Nomura Holdings, Inc. (NMR) Q3 2019 Earnings Report, Transcript and Summary

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I’ll now give you an overview of our results for the third quarter of the year ending March 2019. Please turn to Page 2 for an overview of the year-to-date results. Market turbulence has continued to weigh on investor sentiment through factors, including U.S.-China trade friction, a plunge in Emerging Markets currencies on the back of rate hikes in the U.S., a bear market in global equities and the widening of credit spreads since October. Amid this environment, the nine months to December have proved extremely challenging with net revenue of JPY 815.5 billion, down 27% year-on-year, loss before income taxes of JPY 62.1 billion and a net loss of JPY 101.3 billion. Earnings per share for the period was negative JPY 30. The chart on the next page shows pretax changes from the same period last year by segment. It compares the first three quarters of last year and this year. And as you can see on the left, income before income taxes last year totaled JPY 281.2 billion. In Retail, commissions from stocks, investment trusts and bonds declined due to a drop in investor sentiment caused by market uncertainties. And although we were able to contain costs, income before income taxes declined by JPY 35.5 billion. Asset Management income before income taxes declined by JPY 35.1 billion. Of this, gain and loss related to American Century Investments was negatively impacted by JPY 30 billion compared to last year as we booked a gain of over JPY 20 billion in the first nine months of last year. But for the same period this year, it was a loss for around JPY 10 billion. Wholesale income before income taxes declined by JPY 154.8 billion. By business line, revenues in Equities and Investment Banking were relatively resilient, while Fixed Income revenues declined significantly driven by Rates, Credits, FX and EM. This quarter, we also took a goodwill impairment charge. As you know, in 2007 we acquired Instinet and in 2008 Lehman Brothers’ employees in Asia and EMEA. As of the end of December, goodwill related to these acquisitions attributable to Wholesale stood at JPY 81 billion. Given Wholesale performance through the third quarter and the fact that the traditional Investment Banking business model has reached an inflection point, we decided to take an impairment charge to write down all of the outstanding goodwill in this period. Income before income taxes in segment Other, shown in the area enclosed by dotted lines, declined by JPY 102 billion, mainly due to one-off factors. The same period last year included a gain of JPY 45 billion from FX translation adjustment related to the winding up of a subsidiary. While this year a JPY 7 billion loss was booked. This year was also dragged down by expenses related to a settlement with the U.S. Department of Justice. In addition, a drop in stock market prices affected unrealized gain loss on investments in equity securities, resulting in a loss before income taxes for the nine months this year of JPY 62.1 billion, as shown on the far right. Turning now to the third quarter results. Retail net revenue was up quarter-on-quarter, and in Wholesale, Equities and Investment Banking reported stronger revenues. However, Fixed Income had a challenging quarter due to market uncertainties and the widening of credit spreads. As I said, we also booked a goodwill impairment charge of JPY 81 billion as expenses in Wholesale, resulting in a three-segment loss before income taxes of JPY 81.3 billion. Firm-wide loss before income taxes was JPY 76.2 billion, and net loss was JPY 95.3 billion. Earnings per share was negative JPY 28.52. Turning now to each business. First, Retail on Page 7. Net revenue was JPY 86.8 billion, roughly unchanged quarter-on-quarter. Income before income taxes increased 15% to JPY 14 billion. Although the market dip in October spurred an uptick in contrarian buying, the further drop in share prices weighed on investor sentiments and sales of Investment Trust and foreign stocks declined compared to last quarter. From mid-November, we started marketing for the SoftBank IPO. And by diligently building up demand, we were able to open over 13,000 new accounts, ensuring new inflows. As you can see at the bottom of the slide, sales of stocks were up 52% driven by the Softbank offering and stronger sales of domestic secondary stocks. However, Investment Trust sales declined 23%, despite inflows into the Nomura ACI Advanced Medical Impact Investment Fund. Please turn to Page 8. The chart on the bottom left shows net inflows into discretionary investments of JPY 44.2 billion. However, market factors caused AUM to drop to the JPY 2.7 trillion level. Annualized recurring revenue was JPY 89.9 billion and the recurring revenue cost coverage ratio was 31%. As you can see in the chart on the bottom right, net inflows of cash and securities was approximately JPY 1.8 trillion, marking the strongest quarter of inflows since we started disclosing the figure. While the SoftBank IPO is a key driver of inflows, even excluding that, inflows were positive by a few hundred billion yen. Please turn to Page 9 for Asset Management. Net revenue declined 34% to JPY 16.2 billion, and income before income taxes was JPY 0.6 billion, down 94% over last quarter. The decline is mainly attributable to lower assets under management due to the market fund and a loss related to American Century Investments of JPY 8.3 billion, which is nearly JPY 7 billion worse than last quarter. That said, we continue to book inflows during the quarter. As the chart – on the top left of Page 10 shows, net inflows stood at JPY 790 billion with inflows into the Investment Trust business centered on ETFs, up significantly from last quarter at JPY 1.1 trillion. The Investment Advisory business reported outflows of JPY 350 billion mainly from a public pension fund in Japan and in the international business redemptions and a decline in the overall level of mandates for U.S. high-yield funds and Japan stock funds. NCRAM, which manages high-yield products, also booked marginal outflows this quarter. But over the medium term, performance has been highly rated and assets under management increased by JPY 1 trillion from March 2016. Please turn to Page 11 for Wholesale. Equities had a strong quarter and Investment Banking reported revenue growth. But Fixed Income had a challenging quarter in Japan, the Americas and AEJ. As a result, Wholesale net revenue declined 13% quarter-on-quarter to JPY 128.2 billion. We also booked a goodwill impairment charge of JPY 81 billion, resulting in a loss before income taxes in Wholesale of JPY 95.9 billion. As the graph on the bottom left shows, EMEA had a resilient quarter but the three other regions reported low revenues – lower revenues. Turning to each business line. First, Global Markets, on Page 12. Net revenue was JPY 103.5 billion, down 16% from the previous quarter. Fixed Income revenues declined 46% to JPY 37.5 billion. Trading revenues dropped on the back of this uncertain market environment by-product, Rates and FX and EM were slow, and Credit had a challenging quarter as credit spreads widened. The heat map on the top right shows resilient quarter-on-quarter performance in EMEA but lower revenues in the Americas, AEJ and Japan driven by Rates and Credit. Equities revenues increased 22% to JPY 65.9 billion. The third quarter impact of showing the Instinet revenues as a net value rather than gross value was JPY 4.7 billion. Adding that back gave us the best performance since the fourth quarter last year. The heat map shows how the Americas and Japan were able to monetize higher volatility to deliver a strong quarter in derivatives. Please turn to Page 13 for Investment Banking. Net revenue increased to 4% to JPY 24.7 billion even after sales commissions were paid up to Retail and Others for the SoftBank IPO in which we played a leading role as joint global coordinator. Internationally, demand for hedging increased on the back of heightened volatility but some mandates in the traditional financing business were postponed. Please turn to Page 14 for expenses. Third quarter firm-wide non-interest expenses increased by 19% to JPY 336.8 billion. The main reason behind the increase is the JPY 81.4 billion of goodwill impairment charge in Other. The previous quarter included a JPY 26.8 billion in expenses related to settlements and FX adjustments from the widening – winding up of a subsidiary. Excluding these factors, we have been able to control our firm-wide cost base at that JPY 250 billion level. Compensation and benefits was down 5% at JPY 118.9 billion as bonus provisions declined in line with pay for performance. Page 15 shows our financial position. At the end of December, our balance sheet stood at JPY 45.1 trillion and shareholder’s equity was JPY 2.7 trillion. As you can see on the bottom left, Tier 1 capital was JPY 2.62 billion, down by about JPY 77 billion from the end of September, as risk assets declined JPY 1.1 trillion mainly in credit risk to JPY 13.8 trillion. Our Tier 1 capital ratio at the end of December increased to 19% and our common equity Tier 1 capital ratio was 17.8%. Our leverage ratio was 4.46% and liquidity coverage ratio, LCR, was 196.7%. That concludes the overview of our third quarter results. This turned out to be a disappointing quarter, rated down by a sluggish performance in Fixed Income and unrealized loss on equity securities and a goodwill impairment charge in Wholesale. The limitations of the traditional balance sheet reliance trading business is evident and we must digitize our flow businesses and expand our client forecast businesses. In Japan, we must continue to strengthen our approach suited to each client segment. The environment in both Wholesale and Retail remains challenging. But rather than sitting back and waiting for market conditions to improve, we will move swiftly to realign our business model to adapt to the ongoing structural changes. We have already started discussing a realignment of our Wholesale business, and we will announce the details after the announcement of our full year results in April. Thank you very much.

First question is from Muraki-san of Deutsche Securities. Muraki-san, please go ahead.

Thank you. This is Muraki. two things. First is related to the impairment charge of the goodwill, and changes in your views which led to the impairment. You explained in your press release how you expect acceleration of changes in the business model – the traditional business model and you’ve chosen to be more conservative in your revenue outlook. Could you give me more color on how your views change? And how was this affected? Or how was this factored into the announcements you made in December? That’s my first question. My second question is related to Fixed Income and how – or related to the performance of Fixed Income. If you look at the U.S. peers, Fixed Income was about 20% down year-on-year. But this time, your fixed income business fell by about 50% year-on-year. So there’s a stark difference with your U.S. peers. So where do you attribute the reasons for this underperformance? Thank you.

Thank you. This is Kitamura. Regarding the announcement we made in December at the CEO forum and how our CEO Nagai-san made his presentation. He talked about the structural changes over the long-term and he said how our views – long-term views remain unchanged. And it was early December, so it hasn’t been quite long since the CEO Forum. So our views have not really changed since December. And in terms of changes in our business structure and how it has not kept up with changes in the market and that’s what led to the global – that’s what led to the weak performance over the first three quarters followed by the global sell-off. And in terms of the impairment charge of the goodwill, this was partly a result of our weak performance. But in the Wholesale business, we have seen some short-term improvements in our business, which were mainly event driven and which made us somewhat optimistic about the future outlook. And I'm talking only about the impairment of the goodwill at the moment. And as a result that did impact our allocation of management resources to a certain extent. So in booking this impairment charge, we excluded this optimistic view which we had in the past. And as we have been saying, our current views are basically in line with the views that we announced in December. So we will continue to work on the plan, which have already been announced, and we have been discussing within Nomura about these plans and we will make the announcement at the right time. As for your second point regarding our Fixed Income performance compared to our U.S. peers and how we are underperforming year-on-year. Again, as we have been saying from the past, this is related to our – the client base and also the geographical mix, and there's a big difference between Nomura and the U.S. peers in these aspects. And I'm sure you're used to hearing me say this, but frankly, for example, in the Rates business, we have been highly dependent on the macro business like the Rates business. And that's why we are more impacted by the market compared to our peers, which is the fact that we acknowledged. So – and if you look at the most recent quarter, there was the FX business with the corporate clients and which forms a stable source of revenue but our business was smaller compared to our U.S. peers. For Credit, the spreads are widening. So all financial institutions struggled. It wasn't just Nomura. So our weakness in the corporate clients and non-financial institutions led to this weakness and also we were not as well diversified as our U.S. peers. And in Japan Rates, there was a decline in volatility for Japan Rates. So the regional mix had a negative impact to Nomura compared to U.S. peers. Thank you.

Thank you. This is Muraki, again. Regarding my second point about – or your second point about the Credits business, I have an additional question. In the U.S., banks had their morning conference calls, and for example, in the CLO arrangement business, they have changed the way they manage their warehousing of the loans and that was in their morning conference call. But for Nomura, how much inventory of loans do you have on your books? And what are your policies for managing those risks? Are there any similarities or differences with the U.S. peers?

Thank you. Kitamura this is Kitamura. For in September 2018, which was about three months ago, our position was JPY 88 billion or so – sorry, JPY 86 billion or so, and we have disclosed this in September. So our position is not that large anyway. And for the Wholesale division, we have a very strict preposition management strategy or policy. So there have not been significant markdowns from CLOs.

Muraki, again. What about the loans which serve as the raw materials for the CLOs? Is the position of loans quite limited as well? And did you not have a build up of the positions like some of your U.S. peers, Kitamura?

Yes. That's correct.

Thank you.

Watanabe-san of Daiwa Securities.

Thank you. I am Watanabe of Daiwa Securities. I have two big questions. First is about the FIG business. First of all, the clients quarter flow or trend on the quarter-on-quarter basis, is it increasing or has it declined? And also, in terms of position loss, it seems to me there is a position loss. In what kind of product did you have position loss? So our second question is with regard to shareholder returns. At the end of the year, if the second half of the year if you post a loss, are you going to stick to JPY 3 per share? And also JPY 70 billion of buyback as opposed to that plan, you finished with a JPY 51.7 billion. Could you elaborate on that point? These are the 2 questions I would like to ask.

Kitamura speaking. First of all, with regard to clients flow, actually, in the third quarter, it wasn't that bad. I would like to say, there was a summer low in the second quarter, definitely. Therefore, compared to that period, client revenue was slightly better than that period. Having said that, Fixed Income, as you know, this is a – it is not the fee business. Therefore, spread and the past track record can be used to estimate client revenue. Therefore, certain estimation can be done. So of course depending on the month to some extent client revenue varies depending on the market situation. So sometimes we see some error. Having said that, client flow is not that bad, as you described. Then, why our performance is not so good? Maybe that would be your next question. Now position management, frankly speaking, was not carefully done. I must admit. So first of all, as I talked about Credit business earlier, the corporate bonds and agency on these fronts, credit widening spread – credit spread widening affected, and we were affected by this. And also, with regard to Rates business, in the third quarter, interest rates in various countries came down – trending downward. Therefore, the markets are quite challenging, and through market mix, we were affected to some extent. So that is our view. The second question. The – are we going to distribute JPY 3 per share per dividend – dividend performance at the end of the year? This was a one-off event and resulting in a large loss. However, for the full year results, we have to carefully look at the full year results. And also dividend payout ratio on a consolidated basis, we have a 30% of benchmark. So we are going to make a decision based on the comprehensive analysis. So at this point in time, that level of dividend amount cannot be promised or guaranteed. With regard to share buyback, as you pointed out aptly, the – compared to our plan, we bought back our shares at a lower price than expected. However, as I have been saying, in order to achieve our management targets and plans, we are now reviewing policies in place, and we are having discussion. Therefore, capital allocation will be discussed going forward, including the shareholder return as well. So I would like to take next opportunity to explain more in detail.

Again, another question, Watanabe, with regard to capital, the goodwill impairment charge impact, I think, it is neutral impact to capital Tier 1, 17.8%. It is a high level. But you cannot make aggressive shareholder return. That means, this remaining months of the year, we’re going – you are going to say that even more challenging environment.

Kitamura. Very disappointing and challenging business performance, we do recognize that. It was a third quarter. So in the past, the six months, and also, we have never made an announcement in the interim period or full time – full year period, however, we having a very disappointing performance this year. Therefore, we’re going to watch closely the full year result to come up with our capital policy going forward. Thank you very much.

The next question is from Mr. Otsuka of JPMorgan Securities. Otsuka-san, please go ahead.

Thank you. This is Otsuka from JPMorgan. I would like to ask two questions on Wholesale. First, in the most recent three quarters – three months, the earnings of the Wholesale business and the pretax income, so you had the JPY 81 billion of impairment of the goodwill. But if you exclude that, you still are left with JPY 95.9 billion. So you would still have been at a loss at the pretax level. Is that the way to understand this? That’s my first question.

Kitamura – this is Kitamura. Yes, that’s correct.

Okay. This is Otsuka, again. And a follow-up on that is, apart from Q2, over the past nine months for the first and latter three months, you had about JPY 150 billion of – you need JPY 150 billion of additional revenues otherwise you will become loss making at the pretax level, structurally speaking. Is that the way to understand it?

This is Kitamura. The cost level of Wholesale is $5.2 billion or $5.3 billion U.S. So it’s below JPY 600 billion. It’s about JPY 570 billion, JPY 580 billion of cost. So if we achieve JPY 600 billion or another JPY 150 billion of revenue for the full year, we will be loss making. That’s correct.

Thank you. This is Otsuka. My second question, and again, a follow up on the first question, but in the consolidated report for 2018, you outlined the cost optimization in Wholesale and also the digitalization of flow trading. And those are the drivers of earnings improvement. But from a management’s perspective, you said that the changes in the business structure is not keeping up. So is the progress slower than expected from management’s perspective? Or do you think the environment is changing? And are you going to introduce some bold measures based on the changes in the environment?

This is Kitamura. As you pointed out, we are working on cost control and also digitalization in the flow business, using AI and other measures. We are working on those strategies, and we have already – we do have a timeline or time schedule. But if you look at the most recent environment and if you look at the most recent quarter, the changes in the environment have been faster than we had anticipated. So we think that our breakeven point is currently high, and we need to lower that. And we need to simplify, streamline our businesses, which we’ve been working on. So there are a lot of things we have to do and it is – and that’s why I mentioned that the restructuring of the business structure is not as fast as we had it expected. But we are working to speed things up. And we are – I think we need to look at our business portfolio from a more birds-eye perspective. So we will be making announcements in the year-end results presentation.

Understood. Thanks very much.

Sasaki-san of Merrill Lynch Japan Securities.

I am Sasaki of Merrill Lynch. I have two questions if I may. First question has to do with American Century. In this third quarter, JPY 10 billion or so loss was posted according to explanation and the – you changed that valuation which gave a negative impact. What is the basis for the calculation? Could you separate the two if possible? And also, the base part profit, what kind of trend do you see in the baseline profit? That is the first question. Second question is the situation of late and also Wholesale restructuring you’re working on, perhaps, given the current situation, of course, the situation is very challenging. I do understand that, however, changing the previous policy to carry out rationalization to some extent but given the correct market condition, maybe, you recognize the difficulty in this business, I didn’t understand very well, did you change your awareness or recognition about the status of the Wholesale business to the extent that you changed the policy?

Kitamura speaking. The first question, Sasaki, you talked about baseline or base profit. What do you mean by that? Excluding American Century? Excluding that part – core part of our business?

No, no, no. This – Sasaki speaking. What is the basic business situation of ACI and also you make a negative assessment of the company. So could you confirm whether my assessment is correct?

Kitamura speaking. JPY 10 billion of loss in the third quarter that is not the case. On the accumulative basis from first to third quarters, JPY 10 billion also loss was posted for the nine months period. On the third quarter, it's seen – in that case JPY 8.3 billion loss related to ACI for third quarter only. The major reason is as follows: the American shares, as you know, have been declining quite sharply and rapidly. So naturally, ACI is managing the funds and the AUM asset under management have come down quite significantly. With regard to business performance – or the business performance is not the reason. And also AUM for the future – AUM, going forward, the growth of AUM in the future is included in our consideration of assessment. So American share market coming down is a contributing to the decline in AUM of this company. That is why we made an unrealized loss. We do not disclose the baseline profit for the company, so please understand that. Second question was about the current situation and also the restructuring of Wholesale and relationship between the 2, I understand. 2016, March and April of that year, once we rationalized the business. And after that, for the year ended March 2017 and 2018, we made a profitability. So we thought about overseas business, came back to profitability. However, the market condition is changing faster than we expected and market portfolio of our company is mismatched with market conditions. Therefore, for the time being, if the current market condition is to continue based on the assumption we cannot make a optimistic estimation. That is why we came to conclusion that we have to rationalize this business one way or another.

Once again, Sasaki. So you took a goodwill impairment charge. That means that you changed completely your view about this business.

No, no. Not necessarily completely, but we take a very severe view. And also the equity method portion of the ACI and you may take a goodwill impairment in the future over the ACI in the future. If possible, I would like to have the explanation on that. American Century, every term, we conduct a market-to-market valuation, mark-to-market. Therefore, not impairment charge but simply unrealized loss is posted, not impairment.

The next question is from Mr. David Lui of Guoco Management Company.

Kevin Moore [ph] is on. Can we go to Page 23 of your presentation? On Page 23, in the lower table, you have a break down of the results for Americas, Europe, Asia and Oceania. So Americas loss JPY 87 billion, and Europe loss JPY 14.5 billion. And I know that, that is partly because of the $81.3 billion write-off. Can you break down the write off between these two regions? The JPY 81.4 billion write-off. That's my first question.

This is Kitamura. Yes, we have the JPY 81 billion of impairment charge. And we broke it down into two. This is related to the goodwill. And one is the U.S. Instinet portion. And the other is the Lehman Brothers linked portion. And for Instinet, roughly JPY 67 billion, and Lehman-related goodwill JPY 14 billion or so. And out of the JPY 67 billion of Instinet-related goodwill, this is all in – booked in the Americas. And in relation to the Americas, one of the other analyst asked about American Century and we talked about the JPY 8.3 billion of losses related to American Century, that's also booked here in the Americas. So if you deduct the JPY 87 billion and deduct the JPY 67 billion for Instinet, and the American Century JPY 8.3 billion, if you deduct that from JPY 87 billion, it shows the real state of the business. And for EMEA, the Lehman-related losses roughly JPY 9 billion was booked here. And in Asia and Oceania, it was roughly JPY 3 billion.

Okay. So it looks like if you look at Page 23, if you excluded the goodwill impairment in Americas and Europe did quite okay versus definitely September quarter. Is that a fair statement?

That's correct. But this is a disclosed figure. So it's quite hard to talk about what would've happened if it were not for the impairment. But some – yes, if you do exclude the impact from the impairment, the figures would not have been as bad as what is showing here. So yes, you're correct in that sense.

Okay, great. Let me move on to my second question. On Page 6 of your PowerPoint, I think earlier, we discussed this and some another analyst asked this as well. There was the JPY 10 billion write-off of unrealized gain or loss on investments in equity securities held for operating purposes. Is this solely related to American Century or there are some other factors at work here for the JPY 10 billion unrealized loss here?

Thank you. This is Kitamura. This is completely separate from American Century and for American Century this is booked in the Asset Management business. And on Page 6 – the JPY 10 billion negative figure on Page 6, this is related to our strategic holdings of Equities. And compared to other Japanese financial institutions, we have a very small possession of strategic shareholdings. But unlike the other financial institutions, we have been marking to market these strategic holdings. So and in Q3, as you know, there was a big decline in the Nikkei. So that led to the JPY 10 billion of losses.

Okay. Great. Thank you. My last question is on Page 8. On the lower right-hand side of Page 8, you show very healthy inflows of cash and securities of JPY 1762.2 billion. Can you break it down between the temporary IPO subscriptions versus the more-solid inflows of cash and securities from individuals?

Yes. We reached record levels of net inflows of cash and securities. And part of this was related to SoftBank IPO. Well actually a lot of the growth was related to – a lot of the net inflow was Softbank IPO. This was the largest IPO ever in Japan. And most of that – most of the money was new money, which came in. And this made a big contribution. And with the IPO of SoftBank, we had big inflows of shares into the cash and securities position. The total contribution from Softbank IPO was about JPY 1.5 trillion. Other than that, we also have JGB sales to Retail investors which makes up the remainder of the JPY 1.76 trillion.

Okay. Thank you, Kitamura.

Tsujino-san of Mitsubishi UFJ Morgan Stanley Securities.

So I wasn’t here from the beginning, but Equity and FIG profit regional breakdown, could you give us – give me a rough break down? And based on that, I would like to go ahead with the questions.

Kitamura speaking. Fixed Income: Japan has about 30% or so; EMEA 40% or certainly more; Americas, unfortunately, slightly less than 10%; Asia, 20% or so. That is a breakup by region. When it comes to Equity, Japan account for 40%; EMEA, slightly below 10%; America, more than 50%; Asia, one digit – lower one digit. That is the regional breakdown of profits.

Then based on that, FIG Japan business in this quarter too, the performance declined very much. Credit and JGB, both were disappointing. And in terms of flow, the – because of our financial policies and this is depleted Japanese market is, that means, for while, you think that this trend continues for a while. So that is the first question. And second question with regard to FIG, that is about the United States. This time flow based that FIG as a whole was quite good, maybe. However, in other areas, our position side the position declined. So where decline was seen the unrealized gains are not achieved. That means reversal maybe expected. So I would like to know whether or not reversal can be expected? And the third question about Equity. This time, U.S. market was quite good, October, November, December period. And gradually, it has recovered, in my view. So what would be the outlook for the future? And could you explain the variance between months of the third quarter?

Now Fixed Income business or environment in Japan, regarding that point, you are right. The market environment is quite sober, and it is very challenging environment. We are facing – volatility is low and new deals are very limited in number. So this past quarter was quite sober, subdued and spread in the third quarter widened, and on certain positions, and there was a markdown as well. Retail and the corporate clients as well, our demand was quite slow and limited. Frankly speaking, BOJ’s financial policy – monetary policy is going to be changed soon. Unfortunately, we cannot expect the BOJ to change its policy anytime soon. And in the autumn this year, consumption tax is to be increased. Therefore, for the time being, the current monetary policy will be continued. That is our view. Of course, BOJ, if the bank is to change its policy, then that would add vitality in the market. So, we would like to hope for that. But that is not – that is too optimistic and we don’t want to be too optimistic. The second question is about the Fixed Income business in the U.S. Again, likewise, the spread widened as a result and inventory management in credit was difficult for us. In Latin America, the position loss was posted. And furthermore, as somebody else asked and I responded to the question earlier position management, we were not very successful in position management, frankly speaking, in that sense, the quarter was quite challenging. Naturally, what is the unrealized loss and what – realized gain – and what is the realized gain, it’s quite difficult to explain. For example, there are some things, which do go down and if we hold the positions continuously, maybe, we can expect that trend to reverse and go up. So based on the assumption that we haven’t wound up that position, we haven’t filled the position, so markdown, as well as markup is possible. So in January, the credit spread movement has reversed. So, we are going to closely watch how it plays out. The U.S. Equity question was the next, right?

Yes.

October, November, December balance. Now Equity as a whole, I don’t have a number related to America specifically, but global equity: October, JPY 4 billion; November JPY 3 billion; December JPY 3 billion. That is the number. So all in all, I think the business was quite good.

So that basic trend, do you think that trend will continue?

Volatility – in the case of U.S. equities, volatility has stayed at a higher level. In the third quarter, America Equity business were much helped by that high volatility. So in our case, the American Equity products – Equity derivatives, we have a quite huge market share in that business. So, we would like to make it sustainable trend.

Thank you. Last question, the affiliate companies equity method income from the investment in the affiliated companies is quite low. Why is that? And also the future outlook of the investment income on equity method so segment...

Kitamura speaking. The breakdown or the details of that, I would like to refrain from making a disclosure on that. But on equity method, we have affiliated companies and we hold securities and shares in those companies, some of them, and as a result on the back of declining share prices, we were affected and I don’t know if these companies themselves would recognize the loss, but, in our case, we marked – we made a mark-to-market valuation, so we have seen a impact over this on the result.

Thank you.

The next question is from Mr. Niwa from Citigroup Securities. Niwa, please go ahead.

Thank you. This is Niwa. I’d like to ask about Retail, and also the review of your strategy for Retail.

First of all for Retail, going into some detail in the figures. On Page 25 of your presentation, you have some numbers there. And on a pretax level, in the past you used to book about JPY 20 billion. Now it’s about JPY 15 billion. So my question is, if you did not have the SoftBank deal, what would have been the run rate earnings for Retail? For example, you have the fees from Investment Banking, if this normalizes and depending on the time the Retail salespeople spend on this business, can you – or what do you expect the trends to be in the fees? And if you spend more time, do you think you can grow your fees? Or do you think the market has changed and that is not the case, so could you give me some color on how you view the market and also how you see the Retail business. Regarding the organic level of profits in Retail. My second point is regarding the review of strategy, not just for Retail but for the entire firm. For Wholesale, I think, you’re reviewing your strategies for Wholesale. But in terms of the portfolio you own, and also the way you use your capital, these are structural issues. Are you going to review these structural issues as well going forward? And my sub-question is, are these going to be organic strategies or inorganic strategies that will be subject to review? Thank you.

This is Kitamura. Your first question, it's quite hard to talk about the figures. If we did not have the SoftBank deal, but I believe the figure was JPY 580 billion, which is the portion that we handled in the SoftBank IPO and because it's quite large. We had to spend about three weeks longer or three weeks earlier than a typical deal and started the sales activities. As a result, a lot of the time of our Retail salespeople were spent on the SoftBank deal. And after the deal closed there has been a decline in the Nikkei. And there was some news items. For example, the Huawei CFO being arrested in Canada and SoftBank encountering some difficulties in its communication network and the network not working. So there were some issues which led to cancellations of the subscriptions to the IPO. And even if it weren't for the cancellations, we had to explain more to the customers to give them more comfort. So the sales people have been very busy for a quite a while in relation to the SoftBank deal. So if we did not have the SoftBank deal, of course, we would have been able to spend more time on the other products and for example, as Niwa-san mentioned, we could've spent more time selling Investment Trust, and also focus more on the consulting business, spent more time on these other businesses. So in that sense, as I said, it's quite hard to make hypotheses about what would have happened if we didn't have the SoftBank deal. But that's the best that I can answer your question.

Understood, thanks.

Kitamura again, your second question regarding Wholesale and are we going to review our portfolio and when we say we're going to conduct a comprehensive review, is it going to be organic or inorganic was the question, I believe. Yes, we will, of course, review our portfolio. And until now, we have never denied inorganic strategies. And under the current market environment, it's quite difficult to go about alone and the things that we can do alone are very limited. So there are pieces, which Nomura is missing, which we could cover by forming alliances or making acquisitions. We are not denying those possibilities at all, would be my answer.

Thank you. This is Niwa again. Could I ask another question from a somewhat different approach? You have companies that you are invested in and also you have investments in affiliates. Also, what's your thinking about the right level of capitals level? Are you going to review these items as well?

This is Kitamura. I'm not – when I say the review is going to be mainly in for Wholesale, it might give you the impression that the review is going to be only for Wholesale, but that is not the case. This is going to be a firm-wide review not just for Wholesale and we will assess whether the inside synergies are being achieved and make the decisions. So it's not just for Wholesale.

Understood and thank you very much. And I am looking forward to your announcement in April.

This is Kitamura. Thank you very much for participating in today's call. The results for the first three quarters and the third quarter was quite tough, including the impairment charge of the goodwill. But even excluding the impairment, the business performance has been weak. So the management of Nomura takes these results very seriously. However, by booking this impairment, we have been able to remove the uncertainties regarding our future financials, which I believe, is positive. And in our Retail and Wholesale business, for both businesses the top priority is improving our profitability. And we have been working on reforming the business model of our domestic Retail operations and for Wholesale we've been focusing on improving profitability and implementing various measures to do that. And we think we are on the right track in terms of these strategies. So we will not make changes there. But in terms of the tactics in achieving these strategies, I think, there has to be some amendments that have to be made based on the changing environment. So we will make sure to decide on what changes to make to the tactics. And we will announce the results of our discussions in the Investor Day. So we look forward to your continued support. Thank you very much.