Nomura Holdings Inc

TSE:8604

Earnings Call Transcript 2018-Q4

[Operator]

Good day, everyone, and welcome to today's Nomura Holdings Fourth Quarter and Full Year Operating Results for Fiscal Year Ended March 2018 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 these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions.

With that, we'd like to begin the conference. Mr. Takumi Kitamura, Chief Financial Officer, please go ahead.

[Takumi Kitamura, executive]

This is Takumi Kitamura, CFO. I will now give you an overview of our results for the year ended March 2018. Please turn to Page 2.

First, the highlights for the full year. The year started off slowly amid concerns over heightened geopolitical risks, but the market gradually returned to risk-taking mode in May as the elections in France turned out as expected and the Japanese and U.S. economies performed solidly.

In October, the Dow hit a record high and the Nikkei recorded 16 straight days of gains. Heading into 2018, the market continued to rally as the outlook for corporate earnings remained bullish and the Nikkei topped the JPY 24,000 mark at one point.

Market participant activity in the fixed income market remained extremely weak throughout 2017 amid record low levels of volatility in interest rates and other areas. Against this backdrop, we reported a 7% increase in full year net revenue to JPY 1,497,000,000,000. Income before income taxes rose 2% to JPY 328.2 billion.

In retail, market tailwinds helped lift sales of stocks and investment trusts, and income before income taxes jumped by nearly 40% compared to the previous year. In Asset Management, we continued to see growth in assets under management and profitability improved. Contributions from American Century Investments also helped drive income before income taxes to a record high.

In Wholesale, Equities and Investment Banking reported higher revenues while Fixed Income booked lower income before income taxes. In the fourth quarter, we set aside provisions of over JPY 30 billion in the Americas related to legacy transactions, which impacted our international performance, resulting in an increase in our effective tax rate from 25% last year to 32%. As a result, net income for the year was JPY 219.3 billion, a decrease of 8% year-on-year.

ROE was 7.9% and EPS was JPY 61.88.

In terms of shareholder returns, we will pay a half year dividend of JPY 11 per share to shareholders of record as of the end of March. That brings our annual dividend per share to JPY 20, giving a dividend payout ratio of 32%. In order to raise capital efficiency, ensure a flexible capital management policy and to acquire treasury stock to grant as shares for equity compensation, today, we also approved a resolution to set up a share buyback program with an upper limit of 100 million shares and an aggregate repurchase price of JPY 70 billion. The program will run from May 16, 2018, to March 29, 2019.

Today, we also revised our shareholder return policy to clarify our stance on shareholder returns.

Previously, we determined dividend payments by using a consolidated dividend payout ratio of 30% as a key indicator based on our consolidated performance for each half year period and taking into account the regulatory environment. We have now specified that we will combine our dividend policy and shareholder returns from share buybacks to give a total shareholder rate return ratio of over 50%.

Please turn to Page 3 for highlights of our fourth quarter performance. The graph on the bottom right shows 3 segment income before income taxes of JPY 76.9 billion. The blue bar shows Wholesale, which reported a strong uplift in earnings in the fourth quarter. As a result of this, income before income taxes increased 16% compared to last quarter.

Turning to the graph on the top right, firm-wide income before income taxes declined 61% to JPY 46.9 billion. The decline is the result of 2 factors booked in segment Other. The JPY 30 billion plus for provisions related to legacy transactions, I already mentioned earlier, and the fact that last quarter included an approximately JPY 45 billion gain from FX adjustments related to progress in winding up our booking entity in EMEA.

Net income for the quarter declined 74% to JPY 22.7 billion.

Please turn to Page 6 for an overview of results in each business starting with Retail. First, the full year. Net revenue increased 10% year-on-year to JPY 412.9 billion and income before income taxes grew 38% to JPY 103.1 billion. As the Nikkei climbed towards JPY 24,000, investor sentiment improved, leading to an uptick in sales of stocks and investment trusts.

Our focus on generating recurring revenue meant this has grown by over JPY 10 billion during the past year. However, in the fourth quarter, net revenue declined 12% to JPY 98.2 billion.

Momentum from the third quarter continued into mid-February when rate hikes in the U.S., yen appreciation and other factors started to weigh on the stock market. A slowdown in sales of stocks and investment trusts was particularly evident in March.

While we contained costs, in particular, personnel costs, income before income taxes declined 32% from last quarter to JPY 21.4 billion.

Please turn to Page 7. As you can see on the bottom right, investment trust net inflows were JPY 114 billion, driven by inflows into funds that invest in growth areas such as robotics and Indian equities as well as the Nomura target income fund, which is suited to building assets over the medium to long term. Although down from last quarter, net inflows into discretionary investments stood at JPY 58.8 billion.

The top left shows annualized recurring revenue of JPY 90 billion and an increase in the recurring revenue cost coverage ratio to 29%.

Please turn to Page 8 for Asset Management. Full year net revenue increased 28% to JPY 127.3 billion. Income before income taxes was JPY 66.2 billion, a record high since April 2001. We booked inflows of JPY 3.3 trillion throughout the year driven by ETFs, investment trusts for discretionary investments and the Investment Advisory business. As of the end of March, assets under management were JPY 50 trillion, up JPY 5.6 trillion from March last year. Gains related to American Century Investments, or ACI, also contributed to revenues this year.

Fourth quarter net revenue was JPY 27.3 billion, down 25% quarter-on-quarter, while income before income taxes was JPY 11.3 billion, down 46%.

This quarter also included contributions from ACI, but this was lower compared to last quarter. Excluding gains related to ACI, our underlying investment management business remained firm.

Please turn to Page 9. As shown on the top left, investment trusts and the Investment Advisory business continued to book inflows in the fourth quarter. As the graph on the bottom left shows in the investment trust business, ETFs reported inflows of about JPY 1.7 trillion. As a result, Nomura Asset Management's share of the public investment trust market climbed to 27.4% as shown on the top right.

Please turn to Page 10 for Wholesale. First, the full year. Net revenue was JPY 715.3 billion. Fixed Income faced historically low volatility and subdued activity from market participants, which pushed down net revenue, particularly in rates products. But revenues in Equities and Investment Banking were up and Wholesale net revenue only declined 3% year-on-year.

Cost increased 6% mainly due to higher commissions and flow of brokerage as a result of higher trading volume in the Equities business. Also, because we had a good year in the previous year, we granted higher deferred compensation based on performance for that year, which drove up expenses booked for the full year. As a result, income before income taxes declined 38% to JPY 100.6 billion.

For the fourth quarter, net revenue was JPY 211.4 billion, up 28% quarter-on-quarter and income before income taxes more than tripled to JPY 44.2 billion. Fixed Income, Equities and Investment Banking all reported stronger revenues this quarter.

As the bottom shows, all 3 international regions reported higher revenues quarter-on-quarter.

Turning now to each business line, please look at Page 11 for Global Markets. Net revenue increased 31% quarter-on-quarter to JPY 182.9 billion. Fixed Income net revenue increased 25% to JPY 98.8 billion. Volatility returned to the U.S. rates market and revenue growth was driven by emerging markets, rates and credit.

As the heat map on the top right shows, only Japan is pointing down which is due to the weaker performance in G10, ForEx and credit. All 3 international regions delivered solid revenue growth.

Equities net revenue increased 38% to JPY 84.1 billion, representing a very strong fourth quarter. As shown on the top right, all regions except EMEA reported stronger revenues quarter-on-quarter. In Japan and the Americas, derivatives had a strong quarter, and cash equities remained solid. Asia ex Japan reported higher revenues as the unrealized loss for a margin loan booked last quarter was not present this quarter.

Please turn to Page 12 for investment banking. As shown on the top left, net revenue was JPY 28.5 billion, the strongest in 9 quarters. Gross revenues, which represents revenues before allocation to other businesses, climbed 32% to JPY 51.4 billion. In Japan, revenue contributions from M&A declined leading to lower net revenue. In ECM, revenue contributions came to the Solutions business such as equity financing that allows funds to be raised over a certain period while limiting equity dilution and block trades. DCM revenues also grew steadily.

We topped the Japan ECM and Japan-related M&A league tables for the 12 months to March 2018. Internationally, DCM and M&A-related financing contributed to revenues.

As shown here on the right-hand side, full year gross revenue increased 7% to JPY 179.1 billion. Closer global collaboration helped us win many cross-border mandates resulting in the strongest revenue contribution for the Americas and AEJ since April 2009.

Please turn to Page 13 for an overview of expenses. Full year firm-wide expenses increased 8% year-on-year to JPY 1,168,800,000,000. For compensation and benefits, bonus provisions increased due to higher deferred compensation expenses in Wholesale and revenue growth in Retail and Asset Management.

Non-personnel expenses increased by 9%. This is due to higher commissions and floor brokerage on stronger trading volumes in the Equities business and an increase in information processing and communications due to system integration costs and other factors. The JPY 30 billion plus provisions for legacy transactions I mentioned earlier are included in other expenses shown at the bottom.

Firm-wide expenses for the fourth quarter increased 16% to JPY 331.1 billion. Higher bonus provisions, particularly in Wholesale, which reported strong revenue growth and provisions booked in Other were the driving factors behind this increase.

Please turn to Page 14 for an overview of our financial position. Our balance sheet at the end of March was JPY 40.6 trillion, down JPY 3.9 trillion from JPY 44.5 trillion at the end of December. This is due to a decline in trading-related assets and yen appreciation.

In terms of regulatory capital, as shown on the bottom left, Tier 1 capital was JPY 2.7 trillion, a decline of about JPY 80 billion from December. This -- the factors behind this are the dividend payment, which was determined; and lower ForEx transactions because of the stronger yen. Risk assets increased by JPY 100 billion to JPY 15.1 trillion. Although credit risk declined, market risk increased on the back of higher volatility in Equities and rates. As a result, our Tier 1 ratio at the end of March was 17.6% and our common equity Tier 1 ratio was 16.5%.

Leverage ratio was 4.73% and liquidity coverage ratio was 153.6%.

That concludes the overview of our fourth quarter financial results. To conclude, I would say that this year's results were clouded by a number of one-off factors that affected our group performance, such as the significant positive factors booked in the third quarter and the provisions booked in the U.S. in the fourth quarter. That said, our core business continued to perform well overall with some deviation by quarter.

This month, market participants are increasingly in wait-and-see mode due to uncertainties surrounding monetary policy and geopolitical risks. Our Retail and Wholesale businesses have both gotten off a slightly slow start to the year.

[Operator]

[Operator Instructions] The first question is from Mr. Masao Muraki of Deutsche securities.

[Masao Muraki, analyst]

This is Muraki. First, I'd like to ask about the Retail division and also like to ask about the capital policy. In terms of the Retail business, on Page 6 and Page 7, in terms of the revenues on a quarter-on-quarter basis, it was somewhat weak. And compared to the market environment, Nomura's performance seems somewhat subdued. So could you talk about any changes, if any, that you made to the Retail business strategy based on the market -- current market environment? In terms of the net increase in assets at the bottom of Page 7, early on in the year, you were struggling, but you seem to have picked up in the pace of inflows. So again, any change in what you have been doing? My second point is regarding the capital policy. This time, you are saying 50% or higher of the total payout ratio as a new policy. And in terms of how you calculate this, for the year ended March 2018, the amount of share buybacks that you announced, JPY 70 billion, is this fully included in the calculation? So are you assuming to about -- just for the back-of-the-envelope calculation, I have come up with about 98%. But is that the right way to think about it to calculate the amount and the timing?

[Takumi Kitamura, executive]

Thank you. This is Kitamura. Regarding your first point about the Retail revenues, and your point was that the earnings or revenue seems to be somewhat weak. Well, if you look at Page 6, in terms of the sales, the trend has been positive quarter-by-quarter. Things have been improving. Every quarter, things have been improving. So the trend is extremely positive. Meanwhile, the revenues in Q4 was somewhat weak. This was due to the sales by customers slowing down. And we receive fees for both sales and purchases by customers. And as the share price rose, there was a lot of pressure from customers who wanted to sell their positions. And that led to -- that contributed to our earnings. But in Q4, the sales of -- by customers slowed down. Meanwhile, they continued to make purchases, and that's why that led to a net increase or net inflow of discretionary investments. And in terms of your question about whether there have been any changes to our strategy, business strategy, no, there have not been any changes. We are continuing to focus on our clients' needs, and this strategy remains unchanged. Over the past few years, we have been focusing on consulting sales and shifting our focus to consulting sales. And we want to continue further in this direction and deepen our relationship with our customers. Your second point regarding the capital strategy and the percentages for the ratios, in the first half or after the first half, we conducted the buybacks for this fiscal year. And on a full year basis -- we are doing the calculations on a full year basis. And if you -- we come up with a figure of about 85%, if you include the stock compensation portion. And in terms of the breakdown between the stock compensation and the [ peer ] share buybacks, we don't disclose the breakdown. But if you include the stock compensation portion, the ratio is about 85%. So if you exclude the stock compensation, the ratio is a bit lower. I hope I'm answering your question.

[Masao Muraki, analyst]

Muraki again. Yes, thank you. So does that mean that the stock compensation portion, if you deduct that, let's say that's 10 or more than 10 percentage points. So the total payout ratio of 50%, does that factor in the stock compensation portion or not?

[Takumi Kitamura, executive]

The 50%, whether that includes the stock compensation portion to employees. Is that your question?

[Masao Muraki, analyst]

This is Muraki again. Yes, let's say the stock compensation portion is about 15%. So does the total payout ratio, if it's included in the 50% -- is it included in the 50% or if you -- should we add on the 15% to come up with the 65%?

[Takumi Kitamura, executive]

This is Kitamura. We have not clarified that in the policy. But we are using 50% at the lower limit, including the stock compensation portion.

[Masao Muraki, analyst]

This is Muraki, again. Regarding your capital policy, a follow-up question. The CET1 ratio declined quite a lot in the past year. And on a net basis, the payout ratio was 80-something percent. The FSA has designated Nomura as SIB together with the 3 megabanks. So with this tightening of regulations domestically, do you still think it's okay to lower your capital ratio somewhat?

[Takumi Kitamura, executive]

This is Kitamura. Well, the reason for the slight decline was because of the yen appreciation. That was the main factor. And as you know, in the middle of this month, the FSA has said that Nomura will be subject to TLAC regulations. And in terms of the total payout ratio of 50%, when we came up with that figure, we have factored in TLAC and other regulatory -- other outlook on the regulatory environment. So based on complying with the various regulatory restrictions, we will continue to focus on shareholder return. I believe we are clarifying our stance.

[Operator]

The next question is by Watanabe-san of Daiwa Securities.

[Kazuki Watanabe, analyst]

This is Watanabe of Daiwa. I have 2 questions. First of all, Global Markets, fixed and equity revenues, the percentage of trading in customer flow, and it's been 4 months since the introduction of MiFID II. What has been the impact? That's the first question. And secondly, provisioning in the Americas. How much was the nature of it? And is this risk completely resolved with the provisioning? Those are the 2 big questions.

[Takumi Kitamura, executive]

Thank you very much. On your first question, fixed and equity, client flow and the trading breakdown, fourth quarter fixed income client flow, 70%, mid-70s; and trading volume, mid-20s. Equity, customer flow, slightly over 70%; and trading revenue, slightly less than 30%. MiFID II impact, 2nd of January or was it the 3rd, MiFID II had come into force. Like our peers, the introduction in itself went on quite smoothly. And has there been any impact? I cannot give you any quantified impact from my perspective or I haven't actually witnessed such obvious impact. There are some MiFID II customers. With some customers, we've reached some agreements and there are some customers with whom we are continuing to discuss the matter. But generally speaking, we think the introduction was quite smooth. Will there be any impact to the market or to our bottom line? At this juncture, we believe that it is still premature to come to a conclusion on the degree of impact. But as we have been seeing previously, EMEA equity research sales, they've already withdrawn from European equity. So the impact will be relatively small in comparison to our peers. On your second question with regards to the provisioning in the Americas, I must apologize that at this juncture, we would like to refrain from making any specific comments. At the most appropriate timing sometime in the future, we hope to disclose when we can, including the amount as well. Because of the accounting standards, there's a probability of loss being incurred. And also based upon the accounting standard and estimation, provisioning is being done. And that's all I can say at this juncture.

[Kazuki Watanabe, analyst]

I have a follow-up question on the first one with regards to the equity. Proprietary position and trading revenue seems to be large. What kind of product -- what happened? Was the backdrop due to this big contribution.

[Takumi Kitamura, executive]

This is Kitamura speaking. Derivative position -- equity derivatives position grew quite significantly. You must know this well, but in the United States equities, there was tentatively rise in volatility, which led to an increase in customer flow. And that is one of the factors behind. Talking about the U.S. flow derivatives, Q4, record high market share, most likely January and February, there was quite high volatility in the market and we were able to capture the customers at those timings.

[Operator]

Next question is Mr. [ Luee ] from Guoco Management.

[Unknown Analyst]

Kitamura-san, I have a question on Page 24 of your PowerPoint. There is on the Retail related data and the stock trading commission was down 14.6% in the March quarter versus the December quarter. And I think the Tokyo Stock Exchange data show that there was an increase in trading value from the December quarter to the March quarter. Could you shed some light on why there's a discrepancy between the stock brokerage commission revenue and the market data from the Tokyo Stock Exchange? That's my first question.

[Takumi Kitamura, executive]

David, you asked me why our number has come to 21.7 from 26 and 25.4.

[Unknown Analyst]

Yes, negative 14.6%, whereas Tokyo Stock Exchange show that the trading volume actually increased.

[Takumi Kitamura, executive]

As I already explained to Muraki-san's question, this quarter, the selling pressure reduced compared with third quarter. So we only buy or purchase or sell which direction we can get brokerage commission. But in this quarter, as I mentioned, selling pressure was weak than the third quarter. That impacted our brokerage commission.

[Unknown Analyst]

Is it fair to say, Kitamura-san, that maybe Nomura's market share declined a little bit in the March quarter versus last year's December quarter?

[Takumi Kitamura, executive]

Sorry, I don't have any detailed number of the market share. Maybe you must be -- you must have a number. So sorry, I cannot answer your question right now.

[Unknown Analyst]

Yes. Well, I guess I was just looking at the trading volume for the market actually increased and your stock brokerage commission decreased. So I thought that the market share probably declined. Anyway, could you shed some light on the April, the month of April so far? Was it as bad as the second half of the March quarter as you described earlier when the Retail trading was affected by market conditions? Did it continue at a subdued level in the month of April or you saw some signs of rebound so far in the June quarter?

[Takumi Kitamura, executive]

So as I already mentioned that in April, our Retail business is slow, honestly speaking. But we can find and some good phenomena recently. And there are significantly reduced from overseas investors feeling pressure recently. And Nikkei 225 did come back to the JPY 22,000. Many investor expected a bottom line of our profit of a Japanese company. So I already mentioned April started slow, but we anticipate a negative trend will come down. I cannot expect about the future, but we found some good phenomena or trend.

[Unknown Analyst]

Okay. And my last question is on the provision in the U.S., and I know that you don't want to say too much about that right now. This is the legacy transaction provision. Was it a big surprise to the company? Do you think that you would be able to make a provision for the whole issue? Or do you think this could stretch into the next couple -- next 2 or 3 quarters?

[Takumi Kitamura, executive]

So again, I cannot explain very in detail for this provision. And the one thing I can say is this provision is related in a legacy trade. And we recognize this issue as a contingent event already. So maybe you can find some issue in our 20F for Japanese [Foreign Language].

[Operator]

The next question is Mr. Chang from Guoco Management.

[Unknown Analyst]

I got cut off a bit. So I have 2 questions. First of all, on Page 12, I see you have some strong growth momentum in the International ECM and M&A business. Can you elaborate a bit more on your progress in expanding the investment banking franchise within the U.S. and whether there is anything still left in the pipeline?

[Takumi Kitamura, executive]

You asked me about investment banking U.S. current situation?

[Unknown Analyst]

Yes, that's correct.

[Takumi Kitamura, executive]

So as I already mentioned that this year's contribution by U.S. Investment Banking is historical high, highest number since 2009 and mainly M&A-related financing area. Of course, we want to expand further. But I don't -- right now progress [ Serge ] is quite positive.

[Unknown Analyst]

Right, right. And so basically you're saying that going forward there is still growth, for example, in hiring more personnel and expanding the balance sheet over there?

[Takumi Kitamura, executive]

Sorry, I cannot catch your question. Sorry.

[Unknown Analyst]

Sorry. I just want to understand. So you mentioned that going forward, there is further growth potential in terms of hiring more personnel within the U.S. Investment Banking division as well as expanding the balance sheet?

[Takumi Kitamura, executive]

Sorry, we want to expand in the U.S. franchise going forward, but not in a high speed, really selectively. So this kind of a situation, we've gotten a lot. But we don't expect a huge expansion in our headcount, very selectively industry-wise and sector wise.

[Unknown Analyst]

Okay. And onto my second question. So on Page 6, I'm talking about Retail division. You mentioned that you reduced the personnel expense costs in the March 2018 quarter. So what was the cause of this? And how was the change in the personnel expense on a year-over-year basis?

[Takumi Kitamura, executive]

You ask me about the PE of Retail business?

[Unknown Analyst]

No, no. The personnel expense in the fourth quarter for Retail business.

[Takumi Kitamura, executive]

Just only for Retail business.

[Unknown Analyst]

Yes.

[Takumi Kitamura, executive]

So we are now in a -- introduce pay-for-performance. And as you fully understand, in our first quarter retail number has been slowed down -- rather, slowing down compared with other quarter or the other quarter. So that's the reason we reduce in PE in our fourth quarter. Very simple answer.

[Unknown Analyst]

Right. And going forward should we see continued scale back in personnel?

[Takumi Kitamura, executive]

So it depends on our Retail performance. So if our Retail business is good, in that case we will pay appropriate amount. But if they doesn't -- they don't show the good performance, in that case, we will pay based on the pay-for-performance.

[Operator]

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

[Futoshi Sasaki, analyst]

This is Sasaki. Two things: on Slide 7, regarding the Retail division, on the right-hand side, the accounts with balance or the clients with balance, there's been a decline. And also, there's been a decline in the net inflows of cash and securities. This has been continuing. How do you see this? And why is this? So could you explain to the extent that you can? Number two is regarding your dividend. And until now, you have been saying 30% dividend payout ratio as a benchmark. This time, you are saying 50% total payout ratio. So you've changed your policy. So going forward, is the dividend going to become more stable? Is it going to be cut off from the shift changes in the profits? So how should we think about your dividends going forward?

[Takumi Kitamura, executive]

Thank you. First of all, regarding the Retail accounts with balance, and the net inflows with cash and securities being negative and how we see that, throughout the full year of March '18, we talked about the negative pressure weakening in Q4. But throughout the full year, there has been a rally in the stock market and the pressure from investors or customers wanting to sell their positions was extremely strong. And there were some positions which were unfortunately illiquid for a long time. These positions were released and customers finally sold these positions after the rally in the stock market. And unfortunately, that money temporarily moved out of Nomura's reach. That's why the -- this has led to the decline in the number of accounts with balance. And also, the same applies to the net inflows of cash and securities. While there is an inflow of money, there's also the outflow of money. More recently, the -- we don't feel we have to hold onto these standby funds or the unallocated funds too much. And we have started safe or secure transfer service, which means customers can easily shift and transfer their funds from the accounts in the megabanks and other financial institutions on the web. So we don't think we have to be that focused on trying to keep the unallocated or standby funds within Nomura's reach. But of course, it would be better if we could retain that money within the group. So in terms of the outflow of money that we have seen, the question is how we can reduce that. And we will do that by offering services that are catered or that are tailored to our customers' needs and that will be how we will try to retain the money and prevent the outflow. As for your second question regarding the dividend and the way we think about dividends, we have introduced the total payout ratio and we are using the 50% as a benchmark. But actually, we haven't changed the dividend payout ratio target. And we have always felt the need to address voices from investors wanting some kind of total payout ratio benchmark. And we also wanted to clarify our thinking. That's why we decided to introduce the total payout ratio. The dividend payout ratio benchmark remains unchanged at 30%. And the share buybacks will be an add-on to the dividend portion going forward.

[Futoshi Sasaki, analyst]

Regarding the first point, on Page 7 at the bottom right, you have the net increase in investment trusts Q4, JPY 114 billion. Does this include ETFs or not, the JPY 114 billion?

[Takumi Kitamura, executive]

This does not include ETFs.

[Futoshi Sasaki, analyst]

Understood. And another follow-up question. So you will pay out 30% of your profit and roughly 20% will be share buybacks. So is that the way to think about it?

[Takumi Kitamura, executive]

Well, we are -- if we are to stick to the bottom limit, yes, that's correct.

[Operator]

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

[Koichi Niwa, analyst]

I have a couple of questions. Markets and segment Others and the corporate items. First of all, I'm looking at Page 11 and markets revenue is at a very high level. What's of the competitive landscape in terms of products and what is the future outlook and perspective for Global Markets? And in addition, I think you mentioned slow start for Retail. But to the extent possible, what about the situation early in the fiscal year for Global Markets? That's my first question. Secondly, segment Others, corporate items, I'm looking at Page 23. Even if we exclude provisioning in the United States, the number still seems to be large. So what are the other items that have been included in this number?

[Takumi Kitamura, executive]

First of all, Global Markets, as I said already, rather slow start for Wholesale as well. And your question was on the outlook and product-by-product competitive landscape. We're not so pessimistic about the future outlook. Monetary policy can only normalize from this point and beyond, and the U.S. rates have come back to 3% range. There's some wonder with regards to what the ECB would do. But in comparison to last year, there would be a mixed situation in terms of monetary policy and rate levels. And therefore, that would be an environment where the market may fluctuate more than last year. So reshuffling of the portfolio and hedging requirements should emerge on the part of the investors. As you know, rates or macro position in Global Markets is quite significant. Yet in the March '18 period, that's an area where we suffered. So we are expecting some positive trend. And in the coming year, I think we'll be able to diversify the revenue driver. I mentioned equity derivatives, and I think we've been able to strengthen the franchise in such areas. So we will work hard so that we will be able to deliver good results. Your second question was on segment Other and the corporate items worsening. In the U.S. provisioning of slightly over JPY 30 billion, in addition to that, I've not mentioned this yet, but U.S. data center -- taking a look at the future impairment was done for the data center. And that has also been included and that is the reason behind the increased loss for corporate items.

[Koichi Niwa, analyst]

Another follow-up question with regards to the second point. You mentioned impairment for the data center. What's the benchmark or standard you apply to make a judgment on impairment? And also, are there any other items where there is a possibility of impairment or similar treatment? What's the backdrop and how do you view the coming months?

[Takumi Kitamura, executive]

Sorry, I used the word impairment. That might have been misleading. Sales and leaseback is the accurate description from controlling future cash flow. In other words, because we expect future benefit, sales and leaseback decision was made. And in that process, this loss was incurred.

[Operator]

[Operator Instructions] The next question is from Mr. Tanaka of Goldman Sachs.

[Katsunori Tanaka, analyst]

This is Tanaka from Goldman. The other day, you announced your alliance with LINE and you are setting up the LINE securities. What is the objective behind this? And your stake of 49%, LINE will take the majority, 51%. But what is the benefit for Nomura, even though you only have a minority stake or you don't have the majority stake? And what about potential cannibalization with your existing businesses, if any? So could you explain why you think this alliance is going to work positively for Nomura even though you only have 49%?

[Takumi Kitamura, executive]

This is Kitamura. The alliance -- yes, we did announce the alliance, but we have yet to announce the details about the strategy and also we will continue discussions until we finalize the agreement with LINE. As for the stake of 51/49, this is just a provisional breakdown or a stake and it will be finalized when we sign the contract. And hopefully, we will be able to come back with you with more details when we sign the contract. In terms of why we want to form this alliance with LINE, and this partly goes back to a question earlier, but in terms of client assets and AUM, of course, we are #1 among the domestic brokerage houses. But the number of accounts is 5.3 million. Meanwhile, LINE has 73 million users, I believe, which is a huge number compared to the number of accounts we have. And these are people who we have no coverage of at the moment, and we will be able to approach them and contact them through the network, which LINE has. And as for your question about potential cannibalization, well, frankly speaking, I don't expect that much cannibalization. Or to put it another way, we don't want to be afraid of cannibalization and not do anything. We want to take on this challenge even if there could be cannibalization.

[Operator]

[Operator Instructions]

[Takumi Kitamura, executive]

Well, thank you very much, everyone, for participating. And early on, I talked about the somewhat slow start in April. However, we are starting to see some positive signs. In Japan, the trend towards net selling by international investors has tapered out and expectations for corporate earnings are up, which has helped lift the Nikkei to the JPY 22,000 level for the first time in 1.5 months. And the yen or the currency trend is also helping.

Turning to outside of Japan, the long-term interest rates in the U.S. has topped 3%, signaling process in the normalization of monetary policy. And the moderate economic recovery in major markets means we are not likely to see a repeat of the market lull due to low volatility that we experienced last year. Of course, we need to keep a close watch on sudden market moves and the international political situation. A lot of uncertainties remain, and we will stringently control our risk-taking and cost base as we work towards further improving our corporate value.

We look forward to your continued support. Thank you.

[Operator]

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