XTKS:8411 Mizuho Financial Group Inc Annual Report 20-F Filing - 3/31/2012

Effective Date 3/31/2012

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Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

(Mark One)

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        For the fiscal year ended March 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        Date of event requiring this shell company report

                      For the transition period from              to             

Commission file number 001-33098

Kabushiki Kaisha Mizuho Financial Group

(Exact name of Registrant as specified in its charter)

Mizuho Financial Group, Inc.

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

5-1, Marunouchi 2-chome

Chiyoda-ku, Tokyo 100-8333

Japan

(Address of principal executive offices)

Hisaaki Hirama, +81-3-5224-1111, +81-3-5224-1059, address is same as above

(Name, Telephone, Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on which registered

Common Stock, without par value   The New York Stock Exchange*

American depositary shares, each of which represents two shares of

common stock

  The New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

 

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

 

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

At March 31, 2012, the following shares of capital stock were issued: (1) 24,048,165,727 shares of common stock (including 27,155,428 shares of common stock held by the registrant as treasury stock), (2) 914,752,000 shares of eleventh series class XI preferred stock (including 541,073,800 shares of eleventh series class XI preferred stock held by the registrant as treasury stock), and (3) 36,690,000 shares of thirteenth series class XIII preferred stock.

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  ¨    No  x

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x   Accelerated filer  ¨   Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  x   International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨   Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨    Item  18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No   x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

¨  Yes  ¨    No

* Not for trading, but only in connection with the registration and listing of the ADSs.

 

 

 


Table of Contents

MIZUHO FINANCIAL GROUP, INC.

ANNUAL REPORT ON FORM 20-F

Table of Contents

 

                Page  

Presentation of Financial and Other Information

     3   

Forward-Looking Statements

     3   

ITEM 1.

  

Identity of Directors, Senior Management and Advisers

     5   

ITEM 2.

  

Offer Statistics and Expected Timetable

     5   

ITEM 3.

  

Key Information

     5   
   3.A.   

Selected Financial Data

     5   
   3.B.   

Capitalization and Indebtedness

     10   
   3.C.   

Reasons for the Offer and Use of Proceeds

     10   
   3.D.   

Risk Factors

     10   

ITEM 4.

  

Information on the Company

     20   
   4.A.   

History and Development of the Company

     20   
   4.B.   

Business Overview

     21   
   4.C.   

Organizational Structure

     43   
   4.D.   

Property, Plant and Equipment

     45   

ITEM 4A.  

  

Unresolved Staff Comments

     45   

ITEM 5.

  

Operating and Financial Review and Prospects

     46   

ITEM 6.

  

Directors, Senior Management and Employees

     117   
   6.A.   

Directors and Senior Management

     117   
   6.B.   

Compensation

     132   
   6.C.   

Board Practices

     133   
   6.D.   

Employees

     135   
   6.E.   

Share Ownership

     135   

ITEM 7.

  

Major Shareholders and Related Party Transactions

     137   
   7.A.   

Major Shareholders

     137   
   7.B.   

Related Party Transactions

     138   
   7.C.   

Interests of Experts and Counsel

     138   

ITEM 8.

  

Financial Information

     139   
   8.A.   

Consolidated Statements and Other Financial Information

     139   
   8.B.   

Significant Changes

     139   

ITEM 9.

  

The Offer and Listing

     140   
   9.A.   

Listing Details

     140   
   9.B.   

Plan of Distribution

     141   
   9.C.   

Markets

     142   
   9.D.   

Selling Shareholders

     142   
   9.E.   

Dilution

     142   
   9.F.   

Expenses of the Issue

     142   

ITEM 10.

  

Additional Information

     143   
   10.A.   

Share Capital

     143   
   10.B.   

Memorandum and Articles of Association

     143   
   10.C.   

Material Contracts

     154   
   10.D.   

Exchange Controls

     154   
   10.E.   

Taxation

     155   
   10.F.   

Dividends and Paying Agents

     161   
   10.G.   

Statement by Experts

     161   
   10.H.   

Documents on Display

     161   
   10.I.   

Subsidiary Information

     161   

 

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Table of Contents
          Page  

ITEM 11.

  

Quantitative and Qualitative Disclosures about Market Risk

     162   

ITEM 12.

  

Description of Securities Other than Equity Securities

     182   
   12.A.   

Debt Securities

     182   
   12.B.   

Warrants and Rights

     182   
   12.C.   

Other Securities

     182   
   12.D.   

American Depositary Shares

     182   

ITEM 13.

  

Defaults, Dividend Arrearages and Delinquencies

     183   

ITEM 14.

  

Material Modifications to the Rights of Securities Holders and Use of Proceeds

     183   

ITEM 15.

  

Controls and Procedures

     183   

ITEM 16A.

  

Audit Committee Financial Expert

     184   

ITEM 16B.

  

Code of Ethics

     184   

ITEM 16C.

  

Principal Accountant Fees and Services

     184   

ITEM 16D.

  

Exemptions from the Listing Standards for Audit Committees

     185   

ITEM 16E.

  

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

     186   

ITEM 16F.

  

Change in Registrant’s Certifying Accountant

     186   

ITEM 16G.

  

Corporate Governance

     186   

ITEM 17.

  

Financial Statements

     189   

ITEM 18.

  

Financial Statements

     189   

ITEM 19.

  

Exhibits

     189   

Selected Statistical Data

     A-1   

Index to Consolidated Financial Statements

     F-1   

 

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Table of Contents

PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, “we,” “us,” and “our” refer to Mizuho Financial Group, Inc. and, unless the context indicates otherwise, its consolidated subsidiaries. “Mizuho Financial Group” refers to Mizuho Financial Group, Inc. Furthermore, unless the context indicates otherwise, these references are intended to refer to us as if we had been in existence in our current form for all periods referred to herein.

In this annual report, “our principal banking subsidiaries” refer to Mizuho Corporate Bank, Ltd., Mizuho Bank, Ltd. and Mizuho Trust & Banking Co., Ltd. (or with respect to references as of a date, or fiscal year ending, before April 1, 2002, to The Dai-Ichi Kangyo Bank, Limited, The Fuji Bank, Limited, The Industrial Bank of Japan, Limited, Mizuho Trust & Banking and The Yasuda Trust and Banking Co., Ltd.).

In this annual report, references to “U.S. dollars,” “dollars” and “$” refer to the lawful currency of the United States and those to “yen” and “¥” refer to the lawful currency of Japan.

In this annual report, yen figures and percentages have been rounded to the figures shown. However, in some cases, figures presented in tables have been adjusted to match the sum of the figures with the total amount, and such figures may also be referred to in the related text. In addition, yen figures and percentages in “Item 3.A. Key Information—Selected Financial Data—Japanese GAAP Selected Consolidated Financial Information” and others that are specified, have been truncated to the figures shown.

Our fiscal year end is March 31. References to years not specified as being fiscal years are to calendar years.

Unless otherwise specified, for purposes of this annual report, we have presented our financial information in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Unless otherwise stated or the context otherwise requires, all amounts in our financial statements are expressed in Japanese yen.

We usually hold the ordinary general meeting of shareholders of Mizuho Financial Group in June of each year in Chiyoda-ku, Tokyo.

FORWARD-LOOKING STATEMENTS

We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with the Securities and Exchange Commission, including this annual report, and other reports to shareholders and other communications.

The U.S. Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves. We rely on this safe harbor in making these forward-looking statements.

This annual report contains forward-looking statements regarding the intent, belief or current expectations of our management with respect to our financial condition and future results of operations. In many cases, but not all, we use such words as “aim,” “anticipate,” “believe,” “endeavor,” “estimate,” “expect,” “intend,” “may,” “plan,” “probability,” “project,” “risk,” “seek,” “should,” “strive,” “target” and similar expressions in relation to us or our management to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements reflect our current views with respect to future events and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results may vary materially from those we currently anticipate. Potential risks and uncertainties include, without limitation, the following:

 

   

incurrence of significant credit-related costs;

 

   

declines in the value of our securities portfolio, including as a result of the declines in stock markets and the impact of the dislocation in the global financial markets;

 

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Table of Contents
   

changes in interest rates;

 

   

foreign exchange rate fluctuations;

 

   

decrease in the market liquidity of our assets;

 

   

revised assumptions or other changes related to our pension plans;

 

   

a decline in our deferred tax assets;

 

   

the effect of financial transactions entered into for hedging and other similar purposes;

 

   

failure to maintain required capital adequacy ratio levels;

 

   

downgrades in our credit ratings;

 

   

our ability to avoid reputational harm;

 

   

our ability to implement our Medium-term Management Policy and other strategic initiatives and measures effectively;

 

   

the effectiveness of our operation, legal and other risk management policies;

 

   

the effect of changes in general economic conditions in Japan and elsewhere; and

 

   

amendments and other changes to the laws and regulations that are applicable to us.

Our forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. We identify in this annual report in “Item 3.D. Key Information—Risk Factors,” “Item 4.B. Information on the Company—Business Overview,” “Item 5. Operating and Financial Review and Prospects” and elsewhere, some, but not necessarily all, of the important factors that could cause these differences.

We do not intend to update our forward-looking statements. We are under no obligation, and disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.

 

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Table of Contents

PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.     KEY INFORMATION

3.A. Selected Financial Data

The following tables set forth our selected consolidated financial data.

The first table below sets forth selected consolidated financial data of Mizuho Financial Group as of and for the fiscal years ended March 31, 2008, 2009, 2010, 2011 and 2012 which have been derived from the audited consolidated financial statements of Mizuho Financial Group prepared in accordance with U.S. GAAP included in this annual report.

The second table below sets forth selected consolidated financial data of Mizuho Financial Group as of and for the fiscal years ended March 31, 2008, 2009, 2010, 2011 and 2012 derived from Mizuho Financial Group’s consolidated financial statements prepared in accordance with accounting principles generally accepted in Japan, or Japanese GAAP.

The consolidated financial statements of Mizuho Financial Group as of and for the fiscal years ended March 31, 2010, 2011 and 2012 prepared in accordance with U.S. GAAP have been audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) by Ernst & Young ShinNihon LLC, independent registered public accounting firm.

You should read the U.S. GAAP selected consolidated financial information presented below together with the information included in “Item 5. Operating and Financial Review and Prospects” and the audited consolidated financial statements, including the notes thereto, included in this annual report. The information presented below is qualified in its entirety by reference to that information.

 

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Table of Contents

U.S. GAAP Selected Consolidated Financial Information

 

    As of and for the fiscal years ended March 31,  
    2008     2009     2010     2011     2012  
    (in millions of yen, except per share data and percentages)  

Statement of income data:

         

Interest and dividend income

  ¥ 3,110,260      ¥ 2,384,191      ¥ 1,632,282      ¥ 1,460,184      ¥ 1,437,086   

Interest expense

    1,911,522        1,102,015        528,159        448,857        415,959   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    1,198,738        1,282,176        1,104,123        1,011,327        1,021,127   

Provision (credit) for loan losses

    (57,766     567,396        222,102        647        (23,044
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income after provision (credit) for loan losses

    1,256,504        714,780        882,021        1,010,680        1,044,171   

Noninterest income

    1,094,943        452,227        1,330,847        1,036,532        1,090,135   

Noninterest expenses

    1,504,309        1,525,101        1,526,413        1,435,855        1,471,471   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax expense (benefit)

    847,138        (358,094     686,455        611,357        662,835   

Income tax expense (benefit)

    672,176        761,908        (360,195     193,227        13,878   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    174,962        (1,120,002     1,046,650        418,130        648,957   

Less: Net income (loss) attributable to noncontrolling interests(1)

    (53,656     (61,555     46,961        5,461        (7,432
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to MHFG shareholders

  ¥ 228,618      ¥ (1,058,447   ¥ 999,689      ¥ 412,669      ¥ 656,389   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

  ¥ 208,643      ¥ (1,077,787   ¥ 988,603      ¥ 403,231      ¥ 647,717   

Amounts per share(2):

         

Basic earnings per common share—net income (loss) attributable to common shareholders

  ¥ 18.17      ¥ (95.96   ¥ 70.55      ¥ 20.44      ¥ 28.07   

Diluted earnings per common share—net income (loss) attributable to common shareholders

  ¥ 16.77      ¥ (95.96   ¥ 61.64      ¥ 19.22      ¥ 26.78   

Number of shares used to calculate basic earnings per common share (in thousands)

    11,479,942        11,231,269        14,013,058        19,722,818        23,073,544   

Number of shares used to calculate diluted earnings per common share (in thousands)

    13,568,015        11,231,269        16,200,812        21,415,109        24,469,539   

Cash dividends per share declared during the fiscal year(3):

         

Common stock

  ¥ 7.00      ¥ 10.00      ¥ 10.00      ¥ 8.00      ¥ 6.00   
  $ 0.07      $ 0.10      $ 0.11      $ 0.10      $ 0.07   

Eleventh series class XI preferred stock

  ¥ 20.00      ¥ 20.00      ¥ 20.00      ¥ 20.00      ¥ 20.00   
  $ 0.20      $ 0.20      $ 0.21      $ 0.24      $ 0.24   

Thirteenth series class XIII preferred stock

  ¥ 30.00      ¥ 30.00      ¥ 30.00      ¥ 30.00      ¥ 30.00   
  $ 0.30      $ 0.30      $ 0.32      $ 0.36      $ 0.36   

 

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    As of and for the fiscal years ended March 31,  
    2008     2009     2010     2011     2012  
    (in millions of yen, except per share data and percentages)  

Balance sheet data:

         

Total assets

  ¥ 151,317,756      ¥ 155,083,031      ¥ 158,351,456      ¥ 161,985,670      ¥ 166,361,633   

Loans, net of allowance

    67,572,004        71,787,309        62,903,418        63,955,284        65,306,370   

Total liabilities

    147,749,599        154,045,851        155,019,438        157,950,314        161,714,609   

Deposits

    86,429,065        87,075,727        86,776,251        89,215,627        91,234,380   

Long-term debt

    7,618,910        8,017,770        8,482,434        8,953,496        8,461,818   

Common stock

    3,437,420        3,386,792        4,324,705        5,164,160        5,427,992   

Total MHFG shareholders’ equity

    3,268,800        846,047        2,966,215        3,673,487        4,470,766   

Other financial data:

         

Return on equity and assets:

         

Net income (loss) attributable to common shareholders as a percentage of total average assets

    0.14     (0.70 )%      0.62     0.25     0.39

Net income (loss) attributable to common shareholders as a percentage of average MHFG shareholders’ equity

    5.20     (37.56 )%      39.99     12.63     15.56

Dividends per common share as a percentage of basic earnings per common share

    55.02     (10.42 )%      11.34     29.35     21.38

Average MHFG shareholders’ equity as a percentage of total average assets

    2.73     1.86     1.56     2.01     2.53

Net interest income as a percentage of total average interest-earning assets

    0.86     0.96     0.82     0.75     0.71

 

Notes:

 

(1) Net income (loss) attributable to noncontrolling interests was relocated from minority interest in consolidated subsidiaries included within noninterest expenses in the fiscal year ended March 31, 2010 as we adopted ASC 810. For purposes of comparability, the figures of the previous fiscal years are adjusted accordingly.
(2) Under the central book-entry transfer system in Japan, which became effective in January 2009, fractional shares are not eligible for book-entry transfer. Accordingly, an allotment of shares or fractions of a share without consideration was made to all shareholders and holders of fractional shares at the rate of 999 shares per 1 share and 9.99 shares per every 0.01 of a share, effective on January 4, 2009. The amounts per share for the fiscal years ended March 31, 2008 and 2009 have been adjusted to reflect such allotment.
(3) Yen amounts for cash dividends per share for the fiscal years ended March 31, 2008, 2009, 2010, 2011 and 2012 are expressed in U.S. dollars at the rate of ¥99.85 = $1.00, ¥99.15 = $1.00, ¥93.40 = $1.00, ¥82.76 = $1.00 and ¥82.41 = $1.00, respectively. These rates are the noon buying rates on March 31, 2008, 2009, 2010, 2011 and 2012 in New York City for cable transfers in yen as certified for customs purposes by the Federal Reserve Bank of New York.

 

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Japanese GAAP Selected Consolidated Financial Information

 

    As of and for the fiscal years ended March 31,  
    2008     2009     2010     2011     2012  
    (in millions of yen, except per share data and percentages)  

Statement of income data:

         

Interest income

  ¥ 2,864,796      ¥ 2,144,436      ¥ 1,571,994      ¥ 1,457,687      ¥ 1,423,564   

Interest expense

    1,801,156        1,075,584        420,287        348,242        335,223   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income

    1,063,639        1,068,851        1,151,707        1,109,444        1,088,340   

Fiduciary income

    64,355        55,891        49,100        49,388        49,014   

Net fee and commission income(1)

    494,526        416,653        466,040        458,824        458,933   

Net trading income

    56,149        301,521        312,330        243,983        150,317   

Net other operating income (loss)

    (17,737     (35,951     17,436        163,680        256,468   

General and administrative expenses(1)

    1,124,527        1,192,701        1,317,247        1,277,848        1,283,847   

Other income

    579,737        260,568        266,125        156,212        263,024   

Other expenses

    630,079        1,280,711        567,728        268,261        265,803   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and minority interests

    486,062        (405,877     377,765        635,425        716,449   

Income taxes:

         

Current(2)

    32,212        48,247        18,040        18,336        55,332   

Deferred

    118,546        109,103        25,108        120,123        97,494   

Income (loss) before minority interests(3)

    335,304        (563,227     334,617        496,965        563,621   

Minority interests in net income

    24,079        25,586        95,212        83,736        79,102   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  ¥ 311,224      ¥ (588,814   ¥ 239,404      ¥ 413,228      ¥ 484,519   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share(4):

         

Basic

  ¥ 25,370.25      ¥ (54.14   ¥ 16.29      ¥ 20.47      ¥ 20.62   

Diluted

    24,640.00        (5)      15.57        19.27        19.75   

Cash dividends per share declared during the fiscal year(4)(6):

         

Common stock(7)

  ¥ 7,000      ¥ 10,000      ¥ 10      ¥ 8      ¥ 6   
  $ 70.11      $ 100.86      $ 0.11      $ 0.10      $ 0.07   

Eleventh series class XI preferred stock(7)

  ¥ 20,000      ¥ 20,000      ¥ 20      ¥ 20      ¥ 20   
  $ 200.30      $ 201.71      $ 0.21      $ 0.24      $ 0.24   

Thirteenth series class XIII preferred stock(7)

  ¥ 30,000      ¥ 30,000      ¥ 30      ¥ 30      ¥ 30   
  $ 300.45      $ 302.57      $ 0.32      $ 0.36      $ 0.36   

 

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    As of and for the fiscal years ended March 31,  
    2008     2009     2010     2011     2012  
    (in millions of yen, except per share data and percentages)  

Balance sheet data:

         

Total assets

  ¥ 154,412,105      ¥ 152,723,070      ¥ 156,253,572      ¥ 160,812,006      ¥ 165,360,501   

Loans and bills discounted(8)

    65,608,705        70,520,224        62,164,579        62,777,757        63,800,509   

Securities

    33,958,537        30,173,632        43,096,460        44,782,067        51,392,878   

Deposits(9)

    86,264,041        86,539,020        86,627,588        88,884,158        90,636,656   

Net assets

    5,694,159        4,186,606        5,837,053        6,623,999        6,869,295   

Risk-adjusted capital data(10):

         

Tier 1 capital

  ¥ 4,880,188      ¥ 3,765,045      ¥ 5,173,496      ¥ 6,170,210      ¥ 6,397,869   

Total risk-based capital

    7,708,341        6,223,693        7,658,062        7,910,970        7,772,922   

Risk-weighted assets

    65,872,866        59,056,218        56,863,252        51,693,835        50,165,922   

Tier 1 capital ratio

    7.40     6.37     9.09     11.93     12.75

Capital adequacy ratio

    11.70        10.53        13.46        15.30        15.49   

 

Notes:

 

(1) For the fiscal year ended March 31 2012, certain items in expenses regarding stock transfer agency business and pension management business, which had been recorded as “General and administrative expenses” by Mizuho Trust & Banking until the previous fiscal year, have been included in “Net fee and commission income” as “Fee and commission expenses,” and reclassification of prior year figures has been made accordingly.
(2) Under Japanese GAAP, refund of income taxes formerly included within current income taxes is separately presented in the fiscal year ended March 31, 2010 due to increased materiality. Current income taxes for the fiscal year ended March 31, 2010 in the above table include refund of income taxes for purposes of comparability with figures from other years.
(3) In accordance with certain amendments to Regulation on Terminology, Forms and Preparation of Financial Statements and other regulations which may be applied at our option from the fiscal year ended March 31, 2010, based on “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22, December 26, 2008), we have started to present “Income before minority interests” from the fiscal year ended March 31, 2010. For reference purposes, we have also included the figures of the same for the fiscal years ended March 31, 2008 and 2009 in the table above.
(4) Under the central book-entry transfer system in Japan, which became effective in January 2009, fractional shares are not eligible for book-entry transfer. Accordingly, an allotment of shares or fractions of a share without consideration was made to all shareholders and holders of fractional shares at the rate of 999 shares per 1 share and 9.99 shares per every 0.01 of a share, effective on January 4, 2009. Net income (loss) per share through the fiscal year ended March 31, 2008, and cash dividends per share declared through the fiscal year ended March 31, 2009, in the table above do not reflect such allotment.
(5) Diluted net income per share is not shown due to net loss per share for the fiscal year ended March 31, 2009.
(6) Yen amounts are expressed in U.S. dollars at the rate of, ¥99.85 = $1.00, ¥99.15 = $1.00, ¥93.40 = $1.00, ¥82.76 = $1.00 and ¥82.41 = $1.00 for the fiscal years ended March 31, 2008, 2009, 2010, 2011 and 2012, respectively. These rates are the noon buying rates on the respective fiscal year-end dates in New York City for cable transfers in yen as certified for customs purposes by the Federal Reserve Bank of New York.
(7) In June 2012, we declared and paid annual dividends of ¥6 per share of common stock, ¥20 per share of eleventh series class XI preferred stock and ¥30 per share of thirteenth series class XIII preferred stock for the fiscal year ended March 31, 2012.
(8) Bills discounted refers to a form of financing in Japan under which promissory notes obtained by corporations through their regular business activities are purchased by banks prior to their payment dates at a discount based on prevailing interest rates.
(9) Includes negotiable certificates of deposit.
(10) We adopted the advanced internal ratings-based approach (the “AIRB approach”) for the calculation of risk-weighted assets associated with credit risk from the fiscal year ended March 31, 2009. We also adopted the advanced measurement approach (the “AMA”) for the calculation of operational risk from the fiscal year ended March 31, 2010. For more details on capital adequacy requirements set by the Bank for International Settlements (“BIS”), and the guideline implemented by the Financial Services Agency in compliance thereto, see “Item 5. Operating and Financial Review and Prospects—Capital Adequacy.”

 

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There are certain differences between U.S. GAAP and Japanese GAAP. The differences between U.S. GAAP and Japanese GAAP applicable to us primarily relate to the accounting for derivative financial instruments and hedging activities, investments, loans, allowances for loan losses and off-balance-sheet instruments, premises and equipment, real estate sales and leasebacks, land revaluation, business combinations, noninterest-earning deposits made under government-led restructuring, pension liabilities, consolidation of variable interest entities and deferred taxes. See “Item 5. Operating and Financial Review and Prospects—Reconciliation with Japanese GAAP.” In addition, under Japanese GAAP, a restatement of prior year financial statements reflecting the effect of a change in accounting principles is not permitted, unlike under U.S. GAAP, which generally requires a restatement upon a voluntary change in accounting principles.

Exchange Rate Information

The following table sets forth, for each period indicated, the noon buying rate in New York City for cable transfers in yen as certified for customs purposes by the Federal Reserve Bank of New York, expressed in Japanese yen per $1.00. The exchange rates are reference rates and are not necessarily the rates used to calculate ratios or the rates used to convert yen to U.S. dollars in the financial statements contained in this annual report.

 

Fiscal years ended (ending) March 31,

   High      Low      Average(1)      Period
end
 
     (yen per dollar)  

2008

   ¥ 124.09       ¥ 96.88       ¥ 113.61       ¥ 99.85   

2009

     110.48         87.80         100.85         99.15   

2010

     100.71         86.12         92.49         93.40   

2011

     94.68         78.74         85.00         82.76   

2012

     85.26         75.72         80.57         79.03   

2013 (through July 13)

     82.62         78.21         79.28         79.20   

Calendar year 2012

                           

January

   ¥ 78.13       ¥ 76.28         —           —     

February

     81.10         76.11         —           —     

March

     83.78         80.86         —           —     

April

     82.62         79.81         —           —     

May

     80.36         78.29         —           —     

June

     80.52         78.21         —           —     

July (through July 13)

     79.95         79.20         —           —     

 

Note:

 

(1) Calculated by averaging the exchange rates on the last business day of each month during the respective periods. The noon buying rate as of July 13, 2012 was ¥79.20 = $1.00.

3.B. Capitalization and Indebtedness

Not applicable.

3.C. Reasons for the Offer and Use of Proceeds

Not applicable.

3.D. Risk Factors

Investing in our securities involves a high degree of risk. You should carefully consider the risks described below as well as the other information in this annual report, including our consolidated financial statements and related notes, “Item 5. Operating and Financial Review and Prospects,” “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and “Selected Statistical Data.”

 

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Our business, financial condition and operating results could be materially adversely affected by any of the factors discussed below. The trading price of our securities could decline due to any of these factors. This annual report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks faced by us described below and elsewhere in this annual report. See “Forward-Looking Statements.”

Risks Relating to Our Business

We may incur significant credit-related and other costs in the future due to problem loans.

We are the primary bank lender for a large number of our corporate customers, and the amount of our loans and other claims to each of our major customers is significant. In addition, while we have made efforts to diversify our credit exposure along industry lines, the proportion of credit exposure to customers in the construction and real estate, banks and other financial institutions, and wholesale and retail industries is relatively high. We manage our credit portfolio by regularly monitoring the credit profile of each of our customers, the progress made on restructuring plans and credit exposure concentrations in particular industries or corporate groups, and we also utilize credit derivatives for hedging and credit risk mitigation purposes. In addition, we regularly assess the value of collateral and guarantees. However, depending on trends in the domestic and global economic environment, the business environment in particular industries and other factors, the amount of our problem loans and other claims could increase significantly, including as a result of the deterioration in the credit profile of customers for which we are the primary bank lender, other major customers or customers belonging to industries to which we have significant credit exposure, and the value of collateral and guarantees could decline. For example, in the fiscal year ended March 31, 2009, our credit-related costs increased as a result of the deteriorating performance of our corporate customers in and outside of Japan due to the worsening economic environment and the effects of the dislocation in global financial markets as well as the provision for loan losses based on revised assumptions amid the uncertainty regarding the future economic environment. There can be no assurance that credit-related and other costs will not increase in the future as a result of the foregoing or otherwise.

Our equity investment portfolio exposes us to market risks that could adversely affect our financial condition and results of operations.

We hold substantial investments in marketable equity securities, mainly common stock of Japanese listed companies. In addition to the partial hedges that we apply as we deem necessary in recent years, we sold a portion of such investments, and we may make further sales in the future. However, significant declines in Japanese stock prices in the future would lead to unrealized losses, losses on impairment and losses from sales of equity securities which could have a material adverse effect on our financial condition and results of operations. For example, in the fiscal year ended March 31, 2009, we incurred significant impairment and other losses as a result of the decline in Japanese and other stock markets. In addition, net unrealized gains and losses on such investments, based on Japanese GAAP, are taken into account when calculating the amount of capital for purposes of the calculation of our capital adequacy ratios, and as a result, a decline in the value of such investments would negatively affect such ratios. Accordingly, our financial condition and results of operations could be materially and adversely affected.

Changes in interest rates could adversely affect our financial condition and results of operations.

We hold a significant amount of bonds, consisting mostly of Japanese government bonds, and other instruments primarily for the purpose of investment. As a result of such holdings, an increase in interest rates, primarily yen interest rates, could lead to unrealized losses of bonds or losses from sales of bonds. In addition, due mainly to differences in maturities between financial assets and liabilities, changes in interest rates could have an adverse effect on our average interest rate spread. We manage interest rate risk under our risk

 

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management policies, which provide for adjustments in the composition of our bond portfolio and the utilization of derivatives and other hedging methods to reduce our exposure to interest rate risk. However, in the event of significant changes in interest rates, including as a result of a change in Japanese monetary policy, increased sovereign risk due to deterioration of public finances and market trends, our financial condition and results of operations could be materially and adversely affected.

Our financial condition and results of operations could be adversely affected by foreign exchange rate fluctuations.

A portion of our assets and liabilities is denominated in foreign currencies, mainly the U.S. dollar. The difference between the amount of assets and liabilities denominated in foreign currencies leads to foreign currency translation gains and losses in the event of fluctuations in foreign exchange rates. Although we hedge a portion of our exposure to foreign exchange rate fluctuation risk, our financial condition and results of operations could be materially and adversely affected if future foreign exchange rate fluctuations significantly exceed our expectations.

We may incur further losses relating to decreases in the market liquidity of assets that we hold.

The market liquidity of the various marketable assets that we hold may decrease significantly due to turmoil in financial markets and other factors, and the value of such assets could decline as a result. For example, in the fiscal years ended March 31, 2008 and 2009, we incurred significant losses related to declines in the value of our investments in securitization products and other assets as a result of significant decrease in the market liquidity amidst the dislocation in global financial markets. See “Item 5. Operating and Financial Review and Prospects—Overview—Business Trends.” If the market liquidity of our assets decreases significantly in the future, including as a result of the European debt problem causing significant disruptive effects on the global financial markets, our financial condition and results of operations could be materially and adversely affected.

Our pension-related costs could increase as a result of revised assumptions or changes in our pension plans.

Our pension-related costs and projected benefit obligations are calculated based on assumptions regarding projected returns on pension plan assets and various actuarial assumptions relating to the plans. If actual results differ from our assumptions or we revise our assumptions in the future, due to changes in the stock markets, interest rate environment or otherwise, our pension-related costs and projected benefit obligations could increase. In addition, any future changes to our pension plans could also lead to increases in our pension-related costs and projected benefit obligations. As a result, our financial condition and results of operations could be materially and adversely affected.

A decline in deferred tax assets due to a change in our estimation of future taxable income or change in Japanese tax policy could adversely affect our financial condition and results of operations.

We recorded deferred tax assets based on a reasonable estimation of future taxable income in accordance with applicable accounting standards. Our financial condition and results of operations could be materially and adversely affected if our deferred tax assets decline due to a change in our estimation of future taxable income, a change in tax rate as a result of tax system revision and other factors.

Financial transactions entered into for hedging and other similar purposes could adversely affect our financial condition and results of operations.

The accounting and valuation methods applied to credit and equity derivatives and other financial transactions that we enter into for hedging and credit risk mitigation purposes are not always consistent with the accounting and valuation methods applied to the assets that are being hedged. Consequently, in some cases, due

 

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to changes in the market or otherwise, losses related to such financial transactions during a given period may adversely affect net income, while the corresponding increases in the value of the hedged assets do not have an effect on net income for such period. As a result, our financial condition and results of operations could be materially and adversely affected during the period.

Failure to maintain capital adequacy ratios above minimum required levels, as a result of the materialization of risks or regulatory changes, could result in restrictions on our business activities.

We endeavor to maintain sufficient levels of capital adequacy ratios, which are calculated pursuant to standards set forth by Japan’s Financial Services Agency and based on Japanese GAAP, taking into account our plans for investments in risk-weighted assets, the efficiency of our capital structure and other factors. However, our capital adequacy ratios could decline in the future, including as a result of the materialization of any of the risks enumerated in these “Risk Factors” and changes to the methods we use to calculate capital adequacy ratios. Also, the maximum amount of net deferred tax assets that can be recorded for the purpose of calculating capital adequacy ratios without diminishing the amount of Tier 1 capital under Japanese capital adequacy regulations is 20% of Tier 1 capital. Our or our banking subsidiaries’ regulatory capital and capital adequacy ratios could decline due to such regulations.

In addition, if the framework set by the Basel Committee on Banking Supervision, upon which the Financial Services Agency’s rules concerning banks’ capital adequacy ratios are based, is changed or if the Financial Services Agency otherwise changes its banking regulations, we might not be able to meet the minimum regulatory requirements for capital adequacy ratios. For example, in December 2010, the Basel Committee on Banking Supervision issued its Basel III rules text, which presents the details of global regulatory standards on bank capital adequacy and liquidity. In March 2012, the Financial Services Agency published revisions to its capital adequacy guidelines to be applied from March 31,2013, which reflect rules in the Basel III text. Furthermore, in November 2011, the Financial Stability Board named an initial group of 29 global systemically important financial institutions (“G-SIFIs”), which included us. The group of G-SIFIs will be updated annually and published by the Financial Stability Board each November. If we are deemed a SIFI in or after November 2014, we may be subject to additional capital requirements. See “Item 5. Operating and Financial Review and Prospects—Capital Adequacy.”

If the capital adequacy ratios of us and our banking subsidiaries fall below specified levels, the Financial Services Agency could require us to take corrective actions, including, depending on the level of deficiency, submission of an improvement plan that would strengthen our capital base, a reduction of our total assets or a suspension of a portion of our business operations. In addition, some of our banking subsidiaries are subject to capital adequacy regulations in foreign jurisdictions such as the United States, and our business could be adversely affected if their capital adequacy ratios fall below specified levels.

Downgrades in our credit ratings could have negative effects on our funding costs and business operations.

Credit ratings are assigned to Mizuho Financial Group, our banking subsidiaries and a number of our other subsidiaries by major domestic and international credit rating agencies. The credit ratings are based on information furnished by us or obtained by the credit rating agencies from independent sources and are also influenced by credit ratings of Japanese government bonds and general views regarding the Japanese financial system as a whole. The credit ratings are subject to revision, suspension or withdrawal by the credit rating agencies at any time. A downgrade in our credit ratings could result in, among other things, the following:

 

   

increased funding costs and other difficulties in raising funds;

 

   

the need to provide additional collateral in connection with financial market transactions; and

 

   

the termination or cancellation of existing agreements.

 

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For example, the additional collateral requirement in connection with our derivative contracts, absent other changes, assuming a downgrade occurred on March 31, 2012, would have been approximately $70 million for a one-notch downgrade and approximately $202 million for a two-notch downgrade. The foregoing figures do not take into account the minority of derivative contracts for which additional collateral requirements are not specifically prescribed and are thus subject to individual negotiations.

As a result, our business, financial condition and results of operations could be materially and adversely affected.

Our business will be adversely affected if we encounter difficulties in raising funds.

We rely principally on deposits and debentures as our funding sources. In addition, we also raise funds in the financial markets. Our efforts to maintain stable funding, such as setting maximum limits on financial market funding and monitoring our liquidity position to apply appropriate funding policies, may not be sufficient to prevent significant increases in our funding costs or cash flow problems if we encounter difficulties in attracting deposits or otherwise raising funds. Such difficulties could result, among other things, from any of the following:

 

   

adverse developments with respect to our financial condition and results of operations;

 

   

downgrading of our credit ratings or damage to our reputation; or

 

   

a reduction in the size and liquidity of the debt markets due for example to the decline in the domestic and global economy, concerns regarding the financial system or turmoil in financial markets and other factors.

Our Medium-term Management Policy, the transformation into “one bank,” and other strategic initiatives and measures may not result in the anticipated outcome.

We have been implementing strategic initiatives and measures in various areas. In May 2010, we announced our new Medium-term Management Policy for the three fiscal years ending March 31, 2013, in which we set forth various strategic initiatives and measures and also established a number of key target figures that we aim to achieve by the end of the fiscal year ending March 31, 2013. In addition, Mizuho Bank and Mizuho Corporate Bank will be merging on July 1, 2013, on the assumption that filings will have been made to, and permissions obtained from, the relevant authorities in Japan and any foreign countries, and we have begun implementing the “substantive one bank” structure from April 2012 to realize the synergies generated from the merger as soon as possible. Mizuho Securities Co., Ltd. and Mizuho Investors Securities Co., Ltd. will be merging on January 4, 2013, on the assumption that filings will have been made to, and permissions obtained from, the relevant authorities in Japan and any foreign countries. See “Item 4.B. Business Overview—General.”

However, we may not be successful in implementing such initiatives and measures, or even if we are successful in implementing them, the implementation of such initiatives and measures may not have their anticipated effects. In addition, we may not be able to meet the key target figures announced in the Medium-term Management Policy and achieve the synergy effects relating to the merger between Mizuho Bank and Mizuho Corporate Bank and between Mizuho Securities and Mizuho Investors Securities due to these or other factors, including, but not limited to, differences in the actual economic environment compared to our assumptions underlying the Medium-term Management Policy, as well as the risks enumerated in these “Risk Factors.”

We will be exposed to new or increased risks as we expand the range of our products and services.

We offer a broad range of financial services, including banking, trust, securities and other services. As the needs of our customers become more sophisticated and broader in scope, and as the Japanese financial industry continues to be deregulated, we have been entering into various new areas of business, including through various business and equity alliances, which expose us to new risks. While we have developed and intend to maintain risk management policies that we believe are appropriate to address such risks, if a risk materializes in a manner or to a degree outside of our expectations, our business, financial condition and results of operations could be materially and adversely affected.

 

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We are subject to various laws and regulations, and violations could result in penalties and other regulatory actions.

Our business and employees in Japan are subject to various laws and regulations, including those applicable to financial institutions as well as general laws applicable to our business activities, and we are under the regulatory oversight of the Financial Services Agency. Our businesses outside of Japan are also subject to the laws and regulations of the jurisdictions in which they operate and are subject to oversight by the regulatory authorities of those jurisdictions.

Our compliance and legal risk management structures are designed to prevent violations of such laws and regulations, but they may not be effective in preventing all future violations. Future violations of laws and regulations could result in regulatory action and harm our reputation, and our business, financial condition and results of operations could be materially and adversely affected.

Employee errors and misconduct could subject us to losses and reputational harm.

Because we process a large number of transactions in a broad range of businesses, we are subject to the risk of various operational errors and misconduct, including those caused by employees. Our measures to reduce employee errors, including establishment of operational procedures, regular reviews regarding compliance with these procedures, employee training and automation of our operations, may not be effective in preventing all employee errors and misconduct. Significant operational errors and misconduct in the future could result in losses, regulatory actions or harm to our reputation. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Problems relating to our information technology systems could significantly disrupt our business operations.

We depend significantly on information technology systems with respect to almost all aspects of our business operations. Our information technology systems network, including those relating to bank accounting and cash settlement systems, interconnects our branches and other offices, our customers and various clearing and settlement systems located worldwide. Our efforts to sustain stable daily operations and development of contingency plans for unexpected events, including the implementation of backup and redundancy measures, may not be effective in preventing significant disruptions to our information technology systems caused by, among other things, human error, accidents, hacking, computer viruses, cyber attacks, and development and renewal of computer systems. For example, in March 2011, computer systems failures at Mizuho Bank resulted in the shutdown of our ATMs and Internet banking services, as well as the inability to process fund transfers and other settlement transactions, and in May 2011, Mizuho Financial Group and Mizuho Bank received business improvement orders from the Financial Services Agency. In the event of any such disruption, our business, financial condition and results of operations could be materially and adversely affected due to disruptions in our business operations, liability to customers and others, regulatory actions or harm to our reputation.

Our reputation could be harmed and we may be subject to liabilities and regulatory actions if we are unable to protect personal and other confidential information.

We handle various confidential or non-public information, including those of our individual and corporate customers, in the ordinary course of our business. The information management policies we maintain and enforce to prevent information leaks and improper access to such information, including those designed to meet the strict requirements of the Personal Information Protection Law of Japan, may not be effective in preventing all such problems. Leakage of important information in the future could result in liabilities and regulatory actions and may also lead to significant harm to our reputation. As a result, our business, financial condition and results of operations could be materially and adversely affected.

 

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Our business would be harmed if we are unable to attract and retain skilled employees.

Many of our employees possess skills and expertise that are important to maintain our competitiveness and to operate our business efficiently. We may not be successful in attracting and retaining sufficient skilled employees through our hiring efforts and training programs aimed to maintain and enhance the skills and expertise of our employees, in which event our competitiveness and efficiency could be significantly impaired. As a result, our business, financial condition and results of operations could be materially and adversely affected.

Our failure to establish, maintain and apply adequate internal controls over financial reporting could negatively impact investor confidence in the reliability of our financial statements.

As a New York Stock Exchange-listed company and an SEC registrant, we have developed disclosure controls and procedures and internal controls over financial reporting pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and rules and regulations of the SEC promulgated pursuant thereto. Our management reports on, and our independent registered public accounting firm attests to, the effectiveness of our internal controls over financial reporting, as required, in our annual report on Form 20-F. In addition, our management is required to report on our internal controls over financial reporting, and our independent registered public accounting firm is required to provide its opinion concerning the report of our management, in accordance with the Financial Instruments and Exchange Law of Japan. To the extent any issues are identified through the foregoing processes, there can be no assurance that we will be able to address them in a timely manner or at all. Furthermore, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still be unable to issue a report that concludes that our internal controls over financial reporting are effective. In either case, we may lose investor confidence in the reliability of our financial statements.

We are subject to risk of litigation and other legal proceedings.

As a financial institution engaging in banking and other financial businesses in and outside of Japan, we are subject to the risk of litigation for damages and other legal proceedings in the ordinary course of our business. Adverse developments related to future legal proceedings could have a material adverse effect on our financial condition and results of operations.

Our risk management policies and procedures may not adequately address unidentified or unanticipated risks.

We devote significant resources to strengthening our risk management policies and procedures. Despite this, and particularly in light of the rapid evolution of our operations, our policies and procedures designed to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risks are based upon our use of observed historical market behavior. As a result, these methods may not accurately predict future risk exposures, which could be significantly greater than the historical measures indicate. If our risk management policies and procedures do not function effectively, our financial condition and results of operations could be materially and adversely affected.

Transactions with counterparties in Iran and other countries designated by the U.S. Department of State as state sponsors of terrorism may lead some potential customers and investors to avoid doing business with us or investing in our securities or have other adverse effects.

U.S. law generally prohibits U.S. persons from doing business with countries designated by the U.S. Department of State as state sponsors of terrorism (the “Designated Countries”), which includes Iran, Cuba, Sudan and Syria, and we maintain policies and procedures to comply with U.S. law. Our non-U.S. offices engage in transactions relating to the Designated Countries on a limited basis and in compliance with applicable laws and regulations, including trade financing with respect to our customers’ export or import transactions and

 

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maintenance of correspondent banking accounts. In addition, we maintain a representative office in Iran. We do not believe our operations relating to the Designated Countries are material to our business, financial condition or results of operations. We maintain policies and procedures to ensure compliance with applicable Japanese and U.S. laws and regulations.

We are aware of government initiatives to strengthen laws and regulations, such as the U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and the National Defense Authorization Act for Fiscal Year 2012, applicable to entities with dealings in the Designated Countries. While we maintain policies and procedures to ensure compliance with such initiatives, including Japanese laws and regulations, should the U.S. government regard our measures as inadequate, we may be subject to regulatory action which could materially and adversely affect our business. In addition, we may become unable to retain or acquire customers or investors in our securities, or our reputation may suffer, potentially having adverse effects on our business or the price of our securities.

Our common stock may be subject to dilution as a result of conversion of our convertible preferred stock.

Holders of our eleventh series class XI preferred stock may convert their shares to common stock by requesting us to acquire such shares and issue or transfer common stock to them at any time between July 1, 2008 and June 30, 2016, with mandatory conversion on July 1, 2016. Due to the dilution of our common stock that occurs as a result of the increase in the number of outstanding shares of common stock upon such conversion, the price of our common stock could decline.

We may be subject to risks related to dividend distributions.

As a holding company, we rely on dividend payments from our banking and other subsidiaries for almost all of our income. As a result of restrictions, such as those on distributable amounts under Japan’s Company Law, or otherwise, our banking and other subsidiaries may decide not to pay dividends to us. In addition, we may experience difficulty in making, or become unable to make, dividend payments to our shareholders and dividend payments on the preferred securities issued by our overseas special purpose companies due to the deterioration of our results of operations and financial condition and/or the restrictions under the Company Law or due to the strengthening of bank capital regulations. For more information on restrictions to dividend payments under the Company Law, see “Item 10.B. Additional Information—Memorandum and Articles of Association.”

We may be adversely affected if economic or market conditions in Japan or elsewhere deteriorate.

We conduct business operations in Japan as well as overseas, including in the United States, Europe and Asia. If general economic conditions in Japan or other regions were to deteriorate or if the financial markets become subject to turmoil, we could experience weakness in our business, as well as deterioration in the quality of our assets. For example, in recent years, we incurred significant losses related to declines in the value of our investments in securitization products, an increase in credit-related costs, an increase in impairment of equity securities and others as a result of the impact of the dislocation in global financial markets and the worsening economic environment. Future deterioration in general economic conditions or financial market turmoil could materially and adversely affect our financial condition and results of operations.

Amendments and other changes to the laws and regulations that are applicable to us could have an adverse effect on us.

We are subject to general laws, regulations and accounting rules applicable to our business activities in and outside of Japan. We are also subject to various laws and regulations applicable to financial institutions such as the Banking Law, including capital adequacy requirements, in and outside of Japan. If the laws and regulations that are applicable to us are amended or otherwise changed, such as in a way that restricts us from engaging in business activities that we currently conduct, our business, financial condition and results of operations could be

 

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materially and adversely affected. For example in December 2010, the Basel Committee on Banking Supervision issued its Basel III rules text, and the Financial Services Agency is expected to issue new regulatory capital regulations based on such text. In November 2011, the Financial Stability Board announced policy measures to address SIFIs. See “Item 5. Operating and Financial Review and Prospects—Capital Adequacy.”

Intensification of competition in the market for financial services in Japan could have an adverse effect on us.

Ongoing deregulation in Japan has lowered the barriers to entry with respect to the provision of banking, trust, securities and other financial services. While such deregulation has the effect of increasing our own business opportunities, it also allows other major financial groups, foreign financial institutions, non-bank finance companies, government-affiliated entities such as Japan Post Bank and other financial services providers to enter into new business areas or expand existing businesses, resulting in the intensification of competition in the financial services industry. If we are unable to respond effectively to current or future competition, our business, financial condition and results of operations could be adversely affected. In addition, intensifying competition and other factors could lead to reorganization within the financial services industry, and this could have an adverse effect on our competitive position or otherwise adversely affect the price of our securities.

Our business could be significantly disrupted due to natural disasters, accidents or other causes.

Our headquarters, branch offices, information technology centers, computer network connections and other facilities are subject to the risk of damage from natural disasters such as earthquakes and typhoons as well as from acts of terrorism and other criminal acts. In addition, our business could be materially disrupted as a result of an epidemic such as new or reemerging influenza infections. Our business, financial condition and results of operations could be adversely affected if our recovery efforts, including our implementation of contingency plans that we have developed such as establishing back-up offices, are not effective in preventing significant disruptions to our business operations caused by natural disasters and criminal acts. Additionally, massive natural disasters such as the March 2011 Great East Japan Earthquake may have various adverse effects, including a deterioration in economic conditions, declines in the business performance of many of our corporate customers and declines in stock prices. As a result, our financial condition and results of operations could be materially and adversely affected due to an increase in the amount of problem loans and credit-related costs as well as an increase in unrealized losses on, or losses from sales of, equity securities and financial products. See “Item 5. Operating and Financial Review and Prospects—Overview—The Impact of the Great East Japan Earthquake.”

Negative rumors about us could have an adverse effect on us.

Our business depends on maintaining the trust of depositors and other customers and market participants. Negative rumors about us, spread through media coverage, communications between market participants, Internet postings or otherwise, could lead to our customers and market participants believing factually incorrect information about us and harm our reputation. In the event we are unable to dispel such rumors or otherwise restore our reputation, our business, financial condition, results of operations and the price of our securities could be materially and adversely affected.

Risks Related to Owning Our Shares

Rights of shareholders under Japanese law may be more limited than under the law of other jurisdictions.

Our articles of incorporation, our regulations of board of directors and Japan’s Company Law govern our corporate affairs. Legal principles relating to such matters as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from or less clearly defined than those that would apply if we were incorporated in another jurisdiction. For example, under the Company Law, only holders of 3% or more of the total voting rights or total outstanding shares are entitled to examine our accounting books

 

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and records. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the law of jurisdictions within the United States or other countries. For more information on the rights of shareholders under Japanese law, see “Item 10.B. Additional Information—Memorandum and Articles of Association.”

It may not be possible for investors to effect service of process within the United States upon us or our directors, senior management or corporate auditors, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States.

We are a joint stock corporation incorporated under the laws of Japan. Almost all of our directors, senior management and corporate auditors reside outside the United States. Many of the assets of us and these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in the U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of claims predicated solely upon the federal securities laws of the United States.

Risks Related to Owning Our ADSs

As a holder of ADSs, you have fewer rights than a shareholder and you must act through the depositary to exercise these rights.

The rights of our shareholders under Japanese law to take actions such as voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its custodian, is the record holder of the shares underlying the ADSs, a holder of ADSs may not be entitled to the same rights as a shareholder. In your capacity as an ADS holder, you are not able to bring a derivative action, examine our accounting books and records or exercise appraisal rights, except through the depositary.

Foreign exchange rate fluctuations may affect the U.S. dollar value of our ADSs and dividends payable to holders of our ADSs.

Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.

 

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ITEM 4.    INFORMATION ON THE COMPANY

4.A. History and Development of the Company

The Mizuho Group

The Mizuho group was created on September 29, 2000 through the establishment of Mizuho Holdings, Inc. as a holding company of our three predecessor banks, The Dai-Ichi Kangyo Bank, The Fuji Bank and The Industrial Bank of Japan. On October 1, 2000, the respective securities subsidiaries of the predecessor banks merged to form Mizuho Securities, and the respective trust bank subsidiaries merged on the same date to form Mizuho Trust & Banking.

A further major step in the Mizuho group’s development occurred in April 2002 when the operations of our three predecessor banks were realigned through a corporate split and merger process under Japanese law into a wholesale banking subsidiary, Mizuho Corporate Bank, and a banking subsidiary serving primarily retail and small and medium-sized enterprise customers, Mizuho Bank. As an additional step for realigning the group structure, Mizuho Financial Group was established on January 8, 2003 as a corporation organized under the laws of Japan, and on March 12, 2003, it became the holding company for the Mizuho group through a stock-for-stock exchange with Mizuho Holdings, which became an intermediate holding company focused on management of the Mizuho group’s banking and securities businesses. The legal and commercial name of the company is Mizuho Financial Group, Inc.

In May 2003, we initiated a project to promote early corporate revitalization of customers in need of revitalization or restructuring and to separate the oversight of restructuring borrowers from the normal credit origination function. In July 2003, our three principal banking subsidiaries, Mizuho Corporate Bank, Mizuho Bank and Mizuho Trust & Banking each transferred loans, equity securities and other claims outstanding relating to approximately 950 companies to new subsidiaries that they formed. In October 2005, based on the significant reduction in the balance of impaired loans held by these new subsidiaries, which we call the “revitalization subsidiaries,” we deemed the corporate revitalization project to be complete, and each of the revitalization subsidiaries was merged into its respective banking subsidiary parent.

In the fiscal year ended March 31, 2006, we realigned our entire business operations into a Global Corporate Group, Global Retail Group and Global Asset and Wealth Management Group. In October 2005, in connection with this realignment, we established Mizuho Private Wealth Management Co., Ltd., a private banking subsidiary, and converted Mizuho Holdings on October 1, 2005 from an intermediate holding company into Mizuho Financial Strategy Co., Ltd., an advisory company that provides advisory services to financial institutions.

In May 2009, Mizuho Securities and Shinko Securities Co., Ltd. conducted their merger, with the aim of improving our service-providing capabilities to our clients and to offer competitive cutting-edge financial services on a global basis.

In July 2011, Mizuho Securities and Mizuho Investors Securities signed a memorandum of understanding on merger. The purpose of the merger is to enhance the retail business in Japan, rationalize and streamline management infrastructure, and provide securities functions in a unified manner through the group’s full-line securities company. In May 2012, Mizuho Securities and Mizuho Investors Securities entered into a merger agreement, and the merger is scheduled to be consummated on January 4, 2013.

In September 2011, Mizuho Trust & Banking became a wholly-owned subsidiary of Mizuho Financial Group, Mizuho Securities became an unlisted subsidiary of Mizuho Corporate Bank and Mizuho Investors Securities became a wholly-owned subsidiary of Mizuho Bank, through their respective stock-for- stock exchanges. The purpose of these stock-for- stock exchanges is to further enhance the “group collective capabilities” by integrating group-wide business operations and optimizing management resources such as workforce and branch network.

 

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In November 2011, Mizuho Financial Group, Mizuho Bank and Mizuho Corporate Bank signed a memorandum of understanding on merger. The purpose of the merger is to become able to provide directly and promptly diverse and functional financial services to both Mizuho Bank and Mizuho Corporate Bank customers, utilizing the current “strengths” and “advantages of Mizuho Bank and Mizuho Corporate Bank, and to continue to improve customer services by further enhancing group collaboration among the banking, trust and securities function and, at the same time, to realize further enhancement of the consolidation of group-wide business operations and optimization of management resources, such as workforce and branch network, by strengthening group governance and improving group management efficiency. We plan to conduct the merger on July 1, 2013.

Principal Capital Expenditures and Divestitures

Since 2007, Mizuho Bank has been purchasing common stock of Credit Saison from time to time, in furtherance of our aim to promote the alliance with Credit Saison. Mizuho Bank and Mizuho Corporate Bank together owned 13.36% of the total outstanding shares of common stock of Credit Saison as of March 31, 2012.

Other Information

Our registered address is 5-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8333, Japan, and our telephone number is 81-3-5224-1111.

4.B. Business Overview

General

We offer a variety of financial services, including banking, trust, securities and asset management services.

We align our businesses into the following three Global Groups organized based on our customers’ needs: the Global Corporate Group; the Global Retail Group; and the Global Asset & Wealth Management Group. Each group conducts its business by taking advantage of its strengths. The following summarizes the business activities of each of our three Global Groups:

 

   

The Global Corporate Group provides sophisticated banking and securities products and services that meet the various needs of large corporations and other customers in and outside of Japan, utilizing global collaboration between our corporate banking business and securities business as well as our comprehensive financial expertise.

 

   

The Global Retail Group provides high-quality financial products and services that meet the diverse needs of individuals, SMEs and middle-market corporations in Japan by enhancing collaborations with our group companies.

 

   

The Global Asset & Wealth Management Group provides trust, asset management and private banking products and services that meet the diversified and sophisticated needs of our customers.

With respect to the Transformation Program, which was launched as the Medium-term Management Policy of our group in May 2010, we have steadily been implementing initiatives to strengthen three areas: “improving profitability;” “enhancing financial base;” and “strengthening front-line business capabilities.”

In connection with the above, we established the “advanced group management structure” initiative, under which we aim to establish a new corporate structure and corporate governance structure, with which we will be able to utilize the banking, trust and securities functions effectively as the only financial group in Japan with all of these three functions under one umbrella, and thereby further enhance customer convenience.

In September 2011, we conducted share exchanges as a result of which Mizuho Trust & Banking, Mizuho Securities and Mizuho Investors Securities became our wholly-owned subsidiaries with an aim to further enhance our “group collective capabilities.” We also determined to conduct a merger between Mizuho Securities and

 

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Mizuho Investors Securities on January 4, 2013, on the assumption that, among other things, filings will have been made to, and permission obtained from, the relevant authorities in Japan and any foreign countries that are required for the merger.

Additionally, Mizuho Bank and Mizuho Corporate Bank determined to conduct a merger on July 1, 2013, on the assumption that, among other things, filings will have been made to, and permission obtained from, the relevant authorities in Japan and any foreign countries, and we started to implement the “substantive one bank” structure in April 2012 in order to realize the synergies generated from the merger as soon as possible prior to the scheduled effective date of the merger.

Taking fully into account that it is the role in society as a financial institution to supply funds to customers smoothly, we as a whole are working, among other things, to properly respond to customers’ requests to change terms and conditions of loans in accordance with our basic policy of facilitating finance, and are making efforts to fully exercise our consulting service function.

We endeavor to establish a solid internal control system, to promote CSR (corporate social responsibility) and to enhance our brand strategy.

With regard to the internal control system, we established our internal controls in accordance with the Financial Instruments and Exchange Law of Japan and Sarbanes Oxley Act of the United States, and we also promoted the protection of customers.

We promote CSR by conducting lectures established by us at universities, supporting financial education by conducting joint research with a university and promoting environmental conservation.

As our brand strategy, we actively promote our brand slogan, “Channel to Discovery,” to promote it within and outside the group. In addition, in September 2011, we established the brand subslogan, “One MIZUHO: Building the future with you,” which represents our unified commitment to implementing reforms in order to become the most trusted financial institution, and our management and employees share this commitment.

The Transformation Program (Aiming at Sustainable Growth)

In May 2010, we set our future vision to become the most trusted financial institution by our customers by focusing on the core function of a financial institution which is to contribute to social and economic development. In order to realize this vision, we will strive to further increase our corporate value through the implementation of the Transformation Program, which consists of the following initiatives:

 

   

Program for Improving Profitability: “Strengthen our competitive advantage”

We plan to strengthen growth of top-line profits through strategic allocation of management resources, reduce costs and pursue efficiency through a vigorous business review.

 

   

Program for Enhancing Financial Base: “Strengthen capital base and improve asset efficiency”

We plan to strengthen the quality and quantity of capital and improve our asset portfolio.

 

   

Program for Strengthening Front-line Business Capabilities: “Strengthen front-line business capabilities through improving efficiency and optimization”

We plan to downsize corporate management functions, improve efficiency of our business infrastructure, and strengthen our marketing front-line that engages in customer relations.

 

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Each of these initiatives is described in more detail below.

Program for Improving Profitability

This program aims to establish competitive advantage through the strengthening of focused business areas and strategic allocation of management resources. The program consists of the following two parts:

Business strategy

We aim to strengthen top-line profits by thoroughly enhancing business areas where we have a competitive advantage and fields where growth potential is envisaged. In addition, we aim to strengthen fundamental profitability through capturing the various needs of our customers in and out of Japan as a strategic business partner while facilitating financing. We will focus on the following:

 

   

Strategic expansion in business areas where we have strengths, including the Tokyo Metropolitan Area and transactions with large corporate customers:

The Tokyo Metropolitan Area: Transactions with corporate customers

 

   

Strengthen initiatives for SME business through proposing comprehensive solutions in response to the management challenges of our customers; and

 

   

Strengthen initiatives for business-owner customers and blue-chip land and property owners and similar customers.

The Tokyo Metropolitan Area: Transactions with individual customers

 

   

Strengthen initiatives for loans to individuals, including housing loans, and make Orico an affiliate of ours;

 

   

Increase assets under management of individual customers through collaboration among banking, trust and securities functions; and

 

   

Improve the services and accessibility of the retail business of Mizuho Trust & Banking through utilization of Mizuho Bank’s network.

Transactions with Large Corporate Customers

 

   

Proactively be involved in corporate customers’ business and financial strategies taken in response to changes in industrial structure.

 

   

Strengthening of initiatives for the “Asia” region which we believe has high growth potential:

Japanese customers

 

   

Provide various solutions for global strategies of our customers, including SMEs.

Non-Japanese customers

 

   

Pursue lending opportunities with blue-chip customers in response to their financial strategy needs; and

 

   

Enhance capabilities for our securities business.

 

   

Strengthening of asset management business, mainly targeting individual financial assets and pension assets:

Individuals

 

   

Increase market share based on balance of investment products (AUM) by increasing sales mainly through group collaboration.

 

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Pension and related businesses

 

   

Strengthen initiatives primarily for corporate pensions and public corporations through share-up and share-in in existing commissioned pension trusts primarily among our main bank customers.

 

   

Provision of sophisticated financial solutions through seamless utilization of the full-line services of banking, trust and securities functions, and focus on global collaboration, M&A marketing and capital management solicitation.

Cost reduction through vigorous review of our businesses and reallocation of management resources to focused strategic business areas

We aim to reduce costs through unification and optimization of our group’s management infrastructure (general and administrative expenses of principal banking subsidiaries on a combined basis (Japanese GAAP): aim to decrease by approximately ¥50 billion compared with the fiscal year ended March 31, 2010) and reallocate management resources, such as human resources (approximately 1,000 staff), to strategic areas, such as the Tokyo Metropolitan Area and customer groups in Asia.

Program for Enhancing Financial Base

This program aims to strengthen the quality and quantity of capital and improve asset efficiency, including significant reduction of our equity portfolio. The program consists of the following two parts:

Strengthening of capital base

We aim to maintain our current priority on the strengthening of a stable capital base in light of on-going global discussions on the revision of capital regulations. We will focus on the following:

 

   

Accumulation of retained earnings through implementation of “Program for Improving Profitability;”

 

   

Implementation of appropriate capital management; and

 

   

Consideration of various measures in light of regulatory developments.

Improvement of asset portfolio

We aim to strategically reallocate risk-weighted assets together with improving our asset efficiency and further strengthening our risk management. We plan to:

 

   

Allocate risk-weighted assets to focused strategic business areas through thorough review of noncustomer assets and low-return assets;

 

   

Aim to reduce our equity portfolio by ¥1 trillion compared with the balance as of March 31, 2010 on an acquisition cost basis (Japanese GAAP); and

 

   

Improve our asset quality and streamline our balance sheet.

Program for Strengthening Front-line Business Capabilities

This program aims to strengthen front-line business capabilities through downsizing and rationalization of corporate management functions and improving efficiency of our business infrastructure. The program consists of the following two parts:

Redeployment of personnel to the marketing front-line

We seek to consolidate and reorganize corporate planning and product functions of each of our group companies. We seek to strengthen our governing function, as a holding company, over the group, improve

 

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efficiency of management controls and expedite our decision making and deploy approximately 1,000 staff currently engaged mainly in corporate management functions to the marketing front-line through a unification of functions. We will focus on the following:

 

   

Unification of our group’s planning functions, including human resources, administration, IT systems and operations; and

 

   

Review and reorganization of overlapping functions in financial product areas at Mizuho Bank and Mizuho Corporate Bank.

Improvement of business infrastructure efficiency

We seek to facilitate consolidation of operational processing functions under the “consolidation and efficiency improvement policy.” At the same time, we seek to realize fundamental streamlining of cost structure with a focus on IT systems-related costs. We will focus on the following:

 

   

Unification of our group’s IT systems and operations units, such as budgeting functions, with the aim to maximize investment returns;

 

   

Pursuit of higher efficiency through consolidation of operations across group entities, including consolidation among operational centers and within joint branches of Mizuho Bank, Mizuho Corporate Bank and Mizuho Trust & Banking; and

 

   

Facilitation of the unification of group-wide IT systems by releasing a new IT systems platform with the goal of lower future costs.

Group Operations

The Global Corporate Group and The Global Retail Group

Mizuho Corporate Bank and Mizuho Bank

Mizuho Corporate Bank

Mizuho Corporate Bank provides various financial products and services to large corporations such as listed corporations and their affiliates, financial institutions, public sector entities and foreign corporations, including foreign subsidiaries of Japanese corporations. We meet the needs of our customers by utilizing our strengths such as our solid customer base, comprehensive financial expertise and office network which covers major cities in and outside Japan.

Mizuho Bank

Mizuho Bank provides financial services mainly to individual customers, SMEs, middle-market corporations and local governmental entities in Japan. In addition to our solid customer base, we maintain one of the largest branch and ATM networks in Japan and a broad range of Internet banking services.

“Substantive One Bank” Structure

By implementing the “substantive one bank” structure in April 2012, prior to the scheduled effective date of the merger of Mizuho Bank and Mizuho Corporate Bank of July 1, 2013, we aim to realize the synergies to be generated from the merger as soon as possible.

With respect to the business promotion structure of Mizuho Bank and Mizuho Corporate Bank relating to customer relations, we redefined our customer segments in more detail based on customer characteristics and established an organizational structure across Mizuho Bank and Mizuho Corporate Bank for each segment in order to enhance our ability to meet the diversified needs of customers in a prompt manner. Specifically, we reorganized customer segments into six units, the “Corporate Banking Unit (Large Corporations),” the

 

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“Corporate Banking Unit,” the “Financial Institutions & Public Sector Business Unit,” the “Retail Banking Unit,” the “Personal Banking Unit” and the “International Banking Unit” (collectively, “relationship management units”), and established an organizational structure across Mizuho Bank and Mizuho Corporate Bank to offer advanced solutions to the specific needs of the targeted customers of each unit.

From the perspective of efficient management resource utilization and facilitating the sharing of business know-how, we consolidated the business units that provide product functions into units that service both Mizuho Bank and Mizuho Corporate Bank, separate from the relationship management units, and reorganized them into three units, the “Investment Banking Unit,” the “Transaction Banking Unit” and the “Asset Management Unit,” so that each unit can provide products that meet the needs of Mizuho Bank and Mizuho Corporate Bank customers on a group-wide basis. We have established a “Business Collaboration Division (Securities & Trust Services)” in both Mizuho Bank and Mizuho Corporate Bank to facilitate collaboration between banking and trust functions and between banking and securities functions.

In addition, we have consolidated the organizations that provide market functions into the “Market Unit” that functions across Mizuho Bank and Mizuho Corporate Bank in order to enhance market-related profits.

Corporate Banking Unit (Large Corporations)

The Corporate Banking Unit (Large Corporations) engages in relationship management for large corporations and their affiliates in Japan.

In the area of transactions with large corporations and their affiliates in Japan, we offer financial products and services on a global basis by utilizing the expertise of our group companies to meet the increasingly diverse and sophisticated needs of our customers. For example, in response to our customer needs with regard to their management strategy such as business integration and business restructuring, we promote our products with proposals and other things related to business restructuring in collaboration with sections specializing in those businesses. We also provide most suitable finance solutions for our customers, actively enhancing initiatives to realize the best solution in cooperation with our group companies including Mizuho Bank, Mizuho Corporate Bank, Mizuho Securities and Mizuho Trust & Banking. In particular, we have also introduced a double-hat structure with Mizuho Securities in July 2009 in order to provide advanced solutions in banking and securities businesses, and in May 2012 we have expanded the double-hat structure with an aim to strengthen and deepen the collaboration.

As of March 31, 2012, customers of Mizuho Corporate Bank and our other group companies cover approximately 70% of all companies listed on the Tokyo, Osaka and Nagoya stock exchanges.

Corporate Banking Unit

The Corporate Banking Unit provides products and services mainly to relatively larger SMEs and medium-sized enterprises (quasi listed companies).

Also, in response to the recent challenging economic environment, we conduct thorough credit management in our loan operations and have enhanced our business revitalization support to our corporate customers.

In the area of transactions with relatively larger SMEs and medium-sized enterprises (quasi listed companies), we provide financial products together with sophisticated advisory and other services that are appropriate in light of the customers’ business strategies.

We respond to the emerging customers’ needs through various solution businesses such as offering syndicated loans targeted at relatively larger SMEs and medium-sized enterprises, advisory services related to overseas expansions, mergers and acquisitions-related services, business matching services, financial products acting as sales agent for securities companies, services related to defined contribution pension plans and support for start-up companies in cooperation with Mizuho Capital Co., Ltd.

 

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Financial Institutions & Public Sector Business Unit

The Financial Institutions & Public Sector Business Unit provides products and services mainly to financial institutions and central and local governments.

For financial institution customers in Japan, we offer advisory services and solutions, such as advice on financial strategy and risk management, support for overseas business, and proposals on various investment products, by concentrating our various financial expertise from each Group company to meet the increasingly sophisticated and varied needs of customers.

For public sector entities, we provide comprehensive financial services that include funding support via the subscription and underwriting of public bonds, cooperation between the public and private sectors, i.e., PFI and PPP, and arrangement of syndicated loans.

Regarding our bond-related businesses, with our extensive experience and track record as a leading bank in this area, we support our customers’ financing needs by underwriting bonds issued by public sector entities and working as the commissioned bank or fiscal agent for bonds issued by corporations, financial institutions and public sector entities.

Retail Banking Unit

The Retail Banking Unit provides products and services mainly to SMEs, business owners, land owners and lease holders.

For business owners, land owners and lease holders, we provide comprehensive consulting services for addressing important issues which include both corporate and individual matters, such as business and assets inheritance and other important issues to our customers, by collaborating with our group companies, including Mizuho Trust & Banking.

In response to customers’ sound financial demands that are appropriate for the customers’ segments, we stably supply customers with ample funds while securing appropriate levels of interest rates in accordance with their risks, through initiatives such as concentrating our overall lending operations for small-scale companies in Mizuho Business Financial Center Co., Ltd., a subsidiary that specializes in making loans, and introducing strategic loan products.

Personal Banking Unit

The Personal Banking Unit offers financial products and services to individual customers, including loans and deposits as well as consulting and credit card services in Japan.

In this business area, with an aim to build a stable revenue base, we are enhancing our relationship marketing through sophistication of our marketing geared toward the maximization of earnings from lifetime business relationship with our customers and through offering products and services that meet the diverse needs of our customers, establishing convenient access points for customers and providing specialized consulting services by utilizing the comprehensive expertise of our group companies.

With respect to consulting services, we have established a specialized framework by increasing the number of financial consultants (3, 527, as of March 31, 2012) that make various proposals by utilizing the extensive lineup of our products such as investment trusts, foreign currency deposits, individual annuities and Japanese

 

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government bonds and others. The balance of investment trusts (excluding MMF) was ¥1.36 trillion, individual annuities was ¥2.41 trillion, foreign currency deposits was ¥0.43 trillion and Japanese government bonds sold to individuals was ¥1.42 trillion, each as of March 31, 2012. We also handle trust products at Mizuho Bank branches as agents of Mizuho Trust & Banking and provide trust-oriented services such as testimony trust and real estate related services by setting up “Trust Lounge” in Mizuho Bank branches. We have 164 of Mizuho Investors Securities’ “Planet Booths,” which are located in the branches and offices of Mizuho Bank as of March 31, 2012, and we respond to our customers’ needs relating to securities products.

In our housing loan business, we offer various products and services in addition to weekend consultation, such as “Flat 35,” a housing loan product with a fixed interest rate for a maximum of 35 years offered in cooperation with and securitized by the Japan Housing Finance Agency, in addition to our own housing loan products.

With respect to unsecured loan products, in addition to providing “Captive Loans” in cooperation with Orient Corporation, we are aiming to improve customer convenience with respect to “Mizuho Bank Card Loans” such as increasing lending limits and reducing minimum base rates.

As of March 31, 2012, the Mizuho Mileage Club had approximately 8. 88 million members and we had approximately 2.44 million credit card members. We provide special benefits such as free ATM usage during off-business hours and free charging fees for money transfers under certain conditions based on credit card usage, balance of assets under management and housing loan usage.

In addition to expanding our staffed branches throughout Japan (434 as of March 31, 2012) and our ATM network, we are enhancing our Internet banking services and strengthening marketing through call centers.

We provide executives and employees of corporate clients of Mizuho Bank and Mizuho Corporate Bank and other group companies with products and services such as preparation of accounts to receive salaries upon employment, housing loans and the investment of retirement allowances.

We undertake the business related to lottery tickets, such as, the sales of lottery tickets issued by prefectures and government-ordinance-designated cities.

Mizuho Bank implemented initiatives to strengthen its Asian retail finance business and, together with Credit Saison Co., Ltd. and UC Card Co., Ltd., entered into a basic agreement for a comprehensive business partnership in the area of retail business with China UnionPay Co., Ltd. In addition, Mizuho Bank turned a local company that focuses on automobile loans and leases in Indonesia into its consolidated subsidiary and launched a retail finance business in Indonesia as PT. Mizuho Balimor Finance.

International Banking Unit

The International Banking Unit is responsible for transactions such as those with non-Japanese companies and Japanese companies that conduct business overseas.

In this business area, we provide unified support both in Japan and overseas for our Japanese corporate customers to expand their foreign operations. We do this by providing highly specialized services that use our advanced financial technologies and expertise. Particularly in Asia, we support Japanese corporate customers in connection with their entry into Asian markets by offering advisory and other services. We also actively promote business with non-Japanese corporate customers in various countries through our global network.

In addition, we actively implement initiatives in order to meet the diverse needs of our overseas customers in such product areas as project finance and trade finance.

 

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Furthermore, while strengthening our overseas network, we continue to cultivate cooperative working relationships with major partners and foreign government agencies in various countries to supplement regions or product areas that our group’s network is unable to cover and enhance our support framework for customers that are developing businesses outside Japan.

For example, in September 2011, Mizuho Corporate Bank (Malaysia), a wholly-owned subsidiary of Mizuho Corporate Bank, started operations in Malaysia, which is one of the core nations in the high-growth ASEAN region. As a result of the opening of the local subsidiary, we became able to provide our customers with a diverse range of financial services in the Malaysian local currency, the Ringgit.

In addition, in September 2011, Mizuho Corporate Bank entered into a capital and business alliance with the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), one of the largest commercial banks in the Socialist Republic of Vietnam. This alliance will further strengthen the bank’s structure to support the business development of our customers in Vietnam by making it possible to provide services by leveraging various information as well as the domestic office network of Vietcombank.

Furthermore, in June 2012, Mizuho Corporate Bank reached an agreement with the German bank, WestLB AG, to acquire 100% of the issued and outstanding shares of its Brazilian corporate banking subsidiary, Banco WestLB do Brazil S.A. Completion of the transaction is subject to relevant regulatory approvals. This acquisition is an opportunity for Mizuho Corporate Bank to obtain a local banking platform which would enable us to further strengthen our capability to support the entrance and expansion of both Japanese and non-Japanese customers in Brazil, thereby enhancing Mizuho’s global network.

Investment Banking Unit

The Investment Banking Unit promotes investment banking businesses, mainly loan syndication business and financial products business, and provides our customers with sophisticated financial solutions to meet their needs on a global basis.

In the loan syndication business, we offer syndicated loan services to meet the various financing needs of our customers, and we take a leading role in the growth of the Japanese syndicated loan market. During the fiscal year ended March 31, 2012, despite the intensified competition among banks, our group arranged, based on amount of principal, 39.3% of all syndicated loans arranged in Japan and maintained the top position on the domestic league table (according to Thomson Reuters, for the fiscal year ended March 31, 2012). We are expanding our loan syndication business into new areas such as those related to mergers and acquisitions and public sector’s private finance initiatives.

Geographically, we maintain staff at branches and offices in New York, London and Asia to promote our syndicated loan business on a global basis. For example, we arrange syndicated loans in Japan for foreign corporations and sell syndicated loans arranged in overseas markets to Japanese investors.

We also conduct activities to help grow the Japanese secondary loan market, including by exchanging our loan portfolio with those of other financial institutions, broadening the investor base and enhancing our cooperation with regional financial institutions.

In the financial products business area such as structured finance, acquisition finance, real estate finance and project finance, we have been promoting providing comprehensive products in accordance with business strategies and financial issues, etc., to respond to our customers’ further diversifying needs. We are further expanding our range of services through cooperation with our group companies, including Mizuho Securities, Mizuho Corporate Advisory Co., Ltd., Mizuho Management Advisory Co., Ltd. and Mizuho Capital Partners Co., Ltd.

 

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Transaction Banking Unit

The Transaction Banking Unit engages in businesses related to cash management, foreign exchange, trade finance and custody services. With respect to cash management services, we provide online solutions such as domestic and global cash management services to our customers.

We offer foreign exchange and trade finance products and services in cooperation with our overseas branches and offices.

We offer custody services as well as yen settlement and clearing services and outsourced continuous linked settlement services.

Asset Management Unit

The Asset Management Unit provides products and services that correspond to the needs of customers in collaboration with our group companies through the synergy effects arising from the integrated operation of the planning, development and sales of businesses relating to the asset management.

In the pension related business, we provide “comprehensive pension proposals” that include services and products related to defined contribution as well as defined benefit pension plans to meet the needs of customers by collaborating with Mizuho Trust & Banking and other asset management group companies in promoting the business.

In the alternative investment business, we provide our customers with the most relevant products by collaborating with our group companies, including Mizuho Alternative Investments, LLC in the United States, Mizuho Global Alternative Investments, Ltd. in Tokyo, which selects and introduces hedge funds, etc., and Eurekahedge Pte, LTD. in Singapore, which is our subsidiary providing hedge fund research and data services.

Business Collaboration Division ( Securities & Trust Services )

Business Collaboration Division (Securities & Trust Services) engages in planning and enhancing the most relevant collaboration measures among the banking, trust and securities functions to Mizuho’s customers ranging from individuals to large companies in collaboration with Mizuho Securities, Mizuho Investors Securities and Mizuho Trust & Banking.

In the securities business, in order to meet diverse asset management, financing and consulting needs of our customers, we make the most of the functions of our group securities companies, such as through deploying joint branches known as “Planet Booth” jointly operated by Mizuho Bank and Mizuho Investors Securities and expanding a “double-hat” structure between Mizuho Securities and Mizuho Corporate Bank.

In the trust business, we provide advanced trust solutions for our corporate and individual customers as sales agents of Mizuho Trust & Banking. In particular, we strengthen the collaboration between banking and trust functions by increasing the number of “Trust Lounges” in order to meet our wealthy customers’ needs related to business and assets inheritance.

Market Unit

The Market Unit engages in the business of sales and trading of financial products related to, among others, interest rates, foreign exchange, commodities and credit, as well as investments in interest rates, equities, credit, etc.

We continue to enhance our portfolio management and diversify our investments to make our portfolio more sound and profitable.

 

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Mizuho Securities

Mizuho Securities closely collaborates with Mizuho Corporate Bank and other group companies and aims to be “the most reliable investment bank with global reach.”

Investment Banking Business

We provide comprehensive support for customers in establishing their management strategies and financing by engaging in businesses related to equity underwriting, support for initial public offerings, investor relations consulting and provision of solutions such as advisory services for financial and capital strategies in addition to the bond underwriting and structured finance businesses, regarding which we obtained the position of market leader in Japan, and the mergers and acquisitions and financial advisory business, regarding which we established a top-class market presence in Japan.

We also introduced a double-hat structure with Mizuho Corporate Bank in July 2009 with an aim to provide advanced solutions in banking and securities businesses, and expanded that double-hat structure with an aim to strengthen and deepen the collaboration in May 2012.

Product Development and Sales Business

In the product development and sales business, we mainly engage in sales and trading of stocks and bonds, research and funds (investment trusts) and offer value-added product solutions by providing quality information in a timely manner in response to the various investment needs of domestic and overseas customers. We also focus on globally integrating our business by utilizing our network of overseas subsidiaries.

Mizuho Investors Securities

Mizuho Investors Securities focuses on the needs of mainly individual customers, SMEs and middle-market corporations and aims to be “the closest, most trustworthy securities company for customers,” by establishing a strong collaboration network with Mizuho Bank and enhancing collaboration with each of our group companies. Mizuho Investors Securities, through its “Planet Booth” locations which are operated together with Mizuho Bank, is actively promoting cooperation with group companies, such as its financial product sales agent business with Mizuho Bank and trust sales agent business with Mizuho Trust & Banking. We have also introduced a double-hat structure with Mizuho Bank with an aim to provide one-stop financial services to customers with needs related to initial public offerings.

With the above business base, Mizuho Investors Securities provides quality products and securities services, such as various securities products that meet its customers’ investment needs and the underwriting of equities and bonds and consulting services regarding capital strategy in connection with its customers’ financing needs, on an individualized and swift basis.

The Global Asset and Wealth Management Group

Mizuho Trust & Banking

Mizuho Trust & Banking is a trust bank that provides individual and corporate customers with financial services utilizing trusts. We provide our customers with distinct products and services developed based on our specialized expertise, consulting capabilities and abundant know-how cultivated over the years. Under the “substantive one bank” structure implemented from April 2012, Mizuho Trust & Banking will also promote coordinated management with Mizuho Bank and Mizuho Corporate Bank in order to offer various financial services in a prompt manner through group wide collaboration for every possible customer need.

 

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Asset Management Business

We provide mainly corporate customers with a wide range of services and solutions in the following business areas:

 

   

real estate business, including real estate sales agent services and real estate securitizations;

 

   

structured product business, including securitization transactions that utilize trusts;

 

   

asset management business relating to various assets, including pension plans;

 

   

pension plan business, including acting as trustee, providing consulting services, actuarial services and administration services;

 

   

asset administration business, including trustee services for investment trusts and management and administration of investments in securities; and

 

   

equity strategy business, including acting as a securities agent and providing advice on practical issues related to stock.

Wealth Management Business

We provide primarily individual customers with the following services related to wealth management:

 

   

consulting services regarding investment and management of customer assets;

 

   

businesses relating to the asset inheritance such as testamentary trusts;

 

   

consulting services regarding apartment leasing business, providing apartment loans, etc.;

 

   

deposits, investment trusts and other investment products that utilize trusts; and

 

   

real estate business such as brokerage of housing sales and land development.

Others

We provide deposit and loan services to our corporate customers and engage in treasury business.

Mizuho Private Wealth Management

Mizuho Private Wealth Management offers comprehensive, integrated and continuous private banking services to meet the various financial and non-financial needs of our ultra high net worth customers.

Trust & Custody Services Bank

Trust & Custody Services Bank, Ltd., as a trust bank specialized in asset administration, provides a wide range of products, including trust services and various custody services, to promptly meet the diversifying needs of customers such as financial institutions and institutional investors.

Asset Management Companies

Our asset management companies, Mizuho Asset Management Co., Ltd. and DIAM Co., Ltd. (an equity method affiliate of ours), provide quality products and services for our group companies and customers that reflect their respective strengths. Each company offers a variety of investment trust products that meet the increasingly sophisticated and diverse needs of our customers.

As a group-wide initiative among our three Global Groups, we purchased a minority equity interest in BlackRock, Inc. in November 2010, and also signed a Business Alliance Agreement with BlackRock in March 2011, in order to strengthen our asset management business in line with the Transformation Program.

 

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Others

Mizuho Financial Strategy

Mizuho Financial Strategy engages in advisory services for financial institutions regarding their management and revitalization of their borrowers.

Mizuho Research Institute

Mizuho Research Institute Ltd. offers information and services mainly to corporations, financial institutions and public sector entities to meet their increasingly diverse and sophisticated needs by integrating its research, funded research and membership services that provide various information related to, among others, managerial and economic issues.

Mizuho Information & Research Institute

Mizuho Information & Research Institute, Inc. mainly provides our corporate customers with the following three services:

 

   

system integration services;

 

   

outsourcing services that support the operation of information technology systems of our customers; and

 

   

consulting services related to, among others, environmental issues.

We are able to provide customers with a combination of the above services to meet their respective needs.

Competition

During the past several years, competition in the Japanese financial market has increased as the Japanese government has enhanced deregulation, such as reducing the separation of banking, securities and insurance businesses and promoting new entry into the financial businesses.

Our major competitors in Japan include:

 

   

Japan’s other major banking groups: Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group.

 

   

Other banking institutions: These include city banks, trust banks, regional banks, shinkin banks (or credit associations), credit cooperatives, agricultural cooperatives, foreign banks and retail-oriented online banks.

 

   

Securities companies and investment banks: These include both domestic securities companies and the Japanese affiliates of global investment banks.

 

   

Government financial institutions: These include Japan Finance Corporation, Japan Post Bank, Development Bank of Japan and Japan Bank for International Cooperation.

 

   

Non-bank finance companies: These include credit card issuers, installment shopping credit companies and other non-bank finance companies.

 

   

Other financial services providers: We also compete with private equity funds and other types of investors.

In global markets, we face competition with other commercial banks and other financial institutions, particularly major global banks and the leading local banks in those financial markets outside Japan in which we conduct business.

 

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Japanese Banking and Securities Industry

Private banking institutions in Japan are normally classified into two categories (the following numbers are based on information published by the Financial Services Agency, available as of April 1, 2012): (i) ordinary banks, of which there were 128, not including foreign commercial banks with banking operations in Japan; and (ii) trust banks, of which there were 16, including Japanese subsidiaries of foreign financial institutions and subsidiaries of Japanese financial institutions.

Ordinary banks consist mainly of city banks and regional banks. City banks, including Mizuho Corporate Bank and Mizuho Bank, are based in large cities, operate domestically on a nation-wide scale through networks of branch offices and have strong links with large corporate customers in Japan. In light of deregulation and other competitive factors, however, many of these banks have placed increasing emphasis on other markets, including retail banking, small and medium-sized enterprise banking, international operations and investment banking. Regional banks are based in one of the prefectures of Japan and are generally much smaller in terms of total assets than city banks. In recent years, some regional banks have allied with each other and formed holding companies to operate in several prefectures. Customers of regional banks, other than local retail customers, include mostly regional enterprises and local public utilities, although regional banks also lend to large corporations. In addition to these types of banks, new retail-oriented banks have emerged in recent years, including Internet banks and banks specializing in placing their ATMs in convenience stores and supermarkets without maintaining a branch network.

Trust banks, including Mizuho Trust & Banking, are engaged in trust services in relation to, among others, money trust, pension trust and real estate trust services, in addition to banking business.

As of May 7, 2012, there were 57 foreign banks operating banking businesses in Japan. These banks are subject to a statutory framework similar to the regulations applicable to Japanese domestic banks. Their principal sources of funds come from their overseas head offices or other branches.

A number of government financial institutions, organized in order to supplement the activities of the private banking institutions, have been in the process of business and organizational restructuring in recent years. In October 2008, some of the government financial institutions were consolidated to form Japan Finance Corporation, which mainly provides financing for small and medium-sized enterprises and those engaged in agriculture, forestry and fishery, and also provides export financing for Japanese corporations. In October 2008, Development Bank of Japan, which mainly engages in corporate financing, and Shoko Chukin Bank, which mainly engages in financing for small and medium-sized enterprises, were transformed into joint stock corporations. Japan Housing Finance Agency supports housing loans of private institutions through the securitization of such loans.

In April 2012, Japan Bank for International Cooperation, which provides policy-based finance with a mission to contribute to the sound development of Japan and the international economy and society, was spun off from Japan Finance Corporation and was established as a joint stock company wholly owned by the Japanese government.

Another distinctive element of the Japanese banking system is the role of the postal savings system. Postal savings deposits are gathered through the network of governmental post offices scattered throughout Japan, and their balance of deposits totaled over 200 trillion yen in the past. In recent years, the governmental postal business has been in the process of organizational restructuring. In 2003, the governmental postal business was transferred to Japan Post, a government-owned entity established in the same year, and in 2007, Japan Post was transformed into a government-owned joint stock corporation holding four operating companies including Japan Post Bank, which currently operates as an ordinary bank. Privatization of the banking and insurance subsidiaries, which was originally planned to be completed by 2017, was suspended in December 2009. In April 2012, a law was enacted under which Japan Post will be retransformed into a joint stock corporation holding three operating companies, and the deadline of the privatization of banking and insurance subsidiaries was abolished and replaced with a statement that the privatization is to be conducted in the near future.

 

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In the Japanese securities market, a large number of registered entities are engaged in securities businesses, such as sales and underwriting of securities, investment advisory and investment management services. As deregulation of the securities market progressed, several of the country’s banking groups have entered into this market through their subsidiaries. In addition, foreign financial institutions have been active in this market.

Supervision and Regulation

Japan

Pursuant to the Banking Law (Ginkou Hou) (Law No. 59 of 1981, as amended), the Prime Minister of Japan has authority to supervise banks in Japan and delegates certain supervisory control over banks in Japan to the Commissioner of the Financial Services Agency. The Bank of Japan also has supervisory authority over banks in Japan, based primarily on its contractual agreements and transactions with the banks.

Financial Services Agency

Although the Prime Minister has supervisory authority over banks in Japan, except for matters prescribed by government order, this authority is generally entrusted to the Commissioner of the Financial Services Agency. Additionally, the position of Minister for Financial Services was established by the Cabinet to direct the Commissioner of the Financial Services Agency and to support the Prime Minister.

Under the Banking Law, the Prime Minister’s authority over banks and bank holding companies in Japan extends to various areas, including granting and cancellation of licenses, ordering the suspension of business in whole or in part and requiring submission of business reports or materials. Under the prompt corrective action system, the Financial Services Agency, acting on behalf of the Prime Minister, may take corrective action in the case of capital deterioration of banks, their subsidiaries and companies having special relationships prescribed by the cabinet order. These actions include requiring a financial institution to formulate and implement reform measures, requiring it to reduce assets or take other specific actions and issuing an order to suspend all or part of its business operations.

Under the prompt warning system introduced in December 2002, the Financial Services Agency may take precautionary measures to maintain and promote the sound operations of financial institutions, even before those financial institutions become subject to the prompt corrective action system. These measures require a financial institution to reform profitability, credit risk management, stability and cash flow.

The Bank of Japan

The Bank of Japan is Japan’s central bank and serves as the principal instrument for the execution of Japan’s monetary policy. The principal measures by which the Bank of Japan implements monetary policy are the adjustment of its discount rate, its operations in the open market and the imposition of deposit reserve requirements. Banks in Japan are allowed to obtain borrowings from, and rediscount bills with, the Bank of Japan. Moreover, most banks in Japan maintain current accounts under agreements with the Bank of Japan pursuant to which the Bank of Japan is entitled to supervise, examine and audit the banks. The supervisory functions of the Bank of Japan are intended to enable it to ensure smooth settlement of funds among banks and other financial institutions, thereby contributing to the maintenance of an orderly financial system, whereas the supervisory practices of the Prime Minister or the Commissioner of the Financial Services Agency are intended to maintain the sound operations of banks and promote the security of depositors.

Examination of Banks

The Banking Law authorizes the Prime Minister to inspect banks and bank holding companies in Japan at any time. By evaluating banks’ systems of self-assessment, auditing their accounts and reviewing their

 

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compliance with laws and regulations, the Financial Services Agency monitors the financial soundness of banks, including the status and performance of their control systems for business activities. The inspection of banks is performed pursuant to a Financial Inspection Manual published by the Financial Services Agency. Currently, the Financial Services Agency takes the “better regulation” approach in its financial regulation and supervision. This consists of four pillars: optimal combination of rules-based and principles-based supervisory approaches; timely recognition of priority issues and effective response; encouraging voluntary efforts by financial institutions and placing greater emphasis on providing them with incentives; and improving the transparency and predictability of regulatory actions, in pursuit of improvement of the quality of financial regulation and supervision. In addition to individual financial institutions, the Financial Services Agency also supervises financial groups as financial conglomerates based on its Guidelines for Financial Conglomerates Supervision that focus on management, financial soundness and operational appropriateness of a financial conglomerate as a whole.

The Bank of Japan also conducts examinations of banks similar to those undertaken by the Financial Services Agency. The examinations are normally conducted once every few years, and involve such matters as examining asset quality, risk management and reliability of operations. Through these examinations, the Bank of Japan seeks to identify problems at an early stage and give corrective guidance where necessary.

In addition, the Securities and Exchange Surveillance Commission examines banks in connection with their financial instruments business activities in accordance with the Financial Instruments and Exchange Law of Japan (Kinyu Shouhin Torihiki Hou) (Law No. 25 of 1948, as amended).

Examination and Reporting Applicable to Shareholders

Under the Banking Law, a person who intends to hold 20% (in certain exceptional cases, 15%) or more of the voting rights of a bank is required to obtain prior approval of the Commissioner of the Financial Services Agency. In addition, the Financial Services Agency may request reports or submission of materials from, or inspect, any principal shareholder who holds 20% (in certain exceptional cases, 15%) or more of the voting rights of a bank, if necessary in order to secure the sound and appropriate operation of the business of such bank. Under limited circumstances, the Financial Services Agency may order such principal shareholder to take such measures as the Financial Services Agency deems necessary.

Furthermore, under the Banking Law, any person who becomes a holder of more than 5% of the voting rights of a bank holding company or bank must report its ownership of voting rights to the director of the relevant local finance bureau within five business days. In addition, a similar report must be made in respect of any subsequent change of 1% or more in any previously reported holding or any change in material matters set forth in reports previously filed, with some exceptions.

Deposit Insurance System

Under the Deposit Insurance Law (Yokin Hoken Hou) (Law No. 34 of 1971, as amended), depositors are protected through the Deposit Insurance Corporation in cases where financial institutions fail to meet their obligations. The Deposit Insurance Corporation is supervised by the Prime Minister and the Minister of Finance. Subject to limited exceptions, the Prime Minister’s authority is entrusted to the Commissioner of the Financial Services Agency.

The Deposit Insurance Corporation receives annual insurance premiums from insured banks, the amount of which is, from April 2010, equivalent to 0.107% of the amount of deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes, and 0.082% of the amount of other deposits. However, for the fiscal year ending March 31, 2013, if there are no insured bank failures, the insurance premium rate of 0.089% for deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes and the insurance premium rate of 0.068% for other deposits shall be applied retroactively from the beginning of such fiscal year, and the amount paid in excess of such rates will be reimbursed to insured banks without interest.

 

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The insurance money may be paid out in case of a suspension of deposits repayments, banking license revocation, dissolution or bankruptcy of the bank. Pay outs are generally limited to a maximum of ¥10 million of principal amount, together with any interest accrued with respect to each depositor. Only non-interest bearing deposits, redeemable on demand and used by depositors primarily for payment and settlement functions are protected in full.

Participation in the deposit insurance system is compulsory for city banks (including Mizuho Corporate Bank and Mizuho Bank), regional banks, long-term credit banks, trust banks (including Mizuho Trust & Banking), credit associations and co-operatives, labor banks and other financial institutions.

Governmental Measures to Treat Troubled Institutions

Under the Deposit Insurance Law, a Financial Reorganization Administrator can be appointed by the Prime Minister if the bank is unable to fully perform its obligations with its assets or may suspend or has suspended repayment of deposits. The Financial Reorganization Administrator will take control of the assets of the bank, dispose of the assets and search for another institution willing to take over its business. Its business may also be transferred to a “bridge bank” established by the Deposit Insurance Corporation for the purpose of the temporary maintenance and continuation of operations of these types of institutions, and the bridge bank will seek to transfer the bank’s assets to another financial institution or dissolve the bank. The financial aid provided by the Deposit Insurance Corporation may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debts, subscription of preferred stock, or loss sharing. Where it is anticipated that the failure of a bank may cause an extremely grave problem in maintaining the financial order in Japan or the region where such bank is operating, the following measures may be taken: (i) the Deposit Insurance Corporation may subscribe for the shares or other instruments of the relevant bank in order to enhance capital adequacy of the bank; (ii) if the bank fails or suffers a capital deficit, financial aid exceeding the pay-off cost may be available to such bank; and (iii) in the case where the systemic risk cannot be avoided by the measure mentioned in (ii) above, the Deposit Insurance Corporation may acquire the bank’s shares.

Capital Injection by the Government

The Strengthening Financial Functions Law (Kinyu Kinou no Kyouka no tame no Tokubetsu Sochi ni kansuru Houritsu) (Law No. 128 of 2004) was enacted on June 18, 2004 in order to establish a scheme of public money injection into financial institutions and thereby enhance the soundness of such financial institutions on or prior to March 31, 2008 and revitalize economic activities in the regions where they do business. On December 17, 2008, certain amendments to the Strengthening Financial Functions Law took effect. These amendments relaxed certain requirements for public money injection into Japanese banks and bank holding companies and other financial institutions under the prior scheme and extended the period of application therefor, which had expired on March 31, 2008, to March 31, 2012. These amendments aim to promote not only the soundness of such financial institutions but also the extension of loans or other forms of credit to small and medium-sized enterprises in order to revitalize local economies. In response to the Great East Japan Earthquake, the law was amended in June 2011 to extend the period for application to March 31, 2017 and to include special exceptions for disaster-affected financial institutions. None of the financial institutions within the Mizuho group are subject to such special exceptions.

Bank Holding Companies

Under the Banking Law, a bank holding company is prohibited from carrying out businesses other than administrating the businesses of its subsidiaries and matters incidental to such businesses. Business activities for subsidiaries of bank holding companies are limited to finance-related businesses and incidental businesses.

The Anti-Monopoly Law (Shiteki Dokusen no Kinshi oyobi Kousei Torihiki no Kakuho ni kansuru Houritsu) (Law No. 54 of 1947, as amended) prohibits a bank from holding more than 5% of another company’s voting rights. This does not apply to a bank holding company, although the bank holding company is subject to general shareholding restrictions under the Anti-Monopoly Law. The Banking Law does, however, prohibit a bank

 

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holding company and its subsidiaries, on an aggregate basis, from holding more than 15% (in contrast to 5% in the case of a bank and its subsidiaries) of the voting rights of certain types of companies not permitted to become subsidiaries of bank holding companies.

Financial Instruments and Exchange Law

The Financial Instruments and Exchange Law (Kinyu Shouhin Torihiki Hou) requires Mizuho Financial Group to file with the Director General of the Kanto Local Finance Bureau an annual securities report including consolidated and non-consolidated financial statements in respect of each financial period, supplemented by quarterly and extraordinary reports.

Under the Financial Instruments and Exchange Law, registered Financial Instruments Business Operators (kinyu-shouhin torihiki gyousha), such as Mizuho Securities, as well as Registered Financial Institutions (touroku kinyu kikan), such as Mizuho Bank, Mizuho Corporate Bank and Mizuho Trust & Banking, are required to provide customers with detailed disclosure regarding the financial products they offer and take other measures to protect investors, including a delivery of explanatory documents to such customers prior to and upon the conclusion of transactional agreements.

Financial Instrument Business Operators and Registered Financial Institutions are subject to the supervision of the Financial Services Agency pursuant to delegation by the Prime Minister of Japan. Some of the supervisory authority of the Financial Services Agency is further delegated to the Securities and Exchange Surveillance Commission, which exercises its supervisory power over such registered institutions by conducting site inspections and requesting information necessary for such inspections. Non-compliance or interference with such inspection may result in such registrants being subject to criminal penalty under the Financial Instruments and Exchange Law.

Certain amendments to the Financial Instruments and Exchange Law and the Banking Law, which came into effect on June 1, 2009, revamped the firewall regulations regarding the holding of concurrent offices or posts among banks, securities firms and insurance firms and required banks, securities firms and insurance firms to establish systems for managing conflicts of interest in order to protect customers’ interests and expanded the types of business services that banks and certain other financial firms can provide.

Sales of Financial Products

As a result of financial deregulation, more financial products, including highly structured and complicated products, can now be more freely marketed to customers. In response to this, the Law of Sales of Financial Products (Kinyu Shouhin no Hanbai tou ni kansuru Houritsu) (Law No. 101 of 2000, as amended), effective from April 2001, introduced measures to protect financial service customers by: requiring financial service providers to provide customers with certain important information, including risks with respect to deficit of principal associated with the financial products they offer and any restrictions on the period for exercising rights or the period for rescission, unless the customers fall within the ambit of professional investors or express their intent to the contrary; and holding financial service providers liable for damages caused by a failure to follow those requirements. The amount of loss of principal is refutably presumed to be the amount of damages. Additionally, the law requires financial service providers to follow certain regulations on solicitation measures as well as to endeavor to solicit customers in an appropriate manner and formulate and publicize a solicitation policy.

Self-Assessment and Reserves

The prompt corrective action system requires financial institutions to establish a self-assessment program that complies with the Inspection Manual issued by the Financial Services Agency and related laws such as the Financial Reconstruction Law (Kinyu Kinou no Saisei no tameno Kinkyu Sochi ni kansuru Houritsu) (Law No. 132 of 1998, as amended). Financial institutions are required to analyze their assets, giving due consideration to accounting principles and other applicable rules and to classify their assets into four categories according to asset recovery risk and risk of impairment based on the classification of the obligor (normal obligors, watch

 

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obligors, intensive control obligors, substantially bankrupt obligors and bankrupt obligors) taking into account the likelihood of repayment and the risk of impairment to the value of the assets. The results of self-assessment should be reflected in the write-off and allowance according to the standard established by financial institutions pursuant to the guidelines issued by the Japanese Institute of Certified Public Accountants and Inspection Manual issued by the Financial Services Agency. Based on the results of the self-assessment, financial institutions may establish reserve amounts for their loan portfolio as may be considered adequate at the relevant balance sheet date, even if all or part of such reserves may not be immediately tax deductible under Japanese tax law.

Based on the accounting standards for banks issued by the Japanese Bankers Association, a bank is required to establish general reserves, specific reserves and reserves for probable losses on loans relating to restructuring countries.

Credit Limits

The Banking Law restricts the aggregate amount of loans to any single customer or customer group for the purposes of avoiding excessive concentration of credit risks and promoting the fair and extensive utilization of bank credit. The limits applicable to a bank holding company and bank with respect to their aggregate lending to any single customer or customer group are established by a cabinet order and by the Banking Law. The current limits are 25% of the total qualifying capital of the bank holding company or bank and its subsidiaries and affiliates with respect to a single customer and 40% of the total qualifying capital of the bank holding company or bank and its subsidiaries and affiliates with respect to a customer group.

Restriction on Shareholdings

The Law Concerning Restriction on Shareholdings by Banks (Ginkou tou no Kabushiki tou no Hoyu no Seigen tou ni kansuru Houritsu) (Law No. 131 of 2001, as amended) requires Japanese banks (including bank holding companies) and their subsidiaries to limit the aggregate market value (excluding unrealized gains, if any) of their holdings in equity securities to an amount equal to 100% of their Tier 1 capital in order to reduce exposure to stock price fluctuations.

Share Purchase Program

The Banks’ Shareholdings Purchase Corporation was established in January 2002 in order to purchase shares from banks and other financial institutions until September 30, 2006 pursuant to the Law Concerning Restriction on Shareholdings by Banks. Bank’s Shareholdings Purchase Corporation is allowed to resume purchases of shares held by financial institutions as well as shares of financial institutions held by non-financial institutions, up to a maximum amount of ¥20 trillion between March 12, 2009 and March 31, 2017. The Bank’s Shareholdings Purchase Corporation purchased ¥713.8 billion of shares during the period from March 12, 2009 through June 30, 2012. The Bank’s Shareholdings Purchase Corporation will dispose of the purchased shares by March 31, 2027 by taking into consideration the effects on the stock market.

The Bank of Japan also purchased ¥387.8 billion of shares held by banks and other financial institutions during the period from February 23, 2009 through April 30, 2010. The Bank of Japan generally will not sell the purchased shares until March 31, 2014. The Bank of Japan will dispose of the purchased shares by September 30, 2019 by taking into consideration the effects on the stock market.

Capital Adequacy

The capital adequacy guidelines applicable to Japanese banks and bank holding companies with international operations supervised by the Financial Services Agency closely follow the risk-adjusted approach proposed by the Bank for International Settlements and are intended to further strengthen the soundness and stability of Japanese banks. Under the risk-based capital framework of these guidelines, balance sheet assets and off-balance-sheet exposures are assessed according to broad categories of relative risk, based primarily on the credit risk of the counterparty, country transfer risk and the risk regarding the category of transactions.

 

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With regard to capital, these guidelines are in accordance with the standards of the Bank for International Settlements for a target minimum standard capital adequacy ratio of 8% (at least half of which must consist of Core Capital (Tier 1), for a minimum Core Capital ratio of 4%) on both a consolidated and non-consolidated basis for banks with international operations, such as Mizuho Corporate Bank, or on a consolidated basis for bank holding companies with international operations, such as Mizuho Financial Group.

Banks and bank holding companies are required to measure and apply capital charges with respect to their market risks in addition to their credit risks. Market risk is defined as the risk of losses in on- and off-balance sheet positions arising from movements in market prices such as the risks pertaining to interest rate-related instruments and equities.

Japanese banks with only domestic operations, such as Mizuho Bank, and bank holding companies the subsidiaries of which operate only within Japan are subject to Japanese capital adequacy requirements that are similar to those discussed above, except that those banks and holding companies are required to have a minimum capital adequacy ratio of 4%, at least half of which must consist of Tier 1 capital, and are not required to apply capital charges to their market risks.

Under the capital adequacy guidelines, the maximum amount of net deferred tax assets under Japanese GAAP that major Japanese banks, including bank holding companies, can record without diminishing the amount of Tier 1 capital for purposes of calculating capital adequacy is 20% of Tier 1 capital.

In June 2004, the Basel Committee on Banking Supervision announced amended rules with respect to minimum capital requirements, which include amended risk weight calculations that introduce an internal ratings-based approach and the inclusion of operational risk in the calculations, as well as an emphasis on supervisory review and market discipline through effective disclosure. The amendments adopt variable risk weights according to the credit rating given to the obligor of the risk-weighted assets. The better the credit rating of an obligor is, the lower the risk weight applicable to the risk-weighted assets owed by it. Also, the new rules require financial institutions to establish an internal risk management system, to make thorough disclosure of relevant information and to set an appropriate reserve against operational risk based upon a fair evaluation thereof. The new Financial Services Agency guidelines, which follow the amended rules, became effective on March 31, 2007, except for the introduction of the advanced methodologies to calculate capital requirements for risks which took effect on March 31, 2008. Under the new guidelines, banks and bank holding companies have several choices for the methodologies to calculate their capital requirements for credit risk, market risk and operational risk. Approval of the Financial Services Agency is necessary to adopt advanced methodologies for calculation, and Mizuho Financial Group started to apply the AIRB approach for the calculation of credit risk from the fiscal year ended March 31, 2009 and also apply the AMA for the calculation of operational risk from September 30, 2009.

In December, 2010, the Basel Committee on Banking Supervision issued its Basel III rules text, which presents the details of global regulatory standards on bank capital adequacy and liquidity. The rules text sets out higher and better-quality capital, better risk coverage, the introduction of a leverage ratio as a backstop to the risk-based requirement, measures to promote the build up of capital that can be drawn down in periods of stress, and the introduction of two global liquidity standards. For further information of the rules text, see “Item 5. Operating and Financial Review and Prospects—Capital Adequacy—Regulatory Capital Requirements.”

In March 2012, the Financial Services Agency published revisions to its capital adequacy guidelines to be applied from March 31,2013, which generally reflect rules in the Basel III text that are scheduled to be applied from January 1, 2013.

Protection of Personal Information

The Personal Information Protection Law (Kojin Jouhou no Hogo ni kansuru Houritsu) (Law No. 57 of 2003, as amended) and related guidelines impose various requirements on businesses, including us, that use

 

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databases containing personal information, such as appropriate custody of such information and restrictions on information sharing with third parties. Non-compliance with the order issued by the Financial Services Agency to take necessary measures to comply with the law will subject us to criminal and/or administrative sanctions.

Prevention of Money Laundering

Under the Law Preventing Transfer of Profits Generated from Crime (Hanzai ni yoru Syueki no Iten Boushi ni kansuru Houritsu) (Law No. 22 of 2007, as amended), which addresses money laundering and terrorism concerns, financial institutions and other entities such as credit card companies are required to perform customer identification, submit suspicious transaction reports and maintain records of transactions.

Law Concerning Protection of Depositors from Illegal Withdrawals Made by Forged or Stolen Cards

The Law Concerning Protection of Depositors from Illegal Withdrawals Made by Forged or Stolen Cards (Gizou Kaado tou oyobi Tounan Kaado tou wo Mochiite Okonawareru Fuseina Kikaishiki Yochokin Haraimodoshi tou karano Yochokinsha no Hogo tou ni kansuru Houritsu) (Law No. 94 of 2005, as amended) requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits using forged or stolen bank cards. The law also requires financial institutions, among other matters, to compensate depositors for any amount illegally withdrawn using forged bankcards, unless the financial institution can verify that it acted in good faith without negligence and that there was gross negligence on the part of the relevant account holder.

Law Concerning Temporary Measures to Facilitate Financing for Small and Medium-Sized Enterprises (SMEs), etc.

The Law Concerning Temporary Measures to Facilitate Financing for Small and Medium-Sized Enterprises (SMEs), etc. (Chuushoukigyousha tou ni taisuru Kinyuu no Enkatsuka wo Hakaru tameno Rinjisochi ni kansuru Houritsu) (Law No. 96 of 2009) was enacted on November 30, 2009. The legislation requires financial institutions, among other things, to make an effort to reduce their customers’ burden of loan repayments by employing methods such as modifying the terms of loans at the request of eligible borrowers, including SMEs and individual home loan borrowers. The legislation also requires financial institutions to internally establish a system to implement the requirements of the legislation and periodically make disclosure of and report to the relevant authority on the status of implementation. These measures are effective until March 2013.

United States

As a result of our operations in the United States, we are subject to extensive U.S. federal and state supervision and regulation. We engage in U.S. banking activities through Mizuho Corporate Bank’s New York, Chicago and Los Angeles branches and Houston and Atlanta representative offices. We also own one bank in the United States, Mizuho Corporate Bank (USA), as well as controlling interests in several other subsidiaries, including Mizuho Trust & Banking Co. (USA), which is engaged primarily in the trust and custody business, and Mizuho Securities USA Inc., a U.S. broker dealer engaged in the securities business.

The USA PATRIOT Act of 2001 (the “PATRIOT Act”) contains measures to prevent, detect and prosecute terrorism and international money laundering by imposing significant compliance and due diligence obligations, creating new crimes and penalties and expanding the extraterritorial jurisdiction of the United States. The enactment of the PATRIOT Act and other events have resulted in heightened scrutiny of compliance with the Bank Secrecy Act and anti-money laundering rules by federal and state regulatory and law enforcement authorities.

Mizuho Financial Group and Mizuho Corporate Bank are financial holding companies (“FHCs”), and Mizuho Trust & Banking is a bank holding company, within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHCA”), and are subject to regulation and supervision thereunder by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). As a matter of law, these three companies are expected to act as a source of financial strength to Mizuho Corporate Bank (USA) and Mizuho

 

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Trust & Banking Co. (USA). The BHCA generally prohibits us from acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting shares of any company engaged in the United States in activities other than banking or activities that are financial in nature or incidental or complementary to financial activity. This general prohibition is subject to certain exceptions, including an exception that permits us to acquire up to 100% of the voting interests in any company engaged in nonfinancial activities under our merchant banking authority. In addition, U.S. regulatory approval is generally required for us to acquire more than 5% of any class of voting shares of a U.S. bank or savings association.

Mizuho Financial Group and Mizuho Corporate Bank became FHCs in December 2006. FHC status under the BHCA permits banking groups in the United States to engage in comprehensive investment banking businesses, such as the underwriting of and dealing in corporate bonds, equities and other types of securities. FHC status enables our group to promote our investment banking business on a broader basis in the United States.

As a financial holding company, we are also subject to additional regulatory requirements. For example, we and each of our U.S. insured depository institution subsidiaries with operations in the United States must be “well capitalized,” meaning a Tier 1 risk-based capital ratio of at least 6% and a total risk-based capital ratio of at least 10%. We and each of our U.S. insured depository institution subsidiaries must also be “well managed,” including that they maintain examination ratings that are at least satisfactory. Further, Mizuho Corporate Bank must also meet such capital standards as calculated under its home country standards (which must be comparable to the capital required for a U.S. bank) and must be well managed under standards comparable to those required for a U.S. bank. Failure to comply with such requirements would require us to prepare a remediation plan, and we would not be able to undertake new business activities or acquisitions based on our status as a financial holding company during any period of noncompliance without the prior approval of the Federal Reserve Board, and divestiture or termination of certain business activities, or termination of our U.S. branches and agencies, may be required as a consequence of failing to correct such conditions within 180 days.

U.S. branches, agencies and representative offices of foreign banks must be licensed, and are also supervised and regulated, by either a state banking authority or by the Office of the Comptroller of the Currency, the federal bank regulatory agency that charters and regulates national banks and federal branches and agencies of foreign banks. Each branch and representative office in the United States of Mizuho Corporate Bank is state-licensed. Under U.S. federal banking laws, state-licensed branches and agencies of foreign banks may engage only in activities that would be permissible for their federally-licensed counterparts, unless the Federal Reserve Board determines that the additional activity is consistent with sound practices. U.S. federal banking laws also subject state-licensed branches and agencies to the single-borrower lending limits that apply to federal branches and agencies, which generally are the same as the lending limits applicable to national banks, but are based on the capital of the entire foreign bank.

The New York branch of Mizuho Corporate Bank is subject to supervision, examination and regulation by the New York State Department of Financial Services as well as by the Federal Reserve Board. Except for the prohibition on such branch accepting retail deposits, a state-licensed branch generally has the same powers as a state-chartered bank in such state. New York State has an asset pledge requirement for branches equal to 1% of third party liabilities with a cap of $400 million, provided that an institution designated as a “well-rated foreign banking corporation” is permitted to maintain a reduced asset pledge with a cap of $100 million. The New York State Department of Financial Services may require higher amounts for supervisory reasons. Each U.S. branch and representative office of Mizuho Corporate Bank is subject to regulation and examination by the state banking authority of the state in which it is located.

The deposits of Mizuho Corporate Bank (USA) are insured by the Federal Deposit Insurance Corporation (FDIC), and it is a state-chartered bank that is a member of the Federal Reserve System. As such, Mizuho Corporate Bank (USA) is subject to regulation, supervision and examination by the Federal Reserve Board and the New York State Department of Financial Services, as well as to relevant FDIC regulation.

 

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The deposits of Mizuho Trust & Banking Co. (USA) are also FDIC-insured, and it is a state-chartered bank and trust company that is not a member of the Federal Reserve System. As such, Mizuho Trust & Banking Co. (USA) is subject to regulation, supervision and examination by the FDIC and the New York State Department of Financial Services.

In the United States, U.S.-registered broker-dealers are regulated by the U.S. Securities and Exchange Commission. As a U.S.-registered broker-dealer, Mizuho Securities USA is subject to regulations that cover all aspects of the securities business, including sales methods, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure, recordkeeping, the financing of customers’ purchases and the conduct of directors, officers and employees.

In the United States, comprehensive financial regulatory reform legislation, titled the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”), was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act will have far-reaching implications across the financial services industry. Among other things, the Dodd-Frank Act directs the federal banking regulators to establish minimum leverage and risk-based capital requirements for insured depository institutions and depository institution holding companies. The Dodd-Frank Act also directs the Federal Reserve Board to issue rules, including heightened risk-based capital requirements, leverage limits, liquidity requirements and overall risk management standards, on the large, interconnected firms it supervises.

Other Jurisdictions

Our operations elsewhere in the world are subject to regulation and control by local supervisory authorities, including local central banks.

4.C. Organizational Structure

The following diagram shows our basic corporate structure as of March 31, 2012:

 

LOGO

 

Notes:

 

(1) In September 2011, Mizuho Securities, Mizuho Investors Securities and Mizuho Trust & Banking became wholly-owned subsidiaries through stock-for-stock exchanges, and all three companies, formerly listed on the Tokyo Stock Exchange and other financial instrument exchanges, were delisted.

 

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(2) Two asset management companies consist of Mizuho Asset Management and DIAM. DIAM, in which we have a 50.0% equity interest, is an equity-method affiliate of ours.

The following table sets forth information with respect to our principal consolidated subsidiaries as of March 31, 2012:

 

Name

   Country of
organization
  

Main business

   Proportion  of
ownership
interest
(%)
    Proportion of
voting
interest
(%)
 

Domestic

          

Mizuho Bank, Ltd.

   Japan   

Banking

     100.0     100.0

Mizuho Corporate Bank, Ltd.

   Japan   

Banking

     100.0        100.0   

Mizuho Securities Co., Ltd.

   Japan   

Securities

     94.7        94.7   

Mizuho Trust & Banking Co., Ltd.

   Japan   

Trust and banking

     100.0        100.0   

Mizuho Investors Securities Co., Ltd.

   Japan   

Securities

     100.0        100.0   

Trust & Custody Services Bank, Ltd.

   Japan   

Trust and banking

     54.0        54.0   

Mizuho Asset Management Co., Ltd.

   Japan   

Investment management

     98.7        98.7   

Mizuho Research Institute Ltd.

   Japan   

Research and consulting

     98.6        98.6   

Mizuho Information & Research Institute, Inc.

  

Japan

  

Information technology

  

 

91.5

  

 

 

91.5

  

Mizuho Financial Strategy Co., Ltd.

   Japan   

Consulting

     100.0        100.0   

Mizuho Private Wealth Management Co., Ltd.

   Japan   

Consulting

     100.0        100.0   

Mizuho Factors, Limited

   Japan   

Factoring

     100.0        100.0   

Mizuho Credit Guarantee Co., Ltd.

   Japan   

Credit guarantee

     100.0        100.0   

Mizuho Capital Co., Ltd.

   Japan   

Venture capital

     50.0        50.0   

Defined Contribution Plan Services Co., Ltd.

  

Japan

  

Pension plan-related business

  

 

60.0

  

 

 

60.0

  

Overseas

          

Mizuho Bank (Switzerland) Ltd

   Switzerland   

Trust and banking

     100.0        100.0   

Mizuho Capital Markets Corporation

   U.S.A.   

Derivatives

     100.0        100.0   

Mizuho Corporate Bank (China), Ltd.

   China   

Banking

     100.0        100.0   

Mizuho Corporate Bank (USA)

   U.S.A.   

Banking

     100.0        100.0   

Mizuho Corporate Bank Nederland N.V.

   Netherlands   

Banking and securities

     100.0        100.0   

Mizuho International plc

   U.K.   

Securities and banking

     100.0        100.0   

Mizuho Securities USA Inc.

   U.S.A.   

Securities

     100.0        100.0   

Mizuho Trust & Banking (Luxembourg) S.A.

   Luxembourg   

Trust and banking

     100.0        100.0   

Mizuho Trust & Banking Co. (USA)

   U.S.A.   

Trust and banking

     100.0        100.0   

PT. Bank Mizuho Indonesia

   Indonesia   

Banking

     99.0        99.0   

 

 

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4.D. Property, Plant and Equipment

The following table shows the breakdown of our premises and equipment at cost as of March 31, 2011 and 2012:

 

     At March 31,  
     2011      2012  
     (in millions of yen)  

Land

   ¥ 266,827       ¥ 271,083   

Buildings

     710,226         735,188   

Equipment and furniture

     466,667         480,068   

Leasehold improvements

     88,107         89,200   

Construction in progress

     28,777         11,575   

Software

     683,514         668,448   
  

 

 

    

 

 

 

Total

     2,244,118         2,255,562   

Less: Accumulated depreciation and amortization

     1,129,914         1,150,693   
  

 

 

    

 

 

 

Premises and equipment—net

   ¥ 1,114,204       ¥ 1,104,869   
  

 

 

    

 

 

 

Our head office is located at 5-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan with 14,134 square meters of office space. The headquarter buildings of Mizuho Financial Group, Mizuho Corporate Bank and Mizuho Bank are each leased from third parties.

The total area of land related to our material office and other properties at March 31, 2012 was approximately 798,000 square meters for owned land and approximately 21,000 square meters for leased land.

Our owned land and buildings are primarily used by our branches. Most of the buildings and land owned by us are free from material encumbrances.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

 

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ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with “Item 3.A. Key Information—Selected Financial Data,” “Selected Statistical Data” and our consolidated financial statements, including the notes thereto, included elsewhere in this annual report.

Table of Contents for Item 5.

 

     Page  

Overview

     46   

Critical Accounting Estimates

     60   

Operating Results

     63   

Business Segments Analysis

     75   

Geographical Segment Analysis

     84   

Financial Condition

     87   

Liquidity

     98   

Capital Adequacy

     99   

Off-balance-sheet Arrangements

     108   

Tabular Disclosure of Contractual Obligations

     112   

Recent Accounting Pronouncements

     112   

Reconciliation with Japanese GAAP

     112   

Overview

The Mizuho Group

We provide a broad range of financial services in domestic and overseas markets through three Global Groups: the Global Corporate Group; the Global Retail Group; and the Global Asset & Wealth Management Group. The principal activities and subsidiaries of the three Global Groups are the following:

 

   

The Global Corporate Group provides wholesale and international banking and securities services, principally through Mizuho Corporate Bank and Mizuho Securities;

 

   

The Global Retail Group provides retail and small and medium-sized enterprises (“SMEs”) and middle-market corporation banking and securities services in Japan, principally through Mizuho Bank and Mizuho Investors Securities; and

 

   

The Global Asset & Wealth Management Group provides trust and asset management services and private banking products and services, principally through Mizuho Trust & Banking, Trust & Custody Services Bank, Mizuho Asset Management, DIAM (an equity-method affiliate of ours) and Mizuho Private Wealth Management.

We also provide other services such as research services through Mizuho Research Institute, information technology-related services through Mizuho Information & Research Institute and advisory services for financial institutions through Mizuho Financial Strategy.

In November 2011, we announced that we determined to conduct a merger between Mizuho Bank and Mizuho Corporate Bank by around the end of the first half of the fiscal year ending March 31, 2014, on the assumption that, among other things, filings will have been made to and permission obtained from the relevant authorities in Japan and any foreign countries, and signed a memorandum of understanding for further consideration and discussion of the details. Through the merger, we aim to become able to provide directly and promptly diverse and functional financial services to customers of Mizuho Bank and Mizuho Corporate Bank, to continue to improve customer services by further enhancing group-wide collaboration among the banking, trust and securities functions, and to realize further enhancement of the consolidation of group-wide business

 

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operations and optimization of management resources by strengthening group governance and improving group management efficiency. In addition to the merger, we will consider the possibility of an integration that includes Mizuho Trust & Banking. In March 2012, we announced that we determined that the effective date of the Merger shall be July 1, 2013.

In April 2012, we integrated various business functions of Mizuho Bank and Mizuho Corporate Bank prior to the effective date of the merger and implemented the “substantive one bank” structure, which included establishing a new organizational structure by unifying and reorganizing certain units, in order to realize the synergy effects of the merger as early as possible and ultimately to enhance our group profitability.

In May 2012, we announced that Mizuho Securities and Mizuho Investors Securities signed a merger agreement to enhance our retail securities business in Japan, rationalize and streamline management infrastructure, and provide securities functions in a unified manner through a single full-line securities company. We plan to conduct the merger on January 4, 2013.

For a further discussion of our business and group organization, see “Item 4.B. Information on the Company—Business Overview.”

Principal Sources of Income and Expenses

Net Interest Income

Net interest income arises principally from the lending and deposit-taking and securities investment activities of our banking subsidiaries and is a function of:

 

   

the amount of interest-earning assets and interest-bearing liabilities;

 

   

the average interest rate spread (the difference between the average yield of interest earned on interest-earning assets and the average rate of interest paid on interest-bearing liabilities); and

 

   

the general level of interest rates.

Principal items constituting interest-earning assets include loans, investments, trading account assets, receivables under resale agreements and receivables under securities borrowing transactions. Principal items constituting interest-bearing liabilities include deposits, trading account liabilities, short-term borrowings (such as payables under repurchase agreements and payables under securities lending transactions) and long-term debt.

Provision (Credit) for Loan Losses

Provision (credit) for loan losses is charged against (or credited to) income to keep the allowance for loan losses at a level that is appropriate to absorb probable losses inherent in the credit portfolio. For a description of the approach and methodology used to establish the allowance for loan losses, see “—Financial Condition—Allowance for loan losses.”

 

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Noninterest Income

Noninterest income consists mainly of fees and commissions, investment gains (losses)—net, trading account gains (losses)—net and foreign exchange gains (losses)—net.

Fees and commissions include the following:

 

   

fees and commissions from securities-related business, including brokerage fees and commissions related to securities underwriting, fees and commissions related to investment trusts and individual annuities and other securities-related activities;

 

   

fees and commissions from remittance business, including service charges for domestic and international funds transfers and collections;

 

   

fees and commissions from deposits, debentures and lending business, which consist mostly of fees and commissions related to our loan businesses, including fees related to the arrangement of syndicated loans and other financing transactions such as arrangement fees related to management buy-out transactions and fees related to deposits such as account transfer charges;

 

   

trust fees, including trust fees earned primarily through fiduciary asset management and administration services for corporate pension plans and investment funds; and

 

   

fees for other customer services, including fees related to our agency businesses, such as administration fees related to Japan’s principal public lottery program, as well as guarantee fees and others.

Investment gains (losses)—net primarily include net gains and losses on sales of marketable securities, such as equity and bond investments. In addition, impairment losses are recognized when management concludes that declines in fair value of investments are other-than-temporary.

Trading account gains (losses)—net include gains and losses from transactions undertaken for trading purposes, including both market making for customers and proprietary trading, or transactions through which we seek to capture gains arising from short-term changes in market value. Trading account gains (losses)—net also include gains and losses related to changes in the fair value of derivatives and other financial instruments not eligible for hedge accounting under U.S. GAAP that are utilized to offset mainly interest rate risk related to our various assets and liabilities, as well as gains and losses related to changes in the fair value of foreign currency-denominated available-for-sale securities that are elected for fair value treatment under ASC 825. For further information on the fair value option, see note 29 to our consolidated financial statements included elsewhere in this annual report.

Foreign exchange gains (losses)—net mainly include translation gains and losses related to our foreign currency-denominated assets and liabilities and gains and losses related to foreign exchange trading activities, including market making for customers and proprietary trading.

Noninterest Expenses

Noninterest expenses primarily include salaries and employee benefits, general and administrative expenses, occupancy expenses and fees and commission expenses.

Salaries and employee benefits include expenses incurred for salaries, bonuses and compensation to directors and employees. They also include expenses related to pension and other employee retirement benefit plans.

The principal items included in general and administrative expenses are amortization of software, tax expenses such as consumption tax and property tax that are not income taxes and other expenses, including premiums for deposit insurance.

 

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The principal items included in occupancy expenses are expenses related to premises and equipment, including depreciation, losses on disposal and lease expenses.

The principal items included in fees and commission expenses are fees and commission expenses for remittance services, which mainly include commission expenses paid in connection with remittance transactions and securities-related businesses, which mainly include transactions costs such as brokerage fees paid.

Operating Environment

We operate principally in Japan, and our performance has generally tracked the macro economy of Japan. Since the fiscal year ended March 31, 2008, the global economy has weakened due mainly to the effects of the global financial market turmoil. The global economy continued to worsen in the fiscal year ended March 31, 2009, and financial results in the financial and industrial sectors deteriorated significantly. However, the global economy emerged from its worst and maintained a gradual recovery in the fiscal year ended March 31, 2010. In the fiscal year ended March 31, 2011, the global economy generally continued on a gradual recovery while the fiscal problems faced by certain countries in Europe became an increasing cause for concern.

In the fiscal year ended March 31, 2012, despite the continuing overall gradual recovery of the global economy, the recovery remains weak due to destabilization of the international financial and capital markets caused by the fiscal problems in Europe and the decline in exports to Europe impacting the real economies of newly developing countries. In the United States, gradual recovery in the economy appears to be continuing, while the risk remains of a slackening in the economy, including rising oil prices and the pressure on the government to implement a tight fiscal policy due to the constraints imposed by the debt ceiling. In Europe, the economy has entered a slowdown phase, with the fiscal problems experienced by certain countries impacting the real economy, and the future of the European economy holds little prospect of a drastic speedy fix for the Euro-area’s debt problems, and it is difficult to predict the effects on the global economy. In Asia, although the region continues to maintain relatively strong economic growth, such growth is slowing as a whole, including due to the impact of the decline in exports associated with the economic stagnation in Europe. In Japan, the recovery from the impact of the Great East Japan Earthquake continues. Despite the temporary standstill in exports and production due to the impact of the floods in Thailand in fall 2011, there are visible signs of a gradual recovery. As for the future direction of the economy, while there are boosting factors such as the growing demand in relation to reconstruction efforts, there are also several causes for concern, such as the strength of the yen against other currencies, rising oil prices, the downturn in overseas economies and electricity shortages, which pose a risk of acting as a drag on economic growth. Key indicators of economic conditions in recent periods include the following:

 

   

Japan’s real gross domestic product on a year-on-year basis increased by 1.8% in the fiscal year ended March 31, 2008, decreased by 3.7% and 2.0% in the fiscal years ended March 31, 2009 and 2010, respectively, increased by 3.2% in the fiscal year ended March 31, 2011 and was unchanged in the fiscal year ended March 31, 2012. After continuing to decrease in each quarter of calendar 2011, Japan’s real gross domestic product on a quarterly basis, compared to the corresponding period of the previous year, increased by 2.8% in the first quarter of calendar 2012. The Japanese government stated in its monthly economic report from January through April 2012 that “the Japanese economy is still picking up slowly” but that “difficulties continue to prevail due to the Great East Japan Earthquake,” and in May 2012, the report began to express that “the Japanese economy is on the way to recovery at a moderate pace, reflecting demand for reconstruction, while difficulties continue to prevail.” Japan’s core nationwide consumer price index increased by 0.3% and 1.2% in the fiscal years ended March 31, 2008 and 2009, respectively, but decreased by 1.6%, 0.8% in the fiscal years ended March 31, 2010 and 2011, respectively, and the index was unchanged in the fiscal year ended March 31, 2012 compared to the previous year. The Japanese government has been stating in its monthly economic reports from November 2009 onwards that the Japanese economy is in a mild deflationary phase.

 

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The following chart shows the growth rates of Japan’s gross domestic product on a year-on-year basis and Japan’s core nationwide consumer price indices from the first quarter of 2007 through the first quarter of 2012:

 

LOGO

 

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In October 2010, the Bank of Japan lowered its target for the uncollateralized overnight call rate from 0.1% to “around 0 to 0.1%,” which has since remained unchanged. In December 2009, the Bank of Japan announced that it would provide approximately ¥10 trillion in short-term funds to commercial banks at a low fixed rate in order to boost liquidity and recover stability in the financial markets and increased the amount to approximately ¥20 trillion and ¥30 trillion in March and August 2010, respectively. These measures were succeeded by an asset purchase program of approximately ¥35 trillion established by the Bank of Japan in October 2010, and it increased the amount of the asset purchase program, mainly for the purchase of risk assets, to approximately ¥40 trillion, ¥50 trillion, ¥55 trillion, ¥65 trillion, and ¥70 trillion in March, August and October 2011 and February and April 2012, respectively. In June 2010, the Bank of Japan announced that it would introduce a fund-provisioning measure under which it would provide long-term funds to financial institutions at a low fixed rate in order to support the strengthening of the foundations for economic growth, and in June 2011, it also announced that it would establish a new line of credit to financial institutions for making equity investments and lending against liquid assets as collateral in order to further encourage financial institutions’ efforts to support economic growth. In February 2012, the Bank of Japan announced that it would pursue a “price stability goal in the medium to long term,” under which it would aim to maintain inflation at a rate consistent with price stability that is sustainable in the medium to long term, and provisionally set the goal at 1%. In March 2012, the Bank of Japan announced that it would establish special rules for a new arrangement for loans for small-lot investments and loans that had not been deemed eligible in the rules settled in June 2011 mentioned above, and it also announced that it would establish special rules for a new arrangement for U.S. dollar loans for investments and loans denominated in foreign currencies. The following charts show movements in long-term rates from January 2009 to June 2012, represented by the yield on newly issued 10-year Japanese government bonds, and in short-term interest rates from January 2009 to June 2012, represented by the three-month Tokyo interbank offered rate, or TIBOR, and the uncollateralized overnight call rate used in the interbank market:

 

LOGO

 

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LOGO

 

   

According to the Bank of Japan, the aggregate monthly average balance of bank loans compared with that of the previous year started to increase in August 2005. The growth generally peaked in December 2008, and the aggregate monthly average balance of bank loans began showing a declining trend beginning December 2009. Thereafter, it again started to increase in October 2011.

 

   

The CDS index called Markit iTraxx Japan, which is composed of 50 of the most liquid investment grade CDSs for Japanese entities, rose to 154.5 basis points as of March 30, 2012 from 141.7 basis points as of March 31, 2011, and rose to 177.4 basis points as of June 29, 2012. For information on financial transactions for hedging in relation to credit derivatives, see “Item 3.D. Key Information—Risk Factors—Risks Relating to Our Business—Financial transactions entered into for hedging and other similar purposes could adversely affect our financial condition and results of operations.”

 

   

According to Teikoku Databank, a Japanese research institution, there were approximately 12,900 corporate bankruptcies in the fiscal year ended March 31, 2010, involving approximately ¥7.0 trillion in total liabilities, approximately 11,500 corporate bankruptcies in the fiscal year ended March 31, 2011, involving approximately ¥4.6 trillion in total liabilities, and approximately 11,400 corporate bankruptcies in the fiscal year ended March 31, 2012 involving approximately ¥3.9 trillion in total liabilities. The number of corporate bankruptcies decreased from a year earlier for the third consecutive year, and the amount of total liabilities marked the lowest level in the past ten years.

 

   

According to the Tokyo Stock Exchange, or the TSE, the aggregate ordinary profits and net income of all companies listed on the TSE with a March 31 fiscal year end, excluding financial institutions and companies newly listed during the relevant fiscal year, increased from ¥17.1 trillion and ¥7.5 trillion, respectively, for the fiscal year ended March 31, 2010, to ¥26.3 trillion and ¥12.0 trillion, respectively, for the fiscal year ended March 31, 2011, and decreased to ¥22.1 trillion and ¥8.9 trillion, respectively, for the fiscal year ended March 31, 2012.

 

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According to the Bank of Japan, total financial assets of households increased from ¥1,491.0 trillion as of March 31, 2010 to ¥1,502.2 trillion as of March 31, 2011 and increased to ¥1,513.4 trillion as of March 31, 2012. The following chart shows the amount of total financial assets of households and breakdown based on type of financial asset as of the ends of the first quarter of 2008 through the first quarter of 2012:

 

LOGO

 

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The Nikkei Stock Average, which is an average of the price of 225 stocks listed on the Tokyo Stock Exchange, increased by 36.8% to ¥11,089.94 during the fiscal year ended March 31, 2010, but decreased by 12.0% to ¥9,755.10 during the fiscal year ended March 31, 2011, followed by a 3.4% increase to ¥10,083.56 during the fiscal year ended March 31, 2012. Thereafter, the Nikkei Stock Average decreased to ¥9,006.78 as of June 29, 2012. The following chart shows the daily closing price of the Nikkei Stock Average from January 2009 to June 2012:

 

LOGO

 

   

The Japanese yen to U.S. dollar spot exchange rate, according to the Bank of Japan, was ¥93.27 to $1.00 as of March 31, 2010, ¥82.84 to $1.00 as of March 31, 2011 and ¥82.17 to $1.00 as of March 30, 2012. Thereafter, the yen strengthened to ¥79.61 to $1.00 as of June 29, 2012. The following chart shows the yen/dollar spot rate of 5 p.m. Tokyo time published by the Bank of Japan from January 2009 to June 2012:

 

LOGO

 

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According to the Ministry of Land, Infrastructure, Transport and Tourism of Japan, housing starts in Japan increased by 0.3% in the fiscal year ended March 31, 2009, decreased by 25.4% in the fiscal year ended March 31, 2010 and increased by 5.6% and 2.7% in the fiscal years ended March 31, 2011 and 2012, respectively.

 

   

According to the Ministry of Land, Infrastructure, Transport and Tourism, the average published land prices in Japan rose by 0.1% during calendar year 2006, which was the first increase in 16 years, and rose again by 1.3% during calendar year 2007, but decreased by 3.2%, 4.2%, 2.7%, and 2.3% during calendar years 2008, 2009, 2010 and 2011, respectively.

Capital Improvements

All yen figures in this subsection are truncated. Accordingly, the total of each column of figures may not be equal to the total of the individual items.

We have been implementing “disciplined capital management” by pursing the optimal balance between “strengthening of stable capital base” and “steady returns to shareholders.”

Strengthening of Our Stable Capital Base

Since April 2011, we have made redemptions of various securities that qualify as Tier 1 and Tier 2 capital upon the arrival of their respective early optional redemption dates. In June 2011 and June 2012, we redeemed €500 million and ¥171 billion of non-dilutive Tier 1 preferred securities that were issued by our overseas special purpose companies in March 2006 and February 2002, respectively. With respect to Tier 2 capital, in December 2011, we redeemed ¥77 billion of dated subordinated bonds that were issued by Mizuho Bank in December 2008, and in March 2012, we redeemed ¥123 billion of dated subordinated bonds that were issued by Mizuho Corporate Bank in March 2009.

During the same period we issued subordinated bonds as set forth below which more than offsets the amount of Tier 2 capital that we redeemed. Through public offerings to wholesale investors in Japan, Mizuho Bank issued ¥65 billion and ¥47 billion of dated subordinated bonds in September 2011 and June 2012, respectively, and Mizuho Corporate Bank issued ¥42 billion of dated subordinated bonds in October 2011. Through public offering to retail investors in Japan, Mizuho Bank issued ¥63 billion of dated subordinated bonds in February 2012. In July 2012, our overseas special purpose company issued $1.5 billion of dated subordinated bonds.

Regarding the new capital regulations under Basel III, we aim to increase our common equity capital ratio (under Basel III) as of March 31, 2013, which is when the new capital regulations are scheduled to be initially implemented, to the mid-8% level. The foregoing target is based on a calculation of our common equity capital ratio that includes the outstanding balance of the eleventh series class XI preferred stock (¥373.6 billion as of March 31, 2012) that will become mandatorily converted into common stock in, and will be fully and formally recognized as common equity capital by, July 2016 and is otherwise based on publicly-available materials that have been issued so far. Also, we aim to accumulate a sufficient level of common equity capital as the ratio requirements increase through March 31, 2019 pursuant to their phase-in implementation.

The foregoing statements include forward-looking statements and are subject to risks, uncertainties and assumptions. See “Forward-looking Statements” and “Item 3.D. Key Information—Risk Factors.”

Steady Returns to Shareholders

We paid cash dividends with respect to the fiscal year ended March 31, 2012 of ¥6 per share of common stock (including interim dividend payments of ¥3), unchanged from those in the previous fiscal year.

We started to make interim cash dividend payments from the fiscal year ended March 31, 2012, in order to provide returns to shareholders at a more appropriate timing.

 

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Business Trends

Based on our current operating environment and management focus, we believe that the trends that are most significant to our current and future results of operations include the following:

Loans and Deposits

Loan volume

Our total loan balance increased on a year-on-year basis in the fiscal year ended March 31, 2012 due mainly to an increase in overseas loans, particularly in Asia. The increase was offset in part by a decrease in domestic loans due mainly to decreases in almost all of the industries, while the pace of the decline in the domestic loan balance slowed during the fiscal year ended March 31, 2012 compared to the previous fiscal year.

Margins between loans and deposits

In response to the weakening economic environment, the Bank of Japan announced a reduction of its target for the uncollateralized overnight call rate from 0.5% to 0.3% in October 2008, to 0.1% in December 2008 and to “around 0 to 0.1%” in October 2010. Reflecting these reductions, the average yield on domestic loans decreased from 1.40% in the fiscal year ended March 31, 2011 to 1.31% in the fiscal year ended March 31, 2012, and the average rate on domestic interest-bearing deposits decreased from 0.13% to 0.09%. The difference between the decrease of 0.09% in average yield on domestic loans and the decrease of 0.04% in the average rate on domestic interest-bearing deposits was not significant.

Provision (credit) for loan losses

Credit for loan losses was ¥23 billion in the fiscal year ended March 31, 2012, an improvement of ¥24 billion from a provision for loan losses of ¥1 billion in the previous fiscal year. The credit for loan losses was due mainly to upgrades in the obligor categories of a broad range of borrowers mainly through our credit management activities, including business revitalization support for borrowers, the effect of which was enhanced against a backdrop of the improving domestic economic environment as described in “—Overview—Operating Environment,” reflecting the continuing gradual recovery of the Japanese economy. The amount of provision for loan losses in future fiscal years will depend largely on trends in the credit quality of borrowers, which in turn will be affected by the domestic and global economic environment and other factors, and changes in the value of collateral on our loans. If worldwide demand for Japanese products and services declines or if the Japanese and global economy worsens, including due to effects stemming from the Great East Japan Earthquake, there can be no assurance that the amount of provision for loan losses will not increase in future periods due to declines in the credit quality of our customers both in and outside of Japan.

Fees and Commissions

For the fiscal year ended March 31, 2011, fees and commissions have remained almost flat compared to the fiscal year ended March 31, 2010. Despite unstable market conditions, sales of investment products to retail customers have increased and led to an increase in fees and commissions related to investment trusts and individual annuities in the fiscal year ended March 31, 2011. For the fiscal year ended March 31, 2012, there was a slight decrease in fees and commissions as compared to the previous fiscal year due mainly to a decline in commissions such as brokerage commissions and underwriting and selling fees at Mizuho Securities caused by the downturn in the stock market, offset in part by an increase in non-interest income from overseas business, income associated with sales of investment trusts and individual annuities to individual customers and solution-related income from corporate customers.

 

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Debt and Equity Securities Portfolio

The amount of our funding through deposits significantly exceeds our total loans. As a result, we allocate a significant portion of such excess among investments in debt securities, including Japanese government bonds and investments in equity securities consisting mainly of common stock of Japanese listed company customers. We also hold some credit and alternative investments for the purpose of diversifying our risks and to expand our income sources.

Increases in long-term interest rates generally lead to a decline in the fair value of our portfolio of debt securities, a vast majority of which consists of Japanese government bonds. As of March 31, 2012, we had a total of ¥38,467 billion of available-for-sale debt securities within our investments, of which ¥32,647 billion was Japanese government bonds. Changes in fair value of such available-for-sale debt securities are reflected in accumulated other comprehensive income, net of tax in equity or, in the case of other-than-temporary impairments, charged to income as an impairment loss. We had ¥35,716 billion and ¥38,467 billion of available-for-sale debt securities as of March 31, 2011 and 2012, respectively, and unrealized losses of ¥40 billion and unrealized gains of ¥62 billion were reflected in accumulated other comprehensive income, net of tax as of such dates, respectively. We earned investment gains related to bonds of ¥67 billion in the fiscal year ended March 31, 2011 and ¥42 billion in the fiscal year ended March 31, 2012. The decrease in investment gains related to bonds was due mainly to a decrease in gains related to sales of long-term Japanese government bonds.

Because the size of our portfolio of marketable equity securities is substantial, we are subject to significant equity market risk, as increases in unrealized gains and losses related to changes in the fair value of available-for-sale marketable equity securities are reflected in accumulated other comprehensive income, net of tax in equity or, in the case of other-than-temporary impairments to fair value, charged to income as an impairment loss. As of March 31, 2009, 2010, 2011 and 2012, we recorded net unrealized gains related to marketable equity securities of ¥633 billion, ¥1,277 billion, ¥914 billion and ¥960 billion, respectively, in accumulated other comprehensive income, net of tax in equity. For the fiscal year ended March 31, 2009, impairment losses on available-for-sale securities were ¥462.9 billion, most of which was attributable to marketable equity securities, due mainly to the decline in the stock markets in and outside of Japan in connection with the turmoil in the global economic downturn. For the fiscal year ended March 31, 2010, impairment losses on available-for-sale securities were ¥92.5 billion, and most of this amount was attributable to marketable equity securities. The decrease in impairment losses on equity securities was due mainly to a recovery of the stock markets during the fiscal year ended March 31, 2010. For the fiscal years ended March 31, 2011 and 2012, impairment losses on available-for-sale securities were ¥77.0 billion and ¥117.0 billion, respectively, of which impairment losses on marketable equity securities were ¥64.6 billion and ¥109.8 billion, respectively. Although we expect the size of our portfolio of marketable equity securities to continue to be significant, we will continue to make efforts to reduce our holdings. In May 2010, we set forth a target to reduce our equity portfolio by ¥1 trillion (under Japanese GAAP) prior to March 31, 2013 compared with the balance as of March 31, 2010 on an acquisition cost basis under our Medium-term Management Policy named the Transformation Program for the three fiscal years ending March 31, 2013. From April 2010 to March 2012, we reduced our equity holdings by approximately ¥204 billion on a cumulative basis (under Japanese GAAP). In addition, we have obtained prior consent from corporate customers to sell their shares totaling approximately ¥215 billion as of the end of March 2012. While current market conditions are not favorable and there is not significant time left before March 31, 2013, we will continue to endeavor to meet our target. See “Item 4.B. Information on the Company—Business Overview—The Transformation Program (Aiming at Sustainable Growth).”

Costs and Expenses

In the fiscal year ended March 31, 2012, salaries and employee benefits increased by ¥34 billion from the previous fiscal year to ¥587 billion due mainly to the effect of increased employee retirement benefit expenses as a result of a decline in expected return on plan assets, which reflects various aspects of long-term prospects for the economy, historical performance of investments of plan assets and the market environment, including stock

 

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market conditions, at the beginning of the fiscal year, an increase in the amortization of net actuarial loss, which primarily reflects past declines in the value of plan assets, and a premium allowance for voluntary early retirement program of a securities subsidiary. General and administrative expenses decreased by ¥23 billion, and occupancy expenses increased by ¥5 billion, respectively. We plan to continue our efforts to reduce general and administrative expenses and occupancy expenses through detailed reviews for the entire group. See “Item 4.B. Information on the Company—Business Overview—The Transformation Program (Aiming at Sustainable Growth).”

Others

The Impact of the Great East Japan Earthquake

On March 11, 2011, a magnitude 9.0 earthquake followed by large tsunamis caused catastrophic losses of life and property mainly in the Tohoku region of Japan. Nuclear power facilities in Fukushima were severely damaged by the earthquake and tsunamis which led to environmental contamination by radioactive materials originating from the damaged facilities. In August 2011, legislation regarding a compensation scheme for damages related to the nuclear accidents, including a supporting scheme for electric utilities that are subject to damage claims related to nuclear accidents, was enacted. The Nuclear Damage Liability Facilitation Fund was established in September 2011 as part of the compensation scheme, and the urgent special business plan prepared pursuant to such legislation by the Nuclear Damage Liability Facilitation Fund and the electric utility that was significantly affected by the disaster was approved by the government in November 2011 and amended in February 2012. The plan included a request for financial support by the Nuclear Damage Liability Facilitation Fund for the then estimated damage amount of ¥1.7 trillion to be compensated by such electric utility as well as a request for all lenders to maintain their outstanding loan balance to such electric utility as of the time of approval of the plan until the approval of the comprehensive special business plan. In May 2012, the comprehensive special business plan was approved by the government. The plan includes measures for strengthening the financial base, based on the current estimated damage amount of ¥2.5 trillion, including a capital injection of ¥1 trillion by the Nuclear Damage Liability Facilitation Fund, which will give it more than 50% of the total voting rights, with conversion rights to acquire additional voting shares to hold more than two-thirds of the total voting rights, as well as new additional loans from its major lenders (including us) totaling ¥1 trillion. Also, it contains measures to improve profitability such as raising electricity rates and cost reduction. The plan was formulated on the assumption that a number of nuclear power facilities will resume their operations in phases.

We did not suffer any losses of employees and suffered only minimal property damage as a result of the earthquake, and the negative impact of the disaster on our financial results for the fiscal year ended March 31, 2012, which was primarily an increase in credit costs, was limited.

 

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Exposure to Troubled European Economies

In Europe, fiscal problems in certain countries are affecting the financial system and the real economy, and the uncertainty concerning European economic activity has clearly become significant and presents a risk of a downturn in the world economy. These countries include Greece, Ireland, Italy, Portugal and Spain. As of March 31, 2012, our exposure to obligors in such countries was not significant. Specifically, our principal banking subsidiaries had no holdings of sovereign debt issued by these countries and a total of approximately $3.8 billion in exposure to obligors in such countries. The breakdown by country was as follows:

 

     As of      Increase
(decrease)
 
     September 30,
2011
     March 31,
2012
    
     (in billions of US dollars)  

Greece

   $ 0.1       $ 0.1       $ 0.0   

Ireland

     0.7         0.4         (0.3

Italy(2)

     1.2         1.5         0.3   

Portugal

     0.4         0.4         0.0   

Spain(2)

     1.8         1.4         (0.4
  

 

 

    

 

 

    

 

 

 

Total

     4.2         3.8         (0.4
  

 

 

    

 

 

    

 

 

 

 

Notes:

(1) Figures on the above table are on a managerial accounting basis.
(2) The obligors in Italy and Spain to which we had exposure consist mainly of highly rated large corporations.
(3) Our exposure to financial institutions that are not state-owned is minimal.

Financial Alternative Dispute Resolution (ADR) Related to Customers’ Losses on Derivatives

After several years of increasing complaints concerning financial instruments, the Financial Services Agency introduced a new financial alternative dispute resolution system in October 2010. In the same month, we entered into an agreement with the Japan Bankers Association, a designated dispute resolution institution, in order to deal expeditiously, fairly and appropriately with our customers’ complaints. In the fiscal year ended March 31, 2012, Mizuho Bank incurred losses related to financial alternative dispute resolutions in relation to customer complaints arising from currency derivative transactions, consisting of ¥20 billion in write-offs made and ¥13 billion in accrual of liabilities related to future write-offs.

Turning Mizuho Trust & Banking, Mizuho Securities and Mizuho Investors Securities into Wholly-owned Subsidiaries

In March 2011, we announced the basic policies for turning Mizuho Trust & Banking, Mizuho Securities and Mizuho Investors Securities into wholly-owned subsidiaries (collectively, the “transactions”) and signed a memorandum of understanding for further consideration and discussion of the details, including the method of the transactions. In April 2011, we and the relevant subsidiaries determined, at their respective meetings of the board of directors, to conduct the transactions by means of a share exchange and signed a share exchange agreement pursuant to the memorandum of understanding. We conducted each share exchange in September 2011. In connection with the transactions, we issued approximately 2,109 million new shares of common stock for use as consideration for the subsidiaries’ stock. The transactions turned the three subsidiaries mentioned above, in which the group respectively had 69.85%, 59.20% and 53.98% interests immediately prior to the transactions, into wholly-owned subsidiaries, and this resulted in a decline in leakage of net income (loss) due to noncontrolling interests in consolidated subsidiaries compared to the fiscal year ended March 31, 2011 because the second half of the fiscal year ended March 31, 2012 reflected the increase in ownership percentage. For further information on the impact of the share exchange transactions on our financial condition, see note 16 to our consolidated financial statements included elsewhere in this report.

In September 2011, The Norinchukin Bank, Mizuho Corporate Bank and Mizuho Securities entered into definitive agreements that expand areas of business cooperation, further enhance a collaborative relationship

 

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between Mizuho Securities and The Norinchukin Bank and maintain the capital relationship between Mizuho Securities and The Norinchukin Bank that existed before Mizuho Securities became a wholly-owned subsidiary. In accordance with such agreements, Mizuho Corporate Bank transferred to The Norinchukin Bank 5.34% of the outstanding shares of common stock of Mizuho Securities.

Japanese Tax Reforms

In December 2011, the Japanese government promulgated a package of tax reforms that included the reducing of the effective corporate tax rate by approximately 5% and the imposition of a new limitation on net operating loss carryforwards. Separately, a law was promulgated that imposes an additional corporate tax during a three-year period to secure funds for reconstruction after the Great East Japan Earthquake that effectively offsets a portion of the foregoing tax reduction. The negative impact of the tax reforms on net income was ¥107.0 billion for the fiscal year ended March 31, 2012 due to the negative impact on our recognition of deferred tax assets.

Critical Accounting Estimates

Note 1 to our consolidated financial statements included elsewhere in this annual report contains a summary of our significant accounting policies. These accounting policies are essential to understanding our financial condition and results of operations. Certain of these accounting policies require management to make critical accounting estimates that involve complex and subjective judgments and the use of assumptions, some of which may be for matters that are inherently uncertain and susceptible to change. Such critical accounting estimates are based on information available to us as of the date of the financial statements and could change from period to period. Critical accounting estimates could also involve estimates for which management could have reasonably used another estimate for the relevant accounting period. The use of different estimates could have a material impact on our financial condition and results of operations. The following is a discussion of significant accounting policies for which critical accounting estimates are used.

Allowance for Loan Losses and Allowance for Losses on Off-Balance-Sheet Instruments

The allowance for loan losses is based on management’s estimate of probable credit losses existing in our lending portfolio, and the allowance for losses on off-balance-sheet instruments is based on management’s estimate of probable losses related to off-balance-sheet arrangements such as guarantees and commitments to extend credit.

The allowance for loan losses is categorized and evaluated using the following methods:

 

   

Allowance based on ASC 310. In accordance with ASC 310, “Receivables” (“ASC 310”), we measure the value of specifically identified impaired loans based on the expected cash flows discounted at the loans’ initial effective interest rates, or as a practical expedient, using the observable market prices or the fair value of collateral if the loan is collateral dependent, when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. The collateral that we obtain for loans consists primarily of real estate or listed securities. In obtaining the collateral, we evaluate the value of the collateral and its legal enforceability, and we also conduct subsequent re-evaluations at least once a year. As to collateral of loans that are collateral dependent, in the case of real estate, valuation is generally conducted by an appraising subsidiary that is independent from our loan origination sections using generally accepted valuation techniques such as (i) the replacement cost approach, (ii) the sales comparison approach or (iii) the income approach, although in the case of large real estate collateral, we generally retain third-party appraisers to conduct the valuation. In the case of securities, such securities are typically those of listed companies and are thus valued using observable market prices. Management identifies impaired loans through the credit quality review process, in which the debtor’s ability to service its debt is assessed. The difference between our evaluation of the value of the impaired loan and its principal amount is the amount of the impairment which is recorded

 

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in the allowance for loan losses. Estimation of future cash flows is based on a comprehensive analysis of the borrower’s ability to service the debt, any progress made on the borrower’s rehabilitation program and the assumptions used therein.

 

   

Allowance based on ASC 450. In accordance with ASC 450, “Contingencies” (“ASC 450”), a formula-based allowance utilizing historical loss factors is applied to certain impaired loans which are aggregated for purposes of measuring impairment, groups of small balance, homogeneous loans and other non-homogeneous loans which have not been identified as impaired. The determination of expected losses is based on a statistical analysis of our historical default and loan loss data, as well as data from third-party sources. The estimation of the formula allowance is back-tested on a periodic basis by comparing the allowance with the actual results subsequent to the balance sheet date.

 

   

Adjustment of ASC 450 Allowance. In addition to the allowance for loan losses based on historical loss factors, the historical loss rate is adjusted, where appropriate, to reflect current factors, such as general economic and business conditions affecting key lending areas, credit quality trends, specific industry conditions and recent loss experience in the segments of the loan portfolio. For loans which are not deemed to be impaired under ASC 310 but to which special isolated risks apply, management assesses each loan individually to determine appropriate allowance amounts in lieu of mechanically applying the ASC 450 formula-based allowance.

We assess probable loss amounts for guarantees using the same categories and evaluation methods as loans. We similarly assess probable loss amounts for loan commitments, taking into account the probability of drawdowns.

The determination of the allowance for loan losses and the allowance for losses on off-balance-sheet instruments requires a great deal of judgment and the use of estimates as discussed above. Furthermore, information available at the time of the determination is limited, and it is not possible to eliminate uncertainty. Significant changes in any of the factors underlying our determination of the allowances could materially affect our financial condition and results of operations. For example, if our current judgment with respect to expected future cash flows differs from actual results, including as a result of an unexpected adverse change in the economic environment in Japan or a sudden and unanticipated failure of a large borrower, or if the value of collateral declines, we may need to increase the allowances with additional charges to earnings.

Valuation of Financial Instruments

ASC 820, “Fair Value Measurement” (“ASC 820”) specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. The standard describes the following three levels of inputs that may be used to measure fair value:

 

Level 1    Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market.
Level 2    Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments. If no quoted market price is available, the fair values of debt securities and over-the-counter derivative contracts in this category are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
Level 3    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques.

 

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For assets and liabilities classified in Level 1 and 2 of the hierarchy, where inputs are principally based on observable market data, there is less judgment or estimate in determining fair value, while the determination of fair value of Level 3 assets and liabilities involves more significant management judgments and estimates. For further information, including valuation methodologies and the use of management estimates and judgments in connection therewith, see note 29 to the consolidated financial statements included elsewhere in this annual report.

Valuation of Deferred Income Taxes

Deferred income taxes reflect the net tax effects of (1) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (2) operating loss and tax credit carryforwards. Pursuant to ASC 740, “Income Taxes” (“ASC 740”), a valuation allowance is recognized for any portion of the deferred tax assets where it is considered more likely than not that it will not be realized, based on projected future income and future reversals of existing taxable temporary differences. Because we have not opted to be subject to consolidated taxation, deferred tax assets and liabilities are calculated separately for each member of our consolidated group.

The determination of a valuation allowance is an inherently uncertain process due to the use of projected future taxable income and subjective assessments in the effectiveness of our available tax planning strategies provided for under ASC 740. For example, variances in future projected operating performance or tax law changes that impact our tax planning strategies could result in a change in the valuation allowance. If we are not able to realize all or part of our net deferred tax assets in the future, an adjustment to our valuation allowance would be charged to income tax expense in the period when such determination is made, and this could materially and adversely affect our financial condition and results of operations.

Pension and Other Employee Benefit Plans

Mizuho Financial Group, its principal banking subsidiaries and certain other subsidiaries sponsor severance indemnities and pension plans, which provide defined benefits to retired employees. Periodic expense and accrued liabilities are computed based on a number of actuarial assumptions, including mortality, withdrawals, discount rates, expected long-term rates of return on plan assets and rates of increase in future compensation levels.

Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore generally affect future pension expenses. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may adversely affect pension expenses in the future.

In estimating the discount rates, we use interest rates on high-quality fixed-income government and corporate bonds that received a rating of AA (Aa) or higher from rating agencies. The durations of such bonds closely match those of the benefit obligations. Assumed discount rates are reevaluated at each measurement date.

The expected rate of return for each asset category is based primarily on various aspects of the long-term prospects for the economy that include historical performance and the market environment.

For further information on our pension and other employee benefits, see note 21 to the consolidated financial statements included elsewhere in this annual report.

 

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Operating Results

The following table shows certain information as to our income, expenses and net income attributable to MHFG shareholders for the fiscal years ended March 31, 2010, 2011 and 2012:

 

     Fiscal years ended March 31,  
     2010     2011      2012  
     (in billions of yen)  

Interest and dividend income

   ¥ 1,632      ¥ 1,460       ¥ 1,437   

Interest expense

     528        449         416   
  

 

 

   

 

 

    

 

 

 

Net interest income

     1,104        1,011         1,021   

Provision (credit) for loan losses

     222        1         (23
  

 

 

   

 

 

    

 

 

 

Net interest income after provision (credit) for loan losses

     882        1,010         1,044   

Noninterest income

     1,331        1,037         1,090   

Noninterest expenses

     1,526        1,436         1,471   
  

 

 

   

 

 

    

 

 

 

Income before income tax expense (benefit)

     687        611         663   

Income tax expense (benefit)

     (360     193         14   
  

 

 

   

 

 

    

 

 

 

Net income

     1,047        418         649   

Less: Net income (loss) attributable to noncontrolling interests

     47        5         (7
  

 

 

   

 

 

    

 

 

 

Net income attributable to MHFG shareholders

   ¥ 1,000      ¥ 413       ¥ 656   
  

 

 

   

 

 

    

 

 

 

Executive Summary

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Net interest income increased by ¥10 billion, or 1.0%, from the previous fiscal year to ¥1,021 billion in the fiscal year ended March 31, 2012 due to an increase in net foreign interest and dividend income of ¥42 billion offset in part by a decrease in net domestic interest and dividend income of ¥32 billion. The increase in net foreign interest and dividend income was due mainly to an increase in interest income from foreign loans as a result of an increase in the average balances, mainly in Asia, offset in part by an increase in interest expense on foreign deposits as a result of an increase in the average balances, which reflects issuances of certificates of deposit. The decrease in net domestic interest and dividend income was due mainly to a decrease in interest income from domestic loans as a result of the decrease in the average yield, which reflects a decline in yen interest rate levels, and the decrease in the average balance, offset in part by a decrease in interest expense on domestic deposits as a result of decrease in average interest rates, which reflects a decline in yen interest rate levels. We had a credit for loan losses of ¥23 billion in the fiscal year ended March 31, 2012 compared to a provision of ¥1 billion in the previous fiscal year due primarily to upgrades in the obligor categories of a broad range of borrowers mainly through our credit management activities, including business revitalization support for borrowers, the effect of which was enhanced against a backdrop of the improving domestic economic environment.

Noninterest income increased by ¥53 billion, or 5.1%, from the previous fiscal year to ¥1,090 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in trading account gains—net of ¥127 billion and an increase in foreign exchange gains—net of ¥42 billion offset in part by investment losses—net of ¥33 billion in the fiscal year ended March 31, 2012, compared to investment gains—net of ¥70 billion in the previous fiscal year. The increase in trading account gains—net was due mainly to an increase in gains related to changes in fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. The increase in foreign exchange gains—net was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2012. The change in investment gains (losses)—net was due mainly to an increase in investment losses related to equity securities and a decrease in investment gains related to bonds. The increase in investment losses related to equity securities was due mainly to an increase in

 

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impairment losses on equity securities as a result of declines in market prices. The decrease in investment gains related to bonds was due mainly to a decrease in gains related to sales of long-term Japanese government bonds.

Noninterest expenses increased by ¥35 billion, or 2.4%, from the previous fiscal year to ¥1,471 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in salaries and employee benefits of ¥34 billion and an increase in other noninterest expenses of ¥15 billion, offset in part by a decrease in general and administrative expenses of ¥23 billion. The increase in salaries and employee benefits was due mainly to the effect of increased employee retirement benefit expenses. The increase in other noninterest expenses was due mainly to losses related to financial alternative dispute resolutions in relation to customer complaints arising from currency derivative transactions. The decrease in general and administrative expenses was due mainly to our efforts to enhance our cost efficiency through detailed reviews.

As a result of the foregoing, income before income tax expense (benefit) increased by ¥52 billion, or 8.5%, from the previous fiscal year to ¥663 billion in the fiscal year ended March 31, 2012. Income tax expense decreased by ¥179 billion, or 92.7%, from the previous fiscal year to ¥14 billion in the fiscal year ended March 31, 2012 due mainly to a decrease in deferred income tax expense.

Net income increased by ¥231 billion, or 55.3%, from the previous fiscal year to ¥649 billion in the fiscal year ended March 31, 2012. Income (loss) attributable to noncontrolling interests was a loss of ¥7 billion compared to an income of ¥5 billion in the previous fiscal year. As a result, net income attributable to MHFG shareholders increased by ¥243 billion, or 58.8%, from the previous fiscal year to ¥656 billion in the fiscal year ended March 31, 2012.

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

Net interest income decreased by ¥93 billion, or 8.4%, from the previous fiscal year to ¥1,011 billion in the fiscal year ended March 31, 2011 due to a decrease in net domestic interest and dividend income of ¥53 billion and a decrease in net foreign interest and dividend income of ¥40 billion. The decrease in net domestic interest and dividend income was due mainly to a decrease in interest income from domestic loans as a result of the decrease in the average yield, which reflects a decline in yen interest rate levels and the decrease in the average balance, offset in part by a decrease in interest expense on domestic interest-bearing deposits and short-term borrowings as a result of decreases in the average interest rates, which reflect a decline in yen interest rate levels. The decrease in net foreign interest and dividend income was due mainly to decreases in interest income from foreign loans and foreign investments as a result of a decrease in the average yields, offset in part by decreases in interest expense on foreign interest-bearing deposits and long-term debt as a result of decreases in the average interest rates, both of which reflect general declines in U.S. dollar and euro interest rate levels. Provision for loan losses decreased by ¥221 billion, or 99.5%, from the previous fiscal year to ¥1 billion in the fiscal year ended March 31, 2011 due mainly to upgrades in obligor category of some borrowers and other factors, as a result of our appropriate credit management while responding to customers’ financing needs.

Noninterest income decreased by ¥294 billion, or 22.1%, from the previous fiscal year to ¥1,037 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to a decrease in trading account gains—net of ¥216 billion and a decrease in other noninterest income of ¥121 billion. The decrease in trading account gains—net was due mainly to the losses incurred by consolidated VIEs, such as stock investment trusts, as a result of a negative change in market conditions, a decrease in gains related to changes in the fair value of derivative financial instruments used to hedge market risks that are not eligible for hedge accounting under U.S. GAAP and a decrease in gains related to changes in fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. The decrease in other noninterest income was due mainly to the absence of a one-time gain relating to the merger of Mizuho Securities and Shinko Securities recorded in the fiscal year ended March 31, 2010.

Noninterest expenses decreased by ¥90 billion, or 5.9%, from the previous fiscal year to ¥1,436 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to a decrease in other noninterest expenses of

 

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¥93 billion and a decrease in salaries and employee benefits of ¥39 billion offset in part by a provision for losses on off-balance-sheet instruments of ¥4 billion compared to a credit for losses on off-balance-sheet instruments of ¥24 billion in the previous fiscal year. The decrease in other noninterest expenses was due mainly to a decrease in net losses on the credit derivatives used by our banking subsidiaries to hedge credit risk of loans. The decrease in salaries and employee benefits was due mainly to the effect of decreased employee retirement benefit expenses as a result of an increase in expected return on plan assets, which reflects various aspects of long-term prospects for the economy, historical performance of investments of plan assets and the market environment, including stock market conditions, at the beginning of the fiscal year, and a decrease in the amortization of net actuarial loss, which primarily reflects past increases in the value of plan assets. The change in provision (credit) for losses on off-balance-sheet instruments was due mainly to an increase in allowance for losses on off-balance-sheet transactions primarily as a result of downgrades in credit ratings of some obligors.

As a result of the foregoing, income before income tax expense (benefit) decreased by ¥76 billion, or 11.1% from the previous fiscal year to ¥611 billion in the fiscal year ended March 31, 2011. We had an income tax expense of ¥193 billion in the fiscal year ended March 31, 2011 compared to an income tax benefit of ¥360 billion in the fiscal year ended March 31, 2010. The expense was the result of a decrease in deferred tax assets.

Net income decreased by ¥629 billion, or 60.1%, from the previous fiscal year to ¥418 billion in the fiscal year ended March 31, 2011. Net income attributable to noncontrolling interests decreased by ¥42 billion, or 89.4%, from the previous fiscal year to ¥5 billion in the fiscal year ended March 31, 2011. As a result, net income attributable to MHFG shareholders decreased by ¥587 billion, or 58.7%, from the previous fiscal year to ¥413 billion in the fiscal year ended March 31, 2011.

 

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Net Interest Income

The following table shows the average balance of interest-earning assets and interest-bearing liabilities, interest amounts and the average interest rates on such assets and liabilities for the fiscal years ended March 31, 2010, 2011 and 2012:

 

    Fiscal years ended March 31,  
    2010     2011     2012  
    Average
balance
    Interest
amount
    Interest
rate
    Average
balance
    Interest
amount
    Interest
rate
    Average
balance
    Interest
amount
    Interest
rate
 
    (in billions of yen, except percentages)  

Domestic:

                 

Interest-bearing deposits in other banks

  ¥ 176      ¥ 1        0.56   ¥ 371      ¥ 1        0.27   ¥ 1,822      ¥ 2        0.13

Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions

    5,712        10        0.17        6,264        10        0.16        6,122        11        0.17   

Trading account assets

    7,561        37        0.49        8,981        33        0.37        8,884        25        0.28   

Investments

    33,275        229        0.69        36,967        214        0.58        39,529        206        0.52   

Loans

    57,074        864        1.51        54,287        759        1.40        53,770        707        1.31   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets

    103,798        1,141        1.10        106,870        1,017        0.95        110,127        951        0.86   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Deposits

    66,946        137        0.21        68,060        86        0.13        68,474        64        0.09   

Debentures

    1,938        12        0.62        1,150        7        0.57        86        0        0.45   

Short-term borrowings(1)

    23,775        48        0.20        22,270        37        0.17        25,591        43        0.17   

Trading account liabilities

    3,099        10        0.33        4,183        14        0.34        3,833        14        0.38   

Long-term debt

    6,972        194        2.79        8,129        186        2.29        8,172        175        2.13   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities

    102,730        401        0.39        103,792        330        0.32        106,156        296        0.28   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

    1,068        740        0.71        3,078        687        0.63        3,971        655        0.58   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Foreign:

                 

Interest-bearing deposits in other banks

    1,992        8        0.41        1,643        8        0.46        3,509        17        0.46   

Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions

    8,412        38        0.45        8,772        44        0.50        9,082        35        0.39   

Trading account assets

    7,669        167        2.18        7,848        170        2.17        8,855        168        1.91   

Investments

    2,335        49        2.10        1,663        34        2.04        1,639        36        2.18   

Loans

    10,206        229        2.25        9,297        187        2.01        11,334        230        2.03   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-earning assets

    30,614        491        1.61        29,223        443        1.51        34,419        486        1.41   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Deposits

    7,794        58        0.74        8,048        48        0.60        9,878        67        0.68   

Short-term borrowings(1)

    11,600        34        0.30        12,312        49        0.40        13,248        34        0.25   

Trading account liabilities

    871        21        2.36        900        17        1.91        892        14        1.58   

Long-term debt

    842        14        1.63        482        5        0.95        650        5        0.84   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total interest-bearing liabilities

    21,107        127        0.60        21,742        119        0.55        24,668        120        0.49   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

    9,507        364        1.01        7,481        324        0.96        9,751        366        0.92   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Total:

                 

Total interest-earning assets

    134,412        1,632        1.21        136,093        1,460        1.07        144,546        1,437        0.99   

Total interest-bearing liabilities

    123,837        528        0.43        125,534        449        0.36        130,824        416        0.32   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

Net

  ¥ 10,575      ¥ 1,104        0.78      ¥ 10,559      ¥ 1,011        0.71      ¥ 13,722      ¥ 1,021        0.67   
 

 

 

   

 

 

     

 

 

   

 

 

     

 

 

   

 

 

   

 

Note:

(1) Short-term borrowings consist of due to trust accounts, call money and funds purchased, payables under repurchase agreements and securities lending transactions, commercial paper and other short-term borrowings.

 

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Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Interest and dividend income decreased by ¥23 billion, or 1.6%, from the previous fiscal year to ¥1,437 billion in the fiscal year ended March 31, 2012. Domestic interest and dividend income accounted for ¥951 billion of the total amount, a decrease of ¥66 billion from the previous fiscal year, and foreign interest and dividend income accounted for ¥486 billion, an increase of ¥43 billion from the previous fiscal year.

The decrease in domestic interest and dividend income was due mainly to the decrease in interest income from domestic loans. The decrease in interest income from domestic loans was due mainly to the decrease in the average yield, reflecting a decline in yen interest rate levels as well as the decrease in the average balance. Changes in the average yields on domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥74 billion, and changes in the average balances of domestic interest-earning assets contributed to an overall increase in interest and dividend income of ¥8 billion, resulting in the ¥66 billion decrease in domestic interest and dividend income.

The increase in foreign interest and dividend income was due mainly to the increase in interest from foreign loans. The increase in interest income from foreign loans was due mainly to an increase in the average balance, mainly in Asia. Changes in the average yields on foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥26 billion, and changes in the average balances of foreign interest-earning assets contributed to an overall increase in interest and dividend income of ¥69 billion, resulting in the ¥43 billion increase in foreign interest and dividend income.

Interest expense decreased by ¥33 billion, or 7.3%, from the previous fiscal year to ¥416 billion in the fiscal year ended March 31, 2012. Domestic interest expense accounted for ¥296 billion of the total amount, a decrease of ¥34 billion from the previous fiscal year, and foreign interest expense accounted for ¥120 billion of the total amount, an increase of ¥1 billion from the previous fiscal year.

The decrease in domestic interest expense was due mainly to a decrease in interest expense on domestic deposits. The decrease in interest expense on domestic deposits was due to a decrease in the average interest rate, reflecting a decline in yen interest rate levels. The changes in the average interest rates on domestic interest-bearing liabilities contributed to an overall decrease in interest expense of ¥35 billion, and the changes in the average balances of domestic interest-bearing liabilities contributed to an overall increase in interest expense of ¥1 billion, resulting in the ¥34 billion decrease in domestic interest expense.

The increase in foreign interest expense was due mainly to increases in interest expense on foreign deposits offset in part by a decrease in interest expense on foreign short-term borrowings. The increase in foreign interest expense on foreign deposits was due mainly to an increase in the average balance, primarily as a result of issuances of certificates of deposits. The decrease in foreign interest expense on foreign short-term borrowings was due to a decrease in the average interest rate, reflecting the decline in U.S. dollar and euro interest rate levels. The changes in the average interest rates on foreign interest-bearing liabilities contributed to an overall decrease in interest expense of ¥15 billion, and the changes in the average balances of foreign interest-bearing liabilities contributed to an overall increase in interest expense of ¥16 billion, resulting in the ¥1 billion increase in foreign interest expense.

The decrease of 0.05% in the average yield on loans in the fiscal year ended March 31, 2012 compared to the fiscal year ended March 31, 2011 was larger than the decrease of 0.01% in the average rate on interest-bearing deposits over the same period.

As a result of the foregoing, net interest income increased by ¥10 billion, or 1.0%, from the previous fiscal year to ¥1,021 billion. The average interest rate spread decreased by 0.04% to 0.67%, with the domestic average interest rate spread decreasing by 0.05% due mainly to a decrease in the average yield on loans, which more than offset the effect of a decrease in the average interest rate on deposits, both of which reflect declining yen interest

 

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rate levels, and the foreign average interest rate spread decreasing by 0.04% due mainly to the effect of the decrease in the average interest yield on interest-earning assets exceeding the effect of the decrease in the average rate on interest-bearing liabilities, both of which reflects declining U.S. dollar and euro interest rate levels.

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

Interest and dividend income decreased by ¥172 billion, or 10.5%, from the previous fiscal year to ¥1,460 billion in the fiscal year ended March 31, 2011. Domestic interest and dividend income accounted for ¥1,017 billion of the total amount, a decrease of ¥124 billion from the previous fiscal year, and foreign interest and dividend income accounted for ¥443 billion, a decrease of ¥48 billion from the previous fiscal year.

The decrease in domestic interest and dividend income was due mainly to the decrease in interest income from domestic loans. The decrease in interest income from domestic loans was due mainly to the decrease in the average yield, reflecting a decline in yen interest rate levels, and the decrease in the average balance. Changes in the average yields on domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥110 billion, and changes in the average balances of domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥14 billion, resulting in the ¥124 billion decrease in domestic interest and dividend income.

The decrease in foreign interest and dividend income was due mainly to decreases in interest from foreign loans and foreign investments. The decreases in interest income from foreign loans and foreign investments were due mainly to a decrease in the average yields, reflecting general declines in U.S. dollar and euro interest rate levels. Changes in the average yields on foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥20 billion, and changes in the average balances of foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥28 billion, resulting in the ¥48 billion decrease in foreign interest and dividend income.

Interest expense decreased by ¥79 billion, or 15.0%, from the previous fiscal year to ¥449 billion in the fiscal year ended March 31, 2011. Domestic interest expense accounted for ¥330 billion of the total amount, a decrease of ¥71 billion from the previous fiscal year, and foreign interest expense accounted for ¥119 billion of the total amount, a decrease of ¥8 billion from the previous fiscal year.

The decrease in domestic interest expense was due mainly to decreases in interest expense on domestic interest-bearing deposits and short-term borrowings. The decreases in interest expense on domestic interest-bearing deposits and short-term borrowings were due mainly to decreases in the average interest rates, reflecting a decline in yen interest rate levels. The changes in the average interest rates on domestic interest-bearing liabilities contributed to an overall decrease in interest expense of ¥96 billion, and the changes in the average balances of domestic interest-bearing liabilities contributed to an overall increase in interest expense of ¥25 billion, resulting in the ¥71 billion decrease in domestic interest expense.

The decrease in foreign interest expense was due mainly to decreases in interest expense on foreign interest-bearing deposits and long-term debt. These decreases were due mainly to decreases in the average interest rates, reflecting general declines in U.S. dollar and euro interest rate levels. The changes in the average interest rates on foreign interest-bearing liabilities contributed to an overall decrease in interest expense of ¥9 billion, and the changes in the average balances of foreign interest-bearing liabilities contributed to an overall increase in interest expense of ¥1 billion, resulting in the ¥8 billion decrease in foreign interest expense.

The decrease of 0.14% in the average yield on loans in the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010 was larger than the decrease of 0.08% in the average rate on interest-bearing deposits over the same period. Taking into account only domestic loans and domestic deposits, the difference between the decrease of 0.11% in the average yield on domestic loans and the decrease of 0.08% in the average rate on domestic interest-bearing deposits was not significant.

 

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As a result of the foregoing, net interest income decreased by ¥93 billion, or 8.4%, from the previous fiscal year to ¥1,011 billion. The average interest rate spread decreased by 0.07% to 0.71%, with the domestic average interest rate spread decreasing by 0.08% due mainly to a decrease in the average yield on loans, which more than offset the effect of a decrease in the average interest rate on deposits, both of which reflect declining yen interest rate levels, and the foreign average interest rate spread decreasing by 0.05% due mainly to the effect of the decrease in the average yield on loans exceeding the effect of the decrease in the average interest rate on deposits, both of which reflects declining U.S. dollar and euro interest rate levels.

Provision (Credit) for Loan Losses

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

We had a credit for loan losses of ¥23 billion in the fiscal year ended March 31, 2012 compared to a provision for loan losses of ¥1 billion in the previous fiscal year. The change was due primarily to upgrades in the obligor categories of a broad range of borrowers mainly through our credit management activities, including business revitalization support for borrowers, the effect of which was enhanced against a backdrop of the improving domestic economic environment as described in “—Overview—Operating Environment,” reflecting the continuing gradual recovery of the Japanese economy. See “—Financial Condition—Assets—Allowance for Loan Losses—Provision for loan losses.”

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

Provision for loan losses decreased by ¥221 billion, or 99.5%, from the previous fiscal year to ¥1 billion in the fiscal year ended March 31, 2011. The decrease was due primarily to upgrades in the obligor categories of a broad range of borrowers mainly through our credit management activities, the effect of which was enhanced against a backdrop of the improving domestic economic environment as described in “—Overview—Operating Environment,” reflecting the gradual recovery of the Japanese economy from the effects of the global economic crisis stemming from the U.S. subprime problems.

Noninterest Income

The following table shows a breakdown of noninterest income for the fiscal years ended March 31, 2010, 2011 and 2012:

 

     Fiscal years ended March 31,  
     2010     2011     2012  
     (in billions of yen)  

Fees and commissions

   ¥ 586      ¥ 582      ¥ 575   

Fees and commissions from securities-related business

     115        126        116   

Fees and commissions from remittance business

     105        105        105   

Fees and commissions from deposits, debentures and lending business

     95        95        98   

Trust fees

     49        47        46   

Fees for other customer services

     222        209        210   

Foreign exchange gains (losses)—net

     (2     56        98   

Trading account gains (losses)—net

     422        206        333   

Investment gains (losses)—net

     67        70        (33

Investment gains (losses) related to bonds

     (2     67        42   

Investment gains (losses) related to equity securities

     55        (12     (65

Others

     14        15        (10

Gains on disposal of premises and equipment

     28        14        20   

Other noninterest income

     230        109        97   
  

 

 

   

 

 

   

 

 

 

Total noninterest income

   ¥ 1,331      ¥ 1,037      ¥ 1,090   
  

 

 

   

 

 

   

 

 

 

 

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Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Noninterest income increased by ¥53 billion, or 5.1%, from the previous fiscal year to ¥1,090 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in trading account gains—net of ¥127 billion and an increase in foreign exchange gains—net of ¥42 billion, offset in part by investment losses—net of ¥33 billion in the fiscal year ended March 31, 2012, compared to investment gains—net of ¥70 billion in the previous fiscal year.

Foreign exchange gains (losses)—net

Foreign exchange gains—net increased by ¥42 billion, or 75.0%, from the previous fiscal year to ¥98 billion in the fiscal year ended March 31, 2012. The increase was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2012.

Trading account gains (losses)—net

Trading account gains—net increased by ¥127 billion, or 61.7%, from the previous fiscal year to ¥333 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in gains related to changes in the fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. For further information on the fair value option, see note 29 to our consolidated financial statements included elsewhere in this annual report.

Investment gains (losses)—net

Investment gains (losses)—net was a loss of ¥33 billion in the fiscal year ended March 31, 2012 compared to a gain of ¥70 billion in the previous fiscal year. The change was due mainly to an increase in investment losses related to equity securities of ¥53 billion from the previous fiscal year to ¥65 billion in the fiscal year ended March 31, 2012 and a decrease in investment gains related to bonds of ¥25 billion from the previous fiscal year to ¥42 billion in the fiscal year ended March 31, 2012. The increase in investment losses related to equity securities was due mainly to an increase in impairment losses on equity securities as a result of declines in stock market prices in the fiscal year ended March 31, 2012. The decrease in investment gains related to bonds was due mainly to a decrease in gains related to sales of long-term Japanese government bonds. For further information, see note 4 to our consolidated financial statements included elsewhere in this annual report.

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

Noninterest income decreased by ¥294 billion, or 22.1% from the previous fiscal year to ¥1,037 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to a decrease in trading account gains—net of ¥216 billion and a decrease in other noninterest income of ¥121 billion.

Fees and commissions

Fees and commissions income decreased by ¥4 billion, or 0.7%, from the previous fiscal year to ¥582 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to a decrease of ¥13 billion in fees for other customer services offset in part by an increase of ¥11 billion in fees and commissions from securities-related business. The decrease in fees for other customer services was due mainly to a decrease in fees from consulting business by our securities subsidiary. The increase in fees and commissions from securities-related business was due mainly to an increase in fees and commissions related to investment trusts and individual annuities.

Foreign exchange gains (losses)—net

Foreign exchange gains (losses)—net was a gain of ¥56 billion in the fiscal year ended March 31, 2011 compared to a loss of ¥2 billion in the previous fiscal year. The change was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2011.

 

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Trading account gains (losses)—net

Trading account gains—net decreased by ¥216 billion, or 51.2%, from the previous fiscal year to ¥206 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to the losses incurred by consolidated VIEs, such as stock investment trusts, as a result of a negative change in market conditions, a decrease in gains related to changes in the fair value of derivative financial instruments used to hedge market risks that are not eligible for hedge accounting under U.S. GAAP and a decrease in gains related to changes in the fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. For further information on the fair value option, see note 29 to our consolidated financial statements included elsewhere in this annual report.

Investment gains (losses)—net

Investment gains—net increased by ¥3 billion, or 4.5%, from the previous year to ¥70 billion in the fiscal year ended March 31, 2011. The increase was due mainly to investment gains related to bonds of ¥67 billion recorded in the fiscal year ended March 31, 2011, compared to investment losses related to bonds of ¥2 billion in the previous fiscal year, offset in part by investment losses related to equity securities of ¥12 billion recorded in the fiscal year ended March 31, 2011 compared to investment gains related to equity securities of ¥55 billion in the previous fiscal year. The change in investment gains (losses) related to bonds between the fiscal year ended March 31, 2010 and the fiscal year ended March, 31, 2011 was due mainly to an increase in gains related to bonds as a result of flexible and timely operations properly interpreting market trends especially relating to the decline in interest rates. The change in investment gains (losses) related to equity securities between the fiscal year ended March 31, 2010 and the fiscal year ended March, 31, 2011 was due mainly to declines in stock markets, including declines related to the Great East Japan Earthquake. For further information, see note 4 to our consolidated financial statements included elsewhere in this annual report.

Gains on disposal of premises and equipment

Gains on disposal of premises and equipment decreased by ¥14 billion, or 50.0%, from the previous fiscal year to ¥14 billion in the fiscal year ended March 31, 2011 due mainly to decreased gains on the sale of real estate.

Other noninterest income

Other noninterest income decreased by ¥121 billion, or 52.6%, from the previous fiscal year to ¥109 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to the absence of a one-time gain relating to the merger of Mizuho Securities and Shinko Securities recorded in the fiscal year ended March 31, 2010.

Noninterest Expenses

The following table shows a breakdown of noninterest expenses for the fiscal years ended March 31, 2010, 2011 and 2012:

 

     Fiscal years ended March 31,  
     2010     2011      2012  
     (in billions of yen)  

Salaries and employee benefits

   ¥ 592      ¥ 553       ¥ 587   

General and administrative expenses

     497        500         477   

Impairment of goodwill

     —          9         6   

Occupancy expenses

     172        170         175   

Fees and commission expenses

     92        96         108   

Provision (credit) for losses on off-balance-sheet instruments

     (24     4         (1

Other noninterest expenses

     197        104         119   
  

 

 

   

 

 

    

 

 

 

Total noninterest expenses

   ¥ 1,526      ¥ 1,436       ¥ 1,471   
  

 

 

   

 

 

    

 

 

 

 

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Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Noninterest expenses increased by ¥35 billion, or 2.4%, from the previous fiscal year to ¥1,471 billion in the fiscal year ended March 31, 2012. The increase was due mainly to an increase in salaries and employee benefits of ¥34 billion and an increase in other noninterest expenses of ¥15 billion, offset in part by a decrease in general and administrative expenses of ¥23 billion. The increase in salaries and employee benefits was due mainly to the effect of increased employee retirement benefit expenses. The increase in other noninterest expenses was due mainly to losses incurred by Mizuho Bank related to financial alternative dispute resolutions in relation to customer complaints arising from currency derivative transactions. The decrease in general and administrative expenses was due mainly to our efforts to enhance our cost efficiency through detailed reviews.

Salaries and employee benefits

Salaries and employee benefits increased by ¥34 billion, or 6.1%, from the previous fiscal year to ¥587 billion in the fiscal year ended March 31, 2012 due mainly to the effect of increased employee retirement benefit expenses as a result of a decline in expected return on plan assets, which reflects various aspects of long-term prospects for the economy, historical performance of investments of plan assets and the market environment, including stock market conditions, at the beginning of the fiscal year, an increase in the amortization of net actuarial loss, which primarily reflects past declines in the value of plan assets, and a premium allowance for a voluntary early retirement program of a securities subsidiary. Additional information regarding pension and other employee benefit plans is included in note 21 to our consolidated financial statements included elsewhere in this annual report.

General and administrative expenses

General and administrative expenses decreased by ¥23 billion, or 4.6%, from the previous fiscal year to ¥477 billion in the fiscal year ended March 31, 2012. The decrease was due mainly to our efforts to enhance our cost efficiency through detailed reviews, especially outsourcing costs.

Other noninterest expenses

Other noninterest expenses increased by ¥15 billion, or 14.4%, from the previous fiscal year to ¥119 billion in the fiscal year ended March 31, 2012. The increase was due mainly to losses incurred by Mizuho Bank related to financial alternative dispute resolutions in relation to customer complaints arising from currency derivative transactions. See “—Overview—Others—Financial Alternative Dispute Resolution (ADR) Related to Customers’ Losses on Derivatives.”

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

Noninterest expenses decreased by ¥90 billion, or 5.9%, from the previous fiscal year to ¥1,436 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to a decrease in other noninterest expenses of ¥93 billion and a decrease in salaries and employee benefits of ¥39 billion offset in part by a provision for losses on off-balance-sheet instruments of ¥4 billion compared to a credit for losses on off-balance-sheet instruments of ¥24 billion in the previous fiscal year.

Salaries and employee benefits

Salaries and employee benefits decreased by ¥39 billion, or 6.6%, from the previous fiscal year to ¥553 billion in the fiscal year ended March 31, 2011 due mainly to the effect of decreased employee retirement benefit expenses as a result of an increase in expected return on plan assets, which reflects various aspects of long-term prospects for the economy, historical performance of investments of plan assets and the market environment, including stock market conditions, at the beginning of the fiscal year, and a decrease in the amortization of net actuarial loss, which primarily reflects past increases in the value of plan assets. Additional information regarding pension and other employee benefit plans is included in note 21 to our consolidated financial statements included elsewhere in this annual report.

 

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General and administrative expenses

General and administrative expenses increased by ¥3 billion, or 0.6%, from the previous fiscal year to ¥500 billion in the fiscal year ended March 31, 2011. The increase was due mainly to an increase in tax expenses.

Impairment of goodwill

Impairment of goodwill of ¥9 billion was incurred in the fiscal year ended March 31, 2011 due to the carrying amount of Mizuho Investors Securities exceeding its fair value as a result of a decrease in the market price of common stock of Mizuho Investors Securities. Additional information regarding the impairment of goodwill is included in note 8 to our consolidated financial statements included elsewhere in this annual report.

Occupancy expenses

Occupancy expenses decreased by ¥2 billion, or 1.2%, from the previous fiscal year to ¥170 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to a decrease in rent expenses of tangible fixed assets and a decrease in losses on disposal of premises and equipment offset in part by an increase in depreciation expenses of tangible fixed assets.

Provision (credit) for losses on off-balance-sheet instruments

Provision (credit) for losses on off-balance-sheet instruments was a provision of ¥4 billion in the fiscal year ended March 31, 2011 compared to a credit of ¥24 billion in the previous fiscal year. The change was due mainly to an increase in allowance for losses on off-balance-sheet transactions primarily as a result of downgrades in credit ratings of some obligors.

Other noninterest expenses

Other noninterest expenses decreased by ¥93 billion, or 47.2%, from the previous fiscal year to ¥104 billion in the fiscal year ended March 31, 2011. The decrease was due mainly to a decrease in net losses on the credit derivatives used by our banking subsidiaries to hedge credit risk of loans.

Income Tax Expense (Benefit)

The following table shows the components of income tax expense (benefit) for the fiscal years ended March 31, 2010, 2011 and 2012:

 

     Fiscal years ended March 31,  
         2010             2011              2012      
     (in billions of yen)  

Current:

       

Domestic

   ¥ 11      ¥ 7       ¥ 22   

Foreign

     6        11         33   
  

 

 

   

 

 

    

 

 

 

Total current tax expense

     17        18         55   

Deferred:

       

Domestic

     (378     175         (37

Foreign

     1        0         (4
  

 

 

   

 

 

    

 

 

 

Total deferred tax expense (benefit)

     (377     175         (41
  

 

 

   

 

 

    

 

 

 

Total income tax expense (benefit)

   ¥ (360   ¥ 193       ¥ 14   
  

 

 

   

 

 

    

 

 

 

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Income tax expense decreased by ¥179 billion, or 92.7%, from the previous fiscal year to ¥14 billion in the fiscal year ended March 31, 2012 due mainly to a decrease in deferred income tax expense.

 

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Deferred income tax expense (benefit) was a benefit of ¥41 billion in the fiscal year ended March 31, 2012 compared to an expense of ¥175 billion in the previous fiscal year. The benefit was the result of an increase in deferred tax assets, net of valuation allowance, reflecting an increase in our estimation of future taxable income offset in part by the reduction of the effective statutory tax rate as a result of Japanese tax reforms. For further information on Japanese tax reforms, see “Overview—Others—Japanese Tax Reforms.”

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

Income tax expense (benefit) was an expense of ¥193 billion in the fiscal year ended March 31, 2011 compared to a benefit of ¥360 billion in the previous fiscal year. Current income tax expense in the fiscal year ended March 31, 2011 increased by ¥1 billion to ¥18 billion from the previous fiscal year.

Deferred income tax expense (benefit) was an expense of ¥175 billion in the fiscal year ended March 31, 2011 compared to a benefit of ¥377 billion in the previous fiscal year. The expense was the result of a decrease in deferred tax assets, net of valuation allowance, due primarily to a decrease in our estimation of future taxable income as a result of the decrease in net unrealized gains on available-for-sale securities reflecting primarily the decline in domestic stock markets.

Gross deferred tax assets decreased by ¥302 billion in the fiscal year ended March 31, 2011 due mainly to a decrease in net operating loss carryforwards resulting from its expiration.

The decrease in valuation allowance was smaller than the decrease in gross deferred tax assets due mainly to a decrease in our estimation of future taxable income. As a result, deferred tax assets, net of valuation allowance decreased by ¥176 billion from the end of the previous fiscal year to ¥1,311 billion at March 31, 2011.

The following table shows components of deferred tax assets as of March 31, 2010, 2011 and 2012:

 

     Fiscal years ended March 31,  
     2010     2011     2012  
     (in billions of yen)  

Deferred tax assets:

      

Investments

   ¥ 1,155      ¥ 1,097      ¥ 1,064   

Allowance for loan losses

     487        417        333   

Trading account assets

     75        92        59   

Prepaid pension cost and accrued pension liabilities

     41        72        12   

Financial Stabilization Funds

     17        12        —     

Premises and equipment

     15        7        —     

Undistributed earning of subsidiaries

     5        —          1   

Net operating loss carryforwards

     1,996        1,790        1,476   

Other

     300        302        282   
  

 

 

   

 

 

   

 

 

 

Gross deferred tax assets

     4,091        3,789        3,227   
  

 

 

   

 

 

   

 

 

 

Valuation allowance

     (2,604     (2,478     (1,952
  

 

 

   

 

 

   

 

 

 

Deferred tax assets, net of valuation allowance

     1,487        1,311        1,275   

Deferred tax liabilities:

      

Available-for-sale securities

     551        355        369   

Derivative financial instruments

     43        32        28   

Premises and equipment

     —          —          4   

Undistributed earnings of subsidiaries

     —          6        —     

Other

     79        76        53   
  

 

 

   

 

 

   

 

 

 

Gross deferred tax liabilities

     673        469        454   
  

 

 

   

 

 

   

 

 

 

Net deferred tax assets

   ¥ 814      ¥ 842      ¥ 821   
  

 

 

   

 

 

   

 

 

 

 

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Net Income (Loss) Attributable to Noncontrolling Interests

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

Net income (loss) attributable to noncontrolling interests was a loss of ¥7 billion in the fiscal year ended March 31, 2012 compared to income of ¥5 billion in the previous fiscal year due mainly to an increase in the allocation of losses incurred by our securities subsidiaries in the fiscal year ended March 31, 2012.

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

Net income attributable to noncontrolling interests decreased by ¥42 billion, or 89.4%, from the previous fiscal year to ¥5 billion in the fiscal year ended March 31, 2011 due mainly to the allocation of losses incurred by our securities subsidiaries in the fiscal year ended March 31, 2011 which recorded gains in the fiscal year ended March 31, 2010.

Net Income Attributable to MHFG Shareholders

Fiscal Year Ended March 31, 2012 Compared to Fiscal Year Ended March 31, 2011

As a result of the foregoing, net income attributable to MHFG shareholders increased by ¥243 billion, or 58.8%, from the previous fiscal year to ¥656 billion in the fiscal year ended March 31, 2012.

Fiscal Year Ended March 31, 2011 Compared to Fiscal Year Ended March 31, 2010

As a result of the foregoing, net income attributable to MHFG shareholders decreased by ¥587 billion, or 58.7%, from the previous fiscal year to ¥413 billion in the fiscal year ended March 31, 2011.

Business Segments Analysis

Our operating segments are based on the nature of the products and services provided, the type of customer and our management organization. The business segment information set forth below is derived from the internal management reporting systems used by management to measure the performance of our business segments. We measure the performance of each of our operating segments primarily in terms of “net business profits” in accordance with internal managerial accounting rules and practices. Net business profits is used in Japan as a measure of the profitability of core banking operations and is defined as gross profits (or the sum of net interest income, fiduciary income, net fee and commission income, net trading income and net other operating income) less general and administrative expenses (excluding non-recurring expenses). Measurement by net business profits is required for regulatory reporting to the Financial Services Agency. Therefore, the format and information are presented primarily on the basis of Japanese GAAP and are not consistent with the consolidated financial statements prepared in accordance with U.S. GAAP. A reconciliation of total net business profits with income before income tax expense (benefit) under U.S. GAAP is provided in note 31 to our consolidated financial statements included elsewhere in this annual report.

We manage our business portfolio through three Global Groups: the Global Corporate Group; the Global Retail Group; and the Global Asset & Wealth Management Group. The Global Corporate Group consists primarily of Mizuho Corporate Bank and Mizuho Securities, the Global Retail Group consists primarily of Mizuho Bank and Mizuho Investors Securities, and the Global Asset & Wealth Management Group consists primarily of Mizuho Trust & Banking. Operating segments of Mizuho Corporate Bank and Mizuho Bank are aggregated within each entity based on customer characteristics and functions. Operating segments of Mizuho Corporate Bank are aggregated into three reportable segments, domestic, international, and trading and others. Operating segments of Mizuho Bank are also aggregated into three reportable segments, retail banking, corporate banking, and trading and others. In addition to the three Global Groups, subsidiaries that provide services to a wide range of customers and that do not belong to a specific Global Group are aggregated in Others.

 

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The Global Corporate Group

Mizuho Corporate Bank

Mizuho Corporate Bank is the main operating company of the Global Corporate Group and provides banking and other financial services to large corporations, financial institutions, public sector entities, foreign corporations, including foreign subsidiaries of Japanese corporations, and foreign governmental entities.

Domestic

This segment consists of the following three units of Mizuho Corporate Bank: corporate banking, global investment banking and global transaction banking. This segment provides a variety of financial products and services to large corporations, financial institutions and public sector entities in Japan. The products and services it offers include commercial banking, advisory services, syndicated loan arrangements and structured finance.

International

This segment mainly offers commercial banking and foreign exchange transaction services to foreign corporations, including foreign subsidiaries of Japanese corporations, through Mizuho Corporate Bank’s overseas network.

Trading and others

This segment consists of the global markets unit and the global asset management unit. This segment supports the domestic and international segments in offering derivatives and other risk hedging products to satisfy Mizuho Corporate Bank’s customers’ financial and business risk control requirements. It is also engaged in Mizuho Corporate Bank’s proprietary trading, such as foreign exchange and bond trading, and asset and liability management. This segment also includes costs incurred by headquarters functions of Mizuho Corporate Bank.

Mizuho Securities

Mizuho Securities is the securities arm of the Global Corporate Group and provides full-line securities services to corporations, financial institutions, public sector entities and individuals.

Others

This segment consists of Mizuho Corporate Bank’s subsidiaries other than Mizuho Securities, but includes Mizuho Securities’ subsidiaries. These subsidiaries offer financial products and services in specific areas of business or countries mainly to customers of the Global Corporate Group. This segment also includes elimination of transactions between companies within the Global Corporate Group.

The Global Retail Group

Mizuho Bank

Mizuho Bank is the main operating company of the Global Retail Group. Mizuho Bank provides banking and other financial services mainly to individuals, SMEs and middle-market corporations through its domestic branches and ATM network.

Retail banking

This segment offers banking products and services, including housing and other personal loans, credit cards, deposits, investment products and consulting services, to Mizuho Bank’s individual customers through its nationwide branches and ATM network, as well as telephone and Internet banking services.

 

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Corporate banking

This segment provides loans, syndicated loan arrangements, structured finance, advisory services, other banking services and capital markets financing to SMEs, middle-market corporations, local governmental entities and other public sector entities in Japan.

Trading and others

This segment supports the retail banking and corporate banking segments in offering derivatives and other risk hedging products to satisfy Mizuho Bank’s customers’ financial and business risk control requirements. It is also engaged in Mizuho Bank’s proprietary trading, such as foreign exchange and bond trading, and asset and liability management. This segment also includes costs incurred by headquarters functions of Mizuho Bank.

Mizuho Investors Securities

Mizuho Investors Securities offers securities services to individuals and corporate customers of the Global Retail Group and provides those corporate customers with support in procuring funds through capital markets.

Others

This segment consists of Mizuho Bank’s subsidiaries other than Mizuho Investors Securities. These subsidiaries, such as Mizuho Capital and Mizuho Business Financial Center, offer financial products and services in specific areas of business to customers of the Global Retail Group. This segment also includes elimination of transactions between companies within the Global Retail Group.

The Global Asset & Wealth Management Group

Mizuho Trust & Banking

Mizuho Trust & Banking is the main operating company of the Global Asset & Wealth Management Group and offers products and services related to trust, real estate, securitization and structured finance, pension and asset management and stock transfers.

Others

This segment includes companies other than Mizuho Trust & Banking that are a part of the Global Asset & Wealth Management Group. These companies include Trust & Custody Services Bank, Mizuho Asset Management, DIAM, which is an equity-method affiliate, and Mizuho Private Wealth Management. They offer products and services related to trust and custody, asset management and private banking. This segment also includes elimination of transactions between companies within the Global Asset & Wealth Management Group.

Others

This segment consists of Mizuho Financial Group and its subsidiaries that do not belong to a specific Global Group but provide their services to a wide range of customers. Under this segment, we offer non-banking services, including research and consulting services through Mizuho Research Institute, information technology-related services through Mizuho Information & Research Institute and advisory services to financial institutions through Mizuho Financial Strategy. This segment also includes elimination of transactions between the Global Groups.

The information below for reportable segments is derived from our internal management reporting system.

 

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Results of Operations by Business Segment

Consolidated Results of Operations

Consolidated gross profits for the fiscal year ended March 31, 2012 were ¥2,003.1 billion, a decrease of ¥22.2 billion compared to the fiscal year ended March 31, 2011. Consolidated general and administrative expenses (excluding non-recurring expenses) for the fiscal year ended March 31, 2012 were ¥1,206.3 billion, an increase of ¥12.0 billion compared to the fiscal year ended March 31, 2011. Consolidated net business profits for the fiscal year ended March 31, 2012 were ¥719.1 billion, a decrease of ¥22.6 billion compared to the fiscal year ended March 31, 2011.

Global Corporate Group Financial Results

The following table shows gross profits, general and administrative expenses (excluding non-recurring expenses) and net business profits for the Global Corporate Group for the fiscal years ended March 31, 2010, 2011 and 2012:

 

    Mizuho Corporate Bank     Mizuho
Securities
    Others     Total
Global
Corporate
Group
 
    Domestic     International     Trading
and others
    Subtotal        
    (in billions of yen)  

Fiscal year ended March 31, 2010:

             

Gross profits:

             

Net interest income (expenses)

  ¥ 175.0      ¥ 85.8      ¥ 184.0      ¥ 444.8      ¥ (10.7   ¥ 36.5      ¥ 470.6   

Net noninterest income

    110.7        31.7        55.1        197.5        188.5        63.9        449.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    285.7        117.5        239.1        642.3        177.8        100.4        920.5   

General and administrative expenses

    97.5        54.4        95.0        246.9        153.4        77.8        478.1   

Others

    —          —          —          —          —          (11.8     (11.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net business profits

  ¥ 188.2      ¥ 63.1      ¥ 144.1      ¥ 395.4      ¥ 24.4      ¥ 10.8      ¥ 430.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fiscal year ended March 31, 2011: