Wataru Otsuka: Thank you. Understand. My second question, Page 12, wholesales, GM, the revenue, as you explained, it hit the bottom, I understand. But the absolute level, how should I understand the absolute level? So, FY EQ combined ¥271 billion, it’s not bad. But could you comment on whether there is further room for growth in terms of outlook? Thank you.
Takumi Kitamura: Page 12, if you look at the numbers, equities are stable, though there are ups and downs, but relatively stable. But equities are expected to show solid performance. The challenge is with fixed income. The last one year, we struggled with fixed income. As you know, Otsuka-san, our core products are limited, especially our dependence on macro products is heavy. And the biggest revenue driver is rates effects. But with many countries conducting unprecedented rate hikes, customer flows have been weak. And all of our positions that we managed didn’t work well. As a result, we couldn’t generate revenue the last one year. But from here, of course, we cannot be overly optimistic, but the interest rate hikes seem to have peaked out already.
In that sense, business environment compared to last year, all-in-all, seems to be favorable. And our global market structure has been refreshments and strengthened. So, we’d like to capture customers’ needs and by making — through market-making activities, we’d like to monetize clients’ needs. And you evaluated third quarter is not bad, rather good, but there is more room for us to deliver more results.
Wataru Otsuka: Okay. Understand. Regarding fixed income, what is the outlook for Japan? It could depend on the actions by the BOJ, but what is your outlook for Japan?
Takumi Kitamura: Thank you. Our firm view is that in April, yield curve control and minus negative interest rate will be eliminated. That’s our view. But towards the normalization of interest rates, the market participants are paying attention to that. And — but compared to several years ago, the situation is a lot more favorable and people have their anticipations of various thoughts towards the market and that is not bad for us as business environment.
Wataru Otsuka: Okay, understood. Thank you very much.
Unidentified Analyst: [Indiscernible], Bank of America. I have two questions. First of all, wholesale cost to income, there has been a drastic improvement and especially in the quarter that ended, overseas was a driver and cost control was successful. Is that sustainable in Q4 and the next fiscal year? What is the prospect regarding the compensation, personnel expenses? And Page 18, value-add risk. This is a detailed question. Interest-related VAR is becoming smaller. Based upon the change in interest rate ecosystem, do you have a robust system in place for risk control? Thank you very much.
Takumi Kitamura: Wholesale cost income ratio has come down quite significantly. Yes, that is a fact, as you know. At the second quarter financial results presentation, I said that even if we do headcount reduction, that’s not reflected immediately in the personnel expenses. The reason why in Q2 cost was high, there was double count in terms of headcount reduction costs and salary paid to those who are still remaining. And I said that the benefit will begin to be reflected from Q3, according to my recollection. And that impact is coming into play and we are constantly reviewing the headcount. And in Q4 and in the quarters to follow, we will continue various structural reform. Measures are in place. It’s gone down to 89%, but it still is a high level, so we will continue our efforts in this area.
And VAR, generally speaking, trading position is somewhat controlled. End of December, VAR same level as the previous quarter. We were waiting for the market environment to become more stable. And we want to capture business opportunities. But your question was whether we have a robust risk control system. The answer is yes. A few years ago, there was a little — it wasn’t a minor event, it was a major event. But since that event, we have been conducting corporate-wide efforts to strengthen our risk management system. That’s been ongoing for a few years. First line of defense, a second line of defense. We have put in place such robust risk control system. We have started a project to reinforce our risk control, and it’s already in BAU. So, while risk control is in place, we will also gain revenues.
So, we will continue our measures in risk control as we continue to increase our revenues.
Wataru Otsuka: Thank you very much.
Kazuki Watanabe: I’m Watanabe from Daiwa Securities. I have two questions. First, Page 12. Fixed income monthly revenue trend. In the second quarter telephone conference, your understanding was you are expecting a tough time, but what was the situation in the December quarter? And spread product seems to be improving on a year-on-year basis, what was the reason behind it? Second question, Page 11, wholesale cost-related question. At the investment forum, the division cost run rate of ¥5.1 billion was announced, but what’s the run rate cost for the third quarter? And also macro products and outlook is improving, is it possible for you to unchange your outlook? So, those are my two questions. Thank you.
Takumi Kitamura: First question, fixed income monthly revenue trend. October was a tough month, a bit more than 20%. And November, December, about 40%. So, end of second quarter, at the telephone conference, I said we anticipate a struggle, but yes, we faced a difficult situation as the number show. And for us for spread products, as you said, the spread product is improving, especially credit business. Continuously, the spread is tightening and in the situation, the business is performing solidly. One of the revenue drivers is securitized products. the market has come back and the number of issuance of bonds is increasing. So, finally, the market started to move, especially in December due to the increase in bond issuances, secondary trading was boosted.
So, the recovery there contributed. And wholesale cost, no matter aware, the revenue level lies, naturally, when revenue goes up, variable cost changes as well. But we are continuing with cost control without feeling complacent through structural reform and so on. We are separating fixed costs, while we cannot help increase in variable cost. But through cost control initiatives, we are looking to reduce cost base, and that effort will continue.
Kazuki Watanabe: Thank you very much. Second question, Q3 cost run rate, do you have a quantitative information you can share with me? And back to the first question, the interest rate level is high in the USA, but are you seeing the return of activities?
Takumi Kitamura: Yes, we are — our understanding is the activities are starting to return. Overall, the last one-year, market was frozen. So, whether it is a fledged recovery, we are not there yet. But in the sense of outlook, the outlook is getting brighter. Also, run rate in the third quarter at the CEO Forum, we mentioned the number, but in the sense of the run rate base, there is no change.
Kazuki Watanabe: Okay, I understand. Thank you very much.
Koichi Niwa: Citigroup Securities, this is Niwa speaking. Can you hear my voice?
Takumi Kitamura: Yes.
Koichi Niwa: Thank you very much. Domestic retail and tax rate for Japan retail activity, three segments; wealth management, corporate owners, high net worth and affiliate mass affluent, what was the situation in the third quarter, has there been any change? And what are some of the actions triggered by the new NISA scheme? That’s my first question. Secondly, this is a small point, the tax rate. All the international regions were profitable. I thought that it would go down according to my calculation. If this situation continues, how should we interpret the tax rate applied for Q4 and the quarters to follow?
