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Fundamental View
AS OF 19 Mar 2025Mizuho has emerged as a significantly stronger and more capable institution than it was a decade ago.
Following the RBS North America business acquisition in 2015, which significantly improved its heft and offerings, Mizuho largely shied away from making investments in its businesses due to low capital levels and a focus on reducing expenses; that has changed over the past couple of years (Greenhill/Rakuten); separately, capital levels are now stronger than SMFG’s.
As one of the three megabanks, Mizuho’s credit standing benefits from a strong expectation of government support, if needed.
Business Description
AS OF 19 Mar 2025- Mizuho is 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, and owns ~50% of Rakuten Securities and 15% of Rakuten Cards.
- Mizuho is less diversified than its megabank peers by product segment, although its securities arm is large.
Risk & Catalysts
AS OF 19 Mar 2025Its plans to recycle assets out of Japanese mortgages and low profitability assets into the Americas is sensible.
A series of Japan IT system failures in 2021-22 was a distraction, but has fortunately not recurred recently.
Asset quality is a key strength (but its international loan margins are also lower as a consequence) and credit costs are much lower than its peer megabanks, in part due to not owning a large Japanese personal unsecured loans business.
The buffer between its CET1 ratio (fully Basel III compliant and ex-security gains) and the 8% regulatory minimum has improved from 170 bp a year ago to 240 bp as of Dec-24.
Key Metric
AS OF 19 Mar 2025| JPY bn | FY21 | FY22 | FY23 | 3Q23 | 3Q24 |
|---|---|---|---|---|---|
| Net Interest Revenue/Ave Assets | 0.44% | 0.41% | 0.35% | 0.35% | 0.36% |
| Operating Income/Average Assets | 1.01% | 0.96% | 1.05% | 1.05% | 1.11% |
| Operating Expense/Operating Income | 62% | 63% | 62% | 59% | 60% |
| Pre-Impairment Operating Profit / Average Assets | 0.38% | 0.34% | 0.40% | 0.43% | 0.45% |
| Loan impairment (charge) or reversal/ave. loans | (0.28%) | (0.10%) | (0.12%) | (0.02%) | 0.05% |
| ROAA | 0.24% | 0.23% | 0.26% | 0.34% | 0.42% |
| ROAE | 5.8% | 6.1% | 7.0% | 9.0% | 11.0% |
| CET1 Ratio excl. unrealised securities gains in AOCI | 11.5% | 11.3% | 11.8% | n/a | n/a |
CreditSight View Comment
AS OF 04 Feb 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 9M24 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: February 04, 2025
Recommendation Changed: January 27, 2025
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