Mizuho Financial Group Inc (MFG) 2013 Q2 法說會逐字稿

Ladies and gentlemen, my name is Yasuhiro Sato, President and CEO of Mizuho Financial Group. I would like to express my deepest appreciation for so many of our investors taking the time to attend today's meeting.

Now I would like to explain the financial results for the first half of fiscal 2012. Please turn to page 4.

This page summarizes the financial results for the first half of fiscal 2012. In short, our first-half results again clearly show our achievements and challenges. As for achievements, our core business demonstrated a steady performance as indicated, among others, by net business profits, which increased significantly on a year-on-year basis. On the other hand, regarding our challenges, net income fell short of the earnings plan for the first half, due to our recording significant impairment losses.

Three key points of the financial results are shown on the right side of the slide. Firstly, regarding the achievement shown on the top right, net business profits of the three banks amounted to JPY463 billion, a year-on-year increase of JPY103 billion or approximately 29%. This was primarily because the overseas business of customer groups continued to expand steadily, and the trading segment of the three banking subsidiaries continuously showed a favorable performance. Gross profits from the trading segment exceeded the target for the first half by approximately JPY120 billion.

G&A expenses decreased by JPY16 billion on a year-on-year basis as a result of our continued cost reduction efforts. The progress in cost reduction for the first half against the full fiscal year target of JPY30 billion was approximately 53%. The expense ratio for the first half fell to 47.3% from 54.6% for the same period of fiscal 2011.

Furthermore, the one-bank synergies, including revenue synergies and cost synergies, have accumulated steadily since the commencement of the substantive one-bank structure this April. The synergy effects for the first half amounted to JPY21 billion, of which the revenue synergies were JPY16 billion, and the cost synergies JPY5 billion.

Secondly, I would like to explain the net losses related to stocks. We reported JPY274 billion of net losses related to stocks for the first half, mainly due to recording impairment losses for certain stocks. We take very seriously the fact that we recorded a large amount of impairment losses related to stocks, despite our acute awareness of the financial risk of our stock holdings and subsequent efforts to achieve the JPY1 trillion target of book value reduction of our stock portfolio since fiscal 2010. I will explain this point in more detail, including the progress to date and our future initiatives, later in my presentation.

Lastly, I would like to touch upon Mizuho Securities. Mizuho Securities recorded net income of JPY8 billion, returning to the black on a half-year basis for the first time since the first half of fiscal 2010. This was achieved mainly through restructuring and strengthening its business foundation since the second half of the previous fiscal year. I will also explain more about these initiatives later. Despite the ongoing severe financial and economic environment, we are strongly committed to recovering the shortfall in profits against our first-half target, and to achieving the estimated consolidated net income of JPY500 billion for the full fiscal year.

Please move on to the next page. This page shows the contribution of the international banking unit and Mizuho Securities to consolidated net income. Firstly, the graph on the left illustrates the change in the proportion of net business profits of the international banking unit against those of the customer group's total.

The international banking unit, which recorded net business profits of approximately JPY75 billion, has become the second-largest profit driver behind the corporate banking unit that is large corporations, which recorded net business profits of approximately JPY93 billion. The ratio of net business profits of the international banking unit against those of the customer group's total increased significantly to 26% for the first half of this fiscal year, from 18% for the same period of fiscal 2011.

Secondly, shown on the right side, is the difference between consolidated and three-banks. The difference was JPY71 billion, mainly because Mizuho Securities returned to the black. Mizuho Securities' contribution on a consolidated basis to consolidated net income improved by JPY35 billion on a year-on-year basis.

Please move on to the next page. Mizuho's overseas business continues to perform solidly. The graph on the left shows that the gross profits from overseas business has almost doubled in the last three years. When you look at the increase of gross profits by region, you can see that the increase in Asia is larger than that in other regions, although we have increased our profits in all the regions -- Europe, Americas, Asia. As I myself had a lot of face-to-face meetings with our customers, both Japanese and non-Japanese, I feel confident that Mizuho has steadily gained a higher status as a core bank from the Asian region.

Now let me touch upon our Super 30 strategy, which is Mizuho's unique strategy for our overseas business. We select approximately 30 non-Japanese corporate customers as priority targets in each of the four regions worldwide; allocate more resources to these customers; build customer relationships through the hands-on approach of top management; and develop mid to long-term relationships with these customers.

For your reference, approximately 10% of the total gross profits from Super 30 customers derives from securities-related profits. In addition, as shown in the league table on the bottom right, Mizuho is ranked number four in the global syndicated loan market and number one among Japanese banks.

In this page, I would like to explain in detail about one of the most important topics in today's presentation, which is the progress of our stock portfolio reduction and how we will deal with this issue in the future. As I said earlier, we recorded JPY247 billion of impairment losses related to stocks in the first half on a consolidated basis.

It is deeply regrettable that we recorded large impairment losses related to stocks again in the first half amid unfavorable progress in achieving the JPY1 trillion target of book value reduction of our stock portfolio, despite our acute awareness of the financial risk of our stockholdings. However, I will never turn a blind eye to this issue, and I will take appropriate action to solve it as one of Mizuho's most important management issues.

The right side of the slide shows the progress of book value reduction of our stock portfolio in the last 2.5 years, and the unsold portion of the consented amount to sell as of the end of each term. This graph includes the amount of the impairment of stocks for the first half in order to show you the snapshot figures as of the end of September.

Now, the JPY486 billion shown on the graph, which is the reduced amount of the book value on a cumulative basis up to September 2012, includes JPY390 billion of cumulative impairment. I fully recognize that the book value reduction, due to cumulative impairment of stocks, was not necessarily a result of our own actions, and was accompanied by the impairment of our capital base. However, it is also true that the book value itself decreased, reflecting the decrease in the market value of our stock portfolio.

Therefore, we decided to include the cumulative impairment up to fiscal 2011 in our reduction achievement. On the other hand, we do not include in our achievement JPY247 billion, which is the amount of impairment related to stocks in the first half of fiscal 2012. This is because it is possible that the remaining amount for JPY1 trillion reduction may increase if stock prices, as of the end of March 2013, recover; and subsequently, the impaired amount may be fixed at a lower level than that as of the end of the first half.

Regarding the consented amount to sell that remains unsold, this amounted to approximately JPY310 billion as of the end of September, which included approximately JPY150 billion of customer consent we have acquired in the first half. This amount is still on our balance sheet, and the stock price risk is yet to be eliminated. However, we have indicated the amount on this graph as a quasi-sold amount, as we believe that we have moved forward by obtaining these consents towards unwinding cross shareholdings, which has been one of the most typical cases of how the relationships between Japanese banks and corporate customers worked in the past.

However, it is also true that the pace of selling these stocks has not always been ideal, mainly due to insider trading restrictions and the sluggish stock market situation. Please have a look at the graph on the right side again.

This graph shows the aggregate reduced amount of JPY486 billion and the consented amount to sell of JPY310 billion. However, as I have explained, this aggregate figure includes the impairment amount that can fluctuate towards the end of this fiscal year and the consented amount to sell, which remains on our balance sheet. Therefore, I would never consider that our reduction target has been achieved when we get another JPY200 billion of consent to sell from our customers.

In the second half, we are making strenuous efforts to sell the stocks as well as get the consent to sell from our customers. And we will continue to tackle this issue thereafter. Of course, we will look for the best timing to sell the unsold portion of the consented amount.

As concrete measures, we will further tighten our control on the progress of stock reduction by establishing a Special Committee comprised of the Group's CEO, and Presidents and Deputy Presidents of the banks. Of course, we have been negotiating with our corporate customers on a face-to-face basis to obtain consents from them to sell their stocks, under the initiative of the Presidents of Mizuho Bank and Mizuho Corporate Bank.

However, from now on, the Group's CEO and Presidents of the Banks will receive monthly reports directly from managing executive officers and General Managers responsible for those customers, and will check directly the progress and the course of action on a customer-by-customer basis. The final decision will be made by myself on a hands-on basis.

Needless to say, the stock portfolio reduction is an important promise that we made three years ago, and remains one of Mizuho's most important management issues. I will continue to explain our progress as it really is, no matter how severe it may turn out to be.

We are now in the process of considering the criteria for our stockholdings and the size of the total stock portfolio as part of the internal discussions over the next medium-term management plan. I hope I will in future be able to explain the results of these discussions when the plan is announced.

Please move on to the next page. In this page, I would like to explain about Mizuho Securities, which returned to the black on a half-year basis for the first time since the first half of fiscal 2010. Although the market environment was not easy for securities companies in the first half, Mizuho Securities recorded positive net income, both in the first and second quarter. For the first half of fiscal 2012, it recorded net income of JPY8 billion, a year-on-year increase of JPY35 billion.

The table at the bottom left shows the ordinary income by business segment. You can see that the major business segments have generally recorded profits since the fourth quarter of the last fiscal year. And particularly, you can see that the domestic business, whose profitability has been the greatest management concern, has been recording profits stably. For your reference, the JPY19 billion loss in Other for the fourth quarter of fiscal 2011 includes provisions recorded by the subsidiary in London on its trading position.

This return to net profit has been achieved through drastic restructuring efforts since the previous fiscal year, including efforts to lower its breakeven point, as shown on the top right graph. It has cut SG&A expenses to the extent that it can maintain positive net income, even in a severe market environment.

Lastly, as shown on the bottom right, the merger between Mizuho Securities and Mizuho Investor Securities, is scheduled to be effective on January the 4th, 2013. The new Mizuho Securities will provide securities functions in a unified manner, as the Group's full-line securities company, and will aim to establish a stronger and leaner company through thorough implementation of low-cost operations.

Please move on to the next page. This slide demonstrates the one-bank synergy effects associated with the merger between Mizuho Bank and Mizuho Corporate Bank. As we have set a goal of JPY100 billion of synergy effects by fiscal 2015, we are trying to realize the synergy effects as early as possible. Even prior to the legal consolidation, through the establishment of the substantive one-bank structure this April.

In the first half, the revenue synergies amounted to JPY16 billion and the cost synergies to JPY5 billion. The sum, JPY21 billion, is over 70% progress against our target for this fiscal year of JPY30 billion. I would like to reiterate that the synergy effects of JPY100 billion towards fiscal 2015 and those of JPY30 billion for fiscal 2012 are both just targets. We aim to achieve more than these target figures, both in fiscal 2012 and towards fiscal 2015.

Please move on to the next page. This slide illustrates where and how the synergy effects and customer groups are being realized with the actual results. For example, please have a look at the circle on the upper left -- our business with corporate customers.

Approximately 500 listed companies or their company groups are currently Mizuho Bank customers. Under the one-bank structure, we have increased our solution business-related income by JPY6 billion by providing Mizuho Bank's corporate customers with Financial Services. Regarding overseas business with Mizuho Bank's Japanese corporate customers shown in the middle of the slide, we have successfully expanded business with more than 200 corporate customers, through cooperative sales promotion beyond entities, for approximately 1000 prioritized corporate customers.

I will not go into further details regarding this slide, but since the start of the substantive one-bank structure, I am increasingly becoming confident about our progress, as good business practices have been achieved through cross organizational business promotions between Mizuho Bank and Mizuho Corporate Bank.

Please move over to the next page. This slide shows the revised earnings plan for fiscal 2012. We estimate consolidated net income for fiscal 2012, the final year of Mizuho's transformation program, to be JPY500 billion, unchanged from the original plan.

Please move on to the next page. The column on the far left shows the consolidated net income for fiscal 2011, which was JPY484 billion. Starting from this figure, the increased factors are shown in the light blue columns. Starting from the far left column, we estimate an increase of JPY145 billion in net business profits on a three-banks basis. Regarding gross profits, we estimate an increase of JPY115 billion.

Contribution factors include, firstly, a strong performance in the trading segment, whose income increased by almost JPY100 billion on a year-on-year basis. Secondly, overseas business, including Asia. Thirdly, synergy effects, accompanying the start of the substantive one-bank structure. Fourthly, revenue increase through group collaboration between banking, trust, and securities functions.

Regarding G&A expenses, on the other hand, we achieved progress of 53% in the first half against the reduction target of JPY30 billion, and will continue our efforts to achieve the full-year reduction target. Next, we estimate an increase of approximately JPY100 billion, with a positive net income from Mizuho Securities, which recorded JPY95 billion of net loss in the last fiscal year.

In addition, as shown on the second light blue column from the far right, we estimate another positive factor of approximately JPY110 billion. Aggregate improved amount of breakdown items includes other net nonrecurring gains or losses, net extraordinary gains or losses, and income taxes and so on.

More specifically, this JPY110 billion includes the elimination of other net nonrecurring losses of JPY20 billion related to Dusan housing loan companies, which was recorded in the last fiscal year; positive impact of JPY10 billion related to employee retirement benefits; positive impact of JPY45 billion net related to income taxes; and the reduction of ADR-related costs of approximately JPY20 billion. Thus, the aggregate of the positive factors is approximately JPY355 billion.

The negative factors are shown in the pink columns. Firstly, we estimate a decrease of JPY190 billion due to the deterioration of net gains or losses related to stocks. Secondly, we estimate credit costs to increase by approximately JPY75 billion from the last fiscal year, when we recorded a net reversal of JPY25 billion. In other words, we estimate credit costs in the second half to be JPY50 billion.

In addition to these negative factors, the elimination of the positive impact of turning the three listed subsidiaries into wholly-owned ones is a negative amount of JPY77 billion. Thus, the aggregate of the negative factors is approximately JPY340 billion. The difference between the aggregated positive factors and the aggregated negative factors leads to an increase in consolidated net income of JPY15 billion. Overall, we estimate that it is possible to achieve consolidated net income of JPY500 billion for this fiscal year.

Now I would like to touch on Mizuho's capital management and dividend policy. Please go to page 30.

Regarding Basel III, the framework of the new regulations is close to being determined for its introduction scheduled during the next year. And in Japan, the FSA published a public notice this March. Also, the list of 28 global systemically important financial institutions, or GC fees, and the level of additional loss absorbency requirement, has been publicized based on the latest financial results in early November of this year. Mizuho has been identified as one of the GC fees.

I would like to reiterate here that the developments to date have been within the scope of our expectations, and that Mizuho's capital management and dividend policy remains consistent and unchanged. Please have a look at the center of the slide.

Regarding strengthening of stable capital base, we preliminarily estimate our common equity Tier 1 ratio on a Basel III basis to reach the mid-8% level as of the end of March 2013, including mandatory convertible preferred stocks in the calculation, by accumulating retained earnings steadily and managing risk-weighted assets efficiently, as we have consistently proceeded to do.

We haven't changed our understanding that we will be able sufficiently to meet the new capital regulations, including an additional surcharge required for GC fees, giving due regard to the timeline up to the year 2019, when the new regulations become fully effective, phase-in implementations, and other factors. Therefore, we do not have any plans at the moment to conduct another capital-raising through issuance of common stock for the purpose of meeting the new capital regulations.

As to cash dividends for fiscal 2012, we plan to continue making cash dividend payments of JPY6 per share of common stock, unchanged from fiscal 2011. The interim cash dividend payments of JPY3 per share of common stock are planned to be made, which is also unchanged from fiscal 2011.

The next slide illustrates the roadmap of Mizuho's common equity Tier 1 ratio, which we have been continuously demonstrating to you. I would like you to refer to this slide later, as there has been no significant change in our explanations and in the messages that we should deliver.

Please jump over to page 51. Here, as my last comments in this presentation, I would like to briefly explain about our next medium-term management plan.

The development of Mizuho's next medium-term management plan, a three-year plan from fiscal 2013 to fiscal 2015, is now in the final phase. And the plan is scheduled to be completed through 100 days intensive work towards late February 2013. At that time, we would like to introduce the strategic framework of our next medium-term management plan, followed by all the details of the plan, including business strategies and concrete initiatives by each business unit that will be announced in the coming May, when we will make an announcement of the financial results for fiscal 2012.

I am really looking forward to seeing you when the next IR event gives me the opportunity. This concludes my presentation on our financial results for the first half of fiscal 2012.