Business Context and Reporting Period
Company: Mizuho Financial Group, Inc. (MHFG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended September 30, 2016
Filing Date: November 28, 2016
Accounting Standard: Japanese GAAP (Unaudited Interim Consolidated Financial Statements)
MHFG is a specified business company under Japanese law. The financial statements were semiannually audited by Ernst & Young ShinNihon LLC. The Group operates through five in-house companies based on customer segments: Retail & Business Banking, Corporate & Institutional, Global Corporate, Global Markets, and Asset Management.
Key Financial Metrics
| Metric (Millions of Yen) | Six Months Ended Sept 30, 2016 | Six Months Ended Sept 30, 2015 |
|---|---|---|
| Ordinary Income | 1,563,262 | 1,637,697 |
| Ordinary Profits | 420,944 | 574,590 |
| Income Before Income Taxes | 419,125 | 591,930 |
| Profit (Net Income) | 380,358 | 418,262 |
| Profit Attributable to Owners of Parent | 358,183 | 384,198 |
| Comprehensive Income | 199,853 | 96,820 |
| Total Assets (Sept 30, 2016) | 192,679,978 | 193,458,580 (Mar 31, 2016) |
| Total Net Assets (Sept 30, 2016) | 8,970,260 | 9,353,244 (Mar 31, 2016) |
| Net Cash Provided by Operating Activities | 2,431,643 | 3,552,766 |
Per Share Data (Common Stock):
- Net Income per Share: Yen 14.21 (2016) vs. Yen 15.48 (2015)
- Net Assets per Share: Yen 325.41 (Sept 30, 2016) vs. Yen 322.46 (Mar 31, 2016)
Material Changes vs. Prior Period
- Profit Decline: Ordinary profits decreased by approximately 26.7% (from 574.6 billion to 420.9 billion yen) and Net Income decreased by 9.1% (from 418.3 billion to 380.4 billion yen).
- Revenue Components:
- Interest Income: Decreased to 678.2 billion yen from 720.6 billion yen.
- Trading Income: Increased significantly to 213.9 billion yen from 145.8 billion yen.
- Other Ordinary Income: Decreased to 122.2 billion yen from 188.7 billion yen, largely due to lower gains on sales of stocks (76.8 billion vs. 133.2 billion).
- Expense Increases: Ordinary expenses rose to 1.14 trillion yen from 1.06 trillion yen. Interest expenses increased to 241.8 billion yen from 197.1 billion yen. General and Administrative expenses increased to 704.2 billion yen from 673.5 billion yen.
- Asset Composition: Total assets decreased slightly. Deposits increased to 110.2 trillion yen, while Securities decreased to 32.7 trillion yen from 39.5 trillion yen.
- Non-Controlling Interests: Significant reduction in Non-controlling Interests from 1.18 trillion yen to 714.6 billion yen, impacting Total Net Assets.
Outlook, Risks, and Unusual Items
- Subsequent Event (Asset Management Integration): On October 1, 2016, an integration of asset management companies (DIAM, Mizuho Trust & Banking, Mizuho Asset Management, and Shinko Asset Management) became effective, forming "Asset Management One Co., Ltd." MHFG holds a 70% economic interest and 51% voting rights in the new entity.
- Accounting Policy Change: MHFG applied the "Revised Implementation Guidance on Recoverability of Deferred Tax Assets" from April 1, 2016, resulting in a 1.4 billion yen increase in Deferred Tax Assets and Retained Earnings.
- Impairment and Losses:
- Losses on write-offs of loans were 10.5 billion yen.
- Impairment (devaluation) of securities was 4.5 billion yen.
- Impairment loss on tangible fixed assets was 1.5 billion yen.
- Derivatives: The Group maintains significant derivative positions. As of September 30, 2016, the total fair value of derivative transactions was 907.6 billion yen. Unrealized gains/losses on currency-related transactions were a net loss of 71.7 billion yen.
- Loan Quality: Total balance of Loans to Bankrupt Obligors, Non-Accrual Delinquent Loans, Loans Past Due, and Restructured Loans was 844.9 billion yen (down from 885.1 billion yen).
Investor Verification Checklist
- GAAP Reconciliation: Verify the reconciliation between Japanese GAAP and U.S. GAAP, as significant differences may exist in the treatment of deferred taxes and unrealized gains/losses.
- Asset Management Integration Impact: Assess the financial impact and strategic implications of the October 1, 2016, integration of asset management subsidiaries.
- Non-Controlling Interests: Investigate the drivers behind the substantial decrease in Non-controlling Interests (from 1.18T to 0.71T yen) and its effect on consolidated equity.
- Trading Income Volatility: Analyze the sustainability of the 46% increase in Trading Income, which offset declines in interest and other ordinary income.
- Derivative Exposure: Review the detailed breakdown of derivative transactions (interest rate, currency, credit) to understand market risk exposure.
- Deferred Tax Assets: Confirm the recoverability assumptions used for the new Deferred Tax Assets recognized under the revised guidance.