Nomura Holdings Inc

TSE:8604

Earnings Call Analysis

Strategies Amidst Challenges to Grow Revenue

The company has experienced a correction in October, but client assets in international wealth management grew by 15%. Despite challenges in wholesale performance internationally, Japan's strong fixed income performance driven by rates and credits offers a silver lining. Recurring revenues are on the rise, and efforts are underway to reduce the high expense ratio. The ROE stands at 4.3%, below the target range of 8-10%. However, there is cautious optimism for achieving this goal as strategies to cut expenses and maximize top-line growth are being considered. Retail and Investment Management (IM) are showing steady growth, with aspirations to increase the current 5.4 million accounts with balance.

Robust Market Lifts Nomura’s Mid-Year Results

Nomura Holdings, under the guidance of CFO Takumi Kitamura, has navigated a volatile global financial landscape to emerge with bolstered mid-year results for the fiscal year ending March 2024. Despite starting the six-month period with market anxiety due to U.S. bank failures and debt ceiling concerns, coupled with fluctuating oil prices and interest rates, Nomura reported a net revenue rise of 16% year-on-year to JPY 716.7 billion. The firm's pre-tax income surged by 138% to JPY 103 billion, while net income escalated to JPY 58.9 billion, a significant jump particularly against a backdrop of equity market hesitancy over tech stock corrections and speculation around central bank policies.

Resilient Performance Across Business Segments

Nomura's success story for the first half of the fiscal year saw diverse contributions from its key business units. Retail enjoyed a renaissance with increased client engagement, particularly in the high net worth segment. This improved retail pre-tax income to an impressive JPY 52 billion. Investment management secured JPY 2.3 trillion of net inflows, which pushed assets under management to a new peak of JPY 76.5 trillion, translating to a 9% rise in stable business revenue. Despite a modest 10% growth in equities revenue and a 24% increase in investment banking, the wholesale segment grappled with a 15% reduction in fixed income revenues. Challenges in macro products and currency depreciation led to a decrease in wholesale pre-tax income by 77% to JPY 10.4 billion.

Quarterly Gains Indicate Positive Momentum

The latter quarter of the period saw an uptick in performance, with a 5% quarter-on-quarter growth in net revenue to JPY 367.8 billion. Income before taxes and net income rose 23% and 51%, respectively, indicating a solid trajectory of recovery and profitability with earnings per share at JPY 11.21 and a return on equity (ROE) of 4.3%. The consolidated income before taxes for the firm's three main business segments swelled by 111% to JPY 60.5 billion, reflecting an underlying strength across the board.

Retail Segment Hits Six-Year Revenue High

Nomura’s retail arm reported its strongest performance in six years, spurred by strategic reorganization and heightened investor engagement. Net revenue advanced by 7% to JPY 98.9 billion, and income before income taxes ascended by 27% to JPY 29 billion. These gains were propelled by substantial increases in business client numbers and robust sales in Japanese equities and investment trusts, boosting flow revenue further by 4%. The firm's focus on recurring revenue assets paid off, as evidenced by a record high recurring revenue of JPY 38.9 billion.

Solid Sales and Strategic Asset Growth

Nomura witnessed a 20% surge in total sales, reaching JPY 5.1 trillion. Stock sales growth outpaced other segments with a 25% increase, buoyed by a strong Japanese market and recovering primary transactions. Sales of Japanese stocks were a standout, contributing disproportionately to overall growth. While bond sales improved by 15%, driven by significant transactions like the Toyota Motor Credit Corporation foreign bond sale, investment trust sales also edged up by 4%.

Expanded Client Base and Inflow of Assets

One of Nomura’s strategic objectives, expanding its flow business client base, also bore fruit. The client base expanded by 16%, hitting 1.25 million, aligned with the firm's approach to engaging with high net worth clients previously beyond their service scope. Net inflows into recurring revenue assets reached JPY 128.6 billion, maintaining a high level of over JPY 20 trillion, fostering robust revenue growth.

Investment Management Bounces Back

Nomura’s investment management division showcased an impressive rebound, reporting a 70% increase in net revenue to JPY 45.1 billion, and a more than sixfold surge in income before income taxes to JPY 23.2 billion. Much of the performance improvement was ascribed to an uptick in investment gain/loss, which saw JPY 11.7 billion in positive movement, demonstrating a robust revival from the previous year’s downturn.

Record-High Assets under Management

The asset management wing continued its growth momentum, with assets under management setting a new record for the second consecutive quarter at JPY 76.5 trillion. This division experienced net inflows totaling about JPY 600 billion, with investment trusts pulling in JPY 480 billion. The alternative asset space also showed notable advancements with total management of nearly JPY 1.7 trillion, marking progress within the private markets sphere.

Wholesale Challenges Offset by Equities and Banking

Within the wholesale segment, revenue increased by 7% to JPY 204.1 billion. A steady equities department and a thriving investment banking sector successfully offset the relatively flat performance of the fixed income market. These factors, alongside cost reduction measures that limited expense growth to 4%, predominantly due to the depreciating yen, contributed to an improved pre-tax income for the quarter at JPY 8.3 billion.

Positive Trends in Global Markets

A deeper dive into the global markets segment revealed a 6% increase in net revenue to JPY 170.7 billion. While fixed income revenue remained unchanged, an uptick in macro products and spread products, particularly securitized products in the Americas, helped maintain stabilizing performance. The credit segment continued to stay resilient across different regions despite the headwinds of rate hike uncertainties and market volatility.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, everyone and welcome to today's Nomura Holdings Second Quarter Operating Result for Fiscal Year Ending March 2024 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. [Operator Instructions] Please note that this telephone conference contains certain forward-looking statement and other projected result, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual result, performance or achievement of the company to be materially different from the result, performance or other expectations implied by those projections. Such factors include economic and market conditions, political events and investor sentiment, liquidity of secondary markets, level and volatility of interest rates, currency exchange rate, security valuations, competitive conditions and size number and timing of transaction.With that, we would like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer, please go ahead.

[Takumi Kitamura, executive]

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I will now give you an overview of our financial results for the first half and second quarter of the year ending March 2024, using the document titled, Consolidated Results of Operations. Please turn to Page 2.Group-wide net revenue for the first half period increased 16% year-on-year to JPY 716.7 billion. Income before income taxes grew 138% to JPY 103 billion, while net income rose 3.2 x to JPY 58.9 billion. Diluted EPS was JPY 18.62 and ROE was 3.6%. The six-months period started with international market participants taking a wait-and-see stance as the U.S. faced bank failures and debt ceiling problems that was followed by uncertainty in fixed income markets, as the outlook for the federal funds rate changed dramatically and oil prices spiked, lifting the U.S. 10-year Treasury rate to a 16-year high.Overall, equity markets remained robust, but towards the end of the first half, investors became nervous over a correction in tech stocks driven by concerns of higher rates for the longer. Japan, meanwhile, witnessed several bright spots for the first time in a while. We saw signs of moving out of deflation, speculation of the BOJ shifting its monetary policy stance and expectations of reforms in the corporate sector aimed at boosting profitability. All these factors converged to bring in money flows from overseas, lifting the Nikkei stock average to a high level. The market rally is also prompting a nascent shift in willingness to -- of corporates to invest for growth. Amid this environment, Three segment income before income taxes increased 79% to JPY 89.2 billion, as shown on the bottom right.Retail saw a marked increase in client engagement in the high net worth space, where we significantly increased the number of sales partners through a reorganization, which ended this spring, aimed at better meeting the needs of our clients, spurred on by the Japan stock market rally, retail reported a strong increase in income before income taxes, which stood at JPY 52 billion. Investment management booked JPY 2.3 trillion of net inflows, lifting assets under management at end of September to a record high of JPY 76.5 trillion, as a result, stable business revenue increased by 9%.Investment gain loss, which impacted performance last year improved and investment management returned to profit with income before income taxes of JPY 26.8 billion. In wholesale, equities posted a 10% gain in revenues and investment banking reported a revenue increase of 24%. However, fixed income revenues declined 15% as macro products such as international rates and forex and emerging markets slowed. Yen depreciation and inflation overseas impacted costs and income before income taxes declined 77% to JPY 10.4 billion. Today, we also announced a dividend of JPY 8 per share for shareholders on record as of end of September.Next, let's look at second quarter results, please turn to Page 3. The percentages quoted from now all refer to quarter-on-quarter changes. Net revenue increased 5% to JPY 367.8 billion. Income before income taxes grew 23% to JPY 56.7 billion. Net income was up 51% at JPY 35.2 billion. EPS was JPY 11.21 and ROE was 4.3%. Three segment income before income taxes jumped 111% to JPY 60.5 billion. As shown on the bottom right, all divisions reported stronger pre-tax income.Please turn to Page 6, for an overview of retail performance in the second quarter. Net revenue in retail increased 7% to JPY 98.9 billion and income before income taxes grew 27% to JPY 29 billion, both representing the strongest results in six years since the October to December quarter in 2017. As I mentioned, the reorganization we did earlier in the year led to more client interactions in the quarter. The number of low business clients increased substantially over the last year and we saw robust sales of Japanese stocks and investment trusts. This led to a further 4% increase in flow revenue from the already strong previous quarter.We booked net inflows of recurring revenue assets, 1 of our KPIs, across all products and services during the quarter. Favorable market conditions helped lift recurring revenue to a record high of JPY 38.9 billion, with net revenue gaining 7% and expenses up just 1%, our recurring revenue cost coverage ratio rose to 56%.Page 7 shows sales by product. This quarter, we have changed how we calculate bond sales. We now exclude repo transactions for corporate clients because they were clouding true performance, given they are short-term and transaction values fluctuate widely each quarter. Figures from last quarter and earlier have been reclassified to make comparisons possible.Under the new definition, total sales increased 20% from the strong prior quarter to JPY 5.1 trillion. Sales of stocks increased 25% to JPY 3.48 trillion. Sales of Japanese stocks grew strongly, as sales partners met the needs of clients and the stock market rallied. Primary transactions also started to recover.Bond sales increased 15% to JPY 750 billion driven by a large contribution from the sale of foreign bond for Toyota Motor Credit Corporation in July. Investment trust sales increased 4% to JPY 620 billion, with client risk appetite on the rise, we reported inflows into a wide range of products, particularly overseas growth stock funds.Please turn to Page 8 for an update on KPIs. The top left shows net inflows of recurring revenue assets of JPY 128.6 billion. Recurring revenue asset shown on the top right were roughly flat at JPY 20.2 trillion, but remained high at over JPY 20 trillion throughout the quarter, driving strong growth in recurring revenues, as represented by the red line. The bottom left shows the number of flow business clients at 1.25 million at the end of September, up 16% over the last year as we see the results of significantly increasing sales partners in the high net worth space to strengthen our approach to clients we weren't officially providing services to in the past.Please turn to Page 9 for investment management. Net revenue increased 70% to JPY 45.1 billion and income before income taxes grew 6.4 x to JPY 23.2 billion. The bottom left shows stable business revenue at JPY 33.4 billion, the highest since the division was established in April 2021. Investment gain loss was JPY 11.7 billion, rebounding from a negative last quarter, due to an improvement in American Century Investments related investment gain loss.Please turn to Page 10 for an overview of the asset management business, which forms the basis for the business revenue. As you can see on the top left, asset under management at the end of September stood at JPY 76.5 trillion yen, a record high for second straight quarter. The bottom left shows net inflows of around JPY 600 billion with a investment trust business accounting for JPY 480 billion. ETFs such as the Nikkei High Dividend Stock and TSC Bank Industry Stock Funds reported inflows of JPY 270 billion, while funds for the bank channel and DC plans booked JPY 200 billion of inflows.The Investment Advisory and International Businesses reported inflows of JPY 120 billion. Japan booked inflows into yen bonds and alternatives, while internationally we saw inflows into our UCITS India Stock Fund. The bottom right shows alternative assets under management of nearly JPY 1.7 trillion underscoring progress in private markets.Please turn to Page 11 for wholesale. Net revenue increased 7% to JPY 204.1 billion, while fixed income was roughly unchanged from last quarter. Equities and investment banking both reported stronger revenues. Expenses increased mainly due to yen depreciation up only 4%, thanks to our cost reduction efforts. As a result, income before income taxes improved from last quarter to JPY 8.3 billion.Please turn to Page 12 for an update on each business line. Global markets net revenue increased 6% to JPY 170.7 billion. Fixed income revenues were roughly unchanged at JPY 96.9 billion. Macro products represented an improvement in FX, EM in AEJ and EMEA, while rates revenues slowed in EMEA and the Americas on an uncertain outlook and Japan declined from the strong last quarter. Spread products revenues increased driven by securitized products in the Americas and credit remained solid in each region, despite uncertainty around rate, rate hikes and elevated volatility in emerging market -- bond markets.Equities net revenue grew 17% to JPY 73.8 billion. Equity products revenues increased driven by derivatives and financing in the Americas and AEJ. Execution services saw a strong increase in Japan revenues. Primary transactions also contributed and we saw growing interest from Japanese and overseas institutional investors toward Japanese equities.Please turn to Page 13 for investment banking. Net revenue increased 10% to JPY 33.4 billion, driven by financing and solutions. As shown on the right, we executed a number of Japan related DCM transaction such as an international secondary offering for Socionext and a public offering, Euro-yen convertible bond by JFE Holdings. In DCM, we supported many fund raising transactions across regions including a green bond issuance by NTT Finance and a bond issuance by the Export-Import Bank of Korea. Revenues from the advisory business slowed as America's and EMEA's revenues declined due to lower global fee pools. Japan revenues increased on contributions from completed transactions.Please turn to Page 14 for an overview of non-interest expenses. Groupwide expenses increased 3% to JPY 311 billion. Compensation and benefits were up 5% at JPY 167.1 billion. The main factors behind the increase were yen depreciation, booking of severance related expenses in international business and higher bonus provisions for retail due to strong performance. Commissions and floor brokerage increased 9% on higher trading volumes.Lastly, please look at Page 15 for an update on our financial position. The table on the bottom left shows Tier 1 capital of JPY 3.4 trillion and risk-weighted assets of JPY 18.2 trillion, both up from the end of June. As a result, our Tier 1 capital ratio at the end of September was 18.6% and our CET 1 capital ratio was 16.5%, roughly unchanged from the end of June and highlighting that we continue to hold sufficient capital.That concludes today's overview of our second quarter results. This quarter, we saw results from our strategic efforts and were able to expand our base of stable revenues. We stringently managed costs resulting in pre-tax income across all three divisions with performance rebounding after bottoming out in the fourth quarter. Retail delivered on our competitive advantage of providing high-value added consulting services with solutions and services matched to the needs and characteristics of each client and we started to expand and deepen our client base.Investment management continued to steadily build up assets under management in our area of strength in public markets, while making progress in alternatives, real assets and other private markets. In wholesale, international wealth management, although still a relatively small business expanded its product offering and continued to bring in new money with client assets, increasing 15% during the quarter.Stock prices have undergone a correction in October, but retail flow business clients numbers continue to grow. We are collaborating across the group, structuring the organization to deliver tailor-made services to corporate and owner clients as well as high net-worth individuals and we have also positioned our self to strengthen our services for salaried employees. Business remain solid in October, with revenues trending in line with the second quarter. Wholesale performance remains challenged in international markets, but Japan is seeing strong performance in fixed income, driven by rates and credit and investment banking retains good momentum.We expect international macro products, which had a tough second quarter to start seeing revenue opportunities if the outlook for interest rates becomes a little clearer, while uncertainty remains particularly overseas, we will continue to stringently manage our cost base and we work to expand our earnings.Thank you.

[Operator]

[Operator Instructions] The first question is by Mitsubishi UFJ Morgan Stanley Securities, Sujino-san, please go ahead.

[Natsumu Tsujino, analyst]

First of all, international severance related expenses had been booked. Can you quantify the impact and how will it impact personnel expenses in the coming quarters? So that is my first question. And other real estate related expenses, telecommunications. I see that expenses are up gradually, partly impacted by the exchange rate. Revenue is growing, but at the same time expenses are growing as well. So can you give us the outlook for the future direction? Those are my questions for the time being, two questions.

[Takumi Kitamura, executive]

First of all, on the severance related expenses, totally a few tens of billions of yen -- I will refrain from making any detailed comments, but that's the overall size. The big factor why personnel expenses are growing, on one hand, severance related expenses have been paid out and therefore that will push down personnel expenses going forward. But these people will stay for a few months after the communication, so it's not the case that after communication the expenses will go down immediately. So we are hopeful that the impact will begin to be realized from the third quarter and the effect of reduction is expected to be quite significant. And real estate related and telecommunication related expenses seem to be increasing, partly due to the GPN. If we exclude yen depreciation, frankly speaking, the cost level is not increasing so significantly.In terms of IT telecommunications related costs, we are reviewing the system's number and the number of apps. And regarding real estate, we are conducting a discussion on the desirable layout of offices. It's not the case that we will be making immediate measures that will lead to sudden and immediate reduction of expenses, but we are conducting a study, so that we can suppress the real estate expenses as well.

[Natsumu Tsujino, analyst]

On China, there are press reports that you will be scaling down your operations. Will there be expenses or one-time off expenses to be booked because of that?

[Takumi Kitamura, executive]

Regarding China, we are not reviewing our China strategy, but the joint venture we established in China partly because of the pandemic is not expanding as we had originally expected. And after the pandemic has resolved, we are currently in the phase of re-verifying the business plan for this joint venture. So in 1982, we entered China. So over 40 years, we have been serving a variety of clients in that market. In the mid to long run, we will not be changing our strategy so significantly, but regarding the joint venture in order to realize mid to long-term business, we hope to engage in constructive discussions with our partner.

[Operator]

The next person asking the question is Mr. Muraki from SMBC Nikko.

[Masao Muraki, analyst]

I'm Muraki from SMBC Nikko. I have 2 questions. First, Page 12, market department's revenue situation, July is a weak month according to your previous explanation, but October seems to have come down according to your explanation. But from July through October, what has been the progress? And moving forward, what are the upside potential and downside? And what is your view? That is my first question. The second question is about Page 8, domestic retail channel formation effects are being enjoyed fully, but investment trust, recurring revenue, net inflow, the net inflow number is strong this time, but client base contributing to the inflow, what's the age and the size of asset and other attributes? So what segment of clients contribute to the increasing inflow and also flow transaction clients are increasing. Then what -- who are the clients there? And what other types of transactions that are becoming more active? Could you give some more colors?

[Takumi Kitamura, executive]

Firstly, regarding the second quarter's performance, global markets performance, the July was weak, we had a weak start. So last earnings release, I said it, the situation is slow and August and September, the performance gradually improved, September being the strongest. In that sense, October is around the same level as July, that's our expectation and November and December, well, the third quarter for us is strong seasonally. So, we have expectations for stronger third quarter.Regarding upside, moving forward, Central bank is likely to take various actions. ECB did not raise rates yesterday and in the U.S.A., the tone of Central Bank seems to be changing. So macro-related business such as fixed income has been struggling, but we can have an expectation for improvement. And also, we have strong market share in securitized products. For a while, we saw a slow performance and on a daily basis, we are looking at numbers, but it appears we are starting to see change. So in the third quarter, we can have a high expectation for the improvement. In terms of downside, what is our view? The current higher for longer that continue -- may continue in that situation, then from our business perspective, we may be challenged in conducting business. That is my answer to your first question.Regarding your second question about retail business. Recurring revenue, net inflow -- a net increase for all products and services, net increase has been achieved, especially investment trust, discretionary service, loan insurance. So for all products steadily, we saw smooth increase. As for clients, actually, for all types of client segments, but for insurance, high net worth individuals, the AUM from high net worth is big. So we see particularly strong growth in high net worth clients.As for flow business clients compared to the same period of last year, 16% increase has been observed. So as you see in the earnings material, but basically for all types of products, we see the same trend and for all types of clients, we see the same trend. But in terms of revenue, big revenue contribution in the sense of growth, high net worth individuals, the contribution is relatively big. So flow revenue from the accounts that partners opened up and compared with the pre-reformation, 30% increase can be -- 30% has been increased.When we look at the revenues from clients who our partners have had touch points, but as for clients who our partners did not contact the revenue from them has been flat. So market conditions have been good, but the last 1 mile is where our sales partners face our clients and that's where the upside is being generated.

[Masao Muraki, analyst]

So domestic retail and equity and JGB trading, i.e., so you sounded positive in your presentation and a high level -- from high-level perspective rather than China and EMEA and Americas. And rather than wholesale management resources are being refocused into retail and investment management. So is there that kind of potential possibility? How should I think about the allocation of resources?

[Takumi Kitamura, executive]

In the sense of portfolio mix, retail division has recovered. What we should be strengthening is, first, expansion of IM. All along, as I have said, inorganic growth opportunities are not something that we deny. In the long-term, where are potential areas for growth? We are in search of growth areas, but IM and relevant areas are the areas that we would like to scale up. But in the short-term, in the sense of resource allocation, it depends on the situation of the time, but in the medium to long term, we believe we have a growth potential in the areas I mentioned. And if we cannot find opportunities, then the return to a shareholder will be the option to choose, as I always explain.

[Operator]

Now we move to next question, as we couldn't confirm your affiliation, please state your company name and your name after hearing a muted announcement. Now muted. Provide your self and your affiliation. Yes, we can hear you.

[Kazuki Watanabe, analyst]

I have two questions.

[Operator]

Please give us your name?

[Kazuki Watanabe, analyst]

Watanabe, Daiwa Securities.

[Operator]

Oh, its you, Watanabe-san, thank you very much.

[Kazuki Watanabe, analyst]

Yes, I have 2 questions. First, retail personnel, 1,600 who have been reallocated. Are they being utilized 100%? You said that they weren't fully in operation in April to June, but what about the July, September quarter? And then Page 8, you have the recurring revenue asset and recurring revenue. In Q2, it has increased quite significantly, although the revenue -- recurring revenue assets has declined slightly. Why did recurring revenue increase? Wholesale hiring, 96% is the actual, which is higher than the 86% goal and you have been looking at revenues as you decide on hiring. Are you progressing with the recruitment as planned for GMs?

[Takumi Kitamura, executive]

First of all, on your first question whether the personnel that we have been reallocated have been operating in full? In the past quarter, yes, they more or less have become operable. What about July, August, September? There wasn't much fluctuation in all 3 months, they were in action at high level in all of the 3 months. And in comparison to revenue asset, recurring revenue seems to be growing quite significantly. I think that was part of your question, but we take the numbers at the end of the month. So it's the comparison between end of the month. So maybe the asset appears to be declining slightly or unchanged. But average balance, JPY 19.5 trillion Q1, Q2 JPY 20.3 trillion. So on quarterly average, Q2 was significantly higher.So that being said, recurring revenue is growing and there is a loan business and the insurance business and investment trust or revenue outside of the cautionary investment has also been quite sanguine. And secondly, GM hiring, I believe that was your second question. Yes, we are progressing as planned in terms of reorganizing the team, especially the sales team expansion has led to increased engagement with our customers and steady progress has been achieved. Yes, expense ratio of 96%, which is quite high, as you have pointed out, was it Tsujino-san who asked that question. This expense also includes severance-related expenses. And in the time to come, some of the expense line items will begin to drop. And therefore, although the expense ratio has been high for some time, we are making efforts to reduce.

[Kazuki Watanabe, analyst]

I have a follow-up question. First of all, on recurring revenue, no one-time off factor and for Q3 it will be around the same. And secondly, you were quite active in trying to hire teams from outside, are they prioritizing products or regions where you will be active in hiring?

[Takumi Kitamura, executive]

In terms of recurring revenues, the timing of booking revenue, there's a time lag in the booking timing. So there could be some time lag, but the recurring asset which will be the source is steadily expanding. And therefore, we shall be able to book healthy recurring revenues as well. On the second question, are there any priorities in terms of products or regions? Again, the Americas market share. We are strong in terms of market share and we want to continue to take advantage of that strong market share. Japan for our products, as you know, we have strength, but in the Americas, we will lever on our strength. And in Asia, we have significant market share in a few products. And therefore, those are the areas where we will focus as we try to expand business. Europe performance is not growing as expected, but we are trying to make remedies there as well.

[Operator]

Now we move to next question, as we couldn't confirm your affiliation, please state your company name and your name after hearing a muted announcement. Now muted.

[Unknown Analyst]

Can you hear me?

[Takumi Kitamura, executive]

Yes.

[Unknown Analyst]

I'm Otsuka from [ SBI Securities ]. I have -- first question -- Page -- is related to Page 7, total sales of equities. Could you elaborate on the number for equities total sales, JPY 3.4 trillion is a strong number that I see for the first time in a while. And the primary according to your explanation seems to be included in this number. But in terms of secondary from JPY 3.4 trillion, JPY 93.9 billion should be subtracted and the remaining -- there is secondary number?

[Takumi Kitamura, executive]

Yes, that's the right understanding.

[Unknown Analyst]

Okay. If that is the case, first quarter primary about JPY 50 billion was a primary number, then JPY 2.7 trillion for Q1 and INR 3.3 trillion for Q2. So more than 20% is the total sales related to secondary. Is it the right understanding?

[Takumi Kitamura, executive]

Yes.

[Unknown Analyst]

The number seems very strong, [ GBX ] prime equities daily average, it's flat and Matsui's number Q-on-Q, 6% increase. So your number is very strong. But the second quarter, what happened? You have explained the reallocation of sales partners and touch points or increase then there was tailwind from market. So the equities held have been replaced with other shares and some people use cash to buy equities. So what were the activities that you observed?

[Takumi Kitamura, executive]

Compared to the first quarter -- in the second quarter, the reasons behind the strong growth, I believe that's your question. In the first quarter, April and May were quiet months and then in June, market jumped and our business became active at the timing. And in the second quarter July, August and September, as mentioned earlier, throughout the quarter, the business stayed at a high level. Looking at the market environment, needless to say, but market stayed at the high level, though there were corrections here and there, but many clients expected upside potential. So market environment and also needs from clients, we understood needs from clients and we -- our sales staff, I believe, proposed domestic equities to clients.Looking at the second quarter, the bank stocks are up, but such names and names of stocks that benefited from weak Yen and [ JPBR ] -- ROEs and those will go up and we are going to monitor. But appetite for domestic equities have been strong and we made proposals to meet the needs. And those factors combined to result in the number in front of us.

[Unknown Analyst]

I have 2 more questions. Page 24, retail division's data is shown. So business was robust, but the fee -- brokerage fee is flat, is it because first quarter was strong?

[Takumi Kitamura, executive]

In the first quarter, a rapid increase was observed. But rather than buying, there were many selling activities. As a result, fee wise, we see the flat progress.

[Unknown Analyst]

My second question, now accounts with balance, it's about 5.4 million accounts, but in the second quarter, 1.25 million, then accounts versus balance -- accounts with balance and flow clients, numerators and denominators may be different, but this environment and reallocation of partners when they are considered, then do you expect the number of flow clients to be increased further? Is it possible?

[Takumi Kitamura, executive]

Yes. We are aiming higher. However, 5.3 million accounts with balance. We cannot expect all of them to be active, but as Otsuka-san said, there is still more room for growth. So to capture such opportunities, our sales partners have been reallocated. So by facing clients, we are looking to grow the number of flow clients.

[Operator]

The next question is by Niwa-san of Citigroup Securities.

[Koichi Niwa, analyst]

I have 2 questions, ROE and wholesale -- wholesale profit. First, near-term ROE, how well are you progressing? 8% to 10% in your mid-term plan and capital cost 8%, that had been your comment. Under this environment, ROE was slightly over 4%, in that sense we somewhat feel that the environment is harsh. You are trying to manage the group. In terms of capital cost, do you think you will reach 8% by March 2025? If not, are you going to think about other measures? Is there a plan B? If there is any additional factors, please share those factors with us. Second, I want to have a clear image of expansion of wholesale profitability and I am looking at Page 11. Risk asset is not being used to its fullest potential high profitability versus margin not going up, risk asset, 64% is the -- is allocated to wholesale. If there is any risk assets not put into use, which products or which regions are not being fully utilized. If the improvement situation continues, do you think that the profits in this area will go up? Or is that difficult? So if you have done any analysis on the use of risk assets, please share such analysis with us.

[Takumi Kitamura, executive]

Under this situation, ROE 4.3%, you're right, we are facing difficulties. This is not a satisfactory level at all and that is our true feeling. Retail and IM have attained steady growth and in wholesale, in Japan for the first time in some time, IB and GM are very excited and we have high expectations. Wholesale global markets are not recovering. Fixed income is our core of the core macro interest rate business, Forex and emerging -- there's still sluggishness and slowness in these areas, mostly caused by the market environment, but the performance is very slow. It was slower than we had expected in terms of rate prospects and I think it's the same for everyone. But inflationary pressure is prolonging and is higher in terms of degree than expected. And therefore, that is probably impacting our results.Gradually, the uncertainties will probably be resolved, but when -- I don't think it will be so far out into the future, but just waiting for the market to recover is not what a disciplined management ought to be. So we will try to reduce expenses and at the same time, maximize top line growth. So next year, between 8% to 10% next year, we don't think that target is impossible and we are hopeful that we will be able to achieve that target.

[Koichi Niwa, analyst]

And is there a plan B? For example, share buyback alone to reach 8% to 10%, that's difficult. So we will take different measures in order to maximize ROE to the extent possible. The second point is with regards to margin of wholesale risk asset. You're looking at the revenue against risk asset, 6.4 isn't that bad, but why is the bottom not really performing well?

[Takumi Kitamura, executive]

We are in this environment we are in. RWA is not being used to its full in wholesale. Wholesale is doing quite significant risk control. So are they putting the risk resources into full use. I think they are working with vigilance. So the answer is no.

[Koichi Niwa, analyst]

Then which product and which region?

[Takumi Kitamura, executive]

I think the wholesale is facing difficulties in all regions, fixed income, especially fixed income. I think there are signs of comeback in securitized products, but it's not as bullish as the past. And globally, for all products, we are on the vigilant side. I hope I answered your question?

[Koichi Niwa, analyst]

I have one follow-up question. If I had understood your point correctly, until when will you wait, you will be controlling equity and capital. We do understand that there is much uncertainty, but around this time last year, there was uncertainty that was the general view and that was probably the view of Nomura. But the clouds aren't moving and you said that you will seek M&A opportunities. On the other hand, those opportunities haven't realized. So will you be setting time horizons as you make plans or March 2025 is that one [ last turn ]? So can you elaborate on the time line?

[Takumi Kitamura, executive]

Our main products in global markets, main business, there are a few main products. Are they all doing bad? That's not really the case. Two quarters successively that performance, we've experienced that level. But this time, it's been sluggish for 1 year from Q3 last year to Q2 this year for 1 year, there has been continued slowness and it's quite unprecedented for us. 1 year has passed, so we are thinking what we need to do. At this stage, we can't comment on specific timing like by when. But -- this sluggishness has continued for 1 year. So we are thinking of what we need to do. So we will respond by taking necessary measures. March 2025, are you aware of that timing? Yes, of course, we have that time line in mind.

[Koichi Niwa, analyst]

Thank you very much and thank you for commenting on something that might have been difficult for you to comment.

[Operator]

[Operator Instructions] As there is no more question, we would like to finish question-and-answer session. Now we would like to make the closing address by Nomura Holdings.

[Takumi Kitamura, executive]

Thank you, everyone, for attending this event. Looking back on the last 6 months, as you commented, retail, IM, these business lines have performed strongly, on the other hand, wholesale was slow. On the other hand, looking back on the first half of last fiscal year, the situation was quite the opposite. Retail and IM were struggling, wholesale on the other hand, were covering for the other divisions. That was the situation of the first half of last year. So -- but you may say at that level, but I believe we benefited from the portfolio effect, but this is comment about the low level, but we want to raise the level higher with each divisions, growing the revenues and bottom line, so that we can raise the entirety of portfolio at a high -- to a higher level. We are working on various measures, some of them are starting to show result, while others have not and some initiatives have not been materialized in its impact on P&L, but we would like to keep you updated on the result that we can capture and I hope you will keep cheering for us. Thank you for your time today. Thank you.

[Operator]

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