Nomura Holdings (NMR) Q1 2015 Results - Earnings Call Transcript

Jul.29.14 | About: Nomura Holdings, (NMR)

Nomura Holdings, Inc. (NYSE:NMR)

Q1 2015 Earnings Conference Call

July 29, 2014 6:00 AM ET

Executives

Shigesuke Kashiwagi – CFO

Analysts

Masao Muraki – Deutsche Securities

Natsumu Tsujino – JPMorgan Securities

Jun Shiota – Daiwa Securities

Takehito Yamanaka – Credit Suisse

Katsunori Tanaka – Goldman Sachs

Operator

Good day everyone and welcome to today’s Nomura Holdings First Quarter Operating Results for Fiscal Year ending March 2015 Conference Call. Please be reminded that today’s conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time.

During the presentation, all the telephone lines are placed for listen-only mode. The question-and-answer session will be held after the presentation.

Please note that this telephone conference contains certain forward looking statements and other projected results which involves known and unknown risks, delays, uncertainties, and other factors not under the Company’s control, which may cause actual results, performance or achievements of the Company to be materially different from the results, performance or other expectations implied by these projections.

Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions.

With that, we’d like to begin the conference. Mr. Shigesuke Kashiwagi, please go ahead.

Shigesuke Kashiwagi

(Interpreted). This is Shigesuke Kashiwagi. I would like to now present results of the first quarter ending March 2015.

Please turn to page 2. Despite the challenging environment in the first quarter as geophysical risk increased and investors waged the outlook for managing policy, this led to lower volatility globally and a decline in market trading volumes.

Amid this environment, resale and asset management both reported higher revenue quarter-on-quarter while global markets delivered solid revenue (inaudible) in the last quarter. As a result, net revenue from the three core business segment increased 1% over the last quarter.

At the group level, net revenues declined 5% to ¥320.6 billion due to ¥7 billion loss related to tracking of our own credits and following the ¥18 billion realized gains last quarter on the sale of Fortress share.

We also booked ¥18 billion in the Full Career Retirement or FCR related expenses a factor which increases cost to gain in the first quarter. The FCR scheme was introduced last year for stock options and average deferred awards under the scheme employee will meet search criteria in terms of corporate title and (inaudible) service don’t have to forfeit declared awards even if they leave the firm voluntarily as long as they don’t go to a competitor. Such schemes are likely adopted by (inaudible) financial institutions.

As a result of these factors pre-tax income declined 42% quarter-on-quarter to ¥61.7 billion and net income declined 68% to ¥19.9 billion. ROE for the quarter was 3.2% and EPS was ¥5.26.

Page 4, gives an overview of the business segment results and shows where the items I have just mentioned are included which you can confirm later.

I will now give you an overview of performance in each business, please turn to page 5 for retail. Although sales of stocks slowed due to a decline in market volumes, sales of investment trust rebounded during the quarter. As a result, net revenue increased 9% quarter-on-quarter to ¥106.9 billion and pre-tax income grew 36% to ¥31.6 billion.

From this quarter, we have included a new indicator called net inflows of cash and securities which you can see here in the middle of the right hand side. This replaces net asset inflows and makes it easier to track actual flows of cash and securities giving a more accurate indication of the growth of client assets.

Last quarter, net inflows of cash and securities was negative ¥365.8 billion but in the first quarter it turned positive to ¥472.9 billion. As shown on the bottom left, retail client assets climbed to ¥95.3 trillion, the second highest level ever supported by market gains.

As shown on the bottom left of page 6, net inflows into investment trust discretionary investments had been trending up each month and sales of insurance products have increased significantly as you can see on the bottom right. This demonstrates that we are starting to see tangible results from the transformation of our retail business model reflecting a greater focus on making proposals based on and understanding of each client’s individual life plan.

Please turn to page 7, for asset management. Net revenue was ¥23.3 billion driven by an increase in asset vendor management and dividend income. This represents the best revenue quarter since September 2007.

ING, securities investment and trust, the Taiwanese firm we consolidated from this quarter has started contributing to asset management earnings. Pre-tax income increased by 56% compared to the last quarter to ¥8.3 billion despite booking FCR related expenses.

Please turn to page 8. The graph on the bottom left shows that net inflows into the investment trust business excluding ETS totaled ¥496 billion. And you can see on the right, assets under management in fund wrap and SME discretionary investments an area retail is focusing on rose sharply in the first quarter.

Our investment management capabilities continue to receive high recognition and we won a total 13 awards in the R&I Fund Award 2014, the highest number of awards among all recipients.

Please turn to page 9, for an overview of wholesale. Net revenue declined 5% quarter-on-quarter to ¥188.9 billion. Investment banking revenues slowed from last quarter due to seasonal factors, while global markets capitalized on revenue opportunities to deliver solid revenues in-line with the last quarter, despite the uncertain market conditions.

In addition, the majority of the ¥18 billion in FCR related expenses, I mentioned earlier, were booked in wholesale, which pushed down pre-tax income by 83% to ¥5.7 billion.

Please turn to page 10, for an overview of each wholesale business line. First, global markets, fixed income net revenues inched down 3% quarter-on-quarter to ¥104.5 billion as credit and securitized products offset a slowdown in rates. This represents a solid performance compared to our peers. Equities net revenue increased 5% to ¥62 billion, cash equities remained firm. And a rebound in derivatives contributed to revenues.

As you can see in the heat map on the top right, global markets revenues in the Americas and EMEA were roughly unchanged on an improvement in equity derivatives while credit FX revenues improved in AEJ.

This credible performance compared with the decline in revenues across the industry of over 10% is the result of our efforts to grow our client franchise and our business across regions and products.

Please turn to page 11 for investment banking. Net revenue in investment banking declined 30% over the previous quarter to ¥22.3 billion. Gross revenue was ¥43.2 billion. Investment banking, first quarter revenues were at the second highest level in five years despite declining from last quarter as large ECM deals in Japan slowed.

Internationally, net revenue declined from the strong prior quarters but increased in each reason on a year-on-year basis. As shown on the right, we want a number of high-profile mandates in Japan and overseas and further built up our track record in multi-product deals in key sectors.

Please turn to page 12, for an overview of expenses. Group’s non-interest expenses increased 6% to ¥319.2 billion as compensation and benefits rose due to the ¥18 billion in FCR related expenses and a rise in bonus provisions in line with performance. All other expenses declined quarter-on-quarter as you can see.

Please turn to page 13, for a snapshot of our balance sheet. Total assets were ¥43.9 trillion. Gross leverage was 17.8 times and net leverage was 11.3 times. Our Basel III tier 1 and tier 1 common ratios were both 13%, representing a slight decline from 13.2% at the end of March. This decline is mainly due to the share buyback program we conducted in May.

Applying these fully loaded Basel III 2019 standards to our balance sheet at the end of June, we maintain a high tier 1 ratio of 11.9%.

On page 14, last and not least, so we will see that there are no significant changes to our funding and liquidity from the end of March. So I will leave you to look at that later.

To sum-up, we gained traction in the first quarter as we started to see the results of the transformation of our retail business and asset management was able to capitalize on that momentum while also benefiting some investments.

In wholesale, we strengthened our resilience to environmental changes by widening and deepening our international client franchise and ensuring consistent revenues in line with the last quarter.

The efforts we have made over the past few years are starting to show as tangible results reconfirming that these strategies implemented by management have been the right ones. We will step up our efforts to create a lean organization resilient to environmental changes and continue to focus on improving profitability.

On August 1, our group CEO Koji Nagai will speak about our medium-to-long-term management vision. And we look forward to seeing you there. Thank you.

Question-and-Answer Session

Operator

We have a question-and-answer session now. (Operator Instructions). The first question is by Mr. Muraki of Deutsche Securities. Mr. Muraki, the floor is yours.

Masao Muraki – Deutsche Securities

(Interpreted). I have two questions. First of all, fixed income business related question, the second question is with regards to the regulatory environment.

First of all, fixed income revenues in the first quarter or in the few past quarters, the revenue levels had been more or less flat. When you look at the foreign investment banks, revenues are dropping. So, if compared year-on-year the revenue share has gone up at the moment by 0.5% point. What is the reason behind, what’s the biggest contributing factor this phenomenon?

And I do have related question, and this is the question always asked, credit income, sales commission and trading breakup ratio, what is the breakup this time around in Q1. And April, May was probably sluggish. And there were, I would assume, was recovery in June. But what’s the situation in this current month of July in comparison to the three months from April to June? So those are some of the points I wish to know with regards to the fixed income business?

Secondly, the regulatory environment, most likely the increase of fixed income revenues is backed by the regulatory environment. DEPO (ph) outstanding versus derivative notional amount, post Lehman has reached record high. And under this circumstance the leverage is what percent at the moment?

And ultimately, what is the hurdle that you wish to clear Basel 3% is the tentative agreement. Do you think that level is enough or in the United States they’re talking about 5% hurdle. Do you think that would be necessary for Nomura to seek a higher level as well? Thank you very much.

Shigesuke Kashiwagi

(Interpreted). Then customer flow and trading revenue, fixed income, customer flow 70%, trading account for 30%. And in equity, customer flow 80%, trading revenues account for 20%, that’s the breakup.

And the reason behind the share going up by 0.5% since I was appointed to the current position last year, I’ve been repeating my thesis as such that we are being able to do true business with the customers. And it’s because of the highly capitalized strength of Nomura and also the cost of finding is low in comparison to our peers.

And on the regulatory front, we have been relatively advantage, no ball-curve rule (ph) or no foreign bank regulation being imposed in the United States. And therefore since we are heavily capitalized, although others are trying to reduce their risk weighted assets, we are not constrained by such status.

And on top of that if there is another factor behind, I forgot what I was about to say. So, cost regulation and right. The relative rating, Citi last year single A minus upgrade. And even in other rating agencies, or other financial institutions are being downgraded. So in many cases we are being selected which is quite prevalent in the United States and more recently in Asia, the relative rating towards Nomura has gone up. And that has increased customers. And those are probably the reasons behind the share going up.

And as far as momentum is concerned, April, May, June – the end, the results of Q1 was good. Other institutions we experienced 20%, 25% drop, not our case. And since the beginning of July, it’s been dropping in comparison to June at our peers and same applies to Nomura because of the summer sluggishness.

And your second question was with regards to leverage regulation, the Basel final rules have been announced but the interpretation is still uncertain. And therefore it’s not a situation where we can precisely do the calculation. But as of the balance sheet, end of June, we think it’s in the mid 3% range.

Masao Muraki – Deutsche Securities

(Interpreted).So, if you’re saying is the real 3% or do we need to clear 5% like the Americans, what would be the level of the requirement?

Shigesuke Kashiwagi

(Interpreted). Frankly speaking, we’ve never been asked for more than 3%. So, in terms of minimum criteria, it is our understanding that the hurdle we must overcome is 3%.

Should there be a higher level of requirement as I have been saying, 83% of our balance sheet is trading assets so we can streamline that or derivative compression can also be done. Those are some of the measures that would be made available to us.

Masao Muraki – Deutsche Securities

(Interpreted). Thank you very much. Related question on point one, you mentioned the rating, Ludi is considering upgrading. And that has been made public. And they’re placing you under review at the moment. How many notches will you be upgraded?

Shigesuke Kashiwagi

(Interpreted). We’re not sure but business wise, Nomura Securities, NSEBWA2 is the current rating.

Masao Muraki – Deutsche Securities

(Interpreted).If that is upgraded to single A then the impact would be quite significant. Is that how we should interpret or is it NHI or the other day you updated the ratings for the foreign subsidiary, Nomura America Finance, BWA3 is the current ratings.

So, in order for them to go up to single A, that would require three notch upgrades – so quite a significant upgrade. But at the holdings company level, unless it’s upgraded to single A, there would not be any business impact. How should we interpret the impact coming from ratings upgrade?

Shigesuke Kashiwagi

(Interpreted). Now two points have been identified by Moody’s, one is performance and second government support. So, in terms of probability, I think both is highly probable. Now, if we become single A, that would make us very happy as you pointed out. But the bottle neck, now we have to ask the view of the customers but holdings BWA3 invests its first one step to non-investment grade. And that’s what the customers are saying.

So, if we’re one notch up, it’s usually people or its visions aren’t upgraded two notches at once. So even if we are upgraded to the BWA2 by only one notch that would have an impact because we would be further from non-investment grade. And single A minus at Nomura Securities, A3 if they are upgraded at NSE then that would make us very happy.

Masao Muraki – Deutsche Securities

(Interpreted). Thank you very much for your response.

Operator

The next question is from Ms. Tsujino of JPMorgan Securities.

Natsumu Tsujino – JPMorgan Securities

(Interpreted). Hello, this is Tsujino speaking. I’d like to ask about HR cost. On page 12, ¥18 billion out of ¥168.8 billion is FCR. Q-on-Q, there is an increase of ¥18.2 billion. In which areas has there been an increase and how much increase has been seen in Japan and how much in overseas, if you could explain that?

And similarly, in terms of expenses, information processing and communications occupancy, they’re all down. Now, if we look at other, there was a one-off expense in the fourth quarter, one-off in fourth quarter that communication and occupancy. What is going to be the outlook of these expenses going forward? If there is a new investment, IT related expenses may rise, is that correct?

And the third question has to do with retail business. There has been a recovery in the sales of investment trust under the new bills in the fourth quarter, the sales force may overreact to the new rules. And things have worsened. But now, it’s going to settle down. So, what is all on the recovery process?

Shigesuke Kashiwagi

(Interpreted). So, there are three questions. Your first question, Q-on-Q, increase of ¥36.2 billion FCR ¥18 billion and what is the breakdown, in Japan and overseas. There were two factors behind this. In Japan, in retail in the fourth quarter, well, because it was the fiscal year-end, bonus allocations was made relatively large in the first to the third quarter. But in the fourth quarter, performance was not as expected so bonus provision was less than initially expected.

Now, as opposed to that in the first quarter, in retail getting that to your third question, this is related to your third question, revenue was very good and because it was the beginning of the fiscal year.

With respect to bonus provision, the provision was relatively large than it did have an impact. Other than that in overseas, with expansion of our business, as you can see from AEJ, on a consolidated basis the number of employees has gone up, there are two subs increase. And stock has gone up.

And compliance risk must be responded to. We have increased human resources there, so there was an increase in cost and occupancy. With respect to occupancy or real-estate, fits for the future announcement in 2013 we made. And around that time we did restructure. So occupancy expense has gone down. I don’t think it will change very drastically going forward.

Natsumu Tsujino – JPMorgan Securities

(Interpreted). Regarding information or communication cost, the introduction of new systems, could that happen to respond to regulation?

Shigesuke Kashiwagi

(Interpreted). Yes that could happen. But with the interaction of size over the mid to long-term, there would be a positive impact. So, if there is going to be a dramatic increase or decrease in the communications, neither. So, I believe that they will remain more or less flat going forward. And your third question sorry.

Natsumu Tsujino – JPMorgan Securities

(Interpreted). Regarding business transformation frankly speaking?

Shigesuke Kashiwagi

(Interpreted). Between the first and the third quarters, rather excuse me. (Inaudible), there was a question from Bloomberg that there might have been some confusion and some – what I’m told there might have been some confusion but in mid April, Mohita (ph) has reported to the board that there is no longer confusion.

I do visit branches myself and as I realize when I’m talking to you, our people in the benches, the message that the management is trying to communicate to the sales force is being communicated well. And the sales people do have very strong resource and determination to meet the targets that we have set for ourselves.

So, the performance between January and March was something that we were not satisfied with but between April and June, we were quite satisfied.

Natsumu Tsujino – JPMorgan Securities

(Interpreted). So FCR versus non-FCR, the breakdown was 50-50. Is that correct?

Shigesuke Kashiwagi

(Interpreted). Well, more or less, yes.

Natsumu Tsujino – JPMorgan Securities

(Interpreted). Thank you.

Operator

The next question is by Mr. Shiota, Daiwa Securities. Mr. Shiota, the floor is yours.

Jun Shiota – Daiwa Securities

(Interpreted). This is Shiota of Daiwa Securities and I have two questions. Page 6, retail, by month the discretionary business has been growing. And how do you foresee the future as indicated here, your employees listen to the live plan of the customers. But other than this measure, any changes in the evaluation criteria of the sales force?

And in order to increase discretionary investment is it the investment gains that, is being brought or are customers placing importance on your people listening to them in terms of their lifetime plan. And what’s the challenge at the branches as you try to grow this business?

The second question is with regards to expenses which, was already touched upon, TSE trading average will be prolonged. And in response to that will you be reviewing the online transactions or would this require IT investment or reallocation of personnel?

And how much cost would you need to incur as a result of those measures, those are my two questions?

Shigesuke Kashiwagi

(Interpreted). Thank you very much. And the first question first. With regards to how we view the future, we will continue to inject efforts into discretionary investment and investment trust.

And we’ve been doing the same type of evaluations that we’ve been doing here. A sheet is made and commission revenue ratio is being reduced and increase of assets, client assets or customer franchise, new customer and recurring revenue we’re placing very high weight in comparison to the conventional criteria.

And brokerage commission’s weight has been reduced so that the employees are seeking long-term net increase in client asset and this, borne results of course if investment gains are achieved? And that’s all for the better and most recently asset management, Nomura, Deutsche, high-yield infrastructure other products.

Because of the good performance that invites new fresh money, so that is one of the phenomena being seen.

And your second point is with regards to TSE nighttime trading hours and will that mean more cost. In the press conference, similar question was asked. And when I said the answer, our public communication people said Mr. Kashiwagi, you should not be responding to hypothetical questions so I cannot respond to any hypothetical questions, sorry about that. Thank you very much anyway.

Operator

Yamanaka from Credit Suisse. Yamanaka sir, please.

Takehito Yamanaka – Credit Suisse

(Interpreted). Thank you. I have two questions that I would like to ask. My first question is as follows. About wholesale overseas, there was a similar question raised earlier. In the Americas, with FCR, profitability is retained. And so, customer franchise expansion must be having a positive impact.

And aside from increase in share expansion is customer franchise. Are there any other data that we can look at to suggest that customer franchise is in fact expanding, if you could share anything on that front?

And second, on retail page 6, if we look at the slide on page 6, discretionary investments and the sale of insurance is also included in the graph. So, you conduct hearing and interviews with customers about their assets? And is insurance, sales going to be sustainable going forward? What kind of products do you actually sell, if you could explain that please? Thank you.

Shigesuke Kashiwagi

(Interpreted). So, the first question regarding increase in share, that is happening centering around in the Americas. I can’t give you a name but its consorting survey has been obtained by us recently. And in terms of market share, I think we now have 2.7%. It’s slow but we have made it within the top 10 most probably. Last year it was only 1.9%. So, our market share is rapidly growing.

And quite a large number of customers so are now looking at us as meaningful counterparty. At least one of the meaningful counterparties before, there were only one quarters and more than one third of our customers are saying. And we have enabled to gain more business with large customers and that is why our share is up. And there maybe some other factors but that is what is happening.

What is interesting is that this relates to Muraki’s earlier question, what’s going to happen going forward. 17% of our customers are expecting to increase business with us. While there are a few others who are saying that they want to decrease business with us. And because there are more customers who would like to do business and there are who would like to produce business with us, people say that we have a momentum. We have in fact the greatest momentum among the peers. So I think there is high probability that our share in the U.S. will further increase in the future.

And to address your second question, the products sold, annuity type of products, they account for the majority of the insurance related products that we sell. Dai-ichi Frontier, a Japanese insurance and Mass-Mutual in overseas, Met-Life, Alco are these heritance related, annuity related products. Our customers, many of them are elderly people. We have captured their names and they purchase some of these products from those inheritance businesses.

Takehito Yamanaka – Credit Suisse

(Interpreted). So, is this insurance business sustainable?

Shigesuke Kashiwagi

(Interpreted). Yes.

Takehito Yamanaka – Credit Suisse

(Interpreted). Thank you.

Operator

The next question is Mr. (inaudible) Management. Please go ahead.

Unidentified Analyst

Yes, hi, Kashiwagi. Could we turn to page 20 of your PowerPoint please? It shows that the stock brokerage commission from your retail customers declined from ¥22.6 billion in the fourth quarter to ¥15.8 billion in the June quarter, the just ended quarter. It seems to me that this decline was much bigger than the shrinkage of the retail investors rating value of all-in-one, the TSE. Could you share some light on why there was such a drastic decline? And that’s my first question. I have one more. Thanks.

Shigesuke Kashiwagi

Okay, thank you, David. So, let try to answer your question. Our transaction volume in the retail brokerage came down around I think 40% as opposed to 20% industry risk.

My interpretation is as follows. During the fourth quarter we have seen a very strong equity transaction volume compared to the investment distribution during our challenging market environment time. So as you know that the – as you remember the equity market dropped like 14% or 15% at some moment.

And in addition as you may remember, the Nomura was suffering from the sort of the sluggishness of the retail acuity due to the change in the culture of the marketing sentiment, from the brokerage commission type oriented company to the more advisory function, advisory fee-type company.

During that time the management indicated we have to ask our clients to hold medium term in terms of the investment of, we have to hold for the medium term. That medium term has been interpreted by our sales forces for three years. So, my guess was that during that time our sales forces sold from the market. But if they ask their clients to buy investment trust, because it’s a management decision, those clients cannot take a profit for three years. So, they are so much afraid of that.

So instead of recommending the investment trust, they marketed the Japanese equities, particularly ETA. During that period we sold like ¥500 billion over the ETA. Those numbers came off as we recovered, as we smoothly transit into the new area or era of the advisory type marketing sales force rather than the brokerage commission of our sales forces.

And that is the reason I think that we have seen a significant drop in the equity as opposed to the good distribution commission generally from the investment trust.

Unidentified Analyst

Okay. I have a follow-up, just to make sure, should we expect this decline in the market share of retail trading to continue as Nomura focuses on providing, consulting or advise as opposed to generating retail brokerage commission? Should this be continuing this shrinkage in market share?

Shigesuke Kashiwagi

I think it’s fairly depending upon the client’s appetite as well the market trend. But in general, I don’t think we are no longer found to chase these sort of the short-term trading activity by the equity transaction by our retail clients. Rather we would spend more time and more efforts to cultivate the long-term relationship with our clients.

Unidentified Analyst

Okay, great. Thank you. My second question is actually on the compensation, you already explained that ¥18 billion was a result of the Full Career Retirement benefits that you gave to your employees. But that did not still fully explain the huge jump in compensation in the June quarter versus the March quarter. I think there was an increase of around ¥36.2 billion.

And you also explained that – part of that was because of the extra bonus and you gave to your retail brokers in the June quarter. Should I interpret this as going forward that there will always be this big jump in the first quarter, June quarter of every year because of the extra bonus and you’ll be giving up to your retail brokers?

Shigesuke Kashiwagi

Okay. Assuming the market environment doesn’t change and assuming that the Nomura’s profitability will not change in a significant manner. I would say, and also assuming that there is no change in accounting rules that – I think that we intended to have a higher – the accumulation of the bonus during the first quarter of the year, in addition to the FCR Full Career Retirement as we have seen.

And as you may have noticed that during last year, if you look at the page 12 of our presentation material, the first quarter cost base was ¥163.2 billion, it came down to on average around ¥135 billion during the second, third and the fourth quarter.

So, going forward I’m expecting, assuming that thing will happen during the second, third and fourth quarter of this year or even bigger decline should happen. In the meantime, assuming that we can – being equal that we should expect some jump in the first quarter. The management of each of the division tended to try to accumulate the bonus accrual during the first quarter.

Unidentified Analyst

All right, okay. Thank you, Kashiwagi sir.

Operator

(Operator Instructions). Next from Goldman Sachs, Mr. Tanaka, Mr. Tanaka, please start.

Katsunori Tanaka – Goldman Sachs

(Interpreted). Tanaka speaking from Goldman Sachs. Thank you. I would like to ask about the revenue in overseas. Counterparty credit spread change, and if we exclude FCR, the profitability in overseas, how is it going to change? Could you give I mean, a guidance or guideline on that?

And my second question is as follows. The bottom-line volatility is very large. On this point, is this something that you think cannot be helped? Is there any effort made internally to move this volatility? So, those are two of my questions. Thank you.

Shigesuke Kashiwagi

(Interpreted). So, to address your first question, FCR and UCV, if we exclude and then what happen profit and loss overseas. So on a net basis, it’s profitable. And for the Americas as we have shown in the financial performance, we have enabled to lay the foundation to consistently produce profitability.

And in Europe, ever since we took over the Lehman business, we have enabled to retain customer franchise and we have enabled to reduce the breakeven point. And we see more revenue source.

And so, considering the capabilities that we have in Europe, we could have had profitability this year. In Asia, competition is very intense. Negative ¥300 million in the first quarter that was the performance in the first quarter but actually, the reality was worse than that frankly speaking.

As far as the trends however, in February, March and April, performance is sluggish but between May and July, things started to pick-up. ECV interest rate reduction and forks business, which we struggled before has started to recover. So we’re on a recovery track in Asia.

And your second question, on a quarterly basis, can we do something about the tax rate and its volatility? If we can do anything about it, it would be best. But we can’t do much. Smoothing, it may not be the term that I should use as obviously so of course it’s more desirable to smooth the rate. But for that to happen we need to have more profitability overseas.

Katsunori Tanaka – Goldman Sachs

(Interpreted). Thank you.

Operator

(Operator Instructions). There seems to be no questions. So we will conclude the Q&A session. Now there will be closing remarks from Nomura Holdings.

Shigesuke Kashiwagi

(Interpreted). Thank you very much for being with us until late in the evening. If I may give one supplementary comment with regards to Mr. Yamanaka’s question by Credit Suisse, Mr. Yamanaka whether the pension and insurance annuity business, is sustainable or not. Let me share with you some data.

The number of insurance sales people in the branches’ ratio, especially in Q1 was 14% to 15%. Since the beginning of June, it’s gone up to 44%. Conversely speaking it’s not yet 100% so not 100% of the sales force offsetting the insurance and annuity related products. But it means that this is sustainable because it still means that there is much more room for increasing sales as we suggest this to the investors.

And we will continue to make best efforts in order to give the best disclosure that is understandable to all of you. So, once again thank you very much for being with us. And have a good evening.

Operator

Thank you for your taking time. And that concludes today’s conference call. You may now disconnect your lines.

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