Mizuho Financial Group Inc (MFG) 2019 Q2 法說會逐字稿

Hello, everyone. Thank you for your kind introduction. I am Sakai, Mizuho Financial Group. I'm very happy to see so many of you here today. Thank you for coming despite your busy schedules. Let me also take this opportunity to thank you for all the support you've been extending to our group. My deepest appreciation to all of you.

Today, during the first half of my presentation, I'll explain the financial results for the first half of FY 2018 and the progress of the measures we have been executing. During the latter half, I will discuss some of the undertakings I have been implementing since assuming the post of the CEO in April, challenges we face in enhancing Mizuho's corporate value and the direction we are to pursue in the future.

Let me first explain the financial results. Please turn to Page 6 of the slides. This gives you the overview of the interim financial results for FY 2018. Simply put, during the first half, increase in noninterest income in Japan and abroad and interest income abroad and other improvements in customer groups drove significant growth in net business profits year-on-year. Reversal of credit-related costs and net gains related to stocks contributed to the growth of net income attributable to FG. All told, I believe we made a good progress towards achieving our full year budget.

I am particularly pleased that efforts to enhance core earnings power are starting to produce results in customer groups. I said back in May during an earnings briefing meeting that FY 2018 will be a year for us to actively reverse the trend, and I'm very pleased that in many places, things are turning for the better.

Let me now explain each item.

Consolidated next -- net business profits, including net gains and losses related to ETFs and others, grew by JPY 67.9 billion to JPY 330.9 billion. It was driven by, as you can see on the right, improvements in gross profits at customer groups due to growth in noninterest income in Japan and abroad and rising net interest income abroad and by our efforts to contain expenditures. I will discuss in more detail later on.

For credit-related costs, there was a reversal of JPY 29.7 billion. The reversal, however, decreased year-on-year because the reversal last fiscal year was quite large.

Net gains related to stocks was JPY 110 billion, up by JPY 23.5 billion year-on-year, thanks to steady disposal of cross-shareholdings.

As a result of all these, net income attributable to FG increased year-on-year by JPY 42.7 billion to JPY 359.3 billion. The progress against our plan of JPY 570 billion for the fiscal year is 63%, which I believe is a very good progress for the first half.

CET1 ratio is at 12.62%. When net unrealized gains on other securities are excluded, it is 10.41%, which is above our target of 10% in the midterm business plan.

Let me give you the breakdown of net business profits by in-house company.

Let me start with the Retail & Business Banking Company. Despite challenging environment, it has offset the decline in net interest income by the increase in noninterest income, which was mainly through solutions business for corporate customers. Net business profits improved year-on-year. Due to a sluggish investment products profit, however, it was one step short of achieving profit.

At our Corporate & Institutional Company, net interest income reversed its trend, thanks to initiatives like asset rebalancing or shift to profitable assets and strengthening of products-related lending. Noninterest income also saw a steady increase by winning large deals, mainly in solutions business.

Global corporate company saw growth in its loans, mainly in India and in Asia, resulting in higher net interest income. Strong noninterest income was driven by lending-related upfront fee and by steady growth in transaction banking profits in Asia.

Let me discuss Global Markets Company in a little more detail.

Turning to sales and trading. Fixed income and interest rate derivatives struggled amidst lack of volatility in the market. FX was almost unchanged year-on-year, thanks to our success in meeting the needs to hedge M&A transactions and the needs to hedge against emerging currencies.

For banking, bond-related profit dropped rather significantly from last fiscal year due to higher rates in and outside Japan which, however, was offset by increasing ETF-related profits by flexibly responding to equity market developments.

Asset management company, despite facing outflow from monthly dividend-type investment trusts, closed the first half almost as planned by increasing the balance of asset-building type products.

In comparison to the first half of fiscal 2015, which was before the introduction of negative interest rates, customer groups saw gross profit grow by JPY 28 billion.

Combined domestic business of CIC, or Corporate & Institutional Company; and RBC, or Retail & Business Banking Company, is almost flat. That means, in this first half, we finally exceeded the level we used to enjoy before the negative interest rate introduction. This demonstrates the recovery of our core earnings power.

Now where are we in terms of specific initiatives at customer-facing companies?

Let me start with the Retail & Business banking and Asset Management Companies. They share a common objective of encouraging household asset reallocation. Retail & Business Banking on the business promotion side has leveraged the bank's customer base, tried to achieve a shared understanding with its customers of their asset-building goals and their risk appetite and promoted shifts from distribution-oriented to long-term global equity investment-driven asset building type investment management proposals. All these efforts have culminated in JPY 1.1 trillion in securities net inflow of client assets at Mizuho Securities, which secured its industry top position for 3 years in a row. Moreover, average term of equity investment trust holdings has increased by 0.7 years in comparison to fiscal 2015, and it now stands at 3.2 years, which is above the industry average. We have been successful in helping our clients' mid- to long-term asset building, which is what Mizuho strives to achieve. Meanwhile, Asset Management One, which is on the product supply side, has successfully offered Prime One Series, which is Japan's first principal-guaranteed type product and Mirai [eno sekai] Series, investing in global growth stocks to meet the needs of our clients. As a result, it has significantly increased publicly offered investment trusts' AUM. And as you can see at the bottom right, its products have been highly supported by distributors.

Going back once again to Retail & Business Banking Company. For corporate solutions business at the bottom left, with consultation through collaboration between banking, trust and securities businesses as an entry point, the company has endeavored to understand the challenges its clients face to offer optimal solutions at the exit, such as financing, business succession and support for innovative start-ups. Such efforts have been translated into steady growth in lending and profit from real estate and investment banking products. The company became #1 on the IPO League Table for the first time. Mizuho was one of the first to promote collaboration between banking, trust and securities businesses. The collaboration is about us providing all the way from consultation to product functions in a seamless fashion to generate added value, which I believe is one of Mizuho's strengths.

Now Corporate & Institutional Company had to expand the domain of risk taking and to lower its dependency on large deals in its noninterest income business, which in the past resulted in profit volatility. The company started to address these challenges more actively since the beginning of the fiscal year, which resulted in improvements, as the left side of the slide shows. As the top left graph shows, under the challenging low-interest rate environment, it grew balance of products with a higher spread, such as products leveraging our assessment capabilities and hybrid lending, in an attempt to improve profitability. Thanks to the efforts, as the graph on the right shows, net interest income turned positive on a year-on-year basis since last fiscal year and has continued to grow in the first half. And as the bottom left shows, noninterest income, which is one of the strengths of Mizuho, increased not only from large deals but from medium and small deals of less than JPY 500 million as well. For products, it succeeded in steadily growing, not only investment banking products, which tend to be volatile, but also transaction-type products to contain volatility of noninterest income. Efforts continue to generate noninterest income in a stable fashion.

The right-hand side shows global corporate. Top right shows results of the Global 300 strategy, which targets global non-Japanese blue chip companies. By the bank and the securities businesses working in an integrated fashion, we have captured diverse business opportunities across the transaction value chain, and the growth of both gross profit and return on risk asset turned positive.

U.S. DCM was ranked #8 on the League Table, which was better than our target of becoming one of the top 10. We have been trying to expand transaction banking profit as a stable source of profit, and that's shown by the graph at the bottom right. It is growing both in terms of quantity and quality due to expanding transactions, in addition to benefiting from rising interest rates.

Pages 10 and 11 give you the overview of income statement. But due to the time constraints, let me skip that and move on to Page 12 to explain our balance sheet.

There are 3 key messages here.

First. If you could look at the balance sheet in the middle, you will find that deposits and negotiable certificates of deposit decreased by JPY 3.1 trillion, while other liabilities increased by JPY 5.8 trillion. This was due to changes in investment policy by a large depositor at TCSB, which had been our consolidated subsidiary until the end of September.

Secondly, please have a look at the bottom left corner of the slide, where you see the BOJ current account balance. Although the combined total for the 2 banks increased by JPY 2.8 trillion to reach JPY 35 trillion, both Mizuho Bank and Mizuho Trust Bank continue to avoid negative interest rates imposed on the balance.

Thirdly, please have a look at the regulatory ratios at the bottom right corner. Leverage and liquidity coverage ratios stand at 4.34% and 130.1%, respectively, which give you no reason to worry.

Let me now turn to the breakdown of gross profit.

First, please look at net interest income under the consolidated gross profit. As the bar chart in the middle shows, net interest income finally started to pick up in the first half, correcting the downtrend which had continued since the first half of FY 2015. In addition to the international operations, which had already seen the uptrend in the second half of last fiscal year, interest income in domestic operations also started to see increase in the first half. It is true that a big dividend from a specific company did contribute, but even without that, it is above what it was in the second half of last year.

Now what about consolidated gross profits, excluding net interest income? Net fee and commission income and fiduciary income, on the left side of the page, grew quite significantly. I'll discuss in more detail later using the page on noninterest income.

Right side of the page shows a breakdown of net trading income and net other operating income into trading-related and nontrading-related. Trading related grew, mainly driven by derivatives and FX, despite decline in net gains related to bonds. For nontrading related, underwriting and selling fees at Mizuho Securities increased.

Let me discuss in more detail interest and noninterest income.

First, please proceed to Page 17, which gives you a look at loans. Loans in Japan, excluding loans to government and others, have grown by JPY 1.6 trillion since September-end 2017. I believe we are seeing positive results of our efforts to grow lending quickly as appropriate in line with our risk appetite. Loan and deposit rate margin in Japan continues to tighten, as shown at top right.

Looking at loan spread by segment. Spread for middle market firms and SMEs continues to tighten due to fierce competition, although the loan balance has increased moderately. Loan balance to large corporate banking customers grew by JPY 1.3 trillion year-on-year, thanks to successfully capturing acquisition-financing opportunities. Spread for large corporate banking customers has remained unchanged since the first half of 2017, which gives us a reason to believe that it has almost bottomed out.

Moving on to the next slide.

Our loans outside Japan have grown quite significantly by almost $40 billion since end of September 2017. Bulk of that came from approximately $15 billion in EMEA and about $23 billion in Asia.

We saw good growth in loan balance in the Americas, but we reduced less profitable assets, which limited the growth in net terms. Increase in overseas lending was driven in Asia by actively meeting strong financing demand and in EMEA by successfully capturing acquisition-financing opportunities. Spread declined by 5 basis points due to large loans in both Asia and EMEA extended to highly rated borrowers and due to increase in short-term lending, mainly in Asia.

During the first half, we have been relatively aggressive in growing loan balance outside Japan, with the aim of increasing stable profit.

Please turn to the next slide. This slide shows non-Japanese yen funding.

As the top right graph shows, we continue our efforts to grow client deposit as a funding source. In the first half, however, growth in deposit failed to catch up with the growth in lending because loan growth was what we worked on rather aggressively with clear intent. As a result, the proportion of deposit to loans dipped below 70%. We continue to be confident about funding given the stable non-Japanese yen funding base that we have built. As uncertainties in market environment and dollar funding costs have started to rise, we have switched gear and have been more mindful of the gap between loans and deposits since the start of the second half.

Please move on to the next page. This page talks about the status of our noninterest income business.

The group aggregate noninterest income grew by JPY 44 billion year-on-year. And in terms of breakdown, noninterest income from banking in Japan rose by JPY 26 billion year-on-year, on the back of growth in large upfront fees and settlement of FX and derivatives. Growth in noninterest income from banking outside Japan came mainly from Asia, thanks to upfront fee from syndicated loans and the positive results from transaction banking, which we have steadily worked on.

For trust and asset management related, there, noninterest income increased by JPY 5 billion, mainly due to strong real estate-related profit. Securities grew by JPY 6 billion, thanks to such factors as increase in equity and fixed income underwriting fee, on the back of us enjoying a bigger share as the primary market expanded.

For investment products, please look at the top right.

Individual annuities had a good first half, while investment trust sales have struggled under the current environment. I want to remind you, however, that the balance continued to increase, not only due to mark to market, but also due to net new inflow of client assets and lower proportion of monthly dividend-type investment trusts.

In sum, in comparison to the very challenging results we had to face in the first half of last year, the performance was much better this first half, except for investment products-related profit, which was affected by market trends. Our One MIZUHO strategy with banking trust securities and asset management at the core, I believe, is now producing results, and we are turning increasingly positive, reversing the trend.

G&A expenses came down by JPY 15.7 billion year-on-year. Personnel expenses was down by JPY 21.3 billion, while nonpersonnel expenses rose by JPY 5.6 billion. Impact of decline in unrecognized actuarial difference on personnel expenses was JPY 26.5 billion. If that were to be excluded, personnel expenses increased by JPY 5.2 billion due to increase in performance-based remuneration at Mizuho Securities, which we view as an increase in expenses of a positive nature. Meanwhile, at Mizuho Bank, for example, we are seeing their efforts leading to lower expenses.

Nonpersonnel expenses increased due to such factors as higher IT-related costs, with the implementation of our next-generation IT system.

In summary, consolidated expenses was up by JPY 10.8 billion, if we were to exclude the impact of unrecognized actuarial difference. When compared against a management accounting expense budget for the first half, it was lower by more than JPY 10 billion, although there are some timing factors, which gives me a reason to believe expense control in the first year of our cost structure reform initiative is well on track.

Net gains related to bonds were slightly down year-on-year at JPY 27.1 billion. In Japan, JGB volatility continues to be absent due to yield curve control. Meanwhile, outside Japan, I think we did a good job in the first half despite continued rise in dollar interest rates and challenging environment for trading.

We have reduced our holdings of medium- and long-term JGBs when rates came down. Meanwhile, in the face of potential rise in interest rates and growing client deposits, we increased our holdings of treasury discount bills with an aim to avoid negative rates imposed on our deposit at BOJ current account. As a result, the average remaining period has shortened to 1.9 years.

For foreign bonds, unrealized loss increased to JPY 206 billion, with rise in rates in the United States. In the face of this situation, the Global Markets Company has increased its operational flexibility, and has turned more cautious in order to ensure soundness of their portfolio.

I will discuss the latest developments in the second half of the year later on.

Next, let me turn to our equity portfolio.

Net gains related to stocks were JPY 149.9 billion, of which JPY 39.9 billion came from the sale of ETFs and others. This is, in fact, a result of a successful execution of flexible portfolio management at the Global Markets Company to cut significantly the balance, while realizing gain at the end of the first half by closely monitoring the market developments.

Cross-shareholdings have been reduced by JPY 461.6 billion over the past 3.5 years, as you can see on the right. We have already achieved 84% of our plan to use JPY 550 billion by the end of March 2019. As you can see at the bottom right, the goal is well in sight, with reduction of another JPY 88.3 billion remaining for this fiscal year.

Let me turn to the credit portfolio.

There was a reversal of credit-related cost of JPY 30.6 billion. Although it was smaller than what it was in the first half of last fiscal year, during which we had a big reversal, credit-related cost nevertheless remains stable. As you can see on the right, nonperforming loans are at JPY 510 billion, with nonperforming loan ratio coming down to 0.58%, which is a historic low.

Improvements in credit quality are also seen in loan portfolio outside Japan, which is on the next page. Because of the time constraints, I won't go over that, but instead, I'll just let you read that at your leisure.

So let me now explain our capital management policy. Please skip over to Page 26.

Let me start with the CET1 ratio. Excluding unrealized gain on other securities, CET1 is 10.41%, which rose from 10.15% in March. We maintained the level above the target of approximately 10% CET1 ratio in our midterm business plan. Our estimate of CET1 ratio based on the draft new regulation published by Basel Committee is again in the lower 8% range as of the end of September, excluding net unrealized gain on other securities.

In regards to return to shareholders, as you can see on the right, our steady dividend policy with a dividend payout ratio on a consolidated basis of approximately 30% as a guide for our consideration remains intact. Our FY 2018 full year net income projection of JPY 570 billion remains unchanged, and we estimate a dividend of JPY 7.50 for FY 2018, which is the same as last fiscal year.

This slide shows revised earnings plan for FY 2018.

In regards to consolidated net business profits, including ETF-related gains and losses, we have a more conservative projection for trading given the recent market environment. Meanwhile, for customer groups, which have shown strong performance, we revised their earnings plans upward. All told, consolidated net business profits for the full year -- full fiscal year will be revised to JPY 670 billion, down by JPY 30 billion from the original budget.

Credit-related costs reversed in the first half. But in the second half, I believe there is a need to be more cautious on many fronts, including general economic trend. Therefore, we did not change the full year plan for credit-related cost. Although we project decline in net business profits, we believe such downward revisions can be absorbed by tax effect in the first half and by other factors. And that is the reason for keeping our net income projection at JPY 570 billion unchanged from the original plan.

Next, on this page, I would like to explain the revised plan for each of the in-house companies.

First, for RBC, or Retail & Business Banking. Its performance has improved year-on-year, but given that its sales fee income for investment trust products is not growing, as I mentioned earlier, we have revised the plan downward.

For CIC, Corporate & Institutional; and GCC, Global Corporate, we have made upward revisions to both their plans because of their strong performance in the first half and the pipelines being filled quite substantially. But considering that some uncertainties still continue to remain in their overseas businesses, the scope of upward revision made this time was limited to JPY 13 billion.

For GMC, Global Markets Company, I said the performance was more or less on target in the first half for its full year plan, taking into account the company's unrealized losses that are increasing mainly from foreign bonds and the trends in fixed income and equities markets in the second half and beyond. To secure the soundness of the portfolio, the plan is revised downward by JPY 55 billion. As a result, for the financial group, on a consolidated basis, following a downward revision of JPY 30 billion, the net business profit is planned at JPY 670 billion at this moment.

I have just explained the results of the first half. In the next section, I will discuss the interim review for fiscal year 2018.

In terms of the interim review, in the earnings briefing we had in May this year, I said that there are 3 pillars in the fiscal year 2018 management policy. They're as described here in this section. And I will share with you the progress we have made so far in the first half with respect to these 3 pillars.

First, regarding structural reforms. Given in the left side of the page are the numbers planned for the 4 areas of initiatives and the actual progress made in the first half. On the optimization of the organization and personnel, against the plan of shifting 600 employees to front office positions, in the first half, we achieved 400, mainly in RBC. Vis-à-vis the target of reducing the headcount by 700, we implemented a reduction of 350.

Once the transition to the next-generation IT system becomes complete in next fiscal year, back-office operations will be consolidated and made more efficient in a full fledged manner, which will enable us to accelerate our efforts on organization and personnel. At the same time, in a lean organization we will have, it is important to secure human resources to implement strategies, and so we are proceeding with the hiring and development of personnel necessary for that from new and different perspectives.

Second is to structurally reform our IT systems. The transition to the next-generation IT system has been very smooth and successful, fortunately. 5 out of 9 phases of migration have already been completed without any problem. I will provide more details on this later.

In parallel with that, we are improving our business processes by utilizing technology. The new CRM, or customer relationship management system that is mentioned here is a system for managing information at the branch. It is a tool that directly connects the RM of the branch to the relevant sections of the head office, including the credit group. This tool is contributing greatly to the branches as they try to effectively manage the activities of RMs, promptly share customer needs information and develop actions to meet them. Speedier response to loan-related requests and enhanced quality of business information are among the fruits of these endeavors.

On the third point of revisiting the channel strategy, we have already reduced the number of branches by 13 out of 19 that is planned during fiscal year 2018. One-stop services, integrating banking, trust banking and securities, which are to be launched across the board in all branches in 2020 have been introduced in 10 branches on a pilot basis at the moment, so that we can conduct demonstration experiments to verify the mechanism to provide integrated banking, trust banking and securities services using videoconferencing systems on mobile devices. We are initiating negotiations with regional banks for mutual collaboration. Offering of Mizuho Trust Bank's wealth and business succession-type trust products has already begun with 10 regional banks, including San-in Godo Bank and Ehime Bank. Another bank is to join this initiative by the end of this month.

Last but not least, the fourth point, on our earning power. First, on selection of focus. In the areas that are shrinking through reductions in cross-shareholdings and sales of low profitability assets, risk-weighted assets were cut by JPY 300 billion, while JPY 700 billion of risk-weighted assets were additionally allocated to areas of focus, including products lending and overseas businesses.

Starting from the first half of this year, the credit group, which have been independent of each company, was reorganized and established within each of the in-house companies so as to strengthen cooperation between the front-line divisions and the credit group. Collaboration between the 2 using the new CRM system that I discussed earlier is one of such steps. This has resulted in smoother communication between the 2 and has been effective in increasing the speed of business and expanding the scope of risk taking.

Next slide, please. On this slide, I would like to discuss the progress made thus far in achieving the financial targets in our current medium-term business plan.

As is shown, based on this fiscal year's forecast, we expect to achieve the overall goals promised in the medium-term business plan, but we'll likely fall short of meeting the targets on ROE and expense ratio. This, indeed, highlights the 2 challenges that Mizuho faces today: profitability and cost control.

We realize that addressing these issues require continuous efforts in pursuing thorough structural reforms and that these issues will be the underlining (sic) [underlying] themes of the next medium-term business plan as well.

On the next slide is a summary of the current status of the 10 basic strategies given in the current medium-term business plan. Although I will not go into all the specifics, I believe we have been able to make steady progress in the last 2.5 years since the current medium-term business plan started.

For example, with respect to the need to strengthen noninterest income business and shift from savings to investments, although the actual performance on these fronts may have not been as robust as we would like it to be, we are surely headed toward the right direction. And the groundwork for further leaps to come is being laid as we speak. I believe the same is true for our work on IT systems, HR management and corporate culture. Mizuho has made substantial progress in the last 2.5 years, and we would like to take advantage of this progress as a momentum to carry us through the next medium-term business plan.

Next, I will talk about the transition to the next-generation IT system, which is the third pillar.

Migration to the next-generation IT system is successfully under way. 5 out of 9 phases of migration have already been finished. We must continue to ask our customers to bear with us for the inconveniences caused in the meantime. But first and foremost, we hope to focus our company-wide efforts on completing the remaining 4 phases of migration safely and securely.

In the next section, I will explain about digitalization and ESG, or environment, social and governance-related initiatives, which are topics that Mizuho has been tackling actively in recent times.

Please proceed to Page 35.

First, on J.Score. We succeeded in commercializing this AI-based business ahead of our peers and have accumulated an aggregate lending limit of JPY 13.5 billion in just one year following the opening of the business in September last year. It is growing its aggregate lending limit briskly toward achieving this year's target of JPY 25 billion. The actual balance of lending exceeded JPY 10 billion in October.

As part of the extension of this business, we have launched a business for data usage and utilization based on J.Score, in which we use the scores our customers have acquired to provide them with referrals on travel agencies and language schools we partner with. The service is called a score reward, and it is attracting very good demand.

From a company's point of view, scores calculated by J.Score are very valuable customer information. I think we have been able to pioneer in this type of business, utilizing information. The benefits for customers are also substantial, so we are looking to expand these types of businesses, offering services based on partnerships.

Another initiative of ours is to introduce and promote cashless payments. In the area of contactless payment services using smartphones, as is shown at top right, Mizuho has been the only player to enable Suica on both Android and iOS or iPhones through our partnerships we have with them, thereby dramatically increasing the convenience for our customers with either of these devices, resulting in a larger customer base. Between March through the end of October this year, the total cumulative number of downloads for Mizuho Wallet app exceeded 400,000, capturing strong demands from a large number of customers.

Regarding QR code-based payments, as you know, we are forging partnerships with regional banks, conducting demonstration experiments with them, which are expected to be completed by the end of this year. We have also launched debit cards for SME customers as well as individuals.

By implementing these initiatives, we hope to improve customer convenience, expand new businesses and bring down the costs of handling cash in payments.

On the next slide, I would like to discuss Mizuho's thinking on the open architecture and open platform, which we place much importance on as we push for digitalization.

We want to depart from conventional ideas and structures of banks and securities firms, to incubate new breakthroughs in business by harnessing the chemistry that is newly created when those in suits and ties meet and work with those in jeans and T-shirts. That is why we have embarked on an initiative to run an open platform called Blue Lab, where we collaborate with WiL, a U.S. Silicon Valley venture capital, and many other firms from a number of different sectors to establish a broad range of new businesses.

On the right-hand side of the page, I will describe how Mizuho's next-generation IT system, as we launch it, is being involved in offering great advantages in promoting open innovation at Mizuho.

As you are aware, megabanks' systems architectures, which are the third-generation online architectures, have all been built on structures referred to as tight coupling. We decided to adopt a loosely coupled systems architecture for our next-generation system and also turn the programs for operational functions into components or parts, if you will. This has enabled us to develop IT systems much quicker and with considerably less cost, because all we need to do now is to put together systems by simply and flexibly combining these components depending on the functions we need for the systems. Further, we are now able to leverage this system's infrastructure to strengthen our partnerships and our alliances with fintech companies and public cloud operators through the API to develop and incorporate new products and ideas, while trying not to develop everything on our own, but make greater use of general services offered by cloud businesses so that we can achieve better optimization of the overall systems that we have. In this regard, the next-generation system is going to be the major prerequisite for Mizuho's IT structural reform.

Next, on ESG, or environmental, social and governance initiatives, please turn to Page 39. I will briefly discuss Mizuho's initiatives on ESG.

Our aspiration is to further elevate the corporate value of Mizuho by offering solutions to help solve social issues and by contributing to society's sustainable growth. With this aspiration in mind, in April of this fiscal year, we newly established sustainability promotion office within our strategic planning department by consolidating the ESG promotional functions that had belonged to our Corporate Communications department. It is as illustrated on lower right, we have been making steady progress from E, S and G point of view, respectively.

For the G part, or governance, I shall touch upon the revisions we have made to the group's compensation program for our executives later.

That concludes my explanation on ESG.

Next, I will talk about the undertakings I have pursued since I became the new CEO of the group in April this year. Please turn to Page 41.

Since I assumed the position of the group CEO in April, I have been pushing for initiatives to reform our business under a basic policy represented by the 4 key phrases, as written on the slide. A few of the specific initiatives are included on this page.

First, on improving the agility of the senior management. We set up a structure that allows us to, first and foremost, quickly collect information, share it within the management team and, in a timely fashion, discuss the next steps we should be taking. Instead of organizing official meetings for formality's sake only, we are now having meetings in my office.

With respect to transformation of performance management systems, we are now paying attention not only to the attainment of our short-term numerical goals, but also to the competitive landscape and medium- to long-term trends in the industry, so that we are clear about the need to concentrate our efforts in building a solid mechanism to actually generate real earnings and evaluate how in-house companies are operating from a long-term point of view.

For executives compensation, which I touched upon earlier, we will be focusing even more on the bottom line and without relying on the framework that would decide the compensation depending on credit costs or the sales of cross-held shares. We changed the evaluation metrics to ones that are based on consolidated net business profit, which we believe is more appropriate in driving core earning power.

On conducting thorough fact-finding reviews, what we're going to do is to endeavor to analyze our historical performance over the medium- and long-term from a multifaceted and structural perspective and concretely identify and grasp the management challenges we face as a group.

As management, there are 3 other points we are emphasizing, as are shown below. In the interest of time, I will not cover the details today, but these are among the initiatives we have implemented to a certain degree of success in the first half to reinforce our core earning power.

Next page, please, Page 42.

As I said a moment ago, we have been conducting thorough fact-finding reviews since April. And based on those findings as well, I would like to discuss the basic management challenges that Mizuho is confronted with.

From the investors' and analysts' perspective, there may be many that they find are obvious, rather belated observations, but still, I would like to be frank and open-minded in sharing the following points.

First, on how the market views us or market evaluation of Mizuho. Compared to when the 3 banks merged with each other to form Mizuho, Mizuho's market capitalization has been hovering low and our stock is now regarded as a steady dividend-paying stock preferred by retail investors. There are positive sides to being preferred by retail investors, of course, in that it contributes to the stability of our stock price. And needless to say, we understand how important that is in the face of declining equity market conditions. But conversely put, or if we look at the other side of the coin, it also probably implies that the market is not appreciating enough growth potential in Mizuho as compared to others in the industry. Thus, one of the major challenges of Mizuho is to capture growth without fail to drive profitability and be evaluated by the market accordingly.

Second, on our business portfolio. In the top right-hand side corner shown are the changes in gross profits, excluding interest income and expenses. While the expenses illustrated in the left graph show consistent increase, noninterest income or gross profits combining noninterest income and market income that we said we would push for is exhibiting large volatility, indicating the fact we lack stability or consistency in generating revenue. Further, because Mizuho, since its inception following the merger, has always maintained a business model specializing in banking, trust banking and securities businesses, the volume and the diversity of revenue sources outside of these 3 domains at Mizuho are suffering from widening gaps in comparison to other megabanks, so much so that the level of these gaps can no longer be ignored. In the earnings briefing held in May, I said we need to combine our stable revenue-generating base with the areas of business with high upside potential and building the capabilities to achieve medium- to long-term growth in both. In other words, my understanding as to what leads us to have better market evaluation is for Mizuho to recognize its business potential so that it can incorporate both stability and growth potential at the same time.

The third is thorough structural reforms. Shown on the lower left corner is the net business profit per person and the expense ratio for our organization as compared to other megabanks. As you can see, Mizuho's earning power per person is weaker and the amount of expenses necessary to earn revenue is higher compared to other megabanks. To tackle these issues, in November last year, we announced a plan to embark on thorough structural reforms.

Structural reform may often be viewed as a restructuring plan, but for me, a structural reform is a measure to enhance efficiencies by cutting down on costs and, at the same time, reallocate management resources to areas of growth and revitalize the organization by making more effective use of human resources and to translate all of these to driving core earning power.

I will give a few more details on this in a moment.

Last but not least, the fourth point is the issue of brand and culture. I touched upon the need for innovation of our culture as an important challenge in the May briefing. Conventionally, in financial institutions, the dominant culture that has been prevalent has been to put priority on not failing or making mistakes. That is clearly demonstrated in the survey listed here. While Mizuho's executives and employees are highly rated for being competent and reliable, we tend to be weaker when it comes to eagerness to enter new fields or responding to changes in society. But then, according to this survey, the other peers in the industry are not so different from us in those regards. What we need to note, however, is that in the era to come, where the business and the conduct of financial institutions are going to change dramatically, each firm will look to reorganize their value chains in the most advantageous way for themselves, so that they can successfully embrace this era of mega competition, involving all sorts of sectors. In such an era, there is little meaning in trying to differentiate ourselves from others in the most minutiae of manners. What we should rather do amidst this wave of digitalization is to position ourselves vis-a-vis B2C e-commerce companies or fintech firms to develop a keen awareness of our own strength and weaknesses, what we excel and not excel in, so that we can spearhead a host of transformations with strong motivation and passion. That, I believe, is most crucial. And it is incumbent on Mizuho's brand and culture to create an environment that would enable us with our actions to gain the understanding and empathy of our stakeholders, including customers and investors, and convert that into trust in our relationships with them.

Next slide, please. On this page on the right, we show the linkage of our goals to the 4 key challenges that I covered in the previous page, namely: adapt as time changes; incorporate growth; create value together with stakeholders; and enhance earning power. This may sound more like an internal message, but the goal of Mizuho is, in the coming era, ensure that our customers can depend on us, and we will do so by establishing a stronger and more resilient financial group. I expect all the executives and employees of Mizuho to understand that this goal is closely linked to the tasks ahead of us in terms of addressing the challenges before us, and that they will reflect this onto their individual behaviors and actions.

Now let me explain how Mizuho can respond to these management challenges, and by so doing, enhance its corporate value and the direction Mizuho should be heading toward for that. This slide is a summary of where to seek growth opportunities going forward.

As you know, today's society and economy is faced with a range of structural issues, from declining birthrate and aging to shortage of successors in SMEs. As a financial services professional, Mizuho will tackle these issues squarely, provide solutions, leveraging the strength of One MIZUHO, and embark on new trials, such as adoption of new technologies and open collaboration with companies from different sectors to help society resolve these socioeconomic structural problems.

Here on this page listed are 7 areas where such initiatives can be taken. These are all areas directly relevant to the themes of issues faced by the societies and economies of Japan and the rest of the world today; and ones that can be addressed only when Mizuho brings its overall group capabilities to bear, including those of banking, trust banking and securities. Our slogan has been One MIZUHO, but we shall not be complacent being just One MIZUHO. It is important to place a sharper focus onto the potential value that can be derived, which goes beyond what One MIZUHO can bring, and be conscious about the outcomes that this effort can produce.

Mizuho shall enjoy the fruits of its business by responding appropriately to these socioeconomic challenges and offering added value. In that regard, our response to structural issues can be defined as our way forward in incorporating the growth potential.

Well then, how are we to translate these growth areas into a greater corporate value for Mizuho? I would like to explain that in the next slide.

On the previous page, I explained where to seek new growth potential. But the more crucial issue is how to incorporate growth in these areas so that we can reinvent our existing portfolio into one that is more resilient and profitable. As is written on the diagram on the right, engaging in thorough structural reforms is absolutely essential. We must squarely face these structural challenges that have accumulated over long years of operations. And through reallocation of resources, we must create a cyclical process of streamlining and focusing our existing business structures. For that, we must engage not just in simple expense reductions, but also it's going to be essential to reinvigorate personnel, IT, channels including branches, and noncore group companies because they're going to be the key to raising productivity. Our core earning power can only be restored when that is successfully accomplished. Through these efforts, as is stated at the top of this page, we will create value for society, economy and each and every individual's life through and beyond One MIZUHO, and thereby increase the value for Mizuho itself as well.

That concludes my presentation. I discussed what I have been undertaking since being appointed as CEO and the challenges of Mizuho as it works to enhance its corporate value and the future direction Mizuho should be taking.

The new medium-term business plan is now being studied vigorously in view of these challenges and the future direction to be taken. In the new plan, which we will present to you in due course, we will be incorporating in it quantitative financial targets, and time lines, business strategies and how Mizuho will overcome these challenges.

Just to elaborate on the time lines. I do understand that medium-term business plans are usually drawn up for the time span of 3 years. But as you know, trying to achieve something in 3 years often creates a tendency to see things as an extension of the past. So in the new plan, we would like to be flexible in our thinking, so that we will not necessarily be too conscious of the conventional time spans used so far and address Mizuho's problems at their roots and come up with a plan to successfully realize the business transformation for ourselves.

That concludes my presentation. I look forward to your candid input on what I had to say today, and more generally, on Mizuho as a whole. We appreciate your input as external service. Thank you for attention.