Nomura Holdings, Inc. (NMR) Q3 2020 Earnings Report, Transcript and Summary

Good evening. This is Takumi Kitamura, CFO, of Nomura Holdings. I will now give you an overview of our results for the third quarter of the year ending March 2020. Please turn to page two. First, let's look at the nine months until the end of the third quarter. As you can see on the bottom left, net revenue was JPY150.4 billion, representing an increase of 29% compared to the same period last year. Income before income taxes was JPY273 billion and income was JPY251.5 billion, both up significantly year-on-year. EPS was JPY75.65 and ROE was 12.6%. The first half of the current fiscal year remain challenging as concerns of an economic slowdown on the back of US-China trade friction and heightened geopolitical risks, deepened market sentiment, however, market activity started to pick up from October, as uncertainties began to ease. Amid this environment, we were able to accurately tap into revenue generating opportunities, deliver services match to the needs of our clients and stringently control costs and risks as part of a firm wide efforts to realign our business platform as announced in April. As a result, three segment income before income taxes was JPY150.7 billion, as shown in the chart on the bottom right. Most notably, wholesale reported a strong rebound in profitability, while Fixed Income faced challenges during the previous fiscal year. This year we were able to tap into our client franchise to deliver solid revenues as interest rates declined in the Americas and EMEA and credit spreads tightened. This resulted in net revenue increasing by around 20% year-on-year. At the same time, expenses declined by nearly 20%. The main driver of the decline is the absence of the goodwill impairment charge booked last year. That said, we also saw the benefits from realigning our business portfolio and our ongoing efforts to reduce costs. Retail performance started to improve in the third quarter, but year-to-date income before income taxes declined 33% compared to the same period last year, as sales of secondary stocks and large offerings declined. Asset Management continued to deliver solid underlying performance. And we saw gain or losses related to American Century Investment turning from negative last year to positive this year, resulting in a 90% increase in income before income taxes. Segment other performance also increased markedly. This is mainly because we booked a gain of JPY73.3 billion in the second quarter from the sale of shares in our affiliate, Nomura Research Institute. In addition, last year, we booked a total of around JPY27 billion from expenses related to a settlement with the US Department of Justice over legacy transactions and recognition of an ex-transaction adjustment, due to the winding down of a subsidiary in the Middle East. These factors are no longer present this year. Turning now to our third quarter results, please see page three. For the three months to December, the easing of US-China trade friction and progress towards Brexit helped alleviate market uncertainties leading to increased client activity during the quarter. Market direction also gained more clarity overall as the stock market reached a yearly high towards the end of the year, and in Fixed Income markets interest rate volatility eased. For the quarter, we booked firm-wide net revenue of JPY335 billion and Income before income taxes at JPY69.7 billion. This represents quarter-on-quarter declines of 13% and 46% respectively because last quarter we booked a gain of JPY73.3 billion from the sale of shares in Nomura Research Institute. However, as shown on the bottom right, our core business three segment income before income taxes increased substantially by 105% quarter-on-quarter to JPY70.2 billion. The profitability of our international business improved on the back of our business platform realignment announced last April and our efforts to reduce costs. As a result, third quarter income before income taxes from our three international regions totaled JPY19.7 billion, marking a third straight quarter of profits. Net income for the quarter was JPY57.1 billion, EPS was JPY17.63. Third quarter annualized ROE was 8.4%. Please turn to page six for an overview of performance by business, starting with Retail. Third quarter net revenue was JPY90 billion, up 17% quarter-on-quarter. Income before income taxes grew 3.4 times to JPY17.6 billion. Favorable market conditions led to an improvement in investor sentiment and as shown on the bottom half of the page, total sales increased by 27%. By product, sales of stocks increased by 23%, driven by robust secondary trading of Japan stocks, while investment trust sales grew by 47% on inflows into global stock funds that focus on corporate growth and income gain. Sales of bonds insurance and discretionary investments also grew. Please turn to Page 7. As shown on the top right, Investment Trusts reported net outflows of over JPY110 billion. Although sales increased, redemptions increased as investors looked to lock in profits on the market rally and as individuals aggregated calendar-year profits and losses. Discretionary investments reported net outflows of over JPY60 billion due to fund wrap redemptions. However, as shown on the bottom right, assets under management in SMAs which have large contract value continue to grow. On the bottom left, you can see fee-based AUM in Investment Trusts and discretionary investments increased on market factors. Annualized recurring revenue was JPY89.1 billion. We maintained our recurring revenue cost coverage ratio at around 31%. Please turn to Page 8 for Asset Management. As you can see on the top left, net revenue slipped 1% quarter-on-quarter to JPY25.4 billion and income before income taxes declined 7% to JPY9.3 billion. These declines are mainly due to a slight decline in gain/loss related to American Century Investments. Revenue excluding ACI increased 4% quarter-on-quarter to JPY26 billion. The graph on the bottom left shows assets under management at the end of December which reached JPY55.6 trillion, driven by ongoing inflows and market factors. This is the first time we have exceeded our March 2020 KPI target of JPY55 trillion. The graph on the top left of Page 9 shows inflows of nearly JPY500 billion in the third quarter. The Investment Trust business reported approximately JPY300 billion of inflows mainly into ETFs, DC funds, and MRFs which hold idle funds. The Investment Advisory business booked inflows totaling around JPY200 billion and as we won mandates to manage foreign stocks and passive management of foreign bonds from public pension funds. As shown on the bottom right, to expand investment trust sales, we have enhanced distribution of Investment Trusts through the bank channel resulting in a nearly 30% increase in assets under management in this channel over the past three years, driven mainly by inflows. Please turn to Page 10 for an overview of Wholesale results. Net revenue increased 19% quarter-on-quarter to JPY186.5 billion and income before income taxes grew 128% to JPY43.2 billion. By business line Fixed Income reported its strongest revenue for a quarter in three years, driven by a robust performance in the Americas and EMEA. Equities also reported higher revenues underpinned by robust performance in the Americas. Investment Banking reported a quarter-on-quarter increase in revenues as Leverage Finance picked up from a slowdown last quarter. As shown at the bottom half of the page by region, the Americas, booked a strong gain in revenues to JPY73.6 billion. Following the financial crisis in the latter half of 2000, we significantly reduced our Wholesale business in the United States, but started rebuilding our platform from the year ended March 2010. The third quarter net revenue of JPY73.6 billion represents a record level in the period since the year ended March 2010. EMEA and Japan also reported revenue growth driven by Fixed Income. Next, I will give an overview by business line. Please turn to Page 11. Global Markets net revenue increased 21% over the previous quarter to JPY160.1 billion. Fixed Income net revenue grew 29% to JPY99.7 billion. In particular, Agency Mortgages and other Rates businesses had a strong quarter while spread products such as credit and Securitized Products also delivered solid results As shown on the top right, the Americas and EMEA reported a strong increase in revenues, driven by the Rates business, while the Japan arrow is also pointing up on contributions from the Rates business. However, AEJ is pointing down as FX/EM slowed from a particularly strong previous quarter. Equities booked an increase in net revenue of 9% to JPY60.3 billion due to strong performance in the Americas Derivatives business offsetting a mild slowdown in Cash Equities. As the heat map on the top right shows, the Americas is pointing, up driven by strong performance in Derivatives and Japan also delivered higher revenues on contributions from block trades and transactions for portfolio rebalancing, et cetera. Please turn to Page 12 for Investment Banking. Net revenue increased by 11% to JPY26.4 billion as the international business offset lower revenues in Japan resulting from a decline in fee pools. The Japan, ECM business reported lower revenues quarter-on-quarter. Although, the Japan DCM business slowed from a strong previous quarter, we tapped into demand by issuers to win multiple mandates. Internationally, revenues increased from last quarter driven by the ALF and Solutions businesses in EMEA and the Americas. Please turn to page 13 for an overview of non-interest expenses. Third quarter firm-wide expenses were JPY265.3 billion, a 4% increase from last quarter. Compensation and benefits increased 7% due to higher bonus provisions, following the increase in revenues. Other expenses increased by 9% due mainly to the decommissioning of an IT system in our international network. On the other hand, occupancy and related depreciation declined 11%, as expenses related to domestic branch office integration tapered off. Page 14 shows our financial position. Our balance sheet at the end of December was JPY46.2 trillion, an increase of approximately JPY0.5 trillion from the end of September, due mainly to an increase in repo transactions. As shown on the bottom left, Tier 1 capital was JPY2.7 trillion. And risk assets were JPY14 trillion, down by approximately JPY540 billion from the end of September due mainly to market risk. As a result, we maintain a robust financial position at the end of December, with a Tier 1 capital ratio of 19.2% and a CET1 capital ratio of 18%. Our leverage ratio was 4.78%. And our liquidity coverage ratio was 192.3%. That concludes today's overview of our third quarter financial results. To conclude, we had a strong quarter with each business division delivering higher revenues. Naturally, market support was a big factor. But we also saw the benefits of our ongoing efforts. In Wholesale, by realigning our business portfolio and deemphasizing low-profit businesses, we have been able to lower daily revenue volatility each quarter, and our earnings consistently has increased. Although, recent Wholesale performance in January has eased off slightly from December, when the market was rallying, we maintain good momentum with Fixed Income, particularly Rates products, driving revenues. With the upcoming U.S. presidential election and other geopolitical risks, this year the market is sure to have its ups and downs. But we remain focused on stringently managing risk and seeking out revenue opportunities. In Retail, last summer, we reformed our sales channels. And setup an organizational structure to provide more appropriate services, tailored to the needs of each individual client. It will take a while before we see the results of this appear in our financial results but we are already starting to see positive changes in the behavior of our sales staff in each channel. Although there have been market drops in January, we are maintaining revenues around the same level, as the third quarter. Looking ahead, we will work to improve productivity in each channel. And deliver high-quality services to our clients. Thank you.

[Operator Instructions] SMBC Nikko Securities, Muraki-san, please.

Yes. Thank you very much. I have two major questions. First of all, page 11 fixed income revenue. 29% increase and close to JPY100 billion was booked. But, in comparing to American financial institutions you are outperforming. Is it rates and mortgage percentage being high, is that the only reason? Or by product line, have you increased share product line-by-product line? Can you elaborate on the reasons why you were able to outperform the American financial institutions? At the same time, repo booking year-on-year, 5% or increased by approximately JPY1 trillion, short-term rates market in the United States is rather chaotic and shortage of liquidity had led to repo book usage. But can you explain the mechanism of booking revenues? Next page 24 on Retail, investment Trust sales or sales commission Q-on-Q and year-on-year. Significant growth has been seen. According to sector-wide data, the market increase was not as high. Why were you able to outperform the market? And you mentioned channel formation but you said that there would be some time lag until the effective seen in results. But in the October, December period, why were you able to so significantly increase sales? Those are my two questions.

Thank you. Two questions or three, including the smaller points. But first of all on Q-on-Q basis in comparison to our peers why did we outperform? Muraki-san, as we have pointed out, we conducted bold rationalization rates or Asian credit business were areas where we injected resources. So productivity has improved during the past year. And at the same time market also improved which had led to increase in our revenues. Until the previous quarter there was much opaqueness in the future outlook. But U.S. financial institutions had stable income which supported Fixed Income business. But in our case rate products had been rather slow and our share had been dropping. And with markets improving in Q3 by focusing on business line, we were able to regain our share back to two years ago when we began focusing on business line. And seasonal factors were also in play. Every year in December, U.S. financial institutions finish their accounting year. So their balance sheet booking is reduced. But in our case, December is not that kind of a month. And therefore I think we are with some room to grow revenues in that particular month as well. And also on repo, again seasonal factors exist. And I think this is a good season to book increased revenues. If we think about the most recent updated trends, the repo market is in a way appealing. Last year as you know the Fed, there was a spike in the repo market and then market liquidity was taken into consideration by the Fed and closely monitored but demand seems to be – continues to be tight according to our perspective. So in this context, we think that there continues to be business opportunities. RWA, we think that stable income can be gained and the attraction of this business continues but our competitors also are focusing on this area. So we are not thinking of certainly increasing our balance sheet just to concentrate on this business. The second point is with regards to Retail. Q2, when we announced our results for Q2 seasonal factors, market trend and our internal factors in other words, realignment of channel formation and consolidation of branches had been some elements that had affected our results and there was a significant plunge. But in Q3, we're back to normal business as usual, market also recovered and further in the midst of matching, we were able to make proposals more accommodating to the requirements of the clients which had led to better revenues. If we look at the monthly results, the market also continued to enjoy increase. October, November, December improvements we're seeing. And in December for the first time in one year total sales was over JPY1 trillion. So investment and stocks both saw increase in business.

Regarding the first question I have a follow-up question. Recently repo and OAS spread seems to be becoming tighter again. When the spread tightens then it becomes difficult to earn profit purely from repo. Is that the correct understanding? To focus on more profitable business I think was your business model? Other than NBS highly profitable products is there any trickle down effect?

In that sense, as you pointed out, in the third quarter, we believe the environment was favorable. In the fourth quarter, there maybe slight normalization that is our anticipation. And as a matter of fact, I think that is how things are developing. On the other hand, as it is the case with a full repo and there is also a Brexit. So cross-currency repo, I think there is some level of demand for cross-currency repo. Does this answer your question?

Yes. Thank you very much.

Next question is from Ms. Tsujino of Mitsubishi UFJ Morgan Stanley Securities. Ms. Tsujino, please.

Thank you for taking my question. Maybe there are some overlap with the previous question, but first about U.S. FIC revenue. Towards the end of the fiscal year, the liquidity-supplying business is contributing. And Q-on-Q -- on Q-on-Q basis, how much impact was there? Because you enlightened me on that point. And before that FIC breakdown by region, if you could indicate by percentage, FIC breakdown by region, otherwise it is difficult to see the picture. In the United States alone, I think FIC is around several dozen billion. It is increasing by several dozen billion. So how much liquidity-supplying business was there, which contributed to this? The second question is also related to this point. In segments -- in Other segments, there is increase in items in Other than corporate items and Other items there were some fluctuations ups and downs. And there were also substantial increase in some of the items. But in comparison to the normal levels it was lower due to increase in position because of cost of liquidity pool and because of funding rate and decrease in profit and because of cost maybe this is happening. So there are expenses in these areas. So, within the three segments when we look at only the FIC part, maybe that's somewhat misleading. So if you could indicate your views on this point please? And the third question is about Retail business in Japan. The sales look very good, and this is partly due to market factors and channel formation realignment and the efforts of your staff. Was this better than expected? Or how do you evaluate the situation?

Thank you for the questions. Turning to the first question, regional breakdown of fixed income I think that was the first question. Japan is more than 20%, EMEA is mid-20s and the Americas 40%, AEJ is about mid-teens. So that is the regional breakdown of fixed income revenue. Then as for U.S. uplift, what was the contribution from repo was the question. As for repo revenue itself in the overall picture, relatively speaking, it is not very large in the businesses there were bigger growth. Turning to your second question, on a segment-by-segment basis why there was a negative in corporate items? Every time as for corporate items very small detailed items are included. And in the third quarter, there was accumulation of expenses of small items. For example, within the group, there is a dollar-yen swap position amongst others. And because of seasonal factors towards the end of the year, temporarily there was a negative and this also affected. But in the beginning of the year this was resolved. Or it is moving towards resolution of the situation. And bonus allowance was increased because of better performance in revenue and that is also partly reported or bit on corporate items. And I think you've also raised question regarding Others. Profit or loss in Others. Own credit this was slightly positive and negative there was also a positive mark-to-market valuation. On the expense side, I commented earlier there was IT decommissioning cost for overseas and this was negative, but this is one-off negative factor. That was about JPY4 billion.

Question from Mr. Tsujino

Mr. Kitamura speaking again. As for the evaluation of the third quarter. In that sense, as I have been saying since earlier we were supported mainly by market factors and our realignment of channel formation. We cannot – we should not think optimistically that this was immediately effective. That is our thinking internally in the company. But how – in many ways we are bidding to see changes in the actions of the staff of various channels. To be more specific, for example, staff covering corporate and owners consulting fee percentage has increased relatively in the revenue. And in wealth management in some services and products the ratio of clients, who have a transaction with us have increased in number. And inheritance gifting insurance, loan, real estate rather than asset management these are now covered in the conversation between our consultants and clients. That is what we have found out through monitoring. Regarding mass affluent, as much as possible using other tools from face to face channel we are trying to contact our customers. And as for the partners visits to clients that number is declining. On the other hand via e-mail and via phone clients are contacted. So, sales activities are changing in nature clearly. As a result and of course, we cannot rule out market factors, but actively buying customer number is increasing by more than 20% as a result. Turning to your second question about overseas system decommissioning cost that was mentioned earlier and this occurred in the region of Europe. The decision was to decommission the IT system since it will not be used in the future. And the cost is at single-digit billion yen level. Thank you very much.

The next question will be by Mr. Watanabe of Daiwa Securities. Mr. Watanabe, please go ahead.

Thank you. My name is Watanabe of Daiwa Securities. I have two questions. First of all on global markets, FIC equity for each customer flow and trading revenue breakup is my question. And I think interim dividend or irregularities existed in the first half. But what's the policy with regards to buyback and dividend payout in the second half? Those are my two questions.

Thank you. To answer your questions, first of all on FIC and customer flow. Fixed income 60% or mid-60% is customer revenue and the outstanding is trading revenue. And for equity 80% or slightly over 80% is accounted for by client revenue with trading revenue accounting for the rest. And on capital policy, as I have been speaking of 30% consolidated payout ratio and total return ratio of 50% or higher and those benchmarks in our capital policy remains unchanged, 50% meaning that 50% would be the minimum. And from such perspective share buyback will continue to be an important option. In principle, we implement our capital basis on half a year basis. And therefore, we will monitor the results of Q4, but we will think about what we do as a next step by looking at the half year results.

Thank you very much. I have an additional question on the first point on FIC revenue Q1, Q2 with rates coming down in UK and mortgage redemption, early redemption leading to flow increase was the explanation. On the other hand, October-December quarter there has not been any further decline of rates. Despite that you did well in FIC revenue. Why? And JPY60 billion of client-related revenue that's my guess. On the other hand, contribution from trading in October to December was quite significant. Despite rates not going down why were you able to significantly increase trading revenue? What's the backdrop? Those are my follow-up questions.

Thank you very much. To answer your first point on agency mortgage. As you have pointed out like some rates have hit the bottom. And in Q3 there had been a mild increase. However, the absolute level is still in the historical lowest sphere down. And the employment situation in U.S. is robust which is leading to a healthy increase in the housing market new issue of bonds and refinance in the primary market you can check the data for the primary market. But in Q3 there was quite a significant activity in the primary market. On prepayment there was slowness in October-December, but as we approach the end of the calendar year there was activation. So refinancing issue as a result was healthy. So refinance-related rebalance took place on the part of the investors, which led to a quite healthy activity in the secondary market as well. And in the midst of rising rates how did we make money that was your other point. If we look at the results month by month, we did well in December. As you know U.S.-China trade friction was rather deescalated according to the news and on the 12th the UK general elections had taken place. So the market went into a risk-on environment. And as a result we saw increase in client flow and the direction of the market was rather clear. So there was a flow and the client activity was there. We captured that opportunity to book income and revenue.

Thank you very much for your responses. That’s it.

This is Kitamura, again. Let me add just one point. If we really, really simplify flow versus structured, if we divide the products as such client revenue much of the client revenue is -- would be categorized as structured. And if the proportion of structured revenue increases then the proportion of client-related revenues goes up. On the other hand, when the proportion of flow business increases despite activity client-related revenues do not increase as significantly. So if we look at the phenomenon in Q3, we saw growth in flow. So as an outcome regardless of client revenue increasing, the total income appears to have increased due to some technical reasons. Thank you.

Thank you for your answer Mr. Kitamura.

Questions from Mr. Sasaki of Merrill Lynch Japan Securities. Mr. Sasaki, please.

Thank you. I am Sasaki from Merrill Lynch. I have two questions. First, is about how to understand income statement? In the third quarter, there was an improvement in income in financials. And was it because of credit and mortgages? As you have described earlier, is it consistent with these aspects? What is the reason for improvement in the income in the financials? And now next is about investment trust. For the first time in some time in the industry there was an outflow in 2019. And although indices were rising there was lack of inflow according to various companies. But in the presentation, it was a net decrease this year. And this -- I think there was a nuance that this was temporary because it was at the end of the year. But what is the trend of demand for investment trust? So, these are two questions.

Thank you very much. I would first like to address your second question first. As for the outflow of the fund, the rise of stock market was the biggest factor. When stocks rise, majority of the customers will lock in profits or many customers will lock in profit and sell stocks. And that is a clear trend. As a matter of fact in December as the stock market reached highs there were sales of investment trusts by customers. And the proceeds of the sales of the investment trust what happened some were invested into different investment trust products. And the idle fund may be part in MRF, which we offer. So there is accumulation of idle fund in MRF in part and some flows outside of Nomura. So on a net basis there is an outflow. Then about the month of January -- in the month of January, the market had been quite bumpy or declining. I do not know whether it is correct to categorize this as the investment trust. But regarding stocks and investment trusts when the prices decline, it seems that they are buying or investments from customers. MRF idle fund where idle fund was part, I think from MRF there is outflow of money into buying of stock in investment trusts. So I think there is willingness to invest on the part of the customers when the prices are declining in the stock market. Turning to interest income improving, the first question. We cannot isolate. We should not -- we believe that we should not isolate the interest income, the GM business and investment banking business. I think we have to look at both revenues of fee and interest income. And so I was made to realize on this point now that you've raised this in a question. But we do not usually look at this in isolation. Wholesale performance will be reflected in creating revenue in a way and in interest income and interest expenses in some other ways. Perhaps there may be some impact from the repo position. That is my speculation. But to be honest about the background of the interest income, we haven't reviewed that in depth. We are not paying much attention to it.

As for investment trust I understand the situation. But perhaps I can rephrase my question. After the major recovery in Wholesale after the first quarter, the asset has not increased but gross revenue seems to have improved. It seems that profitability has improved significantly. And is that due to factors that you have earlier described? Or are there other factors? If you could follow-up on this if possible.

In that sense realignment of business portfolio, in that process some low profitability, low performing businesses were substantially reduced. And during this meeting as I have been saying for some time, repo does not use RW, almost no RWA is used, although repo does use balance sheet. So, I think it is a mix of these two factors.

Thank you, very much.

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

Thank you for this opportunity. On domestic retail business and cost, I have a few questions. First of all on retail in Japan. On page 7 of your presentation material, on the bottom top, there's text on fund wrap and investment trust. And revenue structure and business structure if we compare, there seems to be a gap. The recurring business is not growing and yet revenues were booked. I think that was the characteristics of the quarter and fund wrap redemption may not be what you had planned. So, in the months ahead, although this is rather an abstract question, could you give us some clues on how you would be steering this business? Secondly, on cost. Again, I have two questions on cost. One is the promotion of structural reform. If my recollection serves me correctly, in Q2, you said 60% progress rate. And third quarter the -- between 65% to 70% was the target progress, but what's the progress towards the end of the fiscal year? That's my first point. And secondly, although there is some overlap with the previous question, the run rate was JPY4.8 billion in Q2, but what about Q3? Is there sustainability in the improvement? Those are my questions.

Thank you. Then let me respond to your questions. Your first question is with regards to the retail. There seems to be a gap between what we want to do and the results, brokerage increasing, why? First of all, the redemption of fund wrap and the backdrop. In Q3, there was a rally in the equity market and fund wrap performance improved on the back of that. And there were customers that wanted to lock in their profits. This is a fact. And in the midst of this environment then, what are we doing in our retail business? We want to offer services and products that would cater to the requirements of individual customers. Sales, formation channel, reformation was done last summer as is well known. SMA, as indicated on the bottom right is growing quite significantly and there are a few drivers. Customers who have already purchased had been satisfied with the service they additionally purchase and increase their balance. And if we look at our corporate customers with low rates, they want diversified investments and some corporate customers choose SMA as a means to do that. And amongst the high creditworthy clients, with sales of their stocks, with the rally in the market, what do they do with their profits? In many cases, they would choose SMA as an option to use their profits or some use wrap trust for inheritance purposes and estate management purposes. At any rate, our focus is offering products and services that meet the requirements of our customers and that continues to be our focus. And as a result of such policy, fee-based assets should gradually increase. And on the second point, with regards to costs, in the third quarter, at this stage, on a firm-wide basis, 60% -- between 65% or closer to 70% was the progress rate. As far as cost reduction is concerned, the pace of achievement is much faster than we had originally assumed. The current cost base was the target for the end of the current fiscal year. So we are ahead by one quarter and we've been able to achieve our goal a quarter ahead of schedule. In Q4, we will continue with our efforts for cost reduction, but as we have been commenting conventionally what could be done in the short run has already more or less been implemented. So going forward operational reform and other measures will have to be implemented, which will require a longer period of time. And that idea remains unchanged. But as we approach it was March 2022, we will be making that effort. And what's the run rate of Wholesale in Q3? I believe that was your last question. Wholesale run rate it's a run rate based upon a certain set of hypothesis $4.8 billion. It's below $4.8 billion. That's the Wholesale run rate at that time.

Thank you for the details. I now understand the situation very well. Thank you very much.

Next question is from Mr. Otsuka of JPMorgan Securities. Mr. Otsuka, please.

Thank you. This is Otsuka from JP Morgan Securities. About wholesale and retail, I have questions for each. The first is about Wholesale. This is for clarification. Fixed Income revenue in the third quarter JPY99.7 billion, how do you see the sustainability of this profit level? I did understand your explanation. Customer franchise, you are able to strengthen franchise vis-à-vis customers or you have increased the market share perhaps not just because of favorable environment of the market, were there other factors that contributed to this result? That is the first question. And the second question is about retail. Earlier according to Tak Kitamura, it seems that there is not much contribution from the channel formation realignment but simply put there are new staff in place and market is improving. So new staff may be recommending products to customers that may be natural course of events but rather you are consulting in detailed in-depth fashion. So products are not recommended so readily. What is actually occurring? These are my two questions.

Thank you. The first question is sustainability of the revenue of Fixed Income in wholesale. We should not be too pessimistic but in the third quarter we were helped by favorable market conditions. We cannot deny that. And towards the end of December, there was also favorable seasonal factor. But what about going forward? I think that is the question. I think there may be some normalization. On the other hand, what we are focused upon in terms of products. In this market where we are focused on market share and ranking we have been able to improve that is what we feel. So in areas where we are more competitive as market environment improves as it was shown this time we believe we are able to monetize and breakeven point was lowered and we have become leaner overall. So I think certainty of achieving bottom line is much higher than before. Because I'm a financial person so I tend to be conservative. But I think in a way the efforts that were made in the past are bearing fruit. Turning to your second question. Maybe this is due to my personality in large part. I'm not saying that there is no contribution from channel formation realignment, but I tried to think that market factors had a bigger impact so that there will be continued momentum in implementation of the initiatives regarding channel information that is the company's position. We should not be too optimistic saying we're already seeing great results we should continue to make efforts. That is the attitude of the company. Earlier as I've described in detail earlier we are seeing positive signs. And these positive signs how much is that reflected in financial results? To be honest it is difficult to quantify. So in that sense, I am not denying the contribution from channel formation. I think there was some benefit from that. But I tend to be conservative in my comments so that may have given you this impression.

Thank you very much. Thank you for adding the nuance.

Again thank you very much for joining the call and thank you for the several questions. And as I said market factors were also tailwinds. But we're quite happy with the results. Cost reduction is steadily progressing. And we were able to record recovery in the top-line. So we're quite satisfied with the results, but there are many things that we still need to do 20%, 30% cost reduction and channel reformation effect to be realized in terms of results. And secondly trading was a major driver. Trading business was a driver for this quarter. But in April, we announced our goal to realign our business platform to expand our primary business. We're still in midway. We need to do what we need to do in order to trickle down the benefits to the bottom-line. So we would very much appreciate your continued support and thank you for joining us once again.