Nomura Holdings Inc (NMR) 2008 Q4 法說會逐字稿

Good day everyone and welcome to today's Nomura Holdings fourth quarter operating results for fiscal year ended 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 on listen only mode.

The questions and answer session will be held after the presentation.

Please note that the 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 at 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. Good evening ladies and gentlemen. Thank you for taking time out to join Nomura Holdings telephone conference call to give you our financial results for the fiscal year ended March 2008.

I am Masafumi Nakada, CFO of Nomura Holdings, Inc.

Let me start with page four of the presentation material.

As announced in March, we introduced a new top management line up on April 1. We have made a fresh start with our forecast on creating change aiming for world class competitiveness and acting with speed.

For the fourth quarter, in response to the world's business environment due to the turmoil in the global trade market, top management has become directly engaged in the risk management issues. We have moved decisively to limit the future losses on the credit related products.

Please turn to page five. As a result of this, we've booked a significant loss in the fourth quarter. For the full year ended March 31 2008 we posted income before income taxes of minus JPY64.6b and a net income of minus JPY67.8b.

The main causes of the business losses in the fourth quarter include increased credit provisions of around JPY132b for exposure to monoline insurers and a realized loss of about JPY22b in the U.S. CMBS-related business.

On the other hand, Domestic Retail, Global Merchant Banking and Asset Management booked their third straight year of strong revenue. And delivered a stable profit during a very tough fourth quarter.

Although we recorded a loss for the full year, we have a shareholders' equity of about JPY2 trillion. And the loss will have only a very limited impact on the consolidated financial base. That said, the current environment remains uncertain.

We are moving to respond quickly and precisely to the declining business environment by cutting back the size of our balance sheet through the reducing overseas repo transactions, exiting the U.S. RMBS related business and reducing our U.S. CMBS related position.

We also announced today a fourth quarter dividend of JPY8.5 per share. That brings the total dividend for the full year to JPY34 per share.

Our target dividend for the fiscal year ending March 31, 2009 will be JPY34 per share in line with our dividend policy.

Please turn to the next page. This page shows consolidated financial highlights for the fiscal year ended March 31, 2008.

Net revenue for the full year was JPY787.3b.

Income before income taxes was minus JPY64.6b.

Net income was minus JPY67.8b.

ROE for the full year was minus 3.3%.

For the fourth quarter, net revenue was JPY21.5b.

Income before income taxes was minus JPY198.3b.

And net income was minus JPY153.9b.

Next, I will provide you with details of our transactions with monoline insurers. Please turn to page five. This page shows our gross exposure to monoline insurers in our Structured Credit Trading business, part of Global Market. These exposures are managed in Europe.

The chart also shows a counterparty risk reserve, our net exposure and the CDS, or Credit Deferred Swap protection.

As of the end of March this year, our gross exposure to monoline related single A or higher was $1.1b.

Counterparty risk reserves and other adjustments increased by $100m to $200m.

Net exposure was $900m.

For other monolines we have reserved our exposure in full, so any further changes to this exposure will not affect earnings.

Please turn to the next page where I will explain how we have dealt with changes in the transaction with monoline insurers.

This page provides an outline of our exposure too and provisions for monoline insurers rated single A or higher from December.

As shown here on the left, our growth exposure to monoline rated single A or higher was $795m at the end of the third quarter. We had made $94m in provisions after taking into account the creditworthiness of monolines we deal with.

As shown in the middle of the page, the deterioration during the fourth quarter in the credit risk of underlying assets for credit derivatives led to an increase in the credit spread. This meant that the gross exposure, the insurance we were entitled to receive from monolines, increased more than expected.

If there were no concerns over the creditworthiness of monolines, there would be no impact on the earnings. However, we made increased credit provisions due to the growing concerns over the financial situation of monoline insurers.

We reserved our exposure to one certain monoline info as we felt there was a significant chance that it would not be able to pay us should a credit event occur.

In addition, we have made certain arrangements on this position to eliminate any impact on our earnings in the future due to changes in the gross exposure. As a result, our net ex -- sorry our net exposure to monoline rated single A to triple A, was $900m at the end of March shown here on the right.

To prepare for any future losses, we have $600m worth of CDS. We are also keeping a close watch on the financial position of each monoline insurer and are moving to limit any impact from increased exposure.

Please turn to page 10. During the fourth quarter, we disposed of our remaining slight exposure in the U.S. RMBS related business. As of the end of March, our exposure had been reduced to zero.

We have also been continuing to reduce our exposure to the U.S. CMBS related business. As of the end of March, our exposure was JPY131b and we booked an realized loss in the fourth quarter of JPY22b.

Although we had hedged our U.S. CMBS related exposure mostly with the CMBX Indices, the severe dry up in liquidity in the market led to transactions being conducted at major discounts out of line with the fundamentals.

We have valued our exposure as conservatively as possible according to the accounting rules using DRS pricing levels including prices from the most recent trade as [RevPars].

Please turn to page 11. As I said, we have acted quickly to reduce our balance sheet in reference to the rapidly changing market environment. At the same time, we believe that as the world's major financial institutions try to navigate the prevailing headwind, we have been presented with the perfect opportunity to close the gap with our global competitors.

In March, we issued subordinated bonds worth JPY120b and in April we have been in discussions with several leading Japanese financial institution to borrow subordinated loans. When added to the subordinated bonds, we are looking at raising a total around JPY300b. By raising these subordinated funds, we are revising our capital structure away from the over reliance on the shareholders' equity.

We are acting with speed to pave the way for proactive investment aimed at future growth.

Please turn to page 12. Looking at the business segment, Domestic Retail saw a net inflow of assets into domestic current assets and a continued increase in the customer accounts.

Asset Management enjoyed its first rated year of net fund inflows. Though the long term trend of expansion in our revenue base remains unchanged.

Global Merchant Banking is now booking constant revenue as the result of its past investment.

And in Global Investment Banking, even though there was a downturn in the equity finance market due to the depressed stock market, we were able to maintain our high market share.

Nomura has a solid client base, stable financial position and many talented employees. By making full use of this strength, we will make investments to ensure each business division delivers -- sorry delivers world class product and services and promptly steer the Company back to growth.

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

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

Thank you very much for your taking time. And that concludes today's conference call. Thank you.

Thank you. You may now disconnect your line. Thank you.