Welcome to today's Nomura Holdings Third Quarter operating results for fiscal year ending March 2016 conference call. [Operator Instructions]. Please note that this telephone conference contains certain forward-looking statements and other projected results which involve known and unknown risks, delays, uncertainties and other factors not under the Company's control which may cause actual results, performance or achievements of the Company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiment; liquidity of secondary market, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and the size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Shigesuke Kashiwagi, please go ahead.

I'm Kashiwagi. I would now like to give you an overview of our third quarter financial results using the handouts. Please turn to page 2. For the nine months to December, net revenue and pretax income from our three business segments increased year on year driven by resilient performances in asset management and wholesale, as well as a strong contribution from the first quarter. On the other hand, on the Group-wide basis, net revenue declined 5% to ¥1,115.5 billion impacted by factors outside the business segment and pretax income was ¥177.5 billion, down 27% year on year. Net income was ¥150.7 billion, representing a 6% increase year on year due to a one-off item in the second quarter that led to lower tax expenses. ROE was 7.3% and EPS was ¥40.85. Turning to the third quarter, net revenue increased 5% quarter on quarter to ¥354.9 billion and pretax income was up 160% at ¥51.6 billion. Net income declined 24% to ¥35.4 billion. In the second quarter, we reached an agreement with Banca Monte dei Paschi di Siena and booked a one-off charge to revenue of approximately ¥35 billion. We also decided to wind up our EMEA booking subsidiary, resulting in a decline in tax expenses of approximately ¥54 billion. These extraordinary items were absent in the third quarter resulting in higher revenues and pretax income, but lower net income quarter on quarter. Annualized ROE for the third quarter was 5.1% while EPS for the quarter was ¥9.61. During the third quarter, although share indices rose into December, market conditions were challenging as client activity weakened due to uncertainty ahead of the Fed lift-off. As a result, pretax income from our three business segments declined 10% to ¥48.5 billion. Please turn to page 5 for an overview of our retail business…

[Operator Instructions]. The first question is by Mr. Muraki of Deutsche Securities. Mr. Muraki, please go ahead.

I have a question about your capital policy. Page 13 of your presentation and material is what I'm looking at. Tier 1 ratio, 13.3% in September to 15.1% in December, there was an increase and ¥165 billion of issuance made. Considering that, I believe the ratio is expected to rise to 16%. Leverage ratio 3.96% in September, it's going to go up to 4.4% considering the latest issuance. My question is straightforward. Point number one, FRTB and market risk framework final draft regulation came out. Tier 1 ratio above 16% - well, based on that regulation, how much reduction is expected? Leverage ratio minimum is 3%. And for G-SIB there's going to be additional increase. You're not G-SIB you're non-G-SIB, but what is your plan? What is the target level for you? So those are the two questions I would like to ask.

Regarding the final proposal with regard to FRTB which has been issued, however, there is still uncertainty involved. Our model - if our model is accepted and maybe partially it will not be accepted, therefore frankly speaking, as of now, we're still conducting a variety of simulations. As was indicated by the media, compared to market expectation, I think the amount indicated was last year. Now, if we - I'm Mr. Muraki, then September risk numbers that have been already disclosed by us. And market risk 40% - maybe 40% is the market risk. And from FRTB, about 40% of market risk will be raised on an average. If we conduct the calculation using portfolio now, about 2% decline is expected. That is not surprising according to our calculation. And second question, that is leverage ratio 3% minimum. So that is - decision has been made. And we're not G-SIB and also G-SIB will have a surcharge. However, D-SIB, namely Nomura, we don't know what will be imposed on us. Now 3%, I think that is way too low. That was our view this point in time last year. However, we have been accumulating capitals and balance sheet has been made more efficient and leverage exposure has been decreased on the off-balance sheet side. Therefore we're above 4% threshold now. Then compared to the time we had our 3%, we're relieved as of now. However, we don't have a specific target to pursue as of now. However, since we're accumulating capital we're going to control balance sheet at the same time. Therefore as a tendency, leverage ratio will be trending upward.

And then if that's the case, then Tier 1 ratio 2 point declining, therefore 14% or so. In December, trading position has been shrunk way too much in my view. And also business expansion expected. Therefore ratio may come down slightly and that is a possibility. And also Tier 1 4% - mid 4% is being achieved. If we consider this situation, at the end of fiscal year when the financial announcement is made, you are usually buying back your shares. However, there is uncertainty in the market, therefore if you are to implement share buyback program, you'll have to consider potential impacts of regulatory changes, right? Or if the ratio is going up and the regulation is becoming clearer, therefore compared to interim period maybe you'll be able to consider regulation impact going forward.

That's a question very hard to answer. In terms of regulation, FRTB is now easy to follow. But as I said, uncertainty still remains. And in terms of Tier 1, I believe you said 14%. We're looking at CET 1 ratio. 11% is the minimum ratio for CET 1 as was disclosed. Market is risk off. Once it switches to risk on, risk assets will increase. And American Century, we made an investment in American Century at the end of last year and that impact will be 0.3% or so. So given all those factors, whether or not to engage in share buyback or not, we will consider. 15.1% is the current ratio.

In the future, how much impact will there be from regulation?

There could be negative implications and American Century Investment could have negative factor and business could be risk on, that's another factor. Supporting factors are that Nomura asset sales will continue and there's capital accumulation, capital build-up. That's of course a variable factor, but considering the high CET 1 ratio and low share price, if there's a good timing, we will not deny the possibility of having a share buyback.

The next question is Mr. Watanabe from Daiwa Securities. Please go ahead.

My name is Watanabe from Daiwa Securities. I have two questions regarding your capital policy. Question number one, risk assets on page 13, risk off trends are seen and risk assets were reduced by ¥2 trillion. Specifically, what was the breakdown of the reduction made and going forward with respect to risk assets, do you aim at having the same level as that seen in September? What's going to be your rough target? Second question, with declining equity market conditions, what's going to be your thinking with respect to share buyback? If overall market goes down, your share price will go down. So PBI will be relatively cheap and it will be a positive factor for you to consider a share buyback. On the other hand, your revenue environment will deteriorate and could have negative implications on a net basis when the equity market goes down. Is it going to be positive or negative for you?

With regard to the first question where market risk asset is declining, securitized products mainly made a contribution greatly. Credit products and securitized products, the market itself was quite challenging. However, risk-weighted assets - when it comes to risk-weighted assets including non-CRM securitized products, punitive regulation is in place. Therefore, if the position declines in terms of regulatory capital, there'll be much capital to be released. That's what's happened. In the [indiscernible] of your question, you asked that to what extent are we going to recover or to what extent risk asset will increase in the future, is it going to be the level as we saw at the end of September. Frankly speaking, we don't know. However, we're shrinking secondary trading. Therefore, maybe the risk-weighted assets will not go back to the level in September. Maybe this is only a guess, but that is my view. Regarding the second question, yes, you are right. When stock market declines, of course share price is cheaper. However, earnings volatility is higher. Therefore, we will become less confident regarding the future prospects. Then if that's the case, as I said to Mr. Muraki earlier, I think this is going to - per cyclical. Therefore, maybe we have to buy if the price is cheap and vice versa. That kind of simple thing is not going to happen because maybe this is going to have a contrarian approach.

The next question will come from Merrill Lynch Japan Securities, Mr. Sasaki. Mr. Sasaki, please go ahead.

I'm Sasaki of Merrill Lynch Japan Securities. I have two questions if I may. First question is related to market risk. The simple calculation guidelines have been presented by you. According to the paper, a simple medium and weighted average numbers are quite different. However, earlier you talked about 40% as a number and 40% is based on something you have already confirmed. Is it more solid or are you just saying 40% off the top of your head? And also last week, BoJ introduced a new monetary policy and domestically negative interest is becoming a normality. Then maybe this is going to be a positive, a negative impact to your business? How do you view the impact of negative interest rate introduced by BoJ? To the extent possible, could you respond to this?

So to address your first question, as I said earlier, suppose - let's say that 40% of the portfolio remains going forward and suppose what is announced by Basel rules, weighted average market rise also applies to us and applies to our December number. According to my calculator, the rate is going to be 2%. This is not a result of precise calculation. I hope you'll understand. And your second question, relaxation by BoJ, in terms of the impact on our business, if we operate stably, less profitability will be enjoyed by institutional and retail investors and some of them may want to take more risk to drive profitability. There'll be some investors who will be pressed to do so. So business opportunities basically will increase as a result. Regarding the funding cost, most probably I think BoJ's policy is going to work positively because short-term fund management is made and if the rate goes down over the long term in terms of the funding cost, they will be positive. On the negative side, JCB market liquidity and trading is going to go down and going forward investors will sell less and less and the trading volume will go down reducing our business opportunities. That's the risk. Understood?

Well, thank you. And I forgot to ask you one important question. January and onward for retail, wholesale asset management, what is the current business condition for all three segments?

With regard to retail business, the stock market in January to the extent has declined, maybe declined more than you expected, most of you have expected and also there is less motivation for investors to sell and also our sales reps are spending a lot of time to follow up these customers. Therefore, recently, the situation is not that favorable. That is clear. Regarding asset management, AUM is increasing continuously and this term as well, we're enjoying net inflows and asset management is not something susceptible short-term volatility in the market. However, regional banks, we're providing fund to regional banks with [indiscernible] square and also we have IJP Investment Trust and Mitsubishi Trust. We have announced the new products offering. Therefore, using these channels, we'd like to increase distribution of our products. With regard to wholesale, again, for this business line, usually wholesale business is at that - January would be the most lucrative month. However, globally everybody is reducing risk. It is a risk of market. Therefore, it is fair to say the market for wholesale remains slow.

The next question comes from JPMorgan Securities, Mr. Tsujino,. Tsujino, please.

I'm Tsujino. Maybe this is going to be rather detailed questions. Chi-X Global sales was talked about the other day. Regarding this, maybe you will be able to expect the proceeds from sales if this is consummated during this term and also on page 25, retail business, net inflows of cash and securities, there is a minus number, negative number. Please explain why the numbers remain negative here. And also earlier the discussion was held regarding the negative interest which may give business opportunities. Now, regarding retail business, the bonds for retail investors with less risky attributes and there is a much assets in it. Therefore, for this category of business, are you going to be more aggressive in sales activities? Is it policy going forward? And then do you have any expectations or maybe could they have expectations for that business opportunity? Are you receiving a very good feedback or reaction from customers?

So your first question regarding Chi-X, Chi-X Canada, Chi-X Asian firms to be sold. I think you're asking about that. Between April and September, we're going to recognize the revenue from the sales. And your second question, ¥356 billion of outflow from retail, there are different categories of funds. Especially within the retail in terms of customer segments, there is wealth management division for listed company clients and corporate division which includes regional financial institutions. And volatility there is high and liquidity outflow, 60% of that is from those divisions and in the retail channels outflows have happened. There are two factors behind that. Last fall, Nikkei average went up to ¥20,000 and there was profit-taking activities by customers and toward the year-end, the comprehensive taxation program, because of that, there were many transactions selling bonds in the retail segment and that led to outflow of funds. So, temporary factors due to market conditions were behind this. This is not essentially inherent factors. Your third question, so are you going to promote switching from low-risk products to higher ones? Well, yes, switch from bank deposits to other products, we want to make various approaches, provide simulations to capture clients and encourage them to switch from deposit products to other types of products.

Next question is from Niwa San of SMBC Nikko Securities.

I have two questions regarding the wholesale segment. Number one has to do with FIG, the second has to do with investment banking. Regarding the FIG, currently, given the BoJ additional relaxation policy, what's going to be your outlook for the FIG business? Looking at the mid-term scenario, what timing is your revenue expected to go up? In other words, do you think that cost reduction is necessary or not? So the idea of the timing and how well it recover, if you have an idea that you can share with us? And second question has to do with investment banking. In the third quarter, it seems that the business was somewhat sold. So what's the future pipeline and what is the current condition of the investment banking business?

Regarding fixed income, the U.S. is now into the rate hike phase, therefore the environment remains quite challenging. As I said in the previous meeting, credit products and securitized products particularly securitized products, the - our dependency on that product line in the U.S. was quite high Therefore, this business line is susceptible to the impact. And interest rate trading in America and EMEA, we have a share traditionally and government bond included rates trading share is increasing. And going forward FIG business portfolio primary origination and risk capital business will be focused in the future. Therefore, Mr. Nagai made that investment in December last year in the CEO forum. In conjunction with that, cost reduction has to be done. When you talk about cost reduction, it isn't that we're going to shrink businesses, reduce business lines or fire personnel. Maybe that is one approach. However, for the time being we would like to review whether the compensation level is favorable in view of the performance by employees. So there is a room for that investigation. Now, investment banking basically unfortunately for the time being, it seems the second quarter is very strong quarter. That is why, partially, the investment banking business appears weaker in the third quarter. In the pipeline, regarding DCM, we have been doing accumulation of businesses domestically, the foreign bond issuance by Japanese companies and also Samurai bond issuance by foreign companies and also the hybrid issuance by domestic companies are now rising. So that is about the pipeline. Now regarding M&A, the cross-border deals and industry reorganization deals being reported by media almost every day, therefore there are tremendous business opportunities and we have a good pipeline in that area as well. Regarding ECM, the Japanese IPO market, as is reported in 2016, more than 100 companies expected to go public including privatization deals. So going forward, this is where we have a high expectation. Having said that stock market influences this type of business. On the other hand, ECM, not simple fund raising, but the solution type business opportunities, when the market comes down the share buyback is possible and also with regard to M&A derivative products can be offered. We're prepared for that. Therefore, solution type businesses will have a bigger share in business.

I have one additional question if I may. Regarding costs, based on what you say just now, the core net - this year $6 billion and this is the number for this year and how about next year?

The year ending March 2015 in the wholesale segment in dollar basis, the cost was $6.4 billion and this year it's going to be $6 billion or even lower possibly. So in the second half, well, if you analyze the third quarter number you will get $5.8 billion or $5.86 billion and in the first half, $6.1 billion. So in the fourth quarter, I believe the number is going to come out rather low. So in the third and the fourth quarters, that's going to be the jumping stage if you will. And from middle back office functions are going to be made even more efficient, $200 million to $300 million additional cost reduction is possible over the mid to long term we believe. So that is the level we're looking at in terms of the cost run-rate. So $5.6 billion, $5.7 billion you may want to ask. Well, on the other hand, we need to make new investments towards 2020. Without investments, perhaps the cost can go down to $5.6 billion, $5.7 billion, but please consider that we also have to make new investments as well, please understand.

[Operator Instructions]. Since there are no further questions, we would like to conclude the Q&A session. There are going to be a few remarks by Nomura Holdings.

Thank you ladies and gentlemen for bearing with us until very late. The performance was a bit lackluster this time. It was unfortunate. And as I said in my presentation, we're announcing the results, positive results of various initiatives as well on the other hand. So we will continue to make hard efforts to pursue those initiatives step by step. Look forward to your continued support. Thank you.

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