Nomura Holdings, Inc.
Q1 2009 Earnings Call Transcript

Published:

  • Operator:
    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. During the presentation, all the telephone lines are placed in listen-only mode. The questions and answer session will be held after the presentation. 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 achievements 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 type, number, and timing of transactions. With that, we would like to begin the conference. Mr. Masafumi Nakada, please go ahead.
  • Masafumi Nakada:
    Thank you very much. Good evening, ladies and gentlemen. Thank you for taking time out to Nomura Holdings conference call to review our financial results for the first quarter ended June 2008. I am Masafumi Nakada, CFO of Nomura Holdings, Inc. Let me start with page four of the presentation material. Net revenue for the first quarter of the fiscal year ending March 31, 2009, was 135.1 billion yen. We reported a loss before income taxes of 84.3 billion yen and net loss of 76.6 billion yen for the quarter. The losses are the result of a conservative evaluation of our investment assets, in line with the accounting standards following further review of risks in order to limit future downside risks amid the increasingly crowded economic environment. We have moved aggressively from last year to deal with our risky portfolio by exiting the U.S. residential mortgage-backed securities business, reducing our commercial mortgage-backed securities portfolio, and addressing our exposure to monoline insurers. During the first quarter, we stepped up our initiatives to deal with our risky portfolio. The losses for the quarter stem from three main areas
  • Operator:
    Thank you. [Operator Instructions]. Our first question coming from the line of Mr. Brendan Freeman.
  • Unidentified Analyst:
    Hell, thank you for taking the time today. My question is on the monoline exposure. I think you said that there could be some additional losses. Would that mostly come from expanded credit spreads or additional downgrades? And what would be the sensitivity around spreads expanding to your income statement? Hello.
  • Masafumi Nakada:
    Yes, sorry. Firstly, the main reasonable factor of the loss on our monoline exposure in this quarter is the downgrading of the monoline companies creditworthiness. This is the main reason.
  • Unidentified Analyst:
    And how much sensitivity would there be to additional downgrades or additional credit widening from here at this point?
  • Masafumi Nakada:
    Okay. As you can see on the page seven, as of the end of June, we still have the gross exposure of US$314 million in total. Did you see the --
  • Unidentified Analyst:
    Yes, Yes.
  • Masafumi Nakada:
    Yes. Then we have now the counterparty risk results for this exposure 140... around 140. So our net exposure at this moment is around 174.
  • Unidentified Analyst:
    I guess, my question is that the difference between the notional exposure today versus three months ago, I think is due to tightening of credit spreads. If the credit spreads are to widen again, would your exposure increase significantly and would you have to take more provisions?
  • Masafumi Nakada:
    Yes. In... during the three months, of course, the market fluctuated and the liquidity spread also fluctuated. But compared to the end of both the quarters, the total gross exposure has not changed so much.
  • Unidentified Analyst:
    I see, I see. Alright, thank you.
  • Masafumi Nakada:
    Thank you.
  • Operator:
    Thank you. [Operator Instructions]
  • Masafumi Nakada:
    So, hello excuse me, this is Nakada. I would like to just add or confirm this one point. At the end of my presentation I mentioned about FAS 157 and 159. As I said from the beginning of this quarter, we have started applying FAS 157 and 157. Then the impact of this new rule's implementation was 13.3 billion yen... 13.0 billion yen. This is a point I would like to reconfirm. Thank you very much.
  • Operator:
    Thank you. [Operator Instructions]. And our next question coming from the line of Mr. Achilo Kai [ph].
  • Unidentified Analyst:
    Hello.
  • Masafumi Nakada:
    Hello.
  • Unidentified Analyst:
    Hello, Nakada. On page 23, you mentioned you still have about 1.3 billion of U.S. CNBS position as of June. Can you just comment on what actually happened on this CNBS exposure, any losses or any impact from the market aside, separately from monoline exposures?
  • Masafumi Nakada:
    Alright. Firstly I would like to mention that the exposure of CNBS operations in the United States as of end of March, we have almost the same amount of the exposure. So which means in the last three months or in the first quarter, the positioning has not been changed so much. We adjusted [ph] the same level of the exposure.
  • Unidentified Analyst:
    Okay. And --
  • Masafumi Nakada:
    Sorry, during the quarter, we also have so called hedge operation for this exposure. Then... but there were some of so called hedge [ph], then we had the small amount of negative impact on our P&L. But compared to our total exposure of 1.3 billion, the impact was very limited.
  • Unidentified Analyst:
    And this... the limited negative exposure just came from marking to market or actually selling some position, or from basis risk from hedging? Where was this little negative impact coming from?
  • Masafumi Nakada:
    Sorry, mainly mark-to-market.
  • Unidentified Analyst:
    Okay. And then additionally going forward, what is your expected risk of having any losses as you see maturity of some of these CNBS as they close to maturity, when you need to respond it, do you expect any loss from that?
  • Masafumi Nakada:
    Of course, the --
  • Unidentified Analyst:
    Depending on the value of the underlying assets.
  • Masafumi Nakada:
    Of course. And of course, it depends on the markets, particularly the credit markets. And particularly every quarter we are very carefree to review our portfolio over CMBS. Then we evaluate the portfolios value and then as we already mentioned, it should be fully dependant on the market and the quality of portfolio's assets.
  • Unidentified Analyst:
    Okay. And how much are you hedged for this exposure of CNBS? I think the monoline... I thought you only have a few hundred million of monoline contracts for the CNBS. What's your net exposures on the CMBS after hedging?
  • Masafumi Nakada:
    Okay. Firstly, I would like to tell you the break down of our commercial CNBS portfolio. Roughly speaking, one third [ph] of total portfolio is whole loans, then one-third secondary bonds.
  • Unidentified Analyst:
    Okay.
  • Masafumi Nakada:
    And for the secondary bond operations, we have almost three hedged [ph].
  • Unidentified Analyst:
    Okay.
  • Masafumi Nakada:
    And for the whole loan positions, not to say exactly, but the... generally speaking, it is rather difficult than the secondary bond position due to the hedge the additional loan position. But we are now trying to manage with the addition of whole loan portfolio very carefully having the... very flexible hedge manner [ph].
  • Unidentified Analyst:
    So versus the 1.3 billion for this year, you are hedge about a third; a third of your position is hedged?
  • Masafumi Nakada:
    Sorry. As I said, for the one-third of total portfolio, we have a 100% hedged. Then another two-third over the portfolio, the hedge rate is very flexible, but roughly speaking, we have almost 60% or 70% hedge in total.
  • Unidentified Analyst:
    Okay, thank you.
  • Masafumi Nakada:
    Thank you.
  • Unidentified Analyst:
    Thank you very much.
  • Operator:
    [Operator Instructions]. We have no questions, Mr. Nakada.
  • Masafumi Nakada:
    So, thank you very much everybody. I'd like to conclude and close the presentation of our results for 2009 first quarter. Thank you very much for your attention, thank you.
  • Operator:
    Thank you for taking your time. And that concludes today's conference call. You may now disconnect your lines.

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