Nomura Holdings Inc (NMR) 2022 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Nomura Holdings Fourth Quarter and Full Year Operating Results for fiscal year ended March 2022 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 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 those projections.

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

With that, we would like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer. Please go ahead.

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I will now give you an overview of our financial results for the full year and fourth quarter of the fiscal year ended March 2022, using the document titled Consolidated Results of Operations. Please turn to Page 2.

First, let's look at the full year period. Bottom left, net revenue was JPY 1,363.9 billion, down 3% year-on-year. Income before income taxes declined 2% to become JPY 226.6 billion. The chart on the bottom right gives a breakdown of income before income taxes. The third line from the bottom shows segment Other improved from last year to JPY 15.8 billion, while the Three segment total declined 17% to JPY 205.2 billion. This was mainly due to retail and investment management.

Retail investor sentiment weakened due to further waves of the pandemic, shifts in Central Bank monetary policy and heightened geopolitical risks. This led to a slowdown in flow revenues such as sales of stocks and investment trusts.

Investment Management reported a worsening in investment gain/loss due to market factors. That said, both divisions booked growth in stable revenues. Retail continued to evolve its business away from the traditional securities business to an asset consulting business. And during the full year, we saw ongoing inflows into investment trusts and discretionary investments lifting recurring revenue. We also reported an increase in consulting-related revenue from insurance and M&A.

Investment Management booked inflows across all 4 quarters and assets under management reached a record high in December. As a result, business revenue increased driven by management fees. Wholesale reported stronger results compared to the year before. In particular, Investment Banking had a good year in the International Advisory business, delivering its highest revenues in the past 6 years.

Net income for the full year was JPY 143 billion, down 7% year-on-year. EPS was JPY 45.23 and ROE was 5.1%. We announced a year-end dividend of JPY 14 per share for shareholders of record as of the end of March. This takes our annual dividend to JPY 22 per share.

In addition, today, we also resolved to set up a share buyback program in order to enhance capital efficiency and ensure a flexible capital policy as well as to allot shares for equity compensation. The program has an upper limit of 50 million shares or JPY 30 billion and runs from May 17 until the end of March next year.

Please turn to Page 3 for an overview of our fourth quarter results. As shown on the top right, income before income taxes was JPY 49.5 billion, down 38% quarter-on-quarter, while net income was JPY 31 billion, a 49% decline from last quarter. EPS was JPY 9.89 and annualized ROE was 4.3%.

The bottom right shows Three segment income before income taxes of JPY 33.5 billion, 58% lower than the previous quarter. This decline was mainly due to the drop in the stock market on rising interest rates in the U.S. and heightened geopolitical risks, which impacted retail client activity and the fair value of investee companies in investment management.

Segment Other income before income taxes was JPY 14.9 billion, which includes the JPY 42.8 billion gain on the sale of our stake in our affiliate, Nomura Research Institute, announced recently. In addition, in relation to the provision we booked in the second quarter for transactions in the Americas from before the global financial crisis, we booked additional expenses of JPY 23 billion in the fourth quarter.

This is in relation to claims by securities, trust beneficiaries and others to purchase loans related to certain residential mortgage-backed loans issued by our U.S. subsidiary from 2005 to 2007. And we have negotiated proactively to put this issue behind us by resolving the over 10-year dispute to direct our management resources to growth areas.

With the additional expenses booked this quarter, we have mostly completed the accounting treatment of this issue and have drawn a line under these legacy transactions. Booking the additional expense means that the maximum loss, which is the maximum loss reasonably possible exceeding provisions, declines from JPY 106 billion in the third quarter to around JPY 60 billion, depending on the exchange rate.

Our year-end dividend of JPY 14 gives a dividend payout ratio of 46%, which is significantly higher than our dividend policy of 30%. Given the RMBS accounting treatment is nearly completed and we have closed our legacy transactions, we have made some adjustments to shareholder returns.

Please turn to Page 6 for an overview of each business. Retail, reported fourth quarter net revenue of JPY 70.5 billion, down 19% quarter-on-quarter. Income before income taxes declined 71% to JPY 5.2 billion. The bear market from the beginning of the year led some investors to buy on the dip, but investor sentiment worsened significantly as the market continued to drop.

The market drop in February on heightened geopolitical risks was particularly challenging and sales of stocks and investment trusts came to a halt, resulting in the lowest levels of recurring revenue assets and recurring revenue over the past year.

Please turn to Page 7. The market also impacted our main KPIs in the fourth quarter, but on a full year basis, we saw results in our areas of focus. The table on the top right shows investment trust net inflows of JPY 260 billion and discretionary investment net inflows of around JPY 360 billion, both of which improved from last year and contributed to growth in recurring revenue assets.

Full year recurring revenue was JPY 106.3 billion, up 23% year-on-year, while the recurring revenue cost coverage ratio increased to 40%, underscoring the progress we are making to build a more stable earnings base. And by taking a holistic approach to client asset portfolios for corporates, owners and high net worth individuals, we are increasing the number of proposals we make and consulting-related revenue from insurance, M&A and Advisory services increased by 24%.

Please turn to Page 8 for Investment Management. Fourth quarter net revenue was JPY 10.1 billion, a sequential decline of 75%. Business revenue remained solid at JPY 31.1 billion, Assets under management declined slightly due to market factors impacting management fees, but strong performance led to an increase in performance fees.

Meanwhile, investment gain loss was negative JPY 21.1 billion due mainly to a loss of JPY 18.8 billion related to American Century Investments and an unrealized loss of JPY 4 billion on investee companies of Nomura Capital Partners.

Please turn to Page 9. The gray bar in the graph on the top left shows investment Advisory and international businesses outflows of JPY 190 billion from foreign bonds and UCITS fund. However, the red bar representing the investment trust business shows inflows of around JPY 370 billion as investors bought more ETFs during the market adjustment. The graph on the top right shows AUM in the bank channel, which have grown to nearly JPY 2.2 trillion at the end of March, representing an increase of JPY 620 billion over the past year. In the fourth quarter, we saw inflows into balanced funds, which are less susceptible to market volatility and ESG funds. Inflows for the full year came in at JPY 540 billion. The graph on the bottom right shows steady growth in the alternative assets under management of JPY 840 billion.

Please turn to Page 10 for Wholesale. As shown on the top left, net revenue was JPY 194.9 billion, down 4% quarter-on-quarter and income before income taxes declined 9% to JPY 37 billion. The graph on the bottom left gives a breakdown of net revenue by region. The revenues in the Americas and AEJ declined on a slowdown in spread-related products. Japan reported stronger revenues in Equities and Investment Banking, while EMEA posted revenues growth in macro products such as rates and FX/EM and in Investment Banking.

Please turn to Page 11 for an overview by business line. Global Markets net revenue declined 3% quarter-on-quarter to JPY 158.2 billion. Diversification across regions and products helped us deliver solid results amid market turbulence. Fixed income net revenue was JPY 80.1 billion, down 9%. Client flows slowed on Credit spread widening and concerns over geopolitical risks, resulting in a challenging quarter for Credit compared to the strong previous quarter and slowdown in securitized products revenues. Macro products, such as Rates and ForEx emerging were able to tap into client flows amid market volatility to generate stronger revenues. As a heat map on the top right shows, EMEA reported higher revenues while AEJ and the Americas revenues declined.

Equity net revenue grew 3% to JPY 78.1 billion. As you can see on the top right, Americas reported higher revenues in cash equities, but derivatives revenues slowed giving an overall slight decline. Other regions are reported stronger revenues quarter-on-quarter.

Please turn to Page 12 for Investment Banking. Fourth quarter net revenue remained strong as JPY 36.7 billion, a 6% decline from last quarter. The market slump led to an increase in postponed ECM and ALF deals, but the Advisory business reported revenues above the particularly strong previous quarter.

The top right gives a breakdown of revenues for Japan and International. Net revenue for the year ended March '22 was JPY 146.6 billion, a record level since 2017 when comparisons are possible. International revenues have doubled over the past 2 years, driven largely by the Global Advisory business shown on the right.

The Americas and EMEA are particularly strong, and we supported multiple transactions across business reorganizations, cross-border deals and sustainability transactions driven by Nomura Greentech.

Please turn to Page 13 for an overview of expenses. Fourth quarter noninterest expenses were JPY 291.3 billion, an increase of 8% over the last quarter. This was mainly due to Other expenses shown at the bottom. This includes additional expenses of JPY 23 billion related to the RMBS issue I mentioned earlier. Compensation and benefits declined 10% to JPY 125.6 billion due to the bonus adjustments for the year-end and to reflect full year performance.

Please turn to Page 14 for an update on our financial position. As shown in the table on the bottom left, Tier1 capital was JPY 3.1 trillion, up JPY 60 billion from the end of December due mainly to ForEx translation adjustments because of the yen depreciation.

Risk assets were JPY 15.9 trillion as market risk increased on higher market volatility and credit spread widening and credit risk increased by JPY 1.1 trillion from the end of December. As a result, our Tier 1 capital ratio at the end of March was 19.5%, and CET1 capital ratio was 17.1%. That concludes the overview of our fourth quarter results.

To sum up, the fourth quarter was dominated by market turbulence from U.S. interest rate hikes and heightened geopolitical risks, and our results were impacted by a slowdown in client activity and unrealized losses. However, this quarter also marks an important turning point. As I said at the start, we made significant progress in dealing with legacy issues from over 10 years ago, and we are now well placed to shift management resources to growth areas.

Our efforts to grow stable revenues and diversify our revenues meant we were able to deliver solid results in the fourth quarter despite market headwinds and additional costs related to winding up legacy issues.

Market uncertainty has remained into April, and Retail has got off to a slow start, but we expect flow revenues to rebound somewhat once the market recovers. From this year, in order to deliver services that go beyond the expectations of our clients, we have put executive offices in charge of the corporate owner, high net worth and mass affluent segments to accelerate the evolution of business design for each segment. Further, retail and the digital company will work together to speed up our digital client services.

Wholesale has reported a strong start this year in fixed income, particularly credit and ForEx emerging while equities and investment banking have had a slow start. We expect uncertainties such as geopolitical risks and interest rate policy to remain for the near future, and we will continue to manage risks stringently. Additionally, we will further diversify our revenue sources by expanding capital-light businesses. We will provide an update of our strategy at our Investor Day on May 17. Thank you.

(Operator Instructions) The first question is from SMBC Nikko Securities, Mr. Muraki.

This is Muraki from SMBC Nikko Securities. Two questions, please. First, regarding the Russia-Ukraine situation, any direct or indirect impact from that. And in Q4, the risk assets increased and the CET1 ratio fell by about 1 percentage point. And the provisions for bad debt NPL has increased slightly. So what impact has the situation had on risk assets and your P&L, please? That's my first question.

Second question, the share buyback that you announced. And this time, it's 1.5% of the number of shares and the period is slightly above -- over 10 months, so a slightly long period. Previously, when you announced it in October, it was 2.5% of shares, and the period was about 4 to 5 months. So this time, why did you set a long period for the share buyback program? Thank you.

Muraki-san, this is Kitamura. Your first question, the Russia-Ukraine situation and the impact of that. And I'd like to stress first that we do not have offices in Russia and Ukraine. And since a few years ago, the Western Europe and CIS businesses have been -- we have been shrinking those businesses. So our direct exposure -- direct impact is very limited.

There is some impact from the settlements of rubles, and we have to watch out for that. But the impact is not that significant. In terms of the indirect impact, the surfacing of these geopolitical risks does have a big impact on the market and the equities market suffered a sharp decline, rise in volatility. So yes, we have been indirectly impacted in that way.

In terms of RWA, there has been a slight increase. First of all, this was due to the rise in volatility and also the widening of Credit spreads and the market risk increased. And in terms of counterparty risk, that also rose. So the Credit risk increased as well. Meanwhile, with the weakening of the yen, there was a sharp weakening towards March end. So our risk-weighted assets, a lot of it is dollar denominated. So there was an impact of the weak yen as well.

And you mentioned about the provisions for bad debt or NPLs and how it's increasing, but we don't think it's increasing by that much. And this is not related to the Russia-Ukraine situation at all. So it can be a share of that. And your second question about the share buybacks and why it's long? Well, we have set a long period just to be on the safe side and until the end of the current fiscal period.

And I think when we start buying the shares, and with this current share price, I think the program will be completed earlier than that. And as you point out, Muraki-san, the previous program that we did, the share buyback, was completed in a very short time. So I think the same will happen this time, and it will not take until March of next year.

And in terms of this fiscal period or in the -- yes, in the current fiscal period ending March next year, we are not limiting the possibility of doing further buybacks. And as we have been saying in the past, we will look at the situation of our profit, share price, regulations, et cetera and conduct share buybacks on a flexible basis depending on the situation.

Regarding the first point, this is Muraki again. The increase in risk assets and the future direction. Is it going to come under control? Or is it going to decline over a short period -- in a short period of time? Or do you expect this current level to continue for a while?

This is Kitamura. The JPY 15.9 trillion at the moment, I believe. We will look at the portfolio and we are controlling this level. So it has not reached the limit for the risk-weighted assets at all. And this is kind of like a cruising speed in terms of the level of the risk-weighted assets. And there's some impact from the currency, so it may look somewhat high, but we do not see the current level of RWA as being high. And with the weak yen, I think this level is going to continue for the time being, we do not have to suddenly lower it from the current level.

Watanabe-san of Daiwa Securities.

This is Watanabe of Daiwa Securities. I have two questions. First of all, on capital policy. JPY 30 billion of buyback, the size, what's the backdrop in RSU? [9,900] shares worth JPY 500 billion, how do you set the size? And do you think that the same level should be set year after year? Expense ratio, 86% U.S. customers. If your revenues will go down, what would be the actual fixed cost? Will it go down? Or do you think investment is still needed, so you will be continuing to spend cost in the area of investment? Those are my two questions.

Thank you for your questions. In terms of JPY 30 billion of share buyback, how did we decide on that amount? That was your first question. And we took into various factors comprehensively and set the level. And also, Watanabe-san, at the previous telephone call, you asked a similar question. JPY 50 billion was the previous level we set and JPY 40 billion -- we finished the program at JPY 40 billion less and the stock price lower. So this time, we decided on another buyback. And RSU, it's not that we have to buy back in one cycle. We needed to provide enough funding. So we made the decision this time around. RSU, depending on the performance, we have introduced paper for performance. So depending on the performance bonus will be determined. And the stock price will be determined, so thousands of shares, we cannot automatically give you any number because of that situation, part of the bonus will be deferred and RSU would be granted and the amount would be the equivalent number of shares. So we can't predict a specific number, that would be rather challenging. So that is my response to your first question.

And on your second question, Wholesale cost. And if revenue goes down, is the cost for Wholesale going to come down? If we look at the recent trend in expense ratio, 81% is the level for Wholesale, so this is more or less the level that we had been planning and assuming. As you know, at the moment, growth areas that are capital-light, Advisory is a priority area where we are actively investing. So there is cost before revenues begin to be generated. So that kind of lagging effect cannot be denied. And interest management overseas in Asia, this is a resource-light business, but [RM] has to be recruited and corporate staff has to be recruited as well. But revenue is going up, but cost is booked before revenues are generated and sophistication of risk management, this is an area where we are injecting much efforts. So it may appear that we are booking expenses before revenues are generated, but these investments will lead to future profit generation. So in terms of expense ratio, there will be a decline further in the months and years ahead.

The next question is from Mitsubishi UFJ Morgan Stanley Securities, Mr. Tsujino.

This is Tsujino. First of all fixed income, if we look at a Q-on-Q basis, it was quite stable in each geography. EMEA recovered, Americas slight decline. AEJ Credit was very too good in Q3. So this time there was a decline. But -- so going forward, -- the Americas, interest rates are going up. So January, February, March, the agency mortgage issuance is falling quite clearly.

And -- so for the current fiscal year, that we will face a tougher situation compared to the previous year. And so you have to cover that with other businesses. So could you share with us your outlook on that, please? And for EMEA, slight improvement Q-on-Q, but do you think this is sustainable? Or in Q4 was there increase in flow due to various factors? So could you share with us your views on each region.

And my next question is the buyback. And your previous answer pretty much covered my question, but you said that it may end earlier than expect -- but -- or you might continue it until March. And previously, you said JPY 50 billion, but you were only able to buy close to JPY 40 billion. And that's why this time, are you saying JPY 30 billion? Are you saying that earlier?

So listening to you talk about the share buybacks, it seems like you are going to make some more revisions in the current fiscal year? Or are you just keeping the period up to March end just because you are not able to complete it early. So this fiscal year, there are some uncertainties in the market. And is that why you are -- is this the reason for your policy? So could you also share your views on that, please?

This is Kitamura.

Sorry, one more. This is Tsujino again, my third question, but I'll ask you after the first two.

Okay. This is Kitamura. For fixed income and the outlook was your first question. And by region, initially, the businesses that were strong were the macro businesses like rates, FX, but throughout last year, it was more securitized products and credit. So these are 2 spread products, which did well.

And in the Americas, yes, agency mortgage in the rising interest rates, things are a bit tough. But for the rates business, which is our main business, is doing well, thanks to the hedging needs for options. I think it will do well. And there will also be portfolio rebalancing needs. So the client activity -- pickup in client activity will drive the business. And the rates business is our main business, and we expect a recovery there going forward.

And for EMEA, fixed income. It was strong in this quarter because there's the rates business and also FX or the macro type businesses. And so our views are somewhat similar between the U.S. and the Europe. And for Asia -- AEJ, in Q4, FX emerging was quite strong. These are also macro type businesses.

Our fixed income business in AEJ is FX and emerging. These are the drivers and also the Credit business. And in Q4, FX and emerging did well. Credit was a bit slow. But actually, more recently, the AEJ Credit business, which we are good at, is benefiting from the Chinese monetary easing and recovery is picking up. So we are not that pessimistic about this. In fact, we are more optimistic about AEJ. So that's the outlook for our fixed income business.

Your second question about the buyback -- and thank you for trying to read between the lines and trying to get -- read the tone of my comments. But actually, there isn't that much deep meaning to it. And maybe this JPY 30 billion will be completed very quickly. And if that's the case, then we will consider the next round of buybacks. So those are my answers to your first and second questions.

Yes. This is Tsujino. The third question is about the provisions for litigation and the remaining maximum loss is JPY 60 billion. And for this time, there was an increase in the maximum probable loss and there were two provisions that you made. And so that led to a lot of concern in the market. But as of this moment the biggest concern for Nomura is behind you. Is that how we should look at this? And the maximum estimate of loss, there was a big rise, and then it's fallen recently. Is this -- are there any other issues that are similar?

Yes, this is Kitamura. This is litigation, and we cannot go into too much detail, but there was a sudden surfacing of the concern, and that was in this fiscal year. So that's why in Q2, we made the provision. And we also increased the maximum potential loss from this issue. And as you point out, Tsujino-san, we have been causing a lot of concern both within and externally, and the management is aware of that.

And so we wanted to act proactively and get it resolved within the fiscal year. And as a result, Q2, Q4, we made a total of JPY 62 billion, JPY 63 billion of provisions. But this issue is pretty much behind us. And we have made most of the financial treatments that we have to do.

And there are no major concerns that are outstanding. And the remaining maximum loss of about JPY 60 billion, it has come down to 60. This is quite a long-standing and -- so we do not expect a sharp increase or rise in the concerns about this. We are not expecting at least at this moment. And for the concerns, we have already made the necessary provisions. So this -- we do not expect this maximum loss to actually lead to a surprise in the losses, if that answers your question.

From JPMorgan Securities, Otsuka-san.

This is Otsuka of JPMorgan Securities. I hope you can hear me.

Yes, thank you. I can hear you.

Can we go one by one question to one answer. And first of all, on IB, Kitamura-san, you refer to Page 12 and on the right-hand side, Advisory revenues increasing that was mentioned in your presentation. And for example, Q4, JPY 36.7 billion revenue. Based upon that revenue, IB business, ECM and DCM and M&A Advisory, if you split up that business, what would be the share? I understand that total revenue has doubled, but it would have been easy for us to imagine the degree of growth if you had given us a breakdown. So that's my first question.

Thank you for that first question. What would happen if we broke down the IB revenue, ECM, DCM, M&A? Yes, or just breakdown between ECM and DCM. So you want a proportion of the share, a composition of the revenue. Is that correct?

Yes, a crude number would do. ECM, DCM and others.

Thank you for that question. Q4 revenue, half of the Q4 revenue is Advisory and M&A.

And what about ECM?

This is a volatile area depending on the existence of deals, around 15%, I would guess, would be the share, and DCM around 10%. And there are other areas like finance. So in terms of share, those proportions would probably be the breakdown.

Then Advisory or somewhat others would be included, but 36.7, half of that is JPY 18 billion. So JPY 18 billion from Advisory. And -- so during the past year, it grew from JPY 9 billion to JPY 18 billion. Is that the right image?

Thank you for that question. Yes, that's the right image.

Then I proceed to my second question. if we carve out the Investment Banking revenue, it has declined quarter-on-quarter, but in Q4, in January, March quarter, there has been a drop. And in terms of the breakdown, ECM, DCM business shrank, but was that offset by strength in Advisory? Is that the right image?

Yes, you're very correct. That was not unique to our company. But if we look at the fee pool or wallet for the industry as a whole, M&A has slightly dropped, but that drop isn't as steep. And it's ECM that's experienced the biggest drop. And in the market, it slightly depends on the Research Institute, but 60%, there has been a decline of the total amount of fee pool, and that is reflected in our reduction as well. Financing business, loan business has also experienced a significant drop. DCM hasn't really declined that significantly. So as the industry-wide wallet shrinks, we have a strong pipeline. So we will be able to monetize and book the fees from that pipeline. So in the Q4, we were able to report solid numbers.

Then for Advisory, briefly, in comparison to your peers, you haven't been defeated. So in terms of share, Nomura's share has gone up. Is that the right interpretation?

I would guess so. I have not really looked at our share in the detail. But with the whole wallet shrinking, we have a solid Advisory business. So our share should be increasing.

For both the Japanese business and international business, is that true for both?

Sorry, I -- not aware of the breakdown between Japan and international. At the global level, Advisory performance was quite robust at Nomura.

The next question Bank of America Securities, Mr. Sasaki.

This is Sasaki from Bank of America Securities. Two questions, please. First, about -- in Q4 you booked the Nomura Research Institute stock capital gain. And this may be hard to link, but -- for example, you have litigation on one side and you have the costs. So was this intended to cover those costs? Or is it completely separate? How should we think about your decision to book this capital gain of NRI? That's my first question.

This is Kitamura. We we do not connect the two or link the two. And this is from the standpoint of making good use of the assets we own, which led to the disposal.

Okay. This is Sasaki. So NRI, there was not much rationale to own the shares. And I think there are some other assets like that, but why did you choose NRI instead of the others?

This is Kitamura. When we think about our balance sheet, most of it is trading assets. And within trading assets, we want to make good use of assets and we sell the stocks which do have liquidity. That's the first that comes to mind. And that's why we chose to sell NRIs stock and assets, other than trading assets, for example, deferred tax assets is something you cannot really sell land, hard to sell. So the subject or potential classes that we can sell are quite limited, actually.

This is Sasaki. So the properties that you own, which you are not making full use of and also the strategic holdings for which the relationships are not that strong at the moment. And NRI, the market cap has doubled. And so I still -- I'm not fully sure why you chose NRI compared to the other assets. Are you going to continue selling the NRI stocks?

This is Kitamura. Well, NRI is an important strategic partner to us. No change to that at all. And even if we sell some of our position, I believe we still own 24.6%. And NRI remains an important partner. We have no intention to break that at all. And you mentioned the real estate. We have been selling the unnecessary real estate, and we are pretty much done with that process. And for strategic holdings, we have been selling as much as possible. And Sasaki-san you're well aware that our strategic holdings against Tier 1 ratio compared to other financial institutions, it's much smaller for Nomura. And most of that is the nonlisted or the private companies, which makes it hard to sell, frankly, and that's one of the problems we're facing.

Understood. And my second question is you didn't explain this in the presentation. But in April, you are starting the level fee. And my question is, I understand the strategic rationale of -- I will ask about it in the [large] meeting about level fee. But from the CFO's perspective, what are the financial impacts of the level fees -- introducing level fees? And how much is the level fee progressing? And what are the financial impacts as CFO, please?

This is Kitamura. Thank you. Yes, from April, we have started the full-fledged introduction of level fees. And the contract balance has already exceeded JPY 100 billion, and we are steadily building up the business. And against the JPY 120 trillion or so of assets, the assets which are subject to level fee is only JPY 100 billion. So frankly, there is no impact to our P&L yet. And this level fee -- this type of asset balance base fee, we plan to grow to about JPY 10 trillion. And if that happens then the sales and commissions will decline. The trading commissions will decline, but the level fee itself is important for us to put ourselves on the same boat as our clients and improve customer satisfaction and get them to put in new money to Nomura. And this is something which we should be doing, this kind of approach such as a level fee. And of course, we can only charge a fixed fee, and it may look like it has a negative impact on our earnings or revenue. But actually, the benefits of customers entrusting us with more money will be enough to offset this negative impact.

I see. Understood. And actually, for this fiscal year, throughout the year, how much balance do you plan to go up to for the level fee assets? And I understand that this is a very important strategic change for you, but a year from now, I don't know how much you can grow, but do you have any views on that?

This is Kitamura. Well, we don't have a target -- well, the target for this fiscal year, we don't disclose it. And there are no numbers which we can disclose. And as I said earlier, we will spend several years growing to more than JPY 10 trillion. And maybe on the Investor Day on May 17, (inaudible) might make some kind of comment. But at the moment, we -- all we can say is we will grow it to a significant size in a few years. That's our intention.

Next, Jefferies Securities, Ban-san.

I have two questions. And it's similar to Watanabe-san's question. I have a question on Retail business in Japan and expenses. As you mentioned, there was a decline in flow due to mortgage situation. And on a quarter-on-quarter basis, the bottom line was low. And when top line goes down to secure pretax income, the cost seems to be high for you to secure pretax income.

So was there any investment that you had to make in this particular quarter in advance that had pushed up expenses or if the market remains as it is, do you think that the absolute level of cost in your retail business can be cut further in order for you to generate profits? And new retail policy, including level fee, did that require investment in advance. To the extent possible, can you explain those points? That's my first question.

Second question, this overlaps with what you have already explained, cheap yen or interest rates rising in other countries. Is that impacting your deal pipeline? And if so, how? Specifically Japanese businesses are experiencing rate rise overseas and a cheaper yen and is that negatively impacting your pipeline? There could be bumps, decline as well as increased needs and demand. So on net basis, is your pipeline not being influenced in totality? Those are my two questions.

Thank you very much for those questions. Your first question was on retail cost. By segment, we are defining approaches segment-by-segment, and we are trying to strengthen corporate owner, high net worth, mass affluent segments. And in each of those segments, we are trying to define the most effective approach and trying to invest necessary resources in one segment that may require human resources. In another segment, intellectual property or digital resources may be required.

So as we implement this segment-by-segment approach, we will look at the segment-by-segment profitability. We haven't yet reached the stage of being able to share segment-by-segment profitability, but we are doing that internally. And we will follow the trend of expense rate against the profitability by segment. Are there unnecessary costs being expensed? We will like to dive in more deeply.

Digital is a key and this is an area where we need to promote more efforts. When was it? Was it Investor Day last year? JPY 100 billion or JPY 10 billion per year of investment will be done, we announced. And part of that is reflected in the expenses for this fiscal year. This is an investment in order to increase the number of contact points with our clients. At any rate, we will do cost control rigidly and identify the truly necessary costs from a fresh perspective, so stringent cost control will be conducted.

Yen weakening and rate rising in other countries, that was your second question. How will that impact our business? In hindsight, was it around 2015? A few years back. It was JPY 120 to the dollar, yen weakened to that level. And Mr. Ban, I think we are repeating the same kind of debate we had back then.

As you know, ForEx would determine the timing of investment and impact the supply chain strategy as well as return on investment. So of course, fluctuation of currency is something that we monitor very closely. And businesses are also watching very carefully the exchange rate.

But on the other hand, when we think about the Japanese market, with limited growth opportunities, there are businesses that are seeking growth opportunities overseas. And that kind of attitude remains unchanged. So yes, the recent weakening of the yen has had impact. But if we take a mid- to long-term perspective, businesses seeking their market overseas is a major direction that will be sustained, and we do not expect any major change from that kind of strategy.

Ban-san as you said, the biggest challenge in the business world is ESG and sustainability. And Nomura does have goals, but sustainable finance is an area where we will continue to support. There will be new opportunities. And of course, there could be a tentative dip in business opportunities, but this is an area where we expect mid- to long-term growth.

The next question is from Mr. Niwa from Citigroup Securities. Apologies, we're checking the connection with the questioner, Mr. Niwa-san, please wait a moment. Mr. Niwa from Citigroup Securities.

This is Niwa from Citigroup. Can you hear me okay?

Yes, we can.

Apologies for that. Just briefly, two questions, in EMEA and retail revenues. For EMEA, the losses seem to be continuing. So could you share your view about the positioning of EMEA and what you're going to do about it?

Second, retail revenues. In the text, you said that you expect an autonomous recovery, but to what extent do you think is the fundamental strength of your retail business? The segment profit, JPY 5 billion seems a bit weak. So could you share your views on that as well, please?

Yes, your first point about EMEA and revenues. And with the normalization of the market, last year's EMEA, (inaudible) fixed income, faced a very tough situation. And this year, I have asked -- answered several analysts questions, but we expect this to normalize going forward and macro products and other businesses will recover.

And meanwhile, there are some regulations on the compensation in Europe. And we positioned this as the hub of our international business. So the costs in EMEA tends to stay high, and we do acknowledge that. So this drop in revenues, if it does drop, we have to -- there are some limitations to the cost flexibility and we need to implement the right measures.

And for -- aside from fixed income, we've been talking about the Advisory business. And in March '22, EMEA Advisory did very well. And in terms of new business, there's the infrastructure finance. We're also working on that.

And there's Greentech, and we will apply leverage to that. And it's still mainly U.S., but there are the capabilities which Greentech has, and we will apply that to EMEA and AEJ. And for sustainability, we will strengthen our sustainability-related business in Europe as well. And by diversifying our sources of revenue, we will improve the profitability of the EMEA region.

Your second question about Retail. Yes, as you point out, the P&L bottom line was a bit low. And this was due to the unclear market outlook and the flow business -- market flow was a bit weak, and that has impacted our earnings as well. And in terms of our initiatives, this is now penetrating to the working level. And it is taking -- some of the partners are somewhat hesitant in proposing the products that meets the needs of the market environment.

And we will monitor the market environment and the portfolios of our customers and make flexible proposals and that is very client-centric. So we will thoroughly send that message out within Nomura. And in terms of this autonomous recovery in our business, but on top of that, we also -- there are all these programs like consulting, Advisory, which may sound like we are not going to focus that much on the product proposals. But it is important to provide the right product in a timely manner, and that is in the interest of clients.

And we -- not only just helping our clients resolve the issues, but we will also help our clients find some issues, which they -- even they themselves hadn't realized. That's the important job of Nomura. And we will make proposals to solve these issues, which our clients themselves have not realized. I think that's the fundamental role of retail.

And we -- the needs of our clients, including these latent needs, are becoming very diverse. So we are taking this domain-based approach, and we are appointing directors in charge of each of these domains or business categories. and we are coming up with planning and strategies, business design for each domain with speed. So in that sense, I don't know if I'm answering your question, Niwa-san, but Retail will rebound its business going forward.

It's time to finish, and we would like to conclude question-and-answer session. If you have some more questions, please ask our Nomura Holdings IR Department. In the end, we would like to make closing address by Nomura Holdings.

Yes. Thank you very much, everyone, for participating and asking all your questions. March '22, there were quite a lot of one-off items, which went up and down, making the results quite hard to understand perhaps, but the initiatives that we have been working on are starting to bear fruit to a certain extent. And I think the direction that we are heading is the right one. And the issue is maybe perhaps the speed at which we are progressing. So we will make sure -- we will work on accelerating the initiatives even further. And so in that sense, the legal issue, which took place more than a decade ago, we have been coping with it proactively, and we have been able to put the negative legacy pretty much behind us. This means that this will free up our management resources, not just financial, but also talent resources to more positive direction going forward. And I think this is a very important turning point for Nomura and the Nomura Group will continue its group-wide efforts to move forward. So we look forward to your continued support and coverage. Thank you very much.

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

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