Takumi Kitamura - Executive Managing Director and Chief Financial Officer.

Masao Muraki - Deutsche Securities Inc. Kazuki Watanabe - Daiwa Securities Co., Ltd. Natsumu Tsujino - JPMorgan Securities Japan Co. Ltd. Takehito Yamanaka - Credit Suisse Securities(Japan) Ltd. David Lui - Guoco Management.

Good day, everyone, and welcome to today’s Nomura Holdings Third Quarter Operating Results for Fiscal Year-Ending March 2017 Conference Call. Please be reminded that today’s conference call is being recorded at that request of the hosting company. Should you have any objections, you may disconnect at this point in time.

During the presentation, all the telephone lines are pressed for listen-only mode. The question-and-answer session will be heard after the presentation.

Please note that this telephone conference contains certain forward-looking statements and other projected results which involve known and unknown risks, delays, uncertainties and other factors not under the company’s control which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections.

Such factors include economic and market conditions, political events and investor sentiment; liquidity of secondary market, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we’d like to begin the conference. Mr.

Takumi Kitamura, Chief Financial Officer. Please go ahead..

Good evening. This is Takumi Kitamura, CFO. I will now give you an overview of our third quarter financial results. Please turn to Page 2 of the document titled consolidated results of operations, you can see executive summary page.

As you all are aware, last year, monetary policy took center stage around the world, and we saw number of events that could be considered historical turning points, such as Brexit and the U.S. Presidential Election in November.

In the latter half of year, as uncertainty started to fade away, we saw renewed risk taking in the equities markets and in the fixed-income markets heightened volatility in rates and FX led to rush of investors rebalancing their portfolios.

On this environment, we reported a 35% increase in income before income taxes for the nine months to December to ¥240.5 billion, and an 18% increase in net income to ¥178.4 billion. ROE for the period was 8.6% and earnings per share was ¥48.76.

Although decline in year-on-year, retail performance have continued to improve after bottoming out in the first quarter.

Asset management reported stronger income before income taxes compared to the previous year, due partly to an increase in assets under management, also reported a significant gain in income before income taxes, as fixed income booked stronger revenues and we saw the benefits of cost reductions.

In our international business, which has been one of our key challenges, all regions were profitable with income before income taxes of ¥71.4 billion, which accounted for 30% of group income before income taxes. Turning now to third quarter results.

As you can see on the top right, group income before income taxes was ¥95.9 billion, up 17% quarter-on-quarter, and net income increased 15% to ¥70.3 billion. This represents a significant improvement in earnings since the trough in the fourth quarter of last year. Earnings per share was ¥19.44 and third quarter annualized ROE was 10.3%.

As shown on the bottom right, total income before income taxes from the three business segments was ¥87.4 billion. All businesses reported stronger net revenue and income before income taxes compared to last quarter. Let’s now take a look at each business in more detail. Please turn to Page 5 for retail.

Net revenue increased 18% quarter-on-quarter to ¥101.3 billion. Income before income taxes grew 80% to ¥25.9 billion. As the stock market rallied and the yen depreciated after the U.S. Presidential Election, investor sentiment improved and we saw strong trading in stocks, investment trusts, and bonds.

Total sales, as shown on the bottom left, recovered to over ¥3 trillion for the quarter. In particular, secondary sales of Japanese and international stocks JGBs for individual investors and foreign bonds increased considerably. Investment trusts reported inflows into funds for U.S. high-yield bonds and U.S. equities.

As you can see on the bottom left of Page 6, discretionary investments saw net inflows of ¥42.6 billion spurred on by market factors, client assets, and discretionary investments grew to ¥2.4 trillion as of the end of December.

The market rebound also drove an increase in client assets in investment trusts and recurring revenue recovered from the previous quarter. Please turn to Page 7 for asset management. We continue to look inflows into investment trusts and the investment advisory business in the third quarter, lifting assets under management to a record ¥43.2 trillion.

This led to an increase in management fees, which also combined with gains related to American Century Investments and dividend income to give a quarter-on-quarter increase in net revenue of 36% to ¥28.9 billion. Income before income taxes was ¥14 billion, the highest quarterly result since the year-ended March 2002.

The investment trusts business reported inflows into ETFs and privately placed funds for regional financial institutions. In the investment advisory business, we won mandates from Australian and Chinese institutional investors, mainly for high-yield products. Please turn to Page 8.

As you can see on the bottom right, we are moving forward with various collaborative efforts with American Century Investments or ACI, the U.S. company we invested in last May. In November, we set up the U.S. value strategy fund managed by ACI and targeted at retail investors in Japan.

A Japanese pension fund also started using a global equity product managed by ACI..

Please turn to Page 9 for an overview of wholesale results. Net revenue increased 10% quarter-on-quarter to ¥197.3 billion. The Americas and AEJ had a good quarter.

Fixed income was the main driver of revenues of FX and the rates businesses delivered to resilient performance despite making bonus provision in line with pay-for-performance we continue to stringently control costs and income before income taxes increased 21% to ¥47.4 billion.

Please turn to Page 10 for an overview of each business lines and results. Global markets reported net revenue of ¥173 billion. Fixed income net revenue increased 18% to ¥117.3 billion on strong performance in rates and emerging markets FX.

As we can see in heat map on the top right, the Americas reported solid performance in rates and FX, and AEJ had a good quarter in emerging markets and both regions shows a positive upward trend, equities net revenue was roughly flat quarter-on-quarter at ¥55.8 billion.

Although the quarter got off to a solid start in October, the market rebound following the U.S. Presidential Election led to an increased client activity in November and December. The heat map shows AEJ sold from a strong previous quarter, but the other three regions all reported higher revenues. Please turn to Page 11 for investment banking.

As you can see on the top left, third quarter net revenue increased 2% quarter-on-quarter to ¥24.2 billion. Gross revenue, which represents revenues before allocation to other divisions was roughly unchanged at ¥41.7 billion. Japanese revenues declined of equity financing by Japanese corporate, the Oberthur.

However, we continue to diversify our revenue streams across business and regions and the Americas and AEJ performed well. The right-hand side showed some key deals for the quarter. In – on Monday, we leveraged the global franchise to win a number of cross-border and multi-product mandates.

As you can see, we’re moving beyond Japan and increasingly winning the mandates to advise overseas companies. Please turn to Page 12 for an overview of expenses. Third quarter non-interest expenses were ¥272.7 billion, which as you can see, represents a steady decline in expenses compared to a year ago.

However, third quarter expenses were up 3% quarter-on-quarter, due mainly to yen depreciation and an increase in non-personnel expenses, such as, business development expenses. Please turn to Page 13. Total assets were ¥43.1 trillion and shareholders’ equity was ¥2.8 trillion.

Our Tier 1 capital ratio was 18.5% and our common equity Tier 1 ratio was 17.6%, both down slightly from September, due to yen depreciation, which caused risk-weighted assets to increase by ¥900 billion from ¥13.7 trillion at the end of September to ¥14.6 trillion at the end of December.

Applying the fully-loaded 2019 Basel III standard to our balance sheet at the end of December gives a CET 1 ratio of 17%. Our leverage ratio was 4.47% and our liquidity coverage ratio was 178.6%. That concludes the overview of our third quarter results. To sum up, 2016 was marked by several major events that shook the markets.

However, especially in the third quarter, we delivered an overall solid set of results well-balanced across all regions and businesses. In the past, Nomura relied heavily on its Japan business, in particular, retail.

But by focusing on our core businesses and enhancing across regional and across divisional collaboration, we have been able to diversify our revenue sources and the spread earnings out across regions and divisions. Our most recent performance remained solid overall.

Retail performed well in January, although down slightly from third quarter numbers, as there were fewer business days in the month. Yen depreciation in the stock market rally have had a positive effect on assets under management in asset management.

Also continues to build on the momentum gained through to the third quarter with fixed income as the key driver of revenues. We will continue to work to generate consistent revenues and control costs through stringently to ensure sustainable growth. Thank you very much..

We have a question-and-answer session now. [Operator Instructions].

The first question is from Mr. Muraki from Deutsche Securities. Muraki, please go ahead..

I have two questions. First is about your expenses. On a consolidated basis, if you look at your results for compensation and benefits. On a year-on-year basis, the top line has grown, but your compensation and benefits has fallen significantly. And on a Q-on-Q basis, again top line has grown, but compensation and benefits has been remained flat.

And with the weakening of the yen both the top line and compensation and benefits could have gone up on a Q-on-Q basis basis. But this time your – the growth in compensation and benefits has been smaller than your top line growth. And is it because you change the way you make provisions for bonuses? That’s my first question.

And my second question is, when you mentioned the recent situation in January at the end of your presentation, could you give me more color on the retail and wholesale business? For retail, I believe the sales is slowing down, and for the outflow from investment trusts, which was quite strong in October to December, has there been any change January onwards, or is the outflow continuing? Moving to wholesale, could you tell me the difference between geographies, for example, or businesses, for example, fixed-income, the Americas and Asia was strong, with equities, Japan was strong.

Is the same trend continuing in January, so is the same trend as Q3 continuing in Q4? Thank you..

Regarding the first question compensation and benefits whether, even though it’s likely to be inflated because of weaker yen, the compensation and benefits didn’t change from the second quarter, and why was that, that’s your question, I do understand.

For one thing, in the second quarter, the first-half bonus provision was made and included in the second quarter, that’s the first reason. And secondly, up until the second quarter, we had the fixed labor cost, which correspond with salary. The level of salary came down in the third quarter.

As a result, in the third quarter, the performance linked bonus provision was accrued to some degree. But consequently, on a Q-on-Q basis, we do not see much difference. For compensation and benefits, which you asked about in both relevant point, the run rate cost for wholesale overall have trended as follows.

The – excluding bonus provision, run rate cost as of now is about ¥5.3 billion or so. Initially ¥5.9 billion was the starting point and we aim to lower it to ¥5.1 billion or so and that has been our intension, and now it’s down to about ¥5.3 billion, so it’s about 80% – 70% to 80% of the goal achieved.

From here by spending the next two years or so, we would like to lower the run rate further. The second question, the recent trend. You’d like more details about the recent trend. As I commented, I cannot provide any more comment than I had already provided..

Thank you. This is Muraki again. So for fixed income, compared to the – compared to your U.S. peers you are relatively strong in your results. And if you look at the breakdown of revenues, provision management revenues, which is not directly linked to client flow, so the trading portion was quite high for three consecutive quarters.

On a midterm basis, is this sustainable?.

The five American players compared with last year. And of the 16% difference and our performance we outperformed to the five U.S. players, and there’s some seasonality factor. As you know, American players have the year-end – accounting year-end at the end of December. So because of that, they might have refrained from using their balance sheet.

In our case at Nomura, we are not proactively utilizing balance sheet, that wasn’t the case, but we’ve stayed close to clients needs and the flow and we made sure that we provided liquidity, as a result, we see the numbers that we are seeing now.

Also, the level of revenue fixed income whether it is sustainable or not, in the third quarter, we had a pretty clear direction. Therefore, we do receiving clients from market environment. So I cannot give an answer with certainty, but continuously we will keep focusing on cost control.

So that we can keep expanding and maintaining the platform of client and also we would like to control risk, as we aim to increase the market share. And you also asked about the client flow in fixed income, also a very versus the trading revenue, the breakdown between the two.

The client revenue is about 60%-plus and trading revenue is a bit above 30%. Between second quarter and third quarter, the breakdown remains about the same..

Thank you. Understood..

The next question comes from Watanabe from Daiwa Securities. Watanabe, please go ahead..

[Interpreted] Thank you. This is Watanabe. Thank you very much for taking my questions. I have two questions. First, Page 7, regarding asset management division, so American Century related gain was recognized.

What’s the contribution to the profit? And what kind of factors involved in related to the changes of the fair value? And secondly, my question is about impact of the financial regulation in the U.S. You are not a bank holding company, so if the financial regulation is releasing the U.S., the direct impact is limited in that case.

GS, Morgan Stanley will increase their competitiveness, so on the relative term, you might have a negative impact, so what would be the negative impact? And but the market liquidity will increase, that could be a positive factor for you.

You may have to use your intuition, but on a net basis, which would you expect more, positive factor or negative factor? Thank you..

Thank you for your questions. This is Kitamura. First, regarding asset management and the ACI-related P&L in asset management, this is roughly ¥4 billion of revenues, which we have recognized. And in terms of how we calculate the fair value, we look at the business performance of ACI, as well as the market environment.

And when we say market environment, we mean the comparison with other listed peers, and based on these factors, we conduct the market valuation of ACI. Moving onto the financial regulations in the U.S. and the impact to Nomura. With the election of Mr.

Trump and immediately after the election, there was talk about the abolition of the Dodd-Frank rule, there were hopes about that. And I think that this is what you’re referring to in your question. And whether this could be a tailwind to the overall financial industry, there were talks about that.

But when looked at closely, these – the financial deregulation, we don’t expect to be very stringent regulations targeting large financial institutions to change that much.

Maybe for second tier banks and smaller financial institutions, maybe these people will be impacted by the financial regulation in response to the current excessive regulations, but not so much for large institutions. And there are discussions ongoing about that at the moment.

But by the way, it’s going to take time in relation to financial regulations being abolished, or weakened, or deregulated. And it’s quite hard to say what’s going to happen to the Dodd-Frank rule and the reversal of that.

But in relation to the excessive regulation of financial institutions or financial industry and whether this kind of regulation act is actually hampering the financial industry.

If the excessive regulations are going to be normalized then that will improve the liquidity, which has been compressed significantly because of the regulations and that will have a positive impact to Nomura. So on a net basis, there are both positives and negatives, so which is larger, it’s a question.

But frankly speaking, it’s quite hard to say what the next impact will be. But just to give you my personal view, maybe the net impact is going to be positive..

Thank you very much for your detailed explanation..

The next question is from Ms. Tsujino of JPMorgan Securities. Ms. Tsujino, please go ahead..

Thank you.

First of all for equities investment trusts and the sales of investment trusts in October, November, December, what was the percentage of equities investment trust sales among total sales from October to December? And based on that from December onwards have things stabilized, or calm down a little bit, or with – I believe there was some volatility during the period.

But what are your views at the moment? Could you give me a bit more color on what you mentioned earlier? And as far global markets and for the fixed business, what was the monthly trends for the fixed business, particularly [ph] in the U.S. was very good, very strong.

But could you give a bit more detail about which area was strong?.

Thank you very much for your questions. First, regarding the sale of equities investment trusts, how it trended from October to December? As you can imagine, October, November and December every month, we saw improvement, recently compared with the third quarter, the situation is mostly the same. So I believe you could imagine the recent situation.

Then moving onto the next question about fixed income, monthly trend in the global market business. The month of October was the timing immediately before the Presidential election in the USA. So our sense are pretty cautious that cautious stance continued till the middle of November.

After that based upon the victory of Donald Trump, the rates and dollar went up, and rates and FX activities were very robust. So the activities went up rapidly, and December, we witnessed similar trend. For the size of revenue for each month, probably us 3 to 4, if I’m going to give you some kind of breakdown or split or ratio, so 30% and 40%..

So it didn’t increase that much?.

That’s correct..

And in terms of the monthly increase in equities investment trusts, was it like 1.2 or 1.5, what was the extent of the improvement – monthly improvement?.

I’m afraid, this is a very rough number about 3 to 4 to 5, that’s the proportion..

Okay, understood. And my final question is, yesterday, Daiwa announced its results. There was a 42% Q-on-Q increase in equity investment trusts sales.

And it would be significant – saw slight decline, I mean, is the whole 50% to 60% increase, so the results were quite different among the different brokers on a Q-on-Q basis? And based of these results of your peers, how do you evaluate your own performance?.

Nomura achieved a 11% or so of increase. In that sense, each company, I believe conduct with different and types of approaches. Daiwa, means a whole grew in a significant way. And how I view that, I cannot comment on other companies situation. But probably, they might have focused on equities, that’s what I imagine.

But at Nomura, our sales activities that we are not focusing on any particular product, we are starting from clients needs. And as a result, we saw a 11% increase in equities area, as a result of meeting clients needs..

Okay. Thank you..

Next question comes from Ms. Yamanaka of Credit Suisse. Yamanaka, please gohead..

Thank you very much for taking my question. I have one question, regarding the retail division. In the second quarter, the equities brokerage commission recovered significantly, what’s the background to that? Thank you..

Thank you for your question. Equities is the UK average saw a sharp recovery or a sharp growth. And under the circumstances, there was a lot of trading for some of the names, which saw a lot of write-off in the share price and also ETF trading and U.S. equities or foreign equities in – mainly in U.S. was quite active and primary deals also contributed.

As I mentioned in the press conference, the momentum among investors towards equities was or the interest in equities was a bit weak. But our salespeople have been working to improve that and they captured the changes in the equity markets quickly and followed up with proposals to our clients, and I think that led to the success.

Even the young salespeople, Nomura salespeople are able to talk about the markets and explain it to the clients. We’re working on that. So I think we started to see the results of these efforts..

The U.S.

equities and foreign inequities is the percentage of overseas equities growing?.

Well, in this case, in the primary deals, there was JR Kyushu and also Kian [ph], so Japanese equities saw a very sharp rise. So in terms of the percentage, it was not that large, foreign equities was not that large..

Thank you very much..

The next question is Mr. David Lui from Guoco Management. Please go ahead..

Hi, Kitamura, congratulations on a great set of results. I have two questions. My first question is on Page 12 of your PowerPoint presentation. I’m looking at compensation and benefits. After your restructuring last year, we could see the compensation and benefits dropped substantially from ¥141.8 billion to the mid-120s.

Can you tell me if this is going to stay constant, or the famous project Waterline is going to put more pressure on compensation and benefits? That’s my first question. And the second question is really on the also the project Waterline.

Is it going to focus more on non-personnel costs going forward, or is this going to still focusing on compensation and benefits. Thanks..

David, thank you very much for your question. [indiscernible].

The first question –for the first question regarding compensation and benefits that’s coming down whether it’s going to go down further? I believe there is consistency. As a company, we are going to be ensuring pay-for-performance model. So if performance is good then compensation and benefits, of course, will go up.

So we’ll be ensuring the full implementation of pay-for-performance. So if performance is less than favorable then compensation and benefits will be held down. From here whether we are thinking about projects – certain projects, we are not thinking about any specific projects.

And regarding the Waterline project you asked about, inside the firm there are various inefficient or waste for [product fees] [ph] What we’re trying to do is to take stock of those things, so that we can improve the productivity of the firm, because since we’ve been in business for such a long time, so in various areas of the company, we see accumulation of unnecessary things.

So the initiative is intended to clear those unnecessary things. If anything we are targeting NPE, non-PE rather than PE, as a focus. For example, cost reduction may not be conducted overnight.

But we review the meetings that are necessary and we check whether unnecessary e-mails are being sent to any unnecessary work, it’s being conducted, we review work process and as a result, we believe we can identify opportunities for a cost reduction..

Great. Thank you. I have a second question is on Page 13 of your PowerPoint. It’s about your capital position. It looks like you are doing quite well in the upper right-hand corner of Page 13. We can see the common equity Tier 1 ratio increased in the last few quarters and now is almost 18% – a little bit low 18%.

Could you review your excess capital position right now? And how you maybe thinking about share buybacks, as well as a potential increase in dividend, if you are thinking about these two particular avenues? Thank you..

So Tier 1 ratio and a CET 1 ratio level, as you know, the credit risk-related to rules were supposed to be finalized last year. But the finalized rules were not publicized.

So uncertainty still remains in the regulatory environment, because of this at this point in time, we’ll be conservative as we manage our financial standing, because that I believe will be in the interest of shareholders. Then what is the size of excess capital? Regarding that question, regulatory environment needs to be clarified first.

Without clarification of that, it’s not appropriate for me to comment on that. But two years ago at Nomura, we set CET 1 target that we’ve announced, 11% is publicly announced CET 1 target that we’ve announced two years ago. And we are going to conduct control, so that we can retain about say, about a 11% no matter what happens.

As a result, when various regulations are clarified, as David Findlay [ph] mentioned, we will have more visibility about the size of excess capital. So shareholder return and the necessary investment in the various perspectives will be considered and dividend is going to be one of the options, and of course, share buyback is another option..

Thank you.

Is it – I’ll just have one quick one, is it fair to say Kitamura on that based on the 11% minimum target that you said two years ago, Nomura’s capital ratio is looking very good right now, would you say that?.

So now that in our Tier 1 CET 1 ratio is at 17.6% is much higher than 11%. And we’ll realize in a possible – the impact for the coming regulatory. But we believe that we can absolutely coming in a regulatory impact using this buffer..

Okay. Thank you very much. Congratulations again..

Thank you..

[Operator Instructions].

Well, thank you very much for participating late in the evening. The results from Q1 to Q3 and Nomura’s performance during that period, I think, it shows that Nomura’s efforts has been in the right direction. Meanwhile, the market environment, the political movements, there still are a lot of uncertainties going forward.

So we will continue to control our expenses, as well as our risks, so that we can sustainably grow Nomura regardless of the environment. We look forward to your continued support. Thank you..

Thank you for taking time and that concludes today’s conference call. You may now disconnect your lines..