Business Context and Reporting Period
Company: Mizuho Financial Group, Inc.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Date: January 30, 2012
Financial Period: Data presented is as of September 30, 2011, with comparative data for September 30, 2010.
Context: This filing discloses capital adequacy information pursuant to the Basel II Framework and Japanese regulatory requirements (FSA Notice No. 15 of 2007). The data is based on Japanese GAAP and covers the consolidated group as well as key subsidiaries (Mizuho Corporate Bank, Mizuho Bank, Mizuho Trust & Banking).
Key Financial Metrics
The filing focuses on capital adequacy and risk-weighted assets rather than standard income statement metrics like revenue or net income. Key capital metrics for the consolidated group are as follows:
| Metric (Billions of Yen) | As of Sep 30, 2010 | As of Sep 30, 2011 |
|---|---|---|
| Consolidated Capital Adequacy Ratio (BIS) | 15.40% | 14.92% |
| Tier 1 Capital Ratio | 11.78% | 11.89% |
| Total Risk-Based Capital | 8,180.7 | 7,615.2 |
| Tier 1 Capital | 6,260.1 | 6,069.8 |
| Tier 2 Capital | 2,262.9 | 1,895.8 |
| Risk-Weighted Assets | 53,121.1 | 51,037.6 |
| Required Capital (Total) | 4,249.6 | 4,083.0 |
Subsidiary Highlights (Sep 30, 2011):
- Mizuho Corporate Bank (Consolidated): Capital Adequacy Ratio 18.11% (Tier 1: 15.80%).
- Mizuho Bank (Consolidated): Capital Adequacy Ratio 15.05% (Domestic Standard) / 14.73% (BIS Standard).
- Mizuho Trust & Banking (Consolidated): Capital Adequacy Ratio 16.69%.
Material Changes vs. Prior Period
Comparing September 30, 2011, to September 30, 2010:
- Capital Adequacy: The consolidated capital adequacy ratio decreased slightly from 15.40% to 14.92%, while the Tier 1 capital ratio improved from 11.78% to 11.89%.
- Capital Base: Total risk-based capital declined by approximately ¥565.5 billion (from ¥8,180.7B to ¥7,615.2B). This was driven by a decrease in Tier 1 capital (¥190.3B drop) and a significant reduction in Tier 2 capital (¥367.1B drop).
- Risk-Weighted Assets (RWA): RWA decreased by approximately ¥2.08 trillion (from ¥53.12T to ¥51.04T), indicating a reduction in the risk profile of the asset base.
- Actual Losses: Actual losses for the period ended September 30, 2011, decreased significantly to ¥59.5 billion from ¥101.8 billion in the prior year. This improvement was attributed to better obligor classifications and reduced losses in residential mortgage exposure.
- Reserves: Total reserves for possible losses on loans decreased from ¥839.3 billion to ¥719.7 billion.
Outlook, Risks, and Contingencies
Capital Structure and Preferred Securities:
The group utilizes various preferred securities issued by overseas Special Purpose Companies (SPCs) as Tier 1 capital. These include non-cumulative perpetual preferred securities (e.g., MPC1, MCI series). Dividends on these securities are subject to suspension if the group fails to meet minimum capital adequacy requirements or if common stock dividends are suspended.
Risk Management:
- Credit Risk: The group employs the Advanced Internal Ratings-Based (IRB) approach for credit risk and the Advanced Measurement Approach (AMA) for operational risk. Credit risk exposure totaled ¥149.9 trillion (EAD) as of September 30, 2011.
- Market Risk: Value at Risk (VaR) for trading activities averaged ¥3.8 billion for the six months ended September 30, 2011. There was one instance where actual losses exceeded the VaR during this period.
- Interest Rate Risk (Outlier Test): The group is not an "outlier" under Basel II stress testing. The loss ratio to broadly-defined capital under hypothetical interest rate shocks was 7.4% as of September 30, 2011, well below the 20% threshold.
Securitization:
The group maintains exposure as an originator, sponsor, and investor in securitization programs. Total underlying assets for securitization exposure as an originator were ¥981.4 billion as of September 30, 2011.
Investor Verification Checklist
- Capital Ratio Trends: Verify the sustainability of the 14.92% consolidated capital adequacy ratio given the decline in total risk-based capital.
- Tier 2 Capital Reduction: Investigate the drivers behind the ¥367 billion drop in Tier 2 capital (e.g., maturity of subordinated debt).
- Preferred Securities Terms: Review the specific dividend suspension triggers for the various SPC preferred securities included in Tier 1 capital.
- Credit Quality: Monitor the "Actual Losses" metric, which improved significantly, to ensure this trend continues in the face of economic conditions.
- Market Risk Exceptions: Note the single instance where trading losses exceeded VaR in the six months ended September 2011 and assess the impact on the multiplication factor for market risk capital.