Daiwa Securities Group Aktie

This is Kotaro Yoshida from Daiwa Securities Group Inc. Thank you very much for taking the time to participate in our conference call today.

I will now explain the financial results for the fourth quarter of FY 2025 announced today following the presentation materials available on our website. First, please turn to Page 4. I will begin with a summary of our consolidated financial results. Percentage changes are in comparison to the third quarter of FY 2025. In Q4 FY 2025, despite the continued highly volatile market environment, our profit base, primarily driven by asset-based revenues, functioned steadily, allowing us to maintain a high level of consolidated profit.

Net operating revenues were JPY 197.8 billion, up 1.7%. Ordinary income was JPY 67 billion, down 3.6% and profit attributable to owners of parent was JPY 49.8 billion, up 7.3%. Looking at the results by division in the Wealth Management division, as a result of our focus on total asset consulting, both the contract amount and net inflow for wrap account services reached record highs and net asset inflows also expanded. In Securities Asset Management and real estate asset management, assets under management grew steadily, continuing to expand our revenue base.

Global Markets accurately captured customer flows amid market fluctuations, resulting in increased revenues in both equity and FICC. In Global Investment Banking, domestic M&A remained strong. As a result of these factors, the annualized ROE was 11.5%. The year-end dividend is JPY 35 per share. Combined with the interim dividend of JPY 29, the annual dividend will reach a record high of JPY 64, resulting in a dividend payout ratio of 50.8%. Please turn to Page 8. This page shows base profit, our KPI for stable earnings as outlined in the medium-term management plan. FY 2025 base profit grew steadily to JPY 182.7 billion, up 32.9% year-on-year.

We have achieved a level that significantly exceeds the JPY 150 billion target set for the final year of the medium-term management plan, doing so in just the second year of the plan. Please turn to Page 11. I will now explain the statement of income. Commissions received was JPY 131.2 billion, up 2.0%. A breakdown of commission received is provided on Page 26. Brokerage commissions increased significantly to JPY 31.9 billion, driven by an increase in customer flow.

Please turn to Page 12. Selling, general and administrative expenses were JPY 138.3 billion, plus 4.1%. Personnel expenses increased due to an increase in performance-linked bonuses. Please turn to Page 14. This slide shows the annual trends in revenues and SG&A expenses. Whilst performance-linked costs and strategic expenses such as IT investments have increased in tandem with business expansion, the increase in fixed cost has been constrained, keeping overall costs at a well-controlled level.

Please turn to Page 15. Total ordinary income from overseas operations was JPY 6.9 billion, down 17.6% quarter-on-quarter. By region, Asia and Oceania saw an increase in profit, supported by equity-related revenues driven primarily by Asian equities. On the other hand, the Americas recorded a decrease in profit due to a decline in M&A revenues. Next, I will explain the financial results by segment.

Please turn to Page 16. First is the Wealth Management division. Net operating revenues were JPY 81 billion, plus 5.2% and ordinary income was JPY 33.1 billion, plus 12.1%. We believe that the results of our ongoing efforts in the asset management type business have manifested in our sales performance despite the persistent high volatility in the market environment. By product, equity saw a revenue increase of JPY 1.1 billion due to increased trading in Japanese equities.

Fixed income revenues also increased by JPY 500 million as we accurately captured investment needs. Sales of fund wrap increased significantly, driven by growing demand for long-term diversified investment and portfolio management. In addition to inflation hedging, wrap-related revenues reached a record high of JPY 18 billion. Asset-based revenues reached a new record high of JPY 33.4 billion, driven by increase in agency fees for investment trust and wrap-related revenues. The fixed cost coverage ratio based on asset-based revenue in the Wealth Management division was 120%, and the total cost coverage ratio was 76.5%.

Please turn to Page 17. This slide shows the status of sales and distribution amount by product within our domestic Wealth Management division. Our wrap account service reached a record high level with total contract AUM rising to JPY 6.4046 trillion. New contract amounted to JPY 386.2 billion, and net inflows came to JPY 276.2 billion, both marking all-time highs.

Our fund wrap also continues to grow strongly. Its characteristics have been well received by clients in both favorable market conditions and during periods of adjustment, resulting in a significant expansion in assets under contract. In addition, collaboration with external partners such as Japan Post Bank and Aozora Bank has been progressing steadily, contributing further to the growth in the new contracts.

Please turn to Page 18. This section outlines the progress of our wealth management business model. Cumulative balance-based revenues for fiscal 2025 increased to JPY 123.2 billion. Net inflow of assets also remained high, totaling JPY 1.6342 trillion. In line with our group's fundamental management policy of maximizing clients' asset value, we will continue to provide optimal portfolio proposals based on each client's total assets while working to build a revenue base, which is less susceptible to market fluctuations.

Please turn to Page 19. Here, we show the status of Daiwa Next Bank. NII, net interest income, totaled JPY 11.2 billion, up 11.2% and ordinary profit reached JPY 6.2 billion, up 30.2%. The increase in policy rates contributed to an expansion in net interest margins. The promotion of total asset consulting, together with initiatives such as competitive deposit interest rates, including a 1.2% 1-year time yen time deposit for retail customers proved effective and deposit balance surpassed JPY 5 trillion.

And now turning to Page 20. Let me explain the Asset Management segment, beginning with Securities Asset Management. Net operating revenues were JPY 19.7 billion, up 5.9%; and ordinary income was JPY 11.4 billion, up 11.6%. Daiwa Asset Management publicly offered securities investment trust AUM topped JPY 37 trillion, hitting record high.

And then moving on to Page 21 for real estate asset management. Net operating revenues were JPY [ 9.9 ] billion, down 10.6% and ordinary income was JPY 9.8 billion, down 5.6%. While revenues and profits declined on a quarterly basis, mainly due to the absence of property sales gains recorded in the previous quarter, real estate asset management is a business in which the profit grew in line with AUM.

AUM at Daiwa Real Estate Asset Management surpassed JPY 1.6 trillion, and we expect stable midterm growth in line with continued AUM accumulation. In addition, equity method investment gains from Samty Holdings contributed to maintaining a high level of profit.

On Page 22 is Alternative Asset Management. Net operating revenues were negative JPY 2.6 billion and ordinary income was negative JPY 4.8 billion. And the Renewable energy, we recorded provisions and impairments due to the revaluation of certain portfolio investments.

On Page 23, lastly, let me explain the Global Markets and Investment Banking division. First, Global Markets, net operating revenues were JPY 51.3 billion, up 13.4% and ordinary income was JPY 17.7 billion, up 48.6%. Both equities and FICC performed strongly, resulting in a significant increase in revenues and profits. In equities, trading flows in Japanese stocks increased substantially, particularly among overseas investors, leading to a 6.2% rise in revenues.

By offering a diverse range of execution methods, we successfully captured large-scale trading mandates contributing to revenue growth. In FICC, revenues increased 20%, driven by strong performance in JGBs and credits. We effectively captured customer order flows in both domestic and foreign bonds and the position management remained solid even in a highly volatile market environment.

And now turning to Page 24. In Global Investment Banking, net operating revenues were JPY 24.1 billion, down 7.4% and ordinary income was 2.1 billion, down 60.5%. But M&A advisory remained strong in Japan and the revenues increased in Europe within our overseas operations. That concludes the explanation of our financial results for the fourth quarter of fiscal 2025.

Fiscal 2025 on a full year basis experienced high volatility in stock price and interest rates, but the year itself was quite active overall. And the entire business portfolio had higher stability so that income was stable and the market response capability also improved. We were able to benefit from both of them. As a result, the second year of this midterm plan hit record high in terms of the profit and the ordinary income was hitting the highest in the last 20 years. Well, towards the end of the midterm plan, we think that we have a very good strong result.

Now we'd like to move on to the announcements that we have made about the subsidiary of the ORIX Bank, as we have explained on our website. I will explain the overview, objectives and financial impact in accordance with the materials published on our website.

Please turn to Page 2 of the document entitled regarding the acquisition of ORIX Bank as a subsidiary. This is a transaction summary. In this transaction, Daiwa Next Bank will make ORIX Bank a wholly owned subsidiary. We also plan a merger of the 2 banks in the future. The acquisition price is JPY 370 billion, and the final acquisition price will be determined after price adjustments stipulated in the share transfer agreement. The acquisition will be funded entirely by our own funds, strategically utilizing the capital buffer we have accumulated to date.

Next, the primary objective of this transaction is to continuously expand the stable revenues of the Daiwa Securities Group and improve ROE and EPS through the strengthening of the Wealth Management division. By integrating Daiwa Next Bank and ORIX Bank, which have different strengths, we aim to enhance our ability to provide solutions for our clients' challenges regarding both assets and liabilities, thereby significantly improving the corporate value of both banks.

Specifically, we will realize sustainable growth by combining the outstanding lending and trust capabilities cultivated by ORIX Bank with the deposit gathering capabilities backed by our group's solid customer base and sales network.

There are 3 pillars to this strategy. First, deepening the total asset consulting tailored to the life stages of each individual client. Second, establishing a sustainable growth model through a virtuous cycle of deposit and lending expansion. Third, maximizing synergy effects through functional integration by a future merger. I will explain each of these in turn.

Please turn to Page 3. The post-integration bank will have total assets of JPY 9 trillion and approximately JPY 400 billion in equity capital, evolving into a comprehensive bank, combining advanced lending and trust functions with strong deposit gathering capabilities. By offering competitive deposit rates backed by ORIX Bank's high investment capabilities, we aim to establish a sustainable growth model through a virtuous cycle of deposit and lending expansion.

Regarding the impact on consolidated financial results, there is a potential to improve net interest income as a synergy effect. In addition to the over JPY 1.5 trillion of drawable funds from Daiwa Next Bank's current account at the Bank of Japan, we aim to accumulate JPY 2 trillion in deposits over the next 5 years as a synergy effect, separate from the stand-alone deposit growth of both banks through the provision of competitive deposit rates.

We plan to invest a total of JPY 3.5 trillion in real estate investment loans and securities-backed loans to improve net interest income. Assuming we can secure a 1% interest rate margin improvement, our estimates indicate a potential improvement of JPY 35 billion in net interest income. In addition to these synergy effects, ORIX Bank's stand-alone performance will be consolidated into our financial results. The bank's average ordinary income over the past 5 years is approximately JPY 30 billion with a net income of approximately JPY 20 billion. On the other hand, we expect to incur amortization expenses for goodwill associated with the acquisition.

Next, regarding capital and regulatory aspects. We will maintain financial soundness while effectively utilizing our capital buffer. Whilst the implementation of this transaction will lower the consolidated total capital adequacy ratio by 5 percentage points, it will still exceed 14% on a fully loaded Phase III finalization basis, securing a certain level of capital buffer. However, to expand our capacity for future growth investment and shareholder returns, we will also consider issuing perpetual subordinated bonds. Please note that we are not considering equity financing.

Now moving on to Slide 4. Let me see the strength of Daiwa Next Bank. That is the strong deposit gathering capability. In the meanwhile, it has to challenge with the limited lending and the trust functions. Against that, the ORIX Bank has a strong lending and trust function. That's their strength, while the challenge is the deposit gathering capability. So while we are complementing or we are able to complement each other with the strength and the challenge, we think this is an ideal match between the 2.

And moving on to Slide 5. I may be repeating myself, but the objective of making them a subsidiary is to strengthen the wealth management division and also a great leap in terms of the stability of the income as a result of that. The stronger Wealth Management division is not coming from one point. It comes from some pillars, the deepening total asset consulting, virtual cycle of deposit and loan expansion and accelerating growth through collaboration with the Asset Management division. Those are going to be the 3 pillars to enhance the management division and the stability of the income.

And then moving on to Slide 6. We are trying to see the deeper total asset consulting capability for the clients. The assets and liabilities of our customers would change from life stage to life stage. That's the reason why not only the assets, but the liabilities all included. It's quite important to have the total asset consulting capability to optimize our capability of designing the balance sheet of the customers. By utilizing the ORIX strength, which is the lending and the trust, we are going to be providing the solutions for the pains of the customers depending upon their life stage.

And then moving on to the Slide 7. We're thinking about accelerating the growth spiral by leveraging the strength of the banks. we look at those banks alone, the balance is going to be accumulated. But as a result, in addition to the growth of each bank's deposit balance, we aim to expand the deposit by over JPY 2 trillion in the next 5 years as a synergy effect, the asset -- the loan asset of the ORIX is quite competitive. So based upon which we're going to offer the Daiwa Securities customers a competitive deposit interest so that we are able to get -- acquire the [ stucki ] deposit. And then eventually, that is going to increase the deposit balance. That is going to be a great spiral of the growth of the banks overall.

And then on Slide 8, this shows the changes of the balance sheet structure as a result of the integration of the 2. On the asset side, the lending and securities and on the liability side, the ordinary deposit and the time deposits are going to be all balancing so that the balance sheet is going to have a good risk diversification.

The explanation is over with that. The details is going to be explained by our CEO, Ogino, at the management strategy meeting, which is scheduled to be held next month. By responding flexibly to the variety of needs by the customers, we're going to be capturing the changes in the market environment. And as a leader of the financial and capital market, we are going to pursue sustainable growth. We sincerely appreciate your continued support, and thank you very much for your kind attention.

With that, we finish our explanation. Now let us move on to the Q&A session.

[Operator Instructions] I would like to introduce the first person, SMBC Nikko, Muraki-san.

This is Muraki from SMBC Nikko Securities. So I have a question related to ORIX Bank's acquisition. The first point relates to Slide 3. You talked about the synergy and how it supplements with one another. So deposit is JPY 2 trillion increase. That is the number you've mentioned already, so 1.05% to 2%, that is the time deposit level. So going forward, do you intend to actually increase this to a competitive level? That is the first question.

And also, you would have a loan increase by JPY 3.5 trillion. So you have the real estate loan and the secured loans. What is the breakdown in terms of the loan growth? So second part of the question relates to your capital strategy. So this is Slide 12 of the material. You have the image here. So this will be over 14%. The capital ratio will come down. But if you look at the future from the current level, the capital level intends to be built. So I don't know if it's 17% or 18%, it's hard to tell from this diagram.

So whilst you're increasing this level, what are some prospects of the share buybacks? What are some of the ideas we should have? In the past, the share buybacks they conducted even amongst the high level of capital. But now if the capital is going to be depressed, perhaps there will be less allocated or different allocation to the share buybacks. So please give us some idea.

Thank you very much for that question. The first part of the question, so what are the JPY 2 trillion of deposit as part of the synergy? So what is the outlook? So related to this point, we are confident that we can acquire. We believe there is a fair chance that we can achieve that number. So within this fiscal term -- so after the rate hike, so Daiwa Securities, there has been a 2% of provision in the year. So last year, in terms of the time deposit, so about JPY 650 billion increase in terms of the time deposit.

So if you can provide a competitive -- the deposit, right, given the fact that Daiwa Securities have a nationwide network and the high-level consulting capabilities and through our consultants, we should be able to acquire the deposit. So of course, there has been a shift away from savings to investment. But this is not just the deposit into equities. But also, we have been providing consulting to their entire asset, inclusive of deposit. So within that process, the larger the pie is, the better chance that we may have for the acquisition of deposits.

So JPY 2 trillion is feasible. That is our expectation. Also about the JPY 3.5 trillion of the loan, so real estate loans and also the securities, the back loans, the breakdown of that, we don't have the exact number as we speak. But already, what ORIX Bank is providing, that is an investment use in real estate loan, it is for the one mansion for the single-family hold in the metropolitan area.

So the number of banks have been on the decline. But in terms of the number of households, single households in the metropolitan area is expected to rise. Therefore, we do believe there is sufficient demand. In the past several decades, ORIX Bank has built this lending capability. So in relation to that, it is very possible that we can achieve that JPY 3.5 trillion of lending.

Also the second part of your question about the capital, the strategy. Please hold. So through this acquisition, so in terms of the consolidated total capital adequacy ratio will be out -- will be down by mid-5% or so. So right now, it's over 14%. So that is the level that we're expecting at this moment. So going forward, how the capital policy may change, and that is the intent of your question. But as of this moment, no change vis-a-vis our basic policy.

So the dividend -- the payout ratio is at 50% or higher. And also the floor for the annual dividend of JPY 40, we'd like to maintain that. So through this acquisition, there will be some level of decline in terms of the total capital adequacy ratio. However, we can ensure the financial soundness. And also by steadily building on the profit, we can continuously keep this financial soundness.

Also in order to ensure flexibility, AT1 bonds issuance is also under explanation. Of course, the actual amount is still under consideration. But again, we'd like to further have a solid capital base. Also in terms of share buybacks, the question was what are our plans going forward. Again, no change in terms of our general stance. So based on the assumption of financial soundness, in light of the different operating environment, gross investments will be considered. But of course, that is necessary for future shareholders' return. So we definitely like to prioritize on that.

So looking at the gross investment and the buyback, we need to strike the right balance and be agile and flexible. So this particular deal, this is an impact of the profitability of ORIX Bank. And also through the realization of the synergy, we can expect to enhance the capital generation within the group as a whole. So ultimately, this would actually lead to increase in the source for shareholders' return.

So going forward, the capital allocation, capital policy is a very important policy. So given the current operating environment, we'd like to make a comprehensive approach.

Related to the second part of my question. So at this particular timing, you didn't announce the share buybacks. So in terms of the perpetual subordinate bonds utilization, related to that point, so what is the potential amount AT1 bond issuance that is? What is the amount they have in mind? And once you announce that, in light of the credit rating, we expect you to conduct share buybacks at that timing.

Thank you for that question. So in terms of the AT1 bonds, the issuance, so it will be within the part of the consideration. But in terms of concrete details, we will consider those going forward. Also in terms of the credit rating, so we would like to definitely conduct meticulous communication with the credit rating companies. So we may also incorporate those ideas. So based on that, so whether there's a possibility of buybacks, again, we'd like to take a comprehensive approach in making that decision. So that has been my answer.

The next question is by Morgan Stanley, Sato-san.

This is JPMorgan, Sato speaking. Well, I have several questions about the bank. One, we simply this consolidation, you're going to make them a subsidiary. After that, how should we think about how you're going to be executing it? On the material, you're talking about the recurring income of about JPY 30 billion and the net profit of about JPY 20 billion. What kind of upside are you expecting from that baseline?

I think that, of course, depends on the analyst, but the depreciation or the amortization of the goodwill and also the sourcing cost, probably a part of that needs to be recognized as well. So when you explain that to the market participants, what kind of a level are you going to say to them on the annual contribution? What is going to be the level that you think you're going to be talking in that communication to the market?

The second question is about this -- by the acquisition of this ORIX Bank, you still have an external partners. Are there going to be any changes in the relationship with those partners? Like Aozora Bank, you are currently accounting for them under equity method. So your business alliance with them, is it going to be changing because of your acquisition?

There might be some changes in terms of like focal point that you are working together with those external partners. And also when it comes to the asset-backed ones, partly, you are working together with Credit Saison. What are you going to be thinking about those asset-backed securities?

Thank you very much for your questions. The first question about the bank. Well, as you say, the average of the ordinary income is about JPY 30 billion of the ORIX and the profit is about JPY 20 billion. At Daiwa Shoken Daiwa Securities Group, our capital average is about JPY 1.7 trillion, meaning that on a simple calculation, it has the positive impact of pushing up the ROE by 1.2%. The equity finance is not likely to happen. So that's the scenario that we are seeing at this point. But the amortization of the goodwill and assuming that AT1 is going to be issued, which we, of course, need to examine. But anyway, setting that aside, we think that is a basic simple calculation that we are currently having our basis.

And the second question, first of all, we do have the external partnership with Aozora Bank. And regarding that partnership, we assume there's no impact. Well, regarding the integration, it's for strengthening the wealth management business. The total asset consulting business for the retail business, the asset to support from the total asset consulting is going to be stronger.

And the trust functions in order to work in our wealth management business for the retail market, it's important to have the trust function. Well, organically within the company, we did not really have much capability to grow itself. And by having the external partners, we have provided some instruments. But from now on, we think we'll be able to do that in-house. That's going to be another one big pillar.

Well, regarding Aozora Bank, our partnership with Aozora Bank, there are some corporates that are listed and private. We have been providing the referral to the Aozora Bank and also the LBO financing, for example, have been provided and have been providing in the past so that the customer trade is quite different in Aozora Bank. So we think both can actually stand.

And also for the real estate-backed loans, well, Credit Saison is a part of the business that we've been engaged with. But Fintertech is jointly operating -- operated by Credit Saison. So they have the asset -- the real estate asset-backed loans. But of course, the market size is limited so that the capacity is not that big. And this time, thinking about the capability being much bigger. I think the issuance coming from the business is going to be having new opportunities for us to grow our pie itself. Does that answer my question?

What about the amortization of the goodwill. Any color on that scale?

The amortization amounts and the cost for the amortization we're going to be discussing in details more. So at this point of time, there's nothing that we can comment. So please be patient. During the time comes for the closing, we think we'll be able to come to that point.

So let us move on to the next question. BofA Securities, Tsujino-san, please.

The last point about the goodwill amortization, it could be as long as 20 years, but some say it could be 10 years. So you should have some sort of image in terms of the amortization. And also in terms of decision of the dividend, it would be -- so the net profit -- so would you be using the same sort of net profit regardless of the amortization. So 20 years or 10 years, I don't think that you have no image as to the amortization. If you can give us some color, that would be helpful. That is the first question.

Thank you very much for that question. So of course, we have some image or some ideas. So the duration that you've mentioned, it will be within the time frame that you've mentioned. But as of this moment, we're working together with the auditors. So we would like to refrain from giving you an exact answer. Also, as far as dividend is concerned, as you rightly mentioned, no change in terms of the dividend payout ratio. So 50% or higher of the earnings. So no change in terms of the dividend policy.

Also in terms of ORIX Bank, so they have the Tianjin report. So as of September end, so in terms of the J-GAAP, excuse me, J-GAAP earnings, JPY 7.4 billion, and ordinary income was JPY 10.6 billion. So it is actually quite lower in comparison to 5-year average. So in order to drive this, do we just work towards that JPY 8.6 trillion. I think that is the direction we should aim for. But right now, it's a midterm -- sorry, interim times 2.

Is that the image that we should have in mind for ORIX going forward? The interim number, double that number?

First of all, as of September 2025, the interim results for the company -- so within ORIX Bank, there were some rebalancing of the securities. So there were some loss from sales. So that is why the amount has ended to that one. So somewhat lower that is. That is our understanding. So in terms of the underlying capability, then it is closer to 5-year average then.

Okay. Understood. So the third point -- the third question I have, this is a question related to the results. So FICC has been very favorable. So Q3, there was a growth. In Q4, there was a further growth in FICC. So how sustainable is this? So for the March quarter, how has been the recent performance? And how is it trending now as we speak?

Thank you very much for that question. So in terms of FICC, amidst this very high level of volatility, we were able to capture the customer flow, and we've been able to turn those into profit. So that has been very positive. Also in terms of products, that's been all around. So we have JGBs and also, we have some domestic derivatives and so forth. So within this high level of volatility, we do have a high level of activities amongst the customers. So the customer flow, we were able to capture that through the communication with the customers.

We can anticipate the customer flow and conducted the positioning. So through this control, that has led to a positive impact of the earnings. So that has been the experience of this past quarter. So for FY 2025, in the first part of the year at the phase of rate increase, I think we have also mentioned there were some difficulties in conducting the position control. But we have addressed these issues, conducted communication with the customers and also develop customers and also address the diverse needs of the customers.

We've been able to have more strengths in the position management. But just because that we were able to do that. That doesn't mean we can sustain this without doing anything because, of course, the market is changing every day. So accordingly, we would like to enhance our capability to capture the customer flow. And also, we'd like to steadily strengthen the position management system.

Also for the fourth quarter, so for the March quarter, that is FICC, the revenue image that is, so January 3 and February is 2 and March is 5. So in terms of the month of April, so in comparison to the fourth quarter average, maybe it is somewhat subdued for the month of April. But again, the customer flow continues to be fairly active. So of course, the environment continues to be uncertain, but we would like to have a closer communication with the customers. And we are hoping that we can turn it to our better performance.

Next question is Nomura Securities, Sasaki-san.

This is Sasaki of Nomura Securities. One question about the earnings call results and one about ORIX. Well, I'd like to talk about the wealth management. The AUM in the first half was declined and the previous quarter was down, but the asset inflow was making an improvement. I would understand that, that is because of the drop in the U.S. equity price. For the retail investors, there was some sales for the realization sales. Am I right to understand that? If I'm not, then please correct me.

And the second question is about the acquisition of ORIX Bank. So-called -- are there any binding contracts for like a key man close that you are going to be able to retain the key men or the management people. I will also be able to get those words from the ORIX side. The ORIX side, the asset is very characteristic is because of the support getting from their parent company, which is ORIX. Is that also something that you have captured? Or do you think the business is going to be continuing based upon your strength as a stand-alone basis?

Well, thank you very much for your questions. First of all, about the asset inflow. On the earnings announcement material, Slide -- just a moment. For the fiscal 2025, we have had the inflow. So compared to the year before, the inflow amount was about the same as the 2024.

I'm sorry. The fourth quarter is my question. The fourth quarter inflow.

Okay, Q4 only. But regarding the AUM, on this quarter, the amount has declined. However, the U.S. stock was one reason. And also the fall in the stock price in domestic as well. So the asset inflow, the net inflow has increased has surpassed as a result. But the asset inflow itself, as I mentioned earlier, has been quite active and quite strong. Well, since 2007, the asset flow side has been really big.

Okay. And regarding the acquisition of M&A in the contract, do we have any key men close about the retention of the management people.

Well, regarding the close of the contract, I should not make any remarks. But after the merger or after the integration, the smooth integration is going to be, of course, the most important. And ORIX and ORIX Bank, both are, of course, making effort for the smooth and continual operation. So as a large direction, we, of course, have had the agreement to come to this agreement or decision so that we shall make an effort to deliver results.

So assuming that, for example, the real estate finance, the property sourcing is basically coming from partly support from ORIX. Am I correct? The support from the ORIX Group. Is it also coming?

I didn't really understand. Well, from the very beginning for the sourcing, the ORIX Bank has been acquired by using their own network. So the support from ORIX is, as far as we understand, is limited, if any.

I would like to move on to the next question. SBI Securities, Otsuka-san, please.

This is Otsuka from SBI Securities. Can you hear me?

Yes, we can hear you. Please go ahead.

So one question at a time. So related to the -- you've talked about the asset inflow related to the previous question. So in terms of the cash in the past 2 years, it has been the strongest. So if you can actually tell us the reasons behind that. This is Page 49, Slide 49 about the actual the cash that is.

Thank you very much for that is. So we have the bank deposits as cash and it may turn into investment trusts and fund wraps. So there are different objectives for that. But roughly speaking, Q4 fund wraps, in order to contract the fund wraps, there are a lot of cash paid in from other banks.

So we did see a lot in the past quarter. Also for Daiwa Next Bank deposit, so there were some cash paid in for Daiwa Next Bank's deposit. That was another reason. Also, there has been active transaction of the Japanese equities for the March quarter. So in order to buy the equities, a lot of people have actually cashed in.

On the other end, the share price actually peaked in the month of February, some may actually sold their holdings. So actually, they may have withdrawn the cash. So on a net basis, this is the number that we had.

Understood. So fund wraps then. So for additional and also new purchases, both have been strong then?

Yes, both.

Second question relates to ORIX Bank. So this is Slide 6 of the presentation material. So in terms of the clients' life stage, I'd like to understand this accurately. So with the acquisition of ORIX Bank, the question is, where would you like to focus? So according to Slide 6, so 60s, 70s, 80s, actually, the asset exceeds the liabilities. So those who are in excess of assets and those generation, ORIX excels in the best real estate investment loans. So do you intend to actually provide those to those elderly customers? Or are you actually focusing on more those in 30s and 40s where the liability is larger for assets? We will be focusing on extending credit to them.

So for those in 30s to 40s, so they will be the first house the purchases. So this is different from the investment real estate loans. So this may be an area ORIX Bank is not necessarily strong. So how do you intend to actually approach the different life stages of the clients?

Thank you very much for that question. So according to the Slide 6 on the bottom part about the image of asset and liability balance by generation. So generally speaking, by different age, so the younger, you would have more liabilities. So you may have the housing loans or investment loans. So basically, liabilities tends to be higher in comparison to assets. But once you exceed over the age of 60, net assets would start to increase.

So for Daiwa Securities, the main customers for Daiwa Securities are mainly those 60s or above. So as you can tell from this image, so asset on a net basis, it is larger. And so we have been providing different consultation for the management of their assets. So in other words, for those customers in the 40s and 50s, asset formulation type of proposals by NISA, that has been conducted.

But of course, the inherent needs of these generation is how they can actually extend and also repay the loans. And also for those who wish to actually invest in real estate, we didn't have the facility to actually provide credit towards that end for those in the 40s and 50s.

Now for ORIX Bank, the real estate, the bank loans, the main customer image is to share with you is in the metropolitan area. And so those in the 30s and 40s, family men working for listed companies, they account for a large proportion of ORIX Bank. So generally speaking, they do have high level of income. And of course, they have their own the housing. But at the same time, they are investing in the metropolitan one-room mansions, one-room condos. So that has been the main customers that ORIX Bank has been cultivating.

So going forward, what ORIX banks provide. So they have the apartment loans that is another part of the loan product offerings. So this is more towards high net worth individuals and also more of the more elderly customers. So we can actually provide these products to the Daiwa Securities customers for these apartment loans.

Also from what we have received, the securities from the Daiwa Securities customers, we can actually use them. The securities can be backed and use it as part of the business. But of course, we do have -- we are connecting that already. But because of the capital regulation and so forth, it has been somewhat restricted. So with the addition of the ORIX Bank, we could expect to see further accumulation of the loans with the securities backed loans.

I couldn't quite understand that point. So you mentioned those in 30s and 40s working for listed companies. And those who already have credit with ORIX Bank, you mentioned that. So already, they are customers of ORIX Bank. So whether ORIX Bank will become a subsidiary of Daiwa Securities, it doesn't really matter, doesn't it, because they are already customers. So is my understanding correct?

So if they're going to start the transaction with Daiwa Securities, that is positive. But taking this opportunity, it is not likely -- to be honest with you, I cannot actually imagine that they would all start doing business with Daiwa Securities. Actually, we do believe there could be a positive impact. So those who have the real estate loans from ORIX Bank, it is not so large in terms of number in comparison to Daiwa Securities customer base. So the impact could be limited.

But in terms of the real estate investment loans, the customer base or customer potential is much larger, not just confined to those who are customers of ORIX Bank. So we also intend to develop new customer base together with ORIX Bank, so we can further expand the customer base.

Understood. So perhaps at the IR meetings and also at the business strategy meeting, we'd like to continue the discussion.

Next is going to be the last questioner, UBS, Niwa-san.

This is Niwa of UBS. Can you hear me?

Yes.

Well, regarding the bank, I have 2 questions. One, I'd like to know the background of the acquisition. Which one has made the first comment and how long did it take? And also, you're talking about the margin of 1%, the interest margin of 1% as a guideline. How realistic that is going to be? According to your model, 1% of the interest margin seems to be easy to achieve. If that's the case, then that's going to be the image that we should consider as conservative? Or should we think about that a challenging target? That is the question about the bank.

The second part of the question is that the U.S. private asset is now going through some turmoil. Any impacts on your business? Or do you have any exposure? And also the response of the retail investors, are there anything that you can share with us?

Thank you very much for your questions. First of all, the background of this M&A. We, with the ORIX as a company for our group, well, they have been an important business client for a long time. Including the management, we have had very good relationships. And there is much complementarity between the 2 banks. The possibility of working together, we have sounded out to the ORIX Bank from our side.

In the last few years, because we entered into a world with positive interest rate, as I mentioned earlier, we have a high expectation of the complementary synergy to deliver. So since last fiscal year, we have made some serious proposals. So the 2 companies continued discussion. And as a result, we decided to work together as one company. That is the background.

And talking about the interest margin, Daiwa Next has the deposit to BOJ, of course, at 0.75%. But the weighted average of the bank is about 2.1% for the lending. So thinking about the better yield for our companies, that's going to be 1.36%. So if we're going to have the calculation on a test basis at 1%, that was the scenario that we wanted to provide with you.

And then moving on to the private credit, our exposure and the impact. First of all, our exposure is the one that we do have an origination, there's nothing. For the group as a whole, as an exposure, it's very limited and very much of the indirect exposure. So on a consolidation basis, there's no impact on our margin. And for the retail investors -- alternative asset -- for alternative assets -- as Daiwa Securities, the alternative investment is an option for less liquidity, but higher diversification so that the return profile can improve.

So alternative is a very important asset class for us. But liquidity is limited. So when our clients decide to buy, then we do have the higher compliance guideline to follow. When there is enough assets and also the exposure should be just one portion of the total asset, especially given the consideration of the low liquidity, those are the items that need to be fully explained and then understood by the customers. The credit -- the private credit trust investment is managed and then consigned to Blackstone. The minimum amount of the investment is USD 50,000. So the subject is the high net worth customers.

Though recently, we do see the mass media coverage. And that is causing some concern for the customers. So for all the customers who have those exposures, we are following up for all of them. For the Daiwa Asset and for ourselves, we have been very flexible and trying to provide the information that is user-friendly. So at present, we do see the situation where the cancellation request is mounting or anything. There are some number of people who are considering the cancellation, but it's not that high. So continuously, we will monitor the situation and then think about the follow-up to our customers.

Niwa-san, thank you very much for your questions. With that, we want to finish our Q&A session.

[indiscernible] speaking from Daiwa Securities Group. Well, thank you very much for joining today for investors and analysts who would like to have a continued communication. So thank you very much for your continued support. If you have any further questions, please send us to IR team. Thank you very much for your attention today. Thank you.

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

Thank you very much for your patience, investors. We appreciate your participation today in the FY 2025 First Quarter Financial Results Conference Call of Daiwa Securities Group Inc. despite your busy schedules. At this time, we will begin the conference call.

Joining us today from Daiwa Securities Group Inc. is Executive Managing Director and CFO, Mr. Kotaro Yoshida. I am Kana Nakamura, Head of the IR Office, and I will be moderating today's proceedings. Thank you. First, CFO, Yoshida, will explain the financial results for the first quarter of FY 2025. We will accept questions from participants after the explanation is concluded. Please note that today's conference is also being streamed via the Internet. It is open to the general investors.

Now we would like to begin the explanation.

So this is Yoshida from Daiwa Securities Group Inc. Thank you very much for taking the time to join our conference call today. I will now explain the financial results for the first quarter of FY 2025, which were disclosed today using the presentation materials available on our website.

Please turn to Page 4. First, I will provide a summary of our consolidated financial results. The percentage changes shown are compared with the fourth quarter of FY 2024. For Q1 of 2025, net operating revenues were JPY 155.2 billion, down 10.9%. Ordinary income was JPY 43.7 billion, down 14.3%. Although we saw a decline in both revenue and profit due to the absence of large primary deals that occurred in the previous quarter, base income, which we regard as the key indicator of stable earnings remained high at JPY 34.1 billion.

The Wealth Management Division continued to engage in comprehensive or total asset consulting even in a volatile market environment, expanded net inflows of wrap account services. In addition, we responded carefully to unauthorized access incidents to ensure our customers could continue trading with peace of mind.

In Securities Asset Management, equity method income from Global X LLC also contributed to higher profits. In Alternative Asset Management, provisions and impairments recorded in the previous quarter were no longer present, leading to improved profitability.

In Global Markets, customer flows and credit recovered from May onward in the FICC business. Global Investment Banking performed strongly in DCM and domestic M&A, supported by multiple large deals. Profit attributable to owners of parent was JPY 31.2 billion, up 4.3% and ROE was 7.7% on an annualized basis.

Please turn to Page 8. I'll explain the trends in consolidated ordinary income and base income. Base income was JPY 34.1 billion, an increase of 10.3% year-on-year and accounted for 78.2% of consolidated ordinary income.

Please turn to Page 11. I will now explain the income statement. Commissions received amounted to JPY 100.3 billion, down 12.6%. The breakdown of commissions received is provided on Page 24. Brokerage commissions were JPY 21.1 billion, down 8.2%. Underwriting and secondary offering commissions were JPY 8.9 billion, down 41.6%. Distribution commissions were JPY 4.7 billion, down 28.6%. M&A-related commissions were JPY 11.1 billion, down 32.4%.

Please turn to Page 12. I will explain the status of SG&A. SG&A was JPY 119 billion, down 1.8%. Trading-related expenses decreased due to a decline in payment fees and advertising expenses. Personnel expenses declined due to a reduction in performance-linked bonuses.

Please turn to Page 14. Next, I will explain the ordinary income from our overseas operations. Total ordinary income from overseas operations was JPY 3.8 billion, down 35.9% from the previous quarter.

In Europe, M&A revenues declined, worsening overall profitability. In Asia and Oceania, equity method income from Wealth Management and SSI Securities contributed positively. The Americas equity revenue and equity method income from Global X LLC contributed to higher profits.

Next, I will explain the results by segment. Please turn to Page 15. First, I will explain the revenues and income of the Wealth Management segment. Net operating revenues were JPY 62.9 billion, down 5.3% and ordinary income was JPY 19.7 billion, down 14.9%.

Following the sharp stock market decline in April, investors became increasingly cautious due to the uncertainties surrounding President Trump's tariff policy, which led to a decrease in flow revenues, including domestic equities and equity investment trusts. On the other hand, wrap-related revenues and agency fees for investment trust remain high with asset-based revenues flat at JPY 27.5 billion.

The Wealth Management Division's ratio to fixed cost was 103.7%, and its ratio to total cost was 70.1%. In addition, bond revenues increased due to the presence of multiple large primary deals. As retail investors adopted wait-and-see attitude, we focus on offering solutions through total asset consulting, resulting in increased insurance sales.

Please turn to Page 16. Sales and distribution amount by product and topics this quarter in domestic Wealth Management. Wrap account service contract amount was JPY 194.9 billion, and net inflow expanded to JPY 100.3 billion. Stock investment trusts, sales amount was JPY 357.8 billion and net increase amount was JPY 88.9 billion.

Through total asset consulting, we capture the needs of customers who prefer diversified investments and robust portfolios, leading to sales of wide range of investment trusts, mainly including the Invesco World Best Equity Open and the Daiwa Blackstone Private Credit Fund. The bottom left of the slide shows the net inflows of wrap account service and stock investment trusts.

Please turn to Page 17. This covers the status of Daiwa Next Bank. Net interest income was JPY 9.6 billion, up 7.1% and ordinary income was JPY 4.3 billion, up 18.4%. The replacement of investment portfolios conducted in the previous quarter improved profitability, resulting in increased revenues and income.

Please turn to Page 18. I will now explain the asset -- the management -- Securities Asset Management. Net operating revenues were JPY 15.1 billion, up 1.5% and ordinary income was JPY 7.5 billion, up 6.8%.

Daiwa Asset Management secured a net increase of JPY 135.7 billion in publically offered stock investment trusts, excluding ETFs.

In addition, equity method income from Global X LLC, in which a 20% stake was acquired through the conversion of EV bonds in February contributed to the increase in profits.

Please turn to Page 19. Next is Real Estate Asset Management. Net operating revenue was JPY 9.6 billion, up 57.3% and ordinary income was JPY 6.9 billion, down 3.2%.

Daiwa Real Estate Asset Management's AUM surpassed JPY 1.5 trillion, reaching a record high, while gains on the sales of properties at Daiwa Securities Realty and income from REITs under management contributed to the decrease. It was mainly due to the lower equity in earnings of Samty.

Please see Page 20 now for Alternative Asset Management. Net operating revenue was JPY 3.3 billion, down 62.5% and ordinary income was positive JPY 0.3 billion.

In Daiwa Energy Infrastructure, there were no provisions or impairments recorded in the previous quarter, and the results improved. In addition, the investment balance expanded mainly in renewable energy and infrastructure projects in Japan and overseas.

Please continuing on to Page 21. Here, I'd like to explain the Global Markets and Investment Banking Division. In Global Markets, net operating revenue was JPY 32.5 billion, down 9.6% and ordinary income was JPY 2.6 billion, down 58.3%.

In equities, Japanese equities continues to see strong order flows from overseas investors, but the retail investor order flow declined due to relatively heavy upside. On the other hand, foreign equities saw an increase in retail industry activities on the back of a recovery in share prices of semiconductor-related stock names.

In the FICC, bond trading by Wealth Management Division clients increased in both yen and non-yen currencies due to the rise in domestic interest rates and the progress of yen appreciation in the month of April. In credit, revenues remained high as client order flows increased due to the rise in interest rates led by very long-term interest rates. In derivatives, position management was successful, although liquidity was reduced due to market turmoil.

Now please see Page 22. Here is about the Global Investment Banking. Net operating revenue was JPY 17.2 billion, down 33.1% and ordinary income was JPY 0.9 billion, down 87.1%. Debt underwriting revenue increased due to the contribution of large deals. In M&A, domestic sales remained strong, but overseas sales declined due to a decrease in deal execution. This is the end of my explanation of the Q1 results for FY '25.

The announcement of the tariff policy by the Trump administration on April 2 triggered a major turmoil in the financial markets. As you may recall, the Nikkei 225 dropped more than 4,500 marks in the 3 days from April 3 and continued to rise and fall by more than JPY 1,000 the following days. Interest rates and credit spreads have fluctuated widely as well. Some even moved to reciprocal -- reciprocate with retaliatory tariffs and financial and capital markets were shredded in uncomfortable uncertainty for a period of time. The Q1 of the year started in such an environment. Such turmoil was overcome by a series of negotiated agreements between the U.S. and the U.K. and the U.S. and China in May, and the market gradually regained its composure.

In the Q1 results, even in the face of such major market fluctuations, once again demonstrated the strength of our earnings base with the base profit, which we emphasize as a stable profit indicator, remaining at a high level of JPY 34.1 billion.

In order to carry out more efficient asset building and asset management in the age of inflation and the world with interest rates without being distracted by short-term market fluctuations, we believe it is important to understand midterm economic and financial trends, and we have created a strong market story, which we use as the basis for repeated conversations with our clients. We have been having a series of conversations with our clients based on this big boned and the strong market story.

In addition, as in previous years, we have steadily evolved our proposal activities through consulting on customers' total assets. Although there are phases of lower client activity level during the quarter as clients took a wait-and-see attitude, the volume of activity of consultant sales increased over the previous quarter. And the results are also being confirmed. The level of activity has been increased over the previous quarter, as I said.

In the Asset Management segment, the AUM grew steadily in both the securities and the real estate sectors, both reaching record highs. The inclusion of Global X in the U.S. as an equity method affiliate also made a contribution to record quarterly income.

In the GM&IB segment, performance was slightly sluggish due to the impact of market volatility caused by reciprocal tariffs, but FICC credit, debt underwriting and domestic M&A activities were all brisk.

As for the current situation, we have been off to a good start since July. Wealth Management Division product purchases were also well above the Q1 average and the revenue levels have recovered to the Q4 average, which was the highest quarter ever of the last fiscal year.

Global Markets has also settled down. In July, the equity flows increasing for both institutional and retail investors. And FICC continues to see portfolio replacement needs as the interest rates remain at a high plateau.

Well, in order to maximize the value of clients' assets, as stated in the group management policy, it is extremely important for each business area within the group to have a deep understanding of the clients' needs and the challenges and to provide the best, most appropriate and high-quality solutions. The day after the Nikkei fell -- the Nikkei Index fell sharply on April 3. After, the group management meeting held on April 3, the day after the Nikkei Index fell, the CEO gave a clear message that this policy of the company will not change in any way. We will continue to pursue a virtuous cycle in which the strong trust of our customers is reflected in assets under custody and under management as well as in the base profit, thereby meeting the expectations of our shareholders.

In addition, in response to the recent incident of unauthorized access and et cetera, we will continue our efforts to provide a trading environment where customers can trade with confidence by improving our systems and engage in the detail-oriented dialogues with our customers. We would ask you for your continued support in this endeavor. Thank you very much for your attention.

That's all from the presentation from ourselves. Now let us move on to the Q&A.

Today's call is served with simultaneous interpretation so that English speakers are also able to participate. [Operator Instructions] So's let's move on to the Qs.

We would like to introduce the first questioner, Muraki-san from SMBC Nikko Securities. Muraki-san, please.

This is Muraki from SMBC Nikko. I have two questions. First of all, Slide 21 about the fixed income. So now we are at the phase of rate increase. So you had some challenge in terms of the position management, but there was an increase in the flows. But if you can actually give us more color, what were some of the challenges? And also, if you can give us the current state of flows as we see the interest rate hike. That is the first question.

And the second question also relates to the interest rate about the Daiwa Next Bank. I believe that is Page 17 of the materials. So as a way to enhance the yield, so you have reduced the -- decreased the lending for the government by JPY 300 billion. And now you have -- so you have made some measures related to some of the borrowings and also some of the deposit in BOJ as well. So going forward, as you fund for the deposit, so let's just say BOJ, if the short-term rate raises to -- is raised to 1%, for instance? What sort of plan do you have to the deposit?

So right now, in terms of the ordinary deposit, it is on a slight decline. I think that is already happening in terms of the ordinary deposit. But in terms of the interest rate of 1%, in terms of the average funding cost, what is the deposit beta that you have in mind? If you can give us more color.

Thank you very much for that question. So in terms of the challenges in the deposition management and also the flow increase, we'd like to give you more color. So especially for the month of April, so we have the interest rate volatility and credit spread volatility was in place. Because of the market turmoil, FICC within multiple products, there were some challenges in the position management.

Also, the long term, the bonds -- the demand for the domestic institutional investors, there's been a gradual decline. And in lieu, we have some overseas investors coming in. So because of the turmoil in April, the overseas investors sold and now the level has exceeded 3%. And now even on a dollar basis from the overseas investors, it is much more attractive in terms of the interest rate. So now we have diverse investors making entry. That has been confirmed.

So in terms of the long-term bonds, up until now, the central player were more of the domestic institutions. But now with the market change, now we have seen diverse investors making an entry. In addition to that, the flows have been on the increase.

So as we see replacement of investors, we have these large flows. And in line with the order, we needed to actually conduct the position management accordingly. But of course, these customer flows were not really easy to read or anticipate. So that was the challenge.

So April was tough, but in terms of May, it started to recover. And also, June is flat from May or maybe slight weaker in June for FICC. That has been the case.

So Q1 -- so April was weak, recovery in May and June is similar to May or maybe slight weaker. But if you look at it by products, credit, April was tough, but May and June, we had some primary. So we have seen some increase in the revenues.

Also related to the second part of the question about the Daiwa Next Bank. So last year, because of the BOJ rate hike, the spread has increased. So we have seen improvement in the net interest income. And on the past of -- last year, we conducted some portfolio replacement of the securities investment. So we have seen an increase in the carry revenues. So that is in the background.

Going forward, about the deposit acquisition competition. So we do believe it is going to be fairly challenging in terms of the deposit acquisition. So Daiwa Next Bank, they will collaborate with Daiwa Securities to have more sticky funds. Various campaigns will be launched. So that is the plan.

Also in terms of deposit interest rate, so once the BOJ policy rate go to 1%, what is the deposit beta for the ordinary deposit related to that question?

From 50 basis points to 1%, I should say if it goes up by 50 basis points then.

What could be anticipated about 40% of the sensitivity or pass-through?

So that may be the deposit rate. But of course, we need to look at the competitive climate as well. So accordingly, we would like to adjust the deposit rate.

Thanks to collaborating with Daiwa Securities, for instance, investment trust and fund wraps, we could have a setup plans. We have some new customers or perhaps corporate customers, specific campaign interest rate could be presented and also cross sales. So for instance, to the deposit customers, we may also introduce the bond management as well. So now we have a world with interest rate. We could engage in diverse marketing activities.

Muraki-san, should -- did we answer your questions.

Related to the first part of the question, the state of July then. So Global Markets, you mentioned it is stabilized now. So in comparison to June quarter, it has -- so the fixed income is also off to a good start then.

Yes. For the month of July, that is the current state. And of course, we would like to continue this trend for August and September as well.

So next questions from JPMorgan, Sato-san. So Mr. Sato.

I'm JPMorgan Sato. I have 2 questions, too. My first question is about on Page 14 about the overseas business ordinary income, especially Europe. In Q1, because of the M&A reduction, you saw the figures that dropped actually over the previous quarter. And the GIB profit was also brought it down.

But last fiscal year, in Europe, you had the personnel replacement. So there were some one-off costs that you needed to shoulder. But this time, you were talking about JPY 2.3 billion, JPY 2.4 billion in losses, including those one-off costs. But this time, even with that, you have the losses of JPY 2 billion.

So by looking at this figure, you are not really making the improvement in the breakeven point. So the challenge of today, maybe the cost control, are there anything that you can talk more in details, please? That's my first question.

The second is about the AM, especially the real estate and alternative. This time, the real estate, most of that income does not include the capital gain. Alternative, the same, I guess. Well, after Q2, you might have both the alternatives or the infrastructure asset, is it a possibility? Do you see the environment is going to be probably getting favorable? Or especially throughout the year, when we look at where you're going to be landing up, do you think you'll be able to get the same level of the capital gain as the other years? Or is it too much to hope for, for this year?

Sato-san, thank you for your questions. Your question number one, about the overseas ordinary income in Europe. For the market of Europe, as you say, the M&A business or DC Europe and also the securities business, DCM Daiwa Capital Market Europe, those 2 companies are the main players.

And regarding the M&A, for Europe and the U.S., this June quarter was impacted by the reciprocal tariff by current administration and also the uncertainty of the interest rate. And that has led the M&A business to take longer time to execute more than ever, more than the normal time. And especially just thinking about the seasonality, normally, the June quarter does not really get a lot of profit. One part of that reason is the top line did not grow that much. And also the Daiwa Capital Market Europe, which is engaged in the securities business in Europe.

So equity business as normal, but the last -- when we look at the last fiscal year, we saw some primary project that has kicked in, in the income, which did not recover for the current fiscal year. So that's the reason why we saw just a little losses in the Europe business. And for DCM, DC Europe cost to control, we have been very careful about the cost control, of course. And our original plan, the deployment of the recruitment or the replacement of the human capital, we've been working upon that right now by transferring some people or replacing some people.

So for the current M&A landscape, gradually, some deals have started to go into the phase of execution. We do see that in the market of U.S. and Europe, the Americas and Europe. So in Q2 and beyond, we will make sure that we'll be able to harvest the results.

Moving on to your second question, the alternative and real estate capital gain, I think you were talking about. For the Q1, for the real estate, we have more increased balance of the AUM and also the rent revenue have increased. But the privately priced funds, the exit to the private funds have given us some capital gain partly from those property sales.

And also for -- together with the setting up of the private plant, we have been able to acquire some gains from the properties so that there are some movements that we are going to be monitoring and seeing continuously for the private -- for the property business.

The other part you were talking about the prospect for the future. After the Q2 and beyond, at this point of time, as we normally say, we think we'll be able to get the gains as we do normally generate. But for the alternative, well, there are some fluctuations quarter-by-quarter. So that really depends. We have to see what's going to happen. That's all.

Next question comes from BofA Securities, Tsujino-san, please.

About FICC for the April and May, June, you've already shared with us the situation. The month of July, you've been facing challenges. So May was recovery, June was weak and July is weak, just as June. If that is the case, July, August, is it a similar pace?

Actually, we may see a rise here. So actually, if you look at it on a monthly basis, so this is just on a hypothetical basis. So the 1st of April and May as such. And well, so July, if it actually continues that way, then Q2 is going to be very good in terms of the performance. But is that really the case? If you can give us some color as to what -- how is it progressing as we proceed through the months? That is the first question.

And the second question relates to -- about PE, the pipeline. So you mentioned it really depends on the situation you said, but there are timings to divest. There must be plans as well. So as far as the plan goes, you have certain alignments through this fiscal term, but depending -- but we mentioned that it depends on the situation. The reason you say that because there are some changes in the appetite. Is that the case? So for instance, say April, the Trump administration's initiatives and so forth, because of those, you are mentioning that way. Or last year, it sold fairly well. So in terms of the pipeline, it is hard to see what should be divested as -- so that's why there's a bit of a gap. So if you can give us more colors in terms of the pipeline of the PE.

Tsujino-san, thank you very much. First of all, for FICC, on a monthly, the pitch -- so just to give you an idea on a monthly basis, FICC as a whole, so for 3 months, so let's just say 3 months is 100, then for April, May and June, 25, 40 to 35, maybe that is the breakdown. So in terms of the domestic and overseas domestic, so it's gradually its recovery as we progress through the progress. May -- overseas, May was good, but June, not so much.

For the month of July, so this is just temporarily for the July only. So -- but just to give you an idea. So for domestic and overseas combined together in comparison to June, it is progressing strongly in the month of July. So really, the customers, the bond investors are more diversified -- become more diverse. So that is favorable in terms of the flows.

So various investors from both in and out of Japan and also some of the middle corporates domestic and also the retail investors as well, they are conducting the portfolio replacement. And what institutional investors have sold, these retail investors are buying those under good terms. So those are the positive impact that we are expecting.

So surprisingly, if the market becomes the volatile, that means the position management becomes more challenging. So for instance, futures and debt, it may not be fully able to accommodate the current state, but we need to engage in dialogue with the customers. We need to capture the needs -- investment needs of the customers, so we can, in the end, capture and make profit out of the flows.

So the situation is finally subsidized. So we've been able to realize that in June. We hope that we've been able to realize that in July as well. And we're hoping that, that will continue for the months of August and September.

Related to the second part of the question, PE, as you mentioned, in terms of divestiture, the timing or the plan, let's just say, for the divestiture, we do have those plans. But some of them are fairly small size or midsized or large size in terms of the potential deals, especially for mid- to large size, sometimes we may be able to exit earlier than expected or maybe later than initially expected because we also -- there's always a counterpart involved. It depends on the negotiation. So it's a case by case. So that is why we cannot have the full visibility. That was the point I was trying to make.

So of course, towards exit, we do have multiple potential candidates for exits. Also, for new investment opportunities, we like to continuously capture those as well. So for the existing investees exits, and basically have the profit secured on the alternatives. So that is still pursued.

Now last year, the second half of last year, I believe Q4, Daiwa Energy Infrastructure, about the energy, there are some gains and also some of the impairment and so forth. And also for Daiwa PI Partners, about the crystal, the PE investment of the corporates, operating companies and funds, they are much more sort of proactive in terms of M&A. So the exit pipelines, we do have a visibility in this front.

So in the month of April, with the Trump administration impact, so it's hard to have that certainty or visibility. But how the deals have been executed, we do have better visibility. So we definitely like to have continuous communication with you. So I hope I answered your question.

Next questions are from Nomura Securities, Sasaki-san.

This is Sasaki of Nomura. I have also 2 questions. First one is about the earnings. I have some confirmation. For the ex profit, the disposal gains of the marketable securities, that's mainly the reduction of your equity held for the strategic basis and also the reduction of the effective tax rate. What's the reason for that reduction in tax rate? And the second is about the fraudulent trading. You are talking about the recovery of the losses. Anything that happened in the first quarter? Can you talk about that, please?

Thank you very much for your question, Sasaki-san. First of all, about the extraordinary profit, as you say, this is the disposal gain of the strategically held shares. That's the main. And the reduction in the effective tax rate is Q4 and the Q1 in the comparison, the ex loss was shown. So that's one reason, the ex loss in the Q1 over the Q4 of last fiscal year.

And also, the equity method investments that's not subject to get the tax is giving us the merit on the tax rate itself. So that's the reason for the reduction in the tax level.

On Page 3 of the presentation material, we are showing Global X LLC equity method affiliation and then amortizing the goodwill of that has been said as a nonoperational income, about JPY 3 billion. That's counted as a part of the equity method investment gain. So that's also reducing our effective tax rate.

And then talking about the fraudulent access or the cost to deal with that, the people who were affected or the customer who were affected by that for making sure that we do see that those are not coming to the reason from the customer side, we are going to restore to the original position, and that's our policy. Of course, that does not apply for all the customers.

However, when we think about all the customers who have had the influence by the end of June, we've been making a scrutiny one by one and then make the estimates and that has come to the expense of about JPY 2.6 billion, wherein the most recent P&L chart, we are showing that figures, but that's going to be basically the provision to be posted as JPY 600 million plus JPY 10 million.

Well, depending upon how the stock price is going to be fluctuating, we might need to have a provision much bigger than that. However, it's not going to be that big if that could happen. And also starting from the 6th of this month, we are asking for the customers to do the additional proof of oneself for the personal identification. And for those people who are not doing that self personal identification is no longer able to make the successful log in.

So that going forward, even from now, probably the corporate is going to do a lot of measures trying to get fraudulent access or the legal access so that we want to do a lot of the multilevel of the certificates, and so want to make sure that the customers are making the access.

So about system access, you're already making some disclosures and the other companies are also making the disclosure of the estimate for the provisions. But it seems that your company's provision is one that is less compared to the others, meaning that your customers are not really hit. Is that the reason why?

Well, we can't talk for the other peers. However, our policy -- we have come to the test calculation of how much it's going to be, and we have come up to this figure.

Okay. So for my second question, when we look at the earnings call in Q1, maybe it's not directly relevant. But on the 25th of July, the Junglia, the big theme park in Okinawa was opened. In the midterm basis, how is it going to be influencing on your performance? Is it going to be a plus or a minus?

The purpose of asking this question is because I think your portfolio company is the operator of this theme park so that probably you'll be able to gain the profit through the equity method investment or the capital gain. There will be various options that we can think as the possible scenario. So what kind of impact do you think is going to be had on your business performance with the business of this Junglia theme park in Okinawa.

Well, thank you very much for that question. As you say, the other day, Junglia, the theme Park in Okinawa just opened, and that is operated by Japan Entertainment. And its parent company is called Katana.

At the Daiwa Securities Group, we do make a capital participation partly so that it's subject to the equity method. So this parent company, Katana, their profit is making a contribution to our profit. Well, of course, it just started, just opened. So well, I think -- we think the meaning of the opening of this Junglia is, of course, to revitalize the local economy of the prefecture of Okinawa and also to bring about the new vitality for the tourism in Okinawa. We had agreed to that intention, and then we've been supporting that business.

And of course, the expectation is planned, not only Junglia or not only the parent company, Katana, we want to be supporting the revitalization of the entire macro of Japan. We want to be a contributor to that end.

Well, let's say, by looking at this Junglia, I think the operating expense is about JPY 70 billion for the opening. Well, in the very beginning, of course, normally, everything starts with the losses. So do you also need to take that for the depreciation and amortization? Are there going to be any period that you're going to be taking that as a losses to you?

Well, how their P&L is going to be evolving, we still have to wait and see. However, if they're going to be generating losses, then the losses to be generated by the parent company, Katana is, of course, going to be captured partly by ourselves. And of course, when the profit is delivered, then we will be able to enjoy that too.

And also, if possible, please tell me, will the Core Japan Institute is also making the participation in the capital in Katana or Junglia? The Core Japan Institute is also making the participation in this project. Well, I think Kawasaki is also making the management -- is the manager of this Core Japan Institute. Do you have any cooperative relationship with them as well? Kawasaki-san who is in the investment division of your company?

Right. Thank you very much for that question. It's not that we are collaborating because of the relationship or the special relationship with that person, it's -- wherever we can collaborate with those projects, of course, we'll be more than happy to through the consultation and discussion.

I'd like to move on to the next question. SBI Securities, Otsuka-san please.

So this is Otsuka from SBI Securities. Can you hear me?

Yes, we can hear you.

So if you can -- I'd like to pose a question, and I would like you to respond to it one by one. So the first question relates to Page 22. So DMIP, I was looking at the number here. So the Q1 profit it's about JPY 900 million. So as I look at this chart, in terms of the profit level, it is not so high. But in terms of the trend in the past couple of years, so M&A and others, we've seen a steady accumulation. In debt and equity, there are some ups and downs.

So in terms of equity underwriting, some quarters that it is not progressing well. And at those quarters, the profit level is low. And equity underwriting, if it's going well in certain quarter, the profit seems to be high. That appears to be the case. Is -- am I reading this correctly? So that is the first question.

Thank you very much for that question. It may appear to be that way. But actually, M&A as part of the question, the previous question as well, so DC Europe and DC the North America, the M&A advisory business, we did not see any large size projects. So while the top line didn't grow, it was in deficient. But in terms of the domestic M&A, it was quite favorable. So basically, it offsetted each other. So that's why the profit was mere JPY 900 million.

So in terms of the equity underwriting, Q4, there was some reactionary downturn. And also there are some seasonal factors related to this quarter. So because of the overlap of all these factors, equity underwriting, whenever is low, the profit appears to be somewhat depressed. But we don't think there is a specific correlation, though, not really.

Understood. And the second question relates to the Daiwa Securities on its own on a stand-alone basis. Slide 33 and 34, please. My question is in terms of the 33 about this quarter. So JPY 88.7 billion for this quarter. So it is not really high in comparison to the previous quarters. So that is in terms of the net operating revenues.

So I think the -- all the domestic peers, such as Nomura Securities, they're in the similar trend. So it is not a surprise. But having said that, so -- but you have the other -- the commissions like investment trust and M&As and so forth, you are seeing some accumulation. So that has led to a stable income. I think that was the explanation you provided. But having said that, still, the net operating revenues did not fare too well. So I'd like to pose the question again, why is that the case?

So is it because of lower brokerage commissions? Or is it the underwriting and secondary offering commissions -- so where -- so although we are seeing the other commissions has accumulated, but still, the overall net operating revenues did not fare well. So -- so that is kind of a sub-question one.

And so now in terms of the second part of my question, so the ordinary income is JPY 21.6 billion, so basically, the cost is high, personnel cost or the office cost, it is hovering at the high level. I'm just looking at the domestic number here. So especially for the personnel cost. So this cannot be helped in terms of the personnel costs staying at the high level. So that is the second part of my question.

Thank you very much for that question. So let's look at the Daiwa Securities on a stand-alone basis. So on a Q-on-Q basis, so this is Slide 33. So we have the underwriting and secondary offering commissions has been a decline. So about JPY 5 billion. And aside from that, so we have the agency fees for investment trust. And so all these items basically -- we were not able to offset the decline in those through the increase in the other commissions.

Also for investment trusts and fund wraps, so net inflows continued to expand in Q1. So there was a net inflows. But if you compare Q4 and Q1, so in terms of the average balance, Q1 was a decline in comparison to Q4. So that is why the asset-based revenue, there was a slight decrease.

But as far as this is concerned, since the end of June onwards, the market has recovered. The net increase that we have seen in Q1, we are seeing -- contributing to the recovery with the market recovery.

So what we are pursuing is the total asset consulting to the customers to basically move away from other financial institutions away from deposits to investment and also structure -- establish the portfolio. And so we would sell the fund wraps, so it would be the core part of their assets. And if the fund wraps will not be enough, we may actually combine the private asset with that in order to enhance the return.

So the total asset consulting will be conducted in hopes of gaining a long-term relationship with the customers. So in that sense, Daiwa Securities -- and so for the Wealth Management, this segment, the flow revenue is JPY 5 billion -- JPY 50 billion rather. So as we see increase in the asset-based revenue, this percentage would be enhanced. So we would like to have more of the asset management type of business or wealth management type of business.

So the share price has changed. So the growth in the asset-based revenues, the growth has been somewhat more moderate. But actually, in terms of the pitch of the net inflows, it has been quite favorable. So we do evaluate this positively.

Also in terms of the profit level, as you rightly mentioned, the personnel cost, so the wage increase, it is conducted on every year basis. So the cost is definitely on the rise. So strategically, we need to acquire talents, capable talents. And at the same time, we need to change the way we engage in business. So AI and DX need to be embraced. So the tasks that could be conducted through AI or DX, we could resort to them, and we can have the administration more efficient. So we can change the organization and allocate the people, so they could be in the front line.

So making use of AI to make our business more strategic. So we intend to do restructuring of the income, especially when it relates to Wealth Management segment, we need to enhance the stable income and also expand the customer base. So this quarter, unfortunately, because there was a decline in flows for equity investment trusts, we do perceive this as an issue. Internally, we believe perhaps more could have been done. But again, we would like to pursue this going forward.

In terms of cost control, as written here in the materials, for the Wealth Management, the fixed rate ratio is over 100% right now. And also the fixed rate coverage ratio is 70%, we'd like to further enhance this.

So for Daiwa Securities as a whole, the personnel costs, especially given the inflationary period, the costs naturally increase going forward. So each business department or product division, we need to make -- we need to revisit the profit and loss on a continuous basis.

Also, the state and the way we engage in business, we'd like to involve and get involved in the discussion as well. So we need to be more proactive and more strategic in controlling this. So that is my response to you.

So given the explanation, I think the last part you mentioned about the management decision, more could have been done you have mentioned. Are you talking about the flow, the revenues, you could have done more. Is that -- more specifically, is that what you're referring to?

Yes. Yes. That is the connotation here.

So other, the brokerage companies, so it seems as if -- I think you're doing well in comparison on a relative basis, given the given operating environment.

That may be the case if you compare with peers. But internally, that has been the discussion. So depending on the customers' needs -- customers may feel that this may be an excellent entry opportunity. So whether we were able to give appropriate advice, perhaps we could have done better.

Seems that the questions are all been complete. So let us wrap up the Q&A session and the meeting for today.

So everyone, thank you very much for joining today's earnings call for the Q1 FY 2025. And thank you very much for your continued support. Thank you so much. And now this is the end of the presentation and the Q&A. Let us wrap up. Thank you.

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