Nomura Holdings Inc (NMR) 2009 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Nomura Holdings fourth 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 question 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 for very much. Thank you for joining us. My name is Nakada the CFO of Nomura Holdings Inc. I will now give you a brief overview of Nomura Holdings' financial results for the fourth quarter, and the full year ended March 31, 2009.

Please turn to page four of the document entitled consulted results of operations. This page gives you an outline of both our full year and fourth quarter results. For the full year we booked a net revenue of JPY312.6b, a pre-tax loss of JPY779b and a net loss of JPY709.4b.

The significant losses stem from reducing legacy risk positions and dealing with the bad assets amid ongoing turmoil in the global financial markets, and the progressively worse real economy. In addition, we saw an increase in non-interest expenses following the Lehman Brothers acquisition.

Page five gives a breakdown of the full year pre-tax loss. As outlined here on the right the main contributing factors to the loss were a number of one-off losses totaling JPY100b -- sorry JPY150b, write-downs on illiquid assets of JPY150b, and one-off expenses of JPY230b.

Please turn back to the page four, the net revenue for the fourth quarter was JPY99.2b, pre-tax loss was JPY225.9b and the net loss was JPY217.1b.

Although we booked a loss on the write-downs on the illiquid assets during the quarter, we saw an improvement to trading revenue from slow businesses and a marked decline in one-off expenses. As a result, the fourth quarter loss was significantly lower than the third quarter.

Please turn to page six where you fill find a breakdown of the fourth quarter pre-tax loss. The main contributing factors to the fourth quarter loss includes JPY45.1b in write-downs of real estate related assets, JPY60.3b from additional expenses related to Lehman Brothers acquisitions and expenses due to the right-sizing. And an impairment charge of JPY13.6b on JAFCO an equity and associate affiliate.

We expect the JPY53.1b in fourth quarter, the additional expenses from the Lehman acquisitions, to more than halve starting in the first quarter of the current fiscal year.

Page seven gives you an outline of capital and assets. As we mentioned previously, we have started applying the Basel II framework for capital adequacy from the end of March to calculate our capital ratio.

This last year, we have been focused on enhancing our capital structure and shoring up our financial standing to pave the way for future growth. In addition to raising JPY100 trillion in subordinated funds, we raised JPY280b via global funds in March this year.

As a result, Tier 1 capital now stands now at JPY1.4 trillion, Tier 2 capital at JPY610b, and the Tier 3 capital at JPY290b. Our total capital ratio is 18.1%, and our Tier 1 ratio is 11.3% both of which are preliminary figures. As you can see from the graph on the bottom left we have a solid capital base that positions us well to compete globally.

Turning to our balance sheet, total assets now stands now at JPY24.9 trillion, although this represents a JPY380b decline from the previous year -- sorry previous year-end.

Total assets increased by JPY2.4 trillion from the end of December, due to the increase in inventory of highly liquid products such as government bonds, as a result of an expansion in our flow businesses.

The graph on the bottom right shows assets and long-term funding. All our long-term assets are matched with long-term funds. We continue to carefully manage liquidity and at the end of March we maintained sufficient liquidity at JPY2.4 trillion.

The next page then gives you an overview of illiquid assets and the long-term trading assets. During the fourth quarter we wrote down Japanese real estate related assets by JPY45.1b for an outstanding exposure of JPY165b.

As the deteriorating economic conditions are reducing liquidity in Japan's real estate market, we have valued our exposure as conservatively as possible.

In the merchant banking we wrote down the value of our private equity investments by JPY16.7b in the fourth quarter. Because liquidity is also declining in this business, we are reviewing our [exit] strategies and continuing to focus on improving the value of invested companies.

Our US CMBS related exposures have declined to JPY38.5b following continued efforts to reduce our position. Leveraged loan exposure has also been reduced to JPY90b.

So now please turn to page nine, where I will give you an update on our business during the fourth quarter. We saw a new development in both our retail and wholesale businesses.

In retail, although a loss was booked for the first time since the second quarter of the year ended March 2002, investment trust sales improved as the market settled down. Newly launched funds in particular sold very well. Sales of stock investment trusts increased 84% quarter on quarter to JPY946.8b. The Nomura US high yield bond fund attracted JPY340b, the Nomura Global Financial Stock Fund JPY30b and the Nomura New China Stock Investment Fund JPY67b.

Our ability to deliver timely products closely matched to customer needs, coupled with the -- our consulting expertise help differentiate Nomura in the challenging environment during the quarter.

Net asset inflow was JPY1 trillion in the fourth quarter, and our customer base continued to grow. The number of new accounts opened by retail investors was a record 600,000 for the full year, spurred on by the dematerialization of stock certificates in Japan.

Asset management returned to profitability in the fourth quarter following a loss in the third. Nomura Asset Management recorded a net asset inflow in the fourth quarter thanks to the robust sales of stock investment trusts. This follows two straight quarters of net asset outflows. Net asset inflow for publicly offered investment trusts was JPY208.1b, giving us a leading position far ahead of the competition.

In our wholesale business, client coverage, flow businesses and M&A continued to grow. While volume in the global equities was down due to the overall market slump, we enhanced our research coverage and the client coverage, which allowed us to increase our share on both the Tokyo and the London Stock Exchanges.

Revenues in fixed income are starting to improve with the currency trading growing, and solid trading of government bonds providing a steady flow of revenues throughout the year.

For system integration and development -- sorry, our system integration and development plan is progressing to schedule. We are now ready for most of the systems to be fully operational this month.

In investment banking we have acted as financial advisor on a string of M&A deals, including Sinopec and Tanganyika last year, Chinalco and Rio Tinto, Kirin Brewery and San Miguel, and Asahi Brewery and Tsingtao.

Although these results don't all show up clearly as the revenue yet due to lag between deal announcement and revenue booking, our deal pipeline is strong, and we expect to realize revenues in the future, albeit it with the level subject to market conditions. Our equity underwriting pipeline is also looking healthy.

Turning now to expenses, as I mentioned when we announced our third quarter results, we have embarked on a drive to cut costs in light of the current business environment.

While it is difficult to recognize the decline expenses as the exceptional taxes are included, headcount has declined by over 2,100 since October, when we acquired the Lehman businesses, and we continued to right-size the business.

To further reduce expenses it is essential that we make use of our IT services platform in India. These operations are already running at 80% capacity, and we look forward to seeing results here in our drive for global efficiencies.

We are looking into everything to cut costs and raise efficiency. We are bringing together back office functions for our branch offices in Japan and have draw up a list of some 200 items subject to cost cuts.

We are all focused on our target rate of 10% reduction in cost (inaudible), after stripping out exceptional factors in order to return Nomura to profitability.

The financial turmoil sparked by the subprime crisis has had far reaching implications on the economy since late 2007 and the financial crisis that hit last September spread around the world, pushing the economy into recession.

However, we have seen the turmoil as an opportunity to lay the foundation for future business expansion and growth over the medium to long term. We have gone out and expanded our client base in Japan, and significantly enhanced our global wholesale franchise, all while continuing to shore up our financial position.

While it is too early to be overly optimistic about the market environment, we remain focused on returning to profitability as soon as possible.

Thank you very much for your time. I would now like to take your questions.

Thank you. (Operator Instructions). Our first question comes from [Michael Windsor] from [Lindsay Trane]. Please go ahead, sir.

Could you be a little more specific about what a 10% reduction in cost means in yen terms, please?

Okay. Our current run rate of the expenses is approximately JPY1 trillion. So from this level we have the target of a reduction by 10%, which means approximately -- sorry JPY100b.

And over what period of time do you anticipate to enact that cost reduction?

So, we would like to -- how shall I say, reach the run rate of JPY900b level by the end of the business year. That's our target.

Thank you.

(Operator Instructions). The second question comes again from Mr. Michael Windsor from Lindsay Trane. Please go ahead, sir.

May I ask, looking at your exposures globally which are most vulnerable to further write-offs in your view over the course of the next year? I asked a similar question when you announced your third quarter results, and you certainly pointed to more risk in your private equity holdings. And I just wonder if that is still a threat for write-offs in the near future.

Okay. Firstly, the -- I still have a very cautious view on the market and the business environment, mainly due to the slump of the economy. And I don't expect a quick recovery of the economy.

That's why the -- I still see some risk on the positions which may be affected by the economic downturn, which means the so-called the illiquid asset positions, including private equity, and real estate. These kind of assets are the areas where we may -- well, we might have some risk.

And to the extent that you've written down considerably your exposure to commercial mortgage backed securities and leveraged loans what is the -- is the further risk that there might be further write-offs there do you think?

Yes, as I said it fully depends on the economic, how shall I say, conditions in the next several months. And if the Japanese economy, for example, would go into the real serious recession for example, then there could be the risk. This is what I mean.

I understand. Another question if I may. The -- as you pointed out your retail business made a loss for the first time this quarter.

Right.

To what extent are you focusing on cutting costs in this business as opposed to your wholesale business where you've just taken on the Lehman assets?

Yes, in the domestic retail business area we already have started the cost cuts there since the last quarter and since the fourth quarter. Then we would like to continue the -- this plan in the domestic retail in order to lower the cost base.

Thank you.

(Operator Instructions). We have a question from the line of Mr. Michael Windsor from Lindsay Trane. Please go ahead, sir.

Sorry, me again. Looking at your -- the number of employees you have in the company, at the moment, it's 25,000, you say you've reduced that by 2,000 already. What is the optimal number of employees given the current level of business activity do you suppose? That's the first question.

Second question, I haven't seen yet, could you just tell me a bit about your dividend policy for this year and into the future please?

Okay, just a moment please. Okay, so firstly your question is the optimal size of headcount, right?

Yes.

And it's rather a difficult question to answer because this also depends on first, business development, and second the business environment.

I was asking the question on the assumption that the business environment doesn't much change from what it is today.

Okay. So then -- so from the current level of 25,000 headcount I personally believe we have the certain room for the reduction of headcount mainly in the area of middle and back office. Right?

Right.

So far the main area of reduction was the front operations, out of Japan. And but from now on the -- we would like to look at the -- all the regions and all areas including the middle and the back office side.

And can you quantify the potential reduction from that?

So at this moment we don't give the -- any concrete numbers of headcount or percentage of target reduction.

But given you are cutting costs 10%, perhaps 10% would be a (Multiple speakers).

Right, but it's really depending, how shall I say, if we just -- assumptions if we was to cut the very expensive people then maybe that is 10%, but if we --

Are there very expensive people in the back office?

Good question. But anyway we would not like to just forecast on the number of headcounts. What we would like to do here is reduce the expenses. That's why the expense number is more important for us.

Thank you.

So then the dividend policy, for the current fiscal year we are setting the dividend policy that reflects our business results, setting out the consolidated dividend payout ratio of 30% as a key indicator. And we will shift from the quarterly dividends to twice a year.

And have you forecasted a dividend for this year?

No, we don't give any forecast.

Right, okay.

Thank you.

Thank you.

(Operator Instructions). We have no more questions at this point in time, Mr. Nakada.

Okay, thank you very much for joining us today. So now I will conclude my presentation. Thank you very much.

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