Message from the Group CFO
Overview of the 5-Year Business Plan’s second year
Fiscal 2020 performance
Amid the unprecedented crisis caused by the COVID-19 pandemic in fiscal 2020, we were able to fulfill our financial intermediary functions and respond to client needs such as for funding support while also making steady progress toward finance structure reforms through the thorough implementation of proactive financial management from a forward-looking perspective.
Our Consolidated Net Business Profits, which indicate the profits of our core business operations, performed strongly in both customer and markets divisions, increasing significantly year-on-year by JPY127.1 billion to JPY799.7 billion. Performance in the customer divisions surpassed the levels recorded prior to the introduction of Japan's negative interest rate policy in fiscal 2015, reaching the highest level of profits since we introduced the in-house company system in fiscal 2016.
Although Credit-related Costs increased as a result of the recording of additional Reserves for Possible Losses on Loans from a forward-looking perspective in response to the prolonged impact of the COVID-19 pandemic, the strong performance of our Consolidated Net Business Profits has driven an increase in Net Income Attributable to Mizuho Financial Group by JPY22.4 billion year-on-year to JPY471 billion.
As of March 31, 2021, our Common Equity Tier 1 (CET1) Capital Ratio, which indicates financial soundness, was 9.1%, reaching our 5-Year Business Plan target of the lower end of the 9 – 10% range during the second year of the plan.
Dividends per share were JPY75, matching our estimate at the beginning of the fiscal year based on the shareholder return policy through fiscal 2020 and in light of the performance of Net Income Attributable to Mizuho Financial Group.
- Prior to reflecting one-time losses of JPY194.7 billion recorded in light of structural reform initiatives
- Total for the Retail & Business Banking Company, Corporate & Institutional Company, Global Corporate Company, and Asset Management Company. Past fiscal year results were recalculated based on fiscal 2020 management accounting rules.
Progress on finance structure reforms
In our 5-Year Business Plan that began in fiscal 2019, we aim to transition to the next generation of financial services by implementing structural reforms in the three interconnected areas of business, finance, and corporate foundations. Particularly for finance structure reforms, in addition to evaluating the efficiency of returns on invested corporate resources for each business area based on risk & return and cost & return, we are reallocating corporate resources with a focus on the stability and growth potential of revenue as well. It is through such initiatives that we aim to further strengthen our stable revenue base and continue building our business portfolio to align with growth areas.
Risk & return (gross profits ROE)
Toward improving risk & return, we worked to shift corporate resources from less-profitable business areas to high-profit business areas while also diligently and consistently proceeding with negotiations with individual clients to improve profitability. I would like to explain the results of these efforts in detail, namely the improvement in the loan spread outside Japan and the reduction of cross-shareholdings.
With regard to client relations outside Japan, we advanced our Global 300 strategy and built a portfolio that focuses on non-Japanese blue-chip companies with a high credit profile. However, due to the highly competitive environment, there were also transactions that failed to lead to expanded ancillary transactions, leaving them at a low level of profitability. To address this, we reviewed our invested corporate resources, evaluating the potential for future improvements in the profitability of transactions with each company. Such continual efforts resulted in the achievement of a 0.99% loan spread outside Japan in the second half of fiscal 2020, up significantly from 0.80% two years ago and 0.82% one year ago.
- Mizuho Bank, management accounting
- Mizuho Bank (including subsidiaries in China, the US, the Netherlands, Indonesia, Malaysia, Russia, Brazil, Mexico). Figures, including past figures, were calculated based on the FY2020 planned rate in US dollars.
Regarding the reduction in cross-shareholdings, for which we established a target to reduce cross-shareholdings by JPY300 billion over three years through the end of fiscal 2021, we have made steady progress through sincere dialogue with clients, selling a total amount of JPY219.4 billion (a total reduction of JPY252.1 billion including impairment losses) over two years. In our shift from business relationships dependent on cross-shareholdings, we are reforming our business structure while simultaneously improving risk & return. This is being accomplished through such means as investing, over a span of two years, approximately JPY0.8 trillion of the resources secured from reducing cross-shareholdings into quasi-equity loans or preferred stock that facilitate the business structure transformation of clients.
Reduction of cross-shareholdings1
- Acquisition cost basis
- Of which, - JPY219.4 billion from sales (Progress rate: 73%)
Cost & return (expense ratio)
As structural changes progress, including the declining birthrate and aging population, digitalization, and the prolongation of the low interest rate environment, the most pressing issue regarding cost & return is transforming the cost structure of our retail business in Japan to a structure balanced with revenue. In addition to transitioning toward an appropriate business structure for the coming era, including with our IT systems, operations, and channels, we have also reviewed our sales framework to be more closely aligned with the diversifying needs of clients.
It is through such initiatives that we achieved Net Business Profits of JPY42.5 billion for the Retail & Business Banking Company in fiscal 2020, a JPY30.3 billion increase year-on-year, and we are setting the stage to continue the trend of growing profits.
Stable revenue and upside revenue
Financial business involves a profit structure with profit levels that fluctuate largely with the business environment, including with interest rates, foreign exchange rates, stock prices, and other economic trends. In considering our business portfolio, it is crucial that we strengthen our stable revenue base to be resistant to the effects of the business environment while also establishing a foundation that is able to reliably capture revenue opportunities during times of strong business trends.
At Mizuho, we are monitoring the progress behind the strengthening of our revenue base and the restructuring of our business portfolio by analyzing our Consolidated Net Business Profits divided into stable revenue and upside revenue.
In fiscal 2020, our stable revenue increased by JPY59 billion year-on-year to JPY370 billion, resulting mainly from factors such as increased loans and improved loan spreads amid the COVID-19 pandemic, as well as a reduction in costs focused on the Retail & Business Banking Company. In fiscal 2021, we anticipate our stable revenue to surpass the JPY380 billion level recorded prior to the introduction of the negative interest rate policy in fiscal 2015.
Our upside revenue in fiscal 2020 was JPY295 billion, reaching the JPY270 billion planned for the final year of the 5-Year Business Plan three years ahead of schedule. On top of the strong performance in capital markets-related business both in and outside Japan, our asset management business also trended favorably on the back of rising stock prices, among other factors, allowing us to fully capture the strong tailwinds. Although revenue will fluctuate depending on the business environment, the strength of our fundamental earnings power is steadily on the rise.
As a result, our total Consolidated Net Business Profits exceeded the JPY700 billion third year target of the 5-Year Business Plan one year in advance at JPY799.7 billion.
Stable revenue and upside revenue1
- Group aggregate, management accounting, rounded figures (Excluding special factors such as one-time gains. The aggregate figures of banking revenue, upside revenue, and stable revenue do not match Consolidated Net Business Profits in the same period).
- Banking book revenue resulting from overall management of assets and liabilities.
Fiscal 2021 financial management
Fiscal 2021 will be a crucial year as a midway point in our 5-Year Business Plan, in which we deepen the initiatives that we have implemented so far and link them to continuous growth. While preparing ourselves thoroughly for the risk of the COVID-19 pandemic continuing, resulting in a prolonged economic downturn, we will steadily advance finance structure reforms to ensure that we meet our fiscal 2023 goals.
Fiscal 2021 earnings plans
With the exceedingly strong fiscal 2020 performance of capital markets-related business leveling off, we anticipate a drop in Consolidated Net Business Profits centered on markets divisions. However, as a result of the advancement of our structural reforms to enhance stable revenue, including the improvement of lending income among other enhancements, we expect only a slight decline from fiscal 2020 with a Consolidated Net Business Profits estimate of JPY790 billion.
We expect Credit-related Costs to decrease to -JPY100 billion, halving the amount on a year-on-year basis, as reserves were set to the greatest extent possible for credit risks from fiscal 2021 onward on a forward-looking basis in the fiscal 2020 financial results. Although reserves have been recorded financially, as we expect the difficult business environment due to the COVID-19 pandemic to continue primarily in Japan for some time, we will continue to ensure thorough credit management.
Including Net Gains (Losses) Related to Stocks centered on the reduction of cross-shareholdings, we expect Net Income Attributable to Mizuho Financial Group to reach JPY510 billion, an 8% increase year-on-year.
Fiscal 2021 earnings plans
|Consolidated Net Business Profits (+ Net Gains/Losses Related to ETFs)||799.7||790.0||-9.7|
|Net Gains (Losses) related to Stocks (- Net Gains/Losses Related to ETFs||10.0||50.0||+ 39.9|
|Net Income Attributable to Mizuho Financial Group||471.0||510.0||+38.9|
Capital management policy/shareholder return policy
In light of such factors as our CET1 Capital Ratio reaching the lower end of the 9 - 10% range, as is targeted in the 5-Year Business Plan, as well as our forecasts for our capital and earnings levels, we have revised our capital management policy. Rather than pursuing the optimum balance between strengthening our capital base and steady returns to shareholders, as we have done so far, we will now pursue the optimum balance between capital adequacy, growth investment, and the enhancement of shareholder returns.
CET1 Capital Ratio
Additionally, we also reviewed our shareholder return policy and set progressive dividends as our principle approach, where we decide dividends based on the steady growth of our stable earnings base, taking a 40% dividend payout ratio into consideration as a guide. Estimates for fiscal 2021 annual dividends will be maintained at JPY75 per share of common stock, unchanged from fiscal 2020. We set these figures based on the uncertain business environment that remains as a result of the prolonged impact from the COVID-19 pandemic, and we will continue our efforts toward increasing the probability of reaching our JPY510 billion target for Net Income Attributable to Mizuho Financial Group, reviewing our dividend estimates as necessary.
We will also make timely and appropriate decisions regarding share buybacks with consideration to our business results and capital adequacy, our stock price, and opportunities for growth investment, among other factors.
New capital management policy
The fulfillment of tax duties is one of the most important social responsibilities for companies. In addition to fulfilling tax duties and complying rigorously with tax laws of applicable countries and international tax rules such as the Action Plan on Base Erosion and Profit Shifting*, we strive to sustainably increase corporate value.
Specifically, we ensure that all employees understand the contents of our Tax Policy and pursue the improvement of tax literacy through training sessions, and we will continue working to improve the fulfillment of our tax duties based on our Tax Policy. From the perspective of appropriate management of tax costs, in fiscal 2021 we have started the implementation of the consolidated taxation system in Japan.
* Base Erosion and Profit Shifting (BEPS): Tax planning strategies utilized by multinational companies to leverage gaps in national and international tax rules and artificially shift their profits to avoid taxation.
Our engagement with shareholders and investors
In recent years, the relationship between companies and their shareholders and investors is changing, with the interests of shareholders and investors expanding to include not only business strategy and capital management policy, but also the sustainable improvement of corporate value from a broad range of perspectives such as environmental sustainability. In light of this, we at Mizuho are making efforts in our IR activities to further enhance engagement with ESG investors, as well as further strengthen our disclosure.
At Mizuho, we hold events on a regular basis as opportunities for engagement, including presentations on our financial results for institutional investors, IR Day, which is a briefing about the business strategies of each in-house company, and IR Select, which is an event covering specific strategic topics. We have also continued holding presentations for individual investors via online video linkup since 2015. With a consideration to the COVID-19 pandemic, we are also carrying out meetings and IR events through remote channels. For example, in addition to the usual fiscal year and interim financial results explanations, we hold online conferences for institutional investors following the publication of first and third quarter financial results. We also proactively utilize remote environments, which are free from constraints such as time and region, to hold meetings with investors outside Japan.
We will continue striving to enhance our disclosures while proactively engaging with shareholders and investors.
Improving Mizuho’s initiatives through engagement
At Mizuho, we are working to improve our many initiatives and disclosures, listening closely to the opinions received from our shareholders, investors, and other varied stakeholders.
As part of these initiatives, we revised our basic policy on capital strategy and shareholder return policy after gathering opinions from institutional investors and analysts and holding multiple meetings with outside directors.
With a rise in the number of meetings we have in recent years as a result of a heightened interest in sustainability, we are also strengthening our initiatives in this area. We released details about our initiatives in our press release “Strengthening our sustainability action” in May 2021, and our TCFD Report 2021 in June 2021.
Furthermore, in addition to enhancing our disclosure of matters related to the COVID-19 pandemic and our in-house companies in our financial results materials, we also started providing earlier disclosure regarding cross-shareholdings in the convocation notice for the General Meeting of Shareholders.
We will continue to listen closer yet to the opinions of our shareholders and investors and strive to reflect these in our initiatives.
Initiatives pertaining to the General Meeting of Shareholders
As the General Meeting of Shareholders is an important engagement opportunity to hold dialogue directly with shareholders, we at Mizuho are driving various related initiatives. In particular, in addition to enhancing communications including the convocation notice and providing videos of the meeting online, we are also implementing measures such as enabling the exercise of voting rights via mobile devices. Due to the COVID-19 pandemic, we are also implementing an online video feed in addition to the on-site meeting.
Definitions for figures in the Message from the Group CFO
Consolidated Net business Profits: Includes Net Gains (Losses) related to ETFs (Mizuho Bank and Mizuho Trust & Banking) and Net Gains on Operating Investment Securities (Mizuho Securities consolidated)
CET1 Capital Ratio: Calculated on a Basel III finalization basis (includes the effect of partially fixing unrealized gains on stocks through hedge transactions, excluding Net Unrealized Gains (Losses) on Other Securities).
The year in engagement
Engagement for the transition to the capital utilization phase
In light of the CET1 Capital Ratio of 8.9% as of December 31, 2020, approaching the lower end of the 9 – 10% range, various opportunities for discussion with institutional investors and analysts in and outside Japan were gained in addition to proactive discussions held with outside directors.
In May 2021, we revised our basic policy on capital strategy and our shareholder return policy based on the opinions received through engagement.