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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you very much for waiting. Thank you for coming to the earnings announcement telephone conference for the second quarter of FY 2021 amidst your very busy schedule.
It is time. We would like to begin the conference. Today, from the Daiwa Securities Group, we have Executive Managing Director, CFO, Sato, is here with us. I will be the moderator for today's session. My name is Fujino, from IR office.
First of all, Mr. Sato will provide you with the results for the Q2 for FY 2021. We will receive questions from you after the presentation. Today's conference will be streamed to the retail customers as well.
We would now like to begin the explanation.
[Interpreted] I am Eiji Sato, CFO of Daiwa Securities Group. Thank you very much for taking time out of your busy schedule to participate in our telephone conference today. I would now like to explain our financial results for the second quarter of fiscal 2021, which were released today in accordance with materials posted on our website.
Please turn to Page 4. First, I would like to explain the summary of consolidated financial results. The percentage changes are compared to the first quarter of FY 2021. In Q2 of FY 2021, all 3 of our major divisions, Retail, Wholesale and Asset Management reported increases in both operating revenues and ordinary income. Ordinary income in the Retail division was JPY 12.3 billion, an increase of 23.2%. This is the third consecutive quarter in which the division's ordinary income exceeded JPY 10 billion.
In the Wholesale Division, Global Markets saw an increase in equity revenues and Global Investment Banking saw an increase in M&A revenues. Profit attributable to owners of the parent company increased by 13.1% to JPY 26.6 billion. ROE was 8.0% on an annualized basis, and BPS, net assets per share reached a record high of JPY 889.70. The interim dividend is set as JPY 17, and the dividend payout ratio is 51.5%, which was a record high in line with FY 2013 and FY 2015.
Please jump to Page 10. I would like to explain the P&L summary. Commissions received totaled JPY 82.9 billion, an increase of 7.3%. For a breakdown of commissions received, please refer to Page 23.
Transactions in both Japanese and foreign equities increased, and brokerage commissions were JPY 19.5 billion, an increase of 5%. Underwriting and secondary offering commissions decreased by 72% to JPY 9.8 billion due to the drop in bond underwriting transactions. Distribution commissions decreased by 1.8% to JPY 6.1 billion due to a decrease in sales of stock investment trust. M&A-related commissions increased by 49.4% to JPY 11.8 billion due to an increase in M&A transactions in Japan and overseas. Nonoperating income increased due to an increase in equity method investment gains in the real estate asset management business and gains on investments and partnerships.
Please go to Page 11. I would like to explain the breakdown of SG&A. SG&A expenses increased by 3.9% to JPY 98.5 billion, mainly due to an increase in personnel expenses. In personnel expenses, earnings-linked bonuses increased. In office costs, there was an increase in system-related office expenses.
Please look at Page 13. Next, I would like to explain the ordinary income of overseas operations. The total ordinary income of the overseas operations was JPY 1.5 billion, up 2.5% from the previous quarter.
In Europe, M&A revenues increased, while equity and FICC revenues were weak. In Asia and Oceania, despite a decline in profit, equity revenues and equity method investment gains related to SSI Securities Inc. contributed to driving the strong results for the overseas operations. In the Americas, equity and M&A revenues increase, but FICC continued to experience a decline in revenue opportunities due to low interest rates and low volatility.
I will now explain the results by division. Please go to Page 14. First, I would like to explain the revenues and expenses of the Retail Division. Net operating revenues were up by 4.8% to JPY 49.6 billion, ordinary income up by 23.2% to JPY 12.3 billion. Equity revenues increased due to an increase in trading volume of both Japanese and foreign equities.
Fixed income revenues decreased due to a decrease in sales of domestic and foreign bonds. Distribution commission for investment trust remained unchanged, while agency fees for investment trust increased due to a rise in average asset under custody. In other revenues, investment advisory and account management fees, that is, wrap-related revenues increased.
Asset-based revenues expanded and reached JPY 19 billion, which accounted for 39.5% of net operating revenues of the Retail Division of Daiwa Securities.
Please look at Page 15. This page shows the sales and distribution amount by product in Daiwa Securities Retail Division and also shows some of the topics for the second quarter. In the wrap account service, contract AUM reached a record high of JPY 2.7896 trillion due to an increase in contract amount, net inflow and market rise.
In stock investment trust, the sales of [ GX ] future technology leaders were strong. In addition, the balance of the asset-based fee plan for investment trust reached JPY 302.6 billion. On the lower left of the slide, you can see the results of sales and distribution amount of stock investment trust and wrap account service. The net increase ratio was 24.9%.
Please turn to Page 16. Let me now explain about the Wholesale Division, starting off with global markets. Net operating revenues were JPY 32.5 billion, up 2.8%. Ordinary income was JPY 8.8 billion, up 13.3%. Equity revenues increased, driven by higher customer order flows for Japanese and foreign equity as well as derivatives.
FICC revenues decreased, both for Japan and overseas. In Japan, the customer order flows in credit turned [indiscernible] with derivative business customer flows decreased, resulting in decline in revenues. In the Americas, revenue opportunities continued to decline due to low interest rates and the low volatility.
Please turn to Page 18. This page is on the Global Investment Banking. Net operating revenues were JPY 18 billion, up 19.9%, and ordinary income was JPY 3.4 billion, up 9.6%. In the equity underwriting business, we accumulated many deal mandates by [indiscernible] . In the debt underwriting business, we accumulated the track record in a multiple number of SDGs bonds in addition to SoftBank Group bonds.
With regards to M&As. We executed [ real ] mandates, both in Japan and overseas, driving revenues to the record high.
Please turn to Page 19. Let me next explain the Asset Management Division. Net operating revenues were JPY 17.6 billion, up 1.9% and ordinary income was JPY 12.7 billion, which was up 27.6%.
Daiwa Asset Management revenue increased on the back of net asset inflows as well as higher AUM or publicly offered investment trusts during the quarter. With regards to the real estate asset management, AUM has increased both for Daiwa Real Estate Asset Management and Samty Asset Management.
Furthermore, strong equity method investment gains from Samty contributed to higher income.
Please turn to Page 21. Let me explain the results in the Investment Division. Net operating revenues were JPY 1 billion, down 62.9%, and ordinary income was a loss of of JPY 400 million. We posted a loss from revaluation of several existing investments. This completes my explanation of the results in Q2 FY 2021.
Please take note that Q2 was highly volatile, although it turned out to be higher at the end. On the back of tax award, we can go on there towards economic recovery with COVID infection case counts go up and down.
In this environment, we were able to achieve consolidated ordinary income of JPY 36.9 billion and the net profit of JPY 26.6 billion higher profits. Growth of the performance in retail investment banking asset management has demonstrated our competitive capability as a group. In particular, in the Retail Division, we are pleased to see the benefits from the sales and cost structure reform, which we have taken time to [ sincerely tackle ] to transform into wealth management-style business in [ numbers ] with ordinary income surpassing JPY 10 billion for 3 consecutive quarters, which has giving us a big confidence in sustaining this improvement in the future.
Turning in to what is happening at this moment in October. Customer activities continues to be solid, with heightened expectations towards reopening. The economy rejuvenates, although there are concerns over hike in crude oil prices and the slowdown of the Chinese economy.
In Retail Division, asset building needs in the medium to long term for retail investors are continuously strong. In particular, there are high interest in fund wrap, investment trust and equity products. Total sales of those products are as high as what we saw in Q2.
In the Investment Banking Division, needs from companies towards IPO, PO and M&A continue to be strong. With regards to M&As, in particular, where we achieved a record high income in Q2. The pipeline for the second half of the year is also being accumulated at a high level.
The M&A pipeline for overseas in particular, is showing the record-high levels, both in terms of the number of deals and the projected value. We are [ dependent ] to capture these business opportunities and establish a new business model by transforming into wealth management-style business, multiplied by expanding hybrid business. I appreciate your continued support and cooperation to us. Thank you very much.
We would now like to receive questions from you. [Operator Instructions] First of all, we would like to receive questions in Japanese after which we would receive questions in English. When we call on your name, please start your question.
We are receiving questions.
I would like to introduce the first question. Mr. Muraki-san from SMBC Nikko.
[Interpreted] This is Muraki from SMBC Nikko. I have 2 questions. First relates to the retail investment trust and also the fund wraps, about the net increase. So in Page 15, on the left-hand side, according to the disclosure. So for the past quarters, the net increase of about JPY 150 billion or so on average. So that's been trending at a fairly high level in terms of the net increase.
According to the Associations data of Investment Trust, so the level has trended fairly high in terms of the stock investment trust. So if you can share with us more color as to the background to this? So of course, Daiwa's initiatives, you have the asset based fee plan in so forth. But under the COVID-19, we are seeing spike in the amount of the deposits at the household level. So are we starting to see movement of those funds?
So in comparison to before, are there any difference in terms of the age group? Is the situation any different than we have seen prior to the pandemic? So that is the first question.
The second question relates to fixed income. So in the U.S., the interest rate has come down and as well as the level of volatility. You have mentioned that as the reason. But starting in the second half of June, the volatility as well as the interest rate has actually been soared or let's just say, more active. And so can we assume that, that is improving the situation of fixed income? Those are the 2 questions.
[Interpreted] Thank you very much for those. The first question about the investment trust and also the fund wraps, the net increase. As Muraki-san rightly mentioned, so the asset based, the Flex Plan, asset-based plan, that has been our initiatives. And that has been the main driver of this asset-based fee plan. And also looking back in the past, prior to the introduction to this plan as opposed to after the plan. So in terms of the deposit that we've seen for the stock investment trust actually has doubled, if you were to compare before and after the introduction of the asset-based fee plan. But in the recent quarter for the 3 months, if you were to compare Q1 and Q2. In Q2, in terms of the net inflow, if you were to compare it with Q1, it's been an increase by 30% or so for Q2.
So we are looking at the core assets of the clients. And we have been able to capture those. That has been our assessment. So in terms of this asset-based fee plan, approximately 50% of the customers are corporate or, let's just say, the owners of the business. So more of the high net worth individuals are the clients of this plan. So that accounts for more than 50%. So we have been able to acquire new customers, and we've been able to increase the wallet share amongst those high net worth individuals. So we assess that has been one of the reasons why we have seen a success. So there we have seen the growth. So obviously, you are seeing increase in the asset-based fee plan. So we have many people in their 50s and 60s. They are the manager or the owner of the companies. And so we have been able to capture that age group.
Related to the second part of the question, about FICC. Unfortunately, we cannot give you the quantitative answer. But as far as our understanding is concerned, Q2 both in and out of Japan, more so than ever, there has been a low interest rate and low volatility. So the market climate was fairly challenging. So in terms of the customer inflow, has been on the decline. So it was very difficult to conduct [ opposition ] management. So starting in September of this year, especially in the 2nd of September, as you rightly mentioned, there has been an increase in the volatility.
So this relates not just to U.S. interest rate, but also we've seen ripple effects in the interest rate in Japan as well. So in the second half of September onwards till October, we are definitely seeing improvement in terms of the operating environment, especially in the U.S. FICC. In terms of our strengths as the primary [indiscernible], so we have the share of the treasury. And so we have been able to have a positive effect on the interest in the rate as well as the increase in the volatility. So we've seen an increase in the customer inflow. And also MBS is another factor. So in terms of the origination market, we have seen some stagnation. But there are some investors looking for absolute return, and we are seeing return of those investors.
Also, there has been decline in the concern for redemption. So both in terms of the customers' inflow and also in terms of the investment, there has been an increase. So just to summarize, October onwards, we have been seeing an improvement in terms of the operating environment. Did I answer your question?
[Interpreted] Yes, we were able to understand.
Next questions are from Morgan Stanley MUFG Securities. Nagasaka-sa, please?
[Interpreted] Nagasaka from Morgan Stanley Securities. I have 2 questions. First, is about the Global Investment Banking and the Wholesale Division. Normally, the business is more skewed towards the second half of the year. But in the first half, the profit level is very high in this year. And you mentioned that the pipeline was looking very high, but do you think the income in the second half of the year is going to be higher than the first half as normal years? What is your outlook there? That's my first question.
My second question is on the Asset Management Division. In Q2, ordinary income was JPY 12.7 billion, which shows the step-up level of the income. How sustainable do you think this level is? So those are my 2 questions.
[Interpreted] First to your first question. Wholesale Division, ideally skewed towards the second half of the year. Normally, for this fiscal year in particular, the profit may not be as skewed in the second half. But as I mentioned earlier, the pipeline is looking very high. So we are expecting a very good level of profit in the second half of the year. And IB pipeline. First, in Q2, we had ECM, which captured a very large deal. And retail and institutional investors, demand from both was very high. Therefore, to growing companies -- to high quality of companies, we confirm the very high demand, both from retail and institutional investors toward those issuers. And also, on the issuer side to accelerate the growth, there are many companies who would like to grow their business on the back of the growth of the economy.
So both the ECM and IB, we expect the business to be strong. In addition, amidst COVID environment, we expect consolidation of Daiwa's industries to happen. So with regards to M&As, both in Japan and overseas, we see a strong demand. In addition, private equity funds, executive investments from private equity funds are increasing the number in terms of the inquiries to us. So in the IB business, over the past few years, we've been extremely busy in this business. So we see a strong business to continue.
To your second question about Real Estate Asset Management Business. In principle, we regard this business as the AUM-based business. So real estate assets are the [ winners ] while [ EM ] goes up, then we expect the income to go up in the future. Of course, depending upon the timing of acquisitions and exits of properties, there may be some one-off profits or gains, and the related -- sales-related gains. So it fluctuates like a wave shape. But the fundamental line should be straight upward line. So in terms of the ordinary income, it's much higher versus Q1.
The majority of that increase is coming from the increase of the profits from Samty. So how sustainable is it? Well, there is a possibility that it may go down. But in the medium term of the increase of the AUM quota, I expect profit in this business to go up in the future. Did I answer your questions?
[Interpreted] Yes. I fully understood.
We would now explain -- introduce the next person. Tsujino, Natsumu from Mitsubishi UFJ Morgan Stanley Securities.
[Interpreted] So my question relates to Samty. So Samty is the profit, of course, that is 4 months lag behind. So obviously, the earnings, the profit has been fairly strong for Samty. So of course there will be ups and downs, as you mentioned. But it's really difficult to speculate because obviously, they're 4 months behind. So obviously, we do need to keep that in mind when assessing the performance for Samty. Samty in itself -- they seems as if they are in expansion mode according to their midterm plan.
So CB, you have underwrote the convertible bond CBs as well. So Samty is definitely in the expansionary mode. And if the profit continues to increase, then we will probably put in more capital into Samty. So you bring in more capital, that would increase the business, increase the ordinary income, and you would have more -- and of course, if you -- the CB is converted, of course, that is all positive in terms of the virtuous cycle. But they are obviously a real estate company, but it's hard to speculate their profit into the future. So my question is, how would you explain this state? How would you give us this peace of mind into the future because it is a real estate company? If you can give us a comment towards that front, that will be helpful. That is the first question.
The second question relates to the extraordinary profit. So there's a gain from divesting of the affiliated companies. What exactly is that?
[Interpreted] Thank you for that question. So when you look at Q1 and Q2, of course, majority -- a Large part of the contribution comes from Samty. So Samty is a listed entity. So it is difficult for us from our side to comment on their outlook.
So when we talk about the relationship with Samty, we can definitely make an explanation. So back in May 2019, we had forged the business alliance. So we own 31% of Samty. So that is the stake. That is why it is an equity method affiliate company right now. So Samty as of May of this year, so they have capital lines with wealth management, which has strength in dealing with luxury hotels and reorganization.
So they do have enough pipeline. So from that perspective, they are working towards growth, and they need the funds. And if we can assist in that effort, we believe we can have a synergistic effect. So that is our expectation. So as far as Daiwa is concerned, we would like to assist in the further expansion of Samty. So we can have gains from the equity method affiliates. So I'm not quite sure if this fully answers your question, but that has been a comment from our end.
Also in terms of stability of Samty. So they have the rental condos, lease condos. So they -- and they're a real estate companies based on that. So perhaps on a relative basis amongst the real estate sector, they are somewhat more stable in terms of their asset portfolio. So we would like to also provide you with that piece of information. Also in terms of the gains from the sales of affiliated companies, so we have equity method affiliates, SSI.
So again, it is our equity method affiliate. So we still hold the equity method affiliates. But given the capital efficiency, we divested parts of it, a fairly small amount, a partial stake within the company. But the capital business alliance, there is no change with SSI, so that's all from our end.
[Interpreted] Actually, 31% is the percentage then. So I just wanted to confirm the number.
[Interpreted] You're talking about Samty?
[Interpreted] Yes, yes.
[Interpreted] Yes, 31%, it is. So there has been an increase in terms of the stake.
[Interpreted] Understood. Well, you mentioned divesting of the stakes, given the capital efficiency. But there's no change in the relationship for this JV then?
[Interpreted] No, there's no difference at all. No change at all in terms of the JV.
Next questions are from JPMorgan Securities. Otsuka-san, please go ahead.
[Interpreted] My name Otsuka from JPMorgan Securities. I'd like to take an answer to each question. First question is on Page 19.
So we have been consistent. But asset management business, this level of profit. How should I interpret this level of income? For Securities Asset Management, a little bit less than JPY 6 billion, a little bit high end of JPY 5 billion. Compounding the AUM, is it sustainable in your opinion?
In addition, let me repeat that the JPY 6.9 billion, which is Q2, having much contribution from Samty, but gaining from sale. If there is no gain from sale, what is the sustainable level of profit?
What is the cruising speed of the profit level without any gains from sales? I don't think there is any quarter when we don't have any sale at all, but what is the cruising speed level of profits without any gains from sales?
[Interpreted] Well, difficult answer. But income gains, which is linked to AUM, including sales, or gains from sales, there are both income gains and also capital gain.
So they are kind of bundled -- So if you look at Q-on-Q, it can go up and down. But I'd appreciate if you could look at this level on the annual basis. And from Q1 to Q2, the income has increased with the contribution from Samty. But the Samty's performance goes up and down as well, and as I mentioned earlier, their asset portfolio is relatively stable. Because of that, it's not a wild volatility like either 100 or 0.
But although there are some ups and downs, fundamentally, the profit should go up. In the medium-term management plan, we have a target towards 2023. Asset management [indiscernible] asset business, ordinary income target is JPY 26 billion. So it was this JPY 26 billion in medium-term target. Gradually, we'd like to increase the income level.
This may not answer your question directly, but if that's the case, from the management perspective, asset management total profit for the quarter, roughly speaking should be around JPY 10 billion, roughly speaking, stably.
[Interpreted] Well, security AUM and the real estate AUM, are you talking about the total of the 2?
[Interpreted] Yes, That's right. Yes. That's right.
[Interpreted] Understood. My second question is on the overall sustainability of the profit. Earlier in your presentation, you talked about the sustainability, your confidence in sustaining this level of profit. But when I look at Page 6, Mr. Sato, as the management, what gives you the confidence in sustaining this level?
Looking at Page 6, roughtly speaking, from Q3 of last year to Q2 of this year, for 1 year, JPY 35 billion was -- JPY 37 million for Q2, but that has been the level of profit. But if I look at the breakdown, wholesale from Q3 saw a decline of profit by JPY 9 billion. On the other hand, retail profit increased by JPY 5 billion. Asset management saw an increase by JPY 5 billion.
So the decline of the income from wholesale has been offset by increases of the Retail Division in the AUM. And of course, for the Investment Division, there have been ups and downs in each quarter. But considering that trend, once the profit level of global markets recovers, then you think you can sustain this level, is that's the source of your confidence? So what is giving you the confidence of sustaining this level of profits? Would you please give us hints?
[Interpreted] Thank you so much. Profitability of the income level of the [indiscernible] Secuirties Group, if you look at the profit level by each segment, there are ups and downs, but each division complement with each other, looking at the past performance, that's what we have been doing.
First, in the Retail Division. As you can see on this page, for 3 quarters, we have been achieving income over JPY 10 billion. So for the sustainability of this level, we feel a very good feel from this level of profit, JPY 10 billion consecutive for 3 quarters. And we are trying to transform ourselves into the wealth management-style business or asset-based business, such as fund wrap or our asset-based fee plan. Not only the sales amount, but our net addition are increasing. And we are also working on [ counter actions ].
So versus 2019, before the start and after the start of this upward structure reform, the SG&A per month was JPY 13.4 billion, but in Q1 and Q2 of this fiscal year, it can reduce to JPY 12.4 billion.
So we've been successful in reducing costs on SG&A. So the stocks now allows us to retain more profits. And also, the customer satisfaction, we use NPS. Customer satisfaction is reaching the record-high level, and annualized gains are increasing. So we are investing with diversification. And Daiwa, one example, at the end of September, customers with Daiwa or almost all the customers are in the unrealized gain [ status ]. So the total amount of unrealized gains has reached JPY 420 billion, which is given higher customer satisfaction.
We are selling fund wrapped products that are demanded and wanted by customers. Hence, they're getting a good performance and return, and that's why customer satisfaction is increasing.
In the Wholesale, in particular, global market, FICC has struggled in this quarter. But as you know, the situation is what it is. So the IB income environment is very positive, and we see positive pipeline and asset management. There are ups and downs by quarter, but stably throughout the year it's been increasing. So those are the factors that are giving me confidence.
Next question comes from Niwa-san from Citigroup.
Niwa-san we can't seem to hear you. Could you try again. Perhaps we can move on to the next question, but we would like to give a final chance to Niwa-san.
So we would move on to the next question then, apologies for that. Next question, Sakamaki-san from Nomura Securities.
[Interpreted] It's Sakamaki from Nomura Securities. I only have one question. So about the sales amount for the asset based fee plan. This is Page 15. So there's been a recovery from Q1 and Q2. I believe you have had some campaigns. So how did you evaluate those? And what is the outlook going forward?
[Interpreted] Thank you very much for that question. So this asset based fee plan on a monthly basis, JPY 34 billion was the monthly sales. That has been the level we've been able to achieve. The impact of the campaigns was definitely there, and it was helpful in achieving that number because we had our own proprietary -- the product, so 40% of the users have no actual balance with the investment trust.
So we were able to capture those new customers engaging in investment trust. And indeed, the product helped us in acquiring those customers. So we do have a competitive edge. So without no additional cost, additional commission, they are expecting [indiscernible] we balance the asset balance. So that has been well received, and we were able to sell quite aggressively on this product. So we believe for the rest of the year, we can continue with this positive trajectory.
So in terms of this asset-based fee plan, so by introducing this, the sales for the conventional investment trust, we have been seeing a synergistic effect as well. So JPY 10 million is the minimum purchase amount. But that actually had additional effect of having more active sales on the conventional investment trust. So obviously, the asset-based fee plan on its own is important. But we are also expecting positive ripple effects on to the conventional investment trust sales as well.
Did we answer your question?
[Interpreted] So in the second half of the year, do you have any plans for additional initiatives for sales that you can share with us?
[Interpreted] Nothing in particular in terms of additional initiatives, nothing particular.
Next questions are from Bank of America.
[Interpreted] My name is Sasaki from Bank of America. Can you hear my voice?
Yes, we can hear you.
[Interpreted] My first question is on Page 15 of the presentation, Retail Division performance. On the left-hand side, you are showing the balance of asset-based plan, JPY 325 billion. And on the right-hand side, you are showing the sales and distribution amount. So if you add this amount, then the total becomes around JPY 400 billion.
But you sold JPY 100 billion and a reduction of JPY 100 million. So as a results, the balance became JPY 325 billion. Is it right understanding? That's my first question.
Would you please take one by one?
[Interpreted] Okay. You're right. Your understanding is correct.
[Interpreted] With the increase of stock markets, there were redemptions, there were sales, yes, by taking profits. So simply, profit-taking sale.
Was that the reason? In the asset-based fee plan, were there some people who didn't like the plan?
[Interpreted] Well, simply because of the rise of the stock market, some people sold.
[Interpreted] So is that trend similar to other investment trust products?
[Interpreted] Yes. That's right.
[Interpreted] Understood. My second question is on the balance sheet. Just one figure on the balance sheet. Looking at your balance sheet, there are bad debt returns, its' showing an increase. So for what specific items are you increasing the provision to the potential reserve? The SGA? I don't see any additional provision to the reserve. So is it included in the cost?
[Interpreted] About the reserves. Increase of the [ loan ] book reserve, in principal, in the investment division we [ get ] loans. So for the loans that we originate, we are increasing the provision to the reserve.
[Interpreted] And SG&A, how to process that in the SG&A?
[Interpreted] Do by loans. Therefore, financing expense are -- is the line item that we account for on the PL.
[Interpreted] If that's the case, in the investment division, the asset class, are you talking about financial -- monetary receivables, to which you have increased the provisions to the potential [ bond debt reserve ]?
[Interpreted] Well, in principle, there's a large portion relating to that, but it includes other things as well because these are investments and loans. So provisions relating to investment and loans.
[Interpreted] Is it about the core [ project ] in Hokkaido? Is it for specific projects?
[Interpreted] Well, we cannot really disclose the specific names of projects for loans and investments. So I have to define from on time to specific products.
Niwa-san from Citigroup Securities.
[Interpreted] This is Niwa. Can you hear me now?
Can you speak louder, please?
[Interpreted] Can you hear me?
Yes, we can hear you clearly now.
[Interpreted] Apologies for that. So I have 2 questions. First one relates to global markets and also about the overseas operations. So in terms of the global markets, so Page 17. So the equity, the division, the accounting, how sustainable is this number? Of course, it is helped by the positive market environment. But it seems as if the income level is fairly high. So I would like to know the proportion of derivatives. And was that reflecting of some of the initiatives you have done? So that was the first question.
The second relates to the operating operation. So in Europe, some of the profit, it is in black. You've mentioned M&A is quite positive. But the FICC or the market has been a drag. So what is the outlook? And how do you perceive the current situation in Europe? So those are the 2 questions.
[Interpreted] The first question relates to the sustainability of the profit for equity. We may have shared this point. So GB, we have the equity, but it is very much related to the customer flow. So customer flow accounts were 80% or so. And within that, the retail customers' proportion accounts for 70% within that. So in terms of sustainability of this number, so we have the retail customers. And the question is, how much do you have demand in equity? It is really related to them. But of course, we have the Japanese equity and the foreign equity. And also, there are some structured equity as well.
So those are the derivatives. So there are expectations that the stock is going to rise, that would also impact the demand towards equity. So we are impacted by the market, but on a relative basis, it is perhaps more stable in comparison to the conventional flow of customers. Also in terms of the equity, when we have the U.S. equity, we have been expanding the coverage. So we have been working on expanding the equity of the retail customers.
Also related to the second part of your question related to Europe. So M&A has been quite positive, especially in Q2. So in addition to low interest rate and low volatility, we tend to have more credit operation in Europe. The credit spread has been fairly stable. So there wasn't much of a customer flow because of that. Also Q2, so the issuance of large sized fixed income was quite sluggish. So that was another reason as well.
So how are we going to maintain the black number or not? It really depends on the M&A. So the pipeline, it has been accumulated perhaps at the record high level.
In Europe, definitely one of the largest portion in terms of the pipeline. So we want to make sure that we realize those deals in the pipeline so we can secure the profit. Are there any other questions?
There are no other questions. So I'd like to conclude the Q&A session. And this concludes the conference call today.
Ladies and gentlemen, thank you so much for listening in to the end of the call, looking forward to having dialogue with you. And I appreciate your cooperation. We are going to do our best to expand the business in the future. Thank you so much again. Thank you. Goodbye.
This concludes the conference call. Thank you so much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]