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'd like to begin the conference. Today from Daiwa Securities Group, we have Managing Executive Officer and CFO Eiji Sato 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.
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 FY 2021, which were released today in accordance with materials posted on our website. Please turn to page four. 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 three 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 quarters 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 7.9 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 trusts. 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. Non-operating income increased due to an increase in equity method investment gains in the real estate asset management business and gains on investments in 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 equities and FICC revenues were weak. In Asia and Oceania, despite a decline in profits, equity revenues and equity method investment gains related to SSI Securities and contributed to driving the strong results for the overseas operations. In the Americas, equity and M&A revenues increased, 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 trusts remained unchanged, while agency fees for investment trusts increased due to a rise in average assets 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 it 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 GS Future Technology Leaders were strong. In addition, the balance of 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 next explain about the Wholesale Division. Starting off with the 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 equities as well as derivatives. FICC fee revenues decreased both for Japan and overseas. In Japan, the customer order flows in credit turned solid, yet 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 meeting various funding needs. 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 many 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 asset management, AUM has increased both for Daiwa Real Estate Asset Management and Samty Asset Management. Furthermore, strong equity method investment gains from Sompo 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 JPY 400 million. We posted a loss from revaluation of several existing investments. This completes my explanation of the results in Q2 FY2021. The stock market in Q2 was highly volatile, although it turned out to be higher at the end on the back of tug of war between bull and bear towards economic recovery with COVID infection case counts going up and down. In this environment, we were able to achieve consolidated ordinary income of JPY 36.9 billion and a net profit of JPY 26.6 billion higher profits. Growth of the performance in retail investment banking asset management has demonstrated our comprehensive capability as a group.
In particular, in the Retail Division, we are pleased to see the benefits from the sales and cost structure reforms which we have taken time to sincerely tackle to transform into wealth management style business in one go, with ordinary income surpassing JPY 10 billion for three consecutive quarters, which is giving us a big confidence in sustaining this improvement in the future. Turning to what is happening at this moment in October, customer activities are continuing to be solid with heightening the expectation towards reopening the economy resuming, although there are concerns over hiking crude oil prices and the slowdown of the Chinese economy. In Retail Division, asset building needs in the medium to long term from retail investors are continuously strong. In particular, there are high interest in fund wrap, investment wraps, 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 high levels. 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 determined to capture these business opportunities and establish a unique 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.
I would like to introduce the first question, Muraki-san from SMBC Nikko.
This is Muraki from SMBC Nikko. I have two questions. First relates to the retail investment trust and also the fund wraps about the net increase.
In page 15 on the left-hand side, according to the disclosure, for the past quarters, the net increase about JPY 150 billion or so on average. It has been trending at a fairly high level in terms of the net increase. According to the association's data of investment trust, the level has turned fairly high in terms of the stock investment trust. If you can share with us more color as to the background to this. Of course, Daiwa's initiatives, you have the asset-based fee plan and so forth, but under the COVID-19, we are seeing spike in the amount of the deposits at the household level. Are we starting to see movement of those funds? 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? That is the first question. The second question relates to fixed income. In the U.S., the interest rate have come down and as well as the level of volatility. You have mentioned that as the reason, but starting the second half June, the volatility as well as the interest rate has actually been a sort, or let's just say more active. Can we assume that, that is improving the situation of fixed income? Those are the two questions.
Thank you very much for those. The first question about the investment trust and also the fund wrap and net increase.
As Muraki-san rightly mentioned, the asset-based fee plan that has been our initiatives, and that has been the main driver, this asset-based fee plan. Also looking back in the past, prior to the introduction to this plan, as opposed to after the plan. 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. In the recent quarter for the three 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. We are looking at the core assets of the clients, and we have been able to capture those.
That has been our assessment. 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. More of a high net worth individuals are the clients of this plan. That accounts for more than 50%. We have been able to acquire new customers, and we've been able to increase the wallet share amongst those high net worth individuals. We assess that has been one of the reasons why we have seen any success. Where we have seen the growth, obviously we are seeing increase in the asset-based fee plan. We have many people in their fifties and sixties, they are the manager or the owner of the companies.
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. As far as our understanding is concerned, Q2, both in and out of Japan, more so than ever, there has been low interest rate and low volatility. The market climate was fairly challenging. In terms of the customer inflow, has been on the decline, so it was very difficult to conduct a position management. Starting in September of this year, especially in the second half September, as rightly mentioned, there has been an increase in the volatility. This relates not just to U.S. interest rate, but also we've seen a ripple effects in the interest rate in Japan as well.
In the second half September onwards to 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 dealer, we have the share of the Treasury, and we have been able to have a positive effect on the interest rate as well as the increase in the volatility. We've seen an increase in the customer inflow. Also, MBS is another factor. In terms of the origination market, we have seen some stagnation, but there are some investors looking for absolute return. We are seeing return of those investors. Also, there's been decline in the concern for redemption.
Both in terms of the customer's inflow and also in terms of the investment, there has been an increase. Just to summarize, October onwards, we have been seeing an improvement in terms of the operating environment. Did I answer your question?
Yes, we were able to understand. Thank you very much for that.
Next questions are from Morgan Stanley MUFG Securities, Nagasaka-san, please.
Hi. Nagasaka from Morgan Stanley MUFG Securities. Thank you so much. I have two questions. First is about the global investment banking in 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. You mentioned that the pipeline was looking very high. 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? Those are my two questions.
First, to your first question, Wholesale Division, IB, 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. 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. IB pipeline, first, in Q2, we had ECM, which captured very large deals. Retail and institutional investors, demand from both are very high. Therefore, to growing companies, to high quality of companies, we confirm very high demand, both from retail and institutional investors towards those, issuers.
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. Both for ECM and IB, we expect business to be strong. In addition, amid COVID environment, we expect consolidation of various industries to happen. With regards to M&A, both in Japan and overseas, we see strong demand. In addition, private equity funds, exit of investments from private equity funds are increasing in number in terms of the inquiries to us. In the IB business, over the past few years, we've been extremely busy in this business. We feel a strong business to continue. To your second question about real estate asset management business. In principle, we call this business as the AUM-based business.
Real estate assets, as the balance or AUM 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 related sales-related gains. It fluctuates like a wave shape. The fundamental line should be straight upward line. 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. How sustainable is it? Well, there is a possibility that it may go down. In the medium term, as the increase of the AUM goes up, I expect profit in this business to go up in the future. Did I answer your question?
Yes. I fully understood. Thank you so much.
Thank you very much, Nagasaka-san. We would now introduce the next person. Fujino-san from Mitsubishi UFJ Morgan Stanley Securities.
Thank you very much. My question relates to Samty. Samty's profit, of course, that is four months lags behind. Obviously the earnings, the profit has been fairly strong for Samty. Of course there will be ups and downs, as you mentioned. It's really difficult to speculate because obviously they're four months behind. Obviously we do need to keep that in mind when assessing the performance for Samty. Samty in itself, they seem as if they're in expansion mode according to their midterm plan. CB, you have underwrote the convertible bonds, CBs as well. Samty is definitely in the expansionary mode. If the profit continues to increase, then you would probably put in more capital into Samty.
You bring in more capital, that would increase the business, increase the ordinary income, and you would have more. Of course, if the CB is converted, of course that is all positive in terms of the virtuous cycle. They are obviously a real estate company, but it's hard to speculate their profit into the future. 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. It has gains from divesting of the affiliated companies. What exactly is that?
Thank you for that question.
When you look at Q1 and Q2, of course, majority, large part of the contribution comes from Samty. Samty is a listed entity, so it is difficult for us from our side to comment on their outlook. When we talk about the relationship with Samty, we can definitely make an explanation. Back in May 2019, we have forged a business alliance, we own 31% of Samty, that is the stake. That is why it is an equity-method affiliate company right now. Samty, as of May of this year, they have a capital alliance with Wealth Management, which has strengths in dealing with luxury hotels and reorganization. They do have enough pipeline. From that perspective, they are working towards growth, and they need the funds.
If we can assist in that effort, we believe we can have a synergistic effect. That is our expectation. As far as Daiwa's concerned, we would like to assist in the further expansion of Samty, so we can have gains from the equity method affiliates. 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, they have the rental condos, lease condos, so they are real estate companies based on that. Perhaps on a relative basis amongst the real estate sector, they're somewhat more stable in terms of their asset portfolio. We would like to also provide you with that piece of information.
Also in terms of the gains from the sales of affiliated companies. We have equity method affiliates, SSI. Again, it is an equity method affiliate. We still hold the equity method affiliate, but given the capital efficiency, we divested parts of it, a fairly small amount, a partial stake within the company. The capital business alliance, there's no change with SSI. That's all from our end.
Thank you very much. Actually, 31% is the percentage then? I just wanted to confirm the number. You're talking about Samty?
Yes. Yes. Yes. 31% it is.
Thank you.
There has been an increase in terms of the stake.
Understood. Thank you very much.
You mentioned divesting of the stakes given the capital efficiency, but there's no change in the relationship for this JV then?
No, there's no difference at all. No change at all in terms of the JV.
Thank you very much.
Thank you so much for your questions, Mr. Fujino. Next questions are from JP Morgan Securities, Otsuka-san, please go ahead.
Hi. My name is Otsuka from JP Morgan Securities. Thank you. I'd like to get an answer to each question. First question is on page 19. Sorry, I'm being persistent, but about the asset management business, this level of profit, how should I interpret this level of income? Securities asset management, JPY 6 billion, a little bit less than JPY 6 billion, a little bit high end of JPY 5 billion. Concerning 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 gains from sale, if there is no gain from sale, what is the sustainable level of profits?
What is the cruising speed of the profit level without any gains from sale? I don't think there is any quarter when you don't have any sale at all, but, what is the cruising speed level of profits without any gains from sale? Thank you so much.
Well, difficult to answer, but income gains, which is linked to AM, including sale or gains from sale, they are both income gains and also capital gains. They are kind of bundled. If you look at Q on Q, it can go up and down, but
I would appreciate if you could look at this level on the annual basis. From Q1 to Q2, the income has increased with the contribution from Samty. The Samty's performance goes up and down as well. As I mentioned earlier, their asset portfolio is relatively stable. Because of that, it's not a wild volatility like either 100 or zero. Although there are some ups and downs, fundamentally, the profits should go up. In the medium-term management plan, we have a target towards 2023. Asset management with asset business ordinary income target is JPY 26 billion. Towards this JPY 26 billion 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.
Well, Security AM and Real Asset AM, are you talking about the total of the two?
Yes, that's right. Yes. That's right.
Understood. My second question is on the overall sustainability of the profit. Earlier in your presentation, you talked about the sustainability or confidence in sustaining this level of profits. When I look at page six, Mr. Sato, or as the management, what gives you the confidence in sustaining this level?
Looking at page six, very roughly speaking, from Q3 of last year to Q2 of this year, for one year, JPY 35 billion or so, JPY 37 billion for Q2, but that has been the level of profit. 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. The decline of the income from Wholesale has been offset by increases of the Retail Division and AM. Of course, for the Investment Division, there are some ups and downs in each quarter. Considering that trend, once the profit level of Global Markets recovers, then you think you can sustain this level if that's the source of your confidence.
What is giving you the confidence of sustaining this level of profit? Would you please give us hints? Thank you so much. Sustainability of the income level of the comprehensive securities group. If you look at the profit level by each segment, there are ups and downs, but each division offsets or supplements 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 three quarters, we have been achieving income over JPY 10 billion. For the sustainability of this level, we feel a very good feel from this level of profit, JPY 10 billion, consecutive for three quarters. We are trying to transform ourselves into the wealth management style business or asset-based business such as fund wrap or asset-based fee plan.
Not only the sales amount, but our net addition are increasing. We are also working on cost reductions. Versus 2019, before the start and after the start of this cost structure reform, the SG&A per month was JPY 13.4 billion, but in Q1 and Q2 of this fiscal year, it's been reduced to JPY 12.4 billion. We've been successful in reducing costs or SG&A. The structure now allows us to retain more profits. Also the customer satisfaction, we use NPS. Customer satisfaction is reaching the record high levels. Unrealized gains are increasing. We are investing with diversification and fund wrap. One example, at the end of September, customers with fund wrap, almost all the customers are in the unrealized gain position.
The total amount of unrealized gains has reached JPY 420 billion, which is giving higher customer satisfaction. We are selling fund wrap products that are demanded and wanted by customers, and they're getting a good performance and return, and that's why customer satisfaction is increasing. In the wholesale, in particular global markets, FICC has struggled in this quarter, but as you know, the situation is what it is. GIB
Our income environment is very positive, and we see positive pipeline. In asset management, there are ups and downs by quarter, but steeply throughout the year, it's been increasing. Those are the factors that are giving me confidence.
That's it. Thank you so much.
Thank you very much, Otsuka-san. Next question comes from Miwa-san from Citigroup. Miwa-san, please turn on your microphone, please. Miwa-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 Miwa-san.
We would move on to the next question then. Apologies for that. Next question, Sakamaki-san from Nomura Securities.
Sakamaki from Nomura Securities. Thank you very much. I only have one question. About the sales amount for the asset-based fee plan. This is page 15. There's been a recovery from Q1 and Q2. I believe you also have some campaigns. How did you evaluate those, and what is the outlook going forward?
Thank you very much for that question.
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 had no actual balance with the investment trust. We were able to capture those new customers engaging in investment trust. Indeed, the product helped us in acquiring those customers. We do have a competitive edge. Without no additional cost, additional commission, they can freely rebalance the asset balance. That has been well received, and we were able to sell quite aggressively on this product.
We believe for the rest of the year we can continue with this positive trajectory. In terms of this asset-based fee plan, by introducing this, the sales for the conventional investment trust, we have been seeing a synergistic effect as well. JPY 10 million is the minimum purchase amount, but that actually had additional effect of having more active sales on the conventional investment trust. Obviously the asset-based fee plan on its own is important, but we are also expecting a positive ripple effects onto the conventional investment trust sales as well. Did we answer your question?
In the second half of the year, do you have any plans for additional initiatives for sales that you can share with us?
Nothing particular in terms of additional initiatives. Nothing in particular.
Thank you very much.
Thank you so much. Next questions are from Bank of America, please.
Hi. My name is Sasaki from Bank of America. Can you hear my voice?
Yes, we can hear you.
Thank you so much for taking my question. 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. On the right-hand side, you are showing the sales and distribution amount. If you add this amount, then the total becomes around JPY 400 billion. You sold JPY 400 billion and reduction of JPY 100 billion. As a result, the balance became JPY 325 billion. Is it right understanding? That's my first question.
Would you please take one by one?
Okay.
You're right. Your understanding is correct. With the increase of stock markets, there were redemptions. There were sales, yes. By taking profits.
Simply a profit-taking sale, was that the reason? In the asset-based fee plan, were there some people who didn't like the plan?
Well, simply, because of the rise of the stock market, some people sold.
Is the trend similar to other investment trust products?
Yes.
That's right.
Understood. My second question is on the balance sheet. Just one figure on the balance sheet. Looking at your balance sheet, the bad debt reserve is showing an increase. For what specific item are you increasing the provision to the potential reserve?
SG&A, I don't see any additional provision to the reserve. Is it included in the cost? Well, about the reserve increase of the loan loss reserve. In principle, in the Investment Division, we originate loans. For the loans that we originate, we are increasing the provision to the reserve.
SG&A, how do you process that in the SG&A?
These are loans. Therefore, financing expense is the line item that we account for on the P&L.
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 provision to the potential loan loss reserve?
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 investments and loans.
Is it about the whole project in Hokkaido? Is it for specific projects?
Well, we cannot really disclose the specific names of projects for loans and investments, so I have to refrain from outlining the specific projects.
Understood. Thank you so much.
Thank you very much. Miwa-san from Citigroup Securities.
This is Miwa. Can you hear me now? Can you speak louder, please? Can you hear me? Yes, we can hear you clearly now. Apologies for that. I have two questions. First of all, it relates to Global Markets and also about the overseas operations. In terms of the Global Markets, page 17. The equity division 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. I would like to know the proportion of derivatives. And was that reflective of some of the initiatives you have done? That was the first question. The second, it relates to the overseas operations.
In Europe, some of the profit is in black. You've mentioned M&A is quite positive, but the FICC or the market has been a drag. What is the outlook, and how do you perceive the current situation in Europe? Those are the two questions. Thank you very much.
The first question relates to the sustainability of the profit for equity. We may have shared this point. GIB, we have the equity, but it is very much related to the customer flow. Customer flow accounts for 80% or so. And within that, the retail customers' proportion accounts for 70% within that. In terms of sustainability of this number, we have the retail customers.
The question is how much do we have demand in equity that is really related to that? Of course, we have the Japanese equity and the foreign equity, and also there are some structured equity as well. Those are the derivatives. If there are expectations that the stock is going to rise, that would also impact the demand towards equity. We are impacted by the market. On a relative basis, it is perhaps more stable in comparison to the conventional flow of customers. Also, in terms of equity, when we have the U.S. equity, we have been expanding the coverage. We have been working on expanding the equity of the retail customers. Also related to the second part of your question, related to Europe.
M&A has been quite positive, especially in Q2. 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. There wasn't much of a customer flow because of that. Also Q2, the issuance of large size fixed income was quite sluggish. That was another reason as well. How are we going to maintain the black number or not? It really depends on the M&A. The pipeline, it has been accumulated perhaps at the record high level. Europe, definitely one of the largest portion in terms of the pipeline. We want to make sure that we realize those deals in the pipeline so we can secure the profit.
I understand it. I understand it very well. Thank you very much.
Thank you so much. Are there any other questions?
There are no other questions, so I'd like to conclude the Q&A session. 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 our business in the future. Thank you so much again. Thank you. Goodbye.
This concludes the conference call. Thank you so much.