Earnings Call Transcript - NMR Q1 2023

Takumi Kitamura, CFO

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I will now give you an overview of our financial results for the first quarter of the fiscal year ending March 2023 using the document titled Consolidated Results of Operations. Please turn to page 2. It was a challenging quarter as U.S. interest rate hikes and fears of a recession dragged on the market, negatively impacting market activity and mark-to-market valuations of our securities holdings. As you can see on the top right, income before income taxes slumped 76% to ¥11.7 billion and net income dropped 95% to ¥1.7 billion. Earnings per share was ¥0.52 and annualized ROE was 0.2%. Three segment income before income taxes shown on the bottom right slowed 45% to ¥18.5 billion. Market headwinds led to a widening of negative investment revenue in Investment Management compared to last quarter and a slowdown in Wholesale due to weaker transaction volumes and postponement of deals in Equities and Investment Banking. Despite this, revenues in our three core businesses remained relatively resilient. Retail gained traction in its shift to expanding client assets over the medium to long term, reporting net inflows into recurring revenue assets, particularly discretionary investments, level fee assets, and loans. Recurring revenue inched up quarter-on-quarter despite the market headwinds. Investment Management had another solid quarter in its fund management business. The investment trust business booked ongoing inflows through a diverse range of channels and alternative assets under management, part of our push into private markets, topped ¥1 trillion. In Wholesale, Fixed Income had a good quarter with Macro Products reporting significantly higher revenues as we monetized the spike in interest rate and FX volatility and an uptick in client activity. Investment Banking reported continued high levels of revenue in Advisory businesses, although down from the particularly strong recent two quarters. Outside our three segments, we booked a loss before income taxes of ¥6.7 billion. As I said, the impact of fair valuations led to a worsening of losses on investment securities and losses related to economic hedging transactions. Please turn to page 5 for an overview of results in each business. Retail net revenue was ¥71.4 billion, up 1% quarter-on-quarter, while income before income taxes declined 5% to ¥4.9 billion. From this quarter we have given a breakdown of revenues at the bottom left. Flow revenues from transactions remained sluggish as ¥39.1 billion as clients continued to sit on the sidelines given the current market uncertainty. Meanwhile, recurring revenue, which is based on fees from client assets, remained resilient amid market headwinds. Please turn to page six for total sales by product. This quarter we changed the scope of how we calculate total sales. Previously, we only counted sales in the Retail channel which serves corporates and their owners as well as individual clients via our nationwide branch office network. From this quarter onwards, we are including the Japan Wealth Management Group, Net & Call, and intermediary. This should give you a more complete and consistent view of total sales across Retail. Total sales this quarter declined 4% quarter-on-quarter to ¥4.7 trillion. Sales of stocks, shown here by the red bar graph, declined 15% as primary offerings came almost to a complete stop and Japan secondary stock sales were slow in April and May. Products other than stocks increased compared to last quarter. Investment trust sales grew 24% with the top selling funds being global and U.S. stocks and Japan’s first publicly offered investment trust that invests in U.S. unlisted REITs, which is a part of our push into private markets. Please turn to page 7, which gives an update of our new KPIs set in May this year. As shown on the top left, net inflows into recurring revenue assets was ¥132.8 billion. This represents a strong rebound from last quarter with funds flowing into discretionary investments, level fee assets which were fully launched in April, and loans. As a result, recurring revenue remained solid as you can see here on the top right. For services for salaried employees, an area we are stepping up our efforts as part of our approach to the next generation of investors, we saw an increase in ESOP contracts with the total surpassing 3.4 million at the end of June. Please turn to page 8 for an overview of Investment Management. Net revenue declined 25% to ¥7.6 billion, while loss before income taxes was ¥11.7 billion. The revenue breakdown on the bottom left shows investment revenue of negative ¥23.1 billion, which had a substantial impact on the division’s performance. This was mainly due to a loss related to American Century Investments of ¥18.5 billion and an unrealized loss of ¥4.7 billion on Nomura Capital Partners portfolio companies. However, business revenue, which represents stable earnings, was ¥30.7 billion. Management fees remained solid, despite slowing slightly from last quarter which saw a concentration of calculations for success fees. Please turn to page 9. As shown on the top left, assets under management at the end of June was ¥65.6 trillion, down ¥2.3 trillion from the end of March primarily due to market factors. In terms of the flow of funds, the investment advisory business reported net outflows of ¥930 billion, but the investment trust business booked net inflows of ¥480 billion on inflows into ETFs, the bank channel, and defined contribution funds. In our focus area of private markets, alternative assets under management grew to ¥1.1 trillion. Please turn to page 10 for Wholesale. Net revenue increased 2% to ¥199 billion. Although last quarter included ¥11.5 billion from the reversal of losses arising from transactions with a U.S. client, revenues grew quarter-on-quarter thanks to strong performance in Fixed Income as well as yen depreciation. Wholesale expenses also increased due to yen depreciation and income before income taxes declined 32% to ¥25.3 billion. Please turn to page 11 for an overview of results by business line. Global Markets net revenue grew 11% to ¥175.3 billion. Fixed Income was particularly strong with revenues increasing 41% to ¥112.6 billion. From this quarter we have included a graph showing revenues by main products. This quarter Macro Products such as Rates and FX/EM were strong and Spread Products revenues increased as Credit more than offset a slowdown in Securitized Products. Equities revenues decreased 20% to ¥62.6 billion. Americas Equity Derivatives, one of our core businesses, reported stronger revenues, but Japan and AEJ revenues slowed on lower trading volumes and muted client activity. Please turn to page 12 for Investment Banking. Net revenue was ¥23.7 billion, down 35% quarter-on-quarter. Finance related revenues from businesses such as ECM and ALF were sluggish as global transactions slowed. Advisory revenues also slowed compared to the particularly strong past two quarters, but remained relatively resilient with revenues of over ¥10 billion for the seventh consecutive quarter. Americas Advisory revenues remained around the same level as last quarter. Globally, we supported multiple international cross-border and sustainability transactions. Please turn to page 13 for an overview of non-interest expenses. Firmwide costs declined 1% to ¥287.3 billion. While overall costs increased due to yen depreciation, other expenses declined significantly as last quarter included additional costs of ¥23 billion related to RMBS. Please turn to page 14 for an update of our financial position. The table on the bottom left shows Tier 1 capital of ¥3.2 trillion, an increase of over ¥90 billion compared to the end of March. This increase is mainly due to an increase in FX translation adjustments because of yen depreciation. Risk-weighted assets increased by ¥1 trillion from the end of March to ¥16.8 trillion. As the waterfall graph on the bottom right shows, market risk increased by ¥0.9 trillion due to higher market volatility and credit spread widening. Credit risk also increased by about ¥70 billion. As yen depreciation is a factor driving up risk-weighted assets, our Tier 1 ratio at the end of June was 18.9% and our common equity Tier 1 ratio was 16.7%, both down compared to the end of March. That concludes my overview of our first quarter results. To sum up this quarter, the bear market and rate hikes led to portfolio markdowns and muted client activity in some businesses. But as I said earlier, underlying revenues from our three core businesses remained resilient and we saw results from the strategies we are taking in each business. Market uncertainty has continued into July, and while Retail flow revenues have not yet fully recovered, yen depreciation has prompted investors to relook at their portfolios. For instance, investors with foreign bonds in their portfolios are increasing, and in July sales of Toyota Motor Credit Corporation’s foreign bonds posted a monthly record. Our asset planning consulting and goal-based approach is gaining traction and we are seeing ongoing net inflows into recurring revenue assets. In Wholesale, Equities and Investment Banking remain slow, but Fixed Income has been strong as we monetize opportunities in Rates in Japan and EMEA and FX/EM in AEJ. We expect market uncertainty around inflation and interest rates to continue for the time being. As such, we will continue to focus closely on managing risks while supplying liquidity and providing our clients with the right solutions. Thank you very much for your continued support.

Operator, Operator

The first question is from SMBC Nikko Securities, Muraki-san.

Masao Muraki, Analyst

Thank you. This is Muraki from SMBC Nikko. I have two questions. First, regarding your earnings in the U.S., you reported a loss of ¥21.6 billion in the Americas, primarily due to ACI, with the remaining loss being about ¥3 billion. In your presentation on Wholesale, you indicated that earnings in the Americas were strong, not weak, yet the bottom line appears weak. Can you explain this discrepancy? My second question concerns the evaluation loss. If you exclude these non-cash valuation losses, what does the underlying business trend look like? You seem to suggest it is strong and robust, but based on this analysis, what are your thoughts on dividends? You're making progress on share acquisitions and buybacks, but how do you perceive your profit level in Q1? Should we consider net income, or exclude the valuation losses and other one-off items?

Takumi Kitamura, CFO

Regarding your first question about the earnings in the Americas, last year or in the previous quarter, there were litigation expenses related to legacy assets and transactions, which have declined. However, in the first quarter of this year, we've recorded a certain amount that is negatively affecting the bottom line in the Americas. Additionally, there have been impacts from CVA and DVA, which are quite technical matters. The personnel expenses booked in the first quarter show a rebound compared to the fourth quarter. These technical issues are weakening the earnings in the Americas. If we exclude these factors, the performance in the Americas has largely remained the same as in the fourth quarter of last year. We disclosed a roughly 10% improvement in Wholesale revenues in the Americas, and excluding currency effects, it remained fairly flat. For your second question, in the first quarter, there were market factors that led to a slow start, but we are focused on generating earnings from the second quarter onward as this will fund the dividend. We have a strong pipeline, and our priority is to capitalize on these opportunities. Currently, our shareholder return policy hasn't substantially changed, and no final decisions have been made regarding our approach. The previous quarter was affected by litigation concerning legacy transactions, which was an unusual issue impacting our profits. The current situation differs from last year, considering market factors and accounting issues when we decide on the dividend. Regardless, the source of our dividends will be the earnings and profits during this period, and we are dedicated to generating profit.

Masao Muraki, Analyst

This is regarding the first point. If you look at your peers, like the U.S. peers, they are booking about US$200 million losses related to the record keeping issues or using their personal devices for business purposes, and what about you? Has Nomura fully made the provisions for this? And do we not have to worry about this issue in Q2 onwards? And regarding the weakening of the yen, I think that is affecting your earnings. But in a local currency basis, what is the cost inflation, including the personnel expenses, internationally? And compared to three months ago, has there been not much changed? Please explain if there are any changes, please.

Takumi Kitamura, CFO

Using the unapproved electronic devices to communicate with clients and also the storage of data, the investigation is going on by the U.S. authorities. And Nomura in Q1 booked a certain amount, and we made provisions of a certain amount. And the investigation is still ongoing. So, that is all I can comment on at the moment.

Masao Muraki, Analyst

And regarding the weakening of the yen and its impacts?

Takumi Kitamura, CFO

As mentioned in the previous earnings announcement, compensation and benefits are increasing, and we were aware of that. However, on a quarter-over-quarter basis, they haven't changed much, excluding the effects of currency in Wholesale. Therefore, there hasn't been significant impact. I hope that answers your question.

Operator, Operator

The next question comes from Mitsubishi UFJ Morgan Stanley.

Natsumu Tsujino, Analyst

My first question is about the performance of global markets this quarter. While GM faced challenges in equities, fixed income showed strong activity in the Americas, EMEA, and Japan despite market volatility. What is the outlook for the rest of the year? While it's hard to be optimistic, the ongoing turbulence may complicate market navigation. However, once navigated, there may be opportunities for generating flows. Are you prepared for that? I wouldn't say I'm comfortable, but can I expect positive results? Regarding equities for the April to June quarter, there was a timing adjustment, but after July, US equities appear to be bottoming out. The future is uncertain; there could be a rally in the EMEA market, but circumstances might change in July. What is your perspective on this? Now, my second question relates to the increase in compensation and benefits on a quarter-on-quarter basis. You mentioned most of that increase was due to foreign exchange effects. Is that really the case? Looking at the fourth quarter personnel expenses, including the bonus pool, it might seem smaller in comparison.

Takumi Kitamura, CFO

Thank you for your question, Tsujino-san. Let me address your second question first. When I mentioned the FX exchange rate, I was referring to the wholesale business. In the first quarter, for instance, Japan’s retail business had newly hired university graduates, which tends to lead to higher personnel expenses during that time. Additionally, there is the accounting treatment for deferred assets. Consequently, personnel expenses are typically higher in the first quarter due to these factors, but when excluding them, the only remaining influence is FX. Regarding the fourth quarter, I hope you can interpret the first quarter results within the context I've provided. As for your first question on fixed income, I appreciate your positive evaluation. However, what stood out for us is the recovery in our Japan business, which appears to have made a favorable impact. Japanese Government Bond yields have increased along with market volatility. For an extended period, the market has been relatively stable, leading to mixed perceptions, which have resulted in rising volatility. Japan seems to be making a comeback, positively affecting fixed income. Another significant contributor for us has been the AEJ in the Japan credit business. Our regional composition differs somewhat from USPS, particularly in AEJ credit where credit spreads in China are tightening. These opportunities seem to have been effectively seized, contributing to the strong performance in fixed income. As you noted, the market environment is quite challenging. Despite these difficulties, we have effectively managed risks and generated revenue. If high volatility persists, we can remain optimistic about robust revenue potential for our business. Turning to equities, overall transaction volumes are declining. While trading volumes may have hit a low point, client flows appear to be reducing. Emerging market default risks and geopolitical concerns are likely affecting customer sentiment, resulting in quieter activity. While I am not confident in being overly optimistic, I do believe there are still opportunities to generate revenue. I remain hopeful we can meet certain expectations. Regarding earnings, our core business in equity derivatives performed well, although we experienced some weakness in Japan and Asia. We anticipate a recovery in those regions. Thank you.

Natsumu Tsujino, Analyst

Thank you very much, Kitamura-san. So regarding equities, it’s not specific to Japan, but the comment applies to other regions as well, when you said it’s shrinking?

Takumi Kitamura, CFO

That’s correct, Tsujino-san.

Operator, Operator

The next question comes from Watanabe-san of Daiwa Securities.

Kazuki Watanabe, Analyst

Thank you. This is Watanabe from Daiwa. Two questions, please. First is about page 10 of the materials. Wholesale’s expense ratio of 87% in Q1, which is higher compared to the 80% target, the cost income ratio. And you have implied that the weak yen works on both the denominator and numerator. So, please explain why the cost burden’s getting heavier, and please explain your future outlook? Second question, page 5. Retail level fees as of June ended exceeded ¥ 200 billion. This means it’s building up by a ¥100 billion per quarter. Including discretionary investments, your target ¥10 trillion in several years, which seems a bit slow compared to the target. So, how do you view the building up in addition to the level fees, please? Thank you.

Takumi Kitamura, CFO

Yes, this is Kitamura. First, regarding the Wholesale cost income ratio, our target is 80%, and we have surpassed that target. As mentioned in the past, we are committed to making necessary investments, particularly in International Wealth Management and M&A, which are aimed at future growth. Our position remains unchanged. In this quarter, the yen depreciated, affecting both revenue and expenses, which resulted in a higher expense ratio compared to revenue. Moving forward, we will keep concentrating on our growth sectors and invest accordingly. However, in Investment Banking, we are not making significant investments at this time. The market had been experiencing inflation, but that trend appears to be stabilizing, which may facilitate our hiring in Investment Banking. We aim to reduce the cost income ratio and manage our absolute cost levels while enhancing our revenue. These factors are essential for controlling the cost income ratio. We plan to leverage digital technologies to improve operational efficiency, and while we have commenced these efforts, we will continue to pursue them. We will deprioritize investments in non-essential items. Meanwhile, we will keep investing in areas that support revenue growth and control expenses to achieve the 80% cost income ratio target. Additionally, we want to convert more of our fixed costs to variable costs, and we are actively working on this. Regarding your second question about level fees in Retail and our perspective on progress, the level fee is designed to encourage collaboration with our customers towards long-term goals. We aim to assist our customers in evaluating their overall portfolios and maintaining ongoing communication with them, focusing on improving customer satisfaction. Attempting to increase the level fee amounts doesn't yield beneficial outcomes; rather, our priority should be customer satisfaction, which will inherently lead to growth in level fees. We hope that as our customers find satisfaction with a variety of securities, they will opt for the level fee, leading to new asset acquisitions and business opportunities. Our goal is not merely to convert existing assets to level fee assets, but to ensure customer satisfaction, which we believe will naturally result in increased level fees and level fee assets. Currently, customers participating in the level fee structure are providing us with very favorable feedback, and our employees and partners are also reacting positively to the implementation of level fees. Customer feedback indicates that the fee structure allows for trustworthy recommendations, making it easier for investors to make decisions since the proposals aren’t tied to fees. This positive feedback reinforces our desire to expand the level fee and level fee business. Our objective is to encourage customers to invest new capital rather than merely reallocating their existing assets. Thank you.

Kazuki Watanabe, Analyst

I want to clarify your first point. When you mention wanting to shift your expenses to variable, does that imply an increase in pay-for-performance in your expenses, or are you referring to the IT system costs and real estate expenses that you currently categorize as fixed costs? What do you mean by moving to variable costs?

Takumi Kitamura, CFO

Yes. Thanks for follow-up. Pay for performance is something we are already working on, and yes, we will work on it more thoroughly. And IT systems and those typical fixed costs, these are things which we do not necessarily have to have within Nomura. So, we are assessing what we need to hold onto and what we would like to use external resources for and shift to variable expenses.

Operator, Operator

The next question comes from Sasaki-san of BoA Securities.

Futoshi Sasaki, Analyst

Thank you. I am Sasaki from Bank of America. I have two questions. First question is about American Century’s valuation loss. When can we expect the situation to improve? And also, what is the reason why you have booked the valuation loss? American Century, is their underlying business deteriorating? With interest rate increasing when you conduct a discount for the present value you come to that decision? Could you elaborate on the reason why you came to booking the valuation loss American Century investment? That’s my first question. The second question is, for the first quarter, you said the profit level was not high. But looking at the first quarter level, even when we add back the extraordinary items, still the profit level seems low. So, do you have a clear trajectory back to the level of profit where you used to be? Those are my two questions.

Takumi Kitamura, CFO

First, concerning ACI, as you are aware, we evaluate its fair market value each quarter based on its performance and market and economic indicators. In the April to June quarter, the global equities market experienced a correction and interest rates rose, leading to a notable valuation loss being recorded. However, I don’t believe that ACI's evaluation loss is particularly significant for us. ACI's performance seems to align with the market trends and the asset managers' overall performance. Therefore, our valuation appears reasonable, indicating that ACI is positioned similarly to other asset managers. On the other hand, regarding the valuation loss recorded over two consecutive quarters totaling 18 billion, the volatility associated with ACI presents a substantial challenge for management. We are actively considering potential mitigating measures. Moreover, regarding the evaluation of the first quarter, the overall profit level is indeed low, and we do not consider this result satisfactory. Additionally, we need to address various factors to enhance profitability at Nomura. A key factor in improving our return on equity (ROE) is the Retail division. In the first quarter, we reported approximately ¥5 billion in pre-tax income, indicating that improving revenue and profits in this division is a challenge we are working on. While we are responding to inquiries about our top-line results, we also need to reassess our cost structure. Together with Mr. Sugiyama from the Retail division, I am co-leading an initiative to improve our cost structure on a segment basis. We will enhance our approach for individual divisions, improving the clarity of financials and allowing for a more tactical and swift implementation of measures. We plan to examine the resources allocated to each segment of the Retail business and make necessary improvements. Once these initiatives are operational, I believe our firm’s overall ROE will improve. Additionally, investment banking deals are currently stalled, particularly in equity capital markets, which is a significant concern. As for when we can expect improvements from the first quarter's situation, I cannot predict specific timing. However, we are building up deals in our pipeline, and when the market eventually recovers, we hope to seize those opportunities. We do not anticipate that current market conditions will persist indefinitely; therefore, when these businesses do rebound, we believe we can exceed our capital costs. That wraps up my response. Thank you.

Futoshi Sasaki, Analyst

Understood, Kitamura-san. Regarding the first point, regarding ACIs, volatility of fair value, is it possible for the fair value to be lowered? If the stock price of ACI is in line with other companies, then is there any method of adjusting the fair value?

Takumi Kitamura, CFO

We could conduct hedging to reduce the impact of ACI’s fair value volatility.

Operator, Operator

The next question comes from Citigroup Securities, Niwa-san.

Koichi Niwa, Analyst

Regarding Japan Retail, there seems to be good progress in terms of KPIs, but there is a significant gap with the KGI, primarily due to weak flow revenues. Can you explain the reason for this? Is it influenced by market factors? Your initiative to build up recurring revenue businesses appears to be on track. Looking ahead, if market conditions improve, you should be able to generate about ¥27.5 billion per quarter, similar to previous figures. To meet the KGI, is there an opportunity to conduct a thorough review of the cost structure? My second question concerns the CET1 ratio, which is currently at 16.7%. Thank you for the explanation. Can you detail the changes from three months ago? After the Basel finalization, will it remain above 11%? While peers like USPS are halting share buybacks, what is Nomura's stance? Are you considering factors beyond shareholder returns? Will there be minimal impact on shareholder returns from the CET1 situation? Thank you.

Takumi Kitamura, CFO

Thank you for your question. This is Kitamura. We are not currently focused on costs. When reviewing our cost structure, it is necessary regardless. As you mentioned, we aim to continue growing our flow revenue and expanding our services to a broader customer base. Product marketing plays a crucial role, and we are ensuring this understanding is shared across our division. Our priority is to deliver the right products to our clients, which is essential. In the corporate owners segment, mass affluent segment, and high net worth segment, we have assigned directors for each area, and starting in April, we plan to introduce these products and make further proposals to our clients. This momentum will carry on into July. It's important to propose the right products, but ultimately, the decision to purchase lies with the customer. However, we must ensure we present the right offerings, and our salespeople and partners recognize this. When the market rebounds, we expect our flow revenue to recover as well. We are committed to enhancing our level one in flow revenues and have not lost sight of them. This is Nomura's greatest strength, and our goal is to present the right products at opportune times to help grow our business. With the recent yen depreciation and rising U.S. interest rates, many investors are paying more attention to portfolio management. In July, our TMCC sales reached ¥150 billion, marking a monthly record. There are various opportunities, and we aim to seize them to increase our flow revenue. Another key point is our communication with customers. Previously, we relied heavily on human resources and face-to-face engagement. However, starting in April, we established a digital company and the Retail division is collaborating with them on digitalization efforts. Partnerships are also a focal area for us. This year, we announced two successful alliances, which we will leverage to expand our connections with clients and investors. Regarding your second question about the CET1 capital ratio and the reason for its decline, if you examine the numerator and denominator, you'll notice the risk-weighted assets have grown, which primarily affected CET1. One reason for this increase was the yen's weakness, alongside market factors, including heightened volatility. The period we analyzed was different and contributed to the higher risk-weighted assets. It was an accumulation of several factors that resulted in about a ¥1 trillion increase in risk-weighted assets. Concerning what happens after the introduction of FRTB, our past data suggests that the impact on the 3% to 4% level from FRTB or Basel finalization remains relatively stable. We will continue to undertake measures to ease the implementation of the internal model and mitigate its effects. Did that address your question?

Koichi Niwa, Analyst

Yes. Thank you.

Operator, Operator

Next question comes from Mr. Ban of Jefferies.

Hideyasu Ban, Analyst

I have just one question. Earlier, Sasaki-san asked about this, but for three segments, profit before tax is influenced by fair value, according to your explanation. However, for the remaining segments, you have barely secured profit, and the quarterly return on equity and earnings per share have been quite volatile. You previously mentioned the hedge operations for ACI. Regarding other fair value valuations that could impact your business, is there any possibility of conducting hedging operations or reducing the fair value valuation portion to mitigate volatility and stabilize your performance? Do you have any plans you can share with me at this point?

Takumi Kitamura, CFO

In areas other than business, fair value valuation that had impacted came from the strategically held shares or securities, but compared to our peers, our position in investment securities is quite small, a lot smaller. For the investment securities, we are conducting mark to market valuation. So, there’s P&L impact. Some approaches not to use P&L and directly reflect that on capital. But we would like to reduce the absolute amount of the strategically held shares through sell-off. Another thing regarding economic hedging, this is kind of like the tracking error of accounting treatment. I’m not sure to what extent I have explained this, but bonds that we issued before 2018. In order to hedge risks, we have conducted hedge transactions with external counterparties, but the bonds issued before 2018 as we perform valuation, they are not being mark to market. On the other hand, the hedging positions, we are conducting the mark to market valuation. So, there is a misalignment there. So, economically, we are conducting hedging, but accounting terms, there is mismatch that’s arising. So, that’s what the economic hedging item is about for this. I said time before 2018, but after 2018 for the bonds we have started applying fair value valuation. So, the volatility or fluctuation we believe has been mitigated. And for bonds issued before 2018, when they come to the maturity, then the hedging transactions that are needed for addressing the volatility will be reduced. So, over time, the economic hedging impact on our performance will become more manageable.

Hideyasu Ban, Analyst

Thank you for the explanation.

Takumi Kitamura, CFO

Thank you everyone for joining at a late time in Tokyo. And in terms of the bottom-line, we are not happy with the numbers. But there are some initiatives that we are working on. And we are starting to see the results of those efforts and the number of proposals that we make to clients. And these KCIs which lead to KPIs, and we are monitoring these numbers, whether it be Retail or Investment Banking, and the number of proposals is steadily increasing. So, we are planting the seeds for the future. And we’re making good progress there. And for fixed income, we were able to outperform our peers, which led to a lot of confidence for us. And we believe we are heading in the right direction. And there are some things for which we can improve on and we are fully aware of that. So, we will make sure to implement those improvements with speed, so that they contribute to the bottom-line. And we look forward to your continued support. Thank you very much for joining today.