Nomura Holdings Inc (NMR) 2013 Q4 法說會逐字稿

Good day everyone and welcome to today's Nomura Holdings' fourth quarter and full year operating results for fiscal year ended March 2013 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 now 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 involve known and unknown risks, delays, uncertainties and other factors not under the Company's control, which may cause actual results, performance or achievements of the Company to be materially different from the results, performance or other expectations implied by these projections.

Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security evaluations, competitive conditions, and size, number and timing of transactions.

With that, we like to begin the conference. Mr. Atsushi Yoshikawa, please go ahead.

This is Atsushi Yoshikawa, President and Group COO. Thank you very much for attending this conference call before the three-day holiday. First of all, I would like to say a few words and then hand you over to our new CFO, Shigesuke Kashiwagi who was appointed on April 1. He will run through the highlights of our results for the full year and fourth quarter. And we will then take your questions.

Earlier today, we announced a share price in both revenues and income for the year ended March 2013. On an annual basis, we had our best year since the fiscal year ended March 2007. During the fourth quarter, Japan benefited from the effects of economics and retail made a strong contribution to quarterly earnings. We also booked a one-off gain on the secondary offering of Nomura Real Estate Holdings' shares. On a quarterly basis, both pretax and net income were at their highest levels since the quarter ended March 2006.

For the full year, retail reported a 59% increase in pretax income to JPY100.6 billion as the favorable market conditions lead to higher risk appetite among individual investors and total sales increase, particularly sales of equities and investment trusts.

In asset management, the improved investment environment and inflows of client funds led to higher assets under management and increases in both revenues and income for the full year period. In wholesale, fixed income continues to drive stable revenues throughout the year. On an annual basis, wholesale reported pretax income of JPY71.7 billion, a sharp rebound from losses of JPY37.7 billion in the previous year. In the other segment, we booked a gain related to Nomura Real Estate and losses due to the tightening of our own and our counterparties' credit spreads.

I will now hand you over to our CFO to speak about this and our overall results in more detail.

This is Shigesuke Kashiwagi, CFO, speaking. Very nice to have this opportunity to talk to you. Let me now present to you an overview of our financial results for the full year and fourth quarter ended March 2015 using the document titled consolidated results of operations.

First of all, please turn to page 3 for a summary of the full-year results. We reported strong year-on-year gains for both revenues and income. Net revenue was JPY1.810 trillion, up 18% year on year. Pretax income jumped 180% to JPY237.7 billion, and net income grew 9.3 times to JPY107.2 billion. ROE was 4.9%. Today, we announced our half year dividend of JPY6 per share payable to shareholders of record as of end of March. That gives a total annual dividend of JPY8 per share.

Pretax income from our three business segments increased 4.2 times year on year to JPY193.5 billion with all segments contributing to earnings. Before I give you a breakdown of results by segment starting from page 7, I will run through a summary of our fourth quarter results on page 4.

We reported our best quarter in seven years driven by the robust performance in retail, and the JPY50.1 billion one-off gain on the secondary offering of Nomura Real Estate Holdings' shares. While Nomura Real Estate's earnings are consolidated on our fourth quarter income statement, the Company has been accounted for under the equity method on our balance sheet since the end of March.

Fourth quarter net revenue was JPY653.6 billion, up 68% quarter on quarter. Pretax income grew 13.1 times to JPY169.7 billion while net income increased 4.1 times to JPY82.4 billion. On an annualized basis, ROE was 14.8%. Since December, our Japan and Japan-related businesses have reported significant earnings growth. Pretax income from our three business segments increased 35% quarter on quarter to JPY96.8 billion driven by a strong performance in retail. This represents our best quarter since the three months ended June '07.

In the other segment, pretax income was JPY50.1 billion. This includes a JPY50.1 billion gain on the secondary offering of Nomura Real Estate shares as well as the earnings of Nomura Real Estate and other subsidiaries and affiliates during the period. It also includes a loss of JPY34.8 billion due to the tightening of our own credit spread.

Pages 5 and 6 give you an overview of our Group wide and business segment results. I will now give you an update of performance by business. Please turn to pages 7 and 8. Net revenue in retail increased 14% year on year to JPY397.9 billion and pretax income jumped 59% to JPY100.6 billion. Retail performance rebounded in the second half of the year on the back of market rally since December. On a quarterly basis, net revenue increased 45% from the previous quarter to JPY138.7 billion and pretax income rose 182% to JPY57.2 billion marking the strongest quarter since the three months ended December 2005.

We saw strong growth in sales of equities and stock investment trusts with total retail sales increasing 69% compared to the previous three months. Expenses increased by JPY5 billion due to the cost associated with our new STAR IT system. While we expect these costs to remain elevated for the current year, we should see a marked decline in expenses from the following year onwards.

Turning now to asset management on pages 9 and 10, full year net revenue was JPY68.9 billion, up 5% year on year. Pretax income increased 3% to JPY21.2 billion. These gains are the result of steady growth in assets under management.

Fourth quarter net revenue was JPY18.3 billion, which is roughly in line with the strong third quarter that included performance fees and dividends. Pretax income was JPY3.9 billion, a decline of 46% from the previous quarter due to one-off charge related to the revaluation of assets held. The improved investment environment and fund inflows led to an increase in net assets under management of JPY2.8 trillion during the quarter to JPY27.9 trillion. As shown on the bottom left of page 10, the investment trust business reported inflows of JPY464 billion.

Please turn to page 11 for wholesale. Full year net revenue in wholesale was JPY644.9 billion, an increase of 16% year on year. Pretax income was JPY71.7 billion, which represents a strong rebound from the pretax losses booked in the previous year. Quarterly net revenue was up 4% at JPY196.9 billion, the best quarter since the three months to December '09 driven by significant increase in revenues in Japan. Pretax income was JPY35.7 billion representing a decline of 20% quarter on quarter due to one-off expenses related to our cost reduction program and also as a result of the depreciation of the yen.

Internationally, revenues slowed in each region from a strong third quarter, but performance was relatively solid compared to the first half of the year. We continued to move swiftly to implement measures in that improving profitability.

Please turn to page 12 for fixed income. Fourth quarter net revenue in fixed income was JPY108 billion, representing the second strongest quarter for the year. Japan had a good quarter due to the changing macro environment while our international business slowed from a strong third quarter. That said, as shown on the graph on the top right, revenues continued to climb steadily year over year. We maintain a well-balanced mix of client and trading revenues, and all regions and products reported higher revenues.

Please turn to page 13 for equities, fourth quarter net revenues in equities were JPY65.1 billion, an increase of 38% compared to the previous quarter. Market turnover recovered in Japan and other major markets driving up client revenues by 37%. The graph on the right highlights the rebound in revenues in Japan, Asia excluding Japan and the Americas during the second half of the year. The migration of execution services into Instinet is progressing well with most of our major clients having moved over to Instinet as of the end of March.

Please turn to page 14 for investment banking results. Quarterly net revenue in investment banking was JPY23.8 billion, down 23% from the previous quarter, which included private equity gains. Excluding other, net revenue increased by 32%. Investment banking gross revenue was JPY44.1 billion. Revenues in Japan were at their highest level in eight quarters driven by J-REIT ECM deals and large DCM transactions.

Internationally, despite a challenging fee pool environment, we won a wide range of mandates in our key focus sector of financial institutions and financial sponsors. Leveraged finance revenues in the Americas also grew during the quarter.

Please turn to page 15 for an overview of costs. Full year non-interest expenses increased by 9% to JPY1.580 trillion primarily due to the fact that Nomura Land and Building expenses were recognized for the full 12 months versus just 10 months in the previous year. Another key factor behind the higher expenses was a rise in the cost of goods sold at Nomura Real Estate on the back of strong sales of residential apartments. Excluding these effects, non-interest expenses were roughly flat year on year.

On quarterly basis, non-interest expenses increased 29% to JPY483.9 billion. Other expenses increased by 54% due to the rise in cost of goods sold at Nomura Real Estate.

Please turn to page 16 on an overview of costs, excluding Nomura Real Estate. The graph on the left shows that full year non-interest expenses were roughly flat year on year although we were affected by the depreciating yen and booked higher one-off expenses such as restructuring costs and IT system disposal costs. When you strip out these factors, non-interest expenses actually declined year on year. As shown on the right, on a quarterly basis, non-interest expenses increased 11% from the previous quarter as a result of one-off expenses related to cost reductions in wholesale and higher compensation and benefits due to stronger revenues and yen depreciation. Another effect of the high expenses was an increase in the information processing and communications due to the launch of the new retail IT system, but this was more than offset by stronger revenue and we booked a substantial pretax profit for the fourth quarter.

Please turn to page 17. Our additional $1 billion cost reduction program is on schedule and was 78% complete at the end of March. As noted on page 16, the one-off expenses due to headcount reduction and IT system disposal costs mean it will take some time for the benefits of our cost reduction program to flow through, but we maintain a tight grip on costs and are focused on lowering our breakeven point.

Please turn to page 18 for an update on our balance sheet. Total assets at the end of March were JPY37.9 trillion, gross leverage was 16.5%, and net leverage was 10.4%. We started applying Basel 3 to our capital ratios from March end. Our Tier 1 ratio and Tier 1 common ratios were both 11.7%.

Please see page 19 for changes since December end. As shown on the top right of this page, our fully loaded 2019 Tier 1 common ratio is approximately 10% based on our year end balance sheet.

Please turn to page 20. There are no significant changes to our funding and liquidity from December. So I will leave it for you to look through later.

Page 21 outlines our exposure to European peripheral countries. Our net country exposure at the end of March was $920 million, down from $2.94 billion in December. The decline is mainly the result of a reduction in our sovereign debt exposure in Italy. It should be noted that this has nothing to do with the Monte dei Paschi legal issue reported in the media. Our inventory consists entirely of trading assets that are mark-to-market on a daily basis, and we will continue to manage our positions prudently.

Lastly, I would like to update you on our share buyback program. As announced in today's press release, the share buyback program has an upper limit of 40 million shares or a maximum of JPY35 billion. We plan to use the acquired treasury stock to issue shares upon the exercise of stock options.

That concludes today's presentation for the full year results ending March 2013 and the fourth quarter.

I would like to add a comment on the transactions with the Monte dei Paschi. As the situation regarding Monte dei Paschi di Siena or MPS is an ongoing legal issue, we are unable to comment any further on these matters other than what I will explain now.

In 2009, Nomura International PLC or Nomura entered into a series of related trades with MPS to restructure an earlier derivatives transaction between MPS and another bank. This restructuring was designed to change MPS' economic risk profile in respect of the earlier transaction. As part of the restructuring, Nomura and MPS entered into a 30-year derivatives financing deal collateralized by a large amount of primarily Italian government bonds. As part of these types of transactions, each party is typically required to post collateral depending on the size and duration of the trade.

Nomura believes that the collateral required in this case is commensurate with the size and duration of the trade. Similar to other transactions, the transactions with MPS are managed by marking the positions to market on a daily basis, and we are currently in a situation where we have secured sufficient collateral.

On April 16, the Italian prosecutors attempted to seize in excess of EUR1.8 billion of assets from accounts in Germany and Italy said to belong to Nomura relating to trades with MPS, alleging that those trades involved criminal offenses on the part of some individuals involved therein from Nomura and MPS. No Nomura assets in Germany have been seized and having taken appropriate advice, Nomura does not believe it has assets susceptible to seizure by the Italian prosecutors pursuant to its decree in Germany. In addition, no assets of Nomura's Milan branch were seized as its only account is used for funding day to day operations.

We were informed on April 23 that Italian prosecutors had affected a freezing order over Nomura Bank International's assets in Italy, which are comprised of a small amount of cash and certain receivables. These assets will remain the property of NBI, but pursuant to the prosecutors' order, may not be withdrawn while we believe this action is unwarranted as NBI has not directly engaged in the relevant trades with MPS. And it is important to point out that it will not have a material impact on NBI or Nomura and that it has absolutely no impact on the settlement of Nomura's customer trades across Europe.

Nomura takes this situation very seriously and will continue to take all appropriate steps to protect their stakeholders and will attempt to have meaningful discussions with the Italian prosecutors to resolve the situation.

Now, fortunately, as I mentioned at the beginning, this is an ongoing legal issue, and therefore we are unable to comment any further on these matters.

We will now open the line to questions.

(Operator Instructions) Masao Muraki, Deutsche Securities.

I have two main questions. Firstly about the retail business, the sales of investment trusts when you look at -- what have been the sales trends of investment trusts from January to March and have there been any changes in April in the sales trends of investment trusts? As of today, in terms of the assets of retail business or the net asset inflow, I think there has not been a significant improvement, but what are you planning to do to increase the inflow of assets to the retail business?

Secondly, I would like to confirm some figures. For the fixed income division, the Q4 revenues was JPY108 billion, and could you give us the -- give me the geographical breakdown and also the breakdown between client business and the trading business? Those are my two points please.

This is Yoshikawa speaking. You asked for the monthly figures, but we have not disclosed the monthly figures, I think we only disclosed the quarterly figures. And for Q4 of this year or for March '13, it was JPY1.7 trillion. And if you compare it with the previous quarters, it has increased by more than 50%, even more than that.

And as far as the trends in April, I do not have the figures with me, but as for the sales of the investment trusts, what is somewhat interesting for Nomura is since February-March, the investment trusts for Japan equities, we are putting a lot of focus on. And instead of coming up with new products, we are focusing on the high-performing existing products and working on these existing products.

We have changed our strategy. And for each of the branches in Nomura, the branches are proactively thinking of what to do and offering our clients the right products. And so ratio of the Japan equities is growing. I think that's an interesting trend. So, in that sense, I think we were able to respond quickly to the changes in the market trends and benefit from these trends.

On the other hand, some of the European high-yield products are being sold. For example, Italy and Cyprus, these are being sold somewhat. But Japan equities investment trusts are selling well.

This is Kashiwagi. Let me explain about the fixed income side. You asked about the geographical breakdown of the fixed income revenues. In Q4, the situation was a bit different from Q3. And in Q3, the EMEA and the Americas were strong, and Japan and Asia followed. But in Q4, Japan made up close to half, about 40%, and the remainder was EMEA, Americas, and Asia was somewhat small; that was the breakdown for Q4. And as for the client flow and trading flow breakdown, roughly speaking client flow was about 60%, trading was about 40% I think.

Thank you. For fixed income, let me follow up. This is Muraki. The exposure or the dependence on Japan is increasing you say, but based on the BOJ's new policies, the transactions among financial institutions, if that declined significantly, what impact will that have on your revenues?

And also the restructuring was mainly focused on equities and IB so far. So, fixed income has not gone through that much restructuring, but in Q4, I think the overseas fixed on divisions has gone under the surface or under water. So, is this a one-off trend or -- do you see this as a one-off trend or do you think you will implement additional cost cutting in fixed income as well on top of equities and investment banking?

This is Kashiwagi again. Our fixed income division, as you can see on page 12 of the presentation materials, the revenue base is more diversified compared to the past. And in each fiscal period, the situation may change going forward. But overall, I think the diversification is progressing, and I'd like to point that out first.

Secondly, as you may be concerned, the major financial easing was very favorable for the fiscal periods that just ended, which may mean that the next fiscal period might be challenging. Under these circumstances for the Japan side of the business, the market conditions, there was some volatility at the beginning of the month, but we will continue to operate based on Nomura's capital strength and the market coverage and contribute to the market.

This is Yoshikawa again. You asked about the net inflow of assets to retail. For Q4, it was JPY38 billion in Q4, which may seem small. And I agree it's somewhat small, but there was a temporary withdrawal or outflow of assets from a major corporate client or major client. And I heard that that came back in April but -- and I won't give you the exact figures, but that's the background for the figure -- the JPY38 billion.

For fixed income, the overseas figures have deteriorated. Will you implement cost cutting or not? Can I assume that you will not implement cost cutting for fixed income?

This is Kashiwagi. Well, we don't feel the need to implement some kind of measure because of the decline in our profitability or earnings, but last December, we set up the global markets division and we merged consolidated fixed income and equities. And we have been integrating the various functions of fixed -- we will integrate various same functions among fixed income and equities to improve our productivity or efficiency.

Thank you.

Natsumu Tsujino, JPMorgan.

There are major -- there are three big questions. First of all, as indicated on page 4, other business other than the three segments made a contribution of JPY45 billion. And of that, about slightly over JPY20 billion is Nomura Real Estate, I would assume, because of the 4Q sales and the equity ratio has slightly declined. And Nomura Bank Luxembourg and Nomura Trust would account for the remainder plus JPY30 billion or minus dozens of billions did occur in past quarters. So there is some volatility, but it's on standard basis there are these trades of over JPY20 billion. That would have a big impact to the dividend that the parent would be receiving because of the 30% dividend. So, could you give us the breakdown between the subsidiaries and the reason behind this volatility and could you give us details, so we can have a clear perspective?

Another point is IT cost STAR introduction leading to an increase of JPY5 billion. In Q3, there was JPY6 billion one-time OP expenses for the disposal and that should have reduced your burden in terms of IT expenditure. Yet, there has not been any significant reduction in IT related expenditure, rather it's been going up. So, is it correct to consider that IT costs will gradually decline going forward? That's what you had mentioned, but you have double parallel system and without the redundant system, to what extent can we expect a cost reduction in the IT system?

Finally, since April, volatility in the fixed income market has increased as was mentioned already and persistent adjustment might have been somewhat challenging and the pattern of profit and loss recording might have become rather different because of this heightened volatility in the fixed income market since April. Could you elaborate on that point?

Thank you very much. This is Kashiwagi speaking and let me start from the first question. As you have pointed out on page 6 or was that page 4, for the -- it's indicated on both pages 4 and 6, JPY45 billion is the number we disclosed. And on page 29, the related affiliates equity method of profit and loss, JPY5.2 billion in Q4 would have been included. And other than that, the subsidiaries in all three segment Group companies' profit and loss would account for approximately JPY40 billion subtracting JPY5.2 billion from JPY45 billion. I will not give you the company by company contribution, but as you indicated, Nomura Real Estate and other subsidiaries, Nomura Bank Luxembourg, Nomura Trust, these banking sector subsidiaries and investments in Fortress.

Profits deriving from such investments were in the order of few billions, so total had been slightly over JPY40 billion. Is this -- is this going to be business as usual as the [turning] approached the end of the fiscal year realized gains had been recorded in the investments as well as in the subsidiary. So, is this trend going to continue? If that's the question, it's difficult to make a clear cut response saying that yes, this will be a continuous trend. We don't think that this is sustainable.

And the second question, please wait for few moments. I apologize for having kept you waiting. Your question was on IT-related expenses, JPY5 billion in the retail with the introduction of STAR system. This fiscal year -- the past fiscal year would have probably been the peak and in the coming few years, retail segment's IT expenses should begin to come down. More specifically, although I cannot give you the exact numbers, more than JPY10 billion of expense reduction should be achieved in the coming couple of years.

When you say JPY10 billion on quarterly basis, is that what you are saying or on annualized basis?

On annualized basis.

Thank you. Between Q3 and Q4, JPY42.6 billion to JPY49.5 billion increase had increased although the IT disposal losses had been gone. Why despite the non-existence of the disposal expenses did the expenses in Q4 increase?

JPY6 billion disposal was incurred and in this fiscal term, the amount was probably about the same and the running cost was an add-on. So the non-existence of the drop, despite the disposal expenses being recorded, is because of those two factors, running cost as well as the existence of the disposal expenses. Once again, now BOJ's easing policy in complete different dimension had moved the market and JCB market maker as a market maker, we on daily basis or we on hourly basis saw great volatility that we had not witnessed in the past.

Was it on the 4th of April that the BOJ announcement was made and therefore on the next day, the position was towards the flattening. So the start of the day was quite healthy and strong, but thereafter there was a surging plunge. So as the biggest market marker, it was quite challenging for Nomura. However, during after the BOJ had made efforts to have a dialog with the market and therefore the market became more foreseeable. So, along with that effort by BOJ, we tried to make adjustments in our position. Most recently in the past week or so the profit and loss volatility range is back to the normal level. So, there was a huge volatility at the beginning right after the announcement, which was a surprise.

Finally, this is an uncertain question, but you mentioned fixed income, in Japan your Japanese business in comparison to Q3. In Q4, fixed income revenues or profits was more than double in comparison to the third quarter in the Japanese business. But after the first quarter of the current year, until then, the quarterly Japanese business fixed income was somewhere around JPY20 billion most likely. Will that be the level in the future quarters, the minimum in future quarters?

We don't give you the projections, but JPY20 billion per quarter Nomura's fixed income Japanese business, I think your question is whether based upon the strength of our franchise can we sustain that level. Yes, we can sustain that level.

On the other hand, do you think that Q4 was an aberration?

Well, it's a fact that we did well in the fourth quarter.

Thank you very much.

Takehito Yamanaka, Credit Susie.

I have two questions. First is about EMEA, and as you touched upon when you are talking about fixed income, in Q4 the pretax income or pretax loss of JPY36.4 billion and on top of that you have the CVA, DVA. So, that means that although you did not have the private equity income, you seem to be doing quite well.

What is your thinking towards the EMEA business as of today? Could you briefly explain how you view the business? And secondly, for your mid-term target, you had EPS target of generating JPY70 EPS stably. So, could you explain again about the thinking about the EPS target?

This is Kashiwagi. Let me address your first question for the EMEA business. We disclosed that based on our financial accounting, it was JPY36.4 billion of loss. And as you pointed out, there was JPY36.8 billion for the CVA, which is mainly attributable to EMEA and also the restructuring costs. This, for March '13, the restructuring costs were quite high and we conducted more than 40% or so of the restructuring in EMEA and that's why there was a burden on the figures for EMEA.

And therefore the financial loss of JPY36.4 billion is -- the fundamental figure should be better than this. But if you look at the EMEA market overall, it could continue to be challenging. So, we will continue to pursue the fit for the future strategy and implement cost cutting and also achieve synergies and improve efficiency through the consolidation within the global markets division. We think we have to work on that. And as for the mid-term target for EPS, it was JPY50 by March 16.

And to summarize, no we do not have any intention of changing this target. Yes, the economics is helping our business, but the PTI needed for JPY50 EPS is JPY250 billion, which means we have to generate 125 from wholesale and we have to generate large figures from the overseas business. So, we will continue our efforts to achieve these targets.

Thank you.

Katsunori Tanaka, Goldman Sachs.

This is Tanaka of Goldman Sachs speaking. Two points, first of all Asia and Oceania, Q4 revenues minus JPY7.8 billion, the losses increased. What are the reasons why?

Secondly on retail, you said that investment trust was lackluster but equities did well, but as a back drop what were the reasons behind and in the midst of the strong retail market, how should we look at the future trends in the retail market? Could you once again explain your views?

Thank you very much. This is Kashiwagi speaking. Speaking of Asia, in principle Nomura's business generally speaking in terms of fixed income is profitable if -- even in the international markets, but investment banking equity is dragging down those results. So, as a result in Asia, although we want to do well as Asia's global investment bank we've not been able to truly tap on the strength of our franchise. Competition is intense and the business relationship establishment requires time.

However, cross-border deals are increasing and most recently China Bank $3.5 billion lead manager mandate was ensured, which is the biggest issuance in recent years and China's IPO mandate has been captured and in equity AEJ's head was newly hired. And as we consider Asia's long-term strategy Yamazaki, the EVP of Nomura Securities, has been sent to Singapore. So, this may be somewhat time consuming but we are working on the expansion of our business and strengthening our franchise.

Net increase in investment trust, I might have made some misleading comments, but Q4 net increase of investment trust was JPY218.3 billion. So it's an increase from past trends. It was JPY96 billion and JPY73 billion respectively in the past terms and therefore there has been increase in investment trust sales.

As far as retail is concerned, we are blessed with numerous, numerous high quality clients. And the client portfolio is much better in terms of quality and that is why we are being approached by the customers on business opportunities. And Japanese version ISA has become quite a fashionable topic and we are trying to capture such opportunities as well.

So, capturing customers and expansion of business will be pursued to aim for the target AUM of JPY90 trillion. And after deciding on that strategy, we are taking steady steps toward that end. So, our first and foremost goal is JPY90 trillion assets under management. Of course, depending on the market environment we will be conducting trades. We are under favorable wins.

At this instance, however, we will also review the methodology of evaluation as we aim for the increase in assets. And also we have a system in place to reward high performance in terms of customer satisfaction. The market is huge, so there will not be instantaneous change in the market environment, but I think the environment has proven to be quite favorable for us at the movement.

Thank you very much. Your second point was on IT verses investment trust versus equity and I think the investment trust is below market, but stocks are doing over market. And in retail because of this trend, will you be placing more focus on stocks rather than in investment trust? What do you mean by outperforming the market, are you talking about share against the price in the market?

Well, this is Yoshikawa speaking. As far as price is concerned, in the past three to four months we've not been offering new launches of investment trust, rather we've been selecting high performing existing products and selling those products to our customers. So, it's not the case we are recording over subscription from day one, rather we are looking at the customer portfolio and choosing the best product to match their portfolio. So, in that sense our performance in investment trust may appear to be rather lackluster in comparison to the historical records. So, this is -- this also has to do with redemption and target price type of investment trust redemption timing had come into play. So with maturity, they've been converted into cash.

So, in that sense another point is with regards to having said so with prices going up, the underlying asset is stocks and if the currency is non-yen then the performance has been quite significant. So, I think the customers may be lured to fix the -- or realize the gains and cash up the gains and there is a glut in the money market because of the realized gains, so we hear.

And currently although you said that stocks are doing well and not investment trust, we've not decided on such policy. So the branches are looking at the customer portfolio and offering them the best products and as a result this is the outcome of those efforts.

Thank you very much.

Jun Shiota, Daiwa Securities.

I have two questions. First in the presentation material where you explained the expenses on page 16, Q4 costs have gone up a little bit. But overall, the average is about JPY250 billion. And for this quarter, the revenues were very strong, but the growth in costs has been controlled and I think this is a result of your cost cutting. For this current fiscal year, March '14, could you explain -- could you give me more color on the costs for this fiscal year?

Secondly, for asset management, on page 9 you explain the revaluation costs, temporary costs, one-off costs for the revaluation and pretax income JPY3.9 billion, so there was a decline. In Q3, the profits or income were somewhat high because of the performance fees, but I think should the run rate income be about JPY5 billion or JPY6 billion going forward?

Okay, this is the Yoshikawa, let me answer the asset management side question first. Yes, we booked the write-off. This is in relation to the LIC Nomura in India, the joint venture in India. And I think it was about three years ago that in 2011, January 2011 that we invested in the stake. But due to the short term -- mainly the short-term investment trusts in rupees, but since then there have been changes in the regulations and the AUM has declined significantly.

And we have sent 10 people from Nomura Asset Management to improve the performance of the equity investment trust. And as part of our efforts to and partly due to the decline in the rupee, the value of the rupee, about 6 or about half of the figure as shown here is the -- in relation to revaluation of LIC and we want to work positively based on this -- after this revaluation.

So, you are saying about half of the cost increase is LIC?

Yes, that's right.

This is Kashiwagi speaking. As for your first question, it's very difficult to answer. For example on page 11, we show the figures for wholesale and if you look at the full year figures for wholesale, the total revenue has grown by JPY90 billion or so, while the expenses has only grown by JPY20 billion or so. So, I think we are conducting disciplined cost control.

And as you pointed out on page 16 on the left hand side, we should have some one-off expenses in the -- in March '13. So, once these become non-existent then we will have further improvement in our expenses and also the cost cutting in the global markets under the Fit for the Future strategy. So, although there are some downside risks, I think as the business does well and we will continue to make the investments necessary. So we would like to add to our current business portfolio. So, I can't say for sure that the expenses will go down.

For asset management and retail businesses, the costs did not fluctuate that much in relation to the market. So, you can -- based on that I hope you can guess the costs or estimate the costs for the future of the overall firm.

Thank you.

Futoshi Sasaki, Mitsubishi UFJ Morgan Stanley.

Two simple points. First of all, dividends. JPY6 for the second half in the term just ended, what was the logic behind JPY6 per share year end dividend? And also the revenues have increased and what is the current position of Nomura in terms of dividends to be paid out in the future. Secondly, the Italian bank, you did the explanation, but when do you think that all of these issues will become settled and done? What is the prospects for the timing when the resolution should be ensured? Those are the two points.

Thank you. Kashiwagi speaking, first of all, consolidated dividend payout ratio, 30% consolidated dividend payout ratio is an important indicator which is part of our basic policy in dividend payouts. However, for each term, we decide on the dividend based upon the regulatory environment as well as the actual performance and that's the basic policy.

JPY6 or an annual dividend of JPY8 against net income 28% payout ratio is the level. However, there was the JPY50.1 billion gain due to Nomura Real Estate Holdings and excluding that the payout ratio would be 39%. So, the key word is 30% consolidated payout ratio and stability in dividend is another keyword. So JPY2 plus JPY6, JPY8 we believe is a very appropriate level.

And Monte dei Paschi to what extent will this issue be prolonged?

This depends on what would be done by the counterparty. So I cannot give you any specific response.

Thank you very much. On dividend, I am not talking about 6 time -- you are not mentioning 6 times 2, JPY12 annualized dividend payout that being the normal rate, but rather JPY8 being the benchmark. Is that what you are saying?

Fundamentally we think about the annualized payout ratio.

Thank you very much.

This is Yoshikawa again. Thank you very much for attending today's conference call. And as we mentioned at the beginning of the call economics has led to a significantly improved business environment and market conditions in Japan since the end of last year. Given our huge client franchise in Japan and our high market shares in our home market, we are well placed to benefit from this trend. That said, the business market and regulatory environments for global financial institutions are constantly changing and we remain cautiously optimistic about the future.

As we continue to implement our Fit for the Future plan, our highest priorities are to win the trust of our clients in Japan and expand our domestic businesses while also building an organizational structure in our international franchise capable of delivering stable profits. We will also continue to take the necessary steps to achieve our management target of earnings per share of JPY50 in the year ending March '16, our 90th anniversary, ahead of schedule. Thank you for taking the time to join today's call.

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

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.