Nomura Holdings Inc

TSE:8604

Earnings Call Analysis

Nomura Reports Growth & Initiates Share Buyback

Nomura Holdings observed a financial rebound with a 9% increase in quarterly net revenue to JPY 400.2 billion and a significant 39% rise in pre-tax income. Net income saw a 43% rise to JPY 50.5 billion. Over the past three quarters, performance has steadily improved, particularly in the retail segment with an 8-year record high pre-tax income. In response to this positive momentum, and with a solid capital base, Nomura launched a share buyback program, signaling an emphasis on raising capital efficiency. Balanced across its international network, the retail and investment management sectors both showed considerable growth, with inflows continuing despite market uncertainties and a strategic focus on expanding stable revenue streams.

Third Quarter Performance and Market Conditions

Nomura Holdings experienced an uplifting quarter with net revenue climbing by 9% to JPY 400.2 billion and income before income taxes soaring 39% to reach JPY 78.7 billion. Significantly, net income also rose by 43%, totaling JPY 50.5 billion. This quarter's performance reflects a recovery from the previous year's trough, driven by improved market conditions, such as deceleration of inflation in the US and anticipation of less aggressive rate hikes. These factors led to stronger equity markets and tighter credit spreads, enhancing the performance of securitized products. The retail segment of Nomura demonstrated strength, particularly in Japan, with sales of insurance products targeting estate planning and retirement hitting record levels. Global markets remained steady overall, with fixed income revenue increasing by 7%.

Strategic Initiatives

To enhance capital efficiency and flexibility, Nomura has initiated a share buyback program with plans to repurchase up to 125 million shares, with a cap of JPY 100 billion on the aggregate repurchase price. The program is a reflection of confidence in the firm's financial position and an effort to optimize shareholder value.

Annual Financial Highlights

Annually, Nomura's net revenue rose 11% to JPY 1,116.9 billion, with income before income taxes witnessing a robust 43% increase. Net income also grew by 28%, contributing to an earnings per share (EPS) of JPY 34.69 and a return on equity (ROE) at 4.5%.

Retail Segment Performance

The retail sector saw a 4% rise in net revenue, amounting to JPY 102.6 billion, marking the best performance in eight years. The company attributes this success to effective reallocation of partners and robust dialogue with clients. The recurring revenue remained solid, matching the previous quarter's record high, benefiting from strong flow revenue and strategic emphasis on this stable income source.

Asset Management and International Business

Assets under management reached a new peak of JPY 78.5 trillion, surpassing the March 2025 target of JPY 75.8 trillion. The asset management and international segments saw a net inflow of JPY 385 billion, with particular interest in yen bond funds, as well as U.S. high-yield bond funds and India equity funds.

Wholesale Business Revival and Cost Efficiency

The Wholesale business experienced a 6% rise in net revenue, totaling JPY 217 billion. Income before income taxes impressively leaped by 178%, resultantly improving the cost to income ratio to 89%. The significant reduction in severance-related expenses also contributed to this efficient cost structure.

Equities and Fixed Income Outlook

While equity net revenue slipped by 8%, the overall forecast for equities remains positive with expectations of stable performance. In contrast, the fixed income sector has faced challenges over the past year, particularly due to heavy dependence on macro products and unfavorable customer flows as a result of rate hikes. However, with rates potentially cresting, and with strategic refreshments to the global market structure, there's optimism for improved revenues from market-making activities.

Risk Management Reinforcement

Nomura holds a firm commitment to risk management—an essential factor for stability and future growth. The company has strengthened its risk control systems across all lines of defense, ensuring that robust safeguards are in place to manage and mitigate risks while still capturing revenue opportunities.

Tax Considerations and Recurring Revenue Targets

Although current tax rates may seem slightly high, technical factors have influenced this state. These rates may decrease slightly if the present trend continues. Furthermore, despite already achieving the March 2025 recurring asset target, the firm aims to further heighten its recurring asset base, indicating a healthy growth agenda and recognition that there's more work ahead to maximize this income stream.

Confidence in Recovery and Ongoing Improvements

Nomura perceives signs of recovery within the Wholesale segment, reinforcing confidence in the business's trajectory—a belief underpinned by the recent share buyback announcement. Nevertheless, with an ROE currently at 6.2%, there is an understanding that continued work is essential to drive further business improvement and optimize returns.

Earnings Call Transcript 2024-Q3

[Operator]

Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Results 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 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 sentiment, liquidity of secondary markets, level and the volatility of interest rates, currency exchange rates, 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. First, I would like to extend my heartfelt condolences to those affected by the Noto Peninsula earthquake and pray for a swift recovery from this disaster.I will now give you an overview of our financial results for the third quarter of the fiscal year ending March 2024 using the document titled Consolidated Results of Operations.Please turn to Page 2. Group net revenue increased 9% quarter-on-quarter to JPY 400.2 billion while income before income taxes grew 39% to JPY 78.7 billion. Net income was up 43% at JPY 50.5 billion. And as you can see on the top right, performance bottomed out in the fourth quarter last year and has continued to improve since.The third quarter proved to be somewhat of an emotional roller coaster for market participants over the possibility of the FRB, moving away from its tightening stance. This, combined with tensions in the Middle East, resulted in elevated volatility in equity markets and heightened uncertainty.Inflation in the U.S. slowed towards the end of the quarter, raising hopes of an exit from the sharp rate hikes over the past 2 years and driving robust performance in equity markets. In fixed income markets, we also started to see a recovery in the issuance of securitized products as interest rates fell and credit spreads tightened.Interest in Japan remained high. Activity picked up among not only institutional investors, but also corporates and individuals over expectations of a monetary policy shift, various actions by corporates to improve capital efficiency and reduce strategic shareholders and investment momentum in the lead up to the introduction of the new NISA scheme.Amid this environment, we play to our strength by fully leveraging our extensive client franchise in Japan and our global network to deliver products, services, and solutions tailored to the needs of our clients. This resulted in strong momentum across our 3 core businesses.Before I go into the details of performance of each business, please take a look at the bottom right, which shows 3 segment income before income taxes of JPY 70.5 billion, up 16% over the last quarter. Our international Wholesale business reported an uptick in client activity towards the end of the quarter and all international regions had a profitable quarter.Diluted earnings per share for the quarter was JPY 16.1 and return on equity was 6.2%. While this represents a positive trend towards improved performance, we are still not where we want to be.With this momentum in performance and given our sufficient capital base, today we resolved to set up a share buyback program in order to raise capital efficiency and secure a flexible capital management policy and to deliver shares on exercise of stock-based compensation. The program will run from February 16 to September 30 and have an upper limit of 125 million shares with the upper limit of the aggregate amount of the repurchase price being JPY 100 billion.On Page 3, update of results for the 9 months to December. Net revenue for the period was JPY 1,116.9 billion, up 11% compared to the same period last year. Income before income taxes increased 43% to JPY 181.8 billion, while net income grew 28% to JPY 109.1 billion. EPS was JPY 34.69 and ROE 4.5%. As shown on the right, 3 segment income before income taxes rose 69% to JPY 159.7 billion. Income before income taxes in Retail jumped 3.5x and Investment Management increased 56%.Now to business performance in the third quarter, starting with Retail on Page 6. All the percentages I mention from this point and beyond refer to changes compared to the second quarter. Retail net revenue increased 4% to JPY 102.6 billion, and income before income taxes was JPY 31.9 billion, marking the highest level in 8 years since July to September quarter 2015.The reallocation of our partners last spring has delivered steady results, and we are starting to see good signs in terms of quality and quantity of our dialogue with clients. As you can see on the bottom left, flow revenue increased 7% to JPY 64 billion, spurred on by strong equity-related revenues due to favorable market conditions and primary transactions such as the offering by Denso.Recurring revenue, an area of strategic focus, was in line with last quarter's record high. Although revenues were up 4%, expenses increased by only 1% and our recurring revenue cost coverage ratio remains high at 55%.Please turn to Page 7 for a breakdown of sales by product. Total sales were down 9% at JPY 4.7 trillion, but remained high and strong. Sales of stocks were JPY 3.1 trillion, substantially higher than the level seen before the first quarter, with this quarter being a notably strong one for primary subscriptions.Insurance sales were at a record high. As we continue to provide consulting for our clients over our portfolio, we are seeing more clients use insurance products for estate planning and retirement funds, which is another benefit from reallocating our partners.Please turn to Page 8 for an update on KPIs. Net flows of recurring revenue, as shown on the top left, was JPY 51.4 billion. This was lower than last quarter as the market rally and rising value products prompted large sales and exit. However, excluding corporate section, net inflows remained high at JPY 151.5 billion.The top right shows recurring revenue assets at a record high of JPY 21 trillion and recurring revenue, which represents stable revenues, remained strong. Flow business client numbers shown on the bottom left were particularly strong this quarter as we saw the benefits of reassigning sales partner and enhanced dialogue with clients on the back of primary transactions. Flow business client numbers at the end of December were trending 15% above the same period last year at [ 1,456,000 ], which is approaching our March 2025 KPI targets.Our business for our salaried employees or workplace business continue to grow steadily. The number of services delivered was approximately driven by growth in ESOP participants.Page 9 for an update on Investment Management. Net revenue decreased 14% to JPY 38.9 billion. Net income before income taxes declined 33% to JPY 15.6 billion. As you see on the bottom left, stable business revenue was JPY 33.3 billion, in line with last quarter, which was a record high since the division was established in April 2021. Investment gain/loss declined to JPY 5.6 billion as American Century Investments related to valuation gain/loss slowed.Please turn to Page 10 for an update on an asset management business, which is the source of business revenue. As shown on the top left, assets under management totaled JPY 78.5 trillion at the end of December, representing a record high for the third straight quarter. This is above our March 2025 KPI target of JPY 75.8 trillion. On the bottom left, net inflows were JPY 330 billion, with the investment trust business reporting JPY 60 billion of outflows. This was due to an increase in sales to lock in profits on the back of the market rally. MRFs and other money market funds reported JPY 70 billion of inflows as individuals parked more idle funds.The investment advisory and international businesses booked inflows of JPY 385 billion. Japan reported inflows into yen bond funds, while internationally, we saw inflows into U.S. high-yield bond funds and India equity funds.Alternative assets managed -- assets under management shown on the bottom right stood at JPY 1.6 trillion, down slightly due to yen appreciation at the end of the quarter. That said, inflows continued and we are making progress with our private market initiatives.Please turn to Page 11 for Wholesale. Net revenue increased 6% to JPY 217 billion. Income before income taxes was JPY 23 billion, up 178%. Performance is improving after having bottomed out in the fourth quarter of last fiscal year. Although bonus provisions increased in line with performance, Wholesale noninterest expenses decreased 1% as severance-related expenses declined and we saw the benefits of cost reductions carried out through to last quarter. As a result, our cost to income ratio dropped to 89%.Please turn to Page 12 for an overview of the results by business line. Global Markets net revenue was roughly flat at JPY 171.6 billion. Fixed income revenues increased 7% to JPY 103.5 billion. As I mentioned earlier, during the first half of the quarter, market participants remained on the sidelines over the uncertainty surrounding monetary policy and geopolitics, but we executed client orders while stringently managing risk.Heading into the second half of the quarter, as we gained clarity on the outlook for interest rates, market participant activity improved and we saw an increase in revenue opportunities. While market conditions weren't easy, we booked stronger revenues across all core products such as Rates, FX and EM, securitized products and credit.Equities net revenue slowed 8% to JPY 68.2 billion. Equity products had a strong quarter in the Americas, but revenues were lower in Japan and AEJ on muted volatility and client activity.Execution Services continued to deliver solid performance in Japan, while contributions from primary transactions and higher trading volumes on the back of heightened interest in Japanese equities from domestic and foreign institutional investors.Please turn to Page 13 for Investment Management, Investment Banking results. Net revenue was JPY 45.4 billion, up 36% and driven by strong performance in Japan and EMEA. This represents the best quarter since the first fiscal year ended March 2017 when comparisons are possible.As shown on the left, advisory and financing and solutions, both reported revenue growth. In advisory, we topped the 2023 M&A league table, supporting numerous transactions including management buyouts of Benesse Holdings and Outsourcing and Bain Capital's sale of its stake in Nichii Holdings to Nippon Life Insurance.In financing transactions, we supported the efforts of corporates to strengthen their corporate governance through deals such as a large offering by Denso and an international offering by Asahi Group.We provided a diverse range of solutions for issuers, taking up the challenges of structuring new fundraising methods such as bond-type class shares issued by SoftBank and digitally tracked green bond issued by Hitachi.Please turn to Page 14 for an overview of noninterest expenses. Groupwide expenses increased 3% to JPY 321.5 billion. Compensation and benefits increased 2% to JPY 170.6 billion. Although severance-related expenses declined, the increase is due to yen depreciation and higher bonus provisions in line with improved performance.Please turn to Page 14 for an overview of our financial position. Tier 1 capital shown on the table on the bottom left was JPY 3.4 trillion. Risk-weighted assets were JPY 18.4 trillion. Our Tier 1 capital ratio was 18.3%, and we had a common equity Tier 1 ratio, capital ratio of 16.2%, underscoring that we continue to maintain a robust financial position.That concludes the overview of our third quarter results.To sum up, spurred on by structural changes in the Japanese market, in the third quarter we are able -- we were able to deliver steady results by leveraging our strength centered on our home market and the strategic initiatives we have been implementing.Retail had its best set of results in 8 years and investment banking revenues were at record levels as we provided the right range of support for various corporate actions by Japanese companies.[Indiscernible] has continued to rally into 2024 and we get a real sense that the new NISA scheme has been a catalyst to kick start a full-fledged shift from savings to asset formation. In just 3 weeks to last week, we saw NISA sales at over 1/3 of annual sales for 2023.We expect Japanese corporates to step up efforts to enhance their corporate governance and raise capital efficiency and many corporates are seeking advice. Factoring in expectations of policy action by the Bank of Japan, we expect to see a good momentum of our Japan business continue.Our international business, in particular, Macro Products, has had a tough time due to monetary tightening over the past 2 years. However, as interest rate finally peak out, we started to see signs of improvement towards the end of the quarter. In 2024, as market participants idle funds and pent-up demand takes off, we expect this positive trend to continue, albeit with different intensity in each region.In January, Retail revenues have remained around similar levels to the third quarter, while Wholesale revenues are outpacing the third quarter driven by solid performance in rates in the Americas and equity derivatives in each region. When tailwinds are behind us in both Japan and overseas, it is a good time to tackle long-term issues. In order to build a business platform capable of achieving sustainable growth, we will expand our risk-light businesses and create a structure for consistent revenues while taking steps to further improve our ROE.Thank you.

[Operator]

[Operator Instructions] The first question is by SMBC Nikko Securities, [ Muraki-San ].

[Masao Muraki, analyst]

I'm Muraki, SMBC Nikko. I have 2 questions. Page 13, investment banking for Japan. In the presentation, you mentioned the Denso, Asahi deals. These are deals that are related to strategic holdings and Denso was deal to the least and make it nonpublic. Can you describe the mid-term potential fee pool of these deals and the revenues that you are expecting in the mid to long run?And of course, in the case of Denso, there are various stakeholders and interested parties. So it took time for you to structure the deal. But if you have more of these deals in the fourth quarter or first quarter, do you think that you will be able to sustain such high level of revenues through reference? And what is the structural demand? And for the time being, what's the pipeline? Do you think the pipeline is enough to sustain this level of revenue? That's my first question.Second, Page 15, capital policy. About 3, finalization impact, which you had disclosed most recently, JPY 700 billion of capital buffer exists. But why at this timing of quarter 3 gross, this is gross prior to stock option offsetting. And why did you decide on that? If you think about the stock option, is this within the profit level? It could have been set at a higher level. So why at this timing? And what kind of discussion has taken place in order to decide on this ceiling amount?

[Takumi Kitamura, executive]

Thank you very much. First of all, on the IB pipeline, in Japan and some other regions, we think that there will be deals. As the backdrop, there's a requirement for governance reform. In other words, top management of corporates are beginning to think more seriously about governance. So the funds that used to be affiliated with strategic holdings can be freed up for more strategic investment for growth. On the other hand, there could be MBOs in order to step down from the market. That kind of action is being taken by corporates, and we think that this will be a continued trend.You specifically mentioned the Denso deal. Reduction of such policy holdings further the delisting of parent and subsidiary, we think that this kind of trend will continue. Quarter after quarter, will there be constant flow of these deals? Of course, there could be uncertainties, but such kind of strategic holdings, it's estimated at JPY 50 trillion, JPY 60 trillion. So in order to free up those holdings, we think that we will likely see continuation of these transactions.Secondly, Basel III impact at the CEO Forum, we said that -- we think that we have a sufficient buffer. And why at this timing, we wanted to secure flexibility as we have been saying. But strategic policy to date and in third quarter, we were encouraged by the performance. So those are the biggest factors that we decided to do this resolution at this particular timing.We are a financial institution, and we have various corporate-related information. So we cannot just arbitrarily set up such buyback scheme. There was a window of opportunity at this timing, and that's one of the reasons why we made a decision.JPY 100 billion, is that high or no? I think that it's an appropriate level. The business side hasn't used up its capital. And as mentioned by Muraki-San, there could be more. We will, however, look at business opportunities and opportunities for growth and JPY 100 billion was the level that we decided upon to strike a balance between those requirements.

[Masao Muraki, analyst]

Related to the first question, you mentioned governance, but what's numerous policy? This hasn't really impacted the bottom line, but the sales proceeds of the strategic holdings is there, you offset that with the unrealized losses, but you've sold many of your policy holdings, but what's the strategy, which stocks did you sell? And what about listed group companies? Are you continuing your discussions on what to do with those holdings?

[Takumi Kitamura, executive]

Thank you very much. In our case, as you have mentioned, realized gains and losses and unrealized gains and losses are offset. So it's a fact that we have sold some holdings, but we will refrain from disclosing the names. In June, the securities report will be published. So you will know that we have sold some of our holdings.Our strategic holdings, regarding sales, since a few years ago, we have been engaged very seriously. On a regular basis, we are monitoring the purpose of those holdings. And we have been engaged in measures to reduce the amount. This major policy hasn't changed. And because of the rally in the stock price, the amount outstanding may have not gone down, but the number of names has decreased.Against Tier 1 capital, the ratio is currently 2.7%. It's as low as 2.7% already. And this isn't the end point. We are going to reduce the number of names, and we've made that commitment publicly. And I don't intend to talk about our peers, but as a financial institution in terms of sales of strategic holdings, we are one of the financial institutions that are doing this very actively.

[Masao Muraki, analyst]

So you will continue to discuss your holdings in listed companies?

[Takumi Kitamura, executive]

Yes, of course.

[Operator]

The next question comes from [ Okasan ] from SBI Securities.

[Unknown Analyst]

I'm Okasan from SBI Securities. I have 2 questions, but could you answer each of my question one by one. Okay. Read first, retail, division's, numbers, could you teach me how to understand the numbers, Page 6 and 7. In the third quarter, in Page 7, total sales number seems to have come down. But Page 6, revenue has increased. So there may be -- I want to know the mix of various elements there.And also in Page 6 plus JPY 1.2 trillion. But the net increase of investment trust or Page 8, recurring asset net increase. But looking at the net inflow of cash and securities, I would have expected a bigger increase. But in the fourth quarter, is there going to be more net inflow for net inflows of cash and securities. That's my first question.

[Takumi Kitamura, executive]

The total sales come down. However, the numbers are looking robust, why is it? In the third quarter, many products were handled, secondary buying activities were small. But in the primary area, primary products more than offset the weakness in the secondary area.And the second question about the pace of increase in net inflows of cash and securities, JPY 1.2 trillion of increase. Of course, this is not just as a result of buying activities, but the deposit of equity or stock certificates. So that's involved. So it's difficult to do the matching perfectly. So for example, our sales partners who visit our clients and to build trust, they are working on such activities. But sometimes that results in immediate buying activities, but sometimes clients' assets in the form of equity or stock certificate, we receive the deposit of certificate sometimes. So in that sense, there isn't a perfect linkage to buying activities by customers.And regarding the recurring asset net inflow, that's not included in the stock certificates. So as you say, it's difficult to see consistency among different numbers.Okay. Then a qualitative question. including net inflows of cash and securities, the number is positive. Then moving forward, this is a tailwind for the business. Is it the right way to understand it? Increase in net cash and securities, it is a positive thing for us. If we just received deposit [Technical Difficulty] it doesn't automatically create revenue, but this is likely to result in the next action. So is it negative or positive? It's definitely positive for us.

[Unknown Analyst]

My second question, Page 12, Wholesales, GM the revenue. As you explained, it hit the bottom, I understand. But the absolute level, how should I understand the absolute level. So FY EQ combined JPY 271 billion, it's not bad. But could you comment on whether there is further room for growth in terms of outlook?

[Takumi Kitamura, executive]

Page 12. If you look at the numbers, equities are stable, though there are ups and downs, but relatively stable. But equities are expected to show solid performance. The challenge is with fixed income. The last 1 year, we struggled with fixed income. As you know, Okasan, our core products are limited, especially our dependence on macro products is heavy. And the biggest revenue driver is rates effects. But with many countries conducting unprecedented rate hikes, customer flows have been weak. And all of our positions that we managed didn't work well. As a result, we couldn't generate revenue the last 1 year.But from here, of course, we cannot be overly optimistic about the interest rate hikes seem to have peaked out already. In that sense, business environment compared to last year, all in all seems to be favorable. And our global market structure has been refreshments and strengthened. So we'd like to capture customers' needs and by making -- through market-making activities, we'd like to monetize clients' needs. And you evaluated third quarter is not bad, rather good, but there is more room for us to deliver more results.

[Unknown Analyst]

Regarding fixed income, what is the outlook for Japan? It could depend on the actions by the BOJ, but what is your outlook for Japan?

[Takumi Kitamura, executive]

Our firm view is that in April, yield curve control and minus negative interest rate will be eliminated. That's our view. But towards the normalization of interest rates, the market participants are paying attention to that. And that compared to several years ago, the situation is a lot more favorable and people have their anticipations of various sorts towards the market, and that is not bad for us as a business environment.

[Operator]

The next question is by BofA Securities, [indiscernible].

[Unknown Analyst]

[indiscernible], Bank of America. I have 2 questions. First of all, Wholesale cost to income, there has been a drastic improvement and especially in the quarter that ended, overseas was a driver and cost control was successful. Is that sustainable in Q4 and the next fiscal year? What is the prospect regarding the compensation, personnel expenses?And Page 18, value-add risk. This is a detailed question. Interest-related VAR is becoming smaller. Based upon the change in interest rate ecosystem, do you have a robust system in place for risk control?

[Takumi Kitamura, executive]

Thank you very much. Wholesale cost income ratio has come down quite significantly. Yes, that is a fact, as you know. And at the second quarter financial results presentation, I said that even if we do head count reduction, that's not reflected immediately in the personnel expenses. The reason why in Q2 cost was high, there was double count in terms of headcount reduction costs and salary paid to those who are still remaining. And I said that the benefit will begin to be reflected from Q3, according to my recollection. And that impact is coming into play. And we are constantly reviewing the headcount. And in Q4 and in the quarters to follow, we will continue various structural reform measures are in place. It's gone down to 89%, but it still is a high level, so we will continue our efforts in this area.And in VAR, generally speaking, trading position is somewhat controlled. End of December, VAR same level as the previous quarter, we were waiting for the market environment to become more stable. And we want to capture business opportunities but your question was whether we have a robust risk control system. The answer is yes.A few years ago, there was a little -- it wasn't a minor event. It was a major event. But since that event, we have been conducting corporate-wide efforts to strengthen our risk management system. That's been ongoing for a few years. First line of defense, second line of defense, we have put in place such robust risk control system. We have started a project to reinforce our risk control, and it's already in BAU. So while risk control is in place, we will also gain revenues. So we will continue our measures in risk control as we continue to increase our revenues.

[Operator]

[Operator Instructions]

[Kazuki Watanabe, analyst]

I'm Watanabe from Daiwa Securities. I have 2 questions. First, Page 12. Fixed income monthly revenue trend in the second quarter telephone conference, your understanding was that you are expecting a tough time, but what was the situation in the December quarter and spread product seems to be improving on a year-on-year basis, so what was the reason behind it.My second question, Page 11, Wholesale cost-related question. At the investment forum, the division cost run rate of JPY 5.1 billion was announced, but what's the run rate cost for the third quarter and also macro products and outlook is improving. Is it possible for you to unchange your outlook? So those are my 2 questions.

[Takumi Kitamura, executive]

First question, fixed income monthly revenue trend. In October, it was a tough month, a bit more than 20%. And November, December, about 40%. So end of second quarter, the telephone conference, I said, we anticipate a struggle, but yes, we faced a difficult situation as the number show. And for us for spread products, as you said, the spread product is improving, especially credit business continuously the spread is tightening and in this situation, the business is performing solidly. One of the revenue drivers is securitized products. The market has come back and the number of reissuance of bonds is increasing. So finally, the market started to move, especially in December due to the increase in bond issuances secondary trading was boosted. So the recovery there contributed.And Wholesale cost no matter where the revenue level lies. Naturally, when revenue goes up, variable cost changes as well. But we are continuing with cost control without feeling complacent through structural reform and so on. We are separating fixed costs, while we cannot help increase in variable cost. But through cost control initiatives, we are looking to reduce cost base, and that effort will continue.

[Kazuki Watanabe, analyst]

Second question. Q3 cost run rate, do you have a quantitative information you can share with me? And back to the first question, the interest rate level is high in the U.S.A., but are you seeing the return of activities?

[Takumi Kitamura, executive]

Yes, we -- our understanding is the activities are starting to return. Overall, the last 1-year market was frozen. So whether it is a full fledged recovery, we are not there yet. But in the sense of outlook, the outlook is getting brighter. Also run rate in the third quarter, at the CEO Forum, we mentioned the number, but in the sense of the run rate wise, there is no change.

[Operator]

The next question is by [ Niwa-San ] of Citigroup Securities.

[Koichi Niwa, analyst]

Citigroup Securities. This is Niwa speaking. Can you hear my voice?

[Takumi Kitamura, executive]

Yes.

[Koichi Niwa, analyst]

Domestic retail and tax rate for Japan retail activity, 3 segments: wealth management, corporate owners, high net worth and mass affiliate -- mass affluent. What was the situation in the third quarter? Has there been any change? And what are some of the actions triggered by the new NISA scheme? That's my first question.Secondly, this is a small point, but tax rate. All the international regions were profitable. I thought that it would go down according to my calculation. If this situation continues, how should we interpret the tax rate applied for Q4 and the quarters to follow?

[Takumi Kitamura, executive]

Thank you very much. For Japan retail, we were strong in all areas, wealth management, mass affluent, high net worth, we were strong. Especially we did well in high net worth. And since the beginning of this month, this trend has followed on. We allocated -- we assigned partners to high net worth, so we were quite strong. Not to say that we were not as strong in mass affluent, we did well in mass affluent as well. But -- and then on NISA related business, we are not only focusing on NISA, but the client's interest is heightening. We feel that from their reaction.Using NISA in just 3 weeks, last years 1/3 is the progress rate in terms of sales. So client sentiment is very warm heating up, but while we will make use of NISA schemed, our objective is our clients increasing financial assets. That's the most important mission. So portfolio, allocation, equity, fixed income, distributed investment have long-term targets as they manage their investment. And if they experience successes that would lead to the next business opportunity, we're not just trying to increase the number of accounts. That is not our goal, JPY 3.6 million is quite an amount. We hope that they make use and detailed tailor-made consulting will be provided to our clients, which is our strength.And tax rate, it may appear to be high slightly. There are a few technical factors behind, which simultaneously occurred. So if this trend continues, the tax rate may come down slightly.

[Koichi Niwa, analyst]

I have a follow-up question. Recurring asset for Japan retail target in March 2025, JPY 21.6 trillion, I believe was your target. Haven't you already reached that level? Or is it because of the increase in stock price? What is your forecast?

[Takumi Kitamura, executive]

The recurring revenue coverage -- expense coverage is 55%. We want to further elevate this ratio. But in order to do that, recurring asset outstanding will have to be increased. That's not the only factor behind the recurring revenue, but it is a very important component. So we want to further increase recurring asset. At the CEO forum, we said that it's at 55%. We want to raise this to 80%, which means that it is indispensable for us to increase recurring assets.

[Koichi Niwa, analyst]

Thank you very much. That gives me more nuance.

[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 the telephone conference, and we received various questions. But the last 1 year, we struggled and now Wholesale is seeing a sign of recovery, so towards the improvement. So we feel a real sense of improvement, and we have capital buffer here. So this time we've announced the buyback. Without a doubt, in the background is our confidence on recovery of business. Still 6.2% is our ROE level, so there is more work to be done. As company-wide efforts, we would like to make efforts to improve our business. Thank you for your continued attention. Thank you.

[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.]