Nomura Holdings Inc ADR (NMR)

NMR 
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Nomura Holdings, Inc. (NMR)

F3Q13 Earnings Call

January 31, 2013 4:30 am ET

Executives

Atsushi Yoshikawa – Group Chief Operating Officer, Representative Executive Officer and Chief Executive Officer-Wholesale Division

Junko Nakagawa – Chief Financial Officer, Executive Officer

Analysts

Masao Muraki – Deutsche Securities Inc.

Shiel Dasan – Daiwa Securities Capital Markets Co. Ltd.

Natsumu Tsujino – JPMorgan Securities Japan Co., Limited

Katsunori Tanaka – Goldman Sachs Japan Co., Ltd.

Futoshi Sasaki – Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

Presentation

Operator

Good day, everyone and welcome to today’s Nomura Holdings’ Third Quarter Operating Results for Fiscal Year Ending March 2013 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 achievement 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. Atsushi Yoshikawa, please go ahead.

Atsushi Yoshikawa

This is Atsushi Yoshikawa, Group’s COO. Thank you very much for participating in today’s conference call. First, I will say a few words before handing over to our CFO Junko Nakagawa and we will take your questions after that thank you.

Earlier today, we announced our third quarter financial results, reporting higher net revenue and income before income taxes in our Retail, Asset Management, and Wholesale businesses. I’m sorry, today I have a cold, so my voice may sounds a little funny. I apologize in that case. We increased our income in all businesses and also in all regions, including our international operations.

In the Retail division, we reported robust sales of equities and investment trusts on the back of an increase in retail investor appetite, supported by a favorable market conditions. In Asset Management, assets under management grew as a result of improved investment conditions and fund inflows. Both divisions reported significantly higher pretax income.

All Wholesale business lines booked an increase in revenues during the quarter, with fixed income the key revenue driver. Wholesale pretax income was at the highest level in three years. On a firm-wide basis, revenues and pretax income declined from the previous quarter due to factors in the other segment, including a decline in revenues at consolidated entities and the effects of a tightening of the credit spread on our own bonds. Our CFO, Junko Nakagawa, will explain these factors in more detail in a minute.

I will now hand you over to Ms. Nakagawa. Thank you.

Junko Nakagawa

I will now give you an overview of our finical results for the third quarter of the fiscal year ending March 2013, following the documents. All business divisions reported higher revenues and income, as mentioned by Mr. Yoshikawa, by favorable market conditions. Net revenue from Retail, Asset Management, and Wholesale increased a 30% quarter-on-quarter to JPY303.4 billion. Income before income taxes was 4.6 times to JPY71.9 billion, our best quarter since Q3 of the year ending March 2010. However, a number of factors unrelated to our business divisions led to a decline in firm-wide net revenue and income before income taxes. Let me give you the reasons why page four.

Third quarter net revenue declined 3% quarter-on-quarter to JPY389.1 billion. As already mentioned, all three business segments reported higher revenues, increased by 30% at aggregate level. The factors behind the firm-wide decline in revenues are reflected in the other segment and include a 16% drop in revenues at consolidated entities related to Nomura Land and Building to JPY108.9 billion and tightening of our own and other credit spreads, which led to a loss of JPY23.2 billion. In addition non-interest expenses include JPY24.1 billion write-down of real estate mainly held by consolidated variable interest entities. As a result of these factors, income before income taxes was JPY13 billion.

The majority of the JPY24.1 billion real estate write-down is however attributable to third parties and not Nomura Holdings, so the negative impact on net income is limited to only JPY2.1 billion. As a result, Q3 net income jumped 7.2 times to JPY20.1 billion, which equates to an annualized ROE of 3.8%. The Wholesale international businesses performed well during the quarter and we are seeing results from our cost reduction program that started last year. All international regions reported pretax profits.

Next please turn to page five for our business segment results. Net revenue of our three business segments increased 30% from last quarter to JPY303.4 billion. Pretax income was JPY71.9 billion, up 4.6 times; the highest level in three years. A detailed breakdown of each segment is shown from page seven onwards, but before that please turn to page six, which gives you the breakdown of the factors affecting income before income taxes and net income.

As shown pretax income in the three segments was robust, increasing 4.6 times to JPY71.9 billion. After deducting JPY23.2 billion loss related to our own credit and JPY24.1 billion real estate write-down at consolidated entities, pretax income was JPY13 billion. Of the JPY24.1 billion real estate write-down, JPY19.5 billion is not attributable to Nomura Holdings and is factored out as non-controlling interest. Accordingly, Q3 net income attributable to Nomura Holdings was JPY20.1 billion.

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