Mizuho Financial Group Inc (MFG) 2013 Q4 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.

Today, my presentation will be in three parts. First, I will explain the financial results of the last fiscal year. Then, I will explain the earnings plan for this fiscal year. Lastly, I will explain Mizuho's growth strategy, touching on recent changes in the economic situation.

Please turn to page three. Two key points of my presentation are shown on this page. The first point is that we recorded JPY560.5b of consolidated net income for fiscal 2012. This exceeded the earnings estimate of JPY500b by JPY60b, with an achievement ratio of 112%.

The second point is the start of our new Medium-Term Business Plan, the One Mizuho New Frontier plan. In this three-year plan we aim to enhance the business model of integrated management between banking, trust and securities functions and transform Mizuho's profit structure into a stable one, centering on both domestic and overseas customer units. It is also important for us to consider the impact of Abenomics.

Please turn to page five. This page shows the executive summary of our financial results for fiscal 2012. First, we recorded net business profits of JPY846.3b on a 3 Banks basis, with an increase of JPY118.2b year on year. I will explain the three main areas, the customer groups, the trading segment and G&A expenses.

Income from the Customer Groups increased, by JPY26.4b, on a year-on-year basis. Income from domestic business decreased by JPY10.7b while income from overseas business increased by JPY37.1b. Income from the Trading and others increased, by JPY52.2b year on year outperforming the results of fiscal 2011.

Regarding G&A expenses we achieved a reduction of JPY39.6b which exceeded the annual reduction target of JPY30b by JPY9.6b. Regarding the items below net business profits, credit costs amounted to JPY114.1b as we conservatively increased allowances for possible losses on loans in the second half. However, the credit cost ratio was just approximately 15 basis points, which was in line with the estimated level at the initial annual plan.

Regarding net gains and losses related to stocks, we recorded a loss of JPY131.2b on a 3 Banks basis, and JPY82.9b on a consolidated basis which was an increase in loss of JPY44.7b year on year.

Although we recorded a substantial amount of losses in the first half, mainly due to recording impairment losses for certain stocks, the losses for the full fiscal year were reduced reflecting the recovery of the stock market in the second half.

Lastly, Mizuho Securities, which had recorded a significant net loss in fiscal 2011, returned to the black and recorded net income of JPY25.9b. In total, we recorded JPY560.5b of consolidated net income for fiscal 2012. This exceeded the earnings estimate of JPY500b by JPY60b with an achievement ratio of 112%. On a year-on-year basis this was an increase of JPY75.9b or by approximately 15%.

Please turn to page seven. This slide shows net business profits by customer units. You can see that nearly all the customer units, except for financial institutions and public sector unit increased their respective net business profits.

Please move onto the next page. Mizuho Securities recorded net income of JPY25.9b, an improvement of JPY119.8b year on year. Their fourth quarter results were boosted mainly due to the improvement of the stock market. But it also has to be said that they incurred costs of JPY14.9b related to the merger with Mizuho Investor Securities. Without those costs, they could have recorded approximately JPY35b of net income.

The net income plan of Mizuho Securities for this fiscal year is approximately JPY25b. But this figure is a conservative estimate as they are not supposed to incur extra costs related to the merger this fiscal year, and they aim to realize JPY20b of merger synergies by fiscal 2015.

Please turn to the next page. This slide summarizes the review of Mizuho's Transformation Program, the medium-term management policy for the last three years. We achieved almost all the targets set by the program in terms of profitability and financial base.

However, regarding the reduction of the stock portfolio we achieved only approximately 80% against the target, even if we include in that amount stocks for which we have obtained our customer's prior consent to sell JPY294b. It has to be said that we fell very short of the stock portfolio reduction plan. We are committed to continuing our strenuous efforts to further reduce our stock portfolio.

Please turn to page 10. This slide shows the achievements of the One Bank synergy in fiscal 2012. We had initially estimated One Bank synergy effects of JPY100b to be realized by fiscal 2015 of which JPY30b was to be realized in fiscal 2012. However, we recorded synergy effects of JPY50b in fiscal 2012 which significantly exceeded the estimate.

I would like to emphasize that the cross-marketing between Mizuho Bank and Mizuho Corporate Bank since the commencement of the substantive One Bank structure, which led to significant synergy effects both in retail and wholesale areas.

Income from Japanese corporate customers of Mizuho Bank in overseas business has also contributed to significant synergy effects. Also, the progress rate in the Markets unit was 300% which was the result of accelerated unification of operations of fund positions in addition to more efficient treasury management within the Group.

Please move onto the next page. This slide shows the progress of organizational and structural reforms. Since April 2012 when we commenced the substantive One Bank structure we have merged two security subsidiaries, have turned the merged Mizuho Securities into a directly-owned subsidiary of the holding company, and now we are merging the two banking subsidiaries in July when we will complete Mizuho's unique corporate structure in which all the banking, trust and security subsidiaries are under the full control of the holding company.

Since this April we have launched a new Group governance structure which is shown on the right-hand side of the slide. In this structure, Group unit heads such as the CFO, CRO, etc. oversee the whole Group. Also we have established conferences on five business areas, which are retail, wholesale, international, asset management and markets, which discuss the Group-wide strategy on a cross-entity basis.

There are also four working groups which were established to strengthen the link between the entity-base management and Group-wide management. These are working group on risks involved in rise in long-term interest rates, working group on cross shareholdings, working group on foreign currency funding, and working group on enhancing group management system across banking, trust and securities functions.

In addition to these five cross-entity conferences and four working groups, there are four cross-entity project teams on the front office side, which are next generation retail project team, next generation industry development project team, next generation Asia business project team, and project team for invigoration of domestic financial assets. These project teams are aimed to develop new business fields including business incubation.

Please jump to page 14. Now I will explain the financial results for fiscal 2012 in detail. First, this slide shows the status of net interest income from the Customer Groups. Net interest income from domestic business continuously decreased which was partly offset by an increase in that from overseas business.

The average loan balance booked at overseas offices for fiscal 2012 increased by JPY1.5 trillion year on year along with the increase in loan spread. Regarding domestic loans, the balance remained flat while loan and deposit rate margin is yet to bottom out.

Please turn to the next page. This slide shows the loan balance. The average loan balance of fiscal 2012 increased, by JPY2.2 trillion from that of fiscal 2011. Overseas loans increased by JPY2.6 trillion, while domestic loans decreased by JPY0.4 trillion which led to a total increase of JPY2.2 trillion.

However, it has to be noted that the decrease of JPY0.4 trillion in domestic loans is mainly due to the decrease in loans to the Japanese government. If it were not for this impact, domestic loans would have been largely flat. On the other hand, overseas loans had a positive lift from the foreign exchange translation impact. All in all, the average loan balance increased by JPY1.5 trillion after removing one-off factors.

As shown on the graph on the lower right, deposit balances increased steadily during the same period. Especially I would like you to note a significant increase in the international deposit balances on which we placed a focus from the viewpoint of securing liquidity in US dollars.

Please turn to the next page. The left-hand side of the slide shows the domestic loan and deposit rate margin which continued on a downward trend in fiscal 2012. On the other hand as shown on the upper right, the loan spread in the overseas market was maintained on a higher level than in the domestic market.

Please turn to the next page. This slide shows the non-interest income from the Customer Groups. Non-interest income from the customer groups amounted to JPY509.7b, a year-on-year increase of JPY56.6b of which JPY38.8b came from domestic operations and JPY17.8b from overseas.

The increase in the domestic market mainly came from two areas, One Bank synergy and the collaboration between banking, trust and securities functions. The increase of non-interest income in the overseas operations had positive contributions from the collaboration between banking and securities functions and the Super 30 strategy.

Please turn to page 19. In cost reduction for fiscal 2012 we achieved a reduction of JPY39.6b on a 3 Banks basis which exceeded the annual target of JPY30b. We also achieved a reduction of JPY59.1b for the three-year period of Mizuho's transformation program from fiscal 2010 to fiscal 2012, which exceeded the target of JPY50b by JPY9.1b.

The expense ratio for fiscal 2012 was 49.8% against the target of a lower 50% level. This level was significantly lower than the expense ratio of 59.6% in fiscal 2009.

Please move onto the next page. Credit costs of the 3 Banks amounted to JPY114.1b for fiscal 2012 showing a significant year-on-year increase. This is because we conservatively increase allowances for possible losses on loans in the second half. However, the credit cost ratio was just approximately 15 basis points, which was almost the same level as the average credit cost ratio during the last 10 years.

Please turn to the next page. This page shows the earnings plan for fiscal 2013. We plan consolidated net business profits of JPY810b, a JPY102.1b decrease from fiscal 2012. This is mainly due to a conservative estimation in income from the Trading segments where we estimate a decrease in income of JPY120b.

We plan consolidated net income for fiscal 2013 to be JPY500b, a decrease from JPY560.5b for fiscal 2012. Although this level may sound conservative it has to be noted that we assume our fundamental profit base to be the JPY410b level after deducting one-time positive impacts related to tax treatment of approximately JPY150b from consolidated net income of JPY560.5b for fiscal 2012.

Please turn to the next page. This page describes the breakdown of the planned net business profits by business unit. You can see that we plan net business profits from Trading & Others to be JPY87b, a year-on-year decrease of JPY190b.

Please go to page 24. Now, I would like to explain Mizuho's balance sheet. There are four key points; sound credit portfolio, risk management of securities portfolio, stable funding structure in both Japanese yen and foreign currencies, and capital base.

Please turn to the next page. This slide describes Mizuho's credit portfolio. Non-performing loan ratio for fiscal 2012 was 1.71% on a gross basis and 0.86% on a net basis after we deduct reserves for possible losses on loans. We do not estimate a large increase in the amount of non-performing loans in fiscal 2013 either in our domestic or overseas portfolio.

Regarding our exposure to Europe, our exposure to GIIPS sovereign bond is nil. We also maintain a conservative risk control, particularly on our exposure to Europe and China.

Please turn to the next page. This slide describes our securities portfolio. The balance of our JGB portfolio as of the end of March increased by JPY2.9 trillion from that of December 2012, but the average remaining period was shortened by 0.2 years.

On a year-on-year basis the balance of our JGB portfolio decreased, while the average remaining period got longer. We aim to maintain the average remaining period of our JGB portfolio at around 2.5 to 3 years while conservatively controlling the total balance.

Regarding Japanese stock portfolio, the balance was about 31% of our Tier 1 capital. Regarding the reduction target in Mizuho's transformation program, we have achieved only approximately JPY786b or approximately 80% against the planned reduction target of JPY1 trillion, even if we include in that amount stocks for which we have obtained prior consent from customers to sell.

We will continue to make strenuous efforts to further reduce our stock portfolio. In our Medium-Term Business Plan we plan to reduce the ratio of acquisition cost against Tier 1 capital from 31% to 25% level against Tier 1 capital on a phased-in Basel III basis.

Please turn to the next page. This slide describes our liquidity situation. As is shown on the charts on the right-hand side, our loan-to-deposit ratio in our domestic operations was 64.8%. On the other hand, in our international operations the loan-to-deposit ratio has been rising from approximately 79% as of March 2010 to 81% as of March 2011, 83% as of March 2012 and 87% as of March 2013.

However, there are no significant concerns about our dollar funding situation, as we can access abundant funding sources such as issuance of foreign-currency-denominated bonds in addition to customer deposits that are on a steady increase as is shown on the top left graph.

Please go to page 30. This page demonstrates major financial targets set in the new Medium-Term Business Plan. Shown on the right are major numerical targets for fiscal 2015. As you can see on the top right, we plan to achieve consolidated net income of the JPY550b level.

Please turn to the next page. This slide illustrates a breakdown of the factors assumed in achieving consolidated net income of JPY550b for fiscal 2015. First, as you can see on the far left we recorded consolidated net income of JPY560.5b for the last fiscal year, but this includes approximately JPY150b of one-time positive impacts related to tax treatments. We assume the JPY410b level to be a kind of fundamental profit base.

Secondly, as shown in the middle, we made certain adjustments based on several factors such as improvement in net gains and losses related to stocks, increase in expenses and the normalization of income from the trading segments.

Thirdly, as shown in the red box on the right, we plan to increase income from customer groups by JPY200b including the One Mizuho synergy effect to achieve the JPY550b level of consolidated net income. The breakdown of the JPY200b is shown in the table below.

Please turn to page 34. This slide describes how we will pursue qualitative transformation of profit structure over the next three years. We plan to increase the proportion of net business profits from customer groups against total net business profits from 69% to 86% as shown on the left. And to increase the proportion of net business profits from overseas customers against total net business profits from 24% to 33% as you can see on the right.

Please turn to the next page. This slide shows the One Mizuho synergy. Following the transformation into an integrated Group management structure between banking, trust and securities functions this April, we have replaced One Bank synergy effects with One Mizuho synergy effects of JPY140b in fiscal 2015.

As we already achieved One Bank synergy effects of JPY50b in fiscal 2012, we now aim to achieve synergy effects of JPY90b in the three years from fiscal 2013 to fiscal 2015. We aim to achieve this JPY90b through collaborations between banking, trust and securities functions.

We have established several Group-wide strategy conferences to discuss the progress of various initiatives to One Mizuho synergy. We hold Group-wide profit meetings on a monthly basis, as well as quarterly follow-up meetings to discuss more structural issues.

Please turn to the next page. This slide describes the potential areas where Mizuho aims to realize synergy effects. Leveraging Mizuho's robust customer base, we aim to pursue further Group synergies through integrated Group management.

Please turn to page 38. Now, I would like to explain how our Medium-Term Business Plan is impacted by the current market environment. The left-hand side of the slide shows the numerical targets of our Medium-Term Business Plan. Then the middle part of the slide shows the impact of Abenomics, such as a rise in stock prices, yen depreciation, rise in long-term interest rates, drop in short-term interest rates and growth strategy. The change in these factors will lead to the changes in management environment that are shown on the middle right.

To respond to these changes, the key points of our balance sheet management are firstly to thoroughly increase our domestic loans both to corporate and individual customers. Secondly, we will continue to increase our overseas loans. Thirdly, regarding our market portfolio, we have yet to foresee the overall impact of the movement of long-term and short-term interest rates on our balance sheet, but we are committed to conducting thorough risk control putting major emphasize on this aspect.

We did not incorporate the impact of Abenomics into our Medium-Term Business Plan. Therefore, if we were to incorporate the Abenomics effect into our Medium-Term Business Plan, given the above factors, we would find that overall Abenomics has an effect of accelerating the measures of the Medium-Term Business Plan.

Firstly, we may see a stronger increase in loan balances. In terms of loan demand, we have seen loan demand gradually bottoming out in such areas as new energy and housing loans, although we have yet to see an overall improvement of corporate sentiment and strengthening of capital expenditure.

Secondly, livelier corporate activities will enhance our non-interest income through more opportunities for solution related business. Thirdly, the boost to the whole economy will lead to more transaction related income through more trade flow and cash flow.

Fourthly, credit costs are expected to be reduced as a macro trend, along with the improvements of corporate performance. The increase in stock prices and property prices may also stimulate property investment and housing loan demand.

Lastly, the impact of Japan's participation in TPP may add to the positive effect of Abenomics subject to an appropriate control of the market environment. A government report estimates a total JPY3.2 trillion of positive effect on Japan's GDP of which JPY3 trillion from consumption, JPY0.5 trillion from investment, JPY2.6 trillion from export and a negative JPY2.9 trillion from imports. Together with the impact of the TPP, Abenomics is expected to have a positive impact on the business of financial institutions.

Please turn to the next page. Regarding our balance sheet strategy I would like to touch on two working groups that we have established. First, regarding the securities portfolio we have established a working group on risks involved in a rise in long-term interest rates. The working group has set six main scenarios and 40 predictive indices, and we discuss the prospect of interest rate movements based on these indices at least on a monthly basis, updating our contingency plan accordingly.

Second, we will continue efforts to reduce the stock portfolio as one of the most important issues with a working group on cross shareholding regularly monitoring the progress.

Please turn to page 41. Regarding Basel III, our common equity Tier 1 capital ratio on a phase-in basis as of March 2013 was 8.16%. If we include mandatory convertible preferred stocks in the calculation we have achieved 8.74% which is above our preliminary estimate as of the end of March 2013 of the mid 8% level. On a fully-effective basis we have achieved 8.29% including mandatory convertible preferred stocks.

However, we will maintain a conservative stance on our capital base as the CET 1 one base as of the end of March 2013 includes net unrealized gains on our stock portfolio. We aim to secure a mid 8% level through accumulating retained earnings in fiscal 2013.

Please turn to page 44. I would like to explain Mizuho's growth strategy as the last part of my presentation. This slide shows Mizuho's customer base on the top, which shows that Mizuho's customer base, is top level in the Japanese domestic market in all aspects.

Our ultimate target is to establish a unique financial group through realizing the strength of One Mizuho, fully utilizing the collaboration between banking, trust and securities functions.

Please turn to page 46. This page shows major key performance indicators or KPIs which were newly introduced at the start of this fiscal year. Along with these KPIs, we have established four next generation project teams to develop next generation growth strategies on a Group-wide cross-entity basis which will broaden the scope of our KPIs.

Please turn to the next page. Invigoration of domestic individual financial assets is one of our most important targets as we promote collaboration between banking, trust and securities. We aim to gain 600,000 accounts regarding NISA, Japanese individual savings accounts, through collaborations between Mizuho Bank and Mizuho Trust and Banking.

Please turn to page 49. This slide describes Mizuho's strength's in new growth business. For example, of 10 major deals regarding mega-solar power plants Mizuho arranged eight deals, generating a total JPY100b equivalent of lending opportunities.

It is estimated that fostering new growth industries would lead to the growth of our loan portfolio JPY200b in the renewable energy area, JPY550b in aging generation-related industries, JPY300b in agriculture and JPY400b in social infrastructure. In total it is estimated that new growth business has a potential of increasing our loan balance by JPY1.5 trillion by fiscal 2020.

Please turn to page 50. The right-hand side of this slide refers to packaged infrastructure export, which is being endorsed by Prime Minister Abe's Cabinet. A medical related deal in Russia, a nuclear plant deal in Turkey has been already reported but we will try to get business opportunities not only in the overseas market but also in the domestic market including concessions and PPP.

Please turn to the next page. The bottom left of the slide briefly describes reverse mortgage loans of which the potential is highly regarded. By offering such services through collaboration between banking, trust and securities it would be possible to offer our customers services that regional banks and other mega-banks cannot provide.

As is shown on the top right of the slide, our consortium to develop bond markets in Asia, which consists of nine large-scale banks in the region, is in the process of developing a Memorandum of Understanding.

This is the end of my presentation.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.