interest Rate Currencies Fund, which saw over JPY200 billion in sales during the quarter. As a result, total assets under management in the division remained virtually unchanged from the end of the second quarter, at JPY29.7 trillion. Now please turn to page 13.

Other income before income taxes was minus JPY3.4 billion. Please turn to page 14.

Non-interest expenses, excluding the effects of consolidation and deconsolidation of certain private equity investee companies, decreased 12.1% from the prior quarter. Now please turn to page 15.

In line with our announced dividend policy, third quarter dividends per share will be JPY8.5.

That concludes the overview of today's presentation. We would now like to open the lines to questions.

Thank you. (OPERATOR INSTRUCTIONS).

We have no questions, Mr. Nakada.

Thank you very much.