Nomura Holdings Inc (NMR) 2023 Q1 法說會逐字稿

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I will now give you an overview of our financial results for the first quarter of the fiscal year ending March 2023, using the document titled Consolidating Results of Operations.

Please turn to Page 2. It was a challenging quarter as U.S. interest rate hikes and fears of a recession dragged on, negatively impacting market activity and mark-to-market valuations of our securities holdings. As you can see on the top right, income before income taxes slumped 76% to JPY 11.7 billion, and net income dropped 95% to JPY 1.7 billion. Earnings per share was JPY 0.52 and annualized ROE was 0.2%. Three segment income before income taxes shown on the bottom right, slowed 45% to JPY 18.5 billion.

Market headwinds led to a widening of negative investment revenue in Investment Management compared to last quarter and a slowdown in Wholesale due to weaker transaction volumes and the postponement of deals in Equities and Investment Banking. Despite this, revenues in our 3 core businesses remained relatively resilient. Retail gained traction in its shift to expanding client assets over the medium to long term, reporting net inflows into recurring revenue assets, particularly discretionary investments, level fees, level fee assets and loans. Recurring revenue inched up quarter-on-quarter despite the market headwinds.

Investment Management had another solid quarter in its fund management business. The investment trust business booked ongoing inflows through a diverse range of channels and alternative assets under management, part of our push into private markets, topped to JPY 1 trillion. In Wholesale, Fixed Income had a good quarter with macro products reporting significantly higher revenues as we monetize the spike in interest rates and FX volatility and an uptick in client activity.

Investment Banking reported continued high levels of revenue in advisory businesses, although down from the particularly strong recent 2 quarters. Outside our 3 segments, we booked a loss before income taxes of JPY 6.7 billion. As I said, the impact of fair valuations led to a worsening of losses on investment securities and losses related to economic hedging transactions.

Please turn to Page 5 for an overview of results in each business. Retail net revenue was JPY 71.4 billion, up 1% quarter-on-quarter, while income before income taxes declined 5% to JPY 4.9 billion. From this quarter, we have given a breakdown of revenues at the bottom left. Flow revenues from transactions remained sluggish at JPY 39.1 billion as clients continue to sit on the sidelines given the current market uncertainty. Meanwhile, recurring revenue, which is based on fees from client assets remained resilient amid market headwinds.

Please turn to Page 6 for total sales by product. This quarter, we changed the scope of how we calculate total sales. Previously, we only counted sales in the retail channel, which serves corporates and their owners as well as individual clients via our nationwide branch office network. From this quarter onwards, we are including the Japan Wealth Management Group, Net & Call and intermediary. This should give you a more complete and consistent view of total sales across retail.

Total sales this quarter declined 4% quarter-on-quarter to JPY 4.7 trillion. Sales of stocks shown here by the red bar graph declined 15% as primary offerings came almost to a complete stop, and Japan's secondary stock sales were slow in April and May. Products other than stocks increased compared to last quarter. Investment trust sales grew 24% with the top-selling funds being global and U.S. stocks and Japan's first publicly offered investment trust that invests U.S. unlisted REIT, which is a part of our push into private markets.

Please turn to Page 7, which gives you an update of our new KPIs set in May this year. As shown on the top left, net inflows into recurring revenue assets was JPY 132.8 billion, this represents a strong rebound from last quarter with funds flowing into discretionary investments, Level 3 assets, which were fully launched in April and loans. As a result, recurring revenue remained solid, as you can see here on the top right. For services for salaried employees, an area we are stepping up our efforts as part of our approach to the next generation of investors, we saw an increase in ESOP contracts with the total surpassing 3.4 million at the end of June.

Please turn to Page 8 for an overview of investment management. Net revenue declined 25% to JPY 7.6 billion, while loss before income taxes was JPY 11.7 billion. The revenue breakdown on the bottom left shows investment revenue of negative JPY 23.1 billion, which had a substantial impact on the division's performance. This was mainly due to a loss related to American Century Investments of JPY 18.5 billion and an unrealized loss of JPY 4.7 billion on Nomura Capital Partners' portfolio companies. However, business revenue, which represents stable earnings was JPY 30.7 billion. Management fees remained solid despite slowing slightly from last quarter, which saw a concentration of calculations for success fees.

Please turn to Page 9. As shown on top left, assets under management at the end of June was JPY 65.6 trillion, down JPY 2.3 trillion from the end of March, primarily due to market factors. In terms of flow of funds, investment advisory business reported net outflows of JPY 930 billion, but the investment trust business booked net inflows of JPY 480 billion on inflows into ETFs, bank channel and defined contribution funds. In our focus area of private markets, alternative assets under management grew to JPY 1.1 trillion.

Please turn to Page 10 for Wholesale. Net revenue increased 2% to JPY 199 billion, although last quarter included 15 -- JPY 11.5 billion from the reversal of losses arising from transactions with a U.S. client. Revenues grew quarter-on-quarter, thanks to strong performance in Fixed Income as well as yen depreciation. Wholesale expenses also increased due to yen depreciation and income before income taxes declined 32% to JPY 25.3 billion.

Please turn to Page 11 for an overview of results by business line. Global Markets net revenue grew 11% to JPY 175.3 billion. Fixed Income was particularly strong with revenues increasing 41% to JPY 112.6 billion. From this quarter, we have included a graph showing revenue by main products.

And this quarter, macro products such as rates and FX/EM were strong, and spread products, revenues increased as credit more than offset the slowdown in securitized products. Equities revenues decreased 20% to JPY 62.6 billion. Americas equity derivatives, one of our core businesses reported stronger revenues. But Japan and AEJ, revenues slowed on lower trading volumes and muted client activity.

Please turn to Page 12 for Investment Banking. Net revenue was JPY 23.7 billion, down 35% quarter-on-quarter. Finance-related revenues from businesses such as ECM and ALF were sluggish as global transactions slowed. Advisory revenues also slowed compared to the particularly strong past 2 quarters, but remained relatively resilient with revenues of over JPY 10 billion for the seventh consecutive quarter. Americas Advisory revenues remained around the same level as last quarter. Globally, we supported multiple international cross-border and sustainability transactions.

Please turn to Page 13 for an overview of noninterest expenses. Firm-wide, the costs declined 1% to JPY 287.3 billion, while overall cost increased due to yen depreciation. Other expenses declined significantly as last quarter included additional cost of JPY 23 billion related to RMBS.

Please turn to Page 14 for an update of our financial position. The table on the bottom left shows Tier 1 capital of JPY 3.2 trillion, an increase of over JPY 90 billion compared to the end of March. This increase is mainly due to an increase in FX translation adjustment due to yen depreciation. Risk-weighted assets increased by JPY 1 trillion from the end of March to JPY 16.8 trillion.

As the waterfall graph on the bottom right shows market risk increased by JPY 0.9 trillion due to higher market volatility and credit spread widening. Credit risk also increased by about JPY 70 billion. The yen depreciation is a factor driving up risk-weighted assets. Our Tier 1 ratio at the end of June was 18.9%, and our common equity Tier 1 ratio was 16.7%, both down compared to the end of March. That concludes my overview of our first quarter results.

To sum up this quarter, the bear market and rate hikes led to portfolio markdowns and muted client activities in some businesses. But as I said earlier, underlying revenues from our 3 core businesses remained resilient, and we saw results from the strategies we are taking in each business. Market uncertainty has continued into July. And while revenue, flow revenues have not yet truly recovered, yet yen depreciation has prompted investors to relook at their portfolios. For instance, investors with foreign bonds in their portfolios are increasing.

And in July, sales of Toyota Motor Credit corporations, foreign bonds boasted a monthly record. Our asset planning, consulting and goal-based approach is gaining traction, and we are seeing ongoing net inflows into recurring revenue assets. In Wholesale, Equities and Investment Banking remained low, but Fixed Income has been strong as we monetize opportunities in rates in Japan and EMEA and the FX in AEJ. We expect market uncertainty around inflation and interest rates to continue for the time being. As such, we will continue to focus closely on managing risk while supplying liquidity and providing our clients with the right solutions.

Thank you very much for your continued support.

The first question is from SMBC Nikko Securities, Muraki-san.

This is Muraki from SMBC Nikko. Two questions, please. First is regarding the U.S., the -- your earnings in the U.S. On Page 21, you showed the loss of JPY 21.6 billion in the Americas, out of which ACI is -- makes up the majority of the remaining. Remainder is about JPY 3 billion. And in your whole -- presentation in Wholesale, you said your earnings in the Americas was strong, and it wasn't weak. But please explain why your bottom line is weak.

And my second question is including this loss -- evaluation loss. But if you exclude these noncash valuation losses, what is the underlying business trend? You seem to be implying that it is strong and robust. But based on that analysis, what are your thoughts about your dividend? And you are making progress in acquiring your common shares in the share buyback. But how do you view your profit level in Q1? Should we look at the net income? Or should we exclude the valuation losses and these one-off items?

This is Kitamura. Thank you, Muraki-san. Regarding your first question about the earnings in the Americas. And as you pointed out, last year or in the previous quarter, there were the litigation expenses related to legacy assets, legacy transactions, which declined. But in Q1 of this year, we have booked a certain amount, and this is pushing down the bottom line in the Americas. And for CVA and DVA, these are very technical issues, but there was impact from that as well. And the personnel expenses that we booked in Q1 -- sorry, in Q4, there was a rebound of that.

So there are some very technical issues. So that is what is weakening the earnings or the profits in the Americas. And if we exclude these factors, the performance in the Americas has remained pretty much unchanged from Q4 of last year. And Wholesale revenues in the Americas, we disclosed. And there was about a 10% improvement. And if we exclude the currency impact, it was pretty much flat.

Your second question, first, in Q1, there were market factors, so you made a slow start, but we -- our focus is to make sure to generate earnings in Q2 onwards, which will serve as the source of the dividend. And we do have quite a strong pipeline. So our focus is good to realize these opportunities in the pipeline.

And in terms of our shareholder return policy at the moment, there hasn't been much change from the past, and we haven't, really, finally -- made a final decision about what to do. But in the previous quarter, there was the impact of the litigation regarding the legacy transaction, which was a very irregular issue. And this had a big impact on our profit during that period. So we did consider that to a certain extent, as you are aware.

And this time, the situation is a bit different from last year. But there are market factors, and we will consider whether to consider the market factors and other accounting issues when we decide on the dividend. But in any case, the source of our dividend is the earnings and the profit throughout this period. So we will focus on generating the profit.

This is Muraki. This is regarding the first point. If you look at your peers, like, the U.S. peers, they are booking USD 200 million losses related to the record-keeping issues or using their personal devices for business purposes. And what about you? Has number fully provide -- made the provisions for this? And do we not have to worry about this issue in Q2 onwards? And regarding the weakening of the yen, I think that is affecting your earnings. But in a local currency basis, what is the cost inflation, including the personnel expenses internationally? And compared to 3 months ago, has there been not much change? Please explain if there are any changes, please.

Yes. Thank you. Using the unapproved electronic devices, to communicate with clients and also the storage of data, the investigation going on by the U.S. authorities. And in Nomura, in Q1 booked a certain amount and we made provisions of a certain amount. And the investigation is still ongoing. So that is all I can comment on at the moment.

And regarding the weakening of the yen and its impact. Well, as I said in the previous earnings announcement, the compensation and benefits is on the rise, but -- and we did have visibility about that. But on a Q-on-Q basis, the comps and benefits hasn't changed that much, excluding the impact of the currency in Wholesale. So there hasn't been much impact. Yes, I hope that answers your question.

The next question comes from Mitsubishi UFJ, Morgan Stanley.

My first question, Global Markets did pretty well in this quarter. For equities, GM struggled. But for Fixed Income, in the volatile market, rates in Americas, EMEA and Japan flow was robust. So what is the outlook for the remainder of this year? Of course, we cannot be optimistic. But if anything, this kind of turbulent situation might continue that may make it difficult for you to navigate the market.

But once you navigate this market, then you may be able to generate certain flow and are you well prepared for that? And I wouldn't say comfortable, but could I have an expectation towards the good result?

And regarding equities, for the April to June quarter, it might have -- it was the timing for the adjustment. But after July in the U.S.A., the equity seems to be hitting the bottom, and we cannot foresee what is going to happen after this. It could the EMEA bear market, really. But in this situation, the situation may be changing in July? And is it your perception? Would you give me some color? That's the first question.

My second question is regarding the compensation and benefit increase on a Q-on-Q basis. You said the majority of the outcomes came from the FX. But is it really the case? I wonder. So in the fourth quarter, personnel expense as of end of fourth quarter. So you have the bonus pool and it might have looked smaller in comparison.

Thank you for your question, Tsujino-san. Let me start with your second question. When I said FX exchange rate, for that applies to wholesale business. In the first quarter, for example, Japan's retail business at University Graduate who newly joined the firm. So first quarter tends to have higher than other personnel expense in the first quarter. And also there is accounting treatment for the deferred asset. So in the first quarter, personnel expense tends to be high because of such factors. But excluding those factors, the remaining factor is FX. So in the fourth quarter, rather than the question, "What is the situation for the fourth quarter?" I do hope that you will understand the result of the first quarter based on the background that I mentioned.

And regarding your first question on Fixed Income, I believe you've given us the positive evaluation. But for us, what was significant was that Japan business is recovering. That seems to have served positively. JGB yield has gone up and the volatility went up. For a long time, actually, in a sense, we -- the market has been bound -- range-bound. So there have been mixed views about the market. In that situation, volatility went up, and Japan seems to have bounced back up, and that seems to have had a positive impact on Fixed Income.

Also as Nomura, what was also significant was AEJ and Japan credit business, which made a positive contribution. In the sense of regional mix, our regional mix is somewhat different from U.S. peers. Our AEJ credit, well, you could take a look at our credit spread. But in China, credit spread is tightening. So these kinds of opportunities, I believe, were captured well. So that, I believe, led to the outperformance of Fixed Income.

As you rightly pointed out, Tsujino-san, the market environment is quite tough in such difficulties. Our business has controlled risks and generated revenue. So in a highly volatile market, that could continue, then we could have expectations towards the robust top line of our business if the volatility continues.

And regarding equities, Overall, the transaction volume is on the decline. As you pointed out, it may be the case that the trading volume decline may be hitting the bottom, but client flow seems to be getting smaller. Default risk in the emerging market countries and the geopolitical risks may be dampening the sentiment of customers who then are becoming muted in their activities. So I'm not sure how optimistic we can be. But continuously, I believe that there is a certain amount of opportunities to generate revenue. So I do hope that we can have certain expectations.

So in terms of our earnings, equity derivatives, which is our core business. equity derivatives did pretty well, though we saw weakness in Japan and AEJ, but we do have the expectation for the recovery in those divisions.

Thank you very much, Kitamura-san. So regarding Equities, it's not specific to Japan, but the comment applies to other regions as well, when you said it's shrinking. That's correct, (foreign language).

The next question is from Watanabe-san of Daiwa Securities.

This is Watanabe from Daiwa. Two questions, please. First is about Page 10 of the materials. Wholesale's expense ratio was 87% in Q1, which is higher compared to the 80% target, the cost/income ratio. And you have implied that the weak yen works on both the denominator and numerator. So please explain why the cost burden is getting heavier. And please explain your future outlook.

Second question, Page 5. Retail level fees that is of June ended exceeded JPY 200 billion. This means it's building up by JPY 100 billion per quarter, including discretionary investments, your target, JPY 10 trillion in several years, which seems a bit slow compared to the target. So how do you view the building up in addition to the level of fees, please?

Yes, this is Kitamura. First, Wholesale's cost/income ratio. And as you pointed out, the target is 80% and we have exceeded or we had -- the expense were higher than that. And since the past, we have been saying that we will make the necessary investments, especially in IWM, International Wealth Management and M&A which are investments for the future. So there is no change to our stance there. And in this quarter, the yen weakened, and that impacted both revenue and expenses, inflated both revenues and expenses. So the expense ratio seems a bit high compared to revenue.

And going forward, we will continue to focus on our growth areas and invest in these areas. But for Investment Banking, we are not investing that much at the moment. And frankly, the market had been inflating -- had been on an inflationary trend, but recently, that seems to be calming down. So hopefully, it'll become easier for us to hire employees in Investment Banking. And the cost-to-income ratio or expense ratio, we want to continue lowering.

And in terms of the absolute amount of cost is something we need to control and also improve our top line. These are crucial to control the cost/income ratio. And in terms of the absolute level of cost, we will use digital technologies to make our operations more efficient, and we've already been doing it, but we will continue our efforts in that area. And some of the nice to have items will be -- we will not be investing as planned on the nice have items. Meanwhile, we will continue to invest in areas where we should to grow our top line and make sure to control our expenses at the 80% cost/income ratio and make efforts to achieve that target.

And the other thing is, we would like to make our costs more variable than fixed. So the question is how to shift from the fixed costs to variable costs. And we are working on that as we speak.

Your second question about the level fees in retail and how we view the progress. The level fee is something that we set so that we can work together with our customers towards a long-term goal. And we want to support our customers in thinking about their overall portfolio and working -- on following up with the customers. So the point is to improve the satisfaction of our customers.

And if we try to build up and increase the amount of level fees, it doesn't lead to good results. Our focus should be on keeping our customers satisfied. And as a result, the level fee should grow. And we hope the customers will choose the level fee as a result of being satisfied with Nomura Securities, and this should lead to introduction of new assets and new businesses. That is the whole point of introducing the level fee.

So we are not trying to simply shift the existing assets into level fee assets. That's not what we intend to do. Our objective is to satisfy our customers. And as a result, we expect the level fees and level fee-assets to build up. And at the moment, the customers or investors who are choosing the level fee structure are giving us very positive feedback. And our employees or our partners are also giving us positive feedback about the introduction of level fees.

The feedback from our customers is that the -- it's not linked to fees. So they can trust the proposals. Even if the salesperson or the partner is saying the same thing, it's more reliable because it's not linked to fees. And because the proposals are not linked to fees, it's easier for the investors to make investment decisions. And that's the kind of positive feedback we are getting. And yes, we do want to grow this level fee and the level fee business. And the goal is to get customers to put in new money rather than shift their assets from existing assets.

Just to check about the first point, you say you want to shift your expenses to variable. Does that mean more pay for performance in your expenses? Or do you want to -- are you talking about the IT system costs and real estate expenses, which you are currently paying a fixed cost? What do you mean by shifting to variable costs?

Yes. Thanks for the follow-up. Pay for performance is something we are already working on. And yes, we will work on it more thoroughly. And IT systems and those typical fixed cost. These are things, which we do not necessarily have to have within Nomura. So we are assessing what we need to hold on to and what we would like to use external resources for and shift to variable expenses.

The next question comes from Sasaki-san of BofA Securities.

I am Sasaki from Bank of America. I have 2 questions. First question is about American Century's valuation loss. When can we expect the situation to improve? And also, what is the reason why you have booked a valuation loss?

American Century and their underlying business deteriorating with interest rates increasing. When you conduct a discount for the present value, you come to the decision? Could you elaborate on the reason why you came to booking the valuation loss on American Century Investment. That's my first question.

The second question is for the first quarter. You said the profit level was not high. But looking -- but looking at the first quarter level, even when we add back the extraordinary items, still the profit level seems low. So do you have a clear trajectory back to the level of profit where you used to be? Those are my 2 questions.

Thank you for your question. First, regarding ACI, as you know, every quarter, based upon the performance of ACI and based upon market and economic indexes, we conduct a fair market value evaluation. For the April to June quarter, primarily in the U.S.A. global equities market had a correction and also interest rates increased and, relatively speaking, quite sizable valuation loss was booked. Then ACI's evaluation loss, is it particularly significant? Is ACI's numbers so significant for us? I do not think that is the case.

Looking at the market and looking at the performance of asset managers, looking at their equity stock prices. I do believe ACI is trending in parallel with the market. In that sense, our valuation is reasonable. So I'd say that ACI is in line with other asset managers are positioned.

On the other hand, regarding the valuation of loss booked for 2 consecutive quarters worth JPY 18 billion. The volatility, relate, associated with ACI is perceived by our management as a huge challenge to be worked through. So as needed, we are considering the mitigating measures that we could implement.

Also the evaluation of the first quarter result. Overall, profit level seems low. That's your comment. We are not saying that we are satisfied with the result when we look -- add back all the factors, and we have more work to do in making improvement to profitability. But us, Nomura, in order to raise ROE, a major factor is retail division. In the first quarter, JPY 5 billion or so of pretax income was disclosed and this improvement of the Retail division's revenue and profit is a challenge.

And for top line, we are answering various questions being asked, but on top of the top line, we have to revisit the cost structure. Regarding the cost structure, together with Mr. Sugiyama, Head of Retail Division, I am co-sponsoring a project to revisit cost structure.

So in Retail division, the segment-based approach is going to be enhanced. But for each segment, we are going to make the -- improve the visibility of numbers, and we are going to be more tactical and speedy in implementing measures. And for each segment of retail business, we have the resource allocations, and we are going to look at the details, and we would like to implement measures to make improvements. And when those initiatives are up in the I do believe that ROE for the firm as a whole will improve.

Also, IB deals are effectively frozen, and that's significant, especially in ECM. The frozen market is quite significant. Then when can we expect the improvement of the situation from what it was in the first quarter? I cannot foresee the specific timing. But I should say that we have been accumulating deals in our pipeline. So sometime in the future when the market comes back and recovers, then I'd hope that we could capture that opportunity. So I do not -- we do not expect the market condition to stay as they are forever. So when these businesses come back, then we do believe that we will be able to exceed capital cost. That concludes my answer.

Understood, Kitamura. Regarding the first point regarding ACI's volatility of fair value, is it possible for the fair value to be lowered? If the stock price of ACI is in line with other companies, then is there any method of adjusting the fair value? Or...

Well, as you said, we could -- actually, we could conduct hedging to mitigate the volatility from the ACI's fair value.

The next question is from Citigroup Securities, Niwa-san.

This is Niwa. Regarding retail and CET 1, please. For Japan retail, this somewhat overlaps with the previous point, but from the outside, in terms of the progress of KPIs, that seems to be good. But there seems to be a big gap with the KGI. And the reason is the flow revenues being weak. And could you explain the reason for this? And is this due to market factors? And your building up of the recurring revenue businesses is going well? And going forward, if the market factors subside, then you should be able to generate about worth JPY 27.5 billion per quarter as you generate? Or as you mentioned earlier, in order to achieve KGI, do you -- is there room to conduct quite a thorough review of the cost structure, please?

My second question for CET 1 ratio. At the moment, 16.7% and 3 months ago -- and thank you for explaining in detail the changes from 3 months ago. And after Basel finalization, is it going to be above 11%? And your peers, like U.S. peers are suspending their share buybacks. But what about Nomura? Are you looking considering the flow outside of the shareholder return? So is there not going to be much impact to your shareholder return from CET1, please?

Thank you for your question. This is Kitamura. We are not focusing on the costs. And when we review our cost structure, it is necessary in any case. And as you point out, we do want to continue growing the flow revenue. And we want to provide our services to a wider range of customers. And we think product marketing is very important, and we are sharing the understanding within the division. The key is to provide the right products our customers, and that's very important.

And in the corporate owners' segment and the mass affluent segment, the high net worth segment, for each segment, we have appointed directors in charge. And for April onwards, we would like to propose these products, and we will make more proposals to these customers and clients. And this momentum is continuing in July onwards.

And proposing the right products is important. And of course, it's up to the customer to decide whether they want to buy that product or not. But we have to make sure to propose the right product to our customers and our salespeople or our partners are fully aware of this. And when the market comes back, the full revenue should pick up again.

And we are working to improve the Level 1 in the flow revenues, but we have not given up on the flow revenue. And this is the biggest strength of Nomura, and our focus is to provide the right products at the right timing and recommend it to our customers so that we can grow the business. And with the recent weakening of the yen, and the rise in interest rates in the U.S., a lot of investors are focusing more on portfolio management.

And in July, TMCC sales amount has reached JPY 150 billion, which was a record high on a monthly basis. So there are all sorts of opportunities, and we'd like to capture them to grow our flow revenue. And another important point is the contact with our customers. In the past, we were relying on human resources and also focused on face-to-face activities. But from April this year, we have set up a digital company in -- where we have -- we are -- the retail division is co-working with a digital company on digitalization efforts and alliances with others is another area of focus.

Recently, we have announced 2 alliances this year. And these 2 have been doing very well in terms of performance. So we will make use of these alliances as well to expand the touch points with our clients and investors.

Your second question about the CET 1 capital ratio. And the reason for the decline, well, if you look at the numerator and the denominator, you can see the risk-weighted assets increase, and that was the main factor for CET1. And one reason was the weakening of the yen. And also, there were market factors, including the higher volatility. That was another factor. And the period that we looked at was a bit different, and that led to higher RWA. So it was a buildup or accumulation of all these different factors, which led to the JPY 1 trillion or so increase in risk-weighted assets.

And after the -- the question is what happens after the introduction of FRTB. Well, at the moment, as we have been showing from the past, this 3% to 4% level impact from FRTB or the finalization of Basel hasn't really changed that much. So we will continue to implement measures such as easing the implementation of the internal model and mitigate the effect. Does that answer your question?

Yes.

Next question comes from Mr. Ban of Jefferies.

I have just one question. Earlier, Sasaki-san asked about this, but for 3 segments, PBT is affected by the fair value, according to your explanation. But for the -- other than the 3 segments, you barely secured the profit. But quarterly ROE and EPS turned out to be quite volatile. And earlier, you mentioned the hedge operations for ACI. But for other fair value valuations, regarding the other fair value valuations that could impact your business, is it possible for you to conduct hedging operations? Or you reduce such the fair value valuation portion. So you can mitigate the volatility and stabilize your performance? Is there any plan that you are considering anything that you can share with me at this point?

Thank you very much for your question. In areas other than business, fair value valuation that had impact came from the strategically held shares or securities. But compared to our peers, our position in investment securities is quite small, a lot smaller. For the investment securities, we are conducting mark-to-market valuation. So there is P&L impact. Some approach is not to use P&L and directly reflect that on capital, but we would like to reduce the absolute amount of the strategically held shares through selloff.

Another thing regarding economic hedging. This is kind of like the tracking era of accounting treatment. I'm not sure to what extent I have explained this, but bonds that we issued before 2018. In order to hedge risks, we have conducted hedge transactions with external counterparties. But bonds we issued before 2018 as we perform valuation, they are not being mark-to-market. On the other hand, the hedging positions, we are conducting the mark-to-market valuation.

So there is a misalignment there. So economically, we are conducting hedging, but accounting terms, there is mismatch that's arising. So that's what the economic hedging item is about. For this, I said time before 2018. But after 2018, for the bonds, we have started applying fair value valuation. So the volatility or fluctuation we believe, has been mitigated. And for bonds issued before 2018, when they come to the maturity, then the hedging transactions that are that are needed for addressing the volatility will be reduced. So over time, the economic hedging impact on our performance will become more manageable.

Thank you, everyone, for joining at a late time in Tokyo. And in terms of the bottom line, we are not happy with the numbers, but there are some initiatives that we are working on, and we are starting to see the results of those efforts. And the number of proposals that we make to clients, and these are KGIs which lead to KPIs, and we are monitoring these numbers, whether it be retail or Investment Banking. And the number of proposals is steadily increasing. So we are planting the seeds for the future, and we are making good progress there.

And for Fixed Income, we were able to outperform our peers which led to a lot of confidence for us. And we believe we are heading in the right direction. And there are some things for which -- which we can improve on, and we are fully aware of that. So we will make sure to implement those improvements with speed. And -- so that they contribute to the bottom line. And we look forward to your continued support. Thank you very much for joining today.

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