Nomura Holdings Inc

TSE:8604

Earnings Call Transcript 2022-Q3

[Operator]

Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Results for Fiscal Year ending March 2020 conference call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions] Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievement of the company to be materially different from the results, performance or other expectations implied by those projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary market level and volatility of interest rates, currency expansion rate, security valuations, competitive conditions and size, number and timing of transactions. 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 third quarter of the fiscal year ending March 2022, using the document titled Consolidated Results of Operations, which is on our web page. Please turn to Page 2. Net revenue, first, let's say at the 9-month period to the end of December, net revenue declined 17% year-on-year to JPY 1.0231 trillion, and income before income taxes declined 55% to JPY 177.1 billion. The chart on the bottom right shows a breakdown by business segment. 3 segment total income before income taxes was JPY 171.8 billion, down 51% year-on-year. The decline was mainly due to a slowdown in brokerage commissions from sales of stocks and investment trusts in retail and the normalization from a strong market rally last year, particularly in fixed income in macro products such as rates and FX in wholesale. We also saw an impact from an additional loss booked in the first quarter related to transactions with a U.S. client in March last year. Segment Other reported income before income taxes of JPY 900 million with a lower contribution from one-off items compared to the same period last year. As a result, net income for the 9 months was JPY 112 billion, a decline of 64% year-on-year. EPS was JPY 35.32 and ROE was 5.4%. Although performance slowed compared to the market rally last year, this year's 3 segment results were stronger than the same period in FY 2018 to '19 and FY 2019 to '20. We are making steady progress in our medium- to long-term strategy, and we are seeing our earnings become more consistent and diversified. Allow me to touch on 2 key highlights. First, our focus on the broader asset management business. In retail, we are shifting to asset consulting centered on a goal-based approach to manage each individual clients' assets to meet their future goals. This has led to accelerated growth since April last year in net inflows into investment trusts and discretionary investments leading to higher recurring revenue. Investment Management has also reported continued inflows and assets under management have reached a record high, resulting in higher asset management fees. Investment gain/loss also increased significantly due to the listing of an investee company in this fiscal year. Second, our wholesale business has seen growth in capital light businesses such as advisory and origination. Investment Banking is delivering good performance in global M&A business, primarily in the Americas and revenues have increased in the ECM business. Please turn to Page 3 for an overview of third quarter results. As shown on the top right, firm-wide income before income taxes was JPY 80.1 billion, and net income was JPY 60.3 billion, a marked improvement from the second quarter. All business segments reported stronger revenues and pretax income. 3 segment total income before income taxes was JPY 79.2 billion, up 39% quarter-on-quarter.

Although the graph on the bottom right shows softer pretax income compared to the strong market last year, third quarter results this year were actually stronger than the 3 years before last year, in other words, before the pandemic. As you can see on the bottom of this page, annualized ROE was 8.7%, EPS was JPY 19.07 and our CET1 ratio was 18%.

Please turn to Page 6 for a breakdown of results by business. First, Retail. Net revenue increased 3% quarter-on-quarter to JPY 87.4 billion and income before income taxes grew 6% to JPY 18 billion. As I mentioned earlier, the pace of net inflows into discretionary investments and investment trusts has picked up since April last year, and recurring revenue increased compared to last quarter. Total sales increased 9% quarter-on-quarter with growth coming from investment trusts and bonds. The box on the top right shows net outflows of cash and securities of JPY 613.5 billion due to large stock withdrawals by a corporate client. For reference, we have included net inflows of cash and securities for individual clients, which stood at JPY 475.4 billion, underscoring continued strong inflows.

Page 7 gives an update of the KPIs. The top right shows net inflows into investment trusts of JPY 114.4 billion, and net inflows into discretionary investments of JPY 129.4 billion, both higher compared to the last quarter. This growth has contributed to recurring revenue assets of JPY 20.3 trillion and recurring revenue of JPY 28.1 billion, both of which are at record highs. Recurring revenue accounts for 32% of retail revenues and the recurring revenue cost coverage ratio is 41%, both up 10 percentage points from the third quarter last year, contributing to a more stable revenue mix. The number of active clients shown on the bottom right was higher than last year at 895,000 accounts. Account openings grew in each segment and our efforts to expand our client franchise, such as taking a strategic approach to dormant accounts at our contact centers are working well.

Please turn to Page 8 for Investment Management. Net revenue increased 17% to JPY 40.1 billion, and income before income taxes grew 35% to JPY 20.4 billion. Business revenue increased 8% to JPY 31.5 billion. Continued inflows into the Investment Trust and Investment Advisory businesses lifted assets under management to a record high of JPY 68.5 trillion, resulting in higher asset management fees. Investment gain was JPY 8.6 billion, an increase of 70% from last quarter. American Century Investments related gain increased to JPY 6.6 billion, while Nomura Capital Partners also recognized unrealized gains on investments.

Please turn to Page 9. As shown by the flow of funds on the left, the Investment Trust business reported inflows of JPY 250 billion. The breakdown of this is shown on the bottom left. The dark grid portion shows core investment trust which booked inflows from the bank channel and into funds for defined contribution pension plans. The section on the top right shows the trend in the bank channel for Wealth Square, which was set up in 2016 to provide fund wrap services to regional financial institutions. This has grown to include 14 partners allowing us to provide fund wrap services to a broad range of individual investors. Assets under management at the end of December totaled JPY 142.5 billion, representing growth of 2.5x over the past year. Assets under management in alternatives, one of the investment management initiatives in the private space have grown to JPY 769 billion. In terms of asset classes, this is mostly in private equity, infrastructure and real estate and the investment region is mainly North America.

Now please turn to Page 10 for Wholesale. Net revenue increased 17% quarter-on-quarter to JPY 202.7 billion. The revenue environment improved in the latter half of the quarter for Global Markets with fixed income and equities both, post the sequential revenue gains. Investment Banking saw continued strong performance in the global M&A business centered on the Americas and booked its strongest quarterly revenue since the year ended March 2017 when comparisons became possible.

Fixed income credit was strong, particularly in AEJ, while ForEx/emerging and securitized products also reported higher revenues. Equities had a strong quarter in derivatives, mainly in the Americas and cash remained solid. The graph on the bottom left shows net revenue by region, with the 3 international regions putting stronger revenues quarter-on-quarter. In the Americas, revenues increased 24% as equity derivatives and M&A advisory more than offset a slowdown in rates. AEJ reported revenue growth in fixed income driven by credit and ForEx/emerging, while Investment Banking booked stronger ECM revenues.

EMEA saw improved performance in fixed income driven by rates. As shown on the top left, non-interest expenses were JPY 161.9 billion, an increase of 10% due to higher revenues. However, the cost income ratio was 80% as we stringently controlled costs. As a result, wholesale income before income taxes increased 64% to JPY 40.8 billion.

Now on to Page 11 for an overview of results by business line. Global Markets net revenue was JPY 163.8 billion, up 19% quarter-on-quarter. Fixed income net revenue grew 24% to JPY 88 billion. As a heat map on the right shows, Fixed income in the Americas is pointing diagonally down due to challenged results in rates. But in other regions, the arrow is pointing up. In EMEA, rates revenues increased while in AEJ, credit revenues grew strongly and ForEx/emerging posted a rebound.

Japan had a solid quarter in credit, while rates and ForEx/emerging revenues increased. Equities net revenue increased 14% to JPY 75.8 billion. As shown on the right, Americas made a significant contribution to revenue growth, thanks to a strong quarter in both cash and derivatives. In AEJ, the arrow is pointing down as derivatives slowed, while Japan reported lower revenues in cash equities.

Please turn to Page 12 for Investment Banking. Net revenue was JPY 38.9 billion, up 10% quarter-on-quarter, M&A revenues easily exceeded JPY 10 billion for the fifth straight quarter. Notably, in the Americas, we have won sustainability-related mandates via Nomura Greentech and supported multiple transactions across a broad range of sectors, resulting in record M&A revenue. By region, Japan ECM slowed from the strong previous quarter. But as you can see on the right, we supported a number of global transactions. Internationally, the Americas had a strong quarter, with revenues increasing 80% quarter-on-quarter. AEJ revenues also grew from last quarter driven by ECM.

Please turn to Page 13 for an overview of Non-interest Expenses. Firm-wide expenses declined 10% over the last quarter to JPY 270.9 billion. The decline is mainly due to a decline in other expenses shown at the bottom. Last quarter, we booked a provision of JPY 39 billion related to transactions from before the global financial crisis and the impact of this treatment was not present this quarter. Compensation and benefits increased 8% to JPY 139 billion due to higher bonus provisions in line with pay for performance.

Now on to Page 14 for an update of our financial position. As you can see on the bottom left, Tier 1 ratio was 20.5%. CET1 ratio was 18% as of the end of December, both up compared to the end of September. Tier 1 capital, the numerator in the calculation increased by JPY 65 billion due to earnings, while risk-weighted assets or the denominator grew only by JPY 80 billion as a decline in market risk partially offset a rise in credit risk. That concludes the overview of our third quarter financial results.

To conclude, this was the first time in 4 quarters where we didn't have any one-off time events. And we were able to show results of our efforts to achieve sustainable growth in each of our businesses. In addition to the broader asset management business and capital light origination business, as I mentioned, we also saw a continued revenue growth in solutions and structured businesses in wholesale that are less impacted by market volatility. These 3 businesses accounted for 47% of 3 segment net revenue in the third quarter, underscoring steady progress in our efforts to strategically grow our stable earnings base.

In January, we have seen a drop-off in investor sentiment as the stock market dropped significantly, resulting in a slow start for retail, particularly in investment trust sales. That said, we are seeing some movement as investors look to buy on the debt. Net flows into investment trusts and discretionary investments continued through January. And in these uncertain times, we are committed to following up with our clients to provide consulting over the medium to long term. In Wholesale, we are seeing a pickup in rates, which slowed in the third quarter, and equity derivatives remained solid, continuing the earnings momentum of the previous quarter. This year, we can expect to see trading demand driven by macro events in the U.S., such as interest rate hikes, monetary tightening and the midterm elections in autumn. For Investment banking, we also expect sustainability-related demand to continue over the medium to long term. We expect the market environment to remain volatile and we will further enhance our risk management while aiming for sustainable growth.

Thank you. That concludes my presentation on the third quarter results.

[Operator]

[Operator Instructions] The first question is from Mitsubishi UFJ Morgan Stanley Securities, Tsujino-san.

[Natsumu Tsujino, analyst]

Two questions, please. First, the distribution dividend. Until now you had the first half, 30% and the second half, 30%. But with all sorts of things going on taking place since last year, you have changed the way you decide based on various factors. For the second half, will things go back to normal? Is that the way to think about this? Is my first point.

And in the latter half of your presentation, you talked about January and how a figure is recovering, and you're seeing an improvement in your business, but cash equities especially in the U.S., the market was very slow. So -- market was very weak. So I don't know if you did well in the equities. But since around the end of November, and if you look at October to December compared to the average trend during the quarter, how was January? What kind of started to make for the first year for equity and [ FIG ]?

[Takumi Kitamura, executive]

This is Kitamura. Your first question is about dividends, right? And second is about equities and how the start of the year was? Well, for dividends, we -- as we have stated in the dividend policy, we have the 30% dividend payout ratio per half year. No change to our dividend policy in that sense. However, as you pointed out, Tsujino-san, due to various factors and events, we have took that into -- taken that into consideration. And we have been deciding the dividend payments based on those considerations for the past few times. But the policy of paying out 30% dividend payout based on the half year numbers is -- remains unchanged. And your second question about equities business. And with unstable share price, what do you mean by your equities business being strong?

Well, it did -- we did well in equities. That's the honest situation. And who knows where things are going to go from now. But in terms of the start of the year in January, we made a good start. And so in the 9 months of the fiscal year and we have made a good -- it was a good 9 months, and also we made a good start to the calendar year.

[Natsumu Tsujino, analyst]

So this is Tsujino-san. FIG and equities, both compared to the pace in the December quarter, things are not -- things haven't slowed down and things are trending in line with the December quarter. Is that the way to think about it?

[Takumi Kitamura, executive]

At the moment -- this is Kitamura. Yes, equities isn't exceptionally good or fixed income isn't outstanding. So both are reasonably good. We made a good start to the year in both businesses. And as Tsujino-san mentioned, it's not that easy. But in terms of the start of the year, I believe we made a good start to the calendar year.

[Operator]

Watanabe-san of Daiwa Securities.

[Kazuki Watanabe, analyst]

Watanabe of Daiwa Securities, I have 2 questions. First of all, Page 10. Wholesale cost. In comparison to the third quarter of the previous year, there has been an increase of JPY 15 billion, cheaper Yen might have been a factor, but what are the reasons behind? Second question, capital policy buyback JPY 50 billion set in October, JPY 39.6 billion was used up, but you have some room left. What was the reason why you deferred or you decided not to do additional buyback?

[Takumi Kitamura, executive]

The first question was on possible cost increase in Wholesale. First of all, cheaper Yen, yes, there has been a slight impact. And you're right, as you mentioned, but there's another factor. On a year-on-year basis, the personnel cost has grown. We are recruiting in growth areas and bankers. Our U.S. peers were talking about the same thing, but wage increase among the banking industry has elevated the base salary slightly and investment in new areas, of course, we will monitor the cost basis, but we need to continue investments as well. Now sophistication in risk management, we're injecting efforts in such area.

Now, we're not talking about shrinking business by over prioritizing risk management. But in order to develop business, we need more precise risk management. And if some of the cost -- part of that cost is booked in Wholesale. But as Wholesale as a whole, cost/income ratio, 80%, that commitment has already been announced. So by taking various measures, we will continue to control costs while continuing on investment and live up to our commitment.

Next, second question. Well, fortunately or unfortunately we have about JPY 10 billion left. And the 80 million shares were bought back, JPY 10 billion shorter than the upper limit. Now share buyback. It's on the menu. It's constantly an option. Of course, regulatory environment, revenue environment and stock prices, various factors will continue to be monitored. And with agility, we will respond to the circumstances, we solicit your kind understanding.

[Kazuki Watanabe, analyst]

Secondly, to confirm, you have JPY 10 billion left in share buyback. Then from the next term, are you going to add on in terms of share buyback?

[Takumi Kitamura, executive]

There's not a straight-line link, but there is JPY 10 billion left. Of course, we will look at the total payout ratio and shareholder benefit ratio and think about various options in terms of use of capital.

[Operator]

The next question is from SMBC Nikko Securities, Mr. Muraki.

[Masao Muraki, analyst]

This is Muraki from SMBC Nikko. Two questions, please. First is about Page 10. The Wholesale business, which did well in the quarter. In Q3, revenue JPY 200 billion; pretax income, JPY 40 billion. So the FY '22 target, if we annualize it, you have already achieved that target number. And going forward, as the monetary policy shift going forward? And what are your thoughts about FY '22 next fiscal year? What is the revenue outlook? And what is the upside potential and the downside risk? What are -- what's on your mind for the wholesale business? That's my first question. And second question is, this may be a bit technical, but on Page 14 of the presentation, the transparency of the price is extremely low in the Level 3 assets. And there was a big decline in Level 3 assets during the COVID pandemic, but there has been a big jump or a big increase again. And according to the data, September data, CMBS and equity derivatives and loans seem to be increasing, which is this correlated to? Which business is this linked to? And how do you -- how are you controlling this risk related to the Level 3 assets, please?

[Takumi Kitamura, executive]

Yes, this is Kitamura, thank you. In terms of the future upside and the risks and how we think about that. In this result announcement for Wholesale, the results were not bad. Actually, we think they were quite good. But one of our big businesses is the Rates business was -- things were tough, not just for Nomura, but for many of our peers as well, are saying similar -- making similar comments. And in the January to March quarter, the number was below the pre-pandemic levels. And we did expect the situation to normalize. But even so, things were quite tough in the Rates business. And as you point out, rates -- interest rates are expected to go up and long-term interest rates, people are trying to find where the long-term interest rates are going to end up, and market participants have all sorts of thoughts about where things are going to go. And some people will be rebalancing their portfolios. Some people will be hedging. So in the Rates business, we think the business environment will not go -- will not deteriorate further from here, we think. I don't think we have to be too worried about that. And in terms of the FX, the currency, we are quite strong, especially in Asia. And similar situation here. And each country has exit strategies, and there will be a little difference between countries. So there should be a difference in the interest rates. And as a result, the FX activity will pick up and increase, we expect. And for Credit, things were very strong, especially in Asia, Asia credit, very high levels we achieved. And the question is how far this is going to go. And even if things normalize to a certain extent, yes, I think we can -- we should assume a slight -- a certain normalization. So that's how we think about the wholesale business, some positive and some concerns as well. But we'll make sure to continue the risk control. And in Equities, we do not use our balance sheet, and we're not doing a lot of things using our balance sheet. We're more -- our business is more related to customer activity -- client activity, and our franchise is #1 or #2, in that sense. And the client activity when it picks up, and when there's a change in the risk appetite we received a sizable order and we can monetize the business, and that's what we are expecting. But again, if there's a very sharp fluctuation in the prices, -- that is a risk. So we need to make sure to manage the risks in that kind of situation. That's the answer to your first question.

And regarding your second question, about the Level 3 assets. And why is that increasing? Yes, in the Securitized products business, we are very strong in the U.S. and the Securitized products business, we're doing quite a lot of business there. And I wouldn't say one-off. I don't know if one-off is the right way to say it. But at the end of December, there was a spot -- there was kind of a spot case, a warehousing loan in the securitization business. And that's why the Level 3 assets went up at that time. And after that, we expect it to decline from our balance sheet. And the securitization business in the warehousing loan, there is growth potential in this business. And as I've been saying today, the potential rise in the interest rates and in comparison with the agency business, there are some investors which are pursuing yield. So we will -- we are focusing on this business. But that doesn't mean that we will materially increase this business -- expand this business. And we will make effective use of the limited resources and apply stringent controls to this business. So we will focus on the resource efficiency and cater to the demands of investors. So in that sense, at the end of December or December 31 or December 30, there was a spot increase in the number and the number was cut off on that -- at that time. But that was related to the warehousing loan, and that is the one reason for the increase.

[Masao Muraki, analyst]

Understood. Regarding the first point, just to add to that, last year -- this is Muraki, by the way. Last year, there was a lot of market -- you said that there could be market fluctuations. So you have -- you are controlling your positions very carefully is what you mentioned. But right now, based on the current situation, the mub index is rising. And at the moment, your balance sheet -- are you freely -- letting the business site freely using your balance sheet? Or are you continuing to tighten the grip on the balance sheet?

[Takumi Kitamura, executive]

This is Kitamura. In Q2, and in the beginning of Q3, around October, there was a very irregular movement of the interest rates. And at that time, we controlled our exposure and risk. And compared to that time, the yield curve is becoming more natural. So we are allowing more freedom at the moment. But the market itself is in a difficult state at the moment. So we are not actively taking risk exposure at the moment. But Rates, if you look at the performance in January, the performance was not bad.

[Operator]

[Operator Instructions] Sasaki-san of BofA Securities.

[Futoshi Sasaki, analyst]

Bank of America, Sasaki speaking. I have 2 questions. First of all, in disclosure of assets under management, you carved out individuals -- net inflows of Cash and Securities. What is the actual amount? That's my first question. And next fiscal year forecast. In your plan, in the March 2023 KPI segment profit, JPY 320 billion was the target. The environment is improving. But under the current environment, will there be an upside or downside to the JPY 320 billion target? Those are my 2 questions.

[Takumi Kitamura, executive]

The first question was on the individuals of the net inflows of Cash and Securities. So far, we haven't done any disclosure of that number. And sorry about that. We solicit your understanding. Your question was on next year's target of JPY 320 billion. And will there be a potential for upside or downside? Frankly, it's difficult to do any forecasting at this juncture. Retail is currently in the midst of business transition, and they are or we are very serious about it. So from such perspective, that still work under progress. So frankly speaking, we don't want to unreasonably fit the accelerator. And frankly speaking, we are seeking steadfast [indiscernible] in expanding our franchise and naturally, that should lead to increased revenues as an outcome. On Wholesale, it depends more on the market environment. At cruising speed or under normalized circumstances, quite sound performance will probably be reported. And looking at the results we just announced -- we think we've been able to give you some signs.

Rates business which is one of our true core businesses is going to recover. And if it does, there could be some upside to our original expectations. There is a likelihood -- the question was which way will it go upside or downside?

I can't give you a clear answer, but we will do our best towards the target of JPY 320 billion.

[Futoshi Sasaki, analyst]

I have one follow-up question, if I may. FRTB impact, how do you evaluate? To the extent possible, can you comment on the possible impact?

[Takumi Kitamura, executive]

3 years ago -- sorry, I made a comment previously. And I made a comment in December and our evaluation remains unchanged. But March 23's FRTB, whether it would be introduced as scheduled. We are with great interest monitoring the situation very closely. In Europe, they already began to assume delay already in advance. So far, the U.S. has not announced any commentary. So whether the timing of 2023 is realistic or not, it may not be so realistic.

[Futoshi Sasaki, analyst]

Then what about Japan with alignment of positions in various countries. In the end, how will the FRTB introduction be realized?

[Takumi Kitamura, executive]

This is a point of great interest for us, and we are watching the situation very closely. I know I haven't really directly answered your question. This was only a supplementary comment on that subject, but that's as far as we can say at the moment.

[Operator]

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

[Koichi Niwa, analyst]

This is Niwa from Citi. In Retail and the midterm plan ROE. First, Retail. In the introduction of the level fee, could you share with us what you realized in the trial period? And from April, we will make a full-scale implementation or introduction of the level, what kind of revenue impact are you expecting positive, negative, gross, net. If there are any qualitative items that you can share with us? Some kind of guidance? That will be helpful.

Second, ROE. This overlaps with Sasaki-san question earlier. 8% target you are going -- probably going to achieve is my impression of what you said. And what I would like to ask is 10%, are you going to bring forward the 10% timing? And if that is possible, what is the requirement to do that? For example, if you look at our peers, digital initiatives, accelerating digital strategies or other areas like wealth management or putting in additional costs to gain market share, your peers seem to be quite ambitious and active. But what will Nomura do to bring forward the timing of the ROE target, if possible. And also the valuations, which isn't exactly high at the moment, how are you planning to change that, please?

[Takumi Kitamura, executive]

Thank you. This is Kitamura. First, regarding retail, the level fee which we are planning to introduce. We have already begun trials in some of the branches with some of the customers. And we don't receive the fees per transaction. So it's important to build a partnership with the customer, and we need to be facing the same direction and discuss about -- discuss business. So that's a very big difference from our -- the way we use the business. Improving the satisfaction of our customers, and in order to do that Nomura has to offer better services to customers. So we believe in that sense, the level fee is a very good positive initiative and the feedback so far has been positive. And the level fee itself -- so the higher the client's assets, so clients as a balance, the lower the fee level. So we will finalize how much exactly we're going to charge in terms of level fee. But at the moment it's quite hard to say how much revenue contribution there will be from the level of fee. It's quite hard to calculate at this moment. But in terms of what we want to do, we want to improve the quality of our services to customers and especially improve the satisfaction. That's the objective of this initiative. And if the customers are satisfied, then we will have more client assets or to which number of managers. And in the past, what often happens is customers introducing their friends to Nomura. And we've seen a big strong pickup in those referrals as well. So level fee is part of a bigger initiative of expanding the client franchise, not just the number of accounts, but also the balance per customer is another important metric. And we want to work on various initiatives, including the level fee.

Your second question. So 8% ROE maybe, but what about 10%? And what are the measures to achieve that? In order to achieve the 10% ROE, well, digital strategies and -- we're making investments, strengthening the Wealth Management business. Yes, Nomura is also working on those initiatives. And we are always discussing at the management level about these initiatives. And for example, digital, as you pointed out, Niwa-san, if we make an investment in digital, is that going to immediately lead to a high ROE? Not necessarily. However, and digital can mean various things. But when we say digital, this is something inevitable, and we have to work on digital initiatives. So we'll make sure to keep focusing on digital and investments. We are completely open to making investments if there's a good opportunity including M&A. And meanwhile, we will also be pursuing organic growth in areas where that's possible. For example, IB, Investment Banking in the U.S., very active recently. And this is an area where we would also like to focus on. And of course, we will control the costs and make sure that we generate the revenue that matches the cost that we spend. And recently, the growth of ROE in the U.S. has mainly been driven by the investment banking business. Maybe not all sectors, but we will selectively cover certain sectors in the Investment Banking business. And Wealth Management in Japan, and I think you have a good understanding of what we are doing in International Wealth Management. We have changed the team last year, and the AUM is gradually increasing. We still have a lot of work to do in this area. Maybe a year from now, and hopefully, we will surprise you, Niwa-san, with the progress that we have made in wealth management. We are doing all sorts of things, new initiatives. And it's going to take a little bit more time until that starts showing up in the results. But hopefully, you will watch what we are doing over the sort of the mid- to long term. And there aren't any special initiatives to boost the business, but we are also always thinking of all sorts of options. So hopefully, we will generate the 8% and then the 10% ROE. Sorry for the rather philosophical answer, but that's the -- that's what we think at the moment.

[Operator]

[Operator Instructions] There is no more questions. 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. This is Kitamura. Thank you very much for participating today. The Q3 results, we did not have one-off items. And I think we are starting to see the progress and the results of the efforts that we have been making over the past year, at least partially. And we are focusing on stabilizing our revenues and making effective use of our resources. We are very strongly focused on those initiatives. And stabilizing our revenues is -- once we make more progress in that initiative. I think our valuation will improve and we are hoping for that to happen. And our CEO, Mr. Okuda, has been saying public to private. And we are working on all sorts of strategies. Management is very focused on that. And as -- this is related to the answer to Niwa-san's question earlier, but we are working on all sorts of things at the moment. And we are confident that we are making progress forward. However, what the management has to focus on is the speed of this progress at how to accelerate the speed. And hopefully, we'll be able to show you the results of these efforts as early as possible. And we would like to surprise you of the changes that Nomura has undergone. And the management and the employees, we are all focused on that. So we look forward to your continued support and coverage. Thank you very much for joining today.

[Operator]

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

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