Nomura Holdings, Inc. (NMR) Q1 2020 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to today’s Nomura Holdings First Quarter Operating Results for Fiscal Year Ending March 2020 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 achievement 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’s statements, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security evaluations, competitive conditions and size, number and timing of transactions. With that, we’ll like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer. Please go ahead.

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I will now give you an overview of our results for the first quarter of the year ending March 2020. Please turn to Page two. The market environment remained challenging as heightened U.S.-China trade friction and concerns over the economy led to monetary easing by central banks and market activity was generally muted throughout the quarter. Despite strong market activity in April, investors quickly turned cautious in May and share prices dropped as trade negotiations stalled following comments by the Trump administration on raising tariffs on Chinese products. In the fixed income market, a sharp decline in U.S. rates and credit spread tightening coupled with higher volatility prompted many investors to sit on the sidelines ahead of the G20 meeting at the end of June. Amid this challenging environment, we delivered services tailored to the needs of our clients and saw results from reviewing our business portfolio and other efforts to improve profitably, resulting in higher income before income taxes in all business divisions. As you can see on the bottom right, three segment income before income taxes was JPY46.3 billion. Retail reported a rebound in total sales, especially sales of investment trusts and bonds, as investor sentiment improved and we overhauled our product strategy. Asset Management saw assets under management climb higher on the back of inflows, and a gain related to American Century Investments contributed to earnings. In Wholesale, the realignment of our business portfolio in April is yielding results and Global Markets reported stronger revenues quarter-on-quarter. Performance aside from the three segments was also up as economic hedging gains/losses improved and legal expenses declined, resulting in a marked increase in income before income taxes to JPY74.8 billion as shown on the top right. Our international businesses expanded revenues by focusing on areas of competitive strength, which coupled with prudent risk and cost management meant all three international regions return to profit for the first time in two years. As a result, our effective tax rate for the quarter was 24% and net income was JPY55.8 billion. ROE was 8.4% and EPS was JPY16.48, representing a good start to the new fiscal year. Next, let’s look at each division in more detail, starting with Retail on Page five. Net revenue increased 9% from last quarter to JPY80.6 billion. As you can see on the bottom half of this slide, total sales increased 21% quarter-on-quarter, driven by sales of investment trusts and bonds. As we announced last month, we plan to consolidate some of our Retail branch offices in Japan from August as part realigning our organization to meet the changing needs of our clients. This quarter we booked expenses for construction works related to the consolidation. And retail costs also increased due to higher bonus provisions in line with pay for performance. Income before income taxes grew 146% to JPY8.1 billion. Please turn to Page six. As you can see on the top left, annualized recurring revenue was JPY90.4 billion and the cost coverage ratio was 31%. The top right shows discretionary investment net outflows of JPY40.5 billion, mainly in our Fund Wrap product. Wrap trusts aimed at meeting estate planning needs performed well and as you can see on the bottom right assets under management in SMAs have grown steadily to reach JPY740 billion. Please turn to Page seven for Asset Management. Net revenue increased 12% to JPY34.5 billion and income before income taxes grew 26% to JPY18.1 billion. The table on the top left shows ACI-related revenue of JPY8.7 billion, up 77% quarter-on-quarter. Net revenue excluding ACI was JPY25.8 billion as asset management fees remained solid. We reported our twelfth straight quarter of inflows and assets under management at the end of June stood at JPY51.6 trillion, the second highest level ever. As you can see on the top left of page 8, total inflows in the quarter were JPY508 billion, of which JPY672 billion came from the investment trust business. This was driven by ETF inflows shown by the grey bar in the graph on the bottom left. The graph on the bottom right shows steady growth in defined contribution funds. The systemic shift away from defined benefit pension plans and the introduction of iDeCo have spurred growth of the DC market. Nomura Asset Management established its product offering and increased the number of corporates using its funds. As a result, assets under management in DC funds has increased to nearly JPY1 trillion.

Please turn to Page nine for Wholesale. Net revenue was JPY159.5 billion, an increase of 12% percent quarter-on-quarter. Although Investment Banking revenues declined, Global Markets revenues increased by 20% with both Fixed Income and Equities reporting stronger revenues. Wholesale expenses declined by 10% as the JPY8.4 billion restructuring charge booked last quarter was no longer present and allocations from Corporate declined. As a result, income before income taxes rebounded to JPY20 billion. As you can see on the bottom left, the Americas and Japan reported revenue growth, while AEJ remained resilient despite a decline from the strong previous quarter. Please turn to page 10. Global Markets net revenue increased 20% quarter-on-quarter to JPY135.7 billion. Fixed Income revenues increased 21% to JPY82.5 billion. Rates products, particularly Agency Mortgages, had a strong quarter amid the declining rate environment in the U.S. Credit spread tightening led to improved revenues for Credit and Securitized Products. As shown by the heat map on the right, the Americas reported its highest revenues in 10 quarters, while Japan is also trending up on increased demand for Credit products. Equities booked net revenue of JPY53.3 billion, up 17% from last quarter. As the heat map shows, in the Americas Derivatives had a good quarter driven by an uptick in client activity, while AEJ was also up on revenue contributions from Derivatives. Please turn to page 11 for Investment Banking. Net revenue was JPY23.7 billion. This was down 17% from last quarter when we closed a number of high-profile M&A transactions. Although revenues were also down year-on-year, M&A and ALF reported stronger revenues amid declining global fee pools. Please turn to page 12 for an overview of non-interest expenses. Quarterly expenses totaled JPY257.2 billion, down 7% quarter-on-quarter. The biggest decline came from Other shown at the bottom. Last quarter included JPY12 billion in legal expenses related to legacy transactions. These expenses were mostly gone this quarter. In addition, fees paid to attorney and other professionals declined. Compensation and benefits, which represents nearly half of all expenses, remained roughly unchanged. Although the restructuring costs booked last quarter were not present this quarter, bonus provisions increased in line with pay for performance. Please turn to page 13 for details on our financial position. Our balance sheet at the end of June was JPY42.5 trillion and shareholders' equity was JPY2.7 trillion. As shown on the bottom left, we retain a robust financial position with a Tier 1 capital ratio of 18% and a CET 1 capital ratio of 16.8%. Our capital ratios declined compared to the end of March as risk assets, the denominator in calculating capital ratios, were JPY14.7 trillion, an increase of about JPY400 billion mainly due to market risk. Our leverage ratio was 5.06% and our liquidity coverage ratio was 188.4%. That concludes the overview of our first quarter financial results. As I said at the start, we faced challenging market conditions this quarter, but we have regained momentum after performance bottomed out in the fourth quarter. In our international business where we had to address profitability, all three regions returned to profit for the first time in two years. Our annualized EPS for the quarter was JPY66 and ROE was 8.4%, representing a good start to the year. We also begin to see the results of our restructuring plan announced in April Cost reduction are moving ahead as planned. As of the end of July, we have achieved about 50% of the planned JPY140 billion of cost cuts by March 2022. Recent performance in Wholesale has seen Fixed Income remain relatively resilient, but we must remain vigilant given the ongoing U.S.-China trade friction and fluid situation surrounding Brexit. August is generally a quieter month in terms of market activity. In Japan market volume in the TSE first section has dipped below JPY2 trillion and in Retail we are seeing investors continue to sit on the sidelines. We are now in the process of realigning our Retail channels. This may have a slight impact on revenues in the short term, but this is a necessary organizational change in order for us to better meet the individual needs of our clients.

The first question is from Mr. Muraki of Deutsche Securities. Muraki, please go ahead.

Thank you. This is Muraki. Two questions, please. First is regarding the wholesale costs. On page nine under upper left you showed the expenses and the expense is JPY140 billion, which is about 87% expense ratio. There was an improvement. And the reduction speed is very – is faster than expected. But what do you – how do you see the cost levels of Q1? Can this be deemed to be the run rate expenses? That’s my first question. My second question is regarding the fixed income trading on page 10, and there was a big recovery in earnings, but the – some of the areas of strength is for example, rate trading, benefiting from the rate decline and also credit. And how are you doing in terms of – in these two businesses and also the fixed income overall? Why have you been able to outperform your peers. And going forward, is this strong trend sustainable, you say that July has been good, but how do you see the sustainability of this strong trend. And there should be some effects or impact from the restructuring. So can you maintain this higher level of market share?

Thank you. This is Kitamura. Regarding your first question, about the wholesale costs or wholesale expenses and can you deem to be in the first quarter level as the run rate. Well, in April, we had the Investor Day on April 4th and we announced the cost reduction plans. And last year of March 2019, we assumed the same revenue environment to continue from last year and revenue of $5 billion as the assumption. And in Q1, the earnings was $5.8 billion. So it was higher than expected. And in some areas where we wanted to strengthen, we have made additional investments. So if you exclude these factors, the current run rate expenses is $5 billion or more than $5 billion. However the course of the expenses fluctuate due to various factors. And the question is whether we can use this as a run rate, but the cost reduction efforts are still in progress and we still have work to do in the cost cutting, so we need to make sure we move forward on that, and thereby lower the run rate expense level. And as I mentioned earlier, on a quarterly basis, there’s always some ups and downs due to earnings and other one off items, which I’d like you to understand. Regarding your second point, why we were able to outperform our peers in fixed income. And this is related to our business portfolio review and there were some businesses which were at low profitability and also cyclical businesses, which we chose to optimize the size of the business. And as a result, we are focusing on the businesses where we have strengths. For example, mortgages in the U.S. and

also the sovereigns in Europe where we have client franchise and where we have competitive strength. These are the areas we are focusing on and this initiatives has worked well. And in terms of our peers and their results. We haven’t scrutinized the results, but our peers are in areas where – in areas like FX where the volatility was low, and as I think they struggled in these businesses, including FX. But in our case, we benefited from the decline in rates, so we – for example, the mortgage bonds where activity picked up and also interest rate derivatives where areas where we benefited from the capturing and monetizing the client flow. And for the sovereigns in the Europe. Since last summer, we have replaced the team members and that has worked nicely and let a big pickup in client flow and the sovereigns of the peripheral countries in Europe have seen a big decline in the interest rates. So we were able to capture the revenue opportunities. And not so much for U.S. peers, but for fixed income in Japan, where we tend to – where the ratio tends to be quite large. We have seen a recovery after quite a long while. This was because the low interest rates and interest rate decline had been continuing for a long time and a lot of clients are starting to take action. And we saw there was a recovery mainly in credit. So this was a big different from our U.S. peers, I believe. And whether this is sustainable or not – is something we need to continue to monitor. And of course, the market environment remains very difficult and there are – there will be macro events and also geopolitical events which will – both positively and negatively. But overall, there is a fair chance that interest rates could fall even further and under these circumstances. In Q1, there was – the rate decline and investors or clients, they started the full fledged – they have not yet started the full fledged rebalancing of their portfolio. So if there are further rate cuts. The question is how that will impact the risk appetite all of the investors and whether they will rebalance their portfolios. I think that will determine whether the current positive trend is going to be lasting and sustainable. So, we cannot be overly optimistic, but we are not that pessimistic either would be my answer.

Thank you. This is Muraki again. In relation to credit. Just a follow up question, if I may? In Japan, I don’t know who is buying what kind of credit outside of Japan. So that would be my question. And also on page 13, the low liquidity level three assets there was big increase over the past year and low liquidity debt and debt related products are increasing. But which areas? And also what kind of risk taking is being conducted at the moment?

This is Kitamura. In terms of domestic investors – domestic institutional investors. These clients are pursuing yield and they are putting some emerging market currencies into their bond portfolios. And the sentiment has been picking up for this type of product. And the slight increase in level three, which is what you pointed out in the latter half of your question. At the moment, there is resilient trends in – within strong demand expected in infrastructure financing and also [indiscernible] financing. And these are relatively low risk financing and we are expanding these areas at the moment. This is mainly in the U.S. So these are products which are not that impacted by the market cycles and we are building our product portfolio that way and this has led to a slight increase in level three assets.

Thank you very much. Understood.

The next question is by Mr. Watanabe of Daiwa Securities. Please go ahead, Mr. Watanabe.

Thank you very much. This is Watanabe of Daiwa Securities. I have two questions. First of all, fix revenues. The rate between customer flow and profit in Q1 and if rate business visualization is to progress, the commission rate could decline. But if we are seeing the conclusion of the business platform reconstruction, do you think that the same level of profit as you recorded in Q1 can be sustainable. Secondly, on risk asset referring to base 13 risk asset as event of June was explained in the presentation, but with restructuring, you mentioned that this risk asset could declined by 10% with restructuring is it possible or depending on the risk take. Is it possible that the declining of risk assets will not fall as expected. Those are my two questions.

Thank you very much. First of all, on your first question with regards to customer flow and trading profit breakdown. The revenue from customers accounted for slightly below 80% and a trading profit was slightly over 20%. And you also asked about visualization and how the trend would unfold going forward. As I have explained from some time ago, AI market meeting Phonetic platform is gradually being introduced. AI have to also learn. So we have to see more sophistication in terms of the level of AI. So currently AI is also in the process of learning and therefore, the same time will be recorded until full implementation takes place. And your question is with regards to – what would happen if AI or digital is introduced in this [indiscernible] world? As a result of our PLC, if we found that heat ratio goes up and the trading profit also increases. And with the progress of visualization, our expenses may drop. So spread may be suppressed as you have implied Mr. Watanabe but on the other hand, hit ratio may go up, which means that we can live with less inventory. And if trading income or trading revenue increases, which was the result of the PLC and if we have confidence in that result, then that would lead to our belief that we can sustain the level of revenue. We haven’t transferred 100% to such ecosystem. So this is just within my imagination, but that is our expectation for the time being. Next point is with regards to RWA reduction by 10% through wholesale overhaul. Already review of the business portfolio is underway. Risk weighted asset allocation to wholesale has declined and if you look at the details that the RWA of businesses that were subject to the review has actually dropped. On the other hand, in the reported quarter, risk weighted asset increased slightly, but this is due to the business that we are maintaining or we are seeing expansion of. For example, [indiscernible] European bonds, activity was motivated amongst our customers and because of the one time off trend, we have seen slight increase. So we have planted the seeds of RWA decline and the extra level is also dropping. But if we see growth in other areas due to market environment, the indicators may increase. It’s about JPY400 billion this time around, but we’ve seen slight increase.

Thank you. Your points are well taken. Thank you.

The next question is from Mr. Otsuka from J.P. Morgan Securities. Otsuka, please go ahead.

Thank you. This is Otsuka from JP Morgan. Two questions. First is regarding wholesale – wholesale revenues. In this quarter, JPY159.5 billion and some of the positive reasons, we already heard about. But out of this, for example, last year in your announcements, you said – some of the unprofitable businesses, some of the negative contributors, were included in the past two years, and that was bringing down the overall revenue. So now they have been, have they been removed, and now it’s close to JPY160 billion. So my question is, how are the negative contributors removed now? And that led to the improvements? Here’s my question. My second question is, I just want to check the figures that were mentioned earlier, on a quarterly basis, the non-interest expenses, you talked about the ups and downs, which I understand, but for example, in Q1, total expenses, JPY257.2 billion, and if you just analyze that Phonetic then there’s quite a difference compared to March 2018, March2019, there’s a big decline. So the JPY140 billion that you mentioned, is not really, what you’ve already achieved it, based on our Q1 figures. So, and also you mentioned that 50% progress in July end. So I just wanted to check that I’m getting the figures right?

Thank you. This is Kitamura. To your first question, regarding the revenue improvement and, what happened to the negative contributors or the detractors that used to exist, and the rough size of the negative impact that we used to have, I guess, is the question. Well, last year in Q1, there was the trading and client revenue, client earnings balance, which was also asked in the conference call. And at that time, I think the answer was 100 to zero. I don’t remember it clearly, but I think that was the gist of the – discussion, and most of the breakdown was on the client revenue side, client earnings. So there were some detractors last year, but this time in this Q1, about 20% is trading revenue, which means the items – that were dragging down on the revenues have been removed, and aside from that, the rates business did well. We were able to benefit from the decline in interest rates and we capture the wave of rate cuts. So it’s quite hard to give you the exact breakdown of that, but, yes, it’s quite hard to give the actual breakdown. And the second question regarding the expenses JPY257.2 billion this quarter is annualized, we have already achieved JPY140 billion. So if that’s true, then, that will [indiscernible] very happy and we won’t have to work anymore on cost reductions. But that is not the case. And within expenses in the past expenses there are some one off expenses, one off items. So we are looking at the more run rate type expenses of excluding these one off items. And we want to achieve the 140 billion cost reduction on a more run rate basis rather than the one off items. So the bar is a bit higher than what you mentioned. That’s answer your question.

This is Otsuka again. I just want to make sure – I’m getting this right. In regarding the first question. The improvement in their wholesale earnings and also the removal of the unprofitable businesses. There’s about $400 million of positive impact is the disclosure. And I guess this was, for example, the trading businesses, which were working negatively in the past. But in Q1 of this year is that already in the figures? Have you already seen the benefit of that or not? And regarding the second question. I think in this year, March 20, progress was to be worth about 60% is what you mentioned. So you are making good progress according to that target. Is that the way to understand this?

Well, let’s do the second question first. Yes, as you mentioned. In this current fiscal year, by March next year, we want to achieve 60% progress is what we have been saying. And at the moment, we are making good progress in line with our targets on the cost reductions. And moving to your first question regarding the unprofitable businesses. In the Investor Day, we talked about the waterfall chart, and that’s where you’re getting the $400 million improvement, I believe. This, of course, includes the unprofitable businesses. But also – this also includes the normalization effect from a very bad last year. So not all of this $400 million U.S. is the unprofitable businesses.

This is Otsuka again. Understood. Thanks very much.

The next question is by Ms. Tsujino of Mitsubishi UFJ Morgan Stanley Securities. The floor is yours.

Thank you very much. First of all, the progress rate of cost reduction, you mentioned 50% and I have a question on the definition. For example, say you’ve taken action, but there’s a time lag of three months or six months until you actually are able to realize cost reduction or are you saying that if you take action, that’s counted as progress. So does that or are those actions taken included in the progress rate? The first quarter was three months, but if we look at the single month of July in terms of profit and loss, what percentage was achieved in July? And what’s the pace in the coming months during the rest of the accounting year? Can you give us more specific details. That’s my first question. And secondly, RWA reduction. You reduced the RWA and you cut the unprofitable businesses and you also said that you are seeing expansion of profitable business. As you had mentioned at the beginning of this fiscal year, if you reduce the RWA, you’re comfortable with the capital adequacy and on whether it would be possible to reduce further, you weren’t really clear, but now you’re saying the profitability improvement is more important, so you’re not able to focus on other issues. But stock price is low, so because of price-to-book, that could be a timing to do share buyback, which would be additional shareholder benefits. So you’ve made an announcement on share buyback, but in terms of RWA reduction, is that a possibility of additional share buyback? Is that an option?

Thank you. Your first question was with regards to the progress rate of 50% in terms of the cost reduction and the definition. In Q1, certain actions have been taken and the cost reduction impact will be realized after some time lag for some of the initiatives, but they are included depending on the nature and substance of the action. There could be actions where cost reduction will be realized in Q2 and there are certain initiatives where the realization of cost reduction will take more time. And 50%, and I said 60% by the end of this current fiscal year. So that means that we will be taking additional action initiatives in the following months and following the implementation of additional initiatives cost reduction will take place, hopefully. And the second question is whether it goes to RWA reduction, because we’re comfortable with regards to the capital ratio. Could we use that for additional share buyback. The first priority was to obtain the approval 300 million shares and JPY150 billion was the ceiling. So for the time being using that quota Phonetic would be our priority. And after the conclusion of that share buyback that has been approved, then we will take into consideration the next step. We were able to smoothly begin the fiscal year with good Q1. And as I said at the outset, we are neither optimistic nor pessimistic. And at this stage in the year, we are not in a position to commit that we will be doing additional share buyback. But depending on the situation is this an option that you can consider? But you’re not able to make a commitment at this time? Is that the way I should take it? Yes. In my mind, yes, there is an important option of additional share buyback and I have no intention to reject that. Thank you very much.

The next question is from Mr. Sasaki from Merrill Lynch Japan Securities. Sasaki-san, please go ahead.

Thank you. This is Sasaki. Two questions, please. First is page 30 of the presentation. The headcount at the beginning of the year, you talked about the rationalization and has that already been 100% reflected in the headcount you showed here? Or is the headcount going to decline further? Is the headcount optimization already completed as of to and end? That’s my first question. My second question is regarding the domestic retail business. In August, there was a big change in the – there will be a big change in the organization. In Q2, the retail top line. How will the current initiative will affect the retail top line? Would it be positive or a negative? Thank you.

Thank you. This is Kitamura. Your first point regarding the headcount reduction and whether that’s included in the headcount figures, we show. The answer would be yes. Some of it is included, some is not. And for example, just because we communicate with the employee, it does not mean that they are immediately deducted from the headcount figures you see on this table. And although they may be not – may not be coming to the office, they are still included in the headcount calculations, there are some people like that. So not all of the headcount optimization has been reflected in these figures. Your second point. Regarding retail and the matching process, as we call it, how we use it, factor that in in our future earnings. We are currently changing the sales force formation and as part of the matching activities and this affects about or more than one million accounts and these clients will see a change in the person in charge. So there will be some negative impact to our top line. I think that’s inevitable. However, we will complete this process as quickly as possible and hand over the business to the next person in charge and absorb that negative impact. August tends to be a relatively slow month because it’s the summer holidays and client activity isn’t that strong. And that’s the period we have chosen to succeed or hand over the business from the current person in charge. So if you look at it on a single month basis, just the month of August, it will not work positively. But if you look at it in the mid-to-long term, this matching initiative that we are doing now will benefit us because we will be able to address the client’s needs more carefully and in a better way, more effectively than we have done in the past. So in the mid-to-long term, I believe we are going in the right direction. And we will be able to address the situation where clients could face losses, which could lead to opportunity losses for Nomura. These situations can be avoided thanks to the better matching. However, in the short term, it could be negative. But in the mid to long term, this is something we definitely have to do. Thank you.

Thank you. This is Sasaki again. Just a follow up on those two points. For wholesale revenues, there was a big improvement. If you look at the environment, some of the European banks are closing their businesses in the U.S. and even the U.S. investment banks are starting to shrink their businesses. Meanwhile, is Nomura could there be a chance that Nomura will change it’s strategy and start adding to the headcount again? Is that something that’s unimaginable? Also, the domestic matching process. When you think about the mindset of the retail sales people. Is there a decline in the momentum or the sentiment? For example, the top line of July has the matching already negatively affected the top line for July?

Thank you. This is Kitamura. The European players cutting down on their head count, would that leads to Nomura changing its strategy, I believe, is your first question? No, our strategy will not be impacted by that and, there are areas where we are reducing headcount, but there will also be areas where we add headcount in areas where we want to strengthen and that has been our strategy right from the start. So it’s not going to be impacted by what our peers are doing. Your second question about retail in July and how the retail top line is in July. We announced the changes in the organization about two weeks ago on the 12th of July. And the succession of operations has already started. So the matching process and the handing over or the succession of the business operations has already started. So in that sense, yes, the July top line has already been affected by the matching initiative. However, if you look at the TSE – TSE volume, there’s been a big decline. And so some of the – the July has also been impacted by the market factors. And we cannot clearly separate the two impacts.

Thank you. This is Sasaki. Understood. Thanks very much.

The next question is by Mr. Niwa of Citigroup, Japan. Please go ahead. Mr. Niwa.

Thank you very much. I have two questions, one on retail and the other on wholesale. There could be some overlap with previous questions on page five on the upper right highlight, you talk about the improvement of customer mindset. Can you elaborate? If we look at the sector as a whole, this is somewhat of an extraordinary voice anomaly. So why are you particularly feeling this improvement? Top line improvement was seen, but is it because you are offering different products? Or is it because you’re targeting different customer segments? And what about the sustainability of this good performance? What’s the tone at the moment? That’s my first question. Secondly, our wholesale on page 9. Simply put, if we look at the profitability, it appears to be around 12% at this level do you think this margin or profitability can be maintained or could there be some shift in the level of profitability? Those are my two questions.

Thank you. This is Kitamura speaking on your first question with regards to retail and our impression that the customer mindset has improved. As you have already pointed out. Mr. Niwa, review of product strategy was a major element in the recent couple of years Fund Wrap was heavily biased in terms of our product strategy and in the end we probably had not been able to fulfill the requirements of our customers. So that’s one lesson we’ve learned. Since last April, we’ve been trying to offer well-designed better product lineup that meet the customer requirements. If you could look at the retail page Investment Trust and bonds, the amount of sales has increased by higher than 40% since the previous quarter. And if we look at Q1, Global Stock Investment Trust and advanced countries bonds are some of the areas that we have seen since. And with regards to the change in product strategy, we are feeling the reaction from the customers and therefore we will continue along this line. So your question was on sustainability of this high performance. It is challenging that we wish to maintain this momentum. And on the two question on wholesale business and profitability, you are assuming the profitability of 12%. And you’re asking whether this is sustainable. Generally speaking, for Q1 geopolitical risks, heightened, and that has had somewhat of a significant impact to which the activated customer transaction appetite. So there has been rate reduction, but was the environment in Q1 extremely favorable? No. And I believe that similar comments are being made by our American peers. So we wish to maintain the top line. And by all means, yes, we do want to maintain that top line. But on the other hand, in regards to expenses, in way of responding to the previous questions, I tried to explain that we will continue with our efforts in cost reduction. And as an outcome of those efforts, the cost in our wholesale business could drop by yet another stage. So on your question on profitability, yes, we wish to either maintain the current level of profitability or seek further increase in margin. Thank you.

The questions have been responded very clearly. Thank you.

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

Thank you. Just one question. For retail international bond sales was 5.7% up Q-on-Q. Meanwhile, the commissions was up 42%. And in this commission, does it include some bonds which are products other than the international bonds, foreign bonds or are you selling very high profitability bonds, what’s the reason for this discrepancy?

Thank you. This is Kitamura. I see what you’re getting at, for the foreign bonds, yes, there has been a pickup, but I think that the commission fees and commissions did not really pick up. This is just, no. I’m saying the opposite. The sales only increased by around 6%, but the fees that you generated, the commissions that went up more than 40%. And if you look at the bond sales of retail, it was 42% – up 42%. This is for bonds overall, so I believe it includes domestic bonds as well. So I’m wondering whether you cannot make that much money selling domestic bonds. This is Kitamura. The fees and commissions, sales commissions include foreign equities related commissions as well. So that is one of the reasons for the mismatch in the figures. So in answer to your question, the sales commission is not just for foreign bonds.

Okay. Understood. And I guess in Q1, U.S. equities was also strong and U.S. equities related products also benefited I guess. Is that the way to look at it?

Yes, that’s right. This is Kitamura. That’s the way we look at it.

Okay. Thank you.

Thank you very much for participating till date. The business environment for financial institutions grows increasingly uncertain, but amid uncertainty comes opportunity. And we will seek out revenue opportunities while managing risk prudently in this difficult environment. And by implementing the realignment of our business platform, which there were a lot of questions raised today. We aim to gain further traction to build on the signs of change that became evident in the first quarter of this year. Thank you very much, and we look forward to your continued support.