Nomura Holdings Inc (NMR) 2009 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 2009 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. A questions and answer session 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 would like to begin the conference. Mr. Masafumi Nakada, please go ahead.

Thank you very much and good evening, ladies and gentlemen. My name is Nakada, CFO of Nomura Holdings, Inc. I will now give you a brief overview of our financial results for the third quarter of the fiscal year ending March 2009, using the document entitled 'Consolidated Results of Operations'. I will also outline a series of initiatives we plan to take heading into the next fiscal year.

Please turn to page four. Despite the coordinated efforts of governments and financial authorities around the world, the global financial crisis intensified from late September into November, as unprecedented turmoil hit the market and the impact of the crisis spread to the real economy. Nomura was unable to avoid the prevailing headwinds, booking a significant loss for the quarter.

Net revenue for the third quarter was negative JPY49.7b. Loss before income taxes was JPY399.5b and net loss for the quarter was JPY342.9b. The quarterly loss consists of one-off losses and expenses totaling roughly JPY240b. These include our exposure to Iceland and Madoff and an impairment charge on our investment in Fortress and additional expenses related to acquisition of the Lehman businesses.

Page five provides you with the breakdown of the losses. In addition to the one-off losses and expenses, we've booked a loss of approximately JPY150b on trading positions in global markets due to the abnormal market conditions. As you can see from the graph on the right, historical level of volatility continued into the third quarter, leading to increased trading losses. However, the market environment started to settle down into the New Year. In addition, we have continued to rebalance our hedge positions, thereby enhancing our ability to withstand future market movement.

Now, please turn to page six. In spite of losses, our financial position remains strong. We raised JPY110b from subordinated convertible bonds and JPY300b from subordinated bonds during third quarter. As a result, our consolidated capital adequacy ratio as of the end of December is estimated to be about 185%.

Turning to our balance sheet, we continue to sell off less profitable assets, reducing total assets by 9.3% compared to the end of the prior quarter to JPY22.45 trillion as of the end of December. We have reduced total assets by nearly 40% over the past two years. We see no problems in terms of liquidity. We have diversified our sources of funding and continue to control liquidity while testing against various scenarios.

Now, please turn to page seven. In areas where we have had significant losses, such as the US residential and commercial mortgage-backed securities business, monoline insurance and leveraged loans, we have been quick to sell off assets and make provisions while also hedging our positions. We are also exiting or reducing positions in other businesses hit by large trading losses.

Now, I will update you on recent business activities and outline some of the key initiatives we intend to take in order to position the firm for improved earnings. Please turn to page eight. First, the retail business saw a considerable increase in customer traffic -- excuse me, customer traffic during the quarter as retail investors sought advice on the dematerialization of stock certificates in Japan and looked to invest in equities to take advantage of market movement.

Throughout the turmoil, we remain focused on increasing contact with customers, resulting in many retail investors coming to us for advice. We were able to continue expanding our retail business platform during the quarter. The number of new accounts opened in the third quarter increased by more than 20% compared to the second quarter and net asset inflow was JPY1.44 trillion for the three months to December. In October alone, equity purchases by retail investors attributable to Nomura totaled JPY300b.

In addition, the December public offering by Mitsubishi UFJ Financial Group and the largest ever trade bond offering for retail investors by Nomura led to a significant inflow of new funds. And demand for our new investment trust launched in January is expected to exceed JPY100b.

We are also establishing a structure to carry out effective marketing activities via non face-to-face services in the retail channel. As part of these efforts, we will consider integrating Joinvest Securities into Nomura Securities. We remain focused on delivering products and services that meet the needs of our retail customers in order to achieve our target of JPY110 trillion in domestic retail client assets.

Please turn to page nine. Turning to our wholesale operations, we have been quick to complete the transition phase in relation to the employees acquired from Lehman Brothers in the second quarter. We are now rapidly integrating operations and installing the systems to ensure the businesses can be fully operational. The environment found in global investment banking has been transformed and, as our competitors reduce their investment banking operations, we have seen a rise in enquiries from both Japanese and non-Japanese corporates. As demand for financing and business reorganization increases, we believe that we are well-positioned to capitalize on new business opportunities through our closer ties with the corporates around the world.

For the 2008 calendar year, we topped the Japan related equity finance and M&A financial advisors league table as well as the Asia ex-Japan M&A financial advisors league table. Also, as you can see on this page, we have had a string of success in cross-border M&A deals. Following on from such M&A deals, we can expect to see a significant improvement in revenues once our -- sorry, in revenues once our capital markets businesses start to expand. Looking ahead, we will continue to growing our business by leveraging our competitive advantage in investment banking as an independent player with fewer conflicts of interest and an extensive international network.

Please turn to page 10. We have also set up a new structure in the equities and fixed income businesses. We have already seen an increase in our flow business as a new team starts doing business with the former Lehman clients. In global equity, the high-speed trading system has come online and our research coverage in Europe and Asia has increased. This has resulted in our share of trading volume for Japanese equities increasing from 6.29% before the Lehman integration to 8.14% in December.

In global fixed income, former Lehman business desks are recommencing business. Some results of [already] successes include providing currency solutions for investment banking transactions in Asia and a large portfolio-related transaction for a European financial institution. As a result, revenue is improving as product flow increases. We expect this momentum to continue when more businesses get up and running following the completion of the system integration in April.

Before finishing, I would like to outline some of the strategic initiatives we will implement to improve earnings. Please turn to page 11. First, we will continue to clarify areas of priority and step up our focus on core businesses. This includes a heightened focus on expanding our client base and increasing our share of flow businesses in order to boost revenues, while also concentrating resources on strategic areas.

We will continue reviewing operations and investments, including selling off assets not suited to business focus. We will aim for a global -- sorry, we will aim for a Group-wide reduction in expenses of 10% in the next fiscal year by focusing on core businesses in short term and revamping business processes over the medium term. We also plan to further enhance our capital base in order to achieve further growth by increasing revenue over the medium to long term.

Our dividend for the third quarter will be JPY8.5 per share, in line with our target dividend set at the beginning of the fiscal year. Unfortunately, due to the significant full year loss we expect to book as a result of the financial market turmoil and economic slowdown, we have fixed our current fiscal year dividend at JPY25.5 per share and plan to forego paying a dividend in the fourth quarter.

Further, we will revise our policy for distributing profits from the next fiscal year. We will no longer set a target dividend at the beginning of the year based on dividend [on] equity ratio. Instead, we will set out the consolidated dividend payout ratio of 30% as an indicator and in general pay dividends regularly on a semi-annual basis.

In addition, Nomura Holdings' Directors and Executive Managing Directors will receive no annual bonus for the year. Performance-linked monthly compensation will also be zero, representing a reduction in the monthly compensation of about 20% to 30%.

Please turn to page 12. In closing, everyone at Nomura remains committed to overcoming the difficult market conditions we face and returning the Company to profitability as soon as possible. By moving with speed and taking a conservative accounting approach, we have been able to achieve an extremely clean balance sheet and are well-positioned to navigate out of the current financial crisis.

We have access to Japan's JPY1,500 trillion in personal financial assets and other wealth spread around the world. We are also uniquely positioned as an independent player fulfilling a vital role in bringing together clients in the capital markets. That concludes my presentation today. I now would like to open the lines to questions. Thank you very much for your attention.

Thank you. (Operator Instructions). We have no questions, Mr. Nakada.

Okay. Thank you very much.

Thank you for your taking time and that concludes today's conference call. You may now disconnect your line.

Thank you very much. Bye-bye.