Trillion-Dollar Mizuho Megagroup Debuts

Combined Reports

Published: October 3, 2000 (Issue # 608)

TOKYO - Japan's Mizuho Financial Group made its official debut on Friday as the world's first trillion-dollar banking group and said its goal was to join the ranks of the world's top five financial players.

The megabank group was born when three top Japanese commercial banks, Dai-Ichi Kangyo Bank, Industrial Bank of Japan and Fuji Bank, came under the umbrella of a joint holding company, Mizuho Holdings Inc.

"Mizuho does not only become a financial group that enjoys overwhelming superiority in the home market, but also wins a ticket to be a top-five power player on the global financial stage," said Katsuyuki Sugita, president and co-chief executive officer of Mizuho Holdings.

Speaking at the opening ceremony, Sugita said the group's strength lies in its solid client base in Japan and its ability to offer integrated financial services, as well as increased information technology investment in growth business arenas.

The three banks that will form Mizuho had combined assets of 134.4 trillion yen ($1.25 trillion), wresting the title of world's biggest bank from Germany's Deutsche Bank

But bigger may not mean better, analysts said.

"I don't think Mizuho will be able to compete with foreign banks in the overseas market anytime soon," said Nozomu Kunishige, senior banking analyst at Lehman Brothers. Low business efficiency and a lack of clout in the high-margin investment banking business are often cited as prime drawbacks.

"Still, it will have new business chances based on its solid client base at home," he said

Mizuho has a total 28.5 trillion yen worth of outstanding lending to major companies and holds individual deposits of 31.1 trillion yen. Both are the biggest in Japan. It has business relations with 81 percent of listed companies throughout Japan.

The huge size of its operations could help Mizuho cement its lead in the domestic industry, but analysts question whether size will matter if it slows down the pace of much-needed restructuring.

Credit rating agency Standard & Poor's Corp. on Friday warned of mounting challenges for Mizuho, including the sheer complexity of a three-bank tie-up, their relatively small weight in profitable retail businesses, weaker capital quality compared to other major Japanese bank groups and weak earnings capacity.

S&P said the group's big franchise would help it fight increasing competition in the industry while diversifying portfolios outside of traditional corporate lending. But it added: "It will take time to improve the banks' financial profiles to levels on par with that of their international peers."

Earnings, S&P said, will continue to be pressured by asset quality problems.

Despite its mammoth size, Mizuho is expected to be less profitable than global peers that have nurtured lucrative revenue streams by building investment banking and asset management units.

Mizuho aims for a return on equity of 12 percent in the year to March 2006, up from 4.2 percent in 1999-2000 but still below top foreign banks that have ROEs of more than 20 percent.