Nomura Holdings, Inc. (NMR) Q3 2021 Earnings Call Transcript

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Nomura Holdings, Inc. (NMR -1.69%)
Q3 2021 Earnings Call
Feb 3, 2021, 4:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to today's Nomura Holdings Third Quarter Operating Result for Fiscal Year Ending March 2021 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections you may disconnect at this point in time. [Operator Instructions]

Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the Company's control, which may cause actual results, performance or achievement of the Company to be materially different from the results, performance or other expectations implied by those projections. Such factors include economics and market conditions, political events and investor sentiments, liquidity of secondary market, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions.

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

Takumi Kitamura -- Chief Financial Officer

Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I will now give you an overview of our financial results for the third quarter of the fiscal year ending March 2021, using the document titled Consolidated Results of Operations.

Please turn to Page 2. Net revenue for the nine months to December was JPY1,231.8 billion, representing a year-on-year increase of 17%. Income before income taxes increased 45% to JPY396.8 billion. Net income grew 23% to JPY308.5 billion. This is a record set of results from the year ended March 2002 when comparisons are possible. Earnings per share for the nine-month period were JPY98.3 and annualized ROE was 15.1%.

Our core business, three segment income before income taxes increased 132% year-on-year to JPY349.3 billion. Notably, wholesale income before income taxes grew 180% to JPY230.2 billion.

Please turn to Page 3 for an overview of the three key points for the year-to-date period. First, the performance of our international business has improved significantly, delivering a record level of income before income taxes since the year ended March 2003, when comparisons are possible. The bar graph on the left shows income before income taxes by region. Firmwide income before income taxes for the nine months was JPY396.8 billion, an increase of over JPY120 billion, compared to JPY273 billion for the same period as year before. The driver of this growth was international business and, in particular, the Americas as shown here in dark red. Total income before income taxes from the three international regions grew 2.8 times to JPY167.2 billion, representing an increase of over JPY100 billion. As a result, our international business accounted for 42% of firmwide income before income taxes.

The second point is that, all divisions delivered revenue growth during the nine-month period and we were able to stringently control costs. As shown on the top right, the three segment net revenue climbed 27% year-on-year to JPY1,062.3 billion, while expenses increased only by 4%.

The JPY140 billion cost reduction program we embarked on two years ago was over 90% complete at the end of December. We expect to complete this by the end of March, one year ahead of schedule. These efforts have helped us lower our cost base. As a result, three segment income before income taxes increased 132% year-on-year. Wholesale maintained momentum throughout the three quarters, delivering income before income taxes of JPY230 billion. To be sure, our performance was supported by favorable market conditions, including higher volatility and an increase in client flows on the back of macro events, as well as a global rally in equity markets. However, the third point I would emphasize is that, our business franchise has developed in each region focused on our core products and we were able to monetize these favorable conditions.

Page 4 is a slide we used at our investor presentation in December, which shows the market share for our core products. We have grown our market share and retained top five positions in key products, such as US and European government bonds, AEJ Credit, US Securitization business, and US equity listed options. In Investment Banking, we ranked number 11 in global M&A league table and number four in the global Sovereign, Supranationals and Agency bond league table.

The global franchise helped lift our calendar year 2020 Global Markets net revenue by 38% compared to the previous year. Our growth has been on par with our US peers, who offer a full lineup of services across regions. We feel that we have gained traction having taken the right strategic path to realign our business portfolio in April 2019, focus resources on client businesses with top five market share, and enhance our franchise.

Next, let's take a look at third quarter performance. Please turn to Page 5. As shown on the top right, firmwide income before income taxes increased 57% to JPY131.3 billion, while net income grew 45% to JPY98.4 billion.

All of our three core business segments posted strong performance this quarter. Three segment income before income taxes was JPY127.5 billion, the highest in the last 13.5 years since the first quarter of the year ended March 2008. International income before income taxes was JPY59.5 billion, representing a solid performance for the third straight quarter and contributing to a lower firmwide effective tax rate. Third quarter annualized ROE was 14.2% and EPS was JPY31.16.

Please turn to Page 8 for an overview of results for each business. First, retail. Third quarter net revenue increased 6% quarter-on-quarter to JPY98.2 billion, while expenses remained roughly unchanged from the previous quarter. As a result, income before income taxes grew 24% to JPY28.3 billion, the highest level in three years. In summer 2019, we realigned our coverage areas into corporates and owners, high-net-worth, and mass affluent to provide more effective proposals in the best way possible.

Despite restrictions on sales activities amid the pandemic, we have been able to meet the diverse needs of our clients by making the best use of face-to-face meetings and non-face-to-face interactions. Now, total sales shown on the lower half of the slide were JPY3 trillion or over JPY1 trillion a month on average. Sales of stocks shown in red were particularly strong and sales of Japanese secondary stocks increased. Although investment trust sales slowed 7% quarter-on-quarter, we booked inflows in US stock funds and ESG-related funds. Sales of bonds, insurance and discretionary investments all grew compared to the previous quarter.

Please turn to Page 9 for an update on KPIs. Recurring revenue assets shown on the top left increased to nearly JPY18 trillion lifted by market gains. The consulting-related business shown here on the lower left consists of many transactions that require extensive face-to-face interactions, so is the most susceptible to restrictions on sales activities. However, we were able to increase revenues from insurance and M&A by taking the paperwork for insurance sales that was done in-person completely online and enhancing our support for M&A by SMEs. The number of active clients shown on the right is trending above last year as we have seen results from further developing our approaches by coverage area.

Please turn to Page 10 for Asset Management. Third quarter net revenue increased 39% quarter-on-quarter to JPY37.3 billion and income before income taxes gained 96% to JPY22.3 billion. American Century Investments related gain/loss was significant this quarter at JPY13.2 billion. These results represent the strongest net revenue and income before income taxes since the year ended March 2002 when comparisons are possible.

We reported net inflows into investment trusts, the investment advisory business and international business, which helped by a favorable market tailwind, boosted assets under management to a record JPY61.2 trillion. Our efforts to expand assets under management paid off as revenue, excluding ACI, remained roughly flat quarter-on-quarter despite changes to our product mix and the impact from a revision to ETF fees.

Please turn to Page 11. First, the flow of funds shown on the left saw about JPY590 billion of inflows into the investment trust business. ETFs reported inflows of approximately JPY200 billion and MRF inflows were approximately JPY500 billion from funds likely derived from profit taking on the back of the stock market rally.

In the investment advisory and international businesses, we reported net inflows of JPY680 billion on inflows in Japan into yen bonds, Japan stocks and alternatives, and internationally into UCITS funds.

Of the JPY61.2 trillion in assets under management in Asset Management, JPY17.3 trillion sits outside the investment trust business. Of this, 46% or JPY8 trillion is in the international business as shown on the bottom right.

Outside Japan, we are focused on leveraging the Group's network to expand our distribution channels. As you can see here, in the nine months to December, we booked inflows of around JPY600 billion. The international business is a growth area for Asset Management.

Please turn to Page 12 for an overview of the wholesale results. Net revenue remained high in line with last quarter at JPY223.1 billion, while expenses declined by 6%. As a result, income before income taxes increased 17% to JPY76.9 billion. Compared to when the pandemic first started to take hold, we have been able to respond much better to investors and issuers, and we have seen a rebound in high touch businesses, such as financing and M&A.

As fixed income revenues normalized in the third quarter, equities and investment banking drove revenue expansion, highlighting a more balanced revenue mix within wholesale. While fixed income accounted for 62% of wholesale revenues in the first quarter, third quarter revenues were 44% fixed income, 40% equities and 16% investment banking.

Looking at net revenue by region shown on the lower left, the Americas slowed from what was a record quarter last quarter, but remained strong. AEJ reported its best revenue quarter in six years on strong performance in forex and emerging, and Japan revenues grew driven by equities and investment banking. This has resulted in a more regionally diverse revenue mix.

Please turn to Page 13 for an overview by business line. Global Markets maintained momentum from the strong previous quarter with net revenue of JPY187.5 billion, a record since the year ended March '02, when comparisons are possible. Fixed income net revenue declined 6% quarter-on-quarter to JPY98.1 billion. While softer revenues in rates is the main reason for the decline, Americas Agency Mortgages revenues remained robust, AEJ, forex/emerging had a strong quarter and Americas and EMEA securitized products booked higher revenues. Net revenue in equities grew 2% to JPY89.4 billion. As you can see in the heat map on the top right, the Americas arrow is pointing diagonally down for equities, but derivatives had a strong quarter. Japan and AEJ reported stronger revenues in both cash and derivatives on the back of solid client flows.

Please turn to Page 14 for Investment Banking. Third quarter revenue saw strong contributions from industrial realignment and business reorganizations in Japan and cross-border M&A transactions. Japan-related ECM also had a strong quarter. Investment Banking net revenue was the strongest in nine years, since the October to December quarter in 2011 and net revenue increased 27% quarter-on-quarter to JPY35.6 billion.

The right-hand side shows major deals announced or executed during the third quarter. The red boxes represent cross-border transactions, and the green shaded boxes are sustainability-related transactions. Last year, we successfully supported the needs of a diverse range of issuers, such as fundraising needs amid the pandemic, strategic realignments, and business reorganizations driven by corporate governance considerations. The number of transactions the Nomura Greentech is involved in also trended up on the back of growing interest in social issues, such as climate change.

Please turn to Page 15 for non-interest expenses. Firmwide expenses decreased 5% to JPY270.8 billion. Although firmwide revenues increased by 9%, compensation and benefits were kept at roughly the same level as last quarter. Commissions and floor brokerages declined by 5% on lower trading volumes in the Americas. Occupancy and related depreciation declined by 5% as last quarter included costs related to the move to Toyosu office. Other expenses declined by 23% due to a drop in expenses related to legacy transactions and other transaction-related expenses.

Page 16 gives you an overview of our financial position. Our balance sheet at the end of December was JPY44.6 trillion, up JPY1.9 trillion from the end of September due to repos and trading assets. As shown on the bottom left, our Tier 1 capital ratio at the end of December was 19.9% and our CET 1 capital ratio was 17.7%, both up compared to the end of September. Tier 1 capital, which is the numerator in the calculation, increased by approximately JPY98 billion due to a buildup of income, while risk assets, the denominator, inched up only slightly from the end of September as a decline in market risk offset an increase in credit risk.

That concludes today's overview of our third quarter results. To sum up, this quarter, we saw the results of our business platform realignment, which started two years ago, and we were able to monetize favorable market conditions and business opportunities.

We delivered results in terms of earnings with three segment income before income taxes reaching a record high since the global financial crisis and annualized ROE of over 14%. Wholesale maintained the strong momentum of the first half and we further diversified our revenue drivers.

The realignment of our coverage areas in retail has led to a virtuous cycle and performance has trended up since bottoming in the July to September quarter in 2019. Inflows contributed to record high assets under management in Asset Management. We continue to stringently control costs. We were able to reduce costs, while each business division reported revenue growth. We are well positioned to deliver sustainable earnings globally.

In January, wholesale maintained third quarter momentum with a good start to rates, credit, and forex/emerging in fixed income, cash and derivatives in equities, and advisory and solutions in Investment Banking. Following the realignment in retail, our efforts to enhance the expertise of sales partners in each coverage area is succeeding, and we are meeting the needs of various clients despite the pandemic. Daily revenues are relatively stable and we are maintaining third quarter revenue levels. As the number of Coronavirus cases rises again globally, we must remain vigilant. We will leverage the whole firm to ensure business continuity as a financial institution in the capital markets, while putting the health and safety of our clients, communities and people as our highest priority.

Thank you. I will now take questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Mr. Muraki from SMBC Nikko Securities. Mr. Muraki, please go ahead.

Masao Muraki -- SMBC Nikko Securities -- Analyst

Hello. This is Muraki from SMBC. I have two questions. First, in the USA, the composition of profit in the USA and also the sustainability of this profit level. Page 3 shows that this year growth in profit was mainly driven by the USA. On the nine-month period, excluding ACI valuation gain, US wholesale gain is about JPY100 billion, but fixed income, equity and IB, what is the composition among with that three?

Also, some businesses that are in top three, so you focus on those businesses and you explained that that was the success factor. On the other hand, Page 33 shows that over a two-year period the headcount has been reduced by about 10% or more. So, the performance has significantly improved, I suppose. So, how do you view the sustainability of this current situation?

The second question is a simple question, Page 28. Regarding retail, the flow of funds in retail business. In the third quarter, it was negative. So, on the nine-month period, it's not a significant inflow. However, by age bracket, so those below 60 years old is inflow, but those above 60 in age is outflow according to the disclosure before. But what is the situation for the most recent quarter? Thank you.

Takumi Kitamura -- Chief Financial Officer

Thank you very much. This is Kitamura. Firstly, regarding the wholesale profit in the USA and what is the competition of the profit in the USA? I'm afraid to tell you that PTI contribution by business is not being disclosed. However, basically, GM represents a significant proportion of that. Also, within GM, fixed income, equity, what is the contribution from those businesses within GM? Now, depending on market conditions, the situation changes. For example, in the first quarter, fixed income naturally was big in size and in the third quarter, equity actually outsized fixed income. In that sense, we are well-balanced in the mix.

For IB, the impact of COVID-19 was felt in the early part of the period. However, gradually toward the third quarter, the situation gradually improved. Especially, in April last year, we purchased Nomura Greentech that focuses on sustainable energy. It's a famous boutique. So Nomura Greentech conducted sustainability related to deals and we have accumulated such deals. And in August, we made an announcement on the tie-up with Wolfe Research in the USA. So that is in -- from the viewpoint of enhancement of IB business, that tie-up is starting to generate positive benefit. So, Wolfe Research sales members are providing quality feedback, which are highly appreciated by issuers.

So, regarding the sustainability that you inquired about, in IB, we have a pipeline of deals being accumulated and also fixed income and equity businesses are well-balanced. So in that sense, the profit in the USA, I believe, has sustainability. Thus, high market share means that even if the market collapses, we will be left with on certain level of P&L. So that is the answer to your first question.

And my answer to your second question is, all along as I've told you, the trend hasn't changed much. So those below the age of 60, basically we see inflow -- net inflow and those above the age of 70, we see the trend of outflow. So that structure has remained unchanged. Unfortunately, in this quarter, JPY195 billion of negative inflow -- net inflow of cash and securities was suffered.

In the most recent quarter, the situation was, I wouldn't say severe, but market was good, that's a good thing for us. But many clients had unrealized gain, especially in investment trust products, people have -- they have unrealized gain. So, for now, at the timing when they can expect unrealized gain, they, I believe, sold their positions to secure their profit. So, whether it is on equities and investment trust, the selling pressure was strong and some funds stayed in MRF, but other funds flowed out. However, looking at the inflow of number and purchasing number, those numbers are trending at quite high level. So, continuously, of course, we have to stay focused on providing good services that -- by receiving inflow from clients, our intention is to keep growing the AUM.

Masao Muraki -- SMBC Nikko Securities -- Analyst

I understand, Mr. Kitamura. Thank you very much for your answer.

Operator

The next question is by Ms. Tsujino, Mitsubishi UFJ Morgan Stanley Securities. Please go ahead, Tsujino-san.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley Securities -- Analyst

Thank you very much for giving me this opportunity. My first question relates to the future of the global markets, FICC. If the situation should worsen, what would be the cost [Phonetic]? This time around, in the United States, rates shrank and that was a general trend in the sector. On the other hand, mortgage issuance continues to be robust. And on Q-on-Q, there has been growth. So, my understanding is that, there was stability in that business area and credit spread has become quite tight. So, in the weeks and months ahead, what would happen to the FICC desk where profitability had turned negative? If the situation is going to further worsen, what would be the trigger? And what about the mortgage which did well? If we see negative in mortgage, it would be long-term rates going up or issuance going up. But although rates have gone up, it's lower than a year ago, it's lower than two years ago. So, can you elaborate on your concept in these areas?

My second question is with regards to your policy of dividend. 30% each half year and total return ratio of 50% is your benchmark and you do share buyback. So that capital policy remains unchanged, I wanted to confirm that point. Thank you. Those are my two questions.

Takumi Kitamura -- Chief Financial Officer

This is Kitamura speaking. Thank you very much for your questions. Your first question is, what would happen to fixed income profitability going ahead? And if the profitability would worsen, what would be the trigger? FRB, premature tapering, the likelihood is not so high at this juncture. But if that should happen, there could be a sudden rise in long-term rates. So that could be one risk factor. And should that happen, credit and securitized products and spread products would be heavily impacted.

As I have been saying from some time ago, we have shrank down our position and, to a certain extent, we think that the situation in those businesses would be manageable. There could be some volatility in the rates business due to those triggers, but to our business such impact from such trigger would be rather limited. I talked about this before, but for us, the biggest challenge is low volatility and low activity, that would be the biggest challenge for Nomura. In Q3, talking about the rates business, the volatility remained at relatively low level and activity was not so high either. And therefore, US rates business saw some slowness. But since the beginning of this year, clients also began to become more active and when we observed the January market, such challenges have not realized in the most recent days.

We're not overly optimistic about the times ahead. But on the other hand, there are a few expectations. First, vaccination leading to Corona under control and roadmap toward economic growth and a fiscal expenditure and monetary policy of various governments making headlines leading to various speculations, but rebalancing activities of investors due to such trend may occur. And then on the investment side, a structured capital inflow should be caused, but the rates are extremely low. So we continue to expect strong demand for yield.

Another point, SSA sector, there could be issuance demand in the response to the pandemic. And we have seen recently issuance related to sustainability in Japan and in other countries. In this area, we have quite competitive positioning. So, in that context, those three factors are what we are expecting for in terms of the upside.

Going on to your second question, we are making profits, but are we going to change the benchmark for total return ratio? That's how I interpreted your question. Our commitment is 30% dividend payout ratio and 50% total return ratio, and we have no intention to change that commitment. Thank you.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley Securities -- Analyst

Thank you very much. So, that means that you will do share buyback, right?

Takumi Kitamura -- Chief Financial Officer

This is Kitamura speaking again. We have committed to total return ratio of 50% or higher. So, by combining dividend and share buyback, we will live up to our commitment.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley Securities -- Analyst

Thank you very much.

Operator

The next question comes from Mr. Watanabe from Daiwa Securities. Please go ahead.

Kazuki Watanabe -- Daiwa Securities -- Analyst

Thank you. This is Watanabe from Daiwa Securities. I have two questions. First question is about Investment Banking. Revenue of Investment Banking in third quarter was quite high. ECM, DCM, M&A, what is the competition of the Investment Banking revenue in the third quarter? And for IB deals backlog, do we see an increase or decrease in terms of the trend? And tax effect, in the USA, performance is improving. Next year, are you -- is there a possibility that you will be booking DTA next year in the USA? Thank you.

Takumi Kitamura -- Chief Financial Officer

Thank you very much. This is Kitamura. Regarding the composition of IB, that performed well in the third quarter. I'm sorry to tell you that the breakdown itself is not being disclosed. But in the IR pack, Page 23, so in the form of commission, you can refer to a number. So equity, fixed income and M&A, we have the disclosure based on that categorization. And as you see, M&A grew rapidly. I believe you will be able to guess that.

And regarding the pipeline, so for M&A, we have an increasing trend for the domestic M&A pipeline. So, Nomura has very strong relations with corporate managers. So with the economic environment changing drastically, I believe, we are being able to make timely and quality proposals.

For ECM, the situation is not bad. Now, the enhancement of our financial position through the fundraising and also the sale of stocks to generate cash and also the acquisition for future growth. So, those corporate demand for funds and also improvement of capital efficiency through unwinding of cross-held shares. So there are very wide range of demands. And so, this current trend, I believe, will continue.

And as for DCM, earlier, Tsujino-san asked, about this and I answered that social bonds in sustainability against the bond and green bonds issuance has very strong demand. So, in each of the business lines, so certain size of pipeline is what we have.

And regarding your second question, in the USA -- the tax level in the USA, whether we are going to post DTA, deferred tax asset, if there is any possibility for us to post DTA next year? The last two years, the profit in the USA has been solid. Unfortunately, our deferred tax asset comes with a valuation allowance, so DTA has been zero due to valuation allowance as we've explained to you from time to time. And from here with ShinNihon, EY auditor and we are going to have a discussion. So we will decide on the possibility of recovery. And based upon the accounting rule, we will be conducting the accounting treatment. And as needed, we will post a DTA. But I cannot say whether we are going to post DTA or not, it really depends on how we are going to evaluate the possibility of likelihood of recovery.

Kazuki Watanabe -- Daiwa Securities -- Analyst

Thank you very much, Mr. Kitamura, for your clear answer.

Operator

The next question will be by Mr. Otsuka, J.P. Morgan Securities. Please go ahead.

Wataru Otsuka -- J.P. Morgan Securities -- Analyst

This is Otsuka of J.P. Morgan Securities. I have two questions. One is numeric and second is the stock price of Nomura. First of all, sorry, I've asked this question before, but the profit level that you have just reported, you described it as record high, historical high and that describes it all. But other than fixed income, the market gave you tailwind. But how would you evaluate your people? Do you think that they did well or do you think that they could have done better in a positive market trend?

And also, you touched upon this in your presentation, but the cost level, of course, cost reduction plan is well under way and is being achieved. But in Q3, the trend of cost versus revenue was rather divergent, so the ratio may change due to bonus allowance. That's my first question.

And secondly, I'm going to deviate from the results announcement. But Mr. Kitamura, as you said, if we look at the historical trend of profit, Q3 was quite wonderful, but capital -- market capitalization or P/B, your stock price isn't catching up with the high performance in terms of profits. So, how is that being taken by the top management? That's my second question.

Takumi Kitamura -- Chief Financial Officer

This is Kitamura speaking. Thank you very much. First of all, our self-assessment of Q3, I think it was a good quarter. Q1 was a good quarter as well, but we might have attached too much rate on fixed income. But in Q3 for each business line, wholesale, equity, IB and Asset Management, retail, the revenue and profits were well-balanced and we were able to record a quite robust bottom line. Is this the limit? Was this as far as we could have gone? Not really. We will continue the initiatives that we have embarked upon. And by realizing and continuing these initiatives, we think that there is further room for expansion.

On cost control, you said divergence between revenue accounted for versus expenses. And that's quite a good point, but cost reduction after implementation there are some cases where time lag is caused until it is accounted for, said -- say, a initiative began in the first half and then that appears in statutory accounting later. So, in the end, due to such process, you may find that in appearance at a glance there is divergence between revenue and expenses and also provisioning. So, will we provide for more allowance because of the profit level? Quarter-by-quarter we provide for appropriate level of bonus allowance, each quarter taking into consideration the profit level. That's my answer.

And as I said, we are proceeding well in terms of cost reduction and there are achievements that derived from what we had originally planned and there are cost reductions that we had achieved which had not been factored into the plan as a result of the pandemic. So, we will be able to achieve the goal one year ahead.

On the other hand, there are items that had been in the plan originally that are still under implementation. And the results of cost reduction will only come out in the coming fiscal year. But at any rate, IT and digital transformation investment toward the future will continue to be necessary. So, cost control and appropriate investment for growth will have to be well-balanced in order to continue to monitor Companywide cost. That is my response. Thank you.

Well, sorry, and stock price, that was another question. Well, ROE 15%, PBR 0.6. Frankly speaking, cheap. But at the press conference this afternoon, everybody was talking about sustainability. There were many questions on sustainability. The current stock price reflects such concern. I'm guessing that that's partly because we haven't been able to truly resolve such concerns. And as I have talked about, we are conducting the review of business portfolio to concentrate on selected areas where we have competitive strength and we are working on cost reduction and achieving results from those initiatives. But that has led to a much stronger business platform in comparison to the past. So, by taking this opportunity, we are communicating those facts to the investors and to the market, which I think is very important in the context of our stock price. And we are also very strong in the public sphere. And by leveraging our strength in the public sphere, we will also aggressively embark upon initiatives in the private sphere. And by taking such measures, we are hoping that the image of Nomura in the market will change.

So what was your take? I would like to ask you what your impression was after the results announcement this time around. But we would be most appreciative if you could write in your reports, your commentary on our stock price. That concludes my response.

Wataru Otsuka -- J.P. Morgan Securities -- Analyst

Kitamura-san, thank you very much. Sorry, I have a follow-up question on the first point. The quarter-on-quarter or year-on-year, in retail, nine months, 9% increase, but expense minus 4% as indicated on Page 8. So this is difference between revenue growth versus expenditure. So, your employees contributed to the 9% profit growth, so you have to incentivize the hard work. So, including the provisioning for bonus, expenses dropped by 4%, same applies for wholesale, 20% increase in revenue, total in nine months, but expense only grew by 2%. Does that mean that you are provisioning for bonus and incentivizing, but you are still able to reduce other cost items?

Takumi Kitamura -- Chief Financial Officer

This is Kitamura speaking. That's exactly the case. In terms of personnel expenditure, we do the provisioning based upon our performance. NP is the area -- non-personnel expenses is the area where cost has been cut. So, your interpretation is correct. We are provisioning for personnel cost, while the total cost has dropped.

Wataru Otsuka -- J.P. Morgan Securities -- Analyst

Thank you very much.

Operator

The next question is from Mr. Sasaki of Bank of America. Please go ahead.

Futoshi Sasaki -- Bank of America -- Analyst

Thank you. This is Sasaki from Bank of America. I have two questions. Firstly, so these days in the USA, some names have quite high volatilities when we look at transactions. So you have high market share in auction transactions. Is there are positive impact or negative impact for you?

And the second question is, under the Biden administration, which came to office and you, I believe, have a clearer outlook, but what is your view toward Biden administration in the sense of its impact on your business? Or do you see nothing to do with your business between Biden administration in your business?

Takumi Kitamura -- Chief Financial Officer

Thank you for your question. This is Kitamura. Regarding your first question, regarding the specific names, we refrain from commenting on specific names. However, we are a liquidity provider, and we are playing the role as a liquidity provider in the market infrastructure. So the market moves have been quite robust and violent and we weren't completely immune to the market movement. However, the impact was not very drastic to the extent that it affects us greatly. So that wasn't a magnitude.

So, secondly, the impact of Biden administration on our business. So, US economy and the US-China relation, I'm not sure what is going to happen from here. And regulations on financial institutions, that's something that we are paying close attention to. On the other hand, the new administration is upholding a couple of agendas, including infrastructure and investment in the area of environment. So those themes are what we are paying attention to. So under the new administration, significant upgrading to the US infrastructure can be expected. So, recently, we have grown in such areas as infrastructure finance. Also, as mentioned earlier, Nomura Greentech, this is a boutique house that focuses on sustainability related to business and we have that entity within the Group. So for such entity, the current administration presents great, big business opportunities.

So, in addition to local businesses in the USA, Japan and Asian investors in the area of ESG and sustainability investment, we receive a quite strong interest and inquiries from those investments in Japan and Asia. So to these investors, our -- we can -- we could leverage our business in the USA and we could connect our -- the assets in the USA with investors in Japan and Asia. In that sense, I believe there are lot of opportunities that we can pursue that. So what is going to come out from the current situation is what we will keep paying close attention to. Thank you.

Futoshi Sasaki -- Bank of America -- Analyst

Thank you very much. One more thing. So, regarding your comment, I have a follow-up question. Now, the performance is quite solid and your balance sheet is very strong and you have lots of business opportunities and the stock price is considered undervalued. But why are you refraining from or why are you hesitant to conduct share buyback? What is the reason? Why you are being hesitant to buy back shares?

Takumi Kitamura -- Chief Financial Officer

This is Kitamura. We are not intending to be hesitant about share buyback, but -- so we have two more months till the end of this fiscal year. Our stance is to maximize the performance. And as explained many times, total return ratio of 50% or more is what we are going to keep focusing on this year.

Futoshi Sasaki -- Bank of America -- Analyst

Thank you very much, Mr. Kitamura, for your answer.

Operator

Thank you very much. [Operator Instructions] Thank you very much. We have with us Niwa-san of Citigroup Japan. Please go ahead.

Koichi Niwa -- Citigroup -- Analyst

This is Niwa speaking. Are you getting my voice?

Takumi Kitamura -- Chief Financial Officer

This is Kitamura. Yes, I hear you well.

Koichi Niwa -- Citigroup -- Analyst

Thank you. This is Niwa. There's just one question. March 2025, from the management vision perspective, how would you assess Q1 to Q3 or Q3 in particular? I'd appreciate if you could assess from three perspective. First of all, as base profit on Page 5, if I look at Page 5, JPY120 billion would be the baseline profit. But in the 2025 vision, I think, JPY70 billion was the normalized level. So, do you think that the baseline has gone up?

And ROE 15%, if we think from such perspective, when will you review the KPI toward 2025 and what would be your focus in the review of such KPI? That's my second point.

Third point, in the management vision, the expansion of profit source or contribution from new business areas increasing, those are some of your aspirations. But in Q2 or Q3, are you getting more confidence that you will be successful toward those goals? So my interest is whether we can expect higher level of profits from those new areas? So that is my question. Thank you.

Takumi Kitamura -- Chief Financial Officer

Thank you. This is Kitamura speaking. And thank you for your question. Last year, in April, we announced the 2025 vision. That was when we were right at the midst of the pandemic. So, we at least announced our tentative program or the vision that we have compiled then, and we also commented that we will revise the vision as it becomes necessary. And if we look at Q3, there has been tailwind from the market, but at the same time, the level of profits has been elevated. So, we will discuss among our top management, and as far as the review of the mid-term management plan is concerned, yes, there is a possibility that would be within the scope of management discussion.

And also new business areas, that was part of your question. And frankly speaking, we are still focused on the traditional business area. I'm not sure whether traditional is the right word, but much of the profit is sourced from the conventional business areas. On the other hand, as an extension of the conventional business, sustainable-related business, which is very close to the conventional business is gaining momentum. And in this area, we think that we can expect further expansion. So, I would not categorize this as a completely fresh green area, but we think that this is an area where we can expect further profit contribution and also profit and digital, these are some of the domains where we have not yet been able to monetize the opportunities yet.

So, the other day we made an announcement on private shares -- unlisted private shares and investment entities. So through these initiatives, we will be seeking further upside. And in the digital domain, I'm not sure whether you recall our comment, digital asset custodian business, Komainu, is our Group company and there is strong interest in the market. So we will strengthen our initiatives in such areas.

I'm not sure whether I have been able to respond to your question, Mr. Niwa, but this could be a new business area where we have quite high hopes. Thank you very much.

Koichi Niwa -- Citigroup -- Analyst

Thank you very much. This is Niwa speaking. I have a follow-up question. In the discussion of review of mid-term business plan, if you want to elevate the level of ROE, would you change the benchmark of total return ratio or -- I think your target of capital ratio is 11%. Is there room for review? In other words, you can afford to increase your payout ratio, can't you? So, is that going to be subject to review?

Takumi Kitamura -- Chief Financial Officer

This is Kitamura speaking. Total return ratio of 50%, that benchmark included we will be looking at our business portfolio, and the right level of capital. In the discussion, not necessarily directly linked to the mid-term plan, we will be discussing those matters. So CET 1 11%, that is our target. And yes, there is the possibility that we may review that. There is also a possibility that we won't touch on that. So we will think about various vantage points.

Koichi Niwa -- Citigroup -- Analyst

Thank you very much, Mr. Kitamura, for your comprehensive response.

Operator

The next question comes from Ms. Tsujino of Mitsubishi UFJ Morgan Stanley. Please go ahead.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley Securities -- Analyst

Thank you. I just have one question. This is Tsujino. So, you just talked about expense, but on the quarterly basis for the personnel expense and the real estate occupancy-related cost and others, and what is that change on the Q-on-Q basis and also by segment and in retail -- domestic retail and Asset Management and wholesale and what is the level of expense? And looking at the change in expense, what caught my attention is other expense? So, wholesale expense is down, but that may have something to do with other expenses. So, then to organize information then decline in expense, other expense, what is the biggest components there in other expense? And what kind of impact is it having on each segment of business? Thank you very much.

Takumi Kitamura -- Chief Financial Officer

Thank you. This is Kitamura speaking. That's a quite technical question, so I'm not sure if I was able to follow. But regarding other expense related to the transactions conducted in the past, that's a fuzzy way of describing it. But that expense has come down in this quarter related to the past transactions. So this expense in terms of segment, it's not allocated to any particular business line or segment.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley Securities -- Analyst

Tsujino speaking. So, if I try to take a deep dive then I cannot finish, but -- so the cost is down by more than JPY10 billion. But for the headquarters or corporate, it's more than JPY10 billion. And in the third quarter, related to the past transactions, I think there was a expense that was book-related expense that was conducted in the past, but I wonder if there is a significant decline on a Q-on-Q basis. So, is there any additional information that you can give me? So, on a Q-on-Q basis, the expense or provision of expense, is it possible for such expense to come down significantly on a Q-on-Q basis?

Takumi Kitamura -- Chief Financial Officer

This is Kitamura. Thank you very much for paying very close attention to our numbers. In the third quarter, so unfortunately we have JPY10 billion or of -- or so of expense related to the transactions conducted in the past, but it's down compared with the level in the second quarter. So in the second quarter, the relevant expense was higher than the third quarter. And also professional fee to some experts and also other SG&A and there are miscellaneous expenses included here in the other expense line. That is why it's called other lines and we see slight decreases in different miscellaneous cost lines. I don't know if that satisfies you.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley Securities -- Analyst

Tsujino speaking. Understood. I think I have a better sense. Thank you.

Operator

Thank you very much. Now, it's almost time to finish the call. So we are going to take the last question. The next question comes from Mr. Ban from Jefferies.

Hideyasu Ban -- Jefferies -- Analyst

Hello?

Takumi Kitamura -- Chief Financial Officer

Yes, I hear you, Mr. Ban.

Hideyasu Ban -- Jefferies -- Analyst

Oh, thank you very much. This is Ban of Jefferies. We've gone overboard the time, so very quickly just two questions. Including the presentation, it may be premature, but next fiscal year, you will continue to increase top line, but at the end of this fiscal year, headcount also is expected to decline. But when -- as you try to maximize top line, will headcount begin to go up again after bottoming out? Or in view of the pandemic, are you going to continue to control headcount while you try to continue to increase top line revenues? That's my first point.

Secondly, in the previous quarter results announcement, flow increasing by 20% or 30% was mentioned, and you did well this quarter and you were able to harvest -- enjoy a great harvest. So, from the sustainability perspective, can we expect an increase of sustainability-related business by 20% to 30% in the next fiscal year as well? Do you think that this pace will be maintained? I'd appreciate if you could comment on that point. Thank you.

Takumi Kitamura -- Chief Financial Officer

This is Kitamura speaking. To deal with your first question first, top line is increasing, while total headcount is declining. For us, human resources is a very important asset. It's an important capital, but the rule of human capital is changing. Things that can only be done by human beings are declining. So with controlled headcount to a certain extent, it would be possible to grow the top line. Of course, there are business areas that are human capital intensive. And in such areas, we will be recruiting people. But on firmwide basis, we do not believe that -- I think more than quantity, the issue or key is quality.

And another point, business flow, how would the business flow trend as we think about the next accounting year? Since the beginning of this year, we have seen activation of client flow at high levels. And as I said, there are a few key factors as we try to think about next year's market. So, we are not necessarily optimistic, but there are expectations. We think that decent level of client flow will continue. We have a diverse clientele and each client faces particular challenges. So, to a certain extent, I think we will continue to be in demand by the clients. That concludes my client [Phonetic]. I hope I answered your question.

Hideyasu Ban -- Jefferies -- Analyst

Yes. Thank you very much. That was quite an abstract question, but thank you for your response, Mr. Kitamura.

Takumi Kitamura -- Chief Financial Officer

This is Kitamura. Thank you, everyone, for attending the call. So, for the performance in the third quarter, I believe, based upon their business platform reconstruction and the cost-saving initiatives that we have worked on, we believe those initiatives materialized in terms of the benefit and result in the third quarter. In that sense, we look at it positively. For three quarters in a row, we were able to deliver the performance we did.

And regarding our business, in the sense of sustainability of our business, we have the hope that we will start to see some positive change. And as a result, hopefully, the market's view toward us will change for the better. So, all along we have been strong in the area of public. So moving forward, so under the theme of public to private, which is the new growth strategy struck out by Mr. Okada, we will steadfastly work on this initiative, so that we can secure bottom line profit. So I ask for your continued support. Thank you very much for your time today.

Operator

[Operator Closing Remarks]

Duration: 72 minutes

Call participants:

Takumi Kitamura -- Chief Financial Officer

Masao Muraki -- SMBC Nikko Securities -- Analyst

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley Securities -- Analyst

Kazuki Watanabe -- Daiwa Securities -- Analyst

Wataru Otsuka -- J.P. Morgan Securities -- Analyst

Futoshi Sasaki -- Bank of America -- Analyst

Koichi Niwa -- Citigroup -- Analyst

Hideyasu Ban -- Jefferies -- Analyst

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