Prepared remarks
Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Results for Fiscal Year ending March 2026 Conference Call. Please be aware that this call is being recorded at the request of the company. If you have any objections, you may disconnect now. Please note that this call may contain forward-looking statements and projections that involve known and unknown risks, delays, uncertainties, and other factors beyond the company’s control. These may lead to actual results differing materially from the expectations implied by these projections. Some of these factors include economic and market conditions, political events, and investor sentiments, as well as the liquidity of secondary markets, interest rates, currency exchange rates, security valuations, competitive dynamics, and the number and timing of transactions. With that, we would like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please proceed.
This is Moriuchi, CFO. Thank you for joining us. I will now provide an overview of our financial results for the third quarter of the fiscal year ending March 2026. Return on equity was 10.3%, reaching the quantitative target for 2030 of 8% to 10% or more for the seventh consecutive quarter. Group-wide net revenue came in at JPY 551.8 billion, up 7% from the last quarter. Income before income taxes fell 1% to JPY 135.2 billion, while net income also fell 1% to JPY 91.6 billion. EPS for the quarter were JPY 30.19. The four main divisions performed well, but the segment 'other' incurred losses due to unfavorable market conditions for digital asset-related businesses. Overall, pretax income for all four divisions rose 8% to JPY 142.9 billion, marking the highest level in 18.5 years since the first quarter of the fiscal year ended March 2008. Wealth Management saw around 30% growth compared to the previous quarter, which itself had been strong.
Investment Management achieved record business revenue, driven by the consolidation of the public asset management business of the Macquarie Group, acquired on December 1, 2025, although profits decreased due to weaker investment gains and one-time expenses from this acquisition. In wholesale, both Equities and Investment Banking performed well, generating record revenues. Banking also reported solid revenues from lending activities and trust and agent services. Given our strong momentum, we have decided to initiate a share buyback program to enhance shareholder return and capital efficiency. This program will take place from February 17 to September 30 of this year, with a limit of 100 million shares and an amount of JPY 60 billion. Before we delve into the details for each business, we will first review the earnings from the first nine months of the fiscal year. For the first nine months, income before income taxes rose 15% year-on-year to JPY 432.1 billion, with net income increasing 7% to JPY 288.2 billion.
Earnings per share were JPY 94.67, and return on equity was 10.8%. Pretax income across the four main divisions increased 10% to JPY 381.3 billion. Over the nine months, income before income taxes is running slightly ahead of our target of over JPY 500 billion in our 2030 management vision. Wealth Management continued to generate strong profits and saw a sharp rise in the year-on-year recurring revenue cost coverage ratio, enhancing revenue stability. While profits fell in Investment Management due to one-time expenses linked to the Macquarie acquisition, existing operations are generating organic growth, steadily broadening the division's business foundations for future growth. All wholesale business lines performed well, significantly contributing to overall earnings. Banking experienced rising costs in preparation for the introduction of the new deposit sweep service in the next fiscal year, but both loans outstanding and investment trust balances increased smoothly.
Now we will review the third quarter results. All subsequent percentages are based on quarter-on-quarter comparisons. Wealth Management net revenue rose 14% to JPY 132.5 billion, with income before income taxes of JPY 58.5 billion representing a 29% increase from the previous strong quarter. The margin on income before income taxes exceeded 40%, which was considered high both in absolute terms and compared to market expectations. Recurring revenue reached an all-time high of JPY 52.7 billion. The first and third quarters typically see flat recurring revenue due to investment advisory fees being recognized only in the second and fourth quarters, but this was offset this quarter by net inflows of recurring revenue assets exceeding JPY 500 billion. Floor revenue also significantly increased to JPY 79.8 billion. Our accurate assessment of market trends and client needs, along with new product offerings, ensured strong revenue growth.
The recurring revenue cost coverage ratio increased by 1 percentage point to 71%, amid ongoing cost control measures. Total sales rose by approximately JPY 300 billion to JPY 6.6 trillion, reflecting growth across a broad range of products. Equities saw a 4% increase due to heightened trading during market corrections and significant primary deals. Bonds fell 25%, with yen-denominated bond sales remaining flat amid rising interest rates, and foreign bond sales affected by the lack of primary deals previously booked. Investment Trusts and Discretionary Investments, both part of recurring revenue assets, exhibited steady sales growth, while insurance sales remained robust, highlighting a strong shift from savings to investments. Turning to the KPIs, recurring revenue assets experienced a net inflow of JPY 503.9 billion, achieving the largest net increase on record, despite some liquidity needs from major market peaks.
Meanwhile, total recurring revenue assets reached an all-time high of JPY 28.1 trillion at the end of December. The number of flow business clients increased by around 270,000 to 1.53 million. Increased client activity due to favorable market conditions and key transactions like the SBI Shinsei Bank IPO boosted trading activity. In Investment Management, net revenue remained flat at JPY 60.9 billion, with income before income taxes declining 42% to JPY 17.9 billion due to one-time expenses from the Macquarie acquisition and weaker investment gains from American Century Investments. Business revenue, which constitutes stable revenue, hit an all-time high of JPY 57.8 billion, driven by the acquisition made in December and solid performance in the Japanese asset management sector. However, investment gains decreased due to lower returns from American Century Investments and losses from portfolio company sales at Nomura Capital Partners.
Despite the decline in profits for the division, the consolidated accounts benefitted from the reversal of the valuation allowance for deferred tax assets. In the Asset Management business, assets under management reached an all-time high of JPY 134.7 trillion by the end of December, with net inflows totaling JPY 115 billion, marking the 11th consecutive quarter of positive inflows. Domestic investment trusts experienced net inflows of JPY 71 billion, offsetting outflows from ETFs due to profit-taking and early redemptions. Further, net inflows into domestic investment advisory and international businesses totaled JPY 44 billion. Alternative assets under management increased to JPY 3.3 trillion, representing growth of about JPY 400 billion since September, mostly from net inflows. In the wholesale sector, net revenue rose 12% to JPY 313.9 billion, and income before income taxes rose 17% to JPY 62.3 billion.
Global market net revenue rose 9%, while Investment Banking net revenue increased 31%. In the Global Markets business, revenue grew by 9% to JPY 256.8 billion, with fixed income revenue seeing a 12% rise to JPY 136.9 billion. Equities revenue also increased 5% to a new high of JPY 119.9 billion, spurred by strong derivatives performance and execution services in Japan. In Investment Banking, net revenue climbed 31% to JPY 57.1 billion, the best performance since the fiscal year ended March 2017. Advisory work maintained strong momentum in Japan due to multiple private transactions and cross-border deals, with contributions from international businesses. In banking, net revenue reached JPY 13.7 billion, up 7% from the previous quarter, and income before income taxes rose 31% to JPY 4.2 billion. Lending and trust agent business revenues remained firm as the division met established KPI targets, with marketing strategies starting to show positive effects.
Preparation for the new deposit sweep service is on track. Group-wise expenses totaled JPY 416.5 billion, an increase of 10% or JPY 37.7 billion from the previous quarter, driven by an FX impact and one-off costs, along with operating expenses related to acquired business provisions for performance bonuses and commissions. These investments aim to bolster future earnings and are variable costs that fluctuate with revenue. We will maintain strict cost control and strive to secure profitability moving forward. In terms of our financial position, Tier 1 capital at the end of December was JPY 3.6 trillion, up JPY 60 billion since the end of September, while risk-weighted assets reached JPY 24 trillion, an increase of JPY 700 billion. The common equity Tier 1 ratio was 12.8%, slightly down from 13% at the end of September, largely due to changes in the regulatory capital calculation method following the Macquarie acquisition.
This concludes our overview of the third quarter results. In summary, in Q3, we continued to see strong performance across all four segments, with stable revenue growth and client flows increasing amid rising U.S. and Japanese equity markets, while managing one-off acquisition costs. ROE for Q3 stood at 10.3% and averaged 10.8% for the nine months ending in Q3. Regarding January, Wealth Management net revenue so far is aligned with the Q3 level. Client sentiment remains positive despite some market selling pressure, as household financial assets gradually shift towards investments. In wholesale, Q4 usually sees a slowdown due to seasonal factors, although Global Markets are performing in line with Q3. Investment Banking has had a marginally slow start, but we have a solid pipeline and are confident. The impact of fraudulent transactions related to phishing and scams on earnings remains minimal, and we acknowledge two specific points on Laser and the Investment Management division.
In the past quarter, losses in the segment 'Other' were partially attributed to movements in the digital asset market and currency hedges. Laser Digital, which oversees the digital asset business, experienced negative impacts from market fluctuations in October and November of last year. While it was profitable two years after starting and showed strong performance in Q2, the third quarter presented temporary setbacks. Earnings in the crypto asset sector are inherently volatile, and we recognize the need for careful management over the medium to long term, along with rigorous control over positions and risk exposure. We aim to capture growth in crypto markets while enhancing our services. Concerning the Investment Management division's performance, excluding acquisition impacts, existing platform AUM grew from JPY 101 trillion at the end of September to JPY 110 trillion by December, backed by net inflows, leading to record high business revenue.
The acquired business contributed approximately JPY 25 trillion in AUM, with business revenue for that period at JPY 7 billion and operating expenses at JPY 5 billion. Additionally, one-time acquisition costs totaled around JPY 11 billion, which affected the division's pretax profit, though the impact on consolidated net profit was mitigated by the release of valuation allowances for deferred tax assets linked to this acquisition. We expect total expenses of around $100 million for transfer and integration-related costs over two years, predominantly recognized within the first year starting in Q4. We are preparing to provide details on anticipated growth investments at the Investor Day event in May following the recent acquisition. While we have extensively discussed the acquired business's contribution, as its integration progresses, we will regard the division as a unified entity, ensuring transparency in disclosures.
After the initial investment phase, our long-term objective is to increase profits through synergies between our existing and newly acquired businesses. The company celebrated its centennial on December 25 last year. Moving forward, we will continue to pursue growth with the support of our stakeholders and others. Thank you for your continued support.
Questions and answers
The first question is by Muraki from SMBC Nikko.
I have two questions. On page 24, regarding the JPY 10.6 billion related to Red Inc. in Europe, you mentioned that there were fluctuations in the market between September and November leading to JPY 10 billion in losses. At that point, there was a significant position. Can you provide an update on the position management? A year ago, there were substantial profits recorded, so what was the approach to position management then, and what are your forecasts on managing performance volatility moving forward? My second question is about Wealth Management on page 7. There was a net increase in investment trusts, and the net inflow was strong with no outflows. What is the rationale behind this? Is this trend sustainable? Additionally, the margin is over 40%, specifically 44%, with AI-related investments mentioned. What do you project the margin level to be?
Thank you for your questions. Regarding the first point about Laser's activities, there have been some long positions taken. Laser is involved in institutional investor market making, crypto assets, fund management, and venture investments, which are various services we offer our customers. As you noted, we have seen some long positions. To address the second aspect of your first question about controlling performance volatility moving forward, we recognize that the digital assets industry presents both growth opportunities and risks. Our commitment remains long-term, and we have a strong risk management framework in place. However, as you've mentioned, we sometimes experience significant revenue fluctuations. In November and December last year, there was market disruption, highlighting that there can be both considerable upsides and downsides. To manage volatility, we are reducing the amount of risk we take on, and we will continue with this careful position management.
Our goal is to expand this business in the long run. Now, regarding your second question about the sizable net inflow of investment trusts and whether it's sustainable, it is influenced by market dynamics and customer preferences, so I prefer not to speculate on whether this trend will persist. We do recognize that a 44% margin is high, and whether we can achieve even higher margins is influenced by market factors, making it challenging to comment further. We acknowledge that we are affected by cyclical trends and that significant structural changes in the market are occurring. Japanese retail investors are transitioning more from savings to investments, which is a sustainable trend. We are adapting our strategies accordingly. Historically, we believe that the margin level can remain high, and we are actively managing costs. Additionally, we are investing selectively in AI to enhance the services we provide, and this will continue. That concludes my responses to your questions.
My second question is about Morgan Stanley and Merrill Lynch, whose margins are at 30%. They've aimed for 30%, and their actuals are slightly above that. Why does Nomura hold such an advantage? Is it due to having a larger asset size? What is your advantage?
Thank you for the question. I was consulting with our people in IR. There are country-to-country differences in terms of market structure, making it difficult to do an apple-to-apple comparison. Nomura's Wealth Management 100% sales are in-house. Because of that, partly because of that, it's easier to control costs. Regarding revenue market structure, I will have to once again check the market structure to respond regarding revenue. So I will conclude here.
The next question is asked by Watanabe-san of the Daiwa Securities.
I'm Watanabe from Daiwa. I have two questions. First question is about Wealth Management's pricing strategy; other face-to-face securities, overseas equities, and other products they are raising commissions. Do you have a discussion internally about raising pricing? Second question is about the timing and scale of buyback. Why Q3? Why not Q4? What's the background of the JPY 60 billion in size?
Thank you for your questions. For your first question on Wealth Management's commission rate, whether our peers are raising commission and what is our situation? That's your question. It's related to Wealth Management strategy. So I would like to refrain from answering that question. For us, we are focusing on value provision to customers. So we are considering what is the best solutions for customers. And we would like to continue our deliberation. Regarding your second question about the timing of buyback, why Q3? And also you asked about the value or amount. Regarding the timing, for one thing, Macquarie U.S. Asset Management transaction closing was the 1st of December. By booking the business, CET1 ratio impact was not clear, but it was clarified and finalized. So in the market, there is expectation for buyback. With that taken into consideration, we wanted to live up to expectations of investors and decided on buyback. Regarding the size of buyback, as mentioned repeatedly, for us, investment strategy and future opportunities and also, at the same time, the importance of shareholder return are all considered. Based upon the balance, we came to the decision on the size.
Regarding the second answer, CET1 ratio. That's above the target range this time. And on that basis, you came to JPY 60 billion. So if FY 2025, so based upon the total return ratio target. So this completes your actions to meet the target for FY 2025?
So whether we are at or above 50% in total return ratio that cannot be decided until we see the fourth quarter results. Based upon the fourth quarter results, we will check whether there is a shortfall or not. If there is a shortfall, then we will consider measures to take at that point in time, but when deciding on the amount, it is possible to add to what we have announced.
The next question will be by JPMorgan Securities, Sato-san.
JPMorgan Securities, Sato. I have two questions. First, Global Markets, post-January performance. You touched upon that subject Q3. You said that the trend of Q3 has been maintained since the beginning of the month. Domestic rates, recently, there had been some fiscal concerns that had led to a spike in interest rates, which means there was a lack of buyers. Some people cited that there was dysfunctioning of the market. Under such circumstances, how should we view your domestic rates business? Secondly, just to confirm the numbers, Macquarie acquisition, 1-month worth revenue expenses, revenues, and expenses will be booked, but normal rate contribution, JPY 7 billion revenue, JPY 5 billion cost, so JPY 1 billion per month times 12. Is that the right assumption? So can you confirm whether those numbers are correct?
Thank you for the question. Then on the first question, the performance is solid in January as was the case in Q3, but what about domestic rates? As you have pointed out, there has been some increase in volatility in the market. Super-long bond rates are going up. Therefore, some of the clients are taking a wait-and-see attitude and that is partly reflected in our Japan rates business, which has seen some slowdown. On the other hand, for global markets, in general, we are doing quite well because our business has diversified. In Japan, it's not rates alone. We're doing equity, credit. We're in diverse business areas and our GM business overseas, especially in the U.S., the business has grown to become quite sizable. So this slowdown has been absorbed, and we are recording sound performance in January. On the second question of the Macquarie acquisition, no, in peacetime, 7 minus 5, to minus goodwill, 1 times 12. That's the broad image, but this 1 month is quite difficult because in revenue, we have seed capital to foster the business, and there is fluctuation. For the annualized term, the position is neutral, but when we look at a snapshot of 1 month, there could be some fluctuation. So it could become bigger. So I think that's the way to look at it.
The next question comes from Tsujino-san of BofA Securities.
So this time, personnel cost increased and the deferred compensation accounting method was changed, and that impact is included. Moving forward in Q4 and after Q4 as well, what is going to be the impact in and after Q4? And also, what is the actual amount, absolute amount in impact? Considering that this time, revenue due to weak yen and personnel costs due to weak yen, both seem to have increased. But the way personnel costs increased, what was the reality of how personnel costs increased? That is my first question. And the impact from the next fiscal year. Next question, the second question is about Laser Digital. You said you have reduced position, but moving forward, this business is what you would like to grow. And of course, you have traditional securities business, which is growing, but when the size increases, then you have no choice about to increase positions and then hedge is impossible for crypto assets. Then how should we think about the positioning? In the long term, how do you deal with the volatility that needs to be considered? So what is your thinking?
Thank you for your questions, Tsujino-san. Concerning your first question about the impact of the change in accounting method for deferred compensation, the actual impact for the third quarter is approximately JPY 8 billion. We anticipate a similar impact in the fourth quarter. Looking ahead, the expected impact for next year is around JPY 15 billion or JPY 16 billion. For next year, we expect approximately 40% to 50% of that amount. In the following year, the impact is expected to be negligible. It's challenging to explain the accounting treatment related to the timing of cost recognition. Deferred compensation systems vary, and the costs are typically front-loaded; after 12 months, the spending normalizes. Regarding your second question about the reduction in Laser positions, we foresee that as the business expands in the medium to long term, the positions will grow larger, and volatility will remain high.
We agree that a thorough discussion on our strategy is necessary. We aim to grow this business in the medium to long term, but we also engage in market-making and trading for customers, which helps reduce unit risk exposure. Additionally, our digital asset-related businesses encompass market-making for institutional investors, crypto asset management, and support for the venture ecosystem, along with custody-related services. We intend to ensure diversity in our offerings while growing the ecosystem, and we share your concerns regarding risk. With this understanding, we plan to move forward with the business.
Regarding lending, are you conducting lending right now? And there is no extra risk there if you are conducting lending business like crypto asset lending?
Regarding the lending business, we do have a lending business as part of our product lineup, but activity is very small.
The next question is for UBS Securities, Niwa-san.
This is Niwa. I hope you can hear my voice.
Yes, we can hear you.
Wholesale resource efficiency and private assets. First, revenue and risk-weighted asset ratio Page 12, 7.7%, quite high. How does the management evaluate this level? And you've been talking about improving efficiency. Is there room for further increase in division ROE? Do you think that this could be raised further? That's the point of my question. And secondly, I will deviate, but in Nikkei newspaper, Mr. Okuda was responding to an interview regarding private assets, and he was talking about selling Japanese products in other countries. So if you want to invite assets or investments into Japanese private asset, what is your estimate of the size of the business in terms of AUM or revenue? Or in order to engage in such business, does Nomura need to be equipped with a new function? So those are my questions.
Then on your first question regarding resource efficiency of resource, Page 12, 7.8% revenue modified RWA; we think that this is so and so acceptable global markets, Hong Kong, Singapore, IWM is engaged in wealth management business. Resource is not so much needed and taking that growth, all of the activities taken together; this is the level. So for example, if the question is whether the resource efficiency is going up in a certain business, not so. This is a result of the business mix. So that's my first point. And next, this number, is it possible to further increase this number? If we overfocus on that, the statutory capital RWA revenue or profitability in order to increase that, we may end up taking too high substantive risk in light of the economic capital. So it's good that this number goes up, but rather than just focusing on this indicator, we would look at various indicators comprehensively for risk management.
If in the end, this number goes further up, then that's positive. We have the self-funding program. The resource may be somewhat tight for the business, and they are incentivized to focus on the efficiency of resources. Even if there are potential projects, they have to judge whether resources can be used efficiently in light of the revenue that could be gained from that project. So I think that kind of incentive has also delivered some results. So this 7.8% is quite reasonable and appreciated, but we're not just chasing this number. Second question, Japanese private asset in order to invite money into Japan for the development of Japanese infrastructure, what kind of mechanism, or what’s our estimate of the size of the resource? Regarding those points, it might be a bit premature to share the design we have in mind. I think we need to engage in more internal discussions. At one point in time, we will probably have more factors that we can speak to you, and then we will explain our strategy. I hope that this would do for today.
As there are no more questions, we would like to conclude the question-and-answer session. Now, we will make a closing address by Nomura Holdings.
Thank you very much. I am Moriuchi. Thank you very much for spending your precious time. As mentioned, there are one-off items and the technical accounting-related items, which are difficult to grasp. They are ending up in an increase in revenue and a decrease in profit; nevertheless, all divisions delivered a strong performance, and we are positively looking at the performance. So medium and long term, we are focused on growing the revenue power of those four divisions. As for Laser Digital, we believe the business is promising in the medium and long term. So we would like to grow the business while suppressing short-term volatility by controlling the risk volume. In any case, thank you very much for your precious time that you spent with us. That is all from me. Thank you.
Thank you for your time, and that concludes today's conference call. You may now disconnect your lines.