Daiwa Securities Group Inc

TSE:8601

Earnings Call Analysis

Daiwa Securities Reports Strong Q2 Performance and Record Dividends

In its Q2 FY 2024 earnings call, Daiwa Securities reported a robust 8% increase in net operating revenues to JPY 161 billion and a remarkable 93.1% rise in ordinary income, reaching JPY 72.8 billion. The Wealth Management segment continued to thrive, bolstered by net asset inflows of JPY 156.3 billion and solid wrap account services. With a record interim dividend of JPY 28 per share and a payout ratio of 50.6%, the company demonstrated strong profitability and commitment to shareholder returns. Looking ahead, the company anticipates sustained revenue growth and further profits from alternative asset management despite volatile market conditions.

Robust Financial Performance

Daiwa Securities Group reported strong financial results for the second quarter of FY 2024. Net operating revenues reached JPY 161 billion, marking an 8% increase compared to the previous quarter. The company experienced a 93.1% surge in ordinary income to JPY 72.8 billion. Profit attributable to owners of the parent rose significantly by 124.2% to reach JPY 53.7 billion, underscoring strong business momentum and improved operational efficiency.

Wealth Management Segment Dynamics

The Wealth Management segment saw asset-based revenues increase despite a 3.1% decline in net operating revenues, which totaled JPY 60.6 billion. Though uncertainty in the market impacted flow revenues, wrap account services performed well with a substantial net asset inflow. The segment's asset-based revenues totaled JPY 27.8 billion on an annualized basis, reflecting a healthy transition towards a Wealth Management business model.

Record Achievements in Asset Management

Daiwa's Asset Management segment set new records, particularly in Securities Asset Management where ordinary income reached an all-time high. The company benefitted from increased fund growth, especially in active funds and real estate asset management, where assets under management (AUM) surpassed JPY 1.5 trillion. The Real Estate Asset Management sector contributed JPY 9.1 billion in net operating revenues, up 29.7%.

Global Markets and Investment Banking Growth

The Global Markets and Investment Banking division exhibited resilience with an increase in revenues due to strong institutional equity performance. Although fixed income, currencies, and commodities (FICC) revenues saw a decline, earnings bounced back vigorously, particularly overseas. The division's ability to adapt to market conditions suggests ongoing robustness.

Non-Operating Income Gains

Daiwa recognized a gain on negative goodwill from its acquisition of shares in Aozora Bank. This non-operating income contributed positively to the total income and showcases the company's strategic capability in making profitable acquisitions.

Cost Management and Operating Margins

Despite the positive revenue outcomes, selling, general, and administrative (SG&A) expenses increased by 4.7% to JPY 119.4 billion, affected by higher trading-related expenses and personnel costs. However, the annualized return on equity (ROE) stood strong at 13.9%, indicating healthy profitability against the backdrop of rising expenses.

Dividend Policy and Shareholder Returns

Daiwa announced an interim dividend of JPY 28 per share, setting a new record with a payout ratio of 50.6%. This substantial return to shareholders underscores the company’s commitment to delivering value while supporting ongoing growth prospects.

Outlook for Future Performance

Looking ahead, Daiwa expressed expectations of continued momentum in real estate and alternative asset management, indicating an upward trend in ordinary income. While uncertainties remain, the firm anticipates sizable profits in the latter half of the fiscal year, suggesting a sturdy pipeline of growth opportunities.

Earnings Call Transcript 2025-Q2

[Unknown Executive]

[Interpreted] All investors, thank you very much for waiting, and thank you for joining the financial reporting conference for the second quarter of FY 2024 of Daiwa Securities Group. It's time, so let's start.

From Daiwa Securities Group, today, Mr. Yoshida, Executive Managing Director and CFO, is joining. I am [ Nakamura ], IR Division Head since October. Nice to talk to you all. So first, we will start with the presentation of the Q2 FY '24 results from Yoshida-san, and then we will take questions after that. Please be reminded that this call is also arranged accessible for retail industries by the Internet. So let us start.

[Kotaro Yoshida, executive]

[Interpreted] I am Yoshida of Daiwa Securities Group Inc. Thank you again for taking time after your busy schedules today to attend our conference call.

Let me now turn to the financial results for the second quarter of fiscal 2024, which we announced today. I will explain in accordance with the presentation material posted on the company's website. Let me start from Page 4. I will first provide a summary of the consolidated financial results. Percentage figures are compared with the Q1 of FY '24.

Net operating revenues were JPY 161 billion, up 8%. Ordinary income was JPY 72.8 billion, up 93.1%. In the Wealth Management segment, asset based revenues grew, and the steady progress was made in the Wealth Management business model. Wrap account services continues to maintain high levels of contract announced as well as net asset inflow from the previous quarter.

In the Asset Management segment, ordinary income reached a record high. In Securities Asset Management, fund continued to generate net growth centered on active funds. In Real Estate Asset Management, AUM expanded centered on residential. Alternative Asset Management recorded a significant increase in profit.

The Global Markets and Investment Banking division reported an increase in revenues and income. In Global Markets, equities revenues increased due to strong institutional businesses. FICC revenues declined, but earnings recovered, especially overseas. Global Investment Banking recovered.

In addition, gain on negative goodwill related to the acquisition of Aozora Bank shares and the application of the equity method is recognized in ordinary income as nonoperating income. Profit attributable to owners of the parent was JPY 53.7 billion, up 124.2%. Annualized ROE was 13.9%. Interim dividend hit record high, JPY 28, and payout ratio was 50.6%.

Moving to Page 11. Here is the P&L statement. Commission received amounted to JPY 98.3 billion, up 5.3%, and its breakdown is on Page 24. Brokerage commissions dropped to JPY 21.1 billion, down 8.5% due to a decrease in stock trading volume. Underwriting commissions amounted to JPY 10.9 billion, up 29.9%. Distribution commissions were JPY 4.9 billion, a decrease of 24.3%. M&A related commission amounted to JPY 11.8 billion, up 37.6%.

Net gains on valuation and investment securities increased due to capital gains from private equity. Nonoperating income increased due to equity in earnings of affiliates, including Aozora Bank.

On Page 12, let me now explain the status of SG&A. SG&A were JPY 119.4 billion, up 4.7%. Trading related expenses increased in advertisement and the commissions page. Personnel expenses increased in salaries due to wage hike and the performance linked bonuses.

Now let's move to Page 14. I will explain the overseas operations. Ordinary income for the overseas business totaled JPY 4.6 billion, up 103.6% Q-on-Q. In Europe, revenues and earnings improved Q-on-Q, mainly due to a recovery in equity primary and M&A revenues. Asia and Oceania enjoyed solid profit, with high level of profits from strategic investments and the primary income. In the Americas, customer order flows increased at FICC, resulting in a profit growth.

Next, I will explain the performance by segment. Please look at Page 15. So this is the income and expenses of the Wealth Management Division. Net operating revenues were JPY 60.6 billion, down 3.1%, and ordinary income was JPY 15.9 billion, down 22.1%. Although flow revenues declined due to more uncertainty in the market, our transition to Wealth Management business model, which we are driving, has made a steady progress. And wrap related revenues and the agency fee for investment trust increased.

Asset based revenues totaled JPY 27.8 billion or JPY 111.2 billion on an annualized basis, and the Wealth Management Division's ratio to net operating revenues was 52.7%. Wealth Management Division's ratio to fixed cost was 104.6% and its ratio to total expenses was 68.5%.

Page 16 shows the domestic Wealth Management Division. It's the status of sales and distribution amounts and the profit for the quarter. As for wrap account services, contract amount was JPY 239.5 billion, and net increase was JPY 156.3 billion. In stock investment trusts, as a result of making proposals to meet customer needs, we sold a wide range of products, mainly U.S. growth equity funds and Indian equity funds. The lower left-hand side slide shows the sales and distribution and net increase ratio of wrap account service and the stock investment trusts. The net increase was 39.8%.

Please see Page 18, next, Real Estate Asset Management. Net operating revenues were JPY 14.3 billion, up 5.5%, and ordinary income was JPY 7.1 billion, up 7.5%. For the Securities Asset Management, net operating revenues and ordinary income were record highs.

Please turn to Page 19. Let me explain Real Estate Asset Management. Net operating revenues were JPY 9.1 billion, up 29.7%, and ordinary income was JPY 9 billion, up 133.6%. Fees of Daiwa Real Estate Asset Management was up, driven by property acquisitions and replacement for potential rent increase by Daiwa Residential Private Investment Corporation and the Daiwa Securities Living Corporation aiming to add profitability improvement of the portfolio. Daiwa Securities Realty booked gains on sales of residential properties held for mainly warehousing purposes to REIT as planned. AUM of Real Estate Asset Management topped JPY 1.5 trillion.

Please turn to Page 20. Let me explain the Alternative Asset Management. Net operating revenues were JPY 5.7 billion, up 85.8%. Ordinary income was JPY 8.4 billion, up 972.5%. Daiwa PI Partners achieved an increase in capital gains on exits from investments in private equity. Income of Daiwa Energy & Infrastructure increased, driven by capturing profits and losses of equity affiliates and the dividend income from infrastructure investments.

Please turn to Page 21. Lastly, I will explain Global Markets and Investment Banking divisions. Starting off with Global Markets, net revenues were JPY 36.3 billion, up 0.3%, and ordinary income was JPY 6.6 billion, down 5.4%.

With regards to equity, revenue increased with momentum of high levels of customer flows on the back of high interest of institutional investors in Japanese equities. FICC dividends decreased. Domestic FICC revenues declined, while we struggled to manage positions due to sharp decline in domestic interest rates. However, we need to grow assets in foreign currencies from wealth management clients continue to be high.

Foreign sovereign bonds performed well, and foreign currency credit maintained high levels. Overseas revenues were up due to increase in customer flows in the United States.

Please turn to Page 22. Let me next explain the Global Investment Banking. Net opening revenues were JPY 19 billion, up 28.2%, and ordinary income was turned into positive, JPY 1.1 billion. With regards to equity underwriting, it is an increasing trend Q-on-Q, and debt underwriting revenue was down Q-on-Q, yet maintained high level. M&A revenue was up with slowly trends, both in Japan and overseas.

This concludes my explanation of the results in the second quarter of FY 2024, so let me make some closing remarks. Ordinary income of JPY 110.6 billion was the record high since 2000 as a half year income. This gives me great confidence that our strategy is steadily making progress.

Base income comprising of Wealth Management, Securities and Real Estate Asset Management Divisions were JPY 63.1 billion, up around 30% year-on-year, consists of base income asset under custody and assets under management and solid profit, which is a base for consolidated performance. It is one of the most important KPIs for our group on a consolidated basis.

In particular, Asset Management Division achieved a significant increase in AUM with continued momentum of capital inflows on the back of the [ 52 ] investments such as [indiscernible]. Real Estate Asset Management achieved both increase in AUM with strategic asset inclusion into REIT and continued capital gains, which contributed to gross base income.

Furthermore, in the base income, profits from Global Markets and Investment Banking alternative AUM and equity profit from Aozora Bank have been added. As a result, we generated the highest half year profit since the first half of year 2000. We were able to deliver a dividend of JPY 28 per share, a record high dividend.

August and September were highly volatile month, both in equity and bond markets. In particular, since August 5, when we recorded the biggest decline, we increased communication with customers. We tried to explain the market trend more in detail and be consultative with customers. And the customer trusted us for that in many cases.

Therefore, although the magnitude of the market decline was actually large, our customers overall were very calm. They kept composed. We'd like to continue to talk with them about the importance of asset building and asset management in the medium to long term and importance of the diversification of investments.

Looking at what's happening now in October, we are off to a good start in our group. In Daiwa Securities Wealth Management, we saw good momentum of the amount of purchases and net increase of fund wrap. Equity income is showing improvement from the difficult levels in August and September. And now it is at the same level as the last quarter overall.

In the market division, we are seeing good pace with equity, which is about the same as last quarter and surpassing the last quarter, driven by overseas. In addition, Real Estate and Alternative Asset Management are seeing the progress on project with appropriate returns in the second half.

On the back of upcoming U.S. election next week and further geopolitical risks, the market continues to be highly volatile as a possibility. Now is the time when we are required to work towards maximizing customers' asset values. In any type of environment, what we should do as professionals remain the same with being -- without being swayed by short-term moves. We should be thoroughly attentive to customers' needs and issues and provide appropriate information and solutions, which we will continue without wavering.

This, we believe, is the essence of maximizing customers' asset value. Our group is to pursue, honestly, the good cycle of these initiatives, leading to the trust we garnered from our customers, which will be reflected in the results, such as AUM, ACM and the base income and meeting expectations of our shareholders. I ask for your continued support to us.

This concludes my explanation. Thank you.

[Unknown Executive]

[Interpreted] This completes the presentation from our group. Next, we'd like to move on to the Q&A session. [Operator Instructions] For the Q&A session today, we are going to receive questions in Japanese first, followed by questions in English. [Operator Instructions] So first question is from SMBC Nikko, Muraki-san.

[Masao Muraki, analyst]

[Interpreted] This is Muraki of SMBC Nikko. I have two questions. One is about the Wealth Management Division. You had explained at the end talking about the sales and also the income related to that sales. The volatility is increased.

So August and September, the investment trust sales was weak. But down the road, the volatility level and the weakness in the income, how would you look at that? Can we get some color of how you look at that?

Well, the month of October, probably, according to your explanation, in terms of the revenues, probably, there's going to be a [ wealthy ] level of the average of the last quarter. But trade in August maybe on the average of the last 3 months.

I think the recovery is back to that average level, so that the sales and the revenue trend is hovering around the same level and an average level of the average of the last 3 months. That's my first question.

The second is about your capital policy. Talking to the capital that you have in the bank, you have also demonstrated that level. And now you're talking about the -- you have decided to postpone the buyback. Well, I'm sure that you have had the internal discussion. So what kind of discussion you have had?

And as a result, you have decided to postpone the purchase -- share repurchase. Well, you have had the strategic investment like Aozora Bank. Do you have a rich pipeline for the investment like that? Is that the reason why you made the judgment for the buyback? Or could you provide some of the underlying reasons of how you're looking at for the future?

[Kotaro Yoshida, executive]

[Interpreted] Thank you very much for your questions. First question about the Wealth Management business, as you say, the second quarter, July, will -- the asset inflow from the client side has been quite smooth. It's probably comparable to the level of the Q4 of last year or a little short of that.

August and September, there's been a big change in the market, so that the flow -- the net flow has declined. But as the financial reporting material shows, the current year's first half, the net asset inflow has been very high, probably the first time in the last 17 years. Even under the current market conditions, we think we've got the trust from the customers, so that given inflow of the asset into us.

So our consulting and offering, we think we've been assuring and demonstrating our scale and the capability of meeting the needs of the clients. So fund wrap, the investment trust, there is an asset based revenue expansion coming from the asset base. It has been showing the uptrend.

And regarding the net inflow, August, we have had the stock price decline, really a big one. And the record high in the transaction volume has been quite big, but entered into the Obon holiday season. Prime Minister Kishida had made the speech and then President Biden in the U.S. also made a speech of stepping down. So because of those uncertainties in the U.S. and in Japan, the clients have had some movements to think a lot differently.

So for example, in the fund wrap, the new customers contract amount and also the people who wanted to pile up and accumulate the amounts, those were the two cases. Normally, the accumulation is 60% and the new is 40%. But it seems like in recent months, there are some number of the customers who just wanted to wait and see what is going to happen in the market.

In the funds -- or the wrap business, we could say the same thing. So that has led to the current result as we see. In the second quarter, well, this month is already over by 2/3 already. Well, the October level is above the level of the second quarter. We have been very keen to the Wealth Management business model, and it's an asset base and the net increase is continuously quite solid.

And moving on to your second question about the capital policy. Our basic policy in our group, we are looking at the payout ratio of 50% or more. And then within the current midterm plan period, we want to have the JPY 44 per share dividend at the bottom.

And for the buyback, we want to talk about the pipeline for the investments, financial terms and the stock price, the market conditions and so on. We are comprehensively making the decision. And we have made the discussion in the second quarter.

But in the first half, ROE is top 10%, but we're going to have the further growth. And the inorganic opportunities, we will see quite approximately inclusive of the -- a lot of calculations and so on. We are thinking a lot of a variety of things as an option.

Well, as a concept, we want to have the customer base to expand and something that we want to complement the function that we currently do not have. Those are the areas that we wanted to think about, the inorganic growth. In the first half, we have an equity method related noncash revenue coming from the equity method Aozora Bank related equity share. So as a result of that, we have received some income, and that was one of the reasons that we have had the good results. So continuously, this -- we want to have a good balance between the shareholder return and also the future growth of the company for the spending. Thank you very much for your questions.

[Unknown Executive]

[Interpreted] Mr. Muraki, thank you so much. Next questions are from Nomura Securities, Sasaki-san.

[Futoshi Sasaki, analyst]

[Interpreted] Sasaki from Nomura Securities. I have two questions. First, relating to the performance of the first half, I'd like to know in more detail, Daiwa Securities Limited gains on sale and also gains on sale of Alternative Assets and negative goodwill relating to the position of Aozora Bank. Would you please give me those numbers? That's my first question.

[Kotaro Yoshida, executive]

[Interpreted] Thank you so much. Let me answer the third item first. Negative goodwill associated with the acquisition of Aozora Bank, this is nonoperating PL investment equity profit, which is JPY 21 billion negative goodwill.

And the rest of the items, the gains on sale of Alternative Assets and gains on sale of properties relating to Daiwa Securities Asset Management, the first item and the second item, I would like to refrain from disclosing the numbers. But for both items, it's within a few billions of yen. So those are my answers.

[Futoshi Sasaki, analyst]

[Interpreted] So if you add them together, is it going to be around JPY 6 billion and JPY 10 billion for item 1 and item 2?

[Kotaro Yoshida, executive]

[Interpreted] Yes. If you add to a few billions of yen items, yes, it will be JPY 6 billion or JPY 7 billion.

[Futoshi Sasaki, analyst]

[Interpreted] And second question is related to your business itself. In your presentation material, from JP Insurance, you got entrusted about JPY 1 trillion assets entrusted by JP Insurance to you. Have you signed any investment to Asset Management contract with them? Or jointly, are you running the Asset Management Business with JPI?

And also although you did not explain, but in general, Japanese companies are trying to unwind to co-shareholdings. And is there any gains associated with that in Q1 and Q2? How much gains are you benefiting from this movement of Japanese companies selling strategically held equity stocks?

[Kotaro Yoshida, executive]

[Interpreted] Your first question, Japan Post Insurance assets entrusted by them to us, we'd like to refrain from giving the details about the contract format.

To your second question, if you please wait for a moment. For Q1 and Q2 gains profit associated with selling of strategically held equity stocks, no income from that. We didn't have any large blocks of those trades. So in the presentation, every time we put the table. But unfortunately, the amount associated with that this time was quite small. But in Q3 and Q4, we have quite a promising amount of the pipeline. So as those projects get closed, we expect more gains profits.

[Futoshi Sasaki, analyst]

[Interpreted] Understood. About Japan Post Insurance, so is it going to increase AUM of Daiwa Asset Management? Or is it just the -- them outsourcing the Asset Management business to you, which does not increase your AUM of Daiwa Asset Management?

[Kotaro Yoshida, executive]

[Interpreted] Thank you. For this arrangement, this will increase the AUM of Daiwa Asset. So through this type of initiative, investment of advisory business has been the weakness for Daiwa Assets so far. So through the investment for these clients, I would like to accumulate know-how and also would like to exchange human resources, so that we can get assets entrusted by companies other than KPI as well. So we'd like to promote this type of collaboration.

[Unknown Executive]

Okay. Let's move on to the next question. BofA, Tsujino-san.

[Natsumu Tsujino, analyst]

[Interpreted] First question is about buyback. This time, well, as you mentioned, you decided not to do the share repurchase, but you purchased that in the second half. Assuming that you're going to make a decision to do the buyback, what is going to be the trigger for you to make that decision? What is needed for you to make a decision to do the buyback within the current fiscal year? That's the first question.

Well, I have three questions in total. But the second is about the Alternative AM on Page 6. You were talking about the income and also the operating profit, the breakdown on Page 6. The Alternative AM is included here. Well, compared to Q1, the increase in the net operating revenues and the ordinary income, those two are not that in parallel. So what is not included in the ordinary income? And where did you gain more on the net operating revenues?

Because in Q1, were there anything that was in essence negatively hit, like valuation losses, which you probably have the reversal gain that became like a reversal gain that you were able to enjoy in 2Q? Because this movement of the figures are really irregular, so I was just wondering why there's such a big fluctuation from Q1 to Q2.

The third question is, well, back to the investment bank's commission for M&A, for example, the level is quite high. In Q1, however, it dropped to about JPY 9 billion plus. And now it's over JPY 10 billion. Now considering today's pipeline, the second quarter, Q3 and Q4 -- well, Q1 was low, but the Q3, Q4, is it going to be higher, assuming that the Q2 was over JPY 10 billion? So is that JPY 10 billion level going to continue into the second half?

[Kotaro Yoshida, executive]

[Interpreted] Okay. Thank you for those three questions. Question number one, regarding the share repurchase, well, as I briefly mentioned, we want to have the financial soundness. First of all, it's rating for our company, the group company, and that's going to be relating to the growth pipeline.

We have to look at the probability of how realistic that is for us to work on those pipeline. And also the investment pipeline, the probability and also the performance environment, the rules and regulations, environmental changes, all of those things have been made -- taken into consideration. So the clear scenario of what needs to happen, it's hard to say because we look at the comprehensive manner, holistic manner.

So the second question, Alternative Asset Management, the posting of the recognition of the operating revenues, the line items are quite different. Well, this time, the items that have not get included in the revenues, but it goes on to the ordinary income. For example, there's been some gains that we have had from the equity method that was included in the profit side, but not on the revenue side. So that looks quite unparallel. And also this was coming from the accounting method.

The third question about the M&A outlook for the future or how that is going to hit us positively, well, our pipeline, third quarter, fourth quarter domestic and overseas, so compared to last year on the absolute yen base, 10% or 20% increase is expected. So we are hoping to close the deal within this current fiscal year.

So sometime in winter or spring, that normally happens. The closing normally happens in overseas cases. I'm not saying that, that is going to happen for this year. However, we have expectation that is going to happen, so that we'll be able to exceed what we have demonstrated in the past. So thank you very much for your questions.

[Natsumu Tsujino, analyst]

[Interpreted] Well, the equity method investments on the alternative that you have had in the second quarter, did you have any extraordinary factor? Or do you think this level can be expected to continue down the road?

[Kotaro Yoshida, executive]

[Interpreted] Well, from now on, we are expecting the growth in the revenues. However, depending upon the exit format, it could happen on the revenues or it could happen on the gains from the equity methods. That could be a variety of patterns, I think.

[Unknown Executive]

[Interpreted] Mr. Tsujino, thank you so much. Next questions are from SBI Securities, Otsuka-san.

[Yujin Otsuka, analyst]

[Interpreted] Otsuka-san from SBI Securities. Can you hear me?

[Unknown Executive]

[Interpreted] Yes, we can hear you.

[Yujin Otsuka, analyst]

[Interpreted] I have two questions, so I'm going to go one by one. Page 27, on the right-hand side, the retail inflow and outflow, I'd like to get more color on that. You touched upon this a little bit earlier, but this is net. Outflow is netted in this number.

But on Page 26, if you look at the trend on a quarterly basis, the number of wrap accounts is not really showing such a strong growth, which indicates in Q2, existing customers really contributed to the inflow. Could you please explain the background and the reasons and the drivers for this inflow? So did the market decline? So it seems like they are putting more capital to work when the price declined.

[Kotaro Yoshida, executive]

[Interpreted] Otsuka-san, thank you. As you exactly pointed out, asset inflow, assets flowed into us and not new customers, but from existing customers in most of the cases. So we garnered trust from customers. That's why they are entrusting that amount of assets to us.

So it's not immediately after opening the account. But after so many years, after they opened account with us, they started to trust us and they tried to entrust a larger amount of assets to us. So the number of accounts and asset inflow do not match on the real-time basis as a trend.

And also the market declined in August, so you see some inflow associated with buying at the dip. So for bond investment, Daiwa Group has Daiwa Next Bank who has the deposit solution. And we are offering somewhat higher rate on the deposit. And also those customers are buying fund wrap as well. So we have variety of products that we can offer to them.

Page 27, on the right-hand side, this is the retail asset. On the left-hand side, you see the corporate asset inflow as well. So as you can see on this graph, for the past 2 years, it's been net increase of the asset inflows from the corporate.

Now we have the positive interest rate in Japan, so they are trying to figure out where to put their money efficiently. So Daiwa Securities has the nationwide network, so we can serve corporate clients with varieties of products. So through those efforts, asset inflow has been increasing.

[Yujin Otsuka, analyst]

[Interpreted] Second question is exactly related to what you have just mentioned. Page 16, the amount of purchase at an actual number on the Q-on-Q basis, it has declined. So is there any money sitting on the sidelines waiting to be deployed?

[Kotaro Yoshida, executive]

[Interpreted] Thank you so much for your question. So it's not really the money sitting waiting. We don't think that, deposit or securities. If it's security, it's fixed income or investment trust, fund wrap or stocks.

In Q2, for the flow marketing for both investment trust and equities, the flow has increased. So the amount of activities has increased, which really pushed up the flow -- inflow. So there is no money, which has inflowed yet sitting on the sideline. There is no such money sitting on the sideline. Did I answer your question?

[Yujin Otsuka, analyst]

[Interpreted] Yes. Going back to the first question. So since the opening of the account up until the actual money deposit in Q2, Q1, JPY 170 billion net inflow. So regardless of the market environment, is this the idea of the level that we can expect going forward?

Honestly speaking, even in this quarter with high number, I don't remember seeing this high level in the past. So can I expect this high level to continue?

[Kotaro Yoshida, executive]

[Interpreted] Thank you so much for your question. We have asset inflow mainly from existing customers, as I said. But we have about 3 million accounts with existing customers. So most of the inflow is from the existing customers.

And with regards to new customers or new inflow, we are trying to establish the credit worthy relationship with those new customers, so that we can build longstanding relationship, so that we can -- they can entrust larger amount with us. So mostly, majority is coming from the existing customers.

[Yujin Otsuka, analyst]

[Interpreted] No. What I wanted to ask you was more than JPY 100 billion per quarter, this is a net of inflow and outflow. Can I expect that to continue?

[Kotaro Yoshida, executive]

[Interpreted] Yes. I think it's possible because we are actively proposing direct solutions to them. So this is reflected in this number. So I think we can achieve at this level or even higher level than this in the future.

But in the case when they withdraw, then, in some cases, they leave us. But sometimes, they leave us because they passed away, taking that money from us. So by having a good relationship with customers, I would like to see the net increase surpassing the outflow of customers leaving us who are passing away. So we'd like to continue this level in the future.

[Unknown Executive]

[Interpreted] Mr. Otsuka, thank you for your questions. Next question is by JPMorgan, Arai-san, please.

[Makoto Arai, analyst]

[Interpreted] This is Arai of JPMorgan. Can you hear me?

[Unknown Executive]

[Interpreted] Yes, yes. Please go ahead.

[Makoto Arai, analyst]

[Interpreted] I have two questions. One is about costs. In the past, when you had the strategic meeting, you were talking about IT investment that is going to increase and also the further cost reduction. So when we look net, the cost is going to increase on net-net. But the current status, you're working on the cost reduction and then IT investments. I want to just know the progress of both sides.

When we look at the recent case, the GM top line and the management -- wealth management, I think the cost increase is bigger than the cost reduction. So if you could give me some color on it.

The second question is for Japan and U.S. Basically, in a political phase, I think the macro is becoming much more uncertain. With that, the equity capital buffer, you may probably need to have it in a conservative manner. So how would you think about the capital? Which level you want to maintain, if you could make some comments on that?

[Kotaro Yoshida, executive]

[Interpreted] Arai-san, thank you very much. For your question number one, regarding expenses or the cost, first of all, basically, this cost control we have, it's quite important strategically speaking, and that hasn't changed. The cost of management will have to be within our hands.

In the meantime, though, the business growth, in order to grow our business, we need to have a good human capital, a good talent that's important to retain. For that purpose, the wage hike has been taking place. And then performance linked bonus is probably expected to increase continuously.

Also the strategic IT spending will be important to continue. So AI, the ChatGPT, these new technologies will be utilized. And we are actively using those technologies. So continuously, the cost and expenses is likely to increase. But this is for securing our competitive edge.

But for other domains, like noncore businesses or noncompetitive domains, the cost of control is going to be increasingly important. So we need to, of course, enforce -- reinforce that. Even though the businesses expanded, we have to make sure that the admin people or the back office does not expand in a single proportion.

Well -- and also, the Daiwa Securities back office or the branch office is the same, but we want to be trimming down our organization, so that we want to shift and focus on the front areas for us spending more. So in future, office space will be reviewed. And also the 6 line telephones will be all substitutes, for example, the smartphone, we're going to work on those things without losing any room. We're going to just try to turn all the stones.

And the second question, well, our consolidated capital base is over 20% right now. Well, internally, our risk appetite is 18%, so the required level is a risk buffer of 11%, plus 3%. That's 14%. And also the Basel III finalization impact is expected to be 4%. So 18% is something that we think we will need to have. Well, increasing the buffer from there from 18% is unlikely, but we don't think our current capital is in excess.

[Unknown Executive]

[Interpreted] Thank you so much, Mr. Arai. [Operator Instructions] Next questions are from Bloomberg, [ Bang-san ].

[Unknown Analyst]

[Interpreted] I have two questions. Earlier, you talked about alternative to estate exit gains. In the second half, you mentioned that you would expect sizable gains in the second half as well.

So would you please give me the level per quarter? So for example, the level of dividend in the second quarter, is it going to be about the same level that you expect in the second half of the year? Or is it going to be higher or about the same compared to the level of Q2? That's my first question.

My second question, Wealth Management, Daiwa Next Bank, in Q2, the performance has improved. Is it driven by deposit, net interest income? What are the drivers for the good performance of the income of Daiwa Next Bank in Q2?

[Kotaro Yoshida, executive]

[Interpreted] Thank you so much for your questions. To your first question, in the presentation document, Real Estate Asset Management, Page 19, and Alternative Asset Management, that's Page 20, and for both pages at the bottom on the left-hand side, you see the annual ordinary income.

And because of the characteristic of this business, there's always volatility per quarter. But if you level off the profitability for the whole year for both businesses, ordinary profit is on the increasing trend. So as a result of our business activity, the timing of booking the gain varies. But throughout the whole year, certainly, the ordinary income is on the increasing trend.

So I would expect this momentum to continue in the new asset -- Real Estate Asset Management and also Alternative Asset Management. And that's why I said that I would expect a sizable profit going forward. In terms of the level of the profit, the counterpart is involved when we exit. So in some cases, we cannot exit always as planned or as result. So I'd like to refrain from giving you the specific figure.

To your second question, Daiwa Next Bank profit driver, JPY 5 trillion asset base. And also in July, due to the rate hike of DOJ, when interest rate increased, so investment yield in yen has improved. And also net of deposit costs, yen yield in asset increased.

And deposits from customers, there's always a time lag between our improvement of yield in assets and deposit costs increase. So that's why the profit has increased. But in terms of the yen interest rate trends and our competitive landscape, the performance may be influenced by that.

But as we talked about earlier, there is increase in the inflow of assets, and a part of that is allocated to Daiwa Next Bank. So as we accumulate more AUM, we are doing our best so that Daiwa Next Bank profit improves in the future.

[Unknown Executive]

[Interpreted] Mr. [ Bang ], thank you very much for your questions. We still have time, but seems that nobody has questions, so we'd like to close Q&A session.

With that, we'd like to wrap up today's conference call. Thank you very much for joining us until the end.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]