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26 Dec 2012
Tokyo, December 26, 2012 -- Moody's Japan K.K. has affirmed the A2 long-term
ratings and Prime-1 short-term ratings of Mizuho Securities
Co., Ltd., Mizuho International plc, and
Mizuho Securities USA Inc.
The outlook on the long-term ratings is stable.
The rating affirmation is in response to the upcoming merger of Mizuho
Securities and Mizuho Investors Securities Co., Ltd.
on 4 January, 2013.
After the merger, Mizuho Investors Securities will be dissolved
into Mizuho Securities.
Moody's views the merger as credit positive because the combined entity's
domestic retail business will be stronger than the standalone business
of Mizuho Securities owing to the consequent increase in market share
and customer base.
In addition, the deal will help reduce overall operating expenses
by streamlining overlapping operations.
As of now, Mizuho Securities already has a strong position in the
domestic investment banking business with a broad customer base in the
wholesale and institutional markets.
Meanwhile, Mizuho Investors Securities has an extensive branch network
in the middle/retail markets, accessible through its collaboration
with Mizuho Bank (C-/baa1/A1/stable) and Mizuho Trust & Banking
After the merger, Mizuho Securities will immediately benefit from
the expansion in retail client assets, which pro forma increase
to JPY10.8 trillion from JPY7 trillion currently. In addition,
the resultant increase in revenue from the combined retail business should
somewhat offset the impact of the high volatility in earnings from its
The planned merger is also in line with Mizuho Financial Group Inc.'s
strategy to integrate its group companies. As a core securities
firm, Mizuho Securities is already implementing various initiatives
to improve its profitability. It is streamlining its non-competitive
operations through job cuts, broadening its customer base,
and strengthening its collaboration with other banks in Mizuho Financial
Its operating performance over the last two fiscal years has been very
weak due to the unfavorable operating environment (particularly for the
wholesale business), its decision to eliminate the residual risks
from its legacy assets, and the rise in operating expenses associated
with job cuts.
Accordingly, it reported its second consecutive year of losses;
its net loss stood at JPY29.3 billion for the fiscal year ended
March 2011 (FYE 3/2011) and JPY95.6 billion in FYE 3/2012.
Nevertheless, as a result of extensive cost cuts, its operating
performance has shown some signs of recovery.
Accordingly, Mizuho Securities reported net profit of JPY8.3
billion for 1H FYE 3/2013.
Meanwhile, Mizuho Investors Securities reported net profit of JPY9.3
billion in FYE 3/2011 and JPY1.7 billion in FYE 3/2012, based
on its retail oriented business which generates relatively stable earnings.
In addition to the expected revenue synergies of JPY8 billion, Mizuho
Securities aims to generate approximately JPY12 billion of cost savings
by integrating core IT systems and consolidating branch networks.
As a result of these measures, it aims to generate approximately
JPY20 billion of synergy effect by FYE 3/2016.
Moody's expects these cost cuts to improve the combined entity's
cost flexibility and profitability.
Still, given that the operating environment for domestic securities
firms remains challenging, Moody's will continue to monitor Mizuho
Securities' ability to reduce earnings volatility and sustain profitability.
Lastly, the ratings of Mizuho Securities and its subsidiaries (Mizuho
International plc, and Mizuho Securities USA Inc.) benefit
from the keep-well agreement with their parent bank, Mizuho
Corporate Bank (C-/baa1/A1/stable).
The stable ratings outlook reflects Moody's expectation that Mizuho Corporate
Bank will continue to provide a high level of support over the medium
term, in case of need. The outlook is also in line with the
stable rating outlook of Mizuho Corporate Bank.
Positive ratings pressure could arise in the event of: (1) an upgrade
of Mizuho Corporate Bank's rating, (2) stronger credit support from
the parent bank in the form of a guarantee, or 3) an improvement
in Mizuho Securities' standalone credit profile, particularly its
Conversely, negative ratings pressure could emerge if there is a:
(1) reduction in these entities' strategic importance to Mizuho Corporate
Bank, (2) a termination of the keep-well letter, or
an amendment such that the terms are no longer favorable to Mizuho Securities,
(3) a downgrade of the bank's ratings, or 4) a decline in Mizuho
Securities' standalone credit profile due to persistent losses.
The principal methodology used in these ratings was "Global Securities
Industry Methodology," published on 30 September 2010, and
available on www.moodys.co.jp.
Please see ratings tab on the issuer/entity page on the Moody's website
for the last rating action and the rating history.
Mizuho Securities Co. Ltd., headquartered in Tokyo,
is one of the core entities of Mizuho Financial Group, which is
one of the largest banking groups in Japan. Its major subsidiaries
include Mizuho International plc and Mizuho Securities USA Inc.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Japan K.K.
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JOURNALISTS: (03) 5408-4110
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MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's affirms A2/Prime-1 ratings of Mizuho Securities
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
No Related Data.
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