Thank you very much for waiting, investors and analysts. Thank you very much for participating in the FY 2020 earnings announcement of the Q2 despite your busy schedule. As the time has come, we'd like to start the meeting. From Daiwa Securities Group, Inc, Mr. Sato, our CFO, is participating. I am the moderator for this meeting, Fujino, the Head of Investor Relations. From Sato, the Q2 FY 2020 earnings announcement is going to be explained. The question will be after the presentation. This presentation will be shown through the internet, and individual investors can see this. Let's start the presentation.
Hello, I'm Sato from Daiwa Securities Group. Thank you very much for participating in this telephone conference despite your busy schedule. I would like to present our Q2 results for FY 2020 that we announce today, based on the presentation material posted on our website. Please turn to page four. I will start with a summary of the consolidated results. Changes of the figures is against the Q1 of FY 2020. Net operating revenue for the Q2 was JPY 110.4 billion, up 4.8%. We saw an increase of revenue at the retail division.
This was due to the sales of multiple large equity underwriting deals. Revenues declined in the wholesale division. Revenue grew in global investment banking by equity underwriting and M&A, but FICC revenue decreased in global markets. Ordinary income was JPY 23.7 billion, up by 11.1%. Profit attributable to owners of the parent was JPY 15.2 billion, down 13.1%. ROE was 5.0% on an annualized basis, and BPS was JPY 810.92. Please turn to page 10.
This is the P&L. Commissions received was JPY 70.8 billion, up by 22.6%. The breakdown of commissions received is on page 23. Brokerage commission was JPY 16.4 billion, down 4.1%. Equity underwriting deals contributed to the underwriting and secondary offering commissions, which was JPY 14.4 billion, up 226.0%. Although sales of stock investment trusts declined, sales excluding switching transactions increased, which led to a 3.4% increase of distribution commissions of JPY 4.2 billion. M&A related commission was JPY 5.2 billion, up 92.7%. Trading income was JPY 22.8 billion, down by 28.8% due to the decline of FICC revenue. This is the status of SG&A. Please turn to page 11. Increase of seamening, personnel, and trading-related expenses and was JPY 90.7 billion, up 2.2%. For trading-related expenses, advertising and promotion expenses related to sales promotion and commissions related to the trading volume increased. As for personal expenses, earnings-linked bonus increased.
Please turn to page 13. Next is ordinary income of overseas operation. Overseas operation total ordinary income was JPY 4.6 billion, down 43.2% against the previous quarter, but was able to generate ordinary profit for 18 quarters in a row. By region, Europe saw an increase of equity underwriting and M&A revenue, but as FICC revenue declined, overall income declined. Going to Asia and Oceania, revenue increased for both equity and primary activities. In addition, equity investment income of SSI Securities contributed, leading to a record high ordinary income on a quarterly basis. America saw a decrease in income as FICC revenue decreased. Next, I would like to explain the performance by segment. Page 14, please. I will start with the retail division. Net operating revenue was JPY 40.7 billion, plus 15.8%. Ordinary income was up by JPY 2.6 billion, so both revenue and income increased.
Under equity income, due to large size equity underwriting deals such as SoftBank, contribution from sales commission from equity underwriting led to an increase in revenue. For fixed income, sales of foreign bonds recovered, and revenue increased. Distribution commission for investment trusts increased. Agency fee for investment trusts increased as well, as average asset under custody in the quarter increased. For other revenue, investment advisory and account management fees increased related to wrap business. Please turn to page 15. This slide shows the status of sales and distribution amount and topics for this quarter. For those securities, this is for the securities division. The wrap account service AUM at the end of the quarter was at a record high level. Since this is the quarter, the last financial year was JPY 2 trillion, 318.6 billion. Please turn to page 16.
Let me next explain about the Wholesale Division, starting off with the Global Markets. Net operating revenues were JPY 33.2 billion, down 26.6%. Ordinary income was JPY 8.9 billion, down 56.3%. Equity revenues were flat with the decline of customer order flow for Japanese equities, although client order flows for foreign equities were solid, mostly driven by high-tech stocks. Both domestic and foreign FICC revenues were down. Net revenues from Japan were down due to the low revenue of trading activities, although the customer order flows for structured bonds and the derivatives recovered.
Net revenues from overseas were also down due to the lower customer order flows with lower volatility. Please turn to page 18. This page is on the global investment banking. Net operating revenues were JPY 14.3 billion, up 130%, and ordinary income was JPY 4.7 billion. In the equity underwriting business, we served as a lead underwriter for the SoftBank deal mandate and accumulated a multiple number of lead underwriter deals, which contributed to the big increase in net revenues.
In the debt underwriting business, we accumulated many mandates for subordinated debt, agency bonds, and samurai bonds. With regards to mandates, we executed mandates steadily utilizing our global network. Please turn to page 19. Let me next explain asset management division. Net operating revenues were JPY 12.1 billion, down 4.8%, and ordinary income was JPY 7.4 billion, which was down 1.5%. Daiwa Asset Management revenue increased on the back of net positive capital inflows and higher AUM of public stock investment trusts during the quarter. In the real asset management business, AUM of Daiwa Real Estate Asset Management increased.
However, revenues were down Q-on-Q because in the previous quarter, we posted gains associated with acquisitions and depositions in the portfolio. Please turn to page 21. Let me explain the results in the investment division. Net operating revenues were JPY 3.6 billion, up 254.4%, and ordinary income was JPY 2.2 billion, up 19 times. What contributed to this increase was a multiple number of exits from private equity investments done by Daiwa PI Partners. This completes my explanation of the results in Q2 FY 2020. We'd like to open the line for your questions.
For the Q&A session, due to the circumstance of the communication line, we are receiving questions in Japanese only. If you have questions in English, please contact our IR office. Thank you so much. We'd like to move to the Q&A session. If you have a question, please press asterisk one. To cancel your question, please press asterisk two. When your name is called, please ask your question. The line is open for your questions. The first question, Bicini Securities, go ahead Sam, please.
Thank you for receiving my question. My first question is about the retail division. This time, compared to the previous quarter, it has recovered, but investment trust sales and fixed income revenue may be the case. Compared to the competitors who's already announced the results, I think the growth has been rather weak. What is your analysis behind this reason? In terms of the earnings, should we assume that this will continue, you being weaker than the competitors? That's the first question. The second question is about cost reduction. You have already announced the plan, but please give me the update of the progress on this plan. At the same time, are there any additional cost reduction potentials? From before, I think you have indicated that you may do so. At this point, if you have any updates, please do so. These are my two questions.
Thank you for your question. For your first question about the investment trust sales and bonds. Well, in terms of investment trusts, as you have pointed out, in terms of the sales of the investment trusts, I think this is a challenge that we are facing. In the Q2, we had these IPO activities such as SoftBank and other IPO activities, and I think basically the salespeople will focus on that side of the business. It is on the recovery trend, but the growth has been weaker. For this issue, I think we have to expand and line up a well-selling investment trust. We have to enhance the product lineup, and in terms of the assets under management, we have to increase that. Increasing the AUM. On the 19th of October, we have the fee linked to the balance of the investment trust.
It's called the Flex Plan. Ahead of other companies, we have introduced this plan. This plan, so this will be a new option for a investment in trust for the other customers. For the customers who have not bought investment trusts from our company, I think this will be a good option for them. By doing so, we want to increase the assets under management. In terms of the fixed income or bonds. The Q2, I think the market overall condition has recovered, and the sales volume has recovered. Compared to last year, as you know, the interest rate has gone down, and the spread has been crunched, and the profitability overall has gone down. On top of that, so the emerging market currencies has become volatile.
In terms of, we have refrained from selling these foreign currency-linked bonds, and I think that is one of the reasons of our performance on this side. Going to your second question about cost reduction. We will continue to proactively conduct cost reduction. We have projects that are going forward. By this year end, JPY 15 billion of cost reduction. We have already, the progress at the end of the Q2 for the group as a whole is about 90%, so we are very close to reaching this target. From what we have conducted last year. For instance, eliminated invoice program, refraining from sending out paper documents. I think we have been continuing from the beginning. Retail, wholesale, others, 63%, 10% will be the allocation of the cost reduction. That difference or the proportion is unchanged.
On top of that, another thing I should mention is that I think for the branches, we will be making it from the first floor to the second floor. About 80% of that will be happening on the next FY onwards. From April, with the progress of digitalization of our operation, the middle and back office of the branch offices, we're going to be consolidated in a major level. By the end of this FY, this will be completed. Up to this point, 1,600 of middle and back office personnel, about half of them, we have reallocated to front office or within the operations of the group offices.
We are planning to do that. This impact will become relevant from next FY onwards. We're not complacent with JPY 15 billion. We want to have a stretch from that figure. The next year is the first year for the new mid-term management plan, and this will be the second phase of our structural reform. That has been my answer. Thank you. Thank you very much. Next questions are from Mitsubishi UFJ Morgan Stanley. Tsujino-san, please go ahead.
Thank you so much for taking my questions. My first question is on the share buyback. So far, almost every year you have conducted the share buyback, and the payout ratio has been quite high. However, at the moment, you have not announced the share buyback. Is there any particular reason or idea why you're not doing the share buyback this time? My second question, the bond fixed income. Trading income by business unit. You have been disclosing that figure, but you generate JPY 22 billion from FICC business for, sorry, JPY 18 billion for three months for the Q2. Would you please give us the breakdown between Japan and overseas? If you cannot give us that, the profits from the Americas have come down in the Q2.
I assume that the profits from FIC overseas have come down quite a lot in the Americas. The business has been recovering from the Q3 of last year, driven by the FIC business, as I remember. In the Q2, the profits from the Americas have come down to the level close to the Q2 of the last FY. Would you please give us the reason why profits from the Americas have come down to this level?
Thank you so much for your questions. To your first question, about the share buyback. We have not changed our capital policy from before, so this may sound repetitive, but our basic policy is to secure the financial fundamental strength. That's the priority. We'd like to have the buffer, so that we can invest for growth in the future. We'd like to make sure that we have enough capital and buffer, I would like to do the share buyback. Our dividend payout policy is more than 50%, which is much higher than our peers.
In addition, the buyback is something that we'd like to do flexibly. When we make a judgment, we study the potential buyback from comprehensive perspectives considering various factors. Our capital ratio has risen to 21.8%, that's a fact. Due to the COVID-19 situation, there's uncertainty about the markets, we are promoting the Hybrid Strategy. It might give an impact on our investment affordability in the medium to long term, that's why we have not announced a buyback at this time. To your second question about the FIC breakdown between Japan and overseas. Japan? FIC breakdown.
Japan 60%, overseas 40%. That's the breakdown. Profits from the Americas are down in the Q2, and the reason is because we are the treasury primary dealer, so we are in the top tier for the underwriting. Order customer flow is doing very well, and because we are the primary dealer, we have been accumulating various deals. Because of the lower volatility, offer bid spread has come down quite a lot. That's why profits were down. Now, in October, leading up to the presidential election, the volatility has come up a little bit.
Down the road, after the election, the central bank's policies, depending upon the central bank's policies in each country and the potential second wave of COVID-19, the volatility in the financial markets may go up after the election. We'd like to keep our eyes on the potential changes in the market, and we'd like to capture the right opportunities to generate profits in the future and especially in the U.S. In the Americas in general, we have a very strong customer base. We'd like to really leverage the strong customer base we have.
Thank you so much. Compared to Q3 of last FY, the profits are down, profits are lower, which I don't really understand why profits are lower compared to the Q3 of the last FY. Last year it was JPY 28 billion, which was almost as high as Q1. Compared to that, even though I consider what you have just mentioned, such as bid-offer spread coming down or interest rate level and so forth, I don't really understand why.
Thank you. As you mentioned correctly, the biggest reason is the offer bid spread, the lower volatility, and absolute level of interest rates has come down. Those are the major two reasons.
Understood. Thank you so much.
Thank you very much. Going to the next question, JPMorgan Securities, Hotta-san, please.
Hotta from JPMorgan Securities. I have two questions, but please answer each question one by one. Yes, go ahead. The first question is about the share buyback. This is a very straightforward question. You can flexibly and comprehensively decision you're making. In terms of total payout ratio, 106.9% with the previous year, 10.9% of the year before that. From the people looking from outside, it will not be a good reference point. This year is another story. That's my first question. Thank you very much.
Again, I have to repeat myself. We are being flexible about the share buybacks. We look at the total payout ratio, we don't have a specific target. I think it's correct what you have said.
Understood. My second question is that for retail business, for example, in the Q1, in the management meeting, you have explained that ahead of other competitors, you have new initiatives, and I think you have been quite ingenious and ahead of the curve in doing a lot of things. The other competitors disclose their earnings, but in terms of the improvement of the profit or the level of profit is lower. Within the management, what would be the profit level that you should be achieving? Do you discuss about that? The quarterly retail profit, basically down to the level of the Q1 of last year. Before that, the profit level should have been higher of the, I think, basically management saying that this is the market condition, it can't be helped. Is that your attitude?
Thank you for your question. Including investment trust, we are putting in a lot of measures. In terms of the investment trust business, the retail business, the brokerage income from the transactions of the individual products, that was our business model. We want to transition to an asset management fee business or dissolution business like inheritance, et cetera. We think we have to change the business model from the conventional one. The sales of the investment trust, if you just look at that, I think that's the results. For this, rather than focusing on selling standalone products, we will be proposing portfolios that will match the needs of the customers.
As a result, we won't be focusing on one specific product for sales. Basically, we want to match the needs of the customers. For the fund wrap business, in terms of the contracts under management, it is increasing. I hope that you will look at that. In the Q2, including SoftBank, we have more than JPY 300 billion in equity underwriting deals. Without any issues, we have been able to sell those products. We have very solid customers, and we have a very solid sales network. In terms of the sales reform that we are conducting, we will go forward with that step by step. In terms of the top line, you're putting in a lot of measures. First of all, we will have to focus on the account management type of sales.
The asset management tool, we have been putting in this autumn, and the overseas private bank is using this. This will manage the customer's message comprehensively. This is very cutting edge in Japan. We have this Flex Plan on the 19th October. This investment trust plan, according to the balance and the market value, the fee will change. This is a new option for the customers when they want to buy investment trusts. For the customers who have not been buying investment trusts from our company, we want to cultivate and tap into new customers. In terms of the cost side, we have been conducting cost structure reform. From the top line and from the cost side, we will go forward with reforming our retail business. In terms of the profit level, we think we can increase that level.
I'll be asking for your support ahead of time. In that sense, looking at the current situation, in terms of October, compared to the previous quarter, the sales were doing well. The profitability has slightly been better. That is the situation right now. Excuse me. I understand what Mr. Sato explained in terms of the measures, but for instance, if you look at page 14, other wrap-related income level. The accounts or the wrap accounts are increasing, but it seems low. Do you mean that the profit will follow? You talked about SoftBank. If you look at page 29, for the individual funds, it means that you have more outflow than inflow. Basically, people are not using cash to buy these products? In terms of the wrap-related income, as you know, on upfront, we don't receive fees.
Depending on the term of the balance, the income will increase. This will be related to the actual balance. It's not the case that even if we have more assets under management, it will suddenly feed back to our income. Based on the balance, gradually the profit will build up. We want to fully engage in that business. Basically, we build up the assets and then generate profits. This will be a stable and sustainable business model that we are pursuing. About SoftBank, in terms of individual funds, there's outflow. In the SoftBank business, actually, they pay cash. However, in August, the market was very good. Some wanted to lock in the profit, so mainly in equity, there has been some selling activities because they want to lock in the profit, there has been some outflows of the funds. Understood. Thank you very much.
Thank you so much. Merrill Lynch, Sasaki-san, would you please ask your question?
My name is Sasaki from Bank of America. I have two questions. First, Daiwa Energy & Infrastructure. The fund has been investing. Was there any large investment deal or project in the Q2? Floating wind power generation projects, offshore projects, are there any projects in that category, please? The second question about Flex Plan. By promoting this plan, the profits that shareholders are eligible are going to go up or down? Intuitively, by changing this fee structure, do you think that you can really change customer behavior? How are you going to appeal this plan to the customers or entice customers to move to this pricing table?
To your first question, Daiwa Energy & Infrastructure, the investment balance. In the renewable energy area, the balance has been increasing, especially the power generation is a category where the balance is increasing. On the other hand, the offshore power generation in Daiwa Energy & Infrastructure, including the offshore, not only in Japan but including overseas projects, they are quite active in investing in that category as well.
Relatively speaking, this is a fee in accordance with the balance. The fund is trying to expand the investments to generate stable fees. To your second question about the Flex Plan, the upfront fee is not charged at the upfront. For the whole period, in accordance with the balance, the fee is a little bit less than 1%, and sometimes it's lower than 1%. It's variable in accordance with the balance. The purpose of this is to expand the AUM, the balance of AUM.
Up to now, there are some customers who have not purchased any products from us. Among them, for the year, for example, its attractive cost, which is less than 1% per year. We expect that there are new customers who would like to really do transactions with us if the fee level is this attractive level. In the short term, there's no upfront fee. Therefore, there is a possibility that it's negative initially in the short term, but the aim is to expand the AUM and also to acquire new customers. I would like to provide customers with a new option, new alternative. Daiwa Energy & Infrastructure, how much is the commitment balance? Can you disclose the balance of the commitment of investment? At the moment, no, we do not disclose the commitment amount. Please understand.
Understood. Thank you so much.
Thank you very much, Mr. Sasaki. Again, those of you who have questions, please press the asterisk then one if you have a question. We are receiving questions right now. With this, we'll end this open conference, and Mr. Sato has a message for you guys.
In this first half, the spread of COVID-19 has shaken the global economic activities and capital markets so greatly. Amid this environment, we achieved consolidated ordinary income of JPY 45.1 billion, which is a high level for the first time in two years, which demonstrates our overall strength as a group, as well as the capability of adjusting to the changes in the environment. What drove the earnings result in the Q1 was the market division, and in the Q2 it was the investment division in coordination with retail division. What added on top of that was the result from cost income structure reform we have been working on since last year, which contributed to increase in earnings. In the retail division, we struggled because of the constraint of sales and marketing activities due to COVID-19 in April and May. Results have been recovering since June.
From the end of August to September, we won a number of large equity finance deals. The strong client base of retail division is the very reason behind the successful deals. We are introducing the top of the industry teleworking infrastructure and promoting paperless operations. Amid COVID-19 environment, we were able to successfully increase revenues thanks to the smooth sales activities by improving business efficiency and keep high levels of new account openings and capital inflows. In October, retail investor activities have been trending solidly. On the back of relatively stable Japanese and foreign equity markets, continued low interest rates and global diversification trends, investments in foreign equities, foreign bonds, investment trusts and fund wrap are becoming more active. Looking at the investment banking business, with the multiple number of successful large POs and IPOs executed in Q2, corporate interest in equity finance has been rising.
With regards to M&As, there is an increasing trend of industry consolidation and business restructuring due to the impact from COVID-19. Therefore, we are seeing increased number of consultations on management integration, growth investments, business sale, and business accession and so on. We aim at being a comprehensive securities group of the customer's choice by capturing the changes in the environment appropriately and providing high-quality solutions to customers' needs and challenges. I would appreciate your continued support and cooperation to us. Thank you very much.
This completes the telephone conference call. Thank you so much for calling in today.