Company Quick10K Filing
Quick10K
Mizuho Financial Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$3.07 12,681 $38,930
20-F 2019-03-31 Annual: 2019-03-31
20-F 2018-03-31 Annual: 2018-03-31
20-F 2017-03-31 Annual: 2017-03-31
20-F 2016-03-31 Annual: 2016-03-31
MOMO Momo 6,680
BRC Brady 2,560
AUTL Autolus Therapeutics 991
CTS CTS 939
MBI MBIA 914
DBVT DBV Technologies 665
BDL Flanigans Enterprises 46
ECT ECA Marcellus Trust I 33
QPRC Quest Patent Research 0
USCI United States Commodity Index Funds Trust 0
MFG 2019-03-31
Item 17 ☐ Item 18 ☐
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information of The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Credit, Market and Other Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchase of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-1.2 d704008dex12.htm
EX-12.1 d704008dex121.htm
EX-12.2 d704008dex122.htm
EX-13.1 d704008dex131.htm
EX-15 d704008dex15.htm

Mizuho Financial Group Earnings 2019-03-31

MFG 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 d704008d20f.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

 

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

        For the fiscal year ended March 31, 2019

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)

1-5-5 Otemachi

Chiyoda-ku, Tokyo 100-8176

Japan

(Address of principal executive offices)

Tomomichi Fujita, +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

 

Trading Symbols

 

Name of each exchange on which registered

 

Common Stock, without par value

 

 

MFG

 

 

The New York Stock Exchange*

American depositary shares, each of which represents two shares of common stock   MFG   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, 2019, the following shares of capital stock were issued: 25,392,498,945 shares of common stock (including 6,520,138 shares of common stock held by the registrant as treasury stock).

 

 

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

Yes  ☒    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  ☒

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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☒    Accelerated filer  ☐    Non-accelerated filer  ☐    Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

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

 

U.S. GAAP  ☒    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  ☒

(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      6  
   3.A.   

Selected Financial Data

     6  
   3.B.    Capitalization and Indebtedness      10  
   3.C.    Reasons for the Offer and Use of Proceeds      10  
   3.D.    Risk Factors      11  

ITEM 4.

   Information on the Company      23  
   4.A.    History and Development of the Company      23  
   4.B.    Business Overview      25  
   4.C.    Organizational Structure      54  
   4.D.    Property, Plant and Equipment      56  

ITEM 4A.

   Unresolved Staff Comments      56  

ITEM 5.

   Operating and Financial Review and Prospects      57  

ITEM 6.

   Directors, Senior Management and Employees      110  
   6.A.    Directors and Senior Management      110  
   6.B.    Compensation      113  
   6.C.    Board Practices      119  
   6.D.    Employees      124  
   6.E.    Share Ownership      125  

ITEM 7.

   Major Shareholders and Related Party Transactions      127  
   7.A.    Major Shareholders      127  
   7.B.    Related Party Transactions      127  
   7.C.    Interests of Experts and Counsel      127  

ITEM 8.

   Financial Information      128  
   8.A.    Consolidated Statements and Other Financial Information      128  
   8.B.    Significant Changes      128  

ITEM 9.

   The Offer and Listing      129  
   9.A.    Listing Details      129  
   9.B.    Plan of Distribution      129  
   9.C.    Markets      129  
   9.D.    Selling Shareholders      129  
   9.E.    Dilution      129  
   9.F.    Expenses of the Issue      129  

ITEM 10.

   Additional Information      130  
   10.A.    Share Capital      130  
   10.B.    Memorandum and Articles of Association      130  
   10.C.    Material Contracts      141  
   10.D.    Exchange Controls      141  
   10.E.    Taxation      143  
   10.F.    Dividends and Paying Agents      148  
   10.G.    Statement by Experts      149  
   10.H.    Documents on Display      149  
   10.I.    Subsidiary Information      149  

 

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Table of Contents
          Page  

ITEM 11.

   Quantitative and Qualitative Disclosures about Credit, Market and Other Risk      150  

ITEM 12.

   Description of Securities Other than Equity Securities      169  
   12.A.    Debt Securities      169  
   12.B.    Warrants and Rights      169  
   12.C.    Other Securities      169  
   12.D.    American Depositary Shares      169  

ITEM 13.

   Defaults, Dividend Arrearages and Delinquencies      170  

ITEM 14.

   Material Modifications to the Rights of Security Holders and Use of Proceeds      170  

ITEM 15.

   Controls and Procedures      170  

ITEM 16A.

   Audit Committee Financial Expert      171  

ITEM 16B.

   Code of Ethics      171  

ITEM 16C.

   Principal Accountant Fees and Services      171  

ITEM 16D.

   Exemptions from the Listing Standards for Audit Committees      172  

ITEM 16E.

   Purchase of Equity Securities by the Issuer and Affiliated Purchasers      173  

ITEM 16F.

   Change in Registrant’s Certifying Accountant      173  

ITEM 16G.

   Corporate Governance      173  

ITEM 16H.

   Mine Safety Disclosure      175  

ITEM 17.

   Financial Statements      176  

ITEM 18.

   Financial Statements      176  

ITEM 19.

   Exhibits      176  

Selected Statistical Data

     A-1  

Index to Consolidated Financial Statements

     F-1  

 

2


Table of Contents

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, the terms “Mizuho Financial Group,” the “Mizuho group,” “we,” “us” and “our” generally refer to Mizuho Financial Group, Inc. and its consolidated subsidiaries, but from time to time as appropriate to the context, those terms refer to Mizuho Financial Group, Inc. as an individual legal entity. 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.

On July 1, 2013, a merger between the former Mizuho Bank, Ltd. and the former Mizuho Corporate Bank, Ltd. came into effect with the former 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 the “former Mizuho Bank” and the “former Mizuho Corporate Bank” refer to pre-merger Mizuho Bank and pre-merger Mizuho Corporate Bank, respectively.

In this annual report, “our principal banking subsidiaries” refer to Mizuho Bank and Mizuho Trust & Banking Co., Ltd.

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 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, current expectations and targets 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 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

 

3


Table of Contents

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:

 

   

increase in allowance for loan losses and 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 Five-Year 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;

 

   

problems related to our information technology systems and cyber attacks; 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.

 

4


Table of Contents

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

5


Table of Contents
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, 2015, 2016, 2017, 2018 and 2019 derived from the audited consolidated financial statements of Mizuho Financial Group prepared in accordance with U.S. GAAP.

The second table below sets forth selected consolidated financial data of Mizuho Financial Group as of and for the fiscal years ended March 31, 2015, 2016, 2017, 2018 and 2019 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, 2015, 2016, 2017, 2018 and 2019 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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Table of Contents

U.S. GAAP Selected Consolidated Financial Information

 

    As of and for the fiscal years ended March 31,  
    2015     2016     2017     2018     2019  
    (in millions of yen, except per share data, share number information and percentages)  

Statement of income data:

         

Interest and dividend income

  ¥ 1,457,659     ¥ 1,500,171     ¥ 1,509,030     ¥ 1,761,886     ¥ 2,207,443  

Interest expense

    411,982       495,407       601,712       889,936       1,313,476  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    1,045,677       1,004,764       907,318       871,950       893,967  

Provision (credit) for loan losses

    (60,223     34,560       37,668       (126,362     32,459  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision (credit) for loan losses

    1,105,900       970,204       869,650       998,312       861,508  

Noninterest income

    1,801,215       1,883,894       1,368,032       1,604,663       1,222,371  

Noninterest expenses

    1,639,462       1,657,493       1,757,307       1,763,677       1,998,819  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax expense

    1,267,653       1,196,605       480,375       839,298       85,060  

Income tax expense

    437,420       346,542       91,244       237,604       9,335  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    830,233       850,063       389,131       601,694       75,725  

Less: Net income (loss) attributable to noncontrolling interests

    27,185       (429     26,691       24,086       (8,746
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to MHFG shareholders

  ¥ 803,048     ¥ 850,492     ¥ 362,440     ¥ 577,608     ¥ 84,471  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to common shareholders

  ¥ 798,138     ¥ 848,062     ¥ 362,440     ¥ 577,608     ¥ 84,471  

Amounts per share:

         

Basic earnings per common share—net income attributable to common shareholders

  ¥ 32.75     ¥ 34.19     ¥ 14.33     ¥ 22.77     ¥ 3.33  

Diluted earnings per common share—net income attributable to common shareholders

  ¥ 31.64     ¥ 33.50     ¥ 14.28     ¥ 22.76     ¥ 3.33  

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

    24,368,116       24,806,161       25,285,899       25,366,345       25,362,376  

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

    25,381,047       25,387,033       25,380,302       25,373,931       25,366,898  

Cash dividends per share (1)(2):

         

Common stock

  ¥ 7.50     ¥ 7.50     ¥ 7.50     ¥ 7.50     ¥ 7.50  
  $ 0.06     $ 0.07     $ 0.07     $ 0.07     $ 0.07  

Eleventh series class XI preferred stock(3)

  ¥ 20.00     ¥ 20.00     ¥ —       ¥ —       ¥ —    
  $ 0.17     $ 0.18     $ —       $ —       $ —    

 

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Table of Contents
    As of and for the fiscal years ended March 31,  
    2015     2016     2017     2018     2019  
    (in millions of yen, except per share data, share number information and percentages)  

Balance sheet data:

         

Total assets

    ¥190,114,354 (4)      ¥193,810,151 (4)    ¥ 200,456,304     ¥ 204,255,642     ¥ 197,611,195  

Loans, net of allowance

    77,528,017       77,104,122       81,804,233       83,204,742       82,492,742  

Total liabilities

    181,924,510 (4)      185,626,960 (4)      191,684,247       194,751,942       188,109,702  

Deposits

    114,206,441       117,937,722       131,184,953       136,884,006       138,296,916  

Long-term debt

    14,576,861 (4)      14,765,527 (4)      14,529,414       12,955,230       11,529,400  

Common stock

    5,590,396       5,703,144       5,826,149       5,826,383       5,829,657  

Total MHFG shareholders’ equity

    7,930,338       8,014,551       8,261,357       8,868,421       8,726,519  

Other financial data:

         

Return on equity and assets:

         

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

    0.42     0.43     0.18     0.28     0.04

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

    13.86     13.33     5.25     8.26     1.11

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

    22.90     21.94     52.34     32.94     225.23

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

    3.04     3.23     3.38     3.35     3.71

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

    0.63     0.58     0.51     0.47     0.48

 

Notes:

 

(1)

Yen amounts are expressed in U.S. dollars at the rate of ¥119.96 = $1.00, ¥112.42 = $1.00, ¥111.41= $1.00, ¥106.20= $1.00 and ¥110.68= $1.00 for the fiscal years ended March 31, 2015, 2016, 2017, 2018 and 2019, 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.

(2)

Figures represent cash dividends per share with respect to the applicable fiscal year. Dividends with respect to a fiscal year include year-end dividends and interim dividends. Declaration and payment of dividends are conducted during the immediately following fiscal year, in the case of year-end dividends, or immediately following interim period, in the case of interim dividends.

(3)

On July 1, 2016, we acquired ¥75.1 billion of eleventh series class XI preferred stock, in respect of which a request for acquisition was not made by June 30, 2016, and delivered shares of our common stock, pursuant to Article 20, Paragraph 1 of our articles of incorporation and a provision in the terms and conditions of the preferred stock concerning mandatory acquisition in exchange for common stock. On July 13, 2016, we cancelled all of our treasury shares of eleventh series class XI preferred stock.

(4)

Total assets, total liabilities and long-term debt have been recalculated to reflect the retrospective adoption of ASU No.2015-03. See note 2 to our consolidated financial statements included elsewhere in this annual report.

 

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Table of Contents

Japanese GAAP Selected Consolidated Financial Information

 

    As of and for the fiscal years ended March 31,  
    2015     2016     2017     2018     2019  
    (in millions of yen, except per share data and percentages)  

Statement of income data:

         

Interest income

  ¥ 1,468,976     ¥ 1,426,256     ¥ 1,445,555     ¥ 1,622,354     ¥ 2,056,327  

Interest expense

    339,543       422,574       577,737       814,988       1,293,846  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    1,129,433       1,003,682       867,818       807,366       762,480  

Fiduciary income

    52,641       53,458       50,627       55,400       55,153  

Net fee and commission income

    593,360       607,551       603,542       614,349       610,427  

Net trading income

    262,963       310,507       325,332       275,786       297,367  

Net other operating income

    209,340       246,415       245,419       162,454       87,306  

General and administrative expenses

    1,351,611       1,349,593       1,467,221       1,488,973       1,430,850  

Other income

    301,652       365,036       438,042       565,683       447,300  

Other expenses

    207,147       228,807       279,368       192,113       712,927  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes(1)

    990,632       1,008,252       784,193       799,953       116,259  

Income taxes:

         

Current(2)

    260,268       213,289       196,535       190,158       161,376  

Deferred

    44,723       69,260       (58,800     1,469       (163,879

Profit(1)

    685,640       725,702       646,457       608,326       118,762  

Profit attributable to non- controlling interests(1)

    73,705       54,759       42,913       31,778       22,196  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to owners of parent(1)

  ¥ 611,935     ¥ 670,943     ¥ 603,544     ¥ 576,547     ¥ 96,566  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

         

Basic

  ¥ 24.91     ¥ 26.94     ¥ 23.86     ¥ 22.72     ¥ 3.80  

Diluted

    24.10       26.42       23.78       22.72       3.80  

Balance sheet data:

         

Total assets

  ¥  189,684,749     ¥  193,458,580     ¥  200,508,610     ¥  205,028,300     ¥  200,792,226  

Loans and bills discounted(3)

    73,415,170       73,708,884       78,337,793       79,421,473       78,456,935  

Securities

    43,278,733       39,505,971       32,353,158       34,183,033       29,774,489  

Deposits(4)

    113,452,451       117,456,604       130,676,494       136,463,824       137,649,596  

Net assets

    9,800,538       9,353,244       9,273,361       9,821,246       9,194,038  

Risk-adjusted capital data (Basel III)(5):

         

Common Equity Tier 1 capital

  ¥ 6,153,141     ¥ 6,566,488     ¥ 7,001,664     ¥ 7,437,048     ¥ 7,390,058  

Tier 1 capital

    7,500,349       7,905,093       8,211,522       9,192,244       9,232,160  

Total capital

    9,508,471       9,638,641       10,050,953       10,860,440       10,917,507  

Risk-weighted assets

    65,191,951       62,531,174       61,717,158       59,528,983       57,899,567  

Common Equity Tier 1 capital ratio

    9.43     10.50     11.34     12.49     12.76

Tier 1 capital ratio

    11.50       12.64       13.30       15.44       15.94  

Total capital ratio

    14.58       15.41       16.28       18.24       18.85  

 

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Notes:

 

(1)

We have applied “Revised Accounting Standard for Business Combinations” (ASBJ Statement No.21, September 13, 2013) and others, and presentation of net income and others has been changed and presentation of minority interests has been changed to non-controlling interests from the fiscal year ended March 31, 2016.

(2)

Includes refund of income taxes.

(3)

Bills discounted refer 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.

(4)

Includes negotiable certificates of deposit.

(5)

Risk-adjusted capital data are calculated on a Basel III basis. We utilize the advanced internal ratings-based approach (the “AIRB approach”) for the calculation of risk-weighted assets associated with credit risk and the advanced measurement approach (the “AMA”) for the calculation of operational risk. 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.”

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, land revaluation, business combinations, pension liabilities, consolidation of variable interest entities, deferred taxes and foreign currency translation.

In our financial results for the fiscal year ended March 31, 2019, we recorded losses totaling ¥695.4 billion under Japanese GAAP in connection with carrying out our structural reforms as described in “Item 4.B. Business Overview—General—Recording of Losses in Light of Structural Reforms.” The losses consisted of (i) impairment losses on fixed assets and (ii) losses pertaining to the restructuring of securities portfolio, etc., in our markets division. We reviewed the application of impairment losses on long-lived assets in order to enhance the sophistication of our management accounting capabilities, and we also revised our future earnings plans, and branch network strategy, etc., for each business area pursuant to our new Five-Year Business Plan. As a result of these revisions, we recorded impairment losses on fixed assets of ¥500.7 billion under Japanese GAAP, including software attributable to the domestic retail business division and branches that are scheduled to be closed, as an extraordinary loss. Most of the corresponding losses have not been incurred under U.S. GAAP because of the differences in the accounting for impairment of long-lived assets between U.S. GAAP and Japanese GAAP, particularly those related to the allocation of long-lived assets that do not have identifiable cash flows largely independent of the cash flows of other asset groups to individual divisions. In connection with the implementation of the restructuring of the securities portfolio of the markets division in respect of our past investments in foreign bonds, etc., we recorded losses in the amount of ¥194.7 billion under Japanese GAAP. Most of the corresponding losses had already been recognized under U.S. GAAP in respect of our past investments in foreign bonds primarily because they were reported as trading securities under U.S. GAAP.

See “Item 5. Operating and Financial Review and Prospects—Reconciliation with Japanese GAAP” for information on the reconciling items between our U.S. GAAP financial statements and our Japanese GAAP financial statements for the fiscal year ended March 31, 2019.

3.B. Capitalization and Indebtedness

Not applicable.

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

Not applicable.

 

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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 Credit, Market and Other Risk” and “Selected Statistical Data.”

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 be required to increase allowance for loan losses and/or 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 manufacturing and real estate industries as well as banks and other financial institutions 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 that are expected to be affected when risk events occur, and we also utilize credit derivatives for hedging and credit risk mitigation purposes. We provide an allowance for loan losses taking into consideration the borrower’s situation, the value of relevant collateral and guarantee, which we periodically re-evaluate, and economic trends based on our self-assessment standards as well as applicable charge-off and allowance standards. However, depending on the status of domestic and global credit cycles, the business environment in particular industries, prices of real estate assets 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, including provision for loan losses and charge-offs of loans, 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. We have established the “Policy Regarding Cross-holding of Shares of Other Listed Companies” and, in light of the potential material adverse impact on our financial position associated with stock market volatility risk, we have decided to hold the shares of other companies as cross-shareholdings only when these holdings are meaningful, and we have accordingly sold a portion of such investments. In addition, in order to lower the risk of stock market volatility, we have been applying partial hedges as we deem necessary. 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. 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.

 

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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.

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 factors such as turmoil in global financial markets or the deterioration of economic or financial conditions cause the market liquidity of our assets to decrease significantly, 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 decrease in deferred tax assets, net of valuation allowance, 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, net of valuation allowance, 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 decrease due to a change in our estimation of future taxable income, a change in tax rate as a result of tax system revisions or other factors. Because we consider the sale of available-for-sale securities to be a qualifying tax-planning strategy, turmoil in financial markets such as significant declines in stock prices could lead to a decrease in our estimated future taxable income.

 

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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.

Impairment of the carrying value of our long-lived assets could materially and adversely affect our financial condition and results of operations.

We periodically review our long-lived assets that are held for use for events or changes in circumstances that indicate possible impairment. Our impairment review is based on an undiscounted cash flow analysis of a group of assets, combined with associated liabilities, at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset group exceeds the future undiscounted cash flows that the asset group is expected to generate. When impairment is identified, the future cash flows are then discounted to determine the estimated fair value of the asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value of the asset group. We cannot accurately predict the amount and timing of any impairment of long-lived assets. Should these assets not generate sufficient cash flows to justify their carrying value and we recognize impairment losses thereon, there could be a material adverse effect on our financial condition and results of operations. For example, in the fiscal year ended March 31, 2019 we recorded ¥500.7 billion of impairment losses under Japanese GAAP, which unlike U.S. GAAP allows for the option of allocating entity-wide long-lived assets among individual divisions within an entity. The above losses involved entity-wide long-lived assets, consisting primarily of internally developed software allocated to the domestic retail business division for the purpose of the impairment test under Japanese GAAP.

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

We rely principally on deposits and bonds as our funding sources. In addition, we also raise funds in the financial markets. In particular, our foreign currency funding structure relies more on capital markets compared to our yen-based funding. Our efforts to maintain stable funding, such as setting maximum limits on financial market funding and monitoring our liquidity position to apply appropriate funding policies, may not be sufficient to prevent significant increases in our funding costs or, in the case mainly of foreign currencies, 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:

 

   

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;

 

   

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

 

   

downgrading of our credit ratings or damage to our reputation.

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

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

 

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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.

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

For example, assuming a downgrade occurred on March 31, 2019, the additional collateral requirement in connection with our derivative contracts if other conditions remain unchanged, would have been approximately ¥3.7 billion for a one-notch downgrade and approximately ¥9.0 billion for a two-notch downgrade.

Failure to maintain capital adequacy ratios and other regulatory standards above minimum required levels could have material adverse effects.

Capital adequacy regulations

We are subject to capital adequacy regulations as prescribed by the Financial Services Agency based on the Basel III rules text issued by the Basel Committee on Banking Supervision, both on a consolidated basis and with respect to each of our principal banking subsidiaries. The capital adequacy ratio rules will continue to be applied in stages over several years, with full application scheduled to commence in January 2027 under the finalized Basel III reforms published by the Basel Committee on Banking Supervision in December 2017. Furthermore, we have been named by the Financial Stability Board as a “global systemically important bank” (G-SIB), and a higher level of capital adequacy ratio is applicable to us as a result. In addition, the list of G-SIBs, including their categorization regarding the level of additional required capital, are updated annually, and there is a possibility that we will be required to have a higher level of capital in the future. See “Item 5. Operating and Financial Review and Prospects—Capital Adequacy” and “Item 4.B. Business Overview—Supervision and Regulation—Capital Adequacy.”

We endeavor to maintain our capital adequacy ratios at an appropriate and sufficient level in light of our risk-asset management plan that is integrated with our business strategy, capital efficiency needs and the status of the risks enumerated in these “Risk Factors.” However, our and our principal banking subsidiaries’ 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 of calculating capital adequacy ratios and other factors. Also, there are regulatory adjustments, such as those related to goodwill and other intangibles, deferred tax assets and investments in the capital of banking, financial and insurance entities, that are deducted from regulatory capital under certain conditions. Our or our principal banking subsidiaries’ regulatory capital and capital adequacy ratios could decline due to such regulations.

If the capital adequacy ratios of us or our principal banking subsidiaries fall below specified levels, the Financial Services Agency could require us to take corrective actions, including, depending on the level of deficiency, the submission of a plan to limit the outflow of capital or an improvement plan that would strengthen the capital base, a reduction (or slowing of increase) of total assets, a reduction in the size of business operations, a disposition of subsidiary shares and a suspension of all or a portion of business operations. In addition, some of our banking subsidiaries are subject to capital adequacy regulations in foreign jurisdictions such as the United States, and in the event of a breach of these regulations, they could be subject to various restrictions and orders from local authorities. Such events could adversely affect our business, financial condition and results of operations.

 

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Leverage ratio regulations

In December 2017, the Basel Committee on Banking Supervision published the finalized Basel III reforms in which the framework for the leverage ratio requirements was finalized, and the phased application of the requirements, as prescribed by the Financial Services Agency, commenced on March 31, 2019, with full application scheduled to take effect from January 2022 under the finalized Basel III reforms published by the Basel Committee on Banking Supervision in December 2017. The regulation requires bank holding companies and banks to maintain their leverage ratio, which is a supplementary indicator of the capital adequacy ratio, at a certain level or above. See “Item 5. Operating and Financial Review and Prospects—Capital Adequacy” and “Item 4.B. Business Overview—Supervision and Regulation—Capital Adequacy.” If the leverage ratio falls below that level, the Financial Services Agency could require us to take corrective actions, including the submission of an improvement plan that would strengthen the capital base, a reduction (or slowing of increase) of total assets, a reduction in the size of some business operations, a disposition of subsidiary shares and a suspension of all or a portion of business operations. Such events could adversely affect our business, financial condition and results of operations.

Total Loss Absorbing Capacity (TLAC) regulations

In November 2015, the Financial Stability Board released a final document requiring G-SIBs to have a certain minimum total loss absorbing capacity (TLAC). The phased application by the Financial Services Agency of TLAC regulations in Japan to Japanese G-SIBs, including us, began on March 31, 2019 with full application, with certain limited exception, to take effect from March 31, 2022. These regulations are applicable to G-SIBs such as us, in addition to capital adequacy regulations. See “Item 5. Operating and Financial Review and Prospects—Capital Adequacy” and “Item 4.B. Business Overview—Supervision and Regulation—Capital Adequacy.” If the TLAC of us or our material subsidiaries fall below a certain threshold, the Financial Services Agency could require the submission of a plan to improve TLAC or may issue a business improvement order which could include various restrictions on, or suspension of portions of, our business. Such events could adversely affect our business, financial condition and results of operations.

Capital procurement

The capital raising that we conduct in light of our regulatory capital requirements, including those conducted in response to TLAC requirements but excluding Common Equity Tier 1 capital requirements, consists primarily of the issuance of debt instruments. However, in the event of a deterioration in our financial condition or results of operations, a downgrade in our credit rating, or the spread of negative rumors or other reputational damage, an economic downturn in Japan or overseas, financial system instability or financial market turmoil, we may become unable to raise capital at commercially reasonable costs, or at all. This could negatively affect our ability to maintain or improve our capital adequacy ratios in accordance with our plans, and our business, financial condition and results of operations could be materially and adversely affected.

Problems relating to our information technology (IT) 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. We endeavor to sustain stable daily operations and develop contingency plans for unexpected events, including the implementation of backup and redundancy measures. Mizuho Bank and Mizuho Trust & Banking are working on shifting to our next-generation accounting system for the purpose of improving our customer service capabilities. Between June 2018 and July 2019, we completed the transition by Mizuho Bank to a new accounting system, and Mizuho Trust & Banking is scheduled to transfer to the new accounting system in July 2019. We are taking measures for a safe and steady transition, such as suspending online services during the transition period.

 

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However, we may not be able to prevent significant disruptions to our information technology systems caused by, among other things, human error, accidents 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 information leaks, malfunctions or disruptions in our business operations, liability to customers and others, regulatory actions or harm to our reputation.

Problems relating to cyber attacks could significantly impair our ability to protect our customer’s private information and disrupt our business operations.

Our business depends on the secure processing, storage and transmission of confidential and other information within our global IT systems. There have been a number of highly publicized cases involving financial services companies, consumer-based companies, governmental agencies and other organizations reporting the unauthorized disclosure of client, customer or other confidential information in recent years, as well as cyber attacks involving the dissemination, theft and destruction of corporate information or other assets, as a result of failure by employees or contractors to follow procedures or as a result of actions by third parties, including actions by foreign governments.

As we and our outside contractors continue to be the target of unauthorized access attacks, mishandling or misuse of information, computer viruses or malware, cyber attacks designed to obtain confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, denial of service attacks, data breaches and other events, there can be no assurance that we will not suffer any losses or other consequences in the future as a result of significant incidents due to these cyber attacks. Although our Cyber Incident Response Team (CIRT) has led the implementation of, and continuously endeavors to upgrade, our protective measures using advanced technologies, our IT systems, software and computer networks may be vulnerable to unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. Due to the complexity and interconnectedness of our global IT systems, these protective measures may be ineffective, and the process of enhancing our protective measures can itself create a risk of system disruption and security issues, and there can be no assurance that our current or future countermeasures will be sufficient to prevent or mitigate the impact of such incidents.

A cyber attack, information or security breach or a technology failure that involves us or our outside contractors could jeopardize our or our customers’, employees’, partners’, vendors’ or counterparties’ personal, confidential, proprietary or other information processed and stored in, and transmitted through, our and our outside contractors’ IT systems. Furthermore, such events could cause interruptions or malfunctions in our, our customers’, employees’, partners’, vendors’, counterparties’ or outside contractor’s operations, as well as the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of ours, our employees, our customers or of other third parties. Any of these events could result in reputational damage with our customers and the market, customer dissatisfaction or financial losses, any of which could adversely affect our financial condition and results of operations.

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, including as a result of cyber attacks.

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 that we require of our outside contractors and those designed to meet the strict requirements of the Personal Information Protection Act of Japan, may not be effective in preventing all such problems. Leakage of important information in the future, including as a result of cyber attacks, could result in liabilities and regulatory actions and may also lead to significant harm to our reputation. In addition, recent or future regulatory changes, such as the Japan Amended Personal Information Protection Act, the EU General Data Protection Regulation and the UK Competition and Markets Authority’s Open Banking standard, increase the risks relating to our ability to comply with rules that

 

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impact our ability to protect information. Non-compliance with such regulations could result in regulatory proceedings, litigation, enforcement or the imposition of fines or penalties. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Inadequacies in anti-money laundering and counter-terrorism financing measures could subject us to regulatory actions and harm our reputation.

As financial crimes become more diverse and sophisticated, and incidents of terrorism continue to occur around the world, the importance of anti-money laundering measures and the need to counter the financing of terrorism is rapidly increasing and is a key priority for financial authorities worldwide, including Japan. We have developed a system to comply with applicable laws and regulations in Japan and overseas, and we are continuously implementing measures to further strengthen measures against money laundering. However, there can be no assurance that such measures will be effective in preventing all violations, and failure to comply with regulations and requirements can result in enforcement and/or regulatory proceedings. If we fail to meet the regulatory requirements to which we are subject, or to maintain risk and control procedures and processes that meet the heightened standards established by our regulators and other government agencies, we could be required to enter into settlements, comply with orders, pay additional fines, penalties or judgments, or accept material regulatory restrictions on our businesses. As a result, our business, financial condition and results of operations may 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 currently includes Iran, Sudan (prohibitions partially lifted in October 2017), Syria and North Korea, and we maintain policies and procedures to comply with applicable U.S. laws. 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.

The laws and regulations applicable to dealings involving the Designated Countries are subject to further strengthening or changes. If the U.S. government considers that our compliance measures are 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.

Violations of laws and regulations related to financial market activities could subject us to adverse consequences such as regulatory actions and reputational harm.

In conducting our market operations in Japan and overseas, we are subject to the application of the laws and regulations of Japan and other countries and stock exchange rules, as well as being under the supervision of various financial authorities.

While we maintain compliance measures and endeavor to manage compliance risks, there can be no assurance that such measures will be effective in preventing all violations. Misconduct by employees, including improper or illegal conduct, can cause significant reputational harm as well as litigation and regulatory action. As a result, our business, financial condition and results of operations could be materially and adversely affected due to such regulatory actions and reputational damage.

 

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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 violations.

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.

Our Five-Year 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 May 2019, we announced our Five-Year Business Plan for the five fiscal years ending March 31, 2023. 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 targets announced due to these or other factors, including, but not limited to, differences in the actual economic environment compared to our assumptions, as well as the risks enumerated in these “Risk Factors.”

For further information of our Five-Year Business Plan, see “Item 4. Business Overview—General and structural reforms.”

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 banking, 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.

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 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 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.

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

 

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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 Act 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, 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 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 strengthen 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.

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 Companies Act, 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 or interest payments on capital securities issued by our group due to the deterioration of our results of operations and financial condition and/or the restrictions under the Companies Act or due to the strengthening of bank capital regulations. For more information on restrictions to dividend payments under the Companies Act and bank capital regulations, see “Item 10.B. Additional Information—Memorandum and Articles of Association” and “Item 4.B. Business Overview—Supervision and Regulation—Japan.”

 

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

We conduct a wide variety of 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. As a result, our financial condition and results of operations could be materially and adversely affected.

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 Act, 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 or that requires us to incur additional costs related to our IT systems, our business, financial condition and results of operations could be materially and adversely affected.

Uncertainties regarding the future of LIBOR as an interest rate benchmark and any successor thereto subjects us to various risks.

Many of our products and services refer to benchmark interest rates such as the London Interbank Offered Rate (“LIBOR”) in many currencies, including the U.S. dollar. We also utilize such benchmark interest rates for our own evaluation of financial instruments and various other internal management purposes.

In light of the LIBOR manipulation scandal that surfaced in 2012, many financial authorities around the world have commented on a transition to the risk-free rate as the benchmark interest rate to improve reliability and transparency. In addition, in July 2017, the Chief Executive of the Financial Conduct Authority of the United Kingdom (“FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to present rates for the calculation of the LIBOR benchmark after 2021, raising the possibility that the continuation of LIBOR on the current basis cannot be guaranteed after 2021, and there is a substantial risk that LIBOR will be discontinued or modified by 2021.

We have established a special division tasked to prepare us for the suspension of publication of LIBOR and the shift to a successor interest rate benchmark. Many unresolved issues remain, such as the selection of successor benchmarks, the timing of their introduction and the transition of a particular benchmark to a replacement rate could result in wide spread dislocation in the financial markets, engender volatility in the pricing of securities, derivatives and other instruments, and suppress capital markets activities. As a result, the transition could, for example, cause hedging accounting items to be derecognized and increase litigation risks regarding our existing products and services, which could adversely impact our profitability. There can be no assurance that a change in the benchmark interest rate and related valuation methods will not have a material adverse effect on our financial condition and results of operations. We may also be adversely affected if the change restricts our ability to provide products and services or if it necessitates the development of additional information technology systems.

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

We offer comprehensive financial services globally, centered on banking, trust banking and securities, and are subject to intense competition both domestically and internationally with large financial institutions, non-bank financial institutions and others. In addition, as a result of technological advances called “FinTech,” an increasing number of companies have recently been crossing industry lines and entering the field of finance, and

 

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it is possible that the competitive environment surrounding us may further intensify. Moreover, due to the reforms to financial regulations made in recent years, it may become difficult to differentiate strategies between us and our competitors, resulting in the intensification of competition in specific businesses.

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 such natural disasters and criminal acts. For example, 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 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.

Our reputation could be adversely affected if our business operations are perceived as being harmful to the environment and society.

As concerns regarding environmental and social issues such as climate change have heightened in recent years, we believe that our stakeholders as well as the society at large expect that we, as a financial services provider, give increasing consideration to such issues. While we are strengthening our efforts to reduce environmental and social risks, including establishing policies for engaging with sectors that are likely to exacerbate negative impacts on the environment and society, the expectations placed upon us continue to heighten day by day, and our reputation may be harmed if our efforts fall short of such expectations. As a result, our business, financial condition and results of operations 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 the board of directors and Japan’s Companies Act 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 Companies Act, only

 

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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, executive officers or senior management, 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, executive officers and senior management 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.

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 OF 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, the former Mizuho Corporate Bank, and a banking subsidiary serving primarily retail and small and medium-sized enterprise customers, the former 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, the former Mizuho Corporate Bank, the former 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 the former Mizuho Corporate Bank, and Mizuho Investors Securities became a wholly-owned subsidiary of the former 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, the former Mizuho Bank and the former Mizuho Corporate Bank merged, and the former Mizuho Corporate Bank, the surviving company, changed its trade name to Mizuho Bank, Ltd. The purpose of the merger was to become able to provide directly and promptly diverse and functional financial services to both the former Mizuho Bank and the former Mizuho Corporate Bank customers, utilizing the current “strengths” and “advantages” of the former Mizuho Bank and the former Mizuho Corporate Bank, and to continue to improve customer services by further enhancing group collaboration among the banking, trust banking 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.

In July 2016, with consideration of the rule of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) regarding the operations of foreign banking organizations with U.S. operations, we established a bank holding company, Mizuho Americas LLC, which holds our primary U.S.-based banking, securities and institutional custody services (trust banking) entities together under it, with the aim to proactively strengthen corporate governance and expand our profit base through the consistent implementation of our collaborative corporate and investment banking, securities and institutional custody services strategy in the United States in line with the global operation of our new in-house company system.

In December 2017, two subsidiaries of Mizuho Americas LLC, the former Mizuho Bank (USA) and the Mizuho Trust & Banking Co. (USA), merged. The merged entity, Mizuho Bank (USA), provides both banking services and trust services.

In October 2016, with a view to strengthening our respective asset management businesses, we and The Dai-ichi Life Insurance Company, Limited integrated the asset management functions of both groups, namely, DIAM Co., Ltd., the asset management function of Mizuho Trust & Banking, Mizuho Asset Management Co., Ltd. and Shinko Asset Management Co., Ltd., and formed a new company named Asset Management One Co., Ltd., a consolidated subsidiary of Mizuho Financial Group.

In March 2017, we, Sumitomo Mitsui Trust Holdings, Inc., Resona Bank, Limited as a subsidiary of Resona Holdings, Inc. and The Dai-ichi Life Insurance Company, Limited as a subsidiary of Dai-ichi Life Holdings, Inc. executed a memorandum of understanding to commence detailed analysis and negotiations in preparation for the management integration of Japan Trustee Services Bank, Ltd. (“JTSB”) and Trust & Custody Services Bank, Ltd. (“TCSB”), which was a consolidated subsidiary of Mizuho Financial Group. In March 2018, TCSB executed a management integration agreement with JTSB to carry out the management integration through incorporation of a holding company by joint share transfer. In October 2018, TCSB and JTSB incorporated JTC Holdings, Ltd. (“JTC Holdings”) by joint share transfer. After the joint share transfer, TCSB and JTSB became wholly-owned subsidiaries of JTC Holdings, and JTC Holdings, TCSB and JTSB became equity-method affiliates of Mizuho Financial Group. The purpose of the integration is to contribute to further growth in the domestic securities settlement market and domestic investment chain by realizing more stable and higher quality operations and strengthening its system development capabilities by seeking the benefits of scale.

Other Information

Our registered address is 1-5-5, Otemachi, Chiyoda-ku, Tokyo 100-8176, Japan, and our telephone number is 81-3-5224-1111.

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. As a foreign private issuer,

 

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we are exempt from the rules under the Exchange Act that prescribe the furnishing and content of proxy statements to shareholders. Our corporate website is www.mizuho-fg.co.jp/index.html.

4.B. Business Overview

General

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

We promoted our medium-term business plan, entitled “Progressive Development of “One Mizuho”—The Path to a Financial Services Consulting Group,” for the three years from the fiscal year ended March 31, 2017. In order to address three material issues in the fiscal year ended March 31, 2019, the final year of the plan, specifically (1) commencement and implementation of fundamental structural reforms, (2) accomplishment of the medium-term business plan and (3) the migration to our next-generation IT system, our group-wide management policy was to progressively develop the One Mizuho strategy by implementing changes to the structure and foundations of our business, further integrating the “customer first” principle into everything we do, and fundamentally increasing productivity.

First, with respect to the commencement and implementation of fundamental structural reforms, in order to strengthen our earning capabilities, we undertook various efforts, including expanding the scope of risk-taking, focusing on areas with growth potential and accelerating the credit review process through a revision of our credit assessment framework. In addition, we endeavored to streamline the number of personnel to align with our business strategy, shift some Head Office personnel to the frontlines and restructure our customer channels by combining branches with respect to banking, trust banking and securities.

Secondly, with respect to the accomplishment of the medium-term business plan, we steadily carried out our initiatives, including strengthening our model for noninterest income business on a global basis and disposing of cross-shareholdings. With respect to financial targets, we achieved the target levels we had set regarding our consolidated Common Equity Tier 1 capital (CET1) ratio and disposing of cross-shareholdings (based on the amount consented to by relevant issuers); however, we were unable to achieve our targets regarding our consolidated ROE, RORA and group expense ratio, partly due to the recording of losses in light of structural reforms, as described below, and other influences.

Thirdly, we worked on the migration to our next-generation IT system as one of our top management priorities and have successfully completed the eight migration steps that were scheduled to be implemented in the fiscal year ended March 31, 2019.

In addition to the above-mentioned initiatives, we have proceeded with initiatives such as the creation of new business opportunities and expansion of solution domains through the use of digital technology and open collaboration with third parties, including those in other industries.

Fourthly, in an effort to contribute to the sustainable development of society and to create new corporate value, we have addressed environmental, social and governance (ESG) issues. With respect to the environment and society, we established Policies on Specific Industrial Sectors, which set forth our policies in response to clients in certain industries where there is a high possibility that our involvement with the client would contribute to an adverse impact on the environment and society. With respect to governance, we revised our executive compensation system, raised the proportion of stock compensation for executives responsible for business execution and implemented other related measures.

Finally, with respect to legal compliance, we continued working on a variety of efforts, such as preventing transactions with individuals or organizations associated with organized crime and taking countermeasures against money laundering and terrorism financing, including our response to the fourth mutual evaluation of Japan by the Financial Action Task Force, an inter-governmental body that promotes measures for combating money laundering and terrorist financing.

 

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Recording of Losses in Light of Structural Reforms

In our financial results for the fiscal year ended March 31, 2019 under Japanese GAAP, we recorded losses totaling ¥695.4 billion in connection with carrying out our structural reforms. Based on our view that the business environment will continue to be challenging for the foreseeable future, we aim to implement feasible measures at an early stage, accelerate the elimination of structural issues, and further solidify our stable profit base.

Our customers’ needs and the financial industry are rapidly undergoing structural changes in reflection of the structural shifts occurring in the economy, industry and society such as digitalization, an aging society with low birthrates and globalization. It is essential that we respond quickly to these structural changes, especially in light of increasing uncertainty in the business environment due to concerns regarding a global economic slowdown, signs of a turn in the credit cycle and other factors.

In consideration of the above environment and issues, we launched the 5-Year Business Plan: Transitioning to the Next Generation of Financial Services for the five-year period beginning the fiscal year ending March 31, 2020. Our new business plan is focused on transitioning to the next generation of financial services—forging new forms of partnerships with our customers so that we can respond to their needs as the times change.

Our objective is to build a stronger and more resilient financial group that our customers can depend on in the coming era.

Outline of the New Business Plan

Basic policy

By implementing forward-looking structural reforms focused on three interconnected areas—business structure, finance structure and corporate foundations—we will endeavor to resolve the mismatch that has arisen in the allocation of corporate resources such as branch offices and human resources and respond to new customer needs in order to transition to the next generation of financial services.

The five-year period of the business plan can be broadly divided into two phases: Phase 1 (three years beginning the fiscal year ending March 31, 2020) in which full implementation of the structural reforms, building the firm foundations for the next generation financial services, will be conducted; and phase 2 (two years beginning the fiscal year ending March 31, 2023), which will aim to achieve the effects of the structural reforms and accelerate further growth.

Key strategy

In order to transition to the next generation of financial services, we will create new value incorporating both financial and non-financial products and services by going beyond the conventional boundaries of finance in order to forge new forms of partnerships with our customers.

Forging new forms of partnerships with our customers

 

   

For individual customers: be a partner that helps customers design their lives in a changing society.

 

   

For corporate & institutional clients: be a strategic partner for developing businesses during a period of structural changes in industries.

 

   

For market participants: be a partner with expert knowledge of market mechanisms and the ability to draw on a range of intermediary functions.

For such purpose, we will draw on the strengths that we have cultivated thus far and accelerate our digitalization initiatives and proactive collaboration with external partners.

 

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Our key strengths

 

   

Customer base, network, trustworthiness and dependability

 

   

Financial functions, market presence and ability to respond to non-financial needs

 

   

Approach business as a unified group

We will also uphold “Open & Connected” and “Passionate & Professional” as our action principles.

Open & Connected

 

   

We will flexibly blend customer segments, regions, functions and other aspects of our business to create new, more open value chains (or the chain of value added in each process before we deliver a product to a customer) spanning across finance and adjacent fields.

 

   

We will proactively collaborate not only within the Mizuho group but also with external partners.

Passionate & Professional

 

   

Each employee will be encouraged to find a source of inspiration in the dreams and hopes of our customers and better connect with them.

 

   

We will draw on our strengths, backed by our expertise, to anticipate customers’ needs and then think, act and deliver.

Priority business domains

Business structural reforms

We will implement business structural reforms focused on the following initiatives to better enable us to respond to structural shifts occurring in the economy, industry and society while drawing on our strengths.

 

   

Be a partner that helps customers design their lives in a changing society.

 

   

Assist customers with asset building to support their life design in an era of lengthening lifespans, and develop professionals capable of providing this assistance.

 

   

Provide sophisticated solutions for business succession needs and assist clients with needs regarding identifying candidates for senior management roles.

 

   

Create next-generation branches focused on consulting that combine physical locations and digital channels.

 

   

Appeal to new customer demographics and create new demand through the application of technology and open collaboration.

 

   

Be a strategic partner for business development under a changing industrial structure.

 

   

Open collaboration for growth acceleration, including financing the growth of startups and forming industry-government-academia partnerships.

 

   

Utilize our industry knowledge and other insights to build new forms of partnerships that share business risks.

 

   

Leveraging our Asian client base and networks in order to support the business development of global clients.

 

   

Be a partner with expert knowledge of market mechanisms and the ability to draw on a range of intermediary functions.

 

   

By strengthening our global network and products framework, draw on a broad range of intermediary functions to connect investors with other investors and connect issuers with investors.

 

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Enhance the sophistication of our ALM and portfolio management through flexible asset allocation while maintaining a focus on achieving a balance between realized gains and unrealized gains/losses.

Financial structure reforms

We will implement financial structure reforms focused on the following initiatives to transition to a flexible business/earnings structure that can better respond to changes in the business and competitive environments:

 

   

Identify business/earnings structure issues in each business domain, focusing on the following four perspectives:

 

   

Risk and return (gross profits ROE)

 

   

Cost and return (expense ratio)

 

   

Growth potential

 

   

Stability

 

   

Based on the above factors, streamline certain areas and concentrate/re-allocate corporate resources to growth areas.

 

   

After establishing a stable profit base, transition to an earnings structure centered on proactively pursuing earnings streams with upside potential.

Corporate foundations reforms

We will implement the following initiatives in order to strengthen our corporate foundations as a means of supporting continued competitive advantages:

 

   

Transform our approach to new business and our working style.

 

   

Focus on the areas of personnel/workplace, IT systems/digital, sales channels and group companies.

 

   

Revise our human resources management in line with an approach that prioritizes employees’ professional growth and career preferences and promote a new human resources management strategy focused on maximizing our workforce value in a manner that is universally recognizable.

 

   

Strengthen group governance.

 

   

Expand the use of “dual-hat” appointments of executive officers between our holding company and group companies and other methods of strengthening unified management of the group, including group companies other than banking, trust banking and securities subsidiaries. This will enhance our ability to implement key strategies and structural reforms.

 

   

Cultivate a new corporate culture centered on communication.

Sustainability initiatives

Through the initiatives under the new business plan, we will aim to create new value for our stakeholders as follows:

 

   

For customers: Create new value through finance and surrounding business areas, with an aim to achieve increased customer convenience and business growth.

 

   

For shareholders: Increase corporate value by resolving structural issues and accelerating growth.

 

   

For employees: Create workplaces that give employees a sense of purpose, linked to customer satisfaction.

 

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Based on the above, we will define sustainability for the Mizuho group as “achieving sustainable and stable growth for the group, and through this growth, contributing to the sustainable development and prosperity of the economy, industry and society around the world.” Further, we will select “key sustainability areas” that reflect the expectations and demands of our stakeholders, based on their materiality to and affinity with our strategies, and the medium- to long-term impact on our corporate value. This will form the basis of our efforts to contribute to the realization of the UN’s Sustainable Development Goals (SDGs), the international goals adopted in September 2015 that were set forth in the “2030 Agenda for Sustainable Development.”

Management policy for the fiscal year ending March 31, 2020

For the first year of the new business plan, we will implement forward-looking structural reforms ahead of schedule. Unified as a group, we will accelerate the structural reforms, and along with this, we will come together as a group to revise various business operations in order to forge new forms of partnerships with our customers as a starting point for creating value in a wide range of areas.

Group Operations

Group Management Structure

We operate our group through five in-house companies, which determine and promote strategies group-wide across banking, trust banking, securities and other business areas according to the attributes of customers, and two units that support all of the in-house companies.

Retail & Business Banking Company

The Retail & Business Banking Company is responsible for customer segments consisting of individual customers, SMEs and middle-market corporations, engages in consulting services that integrate banking, trust banking, securities and other functions within the Mizuho group, as well as providing convenient financial services by leveraging advanced technologies and forming alliances with other companies.

For individual customers, the Retail & Business Banking Company will strive to improve our capacity to provide consulting services, including asset management and asset succession, while working on the development and provision of convenient services by leveraging advanced technologies and forming alliances with other companies and institutions.

As a reliable partner in an era of lengthening lifespans, we support customers who have concerns about their long term plans, and in addition to the consulting services that combine banking, trust banking and securities functions, we offer our customers asset formation support that utilizes advanced technologies, such as AI-powered asset management advisory services and asset management support utilizing remote channels, etc. Accordingly, in addition to strengthening our efforts related to NISA, a tax exemption program for small investments, and iDeCo, an individual-type defined contribution pension plan, we will strengthen financial education through seminars.

Furthermore, to support the smooth asset succession, we provide services such as inheritance distribution service and testamentary-trust that utilize trust function. We have also expanded our line of products and services such as Multifunctional Safety Trust and a web based app that can be used to manage inheritance.

With respect to the loan business, we have expanded our line of housing loan and card loan products and offer various products and services in response to each customer’s life stage, including firstly products that meet a diverse range of needs, internet-based services and the development of a new business model that utilizes advanced technology.

We also provide products/services to officers and employees of our corporate clients, such as opening account for payrolls, providing housing loans, management of retirement payments, etc.

 

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In addition, in an effort to increase customer convenience, we have enhanced the efficiency of our branch network throughout Japan (Mizuho Bank: 464; Mizuho Trust & Banking: 60; Mizuho Securities: 259; each as of March 31, 2019) and our ATM network (approximately 7,200 locations as of March 31, 2019, including ATMs shared with AEON Bank). We also have 150 of Mizuho Securities “Planet Booths,” which are located in the branches and offices of Mizuho Bank, and 23 of Mizuho Trust & Banking “Trust Lounges,” which are located in the branches and offices of Mizuho Bank, as of March 31, 2019.

Moreover, with the aim of constructing a convenient and efficient channel network that responds to changes in customer needs, we are promoting the next generation of branches and offices which serve as consulting spaces along with a reduction of the number of branches and offices through reorganization and consolidation.

We have also made efforts to enhance customer convenience. For example, we are engaging in collaboration with other companies and are utilizing advanced technologies to offer new financial and other services and to enhance the quality of our internet and smart phone services, in light of changing customer needs due to ongoing digitalization.

In the fiscal year ended March 31, 2019, we strengthened our efforts in new business areas, including the launch of a new affiliate, J.Score CO., LTD, the commencement of discussions into joint establishment of a new bank with LINE Corporation, and the launch of J-Coin Pay, a smartphone-based payment service, in cooperation with approximately 60 other financial institutions.

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

For small- and medium-sized enterprises and middle-market firms, the Retail & Business Banking Company provides solutions with respect to both types of needs: management issues such as business development, and personal issues of customers who are business owners, such as asset inheritance and management, etc.

In response to increasing customer needs related to their growth strategy or business succession in an unclear business environment, we offer multi-layered solutions in response to the various development stages of our customers’ businesses through the combined strength of our banking, trust banking, securities, asset management and research and consulting functions, based on a customer-focused approach.

Specifically, we offer syndicated loans, advisory services related to overseas expansions, mergers and acquisitions-related services, and business matching services, depending on the customers’ business strategies, in addition to brokering financial products and expanding the customer base for trustee business for defined contribution pension plans, combining financial services and advanced advisory services.

Furthermore, due to the aging of Japanese business owners, business succession and asset inheritance has become a matter of urgency. Using our succession and property know-how, we actively offer solutions for optimal and smooth business succession and asset inheritance, including the inheritance of business ownership and corporate stock as well as corporate reorganization, addressing both individual and corporate needs.

Moreover, we leverage our existing customer base to support the growth of innovative companies that show future promise by means of finance and other solutions.

In light of structural changes in customer needs against the backdrop of further progress in digitalization, an aging society with a low birthrate and other factors, we will enhanced the efficiency of sales channels, including physical storefronts, and expand new business areas to realize the wants and desires of individual customers as well as the sustainable growth of corporate customers.

In order to achieve this goal, we will take advantage of our broad customer base, trustworthiness and dependability, as well as our consulting capabilities. At the same time, we will collaborate openly with those both

 

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inside and outside the Mizuho group to provide new value incorporating both financial and non-financial products and services, as a partner for individual customers’ life design and corporate customers’ growth strategies and business succession.

Corporate & Institutional Company

The Corporate & Institutional Company is responsible for customer segments consisting of large corporations, financial institutions and public-sector entities in Japan, provides custom-designed solutions for each client on a group-wide basis to meet their capital raising, asset management and business/financial strategy related needs.

For large corporate customers, based on our solid customer relationships and utilizing our global industry knowledge, we offer group-wide financial solutions that are tailored for each customer, such as fund management, underwriting of equity and bonds, M&A advisory and risk hedging products, etc., on a global basis to meet their needs in fund-raising, investment, management and financial strategies. In March 2019, in consideration of increasing customer needs for a diverse range of financial solutions, we made IBJ Leasing Company, Limited (which plans to change its trade name to Mizuho Leasing Company, Limited in October 2019) our equity method affiliate and increased our ability to offer solutions.

Mizuho Bank and Mizuho Securities have introduced the dual-hat structure in several offices in Japan. Through the global inter-sectoral group collaboration, they provide our customers with solutions based on their capital management, business strategy and financial strategy on a global basis.

Mizuho Bank and Mizuho Trust & Banking together provide solutions related to real estate, where we have a leading track record in the industry in Japan. They also work together in the areas of pension, asset securitization, securities management, stock transfer agent, consulting, etc., in response to our customers’ diversified needs for investment and asset optimization.

Further, we are proactively providing risk money to renewable energy companies and startups to develop next-generation industries and growth companies and promote collaboration among companies over their business areas.

For financial institutions, we offer advisory services and solutions, such as advice on financial strategy and proposals on various investment products, by concentrating our various financial expertise from each group company to meet the increasingly sophisticated and diversified needs of customers.

For public sector customers, as a leading bank with a wealth of experience and a solid track record, we provide optimal financial services group-wide that include funding support as a trustee and underwriter of public bonds and services as a designated financial institution. In addition, in the field of revitalizing rural regions in Japan, an important matter to the Japanese economy, we engage in Public Private Partnerships/Private Finance Initiatives (PPP and PFI) projects in collaboration with regional financial institutions, national and regional government entities and their affiliates.

We will build new relationships with customers and endeavor to realize value co-creation and co-prosperity based on changes in customer needs in response to changes in social and industrial structures.

In order to achieve this goal, as a strategic partner for our customers’ business development, we will utilize our sophisticated industry knowledge and competency to create business opportunities for our customers and to demonstrate our ability to draw on a broad range of intermediary functions in the sharing of business risks, with an open mindset.

 

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Global Corporate Company

The Global Corporate Company is responsible for customer segments consisting of both Japanese companies operating outside Japan and non-Japanese companies, provides various solutions by taking advantage of our deep understanding of our clients’ businesses and our strengths in corporate finance and transaction banking, such as lending and corporate bond underwriting.

For our Japanese corporate customers, we provide integrated support both in and outside Japan to help them expand their overseas operations. We offer highly specialized services that use our advanced financial technologies and expertise. Particularly in Asia, we support Japanese corporate customers developing new markets by offering advisory and other services.

We are also expanding business with non-Japanese corporate customers. We use our global network to support U.S. and European global companies developing business in Asia as well as Asian multinational enterprises expanding within Asia. For our non-Japanese corporate customers, we are pursuing the Global 300 Strategy, which involves focusing on a group of approximately 300 blue-chip companies around the world. Taking the characteristics of each industry sector into consideration, we take a focused approach based on our know-how and insight on the business and financial aspects. Through a close relationship with top management, we aim to develop long-term relationships with our customers. Our market presence within the United States continues to grow, including in the area of investment-grade corporate debt underwriting, based on the enhanced sophistication in the collaboration between our banking and securities functions.

Meanwhile, we are enhancing our support to clients by expanding our global office network and strengthening the framework to support our customers’ business outside Japan. We have recently opened the Mizuho Bank (China), Ltd. Shanghai Hongqiao Sub-Branch and Mizuho Securities Europe GmbH.

We are forming business alliances with government-affiliated institutions and financial institutions to provide up-to-date local information to our customers. We are also enhancing our service framework to address the diverse business needs of customers, including post-entry support.

We will adjust our business portfolio in anticipation of future growth constraints, such as future regulatory changes and our foreign currency funding capabilities. At the same time, we will collaborate with customers in their development of global businesses to strengthen cross-regional business value chains. In order to achieve this goal, as a strategic partner that supports the development of businesses globally, we will link customers and our business functions located in Asia with those in other regions, based on our network in the rapidly growing Asian economies and our presence in the fertile U.S. capital markets.

Global Markets Company

The Global Markets Company is responsible for market-related businesses, engages in sales and trading services for a wide range of customers, from individuals to institutional investors, by offering market products to meet their risk hedging and asset management needs through collaboration between the Mizuho group’s banking, trust banking and securities functions, as well as investments in equity, fixed income and others.

To become a top-class Asian player in the global markets, our basic strategy is to enhance our presence in the market so that we can develop the most suitable products and organizational structure based on arising customer needs.

With respect to the sales and trading business, through a management structure based on customer segments, we offer detailed products and services based on our sophisticated knowledge, experience and expertise to meet the diverse needs of our customers and support their global business by integrating our banking, trust banking and securities functions as well as our broad customer base, network and presence in the financial market.

 

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Specifically, we are strengthening our contact with customers at branches for our customers that are small and medium-sized enterprises and middle market firms, and we are providing ideas that reflect market perspectives for transactions involving large corporations and financial institutions. For investors such as hedge funds and asset managers, we use our comprehensive strength in the banking and securities to provide products that meet our customers’ needs.

With respect to our asset liability management, we contribute to balance sheet management through the stabilization of domestic currency and foreign currency liquidity management. Also, as for the investment business, we earn stable revenue by constructing a diversified portfolio in interest rates, equity and credit markets, and appropriate asset allocation with using our early warning control to reflect the changes of market environment flexibly. In the previous fiscal year we started the implementation of initiatives for taking risks, and we continue to implement management focusing on achieving an appropriate balance between realized gains and unrealized gains/losses by restructuring stable earning sources with risk-taking capabilities.

In addition, we are also actively working on the advancement of our early warning control and decision making through digitalization by the use of advanced technology such as AI.

We aim to realize a stable earnings structure in the investment business and to improve sales and trading services with clearly defined focus areas which enable us to draw on diverse intermediary functions through the market and create diverse value for our customers.

In order to achieve this goal, as a partner with expert knowledge of market mechanisms that has insight into markets, we will enhance our asset allocation and product lineup and aim to establish a stable profit base. At the same time, we will provide appropriate investment opportunities to investors with different risk appetite.

Asset Management Company

The Asset Management Company is responsible for businesses related to asset management, provides products and services that meet the asset management needs of our wide range of customers, from individuals to institutional investors, through the collaboration between the group’s banking, trust banking and securities functions as well as Asset Management One Co., Ltd.

For individual customers, we offer investment products that contribute to their medium- to long-term asset formation.

For institutional investors such as pension funds, we offer consulting services to meet their diversified and sophisticated asset management needs.

We offer our customers investment products that are best suited to them in collaboration with Mizuho Alternative Investments, LLC, our New York-based hedge fund manager, Asset Management One Alternative Investments, Ltd., our Tokyo-based financial gatekeeper, Eurekahedge Pte, LTD., our Singapore-based hedge fund database provider, and Matthews Asia, an independent, privately owned firm and the largest dedicated Asia investment specialist in the U.S.

In addition, in various product fields, we are focusing on developing and offering products through collaboration with BlackRock, Inc. and Partner Group AG.

We will continue to transform our business structure to achieve the high capital efficiency that is inherent to the asset management business, and at the same time, support customers’ medium-to long-term asset formation, and thereby contribute to the revitalization of domestic financial assets.

In order to achieve this goal, we will enhance our value-add capabilities relating to asset management by strengthening our investing and solution-providing capabilities, and we will respond to changing customer needs

 

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in a unified group manner. At the same time, we will pursue efficiency and progressiveness through innovation and business process reformation.

Global Products Unit

The Global Products Unit engages in the provision of a wide range of solutions, including M&A, real estate, project finance, domestic and foreign settlement services, asset management and stock transfer agency, as the unit responsible for providing solutions to a wide range of customer segments, including individual customers, corporate clients and investors, in the areas of investment banking and transaction banking.

In the investment banking business we provide sophisticated financial solutions mainly in the business areas as follows:

 

   

In the mergers and acquisitions business, with an aim to increase the corporate value of our customers, we offer sophisticated solutions in response to our customers’ needs, mainly in the areas of cross-border mergers and acquisitions, business succession and management buyouts.

 

   

In the real estate business, by taking full advantage of our extensive knowledge and skills developed through the collaboration of our group companies, we offer various real estate-backed financing methods and real estate-related investment strategy support.

 

   

In the asset finance business, by strengthening the collaboration between banking, trust banking and securities functions and by arranging customers’ asset securitization, we satisfy their demands such as diversification of fund-raising sources and improvement of financial indices achieved by removing assets from their balance sheet.

 

   

In the project finance business, we provide various financial products and services internationally, including long-term loan facilities for large-scale mining and public infrastructure development, and domestically, including loans for renewable energy-related projects and arrangement of PFI/PPP deals. In addition, we offer investment opportunities to institutional investors through our managed infrastructure debt funds.

 

   

In the corporate finance business, we proactively provide a wide variety of fund raising solutions in the syndicated loan and debt and equity capital markets.

In the transaction business we provide various solutions in accordance with customer needs and the character of their business:

 

   

For our corporate customers in the transaction business, we offer various financial services and products such as online banking, cash management solutions, Renminbi-denominated services and trade finance on a global basis.

 

   

For financial institutions and institutional investors, we promote custody, global custody and yen correspondence settlement, asset management and stock transfer agent services.

 

   

In addition, we are further expanding our range of services in collaboration with our group companies and leveraging the latest technological innovations.

In the fiscal year ended March 31, 2019, Trust & Custody Services Bank, Ltd. incorporated JTC Holdings, Ltd. by implementing a joint share transfer with Japan Trustee Services Bank, Ltd. for the purpose of realizing more stable and higher quality operations by seeking economies of scale.

As uncertainty grows in the operating environment that our customers and society confront today, we will align ourselves with our customers’ changing needs and will provide helpful solutions based on our high level of expertise and knowledge.

 

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In addition, we will support each in-house company’s pursuit of its strategies and contribute to increasing the group’s stable earnings capability by calibrating the allocation of corporate resources for each product and by effectively creating value chains on a group-wide basis.

Research & Consulting Unit

The Research & Consulting Unit offers a wide variety of solutions that combine the following:

 

   

research functions that provide deep analysis, spanning from industrial to macroeconomic analysis;

 

   

consulting functions that cover many fields, including business strategy; and

 

   

IT and digital technology insights.

In the research field, we conduct deep investigations and wide-ranging analyses from macro-economics to industry and business trends, and link research and business origination function.

In the consulting field, we also offer a wide range of functions to help solve various issues that companies face, including those regarding management/HR planning/IT strategy and business succession, as well as social issues within the public sector, including the environment, energy, infrastructure and health care by utilizing financial engineering and digital knowledge.

In a rapidly changing economic and social environment, including an aging society with a low birthrate, digitalization and globalization, we will aim to further contribute to creating new value for our customers and society by utilizing our expertise, including industry expertise that can better respond to structural shifts in the needs of our customers, and by creating value chains on a group-wide basis.

In order to realize new value creation, we will work to increase the sophistication of our research functions, enhance our consulting business, leverage IT and digital technology and to address other challenges.

Competition

We engage in banking, trust banking, securities and other businesses related to financial services and face strong competition in all of those areas of 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, leasing companies and other non-bank finance companies.

 

   

Asset management companies.

 

   

Other financial services providers: We also compete with financial services providers that utilize “FinTech.”

 

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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 April 28, 2019): (i) ordinary banks, of which there were 123, not including foreign commercial banks with banking operations in Japan; and (ii) trust banks, of which there were 14, including Japanese subsidiaries of foreign financial institutions and subsidiaries of Japanese financial institutions.

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 mostly based in one of the prefectures of Japan and are generally much smaller in terms of total assets than city banks. In recent years, as a consequence of changes in the business environment, the number of regional banks that integrate their businesses with other regional banks has been increasing. 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.

Based on information published by the Financial Services Agency, available as of April 28, 2019, there were 56 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

 

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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. In November 2015, the shares of three main companies of the Japan Post group were listed on the Tokyo Stock Exchange, with Japan Post Holdings disposing of approximately 11% of its ownership in the two subsidiaries, while the Japanese government disposed of approximately 11% of its ownership in Japan Post Holdings. Japan Post Holdings plans to initially dispose of its two subsidiaries shares gradually down to approximately 50% ownership. In April 2019, the maximum deposit amount that Japan Post Bank Co., Ltd. may accept increased from 13 million yen in aggregate for ordinary deposits and time deposits to a total of 26 million yen, 13 million yen each for ordinary deposits and time deposits.

In recent years, as a result of technological advances in the digital field called ”FinTech,” entry from different industries into areas considered to be the inherent business of financial institutions such as settlement services has been increasing.

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.

Supervision and Regulation

Japan

Pursuant to the Banking Act (Ginkou Hou) (Act 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 Act, 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 failure to meet the minimum capital adequacy ratio or the minimum leverage ratio of banks, their subsidiaries and companies having special relationships prescribed by the cabinet order. See “Capital Adequacy” below. 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.

In addition, under the capital distribution constraints system introduced in March 2016, the Financial Services Agency, acting on behalf of the Prime Minister, may order a bank holding company or bank to submit and carry out a capital distribution constraints plan. See “Capital Adequacy” below. The capital distribution constraints plan is required to be considered reasonable to restore the capital buffer and include restrictions on capital distributions, such as dividends, share buybacks and bonuses payments, up to a certain amount as determined depending on the level of the capital buffer.

 

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Furthermore, under the Japanese TLAC regulations introduced in March 2019, the Financial Services Agency, acting on behalf of the Prime Minister, may order the bank holding company of a G-SIB in Japan to be designated as the domestic resolution entity of such G-SIB to submit reports related to improvement of TLAC or may issue a business improvement order to such domestic resolution entity if the external TLAC ratio of the domestic resolution entity or the internal TLAC of its material subsidiaries in Japan fall below the minimum requirements. See “Total Loss Absorbing Capacity” below.

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 Act 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 has been performed pursuant to a Financial Inspection Manual published by the Financial Services Agency, but on December 15, 2017 the Financial Services Agency announced a plan to repeal the Financial Inspection Manual after April 1, 2019 and establish a new framework for bank supervision. In order to upgrade the quality of its supervisory activities, strengthen Japan’s financial infrastructure, and to enable the Japanese economy to realize its full potential, the Financial Services Agency embarked on the review of the supervisory approaches. The Financial Services Agency announced the “JFSA’s supervisory approaches— Replacing checklists with engagement” in June 2018 and the “JFSA’s Supervisory Approaches Aimed at Financial Stability (Basic Policy on Prudential Policies)” in March 2019, and is committed to continuous improvement of the supervisory approaches through dialogue with financial institutions, etc.

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. 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 Act of Japan (Kinyu Shouhin Torihiki Hou) (Act No. 25 of 1948, as amended).

 

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Examination and Reporting Applicable to Shareholders

Under the Banking Act, 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 Act, 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 Act (Yokin Hoken Hou) (Act 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 effective premium rate from April 2019, which is the weighted average of the rates for deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes, and for other deposits, is 0.033%.

The insurance money may be paid out in case of a suspension of deposit 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.

Participation in the deposit insurance system is compulsory for city banks (including Mizuho Bank), regional 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 Act, 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 and dispose of the assets of the bank 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 loans, 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

 

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is operating (“systemic risk”), without taking any of the measures described in (i) through (iii) below, the Prime Minister may confirm (nintei) 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 (item 1 measures (dai ichigo sochi)); (ii) if the bank is likely to 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 (item 2 measures (dai nigo sochi)); and (iii) if the bank is likely to 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 (item 3 measures (dai sango sochi)). 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, pursuant to certain amendments to the Deposit Insurance Act that were promulgated in June 2013 and became effective on March 6, 2014, a new resolution regime was introduced in Japan.

Under the new resolution regime stipulated in the amendments to the Deposit Insurance Act and implementing ordinances thereunder, which became effective on March 6, 2014, financial institutions including banks, insurance companies and securities companies and their holding companies, are subject to the regime.

Further, under the new resolution regime, among other things, where the Prime Minister recognizes that the failure of a financial institution which falls into either (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) stipulated in Article 126-2, Paragraph 1, Item 1 of the Deposit Insurance Act or the measures described in (b) (specified item 2 measures)(tokutei dai nigo sochi) stipulated in Article 126-2, Paragraph 1, Item 2 of the Deposit Insurance Act, the Prime Minister may confirm (specified confirmation)(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 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 tou), or subscribe for shares or subordinated bonds of, or lend subordinated loans to the financial institutions (tokutei kabushiki tou no hikiuke tou) , 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). 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 (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 special control (tokutei kanri) of the Deposit Insurance Corporation. The business or liabilities of the financial institution subject to the special supervision (tokubetsu kanshi) or special control (tokutei kanri) 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

 

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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 (b) above 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.

If the Deposit Insurance Corporation has provided such financial assistance, the Prime Minister may designate the movable assets and claims of the failed financial institution as not subject to attachment under Article 126-16 of the Deposit Insurance Act, and such merger, business transfer, corporate split or other reorganization may be conducted outside of the court-administrated insolvency proceedings.

If the financial institution subject to the special supervision or the special control by the Deposit Insurance Corporation as set forth above 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 financial institution may transfer all or a material portion of its business or all or a portion of shares of its subsidiaries or implement corporate split or certain other corporate actions with court permission in lieu of any shareholder resolutions under Article 126-13 of the Deposit Insurance Act which permission may be granted by the court in accordance with the Deposit Insurance Act if (i) the financial institution is under special supervision by, or under special control of, the Deposit Insurance Corporation pursuant to the Deposit Insurance Act and (ii) the financial institution is, or is likely to be, unable to fully perform its obligations with its assets, or the financial institution has suspended, or is likely to suspend, repayment of its obligations. In addition, the Deposit Insurance Corporation must request other financial institution creditors of the failed financial institution to refrain from exercising their rights against the failed financial institution until measures necessary to avoid the risk of significant disruption to the financial system in Japan have been taken, if it is recognized that such exercise of their rights is likely to make it difficult to conduct an orderly resolution of the failed financial institution.

According to the announcement made by the Financial Services Agency in March 2014, (i) Additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank must be written down or converted into common shares when the Prime Minister confirms that item 2 measures (dai nigo sochi), item 3 measures (dai sango sochi) or specified item 2 measures (tokutei dai nigo sochi) need to be applied to the bank, and (ii) Additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank holding company must be written down or converted into common shares when the Prime Minister confirms that specified item 2 measures (tokutei dai nigo sochi) need to be applied to the bank holding company.

Further, under a possible model of Single Point of Entry (“SPE”) resolution described in the Japanese TLAC regulations published by the Financial Services Agency in March 2019, if the Financial Services Agency determines that a material subsidiary in Japan of a Japanese financial institution that is a G-SIB is non-viable due to material deterioration of its financial condition after recognizing that it is or is likely to be unable to fully perform its obligations with its assets, or that it has suspended, or is likely to suspend, repayment of its obligations, and issues an order concerning restoration of financial soundness, including recapitalization and restoration of liquidity of such material subsidiary, to the resolution entity in Japan of such financial institution, the material subsidiary’s internal TLAC instruments will be written off or, if applicable, converted into equity in accordance with the applicable terms of such internal TLAC instruments. Following the write-off or conversion of internal TLAC instruments, if the Prime Minister recognizes that the resolution entity in Japan of the financial institution is or is likely to be unable to fully perform its obligations with its assets, or that it has suspended or is likely to suspend, repayment of its obligations, as a result of the resolution entity’s loans to, or other investment in, its material subsidiaries that are designated by the Financial Services Agency as being systemically important or that are subject to TLAC requirements or similar requirements imposed by a relevant foreign authority, becoming subject to loss absorption or otherwise, and further recognizes that the failure of such resolution entity is likely to cause a significant disruption to the Japanese financial market or system, the Prime Minister may, following deliberation by the Financial Crisis Management Meeting, confirm that specified item 2 measures (tokutei dai nigo sochi) need to be applied to the resolution entity for its orderly resolution.

 

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Recovery and Resolution Plan

In November 2018, the Financial Stability Board published the latest list of G-SIBs. The list is annually updated by the Financial Stability Board in each November, and the list as of November 2018 includes us. A recovery and resolution plan must be put in place for each G-SIB 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-SIBs 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-SIB.

Capital Injection by the Government

The Strengthening Financial Functions Act (Kinyu Kinou no Kyouka no tame no Tokubetsu Sochi ni kansuru Houritsu) (Act 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 Act 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. In 2016, the law was further amended to extend the period for application to March 31, 2022. None of the financial institutions within the Mizuho group are subject to such special exceptions.

Bank Holding Companies

Under the amendments to the Banking Act, which became effective from April 2017, a bank holding company is required to administrate the businesses of the bank holding company group and is, in principle, prohibited from carrying out businesses other than administrating such businesses and matters incidental to such businesses; however, given prior approval of the Prime Minister, a bank holding company may carry out certain operations common to its group companies so as to improve the efficiency of their operations. Business activities for subsidiaries of bank holding companies are limited to finance-related businesses and incidental businesses.

The Anti-Monopoly Act (Shiteki Dokusen no Kinshi oyobi Kousei Torihiki no Kakuho ni kansuru Houritsu) (Act 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 Act. The Banking Act does, however, in principle, 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. Despite the foregoing shareholding restrictions, under the amendments to the Banking Act, which became effective from April 2017, bank holding companies and banks, with prior approval of the Prime Minister, can acquire and own voting rights of companies whose businesses contribute or are expected to contribute to the increased sophistication of the banking business or the enhancement of customer convenience by utilizing information and communication technology that exceed the threshold of the voting rights described above.

Financial Instruments and Exchange Act

The Financial Instruments and Exchange Act (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

 

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consolidated and non-consolidated financial statements in respect of each financial period, supplemented by quarterly and extraordinary reports.

Under the Financial Instruments and Exchange Act, 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 Act.

Certain amendments to the Financial Instruments and Exchange Act and the Banking Act, 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 Act of Sales of Financial Products (Kinyu Shouhin no Hanbai tou ni kansuru Houritsu) (Act 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.

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 Act (Kinyu Kinou no Saisei no tameno Kinkyu Sochi ni kansuru Houritsu) (Act 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.

 

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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.

In addition, in June 2018, the Financial Services Agency announced in the “JFSA’s supervisory approaches—Replacing checklists with engagement” that it would, using current practice as a starting point, discuss the future policy direction of loan classification, loan write-offs and loan-loss provisioning with financial institutions, external auditors and other experts. Based on this, the Financial Services Agency established the “Study Group on Supervisory Approaches to Lending Practices” in June 2018, and is planning to discuss and issue discussion papers regarding future supervisory approaches towards lending and to engage in dialogues with a wide range of stakeholders.

Credit Limits

The Banking Act restricts the aggregate amount of exposure 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 exposure to any single customer or customer group are established by the Banking Act and regulations thereunder. The Banking Act and the related regulations were amended, which became effective from December 2014, to tighten the previous restrictions to meet international standards. As a result of these amendments, the current credit limit for a single customer or a customer group is 25% of the total qualifying capital, with certain adjustments, of the bank holding company or bank and its subsidiaries and affiliates.

Restriction on Shareholdings

The Act Concerning Restriction on Shareholdings by Banks (Ginkou tou no Kabushiki tou no Hoyu no Seigen tou ni kansuru Houritsu) (Act 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 Act Concerning Restriction on Shareholdings by Banks. The 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, 2022. The Bank’s Shareholdings Purchase Corporation purchased ¥1,305.3 billion of shares during the period from March 12, 2009 through March 31, 2017. The Bank’s Shareholdings Purchase Corporation will dispose of the purchased shares by March 31, 2032 by taking into consideration the effects on the stock market.

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, 2016. The Bank of Japan will dispose of the purchased shares by March 31, 2026 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

 

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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 leverage ratio and the two global liquidity standards, see ”Leverage Ratio” and “Liquidity” below, respectively.

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 and Mizuho Trust & Banking 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 4.5% and the Tier 1 capital requirement is 6.0%.

Japanese banks with only domestic operations and bank holding companies the subsidiaries of which operate only within Japan are subject to the revised capital adequacy guidelines that have been applied from March 31, 2014, and those banks and bank holding companies are required to have a minimum Core Capital ratio of 4%. However, those banks and bank holding companies that apply the internal rating based approach are required to have a minimum Common Equity Tier 1 ratio of 4.5% on both a consolidated and non-consolidated basis, calculated on the assumption that the banks and bank holding companies are those 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 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 began at 20% of the required deductions in the calculation of Common Equity Tier 1 capital in March 2014 and were increased by 20% increments per year, and became fully effective in March 2018.

In November 2015, the Financial Services Agency published revised capital adequacy guidelines and related ordinances to introduce the capital buffer requirements under the Basel III rules for Japanese banks and bank holding companies with international operations, which include the capital conservation buffer, the countercyclical buffer and the additional loss absorbency requirements for G-SIBs and domestic systemically important banks (“D-SIBs”). These guidelines have become effective on March 31, 2016. The capital conservation buffer, the countercyclical capital buffer and the additional loss absorption capacity requirement for

 

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G-SIBs and D-SIBs must be met with Common Equity Tier 1 capital under the revised guidelines, and if such buffer requirements are not satisfied, a capital distribution constraints plan is required to be submitted to the Financial Services Agency and carried out. The capital conservation buffer was phased in starting in March 2016 at 0.625% and became fully effective in March 2019 at 2.5%. In addition, subject to national discretion by the respective regulatory authorities, if the relevant national authority judges a period of excess credit growth to be leading to the build-up of system-wide risk, a countercyclical capital buffer ranging from 0% to 2.5% would also be imposed on banking organizations. The countercyclical capital buffer is a weighted average of the buffers deployed across all the jurisdictions to which the banking organization has credit exposures. Further, we were designated as both a G-SIB and D-SIB, and the additional loss absorption capacity requirement applied to us was 1.0%. The additional loss absorption capacity requirement was the same as that imposed by the Financial Stability Board, which was phased in starting in March 2016 at 0.25% and became fully effective in March 2019 at 1.0%.

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

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.

In December 2017, the Basel Committee on Banking Supervision (“BCBS”) published the finalized Basel III reforms endorsed by the Group of Central Bank Governors and Heads of Supervision. The finalized reforms complement the initial phase of Basel III reforms set forth above, seek to restore credibility in the calculation of risk-weighted assets and improve the comparability of banks’ capital ratios. Such reforms include the following elements:

 

   

a revised standardized approach for credit risk, which is designed to improve the robustness and risk sensitivity of the existing approach;

 

   

revisions to the internal ratings-based approach for credit risk, where the use of the most advanced internally modelled approaches for low-default portfolios will be limited;

 

   

revisions to the credit valuation adjustment (CVA) framework, including the removal of the internally modelled approach and the introduction of a revised standardized approach;

 

   

a revised standardized approach for operational risk, which will replace the existing standardized approaches and the advanced measurement approaches;

 

   

revisions to the capital floor, under which banks’ risk-weighted assets generated by internal models must be no lower than 72.5% of the total risk-weighted assets as calculated using only the standardized approaches under the revised Basel III framework; and

 

   

requirements to disclose their risk-weighted assets based on the standardized approaches.

In addition, under the finalized Basel III reforms, G-SIBs are required to meet a leverage ratio buffer, which will take the form of a Tier 1 capital buffer set at 50% of the applicable G-SIB’s risk-weighted capital buffer, and various refinements are made to the definition of the leverage ratio exposure measure based on the text of the leverage ratio framework issued by the BCBS in January 2014.

The revised framework will mainly take effect from January 1, 2022, and the revisions to the capital floor will be phased in from January 1, 2022, with the initial capital floor of 50%, and will be fully implemented at 72.5% from January 1, 2027.

 

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

Leverage Ratio

The leverage ratio framework is critical and complementary to the risk-based capital framework that will help ensure broad and adequate capture of both on- and off-balance sheet sources of banks’ leverage. This simple, non-risk-based measure will restrict the build-up of excessive leverage in the banking sector to avoid destabilizing deleveraging processes that can damage the broader financial system and the economy. Implementation of the leverage ratio requirements began with bank-level reporting to national supervisors of the leverage ratio and its components, and public disclosure is required from January 2015. Basel III’s leverage ratio is defined as the “capital measure” (numerator) divided by the “exposure measure” (denominator) and is expressed as a percentage. The capital measure is defined as Tier 1 capital, and the minimum leverage ratio is defined as 3%. The Financial Services Agency applied the requirement from March 31, 2019 to meet the minimum leverage ratio for bank holding companies and banks with international operations.

The leverage ratio requirements under the finalized definition of the leverage ratio exposure measure and the leverage ratio buffer requirement for G-SIBs, will take effect from January 1, 2022.

For further information regarding the leverage ratio, 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 BCBS issued the text of the revised LCR standard on January 7, 2013. The LCR guidelines of the Financial Services Agency, which reflect the rules in such text, have been applied to banks and bank holding companies with international operations from March 31, 2015, under the LCR guidelines, LCR is defined as the ratio obtained by dividing the sum of the amounts of High-Quality liquid assets by the amount of net cash outflows, each as defined in and calculated pursuant to such guidelines. In accordance with the LCR standard under the LCR guidelines, the stock of unencumbered HQLA is to constitute “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 are subject to certain haircuts based on types of securities and credit ratings. The minimum LCR under the LCR guidelines is 100% on both a consolidated and non-consolidated basis for banks with international operations or on a consolidated basis for bank holding companies with international operations. The BCBS issued final requirements for LCR-related disclosures on January 12, 2014, and the LCR disclosure guidelines of the Financial Services Agency, which reflect such requirements, have been applied to banks and bank holding companies with international operations from June 30, 2015. The LCR disclosure guidelines require such banks and bank holding companies to disclose their LCR in common templates starting from information as of June 30, 2015.

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. The BCBS finalized the NSFR framework in October 2014, and the NSFR was scheduled to be introduced as a minimum standard on March 31, 2019 by the Financial Services Agency, but the introduction was postponed in March 2019.

 

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Total Loss Absorbing Capacity

Related to regulatory capital requirements, in November 2015, the FSB issued the final TLAC standard for G-SIBs. The TLAC standard has been designed so that failing G-SIBs will have sufficient loss-absorbing and recapitalization capacity available in resolution for authorities to implement an orderly resolution. G-SIBs will be required to meet the TLAC requirement alongside the minimum regulatory requirements set out in the Basel III framework.

Following the publication of the final TLAC standards for G-SIBs by the FSB, in April 2016, the Financial Services Agency published an explanatory paper outlining its approach for the introduction of the TLAC framework in Japan, and a revised version of this document was published in April 2018. In March 2019, the Financial Services Agency published regulatory notices and related materials to implement the TLAC requirements in Japan, which is being phased in for Japanese G-SIBs beginning March 31, 2019. According to the Financial Services Agency’s approach above, which is subject to change based on future international discussions, the preferred resolution strategy for G-SIBs in Japan as well as a domestic systematically important bank in Japan which is deemed of particular need for a cross-border resolution arrangement and of particular systemic significance to Japanese financial system if it fails (together with G-SIBs in Japan, the “Covered SIBs”) is SPE resolution, in which resolution tools are applied to the ultimate holding company of a group by a single national resolution authority, although the actual measures to be taken will be determined on a case-by-case basis considering the actual condition of the relevant Covered SIB in crisis. To implement this SPE resolution strategy effectively, the Financial Services Agency requires the ultimate holding company in Japan of the relevant Covered SIB designated as the resolution entity in Japan of such Covered SIB by the Financial Services Agency to (i) meet the minimum external TLAC requirements, and (ii) cause their material subsidiaries or material sub-groups that are designated as systemically important by the Financial Services Agency or that are subject to TLAC requirements or similar requirements by the relevant foreign authority to maintain a certain level of capital and debt recognized as having loss-absorbing and recapitalization capacity, or internal TLAC. Under the Japanese TLAC regulations, the Financial Services Agency designated Mizuho Financial Group as the resolution entity in Japan for our group, which is subject to the external TLAC requirements in Japan, and designated Mizuho Bank, Mizuho Trust & Banking and Mizuho Securities as Mizuho Financial Group’s material subsidiaries in Japan which are subject to Japan’s internal TLAC requirements. In addition, under the Japanese TLAC regulations, G-SIBs are required to meet a minimum TLAC requirement of at least 16% of the resolution group’s risk-weighted assets from March 31, 2019 and at least 18% from March 31, 2022. Minimum TLAC must also be at least 6% of the Basel III leverage ratio denominator from March 31, 2019, and at least 6.75% from March 31, 2022. Japanese G-SIBs are allowed to count the Japanese Deposit Insurance Fund Reserves in an amount equivalent to 2.5% of their consolidated risk-weighted assets from March 31, 2019, and 3.5% of their consolidated risk-weighted assets from March 31, 2022, as their external TLAC.

Protection of Personal Information

The Personal Information Protection Act (Kojin Jouhou no Hogo ni kansuru Houritsu) (Act 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 Personal Information Protection Commission to take necessary measures to comply with the law will subject us to criminal and/or administrative sanctions.

Prevention of Money Laundering

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

 

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the law became effective in April 2013, which tightened, among other things, customer identification requirements. Further amendments to the law were promulgated in November 2014 and became effective on October 1, 2016 for clarification of the judgment method of suspicious transactions, strict verification at the time of the conclusion of correspondence contracts and expansion of the obligation for business operators to make efforts to develop necessary systems.

In February 2018, the Financial Services Agency issued “Guidelines for Anti-Money Laundering and Combating the Financing of Terrorism” to clarify the basic stance on risk management practices against money laundering and terrorists financing in order to encourage financial institutions to improve their regimes to effectively prevent money laundering and terrorists financing. The guidelines were partially revised on April 10, 2019, intending to further enhance financial institutions’ risk management for anti-money laundering and combating the financing of terrorism.

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

The Act 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) (Act 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, Los Angeles and Park Avenue (New York) branches and Houston, Atlanta, Dallas, San Francisco and Washington, D.C. representative offices. We also own one bank in the United States, Mizuho Bank (USA), which is engaged primarily in the banking services, trust services and custody business, and Mizuho Securities USA LLC, a U.S. broker dealer engaged in the securities business.

The Bank Secrecy Act, as amended by 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 Bank Secrecy Act, as amended, imposes anti-money laundering compliance obligations on U.S. financial institutions, including the U.S. offices of foreign banks. In recent years, federal and state regulatory and law enforcement authorities have closely scrutinized the compliance by financial institutions with the Bank Secrecy Act and anti-money laundering rules.

Mizuho Financial Group, Mizuho Bank and Mizuho Americas are financial holding companies (“FHCs”) 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 Federal Reserve. As a matter of law, these three companies are required to act as a source of financial strength to Mizuho Bank (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 that we do not routinely manage, generally for a period of up to 10 years, 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.

 

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Mizuho Financial Group and the former Mizuho Corporate Bank, now Mizuho Bank, became FHCs in December 2006, and Mizuho Americas became an FHC in July 2016. As FHCs, we, Mizuho Bank, and Mizuho Americas and the companies under their control are permitted to engage in a broader range of activities in the U.S. and abroad than permitted for bank holding companies and their subsidiaries. For example, 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, and therefore enables our group to promote our investment banking business on a broader basis in the United States.

To retain our status as an FHC, we must also comply with certain 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 maintenance of a common equity Tier 1 risk-based capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8%, a total risk-based capital ratio of at least 10% and a leverage ratio of at least 5%. We and each of our U.S. insured depository institution subsidiaries must also be “well managed,” including that we and 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 their 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 an FHC 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 U.S. 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, as a general matter, 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 same single-borrower lending limits that apply to federal branches and agencies, which are substantially similar to 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 (“NYDFS”) as well as by the Federal Reserve. 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 may require higher amounts for supervisory reasons. Each other U.S. branch and representative office of Mizuho Bank is also subject to regulation and examination by the state banking authority of the state in which such branch or representative office is located. The deposits of Mizuho Bank’s U.S. branches are not insured by the Federal Deposit Insurance Corporation (“FDIC”).

Mizuho Bank (USA) is a New York state-chartered bank that is a member of the Federal Reserve System whose deposits are insured by the FDIC. As such, Mizuho Bank (USA) is subject to regulation, supervision and examination by the Federal Reserve and the NYDFS, as well as to relevant FDIC regulation.

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.

 

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In the United States, comprehensive financial regulatory reform legislation, titled the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), provides a broad framework for significant regulatory changes across most areas of U.S. financial regulation. Among other things, the Dodd-Frank Act addresses systemic risk oversight, minimum leverage and risk-based capital requirements for insured depository institutions and depository institution holding companies, and the resolution of failing systemically significant financial institutions.

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 $50 billion or more 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 banking organization is subject to comparable home country standards. [In February 2014, the Federal Reserve Board finalized rules (the “FBO Rules”) under Regulation YY that impose enhanced prudential standards on certain large foreign banking organizations having a U.S. presence, such as Mizuho Bank. Under the FBO Rules, large foreign banking organizations, including us, and their U.S. operations are subject to risk management requirements, risk-based capital and leverage limits, capital stress testing requirements, liquidity requirements and, in certain circumstances, asset management requirements. Additionally, in August 2018, the Federal Reserve Board finalized single counterparty credit limits for large foreign banking organizations with respect to their U.S. operations. In addition, under the FBO Rules, foreign banking organizations with consolidated U.S. assets of $50 billion or more (excluding the assets of U.S. branches and agencies) are, as of July 1, 2016, required to establish or designate 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. In consideration of certain enhanced prudential requirements under the FBO Rules, we established a new U.S. bank holding company, Mizuho Americas, a wholly owned direct subsidiary of Mizuho Bank as of July 1, 2016. Mizuho Americas is currently the holding company for our U.S. bank subsidiary, Mizuho Bank (USA), our U.S. securities broker dealer, Mizuho Securities USA LLC, and certain other our U.S. subsidiaries. The establishment of Mizuho Americas was part of a larger internal corporate reorganization, which was taken with the aim of, among other things, strengthening corporate governance practices and operations.

On May 24, 2018, the U.S. Economic Growth, Regulatory Relief and Consumer Protection Act (the “Reform Act”) was signed into law. Among other regulatory changes, the Reform Act raised the threshold for automatic application of enhanced prudential standards to foreign banking organizations (“FBOs”) under the Dodd-Frank Act. The Reform Act, however, did not require the Federal Reserve Board to change the enhanced prudential standards applicable to FBOs with more than $100 billion in total consolidated assets, such as us.

In April 2019, the Federal Reserve Board issued a proposed rule that would implement the Reform Act’s changes to the application of enhanced prudential standards with respect to FBOs (the “FBO Tailoring Proposal”). The FBO Tailoring Proposal would delineate three categories of enhanced prudential standards applicable to FBOs based on an FBO’s asset size and other factors such as the degree of the cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposures of an FBO’s U.S. operations. The FBO Tailoring Proposal generally would determine the stringency of enhanced prudential standards applicable to FBOs based on the risk profile of the FBO’s U.S. operations, rather than its global footprint, with most enhanced prudential standards applying only to FBOs with combined U.S. assets of at least $100 billion. FBOs with global assets of $100 billion or more and relatively limited U.S. presence would be subject to certain minimum standards, with the Federal Reserve Board relying primarily on compliance with comparable home-country prudential standards with respect to such FBOs.

If the Federal Reserve Board were to adopt final rules amending the enhanced prudential standards currently applicable to us, we cannot predict, at this time, the scope of any such final rules (including the extent to which such final rules would be consistent with the FBO Tailoring Proposal) or the effect that such rules would have on our activities, financial condition and/or results of operations.

 

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Under Section 13 of the Bank Holding Company Act, as amended, also known as the “Volcker Rule,” any insured depository institution (subject to certain exceptions including for depository institutions that do not have, and are not controlled by a company that has, more than $10 billion in total consolidated assets and significant trading assets and liabilities), any company that controls such an institution, any non-U.S. bank with branches in the United States, such as Mizuho Bank, and any affiliate or subsidiary of such entities (each, a “banking entity”) is prohibited from engaging in proprietary trading or from investing in or sponsoring private equity or hedge funds, subject to certain limited exceptions. In December 2013, U.S. financial regulators approved final rules implementing the Volcker Rule, and established a deadline of July 21, 2015 for banking entities to conform their activities and investments to the requirements of the final rules. In December 2014, the Federal Reserve Board extended the conformance period to July 21, 2017 for investments in and relationships with certain funds that were in place prior to December 31, 2013. In addition, prior to the expiration of the general conformance period, banking entities with investments in or relationships with certain “illiquid” funds” were permitted to seek an additional one-time extension by the Federal Reserve Board of up to five years. All investments in and relationships with funds covered by the Volcker Rule made after December 31, 2013 must have been divested or restructured by July 21, 2015.

The current regulatory environment in the United States may be impacted by future legislative developments, such as amendments to key provisions of the Dodd-Frank Act. [For example, on May 24, 2018, the U.S. Economic Growth, Regulatory Relief and Consumer Protection Act (the “Reform Act”) was signed into law. Among other regulatory changes, the Reform Act amends various sections of the Dodd-Frank Act, including by modifying the Volcker Rule to exempt depository institutions that do not have, and are not controlled by a company that has, more than $10 billion in total consolidated assets or significant trading assets and liabilities, and by raising the threshold for automatic application of enhanced prudential standards to FBOs under the Dodd-Frank Act.. The ultimate consequences of the Reform Act on us and our U.S. operations remain uncertain. The scope any additional future legislation is not possible to determine at this time, and we cannot predict what impact, if any, such future legislative developments will have on us if and when such legislation is enacted.

Cybersecurity and privacy developments in Europe and the U.S.

The European Union General Data Protection Regulation (“GDPR”) replaced the existing E.U. Data Protection Directive and, as a regulation, took effect in all EU member states from May 25, 2018. Although a number of the existing principles for the protection of personal data remains, the GDPR is designed to harmonize data privacy laws across Europe and reshape the way organizations approach data privacy. The GDPR introduced new obligations and expanded its territorial reach. It applies to all organizations processing or holding personal data of EU ‘data subjects’ (regardless of the organization’s location) as well as to organizations outside the EU that offer goods or services in the EU, or that monitor the behavior of EU data subjects. Personal data is information that can be used to identify a natural person, including a name, a photo, an email address, or a computer IP address. Compliance with the GDPR requires companies to analyze and evaluate how they handle data in the ordinary course of their business, from processes to technology. It imposes a prescriptive approach to compliance requiring organizations to demonstrate and record compliance and to provide much more detailed information to data subjects regarding processing. EU data subjects need to be given full disclosure about how their personal data is used and stored. In that connection, consent must be explicit and companies must be in a position to delete information from their global systems permanently if consent were withdrawn. Financial regulators and data protection authorities throughout the EU will have significantly increased audit and investigatory powers under GDPR to probe how personal data is being used and processed. Penalties for non-compliance are material. Serious breaches of GDPR include antitrust-like fines on companies of up to the greater of €20 million or 4% of global group turnover in the preceding year, regulatory action and reputational risk.

In the United States, federal and state regulators, including the Financial Industry Regulatory Authority (“FINRA”) and the NYDFS, have increasingly focused on cybersecurity risks and responses for regulated entities. For example, on March 1, 2017, the revised NYDFS cybersecurity regulation became effective. The

 

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regulation applies to any person licensed or chartered by the NYDFS, including New York state-chartered banks and NYDFS-licensed branches of non-U.S. banks such as Mizuho Bank (USA) and the New York branch of Mizuho Bank, and requires each company to assess its specific risk profile periodically and design a program that addresses its risks “in a robust fashion”, including addressing risks posed by third-party service providers, training and retention of specialized staff to address cybersecurity risks, maintaining systems designed to reconstruct material financial transactions and complying with security requirements for non-public information. Each covered entity must monitor its systems and networks and notify the superintendent of the NYDFS within 72 hours after it is determined that a material cybersecurity event has occurred. Senior management of the covered entity is required to file an annual certification confirming compliance with the NYDFS regulations beginning February 15, 2018. Similarly, FINRA has identified cybersecurity as a significant risk and will assess firms’ programs to mitigate those risks.

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 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 is increasing resources dedicated 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 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

During a portion of the period covered by this disclosure, Mizuho Bank was a party to a legacy counter guarantee that was opened in connection with activity of its customer for the benefit of an Iranian bank. When the guarantee was entered into, the bank in question, which is related to the Government of Iran, had not been designated under U.S. Executive Orders (“E.O.”) 13224 or 13382, although it was subsequently so designated. Mizuho Bank maintained this guarantee post-designation only after confirming that such a transaction did not involve prohibited or sanctionable activity under U.S. or other economic sanctions. As contractual obligations, this guarantee could not be exited by Mizuho Bank unilaterally. In the fiscal year ended March 31, 2019, Mizuho Bank received fees of less than ¥1 million attributable to this guarantee and earned net profits of less than that amount. Mizuho Bank terminated the counter guarantee in July 2018 before the issuance of E.O. 13846.

Activities through correspondent banking accounts

In the fiscal year ended March 31, 2019, Mizuho Bank conducted a limited number of fund transfers through accounts it maintains for or at a limited number of Iranian banks related to the Government of Iran and a bank designated under E.O. 13224, or through other correspondent banking accounts on behalf of such Iranian banks. These transfers were mainly associated with requests by our customers after the relaxation of applicable sanctions pursuant to the Joint Comprehensive Plan of Action and prior to the full re-imposition of such U.S. sanctions on November 5, 2018. Mizuho Bank has policies and procedures to process transfers through these accounts only after confirming that such transactions do not involve prohibited or sanctionable activity under

 

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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, 2019 attributable to fees for these activities was less than ¥12 million, with a net profit of less than that amount. Mizuho Bank will process transfers through these accounts only under the limited circumstances where Mizuho Bank believes the transfer would conform to its 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, 2019:

 

LOGO

 

Note:

(1)

JTC Holdings, in which we have a 27.0% equity interest, is an equity-method affiliate of ours.

 

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The following table sets forth information with respect to our principal consolidated subsidiaries as of March 31, 2019:

 

Name

 

Country of
organization

 

Main business

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

Domestic

       

Mizuho Bank, Ltd.

  Japan   Banking     100.0     100.0

Mizuho Trust & Banking Co., Ltd.

  Japan   Trust and banking     100.0     100.0

Mizuho Securities Co., Ltd.

  Japan   Securities     95.8     95.8

Mizuho Research Institute Ltd.

  Japan   Research and consulting     98.6     98.6

Mizuho Information & Research Institute, Inc.

  Japan  

Information technology

    91.5     91.5

Asset Management One Co., Ltd.

  Japan   Investment management     70.0     51.0

Mizuho Private Wealth Management Co., Ltd.

  Japan  

Consulting

    100.0     100.0

Mizuho Credit Guarantee Co., Ltd.

  Japan   Credit guarantee     100.0     100.0

Mizuho Realty Co., Ltd.

  Japan   Real estate agency     100.0     100.0

Mizuho Factors, Limited

  Japan   Factoring     100.0     100.0

Mizuho Realty One Co., Ltd.

  Japan   Holding company     100.0     100.0

Defined Contribution Plan Services Co., Ltd.

 

Japan

 

Pension plan-related business

 

 

60.0

 

 

60.0

Mizuho-DL Financial Technology Co., Ltd.

 

Japan

 

Application and Sophistication of Financial Technology

 

 

60.0

 

 

60.0

UC Card Co., Ltd.

  Japan   Credit card     51.0     51.0

J.Score CO., LTD

  Japan   Lending     50.0     50.0

Mizuho Trust Systems Company, Limited

 

Japan

 

Subcontracted calculation services, software development

 

 

50.0

 

 

50.0

Mizuho Capital Co., Ltd.

  Japan  

Venture capital

    50.0     50.0

Overseas

       

Mizuho Americas LLC

  USA  

Holding company

    100.0     100.0

Mizuho Bank (China), Ltd.

  China  

Banking

    100.0     100.0

Mizuho International plc

  UK  

Securities and banking

    100.0     100.0

Mizuho Securities Asia Limited

  China  

Securities

    100.0     100.0

Mizuho Securities USA LLC

  USA  

Securities

    100.0     100.0

Mizuho Bank Europe N.V.

  Netherlands  

Banking and securities

    100.0     100.0

Banco Mizuho do Brasil S.A.

  Brazil  

Banking

    100.0     100.0

Mizuho Trust & Banking (Luxembourg) S.A.

  Luxembourg  

Trust and banking

    100.0     100.0

Mizuho Bank (USA)

  USA  

Banking and trust

    100.0     100.0

Mizuho Securities Europe GmbH

  Germany  

Securities

    100.0     100.0

Mizuho Capital Markets LLC

  USA  

Derivatives

    100.0     100.0

PT. Bank Mizuho Indonesia

  Indonesia  

Banking

    99.0     99.0

 

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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, 2018 and 2019:

 

     As of March 31,  
     2018      2019  
    

 

(in millions of yen)

 

Land

   ¥ 566,040      ¥ 563,032  

Buildings

     811,911        826,781  

Equipment and furniture

     484,102        472,186  

Leasehold improvements

     97,066        97,508  

Construction in progress

     25,849        37,174  

Software

     1,463,786        1,366,481  
  

 

 

    

 

 

 

Total

     3,448,754        3,363,162  

Less: Accumulated depreciation and amortization

     1,332,570        1,462,210  
  

 

 

    

 

 

 

Premises and equipment—net

   ¥ 2,116,184      ¥ 1,900,952  
  

 

 

    

 

 

 

Our head office is located at 1-5-5 Otemachi, Chiyoda-ku, Tokyo, Japan. The headquarter building is leased from a third party.

The total area of land related to our material office and other properties as of March 31, 2019 was approximately 650,000 square meters for owned land and approximately 13,000 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

     57  

Critical Accounting Estimates

     65  

Operating Results

     69  

Business Segments Analysis

     78  

Geographical Segment Analysis

     84  

Financial Condition

     86  

Liquidity

     97  

Capital Adequacy

     98  

Off-balance-sheet Arrangements

     104  

Tabular Disclosure of Contractual Obligations

     105  

Recent Accounting Pronouncements

     105  

Reconciliation with Japanese GAAP

     106  

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, small and medium-sized enterprises (“SME”s), 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.

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;

 

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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 fee and commission, investment gains (losses)—net, trading account gains (losses)—net and foreign exchange gains (losses)—net.

Fee and commission include the following:

 

   

fee and commission from securities-related business, including brokerage fee and commission related to the execution of customer transactions and sales commission of investment trusts and asset-based revenue, which mainly include fees received from investment trust management companies in return for administration services, such as record keeping services, of investment trusts;

 

   

fee and commission from deposits and lending business, which consist mostly of fee and commission 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;

 

   

fee and commission from remittance business, including service charges for domestic and international funds transfers and collections;

 

   

fee and commission from asset management business, including investment trust management fees and investment advisory fees for investment trusts;

 

   

fee and commission from trust-related business, including trust fees earned primarily through fiduciary asset management and administration service for corporate pension plans and investment funds and other trust-related fees such as brokerage commissions of real estate property, sales commissions of beneficial interest in real estate trust and charges for stock transfer agent services;

 

   

fee and commission from agency business, including administration service fees related to our agency business such as Japan’s principal public lottery program and revenue from standing proxy services; and

 

   

fees for other customer services, including various revenues such as guarantee fees, sales commissions of life insurance, service charges for electronic banking, financial advisory fees and service charges for software development.

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 the fair value of investments are other-than-temporary.

 

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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 debt securities reported as Trading securities.

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

Operating Environment

We operate principally in Japan, and our performance has generally tracked the macro economy of Japan.

As to the recent economic environment, the gradual recovery in the global economy has continued, driven by the strong expansion of the United States’ economy. On the other hand, the Chinese and European economies showed a clear slowdown due mainly to the influence of trade friction between the United States and China.

In Japan, although the economy continued to recover, exports declined due to weak overseas economies and production remained weak. Employment conditions have been favorable, and consumer spending maintained a gradual recovery trend. The Bank of Japan continues “quantitative and qualitative monetary easing with yield curve control” to achieve the price stability target of 2%, but it is indicated that it will be difficult to achieve this target by the end of the 2020 fiscal year.

In the United States, the economy continued its steady expansion due to such factors as tax cuts and increases in government spending. However, there was a downturn in business confidence in the manufacturing industry due primarily to the impact of the trade friction with such countries as China. While the unemployment rate remained low and wage level growth has accelerated somewhat, spillover effects on prices have yet to be

 

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observed. The Federal Reserve Board (“FRB”) has changed its stance regarding interest rates from one with an inclination towards rate increases to a more wait-and-see stance and announced their planned suspension of the shrinking of their balance sheet.

In Europe, the economy remained weak. Business confidence showed a clear downturn mainly in the manufacturing industry. The European Central Bank (“ECB”) suspended new assets purchases but maintained its policy rate as uncertainties such as concerns regarding Brexit increase.

In Asia, the Chinese economy remained stagnant. In China, export growth slowed rapidly due mainly to the impact of trade friction between the United States and China.

In emerging countries, the economies generally continued to recover. However, in some countries with current account deficits, the risk of cash outflows remained amid concerns regarding uncertainty in U.S. trade policies and the Chinese economy.

As for the future outlook of the global economy, recovery is expected to continue, particularly in the United States, but it is necessary to monitor increasing uncertainties such as developments in U.S. trade policies, political concerns in Europe, the economic outlook for China and emerging countries and geopolitical risks in the Middle East.

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

 

   

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 2016 through the first quarter of 2019:

 

LOGO

 

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Japan’s real gross domestic product on a year-on-year basis increased by 0.9%, 1.9% and 0.7% in the fiscal years ended March 31, 2017, 2018 and 2019, 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 year 2015 through the first quarter of calendar year 2019. Japan’s core nationwide consumer price index decreased by 0.2% in the fiscal year ended March 31, 2017, increased by 0.7% and 0.8% in the fiscal years ended March 31, 2018 and 2019, respectively.

 

   

In September 2016, the Bank of Japan decided to introduce “quantitative and qualitative monetary easing with yield curve control” by strengthening its two previous policy frameworks, namely “quantitative and qualitative monetary easing (“QQE”)” and “QQE with a negative interest rate.” The new policy framework consists of two major components: (1) “yield curve control” in which the Bank of Japan will control short-term and long-term interest rates; and (2) an “inflation-overshooting commitment” in which the Bank of Japan commits itself to expand the monetary base until the year-on-year rate of increase in the observed consumer price index exceeds the price stability target of 2% and stays above the target in a stable manner. Under the new policy framework, the Bank of Japan decided to set the guideline for market operations under which, regarding short-term interest rates, the Bank of Japan will apply a negative interest rate of minus 0.1% to certain excess balances in current accounts held by financial institutions at the Bank of Japan, while for long-term interest rates, it would purchase Japanese government bonds to control long-term interest rates so that the yield of 10-year Japanese government bonds will remain at around 0%. In addition, the Bank of Japan decided to introduce the following new tools of market operations so as to control the yield curve smoothly: (i) outright purchases of Japanese government bonds with yields designated by the Bank of Japan; and (ii) fixed-rate funds-supplying operations for a period of up to ten years (thereby extending the longest maturity of the operation of one year).

In July 2018, the Bank of Japan decided to strengthen its commitment to achieving its price stability target by introducing forward guidance for policy rates, and to enhance the sustainability of “quantitative and qualitative monetary easing with yield curve control.” In its forward guidance, the Bank of Japan stated its intention to maintain the current extremely low levels of short-term and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices, including the effects of the consumption tax hike scheduled to take place in October 2019. The Bank of Japan also indicated its aim to ease the yield curve, stating that it would purchase Japanese government bonds so that the yield of 10-year Japanese government bonds will remain at around 0%, although it might move upward and downward to some extent mainly depending on developments in economic activity and prices, and the Bank of Japan would purchase the Japanese government bonds in a flexible manner with regard to the purchase amount. In addition, the Bank of Japan decided to reduce the size of the excess balances in financial institutions’ current account to which a negative interest rate is applied under the condition that yield curve control can be conducted appropriately.

In April 2019, the Bank of Japan decided upon the clarification of forward guidance for policy rates and implementation of measures contributing to the continuation of powerful monetary easing, including the expansion of eligible collateral for the bank’s provision of credit, with a view to making clearer its policy stance to persistently continue with powerful monetary easing. The Bank of Japan stated its intention to maintain the current extremely low levels of short-term and long-term interest rates for an extended period of time, at least through around spring 2020, taking into account uncertainties regarding economic activity and prices, including developments in overseas economies and the effects of the scheduled consumption tax hike.

 

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The following chart shows movements in long-term interest rates from January 2016 to May 2019, represented by the yield on newly issued 10-year Japanese government bonds, and in short-term interest rates during the same period, represented by the uncollateralized overnight call rate used in the interbank market:

 

LOGO

 

   

According to Teikoku Databank, a Japanese research institution, there were 8,153 corporate bankruptcies in the fiscal year ended March 31, 2017, involving approximately ¥1.9 trillion in total liabilities, 8,285 corporate bankruptcies in the fiscal year ended March 31, 2018, involving approximately ¥2.6 trillion in total liabilities, and 8,057 corporate bankruptcies in the fiscal year ended March 31, 2019, involving approximately ¥1.6 trillion in total liabilities. The number of corporate bankruptcies showed a decrease from the previous year for the first time in two years, which was the fewest in ten years since the financial crisis in 2008. The amount of total liabilities decreased by approximately ¥1.0 trillion from the previous fiscal year.

 

   

The following chart shows the daily closing price of the Nikkei Stock Average from January 2016 to May 2019:

 

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, increased by 12.8% to ¥18,909.26 during the fiscal year ended March 31, 2017, followed by a 13.5% increase to ¥21,454.30 during the fiscal year ended March 31, 2018 and a 1.2% decrease to ¥21,205.81 during the fiscal year ended March 31, 2019. Thereafter, the Nikkei Stock Average decreased to ¥20,601.19 as of May 31, 2019.

 

   

The following chart shows the yen/dollar spot rate of 5 p.m. Tokyo time published by the Bank of Japan from January 2016 to May 2019:

 

LOGO

The yen to U.S. dollar spot exchange rate, according to the Bank of Japan, was ¥111.80 to $1.00 as of March 31, 2017, ¥106.19 to $1.00 as of March 30, 2018, and ¥110.75 to $1.00 as of March 29, 2019. Thereafter, the yen strengthened to ¥108.78 to $1.00 as of May 31, 2019.

 

   

According to the Ministry of Land, Infrastructure, Transport and Tourism of Japan, housing starts in Japan increased by 5.8% in the fiscal years ended March 31, 2017, decreased by 2.8% in the fiscal year ended March 31, 2018 and increased by 0.7% in the fiscal year ended March 31, 2019.

 

   

According to the Ministry of Land, Infrastructure, Transport and Tourism of Japan, the average published housing land prices in Japan was unchanged in calendar year 2016 and increased by 0.3% and 0.6% in calendar year 2017 and 2018, respectively.

Capital Improvements

All yen figures and percentages 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 Stable Capital Base

In the fiscal year ended March 31, 2019, we strengthened our capital base mainly as a result of earning ¥96.5 billion of profit attributable to owners of parent (under Japanese GAAP).

With respect to redemptions of previously issued securities, since April 2018, we have redeemed various securities that are eligible regulatory capital instruments subject to phase-out arrangements under Basel III upon their respective initial optional redemption dates or their respective maturity dates. With respect to Tier 1 capital, in June 2018 and June 2019, we redeemed ¥274.5 billion and ¥303.0 billion of non-dilutive Tier 1 preferred securities issued by our overseas special purpose companies in January 2008 and July 2008, respectively. With respect to Tier 2 capital, in June 2019, we redeemed ¥54.0 billion of dated subordinated bonds issued by our

 

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subsidiary bank in June 2009. In addition, we have decided to redeem ¥20.0 billion of dated subordinated bonds with a write-down feature that are Basel III-eligible Tier 2 capital instruments in July 2019, which were issued by Mizuho Financial Group in July 2014.

With respect to new issuances of Additional Tier 1 capital, in July 2018, we issued ¥350.0 billion of perpetual subordinated bonds with optional-redemption clause and write-down clause that are Basel III-eligible Additional Tier 1 capital instruments through public offerings to wholesale investors in Japan. With respect to new issuances of Tier 2 capital, in June 2018, we issued ¥40.0 billion and ¥70.0 billion of dated subordinated bonds with a write-down feature that are Basel III-eligible Tier 2 capital instruments through public offerings to wholesale and retail investors, respectively, in Japan. In June 2019, we issued ¥90.0 billion of dated subordinated bonds with a write-down feature that are Basel III-eligible Tier 2 capital instruments through public offerings to wholesale investors in Japan.

Our Common Equity Tier 1 capital ratio under Basel III was 12.49% and 12.76% as of March 31, 2018 and 2019, respectively.

Steady Returns to Shareholders

Annual cash dividends for the fiscal year ended March 31, 2019 were ¥7.5 per share of common stock (including interim dividend payments of ¥3.75 per share), which was the same amount as the annual cash dividend per share for the previous fiscal year.

We continuously consider the optimal balance between strengthening of stable capital base and steady returns to shareholders. We will comprehensively consider the business environment such as the Mizuho group’s business results, profit base, capital, and domestic and international regulation trends such as the Basel framework and determine cash dividend payments for each term.

Business Trends

See “Item 4.B. Information on the Company—Business Overview,” “Item 5. Operating and Financial Review and Prospects—Operating Results” and “Item 5. Operating and Financial Review and Prospects—Financial Condition.”

Others

Implementation of the Next-generation IT Systems

Since June 11, 2018, Mizuho Bank and Mizuho Trust & Banking have been engaging in a multi-stage process of migration to, and the implementation of, our next-generation IT systems, including accounting system. As of July 5, 2019, we have completed eight out of the nine required phases.

New Share Issuance of LINE Credit Corporation and Establishment of a Joint Venture

In November 2018, LINE Corporation (“LINE”) and we agreed to executing new share issuance by LINE Credit Corporation (“LINE Credit”) through third-party allotment to the parties’ respective group companies, namely LINE Financial Corporation (“LINE Financial”), Mizuho Bank and Orient Corporation (“Orico”). In May 2019, this third-party allotment was completed and resulted in 51% of the voting rights held by LINE Financial, 34% held by Mizuho Bank and 15% held by Orico. LINE Credit will seek to establish an innovative own-scoring platform and provide useful loan services to customers.

In May 2019, LINE and we also established a joint venture through their respective subsidiaries, LINE Financial and Mizuho Bank. Subject to any required regulatory approval, the joint venture will start preparation

 

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to establish a new bank. By fully utilizing the large customer base and sophisticated user interface and user experience of LINE and our financial expertise, the new bank, which will be linked to the LINE mobile application, will seek to provide user-friendly smartphone-based banking services.

Signing of the Capital and Business Alliance Agreement between Mizuho Bank and IBJ Leasing Company

In February 2019, Mizuho Bank and IBJ Leasing Company, Limited (“IBJ Leasing”) adopted a resolution to enter into a capital and business alliance and executed a capital and business alliance agreement. Through the subscription for the entire shares of common stock of IBJ Leasing to be issued by IBJ Leasing through third-party allotment and the share transfers from existing shareholders by off-market negotiated transactions conducted in March 2019, together with the shares we had already owned, we currently hold 23.5% of the shares of common stock of IBJ Leasing, which makes IBJ Leasing our equity-method affiliate.

Disposing of Our Cross-shareholdings

Reflecting the potential impact on our financial position associated with the risk of stock price fluctuation, as a basic policy, unless we consider holdings to be meaningful, we will not hold the shares of other companies as cross-shareholdings. We promote cross-shareholdings disposal through initiatives to enhance capital efficiency by implementing in-house company return on equity as an internal performance indicator. Under Japanese GAAP on an acquisition cost basis, our total Japanese stock portfolio (included within other securities which have readily determinable fair value) as of March 31, 2015 was ¥1,962.9 billion, and we have reduced such amount by ¥543.0 billion as of March 31, 2019.

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.

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 present value of expected cash flows discounted at the loans’ initial effective interest rate, or as a practical expedient, using the observable market price 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. In obtaining the collateral, we evaluate the value of the collateral and its legal enforceability, and we also perform subsequent

 

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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 performed by an appraising subsidiary that is independent from our loan origination sections by using generally accepted valuation techniques such as (i) the replacement cost approach, or (ii) the sales comparison approach, or (iii) the income approach, although in the case of large real estate collateral, we generally engage third-party appraisers to perform the valuation. Management identifies impaired loans through the credit quality review process, in which the ability of borrowers to service their 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 groups of loans that are collectively evaluated for impairment. 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 by 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 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.

Impairment of Investment Securities

U.S. GAAP requires the recognition in earnings of an impairment loss on investment securities for a decline in fair value that is other-than-temporary. Management judgment is required in determining whether factors exist that indicate that an impairment loss has been incurred at the balance sheet date.

For debt securities, in the case where we have the intent to sell a debt security or more likely than not will be required to sell a debt security before the recovery of its amortized cost basis, the full amount of an other-than-temporary impairment loss is recognized through earnings. In these cases, we evaluate expected cash flows to be received and determine if a credit loss exists, and if so, the amount of an other-than-temporary impairment related to the credit loss is recognized in earnings, while the remaining decline in fair value is recognized in other comprehensive income, net of applicable taxes. For further details on the amount of the impairment losses on debt securities, see note 4 to the consolidated financial statements included elsewhere in this annual report.

 

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Our assessment of impairment involves analyzing risks and uncertainties resulting from market conditions and the condition of specific issuers or industries. Significant changes in any of these factors could significantly affect our financial condition and results of operations.

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 prices are available, the fair values of debt securities and over-the-counter derivative contracts in this category are determined using pricing models 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 values are 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 28 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, future reversals of existing taxable temporary differences and tax-planning strategies. Because we have not opted to be subject to consolidated taxation, deferred tax assets and liabilities, including the impact of a valuation allowance, 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. Variances in future projected operating performance or tax law changes could result in a change in the valuation allowance. Variances in the net unrealized gains on available-for-sale securities could also affect a change in the valuation allowance, because we consider the sales of available-for-sale securities to be a qualifying tax-planning strategy that is a possible source of future taxable income mainly with respect to our principal banking subsidiaries in Japan. Although we evaluate that this tax-planning strategy is prudent and feasible, it has limitations and risks such as the decrease in net unrealized

 

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gains on available-for-sale securities that are available to be utilized in the future. 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 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. 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 21 to the consolidated financial statements included elsewhere in this annual report.

Accounting for Goodwill and Intangible Assets

Goodwill

Goodwill is tested for impairment at least annually or more often if events or circumstances indicate there may be impairment. For both the annual and interim tests, we have the option to either (a) perform a quantitative impairment test or (b) first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, in which case we would perform the quantitative test. An impairment loss is recorded to the extent the carrying amount of goodwill exceeds its estimated fair value. The estimated fair value of the reporting units is derived based on valuation techniques that we believe market participants would use for each of the reporting units. We generally determine the estimated fair value by utilizing a discounted cash flow methodology or methodologies that incorporate price-to-book multiples of certain comparable companies. A change in the estimation could have an impact on impairment recognition because it is driven by hypothetical assumptions, such as projected earnings and discount rates. The estimation is based on information available to management at the time the estimation is made.

Intangible Assets

Intangible assets having indefinite useful lives are subject to impairment tests. An impairment loss is recorded to the extent that the carrying amount of the indefinite-lived intangible asset exceeds its estimated fair value. For intangible assets subject to amortization, an impairment loss is recorded if the carrying amount is not recoverable and exceeds its estimated fair value. Management judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangible assets for impairment, if required.

 

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Operating Results

The following table shows certain information as to our income, expenses and net income for the fiscal years ended March 31, 2017, 2018 and 2019:

 

     Fiscal years ended March 31,  
     2017      2018     2019  
     (in billions of yen)  

Interest and dividend income

   ¥ 1,509      ¥ 1,762     ¥ 2,207  

Interest expense

     602        890       1,313  
  

 

 

    

 

 

   

 

 

 

Net interest income

     907        872       894  

Provision (credit) for loan losses

     38        (126     32  
  

 

 

    

 

 

   

 

 

 

Net interest income after provision (credit) for loan losses

     869        998       862  

Noninterest income

     1,368        1,605       1,222  

Noninterest expenses

     1,757        1,764       1,999  
  

 

 

    

 

 

   

 

 

 

Income before income tax expense

     480        839       85  

Income tax expense

     91        237       9  
  

 

 

    

 

 

   

 

 

 

Net income

     389        602       76  

Less: Net income (loss) attributable to noncontrolling interests

     27        24       (9
  

 

 

    

 

 

   

 

 

 

Net income attributable to MHFG shareholders

   ¥ 362      ¥ 578     ¥ 85  
  

 

 

    

 

 

   

 

 

 

The following is a discussion of major components of our net income attributable to MHFG shareholders for the fiscal years ended March 31, 2017, 2018 and 2019.

 

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Net Interest Income

The following table shows the average balances 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, 2017, 2018 and 2019:

 

    Fiscal years ended March 31,  
    2017     2018     2019  
    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

  ¥ 37,389     ¥ 27       0.07   ¥ 39,812     ¥ 27       0.07   ¥ 38,914     ¥ 26       0.07

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

    5,079       18       0.35       5,283       23       0.43       6,201       32       0.51  

Trading account assets

    4,408       27       0.62       4,654       50       1.07       5,930       71       1.19  

Investments

    20,357       78       0.38       21,267       97       0.46       20,109       137       0.68  

Loans

    53,930       510       0.95       58,049       511       0.88       55,897       531       0.95  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets

    121,163       660       0.54       129,065       708       0.55       127,051       797       0.63  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Deposits

    83,293       51       0.06       90,078       60       0.07       87,168       94       0.11  

Short-term borrowings(1)

    14,177       27       0.19       13,678       43       0.31       14,011       69       0.49  

Trading account liabilities

    1,697       14       0.82       1,454       27       1.87       1,735       34       1.93  

Long-term debt

    14,523       178       1.22       13,032       197       1.51       12,285       217       1.77  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities

    113,690       270       0.24       118,242       327       0.28       115,199       414       0.36  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

    7,473       390       0.30       10,823       381       0.27       11,852       383       0.27  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Foreign:

                 

Interest-bearing deposits in other banks

    7,671       48       0.63       8,363       94       1.13       5,951       95       1.59  

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

    9,213       79       0.85       9,251       132       1.43       9,924       228       2.30  

Trading account assets

    10,335       136       1.31       10,821       152       1.41       9,197       141       1.53  

Investments

    3,915       87       2.24       3,544       77       2.18       4,471       95       2.13  

Loans

    25,412       499       1.96       24,822       599       2.41       28,037       851       3.03  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets

    56,546       849       1.50       56,801       1,054       1.86       57,580       1,410       2.45  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Deposits

    23,173       214       0.92       24,567       323       1.32       26,693       519       1.95  

Short-term borrowings(1)

    17,112       109       0.63       16,385       222       1.35       15,094       357       2.37  

Trading account liabilities

    1,049       7       0.71       1,235       14       1.16       1,249       16       1.29  

Long-term debt

    655       2       0.32       732       4       0.49       701       7       0.95  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities

    41,989       332       0.79       42,919       563       1.31       43,737       899       2.06  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

    14,557       517       0.71       13,882       491       0.55       13,843       511       0.39  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total:

                 

Total interest-earning assets

    177,709       1,509       0.85       185,866       1,762       0.95       184,631       2,207       1.20  

Total interest-bearing liabilities

    155,679       602       0.39       161,161       890       0.55       158,936       1,313       0.83  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

  ¥ 22,030     ¥ 907       0.46     ¥ 24,705     ¥ 872       0.40     ¥ 25,695     ¥ 894       0.37  
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

Note:

(1)

Short-term borrowings consist of due to trust accounts, call money and funds purchased, payables under repurchase agreements and securities lending transactions and other short-term borrowings.

 

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Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Interest and dividend income increased by ¥445 billion, or 25.3%, from the previous fiscal year to ¥2,207 billion in the fiscal year ended March 31, 2019. Domestic interest and dividend income accounted for ¥797 billion of the total amount, an increase of ¥89 billion from the previous fiscal year, and foreign interest and dividend income accounted for ¥1,410 billion, an increase of ¥356 billion from the previous fiscal year.

Long-term interest rates continued to be in the vicinity of 0% under the Bank of Japan’s “Quantitative and Qualitative Monetary Easing with Yield Curve Control.” Short-term interest rates also continued to be in the vicinity of 0%. Under such circumstances, the average yield on domestic loans increased by 0.07 percentage points from the previous fiscal year to 0.95% in the fiscal year ended March 31, 2019, and the average rate on domestic deposits remained at a low level and slightly increased by 0.04 percentage points from the previous fiscal year to 0.11% in the fiscal year ended March 31, 2019. The average yield on foreign loans increased by 0.62 percentage points from the previous fiscal year to 3.03% in the fiscal year ended March 31, 2019, and the average rate on foreign deposits increased by 0.63 percentage points from the previous fiscal year to 1.95% in the fiscal year ended March 31, 2019.

The increase in domestic interest and dividend income was due mainly to an increase in interest income from investments. The increase in interest income from investments was due mainly to income related to the redemption of a portion of our holdings of preferred stock of a Japanese corporation. Changes in the average yields on domestic interest-earning assets contributed to an increase in interest and dividend income of ¥95 billion, and changes in the average balances of domestic interest-earning assets contributed to a decrease of ¥6 billion, resulting in the ¥89 billion increase in domestic interest and dividend income.

The increase in foreign interest and dividend income was due mainly to increases in interest income from foreign loans and in interest income from foreign call loans and funds sold, and receivable under resale agreements and securities borrowing transactions. The increase in interest income from foreign loans and the increase in interest income from foreign call loans and funds sold, and receivable under resale agreements and securities borrowing transactions were due mainly to an increase in the average yield reflecting a general increase in U.S. dollar interest rate levels. Changes in the average yield on foreign interest-earning assets contributed to an increase in interest and dividend income of ¥292 billion, and changes in the average balance of foreign interest-earning assets contributed to an increase of ¥64 billion, resulting in the ¥356 billion overall increase in foreign interest and dividend income.

Interest expense increased by ¥423 billion, or 47.5%, from the previous fiscal year to ¥1,313 billion in the fiscal year ended March 31, 2019. Domestic interest expense accounted for ¥414 billion of the total amount, an increase of ¥87 billion from the previous fiscal year, and foreign interest expense accounted for ¥899 billion of the total amount, an increase of ¥336 billion from the previous fiscal year.

The changes in the average interest rates on domestic interest-bearing liabilities contributed to an increase in interest expense of ¥93 billion, and the changes in the average balance of domestic interest-bearing liabilities contributed to a decrease in interest expense of ¥6 billion, resulting in the ¥87 billion overall increase in domestic interest expense.

The increase in foreign interest expense was due mainly to increases in the average rates on foreign deposits and short-term borrowings reflecting a general increase in U.S. dollar interest rate levels. The changes in the average interest rates on foreign interest-bearing liabilities contributed to an increase in interest expense of ¥324 billion, and the changes in the average balance of foreign interest-bearing liabilities contributed to an increase in interest expense of ¥12 billion, resulting in the ¥336 billion overall increase in foreign interest expense.

 

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As a result of the foregoing, net interest income increased by ¥22 billion, or 2.5%, from the previous fiscal year to ¥894 billion. The average interest rate spread declined by 0.03 percentage points from the previous fiscal year to 0.37% in the fiscal year ended March 31, 2019. The decline of the average interest rate spread was not significant because both the average yields on total interest-earning assets and the average interest rates on total interest-bearing liabilities generally leveled out between these periods.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

Interest and dividend income increased by ¥253 billion, or 16.8%, from the previous fiscal year to ¥1,762 billion in the fiscal year ended March 31, 2018. Domestic interest and dividend income accounted for ¥708 billion of the total amount, an increase of ¥48 billion from the previous fiscal year, and foreign interest and dividend income accounted for ¥1,054 billion, an increase of ¥205 billion from the previous fiscal year.

Long-term interest rates continued to be in the vicinity of 0% under the Bank of Japan’s “Quantitative and Qualitative Monetary Easing with Yield Curve Control.” Short-term interest rates also continued to be in the vicinity of 0%. Under such circumstances, the average yield on domestic loans decreased by 0.07 percentage points from the previous fiscal year to 0.88% in the fiscal year ended March 31, 2018, and the average rate on domestic deposits remained at a low level and slightly increased by 0.01 percentage points from the previous fiscal year to 0.07% in the fiscal year ended March 31, 2018. The average yield on foreign loans increased by 0.45 percentage points from the previous fiscal year to 2.41% in the fiscal year ended March 31, 2018, and the average rate on foreign deposits increased by 0.40 percentage points from the previous fiscal year to 1.32% in the fiscal year ended March 31, 2018.

The increase in domestic interest and dividend income was due mainly to an increase in the average balance. Changes in the average yields on domestic interest-earning assets contributed to an overall increase in interest and dividend income of ¥4 billion, and changes in the average balances of domestic interest-earning assets contributed to an overall increase in interest and dividend income of ¥44 billion, resulting in the ¥48 billion increase in domestic interest and dividend income.

The increase in foreign interest and dividend income was due mainly to increases in interest income from foreign loans and in interest income from foreign call loans and funds sold, and receivable under resale agreements and securities borrowing transactions. The increase in interest income from foreign loans and the increase in interest income from foreign call loans and funds sold, and receivable under resale agreements and securities borrowing transactions were due mainly to an increase in the average yield, reflecting a general increase in U.S. dollar interest rate levels. Changes in the average yield on foreign interest-earning assets contributed to an increase in interest and dividend income of ¥213 billion, and changes in the average balance of foreign interest-earning assets contributed to a decrease of ¥8 billion, resulting in the ¥205 billion overall increase in foreign interest and dividend income.

Interest expense increased by ¥288 billion, or 47.8%, from the previous fiscal year to ¥890 billion in the fiscal year ended March 31, 2018. Domestic interest expense accounted for ¥327 billion of the total amount, an increase of ¥57 billion from the previous fiscal year, and foreign interest expense accounted for ¥563 billion of the total amount, an increase of ¥231 billion from the previous fiscal year.

The changes in the average interest rates on domestic interest-bearing liabilities contributed to an increase in interest expense of ¥74 billion, and the changes in the average balance of domestic interest-bearing liabilities contributed to a decrease in interest expense of ¥17 billion, resulting in the ¥57 billion overall increase in domestic interest expense.

The increase in foreign interest expense was due mainly to increases in the average rates on foreign deposits and short-term borrowings, reflecting a general increase in U.S. dollar interest rate levels. The changes in the average interest rates on foreign interest-bearing liabilities contributed to an increase in interest expense of ¥221 billion, and the changes in the average balance of foreign interest-bearing liabilities contributed to an increase in interest expense of ¥10 billion, resulting in the ¥231 billion overall increase in foreign interest expense.

 

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As a result of the foregoing, net interest income decreased by ¥35 billion, or 3.9%, from the previous fiscal year to ¥872 billion. The average interest rate spread declined by 0.06 percentage points from the previous fiscal year to 0.40% in the fiscal year ended March 31, 2018. The decline of the average interest rate spread was not significant because both the average yields on total interest-earning assets and the average interest rates on total interest-bearing liabilities generally leveled out between these periods.

Provision (Credit) for Loan Losses

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

We recorded a provision for loan losses of ¥32 billion in the fiscal year ended March 31, 2019 compared to a credit for loan losses of ¥126 billion in the fiscal year ended March 31, 2018. The change was due mainly to the absence of the significant reversal that was recorded in the fiscal year ended March 31, 2018 related to improvements in the credit condition of some domestic borrowers.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

We recorded a credit for loan losses of ¥126 billion in the fiscal year ended March 31, 2018 compared to a provision for loan losses of ¥38 billion in the fiscal year ended March 31, 2017. The change was due mainly to improvements in the credit condition of some borrowers in the domestic manufacturing industry as well as the gradual recovery in the economic environment.

Noninterest Income

The following table shows a breakdown of noninterest income for the fiscal years ended March 31, 2017, 2018 and 2019:

 

     Fiscal years ended March 31,  
     2017     2018      2019  
     (in billions of yen)  

Fee and commission

   ¥ 826     ¥ 866      ¥ 853  

Fee and commission from deposits and lending business

     165       157        152  

Fee and commission from securities-related business

     166       180        145  

Fee and commission from trust related business

     109       122        125  

Fee and commission from remittance business

     108       110        110  

Fee and commission from asset management business

     79       101        98  

Fee and commission from agency business

     36       37        36  

Fee and commission from guarantee related business

     26       28        29  

Fees for other customer services

     137       131        158  

Foreign exchange gains (losses)—net

     69       92        94  

Trading account gains (losses)—net

     (42     237        329  

Investment gains (losses)—net

     333       297        (160

Debt securities

     60       8        (4

Equity securities

     273       289        (156

Equity in earnings (losses) of equity method investees—net

     27       24        29  

Gains on disposal of premises and equipment

     6       8        5  

Other noninterest income

     149       81        72  
  

 

 

   

 

 

    

 

 

 

Total noninterest income

   ¥ 1,368     ¥ 1,605      ¥ 1,222  
  

 

 

   

 

 

    

 

 

 

 

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Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Noninterest income decreased by ¥383 billion, or 23.9%, from the previous fiscal year to ¥1,222 billion in the fiscal year ended March 31, 2019. The decrease was due mainly to investment losses—net of ¥160 billion compared to investment gains—net of ¥297 billion in the previous fiscal year, offset in part by an increase in trading account gains—net of ¥92 billion.

Fee and commission

Fee and commission decreased by ¥13 billion, or 1.4%, from the previous fiscal year to ¥853 billion in the fiscal year ended March 31, 2019. The decrease was due mainly to a decrease in fee and commission from securities-related business of ¥35 billion, or 19.3%, offset in part by an increase in fees for other customer services of ¥27 billion, or 20.4%. The decrease in fee and commission from securities-related business was due mainly to a decrease in brokerage fees amid a relative weakness in market conditions in the fiscal year ended March 31, 2019 compared to the previous fiscal year.

Foreign exchange gains (losses)—net

Foreign exchange gains—net increased by ¥2 billion, or 2.2%, from the previous fiscal year to ¥94 billion in the fiscal year ended March 31, 2019. The change was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2019.

Trading account gains (losses)—net

Trading account gains—net increased by ¥92 billion, or 38.8%, from the previous fiscal year to ¥329 billion in the fiscal year ended March 31, 2019. The increase in trading account gains—net was due mainly to an increase in gains related to changes in the fair value of receive-fixed, pay-variable interest-rate swaps reflecting a decline in long-term interest rates.

Investment gains (losses)—net

Investment gains (losses)—net was a loss of ¥160 billion in the fiscal year ended March 31, 2019 compared to a gain of ¥297 billion in the previous fiscal year. The change was due mainly to a change to investment losses related to equity securities of ¥156 billion in the fiscal year ended March 31, 2019 from investment gains related to equity securities of ¥289 billion for the previous fiscal year. The change to investment losses related to equity securities was due mainly to an increase in losses related to changes in the fair value of Japanese equity securities in the fiscal year ended March 31, 2019, which mostly reflected the relative weakness in market conditions. For further information, see note 4 to our consolidated financial statements included elsewhere in this report.

In January 2016, the FASB issued ASU No.2016-01, “Financial Instruments—Overall (Subtopic 825-10)—Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU No.2016-01”). The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and should be applied using a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We adopted ASU No.2016-01 on April 1, 2018. The effect of the adoption on us was limited.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

Noninterest income increased by ¥237 billion, or 17.3%, from the previous fiscal year to ¥1,605 billion in the fiscal year ended March 31, 2018. The increase was due mainly to trading account gains—net of ¥237 billion compared to trading account losses—net of ¥42 billion in the previous fiscal year, offset in part by a decrease in other noninterest income of ¥68 billion and a decrease in investment gains—net of ¥36 billion.

 

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Fee and commission

Fee and commission increased by ¥40 billion, or 4.8%, from the previous fiscal year to ¥866 billion in the fiscal year ended March 31, 2018. The increase was due mainly to an increase in fee and commission from asset management business of ¥22 billion, or 27.8%, and fee and commission from securities-related business of ¥14 billion, or 8.4%. The increase in fee and commission from asset management business was due mainly to an increase in fees related to investment trust management and investment advisory management businesses. The increase in fee and commission from securities-related business was due mainly to the relative strength in market conditions in the fiscal year ended March 31, 2018 compared to the previous fiscal year.

Foreign exchange gains (losses)—net

Foreign exchange gains—net increased by ¥23 billion, or 33.3%, from the previous fiscal year to ¥92 billion in the fiscal year ended March 31, 2018. The change was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2018.

Trading account gains (losses)—net

Trading account gains (losses)—net was a gain of ¥237 billion in the fiscal year ended March 31, 2018 compared to a loss of ¥42 billion in the previous fiscal year. The change was due mainly to an increase in gains related to changes in the fair value of foreign currency-denominated securities. Long-term interest rates rose and unrealized losses of fair value increased during the previous fiscal year. The fluctuation range of long-term interest rates narrowed, unrealized losses decreased, and unrealized profit increased.

Investment gains (losses)—net

Investment gains—net decreased by ¥36 billion, or 10.8 %, from the previous fiscal year to ¥297 billion in the fiscal year ended March 31, 2018. The decrease was due mainly to a decrease in investment gains related to bonds of ¥52 billion, or 86.7%, from the fiscal year to ¥8 billion in the fiscal year ended March 31, 2018. The decrease in investment gains related to bonds was due mainly to a decrease in gains on sales of investment account bonds and an increase in losses on sales of investment account bonds in the fiscal year ended March 31, 2018.

Noninterest Expenses

The following table shows a breakdown of noninterest expenses for the fiscal years ended March 31, 2017, 2018 and 2019:

 

     Fiscal years ended March 31,  
     2017      2018     2019  
     (in billions of yen)  

Salaries and employee benefits

   ¥ 663      ¥ 688     ¥ 683  

General and administrative expenses

     571        586       762  

Occupancy expenses

     195        192       208  

Fee and commission expenses

     177        189       190  

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

     19        (30     (9

Other noninterest expenses

     132        139       165  
  

 

 

    

 

 

   

 

 

 

Total noninterest expenses

   ¥ 1,757      ¥ 1,764     ¥ 1,999  
  

 

 

    

 

 

   

 

 

 

 

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Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Noninterest expenses increased by ¥235 billion, or 13.3%, from the previous fiscal year to ¥1,999 billion in the fiscal year ended March 31, 2019. The increase was due mainly to an increase in general and administrative expenses of ¥176 billion, or 30.0%, and a decrease in credit for losses on off-balance-sheet instruments of ¥21 billion, or 70.0%.

We will continue to enhance the efficiency of our organizational structure and staffing by reorganizing head office personnel, shifting some to the frontlines and placing a limit on hiring. We will also restructure our customer channels by combining branches to offer banking, trust banking, and securities services jointly through the same branches.

General and administrative expenses

General and administrative expenses increased by ¥176 billion, or 30.0%, from the previous fiscal year to ¥762 billion in the fiscal year ended March 31, 2019. The increase was due mainly to the commencement of depreciation of the next-generation IT systems.

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

Credit for losses on off-balance-sheet instruments decreased by ¥21 billion from the previous fiscal year to ¥9 billion in the fiscal year ended March 31, 2019. The change was due mainly to a decrease in reversal of allowance for losses on guarantees.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

Noninterest expenses increased by ¥7 billion, or 0.4%, from the previous fiscal year to ¥1,764 billion in the fiscal year ended March 31, 2018. The increase was due mainly to an increase in salaries and employee benefits of ¥25 billion, or 3.8%, and general and administrative expenses of ¥15 billion, or 2.6%, offset in part by credit for losses on off-balance-sheet instruments of ¥30 billion compared to provision for losses on off-balance-sheet instruments of ¥19 billion in the previous fiscal year.

We will continue to aim to achieve sustainable growth of the group looking ahead ten years and to secure future competitive superiority. These efforts include organization and personnel optimization, system structural reform, channel reconstruction and strengthening of earnings.

Salaries and employee benefits

Salaries and employee benefits increased by ¥25 billion, or 3.8%, from the previous fiscal year to ¥688 billion in the fiscal year ended March 31, 2018 due mainly to an increase in personnel expenses reflecting an increase in domestic personnel and an increase in bonuses at overseas branches. Additional information regarding pension and other employee benefit plans is included in note 21 to our consolidated financial statements included elsewhere in this annual report.

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

Provision (credit) for losses on off-balance-sheet instruments was a credit of ¥30 billion in the fiscal year ended March 31, 2018 compared to a provision of ¥19 billion in the previous fiscal year. The change was due mainly to an increase in reversal of allowance for losses on guarantees.

 

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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, 2017, 2018 and 2019:

 

     Fiscal years ended March 31,  
       2017         2018          2019    
     (in billions of yen)  

Current:

       

Domestic

   ¥ 130     ¥ 130      ¥ 116  

Foreign

     68       47        50  
  

 

 

   

 

 

    

 

 

 

Total current tax expense

     198       177        166  

Deferred:

       

Domestic

     (100     58        (162

Foreign

     (7     2        5  
  

 

 

   

 

 

    

 

 

 

Total deferred tax expense (benefit)

     (107     60        (157
  

 

 

   

 

 

    

 

 

 

Total income tax expense

   ¥ 91     ¥ 237      ¥ 9  
  

 

 

   

 

 

    

 

 

 

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Income tax expense decreased by ¥228 billion, or 96.2%, from the previous fiscal year to ¥9 billion in the fiscal year ended March 31, 2019 due to a decrease in current tax expense of ¥11 billion and a decrease in deferred tax expense of ¥217 billion related to a deferred tax benefit of ¥157 billion in the current fiscal year as compared to a deferred tax expense of ¥60 billion in the previous fiscal year. The decrease in current tax expense was due mainly to a decrease in the taxable income of principal banking subsidiaries. The change in deferred tax expense (benefit) was due mainly to decreases in deferred tax liabilities of principal banking subsidiaries relating to a decrease in deferred tax liabilities attributable to equity securities.

We consider the sales of available-for-sale securities to be a qualifying tax-planning strategy that is a possible source of future taxable income to the extent necessary in the future mainly with respect to our principal banking subsidiaries in Japan. The reliance on this tax-planning strategy of our subsidiaries in Japan was immaterial.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

Income tax expense increased by ¥146 billion, or 160.4%, from the previous fiscal year to ¥237 billion in the fiscal year ended March 31, 2018 due to a decrease in current tax expense of ¥21 billion and an increase in deferred tax expense of ¥167 billion related to a deferred tax expense of ¥60 billion in the current fiscal year as compared to a deferred tax benefit of ¥107 billion in the previous fiscal year. The decrease in current tax expense was due mainly to a decrease in the taxable income of principal banking subsidiaries. The change in deferred tax expense (benefit) was due mainly to decreases in deferred tax assets in principal banking subsidiaries.

We consider the sales of available-for-sale securities to be a qualifying tax-planning strategy that is a possible source of future taxable income to the extent necessary in the future mainly with respect to our principal banking subsidiaries in Japan. The reliance on this tax-planning strategy of our subsidiaries in Japan was unchanged at approximately one-third of overall deferred tax assets during the fiscal year ended March 31, 2018.

 

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The following table shows components of deferred tax assets (liabilities) as of March 31, 2017, 2018 and 2019:

 

     As of March 31,  
     2017     2018     2019  
     (in billions of yen)  

Deferred tax assets:

      

Allowance for loan losses

   ¥ 184     ¥ 127     ¥ 123  

Premises and equipment

     4       5       74  

Derivative financial instruments

     14       53       48  

Investments

     498       454       —    

Trading securities

     31       2       —    

Net operating loss carryforwards

     452       178       168  

Other

     190       204       216  
  

 

 

   

 

 

   

 

 

 

Gross deferred tax assets

     1,373       1,023       629  
  

 

 

   

 

 

   

 

 

 

Valuation allowance

     (438     (163     (158
  

 

 

   

 

 

   

 

 

 

Deferred tax assets, net of valuation allowance

     935       860       471  

Deferred tax liabilities:

      

Prepaid pension cost and accrued pension liabilities

     195       255       248  

Investments

     —         —         198  

Available-for-sale securities

     724       764       12  

Trading securities

     —         —         9  

Other

     92       90       62  
  

 

 

   

 

 

   

 

 

 

Gross deferred tax liabilities

     1,011       1,109       529  
  

 

 

   

 

 

   

 

 

 

Net deferred tax assets (liabilities)

   ¥ (76   ¥ (249   ¥ (58
  

 

 

   

 

 

   

 

 

 

Net Income (Loss) Attributable to Noncontrolling Interests

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Net income (loss) attributable to noncontrolling interests was a loss of ¥9 billion in the fiscal year ended March 31, 2019 compared to income of ¥24 billion in the previous fiscal year.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

Net income attributable to noncontrolling interests decreased by ¥3 billion from the previous fiscal year to ¥24 billion in the fiscal year ended March 31, 2018.

Net Income Attributable to MHFG Shareholders

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

As a result of the foregoing, net income attributable to MHFG shareholders decreased by ¥493 billion, or 85.3%, from the previous fiscal year to ¥85 billion in the fiscal year ended March 31, 2019.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

As a result of the foregoing, net income attributable to MHFG shareholders increased by ¥216 billion, or 59.7%, from the previous fiscal year to ¥578 billion in the fiscal year ended March 31, 2018.

Business Segments Analysis

We manage our group under an in-house company system based on our diverse customer segments. The aim of this system is to leverage our strengths and competitive advantage, which is the seamless integration of our

 

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banking, trust banking and securities functions under a holding company structure, to speedily provide high-quality financial services that closely match customer needs.

Specifically, the company system is classified into the following five in-house companies, each based on a customer segment: the Retail & Business Banking Company, the Corporate & Institutional Company, the Global Corporate Company, the Global Markets Company, and the Asset Management Company. We regard these customer segments as our operating segments.

For a brief description of our each business segment, see note 32 to our consolidated financial statements included elsewhere in this annual report.

Results of Operations by Business Segment

Consolidated Results of Operations

Consolidated gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 were ¥1,827.7 billion, a decrease of ¥167.9 billion compared to the fiscal year ended March 31, 2018. Consolidated general and administrative expenses for the fiscal year ended March 31, 2019 were ¥1,440.6 billion, a decrease of ¥3.6 billion compared to the fiscal year ended March 31, 2018. Consolidated equity in earnings of equity method investees—net for the fiscal year ended March 31, 2019 was ¥51.2 billion, an increase of ¥29.7 billion compared to the fiscal year ended March 31, 2018. Consolidated net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 were ¥408.4 billion, a decrease of ¥129.6 billion compared to the fiscal year ended March 31, 2018.

 

    Mizuho Financial Group (Consolidated)  
Fiscal year ended March 31, 2017(4):   Retail &
Business
Banking
Company
    Corporate &
Institutional
Company
    Global
Corporate
Company
    Global
Markets
Company
    Asset
Management
Company
    Others(3)     Total  
    (in billions of yen)  

Gross profits + Net gains (losses) related to ETFs and others(1)

  ¥ 716.7     ¥ 438.3     ¥ 339.4     ¥ 549.3     ¥ 48.8     ¥ 36.7     ¥ 2,129.2  

General and administrative expenses

    719.3       199.9       239.2       191.2       29.3       31.4       1,410.3  

Equity in earnings (losses) of equity method investees—net

    14.9       1.0       0.9       —         0.5       1.6       18.9  

Amortization of goodwill and others

    0.4       0.4       0.4       2.3       4.0       2.7       10.2  

Others

    —         —         —         —         —         (27.7     (27.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net business profits (losses)(2) + Net gains (losses) related to ETFs and others

  ¥ 11.9     ¥ 239.0     ¥ 100.7     ¥ 355.8     ¥ 16.0     ¥ (23.5   ¥ 699.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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    Mizuho Financial Group (Consolidated)  
Fiscal year ended March 31, 2018(4):   Retail &
Business
Banking
Company
    Corporate &
Institutional
Company
    Global
Corporate
Company
    Global
Markets
Company
    Asset
Management
Company
    Others(3)     Total  
    (in billions of yen)  

Gross profits + Net gains (losses) related to ETFs and others(1)

  ¥ 726.9     ¥ 431.4     ¥ 340.7     ¥ 389.2     ¥ 50.1     ¥ 57.3     ¥ 1,995.6  

General and administrative expenses

    724.8       202.5       250.9       201.2       27.6       37.2       1,444.2  

Equity in earnings (losses) of equity method investees—net

    12.7       1.0       2.3       —         2.9       2.6       21.5  

Amortization of goodwill and others

    0.4       0.4       0.4       2.3       8.0       2.4       13.9  

Others

    —         —         —         —         —         (21.0     (21.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net business profits (losses)(2) + Net gains (losses) related to ETFs and others

  ¥ 14.4     ¥ 229.5     ¥ 91.7     ¥ 185.7     ¥ 17.4     ¥ (0.7   ¥ 538.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    Mizuho Financial Group (Consolidated)  
Fiscal year ended March 31, 2019(4) :   Retail &
Business
Banking
Company
    Corporate &
Institutional
Company
    Global
Corporate
Company
    Global
Markets
Company
    Asset
Management
Company
    Others(3)     Total  
    (in billions of yen)  

Gross profits+ Net gains (losses) related to ETFs and others(1)

  ¥ 707.2     ¥ 473.8     ¥ 416.1     ¥ 192.0     ¥ 49.7     ¥ (11.1   ¥ 1,827.7  

General and administrative expenses

    713.7       198.2       251.8       203.3       27.3       46.3       1,440.6  

Equity in earnings (losses) of equity method investees—net

    18.1       0.9       7.3       —         1.3       23.6       51.2  

Amortization of goodwill and others

    0.4       0.4       0.4       2.3       8.0       2.1       13.6  

Others

    —         —         —         —         —         (16.3     (16.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net business profits (losses)(2) + Net gains (losses) related to ETFs and others

  ¥ 11.2     ¥ 276.1     ¥ 171.2     ¥ (13.6   ¥ 15.7     ¥ (52.2   ¥ 408.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed assets(5)

  ¥ 499.3     ¥ 225.8     ¥ 176.9     ¥ 92.6     ¥ 0.1     ¥ 662.5     ¥ 1,657.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

Notes:

(1)

“Gross profits + Net gains (losses) related to ETFs and others” is reported instead of sales reported by general corporations. Gross profits is defined as the sum of net interest income, fiduciary income, net fee and commission income, net trading income and net other operating income. Net gains (losses) related to ETFs and others consist of net gains (losses) on ETFs held by Mizuho Bank and Mizuho Trust & Banking and net gains (losses) on operating investment securities of Mizuho Securities on its consolidated basis. For the fiscal years ended March 31, 2017, 2018 and 2019, net gains related to ETFs and others amounted to ¥36.5 billion, ¥80.2 billion and ¥15.0 billion, respectively, of which ¥32.6 billion, ¥70.1 billion and ¥7.3 billion, respectively, are included in “Global Markets Company.”

(2)

Net business profits is used in Japan as a measure of the profitability of core banking operations and is defined as gross profits (as defined above) less general and administrative expenses plus equity in earnings (losses) of equity method investees—net and others. Measurement of net business profits is required for regulatory reporting to the Financial Services Agency.

 

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(3)

“Others” includes items which should be eliminated as internal transactions between each segment on a consolidated basis.

(4)

Beginning on April 1, 2018, new allocation methods for income and expense transactions between each segment and “Others” have been applied. In connection with the use of the new allocation methods, the presentation of “Net business profits” has changed to “Net business profits (losses) + Net gains (losses) related to ETFs and others.” Before the change, “Net gains (losses) related to ETFs and others” were included in “Gross profits” of each segment and eliminated in “Others.” In addition, “Amortization of goodwill and others” has been presented as a new item. Figures for the fiscal years ended March 31, 2017 and 2018 have been restated for the new allocation methods. These changes more appropriately reflect the performance of each of the operating segments in accordance with internal managerial accounting rules and practices. Furthermore, income and expense of foreign branches of Mizuho Bank and foreign subsidiaries with functional currency other than Japanese Yen have been translated for purposes of segment reporting using the budgeted foreign currency rates. Prior period comparative amounts for these foreign currency income and expense have been translated using current period budgeted foreign currency rates.

(5)

“Fixed assets” is presented based on Japanese GAAP and corresponds to the total amount of the following U.S. GAAP accounts, Premises and equipment-net, Goodwill, and Intangible assets. The above tables do not include other asset amounts because “Fixed assets” is the only balance sheet metric that management uses when evaluating and making decisions pertaining to the operating segments. “Fixed assets” has been allocated to each segment starting in the fiscal year ended March 31, 2019 to enhance management’s analysis of our operations. “Others” in “Fixed assets” includes assets of headquarters that have not been allocated to each segment, “Fixed assets” pertaining to consolidated subsidiaries that are not subject to allocation, consolidating adjustments, and others. Certain “Fixed assets” expenses have been allocated to the in-house company segments using a reasonable allocation criteria.

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Retail & Business Banking Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 were ¥707.2 billion, a decrease of ¥19.7 billion, or 2.7%, compared to the fiscal year ended March 31, 2018. The decrease was attributable mainly to a decrease of net interest income and asset management-related revenue which were offset in part by an increase in solution-related revenue.

General and administrative expenses for the fiscal year ended March 31, 2019 decreased by ¥11.1 billion, or 1.5%, compared to the fiscal year ended March 31, 2018 to ¥713.7 billion.

Equity in earnings of equity method investees—net for the fiscal year ended March 31, 2019 increased by ¥5.4 billion, or 42.5%, compared to the fiscal year ended March 31, 2018 to ¥18.1 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 decreased by ¥3.2 billion, or 22.2%, compared to the fiscal year ended March 31, 2018 to ¥11.2 billion.

Corporate & Institutional Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 were ¥473.8 billion, an increase of ¥42.4 billion, or 9.8%, compared to the fiscal year ended March 31, 2018. The increase was attributable mainly to an increase in M&A and initial public offering-related revenue.

General and administrative expenses for the fiscal year ended March 31, 2019 decreased by ¥4.3 billion, or 2.1%, compared to the fiscal year ended March 31, 2018 to ¥198.2 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 increased by ¥46.6 billion, or 20.3%, compared to the fiscal year ended March 31, 2018 to ¥276.1 billion.

 

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Global Corporate Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 were ¥416.1 billion, an increase of ¥75.4 billion, or 22.1%, compared to the fiscal year ended March 31, 2018. The increase was attributable mainly to the increase in loan related-revenue.

General and administrative expenses for the fiscal year ended March 31, 2019 increased by ¥0.9 billion, or 0.4%, compared to the fiscal year ended March 31, 2018 to ¥251.8 billion.

Equity in earnings of equity method investees—net for the fiscal year ended March 31, 2019 increased by ¥5.0 billion, or 217.4%, compared to the fiscal year ended March 31, 2018 to ¥7.3 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 increased by ¥79.5 billion, or 86.7%, compared to the fiscal year ended March 31, 2018 to ¥171.2 billion.

Global Markets Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 were ¥192.0 billion, a decrease of ¥197.2 billion, or 50.7%, compared to the fiscal year ended March 31, 2018. The decrease was attributable mainly to the restructuring of our securities portfolio in respect of past investments in foreign bonds. See “Item 3.A. Key Information—Japanese GAAP Selected Consolidated Financial Information”

General and administrative expenses for the fiscal year ended March 31, 2019 increased by ¥2.1 billion, or 1.0%, compared to the fiscal year ended March 31, 2018 to ¥203.3 billion.

As a result, we recorded net business losses + net gains related to ETFs and others of ¥13.6 billion for the fiscal year ended March 31, 2019 compared to net business profits + net gains related to ETFs and others of ¥185.7 billion the fiscal year ended March 31, 2018.

Asset Management Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 decreased by ¥0.4 billion, or 0.8%, compared to the fiscal year ended March 31, 2018 to ¥49.7 billion.

General and administrative expenses for the fiscal year ended March 31, 2019 were ¥27.3 decreased by ¥0.3 billion, or 1.1%, compared to the fiscal year ended March 31, 2018 to ¥27.3 billion.

Equity in earnings of equity method investees—net for the fiscal year ended March 31, 2019 decreased by ¥1.6 billion, or 55.2%, compared to the fiscal year ended March 31, 2018 to ¥1.3 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2019 decreased by ¥1.7 billion, or 9.8%, compared to the fiscal year ended March 31, 2018 to ¥15.7 billion.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

Retail & Business Banking Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 were ¥726.9 billion, an increase of ¥10.2 billion, or 1.4%, compared to the fiscal year ended March 31, 2017. The increase was attributable mainly to an increase of non-interest income such as solution-related revenue and asset management-related revenue which more than offset a decrease of interest income.

General and administrative expenses for the fiscal year ended March 31, 2018 increased by ¥5.5 billion, or 0.8%, compared to the fiscal year ended March 31, 2017 to ¥724.8 billion.

 

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As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 increased by ¥2.5 billion, or 21.0%, compared to the fiscal year ended March 31, 2017 to ¥14.4 billion.

Corporate & Institutional Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 were ¥431.4 billion, a decrease of ¥6.9 billion, or 1.6%, compared to the fiscal year ended March 31, 2017. The decrease was attributable mainly to a decrease in M&A and equity capital markets-related revenue.

General and administrative expenses for the fiscal year ended March 31, 2018 increased by ¥2.6 billion, or 1.3%, compared to the fiscal year ended March 31, 2017 to ¥202.5 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 decreased by ¥9.5 billion, or 4.0%, compared to the fiscal year ended March 31, 2017 to ¥229.5 billion.

Global Corporate Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 were ¥340.7 billion, an increase of ¥1.3 billion, or 0.4%, compared to the fiscal year ended March 31, 2017. The increase was attributable mainly to an increase of interest and non-interest income in Asia offset in part by the stagnation of our solution-related business such as M&A in the Americas.

General and administrative expenses for the fiscal year ended March 31, 2018 increased by ¥11.7 billion, or 4.9%, compared to the fiscal year ended March 31, 2017 to ¥250.9 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 decreased by ¥9.0 billion, or 8.9%, compared to the fiscal year ended March 31, 2017 to ¥91.7 billion.

Global Markets Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 were ¥389.2 billion, a decrease of ¥160.1 billion, or 29.1%, compared to the fiscal year ended March 31, 2017. The decrease was attributable mainly to the decrease of bond-related revenue under adverse market conditions.

General and administrative expenses for the fiscal year ended March 31, 2018 increased by ¥10.0 billion, or 5.2%, compared to the fiscal year ended March 31, 2017 to ¥201.2 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 decreased by ¥170.1 billion, or 47.8%, compared to the fiscal year ended March 31, 2017 to ¥185.7 billion.

Asset Management Company

Gross profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 were ¥50.1 billion, an increase of ¥1.3 billion, or 2.7%, compared to the fiscal year ended March 31, 2017. The increase was attributable mainly to the increase in the balance of asset formation products.

General and administrative expenses for the fiscal year ended March 31, 2018 decreased by ¥1.7 billion, or 5.8%, compared to the fiscal year ended March 31, 2017 to ¥27.6 billion.

As a result, net business profits + net gains related to ETFs and others for the fiscal year ended March 31, 2018 increased by ¥1.4 billion, or 8.8%, compared to the fiscal year ended March 31, 2017 to ¥17.4 billion.

 

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Geographical Segment Analysis

The following table presents consolidated income statement and total assets information by major geographic area. Foreign activities are defined as business transactions that involve customers residing outside of Japan. However, as our operations are highly integrated globally, we have made estimates and assumptions for the allocation of assets, liabilities, income and expenses among the geographic areas.

 

           Americas             Asia/Oceania
excluding
Japan,
and others
        
     Japan     United
States
     Others      Europe      Total  
     (in billions of yen)  

Fiscal year ended March 31, 2017:

                

Total revenue(1)

   ¥ 1,748     ¥ 500      ¥ 70      ¥ 191      ¥ 368      ¥ 2,877  

Total expenses(2)

     1,712       303        29        136        216        2,396  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     36       197        41        55        152        481  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   ¥ 6     ¥ 168      ¥ 39      ¥ 39      ¥ 137      ¥ 389  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at end of fiscal year

   ¥ 138,832     ¥ 30,262      ¥ 4,203      ¥ 10,629      ¥ 16,530      ¥ 200,456  

Fiscal year ended March 31, 2018:

                

Total revenue(1)

   ¥ 2,003     ¥ 655      ¥ 64      ¥ 197      ¥ 448      ¥ 3,367  

Total expenses(2)

     1,583       479        38        173        255        2,528  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     420       176        26        24        193        839  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   ¥ 231     ¥ 153      ¥ 24      ¥ 21      ¥ 173      ¥ 602  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at end of fiscal year

   ¥ 142,588     ¥ 28,136      ¥ 4,380      ¥ 11,678      ¥ 17,474      ¥ 204,256  

Fiscal year ended March 31, 2019:

                

Total revenue(1)

   ¥ 1,705     ¥ 792      ¥ 66      ¥ 250      ¥ 616      ¥ 3,429  

Total expenses(2)

     2,082       697        46        203        316        3,344  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income tax expense

     (377     95        20        47        300        85  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   ¥ (331   ¥ 85      ¥ 17      ¥ 35      ¥ 270      ¥ 76  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets at end of fiscal year

   ¥ 133,443     ¥ 25,913      ¥ 4,825      ¥ 15,323      ¥ 18,107      ¥ 197,611  

 

Notes:

(1)

Total revenue includes interest and dividend income and noninterest income.

(2)

Total expenses include interest expense, provision (credit) for loan losses and noninterest expenses.

Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

In the fiscal year ended March 31, 2019, we recorded a net loss in Japan. Among the geographical regions in which we recorded net income, 20.9% of the net income was derived from the United States, 4.2% from the Americas excluding the United States, 8.5% from Europe and 66.4% from Asia/Oceania excluding Japan, and others. At March 31, 2019, 67.5% of total assets were allocated to Japan, 13.1% to the United States, 2.4% to the Americas excluding the United States, 7.8% to Europe and 9.2% to Asia/Oceania excluding Japan, and others.

In Japan, total revenue decreased by ¥298 billion from the previous fiscal year due primarily to a change from investment gains related to equity securities to investment losses related to equity securities, offset in part by an increase in trading account gains—net. The change from investment gains related to equity securities to investment losses related to equity securities was due mainly to unrealized losses on Japanese equity securities reflecting the relative weakness in market conditions. The increase in trading account gains—net was due mainly to an increase in gains related to changes in the fair value of receive-fixed, pay-variable interest-rate swaps reflecting a decline in long-term interest rates. Total expenses increased by ¥499 billion from the previous fiscal year due mainly to a change from credit to provision for loan losses and an increase in general and administrative

 

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expenses. In addition, we had an income tax benefit of ¥46 billion in Japan in the fiscal year ended March 31, 2019 compared to an income tax expense of ¥189 billion in the previous fiscal year. The tax benefit was the result of a decrease in deferred tax liabilities. As a result, net income in Japan decreased by ¥562 billion to a net loss of ¥331 billion. Total assets in Japan decreased by ¥9,145 billion due primarily to decreases in loans, interest-bearing deposits and receivables under securities borrowing transactions, offset in part by an increase in receivables under resale agreements.

In the United States, total revenue increased by ¥137 billion due primarily to increases in interest income from receivables under resale agreements and securities borrowing transactions. The increase in interest income from receivables under resale agreements and securities borrowing transactions was due mainly to an increase in the average yield reflecting a general increase in U.S. dollar interest rate levels. Total expenses increased by ¥218 billion due mainly to increases in expenses on payables under repurchase agreements and securities lending transactions and deposits. As a result, net income in the United States decreased by ¥68 billion. Total assets in the United States decreased by ¥2,223 billion due primarily to a decrease in trading account assets, offset in part by an increase in receivables under resale agreements.

In the Americas excluding the United States, total revenue increased by ¥2 billion due primarily to an increase in interest income from loans, offset in part by a decrease in trading account gains—net. Total expenses increased by ¥8 billion due mainly to an increase in expenses on deposits. As a result, net income in the Americas excluding the United States decreased by ¥7 billion. Total assets in the Americas excluding the United States increased by ¥445 billion due primarily to an increase in loans.

In Europe, total revenue increased by ¥53 billion due primarily to an increase in interest from loans. Total expenses increased by ¥30 billion due mainly to increases in expenses on deposits and other noninterest expenses, offset in part by a change from provision to credit for loan losses. As a result, net income in Europe increased by ¥14 billion. Total assets in Europe increased by ¥3,645 billion due primarily to increases in trading account assets and loans.

In Asia/Oceania excluding Japan, and others, total revenue increased by ¥168 billion due primarily to an increase in interest income from loans. Total expenses increased by ¥61 billion due mainly to an increase in expenses on deposits. As a result, net income in Asia/Oceania excluding Japan, and others increased by ¥97 billion. Total assets in Asia/Oceania excluding Japan, and others increased by ¥633 billion due primarily to an increase in loans, offset in part by a decrease in investment securities.

Fiscal Year Ended March 31, 2018 Compared to Fiscal Year Ended March 31, 2017

In the fiscal year ended March 31, 2018, 38.5% of our net income was derived from Japan, 25.4% from the United States, 3.9% from the Americas excluding the United States, 3.5% from Europe and 28.7% from Asia/Oceania excluding Japan, and others. At March 31, 2018, 69.8% of total assets were allocated to Japan, 13.8% to the United States, 2.1% to the Americas excluding the United States, 5.7% to Europe and 8.6% to Asia/Oceania excluding Japan, and others.

In Japan, total revenue increased by ¥255 billion from the previous fiscal year due primarily to a change from trading account losses—net to trading account gains—net. The change from trading account losses—net to trading account gains—net was due mainly to an increase in gains related to changes in the fair value of foreign currency-denominated securities. Total expenses decreased by ¥129 billion from the previous fiscal year due mainly to a change from provision to credit for loan losses. In addition, income tax expense increased by ¥159 billion from the previous fiscal year to ¥189 billion in the fiscal year ended March 31, 2018. As a result, net income in Japan increased by ¥225 billion. Total assets in Japan increased by ¥3,756 billion due primarily to an increase in investment securities.

In the United States, total revenue increased by ¥155 billion due primarily to increases in interest income from receivables under resale agreements and securities borrowing transactions, interest-bearing deposits and

 

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loans. The increase in interest income from receivables under resale agreements and securities borrowing transactions, interest-bearing deposits and loans was due mainly to an increase in market interest rates. Total expenses increased by ¥176 billion due mainly to increases in expenses on payables under repurchase agreements and securities lending transactions and deposits. As a result, net income in the United States decreased by ¥15 billion. Total assets in the United States decreased by ¥2,126 billion due primarily to a decrease in trading account assets, offset in part by an increase in interest-bearing deposits.

In the Americas excluding the United States, total revenue decreased by ¥6 billion due primarily to a decrease in other noninterest income, including foreign exchange gains (losses)—net, offset in part by an increase in trading account gains—net. Total expenses increased by ¥9 billion due mainly to an increase in expenses on deposits. As a result, net income in the Americas excluding the United States decreased by ¥15 billion. Total assets in the Americas excluding the United States increased by ¥177 billion due primarily to an increase in trading account assets, offset in part by a decrease in loans.

In Europe, total revenue increased by ¥6 billion due primarily to an increase in interest from loans, offset in part by a decrease in interest from trading account assets. Total expenses increased by ¥37 billion due mainly to increases in expenses on deposits and provision for loan losses. As a result, net income in Europe decreased by ¥18 billion. Total assets in Europe increased by ¥1,049 billion due primarily to increases in trading account assets and loans.

In Asia/Oceania excluding Japan, and others, total revenue increased by ¥80 billion due primarily to an increase in interest income from loans. Total expenses increased by ¥39 billion due mainly to an increase in expenses on deposits. As a result, net income in Asia/Oceania excluding Japan, and others increased by ¥36 billion. Total assets in Asia/Oceania excluding Japan, and others increased by ¥944 billion due primarily to an increase in loans.

Financial Condition

Assets

Our assets as of March 31, 2018 and 2019 were as follows:

 

     As of March 31,     Increase
(decrease)
 
     2018     2019  
     (in billions of yen)  

Cash and due from banks

   ¥ 1,686     ¥ 1,404     ¥ (282

Interest-bearing deposits in other banks

     46,485       44,269       (2,216

Call loans and funds sold

     720       763       43  

Receivables under resale agreements

     8,081       12,997       4,916  

Receivables under securities borrowing transactions

     4,409       2,578       (1,831

Trading account assets

     24,303       21,018       (3,285

Investments

     26,770       24,163       (2,607

Loans

     83,515       82,800       (715

Allowance for loan losses

     (310     (307     3  
  

 

 

   

 

 

   

 

 

 

Loans, net of allowance

     83,205       82,493       (712

Premises and equipment—net

     2,116       1,901       (215

Due from customers on acceptances

     213       187       (26

Accrued income

     301       343       42  

Goodwill

     95       95       —    

Intangible assets

     84       74       (10

Deferred tax assets

     57       50       (7

Other assets

     5,731       5,276       (455
  

 

 

   

 

 

   

 

 

 

Total assets

   ¥ 204,256     ¥ 197,611     ¥ (6,645
  

 

 

   

 

 

   

 

 

 

 

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Total assets decreased by ¥6,645 billion from March 31, 2018 to ¥197,611 billion as of March 31, 2019. This decrease was due mainly to decreases of ¥3,285 billion in trading account assets, ¥2,607 billion in investments, ¥2,216 billion in interest-bearing deposits in other banks and ¥1,831 billion in receivables under securities borrowing transactions, offset by an increase of ¥4,916 billion in receivables under resale agreements.

Loans

Loans outstanding

The following table shows our loans outstanding as of March 31, 2018 and 2019 based on classifications by domicile and industry segment:

 

     As of March 31,     Increase
(decrease)
 
     2018     2019  
     (in billions of yen, except percentages)  

Domestic:

            

Manufacturing

   ¥ 8,156       9.7   ¥ 9,558       11.5   ¥ 1,402       1.8

Construction and real estate

     8,102       9.7       8,955       10.8       853       1.1  

Services

     5,024       6.0       5,113       6.2       89       0.2  

Wholesale and retail

     5,113       6.1       5,163       6.2       50       0.1  

Transportation and communications

     3,565       4.3       3,622       4.4       57       0.1  

Banks and other financial institutions

     4,471       5.3       4,303       5.2       (168     (0.1

Government and public institutions

     8,882       10.6       2,359       2.8       (6,523     (7.8

Other industries(1)

     5,018       6.0       5,478       6.6       460       0.6  

Individuals

     10,329       12.4       9,858       11.9       (471     (0.5

Mortgage loans

     9,445       11.3       8,950       10.8       (495     (0.5

Other

     884       1.1       908       1.1       24       0.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total domestic

     58,660       70.1       54,409       65.6       (4,251     (4.5

Foreign(2):

            

Commercial and industrial

     17,195       20.6       19,087       23.0       1,892       2.4  

Banks and other financial institutions

     7,465       8.9       9,126       11.0       1,661       2.1  

Government and public institutions

     303       0.4       297       0.4       (6     0.0  

Other

     38       0.0       33       0.0       (5     0.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total foreign

     25,001       29.9       28,543       34.4       3,542       4.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     83,661       100.0     82,952       100.0     (709     —    
    

 

 

     

 

 

     

Less: Unearned income and deferred loan fees—net

     (146       (152       (6  
  

 

 

     

 

 

     

 

 

   

Total loans before allowance for loan losses

   ¥ 83,515       ¥ 82,800       ¥ (715  
  

 

 

     

 

 

     

 

 

   

 

Notes:

(1)

Other industries under Domestic include trade receivables and lease receivables of consolidated variable interest entities.

(2)

Certain comparative amounts under Foreign as of March 31, 2018 have been reclassified in order to conform to the current presentation.

Total loans before allowance for loan losses decreased by ¥715 billion from March 31, 2018 to ¥82,800 billion as of March 31, 2019. Loans to domestic borrowers decreased by ¥4,251 billion to ¥54,409 billion due mainly to a decrease in loans to government and public institutions, offset in part by an increase in manufacturing.

Loans to foreign borrowers increased by ¥3,542 billion from March 31, 2018 to ¥28,543 billion as of March 31, 2019. The increase in loans to foreign borrowers was due mainly to increases in loans to commercial and industrial and banks and other financial institutions.

 

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Within our loan portfolio, the proportion of loans to domestic borrowers against gross total loans decreased from 70.1% to 65.6%, while that of loans to foreign borrowers against gross total loans increased from 29.9% to 34.4%. Loans to foreign borrowers were regionally diversified.

Impaired Loans

General

In accordance with our group’s credit risk management policies, we use an internal rating system that consists of credit ratings for the corporate portfolio segment and pool allocations for the retail portfolio segment as the basis of our risk management infrastructure. Credit ratings consist of obligor ratings which represent the level of credit risk of the obligor, and transaction ratings which represent the ultimate possibility of incurring losses on individual loans by taking into consideration various factors such as collateral or guarantees involved. In principle, obligor ratings are applied to all obligors except those to which pool allocations are applied, and are subject to regular review at least once a year as well as special review which is required whenever the obligor’s credit standing changes. Pool allocations are applied to small loans that are less than a specified amount by pooling customers and loans with similar risk characteristics, and the risk is assessed mainly based on past due status and managed according to such pools. We generally review the appropriateness and effectiveness of the approach to obligor ratings and pool allocations once a year in accordance with predetermined policies and procedures. The table below presents our definition of obligor ratings used by Mizuho Bank and Mizuho Trust & Banking:

 

Obligor category(1)(2)

  

Obligor rating(3)

  

Definition

Normal

   A    Obligors whose certainty of debt fulfillment is very high, hence their level of credit risk is very low.
   B    Obligors whose certainty of debt fulfillment poses no problems for the foreseeable future, and their level of credit risk is low.
   C    Obligors whose certainty of debt fulfillment and their level of credit risk pose no problems for the foreseeable future.
   D    Obligors whose current certainty of debt fulfillment poses no problems, however, their resistance to future economic environmental changes is low.

Watch

   E1    Obligors that require observation going forward because of either minor concerns regarding their financial position, or their somewhat weak or unstable business conditions.
   E2    Obligors that require special observation going forward because of problems with their borrowings such as reduced or suspended interest payments, problems with debt fulfillment such as failure to make principal or interest payments, or problems with their financial position as a result of their weak or unstable business conditions.

Intensive control

   F    Obligors that are not yet bankrupt but are in financial difficulties and are deemed likely to become bankrupt in the future because of insufficient progress in implementing their management improvement plans or other measures (including obligors that are receiving ongoing support from financial institutions).
Substantially bankrupt    G    Obligors that have not yet become legally or formally bankrupt but are substantially insolvent because they are in serious financial difficulties and are deemed to be incapable of being restructured.

Bankrupt

   H    Obligors that have become legally or formally bankrupt.

 

Notes:

(1)

Special attention obligors are watch obligors with debt in troubled debt restructuring or 90 days or more delinquent debt. Loans to such obligors are considered impaired.

(2)

We classify loans to special attention, intensive control, substantially bankrupt and bankrupt obligors as impaired loans.

(3)

Equivalent obligor ratings are determined for the other portfolio segment.

 

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We consider loans to be impaired when it is probable that we will be unable to collect all the scheduled payments of principal and interest when due according to the contractual terms of the loans. We classify loans to special attention, intensive control, substantially bankrupt and bankrupt obligors as impaired loans, and all of our impaired loans are designated as nonaccrual loans. We do not have any loans to borrowers that cause management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms for the periods presented other than those already designated as impaired loans. See “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management” for descriptions of our self-assessment procedures and our internal credit rating system.

Our credit management activities consist of activities such as efforts to provide management consultation to support borrowers’ business initiatives, to increase the quantity and enhance the quality of loan collateral, and to adjust loan balances to an appropriate level, when the borrower’s credit quality is showing a decline. These activities can lead to improvements in obligor classifications through improvements in the business and financial condition of borrowers and, as a result, a reduction in allowance for loan losses.

We endeavor to remove impaired loans from our balance sheet within three years from the time when they are categorized through methods such as collection, charge-offs, disposal and improving the borrowers’ credit rating through restructuring efforts.

Loan modifications

Restructuring efforts are made through our various business revitalization support measures conducted based on requests from borrowers that are in a weakened state that require some form of support. When confronted with the decision of whether to agree to business revitalization support, which includes forgiveness of debt (including debt to equity swaps), reductions in stated interest rates to below market levels and postponement of payment of principal and/or interest (other than insignificant extensions), we carefully consider whether it is beneficial to our shareholders and depositors based on various factors such as whether (i) a legal reorganization process would significantly damage the obligor’s business value so that there is a fear that the obligor will not be able to restructure its business, (ii) the restructuring plan is appropriate and is economically rational from the viewpoint of minimizing Mizuho’s losses compared to other processes, (iii) both the management and shareholders of the obligor will clearly bear responsibility, and (iv) the allocation of losses among creditors is rational and highly justifiable. The triggers and factors that we review to identify restructured loans are modifications imposed by law or a court of law and alterations based on agreement with the borrower such as the reduction of the stated interest rate and forgiveness of debt (including debt to equity swaps), and we consider restructured loans, with respect to which concessions that it would not otherwise consider were granted to obligors in financial difficulty, as “troubled debt restructuring.” We consider the relevant obligor to be in financial difficulty when its rating based on our internal rating system is E2 or below. The types of concessions that we would not otherwise consider include the various forms of business revitalization support described above. In general, troubled debt restructurings will return to non-impaired loans, as well as accrual status, when we determine that the borrower poses no problems regarding current certainty of debt fulfillment, i.e., the borrower qualifies for a rating of D or above based on our internal rating system. Based on our historical experience, it typically takes approximately 1.5 years for the troubled debt restructuring loans in nonaccrual status to be returned to accrual status.

We determine whether restructured loans other than troubled debt restructurings are impaired loans based on the application of our internal rating system as we do generally with respect to all obligors. We determine whether restructured loans are past due or current by comparing the obligors’ payments with the modified contract terms. The effect of the restructuring on the obligors is considered in developing the allowance based on the restructuring’s effect on the estimation of future cash flows of such loans. At March 31, 2019, the balance of restructurings that are troubled debt restructurings was ¥296 billion, and the balance of restructurings that are not troubled debt restructurings was ¥19 billion. Also, the amount of charge-offs recorded as a result of troubled debt restructurings that were made during the fiscal year ended March 31, 2019 was ¥2 billion.

 

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While we maintain basic guidelines covering restructured loans, we do not have any standardized modification programs. Instead, we apply various modifications as is appropriate for the specific circumstances of the obligor in question. We do not have a policy that specifically limits the number of modifications that can be performed for a specific loan.

Balance of impaired loans

The following table shows our impaired loans as of March 31, 2018 and 2019 based on classifications by domicile and industry segment:

 

     As of March 31,     Increase (decrease)  
     2018     2019  
     Impaired
loans
     Ratio to gross
total loans by
industry
    Impaired
loans
     Ratio to gross
total loans by
industry
    Impaired
loans
    Ratio to gross
total loans by
industry
 
     (in billions of yen, except percentages)  

Domestic:

              

Manufacturing

   ¥ 142        1.7   ¥ 109        1.1   ¥ (33     (0.6 )% 

Construction and real estate

     41        0.5       46        0.5       5       0.0  

Services

     58        1.2       74        1.4       16       0.2  

Wholesale and retail

     131        2.6       135        2.6       4       0.0  

Transportation and communications

     28        0.8       31        0.9       3       0.1  

Banks and other financial institutions

     12        0.3       10        0.2       (2     (0.1

Other industries

     4        0.0       9        0.1       5       0.1  

Individuals

     90        0.9       81        0.8       (9     (0.1
  

 

 

      

 

 

      

 

 

   

Total domestic

     506        0.9       495        0.9       (11     0.0  

Foreign

     109        0.4       151        0.5       42       0.1  
  

 

 

      

 

 

      

 

 

   

Total impaired loans

   ¥ 615        0.7     ¥ 646        0.8     ¥ 31       0.1  
  

 

 

      

 

 

      

 

 

   

Impaired loans increased by ¥31 billion from March 31, 2018 to ¥646 billion as of March 31, 2019. Impaired loans to domestic borrowers decreased by ¥11 billion due mainly to improvements in the credit condition of some borrowers in the manufacturing industry. Impaired loans to foreign borrowers increased by ¥42 billion, and the relative impact of foreign currency fluctuations on such amount was immaterial.

Reflecting the aforementioned change, the percentage of impaired loans within gross total loans increased from 0.7% as of March 31, 2018 to 0.8% as of March 31, 2019 due to an increase in impaired loans. The percentage of impaired loans net of allowance for loan losses to gross total loans net of allowance for loan losses increased from 0.37% as of March 31, 2018 to 0.41% as of March 31, 2019 due to an increase in impaired loans net of allowance for loan losses and a decrease in gross total loans net of allowance for loan losses.

Allowance for Loan Losses

Calculation of allowance for loan losses

Our self-assessment and credit-rating procedures serve as the basis for determining the amount of the allowance for loan losses. The specific methods of calculating the allowance for each category of obligors are as follows:

 

Normal and watch obligors

A formula allowance is calculated separately for obligors with small balance, homogeneous loans and for each credit rating category of corporate obligors by multiplying the loan balance with the applicable

 

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default ratio (based on internal historical data as well as data provided by third-party credit rating agencies) and the applicable average impairment ratio on defaulted loans (based on internal historical data).

 

Special attention obli