Nomura Holdings Inc (NMR) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to today's Nomura Holdings Second Quarter Operating Results for Fiscal Year Ending March 2018.

Please be reminded that today's conference call is being recorded at the request of the hosting company.

Should you have any objections, you may disconnect at this point in time.

(Operator Instructions)

Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections.

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

With that, we'd like to begin the conference.

Mr. Takumi Kitamura, Chief Financial Officer, please go ahead.

This is Kitamura, CFO.

I will now give you an overview of our results for the second quarter ended September 2017.

Please turn to Page 2. Compared to the same period last year, the first half had relatively fewer major market events and client activity in the fixed income markets slowed, due mainly to historically low interest rate and volatility.

On the other hand, the Japanese stock market rallied supported by robust economic indicator and the rally in the U.S. This resulted in a gradual improvement in client trading.

Net revenue for the first half was JPY 712.3 billion, up 4% year-on-year.

Income before income taxes increased 11% to JPY 160.5 billion.

Retail and asset management, both booked solid earnings growth, spread on by improved market conditions.

But Wholesale reported weaker in net revenue and income before income taxes, due primarily to a significant drop year-on-year in fixed income.

As a result, the 3 segment income before income taxes was roughly unchanged from the same period last year at JPY 126.8 billion.

Income before income taxes outside of that 3 segment increased on gains related to affiliates and the realized gains from securities held.

Net income rose 1% year-on-year to JPY 108.7 billion.

Annualized ROE was 7.7% and earnings per share was JPY 32.20.

Today, we also announced a half-year dividend of JPY 9 per share for shareholders on record.

As of the end of September, our dividend payout ratio was 29%.

Today, we also resolved to acquire treasury stocks to raise capital efficiency and ensure flexible capital management policy.

The share buyback program will run from November 15, 2017, to March 30, 2018, and have an upper limit of 70 million shares for the Nomura Holdings common stock worth JPN 50 billion.

Please turn to Page 3 for an overview of our second quarter results.

Net revenue declined 3% to JPY 351.5 billion.

As an increase in asset management, revenue was not enough to offset a significant decline in fixed income revenues.

Stringent cost control, especially around personnel expenses meant income before income taxes increased 7% Q-on-Q to JPY 83 billion.

Net income declined 9% to JPY 51.9 billion.

This is due to a higher effective tax rate of international income before income taxes dropped significantly amid a challenging environment in fixed income.

Annualized ROE for the second quarter was 7.3% and earnings per share was JPY 14.45.

Please turn to Page 6 for an overview of the results in each business, starting with the retail.

Second quarter net revenue in retail was JPY 101.8 billion.

Net income before income taxes was JPY 25.5 billion, roughly unchanged quarter-on-quarter.

Sales of primary stocks increased along with bond trading, but sales of investment trust slowed from the strong previous quarter.

Quarter-end retail client asset climbed to a record high of JPY 115.2 trillion, although we booked net outflows of cash and securities of JPY 77.8 billion yen.

This is due to a large stock withdrawal.

Transactions excluding this effect gives net inflow of more than JPY 400 billion.

This was driven by the Japan Post offering and inflows into low risk assets.

The growth on the bottom left shows investment trust sales and assets under management.

This quarter saw continued inflows into India stock funds and income-focused low risk products.

AUM in investment trusts totaled JPY 10.6 trillion at the end of September.

As you can see on the bottom right, discretionary investment assets under management reached JPY 2.55 trillion, driven by net inflows and other factors.

This growth in client assets combined with market factors do drive up annualized recurring revenue to JPY 84.4 billion and the recurring revenue cost coverage ratio to 28%, the highest level since we started focusing on the indicators.

Turning now to Asset Management on Page 8. Net revenue climbed 26% to JPY 35.4 billion.

On the bottom left, you can see AUM reached JPY 48 trillion, a record high for the fourth straight quarter, which helped lift asset management fees.

We also booked around JPY 9 billion gain related to our strategic partner American Century Investments after taking into account its profitability and market trends.

As a result, income before income taxes increased to JPY 20.5 billion, a quarterly high since we first started disclosing segment information in the year ended March 2002.

Please turn to Page 9. The top left shows inflows of JPY 980 billion, of which the investment trust business accounted for JPY 890 billion with inflows primarily into ETFs and the core investments trusts.

Nomura Asset Management share of the public investment trust market was 26.4%, as shown on the top right.

The bottom right highlights the progress we are making in the bank channel.

Asset Management is not only focused on improving performance but also in expanding it's distribution channels with cit banks and regional banks.

AuMs are gradually increasing.

If you look just at the regional bank's channel, investment trusts assets under management have increased by 35% over the past year.

Next, please turn to Page 10 for wholesale.

Net revenue declined by 11% to JPY 159 billion.

As I said earlier, low volatility and subdued client activity in the fixed income market led to sluggish performance in fixed income.

Despite executing high profile ECM transactions, Investment Banking revenues declined quarter-over-quarter as revenue contributions from M&A and other products were lower.

Wholesale expenses declined 8% from last quarter to JPY 142 billion.

This is due to lower bonus provision given our focus on pay for performance and because last quarter included a major portion of expenses related to deferred compensation.

On a US dollar basis, expenses annualized at around $5.1 billion, highlighting our stringent control of costs.

As a result, income before income taxes were JPY 17 billion, down 33% quarter-on-quarter.

Please turn to Page 11 for Global markets.

Net revenue declined 12% from the first quarter to JPY 136.1 billion.

Fixed income declined 18%, which is JPY 78.3 billion to weak performances in rates for the products in EMEA and the Americas.

As you can seen in the regional breakdown on the right, AEJ was the only region showing positive momentum as credit improved and emerging markets remained resilient.

The other regions all reported softer revenues.

Net revenues in equities was relatively stable at JPY 57.8 billion.

The AEJ arrow is pointing up, a resilient performance in cash equities, while Japan is also up, driven by primary deals.

In the Americas, both cash and derivatives declined.

Please turn to Page 12 for Investment Banking.

Net revenue declined 9% to JPY 22.9 billion.

Gross revenue, or revenues before allocation to other divisions, was JPY 43.5 billion, down 4% quarter-on-quarter.

Large ECM transactions such as the Japan Post offering and the euroyen convertible bond issuance by ANA Holdings contributed to stronger revenues in Japan, while internationally, M&A and financing related revenues declined.

In the middle of the page, you can see the gross revenue for the first half of the year increased 17% over last year to JPY 88.9 billion.

The deals shown on the right are just some of the transactions we executed in the second quarter.

We leveraged our global collaboration to execute many large mandates and multi-product transactions related to M&A.

International revenues increased 25% year-on-year.

Page 13 shows non-interest expenses.

Firmwide costs were JPY 268.5 billion, down 5% or JPY 15 billion.

Compensation and benefits declined by 10%, which is around JPY 14 billion.

This is due to the factors I mentioned earlier in relation to wholesale: First, a technical factor whereby recognition of expenses for deferred compensation, which is granted as a part of bonuses, was higher than normal last quarter; and second, bonus provisions were lower given our focus on pay for performance.

Information processing and communications is showing an increase due to not one-off costs related to the planned integration of Nomura Home Trade and Nomura Net & Call in January 2018.

Page 14 shows our financial position.

As of the end of September, our Tier 1 ratio was 18.4% and our common equity Tier 1 ratio at 17.4%.

Applying the fully loaded 2019 Basel III standard to our balance sheet at the end of September gives a common equity Tier 1 ratio of 17.1%.

While these ratios are down compared to the end of June, this is because Tier 1 capital, the numerator in the equations, declined due to the dividend payments and share buybacks.

At the same time, risk assets, which are the denominator in the equations, increased mainly in market risk.

That said, we continue to maintain a robust financial position.

That concludes the review of our second quarter results.

In October, the Nikkei set a new record, rising for 16 straight days, underscoring robust trading by retail investors.

Retail performance in October has trended slightly above last quarter, and Asset Management has continued to increase assets under management.

Meanwhile, the fixed income market volatility index remains low and Wholesale is trending roughly in line with second quarter performance.

We will continue to tightly manage risk and costs and aim to take revenue upside when the market recovers.

(Operator Instructions) The first question comes from Mr. Masao Muraki of Deutsche Securities.

This is Muraki, I have two questions.

First, regarding fixed income.

In terms of the revenue share, when I look at that in the previous quarter or compared to the last year, last year, I think, they have come down.

But fixed income revenue compared with our previous level, on the left side of Page 11, it is above JPY 90 billion.

For the revenue to go back up to that level, what's kind of macro change do we need or within Nomura, what kind of changes do we need to see or what kind of changes do we need to see in competitive landscape for your fixed income revenue to go back to the previous level?

The second question is regarding the equity.

Firstly, if you have a number, we would like to have that, but in the equity revenue, our cash and derivative and synthetic prime brokerage split.

What's the breakdown among those?

Could you give me those numbers?

And related to that, in equity, I have to two questions.

Second question regarding your response to MiFID II.

Previously, JPY 1.2 billion was paid by you to acquire Instinet and also Lehman Brothers' electronic execution platform was purchased, but now with your execution system that you have, do you believe you can respond to the requirements of MiFID II?

In the future, do you need some system investments or do you need to acquire additional system in the days ahead?

So those are the two major questions?

Thank you.

This is Kitamura.

Thank you very much, Muraki-san.

First, regarding the share in revenue, our performance indeed compared with last year or last quarter has come down.

But, for example, on a year-on-year basis, is it that Nomura's performance is particularly bad?

That's not the case.

Already, Muraki-san has analyzed that belief, but American peers, their numbers are similar and their numbers have declined, just like us, and European peers' numbers announced last year saw more significant year-on-year decline compared with American firms or us.

In that sense, top line might have struggled.

But in the sense of share, we believe we've retained what we had.

On a Q-on-Q basis, compared with American peers, our numbers may look behind theirs, but if you remember, our Q1 performance compared with others is pretty good.

So the starting point of our launchpad to us higher in our case compared with others in the first quarter.

And second quarter, on an equalized basis, our number, I believe, is on par with others performance.

Then this level of profitability, are we satisfied with that?

No, we are not satisfied with the current result.

This historic low volatility environment may continue for a while and rise in interest rate may happen sometime in the future.

Not that we have an expectation or we're expecting that timing to arrive.

That's first comment, and also moving forward.

As you know, at Nomura, within Wholesale, fixed income has a huge proportion, especially rates related to businesses have big share in fixed income.

So for Nomura, the portfolio or the composition of revenue should be revisited.

In that sense, Global Markets and Investment Banking are collaborating together to offer solution businesses because that's what we are focusing on now.

Second question that you asked me, san-Maraki, your question, the breakdown of equity revenue, prime brokerage and execution, and it's a long [, what is the breakup -- breakdown?

The prime brokerage share is not that big, although we are not disclosing the breakdown, but research and sales and low touch execution, including those services among all equities, probably, the proportion is about 50% or slightly above 50%.

And what you want to know regarding the research and sales, which is directly impacted by MiFID II, their proportion in equity not that high.

Some kind of impact may -- there may be some kind of impact, but the impact on the bottom, we believe, is not that big or very small.

Also with regard to MiFID II or impact from MiFID II as well as our response to that, firstly, I could say that with regard to MiFID II, impact from that regulation cannot be accurately measured as of now.

But as you know, last week -- at the end of last week, SEC, in the USA, issued a no-action letter and also European Commission issued FAQ.

So we see those moves.

So as for the extraterritorial implication, it seems those regulators are coming up with pragmatic approach, but we cannot be complacent under such circumstances.

How does Nomura respond by leveraging our unique strength?

That's the key we should focus on.

In the case of Japan alone, Nomura Securities has a dominance in the market of Japan.

So the extent of impact of MiFID II is not clear as of now, but we still have the possibility of being chosen by clients.

As for USA, actually, passive investors, they're portfolio trading from passive trade -- the passive investors.

In other words, basket trading.

We are ranking within top 5. This is a surprising number, but in that sense, execution dedicated to broker maybe the perception that people have about Nomura.

In Europe, as I explained all along, in April last year, research and sales has been closed and now we are focusing on execution, and the top line is growing in some area.

So if -- net execution capabilities are being highly valuated, I believe.

So given all those things, research people should decline maybe a potential negative impact, but by using the existing platform of -- execution platform of Instinet, I do believe we still have a chance of increasing revenue.

And in the sense of Instinet, in August of this year, to enhance the functionalities, alternative trading system held by BlockCross was acquired to enhance block trading and to improve the efficiency.

So a large-sized acquisition is not on the horizon right now, but opportunistically, we'll be in search of chances of acquiring boutique houses.

Next question is from JPMorgan Securities, Natsumu Tsujino.

There are two things.

First, at this time other -- segment Others, if I look at this Other portion, just grew JPY 9 billion plus CVA/GDA, and Mebuki's, the valuation gained, it's something that we can understand, JPY 2.1 billion.

But excluding that, this negative portion is quite significant.

Q-on-Q changes, as I look at them, FHA for litigation-related to additional cost is already shown and that's a little more than JPY 10 billion, I suppose.

And assuming that is -- concerning this provisional reserve, is it all right to look at it as a final figure, concerning this reserve, and amount somewhere close to this in the market of securities report concerning those litigations -- several litigations, maximum -- even when they're in the losses, maximum is JPY 45 billion or so.

Am I correctly assuming those or was there something more significant included, but at closer scrutiny, this is what you have ended up with?

Could you please let me now about the situations?

That's question one.

Question two.

The first quarter was so good, so will you just put that evenly out when it's comparable to other peers, but by country, we have have information available.

We have this heat mapper.

But when there was a significant dip by product, were there any salient moves by product when there was a significant dip?

Third question.

You may now be able to talk about this, but to Frankfurt from London, it looks like there are some talks of you transferring people to Frankfurt in terms of intensive cost towards the estimate of cost?

That is all.

There are three questions to segment Other part.

As you rightly supposed, FHFA litigation-related reserve is included there.

Having said that, this litigation is still ongoing.

In terms of the scale of demand, I'm afraid I cannot disclose that, I'm sorry.

Having said that, concerning this litigation and generally speaking, with possible losses, probability of the losses is significant.

If the losses can be estimated based on our accounting policies, the reasonable amount has been reserved.

Concerning the sentencing by the Court of Appeals, from my point of view, accounting-wise, what has to be done has been done.

That is my answer.

In terms of (inaudible), in the market of securities (inaudible), the report, whether that's covered in that maximum losses, regarding that question.

Yes, it is included in the maximum losses.

Regarding your second question, fixed income, dip has been -- what are the products where they saw a significant decline?

We already answered to san-Muraki's question.

At Nomura, the rates-related general macro products, the dependency on those in terms of profitability is compared with peers.

The the equity-related products , we are not such dependent on them.

The low volatility of interest rates, I think this is historical in terms of its low-level volatility, but as a result, compared peers, perhaps we were exposed to that.

India, Americas and the EMEA, (inaudible), these regions-related businesses suffered, Brexit, transferring people to Frankfurt, regarding that issue.

But to be honest with you, whether the hard Brexit or the soft Brexit, and people are talking about the tradition period, so what would be our strength?

We are still monitoring the discussions.

We're now part-- at the moment, it's not we have finalized our policies . But we would like to make sure that we cater to the needs of the customers no matter what happens.

We want to provide the customers with our services.

The new company, according to our policy, will be established in Frankfurt.

At the moment, we are not achieving a significant cost.

Depending on the situation, we would like to monitor the situation and then we could perhaps come up the accurate -- more accurate estimates of the cost.

You mentioned that you cannot disclose the numbers, I understand that, but we --maximum losses JPY 45 billion, that's listed in the marketable securities report.

So with regards to the numbers you estimated at the time, it's something similar to what you see as cost now or actually -- is it actually lower than one person estimating the marketable securities report.

Could you elaborate on that?

Ms. Tsujino, again, I would like to restrain from answering that question.

Next question comes from Mr. Watanabe from Daiwa Securities.

This is Watanabe.

I have two questions.

First question is about the markets business, FICC and equity, regarding client flow and the revenue from the propositions.

What's the breakdown?

The second question is regarding wholesale costs.

Annualized cost of JPY 5.1 billion is what you communicated, but because of the deterioration of performance in the USA and Europe, is there a possibility for you to reduce fixed cost base?

Those are the two questions from me.

Thank you.

This is Kitamura.

Regarding the first question, fixed income, equity and flow in trading breakdown.

For fixed income, from client flow, about 90 crores [to 90% and trading represent about 1%; for equity, 90% from client flow and about 10% from trading.

For Wholesale cost, this time, it's not that the performance was weak, we are reducing cost, that's not the case.

No matter what the performance is, we are focused on reducing our fixed cost.

The information has gone now to the media, but across the world FinTech and other technologies are advancing at a significant pace.

So our PA and AI and those twos are going to be utilized.

And also through locations strategies, we will be revisiting that structure, where we are moving staff from high-cost locations or cities, so location strategies, including offshoring and near-shoring and through those measures, we will be reducing costs.

That's our plan.

As for the personnel expense, we have been executing pay for performance, and we'll continuously work on that.

Regarding the first answer, the fixed trading decline was significant this quarter, but what's the reason?

To give you an answer, I received similar questions from Mr. Muraki and Ms. Tsujino, but Nomura's fixed income flagship product is macro, where -- rates product.

Those business line declined, even though the trend witnessed a growth in financial services industry, but the proportion of such business line to the fixed income business was high with Nomura.

The the next question is Lui from Guoco Management.

I'm looking at Page 20 of your PowerPoint.

If I look at the last two lines, it appears to me that the tax rate for the September quarter was very high compared with the previous quarters.

Is it possible for you to shed some light on why we had a higher than usual tax rate for the September quarter?

That's my first question.

And then I have a second question.

Thanks.

David-san, Thank you.

More recently, for the past five quarters or so, effective tax rate has come down.

Overseas revenues have been so good, that is the major factor behind this.

Regarding overseas deferred losses and deferred tax assets or DTA on them, they have not been listed.

So the before tax, it's the profit and that's goes down directly to the net P&L, net profit.

That was past tendency, but if you look at this overseas, almost breakeven, a plus JPY 900 million or so.

So for the past five or six quarters, we had those benefits, but in this quarter, we couldn't enjoy benefits.

That's the major factor.

Let me ask my second question, which is on Page 24 of your PowerPoint.

If we look at the retail brokerage commission and also the retail commission for distribution of investment trusts, they have been kind of flat to being down for the last three to four quarters.

Luckily, with the election results and also expectations for the LDP win, the trading volume, according to the Tokyo Stock Exchange, increased in the month of October.

I think it was up about 18% versus the September quarter.

Should we model this kind of increase in commission and/or commission for invest -- distribution of investment trust for Nomura in the December quarter?

And talking about -- looking at the Tokyo Stock Exchange, it's about an 18% increase so far for the first month of the December quarter?

First of all, five years ago, if you look at the retail business model, because of this transformation compared with the past and the linkage due to Japanese equities, I think it has come down little bit.

Consulting advisory business is something that we do as a mainstream, and we would like to grow them significantly, the Nikkei average or trading volume, simply because it increased or it goes up.

With the high correlation, our profits increased, that is not the case.

Of course, if the market is good, obviously, there are some positive factors, but I hope that you will understand this.

I think David-san, you ask similar questions about -- looking at brokerage commission alone.

Perhaps, a little difficult for you to sort of follow the -- what we do in the retail line.

I remember saying that sort of things.

If you look at October alone, the 18%, that's better than September.

Just regarding the third quarter, if the performance is good, as David-san already mentioned, in regards, as it has been in our retail, of course, the -- that will have the positive impact, that is our expectation.

The next question comes from Mr. Niwa from Citigroup, Japan.

This is Niwa.

Regarding shareholder return and also regarding retail division, I have one question each.

First, regarding shareholder return.

So you've announced a share buyback.

So the level of share buyback, is it at annual level or is it related to the adjustment of the capital level and the stock price?

So the total return ratio, is it what you are referring to or are you going to be setting total return ratio target for this year?

My second question is related to the question from David-san, but regarding retail division.

Looking at the stock market, the market seems robust, and there seems to be some success stories, but at the same time, inflow into low-risk assets seems to be continuing, as you explained in October.

Probably, the overall trading trend would be net sell-off.

So what I want to know is in your mid-term turn [, JPY 25,000 is the Nikkei coverage forecast and based upon that, you will be accumulating clients assets, and given the current inflow or pace of inflow, is there alignment or risk taking by clients may not be what you have assumed?

You've commented on those, but with regard to for clients to take risks, what is needed to happen?

Can you comment on those?

Thank you.

This is Kitamura.

Thank you very much for your question.

First, regarding the share buyback.

So regarding the buyback announced, this is not specifically for the return for the first half, but it's a return for -- to correspond to this fiscal year, because if anything -- this time, capital ratio or CET 1 ratio has come down by 0.7 percentage point, both for CET 1 ratio and capital adequacy ratio.

But from Nomura's viewpoint, the capital ratios are still at high level.

And for our stock price, relatively speaking, our current stock pricing is considered low.

So in that sense, the share buyback announced this time, we believe, will contribute to improvement of shareholder value.

So we set the limit for share buyback.

As for the total return basis, I'm not sure whether we should consider this on a total return basis, it's difficult.

But given various types of shareholder returns, total return is one thing that we consider, but it's not a major benchmark we are focusing on.

We do not have an explicit policy on that.

Whether we consider buyback as a shareholder return or investment, there are various viewpoints, but the current -- given the current ROE and stock price for Nomura, buyback is a rational approach.

On the other, related to your second question regarding the Retail division, as we rightly pointed out, the selling pressure is pretty strong.

For the first time in 20 years, Nikkei's average reached record high in 21 years.

So for, I mean, visitors, they can finally sell their positions.

Then, in the short term, there would be strong selling pressure.

And from now toward JPY 25,000 with Nikkei average proceed.

For the time being, investors will try to cash in on what they have to take a profit.

But as Mr. Niwa mentioned, success stories are successful, experiences are important, looking at Japan stock prices in this historically low interest rate environment and given the performance of companies, then the stock price seemed at low level.

So various types of products such as saving side products,.

If funding froze into products, then investors will be able to experience successes.

In order to proceed with business model transformation, in April of this year, we've abolished district-based system in retail division and retail branches of ours are the closest to our clients.

So they have been given bigger authority.

So each retail branch can implement their own strategies and tactics.

Six months have passed since that change, and we are seeing pretty positive moves.

Since retail branches are conducting their own actions, we feel stronger or a bigger energy among retail branches.

And also Nikkei stock average is going up, so the atmosphere at branches is quite upbeat from here towards the target of expanding client's asset.

We have to strengthen the segmentation of clients.

Also we have to enhance the knowledge level of our sales staff.

And since we cannot handle all segments of clients, so we have to optimize the segmentation of clients, and we have to win trust from clients.

That's a new benchmark that we've introduced.

So besides variable products, we will be focusing on saving-type products, the types of products that are -- that can be easily accepted by amateur as an investment.

So I may not be directly answering your question, but through various measures, we are phasing clients to improve the satisfaction of clients and by -- and this thing -- winning their trust, we would like to encourage them to increase their risk appetite.

In the course of such process, we would like to conduct a thorough follow-up with our clients in getting the assets.

(Operator Instructions).

Next question is from Merrill Lynch Japan Securities, Sasaki-san.

Two questions about the return to shareholders.

First, this fiscal year, around JPY 100 billion share buyback will likely to be executed by you, but this number of share buyback, if the share price is about their current level, if the performance is comparable to current level, then in the next fiscal year, as a possibility, are you planning to do the share buyback in the next fiscal year?

What about the probability?

As for the share buyback regarding what you have already bought, are you planning to actually redeem it without them?

I would like to ask you about this policy of -- two questions?

October 23rd, share buyback, 100 million shares gave JPY 80 billion, that has been said.

With regard to this, the 2017 March -- fiscal period shareholder return -- for this term, this JPY 50 billion, that's for March 2018.

This current fiscal year return for the shareholders, that's our approach.

On the share prices and performance, each day, the comparable levels, as now, we're planning to do the share buyback in this comparable level next fiscal year.

Regarding that question, I wouldn't deny the possibility.

Another thing is, it concerns regulations dip.

It has been sort of postponed and postponed, and we will probably have more visibility and what happens in regulations would be another factor.

As for the share buyback, partly, it is return to the shareholders.

On the other hand, from our side, it is also an investment, as I shared with you before.

In that sense, including the situational condition for businesses, the regulations business, those will be looked at in a comprehensive manner.

That would be my answer.

Regarding your second question, are we going to retire or redeem those shareholders -- shares as one option.

As one option, on a continued basis, we have been studying that.

Regarding the timing of the retirements, at the moment, nothing has been decided.

But this is one of the most important capital policies.

We cannot disclose when it'll be done, but just to suppose that it will be retired, they will be retired using press release among others.

We would like to make sure that we will give you a good explanation.

But at the moment, nothing has been decided in this regard.

A follow-up question.

If FRTB, the FX becomes more visible, December, concerning the clarity to risk evaluation about the flow, if a more definite match is decided, if I look at the set 1, the ratio of the company, if it goes down to certain level, then share buyback might be difficulty.

If you could just share with a second of a yardstick, I would appreciate that?

We have already set the external committee.

Set 1 ratio 11% or higher.

We would like to make sure that we will be able to maintain that.

So we're going to control this Tier I ratio, 12.5%.

Minimum, we must maintain these ratios concerning the set 1 and Tier 1 ratios.

About the buffer, maybe it's 12, then it will be difficult.

If it's 13, you'd have to think about it.

Don't you have to think about this range?

Regulations do demand much lower ratios, somewhere like 8% and putting some buffer and then 11% is what we see.

So 11%, is this okay?

Sasaki-san, you asked us this question.

In my personal opinion, 11%, that is -- I'm not really comfortable with that.

So did I answer you question?

(Operator Instructions).

The next question comes from Mr. Ban from Morgan Stanley MUFG Securities.

I have two questions.

First question is as you explained, risk assets that has gone up and you took some more risk, but at the same time, volatility had stayed low.

Under such circumstances, where specifically did you see more risk taking in the the past quarter?

That's my first question.

My second question is somehow related, but moving forward, if low volatility environment continues, then you would increase solution businesses, but you've also already issued this, but regarding cost base, are you going to be reducing cost base further based upon the revenue generating environment?

Regarding the first question, risk-weighted asset, which went up by about JPY 500 billion compared with the last quarter, that's how I understood your question.

But the major factor is market risk, but we did not take extra risk.

There is technical factor to go into more details.

Under Basel rule, there is a stress bar.

In 2007 and 2008, financial crisis hit and if similar, huge displacement happens in the market, then that kind of scenario is the set assumption used for the stress bar.

In this quarter, coincidentally, that position went up slightly.

As a result, risk-weighted asset seems larger due to this technical reason.

For Nomura, we did not take particularly big risk, but because of the calculation of technical factors, the number went up slightly.

The second question you asked was about cost base, whether we are going to reduce cost base further if the current conditions continue?

But as I mentioned earlier, cost reduction is not influenced by the environment.

No matter what the environment, we will continue with cost reduction.

Specific majors have been explained earlier.

Mr. Ban, if -- your question was about restructuring of large scale?

At this point in time, we are not considering any significant restructuring.

Stringently, we are conducting favorable performance, but as of now, we are not planning any restructuring, just like we conducted last year.

Since there are no questions, we would like to conclude the Q&A session.

From Nomura Holdings, please allow us to extend some remarks.

Ladies and gentlemen, thank you so much for staying with us until the 8 -- late of night.

To sum up, we have been working to transform our retail business model since 2012, implementing a number of initiatives to increase client assets.

Second quarter net inflows of cash and securities were essentially positive and the inflows, our new indicator adopted since April has driven higher each month.

As I shared with you already, the Japanese stock market has rallied in October and with this market environment as a tailwind, we will focus on providing consulting services to help our clients build their investment portfolios.

Turning to international markets, our international operations have remained profitable despite the challenging conditions in fixed income.

If market volatility picks up, we can expect to see an uptick in market participants' activity.

We are making progress in embedding a risk culture of not taking unnecessary risks.

And at the same time, we'll continue to tightly control our cost base.

Given the second quarter revenue levels, we would have been in the red a few years ago.

We will continue to tightly manage the risk exposure on cost base while waiting for market conditions to improve.

We will also focus on stepping up collaboration between global markets and investment banking to deliver more solutions to our clients.

Thank you very much.

With this, we would like to conclude the teleconference.

We thank you once again for joining.