Nomura Holdings Inc (NMR) 2014 Q2 法說會逐字稿

(interpreted) This is Shigesuke Kashiwagi. Thank you very much for participating today. I will now give you an overview of our financial results for the second quarter of the year ending March 2014 using the document titled consolidated results of operations.

Please turn to page 3, for the first-half period although revenues and expenses were elevated through last year as Nomura Real Estate Holdings was a consolidated subsidiary, net revenue increased 2% year on year to JPY787.7 billion. All business divisions reported high revenues and income and Group-wide income before income taxes jumped 3.4 times year on year to JPY186.2 billion. Net income was JPY104 billion, representing the highest level since the year ended March 2003.

Client activity weakened during the second quarter amidst certainty surrounding tapering of QE3 in the US and the situation in Syria. This resulted in a slowdown from the first quarter, particularly in our Japan-related businesses. Second quarter net revenue was JPY356.4 billion, income before income taxes was JPY72.9 billion and net income was JPY38.1 billion. Annualized ROE was 6.4%.

Net revenue from the three business segments was JPY321.7 billion and income before income taxes was JPY71.4 billion. Retail reported a slowdown compared to the record first quarter.

The environment in the wholesale business also had its challenges. However, our international business had a strong quarter and our Fit for the Future initiative took effect, enabling us to deliver income before income taxes in line with first quarter. The performance of each business is shown from page 6 onwards, which I will discuss in a moment.

Page 4 gives an overview of our second quarter and first half results.

Please turn to page 5 for our business segment results. As shown at the bottom of the page, segment other includes a loss from changes to our own and counterparty credit spread of JPY11.6 billion. Our credit spread tightened throughout the quarter, partly due to Fitch upgrading Nomura Holdings and Nomura Securities to A- on September 25th.

Please turn to page 6, as shown on the right, retail net revenue declined 28% quarter on quarter to JPY119.7 billion. Income before income taxes remained strong at JPY40 billion, despite declining 51% from the first quarter, which was the best quarter since the year ended March 2002.

Net asset inflows exceeded JPY1.2 trillion, predominantly from stocks and bonds. This combined with market factors to boost retail client assets above JPY90 trillion. Recurring revenue, one of our key performance indicators, was JPY13.2 billion or JPY52.9 billion on an annualized basis as shown on the bottom-left of page 7. Although this is slightly lower than last quarter, it is trending ahead of plan as we work towards achieving our March 2016 target.

The whole Company is also working hard in the lead up to the launch of NISA in January. As you can see on the bottom-right of page 7, we held 1,100 seminars from April to September, which attracted 30,000 applications. As a result, we reported 850,000 account applications as of the end of September or 1 million including reservations.

Please turn to page 8 for asset management, net revenue in asset management was JPY18.6 billion, a decline of 8% from last quarter. Income before income taxes remained strong, although declining 8% to JPY6.2 billion. Net assets under management reached JPY30 trillion for the first time since September 2007 on inflows primarily into existing funds.

The investment advisory business also reported continued inflows. As noted on the bottom-right, we won mandates from leading international asset managers to manage Japan's stock funds. We also won mandates for various products including high-yield bond and Sharia-compliant products.

Please turn to page 10 for wholesale, wholesale booked net revenue of JPY183.3 billion, a decline of 6% compared to last quarter. Income before income taxes was JPY25.3 billion, as disciplined cost control resulted in income in line with the first quarter.

As shown on the bottom-left by region, Japan-related businesses slowdown due to weaker client activity, while all international regions reported stronger revenues driven by global markets.

Please turn to page 11 for global markets, net revenue in global markets was JPY159.6 billion. As shown on the heat map on the top-right, Japan reported a slowdown compared to the strong first quarter, while both fixed income and equities booked higher revenues in all international regions lending the quarter-on-quarter decline to 3%.

Fixed income net revenue was JPY93.8 billion. Credit and securitized products slowed, while rates and ForEx products improved. Equities net revenue was JPY65.8 billion as Japan-related businesses slowed from the robust first quarter, while the Americas cash equity business centered on Instinet, and the derivates businesses improved.

Please turn to page 12 for investment banking, net revenue in investment banking was JPY23.8 billion, down 19% quarter on quarter. Investment banking gross revenue, shown at the top-left of the page, was in line with the last quarter, driven by resilient performance in Japan and EMEA.

We were able to tap into the strong demand in Japan for financing, winning a number of high-profile ECM and DCM mandates. Internationally, closer cross-regional collaboration in areas where we have a competitive advantage led to revenue contributions from our financial sponsors and our FIG businesses. Our leveraged finance and solutions business continued to grow in EMEA and the Americas.

Please turn to page 13 for an overview of expenses. Non-interest expenses declined 11% quarter on quarter to JPY283.5 billion. In particular, compensation and benefits declined 17% to JPY135.4 billion. The decline in expenses was due primarily to the absence of approximately JPY9 billion in full career retirement related expenses booked last quarter; restructuring expenses in this quarter of JPY1.4 billion, down by JPY1 billion compared to the last quarter; lower bonus provisions due to the slowdown in Japan-related businesses; and lower commissions and floor brokerage due to lower volumes mainly in equities.

As shown on the bottom-right, although we achieved our most recent JPY1 billion cost reduction target in September, we will continue to adjust our cost base in line with revenue opportunities to further improve profitability.

Please turn to page 14. Wholesale has been implementing cost reduction initiatives of $2 billion since 2011. The blue bar graph on the top-left shows quarterly wholesale expenses on a half-yearly basis. The red line tracks expenses converted into US dollars using the average month-end spot rate over each six months period. The bar illustrates how expenses fluctuate on a yen basis depending on the revenue environment, exchange rates and restructuring costs.

However, the US dollar expenses represented by the line have declined by 15% over the past two-and-a-half years. Annualized first-half US dollar expenses equal $6.6 billion. Because this includes the first-quarter full career retirement expenses and one-off expenses related to cost reductions, we expect the run rate to be around $6 billion plus from the third quarter.

The graph on the bottom-left shows revenues, while continuing to reduce costs over the past two-and-a-half years revenues have grown by 37% on a US-dollar basis as you can see from the red line.

Please turn to page 15 for an update on our balance sheet. Total assets at the end of September were JPY41.9 trillion, gross leverage was 17.6 times and net leverage was 10.9 times. On a Basel 3 basis our Tier 1 ratio and Tier 1 common ratio were both 12.2%. The 10.7% figure shown on the top-right was calculated by applying the Basel 3 standards to our balance at the end of September and has turned it up since the end of June.

Lastly, page 16 shows our funding and liquidity. As there are no significant changes from June I will leave it for you to look through later.

That concludes the presentation on our second-quarter results. Today we also declared a dividend of JPY8 per share to shareholders of record as of September 30, 2013.

(interpreted) We have a question-and-answer session now. (Operator Instructions)

Masao Muraki, Deutsche Securities.

(interpreted) First I would talk about -- I like to ask about the market division and second about the retail division related to NISA. First of all, for the market-related division, market division, for the fixed income and equity divisions and the regional breakdown of revenue as well as the sales commission and the position-related revenues could you give me a rough breakdown of the revenue?

And as for the companies which have announced their results as of -- until today and if you breakdown the market share, your market share seems to have gone up by about 1 percentage point for fixed income and also for equities another, also another 1 percentage point in this quarter.

And I guess this is mainly driven by the non-Japan revenues and you made a strong outperformance compared to your peers because Japan seems to be somewhat sluggish. So how do you analyze the trends or changes in the fixed income and equities divisions in the quarter?

My second question is related to NISA. You say you plan to achieve 1 million accounts, so you seem to have been making a good start in acquiring accounts. But for next year onwards how do you plan to connect these accounts that you have won into recurring revenues? Could you tell me your plan please?

(interpreted) Thank you. This is Kashiwagi. And let me first explain about the regional breakdown for fixed income and equities. For fixed income Q1 was strong and compared to that client activity has slowed down and our revenues have declined. This is especially so in Japan as you can see in the heat map. On the other hand, in the EMEA region credit and rates businesses both -- we were able to conduct certain amount of credits and rates businesses.

In the Americas the rate trading's business improved, whereas for securitized products the client activity continues to be sluggish. As for Asia or AEJ we were able to win both client business and our own businesses in the rates business and the currency. So based on this the fixed income -- if you look at the breakdown of fixed income business, the Japan exposure was about in the mid-20% level and EMEA was about 40%, Americas 20% and AEJ was about mid-10% level.

For equities business, again there was a slowdown compared to the Q1 which was strong in Japan. As for the non-Japan business, in Americas both cash and derivatives businesses grew revenues, whereas in EMEA and AEJ as well there was corporate derivatives and flow derivatives business as well as structured derivatives business saw strong client activity and we saw strong client-related business. Especially in AEJ we have a new equity head which we appointed this spring, and I think we are starting to see the positive results of these efforts.

As for the regional breakdown, Japan roughly 30%, EMEA roughly 20%, Americas including Instinet is about 40% and AEJ is about 10%.

Overall, the client flow and trading revenues breakdown for both fixed income and equities was 70% flow and 30% trading. And in Q1 the client flow was about 80%, trading was about 20%. So trading was somewhat weak in Q1. Whereas in Q2, both risk-on and risk-off activities were conducted adequately, we think.

And as a result of that -- the question is why our fixed income business outperformed our peers. I think one reason is the cross-selling which we have been working on from last year as well as focusing on certain business areas. I think these are -- we are seeing positive results of these efforts. And going forward we will -- with the improvement in our ratings and with the progress in cost reductions we would like to continue strengthening the business, the overseas business.

And as for your second question about NISA, as for costs this year and for the cash-back campaign costs we will be booking from January onwards and we are spending other costs and making some investments in relation to NISA at the moment. On the other hand, in terms of how we will generate revenues, recurring revenues from NISA, we are conducting various simulations. For example, how many accounts we plan to win and how much of those accounts will lead to investment-trust businesses and also how much of the 1 million will be actually paid in as cash.

And in the UK we hear it was about 60%. So we are calculating how much will be flow -- how much will flow into investment trust and how much commissions we will generate from that. I think we can conduct various simulations based on various assumptions.

And compared to the costs, which I explained earlier, I think we can turn the business profitable in quite a short period of time. And as you pointed out, because we will not be booking that many -- that much additional cost in relation to this business, I think we can expect quite strong figures from this business.

(interpreted) Thank you. This is Muraki again. And as for your first point, the reason why your market share has grown, one of the reasons could be that the US banks are shrinking their business due to leverage regulations and shrinking their balance sheet, while you did not shrink your balance sheet.

And as for the repo trades, which you depend on to a certain extent, these will be regulated as well. So according -- as a fixed income structure, fixed income business structure right now, do you feel any need to change the structure of that business in relation to these trends?

(interpreted) Yes, for the overseas side of the fixed income business, yes, there are the regulations and the repo regulations that you mentioned. As also as we discussed in our earlier conference call, the FBO in the US, there are various regulations which surround this business. And our peers seem to be making various efforts in relation to these regulations.

And some companies are cutting down on their risk-weighted assets. They have publicly announced that they will do so. As for Nomura, we are able to sufficiently raise our capital and we are controlling our liquidity adequately. So for the leverage regulations there are some -- the outlook still seems unclear. So we have not made any actions in relation to the leverage regulations. So I think we have a relative advantage to our peers.

And thanks to our sales efforts, research efforts that we conduct on a daily basis as well as the cross-border and -- cross-selling, which we have been working on, we are starting to see some results of these activities.

(interpreted) Thank you very much.

(interpreted) Natsumu Tsujino, JPMorgan.

(interpreted) First of all, rather ambiguous question about the capital ratio, 10.7% as of end of September when 2019 standards are applied. The calculation you do of market risk is mostly based upon your model. In comparison to model and the standard methodology, we understand that there is a great difference and that is going to be placed on the agenda of the Basel Committee going forward for certain adjustments. And some American banks are saying that what would happen if standard approach is applied and to what extent their ratio would be going down. Do you have those numbers? And, if so, could you share them with us?

Next -- I will proceed to the next question after your response.

(interpreted) On the calculation of risk-weighted assets, if models are used by large banks and there are differences between models, last year the Basel Commission identified the methodology of risk-weighted assets of 17 banks and they did a test by giving the model portfolio. And in actuality that resulted in difference in risk-weighted assets and also capital adequacy ratio would differ by between 1% or 2% according to their analysis. We are aware of that. However, do we do a calculation of standard approach without using Basel? No, we don't do that kind of calculation.

(interpreted) Thank you very much. Next question, according to (inaudible) on page 13 you usually have the non-segment information. One major point of non-segment issue is the equity method of your affiliates, some improvement from quarter one. So JAFCO equity-method companies, is that the main element or factor?

And also corporate items, the negativeness has been reduced. Is this because of restructuring cost declining or the liquidity pool becoming more stabilized? Is it correct to consider that the second quarter number is more or less the benchmark or the standard which will continue?

So coming to my third point, others, minus JPY2 billion, CVA, DVA included on quarter-to-quarter basis is a deterioration of about 140 or a deterioration of JPY17.5 billion. But you must have seen significant improvement. In the first quarter maybe the other was too low. So it's a improvement from a low base. But can you explain the reasons behind these improvements?

(interpreted) Thank you. I believe you asked three questions. And the answer to your first question is, yes, equity-method company gain improvement is being reflected in these better numbers. And second, corporate items, liquidity-related expenses, Ms. Tsujino, you know well that liquidity expenses and unallocated expenses as well as mismatch of term. But liquidity expenses declining and the unallocated expenses reducing that had led to a quarter-on-quarter improvement.

And the third question was others. As you have pointed out, the difference of on-credit of 5.9 and there is a difference between the JPY13 billion and our net basis Q2 JPY2 billion, Q1 JPY8 billion, so JPY23.5 billion difference. And the biggest factor is the other businesses in affiliated companies increasing in revenue in the order of billions. So that's the difference between Q1 and Q2.

And I believe you asked a question when we announced the results of Q1, US GAAP adjustments and also the differences between the management accounting as well as the financial accounting. And we were not able to explain well in the adjustments, but in Q2 there has been an increase there. So there has been a change or fluctuation between Q1 by JPY23.5 billion.

(interpreted) Banking sector affiliates, is this because of the change of the equity prices that you hold? And this declined in Q1 but increased in Q2. Is that the reason for the difference?

(interpreted) Yes.

(interpreted) The unrealized changes in the bonds we hold, does that include yen bonds as well as non-yen bonds as well?

(interpreted) Yes.

(interpreted) Thank you very much.

(interpreted) Takehito Yamanaka, Credit Suisse.

(interpreted) I have just one question, which might overlap with the first question, but. Your ratings are slowly moving in a positive direction. Which business, what kind of business can you expect as a result of the ratings improvement? Could you give me some idea of some actual businesses?

Actually, in Nomura's case you focus on various businesses in each geography and for like fixed income and also equity derivatives, I guess, I think you are going to be selective and focused in various businesses. So could you tell me which business has the most potential?

(interpreted) Thank you. This is Kashiwagi. As for the ratings improvement by Fitch and the impact of that, Fitch is very well-known in the US, so we expect an improvement in the institutional investor business in the US, especially derivatives and the repo business and also TBA business, which leads to exposure.

We expect an increase in the credit line and also the opening of new accounts. We are receiving quite a lot of inquiries in this area. As of today, S&P are rating us single A, as well as Fitch. So as a result, the inquires from clients is increasing.

(interpreted) Sorry. This is Yamanaka again. Just a follow-up on that, so in that sense in the US the impact of the ratings by Moody's, is it diminishing? And what about EMEA, is there a change in situation?

(interpreted) This is Kashiwagi. The impact from Moody's, I wouldn't say it's diminishing. I can't be that bold. But thanks to Fitch raising the ratings we are seeing some positive signs. That's all I can say.

As for EMEA, nothing has changed negatively since Fitch. But compared to the US I think EMEA and Asia is somewhat quiet.

(interpreted) Thank you.

(interpreted) Jun Shiota, Daiwa Securities.

(interpreted) I have two questions, first of all market-related international business. Quarter-on-quarter revenue increase was recorded. Can you give us a breakdown by month? I would assume that you made lots of money in September, but what about the monthly breakdown? And most recently, in comparison to those two quarters, what's the so-far result for the current month, October?

Second question, page 34 -- sorry, 28, page 28, the net increase in retail customers, JPY1.2 trillion, quite significant. What has been the driver for this increase? Those would be the two questions. Thank you.

(interpreted) Thank you very much. This is Kashiwagi speaking. First of all, the monthly trend, May, June, market was quite volatile, and since late June stability was regained, and in July the environment was favorable. Seasonal factors came into play in August and concerns over tapering of QE3 as well as a Syria, so people took a wait-and-see attitude. And in September, there was great improvement in markets in September which led to even better performance in comparison to July.

And retail [OUM] client assets, net asset inflow, there are two main drivers. First of all, in terms of products there were three popular products, or four, retail JGB's ForEx bonds; second, there were PO mandates, so equity coming from PO mandates; and thirdly, MRF as standby funds by product. By channel we call it retail as -- though it was one channel, but there is pure retail-level management or workplace asset formation or regional banking institutions, small- and mid-sized enterprises, corporates.

So there are sub-channels within retail. And all of those sub-channels performed quite well. And that had led to an inflow of JPY1.2 trillion, a significant increase.

(interpreted) Thank you very much. Then, this is Shiota speaking, how would you compare the month of October in comparison to September?

(interpreted) Oh, sorry I didn't -- I failed to touch up on our results for October. But in terms of business momentum so and so, faring well. Turnover at TSE for stocks in comparison to September there was a slight drop, so domestic retail business has somewhat slowed down. But generally speaking, wholesale is faring well as well.

(interpreted) Thank you very much.

(interpreted) Futoshi Sasaki, Mitsubishi UFJ Morgan Stanley.

(interpreted) I have two questions, first is related to NISA. How much additional costs are you expecting in relation to NISA? Could you disclose what you can? And also both as you -- you touched upon briefly earlier, when do you plan to book these figures on your P&L? That's my first question.

And secondly, on slide 7, you used to disclose the net increase in investment trust, but your format has changed. So could you give me the figure for the net increase in the investment trust?

(interpreted) Thank you. This is Kashiwagi. First of all, the costs related to NISA. There are three items. One is the advertising cost and the IT-related cost. Second is the cost in relation to the cash-back campaign. The cash back amount is JPY2,000. So assuming that we have 1 million accounts, it's JPY2 billion. And we will be booking these in January 2014 onwards.

And as for the advertising costs and the IT-related costs and also the administration -- outsourcing of administration work, we are already realizing or booking these costs. And I think you got a feel of those costs from the disclosure material.

And for the IT costs, there is JPY3 billion of additional costs which we are expecting, and we will book these or amortize -- depreciate this over five years. So it will be JPY150 million for each quarter. That will be the cost impact.

And your second question about the net increase in investment trusts, we show it on page 6, the figure is JPY5.8 billion.

(interpreted) This is Sasaki again. Thank you. So for the JGB and the equities business in Q2, these were the products which were the main drivers of your business, is that the way to understand it? Investment trust was -- saw a quite big slowdown in the sales trends.

(interpreted) Well, this was the first time that I found out as well. But the JPY5.8 billion for the net increase in investment trust, this does not include MRF. So the net increase is basically the equity investment trust. This is how we define investment trust here. So MRF, MMF, these types of bond, short-term bond products are not included in this figure which we have been disclosing. So the JPY1.2 trillion that I mentioned earlier, this includes both equities, fixed income bonds and also MRF, which is not included in the narrow sense of investment trust.

(interpreted) Thank you.

(interpreted) [David Luis], [Gloco Management Company of Hong Kong].

Hey, on page 22 of your PowerPoint I was looking at the stock brokerage commissions from the retail sector, and it fell pretty hard from JPY42.5 billion in the June quarter to JPY25.4 billion in the September quarter. It's a decline of like 40%, which is even higher than the shrinkage in the daily trading volume on Tokyo Stock Exchange. I think that one shrank by about 35% from the June quarter to the September quarter.

Could you tell us whether we should be concerned about this 40% decline in your retail brokerage commission, and I guess can you shed some light into why it fell so much even more than the Tokyo Stock Exchange volume? Thank you.

Hi, David. Thank you very much for your question. Regarding the stock brokerage commission from the retail side, yes, we have seen a decline on -- from about like 40%. In the meantime, if you look at the Tokyo Stock Exchange transaction volume with respect to the individuals, it did decline by 39%. So I think we are in line with the market trend.

And also one thing I'd like to add is that the -- with respect to the distribution of the JGB retail target bond we do have more than 50% of the market share. So may -- some of the sales force effort has been shifted towards the distribution of the JGB market.

Okay, great thank you. If I may have a follow-up then, on the same page, page 22 of the PowerPoint, it seems that the institutional commissions did better. They -- it fell only about 17% from JPY37.7 billion in the June quarter to JPY31.6 billion in the September quarter. Is it more or less the same between Japanese institutional investors and, I guess, foreign institutional investors? Could you shed some light on that? Or actually one might have done better than the other?

Regarding the competitor, you are talking about Japanese competitors?

No, I'm talking about the institutional investors, Japanese institutional investors versus the gaijin institutional investors. Did their commissions fall roughly as the same, about 17%, which is what you are showing on page 22, from JPY37.7 billion down to about JPY31.6 billion in the September quarter? I meant your clients, not your competitors.

Okay, so this brokerage commission includes the, both the Japanese as well as the overseas commission we generated, and the overseas commission generation has not declined as much as the Japan. And as for the Japan side, the institution commission is in line with the decline in the transaction volume at the Tokyo Stock Exchange.

Okay, great. Thank you. If I may ask one final question, Kashiwagi San, on page 21 of your PowerPoint you show net gain on trading of JPY110.2 billion for the September quarter. Is this mostly client-driven trading and very little proprietary trading by Nomura?

Yes, as for the prop trading, we have been focusing on the client-driven business and we do not have much of the -- fewer proprietary trading revenue on this (inaudible).

Okay, thank you very much.

(interpreted) Koichi Niwa, SMBC Nikko Securities.

(interpreted) I have two questions. First is quite a vague, ambiguous question, but the uncertainty that you saw in Q2, do you think this will be removed in the future? And for the -- your corporate clients, the ECM and M&A appetite and your efforts in winning business in this area, how do you expect things to trend in the future? Will there be any trends, positive sign in your client activity in ECM-related areas?

And as for the retail investors, how do you see the trends, sales trends in September and October? And on the cost side you say that you have basically completed your transition into a lean structure and you will continue to work on your cost structure, but as for your cost should we see the current level as basically the bottom, and going forward your growth will come from top-line growth rather than cost reduction?

(interpreted) Yes, this is Kashiwagi. As for the first point about the uncertainty going forward and being -- uncertainty being removed, if you think about the investment banking business and the M&A pipeline, I think that's what you are asking, for the overall market M&A was relatively slow until August, and in September we are starting to see some big transactions, big M&A deals.

And this does not mean there has been a big change in the trend, but it's just that Japanese companies' corporate base have been -- they have had quite strong potential demand for these types of cross-border transactions, and they do have some -- they do have sufficient funding. So we are receiving a lot of inquiries in relation to cross-border M&A transactions.

As for your second question about the investment trusts and the retail sales, retail sales of investment trusts, during the July to September quarter things -- in September we focused quite a lot on the retail JGB, but the underlying trend is, remains unchanged. So we are continuing to sell JGBs to retail investors.

And for your third question about the cost reduction, whether we have already hit the bottom and going forward the growth will come from top-line growth, as for the wholesale cost reduction on an annualized basis I think it was something like $6 billion plus if you multiply by four. But we have achieved the most recent wholesale 1 billion cost reduction target, but there are still some cost reduction items which are waiting to be identified and booked, and we will be executing these cost reduction measures.

Meanwhile we will be making some new investments. So the $6 billion plus of cost reduction is based on the current market environment. This should be something close to the $6 billion plus. And as business grows in the future there could be an increase in our expenses; for example, compensation.

(interpreted) Thank you very much.

(interpreted) (Operator Instructions).

David Luis, Gloco Management Company of Hong Kong.

Kashiwagi San, on page 21 of your PowerPoint under revenue there is an item called other, and for the September quarter it was JPY45 billion. It seems that this number was quite volatile over the last five quarters. As you show on page 21 it went from JPY143.4 billion to JPY118.8 billion to JPY304 billion and to JPY28.2 billion and JPY45.1 billion. Is it possible for you to shed some light on what the major components are and whether you see this number to remain volatile going forward or it should start subsiding? Thank you.

Yes, during the last quarter, the -- up until the last quarter, the end of the last quarter, the Nomura Real Estate Holdings was consolidated under the Nomura Holdings and the part of the revenue has been recognized in this segment, and that contributed to some of the variation or fluctuation on the numbers.

Now, after we sold the partial holdings of the Nomura Holdings and now we are treating as a equity-method company, those factors should not affect a big difference. And during the previous quarter and this quarter -- I mean the first quarter and second quarter, as we discussed earlier some of the performance or the banking affiliated affected negativity during the first quarter and positively in the second quarter.

And the question regarding the, going forward what's going to happen is that the -- hold on one second. Yes, I guess that the -- we have to -- I think I hope you will accept some sort of the fluctuations going forward still due to the fact that this is a section called others. And but I do not expect that it will be as the quarters as we have seen.

Great. Thank you.

(interpreted) Natsumu Tsujino, JPMorgan.

(interpreted) So this is Tsujino again. Some of the western banks are booking various expenses, litigation expenses in the US, and I think the figures have already been booked for some of the items that have already been fixed. But how much of these expenses have you been booking in advance, for example, have you been making provisions as reserves? And should we be worried about any future bookings of these litigation related expenses?

(interpreted) This is Kashiwagi. Generally speaking, the residential mortgage-backed securities business, which we used to be involved in and the securitization of these securities, our business was somewhat different from what the US banks were conducting in the Americas. We were not originating these mortgage products, but we were buying them from mortgage banks and warehousing them and then securitizing them and distributing them. This was our business.

And as for the distribution of these products, most of the distribution was conducted by other broker dealers and they distributed it on behalf of us and we were able -- so our business was different from the investment bank which has an integrated mortgage-related business.

And as for provisions, under the US GAAP if there is a high probability of losses being booked and if these losses can be estimated, we are making rational provisions. So we are not booking any arbitrary figures as our provisions. And going forward, we will continue to discuss with the accountants and book any rational provisions that have to be booked.

And in relation to the FHFA issue, we are not being investigated. There are no criminal investigations being conducted towards Nomura. And nothing is decided in relation to the settlement, for example, how much it's going to be, or any details about the settlement we cannot disclose.

(interpreted) Thank you.

(interpreted) Thank you. This is Kashiwagi. Thank you very much for participating for a long time. If you have any follow-up questions, please feel free to contact the IR division. Thank you very much.

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

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.