Nomura Holdings Inc

TSE:8604

Earnings Call Transcript 2019-Q4

[Operator]

Good day, everyone, and welcome to today's Nomura Holdings Fourth Quarter and the Full Year Operating Results for Fiscal Year ended March 2019 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 may 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's statements, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security evaluations, competitive conditions and size, number and timing of transactions.

With that, we'll 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 results for the year ended March 2019. Please turn to Page 2 for an overview of the full year results.

As you can see on the bottom left, it was a challenging year with net revenue of JPY 1.1168 trillion down 25% year-on-year and loss before income taxes was JPY 37.7 billion. Net loss was 104 -- JPY 100.4 billion.

Throughout the year, the capital markets were clouded in political and economic uncertainties such as the U.S.-China trade friction, growing concerns of an economic slowdown and difficulties surrounding Brexit negotiations. In the first half of the fiscal year, rising U.S. interest rates led to a risk-off environment in emerging markets and from October, we saw pockets of turbulence, including a bear market in global equities and turmoil in the credit markets.

Amid this environment, retail faced sluggish transactions of securities such as stocks and investment trust as investor sentiment declined.

In Wholesale, fixed income was challenged as market activity declined and emerging markets and the credit markets were hit by turmoil. And as already announced, we booked an impairment charge for all the goodwill attributable to Wholesale in the third quarter.

As a result, 3 segment total loss before income taxes was JPY 27.7 billion. Performance outside the 3 segments declined due to factors including one-off expenses and an unrealized loss on securities held resulting from a job in share prices.

Today, we also announce the dividend of JPY 3 per share for shareholders of record as of the end of March. That brings the total annual dividend to JPY 6 per share.

Please turn to Page 3. This slide compares pretax earnings in FY 2017 to '18 and FY 2018 to '19. As you can see on the left, in FY 2017 to '18, we booked income before income taxes of the JPY 328.2 billion. Income before income taxes and Retail declined JPY 53.6 billion as investor sentiment declined on market uncertainties, resulting in lower revenues from stock, investment trusts and bond transactions.

Asset Management income before income taxes declined by JPY 32 billion. Contribution from American Century Investments was negative JPY 5 billion this year compared to positive JPY 22 billion last year, dragging down income before income taxes by around JPY 27 billion from last year.

Wholesale income before income taxes dropped by JPY 210 billion. This includes the JPY 81 billion goodwill impairment charge booked in the third quarter and an increase in severance payments of approximately JPY 11 billion due to headcount reductions. Excluding these factors, income before income taxes declined by JPY 120 billion, mainly due to a challenging fixed income environment in Rates, Credits and FX.

Segment Other, shown here enclosed by the dotted line declined by JPY 59 billion. Performance was negatively affected by nonrecurring items and an unrealized loss on securities held due to a decline in share prices.

Taking a closer look, in fiscal year 2017 to '18 we booked an FX translation adjustment of JPY 45 billion due to winding up an EMEA subsidiary and a gain, on the sale on our stakes in JAFCO and Asahi Fire & Marine of JPY 18 billion, both of which made a positive contribution to earnings while also booking expenses related to legacy transactions of JPY 45 billion.

This year, those factors were no longer present and we booked a JPY 7 billion loss on FX translation due to winding up a subsidiary in the Middle East. In the second quarter, we booked expenses of JPY 20 billion for a settlement with the U.S. Department of Justice.

In the fourth quarter, we booked legal expenses of JPY 12 billion related to several legacy transactions that were included under contingencies in our annual securities report.

As a result, we booked a loss before income taxes of JPY 37.7 billion for FY 2018 to '19 as you can see on the far right.

Next let's look at results from the fourth quarter. Please turn to Page 4. Firmwide income before income taxes was JPY 24.4 billion, marking a rebound from loss in the previous quarter. Three segment income before income taxes was JPY 4.7 billion as shown on the bottom right. With the absence of the goodwill impairment charge, there was an improvement from the loss last quarter, but the challenging market conditions persisted and performance in both retail and Wholesale was subdued.

Net income after deducting corporate tax was JPY 800 million and EPS was JPY 0.23.

Please turn to Page 7 for an overview of business results starting with Retail. Net revenue declined 15% quarter-on-quarter to JPY 74.2 billion. Income before income taxes was JPY 3.3 billion down 77%. Share prices which dropped significantly in the October to December quarter recovered to a degree but clients remained in wait-and-see mode and as shown on the bottom of this slide, total sales declined by 33%.

For stocks, there was the absence of the contribution from a large primary transaction in the previous quarter and secondary sales also declined quarter-on-quarter. Investment of sales remained weak. But we booked inflows into Japanese stock investment trusts that invest in high beta stocks and Asia-related funds that are expected to benefit from a rebound in emerging markets stocks.

Please turn to Page 8. As you can see on the top left, annualized recurring revenue was JPY 88 billion, down slightly from the previous quarter. Cost control helped keep the recurring revenue cost coverage ratio at 31%. We also provided a wide range of solutions to cooperates and high net worth clients in addition to Asset Management such as advisory, real estate and insurance. Consulting-related revenues from these transactions for the quarter was JPY 6.4 billion, which although still only a small percentage of total division revenues, increased by nearly 50%.

Please now turn to Page 9 For Asset Management. Net revenues was JPY 30.9 billion up 91% quarter-on-quarter. Income before income taxes improved significantly from last quarter to JPY 14.4 billion. As the graph on the left shows, last quarter, we reported a loss related to American Century Investments of JPY 8.3 billion with significantly dragged down Asset Management results. This quarter, we reported a gain of JPY 4.9 billion.

Revenue excluding gains or losses related to ACI increased 6% to JPY 26 billion. Assets under management at the end of March totaled JPY 51.4 trillion, an improvement from JPY 48.3 trillion at the end of December. This was driven by market factors combined with ongoing inflows into the investment trust and investment advisory businesses.

The bottom right of Page 10 shows how Nomura and ACI have leveraged our respective trend to collaborate since our investments into ACI in 2016 in terms of product provision and client introductions.

As of the end of March, assets under management through such collaborations stood at $5.4 billion, driven by strong contribution from the Nomura ACI Advanced Medical Impact Investment Fund, launched in October last year.

Please turn to Page 11 for Wholesale. Net revenue was JPY 142.4 billion (sic) [ 142.2 billion ], an increase of 11% over the last quarter. Global Markets revenues increased driven by a rebound in Fixed Income, while Investment Banking reported stronger revenues in both Japan and internationally. That said, we are still not satisfied with the level of revenues.

Expenses of JPY 155.3 billion include one-off expenses of JPY 8.4 billion related to reviewing our business portfolio. Loss before income taxes for the quarter was JPY 13 billion. The bottom left shows, net revenue by region. Japan declined as Global markets was challenged, but all 3 international regions improved quarter-on-quarter.

Please turn to Page 12 for an overview of business lines, starting with Global Markets. Net revenue increased 10% to JPY 113.6 billion. Fixed income increased 81% to JPY 68 billion. Last quarter, trading revenue dropped due to uncertain market conditions, but this quarter, all products posed stronger results particularly, Rates and Credit.

As you can see, in the heat map on the top right, in Japan, rates had a slow quarter, declining quarter-on-quarter, while in the Americas, Rates and Securities Products improved. In EMEA, Rates and Credit improved and in AEJ, Rates and ForEx and emerging markets had a good quarter. All 3 international regions show positive momentum quarter-on-quarter.

Equities net revenue was JPY 45.6 billion, down 31% quarter-on-quarter. Cash Equities had a slow quarter as market volumes declined and volatility remained low. Derivatives also slowed during the fourth quarter. As our heat map shows, Asia excluding Japan is pointing up, but the Americas and Japan are pointing down due to a decline in revenues mainly from Derivatives.

Please turn to Page 13 for Investment Banking. Net revenue increased 16% to JPY 28.6 billion. As shown on the right, we had revenue contributions during the quarter from a number of M&A transaction closures such as Takeda Pharmaceutical's acquisition of Shire. We booked higher revenues in both Japan and internationally.

Internationally, acquisition and leverage finance had a slow quarter due to market conditions and a heightened competitive environment.

Please turn to Page 14 for an overview of Expenses. Firmwide expenses were to JPY 276.9 billion, down 18% quarter-on-quarter. The biggest decline came from Other shown at the bottom. This quarter we booked JPY 12 billion in legal expenses related to legacy transactions, but because the goodwill impairment charge of JPY 81.4 billion booked last quarter, last year was no longer present. Other expenses declined by 49% quarter-on-quarter. Compensation and benefits shown at the top increased by 5% due to JPY 10.3 billion of restructuring costs.

Excluding these legal expenses and restructuring costs, firmwide expenses remained around JPY 250 billion level, in line with last quarter.

Next, our financial position shown on Page 15. Our balance sheet at the end of March was JPY 41 trillion and shareholders' equity was JPY 2.6 trillion. As shown on the bottom left, our Tier 1 capital ratio at the end of March was 18.2% and our CET 1 capital ratio was 17.1%. We maintain a robust financial position.

Our capital ratios have declined compared to the end of December, because Tier 1 capital, the numerator of the calculation declined by JPY 32 billion from the end of December to JPY 2.6 trillion. And risk assets, the denominator increased by JPY 470 billion to JPY 14.3 trillion, mainly due to credit risk.

Our leverage ratio was 5.04%, representing a marked improvement from last quarter. This is because the standardized approach for measuring counterparty credit risk was applied from the end of March, leading to a significant decline in derivatives exposure. Our liquidity coverage ratio was 198.4%. That concludes the overview of our full year and fourth quarter final results.

Financial results. Performance in our core business for the full year period was sluggish, particularly in Retail and Wholesale. This was compounded by a number of nonrecurring items such as the goodwill impairment charge and legal expenses. We are clearly disappointed with this set of results.

In line with this performance for the year ended March 2019, all directors and executive officers of Nomura Holdings and Nomura Securities will receive no variable compensation related to performance, in other words, no bonus.

In April, we have started to see signs of improvement in retail and Wholesale from the fourth quarter. That said, concerns remain over a global economic slowdown and it is difficult to have an optimistic outlook at this stage. We are focused on rebuilding our business platform as announced at our recent Investor Day and returning to growth as fast as possible. Under the strong leadership of the management team, we will move to speed up and to carry out these reforms.

As part of the abolition of the concept of regions in the matrix management structure, we announced some changes today to our management lineup and at the same time, we are reviewing our regional management functions and committees.

For the corporate functions, after reducing senior management by over 20%, the 5 function heads, including myself, are drawing up specific plans for our organizational structure and to drive business efficiencies.

In Retail, we are reassigning sales staff, in line with the changing needs and behavior of our clients, while also moving strictly to review our branch office strategy. Wholesale is clarifying its focus markets and services and streamlining non-focus regions and businesses. By rebuilding our business platform, we have said we aim to reduce firmwide expenses by the low JPY 900 billion level by the year ending March 2022. We have already close to achieving 40% of the cuts. We will remain firmly focused on completing the remaining 60% to lower our breakeven point and build a business platform capable of delivering consistent growth in any environment. Thank you.

[Operator]

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

[Masao Muraki, analyst]

This is Muraki. I have 2 points. First, regarding the one-off expenses that you booked and the Restructuring expenses in Q4, JPY 10.3 billion. And going forward, the headcount reduction was shifted to middle and back-office and as has been in the past, the Real Estate and IT system expenses will come later. So this fiscal year, how much of restructuring expenses are you expecting on an accounting basis? And the other expense item is legal item -- legal expenses, JPY 12 billion, which has been looked again. In this new fiscal year, will there be more additions to your provisions or reversal to your provisions? And will that impact your P&L in this new fiscal year? How much impact are you expecting? Or have the expenses that you've booked so far, do they already cover most of the legal expenses?

My second point is, I'd like more color on the figures. On Page 8, you disclosed the consulting related revenues, JPY 6.4 billion. I believe, this is related to M&A and aircraft leasing, that kind of financing activities. This -- part of this JPY 6.4 billion, what are the major items, major components of JPY 6.4 billion? So the breakdown of the consulting-related revenues please.

[Takumi Kitamura, executive]

Thank you. This is Kitamura. Thank you for your question. Regarding your first point about the restructuring expenses and how much future restructuring expenses we anticipate. Well, first of all, in relation to the restructuring or the structural reform, we have been working on some of these short-term initiatives like what you pointed out, plus there are also some mid-long-term -- mid-to-long term initiatives. And in terms of the short-term items, which we can factor in, we have, as you pointed out, already included those figures in the fiscal year, which ended in March. Meanwhile, as for the more mid-to-long term items, and also the restructuring of the middle and back offices, we will start working on that.

So frankly speaking, we are currently doing our best to analyze and assess the figures, but -- and we -- I talked about the 5 function heads that have been appointed, including myself, we are currently reviewing our business organization and also thinking of ways to make our business operations more efficient.

So once we are done with that, we should have a clear picture on the timeframe of the cost-reduction. And also, the expenses related to restructuring. But as of today, there still are a lot of variables. So it is still too early to clarify or give you a clear guidance about the future. Your second question regarding the legal risks and legal expenses. And again, the outlook of the legal expenses going forward.

Well, if you look at the trends in the markets and also Nomura's business and the way we do business, these legal expenses will not go down to 0, but compared to the expenses we booked in March '18 or March '19, I don't -- I personally don't think they will be as recurring as that.

However, having said that, the -- these legal expenses are linked to individual cases or individual transactions. And we do have our own strategy for litigations. So it is difficult to give you a guidance on the future. Meanwhile, we do have the disclosure on contingencies in our annual disclosure, the YUHO disclosure. And we have disclosure regarding the probable losses. And this is not a leading indicator or this is not to give your a clear guidance of what's going to be booked in the future. But we will be booking the expenses as these transactions progress. So we would like you to look at these figures as well.

And your third point regarding the consulting-related revenues, which has grown in the recent quarter and the main items in this item. Well the biggest component is insurance-related business. And also, Investment Banking-related fees. These include advisory, commissions. And there are also some earnings -- advisory earnings or fees related to the corporate actions by companies and business owners, which are branches cover and also operating and lease related items.

[Masao Muraki, analyst]

This is Muraki. You mentioned that -- as far as I understand it there was the big reorganization in your Retail division in August and you have categorized the coverage of the corporate business owners and the ultrahigh net worth. And you're going to offer consulting and also selling alternative products. More than you have done in the past. That's my understanding. So after this reviewing and reshuffling of the Retail business, the -- how much do you plan to grow the consulting-related revenue out of total Retail revenue?

[Takumi Kitamura, executive]

This is Kitamura. We have been saying from the past that we would like to grow these consulting-related revenues to JPY 50 billion. And we cover the high net worth individuals and also the business owners and consulting is not all that they want from us. The also want asset protection and asset management. So we have a very big mandate from these clients. And consulting is part of that. So we would like to support the figures, not just from a consulting-related revenues, but also asset management related revenues.

[Operator]

The next question is by Ms. Tsujino of Mitsubishi UFJ Morgan Stanley Securities.

[Natsumu Tsujino, analyst]

On cost reduction, one-time off expenses this time, JPY 10.3 billion. You said that this will be a short-term expense. On the other hand, $1 billion reduction, you said that 40% is completed. This JPY 10.3 billion, is this the 40% that's been completed? And would you say 40%, you say that you will soon complete 40%, you've cut it down in the front office now you would have to cut the middle and back office. So does the 40% include that? Or is this 40% going to move up north because of increase in cuts in the middle and back office? If you can give an answer to my question that would give us clues in order to speculate and guess the future trend in expenses. Secondly, the discretionary investment sales you didn't disclose that, but could you give us a number for our information?

[Unknown Executive]

What did you say? Discretionary investment sales? Was that the other question you asked?

[Takumi Kitamura, executive]

This is Kitamura speaking. But let me respond to that question later on. Thank you very much Ms. Tsujino. First of all -- this is Kitamura speaking. To respond to your question may I go ahead in and respond to the first question because we will check with the sales of discretionary investment later. The JPY 10.3 billion of one-time off expenses that we booked. 40% of the costs cut. This is only part of the 40%. It doesn't account for the totality of 40% of the completed cost reduction. So this is not a one-time off expense that constitutes all of the 40%. This time around the cost reduction in Wholesale for the time being has been focusing on the review of the front. Of course, middle and back review will be done in the months ahead. And as asked by Mr. Muraki previously through such exercise, there will be some expenses that we will be booking for structural reform. And also, discretionary investment Fund Wrap amount contracted or sales. I don't think we disclose those numbers on regular basis. In terms of the total amount outstanding, JPY 2.8 trillion is the current number. And discretionary investment net increase -- no net loss, and therefore, it is JPY 10.8 billion. So sales, we don't intend to disclose our sales amount in the future. We've never disclosed. And at the moment, we have no plans to conduct such disclosure.

Now back to the question on cost reduction, you said the 40% will include mainly the review of front office. Then in current end, in March 2020, there would be a one-time off expense of more than JPY 10 billion. Is that the right guess?

For this current term, JPY 10.3 billion of structural reform-related expenses were booked. In principle, through this exercise of review, these are retirement benefit-related expenses. And that accounts for a large proportion of that amount. As I said, we focused on the front office.

[Natsumu Tsujino, analyst]

Then in the current term ending March 2020, will there be expenses of over JPY 10 billion?

[Takumi Kitamura, executive]

Frankly speaking, we are not sure yet. We will be reviewing the middle office and back-office and what would be the order for expenses related to such review, it's difficult to answer because we're currently in the process of doing the analysis and we haven't come up with numbers yet.

[Natsumu Tsujino, analyst]

Finally, on investment trust sales, securities investment trust and foreign equity investment trust, I have been tracking those numbers. In comparison to Q3, there has been a decline, slight decline in Q4. Bull Bear switching, even excluding Bull Bear switching, the performance of 4Q was below 3Q?

[Takumi Kitamura, executive]

I apologize -- I do not have the numbers at hand. So our colleagues, in terms of IR will get back to you later. Will that do?

[Natsumu Tsujino, analyst]

Yes.

[Operator]

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

[Kazuki Watanabe, analyst]

This is Watanabe. Two questions please. The first is regarding Global Markets revenue. I'd like the break down of fixed income Equities between client flow and your own positions? And number two is regarding your capital strategy. You did not announce a buyback this time, any reasons for that? I understand the business environment is tough, but you have decided to grant RSU 25 million units, which means the number of shares is going to rise. So your thoughts on future share buybacks too, if possible?

[Takumi Kitamura, executive]

Thank you. This is Kitamura. Your first question regarding client flow and trading revenues, the breakdown. Fixed Income, client flow was about 90%, trading was about 10%. For Equities, client flow was close to 100%. And there was some trading revenue.

In terms of the share buyback and why we chose not to do so. Unfortunately, we booked JPY 100 billion of losses -- net losses. And meanwhile, we have chosen to payout JPY 3 of dividends. So we thought it was not the right timing to conduct an additional buyback on top of those dividends because we will be basically paying out of our own capital. So we have chosen to not do the buyback this time. In terms of the capital level of Nomura, we have a sufficient level. And returning to shareholders through share buybacks, always remains one of our options. We talked about the platform -- the reforms of our platform in April, and we have started working on that. So we would like to monitor the progress of those reforms. And once we make sure that we are making progress, once we gain more confidence on that, we may consider preparing for our -- the next share buyback.

[Kazuki Watanabe, analyst]

This is Watanabe. I have some follow-up questions. Regarding my first point, the equity revenue was quite weak in Q4 compared to past levels. Were there some trading losses? Was this just a one-off item related to just a name? Or was the overall situation quite tough? Regarding the share buybacks and your thinking of share buybacks, you talked about how you want to monitor the progress. But in terms of the time frame, are you going to decide at the end of or in Q1? And then decide on share buybacks? Or is it going to take a bit longer, so some more color on the time frame, please?

[Takumi Kitamura, executive]

Thank you. This is Kitamura. Regarding the Equities revenue and the reason why it was weak. In the U.S., the Volatility Index of Equities for -- compared to last year-end, it has gone up quite a bit. And our client activity was very active. And we also benefited from our trading positions because we monetize from our -- the client flow. Moving into this year, the volatility has dropped sharply since mid-December of last year. And January, February, the volatility remained extremely low. Our client activity slowed down very rapidly. That was the main reason for the weak revenues in Equities. March and onwards, we are seeing a slight pickup. As for your second question on the time frame of share buybacks, we think although, some of the initiatives in the restructuring will take some time. But we will try to come up with a clear direction and also a roadmap as early as possible. And it's still somewhat too early to give you exactly when we will gain more confidence on the future. It's hard for me to promise that. But as I said, we will realize the various initiatives as early as possible. So not a direct answer to your question, but that's the best I can do at the moment. Thank you.

[Operator]

The next question is from Mr. David Lui of Guoco Management Company.

[David Lui, analyst]

I have a couple of questions, on Page 14 of your PowerPoint Presentation. So I understand of course, the item, Other, contains a lot of restructuring expenses, legal expenses, et cetera. Let's say, going forward, let's say on -- once you have finished all the restructuring, how should I think about the operating expenses on a regular basis? Should I think about JPY 200 billion per quarter? JPY 225 billion? Or JPY 250 billion? The reason why I am asking is because if I exclude the Other item on Page 14, the number is around JPY 200 billion to JPY 250 billion per quarter. That's my first question.

[Takumi Kitamura, executive]

So as you mentioned it clearly, in an Other's cost [indiscernible] there are so many one-off items like litigation and goodwill impairment, such kind of things. And I already mentioned that if we exclude such kind of one-off item, cost is JPY 250 billion that's mean that USD 2.3 billion-something. So -- but there are so many questions from the other analysts. We assume that we will recognize some in the -- restructuring costs going forward. So in addition to normal course of the business, we may recognize some one-off costs just for the restructuring.

[David Lui, analyst]

Okay. Great. You already mentioned several times that 40% of the $1 billion of costs that you wanted to take out has already been completed. So is it fair to say that in the current fiscal year, most of these remaining $600 million will be completed in the current fiscal year?

[Takumi Kitamura, executive]

No, no, no. I clearly mentioned that we will achieve of course the reduction of end of March, 2022.

Some initiatives we can achieve early, but some initiatives iterated costs, it will take time. So I don't think we can achieve further 60% cost reduction in this fiscal year. Of course, we would access it -- implement in a speed as much as possible, but I don't think we can achieve it, end of this fiscal year. But at the Investor Day we also announced 70% cost deduction, we want to achieve in this fiscal year. So right now, 40% and end of this fiscal year, 70% something.

[David Lui, analyst]

Okay. My last question is on the outlook for the current quarter. You have already said twice so far that activity has picked up in April. However, the trading volume on the TSE is still down about 5% so far in April versus March quarter, the just-completed quarter. Please compare that decline in trading volume on the TSE with your comment that things have picked up among the retail investors?

[Takumi Kitamura, executive]

So we put it here as [ situations ] about TSE volume -- transaction volume, but the product we are handling is not only stocks, but also the bonds and our foreign bonds, non-Yen bonds and other product as well. So of course, stock [indiscernible], I agree, your point, but we also did recommend Other product, which fit the client needs and the demand. So that's the reason that our Retail performance is -- has been improved than last fourth quarter.

[Operator]

The next question is from Sasaki-san of Merrill Lynch Japan Securities.

[Futoshi Sasaki, analyst]

This is Sasaki from Merrill Lynch. Two questions, if I may. First, if possible, Q4, January, February, March, how did you book revenues? What was the monthly trend in revenues for Retail and the Wholesale? And if possible, could you also talk about the situation in April in the current quarter. That's my first question.

My second question is, for this current fiscal year and the way you think about your performance this year, you are in the process of rationalizing and restructuring your business. If there is a further decline in revenues or if the restructuring doesn't go as expected, then there's a possibility of you going to the red again. If that happens, what is your Plan B? And could you disclose to the extent possible, please?

[Takumi Kitamura, executive]

Thank you. This is Kitamura. Your first question, are you asking about the monthly trends?

[Futoshi Sasaki, analyst]

Yes. Well, if the current market persists, what would the revenues for this fiscal year be? I'm trying to form an outlook on that.

[Takumi Kitamura, executive]

So January to April?

[Futoshi Sasaki, analyst]

Yes, if you could give me some color on the monthly trend, please?

[Takumi Kitamura, executive]

Okay. This is Kitamura. For the Retail division, January was the weakest. February, March, there was gradual recovery. However, generally speaking, the share prices or the decline in share prices in Q3 last year, which took place globally, that had a big impact. So retail investors are still struggling from the damage they suffered in the portfolio, that's the impression I get.

And April, there are signs of a slight recovery compared to the January to March quarter. For Global Markets, Fixed Income, I think January was about 40%, February, March, was about 30% each. Meanwhile, for Equities, the breakdown would be 30%, 30%, 40% for January, February, March. And the background for this -- oh, sorry, for April, there has been a slight improvement from the March quarter. And the reason for that is, the improvement in the Chinese economic indicators, that was one of the reasons. And I think the market activity is picking up again. And the long-term interest rates in the U.S., the volatility index of the interest rates, which is -- the so-called Move Index, this is also recovering, which has helped Wholesale, especially the Global Markets business. And things are showing signs of recovery compared to the March quarter.

And your second question, the Restructuring and the rationalization of our business, we are working on this with a very firm conviction. And the performance in the March 2019, which just ended was extremely tough as we see it. And we would like to be profitable at the bottom line even if the weak market conditions persist. And we would like to improve the breakeven point.

So we are not exactly thinking of the scenario where the restructuring does not progress as planned. We are going to definitely do this. And we do not anticipate a further decline in our revenues either. We are not that pessimistic, frankly speaking. But let's say, that happens. We are not exactly thinking of a Plan B. So -- but that shows how tough the year, which just ended in March '19 was.

[Futoshi Sasaki, analyst]

This is Sasaki. So you have a very -- you are working on this restructuring with a very strong will and conviction and if the situation that you saw in March and April, if that can persist, I guess your earnings are going to improve. So in Q1 or Q2 of the current fiscal year, I think things will be quite different from what you encountered last year.

[Takumi Kitamura, executive]

This is Kitamura. Yes, we would like to look forward to that, but our business does tend to be impacted by the market conditions. And the market fluctuations and volatility seem to -- we did anticipate some improvement in those metrics. And in the past, we have been more dependent on trading. But we are shifting more to client business and reducing the trading business, shifting more to primary. So in that sense, we will be less dependent on the market and the market conditions. I hope that answers your question.

[Operator]

The next question is by Otsuka-san of JPMorgan Securities.

[Wataru Otsuka, analyst]

This is Otsuka of JPMorgan Securities and I have 2 major questions. First of all, is with regard to Retail and the second question is on regional pretax income breakdown.

First of all, on Retail, looking at Page 7. Q4 revenue and income before income taxes, the JPY 74.2 billion and JPY 3.3 billion, respectively, net revenue and pretax income. And these numbers are extremely low. So my question, based upon these figures, the current initiatives you are pursuing, restructuring of business portfolio, is that effort based upon these numbers? Is that the right understanding? And cost is to be reduced by 10% from this level, that is your projection. So for example, if the expenses for Q4 is reduced by 10%, it would be around JPY 63 billion so that would push up profit level, but again, JPY 74.2 billion, it's only JPY 11 billion, so at any rate, that would be lackluster income. On Page 8, you mentioned consulting-related revenues. Do you think that you would be able to increase consulting revenues to offset that to have a stronger revenue? That's my first question on Retail.

And second question, Page 23, pretax regional income. EMEA, losses are increasing in Europe. I do understand the reason why it doesn't link with the previous numbers, but if we look at -- also revenue, there has been a slight increase in Q4 in Europe, the JPY 10.3 billion, one-time off expense is included. So is that the reason behind the deterioration in Europe?

[Takumi Kitamura, executive]

This is Kitamura speaking. Otsuka-san, to respond to your first question. Most recently, we've been pursuing the organizational restructuring and looking at the performance of the fourth quarter, we are making decisions depending on the progress achieved. As you know, we've said that we will reduce expenses by 10%, and the reaction we got from all of you was that, that would not be sufficient. But top line numbers are very important for ourselves. Maximization of the top line revenue is an important element of our strategy. We've been citing externalities, but there are internal factors, and we've learned our lessons with regards to internal issues. As we shift to consulting marketing in Retail, discretionary investment proposals will be focused. So we're certainly hearing, however, the efficiency of sales had, unfortunately, dropped. And as a result, our people have been disabled from making proposals that would meet the requirements of our customers. So channel formation or a partner reallocation will be done, and we're currently working on improving the lineup of our sale force and the demand are diverse, there are those who want Equities Investment Trust, traditional products and at the same time, nonconventional or alternative product lineup will be made more attractive. And we are currently looking into the product lineup at flow. So it will not just be expense cuts, but maximization of revenue in order to improve profitability.

Secondly, PTI by region and the loss in Europe being significant. Why is it that case when Wholesale performance is improving? One element is, as you said, Mr. Otsuka, part of the expenses for organizational Restructuring and reform is included here and one-off item includes litigation related legal expenses and part of that is included in the regional disclosure. And that's the reason why losses have increased certainly.

[Operator]

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

[Koichi Niwa, analyst]

This is Niwa. I'd like to ask about the Retail business and also the affiliates of the business. For Retail, Otsuka-san asked, and this is somewhat -- this overlaps with Otsuka-san's question. And this is also a recap of the Investor Day. In the midterm, you will cut operation cost by JPY 30 billion. What is the pretax income level that you're targeting organically? In the past, you had the Vision C&C and you were talking about JPY 200 billion, but could you update us on the current figure, please? That's my first question.

Second question is related to the affiliates and the equity and the earnings of affiliates. Q4, the figure remained high, what about the current Q1? Are you expecting ups and downs in the earnings of the affiliates? Or equity earnings? Do you expect it to be pretty much flat? Or to put it another way, are you going to conduct a thorough review as part of the restructuring that you are conducting? Are you going to accelerate the reviews on your affiliates going forward?

[Takumi Kitamura, executive]

Thank you. This is Kitamura. First, the Retail business and the profit level after the restructuring. The JPY 200 billion was the figure in Vision C&C and there is no updated figure from that. And instead of focusing on the quantitative targets, our plan is to go back to the growth trajectory. And make sure we follow through and complete the initiatives that we are currently working on. That's the direction we have in mind. And if we talk about numbers only, then numbers tend to take on a life of their own. So we would like to wait a little bit later until the right time to give you the more updated figures on the run rate earnings or [ standardized ] earnings.

Right now we are more focused on the initiatives that we announced in the recent Investor Day, the cost initiatives as well as the revenue initiatives. And we are in the implementation phase of those initiatives, that's our primary focus at the moment.

Your second question, regarding the affiliates and the equity earnings of the affiliates. It's basically neutral. And in Q4, there was a big contribution from the affiliates earnings, but that doesn't mean that we have chosen not to sell our holdings in these affiliates. We have also not decided that we will sell. And we have the affiliates and the partners that we need to talk with. And we cannot decide on what to do based on our own intentions alone. And we need to assess whether buying or selling or holding onto the positions is good for the affiliates as well. So we will think about all these factors. And as a result, I guess my current -- our current view would be neutral on the affiliates.

[Koichi Niwa, analyst]

This is Niwa. I'd like to make a follow-up question on the second point. In terms of the market environment, Global Equities is quite high at the moment. So now would be quite a good time to sell your holdings in the affiliates? Meanwhile, your main line of business is struggling. So -- but do you see these 2 things as complete -- as being separate? And is your main focus to maximize the value of your holdings rather than simply sell the positions to cover the weak earnings of Nomura?

[Takumi Kitamura, executive]

This is Kitamura. When we decide to sell a position, we need to consider these strategies of the affiliates. Also, we need to consider the synergies. But we also have our shareholders to account to, which means the pricing is a very important factor. So not a very clear answer to your question but we will consider both options, selling or holding onto the positions. And we will assess the -- make the decisions based on the interests of our shareholders and to maximize the interest of shareholders.

[Operator]

[Operator Instructions] Next question is by Ban-san of CLSA.

[Hideyasu Ban, analyst]

Sorry for joining late. I have 2 quick questions. First of all, if we look at the performance quarter-by-quarter, tax-related expenses, Q4 tax-related expenses, does that include one-time off adjustment? Already you've booked impairment, but are you doing tax scheduling review? And was there any expense-related item in the area of tax in Q4? So that's my first question.

And secondly, you've booked restructuring charges. In terms of the actual position at the end of March, in the context of organizational review, you've made a few announcements with regards to position, change and review of capital allocation. Does that include balance sheet -- impacted a balance sheet and is that included in the numbers you announced? Or is that going to be reflected in Q1 results? For example, if risk asset is to be reduced, will that timing be from late first quarter? That's my second question.

[Takumi Kitamura, executive]

Thank you. On your first question with regards to tax-related expenses, I think you asked the question because it's slightly high. Tax schedule, of course, quarter-by-quarter, we review the tax schedule and under the tax effect accounting, there are technical elements. So that explains those numbers.

Your second question is with regards to review. And whether the impact to the balance sheet was already reflected in Q4. Since mid last year, gradually, resource began to be shifted from Europe to the United States. In the context of structural reform, immediately reducing market position is not something we wish to do because of the impact to the market and impact to our P&L. So it's not something that we can do instantaneously.

Thus, going forward, we will be reviewing our positions gradually. And of course, we intend to finish this exercise in relatively short period. The usage of RWA level was low in January-March quarter. That's how I take it. Structural reform related RWA reduction is something that we project to see. On the other hand, if there is a boom in business, necessarily, the usage of RWA shall increase. Then at the end of June, are we going to see JPY 14.2 trillion RWA reduced? Certainly, it depends on the market level. As I said, since the beginning of April, we've seen slight recovery in the Global Markets. So it will depend on the balance. To respond to your question Mr. Ban, position reduction accompanying structural reform will be down from this point and beyond in a relative short period of time.

[Operator]

[Operator Instructions] Thank you for taking your time, and that concludes today's conference call.

[Takumi Kitamura, executive]

Thank you, everyone, this is Kitamura. The net loss of more than JPY 100 billion is something which the management see very significance -- very heavily. And we talked that we made promise in the Investor Day that we will rebuild our business platform. So our top priority at the moment is to work on that. And to go back to the growth trends, growth trajectory as quickly as possible. That is our utmost focus at the moment. And we will accomplish this reform with speed, as early as possible and we will make -- we'll do our best to show you the positive results of our initiatives. So we will look forward to your continued support. Thank you.

[Operator]

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

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