Nomura Holdings Inc ADR (NMR)

NMR 
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Nomura Holdings, Inc. (NMR)

Q1 FY09 Earnings Call

July 29, 2008, 8:00 AM ET

Executives

Masafumi Nakada - Executive Officer, CFO

Analysts

Presentation

Operator

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 type, number, and timing of transactions.

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

Masafumi Nakada - Executive Officer, Chief Financial Officer

Thank you very much. Good evening, ladies and gentlemen. Thank you for taking time out to Nomura Holdings conference call to review our financial results for the first quarter ended June 2008. I am Masafumi Nakada, CFO of Nomura Holdings, Inc.

Let me start with page four of the presentation material. Net revenue for the first quarter of the fiscal year ending March 31, 2009, was 135.1 billion yen. We reported a loss before income taxes of 84.3 billion yen and net loss of 76.6 billion yen for the quarter. The losses are the result of a conservative evaluation of our investment assets, in line with the accounting standards following further review of risks in order to limit future downside risks amid the increasingly crowded economic environment.

We have moved aggressively from last year to deal with our risky portfolio by exiting the U.S. residential mortgage-backed securities business, reducing our commercial mortgage-backed securities portfolio, and addressing our exposure to monoline insurers.

During the first quarter, we stepped up our initiatives to deal with our risky portfolio. The losses for the quarter stem from three main areas: first, we moved to prevent future losses from transactions with monoline insurers that have been downgraded due to deteriorating creditworthiness. As a result, we increased credit provisions to cover 85% of our gross exposure with monolines and booked a loss of 63.1 billion yen. I will go into more detail in a moment; however, we believe that we have now mostly finished dealing with our exposure to monolines.

Second, we wrote down total of 37.3 billion yen on private equity investee companies, which we see as having a high risk of experiencing a deterioration in earnings. We revalued these companies in line with current conditions in order to ensure increased flexibility in future, including ongoing measures aimed at restoring business performance over the medium and long term. Third, because Fortress is an equity-method affiliate, we took in an impairment of 21 billion yen on our stake due to a decline in the share price.

In addition, we have continued raising subordinated funds during the first quarter. We have now raised a total of 600 billion yen from bond insurances and the loans, thereby enhancing our capital structure. By moving to limit downside risks and strengthen our capital structure, we have laid the foundation to capitalize on the business opportunities as they arise.

Although the environment is very tough for generating revenue, we succeeded in expanding businesses with future benefits.

Please turn to the next page. In our retail operations, Domestic Client Assets increased by 3.6 trillion yen from the end of March to 75.8 trillion yen. Net asset inflow was 1.07 trillion yen, an increase of 52% on the prior year quarter. Funds continued to flow into investment product during the quarter with strong sales of both newly launched and the existing investment trusts. Our retail operations from... sorry, our retail operations form a solid foundation for our business and we remain focused on further expanding our client base.

We are also seeing progress in our wholesale business backed by our extensive global network and strong financial position. In the first quarter, we acted as financial advisor on a major cross-border M&A deal and topped the first half league table for M&A involving Japanese companies.

In addition, we invested in Ashikaga Holdings. So we are establishing a steady track record despite the reduction in the market for the supply of funds for businesses as a result of the uncertain economic environment.

Now I will outline our exposure to monoline in more details. Please turn to page seven. The top half of this chart shows the notional amount, gross exposure and the counterparty risk reserve as of June 30 for credit derivative transactions with monoline carried out by our European Global Markets operations.

As shown in the row entitled Others, we have made full provisions for our gross exposure to counterparties that has been downgraded and are believed to be facing a serious decline in creditworthiness and implemented various hedging operations to prevent future losses. For exposure to other monolines, we have made valuations based on a tough market outlook and booked additional provisions. As a result, we have limited losses for 74% of the gross monoline-related exposure shown here and have a net exposure of US$174 million.

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