Takumi Kitamura - CFO and Executive MD.

Masao Muraki - Deutsche Bank Kazuki Watanabe - Daiwa Securities Natsumu Tsujino - JPMorgan Chase Koichi Niwa - Citigroup Futoshi Sasaki - Bank of America Merrill Lynch.

Welcome to today's Nomura Holdings First Quarter for Fiscal Year ending March 2018 Conference Call. [Operator Instructions].

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

Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive condition and size, number and timing of the 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 results for the first quarter ended June 2017, please turn to page two. The first quarter got off to a slow start due to the heightened geopolitical risks such as elections in Europe and the situation surrounding North Korea.

Into the latter part of the quarter stocks rallied and client activity picked up as the French elections turned out as expected and economic indicators in Japan and the U.S. remained solid. Amid this environment revenues improved each month and total net revenue for the three months was ¥360.8 billion up 3% quarter on quarter.

As you can see on the bottom right three segment income before income taxes increased 2% quarter on quarter to ¥63.8 billion. Apart from the third quarter of last year this has been trending above the ¥600 billion mark although with some variation in underlying performance for each business.

In our international business where we have been working to improve profitability, robust risk management and stringent cost controls led to income before income taxes of ¥15.5 billion marking the fifth straight quarter of profitability.

Group income before income taxes was ¥77.4 billion down 6% quarter on quarter due to a decline in pretax income other than the three business segments. Net income for the quarter slipped to 7% from the previous quarter to ¥56.9 billion, annualized ROE was 8.1% and EPS was ¥15.77. Next let's take a look at the results for each business.

Please turn to page 5 for retail, net revenue was ¥101.7 billion and income before income taxes was ¥24.9 billion both roughly unchanged from the previous quarter. The market rally led to an improvement in retail investor sentiment and we reported enough second sales of secondary stocks and investment trusts.

Although total sales declined 16% that is due to slower sales of JJB's for individual investors following the record high last quarter. Excluding this impact total sales were roughly flat quarter on quarter.

The graph on the bottom left of page six shows quarterly sales of investment trusts and investment trust assets under management both of these increased quarter on quarter driven by inflows into India stock and thematic [ph] producs as well as low risk products aimed at distributing income.

The graph on the bottom right shows continued net inflows into discretionary investments with assets under management growing to over ¥2.5 trillion. Annualized recurring revenue grew to ¥80.9 billion and our expense coverage ratio was 26% as the steps we have taken to expand client assets combined with favorable market factors.

Please turn to page 7 for asset management. Net revenue increased 21% to ¥28.1 billion and income before income taxes climbed 56% to ¥13.6 billion. As shown on the bottom left assets under management reached a record high for the third straight quarter at ¥46.1 trillion pushing up asset management fees.

We also booked a gain related to American Century Investments. Please turn to page 8, the graph on the top left shows first quarter inflows of ¥230 billion of this the investment trust business reported inflows of ¥316 billion mainly into ETFs and MRFs.

This combined with an increase in the market value of investment trusts to drive Nomura Asset Management's share of the public investment trusts markets to over 26% as shown here in the graph on the top right. The bottom right outlined how we are collaborating with ACI. Last year we started distributing our U.S.

stock fund managed by ACI to our clients and in May this year we started providing our U.S. high yield bond management services to a ACI's retail funds. These are some examples of how we have started collaborating to provide products to each other.

Please turn to page nine for wholesale, net revenue increased 5% quarter on quarter to ¥179.3 billion, investment banking revenues declined partially due to seasonaly factors related to the first quarter.

Global markets revenues increased on the back of robust risk management and monetarization of an uptick in client activity in the latter half of the quarter. Wholesale expenses increased 8% quarter on quarter to ¥144 billion on an annualized U.S.

dollar basis that translates to around $5.5 billion but we're maintaining our run rate cost at around $5.2 billion. Expenses this quarter were above the run-rate because of higher bonus revisions in-line with revenues and a technical factor in which the recognition of deferred compensation was higher than normal.

We haven't loosened our grip on controlling expenses. We will continue to work on lowering our cost base with a particular focus on fixed costs.

With this increase in expresses first quarter income before income taxes in wholesale was ¥25.4 billion down 10% quarter on quarter looking at wholesale by business line please turn to page 10 for an overview of global markets. Net revenue increased 7% quarter on quarter to ¥154.2 billion.

Fixed income revenues grew 11% to ¥95.7 billion as our emerging market and [indiscernible] FX businesses improved. As shown on the right India slowed from the particularly strong previous quarter while Japan was up on stronger revenues in rates and FX and AEJ [ph] had a better quarter as the emerging markets related business improved.

Equities net revenue was ¥58.5 billion up 3% quarter on quarter on higher derivatives revenues in Japan and the Americas. Please turn to page 11 for investment banking, as shown on the top left net revenue declined 9% to ¥25.1 billion.

Gross revenue which represents revenues from clients before allocation to other divisions was ¥45.4 billion revenues declined compared to last quarter which was partially attributable to seasonal factors such as a decline in financing mandates ahead of the shareholder AGM season in Japan. All regions reported stronger revenues year on year.

In Japan DCM [ph] mandates increased and a solutions business such as the sale of shares held by corporates continue to increase. Internationally we were able to increase amid a multiproduct deals and grow our solutions business such as FX and rates hedging by stepping up collaboration across divisions and regions.

The result of this is shown on the top right, international gross revenue increased by 40% over the same period last year. Our international business accounted for 50% of investment banking revenues.

Please turn to page 12 for an overview of expenses, non-interest expenses were up 6% at ¥283.4 billion, this is mainly due to compensation and benefits specifically higher bonus provisions. We take into full year performance when determining bonuses and our quarterly provisions are not perfectly aligned with revenues each quarter.

We will look at full year revenues and maintain our focus on pay for performance while tightly controlling our cost base. In addition this quarter included a technical factor whereby the recognition of expenses for deferred compensation granted as part of bonus payments was higher than usual. Other expense items generally declined quarter on quarter.

As you can see on page 13, we maintain a robust financial position. Our Tier 1 ratio at the end of June was 19.1% and our common equity Tier 1 ratio was 18.1% applying the fully loaded 2019 Basel-III standard to an our balance sheet at the end of June gives common equity Tier 1 ratio of 17.8%. That concludes the review of our first quarter results.

Before I finish let me add that in retail we organized our structure to do away with the previous regional based approach by giving branch managers more discretion, we are better placed to deliver the best value added solutions to each client tailored to the specific requirements of each region.

While this hasn't shown up in our financials yet we are sowing the seeds for future growth as we see more client contact and branch offices coming up with their own bespoke strategies. Asset management continue to increase assets under management on ongoing inflows.

In July both retail and asset management have maintained their momentum from the first quarter. Looking at such indicators as the ratio of job offers to job seekers or recent performance in the corporate sector, you can see that the outlook for the Japanese economy is bright.

If this trend continues to gain traction we expect to see upside for the Nikkei and an improvement in retail investor sentiment.

Globally the environment in April and May was challenging marked by a low market volatility and a drop off in client activity but through stringent risk management and tight cost control we were able to book profits in all international regions.

Although we are not yet satisfied with the level of profits we are seeing good momentum as the profitable trend continues. In July uncertainty surrounding monetary policy has investors increasingly taking a wait and see stance and wholesale performance has slowed slightly compared to the first quarter.

The revenue environment calls for continued vigilance. We will continue to tap into client flows while managing expenses and risk to ensure that we have a sustainable business platform..

[Operator Instructions]. The first question is from Mr. Muraki of Deutsche Bank. Mr. Muraki. Please go ahead..

My first question is regarding the markets division and the second question is regarding retail, in the market revenue compared to the previous quarter there was I think there was an improvement in the currency levels but the fixed income earnings by district by revenue by geography and the sales commissions and the position could you give me the breakdown of those figures please? That's my first question so and based on those questions I might ask a follow up question.

The second point is starting from April you have changed your policy or strategy for retail and for some of your competitors the bond sales, fixed income sales in retail has been slowing down and that has led to a revenue decline.

In your case foreign bonds and structure bond sales has been improving and retail bond or retail fixed income revenue has improved 3% or more than 30% year on year. Has the change in your management or management policy, operational policy contributed to your fixed income earnings those are my two questions please..

First of all fixed income and equities and the breakdown of client revenue for fixed income client flow was more than 70% and trading revenue was less than 30% and for equities client flow was about 90%, trading revenue was about 10% and for fixed income and equities the geographical revenue breakdown for fixed income Japan mid-20%, EMEA more than 30%, Americas mid-20% and AEJ about 10% to 15% and 30% Japan and EMEA 10%, the Americas 40% and Asia 10%.

Your second question regarding the retail and the bond or fixed income sales growth in retail and the reason for that -- well I'm not in a position to comment on the sales by our peers but in relation to structured bonds that was not necessarily the main product in this business area for us.

So we are not that exposed to structure bonds and putting that much focus on such bonds and in this quarter the foreign bonds in retail achieved quite a lot of growth especially the foreign bonds denominated in emerging country currencies. In Japan the negative rates or zero interest rates have been in place for quite a long time.

So I believe retail investors have appetite for foreign bonds with a certain level of coupon, it's probably attractive to retail investors.

And this was not necessarily due to the -- it's quite difficult to quantify whether this was linked to our change in the retail policy, I think it was a result of us working with our clients and accommodating their demands and as a result of that I believe the sales of such bonds picked up. .

Thank you. This is Muraki again.

Regarding my first point in your peers the Asian emerging currencies were very strong but and also you have said the same in your disclosure but for fixed income overall what was behind the revenues for fixed income? Was it not necessarily Asia but also Japan FX?.

In our case in Q4 the emerging FX, Q3 was strong last year and there was a negative rebound from that in Q4. So we struggled somewhat in Q4 of last year and compared to that Q1 of this year saw a quite a substantial significant recovery and so it is as you pointed out in your question.

In terms of Japan FX things were not that strong I believe but as I mentioned earlier the foreign bonds did well and there was some movement in the currency..

The next question is by Mr. Kazuki Watanabe of Daiwa Securities. The floor is yours Mr. Watanabe..

I've two questions, one is with regards to the direction of the group strategy. What was the reasoning behind selling Jafco [indiscernible] Nomura Real Estate what are the policy with regards to your equity in these group companies.

Secondly the progress of stock buyback upto ¥80 billion is the program that you announced in April but we've not seen any progress so far. So what's the prospect in the remaining months ahead, those at my two questions..

First of all on our group strategy and the reason for selling Jafco shares, Jafco had made us a proposal on their share buyback and we began to study this matter and the reason that we responded to this proposal is as follows. We wanted to optimize the resource allocation of our group and in the end we decided to agree to sell our holdings.

What about our other group companies in RI, or Nomura Real Estate? We will continue to monitor the changes in the market and constantly consider all of the options available.

At the current moment when we take into consideration synergy with Nomura we are considering various options but we have no specific plans to sell off the shares we hold at that moment. On your second question is with regards to the reason why we have not seen any progress in share buyback and the prospects.

When in what form will we buy back our shares that is with regard to the substance of our trust agreement and it may breach the insider information rules and therefore our basic position is that we not make any specific comments.

This was the question was asked at the AGM but of course we set up the program because we have the will to buyback and the term is upto March next year which is rather long and at the right timing we will buyback our shares and that’s all I can say at this juncture..

I've a follow-up question on the first point, you mentioned optimal allocation of managerial resources and do you have any other objectives in your strategy that would give you more benefits then holding that you Jafco shares?.

Well candidly speaking Jafco stock was not significantly drawndown on our risk weighted assets. Optimal allocation of resources is not the only reason we take into consideration various perspective as we reach this conclusion, ¥38 billion, ¥39 billion.

We will be obtaining such amount of cash and the proceeds we haven't specifically decided on the purpose of the use of proceeds..

The next question is from Ms. Natsumu Tsujino of JPMorgan Securities. Ms. Tsujino.Please go ahead. .

I've three questions in some detail and also a big picture question, you talked about the deferred compensation and how it will somewhat large in this quarter. For example the compensation and benefits on a quarter on quarter basis, ¥21.4 billion increase quarter on quarter.

Meanwhile for wholesale the non-interest expenses increased about ¥10 billion and the compensation and benefits is quite hard to understand. In Q4 may be there was a negative adjustment in the deferrals and compensation benefits seems low and this time the deferred compensation seems large and is that flowing into the corporate expenses.

So I'd like to ask about the increase decrease in the composition of benefits and meanwhile the SG&A for wholesale hasn't really increased so how that is flowing into the corporate expenses that's my first point.

My second question is on page 7 for assets management, asset management revenues and pretax income saw a big jump and with American Century investments can you complain how some of that was from American Century Investments? And you calculate the fair value of your stake in ACI and you book the increase, decrease as a result of that.

So my question is most of the increase here due to American Century Investments mark to market. My third question is about retail and the sales situation for your various products and the fees and commission trends.

When I look at that my feel is that what you mentioned earlier that April onwards you talk about your change in the retail strategy and not just Nomura but the entire industry has changed the policy for retail sales and I don't really see that much impact of the change in the retail strategy in your figures, is that the way to understand it, has there not been much impact? Or is it the case that it hasn't really shown up in your financial results but has there been some qualitative change, is there something notable -- has there been a notable change?.

I'd like to answer the second question first regarding ACI, American Century and the related P&L, as you mentioned in your question we do the mark to market of ACI and we book the gains from that and as you know. U.S.

share prices have risen significantly and as a result ACI's business performance has been very strong and when we do our fair valuation we consider it adequate to raise the valuation, meanwhile in terms of whether this is the only component here? No there have been some other items like Nomura Asset Management AUM, I mentioned ¥46 trillion it's now more than ¥46 trillion and that has increased the asset management fees of Nomura Asset Management and that’s also led to the increase in revenues.

Your third question about retail and retail sales situation. Yes it is true that there's this focus on client, client focused, client centric model but our business model change has been ongoing since 2012, it's not something new. So we have not necessarily changed our stance in retail starting from this fiscal year.

And we haven't really changed our -- what we are doing there and that's why the results haven't really changed but we have abolished the region based system in our retail operations and as a result of that as I mentioned in my presentation although it still has not showed up in our financials, we don't really feel that yet but the sales people are able to spend more time with their clients and the brand branches are also coming up with their own original customized approaches and the branch managers have more discretion to do this as a result of this change.

So these are positive changes we are seeing and we believe or we hope that this will lead to actual contribution in our financials and your first question regarding the deferred compensation.

I didn't really understand what you meant when you said the flow into the corporate accounts headquarter accounts but this is seasonaly, well to simply my question the compensation benefits was ¥21.4 billion quarter on quarter, meanwhile your corporate expenses what was the increase of compensation and benefits in the corporate expenses? There's almost no nothing included in corporate expenses because the corporate expenses the compensational benefits is booked in the business segments, so it's not booked in the corporate side..

In that case the SG&A for wholesale has not increased that much and in retail the non-interest expenses has not really increased. So I thought, that the increase big increase in -- it is not very consistent with the big increase in compensation of benefits.

So I was wondering where this was booked? And I thought it should be booked in corporate items, corporate expenses that's why I'm asking..

The wholesale expense increase is due to the deferred compensation as I mentioned and we recognize the deferred compensation.

The SG&A has also increased, wholesale increase of ¥10 billion out of that a major component is the deferred compensation and there is also some expenses allocated from corporate to the business segments and that has led to the increase.

On the retail side the compensation has also increased, but the reason for the overall decline is because in the previous quarter as you know there was the JJV [ph] campaign for retail investors and the cost of that was booked in SG&A. So the JJV [ph] campaign impact of the JJV campaign was not continued in Q1 and that's why the SG&A declined..

[Operator Instructions]. The next question is by Mr. Niwa of Citigroup. The floor is yours..

I've two questions, first of all risk control at wholesale and the second question is somewhat redundant but your policy on group companies.

On the first point in your comment you referred to the wholesale business and you continue to control risk and at the same time pursue revenue opportunities and in markets you said you were able to capture the revenue opportunities, three months ago you mentioned that you were on a risk mode attitude.

Is this an extension of that strategy? So my question is when we think about the profit level of the mid-term I guess you will not be able to attain the profit level if you don't take certain level of risk.

So this is an rather abstract point but how do you think would be the optimum -- how do you think you can strike the optimum balance? The second point is with regards to your strategy on group companies when we think about the capital efficiency and the optimal allocation of resources which you mentioned in your press release with regards to Jafco and in your comment you said that they made the proposal and that you considered their approach or their proposal so my question, you don't have any policy to review the risk assets or disposal of your holdings will there be further opportunities to dispose of your holdings.

Those are my two questions..

Your first point was with regards to wholesale risk control. In Q1 as I said in the announcement of the previous quarter again the risk off mode had continued in the reported quarter.

You may know well that market volatility if we take a span of the past decade or two is probably at the bottom level at its lowest, and therefore I don't think we need to stretch ourselves to take risk excessively and July, August we are seeing the continuation of the risk of mode partly because of the summer vacation season if and when [indiscernible] slated to take place in September and ECB may make a decision and triggered by those decisions will the market recover or not we will continue to monitor very closely the trend.

I may not have directly responded to your question but I guess we will flexibly respond to whatever trends we observe in the market.

Coming to your second question which is with regards to capital efficiency and do we review the core and non-core assets and are we thinking of re-categorization what is core and what is non-core? Of course such review is being constantly done and we made a final decision that Jafco can be categorized as non-core and therefore we decided to subscribe to their call for share buyback.

From a risk weighted assets perspective it's not so significant that this demarcation between core versus non-core is something that we should be constantly doing which we plan to continue..

I have one follow up question that is with regards to addition program of share buyback.

As you said you are thinking that you are not in an environment to take risk, in an excessive manner from the capital efficiency perspective, do you think that current program with its limits is sufficient or do you think there are other options available in terms of share buyback in addition to the current program..

That question was asked already indicating that we have not done anything but we have set up this current program which exists, so first and foremost if we are to do a share buyback we will prioritize on this program that we've set up. If we complete the program to its maximum level then we will think what the next step would be. .

The next question is from Mr. Sasaki of Merrill Lynch Japan Securities..

Two questions, the first is related to the capital ratio some of the major banks and securities they talked about current review of the Basel program, Basel regulations and they have started to make some comments.

What is your view on the Basel and the changes that are ongoing and how much increase you expect in risk assets or how much the set one is expected to fall, that's my first question.

My second question is regarding the headcount outside of Japan, the Americas and AEJ, as of June end I believe there has been an increase since March end but as you try to achieve your targets what is your outlook on headcount outside of Japan? Thank you..

Your first question regarding the regulatory environment and the impact from that.

Well yesterday made their announcement and they commented in quite detail in some detail I am aware of that and I am not in a position to comment on [indiscernible] actions but I was quite impressed by their comments and in relation to CPA the final rule is not decided yet whether it's going to be an accounting base or regulatory base, this has not been announced so it's quite pretty much subject to the rules and in terms of the FRTB the execution rule in Japan and the whether the internal model will be used or not is still not decided and how much.

The internal model is will be will be approved is not decided and the trade book foundry what's going to happen to that is still unclear but these factors will have quite a big impact. In terms of Nomura's position we are considering various scenarios and assessing the impact of each scenario and we are also thinking of how we will respond.

As of today I don't think we are ready to comment on and give you an actual figure because it will be somewhat misleading. So we would like to assess the outcome of these discussions and decision. Your second question was regarding the headcount outside of Japan. In Asia and OCEANIA region there has been an increase of about 50 people.

This was mainly in India in the Powai region the offshore center we have there and the headcount increase in this Powai off shore center that was the major component. In achieving the international targets we will be shuffling our headcount and also adding headcount and we will be making strategic investments.

So we are not thinking of a sharp increase in our headcount outside of Japan..

The next question is by Mr. Muraki of Deutsche Securities. The floor is yours. Mr. Muraki..

Thank you. I've one addition question, this is Muraki speaking and this is with regard to court cases. This is with regards to mortgage loans that you had sold in the past and there are some pending cases.

In Q1 have such expenses been booked, what about the months ahead post Q1, what are the prospects with regards to expenses? And at the same time with your company, Royal Bank of Scotland is also involved in this court case in the court of first instance, $400 million provisioned for the court of first instance and they are asserting that they will charge you and you have provisioned for the litigation in the past and will those provisions be sufficient to cover these claims?.

On litigation related issues, in principle our position is not to make any comments because these are pending cases and we do not intend to make any specific comments and you are referring to all [indiscernible] and its comment and we're aware of that.

However they are the key underwriter and we are the originator and that kind of contracts guarantee or indemnity clause, it's a standard contract provision, but what's the specific language of the provision and have we provisioned for that that also would relate to the specific case and therefore I am not in any position to make any specific comments..

[Operator Instructions]. The next question is from Natsumu Tsujino of JPMorgan Chase. .

In your final disclosure you mentioned the maximum probable loss for the liigation and in Q3 ¥52 billion I believe, has there been no change there?.

The maximum loss probably loss which we disclose yes that's right, I've only seen up to Q3 so I skipped Q4 but in the [indiscernible] disclosure we have disclosed the figure of ¥47 billion and Q3 was ¥52 billion, Q4 was ¥47 billion and in terms of what it is Q1 of this year, I would like to refrain on commenting today..

While Q3 was mainly a currency fluctuation I believe, and as was asked earlier the figure includes the high probability losses is that the way to think about it?.

While generally speaking we make provisions for the highly -- the losses which are probable and we are making these provisions based on the accounting standards.

And the maximum loss amount, probable loss amount which we disclosed include the rationally or logically calculable loss amount the reasonably estimated amount and Tsujino you mentioned that it's the currency but no it's not just the currency, with the progress of the litigation we have reduced this amount.

And you mentioned how you skipped Q4 but we have made a disclosure in Q4 so we'd like you to take a look at the [indiscernible] disclosure for Q4..

[Operator Instructions]..

Well thank you very much everyone for participating again on a premium Friday when you should be leaving the office early. Thank you for participating in this conference call.

Looking back on the results of this quarter we believe we were able to navigate the difficult times in both Japan and overseas and I believe we did relatively well considering the difficulty in the markets and we have been able to continue the profitable trend outside of Japan.

We will continue to control our risks and costs while sincerely accommodating our customers and client's needs. So we look forward to your continued support. Thank you very much..

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