Mizuho Financial Group Inc (MFG) 2014 Q2 法說會逐字稿

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

There are two major points I would like to emphasize to you today regarding the financial results for the first half of fiscal 2013.

First of all, we recorded consolidated net income of JPY429.7 billion in the first half, which was the highest since the establishment of Mizuho. Following this, we revised upward our consolidated earnings estimates for this fiscal year from consolidated net income of JPY500 billion to JPY600 billion.

Secondly, the merger between Mizuho Bank and Mizuho Corporate Bank was completed in July, and the one Mizuho structure was established.

Also integrated management between banking, trust and securities functions, which is one of Mizuho's advantages, was fully introduced. As a result, the positive impact of integrated management between banking, trust and securities functions can be seen in the financial results for the first half.

Please jump to page 5. Consolidated net income for the first half increased by JPY245.4 billion year on year, to JPY429.7 billion, representing 85% progress against the fiscal 2013 plan of JPY500 billion.

On a 2 Banks basis, net business profits from customer groups increased by JPY62.4 billion year on year to JPY315.5 billion.

This was mainly due to an increase in income from domestic business, particularly non-interest income such as sales of investment trusts and individual annuities, together with increases in both net interest income and non-interest income from overseas business, particularly in Asia.

G&A expenses increased by JPY7 billion, but decreased by JPY1.4 billion year on year, excluding the foreign exchange translation impact due to our successful realization of cost reduction efforts such as the implementation of cost structure reforms.

One Mizuho synergy effects showed steady progress recording synergy effects of JPY26 billion in the first half with 80% progress against the fiscal 2013 plan of JPY33 billion.

In addition, Mizuho Securities, which returned to the black for the first time in three years in fiscal 2012, recorded net income of JPY38 billion, a year on year increase of JPY28.7 billion.

As a result of a steady increase in net income, the common equity Tier 1 capital ratio, or Set 1 ratio increased to 9.16% on a fully effective basis, including mandatory convertible preferred stock.

Please jump to page 8. This page illustrates the progress of One Mizuho synergy. We plan to realize synergy effects of JPY90 billion in fiscal 2015, compared with fiscal 2012.

In fiscal 2013, we aim to realize synergy effects of JPY33 billion and we have already realized JPY26 billion in the first half, which is a great start for the first half of our medium-term business plan.

If you examine the breakdown, the progress of revenue synergies is better than that of cost synergies. Cost synergies realized in the first half is JPY6 billion, which seems to lag behind the fiscal 2013 plan of JPY15 billion. However, I believe that we will be able to achieve the fiscal 2013 plan by reducing costs related to IT systems in the second half.

I understand that the positive impact of integrated management between banking, trust and securities functions, which is a main pillar of Mizuho's differentiation strategy, is reflected in the steady progress of synergy effects.

Next page shows examples of synergy effects across the banking, trust and securities functions in each of our customer segments.

Please turn to page 10. This page shows the progress of the medium-term business plan which we commenced this fiscal year.

Progress in the first half was very favorable as income from customer groups steadily increased, mainly due to the realization of synergy effects. The level of return on equity and return on risk-weighted assets were both higher than our plan, and Set 1 ratio improved to 9.16%.

Regarding figures related to profitability, efficiency and soundness, we continue to make efforts to achieve the plan and targets.

Please move on to page 11. This page demonstrates that transformation of the quality of the profit structure, which was one of the targets set in the medium-term business plan is making steady progress.

In the medium-term business plan, as an important target, we aim to become less dependent on income from the trading segment and shift to a stable and sustainable profit structure, mainly based on customer groups, overseas and non-interest income.

In the first half, the proportion of income from customer groups on your left, and the proportion of non-interest income on the right both exceeded, or almost achieved the target.

The progress of key performance indicators or KPIs is shown on page 12. Almost all of our KPIs showed favorable progress, and some KPIs have already exceeded the plan.

Please go to page 15. This page describes the status of net interest income. As shown on the column chart on your left, net interest income from customer groups for the first half increased by approximately JPY15 billion year on year to JPY381.5 billion.

You can see major factors for the changes on the right hand side. Overseas net interest income increased by JPY11 billion as the impact of an increase in loan balance, particularly in Asia, more than offset that of a slight drop in loan spread.

Domestic net interest income increased by approximately JPY4 billion year on year, as the impact of an increase in loan balance and others more than offset that of a decrease of return on loans, and bills discounted.

Recently, there is a sign of a bottoming out in loan demand as the average loan balance turned to an increase centered on loans to large corporations.

We continue to try to interpret business and economic trends appropriately, and to make efforts to create further loan demand as a front runner.

Please move on to page 18. Non-interest income from customer groups is a major driver of profit growth in our medium-term business plan. In the first half, non-interest income from customer groups increased significantly by JPY60.2 billion year on year to JPY273.7 billion, and worked as a driver of income from customer groups, both in Japan and overseas.

In Japan, along with income associated with sales of investment trusts and individual annuities to individual customers, solution business-related income, such as syndicated loans for which Mizuho has the leading market share of 38%, increased strongly.

As for overseas business, non-interest income increased significantly, centered on fees related to loan business, mainly as a result of a deepening business relationship with non-Japanese corporate customers.

Please go to the next page. This page describes net and unrealized gains and losses on securities. First of all, please take a look at the left-hand side.

Net gains related to bonds decreased by approximately JPY140 billion, compared with the very strong results for the first half of the previous fiscal year. However, this is in line with our original estimation. In the first half, in light of increased interest rate volatility, we conservatively managed trading business from the viewpoint of risk management.

On the other hand, net gains related to stocks on a 2 Banks basis amounted to gains of JPY27.2 billion, exceeding an original estimate of zero.

Please have a look at the graph of unrealized gains and losses on your right. In the first half, unrealized gains of Japanese bonds decreased amid an unstable interest rate environment, both in Japan and overseas. Particularly, unrealized gains on foreign bonds turned to unrealized losses.

Contrary to this, unrealized gains related to stocks increased steadily, and total unrealized gains on other securities increased to an approximately JPY1 trillion level.

We do not have serious concerns regarding unrealized losses related to foreign bonds, considering the recent stable interest rate condition, our solid capital level, and the total level of unrealized gains on other securities. However, we will continue our close watch of market conditions, appropriate risk management, and a flexible response.

Please jump over to page 22. As shown on the left, Mizuho Securities recorded net income of JPY38 billion in the first half, which is a significant year-on-year increase of JPY28.7 billion.

This was mainly because net operating revenues increased by JPY37 billion year on year as a result of the continued favorable performance of commissions and net gain on trading, due to favorable domestic stock market conditions since the end of the last fiscal year.

Also, synergy effects realized through the merger between Mizuho Investor Securities and Mizuho Securities were steady achieved. The effects amounted to approximately JPY12 billion by the end of the first half against the target for this fiscal year of approximately JPY10 billion.

Please move on to the next page. I would like to explain the earnings plan for fiscal 2013 on a consolidated basis.

First of all, net business profits is planned to decrease by JPY20 billion from the original plan to JPY790 billion, reflecting favorable first-half results of income from customer groups and fairly conservative estimates for trading and others.

Secondly, credit costs for the first half were a significantly big reversal. However, credit costs for the second half are planned to be a cost of JPY50 billion, which was equivalent to a credit cost ratio of approximately 15 basis points. And those for the full fiscal year are planned to be a reversal of JPY25 billion.

Reflecting these factors, consolidated net income for fiscal 2013 is estimated to be JPY600 billion, revised upward by JPY100 billion compared with the original earnings plan.

As shown in the middle of the slide, the difference in net income between consolidated and 2 Banks is planned to increase by JPY25 billion compared with the original earnings plan to JPY75 billion, reflecting Mizuho Securities' favorable results in the first half.

As for annual cash dividends of common stock for this fiscal year, a dividend of JPY6 per share, including an interim cash dividend of JPY3 per share, is planned to be made.

Please jump over to page 26. This slide explains four major points regarding Mizuho's balance sheet, credit portfolio, securities portfolio, funding structure and capital adequacy ratio. Today I would like to focus on the securities portfolio and capital management.

Please turn to page 28. As shown on the left, the JGB balance decreased by approximately JPY5 trillion from March end 2013, and the average remaining period was shortened to 2.2 years.

We have significantly strengthened our initiatives to respond to interest rate risks, such as the establishment of a working group on risks involved in rise in interest rates.

Specifically, we regarded the first half of this fiscal year as the phase to focus on risk management, and we have actually reduced the risk amount.

We will continue to pay keen attention to the global macroeconomic environment and interest rate movements, and to manage our position flexibly.

Please have a look at the right-hand side. I would like to touch upon our stock portfolio.

The reduced amount of our stock portfolio in the first half was JPY30.9 billion, which is an unsatisfactory level for us. However, the ratio of acquisition cost against Tier 1 capital improved to 29%, a level below 30%.

Our target, set in the medium-term business plan, is a reduction to 25% against Tier 1 capital, and it is not an easy task to achieve this. However, we will make further efforts to achieve this target with the recognition that stock portfolio reduction continues to be one of the most important managerial challenges.

Please go to the next page. Regarding capital management, we have not changed our policy. That is to say we continue to pursue an optimal balance between strengthening of stable capital base and steady returns to shareholders.

As for strengthening of stable capital base, we've set a target of common equity Tier 1 capital ratio as of March 2016 of 8% or higher in the medium-term business plan. Furthermore, we plan to complete our preparations for Basel 3 requirements ahead of time by steadily accumulating retained earnings.

As for steady returns to shareholders, as I mentioned earlier, annual cash dividends of common stock for this fiscal year are planned to be JPY6 per share, including an interim cash dividend of JPY3 per share.

We are almost at a stage to be able to start discussions regarding the possibilities of an increase in returns to shareholders in light of the following three points.

The first point is to secure stably common equity Tier 1 capital ratio of 8% or higher. The second point is the steady progress of transformation of profit structure into a stable and sustainable one. That is to say to sustainably record fundamental profitability of JPY550 billion, which is consolidated net income centered on income from customer groups.

The third point is changes in the regulatory framework. We will continue to carefully watch such changes regarding capital adequacy.

Please turn to page 33. Now, I am going to explain Mizuho's domestic and overseas strategies. I would like to emphasize that we will continue to be a financial services group that is firmly rooted in Japan.

As for domestic business, we will strengthen our capabilities to provide services, consulting functions and capabilities to respond to customer needs through integrated management between banking, trust and securities functions, which is a source of differentiation.

In addition, we will allocate managerial resources to reinforce the medium and long-term business foundation. Specifically, we will further focus on fostering new growth industries and companies, together with developing new business and deepening banking relationships with existing customers.

Please move on to page 34. This page shows how we are proactively involved in the Japanese Government's initiatives in the Japan revitalization strategy; how we contribute to the revitalization of the Japanese economy; and how we create new financial business opportunities by leveraging Mizuho's competitive advantages to the maximum extent.

I hope this page can help you understand Mizuho's future vision that is progressing through mutual connections between Mizuho's basic strategies and business-base expansion and growth strategies of domestic macro economies.

Please go to the next page. This page illustrates the status of non-interest income from domestic business with customers. As shown on the left, the proportion of non-interest income against gross profits in customer groups increased by approximately 10% over the past three years to approximately 40%.

Also, as shown on the top right, domestic non-interest income from customer groups increased by approximately 20% during the same period.

We will try to increase loans as a principal business of financial institutions. However, under the present circumstances of stagnant loan demand, we also try steadily to increase non-interest income by leveraging our banking, trust and securities functions.

Please go to the next page. This page shows examples of collaborations between banking, trust and securities functions, which have been established as the base of our business promotion in personal banking and retail banking business areas.

As shown on the top left, all of the collaborations between banking, trust and securities functions, including sales of investment products, have progressed solidly. I think that you can see that our new initiatives are gradually producing actual results.

Shown on the lower part of this slide are our initiatives toward number one financial service provider in the personal banking business area.

On top of various initiatives for the so-called first among Japanese banks and first among Japanese megabanks, in October, we established an ATM network of approximately 4,900 machines, to which the same fee structure as Mizuho Bank is applied, through the ATM alliance with AEON Bank.

Now, we have the predominant number one ATM network among the Japanese megabanks and have enhanced our customers' convenience accordingly.

Moreover, Mizuho Bank was awarded first prize in the retail banking survey conducted by Nikkei Veritas magazine. I hope you can see our business stance such as the finely tuned initiatives of number one financial services provider project team, as well as our products line-up and network.

This project team will continue to embody various ideas and make efforts to enhance the convenience of individual customers.

Regarding business with corporate customers, we achieved notable results by leveraging various competitive advantages, including a solid customer base of large corporate customers that cover 70% of listed companies in Japan, of which Mizuho has main bank status of 40% of such customers.

As shown on the graph on the upper left, net gross profits of domestic corporate customers, which were the aggregate figures of corporate banking unit, large corporations, corporate banking unit and financial institutions and public sector business unit, increased by approximately 20% year on year.

The other five graphs also show that collaborations between banking, trust and securities functions and cooperation with the international banking unit and the personal banking unit continue to progress gradually.

Please jump to page 39. This page introduces case examples of Mizuho's initiatives on the nursing care industry, which is one of the growth industries.

Shown on the left is the establishment of an incubation fund that promotes commercialization of medical devices in the development stage, through collaborations between Mizuho's industry research division and Innovation Network Corporation of Japan.

Shown on the right are four examples of deals for small and medium-sized corporations. Please refer to these at a later time.

Please move to page 40. This page introduces case examples of four major participations in funds, such as Government-private investment, examples of our initiatives for enhancing Mizuho's risk-taking capabilities and for creating loan demand.

Mizuho has shown unparalleled leadership in each business area introduced in this page. For example, for agriculture read Mizuho and our alliances with regional banks are expanding and we are consulted about various agriculture-related issues.

Also, as shown on the top left, we are promoting a project aiming to export Japanese agricultural products to Gulf countries by establishing a joint venture company, together with Gulf Investment Corporation, which is a Middle Eastern sovereign wealth fund.

We continue to focus on creating financial service businesses that contributes to fostering new industries in Japan and creating loan demand through these initiatives.

Please go to the next page. On this page, I would like to explain our overseas strategies. The principle of Mizuho's overseas business is to be a global financial institution, based on Japan and Asia.

In other words, we will not only support overseas expansion of Japanese corporate customers, as a Japanese bank, but also try to expand business with Super 30 customers or Super 50 customers, which are multinational non-Japanese blue chip corporate customers, with an aim to obtain the position of the Asian bank of first choice.

To the further enhancement of such corporate strategies, Mizuho is now reinforcing its capabilities to respond to customer needs, by enhancing its business model of collaborations between banking, trust and securities functions in Asia.

Please move on to the next page. This page explains the recent results of overseas business. Please take a look at the left-hand side. The overseas loan balance, shown as a red line, increased by approximately 60% over the past three years. Gross profits shown as columns, almost doubled in the same period.

Meanwhile, as shown on the upper right, overseas non-interest income almost tripled over the past three years. You can see that the recent increase in overseas gross profits was driven by not only an accumulation of assets, but also an increase in non-interest income, including arrangement fees of syndicated loans.

This point indicates that our strategies to enhance return on risk-weighted assets, which is necessary to achieve targets of both return on equity and common equity Tier 1 capital ratio simultaneously, is clearly being realized.

Please go to the next page. This page shows that Mizuho's overseas business is backed by stable foreign currency funding and appropriate risk management.

Foreign currency-denominated customer deposits, as shown on the left, increased steadily. We have no concern over foreign currency funding at this moment.

As shown in the pie chart on the upper right, overseas loans remained well diversified by region. Loan balances of major countries in Asia and Oceania are shown on page 44.

Please jump to page 45. This page shows our Super 30 strategy, which is Mizuho's unique strategy for relationship management with non-Japanese corporate customers; and the Super 50 strategy, which is a further developed model of the Super 30 strategy.

Please have a look at the left-hand side. Income from Super 30 customers, which are non-Japanese blue chip corporate customers, increased by approximately 70% in the past two years. Return on risk-weighted assets improved by approximately 20% for the same period.

Regarding the expansion of relationship management business with non-Japanese corporate customers, we have commenced our step-up strategy of shifting from a Super 30 strategy consisting of 120 target companies, to a Super 50 strategy consisting of 200 target companies, with the aim of expanding business opportunities with blue chip corporate customers, while maintaining the quality of our assets and customers.

Major results are shown on the right-hand side. I will not go into details here. But let me state that we have deepened our business relationship with customers by successfully realizing collaborations between banking and securities functions, such as obtaining DCM business as well as loan business.

As for the business cooperation with the Alibaba Group, as a core bank for loan business, we aim to establish a broader relationship, including financing, such as DCM and ECM, together with business expansion in Asia.

Please jump to page 47. As a last topic, I would like to explain our initiatives to further strengthen Group management. Since 2011, we have implemented organizational and structural reforms, aiming for advanced and integrated Group management.

The basic framework of integrated management between banking, trust and securities functions was completed through the merger between Mizuho Bank and Mizuho Corporate Bank, on July 1, 2013, and we commenced a new Group management structure thereafter.

During this period, however, I have said that such organizational and structural reforms are a necessary condition but not a sufficient condition for Mizuho's transformation. In other words, just the establishment of an organizational and structural framework is not sufficient. So we have to cultivate a Group underlying culture by breaking down sectionalism.

Amid the environment surrounding the business improvement order by the Japanese FSA, the importance of the breakdown of sectionalism and further enhancement of Group governance has become clear by chance.

Please move to page 48. I would like to briefly touch upon our initiatives to further enhance our governance, based on the business improvement plan by Mizuho Bank. Particularly, regarding the enhancement of governance, we will put greater emphasis on how we can secure total management in a unified and a prompt manner, while maintaining management transparency.

We now strongly recognize again that the trust and confidence of society are indispensable for the business foundation of the financial institutions. Also, we are strongly committed to establishing strong and tough management of our Group organization by sharing the mission of the enhancement of governance with the Group across the board.

Please go to page 49. In my closing remarks, I would like to touch upon One Mizuho, which is our brand slogan for the medium-term business plan. Since my appointment as Group CEO in July 2011, after the IT computer systems failure, as a front runner I devoted all my efforts to restoring Mizuho's brand by implementing measures, including the establishment of new corporate governance, and the revolution of corporate culture.

Under such circumstances, I strongly believe that One Mizuho, which is our clear vision, helps all employees move forward in the same direction and has significant meaning for the process of materializing our philosophy and vision.

Our brand slogan, One Mizuho, means One Mizuho which is continuously evolving. All employees and management executives will work together to establish the status of one of the major megabank groups in Japan and a financial group that gains the trust of everyone, and to sustain development into the future, through further improvement of ourselves and through our continuous efforts and meeting challenges.

I am extremely confident that Mizuho has enough potential to realize this. I am committed to leading and becoming a driving force in realizing Mizuho's transformation in order to overcome our difficulties and to show Mizuho's further development to shareholders by fully leveraging this potential and combining sincerity and ambition.

I will continue to deliver the progress of transformation and actual outcomes of the transformation into a stronger Mizuho, to all of you.

I hope you understand our initiatives and ask you for continued support for Mizuho. This is the end of my presentation. Thank you for listening.

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.