Mizuho Financial Group Inc (MFG) 2014 Q3 法說會逐字稿

Thank you very much. Ladies and gentlemen, thank you for joining the Mizuho Financial Group telephone conference for the financial results for the third quarter of fiscal 2013. My name is Koji Fujiwara, Chief Executive Officer and Chief IR Officer of Mizuho Financial Group.

Today, prior to my presentation, there is a message from our Group CEO, Mr. Sato, regarding the enhancement of the Group governances and related issues. The recorded message will last for about eight minutes. Please listen to Mr. Sato's message. Thank you.

My name is Yasuhiro Sato, President and Group CEO of Mizuho Financial Group. I'd like to take this opportunity to thank you for taking the time for today's [net] conference. We recorded good financial results for the third quarter of fiscal 2013.

The consolidated net income was JPY563.1 billion, representing 93% progress against the full year consolidated earnings estimates. Given such factors, we have made an upward revision of JPY0.5 for the fiscal 2013 year-end estimate for cash dividends for shareholders of common stock.

Further details of the financial results and revised cash dividends will be addressed later by Koji Fujiwara, our Chief Investor Relations Officer. Before that, I'd like to take a few minutes to explain about the enhancement of our Group governance system, initiatives being taken towards transforming the corporate culture and the background regarding the change of the President of Mizuho Bank.

Since assuming the role of Group CEO in June 2011, up to the merger between Mizuho Bank and Mizuho Corporate Bank in July of last year, I have implemented organizational and structural reforms aiming for an advanced and integrated Group management structure. During this period, I have also [enhanced] the following two issues.

The first is that a strong governance structure is necessary not as a defensive tool but as an offensive tool to capture of differentiation strategy against our competitors.

The second is that an organizational and structural framework should always be supported by a Group-wide underlying culture. [Amid an] environmental surroundings the administrative orders by the Japanese FSA, I have recognized that there still remained issues to be addressed in order to further enhance our Group governance, and that it is also necessary to break down [parameters] which still exist within the Group.

Taking the above mentioned in our consideration, we have decided to develop countermeasure to further strengthen our Group governance structure such as transformation into a Company with committees, which would be a first undertaking by Japanese [mega] bank. Instead of just repairing the issues on hand, it is a measure aimed at taking the current situation facing Mizuho and turning into the best opportunity for us to forcefully and speedily promote the strengthening of governance and the transformation of corporate culture, which I am keenly aware of the need to undertake.

Now, I would like to explain the major three points of the initiatives to be taken by referring to page 3 on the attached slide.

Firstly is the transformation into a Company with committees. We will separate the business execution function and supervisory function so that we can establish a structure that incorporated external viewpoints in the supervision of business execution and nomination of management.

On the other hand, we will further accelerate the swift decision making by adequately delegating the authority to the business execution line.

Second is the strengthening of the holding company functions. The holding company not only has the important function of controlling and [separate advising] the Group entities but, at the same time, is the control cover to carry out integrated strategic planning for the whole Group.

By clearly defining the respective laws, the responsibilities and the chain of command of the holding company and its subsidiaries, we aim to rather strengthen the holding companies' function, and the control cover of the Group management.

Third is the transformation of the corporate culture. Under the slogan of one Mizuho, we will strive to embody Mizuho's corporate identity and will undertake to encourage the change of mindset and proactive actions by each individual within the Group. As Group CEO, I take this as one of the most important issues to be addressed.

The three initiatives will enable an even stronger collaboration between the banking trust and securities functions by clearly defining the relationship between the holding company and its subsidiaries, as well as by further development of one Mizuho strategy. In other words while I, as Group CEO, will formulate and control Group strategy, the respective top executives of Mizuho Bank, Mizuho Trust & Banking, and Mizuho Securities will be responsible for executing the Group strategy.

Following the above philosophy, I will continue to stay on as the Group CEO of the holding company focused on my role as a top executive responsible for the management of the Group and appoint Nobuhide Hayashi as the President and CEO of Mizuho Bank.

We have just started the process of formulating the business plan for fiscal 2014, which start in April. As I wanted Mr. Hayashi to be fully involved as the new President and CEO of Mizuho Bank in that process, I have decided to announce his succession at this time.

Finally, let me remark three points that I would like to convey to you today. First of all, I will remain as Group CEO to address the Group-wide important issues. Second, I will not only continue, but further accelerate the various initiatives for achieving one Mizuho strategy.

Third, the whole Group will be encouraged to be fully involved in the structuring of the new governance and corporate culture. I myself will continue even more to be at the forefront of Mizuho's transformation and demonstrate strong leadership towards the realization of such change.

I sincerely hope that our efforts can have your strong support. Concluding with these words, I would like to end my explanation. Thank you.

This is [Fujiwara] again, and I would like to take over from Mr. Sato and explain about the financial results of Mizuho Financial Group for the third quarter of fiscal 2013. My explanation will last about 10 minutes, which will be followed by Q&A session.

Today, we have two key messages. First, our consolidated net income amounted to JPY563.1 billion, a significant increase of JPY171 billion y-o-y (sic - see press release, "JPY171.3 billion"). This represents the 93% progress against JPY600 billion for planned net income for through fiscal 2013.

Second, reflecting that financial result to date and other factors, we have revised the fiscal year-end dividend estimate by JPY0.5 million (sic - see press release, "JPY0.5") from the previous estimate.

Now please turn to page 2, which shows the summary of income statement.

This slide summarize for third quarter for fiscal 2013; please take a look at the table on the left. Our consolidated net business profit amounted to JPY594.2 billion, a 75% progress against the earnings plan.

There are three key points about the consolidated net business profits. First, the gross profits from customer group of two-bank basis continues a steady growth, both in domestic and overseas markets, with an increase over JPY73.8 billion y-o-y.

In the domestic market, non-interest income significantly increased y-o-y, partly due to strong sales of investment trusts. In overseas market, we increased our gross profit in all three regions; Americas, Europe and Asia, as the growth in Asia region maintained its strong trend since last fiscal year.

Second, net operating revenue of Mizuho Securities increased by JPY47.7 billion y-o-y, mainly due to an increase in brokerage commissions, and commissions related to sales of equity investment trusts, supported by the recovery of the stock market.

Third, G&A expenses on a two-bank basis, increased by JPY16.5 billion y-o-y, but the increase would have been JPY5.5 billion, excluding the foreign exchange translation impact. This is due to our continued cost reduction efforts, and we have kept the level of G&A expense well in control.

In addition to the good progress of net business profit, net credit costs amounted to a net reversal of JPY74.6 billion, reflecting the favorable economic conditions.

Profit and loss related to stocks also improved significantly, mainly due to the decrease of an impairment loss from certain stocks. As a result, the consolidated net income increased by JPY171.3 billion, y-o-y, to JPY563.1 billion.

Please turn to page 3, which shows the loan balance, and domestic loan and deposit rate margin. Please take a look at the chart on the left-hand side of the slide, which shows the average loan balance in domestic and overseas markets.

Average domestic loan balance, excluding loans to the Japanese Government, remained flat from the first half of fiscal 2013. However, the domestic loan end balance continued its upward trend, with an increase of JPY800 billion from September [end] of 2013.

Average overseas loan balance continued its steady growth, increasing by $12.6 billion from the second half of fiscal 2012, and [$4.6 billion] from the first half of fiscal 2013, particularly in Asia. Moreover, it is an increase of [JPY12.6 billion] from the second half of fiscal 2012.

Now, please take a look at the right-hand side of the slide, which shows the domestic loan and deposit rate margin.

The margin for the third quarter of fiscal 2013 was 1.18%, remaining flat, no contraction from the second quarter. [The both] return on loans and bills discounted, and the cost of deposits and debentures slightly decreased, but the decreasing trend now seems to be bottomed out. Loan spreads in the overseas market also remained flat, excluding some specific [factors].

Please turn to the next page, which shows non-interest income.

This slide describes the status of our non-interest income. As shown in the bar chart on the left-hand side of the slide, non-interest income from the customer groups of the two Banks increased by JPY51 billion, y-o-y, to JPY379.4 billion.

First, non-interest income from domestic business increased by JPY25 billion. In [retail] segment of Mizuho Bank, the sales of investment products continued its strong trend, mainly due to the recovery of the stock market, contributing to a significant increase of income related to our investment products.

Non-interest income from the solution-related business area shows a growth y-o-y. This is a significant result, because we recorded a very strong solution-related fee in the third quarter of last fiscal year. We also maintained our leading market share in the domestic syndicated loan market, staying at number one of the league table.

Second, non-interest income from overseas business increased by JPY26 billion. Non-related fee income, as well as other fee income, shows a significant growth, as a result of our continuous support of an overseas expansion of the Japanese corporate customers, and the strong relationship management with non-Japanese corporate customers, mainly [super tariff] customers.

Now, please turn to page 5, which shows our financial soundness.

First, the chart on the right shows the disclosed claims under the financial reconstruction law and our NPL ratio. The balance of disclosed claims under the financial reconstruction law as of December 2013 was about JPY1 trillion, remaining almost flat from September 2013. Net NPL ratio, as of December 2013, decreased to 1.29%.

Second, the top right chart shows unrealized gains and losses on other securities. Consolidated unrealized gains on other securities, as of December 2013, increased by JPY124.4 billion from September 2013, mainly due to the rise in stock prices.

Third, regarding Japanese Government bond portfolio. The balance as of the end of December 2013 was JPY25.7 trillion, which remained almost flat from September 2013.

We also maintained the average remaining period of the portfolio at 2.3 years, at which level, we can well respond to the potential risk of the increase in the long term interest rates.

Please turn to page 6, to the revision of dividend estimates for fiscal 2013.

As was announced today, reflecting the strong financial results to date, and other factors, we revised the fiscal or year-end dividend estimate upward by JPY0.5 from the previous estimate. This upward revision is mainly based on the following reasons.

First, as we reviewed the structure of our profit base to date, income from customer group, which we consider as the basis of sustainable profitability, was robust.

Second, we can be reasonably confident that we are on course towards achieving our estimated consolidated net profit of JPY600 billion.

Third, we have also become reasonably confident that we will be able to achieve the target set in our medium-term business plan regarding the common equity Tier 1 ratio of 8% or higher on a stable basis, well ahead of the schedule.

We aim to [expand] the framework of shareholders' return in May this year, when we will be announcing our fiscal 2013 full-year results, and the profit estimate for fiscal 2014.

This concludes my presentation. Thank you very much for your attention.