Good evening, ladies and gentlemen. Thank you for joining this telephone conference of ORIX Corporation for the first quarter consolidated financial results for the three-month period ended June, that is, 2022. The attendee at today's conference is Executive Officer, Head of Treasury and Accounting Headquarters, Mr. Yano. As we begin, we have a request to you. In order to prevent the feedback, please make sure that you either turn off your mobile phone and other devices or keep them away from the phone. If we experience severe feedback, we may disrupt the meeting with the consent of the organizer in order to get in touch with the attendee who is causing the feedback. Now, Mr. Yano will provide us with a presentation, and it will be followed by Q&A. We expect the whole duration of the meeting to last approximately one hour.
We would like to start the meeting. Mr. Yano, the floor is yours.
Hi.
Good afternoon. This is Hitomaro Yano. Thank you all very much for joining us today. Without further ado, I would like to start the presentation on first quarter FY 2023 March end results. Please turn to page two for the executive summary. I would like to, of course, go through each and every executive summary points. As for the first point, the net income declined 5% year-over-year to JPY 61.9 billion, translating to an annualized ROE of 7.5%. Profit rose in five segments out of 10, including aircraft and ships, where passenger demand is improving, Asia and Australia, which continues to perform well, and energy and the environment, which executed several large transactions last year.
Second, earnings were down year-on-year in some segments due to negative change in the market climate. At ORIX USA, PE investment gains declined and earnings in the real estate business was lower. At ORIX Europe, AUM shrank due to a decline in equity markets. Within Japan, ORIX Life saw an increase in COVID-related payouts owing to a renewed surge in infections. Third, I will discuss ORIX's asset portfolio under current market conditions and our view on future investments. Macro indicators moved dramatically during first quarter, including global inflation, interest rate hikes by the U.S. FRB, and rapid yen depreciation. Against this uncertain economic backdrop, the non-performing loan ratio for ORIX's assets has remained at a low level, and credit losses and impairments have not increased.
To the contrary, we see increasing opportunities for new investments in terms of both business area and price in this changing environment, receiving a larger number of inquiries. We will apply a careful approach to these decisions by evaluating each deal on an individual basis, but we hope to proactively seek out new investment opportunities by taking advantage of our strong balance sheet. The fourth point focuses on shareholder returns. As of the end of July, ORIX had carried out JPY 17.3 billion of the JPY 50 billion in shareholder buybacks announced in May, showing a steady execution of shareholders' return policy. Just to report to you. Now, the third page, I have no additional comment to be made, so let me go all the way to page four. This page shows breakdown of segment profits. Segment profits for JPY 85.9 billion.
Please look at the right-hand side bar chart. This shows a breakdown of segment profits by quarter for the last two years. Base profits are in dark blue, while investment gains are in light blue. Base profits were up 2% year-over-year and 11% Q on Q to JPY 74.5 billion. Maintaining a very steady base profit. Meanwhile, investment gains were down 60% year-over-year to JPY 11.4 billion on lower investment gains at ORIX USA and others. As I commented earlier, we plan to realize investment gains going forward this fiscal year. I will now briefly review performance by segment. As a matter of fact, please note that ORIX has changed our method for allocating some interest expenses and SGA costs from first quarter FY 2023 March.
Segment SG&A costs are high as a result. We have retroactively adjusted segment profits for past fiscal years to reflect this change. Please note that FY 2022 to March figures have changed for this reason. Page five and six are summary of segment profits and assets, but we will skip these today and discuss the specific segments using segment slides. Please turn to page seven. In the corporate financial service and maintenance leasing segment profits were down 9% year-over-year to JPY 15.7 billion. Flat if profits from the Yayoi unit, which was sold in the previous fiscal year, are excluded. Corporate financial services took valuation losses on its equity stake in an investee, but fee income was up year-over-year.
The auto business unit was able to maintain a high level of profit as the used car market remained strong and the rental car business continued its post-COVID recovery. Also, renting earnings remained healthy. Please turn to the next page. The page shows the real estate segment. Segment profit rose 13% year-over-year to JPY 11.9 billion. In addition to investment gains booked on the sale of logistics facilities and other properties, occupancy rates improved at inns and hotels, leading to higher profits in investment and facilities operation. Profits at DAIKYO were flat year-over-year, although condo sales fell as compared to the prior year. Investment gains were booked on the sale of rental condo properties. In our asset recycling business model, ORIX purchases land and develops the properties on its own. The assets are then leased and sold depending on timing and consideration.
Real estate segment asset size remained largely unchanged year-over-year as a cycle of asset sales and new investment continued. Please turn to the next page. Next is the PE investment and concession segment. In the PE investment unit, profits increased due to steady performance of investees and the reduction of losses associated with Kobayashi Kako. ORIX also made its first new PE investment in roughly 18 months with an investment in HEXEL Works, an electrical works company for housing complex. The concession unit remained in the red as frequency of flights and passenger numbers for international routes are still low. The domestic routes in Japan recovered year-over-year. Please turn to the next page. This is the environment and energy segment. In the domestic energy business, earnings grew thanks to higher power generation volumes and mega solar projects owing to sunny weather.
In the overseas energy business, power generation volumes declined owing to seasonal factors, but soaring prices for electricity were linked to higher prices in some regions, which pushed up the earnings. Please turn to the next page. This is the insurance segment. As I mentioned earlier, segment profits were down 28% year-over-year owing to an increase in hospitalization payouts, including in-home isolation during the first quarter caused by the February peak in COVID cases. Policies in force, however, continued to rise, and insurance premium income was higher. Investment income was also healthy, thanks to U.S. Dollar interest rate hike. Please turn to the next page.
Yeah.
This is the banking and credit segment. ORIX Bank profits were lower year-on-year, owing to the absence of a one-time profit recorded in the previous period. Earnings from real estate property loans remained strong. In the credit unit, we are aggressively investing in advertising for our new ORIX Money product. This and the absence of the year earlier credit loss reversals led to lower profits, but the assets are steadily increasing. Please turn to the next page. Aircraft and ship segment returned to the black with JPY 5.4 billion in segment profit, up JPY 10.4 billion year-on-year. Ships contributed to profit growth with ship sales as market prices remained firm. In aircraft leasing, as mentioned earlier, earnings are in an uptrend thanks to a recovery in passenger demand. ORIX continues to buy and sell aircraft.
Earnings at Avolon recovered significantly on both Q on Q and year-on-year basis. The losses shrank. Earnings at ORIX USA were down 76% year-on-year to JPY 6 billion. Over macro factors such as rising inflation, higher interest rates and concern over a possible recession in the U.S. certainly had an impact. Segment earnings this quarter were lower than anticipated. Please turn to page 15 for a breakdown of the current situation. ORIX USA has three major lines of business. On this page, we outlined how trends in each business differed versus the previous year in terms of capital gains and base profits. The single largest factor behind the sharp decline in profits is lower capital gains in PE business.
In first quarter FY 2022 ending March, ORIX Corporation USA posted investment gains on the sale of RoadSafe, a relatively large transaction. The absence of this and the several other capital gains booked that quarter led to a JPY 9.9 billion decrease in capital gains in PE versus the previous fiscal year. The decline in earnings in the real estate business was another factor. The U.S. market saw a temporary disruption in government mortgage loan agencies loan purchases caused primarily by higher interest rates and the greater interest rate volatility. ORIX Corporation USA's real estate loan earnings fell as a result. We are currently tightening our standards for new deals. In light of rising inflation and economic uncertainties, we plan to maintain flexible stance to best position ourselves for any direction of the market. Please note that the bulk of increase in assets was due to Forex effect. AUM.
Please turn to the next page. This is ORIX Europe. AUM hit a record last fiscal year, but were down this year owing to changes in the macro climate, including higher interest rates and the Russia-Ukraine conflict. Segment profit fell 31% year-on-year to JPY 9.3 billion. However, ORIX maintains a diversified portfolio in specialized areas in our asset management businesses, and the CTA Transtrend and Value Equity Manager, Boston Partners both performed well. Please turn to the next page. This is our last segment, Asia and Australia. Segment profit rose.
48% year-on-year to JPY 12.6 billion in the Asia and Australia segment, aided by the COVID recovery. Assets from across the region contributed to the strong result. Car leasing in Australia and South Korea remains upbeat, which added to profit growth. The increase in assets is mainly attributable to changes in Forex. This ends my segment-specific comments. Next, I would like to address some additional topics in which may be of interest to you. Please turn to the next page. There are two pages. The first page outlines the pace of the COVID recovery. The left-hand graph shows segment profits at the three COVID-impacted businesses. Please look at the year-on-year comparison graph in the middle.
For the first quarter, compared to the pre-COVID period, contribution profit is lower, but you can see steady recovery in the earnings over the last couple of years. Please note that while not included in the chart, an increase in hospitalization payouts of COVID, including for those in-home isolation related to the latest surge cases, was a JPY 4 billion negative impact on profits. Although infections are spiking again in Japan, we expect an ongoing recovery in our COVID-impacted businesses. Please turn to the next page. This slide outlines how various macro changes may or may not impact ORIX. ORIX controls for market risk, such as interest rates and Forex risk through ALM. For Forex and interest rates, I've explained at previous earnings calls, and the direct impact is limited.
You can see the sensitivities for both outlined in this page. We will need to continue to carefully watch for any sudden market changes, such as the rapid fluctuations in the U.S. interest rates and the impact on our business. Regarding credit risk, we regularly monitor all large borrowers, both within Japan and overseas, and have seen no signs of increase in either non-performing loans or provisions for doubtful receivables and probable loan losses. None of our businesses have seen significant trouble in any business line, and therefore, the impairments have not increased. We will continue to carefully monitor risks and any possible new investments. Finally, I would like to speak about inflation. We are strengthening profitability management for individual development projects in areas where accelerating inflation is expected to increase costs.
Meanwhile, for example, we can expect larger investment gains owing to higher prices for physical assets such as used cars and ships. Higher electricity prices also have some positive aspects as they lead to larger power generating profits. We hope to carefully control costs so that, in the extent possible, we can turn this into a positive factor for ORIX profits. That's all about the slides. Again, I would like to emphasize that for the fiscal year ending March, FY 2023, it's likely to be a year where economic uncertainties will continue on a global scale. We will continue to lay the groundwork for achieving both profit growth and the medium-term net income target of JPY 440 billion. As I outlined in the start of my remarks, we are receiving a large number of inquiries into new investment projects.
Although the business climate still warrants some careful approach, we will continue to aim to proactively take advantage of investment opportunities. That is the end of my comments. Thank you for your kind attention.
Thank you, Mr. Yano. We're now ready for the Q&A session. If you wish to ask a question, please press zero one on your telephone keypad. After your name is announced, please ask your question. If you wish to cancel the question, please press zero two on your telephone keypad. Let us begin the Q&A session. As to the question, we would like you to keep your question to just one question. From Mizuho Securities, we have Mr. Sato ask the first question.
Thank you very much, Mr. Yano. I have, well, I have to limit my question to just one. With regard to the profit this time around, if I could confirm your way of thinking, your takeaway.
Three months ago, you have come up with a profit growth perspective for the mid to long term, and that appears on page 35 this time in the deck. Increase of the profit and also the trend you do not commit to, I understand. I think overall the trend is flat, which was indicated by yourself. On the other hand, the United States and also in Western countries such as in Europe, I think you are at a timing whereby you may need to remain to be kind of cautious. Do you accept the profit to decline? Because it doesn't mean to say that it is at the detriment of the dividend. Therefore, towards JPY 440 billion, you would still continue to, of course, exert your effort.
Is that the understanding and the idea of the management?
Well, thank you for the question. To be honest with you, I was pretty sure that you would be asking such a question. As a matter of fact, at this point in time, we have not yet decided on anything. When we first set our target, U.S. is weaker and also at our life insurance there was quite a bit of a quasi-hospitalization payout, the claims, which was unexpected. This is why as compared to our initial plan, it has turned for the negative, whereas the, like, aircraft, for example, is on the positive side. It was better than we have expected in initially.
It doesn't mean to say that we're going to be abandoning our idea to continue to increase the profit. For sure we have to remain to be cautious, and in some cases there will be more opportunities for a new investment to be made. JPY 440 billion to be achieved in two years' time, of course, remains to be unchanged for sure. How much of this target can be achieved within this fiscal period by ways of generating the profit? Of course, for sure we would like to be increasing the profit. I'm sorry, but this is all I can share at this point in time. We would like to of course strike the right balance, in other words.
Thank you very much for that. Thank you.
Thank you. Next question.
Sakamaki-san from Nomura Securities.
Yes, this is Sakamaki. I have a question. About this fiscal year's exit. From the second quarter and onwards, I understand there's going to be a solid implementation, but in which specific areas are you talking about selling, getting gains? Thank you.
We had this original plan and I'm sure that you have certain expectations that we will be implementing those. For real estate, for the first quarter, we have achieved some and we will be executing some coming in the coming months. PE exits, we will be doing some of them. For example, in the concession PE investment segment and in United States, the situation will not stay the same, so we want to do this to some extent. At this point in time, I cannot really say how far we will go, how much this will accumulate. We did have some plan from the beginning, so we want to do those. Segment-wise, those ones that I mentioned will be the main ones.
I don't know if this is going to be this fiscal year or not, but we will be selling things after it reaches, they reach the peak. You may find some of those exits as well. In the first quarter, we sold a ship too, or ships, and we expect some of those happen again in the near future. That's all. Thank you.
Thank you. Just to clarify, compared to three months ago, your ambition, your appetite for exit has not really changed. Is that correct? You will continue to sell the ones that you had already in the plan from the beginning?
Yes, that's correct.
Thank you.
Thank you for the question. From Daiwa Securities, we have Mr. Watanabe asking the question now.
Watanabe is my name from Daiwa Securities. With regard to the guidance for FY 2022, I'm sorry, I'm maybe asking the same question again, but at the time of the second quarter, would you be disclosing the information? As to the capital policy, is there, and very often you have been, of course, coming with the revision of the framework for capital policy. Would that happen in the second quarter, just like the prior years? Well, I'm sorry, but I think I would just mumble because there's nothing that has been decided yet. In the second quarter, any kind of major announcement being made as a result of new major movements, there could be.
Of course, if there was to be a major kind of movement, but there's nothing that has been decided so far at this point in time. I will not be able to give you or share with you any kind of notice as to such an announcement planned to be made in the second quarter. Please continue to watch out for the development of our businesses, and we would like to make a decision at that point in time. Sorry about this. This is all I can say at this point in time. Hearing your comment, is it about the financial result or is it about the capital policy? Well, from that perspective, for sure, that has to do with the financial result, business performance, in other words.
With regard to capital policy, when you say framework, you mean by our basic stance or our idea to the capital policy, are we to make any changes or is there going to be additional kind of announcement for the preferred shares buyback? Both. Well, or the latter. Yes, the buyback and also the payout ratio. The way of thinking to the capital policy, in fact remains to be unchanged. There is not going to be any major change to the framework, so to speak.
It goes without saying, however, it doesn't mean to say that we do not intend to change anything. The basic framework is going to be maintained throughout the year. If there was to be any kind of additional actions to be taken, we can only announce at the time when we feel the need to. I'm sorry to go back to what I have explained, so there's nothing that I can share at this point in time in any case. Well, thank you very much for that.
Thank you. SMBC Nikko, Muraki-san, please ask your question.
Yes, this is Muraki, SMBC Nikko. Unexpected downside, you mentioned some and what do you think will happen after the second quarter? For example, life insurance, you're talking about hospitalization payouts and also ex USA. The way you have written this, in terms of exits, there was a growth from the second quarter, real estate earnings is coming down. Is this temporary? The downside factors in the first quarter, what will happen to them from the second quarter and beyond? That's my question.
Thank you. With regard to life insurance, the hospitalization payout, we did not really expect it to grow this much. This is more than JPY 4 billion downside. For insurance, it was actually a bigger upside than this.
We are basically filling this with the management profit, and we want to increase this profit and try to cover this gap in the second quarter and beyond. With a new wave, new surge, spike in the number of infections, we have to watch what happened to these numbers. Unless the government changes the positioning of COVID-19 infections, we have to be ready to implement some payouts to some extent. Hopefully with the investment management within life insurance, we can cover to some extent, and also we can cover this with other businesses as well. Now, with regard to the United States, $6 billion times four, I don't think this is going to end up. In other words, we expect some recovery or PE investment, for example, we expect some capital gains.
As for real estate, agency purchase did not progress as much as we had expected. That is a big factor, and we believe that there's going to be some degree of recovery. To be quite honest, how much of a recovery we'll see in the United States to the level of last year, that is going to be a big theme for us. In that sense, what is expectation for each of the business? We are looking at the details right now, and we want to make sure that each of those will get realized one by one. At this point in time, we cannot really communicate to you as to what extent we will be able to do those. From the second quarter and beyond, we want to see some level of recovery.
I can only talk about the qualitative aspect and that's all I can share. We expect some exits and that is how we want to deal with the situation. I hope that answers your question. Thank you. COVID-19 insurance for the sixth wave, the recent peak. It was accounted for, reflected in the numbers up until June, and since July, the numbers have settled down. Well, we still have some payouts, but looking at the past result, there is basically a three-month delay for the timing of payment from our side. After, for example, three months from the sixth wave, so-called, we had to do a payout. We believe it will be the same pattern for the seventh wave three months later. In July, yes, it's true that the number declined somewhat.
I see. Thank you.
Thank you for the question. The next person is from Mitsubishi UFJ Morgan Stanley. Ms. Tsujino, please.
Thank you for the opportunity. First of all, with regard to the aircraft leasing business, the aircraft and the ships, I know that you have shared the Avolon result, which is in negative. It is in negative, right? Avolon itself. In February, I know that there is a one-month delay, but this time, the numbers that are to be incorporated was positive. This negative number that we see, is it attributable to some kind of accounting, the treatment at the headquarter level? Or going forward, is this condition likely to persist for the quarters to come? You see, if you could be so kind enough to answer to the question, and especially with regard to U.S.
Avolon, we do invest in Avolon, so therefore the equity cost internally, so we do charge it at the headquarters level. For sure that has been reflected. Of course there is a time lag by one month, so there is a gap because of this, and that is the major reason for the difference. With regard to the equity cost, is it higher than before? Just as year-over-year or Q on Q? Well, the dollar cost it is, so therefore it is charged on the basis of the number going up, in other words. This condition is likely to persist. Well, you know, that portion is going to be subtracted.
Although we have made a mention of this somewhere else in the deck, the dollar interest rate hike, in fact, will bring about some influence and but it is almost like plus minus zero offset, it offsets, basically. Of course the secondary effect is different, some other matter. The dollar, if it goes up by 1%, for example, I think from the time when we explained to you the mix in fact is slightly different from the last time, but it is almost zero in terms of impact. Okay. Understood. Thank you. With regard to the U.S. According to the segment P&L, the service income impact has been increasing, right? The mortgage related businesses in fact is slower.
If you could be so kind enough to explain in accordance with the P&L. From that perspective, let me go through some of the paperwork to be precise. I'm sorry about this. You see the chart of accounts does not match against our explanation. The reason why the servicing income increase is because of BFIM, the low cost. It is the housing loan securitization for low income bracket people, and that has increased as a matter of fact, and as I had explained earlier. The real estate loans sales in fact had declined. Also PE investment gains on sales had declined. This had unfortunately brought about some negatives. If you.
I think you are referring to the P&L, but you see, the chart of accounts does not reflect the real state of the affairs. I'm sorry, there is a mismatch. I'm sorry about this. Finally, with regard to Elawan and the Greenko, any contribution that you can share with us? Well, as we have been explaining previously, Greenko as well as Elawan, we had acquired a new project, so therefore we will now be able to enjoy the major kind of contribution and of course it will be affected by seasonal impact as well as factors. Also, I have made a mention of this, energy price in fact has been soaring and also electricity cost is soaring too. There has been some positive factors that have impacted in a positive manner.
Thank you.
The electricity sales in fact is a kind of dual calculation interpretation.
Okay. Thank you.
Thank You, Bank of America . Sasaki-san, please ask your question.
Yes. This is Sasaki from Bank of America. I have a question about the United States. In the first quarter, you planned some exits and I understand that some of them are postponed to the second quarter. Deal execution, is it quite solid for the second quarter or is it just your one-sided expectation? I want to know which way it is. Also some products in the United States can generate more profit if interest rate goes up. I think you explained before that even if the rate goes down or up that you can still generate profit. What are the products that can benefit from interest rates hike, and how much contribution did those products make? That's just one question for the United States.
I see. The first question was not about the interest rate.
Yes, deals.
In the first quarter, we wanted to complete some of the exits and we found it a little bit regrettable, frustrating, so we wrote it, but it's not such a big amount or big size, and it was executed in July. The JPY several tens of millions level profit projects, we have multiple of those. The question is how, when we can execute those. These are quite solid and we want to make sure that we can execute them. That's the current situation about capital gain related matters. As for the interest rate.
Generally speaking, it's positive for us because generally speaking, for the financial services in general, it's positive. Also outside of the United States, we have some things as well. As I have explained to you earlier, ORIX Life Insurance interest rate hike advantage is really enjoyed by them. The investment management return is increasing. This is definitely the benefit of interest rate hike. Other than that, Japanese yen unfortunately has not really gone up yet. Once we see strong yen, lease and loan within Japan would be more possible for us. I think that's about it.
As far as the United States is concerned, I'm not talking about the direct impact being positive. I'm sorry. Maybe the way I asked the question was not very clear.
Can you please repeat the question?
For ORIX USA, with an interest hike, you have a position that you can benefit from, so it doesn't really matter if the interest rate goes up or down. That was the explanation from the past. I was asking which specific products will benefit from interest hike. Did we mention that before? I remember you talking about that. It could be my mistake, misunderstanding, in which case, please correct me.
Just a moment, please. I am sorry, but at this point in time, I need to apologize that. Did I say that? If I did, I have to apologize. That's all I can say right now.
Thank you very much for giving me a chance to ask this question.
Thank you for the question. The next person is from UBS Securities, Okada-san, please.
I am Okada from UBS Securities.
With regard to new investment, I have some questions. The first, as being shown on page two, the new investment universe, the expansion. You talked about the various different businesses and prices. There are more opportunities for you to make a new investment in. Is there any kind of a perspective that you have on the new investment that can be made? The second question, previously, you have talked about the pipeline of PE investment. I think there was a disclosure of JPY 400 billion worth of pipeline. I suppose if there was to be any update on these major potential investment in the pipeline.
Well, I would find it very difficult to share any specific information with regard to new investment, because ORIX, as you know, I think we are pretty kind of well-known.
I think information has disseminated as to ORIX is quite forthcoming in terms of making a new investment, and this is why we are receiving many inquiries. Especially in a certain zone, we wanted to make an investment. Of course, you know, there has been some inquiries being made in some other areas other than what we had expected. That is where we are. As I had shared in my presentation, it comes from different geography and also the size and different types of businesses. That's what I was trying to explain in the presentation.
As a matter of fact, there are of course PE investment included, and they are not just limited to PE investment, but also at the same time, additional investment to be made in, I mean, in addition to our existing line of businesses. We would carefully evaluate and if necessary, we will be carrying out due diligence. There are some deals of which the due diligence is underway, and there are some sizable deals as well included. I'm sorry that I will not be able to go into the specificities and the details of the possible investment, but for sure, I think opportunity is there, and I think there are more opportunities than before. We would like to be very selective in making the new investment.
I'm very sorry that I think my answer is quite pretty ambiguous. Of course, I would very much like to, of course, disclose much more information, but I have to refrain from telling you anything more. Thank you.
Thank you. Citigroup Securities. Niwa-san, please ask your question.
Thank you. This is Niwa from Citi. About the credit loss, do you think that the current level will continue for the full year and is it going to push up the profit? I understand that
Environment is uncertain, but do we have to account for many variable factors or for specific asset class? Should we expect some risks? What is the risk scenario?
Thank you for your question. For this fiscal year, we do not believe that the credit loss would increase. To be quite honest, credit losses often happen in a laggard manner, so from my experience, we can tell it's too late if we try to react to that once we see it. If we see it this fiscal year, that would be a very bad thing. If we don't implement the countermeasures right now, next year will suffer. For this fiscal year, we feel quite confident that there should be no problem. Once the recession starts, if the recession starts, we want to make sure that the credit loss will not increase in the next period. We will monitor more closely and be more careful for the new project so that we don't increase the credit loss the next fiscal year.
That's what we do. For this fiscal year, all I can say is that it's going to be fine. We are already implementing measures for the next fiscal year because there may be concerns. This is not limited to Japan only. This is a global matter.
Thank you.
Thank you for the question. The next person is from J.P. Morgan. Otsuka-san, please. Please ask your question.
I'm Otsuka from JPMorgan. I hope you can hear me well.
Yes, I can. Thank you.
Thank you. I'm very sorry that my way of asking may be a little kind of awkward. Yano-san and the top management, your idea, how has it evolved over time? Personally speaking, U.S. going forward, it looks as if that there is a concern over the recession, the economy may slow down. I'm sure you have started to feel that three months ago. Also this outbreak of COVID-19. Yes, I can understand that it was slightly unexpected, but the U.S., the slowdown of the economy, I suppose it was something that you had already expected.
Having seen the result being generated from the first quarter, what was different from your initial expectation? Where you thought that your expectation was a little lenient than what it should be? Also in the MBS environment, in fact, has changed more than you had expected. If you could be so kind enough to share any changes. The recession may start to take place, and this is why we need to remain to be pretty careful and cautious and also to continue to monitor especially for the new investment, which has already started back in the fourth quarter in any case. As we started the new year, the PE exit, in fact, was not that as smooth as we had expected.
As you had said, in the MBS part, there was a little kind of confusion. We could not proceed with the sales. MBS, in fact, was a little kind of chaotic. It has given us the impact in a negative way, which was unexpected, I have to admit. We're trying to rebuild our business, so to speak.
That's where we are at. I'm sorry to repeat myself, but MBS, the control over MBS, we did not do a very good job. With regard to PE investment, though, I'm sorry to repeat myself again, but it doesn't mean to say that there are no opportunities from here down the road. Rather, we would like to speed up and make further investments in private equity.
The credit is not as bad as the credit I mean by. The credit on the business line, that is, and in other words, the credit extension to the corporates, there is no major concern as such at this point in time. The real estate business is remaining to be pretty solid. Therefore, I'm sure we can continue to generate some kind of profit. All in all, I'm sorry to be very brief. That's where we are. As a matter of fact, with regard to the United States, more than before, communication with U.S., in fact, has been more frequent and closer and inclusive of the top management message provision. The corporate department communication, in fact, has been increasing.
We will be able to watch over the development of our business lines more closely and more frequently in the United States.
Well, if I could quickly kind of confirm what you have just shared. Your company, the exit and the sales on gain, gains on sales that you were expecting, I'm sure you were imagining some kind of pricing and the timing. It's not that the price has fallen quite sharply?
No. No, that is not the case.
Well, there is no kind of sharp decline in the price that we were expecting to sell the PE or whatever the investment and. However, there is a certain slowdown for sure, and so therefore, we have some kind of anticipation that we may not be able to execute all the deals that we were expecting to. That's where we are.
We are accepting questions. The floor is open for questions. If you have a question, press zero one. The floor is open for questions. If you have a question, please press zero one. Since we see no further questions, we would like to close the Q&A and ask Mr. Yano for a closing comment.
Thank you very much indeed for joining us today. The environment keeps changing and, there are certain things that we could not do exactly as we had planned.
We will continue to monitor the situation and grow what we can and respond to these changes. Please continue to watch us. We are still receiving questions for anything that you have missed today, so please continue to ask questions as well, and thank you. Thank you. With this, we'd like to conclude the telephone conference for ORIX's business performance. Thank you very much for participating.