Nomura Holdings Inc (NMR) 2011 Q2 法說會逐字稿

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  • Unidentified Company Representative

  • Thank you very much for joining us for our second quarter conference call for the fiscal year ending March 2011 for Nomura Holdings. The presentation material is downloadable from the website at Nomura Holdings. Those of you who are joining us from the web, please refer to the slides on your screens. If there is those who have not printed out the materials, please access the website.

  • The information -- forward-looking information is our best estimate at this time. And there is likelihood that the future actual results may differ quite significantly from our forecasts as of this moment.

  • During the presentation all of the lines are for hearing purposes only. A Q&A will be held after the presentation has been completed. We now will begin the conference call. Mr. Nakada, CFO, the floor is yours.

  • Masafumi Nakada - CFO

  • Thank you very much. This is Nakada and I thank you very much for joining our second quarter conference call for the fiscal year ending March 2011 despite your very busy schedule.

  • I will give you an overview of the highlights for our second quarter results using the handout. Please turn to page four. Net revenue for the quarter was JPY275.6b, an increase of 6.1% from the prior quarter. Income before income taxes was JPY21.6b. And net income was JPY1.1b. Business segment income before income taxes was JPY35.6b and all three divisions were profitable during the quarter.

  • Wholesale net revenue increased 50.5% quarter on quarter to JPY163.4b. In Global Markets fixed-income revenues jumped 89.9% and equities revenues were up 19.2% over the last quarter. Overall Global Markets net revenue grew 49.7%.

  • Investment Banking gross revenue increased 36.7%, thanks to Japan ECM and revenue growth in Asia and EMEA. Net revenue in Retail of JPY87.8b was down 20.9% from a very strong first quarter due to yen appreciation and a slump in the domestic stock market.

  • Asset Management net revenue increased 6.5% quarter on quarter to JPY19.3b, as we increased our share of the investment trust market in Japan and expanded assets under management in our domestic and international investment advisory businesses.

  • Turning now to our first half results. Net revenue for the six months period was JPY535.4b, a decline of 10.5% compared to the same period last year. Income before income taxes was JPY28.1b and net income was JPY3.4b.

  • During the first half of our fiscal year market conditions turned down sharply following the sovereign crisis in Europe in May. And overall fee pools shrunk, resulting in a challenging environment.

  • Amid these uneasy conditions we continued to make progress in our strategic initiatives of growing our client franchise, establishing a strong US platform that complements our global franchise, and expanding M&A business globally.

  • Our Tier 1 common ratio as of end of September was 16.4%. Although all the details of Basel III have not been made clear yet, we estimate that under the framework as it currently stands we will have a Tier 1 common ratio of about 12% at the end of March 2013. We expect to have capital well above the required levels under Basel III.

  • Today, we also announced a dividend of JPY4 per share, payable to common shareholders of record on September 30, 2010.

  • Please turn to page six. The graph on the right gives a breakdown of revenues. 57% of second quarter revenues came from Japan and 43% from outside Japan.

  • Next, I will outline the second quarter highlights for each division. Please turn to page seven. Retail net revenue was JPY87.8b and income before income taxes was JPY22.8b. Retail client assets declined slightly due to the stronger yen, but net asset inflows for the quarter was JPY458.3b. Please turn to the next page.

  • We maintained our focus on providing consulting-based services and responded accurately to client needs to ensure ongoing inflows of new funds, mainly into foreign bonds and overseas-focused investment trusts. Foreign currency denominated assets are increasing as our percentage of Retail clients assets.

  • To further enhance the quality of our Retail services and improve efficiency, we will upgrade our Retail business systems. We plan to introduce Nomura Research Institute Star IV system for expected investment in the tens of billions of yen.

  • In addition, this month we decided to open an offshore center for Retail operations in Dalian, China. We already have an offshore operation in Powai, India that functions in English. The Dalian center will operate in Japanese; a first time for a Japanese commercial institution to offer such function. To the extent we are aware of, we will be the first ones to offer such function amongst Japanese national institutions. We will be pursuing mid-term cost reductions through these investments.

  • Please turn to the next page. Net revenue in Asset Management was JPY19.3b and income before income taxes was JPY5.2b. Assets under management grew 5% to JPY23.3 trillion. Next page.

  • The graph on the bottom left shows net inflows into publicly offered stock investment trusts of JPY440b, representing another strong quarter of inflows.

  • As you see on the top right, in our investment advisory business we improved our offering of absolute-return products and UCITS III funds while growing the business.

  • Please turn to page 11. In the Wholesale division we booked JPY163.4b of revenues and income before income tax of JPY7.6b. Despite the tough market environment as shown on the right-hand side, and while our competitors declined in their revenues, we have been able to increase our revenues significantly compared to the previous quarter.

  • Please turn to page 12. In Global Markets client activity, which had been sluggish in July, August, recovered in September. For fixed income, rates, credit, securitized products and ForEx revenues grew and also for equities, we had a recovery in derivatives, CBs which contributed to profits.

  • Please turn to page 13. In Investment Banking we have been ranked ninth in global ECM league tables up to September 10 and we have been ranked 13th in global M&A league tables which was an improvement year-on-year for both league tables. In Japan our current market share is 35.7% for ECM. M&A market share is 43.9%. And we are ranked first in both areas.

  • Page 14, let me explain the segment Other. In this quarter the fair-value loss on own debt was JPY5.6b and this is included in the Others portion in this page. Separate from this we had investment security valuation loss of JPY5b, which is not included in the segment information.

  • Page 15, let me explain about our costs. Non-interest expenses were JPY2.4b, which was a slight increase QoQ of 0.3%, but year-on-year it was down by 6.9%.

  • Compensation and benefits were up 3.8% QoQ, but down 13.6%. This was a result of the increase in revenues. And if you look at it on a year-on-year basis it was down by 13.6%.

  • Non-personnel expenses include IT, communication expenses as well as occupancy costs. These increased, but these are the results of our investment for future growth, especially in the US. On the other hand, as a result of our continuous cost-cutting efforts we were able to reduce business development expenses and the overall costs were pretty much flat.

  • In a typical year there's a seasonality of costs in Q2 being larger than Q1. And considering this seasonality I think we have been able to adequately control our costs. Going forward, we will continue to make investments in mid-term growth areas. And, at the same time, we will continue rigorous cost control.

  • In page 16 I will explain our financial position. We continue to maintain a strong financial position. As of September end, Tier 1 ratio was 16.5%, Tier 1 common ratio was 16.4%. As shown on the bottom-left graph, we continue to make the highest levels within the industry.

  • Total assets JPY34.3 trillion, shareholders' equity JPY2.1 trillion, gross leverage 16.7 times, net leverage was 9.8 times. Level 3 assets approximately JPY900b, which was 44% against our Tier 1 ratio.

  • Page 17, please. Here we explain our capital levels based on the assumptions of the current Basel III structure -- Basel III framework. As you are aware, for Basel III the details have not been finalized and are not clear yet. So please understand this is just a very rough calculation based on the current understanding. And in terms of the contents of this calculation, we may receive various questions from you. But, as I just explained, this is just a rough calculation. So please understand this.

  • As of September 2010, or September end, our risk-weighted assets were JPY11.75 trillion. And based on this figure, if you apply the Basel III framework - of course, there is the Basel 2.5 which we have to consider as well, but there will be an increase due to the Basel framework. On the other hand, there will be a reduction due to the investment securities and the unrated securitized products. Overall we expect our risk-weighted assets to be around JPY19 trillion as of March '13.

  • Based on the analysts' business forecast for Nomura, if we use their figures, our estimated Tier 1 common ratio as of March '13 is -- will be around JPY2.3 trillion if we use the analysts' figures. Based on these figures, if we calculate the Tier 1 common ratio as of March '13 it ends up to be around 12%.

  • So based on these figures I think we can say that even under the Basel III framework there are no problems with our capital levels. At least, this is the understanding that we have today.

  • Page 18, please. I would now like to explain the progress on the various strategies and measures that we have been working on and that I have announced at the beginning of this fiscal year.

  • Page 19 we explain the expansion of the client platform and the progress we are making. In Global Markets we believe expanding our client platform will be a very important item in expanding our future business. And we have been focused -- strategically focusing on this area.

  • And, as you can see on the top half of this page, in the first half of this year we were able to expand our clients or number of clients in all regions.

  • For the key product areas, in fixed income we have been able to join one of the global players for both credit and rates. In equities we have been ranked high in the CB rankings by institutional investors. In Japan and Asia we were number one and in Europe we were ranked fifth. So you can see that we have been rated very highly.

  • Even in the US where we have just started the CB team in April we have already entered the upper rankings. We have received very high recognition on a global basis in this area. Also for equities in the major exchanges in Asia we have expanded our transactions volumes share steadily.

  • Page 20, please. Here we explain the progress we are making in rebuilding our US business. Fixed income, which we had already been working on since -- we have been working on the rebuilding of the US business since last autumn, last fall. And, out of that, fixed income was the first to be built up.

  • The major products in fixed income which are rates, credit, securitized products and ForEx, all saw an increase in trading volume. In equities, the US equities business, program trading, CBs, which I just mentioned, and derivatives we have -- we started to have the business operate on a full-line basis. As a result, our volume has been increasing since the summer.

  • In Investment Banking we have been hiring and finally we have reached a headcount of around 100 people. Under these conditions we have been working with Prudential on their acquisition of two entities in Japan, AIG Star and AIG Edison. We have been chosen as the advisor for Prudential. We are already starting to see some positive results.

  • On page 21, this shows some of the cross-border M&A transactions. Within Investment Banking cross-border M&As are the -- is the area where we think we can leverage on our expertise the most and we have been strategically focusing on these cross-border M&As.

  • As you can see here, there have been some -- several large-sized deals and we are starting to see results. For example, the gas company in France, GDF Suez, and the UK electric power company International Power, we have been working as the advisor on this transaction. And we also have other transactions which are receiving a lot of attention from the market. And we are starting to be involved in these large-sized transactions.

  • On top of the advisory revenues that we generate, we work on the financing of the acquisition, or the ForEx in relation to the acquisition. So we are starting to see a combination of revenues from our various businesses.

  • Page 22, please. Here we explain the Wholesale division that we started up at the beginning of this fiscal year. And one of the main aims of setting up the Wholesale division was to achieve the cooperation and synergies among, or between, the Investment Banking and Global Markets divisions.

  • And, as you can see here, there have been various Investment Banking deals that we are starting to see. As the -- as Global Markets expands its global client base and, at the same time while Investment Banking strengthens its syndication capabilities, we are starting to see actual results of the synergies between Global Markets and Investment Banking.

  • In terms of the areas I've shown on the bottom of the page; leveraged finance, or acting as a bookrunner in bond issuances. These are some of the areas where we are starting to see a business expansion.

  • That was a brief overview of the initiatives and the progress that we made in the first half.

  • Please turn to page 23. These show some of the businesses or deals that we are working on at the moment. As you are aware, in October we had the public offering of Tepco where we acted as the lead manager. We also had large-sized solutions transactions -- solutions deals overseas. We have been able to execute various transactions already. And, in that sense, you could say that we have made a good start into the second half.

  • Our underlying business strategy remains unchanged. We will continue to focus on the client flow business. And by increasing that we will expand our revenue platform -- revenue base.

  • In the midterm we will -- we aspire to become a global investment bank ranked as one of the top tier banks. There has been no change to this strategy, as well. So we will continue to work on one of -- each of these initiatives. And continue coming closer to our goals.

  • That is all from me. And now I would like to open the line to questions.

  • Operator

  • We will now begin the Q&A. (Operator Instructions). The first question is by Masao Muraki of Deutsche Securities. Masao Muraki, please.

  • Masao Muraki - Analyst

  • Thank you very much. I have two major points. First of all on revenues, page 12, contribution from US business has increased, so it says. Could you give the breakdown between region and its contribution by equity and fixed income and contribution by each region?

  • The other one -- other question is with regard to capital requirements. Basel III guidance is shown on page 17. And on reisk-weighted assets I have one question. Basel 2.5 versus Basel III, JPY12 trillion worth of risk-weighted assets, to what extent do you estimate that the risk-weighted assets will increase under Basel 2.5 and Basel III?

  • And under the new capital requirements in each business division there may be more stringent charges or there may not be any added stringency, I think it depends on the segment. But how will you be focusing on which business segment and will you be exiting from any business area? Can you show us some direction towards the future?

  • Masafumi Nakada - CFO

  • Thank you, Mr. Muraki, for those questions. First of all, to respond to your initial question on revenues, the regional contribution in equity and in debt, to speak of Q2, if I may give you the broad picture, first of all, in fixed income. In the order, Japan accounted for a third of total income and Asia excluding Japan accounted for approximately 10%, and Europe accounted for a third, US 20%. That is the overall breakdown by region in the fixed income area.

  • Similarly if I give you the breakdown in the equity business, Japan accounted for approximately 40%, Asia excluding Japan 20%, Europe 30%, US 10%. That is the overall picture.

  • And on your second question with regards to Basel III, first of all if we compare 2.5 and Basel III and how those requirements would impact our capital. Fundamentally, it remains unchanged. Or under Basel 2.5 risk-weighted assets will increase. That would be increase of risk-weighted assets will come from Basel 2.5. And in terms of Basel III, there would an increase in the ordinary assets.

  • And under Basel framework, where will we be injecting much resources and from where will we be exiting? Now rather than exiting where we will be focusing on, for example, low liquidity assets or investment securities. If we look at our current holdings of investment securities, and when we evaluate the return from those investment securities, we will try to reduce investment securities where the return is low. That would be one measure we will most likely be taking.

  • And for unrated securities, amongst the risk-weighted assets, the impact of unrated security products may be quite significant. And including derivatives, we've taken several positions and we will be reducing our exposures.

  • Masao Muraki - Analyst

  • Thank you very much. In relation to the breakdown of the regional revenues, fixed income -- I think the figure you mentioned for fixed income was relatively large, 20% was relatively large. Which products will be contributing or are contributing?

  • Masafumi Nakada - CFO

  • In the US as you may be aware we have re-obtained the primary dealership status of US Treasury last year. So based on this we will be -- we are seeing contribution from the rate business, based on the primary dealership status. And also from securitized products, RMBS and CMBS secondary side for CMBS, these businesses are starting to contribute as well. These are the two main contributors.

  • Masao Muraki - Analyst

  • For Basel III or Basel 2.5, under Basel III, the derivative counterparty CVA risk assets increase. This seems to be larger than what the market expected especially for overseas financial institutions. In this area is it okay to understand that there will not be such a significant impact for Nomura? And for the risk-weighted assets of JPY12 trillion, when we calculate it under the Basel III framework, what percentage of -- how large an increase can you estimate for the risk-weighted assets from the current JPY12 trillion?

  • Masafumi Nakada - CFO

  • In terms of the CVA or the counterparty CVA, our assumptions at the moment are that it will not have a significant impact.

  • And your second question, as I mentioned earlier, the calculation that we have conducted are up to 2013 and how we expect our firm to evolve over the next few years. So we have been introducing our results of the calculations up to 2013.

  • Masao Muraki - Analyst

  • Thank you.

  • Operator

  • Our next question is from JP Morgan Securities, Mr. Tsujino.

  • Natsumu Tsujino - Analyst

  • My first question is again in relation to Basel III. On page 17, on the bottom right you explained that this assumes a reduction in the risk assets. How much of that is included in the calculations shown here? And the impact of business expansion is not included in this calculation. I would just like to confirm that point.

  • And to give you my other questions first, in the previous question it was also raised that there was -- you mentioned that there was no impact, not much impact from CVA. But in that case, and if the most of the impact is coming from Basel 2.5, I think there are issues about the stress bar and the [IOC]. For example, when Nomura conducted the public offering, equity financing a year ago, and the impact that you explained to investors at the time. If most of the impact is going to come from 2.5, I think the impact seems to be a bit larger than expected. As time goes by or time went by, what did you additionally find out about the impacts of Basel 2.5 that you were not aware of a year ago? And for Basel III, that's it for my questions.

  • But for the recent global market situation, as you can see in the revenues for fixed income and equities if you compare July, August and September, I guess September was relatively strong and especially US fixed income I think September was quite strong. But moving from July to September, what have been the trends and what is the situation as of October? Please give me a rough overview.

  • And for investment trust sales, there has been quite a large decline from Q1. Please tell me the recent situation for investment trust sales, whether the situation has changed since the end of September.

  • Masafumi Nakada - CFO

  • Thank you, Tsujino-san. First of all, Basel III and the bottom right comments on page 17. And I guess your question is about what we are going to reduce and how we have made our calculations. I will not go into the details at the moment but we have made several assumptions and based our calculations on these assumptions. And the contents of the reductions are as shown here.

  • For investment securities, we will be selling or divesting some of these investment securities. But we have placed a certain assumption in calculating how much we will reduce our assets. And for securitized products, some of these will decline naturally because they will reach maturity. But for some of the long term securitized products, how we will mitigate these assets, that will be the question. And again, we have placed a certain assumption to calculate how much the reduction will be.

  • Natsumu Tsujino - Analyst

  • So you are not going to disclose figures?

  • Masafumi Nakada - CFO

  • No.

  • Natsumu Tsujino - Analyst

  • And my second question was it doesn't include the impact of the business growth.

  • Masafumi Nakada - CFO

  • Yes, your understanding is correct. It does not include the impact of our business expansion. For CVA and the no impact, I mentioned that there will be little impact. But when we conducted the public offering last year and the assumptions that we used at the time, as you are aware there have been various discussions going on and the outline of the regulations has become more clear since last year. So the assumptions have changed over time. And your question was in relation to this.

  • On a time series basis and what changed when due to what is quite hard to explain. So as time went by, various discussions were held and things changed. So unfortunately, it's hard for me to explain exactly what happened when, right now. But one thing I can say that has changed in terms of the impact seeming larger than at the time. That was your comment. But from our point of view, we do not think that the impact or the assumptions of the calculation of the impact have changed that significantly.

  • And your next question about the global market situation since July, August, September, what have been the monthly trends. In July, we touched upon -- slightly upon the July situation and we mentioned that the conditions in Q1 had been continuing into July. August we entered the summer holiday period and client activity was extremely sluggish. And moving into September, I think I can say as soon as we moved into September, we started to see a pickup in client activity.

  • So as you mentioned, July, August was relatively sluggish and compared to that there was a strong or clear recovery in September. This applies to both fixed income and equities. We saw the same trends. However, the improvement in September was relatively large for fixed income compared to equities. And due to the further rate cut, I think this also helped the recovery in fixed income quicker than in equities. On the other hand, for equities the decline in volatility continued in September. So that is another reason for the delay in the recovery for equities.

  • Moving into October, the basic trend remains unchanged. But for equities and fixed income the recovery in equities seems to be somewhat clearer for equities in October. And investment trust sales, as you pointed out, compared to Q1 it is sluggish. It has come down. Especially the equity investment trusts, we saw a large decline. I think the reason for this was the overall sentiment in the stock market, equity market. And there was quite a large impact of this negative sentiment. Thank you.

  • Natsumu Tsujino - Analyst

  • Thank you very much. Fixed income, October. Is it correct to consider that we can assume that your October performance will be the same as September, but the lower interest rate positive impact has been somewhat subdued since the beginning of this month?

  • Masafumi Nakada - CFO

  • I can only answer from the mood or intuition. In comparison to September, you mentioned the situation may have been subdued. And you are very correct that in comparison to September the pace has slowed down somewhat. Thank you.

  • Natsumu Tsujino - Analyst

  • Thank you very much. And I apologize but I wish to ask some follow-up questions. European fixed income, in comparison to last year, there's lack of recovery. There has been a drop from third quarter and fourth quarter and that may have been offset by the recovery in Q2. But are there prospects that you will see stronger recovery in Europe? I see some signs of recovery in the US but what about Europe? Is it correct to expect more robust growth in Europe in the future? For example, taking into consideration how you've been doing in terms of build-up of client franchise.

  • Masafumi Nakada - CFO

  • Yes, basically we have better hopes for Europe. And as I had explained in the presentation, we've been steadily increasing the number of clients. And tapping on such client platform we can expect a comeback or rebound in this business.

  • I mentioned the year-on-year comparison. In comparison to a year ago, the spread in itself is different. Yet however, on the other hand, in comparison to a year ago, the market since May has been somewhat dislocated. But finally since September, the market has normalized and we can see that quite significantly. And the normalization of the market still continues well into this month. And in that sense our client franchise will be tapped upon to generate revenues. And we think we can expect better performance in the future.

  • Natsumu Tsujino - Analyst

  • Thank you very much.

  • Operator

  • The next question will be by Morgan Stanley, Shinoda-san of Morgan Stanley. Shinoda-san, please.

  • Atsushi Shinoda - Analyst

  • Thank you very much. Just one question, if I may. Basel III Tier 1 common 12%. How can we interpret this level? More specifically, if we think that it is above the required level, you don't need to increase capital. So that means that you will not be doing any offering in the future. Or through surplus of capital and retained earnings if Tier 1 common goes up in the overseas financial institutions that will make your level appear to be relatively lower. Is there a likelihood that you will decide on an offering to increase capital beforehand? Or do you -- will you be satisfied as long as your capital level is above the required regulatory capital and that you won't be comparing yourself with your peers as long as you have the required capital on regulatory terms. So how shall we interpret that 12% number?

  • Masafumi Nakada - CFO

  • Thank you very much, Shinoda-san. You've already responded to your own question to quite a significant effect. As you are well aware, not all of the details have been determined for the Basel III framework. But as I mentioned already, at this juncture, we've made some assumptions and according to our assumptions, do we need to increase capital in order respond to Basel III? No.

  • Atsushi Shinoda - Analyst

  • Conversely speaking, even if it's not necessary in terms of regulatory capital, what if the other overseas peers do that? Some have chosen to increase capital but in comparison to your peers, if others are like 13% or 14% will you intend to increase your ratio by 2 percentage points? Is there any internal target? Can you make a comment to that extent?

  • Masafumi Nakada - CFO

  • In comparison to other financial institutions, on relative terms, or do we compare ourselves to other financial institutions, we're not really thinking to that extent at this moment. First of all, we want to determine what regulations will come into play. And the minimum line, 7% is one quote number. And to what extent what will be included, what won't be, what will be eligible, what won't be, that will be a crucial point. But those issues included, 12% is the current estimate according to our assumption and we think that this is a comfortable level. That's our current thinking.

  • Atsushi Shinoda - Analyst

  • Thank you very much for your explanation. I well understand your point, thank you.

  • Masafumi Nakada - CFO

  • The next question is from Citigroup Securities, Mr. Kasai.

  • Makoto Kasai - Analyst

  • Just one question from me. The effective tax rate, 91%, 92%, based on the domestic business you expect taxation and I understand this. But for the overseas businesses, overseas divisions, the adjustment in corporate tax, can you not book or can you not book these for this year. Please explain the effective tax rate.

  • Masafumi Nakada - CFO

  • Yes, as you mentioned for the overseas businesses, the tax effects cannot be expected. Yes, your understanding is correct. Thank you.

  • Makoto Kasai - Analyst

  • Thank you very much.

  • Operator

  • The next question is from MF Global, Yamanaka-san.

  • Takehito Yamanaka - Analyst

  • Two points. One is again I'm sorry to go back to Basel III. For the risk-weighted assets and the breakdown of the increase in risk-weighted assets, you mentioned you will not disclose the actual figures. But in terms of the JPY11.7 trillion increasing to JPY19 trillion, please give me a rough explanation of how much it will go up or how far it will go down.

  • And in terms of the mitigation, until March '13, you explained until March '13. But for the years after that and up to 2019, what are your thoughts? This is my first question on Basel-related issues.

  • My second point is the European fixed income business you expect recovery or a turnaround. In terms of the recovery, will this be both the impact or result of the market recovery as well as the expansion in the client franchise. For example, if -- at the moment, there is the possibility that your ratings are working against you somewhat compared to your peers. But can we expect the positive impact in this area?

  • Masafumi Nakada - CFO

  • Yes, first of all, the Basel III question. Unfortunately, it is difficult for us to disclose how the risk-weighted assets will go up or down on this conference call in detail.

  • And for the mitigation, 2013 is one of the milestones of the introduction of Basel III. So we have set 2013 as our first goal in our calculations. In terms of the risk-weighted assets and the control of risk-weighted assets, we need to conduct it adequately. So of course after the introduction of Basel III and under the new Basel framework, we will continue to work on the mitigation as necessary. So in that sense, the risk-weighted assets, to break it down, credit, market, operational risk, the operational risk will not increase that significantly. So in that sense the impact of Basel 2.5 the credit risk and market risk will go up. That is one of the assumptions that we have.

  • And your second question about fixed income in Europe and the recovery in the second half and what kind of hopes we have for the recovery. As Yamanaka-san, as you mentioned, we are not expecting or it's hard for us to expect a very strong recovery in the market, but at least we expect things to normalize in the market. So there will be an impact, a positive impact from the market, and also our client platform, client franchise expansion. These will both have a positive impact on the second half recovery of European fixed income. For the ratings, this is something uncontrollable for Nomura. So we do not incorporate the ratings in our forecast.

  • Operator

  • The next question is by Credit Suisse Securities, Ohno-san. Ohno-san, please go ahead.

  • Azuma Ohno - Analyst

  • Thank you. We're running out of time, but just two simple questions. Sorry, it may sound like the press, but some magazines have mentioned about sales of investment trust. But is there risk of administrative guidance being given by the government? That's my first point.

  • And secondly, TSE people. Capital increase reducing the stock price, they said that they will conduct a survey. Will that impact the capital market or your underwriting business of Nomura? At this point in time what are your views?

  • Masafumi Nakada - CFO

  • First of all, on your first question of investment trust sales. To comment on what is being talked about in the market, very short cycle turnaround of investment trust, this pertains to the retail sales. But as you know, we've been injecting efforts on consulting approach and this is one of the main pillars of our business strategy.

  • In other words, the investors' requirements or preference are factors that we place priority and then we would offer a line of products that would be appropriate in catering to such requirements. And then the final decision on whether the investment should be made or not is in the end something to be done by the customer himself or herself. And in that process, we would offer advice from the perspective of professionals.

  • So in terms of depending on the movements in the market and depending on the preference of the investor and risk appetite, there could be an increase in certain products and there could be a period when we see sales in short cycles of a certain product. But as I've already said those are decisions made by the customer himself or herself, which may be impacted by our advice. And that may increase or prolong the turnaround cycle of products. So what is being talked about in the market is completely different from the business model that we place importance in our retail segment.

  • Next, prior to making a public announcement on the public offering, if there had been any unreasonable movements in the stock price. Already the Tokyo Stock Exchange has made a comment but on behalf of Nomura, this situation may undermine the trust to the Japanese capital markets in general. So the issuer, investor and for ourselves, this is not positive to any stakeholder. And needless to say we of course do complete check and control of information. And even if the TSE begins some kind of investigation we do not believe that that would have any direct impact to our business. And we are hoping that there would not be any impact. That would probably be the appropriate answer.

  • Azuma Ohno - Analyst

  • Thank you very much.

  • Operator

  • (Operator Instructions). There seem to be no questions, so we would like to end the Q&A session. If you would like to add a word from Nomura Holdings.

  • Masafumi Nakada - CFO

  • Thank you very much for attending this conference call despite your busy schedules. And thank you for your cooperation.

  • Editor

  • Speaker statements on this call were Interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.