Nomura Holdings Inc ADR (NMR)

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Nomura Holdings, Inc. (NMR)

Q4 FY07 Earnings Call

April 25, 2008, 8:00 AM ET


Masafumi Nakada - CFO




Good day, everyone, and welcome to today's Nomura Holdings Fourth Quarter Operating Results For Fiscal Year Ended March 2008 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 in listen-only mode. The questions-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 price, number and timing of transactions.

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

Masafumi Nakada - Chief Financial Officer

Thank you. Good evening, ladies and gentlemen. Thank you for taking time out to join Nomura Holdings telephone conference call to review our financial results for the fiscal year ended March 2008. I am Masafumi Nakada, CFO of Nomura Holdings Inc.

Let me start with page four of the presentation material. As announced in March, we introduced a new top management line-up on April 1st. We have made a fresh start with a focus on creating change, aiming for world-class competitiveness and acting with speed. For the fourth quarter, in response to the worst business environment due to the turmoil in the global credit market, top management has become directly engaged in the risk management issues. We have moved decisively to limit the future losses on the credit-related products.

Please turn to page five. As a result of this, we booked a significant loss in the fourth quarter. For the full year ended March 31st, 2008, we posted income before income taxes of minus 64.6 billion yen and net income of minus 67.8 billion yen. The main causes over the business losses in the fourth quarter include increased credit provisions of around 132 billion yen for exposure to monoline insurers and an unrealized loss of about 22 billion yen in the U.S. CMBS-related business.

On the other hand, Domestic Retail, Global Merchant Banking and Asset Management booked their third straight year over strong revenue and delivered stable profits during a very tough fourth quarter. Although, we recorded a loss for the full year, we have shareholders' equity of about 2 trillion yen, and the loss will have only a very limited impact on our solid financial base.

That said, the current environment remains uncertain. We are moving to respond quickly and precisely to the declining business environment by cutting back the size of our balance sheet through reducing overseas repo transactions, exiting the U.S. RMBS-related business, and reducing our U.S. CMBS-related positions.

We also announced today a fourth quarter dividend of 8.5 yen per share. That brings the total dividend for the full year to 34 yen per share. Our target dividend for the fiscal year ending March 31st, 2009 will be 34 yen per share, in line with our dividend policy.

Please turn to the next page. This page shows consolidated financial highlights for the fiscal year ended March 31st, 2008. Net revenue for the full year was 787.3 billion yen. Income before income taxes was minus 64.6 billion yen. Net income was minus 67.8 billion yen. ROE for the full year was minus 3.3%. For the fourth quarter, net revenue was 21.5 billion yen. Income before income taxes was minus 198.3 billion yen. And the net income was minus 153.9 billion yen.

Next, I will provide you with the details of our transactions with monoline insurers. Please turn to page five. This page shows our gross exposure to monoline insurers in our structured credit trading business, part of Global Markets. These exposures are managed in Europe. The chart also shows counter-party risk results, our net exposure, and the CDS or credit default swap protection.

As of the end of March this year, our gross exposure to monoline rated A or higher was $1.1 billion. Counter-party risk reserves and other adjustments increased by $100 million to $200 million. Net exposure was $900 million. For other monolines, we have reserved our exposure in full. So any further changes to this exposure will not affect earnings.

Please turn to this next page where I will explain how we have dealt with changes in the transaction with monoline insurers. This page provides an outline of our exposure to… and the provisions for monoline insurers rated A or higher from December. As shown here on the left, our growth exposure to monoline rated A or higher was $795 million at the end of the third quarter. We had made $94 million in provisions after taking into account the creditworthiness of monolines we deal with.

As shown in the middle of the page, the deterioration during the fourth quarter in the credit risk of underlying assets for credit derivates led to an increase in the credit spread. This meant that the growth exposure… the insurance we were entitled to receive from monoline increased more than expected. If there were no concerns over the creditworthiness of monolines, there will be no impact on our earnings. However, we made increased credit provisions due to the growing concerns over the financial situation of monoline insurers. We reserved our exposure to one certain monoline in full as we felt there was a significant chance that it would not be able to pay out should credit event occur. In addition, we have made certain arrangements on dispositions to eliminate any impact on our earnings in the future due to changes in the gross exposure.

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