Mizuho Financial Group, Inc. Sponosred ADR (Japan)

We will now start the investor presentation for fiscal year 24, first half for Mizuho Financial Group. Thank you very much for joining us in spite of your busy schedules today. I'll be serving as the moderator. My name is Orita of IR Group. The English line is held in webinar format. Before we begin, let me introduce the speakers for the presentation and Q&A. To your left, President and Group CEO, Mr. Kihara. Senior Executive Officer and Group CFO, Mr. Yonezawa. Disclaimers before we begin. The presentation contains forward-looking statements based on current outlook of the future. These statements are subject to risks and uncertainties. Please be aware that actual results may materially differ. Let me explain today's proceedings. Group CEO Kihara will give a presentation following the investor presentation for FY24 first half document for about 30 minutes covering earnings and strategy. After which, Mr. Kihara will be joined by Group CFO Mr. Yonezawa for Q&A for about one hour.

Thank you, ladies and gentlemen, for joining us today. Allow me to start my presentation. The cover page, I think you are familiar with this. If you could please move on to page three. We have just completed the first half of the medium-term business plan. In terms of financials, the final target for FY25 was exceeded ahead of time. And strategy, we said that we are focusing on sustainable growth, five areas, and we're making growth investment in five areas, Green Hill, Rakuten, and Golov Capital and Rakuten, a car that we announced the other day. The environment surrounding us is difficult, so we need to strengthen our infrastructure and raise efficiencies. In terms of cost reduction, that is important. So products and services need to be reinvented. That is what we're continuing. And systems failures, we have learned lessons we should never forget. And so we are ensuring operational stability. We need to raise motivation of our employees. We have shifted to a new HR framework, Kanade. We have completed the transition, and we're starting to fine-tune the system. We started in March 2023. We're trying to embed that and trying to reform our culture as well. This year, CEO and three with the heads of departments, We have done 416 town hall meetings, visiting 322 sites in one and a half years. Page 4, having said so, there are still remaining challenges. PBR as of end of October, 0.79. Right now it's 0.86 or so. And so we need to continue with our solid growth and ensure a trust from the market, stability of revenue, and competitive edge. These need to be appealed to the stakeholders and optimal balance between growth investment and shareholder return. From that perspective, I would like to explain four things. Number one, solid financial progress and medium-term business plan. And number two, in order to achieve a stable growth, we have been pursuing distinctive business portfolio. I'm sure you are aware of this, but we would like to explain this once again. And number three, initiatives to raise our competitive edge, progress as well as challenges. And number four, effective use of capital. Moving on to page six, this is something that we show every time. So, I don't think I need to explain this. Moving on to page seven, Achieving steady profit growth. We believe we have been achieving that. There's revenue from banking, but in areas of focus, I think we are achieving solid growth. And so, given that, We are having a forecast of net business profit for FY24 of 1 trillion 170 billion up 100 billion and key progress and focus areas. So, number one, AUM increasing consulting capabilities. So, AUM is steadily increasing through consulting capabilities, expanding product line-up. We have also made additional investment in rocketing securities for the future. And I think we have come to a major turning point for the corporate sector. I think the mindset of CEOs in Japan is changing, not just among blue chip companies, but SMEs as well. So, in that trend, for the need for growth. We have to also respond to TSA reforms. I think that momentum is rising. So amidst such circumstances, for large companies and SMEs, we need to capture a need for corporate action. And overseas, we need to raise profitability and diversify our revenue sources. That's what we're continuing with. And Greenhill, in December last year. We have completed acquisition of Greenhill in many ways, many synergies and many collaborations are happening with Greenhill. On to page eight. So improving asset profitability, we talked about that. In the first half of this year, I think we have been able to make steady progress. On the right-hand side, low-profit deals 1.1 trillion reduction and high profit business, 1.6 trillion as a result is up from 3.1 to 3.3%. So in three years, a reduction of 300 billion in cross-shareholdings. We have come to 183.3 billion in the first half. We're making good progress, as is on lower right. For Employee Retirement Benefit Trust Fund, we achieved a reduction of 200 billion. So the numbers themselves Overall, I think we have been able to meet the targets ahead of time, so we're putting together our plans and numbers for the next three years. And for cross-shareholding targets, we're also going to consider them. Page 10, about cost. Expenses strengthening governance and renewing infrastructure expenses are on the rise inevitably. And as I will discuss later, various products and services are being renewed, and we are constantly engaged in cost curtailment and reduction. We have to make investments into human resources. That is a must, and wages are rising. So we will have to go along with the trend. We have to continue making investments into human capital. So we will reduce the cost where cost can be reduced to control expenses. Next, on distinctive business portfolio, page 12. So this is the overall business portfolio. Once again, we're showing this to you for your review. On the left-hand side, this is the breakdown of net business profits. Compared to before, we have reduced the dependence on our banking revenue. We're now steering the portfolio toward one that is centered around customer business. And in terms of exposure in customer business, for both Japan and overseas, our business, majority of it is IG investment grade. FOR JAPAN, I THINK IT'S VERY IMPORTANT TO CONTROL LARGE TRANSACTIONS, LARGE CUSTOMERS. FOR TRANSACTIONS WITH PROBLEMS, AS WELL AS CREDIT ANALYSTS NEED TO COLLABORATE WITH EACH OTHER TO ACHIEVE THAT GOVERNANCE. AS A RESULT, SOME COMPANIES HAVE IMPROVED QUITE SUBSTANTIALLY, SO WE WILL CONTINUE WITH THAT EFFORT. Page 13, Diversifying Core Business Profits. As you know, under NARP, we have made various efforts to diversify our revenue sources, and we have broke it down between Japan and overseas for Interest income, we will drive a return. That's what we've been doing. And non-interest income to be grown for both Japan and overseas, that's what we've been doing. And sales and trading is being expanded. With respect to sales and trading, I would like to discuss in detail later. Moving on to page 14, business portfolio in Japan. So this may be the first time for me to show this to you in such an explicit fashion, but 70% of our domestic business is a large corporate business. On the right-hand side, income non-interest, income S&T. on trading 10%, interest 40%, non-interest 50%, so it's diversified for non-interest income transactions, credit-related fees, and IB real estate. They're broken down into these three, one-third each. So relatively speaking, we have a stable income source. And you may think that there are more large transactions But each year, they account for about 5%. So in that regard, I think we have been able to build a very stable revenue structure. Moving on to page 15, which is about overseas. Left-hand side, regional breakdown. Wallet share is largest in Americas where we focus on most, and EMEA, we're trying to achieve efficient operations, so it's become somewhat smaller. Looking at Americas, well, if you could look at the right-hand side, there's a breakdown of the structure, interest income, non-interest income, and secondary. Only a lower right from your perspective, you may think that sales and trading volatility may be high. Perhaps that may be your awareness. But as a component of the revenue, fee, flow, and financing, we are distributed among these. So we're not depending solely on a flow business. When volatility is down, income from flow reduces. And when volatility is down, primary increases at any rate, we're not depending just upon the flow business. So as far as fees, we're leveraging our derivative business and risk solutions for corporates. For example, Americas are focusing very much on those areas and at the same time. America's capabilities are now being utilized increasingly in Japan of late. Financing, we would like to utilize our balance sheet efficiently while rolling out our finance business, so striking the right balance among three segments. That's the kind of revenue structure that we have. Page 16, bond portfolio. As far as JGPs, as is on the left-hand side, duration is 0.6. We continue with our conservative management of JGPs. At what timing the interest rates may rise? How much would the rates go up? What is going to be the terminal rate? When? It is very hard to have an outlook. Therefore, given these circumstances, I don't think that there's a need to extend the duration of our bond portfolio. So we're in a wait-and-see mode. We're trying to explore what is the best timing to enter, if you will. And for overseas or foreign bonds, the last term we have slightly increased our balance for foreign bonds. and HCM, we have increased the balance in FY23 as a result. Even if rates move overseas, we're less susceptible from the impact from that structure in place. With reduced rates, the spread goes down, but with the HCM balance that we have, we're able to gain from that. So I think we have been able to build a strong portfolio. So a summary is on page 17. So in terms of the business portfolio, as is on the left-hand side, the majority is IG. Sable growth is achieved, and large transactions are watched, and revenue sources are diversified. And we have been able to focus on non-interest income under NERP. Where there is positive rate, there is going to be an upside to be had. On the right-hand side, external environment. With 10 basis point increase, a gain of 50 billion can be enjoyed. And as I said, FRB rate cut is going to have very little impact on our business. For overseas centering around America's markets, we have our own business model. Our philosophy basically is to have in-house capabilities that are required and pursue synergies amongst our own capabilities. That is our approach. In the earnings presentation, there was a question about Forex impact. When yen depreciates ¥1, ¥4 billion impact on net business profit, ¥3 billion on net income, so almost no impact in terms of set one. Next, enhancing our competitive edge, if you could please have a look at page 19. So inclusive of the issue of sustainability, basically in four areas we're very much focused upon. So in each area for the challenges that we have, I would like to explain the progress as well as challenges. So, one is to offer customer experience and asset wealth management in Japan. Rakuten card that we announced yesterday is about improving customer experience and Rakuten securities. is for doubling asset income or to offer asset and wealth management service in Japan, number three and number four, enhancing the competitiveness of Japanese companies and global CRB business model. This is where our strength lies. So I would like to give you details later. Moving on to page 20. So in the retail area, what is the progress and the challenges? That's what I would like to explain. So we're going to pursue customer experience thoroughly, gradually, We are transitioning into new types of branches and utilizing AI. We are building next generation contact centers that are up from August and improved application UI UX as well as launch digital marketing infrastructure. So new account openings before and after the midterm business plan, it's up by 10% compared to before and direct app MAU is up by 50% as well. We will continue to create new channels going forward. And what we announced yesterday collaboration with Rakuten Group. We will deepen that and deliver results, which is going to be important. And with Asset Management Service, we will capture a new NISA business. We are driving AUM through that. Retail AUM is up by 4.9 trillion yen, and NISA accounts have increased by 120,000 accounts. Asset Management 1 AUM capability is up, but we're working on that. Its AUM is up by 7.6 trillion yen. This area, however, has many challenges, which I would like to explain later. Moving on to page 21. So thorough pursuit of customer experience, a disciplined investment framework. We will create optimized channels, strengthen data analytics, and have operational cost reduction. So depreciation required for investment needs to be funded by cost reduction. So what to do with that? So a continuous process of review for products and services, digitization with respect to branches. We're making the branches smaller to drive the cost of branches down. And with respect to people, of course,

We are able to reduce operational burden.