Mizuho Financial Group Inc (MFG) 2012 Q2 法說會逐字稿

Ladies and gentlemen, my name is Yasuhiro Sato, President and CEO of Mizuho Financial Group. Thank you for taking the time to attend today's meeting. I would like to take this opportunity to express my deepest appreciation for your continued support for our Group.

Today, I would like to explain our financial results for the first half of fiscal 2011 and earnings plan for the full fiscal year. In addition, I would like to cover our balance sheet soundness, capital management, progress in our Transformation Program and our one bank vision as we proceed towards Group-wide integrated management and the relevant synergy effects.

As I start my presentation, first I would like to talk about two key issues that I want to emphasize, which are summarized in this slide.

The first point is that we have been conducting our financial management in a solid and sound manner as a whole. Our financial performance, such as our first-half financial results, the quality of our asset portfolio and our capital management have broadly outperformed our plans. Although we now face a challenging situation where the European sovereign debt crisis has shaken European and US financial institutions, there is no reason for particular concern about our asset soundness and liquidity position.

Also regarding the status of our capital, we believe that we will be able to sufficiently meet the new capital regulations, given the phase-in treatments and the timeline towards the timing of full implementation and hence there is no change in our plan for dividend payments for fiscal 2011. I believe this emphasizes to you, as investors, the prudence and reliability of Mizuho's financial strategy.

The second point I would like to highlight is our strategy and organization. I will explain the steady progress of our Transformation Program, followed by a detailed explanation of the quantitative synergy effects of our transformation into one bank, which seems to be of great interest to investors, together with the concept of the advanced Group management that I envisage as the Group's CEO.

Through my explanation, I would like you to develop a deeper understanding of how we intend to restructure our organization and swiftly implement highly effective strategic action in order to maximize Mizuho's profitability, which has always been at the forefront of investor interests.

Now I would like to move on to our first-half financial results. Please turn to page seven. This slide briefly summarizes our interim results.

Firstly, our consolidated net income amounted to JPY254b, which includes JPY77b from the positive impact of turning the three listed subsidiaries into wholly-owned subsidiaries. This is approximately 110.7% against the planned figure of JPY230b for the first half. If we exclude the impact of the wholly-owned subsidiaries project, our consolidated net income was JPY177b, which is an achievement of approximately 105% against our plan.

Regarding net business profits, the progress to date on a consolidated basis was broadly in line with the first-half plan. This was primarily because the income from the Trading segment of the banking subsidiaries exceeded the original plan despite the weak performance of the Securities subsidiaries.

Secondly, as for our Customer Groups, the core business net business profits from our domestic business regrettably decreased on a year-on-year basis in the midst of a severe business environment, including the economic downturn after the earthquake. But the decrease was almost offset by the strong performance of our overseas business particularly in Asia. As a whole we have managed to maintain an almost flat level of net business profits from the Customer Group compared with the first half of the previous fiscal year.

Thirdly, regarding credit costs, we once again recorded a net reversal of JPY13b, consecutively from the previous fiscal year, primarily due to our continuous support for business revitalization of corporate customers. Meanwhile, we incurred net losses related to stocks of JPY60b, mainly due to impairment losses for certain stockholdings reflecting a decline in stock prices towards the end of September.

Lastly, with regard to the status of our capital, we broadly achieved a consolidated Tier 1 capital ratio of a 12% level, our medium-term target that we set in the Transformation Program. I will explain more details later, but I believe that even if we are named as a G-SIFI, we will be able to sufficiently meet the new capital regulations by accumulating retained earnings and improving asset efficiency.

Please turn to the next page. This slide demonstrates the breakdown of consolidated net business profits of the banking subsidiaries and the performance of the major subsidiaries. Please take a look at the middle of the chart on the left.

As I previously mentioned, despite a decline in profits from each business of the Customer Groups, those from international operations increased significantly by JPY10b or over 30% on a year-on-year basis and largely offset the domestic decline.

As for the Trading segment, the performance was solid for the six-month period, reflecting declines in both domestic and overseas market interest rates, but came short of the performance for the first half of the previous year, which had been outstanding. As a result, the three banks' net business profits decreased by JPY85b on a year-on-year basis.

Shown on the lower left is the difference in net business profits between consolidated and the three banks. Despite the positive contribution of the overseas subsidiaries, the difference amounted to a negative JPY8b, mainly due to Mizuho Securities ordinary loss of JPY20b, which was primarily attributable to the lower than expected commissions and net gain on Trading.

Please turn to the next page. This slide graphically shows the historical trend of our financial performance since fiscal 2008 for your reference. I won't go into details here. Please skip this slide and go over to page 11.

This slide describes the line-by-line items of our interim financial results. Following the explanations for the previous slides, I would like to add some comments on a couple of supplemental items. Please take a look at the lower right of the slide.

Firstly, please look at line 16 of the table on the left. The three banks' net income for this period was JPY152b, but it included a negative impact of JPY27b which was associated with turning the three listed subsidiaries into wholly-owned subsidiaries. Excluding this extraordinary item, net income would have amounted to JPY179b as shown in line 17.

Secondly, the overall net impact of turning the three listed subsidiaries into wholly-owned subsidiaries was a positive JPY77b on a consolidated basis, mainly due to gains on negative goodwill that we recorded.

Thirdly, as for the Jusen issue, we already recorded non-recurring losses of JPY20b during the first quarter and we have completed the necessary action on this matter.

Finally, with regard to the earthquake and the computer system failure, the impact on our P/L was limited and we recorded only minor losses of approximately JPY6b and JPY0.3b respectively.

Please turn to the next page. On this slide I would like to explain net interest income from Customer Groups, loan and deposit rate margins and balances of loans and deposits.

First of all, please take a look at the graph on the upper left. Net interest income from overseas businesses has been steadily increasing, but in total, net interest income has been on a gradual downward trend.

Secondly, please also look at the graph on the lower left. Our domestic loan and deposit rate margins which are shown as the bold line in the middle declined by 0.04% to 1.32% for the first half of this fiscal year. Regarding our lending business we have always made efforts to maintain appropriate loan spreads or even expand them in this environment in which the Bank of Japan maintains its monetary easing policy. But the loan and deposit margin has decreased due to continued severe competition among banks.

Thirdly, please take a look at the upper right graph showing our average loan balances. The balance for the first half decreased by approximately JPY0.3 trillion to JPY60.8b on a year-on-year basis. However, as shown on the far right, excluding both the translation impact of foreign exchange movements on the overseas loan balance and the impact of the decline in loans to the Japanese government on the domestic side, the total balance would have maintained its upward trend since the second half of the last fiscal year.

Finally, as shown in the graph on the lower right, our average deposit balances are steadily increasing, in both domestic and international operations. I will come back to this point in more detail later, including from the viewpoint of our liquidity position.

Please turn to the next page. This slide provides you with some additional data which supplements my explanation in the previous slides. I would ask you to refer to these later. I would like to add one point here that as shown on the upper right graph, our overseas loan balance, particularly that in Asia, has been steadily increasing.

Please turn to the next page. This slide covers non-interest income. As shown on the bar chart, non-interest income from Customer Groups amounted to JPY192b for this six-month period, a year-on-year increase of JPY2b.

In summary, the income from domestic business decreased marginally on a year-on-year basis in a severe business environment, including the economic slowdown after the great earthquake. However, the income from overseas business which was strongly driven by non-Japanese transactions such as fees related to cross-border M&A and syndicated loan arrangements contributed to the non-interest income as a whole, leading to an increase on a year-on-year basis.

Please turn to the next page. On this slide, I will explain our net gains and losses on Securities.

Firstly, shown on the left, our net gains or losses related to bonds and stocks for which I have briefly provided with a summary explanation in relation to our interim results.

Secondly, as shown on the right hand side, unrealized gains and losses on other securities turned from JPY0.6b of gains as of the end of March 2011 to JPY145b of losses as of September end. The reason for the change was that JPY205b of unrealized gains related to stocks as of the March end turned to a loss of JPY45b, a deterioration of JPY251b due to the sharp decline in stock prices since August, although unrealized gains related to bonds improved by JPY59b from the end of March 2011, due to flexible and timely operations by successfully interpreting the trends of declining market interest rates.

Please turn to the next page. This slide shows the status of G&A expenses. G&A expenses for the first half of fiscal 2011 amounted to JPY432b, a year-on-year reduction of JPY3b. The figure includes JPY6b increase of employee retirement benefit expenses. If we exclude this, both personnel and non-personnel expenses decreased and we successfully reduced JPY9b as a result of our overall cost reduction efforts. We will continue to make efforts to achieve our cost reduction target of JPY10b for this fiscal year.

Please turn to the next page. This slide explains our credit costs. As shown in the graph on the left, credit costs of the three banks amounted to a net reversal of JPY8b in the first half of fiscal 2011. This was mainly due to our appropriate credit management and business revitalization support to corporate customers, while the number of domestic bankruptcies remained stable at a low level. In fact among the Japanese mega banks, only Mizuho has recorded a net reversal.

In addition, I would like to add a comment on our rapidly growing overseas lending. Although we do not disclose detailed figures here, we recorded a net reversal in our overseas lending, just as in our domestic lending. This was due to implementation of detailed credit management including forward-looking market research in each of Europe, Americas and Asia and also by enhancing the credit monitoring system.

Now I would like to explain our earnings plan for fiscal 2011. Please turn to the next page.

We have kept unchanged our estimate of consolidated net income for full fiscal 2011 from the original plan. With regard to each of the other items, we revised in part the original plan reflecting the interim results and the economic outlook. Please refer to the major factors of these revisions, which are shown on the right side of the slide. Although both domestic and overseas economic environments are still uncertain, we will strive to achieve the fiscal year earnings plan with a strong commitment to results in each individual's responsible area.

As to the annual cash dividends per share for fiscal 2011, we plan to continue to make cash dividend payment of JPY6 per share of common stock, unchanged from fiscal 2010. The interim cash dividend payments of JPY3 are planned to be made in December.

Please turn to the next page, which describes the breakdown of the revised earnings plan by business segment. Please take a look at the left-hand side. The two bar charts at the centre and on the right show a comparison between the revised plan and the plan before revision.

Firstly, with regard to Customer Groups, although the first-half results were in line with our plan, the net business profits plan was revised downwards by JPY16b to JPY560b, considering the current interest rates and economic trends.

Secondly, regarding Trading and Others, net business profits were revised upwards by JPY46b to JPY157b. This reflects the solid performance in the first half of fiscal 2011 as well as a conservative estimate based on the interest rate scenario for the second half of fiscal 2011.

Thirdly, as for the difference between the consolidated and the three banks' amounts, net business profits were revised downwards by JPY60b to JPY53b, in light of the weak performance of Securities subsidiaries in the first half.

Finally, as I mentioned earlier, we aim to decrease G&A expenses on the three banks' basis by JPY10b on a year-on-year basis.

This concludes my explanation of our half-year financial results. Now let's move on to our balance sheet soundness. Please turn to page 21.

Amid deep concern about the impact of the European sovereign debt crisis on financial institutions, unprecedented attention is being given to the soundness of their balance sheets, such as the safety of the assets they hold and the stability of funding sources. With regard to this, it is widely recognized that Japanese banks have competitive advantages over their European and US peers.

This slide describes the soundness of Mizuho's balance sheet at a glance, summarized under four key points. I will explain this in more detail in the following slides. Please turn to the next page.

This slide covers Mizuho's loan portfolio. Please take a look at the chart on the left. The balance of our NPLs or non-performing loans amounted to JPY1.1 trillion as of the end of September 2011, a decrease of approximately JPY0.1 trillion compared with the March-end figure. The net NPL ratio continued to remain at a low level of 0.82%, a decrease of 0.01% from the March end figure.

Meanwhile the balance of claims against other watch obligors as of the end of September was JPY3.5 trillion, a decrease of JPY0.1 trillion from the end of March. The reserve ratio was also stable at 4.23%.

Please turn to the next page. This slide shows our exposure to the GIIPS and the Middle Eastern countries as of the end of September 2011.

Firstly, as shown on the left-hand side of the slide, we have no GIIPS sovereign bonds. Our total exposure to these five countries was minimal with $4.1b equivalent, which is the smallest among the Japanese mega banks. The proportion of our GIIPS exposure against our total overseas exposure was just 1.1%, a very small amount.

Furthermore, the majority of our exposure to these countries including those to Italy and Spain is to blue-chip corporate customers.

Shown on the right hand side is our exposure to Middle Eastern countries. The total exposure is $4.8b, of which the vast majority is related to project finance transactions in which Japanese companies are involved. We do not have any exposure to Libya or Syria.

Please move on to the next page. In this slide I will explain our JGB portfolio and Japanese stock portfolio. Our JGB portfolio, shown on the left, increased by approximately JPY1.5 trillion from the end of March 2011. On the other hand, we continue our prudent operations by controlling the average remaining period of the portfolio at around two years. We will remain prudent and vigilant in monitoring interest rate movements and continue with our risk management system, which enables us to respond appropriately to unexpected market movements.

With regard to the reduction of our Japanese stock portfolio, as shown on the bottom right, we have sold approximately JPY170b of stocks since April 2010, combined with approximately JPY200b of stocks which we have obtained prior consent from our customers to sell as at the end of September 2011. We have effectively dealt with approximately JPY400b against the reduction target of JPY1 trillion.

The current environment such as the stock market situation remains very severe, making it difficult for us to proceed in negotiating with our corporate customers. However, Mizuho set a target of JPY1 trillion reduction in its stock portfolio by the end of fiscal 2012 in its Transformation Program and we will continue our strenuous efforts to achieve the reduction target by fully recognizing the potential risks associated with these stockholdings.

Please turn to the next page. In this slide, I would like to explain Mizuho's use and source of funds from the viewpoint of liquidity. From the start I would like to stress that we do not face any difficulties at all concerning our own funding, not only in Japanese yen but also in foreign currencies.

As you can see from the chart on the left, both our domestic and international operations are currently in a so-called over-deposit situation, where deposit balances exceed loan balances.

Please take a look at the chart on the top right, which shows the historical trend of our loan and deposit balances. You can see that our deposit balances exceed loan balances, both in domestic and international operations respectively. Especially in international operations, we have put emphasis on securing deposits along with the growth of loan balances, in order to secure the stability of foreign currency funding.

Shown on the bottom right is a comparison of loan to deposit ratios between Mizuho and the major European and American peers. Mizuho's loan to deposit ratio is at a significantly low level, even compared with those of the major global players.

Now I would like to move on to our capital management. Please go to page 27.

Regarding Basel III, the relevant countries have agreed on the outline of the framework of the new regulations. In early November, the Financial Stability Board, or FSB, named an initial group of globally, systemically important financial institutions, the so-called G-SIFIs. However I would like to reiterate here that Mizuho's capital management and dividend policy remain consistent and unchanged.

Please take a look at the center of the slide. Regarding strengthening of stable capital base, we estimate our common equity capital ratio, on a Basel III basis, to reach the mid 8% level, our medium-term target as of the end of fiscal 2012, including mandatory convertible preferred stock in the calculation, through steady accumulation of retained earnings and efficient management of risk-weighted assets. Even if we are finally selected to be one of the G-SIFIs, we believe that we will be able to sufficiently meet the new capital regulations, as we will continue to accumulate capital giving due consideration to the phase-in timetable up until full implementation in January 2019. Therefore, we have no plans to conduct, and we do not foresee another capital raising for the purpose of meeting the new capital requirements at this moment.

As for steady returns to shareholders, I have already explained this point earlier in the presentation.

Please turn to the next page. This slide is a road map for Mizuho's common equity Tier 1 ratio on a Basel III basis which we have been showing since last autumn. We have updated a few points, reflecting the recent situation. There are two points that I would like to discuss here.

The first point to explain is the impact of an increase in the risk-weighted assets. As shown on the right-hand side, we estimate the impact on our risk-weighted assets of Basel 2.5, which is to be implemented at the end of December, to be an increase of less than JPY1 trillion. Even if we add the full impact of Basel III, the total increase is estimated to be around the 10% level. Thus we consider the magnitude of the impact on Mizuho will be much smaller than that on the risk-weighted assets of European and US financial institutions.

The second point is our mandatory convertible preferred stock which is to be fully converted to common stock in 2016. As the conversion has already been in steady progress, the outstanding balance has decreased to JPY383b or a conversion rate of approximately 60% as of the end of September. These preferred stocks are, as we have continuously explained, certain to be converted to common stock by July 2016. Therefore we add the outstanding balance to the calculation of our common equity Tier 1 capital as capital with high loss absorbency.

I would like to skip a detailed explanation of the other items. But as you can see from this road map, we do not believe we will have any issues in complying appropriately with the necessary requirements under Basel III.

Now I would like to explain the progress of Mizuho's Transformation program. Please go to page 31. The following two slides describe the progress of Mizuho's Transformation program. I will not explain each specific development in detail. But overall we feel confident that we have made steady progress. Above all, with regard to the program for improving profitability, we have had strong growth in profits in Asia, one of our key focus areas. We have also reduced expenses by JPY33b on a three-banks' basis, which is a 66% achievement rate against our planned reduction of JPY50b over three years. As a result we have been able to steadily accumulate our retained earnings.

Meanwhile, in relation to the program for strengthening frontline business capabilities, we have redeployed 547 staff to frontline marketing, which is over 50% of the targeted 1,000 staff.

On the other hand, there are some areas where we have not seen the progress we planned such as the reduction of our Japanese stock portfolio. However, we remain fully committed to accelerating the program in order to achieve the original key targets.

Next I would like to explain our business strategies in key focus areas that we set in the program for improving profitability. Please go to page 33.

Now I'll explain Mizuho's strategy for the Asian region which is demonstrating strong economic growth. Asia has high growth potential and it is a market where Japanese banks have a competitive edge against European and American banks due to its business affinity for Japanese banks looking to enter the market.

In this market we have leveraged our competitive advantages, which are shown on the top left of the slide, and strategically deployed our resources in three key focus areas, blue-chip non-Japanese customers, infrastructure projects and cash flow trade finance.

Although not shown in the slide, we have increased our personnel in the Asian region from 3,500 to 4,000, which is a 15% increase from fiscal 2009.

Regarding our network, the number of our offices in Asia has increased from 36 to 38, as we opened a subsidiary in Malaysia and a branch of Mizuho Corporate Bank China in Suzhou.

We describe recent major deals in the Asian market in the center left of the slide. For example, Mizuho arranged a syndicated loan that financed a cross-border M&A for Sinopec, a Chinese national petrochemical company. We also concluded an MOU with Hyflux, the leading water solutions company in Asia and obtained a mandate in the Asian IPO of a European blue-chip company Prada. These are highly visible results of the initiatives we have pursued and good examples based on solid mutual relationships at the top management level.

The chart on the right shows our profit and loan balances in Asian offices. You can see that our loan balance and profits are increasing strongly having almost doubled in the last two years. This is due to our ability to capture the robust financing needs associated with economic growth in Asia.

At the bottom left of the slide we show two cases of non-organic growth strategies that we've successfully concluded in the first half of fiscal 2011.

In Vietnam, we agreed to enter a capital and business alliance with Vietcombank, one of the largest state-owned commercial banks in the country, and to make it an equity method affiliate. We believe we will be able to establish a foothold towards expanding Mizuho's access to local blue-chip companies and enhancing our banking services for Japanese companies in Vietnam. We also believe that this is our first step towards fully entering the Asian retail banking market.

In Indonesia, we agreed to make an auto loan finance company under a major local car dealer, PT Balimor Finance, our consolidated subsidiary. We consider this acquisition as a pilot project towards developing our business in the rapidly growing retail finance market in the Asian region by leveraging Mizuho's wide specialist knowledge and experience.

Overall, basically we will adopt organic growth strategies, but at the same time take non-organic approaches within our strategic scope to capture business opportunities in a rapidly growing Asian market. We will take into account an optimal balance between such non-organic approaches and our capital management.

Please turn to the next page. This slide shows our main achievements in our key focus areas other than Asia which are the Tokyo Metropolitan area, large corporate, asset management and full-line services of banking trust and securities functions.

As you can see from the charts, we have achieved solid results in all these areas. But today I would like to emphasize two particular points. The first point is Mizuho's overwhelming presence in the domestic syndicated loan market. We are strengthening our position as a top player, as a financial intermediary, arranging almost half of the syndicated loans in the domestic market.

The second point is our strategy in the asset management business. As is shown in the bottom left of the slide, Mizuho continues to keep its status as a top player in the pension market as well as make strategic preparations for the alternative business, an area in which we can expect future growth.

Please go to the next page. This slide shows six league tables. I will not go into the details of each table, but you can see that Mizuho is maintaining its high profile presence in various business areas.

Now I will talk about today's last topic, the integrated Group management and synergy effects of the transformation into one bank.

Please go to page 37. Last week Mizuho Financial Group, Mizuho Bank and Mizuho Corporate Bank signed a memorandum of understanding on the merger between Mizuho Bank and Mizuho Corporate Bank. The transformation of our banking operations into one bank is the most important project amongst various initiatives towards an advanced and integrated Group structure.

But this is not our ultimate objective. The most important objective of our advanced and integrated Group management is to improve customer convenience and, secondly, to maximize the Group profitability under advanced corporate governance through exhaustive improvement of Group management efficiency. We aim to establish a new corporate and governance structure which will be able to utilize the following functions most effectively as the only financial group in Japan with the set of a bank, trust bank and securities functions under one umbrella.

At the bottom of the slide we show the source of synergy effects expected through our efforts towards advanced and integrated Group management, both from strengthening of revenue and from cost reductions.

Regarding revenue synergies, we aim to enhance our profitability by providing directly and promptly, diverse and functional financial services to Mizuho's customers, utilizing the current strengths and advantages of Mizuho Bank and Mizuho Corporate Bank and further enhancing Group collaboration among the banking, trust and securities functions.

Under the market units we will strive to strengthen the efficiency of our market operations in respect to both use and source of funds and will aim to enhance profits through the effective utilization of risk capital, while enhancing risk management.

Regarding costs, our key objective is further reduction by overcoming our weaknesses and problems such as duplicate organizational structure and functions. We aim to realize significant cost reductions through the downsizing of personnel by 3,000 staff, which will be achieved mainly by consolidating common Group functions and promoting Group-wide unification of peripheral systems. We also aim to decrease the number of management personnel by approximately 20% by the time of the merger.

Please turn to the next page. The two organization charts on this slide describe the transition into the integrated Group management. You can see that the organization on the left-hand side of the slide shows a vertically managed organization and the right-hand side one horizontally managed. We have long taken the unique approach of two banks or three banks where, in principle, each entity develops its own business. Now our aim is to strengthen our Group-wide governance and create a structure where we operate as an integrated business.

We will transform to the substantive one-bank structure next April along with this key idea. The full integration of human resource functions, which was completed in July, will be followed by the unification of corporate planning and management, relationship management, products, markets, operations and IT and systems units. In principle, an executive officer or a general manager in charge at either company will concurrently assume the corresponding post at the other two companies. Thus we aim to strengthen governance and improve the efficiency of our Head Office functions.

All these initiatives will be undertaken before the merger of Mizuho Bank and Mizuho Corporate Bank which is planned to take place around the first half of fiscal 2013. We will determine a more specific organization structure of the substantive one bank by the year end. And I hope I can let you know of the appointments of personnel who will manage the new organization at the beginning of the year.

Then we will merge Mizuho Securities and Mizuho Investors Securities in the second half of fiscal 2012. And will complete the transition to the planned corporate structure with the merger of Mizuho Bank and Mizuho Corporate Bank in the first half of fiscal 2013. We will also consider the possibility of a consolidation of Mizuho Trust and Banking into the one bank structure.

Please turn to the next page. This slide describes our strategies for realizing the synergy effects of the merger, particularly under the relationship management units. We aim to remove the barriers between Mizuho Bank and Mizuho Corporate Bank by the transformation into one bank and take an integrated approach to our customers. By thoroughly developing the financial and industrial expertise of both Mizuho Bank and Mizuho Corporate Bank within the Group, we will further invigorate our business activities and provide financial services to meet all our customers' needs through the unified efforts of the Group.

A specific description of our initiatives in the key focus areas is shown in the center of the slide. We will further promote business related to the employees of Mizuho Corporate Bank's customers by taking advantage of Mizuho Bank's retail marketing expertise. At the same time we will actively utilize Mizuho Corporate Bank's expertise in business related to large corporate customers and its capability to provide comprehensive proposals to Mizuho Bank's customers for business solutions and enhance support for the overseas business of Mizuho Bank's corporate customers by utilizing Mizuho Corporate Bank's overseas network.

Of course we have long made use of these measures in Group business promotion. But now we aim to transform to the substantive one-bank structure and establish a structure where we can provide services that are directly linked to our customers' needs more promptly and effectively. Under the market units we aim to unify the functions of the two banks, strengthen the efficiency in using and sourcing funds and enhance profit through the effective utilization of risk capital.

Please turn to the next page. This slide provides you with an estimate of the quantitative synergy effects of our transformation into one bank. According to our provisional calculations, revenue synergies of JPY60b and cost synergies of JPY40b are expected on a cumulative basis by fiscal 2015. This adds up to the total JPY100b.

The pie chart on the right hand side shows the breakdown of the synergy effects. Regarding revenue synergies, we expect JPY45b through the transformation into one bank and JPY15b through collaboration among the banking, trust and securities functions. The total effect is expected to be JPY60b.

Regarding cost synergies, we expect JPY22b through downsizing of 3,000 staff and JPY18b through integration of IT systems and downsizing in Mizuho Securities. The total effect is expected to be JPY40b.

Lastly, I would like to emphasize one more point which is the speed of implementation. This slide describes the estimate as of fiscal 2015. But we aim to accelerate the realization of both gross profit enhancement and cost reduction and demonstrate the results as early as possible. We intend to develop various initiatives with a keen sense of urgency.

Please turn to the next page. This slide describes the breakdown of the estimated synergy effects in more detail.

Firstly, in terms of revenue effects, there are two obvious and urgent issues that we must address in order to enhance Mizuho's profitability. The first issue is to strengthen domestic customer business, and the second is to turn around the business operations of our securities subsidiaries. To overcome these two issues, we will not only pursue the development of the aforementioned initiatives, but also remove the barriers between Mizuho Bank and Mizuho Corporate Bank and strengthen the collaboration with Mizuho Trust and Banking and the securities companies. Thus we will fully utilize our broad and solid customer base, which is Mizuho's unique strength, expand our potential business horizon and aggressively pursue every single business opportunity.

Secondly, in terms of cost reduction, we aim to lower our expense ratio, one of our weaknesses, through these actions, to a level of below 50%, which will be on a par with that of our competitors.

This concludes my presentation. But now I would like to end my speech with a few more words. It is about five months since I assumed the role of Group CEO. As I promised when I took over, I have actively led the Group towards the transformation of Mizuho and addressed various issues with a sense of urgency. Overall, I feel confident that we will be able to achieve the transformation.

The biggest reason is that I can see that the mindset of Mizuho's staff has visibly become much more positive since the announcement of the transformation into one bank. At every opportunity I have been advocating the need for sharing a sense of crisis after the system failures, establishing new corporate governance and revolutionizing Mizuho's corporate culture. I also feel that all Mizuho's staff now share the same sense of direction towards our vision, One Mizuho, and that now we have taken a big step forward towards turning our idea into reality.

In order to realize a further giant leap forward, it is necessary for us to demonstrate visible results in profitability and share among the whole Group an understanding that it makes sense to change. None of us Mizuho staff will ever dwell on internal interests, but we will seriously think about what we must do to best serve our customers, and will make every effort to win the appreciation of our customers. This process may sound rather simplistic, but I believe that the accumulation of this sort of process by every member of Mizuho's staff will be the only way for Mizuho to increase its business capability.

This is my first investor presentation. But I look forward to updating you as investors on the progress of our transformation, and showing visible results that demonstrate a transformation to create a strong Mizuho. I would like to ask for your continuous support for Mizuho. Thank you very much for your attention.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.