Nomura Holdings Inc (NMR) 2011 Q4 法說會逐字稿

(Interpreted). Good day everyone, and welcome to today's Nomura Holdings fourth quarter operating results for fiscal year ended March 2011 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. (Operator Instructions).

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 sentiment, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number of and timing of transactions.

The conference call is scheduled to start at 5 pm Japan standard time.

Thank you for waiting. We would now like to start the presentation for Nomura Holdings March 2011 results. Thank you very much for participating today despite your busy schedules.

First of all I would like to introduce today's presenters. On the right we have our CFO Junko Nakagawa. In the middle is our President and CEO Kenichi Watanabe, and on the left the Wholesale Division CEO, Jasjit Bhattal.

Let me explain today's agenda. First of all we will have our President Watanabe make the opening remarks, and then Nakagawa, our CFO, will explain our results. And then Mr. Watanabe will again explain about our future strategies, followed by Jesse Bhattal's presentation on the Wholesale Division's strategies.

With that I would like to start the presentation.

Before we begin I would like to extend our sincere condolences to the victims of the East Japan earthquake, and we are praying for recovery as early as possible. As for Nomura we did not suffer major damage, major physical damage although there was some damage, and no casualties fortunately.

Immediately after the earthquake, from Monday after the earthquake, we have been working on providing liquidity to the markets in Japan and focusing on providing liquidity as well as providing opportunities for trading. And that's where we started from, started off.

And Nomura has been actively sending out information, not just within Japan but globally. And in April we have set up the East Japan Revival Support Bond Fund 1105. And based on the requests from our customers we decided to set up and launch this investment trust, or this fund. And we will be donating part of the custodial fees to support the recovery.

Separate from this we have made some donations. And we have also collected donations from our staff all over the globe. And we have sent the donations directly to the various municipalities and the Governors so that it reaches the disaster stricken areas quickly.

And together with the donations that we made we would like to support the Japanese securities markets, capital markets and make sure that the markets function. And we would like to continue to work on our main lines of businesses to support the markets. And we believe that's the true support that we can provide to the markets.

This was the same after the Lehman shock. We contributed to maintain the functions of the capital markets. And we believe we have made sufficient contributions to do that.

So after this earthquake we will continue to send out information on a timely basis, and support the markets, not just the secondary markets but the primary market as well, make sure the market functions. This is one of the measures that we can work on to help rebuild and revive the Japanese market. And this is our responsibility.

Together with sending out various information we have been making proposals. And not just because the current government is fragile but there are various stakeholders, and we have been making proposals to the ruling party as well as the opposing party and the various municipalities public organizations.

And we have been making various proposals both of which -- some of which we have disclosed, some which we have not. And we are making these proposals to support the securities market and the capital market. And our proposals are such that we would like to use the markets to help revive the economy. But this is not the main topic today.

First we will have our CFO Junko Nakagawa, explain about the March '11 results briefly. And then I will make my presentation, if I may, later on.

I would now like to explain the results for March '11. Please turn to page five of the PowerPoint presentation. I will explain the highlights of March '11.

Pre-tax income, net income, we achieved profits in Q4 which was the eighth consecutive quarter that we were profitable. And we were also profitable in all business lines for the full year. For Retail, which was the driver of profits for the Group, and also Asset Management AUM grew and we achieved growth in both revenues and income.

For Wholesale the market environment continued to be tough. And we lowered our revenues and income year on year. But things bottomed in Q1, which was impacted by the sovereign crisis, and we recovered from Q1. We have been making investments mainly overseas and rigorously controlling our costs, and we were able to reduce our costs year on year.

Page six please. Let me explain the highlights of the Q4 results. Net revenue for Q4 was JPY299.4b, up 1% Q-on-Q, pre-tax income JPY37.4b, up 35% Q-on-Q. Retail revenues was JPY96.2b which was flat Q-on-Q, Asset Management revenue JPY21.9b, up 2% Q-on-Q, Wholesale revenue JPY186.3b, up 8% Q-on-q. And the breakdown was Global Markets revenue JPY137b, down 3% Q-on-Q and Investment Banking revenue JPY49.4b which was up 59% Q-on-Q.

The full year result for March '11, the net revenue was JPY1.13 trillion and pre-tax income was JPY93.3b. Net income for Q4 was JPY11.9b and annualized ROE was 2.3%. Net income for the full year was 28.7% (sic -- see presentation), annualized ROE was 1.4%.

The effective tax rate for the full year was 69%. The reason why it was high was because our operations in Europe and Asia were loss making. Going forward as our overseas operations become profitable we expect the effective tax rate to decline.

On this slide we describe the breakdown, revenue breakdown by division. As you can see on the pie chart on the right, for the full year our domestic revenues made up 58% and overseas revenues was 42%.

I will now move onto the highlights of each division on Q4. First the Retail, the fourth quarter net revenue was JPY96.2b and income before income tax was JPY17.7b. For the full year net revenue was JPY392.4b and income before income taxes was JPY101.2b.

Retail client assets continued to grow steadily until February, but declined slightly from the prior quarter to JPY70.6 trillion due to the market decline following the earthquake in Japan.

Total sales were up 10% quarter on quarter, as we continued to provide consulting services to meet the needs of our retail clients. Sales of stocks were particularly strong jumping 25% compared to the third quarter, the highest level in eight quarters. Sales of foreign bonds increased by 18%. This is why we continued our core consulting sales and were able to appropriate address the needs of our clients.

Asset Management net revenue was JPY21.9b for the fourth quarter, and income before income tax was JPY7.9b. For the full year net revenue was JPY80.7b and income before income taxes was JPY25.1b.

Asset under management grew by JPY600b to JPY24.7 trillion as of the end of March, driving both net revenue and income before income tax higher quarter on quarter.

As you can see at the diagram at the top, inflows into public stock investment trusts remained high at JPY340b, driven primarily by new inflows into multi-currency funds and funds that invest in Japanese stocks.

Our share of Japan's publicly offered investment trust market trended upwards through the year to 21.8% at the end of March and we maintained the market-leading position.

In March we established LIC NOMURA Mutual Fund, a joint venture with Life Insurance Corporation of India the largest life insurer in India, representing our full-scale entry into the Indian mutual funds businesses.

Next I'd like to talk about the Wholesale. Net revenue was JPY186.3b and income before income tax was JPY29.4b for the last quarter. For the full year period, net revenue was JPY630.5b and income before income tax was JPY6.7b.

The quarterly gains in net revenue and income before income taxes were driven by higher revenues in investment banking and a decline in overall costs of 2.8% compared to the previous quarter. The graph on the bottom left gives the breakdown of net revenue by region.

Now I'd like to talk about Global Markets. Net revenue was JPY137.0b for the fourth quarter, down 3% quarter on quarter. Fixed income net revenue also declined by 3% to JPY69.4b in the fourth quarter. Revenue declined only slightly despite the elevated market volatility and sharp fall in liquidity.

Equity fourth quarter revenue was [JPY600] -- so net revenue equity increased 5% over the quarter up to JPY64.3b. Although volumes were down on major markets, we continued to increase our client business and grow revenues. We captured a higher market share in Japan by responding to client needs and continuing to provide liquidity in the difficult conditions after the earthquake.

Please take a look at the diagram on the left top this is the term fixed income, income grew by diversified source of profitability, especially the FX and securitized product. The share of these products has increased from 17% to 31%. Also our revenue in the US has quadrupled, pushing up the share of our overseas revenue to 70% of our overall business here.

In equity we have been reinforcing platform in Asia, and that has resulted in substantial revenue growth in execution services. Also, primary business is also a contributing factor.

The fourth quarter revenue of the Investment Banking is JPY54.4b in -- at gross, 12% quarter on quarter decline, but the net revenue JPY49.4b that is a net increase -- the increase -- quarter-to-quarter increase of 59%.

In this quarter we had a public offering of Resona Holdings in Japan, and including that we have obtained multiple ECM deals. On the fiscal year we have 44.3% from domestic ECM, 51.7% in M&A those are our market share, a very dominant market share.

In Europe, we had a very short term sale of JPY3b for Nordea Bank in Sweden, and a so-called AEJ large scale deal. Also during the fiscal term we have acquired a major cross-border M&A, and we have completed the execution and the revenue from that and private equity business has contributed accordingly.

This fiscal year we will be reinforcing our -- we have reinforced our products, expanded our coverage, diversified the source of revenue, and improved product mix. So we have acquired major cross-border deals. We have had leveraged finance for acquisition, and are taking a (inaudible) yield. Also, we have been able to obtain deals in many regions of the world, including Europe and China.

I'd like to talk now about costs. So non-interest expense for the fourth quarter was JPY262b which is 2% decline from the previous quarter. For the full fiscal term it was JPY1,037.4b, a decrease of 1% year on year.

We had made an investment in advanced and mainly in overseas markets, but we have tightened our cost management and overall our expense has come down. And our compensation ratio for the full fiscal year was 46%, which is labor costs versus revenue.

Financial base, we have still -- we still have a solid financial base. Tier 1 ratio as of March end at 16.4%, 16.4% for Tier 1 common ratio as well. Total assets JPY36.7 trillion, equity JPY2.1 trillion. Gross leverage 17.6 times, net leverage 10.3 times. Level 3 assets of around JPY700b, so as you can see on the bottom right it is 37% up versus Tier 1 equity.

In calculating our equity as of end of March we have had a new approval from FSA to apply our internal rating methodology on credit risk assets. However, this has not substantially changed our numbers since before this change, and last October we have set assumed level as of March 2013, when Basel III is being implemented. Over the mid-term market environment, business strategy and financial strategies will be taken into consideration, and we will, for the time being, target to maintain 10%. And the dividend with the standard date of end of March 2011, we will be setting JPY0.04 per share as a dividend.

So this is it for my presentation. Thank you very much for your attention.

(Interpreted). Thank you very much. Mr. Watanabe, are second please.

(Interpreted). I would now like to explain our future business strategies. This is the growth scenario which we were aiming for. In the autumn or fall of 2008 we acquired the personnel of Lehman Brothers, and we restructured our legacy -- negative legacy assets. And we also, with the cooperation of yourselves, we strengthened our capital base. And following a large loss our strategy was to turn profitable in March '10.

And at the same time, we -- our plan was to rebuild the US business, which we started in March '10. And last year March '11 our strategy was to further -- make our business further profitable, and also monetize on the investments that we had made to become a world class player in the future years. That was the scenario which we had in mind so far.

Moving onto the next page, as our CFO explained in her presentation due to the sovereign crisis in Europe as well as the changes in regulatory environment and the tightening of regulations towards financial institutions with these changes in the environment, together with the East Japan earthquake in March, we were not able to grow in the steady upward trend that we had envisioned.

However, we were able to become profitable for each -- on a quarterly basis. And to raise three points as examples of our global measures, and the progress that we are making globally.

One is establishing the client platform, especially in wholesale and in the overseas businesses where we did not have that strong a customer or client base so far. And we had to depend more on the prop type of business rather than the intermediary client business. And that was one of the reasons why we booked a large loss.

But in terms of prospering with our clients we have been expanding our client base, client platform and for March '11 we were able to progress by more than 20% in client onboarding. And as a result we were able to grow the client flows significantly as well.

I think you can see the results most clearly in fixed income where we expanded our product lines and expanded our client base. And we gained profitability as a result.

And in terms of clients in the Asset Management division, as Nakagawa-san mentioned briefly, in the investment advisory business we have been doing business not just in Japan but overseas, and winning contracts from overseas clients steadily, especially in the Middle East and in Asia. We have been working with sovereign wealth funds, and winning mandates from these sovereign wealth funds for investment advisory business.

The second point, in terms of the progress we are making globally, is the monetization of the investments that we have been making, especially in the US, which is one of the main hubs and makes up a large share of the global capital market.

We re-obtained our license in the US and we have been enforcing our client base in the US and expanding our business. And today our business in the US is not that large yet, but we are starting to monetize from the US business.

The third global measure we are working on is the overseas business, and this may overlap somewhat with previous comments, but excluding the global markets, if you look at the investment banking we have been winning major mandates, especially in the west. And not just simple M&A ECM transactions but we are also providing various solutions as a package. We are being -- starting to be able to do that.

Especially in investment banking we have been enforcing our overseas platform. And frankly speaking, yes, we have spent some costs and raised the breakeven point, but we believe this was the period to endure and we want to further expand our business in this area.

So I mentioned, one, our expansion of client platforms, second, the monetization of investment, especially in the US, and thirdly, the overseas business, and expansion of the overseas business. I believe we have made certain progress in these three areas.

However from March '12 onwards the challenges that Nomura faces are clear. As our CFO explained we need to improve our bottom line as well as our ROE which is currently low.

In Japan, profitable where the tax rate is high, and loss making, relatively loss making in overseas where the tax rate is relatively low, especially in Europe. I am not going to make any excuses but we did have the European sovereign crisis. And compared with two years ago, which was profitable, March '11 was loss making. And this led to the high effective tax rate.

So the challenges that we face are clear. As I mentioned earlier, one is to monetize, further monetize the investments that we made. Second is to expand the overseas business, overseas franchise and make our overseas business profitable.

And in today's agenda we have Jesse Bhattal as one of the presenters, and he will explain how we will strengthen our Wholesale division, especially the overseas profitability. That is our priority for March '12. And we will work on improving our profitability and ROE as early as possible. That will be our target for March '12.

On page 23 this explains the management environment which surrounds us. And I am sure you are all professionals in this area, so I will not go into details.

As for Japan, as many people have been saying on various occasions for the first half unfortunately things will be somewhat slow. But moving into the second half we are hoping for certain positive trends. And as a result, the volume of business, when we compare between first half and second half, will be quite different.

As for Europe the sovereign markets and the bond markets, the government bond markets there is some obscurity or un-clarity which will continue . And we have the gap between north and south in Europe, and the future is not that rosy in Europe and we are expecting some volatility or instability, and we need to conduct our business under these circumstances.

As for the US, people have different views, but GDP growth is expected to grow robustly and there will be some financial easing, or quantitative easing which will have to be continued. And based on these assumptions we would like to monetize in the US markets.

As for emerging markets, especially Asia which is one of the home -- which is the home ground for Nomura, there is a lot of hot money flowing in and out of Asia and inflation for real estate prices, etc. But despite these items the -- Asia continues to be a growth area and we would like to expand our business here.

In terms of the management environment, as shown on the top right Basel 2.5 and Basel 3 there are discussions going on about Basel. And towards the end of the year in November there may be some more -- further detail as a result of the G20 meeting. But we believe the trend is negative, so there is a headwind blowing in our faces. And not just for Nomura but for our competitors as well. And we need to comply with this headwind and respond adequately.

And the regulatory capital and how Nomura allocates its resources, there may be some more consideration which would have to be made in relation to the regulatory capital. And I am sure you are aware, but various countries and also the European Union and the UK, US and the various regions are trying to create a level playing field. But on the other hand, the countries are competing against each other.

So we will be heading for not the traditional type of globalization but a more diversified globalization, and focus on liquidity regulations as well as capital regulations. And each country will set their own rules under their governments. So the rules will be somewhat diversified we believe. But in any case, as Nomura Holdings, we will allocate our resources effectively.

Next I will go -- move onto our Wholesale division, and these are the KPIs and the revenue targets for each division. For the Wholesale division, we'll have our division CEO Jesse Bhattal explain later, but I mentioned the challenges we face this year and strengthening the profitability and the revenues of the wholesale division will be one of the major challenges for Nomura this year.

And from the past six months under Jesse's leadership we have been prioritizing our businesses, and moving more to a performance-based resource allocation structure. So we have started working on this, but we will start seeing some clear results of these efforts hopefully.

And I have listed various KPIs on this page from the top right, the revenue growth rate 15% or at least 15%, and client revenue ratio 70% is going to be one of the benchmarks. Today I believe it's close to 60%. And we would like to grow our revenues by at least 35% as a result

Next page 25, the Retail division, I will not go into detail here, but in a few years time by 2014 we are targeting JPY100 trillion in client assets. Of course, there will be some fluctuations due to the market valuation, but we will steadily increase the net income or net increase in client assets.

And as shown on this chart here, if you look at the retail financial assets or individual financial assets, unfortunately still the majority is in the form of cash and deposits, although some of it is expected to decline as a result of the aging population.

So, it is important for Nomura, and it is our responsibility to allow people to generate adequate returns by making investments instead of just savings. And we believe funds will be flowing, not just within Japan but for -- to domestic -- sorry, to global investment opportunities. And we want to further pursue the consulting sales to achieve this. This will be the targets for the Retail business.

On page 27, as mentioned earlier, the Asset Management division did well last year, but we will further increase the AUM to JPY30 trillion yen. Three zero. And the balance of domestically publicly-traded investment trusts to JPY17 trillion; and the investment advisory contract asset balance to JPY11 trillion.

Next on page 28, this describes our relationships with the banks, including the Japan Post Bank, and we will strengthen our relations with them; that will be one of the key issues for us. As for the overseas business, I explained that there was strong growth in March '11, but we will further win more business in Investment Advisory. And in order to do this we need to come up with attractive products and strengthen our management, our Asset Management capabilities.

On page 29, there may be some overlap with the CFO's presentation, but for the past two years the cost-over-revenue ratio has been very high, and for this, as for March '11 it was around 91%, 92%, which was high. And in globalizing our business we have just taken off and in order to maintain a high run-rate level we will set 80% as one of the benchmarks for cost-over-revenue ratio.

Next our financial strategy. The CFO already explained the details but we will manage our regulatory capital and allocate our resources accordingly. We will maintain sufficient liquidity on hand, which we currently have, but we will continue to do this; and various regulatory authorities have their guidelines for ring-fencing the assets. And in a sense you could say that we have too much cash but this is in response to the guidelines of the various countries.

And we will pursue more efficient ways of using our balance sheet. And our balance sheet size is about JPY36 trillion and we will continue to hold or continue to focus our assets on high liquidity assets and Tier 1 ratio of 10% will be the benchmark. So Tier 1 cash level 3 assets will be 50% of Tier 1. And gross leverage, the benchmark will be around 20 times.

And for the debt items we will try to make our debt as long-term as possible, and also diversify our debt. And we are also issuing bonds under the Shariah law structure. And we will continue issuing benchmark bonds in the US and Europe and make our debt long-term. Tier 1 ratio, we are looking at two to three years ahead and we are still trying to guess what the regulatory framework will end up being, and this is just based on our guess. But we would like to maintain, or we believe we can maintain around 10% Tier 1 ratio; and we will allocate our resource accordingly.

On page 31, we, although you all gather today despite your busy schedule and you might be discouraged because there are no major changes in our strategy, but we will continue to be client-focused; that will be our basic policy. And we will continue working on on-boarding our clients both in Japan and overseas; and we will develop products and services which exceed those of our competitors and allocate our resources flexibly and on a timely basis. But we may not be able to maintain as much flexibility as we did in the past due to the changes in the regulatory framework.

And although it's not shown on the slide, today, as we announced our results we also announced the changes in our management in the Directors. And we have been separating the execution and the management; we are a committee-based Company and under this structure we are running our Firm and the majority of our Directors are external Directors. I think we have eight now. And the Chairman of the Director's Meeting will be switched from Ujiie-san to Koga-san. And our External Director, the Chairman of TDK will resign, or did resign, and we will have the ex-Chairman of NYK, Nippon Yosen. I think he's currently adviser and used to be the ex-Chairman of Nippon Keidanren and he is also the Chairman of the Regulatory Committee.

And Mr. Kubori, the lawyer who had been our external Director for a long time, will resign and we will have Mr. Kanemoto, another lawyer, become a new Director after the General Shareholders Meeting. And he is one of the few Japanese lawyers who used to be the President of Interpol and he won the vote or the election in -- to become the President of Interpol. And he is an ex-NPA officer, but he will be working on, from the standpoint of preventing money laundering, which is one of the issues globally, and he will hopefully give us advice.

And on our main Board we have non-Japanese members, two from the UK, and they will continue to be our Board Member. And we will have a new member, Michael Lim from Singapore as a potential Director or Board Member. He used to be Executive Chairman of PriceWaterhouse Coopers in Singapore, and he is currently serving as various -- he is serving as a committee member of various government committees; and he is one of the external directors; he is external directors of companies as well. And he will join our Board as a non-Japanese member.

We will have David Benson, who is currently Vice Chairman of Nomura London. He will be, or he has been working on the risk-related items together with the UK FSA; and although this is not still an official rule we are trying to, we are going to comply with the UK FSA's requirements to have a risk-related member on the Board. And he used to be a CRO last year, Chief Risk Officer, but from this year, calendar year 2011, he has been Vice Chairman of Nomura London. And his main responsibilities have been discussions with the European and the US, including Brussels and Washington, the regulatory authority, and he has been discussing with the regulatory authorities from 2011. And he has been serving as one of the panelists for the FSB, and that's why he -- we asked him to join the main Board. So he is one of the internal Directors that will join our main Board.

I'm sorry it wasn't shown on the slide, but that was an update of our management. And I will ask Jasjit Bhattal, the Head of Wholesale, to explain the strategies for Wholesale and the challenges that we face.

(Interpreted). Thank you very much. Here also, Mr. Jasjit Bhattal, please come up.

Thank Watanabe-san, thank you, Nakagawa-san. Clearly all the results have been covered so what I'm going to focus on for the bulk of my presentation is really talk about where we are in terms of the Wholesale division landscape, and what our strategic thrust is going to be going forward.

This past year, which also marked the first full year for the Wholesale division, witnessed great change in our industry and at Nomura. Whilst our annual performance has been challenging we have taken several transformational steps to grow the client franchise and are starting to see early success on our path to profitability. In today's presentation I'll briefly review our results, and then more importantly, as I said, talk about the strategy which will achieve profitable and consistent returns.

As you heard from our CFO, the Wholesale results of this past fiscal year were admittedly challenging. Number of reasons for that, some external, culminating in a 20% decline in global fee pools; and some internal, mostly low productivity and underperformance in certain businesses, and a cost overhang from an aggressive investment plan going into last year. But let me assure you we have not faced these challenges standing still and we have made a number of changes which are already starting to yield positive results. What are they specifically?

One, we shifted from a broad growth strategy to a very selective and calibrated approach, and I'll talk more about this in a few minutes. We made several leadership changes and strengthened the matrix management framework. We rigorously analyzed underperforming businesses, and restructured certain product lines, redirecting resources towards accretive businesses which can provide sustainable profitability.

And, equally importantly, we enforced a culture of pay-for-performance to manage compensation costs, but balanced against the need toward businesses with future earnings and franchise potential. And I think it's worth pointing out, as our CFO did, that at a time when we have been growing the business, to maintain our compensation ratio at 46% speaks volumes about the Firm's ability to manage its costs.

Our latest results also speak to the momentum that we now command. This past quarter was our best of the year, with pre-tax profits that were greater than the previous two quarters combined, topping four straight quarters of sequential revenue gains. Most importantly, my partners and I stand unified behind a consistent global strategy which is centered on clients, partnership, accountability, best operative efficiencies, and, crucially, bottom-line profitability with aggressive yet achievable targets.

I won't spend too much time on this slide as the numbers have already been covered, but will just pick out a few key points. We had a difficult first quarter for all the reasons that were pointed out, but we reacted with speed, implemented further cost reductions, dramatically slowed our hiring and tightened risk. And it was this discipline that we instilled during that period that stood us in good stead for the rest of the year, and we were profitable in all three quarters since despite flare-ups in the Middle East, a recurrence of inflation in European sovereign concerns, and most recently the unfortunate events here in Japan.

Both Equities and Investment Banking posted sequential revenue gains each quarter, while Fixed Income had a resilient performance over the year that far outpaced the 20% to 40% decline across our competitors. And because we aggressively maintained a substantial flat cost base for the year these revenue gains translated into steadily increasing profits every quarter, demonstrating considerable operating leverage.

Our financial performance is predicated more than anything else on our success with clients. Growth in Global Markets customer revenues reflected the increasing diversification of our business with double-digit gains in nearly all of our core market products. In fact, global client markets client revenues were up 25% year on year, despite overall other revenue pools declining 20% globally.

We also saw rankings improve substantially, with Asia ex-Japan research at number two, Fixed Income research at number five in EMEA, number seven in the United States; while in Japan we maintained our number one equity research rankings and reclaimed the number one spot in Fixed Income for the first time in a decade. In Banking, we continued to build on a notable track record of franchise mandates, both in Japan where we continue to dominate; and also internationally. Last year over a third of revenues came from Japan ECM, while this year it was only 17%. M&A doubled its contribution to 26%.

This past quarter we also ranked number two in Europe and the Middle East accelerated book builds, which is increasingly a feature of the capital markets. And number two in sponsor-led leveraged loans in 2010, while we closed the largest European M&A transaction this year for International Power and GDF Suez, and executed the largest-ever international convertible offering in Asia ex-Japan from China for China Unicom. This speaks volumes of the breadth and geographic diversification of both our Global Markets and our Investment Banking business.

So now to the strategic issues. I want to focus today really on the three that are on the slide. Despite the momentum and client success, we continue to address several strategic and structural issues. Most pressing, as my CEO pointed out, franchise profitability. And we are tackling this by reinforcing a mindset that productivity, cost transparency and accountability through a pay-for-performance culture are paramount to our success; and you have seen it in the compensation ratio that our CFO just pointed out.

We are reallocating resources away from underperforming businesses to self-fund investments. And combined with aggressive cost saves this has resulted in notable momentum in our profitability as demonstrated by the last three quarters. Being flexible, being vigilant is a final strength. At the same time, we recognize that the nascent state of our franchise is in itself an impediment to growth but we are already calibrating our investment towards accretive businesses that can in turn fund future growth, while committing to investments with a longer horizon and realistic return targets. Ultimately in our business, in the Wholesale business, success breeds further success, not only in terms of returns but, crucially, in growing our international brand.

We are still overly dependent on Japan; we are fully cognizant of that. We have a plan to address it, and that's why we continue to focus on building cornerstone businesses to sustain our international growth, much as how we have being doing already, for instance in Securitized Products and in our Solutions businesses.

So key themes. Our highest priority is to put the interests of our clients first through a culture of partnership. This is not just a catchphrase. In practice, it means that we allocate resources, commit capital and generate ideas where our clients need us most, and we align our businesses to meet those needs, much as we've done by more closely integrating Equities and Fixed Income under a unified leadership under one Global Market structure.

We target select markets and businesses where we can compete on a level playing field, deploying resources where we have a clear advantage in terms of product knowledge, long-held client relationships, and a deep understanding of the local market. And that's where we have seen several successes across all of our geographies, particularly in our solutions businesses by thought leadership and ideas. It is this ideas-led approach which has allowed us to access new fee pools where we gain first-mover advantage, and do not have to compete to gain market share. In short, success through innovation rather than only depending on financial resources.

And as a smaller and nimble firm, we can maximize the synergies across our products, our businesses and regions in a way that larger more-siloed banks cannot, which is a clear area of differentiation. Last but not the least, we are aiming to create a best-operator platform where we have a strict discipline-run balance sheet, risk, costs and productivity; a platform that is singularly focused on profitability.

Divisional strategies, let's start with Equities. We have good momentum going into the new year as the fourth quarter was the strongest of the year. The division has been reinvigorated on the strengthened Global Markets platform, together with Fixed Income more closely integrating several engines of growth in distribution, structuring and trading across asset classes. The biggest beneficiary of this new structure may be derivatives, where we also appointed a new global head to grow our distribution, risk and structure and capability with corporates to seize what is anticipated to be the largest fee-growth opportunity in the industry next year. We see up to 80% revenue growth in this business.

We continue to believe that our electronic offering is amongst the best on the Street, and we now have a plan to more closely integrate our Instinet platform which can yield substantial synergies with our existing full product platform. Our Cash business is a historical strength at Nomura. We must continue to differentiate ourselves through our intellectual capital and our highly-regarded execution capabilities; and that's well reflected in all our research rankings in all our trading prowess in most of the world's major stock exchanges and world's major geographies.

Finally, we also want world-class smart and disciplined risk-taking to contribute to the bottom line, both in support of and as a profitable expansion to our client businesses. So we made the investment over the last few years; this is going to be a year in which we plan to monetize our equities build-out.

Fixed Income. Fixed Income has been a standout for the Firm; fixed business is generating over 30% margins and a well-diversified 70% revenue contribution from outside Japan. We have strategically invested in the Rates businesses, which is evolving into a cornerstone profit center for the Firm. Last year we witnessed a 19% increase in customer revenues, and we have a carefully-planned blueprint to expand our client offering, upgrade our infrastructure around flow products and capitalize on the shift towards electronification. We are also investing in credit, where we're already seeing good progress in structuring and in Japan flow credit; and we are scaling up [annuity] business while realigning the US towards high-yield structuring and investment-grade debt.

Foreign Exchange has a been a longer-term build-out for us and we are very conscious of where our competitive edge is. And it is in emerging markets and in Japan, while we operate our G10 capabilities to better service our clients. Securitized Products has been the standout success story for us in Fixed Income, along with Rates, rewarding our investment. We started in 2009; huge client flows and profitability in its first full year of operation, and we aim to maintain this together with higher-margin products.

Across asset classes, Structuring has and will continue to be a [core thrust with clients, again, going to the earlier emphasis on thought leadership, our ability to be cutting-edge in terms of solution providers. Last year we executed over 5,000, 5,000 tailored client solutions, generating over $1b in revenues.

Investment Banking. Our mid-term priority in IBD will continue to be to aggressively gain traction internationally where we have not yet achieved our full potential, and to focus on improved productivity. We have had some successes. In fact, our international revenues nearly doubled from the first half of last year to the second half, reflecting a steadily building pipeline of mandates. To most effectively channel this momentum we are narrowing our sector and product coverage with even greater focus in natural resources, financial institutions, industrials and sponsors. Not surprisingly it is these four core sectors that provide close to 70% of the fee pool for Investment Banking.

In terms of products, we already have a visible track record in Global Finance Solutions and M&S, some of which I alluded to. And we will continue to grow these in close partnership with Global Markets.

We will aggressively defend our dominance in Japan, but also proactively execute new revenue opportunities, such as our Japan Solutions businesses, and greater cross-border collaboration. Again, across all sectors and geographies, maximizing profitability in IBD is our utmost priority, which you can only achieve by increasing banker productivity, appropriately scaling the platform, and aggressively harnessing cross-divisional synergies.

To the regions. Clearly underlying all of our regional strategy is increased diversification and profitability. A consistent theme which you've heard from my colleagues prior to my presentation, so I'm not going to dwell too much on it. I think it's important to point out that all regions have seen a pick-up in revenues over the course of the year, signaling huge new momentum in our non-Japan franchise with our international revenues having grown to 66% of total Wholesale revenues. Our target, 70% to 80% of our revenues from outside Japan. But, more importantly, our goal is standalone profitability for all of our divisions in each key geography, and we have a differentiated strategy to achieve this.

And on this page I've listed our key areas of focus for all geographies, so let me address some of the salient features. In Japan, we have successfully defended and impressively widened our lead over the competition by tapping new opportunities in rates, foreign exchange, credit and derivatives, offsetting a decline in cash and the equity capital markets. We are budgeting continued growth in Japan Global Markets, while expanding on our dominance in IBD to cross-border and solutions-driven mandates and exploring partnership opportunities with Nomura's powerful Retail and Asset Management arms.

In Asia ex-Japan, also part of our home geography, we are building a higher-margin accretive business as we continue to monetize our investments in Execution Services, Equity Capital Markets, Foreign Exchange, Rates and Distribution. At the same time, we continue to deepen our penetration of select local markets, especially Greater China, South-East Asia and India.

In EMEA, our Equities business will be focused on Derivatives and Solutions, as well as selectively on cash to a differentiated research offering. Our existing momentum in rates and structuring will be key to driving a 31% overall budgeted increase in Global Markets, which, along with our growing IBD pipeline sets us on a path to profitability in EMEA.

In the Americas we have taken a more focused approach balancing market positioning with real profitability targets. We are projecting a revenue increase with the exception of Instinet of more than 60%, with Fixed Income leading the way in established businesses such as securitized products and rates, along with expansion in credit and foreign exchange. In Equities, we have an added focus on derivatives in the United States, while improving our cash performance for insightful research and better alignment with trading. In the meantime, Americas Investment Banking is more tightly concentrating on a select number of industries with an emphasis on solutions, M&A and, importantly, being well-aligned globally.

Same slide as my CEO put up. With the strategy that I've just outlined to you, we remain very confident as a Wholesale division in our ability to grow both top-line revenues and bottom-line profitability. Short-term target of 35% to 45% revenue growth over two years; and we feel confident that we can deliver 15% revenue growth further out, catching at least 4% of the revenue pool among the top 10 banks with a consistent client-based revenue contribution of 70% to 80%. I think it is important to bear in mind that this is a business in which investment always has a lag effect, so most of the investment has been made over the last 18 months and it's over the 18 months to two years that we're going to start to see the benefits of the investment.

We will continue to grow our international contribution to 70% to 80% of revenues, which means that while we expect Japan to continue to grow, domestic revenues will be out-paced by our global businesses. And, most importantly, we believe that a pre-tax target of 10% to 15% is not only achievable but is critical to our long-term competitiveness, and we'll obviously aspire to beat this target.

So in conclusion, with our renewed focus on profitability and productivity, it is not only a change in our business strategy; it's more a reflection on our capacity to adapt to all the changes around us. We have made a lot of progress over the last year in a volatile market; we've increased market share; we've had better traction with clients; we've had greater accountability and transparency in our processes we've intensified partnership around new initiatives, budgets, spending and compensation. And these are all important milestones.

What will continuously be required is disciplined investment in the right businesses where we have a competitive edge, and we'll continue to be innovative, smart and flexible. We will also need to think across silos -- we are doing better at that --- and building a partnership with our colleagues in Retail and Asset Management, which is a huge, huge competitive advantage for us.

And, most importantly, ours is an industry that relies on the strength of its people and I believe we've got some of the best talent on the Street to drive our strategy forward. And, with a Nomura of tomorrow, promising significant upside opportunities for clients, employees and long-term value for our investors. Thank you for your time.

(Interpreted). Thank you very much.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.