Nomura Holdings Inc (NMR) 2015 Q3 法說會逐字稿

(interpreted) This is Shigesuke Kashiwagi, CFO. I will now give you an overview of our financial results for the third quarter of the year ending March 2015 using the document titled "Consolidated Results of Operations." Page 2 please.

For the nine months till December, we booked net revenue of JPY1,169.7 billion, income before income taxes of JPY241.8 billion, and net income of JPY142.8 billion, close to the strong results in the same period last year.

Fund inflows and market factors combined to drive up retail client assets to over JPY100 trillion, while assets under management in asset management reached a record high.

For the third quarter, net revenue grew 14% from last quarter to JPY425 billion. Income before income taxes increased 57% to JPY116.1 billion, and net income was up 32% at JPY70 billion. Annualized ROE for the quarter was 10.6%. EPS was JPY18.72. Revenues and income before income taxes were both up quarter on quarter and year on year.

Income before income taxes from our three business segments totaled JPY60.3 billion representing a 13% decline from last quarter.

Retail and asset management both had a very good quarter, while wholesale profitability declined substantially due to slowdown in fixed income in EMEA and the Americas. Segment Other income before income taxes was JPY44.8 billion and we booked an JPY11 billion unrealized gain on investments in equity securities both of which boosted Group earnings.

We benefited from higher mark-to-market valuations of shares held due to yen depreciation and higher share prices while gains from credit spread changes also contributed to earnings.

Today we also resolved to conduct a share buyback program with an upper limit of 40 million shares and maximum total value of JPY30 billion. The share buyback we announced last October with an upper limit of 40 million shares and JPY28 billion was completed between November 2013 and January 2015. We acquired 15.2 million shares for a total value of JPY10.2 billion.

We decided to carry out that share buyback because we had sufficient capital and our share price was undervalued. To minimize the impact on our share price, we set a ceiling on the acquisition price and number of shares to be acquired per day, and entrusted the acquisitions to a Trust Bank. However, the monetary easing announced by the BoJ on October 31st sent our share price spiking higher than expected which meant we were not able to reach the upper limit of the buyback program.

The share buyback program resolved today consists of the 25 million shares leftover from last time and 15 million additional shares for a total of 40 million shares. Of these 40 million shares, approximately 5 million will be used for stock options exercised in the future. The remaining 35 million shares will be used flexibly for various capital management options.

Please turn to page 4. In the box at the bottom of the page, you will find additional information regarding the JPY44.8 billion income before income taxes from segment Other.

First, equity and earnings of affiliates of JPY18.2 billion was higher than normal. This is due to a large unrealized gain on securities held by affiliates. Second, we booked a gain of JPY8.9 billion from changes in our own and our counterparty credit spreads. And third, we booked an unrealized gain of JPY9.9 billion from the shares we hold in Ashikaga Holdings.

Please turn to page 5 for an overview of results by business. First in retail, sales of stocks were robust on the back of the market rally stemming from monetary easing by the Bank of Japan, and an increase in primary deals.

Discretionary investment inflows and sales of insurance products also performed well. As shown on the bottom, total sales rose 13% quarter on quarter. The market rally led to profit-taking and net inflows of cash and securities were lower at JPY176.6 billion, but retail client assets climbed to a record JPY104.8 trillion at the end of December supported by market factors.

Retail net revenue increased 9% quarter on quarter to JPY128.8 billion. Income before income taxes grew 30% to JPY50.5 billion, which is the highest level since June 2013.

As shown on page 6, discretionary investment net inflows and sales of insurance products were at the highest level since the start of our business model transformation. Third quarter recurring revenue was JPY16.6 billion, which is JPY65.7 billion when annualized putting us within reach of our March 2016 target of JPY69.6 billion.

Please turn to page 7 for asset management. Net revenue increased 8% to JPY23.4 billion. Income before income taxes grew to JPY9.3 billion representing the best quarter since the three months ended September 2007. Assets under management reached the record high of JPY37.7 trillion as of the end of December driven up by inflows into products for discretionary investments and market factors.

In the investment trust business, we saw solid sales of privately placed funds and Fund Wrap and SMA funds, all of which reported growth in assets under management. In the investment advisory business, our international business continued to grow through UCITS-compliant funds.

Outside Europe, in addition to AEJ we are expanding distribution channels in terms of regional coverage and client type as evidenced by winning new mandates from pension funds in Chile and Mexico.

Please turn to page 9 for an overview of wholesale. Net revenue declined 6% quarter on quarter to JPY178.9 billion. The main reason for the decline was a significant drop in fixed income revenues in EMEA and the Americas as a result of the challenging trading environment on the back of a decline in yield and a spike in volatility in October.

Equities and investment banking reported higher revenues compared to last quarter. By region, Japan and AEJ had a good quarter, while EMEA and the Americas reported a slowdown. Income before income taxes declined 98% quarter on quarter to JPY500 million due to factors such as higher costs associated with an increase in trading volumes.

Please turn to page 10 for business lines results. Global markets booked net revenue of JPY149.7 billion, down 11% quarter on quarter. Fixed income net revenue declined 27% to JPY76.3 billion. Japan rates and AEJ FX performed well, while rates in credit in EMEA and the Americas had a challenging quarter.

Equities net revenue grew 15% to JPY73.5 billion. Our cash business had a good quarter as global market volumes rebounded. By region, EMEA and the Americas slowed, while Japan and AEJ reported considerably stronger revenues.

AEJ reported its highest quarterly revenues since April 2009 as we steadily expand our client franchise, particularly in the emerging market business.

Please turn to page 11 for investment banking. Net revenue increased 30% to JPY29.2 billion. Investment banking gross revenue was JPY52.7 billion. We booked stronger revenues in both Japan and overseas quarter on quarter and year on year.

In Japan, we ran high profile IPO and convertible bond mandate and retained a high market share in the league tables. Internationally, EMEA and the Americas made significant revenue contributions.

In the third quarter, we won numerous high-profile mandates such as non-Japan related M&A deals including deals with transaction value over JPY1 trillion as shown on the right and equity finance [corp] transactions.

Notably in the Americas where we are building out a platform, we are extending our track record in our key focus sectors such as financial sponsors. Many of the M&A deals shown here are expected to close in the fourth quarter and onwards, so we expect to see revenue contributions going forward.

Please turn to page 12 for a overview of expenses. Third quarter firm-wide expenses was JPY308.9 billion, up 3% quarter on quarter. This is due to yen depreciation. Excluding the FX impact, firm-wide costs actually declined slightly. In particular, compensation and benefits declined as bonus provisions were reduced in line with performance in wholesale.

Please turn to page 13 for an update of our balance sheet. Total assets were JPY44.1 trillion, and shareholders' equity was JPY2.7 trillion. Basel III tier 1 and tier 1 common ratio were 12.5%, down slightly from 12.7% at the end of September due to an increase in risk-weighted assets as a result of the yen depreciation. Applying the fully-loaded Basel III 2019 standard to our balance sheet at the end of December gives a high tier 1 ratio of 11.7%.

To sum up, we continue to gain traction with our retail business model transformation, and this is spreading to asset management. So we are pleased with performance of these businesses during the quarter. However, wholesale was affected by the challenging trading environment in October leading to sluggish performance in fixed income in EMEA and the Americas.

We continue to review our business portfolio and focus on areas of strength while allocating resources to businesses with growth potential.

The Moody's upgrade in the second quarter is already starting to act as a tailwind. As I just mentioned, we are winning investment banking mandates in our key focus sectors. Looking ahead, we remain focused on further expanding our client franchise and improving profitability.

That concludes today's presentation. Thank you very much.

(interpreted) We have a question-and-answer session now. (Operator Instructions) Mr. Muraki, Deutsche Securities.

(interpreted) I have two questions. One is related to the markets-related division. First is as I ask all the time about the fixed income and equities, the geographical break-down of revenues as well as sales commission and trading break-down please for fixed income and equities.

My second question is on page 17 of the presentation you show the value at risk. September-end was quite low. Was this because there were few revenue opportunities then or with the turmoil in October -- you were preparing for the turmoil that came in October?

As for December end, the VaR has risen from September. Is this implying that there will be a increase in revenue opportunities in January onwards? Could you also comment on the revenue environment in January and your performance as well?

(interpreted) Yes, this is Kashiwagi. Let me first talk about the fixed income and equities, the geographical break-down. Fixed income Japan is about 50%. EMEA about 10%. Americas several percent. AEJ a little bit less than 40%.

For equities, Japan is around 30%. EMEA made 10% -- between 10% to 20%. Americas little bit less than 40%. And AEJ again between 10% to 20%, [around] the middle.

And the client-driven and risk-driven break-down for fixed income and equities; first with fixed income. This is a bit embarrassing, but client-driven revenue exceeded 10%, which means there have been losses on the trading side. For equities, client-driven is 80%, trading is 20%.

As for your second question about the value at risk, basically the September -- the disclosure for September, the VaR was JPY6.8 billion and that grew to JPY9.7 billion in December.

The year-end, based on my experience there is some seasonality at the year-end. The market tends to be quiet, so traders tend to sell options. This happened last year and as well JPY8.6 billion, rather high.

And towards December end there were these kinds of actions, but in the beginning of the year, the VaR has already shrunk or started to [shrunk]. And the reason why the VaR rose in December is partly because of the yen depreciation.

And our trading positions, we have more trading positions in foreign currencies. So on a yen basis, the figures seems a bit -- seems high.

And as for our performance in January, fixed income overall was -- made a relatively good start. EMEA and AEJ did well. The Americas and Japan were somewhat slower. For equities, again we made a reasonably good start as well.

(interpreted) Tsujino San, JPMorgan Securities.

(interpreted) This time, Other segment -- others in the Other segment. On a q-on-q basis has grown very much. And over that amount, Ashikaga related unrealized gain is about JPY10 billion and others related -- the fee equity in earnings of affiliates is about JPY18.2 billion.

So inclusive all that, and concerning all the factors, still the Other segment income on a q-on-q basis grew by JPY37.1 billion. Therefore it's more than a JPY10 billion [or so].

So the interest expenses in Others is only seeing a increase of JPY3 billion [or so]. Therefore the Other revenue -- what are other elements included in this segment Other which contributed to the increase of revenue?

(interpreted) Yes, you are right; regarding the Ashikaga shares and also equity method related unrealized gains are also included in that. Other than that, we have our subsidiaries which own equity securities, and unrealized gain from that, particularly all our subsidiaries are mainly engaged in financial business, Nomura Trust and Banking and Nomura Bank (Luxembourg) and Asahi Kasei, so these are included in this unrealized gain.

And in addition to that, this is only a temporary factor, but we have transferred some items from trading account to Other segment amounting to JPY1 billion [or so], and that caused a noise.

(interpreted) So is it positive or negative?

(interpreted) So that is a negative impact because that has come from trading to others or -- so it was negative in the past, but because of this transition that has turned positive.

(interpreted) So that means Other revenue has increased because of that?

(interpreted) Yes, that's right.

(interpreted) So if that is the case, then the unrealized gains in equity held by affiliates are included in others, so others item -- so that is including JPY22.6 billion, so that is outside the segment. So it is the line below the corporate item, and that is included in that JPY22.6 billion.

(interpreted) So part of it is booked in corporate items and others including others Other item?

(interpreted) That's right. So that is including corporate items, right? This time corporate items, the negative figure is very, very small.

(interpreted) That is why you have more than JPY10 billion (inaudible) amount in this item, right?

(interpreted) Well, others, I said JPY10 billion and segment Other was very good. However, that was not necessarily due to Ashikaga and there are other items contributing in the order of several hundreds of billion yen.

(interpreted) And you said there is unrealized gains from shares held by affiliates and I want to know the size of it, and that is included in the corporate items and also some of it is included in others?

(interpreted) That's right, your understanding is correct.

(interpreted) Understood. Thank you very much. Earlier regarding client-flow, you mentioned client-flow and on the trading side you caused losses. However, the gains from client-flow on a q-on-q basis, how much was that? Was it flat or did it decline? Could you elaborate on that?

(interpreted) The second quarter and third quarter, in terms of client revenue, the -- in August we didn't have much flow in second quarter. That is why in the third quarter although we had a slow business in December, however after all, third quarter was better than second quarter, right.

(interpreted) So in terms of position, you had a challenging quarter. What kind of products were the cause of this difficulty?

(interpreted) The big one is in the beginning of October, 14th and 15th rates trading and also credit trading, again spread-widening was seen. So in these two product areas trading didn't perform very well. As opposed to that, fixed income, [FX] performed better.

(interpreted) Understood. Thank you very much.

(interpreted) Shiota San, Daiwa Securities.

(interpreted) Two questions please. First is about your share buyback. This is the third time this fiscal year and the first time you were able to achieve the limit very quickly. The second time, as Kashiwagi San explained, you did not reach your upper limit and you had the Trust Bank working on it, but this time again you are buying back 40 million shares.

In terms of how you will be buying back the shares, is it going to be the same as the second time, meaning that if there are any sudden movements in the market, is there a chance that you will not be able to buy back all the shares that you want? How will you buy back your shares? That's my first question.

My second question is about the asset management business. You have been -- you have won some business in relation to pension funds in Latin -- or Latin America-related pension funds. As for the background of you winning these types of businesses, has the Moody's upgrade helped? What is driving you expanding into these new business areas?

(interpreted) Yes, your -- this is Kashiwagi. Your first question, yes, as you pointed out, when we did the share buyback in the spring, we completed the operations of the buyback quite quickly, which I wasn't very -- that happy about because the prices seemed to decline after we bought the shares. So I was quite disappointed with this.

So in the second time when we bought back the shares, we set a limit on the price, plus we also set a limit on the volume, daily volume of shares that we will buyback. We ordered the Trust Bank to do so. But unfortunately the share price went up, so we will not be able to buy as much shares as we wanted to.

So based on that experience, this time we think it will be both. So we do not want to buy back shares too quickly, we don't want to be too slow either. And as for the daily volume that we will buy back, we have increased the limits compared to the second buyback this year.

And I forgot the exact date, but we want to buy back the shares by March-end. Previously it was by January-end, but in terms of number of actual days, it's smaller. So the daily volumes should be larger than the previous buyback.

(interpreted) This is Shiota again. An additional question; the limit that you set on the price, is this based on the one times P/B R, no change there?

(interpreted) This is Kashiwagi again. Yes, previously the JPY703 yen was the bps. This time JPY744 or JPY745 is the bps and we have reflected that, and we are buy back the same amount, 40 billion (sic - see slide 3 "40 million"), but we have increased the amount from JPY28 billion to JPY30 billion. That's the benchmark we have in mind.

And your second question, the asset management division is currently selling mainly two products overseas. One is the US high yield bond fund which is managed by NCRAM in the US. This is -- when I was in -- based in New York, we were doing business with US pension funds and European pension funds, and this is expanding further into Asia and also Latin America recently.

The other product is the Japan Strategic Fund which is performing well, especially in terms of the absolute performance or asset amount in Japan equities is doing well, and the Japan Strategic Fund is gaining a lot of popularity and distribution is increasing. So the strong performance is the answer to your question.

(interpreted) Mr. Lui, Guoco Management.

Hi, Mr. Kashiwagi. On page 24 of your presentation, you show that the stock brokerage commission on the retail side increased by 23% quarter on quarter, that means versus the September quarter, but down about 26% year on year, that means versus the December quarter of 2013.

I was looking at the retail brokerage trading value or volume on the TSE. It seems to me that maybe -- there may be some difference between the 23% for your stock brokerage commission in the December quarter versus the increase on the Tokyo Stock Exchange and also the same thing is true of the year-on-year change as well. Could you comment on that?

Hi, David. Thank you very much for asking me a question. I don't have all the detailed information right now, but my gut feeling is telling me that the reason we had a significant transaction volume last year in the third quarter, JPY36.3 billion, is driven by the fact that the strength of the Japanese equity market with the expectation that [that mix] will be successful.

In the meantime, there was a changing [taxation] on the capital gains for the individual clients. So up until the December 2013, Japanese equity holder were -- they were enjoying the tax benefit whereby their capital gain was taxed only at the 10% instead of the normal 20% in order to incentivize equity investment by the government.

And because of the introduction of NISA starting from the January of the last year, 2014, Japanese government abolished the tax incentive mechanism whereby they charged only 10%. So there was a significant selling pressure from the clients to take advantage of that tax incentive towards the end of the 2013.

That is a major driver of the things of the -- or strong performance of the equity commission. And this quarter, quarter-quarter performance was driven by the -- partially driven by these things of the Japanese equity market, but the -- more importantly I think has been explained by the strengths of the US equity market where we do have a brokerage firm called [Instant]. That attracted a lot of the transaction volume.

If I could have a follow-up, Kashiwagi San. I guess my point was on comparing the December quarter versus the September quarter, it seems to me that the 23% increase, while it seemed to be good, was a little bit below the increase in the average retail trading value on the Tokyo Stock Exchange. So there seemed to be a little bit of underperformance there and I was wondering if you could address that?

Yes, David. Yes, I made a mistake, sorry, that the -- this -- you are talking about the retail division, so this should not include the Instant. But the performance of the strengths of the equity brokerage commission from a domestic was driven by the first -- I think at the end, the Japanese investor was -- they were able to capture the market [turbulence]. They were a significant buyer during the first two weeks of October while the world financial market was suffering and they made money after the October 31st announcement by the BoJ and [GPIS], and quickly they were able to capture something like a 10% return from their investment in November.

Those are the two key factors which we observed, significant buying order during the first two weeks of the October and significant selling pressure during the first and second week of the October -- November.

Okay, great. Thank you. If I could have one more follow-up Kashiwagi San. On page 6 of your presentation, you talked about recurring revenue there. I think that's the first -- this is the first time you have talked about this, I mean in details. And you in one of the tables on the upper right-hand side, you listed out discretionary investment net flows, investment trust net flows, as well as sales of insurance products. Are these three the primary drivers of your recurring retail revenue, or are there more to these three?

No, actually they'd be -- with respect to the insurance distribution, this is nothing to do with stock revenue. Our recurring revenue is coming from only two area. One is the discretionary accounts and also the management fee from the investment trust.

Thank you for your clarification.

Mr. Yamanaka, Credit Suisse.

(interpreted) Two questions please, first in relation to the share buyback and additional question on that. As for your treasury stock, you said you wanted to flexibly implement your capital strategy, but how long do you plan to hold on to the treasury stock?

What kind of time-frame do you have in mind when you think about your capital strategy? Are you going to hold on to them forever or do you have a certain time-frame in mind? Could you clarify that?

And my second question is in relation to your international business and your core segments. In this quarter, EMEA and Americas [FIG] there was quite a lot of change in the performance. Meanwhile investment banking, retail asset management did very well.

Things were better than expected, but there was a big slowdown in some businesses. So in the international business when you compare yourself with your peers you don't seem to be that behind, but you are not as diversified as your peers. So the international volatility has a big impact on your overall earnings it seems. And on top of the optimizing your resource allocation is there anything else you can do to address this situation?

(interpreted) This is Kashiwagi. The first question about the treasury shares, our basic policy is to hold them for a year or a year-and-a-half, and at that point we will decide on some kind of conclusion, but depending on the market conditions we could hold on to them a little bit longer.

There is a chance that we could conduct some kind of M&A in which case we could use the shares as a -- in a part of a share swap. That's one of the options. Right now in this volatile market if there are opportunities I think one of the options could be to keep holding on to our shares.

But the plan that we have in mind at the time of the purchase is to make a decision within a year or maybe a year-and-a-half. That's in line with our investors expectations I think.

Your second question about fixed income in wholesale performing badly and how we will address that in the future, that's a very big question I think. One thing is that fixed income business especially this year, this kind of risk-taking business will face several challenges. And the fixed income business which is risk-taking, I think there is going to be some volatility. This is inevitable.

So we will continue to focus on our strengths and also focus on client-driven areas within fixed income. And we want to take -- or, we want to take risks more smartly in the future. Smart risk-taking is important.

And in this quarter, the yen continue to depreciate. That's why the resource management on the front end is conducted on a yen basis. So the front office -- or the front side there was some tightening of resources to a certain extent, and due to the yen depreciation the front office from their perspective, there was a decline, but due to the yen depreciation -- so although they are making money, it's not like we are going to allocate them more resources as a result of the yen depreciation.

We have not done that. And that's also one reason why we have room to buy back our shares. So right now things are tightening. Fixed income is facing a challenge, but that's precisely why the other businesses like equities and also within fixed income we will be conducting more severe performance reviews.

And we have actually started -- from last year we have started to terminate some of the employees in our US business and recently there was -- in AEJ we reduced headcount inflow derivatives as was reported in the media and we will continue these types of initiatives. We will continue to scrutinize or tighten our performance management.

We also have to expand into new businesses, and for example, in investment banking we have been selectively investing over the past two to three years in the US, and I think we are starting to see the fruits of those efforts in this quarter.

And in fixed income, the cash business, flow business, credit business struggled, but the other businesses, for example emerging or FX, these businesses -- we appointed a person focused on this business last year and we categorized or divided the businesses. And I think we are starting to see positive result of these strategies.

We also separated sales and trading in Asia and we clarified leadership. As a result, I think we were able to deepen our grip on the business.

So fixed income if it continues to -- if the business continues to be challenging, we will make sure that we can generate bottom-line income despite the tough conditions in fixed income and also equities. And in order to do so, you commented on our -- your Western peers who have more diversification and deeper pockets.

And because we are not as diversified, I think we have to be more client-focused and be selective in the businesses we participate in, and our resources, this is both intellectual and also geographical allocation of our resources is very important. And as we have been saying from the past, the upgrade by Moody's and also the relative advantage we have on the regulatory front will continue.

These will be tailwinds for Nomura and recently some companies are continuing to announce restructuring of their businesses. And of course we are doing some on a small scale as well restructuring, but I think we are at an advantage to our peers in these aspects.

So we will continue to improve collaboration among divisions and reap the fruits of our efforts, meanwhile continue to control our costs both at the middle and the front offices and improve profitability per head. I think we just have to keep doing this over and over so that we can meet the expectations of the various stakeholders including shareholders, lenders, employees, and the regulatory authorities. I think balancing these stakeholders is one of the roles of management.

(interpreted) Tanaka San, Goldman Sachs.

(interpreted) I have two questions if I may. First question is about the buyback, the philosophy with regard to share buyback this time around. And you are going to expand the program size, and as of now the share buyback, by what criteria have you decided the size of this share buyback program? And from the next quarter onward what would be your approach with regard to share buyback? Please explain about that.

And second question has to do with foreign currency exchange rate and the oil price impact upon your business. Could you elaborate on the impact of exchange rate and oil prices? With regard to oil price maybe you can get a business opportunity.

However, with regard to exchange rate you talked about the controlled currency as well. When yen continue to depreciate and in your business management what kind of change, if any, are you going to make with regard to business management?

(interpreted) The first question regarding share buyback program, the reason why we are implementing this program this time around, our basic philosophy is as follows; when it comes to share buyback, after paying out dividend we are going to make returns to shareholders. Therefore the April and October, when we make our financial result announcement, we have to make a decision on that.

However, this time -- last time we spent JPY2.8 billion available to buy up to 40 million shares. However, we couldn't reach that threshold, therefore we are going to have included that leftover amount in the program this time around.

However, share price remains unchanged. So if we have funds available we [wanted] to increase the size of the share buyback program, there is no specific equation criteria for the size to be determined. We have 25 million shares leftover, and also the original total shares of 40 million shares in the last share buyback program, and we thought we have funds available to buy up to 40 million shares now. So 30 million, 35 million, 50 million shares, those numbers have not been considered by us conversely speaking.

Second question related to exchange rate; basically as I said earlier, for our firm it's going to be a constraint. And like this time on a quarterly basis if there is a speedy yen depreciation then that would be a greater constraint. That has been sensed by front office people I am sure.

However, in our capital account, you can see the movement of money. We are making investment in overseas market by subsidiaries. And the exchange hedging is done, therefore we enjoy the currency rate change in our book.

Therefore, we would like to respond to this situation. If yen weakens too much, then perhaps we have to restrain our position. However, when [it] shoot up JPY120 yen to the dollar at the end of year, we restrained balance sheet size at the end of the year. However, 16.2 times in the balance sheet can be seen. Therefore, the exchange rate is not serving as a big impediment as of now.

(interpreted) How about oil price, could you comment on oil price impact?

(interpreted) Regarding oil price, I think there are different perspectives you can take. Directly, it isn't that we can gain from [trading] activities because of the oil price plunge.

However, oil-related exposure or the performance of oil-related companies may deteriorate and then we have exposure to these companies. On a mark-to-market basis, it is possible that we suffer losses.

However, we heard announcements of financial results by many American banks last week. Looking at those numbers, our exposure is very, very small compared to their exposure. And within our exposure, share of energy sector is relatively small. So I think broker business and bank business is completely different. That's what I sensed from the last week's announcements.

(interpreted) Mr. Niwa, SMBC Nikko Securities.

(interpreted) I'd like to ask about the wholesale division, two questions. One is about the pretax income overseas. It's a bit too early, but through our next fiscal year, your target is JPY50 billion. Right now the trading environment is somewhat stable, but based on that what do you need to do to achieve the targets for next fiscal year? This is a abstract question, but could you share with -- what your thinking is?

My second question is about investment banking pipeline. In the presentation, you explained how there's some promising deals coming up in the pipeline. What kind of geographies and products do you think there will be opportunities?

(interpreted) This is Kashiwagi. First question, the March 2016 target of JPY50 billion in our international business, we announced this two-and-a-half years ago. We set this as our management target back then and no change to this target. So we still plan to achieve it.

As for the market environment which has changed since then, so we have to move cautiously. And as I explained earlier, one is the review of our business performance. We have to further tighten the way we review our performance.

And in that process we will assess the cost-cutting at the front level. If the revenue declines as a result of cost-cutting, we also have to cut down on the costs of our infrastructure, so it's kind of a cycle.

So the front office, middle, back office have to work together to achieve the cost-cutting -- to conduct the cost-cutting. And also the upgrade by Moody's, the effect of this was seen or is being seen in Q4 and we are starting a dialogue with about 200 clients. And on the 1st of December we announced a target of JPY26.3 billion which we will achieve in 12-18 months on a run-rate basis. This is again a effort -- joint effort by front, middle, and back offices and we want to monetize as quickly as possible.

Your second question about investment banking pipeline; right now the visible pipeline is mainly -- or is in Japan. Japan is the strongest. Especially the IPO sector is -- there have been a lot of -- there will be a lot of large IPOs like Japan Post and the number of IPOs will exceed 2014. Number of companies will reach 100.

Last year it was 80 companies, JPY1 trillion. So these IPOs will help. And also shareholder return also conducted by Nomura, there will be share buyback deals and also recap CB deals, these types of solution transactions will be seen as well.

And just to add to that, M&A will -- I just talked with Okada San who is the head or in-charge of investment banking. We seem to be getting a lot of enquiries for M&A. And for our international business, for M&As internationally, the cross-border M&As between Japan and overseas and also between non-Japan countries, we will -- we need to monetize from these opportunities.

And in the Q3 results, one change from the past is in the past, there used to be transactions that we win, but these were one-off. But I think that's changing to more recurring revenues. So we are starting to generate multiple revenues from the same transactions. And in Q4 I think we will be able to build up a certain size in figures as well, not just in Q3.

(interpreted) (Operator Instructions)

(interpreted) Well, thank you very much for participating until late in the evening. And as I explained in my presentation and in my comments, for the wholesale division things are somewhat challenging and we have to address these challenges. As for the retail and asset management businesses things -- we are able to do what we have always wanted to do and for the Fund Wrap products, the end-of-the-month balance was JPY980 billion. And so -- for the discretionary investment products the balance was JPY980 billion. And moving into the New Year, it has done -- continued to do well. So the balance has exceeded JPY1 trillion.

We will continue to reform our retail business model and also turn our international business profitable. So we ask for your continued support. Thank you very much.

(interpreted) Thank you for your taking 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.