Daiwa Securities Group Inc. ($8601)

[Operator Instructions] I would like to introduce the first person, SMBC Nikko, Muraki-san.

So I have a question related to ORIX Bank's acquisition. The first point relates to Slide 3. You talked about the synergy and how it supplements with one another. So deposit is JPY 2 trillion increase. That is the number you've mentioned already, so 1.05% to 2%, that is the time deposit level. So going forward, do you intend to actually increase this to a competitive level? That is the first question. And also, you would have a loan increase by JPY 3.5 trillion. So you have the real estate loan and the security secured loans. What is the breakdown in terms of the loan growth? So second part of the question relates to your capital strategy. So this is Slide 12 of the material. You have the image here. So this will be over 14%. The capital ratio will come down. But if you look at the future from the current level, the capital level intends to be built. So I don't know if it's 17% or 18%, it's hard to tell from this diagram. So whilst you're increasing this level, what are some prospects of the share buybacks? What are some of the ideas we should have? In the past, the share buybacks they conducted even amongst the high level of capital. But now if the capital is going to be depressed, perhaps there will be less allocated or different allocation to the share buybacks. So please give us some idea.

Thank you very much for that question. The first part of the question, so what are the JPY 2 trillion of deposit as part of the synergy? So what is the outlook? So related to this point, we are confident that we can acquire. We believe there is a fair chance that we can achieve that number. So within this fiscal term, -- so after the rate hike, so Daiwa Securities, there has been a 2% of provision in the year. So last year, in terms of the time deposit, so about JPY 650 billion increase in terms of the time deposit. So if you can provide a competitive -- the deposit, right, given the fact that Daiwa Securities have a nationwide network and the high-level consulting capabilities and through our consultants, we should be able to acquire the deposit. So of course, there has been a shift away from savings to investment. But this is not just the deposit into equities. But also, we have been providing consulting to their entire asset, inclusive of deposit. So within that process, the larger the pie is. the better chance that we may have for the acquisition of deposits. So JPY 2 trillion is feasible. That is our expectation. Also about the JPY 3.5 trillion of the loan, so real estate loans and also the securities, the back loans, the breakdown of that, we don't have the exact number as we speak. But already, what ORIX Bank is providing, that is an investment use in real estate loan, it is for the one mentions for the single-family hold in the metropolitan area. So the number of banks have been on the decline. But in terms of the number of households, single households in the metropolitan area is expected to rise. Therefore, we do believe there is sufficient demand. In the past several decades, ORIX Bank has built this lending capability. So in relation to that, it is very possible that we can achieve that JPY 3.5 trillion of lending. Also the second part of your question about the capital, the strategy. Please wait -- please, hold. So through this acquisition, so in terms of the consolidated total capital adequacy ratio will be out -- will be down by mid 5% or so. So right now, it's over 14%. And -- so that is the level that we're expecting at this moment. So going forward, how the capital policy may change. And that is the intent of your question. But as of this moment, no change vis-a-vis our basic policy. So the dividend -- the payout ratio at 50% or higher. And also, the fall for the annual dividend of JPY 40, we'd like to maintain that. So through this acquisition, there will be some level of decline in terms of the total capital adequacy ratio. However, we can ensure the financial soundness. And also by steadily building on the profit, we can continuously keep this financial softness. Also in order to ensure flexibility, AT1 bonds issuance is also under explanation. Of course, the actual amount is still under consideration. But again, we like to further have a solid capital base. Also in terms of share buybacks, the question was what our plans going forward. Again, no change in terms of our general stance. So based on the assumption of financial soundness, in light of the different operating environment, gross investments will be considered. But of course, that is necessary for future shareholders' return. So we definitely like to prioritize on that. So looking at the gross investment and the buyback, we need to strike the right balance and be agile and flexible. So this particular deal, this is an impact of the profitability of ORIX Bank and also through the realization of the synergy, we can expect to enhance the capital generation within the group as a whole. So ultimately, this would actually lead to increase in the source for shareholders' return. So going forward, the capital allocation, capital policy is a very important policy -- so given the current operating environment, we like to make a comprehensive approach.

Related to the second part of my question. So this particular timing, you didn't announce the share buybacks. So in terms of the perpetual subordinate bonds utilization, really, this is that point. So what is the potential amount AT1 bond issuance that is. What is the amount they have in mind? And once you announce that, in light of the credit rating, we expect you to conduct share buybacks at the timing.

Thank you for that question. Centres of AT1 bonds, the issuance. So it will be within the part of the consideration. But in terms of concrete details, we will consider those going forward. Also in terms of the credit rating. So we would like to definitely conduct meticulous communication with the credit rating companies. So we may also incorporate those ideas. So based on that -- so whether there's a possibility of buybacks, again, we like to take a comprehensive approach to making that decision. So that has been my answer.

The next question is by Morgan Stanley, Sato-san.

This is JP Morgan, Sato speaking. Can you hear me? .

Yes, we do hear you.

Well, I have several questions about the bank. One we simply -- this consolidation, you're going to make my subsidiary after that. How should we think about how you're going to be executing it. On the material, you're talking about the recurring income of about JPY 30 billion and the profit of about JPY 20 billion. What kind of upside are you expecting from that baseline? I think that, of course, depends on the analysts, but the depreciation or the amortization of the goodwill and also the sourcing cost, probably a part of that needs to be recognized as well. So when you explain that to the market participants, what kind of level are you going to say to them on the annual contribution? What is going to be the level that you think you're going to be talking in that communication to the market. The second question is about this by the acquisition of this ORIX Bank, you still have an external partners. Are there going to be any changes? And the relationship with those partners. The Aozora Bank, you are currently accounting for them under equity method. So your business alliance with them. Is it going to be changing because of your acquisition? There might be some changes in terms of like focal points that you are working together with those external partners. And also when it comes to the asset-backed ones, partly, you are working together with Credit Saison. What are you going to be thinking about those asset-backed securities?

Thank you very much for your questions. The first question about the bank. Well, as you say, the average of the inner income is about JPY 30 billion of the ORIX and the profit is about JPY 20 billion. As I was shocking to securities group our capital average is about JPY 1.7 trillion, meaning that on a simple calculation, it has the positive impact of pushing up the ROE by 1.2%. The equity finance is not likely to happen. So that's the scenario that we are seeing at this point. But the amortization of the goodwill and assuming that AT1 is going to be issued which we, of course, need to examine. But anyway, setting that aside, we think that is a basic simple calculation that we are currently having our basis. And the second question. First of all, we do have the external partnership with Aozara Bank. And regarding that, partnership, we assume there's no impact. Well, regarding the integration, it's strengthening the wealth management business. The total asset consulting business for the retail business, the asset to support from the total asset to Consult Inc. is going to be stronger. And the trust functions in order to work in the wealth management business for the retail market, it's important to have the trust function organically within the company, we did not really have much capability to grow itself. And by having the external partners, we have provided some instruments. But from now on, we think we'll be able to do that in-house. That's going to be another one big pillars. Regarding Aozora Bank, our partnership with Aozora Bank, there are some corporates that are listed and private we have been providing the referral to the Aozora Bank and also the LBO financing, for example, have been provided and have been providing in the past so that the customer trade is quite different in Aozora Bank. So we think both can actually stent. And so far, the real estate-backed loans, will Clifton is a part of the business that we've been engaged with. But the Intertek is shortly operating -- operated by Credit Saison. So they have the asset -- the relate asset back loans. But of course, the market size is limited so that the capacity is not that big. And just thinking about the capability being much bigger. I think the issuance coming from -- the business is going to be having a new opportunities for us to grow our by itself. Does that answer my question?

What about the amortization of the goodwill? Any color on that?

The amortization amounts and the cost for the amortization we're going to be discussing in detail more. So at this point of time, there's nothing that we can comment. So please be patient during the time comes for the closing, we think we'll be able to come to that point.

So let us move on to the next question. BofA Securities, Sujino-san.

The last point about the goodwill amortization, it could be as long as 20 years, but some say it could be 10 years. So you should have some sort of image in terms of the amortization. And also in terms of decision of the dividend will be -- so the net profit -- so would you be using the same sort of net profit regardless of the amortization. So 20 years or 10 years, I don't think that you have no image as to the amortization. If you can give us some color, that would be helpful. That is the first question. .

Thank you very much for that question. So of course, we have some image for some ideas. So the duration that you've mentioned, it would be within the time frame that you mentioned. As of this moment. So we're working together with the auditors. So we would like to refrain from giving you an exact answer. Also, as far as dividend is concerned, as you rightly mentioned, no change in terms of the dividend payout ratio. So 50% or higher of the earnings. So no change in terms of the dividend policy. Also it's in ORIX Bank. So they have the Tanshin report. So as of September end. So in terms of the gap -- JGAAP, excuse me, KJ GAAP earnings, JPY 7.4 billion, and ordinary income was JPY 10.6 billion. So it's actually quite lower in comparison to 5-year average. . So in order to drive this, we just work towards that JPY 8.6 trillion. I think that is the direction we should aim for. But right now, it's a midterm or interim times too.

Is that the image that we should have in mind for ORIX going forward? The interim number, double that number?

First of all, as of September 2025, the interim results for the company. So within ORIX Bank, there were some rebalancing of the securities. So there was some loss from sales. So that is why the amount has ended to that one, so somewhat lower that is. That is our understanding. So in terms of the underlying capability, then it is closer to 5-year average then.

Okay, understood. So the third point -- the third question I have, this is a question related to the results. So FICC has been very favorable. So Q3, there was a growth in Q4, there was a further growth in FICC. So how sustainable is this? So for the March quarter, how has been the recent performance? And how is it trending now as we speak?

Thank you very much for that question. So in terms of FICC, the [indiscernible] is very high level of volatility we were able to capture the customer flow, and we've been able to turn those into profit. So that has been very positive. Also in terms of products that's been all around. So we have JGBs. And also, we have some domestic derivatives and so forth. So within this high-level volatility, we have a high level of activities amongst the customers. So the customer flow we were able to capture that through the communication with the customers. We can anticipate the customer flow and conducted the positioning. So through this control, that has led to a positive impact of the earnings. So that has been the experience of this past quarter. So for FY 2025, in the first part of the year at the phase of rate increase, I think we have also mentioned there were some difficulties in conducting the position control, but we have addressed these issues conductor communication with the customers and also develop customers and also address the diversities of the customers. We've been able to have more strengths in the physician management. But just because that we were able to do that. That doesn't mean we can sustain this without doing anything because, of course, the market is changing every day. So accordingly, we would like to enhance our capability to capture the customer flow. And also, we'd like to steadily strengthen the position management system. Also for the fourth quarter, so for the March quarter, that is, FICC, the revenue image that is. So January 3 and February is 2 and March is 5. So in terms of the month of April. So in comparison to the fourth quarter average, maybe it is somewhat subdued for the month of April. But again, the customer flow continues to be fairly active. So of course, the environment continues to be uncertain, but we would like to have close communication with the customers. And we are hoping that we can turn it to our better performance. Thank you very much.

Next question is Nomura Securities, Sasaki-san.

This is Sasaki of Nomura Securities. One question about the earnings call results and one about ORIX. Well, I'd like to talk about the Wealth Management. The AUM in the first half was decline in the previous quarter was down, but the asset inflow was making improvement. I would understand that, that is because of the drop in the U.S. equity price. For the retail investors, there was some sales for the realization sales. Am I right to understand that? If I'm not, then please correct me. And the second question is about the acquisition of ORIX Bank. What so-called -- are there any binding contract for like a key man closes that you are going to be able to retain the key man or the management people. I will also be able to get those were from the ORIX site. The ORIX site asset is very characteristic is because of the support getting from the parent company, which is ORIX. Is that also something that you have captured? Or do you think the business is going to be continuing based upon your strength as a stand-alone basis.

Well, thank you very much for your questions. First of all, about the asset inflow. On the earnings announcement material line -- just a moment. For the first of 2025, we have had the inflow. So compared to the year before, the inflow amount was about the same as the 2024. I'm sorry. .

The fourth quarter is my question. The fourth quarter inflow.

Okay. The Q4 only. Regarding AUM, on this quarter, the amount has declined. However, the U.S. stock was one reason. And also the full stock price in domestic as well. So the asset inflow, the net inflow has increased has surpassed as a result but the asset inflow itself, as I mentioned earlier, has been quite active and quite strong. Since 2007, the asset lead has been really big.

Okay. And regarding the acquisition of M&A in the contract, do we have any human closes about the retention of the management people.

Regarding the very close of the contract, I should not make any remarks. But after the merger -- or after the integration, the smooth integration is going to be, of course, the most important. And ORIX and ORIX Bank, both are, of course, making effort for the smooth and the continual operation. We, as a large direction, we, of course, have half the agreement to come to this agreement or decision so that we shall make an effort to deliver results.

So assuming that, for example, the real estate finance, the property sourcing is basically coming from partly support from ORIX. Am I correct? The support from the ORIX Group. Is it also coming?

I didn't really understand. Well, from the beginning for the sourcing, the ORIX Bank has been acquired by using their own network. So the support from ORIX is, as far as we understand, limited, if any.

I would like to move on to the next question. SBI Securities, Otsuka-san.

This is Otsuka from SBI Securities. Can you hear me?

Yes, we can hear you.

So one question at a time. So related to the -- you've talked about the asset inflow related to the previous question. So in terms of the cash in the past 2 years, it has been the strongest. So if you can actually tell us the reasons behind that. This is Page 49, Slide 49 about the actual the cash that is.

29 that is, 29. So we have the bank deposits as cash, and it may turn into investment trusts and fund drops. So are there different objectives for that. But roughly speaking, Q4 fund drops -- in order to contract the fund drops, there are a lot of cash paid in from other banks. So we did see a lot in the past quarter also for Daiwa next bank deposit. So there was some cash paid for Daiwa next bank deposits. That was another reason. Also, I have been active transaction of the Japanese equities for the March quarter. So in order to buy the equities, a lot of people have actually cashed in. On the other hand, the share price actually peaked in the month of February, some may actually sold their holdings. So actually, they may have withdrawn the cash. So on a net basis, this is the number that we had.

Understood. So fund wraps then. So for additional and also new purchases, both have been strong then?

Yes, both.

Second question relates to ORIX Bank.. So this is Slide 6 of the presentation material. So in terms of the client's life stage, I'd like to understand this accurately. So with the acquisition of ORIX Bank? The question is, where would you like to focus? . So according to Slide 6, of 60s, 70s, 80s, actually, the asset exceeds the liabilities. So those who are in access of assets and those generation or expect excels in the best real estate investment loans. So do you intend to actually provide those to those elderly the customers? Or are you actually focusing on more those in 30s and 40s where the liability is larger for asset. We will be focusing on extending product to them. So for those in 30s to 40s, so they will be the first house the purchases. So this is different from the investment real estate loans. So this may be an area ORIX Bank is not necessarily strong. So how do you intend to actually approach the different large stages of the clients?

Thank you very much for that question. So according to the Slide 6 on the bottom part about the image of asset and liability balance by generation. So generally speaking, by different age, so the younger, you would have more liabilities. So you may have the housing loans or investment loans. So basically, liabilities tends to be higher in comparison to assets. But once you exceed over the age of 60, net assets would start to increase. So for Daiwa Securities, the main customers for Daiwa Securities are mainly those 60s or above. So as you can tell from this image, -- so asset on a net basis, it is larger. And so we have been providing different consultation for the management of their assets. So in other words, for those customers in the 40s and 50s, asset formulation type of proposals by NISA, that has been conducted. But of course, the inherent needs of these generation is how they can actually extend and also repay the loans. And also for those who wish to actually invest in real estate, we didn't have the facility to actually provide credit towards that end for those in the 40s and 50s. Now for ORIX Bank, the real estate, the bank loans, the main customer image is to share with you is in the metropolitan area. And so those in the 30s and 40s, family man working for listed companies, they account for a large proportion of ORIX Bank. So generally speaking, they do have high level of income. And of course, they have their own the housing. But at the same time, they are investing in the metropolitan room mountain, room condos. So that has been the main customers that ORIX Bank has been cultivating. So going forward, what ORIX banks provide. So they have the apartment loans that is another part of the loan product offerings. So this is more towards high net worth individuals and also more of the more elderly customers. So we can actually provide these products to the Daiwa Securities customers for these apartment loans. Also from what we have received, the securities from the Daiwa Securities customers, we can actually use them. The securities can be backed and use it as part of the business. But of course, we do have -- we are connecting that already. But because of the capital regulation and so forth, it has been somewhat restricted. So with the addition of the ORIX Bank, we could expect to see further accumulation of the loans with the securities backed loans.

I couldn't quite understand that point. So you mentioned those in 30s and 40s working for listed companies. And those who already have credit with ORIX Bank, you mentioned that. So already, they are customers of ORIX Bank. So whether ORIX Bank will become a subsidiary of Daiwa Securities, it doesn't really matter, doesn't it, because they are already customers. So is my understanding correct?

So if they're going to start the transaction with Daiwa Securities, that is positive. But taking this opportunity, it is not likely -- to be honest with you, I cannot actually imagine that they would all start doing business with Daiwa Securities. Actually, we do believe there could be a positive impact. So those who have the real estate loans from ORIX Bank, it is not so large in terms of number in comparison to Daiwa Securities customer base. So the impact could be limited. But in terms of the real estate investment loans, the customer base or customer potential is much larger, not just confined to those who are customers of ORIX Bank. So we also intend to develop new customer base together with ORIX Bank, so we can further expand the customer base. Understood. So perhaps at the IR meetings and also at the business strategy meeting, we'd like to continue the discussion.

Next is going to be the last questioner, UBS, Niwa-san.

This is Niwa of UBS. Can you hear me?

Yes.

Yes. Well, regarding the bank, I have 2 questions. One, I'd like to know the background of the acquisition. which one has made the first comment and how long did it take? And also, you're talking about the margin of 1%, the interest margin of 1% as a guideline. How realistic that is going to be? According to your model, 1% of the interest margin seems to be easy to achieve. If that's the case, then that's going to be the image that we should consider as conservative? Or should we think about that a challenging target? That is the question about the bank. The second part of the question is that the U.S. private asset is now going through some turmoil. Any impact on your business? Or do you have any exposure? And also the response of the retail investors, are there anything that you can share with us?

Thank you very much for your questions. First of all, the background of this M&A. We, with the ORIX as a company for our group, well, they have been an important business client for a long time. Including the management, we have had very good relationships. And there is much complementarity between the 2 banks. The possibility of working together, we have sounded out to the ORIX Bank from our side. In the last few years, because we entered into a world with positive interest rate, as I mentioned earlier, we have a high expectation of the complementary synergy to deliver. So since last fiscal year, we have made some serious proposals. So the 2 companies, continued discussion. And as a result, we decided to work together as one company. That is the background. And talking about the interest margin, Daiwa Next has the deposit to BOJ, of course, at 0.75%. But the weighted average of the bank is about 2.1% for the lending. So thinking about the better yield for our companies, that's going to be 1.36%. So if we're going to have the calculation on a test basis at 1%, that was the scenario that we wanted to provide with you. And then moving on to the private credit, our exposure and the impact. First of all, our exposure is the one that we do have an origination, there's nothing. For the group as a whole, as an exposure, it's very limited and very much of the indirect exposure. So on a consolidation basis, there's no impact on our margin. And for the retail investors -- alternative asset -- for alternative assets, as Daiwa Securities, the alternative investment is an option for less liquidity, but higher diversification so that the return profile can improve. So alternative is a very important asset class for us. But liquidity is limited. So when our clients decide to buy, then we do have the higher compliance guideline to follow. when there is an enough asset and also the exposure should be just one portion of the total asset, especially given the consideration of the low liquidity, those are the items that need to be fully explained and then understood by the customers. The credit -- the private credit trust investment is managed and then consigned to Blackstone. The minimum amount of the investment is USD 50,000. So the subject is the high net worth customers. We recently, we do see the mass media coverage. And that is causing some concern for the customers. So for all the customers who have those exposures, we are following up for all of them, for the Daiwa asset and for ourselves, we have been very flexible and trying to provide the information that is user-friendly. So at present, we do see the situation where the cancellation request is mounting or anything. There are some number of people who are considering the cancellation, but it's not that high. So continuously, we will monitor the situation and then think about the follow-up to our customers.

Niwa-san, thank you very much for your questions. With that, we want to finish our Q&A session.

[indiscernible] speaking from Daiwa Securities Group. Well, thank you very much for joining today for investors and analysts who would like to have the continued communication. So thank you very much for your continued support. If you have any further questions, please send us to IR team. Thank you very much for your attention today. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]