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Fundamental View
AS OF 07 Mar 2024Mizuho (A1/A-/A-) 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 3Q23 has been better.
Mizuho’s CET1 ratio buffer has improved but is somewhat low at 1.6%, but is acceptable given comfortable asset quality metrics.
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 Mar 2024- 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 Mar 2024Asset 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 down to a further 1 bp in 9M23.
The CET1 ratio (fully Basel III compliant and ex-security gains) is 1.6% above the 8% regulatory minimum, which is fairly low level but acceptable for now given benign asset quality.
FY22 was a mixed year for Mizuho as the bottomline was propped up by reduced credit costs, while revenue growth continued to be anemic as was the case over the previous few years. 9M23 has been helped by a large trading beat.
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.
Key Metrics
AS OF 07 Mar 2024¥ bn | FY19 | FY20 | FY21 | FY22 | 9M23 |
---|---|---|---|---|---|
Net Interest Revenue/Ave Assets | 0.36% | 0.42% | 0.44% | 0.41% | 0.35% |
Operating Income/Average Assets | 1.02% | 1.03% | 1.01% | 0.96% | 1.05% |
Operating Expense/Operating Income | 67% | 64% | 62% | 63% | 59% |
Pre-Impairment Operating Profit / Average Assets | 0.33% | 0.37% | 0.38% | 0.34% | 0.43% |
Loan impairment (charge) or reversal/ave. loans | (0.21%) | (0.25%) | (0.28%) | (0.10%) | (0.02%) |
ROAA | 0.22% | 0.22% | 0.24% | 0.23% | 0.34% |
ROAE | 5.2% | 5.3% | 5.8% | 6.1% | 9.0% |
CET1 Ratio excl. unrealised securities gains in AOCI | 11.0% | 10.5% | 11.5% | 11.3% | n/m |
CreditSights View
AS OF 20 Feb 2024Mizuho has historically trailed its peers on profitability and capital, as the merger that formed it included the former IBJ, a large wholesale bank with thin profit margins. Low profitability and capital prevented investments in new opportunities. FY20-21 saw good improvements in net interest income and mostly lower credit costs vs. peers. Credit costs related to Russia in 4Q21 and Japan corps in 1Q22 affected results but were better subsequently. Previous issues with its Japan IT system have not resurfaced recently. CET1 capital has a ~1.7% buffer which is low but acceptable. Mizuho was the improved megabank over FY20-21. FY22 net income declined, but 9M23 has seen a jump due to better trading revenues and low credit costs. It has finally restarted investments in new product/M&A.
Recommendation Reviewed: February 20, 2024
Recommendation Changed: December 05, 2022