Mizuho Financial Group, Inc. (NYSE:MFG) Q2 2024 Earnings Call Transcript

Mizuho Financial Group, Inc. (NYSE:MFG) Q2 2024 Earnings Call Transcript November 17, 2024

Orita Natsuki: We will now start the investor presentation for fiscal year 2024 first half for Mizuho Financial Group. Thank you very much for joining us in spite of your busy schedules today. I’ll be serving as the moderator. My name is Orita of IR Group. The English line is held in webinar format. Before we begin, let me introduce the speakers for the presentation and Q&A. To your left, President and Group CEO, Mr. Kihara. Senior Executive Officer and Group CFO, Mr. Yonezawa. Disclaimers before we begin. The presentation contains forward-looking statements based on current outlook of the future. These statements are subject to risks and uncertainties. Please be aware that actual results may materially differ. Let me explain today’s proceedings.

Group CEO, Kihara, will give a presentation following the investor presentation for FY 2024 first half document for about 30 minutes. covering earnings and strategy. After which, Mr. Kihara will be joined by Group CFO Mr. Yonezawa for Q&A for about one hour.

Masahiro Kihara: Thank you, ladies and gentlemen, for joining us today. Allow me to start my presentation. The cover page, I think you are familiar with this. If you could please move on to page 3. We have just completed the first half of the medium-term business plan. In terms of financials, the final target for FY 2025 was exceeded ahead of time. And strategy. We said that we are focusing on sustainable growth, five areas, and we’re making growth investment in five areas, Greenhill, Rakuten, and Golub Capital, and Rakuten Card that we announced the other day. The environment surrounding us is difficult, so we need to strengthen our infrastructure and raise efficiencies. In terms of cost reduction, that is important. So products and services need to be reinvented.

That is what we’re continuing. And systems failures, we have learned lessons we should never forget. And so, we’re ensuring operational stability. We need to raise motivation of our employees. We have shifted to new HR framework, CANADE. We have completed the transition. And we’re starting to fine-tune the system. And purpose, started in March 2023. We’re trying to embed that and trying to reform our culture as well. This year, CEO and with the heads of departments, we have done 416 town hall meetings, visiting 322 sites in one and a half years. Page 4, having said so, there are still remaining challenges. PBR, as of end of October, 0.79. Right now, it’s 0.86 or so. And so, we need to continue with our solid growth and ensure a trust from the market, stability of revenue and competitive edge.

These need to be appealed to the stakeholders and optimal balance between growth investment and shareholder return. From that perspective, I would like to explain four things. Number one, solid financial progress and medium-term business plan. And number two, in order to achieve a stable growth, we have been pursuing distinctive business portfolio. I’m sure you are aware of this, but we would like to explain this once again. And number three, initiatives to raise our competitive edge, progress as well as challenges. And number four, effective use of capital. Moving on to page 6, this is something that we show every time. So I don’t think I need to explain this. Moving on to page 7, achieving steady profit growth. We believe we have been achieving that.

Q&A Session

There’s revenue from banking, but in areas of focus, I think we are achieving solid growth. And so, given that, we are having a forecast of net business profit for FY24 of ¥1.17 trillion, up ¥100 billion. And key progress and focus areas. So number one, AUM, increasing consulting capabilities. So AUM is steadily increasing through consulting capabilities, expanding product lineup. We have also made additional investment in Rakuten Securities for the future. And I think we have come to a major turning point for the corporate sector. I think the mindset of CEOs in Japan is changing, not just among blue chip companies but SMEs as well. So in that trend, awareness for the need for growth, we have to also respond to TSA reforms. I think that momentum is rising.

So amidst such circumstances, for large companies and SMEs, we need to capture needs for corporate action. And overseas, we need to raise profitability and diversify our revenue sources. That’s what we’re continuing with. And Greenhill, in December last year, we have completed acquisition of Greenhill. In many ways, many synergies and many collaborations are happening with Greenhill. On to page 8. So improving asset profitability, we talked about that. In the first half of this year, I think we have been able to make steady progress on the right-hand side. Low profit deals, ¥1.1 trillion reduction, and high profit business, ¥1.6 trillion. As a result, RORA is up from 3.1% to 3.3%. So in three years, a reduction of ¥300 billion in cross-shareholdings.

And so, we have come to ¥183.3 billion in the first half. We’re making good progress, as is on the lower right. For Employee Retirement Benefit Trust Fund, we achieved a reduction of ¥200 billion. So the numbers themselves, overall, I think we have been able to meet the targets ahead of time. So we’re putting together plans and numbers for the next three years for cross-shareholding targets. We’re also going to consider them. Page 10 about cost expenses, strengthening governance and renewing infrastructure. Expenses are on the rise inevitably. And as I will discuss later, various products and services are being renewed and we are constantly engaged in cost curtailment and reduction. We have to make investments into human resources. That is a must.

And wages are rising. So we will have to go along with the trend. We have to continue making investments into human capital. So we will reduce the cost where costs can be reduced to control expenses. Next, on distinctive business portfolio, page 12. So this is the overall business portfolio. Once again, we’re showing this to you for your review. On the left-hand side, this is the breakdown of net business profits. Compared to before, we have reduced the dependence on our banking revenue. So we are now steering the portfolio toward one that is centered around customer business. And in terms of exposure in customer business for both Japan and overseas, our business, the majority of it is IG, investment grade. For Japan, I think it’s very important to control large transactions, large customers.

For transactions with problems, [indiscernible] credit analysts need to collaborate with each other to achieve debt governance. As a result, some companies have improved quite substantially, so we will continue with that effort. Page 13, diversifying core business profits, as you know. Under NIRP, we have made various efforts to diversify our revenue sources. And we have broken it down between Japan and overseas. For interest income, we will drive a return. That’s what we’ve been doing. And non-interest income to be grown for both Japan and overseas, that’s what we’ve been doing. And sales and trading is being expanded. With respect to sales and trading, I would like to discuss in detail later. Moving on to page 14, business portfolio in Japan.

So this may be the first time for me to show this to you in such an explicit fashion, but 70% of our domestic business is a large corporate business. On the right hand side, income, non-interest income. S&T, sales and trading, 10%, interest 40%, non-interest, 50%, so it’s diversified. For non-interest income transactions, credit-related fees and IB real estate, they’re broken down into these three, one-third each. So relatively speaking, we have a stable income source. And you may think that there are more large transactions, but each year they account for about 5%. So in that regard, I think we have been able to build a very stable revenue structure. Moving on to page 15, which is about overseas, on the left-hand side, regional breakdown. Wallet share is largest in Americas where we focus on most, and EMEA, we’re trying to achieve efficient operations, so it’s become somewhat smaller.

Looking at Americas, well, if you could look at the right-hand side, there’s a breakdown of the structure – interest income, non-interest income and secondary S&T, one third each. On the lower right, from your perspective, you may think that sales and trading volatility may be high. Perhaps that may be your awareness. But as a component of the revenue, fee flow, and financing, we are distributed among these. So we’re not depending solely on a flow business. When volatility is down, income from flow reduces. When volatility is down, primary increases. At any rate, we’re not depending just upon the flow of business. So as far as fees, we’re leveraging our derivative business and risk solutions for corporates. For example, Americas are focusing very much on those areas and, at the same time, Americas capabilities are now being utilized increasingly in Japan of late.

Financing, we would like to utilize our balance sheet efficiently, while rolling out our finance business. So, striking the right balance among three segments, that’s the kind of revenue structure that we have. Page 16, bond portfolio. As far as JGBs, as is on the left-hand side, duration is 0.6. We continue with our conservative management of JGBs. At what timing the interest rates may rise? How much would the rates go up? What is going to be the terminal rate when it is very hard to have an outlook? Therefore, given these circumstances, I don’t think that there’s any need to extend the duration of our bond portfolio, so we’re in a wait and see mode. We’re trying to explore what is the best timing to enter, if you will. And for overseas or foreign bonds, the last term, we have slightly increased our balance for foreign bonds.

And HTM, we have increased the balance in FY23. As a result, even if rates move overseas, we’re less susceptible from the impact from that, that’s the structure in place. With reduced rates, the spread goes down, but with the HTM balance that we have, we’re able to gain from that. So I think we have been able to build a strong portfolio. So summary is on page 17. So in terms of the business portfolio, as is on the left hand side, the majority is IG. Stable growth is achieved and large transactions are watched. And revenue sources are diversified. And we have been able to focus on non-interest income under NIRP. Where there is positive rate, there is going to be an upside to be had. On the right-hand side, external environment. With the static basis point, with 10 basis points increase, a gain of ¥50 billion can be enjoyed.

And as I said, FRB rate cut is going to have very little impact on our business. For overseas centering around Americas markets, we have our own business model. Our philosophy basically is to have in-house capabilities that are required and pursue synergies amongst our own capabilities. That is our approach. In the earnings presentation, there was a question about forex impact. When yen depreciates one yen, ¥4 billion impact on net business profit, ¥3 billion on net income. So almost no impact in terms of CET1. Next, enhancing our competitive edge. If you could please have a look at page 19. So inclusive of the issue of sustainability, basically in four areas we’re very much focused upon. So in each area for the challenges that we have, I would like to explain the progress as well as challenges.

So one is to offer a customer experience and asset/wealth management in Japan. Rakuten Card that we announced yesterday is about improving customer experience. And Rakuten Securities, it’s for doubling asset income or to offer asset and wealth management service in Japan. Number three and number four, enhancing the competitiveness of Japanese companies and global CIB business model. This is where our strength lies. So I would like to give you details later. Moving on to page 20. So in the retail area, what is the progress and the challenges? That’s what I would like to explain. So we’re going to pursue customer experience thoroughly, gradually. We are transitioning into new types of branches and utilizing AI. We are building next generation contact centers that are up from August and improved application UI/UX, as well as launch digital marketing infrastructure.

So new account openings before and after the midterm business plan. It’s up by 10% compared to before and direct app MAU is up by 50% as well. We will continue to create new channels going forward. And what we announced yesterday, collaboration with Rakuten Group, we will deepen that and deliver results, which is going to be important. And with asset management service, we will capture a new NISA business. We are driving AUM through that. The retail AUM is up by ¥4.9 trillion. And NISA accounts have increased by 120,000 accounts. AM-One AUM capability is up, but we’re working on that. Its AUM is up by ¥7.6 trillion. This area, however, has many challenges, which I would like to explain later. I’m moving on to page 21. So through our pursuit of customer experience, disciplined investment framework, we will create optimized channels, strengthen data analytics, and have operational cost reduction.

So depreciation required for investment needs to be funded by cost reduction. So, what to do with that? So a continuous process review for products and services, digitization. With respect to branches, we’re making the branches smaller to drive the cost of our branches down. And with respect to people, of course, we are able to reduce operational burden. So rather than cost reduction, it’s more about productivity enhancement. We will focus on marketing, re-skilling, we will use people at the front office. And LPAs are also increasing in number, life plan advisors. Page 22, this is about strengthening channels. For the branches, the customers who come to branches need to feel at ease having casual consulting. Well, traditional branches are very formal, perhaps difficult for some customers to access.

And so, we call it Mizuho Atelier, Yokosuka, for example, within the mall of Yokosuka, we have set up this new type of branch. And remote contact centers, we are utilizing AI, which started in August. And thankfully enough, they are working quite well. So, we are able to save customers’ time spent on chat by 10%. So UI/UX in the digital world. We are going to upgrade that which we are continuing. And website was renewed and we received a high evaluation. It’s ranked number one among mega banks. And when it comes to UI and UX, Rakuten is excellent. So with a new collaboration with Rakuten, we would like to enhance that. And we are having digital marketing. We will be starting something new in March next year, new membership program. And I think you have seen the details for Rakuten Group collaboration.

And I will now go into details on page 24. So 20% investing into Rakuten Securities. We have been collaborating on various funds. Topic executives at the securities level are collaborating. We’re deepening our relationship and has increased to 49% in stake. We’re seeking how we can contribute even further, and that has led to our announcement yesterday. Please turn to page 25. This is operational reform. So reviewing, consolidating, and digitalizing processes for improved productivity. We want to go thoroughly. Cost must be efficiently paid, but productivity labor force is going to increase. Therefore, we would need to address that. Products that are handled in sales and branches are going to be revisited, and processes that are depending on manpower also will be reviewed.

There are a lot of exceptional initiatives that are taking place at the bank level. There are negotiations with our clients and therefore it’s really hard work, but the administrative divisions are taking the lead in negotiating with our clients. For example, in FX, there are numerous exceptional initiatives that are taking place. There are one-on-one negotiations that are taking place with the clients and we’re seeing good results. Digitalization, AI is being utilized, contact center, we’ve already talked about that, but we want to go further and AI OCR will be installed. Next on page 26, asset and wealth management in Japan. In this area, within bank and securities, another level of collaboration and fund wraps are increasing as a result of that.

And in terms of asset management capabilities, there’s the institutional funds and collaboration with Golub Capital that I talked about the other day. So there are things that we’re already seeing up and running, but compared to the market, I think there’s more that we need to do. Nomura or Daiwa, if we compare with other peers, there’s a lot more that we need to do and therefore we need to strengthen this area, which is extremely critical. Consulting capabilities, this has to be enhanced. Skill sets of RM will need to be sophisticated. In AM-One, and the missing parts will have to be addressed. Now if you could turn to page 27. So enhancing the competitiveness of Japanese companies and global CIB business model, this is an area, I think, where our strengths are being leveraged.

Starting from the top, various corporate actions are done proactively to enhance companies’ competitiveness. And startups were taking a lot of actions on this front. Value co-creation investment is a concept that is used, and we’re also issuing syndicated loans and also supplying risk money, for example. And this is an area where clients’ business successions is extremely critical, and therefore, by leveraging the competitive edge in real estate and succession planning and trust bank, we’re making use of this. So we’re seeing 63% in the pipeline. What we’re doing today will be continued. And also Greenhill has been consolidated, and we will strengthen our collaboration with Greenhill. And low-profit assets are being divested, and the spread has been improved by 13 basis points.

And we will continue to increase the CIB market share. And the league table wise, we’re as high as 15. And in EMEA, efficient operation is key. Universal bank, creating universal bank and some branches are being closed, about three entities have been closed already. In relationship, we will be exiting from areas where we’re not seeing returns. So continued effort in terms of improved profitability and we will be utilizing our cooperation with Greenhill. Some examples are on page 28. These are big caps. It says Honda on the slide, but our strength is in auto industry. We have the analytical capability through the industry research section and to be able to analyze the auto industry. Bank and securities are collaborating in this front. And we will make the proposals.

And this proposal making capability is our asset. And that has led to the deal with Honda. As for Japan and US collaboration, this is all about Greenhill. Apollo, fleet management. Wheels is a company, and Marubeni has acquired the business. It has led to that kind of initiatives. Now, mid-cap companies, this area is also quite hot. Mid-cap companies have to transform themselves. And we’re approaching that, providing solutions. And the pipeline has increased by approximately 60%. Towards the second half of the year, we should be able to close some of these deals. I’m counting on that. On the right, fee income for IB DCM, 11%, ECM plus 75%, and average balance is also increasing for mid-cap. Page 29, sustainability. In terms of finance, ¥100 trillion, we’re around ¥34 trillion, and I think we’re steadily building up our track record.

And in sustainability, we have announced the areas that we’re focusing on as the first mover. I think we’re making progress in various initiatives. For example, ¥2 trillion in financing commitment for hydrogen and we’re seeing an increase in share in upstream project finance opportunities. Bottom left, strategic investments. Zap Energy, this is for nuclear fusion power. You might be wondering when this will become available, but this was really a big success because, as a result of this, a lot of different companies are approaching us, talking about Zap and they wanted us to refer them and introduce them to Zap Energy and I think it’s going to lead to new business. And this is quite typical of Mizuho. It’s not that it’s going to generate profit in the short run, but the fact that taking on new challenges like this is quite typical and distinctive of us.

Pollination. This is an advisory business in the sustainability area. We also invested in this company. You might not be familiar with this company, but for various organizations, it’s offering solutions and also for Japanese companies to transition to carbon neutrality, coming up with a plan or strategy. They are providing advisory in this area. I think it will contribute to us enhancing our own capabilities. Page 30 is for the Americas. There is a circle in the middle, and I think we’re building a nice cycle. Top left is what we’ve done so far. Products capability, we want to increase it. I think we have come a good way, but we still need to work. And as a result, the league table in the United States has gone up to 15, including sales and trading in [indiscernible] shares of 12 – rank 12.

So we want to further pursue these initiatives. And the one person is head of Mizuho Americas and these two people, the photographs that you see, their exposure is quite big among media, but as a result, bottom left, 200, 300 people job offerings are made, but this year we got 90,000 job applications, so which is quite big. And for interns, 7,200 applications for our intern positions we’re seeing in summer of this year. And therefore, we are able to have access to really capable people. Page 31 is on Greenhill. Gradually, integration is making progress. Greenhill not standing on its own feet, but Greenhill is going to be built into our platform. So in banking in the United States, for example, general managers will have a Greenhill person as a general manager and so forth.

And global co-proposals are being made. 1,400 approximately joint proposals are made together with Greenhill, of which 200 are being considered. And there are about 250 or so. And we have 44 in the pipeline, of which 5 are Japanese corporates. Bottom right, these are deals that have been closed. Sorry about that. Page 32, including Greenhill, the page explains our position in the league table in global CIB. In terms of global, we are number 14. And amongst Asia financial institutions, we’re number one. So this is our position. We want to maintain our position and therefore nurturing our international talent will be key. Page 33, I have so far covered our business, but I also want to talk about culture. We’ve been working on transforming our culture and this is a document that recounts our past discussions.

I am going to therefore not go into details here. Page 34 – or page 33 still on CANADE. The key here is for each and every individual feel a sense of fulfillment and be able to work with the sense of rewarding. And the HR system that we had, seniority system, we want to be free from that kind of system, so that we can face each and every employees. So, instead of membership, we’re shifting to job style challenges and basically the way in which HR is done is left to the line of business, and management resources is something that I would like to pursue. So 70% of the people seem to be happy with the initiatives. So page 35, culture transformation, dialogue between management and employees is ongoing. As for myself, in the first half of the year, 61 times I attended roundtable meetings and town halls and supporting – bottom left, supporting self-driven endeavors, Mizuho Award.

There’s a long history for Mizuho Award, but large transactions tend to be receiving the award in the past, but selecting projects that support and streamline business as well. And supporting Nadeshiko Japan – for example, top right – and creating a supported working environment to ensure that employees are engaged and motivated. Lastly, but not least, I want to talk about effective use of capital, capital policy. Yesterday, a share buyback resolution has been announced. Pursuing the optimal balance among the capital equity, advocacy, growth investment, and enhancements of shareholder return, this remains intact. CET1 ratio is 10.5%. And we therefore have enough capital. So in that sense, so far, we’ve been focusing on capital advocacy, but investment for growth and shareholder return, striking a good balance between the three, is the new phase in which we are gradually transitioning into.

Page 38, growth investments with discipline. Of course, this will be maintained, especially alignment of strategy, profitability, and especially whether there is a cultural fit. This, I personally feel, is critical. Page 39. As I said, shareholder return policy remains unchanged. Progressive dividends are our principal approach while intermittent share buybacks will be considered. When it comes to share buyback, our performance, capital adequacy, stock price, and opportunities for growth investment will be taken into account comprehensively. PBR is still below one times, and therefore it makes sense to do share buyback. The management team is fully aware of that. Page 40. This is something that we announced already yesterday, ¥130 for dividend and share buyback of a maximum of ¥100 billion has been reached a resolution.

Page 41 and 42. Net income has gone up. ROE has also gone up. but we also want to increase our ROE to a new level. And for EPS, of course, this requires improvement. We are fully aware of that. And that is how we are running the company, with that mindset. Again, page 42, this is the last page of my presentation. With the progress in our midterm business plan, we are seeing solid financial progress and more stable growth to be achieved through our distinctive business portfolio and progress in initiatives enhancing our competitive edge. Of course, there are challenges with regards to investment and asset management, but we have seen progress. We are also receiving very happy recognition. Forbes Japan recognized us as one of the new best companies, shaping the future with multi-stakeholders.

We’re ranked seventh. And TIME’s World Best Companies of 2024, TIME’s would select 1000 companies and we were ranked 83 with the increase in revenue, initiatives and sustainability, and employee surveys. This ranking depends on these three factors. And we were ranked 83. I’m not trying to emphasize this too much, but amongst the Japanese, we were the only one within 100. And as a banking institution, above us is J.P. Morgan, Citi, and only maybe five or six companies above us. Maintaining this position is going to be very challenging, but we’re very happy for this recognition. And now I want to close my presentation. Thank you very much.

Orita Natsuki : We now would like to proceed to Q&A. This English line cannot accommodate questions in English due to facility constraints. If you have a question, please send us an email to mizuho.ir@mizuhofg.co.jp. I am repeating this English line cannot accommodate questions in English due to facility constraints. If you have a question, please send by email to mizuho.ir@mizuhofg.co.jp.

Operator: [Operator Instructions]. Yano-san, J.P. Morgan, please go ahead.

Takahiro Yano: My name is Yano from J.P. Morgan Securities. I have two questions. Question number one. Looking from the outside, integration with Greenhill is in a full-fledged manner. So CET1 ratio, 10%, you have HR, a system that’s renewed. So you have entered a new phase for the first time in several years. You have solid business here in Japan and overseas, Americas included. So what are the next challenges for you? Well, I do know that you have come up with strategies, but what is your number one priority focus area? So domestic mass retail, overseas Asian mass retail, which is the area? And a large corporate business, which seems to be very solid. What is it that you’re paying attention to? You talked about large transactions.

It seems quite solid, but is there anything that you’re paying close attention to? So that’s question number one. Number two is about collaboration with Rakuten Card. So Rakuten Bank, Mizuho Bank, Rakuten Card, seen from the outside, it looks like you are competing over Rakuten Card with Rakuten Bank. That’s the impression that I have. So Rakuten Card account with which bank is the customer going to set up an account? So Rakuten Bank and Mizuho Bank, what is the relationship between the two? Isn’t there any cannibalization taking place? If you could please…

Masahiro Kihara: That is something that I tell everyone repeatedly. Well, there could be various factors behind this. So systems failures, cyber risks, and geopolitical risks. And perhaps with President Trump, inflation could go up and rates may rise once again. So if rates are up, is our Americas portfolio going to be all right? So we have to have a thorough review. So that is what we’re looking at, just to share that with you. And challenges in terms of our business, as I said earlier, asset and wealth management. It’s not going as well as we expected. What we’ve been doing is we are breaking away from this product out approach. We’re trying to look into the true need of our customer, try to capture that solidly. Upon doing that, provide the best products and services for that particular customer.

But we still have some way to go in achieving that. As we discussed yesterday, we have achieved only 50% in achieving that target. So compared to Nomura or Daiwa, there’s still a gap for us. So this is an urgent issue that we have to tackle. And on the other hand, our strength is from asset [indiscernible] to investors. I think we’re able to have a broad coverage. With our Rakuten Securities as an alliance partner, we can cover more. And so, how can we capture customers from Rakuten for our business? Can we acquire customers for consultation, for example? And with respect to large companies, large corporates, for one thing, as Yano-san mentioned, large customers, we have to be careful. We have to have proactive management of any signs of problems.

And while doing so, we have to achieve debt governance as a lender. And with the acquisition of Greenhill, what we came to realize is from silos specific to each region, regions collaborating with each other. I think we have come to a place where we can enter that phase, regional collaboration. So Americas and Japan, Americas and Europe, collaboration between those regions in a true sense, inclusive of the compensation systems included. I think we’ll have to tackle challenges in order to achieve regional collaboration. So Rakuten Card, are we competing over it with Rakuten Bank? I don’t necessarily see it that way. I believe that’s shared with Rakuten and that is why they’re so serious partnering with us. We hope to achieve win-win for both of us.

So Rakuten Card, if the number of credit cards issued increases, and if Mizuho Bank can offer accounts, that’s fine. Or as some customers may prefer a completely digital service, they may prefer Rakuten Bank in that case. So it’s not cannibalization. I think both of us can grow and expand.

Operator: Goldman Sachs, Kuroda-san.

Makoto Kuroda: I also have two questions. My first question, so long-term ROE, and the second question is on risk asset investment. About long-term ROE, as was mentioned by Yano-san, from profitability perspective or shareholder return perspective, Mizuho has entered into a new phase. That’s my impression. And the next midterm plan, a three-year midterm plan, is being compiled. So it might be too early, but long-term ROE, do you expect you can say that it’s rising? That’s my first question. And my second question. CET1 ratio is 10.5% because risk asset is being invested cautiously. In the second half, which was the next fiscal year, risk asset, what’s the direction of holding of risk assets?

Masahiro Kihara: Our perspective towards the long-term ROE, it is on a rising trend. That’s our view. 8%. We want to go to 8% this year. So 8% in terms of TSE standards, that’s our view. And we want to aim for higher.

Makoto Kuroda: Is it going to be 9% or 10%? Or is it somewhere in between 9% and 10%?

Masahiro Kihara: We are going to finalize the numbers for the next three year midterm plan, which we’ll talk about this. But definitely, it should be before 8%, or in my view, higher than 9%. At least that is my view.

Makoto Kuroda: Where is our target going to be?

Masahiro Kihara: That’s going to be decided. As for assets, risk asset. Make sure that a return is generated in the way we use our assets. That’s very critical. In this fiscal year, risk-return has been seen very strictly. So in terms of average balance, year-over-year, there was a slight drop. And it’s because we’re trying to improve our productivity. So that mindset, that perspective will be maintained. We’re not going to sell our assets cheap, use assets where we can use it effectively. And at the end of the day, it could lead to increase. Well, it’s not to say that we are not accommodating increase, but we’re not going to use it where it’s not going to increase.

Operator: Next, Matsuda-san of Daiwa Securities, please go ahead.

Ken Matsuda: Matsuda from Daiwa Securities. I also have two questions. Question number one, page 37 of the presentation, allocation of capital. And second question, I would like to request additional information or explanation about Rakuten Card. So, about capital allocation, question number one. On the right-hand side, well, the image versus reality, there seems to be quite a gap. But for example, ¥5.2 trillion, perhaps the basis of the amount may be different, but if you apply that to the right-hand side chart, down 0.5 in terms of capital adequacy and the rest will be allocated to shareholder return and growth investment. So why did you change your thinking boldly with respect to allocation of capital at this time? Second question, Rakuten Card.

ITOCHU has announced that they’re going to sell the shares in Green Hill. So once again about alliance and partnership going forward. So what’s going to be the likely change in the capital alliance or partnership going forward? So you have acquired Greenhill. Are you going to see – monitor the result and then come up with a thinking for the future? And to the extent that you can, what is the overall picture or overall goal for partnerships?

Masahiro Kihara: With respect to capital policy, I think we have entered a different phase. Unfortunately, so far, Mizuho’s capital capabilities was weak, so we had to augment our capital. And so, given that, we have tried to maximize our shareholder return and have been cautious in making growth investment. So that’s been the situation for the past five or six years. On the other hand, CET1 one has come to 10.5% based on Basel III. So 10.5% CET1 ratio, given that level with stress test conducted, even if there’s some stress applied, we are able to keep regulatory capital requirement. So growth investment and shareholder return are striking the right balance between the two. We have come to a point where we need to focus on that.

So finally, that’s where we are. Of course, we were hoping to achieve this phase, but finally we have come to this point where we can focus on that. It’s been a long journey, but we have reached that point. And partnership with Rakuten, what’s going to happen going forward? I think that was the gist of your question. There has been more than two years of tax and collaboration and 14.99% investment into Rakuten Card that we’re deepening our alliance and there’s a lot of menu included and we have to go through various steps. There was a question about what the goal is. KPIs and the number of cards, digital installment, how much amount, what percentage of revenue. We have various goals that we have set. And we will brush up on these targets and KPIs. And one by one, we will try to achieve each target and then decide what to do more.

We may come to that point, perhaps. We can’t speculate too much at this point. So in our collaboration with Rakuten, for corporates, we do know that there’s a lot of potentiality but what specific approach are we going to take? We have yet to come out the specifics. So there are some specifics to be hammered out in terms of the specific approach we’re going to take for the corporate business. For Orico/UC, you see, and in the earnings results announcement, there was a question about this in the past few years. Orico/UC, that company, how can its profitability be raised? We’ve been thinking about that for quite some time. And it’s incorporated as part of the partnership. Orico/UC, well, it does have its own strengths. So the strength of Orico/UC, how can they be demonstrated and utilized?

We have finally been able to have this partnership where their strength can be utilized. So Orico/UC, we would like to continue to monitor it closely to make sure to raise profitability so that it can raise profitability for Mizuho overall, that it can make such contribution.

Operator: BofA Securities, Nakamura-san, online, please. Over to you.

Shinichiro Nakamura: I have two questions. First question is on page 9 about the reduction of cross shareholdings. And as you said, ¥180 billion in three years, ¥300 billion, I think you have been able to more or less see the end of the light of the tunnel. But what is the pace for this fiscal year? What is the progress in terms of progress with existing companies, if you give us some color? And second question is on collaboration with the Rakuten Card, especially which is the area that could contribute to profit that is promising? I would appreciate if you could give some color on that. And in the near future, you should be able to achieve profitability. ROI 8% in five years. That’s the kind of impact we could anticipate. That’s on page 23.

Masahiro Kihara: Cross-shareholdings. So for cross-shareholdings, RM, the current situation, we need to brush up how they are seeing the current situation. That’s, we need to refine that because we’re trying to come up with the goal target for the next three years. CFO is taking the lead in that discussion and that discussion is going to take place. And if there is a possibility of accelerating our pace, I think that is also possible. We, of course, want to accelerate. We’re always willing to do that, but it depends on our customers, how they view, whether they are ready, and it’s very important for us to watch how our customers’ clients are viewing their situation. As for myself, 20%? Whether this is good or not, I don’t know.

But we need to come up with a convincing number, but at least I want to encourage, so that we can move in that direction, but we need to get most updated information about our customers. With regards to Rakuten Card and talking about profit, I’m really hopeful for any – for all the areas. So acquiring, integrated operation of acquiring, maybe not so much, but the other three, I think, will contribute to profit. And we should come up with a timeline based on that, and ROI is one thing. But in our case, we’re looking at it from a capital base, but ROE will increase in a certain period of time. So a plan for that has been validated and the timeline that Nakamura-san has just mentioned is expected to be achieved. Rakuten Securities, just for your reference, there is a timeline in mind, but for Rakuten Securities, earlier than our plan.

ROE should be achieved earlier than our plan. So that’s all for me.

Shinichiro Nakamura: I have a follow-up question. So Rakuten Securities and Rakuten Card, you want to disclose the synergy and so forth, but you will not be able to disclose that because of their concerns.

Masahiro Kihara: Well, whether it’s going to be getting into that much of a detail, I think that’s a point of discussion. But I don’t know. And it’s not only us, we have a counterpart. And if we want to disclose, we need to have good discussions with them. That’s all I can say.

Koichi Niwa: My name is Niwa from Citi. I have two questions. One is about cross-sell shares and secondly about your non-bank strategy. With respect to cross-shareholding, this is a follow-up question. On Nakamura-san’s question, you said that you want to accelerate the pace of sales. But the profit that’s gained and the capital that’s generated, how are you going to spend that? Will it be used according to your capital policy or will it be treated differently? So what’s your thinking on that? I would like to ask. And secondly, your non-bank strategy. In terms of retail, a payment retail non-banker business, you talked about interesting initiatives. I was able to develop better understanding, but non-bank business for corporates, I’m sure you’re able to do a lot more than what you’re doing right now. So what is your thinking? If you could please comment.

Masahiro Kihara: Well, I’m sorry for asking you, but there’s a lot more that we can do. What do you mean by that?

Koichi Niwa: So integration of three leasing companies, for example, in my view. Infrastructure financing is an interesting area. So perhaps integration with Mizuho and so forth.

Masahiro Kihara: So with respect to cross shareholding, what to do with the gains obtained from the sales? Of course, it’s going to be part of our capital policy to determine how we’re going to spend the proceeds. However, and as I said in yesterday’s earnings announcement, the cross-sell shares, the gains this year were ¥30 billion. On a full-year basis, it’s about ¥60 billion to ¥70 billion. We’ve been selling quite a bit, so not that much. Well, there are some large shares, though. But profit could be ¥800 billion out of that, and we really have to think how to spend that well. At any rate, we’re going to strike the right balance between shareholder return and growth investment. That’s pretty clear. And the leasing business strategy, well, leasing companies have their own thoughts, so they have to be respected.

It depends on the thinking of each of the leasing companies, although people may comment on that quite a bit. So Mizuho Lease, we would like to promote that because it’s at the core of our leasing business strategy. So Mizuho Lease needs to be expanded solidly by so doing it, we would like to drive portability. That is going to be the biggest point of focus. And as part of that, our real estate business is being pursued together. So that’s where we are. And infrastructure, so you talked about infrastructure finance in relation to leasing businesses.

Koichi Niwa: Well, you have included that part in your answer that you have just given, so I’m all right now.

Operator: Next question is from online. Bloomberg, Ban-san [ph]. There is no audio coming through at this moment.

Unidentified Participant: I have two questions. First question. Today, you explained about retail business, and it’s subject to Rakuten, I think. For Mizuho Group, consumer credit, what is the position of Mizuho Group towards consumer credit? Is that the position going to change with your investment, additional investment into Rakuten? Or did you decide to collaborate with Rakuten because your position towards consumer credit has changed. For Mizuho Group, resource allocation into consumer credit, if any of your policies or thinking have changed on that front, I would appreciate it if you could elaborate. And kind of a follow-up question to that. Unfortunately, should I say. There is multi-alliance and earnings and visibility has not gone up over the years, but this time with Rakuten collaboration in consumer credit, visibility in revenue, will it go up?

To what extent are you confident about that? That is my first question. And my next question is from a slightly different angle. Global CIB model for the Americas, strong growth, solid growth, and as you showed on page 15, from a global coverage perspective, APAC, EMEA, where I understand that you need global coverage, but at this point in time, outside of the Americas, how to allocate resource and performance as management? What is your current view? What are some issues that you see? If you could share us your thoughts on that.

Masahiro Kihara: Consumer credit, housing loans, if I could talk about that. And this is from before Rakuten Card announcement. I’ve been always talking about this. For housing loans, basically, after providing loans, where there is an opportunity for further growth in our business relationship, that’s where we invest or that’s our focus, especially housing loan business. Rate competition is very fierce. And spread has to be narrowed. That’s the world where we are in, in consumer credit. So we’re not going to get into that kind of excessive competition. In the meantime, when it comes to card loans, I think we are relatively weak and we’re seeing a shrinking in that area. But by collaborating with Rakuten, we can strengthen our marketing and, of course, we have to also make effort on our part.

But card loan business, Mizuho/Rakuten Card is going to emerge and therefore card loan business could grow going forward. So that’s an area that we can further strengthen, which will be different from housing loans. And you talked about revenue visibility. I did not exactly catch what you meant by that.

Unidentified Participant: For example, in consumer credit area in the past, GE Holdings and Yahoo, there was collaboration with such companies. But contribution to revenue, for example, in retail business. Before talking about contributions to revenue, maybe the situation had changed with the relationship, but kind of related to Nakamura-san’s question earlier, but in your collaboration with Rakuten Card, Rakuten ecosystem is to be supported because of cost burden. But for Mizuho Group, what will be the revenue contribution of the collaboration to Mizuho Group? Are you going to disclose that kind of data? What will be the timeline? What is the sense of speed? That’s my question.

Masahiro Kihara: So I think it’s a question of whether we should disclose such a level of detail. I think we need to give more thoughts on that. It’s not about disclosing all the numbers that we have, and therefore I think we need to have very close scrutiny. We need to get feedback from various investors and also our counterpart. But for me, I have defined business lines and ROEs, I think will be a very important KPI. As one factor for explanation, maybe some of the things that you raised could emerge, but it’s not to say that we’re going to disclose every single detail of the data that we have. And talking about global coverage, and you’re exactly right. In each of the regions, there are different characteristics. The EMEA market, it’s very difficult to earn rationally.

And what I mean by that is that all of the banks are involved in all the deals. So, having a trading relationship, good trading relationship, and enjoying ancillary benefit is extremely crucial. So far, to be able to make money efficiently, let’s change the organization, let’s change the setup. I’ve been talking about that. And finally, we’re able to see increase, pick up, in risk return. In RORA, two years ago, 2.2, 2.3, now finally gone up to 2.7 or 2.8. So those initiatives have to proceed going forward. But having said that, the structure is similar to the Americas. There’s a good solid capital market, so the CIB market will be deployed to generate profits. But in Asia, unfortunately, the capital market is very immature and, therefore, transaction, indirect financing, and also derivatives or various other solutions, those are instruments where we will be able to make money in APAC.

We’re taking initiatives, for example, transaction are being expanded to non-Japanese – and Japanese and non-Japanese using derivatives and offering risk solutions. Gradually, we are seeing progress. So expanding on that front at a pace that fits us. And if we can’t see materialize, we can exit from such business. We should exit from such markets. But in the meantime, M&A is a global market. There will be more cross-border M&As this fiscal year in the Americas and in Japan. Cross-border M&As have been executed in various projects in America, Asia, Europe. I think there are different patterns that we can think of. And by leveraging Greenhill’s capabilities, we should be able to pursue that kind of strategy. And that should be our strategy for GCIB.

There are regional characteristics as a business model. That will, of course, be taken into account and pursue a strategy that is suitable for that, but also collaborate across border. And when we do M&A, finance, we will be involved, so generating return and profit from financing. So that will be the model going forward. That’s the image that I have.

Operator: Next participant from online, Okasan Securities, Tamura-san, please go ahead.

Shinichi Tamura: I’m looking at page 45. So large corporates for overseas, you have certain pipelines, you’re growing some, you have strength in some gross profits and net business profits. For each sector, you had a target for the sector or customer. So against your plan, where you were strong, where you were not doing enough or where you see growth potential. So for each segment, I think I have a rough idea listening to your presentation. But for each segment, if you could just give us an overview.

Masahiro Kihara: I ask CFO to answer.

Takefumi Yonezawa: Page 45, financial results by in-house company. So on the IR day, what’s going to be our forecast, our plan, we explained it. So, with respect to RBC, this is a plan. Net business profit, plus/minus zero. We will drive top line, but we’re making prior investment, investment for the future with transition to new HR system. HR cost is up. And for digitization, we need to make upfront investment with a long-term view. So this year expenses will have to rise. And so, this is on track. From my perspective, rates were raised in April, there’s going to be impact from that. We would like to achieve our performance there. And CIBC, according to our forecast, the increase in profit of ¥10 billion. And the first half is over and we’re feeling good progress and traction.

There’s strong demand for funding and the number of solutions for corporate actions are increasing and there’s impact from rate increase. So we would like to substantially outperform the target for the second half and for the four-year. For CIBC, we’re going to be flat or a slight increase of profit by ¥5 billion, we told you before. If we look at the overall picture, expenses, there’s inflation, and we need to strengthen our corporate infrastructure, governance, and IT investment. There are factors for increased investment. So we need to control resources. But this year, we’re going to make investments into expenses upfront according to our plan. So we’re on track with our plan here. And banking, moving – well, on page 45. In the first half, especially in the first quarter, we looked at the financial environment and we ended up outperforming the plan.

But US presidential election, which was the greatest source of uncertainty, it’s over, red sweep happened. So in a multi-level, there will be many changes having impact on the economy. So we would like to manage this rather cautiously. So valuation losses need to be prevented. So in the first half and the second half, there will be a change in approach. And sales and trading, when volatility goes up, but there will be profit opportunities. So we would like to drive profit leveraging that. So that’s the overall picture.

Operator: [Operator Instructions]. There seems to be none.

Orita Natsuki : We are a little bit ahead of time, but we would like to conclude the investor presentation for fiscal year 2024 first half. For the questions that you were not able to ask today, the IR department will be happy to respond to your questions. So I would like to ask Mr. Kihara, Group CEO, to say a few words before we close.

Masahiro Kihara: Ladies and gentlemen, thank you very much for your attendance today. Today, we received many questions. I think we have entered a different phase. That’s our awareness. And as I said, having said so, well, we had various problems in the past. So that we do not repeat such problems, I think we need to be on the alert going forward. And I’m actually a bit scared, in that we’re having perhaps too good a performance. Things went so well for us, and we’re having such a good performance. But we have to be careful when we’re having such a good performance. And so, we would like to exercise caution. But I think we’re in a world where various opportunities are arising. Japan is a country where there may be some political confusion, but the private sector, corporate CEOs’ mindset is changing quite greatly.

So we would like to capture their need and make a proposals. I think we have the capability to do so especially for mid-market SMEs. In that market, we have yet to establish our strength. So now that the phase is changing, by making good proposals to such customers and by changing resource allocation, we would like to establish strength in that market. And with respect to asset and wealth management, there’s a great potential to grow. But unfortunately, when it comes to asset and wealth management, there is more that we can do. So this is an area where we have to brush up on our capabilities. So 49% investment in Rakuten Securities, that in itself gives us a huge advantage. Customers among Rakuten Securities will become high net worth individuals.

And over time, when they require consulting, we would like to provide a consulting to those customers. That’s a great advantage. To prepare for that, we need to elevate the level of our capabilities. So we would like to make sure to be prepared for that going forward. For overseas, well, there are characteristics to each market overseas, and as it was asked by Ban-san toward the end, we would like to leverage the characteristics of each region and at the same time achieve a greater collaboration between regions because that could potentially provide us with a huge advantage. So that is something that we would like to work on. That would be all for today. Thank you very much.

Operator: Thank you very much for your attendance and participation. We would like to close the meeting. Thank you very much.