Nomura Holdings Inc (NMR) 2012 Q1 法說會逐字稿

Good day everyone and welcome to today's Nomura Holdings first quarter operating results for fiscal year ending March 2012 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. The questions-and-answer session will be held after the presentation.

Please note that this telephone conference contains certain forward-looking statements and other projected results which involves known and unknown risks, delays, uncertainties and other factors not under the Company's control which may cause actual results, performance or achievement of the Company to be materially different from the results, performance and 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 evaluations, competitive condition and size, number and timing of transactions.

Now we'd like to begin the conference. Ms. Junko Nakagawa, please go ahead.

Thank you for taking the time to join us today. I am Junko Nakagawa, Nomura Holdings CFO. I will now give you an overview of our results for the first quarter.

Please turn to page 4 for the document entitled Consolidated Results and Operations. This page sums up our first quarter highlights. In short, we faced a very challenging environment during the quarter.

Page 5 gives you a more detailed outline. Please turn to page 5.

Our net revenue was JPY330.4 billion, up 27% year-on-year and 10% quarter-on-quarter. The higher figures include the effect from an increase in consolidated entities after Nomura Land and Buildings became a subsidiary. Income before income taxes rose 5.3 times from the first quarter last year to JPY34.4 billion, a decline of 8% quarter-on-quarter.

Net income was JPY17.8 billion, an increase of 7.7 times year-on-year and 49% compared to the previous quarter. So despite the challenging market environment globally, we reported our ninth consecutive quarter of profitability.

In Japan, Retail and Asset Management income increased quarter-on-quarter amidst the difficult market conditions following the earthquake. Business segment income before income taxes was JPY14.6 billion.

Turning now to the highlights by business segment, Retail reported net revenue of JPY94.2 billion, down only 2% from the prior quarter. Income before income taxes increased to 25% to JPY22 billion.

We saw robust sales of the investment trusts, foreign bonds and other products matched to the needs of retail investors. Retail made a solid contribution to firm-wide earnings.

Asset Management reported a 9% sequential rise in net revenue to JPY18.8 billion and a 19% increase in income before income tax to JPY7.4 billion. The investment trust and investment advisory businesses both continued to expand and assets under management increased by JPY600 billion to JPY25.3 trillion. Wholesale revenues were impacted by the challenging market environment with net revenue declining 24% quarter-on-quarter to JPY141.2 billion. Loss before income taxes was JPY14.9 billion.

I'd like to talk further about wholesale by different segments. Global Markets posted net revenue of JPY130.1 billion, up 35% year-on-year and down only 5% quarter-on-quarter. Fixed Income market conditions were tough and revenues were driven by Credit and Structured products.

Equity revenues increased significantly from the prior quarter in the Americas and Asia excluding Japan. Investment Banking booked net revenue of JPY11.2 billion down 8% year-on-year and 77% sequentially due to a decline in ECM activity in Japan following the earthquake.

Please turn to page 6. As you can see, net revenue was JPY330.4 billion. Income before income taxes was JPY34.4 billion and net income was JPY17.8 billion. First quarter annualized ROE was 3.4%. Pretax income includes a one-off gain of JPY24.3 billion from the consolidation of Nomura Land and Building.

Please turn to page 7. Page 7 shows business segment net revenue and income before income taxes.

Next I will outline the first quarter highlights for each businesses. Please turn to page 8. First I'd like to talk about Retail. In addition to the earthquake, Retail had to deal with historical high yen levels and a decline in trading value on the Tokyo Stock Exchange.

In spite of the difficult environment we saw new fund inflows in investment trusts and foreign bonds as well as robust sales of insurance products as we responded to our clients' individual needs with consulting services.

Retail client assets were essentially unchanged from the prior quarter at JPY70.4 trillion. Net revenue was JPY94.2 billion down quarter-on-quarter, and income before income tax increased to JPY22 billion.

Please see page 9 for more details on sales by product.

Please turn to page 10. Page 10 shows Asset Management. Inflows of JPY310 billion into public stock investment trust such as East Japan Revival Support Bond Fund, currency selection-type funds, and Japanese equity funds helped increase asset under management to JPY25.3 trillion.

That is up JPY600 billion from end of March. Net revenue increased by 9% from the prior quarter to JPY18.8 billion and income before income taxes increased 19% to JPY7.4 billion.

Please turn to the next page. In the investment advisory business, we won more mandates from pension funds worldwide and government entities and sovereign funds in Asia and Middle East to managed Asian equity products which are performing well. As shown on the top right, investment advisory assets under management are steadily expanding.

In the investment trust business, we delivered products matched to investor needs, maintaining our leading position in Japan's publicly offered investment trust market with a share of 21.9%.

Please turn to page 12. Page 12 gives an overview of Wholesale. Net revenue increased 30% year-on-year to JPY141.2 billion which was down 24% from the last quarter. Pretax loss was JPY14.9 billion. It has been a very challenging market environment for Wholesale with a sovereign debt crisis in Europe, political instability in the Middle East, concerns of a slowdown in the US economy, and the market slump in Japan following the earthquake.

However, as the pie charts on the bottom right show, in spite of the difficult market revenues grew steadily in the Americas and Asia, key regions where we have been strategically investing. To address our current market challenges, we plan to implement a cost reduction program in Wholesale of over $400 million or over JPY32 billion in run-rate expenses.

These annualized savings are equivalent to about 5% of last year's Wholesale cost base. The strategic cost savings will help pave the way for investments in high growth regions and promising businesses.

Please turn to page 13. In our Global Markets businesses, client activity was subdued market-wide, but revenue contributions from the US and the rest of international business coupled with disciplined risk management meant our revenue declines were relatively small compared to our competitors.

In Fixed Income as revenues dropped across the industry, our revenues were down only 3% quarter-on-quarter, JPY67.6 billion, with increased sales of credit and foreign exchange products. Equities revenues increased in the Americas and Asia Ex-Japan offsetting weaker results in Japan and Europe.

Volumes on major markets plunged due to economic circumstances following the earthquake in Japan, but we reported only a 12% decline in revenues at JPY56.7 billion.

Please turn to page 14. In Global Markets, the share of revenues from the Americas is steadily increasing. Both Fixed Income and Equities are gaining market share, rising up industry ranking and expanding client flows.

Moving things forward, we will work to further expand our international revenues while maintaining our solid revenue base in Japan.

Please turn to page 15. Page 15 outlines Investment Banking. We saw revenue growth in our international businesses and diversified revenues from pull-through M&A deals with products such as leveraged finance solutions businesses.

However, while gross revenue increased 11% year-on-year, it declined 41% quarter-on-quarter to JPY32.3 billion due to a drop-off in domestic ECM activity after the earthquake and the recent market conditions. Pretax loss was JPY20.6 billion.

Please move on to page 16. In Japan which was hit by sharp yen appreciation after the earthquake, we increased dominant market shares compared to the same time last year. Outbound acquisitions and investments by Japanese companies have been on the rise due to the strong yen.

As you can see from this slide, we advised many blue-chip Japanese companies such as Dai-Ichi Life and Itochu on high-profile cross-border deals. In Asia, we acted as joint bookrunner on several large convertible bond deals for three straight months since April. In June we bookran CB issuance by Lotte Shopping, the largest ever CB deal in Asia Ex-Japan consumer retail sector in the amount $900 million.

We ranked number two in the CB league tables for Asian corporates. In Europe and Americas we maximized M&A pull-through revenue and booked revenues from financial sponsor and insurer-related solutions businesses.

Please turn to page 17. I would like to explain about expenses or costs. First quarter non-interest expenses were JPY296 billion, up 13% quarter-on-quarter. Excluding the impact of the consolidation of Nomura Land and Building, expenses declined by about 3% from the previous quarter.

Although compensation and benefits increased 7% to JPY136.3 billion we continued to implement a pay-for-performance culture thoroughly.

Before I finish, I'll give you an update on our financial position at the end of the quarter. Please go to page 18. As shown here, our financial position remains robust. At the end of June, our Tier 1 ratio was 16.2% and we had total assets of JPY39.7 trillion and shareholder's equity of JPY2.1 trillion. Gross leverage was 18.9 times and net leverage was 11.6 times.

Level 3 assets totaled JPY800 billion or 35% of the Tier 1 capital. We will continue to closely watch market conditions and taking into account our business strategy and financial position to aim for a Tier 1 ratio of around 10% when BASEL III is introduced in 2013.

That concludes my overview of our first quarter results. We will continue to build a truly client-driven organization and increase our international revenues while maintaining a robust financial position. Thank you.

We are going to have a question-and-answer session at this moment. (Operator Instructions) After the announcement, start your question with your name and company. We will take your questions until the end of the meeting.

(Operator Instructions)

Muraki San, Deutsche Securities.

I have three questions. My first question is as follows. So in Wholesale a cost reduction program of more than $400 million is to be implemented as was said in the presentation. So in which regions -- in which areas and what are the time schedules for the cost reduction program if you could share that information with us?

And the second question has to do with regulation, BASEL 2.5 to be introduced next year. When that is introduced what would be the size of the risk assets? And Tier 1 ratio is going to change to which number if you can give us guidance as to what Tier 1 ratio is going to be?

And question number three, what is discussed under BASEL III discussions for SIFIs, GE SIFIs, capital surcharge for GE SIFIs? So up until the time when it is introduced, how much additional charge are you assuming? And what kind of coordination adjustments are you making?

Mr. Muraki, thank you. So on your first question regarding the cost reduction program. As I have explained earlier in the Wholesale division, cost reduction initiatives are to be implemented to improve profitability. Personnel cost and non-personnel cost regardless of which it is on an annual basis we will like to achieve a over $400 million cost reduction.

Now as to the breakdown, across regions and areas we are to reallocate and reconsider resource allocation. But then we are planning to increase investments based on savings. And of course in view of the cost reduction program and the investment, we're going to have a net reduction in cost and we will start from where we can. And I am not able to share any further details with you at this moment. I hope you will understand.

The second point, BASEL 2.5, what will be the impact of BASEL 2.5, that was your question. In terms of the major impact, well, we are not disclosing specific numbers as to what the measured impact is going to be. And under BASEL III how much surcharge are we assuming, what percentage, was that the question?

So additional capital charge, how much are you assuming at this moment? Well, Tier 1 ratio of 10% will be your target for the time being I think you said. And given the earlier proposal, do you think you will be requiring a common share Tier 1 ratio of 10%?

Even if we are recognized as GE SIFI given the consultations given so far I think a phased approach is going to be applied, and therefore the percentage required will be low at around 1%. I hope that answers your question.

So additional surcharge of 1% and Tier 1 ratio of 10% to be targeted. And is there awareness such that you do not need to change those numbers drastically going forward?

In terms of risk appetite Tier 1 ratio of 10% we have been saying and as we have explained, many steps and measures will be taken. And as a target we believe that that shall be sufficient.

I understand. Thank you.

Tsujino, JPMorgan.

So reconciliation outside segment I think you have the chart for that, so in first report a certain page of the presentation. So the account, so you have JPY4.7 billion mentioned here. So I think it was consolidation of JPY24.3 billion.

So did you think that you would have JPY11.5 billion, and this number JPY11.5 billion, so we see a reduction from -- of the fourth quarter. And equity cost pool cost has declined slightly.

And the fourth quarter there was some special nature cost spending -- the cost, outgoing cost. So this JPY12.7 billion I think I believe it's a normal level. Can we believe this is a normal cruising level number?

And here I'd like to ask another question on this table. So we have other miscellaneous, so you have JPY12.7 billion others. You have -- so we have JPY5.5 billion positive, so you have impairment loss of JPY7.1 billion of the debt.

So this would -- makes it JPY12.7 billion. So if you look at the previous quarter, if you apply the same type of adjustment, you would have sequential minus figures. So -- and but right now, in this quarter we a have positive number after the adjustment. So why is the case? Why do we have positive on this quarter?

And Global Markets (inaudible) is the third question. So Fixed Income and Equity has been treated separately in Europe, Americas, Japan and Asia excluding Japan. We have been presenting what are the respective share, so we would like to ask for the same number?

Thank you very much, Mr. Tsujino. First, the corporate account, head office account, JPY11.5 billion which you have mentioned, first point is we had a one-off factor, so the real estate factor. That's what we've described in the last meeting.

And so we have a decline in that type of one-off factor and also we have strengthened regulation on liquidity and financial cost. Interest cost has slightly improved. So basically my answer is as you have pointed out.

The second point, so subsidiaries not included in segments or some of the bank subsidiaries who has made the profit, so -- and -- sorry, for the normal. So the difference in the handling of our financial accounts so that's why we have seen this number.

Can you be a little bit more specific about that point? And so what's not included in segment -- sorry, subsidiaries, not included in segment, are there -- were they -- was there any special factors in regards to those subsidiaries?

No, there hasn't been any special factors.

So -- but on -- excluding on credit you have been continuously been minus, negative figure, but this quarter I think I see a substantial improvement of about JPY10 billion.

You have mentioned -- we have mentioned earlier Asset Management department. We had -- I think we had made a note there. Can we look at page 26? So what used to be in Asset Management overseas subsidiary, some of the overseas subsidiary is now included in others. So that's I think one of the key factor.

But -- so not JPY10 billion, but small billions you mentioned -- you say?

Yes, that is the case. The third point in your question; so I'd like to start with Fixed Income Japan, EMEA, Americas and Asia excluding Japan, so that's Americas slightly less than 40% -- excuse me, Japan, about slightly less than 30%, EMEA, Europe about 30%, Americas slightly more than 20%, Asia excluding Japan about 10%.

And now I'd like to go through equities bridge, Japan, EMEA, Americas, Asia that's the order. Japan slightly more than 20%, EMEA about slightly more than 30%, Americas about 20%, AEJ, slightly less than 30% that's the break.

Thank you very much. So I'd like to add to my question. So we see increase in the labor cost. I would assume that Nomura because you have acquired Nomura Land and Building, you are going to -- now their labor, the Company's labor cost is included. Is that the impact that has caused the labor cost to increase quarter-to-quarter?

I would assume that's one of the factor, but that would not explain all the labor cost increase because it's too small to explain the overall labor cost increase. So can you provide us the further break in what labor cost increases were or how much from Nomura Land and Building and how much from other factors?

So I think I have communicated to you about this in the last meeting. So we are ensuring pay-for-performance. That has been our message.

So if we make a comparison quarter-to-quarter, it's a little bit difficult to explain because the numbers fluctuate because the pay-for-performance system. So factors for the labor cost increase basically it's not -- we have more impact from increasing our labor cost rather than impact from consolidation. So -- because we have had a very short term for profit and loss.

Thank you very much.

Daiwa Securities Capital Market's Shiota San.

Yes, thank you. I have two questions that I would like to ask. This is a follow-up question from the earlier question by region and by segment. I understand that you cannot disclose the numbers, but what about the timing? So if you look at the next couple of quarters, what timing will you start to see the effect of cost reduction initiatives?

And regarding cost again, why are you announcing this at this timing, not at the end of the last quarter? And my next question has to do with PIIGS exposure, if you can share with us any numbers I'd appreciate it. So those are my questions, two of them.

Shiota San, thank you very much for your question. So your first question, when will we start to see the effective cost reduction initiatives; as I said at the outset, we are now scrutinizing and reviewing the content of the cost reduction program when will we start to see the effect, at what timing. We're not able to communicate that to you at this moment. I hope you will understand.

However, as we implement the program -- well, before we implement the program, we are reviewing it closely and based on the actuals we have come out with this number that I have disclosed. And of course we will start reducing cost from where we can. And we hope to get in touch with you and get back to you with the specifics in the following quarters going forward.

And when we will release and disclose the timing, why are we announcing at this moment, not at the end of the last term, well, usually we would announce such programs when we formulate a new plan. But as you understand, we have seen impact from the earthquake, as well as impact from Europe and impact from the changing environment in the US. They are large changes, and prior to that regulatory environment was becoming very, very tough.

On top of that market conditions have become harsher, due not only to the earthquake in Japan, but developments around the world as well. So rather than being too optimistic that things will improve going forward, we thought that we should be conservative in coming up with estimates. And to address your second question, was your question about the exposure country by country in Europe?

Portugal, Greece, Spain, and Italy, Ireland, these PIIGS countries, what's your exposure in these countries?

So Greece, where people are paying most attention, our exposure is very little in Greece. And with respect to country exposure in Europe, there are countries where we serve as primary dealer.

So we do have inventories of sovereign bonds, but these are highly liquid instruments, and they are mainly short-term instruments. As far as the numbers as of end of June excluding short-term debts, net exposure is little less than $2 billion, that's JPY160 billion.

Well, it depends on the Forex rate but it's a little less than $2 billion and those instruments with a tenure of one year or longer $0.5 billion and that's JPY40 billion. And with effect to the break-down, most is in Italy and they are liquid. They are liquid exposures, and they are on the trading book. And we do mark-to-market them on a daily basis. I think you can feel reassured about that.

Thank you.

Mr. Kasai from Citigroup Securities.

Okay, I'd like to ask my questions. So page 18 of the presentation, capital ratio. So Tier 1 common as of March end 16.4% and it's been lowered to 13.8% as of June end. So Nomura Land and Building, is it in -- I've heard that that's one of the major impact which has brought down the Tier one common to come down. And you said -- can we understand that the numbers are improving afterwards?

And my -- the other point is -- other question is on cost reduction. So you are expecting $400 million cost reduction, and so would it be a cost reduction in revenue-related departments, or would these cost reduction has a nature of not impacting the revenue, just have a positive impact on the bottom-line? So what type or what is the objective of the cost reduction? Would it impact the revenue?

Thank you very much for your question. The first part of your question, so stock swaps and other transaction did not have any impact. So the factors impacted the results.

So because we had consolidated NLB, we had a increase in the risk-weighted asset. So -- and the impact is relatively light given that the -- we have a very large capital.

And the cost reduction program, the second part of your question; so would this impact the revenue. Now, I'm not going to say it will have zero impact. That would not be the case, but it's not just a simple cost reduction.

So we will be looking into market environment, we will look into the outlook of what we're doing, and we will be in a sense reallocating our resources, most in terms of human and of finance. So we would like to take this management resource and reallocate them in a way it most makes sense.

So in some areas we might review a strategic business and review, so we might take away the resources from a certain department and reallocate it to more focused areas.

Thank you very much.

Yamanaka San, MF Global Securities.

I have two questions. My first question is as follows. This is a follow-up to the previous question about $400 million cost reduction program. I have a question again. I understand that you are still reviewing it.

And $400 million, I understand that that is the net reduction amount. How did you arrive at that number? What's behind that $400 million with that cost reduction? What is it that you're aiming at? So JPY32 billion and how did you arrive at that number?

And my second question, in one of the common questions, pretax income of overseas subsidiaries is disclosed. According to that disclosure, just as in the fourth quarter, US business is profitable, but in management accounting terms, it has yet to breakeven. So Americas, Asia, Europe, Oceania, how should I be looking at these numbers? And how can I interpret the management accounting numbers as well, if you could please elaborate on that?

Yamanaka San, thank you for your questions. So a question about the cost reduction program, the number that we have disclosed you may think it's either small or large and how did we arrive at that number? The number itself, of course, is not that we pulled it out of thin air.

We looked at the current market conditions. We also looked at the future and after many discussions internally, we came up with this number. We are trying to reallocate resources. And we came out with this number believing that this is a realistic number that we can achieve. And of course, we must start executing from areas where we can as I said earlier.

And the number itself, well, the wholesale cost if you look at the wholesale cost that we saw last year, this amount, $400 million accounts is about 5% of last year's cost base. It's not small. And as I said, we will start reducing costs from where we can.

And your second question; so the difference between financial accounting and management accounting, I think you're looking at the numbers that we disclosed, and in response to the common questions, the biggest factor is that -- perhaps we explained this before once, in response to liquidity regulation, we have had to deal with the regulation and that translated into difference between the two. And transfer pricing also is a factor. There are some accounting gaps between regions owing to transfer pricing.

Well, excuse me, in Americas I see that you have income or profit, but in effect it is not profitable yet, are you still running at losses?

I don't think we have communicated anything on that yet. Well, if you could just look at the numbers, as I have explained in my presentation earlier, I think we have been able to gain good performance given the current market environment. I hope you will understand that.

Thank you.

Morgan Stanley Security, [Mr. Snoda Frances].

Thank you very much. Just one question from myself. So page 18, so you have regulated capital ratio. I mean, we don't have to look into this, so this ratio is a critical index.

And why at this timing, given such criticality, why did you decide to bring Nomura Land and Building into your consolidation? Because risk-weighted asset increase and putting aside negative goodwill amortization, I mean, there's no effect, but still you have made them a consolidated subsidiary. So why did you have to make Nomura Land and Building a subsidiary?

And in the future so do we have this continuation of having listed subsidiaries, or are you going to sell off all the entities, or maybe not selling them, but do you have any assumption on how you can compress on the risk-weighted asset of these new subsidiaries? Thank you very much.

So consolidation of Nomura Land and Building, so what is the rationale or objective? It was not done for profitability, at least not short-term profitability. So we have looked into the Group organization.

We wanted to improve our Group structure and also we wanted to improve our capital structure. And we wanted to have an optimal allocation of our resource, and we wanted to enhance the speed of our decision-making. And that is why we wanted to improve our Group structure and our Group capital structure. That is our rationale.

So as a result, yes. Actually I have pointed -- our Tier 1 ratio or Tier 1 common ratio has slightly come down as you have pointed out. And we do know that these are critical indexes but we have -- and the second part of your question was, how do we plan how to improve this index?

So we will enhance the corporate value of each and every subsidiaries as Nomura Group and also enhance the value of the Group itself. So we have -- we will look into every option to enhance the corporate value and Group value. Please, I beg your pardon, we have nothing specific that we can communicate to you at the moment. But as soon as we are ready to disclose, we will be communicating these points to you.

So risk-weighted asset is increasing. So you are taking more risk. But if -- the profit is -- you're not expecting a increase in the profit. That is a very -- not a efficient way of capital utilization. So maybe -- so is your plan to discard or dispose or sell off RWA in next few quarters? You said with speed. So can we understand that that's your sense of speed in taking care of your risk assets?

So maybe speed wasn't -- that is a misunderstanding. So we are looking to every other options. Once we make decision, yes, we will be very swift to make action but our deliberation needs to be done very carefully.

So not only the consolidation of Nomura Land and Building, but that's our posture for all other issues. So we have been making deliberations on the consolidation of NLB, and that's because we are prepared to do so we have taken the action at this time. And you mentioned an increase in the risk asset, and so by 2013 we are expecting over 3.5% return on equity, and eventually we are targeting 4.5%. And we are still confident that this is a very achievable target.

Thank you very much.

(Operator Instructions) Credit Suisse, Ohno San.

I have two questions. Page 36 of the slide with the headcount; headcount is increasing in Japan, but Asia, we've seen here as well the headcount seems to be increasing. Why? If you could give us details as to why headcounts are increasing in these regions?

And the second point about the $400 million cost reduction program, if you are to reduce the headcount as well, how much reduction in headcount, how many people will you be slashing? You may not have arrived at a decision yet, but if that's anything that you can share with us, I'd appreciate it. Thank you.

Thank you, Mr. Ohno. So your first question about the headcounts, why headcounts are increasing in some regions on page 36. Well, your understanding as to why is correct. The number of consolidated subsidiaries and affiliates has risen that impact; 7,500 that is the impact of consolidation in -- particularly in Asia. Well, as far as Japan is concerned, what you have said is correct, consolidation.

And second as to why the number is increasing in Asia; with NLB consolidation there were several others that were also consolidated and there's a Company with 800 staff. And I think we earlier reported about offshore business in [Thailand] and so that has an impact. And we have the offshore entity in India that we've had for sometime and that business is growing with increased headcount. So these are the factors behind the headcount in these regions.

And your second question about cost reduction, how much headcount reduction are we going to consider was your question. So reallocation of managerial resources, that is the focus of the program.

And as it turns out, of course the headcount may change. I will not deny that possibility, but we're not going to start from reducing the headcount for this program. So there will be some increases and decreases depending on the region between the regions or strategies.

There will be reductions in some areas, but then as I said in some other areas there will increased investments meaning that headcounts may rise. So on a net basis, it may not translate into net headcount reduction, but of course we would like to improve profitability by reallocating the managerial resources. That's going to be the objective.

Well, then how are you actually going to reduce the cost?

As I said at the beginning, of course personnel cost and non-personnel cost, regardless of which it is, costs will be subjected to reduction. And there are ample areas where we can be creative in reducing costs.

And there are different countries, different regions where we have to consider appropriate allocations of people MDs, EDs, junior staff allocation depending on jobs. So considering that I think there's ample room for being creative in reducing cost.

All right, thank you.

Mr. Tsujino from JPMorgan.

Just two more points, one point just a confirmation. So NLB itself has real estate and those are the ones used for the Group business --- Nomura Group business. So the risk assets increased because of Nomura Real Estate Holdings is hanging below NLB. So that's the holdings; that holdings has a lot of risk asset, is that the case? Just to confirm.

And I'd like to talk about the labor cost as well. When we look into comp ratio, so you mentioned changes in the Group structure and it's not contributing to increase in the labor cost. So -- and you said net revenue is increasing because of different -- so like JPY24.3 billion reduction of negative goodwill amortization and you have a month's worth of revenue included. So excluding those -- and I calculated that on -- that denominated, so comp ratio is over 50%.

So first quarter usually have a higher -- a higher comp ratio and the last quarter -- in the quarter previous year, it's still a substantial increase in comp ratio year-on--year. So can you enlighten me on the reasons or the factors which drove up the effective comp ratio?

The first point, your understanding is quite correct, precise. The second point, labor cost, now earlier when you were talking you were talking about comp ratio, how it would be. Right now, we have a tentative factor which works on profit before tax about slightly more than JPY20 billion and -- but if we look into Group total we need to include these numbers. So we -- I always believed those assumption that we should exclude these from the Group profitability. I do not think it's precise or appropriate way of looking into things. Thank you very much.

Understood.

[Sasaki, Alliance Bernstein]

Hello, can you hear me?

Yes, please go ahead, Sasaki San.

Regarding Wholesale, I have two questions. First, with respect to investment banking, I have a question. So considering the deal pipeline that you have right now Investment Banking segment turning profitable once again, when will that happen? Will it happen in the next quarter or two quarters from now? At what timing will that happen? That's my first question.

And second at the beginning of this fiscal year, I think your firm has issued a very powerful message about the Wholesale business in terms of KPI. So 10% increase in annual revenue and margin numbers, you announced those numbers at the outset of this year, and these KPIs, do you believe that they need to be revised? So those are the questions that I wanted to ask, thank you.

Sasaki San, thank you for your questions. Your first question regarding investment banking, will it recover, what's the pipeline, well, this is more or less a forecast. I may not be able to provide you with a direct answer, but well, regarding debts, debts have started to recover from the middle of the first quarter, that's our impression.

And as I said earlier, ECM however will continue to be difficult. That's our expectation, not just in Japan, but around the world equity markets are being rather sluggish, turnover trading values has declined. And as I explained when I discussed Global Markets, the way in which risks are taken among investors have changed and investors are taking less risks today.

So in the first half of this fiscal year we're taking a conservative approach. In the second half, in view of the macroeconomic recovery, we hope that the manufacturing sector will start to recover at a pace earlier than initially expected. So we have hopes for that to happen. Anyway during the second half, we believe that recovery will become more firm and steady. That is our expectation.

Your second question, what we announced the other day, our plan that was announced, and it was a mid-term outlook, and as we have announced today, we're going to reduce cost given that the current circumstances are very severe. We will have to continue to make steady efforts and in order to reallocate -- manage our resources we are to reduce cost.

And are we going to review the KPIs, we will not do so at this moment but as we make studies in the future if revision to the KPIs is warranted, we will get back to you to report that to you. Through cost reduction, we would like to focus on increasing revenue and profitability.

If that is the case then new cost reduction program, even if that is implemented, the top-line target or forecast is not going to be revised, is that correct?

Well, the environment will change going forward. So we will not deny the possibility of having -- have to revise the top-line target, but we're not doing that at this moment.

Thank you, understood.

We're going to close the Q-and-A session as we are having no more questions. So a closing remark from Nomura Holdings.

Thank you very much for attending the telephone conference today leaving your busy schedule.

Now we will close the conference call. Thank you very much for your participation. Please feel free to hang up your telephone. Thank you.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.