UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of February, 2008
Commission File Number 001-33098
Mizuho Financial Group, Inc.
(Translation of registrants name into English)
5-5, Otemachi 1-chome
Chiyoda-ku, Tokyo 100-0004
Japan
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F x Form 40-F ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ¨ No x
If Yes is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82- .
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: | February 12, 2008 | |
Mizuho Financial Group, Inc. | ||
By: | /s/ Terunobu Maeda | |
Name: | Terunobu Maeda | |
Title: | President & CEO |
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1
The following is a summary of significant business developments since March 31, 2007 relating to Mizuho Financial Group.
Developments Relating to Our Capital
In May 2007, we repurchased all of the 261,040.83 shares of our common stock held by our subsidiary, Mizuho Financial Strategy Co., Ltd., for cash consideration of ¥221.1 billion and cancelled such shares on the same day as the repurchase.
In June 2007, we redeemed ¥185.5 billion of non-dilutive preferred securities issued by offshore special purpose companies.
In August and September 2007, we repurchased a total of 214,900 shares of our common stock on the Tokyo Stock Exchange, through a trust established for this purpose, for ¥150.0 billion, with the purpose of offsetting the potential dilutive effect of the conversion of our Eleventh Series Class XI preferred stock after the commencement of the conversion period on July 1, 2008 and cancelled such shares in September 2007. We may consider setting up additional repurchase limits and conducting share repurchases in the future, based on market conditions, our earnings trend and other factors.
In January 2008, we issued ¥274.5 billion of non-dilutive preferred securities through an offshore special purpose company so as to increase our Tier 1 capital to secure the agility and improve the flexibility of our future capital strategy.
Expansion of Our Retail Business
We offer Mizuho Mileage Club, a membership service through which members can receive benefits depending on their level of business relationship with Mizuho Bank, Ltd. and accumulate points when they use credit cards and conduct other transactions with Mizuho Bank. By November 30, 2007, we had increased the number of Mizuho Mileage Club members to over 5 million from approximately 3.27 million as of March 31, 2007. In order to expand the market coverage for individual customers, we plan to establish 100 new retail-only branches, including through the conversion of sub-branches into branches. We increased the number of such retail-only branches by 10 to 28 in the six months ended September 30, 2007. We also further strengthened Mizuho Banks financial consulting capabilities through various measures. Such measures include the introduction of a new type of branch office called Personal Square, which focuses on addressing the needs of individual customers and offer a more comfortable floor layout and flexible business hours compared to Mizuho Banks other branch offices. We had 108 Personal Squares as of September 30, 2007. We also increased the number of branches and offices with a designated space for private consultations with customers called Premium Salons to 280 as of September 30, 2007 from 250 as of March 31, 2007 and those with securities consulting booths called Planet Booths to 108 as of September 30, 2007 from 100 as of March 31, 2007. We have also increased the number of Mizuho Banks financial consultants to approximately 2,500 as of September 30, 2007 from approximately 2,300 as of March 31, 2007. Such financial consultants make proposals regarding investments such as investment trusts, foreign currency deposits, individual annuities and Japanese government bond sold to individual customers. We aim to increase the number of financial consultants to 3,000 over time. In terms of products offered, we plan to continue taking advantage of the full deregulation of over-the-counter sales of insurance products by banks, which became effective in December 2007, beginning with the addition in the same month of medical care insurance as a product that we offer as sales agent at all of the branches of Mizuho Bank. In the area of credit card business, Mizuho Bank established a third-party processing company called Qubitous Co., Ltd. together with Credit Saison Co., Ltd. in October 2007. In addition, Mizuho Bank purchased 7.5 million shares of Credit Saison for ¥23.5 billion through a private purchase in December 2007 so as to further strengthen the comprehensive strategic business alliance with Credit Saison. Upon consummation of the transaction, members of the Mizuho group held 11.69% of the shares of Credit Saison as disclosed in our large shareholding report submitted to the Director of the Kanto Local Finance Bureau on January 7, 2008.
2
Expansion of Our International Network
Mizuho Corporate Bank, Ltd. opened a branch in Milan, Italy in April 2007, a representative office of the New York Branch in Mexico in May 2007 and a branch in Dubai in June 2007. In addition, we have received permission to commence preparation for the establishment of a branch in Taichung, Taiwan. These new branches strengthen our capability to offer various services to our customers in the respective regions.
In June 2007, Mizuho Corporate Bank established Mizuho Corporate Bank (China), Ltd., a wholly owned banking subsidiary, and transferred the business of branches in Shanghai, Shenzhen, Dalian, Beijing and Wuxi to the new subsidiary. Mizuho Corporate Bank (China) also opened a branch in Tianjin in July 2007 and a sub-branch in the Dalian Economic & Technological Development Area in October 2007. In addition, we have received official approval from the China Banking Regulatory Commission to commence preparations for the establishment of a branch in Qingdao and Guangzhou. The establishment of Mizuho Corporate Bank (China) is expected to enable us to offer renminbi-denominated deposits and loans in all of our China branches and will facilitate license acquisition for new services and new branch openings.
In November 2007, Mizuho Corporate Bank completed the transfer of business operations from Mizuho Corporate Bank (Canada), its wholly-owned subsidiary, to the newly established Canada Branch and Vancouver Office. The establishment of the new branch and office is expected to enable us to respond faster and with greater precision to the needs of customers.
In January 2008, we acquired all of the outstanding common shares of The Michinoku Bank (Moscow) Ltd., a wholly-owned subsidiary of The Michinoku Bank, Ltd. This acquisition enables us to provide local support and an expanded range of financial services to our customers that are planning to establish or expand business operations in Russia.
Impact of the dislocation in the global financial market
The impact of the dislocation in the global financial market stemming from U.S. subprime loan issues has spread widely across the markets for securitization products, including residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) backed by RMBS, regardless of whether they involve U.S. subprime mortgage loans, leading to significant liquidity problems that have contributed to the declines in the value, and disruption of historical pricing relationships, of such products. The adverse impact has further expanded to various markets such as asset-backed commercial paper (ABCP) and loans related to leveraged buyout transactions. In addition, structured investment vehicles (SIVs), which are investment vehicles that are designed to earn a spread between the short-term debt that they issue and the longer-term investments (including the types of securities that were impacted by the market dislocation) that they make, are facing significant liquidity issues in connection with their issuances of short-term debt as a result of rating agency downgrades of their longer-term investments and other related market developments.
The foregoing market developments have adversely affected our financial condition and results of operations. In the six months ended September 30, 2007, our three principal banking subsidiaries, Mizuho Corporate Bank, Mizuho Bank and Mizuho Trust Bank, including their overseas subsidiaries, incurred approximately ¥16 billion of impairment losses on securitization products (which were accounted as unrealized losses under Japanese GAAP as of September 30, 2007), approximately ¥2 billion of losses on sales of securitization products (which include approximately ¥0.6 billion of losses on securitization products backed at least in part by U.S. subprime loans), approximately ¥24 billion of losses related to loans held for sale mainly in connection with leveraged buyout transactions and approximately ¥10 billion of impairment losses and provisions for reserves related to SIVs and certain other subprime-related losses, net of gains from hedging with credit default swaps. During the same period, Mizuho Securities (including, for the purposes of this subsection, its overseas subsidiaries) incurred approximately ¥35 billion of trading losses (net of hedges) on securitization products in trading account assets. Thus the total of the above losses of our principal banking subsidiaries and Mizuho Securities was approximately ¥87 billion for the six months ended September 30, 2007.
3
We continue to hold a significant amount of securitization products. The balance of securitization products held by our principal banking subsidiaries and Mizuho Securities, on a managerial accounting basis used for risk monitoring purposes, totaled approximately ¥4.7 trillion and ¥900 billion, respectively, as of September 30, 2007, including foreign currency-denominated RMBS and CDOs backed by RMBS in the amount of approximately ¥400 billion held by our principal banking subsidiaries and ¥380 billion held by Mizuho Securities. Of the approximately ¥400 billion held by our principal banking subsidiaries, approximately ¥6 billion was attributable to CDOs backed at least in part by U.S. subprime loans. Of the approximately ¥380 billion held by Mizuho Securities, approximately ¥110 billion was backed at least in part by U.S. subprime loans. The following table shows the breakdown of securitization products in our principal banking subsidiaries (available-for-sale securities) and Mizuho Securities (trading account assets) as of September 30, 2007:
As of September 30, 2007(1) | |||
(in trillions of yen) | |||
Principal banking subsidiaries (including overseas subsidiaries): |
|||
Total balance of securitization products |
¥ | 4.7 | |
Foreign currency-denominated securitization products |
1.2 | ||
RMBS; and CDOs backed by RMBS |
0.4(2) | ||
Other CDOs |
0.2 | ||
Asset-backed securities; collateralized loan obligations; and others |
0.6 | ||
Mizuho Securities (including overseas subsidiaries): |
|||
Total balance of securitization products |
¥ | 0.9 | |
Foreign currency-denominated securitization products |
0.5 | ||
RMBS; and CDOs backed by RMBS |
0.38(3) | ||
Other CDOs |
0.14 | ||
Asset-backed securities; collateralized loan obligations; and others |
0.02 |
Notes:
1. | Approximate amount based on a managerial accounting basis. |
2. | Of this amount, approximately ¥6 billion was attributable to CDOs backed at least in part by U.S. subprime loans. |
3. | Of this amount, approximately ¥110 billion was backed at least in part by U.S. subprime loans. |
With respect to our approximately ¥25 billion in total investments and loan exposures to SIVs, we incurred impairment losses and provisions for reserves of ¥21 billion through September 30, 2007. This ¥21 billion is included in the approximately ¥87 billion in losses mentioned in the second paragraph of this subsection. We do not serve as the investment manager or provide liquidity facilities or other credit support to any SIVs.
As of September 30, 2007, we had a total of approximately ¥860 billion in loans held for sale, most of which were related to overseas leveraged buyout transactions. We had losses related to those loans held for sale of approximately ¥24 billion for the six months ended September 30, 2007. This ¥24 billion is also included in the approximately ¥87 billion of losses mentioned in the second paragraph of this subsection. In addition, as of September 30, 2007, we had a total of approximately ¥80 billion in outstanding loans to U.S. mortgage companies mainly for their working capital, all of which companies were rated investment grade by nationally recognized statistical rating organizations. As of September 30, 2007, we had no subprime-related warehouse loans, or loans that provide interim funding to other financial institutions while they accumulate assets underlying a new asset-backed securities issuance.
As of September 30, 2007, our consolidated variable interest entities (VIEs) had issued a total of approximately ¥765 billion in ABCPs outstanding. An ABCP program generally involves a VIE that purchases receivables from participating clients and other financial assets to meet off-balance-sheet or liquidity needs and
4
then issues commercial paper and/or receives loans from us that are secured by the financial assets. Approximately ¥388 billion of this amount related to domestic ABCP programs with respect to which most of the underlying assets were domestic accounts receivables. The remaining ¥377 billion were ABCP programs in the United States, and there was an additional approximately ¥240 billion in unused portions of the programs. Approximately ¥152 billion of the combined amount of ¥617 billion of the above U.S. ABCP programs was backed by a CDO with underlying assets consisting in part of U.S. subprime loans, and the remainder was mainly backed by credit card receivables of U.S. banks and accounts receivables of U.S. subsidiaries of Japanese corporations. We are generally required to provide liquidity support with respect to the above U.S. ABCP programs.
As shown above, we continue to hold a significant amount of assets that are exposed to the risk of further declines in value or that may otherwise lead to further losses, and the amount of assets exposed to such risk may increase in the future depending on market conditions and other factors. Although we do not prepare quarterly financial information under U.S. GAAP, we reported losses totaling ¥345 billion under Japanese GAAP for the nine months ended December 31, 2007, as disclosed in our report on Form 6-K furnished to the United States Securities and Exchange Commission on January 31, 2008, which represents a significant increase from the ¥69 billion for the six months ended September 30, 2007. The amount of losses for the three months ended December 31, 2007 was aggravated by losses related to liquidity support for ABCP programs sponsored by us in the United States and losses related to a downgrade of a U.S. monoline insurer that is a counterparty to our credit default swaps. Market conditions have continued to deteriorate after December 31, 2007, and we may be subject to additional losses in subsequent periods absent a market recovery.
Others
Postponement of the merger of Mizuho Securities and Shinko Securities
In November 2007, we announced the commencement of negotiations for the amendment of the terms, including the merger ratio, of the Merger Agreement dated March 29, 2007 between Mizuho Securities Co., Ltd. and Shinko Securities Co., Ltd., an equity-method affiliate of ours. In December 2007, we announced the postponement of the scheduled effective date of the merger from January 2008 to May 2008, subject to regulatory approval and other procedures, taking into consideration the continuing dislocation in the financial market stemming from U.S. subprime loan issues .
Third-party allocation of new shares by Mizuho Securities to Mizuho Corporate Bank
In December 2007 and January 2008, Mizuho Corporate Bank, the parent company of Mizuho Securities, subscribed to a new share issuance of ¥150 billion and ¥250 billion, respectively, through a third-party allocation by Mizuho Securities so as to strengthen the capital base and business platform of Mizuho Securities and its subsidiaries.
Change of ownership structure of our group securities companies
In order to further strengthen collaboration between the groups banks and securities companies and to underscore such strengthened collaboration from a capital structure perspective, Mizuho Bank purchased in December 2007 127,564 thousand shares of common stock of Mizuho Investors Securities Co., Ltd. from Mizuho Securities, constituting 10.39% of outstanding voting rights, and Mizuho Corporate Bank similarly purchased 39,800 thousand shares of common stock of Shinko Securities, constituting 5.19% of outstanding voting rights. Upon consummation of the above transactions, Mizuho Bank held 65.54% of the voting rights of Mizuho Investors Securities and Mizuho Corporate Bank held 16.23% of the voting rights of Shinko Securities.
See note 2 Recently issued accounting pronouncements to our consolidated financial statements included elsewhere in this report.
5
The following table shows certain information as to our income, expenses and net income for the six months ended September 30, 2006 and 2007:
Six months ended September 30, | Increase (decrease) |
|||||||||||
2006 | 2007 | |||||||||||
(in billions of yen) | ||||||||||||
Interest and dividend income |
¥ | 1,183.5 | ¥ | 1,576.8 | ¥ | 393.3 | ||||||
Interest expense |
667.8 | 1,031.0 | 363.2 | |||||||||
Net interest income |
515.7 | 545.8 | 30.1 | |||||||||
Provision (credit) for loan losses |
(70.8 | ) | (63.5 | ) | 7.3 | |||||||
Net interest income after provision (credit) for loan losses |
586.5 | 609.3 | 22.8 | |||||||||
Noninterest income |
672.2 | 676.2 | 4.0 | |||||||||
Noninterest expenses |
637.5 | 738.6 | 101.1 | |||||||||
Income before income tax expense (benefit) |
621.2 | 546.9 | (74.3 | ) | ||||||||
Income tax expense (benefit) |
(30.6 | ) | 1.8 | 32.4 | ||||||||
Net income |
¥ | 651.8 | ¥ | 545.1 | ¥ | (106.7 | ) | |||||
Executive Summary
Net interest income increased by ¥30.1 billion, or 5.8%, from the six months ended September 30, 2006 to ¥545.8 billion in the six months ended September 30, 2007 due to an increase in interest and dividend income of ¥393.3 billion offset in part by an increase in interest expense of ¥363.2 billion. The increase in interest and dividend income was due mainly to the increases in interest income from loans, interest and dividend income from investments, and interest income from call loans and funds sold, and receivables under resale agreements and securities borrowing transactions, in each case mainly as a result of an increase in average yield, reflecting a general increase in interest rate levels of major currencies. The increase in interest expense was due mainly to the increase in interest expense on deposits and short-term borrowings attributable mainly to the increase in the average balance and the increase in average interest rates on these liabilities reflecting a general increase in interest rate levels of major currencies. We recorded a credit for loan losses of ¥63.5 billion in the six months ended September 30, 2007, a decrease of ¥7.3 billion compared to the six months ended September 30, 2006. The decrease in credit for loan losses was mainly a result of an increase in allowance for loan losses due mainly to the declining trend in the financial condition of small and medium sized enterprises (SMEs) that have relatively weak business bases and the downgrading of some large borrowers to lower internal credit ratings.
Noninterest income increased by ¥4.0 billion, or 0.6%, from the six months ended September 30, 2006 to ¥676.2 billion in the six months ended September 30, 2007 due mainly to increases in investment gainsnet offset in part by a decrease in fees and commissions income. The increase in investment gainsnet was mainly a result of impairment losses on Japanese government bonds in the six months ended September 30, 2006, offset in part by an increase in losses on sales of and impairment losses related to various types of securitization products incurred in the six months ended September 30, 2007 due to the dislocation in the global financial market stemming from U.S. subprime loan issues and by impairment losses on equity securities reflecting declines in domestic stock markets. Fees and commissions income decreased by ¥16.7 billion from the six months ended September 30, 2006 to ¥307.0 billion in the six months ended September 30, 2007 due mainly to a decrease in fees and commissions from deposits, debentures and lending business, reflecting increased competition in the domestic loan market.
Noninterest expenses increased by ¥101.1 billion, or 15.9%, from the six months ended September 30, 2006 to ¥738.6 billion in the six months ended September 30, 2007 due mainly to an increase in other noninterest expenses and a provision for losses on off-balance-sheet instruments in the six months ended September 30, 2007
6
compared to a credit in the six months ended September 30, 2006. The increase in other noninterest expenses was due mainly to losses related to loans held for sale mainly in connection with overseas leveraged buyout transactions reflecting the impact of the dislocation in the global financial market stemming from U.S. subprime loan issues. The provision for losses on off-balance-sheet instruments was due mainly to downgrades in credit ratings of some obligors.
As a result of the foregoing, income before income tax expense (benefit) decreased by ¥74.3 billion to ¥546.9 billion. We recorded an income tax expense of ¥1.8 billion in the six months ended September 30, 2007 compared to a benefit of ¥30.6 billion in the six months ended September 30, 2006, resulting in net income in the six months ended September 30, 2007 of ¥545.1 billion, a decrease of ¥106.7 billion, or 16.4%, from the six months ended September 30, 2006.
Net Interest Income
The following table shows the average balance of interest-earning assets and interest-bearing liabilities, interest amounts and the annualized average interest rates on such assets and liabilities for the six months ended September 30, 2006 and 2007:
Six months ended September 30, | Increase (decrease) | ||||||||||||||||||||||||||||
2006 | 2007 | ||||||||||||||||||||||||||||
Average balance |
Interest amount |
Interest rate |
Average balance |
Interest amount |
Interest rate |
Average balance |
Interest amount |
Interest rate |
|||||||||||||||||||||
(in billions of yen, except percentages) | |||||||||||||||||||||||||||||
Interest-bearing deposits in other banks |
¥ | 1,725.6 | ¥ | 38.4 | 4.44 | % | ¥ | 2,206.9 | ¥ | 39.3 | 3.56 | % | ¥ | 481.3 | ¥ | 0.9 | (0.88 | )% | |||||||||||
Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions |
14,424.8 | 213.7 | 2.95 | 16,015.8 | 323.7 | 4.03 | 1,591.0 | 110.0 | 1.08 | ||||||||||||||||||||
Trading account assets |
13,553.9 | 33.8 | 0.50 | 14,149.1 | 31.4 | 0.44 | 595.2 | (2.4 | ) | (0.06 | ) | ||||||||||||||||||
Investments |
36,827.1 | 254.6 | 1.38 | 38,707.4 | 377.9 | 1.95 | 1,880.3 | 123.3 | 0.57 | ||||||||||||||||||||
Loans |
67,031.3 | 643.0 | 1.91 | 68,715.9 | 804.5 | 2.34 | 1,684.6 | 161.5 | 0.43 | ||||||||||||||||||||
Total interest-earning assets |
133,562.7 | 1,183.5 | 1.77 | 139,795.1 | 1,576.8 | 2.25 | 6,232.4 | 393.3 | 0.48 | ||||||||||||||||||||
Deposits |
69,133.2 | 248.5 | 0.72 | 78,374.0 | 393.1 | 1.00 | 9,240.8 | 144.6 | 0.28 | ||||||||||||||||||||
Debentures |
6,077.7 | 18.2 | 0.60 | 4,364.8 | 13.0 | 0.59 | (1,712.9 | ) | (5.2 | ) | (0.01 | ) | |||||||||||||||||
Short-term borrowings(1) |
28,964.4 | 284.2 | 1.96 | 32,802.6 | 491.9 | 2.99 | 3,838.2 | 207.7 | 1.03 | ||||||||||||||||||||
Trading account liabilities |
10,853.2 | 34.2 | 0.63 | 11,181.3 | 28.0 | 0.50 | 328.1 | (6.2 | ) | (0.13 | ) | ||||||||||||||||||
Long-term debt |
5,017.8 | 82.7 | 3.29 | 6,802.9 | 105.0 | 3.08 | 1,785.1 | 22.3 | (0.21 | ) | |||||||||||||||||||
Total interest-bearing liabilities |
120,046.3 | 667.8 | 1.11 | 133,525.6 | 1,031.0 | 1.54 | 13,479.3 | 363.2 | 0.43 | ||||||||||||||||||||
Net |
¥ | 13,516.4 | ¥ | 515.7 | 0.66 | ¥ | 6,269.5 | ¥ | 545.8 | 0.71 | ¥ | (7,246.9 | ) | ¥ | 30.1 | 0.05 | |||||||||||||
Note:
(1) | Short-term borrowings consist of due to trust accounts, call money and funds purchased, payables under repurchase agreements and securities lending transactions, commercial paper and other short-term borrowings. |
7
Interest and dividend income increased by ¥393.3 billion, or 33.2%, from the six months ended September 30, 2006 to ¥1,576.8 billion in the six months ended September 30, 2007 due mainly to increases in interest income from loans, investments and call loans and funds sold, and receivables under resale agreements and securities borrowing transactions. The increase in interest income from loans was due mainly to a rise in the average yield on domestic and foreign loans, reflecting a general increase in interest rate levels of major currencies such as the Japanese yen, U.S. dollar and euro, and an increase in the average balance of loans of ¥1,684.6 billion, reflecting an increase in overseas lending as a result of our efforts to increase foreign loan assets. The increase in interest and dividend income from investments was due mainly to a rise in the average yield on domestic and foreign investments, reflecting a general increase in interest rate levels of major currencies, as well as an increase in the average balance of investments of ¥1,880.3 billion, reflecting an increase in foreign investments which more than offset a decrease in the average balance of domestic investments. The changes in the average yields on interest-earning assets contributed to an overall increase in interest and dividend income of ¥283.8 billion, and the changes in average balances of interest-earning assets contributed to an overall increase in interest and dividend income of ¥109.5 billion, resulting in the ¥393.3 billion increase in interest and dividend income.
Interest expense increased by ¥363.2 billion, or 54.4%, from the six months ended September 30, 2006 to ¥1,031.0 billion in the six months ended September 30, 2007 due mainly to increases in interest expense on deposits and short-term borrowings. These increases were due mainly to increases in the average balance of foreign interest-bearing deposits and foreign short-term borrowings, as we continued to seek to increase funding for our foreign loans and investments in foreign securities, and an increase in average interest rates on domestic and foreign interest-bearing deposits and short-term borrowings, reflecting a general increase in interest rate levels of major currencies such as the Japanese yen, U.S. dollar and euro. The changes in average interest rates on interest-bearing liabilities contributed to an overall increase in interest expense of ¥169.1 billion, and the changes in average balances of interest-bearing liabilities contributed to an overall increase in interest expenses of ¥194.1 billion, resulting in the ¥363.2 billion increase in interest expense.
The increase of 0.43% in the average yield on loans in the six months ended September 30, 2007 compared to the six months ended September 30, 2006 was larger than the increase of 0.28% in the average rate on interest-bearing deposits over the same period. Taking into account only domestic loans and domestic deposits, the increase of 0.25% in the average yield on domestic loans was larger than the increase of 0.18% in the average rate on domestic interest-bearing deposits.
As a result of the foregoing, net interest income increased by ¥30.1 billion, or 5.8%, compared to the six months ended September 30, 2006 to ¥545.8 billion. Average interest rate spread rose by 0.05% to 0.71%, due mainly to a rise in average yield on loans and investments, which more than offset the effect of a rise in average interest rate on deposits, both of which reflects rising interest levels of major currencies such as the Japanese yen, U.S. dollar and euro.
Provision (Credit) for Loan Losses
We had a credit for loan losses of ¥63.5 billion in the six months ended September 30, 2007, a decrease of ¥7.3 billion, or 10.3%, from the six months ended September 30, 2006. The credit for loan losses was due mainly to upgrades in the internal credit ratings of some large borrowers, in particular the upgrade of a large non-bank financial company borrower as a result of the financial support described in Item 5. Operating and Financial Review and ProspectsOverviewOther Business Event of our annual report on Form 20-F filed on August 10, 2007. Such borrower had previously been downgraded in the second half of the fiscal year ended March 31, 2007 which was one of the main contributing factors to the significant provision for loan losses recorded in such fiscal year. The credit for loan losses was offset in part by an increase in allowance for loan losses due mainly to the declining trend in the financial condition of small and medium sized enterprises (SMEs) that have relatively weak business bases and the downgrading of some large borrowers to lower internal credit ratings. See Financial ConditionLoansProvision (credit) for loan losses.
8
Noninterest Income
The following table shows a breakdown of noninterest income for the six months ended September 30, 2006 and 2007:
Six months ended September 30, | Increase (decrease) |
||||||||||
2006 | 2007 | ||||||||||
(in billions of yen) | |||||||||||
Fees and commissions |
|||||||||||
Fees and commissions from remittance business |
¥ | 57.4 | ¥ | 58.1 | ¥ | 0.7 | |||||
Fees and commissions from securities-related business |
54.7 | 50.4 | (4.3 | ) | |||||||
Fees and commissions from deposits, debentures and lending business |
54.3 | 43.1 | (11.2 | ) | |||||||
Trust fees |
32.8 | 33.0 | 0.2 | ||||||||
Fees for other customer services |
124.5 | 122.4 | (2.1 | ) | |||||||
Total fees and commissions income |
¥ | 323.7 | ¥ | 307.0 | ¥ | (16.7 | ) | ||||
Foreign exchange gains (losses)net |
6.7 | 6.5 | (0.2 | ) | |||||||
Trading account gainsnet |
229.5 | 227.0 | (2.5 | ) | |||||||
Investment gainsnet |
32.2 | 52.0 | 19.8 | ||||||||
Investment gains (losses) related to bonds |
(43.2 | ) | 2.2 | 45.4 | |||||||
Investment gains related to equity securities |
79.5 | 39.0 | (40.5 | ) | |||||||
Others |
(4.1 | ) | 10.8 | 14.9 | |||||||
Gains on disposal of premises and equipment |
27.2 | 17.1 | (10.1 | ) | |||||||
Other noninterest income |
52.9 | 66.6 | 13.7 | ||||||||
Total noninterest income |
¥ | 672.2 | ¥ | 676.2 | ¥ | 4.0 | |||||
Noninterest income increased by ¥4.0 billion, or 0.6%, from the six months ended September 30, 2006 to ¥676.2 billion in the six months ended September 30, 2007. The increase was due mainly to an increase of ¥19.8 billion in investment gainsnet offset in part by a decrease of ¥16.7 billion in fees and commissions income.
Fees and Commissions
Fees and commissions income decreased by ¥16.7 billion, or 5.2%, from the six months ended September 30, 2006 to ¥307.0 billion in the six months ended September 30, 2007 due mainly to a decrease in fees and commissions from deposits, debentures and lending business, reflecting increased competition in the domestic loan market. Fees and commissions from securities-related business decreased due mainly to a decrease in underwriting commissions related to private offerings of debt securities, offset in part by an increase in sales commissions related to investment trusts. The decrease in fees for other customer services includes a decrease in credit card processing fees earned by UC Card, a former consolidated subsidiary of ours, due to its becoming an equity-method affiliate of ours in June 2007.
Trading Account GainsNet
Trading account gainsnet decreased by ¥2.5 billion, or 1.1%, from the six months ended September 30, 2006 to ¥227.0 billion in the six months ended September 30, 2007. The decrease was due mainly to the trading losses on securitization products incurred by Mizuho Securities and its overseas subsidiaries in connection with the dislocation of the global financial markets stemming from U.S. subprime loan issues. This decrease was offset in part by an increase in profits on derivatives trading transactions.
Investment GainsNet
Investment gainsnet increased by ¥19.8 billion, or 61.5%, from the six months ended September 30, 2006 to ¥52.0 billion in the six months ended September 30, 2007. This increase was due mainly to the investment
9
gains related to bonds of ¥2.2 billion in the six months ended September 30, 2007, compared the investment losses related to bonds of ¥43.2 billion in the six months ended September 30, 2006, mainly as a result of impairment losses on Japanese government bonds incurred in the six months ended September 30, 2006, offset in part by an increase in losses on sales of and impairment losses on various types of securitization products incurred in the six months ended September 30, 2007 due to the impact of the dislocation in the global financial market stemming from U.S. subprime loan issues. Investment gains related to equity securities decreased by ¥40.5 billion mainly as a result of impairment losses on equity securities reflecting declines in domestic stock markets.
Noninterest Expenses
The following table shows a breakdown of noninterest expenses for the six months ended September 30, 2006 and 2007:
Six months ended September 30, | Increase (decrease) |
||||||||||
2006 | 2007 | ||||||||||
(in billions of yen) | |||||||||||
Salaries and employee benefits |
¥ | 209.8 | ¥ | 223.7 | ¥ | 13.9 | |||||
General and administrative expenses |
228.7 | 244.0 | 15.3 | ||||||||
Occupancy expenses |
84.0 | 97.3 | 13.3 | ||||||||
Fees and commission expenses |
58.1 | 60.4 | 2.3 | ||||||||
Provision (credit) for losses on off-balance-sheet instruments |
(16.3 | ) | 6.6 | 22.9 | |||||||
Minority interest in consolidated subsidiaries |
11.5 | 8.7 | (2.8 | ) | |||||||
Other noninterest expenses |
61.7 | 97.9 | 36.2 | ||||||||
Total noninterest expenses |
¥ | 637.5 | ¥ | 738.6 | ¥ | 101.1 | |||||
Noninterest expenses increased by ¥101.1 billion, or 15.9%, from the six months ended September 30, 2006 to ¥738.6 billion in the six months ended September 30, 2007. This increase was due mainly to an increase of ¥36.2 billion in other noninterest expenses and a provision for losses on off-balance-sheet instruments of ¥6.6 billion in the six months ended September 30, 2007 compared to a credit of ¥16.3 billion in the six months ended September 30, 2006.
Provision (Credit) for Losses on Off-Balance-Sheet Instruments
Provision (credit) for losses on off-balance-sheet instruments was a provision of ¥6.6 billion in the six months ended September 30, 2007 compared to a credit of ¥16.3 billion in the six months ended September 30, 2006. The provision was due mainly to an increase in allowance for losses on off-balance-sheet transactions primarily as a result of downgrades in credit ratings of some obligors.
Other Noninterest Expenses
Other noninterest expenses increased by ¥36.2 billion, or 58.7%, from the six months ended September 30, 2006 to ¥97.9 billion in the six months ended September 30, 2007 due mainly to ¥24.2 billion of losses related to loans held for sale mainly in connection with overseas leveraged buyout transactions as a result of the increase in the outstanding balance of loans held for sale which remained unsold reflecting the impact of the dislocation in the global financial market stemming from U.S. subprime loan issues.
Income Tax Expense (Benefit)
Income tax expense (benefit) in the six months ended September 30, 2007 was an expense of ¥1.8 billion compared to a benefit of ¥30.6 billion in the six months ended September 30, 2006. This change was due mainly to a decrease of ¥26.9 billion in deferred tax benefit. The deferred tax benefit in both periods was the result of an
10
increase in deferred tax assets, net of valuation allowance. This increase was due mainly to a decrease in valuation allowance reflecting primarily changes in our estimation of future taxable income, which was larger than a decrease in gross deferred tax assets due mainly to utilization of net operating loss carryforwards.
Six months ended September 30, | Increase (decrease) |
|||||||||||
2006 | 2007 | |||||||||||
(in billions of yen) | ||||||||||||
Income before income tax expense (benefit) |
¥ | 621.2 | ¥ | 546.9 | ¥ | (74.3 | ) | |||||
Income tax expense (benefit) |
(30.6 | ) | 1.8 | 32.4 | ||||||||
Current tax expense |
22.8 | 28.3 | 5.5 | |||||||||
Deferred tax benefit |
(53.4 | ) | (26.5 | ) | 26.9 | |||||||
Net income |
651.8 | 545.1 | (106.7 | ) |
Net Income
As a result of the foregoing, net income decreased by ¥106.7 billion from the six months ended September 30, 2006 to ¥545.1 billion in the six months ended September 30, 2007.
The business segment information set forth below is derived from the internal management reporting systems used by management to measure the performance of our business segments. We measure the performance of each of our operating segments primarily in terms of net business profits in accordance with Japanese GAAP following internal managerial accounting rules and practices. Net business profits is used as a measure of the profitability of core banking operations in Japan and is defined as gross profits (or the sum of net interest income, fiduciary income, net fee and commission income, net trading income and net other operating income) less general and administrative expenses (excluding non-recurring expenses). Measurement by net business profits is required for regulatory reporting to the Financial Services Agency. Therefore, the format and information is presented primarily on the basis of Japanese GAAP and is not consistent with the consolidated financial statements prepared in accordance with U.S. GAAP.
During the fiscal year ended March 31, 2006, we reorganized our business portfolio into three Global Groups: the Global Corporate Group, the Global Retail Group and the Global Asset & Wealth Management Group. The Global Corporate Group consists primarily of Mizuho Corporate Bank and Mizuho Securities, the Global Retail Group consists primarily of Mizuho Bank and Mizuho Investors Securities, and the Global Asset & Wealth Management Group consists primarily of Mizuho Trust & Banking. We divide the businesses of each of Mizuho Corporate Bank and Mizuho Bank into three reportable segments based on customer characteristics and functions. Reportable segments of Mizuho Corporate Bank are: domestic; international; and trading and others. Reportable segments of Mizuho Bank are: retail banking; corporate banking; and trading and others. In addition to the three Global Groups, subsidiaries which provide services to a wide range of customers and which do not belong to a specific Global Group are aggregated as Others.
The Global Corporate Group
Mizuho Corporate Bank
Mizuho Corporate Bank is the main operating company of the Global Corporate Group and provides banking and other financial services to large corporations, financial institutions, public sector entities, foreign corporations, including foreign subsidiaries of Japanese corporations, and foreign governmental entities.
Domestic
This segment provides a variety of financial products and services to large corporations, financial institutions and public sector entities in Japan. The products and services it offers include commercial banking, advisory services, syndicated loan arrangements, leveraged finance and structured finance.
11
International
This segment mainly offers commercial banking and foreign exchange transaction services to foreign corporations, including foreign subsidiaries of Japanese corporations, through Mizuho Corporate Banks overseas network.
Trading and others
This segment supports the domestic and international segments in offering derivatives and other risk hedging products to satisfy Mizuho Corporate Banks customers financial and business risk control requirements. It is also engaged in Mizuho Corporate Banks proprietary trading, such as foreign exchange and bond trading, and asset and liability management. This segment also includes costs incurred by headquarters functions of Mizuho Corporate Bank.
Mizuho Securities
Mizuho Securities is the primary investment banking arm in the Global Corporate Group and offers wholesale securities and investment banking services, such as underwriting and trading of bonds and equities, advisory services and structured finance, to large and international corporations, financial institutions and public entities.
Others
This segment consists of Mizuho Corporate Banks subsidiaries other than Mizuho Securities. These subsidiaries offer financial products and services in specific areas of business or countries mainly to customers of the Global Corporate Group. This segment also reflects elimination of transactions between companies within the Global Corporate Group.
The Global Retail Group
Mizuho Bank
Mizuho Bank is the main operating company of the Global Retail Group. Mizuho Bank provides banking and other financial services mainly to individuals, SMEs and middle-market corporations through its domestic branch and ATM network.
Retail banking
This segment offers banking products and services, including housing and other personal loans, credit cards, deposits, investment products and consulting services, to Mizuho Banks individual customers through its nationwide branch and ATM network, as well as telephone and Internet banking services.
Corporate banking
This segment provides loans, syndicated loan arrangements, structured finance, advisory services, other banking services and capital markets financing to SMEs, middle-market corporations, local governmental entities and other public sector entities in Japan.
Trading and others
This segment supports the retail banking and corporate banking segments in offering derivatives and other risk hedging products to satisfy Mizuho Banks customers financial and business risk control requirements. It is also engaged in Mizuho Banks proprietary trading, such as foreign exchange and bond trading, and asset and liability management. This segment also includes costs incurred by headquarters functions of Mizuho Bank.
12
Mizuho Investors Securities
Mizuho Investors Securities offers securities services to individuals and corporate customers of the Global Retail Group and provides with those corporate customers with support in procuring funds through capital markets.
Others
This segment consists of Mizuho Banks subsidiaries other than Mizuho Investors Securities. These subsidiaries, such as Mizuho Capital and Mizuho Business Financial Center Co., Ltd., offer non-banking financial products and services in specific areas of business to customers of the Global Retail Group. This segment also includes elimination of transactions between companies within the Global Retail Group.
The Global Asset & Wealth Management Group
Mizuho Trust & Banking
Mizuho Trust & Banking is the main operating company of the Global Asset & Wealth Management Group and offers products and services related to trust, real estate, securitization and structured finance, pension and asset management and stock transfers.
Others
This segment includes companies other than Mizuho Trust & Banking which are a part of the Global Asset & Wealth Management Group. These companies include Mizuho Private Wealth Management, Trust & Custody Services Bank, Mizuho Asset Management and DIAM Co., Ltd. (formerly known as DLIBJ Asset Management), which is an equity-method affiliate. They offer products and services related to private banking, trust and custody, and asset management. This segment also includes elimination of transactions between companies within the Global Asset & Wealth Management Group.
Others
This segment consists of Mizuho Financial Group and its subsidiaries that do not belong to a specific Global Group but provide their services to a wide range of customers. Under this segment, we offer services including research and consulting services through Mizuho Research Institute, information technology-related services through Mizuho Information & Research Institute and advisory services to financial institutions through Mizuho Financial Strategy. This segment also includes elimination of transactions between the Global Groups.
The information below for reportable segments for the six months ended September 30, 2007 is derived from our internal management reporting system. Information for the six months ended September 30, 2006 is also derived from our internal management reporting system reclassified to conform to the presentation for the latest fiscal period.
13
Results of Operations by Business Segment
Consolidated results of operations of Mizuho Financial Group
Consolidated gross profits for the six months ended September 30, 2007 were ¥987.9 billion, a decrease of ¥9.6 billion compared to the six months ended September 30, 2006. Consolidated general and administrative expenses (excluding non-recurring expenses) for the six months ended September 30, 2007 were ¥543.9 billion, an increase of ¥18.4 billion compared to the six months ended September 30, 2006. Consolidated net business profits for the six months ended September 30, 2007 were 414.0 billion, a decrease of ¥33.7 billion compared to the six months ended September 30, 2006. The following diagram shows the relative contributions to consolidated net business profits of each of our Global Groups for the six months ended September 30, 2007:
14
Global Corporate Group Financial Results
The following table shows gross profits, general and administrative expenses (excluding non-recurring expenses) and net business profits for the Global Corporate Group for the six months ended September 30, 2006 and 2007:
Mizuho Corporate Bank | Total Global Corporate Group |
|||||||||||||||||||||||||||
Domestic | International | Trading and others |
Subtotal | Mizuho Securities |
Others | |||||||||||||||||||||||
(in billions of yen) | ||||||||||||||||||||||||||||
Six months ended September 30, 2006: |
||||||||||||||||||||||||||||
Gross profits: |
||||||||||||||||||||||||||||
Net interest income |
¥ | 104.1 | ¥ | 35.3 | ¥ | 17.8 | ¥ | 157.2 | ¥ | 1.2 | ¥ | 40.8 | ¥ | 199.2 | ||||||||||||||
Net noninterest income |
45.9 | 28.9 | 24.8 | 99.6 | 46.2 | 14.0 | 159.8 | |||||||||||||||||||||
Total |
150.0 | 64.2 | 42.6 | 256.8 | 47.4 | 54.8 | 359.0 | |||||||||||||||||||||
General and administrative expenses |
43.3 | 31.1 | 44.9 | 119.3 | 28.5 | 34.8 | 182.6 | |||||||||||||||||||||
Others |
| | | | | (21.9 | ) | (21.9 | ) | |||||||||||||||||||
Net business profits (loss) |
¥ | 106.7 | ¥ | 33.1 | ¥ | (2.3 | ) | ¥ | 137.5 | ¥ | 18.9 | ¥ | (1.9 | ) | ¥ | 154.5 | ||||||||||||
Six months ended September 30, 2007: |
||||||||||||||||||||||||||||
Gross profits: |
||||||||||||||||||||||||||||
Net interest income |
¥ | 91.9 | ¥ | 32.4 | ¥ | 25.8 | ¥ | 150.1 | ¥ | 5.1 | ¥ | 38.9 | ¥ | 194.1 | ||||||||||||||
Net noninterest income (expenses) |
48.2 | 47.3 | 56.3 | 151.8 | 28.4 | (13.5 | ) | 166.7 | ||||||||||||||||||||
Total |
140.1 | 79.7 | 82.1 | 301.9 | 33.5 | 25.4 | 360.8 | |||||||||||||||||||||
General and administrative expenses |
42.2 | 35.9 | 45.5 | 123.6 | 32.3 | 44.1 | 200.0 | |||||||||||||||||||||
Others |
| | | | | (25.7 | ) | (25.7 | ) | |||||||||||||||||||
Net business profits (loss) |
¥ | 97.9 | ¥ | 43.8 | ¥ | 36.6 | ¥ | 178.3 | ¥ | 1.2 | ¥ | (44.4 | ) | ¥ | 135.1 | |||||||||||||
Increase (decrease) between the six months ended September 30, 2006 and 2007: |
||||||||||||||||||||||||||||
Gross profits: |
||||||||||||||||||||||||||||
Net interest income (expenses) |
¥ | (12.2 | ) | ¥ | (2.9 | ) | ¥ | 8.0 | ¥ | (7.1 | ) | ¥ | 3.9 | ¥ | (1.9 | ) | ¥ | (5.1 | ) | |||||||||
Net noninterest income (expenses) |
2.3 | 18.4 | 31.5 | 52.2 | (17.8 | ) | (27.5 | ) | 6.9 | |||||||||||||||||||
Total |
(9.9 | ) | 15.5 | 39.5 | 45.1 | (13.9 | ) | (29.4 | ) | 1.8 | ||||||||||||||||||
General and administrative expenses |
(1.1 | ) | 4.8 | 0.6 | 4.3 | 3.8 | 9.3 | 17.4 | ||||||||||||||||||||
Others |
| | | | | (3.8 | ) | (3.8 | ) | |||||||||||||||||||
Net business profits (loss) |
¥ | (8.8 | ) | ¥ | 10.7 | ¥ | 38.9 | ¥ | 40.8 | ¥ | (17.7 | ) | ¥ | (42.5 | ) | ¥ | (19.4 | ) | ||||||||||
Gross profits for Mizuho Corporate Bank for the six months ended September 30, 2007 increased by ¥45.1 billion, or 17.6%, compared to the six months ended September 30, 2006 to ¥301.9 billion. This increase was due mainly to an increase in gross profits from trading and others of ¥39.5 billion, supported by strong banking-related income including as a result of the conducting of transactions relating to foreign currency-denominated bonds that appropriately captured interest rate trends, as well as an increase in gross profits from international operations of ¥15.5 billion, reflecting growth in noninterest income attributable in part to a large leveraged loan transaction. These increases were offset in part by a decrease in gross profits from domestic operations of ¥9.9 billion, reflecting a decrease in net interest income due to lower demand for loans and a decline in the domestic average loan interest rate spread and sluggish growth in noninterest income related to syndicated loans and other factors.
15
General and administrative expenses for Mizuho Corporate Bank for the six months ended September 30, 2007 increased by ¥4.3 billion, or 3.6%, compared to the six months ended September 30, 2006 to ¥123.6 billion due mainly to expenses incurred in connection with our efforts to grow future gross profits, such as the expansion of our international network.
The dislocation of the global financial market stemming from U.S. subprime loan issue had a significant impact on Mizuho Securities and its overseas subsidiary, Mizuho International plc. Net business profits for Mizuho Securities for the six months ended September 30, 2007 decreased by ¥17.7 billion, or 93.7%, compared to the six months ended September 30, 2006 to ¥1.2 billion due to a significant deterioration in trading profits, and net business loss from other operations increased by ¥42.5 billion for the six months ended September 30, 2007 to ¥44.4 billion due mainly to the trading losses incurred by the CDO business of Mizuho International.
As a result of the foregoing, net business profits for the Global Corporate Group for the six months ended September 30, 2007 decreased by ¥19.4 billion, or 12.6%, compared to the six months ended September 30, 2006 to ¥135.1 billion.
Global Retail Group Financial Results
The following table shows gross profits, general and administrative expenses (excluding non-recurring expenses) and net business profits for the Global Retail Group for the six months ended September 30, 2006 and 2007:
Mizuho Bank | Mizuho Investors Securities |
Others | Total Global Retail Group |
|||||||||||||||||||||||||
Retail Banking |
Corporate Banking |
Trading and others |
Subtotal | |||||||||||||||||||||||||
(in billions of yen) | ||||||||||||||||||||||||||||
Six months ended September 30, 2006: |
||||||||||||||||||||||||||||
Gross profits: |
||||||||||||||||||||||||||||
Net interest income |
¥ | 124.9 | ¥ | 163.8 | ¥ | 5.5 | ¥ | 294.2 | ¥ | 0.6 | ¥ | 20.9 | ¥ | 315.7 | ||||||||||||||
Net noninterest income |
22.5 | 113.8 | 46.5 | 182.8 | 27.5 | 9.5 | 219.8 | |||||||||||||||||||||
Total |
147.4 | 277.6 | 52.0 | 477.0 | 28.1 | 30.4 | 535.5 | |||||||||||||||||||||
General and administrative expenses |
98.9 | 121.7 | 39.8 | 260.4 | 21.3 | 9.3 | 291.0 | |||||||||||||||||||||
Others |
| | | | | (5.4 | ) | (5.4 | ) | |||||||||||||||||||
Net business profits |
¥ | 48.5 | ¥ | 155.9 | ¥ | 12.2 | ¥ | 216.6 | ¥ | 6.8 | ¥ | 15.7 | ¥ | 239.1 | ||||||||||||||
Six months ended September 30, 2007: |
||||||||||||||||||||||||||||
Gross profits: |
||||||||||||||||||||||||||||
Net interest income (expenses) |
¥ | 150.5 | ¥ | 165.3 | ¥ | (15.0 | ) | ¥ | 300.8 | ¥ | 0.5 | ¥ | 22.8 | ¥ | 324.1 | |||||||||||||
Net noninterest income (expenses) |
21.0 | 90.1 | 55.0 | 166.1 | 30.9 | (2.0 | ) | 195.0 | ||||||||||||||||||||
Total |
171.5 | 255.4 | 40.0 | 466.9 | 31.4 | 20.8 | 519.1 | |||||||||||||||||||||
General and administrative expenses |
107.3 | 114.2 | 45.7 | 267.2 | 22.3 | 0.2 | 289.7 | |||||||||||||||||||||
Others |
| | | | | (8.0 | ) | (8.0 | ) | |||||||||||||||||||
Net business profits (loss) |
¥ | 64.2 | ¥ | 141.2 | ¥ | (5.7 | ) | ¥ | 199.7 | ¥ | 9.1 | ¥ | 12.6 | ¥ | 221.4 | |||||||||||||
Increase (decrease) between the six months ended September 30, 2006 and 2007: |
||||||||||||||||||||||||||||
Gross profits: |
||||||||||||||||||||||||||||
Net interest income (expenses) |
¥ | 25.6 | ¥ | 1.5 | ¥ | (20.5 | ) | ¥ | 6.6 | ¥ | (0.1 | ) | ¥ | 1.9 | ¥ | 8.4 | ||||||||||||
Net noninterest income (expenses) |
(1.5 | ) | (23.7 | ) | 8.5 | (16.7 | ) | 3.4 | (11.5 | ) | (24.8 | ) | ||||||||||||||||
Total |
24.1 | (22.2 | ) | (12.0 | ) | (10.1 | ) | 3.3 | (9.6 | ) | (16.4 | ) | ||||||||||||||||
General and administrative expenses |
8.4 | (7.5 | ) | 5.9 | 6.8 | 1.0 | (9.1 | ) | (1.3 | ) | ||||||||||||||||||
Others |
| | | | | (2.6 | ) | (2.6 | ) | |||||||||||||||||||
Net business profits (loss) |
¥ | 15.7 | ¥ | (14.7 | ) | ¥ | (17.9 | ) | ¥ | (16.9 | ) | ¥ | 2.3 | ¥ | (3.1 | ) | ¥ | (17.7 | ) | |||||||||
16
Gross profits for Mizuho Bank for the six months ended September 30, 2007 decreased by ¥10.1 billion, or 2.1%, compared to the six months ended September 30, 2006 to ¥466.9 billion. The decrease was due to a decrease of ¥22.2 billion and ¥12.0 billion in gross profits from corporate banking and trading and others, respectively. The decrease in gross profits from corporate banking was due to a decrease in noninterest income, reflecting a decline in fees and commissions from our solutions business, and sluggish growth in net interest income, reflecting an increase in competition in the domestic SME market. The decrease in gross profits from trading and others was due mainly to a decrease in trading income relating to derivative transactions. These decreases were offset in part by an increase in gross profits from retail banking, reflecting an improvement in the profitability of deposits and increased fees from sales of investment trusts and individual annuities.
General and administrative expenses for Mizuho Bank increased by ¥6.8 billion, or 2.6%, compared to the six months ended September 30, 2006 to ¥267.2 billion due mainly to increased expenses incurred in connection with our efforts to grow future gross profits relating to the retail banking business through the opening of new branches, the refurbishment of existing branches, increases in personnel and other expenses related to strategic business areas.
Net business profits for Mizuho Investors Securities increased by ¥2.3 billion, or 33.8%, compared to the six months ended September 30, 2006 to ¥9.1 billion due mainly to strong trading income supported by robust sales of foreign bonds including as a result of business collaboration with Mizuho Bank.
As a result of the foregoing, net business profits for the Global Retail Group decreased by ¥17.7 billion, or 7.4%, compared to the six months ended September 30, 2006 to ¥221.4 billion.
17
Global Asset & Wealth Management Group Financial Results
The following table shows gross profits, general and administrative expenses (excluding non-recurring expenses) and net business profits for the Global Asset & Wealth Management Group for the six months ended September 30, 2006 and 2007:
Mizuho Trust & Banking |
Others | Total Global Asset & Wealth Management Group |
||||||||||
(in billions of yen) | ||||||||||||
Six months ended September 30, 2006: |
||||||||||||
Gross profits(1): |
||||||||||||
Net interest income |
¥ | 25.2 | ¥ | 0.5 | ¥ | 25.7 | ||||||
Net noninterest income |
57.8 | 22.4 | 80.2 | |||||||||
Total |
83.0 | 22.9 | 105.9 | |||||||||
General and administrative expenses |
44.0 | 18.1 | 62.1 | |||||||||
Others |
| (1.3 | ) | (1.3 | ) | |||||||
Net business profits |
¥ | 39.0 | ¥ | 3.5 | ¥ | 42.5 | ||||||
Six months ended September 30, 2007: |
||||||||||||
Gross profits(1): |
||||||||||||
Net interest income |
¥ | 26.2 | ¥ | 0.7 | ¥ | 26.9 | ||||||
Net noninterest income |
54.0 | 28.2 | 82.2 | |||||||||
Total |
80.2 | 28.9 | 109.1 | |||||||||
General and administrative expenses |
43.9 | 19.8 | 63.7 | |||||||||
Others |
| (0.9 | ) | (0.9 | ) | |||||||
Net business profits |
¥ | 36.3 | ¥ | 8.2 | ¥ | 44.5 | ||||||
Increase (decrease) between the six months |
||||||||||||
Gross profits(1): |
||||||||||||
Net interest income |
¥ | 1.0 | ¥ | 0.2 | ¥ | 1.2 | ||||||
Net noninterest income |
(3.8 | ) | 5.8 | 2.0 | ||||||||
Total |
(2.8 | ) | 6.0 | 3.2 | ||||||||
General and administrative expenses |
(0.1 | ) | 1.7 | 1.6 | ||||||||
Others |
| 0.4 | 0.4 | |||||||||
Net business profits |
¥ | (2.7 | ) | ¥ | 4.7 | ¥ | 2.0 | |||||
Note:
(1) | Before write-offs in trust account. |
Gross profits for Mizuho Trust & Banking for the six months ended September 30, 2007 decreased by ¥2.8 billion, or 3.4%, compared to the six months ended September 30, 2006 to ¥80.2 billion. The decrease was due to a decline in interest income on domestic loans, reflecting increased competition, as well as the closings of certain transactions related to our real estate business being delayed to after September 30, 2007.
General and administrative expenses for Mizuho Trust & Banking decreased by ¥0.1 billion compared to the six months ended September 30, 2006 to ¥43.9 billion.
Net business profits for the Global Asset & Wealth Management Group for the six months ended September 30, 2007 increased by ¥2.0 billion, or 4.7%, compared to the six months ended September 30, 2006 to ¥44.5 billion due mainly to an increase in others mainly as a result of an increase in profits of a fund management subsidiary in connection with an increase in the amount of entrusted funds.
18
Assets
Our assets as of March 31, 2007 and September 30, 2007 were as follows:
As of | ||||||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
||||||||||
(in billions of yen) | ||||||||||||
Cash and due from banks |
¥ | 3,075.9 | ¥ | 2,465.5 | ¥ | (610.4 | ) | |||||
Interest-bearing deposits in other banks |
1,052.3 | 808.2 | (244.1 | ) | ||||||||
Call loans and funds sold |
309.7 | 411.2 | 101.5 | |||||||||
Receivables under resale agreements |
9,430.4 | 10,313.6 | 883.2 | |||||||||
Receivables under securities borrowing transactions |
8,624.2 | 7,291.7 | (1,332.5 | ) | ||||||||
Trading account assets |
13,950.3 | 16,536.7 | 2,586.4 | |||||||||
Investments |
38,001.7 | 38,393.5 | 391.8 | |||||||||
Loans |
69,182.9 | 68,339.8 | (843.1 | ) | ||||||||
Allowance for loan losses |
(946.2 | ) | (769.1 | ) | 177.1 | |||||||
Loans, net of allowance |
68,236.7 | 67,570.7 | (666.0 | ) | ||||||||
Premises and equipmentnet |
847.5 | 817.7 | (29.8 | ) | ||||||||
Due from customers on acceptances |
57.7 | 66.2 | 8.5 | |||||||||
Accrued income |
440.5 | 423.1 | (17.4 | ) | ||||||||
Goodwill |
39.6 | 39.6 | | |||||||||
Deferred tax assets |
618.7 | 819.3 | 200.6 | |||||||||
Other assets |
2,696.1 | 3,416.8 | 720.7 | |||||||||
Total assets |
¥ | 147,381.3 | ¥ | 149,373.8 | ¥ | 1,992.5 | ||||||
Total assets increased by ¥1,992.5 billion from ¥147,381.3 billion as of March 31, 2007 to ¥149,373.8 billion as of September 30, 2007. This increase was due primarily to an increase of ¥2,586.4 billion in trading account assets and an increase of ¥883.2 billion in receivables under resale agreements offset in part by a decrease of ¥1,332.5 billion in receivables under securities borrowing transactions.
19
Loans
Loans Outstanding
The following table shows our loans outstanding as of March 31, 2007 and September 30, 2007:
As of | |||||||||||||||||||||
March 31, 2007 | September 30, 2007 | Increase (decrease) | |||||||||||||||||||
(in billions of yen, except percentages) | |||||||||||||||||||||
Domestic: |
|||||||||||||||||||||
Manufacturing |
¥ | 7,662.0 | 11.06 | % | ¥ | 7,916.1 | 11.57 | % | ¥ | 254.1 | 0.51 | % | |||||||||
Construction |
1,502.4 | 2.17 | 1,440.7 | 2.10 | (61.7 | ) | (0.07 | ) | |||||||||||||
Real estate |
6,647.1 | 9.60 | 6,519.8 | 9.53 | (127.3 | ) | (0.07 | ) | |||||||||||||
Services |
6,120.1 | 8.83 | 5,776.6 | 8.44 | (343.5 | ) | (0.39 | ) | |||||||||||||
Wholesale and retail |
6,356.6 | 9.18 | 6,210.2 | 9.07 | (146.4 | ) | (0.11 | ) | |||||||||||||
Transportation |
2,594.6 | 3.75 | 2,417.6 | 3.53 | (177.0 | ) | (0.22 | ) | |||||||||||||
Banks and other financial institutions |
4,286.6 | 6.19 | 4,097.1 | 5.99 | (189.5 | ) | (0.20 | ) | |||||||||||||
Government and public institutions |
6,099.4 | 8.80 | 5,451.3 | 7.96 | (648.1 | ) | (0.84 | ) | |||||||||||||
Other industries |
5,451.8 | 7.86 | 4,835.9 | 7.06 | (615.9 | ) | (0.80 | ) | |||||||||||||
Individuals: |
12,363.6 | 17.85 | 12,377.0 | 18.09 | 13.4 | 0.24 | |||||||||||||||
Mortgage loans |
11,025.1 | 15.92 | 11,113.1 | 16.24 | 88.0 | 0.32 | |||||||||||||||
Other |
1,338.5 | 1.93 | 1,263.9 | 1.85 | (74.6 | ) | (0.08 | ) | |||||||||||||
Total domestic |
59,084.2 | 85.29 | 57,042.3 | 83.34 | (2,041.9 | ) | (1.95 | ) | |||||||||||||
Foreign: |
|||||||||||||||||||||
Commercial and industrial |
7,963.6 | 11.50 | 8,671.0 | 12.66 | 707.4 | 1.16 | |||||||||||||||
Banks and other financial institutions |
1,675.5 | 2.42 | 2,032.9 | 2.97 | 357.4 | 0.55 | |||||||||||||||
Government and public institutions |
366.3 | 0.53 | 313.7 | 0.46 | (52.6 | ) | (0.07 | ) | |||||||||||||
Other |
184.9 | 0.26 | 388.7 | 0.57 | 203.8 | 0.31 | |||||||||||||||
Total foreign |
10,190.3 | 14.71 | 11,406.3 | 16.66 | 1,216.0 | 1.95 | |||||||||||||||
Subtotal |
69,274.5 | 100.00 | % | 68,448.6 | 100.00 | % | (825.9 | ) | | ||||||||||||
Less: Unearned income and deferred loan feesnet |
(91.6 | ) | (108.8 | ) | (17.2 | ) | |||||||||||||||
Total loans before allowance for loan losses |
¥ | 69,182.9 | ¥ | 68,339.8 | ¥ | (843.1 | ) | ||||||||||||||
Total loans before allowance for loan losses decreased by ¥843.1 billion from March 31, 2007 to ¥68,339.8 billion as of September 30, 2007. Domestic loans decreased by ¥2,041.9 billion to ¥57,042.3 billion while loans to foreign borrowers increased by ¥1,216.0 billion to ¥11,406.3 billion as of September 30, 2007. Domestic loans decreased in most of the industries due primarily to lack of funding needs by corporate borrowers. The increase in foreign loans was due primarily to an increase in loans to commercial and industrial borrowers, especially loans to non-Japanese borrowers, as a result of our effort to increase foreign loan assets.
Within our loan portfolio, loans to domestic borrowers decreased from 85.29% to 83.34% while loans to foreign borrowers increased from 14.71% to 16.66%.
20
Impaired Loans
The following table shows our impaired loans as of March 31, 2007 and September 30, 2007 based on classifications by domicile and industry segment:
As of | |||||||||||||||||||
March 31, 2007 | September 30, 2007 | Increase (decrease) | |||||||||||||||||
Impaired loans |
Ratio to gross total loans to industry |
Impaired loans |
Ratio to gross total loans to industry |
Impaired loans |
Ratio to gross total loans to industry |
||||||||||||||
(in billions of yen, except percentages) | |||||||||||||||||||
Domestic: |
|||||||||||||||||||
Manufacturing |
¥ | 96.8 | 1.26 | % | ¥ | 131.2 | 1.66 | % | ¥ | 34.4 | 0.40 | % | |||||||
Construction |
71.6 | 4.76 | 55.0 | 3.82 | (16.6 | ) | (0.94 | ) | |||||||||||
Real estate |
119.0 | 1.79 | 94.0 | 1.44 | (25.0 | ) | (0.35 | ) | |||||||||||
Services |
167.6 | 2.74 | 217.3 | 3.76 | 49.7 | 1.02 | |||||||||||||
Wholesale and retail |
216.7 | 3.41 | 243.6 | 3.92 | 26.9 | 0.51 | |||||||||||||
Transportation |
371.3 | 14.31 | 141.4 | 5.85 | (229.9 | ) | (8.46 | ) | |||||||||||
Banks and other financial institutions |
292.8 | 6.83 | 186.5 | 4.55 | (106.3 | ) | (2.28 | ) | |||||||||||
Other industries |
8.6 | 0.07 | 18.4 | 0.18 | 9.8 | 0.11 | |||||||||||||
Individuals |
137.2 | 1.11 | 144.1 | 1.16 | 6.9 | 0.05 | |||||||||||||
Total domestic |
1,481.6 | 2.51 | 1,231.5 | 2.16 | (250.1 | ) | (0.35 | ) | |||||||||||
Foreign |
47.3 | 0.46 | 57.9 | 0.51 | 10.6 | 0.05 | |||||||||||||
Total impaired loans |
¥ | 1,528.9 | 2.21 | % | ¥ | 1,289.4 | 1.88 | % | ¥ | (239.5 | ) | (0.33 | )% | ||||||
Impaired loans decreased by ¥239.5 billion, or 15.7%, from March 31, 2007 to ¥1,289.4 billion as of September 30, 2007 due primarily to a decrease in transportation, as a result of an upgrade in the internal credit rating of a large borrower, and a decrease in banks and other financial institutions, primarily as a result of a debt-for-equity swap involving a loan to a large non-bank financial company borrower as described in Item 5. Operating and Financial Review and ProspectsOverviewOther Business Events of our annual report on Form 20-F filed on August 10, 2007.
The percentage of impaired loans within gross total loans decreased from 2.21% as of March 31, 2007 to 1.88% as of September 30, 2007. The percentage of impaired loans net of allowance to gross total loans net of allowance also decreased from 0.85% as of March 31, 2007 to 0.77% as of September 30, 2007.
21
Allowance for Loan Losses
Balance of allowance for loan losses
The following table summarizes the allowance for loan losses by component and as a percentage of the corresponding loan balance as of March 31, 2007 and September 30, 2007:
As of | Increase (decrease) |
|||||||||||
March 31, 2007 |
September 30, 2007 |
|||||||||||
(in billions of yen, except percentages) | ||||||||||||
Allowance for loan losses on impaired loans (A) |
¥ | 602.1 | ¥ | 469.1 | ¥ | (133.0 | ) | |||||
Allowance for loan losses on other loans (B) |
344.0 | 300.0 | (44.0 | ) | ||||||||
Total allowance for loan losses (C) |
946.1 | 769.1 | (177.0 | ) | ||||||||
Impaired loans requiring an allowance for loan losses (D) |
1,403.8 | 1,116.2 | (287.6 | ) | ||||||||
Impaired loans not requiring an allowance for loan losses (E) |
125.1 | 173.2 | 48.1 | |||||||||
Other loans (F) |
67,745.6 | 67,159.2 | (586.4 | ) | ||||||||
Gross total loans (G) |
69,274.5 | 68,448.6 | (825.9 | ) | ||||||||
Percentage of allowance for loan losses on impaired loans against the balance of impaired loans requiring an allowance (A)/(D)x100 |
42.89 | % | 42.02 | % | (0.87 | )% | ||||||
Percentage of allowance for loan losses on other loans against the balance of other loans (B)/(F)x100 |
0.51 | 0.45 | (0.06 | ) | ||||||||
Percentage of total allowance for loan losses against gross total |
1.37 | 1.12 | (0.25 | ) |
Allowance for loan losses decreased by ¥177.0 billion from March 31, 2007 to ¥769.1 billion as of September 30, 2007. Of such decrease, ¥133.0 billion was attributable to a decrease in the allowance for loan losses on impaired loans due primarily to the reduction in the balance of impaired loans and ¥44.0 billion was attributable to a decrease in the allowance for loan losses on other loans. The percentage of total allowance for loan losses against gross total loans decreased by 0.25% to 1.12% due primarily to the upgrades in the internal credit ratings of some large borrowers.
Provision (credit) for loan losses
The following table summarizes changes in our allowance for loan losses in the six months ended September 30, 2006 and 2007:
Six months ended September 30, |
||||||||||||
2006 | 2007 | Increase (decrease) |
||||||||||
(in billions of yen) | ||||||||||||
Allowance for loan losses as beginning of fiscal year |
¥ | 812.3 | ¥ | 946.1 | ¥ | 133.8 | ||||||
Provision (credit) for loan losses |
(70.8 | ) | (63.5 | ) | 7.3 | |||||||
Charge-offs |
39.8 | 131.9 | 92.1 | |||||||||
Recoveries |
40.1 | 18.4 | (21.7 | ) | ||||||||
Net charge-offs (recoveries) |
(0.3 | ) | 113.5 | 113.8 | ||||||||
Others(1) |
0.9 | (0.0 | ) | (0.9 | ) | |||||||
Balance at end of six-month period |
¥ | 742.7 | ¥ | 769.1 | ¥ | 26.4 | ||||||
Note:
(1) | Others include primarily foreign exchange translation. |
22
Credit for loan losses decreased by ¥7.3 billion from the six months ended September 30, 2006 to ¥63.5 billion in the six months ended September 30, 2007. The credit for loan losses was due mainly to upgrades in the internal credit ratings of some large borrowers, in particular the upgrade of a large non-bank financial company borrower as a result of the financial support described in Item 5. Operating and Financial Review and ProspectsOverviewOther Business Event of our Form 20-F filed on August 10, 2007. This credit was offset by provision for loan losses due mainly to the declining trend in the financial condition of small and medium sized enterprises (SMEs) that have relatively weak business bases and the downgrading of some large borrowers to lower internal credit ratings.
Charge-offs increased by ¥92.1 billion from the six months ended September 30, 2006 to ¥131.9 billion for the six months ended September 30, 2007 due mainly to a debt-for-equity swap involving a loan to a large non-bank financial company borrower, as described in Item 5. Operating and Financial Review and ProspectsOverview of our Form 20-F filed on August 10, 2007, and an increase in disposals of impaired loans as a result of the declining trend in the financial condition of SMEs that have relatively weak business bases and increase in bankruptcies. Recoveries decreased by ¥21.7 billion from the six months ended September 30, 2006 to ¥18.4 billion in the six months ended September 30, 2007 due primarily to a decrease in recoveries with respect to foreign loans.
Investments
The majority of our investments are available-for-sale securities and held-to-maturity securities which at March 31, 2007 and September 30, 2007 were as follows:
As of | ||||||||||||||||||||||||||||||||
March 31, 2007 | September 30, 2007 | Increase (decrease) | ||||||||||||||||||||||||||||||
Amortized cost |
Fair value |
Net unrealized gains (losses) |
Amortized cost |
Fair value |
Net unrealized gains (losses) |
Amortized cost |
Fair value |
Net unrealized gains (losses) |
||||||||||||||||||||||||
(in billions of yen) | ||||||||||||||||||||||||||||||||
Available-for-sale securities: |
||||||||||||||||||||||||||||||||
Debt securities: |
¥ | 29,467.1 | ¥ | 29,606.7 | ¥ | 139.6 | ¥ | 30,470.4 | ¥ | 30,526.6 | ¥ | 56.2 | ¥ | 1,003.3 | ¥ | 919.9 | ¥ | (83.4 | ) | |||||||||||||
Japanese government bonds |
14,524.9 | 14,516.0 | (8.9 | ) | 16,266.8 | 16,242.6 | (24.2 | ) | 1,741.9 | 1,726.6 | (15.3 | ) | ||||||||||||||||||||
Other than Japanese government bonds |
14,942.2 | 15,090.7 | 148.5 | 14,203.6 | 14,284.0 | 80.4 | (738.6 | ) | (806.7 | ) | (68.1 | ) | ||||||||||||||||||||
Equity securities (marketable) |
2,591.1 | 6,264.0 | 3,672.9 | 2,796.9 | 6,121.0 | 3,324.1 | 205.8 | (143.0 | ) | (348.8 | ) | |||||||||||||||||||||
Total |
¥ | 32,058.2 | ¥ | 35,870.7 | ¥ | 3,812.5 | ¥ | 33,267.3 | ¥ | 36,647.6 | ¥ | 3,380.3 | ¥ | 1,209.1 | ¥ | 776.9 | ¥ | (432.2 | ) | |||||||||||||
Held-to-maturity securities: |
||||||||||||||||||||||||||||||||
Debt securities: |
¥ | 1,337.6 | ¥ | 1,329.4 | ¥ | (8.2 | ) | ¥ | 895.6 | ¥ | 892.3 | ¥ | (3.3 | ) | ¥ | (442.0 | ) | ¥ | (437.1 | ) | ¥ | 4.9 | ||||||||||
Japanese government bonds |
969.1 | 967.2 | (1.9 | ) | 569.5 | 568.4 | (1.1 | ) | (399.6 | ) | (398.8 | ) | 0.8 | |||||||||||||||||||
Other than Japanese government bonds |
368.5 | 362.2 | (6.3 | ) | 326.1 | 323.9 | (2.2 | ) | (42.4 | ) | (38.3 | ) | 4.1 | |||||||||||||||||||
Total |
¥ | 1,337.6 | ¥ | 1,329.4 | ¥ | (8.2 | ) | ¥ | 895.6 | ¥ | 892.3 | ¥ | (3.3 | ) | ¥ | (442.0 | ) | ¥ | (437.1 | ) | ¥ | 4.9 | ||||||||||
Available-for-sale securities increased by ¥776.9 billion from March 31, 2007 to ¥36,647.6 billion at September 30, 2007. This increase was a result of an increase in Japanese government bonds, which was due primarily to an increase in short-term government bonds, offset in part by a decrease in debt securities other than Japanese government bonds, primarily foreign government bonds, as a result of divestitures conducted in light of interest rate movements. Equity securities decreased by ¥143.0 billion from March 31, 2007 to ¥6,121.0 billion at September 30, 2007 due mainly to the decline in Japanese stock prices during the six-month period, partially offset by additional purchases of investment trusts. Held-to-maturity securities decreased by ¥442.0 billion from
23
March 31, 2007 to ¥895.6 billion at September 30, 2007. This decrease was due primarily to a decrease in Japanese government bonds as the bonds matured during the previous fiscal year. See note 4 to our consolidated financial statements for details of other investments included within investments.
Cash and Due from Banks
Cash and due from banks decreased by ¥610.4 billion from March 31, 2007 to ¥2,465.5 billion at September 30, 2007. The decrease was due to net cash provided by investing activities of ¥1,839.8 billion and net cash provided by financing activities of ¥236.3 billion being more than offset by net cash used in operating activities of ¥2,692.8 billion.
Liabilities
The following table shows our liabilities as of March 31, 2007 and September 30, 2007:
As of | ||||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
||||||||
(in billions of yen) | ||||||||||
Deposits |
¥ | 83,751.3 | ¥ | 82,901.8 | ¥ | (849.5 | ) | |||
Debentures |
4,723.8 | 3,919.6 | (804.2 | ) | ||||||
Due to trust accounts |
1,135.4 | 1,211.5 | 76.1 | |||||||
Call money and funds purchased |
6,924.1 | 6,473.1 | (451.0 | ) | ||||||
Payables under repurchase agreements |
12,821.8 | 13,492.9 | 671.1 | |||||||
Payables under securities lending transactions |
6,100.8 | 6,955.1 | 854.3 | |||||||
Commercial paper |
933.6 | 765.3 | (168.3 | ) | ||||||
Other short-term borrowings |
4,283.5 | 5,419.3 | 1,135.8 | |||||||
Trading account liabilities |
11,310.0 | 11,579.2 | 269.2 | |||||||
Bank acceptances outstanding |
57.7 | 66.2 | 8.5 | |||||||
Income taxes payable |
28.6 | 35.8 | 7.2 | |||||||
Deferred tax liabilities |
16.4 | 14.0 | (2.4 | ) | ||||||
Accrued expenses |
312.7 | 310.0 | (2.7 | ) | ||||||
Long-term debt |
7,073.9 | 6,969.7 | (104.2 | ) | ||||||
Other liabilities |
2,903.4 | 4,201.8 | 1,298.4 | |||||||
Total liabilities |
¥ | 142,377.0 | ¥ | 144,315.3 | ¥ | 1,938.3 | ||||
Total liabilities increased by ¥1,938.3 billion from March 31, 2007 to ¥144,315.3 billion at September 30, 2007. This increase was due primarily to an increase of ¥2,118.0 billion in short-term borrowings and an increase of ¥1,298.4 billion in other liabilities, due mainly to an increase in accounts payable to brokers, dealers and customers for securities transactions, offset in part by a decrease of ¥849.5 billion in deposits and a decrease of ¥804.2 billion in debentures. Short-term borrowings include due to trust accounts, call money and funds purchased, payables under repurchase agreements, payables under securities lending transactions, commercial paper and other short-term borrowings.
24
Deposits
The following table shows a breakdown of our deposits as of March 31, 2007 and September 30, 2007:
As of | ||||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
||||||||
(in billions of yen) | ||||||||||
Domestic: |
||||||||||
Non-interest-bearing deposits |
¥ | 13,166.6 | ¥ | 10,174.7 | ¥ | (2,991.9 | ) | |||
Interest-bearing deposits |
61,012.8 | 62,287.2 | 1,274.4 | |||||||
Total domestic deposits |
74,179.4 | 72,461.9 | (1,717.5 | ) | ||||||
Foreign: |
||||||||||
Non-interest-bearing deposits |
350.6 | 428.3 | 77.7 | |||||||
Interest-bearing deposits |
9,221.3 | 10,011.6 | 790.3 | |||||||
Total foreign deposits |
9,571.9 | 10,439.9 | 868.0 | |||||||
Total deposits |
¥ | 83,751.3 | ¥ | 82,901.8 | ¥ | (849.5 | ) | |||
Deposits decreased by ¥849.5 billion from March 31, 2007 to ¥82,901.8 billion at September 30, 2007. Domestic deposits decreased by ¥1,717.5 billion to ¥72,461.9 billion due to a decline in non-interest-bearing deposits by ¥2,991.9 billion, reflecting increased demand for cash as a result of the general improvement in business performance of Japanese companies, partially offset by an increase in interest-bearing deposits mainly from individuals by ¥1,274.4 billion, as short-term interest rates rose during the six months. Foreign deposits increased by ¥868.0 billion from March 31, 2007 to ¥10,439.9 billion due mainly to an increase in interest-bearing deposits as we continued our fund-raising efforts to support our growing overseas operations.
Debentures
Debentures decreased by ¥804.2 billion from March 31, 2007 to ¥3,919.6 billion at September 30, 2007. In Japan, certain banks are entitled to issue discount and coupon debentures in the domestic market under applicable banking laws. Mizuho Corporate Bank and Mizuho Bank benefit from such entitlement originally held by The Industrial Bank of Japan, one of our predecessor banks. While the two bank subsidiaries have this entitlement through March 2012, we have been reducing our reliance on debentures in recent years and are shifting to other sources of financing, including mainly bonds. See Liquidity.
25
Short-term Borrowings
The following table shows a breakdown of our short-term borrowings as of March 31, 2007 and September 30, 2007:
As of | |||||||||||||||||||||||||||||
March 31, 2007 | September 30, 2007 | Increase (decrease) | |||||||||||||||||||||||||||
Domestic | Foreign | Total | Domestic | Foreign | Total | Domestic | Foreign | Total | |||||||||||||||||||||
(in billions of yen) | |||||||||||||||||||||||||||||
Due to trust accounts |
¥ | 1,135.4 | | ¥ | 1,135.4 | ¥ | 1,211.5 | | ¥ | 1,211.5 | ¥ | 76.1 | | ¥ | 76.1 | ||||||||||||||
Call money and funds purchased, and payables under repurchase agreements and securities lending transactions |
13,196.0 | 12,650.7 | 25,846.7 | 13,741.6 | 13,179.5 | 26,921.1 | 545.6 | 528.8 | 1,074.4 | ||||||||||||||||||||
Commercial paper |
658.1 | 275.5 | 933.6 | 380.4 | 384.9 | 765.3 | (277.7 | ) | 109.4 | (168.3 | ) | ||||||||||||||||||
Other short-term borrowings |
4,080.3 | 203.2 | 4,283.5 | 5,049.2 | 370.1 | 5,419.3 | 968.9 | 166.9 | 1,135.8 | ||||||||||||||||||||
Total short-term borrowings |
¥ | 19,069.8 | ¥ | 13,129.4 | ¥ | 32,199.2 | ¥ | 20,382.7 | ¥ | 13,934.5 | ¥ | 34,317.2 | ¥ | 1,312.9 | ¥ | 805.1 | ¥ | 2,118.0 | |||||||||||
Short-term borrowings increased by ¥2,118.0 billion from the end of the previous fiscal year to ¥34,317.2 billion at September 30, 2007. Domestic short-term borrowings increased by ¥1,312.9 billion due primarily to an increase in other short-term borrowings, and foreign short-term borrowings increased by ¥805.1 billion due mainly to an increase in payables under repurchase agreements.
Shareholders Equity
The following table shows a breakdown of shareholders equity as of March 31, 2007 and September 30, 2007:
As of | ||||||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
||||||||||
(in billions of yen) | ||||||||||||
Preferred stock |
¥ | 980.4 | ¥ | 980.4 | ¥ | | ||||||
Common stock |
3,532.5 | 3,437.4 | (95.1 | ) | ||||||||
Accumulated deficit |
(2,105.7 | ) | (1,750.1 | ) | 355.6 | |||||||
Accumulated other comprehensive income, net of tax |
2,287.8 | 2,041.7 | (246.1 | ) | ||||||||
Treasury stock, at cost |
(32.3 | ) | (2.4 | ) | 29.9 | |||||||
Total shareholders equity |
¥ | 4,662.7 | ¥ | 4,707.0 | ¥ | 44.3 | ||||||
Shareholders equity increased by ¥44.3 billion from March 31, 2007 to ¥4,707.0 billion. Common stock decreased by ¥95.1 billion from the end of the previous fiscal year to ¥3,437.4 billion at September 30, 2007 as a result of the cancellation of common stock repurchased during the six months. See Recent DevelopmentsDevelopments Relating to Our Capital.
Accumulated deficit decreased by ¥355.6 billion from the end of the previous fiscal year to ¥1,750.1 billion. This decrease was due primarily to net income of ¥545.1 billion for the six months ended September 30, 2007, offset in part by dividend payments of ¥101.2 billion and an increase of ¥85.1 billion as a result of the cancellation of common stock.
26
Accumulated other comprehensive income, net of tax, decreased by ¥246.1 billion from March 31, 2007 to ¥2,041.7 billion at September 30, 2007 due primarily to a decrease in unrealized net gains on available-for-sale securities of ¥250.7 billion.
Treasury stock decreased by ¥29.9 billion from ¥32.3 billion at the end of the previous fiscal year to ¥2.4 billion at September 30, 2007 due to the cancellation of common stock of ¥180.2 billion, offset in part by the repurchase of common stock of ¥150.3 billion.
We continuously endeavor to enhance the management of our liquidity profile and strengthen our capital base to meet our customers loan requirements and deposit withdrawals and respond to unforeseen situations such as adverse movements in stock, foreign currency, interest rate and other markets or changes in general domestic or international conditions.
Deposits and the issuance of debentures, based on our broad customer base and brand recognition in Japan, have been our primary sources of liquidity. As shown in the following table, our average balance of deposits and debentures combined for the six months ended September 30, 2007 exceeded our average balance of loans for the same period by ¥19,284.3 billion. We invested the excess portion primarily in marketable securities and other high-liquidity assets.
Average balance for the six months ended September 30, 2007 | ||||||||
(in billions of yen) | ||||||||
Loans |
¥ | 68,715.9 | Deposits |
¥ | 83,635.4 | |||
Debentures | 4,364.8 |
We will no longer be able to issue debentures beginning April 2012 due to applicable regulations. Mizuho Corporate Bank ceased issuing debentures to institutional investors in April 2006 and started to issue ¥150.0 billion in straight bonds each quarter, or ¥600.0 billion each year, as a replacement for such debentures. We also ceased all new issuances of debentures by Mizuho Bank through its retail branch network in March 2007. We believe the balance of our debentures will decrease significantly in the following years as a result.
Secondary sources of liquidity include short-term borrowings such as call money and funds purchased and commercial paper. We also issue long-term debt, including both senior and subordinated debt, as additional sources for liquidity. We utilize short-term borrowings to diversify our funding sources and to manage our funding costs. We raise long-term debt mainly for purposes of enhancing our capital adequacy ratios. We believe we are able to access such sources of liquidity on a stable and flexible basis based on our current credit ratings. The following table shows credit ratings assigned to our principal banking subsidiaries by S&P and Moodys as of December 31, 2007:
As of December 31, 2007 | ||||||||||||
S&P | Moodys | |||||||||||
Long-term | Short-term | Fundamental strength |
Long-term | Short-term | Financial strength | |||||||
Mizuho Corporate Bank |
A+ | A-1 | B | Aa2 | P-1 | C | ||||||
Mizuho Bank |
A+ | A-1 | B | Aa2 | P-1 | C | ||||||
Mizuho Trust & Banking |
A+ | A-1 | B | Aa2 | P-1 | C |
We source our funding in foreign currencies primarily from foreign governments, financial institutions and institutional investors through short-term and long-term financing under terms and pricing commensurate with our credit ratings above. In the event of future declines in our credit quality or that of Japan in general, we expect to be able to purchase foreign currencies in sufficient amounts using the yen funds raised through our domestic
27
customer base. As further measures to support our foreign currency liquidity, we hold foreign debt securities, maintain credit lines and swap facilities denominated in foreign currencies and pledge collateral to the U.S. Federal Reserve Bank to support future credit extensions.
We maintain management and control systems to support our ability to access liquidity on a stable and cost-effective basis.
Regulatory Capital Requirements
Mizuho Financial Group and its principal banking subsidiaries are subject to regulatory capital requirements administered by the Financial Services Agency in accordance with the provisions of the Banking Law and related regulations. Failure to meet minimum capital requirements may initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements.
The capital adequacy guidelines applicable to Japanese banks and bank holding companies with international operations supervised by the Financial Services Agency closely follow the risk-adjusted approach proposed by the Bank for International Settlements (BIS) and are intended to further strengthen the soundness and stability of Japanese banks. Effective March 31, 2007, new guidelines were implemented by the Financial Services Agency to comply with the new capital adequacy requirements set by BIS called Basel II. The framework of Basel II is based on the following three pillars: minimum capital requirements; supervisory review; and market discipline.
Under the first pillar, the capital ratio is calculated by dividing regulatory capital by risk-weighted assets. With respect to the calculation of risk-weighted assets, Mizuho Financial Group adopted the foundation internal ratings-based approach (FIRB approach). Under the FIRB approach, balance sheet assets and off-balance sheet exposures, calculated under Japanese GAAP, are assessed in terms of credit risk according to risk components such as probability of default and loss given default. Probability of default is derived by Mizuho Financial Groups own internal credit experience. In addition to credit risk, banks are required to measure and apply capital charges with respect to their market risks. Market risk is defined as the risk of losses in on- and off-balance-sheet positions arising from movements in market prices. Operational risk, which was introduced under Basel II with respect to regulatory capital requirements, is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Mizuho Financial Group selected the standardized approach for the calculation of operational risk capital charge, which calculates operational risk by dividing its activities into eight business lines and multiplying gross income of each of those business lines by the applicable factor assigned to each of the business lines.
Japanese banks are also required to comply with the supervisory review process (second pillar) and disclosure requirements for market discipline (third pillar). Under the second pillar, banks are required to maintain adequate capital to support all of the major risks in their business and are encouraged to develop and use better risk management techniques in monitoring and managing such risks. Under the third pillar, banks are required to enhance disclosure, including disclosure of details of the capital adequacy ratio, the amount of each type of risk and the method of calculation used so that the market may make more effective evaluations.
28
Consolidated Capital Adequacy Ratios
Our capital adequacy ratios as of March 31, 2007 and September 30, 2007 calculated in accordance with Japanese GAAP and guidelines established by the Ministry of Finance and the Financial Services Agency are as set forth in the following table:
As of | ||||||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
||||||||||
(in billions of yen, except percentages) | ||||||||||||
Tier 1 capital |
¥ | 4,933.6 | ¥ | 4,918.7 | ¥ | (14.9 | ) | |||||
Tier 2 capital included as qualifying capital |
4,092.6 | 3,720.9 | (371.7 | ) | ||||||||
Deductions for total risk-based capital |
(184.8 | ) | (316.7 | ) | (131.9 | ) | ||||||
Total risk-based capital |
¥ | 8,841.4 | ¥ | 8,322.9 | ¥ | (518.5 | ) | |||||
Risk-weighted assets |
¥ | 70,795.5 | ¥ | 70,525.2 | ¥ | (270.3 | ) | |||||
Tier 1 capital ratio |
6.96 | % | 6.97 | % | 0.01 | % | ||||||
Required Tier 1 ratio |
4.00 | 4.00 | | |||||||||
Capital adequacy ratio |
12.48 | 11.80 | (0.68 | ) | ||||||||
Required capital adequacy ratio |
8.00 | 8.00 | |
Note: | Percentages in the above table are truncated. |
Our capital adequacy ratio as of September 30, 2007 was 11.80%, a decline of 0.68% compared to March 31, 2007. Our Tier 1 capital ratio as of September 30, 2007 was 6.97%, a rise of 0.01% compared to March 31, 2007. We believe that we were in compliance with all capital adequacy requirements to which we were subject as of September 30, 2007. Our Tier 1 capital ratio as of September 30, 2007 remained generally unchanged from March 31, 2007 due to similar proportional decreases in Tier 1 capital and risk-weighted assets. The decrease in risk-weighted assets was proportionally smaller compared to the decrease in total risk-based capital, which resulted in the decline in our capital adequacy ratio.
29
Capital
The following table shows a breakdown of our total risk-based capital as of March 31, 2007 and September 30, 2007:
As of | ||||||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
||||||||||
(in billions of yen) | ||||||||||||
Tier 1 capital: |
||||||||||||
Common stock and preferred stock |
¥ | 1,541.0 | ¥ | 1,541.0 | | |||||||
Capital surplus |
411.1 | 411.1 | | |||||||||
Retained earnings |
1,439.9 | 1,490.6 | ¥ | 50.7 | ||||||||
Minority interest in consolidated subsidiaries |
1,726.2 | 1,527.7 | (198.5 | ) | ||||||||
Treasury stock |
(32.3 | ) | (2.4 | ) | 29.9 | |||||||
Expected outflow |
(101.2 | ) | | 101.2 | ||||||||
Foreign currency translation adjustments |
(39.0 | ) | (36.7 | ) | 2.3 | |||||||
Goodwill equivalent |
| | | |||||||||
Capital increase due to securitization transactions |
(12.1 | ) | (12.6 | ) | (0.5 | ) | ||||||
Total Tier 1 capital |
4,933.6 | 4,918.7 | (14.9 | ) | ||||||||
Tier 2 capital: |
||||||||||||
45% of unrealized gains on other securities |
1,100.8 | 842.4 | (258.4 | ) | ||||||||
45% of revaluation reserve for land |
116.0 | 114.5 | (1.5 | ) | ||||||||
General reserve for possible losses on loans, etc. |
131.6 | 69.8 | (61.8 | ) | ||||||||
Debt capital, etc. |
2,744.2 | 2,694.2 | (50.0 | ) | ||||||||
Total Tier 2 capital |
4,092.6 | 3,720.9 | (371.7 | ) | ||||||||
Deductions for total risk-based capital |
(184.8 | ) | (316.7 | ) | (131.9 | ) | ||||||
Total risk-based capital |
¥ | 8,841.4 | ¥ | 8,322.9 | ¥ | (518.5 | ) | |||||
Our Tier 1 capital decreased by ¥14.9 billion from March 31, 2007 to ¥4,918.7 billion as of September 30, 2007. This decrease was due mainly to the decrease of ¥185.5 billion as a result of the redemption of preferred securities issued by offshore special purpose companies offset in part by an increase of ¥101.2 billion due to expected outflow as of March 31, 2007, relating to dividend payments on common stock expected to be paid to shareholders with respect to the fiscal year ended on such date and an increase of ¥50.7 billion attributable to an increase in retained earnings.
Minority interest in consolidated subsidiaries included within our Tier 1 capital includes non-dilutive preferred securities issued to investors by our offshore special purpose companies. As of September 30, 2007, the amount of minority interest in consolidated subsidiaries within our Tier 1 capital that was attributable to such preferred securities was ¥1,314.0 billion. Although such preferred securities are perpetual in term, they are redeemable at our option, subject to prior approval from regulatory authorities, on, and on specified dates after, the relevant initial optional redemption date. The following table shows the initial optional redemption dates for the preferred securities included within our Tier 1 capital as of September 30, 2007 and the total amount of preferred securities with each such initial optional redemption date. The preferred securities are denominated in yen, unless otherwise noted.
30
Initial optional redemption date |
Amount of preferred securities included within Tier 1 capital |
||
(in billions of yen) | |||
June 2008 |
416.1 | (1) | |
June 2009 |
176.0 | ||
June 2011 |
81.7 | (2) | |
June 2012 |
171.0 | ||
June 2016 |
469.2 | (3) |
Notes:
(1) | Denominated in dollars ($2.6 billion) and yen (¥118.5 billion). |
(2) | Denominated in euros (500.0 million). |
(3) | Denominated in yen (¥400.0 billion) and dollars ($600.0 million). |
(4) | In January 2008, we issued ¥274.5 billion of preferred securities through a Cayman Islands special purpose company with an initial optional redemption date of June 2018. |
Tier 2 capital included as qualifying capital as of September 30, 2007 was ¥3,720.9 billion, a decrease of ¥371.7 billion compared to March 31, 2007. The decrease was due mainly to a decrease in unrealized gains on other securities as a result of declines in domestic stock markets.
As a result of the above, together with deductions of ¥316.7 billion, total risk-based capital as of September 30, 2007 was ¥8,322.9 billion, a decrease of ¥518.5 billion compared to March 31, 2007.
Risk-weighted Assets
The following table shows a breakdown of our risk-weighted assets as of March 31, 2007 and September 30, 2007:
As of | ||||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
||||||||
(in billions of yen) | ||||||||||
Risk-weighted assets: |
||||||||||
On-balance-sheet items |
¥ | 48,718.6 | ¥ | 49,915.3 | ¥ | 1,196.7 | ||||
Off-balance-sheet items |
11,036.5 | 11,747.5 | 711.0 | |||||||
Credit risk assets |
59,755.1 | 61,662.8 | 1,907.7 | |||||||
Market risk equivalent assets |
2,186.5 | 2,680.3 | 493.8 | |||||||
Operational risk equivalent assets |
3,877.5 | 3,905.5 | 28.0 | |||||||
Adjusted floor amount |
4,976.4 | 2,276.6 | (2,699.8 | ) | ||||||
Total |
¥ | 70,795.5 | ¥ | 70,525.2 | ¥ | (270.3 | ) | |||
Risk-weighted assets as of September 30, 2007 was ¥70,525.2 billion, representing a decrease of ¥270.3 billion compared to March 31, 2007. On-balance-sheet items increased ¥1,196.7 billion to ¥49,915.3 billion due mainly to an increase in credit and alternative investments and overseas loans. Adjusted floor amount decreased ¥2,699.8 billion to ¥2,276.6 billion due mainly to a decrease in reserves for possible losses on loans and an increase in deductions for total risk-based capital.
31
The following table shows required capital by portfolio classification as of September 30, 2007:
As of September 30, 2007 | ||||||
Exposure at default | Required capital(1) | |||||
(in billions of yen) | ||||||
Credit risk |
¥ | 149,834.3 | ¥ | 6,318.3 | ||
Internal ratings-based approach |
140,925.0 | 5,993.2 | ||||
Corporate (except specialized lending) |
55,261.3 | 3,374.9 | ||||
Corporate (specialized lending) |
2,666.1 | 256.3 | ||||
Sovereign |
42,376.1 | 79.2 | ||||
Bank |
8,310.1 | 208.3 | ||||
Retail |
12,934.4 | 542.9 | ||||
Residential mortgage |
10,267.3 | 373.9 | ||||
Qualifying revolving loans |
337.0 | 22.2 | ||||
Other retail |
2,330.1 | 146.7 | ||||
Equities, etc. |
6,293.1 | 722.1 | ||||
Probability of default/Loss given default approach |
1,023.7 | 220.2 | ||||
Market-based approach (simple risk weight method) |
295.3 | 80.0 | ||||
Market-based approach (internal models approach) |
| | ||||
Transitional measure applied |
4,974.0 | 421.7 | ||||
Regarded-method exposure |
1,459.9 | 365.0 | ||||
Purchased receivables |
2,704.0 | 138.7 | ||||
Securitizations |
6,927.6 | 145.9 | ||||
Others |
1,992.0 | 159.5 | ||||
Standardized approach |
8,909.3 | 325.0 | ||||
Sovereign |
3,082.0 | 2.9 | ||||
Bank. |
2,545.4 | 44.0 | ||||
Corporate |
2,613.2 | 203.9 | ||||
Residential mortgage |
0.0 | 0.0 | ||||
Securitizations |
25.7 | 23.7 | ||||
Others |
642.8 | 50.3 | ||||
Market risk |
n.a. | 214.4 | ||||
Standardized approach |
n.a. | 171.5 | ||||
Interest rate risk |
n.a. | 125.0 | ||||
Equities risk |
n.a. | 29.9 | ||||
Foreign exchange risk |
n.a. | 9.7 | ||||
Commodities risk |
n.a. | 6.7 | ||||
Internal models approach |
n.a. | 42.9 | ||||
Operational risk (standardized approach) |
n.a. | 312.4 | ||||
Total required capital(2) |
n.a. | 5,642.0 |
Notes:
(1) | For credit risk, required capital is the sum of (i) 8% of credit risk-weighted assets, (ii) expected losses and (iii) deductions from capital. For market risk, required capital is the market risk equivalent amount. For operational risk, required capital is the operational risk equivalent amount. |
(2) | Total required capital (consolidated) is equal to 8% of the denominator used for purposes of calculating capital adequacy ratios. |
(3) | Figures in the above table are truncated. |
32
Principal Banking Subsidiaries
Capital adequacy ratios of our principal banking subsidiaries as of March 31, 2007 and September 30, 2007 on a consolidated basis calculated in accordance with Japanese GAAP and guidelines established by the Ministry of Finance and the Financial Services Agency were as set forth in the following table:
As of | |||||||||
March 31, 2007 |
September 30, 2007 |
Increase (decrease) |
|||||||
Mizuho Corporate Bank |
|||||||||
BIS standard: |
|||||||||
Tier 1 capital ratio |
8.56 | % | 8.55 | % | (0.01 | )% | |||
Capital adequacy ratio |
14.01 | % | 13.05 | % | (0.96 | )% | |||
Mizuho Bank(1) |
|||||||||
Domestic standard: |
|||||||||
Tier 1 capital ratio |
7.11 | % | 7.60 | % | 0.49 | % | |||
Capital adequacy ratio |
11.74 | % | 12.25 | % | 0.51 | % | |||
BIS standard: |
|||||||||
Tier 1 capital ratio |
6.85 | % | 7.20 | % | 0.35 | % | |||
Capital adequacy ratio |
11.92 | % | 11.99 | % | 0.07 | % | |||
Mizuho Trust & Banking |
|||||||||
BIS standard: |
|||||||||
Tier 1 capital ratio |
8.96 | % | 8.58 | % | (0.38 | )% | |||
Capital adequacy ratio |
15.69 | % | 14.70 | % | (0.99 | )% |
Notes:
(1) | The Bank for International Settlements standards apply only to banks with international operations. Because Mizuho Bank does not operate overseas, it is subject solely to domestic capital adequacy requirements. As such, information based on the Bank for International Settlements standards is included for reference purposes only. |
(2) | Percentages in the above table are truncated. |
We believe each of our principal banking subsidiaries was in compliance with all capital adequacy requirements to which it was subject as of September 30, 2007.
Our securities subsidiaries in Japan are also subject to the capital adequacy rules of the Financial Services Agency under the Financial Instruments and Exchange Law. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. We believe, as of September 30, 2007, that our securities subsidiaries in Japan are in compliance with all capital adequacy requirements to which they are subject.
Off-balance-sheet Arrangements
See note 14 Commitments and contingencies and note 15 Variable interest entities and securitizations to our consolidated financial statements included elsewhere in this reports.
33
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, 2007 |
September 30, 2007 |
|||||
(in millions of yen) | ||||||
Assets: |
||||||
Cash and due from banks |
3,075,860 | 2,465,474 | ||||
Interest-bearing deposits in other banks |
1,052,296 | 808,210 | ||||
Call loans and funds sold |
309,671 | 411,213 | ||||
Receivables under resale agreements |
9,430,398 | 10,313,579 | ||||
Receivables under securities borrowing transactions |
8,624,211 | 7,291,740 | ||||
Trading account assets (including assets pledged that secured parties are permitted to sell or repledge of ¥3,138,495 million at March 31, 2007 and ¥4,006,586 million at September 30, 2007) |
13,950,333 | 16,536,748 | ||||
Investments (Note 4): |
||||||
Available-for-sale securities (including assets pledged that secured parties are permitted to sell or repledge of ¥7,655,490 million at March 31, 2007 and ¥7,664,060 million at September 30, 2007) |
35,870,667 | 36,647,646 | ||||
Held-to-maturity securities |
1,337,619 | 895,650 | ||||
Other investments |
793,410 | 850,222 | ||||
Loans (Notes 5 and 6) |
69,182,867 | 68,339,832 | ||||
Allowance for loan losses |
(946,147 | ) | (769,163 | ) | ||
Loans, net of allowance |
68,236,720 | 67,570,669 | ||||
Premises and equipmentnet |
847,523 | 817,725 | ||||
Due from customers on acceptances |
57,662 | 66,167 | ||||
Accrued income |
440,495 | 423,068 | ||||
Goodwill |
39,559 | 39,559 | ||||
Deferred tax assets |
618,665 | 819,254 | ||||
Other assets (Note 5) |
2,696,190 | 3,416,864 | ||||
Total assets |
147,381,279 | 149,373,788 | ||||
See the accompanying Notes to the Consolidated Financial Statements.
F-1
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)(Continued)
March 31, 2007 |
September 30, 2007 |
|||||
(in millions of yen) | ||||||
Liabilities and shareholders equity: |
||||||
Deposits: |
||||||
Domestic: |
||||||
Noninterest-bearing deposits |
13,166,585 | 10,174,706 | ||||
Interest-bearing deposits |
61,012,820 | 62,287,190 | ||||
Foreign: |
||||||
Noninterest-bearing deposits |
350,553 | 428,300 | ||||
Interest-bearing deposits |
9,221,346 | 10,011,581 | ||||
Debentures |
4,723,806 | 3,919,565 | ||||
Due to trust accounts |
1,135,359 | 1,211,478 | ||||
Call money and funds purchased |
6,924,136 | 6,473,059 | ||||
Payables under repurchase agreements |
12,821,753 | 13,492,898 | ||||
Payables under securities lending transactions |
6,100,758 | 6,955,119 | ||||
Commercial paper |
933,564 | 765,348 | ||||
Other short-term borrowings |
4,283,493 | 5,419,346 | ||||
Trading account liabilities |
11,310,010 | 11,579,227 | ||||
Bank acceptances outstanding |
57,662 | 66,167 | ||||
Income taxes payable |
28,650 | 35,821 | ||||
Deferred tax liabilities |
16,368 | 13,968 | ||||
Accrued expenses |
312,680 | 309,952 | ||||
Long-term debt (including structured notes accounted for at fair value of ¥142,924 million at March 31, 2007 and ¥160,798 million at September 30, 2007) |
7,073,936 | 6,969,735 | ||||
Other liabilities |
2,903,497 | 4,201,873 | ||||
Total liabilities |
142,376,976 | 144,315,333 | ||||
Commitments and contingencies |
||||||
Minority interest in consolidated subsidiaries |
341,603 | 351,408 | ||||
Shareholders equity (Note 9): |
||||||
Preferred stock (Note 7) |
980,430 | 980,430 | ||||
Common stockno par value, authorized 24,868,200 shares at March 31, 2007, and 24,392,259 shares at September 30, 2007, and issued 11,872,195 shares at March 31, 2007, and 11,396,255 shares at September 30, 2007 |
3,532,492 | 3,437,429 | ||||
Accumulated deficit |
(2,105,719 | ) | (1,750,090 | ) | ||
Accumulated other comprehensive income, net of tax |
2,287,827 | 2,041,704 | ||||
Less: Treasury stock, at costCommon stock 265,040 shares at March 31,2007, and 4,397 shares at September 30, 2007 |
(32,330 | ) | (2,426 | ) | ||
Total shareholders equity |
4,662,700 | 4,707,047 | ||||
Total liabilities, minority interest and shareholders equity |
147,381,279 | 149,373,788 | ||||
See the accompanying Notes to the Consolidated Financial Statements.
F-2
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Six months ended September 30, | ||||||
2006 | 2007 | |||||
(in millions of yen) | ||||||
Interest and dividend income: |
||||||
Loans, including fees |
642,993 | 804,531 | ||||
Investments: |
||||||
Interest |
205,578 | 332,312 | ||||
Dividends |
48,998 | 45,537 | ||||
Trading account assets |
33,829 | 31,360 | ||||
Call loans and funds sold |
8,614 | 7,778 | ||||
Receivables under resale agreements and securities borrowing transactions |
205,118 | 315,933 | ||||
Deposits |
38,408 | 39,366 | ||||
Total interest and dividend income |
1,183,538 | 1,576,817 | ||||
Interest expense: |
||||||
Deposits |
248,522 | 393,110 | ||||
Debentures |
18,222 | 13,008 | ||||
Trading account liabilities |
34,186 | 27,984 | ||||
Call money and funds purchased |
11,520 | 28,939 | ||||
Payables under repurchase agreements and securities lending transactions |
257,306 | 427,322 | ||||
Other short-term borrowings |
15,411 | 35,680 | ||||
Long-term debt |
82,698 | 104,974 | ||||
Total interest expense |
667,865 | 1,031,017 | ||||
Net interest income |
515,673 | 545,800 | ||||
Provision (credit) for loan losses (Notes 5 and 6) |
(70,802 | ) | (63,461 | ) | ||
Net interest income after provision (credit) for loan losses |
586,475 | 609,261 | ||||
Noninterest income: |
||||||
Fees and commissions |
323,719 | 306,972 | ||||
Foreign exchange gains (losses)net |
6,678 | 6,516 | ||||
Trading account gainsnet |
229,519 | 226,983 | ||||
Investment gainsnet |
32,231 | 52,013 | ||||
Gains on disposal of premises and equipment |
27,240 | 17,112 | ||||
Other noninterest income |
52,860 | 66,633 | ||||
Total noninterest income |
672,247 | 676,229 | ||||
Noninterest expenses: |
||||||
Salaries and employee benefits |
209,811 | 223,756 | ||||
General and administrative expenses |
228,669 | 244,046 | ||||
Occupancy expenses |
83,990 | 97,263 | ||||
Fees and commission expenses |
58,099 | 60,387 | ||||
Provision (credit) for losses on off-balance-sheet instruments |
(16,308 | ) | 6,569 | |||
Minority interest in consolidated subsidiaries |
11,519 | 8,665 | ||||
Other noninterest expenses (Note 5) |
61,768 | 97,883 | ||||
Total noninterest expenses |
637,548 | 738,569 | ||||
Income before income tax expense (benefit) |
621,174 | 546,921 | ||||
Income tax expense (benefit) |
(30,629 | ) | 1,790 | |||
Net income |
651,803 | 545,131 | ||||
(in yen) | ||||||
Earnings per common share (Note 10): |
||||||
Basic net income per common share |
55,850.99 | 47,123.37 | ||||
Diluted net income per common share |
51,449.56 | 42,350.61 | ||||
See the accompanying Notes to the Consolidated Financial Statements.
F-3
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Gains (losses) before income tax expense (benefit) |
Income tax (expense) benefit |
Gains (losses) net of income tax expense (benefit) |
|||||||
(in millions of yen) | |||||||||
Six months ended September 30, 2006 |
|||||||||
Net income |
651,803 | ||||||||
Other comprehensive income (loss): |
|||||||||
Unrealized net gains (losses) on available-for-sale securities: |
|||||||||
Unrealized holding gains (losses) |
(159,651 | ) | 64,624 | (95,027 | ) | ||||
Less: reclassification adjustments for losses (gains) included in net income |
47,377 | (19,220 | ) | 28,157 | |||||
Total |
(112,274 | ) | 45,404 | (66,870 | ) | ||||
Foreign currency translation adjustments: |
|||||||||
Foreign currency translation adjustments |
13,181 | | 13,181 | ||||||
Less: reclassification adjustments for losses (gains) included in net income |
| | | ||||||
Total |
13,181 | | 13,181 | ||||||
Minimum pension liability adjustments |
(98 | ) | 40 | (58 | ) | ||||
Total other comprehensive income (loss) |
(99,191 | ) | 45,444 | (53,747 | ) | ||||
Total comprehensive income |
598,056 | ||||||||
Six months ended September 30, 2007 |
|||||||||
Net income |
545,131 | ||||||||
Other comprehensive income (loss): |
|||||||||
Unrealized net gains (losses) on available-for-sale securities: |
|||||||||
Unrealized holding gains (losses) |
(301,619 | ) | 122,691 | (178,928 | ) | ||||
Less: reclassification adjustments for losses (gains) included in net income |
(120,955 | ) | 49,191 | (71,764 | ) | ||||
Total |
(422,574 | ) | 171,882 | (250,692 | ) | ||||
Foreign currency translation adjustments: |
|||||||||
Foreign currency translation adjustments |
6,415 | | 6,415 | ||||||
Less: reclassification adjustments for losses (gains) included in net income |
| | | ||||||
Total |
6,415 | | 6,415 | ||||||
Pension liability adjustments |
(3,109 | ) | 1,263 | (1,846 | ) | ||||
Total other comprehensive income (loss) |
(419,268 | ) | 173,145 | (246,123 | ) | ||||
Total comprehensive income |
299,008 | ||||||||
See the accompanying Notes to the Consolidated Financial Statements.
F-4
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Unaudited)
Six months ended September 30, | ||||||
2006 | 2007 | |||||
(in millions of yen) | ||||||
Preferred stock (Note 7): |
||||||
Balance at beginning of period |
1,580,430 | 980,430 | ||||
Change during period |
(600,000 | ) | | |||
Balance at end of period |
980,430 | 980,430 | ||||
Common stock: |
||||||
Balance at beginning of period |
3,547,726 | 3,532,492 | ||||
Cancellation of common stock |
(15,266 | ) | (95,055 | ) | ||
Gains on sales of treasury stock |
20 | 9 | ||||
Other |
| (17 | ) | |||
Balance at end of period |
3,532,480 | 3,437,429 | ||||
Accumulated deficit: |
||||||
Balance at beginning of period, previously reported |
(2,647,768 | ) | (2,105,719 | ) | ||
Cumulative effect of change in accounting principles, net of tax (Notes 1 and 2) |
1,514 | (2,597 | ) | |||
Balance at beginning of period, adjusted |
(2,646,254 | ) | (2,108,316 | ) | ||
Net income |
651,803 | 545,131 | ||||
Dividends declared |
(79,850 | ) | (101,230 | ) | ||
Cancellation of preferred stock |
(3,497 | ) | | |||
Cancellation of common stock |
| (85,134 | ) | |||
Other |
| (541 | ) | |||
Balance at end of period |
(2,077,798 | ) | (1,750,090 | ) | ||
Accumulated other comprehensive income, net of tax: |
||||||
Unrealized net gains on available-for-sale securities: |
||||||
Balance at beginning of period |
1,996,172 | 2,214,375 | ||||
Change during period |
(66,870 | ) | (250,692 | ) | ||
Balance at end of period |
1,929,302 | 1,963,683 | ||||
Foreign currency translation adjustments: |
||||||
Balance at beginning of period |
(83,083 | ) | (57,403 | ) | ||
Change during period |
13,181 | 6,415 | ||||
Balance at end of period |
(69,902 | ) | (50,988 | ) | ||
Minimum pension liability adjustments: |
||||||
Balance at beginning of period |
(949 | ) | | |||
Change during period |
(58 | ) | | |||
Balance at end of period |
(1,007 | ) | | |||
Pension liability adjustments: |
||||||
Balance at beginning of period |
| 130,855 | ||||
Change during period |
| (1,846 | ) | |||
Balance at end of period |
| 129,009 | ||||
Balance at end of period |
1,858,393 | 2,041,704 | ||||
Treasury stock, at cost: |
||||||
Balance at beginning of period |
(46,814 | ) | (32,330 | ) | ||
Purchases of treasury stock |
(603,980 | ) | (150,328 | ) | ||
Sales of treasury stock |
25 | 42 | ||||
Cancellation of treasury stock |
618,764 | 180,190 | ||||
Other |
(1 | ) | 0 | |||
Balance at end of period |
(32,006 | ) | (2,426 | ) | ||
Total shareholders equity |
4,261,499 | 4,707,047 | ||||
See the accompanying Notes to the Consolidated Financial Statements
F-5
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended September 30, | ||||||
2006 | 2007 | |||||
(in millions of yen) | ||||||
Cash flows from operating activities: |
||||||
Net income |
651,803 | 545,131 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||
Depreciation and amortization |
67,447 | 83,912 | ||||
Provision (credit) for loan losses |
(70,802 | ) | (63,461 | ) | ||
Investment losses (gains)net |
(32,231 | ) | (52,013 | ) | ||
Foreign exchange losses (gains)net |
7,319 | (6,752 | ) | |||
Deferred income tax expense (benefit) |
(53,426 | ) | (26,455 | ) | ||
Net change in trading account assets |
(1,496,268 | ) | (2,543,059 | ) | ||
Net change in trading account liabilities |
11,075 | 239,477 | ||||
Net change in loans held for sale |
| (621,244 | ) | |||
Net change in accrued income |
(26,083 | ) | 15,697 | |||
Net change in accrued expenses |
12,730 | (2,546 | ) | |||
Othernet |
53,192 | (261,529 | ) | |||
Net cash used in operating activities |
(875,244 | ) | (2,692,842 | ) | ||
Cash flows from investing activities: |
||||||
Proceeds from sales of available-for-sale securities |
17,207,873 | 29,369,702 | ||||
Proceeds from maturities of available-for-sale securities |
14,750,845 | 12,357,259 | ||||
Purchases of available-for-sale securities |
(30,387,666 | ) | (41,510,231 | ) | ||
Proceeds from maturities of held-to-maturity securities |
200,738 | 435,156 | ||||
Proceeds from sales of other investments |
190,894 | 87,350 | ||||
Purchases of other investments |
(87,154 | ) | (60,177 | ) | ||
Proceeds from sales of loans |
110,262 | 75,414 | ||||
Net change in loans |
1,200,241 | 615,317 | ||||
Net change in interest-bearing deposits in other banks |
298,626 | 265,755 | ||||
Net change in call loans and funds sold, and receivables under resale agreements and securities borrowing transactions |
(913,537 | ) | 249,911 | |||
Proceeds from sales of premises and equipment |
42,776 | 16,934 | ||||
Purchases of premises and equipment |
(40,647 | ) | (62,591 | ) | ||
Net cash provided by investing activities |
2,573,251 | 1,839,799 | ||||
Cash flows from financing activities: |
||||||
Net change in deposits |
(1,320,653 | ) | (873,713 | ) | ||
Net change in debentures |
(1,033,525 | ) | (804,821 | ) | ||
Net change in call money and funds purchased, and payables under repurchase agreements and securities lending transactions |
1,954,557 | 1,197,685 | ||||
Net change in due to trust accounts |
(209,061 | ) | 76,119 | |||
Net change in commercial paper and other short-term borrowings |
(1,963,047 | ) | 523,115 | |||
Proceeds from issuance of long-term debt |
702,363 | 947,391 | ||||
Repayment of long-term debt |
(442,807 | ) | (581,179 | ) | ||
Proceeds from minority interest |
23,241 | 19,252 | ||||
Payment to minority interest |
| (1,000 | ) | |||
Proceeds from sales of treasury stock |
45 | 51 | ||||
Purchases of treasury stock |
(603,980 | ) | (150,328 | ) | ||
Dividends paid |
(79,749 | ) | (101,042 | ) | ||
Dividends paid to minority interest |
(7,829 | ) | (15,253 | ) | ||
Net cash provided by (used in) financing activities |
(2,980,445 | ) | 236,277 | |||
Effect of exchange rate changes on cash and due from banks |
900 | 6,380 | ||||
Net decrease in cash and due from banks |
(1,281,538 | ) | (610,386 | ) | ||
Cash and due from banks at beginning of period |
3,459,672 | 3,075,860 | ||||
Cash and due from banks at end of period |
2,178,134 | 2,465,474 | ||||
Supplemental disclosure of cash flow information: |
||||||
Interest paid |
622,186 | 1,055,571 | ||||
Income taxes paid (refunded), net |
24,430 | (106,513 | ) | |||
Noncash investing activities: |
||||||
Transfer from loans into other investments |
| 92,409 | ||||
Investment in capital leases |
5,151 | 1,261 |
See the accompanying Notes to the Consolidated Financial Statements.
F-6
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation
Mizuho Financial Group, Inc. (MHFG) is a joint stock corporation with limited liability under the laws of Japan. MHFG, through its subsidiaries (the MHFG Group, or the Group), provides domestic and international financial services in Japan and other countries. For a discussion of the Groups segment information, see Note 16 Business segment information.
The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP). The consolidated financial statements are stated in Japanese yen, the currency of the country in which MHFG is incorporated and principally operates.
The accompanying consolidated financial statements include the accounts of MHFG and its subsidiaries. The consolidated financial statements also include the accounts of the variable interest entities (VIEs) for which MHFG or its subsidiaries have been determined to be the primary beneficiary under Financial Accounting Standards Board (FASB) Interpretation (FIN) No.46 (revised December 2003), Consolidation of Variable Interest Entities, an interpretation of ARB No.51 (FIN No.46R). All significant intercompany transactions and balances have been eliminated in consolidation. The MHFG Group accounts for investment in entities over which it has significant influence using the equity method of accounting. These investments are included in Other investments and the Groups proportionate share of income or loss is included in Investment gains-net.
The unaudited consolidated financial statements should be read in conjunction with the audited financial statements and related notes thereto included in the annual financial statements for the year ended March 31, 2007.
Certain financial information that is normally included in annual financial statements prepared in accordance with U.S. GAAP, but is not required for interim reporting purposes, has been condensed or omitted.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Specific areas, among others, requiring the application of managements estimates and judgment include assumptions pertaining to the allowance for loan losses, allowance for losses on off-balance-sheet instruments, deferred tax assets, derivative financial instruments, investments and pension and other employee benefits. Actual results could differ from estimates and assumptions made.
Accounting change
Effective April 1, 2007, the MHFG Group has changed the declining-balance method for depreciating premises and equipment from the fixed-percentage-on-declining base application to the 250% declining-balance application, along with the reduction of the related salvage values. This application was adopted to reflect the current pattern of asset usage. The above change, which was made on a prospective basis, resulted in a decrease in net income by ¥16,712 million, and in basic and diluted net income per common share by ¥1,444.63 and ¥1,298.31, respectively, for the six months ended September 30, 2007.
2. Recently issued accounting pronouncements
Recently adopted accounting pronouncements
In March 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No.156, Accounting for Servicing of Financial Assetsan amendment of FASB Statement No.140 (SFAS No.156), which
F-7
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
requires all separately recognized servicing assets and liabilities be initially measured at fair value, if practical. SFAS No.156 permits, but does not require, an enterprise to elect to remeasure servicing assets and liabilities at fair value in subsequent periods. SFAS No.156 is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS No.156 did not have a material impact on the MHFG Groups consolidated results of operations or financial condition.
In June 2006, the FASB ratified the Emerging Issues Task Force (EITF) consensus on Issue No.06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No.43 (EITF Issue No.06-2). EITF Issue No.06-2 addresses accounting for compensated absences that require the completion of a minimum service period and do not increase with additional years of service. EITF Issue No.06-2 is effective for fiscal years beginning after December 15, 2006. The adoption of EITF Issue No.06-2 did not have a material impact on the MHFG Groups consolidated results of operations or financial condition.
In July 2006, the FASB issued FIN No.48, Accounting for Uncertainty in Income Taxes (FIN No.48), which creates a single model to address uncertainty in all tax positions subject to SFAS No.109, Accounting for Income Taxes (SFAS No.109). FIN No.48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN No.48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The MHFG Group adopted FIN No.48 as of April 1, 2007 that resulted in an increase to the beginning balance of accumulated deficit of ¥2,597 million. For further discussion, see Note 11 Income taxes.
Accounting pronouncements issued but not yet effective
In September 2006, the FASB issued SFAS No.157, Fair Value Measurements (SFAS No.157), which clarifies the definition of fair value and the method used to measure fair value and expands the disclosure requirements about fair value measurements. SFAS No.157 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity and (2) the reporting entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances. SFAS No.157 nullifies certain guidance provided for in EITF Issue No.02-3, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities (EITF Issue No.02-3), and the related provisions of SFAS No.133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.133). SFAS No.157 is effective for fiscal years beginning after November 15, 2007. The MHFG Group is currently evaluating the potential impact that the adoption of SFAS No.157 will have on its consolidated results of operations and financial condition.
In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No.115 (SFAS No.159). SFAS No.159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities and certain other items at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that items fair value in subsequent reporting periods must be recognized in current earnings. SFAS No.159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to certain conditions. The MHFG Group is currently evaluating the potential impact that the adoption of SFAS No.159 will have on its consolidated results of operations and financial condition.
In June 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No.07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies
F-8
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
(SOP No.07-1). SOP No.07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the Guide). Prior to the issuance of SOP No.07-1, in May 2007, the FASB issued FASB Staff Position (FSP) No.FIN46(R)-7 Application of FASB Interpretation No.46(R) to Investment Companies (FSP No.FIN46(R)-7), which addresses the application of FIN No.46R by an entity that accounts for its investments in accordance with the Guide. FSP No.FIN46(R)-7 extends the scope exception for investment companies in FIN No.46R to unregistered investment companies as defined by SOP No.07-1. SOP No.07-1 is effective for fiscal years beginning on or after December 15, 2007, with earlier application encouraged, and FSP No.FIN46(R)-7 follows the adoption of SOP No.07-1. However, in October 2007, the FASB proposed to delay the effective date of SOP No.07-1 indefinitely. The MHFG Group is currently evaluating the potential impact that the adoption of SOP No.07-1 and FSP No.FIN46(R)-7 will have on its consolidated results of operations and financial condition.
In December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No.51 (SFAS No.160). SFAS No.160 amends ARB No.51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No.160 requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parents owners and the interests of the noncontrolling owners of a subsidiary. SFAS No.160 is effective for fiscal years beginning on or after December 15, 2008. Early adoption is prohibited. The MHFG Group is currently evaluating the potential impact that the adoption of SFAS No.160 will have on its consolidated results of operations and financial condition.
In December 2007, the FASB issued SFAS No.141 (revised 2007), Business Combinations (SFAS No.141R). SFAS No.141R establishes principles and requirements for how the acquirer (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No.141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption is prohibited. The impact of SFAS No.141R on the MHFG Groups consolidated results of operations and financial condition will depend on the business combination in a future period.
3. Trading account
The net exposure of securitization products related to residential mortgage-backed securities (RMBS), collateralized debt obligations (CDO), asset-backed securities (ABS), collateralized loan obligations (CLO), etc. held by Mizuho Securities Co., Ltd. (MHSC) and its overseas subsidiaries was approximately ¥900 billion at September 30, 2007, of which approximately ¥500 billion was denominated in foreign currency. Those securitization products were recorded in Trading account assets. Trading losses, net of hedges, related to those securitization products were ¥35 billion for the six months ended September 30, 2007.
F-9
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
4. Investments
The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity securities at March 31, 2007 and September 30, 2007 are as follows:
March 31, 2007 | September 30, 2007 | |||||||||||||||
Amortized cost |
Gross unrealized gains |
Gross unrealized losses |
Fair value |
Amortized cost |
Gross unrealized gains |
Gross unrealized losses |
Fair value | |||||||||
(in millions of yen) | ||||||||||||||||
Available-for-sale securities: |
||||||||||||||||
Debt securities: |
||||||||||||||||
Japanese government bonds |
14,524,884 | 3,110 | 11,978 | 14,516,016 | 16,266,811 | 7,246 | 31,459 | 16,242,598 | ||||||||
Japanese local govt bonds |
89,911 | 499 | 1,199 | 89,211 | 70,051 | 367 | 784 | 69,634 | ||||||||
U.S. Treasury bonds |
2,044,045 | 20,660 | 12,858 | 2,051,847 | 1,723,332 | 5,324 | 21,587 | 1,707,069 | ||||||||
Other foreign govt bonds |
2,866,136 | 150,117 | 19,774 | 2,996,479 | 2,211,604 | 181,843 | 9,748 | 2,383,699 | ||||||||
Corporate bonds |
4,411,651 | 4,724 | 28,083 | 4,388,292 | 4,438,057 | 3,623 | 43,736 | 4,397,944 | ||||||||
Mortgage-backed securities |
3,006,025 | 65,783 | 23,013 | 3,048,795 | 2,976,997 | 30,202 | 58,226 | 2,948,973 | ||||||||
Other debt securities |
2,524,474 | 9,362 | 17,737 | 2,516,099 | 2,783,576 | 10,778 | 17,626 | 2,776,728 | ||||||||
Equity securities (marketable) |
2,591,059 | 3,679,090 | 6,221 | 6,263,928 | 2,796,904 | 3,354,854 | 30,757 | 6,121,001 | ||||||||
Total |
32,058,185 | 3,933,345 | 120,863 | 35,870,667 | 33,267,332 | 3,594,237 | 213,923 | 36,647,646 | ||||||||
Held-to-maturity securities: |
||||||||||||||||
Debt securities: |
||||||||||||||||
Japanese government bonds |
969,069 | 4 | 1,881 | 967,192 | 569,543 | 4 | 1,197 | 568,350 | ||||||||
Japanese local govt bonds |
49,971 | 12 | 186 | 49,797 | 49,256 | 10 | 131 | 49,135 | ||||||||
U.S. Treasury bonds |
318,579 | | 6,185 | 312,394 | 276,851 | | 2,081 | 274,770 | ||||||||
Total |
1,337,619 | 16 | 8,252 | 1,329,383 | 895,650 | 14 | 3,409 | 892,255 | ||||||||
F-10
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
The following tables show the gross unrealized losses and fair value of available-for-sale and held-to-maturity securities, aggregated by the length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2007 and September 30, 2007:
Less than 12 months | 12 months or more | Total | ||||||||||
Fair Value |
Gross unrealized losses |
Fair Value |
Gross unrealized losses |
Fair Value |
Gross unrealized losses | |||||||
(in millions of yen) | ||||||||||||
March 31, 2007 | ||||||||||||
Available-for-sale securities: |
||||||||||||
Debt securities: |
||||||||||||
Japanese government bonds |
7,265,195 | 11,640 | 28,653 | 338 | 7,293,848 | 11,978 | ||||||
Japanese local govt bonds |
816 | 3 | 65,083 | 1,196 | 65,899 | 1,199 | ||||||
U.S. Treasury bonds |
184,752 | 544 | 224,215 | 12,314 | 408,967 | 12,858 | ||||||
Other foreign govt bonds |
536,316 | 4,869 | 248,751 | 14,905 | 785,067 | 19,774 | ||||||
Corporate bonds |
1,020,976 | 8,683 | 1,778,342 | 19,400 | 2,799,318 | 28,083 | ||||||
Mortgage-backed securities |
711,735 | 8,358 | 522,287 | 14,655 | 1,234,022 | 23,013 | ||||||
Other debt securities |
721,954 | 8,330 | 739,494 | 9,407 | 1,461,448 | 17,737 | ||||||
Equity securities (marketable) |
136,827 | 6,200 | 516 | 21 | 137,343 | 6,221 | ||||||
Total |
10,578,571 | 48,627 | 3,607,341 | 72,236 | 14,185,912 | 120,863 | ||||||
Held-to-maturity securities: |
||||||||||||
Debt securities: |
||||||||||||
Japanese government bonds |
79,934 | 72 | 837,267 | 1,809 | 917,201 | 1,881 | ||||||
Japanese local govt bonds |
| | 48,904 | 186 | 48,904 | 186 | ||||||
U.S. Treasury bonds |
| | 312,394 | 6,185 | 312,394 | 6,185 | ||||||
Total |
79,934 | 72 | 1,198,565 | 8,180 | 1,278,499 | 8,252 | ||||||
Less than 12 months | 12 months or more | Total | ||||||||||
Fair Value |
Gross unrealized losses |
Fair Value |
Gross unrealized losses |
Fair Value |
Gross unrealized losses | |||||||
(in millions of yen) | ||||||||||||
September 30, 2007 | ||||||||||||
Available-for-sale securities: |
||||||||||||
Debt securities: |
||||||||||||
Japanese government bonds |
6,752,403 | 31,233 | 28,849 | 226 | 6,781,252 | 31,459 | ||||||
Japanese local govt bonds |
1,047 | 5 | 51,302 | 779 | 52,349 | 784 | ||||||
U.S. Treasury bonds |
994,076 | 8,316 | 215,931 | 13,271 | 1,210,007 | 21,587 | ||||||
Other foreign govt bonds |
152,952 | 480 | 173,127 | 9,268 | 326,079 | 9,748 | ||||||
Corporate bonds |
1,757,179 | 21,123 | 1,534,303 | 22,613 | 3,291,482 | 43,736 | ||||||
Mortgage-backed securities |
1,395,708 | 36,308 | 535,451 | 21,918 | 1,931,159 | 58,226 | ||||||
Other debt securities |
723,057 | 2,384 | 997,367 | 15,242 | 1,720,424 | 17,626 | ||||||
Equity securities (marketable) |
348,160 | 30,687 | 370 | 70 | 348,530 | 30,757 | ||||||
Total |
12,124,582 | 130,536 | 3,536,700 | 83,387 | 15,661,282 | 213,923 | ||||||
Held-to-maturity securities: |
||||||||||||
Debt securities: |
||||||||||||
Japanese government bonds |
79,975 | 29 | 478,384 | 1,168 | 558,359 | 1,197 | ||||||
Japanese local govt bonds |
| | 48,283 | 131 | 48,283 | 131 | ||||||
U.S. Treasury bonds |
| | 274,770 | 2,081 | 274,770 | 2,081 | ||||||
Total |
79,975 | 29 | 801,437 | 3,380 | 881,412 | 3,409 | ||||||
F-11
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
The MHFG Group performs periodic reviews to identify impaired securities. Impairment is evaluated considering the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer, as well as the MHFG Groups ability and intent to hold the investments for an adequate period of time until an anticipated market price recovery or maturity. If it is determined that the impairment is other-than-temporary, the investment is written down to fair value, and a loss is recognized immediately through earnings.
The MHFG Group has determined that the unrealized losses on investments in a continuous loss position for 12 months or more at September 30, 2007, are not other-than-temporary, because such losses have resulted primarily from rising interest rates and the MHFG Group has the ability and intent to hold them for a period of time sufficient to recover gross unrealized losses.
For the six months ended September 30, 2006 and 2007, losses resulting from write-downs for other-than-temporary impairment on available-for-sale securities were ¥96,204 million and ¥71,639 million, respectively. No impairment losses were recorded on held-to-maturity securities for those periods. The fair value of foreign currency denominated-securitization products related to RMBS, CDO, ABS, CLO, etc. was approximately ¥1,200 billion at September 30, 2007, which were recorded in available-for-sale securities. Losses resulting from write-downs for other-than-temporary impairment on those securitization products were ¥16 billion for the six months ended September 30, 2007.
Other Investments
Other investments are comprised of (1) investments, in investees over which the MHFG Group has the ability to exert significant influence, which are accounted for using the equity method of accounting, (2) investments held by consolidated investment companies, which are carried at fair value with changes in fair value recorded in earnings, and (3) other equity interests, which consist primarily of non-marketable equity securities outside the scope of SFAS No.115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No.115), which are stated at acquisition cost, less other-than-temporary impairment, if any.
F-12
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
5. Loans
The table below presents loans outstanding by domicile and industry of borrower at March 31, 2007 and September 30, 2007.
March 31, 2007 | September 30, 2007 | |||
(in millions of yen) | ||||
Domestic: |
||||
Manufacturing |
7,662,036 | 7,916,107 | ||
Construction |
1,502,442 | 1,440,722 | ||
Real estate |
6,647,086 | 6,519,847 | ||
Services |
6,120,059 | 5,776,614 | ||
Wholesale and retail |
6,356,583 | 6,210,194 | ||
Transportation |
2,594,601 | 2,417,597 | ||
Banks and other financial institutions |
4,286,617 | 4,097,110 | ||
Government and public institutions |
6,099,359 | 5,451,345 | ||
Other industries (Note) |
5,451,861 | 4,835,762 | ||
Individuals: |
||||
Mortgage loans |
11,025,079 | 11,113,057 | ||
Other |
1,338,493 | 1,263,931 | ||
Total domestic |
59,084,216 | 57,042,286 | ||
Foreign: |
||||
Commercial and industrial |
7,963,577 | 8,671,022 | ||
Banks and other financial institutions |
1,675,503 | 2,032,911 | ||
Government and public institutions |
366,292 | 313,739 | ||
Other (Note) |
184,898 | 388,676 | ||
Total foreign |
10,190,270 | 11,406,348 | ||
Total |
69,274,486 | 68,448,634 | ||
Less: Unearned income and deferred loan feesnet |
91,619 | 108,802 | ||
Total loans before allowance for loan losses |
69,182,867 | 68,339,832 | ||
Note: | Other industries of domestic and other of foreign include trade receivables and lease receivables of consolidated variable interest entities. |
F-13
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
Impaired loans
The MHFG Group considers both loans that are subject to SFAS No.114, Accounting by Creditors for Impairment of a Loanan amendment of FASB Statements No.5 and 15 (SFAS No.114) and small balance, homogenous loans to be impaired when it is probable that the MHFG Group will be unable to collect all the scheduled payments of principal and interest when due according to the contractual terms of the loan. Among other things, restructured loans under SFAS No.15, Accounting by Debtors and Creditors for Troubled Debt Restructuring (SFAS No.15) and loans that are 90 days or more delinquent are generally considered to be impaired. All of the MHFG Groups impaired loans are designated as nonaccrual loans. A summary of the recorded balances of impaired loans and the related allowance for loan losses at March 31, 2007 and September 30, 2007 is shown below:
March 31, 2007 | September 30, 2007 | |||||||
Recorded impaired loan balance |
Allowance for loan losses on impaired loans |
Recorded impaired loan balance |
Allowance for loan losses on impaired loans | |||||
(in millions of yen) | ||||||||
Impaired loans requiring an allowance for loan losses |
1,403,829 | 602,148 | 1,116,206 | 469,057 | ||||
Impaired loans not requiring an allowance for loan losses (Note) |
125,037 | | 173,191 | | ||||
Total |
1,528,866 | 602,148 | 1,289,397 | 469,057 | ||||
Note: | These impaired loans do not require an allowance for loan losses because the MHFG Group has sufficient collateral to cover probable loan losses. |
Loans held for sale
Loans that have been identified for sale are classified as loans held for sale within Other assets and are accounted for at the lower cost or fair value. The outstanding balance of loans held for sale was approximately ¥860 billion at September 30, 2007. Losses related to those loans held for sale of ¥24 billion were reported in Other noninterest expenses for the six months ended September 30, 2007.
6. Allowance for loan losses
Changes in the allowance for loan losses for the six months ended September 30, 2006 and 2007 are shown below:
Six months ended September 30, | ||||||
2006 | 2007 | |||||
(in millions of yen) | ||||||
Balance at beginning of period |
812,321 | 946,147 | ||||
Provision (credit) for loan losses |
(70,802 | ) | (63,461 | ) | ||
Charge-offs |
39,817 | 131,851 | ||||
Less: Recoveries |
40,090 | 18,381 | ||||
Net charge-offs (recoveries) |
(273 | ) | 113,470 | |||
Others (Note) |
945 | (53 | ) | |||
Balance at end of period |
742,737 | 769,163 | ||||
Note: | Others include primarily foreign exchange translation. |
F-14
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
7. Preferred stock
The composition of preferred stock at March 31, 2007 and September 30, 2007 is as follows:
March 31, 2007 |
Aggregate amount | Number of shares | ||||
Class of stock |
Authorized | Issued | ||||
(in millions of yen) | ||||||
Eleventh series class XI preferred stock |
943,740 | 1,398,500 | 943,740 | |||
Class XII preferred stock |
| 1,500,000 | | |||
Thirteenth series class XIII preferred stock |
36,690 | 1,500,000 | 36,690 | |||
Total |
980,430 | 4,398,500 | 980,430 | |||
September 30, 2007 |
Aggregate amount | Number of shares | ||||
Class of stock |
Authorized | Issued | ||||
(in millions of yen) | ||||||
Eleventh series class XI preferred stock |
943,740 | 1,398,500 | 943,740 | |||
Class XII preferred stock |
| 1,500,000 | | |||
Thirteenth series class XIII preferred stock |
36,690 | 1,500,000 | 36,690 | |||
Total |
980,430 | 4,398,500 | 980,430 | |||
8. Dividends
Dividends on preferred stock and common stock during the six months ended September 30, 2006 and 2007 were as follows:
September 30, 2006 |
Cash dividends | |||
Class of stock |
Per share | In aggregate | ||
(in yen) | (in millions of yen) | |||
Fourth series class IV preferred stock |
47,600 | 7,140 | ||
Sixth series class VI preferred stock |
42,000 | 6,300 | ||
Eleventh series class XI preferred stock |
20,000 | 18,875 | ||
Thirteenth series class XIII preferred stock |
30,000 | 1,101 | ||
Common stock (Note) |
4,000 | 46,434 | ||
Total |
79,850 | |||
September 30, 2007 |
Cash dividends | |||
Class of stock |
Per share | In aggregate | ||
(in yen) | (in millions of yen) | |||
Eleventh series class XI preferred stock |
20,000 | 18,875 | ||
Thirteenth series class XIII preferred stock |
30,000 | 1,101 | ||
Common stock (Note) |
7,000 | 81,254 | ||
Total |
101,230 | |||
Note: | Dividends paid on treasury stock are excluded. |
F-15
MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
9. Regulatory matters
Regulatory capital requirements
MHFG, Mizuho Corporate Bank, Ltd. (MHCB), Mizuho Bank, Ltd. (MHBK), and Mizuho Trust & Banking Co., Ltd. (MHTB) are subject to regulatory capital requirements administered by the Financial Services Agency (FSA) in accordance with the provisions of the Banking Law and related regulations.
Capital adequacy ratios of MHFG, MHCB, MHBK, and MHTB as of March 31, 2007 and September 30, 2007 calculated in accordance with Japanese GAAP and guidelines established by the Ministry of Finance and the FSA are set forth in the following table:
March 31, 2007 | September 30, 2007 | |||||||
Amount | Ratio | Amount | Ratio | |||||
(in millions of yen, except percentages) | ||||||||
Consolidated: |
||||||||
MHFG: |
||||||||
Tier 1 capital: |
||||||||
Required |
2,831,820 | 4.00 | 2,821,006 | 4.00 | ||||
Actual |
4,933,562 | 6.96 | 4,918,749 | 6.97 | ||||
Total risk-based capital: |
||||||||
Required |
5,663,639 | 8.00 | 5,642,013 | 8.00 | ||||
Actual |
8,841,383 | 12.48 | 8,322,880 | 11.80 | ||||
MHCB: |
||||||||
Tier 1 capital: |
||||||||
Required |
1,520,976 | 4.00 | 1,535,577 | 4.00 | ||||
Actual |
3,256,830 | 8.56 | 3,284,032 | 8.55 | ||||
Total risk-based capital: |
||||||||
Required |
3,041,953 | 8.00 | 3,071,155 | 8.00 | ||||
Actual |
5,329,535 | 14.01 | 5,009,985 | 13.05 | ||||
MHBK: |
||||||||
Tier 1 capital: |
||||||||
Required |
581,072 | 2.00 | 558,272 | 2.00 | ||||
Actual |
2,067,733 | 7.11 | 2,122,185 | 7.60 | ||||
Total risk-based capital: |
||||||||
Required |
1,162,144 | 4.00 | 1,116,544 | 4.00 | ||||
Actual |
3,412,842 | 11.74 | 3,420,742 | 12.25 | ||||
MHTB: |
||||||||
Tier 1 capital: |
||||||||
Required |
160,608 | 4.00 | 164,281 | 4.00 | ||||
Actual |
359,840 | 8.96 | 352,546 | 8.58 | ||||
Total risk-based capital: |
||||||||
Required |
321,216 | 8.00 | 328,562 | 8.00 | ||||
Actual |
630,065 | 15.69 | 604,016 |