Nomura Holdings Inc (NMR) 2021 Q1 法說會逐字稿

Good day, everyone, and welcome to today's Nomura Holdings first quarter operating results for fiscal year ending March 2021 conference call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. (Operator Instructions)

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

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. First, I would like to express my sincere condolences to those affected by the recent heavy rain in Japan and pray for a speedy recovery from this disaster. Our thoughts also go out to people affected by the coronavirus outbreak, and we pray for a quick recovery for those who are currently ill.

I will now give you an overview of our financial results for the first quarter of the fiscal year ending March 2021 using the document titled Consolidated Results of Operations. Please turn to Page 2. As I said, when we announced our results in May, the rapid spread of coronavirus around the world caused markets to plunge in March. And the fixed income market saw a flight to quality as safe assets such as government bonds were swept up and risk-off sentiment took hold in the corporate bond market and emerging markets, volatility spiked to levels not seen since the Lehman Brothers' crashes, causing substantial market turbulence.

In the April to June quarter, however, turbulence subsided as investor sentiment improved on expectations of an economic recovery and large-scale provision of liquidity by central banks, lifting stock market indices and bond prices. This prompted robust trading of domestic and international stocks by retail investors in Japan while institutional investor activity picked up on the back of portfolio rebalancing. Amid this environment, first quarter income before income taxes totaled JPY 181.8 billion and net income was JPY 142.5 billion, reflecting a strong rebound from last quarter's loss. These results represent the second-best quarter since we started reporting under U.S. GAAP in the year ended March 2002.

As you can see in the graph on the bottom right, 3 segment income before income taxes increased by 6.2x quarter-on-quarter to JPY 122.1 billion. Also reported a strong rebound in earnings, we saw the benefits of realigning our business portfolio last year and investing resources in areas of competitive strength as secondary trading business such as Rates, ForEx and Equities had a strong quarter. Wholesale had a record quarter, significantly boosting firm-wide income before income taxes. Asset Management pretax performance improved significantly as last quarter's sizable markdown of our stake in American Century Investments turned to a gain this quarter.

This quarter, we also booked a profit of JPY 71.1 billion in Segment Other related to the redevelopment of Nihonbashi. Our international business reported record income before income taxes of JPY 64.2 billion, resulting in an effective tax rate of 21%. ROE for the quarter was 21%, and EPS was JPY 45.65.

Next, let us look at the results of each business, starting with Retail on Page 5. First quarter net revenue declined 9% to JPY 81.1 billion, and income before income taxes was JPY 15.1 billion, down 18% quarter-on-quarter. Given the state of emergency in effect during the quarter, it was difficult to physically meet with clients. By reforming our sales channel last year and leveraging technology, we were able to adopt a hybrid model, whereby we also contacted clients using tools such as telephone, e-mail and video conferencing. As a result of these initiatives and the market normalization, we were able to ensure relatively solid results by offering vanilla products to clients.

If you look at total sales down on the bottom left, you can see that we booked an increase in sales of both domestic and foreign secondary stocks. However, Investment Trust sales were sluggish in April and May, declining 22% quarter-on-quarter. Sales of insurance products and discretionary investments, both of which are predominantly through face-to-face sales, declined 62% compared to last quarter.

Please turn to Page 6. Starting this quarter, we will provide an update on the KPIs we announced at our recent Investor Day. Recurring revenue assets shown on the top left rebounded from JPY 15.3 trillion at the end of March to JPY 16.3 trillion at the end of June. However, the quarterly average was down compared to the last quarter, and recurring revenue, shown as a line graph, declined quarter-on-quarter. Consulting-related revenue shown on the bottom left was impacted by restrictions on sales activities and slumped to JPY 1.6 billion. The number of active clients, however, remained roughly unchanged from the same period last year at 465,000 accounts.

Please turn to Page 7 for Asset Management. Net revenue jumped 4.8x to JPY 34 billion driven by an improvement in American Century Investments gains and losses. Income before income taxes rebounded markedly from a loss last quarter.

As you can see on Page 8, our Investment Trust business reported strong net income of over JPY 1 trillion. The breakdown is shown on the bottom left. ETFs inflow topped JPY 1 trillion, and money funds such as MRFs, where investors park funds, also reported inflows. We continue to focus on expanding Investment Trust assets under management through the bank channel. As shown on the bottom right, distribution of our multi-asset product named Double Brain has grown recently, helping to lift AUM in this channel by 25% in the past 3 years.

Please turn to Page 9 for an overview of Wholesale results. Net revenue increased 70% quarter-on-quarter to JPY 248.7 billion, and income before income taxes jumped 8.7x to JPY 87.9 billion. As the market recovered from the March downturn, we were able to meet the portfolio rebalancing needs of our clients, which combined with a favorable trading environment driven by elevated volatility to deliver strong gains in Fixed Income and Americas and AEJ Equities revenues. While Investment Banking performance improved from last quarter, Japan ECM and cross-border M&A remained subdued with no end to the coronavirus pandemic in sight.

As shown here in the regional breakdown of revenues, all regions reported stronger revenues both quarter-on-quarter and year-on-year. Americas reported its best quarterly revenue since the start of our business rebuild. Starting this quarter, we have included our March 2023 KPIs in the table on the top left. For our cost-to-income ratio, we have a target of 82%, and this quarter recorded 65%. Our revenue over modified RWA target is around 6%. But this quarter, we beat that, reporting 7.9%.

Please turn to Page 10 for an overview of each business line. Global Markets net revenue increased by 73% to JPY 232.6 billion. Fixed Income net revenue was JPY 154.9 billion, up 80 -- up 98% quarter-on-quarter. This represented record revenues for Fixed Income as Credit and Securitized Products rebounded from last quarter and Rates revenues grew significantly from the strong previous quarter. As you can see on the right-hand side, all regions reported significantly stronger revenues. Equities reported net revenue of JPY 77.7 billion. Cash Equities performance remained solid. And Americas and AEJ derivatives rebounded from a challenging prior quarter.

Please turn to Page 11 for Investment Banking. Net revenue increased 38% quarter-on-quarter to JPY 16.1 billion. In Japan, we saw an uptick in ECM solutions and DCM transactions while M&A and ECM remained muted, resulting in revenues roughly unchanged quarter-on-quarter. International revenues increased quarter-on-quarter as Americas ECM and EMEA DCM supported a number of financing transactions aimed at ensuring liquidity. ALF revenues in Americas and EMEA improved from last quarter.

Please turn to Page 12 for an overview of noninterest expenses. Firm-wide expenses totaled JPY 278.9 billion, up 6% over last quarter. The increase is due to higher bonus provisions as a result of stronger revenues in the quarter. Nonpersonnel expenses are all down quarter-on-quarter as shown here. Occupancy and related depreciation declined 11% as the previous quarter included accelerated depreciation of certain equipment attached to buildings. Other expenses were down 12% from last quarter, when we booked loan loss provisions for certain unrealized losses on loan-related positions.

Please turn to Page 13 for an overview of our financial position. Our balance sheet at the end of June totaled JPY 41.5 trillion, representing a decline of JPY 2.5 trillion from the end of March due to lower repurchase transactions and loans. As shown on the bottom left, Tier 1 capital was JPY 2.861 trillion, up by JPY 289 billion from the end of March, due mainly to higher retained earnings and the issuance of JPY 150 billion of perpetual subordinated bonds in June. Risk-weighted assets increased by approximately JPY 426 billion from the end of March to JPY 16.1 trillion, again driven primarily by an increase in credit risk due to the market turmoil since March, negatively affecting CVA risk. As a result, our Tier 1 capital ratio was 17.7% at the end of June and our CET1 capital ratio was 15.7%.

The red line graph on the bottom right shows that Level 3 assets as a percentage of Tier 1 capital decreased from 28% at the end of March to 20% at the end of June. This is because Tier 1 capital increased and Level 3 assets declined by around JPY 160 billion as we unwound securitized products and credit positions and pricing transparency improved so that certain assets were reclassified as Level 2.

That concludes the overview of our first quarter results.

As the equities and fixed income markets normalize this quarter, market participant activity picked up and the trading environment improved, leading to record results in our Wholesale business. Asset Management saw an improvement in American Century Investments related gain/loss, while Retail reported solid earnings despite restrictions on sales activities through to May.

While our first quarter results were supported in part by favorable market conditions, we also believe that our efforts to rebuild our business platform last year helped enhance our underlying profitability. By realigning our Wholesale business portfolio, we were able to focus on our areas of competitive strength. In Retail, we reformed our channels in line with client segments and diversified client touch points. We have also lowered our breakeven point by implementing firm-wide cost reductions of JPY 140 billion, which are now over 70% complete. Our Retail business is gradually restarting face-to-face client meetings while taking measures to prevent the spread of the coronavirus. Amid the pandemic, we have been able to enhance our nonface-to-face sales efforts, and performance in July is outpacing that of the first quarter. While Wholesale revenues have slowed from the record first quarter, Fixed Income and Equities performance remains good.

Heading into the summer season, we could see an overall slowdown in business, and the coronavirus situation remains a concern. As a financial institution participating in the capital markets, we remain focused on working together as one firm to ensure business continuity while prioritizing the safety of our clients, communities and people.

(Operator Instructions) Mr. Muraki from SMBC Nikko Securities.

This is Muraki, SMBC Nikko Securities. I have 2 questions. First is about Investment Banking business, and the second question is about capital policy. This time, market revenue on year-on-year terms was rebounding strongly, similar to U.S. institutions. On Page 11, graph is shown. Revenue of Investment Banking, however, is showing different movement from other U.S. institutions. Issuance was very active in international business, and the expansion of underwriting business is seen as necessary or not is my first question. And in Japan, perhaps this -- there may have been a seasonal factor of this being an AGM season. And the performance seems to be somewhat lower than U.S. instituted. But through dialogue with issuers, when do you expect the pickup? What is the timing of expected pickup in underwriting?

And the second question is about the resumption of share buyback. At the time of the second quarter earnings announcement, there were requests from global regulators and there were also uncertainties about the regulatory environment. These were cited as reasons for deferring share buyback, as I recall. In the first half of the year, usually, I believe that a determination will be made as to whether or not to repurchase shares. Are there any reasons suppressing your determination of a share buyback? Or has the environment changed with regards to share buyback possibilities?

This is Kitamura speaking. Thank you for the question. One question was on IB, and the other question was on capital policy. Regarding Investment Banking, Muraki-san, as you have rightly pointed out, in comparison to the American security companies, our performance trended differently. What are the factors behind? You already know the factors. But after coronavirus, the fixed income market in the United States experienced a boom in issuance, and U.S. firms were able to capture that opportunity. In Japan, we were relatively active in supporting corporate issuance, but there is a difference in the size of market, and the Japanese market is significantly smaller than the U.S. market. And that is why our performance had lagged behind.

Then are we going to be doing underwriting business in the United States? That was another point that you had mentioned. I think the judgment would be dependent on cost. Can we ensure a robust-enough franchise to capture the opportunity? I think there would remain some difficulties. So in terms of the IB business, in the international market, we are selective in sectors and products. And I think that would be the wise way.

In the United States, ECM-related projects have begun to emerge, but there aren't any projects as significant as the projects that the U.S. firms are engaged in. But in early April, we acquired Greentech. By tapping on this platform, there will be higher demand in business opportunities in ESG. There would be higher demand. So advisory and finance would be offered in a new model for revenue stream, and we hope to establish such a model.

Talking about the Japanese market. There had been active issuance, as mentioned. On the other hand, equity was slow in the April-June quarter, and that is a fact. Gradually, as we enter into the second quarter, we are beginning to see some activity, and we think that there would be more activity, but it would depend on the duration of the COVID-19 pandemic, end of the outbreak and we cannot make any prejudgment. Many companies will be announcing their Q1 results. We have to look at the impact of COVID-19 to the real economy, and their performance results will elucidate the degree of impact. But some companies will have to work hard in order to ensure sufficient amount of capital.

Now going on to your second question, which is with regard to the capital policy. Share buyback, as we've been saying, we will do share buyback flexibly as needs arise. But reasonably speaking, in the first half or when we announce dividends, we will also announce share buyback. On the other hand, in our total return policy, 50% benchmark remains unchanged in terms of total return ratio.

In the first quarter, we performed well. And last year's Q4, there had been some impacts to our performance, but we think that we were able to control the impact from COVID-19 to a certain extent. And also, loans were not so significantly large, so the risk of extraordinary increase in credit cost is relatively small. On the other hand, with the change in the external environment and the degree of impact being rather uncertain, we cannot be complacent. People have begun to talk about the second wave. And we cannot deny the probability of the external environment changing quite significantly. But as a responsible intermediary of the market, we have to keep in mind the risks that we are faced with. So by vigilantly controlling risk and capital, as a responsible intermediary firm, we need to provide liquidity and play those roles to serve our mission. Thank you.

This is Muraki speaking, and I have a follow-up question. You were talking about the request from global regulators in the West. In comparison to 3 months ago, there has been a more direct request from global regulators, but you're not a bank. Fed and ECB are not your regulators in the home market. So I don't think there would be significant direct impact. So is that a driver in terms of resumption of share buyback? And also, if you think about return that goes beyond the 50% benchmark of total return ratio, CET1 ratio isn't recovering, even with profits. Well, with profit, CET1 isn't improved, don't you have to think about that? Or if profits increase, will you increase the return ratio?

As you correctly pointed out, our group companies are under the jurisdiction of Fed and -- are not under the jurisdiction of Fed and ECB, except for one small exception. We are not under direct supervision of these regulators. Is there a direct request from them? That is not the case. However, the environment surrounding the financial sector is such that we have to take that environment into consideration. And therefore, the answer is both yes and no.

Furthermore, regarding CET1 ratio, this time, it was, as I recall, 15.7%. CET1 ratio was 15.7%. Certainly, in the fourth quarter, from the end of December to the end of March, in the third quarter, there was a drop, and the recovery was 0.4%. But to be honest, I think this is a reasonably high level. As we have been saying, our Tier 1 -- or rather, CET1 target is 11%. It is not that there has to be a significant reversal before we conduct share buyback. Of course, it also depends on capital situation, regulatory environment, external environment and our stock price. All of these will be comprehensively taken into account in determining whether or not to conduct share repurchase.

Mr. Otsuka from JPMorgan Securities, please.

This is Otsuka from JPMorgan Securities. I have 2 questions. First question is related to cost. I would like you to answer first question first. In various sections, various departments, it seems that cost appears to be low for various segments. In Retail, the cost reduction effort has manifested itself according to the material. But for each segment, could you elaborate on why the cost levels are low? Q-on-Q, there was increase, and I believe that is due to personnel cost.

Thank you. This is Kitamura speaking. First of all, you want me to cite the reasons why cost is low division by division. In Retail, there are multiple factors. But last year, in Q1, there was consolidation of branches that led to onetime-off cost. So that was nonexistent this year. And with the consolidation of the branch network, the rent payable has gone down. So that's the first factor.

And second factor, generally speaking, marketing cost has come down. And another reason, with the coronavirus impact, the business promotion costs like travel cost, transport cost and entertainment cost, such business promotion-related expenses has also come down. So with all of those factors coming into play, cost was controlled at a relatively low level as is well understood by yourselves.

Next, Asset Management. Here, cost has come down as well. But again, business promotion-related expenses like travel expenses, advertisement and entertainment expenses has come down. And also, until last year, subsidiary-related expenses had been incurred, which was nonexistent this year. So I think those are the reasons in Asset Management. And in Wholesale, as you mentioned, there's been increase in Q-on-Q, and that's with regards to personnel cost and provisioning for bonus. Thank you.

This is Otsuka speaking. A follow-up question. Then Retail and Asset Management, if there is recovery from COVID-19, and again, travel and transport cost increases again, then on running basis, the level will go back to the Q4 level?

First of all, the containment of COVID situation and whether after that cost will return to the original level, I don't think that will be the case. The work style has changed and operating model has shifted significantly. Travel expenses, entertainment expenses will be recovered to the previous level, I don't think that will be the case. Other than those, we are also implementing cost-reduction measures. In comparison to the fourth quarter, rents should be coming down, and there will also be effect from reform of the HR system. There are multiple factors that will be impacting, and it also depends on the performance. But in comparison to the fourth quarter, we expect that it will be slightly different from the fourth quarter results.

The second question, it is about Page 10, Fixed Income revenue and whether the revenue level is sustainable, JPY 154.9 billion from April to June, the trend from April to June and from July onward. And you have commented on this already, but in effect, Fed asset purchase is carried out. So long as asset purchase by Fed continues, will be a tailwind?

If we look at the April to June quarter, April and May were the overwhelmingly strong months, and the market normalized in June. That is our impression. And also, generally speaking, there was volatility to a certain extent. So ask-bid was there in the April to June quarter, and the yield curve went steep. So in the April-June quarter, the environment was relatively desirable.

So you mentioned sustainability. And from such perspective, will this level continue? No, we don't assume that this level will continue. But central banks, you mentioned Fed or ECB, are implementing quite large-scale easing policy. So for the time being, we don't think that there would be significant deterioration in the business environment. So for some time, we believe that this normalized situation shall continue. But on the other hand, as you know, the presidential elections shall take place, and there could be some volatility in the psychology due to the spread of COVID-19. So during the current fiscal year, we think that not stable business environment will continue.

Ms. Tsujino of Mitsubishi UFJ Morgan Stanley Securities.

This is Tsujino speaking. I have 2 questions. First of all, domestic Retail. When you look at total sales, if you look at the 3 months, in June, Investment Trust and foreign bonds saw recovery in sales. But even under the state of emergency declaration, through telephone, your employees were able to communicate with clients. So in June, there was rapid recovery. What was the biggest reason? And then how has the situation developed after June, most recently? Can you share the information to the extent possible? That's my first question.

Secondly, on dividends. 6 months net profit, 30% against that. Realized gain is quite voluminous. Will you take that into consideration in your decision? That's my second question.

Thank you for your question. So the first question regarding the Retail business. In June, there was a recovery of Investment Trust, et cetera. In April and May, mostly, we focused on nonface-to-face sales. But in its own way, we were able to increase our approach and were able to achieve a reasonably good performance. And in the month of June -- and this is, of course, premised on the consent from the customers, but we also started partially face-to-face sales activities, physical sales activities. Investment Trust and foreign Fixed Income, for example, equity-linked structured bond, with telephone alone, it is difficult to provide information in a way that customers really understand. And therefore, in June, we are now able to conduct face-to-face sales. And I believe that is one of the reasons why we see recovery in the performance in June. As for the latest trend, although we have to be vigilant about the COVID situation, but if our customers agree to us visiting, we continue to make visits to customers.

And another thing is that we are emphasizing online meetings. With telephone alone, it may be difficult, but Jabber and Webex functions, online meetings are used to explain investment trusts, including structured bond-related products. Even with these complex products, we are using online meetings to explain. And therefore, in July, I believe the trend is similar to June.

And the second question was about dividend. There was a JPY 70 billion evaluation gain as the result of redevelopment of Nihonbashi, whether that is taken into account. Mostly -- most of our P/L is based on evaluation loss or profit. And are we going to exclude evaluation loss or profit entirely? That is not the case. Basic dividend payout ratio is at 30%. And this time, out of JPY 71.1 billion, there is a guarantee cost that we have to face -- pay for relocation. So there is a cost that we will have to pay going forward and that has to be taken into account. But basically, 30% of the bottom line will be the basic guide for dividend payout ratio.

Additional question. Regarding the first question, you've raised an example of structured bond when discussing foreign bond. The foreign bond sales trend in comparison to overall sales trend is performing better. In April to June in comparison to January to March, structured bond, the sales was also somewhat larger?

For structured bonds, I just cited that as one example. So it wasn't that we weren't able to sell. I just cited that example as a complicated financial instrument to explain.

The next question will be asked by Mr. Watanabe of Daiwa Securities.

This is Watanabe speaking of Daiwa Securities. I have 2 questions. One is FIC and Equity revenue. And can you give us the breakdown of client flow and trading? And also the volatility of market valuation, JPY 100 billion of negative impact was felt due to COVID-19, so you said in Q4. But what about Q1? With the improvement of sales commission, how has that improved?

And then second question, Page 23. In Segment Others and corporate accounts, JPY 45.1 billion plus. And I believe that JPY 71.1 billion of Nihonbashi is included and the difference about JPY 21 billion. Can you give me the breakdown of that difference?

Thank you for your question. So the first question was about client revenue and trading revenue. Fixed Income -- with respect to Fixed Income, client revenue position are generating revenue for about 50%. In terms of Equity, client revenue is 80%. Position-related revenue is about 20%.

Turning to your second question, there was about JPY 100 billion, and I think that is what I mentioned at the end of -- at the time of the announcement of year-end results, ACI markdown and including investment in loans. In total, there was about JPY 100 billion impact. And so -- and I've also mentioned that unrealized loss related to Wholesale was about JPY 35 billion, and the rest are from positioning of trading, where we also have losses. But these are high-turnover business. And to be honest, we cannot have a precise tracking of that.

As for JPY 30 billion of -- JPY 35 billion of realized loss change, some are being sold. So here, again, we cannot do a precise tracking, but recovery, we estimate, is about 20% to 30%. In the first quarter, market has rebounded considerably. And the major products that rebounded are assets with high liquidity and loan is quite individualistic in nature, and so the positions may not have recovered as strongly.

And then the second question was about corporate items, JPY 45.1 billion in Segment Other. Unfortunately, this term, there were some legal-proceedings-related costs. That is one point. And the second point is that internal funding cost is stagnant for the month of March and April, dollar LIBOR rate declined sharply and internal rate, the -- and the firm-wide funding cost suffered from temporary mismatch. As a result, funding cost stagnation occurred. And in June, 81 bond was issued, and that cost is also included here. As a result, although there was a profit of JPY 71.1 billion, the bottom line was JPY 45.1 billion.

For clarification about mark-to-market impact, when you said 20% to 30% recovery, what is the recovery due to, revaluation recovery of JPY 45.1 billion? Could there have been a stronger recovery?

I haven't done my calculation. But of the JPY 100 billion, for example, ACI was 14.6 -- 1 64. This is plus 1 0 3. So there has been 60% improvement. And investment in loans, Q4, 100 -- 1 6 6. This time, 2, 3. So the recovery wasn't so significant leap. It's been between 14% to 15%. And the unrealized loss from the bank was about JPY 6 billion and 60%. So all of them put together, recovery was probably around 30%. As I said, if we use JPY 100 billion as the denominator, the trading position worsening moves quick. So we can't track that precisely. But if we exclude that, the recovery was probably around 30%.

Sasaki-san of Merrill Lynch Japan Securities.

This is Sasaki of Merrill Lynch Japan Securities. I have 2 questions. First of all, balance sheet of Q1. CET1, risk-weighted assets and leverage calculated, it seems that exposure has reversed. Was that intended as an operation? Or is the impact external environment? That's my first question.

And this is a follow-up to Watanabe-san's question. But client revenue versus trading, you said half-and-half for Fixed Income, 50-50 split. In the position in Q1, the trading revenue improved. That is my take. Is that correct? Those are my 2 questions.

Thank you for your questions. CET1 or increase in RWA. On the other hand, leverage ratio is rising, and this goes counter to increase in RWA was the question. As you know, RWA uses moving average. And at the end of June, relatively speaking, RWA appears to be higher because of high level of RWA in April. Because of that impact, RWA remains at a higher level. On the other hand, leverage ratio, when you look at the leverage ratio, JPY 41.5 trillion, on on-balance basis, which is down about JPY 2.5 trillion. BS -- balance sheet that was reduced mainly because of reduction in repurchase trading.

Another point, this did not impact much on our burn, but the checking account balance of bank of -- the account that we have at BOJ, this is excluded. And this is a deduction, which is a special treatment for bank, and that applied -- and that is also included in the leverage ratio exposure, which makes leverage ratio higher. Please understand that.

Turning to the second question. It was about client revenue and the position-derived revenue. As you correctly pointed out, in the first quarter, client revenue was at a high level. Spread was tightening. And as I mentioned before, yield curve was becoming steeper. In that sense, creating -- we were very successful in creating business, and there was also a wider ask and bid. So that was a substantial tailwind for us.

Additional question then, for example, Fixed Income, 50-50 split in April to June quarter, the position revenue. This is going to be leveled? Is there a possibility that this is going to be smoothed?

Yes. Since late June to early July, my impression is that normalization has taken place in the market. This view is held, not just by our sales, but senior management of U.S. firms have made similar comments. 50 versus 50, the trading position, 50%, is slightly higher than normal.

(Operator Instructions) Mr. Niwa from Citigroup, please.

This is Niwa from Citigroup. I have questions regarding Retail and global markets. First, about consulting-related revenue and how you evaluate that. I am on Page 6. Despite COVID pandemic -- or is there going to be a recovery? And in the newly established CIO, what are the activities? And how will the support be provided? Will this lead to increase in revenue? Or should we look at increase in client activities? I'm interested in whether you are able to increase consulting-related revenues. So that is the first question.

And the second question is about markets. Other questions for Rates on market, but I'm -- I am asking from different perspective. Asset ratio was about 8%. And is this going to increase or decrease? And how should we understand this? How should we understand variable factors affecting this ratio?

This is Kitamura speaking. The first question was with regards to Retail and consulting revenue this quarter. JPY 1.6 billion was the revenue. We struggled in this area. We won't deny that. In the midst of this environment, employees were not able to make face-to-face contact. So large-scale transactions, inheritance, wrap trust, discretionary investment or M&A for small and midsized businesses were impacted. And those are sheer facts that we cannot deny. But as I've already mentioned, gradually, we are resuming face-to-face contacts with clients for sales activities. And also, we are taking advantage of the online video conferencing system to cover up for the lag in this area. We hope that we can recover.

And on the CIO office, this is independent from Retail, and it is a completely independent function. Multi-asset portfolio is one of the things that the CI office would consider. And the CIO office will be providing us with recommendations. Individual investors Asset Management. This is my personal view, but individual stocks may not be the best fit. So when we think about the optimization of portfolio balancing, the recommendations of the CIO office and the advice will be quite useful, I believe. And as a result, for example, SMA or Fund Wrap or -- one of the KPIs for Retail is stock asset increase. And CIO office can provide recommendations that would be effective in these areas, hopefully.

And on your second question, with regards to global markets -- or Wholesale, was it?

Market, in general.

7.9%. Then is this a sustainable level, that was your question. As I have been explaining, the numbers we recorded in Q1 were quite encouraging. So RWA-related revenues, our target was 6%. So we did quite well. So along with market normalization, we think that the numbers will begin to decline slightly.

We're internally discussing these matters and how can we capture businesses with a high level of capital efficiency. That's the focus of our conversation, so with market normalization and declining trend. On the other hand, we want to increase the return against RWA. I hope I answered your question.

Sorry. Again, I have some follow-up questions on market. Risk asset, in Q1, adjustment had taken place, but are you going to reduce the volume further? Is there more room for efficiency improvement? That's my subquestion 1.

Subquestion 2, Fixed Income. I don't want you -- to put you in the corner, but in Q1, many people said that the trend in Q1 is unsustainable. But in your case, you sounded like there's hope for sustainability. So can you further comment on that?

Regarding RWA of Wholesale as a whole, in the first quarter, for some positions, we sold them and reduced RWA. We will continue with this initiative. And therefore, adjustment has not been completed yet.

Regarding the second additional question of sustainability, and you've mentioned that U.S. foreigns sounded more pessimistic or negative. And I sounded more optimistic, and I think you're asking why the difference. It is not that we are overly optimistic. Of course, we are not overly optimistic. But on the other hand, April last year, we launched realignment of business portfolio and cost-reduction measures. And steadily, we are able to achieve results from these measures. Breakeven point has been lowered. And for example, centrally in the United States, when we look at our market share, our ability to make profit is growing. And I believe our business is becoming more resilient. And we have firm conviction that we are improving in these aspects. Even when situation normalizes, we don't think that our performance will deteriorate as much, and that is the background of my comment.

(Operator Instructions)

Thank you for joining us. The revenue from the Nihonbashi redevelopment project was one of the factors for the results of the past quarter, and we were able to announce quite robust results. But we will not be complacent. We will continue to look at the macro economy and geopolitical risk and stand firm to ensure sustainability. And we believe that that's the biggest challenge. Can we continue to deliver the same level of results? We are continuing cost-reduction initiatives and portfolio realignment. We will continue with these projects. So we would very much appreciate your continued support. Again, thank you for joining us.

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

[Statements in English on this transcript were spoken by an interpreter present on the live call.]