Nomura Holdings Inc ADR American Depositary Shares

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Your line is muted. Good day everyone and welcome to today's Nomura Holdings first quarter operating results for fiscal year ended March 2026 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 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 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. Hiroyuki Moriuchi, Chief Financial Officer, please go ahead.

Moriuchi CFO speaking. Thank you very much for joining us. Let me brief you on the results of operations for the first quarter. First of all, please turn to page 2 of the document. This is the page on the executive summary. Group net revenue came in at 5 to 3.3 billion yen, up 16% over last quarter. Income before income taxes grew 64% to 160%. was 104.6 billion yen, an increase of 45% compared with last quarter. The introduction of reciprocal tariffs for the United States and increase in geopolitical risk led to an uncertain market environment, but all four divisions, including the newly established banking division, achieved In addition, the sale of fixed assets by Nomura Properties announced last quarter contributed to income-before-income taxes of around 56 billion yen in the first quarter. As a result, EPS was 34.04 yen and annualized ROE was 12%. Next, let's look at the performance of each business, starting with wealth management on page 5. Wealth management first quarter net revenue increased 6% to 105.8 billion yen and income before income taxes rose 8% to 38.8 billion yen. Despite the stock market's sharp decline in April, The provision of consulting services tailored to clients' needs resulted in an increase in primary bond sales and secondary stock transactions that captured market fluctuation and flow revenue, etc. grew 16%. Partly owing to the newly established Japan Stock Investment Fund, recurring revenue assets saw a net inflow for the third quarter. The recurring very new cost coverage ratio over the last four quarters reached a high level of 69% owing to our efforts to keep costs down. Please turn to page 6 for an update on total sales by product. Total sales increased 24% to 6.7 trillion yen. Sales of stock rose sharply compared with the previous quarter, partly owing to a tender offer worth more than 1 trillion yen. Sales of bonds increased 42% owing to large primary transactions including unsecured soft bank group corporate bonds. We will now look at KPIs on page 7. As shown on the top left, recurring revenue assets saw a net inflow for the 13th consecutive quarter at 278.9 billion yen. Meanwhile, as shown on the top right, recurring revenue declined versus the previous quarter. This was because of a decline in recurring revenue assets during the quarter as a result of the decline in stock prices in April 2017. and because of the absence of investment advisory fees in the first quarter, which are collected on a half-yearly basis. However, owing to the net inflows of recurring revenue assets and market recovery, recurring revenue assets recovered to 24.6 trillion yen at the end of June. Next, please turn to page 8 for investment management. Net revenue was up 18% to 50.6 billion yen, while income before income taxes rose 39% to 21.5 billion yen. As you can see on the bottom left, investment gain and loss improved sharply quarter-and-quarter to 9.9 billion yen. This reflected an improvement in investment related to American Century Investments and driven by private equity investment from Nomura Capital Partners. Business revenue fell 6% owing to a decline in Nomura, Babcock and Brown net revenues and the low performance fee compared to the previous quarter, but asset management fees, which make up the lion's share of business revenue, remain solid. Please turn to page 9 for an update on the asset management business, which is the key source of business revenue. As you can see on the top left of the page, assets under management at the end of June hit a record high level of 94.3 trillion yen owing to market recovery. Net inflows came to around 108 billion yen as shown on the bottom left with net outflows from the investment trust business totaling around 207 billion yen and net inflows to the investment advisory and international businesses of around ¥315 billion. In the investment trust business, investment trusts excluding ETFs and MRFs saw net inflows of around 280 billion yen driven by newly established japanese equity investment funds while etfs saw outflows of approximately 670 billion yen these etfs outflows are presumed to be due to selling by certain investors individuals waiting to reinvest and profit taking despite net outflows related to global equities the investment advisory and international businesses saw net inflows owing to inflows into yen bonds and international high-yield bonds. As you can see in the bottom right, we continue to build out our private asset businesses steadily while the yen strengthened during the quarter. Alternative assets under management reached a record high driven by continued growth in net inflows. Please turn to page 10 for wholesale. Wholesale net revenue rose 1% to 261.1 billion yen and income before income taxes increased 12% to 41.9 billion yen. Global markets revenues increased 8% and investment banking revenues fell 27% dropping back after strong Q4 performance, but still reached the highest level for Q1 since fiscal year 2016 and 2017, the first fiscal year for which a comparison is possible. Please turn to page 11 for an update on business line performance.

Firstly, global markets net revenue increased 8% to 223.1 billion yen. Fixed income net revenue was up 18% at 124.8 billion yen. Let's look at product breakdown. In macro products, rates successfully monetized the increased market volatility and client flows, resulting in substantial revenue growth in Europe. FX emerging revenues rose sharply in Asia. In spread products, credit revenues grew in Japan and Europe as the business successfully captured client flows and securitized products maintained strong momentum driven mainly by originations in the U.S. Equities net revenue fell 3% to 98.3 billion yen. Equity products net revenue was driven by strong performance in derivatives business in the Americas. Execution services revenue fell following strong performance in the Americas in the previous quarter. Please turn to page 12 for investment banking. Net revenue was 37.9 billion yen, down 27% from the previous quarter when performance was particularly favorable. That said, as seen on the bottom right, it was the highest amount on record for the first quarter of the fiscal year, based on the comparable data going back to fiscal year 2016-17. Net revenue was driven by business in Japan, reflecting ongoing efforts of companies in Japan to improve capital efficiency and achieve growth. Byproduct in advisory, many Monday deals, chiefly in Japan, were announced and completed, including deals expected to be profitable after the second quarter. In the league tables from the period from January through the end of June this year, In advisory, we ranked highest in the Japan-related M&A League table and 11th in the global M&A League table, demonstrating its global presence. In financing and solutions, etc., revenue rose in DCM in response to an increase in the value of domestic corporate bonds issued and fell in DCM, partly owing to seasonal factors. Next, please turn to page 13 for banking division, which became an independent division in April. In banking, net revenue was 12.8 billion yen, a rise of 12%, and income before income taxes was 3.6 billion yen, an increase of 19%. KPIs such as loan outstanding and investment trust balance stayed buoyant, as you can see, and income from lending activities and trust and agent services held firm. In May, work to upgrade Nomura Trust and Banking's core banking system was completed and preparations for the adoption of sweep accounts in next fiscal year have been going smoothly. Next, page 14. Group-wide expenses were ¥363.0 billion, a 2% increase from the previous quarter. Compensation and benefits were 186.3 billion yen, rising 8%, reflecting an increase in performance-linked bonus provisions. Information processing and communications expenses were 57.2 billion yen, a decline of 5%, mainly attributable to yen appreciation, and also owing to factors including the dropping out of one-time expenses recognized in the previous quarter. As an additional detail, other expenses came to 51.8 billion yen, nearly the same amount that was recognized in the previous quarter. This includes 6.6 billion yen related to compensation for losses arising from illegal trades in client accounts due to phishing scams, and 2.7 billion yen related to the acquisition and integration of the U.S. asset management business of Macaulay Group. Other expenses look the same as the previous quarter because professional fees and other transaction-related expenses declined. Finally, financial position, page 15. In the table on the bottom left, you can see that Tier 1 capital was about 3.4 trillion yen, down about 100 billion yen from end of March, and risk assets were about 22.9 trillion yen, an increase of about 1.4 trillion yen, with a result that the common equity Tier 1 ratio was 13.2% at the end of June. Within the 11 to 14% target range we introduced at the investor day in May. This ratio is down from 14.5% at the end of March, attributable to an increase in risk assets arising in the course of normal business activities in the agreement to acquire all equity of the U.S. asset management business of Macaulay Group factors that had the effect of depressing the ratio by about 0.8%. After the closing of the acquisition, the method of calculating the regulatory capital ratio will change and the effect of the acquisition on the ratio will change. This concludes our overview of our first quarter results. I would like to close with some final remarks. The first quarter got off to an uncertain start as the U.S. introduced its tariff policy in early April and various events pointed to heightened geopolitical risk. Under such circumstances, we think our business got off to a steady start with revenue and profit rising quarter on quarter in every division. In the first quarter, EPS was 34.04 yen and ROE was 12.0%, which are the highest respectively since the first quarter and the third quarter of fiscal year 2020 and 2021. On this basis, we have attained the quantitative target announced last year for 2030 of consistently achieving ROE of 8 to 10% or more for five straight quarters. The Nikkei stock average has been above the 40,000 yen level recently, gradually making up for ground loss when it declined in April this year. Net revenue in wealth management In Japan, Nikkei stock average has been above the 40,000 yen level recently, gradually making up for ground loss when it declined in April this year. Net revenue in wealth management thus far in July has been slightly above the first quarter since mid-June. Client sentiment has gradually improved in tandem with an easing of market uncertainty, lifting the volume of business involving stocks and investment trusts. In July, recurring revenue has been rising in response to a recovery in market prices, with inflows of recurring revenue assets continuing to exceed outflows. We think wealth management will be able to shine precisely because of the changing conditions, and we look forward to continuing the conversation with our clients. In wholesale, equity products have been doing well in global markets business. Corporate actions aimed at improving capital efficiency and growth, particularly in Japan, remained at a high level in investment banking. In July thus far, net revenue in wholesale has been tracking in line with the level in the first quarter and continues to be solid. We would like to provide some more context on the issue of illegal trading in clients' accounts. resulting from phishing scams. In response to instances of illegal trading, we raised the security level in stages, and the number and scale of damages have come down from the peak. Our plan now is to accelerate the implementation of more sophisticated security measures and roll out a pass-key authentication system that uses more secure biometric authentication sometime this fall. But we should mention here that even our existing security protocols have been examined by external parties and have been judged to be up to spec with industry standards. We have been in direct contact with all Mosul clients that have been affected by the attacks. We plan to deal with the situation thoroughly in consultation with them. We plan to monetize business opportunities while continuing to pay close attention to our risk thresholds and cost controls. We ask for your continued support.

We have a question and answer session now. If you have a question, press sharp 7. If you want to cancel a question, press sharp 7.

The first question is by Watanabe-san of Daiwa Securities. Watanabe-san, please go ahead. Watanabe of Daiwa Securities, I have two questions. First of all, phishing scam and the compensation for losses. Q1, 6.6 billion yen. but up to end of June, all of the illegal transactions had been reflected, and I think your policy is to bring back the position of the clients back. Is it going to be expended? Is it going to be reflected in your credit cost? And then on page 11, if you look at the current growth, FIC was... while equity was strong. Other than Forex, what's the backdrop to FIC and equity trends? And also, if you have monthly trends for FIC and equity, we would also appreciate such information. Thank you. Watanabe-san, thank you for the question. First of all, on the phishing scam, and the compensation, whether the cost reflects the transactions up to end of June. Up to 28th of June, on the assumption of restoring their positions, we estimated the cost counting the trays up to 28th of June. So I think it's safe to say that all of the Illegal trades up to the end of June had been reflected. And also, where will this expense appear? On which line? Other expenses. It's included in the line of other expenses. I hope I answered your first question. Yes. Thank you very much. That was Watanabe speaking. Then this is the CFO speaking. Excluding Forex, equity, strong, fixed income, rather weak, that was your impression. And regarding fixed income, as you rightly pointed out, if we exclude strong yen, then... In comparison to the American peers, I think we've been able to catch up to a certain extent. However, we may appear to be slightly weak because of the confusion of the April market. The Japanese rates product was rather lagging, and that had caused some impact. Japan's rates, after May, we have been able to capture customer flow. However, due to the lag in April market, that had been reflected in our performance. And Japan, credit, SBPC, securitization, slightly up. There was bouncing back from that strongness. And also the monthly trend at the global level, fixed income in April, there was slight strength. 30% in the mid-30s, but May, June, more or less the same. So Japan was rather weak, but outside of Japan, there was some strength. And on the equity side, in April, there was confusion, and that increased volatility in trade. We have successfully been able to do risk management, so as far as equity is concerned... close to 40% revenue was gained for equity. So April was strong. So that's where we are today. I hope I answered your question. Watanabe speaking. Thank you very much. And can I also confirm the reasons behind the strength in equity? Equity, this is the CFO speaking. Equity, yes, our performance was strong, especially the America's customer flows led to U.S. derivatives performance being significantly strong. Thank you. Watanabe speaking. Thank you very much for your responses.

The next person asking the question is Ms. Tsuchino of BOFA Securities. Tsuchino-san, please. Thank you. Regarding global markets, in July, what is the situation that you could, is there any particular situation you can talk about so compared to the other period during that term for Japan and also for overseas could you add some color of GM situation and secondly about technical details for each region EMEA is in the red ink but looking at the GM geographies FIC in Europe increased in profit but why is this situation? Thank you, Tsujino-san, for your questions. Firstly, your first question, a situation in and after July, any comment from our end? Overall, In GM, the business is not so bad, and especially equity is strong and fixed income is relatively weak. But overall, performance is in line with the first quarter level. And also, could you give me a moment? to address your second question. For Japan and overseas, situation of business in Japan is not weak, but overseas business is stronger than the business in Japan. That's our impression. Are you talking about both equities and FIC? Thank you. In Japan, fixed income is weaker than equities, and equities are stronger for each region. In the USA, in America, Recently, we see a solid performance. In EMEA, the business is in line with our assumptions. And in AEJ, there is some slowness, but it's within the assumed level or assumed range. Okay. And your second question. So the reason why the weakness, the reason for the weakness in EMEA, why was loss incurred? That's because due to market factors, laser business was weak. So that was the reason. Also, in EMEA, when we look at the cost, personnel cost, due to the compensation regulation in Europe, in the first quarter, the cost that had to be recognized in the first quarter was inflated because of the regulatory impact. So those are the two factors that explain the slowness in EMEA. Other than them, the remainder is accumulation of smaller items. I couldn't catch what you said regarding what you said about the market. I couldn't catch what you said. Could you repeat? I said, laser digital, we have a digital asset business and that was affected by the market conditions and the performance there was not so strong. Okay. Understand. Was it so weak? But the market was recovering, if I recall, April through June. Market was weak in January through March, generally speaking, regarding crypto assets. And flow, aside from Japan, flow overseas in the April through June quarter flow was, there was a sufficient flow in my understanding. Thank you. Not only the Bitcoin market but we hold various currencies and we also conduct venture startup type investing as well. So we received, we were affected on multiple fronts. Okay, understood. Thank you.

The next question is by Muraki-san of SMBC NICO Securities. Muraki-san, please go ahead. Muraki of SMBC NICO. On capital policy and M&A, I have a few points I wish to ask. Page 15, capital policy. You're the new CFO Moriuchi-san. I want to confirm with you your basic policy. Here, hierarchy of capital policy. What's the priority? What's at the helm of capital policy? And also Q2, share buyback, set one ratio. Macquarie closing on the, that's assumption, 12.5 probably at pro forma basis, but target range, that would be the midpoint of the target range. What's the probability of risk-taking? And what do you think about the level? Is it high, low? And regarding Macquarie, December end was the original target date for closure. Has there been update? And also intangibles, amortization, and contribution to profits. If you have any updates on those points, I would also appreciate it. Thank you. This is Moriuchi speaking. Thank you for your questions. First question was on capital policy and what's our priority in capital policy. That is how I interpreted your question. First of all, it's about business strategy. Going forward in our business strategy, investment, what's the expected investment and what are the specific opportunities and what are the strategies to capture those opportunities? Those are the points we need to think first. And in such a strategy, if we are not able to find many investment opportunities, then we will the shareholders, but if we think that there are many opportunities, we've committed to more than 50% return of benefit to shareholders. So that's taken into consideration. We will try to strike the ideal balance. A related point. 12.5%. It's the midpoint of the range between 11 to 14%. What's our evaluation of the level? In terms of capital, capital will become slightly thin, so it's probably thinning the capital rather than being at the midpoint. Set one, the lower bound, 11%. It's difficult from the capital soundness perspective. So, especially regarding wholesale, this will be the limit as you try to capture business opportunities. We say that and that versus usage. there could be some buffer, but taking into consideration the possibility of that buffer becoming tight, then it may be on the lower side. So is it too low so much so that it would be difficult to return benefits to the shareholders? No, not that level, but it may be slightly lower than the midpoint. Thank you. And again, this is the CFO speaking. Do we have some updates? The original plan was to close by end of December. At the moment, each country's regulatory authorities are being approached and were in the filing process towards closing. And also, by them coming into our group, there would have to be some linkage with the functions like IT and also they have to be booked into our accounting system so consolidation system has to be worked out and we are currently conducting discussions with our counterparties and these consultations are proceeding extremely smoothly so at this stage Are there any critical issues that would hinder closing? No. For the time being, there appears to be no such issues. And regarding profit contribution intangibles, there's the NDA that we have signed. So until closing, it's difficult for us to comment further on the level. Thank you. Thank you very much. This is Muraki speaking. On the first point, you want to increase that one. In other words, you want to raise it to the higher level of the range, but risk asset, Macquarie Asset Management, credit risk increased due to the agreement you reached. Market risk has increased, but considering your current market operations, RWA, market operations RWA is about to increase in June. Do you think that there has been increase in this quarter? What do you think about the trend in risk-weighted assets? Thank you. Thank you for the question. This is the CFO speaking. Why is RWA increasing in the market? One, in the current business, exposure is increasing in some areas, and that's being reflected in global markets and in investment banking, especially the global markets, but pipeline and activity and opportunities have become quite visible. So within our company, we are struggling to do the management of financial resources, but there is high performance and RWA may increase, but it's increased to a certain level, so we may have to manage more stringently. Thank you. Thank you very much for your response.

The next question comes from JP Morgan Securities, Sato-san. Sato-san, please go ahead. I am Sato from JP Morgan Securities. It's a simple confirmation. Firstly, in the first quarter, you had special factors related to the $2.7 billion related to acquisition of Macquarie business and the compensation for the damage, $6.6 billion. So how are you reflecting these factors into different segments? And second point is regarding investment management, especially ETF outflow, 670 billion yen. So has the situation already settled by the end of June? Thank you. Thank you for your questions. Regarding special factors, where in the segment are we booking them? As for sale of Takanawa facilities, it's in others, in segment others. And as for Macaulay and fishing compensation, they are in the headquarters or corporate account. And your second question, regarding outflow of ETF fund, By the end of June, the situation has settled down. In the first quarter, we had ETF outflow, and our speculation is that it's due to the activities of certain investors which led to outflow. So excluding the activities of specific investors, the situation would have been worse. Thank you. Then page 8 of the material, investment management cost. The cost on a YOY basis or Q on Q basis, cost has slightly gone up. If the increase is not due to special factors, what's the reason for the cost increase? Thank you. Regarding YOY, the personnel cost increased and the performance-linked bonus increased for one thing. Also, Nomura Capital Partners' investment performance-linked compensation increased somewhat. That's another reason. Understood. Thank you very much.

The next question is by Morgan Stanley, MUFG Securities, Nagasaka-san. Nagasaka-san, please go ahead. Nagasaka, Morgan Stanley, MUFG Securities. Thank you very much for the presentation. On client sentiment, I have Two questions on investment banking division and wealth management division. Regarding investment banking, if we look at the results of American banks in the April-June quarter, they have drawn bright pictures regarding their guidance and engagement with clients is becoming more active. Those are some of the comments issued by American banks. sentiments and more engagement with corporate customers? You said that the pipeline is full, which we understand, but including the outlook, what do you think about the posture of the corporate sector? Have you seen change or any other uniqueness in Japan? Can we still expect a stable deal completion in the Japanese market? Next on wealth management, the recurring assets net increase since July, but do you think that the customer behavior has changed when the market is down, or even in the midst of uncertainties, do you think that the investment appetite has remained strong? Have you felt any changes in the client posture? This is a CFO speaking to the client sentiments and especially on investment banking. First, if we compare Japan and overseas, regarding Japan, there are slightly different behaviors in comparison to other markets. We feel so. In the past couple of years, On a continuous basis, the demand seems to have been quite high regarding activities. Corporate Governance Code, Steership Code, was adopted a few years ago and close to 10 years have passed, and in the recent one or two years, we have seen quite strong amongst the corporate sector. In other words, they think that they need to take action. So this may be unique to Japan, different from overseas markets. And on the other hand, regarding overseas markets, after the Trump tariff news, there had been some delays to deals, and we were no exception. But that kind of delay has become... stabilized so we can't it may be correct to say that the sentiment is improving but in terms of pipeline increasing I think the signs are brighter and in the wealth management division regarding wealth management in April there was a market shock and there were some clients who took the wait-and-see attitude, but in April, May, and June, flow revenues were sound. But because the shock was quite significant, to a certain extent, clients took the sidelines. But it didn't go as far as going into panic status. So in that sense, Investors remain calm and literacy amongst the clients has improved and we are expecting that they will become even mature as investors. Thank you. Thank you very much for those responses.

If you have a question, press sharp 7.

The next person asking the question is ACBI Securities, Otsuka-san. Otsuka-san, please go ahead. I'm Otsuka from ACBI Securities. Can you hear me? Yes. Thank you. This is Otsuka. I have two questions. First, regarding phishing scam. 6.6 billion yen that's the number you've talked about but according to media report now online securities and the face-to-face securities firms their responses are different online security firms they make compensation to cover 50 percent of loss mostly but in your case is it Some media reports said 100% of damage will be compensated for by Nomura, but what is your approach? Thank you. Online security firms, well, they make a financial compensation to cover 50% of loss or damage. In our case, our approach is restitution. That's different from 100% financial compensation. In other words, Before the damage on clients, our approach is to bring everything back to the situation before the damage. So the restitution is our approach. So that's different from online brokers' approaches. Okay, so it's not monetary compensation that you are making? Yes, exactly. So our basic approach is restitution, bringing the situation back to the previous state. And of course, regarding the damage suffered by clients and depending on the specific situations, it is not that we apply the same restitution approach. all the time. So it is possible that on a case-by-case basis we consider the monetary compensation, but the basic stance or approach is to restore the situation back to the previous state. Thank you very much. My second question is about the policy holding sale and your revenue. So there is the I do not find carved out numbers, so it may be difficult for you to answer, but global markets, equity execution and investment banking, those are the areas where we see the numbers, but normal securities, standalone numbers such as trading securities and the underwriting of securities, In the first quarter, there seems to be a slowdown from last year. Is it the right understanding? That's my second question. Thank you for your question. Regarding the sale of policy holdings, as you say, global markets are sale over holdings. securities through block trade or that kind of opportunity or the offering by investment banking such as ebb so that kind of ecm and transactions would be another approach but as you say the last year or two we have had a high level of activities related to policy holdings of shares but uh pace of our activity is slowing down even though our activities will not come down to zero but we expect normalization of pace of our policy holding related activities okay then thank you then in investment banking you have mentioned pipelines and deals if anything you are referring to the advisory side of business yes Moriuchi speaking, in IB, we foresee pipeline in IB in the area of M&A advisory. For DCM, we have a certain level of strength. On the other hand, for ECM this year, last year's activity was at quite high level, so we see slowness with ECM this year. Okay, understood. Thank you very much for your explanations.

If you have a question, press Sharp 7. As there is no more question, We'd like to conclude question and answer session. Now, we'd like to make closing address by Nomura Holdings.

Thank you very much for joining us. This was the first session for me to speak to the analysts. In future quarterly results announcements and in various other activities, we will be depending on your great support. We will be working hard. I will be working hard, so I solicit your continued support. Thank you very much.

Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines.