Mizuho Financial : Speech Script (PDF/9,583KB)

【Front cover】

• Thank you for attending our presentation on Mizuho's interim results for FY2020.

【Page 5】

Financial results

• Our Consolidated Net Business Profits showed steady progress, exceeding the initial expectations in our 5-Year Business Plan as well as in our fiscal year plan.
• To account for the possibility of prolonged impacts from COVID-19, we recorded additional Credit-Related Costs, including recording reserves from a forward-looking perspective.
• Based on the results for the first half of the fiscal year, we have also revised our FY2020 plan upward.

Business direction for FY2020 H2

• Mizuho recognizes that the COVID-19 pandemic, which has brought about structural changes in society, is an important turning point that will change what our business structure and corporate foundations should be.
• Regarding our business, through engagement with our clients, we will not only provide financial support, but also establish a competitive advantage as a partner that supports the transformation of business and financial structures and appropriately shares business risk.
• Regarding our corporate foundations, with digitalization as a starting point, we will streamline our over-the-counter transactions, while also implementing a new HR strategy and office transformation to support diverse workstyles.

【Page 6】

Initiatives responding to COVID-19

• As shown on the left-hand side of the page, amid the prolonged impact of COVID-19, we continue to leverage our financial intermediary functions.
• As shown on the right-hand side of the page, we are expanding our transaction channels to respond to new lifestyles.
• In addition, although not listed on these slides, our consolidated subsidiary Mizuho Capital is the sole financial institution investing in and supporting a new company aiming to develop a fundamental medical treatment drug for COVID-19.
• This project has significant social meaning. From a business perspective, we will firmly capture opportunities to invest in growing corporations even in the midst of the COVID-19 pandemic.

【Page 8】

Executive summary of financial results

• Our Consolidated Net Business Profits were JPY 419.4 billion, a YoY increase of JPY 78.5 billion. Both Customer Groups and Markets performed well, and the progress rate compared to our fiscal year target was 73%.
• In Customer Groups, we posted a YoY increase of JPY 27.9 billion, to JPY 238.1 billion. Decreases in deposit and transaction banking income due to lower overseas interest rates were offset by an improvement in loan income, accompanying our support for our clients' cash flow during the COVID-19 pandemic, as well as by an increase in capital markets and investment banking-related income and a reduction in expenses from our steady implementation of structural reforms.
  Our interim financial results exceeded those prior to the introduction of negative interest rates and achieved the highest level since our introduction of the in-house company system.
• In Markets, we posted a YoY increase of JPY 52.4 billion, to JPY 185.5 billion. Sales and trading revenue remained strong, mainly in overseas bond derivatives and domestic foreign exchange revenues. In addition, Banking revenue significantly exceeded the previous year's level due to factors such as the accumulation of gains on carry income from foreign bonds.
• Net Income Attributable to FG was JPY 215.5 billion, a YoY decrease of JPY 72.1 billion. This represents a progress rate of 67% towards our fiscal year target of JPY 320 billion, partly due to the recording of extraordinary gains from the reform of our corporate pension plan.

【Page 9】

Financial highlights (1)

• Over the next three slides, I will focus on the highlights of our current financial results.
• 1. Impact of COVID-19 on Gross Profits
  Our Gross Profits saw a decline of approximately JPY 2 billion in the first half of the fiscal year, versus our initial outlook of a decline of JPY 80 billion. We believe that we have been able to firmly capture European and US capital market-related revenue, associated derivatives, and other sources.
• 2. Loan balance and Spread
  In Japan, the loan balance increased due to financing support, but loan spreads, mainly for loans to middle-market firms and small and medium-sized enterprises, continued on a downward trend.
  Outside Japan, the loan balance increased, primarily from short-term loans. In particular, outside Japan the spreads on loans to support responses to COVID-19 were relatively high. In addition, our ongoing negotiations to optimize spreads have been successful, resulting in an improvement in spreads as a whole.

【Page 10】

Financial highlights (2)

• 3. Non-interest Income
  The Non-interest Income of Customer Groups increased by JPY 32 billion YoY. In addition to their fundamental earnings power, CIC and GCC have achieved results by responding flexibly to clients during the COVID-19 pandemic, which has offset negative impacts. For RBC, while revenues from individual asset formation increased, revenues from corporate-related income such as solutions decreased, resulting in a slight decline overall.
• 4. Markets Operations Income
  Banking: Our realized gains remained within the range of mark-to-market, or so-called performance gains/losses, and we have accumulated carry income, mainly from foreign bonds, improving the quality of our earnings.
  Sales & Trading: Particularly in the US, we were able to firmly capture client flows during the rising volatility phase of the COVID-19 pandemic.
• 5. Mizuho Securities' Ordinary Profits
  On an aggregated basis for US-based entities, Ordinary Profits were JPY 82.3 billion, a record high. We rank second in the securities industry both on a non-consolidated and consolidated basis, in and outside Japan. The retail, investment banking, and markets divisions all performed extremely well.
• 6. Non-JPY Funding
  The proportion of deposits to loans was 83%, remaining above 70%.

【Page 11】

Financial highlights (3)

• 7. Credit-related Costs
  Credit-related Costs were JPY 81.2 billion in the first half of the fiscal year. RBC and CIC together made up 80% of this amount, and outside Japan (GCC) made up 20%. Even after we recorded additional reserves of JPY 37.4 billion from a forward-looking perspective, Credit-related Costs remained at 40% compared to our FY2020 estimate of JPY 200 billion.
• 8. Cross-shareholdings
  We achieved a reduction of JPY 208.3 billion, which is 69% progress towards our target of a JPY 300 billion reduction by the end of March 2022. We have also made steady progress on sale agreements this fiscal year, coming to approximately JPY 61 billion.
  On the other hand, we recorded an impairment loss of JPY 55.2 billion on cross- shareholdings in the first half of the fiscal year. Although we do not anticipate any significant additional losses in the second half of the fiscal year, the risk associated with cross-shareholdings has materialized, and we intend to continue to work firmly to reduce our amount of holdings.
• 9. Net Extraordinary Gains related to our corporate pension plan reform Accompanying the decline in projected benefit obligations due to our corporate pension plan reform, we have recorded amortization of unrecognized prior service costs and others.
• The 10th highlight is our CET1 capital ratio, which I would like to explain in a later slide.

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• In summary, we believe that we were supported by earnings from our core business and performed well compared with initial estimates.
• One factor was that our corporate and retail businesses did better than anticipated, partly due to the government's policy response. Another factor was the business environment, such as the financial and capital markets being particularly brisk. And a third factor was that the group's sustained strategic initiatives have been producing results.
• For example, GCC, through the Global 300 strategy, has been shifting to highly rated clients and increasing profitability with ancillary transactions such as capital- market transactions.
  RBC is seeing solid outcomes from concepts such as long-term, diversified, and continual investment, as a result of long-standing efforts to implement a global equity fund strategy for individual asset formation. GMC has also had success with the expansion of products, including derivatives and municipal bonds.
  I believe that, because of these initiatives, the Mizuho group has been able to leverage our strengths.
• As I mentioned earlier, Mizuho Securities is ranked second in the industry, and Asset Management One also holds the second highest share in the industry in core publicly offered investment trusts.
• Regarding Mizuho Trust & Banking's real estate business, while the industry overall was not very active, we continued to firmly maintain our top level performance.
• In addition, due to the progress of structural reforms, we have been able to significantly reduce expenses compared to our estimates, and we feel that we have achieved a reasonable level of success.

【Page 44】

CEO message

• From here, I would like to convey my message as CEO for the second half of the fiscal year.
• In this slide, I would like to talk about the business environment and our direction for the second half of the fiscal year.
• We believe it is inevitable that the impacts of COVID-19 will be prolonged to a certain extent. In addition, we still cannot dispel uncertainty about the possibility of credit costs arising.
  The business environment continues to be difficult to predict, and in this environment, we intend to strengthen our stable earnings base by steadily implementing structural reforms.
• Compared to our 5-Year Business Plan, our net income is lower than initially expected.
• In response, we will thoroughly implement management focused on capital efficiency, minimize Credit-Related Costs using methods I will discuss later, and steadily reduce our cross-shareholdings.
• Moreover, we view COVID-19 as a call to action. Rather than just preparing for a future downturn in the business environment, we intend to create a foundation for even greater success by further deepening our structural reforms through digitalization, both offensively and defensively, and reallocating corporate resources to growth areas.

【Page 45】

CEO message: Covid-19 as a call to action

• During the pandemic, the way we do business and the way we live our individual lives have undergone major structural changes.
• In light of such structural changes in companies' business environment and people's lifestyles, we at Mizuho will act swiftly to create business opportunities through engagement with clients, utilize digital and remote customer channels, reform workstyles, and reform our corporate foundations to support these activities.

【Page 46】

CEO message: Economic outlook

• Mizuho does not necessarily have a high sensitivity to business performance and GDP outside Japan, so I would like to focus on the economic outlook in Japan in particular.
• On the left-hand side of the page is GDP trends in Japan. It was initially assumed that Japan's GDP would recover to the 2019 year-end level, the level prior to COVID-19, at the end of 2021, but in the current main scenario, which is the bold blue line, the recovery is expected to be delayed by about one year.
• The red dotted line shows another scenario, which assumes prolonged mobility constraints due to a second wave and third wave or a delay in the development of vaccines. In this scenario, we would need to prepare for a reasonable possibility that economic recovery would be further delayed and a major impact on the economy would occur.

【Page 47】

Revised Plan for FY2020

• In light of our current performance and business environment, we have revised our Consolidated Net Business Profits estimate upward to JPY 710 billion, which is JPY 140 billion higher than our initial estimate.
  If we achieve this, we will be able to achieve our target of JPY 700 billion, which we expected to achieve in FY2021 in our initial estimates under the 5-Year Business Plan, as early as FY2020. We would like to put forth our utmost effort to achieve this challenging goal.
• Credit-RelatedCosts remain unchanged at JPY 200 billion, as preparation for the future, while Net Gains (Losses) related to Stocks were revised downward based on the results of the first half of the fiscal year.
• Net Income Attributable to FG is JPY 350 billion, an upward revision of JPY 30 billion.
• As shown at the lower right, Cash Dividends per Share of Common Stock have not changed.

【Page 49】

Consolidated Net Business Profits

• Here, I would like to discuss the breakdown and qualitative aspects of Consolidated Net Business Profits.
• When we first announced our 5-Year Business Plan, we explained that Consolidated Net Business Profits will be approximately JPY 700 billion in FY2021 and approximately JPY 900 billion in FY2023.
• Towards these goals, we believe it is important to steadily grow stable revenue with high quality earnings, and we have been thoroughly implementing this policy within the company.
• In the first half of FY2020, COVID-19 adversely affected stable revenue by approximately JPY 18 billion.
• On the other hand, upside revenue from the European and US capital markets, sales and trading, and sales of investment trusts for retail investors have offset the adverse effects from COVID-19.
• Banking revenue is being managed with a focus on carry income, and it has steadily become a stable source of earnings.

【Page 50】

Expenses

• Initially, our plan was basically unchanged compared to FY2019, but after making solid investments in focus areas, we revised our plan to a reduction of approximately JPY 18 billion, to be achieved through structural reforms and further cost structure reforms in light of the COVID-19 pandemic.

【Page 51】

Credit-related costs

• We expect credit-related costs to come to JPY 200 billion in FY2020, including some buffer in consideration of a number of scenarios, given the uncertain business environment, such as a scenario in which the impact of COVID-19 continues to linger, in addition to our main scenario.
• We will thoroughly control credit-related costs through two measures.
• The first is the thorough implementation of preventative measures formulated by each in-house company.
  In addition to the so-called general preservation of loans, we will exercise controls such as the preliminary sale of loans, in particular outside Japan, without waiting for a deterioration in business.
  Also, we will support business and financial restructuring through proactive engagement with clients. We will make full use of our expertise in financial and business restructuring to actively support clients' sale of assets and businesses and at the same time actively support capital raising and other initiatives.
  Within this framework, we will consider quasi-equity financing to businesses
  whose feasibility and profitability we recognize. When acting only in the private sector poses challenges, we will take public-private partnerships into account as well and conduct proactive engagement.
• Another measure is the recording of reserves from a forward-looking perspective, which I mentioned earlier.
• With these two measures, we intend to keep our credit-related costs for FY2021

within the level of FY2020.

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【Page 52】

CET1 capital ratio and risk-weighted assets

• With regard to our CET1 capital ratio, on a Basel III finalization basis and excluding Unrealized Gains (Losses) on Other Securities, we have thoroughly controlled our risk-weighted assets by optimizing market-related assets and refining our risk measurement method, offsetting the increase from supporting our clients' cash flow needs.
• Our CET1 capital ratio at the end of September was 20 basis points higher than at the end of June, maintaining the level from the end of March.
• As shown on the right-hand side of the page, in May we expected an increase of JPY 5 trillion in risk-weighted assets arising from support for our clients' cash flow needs during the COVID-19 pandemic, from credit downgrades among our clients due to declining business performance, and from other factors, based on current Basel requirements.
  At the moment, we expect this increase to be limited to approximately JPY 3 trillion due to financing demand tempering off, progress in repayments outside Japan, and efforts to prevent credit deterioration. As of the end of September 2020, the increase was JPY 2.8 trillion.

【Page 53】

Capital strategy

• Our CET1 capital ratio was 8.8%, remaining above the trajectory outlined in our 5- Year Business Plan.
• Currently, we are updating our stress testing, maintaining solid capital resiliency, and adequately preparing for further downside risks.
• Our policy of aiming for early achievement of a target CET1 capital ratio in the lower end of the 9% - 10% range remains unchanged.

【Page 54】

Retail & Business Banking Company (retail)

• The key points of our retail strategy are strengthening our asset-formation business to promote utilization of household financial assets and strengthening our trust business to target the high net worth customer segment.
• As shown on the left-hand side of the page, with regard to strengthening our asset management business, we achieved significant results under a global equity strategy that encourages long-term, diversified, and continual investment. The balance of the affiliated fund has grown to JPY 2.8 trillion, with unrealized gains (losses) of JPY 1 trillion.

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【Page 55】

Enhancing our consultation framework with next-generation branches

• With regard to staffed channels and branch offices, since October we have been utilizing our new system MINORI to gradually shift eight main procedures that impose a heavy administrative burden, such as the opening of accounts, to being completed entirely on tablets at branches. This shift will be expanded to all branches by the end of December.
• In addition, by the end of March 2021, we will consolidate back office operations from 180 offices into operations centers.
• In FY2020, we shifted 1,100 personnel from back to front offices to develop them as consultants, and we are working to improve our consulting capabilities through the exchange of talent between entities.

【Page 56】

Retail & Business Banking Company (business)

• Based on the depth of the impacts from COVID-19, the business potential of our clients, and the profitability of transactions, we have clarified focus client segments and necessary approaches, and we will work to build relationships with clients as a unified group.
• For clients that have experienced a relatively small impact from COVID-19, we will strive to create revenue opportunities through support for growth strategies.
• On the other hand, for clients that have experienced a large impact from COVID-19, we will endeavor to formulate medium-tolong-term strategies and establish multilayered transactions, with an eye towards the post-COVID-19 world.

【Page 57, 58】

Transforming channels with digitalization/ Frontier business

• In the next two pages, we have summarized examples of Mizuho's digital utilization initiatives, including our enhancement of remote and digital communication with customers, our three "-less" services (bankbook-less,seal-less, and paperless), and the use of data held by the bank.
• I will omit the explanation, but I hope you will read it over when you have time.

【Page 59】

Corporate & Institutional Company

• Next is CIC, where we are looking to engage in decision-making at the executive level both through our industry insight and through C-suite level discussions with clients who are facing structural changes in the business environment.
• We will create business opportunities and generate earnings while supporting the business structure transformation of our clients from the perspectives of sustainability, digital transformation, and response to COVID-19.
• In addition, in order to respond to needs for financial base strengthening during the COVID-19 pandemic, we have accumulated in our quasi-equity loan pipeline approximately 50 deals worth approximately JPY 1.2 trillion at present.
• The main purpose of these measures is to protect the external credit ratings of our high credit rating clients, and for almost all of these clients there are no issues in terms of credit risk. However, for quasi-equity financing and investment, we will operate under the premise that we will carefully assess business feasibility and the risk-return profile of each company.

【Page 60】

Global Corporate Company

• In the first half of the fiscal year, in the wake of the COVID-19 pandemic, credit costs for non-Japanese companies remained low at JPY 10.8 billion. This is indeed evidence of the strength of our Global 300 strategy.
• Further, the Global 300 model of leveraging extension of credit to firmly capture ancillary revenue opportunities such as capital-market transactions is yielding results.
• While clients to whom we provided emergency support are shifting to capital market funding, despite some rotation we are involved in almost all DCM business, and both our relationships and market share are improving.
• We will further strengthen our revenue base by constantly reviewing our Global 300 strategy, including target clients, in order to achieve ongoing improvement in profitability.
• Another achievement is that we have been able to capture DCM-related derivative transaction flows through collaboration between GCC and GMC.

【Page 61】

Global Markets Company

• In Banking, we have focused on the balance between accumulation of unrealized gains and realized gains by improving the sophistication of our portfolio management.
• In the first half of the fiscal year, we saw solid performance, with mark-to-market exceeding realized gains.
• Taking the interest rate environment and the steepening of the yield curve into account, we have achieved significant results in stabilizing earnings by accumulating carry income.
• As shown on the right-hand side of the page, in Sales & Trading, the integration of the BK and SC derivatives platforms has enabled us to match client flows across BK and SC as well as globally.
  The consolidation of BK and SC transaction flows has also contributed to significant growth in Sales & Trading revenue by allowing more competitive rates and other advantages.

【Page 62】

Direction of New HR Strategy

• We have been implementing a new HR strategy since FY2019.
• We are making steady progress in reviewing HR system operations to establish a cross-entity platform. We are shifting from having different platforms for each entity to having HR administration by business field.
• In order to enhance employee expertise and motivation, we reward those employees who enhance their universally recognized expertise based on the characteristics of their business area by providing them with competitive compensation aligned with their market value.
• As shown on the upper right of this page, this is not limited to personnel on the shared platform. In light of the integration of IR and RI (Mizuho Information & Research Institute and Mizuho Research Institute) and of market business operations departments in BK and SC, we have already begun unified cross-entity management of personnel evaluations and compensation in each area of specialization/business field, such as analysts, IT engineers, and market business operations department personnel.

【Page 63】

New workstyles -No return to pre-COVID-19

• Next, we will look at workstyles.
• Structural changes in lifestyles are leading to flexible workstyles not bounded by place, day of the week, or time, according to business field.
  We have put in place a framework to support new workstyles, which is not limited to office work. By enabling our employees, who come from diverse backgrounds, to work to their full potential, we will contribute to the improvement of sustainability.

【Page 64】

Offices for new workstyles

• Through the introduction of free address offices, the expansion of shared areas, and the establishment of satellite offices, we are promoting flexible workstyles and creating an environment that enhances employee communication and productivity.
• Combining these with the workstyles on the previous page, we will improve employee motivation and corporate vitality.

【Page 65】

Revising our sales framework

• The left-hand side of the page is for RBC. In order to further evolve the geographic area-based approach we introduced in this fiscal year, we will reorganize our branches that serve both corporate clients and retail customers to have separate, dedicated services for these two segments from FY2021.
  This will enable us to exercise a higher level of expertise in responding to the diverse needs of each corporation and individual in a geographic area.
• The right-hand side of the page is CIC. We will build a framework to train and cultivate specialists with sector expertise across BK and SC.
• We will also reorganize our current industry-specific sales structure into five industry groups consisting of affiliated industries, with the groups mirrored across BK and SC. In addition to organizing sectors from which we expect to be able to capture cross- sector deals in the same industry group, we will also apply an approach based on business principles such as sustainability and digital transformation across industry groups, going beyond the boundaries of conventional industries.

【Page 66】

Group company reforms

• As I mentioned earlier, our new company, which integrates Mizuho Information & Research Institute, Mizuho Research Institute, and Mizuho Trust Systems, is positioned to create new value with our group's financial business areas in an integrated manner, as a core company that supports non-financial business areas.
• By leveraging and organically integrating our strengths in each of the three core business areas of research, consulting, and IT/digital, we will offer support for our clients' sustainability measures, digitalization, and digital transformation, and in doing so create new business opportunities.
• For this reason, as mentioned previously, we will build a group-wide HR platform tailored to business areas such as research and IT engineering, with the new company at the center.

【Page 82】

• That brings us to the end of the presentation materials, and I would like to conclude with a few words.
• In the wake of the COVID-19 pandemic, society as a whole has been changing significantly to adjust to a post-COVID-19 world, including the way we live our lives and the way we do business.
• It is not that we cannot return to how things were before COVID-19, but rather that we choose not to. COVID-19 can be a catalyst to transform us into a stronger organization.
• During this unprecedented crisis, we will strive to create a brighter future through our commitment and deliver benefits to our stakeholders in line with the mission embodied in the name of Mizuho, which evokes images of a "bountiful harvest of rice" in Japanese. To this end, we will come together as a united group to further accelerate our transition to the next generation of financial services.
• Thanks to your continued support, we were able to celebrate Mizuho's 20th anniversary in September. We will continue to move forward, focusing on the future.
• I would like to conclude my comments by asking for your continued understanding and support. Thank you for your attention.