Nomura Holdings, Inc. (NYSE:NMR)

Q4 2017 Earnings Conference Call

April 27, 2017, 05:30 ET


Takumi Kitamura – CFO and Executive MD


Masao Muraki – Deutsche Bank AG

Kazuki Watanabe – Daiwa Securities

Futoshi Sasaki – Bank of America Merrill Lynch

Natsumu Tsujino – JPMorgan Chase & Co

David Lui – Guoco Management

Koichi Niwa – Citigroup


Welcome to today’s Nomura Holdings Fourth Quarter and Full Year Operating Results for Fiscal Year Ended March 2017 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 teleconference contains certain forward-looking statements and other projected results which involve known and unknown risks, delays, uncertainties and other factors not under the company’s control which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive condition and size, number and timing of the transactions.

With that, we’d like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer, please go ahead.

Takumi Kitamura

Good evening. This is Kitamura, CFO. I will now give you an overview of our results for the year ended March 2017. Please go to Page 2. First, the full year highlights. During the first half of the year, client activity eased up ahead of monetary policy announcements and the current political events. But following the U.S. presidential election, investors turned to taking on risk and the Fixed Income market saw brisk activity as investors rebalanced their portfolios. Amidst this environment, we reported a 1% increase in net revenue year-on-year to JPY 1,403.2 billion and 95% gain in income before income tax to JPY 322.8 billion. We achieved a significant growth in income before income taxes by cutting our cost base through a straight strategic review in EMEA and Americas while continuing to boost revenues.

During the year, we addressed the challenges faced by our international operations and all regions returned to profit. We booked a total income before income taxes from our international business of JPY 88.1 billion. This is the best result since we stated — we reporting regional — started reporting regional results in 2002. As a result, our group effective tax rate was 25% which is lower than the corporate tax rate in Japan.

Net income was JPY 239.6 billion, the second-highest level since we started reporting under U.S. GAAP in 2001. ROE for the year was 8.7% and earnings per share was JPY 65.65. We have decided to pay a half-year dividend of JPY 11 per share to shareholders of record as of the end of March. This brings the annual dividend to JPY 20 per share, an increase of JPY 7 compared to last year.

Today, we also resolve to buy back shares to address the exercise of stock options and to raise capital efficiency and to ensure a flexible capital management policy. The share buyback program will run from May 17, 2017 to March 30, 2018 and have an upper limit of 100 million shares of Nomura Holdings common stock or JPY 80 billion.

Please turn to Page 3 for an overview of fourth quarter results. Net revenue declined 5% Q-on-Q to JPY 349.1 billion and income before income taxes declined 14% to JPY 82.3 billion. Net income was JPY 61.3 billion, down 13% from last quarter. The graph on the right shows we had an extremely strong third quarter. Although fourth quarter income before income taxes declined sequentially, we still delivered a solid set of results and a significant improvement over the previous year.

Fourth quarter annualized ROE was 8.8% and EPS was JPY 17. Let’s now take a look at each business in more digital, starting with Retail on Page 6. For the full year, net revenue was JPY 374.4 billion and income before income taxes was JPY 74.8 billion, down 14% and 41%, respectively. The main reason for the declines is that Retail investors went into a wait and see mode during the first half of the year due to the market uncertainty. But — however, market conditions improved following the U.S. presidential election, leading to the robust trading of stock and bonds.

Fourth quarter net revenue was JPY 103.2 billion. Net income before income tax up to JPY 25.8 billion, both roughly unchanged Q-on-Q. Total sales shown on the bottom of the page increased by 8% compared to the third quarter, although subscription and sales declined in line with the market trend. Sales of investment trust grew driven by AI-related funds and sales of bonds also increased as we tapped into demand of JGBs for Retail investors.

Noninterest expenses were up 3% Q-on-Q due to an increase in marketing expenses related to JGBs for Retail investors.

And as shown on the top of Page 7, Investment Trust and discretionary investments both booked net inflows and annualized recurring revenue increased to JPY 78.6 billion.

Please go to Page 8. AUM, the Asset Management climbed to a record JPY 44.4 trillion at the end of March driven by inflows into ETF privately placed Investment Trust and investment advisory business. Full year net revenue increased 4% to JPY 99.4 billion and we worked to contain cost. As a result, income before income taxes reached JPY 42.3 billion, the highest level since 2001.

Fourth quarter net revenue declined 19% to JPY 23.3 billion and income before income taxes decreased 38% to JPY 8.7 billion. The quarterly decline is because third quarter results were lifted by dividend income and the gains related to ACI, American Century Investments. When you exclude these factors, the investment management business actually reported stronger revenues.

Please turn to Page 9. As you see on the bottom right, we have steadily grown asset under management in ETF by expanding our product offering in line with the investor demand. AUM and ETF exceed JPY 10 trillion at the end of March and our share of the ETF market in Japan was an industry-leading 45%.

Please turn to Page 10 for an overview of Wholesale. Full year net revenue was JPY 739.3 billion, up 3% year-on-year. Income before income taxes jumped more than tenfold to JPY 161.4 billion.

As I said earlier, the gain in income before income taxes was a result of significantly lowering our cost base while at the same time growing revenues. As shown on the left, noninterest expenses for the full year were JPY 577.8 billion, a decline of 18% compared to the JPY 704.9 billion for the previous year. Top line growth in Global Markets offset a slowdown in Investment Banking, leading to an overall revenue growth in the Wholesale for the year.

Fourth quarter net revenue was JPY 171.2 billion, down 13% quarter-on quarter. Income before income taxes declined 41% to JPY 28.1 billion. Fourth quarter expenses of JPY 143.1 billion translates to an annualized expenses of around U.S.D 5.1 billion.

At our Investor Day presentation in April last year, we committed to reducing our Wholesale run rate cost base to between $5.1 and $5.2 billion over 2 years. We have been able to reach this level ahead of schedule by moving decisively and swiftly to cut cost over the past year, including the strategic review of our businesses in EMEA and the Americas. That said, we have not finished with the cost-reduction initiative. Moving forward, we have the technology to enhance efficiency and continue to reduce costs, particularly fixed expenses on each of the business lines.

Please turn to Page 11. Global Markets fourth quarter net revenue was JPY 143.5 billion. Fixed Income revenues declined 26% to JPY 86.5 billion. By product, emerging markets and G10 ForEx slowed from a strong third quarter. And by region, the Americas AEJ and Japan slowed, as shown on the right-hand side.

Equities net revenue increased 2% to JPY 57 billion. As shown on the right, Japan revenues declined on sluggish performance in derivatives, while AEJ revenues increased on an improvement in both cash and derivatives. And the Americas also reported higher revenues, driven by better performance in derivatives.

Please turn to Page 12 for Investment Banking. As shown on the top left, net revenue increased 14% to JPY 27.7 billion. Gross revenue before allocations to other divisions was JPY 50.2 billion. Revenues grew both in Japan and overseas, giving the best quarter for the year.

In Japan, ECM revenues increased as we were mandate for deals such as Kyushu Electric Power Euroyen CB and the global IPO of Sushiro. Internationally, revenues grew, particularly in the Americas and EMEA, driven by contributions from M&A and M&A-related financing.

As shown on the right, we successfully leveraged our global franchise to win many cross-border mandates.

Please turn to Page 13 for noninterest expenses. Full year group expenses declined 12% or approximately JPY 150 billion to JPY 1,080.4 billion. Compensation and benefits declined 14% as a result of cost reductions in the international business and focus on pay-for-performance. Nonpersonnel expenses also declined by 11% due to mainly a decline in commissions and floor brokerage and containing IT expenses.

Fourth quarter group expenses declined 2% to JPY 266.8 billion. Compensation and benefits declined 10%, but commissions and floor brokerage, information processing and communications and business development expenses all increased Q-on-Q.

As you can see on Page 14, we maintain a robust financial position. At the end of March, our Tier 1 capital ratio was 19.2% and our CET1 capital ratio was 18.2%, both of which increased further from December. This is because the decline in risk assets which represent the denominator in the equation due to lower market risk, was greater than the decline in Tier 1 capital cost by dividend payments and yen appreciation. Upon the fully loaded 2019 Basel II standard to our balance sheet at the end of March gives a CET1 ratio of 17.9%. Our leverage ratio was 4.63%. And our liquidity coverage ratio was 180%.

That concludes the overview of our fourth quarter results. Just one final note. In recent weeks, we’ve seen increased geopolitical risks in elections in Europe and the situation in North Korea and the market stance remains cautious in preparing for any surprises. While April has generally gotten off to a slow start, we remain focused on controlling risk and expenses while keeping a close watch on the market movements.

Thank you for your kind attention.

Question-and-Answer Session


[Operator Instructions]. The first question is by Mr. Muraki of Deutsche Securities.

Masao Muraki

I have two questions. First of all, Page 11. Within revenues, I have a question on Fixed Income. The share of Fixed Income revenues in Q3 in comparison to historical trends was relatively high. But in fourth quarter, that declined quite significantly. And it seems that the slow customer revenue has also dropped and went on the dying side. So if you do a self-evaluation of Q3 and Q4 which do you think is your true strength in terms of underlying capability of Nomura? And secondly, on share buybacks. According to your announcement, the up to JPY 800 billion has been announced. And then, if that’s completed, the total payout ratio will be over 80%. The payout ratio used to be in the order of 50% to 60%. So could you explain the reasons behind your decision to increase the payout ratio to a higher level? Those are the 2 questions.

Takumi Kitamura

Thank you very much for your questions. The first question regarding the Fixed Income revenue, it was high in Q3, but it went down in Q4 which level is actually reflecting our true strength. So firstly, for other firms, we’re not in a position to comment on them, but honestly speaking, the geographical mix and seasonalities are different. In that sense, American players, as of end of December, they ended their fiscal year end. Our fiscal year-end is not December. So our business has a boost to grow. In terms of product mix, in our case, Q3, we had the following wind. On the other hand, in the fourth quarter — on the other hand, in the case of Nomura, we had a fiscal year-end and for American players, it was the beginning of fiscal year. So they might have revitalized their business.

That’s our assumption. I mentioned product mix, but in the January through March quarter, credit was strong. But for Nomura, compared with major U.S. players, our — the size of credit business of Nomura is slightly smaller than theirs. So that might have impacted. Also, especially in Japan, in the March quarter, Japan business struggled. For Nomura, Japan is a home market, so the struggle in Japan dragged down the overall performance. That was inevitable outcome. So in — to conclude. In the third quarter, honestly speaking, the result was pretty strong. Since Q3 was strong and the starting base was very high, so Q4 went down, relatively speaking. And also in Q4, because of the product mix, product mix was unfavorable for us, so. Which one reflects the true power of us? Probably somewhere in between Q3 and Q4 would be our true strength.

Regarding the second question, regarding the JPY 80 billion of share buyback, if you can buy everything then, a payout ratio is a — total return ratio goes to 80%, but that includes portion to address stock option exercise. As of now, we haven’t finalized the size of stock option to be exercised. So I cannot give you a specific number. But the payout ratio or recurring ratio will not be as high as 80%, it will be lower realistically. The total return ratio this time around is higher than it used to be in the past. But to talk about the background, over the last 1 year, we’ve reduced the risk, but at the same time, we’ve created a structure where we can generate profit. Also as I mentioned earlier, our Tier 1 ratio is 19.2% and CET1 ratio is 18.2%. So looking at the most immediate quarter, those ratios went up greatly.

So thus capital surplus, part of the capital surplus we believe could be returned to shareholders. As for the regulation, our view hasn’t changed. But we’re looking at the regulatory environment and consolidated performance, stock price as well as capital spending by looking at all of those things comprehensively. Total return ratio will be determined going forward. So just because the total return ratio went up this time, it doesn’t mean we will retain the ratio at 70% to 80% all the time. Thank you.

Masao Muraki

This is a follow-up question to my second question. This time around, the term for the share buyback is until end of March next year. So there will be approximately 11 months. In the past, share prices had gone up beyond BPS that disabled due to conduct share buyback at JPY 790, unless the share price goes below that level for 11 months, is it correct to consider that you won’t do more share buyback by 100%?

Takumi Kitamura

One time of PBR JPY 790, that’s one of the benchmarks, but we do not believe that that’s ceiling. In the past, in reality, there were cases where PBR was about 1 time, but still we bought back shares. So we cannot probably say anything about what’s happened in the past. It’s not everything that’s going to happen. And why are we extending that period for buyback this time? The buyback is not intended for us to keep increasing our holding of shares. But by extending the period for buyback, we’d like to buy back shares from the longer term perspective so that we can be more flexible and more effective in the way we buy back shares, that’s why we’ve expanded the period for buyback.


The next question is by Mr. Watanabe of Daiwa Securities.

Kazuki Watanabe

This is Watanabe of Daiwa Securities. I have 2 questions. First of all, the trend of cost in the Wholesale business. In your presentation, you mentioned that cost reduction using technology will be continued. But on the other hand, you mentioned IB-related investments potentially in the United States. From $5.1 billion, do you think that you can further contain the cost beyond the level today? Second, related to impact in Europe. You withdrew from European stocks, but if your European offices will be selling other products, you could be negatively impacted. How do you view this impact? Those are the two questions.

Takumi Kitamura

Thank you for your questions. As for the run rate cost for Wholesale, now it’s down to about $5.1 billion or so and what is the direction moving forward? I understood that your question. But first, we should not forget that when our revenue goes up, the variable cost, of course, goes up proportionately. So frankly, if business grows as per our expectation, variable cost goes up as well. Also, to a certain degree, investment into not only technology but also in areas where we hold competitive edge, such investment is going to be — will have to be conducted or made to a certain degree. But having said that, rather than we’re not randomly increasing costs. We will be paying for the investment through cost reduction utilizing technology. So depending on how we perform, cost level naturally will go up or down.

But at Nomura, with strong determination, we will be controlling costs tightly. That stance stays unchanged. Also with regard to the second question, the impacts of MiFID II. As you know, unbundling — as a result of unbundling, people say that there’s impact on fees. But the impact of MiFID II itself is not fully clear yet. That’s our understanding. Buy side and sell side, they are going to adjust their business to address. So the question is, how they are going to adjust their businesses? As mentioned, looking forward at MiFID II, fee pool is shrinking slightly in Europe. Honestly speaking, the extent of the impact of MiFID II cannot be identified or specified. But as [indiscernible] mentioned in Europe, in the area of equity, we’ve already exited from equities. So compared with other firms, impact on Nomura will be mitigated on the relative terms.


The next question is by Sasaki-san of Merrill Lynch Japan Securities.

Futoshi Sasaki

This is Sasaki of Merrill Lynch. I have 2 questions. First of all, in Wholesale, the profit level, in the term ended on annualized basis, about JPY 75 billion of pretax profits were recorded. In 2 to 3 years, how will this number unfold? What’s your vision of the next couple of years in the midterm? What is the benchmark in terms of target of Wholesale profits? That’s my first question. Second question, domestic business. The basic principles on customer-centered fiduciary duties were decided upon as of end of March. Are you going to accept these guidances? What is your view? And what are the actual KPIs that you will be showing? You will be required to indicate the KPI, so what kind of KPIs are you thinking in order to show your measures? And by accepting these principles, what would be the impact to your business the way you sell the instruments or the profits and the route of distribution? Those are my 2 questions.

Takumi Kitamura

Sasaki-san, I am sorry, I didn’t fully understand the first question, the level of profit of Wholesale which is JPY 75 billion.

Futoshi Sasaki

Sorry. I was — I meant to say JPY 160 billion, sorry, that was my mistake, JPY 160 billion. Sorry, I was saying the domestic numbers.

Takumi Kitamura

Okay. In that sense, this year, as a result of cost reduction, JPY 160 billion was achieved. But there were various market events of significant scale. So at Nomura, we believe we could navigate such events well. In that sense, there was market support which we cannot deny. So JPY 160 billion, whether we can certain to secure that level, we’re not overly optimistic. But moving forward, centering around overseas, we would like to establish a business foundation that will allow us to secure our profit no matter what, that’s the most important thing we should work on. And we were able to achieve JPY 88.1 billion in overseas business and this black ink overseas needs to be secured. That’s the utmost priority for us. Thank you.

Futoshi Sasaki

You’ve shown JPY 200 billion in the long term vision. And are you saying that this will grow towards that level? Or you don’t have that vision?

Takumi Kitamura

The Vision C&C, our 2020 target, as we spoke about all along for Wholesale, about JPY 200 billion for that target. We have not made any change, but then for this fiscal year, that has just started. What is going to be the outcome? We do not have any specific numerical target that we’ve put out. So my answer is as I just have given. So for 2020, our midterm hasn’t changed. Also for the second question regarding fiduciary duty for clients or the business what kind of [Technical Difficulty].

Futoshi Sasaki

Are you going to accept those principles?

Takumi Kitamura

For us, for fiduciary duty, client-oriented business, we’ve already made an announcement. You can take a look at that if you look at our website. And as for the impact of this, we do not anticipate any fundamental change. We’re doing everything with clients at the heart of everything that we do, with customers at the heart of everything we do. So that’s the philosophy, with which we’re conducting our business. And this time around, the principle is client-oriented, but what we will be doing is we’re deepening the initiative that we’ve implemented all along. That’s the most important thing. As for the fees, it’s the fees paid by clients, so we have to be able to provide services that’s suitable for the level of fees that we’re receiving from clients.


The next question is by Tsujino-san of JPMorgan Securities.

Natsumu Tsujino

I have three points I wish to ask. First of all, Investment Trust sale, on Q-on-Q, 3.1% increase in sales and 18.3% increase in the commissions. Why this difference in the growth rate? And another point related to Investment Trust. According to the association data, ETF Q4 close to 20% change. You have a major share, so 3.1% increase seems rather low in comparison to what has been announced by the Investment Trust Association. So that’s my first point. Should I go through all of the question at once?

Takumi Kitamura

Yes, please.

Natsumu Tsujino

Second question is U.S. FIC. On Q-on-Q basis, there has been quite a significant decline. Q3 was too good probably and that is why the Q-on-Q decline in Q4. But in the United States, what were the products that led to such revenue gains in Q3 that had led to the high performance of Q4? And what was bad in terms of Q4? I was going to ask you based upon your product mix if you could give us more details. Thirdly, on buyback. Stock option. After Q1 of last year, that was JPY 45 billion that you announced last fiscal year and I would assume that half of that was for issuance due to stock options. And now this time, JPY 80 billion? So I would assume that much of that will be for stock option. You said you don’t know exactly, but if the market remains where it is today with some geopolitical risk and this would continues or looking at Q4 only, if this situation continues to prevail, this size of share buyback, do you think can be continued?

Takumi Kitamura

Firstly, let me first address the third question first. The JPY 80 billion, that amount includes a portion for stock option exercise, but this fiscal year’s performance and also stock price of Nomura are also considered. As of now, we cannot foresee where they’re going to be. We’re not trying to — I’m not trying to be mean. But about the size, somebody asked a question about that earlier, but we’re being flexible in our stance. So this high level of shareholder return will not necessarily be continued at the same level.

Natsumu Tsujino

What is needed in order to do this sizable share buyback? Of course, you won’t do it if the share price goes up significantly. But if it’s below 1 at the current level, I don’t think the regulation ecosystem or environment will be worth than what they’ve already proposed. So can we assume that you will do it if the share price remains at the current level? And if something disables you to do it, what would be the factor, the trigger?

Takumi Kitamura

Well, then whether the stock prices are trigger, not really. In reality, risk-weighted assets has been reduced greatly, but due to the market environment, our stance has been risked off. So our Tier 1 ratio is very high. But in our business — if we become a more risk on, that ratio will come down. So what will make us decide on a share buyback of this scale? We will be making decision based upon multiple factors. That’s the best answer I can give you. And regarding regulations, regulations may not get tougher and I agree with your stance, but regulatory environment has not been clarified fully.

In that sense, I cannot specify what the triggers are. Actually, regarding the question about Fixed Income, the Q-on-Q decline, what was the reason? Or what was the background? The product mix that probably was not a sufficient answer. So I’d like to give you more detailed information. But I would like to avoid giving too detailed information, but in the third quarter, the Rates business grew significantly. And also in U.S.A., G10 FX in the area of FX, the third quarter performance was very strong. Also securitized product business, I recall, was strong as well. As a result, in the fourth quarter, we could not achieve the same level of performance. Regarding the first question, regarding sale of Investment Trusts, 3.1% increase Q-on-Q and total sales was down by 14%.

So what’s causing this gap? I believe that was your question. So details will be provided by IR team, but the channels are not necessarily the same. For example, in terms of products, bull-bear products are included in the capital sales number, so in the third quarter, bull-bear moved at a large — was a large factor. So in that sense, coverage is slightly different. So that, I believe, caused this gap. For more details later, our IR team will come back to you. Thank you.

Natsumu Tsujino

According to the Investment Trust Association’s announcement on ETF sales, they said there was Q-on-Q variance of 20%. Your results are different from theirs.

Takumi Kitamura

Well, honestly speaking, I have not been looking at that data, but that the Investment Trust Association’s number and our number do not necessarily match all the time. Also, as we covered in our presentation, the balance of ETF has grown rapidly. And Investment Trust Association’s number does not include ETF, I believe. So naturally, there should be a gap.

Natsumu Tsujino

Your numbers include ETFs? The number I quoted that was announced by the association was the number from which ETF numbers have been extracted out.

Takumi Kitamura

So it’s apple to apple comparison. But in a nutshell, in the case of Nomura, we’re seeing a shift of ETF.


The next questioner is Mr. David Lui from Guoco Management.

David Lui

I have two of them. First on Page 6 of your PowerPoint presentation, we can see that the Retail segment had a tough time in the first 2 quarters and of course, rebounded in the third quarter after the presidential election and also it did quite well in the fourth quarter. But overall, you could still see substantial revenue decline and stock revenue retail related stock revenue was down.

Investment Trust was up. And bonds, every now and then, probably made up some of the difference. Looking forward, in the current fiscal year ending March 2018, should we expect stock trading revenue on the Retail side to continue to decline? I’m sure it’s due to a lot of factors, the younger generation using Internet, the older generation is moving on. So that’s my first question on your insights into the Retail revenue for the current fiscal year. And the second question I have really is on cost cutting. If you look at Page 10 of your PowerPoint, you can see that cost cutting really had a big impact on your profitability from the Wholesale side in the last fiscal year. Revenue was JPY 739 versus JPY 720, so not much change there.

But you can see the noninterest expense was really the difference, therefore, generating a huge profit for you. So given that last year cost cutting was the major growth story for you. Going forward, on Page 13 then, for your total noninterest expense, how should we, as investors, think of these different types of noninterest expense for the current fiscal year? Where are the opportunities that still remain for you to reduce further? We know that you started in April — in the April quarter 2016 and, of course, did a very good job. You shut down Europe, et cetera and that really had a big impact on cost cutting. But how about going forward? This is the 1 year anniversary right now. Are there still more opportunities? And I know that you kept talking about using technology to reduce expenses and I heard that. If you could elaborate on them, that will be great. These are my 2 questions.

Takumi Kitamura

So I will explain in Japanese, so translator will translate. Regarding the first question, the Retail revenue, whether it will continue declining moving forward, at Nomura, in the past, we’re focused on brokerage business but we’re shifting toward more consulting type business. So equity and transaction commissions is the area that you are interested in, I believe. But that’s not the only thing that we’re focused on. In many ways, we’re providing services to clients. And as a result, we’re — our clients are more and more trusting us as their adviser and they’re entrusting their assets to us and we’re — they are paying advisory fees to Nomura and that’s the direction we’re now headed.

Since we’re a securities firm, brokerage commission will be generated. We will pay attention to that. But we’re paying more focus, paying more attention to consulting and advisory services. So whether the Retail revenue will keep declining, that’s your question, but it’s really dependent on the market situation. Then if the revenue goes down, what happens? In that sense, we’re expanding our business foundation now, so please understand our situation. And also regarding the second question, the top line is not growing as you commented. But since this is Japanese-yen-based numbers, on U.S. dollar basis, revenue is growing somewhat, but cost reduction drove — what’s the driver? Cost reduction, I cannot deny the fact that cost reduction was the driver of profit. But we do have room for growing revenue further. Then for costs, what’s our view? There is more room for further cost reduction. Initially, we were thinking about this initial cost-reduction plan.

And end of March this year, we did not complete 100% of the cost reduction plan but as I’ve mentioned all along, it’s going to take some time. For example, especially the corporate back in the middle office, efficiency in those areas require use of technology, also fixing of infrastructure as well as data. So those initiatives will be time-consuming and it will not be immediately effective. But your question about the room, about further cost reduction, the answer is, yes, there is room for further cost reduction. Thank you.

David Lui

Kitamura-san, if I may follow-up. For example, on Page 13, you look at the total noninterest expense of JPY 1 trillion, JPY 1.08 trillion in the last fiscal year. So from your perspective, how much more room is there? Do you look at simply the absolute number of JPY 1.08 trillion? Or you use cost-to-income ratio as a target going forward?

Takumi Kitamura

I cannot provide any explicit target, unfortunately. But recently, we don’t have to spend a huge amount for the IT due to tech development. And so that’s the reason I mentioned to you that I believe there is some room for further cost cutting. But I cannot mention any explicit number.


The next question is by Niwa-san of Citigroup.

Koichi Niwa

Just two simple questions on domestic Retail and headcount. On domestic Retail, rather than revenue increase, cost increase was more significant if we just focus on that single quarter. So my question is, with the sluggish growth of revenue, even under such environment, if we look at the midterm perspective, I guess there is somewhat of a potential. So will you have to incur cost in order to gain those customers and acquire customers? Or will you try to focus on increase of profit level by reviewing cost from the Q3 and Q4 level of income, how should we view the future trend? And on headcounts, on the final page, if we look at the U.S. headcount, it seems that the number has bottomed out. So have you begun to increase the number of employees? And what would be the level of target?

Takumi Kitamura

Thank you for your question. In order to access clients, certain cost needs to be spent, as you say. But can we — can’t we hold down costs further? It is possible to suppress cost further. For example, from last fiscal year, remote conferences and also what’s called the meeting tool called Java has been introduced to reduce travel expense. And also at-home office, we’ve started initiative to improve the efficiency of business. So the key is to reduce cost and to reduce time spent, at the same time increasing time spent with clients, so that’s what Retail division is focused on. And we believe it is possible to and accomplish all of those things.

Also regarding the strengthening of Americas, whether we’ve started strengthening our base in the U.S.A. For that question, in the sense of headcount, it could be misleading if we just focus on headcount, because headcount alone does not describe everything. There are various titles or positions, MDs, VPs and associates and they receive different levels of compensation. So if we just look at the total absolute number of headcount, people might be misled. But on the other hand, the market of U.S.A., needless to say, is an important market for our business. The people, close to 50% of people exist in the U.S.A. so certain level of business needs to be conducted so that we have to make certain level of investment. Then what is the level or extent?

In the sense of headcount, we do not set any particular or specific number or target, so talented bankers, whether we can hire talented banker of high quality is the key. In that sense, instead of just the pure number of headcount, we will be selectively hiring people to selectively expand our business. Thank you.


[Operator Instructions]. Now from Nomura Holdings, Mr. Kitamura is going to deliver a few words of greetings.

Takumi Kitamura

This is Kitamura. Thank you for your participation today. Looking back, in April last year, we made our commitment regarding the Wholesale cost and we reduced cost to that level of our commitment, but we’ve been able to reduce cost without reducing revenue. So the numbers that we’ve reported today, we believe, the results are reasonably satisfactory. But the situations continue to be tough. We’re surrounded by geopolitical risks, including the elections in Europe, so we cannot be optimistic. But no matter what the external environment may be, we have to build a business foundation that will enable us to grow in a sustainable manner so toward Vision C&C mid-long term management plan, we will be tightly controlling costs continuously. And thank you very much for your continued support. Thank you.


Thank you for your time. And that concludes today’s conference.

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