Mizuho Financial Group Inc (MFG) 2007 Q4 法說會逐字稿

Thank you for meeting with us today. Page 3 shows today's agenda. Please turn to page 5. This page shows a summary of the financial results. A more detailed analysis will follow; therefore, I will just touch upon key figures here.

Our consolidated gross profits increased by JPY114 billion. One of the main drivers is a steady recovery of interest income from customer groups of the banking subsidiaries. Our consolidated net business profits on the third line increased by JPY69 billion. Credit costs increased by JPY93 billion, mainly due to a credit issue of a nonbank financial customer.

With the same background, net gains related to stocks resulted in a loss of JPY109 billion due to over JPY300 billion of devaluation of stocks. On the other hand, gains of JPY125 billion on cancellation of retirement benefit trusts were recorded as an extraordinary item. As a result, net income or bottom-line profits slightly decreased by JPY28 billion to JPY620 billion. As shown in the middle, our BIS capital ratio was around 12.5% on the Basel II basis.

Next page, please. This page highlights a couple of key aspects behind our financial results. First, we realized steady growth and income from customer groups. As shown on the upper left, net interest income increased largely due to an increase in interest income from customer groups, which is now on a steady growth trend, backed by the widening loan and deposit rate margins. Noninterest income also steadily increased. As a result, consolidated net business profits increased by 6%.

Shown on the lower part of the slide are steady improvements in our capital quality and quantity. In addition, we implemented various initiatives to promote returns to shareholders.

Next, I will talk about our increased core profitability. Please jump over to page 8. On this page, I will show you our loan and deposit balances. As shown on the left, the overall average loan balance increased by JPY1.5 trillion compared with the first half of the fiscal year. This was mainly driven by stable growth in loans to individuals in the domestic retail market and continuous expansion of overseas lending, which offset a decline in lending to large domestic corporations. As shown on the right, the total deposit balance remained almost flat due to an increase in individual deposits.

Next page, please. This page highlights interest margins and income. The line graph on the left shows the latest trend of our domestic loan and deposit rate margin. It is steadily expanding after the Bank of Japan's departure from its zero interest rate policy.

If you look at the quarterly figures, the margin in the fourth quarter improved by 10 basis points from the second half of the previous year. As shown on the right, due to these factors, our consolidated net interest income started to increase with growing momentum.

Next page, please. This page covers noninterest income. Compared with the previous year, noninterest income increase by 4%. As for its breakdown, fee income from solutions businesses such as private bond placement for SMEs decreased. Fees related to the sales of investment trusts and individual annuities, one of the key focuses of the management, increased by 26%. Fee income from the other areas such as overseas businesses and trust and asset management business of Mizuho Trust & Banking is growing steadily.

Next page, please. This page shows a snapshot of G&A expenses. G&A expenses for the three banks increased by JPY44 billion. This was mainly due to additional JPY64 billion of strategic expenses for enhancing future topline growth, while base expenses further decreased by JPY19 billion, mainly due to a reduction in expenses related to retirement benefits and benefits related to Mizuho Bank's completed IT systems integration. As a result, given the increase in our topline figure, the aggregated expense ratio of the three banks slightly decreased to about 50%.

Please turn to page 13. The following two slides cover our financial soundness. The upper two graphs demonstrate that both our net nonperforming loan ratio, or net NPL ratio, and credit-related costs remained at low levels, despite certain business performance deterioration of a nonbank financial customer. As shown on the lower two graphs, our net deferred tax assets, or net DTAs, continued to decrease, and unrealized gains on other securities increased to JPY2.4 trillion.

Next page, please. I will now touch upon our securities portfolio. As for our JGB portfolio, shown on the bottom left, the total balance continues to decline, while, as shown on the top right, we have been diversifying risks and expanding sources of market-related income through credit investments to securitization products with high credit ratings.

With respect to risk/return control, we flexibly managed interest rate sensitivity and put more focus on mark-to-market performance, as shown at the bottom.

Please turn to page 16. This section covers progress in our focused business strategies of each core entity. Described in the slide is a summary of the key initiatives. I will not go into details here, but would like to give you some brief updates on two of our most focused areas.

Please turn to the next page. Domestic retail banking is our highest priority and significant management resources have been input into this area. We have seen some indicators for our future growth, as shown on the left, including the increasing number of financial consultants which led us to increase sales of investment products. There is also steady growth in both Mizuho Mileage Club, or MMC membership, and the housing loan balances.

As shown on the right, given our financial holding company status, or FHC status, in the United States and the planned merger between Mizuho Securities and Shinko Securities, we are strengthening our investment banking business and the linkage between banking and securities businesses on a global basis. We are also strategically expanding our overseas network for enhancing the future profit base.

Next, I will explain our earning estimates. Please jump over to page 26. This page refers to our earnings estimates for this fiscal year. On the left, our estimate for consolidated net business profits is JPY1040 billion, an increase of JPY48 billion from the last fiscal year. Credit costs are estimated at JPY20 billion. Net gains related to stocks are estimated to become JPY105 billion, a significant increase of over JPY200 billion due to removal of one-time negative impact recorded in the last fiscal year.

As a result, our consolidated net income is estimated at JPY750 billion, a steady increase from the last fiscal year. Given the earning estimates, we decided to increase our estimates for the dividend per share of common stock for this fiscal year to JPY10,000.

Next page, please. This page shows a breakdown of our estimates for consolidated net business profits by business segment. Under the scenario shown on the top right, we assume that BOJ will implement two interest rate rises this fiscal year, each of 25 basis points. Under such a scenario, total consolidated net business profits from customer groups, as shown in the top orange box, is estimated to increase by JPY32 billion.

As for a breakdown, we expect net interest income to increase by JPY59 billion, mainly due to increase in deposit income. Noninterest income is conservatively estimated to be almost flat.

Meanwhile, our profits in the trading and other segment, shown in the second orange box, are estimated to decline by JPY20 billion. The contributions by group subsidiaries, as shown in the third orange box, are estimated to increase by JPY37 billion, mainly due to an increase in profits of the group securities companies.

Please turn to page 29. The following three pages describe our policies on capital management and returns to shareholders. The left half of this slide summarizes the actions taken in our capital management over the last 12 months. Among these actions, I would like to draw your attention to the first and the last ones.

The first action is completion of the repayment of public funds. The last action is repurchase and cancellation of all the remaining treasury stock held by wholly owned subsidiary. Please have a look at the right graph. As a result of these actions, both the quality and quantity of our capital base steadily improved as the hybrid ratio declined constantly, along with Tier 1 capital ratio at around 7% on the Basel II basis.

Next page, please. Through our continued disciplined actions, we have now entered the final phase to clear the remaining capital management issue, elimination of dilutive effects in relation to the preferred stock issued to the private sector. At this time, given the improved earning capacity, we have decided to start taking necessary actions for offsetting a portion of the potential dilutive effects prior to the conversion period commencing in July 2008.

As shown in the middle, we have set up a JPY150 billion limit for repurchasing our common stock for the six-month period from June. We plan to cancel all the common shares once repurchased. We will consider setting up additional repurchase limits and conducting share repurchases based on market conditions, our earnings trend and other factors.

Next page, please. In this page, I would like to explain our capital management and dividend policies going forward. We continue to review our policies in view of global banks and make much of the balance between enhancement of the returns to shareholders and strengthening of capital base for future growth opportunities.

As for returns to shareholders, including dividends, we will increase the cash dividend per share of common stock for fiscal 2006 to JPY7000, and we have set up a JPY150 billion repurchase limit for our common stock. As for the next fiscal year, we already increased our estimates for the dividend per share of common stock for fiscal 2007 to JPY10,000.

As for the strengthening of our capital base, we will continue to aim for the medium- to long-term target of Tier 1 capital ratio of 7%, based on the Basel I approach, while flexibly allocating capital to growing areas.

Now please turn to page 33. In closing, I would like to make a couple of remarks. This slide shows transitions of our management focuses with steady progress. Having repaid all the public funds and listing on the New York Stock Exchange, we are now moving toward further enhancement of the group's comprehensive profitability, especially in the domestic retail market, and strengthening our internal controls. As for capital management, we will implement consistent, disciplined actions for not only eliminating dilutive effects, but also steadily increasing returns to shareholders, even prior to the commencement of the conversion period of the preferred stock issued to the private sector.

This concludes my presentation. Thank you very much.