MFG

Business Context and Reporting Period

This Form 6-K filing covers the interim period ended September 30, 2022 for Mizuho Financial Group, Inc. (MHFG). The report details the Group's financial performance under U.S. GAAP, highlighting the impact of a challenging global economic environment characterized by rising inflation, aggressive monetary tightening by major central banks (FRB, ECB), and geopolitical instability due to the Russia-Ukraine conflict. The Japanese economy showed signs of gradual recovery, though consumer confidence remained weak due to import price increases and yen depreciation.

Key Financial Metrics

Capital Adequacy (as of Sep 30, 2022):

• Common Equity Tier 1 (CET1) Ratio: 11.35% (Required: 8.01%)
• Tier 1 Capital Ratio: 13.64% (Required: 9.51%)
• Total Capital Ratio: 15.72% (Required: 11.51%)
• Leverage Ratio: 4.21% (Required: 3.00%)

Material Changes vs. Prior Period

The Group reported a net loss of ¥378.9 billion attributable to shareholders, a significant reversal from the net income of ¥312.7 billion in the prior year. Key drivers include:

• Trading Account Losses: A net loss of ¥851.1 billion replaced the prior year's gain of ¥83.3 billion. This was primarily due to fair value declines in foreign currency-denominated securities driven by rising long-term interest rates and yen depreciation.
• Investment Losses: Net losses of ¥105.0 billion (vs. gains of ¥135.1 billion previously), largely driven by unrealized losses on Japanese equity securities due to deteriorating market conditions.
• Net Interest Income Growth: Increased by ¥91.0 billion (17.4%) to ¥615.1 billion, driven by higher yields on interest-earning assets (loans and deposits) outpacing the rise in interest expense.
• Fee and Commission Income: Decreased by ¥26.2 billion to ¥448.7 billion, impacted by lower securities-related and trust-related fees.

Outlook, Risks, and Management Commentary

Management Commentary: Management maintains a focus on balancing capital adequacy, growth investment, and shareholder returns. Despite the interim loss, the Group remains well-capitalized. Interim cash dividends were increased to ¥42.5 per share (up from ¥40.0). The Group continues to dispose of cross-shareholdings to enhance capital efficiency.

Risks and Contingencies:

• Geopolitical Risk: Direct net country exposure to Russia was $2.44 billion (0.1% of total exposure) as of September 30, 2022. The Group has incorporated estimates of the Russia-Ukraine situation into its macroeconomic scenarios for credit loss allowances.
• Interest Rate Risk: Rising global rates have negatively impacted the fair value of the investment portfolio and trading accounts, though they have improved net interest margins.
• LIBOR Transition: The Group is actively managing the transition from LIBOR to successor benchmarks, with substantive completion for rates ceasing publication as of December 31, 2021.
• IT System Failures: The Group received business improvement orders from the Financial Services Agency regarding IT system failures in early 2021 and is implementing measures to prevent recurrence.

Key Facts for Investor Verification

• Loss Drivers: Verify the composition of the ¥851 billion trading loss, specifically the impact of foreign currency translation and interest rate sensitivity on the bond portfolio.
• Capital Buffers: Confirm that the CET1 ratio of 11.35% remains comfortably above the regulatory requirement of 8.01% despite the increase in risk-weighted assets.
• Dividend Sustainability: Assess the ability to maintain the increased dividend of ¥42.5 per share given the significant interim loss and the reliance on future earnings recovery.
• Russia Exposure: Monitor the $2.44 billion exposure to Russia and the potential for further credit deterioration or sanctions-related impacts.
• Noninterest Expense Growth: Review the ¥46 billion increase in general and administrative expenses, attributed to the depreciation of next-generation IT systems.