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Nomura Holdings, Inc. (NYSE:NMR)

Q3 FY07 Earnings Call

January 31, 2008, 8:00 AM ET

Executives

Masafumi Nakada - CFO

Analysts

Operator

Good day everyone and welcome to today's Nomura Holdings’ third quarter operating results for fiscal year ending March 2008 conference call. Please be reminded that today's conference call is being recorded at the request of the hosting company. If 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 questions-and-answer session and a brief electronic survey [ph] will be held after the presentation.

Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be clearly 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, the trade evaluations, competitive conditions, and price, number, and timing of transactions.

With that, we'd like to begin the conference. Mr. Masafumi Nakada, please go ahead.

Masafumi Nakada - Chief Financial Officer

Thank you very much. Good evening ladies and gentlemen. Thank you for taking time out to joining Nomura Holdings’ conference call to review our financial results for the third quarter ended December 31, 2007. I am Masafumi Nakada, CFO of Nomura Holdings Inc.

Let me first make a few comments before we go into detailed discussions. The third quarter ROE recovered from the second quarter loss to 4.1%, but it is well below our target. We believe the business environment will continue to be changing for the time being. However, we still maintain a healthy financial position, highlighted by our 8.6% shareholder liquidity ratio. With this firm base, we will continue to effectively utilize our capital and other management resources to expand our client-focused businesses.

As we announced today, we have established a news share buyback program for up to 25 million shares to allow us to respond to the changing business environment. Going forward, we will flexibly manage our capital policy considering both investment opportunities and adequate capital, while continuing to proactively communicate with the market. In addition, the dividend for the third quarter will be 8.5 yen per share, in line with our dividend policy.

Now, I will hand it over to Mr. [inaudible] for a detailed discussion of our financial results. Afterwards, I will answer any questions you may have.

Unidentified Company Representative

Thank you Mr. Nakada. I will now give you an overview of our financial results for the third quarter of the fiscal year ending March 31, 2008 using the document titled consolidated results of operations.

Please turn to page five. This page provides you with consolidated financial highlights for the third quarter of the year ending March 31, 2008. Net revenue for the quarter was 276.1 billion yen. Income before income taxes was 46.1 billion yen. And net income was 22.6 billion yen. As a result, ROE for the third quarter was 4.1%.

Please turn to page six. Third quarter net revenue from all business segments totaled 251.4 billion yen, an increase of 25.7% compared to the prior quarter, but an 18.6% year-on-year decline. Income before income taxes was 51.5 billion yen, a 78.8 billion yen increase from the previous quarter, but a 64.2% year-on-year decrease.

Now, I will outline the results of each business division.

Please turn to page seven. First, I will discuss Domestic Retail. Domestic Retail recorded net revenue of 98.4 billion yen and income before income taxes of 28.5 billion yen, both of which represent quarter-on-quarter and year-on-year declines.

Domestic Client Assets declined by 3 trillion yen from the end of September to 81.3 trillion yen, due to a downturn in the stock market. However, net asset inflow remains steady at 900 billion yen, while the number of accounts with balance increased to 4.12 million.

Although turmoil in the global financial markets caused commissions for distribution of investment trusts to decline 11.1% from the second quarter to 31.4 billion yen, we saw strong demand for products that accurately met clients’ needs, such as the Nomura New Global High Interest Rate Currencies Fund. Moreover, investment trust administration fees and other grew for the twelfth straight quarter.

Sales credit rose 5.4% quarter-on-quarter to 21.6 billion yen, partly due to strong sales of Toyota Motor Credit Corporation bonds. Stock brokerage commission fell 8.3% from the prior quarter to 18.7 billion yen, due to the stock market decline.

Please turn to page eight. Global Markets net revenue of 103.2 billion yen and income before income taxes of 24.4 billion yen represent significant recoveries from the previous quarter, as well as year-on-year increases.

In Fixed Income, net revenue increased to 32.3 billion yen, partly due to firm interest rate and currency-linked derivative trading, particularly in Japan and Europe. In Equity, net revenue remained firm at 68 billion yen. This was due to strong stock trading, solid equity derivative trading in Europe, as well as firm revenue from Instinet.

Please turn to page nine. I would now like to discuss a topic that is of high interest to investors. Regarding our strategy of focusing on core businesses in the US, we're currently in the process of reducing costs and bolstering our core business areas, all with a view of turning profitable in the fiscal year ending March 2009.

As of the end of December, our RMBS-related exposure in the US is approximately 7.5 billion yen, while our CMBS-related exposure is approximately 170 billion yen.

With respect to our structured credit business in Europe, derivative transactions with monoline insurers exist for a portion of this business. As of the end of December, total exposure after provisions related to this business is approximately 79 billion yen, while we have approximately 42 billion yen of outside protection. Therefore, our effective exposure as of the end of December is roughly 37 billion yen.

Although uncertainty in financial markets has increased since the start of 2008, we are properly managing risk exposure, including exposure to monoline insurers.

Now, please turn to page ten. Global Investment Banking reported net revenue of 20.8 billion yen and income before income taxes of 5.7 billion yen. These results represent an increase compared to the previous quarter, but a decline from the same quarter of the previous year. During the period, overall equity finance volume declined, primarily due to the core performance of the Japanese stock market.

However, we acted as lead manager in the large IPO by Sony Financial Holdings and several other deals and retained our high market share. As a result, we ranked number one in the Global Equity and Equity-related league table for calendar year 2007.

In M&A, we were financial advisor on the tender offer by Japan Tobacco for Katokichi and acted as financial adviser in the management integration of TIS and INTEC Holdings. We also ranked number one in the M&A league table for calendar year 2007.

Please turn to page 11. Global Merchant Banking recorded net revenue of minus 10.2 billion yen for the quarter and income before income taxes of minus 12.3 billion yen. There were no exits during the quarter and unrealized losses and gains were booked due to the valuation of certain investee companies in Europe at fair value.

Please turn to page 12. Net revenue in Asset Management was 23.2 billion yen and income before income taxes was 8.6 billion yen. Compared to the previous quarter, net revenue declined, while income before income taxes increased. Both net revenue and income before income taxes were lower compared to the same quarter of the previous year.

Although the pace of sales of existing investment trusts slackened, partly due to the global turmoil in financial markets, as well as the implementation of the Financial Instruments and Exchange Law, sales of newly-launched funds were generally robust, highlighted by the Nomura New Global High Interest Rate Currencies Fund, which saw over 200 billion yen in sales during the quarter. As a result, total assets under management in the division remained virtually unchanged from the end of the second quarter at 29.7 trillion yen.

Now, please turn to page 13. Other income before income taxes was minus 3.4 billion yen.

Please turn to page 14. Non-interest expenses, excluding the effects of consolidation and deconsolidation of certain private equity investee companies, decreased 12.1% from the prior quarter.

Now, please turn to page 15. In line with our announced dividend policy, third quarter dividend per share will be 8.5 yen.

That concludes the overview of today's presentation. We would now like to open the line to questions.

Question and Answer

Operator

Thank you. [Operator Instructions]. We have no questions, Mr. Nakada.

Masafumi Nakada - Chief Financial Officer

Thank you very much.

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Source: Nomura Holdings, Inc. F3Q08 (Qtr. End 12/31/07) Earnings Call Transcript
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