Q&A at 2Q FY2025 Telephone Conference [PDF:218KB]

Q&A for 2Q FY2025 Financial Results and Conference Call

The purpose of this material is to provide information on the financial results for the second quarter of fiscal year 2025, and is not intended to solicit investments in securities issued by the Company. This material is also based on statements made during a conference call held on November 4, 2025. The Company assumes no responsibility for any omissions or errors in the data or expressions used in this material.

The opinions and forecasts contained in this material are based on our judgment at the time of preparation of the material, and we do not guarantee or promise the accuracy or completeness of the information, which is subject to change without notice.

Date: Tuesday, November 4, 2025 15:30-16:30

Presenter: Kotaro Yoshida, Executive Managing Director, CFO

Q1. Regarding Global Markets on page 21, equities performed exceptionally well, while FICC showed some recovery but appears somewhat sluggish. What is your assessment of 2Q and outlook for earnings in the 3Q and beyond?

• Regarding Global Markets in 2Q, equity trading was very active compared to 1Q, particularly in Japanese equities. Trading volume in Japanese equities from overseas investors increased by approximately 18% compared to 1Q, while trading volume from individual investors increased by approximately 30% compared to 1Q.

• Additionally, trading of foreign equities by individual investors increased by about 20% compared to the 1Q, which naturally contributes to Global Markets' revenue. Thus, trading in Japanese equities and demand for foreign equities from individual investors were quite high and robust.

• In addition, orders related to strategic shareholdings increased and orders from institutional investors led to a rise in proprietary trading orders. We analyze that capitalizing on these opportunities for profit generation was a key factor in the strong performance of the equity business.

• Regarding FICC, while we have seen a recovery compared to 1Q, the overall assessment is still not at a satisfactory level. There is a trend of increased investment in credit by retail clients and domestic unlisted corporate clients in this interest rate environment. However, position control proved difficult during the rising interest rate phase.

• Nevertheless, conditions are improving across a broad range of products, including credit, foreign currency-denominated products, JGBs, and derivatives. We intend to continue striving for recovery.

  Q2. Regarding the situation for European renewables on page 20. I believe losses were also recorded last fiscal year, but the balance at Daiwa Energy & Infrastructure decreased by approximately ¥7 billion, suggesting a relatively large loss recognition. Other companies are also experiencing deteriorating profitability in their European renewable energy businesses. Could you clarify the current investment environment? Additionally, how do you view the outlook for 3Q and beyond, and what is your assessment of the risk for further loss recognition?

• Regarding losses in Alternative AM, while there were exit gains from some domestic private equity investments, we revalued investments in European solar-related assets held by Daiwa Energy Infrastructure.

• Considering factors such as increased financing costs associated with development in Europe and electric power price assumptions that have deteriorated since project initiation, we determined that appropriate revaluation necessitated the provision.

• Regarding the future outlook, while multiple assets were subject to provisions this time, the remaining book value after provisions stands at approximately ¥10 billion. We currently believe these assets are appropriately valued and do not anticipate additional provisions at this stage. We will continue to closely monitor changes in the external environment.

  Q3. Regarding October's situation, I believe the Wealth Management Division was commented to be on par with the previous quarter. Is the revenue for Global Markets also largely unchanged from the previous quarter?

• The Wealth Management Division remains robust, continuing the strong trend seen in the 2Q.

• Regarding Global Markets, the stock market remained somewhat uncertain until October 21st, when Prime Minister Takaichi was nominated. Investor activity slowed slightly during that period but has since recovered. Therefore, looking at October as a whole, investor flows remain active.

  Q4. As of now, TSE's October trading volume for individual investors is approximately 15% higher than the 2Q average and remains at a high level compared to September. Meanwhile, in the 2Q, Daiwa's individual investor flows increased by 30% compared to the previous quarter, significantly exceeding the market average of about 16%. Your company's comment indicated that the current situation is continuing the trend seen in the 2Q. Could you explain how you analyze this gap?

• Regarding Wealth Management's 2Q performance, trading volume increased by approximately 30% for Japanese equities and about 20% for foreign equities, primarily U.S. equities, compared to the previous quarter. Investment trust sales similarly rose by 34%, and fund wrap services grew by 32%.

• We observed flow growth of around 30% across all products. Furthermore, we achieved growth not only in flows but also in asset-based revenue. This was supported by progress in customer asset inflows. We highly value the alignment of three key metrics: asset-based revenue, flow revenue, and net asset inflows (up approximately 70% year-on-year). We consider the 2Q to have delivered very strong results.

• This positive momentum continued into October, and we aim to steadily build on these results through November, December, and beyond.

• It should be noted that the 2Q's results were not solely the outcome of efforts in the quarter itself, but rather the culmination of continuous initiatives from the 1Q and even the previous fiscal year. We recognize that our consistent efforts to provide solutions tailored to each customer's individual needs contributed to the 2Q's achievements.

• Particularly during periods of market turmoil, such as when Trump tariffs were in effect and customer sentiment cooled, we persisted with our efforts. In 1Q, face-to-face proposals with customers increased by approximately 20% compared to 4Q of the previous year. We believe that our precise activities, carried out even amidst the busyness of responding to issues like fraudulent access, contributed to 2Q's results. Therefore, we do not attribute this solely to the increase in stock trading volume in TSE.

  Q5. Regarding the real estate sale, how much of the asset remains? Also, compared to last year, while Alternative AM exit gains have decreased, the securities business situation appears to be improving. Against this backdrop, please explain the background behind recognizing this sales gain.

• Regarding Tokiwabashi Tower, this decision was made after balancing the realization of unrealized gains with the trade-off of reduced stable rental income, from the perspective of asset efficiency and capital efficiency.

• Regarding the timing, due to factors such as the buyer's circumstances, it was not a decision that could

  be made and executed immediately. After several months, or even over half a year, of thorough deliberation, we decided to proceed at this timing.

• Please note that we do not disclose the amount of remaining assets.

• We will continue to continuously review how to utilize all assets from the perspective of asset efficiency and capital efficiency.

  Q6. Regarding the partial monetization of the Tokiwabashi Tower stake on page 11. For the 1H results, while ordinary income decreased, net income slightly increased due to the recognition of extraordinary gains, and dividends also rose somewhat. Overall, it gives the impression of a well-rounded set of results. Can we interpret this as a statement of intent to at least secure a profit level comparable to the previous year in the 2H, while utilizing some extraordinary gains? Also, I would like to confirm whether you are considering such activities with the perspective of securing a certain level of net income.

• This fiscal year marks the second year of our Medium-term Management Plan, with next fiscal year being the final year. We are progressing toward achieving the final-year targets: ordinary income of over ¥240 billion, ROE of approximately 10%, and base income of ¥150 billion.

• While we remain subject to market conditions, we are building a resilient management foundation independent of stock prices and market fluctuations. The base income, which demonstrates this resilience, reached ¥78.1 billion in the 1H. Simply doubling this figure suggests an annual base profit exceeding ¥150 billion, indicating the potential to achieve the final-year target one year ahead of schedule.

• Building on this base income, we are working to accumulate profits across our Global Markets, Global Investment Banking, and Alternative AM. We will strive to deliver results through this strategy.

• Currently, uncertainty surrounding Trump tariffs is gradually dissipating, and expectations for the new administration are rising. We aim to seize these business opportunities. We anticipate that the initiatives implemented across divisions and our alliance strategy will bear fruit in this environment, and we intend to further strengthen these efforts as we approach the final year of the Medium-term Management Plan.

• From the perspective of returning profits to shareholders, we are always considering ways to increase profits. However, regarding the Tokiwabashi Tower, we did not begin considering or selling it only after entering the 2Q. This decision was made after balancing factors such as our asset efficiency, capital efficiency, unrealized gains on held assets, and the reduction in stable rental income from Tokiwabashi Tower.

  Q7. Regarding the investment banking pipeline: There seems to be an impression that market share has not yet recovered for POs and IPOs. How do you view the accumulation of the pipeline and its relationship with market conditions? Please also share your outlook for future share recovery. Additionally, while Daiwa is perceived as strong in IPOs, the Tokyo Stock Exchange is advancing regulatory changes to restrict listings of companies with market capitalizations below a certain threshold. Please explain the impact of these changes on Daiwa's IPO business.

• Regarding the PO pipeline, the number of deals is flat, while IPOs have decreased in terms of deal volume. Debt financing is maintaining levels comparable to last fiscal year. For M&A, we anticipate a 30% increase in deal volume domestically, a slight decrease in Europe, and an approximately 15% increase in the Americas.

• Regarding domestic corporate actions, we expect more companies to consider financing for business restructuring, portfolio reviews, and growth investments, driven by factors like the current stock

  market rally and rising PERs due to growth expectations. While the pace was flat at the time of compilation, we anticipate an increase in public offerings going forward.

• Regarding IPOs, we anticipate a decline due to the increase in the minimum market capitalization threshold. However, we believe the overall rise in valuation multiples will be a tailwind for both IPOs and POs. We have received a certain level of recognition for our IPO support services and intend to continue our efforts in this area.

• Currently, the number of companies considering IPOs or listings has increased since last fiscal year. This trend has necessitated a greater concentration of resources within the Global Investment Banking's IPO team on larger deals. Guided by our philosophy of nurturing companies to scale within the capital markets, and taking into account regulatory changes, we aim to further enhance our growth support services.

• Demand for pre-IPO M&A and activity from private equity funds is also intensifying. We will strive to support capital and corporate strategies while capturing the diverse needs of various investors.

  Q8. Regarding FICC, you addressed some points in your initial response, but I'd appreciate a bit more breakdown. Specifically, at the previous earnings briefing, you mentioned monthly figures: April, May, and June were 25, 40, and 35, respectively, and July was on pace to exceed June. At that pace, I thought double-digit revenue growth was possible, but this time it was single-digit growth. I wonder if there was a slowdown somewhere. Could you clarify if there were variations by month, region (domestic/international), or product type (government bonds, credit, FX, structured products)?

• Regarding FICC in 2Q, on a monthly basis, we faced particular challenges domestically in August. By country, we also experienced some difficulties in the US during certain months.

• By product, JGBs have improved from the sharp rise in interest rate volatility seen in April-June. However, we remain in a rising interest rate environment, so conditions for position management cannot be considered favorable. On the other hand, credit continues to see robust demand from institutional investors, domestic mid-sized corporate clients, and individuals. While primary deals were somewhat limited, the segment remains solid.

  Q9. Regarding M&A revenue, while domestic revenue is reportedly at a record high, I would like to confirm whether this is significantly boosted by success fees from large deals closed before 2Q, or if it is at a level that can be disregarded.

• While the number of deals was high in 2Q, as you pointed out, we recognize that success fees from large deals closed before 2Q also contributed significantly.

  Q10. Deposit acquisition is progressing at Daiwa Next Bank. During the 1Q briefing, you explained initiatives such as interest rate campaigns and bundled plans with financial products. Could you please elaborate again on the results of sales activities, the sustainability of the deposit acquisition pace, and your approach to deposit costs?

• In addition to regular deposit acquisition activities, we implemented campaigns offering preferential interest rates for new customers and interest rate promotions tied to fund wrap packages. This resulted in significant capital inflows. While Daiwa Securities bears the majority of the campaign costs, even considering these expenses, we maintain balanced control over income and expenses, as well as assets and liabilities. This contributes to widening the interest margin and expanding profits.

• Daiwa Next Bank recorded ordinary profits exceeding ¥10 billion in the 1H, demonstrating that it has achieved both an expansion of its net interest income and the acquisition of deposits in a world of positive interest rates. We consider this a significant achievement.

• Regarding foreign currency deposits, alongside the sale of foreign currency-denominated products, we are promoting the acquisition of foreign currency assets and diversified investment in foreign currency assets through Daiwa Securities. These products are structured so that foreign currency deposits increase when they are capitalized. Furthermore, there is a mechanism where funds are automatically swept from foreign currency ordinary deposits when purchasing foreign equities. We will actively utilize these functions to expand deposits.

  Q11. Regarding Wealth Management Division (Daiwa Securities) expenses: The fixed cost coverage ratio exceeds 100%, and the total expense coverage ratio also exceeds 70%. Please explain your approach for further improving these ratios going forward.

• We appropriately control expenses as necessary. We constantly monitor and manage costs, particularly to prevent unnecessary increases in fixed costs. Referring to the page in the materials that separates variable and fixed costs will confirm that fixed cost management is being handled appropriately. One of our strategies is to improve the coverage ratio based on asset-based revenues while controlling fixed costs.

• To achieve this strategy, we aim to expand asset-based revenues derived from fund wraps, bank deposits, and investment trusts. While the coverage ratio of asset-based revenues against total expenses currently exceeds 70%, we strive to achieve 100% coverage of all expenses in the future.

• However, due to inflationary pressures, we anticipate a certain degree of cost increases, primarily in personnel expenses. Given this situation, we will focus on expanding revenues by increasing stable income while simultaneously growing flow income.

• In that sense, we consider the significant year-over-year growth in three key areas-increased stable revenue covering fixed costs, increased flow revenue, and asset inflows including bank deposits-to be a major achievement for this quarter.