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Fundamental View
AS OF 07 Jan 2025Mizuho undertook large restructuring charges in FY18 to improve its weak returns. Its performance improved in FY20 and FY21, though a series of Japan IT system failures was a distraction. FY22 was a mixed year due to challenging revenue growth, but FY23 has been much better.
Mizuho has correctly started to make investments in building its capabilities (Greenhill/Rakuten), which it had shied away from for a 7-8yr period due to low capital levels and a focus on reducing expenses.
As one of the three megabanks, Mizuho’s credit standing benefits from a strong expectation of government support, if needed.
Business Description
AS OF 07 Jan 2025- Mizuho is just about the third largest by asset size among Japan's three megabanks. It was formed in 2000 through the merger of the former "City" banks, Fuji and Dai-Ichi Kangyo, and the Industrial Bank of Japan, a provider of long-term industrial credit financed by bond issues.
- Its main units are Mizuho Bank and Mizuho Trust & Banking (focusing on asset management and related services). The group's other main business is Mizuho Securities, a leading player in debt capital markets in Japan and the US.
- It expanded in North America in 2015 by acquiring assets and staff from RBS and has successfully captured more markets and commercial banking business in conjunction with its securities arm. It also acquired Greenhill, a boutique M&A firm, in 2023.
- Mizuho is less diversified than its peers by product segment, and has historically been more corporate focused.
Risk & Catalysts
AS OF 07 Jan 2025As mentioned above, Mizuho has correctly started making investments in building its capabilities, which we welcome. More recently, its sales & trading business has done well. Its plans to recycle assets out of Japanese mortgages and low profitability assets into the Americas is sensible.
Asset quality has been benign and not much affected by COVID-19 up to and throughout FY21; credit costs in FY22 decreased to a low 8 bp of loans and moved marginally up to 11 bp in FY23. This is much lower than the other two megabanks, but so are its spreads.
The CET1 ratio (fully Basel III compliant and ex-security gains) is 1.8% above the 8% regulatory minimum, which is fairly low level but acceptable given benign asset quality.
Key Metric
AS OF 07 Jan 2025| ? bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Net Interest Revenue/Ave Assets | 0.44% | 0.41% | 0.35% | 0.36% | 0.36% |
| Operating Income/Average Assets | 1.01% | 0.96% | 1.05% | 1.03% | 1.13% |
| Operating Expense/Operating Income | 62% | 63% | 62% | 60% | 58% |
| Pre-Impairment Operating Profit / Average Assets | 0.38% | 0.34% | 0.40% | 0.44% | 0.52% |
| Loan impairment (charge) or reversal/ave. loans | (0.28%) | (0.10%) | (0.12%) | (0.02%) | 0.03% |
| ROAA | 0.24% | 0.23% | 0.26% | 0.33% | 0.42% |
| ROAE | 5.8% | 6.1% | 7.0% | 8.9% | 10.8% |
| CET1 Ratio excl. unrealised securities gains in AOCI | 11.5% | 11.3% | 11.8% | 10.9% | n/a |
CreditSight View Comment
AS OF 27 Jan 2025Mizuho historically trailed its peers on profitability and capital (which in turn limited franchise investments), as the merger that formed it included IBJ, a large wholesale bank with thin margins. Credit costs related to Russia in 4Q21 + Japan corps in 1Q22 affected results but were better subsequently. Previous issues with its Japan IT system have not resurfaced. CET1 capital has a decent 2.5% buffer. Mizuho was the improved megabank over FY20-21 and again more recently. FY22 net income declined, but FY23 and 1H24 have seen good net income jumps, helped by better trading revenues and low credit costs. It has finally restarted investments in new product/M&A. Govt. support is assured. We see 10-15 bp of upside from current levels, and an improving credit trajectory.
Recommendation Reviewed: January 27, 2025
Recommendation Changed: January 27, 2025
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