MFG

Business Context and Reporting Period

Company: Mizuho Financial Group, Inc. (MHFG)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Third Quarter of Fiscal 2009 (Nine months ended December 31, 2009)
Filing Date: January 29, 2010
Accounting Standard: Japanese GAAP

MHFG reported a return to profitability for the nine-month period, driven by improved credit conditions and the consolidation of Shinko Securities. The global economy showed signs of recovery, though the Japanese economy remained in a mild deflationary state with weak domestic demand.

Key Financial Metrics

Segment Performance (9 Months):

• Banking Business: Ordinary Profits of 119.6 billion (vs. loss of 15.1 billion prior year).
• Securities Business: Ordinary Profits of 49.7 billion (vs. loss of 5.8 billion prior year), boosted by the merger with Shinko Securities.

Material Changes vs. Prior Period

• Profitability Turnaround: The Group moved from a Net Loss of 50.5 billion yen in the prior year to a Net Income of 126.3 billion yen. This was primarily due to a significant improvement in Credit-related Costs (down to 216.4 billion from 236.5 billion) and a reduction in losses related to stock valuations.
• Merger Impact: The consolidation of Shinko Securities Co., Ltd. (effective May 7, 2009) contributed to higher gross profits in the securities segment. The merger generated net extraordinary gains of 19.8 billion yen, including 67.9 billion yen in negative goodwill.
• Asset Composition: Loans and Bills Discounted decreased by 6.8 trillion yen to 63.7 trillion yen, while Securities increased by 9.9 trillion yen to 40.0 trillion yen. Deposits decreased by 2.8 trillion yen to 74.4 trillion yen.
• Capital Strength: Total Net Assets increased by 1.4 trillion yen, and the Own Capital Ratio improved from 1.3% to 2.1%.

Guidance, Outlook, and Risks

Full Year 2009 Estimates (Unchanged):

• Ordinary Income: 2,900.0 billion yen
• Ordinary Profits: 300.0 billion yen
• Net Income: 200.0 billion yen
• Net Income per Share: 13.41 yen

Dividends:

• Fiscal 2009 Estimate: 8.00 yen per share (Annual).
• Previous Year (FY2008): 10.00 yen per share.

Management Commentary & Risks:
Management emphasizes "disciplined capital management" with a medium-term target of maintaining a consolidated Tier 1 capital ratio at 8%. Key risks identified include:

• Significant credit-related costs and declines in securities portfolio values due to global financial market dislocation.
• Changes in interest rates and foreign currency fluctuations.
• Decline in deferred tax assets and failure to maintain required capital adequacy ratios.
• Reputational harm and operational risks.

Unusual Items:

• Stock Valuation: Net losses related to stocks were 16.8 billion yen for the period, driven by a 46.5 billion yen devaluation in the third quarter.
• Hedging Losses: Valuation losses on credit and equity derivatives for hedging purposes totaled 114.3 billion yen (84.0 billion on credit derivatives, 30.3 billion on equity derivatives) due to market improvements.

Investor Verification Checklist

• Capital Adequacy: Verify the upcoming announcement of the Consolidated Capital Adequacy Ratio as of December 31, 2009, to ensure it meets the 8% Tier 1 target.
• Non-Performing Loans (NPL): Confirm the NPL ratio of 1.93% and the trend of disclosed claims under the Financial Reconstruction Law (totaling 1.43 trillion yen).
• Securitization Exposure: Review the attachment detailing foreign currency denominated securitization products (approx. 555 billion yen balance) and the associated unrealized losses.
• Dividend Sustainability: Assess the reduction in the estimated annual dividend from 10.00 yen (FY2008) to 8.00 yen (FY2009) in the context of the return to profitability.
• Merger Integration: Monitor the integration progress of Shinko Securities and the realization of expected synergies in the securities segment.