Mizuho Financial Group, Inc. (8411) Earnings Call Transcript & Summary

Today's agenda, the summary of financial results. I'm sure you've already seen them, so I'll be quick. And the initiatives increasing corporate value will be the main focus of my explanation. Please turn to Page 4. As you all know, the results are as follows. And so the consolidated net base profit was JPY 1 trillion. And also, the net gains related to stocks of JPY 54.7 million and also the ROE was 7.6%, and expense ratio came out to be 62.9%. Forecast on a consolidated basis, it's going to go up by JPY 54.2 billion year-on-year for the net business profit and also the net income is going to be JPY 750 billion, up by 71.1%. So we raised JPY 5 for the dividend in the midyear. And at the end, we are going to go up by JPY 5, and so it's going to be JPY 105. For the '24 year, we plan to go to JPY 115 by JPY 10 increase. So for 3-year midterm from starting '22 to -- '23 to '25. So we are actually achieving the targets here for the final year in '24. On Page 7, there are many different factors. The price-to-book ratio is coming up to some level. We don't -- we're not satisfied with this current level, but 0.75 -- 0.8 level that we are at right now, the capital cost has come down as well and return has been increasing and EPS has been on the rise as well. So the main topic focus on initiatives, increasing corporate value. So please turn on Page 9. The price-to-book is up now. So we want to go above 1x. That is the top priority for management. So in focus areas, we need to make sure to grow the profits and also implement the financial discipline. So we can reduce the capital cost as well by increasing return on equity. So we are focused on that. In disposal view, these are the requirements, what we need to do, explain and summarize. I'm sure you've seen this before. So nothing really new information on this chart, but I want to go deeper in each item to talk about progress and the challenges we are facing at this point. Please turn to Page 10. The steady profit growth to be accomplished. In '22, JPY 810 billion level, and so we're going to -- we went to JPY 101 trillion in '23, and we are going to JPY 1.70 trillion in '24. So making steady progress. And we already shared the 3 major area. And -- so we want to grow JPY 170 billion for the focus areas during those 3 years in '23, it was JPY 46 billion and '24, we want to do more. We started a new HR system called CANADE from this April. So the cost is increasing for this new system. So that is actually putting some pressure. However, hopefully, if we want to accomplish JPY 50 billion or so, thereby establishing the foundation, we want to have -- make a big jump in the final year. This JPY 170 billion target will be maintained. Page 11, please. Improving asset profitability, we are tackling this in a solid fashion. In fiscal 2023, JPY 2 trillion decrease was made to nonprofitable assets. We want to go further but the overseas business was somewhat weaker, but also, we were rather disciplined. So JPY 2 trillion decrease in nonprofitable assets was done, and we somehow broke even in that endeavor. Cross-holding, lending and overseas lending was the main ones that we decreased. M&A with domestic corporate businesses and SI and Global CIB business shall grow further. We will shift toward high-profit assets from low-profit assets continuously in fiscal '24 as well. Highly profitable assets are the ones we would like to accumulate in larger than we expect a formal, but that is to do with the ForEx. If the Japanese yen is too weak, then CET1 ratio will be negatively impacted. So we would have to restrain from lending too much, which has to do with the exchange rate. Page 12, cross-holding. JPY 300 billion was something that we decided to sell, and we will sell and JPY 111.7 billion ( sic) [ JPY 117.1 billion ] will be something we will sell. And you can see the counterpart situation, and we are gradually decreasing the cross-holding shares. In principle, we will continue to shift from low-profit assets to high-profit assets, and we would like to cast a wide net that we would like to be rather stringent. Moving on to Page 13, expenses. There are various push-up effects from various ways to push up our expenses, inflation for one, not only abroad, but gradually, we are seeing inflation in Japan. And also responses to regulations, AML that is applicable to any of the countries and IT platform and vendor cost is rising as well as the hardware cost. Therefore, cost increase factors are all over the place. For us, we cannot help but to live with these factors, but we would have to lower the cost base somehow, and we are continually tackling the cost front. In fiscal '23, there were external environmental issues, including inflation, and governance and the other factors resulted in the JPY 34 billion increase and human resources cost JPY 6 billion wage increase studies and also various discretionary expenses resulted in altogether this expense increase, you can see. Expense ratio is being lowered. 62.9% was the percentage for fiscal '24. Exchange rate, inflation, JPY 30 billion in net and governance and infrastructure, such as inflation and regulation would result in JPY 40 billion of cost. We are trying to lower this governance and infrastructure level, so we would have JPY 40 billion increase there. Labor cost will increase. That is the combination of CANADE cost and the base wage increase. And also Greenhill cost would continue to have some cost increase and also discretionary cost, some bonuses tied to the performance and we are tackling the front end, and we are starting to increase the head count in growth areas gradually. I think rate, there are cost increase factors but we are controlling the governance and infrastructure cost tightly so that we can have a lower end of 60% to 70% range expense ratio. Page 14. Stabilizing profits from core business, you can see the table on the top, since the introduction of the negative interest rate, our revenue has been diversified. As you see at the bottom left-hand side, expense control was tightly exercised and centering around customer dividend. We were generating profits, and we could exceed JPY 1 trillion. So we diversified business profits and that is a major endeavor. And also stabilizing profits from core business, we are growing the growing businesses, and we are controlling against any predicted cost. And also, as you can see, the structure of mitigating credit-related costs, we are controlling against any predicted events. Forward-looking provisioning is another key. Nowadays, we are providing support for turnaround of the companies in Japan. Overseas, Global 300 strategy would be the main strategy to lend center -- centering around IG-grade entities. Next page, Page 16, please. Effective capital use. As you can see, Mizuho was rather weak in capital adequacy. Capital adequacy must be bolstered and somehow, we are strengthening shareholder returns as well. To some extent, we would have to invest in growth to some extent, and we could steadily grow so far. On the top left-hand side, allocation track record can be seen. Allocation of net income attributed to Financial Group, JPY 5.2 trillion in the past 5 to 10 years, 0.5% growth investment, JPY 2.7 billion for capital adequacy, 2.0% shareholder return and 0.5% to growth investment, JPY 75 in fiscal 2019 being raised to JPY 115 billion is the shareholder return per share. And CAGR, 27% was the growth of -- thanks to the investments made. And that kind of a high rate of growth has been enjoyed within the limited investment that we could invest in the growth, and we could generate high level of growth. On Page 17, you can see some specific examples. In up to year 2021, we could accumulate -- concentrated on accumulating capital. We were selective in making investments. Royal Bank of Scotland is one example that we invested in. In fiscal 2023, since the beginning of the year, investment was strengthened and returns were bolstered as well, and we were starting to be able to strike balance between the two. The dividend was increased in substantially then. And Greenhill was invested in, in fiscal '23. And digital/net and retail and asset-focusing businesses, including investment in Rakuten Securities, were done since then. Core business. You can see the definition of core businesses. But the core businesses are doomed to be obsolete. So we constantly would have to explore new businesses. Credit Saison India is one of the new businesses we decided to invest in. We have to remember to exercise discipline, as you can see in the middle of the page, even when we make investments, if we cannot achieve the expected effectiveness from the investment, then we decided to close down the entity. Page 18, please. Capital policy. In an ongoing manner, we continue to have the same policy, pursuing the optimal balance between capital adequacy, growth, investment and enhancement of shareholder return. But many of the people say that we have to show a specific range we target. So we decided to disclose that this time around. The range would be 9% -- mid 9% to mid-10% to 11% range. Mid-9% or lower level would have to require capital adequacy bolstering and if we exceed 10% to 11%, then we have to strengthen shareholder return, 9.8% is the current number. Given that investment into growth would have to be done, but it is about time and maybe not necessarily this fiscal year, but we would have to start considering buyback of our own shares. That's what we consider. Page 19, please. This is the summary. PBR. 0.75, 0.8, substantial improvement, as already made, we would like to achieve 1x at least of PE price-to-book value. We would have to lower the capital cost, ROE would have to be enhanced. And these are various challenges we have to tackle. Please read through that at your leisure later on. Item number 2, effective use of resources and the third bullet point, reallocation of resources to focus business areas, that will be necessary to strengthen our fault, and we would have to strike balance between growth investment and return to shareholders. Next, I would like to give you a progress update on business focus areas. So in our midterm plan, we have set up the focus areas for the business. So once again, we wanted to recap on that, where they came from and how we came out with this theme. So I want to go through that once again. So we have set a purpose in the product to be innovate together with clients for prosperous and sustainable future, kind of vision that we are trying to accomplish through our own vision. And also we have our strengths. So we want to multiply these 2 to create focus areas. On the left showing strengths. Some of the strengths are the ones the we may not be the best at the current level. But if you could reinforce, we can be better than others, excelling the others, and that's also part of that. Like strengths that we already possess would be the corporate banking and Global CIB capability, also relationship with start-ups. Areas functions to enhance our strengths, mass retail business and solutions to mid-caps and SMEs, asset management, other areas. So we have the vision and also our strengths and they multiple it together to focus on 5 business focus areas at the right time. In '23, in the mid- and long-term perspective, what we want to be, what type of initiatives to be implemented, we discussed a lot over them and to identify what the target business model that we should pursue and then in order to grow and generate profit from this business model, what the base function -- the base foundation for the business. That's what we discuss a lot. Please turn to Page 22. As we started the customer experience improvement, other global business, we have those 4 quadrants, and we thought of the vision ideal state in each area regarding improving customer experience. We want to be most user-friendly trusted partner for mass retail customers. Face-to-face, online, remote should be provided in a seamless manner. And Asset and wealth management in Japan at the right top, this most reliable brand in asset and wealth management. That's what we want to accomplish, then we need to have unified group -- we will pursue to be unified as a group and will reinforce our alliances, open alliance. Enhancing the competitiveness of Japanese companies, left bottom, professional institution that delivers value-added solutions for business creation and growth. Global CIB business model at the right bottom, a top 10 Global CIB and strategic partner to our clients, of which we are thinking about in-house or by integrated capability within ourselves to reinforce a North-American CIB model. That's what we want to accomplish. And in each focus area, we will brush up our capabilities thoroughly, then we will connect them together so we can exercise our strength. So there are many arrows to be pointing out to the other areas. Those will be the key points was, that's how we want to connect them together. And especially important one will be the trust business, the investment trust business and to reinforce the competitiveness also the asset wealth management in Japan business, this will be important in terms of trust business. So we want to reinforce our presence in this area. Please turn to Page 23. Let me go deeper for each area where we are at right now. For the retail business, so creating the new accounts. So now, we turn to one. Now we see the net adds. It used to be the net declines in the past, but now we turn to see net increases. So we brush up each channel and connect those channels together to offer the convenient -- the consultation is going to be quite important. And we'll establish branches, which is applicable to the consultation. The online area, UI/UX to be further brushed up. Mizuho Direct UI/UX to be improved furthermore, but MAU has improved up to 75% already at this point. And recently, May, we improved the Mizuho Wallet, all the settlement functions were offered in Mizuho Wallet, but there's still a lot more that we can handle. The remote area, this is about call center and contact center. This is connecting the face-to-face and online. In August, we are starting a next-generation contact center utilizing AI. So we are brushing up each area and connecting them together. Then the connection is going to be the digital marketing. January of '24, we started to offer such a service, but the data is coming up from each different channel. And those data are going to get together to offer the best proposal to customers. On Page 24, then cost investment. How do we get returns for the investment? Yes, we do need to invest but we are planning to get return through this. Of course, maybe everything will not be covered by this, but this is one of them. First, operation, cost reduction, trying to simplify the process, revising our product because pretty much there are many products where we don't have -- we have little customers, so we want to take them out. And we want to centralize back-office operations and also reducing the cost of branches, currently full-line branches are there. So we want to downsize them from this year onward. So we can reduce the cost of branches, then that will create some available people so we will reskill them, then we can use them for the front office [ NPA ]. Next, so this is about doubling assets and wealth management in Japan. This is not making good progress as we -- I hope to see at this point, still behind what we hope to see. The revenue-wise is growing year-on-year, but AUM is behind compared to the budget. And since last year, we changed our sales approach. We used to be product out, but we try to capture the needs of customers to provide consultation now. So the shift isn't completed yet. I think that's not -- that's why we're not seeing the results as expected. And there are many different alliance we have started, as you see on the left-hand side. I won't go into one by one in details, but we have a lot more coming up, actually. The right bottom, we are talking about challenges, face-to-face consulting. It is a must-improve here. And Asset Management one would need to be improved. So -- this is #4 actually within the investment trust area. So we need to improve further more. Sato-san, who's leading this business, is aware of the issues to be addressed. On next page, 26, talking about improving competitiveness of Japanese corporations, large corporations, enterprises, where we have strength basically in the business, the left bottom -- so we need to be involved in the corporate actions, M&A, the real estate business and all these have grown so far. In the lead table in that area, we have been continuing to stay #1 player but the challenges in M&A. Last year, we were #7. The number of projects, we are #3, but we weren't able to be involved too much in a large project. That's why we want to do something about the Greenhill. I will touch more on the Greenhill later, but we want to utilize the Greenhill function furthermore to reinforce our M&A business. Page 27. This is about the SMEs. As you see in the header for the support -- role support and business success, will be the key will take a strategic approach to them. For SMEs, for these businesses, the solution pipelines are listed on that here. So we increased them 18% last year for the loans, average balance. And the end of month balance is also growing. And the business succession is another key point we need to utilize the Mizuho trust banking capability. The pipeline has grown by 20%. So we need to monetize them this year. On the start-ups, we are -- we have started various initiatives over here on the right-hand side, the space business. In such a deep-tech area, we've been reinforcing the supply, the risk money in there. And last year, we had a collaboration with UPSIDER. So we created debt fund with them. It's been about 6 months only, but we've already used up half that facility, the investment balance. Both equity and debt, they, basically, balance increased by 25% so we will be monetizing this in many different ways. Next Page 28, sustainability. We will have the engagement to increase the transition finance for the individual project investment into them. And this is investing in next-generation technologies and building platforms with the customer to provide a co-created values. So we've done all these initiatives where we saw progress. In sustainable finance, we had a target of JPY 100 trillion. We have come to JPY 30 trillion at this point. Transition investment facility in value-creation gas as shown on the right-hand side. And also hydrogen area, so we had declared about JPY 2 trillion, as mentioned in Nikkei newspaper. So we will be investing into JPY 2 trillion in hydrogen carbon credit. And we're also investing in Climate Impact X, which is in Singapore. Global CIB. The top 10 strategic partners. So CIB is quite volatile business. That's what people said. I want to explain what we are trying to do in the CIB business. So this is the banking, primary business; sales and trading, secondary business to be sought to completion growth, especially in the secondary business to support the banking business. So for the [ each words ], we offer hedging functions, such solutions are provided. The institutional investors who are joining in the primary market, we will offer secondary transaction flows and financing. So banking, sales and trading, to be supplementing each other to generate revenue. That's the kind of model we are talking about. On the right-hand side, the situation in the Americas is shown. In the Americas, product coverage has been expanded so we are actually taking every step to confirm that they are in-house, so they are completely covered by us. So through '18 -- 2018, so the overall total product available in primary and secondary, we -- our product coverage was about only 48%, but making gradual actions, we have grown that up to 78%, and we are hoping to get to 85% of the market. And on Page 30 on Greenhill. Lastly, Greenhill is going to be a key point. Integration, PMI is going quite well so far. So we only consolidated 4 months last year, but we had several interesting projects that we saw U.S., cross-border projects, we saw that as well. And Greenhill was also leveraged. So we want to be a global top 10 player like you see. And in 2023, we increased our positioning from 17th to 14th player. And also in the U.S. League table, we have been raising our position as well. So please go to Page 31. Now in APAC, transaction banking, trade finance is the main endeavor. We have captured trade and capital flow and derivatives will be more interesting from now on. Combining bank and securities platform, we can have sales and trading platform that is already available. So we would like to operate that in full scale to generate profits. On the right-hand side, you can see the progress in EMEA. Universal banking will be reinforced and that would remain unchanged. Sustainability-wise, EMEA is extremely important. They are going ahead of the rest of the globe. So we would like to have a solid position there, and we are starting to establish that without fail. Sustainability-related expertise shall be rolled out globally. That is what we would like to do. The details, please take a look at the -- at your leisure later on. Those are the business focus areas. And I would like to talk about enhancing our corporate foundation. Page 33, please. Medium-term measure plan, IT policies, implementation promotion and DX promotion and corporate culture transformed. These are some of the emphasize targets that we shared. And these are ideal state for each of these endeavors. Among them, corporate culture transformation, human capital enhancement will be particularly important. So I would like to further elaborate on those. Page 34, please. In order to strengthen the -- our people, this is what we would like to do. After formulating the strategy, people are the ones to implement the strategy. First of all, creating a sense of unity by establishing our purpose, that was done from fiscal '21. And we are communicating closely with the employees, the top management has been in close dialogue with employees. And CANADE, the new HR framework is being introduced this particular fiscal year to have a better human capital management and incentivize employees. And we would like to create the culture to motivate employees to take actions at their own initiatives. We would like to create an environment conducive to the workers by utilizing digital means and so on. And DEI is the last portion, we would like to leverage diverse talent. Page 35, please. Purpose and culture transformation is shown here. The top management will communicate continuously with employees. I, myself, I would have liked to visit 70 offices, but we covered 60 locations, and we were engaged in 50 town halls. In Kato, Hamamoto, Umeda and Yoshihara, those present were continually included, participated in those communication events. We cannot hear everything, but to some extent, we provide feedback from the management down to employees in response and employees, more or less, are quite positive about new endeavors. Page 36. Human capital management system. This is the ideal state. From the viewpoint of employees, our employees would like to work in a place where they feel supported and can feel for self-fulfillment. And we need to have a solid retention of talented workforce aligned to our strategies. As a result, we can have a win-win situation and grow together. You can have more details about the platform. We would like to unify group-wide framework. Within this broad field throughout the Mizuho Group companies, employees have the opportunities for their work. And we would like to promote their growth and challenges, eliminating seniority system or Japanese traditional HR framework, we would like to induce some wage tied to certain positions. Our tenured employees can pursue their own career path. On the right-hand side, you can see development of human resources tied to the special characteristics and needs of different businesses. Altogether, JPY 20 billion will be spent on this particular endeavor in addition. So we would like to make sure that employees would respond extensively in a positive manner so that they can grow as well. Page 37, culture transformation driven by employees. There are various initiatives driven by employees. Mizuho Pochette is one of them, with Sega, we created an idea working with Sega ultimately. Financial education will be done with this particular platform, Mizuho Pochette. And NISA Café. NISA Café will be rolled out through various branches across the country, and it has been reported by various media. Solid workers can come to Mizuho NISA Café, for example, in Yaesu and Nihonbashi area to begin with, but we would like to roll this out throughout the country. Page 38, diversity. 860 employees were employee -- employed mid-career. And we are employing new graduates in the same order. We were ranked 2nd as a popular employer among university students. And we also had 1.5% (sic) [ 15% ] that was employed overseas and 40% was the mid-career hire and 30% being women and engagement score was enhanced to 59%. And then we would like to go for 65%. Inclusion score is already 60%. And we would like to further enhance both of these scores and we are improving and transforming our mindset. And many of the employees resonate with corporate philosophy, but we have still have a long way to go, so we would like to go further. Maintenance of stable business operations, Page 40. I would like to briefly touch on this. Various KPIs were measured and were only -- there was only no case and we measure the system failure and no incidents took place. And we've enhanced the governance overseas. There was another progress last year. IT transformation is to improve metabolism, so to speak. [ And general bank, roundabout ] bank cost should be lowered so that we can transform ourselves in the nonbank operations. We would have to change the bank operation, having more investment available for that. And this particular cycle is starting to rotate in a positive manner, though we do have a long way to go. Last page, Page 42. We are showing this slide once again, as usual. Continuously, we would like to achieve results and fully commit to further growth. As was mentioned earlier, we would like to further hone our core business strength. We would like to link them so that we can exercise added value. And cultural transformation is being pushed forward steadily, and we would like to further make progress on this. Mizuho, finally, is starting to see some positive changes and we would like to turn these signs of positive change to strong momentum. That is what we would like to do in the new fiscal year. We look forward to having your support and guidance and input from various angles. Thank you for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]