Nomura Holdings Shs Sponsored American Deposit Receipt Repr 1 Sh (NMR) Q4 2021 Earnings Call Transcript

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Nomura Holdings Shs Sponsored American Deposit Receipt Repr 1 Sh (NMR 1.91%)
Q4 2021 Earnings Call
Apr 27, 2021, 5:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to today's Nomura Holdings' Fourth Quarter and Full-Year Operating Result for Fiscal Year Ended March 2021 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. [Operator Instructions]

Please note that this telephone conference contains certain forward-looking statements and other projected result 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 includes economies and market conditions, political events and investor sentiments, liquidity of secondary market, level and volatility of interest rates, currency exchange rate, 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 -- Executive Managing Director and 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 fiscal year ended March 2021. Please turn to Page 2. First, our full year results. As you can see on the bottom left, net revenue was JPY1,401.9 billion, up 9% year-on-year and income before income taxes was JPY230.7 billion, a decline of 7% compared to last year. The decline in income before income taxes is due to segment Other three segment income before income taxes, which represents our core business, increased by 35% to JPY230.9 billion.

Although Wholesale declined year-on-year due to the U.S. loss, Retail and Asset Management both delivered strong performance. Net income was JPY153.1 billion, down 29% while EPS was JPY48.63 and ROE was 5.7%. Our dividend for shareholders of record as of the end of March was JPY15 per share, resulting in an annual dividend of JPY35.

Before I go into more details, I would like to first say a few words about the possible loss arising from business activities announced on March 29. Please turn to Page 3. On March 26, an event occurred at U.S. subsidiaries, including Nomura Global Financial Products, Inc. whereby we were subject to a potential significant loss due to prime brokerage transactions with a U.S. client. The loss based on market prices at the time was estimated at $2 billion. We take this matter very seriously and have taken a number of steps to address it. First, we took a disciplined approach to exit our positions, taking into account both market impact and minimizing losses. As a result, as of April 23, we have now exited over 97% of our positions. We have also confirmed the facts of the event and checked for similar risk in existing transactions in our prime brokerage and other financing-related businesses. We have confirmed that there are currently no other similar transactions.

This event was a very specific individual case. In order to ensure proper risk management of such cases in future, we will engage third-party experts to conduct a thorough review of our risk management framework in wholesale and risk management, while also enhancing our global risk controls.

Our results for the full year and fourth quarter ended March 2021 announced today include an impact of $2.3 billion or JPY245.7 billion reflecting the winding down of our positions in March and an additional amount due to changes in market prices. As of April 23, impact to our consolidated financial results from April 1 is estimated as a loss of JPY62 billion, which will be booked in the fiscal year ending March 2022. This event had a major impact on our financial results for the full year, and particularly fourth quarter ended March 2021. However, excluding this event, our core business of Retail, Asset Management and the Wholesale global business all delivered strong results. I would also emphasize that our financial health remains robust, including our capital metrics and liquidity.

Please turn to Page 4. This slide outlines the changes in income loss before income taxes from FY19/20 to FY 20/21. The left-hand side shows FY19/20 income before income taxes of JPY248.3 billion with a segment breakdown, shown on the far left. Despite headwinds from the pandemic, Retail reported robust sales of stocks and investment trust as favorable market conditions improved investor sentiment and the diversification of client approaches we have taken since the year before last worked well. Cost reductions also helped to improve the bottom-line. Net revenue increased by 10%, while costs declined by 4% resulting in a JPY42.9 billion gain in income before income taxes.

In Asset Management, American Century Investments related gain or loss improved markedly and income before income taxes increased by JPY45.5 billion. Net inflows of JPY1.9 trillion over the year lifted the assets under management to a record high of JPY64.7 trillion, resulting in the highest income before income taxes since the year ended March 2001 -- 2002 when comparisons are possible.

Wholesale, shown as the light blue bar graph in the middle, reported a decline in income before income taxes of JPY27.9 billion. Let me explain this in more detail. First, as I said earlier, the impact arising from transactions with the U.S. client was JPY245.7 billion. Of this, JPY204.2 billion is booked as a trading loss deducted from Equities net revenue. The remaining JPY41.6 billion is booked as a loan loss provision in expenses. Excluding the U.S. loss, Wholesale reported an increase of JPY217.8 billion in income before income taxes.

As shown on the next page, in fixed income, net revenue increased by 31%, driven by strong performance in rates, credit and securitized products, while Investment Banking net revenue shown on the right grew 35% as we supported multiple M&A and ECM transactions. Equities, shown in the middle, declined 41% due to the loss arising from transactions with the U.S. client. Excluding that, we continue to see strong momentum in the fourth quarter. We have also been able to keep our cost base down by completing our $1 billion cost reduction program, one year ahead of schedule.

Please turn back to Page 4. Segment Other, shown to the right of Wholesale, reported a decline in income before income taxes of JPY110.9 billion. The main reasons for this are as shown in the list block. Second from the top, we booked an impairment charge of JPY47.7 billion on our stake in affiliate Nomura Real Estate Holdings. This is because the market value of the company is lower than that for our consolidated book value and we determined that the decline in value is not a one-off occurrence. Naturally, this is just an accounting treatment and there is no impact on our business relationship with the company. The other factors are as shown on the slide.

Please turn to Page 6 for an overview of the fourth quarter results. This quarter saw the impact from the loss arising from the transactions with the U.S. client and as shown on the top right, firmwide loss before income taxes was JPY166.1 billion and net loss was JPY155.4 billion and EPS was negative JPY50.78. The graph on the bottom right shows a significant loss in Wholesale due to the loss in the U.S. Excluding this event, our business remained solid in Retail and Asset Management, posting strong net revenue, in line with the previous quarter, while Wholesale saw robust performance in Investment Banking.

Please turn to Page 9 for an overview of performance in each division, starting with Retail. Fourth quarter net revenue was JPY96.8 billion. Stronger sales of Japanese secondary stocks and higher recurring revenue offset the slowdown in primary transactions and the net revenue remained roughly unchanged from the previous quarter. Income before income taxes remained solid, although declined 8% to JPY26.1 billion. As shown on the bottom of the page, total sales grew 7% quarter-on-quarter. Sales of stocks increased 9%, while bond sales were up 14%, driven by sales of U.S. dollar and the Australian dollar denominated bonds.

Please turn to Page 10. The graph on the top left shows that recurring revenue assets such as investment trust and discretionary investment trusts grew to JPY18.2 trillion, driven by the market rally in net inflows into the investment trust contributing to higher recurring revenue. Consulting-related revenue was JPY4.4 billion, improving from last quarter on contributions from annuities and other products. Growth in the number of active clients was sluggish compared to the previous fiscal year when the number of clients reentering the market increased as the market plunged. As you can see on the top right, net inflows of cash and securities was over JPY300 billion, which combined with market factors, lifted retail client assets to record high of JPY126.6 trillion.

Please turn to Page 11 for Asset Management. Net revenue was JPY36.6 billion and income before income taxes was JPY21.4 billion. This represents the second highest level after last quarter since the year ended March 2002, where comparisons are possible. The top left shows that American Century Investments-related gain or loss remained high at JPY10.4 billion and net revenue, excluding ACI, increased 9% on the back of growth in assets under management.

Please turn to Page 12. The graph on the top left shows outflows of JPY765 billion in the investment advisory and international businesses shown in gray due to the impact from outflows by public pension funds in Japan. The investment trust business, shown in red, continue to book inflows into ETFs and funding MRFs increased as investors parked funds after locking gains from sales. Defined contribution funds, etc., also reported continued inflows. Total inflows in the investment trust business were JPY393 billion.

The bottom right shows assets under management in publicly offered ESG funds in Japan. Recently, there has been growing interest in Japan in social and environmental issues. By enhancing our product offering to meet demand to invest in companies that contribute to resolving these problems, assets under management in ESG funds increased JPY643 billion, as of the end of March, representing growth of more than double over the past year.

Please turn to Page 13 for Wholesale. As shown on the top left, net revenue was negative JPY800 million and net loss was JPY165.9 billion. As I said at the start of my presentation, the loss related to transactions with the U.S. client impacted Americas Equities net revenue and Wholesale expenses. Net revenue by region shown on the bottom left shows that the Americas were down significantly due to this impact, while Japan and AEJ both slowed mainly due to Fixed Income. EMEA reported stronger net revenue in both Fixed Income and Equities.

Please turn to Page 14 for an overview of each business line. Global Markets net revenue was negative JPY36.8 billion. Fixed Income declined 14% to JPY84.3 billion. As the heat map on the right shows, in the Americas, Securitized Products had a good quarter on an uptick in client flows and EMEA revenues were driven by European government bonds. Asia reported strong revenues in credit and FX yen compared to the strong previous quarter and Japan booked softer revenues in Rates and Credits. Equities net revenue was negative JPY121.1 billion. Looking at the heat map, the Americas reported stronger revenues in Cash Equities but the loss mentioned earlier significantly impacted revenues. EMEA revenues increased on contributions from Cash Equities and in AEJ, the arrow is pointing up for Cash and Derivatives, both of which had a good quarter. Japan posted stronger revenues in Derivatives but revenues declined due to weaker block trades and primary flows.

Please turn to Page 15 for Investment Banking. Net revenue was JPY36.1 billion, representing another strong quarter. Our global M&A business had a particularly good quarter driven by Japan and Americas, as well as contributions from announced deals that closed. Internationally, we supported multiple sustainability-related transactions and the Americas ECM franchise was involved in multiple deals underpinned by our alliance with Wolfe Research and the active market environment.

Please turn to Page 16 for non-interest expenses. Firmwide expenses for the quarter were JPY336.1 billion, an increase of 24% compared to the third quarter. Notably, other expenses increased by JPY97 billion to JPY140 billion due to the loan loss provision I mentioned and the impairment charge on our stake in Nomura Real Estate Holdings. Compensation and benefits declined by 30% as we contained bonus provisions in line with pay-for-performance.

Our financial position is shown on Page 17. At the end of March, our balance sheet was JPY42.5 trillion, declining by JPY2.1 trillion from the end of December, due to a decline in repo transactions and trading assets. As the table on the bottom left shows, we have Tier 1 capital of approximately JPY2.8 trillion, a decline of over JPY110 billion from the end of December. This is mainly because of the deterioration in performance during the period and dividend payments. Royalty amount of FX translation adjustments increased due to the lower yen. Risk weighted assets were JPY16 trillion, an increase of JPY1.1 trillion from the end of December due to an increase in market risk following a rising U.S. interest rates and higher volatility in the equities and FX markets, as well as higher credit risk. As a result our Tier 1 ratio at the end of March was 17.7% and our common equity Tier 1 ratio was 15.7%.

The red line graph on the bottom right shows Level 3 assets as a percentage of Tier 1 capital increasing to 20% at the end of March from 17% at the end of December, due mainly to a decline in Tier 1 capital.

That concludes today's overview of our fourth quarter results. To conclude, the management takes very seriously the concerns caused over the significant loss arising from transactions with the U.S. client. We will implement the measures I discussed to benefit the firm in the future.

Looking back on the full year, all our core businesses reported stronger net revenue. We also made solid progress toward achieving our fiscal 2022/23 KGI, KPI targets with retail client assets and assets under management in Asset Management, both hitting record highs. The pandemic prompted a shift to remote working and we saw a heightened focus on diversifying our work in boosting efficiencies, allowing us to reach our JPY140 billion cost reduction target announced in 2019 one year ahead of schedule.

Retail and Wholesale performance slowed slightly in early April but momentum has returned in the second half of the month. The business environment in 2021 is looking good. Amid the low interest rate environment, we believe there will be continued demand to manage funds and as the economy normalizes and fiscal and monetary policy accelerate global growth, the funds should continue flowing into the equity market.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from SMBC Nikko, Mr. Muraki. Mr. Muraki, the floor is yours.

Masao Muraki -- SMBC Nikko Securities -- Analyst

Hello. This is Muraki from SMBC. I have two questions. The first question is about Page 3 regarding the loss that comes from that transaction with that specific client. So $2.9 billion is the loss amount. Then in terms of the gross exposure it's about $10 billion or so. Then in full line, in U.S. and EMEA, full line equity business is not being conducted, but why is one client using this size of -- this extra size of balance sheet? So my question is on the right hand side, the similar transactions with similar issues do not exist and you confirmed it. But when you say that similar issue, what kind of issue do you mean? And also already multiple preventive measures have already been implemented. But what do you mean by preventive measures?

My second question is regarding Americas. Excluding this incident, as you see in Page 25, on a quarterly basis, JPY40 billion or so of profit is generated, so including the fourth quarter. Compared to its past, the level of profit is fairly high, but given the normalization of market conditions in the new fiscal year, in a full-year basis, the profit contribution from the USA, how do you view the profit contribution from Americas? Thank you. Those are my two questions.

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you very much. This is Kitamura. Thank you for your question, Mr. Muraki. So after the incident that happened in the USA for prime brokerage transactions, we have conducted a full overview -- overhaul of prime brokerage transactions in that sense from the viewpoint of exposure and margin and the notional and from multifaceted perspective we have given the review. And so -- and we confirm, there was no other transactions that was the same in nature with the transaction that happened with this particular client. So as I said in the earnings release, this transaction was unique and individual transaction.

As preventive measures, partially margin request has been made and also risk framework enhancement is one of the actions that we are working on now. Also, secondly, the profit contribution from Americas, how do we view the profit contribution from the USA going forward? Including the USA, the importance of our international business including USA for Nomura is significant. As of now, in our strategy, we do not have any major change in terms of direction.

As you know, all along we have told this, but we have focused on products where we have strength as we execute the business. So, for those carefully selected businesses in terms of the people, we are ranking, making it into the Top 5 and we were able to establish those businesses that last [Phonetic] a few years. So in that sense, the market franchise that we have established will be fully leveraged so that we can generate further revenue and profit.

And as you pointed out, Mr. Muraki, for March 2021, through out the year, of course, I shouldn't be talking about what if. But excluding what happened, the performance would have been very robust. But as you mentioned, JPY40 billion or so of quarterly profit and more than JPY100 billion of profit for full-year is achieved -- would have been achieved. Of course, there is a market tailwind but with the products where we have strength. I'm talking about not just one product but multiple such products. In that sense, our revenue is being stabilized and at the same time, we have reduced cost and reduced the breakeven point. So, now, we have more sustainability in terms of our ability to secure profit.

And how do we view the recent market environment? At one point sometime in the fourth quarter interest rates went up somewhat. So clients activities slowed down. On the other hand, agency mortgage was very active. But recently the US treasuries yield has steepened and that's supportive for us. For a firm like us who is the market mediator, flat yield curve makes it difficult for us to generate revenue. But in a situation where yield curve is steeper, then I do believe that we have opportunities to generate revenue.

Thank you.

Masao Muraki -- SMBC Nikko Securities -- Analyst

Thank you very much, Mr. Kitamura. Regarding my second question. So, this is an individual point, but the notional limit you mentioned, within that limit in the US businesses have been conducted. Is that the right understanding? Was the notional limit extra-sized in the first place? And also the dynamic monitoring control system is in place at some firms, while at not at other firms. In your case, in real-time, as you control margin, including IT system, would you say that your mechanism is on par with the level or quality of the industry's top players or do you need additional investment on that front?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you very much, Mr. Kitamura. Regarding my second question. So, this is an individual point, but the notional limit you mentioned, within that limit in the US businesses have been conducted. Is that the right understanding? Was the notional limit extra-sized in the first place? And also the dynamic monitoring control system is in place at some firms, while at not at other firms. In your case, in real-time, as you control margin, including IT system, would you say that your mechanism is on par with the level or quality of the industry's top players or do you need additional investment on that front?Thank you, Mr. Muraki. Whether there is a limit or not, of course, naturally, we do have limit, but for individual transaction I'm not disclosing the details.

Then what about dynamic margin, which Mr. Muraki said. I believe you refer to variation margin, but naturally, for us the amount of collateral that we have, whether that amount balance is sufficient or not is being watched on a daily basis, and naturally, we request additional collateral as needed. So, we have industry standard mechanism.

On the other hand, based upon the changes in environment, could we have been more quick? We could have been quicker in our action taking, but we are still in the process of validation. So, I cannot conclude here. But we do -- I believe, we do have the conventional system, standardized system. Thank you.

Masao Muraki -- SMBC Nikko Securities -- Analyst

Thank you very much for your answer.

Operator

Next, we have Otsuka-san from J.P. Morgan. Please start.

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

Thank you. This is Otsuka from J.P. Morgan. Thank you for taking my question. Please answer after each question. The first question is about provision, JPY40 billion or more of provision. I would like to understand the thinking behind this. On Page 3, this fiscal year, I think $590 million loss was estimated in the first quarter. To offset for that, was there a provision? That is the first question.

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you for your question. This is the first question. As all of you are aware of, prime brokerage service can be categorized roughly into two types. First is, cash prime brokerage and the second type is derivatives-based synthetic prime brokerage. And this time allowance was booked for cash prime brokerage-related activities. As for cash prime brokerage, as many of you may know, it's a lending with the collateral of securities. And regarding this, our lending, based on the recoverability judgment, loan loss provision was booked. And in relation to that, in this fiscal year after the start of this fiscal year, JPY570 million -- $570 million of loss was booked. And the question was whether it is going to be offset? The answer is, it will not be offset.

Related question. So, it was originally an allowance due to the transactions with a uncertain US client, or have you reviewed whether there are similar transactions? And as a result of the risk review, have you booked additional allowance? No, the former is the case.

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

I see. The former is the case. Thank you. Now, turning to the second question this is also related to Page 3. This might sound somewhat strange, but we have numbers from the earnings release. And on the Investor Day on May 12, based on these actions, strategy regarding, for example, prime brokerage business, how that will be developed and implemented? And as Kitamura [Phonetic] mentioned earlier, those -- there are -- those that are being validated and reviewed, you may not be able to discuss these fully, but I would like to understand that there will be more information disclosure on May 12. Will there be more detailed information on May 12?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you for your question. There are some reviews that have been completed and there are ongoing reviews and there are reviews to be started. What lessons we can learn from these reviews, such as from the event this time around. It will, of course, be reflected in the business strategy, management strategy going forward.

Regarding the management strategy, as Otsuka mentioned, on Investor Day on May 12, we would like to provide presentations on the strategy.

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

Thank you very much. But then I look forward to hearing more detailed information on the Investor Day.

Operator

Next question is from Mr. Watanabe of Daiwa Securities. Mr. Watanabe, please go ahead.

Kazuki Watanabe -- Daiwa Securities -- Analyst

Thank you. This is Watanabe from Daiwa. I have two questions. First question is about the profit contribution from prime brokerage business. At the cruising pace out of the US equity revenue, what's the percentage or proportion of private brokerage business?

And in your answer to Muraki-san's question, you said that, there wasn't that similar transactions, but in terms of the way clients apply leverage and as you revisit risk management framework, are you sure that the revenue from prime brokerage business will not come down?

And second question is regarding the shareholder return. Now, you are just conducting dividend payout. So, could you explain -- elaborate more on the thinking behind the decision on the shareholder return?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you. So, regarding the prime brokerage revenue contribution as a percentage to the total US equity revenue, sorry, I cannot -- I'm not -- I cannot disclose the details.

And regarding the enhancement of the risk management framework, to what extent would the revenue from prime brokerage come down? Since I cannot comment on the denominator itself, it's difficult to comment on that. But in our US equity business, the last couple of years, we have seen robust situation. So that's in the equity derivative area. So, that's different from the prime brokerage area that had issue this time.

And regarding your second question about the dividend, I believe. Firstly, this time, unfortunately, due to the incident that happened, full-year net profit came down to JPY153.1 billion but Retail division and Asset Management division, as mentioned, did very well. Also, Wholesale division aside from certain business lines did well -- very, very -- did very well. So as I've said all along, the fundamental revenue making power of businesses has grown up steadily and at the same time, we have sufficient capital. So, in the form of -- in the format of dividend, we would like to conduct shareholder return that is the background in which we decided on the amount of dividend payout. So, in that sense, this shows our confidence toward the continued sustainability of our performance.

Regarding buyback, we contemplated hard on that possibility, but we had a loss of JPY260 billion and that underline the capital. So dividend alone has about 70% of payout ratio. So, this time we would like to adjust [Phonetic] on payout, dividend as shareholder return policy and looking other situation and we will consider the opportunities of conducting buyback sometime in the future.

Kazuki Watanabe -- Daiwa Securities -- Analyst

Thank you very much for your answer. A follow-up question regarding the first question. So, this loss was unique and individual in nature, but in terms of risk management framework. So, how -- so what is the background behind which you are overhauling the risk management framework?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you. This is Kitamura. So, for us -- so several people have said it, but this transaction I believe was idiosyncratic. But just because it's idiosyncratic, it doesn't mean that we can't just be lenient about that. But we are intending to strengthen our risk management framework.

Kazuki Watanabe -- Daiwa Securities -- Analyst

Thank you, Mr. Kitamura. Then in that sense, there won't be much impact coming from that?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Kitamura speaking, that's dependent on the outcome of the review. So, as a result of the review, we will be determining what kind of enhancement we will be implementing. But what happened, I believe, was quite unique. So, our -- it's not that our risk management framework was defective. So, the impact on revenue will depend on what kind of risk management framework we will put in place but the impact will be -- will not be that big.

Kazuki Watanabe -- Daiwa Securities -- Analyst

Thank you for your answer, Mr. Kitamura.

Operator

Next, from Mitsubishi UFJ Morgan Stanley, we have Ms. Tsujino.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley -- Analyst

Thank you for taking my question. The first question, this may be somewhat related to earlier question. But the answer was not very clear. So, once again, I would like to ask this question. Regarding equity revenue in the US portion of that. This is more than $20 billion to $30 billion up to the third quarter last year. On a quarterly basis, it started to rise in the first quarter and it was around $50 billion in the second and the third quarter and in the fourth quarter, it is now in the losses. But without [Indecipherable] -- if not for [Indecipherable], I believe we would have been over $40 billion. And therefore, in the second quarter, third quarter level from that level, it seems that there is a decline of about $10 billion. Given that situation, this number for the quarter coming from a certain specific client, were there increase in transactions significantly because of boom in market conditions? If that was the case, then going forward, at best, it may be about $40 billion. Should that be the appropriate estimate for the future revenue? And what is your view on this? That is my first question.

And the second question is, FIC at this time in Japan, the arrow is pointing down, vertically downward in Japan and it seems that it's less than half the previous level. Was there a special circumstances resulting in this? And to estimate the first quarter and beyond, how should we understand this? Those are my questions.

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you for your questions. I have received a couple of questions regarding this specific customer involved in this incident. After January this year, the transaction size with us increased partly because of surge in share prices. The transactions with us increased. What Tsujino-san said is about the second and the third quarters, what big -- whether there were huge transactions with that customer in the second and the third quarter? The answer would be no. The answer is no.

Then why in the fourth quarter it appears that there is some deceleration overall centering around the United States and in various other countries interest rate is rising and there is also a tightening in China and between Asia and the United States, there is a flow of fund and equity link of bonds. I believe our transactions of these somewhat slowed down. And flow derivatives, it was somewhat difficult to make profit in that area. But Q-on-Q, in the fourth quarter, there was a decline as you correctly pointed out. But on a full-year basis, US equity was performing strongly and derivatives are driving the equity revenue and that structure remains unchanged.

Now, as for the recent trend, in the four quarter, equity derivatives in the Americas was slow but in April it seems that there is a recovery in pace. That is what I would like to additionally mentioned.

Now, I believe the second question was about fixed income and the weakness in Japan. And why the weakness in Japan? Overall, I believe this is due to year-end factors, repack [Phonetic] bond and structured products were somewhat slow. Furthermore, emerging bond because of reversal in dollar trend credits did not perform as strongly. Overall, there was not much movement in flow -- interest flow rates and this was also slow. And I believe those are the factors why Japan in the fourth quarter was somewhat slow. And going forward, we have started a new fiscal year.

And regarding the fundamental outlook, relatively speaking, I believe we can say that fundamentals outlook are favorable. And there are monies that need to be invested. We believe that there is ample money that is trying to find return or investment opportunities. So, in the new fiscal year, in the first quarter, we expect that there will be some movements of such money, and therefore, we expect some recovery in comparison to the fourth quarter.

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley -- Analyst

Thank you for those answers.

Operator

The next question comes from Sasaki-san from BofA Securities. Mr. Sasaki?

Futoshi Sasaki -- Bank of America -- Analyst

Thank you. This is Sasaki from Bank of America. I have two questions. So, first, regarding the USA. So, this was an individual unique idiosyncratic transaction as you said, but the management of holding company was aware of this transaction, I believe. But is my understanding, correct? So that's my first question.

Then Nomura Real Estate Holdings impairment that you have taken in the fourth quarter. So this is a basic question but Nomura Real Estate Holdings shares are listed. So is it the impairment of the listed Nomura Holdings shares? And looking at the stock price, end of March, why have you decided to impair? So I do not understand the reason. And so, could you explain to the extent possible? Thank you.

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

This is Kitamura. Mr. Sasaki, I didn't really understand your first question. So, NHI's management, including myself, did you say, the management of NHI was aware of that transaction in the USA. And can you be more specific? So, are you being specific in terms of the timing?

Futoshi Sasaki -- Bank of America -- Analyst

Well, it goes back some time, but CMBS [Phonetic] in the USA had huge loss and the management at that time put in place a system that allowed them to understand and monitor their book. So, the management, my understanding is that, you explained earlier that the management has a system to monitor the situation of book. Then I thought that the management who aren't [Phonetic] familiar -- aware of what's going on with that transaction. That's the background.

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you. This is Kitamura. We have a massive size of trading assets and we have a huge number of clients. So at NHI management level, whether we have the names of individual customers and the positions are not limited to this client but we do not follow the details of individual clients' transactions but when the issue surfaced, of course, at Nomura Holdings level as the holding company, we have been involved in the decision making.

And the second question regarding Nomura Real Estate Holdings, so this is about listed shares. So, why have you decided on impairment? So that's your question. So, in January -- from the end of January through February, the Nomura Real Estate Holdings stock price was up but our consolidated book value of investment has been above the market price for protracted period of time. So that's the major reason for last year since the COVID 19 shock, this company's PBR has been build one time continuously. But the performance is good. So, our book value on our book has been on the rise, basically. So, compared with our book value on our balance sheet, this company's market value unfortunately has been at a lower level for a certain period of time that's why in March we had to book the impairment.

Futoshi Sasaki -- Bank of America -- Analyst

Mr. Kitamura, so regarding the first part of your answer. So, Muraki-san asked about this and huge amount of position I believe was held and that can be estimated based upon the size. And trading accounts worth JPY15 trillion and if there is JPY1 trillion worth of order, then I don't think that, of course, you say that you cannot understand everything but if it's -- if the size is JPY1 trillion, that you couldn't say that you were not aware.

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Kitamura speaking. For example, in a swap transaction, not this transaction, but the notional amount is very massive. But on our balance sheet what play on our balance sheet is that win or loss of derivatives transactions and that positions. So, JPY1 trillion out of JPY15 trillion that's not really a valid point.

Futoshi Sasaki -- Bank of America -- Analyst

I see. Okay. Understand. Regarding Nomura Real Estate Holdings, for certain period of time that you mentioned, looking at the stock price. End of March last year stock price declined and after that it stagnated for a while. But the last 12 months or so that stock price, where the market value has been build -- book value is that what you saying or you saw the shrinking possibility of recovery and you made some decision, judgment and took the impairment. What was the case?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Kitamura speaking. For a certain period of time, the market value has been below our book value. So that's the major reason. So the former scenario that you mentioned is what happened.

Futoshi Sasaki -- Bank of America -- Analyst

Okay. Understand. Mr. Kitamura. Thank you very much.

Operator

We have Mr. Niwa from Citigroup next.

Koichi Niwa -- Citigroup -- Analyst

Thank you for taking my question. This is Niwa from Citi. Can you hear me?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Yes, I can hear you.

Koichi Niwa -- Citigroup -- Analyst

Thank you. I have two questions. First is about Investment Banking and the second is about dividend. First, regarding the Investment Bank, what is the level of future pipeline? In comparisons with the past, what is the level of growth in regions, deals, the value per deal? Is there any characteristic of potential deals in the pipeline with your efforts? In comparison to the past if there are improvements or results that is what I would like to know? And if possible, if you could separate between M&A and ECM?

And the second question is regarding dividend and this is also related to question by Watanabe-san. But simply put, annually JPY35 and second half JPY15, how was this calculated?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you for your questions. First, M&A pipeline or IB pipeline, that was the first question. As for our outlook going forward, we believe, generally speaking, outlook is favorable. In the second half of the year of the fiscal year that just ended toward the second half of the year there was also a growing momentum for increase in revenue from M&A and we believe that this momentum is continuing. And there are, I understand, a large number of inquiries about possible deals. Business portfolio review is under way by many companies, non-financial companies. Given the current environment, I think companies are pressed to do that. And there are many companies that are contemplating possible divestiture, as I understand. And although the future is uncertain, during the pandemic, companies are affected and there are also some M&A to save companies that are struggling. And on the other hand, Japanese companies are searching for growth opportunities and market and going outside of Japan and there are also such deals, as I am informed.

Regarding ECM, during the pandemic, companies are consolidating their financial standing and there is growing need to do so. And this is related to earlier question, but M&A finance -- as a part of M&A finance, financing needs exist and regarding governance in Japan as well, we are coming closer to global standards and strategic cross shareholding is unwound, and there is a need to sell such shares. So I believe that we also have reasonably strong pipeline for ECM.

Now turning to your question regarding dividend, JPY15 for the second half of the year, how this was calculated? Had it not been for this incident and I shouldn't discuss what is -- I'm fully aware of that, but had it not been for the incident and excluding that, our fundamental earnings capability remains strong and stable dividend level continuing from the first half of the year was also taken into account. And therefore from these general point of view, we have decided on JPY15 dividend for the second half of the year.

Koichi Niwa -- Citigroup -- Analyst

I have a follow-up question. Your company does not issue guidance, but regarding the dividend for the second half of the year, and you've also used the word confidence. Is this going to be a message for this new fiscal year? For example, annual dividend of JPY30, if it's divided -- calculated back using the payout ratio of 30% then KGI of JPY100 will be overperformed. And is that the right way of understanding this new fiscal year?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Well, at least for the term ending in March 2021, had it not been for the incident, I believe that that level of number would have been achieved. Overall, we believe that our earnings capabilities are strengthened. And in that respect, we have confidence -- we are confident, but unfortunately we are starting from the negative JPY62 billion in the beginning of this fiscal year and we have to start from this negative level to generate profit. Structural reforms were under way to alleviate market impact, but we cannot be completely free from market impact. And so I believe we were enjoying some tailwind from market environment in 2020. I hope this addresses your question.

Operator

The next question is asked by Mr. Ban from Jefferies. Mr. Ban?

Hideyasu Ban -- Jefferies -- Analyst

Thank you. My questions have some overlaps with the questions asked but the first question is regarding U.S. operations. So U.S. subsidiary stock has been impaired somewhat. So the reason is the changes in your forecast for the revenues down the road, but for this specific account about the incident is a view that individual idiosyncratic case. And have you changed your revenue forecast for the USA moving forward? That's my first question.

And the second question is regarding the Nomura Real Estate Holdings. Now, you've booked impairment and -- but there is no change to the business relations, but moving forward, so -- as business partners within Nomura Group, is there any change? There may not be change as of now, but moving forward, would it be possible for you to revisit and revise the working relation with Nomura Real Estate Holdings in the future?

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Thank you for your question. This is Kitamura. Regarding the first question, Nomura Holdings America as entity, the impairment of that firm. The -- it's not that revenue forecast has been changed. So I'm checking the press release but there is no mention of that and then the incident that happened in the USA, because of that, there was a lot that happened at the subsidiary of NHA. So NHAs net value -- added value of the Holdings came down. So we booked impairment. So it is not -- it does not mean that we change the revenue forecast. So as I explained, our U.S. operations revenue making capability has been improved, so this writedown is attributable to run-off loss.

And regarding Nomura Real Estate's impairment, this is accounting treatment. So between ourselves and Nomura Real Estate Holdings, there is no impact on the relation between the two firms. For example, public to private is our strategy in Retail division. Collaboration with Nomura Real Estate is being implemented and Retail division has expanded its real estate-related businesses and also in various areas, we are looking to expand private area businesses and in that context, we would like to explore further opportunities of collaboration with Nomura Real Estate. And we are in the process of discussion. So the impairment that was booked, it's just for the accounting purposes.

Hideyasu Ban -- Jefferies -- Analyst

Thank you very much, Mr. Kitamura.

Operator

Thank you very much. It is now time to end today's session. We would like to end the Q&A session. If you have further questions, please send your question to IR Department of Nomura Group. Mr. Kitamura, CFO, please.

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Regarding the loss from the U.S. business, we had to incur a very large loss and the management takes this very seriously. In the third quarter and up to the middle of the fourth quarter, we were showing very strong performance and therefore I also found this quite regrettable, but we like to learn lessons from this and would like to use that in our future business for our benefit.

Our management vision announced last year of achieving sustainable growth by helping resolve social issues remains unchanged. In addition to public markets, as I mentioned earlier, in addition to public markets where we are strong, we will expand our service in private markets and aim to take to the next level. We will give an update on each of our business at our Investor Day next month. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Takumi Kitamura -- Executive Managing Director and Chief Financial Officer

Masao Muraki -- SMBC Nikko Securities -- Analyst

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

Kazuki Watanabe -- Daiwa Securities -- Analyst

Natsumu Tsujino -- Mitsubishi UFJ Morgan Stanley -- Analyst

Futoshi Sasaki -- Bank of America -- Analyst

Koichi Niwa -- Citigroup -- Analyst

Hideyasu Ban -- Jefferies -- Analyst

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