Nomura Holdings, Inc. (8604) Earnings Call Transcript & Summary

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. First, I would like to express my sincere condolences to those affected by the coronavirus outbreak, and pray for a speedy recovery for those who are currently ill. This invisible enemy has forced us into a fight like no other. The social distancing measures and the border closures implemented by governments around the world have shut us off physically, putting the brakes on economic activity and severely restricting our daily life. Our top priority has been the safety of our clients, communities and employees and their families. And the financial institution operating in the -- our capital markets, we have focused on ensuring business continuity. This slide outlines some of the initiatives we have undertaken to help our employees, clients and communities. Unfortunately, we are yet to see any end in sight to the current situation, and we will continue to do everything we can as a good corporate citizen. With that, I would like to turn to our financial results for the year ended March 2020. Please turn to Page 3. For the full year, shown on the bottom left, net revenue was JPY 1.2878 trillion, an increase of 15% compared to the last year. Income before income tax was JPY 248.3 billion, and net income was JPY 217 billion, both of which represent a strong rebound from the challenging prior year. EPS for the year was JPY 66.2, and ROE was 8.2%. The year-end dividend for shareholders of record as of the end of March was JPY 5 per share. As a result, the full year dividend is JPY 20 per share. The market environment in first half of the year was challenging as market participant sentiment was dampened by the economic slowdown due to U.S.-China trade friction and heightened geopolitical risks. Uncertainty started to ease in October, and the market activity picked up. But as we entered 2020, coronavirus started to spread around the globe. And from March, economic activity came to a halt, and the capital markets were hit by turbulence. So the year to March 2020 was one of significant change. Amid that, the whole firm has been focused on rebuilding our business platform as announced in April last year. By delivering solutions to our clients' needs in our areas of competitive strength, our performance rebounded from loss last year to book three segment income before income taxes of JPY 170.4 billion, as shown on the bottom right in the encircled area A. Segment Other, shown here as B, also improved compared to last year. The specific changes here are slightly complicated. So please turn to the next page for an overview of the main factors. This slide shows changes at the pretax level from the year ended March 2019 to the year ended March 2020. As you can see on the left, in the year ended March 2019, we booked the loss before income taxes of JPY 37.7 billion, with the breakdown by division shown on the far left. Retail division roughly unchanged year-on-year as sales of bonds and investment trusts offset slowdown in stock subscriptions compared to last year, when there was a strong contribution from large primary offerings. Asset Management income before income taxes declined by JPY 5.4 billion, roughly half of which is due to a drop in American Century Investments related gain loss. Wholesale posted a turnaround from a loss of more than JPY 100 billion last year, improving by approximately JPY 200 billion. Fixed Income reported stronger results on the back of an uptick in client activity and higher volatility. Wholesale net income -- net revenue grew by around JPY 93 billion. At the same time expenses declined by approximately JPY 110 billion, as the goodwill impairment charge booked last year was no longer present, and we saw positive results from the realignment of our business portfolio. Segment Other improved by JPY 101.9 billion. Last year, we booked expenses related to legacy transactions of JPY 32 billion, and the fixed transaction adjustment due to the winding up of a subsidiary of JPY 7 billion, both of which are not present this year. In addition, we booked a gain of JPY 73.3 billion on the sale of Nomura Research Institute shares. Please turn to Page 5 for an overview of our fourth quarter results. This slide shows key market data for the January-March quarter. As you can see, all of these indicators remained relatively stable through to mid-February, but this changed dramatically in March as coronavirus spread around the world. The S&P 500 plunged by 34% from its February high, while the VIX jumped above the level seen around the level -- around the time of Lehman Brothers bankruptcy. Equity markets reported opportunistic trading increase and overall trading volume surged. At the same time, the physical barriers put in place to stop the spread of the coronavirus prompted concerns of a knock-on effect to economic activity which in turn led to a flight to quality with investors filing into government bonds and risk of spreading quickly in the fixed income market and some emerging markets. As you can see on the right, the 10-year U.S. Treasury yield slumped to historically low levels, while credit spread widened sharply. Please turn to Page 6. Amid this environment, the entire firm has to work together to ensure economic infrastructure like the markets continues to function, while placing the highest priority on the safety of our clients, communities and employees. As shown on the graph on the bottom right, three segment income before income taxes in the fourth quarter was JPY 19.8 billion, a decline of 72% compared to the previous quarter. Retail saw robust trading of equities, and although other product sales slowed in March, it booked stronger income before income taxes. In Wholesale, the Rates business had its best quarter since April 2010, as market participants fled to safe assets due to a plunge in stock prices and interest rate volatility. FX&EM and Cash Equities also had a good quarter, but we booked an unrealized loss of JPY 35 billion, primarily on loan-related positions due to the March market downturn. Asset Management reported an increase in unrealized loss on shares in American Century Investments, and the pretax performance worsened quarter-on-quarter. While there were some reports of ongoing discussions regarding flexible use of accounting standards for provisions and write-downs due to the spread of coronavirus, as usual, our fourth quarter results are presented in accordance with U.S. GAAP. The March market downturn also affected performance outside of the 3 segments. As you can see on the top right, firm-wide loss before income taxes was JPY 24.7 billion, and a net loss was JPY 34.5 billion. Fourth quarter EPS was negative JPY 11.31. Next, let's look at the results for each business, starting with Retail on Page 9. Fourth quarter net revenue was JPY 88.8 billion, down 1% quarter-on-quarter. By controlling expenses, particularly compensation and benefits, income before income taxes increased 4% to JPY 18.4 billion. As shown on the bottom half of the page, total sales increased 15% compared to last quarter as secondary trading of Japanese and foreign stocks increased due to market downturn and heightened volatility. Sales of investment trusts declined 5%. Although sales of U.S. stock and technology-related products grew through to February, clients increasingly went into wait-and-see modes in March leading to the decline. Please turn to Page 10. The bottom left shows fee-based client assets, investment trusts and discretionary investments declining by JPY 2 trillion from December due to the March market downturn. As a result, annualized recurring revenue declined to JPY 85.5 billion. On the top right, net inflows of cash and securities was negative JPY 559.6 billion due to outflows of securities in the wealth management group. Looking at Retail channels alone, we booked inflows of approximately JPY 150 billion. Net inflows of cash and securities is an indicator that nets out inflows and outflows of cash and securities. But looking just at inflows in the Retail channels, we booked JPY 1.1806 trillion, and the graph on the bottom right shows that March inflows were fairly strong. Please turn to Page 11 for Asset Management. Fourth quarter net revenue was JPY 7 billion, down 72% compared to last quarter. The market downturn led to a significant unrealized loss on American Century Investments shares and asset management fees dropped as assets under management declined by JPY 6.3 trillion from the end of December. As a result, Asset Management booked a loss before income taxes of JPY 8.7 billion. Inflows continued for the 15th straight quarter. As you can see on the top left of Page 12, the Investment Trust and Investment Advisory businesses both reported inflows, which totaled over JPY 700 billion. As you can see on the bottom left, the Investment Trust business reported JPY 1.1 trillion of inflows into ETFs, while MRFs, which are where idle funds are parked, booked new purchases amid the market downturn. For core investment trusts, emerging markets funds and fund wraps reported outflows due to redemptions, et cetera. The graph on the bottom right shows assets under management in DC funds over the longer term. With inflows, this has been steadily increasing and topped JPY 1 trillion at the end of March. Please turn to Page 13 for Wholesale. Net revenue was JPY 145.9 billion, down 22% quarter-on-quarter. Income before income taxes declined 77% to JPY 10.1 billion. Revenues declined compared to the last quarter because, as mentioned earlier, the sharp credit spread widening in March led to an unrealized loss of approximately JPY 35 billion, primarily in our international business. Macro products, such as Rates and FX and EM and Cash Equities reported significantly higher revenues quarter-on-quarter. As you can see on the bottom half of the slide, by region, Japan reported higher revenues, while the Americas and EMEA both reported a significant drop compared to the previous quarter. Please turn to Page 14 for an overview of performance by business line. Global markets net revenue was JPY 134.3 billion, down 16% quarter-on-quarter, impacted by a JPY 25 billion unrealized loss. Fixed Income net revenue declined 22% to JPY 78 billion. Rates in Americas and Japan and FX and EM in AEJ all booked significantly higher revenues, but due to unrealized losses in each international region, the arrows on the heat map on the right are pointing down for the Americas and EMEA. Equity net revenues declined 7% to JPY 56.3 billion, as good performance in cash equities on the back of higher trading volumes was not enough to offset a slowdown in derivatives in the Americas and AEJ. As shown on the heat map on the top right, the Americas and AEJ are pointing down, while Japan is pointing up on stronger revenues in both Cash and Derivatives. Please turn to Page 15 for Investment Banking. Net revenue declined 56% to JPY 11.6 billion. This reflects the cancellation or postponement of IPOs and equity financing transactions due to the market downturn, as well as a JPY 10 billion unrealized loss, mainly in ALF in the Americas and EMEA on the back of the sharp widening of credit spread. The M&A business was solid with revenues increasing 90% quarter-on-quarter as deals highlighted in pink on the right closed, such as Grifols' strategic alliance with Shanghai RAAS, and Stonegate Pub's acquisition of the EI Group. Please turn to Page 16 for an overview of non-interest expenses. Fourth quarter firm-wide expenses totaled JPY 262.2 billion, roughly unchanged from the last quarter. Compensation and benefits declined 19%, in line with bonus provisions. Commissions and floor brokerage increased 28% on higher trading volumes. Occupancy and related depreciation increased 18% due to accelerated depreciation of certain equipment attached to buildings following a review of lease periods. Other expenses increased 26%. This is mainly due to a portion of the JPY 35 billion unrealized loss being booked in expenses as a provision under financial accounting rules. Slide 17 shows our financial position. Our balance sheet at the end of March was JPY 44 trillion, down JPY 2.2 trillion compared to the end of December on a decline in repo transactions. As you can see on the bottom left, we had Tier 1 capital of JPY 2.568 trillion, down by just over JPY 130 billion from the end of December. This is due mainly to a deterioration in performance, outflows from shareholder returns, such as share buybacks and dividends, and a decline in FX translation adjustments due to yen appreciation. Risk assets were JPY 15.6 trillion, representing an increase of JPY 1.6 trillion from the end of December, mainly in market risk on the back of higher volatility and credit spread widening in March. As a result, our Tier 1 capital ratio at the end of March was 16.4%, and our CET1 capital ratio declined to 15.3%. We continue to maintain a robust financial position with capital significantly above the minimum regulatory requirements. The red line graph on the bottom right shows net Level 3 assets as a percentage of Tier 1 capital. As of end of March, this increased to 28% from 26% at the end of December due to the decline in Tier 1 capital. The gray bar graph shows Level 3 assets before netting out derivative liabilities, which have grown from December. This is due to certain securitized products being reclassified from Level 2 to Level 3, because of wider bid/ask spreads due to the spike in volatility in March. That concludes the overview of our fourth quarter results. This quarter was a challenging one with a loss due to unrealized losses on trading assets and securities following the sharp market downturn in March. Aside from that, our business remained resilient on the whole. The majority of our people continue to work from home as the current crisis continues. As a financial institution involved in the capital markets, the lifeblood of the economy, we are working as one firm to ensure our business continuity. From the end of March, face-to-face client visits in our Retail business have, in principle, been banned, and from April 8, we closed branch offices in 7 prefectures, then we closed all branches nationwide from April 20, and communication with clients has been predominantly via e-mail and the telephone. With no face-to-face meetings and working from home, it took a while for our people to get used to the new style of working. But by being creative, they are now getting used to it. Revenues in April are down by only 20% compared to the fourth quarter. In Wholesale, the market volatility since March has led to an increased trading opportunities for macro products, such as Rates and FX. The Americas Equities Derivatives business, which slumped temporarily in the January-March quarter, rebounded smoothly in April. Wholesale had a good start to the year in April. While the outbreak remains uncertain, we will continue to move the business forward while rigorously managing our risk. Thank you.

I'm Muraki from SMBC Nikko Securities. Firstly, my first question is related to Page 8. Toward the bottom of Page 8, there are several numbers. So due to the market term displacement some loss was booked. So valuation loss of equity is JPY 16.6 billion, that's included. But including that, the loss amount is considerable. Overall, how should I think about this loss number for the U.S. firms, credit loss and equity valuation loss have been looked? But overall, in the station, they are not in a loss-making situation. So you are using U.S. GAAP, and when you book the valuation, so the sensitivity to the valuation loss may not be appropriate. So how do you view that aspect? My second question is page -- related to Page 18 -- sorry, 17. Now Tier 1 ratio, well, CET1 ratio has come down greatly. So regarding that, risk asset increased. That's the trend that's observed among the U.S. firms. And also the decline of capital is observed among U.S. peers, where they have conducted the share buybacks. But compared with last year, CET1 ratio decline seems sharp in your case. So CET1 ratio sensitivity to market, how is the sensitivity being evaluated? Thank you.

Thank you very much for your question, Mr. Muraki. This is Kitamura. So regarding your first question and your second question, those 2 questions actually have some overlapping parts. But firstly, related to the impact brought on by coronavirus, the impact is big, as you alluded to. And as we have disclosed in the Wholesale business, loan position related loss of JPY 34.5 billion is booked. And for ACI, valuation loss of JPY 16.4 billion is booked. And also the investment securities for trading purposes, the loss is JPY 16.6 billion there. And also to what extent, which part of that is due to the market dislocation -- unusual market dislocation and which part is the usual market change, it's very difficult to distinguish those differences. But trading -- inventories for trading and also the derivative markdowns, those are being -- has been taking place in trading positions. So in addition to loans, there might have been JPY 30 billion or so of impact. Then in total, JPY 100 billion or so of impact, I believe, took place. And with regard to your first question, under U.S. GAAP, what is our sensitivity? Is our sensitivity appropriate? Why not? That's your question. In our case, unlike U.S. peers, our loan position, in most cases, is considered as part of trading position. In the case of banks, they use banking account usually. But if banking account is used, then when it comes to evaluation, about debt reserve, I believe, is booked. So the reserve, I suppose, is booked. And then there is some criteria for booking provision. But in our case, within trading account, we are conducting mark-to-market valuation. As a result, the loss was incurred. So I'm not sure about the situation of mega banks, but investment securities, in our case, every time we are conducting mark-to-market accounting, so in March, the market displaced significantly and the market plunged. So since our sensitivity, I believe, we stick to the appropriate sensitivity, and we came to the number that I've explained. And as I explained earlier, so regarding the impact from coronavirus, we are being flexible in terms of the impairment and reserve. But excluding those factors that we have concluded -- we have conducted the mark-to-market accounting, and we booked this loss. So I believe that our accounting treatment is appropriate. And regarding your second question, risk-weighted asset has gone up, and that's resulting in the decline in capital of sizable amount. Regarding that question, and as I've said in my answer to your first question, our loan business is classified in the trading account. That means that in our risk management, VaR model is used to measure risk. Therefore, I've alluded to the move of the index, but credit spread was widening in that situation, risk adjustment value went up sharply. In that sense, for example, our notional risk position did not grow big. But if anything, the risk adjustment, the multiplier grew big. So this is a technical factor in the risk measurement. That's how we should look at it. In credit risk, the bank -- banking account is used in the case of our peers. Compared with them, the impact of volatility increase in recent weeks, I believe, affected us more greatly. So did I answer your question?

Muraki speaking. Yes, thank you very much. Then let me ask you a follow-up question with regard to the first question. So market dislocation temporarily in March had caused a mark-to-market loss. Then it could be followed by a rebound in April, and you mentioned in your closing remarks that Wholesale's revenue in April is good. I believe that's boosted by the rebound revenue? And secondly, related to the capital ratio, volatility declined and the spread shrinking, if those happen, then the CET1 ratio that's trending at a lower level will go back to where it used to be, and can I have that kind of expectation regarding capital ratio?

Kitamura speaking. In that sense, the numbers for the month of April, I said that the numbers in April are looking good. And as you said, the sharp widening of spread impacts us greatly. And of course, market activities play some role, but to a certain degree, we are believing that there is some recovery in April. Also regarding the level of risk-weighted asset. To a certain extent, with regard to risk-weighted assets, VaR and -- due to the characteristics of measurement of SVaR and the VaR, the market dislocation of the size that happened in March, if -- so that kind of market dislocation tends to be prolonged due to the nature of our model. So if the volatility comes down, and when the market settles down, in April, the market has been settling down compared with March, but the impact, we believe, will continue for some time, though it will settle down eventually.

This is Watanabe of Daiwa Securities. I would like to ask 2 questions. First of all, on capital policy. Why did you postpone the announcement of buyback? And secondly, FIC equity revenue, you give the breakdown between client and trade flow, and can you give us the breakdown? Those are my 2 questions.

This is Kitamura speaking. As you know well, Mr. Watanabe, on a global basis, there's a trend to try to control the outflow from financial institutions and authorities are providing such guidance to financial institutions, especially in Europe, don't pay out dividends, don't do share buybacks, such guidances are being issued. And we are watching carefully those trends. On share buyback, in the term ended March 2020, already JPY 150 billion of share buyback was done, and total payout ratio will be 98%. If we add the dividend payout, so quite high, and we are proud that we are providing benefits to our shareholders. Frankly speaking, due to COVID-19, how would that impact the market or the real economy? And how long will this crisis continue? Some countries are reopening their economies, but after COVID-19 is placed under control, what would be the pace of economic recovery and there are such talks of the possible secondary wave or a third wave of outbreak. So I think the urgent task ahead of us is robust financial position. We postponed to set a quota or line for share buyback, but in the mid- to long range, we think that this will contribute to shareholder benefits, and I do hope that you provide your understanding to that extent. If this novel coronavirus is placed under control, and if we begin to see a road map to putting that control, we will watch the performance of our group and then rethink our policy at that timing. Your second question was FY -- FI equity, and the breakdown between client and trading flow, which we inform the investors each time we announce our results. Unrealized losses have been booked. So Fixed Income for both -- Fixed Income and Equities, customer flow accounts for more than 100%. Unfortunately, losses have been booked on the trading side, but if there had not been unrealized losses in Fixed Income, 80%, 20%. 80%, client; 20% trading, that would have been the breakdown if this had not happened.

This is Watanabe speaking. I have a follow-up question on the first question of buyback. RSU, you didn't announce the buyback in March of RSU. But as you said, if you begin to see the road map to putting COVID-19 under control, can we expect some announcement? On the second question regarding the unrealized loss mainly caused by trading, was there a big trade -- a big transaction? Or is just -- is this just a pile up of several small transactions that had led to this unrealized losses?

Again, this is Kitamura speaking. And on your first point with regards to RSU, including stock option, we had been issuing RSU. But we will be issuing RSU, but that included -- we think that treasury shares would be sufficient to cover such operations. We have enough inventory. So we thought that at this timing, it would be unnecessary. The second point is with regards to loan positions' unrealized losses. Was there a huge transaction? No. There were several small lot loans, and that had led to this number of JPY 350 billion.

This is Otsuka from JP Morgan. I have 2 questions. I'd like to ask them one by one. First question is related to Page 5. So it's a new slide that I do not find usually. So I'd like to -- I'd like you to elaborate on that. But it shows -- does -- it seems to show the situation up until March. But as from April, based upon the current environment, where are you concentrating your management resource? Up until last year, if anything, you are shifting from secondary to primary, as you emphasized such shift. So after the end of corona outbreak, are you continuing to that shift? That's my first question.

This is Kitamura. Regarding your first question. I may veer off the main topic, but last April, we made an announcement of restructuring or review of business platform. It is not our intention to completely discontinue secondary business. If anything, if you have strength in some areas, then for those areas, we will continue to have focus. On the other hand, for businesses where we do not have competitive edge, we'll be greatly reducing such businesses, which does not come with competitive edge. That's what we said. But unfortunately, we have booked unrealized loss. But in April last year, overseas credit business was greatly reduced. If that hadn't happened, then the loss amount would have been much bigger than the loss that we booked. So in a time like this, as revenue -- what's driving revenue is Rates and macro trading and those flow businesses. So for those flow-type businesses, we continue to see a strong performance, and that's the area we will continue to focus on. Unfortunately, in the area related to loan, we have booked unrealized loss. So it's not related to a specific sector, but in a situation like this, all sectors, corporate sectors have been affected. And in our financing business, which is our focal area of business, when we think about our resource and loss-absorbing capability, while thinking about those factors or elements, financing business uses up resources. So that business seems to require some extent of review. But we cannot just rely on secondary business or Rates business because once a volatility stops, then we will be just relying on that business, secondary rates business. So we would like to selectively work on financing business.

Thank you, Mr. Kitamura. Related to that, I would like you to elaborate on something. For example, moving forward, when corporate companies -- I believe companies will increase fundraising. Then isn't that considered as the revenue-making opportunities for your financing business?

Kitamura speaking. In our loan business, our loan business is linked to M&A transactions, where we provide funding. So in that sense, when where -- in a situation where prices are down as such opportunities, I believe, will emerge. On the other hand, Mr. Otsuka, you mentioned the potential increase of demand for funds. You rightly pointed out. But in March and April, the U.S. bond market is experiencing the huge issuance of bonds. Given the situation in the U.S.A., even among Japanese firms, it is likely for Japanese companies to accelerate their initiative of raising funds, especially firms that are in difficult situation. In this situation, the option of conducting equity financing will be a viable option. But the current situation hasn't settled down. So such move have not emerged -- surfaced. But I do believe that there is a big business chance there. And with prices of many things coming down, this situation could be seen as a business opportunity. And companies will try to increase their market share by looking at these lower-than-usual prices of opportunities. So in our financing business, in addition to loan business, there will be various business opportunities.

My second question is related to Page 5 and bottom right. So it depends on how that situation will unfold from here. But as you mentioned, the loss that you've booked, I believe, that's a onetime, one-off. So in April, that situation is recovering, that's my understanding. But is my understanding correct?

Kitamura speaking. So the trend or progress of spread will be based upon the credit rating of the firms. But your understanding, I believe, is correct.

First of all, on expense cuts. What remains to be done will be done in a longer time period, like change of workstyle, will it take another 2 years? To recap, Wholesale, JPY 1 billion and JPY 30 billion of domestic business, where are you in terms of expense reduction? And in the next 12 months, what's the expected progress rate? And what portion of that will you postpone? And second, on loan unrealized loss, as of end of December, 6-K -- according to 6-K information, leverage loan, JPY 110 billion, was that the number? I think I obtained such information. But most recently, what's the outstanding amount of loans at the moment? And in comparison to end of March, the leverage loan pricing in the market seems to have recovered. But when I look at the market situation in Q1, can we expect unrealized gains to offset the unrealized losses you have booked? That's my question.

Kitamura speaking. The progress rate of cost reduction, Wholesale, JPY 1 billion and Retail, JPY 30 billion. For both business lines, the progress rate is 70%, respectively. 2022 March is the target date. So JPY 140 billion, 70% of that would be slightly over JPY 100 billion. And we've achieved approximately JPY 100 billion of cost reduction, and the remaining JPY 40 billion will be done in the coming 2 years in a steadfast manner. COVID-19 impact has been felt to a certain extent. Almost all our employees are working from home. So we have to allocate resources to IT. Business as usual, we have to place focus on maintaining the business as usual. So there might have been some deceleration of transformation, but due to the virus, there are many things that have become visible. For example, even when all of our employees -- or most of our employees are working from home, business can be done, we've discovered. So we have been discussing and debating on what would be the ideal structure of office location. But grand PoC is being done and is underway. So I think we are engaged in a demonstration and experiment. So we think that the findings that we gain from this experience will contribute to bringing forward cost reduction. We will have to conduct a major overhaul of the business model, and we are feeling the necessity. So we will be taking steady steps in the coming 2 years towards that end. And acquisition and leveraged finance, ALF. As of the end of March, the amount outstanding was approximately JPY 330 billion. Tsujino-san, you quoted a different number. There seems to be a gap between the number that you have in mind. So let us check on that. In this context, in March, clients who received our loans wanted to ensure liquidity. So drawdown took place. I think that's the way to think about it. So slightly bigger than you might have expected. And in April, the drawdown pace has decelerated.

And as of December, the drawdown was JPY 117.4 billion and commitment, JPY 451.6 billion, so that is reflected in your numbers, right?

Yes. Exactly as you said, Tsujino-san, yes. JPY 117 billion existed as of end of December, and that increased through drawdown. And the most recent number is JPY 330 billion.

This is Tsujino again. So that was the latest number, but end of March versus the latest number, has there been additional drawdown since end of March? The reason I ask is because when you booked the unrealized losses, at that timing, what was the denominator you used? That's the point I wish to know. So the most recent number -- updated number is JPY 330 billion, but was that the number in end of March?

Sorry, when I say latest, I meant end of March.

Oh, I see. I get it now.

And this is Kitamura again. Market has become more stable in April. So in comparison to March, the drawdown situation is much more stable in April.

I have 2 questions. The loan -- the matter of the loan, I still do not understand the loan, but basically, it's backed up by corporate credit, and you are extending the loan backed up by corporate credit. And you mentioned LBO earlier, but if the target of LBO goes bankrupt, then the associated risk doesn't have to be considered. Is that the structure? That's my first question.

Kitamura speaking. So the acquisition leverage financing is the loan that we extend to corporate. And it's loan, so it's not risk-free. So if the borrower firm goes into the financial difficulty, then naturally, the loan has been mark to market. And as a result, JPY 35 billion of unrealized loss was booked. In addition, if the corporate goes bankrupt, then, of course, that impact will come to our P&L. But I'm afraid. I may not have understood your question fully, but that's how I think of it.

This is Sasaki. So my question is regarding the index. Even if the index is up, but the valuation is not coming up. For example, if it's a residential mortgage, the model error usually does not emerge. But if the credit quality is the basis, then it's not -- we don't need to really look at the index?

Kitamura speaking. Of course, the index depends on the financial status of each firm. So whether the situation has recovered in April, as some people asked earlier, but the situation depends on the particular situation, specific situation of individual corporates.

Mr. Kitamura, my question may be vague, but this fiscal year, in terms of budget or your projection for the performance, how do you consider those as you entered the month of April? Because the current environment is very different from the usual environment. And for this year, this year, you would have to attend to -- you may have to attend to the unusual situation, but -- or you may be seeing the end of the COVID-19. So for this fiscal year, as you consider the corporate management, so the among management members, how are you management members looking at this fiscal year?

Kitamura speaking. It's a very difficult question to answer. In the first place, Nomura is a firm. So we do have a budget for this year. But the budget itself -- budgeting process itself started December last year. And through the end of March, we have put together our budget. But in the course of budgeting process, we were hit by the impact of COVID-19. So how do we evaluate this impact? We do not have an answer. That's my frank answer. The next 2 months or so, business continuity will be the biggest -- the last 2 months, our biggest priority has been business continuity. On the other hand, as Mr. Sasaki said, in Germany, they are tilting towards reopening their economy. And frankly, put the impact of COVID-19, for how long it will continue. And to what extent should we consider the possibility of second wave and third wave of infection? Those questions -- we'll be impacted by the behavioral change among our clients, not just the changes on our side. For example, in urban areas, people are in a congested place in large numbers. So people are concentrated in one area, that's the result of the efficiency thought in urban areas. But as a result, the clusters are easy to form in urban areas. But are we going to see the decentralization as a trend among Japanese companies? If so, then what kind of added values can we provide to clients? That's a very difficult question because we have to consider a world that's unlike the world that we have been familiar with. So under the pre COVID-19 situation, we had the midterm plan, but is it still valid post-COVID-19? Or in a situation where we have COVID-19, are we going to go back to the situation pre COVID-19? I do not believe we'll be completely going back to where we used to be. Many things that are taking place will become new normal. I may not be answering your question, but we have to consider those various things rather than our direction this particular year. But we would have to have a longer -- we have to have a view in a longer term. But our business is financial services, servicing, serving the corporate and individual clients. So the importance of our services will enhance, grown even bigger. But the way to approach our clients' needs seems to have changed. So May 18, there is Investor Day event to be conducted, to where Mr. Okuda, CEO, will explain our thinking. But honestly speaking, we do not have exact or clear answer. As of now, we are still conducting discussion within ourselves. So I'm sorry to tell you that we don't have an answer.

Thank you very much, Mr. Kitamura. So at a later date, let me once again ask a question.

On Retail, in view of the top line, you've touched upon the business in April, and 80% of revenue has been achieved, even when your employees are working from home. Is that because of initiatives you have taken? Or is it because of the market? And secondly, post COVID-19, what's the time line you have in mind to go back to business as usual or the normal situation when employees are coming to the office? Or rather, you said that life continues with people staying at home. But what's your take on revenue dropped? And what's the time line of structural reform? So that's my question on Retail. And secondly, on markets, in terms of organic profitability, JPY 160 billion, JPY 170 billion is probably the image, but is that the right expectation? Can you give us some information on what we ought to be expecting?

This is Kitamura speaking. Talking about April, now the situation is significantly different in comparison to March. Market plunged in March, and clients that are highly sensitive to equity had been impacted. But then since the beginning of April, when we look at the source of revenue, other than equity, there has been distribution to Investment Trust. So rather than calling that market impact, I think this is a result of the initiatives and ingenuity that we have implemented. So when will we go back to the original working style? Since last summer, when we did the channel reformation, we have been discussing various changes. And one of the KPIs that we have set was for ordinary clients, increase non-face-to-face contacts, in other words, using telephone and other means to contact customers. So by coincidence, we have been practicing for COVID-19 before the outbreak occurred. And with the emergence of this outbreak, I think our partners are taking such initiatives that had led to the results. And in many cases, many of our clients are also staying at home. So contacts through telephone is delivering success, more success than telephone contacts in the past. When we resume normal operations, in some prefectures, but except for some prefectures, the emergency status declaration will be released. So that will reopen the economy. But will we completely open up our branches? Or we only accept clients on prebooking basis? If we completely open and resume our branches, we will create a potential cluster, with closed environment and congestion and close contact. So I'm guessing that we will ask for prebooking in advance. But we're conducting that debate right now within the company, but that's probably the future direction. And how will we be approaching our customers going forward? We've done the channel reformation and then came the corona outbreak. So this kind of change will probably continue. Other than net mobile, even in those non-net, non-mobile channels, we may promote non-face-to-face contact in the future. On the second point, Wholesale first quarter revenue level, what -- how do we evaluate the Q1 revenue for Wholesale? We did well in April. Will this trend continue? Until when will this robustness continue? We think that the curve could flatten in the months ahead. But the central banks of countries around the world are implementing significant easing monetary policies, and the demand for supreme bonds will probably rise going forward, even further than the increase we had seen before. So to a certain extent, we can expect continued activity or continued flow. 2, 3 years ago, rate volatility was gone. It's difficult to imagine that we will be back to that situation. So Q4 March-April activity, but with some averaging out, will we see silence? No. You quoted the number JPY 160 billion and JPY 170 billion. I will refrain from making comments on the specific numerics, but when we look at the updated business environment, it's not so bad. So now people are staying home, refraining from going out. And even in the station, thank you very much for attending this conference call. We will continue to serve as the key player in financial market, and we will do our utmost efforts. And I ask for your continued support. Thank you very much.