20-F 1 d564085d20f.htm ANNUAL REPORT ANNUAL REPORT
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

(Mark One)

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        For the fiscal year ended March 31, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        Date of event requiring this shell company report

                      For the transition period from              to             

Commission file number 001-33098

Kabushiki Kaisha Mizuho Financial Group

(Exact name of Registrant as specified in its charter)

Mizuho Financial Group, Inc.

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

5-1, Marunouchi 2-chome

Chiyoda-ku, Tokyo 100-8333

Japan

(Address of principal executive offices)

Yutaka Ueki, +81-3-5224-1111, +81-3-5224-1059, address is same as above

(Name, Telephone, Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on which registered

Common Stock, without par value   The New York Stock Exchange*

American depositary shares, each of which represents two shares of

common stock

  The New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

 

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

At March 31, 2013, the following shares of capital stock were issued: (1) 24,164,864,477 shares of common stock (including 19,824,922 shares of common stock held by the registrant as treasury stock), (2) 914,752,000 shares of eleventh series class XI preferred stock (including 574,087,800 shares of eleventh series class XI preferred stock held by the registrant as treasury stock), and (3) 36,690,000 shares of thirteenth series class XIII preferred stock.

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  ¨    No  x

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x   Accelerated filer  ¨   Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  x   International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨   Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨    Item  18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No   x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

¨  Yes    ¨  No

* Not for trading, but only in connection with the registration and listing of the ADSs.

 

 

 


Table of Contents

MIZUHO FINANCIAL GROUP, INC.

ANNUAL REPORT ON FORM 20-F

Table of Contents

 

           Page  

Presentation of Financial and Other Information

     3   

Forward-Looking Statements

     3   

ITEM 1.

  

Identity of Directors, Senior Management and Advisers

     5   

ITEM 2.

  

Offer Statistics and Expected Timetable

     5   

ITEM 3.

  

Key Information

     5   
   3.A.   

Selected Financial Data

     5   
   3.B.   

Capitalization and Indebtedness

     10   
   3.C.   

Reasons for the Offer and Use of Proceeds

     10   
   3.D.   

Risk Factors

     10   

ITEM 4.

  

Information on the Company

     20   
   4.A.   

History and Development of the Company

     20   
   4.B.   

Business Overview

     21   
   4.C.   

Organizational Structure

     45   
   4.D.   

Property, Plant and Equipment

     47   

ITEM 4A.

  

Unresolved Staff Comments

     47   

ITEM 5.

  

Operating and Financial Review and Prospects

     48   

ITEM 6.

  

Directors, Senior Management and Employees

     117   
   6.A.   

Directors and Senior Management

     117   
   6.B.   

Compensation

     132   
   6.C.   

Board Practices

     134   
   6.D.   

Employees

     135   
   6.E.   

Share Ownership

     136   

ITEM 7.

  

Major Shareholders and Related Party Transactions

     138   
   7.A.   

Major Shareholders

     138   
   7.B.   

Related Party Transactions

     139   
   7.C.   

Interests of Experts and Counsel

     139   

ITEM 8.

  

Financial Information

     140   
   8.A.   

Consolidated Statements and Other Financial Information

     140   
   8.B.   

Significant Changes

     140   

ITEM 9.

  

The Offer and Listing

     141   
   9.A.   

Listing Details

     141   
   9.B.   

Plan of Distribution

     142   
   9.C.   

Markets

     142   
   9.D.   

Selling Shareholders

     143   
   9.E.   

Dilution

     143   
   9.F.   

Expenses of the Issue

     143   

ITEM 10.

  

Additional Information

     144   
   10.A.   

Share Capital

     144   
   10.B.   

Memorandum and Articles of Association

     144   
   10.C.   

Material Contracts

     156   
   10.D.   

Exchange Controls

     156   
   10.E.   

Taxation

     157   
   10.F.   

Dividends and Paying Agents

     163   
   10.G.   

Statement by Experts

     163   
   10.H.   

Documents on Display

     163   
   10.I.   

Subsidiary Information

     163   

 

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          Page  

ITEM 11.

  

Quantitative and Qualitative Disclosures about Market Risk

     164   

ITEM 12.

  

Description of Securities Other than Equity Securities

     184   
   12.A.   

Debt Securities

     184   
   12.B.   

Warrants and Rights

     184   
   12.C.   

Other Securities

     184   
   12.D.   

American Depositary Shares

     184   

ITEM 13.

  

Defaults, Dividend Arrearages and Delinquencies

     185   

ITEM 14.

  

Material Modifications to the Rights of Securities Holders and Use of Proceeds

     185   

ITEM 15.

  

Controls and Procedures

     185   

ITEM 16A.

  

Audit Committee Financial Expert

     186   

ITEM 16B.

  

Code of Ethics

     186   

ITEM 16C.

  

Principal Accountant Fees and Services

     186   

ITEM 16D.

  

Exemptions from the Listing Standards for Audit Committees

     187   

ITEM 16E.

  

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

     188   

ITEM 16F.

  

Change in Registrant’s Certifying Accountant

     188   

ITEM 16G.

  

Corporate Governance

     188   

ITEM 17.

  

Financial Statements

     190   

ITEM 18.

  

Financial Statements

     190   

ITEM 19.

  

Exhibits

     190   

Selected Statistical Data

     A-1   

Index to Consolidated Financial Statements

     F-1   

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, “we,” “us,” and “our” refer to Mizuho Financial Group, Inc. and, unless the context indicates otherwise, its consolidated subsidiaries. “Mizuho Financial Group” refers to Mizuho Financial Group, Inc. Furthermore, unless the context indicates otherwise, these references are intended to refer to us as if we had been in existence in our current form for all periods referred to herein.

In this annual report, “our principal banking subsidiaries” refer to Mizuho Bank, Ltd. and Mizuho Trust & Banking Co., Ltd. (or with respect to references as of a date, or fiscal year ending, before April 1, 2002, to The Dai-Ichi Kangyo Bank, Limited, The Fuji Bank, Limited, The Industrial Bank of Japan, Limited, Mizuho Trust & Banking and The Yasuda Trust and Banking Co., Ltd.).

On July 1, 2013, a merger between Mizuho Bank and Mizuho Corporate Bank, Ltd. came into effect with Mizuho Corporate Bank as the surviving entity, which was renamed Mizuho Bank upon the merger. In this annual report, “Mizuho Bank” refers to the post-merger entity, while “Pre-Merger Mizuho Bank” and “Mizuho Corporate Bank” refer to pre-merger Mizuho Bank and pre-merger Mizuho Corporate Bank, respectively. Similarly, “our principal banking subsidiaries,” when addressing periods or points in time before the merger date, refer to Pre-Merger Mizuho Bank, Mizuho Corporate Bank and Mizuho Trust & Banking, unless otherwise noted.

In this annual report, references to “U.S. dollars,” “dollars” and “$” refer to the lawful currency of the United States and those to “yen” and “¥” refer to the lawful currency of Japan.

In this annual report, yen figures and percentages have been rounded to the figures shown. However, in some cases, figures presented in tables have been adjusted to match the sum of the figures with the total amount, and such figures may also be referred to in the related text. In addition, yen figures and percentages in “Item 3.A. Key Information—Selected Financial Data—Japanese GAAP Selected Consolidated Financial Information” and others that are specified, have been truncated to the figures shown.

Our fiscal year end is March 31. References to years not specified as being fiscal years are to calendar years.

Unless otherwise specified, for purposes of this annual report, we have presented our financial information in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Unless otherwise stated or the context otherwise requires, all amounts in our financial statements are expressed in Japanese yen.

We usually hold the ordinary general meeting of shareholders of Mizuho Financial Group in June of each year in Chiyoda-ku, Tokyo.

FORWARD-LOOKING STATEMENTS

We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, including this annual report, and other reports to shareholders and other communications.

The U.S. Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves. We rely on this safe harbor in making these forward-looking statements.

This annual report contains forward-looking statements regarding the intent, belief or current expectations of our management with respect to our financial condition and future results of operations. In many cases, but not all, we use such words as “aim,” “anticipate,” “believe,” “endeavor,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “project,” “risk,” “seek,” “should,” “strive,” “target” and similar expressions in relation to

 

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us or our management to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements reflect our current views with respect to future events and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results may vary materially from those we currently anticipate. Potential risks and uncertainties include, without limitation, the following:

 

   

incurrence of significant credit-related costs;

 

   

declines in the value of our securities portfolio, including as a result of the declines in stock markets and the impact of the dislocation in the global financial markets;

 

   

changes in interest rates;

 

   

foreign exchange rate fluctuations;

 

   

decrease in the market liquidity of our assets;

 

   

revised assumptions or other changes related to our pension plans;

 

   

a decline in our deferred tax assets;

 

   

the effect of financial transactions entered into for hedging and other similar purposes;

 

   

failure to maintain required capital adequacy ratio levels;

 

   

downgrades in our credit ratings;

 

   

our ability to avoid reputational harm;

 

   

our ability to implement our Medium-term Business Plan and other strategic initiatives and measures effectively;

 

   

the effectiveness of our operation, legal and other risk management policies;

 

   

the effect of changes in general economic conditions in Japan and elsewhere; and

 

   

amendments and other changes to the laws and regulations that are applicable to us.

Our forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. We identify in this annual report in “Item 3.D. Key Information—Risk Factors,” “Item 4.B. Information on the Company—Business Overview,” “Item 5. Operating and Financial Review and Prospects” and elsewhere, some, but not necessarily all, of the important factors that could cause these differences.

We do not intend to update our forward-looking statements. We are under no obligation, and disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.

 

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PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3. KEY INFORMATION

3.A. Selected Financial Data

The following tables set forth our selected consolidated financial data.

The first table below sets forth selected consolidated financial data of Mizuho Financial Group as of and for the fiscal years ended March 31, 2009, 2010, 2011, 2012 and 2013 which have been derived from the audited consolidated financial statements of Mizuho Financial Group prepared in accordance with U.S. GAAP included in this annual report.

The second table below sets forth selected consolidated financial data of Mizuho Financial Group as of and for the fiscal years ended March 31, 2009, 2010, 2011, 2012 and 2013 derived from Mizuho Financial Group’s consolidated financial statements prepared in accordance with accounting principles generally accepted in Japan, or Japanese GAAP.

The consolidated financial statements of Mizuho Financial Group as of and for the fiscal years ended March 31, 2011, 2012 and 2013 prepared in accordance with U.S. GAAP have been audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) by Ernst & Young ShinNihon LLC, independent registered public accounting firm.

You should read the U.S. GAAP selected consolidated financial information presented below together with the information included in “Item 5. Operating and Financial Review and Prospects” and the audited consolidated financial statements, including the notes thereto, included in this annual report. The information presented below is qualified in its entirety by reference to that information.

 

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U.S. GAAP Selected Consolidated Financial Information

 

    As of and for the fiscal years ended March 31,  
    2009     2010     2011     2012     2013  
    (in millions of yen, except per share data and percentages)  

Statement of income data:

         

Interest and dividend income

  ¥ 2,384,191      ¥ 1,632,282      ¥ 1,460,184      ¥ 1,437,086      ¥ 1,423,375   

Interest expense

    1,102,015        528,159        448,857        415,959        412,851   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    1,282,176        1,104,123        1,011,327        1,021,127        1,010,524   

Provision (credit) for loan losses

    567,396        222,102        647        (23,044     139,947   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision (credit) for loan losses

    714,780        882,021        1,010,680        1,044,171        870,577   

Noninterest income

    452,227        1,330,847        1,036,532        1,090,135        1,439,419   

Noninterest expenses

    1,525,101        1,526,413        1,435,855        1,471,471        1,424,816   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    (358,094     686,455        611,357        662,835        885,180   

Income tax expense (benefit)

    761,908        (360,195     193,227        13,878        4,024   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (1,120,002     1,046,650        418,130        648,957        881,156   

Less: Net income (loss) attributable to noncontrolling interests(1)

    (61,555     46,961        5,461        (7,432     5,744   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MHFG shareholders

  ¥ (1,058,447   ¥ 999,689      ¥ 412,669      ¥ 656,389      ¥ 875,412   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

  ¥ (1,077,787   ¥ 988,603      ¥ 403,231      ¥ 647,717      ¥ 867,191   

Amounts per share(2):

         

Basic earnings per common share—net income (loss) attributable to common shareholders

  ¥ (95.96   ¥ 70.55      ¥ 20.44      ¥ 28.07      ¥ 36.05   

Diluted earnings per common share—net income (loss) attributable to common shareholders

  ¥ (95.96   ¥ 61.64      ¥ 19.22      ¥ 26.78      ¥ 34.47   

Number of shares used to calculate basic earnings per common share (in thousands)

    11,231,269        14,013,058        19,722,818        23,073,544        24,053,282   

Number of shares used to calculate diluted earnings per common share (in thousands)

    11,231,269        16,200,812        21,415,109        24,469,539        25,365,229   

Cash dividends per share declared during the fiscal year(3):

         

Common stock

  ¥ 10.00      ¥ 10.00      ¥ 8.00      ¥ 6.00      ¥ 6.00   
  $ 0.10      $ 0.11      $ 0.10      $ 0.07      $ 0.06   

Eleventh series class XI preferred stock

  ¥ 20.00      ¥ 20.00      ¥ 20.00      ¥ 20.00      ¥ 20.00   
  $ 0.20      $ 0.21      $ 0.24      $ 0.24      $ 0.21   

Thirteenth series class XIII preferred stock

  ¥ 30.00      ¥ 30.00      ¥ 30.00      ¥ 30.00      ¥ 30.00   
  $ 0.30      $ 0.32      $ 0.36      $ 0.36      $ 0.32   

 

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    As of and for the fiscal years ended March 31,  
    2009     2010     2011     2012     2013  
    (in millions of yen, except per share data and percentages)  

Balance sheet data:

         

Total assets

  ¥ 155,083,031      ¥ 158,351,456      ¥ 161,985,670      ¥ 166,361,633      ¥ 178,746,994   

Loans, net of allowance

    71,787,309        62,903,418        63,955,284        65,306,370        69,060,526   

Total liabilities

    154,045,851        155,019,438        157,950,314        161,714,609        172,889,899   

Deposits

    87,075,727        86,776,251        89,215,627        91,234,380        100,221,556   

Long-term debt

    8,017,770        8,482,434        8,953,496        8,461,818        8,802,223   

Common stock

    3,386,792        4,324,705        5,164,160        5,427,992        5,460,821   

Total MHFG shareholders’ equity

    846,047        2,966,215        3,673,487        4,470,766        5,728,120   

Other financial data:

         

Return on equity and assets:

         

Net income (loss) attributable to common shareholders as a percentage of total average assets

    (0.70 )%      0.62     0.25     0.39     0.50

Net income (loss) attributable to common shareholders as a percentage of average MHFG shareholders’ equity

    (37.56 )%      39.99     12.63     15.56     18.76

Dividends per common share as a percentage of basic earnings per common share

    (10.42 )%      11.34     29.35     21.38     16.64

Average MHFG shareholders’ equity as a percentage of total average assets

    1.86     1.56     2.01     2.53     2.67

Net interest income as a percentage of total average interest-earning assets

    0.96     0.82     0.75     0.71     0.66

 

Notes:

 

(1) Net income (loss) attributable to noncontrolling interests was relocated from minority interest in consolidated subsidiaries included within noninterest expenses in the fiscal year ended March 31, 2010 as we adopted ASC 810. For purposes of comparability, the figures of the previous fiscal years are adjusted accordingly.
(2) Under the central book-entry transfer system in Japan, which became effective in January 2009, fractional shares are not eligible for book-entry transfer. Accordingly, an allotment of shares or fractions of a share without consideration was made to all shareholders and holders of fractional shares at the rate of 999 shares per 1 share and 9.99 shares per every 0.01 of a share, effective on January 4, 2009. The amounts per share for the fiscal years ended March 31, 2009 has been adjusted to reflect such allotment.
(3) Yen amounts for cash dividends per share for the fiscal years ended March 31, 2009, 2010, 2011 2012 and 2013 are expressed in U.S. dollars at the rate of ¥99.15 = $1.00, ¥93.40 = $1.00, ¥82.76 = $1.00, ¥82.41 = $1.00 and ¥94.16 = $1.00, respectively. These rates are the noon buying rates on March 31, 2009, 2010, 2011 2012 and 2013 in New York City for cable transfers in yen as certified for customs purposes by the Federal Reserve Bank of New York.

 

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Japanese GAAP Selected Consolidated Financial Information

 

    As of and for the fiscal years ended March 31,  
    2009     2010     2011     2012     2013  
    (in millions of yen, except per share data and percentages)  

Statement of income data:

         

Interest income

  ¥ 2,144,436      ¥ 1,571,994      ¥ 1,457,687      ¥ 1,423,564      ¥ 1,421,609   

Interest expense

    1,075,584        420,287        348,242        335,223        345,710   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    1,068,851        1,151,707        1,109,444        1,088,340        1,075,898   

Fiduciary income

    55,891        49,100        49,388        49,014        48,506   

Net fee and commission income(1)

    416,653        466,040        458,824        458,933        507,378   

Net trading income

    301,521        312,330        243,983        150,317        215,033   

Net other operating income (loss)

    (35,951     17,436        163,680        256,468        324,899   

General and administrative expenses(1)

    1,192,701        1,317,247        1,277,848        1,283,847        1,244,647   

Other income

    260,568        266,125        156,212        263,024        198,063   

Other expenses

    1,280,711        567,728        268,261        265,803        407,299   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and minority interests

    (405,877     377,765        635,425        716,449        717,832   

Income taxes:

         

Current(2)

    48,247        18,040        18,336        55,332        50,400   

Deferred

    109,103        25,108        120,123        97,494        7,461   

Income (loss) before minority interests(3)

    (563,227     334,617        496,965        563,621        659,970   

Minority interests in net income

    25,586        95,212        83,736        79,102        99,454   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  ¥ (588,814   ¥ 239,404      ¥ 413,228      ¥ 484,519      ¥ 560,516   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share:

         

Basic

  ¥ (54.14   ¥ 16.29      ¥ 20.47      ¥ 20.62      ¥ 22.96   

Diluted

    —   (4)      15.57        19.27        19.75        22.05   

Cash dividends per share declared during the fiscal year(5)(6):

         

Common stock(7)

  ¥ 10,000      ¥ 10      ¥ 8      ¥ 6      ¥ 6   
  $ 100.86      $ 0.11      $ 0.10      $ 0.07      $ 0.06   

Eleventh series class XI preferred stock(7)

  ¥ 20,000      ¥ 20      ¥ 20      ¥ 20      ¥ 20   
  $ 201.71      $ 0.21      $ 0.24      $ 0.24      $ 0.21   

Thirteenth series class XIII preferred stock(7)

  ¥ 30,000      ¥ 30      ¥ 30      ¥ 30      ¥ 30   
  $ 302.57      $ 0.32      $ 0.36      $ 0.36      $ 0.32   

Balance sheet data:

         

Total assets

  ¥ 152,723,070      ¥ 156,253,572      ¥ 160,812,006      ¥ 165,360,501      ¥ 177,411,062   

Loans and bills discounted(8)

    70,520,224        62,164,579        62,777,757        63,800,509        67,536,882   

Securities

    30,173,632        43,096,460        44,782,067        51,392,878        53,472,399   

Deposits(9)

    86,539,020        86,627,588        88,884,158        90,636,656        99,568,737   

Net assets

    4,186,606        5,837,053        6,623,999        6,869,295        7,736,230   

Risk-adjusted capital data (Basel II)(10):

         

Tier 1 capital

  ¥ 3,765,045      ¥ 5,173,496      ¥ 6,170,210      ¥ 6,398,953        n.a.   

Total risk-based capital

    6,223,693        7,658,062        7,910,970        7,775,093        n.a.   

Risk-weighted assets

    59,056,218        56,863,252        51,693,835        50,144,934        n.a.   

Tier 1 capital ratio

    6.37     9.09     11.93     12.76     n.a.   

Capital adequacy ratio

    10.53        13.46        15.30        15.50        n.a.   

 

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    As of and for the fiscal years ended March 31,  
    2009     2010     2011     2012     2013  
    (in millions of yen, except per share data and percentages)  

Risk-adjusted capital data (Basel III)(10):

         

Common Equity Tier 1 capital

    n.a.        n.a.        n.a.        n.a.      ¥ 4,803,820   

Tier 1 capital

    n.a.        n.a.        n.a.        n.a.        6,487,449   

Total capital

    n.a.        n.a.        n.a.        n.a.        8,344,509   

Risk-weighted assets

    n.a.        n.a.        n.a.        n.a.        58,823,585   

Common Equity Tier 1 capital ratio

    n.a.        n.a.        n.a.        n.a.        8.16

Tier 1 capital ratio

    n.a.        n.a.        n.a.        n.a.        11.02   

Total capital ratio

    n.a.        n.a.        n.a.        n.a.        14.18   

 

Notes:

 

(1) For the fiscal year ended March 31 2012, certain items in expenses regarding stock transfer agency business and pension management business, which had been recorded as “General and administrative expenses” by Mizuho Trust & Banking until the previous fiscal year, have been included in “Net fee and commission income” as “Fee and commission expenses,” and reclassification of prior year figures has been made accordingly.
(2) Includes refund of income taxes.
(3) In accordance with certain amendments to Regulation on Terminology, Forms and Preparation of Financial Statements and other regulations which may be applied at our option from the fiscal year ended March 31, 2010, based on “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22, December 26, 2008), we have started to present “Income before minority interests” from the fiscal year ended March 31, 2010. For reference purposes, we have also included the figures of the same for the fiscal years ended March 31, 2009 in the table above.
(4) Diluted net income per share is not shown due to net loss per share for the fiscal year ended March 31, 2009.
(5) Under the central book-entry transfer system in Japan, which became effective in January 2009, fractional shares are not eligible for book-entry transfer. Accordingly, an allotment of shares or fractions of a share without consideration was made to all shareholders and holders of fractional shares at the rate of 999 shares per 1 share and 9.99 shares per every 0.01 of a share, effective on January 4, 2009. Cash dividends per share declared through the fiscal year ended March 31, 2009, in the table above do not reflect such allotment.
(6) Yen amounts are expressed in U.S. dollars at the rate of, ¥99.15 = $1.00, ¥93.40 = $1.00, ¥82.76 = $1.00, ¥82.41 = $1.00 and ¥94.16 = $1.00 for the fiscal years ended March 31, 2009, 2010, 2011, 2012 and 2013, respectively. These rates are the noon buying rates on the respective fiscal year-end dates in New York City for cable transfers in yen as certified for customs purposes by the Federal Reserve Bank of New York.
(7) In June 2013, we declared and paid annual dividends of ¥6 per share of common stock, ¥20 per share of eleventh series class XI preferred stock and ¥30 per share of thirteenth series class XIII preferred stock for the fiscal year ended March 31, 2013. As to the thirteenth series class XIII preferred stock, we acquired and canceled all of the relevant stock as of July 11, 2013.
(8) Bills discounted refers to a form of financing in Japan under which promissory notes obtained by corporations through their regular business activities are purchased by banks prior to their payment dates at a discount based on prevailing interest rates.
(9) Includes negotiable certificates of deposit.
(10) Risk-adjusted capital data are calculated on a Basel II basis until the fiscal year ended March 31, 2012, and on a Basel III basis for the fiscal year ended March 31, 2013. We adopted the advanced internal ratings-based approach (the “AIRB approach”) for the calculation of risk-weighted assets associated with credit risk from the fiscal year ended March 31, 2009. We also adopted the advanced measurement approach (the “AMA”) for the calculation of operational risk from the fiscal year ended March 31, 2010. For more details on capital adequacy requirements set by the Bank for International Settlements (“BIS”), and the guideline implemented by the Financial Services Agency in compliance thereto, see “Item 5. Operating and Financial Review and Prospects—Capital Adequacy.”

 

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There are certain differences between U.S. GAAP and Japanese GAAP. The differences between U.S. GAAP and Japanese GAAP applicable to us primarily relate to the accounting for derivative financial instruments and hedging activities, investments, loans, allowances for loan losses and off-balance-sheet instruments, premises and equipment, real estate sales and leasebacks, land revaluation, business combinations, noninterest-earning deposits made under government-led restructuring, pension liabilities, consolidation of variable interest entities and deferred taxes. See “Item 5. Operating and Financial Review and Prospects—Reconciliation with Japanese GAAP.”

Exchange Rate Information

The following table sets forth, for each period indicated, the noon buying rate in New York City for cable transfers in yen as certified for customs purposes by the Federal Reserve Bank of New York, expressed in Japanese yen per $1.00. The exchange rates are reference rates and are not necessarily the rates used to calculate ratios or the rates used to convert yen to U.S. dollars in the financial statements contained in this annual report.

 

Fiscal years ended (ending) March 31,

   High      Low      Average(1)      Period
end
 
     (yen per dollar)  

2009

   ¥ 110.48       ¥ 87.80       ¥ 100.85       ¥ 99.15   

2010

     100.71         86.12         92.49         93.40   

2011

     94.68         78.74         85.00         82.76   

2012

     85.26         75.72         78.86         82.41   

2013

     96.16         77.41         83.26         94.16   

2014 (through July 19)

     103.52         92.96         99.47         100.30   

Calendar year 2013

                           

January

   ¥ 91.28       ¥ 86.92         —           —     

February

     93.64         91.38         —           —     

March

     96.16         93.32         —           —     

April

     99.61         92.96         —           —     

May

     103.52         97.28         —           —     

June

     100.15         94.29         —           —     

July (through July 19)

     101.08         98.80         —           —     

 

Note:

 

(1) Calculated by averaging the exchange rates on the last business day of each month during the respective periods. The noon buying rate as of July 19, 2013 was ¥100.30 = $1.00.

3.B. Capitalization and Indebtedness

Not applicable.

3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

3.D. Risk Factors

Investing in our securities involves a high degree of risk. You should carefully consider the risks described below as well as the other information in this annual report, including our consolidated financial statements and related notes, “Item 5. Operating and Financial Review and Prospects,” “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and “Selected Statistical Data.”

 

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Our business, financial condition and operating results could be materially adversely affected by any of the factors discussed below. The trading price of our securities could decline due to any of these factors. This annual report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks faced by us described below and elsewhere in this annual report. See “Forward-Looking Statements.”

Risks Relating to Our Business

We may incur significant credit-related and other costs in the future due to problem loans.

We are the primary bank lender for a large number of our corporate customers, and the amount of our loans and other claims to each of our major customers is significant. In addition, while we have made efforts to diversify our credit exposure along industry lines, the proportion of credit exposure to customers in the construction and real estate, banks and other financial institutions, and wholesale and retail industries is relatively high. We manage our credit portfolio by regularly monitoring the credit profile of each of our customers, the progress made on restructuring plans and credit exposure concentrations in particular industries or corporate groups, and we also utilize credit derivatives for hedging and credit risk mitigation purposes. In addition, we regularly assess the value of collateral and guarantees. However, depending on trends in the domestic and global economic environment, the business environment in particular industries and other factors, the amount of our problem loans and other claims could increase significantly, including as a result of the deterioration in the credit profile of customers for which we are the primary bank lender, other major customers or customers belonging to industries to which we have significant credit exposure, and the value of collateral and guarantees could decline. There can be no assurance that credit-related and other costs will not increase in the future as a result of the foregoing or otherwise.

Our equity investment portfolio exposes us to market risks that could adversely affect our financial condition and results of operations.

We hold substantial investments in marketable equity securities, mainly common stock of Japanese listed companies. In addition to the partial hedges that we apply as we deem necessary in recent years, we sold a portion of such investments, and we may make further sales in the future. However, significant declines in Japanese stock prices in the future would lead to unrealized losses, losses on impairment and losses from sales of equity securities which could have a material adverse effect on our financial condition and results of operations. In addition, net unrealized gains and losses on such investments, based on Japanese GAAP, are taken into account when calculating the amount of capital for purposes of the calculation of our capital adequacy ratios, and as a result, a decline in the value of such investments would negatively affect such ratios. Accordingly, our financial condition and results of operations could be materially and adversely affected.

Changes in interest rates could adversely affect our financial condition and results of operations.

We hold a significant amount of bonds, consisting mostly of Japanese government bonds, and other instruments primarily for the purpose of investment. As a result of such holdings, an increase in interest rates, primarily yen interest rates, could lead to unrealized losses of bonds or losses from sales of bonds. In addition, due mainly to differences in maturities between financial assets and liabilities, changes in interest rates could have an adverse effect on our average interest rate spread. We manage interest rate risk under our risk management policies, which provide for adjustments in the composition of our bond portfolio and the utilization of derivatives and other hedging methods to reduce our exposure to interest rate risk. However, in the event of significant changes in interest rates, including as a result of a change in Japanese monetary policy, increased sovereign risk due to deterioration of public finances and market trends, our financial condition and results of operations could be materially and adversely affected.

 

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Our financial condition and results of operations could be adversely affected by foreign exchange rate fluctuations.

A portion of our assets and liabilities is denominated in foreign currencies, mainly the U.S. dollar. The difference between the amount of assets and liabilities denominated in foreign currencies leads to foreign currency translation gains and losses in the event of fluctuations in foreign exchange rates. Although we hedge a portion of our exposure to foreign exchange rate fluctuation risk, our financial condition and results of operations could be materially and adversely affected if future foreign exchange rate fluctuations significantly exceed our expectations.

We may incur further losses relating to decreases in the market liquidity of assets that we hold.

The market liquidity of the various marketable assets that we hold may decrease significantly due to turmoil in financial markets and other factors, and the value of such assets could decline as a result. If the market liquidity of our assets decreases significantly in the future, including as a result of the European debt problem causing significant disruptive effects on the global financial markets, our financial condition and results of operations could be materially and adversely affected.

Our pension-related costs could increase as a result of revised assumptions or changes in our pension plans.

Our pension-related costs and projected benefit obligations are calculated based on assumptions regarding projected returns on pension plan assets and various actuarial assumptions relating to the plans. If actual results differ from our assumptions or we revise our assumptions in the future, due to changes in the stock markets, interest rate environment or otherwise, our pension-related costs and projected benefit obligations could increase. In addition, any future changes to our pension plans could also lead to increases in our pension-related costs and projected benefit obligations. As a result, our financial condition and results of operations could be materially and adversely affected.

A decline in deferred tax assets due to a change in our estimation of future taxable income or change in Japanese tax policy could adversely affect our financial condition and results of operations.

We recorded deferred tax assets based on a reasonable estimation of future taxable income in accordance with applicable accounting standards. Our financial condition and results of operations could be materially and adversely affected if our deferred tax assets decline due to a change in our estimation of future taxable income, a change in tax rate as a result of tax system revision and other factors.

Financial transactions entered into for hedging and other similar purposes could adversely affect our financial condition and results of operations.

The accounting and valuation methods applied to credit and equity derivatives and other financial transactions that we enter into for hedging and credit risk mitigation purposes are not always consistent with the accounting and valuation methods applied to the assets that are being hedged. Consequently, in some cases, due to changes in the market or otherwise, losses related to such financial transactions during a given period may adversely affect net income, while the corresponding increases in the value of the hedged assets do not have an effect on net income for such period. As a result, our financial condition and results of operations could be materially and adversely affected during the period.

Failure to maintain capital adequacy ratios above minimum required levels, as a result of the materialization of risks or regulatory changes, could result in restrictions on our business activities.

We endeavor to maintain sufficient levels of capital adequacy ratios, which are calculated pursuant to standards set forth by Japan’s Financial Services Agency and based on Japanese GAAP, taking into account our plans for investments in risk-weighted assets, the efficiency of our capital structure and other factors. However,

 

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our capital adequacy ratios could decline in the future, including as a result of the materialization of any of the risks enumerated in these “Risk Factors” and changes to the methods we use to calculate capital adequacy ratios. Also, there are regulatory adjustments such as goodwill and other intangibles, deferred tax assets, investments in the capital of banking, financial and insurance entities etc., that are deducted from our regulatory capital under certain conditions. Our or our banking subsidiaries’ regulatory capital and capital adequacy ratios could decline due to such regulations.

In addition, if the framework set by the Basel Committee on Banking Supervision, upon which the Financial Services Agency’s rules concerning banks’ capital adequacy ratios are based, is changed or if the Financial Services Agency otherwise changes its banking regulations, we might not be able to meet the minimum regulatory requirements for capital adequacy ratios. For example, in December 2010, the Basel Committee on Banking Supervision issued its Basel III rules text, which presents the details of global regulatory standards on bank capital adequacy and liquidity. In March 2012, the Financial Services Agency published revisions to its capital adequacy guidelines which generally reflect rules in the Basel III text and became effective as of March 31, 2013. Furthermore, we were included in the list of global systemically important financial institutions (“G-SIFIs”) that were named by the Financial Stability Board in November 2012. The group of G-SIFIs will be updated annually and published by the Financial Stability Board each November. If we are deemed a SIFI in or after November 2014, we may be subject to additional capital requirements. See “Item 5. Operating and Financial Review and Prospects—Capital Adequacy.”

If the capital adequacy ratios of us and our banking subsidiaries fall below specified levels, the Financial Services Agency could require us to take corrective actions, including, depending on the level of deficiency, submission of an improvement plan that would strengthen our capital base, a reduction of our total assets or a suspension of a portion of our business operations. In addition, some of our banking subsidiaries are subject to capital adequacy regulations in foreign jurisdictions such as the United States, and our business could be adversely affected if their capital adequacy ratios fall below specified levels.

Downgrades in our credit ratings could have negative effects on our funding costs and business operations.

Credit ratings are assigned to Mizuho Financial Group, our banking subsidiaries and a number of our other subsidiaries by major domestic and international credit rating agencies. The credit ratings are based on information furnished by us or obtained by the credit rating agencies from independent sources and are also influenced by credit ratings of Japanese government bonds and general views regarding the Japanese financial system as a whole. The credit ratings are subject to revision, suspension or withdrawal by the credit rating agencies at any time. A downgrade in our credit ratings could result in, among other things, the following:

 

   

increased funding costs and other difficulties in raising funds;

 

   

the need to provide additional collateral in connection with financial market transactions; and

 

   

the termination or cancellation of existing agreements.

For example, the additional collateral requirement in connection with our derivative contracts, absent other changes, assuming a downgrade occurred on March 31, 2013, would have been approximately $67 million for a one-notch downgrade and approximately $323 million for a two-notch downgrade. The foregoing figures do not take into account the minority of derivative contracts for which additional collateral requirements are not specifically prescribed and are thus subject to individual negotiations.

As a result, our business, financial condition and results of operations could be materially and adversely affected.

Our business will be adversely affected if we encounter difficulties in raising funds.

We rely principally on deposits and debentures as our funding sources. In addition, we also raise funds in the financial markets. Our efforts to maintain stable funding, such as setting maximum limits on financial market

 

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funding and monitoring our liquidity position to apply appropriate funding policies, may not be sufficient to prevent significant increases in our funding costs or cash flow problems if we encounter difficulties in attracting deposits or otherwise raising funds. Such difficulties could result, among other things, from any of the following:

 

   

adverse developments with respect to our financial condition and results of operations;

 

   

downgrading of our credit ratings or damage to our reputation; or

 

   

a reduction in the size and liquidity of the debt markets due for example to the decline in the domestic and global economy, concerns regarding the financial system or turmoil in financial markets and other factors.

Our Medium-term Business Plan and other strategic initiatives and measures may not result in the anticipated outcome.

We have been implementing strategic initiatives and measures in various areas. In February 2013, we announced our new Medium-term Business Plan for the three fiscal years ending March 31, 2016, in which we set forth various strategic initiatives and measures and also established a number of key target figures that we aim to achieve by the end of the fiscal year ending March 31, 2016.

However, we may not be successful in implementing such initiatives and measures, or even if we are successful in implementing them, the implementation of such initiatives and measures may not have their anticipated effects. In addition, we may not be able to meet the key target figures announced in the Medium-term Business Plan due to these or other factors, including, but not limited to, differences in the actual economic environment compared to our assumptions underlying the Medium-term Business Plan, as well as the risks enumerated in these “Risk Factors.”

We will be exposed to new or increased risks as we expand the range of our products and services.

We offer a broad range of financial services, including banking, trust, securities and other services. As the needs of our customers become more sophisticated and broader in scope, and as the Japanese financial industry continues to be deregulated, we have been entering into various new areas of business, including through various business and equity alliances, which expose us to new risks. While we have developed and intend to maintain risk management policies that we believe are appropriate to address such risks, if a risk materializes in a manner or to a degree outside of our expectations, our business, financial condition and results of operations could be materially and adversely affected.

We are subject to various laws and regulations, and violations could result in penalties and other regulatory actions.

Our business and employees in Japan are subject to various laws and regulations, including those applicable to financial institutions as well as general laws applicable to our business activities, and we are under the regulatory oversight of the Financial Services Agency. Our businesses outside of Japan are also subject to the laws and regulations of the jurisdictions in which they operate and are subject to oversight by the regulatory authorities of those jurisdictions.

Our compliance and legal risk management structures are designed to prevent violations of such laws and regulations, but they may not be effective in preventing all future violations. Future violations of laws and regulations could result in regulatory action and harm our reputation, and our business, financial condition and results of operations could be materially and adversely affected.

Employee errors and misconduct could subject us to losses and reputational harm.

Because we process a large number of transactions in a broad range of businesses, we are subject to the risk of various operational errors and misconduct, including those caused by employees. Our measures to reduce

 

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employee errors, including establishment of operational procedures, regular reviews regarding compliance with these procedures, employee training and automation of our operations, may not be effective in preventing all employee errors and misconduct. Significant operational errors and misconduct in the future could result in losses, regulatory actions or harm to our reputation. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Problems relating to our information technology systems could significantly disrupt our business operations.

We depend significantly on information technology systems with respect to almost all aspects of our business operations. Our information technology systems network, including those relating to bank accounting and cash settlement systems, interconnects our branches and other offices, our customers and various clearing and settlement systems located worldwide. Our efforts to sustain stable daily operations and development of contingency plans for unexpected events, including the implementation of backup and redundancy measures, may not be effective in preventing significant disruptions to our information technology systems caused by, among other things, human error, accidents, hacking, computer viruses, cyber attacks, and development and renewal of computer systems. In the event of any such disruption, our business, financial condition and results of operations could be materially and adversely affected due to disruptions in our business operations, liability to customers and others, regulatory actions or harm to our reputation.

Our reputation could be harmed and we may be subject to liabilities and regulatory actions if we are unable to protect personal and other confidential information.

We handle various confidential or non-public information, including those of our individual and corporate customers, in the ordinary course of our business. The information management policies we maintain and enforce to prevent information leaks and improper access to such information, including those designed to meet the strict requirements of the Personal Information Protection Law of Japan, may not be effective in preventing all such problems. Leakage of important information in the future could result in liabilities and regulatory actions and may also lead to significant harm to our reputation. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Our business would be harmed if we are unable to attract and retain skilled employees.

Many of our employees possess skills and expertise that are important to maintain our competitiveness and to operate our business efficiently. We may not be successful in attracting and retaining sufficient skilled employees through our hiring efforts and training programs aimed to maintain and enhance the skills and expertise of our employees, in which event our competitiveness and efficiency could be significantly impaired. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Our failure to establish, maintain and apply adequate internal controls over financial reporting could negatively impact investor confidence in the reliability of our financial statements.

As a New York Stock Exchange-listed company and an SEC registrant, we have developed disclosure controls and procedures and internal control over financial reporting pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and rules and regulations of the SEC promulgated pursuant thereto. Our management reports on, and our independent registered public accounting firm attests to, the effectiveness of our internal controls over financial reporting, as required, in our annual report on Form 20-F. In addition, our management is required to report on our internal control over financial reporting, and our independent registered public accounting firm is required to provide its opinion concerning the report of our management, in accordance with the Financial Instruments and Exchange Law of Japan. To the extent any issues are identified through the foregoing processes, there can be no assurance that we will be able to address them in a timely manner or at all. Furthermore, even if our management concludes that our internal control over financial reporting are effective,

 

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our independent registered public accounting firm may still be unable to issue a report that concludes that our internal control over financial reporting are effective. In either case, we may lose investor confidence in the reliability of our financial statements.

We are subject to risk of litigation and other legal proceedings.

As a financial institution engaging in banking and other financial businesses in and outside of Japan, we are subject to the risk of litigation for damages and other legal proceedings in the ordinary course of our business. Adverse developments related to future legal proceedings could have a material adverse effect on our financial condition and results of operations.

Our risk management policies and procedures may not adequately address unidentified or unanticipated risks.

We devote significant resources to strengthening our risk management policies and procedures. Despite this, and particularly in light of the rapid evolution of our operations, our policies and procedures designed to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risks are based upon our use of observed historical market behavior. As a result, these methods may not accurately predict future risk exposures, which could be significantly greater than the historical measures indicate. If our risk management policies and procedures do not function effectively, our financial condition and results of operations could be materially and adversely affected.

Transactions with counterparties in Iran and other countries designated by the U.S. Department of State as state sponsors of terrorism may lead some potential customers and investors to avoid doing business with us or investing in our securities or have other adverse effects.

U.S. law generally prohibits U.S. persons from doing business with countries designated by the U.S. Department of State as state sponsors of terrorism (the “Designated Countries”), which includes Iran, Cuba, Sudan and Syria, and we maintain policies and procedures to comply with U.S. law. Our non-U.S. offices engage in transactions relating to the Designated Countries on a limited basis and in compliance with applicable laws and regulations, including trade financing with respect to our customers’ export or import transactions and maintenance of correspondent banking accounts. In addition, we maintain a representative office in Iran. We do not believe our operations relating to the Designated Countries are material to our business, financial condition or results of operations. We maintain policies and procedures to ensure compliance with applicable Japanese and U.S. laws and regulations.

We are aware of government initiatives to strengthen laws and regulations, such as the U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and the National Defense Authorization Act for Fiscal Year 2012 and Fiscal Year 2013, applicable to entities with dealings in the Designated Countries. While we maintain policies and procedures to ensure compliance with such initiatives, including Japanese laws and regulations, should the U.S. government regard our measures as inadequate, we may be subject to regulatory action which could materially and adversely affect our business. In addition, we may become unable to retain or acquire customers or investors in our securities, or our reputation may suffer, potentially having adverse effects on our business or the price of our securities.

Our common stock may be subject to dilution as a result of conversion of our convertible preferred stock.

Holders of our eleventh series class XI preferred stock may convert their shares to common stock by requesting us to acquire such shares and issue or transfer common stock to them at any time between July 1, 2008 and June 30, 2016, with mandatory conversion on July 1, 2016. Due to the dilution of our common stock that occurs as a result of the increase in the number of outstanding shares of common stock upon such conversion, the price of our common stock could decline.

 

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We may be subject to risks related to dividend distributions.

As a holding company, we rely on dividend payments from our banking and other subsidiaries for almost all of our income. As a result of restrictions, such as those on distributable amounts under Japan’s Company Law, or otherwise, our banking and other subsidiaries may decide not to pay dividends to us. In addition, we may experience difficulty in making, or become unable to make, dividend payments to our shareholders and dividend payments on the preferred securities issued by our overseas special purpose companies due to the deterioration of our results of operations and financial condition and/or the restrictions under the Company Law or due to the strengthening of bank capital regulations. For more information on restrictions to dividend payments under the Company Law, see “Item 10.B. Additional Information—Memorandum and Articles of Association.”

We may be adversely affected if economic or market conditions in Japan or elsewhere deteriorate.

We conduct business operations in Japan as well as overseas, including in the United States, Europe and Asia. If general economic conditions in Japan or other regions were to deteriorate or if the financial markets become subject to turmoil, we could experience weakness in our business, as well as deterioration in the quality of our assets. Future deterioration in general economic conditions or financial market turmoil could materially and adversely affect our financial condition and results of operations.

Amendments and other changes to the laws and regulations that are applicable to us could have an adverse effect on us.

We are subject to general laws, regulations and accounting rules applicable to our business activities in and outside of Japan. We are also subject to various laws and regulations applicable to financial institutions such as the Banking Law, including capital adequacy requirements, in and outside of Japan. If the laws and regulations that are applicable to us are amended or otherwise changed, such as in a way that restricts us from engaging in business activities that we currently conduct, our business, financial condition and results of operations could be materially and adversely affected.

Intensification of competition in the market for financial services in Japan could have an adverse effect on us.

Ongoing deregulation in Japan has lowered the barriers to entry with respect to the provision of banking, trust, securities and other financial services. While such deregulation has the effect of increasing our own business opportunities, it also allows other major financial groups, foreign financial institutions, non-bank finance companies, government-affiliated entities such as Japan Post Bank and other financial services providers to enter into new business areas or expand existing businesses, resulting in the intensification of competition in the financial services industry. If we are unable to respond effectively to current or future competition, our business, financial condition and results of operations could be adversely affected. In addition, intensifying competition and other factors could lead to reorganization within the financial services industry, and this could have an adverse effect on our competitive position or otherwise adversely affect the price of our securities.

Our business could be significantly disrupted due to natural disasters, accidents or other causes.

Our headquarters, branch offices, information technology centers, computer network connections and other facilities are subject to the risk of damage from natural disasters such as earthquakes and typhoons as well as from acts of terrorism and other criminal acts. In addition, our business could be materially disrupted as a result of an epidemic such as new or reemerging influenza infections. Our business, financial condition and results of operations could be adversely affected if our recovery efforts, including our implementation of contingency plans that we have developed such as establishing back-up offices, are not effective in preventing significant disruptions to our business operations caused by natural disasters and criminal acts. Additionally, massive natural disasters such as the March 2011 Great East Japan Earthquake may have various adverse effects, including a deterioration in economic conditions, declines in the business performance of many of our corporate customers

 

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and declines in stock prices. As a result, our financial condition and results of operations could be materially and adversely affected due to an increase in the amount of problem loans and credit-related costs as well as an increase in unrealized losses on, or losses from sales of, equity securities and financial products.

Negative rumors about us could have an adverse effect on us.

Our business depends on maintaining the trust of depositors and other customers and market participants. Negative rumors about us, spread through media coverage, communications between market participants, Internet postings or otherwise, could lead to our customers and market participants believing factually incorrect information about us and harm our reputation. In the event we are unable to dispel such rumors or otherwise restore our reputation, our business, financial condition, results of operations and the price of our securities could be materially and adversely affected.

Risks Related to Owning Our Shares

Rights of shareholders under Japanese law may be more limited than under the law of other jurisdictions.

Our articles of incorporation, our regulations of board of directors and Japan’s Company Law govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from or less clearly defined than those that would apply if we were incorporated in another jurisdiction. For example, under the Company Law, only holders of 3% or more of the total voting rights or total outstanding shares are entitled to examine our accounting books and records. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the law of jurisdictions within the United States or other countries. For more information on the rights of shareholders under Japanese law, see “Item 10.B. Additional Information—Memorandum and Articles of Association.”

It may not be possible for investors to effect service of process within the United States upon us or our directors, senior management or corporate auditors, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States.

We are a joint stock corporation incorporated under the laws of Japan. Almost all of our directors, senior management and corporate auditors reside outside the United States. Many of the assets of us and these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in the U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of claims predicated solely upon the federal securities laws of the United States.

Risks Related to Owning Our ADSs

As a holder of ADSs, you have fewer rights than a shareholder and you must act through the depositary to exercise these rights.

The rights of our shareholders under Japanese law to take actions such as voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its custodian, is the record holder of the shares underlying the ADSs, a holder of ADSs may not be entitled to the same rights as a shareholder. In your capacity as an ADS holder, you are not able to bring a derivative action, examine our accounting books and records or exercise appraisal rights, except through the depositary.

 

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Foreign exchange rate fluctuations may affect the U.S. dollar value of our ADSs and dividends payable to holders of our ADSs.

Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.

 

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ITEM 4. INFORMATION ON THE COMPANY

4.A. History and Development of the Company

The Mizuho Group

The Mizuho group was created on September 29, 2000 through the establishment of Mizuho Holdings, Inc. as a holding company of our three predecessor banks, The Dai-Ichi Kangyo Bank, The Fuji Bank and The Industrial Bank of Japan. On October 1, 2000, the respective securities subsidiaries of the predecessor banks merged to form Mizuho Securities Co., Ltd., and the respective trust bank subsidiaries merged on the same date to form Mizuho Trust & Banking.

A further major step in the Mizuho group’s development occurred in April 2002 when the operations of our three predecessor banks were realigned through a corporate split and merger process under Japanese law into a wholesale banking subsidiary, Mizuho Corporate Bank, and a banking subsidiary serving primarily retail and small and medium-sized enterprise customers, Pre-Merger Mizuho Bank. As an additional step for realigning the group structure, Mizuho Financial Group was established on January 8, 2003 as a corporation organized under the laws of Japan, and on March 12, 2003, it became the holding company for the Mizuho group through a stock-for-stock exchange with Mizuho Holdings, which became an intermediate holding company focused on management of the Mizuho group’s banking and securities businesses. The legal and commercial name of the company is Mizuho Financial Group, Inc.

In May 2003, we initiated a project to promote early corporate revitalization of customers in need of revitalization or restructuring and to separate the oversight of restructuring borrowers from the normal credit origination function. In July 2003, our three principal banking subsidiaries, Mizuho Corporate Bank, Pre-Merger Mizuho Bank and Mizuho Trust & Banking each transferred loans, equity securities and other claims outstanding relating to approximately 950 companies to new subsidiaries that they formed. In October 2005, based on the significant reduction in the balance of impaired loans held by these new subsidiaries, which we call the “revitalization subsidiaries,” we deemed the corporate revitalization project to be complete, and each of the revitalization subsidiaries was merged into its respective banking subsidiary parent.

In the fiscal year ended March 31, 2006, we realigned our entire business operations into a Global Corporate Group, Global Retail Group and Global Asset and Wealth Management Group. In October 2005, in connection with this realignment, we established Mizuho Private Wealth Management Co., Ltd., a private banking subsidiary, and converted Mizuho Holdings on October 1, 2005 from an intermediate holding company into Mizuho Financial Strategy Co., Ltd., an advisory company that provides advisory services to financial institutions.

In May 2009, Mizuho Securities and Shinko Securities Co., Ltd. conducted their merger, with the aim of improving our service-providing capabilities to our clients and to offer competitive cutting-edge financial services on a global basis.

In September 2011, Mizuho Trust & Banking became a wholly-owned subsidiary of Mizuho Financial Group, Mizuho Securities became an unlisted subsidiary of Mizuho Corporate Bank and Mizuho Investors Securities Co., Ltd. became a wholly-owned subsidiary of Pre-Merger Mizuho Bank, through their respective stock-for- stock exchanges. The purpose of these stock-for- stock exchanges is to further enhance the “group collective capabilities” by integrating group-wide business operations and optimizing management resources such as workforce and branch network.

In January 2013, Mizuho Securities and Mizuho Investors Securities merged in order to provide integrated securities services as the full-line securities company of the Mizuho group. Mizuho Securities aims to further strengthen collaboration among banking, trust banking and securities businesses of the group, expand the company’s customer base to enhance the domestic retail business, and rationalize and streamline management infrastructure.

 

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In April 2013, we turned Mizuho Securities, a consolidated subsidiary of Mizuho Financial Group, into a directly-held subsidiary of Mizuho Financial Group, whereby we moved to a new group capital structure, placing banking, trust banking, securities and other major group companies under the direct control of the holding company.

In July 2013, Pre-Merger Mizuho Bank and Mizuho Corporate Bank merged, and Mizuho Corporate Bank, the surviving company, changed its trade name to Mizuho Bank, Ltd. The purpose of the merger is to become able to provide directly and promptly diverse and functional financial services to both Pre-Merger Mizuho Bank and Mizuho Corporate Bank customers, utilizing the current “strengths” and “advantages” of Pre-Merger Mizuho Bank and Mizuho Corporate Bank, and to continue to improve customer services by further enhancing group collaboration among the banking, trust and securities functions and, at the same time, to realize further enhancement of the consolidation of group-wide business operations and optimization of management resources, such as workforce and branch network, by strengthening group governance and improving group management efficiency.

Principal Capital Expenditures and Divestitures

Since 2007, Pre-Merger Mizuho Bank has been purchasing common stock of Credit Saison from time to time, in furtherance of our aim to promote the alliance with Credit Saison. Pre-Merger Mizuho Bank and Mizuho Corporate Bank together owned 13.36% of the total outstanding shares of common stock of Credit Saison as of March 31, 2013.

Other Information

Our registered address is 5-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8333, Japan, and our telephone number is 81-3-5224-1111.

4.B. Business Overview

General

We engage in banking, trust banking, securities and other businesses related to financial services.

Banking Business: Mizuho Bank

Mizuho Bank provides a wide range of financial products and services mainly in relation to deposits, lending and exchange settlement to individuals, SMEs, large corporations, financial institutions, public sector entities and foreign corporations, including foreign subsidiaries of Japanese corporations. We maintain one of the largest branch and ATM networks in Japan and a broad range of Internet banking services. We also maintain a comprehensive office network which covers major cities worldwide.

Banking Business

Mizuho Bank provides a wide range of financial products and services to individual and corporate customers:

 

   

Deposits; ordinary deposits, time deposits, foreign currency deposits, etc.

 

   

Lending; loans for working capital or capital expenditure of corporate customers, initiatives for strategic financial raising such as syndicated loans, housing loans and card loans for individual customers, etc.

 

   

Domestic exchange settlement; exchange for remittance, credit to current accounts, money collection services, etc.

 

   

Foreign exchange transaction services; various foreign exchange services relating to international transactions such as imports, exports and foreign remittance, etc.

 

   

Other financial products and services

 

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Trust Banking Business: Mizuho Trust & Banking

Mizuho Trust & Banking is a trust bank that provides individual and corporate customers with financial services utilizing trusts. We provide our customers with distinct products and services developed based on our specialized expertise, consulting capabilities and abundant know-how cultivated over the years. We meet our customers’ needs by unifying the banking, trust banking and securities functions of the Mizuho group and aim to “become our customers’ medium- to long-term partner of choice by differentiating ourselves through the provision of trust and asset management services that will be valued by our customers, utilizing the full strength of our group.”

Asset Management Business

We provide mainly corporate customers with a wide range of services and solutions in the following business areas:

 

   

real estate business, including real estate sales agent services and real estate securitizations;

 

   

structured product business, including securitization transactions that utilize trusts;

 

   

asset management business relating to various assets, including pension plans;

 

   

pension plan business, including acting as trustee, providing consulting services, actuarial services and administration services;

 

   

asset administration business, including trustee services for investment trusts and management and administration of investments in securities; and

 

   

equity strategy business, including acting as a stock transfer agent and providing advice on practical issues related to stock.

Wealth Management Business

We provide primarily individual customers with the following services related to wealth management:

 

   

consulting services regarding investment and management of customer assets;

 

   

businesses relating to the asset inheritance such as testamentary trusts;

 

   

consulting services regarding apartment leasing business, providing apartment loans, etc.;

 

   

deposits, investment trusts and other investment products that utilize trusts; and

 

   

real estate business such as brokerage of housing sales and land development.

Others

We provide deposit and loan services to our corporate customers and engage in treasury business.

Securities Business: Mizuho Securities

Mizuho Securities, as the general securities company and investment bank of our group, closely collaborates with Mizuho Bank, Mizuho Trust & Banking and other group companies and aims “to provide growth capital through markets and contribute to the economic growth of Japan, Asia and the world through sound development of markets as a participant of financial and capital markets,” and “to become a company that supports its customers to build up their assets and enhance their corporate value, and shares the joy with them.”

We provide one-stop financial services to customers by providing financial services at joint branches of Mizuho Securities and Mizuho Bank (called “Planet Booth”) as well as engaging in the financial products brokerage business with Mizuho Bank and the trust agency business with Mizuho Trust & Banking.

 

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Investment Banking Business

We provide comprehensive support for customers in establishing their management strategies and financing by engaging in businesses related to equity underwriting, support for initial public offerings, investor relations consulting and provision of solutions such as advisory services for financial and capital strategies in addition to the bond underwriting and structured finance businesses, regarding which we obtained the position of market leader in Japan, and the mergers and acquisitions and financial advisory business, regarding which we established a top-class market presence in Japan.

In addition, with an aim to provide advanced solutions in banking and securities business, we have also introduced a double-hat structure with Mizuho Bank and meet our customers’ needs by unifying the banking, trust banking and securities functions of the Mizuho group.

Product Development and Sales Business

In the product development and sales business, we mainly engage in sales and trading of stocks and bonds, research and funds (investment trusts) and offer value-added product solutions by providing quality information in a timely manner in response to the various investment needs of domestic and overseas customers. We focus on globally integrating our business by utilizing our network of overseas subsidiaries.

Other business related to financial services

We provide other financial services through major group companies.

Trust & Custody Services Bank

Trust & Custody Services Bank, Ltd., as a trust bank specialized in asset administration, provides a wide range of products, including trust services and various custody services, to promptly meet the diversifying needs of customers such as financial institutions and institutional investors.

Mizuho Asset Management & DIAM

Mizuho Asset Management Co., Ltd. and DIAM Co., Ltd. (an equity method affiliate of ours), provide quality products and services for our group companies and customers that reflect their respective strengths. Each company offers a variety of investment trust products that meet the increasingly sophisticated and diverse needs of our customers.

Mizuho Research Institute

Mizuho Research Institute Ltd. offers information and services mainly to corporations, financial institutions and public sector entities to meet their increasingly diverse and sophisticated needs by integrating its research, funded research and membership services that provide various information related to, among others, managerial and economic issues.

Mizuho Information & Research Institute

Mizuho Information & Research Institute, Inc. mainly provides our corporate customers with the following three services:

 

   

system integration services;

 

   

outsourcing services that support the operation of information technology systems of our customers; and

 

   

consulting services related to, among others, environmental issues.

We provide customers with a combination of the above services to meet their respective needs.

 

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Mizuho Financial Strategy

Mizuho Financial Strategy engages in advisory services for financial institutions regarding their management and revitalization of their borrowers.

Mizuho Private Wealth Management

Mizuho Private Wealth Management offers consulting services tailored to the needs of its ultra high net worth customers. These services range from consulting on customers’ financial needs, such as wealth management, arranging for business and assets succession and related services to advice on customers’ individual matters, including health of the customers themselves and family members and children’s education.

We were established ahead of other major Japanese financial groups under a financial holding company structure in September 2000. Since an internal reorganization in April 2002, we have strived to enhance our profitability by providing customers with quality financial services through mutual cooperation among our legally separate group companies based on customer segments and functions centered on the holding company.

In the fiscal year ended March 31, 2013, being the final year of the Mizuho’s Transformation Program, the Medium-term Management Policy, which started in May 2010, the Mizuho group has been making steady progress in the three initiatives: “Improving Profitability,” “Enhancing the Financial Base” and “Strengthening Front-line Business Capabilities” in order to realize the “strengthening of the Group’s competitive advantage,” the “strengthening of the Group’s capital base and improvement of asset efficiency” and the “strengthening of the Group’s front-line business capabilities through improving efficiency and optimization.” Consequently, we achieved all of the target figures in relation to “profitability,” “efficiency” and “soundness,” including consolidated net income, expense ratio and capital adequacy ratio, except for the reduction target of our stock portfolio. Regarding our stock portfolio, we reduced our portfolio by ¥491.3 billion on an acquisition cost basis, taking into account declines in book value due to impairments, or approximately ¥786.0 billion, including the portion of our stock portfolio for which we received customer’s consent to sell, which represents an achievement ratio of approximately 80% of our target of ¥1 trillion.

We launched our substantive one bank structure in April 2012 and implemented initiatives to realize synergy effects preemptively and promptly in advance of the merger of Pre-Merger Mizuho Bank and Mizuho Corporate Bank, which was completed in July 2013.

By completing a single bank and single securities structure through the merger of our securities subsidiaries in January 2013 and the merger of Pre-Merger Mizuho Bank and Mizuho Corporate Bank in July 2013, we are strengthening group cooperation among banking, trust banking, securities and other business areas. As well as aiming to maximize group profitability, this will enable us to provide a wide range of seamless financial services to our customers in a direct and timely manner.

Based on the benefits and challenges emerging through these actions and in response to structural and regulatory changes in the economy and society in both Japan and overseas, we have formulated a new medium–term business plan for the three years from fiscal year 2013. This proactive business plan has been named the “One MIZUHO New Frontier Plan—Stepping up to the Next Challenge—,” and it aims to launch the new Mizuho toward the “new frontier” of the next generation of finance.

We will (i) move to a new, advanced group management structure, which includes the single bank and single securities structure, (ii) develop a new corporate identity as part of our initiatives to form a common corporate culture throughout the group, and (iii) position the One MIZUHO New Frontier Plan as one of the three pillars of our new group strategy. By doing this, we will further advance our business model toward the new frontier of finance.

 

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“One MIZUHO New Frontier Plan:—Stepping up to the Next Challenge—”

We commenced our new medium-term business plan for the three years from the fiscal year ending March 31, 2014. We named this proactive business plan the “One MIZUHO New Frontier Plan—Stepping up to the Next Challenge—,” and it aims to launch the new Mizuho toward the “new frontier” of the next generation of finance, in response to structural and regulatory changes in the economy and society both in Japan and overseas. As part of this plan, we have developed five basic policies reflecting Mizuho’s vision for our future, the necessary elements for the new frontier of finance, and our future direction based on an analysis of our current situation, and also, adding more detail to these five basic policies, we have developed ten basic strategies in terms of business strategy and management foundations as follows:

Mizuho’s Vision

As well as establishing a new, common corporate identity (further details below) for the group as part of our actions toward forming a new, common corporate culture as we push forward toward the new Mizuho as a unified group, we have developed the following vision for our future as part of our new corporate identity, and we have set the same vision for our medium-term business plan:

The most trusted financial services group with a global presence and a broad customer base, contributing to the prosperity of the world, Asia, and Japan.

 

   

The most trusted financial services group

 

   

The best financial services provider

 

   

The most cohesive financial services group

Five Basic Policies

Based on Mizuho’s vision, the necessary elements for the new frontier of finance, and our future direction based on an analysis of Mizuho’s current situation, we have developed the following five basic policies as part of the medium-term business plan:

 

   

Further develop integrated strategies across the group for each customer segment to respond to the diverse needs of our customers.

 

   

Contribute to sustainable development of the world and Japan by proactively responding to change.

 

   

Mizuho Means Asia: accelerate globalizations.

 

   

Build strong financial and management foundations to support the essence of Mizuho.

 

   

Form strong corporate governance and culture in the spirit of One MIZUHO.

Ten Basic Strategies

Adding more detail to the five basic policies under the medium-term business plan, we have also developed ten basic strategies in terms of business strategy and management foundations as follows:

Business Strategy

 

   

Strengthen integrated financial services by unifying banking, trust banking and securities functions to respond to finely delineated corporate and personal banking segments.

 

   

Perform consulting functions taking advantage of our industry and business knowledge and forward-looking perspective.

 

   

Support formation of personal financial assets in Japan and invigorate their investment.

 

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Strengthen proactive risk-taking functions for growth industries and corporations.

 

   

Strengthen and expand Asia-related business in Japan and on a global basis.

 

   

Cultivate multi-level transactions by capturing the accelerating global capital and trade flows.

Business Management, Management Foundations, etc.

 

   

Strengthen stable financial foundations based on abundant liquidity and appropriate capital levels.

 

   

Establish the optimal management foundations (human resources and business infrastructure) to support business strategy.

 

   

Further strengthen proactive governance and risk management.

 

   

Embed the new Mizuho corporate identity toward forming a common culture throughout the group and take actions toward being the best financial services provider.

Advanced Group Management Structure

In April 2013, we turned Mizuho Securities, which had been a consolidated subsidiary of Mizuho Financial Group, into a directly- held subsidiary of Mizuho Financial Group, and moved to a new group capital structure which places banking, trust banking, securities and other major group companies under the direct control of the holding company. Also, in July 2013, Pre-Merger Mizuho Bank and Mizuho Corporate Bank conducted their merger.

Further, from April 2013, for the purpose of promoting timely and unified group strategic planning under the strong governance of the holding company, in addition to the strengthening of group governance, we moved to a new group operational structure. Specifically, the executive officers in charge of corporate planning and management at the holding company have been serving in four-way concurrent positions at Mizuho Financial Group, Mizuho Bank, Mizuho Trust & Banking and Mizuho Securities, and also, we have clarified their positioning as the group chief officers. In addition, the holding company established ten business units and head-office coordination division to determine strategies and initiatives across the group-wide banking, trust banking, securities and other business areas based on the ten business units across Pre-Merger Mizuho Bank and Mizuho Corporate Bank under the substantive one bank structure. For further information about ten business units, See “Group Operations.”

We also established at the holding company five group strategy conferences concerning the strategies for retail (personal), wholesale (corporate), international (overseas), asset management, and markets as forums to comprehensively deliberate on important matters in terms of group business strategy among units. With the establishment of these strategy conferences, the existing three global groups were abolished.

New Mizuho Corporate Identity

As part of our actions toward establishing a common group culture, we have established a new Mizuho corporate identity to push forward toward the new, unified Mizuho. The new Mizuho corporate identity consists of the following components: “Corporate Philosophy: Mizuho’s fundamental approach to business activities,” “Vision: Mizuho’s vision for the Future” and “The Mizuho Values: The shared values and principles of Mizuho’s people.”

Brand Strategy

We have reviewed our brand strategy from the perspective of building the optimal brand for the new Mizuho based on the move to our advanced group management structure and establishment of Mizuho’s corporate identity. We will change our brand slogan from “Channel to Discovery” to “One MIZUHO: Building the future with you.”

 

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Group Operations

New Group Operational Structure

As shown below, we moved to a new group operational structure under which we will be able to determine strategy and initiatives and formulate business plans corresponding to each unit responsible for business strategy promotion across group-wide banking, trust banking, securities and other business areas. We established ten business units to determine strategy and initiatives across group-wide banking, trust banking, securities and other business areas based on the ten business units across Pre-Merger Mizuho Bank and Mizuho Corporate Bank under the substantive one bank structure.

Personal Banking Unit

The Personal Banking Unit provides products and services to individuals.

In the asset management business area, we provide a range of financial products such as investment trusts and individual insurance products to meet our customers’ needs.

We also handle trust products at Mizuho Bank branches and Mizuho Securities branches as agents of Mizuho Trust & Banking and provide trust-oriented services such as testimony trust and real estate related services by setting up “Trust Lounge” in Mizuho Bank branches. We have 167 of Mizuho Securities “Planet Booths,” which are located in the branches and offices of Mizuho Bank as of March 31, 2013, and we respond to our customers’ needs relating to securities products.

With respect to loan business, we offer various products and services such as “Flat 35,” a housing loan product with a fixed interest rate for a maximum of 35 years offered in cooperation with and securitized by the Japan Housing Finance Agency, in addition to our own housing loan products. Also, we provide “Captive Loans” in cooperation with Orient Corporation and aim to improve customer convenience of “Mizuho Bank Card Loans.”

In addition to expanding our staffed branches throughout Japan (Mizuho Bank: 429, Mizuho Trust & Banking: 52, Mizuho Securities: 299 as of March 31, 2013) and our ATM network, we are enhancing our Internet banking services and strengthening marketing by call centers.

We provide executives and employees of our corporate customers with products and services such as opening new deposit accounts for salaries upon employment, housing loans and asset management services for retirement allowances, etc.

We undertake the business related to lottery tickets, such as, the sales of lottery tickets issued by prefectures and government-ordinance-designated cities.

Retail Banking Unit

The Retail Banking Unit provides products and services mainly to business owners, land owners, lease holders, and SMEs.

We aim to be a “Long-term Business Partner” of our customers in relation to both corporate and individual matters by providing comprehensive consulting services of business and assets inheritance and asset management for business owners, landowners and lease holders, and by providing overall banking services for SMEs.

In addition, we stably supply customers with ample funds while securing appropriate levels of interest rates in accordance with their risks, through concentrating our overall lending operations for small-scale companies in Mizuho Business Financial Center, a subsidiary that specializes in making loans.

 

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Corporate Banking Unit (Large Corporations)

The Corporate Banking Unit (Large Corporations) engages in relationship management for large corporations and their affiliates in Japan.

By integrating the group’s specialty functions, including banking, trust banking and securities, and based on our solid relationship with our domestic customers and utilizing our global industry knowledge, we offer a full range of financial solutions on a global basis to meet our customers’ needs in fund-raising, management and financial strategies.

Mizuho Bank and Mizuho Securities have introduced the double-hat structure in several offices in Japan. Mizuho Bank and Mizuho Securities collaborate globally to implement our securities strategy on a global basis and to provide our customers solutions based on their capital management, business strategy and financial strategy.

Mizuho Bank and Mizuho Trust & Banking together provide solutions in relation to real estate (regarding which we have a leading track record in Japan), pension, securitization of assets, securities management, stock transfer agent, consulting, etc., to our customers’ diversified needs for investment and asset reduction.

Further, we are proactively providing risk money to develop next-generation industries and growth industries.

Corporate Banking Unit

The Corporate Banking Unit provides products and services mainly to relatively larger SMEs (quasi listed companies).

We implement our consulting functions through unifying banking, trust banking and securities functions. We provide a range of solution businesses in accordance with the growth strategy of our corporate customers: we provide solutions for stable fund-raising, mergers and acquisitions and initial public offerings for customers in their start-up or growth stages, and management buy-out, business inheritance, entry to new business and business restructuring for customers in mature or transition stages.

With an aim to provide financial services together with sophisticated advisory that are appropriate in light of the customers’ business strategies, we respond to customers’ needs through various solution businesses such as offering syndicated loans targeted at SMEs, advisory services related to overseas expansions, mergers and acquisitions-related services, business matching services. On top of this, we develop financial products brokerage business and strengthen the initiatives to enhance customer base for trustee business for defined contribution pension plans and support for start-up companies in cooperation with Mizuho Capital Co., Ltd.

Financial Institutions & Public Sector Business Unit

The Financial Institutions & Public Sector Business Unit provides products and services mainly to financial institutions and central and local governments.

For financial institution customers in Japan, we offer advisory services and solutions, such as advice on financial strategy and risk management, support for overseas business, support for revitalization of regional economies, and proposals on various investment products, by concentrating our various financial expertise from each group company to meet the increasingly sophisticated and varied needs of customers.

For public sector entities, we provide comprehensive financial services that include funding support via the subscription and underwriting of public bonds, cooperation between the public and private sectors, i.e., services as a designated financial institution, PFI and PPP, and arrangement of syndicated loans.

 

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Regarding our bond-related businesses, with our extensive experience and track record as a leading bank in this area, we support our customers’ financing needs by underwriting bonds issued by public sector entities and working as the commissioned bank or fiscal agent for bonds issued by corporations, financial institutions and public sector entities.

International Banking Unit

The International Banking Unit is responsible for business with non-Japanese companies and Japanese companies that conduct business overseas.

In this business area, we provide unified support both in Japan and overseas for our Japanese corporate customers to expand their overseas operations. We do this by providing highly specialized services that use our advanced financial technologies and expertise. Particularly in the Asia region, we support Japanese corporate customers in connection with their entry into these markets by offering advisory and other services. We also actively promote business with non-Japanese corporate customers in various countries through our global network.

Further, we actively implement initiatives to meet the diverse needs of our overseas customers in product areas such as project finance and trade finance.

We are expanding our overseas office network to strengthen our overseas support framework for our customers.

In April 2012, Mizuho Corporate Bank established a representative office in Yangon in Myanmar. Myanmar has been attracting increasing world attention due to its remarkable economic growth even compared to others within the Greater Mekong Sub-region in recent years. In addition, we expanded the range of businesses that we are able to handle at the Yangon Representative Office in January 2013, on the back of the steady increase in customers considering entering the Myanmar market or expanding their businesses there.

In April 2013, Mizuho Corporate Bank opened its Bangalore-Devanahalli Branch, which is the third branch for us in India, following our branches in Mumbai and New Delhi. This is also the first branch for a Japanese Bank in the Bangalore area. Further, in January 2013, Mizuho Corporate Bank received formal approval from the local authorities to open a branch in Chennai. We are expanding our branch network in India to be able to provide a range of banking services near our customers operating there.

In January 2013, Mizuho Corporate Bank (China), Ltd., a wholly-owned subsidiary of Mizuho Corporate Bank, opened sub-branches in the Heping Distinct of Tianjin City and in Kunshan City in China. Further, Mizuho Corporate Bank (China) has obtained formal approval from the local authorities to prepare for opening of a branch in Hefei City in China.

We will continue to strengthen our overseas support framework through actions such as providing local information and supplementing services by forming business alliances with government-affiliated organizations and local financial institutions mainly in emerging nations where Japanese corporations are considering expanding their businesses.

Investment Banking Unit

The Investment Banking Unit provides sophisticated financial solutions mainly in the business areas of M&A, real estate, securitization, natural resource/infrastructure/energy and fund-raising support. We are responding to the needs of our broad customer base such as multi-national companies and SMEs by unifying banking, trust banking and securities functions, whereby, we aim to maximize customers’ satisfaction.

 

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In the M&A business, with an aim to increase the corporate value of our customers, we offer sophisticated M&A solutions mainly in relation to support for M&A strategies, such as cross-border M&A, business inheritance and going private transactions.

In the real estate business, we, by taking full advantage of our knowledge and skills of real estate-related project developed through the various deals we have arranged over the years, offer the best solutions such as various financing methods by use of their real estate and real estate-related investment strategies.

In the securitization business, by arranging customers’ asset securitization, we satisfy their demands such as diversification of fund-raising sources and improvement of financial indices through removing assets from their balance sheet.

In the natural resource/infrastructure/energy business, we provide various financial products and services such as project finance deals that enable the procurement of long-term capital for natural resource development abroad, the building of electric power generation projects and the construction of public infrastructure, support for promoting the wider use of renewable energy and arrangement of PFI/PPP deals for financing transportation and other types of public infrastructure.

In the business area of support for fund-raising, we proactively provide a wide variety of fund-raising-related solutions in the syndicated loan market, debt capital markets and equity capital markets.

We are further expanding our range of services through cooperation with our group companies, including Mizuho Corporate Advisory Co., Ltd. and Mizuho Capital Partners Co., Ltd.

Transaction Banking Unit

The Transaction Banking Unit engages in businesses related to domestic exchange settlement, foreign exchange, cash management, trade finance, yen correspondence settlement custody and stock transfer agent services.

Mainly to corporate customers, we offer various financial services and products such as Internet banking, cash management solutions, Renminbi-denominated services and trade finance on a global basis.

For financial institution and institutional investors, we provide custody and yen correspondence settlement services. In particular, we maintain a strong market position regarding our local custody services for non-Japanese residents.

With respect to trust banking business, we proactively engage in global custody services and securities agent services.

We meet our customers’ needs by unifying banking, trust banking and securities functions.

Asset Management Unit

The Asset Management Unit provides products and services that correspond to the needs of a broad customer base ranging from individuals to institutional investors by unification of banking, trust banking and securities functions as well as the businesses of our asset management group companies through the synergy effects arising from the integrated operation of the planning, development and sales of businesses relating to the asset management.

In the pension related business, we provide comprehensive pension proposals that include services and products related to defined contribution as well as defined benefit pension plans to meet the needs of customers by collaborating with asset management group companies such as Mizuho Asset Management, DIAM and Shinko Asset Management Co., Ltd. in promoting the business.

 

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In the alternative investment business, we provide our customers with the most relevant products by collaborating with our group companies, including Mizuho Alternative Investments, LLC in the United States, Mizuho Global Alternative Investments, Ltd. in Tokyo, which selects and introduces hedge funds, etc., and Eurekahedge Pte, LTD. in Singapore, which is our subsidiary providing hedge fund research and data services.

In addition, we develop global financial products by collaborating with BlackRock. Inc.

Market Unit

The Market Unit engages in the business of sales and trading of financial products related to, among others, interest rates, foreign exchange, commodities and credit, as well as investments in interest rates, equities, credit, etc.

We offer customers that have extensive overseas operations a range of market services through a network covering international financial centers such as Tokyo, London, New York, Singapore, Hong Kong, Bangkok, Seoul, Taipei and Shanghai. Moreover, we have systems for offering timely services under favorable conditions, including 24-hours market-making capabilities relating to foreign exchange services.

We continue to enhance our portfolio management and diversify our investments to make our portfolio more sound and profitable.

Competition

During the past several years, competition in the Japanese financial market has increased as the Japanese government has enhanced deregulation, such as reducing the separation of banking, securities and insurance businesses and promoting new entry into the financial businesses.

Our major competitors in Japan include:

 

   

Japan’s other major banking groups: Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group.

 

   

Other banking institutions: These include city banks, trust banks, regional banks, shinkin banks (or credit associations), credit cooperatives, agricultural cooperatives, foreign banks and retail-oriented online banks.

 

   

Securities companies and investment banks: These include both domestic securities companies and the Japanese affiliates of global investment banks.

 

   

Government financial institutions: These include Japan Finance Corporation, Japan Post Bank, Development Bank of Japan and Japan Bank for International Cooperation.

 

   

Non-bank finance companies: These include credit card issuers, installment shopping credit companies and other non-bank finance companies.

 

   

Other financial services providers: We also compete with private equity funds and other types of investors.

In global markets, we face competition with other commercial banks and other financial institutions, particularly major global banks and the leading local banks in those financial markets outside Japan in which we conduct business.

Japanese Banking and Securities Industry

Private banking institutions in Japan are normally classified into two categories (the following numbers are based on information published by the Financial Services Agency, available as of July 1, 2013): (i) ordinary banks, of which there were 125 not including foreign commercial banks with banking operations in Japan; and (ii) trust banks, of which there were 16, including Japanese subsidiaries of foreign financial institutions and subsidiaries of Japanese financial institutions.

 

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Ordinary banks consist mainly of city banks and regional banks. City banks, including Mizuho Bank, are based in large cities, operate domestically on a nation-wide scale through networks of branch offices and have strong links with large corporate customers in Japan. In light of deregulation and other competitive factors, however, many of these banks have placed increasing emphasis on other markets, including retail banking, small and medium-sized enterprise banking, international operations and investment banking. Regional banks are based in one of the prefectures of Japan and are generally much smaller in terms of total assets than city banks. In recent years, some regional banks have allied with each other and formed holding companies to operate in several prefectures. Customers of regional banks, other than local retail customers, include mostly regional enterprises and local public utilities, although regional banks also lend to large corporations. In addition to these types of banks, new retail-oriented banks have emerged in recent years, including Internet banks and banks specializing in placing their ATMs in convenience stores and supermarkets without maintaining a branch network.

Trust banks, including Mizuho Trust & Banking, are engaged in trust services in relation to, among others, money trust, pension trust and real estate trust services, in addition to banking business.

As of July 1, 2013, there were 57 foreign banks operating banking businesses in Japan. These banks are subject to a statutory framework similar to the regulations applicable to Japanese domestic banks. Their principal sources of funds come from their overseas head offices or other branches.

A number of government financial institutions, organized in order to supplement the activities of the private banking institutions, have been in the process of business and organizational restructuring in recent years. In October 2008, some of the government financial institutions were consolidated to form Japan Finance Corporation, which mainly provides financing for small and medium-sized enterprises and those engaged in agriculture, forestry and fishery, and also provides export financing for Japanese corporations. In October 2008, Development Bank of Japan, which mainly engages in corporate financing, and Shoko Chukin Bank, which mainly engages in financing for small and medium-sized enterprises, were transformed into joint stock corporations. Japan Housing Finance Agency supports housing loans of private institutions through the securitization of such loans.

In April 2012, Japan Bank for International Cooperation, which provides policy-based finance with a mission to contribute to the sound development of Japan and the international economy and society, was spun off from Japan Finance Corporation and was established as a joint stock company wholly owned by the Japanese government.

Another distinctive element of the Japanese banking system is the role of the postal savings system. Postal savings deposits are gathered through the network of governmental post offices scattered throughout Japan, and their balance of deposits totaled over 200 trillion yen in the past. In recent years, the governmental postal business has been in the process of organizational restructuring. In 2003, the governmental postal business was transferred to Japan Post, a government-owned entity established in the same year, and in 2007, Japan Post was transformed into a government-owned joint stock corporation holding four operating companies including Japan Post Bank, which currently operates as an ordinary bank. Privatization of the banking and insurance subsidiaries, which was originally planned to be completed by 2017, was suspended in December 2009. In April 2012, a law was enacted under which Japan Post was retransformed into a joint stock corporation holding three operating companies in October 2012, and the deadline of the privatization of banking and insurance subsidiaries was abolished and replaced with a statement that the privatization is to be conducted in the near future.

In the Japanese securities market, a large number of registered entities are engaged in securities businesses, such as sales and underwriting of securities, investment advisory and investment management services. As deregulation of the securities market progressed, several of the country’s banking groups have entered into this market through their subsidiaries. In addition, foreign financial institutions have been active in this market.

 

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Supervision and Regulation

Japan

Pursuant to the Banking Law (Ginkou Hou) (Law No. 59 of 1981, as amended), the Prime Minister of Japan has authority to supervise banks in Japan and delegates certain supervisory control over banks in Japan to the Commissioner of the Financial Services Agency. The Bank of Japan also has supervisory authority over banks in Japan, based primarily on its contractual agreements and transactions with the banks.

Financial Services Agency

Although the Prime Minister has supervisory authority over banks in Japan, except for matters prescribed by government order, this authority is generally entrusted to the Commissioner of the Financial Services Agency. Additionally, the position of Minister for Financial Services was established by the Cabinet to direct the Commissioner of the Financial Services Agency and to support the Prime Minister.

Under the Banking Law, the Prime Minister’s authority over banks and bank holding companies in Japan extends to various areas, including granting and cancellation of licenses, ordering the suspension of business in whole or in part and requiring submission of business reports or materials. Under the prompt corrective action system, the Financial Services Agency, acting on behalf of the Prime Minister, may take corrective action in the case of capital deterioration of banks, their subsidiaries and companies having special relationships prescribed by the cabinet order. These actions include requiring a financial institution to formulate and implement reform measures, requiring it to reduce assets or take other specific actions and issuing an order to suspend all or part of its business operations.

Under the prompt warning system introduced in December 2002, the Financial Services Agency may take precautionary measures to maintain and promote the sound operations of financial institutions, even before those financial institutions become subject to the prompt corrective action system. These measures require a financial institution to reform profitability, credit risk management, stability and cash flow.

The Bank of Japan

The Bank of Japan is Japan’s central bank and serves as the principal instrument for the execution of Japan’s monetary policy. The principal measures by which the Bank of Japan implements monetary policy are the adjustment of its discount rate, its operations in the open market and the imposition of deposit reserve requirements. Banks in Japan are allowed to obtain borrowings from, and rediscount bills with, the Bank of Japan. Moreover, most banks in Japan maintain current accounts under agreements with the Bank of Japan pursuant to which the Bank of Japan is entitled to supervise, examine and audit the banks. The supervisory functions of the Bank of Japan are intended to enable it to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of an orderly financial system, whereas the supervisory practices of the Prime Minister or the Commissioner of the Financial Services Agency are intended to maintain the sound operations of banks and promote the security of depositors.

Examination of Banks

The Banking Law authorizes the Prime Minister to inspect banks and bank holding companies in Japan at any time. By evaluating banks’ systems of self-assessment, auditing their accounts and reviewing their compliance with laws and regulations, the Financial Services Agency monitors the financial soundness of banks, including the status and performance of their control systems for business activities. The inspection of banks is performed pursuant to a Financial Inspection Manual published by the Financial Services Agency. Currently, the Financial Services Agency takes the “better regulation” approach in its financial regulation and supervision. This consists of four pillars: optimal combination of rules-based and principles-based supervisory approaches; timely recognition of priority issues and effective response; encouraging voluntary efforts by financial institutions and placing greater emphasis on providing them with incentives; and improving the transparency and predictability of

 

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regulatory actions, in pursuit of improvement of the quality of financial regulation and supervision. In addition to individual financial institutions, the Financial Services Agency also supervises financial groups as financial conglomerates based on its Guidelines for Financial Conglomerates Supervision that focus on management, financial soundness and operational appropriateness of a financial conglomerate as a whole.

The Bank of Japan also conducts examinations of banks similar to those undertaken by the Financial Services Agency. The examinations are normally conducted once every few years, and involve such matters as examining asset quality, risk management and reliability of operations. Through these examinations, the Bank of Japan seeks to identify problems at an early stage and give corrective guidance where necessary.

In addition, the Securities and Exchange Surveillance Commission examines banks in connection with their financial instruments business activities in accordance with the Financial Instruments and Exchange Law of Japan (Kinyu Shouhin Torihiki Hou) (Law No. 25 of 1948, as amended).

Examination and Reporting Applicable to Shareholders

Under the Banking Law, a person who intends to hold 20% (in certain exceptional cases, 15%) or more of the voting rights of a bank is required to obtain prior approval of the Commissioner of the Financial Services Agency. In addition, the Financial Services Agency may request reports or submission of materials from, or inspect, any principal shareholder who holds 20% (in certain exceptional cases, 15%) or more of the voting rights of a bank, if necessary in order to secure the sound and appropriate operation of the business of such bank. Under limited circumstances, the Financial Services Agency may order such principal shareholder to take such measures as the Financial Services Agency deems necessary.

Furthermore, under the Banking Law, any person who becomes a holder of more than 5% of the voting rights of a bank holding company or bank must report its ownership of voting rights to the director of the relevant local finance bureau within five business days. In addition, a similar report must be made in respect of any subsequent change of 1% or more in any previously reported holding or any change in material matters set forth in reports previously filed, with some exceptions.

Deposit Insurance System

Under the Deposit Insurance Law (Yokin Hoken Hou) (Law No. 34 of 1971, as amended), depositors are protected through the Deposit Insurance Corporation in cases where financial institutions fail to meet their obligations. The Deposit Insurance Corporation is supervised by the Prime Minister and the Minister of Finance. Subject to limited exceptions, the Prime Minister’s authority is entrusted to the Commissioner of the Financial Services Agency.

The Deposit Insurance Corporation receives annual insurance premiums from insured banks, the amount of which is, from April 2010, equivalent to 0.107% of the amount of deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes, and 0.082% of the amount of other deposits. However, for the fiscal year ended March 31, 2013, because there were no insured bank failures, the insurance premium rate of 0.089% for deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes and the insurance premium rate of 0.068% for other deposits were applied retroactively from the beginning of such fiscal year, and the amount paid in excess of such rates was reimbursed to insured banks without interest.

The insurance money may be paid out in case of a suspension of deposits repayments, banking license revocation, dissolution or bankruptcy of the bank. Pay outs are generally limited to a maximum of ¥10 million of principal amount, together with any interest accrued with respect to each depositor. Only non-interest bearing deposits, redeemable on demand and used by depositors primarily for payment and settlement functions are protected in full.

 

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Participation in the deposit insurance system is compulsory for city banks (including Mizuho Bank), regional banks, long-term credit banks, trust banks (including Mizuho Trust & Banking), credit associations and co-operatives, labor banks and other financial institutions.

Governmental Measures to Treat Troubled Institutions

Under the Deposit Insurance Law, a Financial Reorganization Administrator can be appointed by the Prime Minister if the bank is unable to fully perform its obligations with its assets or may suspend or has suspended repayment of deposits. The Financial Reorganization Administrator will take control of the assets of the bank, dispose of the assets and search for another institution willing to take over its business. Its business may also be transferred to a “bridge bank” established by the Deposit Insurance Corporation for the purpose of the temporary maintenance and continuation of operations of these types of institutions, and the bridge bank will seek to transfer the bank’s assets to another financial institution or dissolve the bank. The financial aid provided by the Deposit Insurance Corporation to assist another financial institution with succeeding the failed bank’s business may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debts, subscription of preferred stock, or subordinated bonds, lending of subordinated loan, or loss sharing.

Where the Prime Minister recognizes that the failure of a bank which falls into any of (i) through (iii) below may cause an extremely grave problem in maintaining the financial order in Japan or the region where such bank is operating (“systemic risk”), without taking any of the measures described in (i) through (iii) below, the Prime Minister may determine to take any of the following measures, after the deliberation at the Financial Crisis Management Meeting: (i) if the bank does not fall into either of the banks described in (ii) or (iii), the Deposit Insurance Corporation may subscribe for shares or subordinated bonds of, or lend subordinated loans to the bank, or subscribe for shares of the bank holding company of the bank, in order to enhance capital adequacy of the bank; (ii) if the bank may suspend or has suspended repayment of deposits or is unable to fully perform its obligations with its assets, financial aid exceeding the pay-off cost may be available to such bank; and (iii) if the bank may suspend or has suspended repayment of deposits and is unable to fully perform its obligations with its assets, and the systemic risk cannot be avoided by the measure mentioned in (ii) above, the Deposit Insurance Corporation may acquire all of the bank’s shares. The expenses for implementation of the above measures will be borne by the bank industry, with an exception under which the Government of Japan may provide partial subsidies for such expenses.

New orderly and effective resolution regimes for financial institutions have been discussed internationally and “Key Attributes of Effective Resolution Regimes for Financial Institutions” was published by the Financial Stability Board in November 2011 and endorsed by the G20 leaders at the Cannes summit held in November 2011. Reflecting this global trend, by certain amendments to the Deposit Insurance Law (the “Amended Deposit Insurance Law”) that were promulgated in June 2013 and are scheduled to become effective before March 2014, a new resolution regime will be introduced in Japan.

Although the further details of the new resolution regime will require implementing ordinances which have not yet been published, under the new resolution regime stipulated in the amendments to Deposit Insurance Law, financial institutions including banks, insurance companies and securities companies and their holding companies will be subject to the regime.

Further, under the new resolution regime, among other things, (i) where the Prime Minister recognizes that the failure of a financial institution which falls into either of (a) or (b) below may cause significant disruption in the financial markets or other financial systems in Japan without taking any of the measures described in (a) (specified item 1 measures)(tokutei dai ichigo sochi) or the measures described in (b) (specified item 2 measures)(tokutei dai nigo sochi), the Prime Minister may make determination (specified determination)(tokutei nintei) to take any of the following measures, after the deliberation at the Financial Crisis Management Meeting; (a) if the financial institution does not fall into a financial institution which is unable to fully perform its obligations with its assets, the Deposit Insurance Corporation shall supervise the operation of the business of and

 

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the management and disposal of assets of that financial institution (tokubetsu kanshi), and may provide it with loans or guarantees necessary to avoid the risk of significant disruption in the financial systems in Japan (shikin no kashitsuke nado), or subscribe for shares or subordinated bonds of, or lend subordinated loans to the financial institutions (tokutei kabushiki nado no hikiuke nado), in each case to be taken as necessary taking into consideration of the financial conditions of the financial institution; and (b) if the financial institution is or is likely to be unable to fully perform its obligations with its assets or has suspended or is likely to suspend repayment of its obligations, the Deposit Insurance Corporation shall supervise that financial institution (tokubetsu kanshi), and may provide financial aid necessary to assist merger, business transfer, corporate split or other reorganization in respect to such failed financial institution (tokutei shikin enjo); and (ii) the Prime Minister must make determinations as to the capital treatment of the preferred shares, subordinated bonds or loans issued or entered into by such financial institution, prior to making determination that it is necessary to take the measures set out in (i)(a) or (b) above (but limited only to cases as set forth in implementing ordinances to established pursuant to the Amended Deposit Insurance Law). The expenses for implementation of the measures under this regime will be borne by the financial industry, with an exception under which the Government of Japan may provide partial subsidies for such expenses. If a measure set out in (i)(b) above is determined to be taken with respect to a financial institution, the Prime Minister may order that the financial institution’s operation and assets be under the control of the Deposit Insurance Corporation. The business or liabilities of the financial institution subject to the supervision (tokubetsu kanshi) by the Deposit Insurance Corporation as set forth above may also be transferred to a “bridge bank” established by the Deposit Insurance Corporation for the purpose of the temporary maintenance and continuation of operations of, or repayment of the liabilities of, such financial institutions, and the bridge bank will seek to transfer the bank’s business or liabilities to another financial institution or dissolve the bank. The financial aid provided by the Deposit Insurance Corporation to assist merger, business transfer, corporate split or other reorganization in respect to the financial institution set out in (i)(b) may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debts, subscription of preferred stock or subordinated bonds, lending of subordinated loan, or loss sharing.

Recovery and Resolution Plan

In November 2012, the Financial Stability Board published the latest list of global systemically important financial institutions (G-SIFIs). The list is annually updated by the Financial Stability Board each November, and the list as of November 2012 includes us. A recovery and resolution plan must be put in place for each G-SIFI, and be regularly reviewed and updated. In Japan, under the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc., as part of crisis management, financial institutions identified as G-SIFIs must prepare and submit a recovery plan, which includes the triggers to implement the recovery plan and an analysis of recovery options, to the Financial Services Agency, and the Financial Services Agency must prepare a resolution plan for each G-SIFI.

Capital Injection by the Government

The Strengthening Financial Functions Law (Kinyu Kinou no Kyouka no tame no Tokubetsu Sochi ni kansuru Houritsu) (Law No. 128 of 2004) was enacted on June 18, 2004 in order to establish a scheme of public money injection into financial institutions and thereby enhance the soundness of such financial institutions on or prior to March 31, 2008 and revitalize economic activities in the regions where they do business. On December 17, 2008, certain amendments to the Strengthening Financial Functions Law took effect. These amendments relaxed certain requirements for public money injection into Japanese banks and bank holding companies and other financial institutions under the prior scheme and extended the period of application therefor, which had expired on March 31, 2008, to March 31, 2012. These amendments aim to promote not only the soundness of such financial institutions but also the extension of loans or other forms of credit to small and medium-sized enterprises in order to revitalize local economies. In response to the Great East Japan Earthquake, the law was amended in June 2011 to extend the period for application to March 31, 2017 and to include special exceptions for disaster-affected financial institutions. None of the financial institutions within the Mizuho group are subject to such special exceptions.

 

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Bank Holding Companies

Under the Banking Law, a bank holding company is prohibited from carrying out businesses other than administrating the businesses of its subsidiaries and matters incidental to such businesses. Business activities for subsidiaries of bank holding companies are limited to finance-related businesses and incidental businesses.

The Anti-Monopoly Law (Shiteki Dokusen no Kinshi oyobi Kousei Torihiki no Kakuho ni kansuru Houritsu) (Law No. 54 of 1947, as amended) prohibits a bank from holding more than 5% of another company’s voting rights. This does not apply to a bank holding company, although the bank holding company is subject to general shareholding restrictions under the Anti-Monopoly Law. The Banking Law does, however, prohibit a bank holding company and its subsidiaries, on an aggregate basis, from holding more than 15% (in contrast to 5% in the case of a bank and its subsidiaries) of the voting rights of certain types of companies not permitted to become subsidiaries of bank holding companies.

Financial Instruments and Exchange Law

The Financial Instruments and Exchange Law (Kinyu Shouhin Torihiki Hou) requires Mizuho Financial Group to file with the Director General of the Kanto Local Finance Bureau an annual securities report including consolidated and non-consolidated financial statements in respect of each financial period, supplemented by quarterly and extraordinary reports.

Under the Financial Instruments and Exchange Law, registered Financial Instruments Business Operators (kinyu-shouhin torihiki gyousha), such as Mizuho Securities, as well as Registered Financial Institutions (touroku kinyu kikan), such as Mizuho Bank and Mizuho Trust & Banking, are required to provide customers with detailed disclosure regarding the financial products they offer and take other measures to protect investors, including a delivery of explanatory documents to such customers prior to and upon the conclusion of transactional agreements.

Financial Instrument Business Operators and Registered Financial Institutions are subject to the supervision of the Financial Services Agency pursuant to delegation by the Prime Minister of Japan. Some of the supervisory authority of the Financial Services Agency is further delegated to the Securities and Exchange Surveillance Commission, which exercises its supervisory power over such registered institutions by conducting site inspections and requesting information necessary for such inspections. Non-compliance or interference with such inspection may result in such registrants being subject to criminal penalty under the Financial Instruments and Exchange Law.

Certain amendments to the Financial Instruments and Exchange Law and the Banking Law, which came into effect on June 1, 2009, revamped the firewall regulations regarding the holding of concurrent offices or posts among banks, securities firms and insurance firms and required banks, securities firms and insurance firms to establish systems for managing conflicts of interest in order to protect customers’ interests and expanded the types of business services that banks and certain other financial firms can provide.

Sales of Financial Products

As a result of financial deregulation, more financial products, including highly structured and complicated products, can now be more freely marketed to customers. In response to this, the Law of Sales of Financial Products (Kinyu Shouhin no Hanbai tou ni kansuru Houritsu) (Law No. 101 of 2000, as amended), effective from April 2001, introduced measures to protect financial service customers by: requiring financial service providers to provide customers with certain important information, including risks with respect to deficit of principal associated with the financial products they offer and any restrictions on the period for exercising rights or the period for rescission, unless the customers fall within the ambit of professional investors or express their intent to the contrary; and holding financial service providers liable for damages caused by a failure to follow those requirements. The amount of loss of principal is refutably presumed to be the amount of damages. Additionally, the law requires financial service providers to follow certain regulations on solicitation measures as well as to endeavor to solicit customers in an appropriate manner and formulate and publicize a solicitation policy.

 

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Self-Assessment and Reserves

The prompt corrective action system requires financial institutions to establish a self-assessment program that complies with the Inspection Manual issued by the Financial Services Agency and related laws such as the Financial Reconstruction Law (Kinyu Kinou no Saisei no tameno Kinkyu Sochi ni kansuru Houritsu) (Law No. 132 of 1998, as amended). Financial institutions are required to analyze their assets, giving due consideration to accounting principles and other applicable rules and to classify their assets into four categories according to asset recovery risk and risk of impairment based on the classification of the obligor (normal obligors, watch obligors, intensive control obligors, substantially bankrupt obligors and bankrupt obligors) taking into account the likelihood of repayment and the risk of impairment to the value of the assets. The results of self-assessment should be reflected in the write-off and allowance according to the standard established by financial institutions pursuant to the guidelines issued by the Japanese Institute of Certified Public Accountants and Inspection Manual issued by the Financial Services Agency. Based on the results of the self-assessment, financial institutions may establish reserve amounts for their loan portfolio as may be considered adequate at the relevant balance sheet date, even if all or part of such reserves may not be immediately tax deductible under Japanese tax law.

Based on the accounting standards for banks issued by the Japanese Bankers Association, a bank is required to establish general reserves, specific reserves and reserves for probable losses on loans relating to restructuring countries.

Credit Limits

The Banking Law restricts the aggregate amount of loans to any single customer or customer group for the purposes of avoiding excessive concentration of credit risks and promoting the fair and extensive utilization of bank credit. The limits applicable to a bank holding company and bank with respect to their aggregate lending to any single customer or customer group are established by a cabinet order and by the Banking Law. The current limits are, in case of a single customer, 25%, and in case of a customer group, 40% of the total qualifying capital with certain adjustments of the bank holding company or bank and its subsidiaries and affiliates. In April 2013, the Financial Services Agency announced that the current credit limit restrictions will be tightened in line with the international standards, by, among other things, reducing the credit limit applicable to a customer group from 40% to 25% of the total qualifying capital with certain adjustments of the bank holding company or bank and its subsidiaries and affiliates. The amended credit limit restrictions are expected to be implemented by December, 2014.

Restriction on Shareholdings

The Law Concerning Restriction on Shareholdings by Banks (Ginkou tou no Kabushiki tou no Hoyu no Seigen tou ni kansuru Houritsu) (Law No. 131 of 2001, as amended) requires Japanese banks (including bank holding companies) and their subsidiaries to limit the aggregate market value (excluding unrealized gains, if any) of their holdings in equity securities to an amount equal to 100% of their Tier 1 capital in order to reduce exposure to stock price fluctuations.

Share Purchase Program

The Banks’ Shareholdings Purchase Corporation was established in January 2002 in order to purchase shares from banks and other financial institutions until September 30, 2006 pursuant to the Law Concerning Restriction on Shareholdings by Banks. Bank’s Shareholdings Purchase Corporation is allowed to resume purchases of shares held by financial institutions as well as shares of financial institutions held by non-financial institutions, up to a maximum amount of ¥20 trillion between March 12, 2009 and March 31, 2017. The Bank’s Shareholdings Purchase Corporation purchased ¥907.4 billion of shares during the period from March 12, 2009 through May 31, 2013. The Bank’s Shareholdings Purchase Corporation will dispose of the purchased shares by March 31, 2027 by taking into consideration the effects on the stock market.

 

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The Bank of Japan also purchased ¥387.8 billion of shares held by banks and other financial institutions during the period from February 23, 2009 through April 30, 2010. The Bank of Japan generally will not sell the purchased shares until March 31, 2014. The Bank of Japan will dispose of the purchased shares by September 30, 2019 by taking into consideration the effects on the stock market.

Capital Adequacy

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 and are intended to further strengthen the soundness and stability of Japanese banks. Under the risk-based capital framework of these guidelines, balance sheet assets and off-balance-sheet exposures are assessed according to broad categories of relative risk, based primarily on the credit risk of the counterparty, country transfer risk and the risk regarding the category of transactions.

In December, 2010, the Basel Committee on Banking Supervision issued its Basel III rules text, which builds on the International Convergence of Capital Measurement and Capital Standards document (“Basel II”), to strengthen the regulation, supervision, and risk management of the banking sector. Basel III text presents the details of global regulatory standards on bank capital adequacy and liquidity. The rules text sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the build up of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. For further information of the two global liquidity standards, see “Liquidity” below.

The Financial Services Agency’s revisions to its capital adequacy guidelines became effective from March 31, 2013, which generally reflect rules in the Basel III text that have been applied from January 1, 2013.

Under the revised guidelines, the minimum capital adequacy ratio is 8% on both a consolidated and non-consolidated basis for banks with international operations, such as Mizuho Bank, or on a consolidated basis for bank holding companies with international operations, such as Mizuho Financial Group. Within the minimum capital adequacy ratio, the Common Equity Tier 1 capital requirement is 3.5%, which will be raised in phases to 4.5% when fully effective in March 2015, and the Tier 1 capital requirement is 4.5%, which will be raised in phases to 6% when fully effective in March 2015.

Japanese banks with only domestic operations and bank holding companies the subsidiaries of which operate only within Japan are subject to Japanese capital adequacy requirements that are similar to those discussed above, except that those banks and bank holding companies are required to have a minimum capital adequacy ratio of 4%, at least half of which must consist of Tier 1 capital, and are not required to apply capital charges to their market risks. Under the revised capital adequacy guidelines that will be applied from March 31, 2014, those banks and bank holding companies will be required to have a minimum Core Capital of 4%, and will become required to apply capital charges to their market risks as in the case of banks with international operations.

Under the revised capital adequacy guidelines based on the Basel III rules that have been applied to banks and bank holding companies each with international operations from March 31, 2013, there are regulatory adjustments such as goodwill and other intangibles, deferred tax assets, investments in the capital of banking, financial and insurance entities etc. shall be deducted under certain conditions for the purpose of calculating capital adequacy ratios, and the requirements of regulatory adjustments were enhanced under the revised capital adequacy guidelines. For example, under the capital adequacy guidelines prior to the revision thereto under the Basel III rules, the maximum amount of net deferred tax assets under Japanese GAAP that major Japanese banks, including bank holding companies, could record without diminishing the amount of Tier 1 capital for purposes of calculating capital adequacy ratio was 20% of Tier 1 capital. Under the revised capital adequacy guidelines based on the Basel III rules, deferred tax assets that arise from temporary differences will be recognized as part of Common Equity Tier 1 capital, with recognition capped at 10% of Common Equity Tier 1 capital under certain

 

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conditions, while other deferred tax assets, such as those relating to net loss carryforwards, will be deducted in full from Common Equity Tier 1 capital net of deferred tax liabilities. These regulatory adjustments based on the Basel III rules will begin at 20% of the required deductions in the calculation of Common Equity Tier 1 capital in March 2014 and will be increased by 20% increments per year through March 2018 when the regulatory adjustments reach 100%.

The revised capital adequacy guidelines related to other requirements under the Basel III rules, such as the capital conservation buffer, have not yet been published.

Under the capital adequacy guidelines, banks and bank holding companies are required to measure and apply capital charges with respect to their credit risks, market risks and operational risks.

Under the guidelines, banks and bank holding companies have several choices for the methodologies to calculate their capital requirements for credit risk, market risk and operational risk. Approval of the Financial Services Agency is necessary to adopt advanced methodologies for calculation, and Mizuho Financial Group started to apply the AIRB approach for the calculation of credit risk from the fiscal year ended March 31, 2009 and also apply the AMA for the calculation of operational risk from September 30, 2009.

For further information of the Capital Adequacy, see “Item 5. Operating and Financial Review and Prospects—Capital Adequacy—Regulatory Capital Requirements.”

Liquidity

Two minimum standards for funding liquidity will be introduced. The liquidity coverage ratio (“LCR”) is intended to promote resilience to potential liquidity disruptions over a thirty-day horizon and help ensure that global banks have sufficient, unencumbered, high-quality liquid assets (“HQLA”) to offset the net cash outflows it could encounter under an acute short-term stress scenario. The Group of Governors and Heads of Supervision agreed on a revised LCR standard on January 6, 2013, and the Basel Committee on Banking Supervision issued the text of the revised LCR standard on January 7, 2013. In accordance with the revised LCR standard, the stock of unencumbered HQLA is to comprise “Level 1” assets, which include cash, central bank reserves and certain marketable securities backed by sovereigns and central banks, and “Level 2” assets, which include certain government securities, covered bonds, corporate debt securities and, to a limited extent, lower-rated corporate bonds, residential mortgage-backed securities and equities that meet certain conditions. “Level 2” assets will be subject to certain haircuts based on types of securities and credit ratings. The revised LCR standard is subject to phase-in arrangements pursuant to which the LCR is to be introduced on January 1, 2015 with a minimum requirement of 60%, rising in equal annual steps of 10 percentage points to reach 100% on January 1, 2019. The net stable funding ratio (“NSFR”) requires a minimum amount of stable sources of funding at a bank relative to the liquidity profiles of the assets, as well as the potential for contingent liquidity needs arising from off-balance sheet commitments, over a one-year horizon. A minimum standard for NSFR, including any revision, will be introduced in January 2018. The Basel Committee on Banking Supervision will put in place rigorous reporting processes to monitor the ratios during the observation period that began in 2011.

Protection of Personal Information

The Personal Information Protection Law (Kojin Jouhou no Hogo ni kansuru Houritsu) (Law No. 57 of 2003, as amended) and related guidelines impose various requirements on businesses, including us, that use databases containing personal information, such as appropriate custody of such information and restrictions on information sharing with third parties. Non-compliance with the order issued by the Financial Services Agency to take necessary measures to comply with the law will subject us to criminal and/or administrative sanctions.

Prevention of Money Laundering

Under the Law Preventing Transfer of Profits Generated from Crime (Hanzai ni yoru Syueki no Iten Boushi ni kansuru Houritsu) (Law No. 22 of 2007, as amended), which addresses money laundering and terrorism

 

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concerns, financial institutions and other entities such as credit card companies are required to perform customer identification, submit suspicious transaction reports and maintain records of transactions. Certain amendments to the law became effective in April 2013, which tightened, among other things, customer identification requirements.

Law Concerning Protection of Depositors from Illegal Withdrawals Made by Forged or Stolen Cards

The Law Concerning Protection of Depositors from Illegal Withdrawals Made by Forged or Stolen Cards (Gizou Kaado tou oyobi Tounan Kaado tou wo Mochiite Okonawareru Fuseina Kikaishiki Yochokin Haraimodoshi tou karano Yochokinsha no Hogo tou ni kansuru Houritsu) (Law No. 94 of 2005, as amended) requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits using forged or stolen bank cards. The law also requires financial institutions, among other matters, to compensate depositors for any amount illegally withdrawn using forged bankcards, unless the financial institution can verify that it acted in good faith without negligence and that there was gross negligence on the part of the relevant account holder.

United States

As a result of our operations in the United States, we are subject to extensive U.S. federal and state supervision and regulation. We engage in U.S. banking activities through Mizuho Bank’s New York, Chicago and Los Angeles branches and Houston and Atlanta representative offices. We also own one bank in the United States, Mizuho Corporate Bank (USA), as well as controlling interests in several other subsidiaries, including Mizuho Trust & Banking Co. (USA), which is engaged primarily in the trust and custody business, and Mizuho Securities USA Inc., a U.S. broker dealer engaged in the securities business.

The USA PATRIOT Act of 2001 (the “PATRIOT Act”) contains measures to prevent, detect and prosecute terrorism and international money laundering by imposing significant compliance and due diligence obligations, creating new crimes and penalties and expanding the extraterritorial jurisdiction of the United States. The enactment of the PATRIOT Act and other events have resulted in heightened scrutiny of compliance with the Bank Secrecy Act and anti-money laundering rules by federal and state regulatory and law enforcement authorities.

Mizuho Financial Group and Mizuho Bank are financial holding companies (“FHCs”), and Mizuho Trust & Banking is a bank holding company, within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHCA”), and are subject to regulation and supervision thereunder by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). As a matter of law, these three companies are expected to act as a source of financial strength to Mizuho Bank (USA) and Mizuho Trust & Banking Co. (USA). The BHCA generally prohibits us from acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting shares of any company engaged in the United States in activities other than banking or activities that are financial in nature or incidental or complementary to financial activity. This general prohibition is subject to certain exceptions, including an exception that permits us to acquire up to 100% of the voting interests in any company engaged in nonfinancial activities under our merchant banking authority. In addition, U.S. regulatory approval is generally required for us to acquire more than 5% of any class of voting shares of a U.S. bank, savings association or bank holding company.

Mizuho Financial Group and Mizuho Corporate Bank, now Mizuho Bank, became FHCs in December 2006. FHC status under the BHCA permits banking groups in the United States to engage in comprehensive investment banking businesses, such as the underwriting of and dealing in corporate bonds, equities and other types of securities. FHC status enables our group to promote our investment banking business on a broader basis in the United States.

As a financial holding company, we are also subject to additional regulatory requirements. For example, we and each of our U.S. insured depository institution subsidiaries with operations in the United States must be “well capitalized,” meaning a Tier 1 risk-based capital ratio of at least 6% and a total risk-based capital ratio of

 

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at least 10%. We and each of our U.S. insured depository institution subsidiaries must also be “well managed,” including that they maintain examination ratings that are at least satisfactory. Further, Mizuho Financial Group and Mizuho Bank must also meet such capital standards as calculated under its home country standards (which must be comparable to the capital required for a U.S. bank) and must be well managed under standards comparable to those required for a U.S. bank. Failure to comply with such requirements would require us to prepare a remediation plan, and we would not be able to undertake new business activities or acquisitions based on our status as a financial holding company during any period of noncompliance without the prior approval of the Federal Reserve Board, and divestiture or termination of certain business activities, or termination of our U.S. branches and agencies, may be required as a consequence of failing to correct such conditions within 180 days.

U.S. branches, agencies and representative offices of foreign banks must be licensed, and are also supervised and regulated, by either a state banking authority or by the Office of the Comptroller of the Currency, the federal bank regulatory agency that charters and regulates national banks and federal branches and agencies of foreign banks. Each branch and representative office in the United States of Mizuho Bank is state-licensed. Under U.S. federal banking laws, state-licensed branches and agencies of foreign banks may engage only in activities that would be permissible for their federally-licensed counterparts, unless the Federal Reserve Board determines that the additional activity is consistent with sound practices. U.S. federal banking laws also subject state-licensed branches and agencies to the single-borrower lending limits that apply to federal branches and agencies, which generally are the same as the lending limits applicable to national banks, but are based on the capital of the entire foreign bank.

The New York branch of Mizuho Bank is subject to supervision, examination and regulation by the New York State Department of Financial Services as well as by the Federal Reserve Board. Except for a prohibition on such branch accepting retail deposits, a state-licensed branch generally has the same powers as a state-chartered bank in such state. New York State has an asset pledge requirement for branches equal to the greater of 1% of average total liabilities for the previous month or $2 million, provided that an institution designated as a “well-rated foreign banking corporation” is permitted to maintain a reduced asset pledge with a cap of $100 million. The New York State Department of Financial Services may require higher amounts for supervisory reasons. Each U.S. branch and representative office of Mizuho Bank is subject to regulation and examination by the state banking authority of the state in which it is located.

The deposits of Mizuho Corporate Bank (USA) are insured by the Federal Deposit Insurance Corporation (FDIC), and it is a state-chartered bank that is a member of the Federal Reserve System. As such, Mizuho Corporate Bank (USA) is subject to regulation, supervision and examination by the Federal Reserve Board and the New York State Department of Financial Services, as well as to relevant FDIC regulation.

The deposits of Mizuho Trust & Banking Co. (USA) are also FDIC-insured, and it is a state-chartered bank and trust company that is not a member of the Federal Reserve System. As such, Mizuho Trust & Banking Co. (USA) is subject to regulation, supervision and examination by the FDIC and the New York State Department of Financial Services.

In the United States, U.S.-registered broker-dealers are regulated by the U.S. Securities and Exchange Commission (the “SEC”). As a U.S.-registered broker-dealer, Mizuho Securities USA is subject to regulations that cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure, recordkeeping, the financing of customers’ purchases and the conduct of directors, officers and employees.

In the United States, comprehensive financial regulatory reform legislation, titled the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”), was signed into law by President Obama on July 21, 2010. Among other things, the Dodd-Frank Act directs the federal banking regulators to establish minimum leverage and risk-based capital requirements for insured depository institutions and depository institution holding companies.

 

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The Dodd-Frank Act provides regulators with tools to impose greater capital, leverage and liquidity requirements and other prudential standards, particularly for financial institutions that pose significant systemic risk and bank holding companies with greater than $50 billion in consolidated assets. In imposing such heightened prudential standards on foreign banking organizations such as Mizuho Bank, the Federal Reserve Board is directed to take into account the principle of national treatment and equality of competitive opportunity, and the extent to which the foreign bank holding organization is subject to comparable home country standards. On December 14, 2012, the Federal Reserve Board proposed regulations that would impose enhanced prudential standards on the foreign banking organization it supervises, such as Mizuho Bank, and would extend in some aspects to the foreign banking organizations’ parent companies, such as us. In particular, under the proposal, the U.S. branches of foreign banking organizations would also be subject to liquidity, single counterparty credit limits and, in certain circumstances, asset maintenance requirements. In addition, we may be required to create a separately capitalized top-tier U.S. intermediate holding company (“IHC”) that would hold all of its U.S. subsidiaries and be subject to certain capital, liquidity and other enhanced prudential standards on an IHC consolidated basis.

Under the so-called “Volcker Rule” provisions of the Dodd-Frank Act, insured depository institutions; insured depository institution holding companies; non-U.S. banks with branches in the United States, such as Mizuho Bank; and affiliates and subsidiaries of such entities (collectively, “banking entities”) will be prohibited from engaging in proprietary trading or from investing in or sponsoring private equity or hedge funds, subject to certain limited exceptions. The Volcker Rule became effective on July 21, 2012, kicking off a two-year conformance period. Banking entities are expected to bring their activities and investments into compliance by July 21, 2014, absent an extension by the Federal Reserve Board. The Volcker Rule is highly complex and many aspects remain unclear, and the U.S. banking and financial agencies are expected to issue final implementing regulations in 2013. Accordingly, the full impact of the Volcker Rule on our business will not be known with certainty until final regulations have been adopted.

The Dodd-Frank Act also provides an extensive framework for the regulation of over-the-counter (“OTC”) derivatives, including mandatory clearing and transaction reporting of certain OTC derivatives. In addition, entities that are swap dealers, security-based swap dealers, major swap participants, or major security-based swap participants are required to register with the SEC or the U.S. Commodity Futures Trading Commission (the “CFTC”), or both, and comply with capital, margin, business conduct, recordkeeping, and other requirements applicable to such entities. Under the so-called swap “push-out” provisions of the Dodd-Frank Act, the derivatives activities of U.S. banks and U.S. branch offices of foreign banks will be restricted, which may necessitate changes to how we conduct our derivatives activities. On June 5, 2013, the Federal Reserve Board approved an interim final rule clarifying the treatment of uninsured U.S. branches and agencies of foreign banks under this “push-out” provision. The interim final rule clarified that uninsured U.S. branches and agencies of foreign banks will be treated as insured depository institutions with respect to this “push-out” provision, including eligibility for a transition period of up to 24 months to comply and for certain statutory exceptions. The interim final rule is effective as of June 5, 2013.

The CFTC and SEC have not yet finalized many of the regulations under the Dodd-Frank Act relating to OTC derivatives, including regulations and guidance with respect to the extraterritorial application of many provisions. As a result, the effects of such unfinalized provisions could vary depending on the final rules and guidance adopted.

Mizuho Capital Markets Corporation and Mizuho Securities USA are registered with the CFTC as swap dealers as a result of their swap activities with US persons. As a result, Mizuho Capital Markets Corporation and Mizuho Securities USA are subject to certain entity-level and transaction-level regulation by the CFTC, including with respect to recordkeeping, reporting, risk management, clearing, trade execution, and internal and external business conduct standards, and will become subject to additional regulations under the Dodd-Frank Act as such regulations go into effect in 2013 or following adoption of additional applicable regulations by the CFTC and/or SEC.

 

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Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“Section 219”) added Section 13(r) to the U.S. Securities Exchange Act of 1934, requiring each SEC reporting issuer to disclose in its annual and, if applicable, quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities, transactions or dealings relating to Iran or with the Government of Iran or certain designated persons or entities involved in terrorism or the proliferation of weapons of mass destruction during the period covered by such filing. Section 219 requires disclosure even of certain activities not prohibited by U.S. or other law and even if such activities were conducted outside the United States by non-U.S. affiliates in compliance with local law.

Our affiliate Mizuho Bank (including when operating as Mizuho Corporate Bank prior to its merger with the Pre-merger Mizuho Bank) is our only affiliate to have engaged in activity that is relevant for this purpose. Mizuho Bank maintains compliance policies and procedures to conform its operations to all applicable economic sanctions laws and regulations, and has dedicated substantial resources to this effort. In that context, and only after confirming that such transactions did not involve prohibited or sanctionable activity under U.S. or other economic sanctions, non-U.S. branches of Mizuho Bank, which at the time was named Mizuho Corporate Bank, engaged in a limited number of activities reportable under Section 219 during the period covered by this annual report, as described below. No U.S. branches of Mizuho Bank were involved in any of these activities.

Legacy Guarantees and Loan Obligations

During the period covered by this disclosure, Mizuho Bank was party to three legacy counter guarantees that were opened in connection with activities of its customers for the benefit of Iranian banks. When such guarantees were entered into, the banks in question had not been designated under U.S. Executive Orders (“E.O.”) 13224 or 13382, although they were subsequently so designated. Mizuho Bank maintained these guarantees post-designation only after confirming that such transactions did not involve prohibited or sanctionable activity under U.S. or other economic sanctions and after obtaining licenses issued by Japan’s Ministry of Finance where necessary. As contractual obligations, these guarantees cannot be exited by Mizuho Bank unilaterally until there is full performance under the contract that is supported by the counter guarantees. In the fiscal year ended March 31, 2013, Mizuho Bank received fees of approximately $8,000 attributable to these guarantees and net profits of less than that amount. Mizuho Bank cancelled one of these counter guarantees during the fiscal year ended March 31, 2013 and continues to seek to terminate the remaining two. Mizuho Bank has no intention to enter into any further similar guarantees.

In addition, Mizuho Bank acted as an administrative agent under a syndicated loan extended to an Iranian bank that was later designated under E.O. 13382. Mizuho Bank transferred a repayment from this Iranian bank in the fiscal year ended March 31, 2013, in accordance with applicable laws and regulations. The loan expired in 2013 upon repayment of the debt and its transfer to the lender. Mizuho Bank also acted as a sub-participant in another syndicated loan extended to an Iranian petrochemical company owned by the Government of Iran but not designated under E.O. 13224 and 13382. The loan expired in 2012 upon repayment of the debt in accordance with applicable laws and regulations. During the fiscal year ended March 31, 2013, Mizuho Bank received gross revenue of approximately $3,000 and net profits of less than that amount attributable to these syndicated loans. Mizuho Bank does not intend to enter into any further similar loans.

Activities through Correspondent Banking Accounts

In the fiscal year ended March 31, 2013, Mizuho Bank conducted a limited number of transfers through accounts it maintains for or at a limited number of Iranian banks designated under E.O. 13224 or 13382 and a limited number of other banks related to the Government of Iran. Mizuho Bank processed these transfers only after confirming that such transactions did not involve prohibited or sanctionable activity under U.S. or other economic sanctions and obtaining licenses issued by Japan’s Ministry of Finance where necessary. Estimated gross revenue to Mizuho Bank in the fiscal year ended March 31, 2013 attributable to this activity was approximately $2,000, with the net profit of less than that amount. Mizuho Bank will continue processing

 

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transfers through these accounts only under the limited circumstances where the transfer would conform to Mizuho Bank’s compliance policies and procedures, applicable international sanctions laws, and after obtaining a license issued by Japan’s Ministry of Finance where necessary.

Other Jurisdictions

Our operations elsewhere in the world are subject to regulation and control by local supervisory authorities, including local central banks.

4.C. Organizational Structure

The following diagram shows our basic corporate structure as of March 31, 2013:

 

LOGO

 

Notes:

 

(1) Mizuho Securities and Mizuho Investors Securities which belonged to the Global Corporate Group and the Global Retail Group respectively, merged in January 2013. The new Mizuho Securities belongs to both the Global Corporate Group and the Global Retail Group.
(2) Two asset management companies consist of Mizuho Asset Management and DIAM. DIAM, in which we have a 50.0% equity interest, is an equity-method affiliate of ours.

Beginning on April 1, 2013, we moved to a new group operational structure and established ten business units such as personal banking unit, retail banking unit, corporate banking unit, etc., and head-office coordination divisions to determine strategies and initiatives across the group-wide banking, trust banking, securities and other business areas, based on the ten business units across Pre-Merger Mizuho Bank and Mizuho Corporate Bank under the “substantive one bank” structure, and the existing three global groups were abolished.

In February 2013, we announced that Pre-Merger Mizuho Bank and Mizuho Corporate Bank signed a merger agreement, and on July 1, 2013, we conducted the merger.

 

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The following table sets forth information with respect to our principal consolidated subsidiaries as of March 31, 2013:

 

Name

   Country of
organization
  

Main business

   Proportion of
ownership
interest
(%)
    Proportion of
voting
interest
(%)
 

Domestic

          

Mizuho Bank, Ltd.(1)

   Japan   

Banking

     100.0     100.0

Mizuho Corporate Bank, Ltd.(1)

   Japan   

Banking

     100.0        100.0   

Mizuho Securities Co., Ltd.

   Japan   

Securities

     95.8        95.8   

Mizuho Trust & Banking Co., Ltd.

   Japan   

Trust and banking

     100.0        100.0   

Trust & Custody Services Bank, Ltd.

   Japan   

Trust and banking

     54.0        54.0   

Mizuho Asset Management Co., Ltd.

   Japan   

Investment management

     98.7        98.7   

Mizuho Research Institute Ltd.

   Japan   

Research and consulting

     98.6        98.6   

Mizuho Information & Research Institute, Inc.

  

Japan

  

Information technology

  

 

91.5

  

 

 

91.5

  

Mizuho Financial Strategy Co., Ltd.

   Japan   

Consulting

     100.0        100.0   

Mizuho Private Wealth Management Co., Ltd.

   Japan   

Consulting

     100.0        100.0   

Mizuho Factors, Limited

   Japan   

Factoring

     100.0        100.0   

Mizuho Credit Guarantee Co., Ltd.

   Japan   

Credit guarantee

     100.0        100.0   

Mizuho Capital Co., Ltd.

   Japan   

Venture capital

     50.0        50.0   

Defined Contribution Plan Services Co., Ltd.

  

Japan

  

Pension plan-related business

  

 

60.0

  

 

 

60.0

  

Overseas

          

Mizuho Bank (Switzerland) Ltd

   Switzerland   

Trust and banking

     100.0        100.0   

Mizuho Capital Markets Corporation

   U.S.A.   

Derivatives

     100.0        100.0   

Mizuho Corporate Bank (China), Ltd.

   China   

Banking

     100.0        100.0   

Mizuho Corporate Bank (USA)

   U.S.A.   

Banking

     100.0        100.0   

Mizuho Corporate Bank Nederland N.V.

  

Netherlands

  

Banking and securities

  

 

100.0

  

 

 

100.0

  

Mizuho International plc

   U.K.   

Securities and banking

     100.0        100.0   

Mizuho Securities USA Inc.

   U.S.A.   

Securities

     100.0        100.0   

Mizuho Trust & Banking (Luxembourg) S.A.

   Luxembourg   

Trust and banking

     100.0        100.0   

Mizuho Trust & Banking Co. (USA)

   U.S.A.   

Trust and banking

     100.0        100.0   

PT. Bank Mizuho Indonesia

   Indonesia   

Banking

     99.0        99.0   

 

Note:

 

(1) In February 2013, we announced that Pre-Merger Mizuho Bank and Mizuho Corporate Bank signed a merger agreement, and on July 1, 2013, we conducted the merger.

 

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4.D. Property, Plant and Equipment

The following table shows the breakdown of our premises and equipment at cost as of March 31, 2012 and 2013:

 

     At March 31,  
     2012      2013  
     (in millions of yen)  

Land

   ¥ 271,083       ¥ 268,948   

Buildings

     735,188         743,473   

Equipment and furniture

     480,068         418,647   

Leasehold improvements

     89,200         90,306   

Construction in progress

     11,575         23,875   

Software

     668,448         657,702   
  

 

 

    

 

 

 

Total

     2,255,562         2,202,951   

Less: Accumulated depreciation and amortization

     1,150,693         1,110,962   
  

 

 

    

 

 

 

Premises and equipment—net

   ¥ 1,104,869       ¥ 1,091,989   
  

 

 

    

 

 

 

Our head office is located at 5-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan with 14,134 square meters of office space. The headquarter buildings of Mizuho Financial Group, Mizuho Corporate Bank and Pre-Merger Mizuho Bank are each leased from third parties.

The total area of land related to our material office and other properties at March 31, 2013 was approximately 750,000 square meters for owned land and approximately 16,000 square meters for leased land.

Our owned land and buildings are primarily used by our branches. Most of the buildings and land owned by us are free from material encumbrances.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

 

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ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with “Item 3.A. Key Information—Selected Financial Data,” “Selected Statistical Data” and our consolidated financial statements, including the notes thereto, included elsewhere in this annual report.

Table of Contents for Item 5.

 

     Page  

Overview

     48   

Critical Accounting Estimates

     60   

Operating Results

     63   

Business Segments Analysis

     75   

Geographical Segment Analysis

     86   

Financial Condition

     89   

Liquidity

     100   

Capital Adequacy

     101   

Off-balance-sheet Arrangements

     108   

Tabular Disclosure of Contractual Obligations

     112   

Recent Accounting Pronouncements

     112   

Reconciliation with Japanese GAAP

     113   

Overview

The Mizuho Group

We provide a broad range of financial services in domestic and overseas markets. The principal activities and subsidiaries are the following:

 

   

Mizuho Bank provides a wide range of financial products and services mainly in relation to deposits, lending and exchange settlement to individuals, SMEs, large corporations, financial institutions, public sector entities and foreign corporations, including foreign subsidiaries of Japanese corporations;

 

   

Mizuho Trust & Banking provides products and services related to trust, real estate, securitization and structured finance, pension and asset management and stock transfer agency; and

 

   

Mizuho Securities provides full-line securities services to individuals, corporations, financial institutions and public sector entities.

We also provide products and services such as those related to trust and custody, asset management, private banking, research services, information technology-related services and advisory services for financial institutions through various subsidiaries and affiliates.

In November 2011, we announced that we determined to conduct a merger between Pre-Merger Mizuho Bank and Mizuho Corporate Bank by around the end of the first half of the fiscal year ending March 31, 2014, on the assumption that, among other things, filings will have been made to and permission will have been obtained from the relevant authorities in Japan and any foreign countries, and signed a memorandum of understanding for further consideration and discussion of the details. Through the merger, we aim to become able to provide directly and promptly diverse and functional financial services to customers of Pre-Merger Mizuho Bank and Mizuho Corporate Bank, to continue to improve customer services by further enhancing group-wide collaboration among the banking, trust and securities functions, and to realize further enhancement of the consolidation of group-wide business operations and optimization of management resources by strengthening

 

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group governance and improving group management efficiency. In addition to the merger, we announced that we would consider the possibility of an integration that includes Mizuho Trust & Banking. In April 2012, we integrated various business functions of Pre-Merger Mizuho Bank and Mizuho Corporate Bank prior to the effective date of the merger and implemented the “substantive one bank” structure, which included establishing a new organizational structure by unifying and reorganizing certain units, in order to realize the synergy effects of the merger as early as possible and ultimately to enhance our group profitability. In February 2013, we announced that Pre-Merger Mizuho Bank and Mizuho Corporate Bank signed a merger agreement, and on July 1, 2013, we conducted the merger.

In May 2012, we announced that Mizuho Securities and Mizuho Investors Securities signed a merger agreement, and on January 4, 2013, we conducted the merger. The merger is intended to enhance our retail securities business in Japan, rationalize and streamline management infrastructure, and provide securities functions in a unified manner through a single full-line securities company.

In December 2012, we announced that we determined to turn Mizuho Securities into a directly-held subsidiary of Mizuho Financial Group and to conduct a transformation into a new group management structure, which enables each business strategy promotion unit to pursue planning and promotion of a group-wide strategy across the banking, trust and securities functions and other business areas, on the assumption that the change and the transformation will have been approved at the general meeting of shareholders of each of Pre-merger Mizuho Bank and Mizuho Corporate Bank, and among other things, filings will have been made to, and permission will have been obtained from, the relevant authorities in Japan and any foreign countries. On April 1, 2013, we turned Mizuho Securities into a directly-held subsidiary of Mizuho Financial Group.

For a further discussion of our business and group organization, see “Item 4.B. Information on the Company—Business Overview.”

Principal Sources of Income and Expenses

Net Interest Income

Net interest income arises principally from the lending and deposit-taking and securities investment activities of our banking subsidiaries and is a function of:

 

   

the amount of interest-earning assets and interest-bearing liabilities;

 

   

the average interest rate spread (the difference between the average yield of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities); and

 

   

the general level of interest rates.

Principal items constituting interest-earning assets include loans, investments, trading account assets, receivables under resale agreements and receivables under securities borrowing transactions. Principal items constituting interest-bearing liabilities include deposits, trading account liabilities, short-term borrowings (such as payables under repurchase agreements and payables under securities lending transactions) and long-term debt.

Provision (Credit) for Loan Losses

Provision (credit) for loan losses is charged against (or credited to) income to keep the allowance for loan losses at a level that is appropriate to absorb probable losses inherent in the credit portfolio. For a description of the approach and methodology used to establish the allowance for loan losses, see “—Financial Condition—Allowance for loan losses.”

Noninterest Income

Noninterest income consists mainly of fees and commissions, investment gains (losses)—net, trading account gains (losses)—net and foreign exchange gains (losses)—net.

 

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Fees and commissions include the following:

 

   

fees and commissions from securities-related business, including brokerage fees and commissions related to securities underwriting, fees and commissions related to investment trusts and individual annuities and other securities-related activities;

 

   

fees and commissions from deposits, debentures and lending business, which consist mostly of fees and commissions related to our loan businesses, including fees related to the arrangement of syndicated loans and other financing transactions such as arrangement fees related to management buy-out transactions and fees related to deposits such as account transfer charges;

 

   

fees and commissions from remittance business, including service charges for domestic and international funds transfers and collections;

 

   

trust fees, including trust fees earned primarily through fiduciary asset management and administration services for corporate pension plans and investment funds; and

 

   

fees for other customer services, including fees related to our agency businesses, such as administration fees related to Japan’s principal public lottery program, as well as guarantee fees and others.

Investment gains (losses)—net primarily include net gains and losses on sales of marketable securities, such as equity and bond investments. In addition, impairment losses are recognized when management concludes that declines in fair value of investments are other-than-temporary.

Trading account gains (losses)—net include gains and losses from transactions undertaken for trading purposes, including both market making for customers and proprietary trading, or transactions through which we seek to capture gains arising from short-term changes in market value. Trading account gains (losses)—net also include gains and losses related to changes in the fair value of derivatives and other financial instruments not eligible for hedge accounting under U.S. GAAP that are utilized to offset mainly interest rate risk related to our various assets and liabilities, as well as gains and losses related to changes in the fair value of foreign currency-denominated available-for-sale securities that are elected for fair value treatment under ASC 825. For further information on the fair value option, see note 27 to our consolidated financial statements included elsewhere in this annual report.

Foreign exchange gains (losses)—net mainly include translation gains and losses related to our foreign currency-denominated assets and liabilities and gains and losses related to foreign exchange trading activities, including market making for customers and proprietary trading.

Noninterest Expenses

Noninterest expenses primarily include salaries and employee benefits, general and administrative expenses, occupancy expenses and fees and commission expenses.

Salaries and employee benefits include expenses incurred for salaries, bonuses and compensation to directors and employees. They also include expenses related to pension and other employee retirement benefit plans.

The principal items included in general and administrative expenses are amortization of software, tax expenses such as consumption tax and property tax that are not income taxes and other expenses, including premiums for deposit insurance.

The principal items included in occupancy expenses are expenses related to premises and equipment, including depreciation, losses on disposal and lease expenses.

The principal items included in fees and commission expenses are fees and commission expenses for remittance services, which mainly include commission expenses paid in connection with remittance transactions and securities-related businesses, which mainly include transactions costs such as brokerage fees paid.

 

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Operating Environment

We operate principally in Japan, and our performance has generally tracked the macro economy of Japan. Since the fiscal year ended March 31, 2008, the global economy has weakened due mainly to the effects of the global financial market turmoil. The global economy continued to worsen in the fiscal year ended March 31, 2009, and financial results in the financial and industrial sectors deteriorated significantly. However, the global economy emerged from its worst and maintained a gradual recovery in the fiscal year ended March 31, 2010. In the fiscal year ended March 31, 2011, the global economy generally continued on a gradual recovery while the fiscal problems faced by certain countries in Europe became an increasing cause for concern. The recovery remained weak during the fiscal year ended March 31, 2012 due to destabilization of the international financial and capital markets caused by the fiscal problems in Europe.

In the fiscal year ended March 31, 2013, despite the continuing weakness in the recovery of the global economy and the further slowdown of the economy being felt particularly in Europe and China last summer, there are visible signs of recovery as concerns over the Euro region’s debt problems have been eased to some degree. In the United States, gradual recovery in the economy appears to be continuing, while the risk of a slackening in the economy remains with the budget sequestration set in motion in March 2013 as part of a large-scale austerity measure known as the “fiscal cliff.” In Europe, the economy is gradually slowing down, with the fiscal problems experienced by certain countries impacting the real economy. Although the concerns in the financial markets have eased to some degree due to such measures as the establishment of the European Stability Mechanism, it is expected that the circumstances continue in which a reduced budget may result in an economic slowdown or political instability, particularly among southern European countries, and it is difficult to predict the effects on the global economy. In Asia, although the economy was slowing as a whole, with the impact including the decline in exports to Europe, mainly ASEAN countries are showing a gradual economic recovery due mainly to increased public investments. However, in China, the pace of the economic recovery has been slow against the backdrop of the remaining downward pressure from inventory adjustment and a weak economic recovery in the major industrialized countries, and developments in real estate prices and export levels merit continued monitoring. In Japan, although the economy had long showed little improvement with decreased exports and production following the slowdown in overseas economies, there are visible signs of a gradual recovery. There have been significant changes in the Japanese political and economic situation since the Liberal Democratic Party’s landslide victory in the Lower House elections last November upon which the president of the party, Shinzo Abe, was nominated as the Prime Minister. Prime Minister Abe announced his “three-arrows strategy,” or “Abenomics,” consisting of an aggressive monetary policy, flexible fiscal policy and growth strategies that promote private investment. As for the future direction of the economy, while there are causes for concern, such as the downturn in overseas economies, which pose a risk of acting as a drag on economic growth, there are prospects for the economy to be back on course for recovery due mainly to the improved export situation following the depreciation of the yen against other currencies and the effects of economic measures implemented by the new government and the Bank of Japan’s monetary policies led by Haruhiko Kuroda, the new governor of the Bank of Japan.

Key indicators of Japanese economic conditions in recent periods include the following:

 

   

Japan’s real gross domestic product on a year-on-year basis decreased by 3.7% and 2.0% in the fiscal years ended March 31, 2009 and 2010, respectively, and increased by 3.4%, 0.2% and 1.2% in the fiscal years ended March 31, 2011, 2012 and 2013, respectively. Japan’s real gross domestic product on a quarterly basis, compared to the corresponding period of the previous year, increased consecutively from the first quarter of calendar 2012 through the first quarter of calendar 2013. The Japanese government stated in its monthly economic report in January 2013 that “while the Japanese economy shows weakness recently, signs of bottoming out can be seen in some areas.” The report in February 2013 strengthened the positive tone and stated that “the Japanese economy is bottoming out, while weakness can be seen in some areas,” and in March and April 2013, it stated that “the Japanese economy is showing movements of picking up recently, while weakness can be seen in some areas.” Furthermore, in May 2013, it stated that “the Japanese economy is picking up slowly,” and in June

 

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2013, it stated that “the Japanese economy is picking up steadily.” Japan’s core nationwide consumer price index increased by 1.2% in the fiscal year ended March 31, 2009 but decreased by 1.6% and 0.8% in the fiscal years ended March 31, 2010 and 2011, respectively, and the index was unchanged in the fiscal year ended March 31, 2012, but decreased again by 0.2% in the fiscal year ended March 31, 2013 compared to the previous year. The Japanese government has been stating in its monthly economic reports from November 2009 onwards that the Japanese economy is in a mild deflationary phase, but the report in May 2013 began to state that “signs of change can be seen in some areas recently.”

The following chart shows the growth rates of Japan’s gross domestic product on a year-on-year basis and Japan’s core nationwide consumer price indices from the first quarter of 2008 through the first quarter of 2013:

 

LOGO

 

   

In October 2010, the Bank of Japan lowered its target for the uncollateralized overnight call rate from 0.1% to “around 0 to 0.1%,” which has since remained unchanged. In April 2013, the Bank of Japan announced that it would change the main operating target for money market operations from the uncollateralized overnight call rate to the monetary base, which is to be increased at an annual pace of about ¥60-70 trillion. In December 2009, the Bank of Japan announced that it would provide approximately ¥10 trillion in short-term funds to commercial banks at a low fixed rate, in order to boost liquidity and recover stability in the financial markets, and increased the amount to approximately ¥20 trillion and ¥30 trillion in March and August 2010, respectively. These measures were succeeded by an asset purchase program of approximately ¥35 trillion established by the Bank of Japan in October 2010, and it gradually increased the amount of the asset purchase program, mainly for the purchase of risk assets, to approximately ¥101 trillion by December 2012. In June 2010, the Bank of Japan announced that it would establish a “Growth-Supporting Funding Facility,” a fund-provisioning measure under which it would provide long-term funds to financial institutions at a low fixed rate in order to support the strengthening of the foundations for economic growth, and in June 2011, it also announced that it would establish a new line of credit to financial institutions for making equity investments and lending against liquid assets as collateral in order to further encourage financial institutions’ efforts to support economic growth. In February 2012, the Bank of Japan announced that it would pursue a “price stability goal in the medium to long term,” under which it would aim to maintain inflation at a rate consistent with price stability that is sustainable in the medium to long term, and provisionally set the goal at 1%. In March 2012, the Bank of Japan announced that it would establish special rules for a new arrangement for loans for small-lot investments and loans that had not been deemed eligible in the rules settled in June 2011 mentioned above, and it also announced that it would establish special rules for a new arrangement for U.S. dollar loans for investments and loans

 

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denominated in foreign currencies. In October 2012, the Bank of Japan announced that it would establish a “Stimulating Bank Lending Facility,” a fund-provisioning measure under which it would provide long-term funds at a low interest rate, without any limit, to financial institutions at their request.

In January 2013, the Bank of Japan announced that it would set a “price stability target” at 2% in terms of the year-on-year rate of change in the consumer price index and introduced the “open-ended asset purchasing method” under the asset purchase program, pursuant to which financial assets will be purchased on a monthly basis without setting any termination date, for the purpose of taking additional steps to provide monetary accommodation decisively. Furthermore, the Japanese government and the Bank of Japan released a joint statement that they would strengthen their policy coordination and work together in order to overcome deflation early and achieve sustainable economic growth with price stability. In April 2013, the Bank of Japan announced that it would introduce the “quantitative and qualitative monetary easing” to enter a new phase of monetary easing both in terms of quantity and quality, and that it would continue with the quantitative and qualitative monetary easing which aims to achieve the price stability target of 2% until that target is maintained in a stable manner. Under the quantitative and qualitative monetary easing, the Bank of Japan would change the main operating target for monetary market operations from the uncollateralized overnight call rate to the monetary base, as mentioned above. In addition, the Bank of Japan would expand the purchases of the Japanese government bonds, with all maturities including 40-year bonds, to be increased at an annual pace of about ¥50 trillion and terminate the asset purchase program which would be absorbed into those purchases of the bonds. Furthermore, the Bank of Japan announced that it would expand the purchases of ETFs and Japan real estate investment trusts so that their amounts outstanding would be increased at an annual pace of ¥1 trillion and ¥30 billion, respectively.

The following charts show movements in long-term rates from January 2010 to June 2013, represented by the yield on newly issued 10-year Japanese government bonds, and in short-term interest rates from January 2010 to June 2013, represented by the three-month Tokyo interbank offered rate, or TIBOR, and the uncollateralized overnight call rate used in the interbank market:

 

LOGO

 

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LOGO

 

   

According to the Bank of Japan, the aggregate monthly average balance of bank loans compared with that of the previous year started to increase in August 2005. The growth generally peaked in December 2008, and the aggregate monthly average balance of bank loans began showing a declining trend beginning December 2009. Thereafter, it again started to increase in October 2011.

 

   

The CDS index called Markit iTraxx Japan, which is composed of 50 of the most liquid investment grade CDSs for Japanese entities, fell to 113.9 basis points as of March 29, 2013 from 154.5 basis points as of March 30, 2012, and fell to 110.7 basis points as of June 28, 2013. For information on financial transactions for hedging in relation to credit derivatives, see “Item 3.D. Key Information—Risk Factors—Risks Relating to Our Business—Financial transactions entered into for hedging and other similar purposes could adversely affect our financial condition and results of operations.”

 

   

According to Teikoku Databank, a Japanese research institution, there were approximately 11,500 corporate bankruptcies in the fiscal year ended March 31, 2011, involving approximately ¥4.6 trillion in total liabilities, approximately 11,400 corporate bankruptcies in the fiscal year ended March 31, 2012, involving approximately ¥3.9 trillion in total liabilities, and approximately 10,700 corporate bankruptcies in the fiscal year ended March 31, 2013, involving approximately ¥2.9 trillion in total liabilities. The number of corporate bankruptcies decreased from a year earlier for the fourth consecutive year, and the amount of total liabilities marked the lowest level in the past ten years.

 

   

According to the Tokyo Stock Exchange, or the TSE, the aggregate ordinary profits and net income of all companies listed on the TSE with a March 31 fiscal year end, excluding financial institutions and companies newly listed during the relevant fiscal year, decreased from ¥26.3 trillion and ¥12.0 trillion, respectively, for the fiscal year ended March 31, 2011, to ¥22.1 trillion and ¥8.9 trillion, respectively, for the fiscal year ended March 31, 2012, and increased to ¥23.5 trillion and ¥10.4 trillion, respectively, for the fiscal year ended March 31, 2013.

 

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According to the Bank of Japan, total financial assets of households increased from ¥1,500.1 trillion as of March 31, 2011 to ¥1,516.6 trillion as of March 31, 2012 and increased to ¥1,570.6 trillion as of March 31, 2013. The following chart shows the amount of total financial assets of households and breakdown based on type of financial asset as of the ends of the first quarter of 2009 through the first quarter of 2013:

 

LOGO

 

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The Nikkei Stock Average, which is an average of the price of 225 stocks listed on the Tokyo Stock Exchange, decreased by 12.0% to ¥9,755.10 during the fiscal year ended March 31, 2011, but increased by 3.4% to ¥10,083.56 during the fiscal year ended March 31, 2012, followed by a 23.0% increase to ¥12,397.91 during the fiscal year ended March 31, 2013. Thereafter, the Nikkei Stock Average increased to ¥13,677.32 as of June 28, 2013. The following chart shows the daily closing price of the Nikkei Stock Average from January 2010 to June 2013:

 

LOGO

 

   

The Japanese yen to U.S. dollar spot exchange rate, according to the Bank of Japan, was ¥82.84 to $1.00 as of March 31, 2011, ¥82.17 to $1.00 as of March 30, 2012 and ¥94.04 to $1.00 as of March 29, 2013. Thereafter, the yen weakened to ¥98.83 to $1.00 as of June 28, 2013. The following chart shows the yen/dollar spot rate of 5 p.m. Tokyo time published by the Bank of Japan from January 2010 to June 2013:

 

LOGO

 

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According to the Ministry of Land, Infrastructure, Transport and Tourism of Japan, housing starts in Japan decreased by 25.4% in the fiscal year ended March 31, 2010 and increased by 5.6%, 2.7% and 6.2% in the fiscal years ended March 31, 2011, 2012 and 2013, respectively.

 

   

According to the Ministry of Land, Infrastructure, Transport and Tourism of Japan, the average published land prices in Japan rose by 0.1% during calendar year 2006, which was the first increase in 16 years, and rose again by 1.3% during calendar year 2007, but decreased by 3.2%, 4.2%, 2.7%, 2.3% and 1.6% during calendar years 2008, 2009, 2010, 2011 and 2012, respectively.

Capital Improvements

All yen figures in this subsection are truncated.

We have been implementing “disciplined capital management” by pursuing the optimal balance between “strengthening of stable capital base” and “steady returns to shareholders” as described below.

Strengthening of Our Stable Capital Base

In the fiscal year ended March 31, 2013, we strengthened our capital base mainly as a result of earning ¥560.5 billion of consolidated net income (under Japanese GAAP).

With respect to redemptions of previously issued securities, since April 2012, we have made redemptions of various securities that qualify as Tier 1 and Tier 2 capital under Basel II upon the arrival of their respective early optional redemption dates. In June 2012, we redeemed ¥171.0 billion of non-dilutive Tier 1 preferred securities that were issued by our overseas special purpose company in February 2002. In July 2013, we acquired and subsequently cancelled all ¥36.9 billion of the shares of the thirteenth series class XIII preferred stock. With respect to Tier 2 capital, in October 2012, we redeemed ¥53.0 billion of dated subordinated bonds that were issued by Pre-Merger Mizuho Bank in October 2009.

With respect to new issuances, in June 2012, Pre-Merger Mizuho Bank issued ¥47.0 billion of dated subordinated bonds through public offerings to wholesale investors in Japan. In July 2012, our overseas special purpose company issued $1.5 billion of dated subordinated bonds. In October 2012, Pre-Merger Mizuho Bank issued ¥80.0 billion of dated subordinated bonds through a public offering in Japan.

The new capital regulations under Basel III were implemented beginning March 31, 2013. Our Common Equity Tier 1 capital ratio under Basel III as of March 31, 2013 was 8.16%. We estimate that it was above our mid-8% level target after including the outstanding balance of the eleventh series class XI preferred stock (¥340.6 billion as of March 31, 2013) that will become mandatorily converted into common stock, and will thus be fully recognized as Common Equity Tier 1 capital, by July 2016. We aim to increase our Common Equity Tier 1 capital ratio under Basel III stably to 8% or higher (fully-effective basis, including the outstanding balance of the eleventh series class XI preferred stock) by March 31, 2016. We believe that we will be able to secure a sufficient Common Equity Tier 1 capital ratio under Basel III as of March 31, 2019 when it becomes fully effective pursuant to its phase-in implementation. The foregoing target is based on publicly-available materials that have been issued so far.

The foregoing statements include forward-looking statements and are subject to risks, uncertainties and assumptions. See “Forward-looking Statements” and “Item 3.D. Key Information—Risk Factors.”

Steady Returns to Shareholders

We paid cash dividends with respect to the fiscal year ended March 31, 2013 of ¥6 per share of common stock (including interim dividend payments of ¥3), unchanged from those in the previous fiscal year.

 

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Business Trends

Based on our current operating environment and management focus, we believe that the trends that are most significant to our current and future results of operations include the following:

Loans and Deposits

Loan volume

Our total loan balance increased on a year-on-year basis in the fiscal year ended March 31, 2013 due mainly to an increase in overseas loans. The increase in overseas loans was due mainly to increases in loans to commercial and industrial, mainly in Asia, and the translation impact of the depreciation of the yen against other major currencies.

Margins between loans and deposits

In April 2013, the Bank of Japan announced that it would introduce the “quantitative and qualitative monetary easing” to enter a new phase of monetary easing both in terms of quantity and quality, while it maintained its target for the uncollateralized overnight call rate at “around 0 to 0.1%,” which has remained unchanged since October 2010. Reflecting a decline in yen interest rate levels, the average yield on domestic loans decreased from 1.31% in the fiscal year ended March 31, 2012 to 1.27% in the fiscal year ended March 31, 2013, and the average rate on domestic interest-bearing deposits decreased from 0.09% to 0.08%.

Provision (credit) for loan losses

We recorded a provision for loan losses of ¥140 billion in the fiscal year ended March 31, 2013 compared to a credit for loan losses of ¥23 billion in the fiscal year ended March 31, 2012. The change was due primarily to an increase in allowance for loan losses as a result of an increase in foreign impaired loans that required an allowance for loan losses and of increased estimated loss reflecting changes in business environment surrounding some domestic obligors, offset in part by the effects of the continuing gradual recovery of the Japanese economy as described in “—Overview—Operating Environment.” The amount of provision for loan losses in future fiscal years will depend largely on trends in the credit quality of borrowers, which in turn will be affected by the domestic and global economic environment and other factors, and changes in the value of collateral on our loans.

Fees and Commissions

For the fiscal year ended March 31, 2012, fees and commissions were ¥575 billion, a slight decrease compared to the fiscal year ended March 31, 2011 due mainly to a decline in commissions such as brokerage commissions and underwriting and selling fees at Mizuho Securities caused by the downturn in the stock market, offset in part by an increase in noninterest income from overseas business, income associated with sales of investment trusts and individual annuities to individual customers and solution-related income from corporate customers. For the fiscal year ended March 31, 2013, fees and commissions increased by ¥38 billion from the previous fiscal year to ¥613 billion due mainly to an increase in fees and commissions from securities-related business, such as those related to equity securities transactions, investment trust and individual annuities as a result of a recovery of the stock markets, and an increase in fees and commissions from deposits, debentures and lending business, such as those associated with domestic syndicated loans.

Debt and Equity Securities Portfolio

The amount of our funding through deposits significantly exceeds our total loans. As a result, we allocate a significant portion of such excess among investments in debt securities, including Japanese government bonds and investments in equity securities consisting mainly of common stock of Japanese listed company customers. We also hold some credit and alternative investments for the purpose of diversifying our risks and expanding our income sources.

 

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Increases in long-term interest rates generally lead to a decline in the fair value of our portfolio of debt securities, a vast majority of which consists of Japanese government bonds. As of March 31, 2013, we had a total of ¥36,275 billion of available-for-sale debt securities within our investments, of which ¥30,783 billion was Japanese government bonds. Changes in fair value of such available-for-sale debt securities are reflected in accumulated other comprehensive income, net of tax in equity or, in the case of other-than-temporary impairments, charged to income as an impairment loss. We had ¥38,467 billion and ¥36,275 billion of available-for-sale debt securities as of March 31, 2012 and 2013, respectively, and unrealized gains of ¥62 billion and ¥148 billion were reflected in accumulated other comprehensive income, net of tax as of such dates, respectively. We earned investment gains related to bonds of ¥42 billion in the fiscal year ended March 31, 2012 and ¥91 billion in the fiscal year ended March 31, 2013. The increase in investment gains related to bonds was due mainly to an increase in gains related to sales of Japanese government bonds as a result of declining yen interest rates. As the Bank of Japan announced a “price stability target” of 2% in January 2013 and the changes in interest rates that could result may have a substantial impact on the value of our Japanese government bond portfolio, in order to prepare for the risk of sudden and significant future interest rate rise, we continue to manage our Japanese government bond portfolio conservatively by managing the average remaining period of our portfolio and strengthening risk management including through the use of internal stress tests.

Because the size of our portfolio of marketable equity securities is substantial, we are subject to significant equity market risk, as increases in unrealized gains and losses related to changes in the fair value of available-for-sale marketable equity securities are reflected in accumulated other comprehensive income, net of tax in equity or, in the case of other-than-temporary impairments to fair value, charged to income as an impairment loss. As of March 31, 2011, 2012 and 2013, we recorded net unrealized gains related to marketable equity securities of ¥914 billion, ¥960 billion and ¥1,440 billion, respectively, in accumulated other comprehensive income, net of tax in equity. For the fiscal years ended March 31, 2011, 2012 and 2013, impairment losses on available-for-sale securities were ¥77 billion, ¥117 billion and ¥76 billion, respectively, of which impairment losses on marketable equity securities were ¥65 billion, ¥110 billion and ¥72 billion, respectively. The decrease in impairment losses on marketable equity securities in the fiscal year ended March 31, 2013 was due mainly to a recovery of the stock markets during such fiscal year. Following our initiatives for reducing the size of our stock portfolio under our Medium-term Management Policy named the “Transformation Program” for the three fiscal years ended March 31, 2013, as described in “Item 4.B. Information on the Company—Business Overview,” we will continue the initiatives under our new medium-term business plan named “One MIZUHO New Frontier Plan” that will be in force for three years beginning the fiscal year ending March 31, 2014, primarily through the sales of the stocks for which we received customers’ consents to sell, based on a recognition that it is one of our most important management issues.

Costs and Expenses

In the fiscal year ended March 31, 2013, general and administrative expenses decreased by ¥37 billion from the previous fiscal year to ¥440 billion due mainly to our continuous group-wide cost reduction efforts. In the fiscal year ended March 31, 2013, salaries and employee benefits decreased by ¥15 billion from the previous fiscal year to ¥572 billion due mainly to the effect of decreased employee retirement benefit expenses as a result of a decrease in the amortization of net actuarial loss, an increase in expected return on plan assets, and the absence of a premium allowance for voluntary early retirement program of a securities subsidiary incurred in the previous fiscal year. Even after we exceeded our cost reduction target set under the Transformation Program, we plan to continue such efforts to promote cost reduction initiatives under the One MIZUHO New Frontier Plan.

Others

Exposure to Troubled European Economies

In Europe, fiscal problems in certain countries are affecting the financial system and the real economy, and the uncertainty concerning European economic activity has clearly become significant and presents a risk of a

 

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downturn in the world economy. These countries include Greece, Ireland, Italy, Portugal and Spain. As of March 31, 2013, our exposure to obligors in such countries was not significant. Specifically, our principal banking subsidiaries had no holdings of sovereign bonds issued by these countries and had a total of approximately $3.8 billion in exposure to obligors in such countries. The breakdown by country and by type of obligor was as follows:

 

     As of      Increase
(decrease)
 
     September 30,
2012
     March 31,
2013
    
     (in billions of US dollars)  

Greece

   $ 0.1       $ 0.1       $ 0.0   

Sovereign

     —           —           —     

Financial Institutions

     —           —           —     

Others

     0.1         0.1         0.0   

Ireland

     0.4         0.3         (0.1

Sovereign

     —           —           —     

Financial Institutions

     0.1         0.0         (0.1

Others

     0.3         0.3         0.0   

Italy(2)

     1.7         1.6         (0.1

Sovereign

     0.1         0.1         0.0   

Financial Institutions

     0.1         0.1         0.0   

Others

     1.5         1.4         (0.1

Portugal

     0.3         0.4         0.1   

Sovereign

     —           —           —     

Financial Institutions

     —           —           —     

Others

     0.3         0.4         0.1   

Spain(2)

     1.4         1.4         0.0   

Sovereign

     —           —           —     

Financial Institutions

     0.0         0.0         0.0   

Others

     1.4         1.4         0.0   

Total

   $ 3.9       $ 3.8       $ (0.1

Sovereign

     0.1         0.1         0.0   

Financial Institutions(3)

     0.2         0.1         (0.1

Others

     3.6         3.6         0.0   

 

Notes:

(1) Figures in the above table are on a managerial accounting basis.
(2) The obligors in Italy and Spain to which we had exposure consisted mainly of highly rated large corporations.
(3) Our exposure to financial institutions that are not state-owned was minimal.

Critical Accounting Estimates

Note 1 to our consolidated financial statements included elsewhere in this annual report contains a summary of our significant accounting policies. These accounting policies are essential to understanding our financial condition and results of operations. Certain of these accounting policies require management to make critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates are based on information available to us as of the date of the financial statements and could change from period to period. Critical accounting estimates could also involve estimates for which management could have reasonably used another estimate for the relevant accounting period. The use of different estimates could have a material impact on our financial condition and results of operations. The following is a discussion of significant accounting policies for which critical accounting estimates are used.

 

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Allowance for Loan Losses and Allowance for Losses on Off-Balance-Sheet Instruments

The allowance for loan losses is based on management’s estimate of probable credit losses existing in our lending portfolio, and the allowance for losses on off-balance-sheet instruments is based on management’s estimate of probable losses related to off-balance-sheet arrangements such as guarantees and commitments to extend credit.

The allowance for loan losses is categorized and evaluated using the following methods:

 

   

Allowance based on ASC 310. In accordance with ASC 310, “Receivables” (“ASC 310”), we measure the value of specifically identified impaired loans based on the expected cash flows discounted at the loans’ initial effective interest rates, or as a practical expedient, using the observable market prices or the fair value of collateral if the loan is collateral dependent, when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The collateral that we obtain for loans consists primarily of real estate or listed securities. In obtaining the collateral, we evaluate the value of the collateral and its legal enforceability, and we also conduct subsequent re-evaluations at least once a year. As to collateral of loans that are collateral dependent, in the case of real estate, valuation is generally conducted by an appraising subsidiary that is independent from our loan origination sections using generally accepted valuation techniques such as (i) the replacement cost approach, (ii) the sales comparison approach or (iii) the income approach, although in the case of large real estate collateral, we generally retain third-party appraisers to conduct the valuation. In the case of securities, such securities are typically those of listed companies and are thus valued using observable market prices. Management identifies impaired loans through the credit quality review process, in which the debtor’s ability to service its debt is assessed. The difference between our evaluation of the value of the impaired loan and its principal amount is the amount of the impairment which is recorded in the allowance for loan losses. Estimation of future cash flows is based on a comprehensive analysis of the borrower’s ability to service the debt, any progress made on the borrower’s rehabilitation program and the assumptions used therein.

 

   

Allowance based on ASC 450. In accordance with ASC 450, “Contingencies” (“ASC 450”), a formula-based allowance utilizing historical loss factors is applied to certain impaired loans which are aggregated for purposes of measuring impairment, groups of small balance, homogeneous loans and other non-homogeneous loans which have not been identified as impaired. The determination of expected losses is based on a statistical analysis of our historical default and loan loss data, as well as data from third-party sources. The estimation of the formula allowance is back-tested on a periodic basis by comparing the allowance with the actual results subsequent to the balance sheet date.

 

   

Adjustment of ASC 450 Allowance. In addition to the allowance for loan losses based on historical loss factors, the historical loss rate is adjusted, where appropriate, to reflect current factors, such as general economic and business conditions affecting key lending areas, credit quality trends, specific industry conditions and recent loss experience in the segments of the loan portfolio. For loans which are not deemed to be impaired under ASC 310 but to which special isolated risks apply, management assesses each loan individually to determine appropriate allowance amounts in lieu of mechanically applying the ASC 450 formula-based allowance.

We assess probable loss amounts for guarantees using the same categories and evaluation methods as loans. We similarly assess probable loss amounts for loan commitments, taking into account the probability of drawdowns.

The determination of the allowance for loan losses and the allowance for losses on off-balance-sheet instruments requires a great deal of judgment and the use of estimates as discussed above. Furthermore, information available at the time of the determination is limited, and it is not possible to eliminate uncertainty. Significant changes in any of the factors underlying our determination of the allowances could materially affect our financial condition and results of operations. For example, if our current judgment with respect to expected

 

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future cash flows differs from actual results, including as a result of an unexpected adverse change in the economic environment in Japan or a sudden and unanticipated failure of a large borrower, or if the value of collateral declines, we may need to increase the allowances with additional charges to earnings.

Valuation of Financial Instruments

ASC 820, “Fair Value Measurement” (“ASC 820”) specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. The standard describes the following three levels of inputs that may be used to measure fair value:

 

Level 1

   Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.

Level 2

   Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments. If no quoted market price is available, the fair values of debt securities and over-the-counter derivative contracts in this category are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3

   Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques.

For assets and liabilities classified in Level 1 and 2 of the hierarchy, where inputs are principally based on observable market data, there is less judgment or estimate in determining fair value, while the determination of fair value of Level 3 assets and liabilities involves more significant management judgments and estimates. For further information, including valuation methodologies and the use of management estimates and judgments in connection therewith, see note 27 to the consolidated financial statements included elsewhere in this annual report.

Valuation of Deferred Income Taxes

Deferred income taxes reflect the net tax effects of (1) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (2) operating loss and tax credit carryforwards. Pursuant to ASC 740, “Income Taxes” (“ASC 740”), a valuation allowance is recognized for any portion of the deferred tax assets where it is considered more likely than not that it will not be realized, based on projected future income and future reversals of existing taxable temporary differences. Because we have not opted to be subject to consolidated taxation, deferred tax assets and liabilities are calculated separately for each member of our consolidated group.

The determination of a valuation allowance is an inherently uncertain process due to the use of projected future taxable income and subjective assessments in the effectiveness of our available tax planning strategies provided for under ASC 740. For example, variances in future projected operating performance or tax law changes that impact our tax planning strategies could result in a change in the valuation allowance. If we are not able to realize all or part of our net deferred tax assets in the future, an adjustment to our valuation allowance would be charged to income tax expense in the period when such determination is made, and this could materially and adversely affect our financial condition and results of operations.

Pension and Other Employee Benefit Plans

Mizuho Financial Group, its principal banking subsidiaries and certain other subsidiaries sponsor severance indemnities and pension plans, which provide defined benefits to retired employees. Periodic expense and

 

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accrued liabilities are computed based on a number of actuarial assumptions, including mortality, withdrawals, discount rates, expected long-term rates of return on plan assets and rates of increase in future compensation levels.

Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore generally affect future pension expenses. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may adversely affect pension expenses in the future.

In estimating the discount rates, we use interest rates on high-quality fixed-income government and corporate bonds that received a rating of AA (Aa) or higher from rating agencies. The durations of such bonds closely match those of the benefit obligations. Assumed discount rates are reevaluated at each measurement date.

The expected rate of return for each asset category is based primarily on various aspects of the long-term prospects for the economy that include historical performance and the market environment.

For further information on our pension and other employee benefits, see note 19 to the consolidated financial statements included elsewhere in this annual report.

Operating Results

The following table shows certain information as to our income, expenses and net income attributable to MHFG shareholders for the fiscal years ended March 31, 2011, 2012 and 2013:

 

     Fiscal years ended March 31,  
     2011      2012     2013  
     (in billions of yen)  

Interest and dividend income

   ¥ 1,460       ¥ 1,437      ¥ 1,423   

Interest expense

     449         416        412   
  

 

 

    

 

 

   

 

 

 

Net interest income

     1,011         1,021        1,011   

Provision (credit) for loan losses

     1         (23     140   
  

 

 

    

 

 

   

 

 

 

Net interest income after provision (credit) for loan losses

     1,010         1,044        871   

Noninterest income

     1,037         1,090        1,439   

Noninterest expenses

     1,436         1,471        1,425   
  

 

 

    

 

 

   

 

 

 

Income before income tax expense

     611         663        885   

Income tax expense

     193         14        4   
  

 

 

    

 

 

   

 

 

 

Net income

     418         649        881   

Less: Net income (loss) attributable to noncontrolling interests

     5         (7     6   
  

 

 

    

 

 

   

 

 

 

Net income attributable to MHFG shareholders

   ¥ 413       ¥ 656      ¥ 875   
  

 

 

    

 

 

   

 

 

 

Executive Summary

Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

Net interest income decreased by ¥10 billion, or 1.0%, from the previous fiscal year to ¥1,011 billion in the fiscal year ended March 31, 2013 due to a decrease in net domestic interest and dividend income of ¥44 billion, offset in part by an increase in net foreign interest and dividend income of ¥34 billion. The decrease in net domestic interest and dividend income was due mainly to a decrease in interest income from loans as a result of a decrease in the average yield, reflecting a decline in yen interest rate levels, as well as average balance, offset in part by a decrease in interest expense on domestic deposits as a result of a decrease in the average rate, also reflecting a decline in yen interest rate levels. The increase in net foreign interest and dividend income was due

 

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mainly to an increase in interest income from foreign loans as a result of an increase in the average balance, mainly in Asia and Oceania, offset in part by an increase in interest expense on foreign short-term borrowings as a result of increases in the average balance and the average rate. We had a provision for loan losses of ¥140 billion in the fiscal year ended March 31, 2013 compared to a credit for loan losses of ¥23 billion in the previous fiscal year. The change was due primarily to an increase in allowance for loan losses as a result of an increase in foreign impaired loans that required an allowance for loan losses and of increased estimated loss reflecting changes in business environment surrounding some domestic obligors, offset in part by the effects of the continuing gradual recovery of the Japanese economy.

Noninterest income increased by ¥349 billion, or 32.0%, from the previous fiscal year to ¥1,439 billion in the fiscal year ended March 31, 2013. The increase was due mainly to an increase in trading account gains—net of ¥201 billion, investment gains—net of ¥121 billion in the fiscal year ended March 31, 2013 compared to investment losses—net of ¥33 billion in the previous fiscal year, an increase in other noninterest income of ¥41 billion and an increase in fees and commissions of ¥38 billion, offset in part by a decrease in foreign exchange gains—net of ¥77 billion. The increase in trading account gains—net was due mainly to an increase in trading account gains related to bonds reflecting a decline in yen interest rate levels, an increase in trading account gains related to domestic equity securities reflecting an upturn in domestic market conditions and gains recorded by consolidated VIEs as a result of an improvement in market conditions. The change in investment gains (losses)—net was due mainly to investment gains related to equity securities recorded in the fiscal year ended March 31, 2013 compared to investment losses related to equity securities in the previous fiscal year and an increase in investment gains related to bonds. The increase in fees and commissions was due mainly to an increase in fees and commissions from securities-related business and an increase in fees and commissions from deposits, debentures and lending business. The decrease in foreign exchange gains—net was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2013.

Noninterest expenses decreased by ¥46 billion, or 3.1%, from the previous fiscal year to ¥1,425 billion in the fiscal year ended March 31, 2013. The decrease was due mainly to a decrease in general and administrative expenses of ¥37 billion and a decrease in salaries and employee benefits of ¥15 billion. The decrease in general and administrative expenses was due mainly to our continuous group-wide cost reduction efforts. The decrease in salaries and employee benefits was due mainly to the effect of decreased employee retirement benefit expenses.

As a result of the foregoing, income before income tax expense increased by ¥222 billion, or 33.5%, from the previous fiscal year to ¥885 billion in the fiscal year ended March 31, 2013. Income tax expense decreased by ¥10 billion, or 71.4%, from the previous fiscal year to ¥4 billion in the fiscal year ended March 31, 2013 due mainly to a decrease in current income tax expense.

Net income increased by ¥232 billion, or 35.7%, from the previous fiscal year to ¥881 billion in the fiscal year ended March 31, 2013. Net income (loss) attributable to noncontrolling interests was an income of ¥6 billion compared to a loss of ¥7 billion in the previous fiscal year. As a result, net income attributable to MHFG shareholders increased by ¥219 billion, or 33.4%, from the previous fiscal year to ¥875 billion in the fiscal year ended March 31, 2013.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Net interest income increased by ¥10 billion, or 1.0%, from the previous fiscal year to ¥1,021 billion in the fiscal year ended March 31, 2012 due to an increase in net foreign interest and dividend income of ¥42 billion, offset in part by a decrease in net domestic interest and dividend income of ¥32 billion. The increase in net foreign interest and dividend income was due mainly to an increase in interest income from foreign loans as a result of an increase in the average balances, mainly in Asia, offset in part by an increase in interest expense on foreign deposits as a result of an increase in the average balances, which reflects issuances of certificates of deposit. The decrease in net domestic interest and dividend income was due mainly to a decrease in interest income from domestic loans as a result of the decrease in the average yield, which reflects a decline in yen

 

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interest rate levels, and the decrease in the average balance, offset in part by a decrease in interest expense on domestic deposits as a result of a decrease in average interest rates, which reflects a decline in yen interest rate levels. We had a credit for loan losses of ¥23 billion in the fiscal year ended March 31, 2012 compared to a provision of ¥1 billion in the previous fiscal year due primarily to upgrades in the obligor categories of a broad range of borrowers mainly through our credit management activities, including business revitalization support for borrowers, the effect of which was enhanced against a backdrop of the improving domestic economic environment.

Noninterest income increased by ¥53 billion, or 5.1%, from the previous fiscal year to ¥1,090 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in trading account gains—net of ¥127 billion and an increase in foreign exchange gains—net of ¥42 billion offset in part by investment losses—net of ¥33 billion in the fiscal year ended March 31, 2012, compared to investment gains—net of ¥70 billion in the previous fiscal year. The increase in trading account gains—net was due mainly to an increase in gains related to changes in fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. The increase in foreign exchange gains—net was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2012. The change in investment gains (losses)—net was due mainly to an increase in investment losses related to equity securities and a decrease in investment gains related to bonds. The increase in investment losses related to equity securities was due mainly to an increase in impairment losses on equity securities as a result of declines in market prices. The decrease in investment gains related to bonds was due mainly to a decrease in gains related to sales of long-term Japanese government bonds.

Noninterest expenses increased by ¥35 billion, or 2.4%, from the previous fiscal year to ¥1,471 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in salaries and employee benefits of ¥34 billion and an increase in other noninterest expenses of ¥15 billion, offset in part by a decrease in general and administrative expenses of ¥23 billion. The increase in salaries and employee benefits was due mainly to the effect of increased employee retirement benefit expenses. The increase in other noninterest expenses was due mainly to losses related to financial alternative dispute resolutions in relation to customer complaints arising from currency derivative transactions. The decrease in general and administrative expenses was due mainly to our efforts to enhance our cost efficiency through detailed reviews.

As a result of the foregoing, income before income tax expense (benefit) increased by ¥52 billion, or 8.5%, from the previous fiscal year to ¥663 billion in the fiscal year ended March 31, 2012. Income tax expense decreased by ¥179 billion, or 92.7%, from the previous fiscal year to ¥14 billion in the fiscal year ended March 31, 2012 due mainly to a decrease in deferred income tax expense.

Net income increased by ¥231 billion, or 55.3%, from the previous fiscal year to ¥649 billion in the fiscal year ended March 31, 2012. Income (loss) attributable to noncontrolling interests was a loss of ¥7 billion compared to an income of ¥5 billion in the previous fiscal year. As a result, net income attributable to MHFG shareholders increased by ¥243 billion, or 58.8%, from the previous fiscal year to ¥656 billion in the fiscal year ended March 31, 2012.

 

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Net Interest Income

The following table shows the average balance of interest-earning assets and interest-bearing liabilities, interest amounts and the average interest rates on such assets and liabilities for the fiscal years ended March 31, 2011, 2012 and 2013:

 

    Fiscal years ended March 31,  
    2011     2012     2013  
    Average
balance
    Interest
amount
    Interest
rate
    Average
balance
    Interest
amount
    Interest
rate
    Average
balance
    Interest
amount
    Interest
rate
 
    (in billions of yen, except percentages)  

Domestic:

                 

Interest-bearing deposits in other banks

  ¥ 371      ¥ 1        0.27   ¥ 1,822      ¥ 2        0.13   ¥ 3,096      ¥ 3        0.10

Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions

    6,264        10        0.16        6,122        11        0.17        6,676        11        0.17   

Trading account assets

    8,981        33        0.37        8,884        25        0.28        9,019        15        0.17   

Investments

    36,967        214        0.58        39,529        206        0.52        38,974        191        0.49   

Loans

    54,287        759        1.40        53,770        707        1.31        53,222        674        1.27   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets

    106,870        1,017        0.95        110,127        951        0.86        110,987        894        0.81   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Deposits

    68,060        86        0.13        68,474        64        0.09        70,281        57        0.08   

Debentures

    1,150        7        0.57        86        0        0.45        —          —          —     

Short-term borrowings(1)

    22,270        37        0.17        25,591        43        0.17        26,540        42        0.16   

Trading account liabilities

    4,183        14        0.34        3,833        14        0.38        2,986        13        0.44   

Long-term debt

    8,129        186        2.29        8,172        175        2.13        8,184        171        2.09   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities

    103,792        330        0.32        106,156        296        0.28        107,991        283        0.26   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

    3,078        687        0.63        3,971        655        0.58        2,996        611        0.55   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Foreign:

                 

Interest-bearing deposits in other banks

    1,643        8        0.46        3,509        17        0.46        3,600        15        0.42   

Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions

    8,772        44        0.50        9,082        35        0.39        10,226        51        0.50   

Trading account assets

    7,848        170        2.17        8,855        168        1.91        11,352        154        1.36   

Investments

    1,663        34        2.04        1,639        36        2.18        2,045        34        1.73   

Loans

    9,297        187        2.01        11,334        230        2.03        14,289        275        1.92   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets

    29,223        443        1.51        34,419        486        1.41        41,512        529        1.28   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Deposits

    8,048        48        0.60        9,878        67        0.68        11,700        67        0.58   

Short-term borrowings(1)

    12,312        49        0.40        13,248        34        0.25        16,653        49        0.29   

Trading account liabilities

    900        17        1.91        892        14        1.58        965        11        1.09   

Long-term debt

    482        5        0.95        650        5        0.84        733        2        0.40   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities

    21,742        119        0.55        24,668        120        0.49        30,051        129        0.43   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

    7,481        324        0.96        9,751        366        0.92        11,461        400        0.85   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total:

                 

Total interest-earning assets

    136,093        1,460        1.07        144,546        1,437        0.99        152,499        1,423        0.93   

Total interest-bearing liabilities

    125,534        449        0.36        130,824        416        0.32        138,042        412        0.30   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

  ¥ 10,559      ¥ 1,011        0.71      ¥ 13,722      ¥ 1,021        0.67      ¥ 14,457      ¥ 1,011        0.63   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

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.

 

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Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

Interest and dividend income decreased by ¥14 billion, or 1.0%, from the previous fiscal year to ¥1,423 billion in the fiscal year ended March 31, 2013. Domestic interest and dividend income accounted for ¥894 billion of the total amount, a decrease of ¥57 billion from the previous fiscal year, and foreign interest and dividend income accounted for ¥529 billion, an increase of ¥43 billion from the previous fiscal year.

The decrease in domestic interest and dividend income was due mainly to the decrease in interest income from domestic loans. The decrease in interest income from domestic loans was due mainly to the decrease in the average yield, reflecting a decline in yen interest rate levels, as well as the average balance. Changes in the average yields on domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥49 billion, and changes in the average balances of domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥8 billion, resulting in the ¥57 billion decrease in domestic interest and dividend income.

The increase in foreign interest and dividend income was due mainly to the increase in interest income from foreign loans. The increase in interest income from foreign loans was due mainly to an increase in the average balance, mainly in Asia and Oceania. Changes in the average yields on foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥60 billion, and changes in the average balance of foreign interest-earning assets contributed to an overall increase in interest and dividend income of ¥103 billion, resulting in the ¥43 billion increase in foreign interest and dividend income.

Interest expense decreased by ¥4 billion, or 1.0%, from the previous fiscal year to ¥412 billion in the fiscal year ended March 31, 2013. Domestic interest expense accounted for ¥283 billion of the total amount, a decrease of ¥13 billion from the previous fiscal year, and foreign interest expense accounted for ¥129 billion of the total amount, an increase of ¥9 billion from the previous fiscal year.

The decrease in domestic interest expense was due mainly to a decrease in interest expense on domestic deposits. The decrease in interest expense on domestic deposits was due mainly to a decrease in the average interest rate, reflecting a decline in yen interest rate levels. The changes in the average interest rates on domestic interest-bearing liabilities contributed to substantially all of the overall decrease in interest expense of ¥13 billion.

The increase in foreign interest expense was due mainly to an increase in interest expense on foreign short-term borrowings. The increase in foreign interest expense on foreign short-term borrowings was due mainly to an increase in the average balance, primarily as a result of an increase in payables under repurchase agreements of our securities subsidiary in the United States as well as the average interest rate. The changes in the average interest rates on foreign interest-bearing liabilities contributed to an overall decrease in interest expense of ¥11 billion, and the changes in the average balance of foreign interest-bearing liabilities contributed to an overall increase in interest expense of ¥20 billion, resulting in the ¥9 billion increase in foreign interest expense.

As a result of the foregoing, net interest income decreased by ¥10 billion, or 1.0%, from the previous fiscal year to ¥1,011 billion. The average interest rate spread decreased by 0.04% to 0.63%, with the domestic average interest rate spread decreasing by 0.03% due to a decrease in the average yield on interest-earning assets, which more than offset the effect of a decrease in the average interest rate on interest-bearing liabilities, both of which reflect declining yen interest rate levels, and the foreign average interest rate spread decreasing by 0.07% due to the effect of the decrease in the average yield on interest-earning assets exceeding the effect of the decrease in the average interest rate on interest-bearing liabilities, both of which reflects declining euro interest rate levels.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Interest and dividend income decreased by ¥23 billion, or 1.6%, from the previous fiscal year to ¥1,437 billion in the fiscal year ended March 31, 2012. Domestic interest and dividend income accounted for

 

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¥951 billion of the total amount, a decrease of ¥66 billion from the previous fiscal year, and foreign interest and dividend income accounted for ¥486 billion, an increase of ¥43 billion from the previous fiscal year.

The decrease in domestic interest and dividend income was due mainly to the decrease in interest income from domestic loans. The decrease in interest income from domestic loans was due mainly to the decrease in the average yield, reflecting a decline in yen interest rate levels as well as the decrease in the average balance. Changes in the average yields on domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥74 billion, and changes in the average balances of domestic interest-earning assets contributed to an overall increase in interest and dividend income of ¥8 billion, resulting in the ¥66 billion decrease in domestic interest and dividend income.

The increase in foreign interest and dividend income was due mainly to the increase in interest from foreign loans. The increase in interest income from foreign loans was due mainly to an increase in the average balance, mainly in Asia. Changes in the average yields on foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥26 billion, and changes in the average balances of foreign interest-earning assets contributed to an overall increase in interest and dividend income of ¥69 billion, resulting in the ¥43 billion increase in foreign interest and dividend income.

Interest expense decreased by ¥33 billion, or 7.3%, from the previous fiscal year to ¥416 billion in the fiscal year ended March 31, 2012. Domestic interest expense accounted for ¥296 billion of the total amount, a decrease of ¥34 billion from the previous fiscal year, and foreign interest expense accounted for ¥120 billion of the total amount, an increase of ¥1 billion from the previous fiscal year.

The decrease in domestic interest expense was due mainly to a decrease in interest expense on domestic deposits. The decrease in interest expense on domestic deposits was due to a decrease in the average interest rate, reflecting a decline in yen interest rate levels. The changes in the average interest rates on domestic interest-bearing liabilities contributed to an overall decrease in interest expense of ¥35 billion, and the changes in the average balances of domestic interest-bearing liabilities contributed to an overall increase in interest expense of ¥1 billion, resulting in the ¥34 billion decrease in domestic interest expense.

The increase in foreign interest expense was due mainly to increases in interest expense on foreign deposits offset in part by a decrease in interest expense on foreign short-term borrowings. The increase in foreign interest expense on foreign deposits was due mainly to an increase in the average balance, primarily as a result of issuances of certificates of deposits. The decrease in foreign interest expense on foreign short-term borrowings was due to a decrease in the average interest rate, reflecting the decline in U.S. dollar and euro interest rate levels. The changes in the average interest rates on foreign interest-bearing liabilities contributed to an overall decrease in interest expense of ¥15 billion, and the changes in the average balances of foreign interest-bearing liabilities contributed to an overall increase in interest expense of ¥16 billion, resulting in the ¥1 billion increase in foreign interest expense.

The decrease of 0.05% in the average yield on loans in the fiscal year ended March 31, 2012 compared to the fiscal year ended March 31, 2011 was larger than the decrease of 0.01% in the average rate on interest-bearing deposits over the same period.

As a result of the foregoing, net interest income increased by ¥10 billion, or 1.0%, from the previous fiscal year to ¥1,021 billion. The average interest rate spread decreased by 0.04% to 0.67%, with the domestic average interest rate spread decreasing by 0.05% due mainly to a decrease in the average yield on loans, which more than offset the effect of a decrease in the average interest rate on deposits, both of which reflect declining yen interest rate levels, and the foreign average interest rate spread decreasing by 0.04% due mainly to the effect of the decrease in the average interest yield on interest-earning assets exceeding the effect of the decrease in the average rate on interest-bearing liabilities, both of which reflects declining U.S. dollar and euro interest rate levels.

 

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Provision (Credit) for Loan Losses

Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

We had a provision for loan losses of ¥140 billion in the fiscal year ended March 31, 2013 compared to a credit for loan losses of ¥23 billion in the previous fiscal year. The change was due primarily to an increase in allowance for loan losses as a result of an increase in foreign impaired loans that required an allowance for loan losses and of increased estimated loss reflecting changes in business environment surrounding some domestic obligors, offset in part by the effects of the continuing gradual recovery of the Japanese economy.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

We had a credit for loan losses of ¥23 billion in the fiscal year ended March 31, 2012 compared to a provision for loan losses of ¥1 billion in the previous fiscal year. The change was due primarily to upgrades in the obligor categories of a broad range of borrowers mainly through our credit management activities, including business revitalization support for borrowers, the effect of which was enhanced against a backdrop of the improving domestic economic environment as described in “—Overview—Operating Environment,” reflecting the continuing gradual recovery of the Japanese economy. See “—Financial Condition—Assets—Allowance for Loan Losses—Provision for loan losses.”

Noninterest Income

The following table shows a breakdown of noninterest income for the fiscal years ended March 31, 2011, 2012 and 2013:

 

     Fiscal years ended March 31,  
     2011     2012     2013  
     (in billions of yen)  

Fees and commissions

   ¥ 582      ¥ 575      ¥ 613   

Fees and commissions from securities-related business

     126        116        133   

Fees and commissions from deposits, debentures and lending business

     95        98        114   

Fees and commissions from remittance business

     105        105        105   

Trust fees

     47        46        46   

Fees for other customer services

     209        210        215   

Foreign exchange gains (losses)—net

     56        98        21   

Trading account gains (losses)—net

     206        333        534   

Investment gains (losses)—net

     70        (33     121   

Investment gains (losses) related to bonds

     67        42        91   

Investment gains (losses) related to equity securities

     (12     (65     56   

Others

     15        (10     (26

Gains on disposal of premises and equipment

     14        20        12   

Other noninterest income

     109        97        138   
  

 

 

   

 

 

   

 

 

 

Total noninterest income

   ¥ 1,037      ¥ 1,090      ¥ 1,439   
  

 

 

   

 

 

   

 

 

 

Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

Noninterest income increased by ¥349 billion, or 32.0%, from the previous fiscal year to ¥1,439 billion in the fiscal year ended March 31, 2013. The increase was due mainly to an increase in trading account gains—net of ¥201 billion, investment gains—net of ¥121 billion in the fiscal year ended March 31, 2013 compared to investment losses—net of ¥33 billion in the previous fiscal year, an increase in other noninterest income of ¥41 billion and an increase in fees and commissions of ¥38 billion, offset in part by a decrease in foreign exchange gains—net of ¥77 billion.

 

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Fees and commissions

Fees and commissions increased by ¥38 billion, or 6.6%, from the previous fiscal year to ¥613 billion in the fiscal year ended March 31, 2013. The increase was due mainly to an increase in fees and commissions from securities-related business of ¥17 billion and an increase in fees and commissions from deposits, debentures and lending business of ¥16 billion. The increase in fees and commissions from securities-related business was due mainly to an increase in fees and commissions related to equity securities transactions, investment trust and individual annuities as a result of a recovery of the stock markets during the fiscal year ended March 31, 2013. The increase in fees and commissions from deposits, debentures and lending business was due mainly to an increase in fee income associated with domestic syndicated loans.

Foreign exchange gains (losses)—net

Foreign exchange gains—net decreased by ¥77 billion, or 78.6%, from the previous fiscal year to ¥21 billion in the fiscal year ended March 31, 2013. The decrease was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2013.

Trading account gains (losses)—net

Trading account gains—net increased by ¥201 billion, or 60.4%, from the previous fiscal year to ¥534 billion in the fiscal year ended March 31, 2013. The increase was due mainly to an increase in trading account gains earned by our securities subsidiary related to bonds reflecting a decline in yen interest rate levels and related to domestic equity securities reflecting an upturn in domestic market conditions, gains recorded by consolidated VIEs as a result of an improvement in market conditions and an increase in gains related to change in the fair value of derivative financial instruments used to hedge market risks that are not eligible for hedge accounting under U.S. GAAP, offset in part by a decrease in gains related to changes in the fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. For further information on the fair value option, see note 27 to our consolidated financial statements included elsewhere in this annual report.

Investment gains (losses)—net

Investment gains (losses)—net was a gain of ¥121 billion in the fiscal year ended March 31, 2013 compared to a loss of ¥33 billion in the previous fiscal year. The change was due mainly to investment gains related to equity securities of ¥56 billion recorded in the fiscal year ended March 31, 2013 compared to investment losses related to equity securities of ¥65 billion in the previous fiscal year and an increase in investment gains related to bonds of ¥49 billion from the previous fiscal year to ¥91 billion in the fiscal year ended March 31, 2013. The change in investment gains (losses) related to equity securities was due mainly to an increase in gains on sale of equity securities as a result of an upturn in domestic stock market conditions. The increase in investment gains related to bonds was due mainly to an increase in gains related to sales of Japanese government bonds as a result of declining yen interest rates. For further information, see note 3 to our consolidated financial statements included elsewhere in this annual report.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Noninterest income increased by ¥53 billion, or 5.1%, from the previous fiscal year to ¥1,090 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in trading account gains—net of ¥127 billion and an increase in foreign exchange gains—net of ¥42 billion, offset in part by investment losses—net of ¥33 billion in the fiscal year ended March 31, 2012, compared to investment gains—net of ¥70 billion in the previous fiscal year.

Foreign exchange gains (losses)—net

Foreign exchange gains—net increased by ¥42 billion, or 75.0%, from the previous fiscal year to ¥98 billion in the fiscal year ended March 31, 2012. The increase was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2012.

 

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Trading account gains (losses)—net

Trading account gains—net increased by ¥127 billion, or 61.7%, from the previous fiscal year to ¥333 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in gains related to changes in the fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. For further information on the fair value option, see note 27 to our consolidated financial statements included elsewhere in this annual report.

Investment gains (losses)—net

Investment gains (losses)—net was a loss of ¥33 billion in the fiscal year ended March 31, 2012 compared to a gain of ¥70 billion in the previous fiscal year. The change was due mainly to an increase in investment losses related to equity securities of ¥53 billion from the previous fiscal year to ¥65 billion in the fiscal year ended March 31, 2012 and a decrease in investment gains related to bonds of ¥25 billion from the previous fiscal year to ¥42 billion in the fiscal year ended March 31, 2012. The increase in investment losses related to equity securities was due mainly to an increase in impairment losses on equity securities as a result of declines in stock market prices in the fiscal year ended March 31, 2012. The decrease in investment gains related to bonds was due mainly to a decrease in gains related to sales of long-term Japanese government bonds. For further information, see note 3 to our consolidated financial statements included elsewhere in this annual report.

Noninterest Expenses

The following table shows a breakdown of noninterest expenses for the fiscal years ended March 31, 2011, 2012 and 2013:

 

     Fiscal years ended March 31,  
     2011      2012     2013  
     (in billions of yen)  

Salaries and employee benefits

   ¥ 553       ¥ 587      ¥ 572   

General and administrative expenses

     500         477        440   

Impairment of goodwill

     9         6        —     

Occupancy expenses

     170         175        172   

Fees and commission expenses

     96         108        109   

Provision (credit) for losses on off-balance-sheet instruments

     4         (1     5   

Other noninterest expenses

     104         119        127   
  

 

 

    

 

 

   

 

 

 

Total noninterest expenses

   ¥ 1,436       ¥ 1,471      ¥ 1,425   
  

 

 

    

 

 

   

 

 

 

Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

Noninterest expenses decreased by ¥46 billion, or 3.1%, from the previous fiscal year to ¥1,425 billion in the fiscal year ended March 31, 2013. The decrease was due mainly to a decrease in general and administrative expenses of ¥37 billion and a decrease in salaries and employee benefits of ¥15 billion. The decrease in general and administrative expenses was due mainly to our continuous group-wide cost reduction efforts. The decrease in salaries and employee benefits was due mainly to the effect of decreased employee retirement benefit expenses.

Salaries and employee benefits

Salaries and employee benefits decreased by ¥15 billion, or 2.6%, from the previous fiscal year to ¥572 billion in the fiscal year ended March 31, 2013 due mainly to the effect of decreased employee retirement benefit expenses as a result of a decrease in the amortization of net actuarial loss, which primarily reflects past recoveries of the value of plan assets, an increase in expected return on plan assets, which reflects various aspects

 

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of long-term prospects for the economy, historical performance of investments of plan assets and the market environment, including stock market conditions, at the beginning of the fiscal year, and the absence of a premium allowance for a voluntary early retirement program of a securities subsidiary incurred in the previous fiscal year. Additional information regarding pension and other employee benefit plans is included in note 19 to our consolidated financial statements included elsewhere in this annual report.

General and administrative expenses

General and administrative expenses decreased by ¥37 billion, or 7.8%, from the previous fiscal year to ¥440 billion in the fiscal year ended March 31, 2013. The decrease was due mainly to our continuous group-wide cost reduction efforts.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Noninterest expenses increased by ¥35 billion, or 2.4%, from the previous fiscal year to ¥1,471 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in salaries and employee benefits of ¥34 billion and an increase in other noninterest expenses of ¥15 billion, offset in part by a decrease in general and administrative expenses of ¥23 billion. The increase in salaries and employee benefits was due mainly to the effect of increased employee retirement benefit expenses. The increase in other noninterest expenses was due mainly to losses incurred by Pre-Merger Mizuho Bank related to financial alternative dispute resolutions in relation to customer complaints arising from currency derivative transactions. The decrease in general and administrative expenses was due mainly to our efforts to enhance our cost efficiency through detailed reviews.

Salaries and employee benefits

Salaries and employee benefits increased by ¥34 billion, or 6.1%, from the previous fiscal year to ¥587 billion in the fiscal year ended March 31, 2012 due mainly to the effect of increased employee retirement benefit expenses as a result of a decline in expected return on plan assets, which reflects various aspects of long-term prospects for the economy, historical performance of investments of plan assets and the market environment, including stock market conditions, at the beginning of the fiscal year, an increase in the amortization of net actuarial loss, which primarily reflects past declines in the value of plan assets, and a premium allowance for a voluntary early retirement program of a securities subsidiary. Additional information regarding pension and other employee benefit plans is included in note 19 to our consolidated financial statements included elsewhere in this annual report.

General and administrative expenses

General and administrative expenses decreased by ¥23 billion, or 4.6%, from the previous fiscal year to ¥477 billion in the fiscal year ended March 31, 2012. The decrease was due mainly to our efforts to enhance our cost efficiency through detailed reviews, especially outsourcing costs.

Other noninterest expenses

Other noninterest expenses increased by ¥15 billion, or 14.4%, from the previous fiscal year to ¥119 billion in the fiscal year ended March 31, 2012. The increase was due mainly to losses incurred by Mizuho Bank related to financial alternative dispute resolutions in relation to customer complaints arising from currency derivative transactions.

 

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Income Tax Expense

The following table shows the components of income tax expense (benefit) for the fiscal years ended March 31, 2011, 2012 and 2013:

 

     Fiscal years ended March 31,  
         2011              2012             2013      
     (in billions of yen)  

Current:

       

Domestic

   ¥ 7       ¥ 22      ¥ 37   

Foreign

     11         33        11   
  

 

 

    

 

 

   

 

 

 

Total current tax expense

     18         55        48   

Deferred:

       

Domestic

     175         (37     (40

Foreign

     0         (4     (4
  

 

 

    

 

 

   

 

 

 

Total deferred tax expense (benefit)

     175         (41     (44
  

 

 

    

 

 

   

 

 

 

Total income tax expense

   ¥ 193       ¥ 14      ¥ 4   
  

 

 

    

 

 

   

 

 

 

Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

Income tax expense decreased by ¥10 billion, or 71.4%, from the previous fiscal year to ¥4 billion in the fiscal year ended March 31, 2013, due mainly to a decrease in current income tax expense.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Income tax expense decreased by ¥179 billion, or 92.7%, from the previous fiscal year to ¥14 billion in the fiscal year ended March 31, 2012 due mainly to a decrease in deferred income tax expense.

Deferred income tax expense (benefit) was a benefit of ¥41 billion in the fiscal year ended March 31, 2012 compared to an expense of ¥175 billion in the previous fiscal year. The benefit was the result of an increase in deferred tax assets, net of valuation allowance, reflecting an increase in our estimation of future taxable income offset in part by the reduction of the effective statutory tax rate as a result of Japanese tax reforms.

 

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The following table shows components of deferred tax assets as of March 31, 2011, 2012 and 2013:

 

     As of March 31,  
     2011     2012     2013  
     (in billions of yen)  

Deferred tax assets:

      

Investments

   ¥ 1,097      ¥ 1,064      ¥ 889   

Allowance for loan losses

     417        333        337   

Trading account assets

     92        59        —    

Prepaid pension cost and accrued pension liabilities

     72        12        —    

Financial Stabilization Funds

     12        —         —    

Premises and equipment

     7        —         —    

Undistributed earning of subsidiaries

     —         1        —    

Net operating loss carryforwards

     1,790        1,476        450   

Other

     302        282        265   
  

 

 

   

 

 

   

 

 

 

Gross deferred tax assets

     3,789        3,227        1,941   
  

 

 

   

 

 

   

 

 

 

Valuation allowance

     (2,478     (1,952     (585
  

 

 

   

 

 

   

 

 

 

Deferred tax assets, net of valuation allowance

     1,311        1,275        1,356   

Deferred tax liabilities:

      

Available-for-sale securities

     355        369        568   

Prepaid pension cost and accrued pension liabilities

     —         —         40   

Derivative financial instruments

     32        28        35   

Premises and equipment

     —         4        12   

Trading account assets

     —         —         11   

Undistributed earnings of subsidiaries

     6        —         11   

Other

     76        53        52   
  

 

 

   

 

 

   

 

 

 

Gross deferred tax liabilities

     469        454        729   
  

 

 

   

 

 

   

 

 

 

Net deferred tax assets

   ¥ 842      ¥ 821      ¥ 627   
  

 

 

   

 

 

   

 

 

 

Net Income (Loss) Attributable to Noncontrolling Interests

Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

Net income (loss) attributable to noncontrolling interests was an income of ¥6 billion in the fiscal year ended March 31, 2013 compared to a loss of ¥7 billion in the previous fiscal year due mainly to the allocation of income recorded by our securities subsidiaries in the fiscal year ended March 31, 2013 compared to the allocation of losses incurred by our securities subsidiaries in the previous fiscal year.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Net income (loss) attributable to noncontrolling interests was a loss of ¥7 billion in the fiscal year ended March 31, 2012 compared to an income of ¥5 billion in the previous fiscal year due mainly to an increase in the allocation of losses incurred by our securities subsidiaries in the fiscal year ended March 31, 2012.

Net Income Attributable to MHFG Shareholders

Fiscal Year Ended March 31, 2013 Compared to Fiscal Year Ended March 31, 2012

As a result of the foregoing, net income attributable to MHFG shareholders increased by ¥219 billion, or 33.4%, from the previous fiscal year to ¥875 billion in the fiscal year ended March 31, 2013.

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

As a result of the foregoing, net income attributable to MHFG shareholders increased by ¥243 billion, or 58.8%, from the previous fiscal year to ¥656 billion in the fiscal year ended March 31, 2012.

 

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Business Segments Analysis

Our operating segments are based on the nature of the products and services provided, the type of customer and our management organization. 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 internal managerial accounting rules and practices. Net business profits is used in Japan as a measure of the profitability of core banking operations 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 losses). Measurement by net business profits is required for regulatory reporting to the Financial Services Agency. Therefore, the format and information are presented primarily on the basis of Japanese GAAP and are not consistent with the consolidated financial statements prepared in accordance with U.S. GAAP. A reconciliation of total net business profits with income before income tax expense under U.S. GAAP is provided in note 29 to our consolidated financial statements included elsewhere in this annual report.

As of the balance sheet date, we managed our business portfolio through three Global Groups: the Global Corporate Group; the Global Retail Group; and the Global Asset & Wealth Management Group. The Global Corporate Group consisted primarily of Mizuho Corporate Bank, the Global Retail Group consisted primarily of Pre-Merger Mizuho Bank, and the Global Asset & Wealth Management Group consisted primarily of Mizuho Trust & Banking. The former Mizuho Securities and the former Mizuho Investors Securities which had belonged to the Global Corporate Group and the Global Retail Group respectively, merged in January, 2013 and were launched as the new Mizuho Securities. The new Mizuho Securities belonged to both of the Global Corporate Group and the Global Retail Group.

Operating segments of Mizuho Corporate Bank and Pre-Merger Mizuho Bank were aggregated within each entity based on customer characteristics and functions. Operating segments of Mizuho Corporate Bank were aggregated into three reportable segments, domestic, international, and trading and others. Operating segments of Pre-Merger Mizuho Bank were also aggregated into three reportable segments, retail banking, corporate banking, and trading and others. In addition to the three Global Groups, subsidiaries that provided services to a wide range of customers and that did not belong to a specific Global Group were aggregated in Others.

Beginning on April 1, 2012, with the implementation of the “substantive one bank” structure, in addition to managing our business portfolio through the three Global Groups as described above, we have also begun managing Pre-Merger Mizuho Bank and Mizuho Corporate Bank as one entity substantively with four reportable segments: retail banking; corporate banking; international; and trading and others.

Beginning on April 1, 2013, we moved to a new group operational structure and established ten business units such as personal banking unit, retail banking unit, corporate banking unit etc., and head-office coordination divisions to determine strategies and initiatives across the group-wide banking, trust banking, securities and other business areas, based on the ten business units across Pre-Merger Mizuho Bank and Mizuho Corporate Bank under the “substantive one bank” structure, and the existing three global groups were abolished. The following discussion is based on the three Global Groups we had until the fiscal year ended March 31, 2013.

The Global Corporate Group

Mizuho Corporate Bank

Mizuho Corporate Bank was the main operating company of the Global Corporate Group and provided 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.

 

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Domestic

This segment provided a variety of financial products and services to large corporations, financial institutions and public sector entities in Japan. The products and services it offered included commercial banking, advisory services, syndicated loan arrangements and structured finance.

International

This segment mainly offered commercial banking and foreign exchange transaction services to foreign corporations, including foreign subsidiaries of Japanese corporations, through Mizuho Corporate Bank’s overseas network.

Trading and others

This segment supported the domestic and international segments in offering derivatives and other risk hedging products to satisfy Mizuho Corporate Bank’s customers’ financial and business risk control requirements. It was also engaged in Mizuho Corporate Bank’s proprietary trading, such as foreign exchange and bond trading, and asset and liability management. This segment also included costs incurred by headquarters functions of Mizuho Corporate Bank.

Mizuho Securities

The former Mizuho Securities and the former Mizuho Investors Securities merged to form the new Mizuho Securities in January, 2013. The new Mizuho Securities belonged to both of the Global Corporate Group and the Global Retail Group and provided full-line securities services to corporations, financial institutions, public sector entities and individuals.

Others

This segment consisted of Mizuho Corporate Bank’s subsidiaries and affiliates other than Mizuho Securities, but included Mizuho Securities’ subsidiaries. These entities offered financial products and services in specific areas of business or countries mainly to customers of the Global Corporate Group. This segment also included elimination of transactions between companies within the Global Corporate Group.

The Global Retail Group

Pre-Merger Mizuho Bank

Pre-Merger Mizuho Bank was the main operating company of the Global Retail Group. Pre-Merger Mizuho Bank provided banking and other financial services mainly to individuals, SMEs through its domestic branches and ATM network.

Retail banking

This segment offered banking products and services, including housing and other personal loans, credit cards, deposits, investment products and consulting services, to Pre-Merger Mizuho Bank’s individual customers through its nationwide branches and ATM network, as well as telephone and Internet banking services.

Corporate banking

This segment provided loans, syndicated loan arrangements, structured finance, advisory services, other banking services and capital markets financing to SMEs, local governmental entities and other public sector entities in Japan.

 

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Trading and others

This segment supported the retail banking and corporate banking segments in offering derivatives and other risk hedging products to satisfy Pre-Merger Mizuho Bank’s customers’ financial and business risk control requirements. It was also engaged in Pre-Merger Mizuho Bank’s proprietary trading, such as foreign exchange and bond trading, and asset and liability management. This segment also included costs incurred by headquarters functions of Pre-Merger Mizuho Bank.

The former Mizuho Investors Securities

The former Mizuho Investors Securities merged with the former Mizuho Securities to form the new Mizuho Securities in January, 2013. The former Mizuho Investors Securities offered securities services to individuals and corporate customers of the Global Retail Group and provided those corporate customers with support in procuring funds through capital markets.

Others

This segment consisted of Pre-Merger Mizuho Bank’s subsidiaries and affiliates other than the former Mizuho Investors Securities. These entities such as Mizuho Capital and Mizuho Business Financial Center offered financial products and services in specific areas of business to customers of the Global Retail Group. This segment also included elimination of transactions between companies within the Global Retail Group.

The Global Asset & Wealth Management Group

Mizuho Trust & Banking

Mizuho Trust & Banking was the main operating company of the Global Asset & Wealth Management Group and offered products and services related to trust, real estate, securitization and structured finance, pension and asset management and stock transfer agency.

Others

This segment included companies other than Mizuho Trust & Banking that were a part of the Global Asset & Wealth Management Group. These companies included Trust & Custody Services Bank, Mizuho Asset Management, DIAM, which was an equity-method affiliate, and Mizuho Private Wealth Management. They offered products and services related to trust and custody, asset management and private banking. This segment also included elimination of transactions between companies within the Global Asset & Wealth Management Group.

Others

This segment consisted of Mizuho Financial Group and its subsidiaries that did not belong to a specific Global Group but provided their services to a wide range of customers. Under this segment, we offered non-banking 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 included elimination of transactions between the Global Groups.

The information below for reportable segments is derived from our internal management reporting system as of March 31, 2013.

 

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Results of Operations by Business Segment

Consolidated Results of Operations

Consolidated gross profits for the fiscal year ended March 31, 2013 were ¥2,171.7 billion, an increase of ¥168.6 billion compared to the fiscal year ended March 31, 2012. Consolidated general and administrative expenses (excluding non-recurring losses) for the fiscal year ended March 31, 2013 were ¥1,171.0 billion, a decrease of ¥35.3 billion compared to the fiscal year ended March 31, 2012. Consolidated net business profits for the fiscal year ended March 31, 2013 were ¥912.2 billion, an increase of ¥193.1 billion compared to the fiscal year ended March 31, 2012.

Global Corporate Group Financial Results

The following table shows gross profits, general and administrative expenses (excluding non-recurring losses) and net business profits for the Global Corporate Group for the fiscal years ended March 31, 2011, 2012 and 2013:

 

    Mizuho Corporate Bank     Mizuho
Securities(1)
    Others     Total
Global
Corporate
Group
 
    Domestic     International     Trading
and others
    Subtotal        
    (in billions of yen)  

Fiscal year ended March 31, 2011:

             

Gross profits:

             

Net interest income (expenses)

  ¥ 176.0      ¥ 86.3      ¥ 133.5      ¥ 395.8      ¥ (9.2   ¥ 70.4      ¥ 457.0   

Net noninterest income

    115.2        56.9        110.4        282.5        158.9        42.1        483.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    291.2        143.2        243.9        678.3        149.7        112.5        940.5   

General and administrative expenses

    88.8        62.1        84.1        235.0        160.9        75.4        471.3   

Others

    —          —          —          —          —          (56.7     (56.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net business profits (losses)

  ¥ 202.4      ¥ 81.1      ¥ 159.8      ¥ 443.3      ¥ (11.2   ¥ (19.6   ¥ 412.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fiscal year ended March 31, 2012(2):

             

Gross profits:

             

Net interest income (expenses)

  ¥ 171.4      ¥ 90.3      ¥ 133.3      ¥ 395.0      ¥ (4.1   ¥ 77.4      ¥ 468.3   

Net noninterest income

    131.3        86.9        68.6        286.8        120.5        42.1        449.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    302.7        177.2        201.9        681.8        116.4        119.5        917.7   

General and administrative expenses

    88.5        60.3        96.1        244.9        144.8        75.7        465.4   

Others

    —          —          —          —