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Nomura Holdings, Inc. (NYSE:NMR)

Investors Day 2012 Call

June 04, 2012 12:00 am ET

Executives

Takumi Shibata – Representative Executive Officer, Group Chief Operating Officer, Director

Analysts

Masao Muraki – Deutsche Securities

Natsumu Tsujino – JPMorgan

Takehito Yamanaka – Credit Suisse Securities (Japan) Limited

Katsunori Tanaka – Goldman Sachs

Makoto Kasai – Citigroup

Takumi Shibata

This is Takumi Shibata. Thank you, very much for attending today despite your very busy schedules.

First of all, I would like to start with a recap of the years up to March 2012. And as you’re aware, over the past 12 quarters, we were profitable for 11 quarters. And in Q2 of last year, we booked a loss. However, from Q3 and also for Q4, we booked profits in all business segments at the pretax level, so things are recovering.

As for ROE, it was 3.5% in Q3, but it improved to 4.2% in Q4. So, not good enough yet, but it is recovering. For the non-interest expenses, this includes the Nomura land and building, but if you exclude that on a year-over-year basis, expenses went down by 5% year-on-year. And I will touch upon later, this includes the restructuring expenses, but we do not feel the benefits or the effects of the restructuring yet, the cost cutting yet.

As for the revenues, the revenues have been adjusted to the post head count reduction levels. So, revenues are post restruction, but expenses are before restructuring. As for the changes in the environment, as you know, Nomura has been responding to the regulatory environment and we have been saying that things will become very stringent in the future. And as for the business environment, things will be tough. But this is what we have been saying from the past.

But if you look at the past two years, the market environment has been even tougher than what we expected. So things are different from what we expected which means we have to bring forward our cost reduction programs. And we are working on our cost reduction of $1.2 billion for the overall firm we have announced this cost reduction. And for wholesale, the cost reduction will be $1 billion. This is what we announced as our cost reduction expectation.

As of March end, the progress is 80%, 80, so roughly US$800 million of costs has already been reduced. So we are very sensitively monitoring costs or expenses. But on the other hand, the impact on revenues from the cost reduction is limited. And as shown on the right, we are delayering the organization of our wholesale division, and the media has been taking up this issue quite a lot. But our wholesale CEO, Jasjit Bhattal and also our Ex-Head of Global Markets, Tarun Jotwani, the two gentlemen have left our firm.

And we have a set of new position Wholesale Chairman and CEO, who covers investment banking, fixed income and equities and they have direct communication with each division. We have changed our organization. And what we’re doing is, we are trying to avoid the double layers or triple layers in our organization. This is not acceptable. And we also have to be very nimble in our communication. The environment does not allow us to have these multi-layers in our organization.

And as part of the cost reduction, we are currently delayering within investment banking, and also fixed income and equities. We are doing the same as we did for the overall Wholesale division. And let me summarize, where we stand at the moment. 2011 and earlier, we had a dominant position in Japan. However, the needs among customers for overseas transaction was increasing and we were not able to respond to these new needs.

Therefore, we felt it was inevitable that we go global. And for that purpose, we acquired Lehman Brothers businesses in Europe and Asia and integrated it with our business, and we overcame the shortages that we had in our business. But, what happened in FY March 2012 is headwind that hits the overall investment banking business or industry, which was very severe. So we are responding swiftly to these changes in the market, as I mentioned earlier.

And we are focused on client-centered business, and we are progressing in expanding our client base. And while the overall market shrinks, we are expanding our revenue share in the shrinking market. And as of today and going forward, as Asia’s global investment bank, we want to further make clear our position as Asia’s global investment bank. And while there are regional champions in Europe and the U.S., we feel there could be some regional champions from Asia and as one of these Asian regional champions, we want to become a global financial services institution based in Asia.

In Japan, we have a very strong business base. But globally, we are not able to offer everything to all clients. So we have to be more selective in our strategy. We have to sharpen our wholesale strategy. And right now, we are focused on our strength in Asia, as well as being relevant to our client. We do not want to be just like any other player who can do or try to do everything. We want to be more selective and choose which areas we can offer value to our clients and we want to deepen that strength.

And thirdly, as for the clients that we chose to deepen our relations with, we want to deliver everything that Nomura can offer to these clients. I will explain in more detail later, but our solution business, this is going to be the foundation of our solution business and fourthly, innovation and intellectual capital will be important. For the domestic business, we have the retail business, and the asset management businesses which generate stable revenues. So, we want to improve our profitability for the overall firm and fulfill our responsibility to our stakeholders.

Unidentified Company Representative

And next is the growth strategy. And to share, I would like to talk about what the stakeholder is, or who the stakeholder are, since that might be your questions and that will be shareholders first of all, and also our customers, clients, as well as the employees and also the community nearby, they would also be our stakeholders, and considering that Nomura has a very strong foundation as a group, and the stable asset and good retail division added by the market base profitable wholesale division.

The hybrid business model with the combination of all those three shall be realized. And at the same time, we have to make sure the risk management will be done thoroughly. And the risk management department shall be good enough of course, but the top management should think about the decision-making, process or be accountable for the decision-making in all the risk management matters and in order to realize that, we have to have a good and solid balance sheet and also the liquidity at hand sure be good. So the capital policy should also be looking at the future and be proactive. At this point, we are complying to give those three regulations.

Earning capital and also in liquidity, we are also always compliant to Basel III that is a part of our proactive management stance on the capital. And our uniqueness in this hybrid model which is similar perhaps to Morgan Stanley is considering Japan, retail asset management and their strength, we are very outstanding in the strength of those two managements, we have very good or stable earnings base and also we have a good retail channel and also in the asset management, we are taking up the top share in Japan. As for wholesale division, we have to be driving our revenues and also it should become a pipeline to connect Japan and the world.

Especially, since we are rooted in Asia and we would like to become a global and there can be many others and we are one of those few Asian Global Institutions and in also in Asia and Europe, as a calling card for the clients we believe we were beneficial and we have proven so.

And in Japan we have outstanding awareness from the clients and also the oversees markets, we have penetrated, we are going to focus on the clients as well as the products, and we want to provide good added value to the clients. That will be our commitment otherwise they will not be teaming with us so we shall be more deep and narrow or narrow and deep. It’s very important that we would become deep.

As for the risk management we shall, we have a thorough risk management culture in the company as shown here. But of course any other security companies would be talking about this. And what is our uniqueness? First of all we make sure the mark-to-market accounting is strictly followed.

What I mean by this is that naturally in the current universal banking what, sometimes we just put some of the same thing banking book just put the amount or sometimes maybe its not having the liquidity we would try not to hurt the PL and just book it. And that is possible, but in our case with the low liquidity items, products we still strictly abide by the mark-to-market accounting that is our uniqueness. And if you ask us to prove it, then realistically speaking, we will sell the low liquidity products we get some profits.

And in some cases, there was a 3 billion exposure, which was lower to 1 billion. In reality, that it’s not such a big profit, but still it is a profit. And from outside it is worth, it can be verified. And many companies are, many of the banks are trying to lower the ROEO and RWA and the loss budget is becoming important. In our case, fortunately we do not have to worry about that. And also as for our risk management team, we’re getting excellent personnel from outside in order to enhance our team.

What is important is that basically, not basically the top management shall be accountable and responsible for other risks. And serving and taking up of the responsibilities. As for the balance sheet, the trading assets are taking up 78% of the total balance sheet. 22% is a low liquidity, but the remaining 78% is high liquidity and for the 78%, about 58% of that is asset-backed fundings. And the remaining ones are the shares as well as the non-interest non-collateral loans and the financial institutions are not good such non-collaterals would become larger and the roll back will not be realized. But we have a very good liquidity at hand.

And also this non-collateral or unsecured funding 80% is having more than one year of remaining years until maturity. And the average of such long-term debts are about six years until maturity and considering the financial environment nowadays we want to make sure that its all right. That’s why we have a good insurance for such debts.

In initial commercial banks when they borrow such long-term debts they would also put, another something very long on the other side of the balance sheet, so the risk profile would be balanced. But we would be honest and straight and we would adjust strengthen our liquidity instead. So for about 13 months, we can do without any financing and also we do not have to sell any assets and still yet the company can survive and sustain that is the kind of funding profile we are aiming to achieve. Of course it would require some costs, but for the continuation of the business as well as for the stability for the shareholders we consider this as an insurance.

And also regarding our capital policies in 2007 and 2008 we saw that monitory crisis, but we did not have to depend on public funds. And also, we have been trying to manage down the Level 3 assets systematically and usually when the Level 3 assets are lowered, it would generate loss, but because of the reasons mentioned earlier, they are no loss and we have also strengthened our capital base. So, the top down risk management culture is in place and also the right-hand side of the balance sheet is strengthened and fortified, therefore the company’s stability is sustained.

And now the wholesale division’s sharpened strategy. We have Asia’s strength, we have strength in Asia, and we are offering client relevance and we are delivering the firm and also being narrow and selective, narrow and deep, and also we will work on innovation and intellectual capital. And now I would like to specially highlight this delivering the firm which is to provide all we have to the clients.

When the companies would try to continue the business or when an insurance company is engaged in a business, it would be affected very by different environments. And the equity might require some hedge. Then the person in charge of investment banking would be the liaison person of course, but as far as you do that hedge, they would have to use the balance sheet of Nomura and also they have to use the technology of Nomura.

So that is what we’d like to deliver as a firm that is the same for the fixed income. For instance when an insurance company would buy an insurance at March 31 is valued, would not tell everything that the insurance company, these value would change of course. The portfolio value would grow up or down, so that would require hedge and also the efficiency of the capital would also require various different measures. So as a project team, we would like to make sure we can deliver to the clients the best solutions.

And of course, any other companies or many other companies are doing the same thing. However, we’re small enough and we’re nimble enough, we’re mobile enough, therefore we are able to respond to big deals as well. And as for the innovation and intellectual capital and also establishing the relationship with the client, we have to establish a global platform and we have about 40% of our business in Asia and 30% in Europe and 30% in The Americas actually that is the idea and that is the direction we’re moving forward too.

However, right now, we’re still focused more on heavily on Europe and less on Americas. Just looking at the income, we are approaching the ideal picture, but still, we’d like to rightfully allocate our resources to in a good balance and as far Asia business their presence is becoming higher, as far as Americas business, the presence is becoming higher, but we have never seen our people going into the U.S. and become successful yet that is and the European financial institutions are struggling as well.

Now, why do we believe we can achieve success here? We are trying to be realistic in a right size that’s workable, which means that in fixed incomes the U.S. treasury for instance you know primary leader at market share we have 4.5%, which is not much. But we are keeping certain volume and also according to the research ranking we were at number seven and, which is within top 10 of the American bonds and also we are number one in the FX team and the CMR underwriter we are looking to have 5.5% share.

What I want to say here is that we are focused on the areas that where we are strong and we are very good at doing it. For instance, we are not doing working regional bonds in the U.S. so we are being selective in the areas to work on and we also want to be areas where the customers will find us useful. And in the equities we have their share of 1.2% you might wonder where we were and now it’s up to 2.5% in the market.

In the American equity market research ranking we ranked 13 and the five analysts ranked in and what is important here is that as for those three products we are in the top 10 market share. And as for the investment banking we are still in the way of making this better and we have made some achievements. One of them is Michael Kors. We have become underwriter of IPO for this and for manager as well. And Schahin is a Brazilian company and it has a very unique securitization project, which we may waive for them. And also the Rank Group, the Honeywell’s Consumer Products Group acquisition, we have shown some good results. Concerning the fiscal year of March 2010 as the base, the 2012 March was at 2.9 times bigger sales.

Unidentified Company Representative

If you look at the mass media coverage of our business, they keep focusing on the overseas business of Nomura, but we mustn’t forget our business in Japan. And most of our Japanese clients are global, institutional investors, as well as corporate clients are global, and retail investors, their portfolios are global. So, when our clients are global, we also have to be global. Otherwise, the clients will not work with us. And this is where we can leverage our position in Japan on our global business.

Our market share in TSE increased 1.5 times over the past two years. And for fixed income equity, the client flow revenues from overseas products has increased significantly. And Japan related cross border M&As also increased. We know our overseas companies very well. If we do not know overseas companies very well, then again, it’s difficult for clients to work with us. So, we want to offer full services in cross-border M&As and as for the sectors that we have chosen to work on, we want to be able to offer first-class services in the industry.

In terms of volume, it has grown by 1.8 times; the market share has grown by 1.8 times. And the question is, why we have to restructure our business when it’s going well? Some of you may ask us this. Please see the bar chart on the left. This is the global wholesale market and the revenue pool. It recovered a little bit in 2009, $315 billion, but it’s declined to $220 billion in 2011, which is a 30% shrinkage of the market. This is the current state of the industry.

And I do not see this bouncing back up in the near future. I don’t have, I’m not too optimistic about the future. And within this market, our market share has grown from 3.5%, 3.8% to 4.2% and but even with this increase in our share, the absolute amount of our revenues is declining. So, we shouldn’t be happy just with this increase in market share. The growth in Americas for Nomura’s business is offsetting the slowdown in Japan.

In the next page, I want to explain about how we will sharpen our wholesale division in the next page. We have several options, first of all, as Asia’s Global Investment Bank, we want to continue to be Japan centric, but on the other hand, we want the leverage on our strength in Asia and expand globally.

In the past, we used to be very much Japan centric and we are starting to get closer to being able to deliver globally. As for client relevance and providing value to our clients, first, we try to be very broad in our coverage, and that’s the lesson that we learnt from the past. And as a result of our businesses with our clients, we have found certain areas where we feel there is value and we want to focus our resources on these areas.

And as I mentioned earlier, we want our divisions to be independent and to give you one example, in EMEA, about 50% or 55% of revenues from the investment banking is coming from the collaboration among divisions. So, it’s not just simple M&A advisory, which tends to standout. We have various solutions and collaboration among the divisions is getting very important.

As for innovation and intellectual capital, although we cannot disclose everything that we are doing; we are working in several new initiatives and we plan to charge certain amount of fee from our clients. And we are, we have been working on some large transactions and underneath this there is very meticulous structuring and risk management. So hopefully you will acknowledge that there is a lot of meticulous structuring and risk management, which lies underneath.

Let me add some more detail about Asia’s global investment bank. The advantage that we have in Japan helps us a lot as well as the heritage that we have built in Asia. If not sufficient yet, but we do have some foundation in Asia. And we are one of the top three in APAC I think we were about number two last year and we will continue our efforts. And also based on our strength in Asia we want to grow our advantage, competitive advantage in fixed income and equities.

We want to connect the flow that we generated from Asia to the Americas. Also we want to continue to deepen our presence in the AEJ markets. On the other hand, the top bullet points show the dominance strategy whereas the bottom bullet points explain the narrow and deep strategies. As for EMEA, we have quite a strong base and for the Americas we need to further build up our position. But we already have a certain size of critical mass and as overall firm we want to selectively invest in future growth areas. As the only Asian investment bank with a full global platform, I would say Nomura is the only such bank. And this helps us a lot in winning mandates in the Asian region.

For Fixed Income, awareness towards Nomura has improved quite significantly globally which means, clients are working with us. Right now I think it’s about one in five transactions that we actually win the transactions from our clients. Our strength in Asia and equities franchise has a strength in Asia and also we have our strength in cross border transactions.

In terms of our presence in the local markets in Asia, we have various China deals, such as Haitong Securities. We participated as the book runner for Haitong Securities and we also have Manassen Food acquisition 75% acquisition by Bright Food and we have doubled our presence or volume in the HKSE over the past three year period. We are also establishing the on-shore business platform, sorry, bank platform as well. So we are working on obtaining license and then we will start business.

The same in Korea, we have been chosen as the best Korea M&A house in the past. We worked on Daewoo’s sale of China’s Shandong Cement, as well as Lotte Shopping CBs, we have participated as the lead arranger and we show several other examples, which I have skipped. We also have done a lot of work in India and ASEAN we have improved our presence.

And in terms of connecting Asia to the world, you may ask what does that actually mean? It means obtaining global financing for Asian firms. I think this is important. For example, Mitsui Sumitomo Insurance, hybrid securities, there are some important placements in offering hybrid securities also Rabobank, doing some Tier 1 capital, and we sell that in Asia, and some cross border M&As such as Marubeni’s acquisition of Gavilon, it was recently stated in the newspapers. This will help them become a grain and crops major globally. So we are helping Asian firms gain financing from overseas and also European companies raise money in Asia and we are also working on cross broader M&As. These are the three things we are trying to do and we have actually started to build a track record.

The narrow and deep strategy is quite difficult, but we would like to leverage on our strength in certain areas and in that area we want to win against our competition. And the question is what does that actually mean? And let me give you some examples. I think in a test that’s what I would be asked, so let me give you some actual examples. Financial institutions is an area that we want to focus on.

Global banks and also insurance companies globally, based on the current economic environment they are searching for solutions. So by integrating product and coverage teams, as well as doing joint ventures among business units, we can offer them various solutions.

And if you look at the rights issues in Europe, last year there were about nine rights issues out of which six was run by Nomura. We were the lead manager. And in order to win these mandates, the rights issue typically comes with the last, end of the process, so we have been offering various types of advice in order to win these rights issue mandates.

As for products, risk solution products will be important and one of our strengths is we have a very strong capital base and the other is we have a clean balance sheet, plus we have a high liquidity in our balance sheet. So, we don’t have any handicaps in taking on risk and this may not be the right example, but CDS credit-default swaps in Europe. We have quite a strong share in European CDS. And you may wonder why? But this is because European players have already sufficient credit on European names, European players, whereas we – although we do not have a strong appetite for such credit positions, when we conduct this is a patient-trades for our clients. We can use our balance sheet.

For electronic trading, which is basically Instinet and Nomura’s electronic platform, which we will be integrating. So from the clients’ perspective, sometimes the Instinet and Nomura either name will show up, but there is quite a lot of overlap in our investments so far. And going forward, as the electronic trading volume picks-up in the market, we cannot keep this overlap in our business. So we will integrate the two. We will also work on the flows among geographies.

As for the equities business, our clients are struggling right now and the active instructional investors have index investments on one hand and on the other hand there are hedge funds and our clients are in quite a difficult position. If you look at the overall industry and one of the big trends based on these – the background is electronic trading we think.

You can take a look at this page later, but this shows our focus on financial institutions and I’m showing you some of the evidence of our efforts, these are some examples that we’ve been working on. The graph – line graph shows the share prices of financial institutions so there is business to be done at both, at on the tops and bottoms of the share prices.

And when clients work with Nomura, they do not work with just the contact person or the contact sales person, they want to receive the full functions of Nomura. And Nomura, thanks to its nimble and small size we can offer this kind of service. And there are various examples which you can ask about later in the Q&A session.

The life insurers in Japan have various needs, they need some life insurance solutions, they also need some life insurance solutions. They also need some reinsurance solutions. So we have structured a solution to offer that. Nomura RE is our reinsurance business. So the question is, whether Nomura can take on insurance risk, and no we cannot. But we can take the market related risks that are involved – that are related to insurance’s.

Unidentified Company Representative

As now the Innovation and intellectual capital, I would like to skip this slide. And since we are working or something more unique, I would like to talk about that, which is the exchange traded products and that Nomura’s share is large here. And we, this is kind of passive indexed and derivatives. There is a trend for such, but we do not want to go against it. We want to be the forerunner of those trends. And as for our businesses in Americas, we are trying to grow our business as shown here that’s what I would just say.

In the long-term, Asia become the profit driver. Then would it make sense? What I mean by that is, you are saying, you’re going to become the Asia’s global investment bank, and why are you seeking chances business opportunities in the U.S. or Americas. You might think, we are contradicting, but actually right now Asia’s investment banking business is not making much money from the global perspective. Still commercial banks are making more money and the Western companies, profitable are the companies that we’ve been investing in Chinese companies and getting returns and we are working various deals in Asia but it is very competitive and the conditions are very severe and the commission is low.

So, in reality it’s becoming a struggle that is just like a survival fight but, bringing over our products Asian products over to the Americas over to the Europe and to connect them or to connect their needs to Asian market that is likely to be very promising business for the future so our - in order to enhance our capabilities we have to be strong in the Americas as well.

As for our retail division you know very well so I would just skipped this, but basically in Japan the penetration it’s still increasing, and competitors are changing their strategy for one. And they have some people might think the securities business is not so profitable, but we believe that clients assets. If it is large enough then we can get good enough earnings and profits, and also if the product are having good future insights then it would become it would be profitable as well.

And therefore the retail performance has been consistently good. But the asset management business, which is having 20% to 22% share and you might think it’s small but we are still having good presence and also our asset under management status is stable.

Now about the March 2013 and beyond, we want to be more competitive globally and we want to become as Asia’s Global Investment Bank with a good capability and establish the status. And also we’d like to achieve sustainable profitability, so that we can gradually increase ROE and the numbers are not in here, so you might think that we would just, you might think that we should issue or show the numbers.

But right now we would like to monitor, wait and see our profit levels and make sure that we will be profitable on a sustainable basis. I saw 3% of the third quarter or the 4% of fourth quarter, 4% of the previous quarter might be good. They indicate we would like to steadily build up our profits and we want to, (inaudible) ROE eventually.

Finally, the market situation is tough. However, we are trying to swiftly react to the situations. And we would continually make a prompt decision making to react to the market. And also we would be narrow and deep. And as for the way of the business and organization are, we still do not think its good enough, so we’d like to continue to work on innovations. We’d like to target sustainable profitable growth.

Thank you, very much.

Takumi Shibata

Thank you, very much (inaudible). Now I would like to open the floor to questions. Please raise your hand if you have a question. Please state your name and your organization, and we would like to limit your questions to three questions per person, thank you.

Question-and-Answer Session

Masao Muraki – Deutsche Securities

This is Muraki from Deutsche Securities, two questions. First is quite a vague question. You say regulations will continue to be stringent and on the left-hand side of page 14, you showed a revenue pool that will decline and it will not bounce back up in the near future. Under this regulatory environment you will make investments in the wholesale business, which is going to be quite tough. What kind of returns or rewards are you expecting from these investments?

And in terms of shareholders of Nomura, I think the same returns or the returns that you generate will impact the returns that we enjoy as a shareholder. And you also have to have sufficient liquidity and also the Basel III regulations, now you have to comply with the regulations, and there may be some one off losses that you might incur in the future. So what are the returns and rewards of the wholesale business as well as Nomura shares?

My second question is there have been some inadequate regulatory actions about some inadequate transactions in relation to equity financing. And based on the practices of industry from the past, is there anything that you can improve, or do you think your current level of your practices are sufficient? On page 16, number three, you show the collaboration among divisions and there is a lot of revenues generated in Europe or in EMEA. Your organizational structure and your compliance structure as well as your compensation in promoting these businesses is there any change that you have to make going forward?

Unidentified Company Representative

Let me address your second point first. According to the current business practices and the question is whether there is any improvement that we can make? And the second half of the question was about the collaboration among divisions or among businesses and can we collaborate further based on the current market conditions, I think that was the – your question.

And for your first point, the regulatory actions by the regulatory bodies well I think its impossible for us to say that the current practices are okay based on the fact that there has been some regulatory action taken, which means we’ve to improve our practices and we’ve a clear commitment in doing so.

And the second point, the collaboration among the divisions and the various solutions that we offer. So far there have not been any issues or scandals, and as for some of the transactions that have become open, such as the Barclays shares, we can talk about it, because it has already been announced roughly $3 billion investment. And hedge, the client wanted to hedge the position and the delta was $1 billion. And we traded, the Barclays shares were traded in one day, which is the accelerated book building was possible. So, within a very short period of time the transaction can be completed.

And, technically speaking, when the information was, there was communication was conducted by a post. Some transactions can be completed during a very short period of time. And these short-term or short period of transactions tend to have lower risks. And just because the transaction takes longer, it doesn’t mean that we do not have to control the risks, but the short period of transactions tend to have lower risk.

And for example when we use Nomura RE to do the insurance business so, it may seem like insurance risk, but we only handle the market risk. So, we will have the insurance risk portion borne by someone else. And in some cases that person will be our client. But this kind of position management, if it leaks to the third-parties, there is a risk that the trader will suffer a huge loss. So it’s also an incentive for ourselves to keep it confidential. But in terms of economic incentive, so in terms of keeping in confidential from an economic perspective, more important than that is from a compliance perspective, the person who has information must be kept an insider. This is my answer or the way we think about your second question.

As for your first point, about the tightening of regulations, right now the global financial institutions face the cost of transition, which means shifting from the old regulatory framework to the new framework and the cost of transition from the two frameworks. And there are various ways to respond to this – face this challenge. For example, keep thing – take it slow until 2013, some people may choose to do so or some people may bet on future profits. But as for Nomura, we have been proactive and based on the current dollar value and under the Basel III framework, Basel III capital and liquidity regulations, we are complying with these regulations.

And during the transition period, there maybe various business opportunities, also when we move into the new regulatory framework following the turmoil during the transition period, this turmoil or confusion will end. So I think the answer lies in after this period of confusion when things get more stable. And right now the valuation of global financial institutions is low, but I think this incorporates the cost of transition and people think the transition period is not over yet, but after that I think there is a brighter future. So if we make a mistake here, then we could be left behind from global trends, I think this is a big risk.

Masao Muraki – Deutsche Securities

Just to add on your comment, when you invest in your wholesale business, what kind of ROE are you planning to generate after the transition period, is that the double-digit ROE that you mentioned? Is that kind of timeframe you have in mind and if so why do you expect the ROE to go up when the business gets very capital intensive.

Unidentified Company Representative

It’s not just the regulatory framework that is surrounding us, as for the capital regulations I think we are in a very advantageous positions. However, on the other hand, over the next two years or so in regions such as Europe, et cetera, there will be difficult situation arising from Europe, et cetera. So these two, when these two issues normalize, we would like to target double-digit returns. As of today, Q3, Q4 saw a slight recovery, but we have, our strategy is to become nimble. And so that we can generate profits even in situations like the first half of last year, that we have made our business more nimble. So, over the past two years, we have become very nimble and agile.

Masao Muraki – Deutsche Securities

Thank you.

Natsumu Tsujino – JPMorgan

I’m Tsujino of JPMorgan. I have three questions. First of all, the risk mitigation in the past six months has been progressing and also as it was reported in the newspaper, you are preparing to sell Ashikaga bank’s equities, and as the private equity business is, what is your stance for the future private equity business? When I look the last fiscal year, there Delta Lloyd German equity you have bought and so forth, and including that can you tell us your future stance and related to that, I have another question.

Last June, Nomura’s land holdings structure, when the structure was Nomura own their buildings but the structure was changed the risk level increased and the other risk mitigation went on, I’m sorry that was Nomura real estate and are you – do you have priority – what is the priority for the Nomura real estate share to be lowered.

Is it going to be lowered when – is the priority and about the insurance solution business you have been explaining this before but now that there are many transactions and it’s taking us a lot of RWA and how far do you think this can go up to? I think it’s going to be a long term risk so I want to hear your ideas and opinions about that and finally in May the environmental stuff what is your global market situation (inaudible)?

Unidentified Company Representative

Well difficult questions will be answered by Ms. Nakagawa and I would first of all like to touch on your first question regarding the risk mitigation. And there were several questions – but the first one regarding our private equity business those. And Nomura real estate holdings is taking up lot of work how is it de-risking. Well several years ago, in the company, we discussed about the future private equity policy.

And that way forward is only selling and no more mergers acquisitions made it clear that in the company and if – because we are collecting 100 billion yen, mostly the 15 billion yen some people said otherwise people would be discouraged and de-motivated, so I said okay very well, you don’t have to be so motivated. We are not going to invest 15 billion yen just for your motivation and that’s what I’ve been doing so far.

As far the German case, it’s just like – if it’s just like private equity case I don’t go forward for it. And that’s where Nomura real estate case as you know I cannot answer to that question. But basically, our core strength or ideas are that somewhere we have to –we’ve got to focus on our securities business.

So, I would not deny any of the possibilities but I have to say not in the near future at least and current based on free – for free capital regulations we’re satisfying that rule and as a premise for it we have to say that Nomura Real estate is included into Nomura Holdings is our premise but on the other hand as I said earlier we are always strictly abided by market to market and you might say it’s your common sense I know but in reality many of the things are not working under common sense.

But we as a company as a whole forfeit the liquidity products we believe we can still lower the portion and we would continually like to work on the reduction as our policy. As for the insurance business, which we have a long term risk and how much are we going to do that you are asking and those different solutions actually the underlying maturity maybe either six years for those securities and for some solutions we have the customers to purchase.

So in that sense, it’s not going to take us much of our burden but for instance maybe some of them have long term risks but still yeah the – it has the operational risk. So, in a long span it’s not like something that can be calculated at very, very not so courageous enough brave enough to take up such a deep risk. That is our stance.

As far the capital, to a certainly level there is not much capital charge so we are going to wait and see how this situation would be but we will not be affected by the regulational capital size. We would be still thinking about our standalone profit base, think it’s going to be profitable or not and in the meanwhile we deal with our balance sheet in some cases. But that is not going to be the core of our insurance business that is going to be an idea.

And as far April and May end I cannot mention much about this or comment here please bear with me. During the earnings call the other day, you might have thought the yen being too weak and maybe you were disappointed about me, but January to March market was a bear market. And also LTRO is not going to happen so much in the market and that’s what I said a dozen people are disappointed but actually if you really listen closely to my comments, I’m always saying the regulation to become more severe and also the business environment will be more tough. So it’s look – as if I’m saying something totally different. And sorry I’m not really answering your question clearly, but that’s because I can’t say much here.

Takehito Yamanaka – Credit Suisse Securities (Japan) Limited

Hey, Yamanaka from Credit Suisse, just one question. In the mid to long-term, after the cost of transition ROE should go up? That’s what you mentioned. On the other hand, the allocation of risk capital, I think I asked this before. But what will the allocation of risk capital to Japan is very large, and you are shifting it to Europe, and the Americas. But you said you will be selective in the Americas. So based on your risk allocation, the market conditions and the global fee pool distribution, do you think you can really improve your ROE with your current level of business – size of business in the U.S.?

Takumi Shibata

I think it was more an opinion rather than a question, but yes, I agree. So basically, we will continue to allocate more resources to the Americas. But it’s not a gamble, we are not going to take a gamble. So we have to make sure that the organization can handle the risk capital, we have to build such an organization and increase the risk capital accordingly.

Katsunori Tanaka – Goldman Sachs

Tanaka from Goldman Sachs, two questions; the first is ROE of 3% to 4%, which you want to maintain and eventually target 10%. What’s your thinking on shareholder return? If you can maintain the 3% to 4% level, are you going to pay out dividends or increase dividends, or is the shareholder return going to be further ahead not at the 3% to 4% level?

My second question is as you show on page 14 the revenue pool you do not expect it to go up in the near future, but if the revenue pool continues to shrink, what will your thinking be for your costs and expenses? Do you think you have to cut your costs further, or as you expand globally, you have to maintain – you will maintain your current cost base. What will your response be to, if the market shrinks further, the fee pool shrinks further?

Unidentified Company Representative

As for shareholder return, I think, its chicken and egg type of question, and your second point about, if the fee pool shrinks further, will we maintain our current cost base. We will stick to our cost base is I think was your question?

We have not announced the way we are thinking. So this is just my personal view. But I think the first step should be profit, and dividend should follow. Last fiscal year, there are various ways to calculate the dividend payout ratio, but for last year, net profit of – a little bit less than 12 billion yen and the change of 13 billion yen from the changes in the tax structure. So the total of about 25 billion yen or so, based on that, 6 yen dividend is about 88% payout ratio.

Under these circumstances, I think shareholder return should not weaken our position in the market. I think that’s what we saw last year. And for going forward, if we can generate profits according to plan, what we will do about our dividends, I think that will be discussed internally. I think we will have a lot of discussions going forward internally about what to do. And the basic direction should be or could be to increase dividends. That’s my answer to your first point.

And for your second question, we are not talking about chemicals. So I think, or science so we are not sure whether the $1.2 billion is the right answer the current cost cutting level is the right answer. Last June quarter, we felt that there is something wrong with the world. We felt that and that’s why although we are unsure about the future, we chose to lower our cost by US$400 million.

We decided to reduce our cost by US$400 million. But after that we felt that things are really wrong. So we decided to add another US$800 million to our cost cutting and over the past two quarters, we have been working steadily on this cost reduction. And we are trying to make our business able to break-even even at the revenue levels of last year’s first two quarters or so and the question is if the people thinks further another 30%, what will our decision be and is the our decision in the past sufficient.

We are not going to stick to the current levels that we have announced. And we are simulating what to do about our various businesses and where to cut costs.

Makoto Kasai – Citigroup

I’m Kasai of Citigroup. And it might be near sighted, but I want to ask about the Greek issue when the situation will be more serious what will be the impact from that do you think and will it change your position management or the client order flow. What kind of impacts are you estimated from those Greek issues? We are trying to study this front as well but I would like to ask your ideas Mr. Shibata.

Takumi Shibata

Well, actually I would like to ask you what you think Mr. Kasai but first of all as for this European matters is this really a Greek issue or some other issue. That is something always in my mind maybe it might be a German issue. When I think about the nature fundamental of this European issue the mass media is blaming the sovereign debt to a certain extent. But now they are saying it’s really a financial or monetary issue or they are beginning to see that and the Spanish financial issues are considered to be the case but maybe the total European monetary financial issue.

As for the former the country, small country like Greece what should we have done for that I think there, were only one or two answers. First, we could have made it default we set up the firewalls around it that could have been one of the decisions. Then the other decision might be, because it’s such a small country we could all go and help. Either one had to be decided, but so far we were trying to help them slowly. And for such either for such small countries issue its taking more then 2.5years as still that situation is not good enough and thus fire is spreading or there is a risk of the fires spreading and people are becoming sensitive about it I think.

But when you think about it, Europe, I guess Europe’s GDP the sovereign debt is not nearly 100% maybe 85% depending on the calculations. So the Europeans sovereign debt, capability to surface are in the issue they do have a capability now its up to their intent of whether to solve it or not. And the market people like us think don’t worry if that may be they do not have that will to solve.

That actually much more serious is that European banks, actions are just following the 200 years of banking business until 2008, they just waited and they just they thought it just pretending to extend it without writing off will be good and they felt its going to be resolved in three years and three years later it was 2011 and it was not solved yet.

So the European Banks capital enhancement had to be done or have to be done sometime may you think, ECP should do it, buts its not really a bad answer the central bank’s role is to fill some financials when the banks are short of money, when the banks are going backward they do not need to help and actually the politician of politics should work for improvement here. So, we believe or we think that markets would still be difficult because the European bank issue requires the capital investment but it’s not there yet.

And now that Greek issue, first of all, the private sector involvement shall be carried out. So that, it was carried out when the bank people made the loss, but may be they don’t really understand English. The private sector involvement means, when somebody is going to make loss, so the private sector would be involved who else other than the private sector made loss that’s what I want to ask.

So, next where it would therefore it’s going to be public sector involvement and in Troika or IMF, EU and ECB, there would be loss accounted on those three, if that is the case, the ECBs increased the investment which might be require some time. And about, rather than Greece issue, let’s concerning the Americans, right now, there is, is the Europe Spring and maybe they don’t want to see a summer of Europe, which is like Europe Spring, which means that the younger people’s unemployment rate is as high as 50% and they don’t know what would happen in those cities next. They are fearing it could lead to social instability.

And now on June 17, there would be three elections one in Egypt, Egyptian Presidential election and the other on the same day, the France, French national parliament election will be carried out. And if one person did not win more than 25%, it’s going to be another election. And that famous Greek reelection is also coming up.

And there will be no more public opinion polls. If some people thought that The Moderate Party would win, especially the New Democratic Party, that was like considered to be number one, when compared with last wing they are likely to go 3% up. So they are going to win, some people said, that was 80%, then the remaining 20% of people saying they have the radicals are becoming dominant. And then the rest would be the blackout period without such public opinion polls. So we just have to wait and see.

Those two, if they actually those people who are saying those odds are the people who actually said it predicted right in the previous election, but I do not think that is so easy. Then, the Greek radical left party, what if happens when they become the ruling party. Well, maybe it’s going to lead to another reelection. The reason why I think that might be the case is because, that radical left wing party in their manifest, they mention, they mention they are going to break the promise with the Troika and then the moderate, left wing party people would not be willing to participating such cabinet. Then there could be another reelection in Greece.

So, there could be three scenarios regarding the results of Greek election, and in addition to that, what if the moderate left win the election? What would happen to Greeks default possibility? Every three month we – our blood pressure would be going up because every three month, we would have to think about spending money for Greece. It could be falling into default any day, any time, but will it be the end of the world no, I do not think it’s going to be the end of the world still.

Still, what we have to be careful is that, we have to make sure that people will not go and go to the banks to get their money back and about our impact, Nomura’s impact they own – as there is only one, this 70% or 80% – 78% of the trading asset with the high liquidity, which I mentioned earlier and also 3 billion yen with – realized when 3 billion hedge was done and so that was rest of the short maturity period that’s why it would lead into tradings.

As long as the customers, clients’ needs are there, we would have exposure, but we would make sure the management will be done thoroughly. And also once again the bear market rally might occur. So we don’t know what would happen to the equity market. We have to wait and see. But I’m on those later two of those three scenarios as mentioned if that would be real, would be truth and the equity may see more difficult market situations.

Operator

We have limited amount of time. So let’s make, next question the last.

Unidentified Analyst

(Inaudible) from Barclays, two questions. Last June, you said that the worlds, something wrong with the world last June and you decided to cut your costs order the restructuring. And when you decided to do the additional restructuring and as of today, how do you think the world has changed and what are your views before and after the decisions due to the restructuring? And my second question is, the insider trading related issues that have surfaced recently. Your name tends to come up, but in terms of your actual business, is there any impact? Has there been any impact? And going forward, when you think about your risk control, what can be the worst scenario that could arise from this issue?

Unidentified Company Representative

The first question, I think is very good leading question. But as of today, the bad situation that we (inaudible) and how things have, things differ from that. I think we were right and that things would be very bad. So, we still have to be cautious, and when you think about June 17, that’s coming up. We have to think of various scenarios. So that would be my answer to your question. So the key is, we have to continue the remainder – working on the reminder of the cost reduction that we promised, plus we have to be very open-minded when we think about the market.

As for the insider trading issue, right now their investigation is going on in various locations. So we will respond adequately. And this was also asked in the previous question, but as for Nomura, based on our own internal investigation or internal discussions, we feel or if we were not 100% adequate in terms of our organization or structure, then we will make the necessary amendments.

As for the impact of the insider trading issue and the worst-case scenario, I don’t want to say too much. So, I cannot talk too much about the issue. But we will continue our business, and we will continue to offer services to our clients. That is our intention. And as of today, we are able to continue to do so. As for the worst-case scenario, if you look at the various examples of the past, I think you can get an idea.

Thank you very much. With that, I would like to end today’s presentation. Thank you very much.

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