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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening. This is Takumi Kitamura, CFO of Nomura Holdings. I will now give you an overview of our results for the first quarter of the year ending March 2020.
Please turn to Page 2. The market environment remained challenging as heightened U.S.-China trade friction and concerns over the economy led to monetary easing by central banks and market activity was generally muted throughout the quarter. Despite strong market activity in April, investors quickly turned cautious in May and share prices dropped as trade negotiations stalled following comments by the Trump administration on raising tariffs on Chinese products.
In the Fixed Income market, a sharp decline in U.S. rates and credit spread tightening, coupled with higher volatility, prompted many investors to sit on the sidelines ahead of the G20 meeting at the end of June.
Amid this challenging environment, we delivered services tailored to the needs of our clients and saw results from reviewing our business portfolio and other efforts to improve profitability, resulting in higher income before income taxes in all business divisions. As you can see on the bottom right, 3 segment income before income taxes was JPY 46.3 billion. Retail reported a rebound in total sales, especially sales of investment trusts and bonds as the investor sentiment improved and we overhauled our product strategy. Asset management saw assets under management climb higher on the back of inflows and a gain related to American Century Investments contributed to earnings.
In wholesale, the realignment of our business portfolio in April is yielding results and Global Markets reported stronger revenues quarter-on-quarter. Performance aside from the 3 segments was also up as economic hedging gains/losses improved and legal expenses declined, resulting in a marked increase in income before income taxes to JPY 74.8 billion as shown on the top right.
Our international businesses expanded revenues by focusing on areas of competitive strength, which, coupled with prudent risk and cost management, meant all 3 international regions returned to profit for the first time in 2 years. As a result, our effective tax rate for the quarter was 24% and net income was JPY 55.8 billion. ROE was 8.4% and EPS was JPY 16.48, representing a good start to the new fiscal year.
Next, let's look at each division in more detail, starting with Retail on Page 5. Net revenue increased 9% from last quarter to JPY 80.6 billion. As you can see on the bottom half of the slide, total sales increased 21% quarter-on-quarter, driven by sales of investment trusts and bonds.
As we announced last month, we plan to consolidate some of our retail branch offices in Japan from August as part of realigning our organization to meet the challenging needs of our clients. In this quarter, we booked expenses for construction works related to the consolidation and Retail costs also increased due to higher bonus provisions in line with pay-for-performance. Income before income taxes grew 146% to JPY 8.1 billion.
Please turn to Page 6. As you can see on the top left, annualized recurring revenue was JPY 90.4 billion and the cost coverage ratio was 31%. The top right shows discretionary investment net outflows of JPY 40.5 billion, mainly in our Fund Wrap products. Wrap trusts aimed at meeting estate planning needs performed well. And as you can see at the bottom right, assets under management in SMAs have grown steadily to reach JPY 740 billion.
Please turn to Page 7 for Asset Management. Net revenue increased 12% to JPY 34.5 billion, and income before income taxes grew 26% to JPY 18.1 billion. The table on the top left shows ACI-related revenue of JPY 8.7 billion, up 77% quarter-on-quarter. Net revenue excluding ACI was JPY 25.8 billion as asset management fees remained solid. We reported our 12th straight quarter of inflows and assets under management at the end of June stood at JPY 51.6 trillion, the second-highest level ever.
As you can see on the top left of Page 8, total inflows in the quarter were JPY 508 billion, of which JPY 672 billion came from the Investment Trust business. And this was driven by ETF inflows shown by the gray bar in the graph on the bottom left.
The graph on the bottom right shows steady growth in defined contribution funds. The systemic shift away from defined benefit pension plans and the introduction of iDeCo or iDeCo have spurred growth of the DC market. Nomura Asset Management established its product offering and increased the number of corporates using its funds. As a result, assets under management in DC funds has increased to nearly JPY 1 trillion.
Please turn to Page 9 for wholesale. Net revenue was JPY 159.5 billion, an increase of 12% quarter-on-quarter. Although Investment Banking revenues declined, Global Markets revenues increased by 20%, with both Fixed Income and Equities reporting stronger revenues. Wholesale expenses declined by 10% as the JPY 8.4 billion restructuring charge booked last quarter was no longer present and allocations from corporate declined. As a result, income before income taxes rebounded to JPY 20 billion. As you can see on the bottom left, the Americas and Japan reported revenue growth while AEJ remained resilient despite a decline from the strong previous quarter.
Please turn to Page 10. Global Markets net revenue increased 20% quarter-on-quarter to JPY 135.7 billion. Fixed Income revenues increased 21% to JPY 82.5 billion. Rates products, particularly agency mortgages, had a strong quarter amid the declining rate environment in the U.S. Credit spread tightening led to improved revenues for Credit and Securitized Products. As shown by the heat map on the right, the Americas reported its highest revenues in 10 quarters, while Japan is also trending up on increased demand for credit products.
Equities booked net revenue of JPY 53.3 billion, up 17% from the last quarter. As the heat map shows, in the Americas derivatives had a good quarter, driven by an uptick in client activity, while AEJ was also up on revenue contributions from derivatives.
Please turn to Page 11 for investment banking. Net revenue was JPY 23.7 billion. This was down 17% from last quarter when we closed a number of high-profile M&A transactions. Although revenues were also down year-on-year, M&A and ALF reported stronger revenues amid declining global fee pools.
Please turn to Page 12 for an overview of noninterest expenses. Quarterly expenses totaled JPY 257.2 billion, down 7% quarter-on-quarter. The biggest decline came from Other shown at the bottom. Last quarter included JPY 12 billion in legal expenses related to legacy transactions. These expenses were mostly gone this quarter. In addition, fees paid to attorney and other professionals declined.
Compensation and benefits, which represent nearly half of all expenses, remained roughly unchanged. Although the restructuring cost booked last quarter were not present this quarter, bonus provisions increased in line with pay for performance.
Please turn to Page 13 for details on our financial position. Our balance sheet at the end of June was JPY 42.5 trillion and shareholders' equity was JPY 2.7 trillion. As shown on the bottom left, we retained a robust financial position with a Tier 1 capital ratio of 18% and CET1 capital ratio of 16.8%. Our capital ratios declined compared to the end of March as risk assets, the denominator in calculating capital ratios, were JPY 14.7 trillion, an increase of about JPY 400 billion, mainly due to market risk. Our leverage ratio was 5.06% and our liquidity coverage ratio was 188.4%.
That concludes the overview of our first quarter financial results. As I said at the start, we faced challenging market conditions this quarter, but we have regained momentum after performance bottomed out in the fourth quarter.
In our international business, where we had to address profitability, all 3 regions returned to profit for the first time in 2 years. Our annualized EPS for the quarter was JPY 66 and ROE was 8.4%, representing a good start to the year. We also began to see the results of our restructuring plan announced in April.
Cost reduction is moving ahead as planned. As of end of July, we have achieved about 50% of the planned JPY 140 billion of cost cuts by March 2022.
Recent performance in wholesale has seen Fixed Income remain relatively resilient, but we must remain vigilant given the ongoing U.S.-China trade friction and the fluid situation surrounding Brexit. August is generally a quieter month in terms of market activity.
In Japan, market volume in the TSE first section has dipped to below JPY 2 trillion. And in Retail, we are seeing investors continue to sit on the sidelines. We are now in the process of realigning our retail channels. This may have a slight impact on the revenue in the short term, but this is a necessary organizational change in order for us to better meet the individual needs of our clients.
The first question is from Mr. Muraki of Deutsche Securities.
This is Muraki. Two questions, please. First is regarding the wholesale cost. On Page 9, on the upper left, you showed the expenses and the expense is JPY 140 billion, which is about 87% expense ratio. There was an improvement and the reduction speed is very -- is faster than expected. But what do you -- how do you see the cost levels of Q1? Can this be deemed to be the run rate expenses? That's my first question.
My second question is regarding the Fixed Income trading on Page 10. And there was a big recovery in earnings, but the -- some of the areas of strength is, for example, Rates trading benefiting from the rate decline and also credit. And how are you doing in terms of -- in these 2 businesses and also the Fixed Income overall? Why have you been able to outperform your peers? And going forward, is this strong trend sustainable? You say that July has been good, but how do you see the sustainability of this strong trend? And there should be some effect or impact from the restructuring. So can you maintain this higher level of market share?
Thank you. This is Kitamura. Regarding your first question about the wholesale cost or wholesale expenses and can you deem to be -- the first quarter level as the run rate. Well, in April, we had the Investor Day on April 4, and we announced the cost reduction plans. And last year for March 2019, we assumed the same revenue environment to continue from last year and revenue of $5 billion is the assumption. And in Q1, the earnings was $5.8 billion, so it was higher than expected. And in some areas where we wanted to strengthen, we have made additional investments. So if you exclude these factors, the current run rate expenses is $5 billion or more than $5 billion. However, the quarterly expenses fluctuate due to various factors. And the question is whether we can use this as a run rate, but the cost reduction efforts are still in progress, and we still have work to do in the cost cutting. So we need to make sure we move forward on that, and thereby, lower the run rate expense level. And as I mentioned earlier, on a quarterly basis, there's always some ups and downs due to earnings and also one-off items, which I'd like you to understand.
Regarding your second point, why we were able to outperform our peers in Fixed Income, and this is related to our business portfolio review. And there were some businesses which were low profitability and also cyclical businesses which we chose to optimize the size of the business. And as a result, we are focusing on the businesses where we have strength, for example, mortgage in the U.S. and also the sovereigns in Europe, where we have client franchise and where we have competitive strength. These are the areas we are focusing on and this initiative has worked well. And in terms of our peers and their results, we haven't scrutinized the results, but our peers are in areas where like -- areas like FX, where the volatility was low. And I think they struggled in these businesses, including FX. But in our case, we benefited from the decline in rates. So we -- for example, the mortgage bonds where activity picked up and also interest rate derivatives were areas where we benefited from the capturing and monetizing the client flow.
And for the sovereigns in the Europe, since last summer, we have replaced the team members and that has worked nicely and led to a big pickup in client flow. And the sovereigns of the peripheral countries in Europe have seen a big decline in the interest rates, so we were able to capture the revenue opportunities. And not so much the U.S. peers but for Fixed Income in Japan, where we tend -- where the ratio tends to be quite large, we have seen a recovery after quite a long while. This was because the low interest rates and interest rate decline has been continuing for a long time and a lot of clients are starting to take action. And we saw there was a recovery, mainly in credit. So this was a bit different from our U.S. peers, I believe. And whether this is sustainable or not is something we need to continue to monitor.
And of course, the market environment remains very difficult and there will be macro events and also geopolitical events which will work both positively and negatively. But overall, there is a fair chance that interest rates could fall even further under these circumstances. In Q1, there was the rate decline. And investors or our clients, they started a full fledged --- or they have not yet started a full-fledged rebalancing of their portfolio. So if there are further rate cuts, the question is how that will impact the risk appetite of investors and whether they will rebalance their portfolios. I think that will determine whether the current positive trend is going to be lasting and sustainable. So we cannot be overly optimistic, but we are not that pessimistic either would be my answer.
This is Muraki again. In relation to credit, just a follow-up question, if I may. In Japan, I don't know who is buying what kind of credits outside of Japan, so that would be my question. And also on Page 13, the low liquidity Level 3 assets, there was big increase over the past year and low liquidity debt and debt-related products are increasing, but which areas? And also what kind of risk taking is being conducted at the moment?
This is Kitamura. In terms of domestic investors, domestic institutional investors, these clients are pursuing yields and they are putting some emerging market currencies into their bond portfolios. And the sentiment has been picking up for this type of product. And the slight increase in Level 3, which is what you pointed out in the latter half of your question, at the moment, there is resilient trend in -- or rising strong demand expected in infrastructure financing and also ABS financing. And these are relatively low-risk financing, and we are expanding these areas at the moment. This is mainly in the U.S. So these are products which are not that impacted by the market cycles, and we are building our product portfolio that way. And this has led to a slight increase in Level 3 assets.
The next question is by Mr. Watanabe of Daiwa Securities.
This is Watanabe of Daiwa Securities. I have 2 questions. First of all, fixed revenues, the rate between customer flow and profit in Q1. And if rate business digitalization is to progress, the commission rate could decline. But if we have seen the conclusion of the business platform reconstruction, do you think that the same level of profit as you recorded in Q1 can be sustainable? Secondly, on risk assets, referring to Page 13, risk assets as of end of June was explained in the presentation. But with restructuring, you mentioned that this risk asset could decline by 10% with restructuring. Is it possible -- or depending on the risk take, is it possible that the decline of risk asset will not fall as expected? Those are my 2 questions.
Thank you very much. First of all, on your first question with regards to customer flow and trading profit breakdown, the revenue from customers accounted for slightly below 80% and the trading profit was slightly over 20%. And you also asked about digitalization and how the trend would unfold going forward. As I have explained from some time ago, AI market-making platform is gradually being introduced. AI has to also learn, so we have to see more sophistication in terms of the level of AI. So currently, AI is also in the process of learning, and therefore, some time will be required until full implementation takes place.
And your question is with regards to what would happen if AI or digital is introduced in this FI world. As a result of our PoC, if -- we found that hit ratio goes up and the trading profit also increases. And with the progress of digitalization, our expenses may drop. So spread may be suppressed as you have implied, Mr. Watanabe. But on the other hand, hit ratio may go up, which means that we can live with less inventory. And if trading income or trading revenue increases, which was the result of the PoC, and if we have confidence in that result, then that would lead to our belief that we can sustain the level of revenue. We haven't transferred 100% to such ecosystem. So this is just within my imagination, but that is our expectation for the time being.
Next point is with regards to RWA reduction by 10% through wholesale overhaul. Already, review of the business portfolio is underway. Risk-weighted asset allocation to wholesale has declined. And if you look at the details, the RWA of businesses that were subject to the review has actually dropped. On the other hand, in the reported quarter, risk-weighted asset increased slightly, but this is due to the businesses that we are maintaining or we are seeing expansion of, for example, sovereign European bonds. Activity was motivated amongst our customers. And because of the onetime off-trend, we have seen slight increase. So we have planted the seeds of RWA decline and the actual level is also dropping. But if we see growth in other areas due to market environment, the indicators may increase. It's about JPY 400 billion this time around, but we've seen slight increase.
The next question is from Mr. Otsuka from JPMorgan Securities.
This is Otsuka from JPMorgan. Two questions. First is regarding wholesale. Wholesale revenues in this quarter, JPY 159.5 billion and some of the positive reasons we already heard about. But out of this, for example, last year in your announcements, you said some of the unprofitable businesses, some of the negative contributors were included in the past 2 years. And that was bringing down the overall revenues, so now they have been -- have they been removed and now it's close to JPY 160 billion? So my question is are the negative contributors removed now and that led to the improvement, is my question.
My second question is -- I just want to check the figures that were mentioned earlier. On a quarterly basis, the noninterest expenses, you talked about the ups and downs, which I understand. But for example, in Q1, total expenses JPY 257.2 billion. And if you just analyze that -- annualize that, then there's quite a difference compared to March '18, March '19. There's a big decline. So the JPY 140 billion that you mentioned is not really what you've already achieved based on our Q1 figures. So -- and also you mentioned that 50% progress in July end. So I just wanted to check that I'm getting the figures right.
Thank you. This is Kitamura. Your first question, regarding the revenue improvement and what happened to the negative contributors or the detractors that used to exist. And the rough size of the negative impact that we used to have I guess is the question. Well, last year, in Q1, there was the trading and client revenue, client earnings balance, which was also asked in the conference call. And at that time, I think the answer was 100 to 0. I don't remember it clearly, but I think that was the gist of the discussion and most of the breakdown was on the client revenue side, client earnings. So there were some detractors last year. But this time, in this Q1, about 20% is trading revenue, which means the items that were dragging down on the revenues have been removed. And aside from that, the Rates business did well. We were able to benefit from the decline in interest rates, and we captured the wave of rate cuts. So it's quite hard to give you the exact breakdown of that. But yes, it's quite hard to give you the actual breakdown.
And the second question regarding the expenses, JPY 257.2 billion this quarter if annualized, we already achieved JPY 140 billion. So if that's true, then the bank will be very happy, and we won't have to work anymore on cost reductions. But that is not the case. And within expenses, in the past expenses, there are some one-off expenses, one-off items. So we are looking at the more run rate-type expenses by excluding these one-off items, and we want to achieve the JPY 140 billion cost reduction on a more run rate basis rather than the one-off items. So the bar is a bit higher than what you mentioned. Does that answer your question?
This is Otsuka again. I just want to make sure I'm getting this right. Regarding the first question, the improvement in the wholesale earnings and also the removal of the unprofitable businesses, there's about $400 million of positive impact in the disclosure. And I guess this was, for example, the trading businesses which were working negatively in the past. But in Q1 of this year, is that already in the figures? Have you already seen the benefit of that or not? And regarding the second question, I think in this year, March '20, progress was to be -- was about 60%, is what you mentioned. So you are making good progress according to that target. Is that the way to understand it?
Well, let's do the second question first. Yes, as you mentioned, in this current fiscal year, by March next year, we want to achieve 60% progress is what we have been saying. And at the moment, we are making good progress in line with our target on the cost reductions. And moving to your first question regarding the unprofitable businesses. In the Investor Day, we talked about the waterfall chart. And that's where you're getting the $400 million improvement, I believe. This, of course, includes the unprofitable businesses. But also -- this also includes the normalization effect from a very bad last year. So not all of this USD 400 million is the unprofitable businesses.
The next question is by Ms. Tsujino of Mitsubishi UFJ Morgan Stanley Securities.
First of all, the progress rate of cost reduction, you mentioned 50%. And I have a question on the definition. For example, say, you've taken action, but there's a time lag of 3 months or 6 months until you actually are able to realize cost reduction. Or are you saying that if you take action, that's counted as progress? So does that -- or are those actions taken included in the progress rate? The first quarter was 3 months. But if we look at the single month of July in terms of profit and loss, what percentage was achieved in July? And what's the pace in the coming months during the rest of this accounting year? Can you give us more specific details? That's my first question.
And secondly, RWA reduction. You reduced the RWA and you cut the unprofitable businesses. And you also said that you are seeing expansion of profitable business. As you had mentioned at the beginning of the fiscal year, if you reduced the RWA, you are comfortable with the capital adequacy. And on whether it would be possible to reduce further, you weren't really clear. But now you are saying the profitability improvement is more important so you're not able to focus on other issues. But stock price is low so -- because of price to book. That could be a timing to do share buyback, which would be additional shareholder benefits. So you've made an announcement on share buyback. But in terms of RWA reduction, is that a possibility of additional share buyback? Is that an option?
Thank you. Your first question was with regards to the progress rate of 50% in terms of the cost reduction and the definition. In Q1, certain actions have been taken and the cost reduction impact will be realized after some time lag for some of the initiatives, but they are included. Depending on the nature and substance of the action, there could be actions where cost reduction will be realized in Q2. And there are certain initiatives where the realization of cost reduction will take more time. And 50% and I said 60% by the end of this current fiscal year. So that means that we will be taking additional action initiatives in the following months. And following the implementation of additional initiatives, cost reduction will take place hopefully.
And second question is with regards to RWA reduction. Because we're comfortable with regard to the capital ratio, could we use that for additional share buyback? The first priority was to obtain the approval, 300 million shares and JPY 150 billion was the ceiling. So for the time being, using that quota would be our priority. And after the conclusion of that share buyback that has been approved, then we will take into consideration the next step. We were able to smoothly begin the fiscal year with a good Q1. And as I said at the outset, we are neither optimistic nor pessimistic. And at this stage in the year, we are not in a position to commit that we will be doing additional share buyback.
But depending on the situation, is this an option that you can consider but you're not able to make a commitment at this time? Is that the way I should take it?
Yes. In my mind, yes, there is an important option of additional share buyback and I have no intention to reject that.
The next question is from Mr. Sasaki from Merrill Lynch Japan Securities.
This is Sasaki. Two questions, please. First is Page 30 of the presentation, the head count. At the beginning of the year, you talked about the rationalization. And has that already been 100% reflected in the head count you show here? Or is the head count going to decline further? Is the head count optimization already completed as of June end? That's my first question. My second question is regarding the domestic Retail business. In August, there was a big change in the -- there will be a big change in the organization. In Q2, the retail top line -- how will the current initiatives affect the retail top line? Would it be positive or negative?
This is Kitamura. Your first point regarding the head count reduction and whether that's included in the head count figures we show, the answer will be yes, some of it is included, some is not. And for example, just because we communicate with the employee, it does not mean that they are immediately deducted from the head count figures you see on this table. And although they may not be coming to the office, they are still included in the head count calculations. There are some people like that. So not all of the head count optimization has been reflected in these figures.
Your second point regarding retail and the matching process, as we call it, how you should factor that in, in our future earnings, we are currently changing the sales force formation and that's part of the matching activities. And this affects about or more than 1 million accounts, and these clients will see a change in the person in charge. So there will be some negative impact to our top line. I think that's inevitable. However, we will complete this process as quickly as possible and hand over the business to the next person in charge and absorb that negative impact. August tends to be a relatively slow month because it's the summer holidays and client activity isn't that strong. And that's the period we have chosen to succeed or hand over the business from the current person in charge.
So if you look at it on a single month basis, just the month of August, it will not work positively. But if you look at it in the mid- to long term, this matching initiative that we are doing now will benefit us because we will be able to address the clients' needs more carefully, in a better way, more effectively than we have done in the past. So in the mid- to long term, I believe we are going in the right direction, and we will be able to address the situation where clients could have faced losses, which could lead to opportunity losses for Nomura. These situations can be avoided thanks to the better matching. However, in the short term, it could be negative. But in the mid- to long term, this is something we definitely have to do.
This is Sasaki again. Just a follow-up on those 2 points. For wholesale revenues, there was a big improvement. If you look at the environment, some of the European banks are closing their businesses in the U.S. and even the U.S. investment banks are starting to shrink their businesses. Meanwhile, is Nomura -- could there be a chance that Nomura will change its strategy and start adding to the head count again? Is that something that's unimaginable? Also the domestic matching process, when you think about the mindset of the retail salespeople, is there a decline in the momentum or the sentiment? For example, the top line of July, has the matching already negatively affected the top line for July?
Thank you. This is Kitamura. The European players cutting down on their head count, would that lead to Nomura changing its strategy, I believe, is your first question. No, our strategy will not be impacted by that. And there are areas where we are reducing head count, but there will also be areas where we add head count in areas where we want to strengthen. And that has been our strategy right from the start, so it's not going to be impacted by what our peers are doing.
Your second question about retail in July and how the retail top line is in July. We announced the changes in the organization about 2 weeks ago on the 12th of July, and the succession of operations has already started. So the matching process and the handing over or the succession of the business operations has already started. So in that sense, yes, the July top line has already been affected by the matching initiative. However, if you look at the TSA -- TSE volume, there's been a big decline. So some of the July has also been impacted by the market factors, and we cannot clearly separate the 2 impacts.
The next question is by Mr. Niwa of Citigroup Japan.
I have 2 questions, one on Retail and the other on Wholesale. There could be some overlap with previous questions. On Page 5, on the upper right highlights, you talk about the improvement of customer mindset. Can you elaborate? If we look at the sector as a whole, this is somewhat of an extraordinary voice, anomaly. So why are you particularly feeling this improvement? Top line improvement was seen, but is it because you are offering different products or is it because you are targeting different customer segments? And what about the sustainability of this good performance? What's the tone at the moment that's my first question.
Secondly, Wholesale on Page 9. Simply put, if we look at the profitability, it appears to be around 12%. At this level, do you think this margin or profitability can be maintained? Or could there be some shift in the level of profitability? Those are my 2 questions.
Thank you. This is Kitamura speaking. On your first question with regards to Retail and our impression that the customer mindset has improved, as you have rightly pointed out, Mr. Niwa, review of product strategy was a major element. In the recent couple of years, Fund Wrap was heavily biased in terms of our product strategy. And in the end, we probably have not been able to fulfill the requirements of our customers, so that's one lesson we've learned. Since last April, we've been trying to offer a well-designed, better product lineup that meet the customer requirements. If you can look at the retail page, investment trust and bonds, the amount of sales has increased by higher than 40% since the previous quarter. And if we look at Q1, global stock investment trust and advanced countries, bonds are some of the areas that we have seen strength. And with regards to the change in product strategy, we are feeling the reaction from the customers. And therefore, we will continue along this line. So your question was on sustainability of this high performance. It is challenging that we wish to maintain this momentum.
And on the second question, on Wholesale business and profitability. You are assuming the profitability of 12%, and you're asking whether this is sustainable. Generally speaking, for Q1, geopolitical risks heightened and that has had somewhat of a significant impact which deactivated customer transaction appetite. So there has been rate reduction. But was the environment in Q1 extremely favorable? No. And I believe that similar comments are being made by our American peers.
So we wish to maintain the top line at -- by all means, yes, we do want to maintain the top line. But on the other hand, in regards to expenses, in way of responding to the previous questions, I tried to explain that we will continue with our efforts in cost reduction. And as an outcome of those efforts, the cost in our Wholesale business could drop by yet another stage. So on your question on profitability, yes, we wish to either maintain the current level of profitability or seek further increase in margin.
The next question is from Tsujino-san of Mitsubishi UFJ Morgan Stanley Securities.
Just one question. For Retail, international bond sales was 5.7% up Q-on-Q. Meanwhile, the commissions was up 42%. And in this commissions, does it include some bonds which are products other than the international bonds, foreign bonds? Or were you selling very high profitability bonds? What's the reason for this discrepancy?
Thank you. This is Kitamura. I see what you're getting at. For the foreign bonds, yes, there has been a pickup but are you saying that the commissions -- fees and commissions did not really pick up?
This is Tsujino. No, I'm saying the opposite. The sales only increased by around 6%. But the fees that you generated, the commissions, that went up more than 40%. And if you look at the bond sales of Retail, it was 42% -- up 42%. And this is for bonds overall, so I believe it includes domestic bonds as well. So I'm wondering whether you can make that much money selling domestic bonds.
This is Kitamura. The fees and commissions, sales commissions include foreign equities-related commissions as well. So that is one of the reasons for the mismatch in the figures. So in answer to your question, the sales commissions is not just for foreign bonds.
Okay. Understood. And I guess in Q1, U.S. equities was also strong and U.S. equities-related products also benefited, I guess. Is that the way to look at it?
Yes, that's right. This is Kitamura, and that's the way to look at it.
Thank you very much for participating until so late. The business environment for financial institutions grows increasingly uncertain. But amid uncertainty comes opportunity, and we will seek out revenue opportunities while managing risk prudently in this difficult environment. And by implementing the realignment of our business platform, which there were a lot of questions raised today, we aim to gain further traction to build on the signs of change that became evident in the first quarter of this year. Thank you very much, and we look forward to your continued support. [Statements in English on this transcript were spoken by an interpreter present on the live call.]