Mizuho Holdings Projects Biggest Loss Ever in Japan

Jan. 21, 2003
By KEN BELSON

OKYO — Mizuho Holdings Inc., the world's largest bank by assets, expects to book the biggest loss in Japanese corporate history as it struggles to cope with the government's cleanup of the nation's troubled financial industry.

The projected loss, which is nearly nine times larger than initially forecast, comes as financial regulators try to come up with a more accurate reckoning of the bank's balance sheets. That includes more strictly evaluating how the bank accounts for its bad loans, which have ballooned to 52 trillion yen ($433 billion).

As financial regulators undertake another round of inspections, Mizuho and its rivals are trying to raise capital to offset the deeper bad loan write offs the government will likely demand. Today, Mizuho said it wants to sell about 1 trillion yen ($8.3 billion) in preferred shares to investors and its clients, including Japan's largest companies.

Mizuho is first of Japan's big four financial groups to cut its earnings target since the nation's banking czar, Heizo Takenaka, called for lenders to account for their bad loans more stringently. Other banks may lower their forecasts as well before the fiscal year ends on March 31. Sumitomo Mitsui Financial Group Inc. and UFJ Holdings Inc. have already announced plans to raise more capital.

But Mizuho, because of its size, may be the most troubled. The bank, whose stock has lost more than half its value since October when Mr. Takenaka took over as the top financial regulator, does business with 70 percent of the companies on the Tokyo Stock Exchange. The bank in recent months has been bombarded with requests from its big borrowers for debt waivers and other assistance.

These weakened clients and the deteriorating economy have not extinguished doubts about Mizuho's health. "Given the difficult business environment, concerns remain over possible additional credit costs, and the difficulty Mizuho may experience in quickly achieving its aims," said Yuri Yoshida, a credit analyst at Standard & Poor's.

Because of the tighter government evaluations, Mizuho doubled its expected credit costs to 2 trillion yen ($16.7 billion), about one-third of which will offset unrecoverable loans and the rest set aside against potential defaults. The higher credit costs, coupled with deeper losses on the bank's stock portfolio, will force Mizuho to lose 1.95 trillion yen ($16.3 billion) this year.

"The measures will provide maximum financial preparation for further accelerating corporate revival and reduction of nonperforming loans," Terunobu Maeda, president of Mizuho Holdings, said in a statement.

In December, the bank announced plans to overhaul its bloated operations as well. Mizuho, which was formed last April after Dai-ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan merged, said it would eliminate an additional 5,800 jobs, or 20 percent of the work force, by March 2005. The bank also plans to close 118 branches in Japan and 13 subsidiaries overseas.

Despite Mizuho's efforts to cut costs, its fortunes are tightly linked to those of its biggest borrowers. Last week, Seibu Department Stores Ltd. sought 230 billion yen ($1.9 billion) in financial aid from its largest creditors, including Mizuho Corporate Bank Ltd., Mizuho's commercial banking arm.

Last Tuesday, Seibu outlined a plan to turn around its faltering operations. It plans to slash 3,000 jobs, or more than half the work force, and close at least 4 of its 23 stores. The entire board is expected to resign as well.

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