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, 2011

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, 2011, the following shares of capital stock were issued: (1) 21,782,185,320 shares of common stock (including 5,656,647 shares of common stock held by the registrant as treasury stock), (2) 914,752,000 shares of eleventh series class XI preferred stock (including 497,866,000 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.

 

 

 

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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					19
		4.A.		History and Development of the Company			19
		4.B.		Business Overview			20
		4.C.		Organizational Structure			41
		4.D.		Property, Plant and Equipment			43
ITEM 4A.		Unresolved Staff Comments					43
ITEM 5.		Operating and Financial Review and Prospects					44
ITEM 6.		Directors, Senior Management and Employees					113
		6.A.		Directors and Senior Management			113
		6.B.		Compensation			122
		6.C.		Board Practices			123
		6.D.		Employees			125
		6.E.		Share Ownership			126
ITEM 7.		Major Shareholders and Related Party Transactions					127
		7.A.		Major Shareholders			127
		7.B.		Related Party Transactions			129
		7.C.		Interests of Experts and Counsel			129
ITEM 8.		Financial Information					130
		8.A.		Consolidated Statements and Other Financial Information			130
		8.B.		Significant Changes			130
ITEM 9.		The Offer and Listing					131
		9.A.		Listing Details			131
		9.B.		Plan of Distribution			132
		9.C.		Markets			133
		9.D.		Selling Shareholders			133
		9.E.		Dilution			133
		9.F.		Expenses of the Issue			133
ITEM 10.		Additional Information					134
		10.A.		Share Capital			134
		10.B.		Memorandum and Articles of Association			134
		10.C.		Material Contracts			145
		10.D.		Exchange Controls			145
		10.E.		Taxation			146
		10.F.		Dividends and Paying Agents			152
		10.G.		Statement by Experts			152
		10.H.		Documents on Display			152
		10.I.		Subsidiary Information			152

 

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						Page
ITEM 11.		Quantitative and Qualitative Disclosures about Market Risk					153
ITEM 12.		Description of Securities Other than Equity Securities					172
		12.A.		Debt Securities			172
		12.B.		Warrants and Rights			172
		12.C.		Other Securities			172
		12.D.		American Depository Shares			172
ITEM 13.		Defaults, Dividend Arrearages and Delinquencies					173
ITEM 14.		Material Modifications to the Rights of Securities Holders and Use of Proceeds					173
ITEM 15.		Controls and Procedures					173
ITEM 16A.		Audit Committee Financial Expert					174
ITEM 16B.		Code of Ethics					174
ITEM 16C.		Principal Accountant Fees and Services					174
ITEM 16D.		Exemptions from the Listing Standards for Audit Committees					175
ITEM 16E.		Purchase of Equity Securities by the Issuer and Affiliated Purchasers					176
ITEM 16F.		Change in Registrant’s Certifying Accountant					176
ITEM 16G.		Corporate Governance					176
ITEM 17.		Financial Statements					179
ITEM 18.		Financial Statements					179
ITEM 19.		Exhibits					179
Selected Statistical Data							A-1
Index to Consolidated Financial Statements							F-1

 

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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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•

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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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, 2007, 2008, 2009, 2010 and 2011 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, 2007, 2008, 2009, 2010 and 2011 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, 2009, 2010 and 2011 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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U.S. GAAP Selected Consolidated Financial Information

 

		As of and for the fiscal years ended March 31,
		2007				2008				2009				2010				2011
		(in millions of yen, except per share data and percentages)
Statement of income data:
Interest and dividend income		¥	2,639,307			¥	3,110,260			¥	2,384,191			¥	1,632,282			¥	1,460,184
Interest expense			1,571,389				1,911,522				1,102,015				528,159				448,857
Net interest income			1,067,918				1,198,738				1,282,176				1,104,123				1,011,327
Provision (credit) for loan losses			182,115				(57,766	)			567,396				222,102				647
Net interest income after provision (credit) for loan losses			885,803				1,256,504				714,780				882,021				1,010,680
Noninterest income			1,195,948				1,094,943				452,227				1,330,847				1,036,532
Noninterest expenses			1,266,857				1,504,309				1,525,101				1,526,413				1,435,855
Income (loss) before income tax expense (benefit)			814,894				847,138				(358,094	)			686,455				611,357
Income tax expense (benefit)			163,221				672,176				761,908				(360,195	)			193,227
Net income (loss)			651,673				174,962				(1,120,002	)			1,046,650				418,130
Less: Net income (loss) attributable to noncontrolling interests(1)			27,791				(53,656	)			(61,555	)			46,961				5,461
Net income (loss) attributable to MHFG shareholders		¥	623,882			¥	228,618			¥	(1,058,447	)		¥	999,689			¥	412,669
Net income (loss) attributable to common shareholders		¥	600,408			¥	208,643			¥	(1,077,787	)		¥	988,603			¥	403,231
Amounts per share(2):
Basic earnings per common share—net income (loss) attributable to common shareholders		¥	51.73			¥	18.17			¥	(95.96	)		¥	70.55			¥	20.44
Diluted earnings per common share—net income (loss) attributable to common shareholders		¥	48.71			¥	16.77			¥	(95.96	)		¥	61.64			¥	19.22
Number of shares used to calculate basic earnings per common share (in thousands)			11,607,550				11,479,942				11,231,269				14,013,058				19,722,818
Number of shares used to calculate diluted earnings per common share (in thousands)			12,713,841				13,568,015				11,231,269				16,200,812				21,415,109
Cash dividends per share declared during the fiscal year(3):
Common stock		¥	4.00			¥	7.00			¥	10.00			¥	10.00			¥	8.00
		$	0.03			$	0.07			$	0.10			$	0.11			$	0.10
Fourth series class IV preferred stock		¥	47.60				—				—				—				—
		$	0.40				—				—				—				—
Sixth series class VI preferred stock		¥	42.00				—				—				—				—
		$	0.36				—				—				—				—
Eleventh series class XI preferred stock		¥	20.00			¥	20.00			¥	20.00			¥	20.00			¥	20.00
		$	0.17			$	0.20			$	0.20			$	0.21			$	0.24
Thirteenth series class XIII preferred stock		¥	30.00			¥	30.00			¥	30.00			¥	30.00			¥	30.00
		$	0.26			$	0.30			$	0.30			$	0.32			$	0.36

 

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		As of and for the fiscal years ended March 31,
		2007				2008				2009				2010				2011
		(in millions of yen, except per share data and percentages)
Balance sheet data:
Total assets		¥	147,381,279			¥	151,317,756			¥	155,083,031			¥	158,351,456			¥	161,985,670
Loans, net of allowance			68,236,720				67,572,004				71,787,309				62,903,418				63,955,284
Total liabilities			142,376,976				147,749,599				154,045,851				155,019,438				157,950,314
Deposits			83,751,304				86,429,065				87,075,727				86,776,251				89,215,627
Long-term debt			7,073,936				7,618,910				8,017,770				8,482,434				8,953,496
Common stock			3,532,492				3,437,420				3,386,792				4,324,705				5,164,160
Total MHFG shareholders’ equity			4,662,700				3,268,800				846,047				2,966,215				3,673,487
Other financial data:
Return on equity and assets:
Net income (loss) attributable to common shareholders as a percentage of total average assets			0.42	%			0.14	%			(0.70	)%			0.62	%			0.25	%
Net income (loss) attributable to common shareholders as a percentage of average MHFG shareholders’ equity			14.69	%			5.20	%			(37.56	)%			39.99	%			12.63	%
Dividends per common share as a percentage of basic earnings per common share			13.53	%			55.02	%			(10.42	)%			11.34	%			29.35	%
Average MHFG shareholders’ equity as a percentage of total average assets			2.87	%			2.73	%			1.86	%			1.56	%			2.01	%
Net interest income as a percentage of total average interest-earning assets			0.79	%			0.86	%			0.96	%			0.82	%			0.75	%

 

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, 2007, 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, 2007, 2008, 2009, 2010 and 2011 are expressed in U.S. dollars at the rate of ¥117.56 = $1.00, ¥99.85 = $1.00, ¥99.15 = $1.00, ¥93.40 = $1.00 and ¥82.76 = $1.00, respectively. These rates are the noon buying rates on March 31, 2007, 2008, 2009, 2010 and 2011 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,
		2007				2008				2009				2010				2011
		(in millions of yen, except per share data and percentages)
Statement of income data:
Interest income		¥	2,562,642			¥	2,864,796			¥	2,144,436			¥	1,571,994			¥	1,457,687
Interest expense			1,472,378				1,801,156				1,075,584				420,287				348,242
Net interest income			1,090,264				1,063,639				1,068,851				1,151,707				1,109,444
Fiduciary income			66,958				64,355				55,891				49,100				49,388
Net fee and commission income			551,124				494,526				416,653				466,040				466,791
Net trading income			261,544				56,149				301,521				312,330				243,983
Net other operating income (loss)			147,507				(17,737	)			(35,951	)			17,436				163,680
General and administrative expenses			1,091,602				1,124,527				1,192,701				1,317,247				1,285,815
Other income			522,816				579,737				260,568				266,125				156,212
Other expenses			573,714				630,079				1,280,711				567,728				268,261
Income (loss) before income taxes and minority interests			974,898				486,062				(405,877	)			377,765				635,425
Income taxes:
Current(1)			43,267				32,212				48,247				18,040				18,336
Deferred			223,699				118,546				109,103				25,108				120,123
Income (loss) before minority interests(2)			707,931				335,304				(563,227	)			334,617				496,965
Minority interests in net income			86,965				24,079				25,586				95,212				83,736
Net income (loss)		¥	620,965			¥	311,224			¥	(588,814	)		¥	239,404			¥	413,228
Net income (loss) per share(3):
Basic		¥	51,474.49			¥	25,370.25			¥	(54.14	)		¥	16.29			¥	20.47
Diluted			48,803.07				24,640.00				—	(4)			15.57				19.27
Cash dividends per share declared during the fiscal year(3)(5):
Common stock(6)		¥	4,000			¥	7,000			¥	10,000			¥	10			¥	8
		$	34.03			$	70.11			$	100.86			$	0.11			$	0.10
Fourth series class IV preferred stock		¥	47,600				—				—				—				—
		$	404.90				—				—				—				—
Sixth series class VI preferred stock		¥	42,000				—				—				—				—
		$	357.26				—				—				—				—
Eleventh series class XI preferred stock(6)		¥	20,000			¥	20,000			¥	20,000			¥	20			¥	20
		$	170.13			$	200.30			$	201.71			$	0.21			$	0.24
Thirteenth series class XIII preferred stock(6)		¥	30,000			¥	30,000			¥	30,000			¥	30			¥	30
		$	255.19			$	300.45			$	302.57			$	0.32			$	0.36

 

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		As of and for the fiscal years ended March 31,
		2007				2008				2009				2010				2011
		(in millions of yen, except per share data and percentages)
Balance sheet data:
Total assets		¥	149,880,031			¥	154,412,105			¥	152,723,070			¥	156,253,572			¥	160,812,006
Loans and bills discounted(7)			65,964,301				65,608,705				70,520,224				62,164,579				62,777,757
Securities			36,049,983				33,958,537				30,173,632				43,096,460				44,782,067
Deposits(8)			83,608,304				86,264,041				86,539,020				86,627,588				88,884,158
Net assets			6,724,408				5,694,159				4,186,606				5,837,053				6,623,999
Risk-adjusted capital data(9):
Tier 1 capital		¥	4,933,561			¥	4,880,188			¥	3,765,045			¥	5,173,496			¥	6,170,210
Total risk-based capital			8,841,383				7,708,341				6,223,693				7,658,062				7,910,970
Risk-weighted assets			70,795,493				65,872,866				59,056,218				56,863,252				51,693,835
Tier 1 capital ratio			6.96	%			7.40	%			6.37	%			9.09	%			11.93	%
Capital adequacy ratio			12.48	%			11.70	%			10.53	%			13.46	%			15.30	%

 

Notes:

 

(1)

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.

(2)

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, 2007, 2008 and 2009 in the table above.

(3)

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.

(4)	Diluted net income per share is not shown due to net loss per share for the fiscal year ended March 31, 2009.

(5)

Yen amounts are expressed in U.S. dollars at the rate of, ¥117.56 = $1.00, ¥99.85 = $1.00, ¥99.15 = $1.00, ¥93.40 = $1.00 and ¥82.76 = $1.00 for the fiscal years ended March 31, 2007, 2008, 2009, 2010 and 2011, 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.

(6)	In June 2011, 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, 2011.

(7)	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.

(8)	Includes negotiable certificates of deposit.

(9)

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 March 31,		High				Low				Average(1)				Period end
		(yen per dollar)
2007			121.81				110.07				116.55				117.56
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 (through July 15)			85.26				78.99				80.57				79.03
Calendar year 2011
January			83.36				81.56				—				—
February			83.79				81.48				—				—
March			82.98				78.74				—				—
April			85.26				81.31				—				—
May			82.12				80.12				—				—
June			80.98				79.87				—				—
July (through July 15)			81.26				78.99				—				—

 

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 15, 2011 was ¥79.03 = $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. As a result, 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 management policies, which provide for adjustments in the composition of our bond portfolio and the utilization

 

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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 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 dislocation in global financial markets mentioned above, 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 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.

 

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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 on which the Financial Services Agency will base its new regulatory capital regulations. 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.

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

 

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•

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 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. 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 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, securities, trust 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.

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.

 

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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 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.

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 control 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 control 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 control over financial reporting are effective, our independent registered public accounting firm may still be unable to issue a report that concludes that our internal control over financial reporting are effective. In either case, we may lose investor confidence in the reliability of our financial statements.

 

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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 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, 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

 

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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 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. See “Item 5. Operating and Financial Review and Prospects—Capital Adequacy.”

The market for financial services in Japan is increasingly competitive.

Ongoing deregulation in Japan has significantly lowered the barriers to entry with respect to the provision of banking, securities, trust 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. As a result, competition in the financial services industry has been intensifying in recent years and could intensify further in the future. 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 consolidation in 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.”

 

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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 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 Co., Ltd., 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. completed a merger. The merged entity, Mizuho Securities, is our subsidiary and listed on the Tokyo Stock Exchange and other Japanese stock exchanges. Through the merger, we aim to improve our service-providing capabilities to our clients and to offer competitive cutting-edge financial services on a global basis.

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, 2011.

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.

 

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4.B. Business Overview

General

We offer a variety of financial services, including banking, securities, trust 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:

 

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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.

 

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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.

 

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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.

We have also worked on establishing a stable internal management system, promoting corporate social responsibility (CSR) and strengthening our brand strategy.

In terms of the internal management system, we enhanced the internal control system based on the Financial Instruments and Exchange Law of Japan and Sarbanes Oxley Act of the United States, and we further 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.

In addition, as our brand strategy, we actively conveyed our brand slogan, “Channel to Discovery,” to promote it within and outside the group.

We will endeavor to strengthen our profitability by providing our customers with high-quality financial services through taking advantage of the strengths of each group company as well as enhancing collaboration among them. In addition, we will always recognize the social responsibilities and public mission as financial institutions and will facilitate financing on a group-wide basis pursuant to the Law Concerning Temporary Measures to Facilitate Financing for Small and Medium-Sized Enterprises (SMEs), etc. We strive to win the trust of our customers in and outside of Japan through continuously working on establishing a stable legal compliance system and a sophisticated risk management system.

In May 2010, we announced our new Medium-term Management Policy named Transformation Program for the three fiscal years ending March 31, 2013, in which we set forth various strategic initiatives and measures to enhance our profitability, financial base and front-line business capabilities.

In March 2011, we announced the basic policies for turning Mizuho Trust & Banking, Mizuho Securities and Mizuho Investors Securities Co., Ltd., which are our publicly listed subsidiaries, into wholly-owned subsidiaries in order to further enhance our “group collective capabilities” by integrating group-wide business operations, optimizing management resources, such as workforce and branch network, and accelerating the implementation of the Transformation Program. We executed the related share exchange agreements in April 2011, and the share exchanges are planned to be conducted on September 1, 2011, on the assumption that, among other things, permission will be obtained from the relevant authorities.

 

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As acceleration initiatives of the Transformation Program and to restore customer confidence after the computer system failures of Mizuho Bank in March 2011, we announced “actions to restore customer confidence” in May 2011. Under these actions, we will further strengthen the unified management of the group through substantial consolidation and unification of our management structure, human resource management and business infrastructure, and substantively transform into “one bank” with a view towards integration by merger or other methods in the future.

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:

 

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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.

 

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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.

 

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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.

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:

 

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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

 

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

 

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

The Tokyo Metropolitan Area: Transactions with individual customers

 

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

 

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

 

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

Transactions with Large Corporate Customers

 

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

 

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

Japanese customers

 

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

Non-Japanese customers

 

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

 

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Enhance capabilities for our securities business.

 

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

Individuals

 

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

Pension and related businesses

 

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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.

 

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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:

 

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

 

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Implementation of appropriate capital management; and

 

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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:

 

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

 

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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

 

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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 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:

 

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

 

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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:

 

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

 

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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

 

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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

Mizuho Corporate Bank

Mizuho Corporate Bank provides various sophisticated financial products and services to large Japanese corporations such as corporations listed on Japanese stock exchanges and their affiliates, financial institutions,

 

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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 broad customer base, comprehensive financial expertise and office network which covers major cities in and outside Japan. As of March 31, 2011, customers of Mizuho Corporate Bank and our other group companies included approximately 70% of all companies listed on the Tokyo, Osaka and Nagoya stock exchanges.

Mizuho Corporate Bank engages in customer relationship management through its Corporate Banking Unit and International Banking Unit, while individual financial products and services are developed and provided by the Global Investment Banking Unit, the Global Transaction Banking Unit and the Global Markets Unit and the Global Asset Management Unit. We offer innovative financial products and services to our customers by integrating these two functions.

Corporate Banking Unit

The Corporate Banking Unit engages in relationship management for large Japanese corporations and their affiliates, Japanese financial institutions and public sector entities and businesses relating to the issuance of bonds.

In the area of transactions with large Japanese corporations and their affiliates, 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, we make proposals related to mergers and acquisitions and business restructuring of our customers in cooperation with sections specializing in those businesses. We also offer suitable financing and optimal solutions for our customers by enhancing cooperation with our group companies including Mizuho Bank, Mizuho Securities and Mizuho Trust & Banking. In particular, we have introduced a double-hat structure with Mizuho Securities to further enhance and deepen our cooperation in banking and securities business.

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

We aim to provide the ideal solutions to the increasingly diverse needs of Japanese public sector entities. We actively arrange private finance initiatives and syndicated loans to meet their financing needs and propose new finance schemes such as securitization of business assets as well as advisory services related to managerial issues.

Regarding our bond-related businesses, with our extensive experience and achievements 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.

International Banking Unit

The International Banking Unit engages in relationship management for foreign corporations, including foreign subsidiaries of Japanese corporations.

We support our Japanese customers to expand their foreign operations, utilizing our financial expertise as well as alliances with foreign financial institutions. In particular, we are promoting our support for Japanese corporate customers in connection with their entry into the Asian market by offering advisory and other services. We also actively provide financial services to foreign corporations that are not affiliated with Japanese corporations through our global network.

In addition, we endeavor to meet the diverse needs of our overseas customers with respect to, among others, project finance and trade finance.

 

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We have strengthened our support for Japanese and non-Japanese customers through the enhancement of the Group’s international network. We have also promoted stronger relationships with major foreign financial institutions to supplement regions or product areas that our group is unable to cover. Also, in order to enhance our support for our customers that are developing businesses outside Japan, we continue to cultivate cooperative working relationships with foreign government agencies.

In December 2006, Mizuho Financial Group and Mizuho Corporate Bank obtained Financial Holding Company status from the U.S. regulatory authorities, which enabled our securities company subsidiary in the United States to engage in comprehensive investment banking businesses, such as the underwriting and dealing of corporate bonds, equities and other types of securities. We are promoting our full line of financial services through a collaboration between our banking and securities operations of U.S. subsidiaries.

Global Investment Banking Unit

The Global 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 global needs.

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, 2011, despite the intensified competition among banks, our group arranged, based on amount of principal, approximately 38% 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, 2011). Mizuho Corporate Bank is broadening its 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 the provision of comprehensive products for 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. and Mizuho Capital Partners Co., Ltd.

Global Transaction Banking Unit

The Global 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.

 

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Global Markets Unit

The Global Markets 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 the sophistication of our portfolio management methods and diversify our investments to make our portfolio more sound and profitable.

Global Asset Management Unit

The Global Asset Management Unit provides products and services that correspond to the needs of customers, mainly institutional investors such as pension funds and financial institutions, 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 aim to provide our customers with the most relevant products by collaborating with our group companies, including Mizuho Alternative Investments, LLC in the United States and Mizuho Global Alternative Investments, Ltd. in Tokyo.

To further improve our services, in March 2011, we acquired Singapore-based Eurekahedge Pte. Ltd., which provides hedge fund research and data services.

Mizuho Securities

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

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 have also introduced a double-hat structure with Mizuho Corporate Bank with an aim to meet customers’ various needs by providing them one-stop financial services.

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 international customers. We also focus on globally integrating our business by utilizing our network of overseas subsidiaries.

The Global Retail Group

Mizuho Bank

Mizuho Bank provides financial services mainly to individual customers, SMEs, middle-market corporations and local governmental entities in Japan. As of March 31, 2011, Mizuho Bank had approximately

 

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24 million individual deposit accounts and made loans to approximately 100,000 business accounts. In addition to our broad customer base, we maintain one of the largest branch and ATM networks in Japan and a broad range of Internet banking services.

Mizuho Bank has the following three principal business groups and three business divisions:

 

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the Personal Banking Group;

 

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the Corporate Banking Group;

 

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the Trading and ALM Group;

 

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the Securities Division;

 

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the Innovation Business Division; and

 

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the “Takarakuji” Lottery Division.

Personal Banking Group

The Personal Banking Group offers a broad range of financial products and services to individual customers, including various types of loans and deposits as well as consulting and credit card services in Japan.

We are enhancing our relationship marketing efforts by 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.

We have been enhancing the sophistication of our marketing strategies to maximize lifetime income, aiming at establishing stable revenue sources from present to future. We provide services corresponding to the needs of each life stage and circumstance of customers. For example, we offer convenient transactions through “Mizuho Direct” for busy customers who have difficulty visiting bank branches and offices; we offer detailed services and convenience through seamless correspondences at “Mizuho Direct” and with the “Teller” for customers in a period with many life events such as home purchase, school enrollment of children and asset planning after retirement; and we make proposals after a thorough consultation with the “Teller” for customers planning the investment in assets after their retirement.

In order to provide specialized consulting services, we have increased the number of financial consultants over the years to 3,343, as of March 31, 2011, that make proposals regarding investments such as investment trusts, foreign currency deposits, individual annuities and Japanese government bonds sold to individuals, provided weekend consultation meetings and enhanced our infrastructure such as our Relationship Marketing Database. By implementing these measures, the aggregate number of customers with financial assets of more than ¥10 million increased over the years to approximately 1.04 million as of March 31, 2011, and customers that purchased investment products have also increased. The balance of investment trusts (excluding MMF) was ¥1.42 trillion, individual annuities was ¥2.06 trillion, foreign currency deposits was ¥0.47 trillion and Japanese government bonds sold to individuals was ¥1.60 trillion, each on a managerial accounting basis as of March 31, 2011. We also handle trust products at all Mizuho Bank branches as agents of Mizuho Trust & Banking and provide specialized services such as solutions related to inheritance and real estate issues by setting up “Trust Lounge” in Mizuho Bank branches. The consulting booths jointly operated with Mizuho Investors Securities, which we call “Planet Booths,” are located in the lobbies of 155 branches and offices of Mizuho Bank as of March 31, 2011, and we are aiming to meet our customers’ investment needs.

In our housing loan business, we offer various products and services such as weekend consultation meetings and products 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, we cooperate with Orient Corporation to develop unsecured loan products such as “Captive Loans,” a card loan product that our customers can apply for through our ATM

 

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network, and we also aim to improve our services, for example, by allowing repayment of loans via personal computers or mobile phones. Additionally, we support our customers’ environmental initiatives by donating CO₂ emission credits that we purchased when the customers introduced our environment-conscious housing reform loans, etc.

As of March 31, 2011, the Mizuho Mileage Club had approximately 8.19 million members, and credit card members also increased to approximately 2.7 million. 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.

With our 434 staffed branches throughout Japan as of March 31, 2011, we have been and will continue to expand our convenient and efficient points of contact for individual customers. In addition, we aim to expand our ATM network, enhance our Internet banking, telephone banking and mobile-phone banking systems and strengthen marketing through call centers.

We provide directors and employees of corporate clients of Mizuho Bank and Mizuho Corporate Bank with products and services to address the needs of customers relating to their life events such as preparation of accounts to receive salaries upon employment, consultation regarding housing loans upon home purchases, post-retirement planning and comprehensive proposals regarding the investment of retirement allowances.

Corporate Banking Group

The Corporate Banking Group provides products and services mainly to SMEs and middle-market corporations as well as to local governmental entities and other public sector entities.

Also, in response to the recent challenging economic environment, we conduct thorough credit management in our loan operations and have enhanced our support services for our customers’ restructuring efforts.

We provide our SME and middle-market corporate customers with suitable financing arrangements together with sophisticated advisory and other services that are appropriate in light of the customers’ business strategies.

Through our marketing efforts for loan products, including the allocation of dedicated staff at branches to engage in finding new customers, applying different marketing strategies for different customer segments based on the size of the customers’ annual sales, developing new strategic loan products and utilizing “Mizuho Business Financial Centers” which primarily engage in loans to smaller enterprises, we provide affluent and stable financing to SMEs and middle-market corporations with appropriate interest rates according to each borrower’s risk profile.

We offer our SME and middle-market corporate customers syndicated loans, 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. We call our provision of these services our “solutions business.”

We provide comprehensive financial services to meet the various needs of local governmental entities and other public sector entities, including services related to bank and capital markets financing to diversify their funding sources and various investment products and advisory services related to organizational restructuring and streamlining. We will continue to promote business with local governmental entities through our network of branches and offices, which is one of the largest in Japan.

We provide comprehensive financial services and comprehensive consultation services based on needs of both corporations and individuals as well as through collaboration with Mizuho Trust & Banking and other group companies. We provide specialized consulting services that transcend traditional boundaries between “corporate” and “individual” services, such as proposing solutions related to corporate management issues as well as business

 

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and real estate succession issues. As a sales agent of Mizuho Trust & Banking, we also provide a variety of trust products as a solution for various needs of our corporate and individual customers. We are also promoting an exchange of personnel between Mizuho Trust & Banking and Mizuho Bank in order to provide professional consulting services in trust-related businesses to Mizuho Bank customers. In addition, we provide specialized private banking services to high net worth individuals such as business and land owners.

Trading and ALM Group

The Trading and ALM Group engages in investing in, and sales and trading of, financial instruments related to, among others, interest rates, foreign exchange and securities, including derivative instruments. We are diversifying our various investing activities under our risk management structure for the purpose of achieving more stable profits and risk diversification. We also satisfy various customer needs by providing a wide variety of financial instruments and solutions.

Securities Division

The Securities Division supports various methods of accessing capital markets to meet the financial needs of our customers. In cooperation with group securities companies, including Mizuho Investors Securities, we endeavor to satisfy the investment and financing needs of SMEs and middle-market corporations and the investment needs of individuals. For example, we have introduced a double-hat structure with Mizuho Investors Securities to enhance our consulting capabilities for customers’ initial public offerings.

Innovation Business Division

The Innovation Business Division provides products and services related to information technology such as offering cash management services and new banking services utilizing the Internet, mobile phones and IC cards.

“Takarakuji” Lottery Division

The Takarakuji Lottery Division engages in the business of acting as an administrative bank for the Takarakuji lottery, the principal public lottery program in Japan.

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. We respond

 

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promptly and appropriately to the diversified and sophisticated needs of our customers by enhancing collaborations with Mizuho Bank, Mizuho Corporate Bank and other group companies including asset management companies.

Asset Management Business

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

 

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

 

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structured product business, including securitization transactions that utilize trusts;

 

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

 

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

 

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

 

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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:

 

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consulting services regarding investment and management of customer assets;

 

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businesses relating to the succession of assets such as testamentary trusts;

 

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loan products such as apartment loans;

 

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

 

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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 investment management services for our group companies and customers. 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 Information & Research Institute

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

 

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system integration services;

 

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

 

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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.

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 Financial Strategy

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

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:

 

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

 

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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.

 

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

 

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

 

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

 

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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 domestic 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 July 15, 2011): (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 18, 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 the 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 June 29, 2011, 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.

Another distinctive element of the Japanese banking system was the role of the postal savings system. Postal savings deposits were 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 joint stock corporation holding four operating companies including Japan Post Bank, which currently operates as an ordinary bank. Privatization of banking and insurance subsidiaries, which was originally planned to be completed by 2017, was suspended in December 2009.

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.

 

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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 rediscounting 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 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

 

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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 deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes, and 0.082% of other deposits. 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.

 

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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 area 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 systematic 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 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.

 

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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 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 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.

 

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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. This law was further amended effective March 10, 2009 to allow the Bank’s Shareholdings Purchase Corporation 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, 2012. The Bank’s Shareholdings Purchase Corporation purchased ¥589.9 billion of shares during the period from March 12, 2009 through June 30, 2011. The Bank’s Shareholdings Purchase Corporation will dispose of the purchased shares by March 31, 2022 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, 2012. The Bank of Japan will dispose of the purchased shares by September 30, 2017 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.

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), a 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.

 

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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 the operational risk based upon 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 test, see “Item 5. Operating and Financial Review and Prospects—Capital Adequacy—Regulatory Capital Requirements.”

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 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 subjects 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),

 

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requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits made 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 2012.

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 two banks in the United States, Mizuho Corporate Bank (USA) and Mizuho Corporate Bank of California, 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”). Under current Federal Reserve Board policy, and effective July 21, 2011, as a matter of law, these three companies are expected to act as a source of financial strength to Mizuho Corporate Bank (USA), Mizuho Corporate Bank of California, and Mizuho 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.

 

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As a financial holding company, we are also subject to additional regulatory requirements. For example, 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%. 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 Banking Department 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 Banking Department 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 Banking Department, as well as to relevant FDIC regulation. The deposits of Mizuho Corporate Bank of California are FDIC-insured, and it is a state-chartered bank that is not a member of the Federal Reserve System. As such, Mizuho Corporate Bank of California is subject to regulation, supervision and examination by the FDIC and the California Department of Financial Institutions. 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 Banking Department.

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

 

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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, 2011:

 

Notes:

 

(1)	Mizuho Securities and Mizuho Investors Securities and Mizuho Trust & Banking are listed on the Tokyo Stock Exchange.

(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.

 

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The following table sets forth information with respect to our principal consolidated subsidiaries as of March 31, 2011:

 

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.(1)		Japan		Securities			57.9	%			59.5	%
Mizuho Trust & Banking Co., Ltd.(1)		Japan		Trust and banking			74.8	%			74.8	%
Mizuho Investors Securities Co., Ltd.(1)		Japan		Securities			66.5	%			66.8	%
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	%

 

Note:

 

(1)

In March 2011, we announced the basic policies for turning Mizuho Trust & Banking, Mizuho Securities and Mizuho Investors Securities into wholly-owned subsidiaries. We are planning to conduct the transactions effective as of September 1, 2011 on the assumption that, among other things, permission will be obtained from the relevant authorities in Japan and any applicable foreign countries that are required for the transactions.

 

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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, 2010 and 2011:

 

		At March 31,
		2010				2011
		(in millions of yen)
Land		¥	242,056			¥	266,827
Buildings			675,630				710,226
Equipment and furniture			461,359				466,667
Leasehold improvements			90,004				88,107
Construction in progress			22,421				28,777
Software			645,321				683,514
Total			2,136,791				2,244,118
Less: Accumulated depreciation and amortization			1,088,874				1,129,914
Premises and equipment—net		¥	1,047,917			¥	1,114,204

Our head office is located at 5-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan with 13,185 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, 2011 was approximately 831,000 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			44
Critical Accounting Estimates			56
Operating Results			59
Business Segments Analysis			72
Geographical Segment Analysis			80
Financial Condition			83
Liquidity			93
Capital Adequacy			94
Off-balance-sheet Arrangements			103
Tabular Disclosure of Contractual Obligations			106
Recent Accounting Pronouncements			106
Reconciliation with Japanese GAAP			108

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.

Following the announcement of our plan in May 2010, we made Orient Corporation (“Orico”) an equity method affiliate in September 2010 in order to further strengthen our business alliance with Orico, including in the areas of development of new products and services, provision of our products and services to a wide range of Orico’s customers and increase of coordinated products and services.

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 (the “MOU”) for further consideration and discussion of the details, including

 

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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 MOU. We are planning to conduct each share exchange effective as of September 1, 2011 on the assumption that, among other things, permission will have been obtained from the relevant authorities in Japan and any applicable foreign countries that are required for the share exchange.

In light of our computer system failures that occurred in March 2011, we issued a release titled “causes and plans for improvements and counter-measures based on the recent computer system failures” in May 2011, in which we announced a framework regarding improvements and counter-measures based on the inspection by the Financial Services Agency and the findings of the “Special Investigation Committee on System Failures,” an independent third-party committee.

At the same time, as acceleration initiatives of the Transformation Program, we announced “actions to restore customer confidence,” which expresses our decision that we will aim to further strengthen the unified management of the group through substantial consolidation and unification of our management structure, human resource management and business infrastructure, and substantively transform ourselves into “one bank” with a view towards integration by merger or other methods in the future.

In May 2011, Mizuho Financial Group and Mizuho Bank received a business improvement order from the Financial Services Agency with respect to the computer system failures. In June 2011, we submitted our business improvement plans to the Financial Services Agency in compliance with the above-mentioned business improvement order.

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—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. After years of persistent weakness beginning in the 1990s, the Japanese economy had gradually improved over the years by confronting structural issues such as deflationary pressures, excess capacity, excess employment and excess leverage. However, 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, there are indications of regional variations in the speed of the continuing recovery in the global economy which has been led by newly developing countries, and the risk remains of a slackening in the economy due to factors including the appreciation in commodity prices and the fiscal problems experienced by certain countries in Europe. In Japan, despite the continuing appreciation of the value of the yen against other currencies and a mild deflationary situation, positive economic growth has been maintained as represented by the continuous improvement in corporate profits and recovery of personal consumption resulting from the improvement of the foreign economic environment and the effect of various stimulus programs. Nevertheless, due to the impact of the Great East Japan Earthquake, constraints to production activities and a sharp decline in personal consumption appear to be unavoidable at least in the short term. As for the future direction of the economy, while there are positive factors such as the restoration of the damaged supply chains, as indicated by ‘Indexes of Business Conditions May 2011 Preliminary Release’ issued by the Cabinet Office on July 6, 2011, the rebound of exports and the additional demand related to the restoration of damaged capital assets, there are also several causes for concern, such as the effect of restrictions on electricity usage during the summer, a slowing in overseas economies and a prolonged slump in personal consumption, and thus the risk remains for these factors to serve 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 2.3% and 1.8% in the fiscal years ended March 31, 2007 and 2008, respectively, decreased by 4.1% and 2.4% in the fiscal years ended March 31, 2009 and 2010, respectively, and increased by 2.3% in the fiscal year ended March 31, 2011. After continuing to increase in each quarter of calendar 2010, Japan’s real gross domestic product on a quarterly basis, compared to the corresponding period of the previous year, decreased by 1.0% in the first quarter of calendar 2011. The Japanese government stated in its monthly economic report for January 2011 that, “although the economic movements appear to be pausing, some movements towards a pickup are seen” but that “the economy remains in a difficult situation such as a high unemployment rate.” However, from April through May 2011, the reports began to express weakness of the economic situation and stated that the Japanese economy “shows weakness recently, due to the influence of the Great East Japan Earthquake.” The June 2011 report stated that upward movements are observed while difficulties continue to prevail due to the Great East Japan Earthquake. Japan’s core nationwide consumer price index increased by 0.1%, 0.3% and 1.2% in the fiscal years ended March 31, 2007, 2008 and 2009, respectively but decreased by 1.6% and 0.8% in the fiscal years ended March 31, 2010 and 2011, respectively. The Japanese government stated in its monthly economic reports from November

 

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2009 onwards that the Japanese economy is in a mild deflationary phase. 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 2006 through the first quarter of 2011:

 

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•

The Bank of Japan, following its announcement in March 2006 to end its “quantitative easing” monetary policy that it had maintained since March 2001, announced in July 2006 and in February 2007 that it raised its target for the uncollateralized overnight call rate from 0% to 0.25% and from 0.25% to 0.5%, respectively, but it lowered its target for the uncollateralized overnight call rate from 0.5% to 0.3% in October 2008, from 0.3% to 0.1% in December 2008 and from 0.1% to “around 0 to 0.1%” in October 2010. 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 were succeeded by an asset purchase program of approximately ¥35 trillion established by the Bank of Japan in October 2010, and the Bank of Japan announced that it would increase the amount of the asset purchase program, mainly for the purchase of risk assets, by approximately ¥5 trillion, to approximately ¥40 trillion in March 2011. In addition, 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 commercial banks at a low fixed rate in order to support the strengthening of the foundations for economic growth. The following charts show movements in long-term rates from January 2008 to June 2011, represented by the yield on newly issued 10-year Japanese government bonds, and in short-term interest rates from January 2008 to June 2011, represented by the three-month Tokyo interbank offered rate, or TIBOR, and the uncollateralized overnight call rate used in the interbank market:

 

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•

According to the Bank of Japan, after a prolonged period of generally declining demand for bank loans in 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 began showing a declining trend beginning December 2009.

 

•

The CDS index called Markit iTraxx Japan, which is composed of 50 of the most liquid investment grade CDSs for Japanese entities, rose to 141.7 basis points as of March 31, 2011 from 113.1 basis points as of March 31, 2010, but fell to 129.0 basis points as of June 30, 2011. 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 13,200 corporate bankruptcies in the fiscal year ended March 31, 2009, involving approximately ¥13.7 trillion in total liabilities, approximately 12,900 corporate bankruptcies in the fiscal year ended March 31, 2010, involving approximately ¥7.0 trillion in total liabilities, and approximately 11,500 corporate bankruptcies in Japan in the fiscal year ended March 31, 2011, involving approximately ¥4.6 trillion in total liabilities.

 

•

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 ¥13.5 trillion and ¥0.2 trillion, respectively, for the fiscal year ended March 31, 2009 to ¥17.1 trillion and ¥7.5 trillion, respectively, for the fiscal year ended March 31, 2010 and increased to ¥26.3 trillion and ¥12.0 trillion, respectively, for the fiscal year ended March 31, 2011.

 

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•

According to the Bank of Japan, total financial assets of households increased from ¥1,451.3 trillion as of March 31, 2009 to ¥1,484.5 trillion as of March 31, 2010 and decreased to ¥1,476.4 trillion as of March 31, 2011. 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 2007 through the first quarter of 2011:

 

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•

The Nikkei Stock Average, which is an average of the price of 225 stocks listed on the Tokyo Stock Exchange, decreased by 35.3% to ¥8,109.53 during the fiscal year ended March 31, 2009, but increased by 36.8% to ¥11,089.94 during the fiscal year ended March 31, 2010, followed by a 12.0% decrease to ¥9,755.10 during the fiscal year ended March 31, 2011. Thereafter, the Nikkei Stock Average increased to ¥9,816.09 as of June 30, 2011. The following chart shows the daily closing price of the Nikkei Stock Average from January 2008 to June 2011:

 

•

The Japanese yen to U.S. dollar spot exchange rate, according to the Bank of Japan, was ¥98.31 to $1.00 as of March 31, 2009, ¥93.27 to $1.00 as of March 31, 2010 and ¥82.84 to $1.00 as of March 31, 2011. The following chart shows the yen/dollar spot rate of 5 p.m. Tokyo time published by the Bank of Japan from January 2008 to June 2011:

 

•

According to the Ministry of Land, Infrastructure, Transport and Tourism of Japan, housing starts in Japan decreased by 19.4% in the fiscal year ended March 31, 2008, 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% in the fiscal year ended March 31, 2011.

 

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•

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, rose again by 1.3% during calendar year 2007, but decreased by 3.2%, 4.2% and 2.7% during calendar year 2008, 2009 and 2010, 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.

Our basic policy is to pursue “disciplined capital management,” by which we pursue an optimal balance between “strengthening of stable capital base” and “steady returns to shareholders” in accordance with changes in the business environment, our financial condition and other factors. However, considering the ongoing global discussions with respect to capital, uncertainty over the economy and market trends, and other factors, we are placing a higher priority on “strengthening of stable capital base.”

Strengthening of Our Stable Capital Base

In the fiscal year ended March 31, 2011 we strengthened our capital base mainly as a result of earning ¥413.2 billion of consolidated net income (under Japanese GAAP) and issuing common stock in July 2010 (the number of shares issued: 6 billion of shares, total amount paid in: ¥751.6 billion). As a result, our financial base was significantly improved. Our consolidated Tier 1 capital ratio was 11.93% as of March 31, 2011, a year-on-year improvement of 2.84%.

Amid the ongoing global discussions on the revision of capital regulations, we aim to increase, as our medium-term target, our consolidated Tier 1 capital ratio (under Basel II) to 12% or above and our common equity capital ratio (under Basel III) as of March 31, 2013, when the new capital regulations are scheduled to be implemented, to mid-8% level. The calculation of our common equity capital ratio includes the outstanding balance of the eleventh series class XI preferred stock that will become mandatorily convertible in July 2016. Meanwhile, details, such as the calculation method for the capital adequacy ratio under the new capital regulations, have yet to be determined. Therefore, our common equity capital ratio is an estimated figure that we calculated based on publicly-available materials that have been issued so far. 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, 2011 of ¥6 per share of common stock, a year-on-year decrease of ¥2 per share.

In May 2011, we announced our plan to make interim cash dividend payments in order to provide returns to shareholders at a more appropriate timing commencing from the fiscal year ending March 31, 2012.

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 (for a discussion of the impact of the Great East Japan Earthquake, see “—Overview—The Impact of the Great East Japan Earthquake”):

Loans and Deposits

Loan volume

Our total loan balance increased on a year-on-year basis in the fiscal year ended March 31, 2011 due mainly to an increase in loans to government and public institutions attributable mainly to loans to the Japanese

 

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government and an increase in loans to foreign banks and other financial institutions attributable mainly to new loans made to some foreign financial institutions, which more than offset decreases in loans to almost all of the domestic industries attributable to weak funding needs by corporate borrowers.

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 1.51% in the fiscal year ended March 31, 2010 to 1.40% in the fiscal year ended March 31, 2011, and the average rate on domestic interest-bearing deposits decreased from 0.21% to 0.13%. The difference between the decrease of 0.11% in average yield on domestic loans and the decrease of 0.08% in the average rate on domestic interest-bearing deposits was not significant.

Provision (credit) for loan losses

Provision for loan losses decreased by ¥221 billion from the previous fiscal year to ¥1 billion for the fiscal year ended March 31, 2011. The decrease in provision for loan losses was 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. 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 the effects of 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

Fees and commissions from corporate and retail customers have been significantly affected by the domestic and global economic environment. Until the fiscal year ended March 31, 2006, we experienced a period of significant increases in fees and commissions due to an expansion in various fee businesses that we offer to our corporate customers, such as fees from syndicated loans, other forms of financing arrangements and various advisory services, as demand for such products and services grew among Japanese corporations. Fees and commissions from retail customers had also increased due to growth in sales commissions related to various investment products as Japanese individuals increased the proportion of investments other than deposits within their total financial assets as interest rates on deposits maintained historically low levels. Despite our expectation at the time for continued growth in fees and commissions, a weak economic environment and turmoil in the global financial market, as well as increased competition within the domestic financial services industry, drove a decline in fees and commissions in the fiscal year ended March 31, 2008, and the decline accelerated in the fiscal year ended March 31, 2009. Fees and commissions recovered slightly in the fiscal year ended March 31, 2010 and have remained almost flat in the fiscal year ended March 31, 2011. 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. Although the current global and domestic economic uncertainty may continue, we believe that the general trend in recent years of Japanese individuals to shift their financial assets from savings to investments will continue over the long term.

Debt and Equity Securities Portfolio

The amount of our funding through deposits and debentures significantly exceeds our total loans. As a result, we allocate a significant portion of such excess among investments in debt securities, including Japanese

 

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government bonds and credit and alternative investments, which we promote to diversify our risks and to expand our income sources, and we also hold investments in equity securities consisting mainly of common stock of Japanese listed company customers.

The fair value of available-for-sale marketable equity securities within our investments was ¥2,833 billion, or ¥1,919 billion based on cost, as of March 31, 2011. 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 in the case of the fiscal year ended March 31, 2011 due to the declines in stock markets, including declines related to the Great East Japan Earthquake. Although we expect the size of our portfolio of marketable equity securities to continue to be significant, we are reducing our holdings of marketable equity securities and will continue to make efforts to lower the acquisition cost of marketable equity securities. See “Item 4.B. Information on the Company—Business Overview—The Transformation Program (Aiming at Sustainable Growth).”

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, while decreases in long-term interest rates generally lead to an increase in fair value of the portfolio. As of March 31, 2011, we had a total of ¥35,716 billion of available-for-sale debt securities within our investments, of which ¥29,213 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 ¥34,517 billion and ¥35,716 billion of available-for-sale debt securities as of March 31, 2010 and 2011, respectively, and unrealized gains of ¥9 billion and unrealized losses of ¥40 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 while we incurred investment losses related to bonds of ¥2 billion in the fiscal year ended March 31, 2010. The change in investment gains (losses) related to bonds 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.

Costs and Expenses

In the fiscal year ended March 31, 2011, salaries and employee benefits decreased by ¥39 billion from the previous fiscal year to ¥553 billion 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. General and administrative expenses increased by ¥3 billion, and occupancy expenses decreased by ¥2 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).”

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, and environmental contamination by radioactive materials originating from the damaged facilities is continuing. Economic activity has been suppressed by the physical damage to capital assets in the Tohoku region, and disruptions to supply chains and distribution channels and the effects on industry and commerce of the lowered electricity supply capacity have negatively affected economic activity

 

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over a much broader geographic scope, although there are some recent signs of improvement in the general Japanese economy. Financial markets reacted sharply, with the Nikkei Stock Average down 6.5% at March 31, 2011 compared to the day before the earthquake, and stock market levels have not yet fully recovered. On June 14, 2011, the Japanese Cabinet submitted a bill to the National Diet of Japan regarding a compensation scheme for damages related to the nuclear accidents, including financial support for affected individuals as well as a supporting scheme for electric utilities that are subject to damage claims related to nuclear accidents. However, many of the issues are controversial, and significant debate is expected before any legislation is passed in relation to such compensation scheme.

We did not suffer any losses of employees and suffered only minimal property damage as a result of the earthquake due to our limited physical presence of only eight branch offices of our principal banking subsidiaries in the three worst-affected prefectures in the Tohoku region. The negative impact of the disaster on our financial results for the fiscal year ended March 31, 2011 was primarily impairment losses on a portion of our stock portfolio as a result of the declines in stock prices. While an increase in credit costs and other factors related to the disaster also had a negative impact on our results of operations for the fiscal year, such impact was limited. For more information regarding our results of operation for the fiscal year ended March 31, 2011, see “—Operating Results.” As part of our activities to support recovery efforts, our principal banking subsidiaries have been offering loans to individuals and corporations that were directly affected by the disaster under terms more favorable compared to conventional loans, and such borrowers may have more difficulty in meeting loan servicing obligations compared to other borrowers. For the fiscal year ending March 31, 2012, there can be no assurance that we will not suffer further losses, including impairment losses on equity securities and credit costs, relating to the impact of the disaster given the uncertainty surrounding the recovery of the domestic economy and financial markets as well as the outcome of the ongoing debate regarding the proposed compensation legislation described above, particularly the supporting scheme for electric utilities and the treatment of their major debt and equity holders under such scheme, including us.

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. Management

 

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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 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. See “—Overview—The Impact of the Great East Japan Earthquake.”

Valuation of Financial Instruments

ASC 820, “Fair Value Measurements and Disclosures” (“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 22 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 (loss) attributable to MHFG shareholders for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		Fiscal years ended March 31,
		2009				2010				2011
		(in billions of yen)
Interest and dividend income		¥	2,384			¥	1,632			¥	1,460
Interest expense			1,102				528				449
Net interest income			1,282				1,104				1,011
Provision (credit) for loan losses			567				222				1
Net interest income after provision (credit) for loan losses			715				882				1,010
Noninterest income			452				1,331				1,037
Noninterest expenses			1,525				1,526				1,436
Income (loss) before income tax expense (benefit)			(358	)			687				611
Income tax expense (benefit)			762				(360	)			193
Net income (loss)			(1,120	)			1,047				418
Less: Net income (loss) attributable to noncontrolling interests(1)			(62	)			47				5
Net income (loss) attributable to MHFG shareholders		¥	(1,058	)		¥	1,000			¥	413

 

Note:

(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, 2009 as we adopted ASC 810. For further information, see note 2 to our consolidated financial statements included elsewhere in this annual report.

Executive Summary

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

 

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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 ¥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.

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

Net interest income decreased by ¥178 billion, or 13.9%, from the previous fiscal year to ¥1,104 billion in the fiscal year ended March 31, 2010 due to a decrease in net foreign interest and dividend income of ¥186 billion. The decrease was due mainly to a decrease of ¥521 billion in foreign interest and dividend income offset in part by a decrease of ¥335 billion in foreign interest expense. The decrease in foreign interest and dividend income was due mainly to decreases in interest from foreign loans and income from foreign call loans and funds sold, and receivables under resale agreements and securities borrowing transactions, both of which reflect general declines in U.S. dollar and euro interest rate levels. The decrease in foreign interest expense was due mainly to decreases in interest expense on foreign short-term borrowings and foreign interest-bearing deposits. These decreases were due mainly to the decrease in average interest rates, reflecting general declines in U.S. dollar and euro interest rate levels. Domestic interest and dividend income and domestic interest expense both declined significantly due to declines in yen interest rate levels, but net domestic interest and dividend income showed a slight increase due to the amounts of decline being similar.

Noninterest income increased by ¥879 billion from the previous fiscal year to ¥1,331 billion in the fiscal year ended March 31, 2010. The increase was due mainly to gains in investment gains (losses)—net of ¥67 billion in the fiscal year ended March 31, 2010, compared to losses in investment gains (losses)—net of ¥462 billion in the fiscal year ended March 31, 2009 and an increase in trading account gains—net of ¥300 billion. The increase in investment gains (losses)—net was due mainly to investment gains related to bonds and investment

 

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gains related to equity securities. Investment gains related to bonds in the fiscal year ended March 31, 2010 were due mainly to an absence of impairment losses on Japanese government bonds as we adopted ASC 320 which amends the other-than-temporary impairment model for debt securities. Investment gains related to equity securities were due mainly to a decrease in impairment losses on equity securities as a result of a recovery in the stock markets. The increase in trading account gains—net was due mainly to the gains earned by consolidated VIEs, such as stock investment trusts, as a result of a positive change in market conditions, an increase in gains related to changes in the fair value of derivative financial instruments used to hedge market risks, mainly interest rate risk, that are not eligible for hedge accounting under U.S. GAAP and 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.

Noninterest expenses in the fiscal year ended March 31, 2010 was almost the same level compared to the previous fiscal year. Salaries and employee benefits increased by ¥96 billion in the fiscal year ended March 31, 2010, offset in part by provision (credit) for losses on off-balance-sheet instruments being a credit of ¥24 billion in the fiscal year ended March 31, 2010 compared to a provision of ¥84 billion in the previous fiscal year. The increase in salaries and employee benefits were 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 period, and the amortization of net actuarial loss, which primarily reflects past declines in the value of plan assets. The decrease was due mainly to a decrease in allowance for losses on off-balance-sheet transactions primarily as a result of the decrease in the balance of guarantees to overseas obligors.

As a result of the foregoing, income (loss) before income tax expense (benefit) was income of ¥687 billion in the fiscal year ended March 31, 2010 compared to a loss of ¥358 billion in the fiscal year ended March 31, 2009. We had an income tax benefit of ¥360 billion in the fiscal year ended March 31, 2010 compared to an income tax expense of ¥762 billion in the fiscal year ended March 31, 2009. The benefit was the result of an increase in deferred tax assets.

Net income (loss) was income of ¥1,047 billion in the fiscal year ended March 31, 2010 compared to a loss of ¥1,120 billion in the fiscal year ended March 31, 2009. Net income (loss) attributable to noncontrolling interests was income of ¥47 billion in the fiscal year ended March 31, 2010 compared to a loss of ¥62 billion in the fiscal year ended March 31, 2009. As a result, net income (loss) attributable to MHFG shareholders was income of ¥1,000 billion in the fiscal year ended March 31, 2010 compared to a loss of ¥1,058 billion in the fiscal year ended March 31, 2009.

 

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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, 2009, 2010 and 2011:

 

		Fiscal years ended March 31,
		2009												2010												2011
		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		¥	1,903			¥	12				0.63	%		¥	176			¥	1				0.56	%		¥	371			¥	1				0.27	%
Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions			6,988				40				0.57				5,712				10				0.17				6,264				10				0.16
Trading account assets			7,223				37				0.52				7,561				37				0.49				8,980				33				0.37
Investments			27,426				264				0.96				33,275				229				0.69				36,967				214				0.58
Loans			59,387				1,019				1.72				57,074				864				1.51				54,287				759				1.40
Total interest-earning assets			102,927				1,372				1.33				103,798				1,141				1.10				106,869				1,017				0.95
Deposits			67,047				287				0.43				66,946				137				0.21				68,060				86				0.13
Debentures			2,755				18				0.64				1,938				12				0.62				1,150				7				0.57
Short-term borrowings(1)			22,803				150				0.66				23,775				48				0.20				22,270				37				0.17
Trading account liabilities			3,475				7				0.19				3,218				10				0.32				4,210				14				0.34
Long-term debt			6,506				178				2.73				6,972				194				2.79				8,129				186				2.29
Total interest-bearing liabilities			102,586				640				0.62				102,849				401				0.39				103,819				330				0.32
Net			341				732				0.71				949				740				0.71				3,050				687				0.63
Foreign:
Interest-bearing deposits in other banks			942				26				2.76				1,056				8				0.78				1,020				8				0.75
Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions			8,739				169				1.93				8,412				38				0.45				8,772				44				0.50
Trading account assets			7,619				250				3.28				7,669				167				2.18				7,848				170				2.17
Investments			2,669				103				3.85				2,335				49				2.10				1,663				34				2.04
Loans			10,670				464				4.35				10,206				229				2.25				9,297				187				2.01
Total interest-earning assets			30,639				1,012				3.30				29,678				491				1.66				28,600				443				1.55
Deposits			7,250				200				2.75				7,794				58				0.74				8,048				48				0.60
Short-term borrowings(1)			11,871				225				1.89				11,600				34				0.30				12,312				49				0.40
Trading account liabilities			1,143				11				1.00				1,115				21				1.84				1,089				17				1.58
Long-term debt			889				26				2.92				842				14				1.63				482				5				0.95
Total interest-bearing liabilities			21,153				462				2.18				21,351				127				0.59				21,931				119				0.54
Net			9,486				550				1.12				8,327				364				1.07				6,669				324				1.01
Total:
Total interest-earning assets			133,566				2,384				1.79				133,476				1,632				1.22				135,469				1,460				1.08
Total interest-bearing liabilities			123,739				1,102				0.89				124,200				528				0.43				125,750				449				0.36
Net		¥	9,827			¥	1,282				0.90			¥	9,276			¥	1,104				0.79			¥	9,719			¥	1,011				0.72

 

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, 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 ¥21 billion, and changes in the average balances of foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥27 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 ¥95 billion, and the changes in the average balances of domestic interest-bearing liabilities contributed to an overall increase in interest expense of ¥24 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 substantially all of the overall decrease in interest expense of ¥8 billion.

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.

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 0.72%, 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

 

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rate levels, and the foreign average interest rate spread decreasing by 0.06% 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.

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

Interest and dividend income decreased by ¥752 billion, or 31.5%, from the previous fiscal year to ¥1,632 billion in the fiscal year ended March 31, 2010. Domestic interest and dividend income accounted for ¥1,141 billion of the total amount, a decrease of ¥231 billion from the previous fiscal year, and foreign interest and dividend income accounted for ¥491 billion, a decrease of ¥521 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 average yield, reflecting a decline in yen interest rate levels. Changes in average yields on domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥219 billion, and changes in average balances of domestic interest-earning assets contributed to an overall decrease in interest and dividend income of ¥12 billion, resulting in the ¥231 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 income from foreign call loans and funds sold, and receivables under resale agreements and securities borrowing transactions. The decreases in interest income from foreign loans and from foreign call loans and funds sold, and receivables under resale agreements and securities borrowing transactions were due mainly to a decrease in average yields, reflecting general declines in U.S. dollar and euro interest rate levels. Changes in average yields on foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥486 billion, and changes in average balances of foreign interest-earning assets contributed to an overall decrease in interest and dividend income of ¥35 billion, resulting in the ¥521 billion decrease in foreign interest and dividend income.

Interest expense decreased by ¥574 billion, or 52.1%, from the previous fiscal year to ¥528 billion in the fiscal year ended March 31, 2010. Domestic interest expense accounted for ¥401 billion of the total amount, a decrease of ¥239 billion from the previous fiscal year, and foreign interest expense accounted for ¥127 billion of the total amount, a decrease of ¥335 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 a decrease in the average interest rate, reflecting a decline in yen interest rate levels. The changes in average interest rates on domestic interest-bearing liabilities contributed to an overall decrease in interest expense of ¥248 billion, and the changes in average balances of domestic interest-bearing liabilities contributed to an overall increase in interest expense of ¥9 billion, resulting in the ¥239 billion decrease in domestic interest expense.

The decrease in foreign interest expense was due mainly to decreases in interest expense on foreign short-term borrowings and foreign interest-bearing deposits. These decreases were due mainly to the decrease in average interest rates, reflecting general declines in U.S. dollar and euro interest rate levels. The changes in average interest rates on foreign interest-bearing liabilities contributed to an overall decrease in interest expense of ¥333 billion, and the changes in average balances of foreign interest-bearing liabilities contributed to an overall decrease in interest expense of ¥2 billion, resulting in the ¥335 billion decrease in foreign interest expense.

The decrease of 0.49% in the average yield on loans in the fiscal year ended March 31, 2010 compared to the fiscal year ended March 31, 2009 was larger than the decrease of 0.40% in the average rate on interest-bearing

 

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deposits over the same period. Taking into account only domestic loans and domestic deposits, the difference between the decrease of 0.21% in the average yield on domestic loans and the decrease of 0.22% in the average rate on domestic interest-bearing deposits was not significant.

As a result of the foregoing, net interest income decreased by ¥178 billion, or 13.9%, from the previous fiscal year to ¥1,104 billion. Average interest rate spread decreased by 0.11% to 0.79%, with the domestic average interest rate spread remaining unchanged due mainly to a comparable decrease in the average interest rate on deposits and the decrease in average yield on loans, both of which reflect declining yen interest rate levels, and foreign average interest rate spread decreasing by 0.05% due mainly to the effect of the decrease in average yield on loans exceeding the effect of the decrease in 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, 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 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. See “—Financial Condition—Assets—Allowance for Loan Losses—Provision for loan losses.”

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

Provision for loan losses decreased by ¥345 billion, or 60.8%, from the previous fiscal year to ¥222 billion in the fiscal year ended March 31, 2010. The decrease was due mainly to an improvement in economic conditions and our efforts for appropriate credit management. See “—Financial Condition—Assets—Allowance for Loan Losses—Provision for loan losses.”

Noninterest Income

The following table shows a breakdown of noninterest income for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		Fiscal years ended March 31,
		2009				2010				2011
		(in billions of yen)
Fees and commissions		¥	561			¥	586			¥	582
Fees and commissions from securities-related business			57				115				126
Fees and commissions from remittance business			112				105				105
Fees and commissions from deposits, debentures and lending business			110				95				95
Trust fees			56				49				47
Fees for other customer services			226				222				209
Foreign exchange gains (losses)—net			24				(2	)			56
Trading account gains (losses)—net			122				422				206
Investment gains (losses)—net			(462	)			67				70
Investment gains (losses) related to bonds			(178	)			(2	)			67
Investment gains (losses) related to equity securities			(282	)			55				(12	)
Others			(2	)			14				15
Gains on disposal of premises and equipment			23				28				14
Other noninterest income			184				230				109
Total noninterest income		¥	452			¥	1,331			¥	1,037

 

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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.

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 5 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.

 

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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.

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

Noninterest income increased by ¥879 billion from the previous fiscal year to ¥1,331 billion in the fiscal year ended March 31, 2010. The increase was due mainly to gains in investment gains (losses)—net of ¥67 billion in the fiscal year ended March 31, 2010 compared to losses in investment gains (losses)—net of ¥462 billion in the previous fiscal year and an increase in trading account gains—net of ¥300 billion.

Fees and commissions

Fees and commissions income increased by ¥25 billion, or 4.5%, from the previous fiscal year to ¥586 billion in the fiscal year ended March 31, 2010. The increase was due mainly to an increase of ¥58 billion in fees and commissions from securities-related business, offset in part by a decrease of ¥15 billion in fees and commissions from deposits, debentures and lending business. The increase in fees and commissions from securities-related business was due mainly to an increase in fees of our securities subsidiaries as a result of a positive change in market conditions.

Foreign exchange gains (losses)—net

Foreign exchange gains (losses)—net was a loss of ¥2 billion in the fiscal year ended March 31, 2010 compared to a gain of ¥24 billion in the previous fiscal year. The change was due mainly to fluctuations in foreign exchange rates in the fiscal year ended March 31, 2010.

Trading account gains (losses)—net

Trading account gains—net increased by ¥300 billion from the previous fiscal year to ¥422 billion in the fiscal year ended March 31, 2010. The increase was due mainly to the gains earned by consolidated VIEs, such as stock investment trusts, as a result of a positive change in market conditions, an increase in gains related to changes in the fair value of derivative financial instruments used to hedge market risks, mainly interest rate risk, that are not eligible for hedge accounting under U.S. GAAP and 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 gain of ¥67 billion in the fiscal year ended March 31, 2010 compared to a loss of ¥462 billion in the previous fiscal year. The change was due mainly to investment gains related to equity securities of ¥55 billion recorded in the fiscal year ended March 31, 2010 compared to investment losses related to equity securities of ¥282 billion in the previous fiscal year as well as a decrease of ¥176 billion in investment losses related to bonds compared to the previous fiscal year. The change in investment gains (losses) related to equity securities between the fiscal year ended March 31, 2009 and the fiscal year ended March 31, 2010 was due mainly to a decrease in impairment losses on equity securities as a result of a recovery of the stock markets. The decrease in investment losses related to bonds in the fiscal year ended March 31, 2010 was due mainly to the absence of impairment losses on Japanese government bonds as we adopted ASC 320 which amends the other-than-temporary impairment model for debt securities. For further information, see notes 2 and 5 to our consolidated financial statements included elsewhere in this annual report.

 

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Gains on disposal of premises and equipment

Gains on disposal of premises and equipment increased by ¥5 billion, or 21.7%, from the previous fiscal year to ¥28 billion in the fiscal year ended March 31, 2010 due mainly to increased gains on the sale of real estate.

Other noninterest income

Other noninterest income increased by ¥46 billion, or 25.0%, from the previous fiscal year to ¥230 billion in the fiscal year ended March 31, 2010. The increase was due mainly to a gain relating to the merger of Mizuho Securities and Shinko Securities.

Noninterest Expenses

The following table shows a breakdown of noninterest expenses for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		Fiscal years ended March 31,
		2009				2010				2011
		(in billions of yen)
Salaries and employee benefits		¥	496			¥	592			¥	553
General and administrative expenses			499				497				500
Impairment of goodwill			—				—				9
Occupancy expenses			178				172				170
Fees and commission expenses			106				92				96
Provision (credit) for losses on off-balance-sheet instruments			84				(24	)			4
Other noninterest expenses			162				197				104
Total noninterest expenses		¥	1,525			¥	1,526			¥	1,436

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 22 to our consolidated financial statements included elsewhere in this annual report.

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.

 

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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 9 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.

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

Noninterest expenses increased by ¥1 billion, or 0.1%, from the previous fiscal year to ¥1,526 billion in the fiscal year ended March 31, 2010.

Salaries and employee benefits

Salaries and employee benefits increased by ¥96 billion, or 19.4%, from the previous fiscal year to ¥592 billion in the fiscal year ended March 31, 2010 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 period, and the amortization of net actuarial loss, which primarily reflects past declines in the value of plan assets. Additional information regarding pension and other employee benefit plans is included in note 22 to our consolidated financial statements included elsewhere in this annual report.

General and administrative expenses

General and administrative expenses decreased by ¥2 billion, or 0.4%, from the previous fiscal year to ¥497 billion in the fiscal year ended March 31, 2010. The decrease was due mainly to our efforts to enhance our cost efficiency through detailed reviews.

Occupancy expenses

Occupancy expenses decreased by ¥6 billion, or 3.4%, from the previous fiscal year to ¥172 billion in the fiscal year ended March 31, 2010. The decrease was due mainly to a decrease in depreciation expenses of tangible fixed assets and a decrease in losses on disposal of premises and equipment.

 

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

Provision (credit) for losses on off-balance-sheet instruments was a credit of ¥24 billion in the fiscal year ended March 31, 2010 compared to a provision of ¥84 billion in the previous fiscal year. The change was due mainly to a decrease in allowance for losses on off-balance-sheet transactions primarily as a result of the decrease in the balance of guarantees to overseas obligors.

Income Tax Expense (Benefit)

The following table shows the components of income tax expense (benefit) for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		Fiscal years ended March 31,
		2009				2010				2011
		(in billions of yen)
Current:
Domestic		¥	10			¥	11			¥	7
Foreign			41				6				11
Total current tax expense			51				17				18
Deferred:
Domestic			710				(378	)			175
Foreign			1				1				0
Total deferred tax expense (benefit)			711				(377	)			175
Total income tax expense (benefit)		¥	762			¥	(360	)		¥	193

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.

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

Income tax expense (benefit) was a benefit of ¥360 billion in the fiscal year ended March 31, 2010 compared to an expense of ¥762 billion in the previous fiscal year. Current income tax expense in the fiscal year ended March 31, 2010 decreased by ¥34 billion to ¥17 billion from the previous fiscal year.

Deferred income tax expense (benefit) was a benefit of ¥377 billion in the fiscal year ended March 31, 2010 compared to an expense of ¥711 billion in the previous fiscal year. The benefit was the result of an increase in

 

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deferred tax assets, net of valuation allowance, reflecting primarily changes in our estimation of future taxable income as a result of the increase in net unrealized gains on available-for-sale securities reflecting primarily the rise in domestic stock markets.

Gross deferred tax assets decreased by ¥833 billion in the fiscal year ended March 31, 2010 due mainly to a decrease of net operating loss carryforwards resulting from its expiration.

Valuation allowance decreased by ¥1,175 billion in the fiscal year ended March 31, 2010 due mainly to recuperated realizability of future tax benefits based on a recovery of domestic stock markets and an upward revision to our estimation of future taxable income in light of the results of operations of the fiscal year ended March 31, 2010. As a result, deferred tax assets, net of valuation allowance increased by ¥342 billion from the end of the previous fiscal year to ¥1,487 billion at March 31, 2010.

The following table shows components of deferred tax assets as of March 31, 2009, 2010 and 2011:

 

		Fiscal years ended March 31,
		2009				2010				2011
		(in billions of yen)
Deferred tax assets:
Investments		¥	1,266			¥	1,155			¥	1,097
Allowance for loan losses			495				487				417
Trading account assets			86				75				92
Prepaid pension cost and accrued pension liabilities			123				41				72
Financial Stabilization Funds			21				17				12
Premises and equipment			27				15				7
Undistributed earning of subsidiaries			15				5				—
Net operating loss carryforwards			2,559				1,996				1,790
Other			332				300				302
Gross deferred tax assets			4,924				4,091				3,789
Valuation allowance			(3,779	)			(2,604	)			(2,478	)
Deferred tax assets, net of valuation allowance			1,145				1,487				1,311
Deferred tax liabilities:
Available-for-sale securities			283				551				355
Derivative financial instruments			27				43				32
Undistributed earnings of subsidiaries			—				—				6
Other			51				79				76
Gross deferred tax liabilities			361				673				469
Net deferred tax assets		¥	784			¥	814			¥	842

Net Income (Loss) Attributable to Noncontrolling Interests

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.

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

Net income (loss) attributable to noncontrolling interests was income of ¥47 billion in the fiscal year ended March 31, 2010 compared to a loss of ¥62 billion in the fiscal year ended March 31, 2009. This change was due mainly to the allocation of income earned by a principal banking subsidiary in the fiscal year ended March 31, 2010 which recorded a loss in the fiscal year ended March 31, 2009.

 

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Net Income (Loss) Attributable to MHFG Shareholders

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.

Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

As a result of the foregoing, net income (loss) attributable to MHFG shareholders was income of ¥1,000 billion in the fiscal year ended March 31, 2010 compared to a loss of ¥1,058 billion in the previous fiscal year.

Business Segments Analysis

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” following internal managerial accounting rules and practices. Net business profits is used as a measure of the profitability of core banking operations in Japan 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 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. We divide the businesses of each of Mizuho Corporate Bank and Mizuho Bank into three reportable segments based on customer characteristics and functions. Reportable segments of Mizuho Corporate Bank are: domestic; international; and trading and others. Reportable segments of Mizuho Bank are: 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.

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 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.

 

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Trading and others

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. The former Mizuho Securities and Shinko Securities merged to form the new Mizuho Securities in May 2009.

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.

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.

 

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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 Co., Ltd., 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.

Results of Operations by Business Segment

Consolidated Results of Operations

Consolidated gross profits for the fiscal year ended March 31, 2011 were ¥2,033.3 billion, an increase of ¥36.7 billion compared to the fiscal year ended March 31, 2010. Consolidated general and administrative expenses (excluding non-recurring expenses) for the fiscal year ended March 31, 2011 were ¥1,202.3 billion, a decrease of ¥10.9 billion compared to the fiscal year ended March 31, 2010. Consolidated net business profits for the fiscal year ended March 31, 2011 were ¥741.7 billion, an increase of ¥39.1 billion compared to the fiscal year ended March 31, 2010.

 

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Global Corporate Group Financial Results

The following tables show 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, 2009, 2010 and 2011:

 

		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, 2009:
Gross profits:
Net interest income (expenses)		¥	172.7			¥	90.1			¥	53.7			¥	316.5			¥	(9.7	)		¥	74.5			¥	381.3
Net noninterest income			102.5				40.4				68.8				211.7				78.0				53.5				343.2
Total			275.2				130.5				122.5				528.2				68.3				128.0				724.5
General and administrative expenses			92.0				66.0				88.9				246.9				59.5				75.0				381.4
Others			—				—				—				—				—				(35.4	)			(35.4	)
Net business profits		¥	183.2			¥	64.5			¥	33.6			¥	281.3			¥	8.8			¥	17.6			¥	307.7
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:
Gross profits:
Net interest income (expenses)		¥	176.0			¥	86.3			¥	133.5			¥	395.8			¥	(9.2	)		¥	70.4			¥	457.0
Net noninterest income			115.2				56.9				110.4				282.5				158.9				42.1				483.5
Total			291.2				143.2				243.9				678.3				149.7				112.5				940.5
General and administrative expenses			88.8				62.1				84.1				235.0				160.9				75.4				471.3
Others			—				—				—				—				—				(56.7	)			(56.7	)
Net business profits (losses)		¥	202.4			¥	81.1			¥	159.8			¥	443.3			¥	(11.2	)		¥	(19.6	)		¥	412.5

Fiscal year ended March 31, 2011 compared to fiscal year ended March 31, 2010

Gross profits for Mizuho Corporate Bank for the fiscal year ended March 31, 2011 were ¥678.3 billion, an increase of ¥36.0 billion, or 5.6%, compared to the fiscal year ended March 31, 2010. The increase was due mainly to an increase in gross profits of ¥25.7 billion from international operations as a result of a slight increase in interest income and a significant improvement in noninterest income. Gross profits from domestic operations also increased by ¥5.5 billion due to an increase in net dividend and interest income related to equity and other investments reflecting improvements in business results in the corporate sector as well as an increase in noninterest income from foreign exchange business and investment banking business, etc., which more than offset the negative effects of the decline in total loan balance due to weak loan demands by large corporate borrowers. In addition, gross profits from trading and others increased by ¥4.8 billion due to robust profits from the banking business as a result of flexible and timely asset-and-liability management operations in response to interest rate movements, despite the absence of gross profits of approximately ¥61 billion we recorded in the fiscal year ended March 31, 2010 from the effect of the structure of our capital raising through

 

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the issuance of preferred debt securities by our special purpose companies in which Mizuho Financial Group, instead of Mizuho Corporate Bank, provided funds for the dividend payments made on such preferred debt securities.

General and administrative expenses of Mizuho Corporate Bank for the fiscal year ended March 31, 2011 were ¥235.0 billion, a decrease of ¥11.9 billion, or 4.8%, due to a decrease in expenses related to employee retirement benefits and to our group-wide cost reduction efforts.

As a result, net business profits of Mizuho Corporate Bank for the fiscal year ended March 31, 2011 were ¥443.3 billion, an increase of ¥47.9 billion, or 12.1%, compared to the fiscal year ended March 31, 2010.

Mizuho Securities recorded net business losses of ¥11.2 billion for the fiscal year ended March 31, 2011, a decline of ¥35.6 billion compared to the fiscal year ended March 31, 2010 due mainly to a decrease in net profits from trading, which was offset in part by fee income from underwriting a large equity offering.

As a result mainly of the foregoing, net business profits for the Global Corporate Group for the fiscal year ended March 31, 2011 decreased by ¥18.1 billion, or 4.2%, compared to the fiscal year ended March 31, 2010 to ¥412.5 billion.

Fiscal year ended March 31, 2010 compared to fiscal year ended March 31, 2009

Gross profits for Mizuho Corporate Bank for the fiscal year ended March 31, 2010 were ¥642.3 billion, an increase of ¥114.1 billion, or 21.6%, compared to the fiscal year ended March 31, 2009. This increase was due to an increase in gross profits from trading and others of ¥116.6 billion (including an increase of approximately ¥61 billion (which is eliminated upon consolidation) due to the effect of, based on the structure of our capital raising through the issuance of preferred debt securities by our special purpose companies, Mizuho Financial Group, instead of Mizuho Corporate Bank, providing funds for the dividend payments made on such preferred debt securities specifically during the fiscal year ended March 31, 2010) as a result of an absence of losses on credit investments, such as equity investment trusts, we recorded in the fiscal year ended March 31, 2009 and robust profits from flexible and timely asset-and-liability management operations, and an increase in gross profits from domestic operations of ¥10.5 billion due primarily to an increase in noninterest income due to absence of impairment losses related to alternative investments recorded in the previous year and an increase in interest income as a result of a widening of the domestic average loan interest rate spread. This increase was offset in part by a decrease of ¥13.0 billion in gross profits from international operations, due mainly to a decrease in noninterest income reflecting increased valuation losses from credit default swaps related to credit investments in Europe and a decrease in interest income reflecting a decline in total loan balance.

General and administrative expenses of Mizuho Corporate Bank for the fiscal year ended March 31, 2010 were ¥246.9 billion, which was unchanged from the fiscal year ended March 31, 2009, due mainly to the effect of the appreciation of the Japanese yen in addition to our group-wide cost reduction efforts offset in part by an increase in expenses related to employee retirement benefits.

As a result, net business profits of Mizuho Corporate Bank for the fiscal year ended March 31, 2010 were ¥395.4 billion, an increase of ¥114.1 billion, or 40.6%, compared to the fiscal year ended March 31, 2009.

Net business profits of Mizuho Securities for the fiscal year ended March 31, 2010 were ¥24.4 billion, an increase of ¥15.6 billion compared to the fiscal year ended March 31, 2009 due mainly to an increase in commission and fee income and improved trading profits, including the effects of the merger between the former Shinko Securities and the former Mizuho Securities on May 7, 2009.

As a result mainly of the foregoing, net business profits for the Global Corporate Group for the fiscal year ended March 31, 2010 increased by ¥122.9 billion, or 39.9%, compared to the fiscal year ended March 31, 2009 to ¥430.6 billion.

 

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Global Retail Group Financial Results

The following table shows gross profits, general and administrative expenses (excluding non-recurring expenses) and net business profits for the Global Retail Group for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		Mizuho Bank																Mizuho Investors Securities				Others				Total Global Retail Group
		Retail Banking				Corporate Banking				Trading and others				Subtotal
		(in billions of yen)
Fiscal year ended March 31, 2009:
Gross profits:
Net interest income (expenses)		¥	327.3			¥	297.9			¥	(21.5	)		¥	603.7			¥	0.4			¥	44.0			¥	648.1
Net noninterest income (expenses)			25.2				144.4				54.4				224.0				30.9				(2.7	)			252.2
Total			352.5				442.3				32.9				827.7				31.3				41.3				900.3
General and administrative expenses			235.7				234.2				101.2				571.1				44.0				0.8				615.9
Others			—				—				—				—				—				(13.8	)			(13.8	)
Net business profits (losses)		¥	116.8			¥	208.1			¥	(68.3	)		¥	256.6			¥	(12.7	)		¥	26.7			¥	270.6
Fiscal year ended March 31, 2010(1):
Gross profits:
Net interest income		¥	263.5			¥	266.4			¥	83.0			¥	612.9			¥	0.4			¥	28.3			¥	641.6
Net noninterest income			25.0				126.5				54.4				205.9				47.2				5.7				258.8
Total			288.5				392.9				137.4				818.8				47.6				34.0				900.4
General and administrative expenses			245.8				228.9				95.7				570.4				40.0				7.3				617.7
Others			—				—				—				—				—				(2.0	)			(2.0	)
Net business profits		¥	42.7			¥	164.0			¥	41.7			¥	248.4			¥	7.6			¥	24.7			¥	280.7
Fiscal year ended March 31, 2011(1):
Gross profits:
Net interest income		¥	248.2			¥	266.9			¥	56.7			¥	571.8			¥	0.6			¥	42.1			¥	614.5
Net noninterest income			34.6				124.9				78.0				237.5				49.8				7.5				294.8
Total			282.8				391.8				134.7				809.3				50.4				49.6				909.3
General and administrative expenses			237.7				223.7				93.4				554.8				41.0				9.5				605.3
Others			—				—				—				—				—				(15.9	)			(15.9	)
Net business profits		¥	45.1			¥	168.1			¥	41.3			¥	254.5			¥	9.4			¥	24.2			¥	288.1

 

Note:

(1)

We changed our managerial accounting rules in a manner that changed the breakdown of Mizuho Bank figures due to a change in internal transfer rates for funding beginning the fiscal year ended March 31, 2010. The above table shows figures reflecting such change. The change does not affect the Mizuho Bank subtotals.

Fiscal year ended March 31, 2011 compared to fiscal year ended March 31, 2010

Gross profits for Mizuho Bank for the fiscal year ended March 31, 2011 decreased by ¥9.5 billion, or 1.2%, from the fiscal year ended March 31, 2010 to ¥809.3 billion. The decrease was due mainly to a decrease in gross profits of ¥5.7 billion from retail banking, reflecting a decrease in deposit income as a result of a decline in market interest rates, offset in part by an increase in noninterest income as a result of a significant increase in sales of investment trusts and individual annuities. Gross profits from trading and others also decreased by ¥2.7 billion compared to the fiscal year ended March 31, 2010 due to the absence of the gross profits of approximately ¥17 billion we recorded in the fiscal year ended March 31, 2010 from the effect of the structure of

 

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our capital raising through the issuance of preferred debt securities by our special purpose companies in which Mizuho Financial Group, instead of Mizuho Bank, provided funds for the dividend payments made on such preferred debt securities, which was offset in part by robust profits from flexible and timely asset-and-liability management operations in response to interest rate movements. In addition, gross profits from corporate banking also decreased by ¥1.1 billion, reflecting a decrease in noninterest income such as from our solutions business.

General and administrative expenses for Mizuho Bank decreased by ¥15.6 billion, or 2.7%, compared to the fiscal year ended March 31, 2010 to ¥554.8 billion due to a decrease in expenses related to employee retirement benefits and to our group-wide cost reduction efforts.

As a result, net business profits of Mizuho Bank for the fiscal year ended March 31, 2011 were ¥254.5 billion, an increase of ¥6.1 billion, or 2.5%, compared to the fiscal year ended March 31, 2010.

Mizuho Investors Securities recorded net business profits of ¥9.4 billion for the fiscal year ended March 31, 2011, an increase of ¥1.8 billion compared to the fiscal year ended March 31, 2010, due mainly to an increase in commission income from sales of investment trusts.

As a result mainly of the foregoing, net business profits for the Global Retail Group for the fiscal year ended March 31, 2011 increased by ¥7.4 billion, or 2.6%, compared to the fiscal year ended March 31, 2010 to ¥288.1 billion.

Fiscal year ended March 31, 2010 compared to fiscal year ended March 31, 2009

Gross profits for Mizuho Bank for the fiscal year ended March 31, 2010 decreased by ¥8.9 billion, or 1.1%, from the fiscal year ended March 31, 2009 to ¥818.8 billion. The decrease was due mainly to a decrease in gross profits of ¥64.0 billion from retail banking, reflecting a decrease in loan interest income and deposit income and income from sales of individual annuities, offset in part by an increase in sales of investment trusts. Gross profits from corporate banking also decreased by ¥49.4 billion, reflecting a decrease in loan interest income and deposit income as well as a decrease in noninterest income such as from our solutions business and foreign exchange business such as currency options. These decreases were offset in part by an increase in gross profits of ¥104.5 billion from trading and others (including an increase of approximately ¥17 billion (which is eliminated upon consolidation) due to the effect of, based on the structure of our capital raising through the issuance of preferred debt securities by our special purpose companies, Mizuho Financial Group, instead of Mizuho Bank, providing funds for the dividend payments made on such preferred debt securities specifically during the fiscal year ended March 31, 2010) as a result of robust profits from flexible and timely asset-and-liability management operations mainly in Japanese yen in response to interest rate movements.

General and administrative expenses for Mizuho Bank decreased by ¥0.7 billion, or 0.1%, compared to the fiscal year ended March 31, 2009 to ¥570.4 billion due mainly to our group-wide cost reduction efforts offset in part by an increase in expenses related to employee retirement benefits.

As a result, net business profits of Mizuho Bank for the fiscal year ended March 31, 2010 were ¥248.4 billion, a decrease of ¥8.2 billion, or 3.2%, compared to the fiscal year ended March 31, 2009.

Mizuho Investors Securities recorded net business profits of ¥7.6 billion for the fiscal year ended March 31, 2010, compared to net business losses of ¥12.7 billion for the fiscal year ended March 31, 2009, due mainly to an increase in commission income such as equity-related income and sales of investment trust and an increase in trading income with the absence of the negative impact of the global financial crisis incurred in the previous fiscal year and a decrease in general and administrative expenses through cost-cutting efforts.

As a result mainly of the foregoing, net business profits for the Global Retail Group for the fiscal year ended March 31, 2010 increased by ¥10.1 billion, or 3.7%, compared to the fiscal year ended March 31, 2009 to ¥280.7 billion.

 

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Global Asset & Wealth Management Group Financial Results

The following table shows gross profits, general and administrative expenses (excluding non-recurring expenses) and net business profits for the Global Asset & Wealth Management Group for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		Mizuho Trust & Banking				Others				Total Global Asset & Wealth Management Group
		(in billions of yen)
Fiscal year ended March 31, 2009:
Gross profits(1):
Net interest income		¥	48.6			¥	1.2			¥	49.8
Net noninterest income			81.5				45.6				127.1
Total			130.1				46.8				176.9
General and administrative expenses			91.3				40.7				132.0
Others			—				(3.2	)			(3.2	)
Net business profits		¥	38.8			¥	2.9			¥	41.7
Fiscal year ended March 31, 2010:
Gross profits(1):
Net interest income		¥	44.9			¥	1.3			¥	46.2
Net noninterest income			87.1				43.4				130.5
Total			132.0				44.7				176.7
General and administrative expenses			89.9				38.6				128.5
Others			—				(2.8	)			(2.8	)
Net business profits		¥	42.1			¥	3.3			¥	45.4
Fiscal year ended March 31, 2011:
Gross profits(1):
Net interest income		¥	42.5			¥	0.9			¥	43.4
Net noninterest income			89.4				44.6				134.0
Total			131.9				45.5				177.4
General and administrative expenses			87.4				38.1				125.5
Others			—				(2.1	)			(2.1	)
Net business profits		¥	44.5			¥	5.3			¥	49.8

 

Note:

(1)	Before credit-related costs for trust accounts

Fiscal year ended March 31, 2011 compared to fiscal year ended March 31, 2010

Gross profits for Mizuho Trust & Banking for the fiscal year ended March 31, 2011 decreased by ¥0.1 billion, or 0.1%, from the fiscal year ended March 31, 2010 to ¥131.9 billion. The decrease was due mainly to a decrease in interest income reflecting a decrease in loan interest income, etc., which was offset in part by an increase in noninterest income mainly from the asset financing business.

General and administrative expenses for Mizuho Trust & Banking decreased by ¥2.5 billion, or 2.8%, compared to the fiscal year ended March 31, 2010 to ¥87.4 billion due to a decrease in expenses related to employee retirement benefits and to our group-wide cost reduction efforts.

 

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As a result mainly of the foregoing, net business profits for the Global Asset & Wealth Management Group for the fiscal year ended March 31, 2011 increased by ¥4.4 billion, or 9.7%, compared to the fiscal year ended March 31, 2010 to ¥49.8 billion.

Fiscal year ended March 31, 2010 compared to fiscal year ended March 31, 2009

Gross profits for Mizuho Trust & Banking for the fiscal year ended March 31, 2010 increased by ¥1.9 billion, or 1.5%, from the fiscal year ended March 31, 2009 to ¥132.0 billion. The increase was due mainly to an increase in noninterest income, including a significant increase in a portion of income from the treasury business.

General and administrative expenses for Mizuho Trust & Banking decreased by ¥1.4 billion, or 1.5%, compared to the fiscal year ended March 31, 2009 to ¥89.9 billion due mainly to our group-wide cost reduction efforts offset in part by an increase in expenses related to employee retirement benefits.

As a result mainly of the foregoing, net business profits for the Global Asset & Wealth Management Group for the fiscal year ended March 31, 2010 increased by ¥3.7 billion, or 8.9%, compared to the fiscal year ended March 31, 2009 to ¥45.4 billion.

Geographical Segment Analysis

The following table presents consolidated income statement and total assets information by major geographic area. Foreign activities are defined as business transactions that involve customers residing outside of Japan. However, as our operations are highly integrated globally, we have made estimates and assumptions for the allocation of assets, liabilities, income and expenses among the geographic areas.

 

		Japan				Americas				Europe				Asia/Oceania excluding Japan, and others				Total
		(in billions of yen)
Fiscal year ended March 31, 2009:
Total revenue(1)		¥	1,867			¥	424			¥	347			¥	198			¥	2,836
Total expenses(2)			2,424				263				364				143				3,194
Income (loss) before income tax expense		¥	(557	)		¥	161			¥	(17	)		¥	55			¥	(358	)
Net income (loss)		¥	(1,277	)		¥	131			¥	(20	)		¥	46			¥	(1,120	)
Total assets at end of fiscal year		¥	115,589			¥	24,995			¥	9,816			¥	4,683			¥	155,083
Fiscal year ended March 31, 2010:
Total revenue(1)		¥	2,324			¥	284			¥	230			¥	125			¥	2,963
Total expenses(2)			1,907				134				163				72				2,276
Income before income tax expense		¥	417			¥	150			¥	67			¥	53			¥	687
Net income		¥	784			¥	149			¥	66			¥	48			¥	1,047
Total assets at end of fiscal year		¥	121,556			¥	21,951			¥	10,179			¥	4,665			¥	158,351
Fiscal year ended March 31, 2011:
Total revenue(1)		¥	1,943			¥	282			¥	128			¥	144			¥	2,497
Total expenses(2)			1,628				112				70				76				1,886
Income before income tax expense		¥	315			¥	170			¥	58			¥	68			¥	611
Net income		¥	134			¥	166			¥	57			¥	61			¥	418
Total assets at end of fiscal year		¥	125,413			¥	21,795			¥	8,522			¥	6,256			¥	161,986

 

Notes:

(1)	Total revenue is comprised of interest and dividend income and noninterest income.

(2)	Total expenses are comprised of interest expense, provision (credit) for loan losses and noninterest expenses.

 

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

In the fiscal year ended March 31, 2011, 32.1% of our net income was derived from Japan, 39.7% from the Americas, 13.6% from Europe and 14.6% from Asia/Oceania excluding Japan, and others. At March 31, 2011, 77.4% of total assets were allocated to Japan, 13.4% to the Americas, 5.3% to Europe and 3.9% to Asia/Oceania excluding Japan, and others.

Total revenue in Japan decreased by ¥381 billion from the previous fiscal year due to a decrease in interest and dividend income and a decrease in trading account gains—net. The decrease in interest and dividend income was due mainly to the decrease in interest income from 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. 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 the fair value of foreign currency-denominated available-for-sale securities for which the fair value option was elected. Total expenses decreased by ¥279 billion due to the decrease in provision for loan losses. The decrease in provision for loan losses was 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. In addition, we had an income tax expense of ¥181 billion in Japan in the fiscal year ended March 31, 2011 compared to an income tax benefit of ¥367 billion in the previous fiscal year. The tax 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. As a result, net income in Japan decreased by ¥650 billion. Total assets in Japan increased by ¥3,857 billion due primarily to an increase in interest-bearing deposits in other banks, offset in part by a decrease in trading account assets.

In the Americas, total revenue decreased by ¥2 billion due primarily to a decrease in trading account gains—net. Total expenses decreased by ¥22 billion due primarily to the decrease in provision for loan losses. As a result, net income in the Americas increased by ¥17 billion. Total assets in the Americas decreased by ¥156 billion due primarily to a decrease in trading account assets, offset in part by an increase in interest-bearing deposits in other banks.

In Europe, total revenue decreased by ¥102 billion due primarily to decreases in interest income from trading account assets and loans. The decreases in interest income from trading account assets and loans were due mainly to the decreases in the average balance and in the average yields, reflecting general declines in euro interest rate levels. Total expenses decreased by ¥93 billion due mainly to a decrease in interest expense on interest-bearing deposits and a decrease in provision for loan losses. The decrease in interest expense was due mainly to the decrease in the average interest rates, reflecting general declines in euro interest rate levels. As a result, net income in Europe decreased by ¥9 billion. Total assets in Europe decreased by ¥1,657 billion due primarily to decreases in investments and trading account assets.

In Asia/Oceania excluding Japan, and others, total revenue increased by ¥19 billion due primarily to an increase in foreign exchange gains—net. Total expenses increased by ¥4 billion due mainly to an increase in provision for loan losses. As a result, net income in Asia/Oceania excluding Japan, and others increased by ¥13 billion. Total assets in Asia/Oceania excluding Japan, and others increased by ¥1,591 billion due primarily to an increase in loans.

 

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Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009

In the fiscal year ended March 31, 2010, 74.9% of our net income was derived from Japan, 14.3% from the Americas, 6.3% from Europe and 4.5% from Asia/Oceania excluding Japan, and others. At March 31, 2010, 76.8% of total assets were allocated to Japan, 13.9% to the Americas, 6.4% to Europe and 2.9% to Asia/Oceania excluding Japan, and others.

Total revenue in Japan increased by ¥457 billion from the previous fiscal year due primarily to the change from investment losses—net to investment gains—net, as a result of a decrease in impairment losses on equity securities reflecting a recovery of the domestic stock markets, and absence of impairment losses on Japanese government bonds as we adopted ASC 320 which amends the other-than-temporary impairment model for debt securities. Total expenses decreased by ¥517 billion due to a decrease in provision for loan losses, reflecting an improvement in Japanese economic conditions, and a decrease in interest expense on domestic interest-bearing deposits, reflecting a decline in yen interest rate levels. In addition, we had an income tax benefit of ¥367 billion in Japan in the fiscal year ended March 31, 2010 compared to an income tax expense of ¥720 billion in the previous fiscal year. The tax benefit was due mainly to an increase in deferred tax assets, net of valuation allowance, reflecting primarily changes in our estimation of future taxable income as a result of the increase in net unrealized gains on available-for-sale securities, reflecting primarily the rise in domestic stock markets. As a result, net income in Japan increased by ¥2,061 billion. Total assets in Japan increased by ¥5,967 billion due primarily to increases in investments, especially Japanese government bonds, and trading account assets, offset in part by a decrease in loans.

In the Americas, total revenue decreased by ¥140 billion due primarily to a decrease in interest income from receivables under resale agreements, investments and loans, reflecting general declines in U.S. dollar interest rate levels, offset in part by the change from trading account losses—net to trading account gains—net. Total expenses decreased by ¥129 billion due primarily to a decrease in interest expenses from payables under repurchase agreements reflecting general declines in U.S. dollar interest rate levels. As a result, net income in the Americas increased by ¥18 billion. Total assets in the Americas decreased by ¥3,044 billion due primarily to a decrease in trading account assets, consisting mainly of those regarding derivative contracts and the effect of the depreciation of U.S. dollars against the Japanese yen.

In Europe, total revenue decreased by ¥117 billion due primarily to a decrease in interest income from loans, investments and receivables under resale agreements, reflecting general declines in euro interest rate levels, offset in part by a decrease in trading account losses—net. Total expenses decreased by ¥201 billion due primarily to decreases in interest expense on interest-bearing deposits and interest expense from payables under repurchase agreements, reflecting general declines in euro interest rate levels. As a result, net income in Europe increased by ¥86 billion. Total assets in Europe increased by ¥363 billion due primarily to increases in investments and receivables under resale agreements, partially offset by decreases in trading account assets and loans and the effect of the depreciation of the euro against the Japanese yen.

In Asia/Oceania excluding Japan, and others, total revenue decreased by ¥73 billion due primarily to a decrease in loan interest income. Total expenses decreased by ¥71 billion due primarily to decreases in interest expenses and provision for loan losses. As a result, net income in Asia/Oceania excluding Japan, and others increased by ¥2 billion. Total assets in Asia/Oceania excluding Japan, and others decreased by ¥18 billion due primarily to decreases in trading account assets and loans, partially offset by an increase in investments.

 

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Financial Condition

Assets

Our assets as of March 31, 2010 and 2011 were as follows:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
Cash and due from banks		¥	3,399			¥	1,884			¥	(1,515	)
Interest-bearing deposits in other banks			2,027				8,240				6,213
Call loans and funds sold			607				382				(225	)
Receivables under resale agreements			7,132				7,467				335
Receivables under securities borrowing transactions			5,745				6,541				796
Trading account assets			31,528				28,106				(3,422	)
Investments			39,253				40,704				1,451
Loans			63,783				64,690				907
Allowance for loan losses			(880	)			(735	)			145
Loans, net of allowance			62,903				63,955				1,052
Premises and equipment—net			1,048				1,114				66
Due from customers on acceptances			51				74				23
Accrued income			266				238				(28	)
Goodwill			15				8				(7	)
Intangible assets			81				76				(5	)
Deferred tax assets			826				855				29
Other assets			3,470				2,342				(1,128	)
Total assets		¥	158,351			¥	161,986			¥	3,635

Total assets increased by ¥3,635 billion from the end of the previous fiscal year to ¥161,986 billion as of March 31, 2011. This increase was due primarily to an increase of ¥6,213 billion in interest-bearing deposits in other banks as a result of funds-supplying operations of the Bank of Japan with a view to ensuring financial market stability after the Great East Japan Earthquake, and an increase of ¥1,451 billion in investments, primarily Japanese government bonds, offset in part by a decrease of ¥3,422 billion in trading account assets, primarily interest rate-related derivative contracts, and a decrease of ¥1,515 billion in cash and due from banks.

 

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Loans

Loans Outstanding

The following table shows our loans outstanding as of March 31, 2010 and 2011:

 

		As of March 31,																Increase (decrease)
		2010(1)								2011
		(in billions of yen, except percentages)
Domestic:
Manufacturing		¥	8,065				12.6	%		¥	7,617				11.8	%		¥	(448	)			(0.8	)%
Construction and real estate			7,854				12.3				7,308				11.3				(546	)			(1.0	)
Services			5,153				8.1				4,287				6.6				(866	)			(1.5	)
Wholesale and retail			5,306				8.3				5,314				8.2				8				(0.1	)
Transportation and communications			3,237				5.1				3,228				5.0				(9	)			(0.1	)
Banks and other financial institutions			4,290				6.7				3,908				6.0				(382	)			(0.7	)
Government and public institutions			5,459				8.6				7,154				11.0				1,695				2.4
Other industries(2)			3,332				5.2				3,759				5.8				427				0.6
Individuals			11,882				18.6				12,181				18.8				299				0.2
Mortgage loans			11,093				17.4				11,436				17.7				343				0.3
Other			789				1.2				745				1.1				(44	)			(0.1	)
Total domestic			54,578				85.5				54,756				84.5				178				(1.0	)
Foreign:
Commercial and industrial			7,237				11.3				6,965				10.8				(272	)			(0.5	)
Banks and other financial institutions			1,722				2.7				2,588				4.0				866				1.3
Government and public institutions			292				0.5				453				0.7				161				0.2
Other(2)			32				0.0				9				0.0				(23	)			0.0
Total foreign			9,283				14.5				10,015				15.5				732				1.0
Subtotal			63,861				100.0	%			64,771				100.0	%			910				—
Less: Unearned income and deferred loan fees—net			(78	)							(81	)							(3	)
Total loans before allowance for loan losses		¥	63,783							¥	64,690							¥	907

 

Notes:

(1)	We partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which we adopted in the fiscal year ended March 31, 2011. Amounts as of March 31, 2010 have been reclassified to conform to the current period’s presentation.

(2)	“Other industries” within domestic and “other” within foreign include trade receivables and lease receivables of consolidated VIEs.

Total loans before allowance for loan losses increased by ¥907 billion from the end of the previous fiscal year to ¥64,690 billion as of March 31, 2011. Domestic loans increased by ¥178 billion to ¥54,756 billion due mainly to an increase in loans to government and public institutions attributable mainly to loans to the Japanese government, offset in part by decreases in almost all of the industries attributable to weak funding needs by corporate borrowers.

Loans to foreign borrowers increased by ¥732 billion from the end of the previous fiscal year to ¥10,015 billion as of March 31, 2011. The increase in foreign loans was due mainly to an increase in loans to banks and other financial institutions attributable mainly to new loans made to some foreign financial institutions, offset in part by the translation impact of the strengthening of the Japanese yen.

Within our loan portfolio, loans to domestic borrowers decreased from 85.5% to 84.5% while loans to foreign borrowers increased from 14.5% to 15.5%.

 

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Impaired Loans

Under our group’s credit risk management, we use an internal rating system that consists of credit ratings and pool allocations as the basis of our risk management infrastructure. Credit ratings consist of obligor ratings which represent the level of credit risk of the obligor, and transaction ratings which represent the ultimate possibility of incurrence of losses for individual loan by taking into consideration various factors such as collateral or guarantee involved. In principle, obligor ratings are applied to all obligors except those to which pool allocations are applied, and are subject to regular review at least once a year as well as special review which is required whenever the obligor’s credit standing changes. Pool allocations are applied to small balance loans. We pool loans with similar risk characteristics, and the risk is assessed and managed according to such pool. We generally review the appropriateness and effectiveness of the approach to obligor ratings and pool allocations once a year in accordance with predetermined procedures. The table below presents our definition of obligor ratings used by MHBK, MHCB and MHTB:

 

Obligor category		Obligor rating		Definition
Normal		A		Obligors whose certainty of debt fulfillment is very high, hence their level of credit risk is very low.
		B		Obligors whose certainty of debt fulfillment poses no problems for the foreseeable future, and their level of credit risk is sufficient.
		C		Obligors whose certainty of debt fulfillment and their level of credit risk pose no problems for the foreseeable future.
		D		Obligors whose current certainty of debt fulfillment poses no problems, however, their resistance to future environmental changes is low.
Watch(1)		E1		Obligors that require observation going forward because of either minor concerns regarding their financial position, or somewhat weak or unstable business conditions.
		E2		Obligors that require special observation going forward because of problems with their borrowings such as reduced or suspended interest payments, problems with debt fulfillment such as failure of principal or interest payments, or problems with their financial position as a result of their weak or unstable business condition.
Intensive control		F		Obligors that are not yet bankrupt but are in financial difficulties and are deemed likely to become bankrupt in the future because of insufficient progress in implementing their management improvement plans or other measures (including obligors that are receiving ongoing support from financial institutions).
Substantially bankrupt		G		Obligors that have not yet become legally or formally bankrupt but are substantially insolvent because they are in serious financial difficulties and are deemed to be incapable of being restructured.
Bankrupt		H		Obligors that have become legally or formally bankrupt.

 

Note:

(1)	Special attention obligors are watch obligors with restructured or 90 days or more delinquent debt, and we consider all such loans impaired.

We consider loans to be impaired when it is probable that we will be unable to collect all the scheduled payments of principal and interest when due according to the contractual terms of the loan. We determine loans to special attention, intensive control, substantially bankrupt and bankrupt obligors as impaired loans. All of our impaired loans are designated as nonaccrual loans. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Credit Risk Management” for descriptions of our self-assessment procedures and our internal credit rating system.

 

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We endeavor to remove impaired loans from our balance sheet within three years of their being so categorized through methods such as collection, charge-offs, disposal and improving the borrowers’ credit rating through restructuring efforts.

The following table shows our impaired loans as of March 31, 2010 and 2011 based on classifications by domicile and industry segment:

 

		As of March 31,																Increase (decrease)
		2010(1)								2011
		Impaired loans				Ratio to gross total loans to industry				Impaired loans				Ratio to gross total loans to industry				Impaired loans				Ratio to gross total loans to industry
		(in billions of yen, except percentages)
Domestic:
Manufacturing		¥	270				3.3	%		¥	309				4.1	%		¥	39				0.8	%
Construction and real estate			302				3.8				265				3.6				(37	)			(0.2	)
Services			181				3.5				108				2.5				(73	)			(1.0	)
Wholesale and retail			159				3.0				177				3.3				18				0.3
Transportation and communications			139				4.3				54				1.7				(85	)			(2.6	)
Banks and other financial institutions			21				0.5				3				0.1				(18	)			(0.4	)
Other industries			1				0.0				1				0.0				0				0.0
Individuals			201				1.7				290				2.4				89				0.7
Total domestic			1,274				2.3				1,207				2.2				(67	)			(0.1	)
Foreign			130				1.4				116				1.2				(14	)			(0.2	)
Total impaired loans		¥	1,404				2.2			¥	1,323				2.0			¥	(81	)			(0.2	)

 

Note:

(1)	We partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which we adopted in the fiscal year ended March 31, 2011. Amounts as of March 31, 2010 have been reclassified to conform to the current period’s presentation.

Impaired loans decreased by ¥81 billion, or 5.8%, from the end of the previous fiscal year to ¥1,323 billion as of March 31, 2011. Domestic impaired loans decreased by ¥67 billion due primarily to decreases in impaired loans to borrowers in transportation and communications and services, each due primarily to restructurings and upgrades, related to large borrowers, offset in part by an increase in individuals amid a prolonged slump in personal consumption. Foreign impaired loans decreased by ¥14 billion due primarily to the translation impact of the strengthening of the Japanese yen.

The percentage of impaired loans within gross total loans decreased from 2.2% as of March 31, 2010 to 2.0% as of March 31, 2011. The percentage of impaired loans net of allowance to gross total loans net of allowance increased from 0.83% as of March 31, 2010 to 0.92% as of March 31, 2011, as the percentage increase of impaired loans net of allowance exceeded that of gross total loans net of allowance as a result of a decrease of the balance of allowance for loan losses on impaired loans.

 

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Allowance for Loan Losses

Calculation of allowance for loan losses

Our self-assessment and credit-rating procedures serve as the basis for determining the amount of the allowance for loan losses. The specific methods of calculating the allowance for each category of obligors are as follows:

 

Normal and watch obligors

A formula allowance is calculated separately for obligors with small balance, homogenous loans and for each credit rating category of corporate obligors by multiplying the loan balance with the applicable default ratio (based on internal historical data as well as data provided by third-party credit rating agencies) and the applicable average impairment ratio on defaulted loans (based on internal historical data).

 

Special attention obligors

The allowance for special attention obligors is generally calculated individually based on the present value of expected future cash flows discounted at the loan’s initial effective interest rate. A formula allowance for certain special attention obligors is calculated by grouping the loans to such obligors and applying the formula described above for normal and watch obligors but using the default ratio and average impairment ratio specific to this category.

 

Intensive control obligors

The allowance for intensive control obligors is generally calculated individually based on the present value of expected future cash flows discounted at the loan’s initial effective interest rate, based on the loan’s observable market price, or based on the fair value of the collateral if the loan is collateral dependent. The allowance for certain intensive control obligors is calculated by grouping the loans to such obligors and multiplying the amount of loans less estimated collateral value by the default ratio and average impairment ratio specific to this category.

 

Substantially bankrupt and bankrupt obligors

The allowance is calculated individually and is equal to loan balance, less estimated collateral value.

 

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Balance of allowance for loan losses

The following table summarizes the allowance for loan losses by component and as a percentage of the corresponding loan balance as of March 31, 2010 and 2011:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen, except percentages)
Allowance for loan losses on impaired loans (A)		¥	435			¥	334			¥	(101	)
Allowance for loan losses on other loans (B)			445				401				(44	)
Total allowance for loan losses (C)			880				735				(145	)
Impaired loans requiring an allowance for loan losses (D)			1,108				1,028				(80	)
Impaired loans not requiring an allowance for loan losses (E)			296				295				(1	)
Other loans (F)			62,457				63,448				991
Gross total loans (G)		¥	63,861			¥	64,771			¥	910
Percentage of allowance for loan losses on impaired loans against the balance of impaired loans requiring an allowance (A)/(D)x100			39.26	%			32.45	%			(6.81	)%
Percentage of allowance for loan losses on other loans against the balance of other loans (B)/(F)x100			0.71				0.63				(0.08	)
Percentage of total allowance for loan losses against gross total loans (C)/(G)x100			1.38				1.13				(0.25	)

Allowance for loan losses decreased by ¥145 billion from the end of the previous fiscal year to ¥735 billion as of March 31, 2011. Of such decrease, ¥101 billion was attributable to a decrease in the allowance for loan losses on impaired loans, due mainly to a decrease in loans to large borrowers as a result of restructurings, and ¥44 billion was attributable to a decrease in the allowance for loan losses on other loans, due mainly to our appropriate credit management. As a result, the percentage of total allowance for loan losses against gross total loans decreased by 0.25% to 1.13%, and the percentage of allowance for loan losses on impaired loans against the balance of impaired loans requiring an allowance decreased by 6.81% to 32.45%.

 

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Provision for loan losses

The following table summarizes changes in our allowance for loan losses, including a breakdown of charge-offs and recoveries by domicile and industry segment, in the fiscal years ended March 31, 2010 and 2011:

 

		Fiscal years ended March 31,								Increase (decrease)
		2010(1)				2011
		(in billions of yen)
Allowance for loan losses at beginning of fiscal year		¥	870			¥	880			¥	10
Provision for loan losses			222				1				(221	)
Charge-offs:
Domestic:
Manufacturing			17				20				3
Construction and real estate			56				20				(36	)
Services			17				20				3
Wholesale and retail			48				28				(20	)
Transportation and communications			26				59				33
Banks and other financial institutions			1				1				0
Other industries			2				1				(1	)
Individuals			27				17				(10	)
Total domestic charge-offs			194				166				(28	)
Foreign			66				19				(47	)
Total charge-offs			260				185				(75	)
Recoveries:
Domestic:
Manufacturing			7				7				0
Construction and real estate			25				14				(11	)
Services			3				5				2
Wholesale and retail			5				5				0
Transportation and communications			1				1				0
Banks and other financial institutions			4				1				(3	)
Other industries			0				0				0
Individuals			3				2				(1	)
Total domestic recoveries			48				35				(13	)
Foreign			6				13				7
Total recoveries			54				48				(6	)
Net charge-offs			206				137				(69	)
Others(2)			(6	)			(9	)			(3	)
Balance at end of fiscal year		¥	880			¥	735			¥	(145	)

 

Notes:

(1)	We partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which we adopted in the fiscal year ended March 31, 2011. Amounts as of March 31, 2010 have been reclassified to conform to the current period’s presentation.

(2)	“Others” include primarily foreign exchange translation.

Provision for loan losses decreased by ¥221 billion from the previous fiscal year to ¥1 billion in the fiscal year ended March 31, 2011. The decrease was 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.

 

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Charge-offs decreased by ¥75 billion from the previous fiscal year to ¥185 billion for the fiscal year ended March 31, 2011. Charge-offs of domestic loans decreased by ¥28 billion compared to the previous fiscal year to ¥166 billion in the fiscal year ended March 31, 2011. Charge-offs of foreign loans decreased by ¥47 billion compared to the previous fiscal year to ¥19 billion in the fiscal year ended March 31, 2011.

Recoveries decreased by ¥6 billion from the previous fiscal year to ¥48 billion in the fiscal year ended March 31, 2011, reflecting a decrease in recoveries with respect to domestic loans offset in part by an increase with respect to foreign loans.

Investments

The majority of our investments are available-for-sale securities and held-to-maturity securities, which at March 31, 2010 and 2011 were as follows:

 

		As of March 31,																								Increase (decrease)
		2010												2011
		Amortized cost				Fair value				Net unrealized gains (losses)				Amortized cost				Fair value				Net unrealized gains (losses)				Amortized cost				Fair value				Net unrealized gains (losses)
		(in billions of yen)
Available-for-sale securities:
Debt securities		¥	34,508			¥	34,517			¥	9			¥	35,756			¥	35,716			¥	(40	)		¥	1,248			¥	1,199			¥	(49	)
Japanese government bonds			28,272				28,229				(43	)			29,280				29,213				(67	)			1,008				984				(24	)
Other than Japanese government bonds			6,236				6,288				52				6,476				6,503				27				240				215				(25	)
Equity securities (marketable)			2,007				3,284				1,277				1,919				2,833				914				(88	)			(451	)			(363	)
Total		¥	36,515			¥	37,801			¥	1,286			¥	37,675			¥	38,549			¥	874			¥	1,160			¥	748			¥	(412	)
Held-to-maturity securities:
Debt securities:
Japanese government bonds		¥	600			¥	604			¥	4			¥	1,201			¥	1,207			¥	6			¥	601			¥	603			¥	2
Other than Japanese government bonds			3				3				0				1				1				0				(2	)			(2	)			0
Total		¥	603			¥	607			¥	4			¥	1,202			¥	1,208			¥	6			¥	599			¥	601			¥	2

Available-for-sale securities increased by ¥748 billion from the end of the previous fiscal year to ¥38,549 billion at March 31, 2011. This increase was due primarily to an increase in medium- to long-term Japanese government bonds with relatively shorter remaining periods to maturity for the purpose of earning interest income, offset in part by a decrease in equity securities due mainly to the decline in Japanese stock prices as of March 31, 2011 compared to March 31, 2010. Held-to-maturity securities increased by ¥599 billion from the end of the previous fiscal year to ¥1,202 billion at March 31, 2011. The increase was due primarily to an increase in Japanese government bonds due to our purchases in the fiscal year ended March 31, 2011. See note 5 to our consolidated financial statements included elsewhere in this annual report for details of other investments included within investments.

Cash and Due from Banks

Cash and due from banks decreased by ¥1,515 billion from the end of the previous fiscal year to ¥1,884 billion at March 31, 2011. The decrease was due to net cash used in investing activities of ¥10,471 billion offset in part by net cash provided by financing activities of ¥8,020 billion and net cash provided by operating activities of ¥952 billion.

 

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Liabilities

The following table shows our liabilities as of March 31, 2010 and 2011:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
Deposits		¥	86,776			¥	89,216			¥	2,440
Debentures			1,518				741				(777	)
Due to trust accounts			1,025				629				(396	)
Call money and funds purchased			5,786				5,095				(691	)
Payables under repurchase agreements			12,076				11,498				(578	)
Payables under securities lending transactions			6,825				5,608				(1,217	)
Commercial paper			151				202				51
Other short-term borrowings			8,895				14,949				6,054
Trading account liabilities			19,402				16,696				(2,706	)
Bank acceptances outstanding			51				74				23
Income taxes payable			18				16				(2	)
Deferred tax liabilities			12				13				1
Accrued expenses			208				181				(27	)
Long-term debt			8,482				8,953				471
Other liabilities			3,794				4,079				285
Total liabilities		¥	155,019			¥	157,950			¥	2,931

Total liabilities increased by ¥2,931 billion from the end of the previous fiscal year to ¥157,950 billion at March 31, 2011. This increase was due primarily to an increase of ¥3,223 billion in short-term borrowings and an increase of ¥2,440 billion in deposits, offset in part by a decrease of ¥2,706 billion in trading account liabilities, primarily interest rate-related derivative contracts. Short-term borrowings include due to trust accounts, call money and funds purchased, payables under repurchase agreements, payables under securities lending transactions, commercial paper and other short-term borrowings.

Deposits

The following table shows a breakdown of our deposits as of March 31, 2010 and 2011:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
Domestic:
Noninterest-bearing deposits		¥	11,101			¥	12,232			¥	1,131
Interest-bearing deposits			67,137				67,632				495
Total domestic deposits			78,238				79,864				1,626
Foreign:
Noninterest-bearing deposits			531				581				50
Interest-bearing deposits			8,007				8,771				764
Total foreign deposits			8,538				9,352				814
Total deposits		¥	86,776			¥	89,216			¥	2,440

Deposits increased by ¥2,440 billion from the end of the previous fiscal year to ¥89,216 billion at March 31, 2011. Domestic deposits increased by ¥1,626 billion from March 31, 2010 to ¥79,864 billion at March 31, 2011. Noninterest-bearing deposits, mainly from Japanese companies, increased by ¥1,131 billion as corporations, primarily large corporations, secured their liquidity funds against the potential lack of liquidity as a result of the Great East Japan Earthquake, and interest-bearing deposits, mainly from individuals, increased by ¥495 billion.

 

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Foreign deposits increased by ¥814 billion from the end of the previous fiscal year to ¥9,352 billion due mainly to an increase in interest-bearing deposits offset in part by the translation impact of the appreciation of the yen.

Debentures

Debentures decreased by ¥777 billion from the end of the previous fiscal year to ¥741 billion at March 31, 2011. In Japan, certain banks are entitled to issue discount and coupon debentures in the domestic market under applicable banking laws. Mizuho Corporate Bank and Mizuho Bank benefit from such entitlement originally held by The Industrial Bank of Japan, one of our predecessor banks. While the two banking subsidiaries have this entitlement through March 2012, we have been reducing our reliance on debentures in recent years and are shifting to other sources of financing, including mainly bonds. See “—Liquidity.” As of March 31, 2011, all of the outstanding balance of debentures were issued by Mizuho Bank.

Short-term Borrowings

The following table shows a breakdown of our short-term borrowings as of March 31, 2010 and 2011:

 

		As of March 31,																								Increase (decrease)
		2010												2011
		Domestic				Foreign				Total				Domestic				Foreign				Total				Domestic				Foreign				Total
		(in billions of yen)
Due to trust accounts		¥	1,025			¥	—			¥	1,025			¥	629			¥	—			¥	629			¥	(396	)		¥	—			¥	(396	)
Call money and funds purchased, and payables under repurchase agreements and securities lending transactions			14,783				9,904				24,687				11,403				10,798				22,201				(3,380	)			894				(2,486	)
Commercial paper			92				59				151				130				72				202				38				13				51
Other short-term borrowings			8,590				305				8,895				14,817				132				14,949				6,227				(173	)			6,054
Total short-term borrowings		¥	24,490			¥	10,268			¥	34,758			¥	26,979			¥	11,002			¥	37,981			¥	2,489			¥	734			¥	3,223

Short-term borrowings increased by ¥3,223 billion from the end of the previous fiscal year to ¥37,981 billion at March 31, 2011. Domestic short-term borrowings increased by ¥2,489 billion due mainly to an increase in other short-term borrowings, primarily short-term borrowings from the central bank, as a result of funds-supplying operations of the Bank of Japan with a view to ensuring financial market stability after the Great East Japan Earthquake, offset in part by decreases in payables under repurchase agreements and securities lending transactions. Foreign short-term borrowings increased by ¥734 billion due mainly to an increase in payables under repurchase agreements offset in part by the translation impact of the appreciation of the yen.

Equity

The following table shows a breakdown of equity as of March 31, 2010 and 2011:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
MHFG shareholders’ equity:
Preferred stock		¥	536			¥	454			¥	(82	)
Common stock			4,324				5,164				840
Accumulated deficit			(2,325	)			(2,046	)			279
Accumulated other comprehensive income, net of tax			436				105				(331	)
Treasury stock, at cost			(5	)			(3	)			2
Total MHFG shareholders’ equity			2,966				3,674				708
Noncontrolling interests			366				362				(4	)
Total equity		¥	3,332			¥	4,036			¥	704

 

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Equity increased by ¥704 billion from the end of the previous fiscal year to ¥4,036 billion due mainly to an increase in common stock and a decrease in accumulated deficit, offset in part by a decrease in accumulated other comprehensive income, net of tax.

Common stock increased by ¥840 billion from the end of the previous fiscal year to ¥5,164 billion at March 31, 2011 primarily as a result of the issuance of new shares of common stock through a global offering in July 2010 and through the conversion of preferred stock. See “—Overview—Capital Improvements.”

Accumulated deficit decreased by ¥279 billion from the end of the previous fiscal year to ¥2,046 billion at March 31, 2011. This decrease was due primarily to net income attributable to MHFG shareholders for the fiscal year ended March 31, 2011 of ¥413 billion offset in part by dividend payments of ¥135 billion.

Accumulated other comprehensive income, net of tax decreased by ¥331 billion from the end of the previous fiscal year to ¥105 billion at March 31, 2011 due primarily to a decrease in unrealized net gains on available-for-sale securities of ¥235 billion and an increase in pension liability adjustments of ¥75 billion.

Preferred stock decreased by ¥82 billion from the end of the previous fiscal year to ¥454 billion at March 31, 2011 as a result of the conversion of preferred stock to common stock.

Treasury stock, at cost, decreased by ¥2 billion from ¥5 billion at the end of the previous fiscal year to ¥3 billion at March 31, 2011 due primarily to reissuances from treasury stock related to stock-based compensation.

Noncontrolling interests decreased by ¥4 billion from the end of the previous fiscal year to ¥362 billion at March 31, 2011.

Liquidity

We continuously endeavor to enhance the management of our liquidity profile and strengthen our capital base to meet our customers’ loan requirements and deposit withdrawals and respond to unforeseen situations such as adverse movements in stock, foreign currency, interest rate and other markets or changes in general domestic or international conditions.

Deposits and debentures, based on our broad customer base and brand recognition in Japan, have been our primary sources of liquidity. Our total deposits and debentures increased by ¥1,663 billion, or 1.9%, from the end of the previous fiscal year to ¥89,957 billion as of March 31, 2011. As shown in the following table, our average balance of deposits and debentures combined for the fiscal year ended March 31, 2011 exceeded our average balance of loans for the same period by ¥23,786 billion. We invested the excess portion primarily in marketable securities and other high liquidity assets.

 

Average balance for the fiscal year ended March 31, 2011
(in billions of yen)
Loans		¥	63,584			Deposits		¥	86,220
						Debentures			1,150

We will no longer be able to issue debentures beginning April 2012 due to applicable regulations. Mizuho Corporate Bank ceased issuing debentures, which were issued mainly to institutional investors, in April 2006 and started to issue senior straight bonds each quarter. We also ceased all new issuances of debentures by Mizuho Bank through its retail branch network in April 2007. The balance of our debentures has been decreasing significantly in recent years as a result.

Secondary sources of liquidity include short-term borrowings such as call money and funds purchased and payables under repurchase agreement. We also issue long-term debt, including both senior and subordinated debt,

 

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as additional sources for liquidity. We utilize short-term borrowings to diversify our funding sources and to manage our funding costs. We raise subordinated long-term debt mainly for purposes of enhancing our capital adequacy ratios. We believe we are able to access such sources of liquidity on a stable and flexible basis based on our current credit ratings. The following table shows credit ratings assigned to our principal banking subsidiaries by S&P and Moody’s as of June 30, 2011:

 

As of June 30, 2011

S&P

Moody’s

Long-term

Short-term

Fundamental strength

Long-term

Short-term

Financial strength

Mizuho Corporate Bank

A+

A-1

B

Aa3

(1)

P-1

D+

Mizuho Bank

A+

A-1

B

Aa3

(1)

P-1

D+

Mizuho Trust & Banking

A+

A-1

B

Aa3

(1)

P-1

D+

 

Note:

(1)	On May 31, 2011, Moody’s took the rating actions of reviewing for possible downgrade the long-term deposit and debt ratings of all Japanese banks, including those of Mizuho Corporate Bank, Mizuho Bank and Mizuho Trust & Banking.

We source our funding in foreign currencies primarily from foreign governments, financial institutions and institutional investors, through short-term and long-term financing, under terms and pricing commensurate with our credit ratings above. In the event of future declines in our credit quality or that of Japan in general, we expect to be able to purchase foreign currencies in sufficient amounts using the yen funds raised through our domestic customer base. As further measures to support our foreign currency liquidity, we hold foreign debt securities, maintain credit lines and swap facilities denominated in foreign currencies and pledge collateral to the U.S. Federal Reserve Bank to support future credit extensions.

We maintain management and control systems to support our ability to access liquidity on a stable and cost-effective basis. For a description of our management of liquidity risk, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Market and Liquidity Risk Management.”

Capital Adequacy

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

Regulatory Capital Requirements

Mizuho Financial Group and its principal banking subsidiaries are subject to regulatory capital requirements administered by the Financial Services Agency in accordance with the provisions of the Banking Law and related regulations. Failure to meet minimum capital requirements may initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements.

Basel II

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 (“BIS”) and are intended to further strengthen the soundness and stability of Japanese banks. Effective March 31, 2007, new guidelines were implemented by the Financial Services Agency to comply with the new capital adequacy requirements set by BIS called Basel II. The framework of Basel II is based on the following three pillars: minimum capital requirements; supervisory review; and market discipline.

 

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Under the first pillar, the capital ratio is calculated by dividing regulatory capital by risk-weighted assets. With respect to the calculation of risk-weighted assets, Mizuho Financial Group adopts the advanced internal ratings-based approach. Under such approach, balance sheet assets and off-balance sheet exposures, calculated under Japanese GAAP, are assessed in terms of credit risk according to risk components such as probability of default and loss given default, which are derived from our own internal credit experience. In addition to credit risk, banks are required to measure and apply capital charges with respect to their market risks. Market risk is defined as the risk of losses in on- and off-balance-sheet positions arising from movements in market prices. Operational risk, which was introduced under Basel II with respect to regulatory capital requirements, is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Mizuho Financial Group adopts the advanced measurement approach for the measurement of operational risk equivalent by taking account of the following four elements: internal loss data; external loss data; scenario analysis; and business environment and internal control factors.

With regard to risk-based capital, these guidelines are consistent with the original BIS framework, or Basel I, in requiring a target minimum standard capital adequacy ratio of 8%, at least half of which must consist of Tier 1 capital, on both a consolidated and non-consolidated basis for banks with international operations, such as Mizuho Corporate Bank and Mizuho Trust & Banking, or on a consolidated basis for bank holding companies with international operations, such as Mizuho Financial Group.

Risk-based capital, calculated from financial statements prepared under Japanese GAAP, is classified into the following three tiers: Tier 1 capital; Tier 2 capital; and Tier 3 capital. Tier 1 capital generally consists of shareholders’ equity less any recorded goodwill, unrealized losses (net of taxes) on valuation of certain securities classified as “other securities” under Japanese GAAP which is similar to available-for-sale securities under U.S.GAAP, consolidation adjustment accounts and others. Tier 2 capital generally consists of the following components:

 

•

general reserve for possible losses on loans, equaling the sum of (i) the excess of the amount of qualified reserves over the amount of expected losses and (ii) the amount of general reserves calculated based on the standardized approach;

 

•

45% of each of the unrealized gains on “other securities” and the unrealized appreciation in the value of land;

 

•

the balance of subordinated perpetual debt; and

 

•

the balance of subordinated term debt with an original maturity of over five years and preferred term shares up to 50% of Tier 1 capital.

Tier 2 capital may be included in a bank’s risk-based capital up to the amount equivalent to Tier 1 capital, less Tier 3 capital if market risk is taken into account in the capital adequacy ratio calculation. Tier 3 capital consists of the balance of subordinated term debt with original maturity of at least two years. Tier 3 capital may be included in total risk-based capital subject to certain conditions, depending on the measure for market risk equivalent and the amount of Tier 1 capital.

Japanese banks are also required to comply with the supervisory review process (second pillar) and disclosure requirements for market discipline (third pillar). Under the second pillar, banks are required to maintain adequate capital to support all of the major risks in their business and are encouraged to develop and use better risk management techniques in monitoring and managing such risks. Under the third pillar, banks are required to enhance disclosure, including disclosure of details of the capital adequacy ratio, the amount of each type of risk and the method of calculation used so that the market may make more effective evaluations.

Japanese banks with only domestic operations, such as Mizuho Bank, are subject to Japanese capital adequacy requirements that are similar to those discussed above, except that domestic banks are required to maintain a minimum capital adequacy ratio of 4%, at least half of which must consist of Tier 1 capital, on both a consolidated and non-consolidated basis.

 

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In December 2008, the Financial Services Agency implemented special temporary measures, applicable through March 2012, which (i) allow Japanese banks and bank holding companies with international operations to elect not to add unrealized gains on valuation of bonds with a zero risk weighting to Tier 2 capital and not to deduct unrealized losses on valuation of bonds with a zero risk weighting from Tier 1 capital, and (ii) require Japanese banks and bank holding companies with only domestic operations not to deduct unrealized losses on valuation of “other securities” under Japanese GAAP (including equity securities) from Tier 1 capital. The Japanese capital adequacy requirements applicable to Japanese banks and bank holding companies with only domestic operations do not allow unrealized gains on “other securities” to be added to Tier 2 capital before or after this special temporary measures.

If the capital adequacy ratio of a financial institution falls below the required level, the Financial Services Agency may, depending upon the extent of capital deterioration, take certain corrective action, including requiring the financial institution to submit an improvement plan to strengthen its capital base, reduce its total assets, restrict its business operations or other actions that could have a material effect on its financial statements.

Basel III

In the wake of the recent global financial crisis, in December 2009, the Basel Committee on Banking Supervision issued a package of proposals on measures to strengthen global bank capital. In December 2010, the Basel Committee issued the Basel III rules text (later revised in June 2011), which presents the details of global regulatory standards on bank capital adequacy and liquidity agreed by the Governors and Heads of Supervision and endorsed by the G20 Leaders at their November Seoul summit. 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, as summarized below. Details, including regarding the calculation method for the capital adequacy ratio under the new capital regulations, have yet to be determined.

Tier 1 capital is to consist of Common Equity Tier 1 and Additional Tier 1 capital. The minimum requirement for Common Equity Tier 1 capital will be raised in phases from 3.5% of risk-weighted assets in January 2013 to 4.5% when fully effective in January 2015. Thereafter, a capital conservation buffer, to be met with Common Equity Tier 1 capital after the application of deductions, will be phased in beginning January 2016 at 0.625% until becoming fully effective in January 2019 at 2.5%. Thus the Common Equity Tier 1 requirement, including capital conservation buffer, will be 7.0% beginning January 2019. In addition, subject to national discretion by the respective regulatory authorities, a countercyclical buffer ranging from 0% to 2.5%, consisting of Common Equity Tier 1 or other fully loss absorbing capital, would also be imposed on banking organizations through an extension of the capital conservation buffer when the relevant national authority judges a period of excess credit growth to be leading to the build up of system-wide risk. The countercyclical buffer for internationally active banks will be a weighted average of the buffers deployed across all the jurisdictions to which it has credit exposures. Moreover, capital instruments that will no longer qualify as non-Common Equity Tier 1 capital or Tier 2 capital under Basel III, which includes our existing preferred securities and subordinated debt (the amounts thereof included within regulatory capital as of March 31, 2011 being ¥1,919.8 billion and ¥1,992.2 billion, respectively) will be phased out beginning January 2013 by increments of 10% until becoming fully effective in January 2022.

Regulatory adjustments are to be applied mainly to the calculation of Common Equity Tier 1 in the form of the deductions and prudential filters related to the following:

 

•

Goodwill and other intangibles

 

•

Deferred tax assets

 

•

Cash flow hedge reserve that relates to the hedging of items that are not fair valued on the balance sheet

 

•

Shortfall of the stock of provisions to expected losses under the IRB approach

 

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•

Gain on sale related to securitization transactions

 

•

Cumulative gains and losses due to changes in own credit risk on fair valued financial liabilities

 

•

Defined benefit pension fund assets and liabilities

 

•

Treasury stock

 

•

Reciprocal cross holdings of capital of banking, financial and insurance entities

 

•

Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation

Regulatory adjustments would be fully deducted in the calculation of Common Equity Tier 1 capital by January 2018. The regulatory adjustments will begin at 20% of the required deductions in the calculation of Common Equity Tier 1 capital in January 2014 and will be increased by 20% increments per year through January 2018 when the regulatory adjustments reach 100%. During this transition period, the remainder not deducted from capital will continue to be subject to existing national treatments.

The above capital requirements, buffers and regulatory adjustments will be phased in over a transitional period as follows (italicized percentages indicates those during transition periods):

 

		January 2013				January 2014				January 2015				January 2016				January 2017				January 2018				January 2019				January 2020				January 2021				January 2022
Minimum Common Equity Tier 1 capital			3.5	%			4.0	%			4.5	%			4.5	%			4.5	%			4.5	%			4.5	%			4.5	%			4.5	%			4.5	%
Minimum Tier 1 capital			4.5	%			5.5	%			6.0	%			6.0	%			6.0	%			6.0	%			6.0	%			6.0	%			6.0	%			6.0	%
Minimum total capital			8.0	%			8.0	%			8.0	%			8.0	%			8.0	%			8.0	%			8.0	%			8.0	%			8.0	%			8.0	%
Capital conservation buffer			0.0	%			0.0	%			0.0	%			0.625	%			1.25	%			1.875	%			2.5	%			2.5	%			2.5	%			2.5	%
Phase out of recognition of capital instruments that no longer qualify as capital			90.0	%			80.0	%			70.0	%			60.0	%			50.0	%			40.0	%			30.0	%			20.0	%			10.0	%			0.0	%
Phase-in of deductions from capital			0.0	%			20.0	%			40.0	%			60.0	%			80.0	%			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

A non-risk based leverage ratio that is calibrated to act as a credible supplementary measure to the risk based capital requirements will be introduced. During the parallel run period from January 2013 to January 2017, the Basel Committee will test a minimum Tier 1 leverage ratio of 3%. Bank level disclosure of the leverage ratio and its components will start in January 2015. Based on the results of the parallel run period, any final adjustments to the definition and calibration of the leverage ratio will be carried out in the first half of 2017, with a view to migrating to a Pillar 1 treatment in January 2018 based on appropriate review and calibration.

Two minimum standards for funding liquidity will be introduced. The liquidity coverage ratio (“LCR”) is intended to promote resilience to potential liquidity disruptions over a thirty day horizon and help ensure that global banks have sufficient unencumbered, high-quality assets to offset the net cash outflows it could encounter under an acute short-term stress scenario. The net stable funding ratio (“NSFR”) requires a minimum amount of stable sources of funding at a bank relative to the liquidity profiles of the assets, as well as the potential for contingent liquidity needs arising from off-balance sheet commitments, over a one-year horizon. After an observation period beginning in 2011, minimum standards for LCR and NSFR will be introduced in January 2015 and January 2018, respectively. The Basel Committee will put in place rigorous reporting processes to monitor the ratios during the observation period.

The calculation method of risk-weighted assets will be revised, including modification to the treatment of counterparty credit risk, such as the capital charge for the credit valuation adjustment risk.

 

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The discussions on the additional loss-absorbing capacity beyond Basel III for systemically important financial institutions (“SIFIs”) are on-going among national regulatory authorities. On July 19, 2011, a package of measures for global SIFIs (“G-SIFIs”) was issued for consultation, and the final recommendations are scheduled to be delivered to the G20 Leaders’ summit to be held in November 2011. If we are deemed a SIFI, we may be subject to additional capital requirements.

Unless otherwise specified, the regulatory capital information set forth in this “—Capital Adequacy” is based on the current Basel II rules.

Consolidated Capital Adequacy Ratios

Our capital adequacy ratios as of March 31, 2010 and 2011 calculated in accordance with Japanese GAAP and guidelines established by the Financial Services Agency are as set forth in the following table:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen, except percentages)
Tier 1 capital		¥	5,173.4			¥	6,170.2			¥	996.7
Tier 2 capital included as qualifying capital			2,725.4				2,103.4				(622.0	)
Deductions for total risk-based capital			(240.8	)			(362.6	)			(121.8	)
Total risk-based capital		¥	7,658.0			¥	7,910.9			¥	252.9
Risk-weighted assets		¥	56,863.2			¥	51,693.8			¥	(5,169.4	)
Tier 1 capital ratio			9.09	%			11.93	%			2.84	%
Required Tier 1 ratio			4.00				4.00				—
Capital adequacy ratio			13.46				15.30				1.84
Required capital adequacy ratio			8.00				8.00				—

Our capital adequacy ratio as of March 31, 2011 was 15.30%. Our Tier 1 capital ratio as of March 31, 2011 was 11.93%, which significantly improved from March 31, 2010 due to an increase in Tier 1 capital as well as a decrease in our risk-weighted assets. Tier 1 capital increased as a result of the issuance of common stock in July 2010 and an increase in retained earnings as a result of recording net income for the fiscal year ended March 31, 2011. Risk-weighted assets decreased by ¥5,169.4 billion to ¥51,693.8 billion as of the end of the fiscal year ended March 31, 2011 due mainly to a decrease in the balance of loans to large Japanese corporations. We believe that we were in compliance with all capital adequacy requirements to which we were subject as of March 31, 2011.

 

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Capital

The following table shows a breakdown of our total risk-based capital as of March 31, 2010 and 2011:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
Tier 1 capital:
Common stock and preferred stock		¥	1,805.5			¥	2,181.3			¥	375.8
Capital surplus			552.1				937.6				385.5
Retained earnings			854.6				1,132.3				277.6
Minority interest in consolidated subsidiaries			2,289.0				2,269.6				(19.4	)
Treasury stock			(5.1	)			(3.1	)			1.9
Dividends, etc			(134.9	)			(140.0	)			(5.1	)
Unrealized losses on other securities			—				(7.0	)			(7.0	)
Foreign currency translation adjustments			(92.6	)			(103.9	)			(11.2	)
Other			(95.1	)			(96.5	)			(1.3	)
Total Tier 1 capital		¥	5,173.4			¥	6,170.2			¥	996.7
Tier 2 capital:
45% of unrealized gains on other securities		¥	122.6				—			¥	(122.6	)
45% of revaluation reserve for land			106.7				106.2				(0.5	)
General reserve for possible losses on loans, etc			5.4				4.9				(0.5	)
Debt capital, etc			2,490.5				1,992.2				(498.3	)
Total Tier 2 capital			2,725.4				2,103.4				(622.0	)
Tier 2 capital included as qualifying capital			2,725.4				2,103.4				(622.0	)
Deductions for total risk-based capital			(240.8	)			(362.6	)			(121.8	)
Total risk-based capital		¥	7,658.0			¥	7,910.9			¥	252.9

Our Tier 1 capital increased by ¥996.7 billion from ¥5,173.4 billion as of March 31, 2010 to ¥6,170.2 billion as of March 31, 2011. This increase was due mainly to the issuance of common stock of ¥751.6 billion in July 2010, and an increase in retained earnings as a result of recording net income of ¥413.2 billion for the fiscal year ended March 31, 2011.

Minority interest in consolidated subsidiaries included within our Tier 1 capital includes non-dilutive preferred securities issued by our overseas special purpose companies to investors. As of March 31, 2011, the amount of minority interest in consolidated subsidiaries within our Tier 1 capital that was attributable to such non-dilutive preferred securities was ¥1,919.8 billion. Although such non-dilutive preferred securities are perpetual in term, they are redeemable at our option, subject to prior approval from regulatory authorities, on, and on specified dates after, the relevant initial optional redemption date. The following table shows the initial optional redemption dates for the non-dilutive preferred securities included within our Tier 1 capital as of March 31, 2011 and the total amount of non-dilutive preferred securities with each such initial optional redemption date. The non-dilutive preferred securities are denominated in yen, unless otherwise noted.

 

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Initial optional redemption date		Amount of non-dilutive preferred securities included within Tier 1 capital
		(in billions of yen)
June 2011		¥	58.7	(1)
June 2012			171.0
June 2014			210.1	(2)
June 2015			452.5
June 2016			449.8	(3)
June 2018			274.5
June 2019			303.0

 

Notes:

(1)	In June 2011, we redeemed all ¥58.7 billion of such non-dilutive preferred securities, denominated in euros (€500.0 million).

(2)	Denominated in yen (¥139.5 billion) and dollars ($850.0 million).

(3)	Denominated in yen (¥400.0 billion) and dollars ($600.0 million).

The following table shows the outstanding balances of preferred stock and non-dilutive preferred securities included in our Tier 1 capital as of the dates indicated:

 

		As of March 31,
		2007				2008				2009				2010				2011
		(in billions of yen, except percentages)
Preferred stock		¥	980.4			¥	980.4			¥	948.6	(1)		¥	535.9	(1)		¥	453.5	(1)(2)
Non-dilutive preferred securities			1,504.9				1,539.7				1,886.8				1,937.8				1,919.8
Percentage within Tier 1 capital			50.3	%			51.6	%			75.3	%			47.8	%			38.4	%

 

Notes:

(1)	Excludes treasury stock.

(2)	During the period from April 1, 2011 to June 30, 2011, holders of our eleventh series class XI preferred stock converted 1,650,200 shares (or ¥1.6 billion) by requesting us to acquire the preferred stock and issue common stock to them.

Our Tier 2 capital included as qualifying capital as of March 31, 2011 was ¥2,103.4 billion, a decrease of ¥622.0 billion compared to March 31, 2010. The decrease was due mainly to the decrease in debt capital and the absence of 45% of unrealized gains on other securities.

As a result of the above, together with deductions of ¥362.6 billion, total risk-based capital as of March 31, 2011 was ¥7,910.9 billion, an increase of ¥252.9 billion compared to March 31, 2010.

Prime Capital

Alongside the regulatory capital requirements supervised by the Financial Services Agency, we calculate and monitor “prime capital” as our important management indicator. Prime capital represents capital items within Tier 1 capital with a stronger capability to absorb losses. Prime capital is calculated as Tier 1 capital less the sum of the preferred securities and preferred stock (excluding mandatory convertible preferred stock), and prime capital ratio is the ratio of prime capital against risk-weighted assets.

Prime capital differs in certain respects from common equity Tier 1 as set forth in the Basel III rules text issued by the Basel Committee in December 2010. See “—Capital Adequacy—Regulatory Capital Requirements—Basel III.”

 

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The following table shows a breakdown of our capital items as of March 31, 2010 and 2011:

 

		As of March 31,
		2010				2011
		(in billions of yen, except percentages)
Tier 1 capital (i)		¥	5,173.4			¥	6,170.2
Preferred stock (ii)			535.9				453.5
Mandatory convertible preferred stock (iii)			499.2				416.8
Preferred securities (iv)			1,937.8				1,919.8
Prime capital (i) - (ii) + (iii) - (iv)			3,198.9				4,213.6
Risk-weighted assets			56,863.2				51,693.8
Tier 1 capital ratio			9.09	%			11.93	%
Prime capital ratio			5.62	%			8.15	%

Risk-weighted Assets

The following table shows a breakdown of our risk-weighted assets as of March 31, 2010 and 2011:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
Risk-weighted assets:
On-balance-sheet items		¥	42,796.2			¥	38,958.0			¥	(3,838.2	)
Off-balance-sheet items			9,112.4				8,039.0				(1,073.3	)
Credit risk assets			51,908.7				46,997.1				(4,911.6	)
Market risk equivalent assets			1,297.9				1,389.2				91.2
Operational risk equivalent assets			3,656.5				3,307.4				(349.0	)
Adjusted floor amount			—				—				—
Total		¥	56,863.2			¥	51,693.8			¥	(5,169.4	)

Risk-weighted assets as of March 31, 2011 were ¥51,693.8 billion, representing a decrease of ¥5,169.4 billion compared to March 31, 2010. Credit risk assets decreased by ¥4,911.6 billion to ¥46,997.1 billion due mainly to a decrease in balance of loans to large Japanese corporations. Market risk equivalent assets increased by ¥91.2 billion to ¥1,389.2 billion. Operational risk equivalent assets decreased by ¥349.0 billion to ¥3,307.4 billion due mainly to the sophistication of the measurement models used by some of our subsidiaries.

 

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Principal Banking Subsidiaries

Capital adequacy ratios of our principal banking subsidiaries, on a consolidated basis, as of March 31, 2010 and 2011, calculated in accordance with Japanese GAAP and guidelines established by the Financial Services Agency, were as set forth in the following table:

 

		As of March 31,								Increase
		2010				2011
Mizuho Corporate Bank
BIS standard:
Tier 1 capital ratio			12.57	%			16.10	%			3.53	%
Capital adequacy ratio			16.00				18.80				2.80
Mizuho Bank(1)
Domestic standard:
Tier 1 capital ratio			7.74				10.38				2.64
Capital adequacy ratio			12.88				14.91				2.03
BIS standard:
Tier 1 capital ratio			7.69				10.10				2.41
Capital adequacy ratio			12.83				14.60				1.77
Mizuho Trust & Banking
BIS standard:
Tier 1 capital ratio			10.07				12.11				2.04
Capital adequacy ratio			15.73				16.34				0.61

 

Note:

(1)	BIS standards apply only to banks with international operations. Because Mizuho Bank does not operate overseas, it is subject solely to domestic capital adequacy requirements. As such, information based on the BIS standards is included for reference purpose only.

We believe each of our principal banking subsidiaries was in compliance with all capital adequacy requirements to which it was subject as of March 31, 2011.

Our securities subsidiaries in Japan are also subject to the capital adequacy requirement under the Financial Instruments and Exchange Law. Under this requirement, securities firms must maintain a minimum capital adequacy ratio of 120% calculated as a percentage of capital accounts less certain assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty and basic risks. Specific guidelines are issued as a ministerial ordinance that details the definition of essential components of the capital ratios, including capital, disallowed assets and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for regulatory reporting and a capital ratio of 100% or less may lead to a temporary suspension of all or part of the business operations and cancellation of the license to act as a securities broker and dealer. On May 19, 2010, certain amendments to the Financial Instruments and Exchange Law were promulgated, including introduction of a minimum capital adequacy regulation on a consolidated basis applicable to securities firms whose total assets exceed certain threshold. The amendments relevant to such regulation became effective on April 1, 2011. We believe, as of March 31, 2011, that our securities subsidiaries in Japan are in compliance with all capital adequacy requirements to which they are subject.

 

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Off-balance-sheet Arrangements

We engage in various types of off-balance-sheet arrangements in the ordinary course of our business to meet the financing needs of our customers. These arrangements include various guarantees and commitments. The following tables show the contractual or notional amounts of our guarantees and undrawn commitments as of March 31, 2010 and 2011:

 

		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
Guarantees:
Performance guarantees		¥	1,579			¥	1,580			¥	1
Guarantees on loans			739				539				(200	)
Guarantees on securities			16				10				(6	)
Other guarantees			867				872				5
Guarantees for the repayment of trust principal			932				249				(683	)
Liabilities of trust accounts			8,529				8,144				(385	)
Derivative financial instruments			43,074				30,567				(12,507	)
		As of March 31,								Increase (decrease)
		2010				2011
		(in billions of yen)
Commitments:
Commitments to extend credit		¥	48,778			¥	50,436			¥	1,658
Commercial letters of credit			392				465				73
Total commitments		¥	49,170			¥	50,901			¥	1,731

See note 25 to our consolidated financial statements included elsewhere in this annual report for a description of the nature of the various types of guarantees and commitments.

The contractual or notional amounts of these instruments generally represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held. For example, the amount under commitments to extend credit does not necessarily equal the impact that such commitment will have on our future cash flow, because many of these commitments expire without our making actual credit extensions up to the full commitment amount or at all. Also, many of the agreements related to the commitments to extend credit include terms that allow us to refuse, or reduce the amount of, credit extensions based on changes in the financial environment, declines in the obligor’s credit quality and other reasons. Finally, we receive collateral such as real estate and securities at the time of contract as we deem necessary, and we regularly review the credit quality of the customer based on internal guidelines and revise the terms of the contract as we deem necessary to manage credit risk.

Some of our off-balance-sheet arrangements are related to activities of special purpose entities, most of which are variable interest entities, including those that do not meet the consolidation requirements under ASC 810 “Consolidation.” These off-balance-sheet arrangements include the types of transactions discussed below.

Asset-backed Commercial Paper/Loan Programs

We manage several asset-backed commercial paper/loan programs that provide our clients’ off-balance-sheet and cost-effective financing. The variable interest entities used in the programs purchase assets, primarily receivables, from clients participating in the programs and provide liquidity through the issuance of commercial paper or borrowings from us backed by the assets. While customers normally continue to service the transferred receivables, we underwrite, distribute and make a market in commercial paper issued by the variable interest entities. We typically provide program-wide liquidity and credit support facilities and, in some instances,

 

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financing to the variable interest entities. We have the power to determine which assets will be held in the variable interest entities and have an obligation to monitor these assets. We are also responsible for liability management. In addition, through the liquidity and credit support facilities with the variable interest entities, we have the obligation to absorb losses that could potentially be significant to the variable interest entities. Therefore, we consolidated this type of variable interest entities.

Asset-backed Securitizations

We act as an arranger of various types of structured finance to meet clients’ various off-balance-sheet financing needs. In substantially all of these structured financing transactions, the transfer of the asset by the client is structured to be bankruptcy remote by use of a bankruptcy remote entity, which is deemed to be a variable interest entity because its equity holder does not have decision-making rights. We receive fees for structuring and/or distributing the securities sold to investors. In some cases, we ourselves purchase the securities issued by the entities and/or provide loans to the variable interest entities.

In addition, from time to time we establish single-issue and multi-issue special purpose entities that issue collateralized debt obligations or collateralized loan obligations, synthetic collateralized debt obligations or collateralized loan obligations or other repackaged instruments to meet clients’ and investors’ needs. We also arrange securitization transactions including commercial mortgage-backed securities and residential mortgage-backed securities mainly in Japan and others. In these transactions, we act as an underwriter, placement agent, asset manager, derivatives counterparty and/or investor for debt and equity instruments.

In certain variable interest entities, where we provide liquidity and credit support facilities, write credit protection or invest in debt or equity instruments in our role as an arranger, servicer, administrator or asset manager, etc., we have the power to determine which assets will be held in the variable interest entities or to manage and monitor these assets. In addition, through the variable interests above, we have the obligation to absorb losses and the right to receive benefits that could potentially be significant to the variable interest entities. Therefore, we consolidated such variable interest entities.

In a certain securitization transaction where we had transferred mortgage loans to a former qualifying special-purpose entity, we, as continuing involvement, provide servicing for, hold retained subordinated beneficial interests in, and retain credit exposure in the form of a guarantee in the mortgage loans. Prior to April 1, 2010, this entity had been exempt from consolidation in accordance with the former accounting guidance. With elimination of the concept of qualifying special-purpose entities, we consolidated the entity as of April 1, 2010. In our role as a servicer, we have the power to direct the entity’s activities that most significantly impact the entity’s economic performance by managing defaulted mortgage loans. In addition, through the retained interest and the involvement as a guarantor above, we have the obligation to absorb losses and the right to receive benefits that could potentially be significant to the entity.

Investments in Securitization Products

We invest in, among other things, various types of collateralized debt obligations and collateralized loan obligations, synthetic collateralized debt obligations and collateralized loan obligations and repackaged instruments, commercial mortgage-backed securities and residential mortgage-backed securities arranged by third parties for the purpose of current income or capital appreciations, which all utilize entities that are deemed variable interest entities.

By design, such investments were investment grade at issuance and held by a diverse group of investors. The loss amount of securities and loans is generally limited to the amount invested because we have no contractual involvement in such variable interest entities beyond our investments. Since we are involved in those variable interest entities only as an investor, we do not ordinarily have the power to direct the variable interest entities’ activities that most significantly impact the variable interest entities’ economic performance. However,

 

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we consolidated some variable interest entities, mostly where the transactions were tailored by the third party arrangers to meet our needs as a main investor, who is eventually deemed to have the power to determine which assets to be held in the variable interest entities.

Investment Funds

We invest in various investment funds, including securities investment trusts that invest in equity and debt securities such as listed Japanese securities and investment grade bonds. Investment advisory companies or fund management companies, including our subsidiaries and affiliates, administer and make the investment decisions with respect to such investment funds. We consolidate certain investment funds where we are deemed to be the primary beneficiary. We have determined that certain investment vehicles managed by us are provided a deferral from the requirements of SFAS No.167, because they meet the criteria in ASU No.2010-10. Therefore, these vehicles continue to be evaluated under the requirements of ASC 810 before implementing SFAS No.167.

Trust Arrangements

We offer a variety of asset management and administration services under trust arrangements, including security investment trusts, pension trusts and trusts used in the securitization of assets originated by and transferred to third parties. We receive trust fees for providing services as an agent or fiduciary on behalf of beneficiaries.

With respect to guaranteed principal money trust products, we assume certain risks by providing guarantees for the repayment of principal as required by the trust agreements or relevant Japanese legislation. We manage entrusted funds primarily through the origination of high-quality loans and other credit-related products, investing in high-grade marketable securities such as Japanese government bonds and placing cash with our subsidiary trust banks to maintain liquidity and for cash management purposes. We have the power to determine which assets will be held in the variable interest entities or to manage these assets. In addition, through the principal guarantee agreement, we have the obligation to absorb losses that could potentially be significant to the variable interest entities. Therefore, we consolidated this type of variable interest entities. However, we do not consolidate certain guaranteed principal money trusts, which invest all the entrusted funds to ourselves, as we have determined that we have no variable interests.

Significant Unconsolidated Variable interest entities

The tables below summarize our involvement in significant unconsolidated variable interest entities as of March 31, 2010 and 2011:

 

		Significant unconsolidated variable interest entities
As of March 31, 2010		Total assets				Maximum exposure to loss
		(in billions of yen)
Asset-backed commercial paper/loan programs		¥	—			¥	—
Asset-backed securitizations			1,253				40
Investments in securitization products			—				—
Investment funds			2,778				401
Trust arrangements and other			932				381
Total		¥	4,963			¥	822

 

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		Significant unconsolidated variable interest entities
As of March 31, 2011		Total assets				Maximum exposure to loss
		(in billions of yen)
Asset-backed commercial paper/loan programs		¥	—			¥	—
Asset-backed securitizations			680				44
Investments in securitization products			—				—
Investment funds			1,841				266
Trust arrangements and other			—				—
Total		¥	2,521			¥	310

Asset-backed commercial paper/loan programs include multi-seller programs managed by us, under which the related conduits purchase various types of assets from our clients, consisting mainly of account and note receivables as well as credit card receivables, auto loans, leases and other receivables. Our involvement with conduits for multi-seller programs is generally more significant than other types of conduits in terms of liquidity support and credit enhancement obligations. All of the conduits for our asset-backed commercial paper/loan programs to which we provided liquidity support or credit enhancements were consolidated variable interest entities as of March 31, 2011.

Other Types of Off-balance-sheet Arrangements

See note 27 to our consolidated financial statements included elsewhere in this annual report for further descriptions of variable interest entities and securitizations.

Tabular Disclosure of Contractual Obligations

In the normal course of business, we enter into contractual obligations that require future cash payments. The following table sets forth a summary of our contractual cash obligations as of March 31, 2011:

 

		Due in one year or less				Due from one year to two years				Due from two years to three years				Due from three years to four years				Due from four years to five years				Due after five years				Total
		(in billions of yen)
Time deposits		¥	29,733			¥	1,895			¥	1,332			¥	247			¥	270			¥	128			¥	33,605
Certificates of deposit			9,650				0				—				—				—				—				9,650
Debentures			150				120				138				157				176				—				741
Long-term debt			962				872				749				1,091				1,092				4,187				8,953
Operating leases			35				30				27				10				6				17				125
Total		¥	40,530			¥	2,917			¥	2,246			¥	1,505			¥	1,544			¥	4,332			¥	53,074

Recent Accounting Pronouncements

Accounting pronouncements issued but not yet effective

In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) No.07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies,” which is now included in ASC 946, “Financial Services—Investment Companies” (“ASC 946”), and provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (“the Guide”). The statement was expected to be effective for fiscal years beginning on or after December 15, 2007, with earlier application encouraged. However, in February 2008, the FASB issued FSP No.SOP07-1-1, “Effective Date of AICPA Statement of Position 07-1,” which is now included

 

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in ASC 946 as well, to delay the effective date of SOP No.07-1 indefinitely in order to address implementation issues. We do not expect that the current form of the statement will have a material impact on our consolidated results of operations or financial condition.

In December 2010, the FASB issued ASU No.2010-28, “Intangibles—Goodwill and Other (Topic 350)—When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU No.2010-28”). The ASU requires Step 2 of the impairment test should be performed in circumstances where the carrying amount of a reporting unit is zero or negative and there are qualitative factors that indicate it is more likely than not that a goodwill impairment exists. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. We do not expect that the adoption of ASU No.2010-28 will have a material impact on our consolidated results of operations or financial condition.

In December 2010, the FASB issued ASU No.2010-29, “Business Combinations (Topic 805)—Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU No.2010-29”). The ASU clarifies that, if a reporting entity presents comparative financial statements, the pro forma revenue and earnings of the combined entity should be reported as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. ASU No.2010-29 is an accounting principle which clarifies disclosure requirements, and has no impact on our consolidated results of operations or financial condition.

In April 2011, the FASB issued ASU No.2011-02, “Receivables (Topic 310)—A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” (“ASU No.2011-02”), which sets the effective date of certain disclosure requirements which was deferred by ASU No.2011-01. ASU No.2011-02 also clarifies the guidance on a creditor’s evaluation for troubled debt restructurings of whether it has granted a concession and whether a debtor is experiencing financial difficulties. The ASU is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. We do not expect that the adoption of ASU No.2011-02 will have a material impact on our consolidated results of operations or financial condition.

In April 2011, the FASB issued ASU No.2011-03, “Transfers and Servicing (Topic 860)—Reconsideration of Effective Control for Repurchase Agreements” (“ASU No.2011-03”). The ASU amends the conditions to determine whether a transferor in repurchase agreements (repos) and other similar agreements maintains effective control over the financial assets transferred by removing from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. We do not expect that the adoption of ASU No.2011-03 will have a material impact on our consolidated results of operations or financial condition.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No.2011-04”) in order to improve comparability of fair value measurements presented and disclosed in financial statements prepared with U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendments in ASU No. 2011-04 change the wording to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to align with IFRS. The amendments also clarify the existing fair value measurement and disclosure requirements, which include (1) application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and (3) disclosing quantitative information about the unobservable inputs

 

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used for Level 3 items. The amendments also change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements, which include (1) measuring the fair value of financial instruments that are managed within a portfolio, (2) application of premiums and discounts in a fair value measurement and (3) additional disclosures about fair value measurements. The ASU is effective for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. We are currently evaluating the potential impact that the adoption of ASU No.2011-04 will have on our consolidated results of operations and financial condition.

In June 2011, the FASB issued ASU No.2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income” (“ASU No.2011-05”). The ASU eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, and requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU also requires reclassification adjustments from other comprehensive income to net income be presented on the face of financial statements. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. Early adoption is permitted. ASU No.2011-05 is an accounting principle which alters disclosure requirements, and had no impact on our consolidated results of operations or financial condition.

Reconciliation with Japanese GAAP

Our consolidated financial statements are prepared in accordance with accounting principles and policies as summarized in note 1 to our consolidated financial statements included elsewhere in this annual report. These principles and policies differ in some respects from Japanese GAAP. Under Japanese banking regulations, we are required to report our annual financial results using financial statements prepared under Japanese GAAP. In addition, pursuant to the requirements of the Tokyo Stock Exchange, we prepare quarterly financial statements which are also under Japanese GAAP. To show the major reconciling items between our U.S. GAAP financial statements and our Japanese GAAP financial statements, we have provided below, with respect to our most recent fiscal year, a reconciliation of consolidated net income and shareholders’ equity under U.S. GAAP with those amounts under Japanese GAAP.

 

		As of and for the fiscal year ended March 31, 2011
		Total MHFG shareholders’ equity				Net income attributable to MHFG shareholders
		(in billions of yen)
U.S. GAAP		¥	3,673.5			¥	412.7
Differences arising from different accounting for:
1.  Derivative financial instruments and hedging activities			(1.1	)			28.9
2.  Investments			71.0				19.4
3.  Loans			128.0				2.7
4.  Allowances for loan losses and off-balance-sheet instruments			95.5				(2.3	)
5.  Premises and equipment			(34.6	)			0.0
6.  Real estate sales and leasebacks			30.9				(13.2	)
7.  Land revaluation			177.0				(0.7	)
8.  Business combinations			(43.9	)			9.4
9.  Noninterest-earning deposits made under government-led restructuring program			27.7				(11.6	)
10. Pension liabilities			502.0				(62.8	)
11. Consolidation of variable interest entities			30.4				(10.8	)
12. Deferred taxes			(352.5	)			49.7
13. Other			28.0				(8.2	)
Japanese GAAP		¥	4,331.9			¥	413.2

 

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The following is a summary of the significant adjustments made to consolidated shareholders’ equity and net income, as shown in the above table, to reconcile the U.S. GAAP results with Japanese GAAP. The paragraphs below refer to the corresponding items set forth in the table above.

1.    Derivative financial instruments and hedging activities

Under U.S. GAAP, for a derivative to qualify for hedge accounting, it must be highly effective at achieving offsetting changes in fair values or variable cash flows from the hedged items attributable to the particular risk being hedged. The hedging relationship must be designated and formally documented at inception. Such documentation must include the particular risk management objective and strategy for the hedge, the identification of the derivative used as the hedging instrument, the hedged item and the risk exposure being hedged and the method for assessing the hedge effectiveness. The criteria for designation and measurement of hedge effectiveness under U.S. GAAP are more rigorous than under Japanese GAAP. As a result, most of the eligible hedge derivatives under Japanese GAAP are accounted for as trading account assets or liabilities under U.S. GAAP with changes in fair value of the derivatives recognized in earnings.

Requirements for bifurcation of embedded derivatives differ between Japanese GAAP and U.S. GAAP. Embedded derivatives that are deemed to be clearly and closely related to their host contract are not bifurcated under U.S. GAAP, while Japanese GAAP allows an entity to bifurcate embedded derivatives if the entity manages the risk of the embedded derivatives and host contracts separately. Bifurcated derivatives are recorded on the balance sheet at fair value with changes in fair value recognized in earnings under both Japanese GAAP and U.S. GAAP.

2.    Investments

The cost basis of certain investments differs between Japanese GAAP and U.S. GAAP primarily due to the following reasons:

Certain sales and subsequent repurchases of available-for-sale securities under Japanese GAAP do not meet the sale accounting criteria under U.S. GAAP. These sales and subsequent repurchases resulted in realized gains or losses being recognized in earnings under Japanese GAAP. Under U.S. GAAP, these gains or losses are recognized as unrealized gains or losses within accumulated other comprehensive income, net of tax.

Under U.S. GAAP, declines in the fair value of available-for-sale securities below cost that are deemed to be “other-than-temporary” are recorded in earnings. Both quantitative and qualitative factors are considered to determine whether the impairment is “other-than-temporary,” including the duration and extent of the decline, near-term prospects of the issuer, as well as our ability and intent to hold the investments until an anticipated market price recovery or maturity. Under Japanese GAAP, significant declines in the fair value of securities below cost that are deemed to be “other-than-temporary” are recorded in earnings unless short term recovery is reasonably expected. A decline in fair value of a security of 50% or more of its cost is a strong indicator of an other-than-temporary decline, which requires compelling evidence to prove otherwise. A decline in fair value of 30% or more but less than 50% of its cost is an indicator of an other-than-temporary decline in which case the probability of recovery must be evaluated to determine whether an other-than-temporary decline has occurred. Generally, if the decline in fair value is less than 30%, it is not considered to be an other-than-temporary decline.

Under U.S. GAAP, the election of the fair value option for financial assets and liabilities is permitted according to ASC 825, while it is not permitted under Japanese GAAP. As we elected the fair value option for foreign currency denominated available-for-sale securities under U.S. GAAP, these securities were reclassified as trading securities and the entire amount of changes in their fair value are now recognized in earnings, while under Japanese GAAP, only the changes attributable to movements in foreign currency exchange rates are recognized in earnings.

Reconciliation amounts for investments in the above table are presented net of taxes.

 

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3.    Loans

Under U.S. GAAP, loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the contractual life of the relevant loan using the interest method, while certain fees and costs are recognized in earnings at the time the loan is originated under Japanese GAAP.

In addition, certain loan participations and sales of loans to special purpose vehicles in connection with asset securitization transactions under Japanese GAAP do not meet sales criteria under U.S. GAAP due to different applicable criteria, and therefore the relevant loans are recognized on the balance sheet under U.S. GAAP.

4.    Allowances for loan losses and off-balance-sheet instruments

Under both Japanese GAAP and U.S. GAAP, the allowance for loan losses for specifically identified impaired loans is based on the present value of expected future cash flows discounted at the loan’s initial effective interest rate or as a practical expedient, the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. For certain impaired loans which are aggregated for the purpose of measuring impairment, pools of smaller balance homogeneous loans and other non-homogeneous loans that have not been identified as impaired, the allowance for loan losses is determined based on a formula allowance utilizing historical loss factors, as adjusted, considering recent trends.

The differences between Japanese GAAP and U.S. GAAP arise from the difference in the scope of the loans that are subject to the individual and portfolio impairment analysis. In addition to these effects based on differences between Japanese GAAP and U.S. GAAP, provision (credit) for loan losses may differ between Japanese GAAP and U.S. GAAP due to the difference in the timing of accounting closings between our consolidated financial statements under U.S. GAAP and those under Japanese GAAP.

This reconciling item also includes the differences between U.S. GAAP and Japanese GAAP relating to the allowance for off-balance-sheet instruments. We generally use the same methodology to reserve for losses on these instruments as we do for loans.

5.    Premises and equipment

Under U.S. GAAP, the fair value of a non-monetary asset acquired in exchange for another non-monetary asset is generally deemed to be the new cost of the asset acquired in the exchange, and a gain or loss is recognized on the exchange. Under Japanese GAAP, the cost of the asset surrendered is assigned to the newly acquired asset in certain types of exchange transactions, resulting in no gains or losses. In addition, the difference in carrying value of assets acquired in a non-monetary exchange results in a difference in the depreciation schedule between U.S. GAAP and Japanese GAAP.

6.    Real estate sales and leasebacks

Our principal banking subsidiaries entered into sale and leaseback transactions in prior years with respect to land and buildings used as their headquarters. Each sale of such real estate is accounted for as a sale under Japanese GAAP with profits on the sale recorded in earnings. Under U.S. GAAP, the profits are deferred and amortized within the respective lease periods as the subsidiaries continue to occupy the buildings under operating leases.

7.    Land revaluation

Under Japanese GAAP, we revalued our holdings of land during the fiscal year ended March 31, 1998 pursuant to the Law Concerning Revaluation of Land (Law No. 34 of 1998). The revaluation gains are recorded directly in equity, and the related deferred tax liabilities are also recognized. Under U.S. GAAP, there is no applicable provision that allows for the revaluation of land other than for impairments, and accordingly the revaluation gains are reversed.

 

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8.    Business combinations

U.S. GAAP and Japanese GAAP differ with regard to accounting for business combinations, primarily in accounting for goodwill. Under U.S. GAAP, goodwill is not amortized and an impairment loss is recorded to the extent the carrying amount of the goodwill exceeds its estimated fair value at the measurement date. Under Japanese GAAP, goodwill is amortized over an appropriate period not to exceed 20 years and an impairment loss is recorded only if the effects of the goodwill are no longer expected.

9.    Noninterest-earning deposits made under government-led restructuring program

In connection with the government-led restructuring program for seven failed housing loan companies, we made noninterest-earning deposits of ¥359,017 million in the fiscal year ended March 31, 1997. Under Japanese GAAP, these deposits are recorded at cost. Under U.S. GAAP, these deposits are discounted to their present value at the time of deposit, and the discount is subsequently accreted to income over the expected period to maturity.

10.    Pension liabilities

Under Japanese GAAP, we adopted as of April 1, 2000, pension accounting that is based on the actuarial present value of accrued benefit obligations. The cumulative effect of the accounting change has been amortized and actuarial gains and losses are deferred and amortized. Under U.S. GAAP, we recalculated the benefit obligation at April 1, 2004 and accounted for the obligation as if we had adopted the accounting method in accordance with ASC 715, “Compensation—Retirement Benefits,” beginning in the fiscal year ended March 31, 1990, as permitted for a foreign private issuer. The cumulative effect of the accounting change, as well as actuarial gains and losses since the adoption, had been fully amortized by April 1, 2004.

Under U.S. GAAP, an employer is required to recognize the overfunded or underfunded status of a defined benefit plan as an asset or liability in its consolidated balance sheets, according to ASC 715. Under ASC 715, actuarial gains or losses and prior service costs or benefits that have not yet been recognized through earnings as net periodic benefit cost are recognized in other comprehensive income, net of tax, until they are amortized as a component of net periodic benefit cost based on corridor approach. Under Japanese GAAP, they are not immediately recognized in the consolidated balance sheets and are instead amortized over a specified number of years. This results in differences in the amounts of shareholders’ equity and net income between U.S. GAAP and Japanese GAAP. See note 22 to our consolidated financial statements included elsewhere in this annual report for further discussion.

11.    Consolidation of variable interest entities

Under U.S. GAAP, variable interest entities are to be consolidated if we are deemed to be the primary beneficiary of the variable interest entity. Under Japanese GAAP, consolidation is not based on variable interests. We consolidate certain variable interest entities, such as entities related to asset-backed commercial paper/loan programs, asset-backed securitizations, investments in securitization products and investment funds. See note 27 to our consolidated financial statements included elsewhere in this annual report for further discussion.

12.    Deferred taxes

Under U.S. GAAP, all available evidence, both positive and negative, must be considered to determine whether, based on the weight of that evidence, deferred tax assets are realizable or whether a valuation allowance is needed. Possible sources of taxable income, which are considered to determine whether deferred tax assets are realizable, include unrealized gains on available-for-sale securities. The sources also include tax planning strategies that are prudent and feasible. Under Japanese GAAP, the assessment as to whether deferred tax assets are realizable is primarily based on estimates of future taxable income.

 

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Additionally, differences in the carrying amount of assets and liabilities between U.S. GAAP and Japanese GAAP create temporary differences that result in differences in deferred tax assets and liabilities.

13.    Other

This adjustment reflects the effects of miscellaneous items that are not individually material.

 

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ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

6.A. Directors and Senior Management

Directors and Corporate Auditors

The following table provides information regarding our directors and corporate auditors as of June 30, 2011:

 

Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
Takashi Tsukamoto (Aug. 2, 1950)		Chairman (since June 2011)   President & CEO of Mizuho Bank, Ltd.		Apr. 2002		Executive Officer/General Manager of Human Resources Division of Mizuho Corporate Bank, Ltd.		June 2012
				Mar. 2003		Managing Executive Officer/Head of Risk Management Group, Head of Human Resources Group and General Manager of Post-retirement Counseling of Mizuho Financial Group, Inc.
				Feb. 2004		Managing Executive Officer/Head of Risk Management Group and Head of Human Resources Group
				Apr. 2004		Managing Executive Officer/Head of Europe, Middle East and Africa of Mizuho Corporate Bank, Ltd.
				Mar. 2006		Managing Director/Chief Strategy Officer and Chief Financial Officer
				Apr. 2007		Deputy President
				Apr. 2008		Deputy President-Executive Officer/Head of Financial Control and Accounting Group of Mizuho Financial Group, Inc.
				Apr. 2008		President & CEO of Mizuho Financial Strategy Co., Ltd. (until Apr. 2009)
				June 2008		Deputy President/Head of Financial Control and Accounting Group of Mizuho Financial Group, Inc.
				Apr. 2009		President & CEO/Head of Human Resources Group
				Apr. 2010		President & CEO

 

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Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
				June 2011		President & CEO of Mizuho Bank, Ltd. (current)
				June 2011		Chairman of Mizuho Financial Group, Inc. (current)
Yasuhiro Sato (Apr. 15, 1952)		President & CEO (Group CEO) (since June 2011) (Representative Director)   President & CEO of Mizuho Corporate Bank, Ltd.   Director of Mizuho Bank, Ltd.		Mar. 2003		Executive Officer/Senior Corporate Officer of International Banking Unit of Mizuho Corporate Bank, Ltd.		June 2013
				Apr. 2004		Managing Executive Officer
				Mar. 2006		Managing Director/Head of Corporate Banking Unit
				Apr. 2007		Deputy President/Chief Auditor
				Apr. 2009		President & CEO (current)
				June 2009		Director of Mizuho Financial Group, Inc.
				June 2011		Director of Mizuho Bank, Ltd. (current)
				June 2011		President & CEO of Mizuho Financial Group, Inc. (Group CEO) (current)
Junichi Nishizawa (June 12, 1956)		Deputy President (since June 2011) (Representative Director)   Head of Human Resources Group   Chief Human Resources Officer   Managing Executive Officer of Mizuho Bank, Ltd.   Managing Executive Officer of Mizuho Corporate Bank, Ltd.		Mar. 2006		General Manager of Human Resources Division of Mizuho Bank, Ltd.		June 2013
				Apr. 2008		Executive Officer/General Manager of Nagoya-chuo Corporate Banking Department of Nagoya-chuo Branch
				Apr. 2010		Managing Executive Officer/Chief Risk Officer and Chief Human Resources Officer of Mizuho Corporate Bank, Ltd.
				Apr. 2011		Managing Director/Chief Risk Officer and Chief Human Resources Officer
				June 2011		Managing Executive Officer/Chief Human Resources Officer (current)
				June 2011		Managing Executive Officer/In charge of Human Resources Group of Mizuho Bank, Ltd. (current)
				June 2011		Deputy President/Head of Human Resources Group of Mizuho Financial Group, Inc. (current)

 

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Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
Mitsuaki Tsuchiya (May 1, 1954)		Deputy President (since June 2011)   Head of Internal Audit Group   Chief Auditor		Apr. 2004		Executive Officer/General Manager of Executive Secretariat of Mizuho Corporate Bank, Ltd.		June 2013
				Mar. 2006		Managing Executive Officer
				Apr. 2008		Deputy President-Executive Officer of Mizuho Trust & Banking Co., Ltd.
				June 2008		Deputy President
				Apr. 2011		Director (until June 2011)
				Apr. 2011		Deputy President-Executive Officer/Head of Internal Audit Group of Mizuho Financial Group, Inc.
				June 2011		Deputy President /Head of Internal Audit Group (current)
Masaaki Kono (Feb. 24, 1957)		Managing Director (since June 2011)   Head of Risk Management Group   Head of Compliance Group   Chief Risk Officer   Chief Compliance Officer		Mar. 2006		Executive Officer/General Manager of Corporate Banking Division No.8 of Mizuho Corporate Bank, Ltd.		June 2013
				Apr. 2008		Managing Executive Officer
				Apr. 2011		Managing Executive Officer/Head of Risk Management Group, Head of Human Resources Group and Head of Compliance Group of Mizuho Financial Group, Inc.
				June 2011		Managing Director/Head of Risk Management Group and Head of Compliance Group (current)
Takeo Nakano (June 28, 1956)		Managing Director (since June 2010)   Head of Financial Control and Accounting Group   In charge of IT, Systems & Operations Group		Apr. 2004		Senior Corporate Officer of Financial Control & Accounting Group of Mizuho Corporate Bank, Ltd.		June 2012
				Apr. 2007		Executive Officer/General Manager of Kobunacho Branch of Mizuho Bank, Ltd.
		Chief Financial Officer		Apr. 2009		Managing Executive Officer/Head of Risk Management Group, Head of Compliance Group and In charge of Financial Control and Accounting Group of Mizuho Financial Group, Inc.

 

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Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
				Apr. 2010		Managing Executive Officer/Head of Financial Control and Accounting Group
				Apr. 2010		President & CEO of Mizuho Financial Strategy Co., Ltd. (current)
				June 2010		Managing Director/Head of Financial Control and Accounting Group
				Apr. 2011		Managing Director/Head of Financial Control and Accounting Group and In charge of IT, Systems & Operations Group (current)
Akihiko Nomiyama(1)(3) (June 15, 1934)		Director (since June 2007)   Honorary Executive Consultant of JX Holdings, Inc.		Apr. 1957		Joined Nippon Mining Co., Ltd.		June 2013
				June 1984		Director
				June 1989		Managing Director
				Dec. 1992		Managing Director of Nikko Kyodo Co., Ltd.
				Dec. 1993		Managing Director of Japan Energy Corporation
				June 1994		Senior Managing Director
				June 1996		President and CEO (Representative Director)
				June 2000		Chairman, President and CEO (Representative Director)
				Apr. 2002		Chairman and CEO (Representative Director)
				Sep. 2002		President and CEO (Representative Director) of NIPPON MINING HOLDINGS, INC.
				June 2003		Chairman (Representative Director)
				June 2006		Special Advisor (until June 2010)
				June 2007		Director of Mizuho Financial Group, Inc. (current)
				July 2010		Honorary Executive Consultant of JX Holdings, Inc. (current)

 

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Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
Mitsuo Ohashi(1)(3) (Jan. 18, 1936)		Director (since June 2005)   Senior Advisor of Showa Denko K.K.		Mar. 1959		Joined Mitsui Bank, Ltd.		June 2013
				Dec. 1961		Joined Showa Denko K.K.
				May 1988		General Manager of Corporate Planning Division
				Mar. 1989		Director/General Manager of Corporate Planning Division
				Mar. 1993		Managing Director
				Mar. 1995		Senior Managing Director
				Mar. 1997		President and Chief Executive Officer
				Jan. 2005		Representative Director and Chairman of the Board of Directors
				June 2005		Director of Mizuho Financial Group, Inc. (current)
				Mar. 2007		Director and Chairman of the Board of Directors of Showa Denko K.K.
				Mar. 2010		Senior Advisor (current)
Kanemitsu Anraku(1)(3) (Apr. 21, 1941)		Director (since June 2007)		Apr. 1964		Joined Nissan Motor Co., Ltd.		June 2013
				June 1993		Director
				June 1997		Managing Director
				May 1999		Executive Vice President (Representative Director)
				Apr. 2000		Vice Chairman (member of the board of directors)
				June 2000		Vice Chairman
				Apr. 2002		President (Representative Director) of Nissan Real Estate Development Corporation
				June 2005		Counselor
				July 2006		Counselor of Nissan Network Holdings Co., Ltd. (until June 2007)
				June 2007		Director of Mizuho Financial Group, Inc. (current)

 

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Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
Yoshinobu Shigeji (Apr. 30, 1956)		Corporate Auditor (since June 2011)   Corporate Auditor of Mizuho Securities Co., Ltd.		Mar. 2006		Executive Officer/General Manager of Nagoya-chuo Branch of Mizuho Bank, Ltd.		June 2015
				July 2007		Executive Officer/General Manager of Nagoya-chuo Corporate Banking Department of Nagoya-chuo Branch
				Apr. 2008		Executive Officer/General Manager of Corporate Banking Planning Division
				Jan. 2010		Executive Officer/General Manager of Corporate Banking Planning Division and Head of Corporate Finance Support Office
				Apr. 2010		Managing Executive Officer
				Apr. 2011		Advisor
				June 2011		Corporate Auditor of Mizuho Financial Group, Inc. (current)
				June 2011		Corporate Auditor of Mizuho Securities Co., Ltd. (current)
Toshinari Iyoda (Mar. 31, 1954)		Corporate Auditor (since June 2011)		Apr. 2005		Managing Director/Head of Advisory Group No.1 of Mizuho Securities Co., Ltd.		June 2015
				June 2005		Managing Director/Head of Advisory Group No. 1, Head of Advisory Group No. 2
				July 2005		Managing Director/Head of Advisory Group
				Apr. 2008		Managing Director/Head of Investment Banking Group I
				June 2008		Managing Director/Head of Global Investment Banking, Head of Investment Banking Group
				May 2009		Managing Executive Officer/ Joint Head of Global Investment Banking, Co-Head of Investment Banking Group and In charge of Investment Banking Business Administration Dept.
				Apr. 2010		Managing Executive Officer/Head of Investment Banking Group

 

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Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
				Apr. 2011		Advisor
				June 2011		Corporate Auditor of Mizuho Financial Group, Inc. (current)
Masahiro Seki(2)(3) (Sep. 11, 1934)		Corporate Auditor (since June 2006)		Apr. 1959		Joined Deloitte Haskins & Sells, Tokyo Office		June 2014
				June 1987		General Representative
				Feb. 1990		Senior Managing Director of International Affairs of Deloitte Touche Tohmatsu
				June 1997		Senior Researcher of the Japanese Institute of Certified Public Accountants
				Oct. 2000		Visiting Professor of Graduate School of International University of Japan
				Apr. 2001		Professor of Graduate School (until Mar. 2004)
				June 2002		President of the non-profit organization, Japanese Institute of International Accounting Education (until June 2006)
				Apr. 2004		Established Seki Certified Public Accountants
				June 2006		Senior Advisor of the non-profit organization, Japanese Institute of International Accounting Education (current)
				June 2006		Corporate Auditor of Mizuho Financial Group, Inc. (current)
Masami Ishizaka(2)(3) (Dec. 5, 1939)		Corporate Auditor (since June 2008)		Apr. 1963		Joined Ministry of Finance		June 2012
				June 1993		Director-General of the Financial Bureau
				July 1994		Director-General of the Planning and Co-ordination Bureau of Environment Agency
				July 1995		Administrative Vice Minister
				July 1996		Vice Chairman of Automobile Insurance Rating Organization of Japan
				July 1998		Executive Vice President of Japan National Oil Corporation

 

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Name (date of birth)		Current positions and principal outside positions		Business experience				Expiration of current term as director or corporate auditor
				Mar. 2004		Advisor
				July 2004		Vice Chairman of The General Insurance Association of Japan
				Sep. 2007		Chairman of Okura Zaimu Kyokai (current)
				June 2008		Corporate Auditor of Mizuho Financial Group, Inc. (current)
Isao Imai(2)(3) (Dec. 26, 1939)		Corporate Auditor (since June 2011)   Corporate Auditor of Mizuho Corporate Bank, Ltd.		Apr. 1964		Assistant Judge of the Tokyo District Court		June 2015
				Feb. 2002		President of the Sendai High Court
				Nov. 2002		President of the Tokyo High Court
				Dec. 2004		Justice of the Supreme Court
				Dec. 2009		Resigned from judge
				Apr. 2010		Registered as attorney at law (Daiichi Tokyo Bar Association)
				Apr. 2010		Counsel of TMI Associates (current)
				June 2011		Corporate Auditor of Mizuho Corporate Bank, Ltd. (current)
				June 2011		Corporate Auditor of Mizuho Financial Group, Inc. (current)

 

Notes:

 

(1)	Messrs. Nomiyama, Ohashi and Anraku satisfy the requirements for an “outside director” under the Company Law of Japan.

(2)	Messrs. Seki, Ishizaka and Imai satisfy the requirements for an “outside corporate auditor” under the Company Law of Japan.

(3)	Messrs. Nomiyama, Ohashi, Anraku, Seki, Ishizaka and Imai were notified to stock exchanges in Japan as “independent director/auditor,” as the case may be, pursuant to the regulations of stock exchanges in Japan.

 

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Executive Officers

The following table provides information about our executive officers as of June 30, 2011, other than information regarding those that are also directors and listed above:

 

Name (date of birth)		Current positions and principal outside positions		Business experience
Daisaku Abe (June 20, 1957)		Managing Executive Officer (since Apr. 2009)   Head of Strategic Planning Group   Head of IT, Systems & Operations Group   Chief Strategy Officer   Chief Information Officer		Mar. 2006		General Manager of Executive Secretariat of Mizuho Corporate Bank, Ltd.
				Apr. 2007		Executive Officer/General Manager of Executive Secretariat
				Apr. 2009		Managing Executive Officer/Head of Strategic Planning Group, Head of IT, Systems & Operations Group and General Manager of Group Strategic Planning of Mizuho Financial Group, Inc.
				Apr. 2011		Managing Executive Officer/Head of Strategic Planning Group and Head of IT, Systems & Operations Group (current)
Akira Moriwaki (Apr. 16, 1956)		Managing Executive Officer (since Apr. 2011)   In charge of Asset Management Planning Office   Managing Executive Officer of Mizuho Trust & Banking Co., Ltd.		Mar. 2006		General Manager for Corporate Planning Department of Mizuho Trust & Banking Co., Ltd. (Trust & Custody Services Bank, Ltd.)
				Oct. 2006		General Manager for Corporate Planning Department
				Apr. 2007		General Manager of Corporate Planning Department
				Apr. 2008		Executive Officer/General Manager of Corporate Planning Department
				Apr. 2009		Managing Executive Officer (current)
				Apr. 2011		Managing Executive Officer/ In charge of Asset Management Planning Office of Mizuho Financial Group, Inc. (current)
Masakane Koike (July 9, 1959)		Executive Officer (since Apr. 2009)   General Manager of Financial Planning		July 2003		Corporate Officer of Financial Control & Accounting Group and Deputy General Manager of Accounting Division of Mizuho Corporate Bank, Ltd.
				Apr. 2007		General Manager of Credit Coordination Division
				Apr. 2008		General Manager of Financial Planning of Mizuho Financial Group, Inc.
				Apr. 2009		Executive Officer/General Manager of Financial Planning (current)

 

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Name (date of birth)		Current positions and principal outside positions		Business experience
Shusaku Tsuhara (Jan. 6, 1960)		Executive Officer (since Apr. 2010)   General Manager of Executive Secretariat		Apr. 2005		General Manager of Branch Banking Unit VI of Branch Banking Division of Mizuho Bank, Ltd.
				Apr. 2007		General Manager of Kudan Branch
				Feb. 2009		General Manager for Executive Secretariat of Mizuho Financial Group, Inc.
				Apr. 2009		General Manager of Executive Secretariat
				Apr. 2010		Executive Officer/General Manager of Executive Secretariat (current)
Tetsuo Iimori (Sep. 12, 1960)		Executive Officer (since Apr. 2011)   General Manager of Corporate Planning   Executive Officer of Mizuho Bank, Ltd.		Oct. 2005		General Manager of Fukushima Branch of Mizuho Bank, Ltd.
				Apr. 2008		General Manager of Business Promotion Division for Employees of Corporate Customers
				Apr. 2009		General Manager of Corporate Planning of Mizuho Financial Group, Inc.
				Apr. 2011		Executive Officer/General Manager of Corporate Planning (current)
				June 2011		Executive Officer/General Manager of Corporate Planning Division and Head of Business Process Re-engineering Office of Mizuho Bank, Ltd. (current)

An Executive Officer may serve any number of consecutive terms. The term of office of the Executive Officers currently in office will expire at the close of the first meeting of our board of directors after the ordinary general meeting of shareholders.

No family relationship exists among any of our directors, executive officers or corporate auditors.

6.B. Compensation

In accordance with the Company Law, compensation for our directors and corporate auditors, including bonuses, retirement allowances and incentive stock options, must be approved at our general meeting of shareholders, unless otherwise specified in our articles of incorporation in the future. The shareholders’ approval may specify the upper limit of the aggregate amount of compensation or calculation methods, but if compensation includes benefits in kind, the shareholders’ approval must include the description of such benefits. Compensation for a director or corporate auditor is fixed by our board of directors or by consultation among our corporate auditors in accordance with our internal regulations and practice and, in the case of retirement allowances, generally reflects the position of the director or corporate auditor at the time of retirement, the length of his service as a director or corporate auditor and his contribution to our performance.

 

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The aggregate compensation, including bonuses and stock compensation-type stock options (stock acquisition rights) but excluding retirement allowances, paid by Mizuho Financial Group and its subsidiaries to the directors and corporate auditors of Mizuho Financial Group during the fiscal year ended March 31, 2011 was ¥473 million and ¥79 million, respectively.

Listed companies in Japan are required under Cabinet Office Ordinance on Disclosure of Corporate Affairs, etc., to disclose the compensation provided to their directors and corporate auditors for the relevant fiscal year if the aggregate annual compensation per the director/corporate auditor equals or exceeds ¥100 million (including any compensation provided by major subsidiaries of such listed company as directors and corporate auditors of such subsidiaries). None of our directors and corporate auditors received compensation that equaled or exceeded the foregoing amount in the fiscal year ended March 31, 2011.

Mizuho Financial Group and some of its subsidiaries, including Mizuho Bank and Mizuho Corporate Bank, abolished their respective retirement allowance programs for directors, corporate auditors and officers. At the ordinary general meeting of shareholders held in June 2008, Mizuho Financial Group and such subsidiaries obtained shareholders’ approval for a payment of lump sum retirement allowances for directors and corporate auditors (other than those elected after such shareholders’ meeting) at the time of their respective retirement.

In conjunction with the abolishment of the retirement allowance program, we obtained shareholder’s approval for the introduction of stock acquisition rights for the directors (excluding outside directors) at the ordinary general meeting of shareholders held on June 26, 2008. On January 30, 2009, our board of directors resolved to issue stock acquisition rights to directors and executive officers and subsequently allotted an aggregate of 5,409 stock acquisition rights on February 16, 2009. As the directors of Mizuho Financial Group, our directors received 435 stock acquisition rights. Each stock acquisition right represents a right to purchase 1,000 shares of our common stock at ¥1 per share of common stock. The period during which the stock acquisition rights may be exercised shall be until February 16, 2029. Their exercise is conditioned on the holder losing his or her status as director or executive officer. The book value of each stock acquisition right was ¥190,910 as of March 31, 2011.

On September 3, 2009, our board of directors resolved to issue stock acquisition rights to directors and executive officers and subsequently allotted an aggregate of 5,835 stock acquisition rights on September 25, 2009. As the directors of Mizuho Financial Group, our directors received 500 stock acquisition rights. Each stock acquisition right represents a right to purchase 1,000 shares of our common stock at ¥1 per share of common stock. The period during which the stock acquisition rights may be exercised shall be until September 25, 2029. Their exercise is conditioned on the holder losing his or her status as director or executive officer. The book value of each stock acquisition right was ¥168,690 as of March 31, 2011.

On July 30, 2010, our board of directors resolved to issue stock acquisition rights to directors and executive officers and subsequently allotted an aggregate of 6,808 stock acquisition rights on August 26, 2010. As the directors of Mizuho Financial Group, our directors received 500 stock acquisition rights. Each stock acquisition right represents a right to purchase 1,000 shares of our common stock at ¥1 per share of common stock. The period during which the stock acquisition rights may be exercised shall be until August 26, 2030. Their exercise is conditioned on the holder losing his or her status as director or executive officer. The book value of each stock acquisition right was ¥119,520 as of March 31, 2011.

6.C. Board Practices

Pursuant to our articles of incorporation, we maintain a corporate governance system consisting of general meetings of shareholders, individual directors, board of directors, individual corporate auditors, board of corporate auditors and an accounting auditor as its primary components.

Our board of directors has the ultimate responsibility for the administration of our affairs. Our articles of incorporation provide for a board of directors consisting of not more than 15 members, in order to facilitate

 

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efficient and responsive decision making, and provide for not more than six corporate auditors. All directors and corporate auditors are appointed by our shareholders at general meetings. The normal term of office is two years for directors and four years for corporate auditors after their respective appointment, but directors and corporate auditors may serve any number of consecutive terms. Our board of directors designates, from among its members, representative directors and appoints a president. Our board of directors may also appoint a chairman, a deputy chairman, deputy presidents, senior managing directors and managing directors. Each representative director has the authority to represent us in the conduct of our affairs.

While one of our corporate auditors is a certified public accountant, our corporate auditors are not required to be certified public accountants. None of the corporate auditors may at the same time be directors, accounting participants, executive officers, or managers or employees of the company or any of its subsidiaries and at least one-half of them must be persons who have not been directors, accounting participants, executive officers or any other employees of us or any of our subsidiaries at any time prior to their appointment as corporate auditors. Each corporate auditor has a statutory duty to audit the directors’ performance of their duties and to audit the accounting records and the business reports submitted by the directors to general meetings of shareholders. Corporate auditors shall attend each meeting of the board of directors and, when necessary, state their opinion at the meeting, but are not entitled to vote.

The board of corporate auditors is composed of all corporate auditors. The board of corporate auditors has a statutory duty to prepare and submit an audit report to the directors each year. If any corporate auditor has an opinion that is different from the opinion of the board of corporate auditors, such opinion shall also be described in the audit report. The board of corporate auditors shall determine policies regarding audits, the method of investigation by the corporate auditors into the status of corporate affairs and financial position and other matters relating to the performance of the corporate auditors’ duties, provided, however, that a resolution of the board of corporate auditors may not prevent any corporate auditor from exercising his or her own power.

None of our directors or corporate auditors has service contracts with us providing for benefits upon termination of service.

Our articles of incorporation, in accordance with the Company Law, allow us to enter into an agreement with outside directors and outside corporate auditors that limits their liabilities incurred in connection with their service. The limitation of the liabilities under such agreement must be the higher of either (i) a pre-determined amount not less than ¥20 million or (ii) the amount prescribed in laws and regulations, which is currently equivalent to two times the annual compensation to such outside director or outside corporate auditor. Pursuant to the provisions, we have entered into such agreements with all of our outside directors and outside corporate auditors that were in office at any time after June 2006.

Based on the rules of the Tokyo Stock Exchange and the Osaka Securities Exchange, companies listed on those stock exchanges are required to have at least one member of the board of directors or the board of corporate auditors to be “independent.” Currently, three of our directors and three of our corporate auditors meet such independence requirements.

To ensure transparency and objectivity in personnel matters relating to directors, we have established a nominating committee and a compensation committee. Each committee consists of three outside directors and the president.

For additional information on our directors and corporate auditors and our board practices, see “Item 6.A. Directors and Senior Management—Directors and Corporate Auditors” and “Item 10.B. Additional Information—Memorandum and Articles of Association” in this annual report.

The rights of holders of American Depositary Receipts, or ADRs, which evidence ADSs, including such ADR holders’ rights relating to corporate governance practices, are governed by the deposit agreement, which is included as Exhibit 2.3 to this annual report.

 

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Corporate Governance Practices

Companies listed on the New York Stock Exchange, or NYSE, must comply with certain standards regarding corporate governance under Section 303A of the NYSE Listed Company Manual. However, NYSE-listed companies that are foreign private issuers meeting certain criteria, such as us, are permitted to follow home country practices in lieu of certain provisions of Section 303A, and we are relying on this exemption. See “Item 16.G. Corporate Governance” for a summary of significant ways in which our corporate governance practices differ from those followed by NYSE-listed U.S. companies.

6.D. Employees

As of March 31, 2009, 2010 and 2011, we had 50,191, 57,014 and 56,770 employees, respectively, on a consolidated basis, including overseas local staff but excluding advisers and temporary employees. We also had an average of approximately 19,004 temporary employees during the fiscal year ended March 31, 2011.

The following tables show our full-time employees as of March 31, 2011 and the average number of temporary employees for the fiscal year ended March 31, 2011, each broken down based on business segment and geographical location:

 

Business Segment		Number of full-time  employees				Average number  of temporary employees
Global Corporate Group			18,574				2,413
Global Retail Group			27,595				15,674
Global Asset & Wealth Management Group			5,565				536
Others			5,036				381
Total			56,770				19,004
Location		Percentage of full-time  employees				Average percentage  of temporary employees
Japan			94.2	%			99.9	%
Americas			1.4				0.0
Europe			1.2				0.0
Asia/Oceania (excluding Japan) and others			3.2				0.1
Total			100.0	%			100.0	%

Most of our full-time non-management employees in Japan are members of a labor union. Outside Japan, some of our employees are members of local unions. We consider our labor relations with employees to be good.

 

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6.E. Share Ownership

The following table shows the number of shares of our common stock owned by our directors and corporate auditors as of June 30, 2011:

 

Directors		Number of shares owned
Takashi Tsukamoto			113,940
Yasuhiro Sato			23,280
Junichi Nishizawa			176,900
Mitsuaki Tsuchiya			11,850
Masaaki Kono			233,100
Takeo Nakano			130,200
Akihiko Nomiyama			15,100
Mitsuo Ohashi			—
Kanemitsu Anraku			7,000
Corporate Auditors		Number of shares owned
Yoshinobu Shigeji			183,600
Toshinari Iyoda			10,310
Masahiro Seki			1,000
Masami Ishizaka			41,900
Isao Imai			—

None of our directors or corporate auditors is the owner of more than one percent of our common stock, and no director or corporate auditor has voting rights with respect to our common stock that are different from any other holder of our common stock.

For information on our stock compensation-type stock options (stock acquisition rights) for directors, see “Item 6.B Compensation”.

We have employee stock ownership plan under which participating employees of the companies listed below is able to purchase our shares with funds deducted from such employee’s salary and bonus payments. The plan administrator makes open-market purchases of our shares for the account of the plan on a monthly basis. The companies contribute matching funds equivalent to 5% of the amounts contributed. The following table shows the numbers of shares that this plan held as of March 31, 2011:

 

		As of March 31, 2011
Plan		Employer companies		Number of shares owned
Mizuho Employee Stock Ownership Plan		Mizuho Financial Group Mizuho Bank Mizuho Corporate Bank Mizuho Asset Management Mizuho Research Institute Mizuho Information & Research Institute			68,517,570
Total					68,517,570

 

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ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

7.A. Major Shareholders

Common Stock

The following table sets forth information about the ten largest holders of shares of our common stock appearing on the register of shareholders as of March 31, 2011:

 

		As of March 31, 2011
Name		Number of shares owned				Percentage of outstanding shares
Japan Trustee Services Bank, Ltd. (trustee account)			1,236,571,300				5.68	%
The Master Trust Bank of Japan, Ltd. (trustee account)			910,246,900				4.18
SSBT OD05 Omnibus Account - Treaty Clients			459,269,367				2.11
Barclays Capital Japan Limited			329,168,100				1.51
Japan Trustee Services Bank, Ltd. (trustee account 9)			324,607,200				1.49
Japan Trustee Services Bank, Ltd. (trustee account 4)			272,717,000				1.25
State Street Bank And Trust Company			231,594,971				1.06
The Dai-ichi Life Insurance Company, Limited			209,950,000				0.96
State Street Bank - West Pension Fund Clients - Exempt			185,953,565				0.85
Japan Trustee Services Bank, Ltd. (trustee account 1)			175,818,100				0.81
Total			4,335,896,503				19.91	%

As of March 31, 2011, there were 178 record holders of our common stock with addresses in the United States, whose shareholdings represented approximately 9% of our outstanding common stock on that date. Because some of these shares were held by brokers or other nominees, the number of record holders with addresses in the United States might not fully reflect the number of beneficial owners in the United States.

 

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Preferred Stock

Classes of preferred stock with shares outstanding as of March 31, 2011 consisted of eleventh series class XI and thirteenth series class XIII preferred stock, all of which are non-voting. The following tables set forth information about the ownership of shares of eleventh series class XI preferred stock and thirteenth series class XIII preferred stock by our major shareholders of the respective preferred stock as of March 31, 2011, as appearing on the register of preferred shareholders:

Eleventh Series Class XI Preferred Stock

 

		As of March 31, 2011
Name		Number of shares owned				Percentage of outstanding shares
UBS AG London A/C Ipb Segregated Client Account			20,625,000				4.95	%
Marubeni Corporation			14,500,000				3.48
Shimizu Corporation			10,000,000				2.40
Electric Power Development Co., Ltd.			10,000,000				2.40
The Tokyo Electric Power Company, Incorporated			10,000,000				2.40
Nippon Express Co., Ltd.			10,000,000				2.40
JFE Steel Corporation			6,000,000				1.44
Nippon Steel Corporation			6,000,000				1.44
All Nippon Airways Co., Ltd.			6,000,000				1.44
Daiichi Sankyo Company, Limited			6,000,000				1.44
Total			99,125,000				23.78	%

Thirteenth Series Class XIII Preferred Stock

 

		As of March 31, 2011
Name		Number of shares owned				Percentage of outstanding shares
Nippon Oil Finance (Netherlands) B.V.			6,000,000				16.35	%
Shiseido Company, Limited			5,000,000				13.63
Sharp Finance Corporation			5,000,000				13.63
Sharp International Finance (U.K.) Plc			5,000,000				13.63
Nissin Foods Holdings Co., Ltd.			3,000,000				8.18
Obayashi Corporation			2,000,000				5.45
Yanmar Co., Ltd.			2,000,000				5.45
KOSE Corporation			1,000,000				2.73
Fuji Media Holdings, Inc.			1,000,000				2.73
Kurabo Industries Ltd.			500,000				1.36
Total			30,500,000				83.13	%

As of March 31, 2011, there were no holders of our preferred stock with addresses in the United States.

To our knowledge, we are not directly or indirectly owned or controlled by any other corporation(s), by any foreign government or by any other natural or legal person(s) severally or jointly. We know of no arrangements the operation of which may at a later time result in a change of control.

 

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7.B. Related Party Transactions

We and our subsidiary banks had, and expect to have in the future, banking transactions and other transactions in the ordinary course of business with our related parties. Although, for the fiscal year ended March 31, 2011, such transactions included, but were not limited to, call money, loans, deposits, guarantees and foreign exchange transactions, those transactions were immaterial and were made at prevailing market rates, terms and conditions and do not involve more than the normal risk of collectibility or present other unfavorable features.

During the fiscal year ended March 31, 2011, none of our directors or executive officers or corporate auditors, and none of the close members of their respective families, had any transactions that are material or any transactions that are unusual in their nature or conditions, involving goods, services or tangible or intangible assets, to which we were, are or will be a party, and there were no such transactions proposed as of March 31, 2011.

During the fiscal year ended March 31, 2011, no loans were made to our directors or executive officers or corporate auditors other than in the normal course of business, on normal commercial terms and conditions.

7.C. Interests of Experts and Counsel

Not applicable.

 

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ITEM 8.    FINANCIAL INFORMATION

8.A. Consolidated Statements and Other Financial Information

Financial Statements

Our consolidated financial statements are set forth in this annual report under “Item 18. Financial Statements.”

Legal Proceedings

We are involved in normal collection proceedings initiated by us and other legal proceedings in the ordinary course of our business.

An Indonesian subsidiary of ours acts as collateral agent for the trustee of bond issuances made by subsidiaries of Asia Pulp & Paper Company Ltd. (“APP”). In that role, the subsidiary is involved in disputes between the bondholders and such APP subsidiaries in their capacities as the issuers, guarantors and/or pledgors of security for the bonds relating to foreclosure proceedings on the collateral and has been named as a defendant in lawsuits brought by the obligors under the bonds in Indonesia. Our consolidated financial statements do not include a reserve in relation to these disputes because we do not believe the resolution of this matter will have a significant impact on our consolidated financial condition or results of operations, although there can be no assurance as to the foregoing.

Dividend Policy

We have pursued “strengthening of stable capital base” and “steady returns to shareholders” as our “disciplined capital management,” and have been putting more priority on “strengthening of stable capital base,” considering global discussions about capital adequacy and the uncertainty of economic and market trends.

Based on the above policy, we paid cash dividends for the fiscal year ended March 31, 2011 of ¥6 per share of common stock. With respect to each class of preferred stock, we made dividend payments for the fiscal year ended March 31, 2011 as prescribed.

Our articles of incorporation provide for our ability to distribute an interim dividend to shareholders of record as of September 30 in each year pursuant to Article 454 Paragraph 5 of the Company Law, and we intend to distribute dividends twice per year, at the interim period and the end of the period, commencing from the fiscal year ending March 31, 2012 to return profits to shareholders in a more timely way.

The distribution of surplus for the fiscal year end is subject to the authorization by a general meeting of shareholders, while the distribution of surplus for the interim period is made by resolution of our board of directors.

We will apply retained earnings to funds for strengthening our financial condition and to the development of our business going forward.

8.B. Significant Changes

Except as disclosed in note 34 to our consolidated financial statements, no significant change in our financial position has occurred since the date of the financial statements included in this annual report.

 

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ITEM 9.    THE OFFER AND LISTING

9.A. Listing Details

Market Price Information for Our American Depositary Shares

Our ADSs are listed on the New York Stock Exchange.

The following table sets forth, for the periods indicated, the high and low trading prices and average daily trading volume on the New York Stock Exchange for our ADSs since their listing on November 8, 2006:

 

Fiscal years ended/ending March 31,		Price per ADS								Average daily trading volume
		High				Low
										(shares)
2007 (from November 8, 2006)		$	15.35			$	12.74				46,049
2008			14.95				7.01				164,439
2009			12.00				3.26				420,986
2010			5.70				3.33				520,497
2011			4.27				2.67				720,409
2010:
First quarter			5.70				3.72				400,287
Second quarter			5.02				3.76				585,357
Third quarter			4.26				3.33				557,715
Fourth quarter			4.32				3.56				537,550
2011:
First quarter			4.12				3.23				347,132
Second quarter			3.46				2.87				758,201
Third quarter			3.87				2.67				791,666
Fourth quarter			4.27				3.20				987,141
2012:
First quarter			3.41				2.98				1,051,168
Most recent six months:
January			4.21				3.76				887,050
February			4.27				3.85				712,919
March			4.23				3.20				1,300,709
April			3.36				3.05				1,128,475
May			3.41				3.02				1,528,736
June			3.32				2.98				525,028
July (through July 19)			3.42				3.20				489,625

 

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Market Prices Information for Our Shares

See “Item 9.C. The Offer and Listing—Markets” for information on the stock exchanges on which our common stock is listed.

The following table sets forth, for the periods indicated, the high and low trading prices and average daily trading volume on the First Section of the Tokyo Stock Exchange for our common stock:

 

		Price per share								Average daily trading volume
Fiscal years ended/ending March 31,		High				Low
										(shares)
2007(1)			1,030,000				733,000				78,245
2008(1)			911,000				360,000				120,603
2009(2)			606				166				184,530,927
2010			274				146				170,679,648
2011			192				110				173,457,514
2010:
First quarter			274				188				203,334,564
Second quarter			240				170				198,726,140
Third quarter			192				146				148,868,898
Fourth quarter			196				161				130,673,372
2011:
First quarter			192				145				123,783,646
Second quarter			147				121				200,247,386
Third quarter			158				110				168,715,215
Fourth quarter			177				117				200,651,253
2012:
First quarter			141				119				107,583,580
Most recent six months:
January			175				153				187,647,447
February			177				155				178,200,542
March			173				117				231,271,064
April			141				123				132,367,435
May			137				125				100,389,300
June			133				119				91,266,045
July (through July 20)			139				126				103,249,192

 

Notes:

 

(1)

Under the new 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 price and volume figures in the above table prior to December 31, 2008 are figures before such allotment was made.

(2)	The price and volume figures prior to December 31, 2008 are adjusted to reflect the allotment of shares or fractions of a share without consideration at the rate of 999 shares per 1 share and 9.99 shares per every 0.01 of a share.

9.B. Plan of Distribution

Not applicable.

 

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9.C. Markets

The principal trading market for our shares of common stock is the First Section of the Tokyo Stock Exchange. Our shares have been listed on the First Section of the Tokyo Stock Exchange and the First Section of the Osaka Securities Exchange, under the code “8411,” since our establishment as the holding company of the Mizuho group on March 12, 2003, as the successor to Mizuho Holdings.

Our ADSs have been listed on the New York Stock Exchange since November 8, 2006 and are quoted under the ticker symbol “MFG.”

9.D. Selling Shareholders

Not applicable.

9.E. Dilution

Not applicable.

9.F. Expenses of the Issue

Not applicable.

 

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ITEM 10. ADDITIONAL INFORMATION

10.A. Share Capital

Not applicable.

10.B. Memorandum and Articles of Association

Objects and Purposes in our Articles of Incorporation

Our corporate purpose, as specified in article 2 of our articles of incorporation, which is included in this annual report as Exhibit 1.1, is to engage in the following businesses as a bank holding company:

 

•

operation and management of bank holding companies, banks, long-term credit banks, specialized securities companies and other companies which we may own as our subsidiaries under the Banking Law; and

 

•

any other business incidental to the foregoing.

Our Board of Directors

There is no provision in our articles of incorporation as to our directors’ power to vote on a proposal, arrangement or contract in which a director is materially interested. The Company Law, however, requires such director to refrain from voting on such matters at meetings of the board of directors.

The Company Law provides that compensation for directors be determined at a general meeting of shareholders. Our board of directors will determine the compensation for each director without exceeding the upper limit on the aggregate amount of compensation for directors as a group approved by the general meeting of shareholders. Our board of directors may, by its resolution, leave this decision to the discretion of our president.

The Company Law provides that the board of directors must approve significant loans from any third party to the company.

Neither the Company Law nor our articles of incorporation set a mandatory retirement age for our directors.

There is no requirement concerning the number of shares an individual must hold to qualify as a director under the Company Law or our articles of incorporation.

Common Stock

General

Set forth below is information concerning our shares of common stock, including brief summaries of certain provisions of our articles of incorporation, our share handling regulations and the Company Law (Kaisha Hou) (Law No. 86 of 2005, as amended) relating to joint stock corporations (kabushiki kaisha) and certain related legislation, all as currently in effect.

Under our articles of incorporation, we are authorized to issue 48,000,000,000 shares of common stock.

As of March 31, 2011, 21,782,185,320 shares of common stock were issued.

Where relevant to the common stock, provisions of our preferred stock are also described below.

Distribution of Surplus

General

Under the Company Law, distribution of cash or other assets by a joint stock corporation to its shareholders, including dividends, takes the form of distribution of Surplus (as defined in “—Restriction on Distribution of

 

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Surplus”). We are permitted to make distributions of Surplus to our shareholders any number of times per fiscal year pursuant to resolutions of our general meeting of shareholders, subject to certain limitations described in “—Restriction on Distribution of Surplus.” Distributions of Surplus are required in principle to be authorized by a resolution of a general meeting of shareholders. Distributions of Surplus are, however, permitted pursuant to a resolution of the board of directors if:

 

(1)

our articles of incorporation so provide (our current articles of incorporation do not have such provision);

 

(2)

the normal term of office of our directors is one year; and

 

(3)

our non-consolidated annual financial statements and certain documents for the latest fiscal year fairly present our assets and profit and loss, as required by an ordinance of the Ministry of Justice.

In an exception to the above rule, even if the requirements described in (1) through (3) are not met, we are permitted to make distributions of Surplus in cash to our shareholders by resolutions of the board of directors once per fiscal year if our articles of incorporation so provide. Our current articles of incorporation provide such distribution of Surplus as interim dividends, the record date for which is September 30 each year.

Distributions of Surplus may be made in cash or in kind in proportion to the number of shares of common stock held by each shareholder. A resolution of a general meeting of shareholders or the board of directors authorizing a distribution of Surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of Surplus is to be made in kind, we may, pursuant to a resolution of a general meeting of shareholders or (as the case may be) the board of directors, grant the right to our shareholders to require us to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of Surplus must be approved by a special resolution of a general meeting of shareholders (see “—Voting Rights” with respect to a “special resolution”).

Under our articles of incorporation, the record date for annual dividends and interim dividends is March 31 and September 30, respectively, in each year. In Japan, the “ex-dividend date” (the date from which purchasers of shares through Japanese stock exchanges will not be entitled to the dividends to be paid to registered shareholders as of any record date) and the record date for dividends precede the date of determination of the amount of the dividend to be paid. The ex-dividend date of the shares of common stock is generally the second business day prior to the record date. Under our articles of incorporation, we are not obligated to pay any distribution of Surplus to be made in cash which has not been received after the lapse of five years from the commencement date of such distribution.

Restriction on Distribution of Surplus

Payment of annual dividends on shares of common stock is subject to the prior payment of dividends on shares of preferred stock of ¥20 per share of eleventh series class XI preferred stock and ¥30 per share of thirteenth series class XIII preferred stock. Payment of an interim dividend on shares of our common stock is also subject to the prior payment of an interim preferred dividend of one-half the annual preferred dividend amount on the shares of the two series of preferred stock.

In making a distribution of Surplus, we must set aside in our additional paid-in capital and/or legal reserve an amount equal to one-tenth of the amount of Surplus so distributed, until the sum of its additional paid-in capital and legal reserve reaches one-quarter of its stated capital.

The amount of Surplus at any given time must be calculated in accordance with the following formula:

A + B + C + D - (E + F + G)

 

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In the above formula:

“A” = the total amount of other capital surplus and other retained earnings, each such amount being that appearing on our non-consolidated balance sheet as of the end of the last fiscal year

“B” = (if we have disposed of our treasury stock after the end of the last fiscal year) the amount of the consideration for such treasury stock received by us less the book value thereof

“C” = (if we have reduced our stated capital after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to additional paid-in capital or legal reserve (if any)

“D” = (if we have reduced our additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any)

“E” = (if we have cancelled our treasury stock after the end of the last fiscal year) the book value of such treasury stock

“F” = (if we have distributed Surplus to our shareholders after the end of the last fiscal year) the total book value of the Surplus so distributed

“G” = certain other amounts set forth in an ordinance of the Ministry of Justice, including:

 

•

if we have reduced Surplus and increased our stated capital, additional paid-in capital or legal reserve after the end of the last fiscal year, the amount of such reduction; and

 

•

if we have distributed Surplus to shareholders after the end of the last fiscal year, the amount set aside in our additional paid-in capital or legal reserve, if any, as required by ordinances of the Ministry of Justice.

The aggregate book value of Surplus distributed by us may not exceed a prescribed distributable amount (the “Distributable Amount”), as calculated on the effective date of such distribution. The Distributable Amount at any given time shall be the amount of Surplus less the aggregate of (a) the book value of our treasury stock, (b) the amount of consideration for any of our treasury stock disposed of by us after the end of the last fiscal year and (c) certain other amounts set forth in an ordinance of the Ministry of Justice, including (if the sum of one-half of our goodwill and deferred assets exceeds the total of the stated capital, additional paid-in capital and legal reserve, each such amount being the amount in our non-consolidated balance sheet as of the end of the last fiscal year) all or certain part of such exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice.

If we have become at our option a company with respect to which its consolidated balance sheet should also be considered in the calculation of the Distributable Amount (renketsu haito kisei tekiyo kaisha), we shall further deduct from the amount of Surplus the excess amount, if any, of (x) the total amount of the shareholders’ equity appearing on our non-consolidated balance sheet as of the end of the last fiscal year and certain other amounts set forth by an ordinance of the Ministry of Justice over (y) the total amount of the shareholders’ equity and certain other amounts set forth by an ordinance of the Ministry of Justice appearing on our consolidated balance sheet as of the end of the last fiscal year. We did not opt for becoming such a company with respect to the fiscal year ended March 31, 2011.

If we have prepared interim financial statements as described below, and if such interim financial statements have been approved by the board of directors or (if so required by the Company Law) by a general meeting of shareholders, then the Distributable Amount must be adjusted to take into account the amount of profit or loss, and the amount of consideration for any of our treasury stock disposed of by us, during the period in respect of which such interim financial statements have been prepared. We may prepare non-consolidated interim financial statements consisting of a balance sheet as of any date subsequent to the end of the last fiscal year and an income statement for the period from the first day of the current fiscal year to the date of such balance sheet. Interim financial statements so prepared by us must be audited by our corporate auditors and/or outside accounting auditor, as required by an ordinance of the Ministry of Justice.

 

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Capital and Reserves

We may reduce our additional paid-in capital or legal reserve generally by resolution of a general meeting of shareholders and, if so decided by the same resolution, may account for the whole or any part of the amount of such reduction as stated capital. On the other hand, we may reduce our stated capital generally by special resolution of a general meeting of shareholders and, if so decided by the same resolution, may account for the whole or any part of the amount of such reduction as additional paid-in capital or legal reserve. In addition, we may reduce our Surplus and increase either (i) stated capital or (ii) additional paid-in capital and/or legal reserve by the same amount, in either case by resolution of a general meeting of shareholders.

Stock Splits

We may at any time split shares of common stock into a greater number of shares of common stock by resolution of the board of directors. When a stock split is to be made, so long as our only class of outstanding stock is the common stock, we may increase the number of authorized shares in the same ratio as that of such stock split by amending our articles of incorporation, of which amendment may be effected by resolution of the board of directors without approval by shareholders.

Abolishment of Fractional Share System

With the implementation of the electronic share certificate system for listed shares under the Law for Partial Amendments to the Law Concerning Book-entry Transfer of Corporate Bonds and Other Securities for the Purpose of Streamlining the Settlements of Trades of Stocks and Other Securities (Law No. 88 of 2004) which became effective on January 5, 2009, all listed shares became eligible for book-entry transfer. However, because fractional shares are not eligible for book-entry transfer and are not handled under the new “book-entry transfer system”, we implemented the allotment of shares or fractions of a share without consideration to the shareholders or the holders of fractional shares in order to abolish all the fractional shares. The shares and fractions of a share were allotted on January 4, 2009 in proportion to the number of shares of common stock, shares of each class of preferred stock and fractional shares held by the holders thereof, in each case without any additional consideration, at the rate of 999 shares per 1 share and 9.99 shares per every 0.01 of a share. As a result, currently there are no outstanding fractional shares.

Unit Share System

We have adopted the unit share system under which shareholders will have one voting right for each unit of shares consisting of 100 shares held by them at general meetings of shareholders or at meetings of holders of a particular class of shares, and shares constituting less than a full unit will carry no voting rights. See “—Preferred Stock—Voting Rights” for information on the voting rights that holders of preferred stock may have at general meetings of shareholders. Our articles of incorporation provide that the holders of shares constituting less than a full unit will not have shareholder rights, except for those specified in an ordinance of the Ministry of Justice which include rights (i) to receive dividends, (ii) to receive cash or other assets in case of a consolidation or split of shares, share exchange or share transfer, or merger or (iii) to be allotted rights to subscribe for free for new shares and stock acquisition rights when such rights are granted to shareholders. Holders of shares constituting less than a full unit may at any time request us to purchase such shares constituting less than a full unit (a) at the current market price as determined pursuant to the Company Law in cases of such shares having a market price (such as our common stock) or (b) at the price as determined through negotiations between the holders of shares constituting less than a full unit and us in cases where such shares have no market price (such as our preferred stock), which request may not be withdrawn without our consent. In addition, holders of shares constituting less than a full unit may require us to sell them such number of shares, which, when combined with the number of shares already held by such holder, shall constitute a whole unit of shares; provided that we will be obliged to comply with such request only when we own a sufficient number of shares to accommodate such request. As prescribed in our share handling regulations, such requests shall be made through an account managing institution at which such shareholder has its account and Japan Securities Depository Center, Inc. (“JASDEC”)

 

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pursuant to the rules of JASDEC, without going through the notification procedure required for the exercise of shareholders’ rights entitled regardless of record dates as described in “—Transfer of Shares.” The board of directors may reduce the number of shares constituting one unit of shares or cease to use the unit share system by amendments to the articles of incorporation without a special resolution of the general meeting of shareholders which would otherwise be required.

General Meetings of Shareholders

The ordinary general meeting of shareholders shall be held no later than three months from the last day of each business year and is normally held in June of each year. In addition, we may hold an extraordinary general meeting of shareholders whenever necessary. Notice of a general meeting of shareholders stating the place, the time and the purpose thereof must be given to each shareholder having voting rights (or, in the case of a non-resident shareholder, to its standing proxy or mailing address in Japan) at least two weeks prior to the date set for the meeting. The record date for an ordinary general meeting of shareholders is March 31 of each year.

Any shareholder holding at least 300 voting rights or 1% of the total number of voting rights for six months or longer may propose a matter to be considered at a general meeting of shareholders by submitting a request to a representative director at least eight weeks prior to the date of such meeting. Any of the minimum percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened if our articles of incorporation so provide.

Voting Rights

Our shareholders have one voting right for each unit of shares held by them (regarding the voting rights held by holders of preferred stock, see “—Preferred Stock—Voting Rights”).

Except as otherwise provided by law or in our articles of incorporation, a resolution shall be adopted at a general meeting of shareholders by a majority of the voting rights held by the shareholders present at the meeting. Our articles of incorporation provide that the quorum for election of directors and corporate auditors is one-third of the total number of voting rights. Our shareholders are not entitled to cumulative voting in the election of directors. A shareholder may exercise its voting rights in writing or through a proxy, provided that the proxy shall also be a holder of our shares having voting rights at such meeting.

The Company Law provides that certain important matters shall be approved by a “special resolution” of a general meeting of shareholders. Under our articles of incorporation, the quorum for a special resolution is one-third of the total number of voting rights, and the approval of not less than two-thirds of the voting rights held by the shareholders present at the meeting is required for adopting a special resolution. Such important matters include:

 

1.

any amendment to our articles of incorporation (except for such amendments that may be authorized by the board of directors under the Company Law such as (i) an increase of the number of authorized shares in the same ratio as that of a stock split, (ii) a reduction of the number of shares per unit of shares and (iii) abolishing the unit share system);

 

2.

dismissal of a corporate auditor;

 

3.

our dissolution, merger or consolidation requiring shareholders’ approval;

 

4.

establishment of a parent and wholly-owned subsidiary relationship by way of a share transfer (kabushiki-iten) or share exchange (kabushiki-kokan) requiring shareholders’ approval;

 

5.

transfer of the whole or a substantial part of our business;

 

6.

taking over of the whole of the business of another company requiring shareholders’ approval;

 

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7.

our corporate split requiring shareholders’ approval;

 

8.

consolidation of shares of common stock;

 

9.

acquisition of shares of common stock by us from a specific shareholder other than our subsidiary;

 

10.

distribution of Surplus in kind (except when shareholders are granted the right to require to make such distribution in cash instead of in kind);

 

11.

issuance or transfer of new shares or existing shares held by us as treasury stock to persons other than the shareholders at a “specially favorable” price; and

 

12.

issuance of stock acquisition rights (including those incorporated in bonds with stock acquisition rights) to persons other than the shareholders at a “specially favorable” price or under “specially favorable” conditions.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses, taxes and distributions of residual assets relating to the then outstanding preferred stock will be distributed among holders of common stock in proportion to the respective numbers of shares held by them. See “—Preferred Stock—Liquidation Rights.”

Issue of Additional Shares and Pre-emptive Rights

Holders of the common stock have no pre-emptive rights. Authorized but unissued shares of common stock may be issued at such times and upon such terms as the board of directors determines, subject to the limitations as to the issuance of new shares of common stock at a “specially favorable” price mentioned in “—Voting Rights.” In the case of an issuance or transfer of shares or stock acquisition rights by way of an allotment to a third party which would dilute the outstanding voting shares by 25% or more or change the controlling shareholder, in addition to a board resolution, the approval of the shareholders or an affirmative opinion from a person independent of our management is generally required pursuant to the regulations of the stock exchanges in Japan. The board of directors may, however, determine that shareholders of a particular class of stock shall be given subscription rights to new shares of the same class, in which case they must be given on uniform terms to all shareholders of that class as of a record date of which not less than two weeks’ prior public notice must be given. Each of the shareholders to whom such rights are given must also be given at least two weeks’ prior notice of the date on which such rights expire (but see “—Preferred Stock—Issue of Additional Shares and Pre-emptive Rights” regarding our preferred stock).

Stock Acquisition Rights

We may issue stock acquisition rights (shinkabu yoyakuken). Holders of stock acquisition rights are entitled to acquire shares from us, upon payment of the applicable exercise price, and subject to other terms and conditions thereof. We may also issue bonds with stock acquisition rights (shinkabu yoyakuken-tsuki shasai). The issuance of stock acquisition rights and bonds with stock acquisition rights may be authorized by the board of directors unless it is made at a “specially favorable” price or under “specially favorable” conditions, as described in “—Voting Rights.”

Record Date

As mentioned above, March 31 is the record date for the payment of annual dividends and the determination of shareholders entitled to vote at the ordinary general meeting of shareholders. September 30 is the record date for the payment of interim dividends. In addition, by a resolution of the board of directors and after giving at least two week’s prior public notice, we may at any time set a record date in order to determine the shareholders who are entitled to certain rights pertaining to our stock.

 

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JASDEC is required to give us notice of the names and addresses of our shareholders, the numbers of shares held by them and other relevant information as of such record date promptly after we set each record date.

Acquisition by Us of Common Stock

We may acquire shares of common stock:

 

1.

by way of purchase on any Japanese stock exchange on which the shares of our common stock are listed or by way of tender offer (in either case pursuant to a resolution of the board of directors as currently authorized by our articles of incorporation);

 

2.

from a specific shareholder other than any of our subsidiaries (pursuant to a special resolution of a general meeting of shareholders); or

 

3.

from any of our subsidiaries (pursuant to a resolution of the board of directors).

In the case of 2. above, any other shareholder may make a request to a representative director to be included as a seller in the proposed purchase, unless the purchase price or any other consideration to be received by the relevant specific shareholder will not exceed the last trading price of the shares on the relevant stock exchange on the day immediately preceding the date on which the resolution mentioned in 2. above was adopted (or, if there is no trading in the shares on the stock exchange or if the stock exchange is not open on such day, the price at which the shares are first traded on such stock exchange thereafter).

The total amount of the purchase price of shares of common stock may not exceed the Distributable Amount, as described in “—Distribution of Surplus—Restriction on Distribution of Surplus.”

We may hold the shares of common stock acquired, and may generally transfer or cancel such shares by resolution of the board of directors.

Disposal of Shares of Common Stock Held by Shareholders whose Location is Unknown

We are not required to send notices to a shareholder if notices given by us to such shareholder fail to arrive for five consecutive years or more at its address registered in our register of shareholders or otherwise notified to us.

In the above case, if the relevant shareholder also fails to receive dividends on the shares continuously for five years or more at its address registered in our register of shareholders or otherwise notified to us, then we may in general dispose of such shares at their then market price and hold or deposit the proceeds of such disposition on behalf of the relevant shareholder.

Reporting of Substantial Shareholders

The Financial Instruments and Exchange Law and its related regulations require any person who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of capital stock of a company that is listed on any Japanese stock exchange to file a report with the Director of the relevant Local Finance Bureau of the Ministry of Finance within five business days. With certain exceptions, a similar report must also be filed in respect of any subsequent change of 1% or more in the holding or of any change in material matters set forth in any previously filed reports. For this purpose, shares issuable to such person upon conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights are taken into account in determining both the number of shares held by the holder and the company’s total issued share capital. Copies of each report must also be furnished to the company issuing the shares and to all the Japanese stock exchanges on which the shares are listed.

 

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There are other reporting requirements under the Banking Law. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Examination and Reporting Applicable to Shareholders.”

Holding of Shares of Our Common Stock by Foreign Investors

There are no limitations imposed by the laws of Japan, our articles of incorporation or our other constituent documents on the rights of non-residents or foreign shareholders to hold or exercise voting rights on our shares of common stock or preferred stock.

Transfer of Shares

At present, JASDEC is the only institution that is designated by the relevant authorities as a clearing house which is permitted to engage in the clearing operations of listed shares under the Law Concerning Book-Entry Transfer of Corporate Bonds, Stocks, etc. (Law No. 75 of 2001, including regulations promulgated thereunder; the “Book-entry Law”). Under the clearing system above, in order for any person to hold, sell or otherwise dispose of listed shares, such person must have an account at an account managing institution unless such person has an account at JASDEC. “Account managing institutions” are financial instruments business operators (i.e., securities companies), banks, trust companies and certain other financial institutions which meet the requirements prescribed by the Book-entry Law, and only those financial institutions that meet further stringent requirements of the Book-entry Law can open accounts directly at JASDEC. Under the Book-entry Law, any transfer of shares is effected through book entry, and title to the shares passes to the transferee at the time when the transferred number of the shares is recorded at the transferee’s account at an account managing institution. The holder of an account at an account managing institution is presumed to be the legal owner of the shares held in such account. Under the Company Law and the Book-entry Law, in order to assert shareholders’ rights to which shareholders as of record dates are entitled (such as the rights to vote at a general meeting of shareholders or receive dividends) against us, a shareholder must have its name and address registered in our register of shareholders. Under the clearing system, such registration is made upon our receipt of necessary information from JASDEC. On the other hand, in order to assert shareholders’ rights to which shareholders are entitled regardless of record dates such as minority shareholders’ rights including the right to propose a matter to be considered at a general meeting of shareholders, except for shareholders’ rights to request us to purchase or sell shares constituting less than a full unit (as described in “—Unit Share System”), upon the shareholder’s request, JASDEC shall issue a notice of certain information, including the name and address of such shareholder, to us. Thereafter, such shareholder is required to present us a receipt of the request of the notice in accordance with our share handling regulations. Under the Book-entry Law, the shareholder shall exercise such shareholders’ right within four weeks after the notice above. Non-resident shareholders are required to appoint a standing proxy in Japan or provide a mailing address in Japan. Each such shareholder must give notice of such standing proxy or mailing address to the relevant account managing institution. Such notice will be forwarded to us through JASDEC. Japanese securities companies and commercial banks customarily act as standing proxies and provide related services for standard fees. Notices from us to non-resident shareholders are delivered to such standing proxies or mailing addresses.

Under the clearing system, shares constituting less than one unit are transferable. Under the rules of the Japanese stock exchanges, however, shares constituting less than one unit do not comprise a trading unit, except in limited circumstances, and accordingly may not be sold on Japanese stock exchanges.

Our transfer agent is Mizuho Trust & Banking, located at 2-1, Yaesu 1-chome, Chuo-ku, Tokyo 103-8670, Japan.

The registered holder of deposited shares underlying the ADSs is the depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert their shareholders’ rights against us.

 

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Preferred Stock

The following is a summary of information concerning the shares of our preferred stock, including brief summaries of the relevant provisions of our articles of incorporation, our share handling regulations and the Company Law and certain related legislation, all as currently in effect. The detailed rights of our preferred stock are set forth in our articles of incorporation and the resolutions of our board of directors relating to the issuance of the relevant series of preferred stock.

General

Under our articles of incorporation, we are authorized to issue 1,369,512,000 shares of class XI preferred stock, 1,500,000,000 shares of class XII preferred stock and 1,500,000,000 shares of class XIII preferred stock.

As of March 31, 2011, 914,752,000 shares of eleventh series class XI preferred stock and 36,690,000 shares of thirteenth series class XIII preferred stock were issued and there were no fractional shares of each series of preferred stock.

Preferred Dividends

Payment of annual dividends on shares of common stock is subject to the prior payment on shares of preferred stock. The amount of preferred dividends for each type of outstanding preferred stock is as follows:

 

•

Eleventh series class XI preferred stock bears an annual non-cumulative dividend of ¥20 per share, and in the event we pay an interim dividend, holders are entitled to receive ¥10 per share in preference to common stock.

 

•

Thirteenth series class XIII preferred stock bears an annual non-cumulative dividend of ¥30 per share, and in the event we pay an interim dividend, holders are entitled to receive ¥15 per share in preference to common stock.

The amount of any preferred interim dividend will be deducted from the preferred dividend payable on preferred stock in respect of the same fiscal year.

No payment of dividends on our preferred stock or any other stock may be made unless we have sufficient Distributable Amount and a resolution to pay such dividend is obtained at the relevant ordinary general meeting of shareholders, in the case of annual dividends or at the board of directors, in the case of preferred interim dividends.

Dividends on our preferred stock are non-cumulative. If the full amount of any dividend is not declared on our preferred stock in respect of any fiscal year, holders of our preferred stock do not have any right to receive dividends in respect of the deficiency in any subsequent fiscal year, and we will have no obligation to pay the deficiency or to pay any interest regardless of whether or not dividends are paid in respect of any subsequent fiscal year. The holders of our preferred stock are not entitled to any further dividends or other participation in or distribution of surplus.

Liquidation Rights

In the event of our voluntary or involuntary liquidation, holders of our preferred stock will be entitled, equally in rank as among themselves and in preference over shares of common stock, to receive a distribution of ¥1,000 per share out of our residual assets upon our liquidation in the case of eleventh series class XI and thirteenth series class XIII preferred stock.

Holders of our preferred stock are not entitled to any further dividends or other participation in or distribution of our residual assets upon our liquidation.

 

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Voting Rights

No holder of preferred stock has a right to receive notice of, or to vote at, a general meeting of shareholders, except as otherwise specifically provided under the Company Law or other applicable law or our articles of incorporation. Under our articles of incorporation, holders of units of our preferred stock will be entitled to receive notice of, and to vote at, general meetings of shareholders:

 

•

from the commencement of any ordinary general meeting of shareholders if an agenda for approval to declare a preferred dividend is not submitted to such meeting; or

 

•

from the close of any ordinary general meeting of shareholders if a proposed resolution to declare a preferred dividend is not approved at such meeting,

until in each case such time as a resolution of an ordinary general meeting of shareholders declaring a preferred dividend is approved.

A separate resolution of a meeting of the holders of the preferred stock is required in order to approve the following matters which would prejudice the interests of the holders of the relevant preferred stock:

 

(i)

an amendment to the articles of incorporation to add new classes of shares to be issued, alter the terms of the shares or increase the number of authorized number of shares or authorized number of any class of shares, with certain exceptions;

 

(ii)

consolidation or split of shares;

 

(iii)

pro rated allocation of shares or stock acquisition rights to shareholders without any consideration;

 

(iv)

granting pre-emptive rights for new shares or stock acquisition rights to shareholders;

 

(v)

amalgamations or mergers;

 

(vi)

certain corporate splits;

 

(vii)

share exchanges;

 

(viii)

share transfers; and

 

(ix)

other matters set forth in the articles of incorporation.

Such separate resolution is not required when the articles of incorporation so provide, except in the case of (i) above.

A separate resolution of a meeting of the holders of the common stock is also required in cases where the above matters would prejudice the interests of the holders of the common stock.

Under our articles of incorporation, in cases where a matter to be resolved at an ordinary general meeting of shareholders is required to be approved by such separate resolution, the record date for the relevant meeting of the holders of the common stock or the preferred stock, as the case may be, is the same date as the record date for the ordinary general meeting of shareholders, when is March 31 of each year.

Ranking

We will not (unless the requisite sanction has been given by holders of preferred stock) create or issue any other shares ranking, as regards order of participation in the profits or assets of us on a liquidation or otherwise, in priority to the preferred stock in issue, but we may issue, without obtaining the consent of holders of the preferred stock in issue, other preferred stock ranking pari passu with the preferred stock in issue as regards the order of such participation in profits or assets of us and carrying such rights as to rates of preferred dividends or terms of conversion as the board of directors may determine, subject to the limitations set forth in our articles of incorporation and the Company Law.

 

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Acquisition of Preferred Stock

We may, if required, subject to regulatory approval, acquire any shares of the preferred stock then outstanding at any time out of the Distributable Amount (as defined in “—Common Stock—Restriction on Distribution of Surplus”). We may also, acquire all or a portion of the thirteenth series class XIII preferred stock on or after April 1, 2013 at a price of ¥1,000 per share, with the equivalent amount of preferred dividends accrued to such acquisition, without consent of the holders of such preferred stock. When a portion of a certain class of preferred stock is acquired, such acquisition shall be made from each holder thereof in number of shares determined by way of a lot or pro rata allocation.

Stock Splits

Our articles of incorporation provide that no stock split, stock consolidation or free distribution of stock shall be made in respect of the preferred stock unless otherwise provided for in any law or regulation.

Issue of Additional Shares and Pre-emptive Rights

Our articles of incorporation provide that no holder of our preferred stock has any pre-emptive right to subscribe for or purchase shares, stock acquisition rights or bonds with stock acquisition rights in the event of an issuance of additional shares or bonds and that no free distribution of stock acquisition rights may be made to the holders of our preferred stock.

Conversion

Our articles of incorporation provide that holders of class XI or XII (currently not in issue) preferred stock may, at their option, convert their shares to common stock by requesting us to acquire such shares and issue or transfer common stock to them. Other classes of our preferred stock outstanding are non-convertible.

Our articles of incorporation also provide that class XI or XII (currently not in issue) preferred stock outstanding on the last day of the acquisition period will be mandatorily acquired by us on the immediately following day (the “mandatory conversion date”) in consideration of shares of common stock of which number shall be calculated at the then-current market price per share of our common stock (the “mandatory conversion price”).

Eleventh series class XI preferred stock may, at the option of the holder thereof, be acquired at any time from July 1, 2008 to June 30, 2016 in consideration of shares of common stock of which number shall be calculated at ¥284.90 per share, subject to anti-dilution adjustments due to, among other things, issuance of new shares of our common stock at issue price below the market price. For the purpose of determining the mandatory conversion price and the conversion price adjusted pursuant to the anti-dilution clause, the market price shall mean the average price of daily closing prices of our common stock on the Tokyo Stock Exchange for the 30 consecutive trading days commencing on the 45th trading day prior to the mandatory conversion date or the date on which the conversion price after the adjustment becomes effective, respectively. Anti-dilution adjustments are triggered upon an issuance of common stock at prices that are lower than the then current market price, stock splits and free allotments of common stock, and other similar events, so that the impact of these events are properly reflected in the conversion price.

 

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The anti-dilution adjustments will generally be made in accordance with the following formula.

 

				Number of shares of		Number of shares of common stock                ×		Subscription money per
Conversion		Conversion		common stock            +		to be newly issued		share
price after        =		price before    ×		already issued		Current market price per share
adjustment(1)		adjustment(1)		Number of shares of		Number of shares of
				common stock already    +		common stock to be newly
				issued		issued

 

Note:

 

(1)	Conversion of the preferred stock is conducted through the acquisition of the relevant shares of preferred stock by us followed by the delivery of the applicable number of shares of common stock. As such, the word “acquisition” is used in lieu of “conversion” in our articles of incorporation.

10.C. Material Contracts

There were no material contracts entered into by us for the two years preceding the filing of this annual report that were not entered into in the ordinary course of business.

10.D. Exchange Controls

Foreign Exchange and Foreign Trade Law

The Foreign Exchange and Foreign Trade Law of Japan and the cabinet orders and ministerial ordinances incidental thereto, collectively the Foreign Exchange Law, set forth, among other matters, the regulations relating to the receipt by non-residents of Japan of payment with respect to shares to be issued by us and the acquisition and holding of shares by non-residents of Japan and foreign investors, both as defined below. It also applies in some cases to the acquisition and holding of ADSs representing such shares acquired and held by non-residents of Japan and by foreign investors. Generally, the Foreign Exchange Law currently in effect does not affect the right of a non-resident of Japan to purchase or sell ADSs outside Japan for non-Japanese currency.

“Non-residents of Japan” are defined as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Generally, the branches and offices of non-resident corporations that are located in Japan are regarded as residents of Japan while the branches and offices of Japanese corporations located outside Japan are regarded as non-residents of Japan.

“Foreign investors” are defined as:

 

•

individuals not resident in Japan;

 

•

judicial persons or other organizations that are organized under the laws of foreign countries or whose principal offices are located outside Japan;

 

•

corporations of which 50% or more of the shares are held by individuals not resident of Japan and/or judicial persons or other organizations that are organized under the laws of foreign countries or whose principal offices are located outside Japan; and

 

•

judicial persons or other organizations, a majority of officers (or a majority of officers having the power of representation) of which are non-resident individuals.

 

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Dividends and Proceeds of Sales

Under the Foreign Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. The acquisition of our shares by non-residents of Japan by way of a stock split is not subject to any notification or reporting requirements.

Acquisition of Shares

In general, a non-resident of Japan who acquires shares from a resident of Japan is not subject to any prior filing requirement, although the Foreign Exchange Law empowers the Minister of Finance of Japan to require prior approval for any such acquisition in certain limited circumstances. While such prior approval is not required in general, in the case where a resident of Japan transfers shares of a Japanese company for consideration exceeding ¥100 million to a non-resident of Japan, the resident of Japan that transfers the shares is required to report the transfer to the Minister of Finance of Japan within 20 days from the date of the transfer, unless the transfer is made through a bank or financial instruments business operator licensed or registered under Japanese law.

If a foreign investor acquires our shares and, together with parties who have a special relationship with that foreign investor, holds 10% or more of our issued shares as a result of such acquisition, the foreign investor must file a report of such acquisition with the Minister of Finance and any other competent Minister on or before the 15th day of the month following the month in which the acquisition was made, in principle. In certain limited circumstances, however, a prior notification of such acquisition must be filed with the Minister of Finance and any other competent Minister, who may modify or prohibit the proposed acquisition.

Deposit and Withdrawal under American Depositary Facility

The deposit of shares with Mizuho Corporate Bank, in its capacity as custodian and agent for the depositary, in Tokyo, the issuance of ADSs by the depositary to a non-resident of Japan in respect of the deposit and the withdrawal of the underlying shares upon the surrender of the ADR are not subject to any of the formalities or restrictions referred to above. However, where as a result of a deposit or withdrawal the aggregate number of shares held by the depositary, including shares deposited with Mizuho Corporate Bank as custodian for the depositary, or the holder surrendering the ADR, as the case may be, would be 10% or more of the total outstanding shares, a report will be required, and in specified circumstances, a prior notification may be required, as noted above.

10.E. Taxation

Japanese Taxation

The following is a general summary of major Japanese tax consequences (limited to national tax) to holders of shares of our common stock or ADSs representing shares of our common stock who are non-residents of Japan or non-Japanese corporations without a permanent establishment in Japan, which we refer to as “non-resident holders” in this section. The statements regarding Japanese tax laws set forth below are based on the laws and treaties in force and as interpreted by the Japanese tax authorities as at the date of this Annual Report and are subject to changes in the applicable Japanese laws or tax treaties, conventions or agreements, or interpretations thereof, occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of shares of our common stock or ADSs, including specifically the tax consequences under Japanese law, the laws of the jurisdiction of which they are resident, and any tax treaty, convention or agreement between Japan and their country of residence, by consulting their own tax advisers.

 

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For the purpose of Japanese tax law and the tax treaty between the United States and Japan, a U.S. holder of ADSs will generally be treated as the owner of the shares underlying the ADSs evidenced by the ADRs.

Generally, a non-resident holder of shares of our common stock or ADSs is subject to Japanese income tax collected by way of withholding on dividends paid by us, and such tax will be withheld prior to payment of dividends. Stock splits are, in general, not a taxable event.

In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by Japanese corporations on their shares of stock to non-resident holders is generally 20% under Japanese tax law. However, with respect to dividends paid on listed shares issued by a Japanese corporation (such as shares of our common stock or ADSs) to non-resident holders, other than any individual shareholder who holds 5% or more (or, 3% or more with respect to dividends due and payable on or after October 1, 2011) of the total number of shares issued by the relevant Japanese corporation, the aforementioned 20% withholding tax rate is reduced to (i) 7% for dividends due and payable on or before December 31, 2013 and (ii) 15% for dividends due and payable on or after January 1, 2014.

Under the income tax treaty between the United States and Japan, the maximum rate of Japanese withholding tax which may be imposed on dividends paid to a qualified United States resident eligible to enjoy treaty benefits that is either a corporation owning, directly or indirectly, less than 10% of the voting stock of a Japanese corporation or an individual is generally reduced to 10% of the gross amount actually distributed, except where such United States resident conducts business in Japan through a permanent establishment situated therein and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment. Dividends paid to pension funds which are qualified United States residents eligible to enjoy treaty benefits are exempt from Japanese income taxation by way of withholding or otherwise unless such dividends are derived from the carrying on of a business, directly or indirectly, by such pension funds. Under Japanese tax law, any reduced maximum rate applicable under a tax treaty shall be available when such maximum rate is below the rate otherwise applicable under the Japanese tax law referred to in the preceding paragraph with respect to the dividends to be paid by us on shares of our common stock or ADSs. A non-resident holder of shares of our common stock who is entitled, under any applicable tax treaty, to a reduced rate of Japanese withholding tax, or exemption therefrom, as the case may be, is required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese Income Tax on Dividends (together with any other required forms and documents) in advance, through the withholding agent, to the relevant tax authority before payment of dividends. A standing proxy for a non-resident holder may provide such application service. With respect to ADSs, this reduced rate or exemption will be applicable to non-resident holders of ADSs if the depositary or its Agent submits two Application Forms (one before payment of dividends and the other within eight months after the record date concerning such payment of dividends ), together with certain other documents. To claim this reduced rate or exemption, non-resident holders of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership, as applicable, and to provide other information or documents as may be required by the depositary. Non-resident holders who are entitled, under any applicable tax treaty, to a reduced rate of Japanese withholding tax below the rate otherwise applicable under Japanese tax law, or exemption therefrom, as the case may be, but fail to submit the required application in advance may nevertheless be entitled to claim a refund from the relevant Japanese tax authority of withholding taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident holders are entitled to a reduced treaty rate under the applicable tax treaty) or the full amount of tax withheld (if such non-resident holders are entitled to an exemption under the applicable tax treaty), as the case may be, by complying with a certain subsequent filing procedure.

We do not assume any responsibility to ensure withholding at the reduced rate, or exemption therefrom, for non-resident holders who would be so eligible under an applicable tax treaty but where the required procedures as stated above are not followed.

Gains derived from the sale or other disposition of shares of our common stock or ADSs outside Japan by a non-resident holder, who is a portfolio investor, are not, in general, subject to Japanese income tax or corporation tax.

 

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Any deposits or withdrawals of shares of our common stock by a non-resident holder in exchange for ADSs are, in general, not subject to Japanese income or corporation tax.

Japanese inheritance and gift taxes, at progressive rates, may be payable by an individual who has acquired our shares of our common stock or ADSs from an individual, as a legatee, heir or donee, even if none of the acquiring individual, the decedent or the donor is a Japanese resident.

U.S. Taxation

The following sets forth the material United States federal income tax consequences of the ownership of shares and ADSs as of the date hereof. The discussion set forth below is applicable to U.S. holders (as defined below) (i) who are residents of the United States for purposes of the current income tax treaty between Japan and the United States (the “Treaty”), (ii) whose shares or ADSs are, for purposes of the Treaty, neither effectively connected with nor attributable to a permanent establishment in Japan and (iii) who otherwise qualify for the full benefits of the Treaty.

The following summary is not a complete analysis or description of all potential U.S. federal income tax consequences to a particular U.S. holder. It does not address all U.S. federal income tax considerations that may be relevant to all categories of potential purchasers, certain of which (such as banks or other financial institutions, insurance companies, dealers in securities or currencies, tax-exempt entities, non-U.S. persons, persons holding a share or an ADS as part of a “straddle,” “hedge,” conversion or integrated transaction, partnerships or other pass-through entities for U.S. federal income tax purposes, traders in securities who have elected the mark-to-market method of accounting for their securities, regulated investment companies, real estate investment trusts, holders whose “functional currency” is not the U.S. dollar, holders liable for alternative minimum tax and holders of 10% or more of our voting shares) are subject to special tax treatment. This summary does not address any foreign, state, local or other tax consequences of investments in our shares or ADSs.

This summary addresses only shares or ADSs held as capital assets.

As used herein, a “U.S. holder” is a beneficial owner of shares or ADSs, as the case may be, that is, for U.S. federal income tax purposes:

 

•

an individual citizen or resident of the United States;

 

•

a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof;

 

•

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

 

•

a trust if it (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons as described in Section 7701(a)(30) of the Code or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares or ADSs, you should consult your tax advisor.

The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. In addition, this summary is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms.

 

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We urge U.S. holders to consult their own tax advisors concerning the U.S. federal, state and local and other tax consequences to them of the purchase, ownership and disposition of shares or ADSs.

ADSs

If a U.S. holder holds ADSs, for U.S. federal income tax purposes, such holder will generally be treated as the owner of the underlying shares that are represented by such ADSs. Accordingly, deposits or withdrawals of shares in exchange for ADSs are not subject to U.S. federal income tax.

Taxation of Dividends

Subject to the discussion under “—U.S. Taxation—Passive Foreign Investment Company Rules” below, the gross amount of any distribution received with respect to our shares or ADSs (including amounts withheld to reflect Japanese withholding taxes), will be taxable as dividends, to the extent paid out of the current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). The amount of distribution of property other than cash will be the fair market value of such property on the date of the distribution. Such cash or non-cash income, including withheld taxes, will be includable in a U.S. holder’s gross income as ordinary income on the day actually or constructively received by such U.S. holder in the case of shares, or by the depositary, in the case of ADSs. Such dividends received by a U.S. holder will not be eligible for the “dividends-received deduction” allowed to U.S. corporations in respect of dividends received from other U.S. corporations. To the extent that an amount received by a U.S. holder exceeds such holder’s allocable share of our current and accumulated earnings and profits, such excess will be applied first to reduce such holder’s tax basis in its shares or ADSs, thereby increasing the amount of gain or decreasing the amount of loss recognized on a subsequent disposition of the shares or ADSs. Then, to the extent such distribution exceeds such U.S. holder’s tax basis, such excess will be treated as capital gain. However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax principles. Therefore, U.S. holders should expect that a distribution will generally be treated as a dividend.

The amount of the dividend paid in Japanese yen will be the U.S. dollar value of the Japanese yen payments received. This value will be determined at the spot Japanese yen/U.S. dollar rate on the date the dividend is received by the depositary in the case of U.S. holders of ADSs, or by the shareholder in the case of U.S. holders of shares, regardless of whether the dividend payment is in fact converted into U.S. dollars at that time. If the Japanese yen received as a dividend are not converted into U.S. dollars on the date of receipt, a U.S. holder will have basis in such Japanese yen equal to their dollar value on the date of receipt, and any foreign currency gains or losses resulting from the conversion of the Japanese yen will generally be treated as U.S. source ordinary income or loss.

The maximum rate of withholding tax on dividends paid to you pursuant to the treaty is 10%. As discussed under “—Japanese Taxation” above, if the Japanese statutory rate is lower than the maximum applicable Treaty rate, the Japanese statutory rate will be applicable. If the statutory rate applicable to you is higher than the maximum Treaty rate, you will be required to properly demonstrate to us and the Japanese tax authorities your entitlement to the reduced withholding rate under the Treaty. Subject to certain limitations, the Japanese tax withheld may be creditable against the U.S. holder’s U.S. federal income tax liability or may be claimed as a deduction from the U.S. holder’s federal adjusted gross income provided that the U.S. holder elects to deduct all foreign taxes paid on the same taxable year. For foreign tax credit limitation purposes, the dividend will be income from sources outside the United States. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay will generally constitute “passive category income.” Further, in certain circumstances, if a U.S. holder:

 

•

has held shares or ADSs for less than a specified minimum period during which such U.S. holder is not protected from the risk of loss; or

 

•

is obligated to make payments related to the dividends,

 

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such U.S. holder will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on shares or ADSs. The rules governing U.S. foreign tax credits are very complex and U.S. holders should consult their tax advisors regarding the availability of foreign tax credits under their particular circumstances.

With respect to non-corporate U.S. investors, certain dividends received in taxable years beginning before January 1, 2013 from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the U.S. Treasury Department determines to be satisfactory for these purposes and which includes an exchange of information provision. The U.S. Treasury Department has determined that the Treaty meets these requirements. In addition, it is expected that we will be eligible for the benefits of the Treaty. A foreign corporation is also treated as a qualified foreign corporation with respect to individuals paid by that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs (which are listed on the New York Stock Exchange), but not the shares, are readily tradable on an established securities market in the United States. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in later years. Non-corporate holders who do not meet a minimum holding period requirement during which they are not protected from a risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. U.S. holders should consult their own tax advisors regarding the application of the foregoing rules to their particular circumstances.

Taxation of Capital Gains

Subject to the discussion under “—U.S. Taxation—Passive Foreign Investment Company Rules” below, upon a sale or other disposition of shares or ADSs, a U.S. holder will recognize gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. holder’s tax basis, determined in U.S. dollars, in such shares or ADSs. Such gain or loss will be capital gain or loss and will be long-term capital gain or loss if the U.S. holder’s holding period for such shares or ADSs exceeds one year. A U.S. holder’s tax basis in its shares or ADSs will generally be the cost to the holder of such shares or ADSs. Any such gain or loss realized by a U.S. holder upon disposal of the shares or ADSs will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company Rules

Based on our projected composition of income and valuation of assets, including goodwill, we do not believe that we will be a passive foreign investment company (“PFIC”) for this year and do not expect to become one in the future, although there can be no assurance in this regard. However, PFIC status is a factual determination that is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in valuation or composition of our income or assets. In addition, this determination is based in part upon certain proposed U.S. Treasury regulations that are not yet in effect (the “Proposed Regulations”) and are subject to change in the future. The Proposed Regulations and other administrative pronouncements from the Internal Revenue Service (the “IRS”) provide special rules for determining the character of income and assets derived in the banking business for purposes of the PFIC rules. Although we believe we have adopted a reasonable interpretation of the Proposed Regulations and administrative pronouncements, there can be no assurance that the IRS will follow the same interpretation.

In general, a foreign corporation is considered a PFIC for any taxable year if either:

 

•

at least 75% of its gross income is passive income; or

 

•

at least 50% of the value of its assets is attributable to assets that produce or are held for the production of passive income.

 

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The 50% of value test is based on the average of the value of our assets for each quarter during the taxable year. If we own at least 25% by value of another company’s stock, we will be treated, for purposes of the PFIC rules, as owning the proportionate share of the assets and receiving our proportionate share of the income of that company.

If we are a PFIC for any taxable year during which a U.S. holder holds shares or ADSs, the U.S. holder will be subject to special tax rules with respect to any “excess distribution” that the U.S. holder receives and any gain the U.S. holder realizes from the sale or other disposition (including a pledge) of shares or ADSs. Additionally, non-corporate U.S. holders will not be eligible for reduced rates of taxation on any dividends received from us in taxable years beginning prior to January 1, 2013, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.

These special tax rules generally will apply even if we cease to be a PFIC in future years. Distributions U.S. holders receive in a taxable year that are greater than 125% of the average annual distributions they received during the shorter of the three preceding taxable years or their holding period for shares or ADSs will be treated as excess distributions. Under these special tax rules:

 

•

the excess distribution or gain will be allocated ratably over the U.S. holder’s holding period for shares or ADSs;

 

•

the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and

 

•

the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

Alternatively, a U.S. holder could make a mark-to-market election provided that shares or ADSs are regularly traded on a qualified exchange. Under current law, the mark-to-market election may be available to U.S. holders of ADSs because the ADSs are listed on the New York Stock Exchange which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election. Under current law, the mark-to-market election may be available to U.S. holders of shares because the shares are listed on the Tokyo Stock Exchange, which constitutes a qualified exchange, although there can be no assurance that the shares will be “regularly traded” for purposes of the mark-to-market election. In addition, a U.S. holder of shares in a PFIC can sometimes avoid the rules described above by electing to treat the company as a “qualified electing fund” under Section 1295 of the Code. This option is not available to U.S. holders of shares because we do not intend to comply with the requirements necessary to permit U.S. holders to make this election.

If a U.S. holder holds shares or ADSs in any year in which we are classified as a PFIC, such holder would be required to file IRS Form 8621.

U.S. holders should consult their own tax advisors concerning the determination of our PFIC status and the U.S. federal income tax consequences of holding shares or ADSs if we are considered a PFIC in any taxable year.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends in respect of the shares or ADSs or the proceeds from the sale, exchange or redemption of the shares or ADSs paid within the United States, and, in some cases, outside of the United States, to you, unless you are an exempt recipient. In addition, backup withholding tax may apply to those amounts if you fail to provide an accurate taxpayer identification number or fail either to report interest and dividends required to be shown on your U.S. federal income tax returns or make certain certifications. The amount of any backup withholding from a payment to you will be allowed as a refund or credit against your U.S. federal income tax liability, provided you furnish the required information to the IRS.

 

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Recently enacted legislation requires certain U.S. holders to report information with respect to their investment in shares not held in an account maintained by a financial institution to the IRS. Investors who fail to report required information could become subject to substantial penalties. Potential investors are urged to consult with their own tax advisors regarding the possible implications of this legislation on their investment in shares.

10.F. Dividends and Paying Agents

Not applicable.

10.G. Statement by Experts

Not applicable.

10.H. Documents on Display

We file reports, including annual reports on Form 20-F, and other information, including information filed on Form 6-K, with the U.S. Securities and Exchange Commission. These reports, including this annual report on Form 20-F and the exhibits thereto, and other information can be inspected without charge at the Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You can also obtain copies of such materials by mail, at prescribed fees, from the Commission’s Public Reference Room or from commercial document retrieval services. You may obtain information on the operation of the Commission’s Public Reference Room by calling the Securities and Exchange Commission in the United States at 1-800-SEC-0330. You can also access to the documents filed via the Electronic Data Gathering, Analysis, and Retrieval system on the Commission’s website (http://www.sec.gov).

10.I. Subsidiary Information

Not applicable.

 

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ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Progress in financial deregulation and internationalization has led to growth in the diversity and complexity of banking operations, exposing financial institutions to various risks, including credit, market operations, information technology, legal, settlement and other risks. We recognize the conducting of operations tailored to the risks and managing such risks as a key issue relating to overall management. In order to implement our business strategy while maintaining our financial stability, we maintain comprehensive risk management and control measures. We maintain basic policies for risk management established by our board of directors that are applicable to the entire Mizuho group. These policies clearly define the kinds of risks to be managed, set forth the organizational structure and provide for the human resources training necessary for appropriate levels of risk management. The policies also provide for audits to measure the effectiveness and suitability of the risk management structure. In line with these basic policies, we maintain various measures to strengthen and enhance the sophistication of our risk management system. All yen figures and percentages in this item are truncated. Accordingly, the total of each column of figures may not be equal to the total of the individual items.

Approach to the BIS Regulations

The BIS Regulations, the regulations for international standards of the health of banks first implemented in 1992, have been revised in light of developments in risk management methods in order to better reflect the actual substance of the risks. These amended regulations, known as “Basel II,” focus on three main points. The first is minimum capital requirements relating to risk which should be maintained by banks, with respect to which the calculation method for credit risk was changed and operational risk was added. The second includes a supervisory review process with respect to assessment of risks that cannot be fully addressed through minimum capital requirements alone. The third is market discipline allowing for assessment by the market through appropriate disclosure. We have obtained the necessary approvals from government authorities on calculation methods for each type of risk and have been calculating capital adequacy ratios based on Basel II from March 31, 2007, when the Basel II was implemented in Japan. With regard to credit risk, we have been applying the AIRB approach, the most sophisticated of the three methods provided for by Basel II, from March 31, 2009. In addition, we have been applying the AMA for the calculation of operational risk from September 30, 2009. Since the rules text of “Basel III” was published in December, 2010, we have been preparing for its phased-in implementation.

Overview of Risk Management

Risk Management Structure

Each of our subsidiaries adopts appropriate risk management measures for its business based on the size and nature of its risk exposures, while Mizuho Financial Group controls risk management for the Mizuho group as a whole. Mizuho Financial Group regularly receives reports and applications concerning the risk management situation from our principal banking subsidiaries and other core group companies and gives them appropriate instructions concerning risk management. Our principal banking subsidiaries and other core group companies each maintains its own system for managing various types of risk, regularly receiving reports on the status of risk at their respective subsidiaries, and gives them appropriate instructions concerning risk management.

Basic Approach

We classify our risk exposures according to the various kinds of risk, including credit risk, market risk, liquidity risk and operational risk, and manage each type of risk according to its characteristics. In addition to managing each type of risk individually, we have established a risk management structure to identify and evaluate overall risk and, where necessary, to devise appropriate responses to keep risk within limits that are managerially acceptable in both qualitative and quantitative terms. In line with the basic policies relating to overall risk management laid down by Mizuho Financial Group, companies within the Mizuho group identify risk broadly and take a proactive and sophisticated approach to risk management, including methodologies for operations that involve exposures to multiple categories of risk such as settlement and trust businesses.

 

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Risk Capital Allocation

We endeavor to obtain a clear grasp of the group’s overall risk exposure and have implemented measures to keep such risks within the group’s financial base in accordance with the risk capital allocation framework. More specifically, we allocate risk capital to our principal banking subsidiaries, including their respective subsidiaries, and other core group companies to control risk within the limits set for each company. We also control risk within managerially acceptable limits by working to ensure that the overall risk we hold on a consolidated basis does not exceed shareholders’ equity and other measures of financial strength. To ensure the ongoing financial health of Mizuho Financial Group, our principal banking subsidiaries and other core group companies, we regularly monitor the manner in which risk capital is being used in order to obtain a proper grasp of the risk profile within this framework. Reports are also submitted to the board of directors and other committees of each company. Risk capital is allocated to Mizuho Corporate Bank, Mizuho Bank, Mizuho Securities and Mizuho Trust & Banking by risk category, and is further allocated within their respective business units based on established frameworks.

Credit Risk Management

We define credit risk as the Mizuho group’s exposure to the risk of losses that may be incurred due to a decline in, or total loss of, the value of assets (including off-balance-sheet instruments), as a result of deterioration in obligors’ financial position. We have established the methods and structures necessary for grasping and managing credit risk, which has become increasingly complex due to financial deregulation, internationalization and the growing sophistication of transactions. Mizuho Financial Group manages credit risk for the Mizuho group as a whole. More specifically, we have adopted two different but mutually complementary approaches in credit risk management. The first approach is “credit management,” in which we manage the process for each individual transaction and individual obligor from execution until collection, based on our assessment of the credit quality of the customer. Through this process, we curb losses in the case of a credit event. The second is “credit portfolio management,” in which we utilize statistical methods to assess the potential for losses related to credit risk. Through this process, we identify credit risk and respond appropriately.

Credit Risk Management Structure

Credit Risk Management of the Mizuho Group

Our board of directors determines the Mizuho group’s key matters pertaining to credit risk management. In addition, the portfolio management committee of Mizuho Financial Group discusses and coordinates the basic policies in connection with credit risk management and matters in connection with overall credit portfolio management and credit risk monitoring for the Mizuho group. Under the control of the Chief Risk Officer of Mizuho Financial Group, the Risk Management Division and the Credit Risk Management Division jointly monitor, analyze and submit suggestions concerning credit risk and formulate and execute plans in connection with basic matters pertaining to credit risk management.

Credit Risk Management at Our Principal Banking Subsidiaries and Other Core Group Companies

Our principal banking subsidiaries and other core group companies manage their credit risk according to the scale and nature of their exposures in line with basic policies set forth by Mizuho Financial Group. The board of directors of each company determines key matters pertaining to credit risk management. Their respective business policy committees are responsible for discussing and coordinating overall management of their individual credit portfolios and transaction policies towards obligors. The Chief Risk Officer of each principal banking subsidiary and core group company is responsible for matters relating to planning and implementing credit risk management. The credit risk management division of each principal banking subsidiary is responsible for planning and administering credit risk management and conducting credit risk measuring and monitoring, and such division regularly presents reports regarding its risk management situation to Mizuho Financial Group. Each credit division determines policies and approves/disapproves individual transactions in terms of credit review,

 

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credit management and collection from customers in accordance with the lines of authority set forth by each principal banking subsidiary. In addition, from the standpoint of internal controls, each of our principal banking subsidiaries has established internal audit divisions that are independent of the business divisions in order to ensure appropriate credit risk management.

Individual Credit Management

Our principal banking subsidiaries use a unified credit rating system and credit risk measurement tools to ascertain and monitor the status of their portfolios. They are also improving their credit decisions and post- transaction management functions by examining individual transactions from these viewpoints, providing internal audits and risk management guidance to individual business promotion offices. Mizuho Securities and other core group companies follow credit risk management procedures that suit the characteristics of their respective business sectors.

Credit codes

The basic code of conduct for all of our officers and employees engaged in the credit business is set forth in our credit code. Seeking to fulfill the bank’s public and social role, our basic policy for credit business is determined in light of fundamental principles focusing on public welfare, safety, growth and profitability.

Internal rating system

One of the most important elements of the risk management infrastructure of our principal banking subsidiaries is the use of an internal rating system that consists of credit ratings and pool allocations. Credit ratings consist of obligor ratings which represent the level of credit risk of the obligor, and transaction ratings which represent the possibility of ultimately incurring losses related to each individual claim by taking into consideration the nature of any collateral or guarantee and the seniority of the claim. In principle, obligor ratings apply to all obligors and are subject to regular reviews at least once a year to reflect promptly the fiscal period end financial results of the obligors, as well as special reviews as required whenever a obligor’s credit standing changes. This enables our principal banking subsidiaries to monitor both individual obligors and the status of the overall portfolio in a timely fashion. Because we consider obligor ratings to be an initial phase of the self-assessment process regarding the quality of our loans and off-balance-sheet instruments, such obligor ratings are closely linked to the obligor classifications and are an integral part of the process for determining the provision for loan losses and charge-offs in our self-assessment of loans and off-balance-sheet instruments.

Pool allocations are applied to small claims that are less than a specified amount by pooling customers and claims with similar risk characteristics and assessing and managing the risk for each such pool. We efficiently manage credit risk and credit screening by dispersing a sufficient number of small claims within each pool. We generally review the appropriateness and effectiveness of our approach to obligor ratings and pool allocations once a year in accordance with predetermined procedures.

Self-assessment, provision for loan losses and off-balance-sheet instruments and charge-offs

We conduct self-assessment of assets to ascertain the status of assets both as an integral part of credit risk management and in preparation for appropriate accounting treatment, including provision for loan losses and off-balance-sheet instruments and charge-offs. During the process of self-assessment, obligors are categorized into certain groups taking into consideration their financial condition and their ability to make payments, and credit ratings are assigned to all obligors, in principle, to reflect the extent of their credit risks. The related assets are then categorized into certain classes based on the risk of impairment. This process allows us to identify and control the actual quality of assets and determine the appropriate accounting treatment, including provision for loan losses and off-balance-sheet instruments and charge-offs. Specifically, the credit risk management division of each of our principal subsidiaries is responsible for the overall control of the self-assessment of assets of the respective banking subsidiaries, cooperating with the administrative divisions specified for each type of asset, including loan portfolios and securities, in executing and managing self-assessments.

 

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Credit review

Prevention of new impaired loans through routine credit management is important in maintaining the quality of our overall loan assets. Credit review involves analysis and screening of each potential transaction within the relevant business division. In case the screening exceeds the authority of the division, the credit division at headquarters carries out the review. The credit division has specialist departments for different industries, business sizes and regions, carries out timely and specialized examinations based on the characteristics of the customer and its market, and provides appropriate advice to the business division. In addition, in the case of obligors with low credit ratings and high downside risks, the business division and credit division jointly clarify their credit policy and in appropriate cases assist obligors at an early stage in working towards credit soundness.

Collection and disposal of impaired loans

With respect to collection and disposal of impaired loans, our specialist unit maintains central control and pursues corporate restructuring or collection efforts, as appropriate, toward taking the impaired loans off-balance. Specifically, we believe that supporting the restructuring efforts of corporations is an important role for financial institutions, and we support corporations undergoing restructuring by reviewing business plans, advising on restructuring methods and utilizing corporate restructuring schemes such as divestitures and mergers and acquisitions, taking advantage of our group-wide resources. These efforts have been steadily producing satisfactory results. In addition, we work on final disposal of impaired loans efficiently and swiftly by conducting bulk sales and by utilizing Mizuho Servicing Co., Ltd., our subsidiary that specializes in performing debt collection services for our group companies.

Portfolio Management

Risk Measurement

We use statistical methods to manage the possibility of losses by measuring the expected average loss for a one-year risk horizon (“Expected Loss”) and the maximum loss within a certain confidence interval (“credit VaR”). The difference between expected loss and credit VaR is measured as the credit risk amount (“Unexpected Loss”).

In establishing transaction spread guidelines for credit transactions, we aim to ensure an appropriate return from the transaction in light of the level of risk by utilizing credit cost data as a reference. Also, we monitor our credit portfolio from various perspectives and set certain limits so that losses incurred through a hypothetical realization of the full credit VaR would be within the amount of risk capital and loan loss reserves.

Risk Control Methods

We recognize two types of risk arising from allowing too large a proportion of overall credit risk to be allocated in certain areas. One type is “credit concentration risk,” which stems from granting excessive credit to certain individual counterparties. The other type is “chain-reaction default risk,” which arises from granting excessive credit to certain corporate groups, industrial sectors and other groupings. We make appropriate management to control these risks in line with our specific guidelines for each. The individual risk management divisions of our principal banking subsidiaries are responsible for monitoring adherence to these guidelines and reporting to their respective business policy committees.

Portfolios of Our Principal Banking Subsidiaries and Certain Other Core Group Companies

Mizuho Bank’s portfolio is diversified among relatively small accounts centered on individuals, domestic corporations including mainly small and medium-sized enterprises and middle-market corporations, public sector entities and other customers in Japan. While Mizuho Corporate Bank’s credit portfolio consists primarily of loans to Japanese public companies and other major Japanese enterprises, it also includes a significant proportion of

 

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loans to overseas corporations, including foreign subsidiaries of Japanese corporations, that are diversified in terms of the regions in which the borrowers are located. While retaining the principal features of each of the two banking subsidiaries’ respective portfolios, we aim to reduce expected losses while simultaneously utilizing sophisticated financial tools based on which they make strategic acquisitions and sales of assets. While closely monitoring the potential for unexpected losses, they also aim to raise overall group capital efficiency, boost profitability and shareholder value, and enhance the sophistication of their credit risk management.

Market and Liquidity Risk Management

We define market risk as the risk of losses incurred by the group due to fluctuations in interest rates, stock prices and foreign exchange rates. Our definition includes the risk of losses incurred when it becomes impossible to execute transactions in the market because of market confusion or losses arising from transactions at prices that are significantly less favorable than usual. We define liquidity risk as the risk of losses arising from funding difficulties due to a deterioration in our financial position that makes it difficult for us to raise necessary funds or that forces us to raise funds at significantly higher interest rates than usual. Mizuho Financial Group manages market and liquidity risk for the Mizuho group as a whole.

The following diagram shows our risk management structure:

 

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Market Risk Management Structure

Market Risk Management of the Mizuho Group

Our board of directors determines key matters pertaining to market risk management policies. The ALM & market risk management committee of Mizuho Financial Group broadly discusses and coordinates matters relating to basic asset and liability management policies, risk planning and market risk management and proposes responses to emergencies such as sudden market changes. The Chief Risk Officer of Mizuho Financial Group is responsible for matters relating to market risk management planning and operations.

The Risk Management Division of Mizuho Financial Group is responsible for monitoring market risk, reports and analyses, proposals, setting limits and guidelines, and formulating and implementing plans relating to market risk management. The Risk Management Division assesses and manages the overall market risk of the Mizuho group. It also receives reports from our principal banking subsidiaries and other core group companies on their market risk management that enable it to obtain a solid grasp of the risk situation, submitting reports to the chief executive officer on a daily basis and to our board of directors and the executive management committee of Mizuho Financial Group on a regular basis.

To manage market risk, we set limits that correspond to risk capital allocations according to the risk profiles of our principal banking subsidiaries and other core group companies and thereby prevent market risk from exceeding our ability to withstand losses based on our financial strength represented by capital, etc. The amount of risk capital allocated to market risk corresponds to VaR and additional costs that may arise in order to close relevant positions. For trading and banking activities, we set limits for VaR and for losses. For banking activities, we set position limits based on interest rate sensitivity as needed.

These limits are discussed and coordinated by the ALM & market risk management committee, discussed further by the executive management committee, then determined by the chief executive officer. Various factors are taken into account including business strategies, historical limit usage ratios, risk-bearing capacity (profits, total capital and risk management systems), profit targets and the market liquidity of the products involved.

Market Risk Management at Our Principal Banking Subsidiaries and Other Core Group Companies

Our principal banking subsidiaries, which account for most of the Mizuho group’s exposure to market risk, have formulated their basic policies in line with the basic policies determined by Mizuho Financial Group. Their boards of directors determine important matters relating to market risk management while their chief executive officers are responsible for controlling market risk. Their respective business policy committees, including their ALM & market risk management committees, are responsible for overall discussion and coordination of market risk management. Specifically, these committees discuss and coordinate matters relating to basic asset and liability management policies, risk planning and market risk management and propose responses to emergencies such as sudden market changes. The Chief Risk Officer of each subsidiary is responsible for matters pertaining to planning and implementing market risk management. Based on a common Mizuho group risk capital allocation framework, the above-mentioned companies manage market risk by setting limits according to the risk capital allocated to market risk by Mizuho Financial Group.

These companies have established specialized company-wide market risk management divisions to provide integrated monitoring of market risk, submit reports, analyses and proposals, set limits and formulate and implement plans relating to market risk management. The risk management divisions of each company submit reports on the status of market risk management to their respective chief executive officers and top management on a daily basis, and to their board of directors and executive management committee on a regular basis. They also provide regular reports to Mizuho Financial Group. To provide a system of mutual checks and balances in market operations, they have established middle offices specializing in risk management that are independent of their front offices, which engage in market transactions, and their back offices, which are responsible for book entries and settlements. When VaR is not adequate to control risk, the middle offices manage risk using

 

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additional risk indices, carry out stress tests and set stop loss limits as needed. They monitor their market liquidity risk for individual financial products in the market while taking turnover and other factors into consideration.

Liquidity Risk Management Structure

Liquidity Risk Management of the Mizuho Group

Our liquidity risk management structure is generally the same as the market risk management structure described above. However, the head of the Financial Control & Accounting Group of Mizuho Financial Group is additionally responsible for matters relating to planning and running cash flow management operations, while the Financial Planning Division is responsible for monitoring and adjusting the cash flow management situation and for planning and implementing cash flow management. Reports on the cash flow situation are submitted to the ALM & market risk management committee, the executive management committee and the chief executive officer.

We measure liquidity risk using indices pertaining to cash flow, such as limits on funds raised in the market. Limits on liquidity risk are discussed and coordinated by the ALM & market risk management committee, discussed further by the executive management committee and determined by the chief executive officer. We have established classifications for the cash flow conditions affecting the group, ranging from “normal” to “cause for concern” and “critical,” and have established procedures for dealing with cases which are deemed to fall into the “cause for concern” or “critical” categories. In addition, we have constructed a system under which we will be able to respond smoothly in the event of emergency situations that affect our funding by establishing action plans.

Liquidity Risk Management at Our Principal Banking Subsidiaries and Other Core Group Companies

The liquidity risk management structures of Mizuho Corporate Bank, Mizuho Bank and Mizuho Trust & Banking are generally the same as the aforementioned market risk management structures, but the senior executives responsible for risk management are responsible for matters pertaining to planning and conducting liquidity risk management, while the senior executives of the asset and liability management and trading units are responsible for matters pertaining to planning and conducting cash flow management.

The methodologies used for ensuring precise control of liquidity risk include the formulation of management indices pertaining to cash flow, such as limits on funds raised in the market. As with Mizuho Financial Group, the above-mentioned companies have established classifications for the cash flow affecting them, ranging from “normal” to “cause for concern” and “critical,” and have established procedures for cases which are deemed to fall into the “cause for concern” or “critical” categories.

Each subsidiary has adopted stringent controls that call for the submission of reports on liquidity risk management and cash flow management to the ALM & market risk management committee and other business policy committees, the executive management committee and the chief executive officer of each subsidiary.

 

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Back Testing and Stress Testing

In order to evaluate the effectiveness of market risk measurements calculated using the value-at-risk method, we carry out regular back tests to compare value-at-risk with assumptive profits and losses. Assumptive profits and losses accounts for general market risk. The graph below shows daily value-at-risk of trading activities for the fiscal year ended March 31, 2011, and the corresponding paired distribution of profits and losses. We had one case where profits or losses exceeded value-at-risk during the period:

Because the value-at-risk method is based on statistical assumptions, we conduct stress testing to simulate the levels of losses that could be incurred in cases where the market moves suddenly to levels that exceed these assumptions. The stress testing methods we use include the calculation of losses on the basis of the largest fluctuations occurring over a period of more than five years and the calculation of losses based on market fluctuations occurring during historical market events. In addition, we conduct stress testing based on a sharp drop in the price of securitization and other products due to diminished market liquidity. The table below shows the assumed maximum loss results of stress testing in trading activities using the methods described above:

 

Assumed maximum loss results		As of March 31, 2011
		(in billions of yen)
Assumed maximum loss result calculated by stress testing (holding period: one month)		¥	61.0
Assumed maximum loss result calculated by stress testing based on a sharp drop in the price of securitization and other products due to diminished market liquidity (holding period: one year)		¥	22.8

Outlier Criteria

As part of the capital adequacy requirements under Basel II, the losses arising from a banking book in hypothetical interest rate shock scenarios under certain stress conditions are calculated and compared with the sum of Tier 1 and Tier 2 capital. If the interest rate risk of the banking book leads to an economic value decline of more than 20% of the sum of Tier 1 and Tier 2 capital, we will be deemed an “outlier” and may be required to reduce the banking book risk or adopt other responses. We measure losses arising from our banking book each month as a part of our stress tests.

 

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The table below shows the results of calculations of losses in the banking book in cases where interest rate fluctuations occur under stress conditions. The results of calculations of losses in the banking book show that they are 9.9% of broadly-defined capital. Because the amount of risk on the banking book is therefore well under the 20% threshold and within controllable limits, we do not fall under the “outlier” category. The loss ratio to capital increased from the previous fiscal year due mainly to the expansion of interest rate risk related to the yen for the fiscal year ended March 31, 2011.

 

Results of calculations under the outlier framework		Amount of loss				Broadly-defined capital				Loss ratio to capital
		(in billions of yen, except percentages)
As of March 31, 2009		¥	532.4			¥	6,223.6				8.5	%
As of March 31, 2010			681.4				7,658.0				8.8
As of March 31, 2011			784.9				7,910.9				9.9
Effect of yen interest rate			572.0
Effect of dollar interest rate			174.2
Effect of euro interest rate			34.9

 

Notes:

 

(1)	In the above results of calculations of losses, a part of demand deposits without fixed intervals for amending applicable interest rates is deemed core deposits and is treated accordingly in the calculation.

(2)

For the interest rate shock scenario used in connection with the above figures, we generate annual rate fluctuation data for five years derived from daily raw historical interest rate data of the past six years and then apply the actual fluctuation data, which show a rise in interest rates, at a 99.0% confidence level to the shock scenario.

Value-at-Risk

We use the value-at-risk (the “VaR”) method, supplemented with stress testing, as our principal tool to measure market risk. The VaR method measures the maximum possible loss that could be incurred due to market movements within a certain time period (or holding period) and degree of probability (or confidence interval).

Trading Activities

VaR related to our trading activities is based on the following:

 

•

variance co-variance model for linear risk and Monte-Carlo simulation for non-linear risk;

 

•

confidence interval: one-tailed 99.0%;

 

•

holding period of one day; and

 

•

historical observation period of one year.

The following tables show the VaR related to our trading activities by risk category for the fiscal years ended March 31, 2009, 2010 and 2011 and as of March 31, 2009, 2010 and 2011:

 

		Fiscal year ended March 31, 2009												As of March 31, 2009
Risk category		Daily average				Maximum				Minimum
		(in billions of yen)
Interest rate		¥	2.3			¥	3.9			¥	1.6			¥	2.2
Foreign exchange			2.4				5.1				1.0				2.6
Equities			1.3				2.3				0.3				0.5
Commodities			0.2				0.3				0.0				0.0
Total		¥	4.7			¥	7.7			¥	3.3			¥	3.8

 

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		Fiscal year ended March 31, 2010												As of March 31, 2010
Risk category		Daily average				Maximum				Minimum
		(in billions of yen)
Interest rate		¥	1.7			¥	2.9			¥	1.0			¥	1.2
Foreign exchange			1.4				2.7				0.4				2.1
Equities			1.2				3.2				0.3				0.3
Commodities			0.1				0.3				0.0				0.0
Total		¥	3.1			¥	4.8			¥	2.1			¥	2.8

 

		Fiscal year ended March 31, 2011												As of March 31, 2011
Risk category		Daily average				Maximum				Minimum
		(in billions of yen)
Interest rate		¥	1.5			¥	2.1			¥	1.1			¥	1.4
Foreign exchange			1.4				2.4				0.6				1.9
Equities			1.1				1.8				0.4				1.1
Commodities			0.0				0.3				0.0				0.1
Total		¥	2.9			¥	3.8			¥	2.2			¥	3.6

The following graph shows VaR figures of our trading activities for the fiscal year ended March 31, 2011:

The following table shows VaR figures of our trading activities for the fiscal years indicated:

 

		Fiscal years ended March 31,
		2009				2010				2011				Change
		(in billions of yen, except number of cases)
As of fiscal year end		¥	3.8			¥	2.8			¥	3.6			¥	0.8
Maximum			7.7				4.8				3.8				(0.9	)
Minimum			3.3				2.1				2.2				0.0
Average			4.7				3.1				2.9				(0.2	)
The number of cases where profits/losses exceeded VaR			1				no cases				1

 

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Non-trading Activities

The VaR related to our banking activities is based on the same conditions as those of trading activities, but the holding period is one month.

The graph below shows the VaR related to our banking activities excluding our strategically-held equity portfolio for the year ended March 31, 2011:

The following table shows the VaR figures relating to our banking activities for the fiscal years indicated:

 

		Fiscal years ended March 31,
		2009				2010				2011				Change
		(in billions of yen)
As of fiscal year end		¥	248.1			¥	167.0			¥	211.3			¥	44.3
Maximum			335.8				255.6				227.6				(28.0	)
Minimum			173.3				160.2				137.8				(22.4	)
Average			251.5				206.4				188.6				(17.8	)

VaR is a commonly used market risk management technique. However, VaR models have the following shortcomings:

 

•

By its nature as a statistical approach, VaR estimates possible losses over a certain period at a particular confidence level using past market movement data. Past market movement, however, is not necessarily a good indicator of future events, particularly potential future events that are extreme in nature.

 

•

VaR may underestimate the probability of extreme market movements.

 

•

The use of a 99.0% confidence level does not take account of, nor makes any statement about, any losses that might occur beyond this confidence level.

 

•

VaR does not capture all complex effects of various risk factors on the value of positions and portfolios and could underestimate potential losses.

 

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We also conduct interest sensitivity analyses of interest risk, our main source of market risk. The following table shows sensitivity to yen interest risk in our banking activities as of the dates indicated. As shown in the table, we have reduced overall sensitivity to the risk of future increases in interest rates. Interest rate sensitivity (10 BPV) shows how much net present value varies when interest rates rise by 10 basis points (0.1%), and it explains the impact of interest rate movements on net present value when short- and long-term interest rates behave differently.

 

		As of March 31,
		2009				2010				2011				Change
		(in billions of yen)
Up to one year		¥	(9	)		¥	(10	)		¥	(10	)		¥	0
From one to five years			(25	)			(28	)			(36	)			(7	)
Over five years			(18	)			(14	)			(19	)			(4	)
Total		¥	(53	)		¥	(53	)		¥	(65	)		¥	(11	)

Strategically-held Equity Portfolio Management Activities

We take the market risk management approach with use of VaR and risk indices for strategically-held equity portfolio management activities as well as for trading activities and non-trading activities. The risk index for strategically-held equity portfolio management for the fiscal year ended March 31, 2011, consisting of the sensitivity of the strategically-held equity portfolio to a 1% change in the equity index of TOPIX, was ¥25.7 billion.

Market Risk Equivalent

In order to calculate the amount of capital necessary to meet the capital requirements relating to market risk (the “market risk equivalent”), we apply internal models to calculate general market risk (risks related to factors that apply generally to the market, e.g., interest rates, foreign exchange rates) and the standardized measurement method to calculate specific risks (risks other than general market risk, e.g., credit quality and market liquidity of an individual security or instrument). In addition, our internal models are applied to trading transactions with market liquidity based on the relevant holding period. Under the internal models, the market risk equivalent is calculated by taking the greater of (i) VaR on the calculation date and (ii) the average VaR for the preceding 60 business days (including the calculation date) multiplied by a multiplication factor ranging from 3.00 to 4.00 that is determined based on the number of times VaR is exceeded upon back testing.

The following table shows total market risk equivalent as of the dates indicated calculated using the standardized measurement method and internal models:

 

		As of March 31,
		2010				2011				Change
		(in billions of yen)
Calculated using standardized measurement method		¥	77.9			¥	84.5			¥	6.6
Calculated using internal models			25.9				26.6				0.6
Total market risk equivalent		¥	103.8			¥	111.1			¥	7.3

 

Note:

VaR used to calculate Market Risk Equivalent is based on the following:

 

•

variance co-variance model for linear risk and Monte-Carlo simulation for non-linear risk;

 

•

confidence interval: one-tailed 99.0%;

 

•

holding period of 10 days; and

 

•

historical observation period of one year.

 

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Operational Risk Management

We define operational risk as the risk of loss that we may incur resulting from inadequate or failed internal processes, people and systems or from external events. We recognize that operational risk includes information technology risk, operations risk, legal risk, human resources risk, tangible asset risk, regulatory change risk and reputational risk. We have determined risk management policies concerning risk management structures and methods for each kind of risk. Mizuho Corporate Bank, Mizuho Bank, Mizuho Trust & Banking, Mizuho Securities, Mizuho Investors Securities and Trust & Custody Services Bank respectively manage operational risk in an appropriate manner pursuant to risk management policies determined by Mizuho Financial Group.

Mizuho Financial Group, Mizuho Corporate Bank, Mizuho Bank, Mizuho Trust & Banking, Mizuho Securities, Mizuho Investors Securities and Trust & Custody Services Bank share common rules for data gathering, and we measure operational risk on a regular basis, taking into account possible future loss events and the changes in the business environment and internal management.

We have established and are strengthening management methods and systems to appropriately identify, assess, measure, monitor and control the operational risks which arise from the growing sophistication and diversification of financial operations and developments relating to information technology by utilizing control self-assessments and improving measurement methods.

Definition of Risks and Risk Management Methods

As shown in the table below, we have defined each component of operational risk and we apply appropriate risk management methods in accordance with the scale and nature of each risk.

 

		Definition		Principal Risk Management Methods
Information Technology Risk		Risk that customers may suffer service disruptions, or that customers or the group may incur losses arising from system defects such as failures, faults, or incompleteness in computer operations, or illegal or unauthorized use of computer systems.		•      Identify and evaluate the risk by setting specific standards that need to be complied with and implementing measures tailored based on evaluation results to reduce the risk. •      Ensure ongoing project management in systems development and quality control. •      Strengthen security to prevent information leaks. •      Improve effectiveness of emergency responses by improving backup systems and holding drills.
Operations Risk		Risk that customers may suffer service disruptions, as well as the risk that customers or the group may incur losses because senior executives or employees fail to fulfill their tasks properly, cause accidents or otherwise act improperly.		•      Establish clearly defined procedures for handling operations. •      Periodically check the status of operational processes. •      Conduct training and development programs by headquarters. •      Introduce information technology, office automation and centralization for operations. •      Improve the effectiveness of emergency responses by holding drills.

 

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		Definition		Principal Risk Management Methods
Legal Risk		Risk that the group may incur losses due to violation of laws and regulations, breach of contract, entering into improper contracts or other legal factors.		•    Review and confirm legal issues, including the legality of material decisions, agreements and external documents, etc. •    Collect and distribute legal information and conduct internal training programs. •    Analyze and manage issues related to lawsuits.
Human Resources Risk		Risk that the group may incur losses due to drain or loss of personnel, deterioration of morale, inadequate development of human resources, inappropriate working schedule, inappropriate working and safety environment, inequality or inequity in human resource management or discriminatory conduct.		•    Conduct employee satisfaction surveys. •    Understand the status of vacation days taken by personnel. •    Understand the status of voluntary resignations.
Tangible Asset Risk		Risk that the group may incur losses from damage to tangible assets or a decline in the quality of working environment as a result of disasters, criminal actions or defects in asset maintenance.		•    Manage the planning and implementation of construction projects related to the repair and replacement of facilities. •    Identify and evaluate the status of damage to tangible assets caused by natural disasters, etc., and respond appropriately to such damage.
Regulatory Change Risk		Risk that the group may incur losses due to changes in various regulations or systems, such as those related to law, taxation and accounting.		•    Understand important changes in regulations or systems that have significant influence on our business operations or financial condition in a timely and accurate manner. •    Analyze degree of influence of regulatory changes and establish countermeasures. •    Continuously monitor our regulatory change risk management mentioned above.
Reputational Risk		Risk that the group may incur losses due to damage to our credibility or the value of the “Mizuho” brand when market participants or others learn about, or the media reports on, various adverse events, including actual materialization of risks or false rumors.		•    Establish framework to identify and manage, on an integrated basis, information that may have a serious impact on group management and respond to such risk in a manner appropriate to its scale and nature. •    Swiftly identify rumors and devise appropriate responses depending on the urgency and possible impact of the situation to minimize possible losses.

We also recognize and manage “Information Security Risk” and “Compliance Risk,” which constitute a combination of more than one of the above components of operational risk, as operational risk.

 

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Measurement of operational risk equivalent

Implementation of the AMA

We have been implementing the AMA from September 30, 2009, in place of the gross profit allocation approach (The Standardized Approach (TSA)) that we had been using previously, for the calculation of operational risk equivalent in association with capital adequacy ratios based on Basel II. However, we use the Basic Indicator Approach (BIA) for entities that are deemed to be less important in the measurement of operational risk equivalent and for entities that are preparing to implement the AMA. The measurement results under the AMA are used not only as the operational risk equivalent in the calculation of capital adequacy ratios but also as Operational VAR for internal risk management purposes for implementing action plans to reduce operational risk, etc.

Outline of the AMA

 

•

Outline of measurement system

We have established the model by taking account of four elements: internal loss data; external loss data; scenario analysis and business environment; and internal control factors (BEICFs). A statistical approach (one year holding period / one-tailed 99.9 percentile confidence interval) is taken for the calculation of operational risk equivalent, employing both internal loss data (i.e., actually experienced operational loss events) and scenario data to reflect unexperienced potential future loss events in the measurement.

In the measurement of operational risk equivalent as of March 31, 2010, we did not exclude expected losses and also did not recognize the risk mitigating impact of insurance. In addition, we did not take into account the events related to credit risk in measuring operational risk equivalent.

 

•

Outline of measurement model

Operational risk equivalent is calculated as a simple sum of those related to the seven loss event types defined by Basel II, large-scale natural disasters and litigation. In the measurement of operational risk equivalent as of March 31, 2010, we did not reflect the correlation effects among operational risk related to each of the seven loss event types.

 

•

Operational risk by the loss event type

Loss Distribution (Compound Poisson Distribution) Approach (LDA) is adopted for the calculation of operational risk. LDA is based on the assumption that Poisson Distribution applies to the occurrence frequency of operational risk events, and loss severity is expressed through a separate distribution. Operational risk is calculated for each of the seven loss event types employing both internal loss data, based on our actual experience as operational loss events and scenario data. Scenario data, expressed as numerical values of occurrence frequency and loss severity, reflects external loss data and BEICFs, in order to estimate unexperienced potential future loss events (of low frequency and high severity).

“Frequency Distribution” and “Severity Distribution” are estimated employing the above mentioned internal loss data and scenario data, and Monte-Carlo simulations are then applied to these distributions to measure operational risk. The detailed steps of creation of scenario data are explained later in “(3) Scenario Analysis.”

 

•

Estimation of “Frequency Distribution” and “Loss Severity Distribution”

“Frequency Distribution” is estimated by applying information on occurrence frequency of both internal loss data and scenario data to Poisson Distribution. “Loss Severity Distribution” is generated as the result of combining, through a statistical approach (Extreme Value Theory), of the actual distribution for the low severity distribution portion created by internal loss data and another loss distribution (Log-normal Distribution or Generalized Pareto Distribution) for the high severity distribution portion created by scenario data.

 

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•

Operational risk of large-scale natural disasters

Monte-Carlo simulation is applied to the datasets expressed as a combination of the probability of occurrence of large-scale natural disasters and the probable loss amount in case of such occurrence, as opposed to estimating “Frequency Distribution” and “Loss Severity Distribution.”

 

•

Operational risk of litigation

Each litigation is converted into data according to the profile of the individual litigation to which Monte-Carlo simulation is applied, as opposed to estimating “Frequency Distribution” and “Loss Severity Distribution.” In the measurement process, we assume that final decisions will be made on all litigation within one year.

 

•

Verification

We confirm the appropriateness of the measurement model by verifying it, in principle, semi-annually.

Scenario analysis

 

•

Outline of scenario analysis

In the process of scenario analysis, scenario data is created as numerical values of occurrence frequency and loss severity reflecting external loss data and BEICFs, in order to estimate unexperienced potential future operational risk events (of low frequency and high severity).

As for external loss data, we refer to data publicly reported by domestic and overseas media, and such data are reflected in the estimation of occurrence frequency and loss severity distribution in the process of scenario analysis. In addition, BEICFs are utilized as indices to adjust occurrence frequency and loss severity distribution in the process of scenario analysis.

We categorize scenario analyses into four approaches in accordance with the characteristics of each loss event type and risk management structures.

 

Approach		Loss event type(s) to be applied
A		Internal fraud / External fraud / Clients, products and business practices / Execution, delivery and process management
B		Employment practices and workplace safety
C		Damage to physical assets
D		Business disruption and system failure

At Mizuho Financial Group, loss event types to which Approach A is applied account for a considerable amount of operational risk. The detailed process of Approach A is explained below as a typical example of scenario analysis.

 

•

Setting units for scenario analysis

In order to ensure completeness and sufficiency, we set units that are commonly applied across group entities that adopt AMA (the “Group Entities”) by referencing and categorizing risk scenarios recognized through control self-assessment, internal loss data of the Group Entities and external loss data, etc. Then each of the Group Entities selects the unit on which scenario analysis is conducted from the units established on a groupwide basis in accordance with its business activities and operational risk profile.

 

•

Estimation of occurrence frequency

Basic occurrence frequency (once a year) is calculated for each scenario analysis unit. If a certain scenario analysis unit has relative internal loss data of a pre-determined threshold amount or above, its basic occurrence frequency is calculated based on such data, and if not, the basic occurrence frequency

 

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(the occurrence frequency per year of losses at or above a pre-determined threshold) is calculated with reference to the situation of occurrence of internal loss data of less than the threshold amount and/or external loss data. The basic occurrence frequency is then adjusted within a pre-determined range for the purpose of reflecting the most recent BEICF to determine the final occurrence frequency.

 

•

Estimation of loss severity distribution

In order to estimate loss severity distribution, we use a pre-determined series of severity ranges. Basic loss severity distribution is calculated for each scenario analysis unit as an occurrence ratio (in percentile figures) of loss at each severity range when losses at or above a pre-determined threshold occurred, with reference to transaction amount data, external loss data, etc. Then the basic severity distribution is adjusted, if necessary, from the viewpoint of statistical data processing to determine the final loss severity distribution.

 

•

Creation of scenario data

For each scenario analysis unit, scenario data is generated as a series of combinations of occurrence frequency per year at each severity range, based on the final occurrence frequency and the final loss severity distribution.

Compliance

As one of Japan’s leading comprehensive financial groups, we remain conscious of the importance of our social responsibilities and public mission at all times. We define compliance as “the strict observance of all laws and regulations and the pursuit of fair and honest corporate activities that conform to the norms accepted by society” and view ongoing compliance as one of the basic principles of sound business management. Each of our group companies maintains its own compliance structure in line with the basic policies established by Mizuho Financial Group.

Compliance Structure

The chief executive officer of Mizuho Financial Group, Mizuho Corporate Bank and Mizuho Bank each generally oversees compliance matters of the respective company, and such chief executive officers also head their respective compliance committees at which important matters concerning compliance are discussed. The three companies also have individual compliance divisions under a chief compliance officer. These divisions are responsible for compliance planning and implementation and control overall compliance management at the respective companies. At the level of each organizational unit (such as branches and divisions) at the three companies, the head of the unit is responsible for guidance and implementation related to compliance matters within such unit, and the compliance officer or the compliance administrator at each unit reviews the status of compliance.

Other core group companies such as Mizuho Trust & Banking have also established compliance structures adapted to the characteristics of their respective businesses.

Mizuho Financial Group monitors the status of compliance of the Mizuho group through reports submitted by our principal banking subsidiaries and other core group companies and adopts appropriate responses when necessary.

Compliance at subsidiaries of our principal banking subsidiaries and other core group companies is monitored and managed by their respective parent.

 

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Compliance Activities

We have established the “Mizuho Code of Conduct,” which sets forth clear and concrete standards of ethical behavior, and distributed it to all directors, senior management and employees of the Mizuho group so that they are well aware of its content and act accordingly.

Each of our group companies has also prepared a compliance manual, which serves as a practical guidebook for rigorous compliance enforcement and clarifies the laws and regulations that the group companies must observe in pursuing their business activities and the compliance activities they are required to follow.

We conduct compliance training for directors, senior management and employees so that they are fully acquainted with the contents of the manual. We monitor the status of compliance levels through self assessments conducted by individual organizational units and monitoring conducted by the compliance division of each company.

Every fiscal year, each of our group companies establishes a compliance program, which contains concrete measures for compliance enforcement such as measures related to the management of the compliance framework, training and assessments. Progress regarding the implementation of the compliance program is monitored every six months.

Internal Audit

Internal audits are designed as an integrated process, independent from other business operations, for evaluating the extent to which internal control achieves its objectives in key areas, including appropriate risk management, efficient and effective business operations, reliable financial reporting and compliance with laws, regulations and internal rules. We conduct internal audits from an objective and comprehensive standpoint, independent of operational reporting lines, and offer advice and remedial recommendations in connection with any problems that may be identified. Through this process, internal audits assist the boards of directors of each of our group companies to fulfill their managerial duties efficiently and effectively.

In line with the Basic Policy for Internal Audit established by Mizuho Financial Group, our principal banking subsidiaries and other core group companies conduct internal audits, which include the auditing of their respective subsidiaries. In addition, with respect to the management of risks applicable across the Mizuho group, we coordinate internal audits throughout the group to assess the risk management status of the group as a whole.

Internal Audit Management Structure

Mizuho Financial Group

Our internal audit committee determines all important matters concerning internal audits. The committee is chaired by our president and chief executive officer and is independent of our other business operations.

Our internal audit committee monitors and manages internal audits at our principal banking subsidiaries and other core group companies through internal audit reports submitted by such subsidiaries. Our internal audit committee discusses and makes decisions regarding internal audits at our principal banking subsidiaries and other core group companies and submits the results, together with the results of their examination of the internal audit reports, to our board of directors.

Mizuho Corporate Bank and Mizuho Bank

Mizuho Corporate Bank and Mizuho Bank have also established internal audit committees that are independent of their other business operations.

 

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Mizuho Corporate Bank and Mizuho Bank have established internal audit divisions and credit review divisions to conduct internal audits at their respective domestic and overseas business offices, head office divisions and group companies. Specifically, the internal audit divisions assess the suitability and effectiveness of business activities associated with compliance and risk management. The credit review divisions audit credit ratings and the status of credit management in addition to auditing the self-assessment of assets to verify the accuracy and suitability of matters deemed necessary to assure the soundness of assets.

Other Core Group Companies

Mizuho Trust & Banking and our other core group companies have also established effective and efficient internal audit structures adapted to the characteristics of their respective businesses.

 

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ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

12.A. Debt Securities

Not applicable.

12.B. Warrants and Rights

Not applicable.

12.C. Other Securities

Not applicable.

12.D. American Depository Shares

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The table below sets out such fees payable to the depository:

 

Persons depositing or withdrawing shares must pay:		For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)		– Execution and delivery of ADRs and the surrender of ADRs
$.02 (or less) per ADS		– Any cash distribution to ADS registered holders
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs		– Distribution of securities distributed to holders of deposited securities that are distributed by the depositary to ADS registered holders
Registration or transfer fees		– Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary		– Cable, telex and facsimile transmissions expenses (as are expressly provided in the deposit agreement) – Converting foreign currency to U.S. dollars
Taxes and other governmental charges		– As necessary
Any other charge incurred by the depositary or its agents in connection with the servicing of the deposited securities		– As necessary

The Bank of New York Mellon (“BNYM”), as depositary, has agreed to reimburse us annually for expenses related to the administration and maintenance of the depositary receipt facility including, but not limited to, investor relations expenses, legal fees, New York Stock Exchange continue listing fees or any other direct or non-direct depositary receipt program related expenses. There are limits on the amount of expenses for which the depository will reimburse us, and the terms and conditions of the annual reimbursement are subject to be reviewed by us and BNYM on an annual basis. In the fiscal year ended March 31, 2011, the depositary reimbursed us $75,000 as portion of our investor relations expenses and legal fees.

 

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PART II

ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.    CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2011. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based upon the evaluation referred to above, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures as of March 31, 2011 were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with applicable generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and

 

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management evaluated the effectiveness of our internal control over financial reporting as of March 31, 2011 based on the criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the evaluation, management has concluded that we maintained effective internal control over financial reporting as of March 31, 2011.

 

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Our independent registered public accounting firm, Ernst & Young ShinNihon LLC has issued an attestation report on our internal control over financial reporting as of March 31, 2011, which appears on page F-3.

Attestation Report of the Registered Public Accounting Firm

See the attestation report of our independent registered public accounting firm, Ernst & Young ShinNihon LLC, which appears on page F-3.

Changes in Internal Control over Financial Reporting

During the period covered by this annual report, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of corporate auditors has determined that Mr. Masahiro Seki is an “audit committee financial expert” as defined in Item 16A of Form 20-F and is “independent” as defined in the listing standards of the NYSE. Mr. Seki, a corporate auditor, has spent most of his career auditing Japanese companies that prepare their financial statements based on accounting standards generally accepted in the United States as well as multinational companies that operate in Japan and is a Japanese-qualified certified public accountant.

ITEM 16B. CODE OF ETHICS

Mizuho Financial Group has adopted a code of ethics, which is applicable to all directors and executive officers, as well as all managers and other employees of the Company who engage in financial reporting, accounting or disclosure. The code of ethics is included in this annual report as Exhibit 11.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees for Services provided by Ernst & Young ShinNihon LLC

The aggregate fees billed by Ernst & Young ShinNihon LLC, our independent registered public accounting firm, and its affiliates, for the fiscal years ended March 31, 2010 and 2011 are presented in the following table:

 

		Fiscal year ended March 31,
		2010				2011
		(in millions of yen)
Audit fees(1)		¥	4,740			¥	4,624
Audit-related fees(2)			538				490
Tax fees(3)			83				93
All other fees(4)			4				99
Total		¥	5,365			¥	5,306

 

Notes:

 

(1)	Audit fees include fees related to the audit of U.S. GAAP financial statements as well as Japanese GAAP financial statements used for home-country reporting purposes.

(2)	Audit-related fees include fees for services relating to agreed-upon procedures on internal controls, due diligence services related to our securitization business and services related to the implementation of Section 404 of the Sarbanes-Oxley Act.

(3)	Tax fees include fees for services relating to the preparation of tax returns and tax advice.

(4)	All other fees include fees for services relating to education to improve the financial business knowledge of our employees.

 

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Pre-Approval Policies and Procedures

We established the pre-approval policies and procedures required by the Sarbanes-Oxley Act on April 1, 2006. Under the procedures, Mizuho Financial Group and its subsidiaries must apply to our corporate auditors for pre-approval before entering into an agreement regarding audit and permitted non-audit services with Ernst & Young ShinNihon LLC.

We follow two types of pre-approval policies and procedures:

 

General pre-approval		General pre-approval is required for services which are expected to be performed during a given fiscal year. Our board of corporate auditors reviews the fees for each service and the maximum amount of aggregate fees that may be incurred and authorizes pre-approval at the beginning of each fiscal year.
Specific pre-approval		For those services which have not been approved pursuant to the general pre-approval procedure, specific pre-approval by our corporate auditors is required prior to each engagement. With respect to such services, two full-time corporate auditors must provide pre-approval and report such pre-approval at the monthly meeting of the board of corporate auditors.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Mizuho Financial Group does not have an audit committee. We are relying on the general exemption contained in Rule 10A-3(c)(3) under the Exchange Act, which provides an exemption from the NYSE’s listing standards relating to audit committees for foreign companies that have a board of corporate auditors that meet the requirements set forth in Rule 10A-3(c)(3). Our reliance on Rule 10A-3(c)(3) does not, in our opinion, materially adversely affect the ability of our board of corporate auditors to act independently and to satisfy the other requirements of Rule 10A-3.

 

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ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The following table sets forth purchases of our common stock by us and our affiliated purchasers during the fiscal year ended March 31, 2011:

 

		Total number of shares purchased				Average price paid per share				Total number of shares purchased as part of publicly announced plans or programs				Maximum number of shares that may yet be purchased under the plans or programs
April 1 to April 30, 2010			1,080			¥	185				—				—
May 1 to May 31, 2010			760				169				—				—
June 1 to June 30, 2010			1,254				158				—				—
July 1 to July 31, 2010			2,132				139				—				—
August 1 to August 31, 2010			2,180				139				—				—
September 1 to September 30, 2010			780				131				—				—
October 1 to October 31, 2010			1,760				121				—				—
November 1 to November 30, 2010			1,196				125				—				—
December 1 to December 31, 2010			5,710				145				—				—
January 1 to January 31, 2011			1,778				161				—				—
February 1 to February 28, 2011			1,540				167				—				—
March 1 to March 31, 2011			1,170				157				—				—
Total			21,340			¥	147				—				—

 

Note:

 

(1)

A total of 21,340 shares were purchased other than through a publicly announced plan or program during the fiscal year ended March 31, 2011, due to our purchase of shares constituting less than one (1) unit from registered holders of shares constituting less than one (1) unit at the current market price of those shares.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

ITEM 16G. CORPORATE GOVERNANCE

Our corporate governance practices are governed by applicable Japanese law, specifically the Company Law and Financial Instruments and Exchange Law of Japan, and our Articles of Incorporation. Also, because our shares are registered with the U.S. Securities and Exchange Commission and are listed on the New York Stock Exchange (“NYSE”), we are subject to corporate governance requirements applicable to NYSE-listed foreign private issuers. NYSE-listed companies that are foreign private issuers meeting certain criteria are permitted to follow home country practices in lieu of certain provision of Section 303A, and we are relying on this exemption.

 

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A NYSE-listed foreign private issuer is required to provide to its US investors, a brief, general summary of the significant differences of corporate governance practices that differ from U.S. companies under NYSE listing standards. The following is a summary of the significant ways in which our corporate governance practices differ from NYSE standards followed by U.S. companies:

 

•

A NYSE-listed U.S. company is required to have a majority of directors, and an audit committee composed entirely of directors, that meet the independence requirements under Section 303A of the NYSE’s Listed Company Manual. Under the Japanese Company Law, we are required to have a corporate governance system based on either (i) a board of corporate auditors or (ii) committees. We adopt a corporate governance system based on a board of corporate auditors. The basic function of the board of corporate auditors is similar to that of independent directors, including those who are members of the audit committee, of a NYSE-listed U.S. company, i.e., to monitor the performance of the directors and review and express opinions on the method of auditing by the independent public accounting firm and on such accounting firm’s audit reports for the protection of the company’s shareholders. Under the Company Law, we are required to have at least half of our corporate auditors be outside corporate auditors who meet the independence requirements under the Company Law. Currently, three of our five corporate auditors are outside corporate auditors who meet such independence requirements. In addition, none of the corporate auditors may at the same time be directors, managers or employees of the company or any subsidiaries, or accounting participants or executive officers of such subsidiaries. While the Company Law does not require corporate auditors to have expertise in accounting or other special knowledge and experience, one of our corporate auditors is a certified public accountant We rely on an exemption from the audit committee requirements imposed by Rule 10A-3 of the U.S. Securities Exchange Act of 1934, as amended, which is available to foreign private issuers with a board of auditors (or similar body) meeting specified criteria. With respect to our board of corporate auditors, the criteria that we meet include the following:

 

•

responsible, to the extent permitted by law, for the appointment, retention and supervision of the work of a registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for us;

 

•

subject to procedures for the receipt, retention and treatment of complaints and the confidential, anonymous submission of concerns by employees regarding the status of our internal control system on accounting and financial reporting and internal and external audits;

 

•

each corporate auditor has the authority to engage independent counsel and other advisers if such engagement is necessary to carry out his or her duties; and

 

•

each corporate auditor has the ability to require us to pay any and all expenses necessary for carrying out his or her duties.

Under the Company Law, companies that adopt a corporate governance system based on a board of corporate auditors, such as us, are not required to maintain directors that are outside directors who meet the independence requirements under the Company Law. However, three of our nine directors are outside directors who meet such requirements.

 

•

A NYSE-listed U.S. company is required to have a nominating/corporate governance committee and a compensation committee, all of which must be composed entirely of independent directors. While we, a company that has corporate auditors, are not required to establish a nominating committee or a compensation committee under Japanese law, we voluntarily established similar committees, each with three outside directors and the president, to advise the board of directors on these matters in order to ensure transparency and impartiality in matters of personnel decisions affecting the board of directors and directors’ compensation.

 

•

A NYSE-listed U.S. company must hold regularly scheduled executive sessions where participants are limited to non-management directors. Under the Company Law, Japanese corporations are not obliged to hold executive sessions where participants are limited to non-management directors.

 

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•

The Company Law of Japan requires that the aggregate amount of remuneration to be paid to all directors and the aggregate amount of remuneration to be paid to all corporate auditors to be determined by a resolution of a general meeting of shareholders, unless their remuneration is provided for in the articles of incorporation. Such remuneration includes bonuses, retirement allowances and incentive stock options. Based on the above resolution, the distribution of remuneration among directors is broadly delegated to our board of directors, which takes into consideration of the advisory opinion by the compensation committee, and the distribution of remuneration among corporate auditors is determined by consultation among our corporate auditors.

 

•

A NYSE-listed U.S. company must adopt a code of business conduct and ethics and must post the code on its website. While we are not required to adopt such code under Japanese law or the rules of stock exchanges in Japan on which we are listed, we maintain the “Mizuho Code of Conduct” as our standard for corporate conduct to be observed by our directors, officers and employees.

 

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PART III

 

ITEM 17.    FINANCIAL

STATEMENTS

We have elected to provide the financial statements and related information specified in Item 18.

 

ITEM 18.    FINANCIAL

STATEMENTS

The information required by this item is set forth in our consolidated financial statements starting on page F-1 of this annual report.

 

ITEM 19.    EXHIBITS

 

Exhibit Number				Description of Exhibits
	1.1			Articles of Incorporation of Mizuho Financial Group, Inc., dated June 29, 2011 (English Translation)
	1.2			Bylaws Regarding the Board of Directors of Mizuho Financial Group, Inc., effective from January 8, 2003 and as amended on June 8, 2003 and amended on June 27, 2006 (English Translation)*
	1.3			Regulations of Board of Corporate Auditors of Mizuho Financial Group, Inc., effective from January 9, 2003 and as amended on September 25, 2006 (English Translation)*
	1.4			Share Handling Regulations of Mizuho Financial Group, Inc., dated January 6, 2010 (English Translation)**
	2.1			Form of American Depositary Receipt***
	2.2			Form of Deposit Agreement among the registrant, The Bank of New York Mellon (formerly The Bank of New York) as Depositary and all owners and holders from time to time of American Depositary Receipts issued thereunder*
	8			List of significant subsidiaries of Mizuho Financial Group, Inc.—see “Item 4.C. Information on the Company—Organizational Structure.”
	11			Code of Ethics of Mizuho Financial Group, Inc.****
	12.1			CEO Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).
	12.2			CFO Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).
	13.1			Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

 

*	Incorporated by reference to our registration statement on Form 20-F (No. 001-33098) filed on October 19, 2006.

**	Incorporated by reference to our annual report on Form 20-F (No. 001-33098) filed on July 29, 2010.

***	Incorporated by reference to our annual report on Form 20-F (No. 001-33098) filed on August 19, 2009.

****	Incorporated by reference to our annual report on Form 20-F (No. 001-33098) filed on August 10, 2007.

 

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SELECTED STATISTICAL DATA

In preparing the selected statistical data set forth below, foreign activities are defined as business transactions that involve customers residing outside of Japan. However, as the operations of Mizuho Financial Group, Inc. and its subsidiaries (“the MHFG Group” or “the Group”) are highly integrated globally, the MHFG Group has made certain estimates and assumptions in allocating assets, liabilities, income and expense between domestic and foreign operations. The Group considers domestic and foreign activities determined by such methods to be representative of the Group’s operations.

 

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I. Distribution of assets, liabilities and equity; interest rates and interest differential

Average balances of balance sheet items, interest and dividend income, interest expense and average yields and rates

The following tables show the MHFG Group’s average balances of balance sheet items, Interest and dividend income, Interest expense, average yields on interest-earning assets, and average rates on interest-bearing liabilities for the fiscal years ended March 31, 2009, 2010 and 2011. Average balances are generally based on a daily average. Month-end or quarter-end averages are used for certain average balances where it is not practicable to obtain applicable daily averages. The average balances determined by such methods are considered to be representative of the MHFG Group’s operations.

 

		2009												2010												2011
		Average balance				Interest and dividend income				Average yield				Average balance				Interest and dividend income				Average yield				Average balance				Interest and dividend income				Average yield
		(in billions of yen, except percentages)
Assets:
Interest-earning assets:
Interest-bearing deposits in other banks:
Domestic			1,903				12				0.63	%			176				1				0.56	%			371				1				0.27	%
Foreign			942				26				2.76	%			1,056				8				0.78	%			1,020				8				0.75	%
Total			2,845				38				1.34	%			1,232				9				0.75	%			1,391				9				0.62	%
Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions:
Domestic			6,988				40				0.57	%			5,712				10				0.17	%			6,264				10				0.16	%
Foreign			8,739				169				1.93	%			8,412				38				0.45	%			8,772				44				0.50	%
Total			15,727				209				1.33	%			14,124				48				0.34	%			15,036				54				0.36	%
Trading account assets:
Domestic			7,223				37				0.52	%			7,561				37				0.49	%			8,980				33				0.37	%
Foreign			7,619				250				3.28	%			7,669				167				2.18	%			7,848				170				2.17	%
Total			14,842				287				1.94	%			15,230				204				1.34	%			16,828				203				1.21	%
Investments:
Domestic			27,426				264				0.96	%			33,275				229				0.69	%			36,967				214				0.58	%
Foreign			2,669				103				3.85	%			2,335				49				2.10	%			1,663				34				2.04	%
Total			30,095				367				1.22	%			35,610				278				0.78	%			38,630				248				0.64	%
Loans (1):
Domestic			59,387				1,019				1.72	%			57,074				864				1.51	%			54,287				759				1.40	%
Foreign			10,670				464				4.35	%			10,206				229				2.25	%			9,297				187				2.01	%
Total			70,057				1,483				2.12	%			67,280				1,093				1.63	%			63,584				946				1.49	%
Total interest-earning assets:
Domestic			102,927				1,372				1.33	%			103,798				1,141				1.10	%			106,869				1,017				0.95	%
Foreign			30,639				1,012				3.30	%			29,678				491				1.66	%			28,600				443				1.55	%
Total			133,566				2,384				1.79	%			133,476				1,632				1.22	%			135,469				1,460				1.08	%
Noninterest-earning assets:
Cash and due from banks			1,713												2,959												2,757
Other noninterest-earning assets (2)			19,758												22,935												21,940
Allowance for loan losses			(904	)											(1,062	)											(1,029	)
Total noninterest-earning assets			20,567												24,832												23,668
Total average assets			154,133												158,308												159,137

 

Notes:

(1)	Average balances of loans include all nonaccrual loans. The amortized portion of net loan origination fees (costs) is included in interest income on loans.

(2)	The fair value carrying amounts of derivative contracts are reported in Other noninterest-earning assets.

Within total average assets, the percentage attributable to foreign activities was 25.6%, 25.9% and 24.0%, respectively, for the fiscal years ended March 31, 2009, 2010 and 2011.

 

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		2009												2010												2011
		Average balance				Interest expense				Average rate				Average balance				Interest expense				Average rate				Average balance				Interest expense				Average rate
		(in billions of yen, except percentages)
Liabilities and equity:
Interest-bearing liabilities:
Deposits:
Domestic			67,047				287				0.43	%			66,946				137				0.21	%			68,060				86				0.13	%
Foreign			7,250				200				2.75	%			7,794				58				0.74	%			8,048				48				0.60	%
Total			74,297				487				0.66	%			74,740				195				0.26	%			76,108				134				0.18	%
Debentures—Domestic			2,755				18				0.64	%			1,938				12				0.62	%			1,150				7				0.57	%
Short-term borrowings (1):
Domestic			22,803				150				0.66	%			23,775				48				0.20	%			22,270				37				0.17	%
Foreign			11,871				225				1.89	%			11,600				34				0.30	%			12,312				49				0.40	%
Total			34,674				375				1.08	%			35,375				82				0.23	%			34,582				86				0.25	%
Trading account liabilities:
Domestic			3,475				7				0.19	%			3,218				10				0.32	%			4,210				14				0.34	%
Foreign			1,143				11				1.00	%			1,115				21				1.84	%			1,089				17				1.58	%
Total			4,618				18				0.39	%			4,333				31				0.71	%			5,299				31				0.59	%
Long-term debt:
Domestic			6,506				178				2.73	%			6,972				194				2.79	%			8,129				186				2.29	%
Foreign			889				26				2.92	%			842				14				1.63	%			482				5				0.95	%
Total			7,395				204				2.75	%			7,814				208				2.66	%			8,611				191				2.22	%
Total interest-bearing liabilities:
Domestic			102,586				640				0.62	%			102,849				401				0.39	%			103,819				330				0.32	%
Foreign			21,153				462				2.18	%			21,351				127				0.59	%			21,931				119				0.54	%
Total			123,739				1,102				0.89	%			124,200				528				0.43	%			125,750				449				0.36	%
Noninterest-bearing liabilities (2)			27,524												31,308												29,829
Equity			2,870												2,800												3,558
Total average liabilities and equity			154,133												158,308												159,137
Net interest income and average interest rate spread							1,282				0.90	%							1,104				0.79	%							1,011				0.72	%
Net interest income as a percentage of average total interest-earning assets											0.96	%											0.83	%											0.75	%

 

Notes:

(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.

(2)	The fair value carrying amounts of derivative contracts are reported in Noninterest-bearing liabilities.

Within total average liabilities, which is the total of interest-bearing liabilities and noninterest-bearing liabilities shown in the above table, the percentage attributable to foreign activities was 21.3%, 22.1% and 20.1%, respectively, for the fiscal years ended March 31, 2009, 2010 and 2011.

 

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Analysis of net interest income

The following tables show changes in the MHFG Group’s Interest and dividend income, Interest expense, and Net interest income based on changes in volume and changes in rate for the fiscal year ended March 31, 2010 compared to the fiscal year ended March 31, 2009 and the fiscal year ended March 31, 2011 compared to the fiscal year ended March 31, 2010. Changes attributable to the combined impact of changes in rate and volume have been allocated proportionately to the changes due to volume changes and changes due to rate changes.

 

		Fiscal year ended March 31, 2010 versus fiscal year ended March 31, 2009												Fiscal year ended March 31, 2011 versus fiscal year ended March 31, 2010
		Increase (decrease) due to changes in								Net change				Increase (decrease) due to changes in								Net change
		Volume				Yield								Volume				Yield
		(in billions of yen)
Interest and dividend income:
Interest-bearing deposits in other banks:
Domestic			(10	)			(1	)			(11	)			1				(1	)			—
Foreign			1				(19	)			(18	)			—				—				—
Total			(9	)			(20	)			(29	)			1				(1	)			—
Call loans and funds sold, and receivables under resale agreements and securities borrowing transactions:
Domestic			(6	)			(24	)			(30	)			—				—				—
Foreign			(6	)			(125	)			(131	)			2				4				6
Total			(12	)			(149	)			(161	)			2				4				6
Trading account assets:
Domestic			2				(2	)			—				5				(9	)			(4	)
Foreign			1				(84	)			(83	)			3				—				3
Total			3				(86	)			(83	)			8				(9	)			(1	)
Investments:
Domestic			41				(76	)			(35	)			21				(36	)			(15	)
Foreign			(12	)			(42	)			(54	)			(13	)			(2	)			(15	)
Total			29				(118	)			(89	)			8				(38	)			(30	)
Loans:
Domestic			(39	)			(116	)			(155	)			(41	)			(64	)			(105	)
Foreign			(19	)			(216	)			(235	)			(19	)			(23	)			(42	)
Total			(58	)			(332	)			(390	)			(60	)			(87	)			(147	)
Total interest and dividend income:
Domestic			(12	)			(219	)			(231	)			(14	)			(110	)			(124	)
Foreign			(35	)			(486	)			(521	)			(27	)			(21	)			(48	)
Total			(47	)			(705	)			(752	)			(41	)			(131	)			(172	)

 

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		Fiscal year ended March 31, 2010 versus fiscal year ended March 31, 2009												Fiscal year ended March 31, 2011 versus fiscal year ended March 31, 2010
		Increase (decrease) due to changes in								Net change				Increase (decrease) due to changes in								Net change
		Volume				Rate								Volume				Rate
		(in billions of yen)
Interest expense:
Deposits:
Domestic			—				(150	)			(150	)			1				(52	)			(51	)
Foreign			4				(146	)			(142	)			2				(12	)			(10	)
Total			4				(296	)			(292	)			3				(64	)			(61	)
Debentures—Domestic			(5	)			(1	)			(6	)			(4	)			(1	)			(5	)
Short-term borrowings:
Domestic			2				(104	)			(102	)			(3	)			(8	)			(11	)
Foreign			(5	)			(186	)			(191	)			3				12				15
Total			(3	)			(290	)			(293	)			—				4				4
Trading account liabilities:
Domestic			—				3				3				3				1				4
Foreign			—				10				10				—				(4	)			(4	)
Total			—				13				13				3				(3	)			—
Long-term debt:
Domestic			12				4				16				27				(35	)			(8	)
Foreign			(1	)			(11	)			(12	)			(5	)			(4	)			(9	)
Total			11				(7	)			4				22				(39	)			(17	)
Total interest expense:
Domestic			9				(248	)			(239	)			24				(95	)			(71	)
Foreign			(2	)			(333	)			(335	)			—				(8	)			(8	)
Total			7				(581	)			(574	)			24				(103	)			(79	)
Net interest income:
Domestic			(21	)			29				8				(38	)			(15	)			(53	)
Foreign			(33	)			(153	)			(186	)			(27	)			(13	)			(40	)
Total			(54	)			(124	)			(178	)			(65	)			(28	)			(93	)

 

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II. Investment portfolio

The following table shows amortized cost, fair value and net unrealized gains (losses) of available-for-sale and held-to-maturity securities at March 31, 2009, 2010 and 2011:

 

		2009												2010												2011
		Amortized cost				Fair value				Net unrealized gains (losses)				Amortized cost				Fair value				Net unrealized gains (losses)				Amortized cost				Fair value				Net unrealized gains (losses)
		(in billions of yen)
Available-for-sale securities:
Domestic:
Japanese government bonds			18,450				18,458				8				28,272				28,229				(43	)			29,280				29,213				(67	)
Agency mortgage-backed securities (1)			160				157				(3	)			474				477				3				687				682				(5	)
Corporate bonds and other debt securities			4,735				4,717				(18	)			4,406				4,428				22				4,543				4,553				10
Equity securities (marketable)			2,221				2,854				633				1,972				3,248				1,276				1,907				2,820				913
Total domestic			25,566				26,186				620				35,124				36,382				1,258				36,417				37,268				851
Foreign:
U.S. Treasury bonds			190				194				4				112				112				—				129				129				—
Other foreign gov’t bonds			182				182				—				318				319				1				290				290				—
Agency mortgage-backed securities (2)			48				49				1				56				58				2				82				82				—
Corporate bonds and other debt securities			946				928				(18	)			870				894				24				745				767				22
Equity securities (marketable)			16				16				—				35				36				1				12				13				1
Total foreign			1,382				1,369				(13	)			1,391				1,419				28				1,258				1,281				23
Total			26,948				27,555				607				36,515				37,801				1,286				37,675				38,549				874
Held-to-maturity securities:
Domestic:
Japanese government bonds			50				50				—				600				604				4				1,201				1,207				6
Corporate bonds and other debt securities			11				11				—				3				3				—				1				1				—
Total domestic			61				61				—				603				607				4				1,202				1,208				6
Foreign:
U.S. Treasury bonds			118				119				1				—				—				—				—				—				—
Total foreign			118				119				1				—				—				—				—				—				—
Total			179				180				1				603				607				4				1,202				1,208				6

 

Notes:

(1)	All of domestic agency mortgage-backed securities are mortgage-backed securities issued by Japan Housing Finance Agency, a Japanese government-sponsored enterprise.

(2)	Foreign agency mortgage-backed securities primarily consist of Government National Mortgage Association or Ginnie Mae securities, which are guaranteed by the United States government.

 

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The following table shows the book values, contractual maturities and weighted average yields of available-for-sale and held-to-maturity debt securities at March 31, 2011. Fair value and amortized cost are the basis of the book value for available-for-sale and held-to-maturity debt securities, respectively. Weighted average yields are calculated based on amortized cost for all debt securities.

 

		Maturity
		One year or less								After one year through five years								After five years through ten years								After ten years								Total
		Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield				Amount				Yield
		(in billions of yen, except percentages)
Available-for-sale securities:
Domestic:
Japanese government bonds			14,217				0.20	%			12,144				0.31	%			2,535				0.59	%			317				1.14	%			29,213				0.29	%
Agency mortgage-backed securities			—				—	%			—				—	%			—				—	%			682				1.74	%			682				1.74	%
Corporate bonds and other debt securities			742				0.45	%			2,346				0.87	%			601				0.98	%			864				2.00	%			4,553				1.03	%
Total domestic			14,959				0.22	%			14,490				0.40	%			3,136				0.66	%			1,863				1.75	%			34,448				0.42	%
Foreign:
U.S. Treasury bonds			5				0.88	%			124				1.08	%			—				—	%			—				—	%			129				1.08	%
Other foreign gov’t bonds			253				1.57	%			36				2.02	%			1				4.27	%			—				—	%			290				1.64	%
Agency mortgage-backed securities			—				—	%			—				—	%			—				—	%			82				4.46	%			82				4.46	%
Corporate bonds and other debt securities			289				2.54	%			220				1.33	%			192				0.52	%			66				1.28	%			767				1.59	%
Total foreign			547				2.07	%			380				1.31	%			193				0.54	%			148				3.04	%			1,268				1.74	%
Total			15,506				0.28	%			14,870				0.42	%			3,329				0.66	%			2,011				1.85	%			35,716				0.46	%
Held-to-maturity securities:
Domestic:
Japanese government bonds			—				—	%			1,201				0.56	%			—				—	%			—				—	%			1,201				0.56	%
Corporate bonds and other debt securities			—				—	%			1				1.47	%			—				—	%			—				—	%			1				1.47	%
Total domestic			—				—	%			1,202				0.56	%			—				—	%			—				—	%			1,202				0.56	%
Total			—				—	%			1,202				0.56	%			—				—	%			—				—	%			1,202				0.56	%

Other than Japanese government bonds and Japanese agency mortgage-backed securities issued by Japan Housing Finance Agency, the MHFG Group held the following securities of individual issuers with respect to which their aggregate book value exceeded 10% of the Group’s shareholders’ equity at March 31, 2011:

 

Book value

Equity securities

Debt securities

In aggregate  (Note)

(in billions of yen)

Deposit Insurance Corporation of Japan

—

678

678

 

Note: The aggregate book value approximates the aggregate fair value.

In addition to Available-for-sale securities and Held-to-maturity securities, the MHFG Group’s Investments also include Other investments. See Note 5 “Investments” to the consolidated financial statements included elsewhere in this annual report for information regarding Other investments.

 

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III. Loan portfolio

Types of loans

The following table shows loans outstanding by domicile and industry of borrower at March 31, 2007, 2008, 2009, 2010 and 2011.

 

		2007				2008				2009				2010				2011
		(in billions of yen)
Domestic:
Manufacturing			7,649				7,794				8,903				8,065				7,617
Construction and real estate			9,003				8,846				8,608				7,854				7,308
Services			5,885				5,460				5,324				5,153				4,287
Wholesale and retail			6,361				6,069				5,978				5,306				5,314
Transportation and communications			3,506				3,339				3,500				3,237				3,228
Banks and other financial institutions			4,141				4,086				4,727				4,290				3,908
Government and public institutions			6,099				5,807				8,655				5,459				7,154
Other industries (1)			4,724				4,374				3,852				3,332				3,759
Individuals:
Mortgage loans			10,677				10,791				11,067				11,093				11,436
Other			1,039				893				832				789				745
Total domestic			59,084				57,459				61,446				54,578				54,756
Foreign:
Commercial and industrial			7,964				8,815				8,680				7,237				6,965
Banks and other financial institutions			1,675				1,545				2,224				1,722				2,588
Government and public institutions			366				415				301				292				453
Other (1)			185				94				94				32				9
Total foreign			10,190				10,869				11,299				9,283				10,015
Total			69,274				68,328				72,745				63,861				64,771
Less: Unearned income and deferred loan fees—net			91				106				88				78				81
Total loans before allowance for loan losses			69,183				68,222				72,657				63,783				64,690

 

Notes:

(1)	Other industries of domestic and other of foreign include trade receivables and lease receivables of consolidated variable interest entities.

(2)

The MHFG Group partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20, “Receivables (Topic 310)—Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU No.2010-20”) which the Group adopted in the fiscal year ended March 31, 2011. Certain amounts in the prior periods have been reclassified to conform to the current period’s presentation.

There were no concentrations of loans exceeding 10% of total loans which are not disclosed as a category of loans in the table above.

 

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Maturities and sensitivities of loans to changes in interest rates

The following table shows the maturities of loan portfolio by domicile and industry of borrower at March 31, 2011:

 

		Maturity
		One year or less				After one year through five years				After five years				Total
		(in billions of yen)
Domestic:
Manufacturing			4,222				2,931				464				7,617
Construction and real estate			2,694				3,121				1,493				7,308
Services			2,016				1,817				454				4,287
Wholesale and retail			3,468				1,603				243				5,314
Transportation and communications			1,263				1,688				277				3,228
Banks and other financial institutions			2,575				992				341				3,908
Government and public institutions			6,008				612				534				7,154
Other industries			2,434				605				720				3,759
Individuals			1,442				2,475				8,264				12,181
Total domestic			26,122				15,844				12,790				54,756
Foreign:
Total foreign			4,126				4,316				1,573				10,015
Total			30,248				20,160				14,363				64,771

 

Note:

The MHFG Group partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which the Group adopted in the fiscal year ended March 31, 2011.

Of the above loans due after one year, loans which had floating rates and fixed rates at March 31, 2011 were as follows:

 

		(in billions of yen)
Floating rates			26,088
Fixed rates			8,435
Total			34,523

 

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Impaired loans

The MHFG Group considers loans to be impaired when it is probable that the Group will be unable to collect all the scheduled payments of principal and interest when due according to the contractual terms of the loan. The MHFG Group determines loans to special attention, intensive control, substantially bankrupt and bankrupt obligors as impaired loans, and all of the Group’s impaired loans are designated as nonaccrual loans. The following table shows the distribution of impaired loans at March 31, 2007, 2008, 2009, 2010 and 2011 by domicile and industry of borrower:

 

		2007				2008				2009				2010				2011
		(in billions of yen)
Domestic:
Manufacturing			97				161				213				270				309
Construction and real estate			190				194				396				302				265
Services			168				200				213				181				108
Wholesale and retail			217				243				160				159				177
Transportation and communications			378				126				142				139				54
Banks and other financial institutions			293				178				26				21				3
Other industries			2				1				2				1				1
Individuals			137				146				165				201				290
Total domestic			1,482				1,249				1,317				1,274				1,207
Foreign:
Total foreign			47				46				115				130				116
Total impaired loans			1,529				1,295				1,432				1,404				1,323

 

Note:

The MHFG Group partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which the Group adopted in the fiscal year ended March 31, 2011. Certain amounts in the prior periods have been reclassified to conform to the current period’s presentation.

Had interest on nonaccrual loans been accrued at the original contractual terms, gross interest income on domestic nonaccrual loans outstanding during the fiscal year ended March 31, 2011 would have been ¥32 billion, of which ¥21 billion was included in interest income on loans in the consolidated statements of income. Gross interest income which would have been accrued at the original contractual terms on foreign nonaccrual loans outstanding during the fiscal year ended March 31, 2011 was ¥5 billion, of which ¥4 billion was included in interest income on loans in the consolidated statements of income.

 

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Cross-border outstandings

Cross-border outstandings are defined as loans (including accrued interest), acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets denominated in Japanese yen or other non-local currencies. This cross-border disclosure is based on the reports to the Bank of Japan required under Japanese foreign exchange-related law. Local currency outstandings are netted out from cross-border outstandings.

The following table sets forth the cross-border outstandings to borrowers in countries with respect to which the total of such outstandings exceeded 0.75% of consolidated total assets at March 31, 2009:

 

		Public institutions				Banks				Others				Total				% of total assets				Undrawn commitments
		(in billions of yen, except percentages)
United States			1,416				1,205				1,602				4,223				2.72	%			1,837
Germany			1,923				364				217				2,504				1.61	%			203
France			223				799				233				1,255				0.81	%			260
United Kingdom			17				368				820				1,205				0.78	%			346

The following table sets forth the cross-border outstandings to borrowers in countries with respect to which the total of such outstandings exceeded 0.75% of consolidated total assets at March 31, 2010:

 

		Public institutions				Banks				Others				Total				% of total assets				Undrawn commitments
		(in billions of yen, except percentages)
United States			2,548				509				1,672				4,729				2.99	%			1,822
Germany			3,100				114				163				3,377				2.13	%			172
France			964				288				245				1,497				0.95	%			268

The following table sets forth the cross-border outstandings to borrowers in countries with respect to which the total of such outstandings exceeded 0.75% of consolidated total assets at March 31, 2011:

 

		Public institutions				Banks				Others				Total				% of total assets				Undrawn commitments
		(in billions of yen, except percentages)
United States			2,400				432				2,121				4,953				3.06	%			1,844
Germany			1,314				157				111				1,582				0.98	%			159

 

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IV. Summary of loan loss experience

The following table shows an analysis of loan loss experience by domicile and industry of borrower for the fiscal years ended March 31, 2007, 2008, 2009, 2010, and 2011:

 

		2007				2008				2009				2010				2011
		(in billions of yen, except percentages)
Allowance for loan losses at beginning of fiscal year			812				946				650				870				880
Provision (credit) for loan losses			182				(58	)			567				222				1
Charge-offs:
Domestic:
Manufacturing			11				31				39				17				20
Construction and real estate			8				12				117				56				20
Services			18				89				18				17				20
Wholesale and retail			26				41				57				48				28
Transportation and communications			5				16				12				26				59
Banks and other financial institutions			6				53				19				1				1
Other industries			—				1				1				2				1
Individuals			18				17				24				27				17
Total domestic			92				260				287				194				166
Total foreign			19				11				57				66				19
Total charge-offs			111				271				344				260				185
Recoveries:
Domestic:
Manufacturing			3				2				3				7				7
Construction and real estate			5				15				4				25				14
Services			13				7				2				3				5
Wholesale and retail			5				7				4				5				5
Transportation and communications			1				1				2				1				1
Banks and other financial institutions			—				4				—				4				1
Other industries			2				—				1				—				—
Individuals			3				3				3				3				2
Total domestic			32				39				19				48				35
Total foreign			26				8				10				6				13
Total recoveries			58				47				29				54				48
Net charge-offs			53				224				315				206				137
Others (1)			5				(14	)			(32	)			(6	)			(9	)
Balance at end of fiscal year			946				650				870				880				735
Ratio of net charge-offs to average loans outstanding			0.08	%			0.33	%			0.45	%			0.31	%			0.22	%

 

Notes:

(1)	Others include primarily foreign exchange translation.

(2)

The MHFG Group partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which the Group adopted in the fiscal year ended March 31, 2011. Certain amounts in the prior periods have been reclassified to conform to the current period’s presentation.

 

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The following table shows an allocation of the MHFG Group’s allowance for loan losses by domicile and industry of borrower at March 31, 2007, 2008, 2009, 2010 and 2011:

 

		2007								2008								2009								2010								2011
		Amount				% of loans in each category to total loans				Amount				% of loans in each category to total loans				Amount				% of loans in each category to total loans				Amount				% of loans in each category to total loans				Amount				% of loans in each category to total loans
		(in billions of yen, except percentages)
Domestic:
Manufacturing			61				11.06	%			75				11.43	%			124				12.26	%			165				12.63	%			155				11.76	%
Construction and real estate			87				11.77	%			80				11.59	%			157				10.54	%			128				12.29	%			104				11.28	%
Services			107				8.83	%			90				8.15	%			111				7.39	%			96				8.07	%			55				6.62	%
Wholesale and retail			116				9.18	%			117				8.93	%			106				8.26	%			102				8.31	%			103				8.20	%
Transportation and communications			147				5.06	%			47				4.89	%			72				4.81	%			95				5.07	%			34				4.98	%
Banks and other financial institutions			219				6.19	%			74				6.37	%			27				6.92	%			29				6.72	%			15				6.03	%
Other industries (1)			8				15.35	%			4				14.69	%			9				17.04	%			8				13.77	%			12				16.86	%
Individuals			152				17.85	%			119				18.04	%			121				17.25	%			128				18.60	%			150				18.81	%
Mortgage loans			115				15.92	%			86				16.28	%			89				15.65	%			101				17.37	%			120				17.66	%
Other			37				1.93	%			33				1.76	%			32				1.60	%			27				1.23	%			30				1.15	%
Total domestic			897				85.29	%			606				84.09	%			727				84.47	%			751				85.46	%			628				84.54	%
Total foreign			49				14.71	%			44				15.91	%			143				15.53	%			129				14.54	%			107				15.46	%
Total allowance for loan losses			946				100.00	%			650				100.00	%			870				100.00	%			880				100.00	%			735				100.00	%

 

Notes:

(1)	Other industries include government and public institutions.

(2)

The MHFG Group partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which the Group adopted in the fiscal year ended March 31, 2011. Certain amounts in the prior periods have been reclassified to conform to the current period’s presentation.

 

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V. Deposits

The following table shows the average amount of, and the average rate on, the following deposit categories for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		2009								2010								2011
		Average amount				Average rate				Average amount				Average rate				Average amount				Average rate
		(in billions of yen, except percentages)
Domestic offices:
Noninterest-bearing demand deposits			9,595				—	%			9,865				—	%			9,582				—	%
Interest-bearing demand deposits			27,532				0.17	%			27,744				0.04	%			28,828				0.03	%
Deposits at notice (Note)			572				0.15	%			638				0.04	%			668				0.03	%
Time deposits			28,995				0.60	%			29,741				0.35	%			29,070				0.22	%
Certificates of deposit			9,948				0.65	%			8,823				0.23	%			9,494				0.13	%
Foreign offices, principally from banks located in foreign countries:
Noninterest-bearing demand deposits			429				—	%			479				—	%			530				—	%
Interest-bearing deposits, principally time deposits			6,521				2.68	%			6,491				0.75	%			6,536				0.56	%
Certificates of deposit			729				3.44	%			1,303				0.69	%			1,512				0.79	%
Total			84,321				0.58	%			85,084				0.23	%			86,220				0.16	%

 

Note:

Deposits at notice represent interest-bearing demand deposits which require the depositor to give two or more days notice in advance of withdrawal.

The amounts of total deposits by foreign depositors in domestic offices at March 31, 2009, 2010 and 2011 were ¥627 billion, ¥366 billion and ¥471 billion, respectively.

At March 31, 2011, the balance and remaining maturities of time deposits and certificates of deposit issued by domestic offices in amounts of ¥10 million (approximately US$121 thousand at the Federal Reserve Bank of New York’s noon buying rate on March 31, 2011) or more as well as the balance of those deposits issued by foreign offices in amounts of US$100,000 or more are shown in the following table:

 

		Time deposits				Certificates of deposit				Total
		(in billions of yen)
Domestic offices:
Due in three months or less			8,529				7,549				16,078
Due after three months through six months			4,207				281				4,488
Due after six months through twelve months			3,458				22				3,480
Due after twelve months			1,462				1				1,463
Total			17,656				7,853				25,509
Foreign offices			6,166				1,797				7,963
Total			23,822				9,650				33,472

 

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VI. Short-term borrowings

The following table shows certain additional information with respect to the MHFG Group’s short-term borrowings for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		2009				2010				2011
		(in billions of yen, except percentages)
Due to trust accounts:
Average balance outstanding during the fiscal year			1,058				1,041				781
Maximum balance outstanding at any month-end during the fiscal year			1,230				1,304				678
Balance at end of fiscal year			986				1,025				629
Weighted average interest rate during the fiscal year			0.64	%			0.47	%			0.23	%
Weighted average interest rate on balance at end of fiscal year			0.53	%			0.43	%			0.20	%
Call money and funds purchased, and payables under repurchase agreements and securities lending transactions:
Average balance outstanding during the fiscal year			25,855				25,119				25,581
Maximum balance outstanding at any month-end during the fiscal year			28,255				27,347				26,757
Balance at end of fiscal year			19,936				24,687				22,201
Weighted average interest rate during the fiscal year			1.18	%			0.23	%			0.28	%
Weighted average interest rate on balance at end of fiscal year			0.38	%			0.14	%			0.22	%
Commercial paper and other short-term borrowings:
Average balance outstanding during the fiscal year			7,761				9,215				8,220
Maximum balance outstanding at any month-end during the fiscal year			9,561				9,930				15,151
Balance at end of fiscal year			8,715				9,046				15,151
Weighted average interest rate during the fiscal year			0.81	%			0.22	%			0.15	%
Weighted average interest rate on balance at end of fiscal year			0.41	%			0.15	%			0.16	%

 

A-15

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Table of Contents

MIZUHO FINANCIAL GROUP, INC.

Index to Consolidated Financial Statements

 

		Page
Consolidated Financial Statements of Mizuho Financial Group, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as of March 31, 2010 and 2011			F-4
Consolidated Statements of Income for the fiscal years ended March 31, 2009, 2010 and 2011			F-6
Consolidated Statements of Comprehensive Income for the fiscal years ended March  31, 2009, 2010 and 2011			F-7
Consolidated Statements of Equity for the fiscal years ended March 31, 2009, 2010 and 2011			F-8
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2009, 2010 and 2011			F-10
Notes to Consolidated Financial Statements			F-12

 

F-1

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Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

of Mizuho Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of Mizuho Financial Group, Inc. and subsidiaries (the “Company”) as of March 31, 2011 and 2010, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended March 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mizuho Financial Group, Inc. and subsidiaries at March 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 20, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young ShinNihon LLC

Tokyo, Japan

July 20, 2011

 

F-2

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Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

of Mizuho Financial Group, Inc.

We have audited Mizuho Financial Group, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting as of March 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Mizuho Financial Group, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2011, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Mizuho Financial Group, Inc. and subsidiaries as of March 31, 2011 and 2010, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended March 31, 2011 and our report dated July 20, 2011 expressed an unqualified opinion thereon.

/s/ Ernst & Young ShinNihon LLC

Tokyo, Japan

July 20, 2011

 

F-3

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Table of Contents

MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2010 AND 2011

 

		2010				2011
		(in millions of yen)
Assets:
Cash and due from banks (Note 10)			3,399,459				1,884,531
Interest-bearing deposits in other banks (Note 10)			2,027,054				8,239,661
Call loans and funds sold			607,017				382,279
Receivables under resale agreements			7,131,621				7,467,557
Receivables under securities borrowing transactions			5,744,901				6,541,512
Trading account assets (including assets pledged that secured parties are permitted to sell or repledge of ¥7,750,764 million in 2010 and ¥6,488,316 million in 2011) (Notes 4, 10 and 29)			31,527,969				28,105,899
Investments (Notes 5, 10 and 29):
Available-for-sale securities (including assets pledged that secured parties are permitted to sell or repledge of ¥3,766,797 million in 2010 and ¥2,713,538 million in 2011)			37,801,365				38,548,941
Held-to-maturity securities			603,379				1,202,123
Other investments			847,928				952,576
Loans (Notes 6, 7, 10 and 29)			63,782,851				64,689,814
Allowance for loan losses			(879,433	)			(734,530	)
Loans, net of allowance			62,903,418				63,955,284
Premises and equipment—net (Note 8)			1,047,917				1,114,204
Due from customers on acceptances			51,010				73,909
Accrued income			265,747				237,791
Goodwill (Note 9)			15,016				7,610
Intangible assets (Notes 3 and 9)			80,994				75,767
Deferred tax assets (Note 21)			826,157				854,477
Other assets (Notes 6, 10, 15, 22 and 29)			3,470,504				2,341,549
Total assets			158,351,456				161,985,670

The following table presents certain assets of consolidated VIEs, which are included in the consolidated balance sheets above. The assets in the table below include only those assets that can be used to settle obligations of consolidated VIEs on the following page, and are in excess of those obligations.

 

		2010				2011
		(in millions of yen)
Assets of consolidated VIEs:
Cash and due from banks			55,123				3,731
Interest-bearing deposits in other banks			26,048				41,603
Trading account assets			526,555				738,888
Investments			46,446				271,559
Loans, net of allowance			2,342,957				2,411,836
Other			50,543				82,797
Total assets			3,047,672				3,550,414

 

See the accompanying Notes to the Consolidated Financial Statements.

 

F-4

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Table of Contents

MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS—(Continued)

MARCH 31, 2010 AND 2011

 

		2010				2011
		(in millions of yen)
Liabilities and equity:
Deposits (Notes 10 and 11):
Domestic:
Noninterest-bearing deposits			11,100,878				12,231,712
Interest-bearing deposits			67,136,833				67,631,781
Foreign:
Noninterest-bearing deposits			530,818				580,956
Interest-bearing deposits			8,007,722				8,771,178
Debentures (Note 12)			1,517,798				740,933
Due to trust accounts (Note 13)			1,025,431				629,396
Call money and funds purchased			5,786,370				5,095,412
Payables under repurchase agreements			12,075,799				11,498,128
Payables under securities lending transactions			6,824,807				5,607,534
Commercial paper			150,834				202,256
Other short-term borrowings			8,894,961				14,948,691
Trading account liabilities (Notes 4 and 29)			19,402,556				16,696,406
Bank acceptances outstanding			51,010				73,909
Income taxes payable (Note 21)			17,753				15,992
Deferred tax liabilities (Note 21)			11,705				12,860
Accrued expenses			207,677				180,785
Long-term debt (including liabilities accounted for at fair value of ¥353,604 million in 2010, and ¥441,425 million in 2011) (Notes 14 and 29)			8,482,434				8,953,496
Other liabilities (Notes 15, 22, 25 and 29)			3,794,052				4,078,889
Total liabilities			155,019,438				157,950,314
Commitments and contingencies (Note 25)
Equity :
MHFG shareholders’ equity:
Preferred stock (Note 16)			535,971				453,576
Common stock (Note 17)—no par value, authorized 24,115,759,000 shares in 2010, and 24,115,759,000 shares in 2011, and issued 15,494,397,690 shares in 2010, and 21,782,185,320 shares in 2011			4,324,705				5,164,160
Accumulated deficit			(2,325,109	)			(2,046,024	)
Accumulated other comprehensive income, net of tax			435,832				104,972
Less: Treasury stock, at cost—Common stock 9,397,093 shares in 2010, and 5,656,647 shares in 2011			(5,184	)			(3,197	)
Total MHFG shareholders’ equity			2,966,215				3,673,487
Noncontrolling interests (Note 26)			365,803				361,869
Total equity			3,332,018				4,035,356
Total liabilities and equity			158,351,456				161,985,670

The following table presents certain liabilities of consolidated VIEs, which are included in the consolidated balance sheets above. The creditors or investors of the consolidated VIEs have no recourse to the MHFG Group, except where the Group provides credit enhancement through guarantees or other means.

 

		2010				2011
		(in millions of yen)
Liabilities of consolidated VIEs:
Commercial paper			150,834				172,256
Other short-term borrowings			4,489				1,285
Trading account liabilities			9,155				11,573
Long-term debt			112,556				247,233
Other			189,749				833,094
Total liabilities			466,783				1,265,441

See the accompanying Notes to the Consolidated Financial Statements.

 

F-5

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Table of Contents

MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE FISCAL YEARS ENDED MARCH 31, 2009, 2010 AND 2011

 

		2009				2010				2011
		(in millions of yen)
Interest and dividend income:
Loans, including fees (Note 6)			1,482,824				1,093,463				945,784
Investments:
Interest			269,529				203,744				174,538
Dividends			97,395				74,226				73,573
Trading account assets			287,458				204,088				203,817
Call loans and funds sold			8,937				3,432				4,960
Receivables under resale agreements and securities borrowing transactions			199,966				44,147				48,903
Deposits			38,082				9,182				8,609
Total interest and dividend income			2,384,191				1,632,282				1,460,184
Interest expense:
Deposits			487,470				195,543				134,495
Debentures			17,594				11,960				6,533
Trading account liabilities			18,028				30,743				31,370
Call money and funds purchased			48,259				10,948				8,522
Payables under repurchase agreements and securities lending transactions			257,338				46,104				62,622
Other short-term borrowings			69,820				24,958				14,499
Long-term debt			203,506				207,903				190,816
Total interest expense			1,102,015				528,159				448,857
Net interest income			1,282,176				1,104,123				1,011,327
Provision (credit) for loan losses (Notes 6 and 7)			567,396				222,102				647
Net interest income after provision (credit) for loan losses			714,780				882,021				1,010,680
Noninterest income:
Fees and commissions (Note 28)			560,539				586,408				582,100
Foreign exchange gains (losses)—net (Note 4)			23,769				(1,311	)			55,998
Trading account gains (losses)—net (Note 4)			122,018				421,593				206,016
Investment gains (losses)—net (Note 5)			(462,207	)			66,763				70,468
Gains on disposal of premises and equipment			23,359				27,543				13,537
Other noninterest income (Notes 3 and 31)			184,749				229,851				108,413
Total noninterest income			452,227				1,330,847				1,036,532
Noninterest expenses:
Salaries and employee benefits (Note 22)			495,943				592,520				552,348
General and administrative expenses			499,441				496,987				500,369
Impairment of goodwill (Note 9)			—				—				9,379
Occupancy expenses			177,646				172,160				169,916
Fees and commission expenses			105,744				91,621				96,113
Provision (credit) for losses on off-balance-sheet instruments (Note 25)			83,628				(24,107	)			4,443
Other noninterest expenses (Notes 6, 24 and 31)			162,699				197,232				103,287
Total noninterest expenses			1,525,101				1,526,413				1,435,855
Income (loss) before income tax expense (benefit)			(358,094	)			686,455				611,357
Income tax expense (benefit) (Note 21)			761,908				(360,195	)			193,227
Net income (loss)			(1,120,002	)			1,046,650				418,130
Less: Net income (loss) attributable to noncontrolling interests			(61,555	)			46,961				5,461
Net income (loss) attributable to MHFG shareholders			(1,058,447	)			999,689				412,669
Earnings per common share (Note 20):		(in yen)
Basic net income (loss) per common share			(95.96	)			70.55				20.44
Diluted net income (loss) per common share			(95.96	)			61.64				19.22

See the accompanying Notes to the Consolidated Financial Statements.

 

F-6

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Table of Contents

MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE FISCAL YEARS ENDED MARCH 31, 2009, 2010 AND 2011

 

		2009				2010				2011
		(in millions of yen)
Net income (loss)			(1,120,002	)			1,046,650				418,130
Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on available-for-sale securities, net of tax (Notes 5 and 21):
Unrealized holding gains (losses)			(976,428	)			604,156				(189,526	)
Less: reclassification adjustments for losses (gains) included in net income(Note below)			221,072				(82,791	)			(48,036	)
Total			(755,356	)			521,365				(237,562	)
Foreign currency translation adjustments, net of tax:
Foreign currency translation adjustments			(102,254	)			17,269				(20,257	)
Less: reclassification adjustments for losses (gains) included in net income			—				—				2,860
Total			(102,254	)			17,269				(17,397	)
Pension liability adjustments, net of tax (Notes 21 and 22):
Unrealized gains (losses)			(273,792	)			187,485				(87,891	)
Less: reclassification adjustments for losses (gains) included in net income			3,972				22,691				9,079
Total			(269,820	)			210,176				(78,812	)
Total other comprehensive income (loss), net of tax			(1,127,430	)			748,810				(333,771	)
Total comprehensive income (loss)			(2,247,432	)			1,795,460				84,359
Less: Total comprehensive income (loss) attributable to noncontrolling interests			(96,716	)			68,952				(3,723	)
Total comprehensive income (loss) attributable to MHFG shareholders			(2,150,716	)			1,726,508				88,082

 

Note: The amount for the fiscal year ended March 31, 2011 is presented based on the balance of Accumulated other comprehensive income (loss) (“AOCI”) at the point of its realization into earnings. The amounts for the fiscal years ended March 31, 2009 and 2010, which were previously presented based on the beginning balances of AOCI, are presented in the same manner to conform to the current year presentation.

See the accompanying Notes to the Consolidated Financial Statements.

 

F-7

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Table of Contents

MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE FISCAL YEARS ENDED MARCH 31, 2009, 2010 AND 2011

 

		2009				2010				2011
		(in millions of yen)
Preferred stock (Note 16):
Balance at beginning of fiscal year			980,430				948,641				535,971
Change during year			(31,789	)			(412,670	)			(82,395	)
Balance at end of fiscal year			948,641				535,971				453,576
Common stock (Note 17):
Balance at beginning of fiscal year, previously reported			3,437,420				3,386,792				4,324,705
Cumulative effect of change in accounting principles (Notes 2 and 27)			—				—				334
Balance at beginning of fiscal year, adjusted			3,437,420				3,386,792				4,325,039
Issuance of new shares of common stock			—				533,794				757,790
Issuance of new shares of common stock by conversion of preferred stock			31,789				412,670				82,395
Cancellation of common stock			(83,729	)			—				—
Gains (losses) on sales of treasury stock			124				(662	)			(1,315	)
Stock-based compensation (Note 23)			1,188				1,114				452
Change in ownership interest in consolidated subsidiaries			—				(9,003	)			(201	)
Balance at end of fiscal year			3,386,792				4,324,705				5,164,160
Accumulated deficit:
Balance at beginning of fiscal year, previously reported			(2,066,604	)			(3,293,692	)			(2,325,109	)
Cumulative effect of change in accounting principles, net of tax (Notes 2, 5 and 27)			27,837				99,910				1,382
Balance at beginning of fiscal year, adjusted			(2,038,767	)			(3,193,782	)			(2,323,727	)
Net income (loss)			(1,058,447	)			999,689				412,669
Dividends declared			(133,898	)			(131,016	)			(134,966	)
Cancellation of common stock			(62,580	)			—				—
Balance at end of fiscal year			(3,293,692	)			(2,325,109	)			(2,046,024	)
Accumulated other comprehensive income (loss), net of tax:
Unrealized net gains on available-for-sale securities (Note 5):
Balance at beginning of fiscal year, previously reported			1,103,213				348,789				755,010
Cumulative effect of change in accounting principles (Notes 2, 5 and 27)			(17,269	)			(99,910	)			(6,273	)
Balance at beginning of fiscal year, adjusted			1,085,944				248,879				748,737
Change during year			(737,155	)			506,131				(234,609	)
Balance at end of fiscal year			348,789				755,010				514,128
Foreign currency translation adjustments:
Balance at beginning of fiscal year			(71,125	)			(166,575	)			(150,204	)
Change during year			(95,450	)			16,371				(14,824	)
Balance at end of fiscal year			(166,575	)			(150,204	)			(165,028	)
Pension liability adjustments (Note 22):
Balance at beginning of fiscal year			(112,026	)			(371,690	)			(168,974	)
Change during year			(259,664	)			202,716				(75,154	)
Balance at end of fiscal year			(371,690	)			(168,974	)			(244,128	)
Balance at end of fiscal year			(189,476	)			435,832				104,972

 

See the accompanying Notes to the Consolidated Financial Statements.

 

F-8

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Table of Contents

MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY—(Continued)

FOR THE FISCAL YEARS ENDED MARCH 31, 2009, 2010 AND 2011

 

		2009				2010				2011
		(in millions of yen)
Treasury stock, at cost:
Balance at beginning of fiscal year			(2,508	)			(6,218	)			(5,184	)
Purchases of treasury stock			(150,359	)			(5	)			(3	)
Disposal of treasury stock			280				1,039				1,990
Cancellation of treasury stock			146,309				—				—
Other			60				—				—
Balance at end of fiscal year			(6,218	)			(5,184	)			(3,197	)
Total MHFG shareholders’ equity			846,047				2,966,215				3,673,487
Noncontrolling interests:
Balance at beginning of fiscal year, previously reported			299,357				191,133				365,803
Cumulative effect of change in accounting principles (Notes 2 and 27)			—				—				(366	)
Balance at beginning of fiscal year, adjusted			299,357				191,133				365,437
Effect of business combination (Note 3)			—				151,584				—
Effect of increase/decrease in consolidated subsidiaries			4,639				(40,204	)			6,519
Dividends paid to noncontrolling interests			(16,147	)			(5,662	)			(6,364	)
Net income (loss) attributable to noncontrolling interests			(61,555	)			46,961				5,461
Unrealized net gains on available-for-sale securities attributable to noncontrolling interests			(18,201	)			15,234				(2,953	)
Foreign currency translation adjustments attributable to noncontrolling interests			(6,803	)			(1,144	)			(2,573	)
Pension liability adjustments attributable to noncontrolling interests			(10,157	)			7,901				(3,658	)
Balance at end of fiscal year			191,133				365,803				361,869
Total equity			1,037,180				3,332,018				4,035,356

See the accompanying Notes to the Consolidated Financial Statements.

 

F-9

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Table of Contents

MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEARS ENDED MARCH 31, 2009, 2010 AND 2011

 

		2009				2010				2011
		(in millions of yen)
Cash flows from operating activities:
Net income (loss)			(1,120,002	)			1,046,650				418,130
Less: Net income (loss) attributable to noncontrolling interests			(61,555	)			46,961				5,461
Net income (loss) attributable to MHFG shareholders			(1,058,447	)			999,689				412,669
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			146,191				156,393				167,420
Provision (credit) for loan losses			567,396				222,102				647
Investment losses (gains)—net			462,207				(66,763	)			(70,468	)
Foreign exchange losses (gains)—net			(9,379	)			(26,236	)			(66,988	)
Deferred income tax expense (benefit)			711,122				(377,308	)			174,864
Net change in trading account assets			(94,841	)			458,239				2,783,405
Net change in trading account liabilities			2,466,501				(2,679,240	)			(2,417,969	)
Net change in loans held for sale			118,061				7,294				30,598
Net change in accrued income			61,503				38,118				23,655
Net change in accrued expenses			(64,062	)			(13,462	)			(24,702	)
Other—net			191,170				267,222				(61,319	)
Net cash provided by (used in) operating activities			3,497,422				(1,013,952	)			951,812
Cash flows from investing activities:
Proceeds from sales of available-for-sale securities			47,038,991				39,430,098				56,773,936
Proceeds from maturities of available-for-sale securities			18,466,507				12,558,894				15,421,495
Purchases of available-for-sale securities			(65,128,275	)			(62,815,825	)			(72,409,981	)
Proceeds from maturities of held-to-maturity securities			594,915				180,497				1,405
Purchase of held-to-maturity securities			—				(602,036	)			(600,296	)
Proceeds from sales of other investments			33,522				26,704				122,478
Purchases of other investments			(103,651	)			(120,662	)			(110,066	)
Proceeds from sales of loans			326,781				367,069				246,633
Net change in loans			(5,980,581	)			8,327,521				(1,742,702	)
Net change in interest-bearing deposits in other banks			(1,597,417	)			1,063,622				(6,438,858	)
Net change in call loans and funds sold, and receivables under resale agreements and securities borrowing transactions			3,296,830				(718,570	)			(1,522,389	)
Proceeds from sales of premises and equipment			7,068				15,819				2,108
Purchases of premises and equipment			(221,070	)			(255,596	)			(214,447	)
Cash and due from banks acquired in business combination (Note 3)			—				118,703				—
Net cash used in investing activities			(3,266,380	)			(2,423,762	)			(10,470,684	)
Cash flows from financing activities:
Net change in deposits			1,916,425				(221,970	)			3,190,397
Net change in debentures			(858,984	)			(782,662	)			(776,865	)
Net change in call money and funds purchased, and payables under repurchase agreements and securities lending transactions			(4,090,352	)			4,260,291				(1,552,577	)
Net change in due to trust accounts			(133,799	)			39,283				18,882
Net change in commercial paper and other short-term borrowings			3,406,013				(6,527	)			6,131,912
Proceeds from issuance of long-term debt			1,824,193				1,582,902				1,167,647
Repayment of long-term debt			(1,323,482	)			(1,150,366	)			(778,791	)
Proceeds from noncontrolling interests			14,776				1,516				2,320
Payment to noncontrolling interests			(8,563	)			(15,459	)			(577	)
Proceeds from issuance of common stock			—				533,794				757,790
Proceeds from sales of treasury stock			179				4				4
Purchases of treasury stock			(150,359	)			(5	)			(3	)
Dividends paid			(133,394	)			(130,297	)			(133,925	)
Dividends paid to noncontrolling interests			(16,147	)			(5,662	)			(6,364	)
Net cash provided by financing activities			446,506				4,104,842				8,019,850
Effect of exchange rate changes on cash and due from banks			(30,483	)			(581	)			(15,906	)
Net increase (decrease) in cash and due from banks			647,065				666,547				(1,514,928	)
Cash and due from banks at beginning of fiscal year			2,085,847				2,732,912				3,399,459
Cash and due from banks at end of fiscal year			2,732,912				3,399,459				1,884,531

 

See the accompanying Notes to the Consolidated Financial Statements.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

FOR THE FISCAL YEARS ENDED MARCH 31, 2009, 2010 AND 2011

 

		2009				2010				2011
		(in millions of yen)
Supplemental disclosure of cash flow information:
Interest paid			1,222,552				518,937				462,907
Income taxes paid (refunded), net			(35,705	)			(54,885	)			25,283
Noncash investing activities:
Transfer from loans into other investments			—				2,222				—
Transfer from loans held for sale into loans			378,038				—				—
Investment in capital leases			2,439				6,763				11,153
Noncash assets acquired and liabilities assumed at fair value in business combination (Note 3):
Noncash assets acquired at fair value			—				2,200,521				—
Noncash liabilities assumed at fair value			—				2,025,753				—

 

 

See the accompanying Notes to the Consolidated Financial Statements.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation and summary of significant accounting policies

Basis of presentation

Mizuho Financial Group, Inc. (“MHFG”) is a joint stock corporation with limited liability under the laws of Japan. MHFG, through its subsidiaries (“the MHFG Group”, or “the Group”), provides domestic and international financial services in Japan and other countries. MHFG’s subsidiaries are segmented on the basis of the nature of the financial products and services and the type of customers. Mizuho Bank, Ltd. (“MHBK”), a retail-oriented banking subsidiary, offers financial services mainly to individual customers, small and medium enterprises (“SMEs”), middle-market corporations and local governmental entities in Japan. Mizuho Corporate Bank, Ltd. (“MHCB”), a wholesale banking subsidiary, offers various financial services to large Japanese corporations, financial institutions, public sector entities and foreign corporations. Mizuho Trust & Banking Co., Ltd. (“MHTB”), a trust bank subsidiary, offers mainly trust-related products and consulting services. Other major subsidiaries include Mizuho Securities Co., Ltd. (“MHSC”), Trust & Custody Services Bank, Ltd. (“TCSB”), Mizuho Investors Securities Co., Ltd. (“MHIS”), Mizuho Capital Co., Ltd., and Mizuho Business Financial Center Co., Ltd. See Note 31 “Business segment information” for further discussion of the Group’s segment information.

The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements are stated in Japanese yen, the currency of the country in which MHFG is incorporated and principally operates.

The accompanying consolidated financial statements include the accounts of MHFG and its subsidiaries. The consolidated financial statements also include the accounts of the variable interest entities (“VIEs”) for which MHFG or its subsidiaries have been determined to be the primary beneficiary under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation” (“ASC 810”). All significant intercompany transactions and balances have been eliminated in consolidation. The MHFG Group accounts for investments in entities over which it has significant influence using the equity method of accounting. These investments are included in Other investments and the Group’s proportionate share of income or loss is included in Investment gains (losses)—net.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Specific areas, among others, requiring the application of management’s estimates and judgment include assumptions pertaining to the allowance for loan losses, allowance for losses on off-balance-sheet instruments, deferred tax assets, derivative financial instruments, investments and pension and other employee benefits. Actual results could differ from estimates and assumptions made.

Definition of cash and due from banks

For purposes of the consolidated statements of cash flows, Cash and due from banks include cash on hand, cash items in the process of collection and noninterest-bearing deposits with banks.

Translation of foreign currency financial statements and foreign currency transactions

Financial statements of overseas entities are prepared using the functional currency of each entity and translated into Japanese yen for consolidation purposes. Assets and liabilities are translated using the fiscal-year-end exchange rate of each functional currency, and income and expense using the average rate of each functional currency for the period.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Foreign currency translation gains and losses related to the financial statements of overseas entities of the MHFG Group, net of related income tax effects, are credited or charged directly to Foreign currency translation adjustments, a component of Accumulated other comprehensive income (loss), net of tax. Tax effects of gains and losses on foreign currency translation of financial statements of overseas entities are not recognized unless it is apparent that the temporary differences will reverse in the foreseeable future.

Assets and liabilities denominated in foreign currencies are translated into Japanese yen at the fiscal-year-end foreign exchange rates, and gains and losses resulting from such translation are included in Foreign exchange gains (losses)—net, as appropriate. Foreign currency denominated income and expenses are translated using average exchange rates for the period.

Call loans and call money

Call loans and call money represent lending/borrowing through the Japanese short-term money market to/from other financial institutions such as banks, insurance companies, and securities brokerage houses.

Repurchase and resale agreements, securities lending and borrowing and other secured financing transactions

Securities sold under agreements to repurchase (“repurchase agreements”), securities purchased under agreements to resell (“resale agreements”) and securities lending and borrowing transactions are accounted for as secured financing or lending transactions when control over the underlying securities is not deemed to be surrendered by the transferor. Otherwise, they are recorded as sales of securities with related forward repurchase commitments or purchases of securities with related forward resale commitments in accordance with ASC 860, “Transfers and Servicing” (“ASC 860”).

Under resale agreements, securities borrowing and certain derivatives transactions, the MHFG Group receives collateral in the form of securities. In many cases, the MHFG Group is permitted to sell or repledge the securities obtained as collateral. Disclosures of such collateral are presented in Note 10 “Pledged assets and collateral”. With respect to securities lending, repurchase agreements, and certain derivative transactions, counterparties may have the right to sell or repledge securities that the MHFG Group has pledged as collateral. The MHFG Group separately discloses those pledged securities in the consolidated balance sheets.

The MHFG Group monitors credit exposure arising from resale agreements, repurchase agreements, securities borrowing and securities lending transactions on a daily basis, and additional collateral is obtained from or returned to counterparties as appropriate.

Trading securities and trading securities sold, not yet purchased

Trading securities consist of securities and money market instruments that are bought and held principally for the purpose of reselling in the near term with the objective of generating profits on short-term fluctuations in price. Trading securities sold, not yet purchased, are securities and money market instruments sold to third parties that the MHFG Group does not own and is obligated to purchase at a later date to cover the short position. Trading securities and trading securities sold, not yet purchased, are classified at the date of commitment or purchase. Trading securities and trading securities sold, not yet purchased, are recorded at fair value in the consolidated balance sheets in Trading account assets and Trading account liabilities with realized and unrealized gains and losses recorded on a trade date basis in Trading account gains—net in earnings. Interest and dividends on trading account debt and equity securities, including securities sold, not yet purchased, are recorded in Interest and dividend income or Interest expense on an accrual basis.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Investments

Debt securities that the MHFG Group has both the positive intent and ability to hold to maturity are classified as Held-to-maturity securities and carried at amortized cost. Debt securities that the MHFG Group may not hold to maturity as well as any marketable equity securities, other than those classified as trading account securities, are classified as Available-for-sale securities, and are carried at fair value, with unrealized gains and losses reported in Accumulated other comprehensive income (loss), net of tax. Available-for-sale securities also include retained subordinated beneficial interests in a securitization transaction that can contractually be repaid or otherwise settled in such a way that the holder would not recover substantially all of its recorded investments.

Prior to April 1, 2009, declines in the fair value of Held-to-maturity and Available-for-sale securities below their amortized cost, that were deemed to be other-than-temporary, were all reported in Investment gains (losses)—net. Effective April 1, 2009, the MHFG Group adopted new accounting guidance for impairments of debt securities that are deemed to be other-than-temporary. Under the new impairment model, the credit component of an other-than-temporary impairment of a debt security is reported in Investment gains (losses)—net and the noncredit component is reported in Other comprehensive income (loss). See Note 5 “Investments” for further discussion of the new impairment model for debt securities. In addition, other-than-temporary declines in beneficial interests purchased or retained in a securitization transaction which are classified as available-for-sale debt securities are recognized if there has been an adverse change in the cash flows as of the balance sheet date. Interest and dividends, as well as amortization of premiums and accretion of discounts, are reported in Interest and dividend income. Amortization of premiums and accretion of discounts on debt securities are recognized over the remaining maturity under the interest method. Gains and losses on disposition of investments are computed using the first-in first-out method for debt securities and the average method for equity securities, and are recorded on the trade date.

Other investments include marketable and non-marketable equity securities accounted for using the equity method, marketable and non-marketable investments held by consolidated investment companies which are held at fair value under specialized industry accounting principles for investment companies, and other non-marketable equity securities carried at cost, less other-than-temporary impairment, if any.

Derivative financial instruments

Derivative financial instruments are bought and held principally for the purpose of market making for customers, proprietary trading in order to generate trading revenues and fee income, and also to manage the MHFG Group’s exposure to interest rate, credit and market risks related to asset and liability management. Such derivative financial instruments include interest rate, commodity, foreign currency, equity and credit default swap agreements, options, caps and floors, and financial futures and forward contracts.

Derivatives bought and held for trading purposes are recorded in the consolidated balance sheets at fair value in Trading account assets and Trading account liabilities. The fair value of derivatives in a gain position and a loss position are reported as Trading account assets and Trading account liabilities, respectively.

Derivatives used for asset and liability management include contracts that qualify for hedge accounting under ASC 815, “Derivatives and Hedging” (“ASC 815”). To be eligible for hedge accounting, derivative instruments must be highly effective in achieving offsetting changes in fair values or variable cash flows from the hedged items attributable to the particular risk being hedged. All qualifying hedging derivatives are valued at fair value and included in Trading account assets or Trading account liabilities. Derivatives that do not qualify for hedge accounting under ASC 815 are treated as trading positions and are accounted for as such. The fair value amounts recognized for such derivatives are not offset against the amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral under master netting agreement with the same counterparty.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The fair value of derivative financial instruments is based on quoted market prices or broker-dealer quotes. If quoted market prices or broker-dealer quotes are not available, the fair value is estimated using quoted market prices for similar instruments, option or binomial pricing models or present value cash flow analysis, applying current observable market information, where available. The determination of fair value includes various factors such as exchange or over-the-counter market quotes, time value and volatility factors for options and warrants, observed prices for similar or synthetic instruments, and counterparty credit quality including potential exposure.

Changes in fair value of all derivatives are recorded in earnings, except for derivatives qualifying as net investment hedges under ASC 815 which are recorded in Accumulated other comprehensive income (loss), net of tax. The fair value changes of all derivatives relating to foreign currency exchange rates are included in Foreign exchange gains (losses)—net and Trading account gains—net. Other elements of the fair value changes, including interest rate, equity and credit related components except that of certain credit derivatives hedging the credit risk in corporate loan portfolio, are recognized in Trading account gains—net. The net gain (loss) resulting from changes in the fair values of certain credit derivatives where the Group purchases protection to mitigate its credit risk exposure related to its corporate loan portfolio is recorded in Other noninterest income (expenses).

Certain financial and hybrid instruments often contain embedded derivative instruments that possess implicit or explicit contract terms in a manner similar to that of a derivative instrument. Such derivative instruments are required to be fair-valued separately from the host contracts if they meet the criteria of an embedded derivative. Such criteria include whether the entire instrument is not marked to market through earnings, the economics of the embedded terms are not clearly and closely related to those of the host contract and the embedded terms would meet the definition of a derivative on a stand-alone basis.

Loans

Loans are generally carried at the principal amount adjusted for unearned income and deferred net nonrefundable loan fees and costs. Loan origination fees, net of certain direct origination costs are deferred and recognized over the contractual life of the loan as an adjustment of yield using a method that approximates the interest method. Interest income on performing loans is accrued and credited to income as it is earned. Unearned income and discounts or premiums on purchased loans are deferred and recognized over the life of the loan using a method that approximates the interest method.

Loans are considered impaired when, based on current information and events, it is probable that the MHFG Group will be unable to collect all the scheduled payments of principal and interest when due according to the contractual terms of the loan. Factors considered by management in determining if a loan is impaired include delinquency status and the ability of the debtor to make payment of the principal and interest when due.

Loans are designated as nonaccrual when management determines them to be impaired based on all the relevant facts and circumstances. When a loan is placed on nonaccrual status, interest accrual and amortization of net origination fees are suspended and the capitalized interest is written off. Cash received on nonaccrual loans is accounted for as reduction of the loan principal if the ultimate collectibility of the principal amount is uncertain, otherwise, as interest income. Loans are not restored to accrual status until interest and principal payments are current and future payments are reasonably assured.

Fees received in connection with a modification of the terms of a restructured loan that meet the definition of troubled debt restructurings in accordance with ASC 310, “Receivables” (“ASC 310”) are applied as a reduction of the recorded investment in the loan. All related costs, including direct loan origination costs, are charged to expense as incurred.

 

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Loans that have been identified to be sold are classified as loans held for sale within Other assets and are accounted for at the lower of cost or fair value. If management decides to retain certain loans held for sale for the foreseeable future or until maturity or payoff, such items are transferred to Loans at the lower of cost or fair value.

Securitization

The MHFG Group engages in securitization activities related to mortgage loans and other loans in the normal course of business. The MHFG Group records a loan securitization as a sale when the transferred loans are legally isolated from the Group’s creditors and the accounting criteria for a sale are met in accordance with ASC 860. Otherwise, the transfer is accounted for as a collateralized borrowing. Gains or losses on securitization depending in part on the carrying amount of the loans are allocated between the loans derecognized and the retained interests based on their relative fair values at the date of the transfer. Interests in loans sold through securitization may be retained by the Group in the form of subordinated beneficial interests. The MHFG Group estimates fair value of these subordinated beneficial interests based on the present value of future expected cash flows, using management’s best estimates of the key assumptions, such as default rates, discount rates, and prepayment rates, and records them as available-for-sale debt securities.

Allowance and provision (credit) for loan losses

The MHFG Group maintains an appropriate amount of allowance for loan losses to absorb probable losses inherent in the loan portfolio and makes adjustments to such allowance through Provision (credit) for loan losses in the consolidated statements of income. Loan principal which management judges to be uncollectible, based on detailed loan reviews and a credit quality assessment, is charged off against the allowance for loan losses. Subsequent recoveries of previously charged-off loan balances are recorded as an increase to the allowance for loan losses as the recoveries are received.

The credit quality review process and the credit rating process serve as the basis for determining the allowance for loan losses. Through such processes loans are categorized into groups to reflect the probability of default, whereby the MHFG Group’s management assesses the ability of borrowers to service their debt, taking into consideration current financial information, ability to generate cash, historical payment experience, analysis of relevant industry segments and current trends. In determining the appropriate level of the allowance, the MHFG Group evaluates the probable loss by category of loan based on its risk type and characteristics.

The allowance for loan losses is determined in accordance with ASC 310 and ASC 450, “Contingencies” (“ASC 450”). The MHFG Group measures the impairment of a loan, based on the present value of expected future cash flows discounted at the loan’s initial effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent, when it is probable that the MHFG Group will be unable to collect all amounts due according to the contractual terms of the loan agreement. Certain impaired loans are aggregated for the purpose of measuring impairment and a formula allowance utilizing historical loss factors is applied. The formula allowance is also applied to groups of small balance, homogeneous loans that are collectively evaluated for impairment and for non-homogeneous loans that have not been identified as impaired. The evaluation of inherent loss for these loans involves a high degree of uncertainty, subjectivity and judgment because probable loan losses are not easily identifiable or measurable. In determining the formula allowance, the MHFG Group therefore relies on a statistical analysis that incorporates loss rates based on its own historical loss experience and third party data. 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.

The historical loss rate is adjusted, where appropriate, to reflect current factors, such as general economic and business conditions affecting the key lending areas of the MHFG Group, credit quality trends, specific industry conditions within portfolio segments, and recent loss experience in particular segments of the portfolio.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Allowance and provision (credit) for losses on off-balance-sheet instruments

The MHFG Group maintains an allowance for losses on off-balance-sheet credit instruments, such as guarantees, standby letters of credit, commitments to invest in securities and commitments to extend credit, in the same manner as the allowance for loan losses. The allowance is recorded in Other liabilities. Net changes in the allowance for losses on off-balance-sheet instruments are accounted for in the Provision (credit) for losses on off-balance-sheet instruments in the consolidated statements of income.

Premises and equipment

Premises and equipment are stated at historical cost, and depreciation and amortization are recorded over the estimated useful lives of the assets, except for leasehold improvements, which are amortized over the shorter of the estimated useful lives of the assets or the lease term. Depreciation and amortization are principally computed under the straight-line method with respect to buildings and leasehold improvements and under the declining-balance method with respect to other premises and equipment.

The useful lives of premises and equipment are as follows:

 

		Years
Buildings			3 to 50
Equipment and furniture			2 to 20
Leasehold improvements			3 to 50

Regular repairs and maintenance costs that do not extend the estimated useful life are charged to expense as incurred. Upon sale or disposition of premises and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts, and any gains or losses on disposal are included in Gains on disposal of premises and equipment or Occupancy expenses.

Impairment of long-lived assets

The MHFG Group’s long-lived assets that are held for use are reviewed periodically for events or changes in circumstances that indicate possible impairment. The Group’s impairment review is based on an undiscounted cash flow analysis of a group of assets, combined with associated liabilities, at the lowest level for which identifiable cash flows exist. Impairment occurs when the carrying value of the asset group exceeds the future undiscounted cash flows that the asset group is expected to generate. When there is impairment, the future cash flows are then discounted to determine the estimated fair value of the asset group and an impairment charge is recorded for the difference between the carrying value and the estimated fair value of the asset group. The long-lived assets to be disposed of by sale are carried at the lower of the carrying amount or fair value, less estimated cost to sell.

Software

Internal and external costs incurred in connection with developing and obtaining software for internal use that occur during the application development stage are capitalized. Such costs include salaries and benefits for employees directly involved with and who devote time to the project, to the extent such time is incurred directly on the internal use software project. The capitalization of software ceases when the software project has been substantially completed. The capitalized software is amortized on a straight-line basis over the estimated useful life, generally 5 years. Impairment of internal use software is assessed and recognized periodically when triggering events occur.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the MHFG Group’s share of net identifiable assets acquired at the date of acquisition in a business combination. The Group accounts for goodwill in accordance with ASC350, “Intangibles—Goodwill and Other” (“ASC 350”). Goodwill is recorded at a designated reporting unit level for the purpose of assessing impairment. An impairment loss is recorded to the extent the carrying amount of goodwill exceeds its estimated fair value.

Intangible assets

Intangible assets having definite useful lives are amortized over their estimated useful lives under the straight-line method. Intangible assets acquired by the merger of MHSC and Shinko Securities Co., Ltd. (“Shinko”) consist primarily of customer relationship intangibles, and are amortized over a weighted-average amortization period of 16 years. Intangible assets having indefinite useful lives are not amortized and are subject to impairment tests. An impairment loss is recorded to the extent the carrying amount of indefinite-lived intangible asset exceeds its estimated fair value. For intangible assets subject to amortization, an impairment loss is recorded if the carrying amount is not recoverable and exceeds its estimated fair value.

Pension and other employee benefits

MHFG and certain subsidiaries including MHBK, MHCB, and MHTB sponsor severance indemnities and pension plans, which provide defined benefits to retired employees. Periodic expense and accrued liabilities are computed based on the actuarial present value of benefits, net of investment returns expected from plan assets and their fair values at the balance sheet date. Net periodic expense is charged to Salaries and employee benefits.

Debentures and long-term debt

Premiums, discounts and issuance costs of debentures and long-term debt are amortized based on a method that approximates the interest method over the terms of the debentures and long-term debt.

Obligations under guarantees

The MHFG Group provides customers with a variety of guarantees and similar arrangements, including standby letters of credit, financial and performance guarantees, credit protections, and liquidity facilities. The MHFG Group recognizes guarantee fees income over the guarantee period. The MHFG Group receives such a guarantee fee at the inception of the guarantee or by installment, and in either case approximates the fair value of the guarantee.

Fair Value Measurements

The MHFG Group carries certain of its financial assets and liabilities at fair value on a recurring basis. These financial assets and liabilities are primarily composed of trading account assets, trading account liabilities and available-for-sale securities. In addition, the Group measures certain financial assets and liabilities, at fair value on a non-recurring basis. Those assets and liabilities primarily include items that are measured at the lower of cost or fair value such as loans held for sale, and items that were initially measured at cost and have been written down to fair value for impairment such as loans and other investments.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), the Group classifies its financial assets and liabilities into the fair value hierarchy (Level 1, 2, and 3). See Note 29 “Fair value” for the detailed definition of each level.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

When determining fair value, the MHFG Group considers the principal or most advantageous market in which the Group would transact and consider assumptions that market participants would use when pricing the asset or liability. The Group maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. See Note 29 “Fair value” for descriptions of valuation methodologies used for its assets and liabilities by product.

Fees and commissions

Fee revenue is recognized when all of the following criteria have been met: persuasive evidence of an agreement exists, services have been rendered, the price is fixed or determinable, and collectibility is reasonably assured. Trust fees are recognized on an accrual basis and are usually based on the volume of assets under custody or management. Performance-related fees associated with certain trust products are recognized on an accrual basis. Fees on funds transfer and collection services are generally recognized as revenue when the related services are performed. Revenues from investment banking services are recorded at the time the underlying transactions are substantially completed and there are no other contingencies associated with the fees. Fees from trade-related financing services are recognized over the period of the financing.

Fees and commissions are presented on a gross basis.

Income taxes

Income taxes are accounted for in accordance with ASC 740, “Income Taxes” (“ASC 740”). 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 those corresponding amounts used for income tax purposes, and (2) operating loss and tax credit carryforwards. A valuation allowance for any portion of the deferred tax assets is recorded unless it is more likely than not that the deferred tax assets will be realized. Deferred income tax benefit or expense is recognized for the changes in the net deferred tax asset or liability between periods.

Earnings per common share

Basic earnings per common share are computed by dividing net income attributable to MHFG common shareholders by the weighted average number of common shares outstanding during the fiscal year. Diluted earnings per common share reflect the possible exercise of all convertible securities, such as convertible preferred stock to the extent they are not anti-dilutive. See Note 20 “Earnings per common share” for the computation of basic and diluted earnings per common share.

2. Recently issued accounting pronouncements

Recently adopted accounting pronouncements

On July 1, 2009, the ASC was officially launched. The ASC, which reorganized the thousands of U.S. GAAP pronouncements into roughly 90 accounting topics, is the single source of authoritative U.S. GAAP for nongovernmental entities.

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.157, “Fair Value Measurements” which is now included in ASC 820. The statement clarifies the definition of fair value and the method used to measure fair value and expands the disclosure requirements about fair value measurements. The statement establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity and (2) the reporting

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances. The statement nullifies certain guidance provided for in the FASB Emerging Issues Task Force (“EITF”) Issue No.02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities”, and the related provisions of SFAS No.133. The statement is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) No.FAS157-1, “Application of FASB Statement No.157 to FASB Statement No.13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” and FSP No.FAS157-2, “Effective Date of FASB Statement No.157”, which are now included in ASC 820, and partially delay the effective date of the statement for one year for certain nonfinancial assets and liabilities and remove certain leasing transactions from its scope. In October 2008, the FASB issued FSP No. FAS157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, which is now included in ASC 820, and clarifies the application of the statement in markets that are not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. In April 2009, the FASB issued FSP No.FAS157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, which is now included in ASC 820, and provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and for identifying circumstances that indicate a transaction is not orderly, as well as requires detailed disclosures for debt and equity securities. The impact of adoption of the statement was a decrease of ¥1,464 million to the beginning balance of Accumulated deficit as of April 1, 2008.

In February 2007, the FASB issued SFAS No.159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No.115”, which is now included in ASC 825, “Financial Instruments” (“ASC 825”). The statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities and certain other items at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. The statement is effective for fiscal years beginning after November 15, 2007. The financial assets or liabilities for which the MHFG Group elected the fair value option as of April 1, 2008 are primarily foreign currency denominated available-for-sale securities and certain hybrid financial instruments that contain embedded derivatives that had not been previously elected or eligible for fair value treatment. The impact of adoption of the statement was a decrease of ¥26,373 million to the beginning balance of Accumulated deficit as of April 1, 2008.

In April 2007, the FASB issued FSP No.FIN39-1, “Amendment of FASB Interpretation No.39” which is now included in ASC 815. The pronouncement amends FIN No.39, “Offsetting of Amounts Related to Certain Contracts—an interpretation of APB Opinion No.10 and FASB Statement No.105”, to permit a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement. The adoption of the pronouncement did not have an impact on the MHFG Group’s consolidated results of operations or financial condition, as the Group did not adopt such offsets.

In December 2007, the FASB issued SFAS No.141 (revised 2007), “Business Combinations”, which is now included in ASC 805, “Business Combinations” (“ASC 805”). The statement establishes principles and requirements for how the acquirer (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree, (2) recognizes and measures goodwill acquired in the business combination or a gain from a bargain purchase, and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of

 

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the business combination. The statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. In April 2009, the FASB issued FSP No.FAS141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”, which is now included in ASC 805. The pronouncement provides the guidance for initial recognition and measurement of all assets acquired and liabilities assumed in a business combination that arise from contingencies as well as subsequent measurement and accounting of such assets and liabilities. As a result of the transaction discussed in Note 3 “Business Combination”, the MHFG Group recognized an increase in pretax income of ¥106,674 million, which consists of a gain on the bargain purchase of ¥106,310 million and a gain of ¥364 million resulting from the remeasurement of preexisting shares, during the fiscal year ended March 31, 2010.

In December 2007, the FASB issued SFAS No.160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.51”, which is now included in ASC 810. The statement establishes accounting and reporting standards for noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. The statement requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. The statement is effective for fiscal years beginning on or after December 15, 2008. The adoption of the statement did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In February 2008, the FASB issued FSP No.FAS140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions”, which is now included in ASC 860. The pronouncement provides that if an initial transfer of a financial asset and a repurchase financing that is entered into contemporaneously with, or in contemplation of, the initial transfer meet certain conditions, the initial transfer shall be accounted for separately from the repurchase financing. Otherwise, the initial transfer and repurchase financing should be evaluated as a linked transaction, which shall be accounted for based on the economics of the combined transactions. The pronouncement is effective for fiscal years beginning after November 15, 2008. The adoption of the pronouncement did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In March 2008, the FASB issued SFAS No.161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No.133”, which is now included in ASC 815. The statement requires enhanced disclosures about derivative instruments and hedged items. The statement is effective for fiscal years beginning after November 15, 2008. The statement is an accounting principle which expands disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

In June 2008, the EITF reached a consensus on Issue No.07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”, which is now included in ASC 815. The consensus provides guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. The consensus is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008. The adoption of the consensus did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In September 2008, the FASB issued FSP No.FAS133-1 and FIN45-4, “Disclosures about Credit Derivatives and Certain Guarantees—An Amendment of FASB Statement No.133 and FASB Interpretation No.45; and Clarification of the Effective Date of FASB Statement No.161”, which is now included in ASC 815. The pronouncement requires enhanced disclosures about credit derivatives and certain guarantees to address the potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of the sellers of credit derivatives and certain guarantees. The pronouncement is effective for reporting periods

 

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ending after November 15, 2008. The pronouncement is an accounting principle which expands disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

In November 2008, the EITF reached a consensus on Issue No.08-6, “Equity Method Investment Accounting Considerations”, which is now included in ASC 323, “Investments—Equity Method and Joint Ventures” (“ASC 323”). The consensus clarifies the accounting for (1) initial measurement, (2) decrease in investment value and (3) change in level of ownership or degree of influence related to equity method investments. The consensus is effective for reporting periods beginning after December 15, 2008. The adoption of the consensus did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In December 2008, the FASB issued FSP No.FAS132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”, which is now included in ASC 715, “Compensation—Retirement Benefits” (“ASC 715”). The pronouncement requires additional disclosures about plan assets of a defined benefit pension or other postretirement plan, including investment strategies, fair value of major categories of plan assets and valuation techniques used to measure the fair value of plan assets. The pronouncement is effective for fiscal years ending after December 15, 2009, with early adoption permitted. The pronouncement is an accounting principle which expands disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

In December 2008, the FASB issued FSP No.FAS140-4 and FIN46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities”, which is now included in ASC 810 and ASC 860. The pronouncement requires public entities to provide additional disclosures about transfers of financial assets. It also requires public enterprises, including sponsors that have a variable interest in a VIE, to provide additional disclosures about their involvement with VIEs. In addition, the pronouncement requires disclosures by a public enterprise that is (a) a sponsor of a qualifying special-purpose entity (“SPE”) that holds a variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor of financial assets to the qualifying SPE. The pronouncement is effective for the first reporting period ending after December 15, 2008. The pronouncement is an accounting principle which expands disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

In January 2009, the FASB issued FSP No.EITF99-20-1, “Amendments to the Impairment Guidance of EITF Issue No.99-20”, which is now included in ASC 320, “Investments—Debt and Equity Securities” (“ASC 320”). The pronouncement amends the impairment guidance in EITF Issue No.99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The pronouncement also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements and other related guidance. The pronouncement is effective for reporting periods ending after December 15, 2008. The adoption of the pronouncement did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In April 2009, the FASB issued FSP No.FAS107-1 and APB28-1, “Interim Disclosures about Fair Value of Financial Instruments”, which is now included in ASC 825. The pronouncement requires disclosures about the fair value of financial instruments for interim financial reporting periods of publicly traded companies as well as in annual financial statements. The pronouncement also amends ASC 270, “Interim Reporting” (“ASC 270”), to require those disclosures in summarized financial information at interim reporting periods. The pronouncement is effective for interim reporting periods ending after June 15, 2009. The pronouncement is an accounting principle which expands disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

 

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In April 2009, the FASB issued FSP No.FAS115-2 and FAS124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, which is now included in ASC 320, and amends the other-than-temporary impairment model for debt securities. The pronouncement requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the noncredit component in other comprehensive income when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to recovery. In addition, the pronouncement expands existing disclosures and requires new disclosures about other-than-temporary impairments. The pronouncement is effective for interim and annual reporting periods ending after June 15, 2009. The MHFG Group adopted the pronouncement as of April 1, 2009 that resulted in a decrease to the beginning balance of Accumulated deficit of ¥99,910 million, which was reclassified to Accumulated other comprehensive income, net of tax. See Note 5 “Investments” for further discussion of the impact of the pronouncement.

In May 2009, the FASB issued SFAS No.165, “Subsequent Events”, which is now included in ASC 855, “Subsequent Events” (“ASC 855”). The statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The statement is effective for interim or annual financial periods ending after June 15, 2009. In February 2010, the FASB issued Accounting Standards Update (“ASU”) No.2010-09, “Subsequent Events (Topic 855)—Amendments to Certain Recognition and Disclosure Requirements” (“ASU No.2010-09”). The ASU removes the requirement for a U.S. Securities and Exchange Commission (“SEC”) filer to disclose the date through which subsequent events have been evaluated. The ASU is effective upon issuance. The adoption of the statement and the ASU did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In June 2009, the FASB issued SFAS No.166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No.140” (“SFAS No.166”), which is now included in ASC 860. The statement requires more information about transfers of financial assets, including securitization transactions, where enterprises have continuing exposure to the risks related to the transferred financial assets. The statement eliminates the concept of qualifying SPE and modifies the requirements for derecognizing financial assets. The statement is effective as of the beginning of the first fiscal year that begins after November 15, 2009.

In June 2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation No.46(R)” (“SFAS No.167”), which is now included in ASC 810. The statement provides new guidance on how an enterprise determines whether the enterprise’s variable interests give it a controlling financial interest in VIEs. The determination is based on, among other things, VIE’s purpose and design, an enterprise’s ability to direct the activities of the VIE that most significantly impact the entity’s economic performance, and if an enterprise has the obligation to absorb losses of or the right to receive benefits from the VIE that could be significant. The statement is effective as of the beginning of the first fiscal year that begins after November 15, 2009. In February 2010, the FASB issued ASU No.2010-10, “Consolidation (Topic 810)—Amendments for Certain Investment Funds” (“ASU No.2010-10”). The ASU provides that the consolidation requirements of SFAS No.167 are deferred for an entity that has all the attributes of an investment company (or similar entity). On April 1, 2010, The MHFG Group adopted SFAS No.167, together with SFAS No.166, which primarily resulted in the consolidation of certain former qualifying SPEs, guaranteed principal money trust products and collateral loan obligations (“CLO”) where the MHFG Group acts as an asset manager. The adoption of the statements resulted in an increase to the beginning balance of additional paid-in capital included in Common stock of ¥334 million, and a decrease to the beginning balance of Accumulated deficit and Accumulated other comprehensive income of ¥1,382 million and ¥6,273 million, respectively.

In August 2009, the FASB issued ASU No.2009-05, “Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value” (“ASU No.2009-05”). The ASU provides new guidance clarifying how to measure the fair value of liabilities, particularly in circumstances in which a quoted price in an active market for

 

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the identical liability is not available. It also clarifies that a restriction preventing the transfer of a liability should not be considered as a separate input or adjustment in measurement of the fair value. The ASU is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of ASU No.2009-05 did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In September 2009, the FASB issued ASU No.2009-12, “Fair Value Measurements and Disclosures (Topic 820) —Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU No.2009-12”). The ASU permits, as a practical expedient, a reporting entity to measure the fair value of an alternative investment on the basis of the net asset value per share (“NAV”), if certain criteria are met. The ASU only applies to investments that do not have a readily determinable fair value in investment companies or similar entities. The ASU also provides guidance on the clarification of fair value hierarchy for such investments and requires enhanced disclosures by each major category of those investments. The ASU is effective for interim and annual reporting periods ending after December 15, 2009. The adoption of ASU No.2009-12 did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In January 2010, the FASB issued ASU No.2010-02, “Consolidation (Topic 810)—Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification” (“ASU No.2010-02”). The ASU amends ASC 810-10 and related guidance within U.S. GAAP to clarify the scope of decreases in ownership. The ASU also expands disclosure requirements about (1) the valuation techniques used to measure the fair value of retained investments in the former subsidiary and (2) the nature of continuing involvement and related party relationships. The ASU is effective beginning in the first interim or annual reporting period ending on or after December 15, 2009 and the amendments should be applied retrospectively to the first period that SFAS No.160 was adopted. The adoption of ASU No.2010-02 did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In January 2010, the FASB issued ASU No.2010-06, “Fair Value Measurements and Disclosures (Topic 820)— Improving Disclosures about Fair Value Measurements” (“ASU No.2010-06”). The ASU provides amendments to ASC 820 that require new disclosures regarding (1) transfers in and out of Levels 1 and 2 and (2) more detailed activity in Level 3. The ASU also provides amendments to ASC 820 that clarify existing disclosures regarding (1) level of disaggregation and (2) inputs and valuation techniques. The ASU is effective for interim and annual reporting periods beginning after December 15, 2009, except for the new disclosures related to the activity in Level 3, which do not become effective until fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. ASU No.2010-06 is an accounting principle which expands disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

In March 2010, the FASB issued ASU No.2010-11, “Derivatives and Hedging (Topic 815)—Scope Exception Related to Embedded Credit Derivatives” (“ASU No.2010-11”). The ASU clarifies the scope exception for embedded credit derivative features related to the transfer of credit risk, which are subject to potential bifurcation, and indicate circumstances which do not qualify for the scope exception. The ASU is effective at the beginning of the first fiscal quarter beginning after June 15, 2010. The adoption of ASU No.2010-11 did not have a material impact on the MHFG Group’s consolidated results of operations or financial condition.

In July 2010, the FASB issued ASU No.2010-20, “Receivables (Topic 310)—Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU No.2010-20”). The ASU requires disclosures that facilitate financial statement users’ evaluation of (1) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (3) the changes and reasons for those changes in the allowance for credit losses. The new disclosures required include (1) aging of past due receivables, (2) credit quality indicators, and (3) modifications of financing receivables. It is also required that the certain existing disclosures should be provided on a

 

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disaggregated basis. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010, whereas the disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. In January 2011, the FASB issued ASU No.2011-01, “Receivables (Topic310)—Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No.2010-20” (“ASU No.2011-01”) to delay the effective date of the disclosures about troubled debt restructurings for public entities, and in April 2011, it was provided that such disclosure requirements would be effective for interim and annual periods beginning on or after June 15, 2011 in ASU No.2011-02, “Receivables (Topic310)—A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” (“ASU No.2011-02”). ASU No.2010-20 is an accounting principle which expands disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

Accounting pronouncements issued but not yet effective

In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position (“SOP”) No.07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies”, which is now included in ASC 946, “Financial Services—Investment Companies” (“ASC 946”), and provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (“the Guide”). The statement was expected to be effective for fiscal years beginning on or after December 15, 2007, with earlier application encouraged. However, in February 2008, the FASB issued FSP No.SOP07-1-1, “Effective Date of AICPA Statement of Position 07-1”, which is now included in ASC 946 as well, to delay the effective date of SOP No.07-1 indefinitely in order to address implementation issues. The MHFG Group does not expect that the current form of the statement will have a material impact on its consolidated results of operations or financial condition.

In December 2010, the FASB issued ASU No.2010-28, “Intangibles—Goodwill and Other (Topic 350)—When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU No.2010-28”). The ASU requires Step 2 of the impairment test should be performed in circumstances where the carrying amount of a reporting unit is zero or negative and there are qualitative factors that indicate it is more likely than not that a goodwill impairment exists. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The MHFG Group does not expect that the adoption of ASU No.2010-28 will have a material impact on its consolidated results of operations or financial condition.

In December 2010, the FASB issued ASU No.2010-29, “Business Combinations (Topic 805)—Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU No.2010-29”). The ASU clarifies that, if a reporting entity presents comparative financial statements, the pro forma revenue and earnings of the combined entity should be reported as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The ASU is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. ASU No.2010-29 is an accounting principle which clarifies disclosure requirements, and has no impact on the MHFG Group’s consolidated results of operations or financial condition.

As described above, in April 2011, the FASB issued ASU No.2011-02, which sets the effective date of certain disclosure requirements which was deferred by ASU No.2011-01. ASU No.2011-02 also clarifies the guidance on a creditor’s evaluation for troubled debt restructurings of whether it has granted a concession and whether a

 

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debtor is experiencing financial difficulties. The ASU is effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The MHFG Group does not expect that the adoption of ASU No.2011-02 will have a material impact on its consolidated results of operations or financial condition.

In April 2011, the FASB issued ASU No.2011-03, “Transfers and Servicing (Topic 860)—Reconsideration of Effective Control for Repurchase Agreements” (“ASU No.2011-03”). The ASU amends the conditions to determine whether a transferor in repurchase agreements (repos) and other similar agreements maintains effective control over the financial assets transferred by removing from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The ASU is effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The MHFG Group does not expect that the adoption of ASU No.2011-03 will have a material impact on its consolidated results of operations or financial condition.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820)—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU No.2011-04”) in order to improve comparability of fair value measurements presented and disclosed in financial statements prepared with U.S. GAAP and International Financial Reporting Standards (“IFRS”). The amendments in ASU No. 2011-04 change the wording to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to align with IFRS. The amendments also clarify the existing fair value measurement and disclosure requirements, which include (1) application of the highest and best use and valuation premise concepts, (2) measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity and (3) disclosing quantitative information about the unobservable inputs used for Level 3 items. The amendments also change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements, which include (1) measuring the fair value of financial instruments that are managed within a portfolio, (2) application of premiums and discounts in a fair value measurement and (3) additional disclosures about fair value measurements. The ASU is effective for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The MHFG Group is currently evaluating the potential impact that the adoption of ASU No.2011-04 will have on its consolidated results of operations and financial condition.

In June 2011, the FASB issued ASU No.2011-05, “Comprehensive Income (Topic 220)—Presentation of Comprehensive Income” (“ASU No.2011-05”). The ASU eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, and requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU also requires reclassification adjustments from other comprehensive income to net income be presented on the face of financial statements. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. Early adoption is permitted. ASU No.2011-05 is an accounting principle which alters disclosure requirements, and had no impact on the MHFG Group’s consolidated results of operations or financial condition.

3. Business Combination

Shinko was a broker and dealer in securities and an equity method affiliate of the MHFG Group in which the Group owned 27.32 percent of the voting equity interests immediately before the business combination. On May 7, 2009, MHFG exchanged 30.30 percent of the voting equity interests in MHSC for 32.19 percent of the

 

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voting equity interests in Shinko and merged the two entities, in order to strengthen the Group’s securities arm so it is more competitive in a market with high uncertainty, improve its service providing capabilities and enable it to offer financial services to clients on a global basis.

This transaction was accounted for as a bargain purchase because the opening market price of Shinko’s common shares on the acquisition date was less than the fair value of net assets per common share. As a result, a pretax gain of ¥106,310 million is recorded in Other noninterest income during the fiscal year ended March 31, 2010.

The following table summarizes the consideration paid for Shinko and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date of the noncontrolling interests in Shinko.

 

		At May 7, 2009
		(in millions of yen)
Consideration
Equity instruments (3,451,755 common shares of MHSC)			58,600
Fair value of total consideration transferred			58,600
Fair value of MHFG’s equity interests in Shinko held before the business combination			49,265
			107,865
Recognized amounts of identifiable assets acquired
Cash and due from banks			118,725
Interest-bearing deposits in other banks			32,344
Receivables under securities borrowing transactions			831,839
Trading account assets			1,008,004
Investments			98,937
Loans			14,248
Premises and equipment			57,004
Accrued income			7,462
Intangible assets (Note)			73,949
Other assets			76,734
Recognized amounts of identifiable liabilities assumed
Call money and funds purchased			41,000
Payables under repurchase agreements			27,111
Payables under securities lending transactions			745,131
Other short-term borrowings			357,813
Trading account liabilities			671,841
Income taxes payable			490
Deferred tax liabilities			25,633
Accrued expenses			5,777
Long-term debt			75,795
Other liabilities			75,162
Total identifiable net assets			293,493
Noncontrolling interests in Shinko			79,318
Gain on the bargain purchase			106,310
			107,865

 

Note:

Amounts represent customer relationships subject to amortization, of which the weighted-average amortization period is 16 years.

 

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The fair value of the 3,451,755 common shares of MHSC as the consideration paid for Shinko (¥58,600 million) and the noncontrolling interests in Shinko (¥79,318 million) were determined on the basis of the opening market price of Shinko’s common shares on the acquisition date.

The MHFG Group recognized a gain of ¥364 million as a result of remeasuring to fair value its 27.32 percent of the voting equity interests in Shinko held before the business combination. The gain is included in Other noninterest income in the Group’s consolidated statements of income for the fiscal year ended March 31, 2010.

The revenue and earnings of Shinko since the acquisition date included in the Group’s consolidated statements of income for the fiscal year ended March 31, 2010 are not material. Furthermore, the revenue and earnings of the MHFG Group, other than a gain on the bargain purchase described above, would not differ significantly than those reported in the consolidated statements of income if the business combination had occurred as of April 1, 2008.

4. Trading account assets and trading account liabilities

The following table presents the components of Trading account assets and Trading account liabilities at their fair value at March 31, 2010 and 2011:

 

		2010				2011
		(in millions of yen)
Trading account assets:
Trading securities:
Japanese government and corporate debt securities			7,765,716				7,056,932
Japanese equity securities			271,440				391,491
Foreign government bonds and other securities			7,449,783				7,531,058
Total			15,486,939				14,979,481
Derivative assets:
Interest rate contracts			12,187,368				9,963,943
Foreign exchange contracts			3,457,282				2,844,798
Equity-related contracts			157,534				153,761
Credit-related contracts			116,102				59,502
Other contracts, mainly commodity-related contracts			122,744				104,414
Total			16,041,030				13,126,418
Total			31,527,969				28,105,899
Trading account liabilities:
Trading securities sold, not yet purchased			4,114,020				4,414,702
Derivative liabilities:
Interest rate contracts			11,738,251				9,541,145
Foreign exchange contracts			3,174,580				2,465,219
Equity-related contracts			170,484				150,246
Credit-related contracts			104,113				38,751
Other contracts, mainly commodity-related contracts			101,108				86,343
Total			15,288,536				12,281,704
Total			19,402,556				16,696,406

See Note 29 “Fair value” for the methodologies and assumptions used to estimate fair values.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The MHFG Group performs trading activities through market-making, sales, and arbitrage. Net trading gains for the fiscal years ended March 31, 2009, 2010 and 2011 are comprised of the following:

 

		2009				2010				2011
		(in millions of yen)
Trading account gains (losses)—net:
Trading securities, excluding derivative contracts			(160,804	)			226,278				55,339
Derivative contracts			282,822				195,315				150,677
Total			122,018				421,593				206,016
Foreign exchange gains (losses)—net			23,769				(1,311	)			55,998
Net trading gains			145,787				420,282				262,014

5. Investments

The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity securities at March 31, 2010 and 2011 are as follows:

 

		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
		(in millions of yen)
2010 (1)
Available-for-sale securities:
Debt securities:
Japanese government bonds			28,271,986				21,826				65,023				28,228,789
Japanese local gov’t bonds			154,897				2,065				115				156,847
U.S. Treasury bonds			112,680				57				327				112,410
Other foreign gov’t bonds			318,167				1,324				32				319,459
Agency mortgage-backed securities (2)			530,204				5,386				600				534,990
Residential mortgage-backed securities			1,008,367				11,039				8,716				1,010,690
Commercial mortgage-backed securities			674,964				2,870				27,660				650,174
Japanese corporate bonds and other debt securities			2,723,309				53,701				8,934				2,768,076
Foreign corporate bonds and other debt securities			713,613				30,949				8,577				735,985
Equity securities (marketable)			2,007,370				1,280,501				3,926				3,283,945
Total			36,515,557				1,409,718				123,910				37,801,365
Held-to-maturity securities:
Debt securities:
Japanese government bonds			600,456				4,413				394				604,475
Japanese corporate bonds			2,923				14				—				2,937
Total			603,379				4,427				394				607,412

 

F-29

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

2011		Amortized cost				Gross unrealized gains				Gross unrealized losses				Fair value
		(in millions of yen)
Available-for-sale securities:
Debt securities:
Japanese government bonds			29,280,682				10,572				78,001				29,213,253
Japanese local gov’t bonds			229,440				2,139				1,410				230,169
U.S. Treasury bonds			128,507				397				522				128,382
Other foreign gov’t bonds			290,428				331				181				290,578
Agency mortgage-backed securities (2)			769,182				3,496				7,710				764,968
Residential mortgage-backed securities			753,625				11,358				5,426				759,557
Commercial mortgage-backed securities			509,294				2,961				26,007				486,248
Japanese corporate bonds and other debt securities			3,170,653				41,456				14,581				3,197,528
Foreign corporate bonds and other debt securities			624,877				23,785				2,954				645,708
Equity securities (marketable)			1,918,733				922,649				8,832				2,832,550
Total			37,675,421				1,019,144				145,624				38,548,941
Held-to-maturity securities:
Debt securities:
Japanese government bonds			1,200,615				7,361				1,269				1,206,707
Japanese corporate bonds			1,508				5				—				1,513
Total			1,202,123				7,366				1,269				1,208,220

 

Notes:

(1)	Certain amounts for the fiscal year ended March 31, 2010 have been summarized to conform to the current period’s presentation.

(2)

Agency mortgage-backed securities presented in the above table consist of U.S. agency securities and Japanese agency securities, of which the fair values were ¥57,539 million and ¥477,451 million, respectively, at March 31, 2010, and ¥82,632 million and ¥682,336 million, respectively, at March 31, 2011. U.S. agency securities primarily consist of Government National Mortgage Association or Ginnie Mae securities, which are guaranteed by the United States government. All of Japanese agency securities are mortgage-backed securities issued by Japan Housing Finance Agency, a Japanese government-sponsored enterprise.

The amortized cost and fair value of available-for-sale and held-to-maturity debt securities at March 31, 2011 by contractual maturity are shown in the table below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. Securities not due at a single maturity date and securities embedded with call or prepayment options, such as mortgage-backed securities, are included in the table below based on their original final or contractual maturities.

 

		Available-for-sale debt securities								Held-to-maturity debt securities
		Amortized cost				Fair value				Amortized cost				Fair value
		(in millions of yen)
Due in one year or less			15,495,392				15,505,802				501				502
Due after one year through five years			14,893,687				14,870,097				1,201,622				1,207,718
Due after five years through ten years			3,367,910				3,328,655				—				—
Due after ten years			1,999,699				2,011,837				—				—
Total			35,756,688				35,716,391				1,202,123				1,208,220

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The following tables show the gross unrealized losses and fair value of available-for-sale and held-to-maturity securities, aggregated by the length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2010 and 2011:

 

		Less than 12 months								12 months or more								Total
		Fair value				Gross unrealized losses				Fair value				Gross unrealized losses				Fair value				Gross unrealized losses
		(in millions of yen)
2010 (1)
Available-for-sale securities:
Debt securities:
Japanese government bonds			10,159,459				47,899				544,908				17,124				10,704,367				65,023
Japanese local gov’t bonds			33,176				104				261				11				33,437				115
U.S. Treasury bonds			89,754				327				16				—				89,770				327
Other foreign gov’t bonds			45,805				31				1,365				1				47,170				32
Agency mortgage-backed securities (2)			85,531				227				41,075				373				126,606				600
Residential mortgage-backed securities			17,022				131				451,421				8,585				468,443				8,716
Commercial mortgage-backed securities			45,712				904				505,796				26,756				551,508				27,660
Japanese corporate bonds and other debt securities			500,023				7,435				95,183				1,499				595,206				8,934
Foreign corporate bonds and other debt securities			83,703				5,545				183,735				3,032				267,438				8,577
Equity securities (marketable)			43,362				3,421				4,942				505				48,304				3,926
Total			11,103,547				66,024				1,828,702				57,886				12,932,249				123,910
Held-to-maturity securities:
Debt securities:
Japanese government bonds			199,670				394				—				—				199,670				394
Total			199,670				394				—				—				199,670				394

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

		Less than 12 months								12 months or more								Total
		Fair value				Gross unrealized losses				Fair value				Gross unrealized losses				Fair value				Gross unrealized losses
		(in millions of yen)
2011
Available-for-sale securities:
Debt securities:
Japanese government bonds			17,012,827				54,063				1,284,639				23,938				18,297,466				78,001
Japanese local gov’t bonds			121,689				1,410				—				—				121,689				1,410
U.S. Treasury bonds			84,209				522				3				—				84,212				522
Other foreign gov’t bonds			148,135				181				—				—				148,135				181
Agency mortgage-backed securities (2)			520,937				7,710				—				—				520,937				7,710
Residential mortgage-backed securities			40,706				359				251,170				5,067				291,876				5,426
Commercial mortgage-backed securities			1,499				1				355,884				26,006				357,383				26,007
Japanese corporate bonds and other debt securities			1,133,710				13,047				276,244				1,534				1,409,954				14,581
Foreign corporate bonds and other debt securities			116,588				1,324				126,015				1,630				242,603				2,954
Equity securities (marketable)			101,214				8,462				2,154				370				103,368				8,832
Total			19,281,514				87,079				2,296,109				58,545				21,577,623				145,624
Held-to-maturity securities:
Debt securities:
Japanese government bonds			299,022				1,269				—				—				299,022				1,269
Total			299,022				1,269				—				—				299,022				1,269

 

Notes:

(1)	Certain amounts for the fiscal year ended March 31, 2010 have been summarized to conform to the current period’s presentation.

(2)

Agency mortgage-backed securities presented in the above table consist of U.S. agency securities and Japanese agency securities, of which the fair values were ¥17,004 million and ¥109,602 million, respectively, at March 31, 2010, and ¥55,327 million and ¥465,610 million, respectively, at March 31, 2011. U.S. agency securities primarily consist of Government National Mortgage Association or Ginnie Mae securities, which are guaranteed by the United States government. All of Japanese agency securities are mortgage-backed securities issued by Japan Housing Finance Agency, a Japanese government-sponsored enterprise.

The MHFG Group performs periodic reviews to identify impaired securities. Impairment is evaluated considering the length of time and extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer, as well as the MHFG Group’s ability and intent to hold the investments for an adequate period of time until an anticipated market price recovery or maturity.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Effective April 1, 2009, the MHFG Group adopted FSP No.FAS115-2 and FAS124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, which is now included in ASC 320. The FSP amended the other-than-temporary impairment model for debt securities. Under the new model, if an entity has the intent to sell a debt security or more likely than not will be required to sell a debt security before recovery of its amortized cost basis, the full amount of an other-than-temporary impairment loss shall be recognized immediately through earnings. Other than either case described above, an entity must evaluate expected cash flows to be received and determine if a credit loss exists, and if so, the amount of other-than-temporary impairment related to the credit loss shall be recognized in earnings, while the remaining decline in fair value shall be recognized in other comprehensive income, net of applicable taxes. As the FSP does not affect the other-than-temporary impairment model for equity securities, equity securities deemed other-than-temporarily impaired are written down to fair value, with the full decline recognized in earnings.

For certain Japanese government bonds held at April 1, 2009 for which an other-than-temporary impairment was previously recognized, the MHFG Group recorded the cumulative effect of initially applying the FSP as a decrease to the beginning balance of Accumulated deficit with a corresponding adjustment to Accumulated other comprehensive loss, net of tax. Considering the factors that the MHFG Group does not intend to sell those securities, it is not more likely than not that the Group will be required to sell them before recovery of their amortized cost basis, and no credit deterioration exists in those securities, ¥99,910 million of other-than-temporary impairment charges previously recorded through earnings are reclassified to Accumulated other comprehensive loss, net of tax (pre-tax amount of ¥141,212 million offset by tax effect of ¥33,775 million and noncontrolling interests of ¥7,527 million).

The MHFG Group has determined that the unrealized losses on investments in a continuous loss position for 12 months or more at March 31, 2011, are not other-than-temporary, because such losses have resulted primarily from reduced liquidity rather than credit deterioration, the Group has no intent to sell nor is it more likely than not the Group will be required to sell those securities before recovery of their amortized costs, and the present value of cash flows expected to be collected is not less than the amortized cost basis of the security.

For the fiscal years ended March 31, 2009 and 2010, the MHFG Group recognized in earnings other-than-temporary impairment on available-for-sale securities of ¥462,909 million and ¥92,497 million, respectively. No impairment losses were recorded on held-to-maturity securities for those fiscal years.

For the fiscal year ended March 31, 2011, the MHFG Group recognized in earnings other-than-temporary impairment on available-for-sale securities of ¥77,042 million, of which ¥12,394 million was on debt securities and ¥64,648 million was on equity securities. The other-than-temporary impairment losses for debt securities were mainly attributable to the decline in the fair value of commercial mortgage-backed securities (“CMBS”) that the MHFG Group had the intent to sell. In accordance with ASC 320-10-35-33A and ASC 320-10-35-34B, the other-than-temporary impairment of these securities was recognized in earnings. The remaining CMBS with unrealized losses that were categorized in the same security type with similar credit risks were not considered other-than-temporarily impaired because the MHFG Group determined that it was expected to recover their entire amortized cost basis, after considering various factors such as the extent to which their fair values were below their amortized costs, external rating changes and the present values of cash flows expected to be collected. The MHFG Group did not intend to sell them nor was it more likely than not that the Group would be required to sell them before recovery of their amortized cost basis. Certain equity securities were determined not to be other-than-temporarily impaired as the length of time that their fair values were below their costs were reasonably short and/or the impairments were immaterial in amount. No impairment losses were recorded on held-to-maturity securities for the period.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

There has been no amount related to credit losses recognized in earnings on debt securities where a portion of other-than-temporary impairment was recognized in other comprehensive income ever since the adoption of the new impairment model for debt securities on April 1, 2009.

For the fiscal years ended March 31, 2009, 2010 and 2011, gross realized gains on sales of available-for-sale securities were ¥212,500 million, ¥248,254 million and ¥194,908 million, respectively, and gross realized losses on those sales were ¥120,324 million, ¥26,492 million and ¥40,376 million, respectively.

Other investments

The following table summarizes the composition of other investments:

 

		2010				2011
		(in millions of yen)
Equity method investments			184,555				172,326
Investments held by consolidated investment companies			95,518				285,716
Other equity interests			567,855				494,534
Total other investments			847,928				952,576

Equity method investments

Investments in investees over which the MHFG Group has the ability to exert significant influence are accounted for using the equity method of accounting. Such investments included marketable equity securities carried at ¥5,057 million and ¥15,420 million, at March 31, 2010 and 2011, respectively. The aggregated market values of those marketable equity securities were ¥7,695 million and ¥20,398 million, respectively.

On September 22, 2010, the MHFG Group converted certain preferred shares of Orient Corporation (“Orico”) into the common shares of Orico. As a result of the effective acquisition of such common shares, the Group’s proportionate share to the total outstanding common shares of Orico increased to 27.1%. The Group’s proportionate share as of March 31, 2011 was 25.7%, and accordingly, the Group classifies its investment in Orico as equity method investments. Retroactive application of the equity method of accounting to the investments in Orico did not have a material effect on the Group’s consolidated results of operations, financial condition, or retained earnings. The Group and certain third parties still hold convertible preferred shares of Orico, and if fully converted, the Group’s proportionate share to the total outstanding common shares of Orico would increase to 58.0%.

Investments held by consolidated investment companies

The MHFG Group consolidates certain investment companies for which it has control either through ownership or other means. Investment companies are subject to specialized industry accounting which requires investments to be carried at fair value, with changes in fair value recorded in earnings. The MHFG Group maintains this specialized industry accounting for investments held by consolidated investment companies, which consist of marketable and non-marketable investments.

Other equity interests

Other equity interests consist primarily of non-marketable equity securities outside the scope of ASC 320, for which the MHFG Group has neither significant influence nor control over the investees. These securities are

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

stated at acquisition cost, with other-than-temporary impairment, if any, included in earnings. The fair values of these securities at March 31, 2010 and 2011 were not readily determinable. The MHFG Group monitors the status of each investee, including its credit rating, to determine whether impairment losses should be recognized.

6. Loans

The table below presents loans outstanding by domicile and industry of borrower at March 31, 2010 and 2011:

 

		2010				2011
		(in millions of yen)
Domestic:
Manufacturing			8,065,169				7,617,139
Construction and real estate			7,854,069				7,308,324
Services			5,152,670				4,286,744
Wholesale and retail			5,306,409				5,313,766
Transportation and communications			3,237,678				3,228,202
Banks and other financial institutions			4,289,460				3,908,065
Government and public institutions			5,459,188				7,154,049
Other industries (1)			3,332,153				3,758,540
Individuals:
Mortgage loans			11,093,236				11,436,486
Other			788,335				745,065
Total domestic			54,578,367				54,756,380
Foreign:
Commercial and industrial			7,236,684				6,964,802
Banks and other financial institutions			1,721,861				2,587,531
Government and public institutions			292,466				453,066
Other (1)			31,503				9,662
Total foreign			9,282,514				10,015,061
Total			63,860,881				64,771,441
Less: Unearned income and deferred loan fees—net			78,030				81,627
Total loans before allowance for loan losses			63,782,851				64,689,814

 

Notes:

(1)	Other industries of domestic and other of foreign include trade receivables and lease receivables of consolidated VIEs.

(2)

The MHFG Group partially changed the category of industry sector to be consistent with class of financing receivables under ASU No.2010-20 which the Group adopted in the fiscal year ended March 31, 2011. Certain amounts in the prior period have been reclassified to conform to the current period’s presentation.

Net losses on sales of loans were ¥49,822 million, ¥5,860 million and ¥886 million, of which valuation losses related to loans held for sale accounted for at the lower of cost or fair value were ¥37,922 million, ¥1,759 million and ¥645 million for the fiscal years ended March 31, 2009, 2010 and 2011, respectively.

The MHFG Group reclassified certain loans held for sale within Other assets to Loans at their lower of cost or fair value during the fiscal year ended March 31, 2009. See consolidated statements of cash flows for the amount reclassified.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Credit quality information

Under the MHFG Group’s credit risk management, the Group uses an internal rating system that consists of credit ratings and pool allocations as the basis of its risk management infrastructure.

Credit ratings consist of obligor ratings which represent the level of credit risk of the obligor, and transaction ratings which represent the ultimate possibility of incurrence of losses for individual loan by taking into consideration various factors such as collateral or guarantee involved. In principle, obligor ratings are applied to all obligors except those to which pool allocations are applied, and are subject to regular review at least once a year as well as special review which is required whenever the obligor’s credit standing changes.

Pool allocations are applied to small balance loans. The MHFG Group pools loans with similar risk characteristics, and the risk is assessed and managed according to such pool.

The Group generally reviews the appropriateness and effectiveness of the approach to obligor ratings and pool allocations once a year in accordance with predetermined procedures.

The table below presents the MHFG Group’s definition of obligor ratings used by MHBK, MHCB and MHTB:

 

Obligor category		Obligor rating		Definition
Normal		A		Obligors whose certainty of debt fulfillment is very high, hence their level of credit risk is very low.
		B		Obligors whose certainty of debt fulfillment poses no problems for the foreseeable future, and their level of credit risk is sufficient.
		C		Obligors whose certainty of debt fulfillment and their level of credit risk pose no problems for the foreseeable future.
		D		Obligors whose current certainty of debt fulfillment poses no problems, however, their resistance to future environmental changes is low.
Watch		E1		Obligors that require observation going forward because of either minor concerns regarding their financial position, or somewhat weak or unstable business conditions.
		E2		Obligors that require special observation going forward because of problems with their borrowings such as reduced or suspended interest payments, problems with debt fulfillment such as failure of principal or interest payments, or problems with their financial position as a result of their weak or unstable business condition.
Intensive control		F		Obligors that are not yet bankrupt but are in financial difficulties and are deemed likely to become bankrupt in the future because of insufficient progress in implementing their management improvement plans or other measures (including obligors that are receiving ongoing support from financial institutions).
Substantially bankrupt		G		Obligors that have not yet become legally or formally bankrupt but are substantially insolvent because they are in serious financial difficulties and are deemed to be incapable of being restructured.
Bankrupt		H		Obligors that have become legally or formally bankrupt.

 

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MIZUHO FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The table below presents credit quality information of non-impaired loans based on the MHFG Group’s internal rating system at March 31, 2011:

 

		Normal obligors																Watch obligors excluding special attention obligors (1)
		A-B				C-D				Retail (2)				Other (3)				E1-E2				Retail (2)				Other (3)				Total
		(in millions of yen)
2011
Domestic:
Manufacturing			4,136,439				2,230,245				108,053				270,870				511,115				30,536				20,200				7,307,458
Construction and real estate			2,374,750				3,367,262				714,994				100,301				447,221				38,993				6				7,043,527
Services			1,908,978				1,737,894				216,879				10,935				268,270				35,884				—				4,178,840
Wholesale and retail			1,747,661				2,575,281				236,556				76,199				441,637				59,703				137				5,137,174
Transportation and communications			1,857,583				1,104,179				87,813				305				109,605				14,996				39				3,174,520
Banks and other financial institutions			2,897,448				783,833				1,963				765				220,569				80				—				3,904,658
Government and public institutions			7,081,238				—				—				72,811				—				—				—				7,154,049
Other industries			1,410,665				196,124				3,318				2,042,711				13,513				655				90,507				3,757,493
Individuals			—				203,805				11,273,403				239,229				59,371				111,055				4,902				11,891,765
Total domestic			23,414,762				12,198,623				12,642,979				2,814,126				2,071,301				291,902				115,791				53,549,484
Foreign:
Total foreign			5,015,595				2,754,922				1,717				1,157,535				901,673				82				67,864				9,899,388
Total			28,430,357				14,953,545				12,644,696				3,971,661				2,972,974				291,984				183,655				63,448,872

 

Notes:

(1)	Special attention obligors are watch obligors with restructured or 90 days or more delinquent debt. Loans to such obligors are not included in the table above, because the MHFG Group considers all such loans impaired.

(2)	Amounts represent small balance, homogeneous loans which are subject to pool allocations.

(3)	Loans held by subsidiaries other than MHBK, MHCB, and MHTB constitute Other, since their portfolio segments are not identical to those used by MHBK, MHCB, and MHTB.

 

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Impaired loans

The MHFG Group considers loans to be impaired when it is probable that the Group will be unable to collect all the scheduled payments of principal and interest when due according to the contractual terms of the loan. The MHFG Group determines loans to special attention, intensive control, substantially bankrupt and bankrupt obligors as impaired loans, and all of the Group’s impaired loans are designated as nonaccrual loans. The table below presents impaired loans information at March 31, 2010 and 2011.

 

		Recorded investment  (2)				Unpaid principal balance				Related allowance				Average recorded investment				Interest income recognized  (3)
		(in millions of yen)
2010
Impaired loans requiring an allowance for loan losses:
Total			1,107,860								434,987
Impaired loans not requiring an allowance for loan losses (1):
Total			296,418								—
Total:
Total			1,404,278								434,987				1,430,423				34,811
2011
Impaired loans requiring an allowance for loan losses:
Domestic:
Manufacturing			294,921				320,481				112,080				273,453				4,804
Construction and real estate			203,948				249,217				54,752				210,703				4,196
Services			93,168				108,673				30,783				129,262				1,973
Wholesale and retail			162,326				178,860				63,289				151,010				3,138
Transportation and communications			47,879				50,086				21,517				101,461				1,321
Banks and other financial institutions			3,353				3,865				1,388				13,184				94
Other industries			574				1,439				178				842				5
Individuals			118,013				136,296				11,220				95,610				2,646
Total domestic			924,182				1,048,917				295,207				975,525				18,177
Foreign:
Total foreign			103,104				107,602				38,137				100,394				2,014
Total			1,027,286				1,156,519				333,344				1,075,919				20,191

 

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		Recorded investment  (2)				Unpaid principal balance				Related allowance				Average recorded investment				Interest income recognized  (3)
		(in millions of yen)
2011
Impaired loans not requiring an allowance for loan losses (1):
Domestic:
Manufacturing			14,760				42,747				—				15,874				187
Construction and real estate			60,849				95,904				—				71,935				479
Services			14,736				53,407				—				19,870				324
Wholesale and retail			14,266				108,708				—				16,988				221
Transportation and communications			5,803				20,697				—				5,361				62
Banks and other financial institutions			54				6,262				—				233				1
Other industries			473				1,645				—				382				2
Individuals			171,773				188,799				—				151,303				1,455
Total domestic			282,714				518,169				—				281,946				2,731
Foreign:
Total foreign			12,569				69,430				—				17,021				159
Total			295,283				587,599				—				298,967				2,890
Total:
Domestic:
Manufacturing			309,681				363,228				112,080				289,327				4,991
Construction and real estate			264,797				345,121				54,752				282,638				4,675
Services			107,904				162,080				30,783				149,132				2,297
Wholesale and retail			176,592				287,568				63,289				167,998				3,359
Transportation and communications			53,682				70,783				21,517				106,822				1,383
Banks and other financial institutions			3,407				10,127				1,388				13,417				95
Other industries			1,047				3,084				178				1,224				7
Individuals			289,786				325,095				11,220				246,913				4,101
Total domestic			1,206,896				1,567,086				295,207				1,257,471				20,908
Foreign:
Total foreign			115,673				177,032				38,137				117,415				2,173
Total			1,322,569				1,744,118				333,344				1,374,886				23,081

 

Notes:

(1)	These impaired loans do not require an allowance for loan losses because the MHFG Group has sufficient collateral to cover probable loan losses.

(2)	Amounts also represent the outstanding balances of nonaccrual loans. The MHFG Group’s policy for placing loans in nonaccrual status is completely corresponded to the Group’s definition of impaired loans.

(3)	Amounts represent gross interest income on impaired loans which were included in Interest income on loans.

 

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Age analysis of past due loans

The table below presents an analysis of the age of the recorded investment in loans that are past due at March 31, 2011:

 

		30-59 days past due				60-89 days past due				90 days or more past due				Total past due				Current				Total
		(in millions of yen)
2011
Domestic:
Manufacturing			1,847				2,613				29,306				33,766				7,583,373				7,617,139
Construction and real estate			6,537				8,125				103,607				118,269				7,190,055				7,308,324
Services			3,916				1,836				21,631				27,383				4,259,361				4,286,744
Wholesale and retail			4,662				4,891				30,707				40,260				5,273,506				5,313,766
Transportation and communications			1,151				1,060				7,980				10,191				3,218,011				3,228,202
Banks and other financial institutions			1				8				264				273				3,907,792				3,908,065
Government and public institutions			—				—				—				—				7,154,049				7,154,049
Other industries			100				1				671				772				3,757,768				3,758,540
Individuals			42,851				22,411				137,040				202,302				11,979,249				12,181,551
Total domestic			61,065				40,945				331,206				433,216				54,323,164				54,756,380
Foreign:
Total foreign			8,550				6,224				14,975				29,749				9,985,312				10,015,061
Total			69,615				47,169				346,181				462,965				64,308,476				64,771,441

7. Allowance for loan losses

Changes in Allowance for loan losses for the fiscal years ended March 31, 2009 and 2010 are shown below:

 

		2009				2010
		(in millions of yen)
Balance at beginning of fiscal year			649,803				869,786
Provision (credit) for loan losses			567,396				222,102
Charge-offs			344,061				260,491
Less: Recoveries			28,881				53,808
Net charge-offs			315,180				206,683
Others (Note)			(32,233	)			(5,772	)
Balance at end of fiscal year			869,786				879,433

 

Note:

Others include primarily foreign exchange translation.

In accordance with ASC 450, a formula-based allowance utilizing historical loss factors, after adjusted for existing economic conditions where appropriate, is applied to groups of non-homogeneous loans and small balance, homogeneous loans which have not been identified as impaired. When management estimates probable credit losses to determine the allowance for loan losses, small balance, homogeneous loans are classified in the retail portfolio segment to which pool allocations apply, and loans other than classified in the retail portfolio

 

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segment are classified in the corporate portfolio segment. See Note 1 “Basis of presentation and summary of significant accounting policies” for further detail of the methodology used to determine allowance for loan losses and Note 6 “Loans” for further detail of obligor ratings and pool allocations.

The table below presents Allowance for loan losses and loans outstanding by portfolio segment at March 31, 2011:

 

		Corporate				Retail				Impaired loans				Other (3)				Total
		(in millions of yen)
2011
Allowance for loan losses:
Balance at beginning of fiscal year			305,832				23,141				431,611				118,849				879,433
Provision (credit) for loan losses			(60,120	)			5,573				21,149				34,045				647
Charge-offs			—				—				166,527				18,063				184,590
Less: Recoveries			—				—				46,712				934				47,646
Net charge-offs			—				—				119,815				17,129				136,944
Others (1)			—				—				(7,926	)			(680	)			(8,606	)
Balance at end of fiscal year			245,712				28,714				325,019				135,085				734,530
of which individually evaluated for impairment			2,028				—				245,073				53,424				300,525
of which collectively evaluated for impairment			243,684				28,714				79,946				81,661				434,005
Loans (2):
Balance at end of fiscal year			47,076,556				13,050,599				1,550,116				3,094,170				64,771,441
of which individually evaluated for impairment			38,058				—				1,139,475				51,421				1,228,954
of which collectively evaluated for impairment			47,038,498				13,050,599				410,641				3,042,749				63,542,487

 

Notes:

(1)	Others include primarily foreign exchange translation.

(2)	Amounts represent loan balances before deducting unearned income and deferred loan fees.

(3)	Amounts booked in subsidiaries other than MHBK, MHCB, and MHTB constitute Other, since their portfolio segments are not identical to those used by MHBK, MHCB, and MHTB.

Both the amount of provision for loan losses and charge-offs significantly increased in the fiscal year ended March 31, 2009 due mainly to the sharp downturn of the global economy.

Due mainly to an improvement in economic conditions, the amount of provision for loan losses and charge-offs significantly decreased in the fiscal year ended March 31, 2010.

Due mainly to upgrades in obligor category of some borrowers and other factors, the amount of provision for loan losses decreased in the fiscal year ended March 31, 2011.

 

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8. Premises and equipment

Premises and equipment at March 31, 2010 and 2011 consist of the following:

 

		2010				2011
		(in millions of yen)
Land			242,056				266,827
Buildings			675,630				710,226
Equipment and furniture			461,359				466,667
Leasehold improvements			90,004				88,107
Construction in progress			22,421				28,777
Software			645,321				683,514
Total			2,136,791				2,244,118
Less: Accumulated depreciation and amortization			1,088,874				1,129,914
Premises and equipment—net			1,047,917				1,114,204

Depreciation and amortization expense for premises and equipment for the fiscal years ended March 31, 2009, 2010 and 2011 was ¥146,191 million, ¥156,393 million and ¥162,128 million, respectively.

Premises and equipment under capital leases, which is primarily comprised of data processing equipment, amounted to ¥46,022 million and ¥47,074 million at March 31, 2010 and 2011, respectively. Accumulated depreciation and amortization on such premises and equipment at March 31, 2010 and 2011 amounted to ¥33,962 million and ¥28,954 million, respectively.

The MHFG Group recognized impairment losses of ¥9,299 million on premises and equipment for the fiscal year ended March 31, 2009, of which ¥7,703 million was recorded in General and administrative expenses and ¥1,596 million was recorded in Occupancy expenses. Such losses included ¥9,211 million of impairment losses on software and related server equipment recognized in the Global Retail Group due to the discontinuance of development of a next generation mainframe computer system of certain domestic consolidated subsidiary.

 

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9. Goodwill and intangible assets

Goodwill

The changes in Goodwill during the fiscal years ended March 31, 2009, 2010 and 2011 were as follows:

 

		Global Corporate Group				Global Retail Group				Total
		(in millions of yen)
2009
Balance at beginning of fiscal year			—				15,016				15,016
Goodwill acquired			—				—				—
Impairment losses recognized			—				—				—
Balance at end of fiscal year			—				15,016				15,016
Gross amount of goodwill			25,715				39,559				65,274
Accumulated impairment losses			25,715				24,543				50,258
2010
Balance at beginning of fiscal year			—				15,016				15,016
Goodwill acquired			—				—				—
Impairment losses recognized			—				—				—
Balance at end of fiscal year			—				15,016				15,016
Gross amount of goodwill			25,715				39,559				65,274
Accumulated impairment losses			25,715				24,543				50,258
2011
Balance at beginning of fiscal year			—				15,016				15,016
Goodwill acquired			1,973				—				1,973
Impairment losses recognized			—				9,379				9,379
Balance at end of fiscal year			1,973				5,637				7,610
Gross amount of goodwill			27,688				39,559				67,247
Accumulated impairment losses			25,715				33,922				59,637

Goodwill in the Global Retail Group is entirely related to the MHIS operating segment. Due to an adverse change in the business climate during the fiscal year ended March 31, 2011, it was determined that the carrying amount of the segment exceeded its fair value, which was calculated based on the quoted market price of MHIS’s common stock, as of March 31, 2011, the date of the annual impairment test. Therefore, a goodwill impairment loss of ¥9,379 million was recognized in the Global Retail Group during the fiscal year ended March 31, 2011.

Goodwill acquired in the Global Corporate Group during the fiscal year ended March 31, 2011 is entirely related to the acquisition of Eurekahedge Pte, LTD.

 

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Intangible assets

The table below presents the gross carrying amount, accumulated amortization and net carrying amount of intangible assets, at March 31, 2010 and 2011.

 

		2010												2011
		Gross carrying amount				Accumulated amortization				Net carrying amount				Gross carrying amount				Accumulated amortization				Net carrying amount
		(in millions of yen)
Intangible assets subject to amortization:
Customer relationships (Note)			73,949				3,193				70,756				73,949				8,347				65,602
Other			2,867				2,384				483				2,587				2,190				397
Total			76,816				5,577				71,239				76,536				10,537				65,999
Intangible assets not subject to amortization:
Total			9,755				—				9,755				9,768				—				9,768
Total			86,571				5,577				80,994				86,304				10,537				75,767

 

Note:

Customer relationships were acquired by the merger of MHSC and Shinko. See Note 3 “Business combination” for further information.

For the fiscal years ended March 31, 2009, 2010, and 2011, the MHFG Group recognized ¥200 million, ¥3,917 million, and ¥5,292 million, respectively, of amortization expenses for intangible assets.

The table below presents the estimated aggregate amortization expenses for intangible assets for the next five years:

 

		(in millions of yen)
Fiscal year ending March 31:
2012			5,443
2013			5,572
2014			5,669
2015			5,331
2016			5,042

 

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10. Pledged assets and collateral

The following amounts, by balance sheet classifications, have been pledged as collateral for borrowings and for other purposes at March 31, 2010 and 2011:

 

		2010				2011
		(in billions of yen)
Interest-bearing deposits in other banks			101				52
Trading account assets			10,231				9,747
Available-for-sale securities			13,092				18,000
Loans			8,711				9,520
Other assets			987				649
Total			33,122				37,968

The associated liabilities collateralized by the above assets at March 31, 2010 and 2011 are summarized below:

 

		2010				2011
		(in billions of yen)
Deposits			653				825
Call money and funds purchased			1,959				1,878
Payables under repurchase agreements			5,608				4,599
Payables under securities lending transactions			6,052				4,750
Other short-term borrowings			4,696				9,301
Long-term debt			3,475				4,989
Total			22,443				26,342

The Bank of Japan (“the BOJ”) requires private depository institutions to maintain a certain amount of funds as reserves in current accounts with the BOJ, based on average deposit balances and certain other factors. There are similar reserve deposit requirements for foreign offices engaged in banking businesses in foreign countries. At March 31, 2010 and 2011, the reserve funds maintained by the MHFG Group, which were included in Cash and due from banks and Interest-bearing deposits in other banks, were ¥3,731 billion and ¥7,847 billion, respectively.

At March 31, 2010 and 2011, the MHFG Group had received collateral that can be sold or repledged, with a fair value of ¥15,251 billion and ¥15,275 billion, respectively, of which ¥13,538 billion and ¥13,504 billion, respectively, were sold or repledged. Such collateral was primarily obtained under resale or securities borrowing agreements, and was used generally as collateral under repurchase or securities lending agreements, or to cover short sales.

 

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11. Deposits

The balances of time deposits and certificates of deposit issued by domestic offices in amounts of ¥10 million (approximately US$121 thousand at the Federal Reserve Bank of New York’s noon buying rate on March 31, 2011) or more as well as the balances of those deposits issued by foreign offices in amounts of US$100,000 or more at March 31, 2010 and 2011 are as follows:

 

		2010				2011
		(in millions of yen)
Domestic offices:
Time deposits			18,759,823				17,655,932
Certificates of deposit			8,563,870				7,853,270
Total			27,323,693				25,509,202
Foreign offices:
Time deposits			5,704,577				6,166,293
Certificates of deposit			1,723,924				1,796,966
Total			7,428,501				7,963,259

The aggregate amount of demand deposits in overdraft status that have been reclassified as loan balances at March 31, 2010 and 2011 was ¥606 billion and ¥582 billion, respectively.

The balance and remaining maturities of time deposits and certificates of deposit issued by domestic and foreign offices at March 31, 2011 are shown in the following table:

 

		Time deposits				Certificates of deposit				Total
		(in millions of yen)
Domestic offices:
Due in one year or less			23,429,136				7,852,760				31,281,896
Due after one year through two years			1,888,554				510				1,889,064
Due after two years through three years			1,312,042				—				1,312,042
Due after three years through four years			247,039				—				247,039
Due after four years through five years			267,861				—				267,861
Due after five years			125,580				—				125,580
Total			27,270,212				7,853,270				35,123,482
Foreign offices:
Due in one year or less			6,304,090				1,796,966				8,101,056
Due after one year through two years			6,678				—				6,678
Due after two years through three years			20,337				—				20,337
Due after three years through four years			111				—				111
Due after four years through five years			1,845				—				1,845
Due after five years			2,100				—				2,100
Total			6,335,161				1,796,966				8,132,127
Total			33,605,373				9,650,236				43,255,609

 

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12. Debentures

MHBK issues debentures denominated in Japanese yen with fixed interest rate to private investors as a source of funding for its operational needs. The following table presents interest rates and maturities of debentures:

 

		Interest rates				Maturities		2010				2011
		(%)						(in millions of yen)
Five-year coupon debentures			0.06 – 0.66			Apr.2011-Apr.2016			1,517,798				740,933

 

Note: Interest rates and maturities shown are as of March 31, 2011.

13. Due to trust accounts

MHTB and TCSB, which are MHFG’s subsidiary trust banks, hold assets on behalf of their customers in an agent, fiduciary or trust capacity. Such trust account assets are not the MHFG Group’s proprietary assets and are managed and accounted for separately. However, the cash of individual trust accounts is often placed with MHTB and TCSB for the customers’ short-term investment needs. These amounts which MHTB and TCSB owe to the trust accounts are recorded as Due to trust accounts.

On April 1, 2010, the MHFG Group consolidated certain guaranteed principal money trusts. See Note 27 “Variable interest entities and securitizations” for further discussion of the guaranteed principal money trust.

14. Long-term debt

Long-term debt with original maturities of more than one year at March 31, 2010 and 2011 is comprised of the following:

 

		2010				2011
		(in millions of yen)
Obligations under capital leases			19,782				23,794
Loan participation borrowings			186,200				69,937
Senior borrowings and bonds			3,517,969				4,550,298
Subordinated borrowings and bonds			4,758,483				4,309,467
Total			8,482,434				8,953,496

 

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The following table presents interest rates and maturities of senior borrowings and bonds, and subordinated borrowings and bonds:

 

		Interest rates  (1)				Maturities (2)		2010				2011
		(%)						(in millions of yen)
Senior borrowings and bonds:
fixed rate denominated in Japanese yen			0-10			Apr. 2011-Jul. 2040			2,486,198				3,007,615
fixed rate denominated in U.S. dollars			0-7.49			Oct. 2011-Sep. 2038			4,810				5,288
fixed rate denominated in other currencies			6.16-7.37			Jun. 2011-Jan. 2012			24,842				11,243
floating rate denominated in Japanese yen			0-14.8			Apr. 2011-Sep. 2041			814,498				1,231,317
floating rate denominated in U.S. dollars			0-10			Apr. 2011-Jul. 2047			187,577				294,202
floating rate denominated in other currencies			0-2.2			Nov. 2012-May 2015			44				633
Total									3,517,969				4,550,298
Subordinated borrowings and bonds:
fixed rate denominated in Japanese yen			1.1-4.74			Apr. 2011-Perpetual			3,627,819				3,536,156
fixed rate denominated in U.S. dollars			5.89-14.91			Apr. 2014-Perpetual			484,902				246,290
fixed rate denominated in Euro			4.98			Perpetual			63,324				59,588
floating rate denominated in Japanese yen			0.49-3.99			Apr. 2011-Perpetual			505,004				406,318
floating rate denominated in U.S. dollars			0.69-1.16			May 2016-Jan. 2018			69,315				61,115
floating rate denominated in Euro									8,119				—
Total									4,758,483				4,309,467
Total									8,276,452				8,859,765

 

Notes:

(1)	The interest rates shown are the range of contractual rates in effect at March 31, 2011.

(2)	Maturity information shown is the range of maturities at March 31, 2011.

(3)	None of the long-term debt issues listed above is convertible to common stock.

(4)	Certain debt agreements permit the MHFG Group to redeem the related debt, in whole or in part, prior to maturity at the MHFG Group’s option on terms specified in the respective agreements.

The following is a summary of contractual maturities of long-term debt subsequent to March 31, 2011:

 

		(in millions of yen)
Fiscal years ending March 31:
2012			961,550
2013			872,224
2014			749,520
2015			1,090,918
2016			1,092,532
2017 and thereafter			4,186,752
Total			8,953,496

 

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15. Other assets and liabilities

The following table sets forth the details of other assets and liabilities at March 31, 2010 and 2011:

 

		2010				2011
		(in millions of yen)
Other assets:
Accounts receivable from brokers, dealers and customers for securities transactions			1,627,189				841,542
Collateral provided for derivative transactions			852,895				529,967
Financial Stabilization Funds			318,112				330,153
Security deposits			111,828				106,881
Miscellaneous receivables			60,115				84,861
Loans held for sale			45,072				10,411
Other			455,293				437,734
Total			3,470,504				2,341,549
Other liabilities:
Accounts payable to brokers, dealers and customers for securities transactions			1,407,575				1,424,490
Guaranteed trust principal			—				578,283
Factoring amounts owed to customers			305,597				335,944
Collateral accepted for derivative transactions			539,515				322,960
Miscellaneous payables			463,077				249,487
Matured debentures			179,012				150,241
Unearned income			145,357				146,536
Accrued pension liability			29,748				102,392
Other			724,171				768,556
Total			3,794,052				4,078,889

Financial Stabilization Funds

The Financial Stabilization Funds were initiated in 1996 by the Japanese government in connection with the liquidation of certain failed housing-loan companies. Several financial institutions including the BOJ were required by the Japanese government to invest in these Funds in an effort to stabilize the effects on the Japanese economy. The returns from the investment of the Funds are first to be used to make up for a part of the losses incurred as the housing-loan companies’ loans are collected and disposed of. The Funds are principally invested in Japanese government bonds, but the investment income earned by the Funds does not accrue to the MHFG Group, and as a result, the deposits are noninterest-bearing.

The MHFG Group made deposits with the Funds amounting to ¥359,017 million during the fiscal year ended March 31, 1997. The deposits are expected to mature in 15 years from the deposit date. The deposits were discounted to their present value at the time of the deposit and the discount is being accreted over the expected period to maturity using the interest method. The carrying amount of the deposits as of March 31, 2010 and 2011 was ¥318,112 million and ¥330,153 million, respectively.

Unearned income

Unearned income is primarily comprised of refundable fees received from consumer loan customers at the time the loan was made, which is being deferred and recognized in earnings as earned.

 

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Matured debentures

Matured debentures represent the principal balance of debentures that have reached maturity but have not yet been repaid to customers.

Guaranteed trust principal

Guaranteed trust principal is the liability of certain consolidated trust arrangements, which the MHFG Group provides guarantees for the repayment of principal. See Note 27 “Variable interest entities and securitizations” for further discussion of the guaranteed principal money trust.

16. Preferred stock

The composition of preferred stock at March 31, 2009, 2010 and 2011 is as follows:

 

2009		Aggregate amount				Number of shares												Liquidation value per share				Convertible or not
Class of stock						Authorized				Issued				In treasury
		(in millions of yen)																(in yen)
Eleventh series class XI preferred stock(Note)			914,752				1,369,512,000				914,752,000				2,801,000				1,000				Yes
Class XII preferred stock			—				1,500,000,000				—				—				—				—
Thirteenth series class XIII preferred stock			36,690				1,500,000,000				36,690,000				—				1,000				No
Total			951,442				4,369,512,000				951,442,000				2,801,000
2010		Aggregate amount				Number of shares												Liquidation value per share				Convertible or not
Class of stock						Authorized				Issued				In treasury
		(in millions of yen)																(in yen)
Eleventh series class XI preferred stock (Note)			914,752				1,369,512,000				914,752,000				415,471,000				1,000				Yes
Class XII preferred stock			—				1,500,000,000				—				—				—				—
Thirteenth series class XIII preferred stock			36,690				1,500,000,000				36,690,000				—				1,000				No
Total			951,442				4,369,512,000				951,442,000				415,471,000
2011		Aggregate amount				Number of shares												Liquidation value per share				Convertible or not
Class of stock						Authorized				Issued				In treasury
		(in millions of yen)																(in yen)
Eleventh series class XI preferred stock (Note)			914,752				1,369,512,000				914,752,000				497,866,000				1,000				Yes
Class XII preferred stock			—				1,500,000,000				—				—				—				—
Thirteenth series class XIII preferred stock			36,690				1,500,000,000				36,690,000				—				1,000				No
Total			951,442				4,369,512,000				951,442,000				497,866,000

 

Note:

The aggregate amount and number of issued shares include the preferred stock in treasury which has been converted to common stock but not yet cancelled.

 

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Holders or registered pledgees of preferred stock are entitled to receive annual dividends, and distribution of residual assets of MHFG as set out above as liquidation value per share, in priority to holders of common stock but pari passu among themselves. MHFG may pay up to one-half of the annual dividend payable on each class of preferred stock as an interim dividend. Dividends on preferred stock are not cumulative. Holders of preferred stock are not entitled to vote at a general meeting of shareholders except where the articles of incorporation entitle holders of preferred stock to vote.

Thirteenth series class XIII preferred stock is callable (in full or in part) at the option of the issuer after April 1, 2013. Call price is the sum of the liquidation value per share and the accrued dividend. Accrued dividend is calculated on a daily basis starting on the first day of the fiscal period in which the call date belongs and ending on the call date. If an interim dividend is paid during that fiscal period, the amount of this interim dividend will be subtracted from the accrued dividend.

Eleventh series class XI preferred stock is convertible into common stock at the option of the holder. Material terms and conditions of conversion are as follows:

 

		Conversion period		Conversion ratio (Note)
Eleventh series class XI preferred stock		July 1, 2008 to June 30, 2016		¥1,000/(conversion price), where the conversion price after adjustment is ¥284.90 on or after July 31, 2010; to be reset on July 1 of each year between 2011 and 2015 (each, a “Reset Date”) as ¥1,000/(conversion price), where the conversion price is the lower of (x) the average price of daily closing prices (including closing bid or offered price) of common stock as reported by the Tokyo Stock Exchange (“TSE”) for the 30 consecutive trading days (excluding trading days on which no closing price, closing bid or offered price is reported) commencing on the 45th trading day prior to the Reset Date and (y) the conversion price after adjustment effective as of the day before the relevant Reset Date, provided that the conversion price shall not be less than ¥284.90.

 

Note:

Subject to adjustment, where issuance or disposal by MHFG of common stock for a price below the “current market price”, a stock split, issuance of securities convertible into common stock at a price below the “current market price” at the time of issuance thereof or determination of the conversion price thereof, merger or amalgamation, or a capital decrease or stock consolidation occurs and in certain other circumstances.

Each share of preferred stock which has not been converted as described above by the end of the relevant conversion period will be converted into common stock on the day following the end of the conversion period on the following terms:

 

		Conversion date		Conversion ratio
Eleventh series class XI preferred stock		July 1, 2016		¥1,000/(current market price), where the current market price is the average price of daily closing prices (including closing bid or offered price) of common stock as reported by the TSE for the 30 consecutive trading days (excluding trading days on which no closing price, closing bid or offered price is reported) commencing on the 45th trading day prior to July 1, 2016, provided that the current market price shall not be less than ¥284.90.

The changes in the number of shares and the aggregate amount of preferred stock during the fiscal years ended March 31, 2009, 2010 and 2011 were as follows. On January 4, 2009, MHFG abolished the fractional share

 

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system and adopted the unit share system concurrently with the allotment of shares or fractions of a share without consideration. The allotment was made at the rate of 999 shares per one share and 9.99 shares per every 0.01 of a share. Therefore, as a result of the allotment, the number of shares has increased a thousandfold.

 

Class of stock		Issued at March 31, 2008				Cancelled				Allotment				Issued at March 31, 2009				Net change				Issued at March 31, 2010				Net change				Issued at March 31, 2011
		(number of shares)
Eleventh series class XI preferred stock (Note)			943,740				(28,988	)			913,837,248				914,752,000				—				914,752,000				—				914,752,000
Thirteenth series class XIII preferred stock			36,690				—				36,653,310				36,690,000				—				36,690,000				—				36,690,000
Total			980,430				(28,988	)			950,490,558				951,442,000				—				951,442,000				—				951,442,000

 

Class of stock		Aggregate amount at March 31, 2008				Cancelled				Aggregate amount at March 31, 2009				Net change				Aggregate amount at March 31, 2010				Net change				Aggregate amount at March 31, 2011
		(in millions of yen)
Eleventh series class XI preferred stock (Note)			943,740				(28,988	)			914,752				—				914,752				—				914,752
Thirteenth series class XIII preferred stock			36,690				—				36,690				—				36,690				—				36,690
Total			980,430				(28,988	)			951,442				—				951,442				—				951,442

 

Note:

The aggregate amount and number of issued shares include the preferred stock in treasury which has been converted to common stock but not yet cancelled.

17. Common stock

On January 4, 2009, MHFG abolished the fractional share system and adopted the unit share system concurrently with the allotment of shares or fractions of a share without consideration. The allotment was made at the rate of 999 shares per one share and 9.99 shares per every 0.01 of a share. Therefore, as a result of the allotment, the number of shares has increased a thousandfold.

The changes in the number of issued shares of common stock during the fiscal years ended March 31, 2009, 2010, and 2011 were as follows:

 

		2009				2010				2011
		(shares)
Balance at beginning of fiscal year			11,396,255				11,178,940,660				15,494,397,690
Issuance of new shares of common stock by conversion of Eleventh series class XI preferred stock			59,186				1,315,457,030				287,787,630
Issuance of new shares of common stock by public offering			—				2,804,400,000				5,609,000,000
Issuance of new shares of common stock by way of third-party allotment			—				195,600,000				391,000,000
Cancellation of common stock			(276,500	)			—				—
Allotment of common stock			11,167,761,719				—				—
Balance at end of fiscal year			11,178,940,660				15,494,397,690				21,782,185,320

 

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18. Dividends

The amount available for dividends under the Company Law is based on the amount recorded in MHFG’s non-consolidated general books of account, maintained in accordance with accounting principles generally accepted in Japan (“Japanese GAAP”) and adjusted by post period-end changes. Therefore, the consolidated shareholders’ equity under U.S. GAAP has no effect on the determination of the amount available for dividends. On March 31, 2011, MHFG’s capital stock, capital surplus, and retained earnings were ¥2,181,375 million, ¥1,025,652 million, and ¥1,441,554 million, respectively, under Japanese GAAP.

In making a distribution of retained earnings, an entity must set aside in its legal reserve an amount equal to one-tenth of the amount of retained earnings so distributed, until its legal reserve reaches to one-quarter of its capital stock. MHFG’s legal reserve at March 31, 2011 was ¥1,030,002 million, of which ¥1,025,652 million was included in capital surplus and ¥4,350 million in retained earnings.

In addition to the provision that requires an appropriation for legal reserve, the Company Law and the Banking Law impose certain limitations on the amount available for dividends. Under the Company Law, MHFG’s maximum amount available for dividends, at March 31, 2011, was ¥1,434,007 million, based on the amount recorded in MHFG’s general books of account under Japanese GAAP. Under the Banking Law and related regulations, MHFG has to meet the minimum capital adequacy requirements. Distributions of retained earnings, which are otherwise distributable to shareholders, are restricted in order to maintain the minimum 4.0% Tier 1 capital for capital adequacy purposes. See Note 19 “Regulatory matters” for further discussion of regulatory capital requirements.

Payment of dividends on shares of common stock is also subject to the prior payment of dividends on shares of preferred stock.

Dividends on preferred stock and common stock during the fiscal years ended March 31, 2009, 2010, and 2011 were as follows:

 

2009		Cash dividends
Class of stock		Per share  (1)				In aggregate  (2)
		(in yen)				(in millions of yen)
Eleventh series class XI preferred stock			20				18,875
Thirteenth series class XIII preferred stock			30				1,101
Common stock			10				113,922
Total							133,898

 

2010		Cash dividends
Class of stock		Per share				In aggregate  (2)
		(in yen)				(in millions of yen)
Eleventh series class XI preferred stock			20				18,239
Thirteenth series class XIII preferred stock			30				1,101
Common stock			10				111,676
Total							131,016

 

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2011		Cash dividends
Class of stock		Per share				In aggregate  (2)
		(in yen)				(in millions of yen)
Eleventh series class XI preferred stock			20				9,985
Thirteenth series class XIII preferred stock			30				1,101
Common stock			8				123,880
Total							134,966

 

Notes:

(1)

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 one share and 9.99 shares per every 0.01 of a share, effective on January 4, 2009. Dividends per share for the fiscal year ended March 31, 2009 have been adjusted retroactively to reflect the allotment.

(2)	Dividends paid on treasury stock are excluded.

19. Regulatory matters

Regulatory capital requirements

MHFG, MHCB, MHBK, and MHTB are subject to regulatory capital requirements administered by the Financial Services Agency in accordance with the provisions of the Banking Law and related regulations. Failure to meet minimum capital requirements may initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the MHFG Group’s consolidated financial statements.

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 (“BIS”) and are intended to further strengthen the soundness and stability of Japanese banks. Effective March 31, 2007, new guidelines were implemented by the Financial Services Agency to comply with the new capital adequacy requirements set by BIS called Basel II. The framework of Basel II is based on the following three pillars: minimum capital requirements; supervisory review; and market discipline.

Under the first pillar, the capital ratio is calculated by dividing regulatory capital by risk-weighted assets. With respect to the calculation of risk-weighted assets, the MHFG Group adopts the advanced internal ratings-based approach. Under such approach, balance sheet assets and off-balance sheet exposures, calculated under Japanese GAAP, are assessed in terms of credit risk according to risk components such as probability of default and loss given default, which are derived from the Group’s own internal credit experience. In addition to credit risk, banks are required to measure and apply capital charges with respect to their market risks. Market risk is defined as the risk of losses in on- and off-balance-sheet positions arising from movements in market prices. Operational risk, which was introduced under Basel II with respect to regulatory capital requirements, is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The Group adopts the advanced measurement approach for the measurement of operational risk equivalent by taking account of the following four elements: internal loss data; external loss data; scenario analysis; and business environment and internal control factors.

With regard to risk-based capital, these guidelines are consistent with the original BIS framework, or Basel I, in requiring a target minimum standard capital adequacy ratio of 8%, at least half of which must consist of Tier 1 capital, on both a consolidated and non-consolidated basis for banks with international operations, such as MHCB and MHTB, or on a consolidated basis for bank holding companies with international operations, such as MHFG.

 

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Risk-based capital, calculated from financial statements prepared under Japanese GAAP, is classified into the following three tiers: Tier 1 capital; Tier 2 capital; and Tier 3 capital. Tier 1 capital generally consists of shareholders’ equity less any recorded goodwill, unrealized losses (net of taxes) on valuation of certain securities classified as “other securities” under Japanese GAAP which is similar to available-for-sale securities under U.S.GAAP, consolidation adjustment accounts and others. Tier 2 capital generally consists of: general reserve for possible losses on loans, equaling the sum of (i) the excess of the amount of qualified reserves over the amount of expected losses and (ii) the amount of general reserves calculated based on the standardized approach; 45% of each of the unrealized gains on “other securities” and the unrealized appreciation in the value of land; the balance of subordinated perpetual debt; and the balance of subordinated term debt with an original maturity of over five years and preferred term shares up to 50% of Tier 1 capital. Tier 2 capital may be included in a bank’s risk-based capital up to the amount equivalent to Tier 1 capital, less Tier 3 capital if market risk is taken into account in the capital adequacy ratio calculation. Tier 3 capital consists of the balance of subordinated term debt with original maturity of at least two years. Tier 3 capital may be included in total risk-based capital subject to certain conditions, depending on the measure for market risk equivalent and the amount of Tier 1 capital.

Japanese banks are also required to comply with the supervisory review process (second pillar) and disclosure requirements for market discipline (third pillar). Under the second pillar, banks are required to maintain adequate capital to support all of the major risks in their business and are encouraged to develop and use better risk management techniques in monitoring and managing such risks. Under the third pillar, banks are required to enhance disclosure, including disclosure of details of the capital adequacy ratio, the amount of each type of risk and the method of calculation used so that the market may make more effective evaluations.

Japanese banks with only domestic operations, such as MHBK, are subject to Japanese capital adequacy requirements that are similar to those discussed above, except that domestic banks are required to maintain a minimum capital adequacy ratio of 4%, at least half of which must consist of Tier 1 capital, on both a consolidated and non-consolidated basis.

In December 2008, the Financial Services Agency implemented special temporary measures, applicable through March 2012, which (i) allow Japanese banks and bank holding companies with international operations to elect not to add unrealized gains on valuation of bonds with a zero risk weighting to Tier 2 capital and not to deduct unrealized losses on valuation of bonds with a zero risk weighting from Tier 1 capital, and (ii) require Japanese banks and bank holding companies with only domestic operations not to deduct unrealized losses on valuation of “other securities” under Japanese GAAP (including equity securities) from Tier 1 capital. The Japanese capital adequacy requirements applicable to Japanese banks and bank holding companies with only domestic operations do not allow unrealized gains on “other securities” to be added to Tier 2 capital before or after this special temporary measures.

If the capital adequacy ratio of a financial institution falls below the required level, the Financial Services Agency may, depending upon the extent of capital deterioration, take certain corrective action, including requiring the financial institution to submit an improvement plan to strengthen its capital base, reduce its total assets, restrict its business operations, or other actions that could have a material effect on its financial statements.

 

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Capital adequacy ratios of MHFG, MHCB, MHBK, and MHTB as of March 31, 2010 and 2011 calculated in accordance with Japanese GAAP and guidelines established by the Financial Services Agency are set forth in the following table:

 

		2010								2011
		Amount				Ratio				Amount				Ratio
		(in billions of yen, except percentages)
Consolidated:
MHFG:
Tier 1 capital:
Required			2,275				4.00				2,068				4.00
Actual			5,173				9.09				6,170				11.93
Total risk-based capital:
Required			4,549				8.00				4,136				8.00
Actual			7,658				13.46				7,911				15.30
MHCB:
Tier 1 capital:
Required			1,245				4.00				1,125				4.00
Actual			3,914				12.57				4,529				16.10
Total risk-based capital:
Required			2,490				8.00				2,250				8.00
Actual			4,983				16.00				5,287				18.80
MHBK:
Tier 1 capital:
Required			482				2.00				457				2.00
Actual			1,866				7.74				2,375				10.38
Total risk-based capital:
Required			964				4.00				915				4.00
Actual			3,105				12.88				3,411				14.91
MHTB:
Tier 1 capital:
Required			112				4.00				98				4.00
Actual			281				10.07				297				12.11
Total risk-based capital:
Required			223				8.00				196				8.00
Actual			439				15.73				400				16.34
Non-consolidated:
MHCB:
Tier 1 capital:
Required			1,111				4.00				1,025				4.00
Actual			3,330				11.99				4,054				15.82
Total risk-based capital:
Required			2,221				8.00				2,049				8.00
Actual			4,908				17.68				5,212				20.34
MHBK:
Tier 1 capital:
Required			466				2.00				442				2.00
Actual			1,825				7.83				2,329				10.54
Total risk-based capital:
Required			931				4.00				884				4.00
Actual			3,021				12.97				3,318				15.02
MHTB:
Tier 1 capital:
Required			110				4.00				96				4.00
Actual			280				10.21				296				12.28
Total risk-based capital:
Required			219				8.00				193				8.00
Actual			437				15.97				399				16.54

 

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MHFG’s securities subsidiaries in Japan are also subject to the capital adequacy requirement under the Financial Instruments and Exchange Law. Under this requirement, securities firms must maintain a minimum capital adequacy ratio of 120% calculated as a percentage of capital accounts less certain assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty, and basic risks. Specific guidelines are issued as a ministerial ordinance that details the definition of essential components of the capital ratios, including capital, disallowed assets and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for regulatory reporting and a capital ratio of 100% or less may lead to a temporary suspension of all or part of the business operations and cancellation of the license to act as a securities broker and dealer.

Management believes, as of March 31, 2011, that MHFG, MHCB, MHBK, MHTB, and their securities subsidiaries in Japan are in compliance with all capital adequacy requirements to which they are subject.

Business improvement orders

In May 2011, the Financial Services Agency issued business improvement orders to MHFG and MHBK in connection with the computer system failures that occurred in March 2011. The business improvement orders require them to carry out promptly the measures to improve business and to prevent the recurrence of the failure. The MHFG Group has been and will be rigidly implementing plans for improvements and counter-measures in order to surely prevent computer system failures from occurring again.

20. Earnings per common share

Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the fiscal year. Diluted earnings per common share reflect the assumed conversion to common shares of all convertible securities such as convertible preferred stock.

On January 4, 2009, MHFG abolished the fractional share system and adopted the unit share system concurrently with the allotment of shares or fractions of a share without consideration. The allotment was made at the rate of 999 shares per one share and 9.99 shares per every 0.01 of a share. Therefore, as a result of the allotment, the number of shares has increased a thousandfold. The computations of basic and diluted earnings per common share are adjusted retroactively.

The following table sets forth the computation of basic and diluted earnings per common share for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		2009				2010				2011
		(in millions of yen)
Net income (loss):
Net income (loss) attributable to MHFG shareholders			(1,058,447	)			999,689				412,669
Less: Net income (loss) attributable to preferred shareholders			19,340				11,086				9,438
Net income (loss) attributable to common shareholders			(1,077,787	)			988,603				403,231
Effect of dilutive securities:
Convertible preferred stock			—	(1)			9,986				8,337
Stock compensation-type stock options			—				(25	)			(19	)
Net income (loss) attributable to common shareholders after assumed conversions			(1,077,787	)			998,564				411,549

 

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		2009				2010				2011
		(thousands of shares)
Shares:
Weighted average common shares outstanding			11,231,269				14,013,058				19,722,818
Effect of dilutive securities:
Convertible preferred stock			—	(1)			2,181,091	(2)			1,682,139	(2)
Stock compensation-type stock options			—				6,663				10,152
Weighted average common shares after assumed conversions			11,231,269				16,200,812				21,415,109

 

		2009				2010				2011
		(in yen)
Amounts per common share:
Basic net income (loss) per common share			(95.96	)			70.55				20.44
Diluted net income (loss) per common share			(95.96	)			61.64				19.22

 

Notes:

(1)	For the fiscal year ended March 31, 2009, the computation of diluted earnings per common share did not assume conversion of convertible preferred stock, as the effect of such conversion would be anti-dilutive due to the net loss.

(2)	For the fiscal years ended March 31, 2010 and 2011, the number of the dilutive common shares is based on the applicable conversion prices.

21. Income taxes

The following table presents the components of Income tax expense for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		2009				2010				2011
		(in millions of yen)
Current:
Domestic			10,013				10,975				6,951
Foreign			40,773				6,138				11,412
Total current tax expense			50,786				17,113				18,363
Deferred:
Domestic			709,625				(378,678	)			174,667
Foreign			1,497				1,370				197
Total deferred tax expense			711,122				(377,308	)			174,864
Total income tax expense			761,908				(360,195	)			193,227

 

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The preceding table does not reflect the tax effects of items recorded directly in Shareholders’ equity for the fiscal years ended March 31, 2009, 2010 and 2011. The detailed amounts recorded directly in Shareholders’ equity are as follows:

 

		2009				2010				2011
		(in millions of yen)
Unrealized net gains (losses) on available-for-sale securities:
Unrealized gains (losses)			(660,961	)			361,234				(131,416	)
Less: reclassification adjustments (Note)			142,606				(54,757	)			(32,473	)
Total			(518,355	)			306,477				(163,889	)
Pension liability adjustments:
Unrealized gains (losses)			(65,728	)			9,051				(42,090	)
Less: reclassification adjustments			2,715				14,481				6,206
Total			(63,013	)			23,532				(35,884	)
Total tax effect before allocation to noncontrolling interests			(581,368	)			330,009				(199,773	)

 

Note:

The amount for the fiscal year ended March 31, 2011 is presented based on the balance of AOCI at the point of its realization into earnings. The amounts for the fiscal years ended March 31, 2009 and 2010, which were previously presented based on the beginning balances of AOCI, are presented in the same manner to conform to the current year presentation.

Since the MHFG Group does not have the intention to divest its foreign subsidiaries in the foreseeable future, deferred taxes are not provided on the temporary differences related to foreign currency translation adjustments.

The following table shows a reconciliation of Income tax expense at the effective statutory tax rate to actual income tax expense for the fiscal years ended March 31, 2009, 2010 and 2011:

 

		2009				2010				2011
		(in millions of yen, except tax rates)
Income (loss) before income tax expense			(358,094	)			686,455				611,357
Effective statutory tax rate			40.69	%			40.69	%			40.69	%
Income tax calculated at the statutory tax rate			(145,709	)			279,319				248,761
Income not subject to tax			(15,658	)			(23,207	)			(17,334	)
Expenses not deductible for tax purposes			1,823				1,496				1,517
Tax rate differentials of subsidiaries			(11,923	)			650				3,288
Change in valuation allowance			1,256,799				(1,104,610	)			(135,867	)
Change in undistributed earnings of subsidiaries			(19,706	)			10,384				10,724
Change in net operating loss carryforwards resulting from intercompany capital transactions			(351,991	)			(1,400	)			1,484
Expiration of net operating loss carryforwards			15,915				481,805				76,903
Business combination (Note 3)			—				(38,721	)			—
Other			32,358				34,089				3,751
Income tax expense			761,908				(360,195	)			193,227

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The components of net deferred tax assets at March 31, 2010 and 2011 are as follows:

 

		2010				2011
		(in millions of yen)
Deferred tax assets:
Investments			1,155,141				1,096,761
Allowance for loan losses			487,488				416,785
Trading account assets			74,713				92,192
Prepaid pension cost and accrued pension liabilities			40,688				71,690
Financial Stabilization Funds			16,615				11,729
Premises and equipment			15,062				6,757
Undistributed earnings of subsidiaries			4,799				—
Net operating loss carryforwards			1,996,444				1,790,354
Other			300,133				302,407
			4,091,083				3,788,675
Valuation allowance			(2,603,292	)			(2,478,130	)
Deferred tax assets, net of valuation allowance			1,487,791				1,310,545
Deferred tax liabilities:
Available-for-sale securities			550,640				354,710
Derivative financial instruments			43,447				32,172
Undistributed earnings of subsidiaries			—				5,925
Other			79,252				76,121
Deferred tax liabilities			673,339				468,928
Net deferred tax assets			814,452				841,617

Deferred tax assets and deferred tax liabilities within the same tax jurisdiction have been netted for presentation in the consolidated balance sheets.

In assessing the realizability of deferred tax assets, management considered whether it was more likely than not that some portion or all of the deferred tax assets would not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies available in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets would be deductible, management believed it was more likely than not that the MHFG Group would realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2010 and 2011.

 

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At March 31, 2011, the MHFG Group had net operating loss carryforwards totaling ¥4,501 billion. These net operating losses are scheduled to expire as follows:

 

		Net operating loss carryforwards
		(in billions of yen)
Fiscal year ending March 31:
2012			519
2013			2,691
2014			16
2015			6
2016			897
2017 and thereafter			372
Total			4,501

Included in net operating loss carryforwards in the above table are carryforwards of the holding company and a subsidiary of ¥3,512 billion resulting mainly from intercompany capital transactions. The tax effect of these carryforwards is offset by a full valuation allowance.

The total amount of unrecognized tax benefits including ¥602 million and ¥651 million interest and penalties was ¥4,193 million and ¥1,829 million at March 31, 2010 and 2011, respectively, of which ¥2,596 million and ¥1,829 million would, if recognized, affect the Group’s effective tax rate, respectively. The Group classifies interest and penalties accrued relating to unrecognized tax benefits as Income tax expense.

The following table is a roll-forward of unrecognized tax benefits for the fiscal years ended March 31, 2010 and 2011:

 

		2010				2011
		(in millions of yen)
Total unrecognized tax benefits at beginning of fiscal year			11,639				4,193
Gross amount of increases related to positions taken during prior years			3,394				117
Gross amount of increases related to positions taken during the current year			—				20
Amount of decreases related to settlements			(10,306	)			(2,218	)
Foreign exchange adjustments			(534	)			(283	)
Total unrecognized tax benefits at end of fiscal year			4,193				1,829

The MHFG Group is currently subject to ongoing tax audits in some jurisdictions. The oldest years open to tax audits in Japan, the United States and the United Kingdom are 2003, 2002 and 2003, respectively. The MHFG Group does not anticipate that increases or decreases of unrecognized tax benefits within the next twelve months would have a material effect on its consolidated results of operations or financial condition.

22. Pension and other employee benefit plans

Severance indemnities and pension plans

MHFG and certain subsidiaries, including MHBK, MHCB, and MHTB, sponsor and offer their employees other than directors and corporate auditors, contributory and non-contributory defined benefit plans. Under these plans, employees are provided with lump-sum cash payments upon leaving the company. The amount of benefits under the plans is principally determined based on the position, the length of service and the reason for retirement.

 

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When employees meet certain conditions including the length of service, they may opt to receive annuity payments instead of lump-sum payments at retirement. MHFG and certain subsidiaries also offer special termination benefits to former employees whose contributions during their career were deemed meritorious and to those with particular circumstances.

Some of MHFG’s subsidiaries offer closed Tax-Qualified Pension Plans (closed “TQPPs”). These plans are non-contributory defined benefit plans which provide retired employees other than directors and corporate auditors with retirement benefits that are determined based on certain factors that include the length of service. Under the TQPPs, employers enter into contracts with financial institutions such as trust banks or life insurers that administer employer contributions and benefit payments.

Certain foreign offices and subsidiaries have defined contribution plans and/or defined benefit plans, of which disclosures are combined with those for domestic benefit plans, as they are not significant.

MHFG and certain subsidiaries have several defined contribution plans. The costs recognized for contributions to the plans for the fiscal years ended March 31, 2009, 2010 and 2011 were ¥1,987 million, ¥3,391 million and ¥3,601 million, respectively.

Pension plans are not fully integrated among subsidiaries of MHFG and plan assets are managed separately by each plan.

Net periodic benefit cost and funded status

Net periodic benefit cost of the severance indemnities and pension plans for the fiscal years ended March 31, 2009, 2010 and 2011 includes the following components:

 

		2009				2010				2011
		(in millions of yen)
Service cost-benefits earned during the fiscal year			23,668				27,342				27,761
Interest costs on projected benefit obligation			25,192				25,062				25,182
Expected return on plan assets			(52,273	)			(15,120	)			(40,209	)
Amortization of prior service benefit			(375	)			(318	)			(319	)
Amortization of net actuarial loss (gain)			6,297				36,483				15,532
Special termination benefits			7,440				4,387				4,222
Loss on settlement			1,791				—				—
Gain on curtailment			(748	)			—				—
Net periodic benefit cost			10,992				77,836				32,169

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) before-tax for the fiscal years ended March 31, 2010 and 2011 were summarized as follows:

 

		2010				2011
		(in millions of yen)
Net actuarial gain (loss)			196,508				(130,169	)
Amortization of net actuarial loss (gain)			36,483				15,532
Amortization of prior service benefit			(318	)			(319	)
Total recognized in other comprehensive income (loss) before-tax			232,673				(114,956	)

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

As of March 31, 2011, the amounts in Accumulated other comprehensive income (loss), which will be amortized as prior service benefit and actuarial loss over the next fiscal year, are estimated to be ¥318 million and ¥25,594 million, respectively.

Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost are as follows:

 

		2009				2010				2011
Weighted-average assumptions used to determine benefit obligations at fiscal year end:
Discount rates			1.93	%			1.93	%			1.83	%
Rates of increase in future compensation level			1.93-6.27	%			2.13-6.12	%			2.28-6.15	%
Weighted-average assumptions used to determine net periodic benefit cost during the year:
Discount rates			1.99	%			1.93	%			1.93	%
Rates of increase in future compensation level			1.61-5.62	%			1.93-6.27	%			2.13-6.12	%
Expected rates of return on plan assets			3.92	%			1.49	%			3.10	%

In estimating the discount rates, the MHFG Group uses 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.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

The following table sets forth the combined funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 2010 and 2011 for the plans of MHFG and its subsidiaries:

 

		2010				2011
		(in millions of yen)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year			1,256,538				1,306,349
Service cost			27,342				27,761
Interest cost			25,062				25,182
Plan participants’ contributions			1,200				1,196
Business combination (1)			45,586				—
Actuarial loss (gain)			13,494				33,171
Foreign currency exchange rate changes			(19	)			(1,112	)
Benefits paid			(45,442	)			(46,461	)
Lump-sum payments			(17,412	)			(17,770	)
Benefit obligation at end of fiscal year (2)			1,306,349				1,328,316
Change in plan assets:
Fair value of plan assets at beginning of fiscal year			1,005,422				1,276,783
Actual return (negative return) on plan assets			225,154				(56,880	)
Foreign currency exchange rate changes			(58	)			(829	)
Business combination (1)			35,216				—
Employer contributions			55,291				52,249
Plan participants’ contributions			1,200				1,196
Benefits paid			(45,442	)			(46,461	)
Fair value of plan assets at end of fiscal year			1,276,783				1,226,058
Funded status			(29,566	)			(102,258	)
Amounts recognized in the consolidated balance sheets consist of:
Prepaid pension cost			182				134
Accrued pension liability			(29,748	)			(102,392	)
Net amount recognized			(29,566	)			(102,258	)
Amounts recognized in Accumulated other comprehensive income (loss) before-tax consist of:
Prior service benefit			2,298				1,979
Net actuarial gain (loss)			(293,337	)			(407,974	)
Net amount recognized			(291,039	)			(405,995	)

 

Notes:

(1)	Business combination represents the effect of merger of MHSC and Shinko.

(2)

The aggregated accumulated benefit obligations of these plans were ¥1,280,344 million and ¥1,301,798 million, respectively, as of March 31, 2010 and 2011. The defined benefit plans generally employ a multi-variable and non-linear formula based upon compensation at the time of severance, rank and years of service. Employees with service in excess of one year are qualified to receive lump-sum severance indemnities.

 

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The following table shows the projected benefit obligations and the fair value of plan assets for the plans of MHFG and its subsidiaries with projected benefit obligations in excess of plan assets, and the accumulated benefit obligations and the fair value of plan assets for the plans with accumulated benefit obligations in excess of plan assets at March 31, 2010 and 2011:

 

		2010				2011
		(in millions of yen)
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation			1,303,701				1,327,682
Fair value of plan assets			1,273,953				1,225,290
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation			82,742				1,301,163
Fair value of plan assets			59,194				1,225,290

 

Note:

The plans with projected benefit obligations in excess of plan assets include those with accumulated benefit obligations in excess of plan assets.

Investment policies and asset allocation

In managing plan assets, the MHFG Group determines the appropriate levels of risk that the Group can assume under the given circumstances to maximize the investment returns from a long-term perspective while ensuring that the sufficient funds will be available to plan participants and beneficiaries. Generally, the investment returns are relative to the risks involved. In considering the maximum levels of risk that the MHFG Group can assume, it primarily considers the following factors; the employers’ burden of maintaining the benefit plans based on the design of the plans and future plan contributions, the age distribution of the plan participants and beneficiaries, the financial conditions of the employers, and the employers’ ability to absorb future variability in plan premiums. The long-term asset allocation is based on optimal portfolios, which are estimated by expected return and risk according to each asset category such as Japanese equity securities, Japanese debt securities, foreign equity securities and foreign debt securities. Additionally, the asset allocation is reviewed whenever there are large fluctuations in pension plan liabilities caused by modifications of pension plans, or there are changes in the market environment. When selecting an investment in each asset category, the MHFG Group takes into consideration credit standing of an investee, concentration of credit risk to a certain investee, liquidity of a financial instrument, etc. The investments in each asset category are further diversified across funds, strategies, sectors, etc. There is no significant investment in a single investee except Japanese government bonds.

Certain subsidiaries of MHFG established employee retirement benefit trusts and transferred their assets to the trusts as plan assets. These assets are separated from employer’s proprietary assets for the payment to the plan beneficiaries. The assets held in these trusts are primarily Japanese equity securities and have been entrusted directly to qualified trustees including trust banks.

The plan assets designated to the TQPPs have been invested in assets with low investment risk because the plans have already been closed to new participants.

 

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MHFG and certain subsidiaries’ target allocation for the plan assets excluding those of the employee retirement benefit trusts at March 31, 2011 is as follows:

 

Asset category		Asset ratio
Japanese equity securities			16.00	%
Japanese debt securities			34.00	%
Foreign equity securities			16.00	%
Foreign debt securities			20.00	%
General account of life insurance companies			14.00	%
Total			100.00	%

 

Note:

General account of life insurance companies is a contract with life insurance companies which guarantees payments of principal and predetermined interest rate.

Fair value of plan assets

The following table presents the fair value of plan assets of MHFG and its subsidiaries at March 31, 2010 and 2011, by asset class. For the detailed information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methodologies, see Note 29 “Fair value”.

 

		2010																2011
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
		(in billions of yen)
Japanese equity securities:
Common stocks (1)			606				—				—				606				533				—				—				533
Pooled funds (2)			—				65				—				65				—				67				—				67
Japanese debt securities:
Government bonds			117				—				—				117				161				—				—				161
Pooled funds (2)			—				37				—				37				—				40				—				40
Other			—				28				—				28				—				8				—				8
Foreign equity securities:
Common stocks			48				—				—				48				46				—				—				46
Pooled funds (2)			—				83				—				83				—				71				—				71
Foreign debt securities:
Government bonds			74				6				—				80				60				5				—				65
Pooled funds (2)			—				54				—				54				—				48				—				48
Other			—				17				—				17				—				13				—				13
General account of life insurance companies (3)			—				102				—				102				—				105				—				105
Hedge funds			—				—				1				1				—				—				1				1
Other			45	(4)			(6	) (5)			—				39				70	(4)			(2	) (5)			—				68
Total assets at fair value			890				386				1				1,277				870				355				1				1,226

 

Notes:

(1)	This class includes equity securities held in the employee retirement benefit trusts of ¥575 billion and ¥504 billion at March 31, 2010 and 2011, respectively, which are well-diversified across industries.

(2)	These classes primarily include pension investment fund trusts. Investments in these classes are generally measured at their net asset values per share and can be redeemable within short-term period upon request.

(3)	Investments in this class are measured at conversion value.

(4)	Amounts primarily include cash and short-term assets carried at fair value.

(5)	Amounts primarily include foreign exchange contracts carried at fair value.

 

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The fair value amount of Level 3 assets, consisting of hedge funds, was ¥1 billion and ¥1 billion at March 31, 2010 and 2011, respectively. Amounts of actual returns on and purchases and sales of these assets during the fiscal years ended March 31, 2010 and 2011 were not significant.

Contributions

A contribution of approximately ¥49 billion is expected to be paid to the pension plans in the fiscal year ending March 31, 2012, based on the current funded status and expected asset return assumptions.

Estimated future benefit payments

The following table presents forecasted benefit payments including the effect of expected future service for the fiscal years indicated:

 

		(in millions of yen)
Fiscal year ending March 31:
2012			62,219
2013			64,229
2014			66,626
2015			68,668
2016			70,764
2017-2021			359,932

23. Stock-based compensation

Concurrently with the abolishment of, and as an alternative to the retirement allowances program for directors and executive officers of MHFG, MHBK, MHCB, and MHTB, the MHFG Group introduced stock compensation-type stock options, in the form of stock acquisition rights, for directors (excluding the outside directors) and executive officers of the respective companies (hereinafter referred to collectively as the “Directors”) in June 2008. The Group also introduced similar stock compensation-type stock options for MHSC’s Directors in June 2009.

The Group maintains following three types of stock-based compensation plan.

In each plan, 1,000 shares of common stock of the designated company (i.e. MHFG common stock for Directors of MHFG, MHBK and MHCB, MHTB common stock for Directors of MHTB, and MHSC common stock for Directors of MHSC) shall be issued or transferred upon exercise of each of the stock acquisition rights. The amount to be paid upon exercise shall be 1 yen per share.

The contractual term of the stock acquisition rights of each plan is 20 years. A holder may exercise the stock acquisition rights only after the date on which such holder loses the status as a Director of MHFG, MHBK, MHCB, MHTB or MHSC. In case of MHSC, if a holder assumes the status as a Director of the company immediately after losing the status as a Director of the company, the holder may exercise the stock acquisition rights only after losing such status finally and definitely.

 

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For Directors of MHFG, MHBK, and MHCB

The following is a summary of the stock-based compensation plan of MHFG, MHBK and MHCB for the fiscal year ended March 31, 2011:

 

		Number of shares				Weighted-average exercise price				Weighted-average remaining contractual term				Aggregate intrinsic value
						(in yen)				(in years)				(in millions of yen)
Outstanding at beginning of fiscal year			9,290,000				1
Granted during fiscal year			6,808,000				1
Exercised during fiscal year			3,760,000				1
Outstanding at end of fiscal year			12,338,000				1				18.91				1,690
Exercisable at end of fiscal year			266,000				1				18.96				36

There are no non-vested stock options remaining as of March 31, 2011.

The following table presents the assumptions to estimate the fair value of stock acquisition rights on the date of grant used in the Black-Scholes option pricing model. The risk-free interest rate is based on the Japanese government bonds yield curve for the expected remaining term in effect at the date of grant. The expected volatility is based on the historical trading data of MHFG common stock. The expected remaining term is based on the average service period of Directors of MHFG, MHBK, and MHCB, which represents the period of time that stock acquisition rights granted are expected to be outstanding. The expected dividend yield is based on the dividend rate of MHFG common stock at the date of grant.

 

		For the stock acquisition rights granted during the fiscal  year ended March 31,
		2010				2011
Risk-free interest rate			0.22	%			0.13	%
Expected volatility			67.18	%			59.55	%
Expected remaining term (in years)			1.86				2.00
Expected dividend yield			4.35	%			4.55	%

The weighted-average grant-date fair value of stock acquisition rights granted during the fiscal years ended March 31, 2010 and 2011 was ¥168,690 and ¥119,520, respectively.

The compensation cost related to this plan recognized in income was ¥1,033 million, ¥984 million and ¥814 million during the fiscal years ended March 31, 2009, 2010 and 2011, respectively.

 

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For Directors of MHTB

The following is a summary of the stock-based compensation plan of MHTB for the fiscal year ended March 31, 2011:

 

		Number of shares				Weighted-average exercise price				Weighted-average remaining contractual term				Aggregate intrinsic value
						(in yen)				(in years)				(in millions of yen)
Outstanding at beginning of fiscal year			2,824,000				1
Granted during fiscal year			2,586,000				1
Exercised during fiscal year			846,000				1
Outstanding at end of fiscal year			4,564,000				1				18.78				338
Exercisable at end of fiscal year			—				—				—				—

There are no non-vested stock options remaining as of March 31, 2011.

The following table presents the assumptions to estimate the fair value of stock acquisition rights on the date of grant used in the Black-Scholes option pricing model. The assumptions used are the same as those of the aforementioned plan for Directors of MHFG, MHBK, and MHCB except that the underlying security is MHTB common stock.

 

		For the stock acquisition rights granted during the fiscal  year ended March 31,
		2010				2011
Risk-free interest rate			0.23	%			0.15	%
Expected volatility			49.14	%			47.67	%
Expected remaining term (in years)			1.84				2.00
Expected dividend yield			0	%			1.37	%

The weighted-average grant-date fair value of stock acquisition rights granted during the fiscal years ended March 31, 2010 and 2011 was ¥110,000 and ¥70,030, respectively.

The compensation cost related to this plan recognized in income was ¥155 million, ¥192 million and ¥181 million during the fiscal years ended March 31, 2009, 2010 and 2011, respectively.

For Directors of MHSC

The following is a summary of the stock-based compensation plan of MHSC for the fiscal year ended March 31, 2011:

 

		Number of shares				Weighted-average exercise price				Weighted-average remaining contractual term				Aggregate intrinsic value
						(in yen)				(in years)				(in millions of yen)
Outstanding at beginning of fiscal year			1,199,000				1
Granted during fiscal year			1,972,000				1
Exercised during fiscal year			536,000				1
Forfeited during fiscal year			14,000				1
Outstanding at end of fiscal year			2,621,000				1				19.03				577
Exercisable at end of fiscal year			—				—				—				—

 

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There are no non-vested stock options remaining as of March 31, 2011.

The following table presents the assumptions to estimate the fair value of stock acquisition rights on the date of grant used in the Black-Scholes option pricing model. The assumptions used are the same as those of the aforementioned plan for Directors of MHFG, MHBK, and MHCB except that the underlying security is MHSC common stock.

 

		For the stock acquisition rights granted during the fiscal  year ended March 31,
		2010				2011
Risk-free interest rate			0.38	%			0.18	%
Expected volatility			51.64	%			50.47	%
Expected remaining term (in years)			3.03				3.27
Expected dividend yield			1.55	%			2.42	%

The weighted-average grant-date fair value of stock acquisition rights granted during the fiscal years ended March 31, 2010 and 2011 was ¥306,210 and ¥190,280, respectively.

The compensation cost related to this plan recognized in income was ¥372 million and ¥373 million during the fiscal years ended March 31, 2010 and 2011, respectively.

24. Derivative financial instruments

The MHFG Group uses derivative financial instruments in response to the diverse needs of customers, to control the risk related to the assets and liabilities of the MHFG Group, as part of its asset and liability management, and for proprietary trading purposes. The MHFG Group is exposed primarily to market risk associated with interest rate, commodity, foreign currency, and equity products. Market risk arises from changes in market prices or indices, interest rates and foreign exchange rates that may result in an adverse change in the market value of the financial instrument or an increase in its funding costs. Exposure to market risk is managed by imposing position limits and monitoring procedures and by initiating hedging transactions. In addition to market risk, the MHFG Group is exposed to credit risk associated with counterparty default or nonperformance on transactions. Credit risk arises from counterparty failure to perform according to the terms and conditions of the contract and the value of the underlying collateral held, if applicable, is not sufficient to recover resulting losses. The exposure to credit risk is measured by the fair value of all derivatives in a gain position and its potential increase at the balance sheet dates. The exposure to credit risk is managed by entering into legally enforceable master netting agreements to mitigate the overall counterparty credit risk, requiring underlying collateral and guarantees based on an individual credit analysis of each obligor and evaluating credit features of each instrument. In addition, credit approvals, limits and monitoring procedures are also imposed.

 

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Notional amount and fair value of derivative contracts

The following table summarizes notional and fair value amounts of derivative instruments outstanding as of March 31, 2010 and 2011. The fair value of derivatives is not offset against the right to reclaim cash collateral or the obligation to return cash collateral under master netting agreement in the consolidated balance sheets as well as the table below.

 

						Fair value
						Derivative receivables (2)								Derivative payables (2)
2010		Notional amount  (1)				Designated as hedges				Not designated as hedges				Designated as hedges				Not designated as hedges
		(in billions of yen)
Interest rate contracts			882,799				—				12,187				—				11,738
Foreign exchange contracts			79,510				—				3,457				6				3,168
Equity-related contracts			2,653				—				158				—				171
Credit-related contracts			10,204				—				116				—				104
Other contracts			1,011				—				123				—				101
Total			976,177				—				16,041				6				15,282
						Fair value
						Derivative receivables (2)								Derivative payables (2)
2011		Notional amount (1)				Designated as hedges				Not designated as hedges				Designated as hedges				Not designated as hedges
		(in billions of yen)
Interest rate contracts			854,186				—				9,964				—				9,541
Foreign exchange contracts			79,757				—				2,845				1				2,464
Equity-related contracts			3,242				—				154				—				150
Credit-related contracts			8,934				—				59				—				39
Other contracts			803				—				104				—				87
Total			946,922				—				13,126				1				12,281

 

Notes:

(1)	Notional amount represents the sum of gross long and gross short third-party contracts.

(2)	Derivative receivables and payables are recorded in Trading account assets and Trading account liabilities, respectively.

The MHFG Group provided and/or accepted cash collateral for derivative transactions under master netting arrangements. The cash collateral, not offset against derivative positions, was included in Other assets and Other liabilities, respectively, of which amounts were ¥853 billion and ¥540 billion at March 31, 2010, and ¥530 billion and ¥323 billion at March 31, 2011, respectively.

Hedging activities

In order to qualify for hedge accounting, a derivative must be considered highly effective at reducing the risk associated with the exposure being hedged. Each derivative must be designated as a hedge, with documentation of the risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure, and how effectiveness is to be assessed prospectively and retrospectively. The extent to which a hedging instrument is effective at achieving offsetting changes in fair value or cash flows must be assessed at least quarterly. Any ineffectiveness must be reported immediately in earnings. The MHFG Group’s hedging activities include fair value and net investment hedges.

 

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Fair value hedges

The MHFG Group primarily uses bond options to modify exposure to changes in fair value of available-for-sale debt securities. For qualifying fair value hedges, all changes in the fair value of the derivative and the corresponding hedged item relating to the risk being hedged are recognized in earnings in Investment gains (losses)—net. The change in fair value of the portion of the hedging instruments excluded from the assessment of hedge effectiveness is recorded in Trading account gains (losses)—net. No ineffectiveness exists because the MHFG Group chooses to exclude changes in the option’s time value from the effectiveness test. If the hedge relationship is terminated, the fair value adjustment to the hedged item continues to be reported as part of the basis of the item and is amortized to earnings as a yield adjustment.

The following table summarizes gains and losses information related to fair value hedges for the fiscal years ended March 31, 2010 and 2011:

 

		Gains (losses) recorded in income
2010		Derivatives				Hedged items				Hedge ineffectiveness				Net gain (loss) excluded from assessment of effectiveness
		(in millions of yen)
Interest rate contracts			(14,200	)			13,771				—				(429)
Total			(14,200	)			13,771				—				(429)
		Gains (losses) recorded in income
2011		Derivatives				Hedged items				Hedge ineffectiveness				Net gain (loss) excluded from assessment of effectiveness
		(in millions of yen)
Interest rate contracts			(1,784	)			1,589				—				(195)
Total			(1,784	)			1,589				—				(195)

The MHFG Group had net loss excluded from assessment of effectiveness of ¥8,849 million for the fiscal year ended March 31, 2009. No ineffectiveness was recognized in earnings for the fiscal year.

Net investment hedges

The MHFG Group uses forward foreign exchange contracts and foreign currency-denominated debt instruments to protect the value of net investments in non-Japanese subsidiaries from foreign currency exposure. Under net investment hedges, both derivatives and nonderivative financial instruments qualify as hedging instruments. For net investment hedges, the changes in the fair value of a hedging derivative instrument or nonderivative hedging financial instrument is recorded in Foreign currency translation adjustments within Accumulated other comprehensive income (loss), provided that the hedging instrument is designated and is effective as a hedge of the net investment. The portion of the hedging instruments excluded from the assessment of hedge effectiveness is recorded in Foreign exchange gains (losses)—net in earnings.

 

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The following table summarizes gains and losses information related to net investment hedges for the fiscal years ended March 31, 2010 and 2011:

 

		Gains (losses) recorded in income and other comprehensive income (“OCI”)
		2010								2011
		Effective portion recorded in OCI				Ineffective portion recorded in income				Effective portion recorded in OCI				Ineffective portion recorded in income
		(in millions of yen)
Financial instruments hedging foreign exchange risk			(4,489	)			—				43,740				5,168
Total			(4,489	)			—				43,740				5,168

 

Note:

Related to the effective portion of net investment hedges, Accumulated other comprehensive income (loss) of ¥0 million and ¥(1,144) million were reclassified to earnings for the fiscal years ended March 31, 2010 and 2011, respectively. No amount was excluded from the assessment of effectiveness of net investment hedges during the fiscal years ended March 31, 2010 and 2011.

The MHFG Group had net gain of ¥87,176 million at March 31, 2009, in foreign currency translation adjustment within Accumulated other comprehensive income (loss).

Derivative instruments not designated or qualifying as hedges

The MHFG Group enters into the following derivative transactions that do not qualify for hedge accounting with a view to implementing risk management hedging strategies: (1) interest-rate swap transactions for the purpose of hedging interest-rate risks in deposits, loans etc., (2) currency swap transactions for the purpose of hedging the foreign exchange risk of these assets, and (3) credit derivatives for the purpose of hedging the credit risk in loans, residential mortgage-backed securities (“RMBS”), CMBS, CLO and other similar assets. Such derivatives are accounted for as trading positions. The change in fair value of those instruments are primarily recorded in Trading account gains (losses)—net, even though they are used to mitigate or transform the risk of exposures arising from banking activities. The net gain (loss) resulting from changes in the fair values of certain credit derivatives where the Group purchases protection to mitigate its credit risk exposure, related to its corporate loan portfolio, is recorded in Other noninterest income (expenses).

The following table summarizes gains and losses on derivatives not designated or qualifying as hedges during the fiscal years ended March 31, 2010 and 2011:

 

		Gains (losses) recorded in income
		2010				2011
		(in millions of yen)
Interest rate contracts (1)			115,416				250,222
Foreign exchange contracts			111,845				(105,504	)
Equity-related contracts			(22,841	)			11,223
Credit-related contracts (2)			(97,215	)			(15,220	)
Other contracts			(2,103	)			1,943
Total			105,102				142,664

 

Notes:

(1)	The net gain (loss) excluded from assessment of effectiveness for fair value hedges is not included in the above table.

(2)	The amounts include the net loss of ¥90,642 million and ¥8,207 million on the credit derivatives hedging the credit risk in loans during the fiscal years ended March 31, 2010 and 2011, respectively.

 

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Credit derivatives

A credit derivative is a bilateral contract between a seller and a buyer of protection against the credit risk of a particular entity. Credit derivatives generally require that the seller of credit protection make payments to the buyer upon the occurrence of predefined credit events, which include bankruptcy, dissolution or insolvency of the referenced entity. The MHFG Group either purchases or writes protection on either a single name or a portfolio of reference credits. The Group enters into credit derivatives to help mitigate credit risk in its corporate loan portfolio and other cash positions, to take proprietary trading positions, and to facilitate client transactions.

The notional amount of credit derivatives represents the maximum potential amount of future payments the seller could be required to make. If the predefined credit event occurs, the seller will generally have a right to collect on the underlying reference credit and any related cash flows, while being liable for the full notional amount of credit protection to the buyer. The Group manages credit risk associated with written protection by purchasing protection with identical or similar underlying reference credit, which substantially offsets its exposure. Thus, the notional amount is not a reliable indicator of the Group’s actual loss exposure.

The following table summarizes notional and fair value amounts of credit derivatives at March 31, 2010 and 2011:

 

		2010								2011
		Notional amount				Fair value				Notional amount				Fair value
		(in billions of yen)
Credit protection written
Investment grade			2,630				(12	)			2,509				—
Non-investment grade			2,224				(44	)			1,935				6
Total			4,854				(56	)			4,444				6
Credit protection purchased			5,363				68				4,520				15

 

Note:

Rating scale is based upon either external ratings or internal ratings. The lowest investment grade is considered to be BBB- or the corresponding internal rating, while anything below or unrated is considered to be non-investment grade. Non-investment grade credit derivatives primarily consist of unrated credit default swap indices such as CDX and iTraxx.

The following table shows the maximum potential amount of future payment for credit protection written by expiration period at March 31, 2010 and 2011:

 

		Maximum payout/Notional amount
		2010				2011
		(in billions of yen)
One year or less			790				1,212
After one year through five years			3,729				3,024
After five years			335				208
Total			4,854				4,444

 

Note:

The maximum potential amount of future payment is the notional amount of the credit derivatives where the Group wrote the credit protection, and it has not been reduced by the Group’s right of collection over the underlying assets and the related cash flows, nor netted against that of credit protection purchased.

 

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Credit-related contingent features

Certain of the MHFG Group’s derivative instruments contain provisions that require the Group’s debt to maintain an investment grade credit rating from the major credit rating agencies. If the Group’s debt were to fall below investment grade, the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in the Group’s net liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features in liability positions on March 31, 2010 and 2011 was ¥2,170 billion and ¥1,501 billion, respectively. As the Group has provided ¥1,736 billion and ¥1,102 billion as collateral to the counterparties in its normal course of business on March 31, 2010 and 2011, respectively, if the contingent features described above were triggered on March 31, 2010 and 2011, the amount immediately required to settle would be ¥434 billion and ¥399 billion, respectively.

25. Commitments and contingencies

Obligations under guarantees

The MHFG Group provides guarantees or indemnifications to counterparties to enhance their credit standing and enable them to complete a variety of business transactions. The guarantee represents an obligation to make payments to third parties if the counterparty fails to fulfill its obligation under a borrowing arrangement or other contractual obligation.

The Group records all guarantees and similar obligations subject to ASC 460, “Guarantees” (“ASC 460”) at fair value on the consolidated balance sheets at the inception of the guarantee. The carrying amount of guarantees and similar obligations at March 31, 2010 and 2011 was ¥15 billion and ¥15 billion, respectively, and was included in Other liabilities.

The types of guarantees under ASC 460 provided by the MHFG Group are described below.

Performance guarantees

Performance guarantees are issued to guarantee customers’ performance under contractual arrangements such as a tender bid on a construction project or the completion of a construction project.

Guarantees on loans

Guarantees on loans include an obligation to guarantee the customer’s borrowing contracts. The MHFG Group is required to make payments to the guaranteed parties in the event that customers fail to fulfill obligations under the contracts.

Guarantees on securities

Guarantees on securities include an obligation to guarantee securities, such as bonds issued by customers.

Other guarantees

Other guarantees include an obligation to guarantee customers’ payment, such as tax payments.

 

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Guarantees for the repayment of trust principal

The MHFG Group provides certain trust products with guarantees for the repayment of trust principal, e.g., loan trusts and certain jointly operated designated money trusts. Pursuant to Japanese trust-related laws, trustees are prohibited from compensating beneficiaries for any loss in the beneficial interests in each trust. However, under a special condition of the Japanese trust-related laws, trust banks as trustees are allowed to enter into an agreement to compensate for any loss in the principal of the trust. The MHFG Group manages and administers the trust assets to minimize exposures against losses from the guarantees for the repayment of trust principal, including writing-off impaired loans and charging it to the trust account profits. In performing its fiduciary duties, the MHFG Group also manages the trust assets separately from its own proprietary assets on behalf of customers and keeps separate records for the trust activities. The contract amounts of guarantees for repayment of unconsolidated trust principal were presented in the tables below. See Note 27 “Variable interest entities and securitizations” for discussion of consolidation of certain trusts.

Part of the trust account profits is set aside as a reserve in trust accounts to absorb losses in the trust asset portfolios in accordance with relevant Japanese laws concerning the trust business and/or trust agreements. Statutory reserves for loan trusts and reserves for jointly operated designated money trusts are calculated based on the trust principal or the balance of loans and other assets in the trust accounts. Since the probability of principal indemnification is judged to be remote, the MHFG Group had no related reserve for credit losses recorded in its consolidated financial statements.

Liabilities of trust accounts

The MHFG Group, as trustee, may enter into an agreement with a third party who is not the party to the relevant trust agreement to the extent necessary to handle the trust affairs for the purpose of fulfilling the objectives of the trust and, as such, the trustee shall be allowed to assume certain liabilities. Pursuant to Japanese trust-related laws, the trustee is ultimately liable to pay those liabilities out of its proprietary assets in the event that the trust assets are insufficient to cover those liabilities and the trust beneficiary is unable to compensate the shortfall. The amount of trust liabilities rarely exceeds the amount of trust assets and, therefore, those liabilities are generally covered by the corresponding trust assets. To avoid the demand for payment out of the proprietary assets, the trustee can enter into a special covenant of limited liability under which the trust creditors agree to limit the trustee’s liability to the value of the trust assets and to waive the right for compulsory execution against the trustee’s proprietary assets. The MHFG Group regularly monitors the condition of trust accounts to minimize exposures against making payment.

The amounts of such liabilities in the trust accounts excluding those with the special covenant of limited liability were presented in the tables below. Liabilities of trust accounts principally include obligations to return collateral under security lending transactions and others.

Derivative financial instruments

Certain written options and credit default swaps are deemed guarantees pursuant to the definition of guarantees in ASC 460 if (i) these contracts require the MHFG Group to make payments to counterparties based on changes in an underlying instrument or index, (ii) the contract cannot be cash-settled, and (iii) it is probable that the counterparty held the underlying instrument at inception of the contract. Because it is difficult in practice to determine whether condition (iii) exists, the MHFG Group has decided to include all credit default swaps and certain written options, excluding written options outside the scope of ASC 460 such as written call options, in the mandatory guarantee disclosures, irrespective of whether the counterparty has the asset or liability relating to the underlying.

 

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Maximum exposure under guarantee contracts

The table below summarizes the remaining term and maximum potential amount of future payments by type of guarantee at March 31, 2010 and 2011. The maximum potential amount of future payments disclosed below represents the contractual amounts that could be repaid in the event of guarantees execution, without consideration of possible recoveries under recourse provisions or from collateral held. With respect to written options included in derivative financial instruments in the table below, in theory, the MHFG Group is exposed to unlimited losses; therefore, the table shows notional amounts of the contracts as a substitute for the maximum exposure.

The MHFG Group, when necessary, requires collateral such as cash, investment securities and real estate or third-party guarantees depending on the amount of credit risk involved, and employs means such as sub-participation to reduce the credit risk associated with guarantees. The maximum exposure or notional amounts below does not represent the expected losses from the execution of the guarantees.

 

2010		Maximum potential/Contractual or Notional amount				Amount by expiration period
						One year or less				After one year through five years				After five years
		(in billions of yen)
Performance guarantees			1,579				872				593				114
Guarantees on loans			739				104				69				566
Guarantees on securities			16				5				11				—
Other guarantees			867				641				185				41
Guarantees for the repayment of trust principal			932				198				282				452
Liabilities of trust accounts			8,529				8,351				43				135
Derivative financial instruments			43,074				21,586				17,400				4,088
2011		Maximum potential/Contractual or Notional amount				Amount by expiration period
						One year or less				After one year through five years				After five years
		(in billions of yen)
Performance guarantees			1,580				886				559				135
Guarantees on loans			539				136				53				350
Guarantees on securities			10				4				6				—
Other guarantees			872				602				192				78
Guarantees for the repayment of trust principal			249				—				181				68
Liabilities of trust accounts			8,144				7,982				51				111
Derivative financial instruments			30,567				11,386				16,048				3,133

The table below presents maximum potential amount of future payments of performance guarantees, guarantees on loans, guarantees on securities and other guarantees classified based on internal ratings at March 31, 2010 and 2011.

 

		2010				2011
		(in billions of yen)
Investment grade			1,715				1,760
Non-investment grade			1,486				1,241
Total			3,201				3,001

 

Note:

Investment grade in the internal rating scale is generally corresponding to BBB- or above in external rating scale.

 

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Other off-balance-sheet instruments

In addition to guarantees, the MHFG Group issues other off-balance-sheet instruments to its customers, such as lending-related commitments and commercial letters of credit. Under the terms of these arrangements, the MHFG Group is required to extend credit or make certain payments upon the customers’ request.

Commitments to extend credit

Commitments to extend credit are legally binding agreements to lend to customers on demand. They usually have set maturity dates. These agreements differ from guarantees in that they are generally revocable or contain provisions that enable the MHFG Group to avoid payment or reduce the amount of credit extended under certain conditions, such as the deterioration of the borrower’s financial condition or other reasonable conditions. The MHFG Group monitors the financial condition of the potential borrowers throughout the commitment period to determine whether additional collateral or changes in the terms of the commitment are necessary. Since many of these commitments to extend credit expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Commitments to invest in securities

Commitments to invest in securities include legally binding contracts to make additional contributions to investment funds, such as venture capital funds or corporate recovery funds in accordance with the terms of investment agreements.

Commercial letters of credit

Commercial letters of credit are issued in connection with customers’ trade transactions. Normally, the customers cannot receive the goods until they make payment to a bank, and therefore these commercial letters of credit are collateralized by the underlying goods. Upon issuance of commercial letters of credit, the MHFG Group monitors the credit risk associated with these transactions to determine if additional collateral is required.

The table below summarizes the contractual amounts with regard to these undrawn commitments at March 31, 2010 and 2011:

 

		2010				2011
		(in billions of yen)
Commitments to extend credit (Note)			48,778				50,436
Commercial letters of credit			392				465
Total			49,170				50,901

 

Note:

Commitments to extend credit include commitments to invest in securities.

Allowance for losses on off-balance-sheet instruments

Other liabilities include an allowance for losses on off-balance-sheet instruments, of which amount at March 31, 2010 and 2011 was ¥108 billion and ¥112 billion, respectively.

 

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Leases

The MHFG Group leases certain office space and equipment under noncancelable agreements. Future minimum rental commitments for noncancelable leases at March 31, 2011 were as follows:

 

		Capitalized leases				Operating leases
		(in millions of yen)
Fiscal year ending March 31:
2012			6,388				35,373
2013			5,045				29,570
2014			3,771				27,003
2015			2,842				9,669
2016			2,275				6,253
2017 and thereafter			5,134				17,533
Total minimum lease payments			25,455				125,401
Amount representing interest			1,661
Present value of minimum lease payments			23,794

Total rental expense for the fiscal years ended March 31, 2009, 2010 and 2011 was ¥104,605 million, ¥106,177 million and ¥102,455 million, respectively.

During prior years, the MHFG Group’s major banking subsidiaries sold their head offices (including land, buildings, facilities and equipment) to third parties. Concurrent with the sales, these subsidiaries leased the properties back for periods of 5 and 10 years at total lease payment for the whole period of ¥214,690 million. The terms of certain lease agreements were changed during the fiscal years ended March 31, 2009 and 2011, and the total lease payment for the whole period was reduced to ¥210,779 million, consequently. The MHFG Group recorded the transactions as operating leases. The future minimum lease payments under the terms of the related lease agreements were ¥69,947 million, ¥54,735 million and ¥39,421 million at March 31, 2009, 2010 and 2011, respectively.

Legal proceedings

The MHFG Group is involved in normal collection proceedings initiated by the Group and other legal proceedings in the ordinary course of business.

The Group’s Indonesian subsidiary acts as collateral agent for the trustee of bond issuances made by subsidiaries of Asia Pulp & Paper Company Ltd. (“APP”). In that role, the subsidiary is involved in disputes between the bondholders and such APP subsidiaries in their capacities as the issuers, guarantors and/or pledgors of security for the bonds relating to foreclosure proceedings on the collateral and has been named as a defendant in lawsuits brought by the obligors under the bonds in Indonesia. The Group’s consolidated financial statements do not include a reserve in relation to these disputes because the Group does not believe that the resolution of this matter will have a significant impact on the consolidated financial condition or results of operations of the Group, although there can be no assurance as to the foregoing.

 

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26. Noncontrolling interests in consolidated subsidiaries

Noncontrolling interests represent the equity for the remaining outstanding voting stock of subsidiaries not owned by the MHFG Group. The changes in noncontrolling interests in fiscal years ended March 31, 2009, 2010, and 2011 consisted of noncontrolling interests in net income or loss of subsidiaries, noncontrolling interests in changes in other comprehensive income of subsidiaries and changes resulting from changes in the ownership percentage of the Group in certain subsidiaries.

During the fiscal year ended March 31, 2010, MHFG exchanged certain voting equity interests in MHSC for those in Shinko, which had been an equity method affiliate of the Group, and merged the two entities. As a result of the transaction, the Group’s ownership in MHSC was decreased to 59.22% at March 31, 2010. See Note 3 “Business Combination” for further details of the merger.

27. Variable interest entities and securitizations

Variable interest entities

In the normal course of business, the MHFG Group is involved with VIEs primarily through the following types of transactions: asset-backed commercial paper/loan programs, asset-backed securitizations, investment funds, trust arrangements, and structured finance. The Group consolidated certain of these VIEs, in accordance with the new consolidation guidance effective April 1, 2010, where the Group was deemed to be the primary beneficiary because it has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. According to such new consolidation guidance, the MHFG Group additionally consolidated certain VIEs and former Qualifying SPEs (“QSPEs”) that had not been consolidated prior to April 1, 2010. There are also other VIEs, where the Group determined that it was not the primary beneficiary but had significant variable interests. In evaluating the significance of the variable interests, the Group comprehensively takes into consideration the extent of its involvement with each VIE, such as the seniority of its investments, the share of its holding in each tranche and the variability it expects to absorb, as well as other relevant facts and circumstances. The likelihood of loss is not necessarily relevant to the determination of significance, and therefore, “significant” does not imply that there is high likelihood of loss. The maximum exposure to loss that is discussed in this section refers to the maximum loss that the Group could be required to record in its consolidated statements of income as a result of its involvement with the VIE. Further, this maximum potential loss is disclosed regardless of the probability of such losses and, therefore, it is not indicative of the ongoing exposure which is managed within the Group’s risk management framework.

The tables below show consolidated assets of the Group’s consolidated VIEs as well as total assets and maximum exposure to loss for its significant unconsolidated VIEs, as of March 31, 2010 and 2011:

 

		Consolidated VIEs				Significant unconsolidated VIEs
2010		Consolidated assets				Total assets				Maximum exposure to  loss
		(in billions of yen)
Asset-backed commercial paper/loan programs			2,024				—				—
Asset-backed securitizations			355				1,253				40
Investments in securitization products			101				—				—
Investment funds			568				2,778				401
Trust arrangements and other			—				932				381
Total			3,048				4,963				822

 

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		Consolidated VIEs				Significant unconsolidated VIEs
2011		Consolidated assets				Total assets				Maximum exposure to  loss
		(in billions of yen)
Asset-backed commercial paper/loan programs			2,085				—				—
Asset-backed securitizations			511				680				44
Investments in securitization products			94				—				—
Investment funds			684				1,841				266
Trust arrangements and other			176				—				—
Total			3,550				2,521				310

The Group has not provided financial or other support to consolidated or unconsolidated VIEs that the Group was not previously contractually required to provide.

The tables below present the carrying amount and classification of assets and liabilities on the MHFG Group’s balance sheets that relate to its variable interests in the significant unconsolidated VIEs, as of March 31, 2010 and 2011:

 

Assets on balance sheets related to unconsolidated VIEs:		2010				2011
		(in billions of yen)
Trading account assets			57				72
Investments			367				201
Loans			16				59
Total			440				332
Liabilities on balance sheets and maximum exposure to loss related to unconsolidated VIEs:		2010				2011
		(in billions of yen)
Due to trust accounts			551				—
Trading account liabilities			1				1
Payables under securities lending transactions			—				23
Total			552				24
Maximum exposure to loss			822				310

Asset-backed commercial paper/loan programs

The MHFG Group manages several asset-backed commercial paper/loan programs that provide its clients’ off-balance-sheet and/or cost-effective financing. The VIEs used in the programs purchase financial assets, primarily receivables, from clients participating in the programs and provide liquidity through the issuance of commercial paper or borrowings from the MHFG Group backed by the financial assets. While customers normally continue to service the transferred receivables, the MHFG Group underwrites, distributes, and makes a market in commercial paper issued by the conduits. The MHFG Group typically provides program-wide liquidity and credit support facilities and, in some instances, financing to the VIEs. The MHFG Group has the power to determine which assets will be held in the VIEs and has an obligation to monitor these assets. The Group is also responsible for liability management. In addition, through the liquidity and credit support facilities with the VIEs, the Group has the obligation to absorb losses that could potentially be significant to the VIEs. Therefore, the Group consolidated this type of VIEs.

 

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Asset-backed securitizations

The MHFG Group acts as an arranger of various types of structured finance to meet clients’ off-balance-sheet financing needs. In substantially all of these structured financing transactions, the transfer of the financial asset by the client is structured to be bankruptcy remote by use of a bankruptcy remote entity, which is deemed to be a VIE because its equity holder does not have decision making rights. The MHFG Group receives fees for structuring and/or distributing the securities sold to investors. In some cases, the MHFG Group itself purchases the securities issued by the entities and/or provides loans to the VIEs.

In addition, the MHFG Group establishes several single-issue and multi-issue special purpose entities that issue collateralized debt obligations (“CDO”) or CLO, synthetic CDO/CLO or other repackaged instruments to meet clients’ and investors’ financial needs. The MHFG Group also arranges securitization transactions including CMBS, RMBS and others. In these transactions, the MHFG Group acts as an underwriter, placement agent, asset manager, derivatives counterparty, and/or investor to debt and equity instruments.

In certain VIEs, where the MHFG Group provides liquidity and credit support facilities, writes credit protection or invests in debt or equity instruments in its role as an arranger, servicer, administrator or asset manager, etc., the Group has the power to determine which assets will be held in the VIEs or to manage and monitor these assets. In addition, through the variable interests above, the Group has the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIEs. Therefore, the Group consolidated such VIEs.

In a certain securitization transaction where the MHFG Group had transferred mortgage loans to a former QSPE, the Group, as continuing involvement, provides servicing for, holds retained subordinated beneficial interests in, and retains credit exposure in the form of a guarantee in the mortgage loans. Prior to April 1, 2010, this entity had been exempt from consolidation in accordance with the former accounting guidance. With elimination of the concept of QSPEs, the Group consolidated the entity as of April 1, 2010. In its role as a servicer, the Group has the power to direct the entity’s activities that most significantly impact the entity’s economic performance by managing defaulted mortgage loans. In addition, through the retained interest and the involvement as a guarantor above, the Group has the obligation to absorb losses and the right to receive benefits that could potentially be significant to the entity.

Investments in securitization products

The MHFG Group invests in, among other things, various types of CDO/CLO, synthetic CDO/CLO and repackaged instruments, CMBS and RMBS arranged by third parties for the purpose of generating current income or capital appreciation, which all utilize entities that are deemed to be VIEs. By design, such investments were investment grade at issuance and held by a diverse group of investors. The loss amount of securities and loans is generally limited to the amount invested because the Group has no contractual involvement in such VIEs beyond its investments. Since the Group is involved in those VIEs only as an investor, the Group does not ordinarily have the power to direct the VIEs’ activities that most significantly impact the VIEs’ economic performance. However, the Group consolidated some VIEs, mostly where the transactions were tailored by the third party arrangers to meet the Group’s needs as a main investor, who is eventually deemed to have the power to determine which assets to be held in the VIEs.

Investment funds

The MHFG Group invests in various investment funds including securities investment trusts, which collectively invest in equity and debt securities that include listed Japanese securities and investment grade bonds. Investment

 

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advisory companies or fund management companies, including the Group’s subsidiaries and affiliates, administer and make investment decisions over such investment funds. The Group consolidates certain investment funds where it is deemed to be the primary beneficiary. The Group has determined that certain investment vehicles managed by the Group are provided a deferral from the requirements of SFAS No.167, because they meet the criteria in ASU No.2010-10. Therefore, these vehicles continue to be evaluated under the requirements of ASC 810 before implementing SFAS No.167.

Trust arrangements

The MHFG Group offers a variety of asset management and administration services under trust arrangements including security investment trusts, pension trusts and trusts used in the securitization of assets originated by and transferred to third parties. The Group receives trust fees for providing services as an agent or fiduciary on behalf of beneficiaries.

With respect to guaranteed principal money trust products, the MHFG Group assumes certain risks by providing guarantees for the repayment of principal as required by the trust agreements or relevant Japanese legislation. The MHFG Group manages entrusted funds primarily through the origination of high quality loans and other credit-related products, investing in investment grade marketable securities such as Japanese government bonds and placing cash with the MHFG Group’s subsidiary trust banks. The Group has the power to determine which assets will be held in the VIEs or to manage these assets. In addition, through the principal guarantee agreement, the Group has the obligation to absorb losses that could potentially be significant to the VIEs. Therefore, the Group consolidated this type of VIEs. However, the MHFG Group does not consolidate certain guaranteed principal money trusts, which invest all the entrusted funds in the MHFG Group itself, as the Group has determined that it has no variable interests (Refer to Note 13 “Due to trust accounts”). See Note 25 “Commitments and contingencies” for the balances of guaranteed trust principal unconsolidated at March 31, 2010 and 2011.

With respect to non-guaranteed trust arrangements, the MHFG Group manages and administers assets on behalf of its customers (trust beneficiaries) in the capacity of a trustee and fiduciary. For substantially all non-guaranteed trust arrangements, the Group generally does not have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance or has neither the obligation to absorb losses nor the right to receive benefits that could potentially be significant to the VIEs. Therefore, such trust accounts are not included in the consolidated financial statements of the MHFG Group.

The Group has determined that, in certain trust arrangements, the adoption of SFAS No.167 is deferred, because they meet the criteria in ASU No.2010-10. These vehicles continue to be evaluated under the requirements of ASC 810 before implementing SFAS No.167.

Special purpose entities created for structured finance

The MHFG Group is involved in real estate, commercial aircraft and other vessel and machinery and equipment financing to VIEs. As the Group typically only provides senior financing with credit enhanced by subordinated interests and sometimes may act as an interest rate swap counterparty, the Group determined that, in this type of VIEs, it does not have the power to direct the activities of the VIEs that most significantly impact the VIEs’ economic performance, or even the significant variable interests.

Securitization

The MHFG Group has had no significant transfers of financial assets, recognized no significant gains or losses and retained no significant interests in securitization transactions accounted for as sales.

 

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There are certain transactions where transfers of financial assets do not qualify for sales treatment but are accounted for as secured borrowings. These transferred assets continue to be carried on the consolidated balance sheets of the MHFG Group. Such assets are associated with securitization transactions and loan participation transactions, which amounted to ¥248 billion and ¥187 billion as of March 31, 2010, and ¥121 billion and ¥70 billion as of March 31, 2011, respectively. Liabilities associated with securitization and loan participation transactions are presented as Payables under securities lending transactions and Other short-term borrowings or Long-term debt, respectively, on the consolidated balance sheets.

28. Fees and commissions income

Details of Fees and commissions income for the fiscal years ended March 31, 2009, 2010 and 2011 are as follows:

 

		2009				2010				2011
		(in millions of yen)
Securities-related business			57,453				115,239				125,534
Remittance business			111,317				105,366				105,314
Deposits, debentures and lending business			110,171				94,547				95,209
Trust fees			55,891				49,101				47,201
Fees for other customer services			225,707				222,155				208,842
Total			560,539				586,408				582,100

Securities-related business fees consist of broker’s fees and markups on securities underwriting and other securities related activities. Remittance business fees consist of service charges for funds transfer and collections. Trust fees are earned primarily by fiduciary asset management and administration service for corporate pension plans, investment funds, and other. Fees for other customer services include fees related to the MHFG Group’s agency business, guarantee related business, and other.

29. Fair value

Fair value measurements

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Additionally, ASC 820 precludes (1) deferral of gains and losses at inception of certain derivative contracts whose fair value was not evidenced by market-observable data, and (2) use of block discounts when measuring the fair value of instruments traded in an active market, which were previously applied to large holdings of publicly traded financial instruments.

Fair value hierarchy

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. The standard describes 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.

 

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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, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Following is a description of valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis, including the general classification of such instruments pursuant to the fair value hierarchy and the MHFG Group’s valuation techniques used to measure fair values. During the fiscal year ended March 31, 2011, there were no material changes made to the Group’s valuation techniques and related inputs.

Trading securities and trading securities sold, not yet purchased

When quoted prices for identical securities are available in an active market, the Group uses the quoted prices to measure fair values of securities and such securities are classified in Level 1 of the fair value hierarchy. Level 1 securities include highly liquid government bonds and Ginnie Mae securities. When quoted prices for identical securities are available, but not actively traded, such securities are classified in Level 2 of the fair value hierarchy. When no quoted market price is available, the Group estimates fair values by using a pricing model with inputs that are observable in the market and such securities are classified in Level 2 of the fair value hierarchy. Level 2 securities include Japanese local government bonds, corporate bonds, and commercial paper. When less liquidity exists for securities, the quoted prices are stale or the prices from independent sources vary, such securities are generally classified in Level 3 of the fair value hierarchy. The fair value of foreign currency denominated securitization products such as RMBS, CMBS, and asset-backed securities (“ABS”) is determined primarily by using a discounted cash flow model. The key inputs used for the model include default rates, recovery rates, pre-payment rates, and discount rates. In the case that certain key inputs are unobservable or cannot be corroborated by observable market data, these financial instruments are classified in Level 3.

The investment funds are classified in either Level 1, Level 2, or Level 3 of the fair value hierarchy. Among those funds, exchange-traded funds (“ETF”) are generally classified in Level 1, while the others are classified in Level 2 or Level 3. Investment trusts and hedge funds are generally classified in Level 2, since those funds are measured at NAV per share and the MHFG Group has the ability to redeem its investment with the investees at NAV per share at the measurement date or within the near term. Private equity funds and real estate funds measured at NAV per share are generally classified in Level 3, since the Group never has the ability to redeem its investment with the investees at NAV per share, nor can it redeem its investment with the investees at NAV per share at the measurement date or within the near term.

Derivative financial instruments

Exchange-traded derivatives are valued using quoted market prices and so are classified in Level 1 of the fair value hierarchy. However, the majority of derivatives entered into by the Group are executed over-the-counter and so are valued using internal valuation techniques as no quoted market price is available for such instruments.

 

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The valuation techniques depend on the type of derivatives. The principal techniques used to value these instruments are discounted cash flow models and the Black-Scholes option pricing model, which are widely accepted in the financial services industry. The key inputs vary with the type of derivatives and the nature of the underlying instruments and include interest rate yield curves, foreign exchange rates, the spot price of the underlying, volatility and correlation. Each item is placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model. Level 2 derivatives include plain vanilla interest rate and currency swaps and option contracts. Derivative contracts valued using significant unobservable correlation or volatility are classified in Level 3 of the fair value hierarchy.

Investments

Fair values of available-for-sale securities are determined primarily using the same procedures described for trading securities. Since private placement bonds have no quoted market prices, the fair values of such bonds are estimated based on a discounted cash flow model using interest rates approximating the current rates for instruments with similar maturities, adjusting for inherent credit risk. Private placement corporate bonds are placed in either Level 2 or Level 3 depending on the observability of the significant inputs to the model, such as inherent credit risk. Japanese securitization products such as RMBS, CMBS, CDO, ABS, and CLO are generally measured at quoted prices from broker-dealers. The quoted prices may be adjusted, if they are not verified by the internal valuation process for risk management purposes. Though most Japanese securitization products are classified in Level 3, certain securitization products such as Japanese RMBS are classified in Level 2, if the quoted prices are verified through either the recent market transaction or a pricing model that can be corroborated by observable market data.

Other investments, except investments held by consolidated investment companies, have not been measured at fair value on a recurring basis. Investments held by consolidated investment companies mainly consist of marketable and non-marketable equity securities and debt securities. The fair value of the marketable equity securities is based upon quoted market prices. The fair value of the non-marketable equity securities is based upon significant management judgment, as very limited quoted prices exist. When evaluating such securities, the Group firstly considers recent market transactions of the identical security, if applicable. Otherwise, the Group uses commonly accepted valuation techniques such as earnings multiples based on comparable public securities. Non-marketable equity securities are generally classified in Level 3 of the fair value hierarchy. The fair value of the debt securities is estimated using a discounted cash flow model, since they have no quoted market prices. Those debt securities are classified in Level 3, because the credit risks are unobservable.

Long-term debt

Where fair value accounting has been elected for structured notes, the fair values of those are determined by incorporating the fair values of embedded derivatives primarily derived from the same procedures described for derivative financial instruments. Such instruments are classified in Level 2 or Level 3 depending on the observability of significant inputs to the model of the embedded derivatives. Where fair value accounting has been elected for non-structured notes issued by consolidated VIEs, the fair values of those are determined primarily based upon the fair values of the underlying assets held by consolidated VIEs. Such instruments are classified in Level 3 because the underlying assets held by consolidated VIEs are securitization products classified in Level 3.

 

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Items measured at fair value on a recurring basis

Assets and liabilities measured at fair value on a recurring basis at March 31, 2010 and 2011, including those for which the MHFG Group has elected the fair value option, are summarized below:

 

2010		Level 1				Level 2				Level 3				Assets/ Liabilities at fair value
		(in billions of yen)
Assets:
Trading securities (2)			11,085				3,482				920				15,487
Derivatives			22				15,675				344				16,041
Available-for-sale securities:
Japanese government bonds			26,690				1,539				—				28,229
Japanese local gov’t bonds			—				157				—				157
U.S. Treasury bonds			112				—				—				112
Other foreign gov’t bonds			215				104				—				319
Agency mortgage-backed securities			57				478				—				535
Residential mortgage-backed securities			—				438				573				1,011
Commercial mortgage-backed securities			—				—				650				650
Japanese corporate bonds and other debt securities			—				2,246				522				2,768
Foreign corporate bonds and other debt securities			75				304				357				736
Equity securities (marketable)			3,146				135				3				3,284
Other investments			—				—				96				96
Total assets at fair value on a recurring basis (3)			41,402				24,558				3,465				69,425
Liabilities:
Trading securities sold, not yet purchased			3,849				265				—				4,114
Derivatives			24				14,980				285				15,289
Long-term debt (4)			—				4				350				354
Total liabilities at fair value on a recurring basis			3,873				15,249				635				19,757

 

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2011		Level 1				Level 2				Level 3				Assets/ Liabilities at fair value
		(in billions of yen)
Assets:
Trading securities (2):
Japanese government bonds			4,834				128				—				4,962
Japanese local gov’t bonds			—				162				—				162
U.S. Treasury bonds			2,653				58				—				2,711
Other foreign gov’t bonds			1,218				132				5				1,355
Agency mortgage-backed securities			880				425				—				1,305
Residential mortgage-backed securities			—				1				206				207
Commercial mortgage-backed securities			—				1				50				51
Certificates of deposit and commercial paper			—				1,253				—				1,253
Corporate bonds and other			144				1,211				448				1,803
Equity securities			714				360				96				1,170
Derivatives:
Interest rate contracts			3				9,946				15				9,964
Foreign exchange contracts			2				2,769				74				2,845
Equity-related contracts			20				68				66				154
Credit-related contracts			—				27				32				59
Other contracts			—				—				104				104
Available-for-sale securities:
Japanese government bonds			27,605				1,608				—				29,213
Japanese local gov’t bonds			—				230				—				230
U.S. Treasury bonds			128				—				—				128
Other foreign gov’t bonds			196				95				—				291
Agency mortgage-backed securities			83				682				—				765
Residential mortgage-backed securities			—				331				429				760
Commercial mortgage-backed securities			—				—				486				486
Japanese corporate bonds and other debt securities			—				2,908				289				3,197
Foreign corporate bonds and other debt securities			34				364				248				646
Equity securities (marketable)			2,741				92				—				2,833
Other investments			26				—				260				286
Total assets at fair value on a recurring basis (3)			41,281				22,851				2,808				66,940
Liabilities:
Trading securities sold, not yet purchased			4,254				161				—				4,415
Derivatives:
Interest rate contracts			1				9,505				35				9,541
Foreign exchange contracts			2				2,422				41				2,465
Equity-related contracts			25				88				37				150
Credit-related contracts			—				32				7				39
Other contracts			1				2				84				87
Long-term debt (4)			—				1				440				441
Total liabilities at fair value on a recurring basis			4,283				12,211				644				17,138

 

Notes:

(1)	Certain amounts for the fiscal year ended March 31, 2010 have been summarized to conform to the current period’s presentation.

(2)	Trading securities include foreign currency denominated securities for which the MHFG Group elected the fair value option.

(3)

Amounts include the investments measured at NAV per share at March 31, 2010 and 2011, of ¥723 billion and ¥729 billion, respectively, of which ¥213 billion and ¥187 billion, respectively, are classified in Level 1, ¥454 billion and ¥482 billion, respectively, are classified in Level 2, and ¥56 billion and ¥60 billion, respectively, are classified in Level 3.

(4)	Amounts represent items for which the Group elected the fair value option.

(5)	There were no significant transfers of assets or liabilities between Level 1 and Level 2 of the fair value hierarchy for the fiscal year ended March 31, 2011.

 

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Items measured at fair value on a recurring basis using significant unobservable inputs (Level 3)

The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the fiscal years ended March 31, 2010 and 2011:

 

2010		April 1, 2009				Net realized/unrealized gains (losses)				Transfers in and/or out of Level 3				Purchases, sales,  issuances and settlements				March 31, 2010				Change in unrealized gains (losses) still held (7)
		(in billions of yen)
Assets:
Trading securities			930				15	(3)			(37	)			12				920				30
Derivatives, net (2)			127				(127	) (3)			(11	)			70				59				(164	)
Available-for-sale securities:
Residential mortgage-backed securities			664				9	(4)			—				(100	)			573				—
Commercial mortgage-backed securities			955				(17	) (4)			—				(288	)			650				(11	)
Japanese corporate bonds and other debt securities			834				3	(4)			(69	)			(246	)			522				—
Foreign corporate bonds and other debt securities			369				19	(4)			35				(66	)			357				—
Equity securities (marketable)			2				1	(4)			2				(2	)			3				—
Other investments			88				3	(5)			—				5				96				2
Liabilities:
Long-term debt			261				9	(6)			—				98				350				10

 

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2011		April 1, 2010				Net realized/unrealized gains (losses)				Transfers in and/or out of Level 3 (8)				Purchases, sales,  issuances and settlements (9)				March 31, 2011				Change in unrealized gains (losses) still held (7)
		(in billions of yen)
Assets:
Trading securities:
Other foreign gov’t bonds			7				—	(3)			—				(2	)			5				—
Residential mortgage-backed securities			200				(8	) (3)			—				14				206				3
Commercial mortgage-backed securities			63				(4	) (3)			—				(9	)			50				(1	)
Corporate bonds and other			564				(21	) (3)			22				(117	)			448				(10	)
Equity securities			86				4	(3)			20				(14	)			96				2
Derivatives, net (2):
Interest rate contracts			(17	)			(5	) (3)			—				2				(20	)			(6	)
Foreign exchange contracts			—				32	(3)			—				1				33				30
Equity-related contracts			38				(10	) (3)			—				1				29				(6	)
Credit-related contracts			17				(23	) (3)			(1	)			32				25				(9	)
Other contracts			21				6	(3)			—				(7	)			20				2
Available-for-sale securities:
Residential mortgage-backed securities			573				1	(4)			—				(145	)			429				(2	)
Commercial mortgage-backed securities			650				(10	) (4)			—				(154	)			486				(10	)
Japanese corporate bonds and other debt securities			522				2	(4)			(35	)			(200	)			289				—
Foreign corporate bonds and other debt securities			357				(3	) (4)			(13	)			(93	)			248				—
Equity securities (marketable)			3				(1	) (4)			—				(2	)			—				—
Other investments			96				(3	) (5)			(16	)			183				260				—
Liabilities:
Long-term debt			350				8	(6)			1				97				440				7

 

Notes:

(1)	Certain amounts for the fiscal year ended March 31, 2010 have been summarized to conform to the current period’s presentation.

(2)	Total Level 3 derivative exposures have been netted on the table for presentation purpose only.

(3)	Realized and unrealized gains (losses) are reported in Trading account gains (losses)—net, Foreign exchange gains (losses)—net or Other noninterest income (expenses).

(4)	Realized gains (losses) are reported in Investment gains (losses)—net. Unrealized gains (losses) are reported in Accumulated other comprehensive income (loss).

(5)	Realized and unrealized gains (losses) are reported in Investment gains (losses)—net.

(6)	Realized and unrealized gains (losses) are reported in Other noninterest income (expenses).

(7)	Amounts represent total gains or losses recognized in earnings during the fiscal year. These gains or losses are attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at March 31, 2010 and 2011.

(8)	Transfers in and out of Level 3 are assumed to occur at the beginning of the fiscal year. There were no significant transfers between Level 1 or Level 2 and Level 3 of the fair value hierarchy for the fiscal year ended March 31, 2011.

(9)	Due to the application of SFAS No.167, new consolidation guidance for VIEs, Level 3 assets increased by ¥170 billion during the fiscal year ended March 31, 2011, which was reflected as purchases, sales, issuances and settlements on the table.

 

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Items measured at fair value on a nonrecurring basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis and are not included in the tables above. These assets and liabilities primarily include items that are measured at the lower of cost or fair value, and items that were initially measured at cost and have been written down to fair value as a result of impairment. The following table shows the fair value hierarchy for those items as of March 31, 2010 and 2011.

 

2010		Total				Level 1				Level 2				Level 3				Aggregate cost
		(in billions of yen)
Assets:
Loans			287				—				—				287				407
Loans held-for-sale			45				—				22				23				62
Other investments			4				—				—				4				29
Total assets at fair value on a nonrecurring basis			336				—				22				314				498
Liabilities:
Other liabilities			1				—				1				—				—
Total liabilities at fair value on a nonrecurring basis			1				—				1				—				—
2011		Total				Level 1				Level 2				Level 3				Aggregate cost
		(in billions of yen)
Assets:
Loans			276				—				—				276				408
Loans held-for-sale			5				—				4				1				6
Other investments			23				5				—				18				26
Goodwill			6				—				—				6				15
Total assets at fair value on a nonrecurring basis			310				5				4				301				455
Liabilities:
Total liabilities at fair value on a nonrecurring basis			—				—				—				—				—

Loans in the table above have been impaired and measured based on the fair value of the underlying collateral.

Loans held-for-sale in the table above are accounted for at the lower of cost or fair value at the end of the fiscal year. The items of which fair values are determined by using actual or contractually determined selling price data are classified as Level 2. Due to the lack of current observable market information, the determination of fair value for items other than above requires significant adjustment based on management judgment and estimation, which leads such items into Level 3.

Other investments in the table above have been impaired and written down to fair value. Other investments consist of certain equity method investments and non-marketable equity securities. The fair value of the impaired equity method investment is determined by the quoted market price. As the security involved is traded in an active exchange market, this item is classified as Level 1. The fair value of the impaired non-marketable equity securities is determined primarily by using a liquidation value technique. As significant management judgment or estimation is required in the determination of the fair value of non-marketable equity securities, these items are classified as Level 3.

Goodwill in the table above is entirely related to MHIS operating segment. Due to the decline of quoted market price of MHIS’s common stock, it was determined that the carrying amount of the segment exceeded its fair

 

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value as of March 31, 2011 and a goodwill impairment loss was recognized. The fair value of the MHIS operating segment was determined by the quoted market price of its common stock adjusted by the control premium which requires significant management judgment and estimation. Therefore, the item is classified as Level 3.

Other liabilities in the table above represent amounts recorded for loan commitments where loans drawn under the commitment will be held for sale. The losses were measured in the same manner as loans held-for-sale above.

Fair value option

The MHFG Group elected the fair value option for certain eligible financial instruments described below.

Foreign currency denominated available-for-sale securities

Prior to the adoption of the fair value option under ASC 825, the changes in fair value of foreign currency denominated available-for-sale securities had been accounted for in Accumulated other comprehensive income, net of tax, while the changes in fair value caused by foreign exchange fluctuation of foreign currency denominated financial liabilities had been accounted for in earnings. The MHFG Group elected the fair value option for those securities to mitigate the volatility in earnings due to the difference in the recognition of foreign exchange risk between available-for-sale securities and financial liabilities. Following the election of the fair value option, these securities have been reported as trading securities in Trading account assets.

Certain hybrid financial instruments

The MHFG Group issues structured notes as part of its client-driven activities. Structured notes are debt instruments that contain embedded derivatives. The Group elected the fair value option for certain structured notes to mitigate accounting mismatches and to achieve operational simplifications. Following the election of the fair value option, those structured notes continue to be reported in Long-term debt and interest on those structured notes continues to be reported in Interest expense on long-term debt. The differences between the aggregate fair value of those structured notes for which the fair value option has been elected and the aggregate unpaid principal balance of such instruments were ¥40 billion and ¥48 billion at March 31, 2010 and 2011, respectively. The net unrealized gains resulting from changes in fair values of those structured notes of ¥9 billion and ¥8 billion were recorded in Other noninterest income for the fiscal years ended March 31, 2010 and 2011, respectively.

Financial assets and liabilities held by consolidated VIEs

The MHFG Group consolidates certain VIEs that issue CDOs where MHFG or its subsidiaries have been determined to be the primary beneficiary. The Group elected the fair value option for certain assets held and notes issued by those VIEs to eliminate the divergence between accounting income and economic income. The assets were reported in Trading account assets, while the notes were reported in Long-term debt. The fair value option enabled the Group to recognize the gains or losses attributing to only the notes that the Group held. The differences between the aggregate fair value of those notes for which the fair value option has been elected and the aggregate unpaid principal balance of such instruments were ¥57 billion and ¥12 billion at March 31, 2010 and 2011, respectively. There were no significant changes in fair values of those notes during the fiscal years ended March 31, 2010 and 2011.

 

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Fair value of financial instruments

ASC 825 requires the disclosure of the estimated fair value of financial instruments. Fair value of financial instruments is the amount that would be exchanged between willing parties, other than in a forced sale or liquidation. Quoted market prices, if available, are best utilized as estimates of the fair values of financial instruments. However, since no quoted market prices are available for certain financial instruments, fair values for such financial instruments have been estimated based on management’s assumptions, discounted cash flow models or other valuation techniques. Such estimation methods are described in more detail below. These estimates could be significantly affected by different sets of assumptions. There are certain limitations to management’s best judgment in estimating fair values of financial instruments and inherent subjectivity involved in estimation methodologies and assumptions used to estimate fair value. Accordingly, the net realizable or liquidation values could be materially different from the estimates presented below.

ASC 825 does not require the disclosure of the fair value of nonfinancial instruments.

The carrying amounts and fair values of certain financial instruments, excluding the financial instruments outside the scope of ASC 825 such as the equity method investments and lease contracts as defined in ASC 840, “Leases” (“ASC 840”), at March 31, 2010 and 2011 are as follows:

 

		2010								2011
		Carrying amount				Estimated fair value				Carrying amount				Estimated fair value
		(in billions of yen)
Financial assets:
Cash and due from banks, call loans and funds sold, and receivables under resale agreements and securities borrowing transactions			18,910				18,910				24,516				24,516
Trading securities			15,487				15,487				14,979				14,979
Investments			38,500				38,504				40,037				40,043
Loans, net of allowance for loan losses			62,861				63,276				63,918				64,330
Other financial assets			3,787				3,787				2,653				2,653
Derivative financial instruments			16,041				16,041				13,126				13,126
Financial liabilities:
Noninterest-bearing deposits, call money and funds purchased, and payables under repurchase agreements and securities lending transactions			36,319				36,319				35,014				35,014
Interest-bearing deposits			75,145				75,103				76,403				76,354
Debentures			1,518				1,515				741				735
Trading securities sold, not yet purchased			4,114				4,114				4,415				4,415
Due to trust accounts			1,025				1,025				629				629
Commercial paper and other short-term borrowings			9,046				9,046				15,151				15,151
Long-term debt			8,463				8,874				8,930				9,318
Other financial liabilities			3,902				3,902				4,084				4,084
Derivative financial instruments			15,289				15,289				12,282				12,282

 

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Following is a description of valuation methodologies used for estimating fair value for financial assets and liabilities not carried at fair value on the MHFG Group’s consolidated balance sheets.

Cash and due from banks, call loans and funds sold, and receivables under resale agreements and securities borrowing transactions

The carrying value of short-term financial assets, such as cash and due from banks, interest-bearing deposits in other banks, call loans and funds sold, and receivables under resale agreements and securities borrowing transactions approximates the fair value of these assets since they generally involve limited losses from credit risk or have short-term maturities with interest rates that approximate market rates.

Investments

Fair values of held-to-maturity securities are determined primarily using the same procedures described for trading securities and available-for-sale securities aforementioned in this section. The fair values of other equity interests, which primarily comprise non-marketable equity securities, are not readily determinable, and their carrying amounts of ¥568 billion and ¥495 billion at March 31, 2010 and 2011, respectively, are not included in the disclosure.

Loans

Performing loans have been fair valued as groups of similar loans based on the type of loan, credit quality, prepayment assumptions and remaining maturity. The fair value of performing loans is estimated based on discounted cash flows using interest rates approximating the MHFG Group’s current rates for similar loans, adjusting for inherent credit risk. The carrying amounts of impaired loans, net of allowance for loan losses, approximate the fair values since allowance for loan losses for impaired loans is estimated based on an individual basis to reflect the value of uncollectible amounts.

Other financial assets

The carrying value of other financial assets, such as accrued interest receivable and accounts receivable from brokers, dealers, and customers for securities transactions, approximates the fair value of these assets since they generally involve limited losses from credit risk or have short-term maturities with interest rates that approximate market rates.

Noninterest-bearing deposits, call money and funds purchased, and payables under repurchase agreements and securities lending transactions

The carrying value of short-term financial liabilities, such as noninterest-bearing deposits, call money and funds purchased, and payables under repurchase agreements and securities lending transactions approximates the fair value of these liabilities since they generally have short-term maturities with interest rates that approximate market rates.

Interest-bearing deposits

The carrying value of demand deposits approximates the fair value since it represents the amount payable on demand at the balance sheet date. The fair value of time deposits and certificates of deposit is primarily estimated based on discounted cash flow analysis using current interest rates for instruments with similar maturities. The carrying value of short-term certificates of deposit approximates the fair value.

 

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Debentures

Debentures are fair valued using quoted market prices, if available. Otherwise, the fair value of debentures is estimated based on discounted cash flow analysis using current interest rates for instruments with similar maturities.

Due to trust accounts

The carrying value of due to trust accounts approximates the fair value since they generally have short-term maturities with interest rates that approximate market rates.

Commercial paper and other short-term borrowings

The carrying value of the majority of short-term borrowings approximates the fair value since they generally have short-term maturities with interest rates that approximate market rates. The fair value of certain borrowings is estimated based on discounted cash flow analysis using interest rates approximating the MHFG Group’s incremental borrowing rates with similar maturities.

Long-term debt

Long-term debt is fair valued using quoted market prices, if available. Otherwise, the fair value of long-term debt is estimated based on discounted cash flow analysis using interest rates approximating the MHFG Group’s incremental borrowing rates with similar maturities.

Other financial liabilities

The fair value of other financial liabilities, such as accrued interest payable and accounts payable to brokers, dealers, and customers for securities transactions, approximates the carrying amounts.

The fair values of certain off-balance-sheet financial instruments, such as commitments to extend credit and commercial letters of credit, are not considered material to the consolidated balance sheets at March 31, 2010 and 2011.

 

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30. Related party transactions

Transactions with directors, executive officers, and their associates

The banking subsidiaries of MHFG make loans to the MHFG Group’s directors, executive officers, and their associates in their ordinary course of business. At March 31, 2010 and 2011, outstanding loans to such related parties were not considered significant. These related party loans were made on substantially the same terms, including interest rate and collateral, as those prevailing at the same time for comparable transactions with unrelated parties. At March 31, 2010 and 2011, there were no loans to these related parties that were considered impaired.

Other transactions, such as deposits, were entered into between MHFG’s subsidiaries and the MHFG Group’s directors, executive officers, and their associates during the fiscal years ended March 31, 2009, 2010 and 2011. The outstanding amounts of these transactions, which were made in the ordinary course of business with terms equivalent to those with unrelated parties, were not considered significant.

Transactions with other related parties

A number of transactions were entered into with other related parties, such as MHFG’s employees and affiliates accounted for under the equity method. These transactions included loans, deposits, and other banking services. They were not significant in amount and were conducted with substantially the same terms as those for comparable transactions with unrelated parties.

31. Business segment information

Under U.S. GAAP, companies report segment information based on the way management disaggregates the company for making operating decisions. The MHFG Group’s operating segments are based on the nature of the products and services provided, the type of customer and the Group’s 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 the Group’s business segments. The management measures the performance of each of the operating segments primarily in terms of “net business profits” in accordance with internal managerial accounting rules and practices. Net business profits is used as a measure of the profitability of core banking operations in Japan, 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 is provided for the segments’ total net business profits with Income (loss) before income tax expense (benefit) under U.S. GAAP.

Note 32 “Foreign activities” provides financial information relating to the MHFG Group’s operations by geographic area.

MHFG manages its business portfolio through the 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 MHCB and MHSC, the Global Retail Group consists primarily of MHBK and MHIS, and the Global Asset & Wealth Management Group consists primarily of MHTB. Operating segments of MHCB and MHBK are aggregated within each entity based on customer characteristics and functions. Operating segments of MHCB are aggregated into three reportable segments, domestic, international, and trading and others. Operating segments of MHBK 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

MHCB

MHCB 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.

(1) Domestic

This segment consists of the following three units of MHCB: 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.

(2) International

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

(3) 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 MHCB’s customers’ financial and business risk control requirements. It is also engaged in MHCB’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 MHCB.

(4) MHSC

MHSC is the securities arm of the Global Corporate Group and provides full-line securities services to corporations, financial institutions, public sector entities, and individuals. The former MHSC and Shinko merged to form the new MHSC in May 2009.

(5) Others

This segment consists of MHCB’s subsidiaries other than MHSC, but includes MHSC’s subsidiaries. These subsidiaries offer financial products and services in specific areas of business or countries mainly to customers of the Global Corporate Group.

The Global Retail Group

MHBK

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

(6) Retail banking

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

 

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(7) 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.

(8) Trading and others

This segment supports the retail banking and corporate banking segments in offering derivatives and other risk hedging products to satisfy MHBK’s customers’ financial and business risk control requirements. It is also engaged in MHBK’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 MHBK.

(9) MHIS

MHIS 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.

(10) Others

This segment consists of MHBK’s subsidiaries other than MHIS. These subsidiaries, such as Mizuho Capital Co., Ltd. and Mizuho Business Financial Center Co., Ltd., offer financial products and services in specific areas of business to customers of the Global Retail Group.

The Global Asset & Wealth Management Group

(11) MHTB

MHTB 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.

(12) Others

This segment includes companies other than MHTB that are a part of the Global Asset & Wealth Management Group. These companies include TCSB, Mizuho Asset Management Co., Ltd., DIAM Co., LTD., which is an equity-method affiliate, and Mizuho Private Wealth Management Co., Ltd. They offer products and services related to trust and custody, asset management, and private banking.

(13) Others

This segment consists of MHFG 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, the MHFG Group offers non-banking services, including research and consulting services through Mizuho Research Institute Ltd., information technology-related services through Mizuho Information & Research Institute, Inc., and advisory services to financial institutions through Mizuho Financial Strategy Co., Ltd.

 

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The information below for reportable segments is derived from the internal management reporting system. Management does not use information on segments’ assets to allocate resources and assess performance and has not prepared information on segment assets. Accordingly, information on segment assets is not available.

 

		Global Corporate Group																												Global Retail Group																												Global Asset & Wealth Management Group
						MHCB																												MHBK
2009		Total				Total				Domestic (1)				Inter- national (2)				Trading and others (3)				MHSC (4)				Others (5)				Total				Total				Retail banking (6)				Corporate banking (7)				Trading and others (8)				MHIS (9)				Others (10)				Total				MHTB (11)				Others (12)				Others (13)				Total
		(in billions of yen)
Gross profits:
Net interest income (expense)			381.3				316.5				172.7				90.1				53.7				(9.7	)			74.5				648.1				603.7				327.3				297.9				(21.5	)			0.4				44.0				49.8				48.6				1.2				(10.3	)			1,068.9
Net noninterest income (expenses)			343.2				211.7				102.5				40.4				68.8				78.0				53.5				252.2				224.0				25.2				144.4				54.4				30.9				(2.7	)			127.1				81.5				45.6				15.6				738.1
Total			724.5				528.2				275.2				130.5				122.5				68.3				128.0				900.3				827.7				352.5				442.3				32.9				31.3				41.3				176.9				130.1				46.8				5.3				1,807.0
General and administrative expenses			381.4				246.9				92.0				66.0				88.9				59.5				75.0				615.9				571.1				235.7				234.2				101.2				44.0				0.8				132.0				91.3				40.7				(5.7	)			1,123.6
Others			(35.4	)			—				—				—				—				—				(35.4	)			(13.8	)			—				—				—				—				—				(13.8	)			(3.2	)			—				(3.2	)			(8.4	)			(60.8	)
Net business profits (losses)			307.7				281.3				183.2				64.5				33.6				8.8				17.6				270.6				256.6				116.8				208.1				(68.3	)			(12.7	)			26.7				41.7				38.8				2.9				2.6				622.6

 

		Global Corporate Group																												Global Retail Group																												Global Asset & Wealth Management Group
						MHCB																												MHBK
2010		Total				Total				Domestic (1)				Inter- national (2)				Trading and others (3)				MHSC (4)				Others (5)				Total				Total				Retail banking (6)				Corporate banking (7)				Trading and others (8)				MHIS (9)				Others (10)				Total				MHTB (11)				Others (12)				Others (13)				Total
		(in billions of yen)
Gross profits:
Net interest income (expense)			470.6				444.8				175.0				85.8				184.0				(10.7	)			36.5				641.6				612.9				263.5				266.4				83.0				0.4				28.3				46.2				44.9				1.3				(6.7	)			1,151.7
Net noninterest income			449.9				197.5				110.7				31.7				55.1				188.5				63.9				258.8				205.9				25.0				126.5				54.4				47.2				5.7				130.5				87.1				43.4				5.7				844.9
Total			920.5				642.3				285.7				117.5				239.1				177.8				100.4				900.4				818.8				288.5				392.9				137.4				47.6				34.0				176.7				132.0				44.7				(1.0	)			1,996.6
General and administrative expenses			478.1				246.9				97.5				54.4				95.0				153.4				77.8				617.7				570.4				245.8				228.9				95.7				40.0				7.3				128.5				89.9				38.6				(11.1	)			1,213.2
Others			(11.8	)			—				—				—				—				—				(11.8	)			(2.0	)			—				—				—				—				—				(2.0	)			(2.8	)			—				(2.8	)			(64.2	)			(80.8	)
Net business profits (losses)			430.6				395.4				188.2				63.1				144.1				24.4				10.8				280.7				248.4				42.7				164.0				41.7				7.6				24.7				45.4				42.1				3.3				(54.1	)			702.6

 

		Global Corporate Group																												Global Retail Group																												Global Asset & Wealth Management Group
						MHCB																												MHBK
2011		Total				Total				Domestic (1)				Inter- national (2)				Trading and others (3)				MHSC (4)				Others (5)				Total				Total				Retail banking (6)				Corporate banking (7)				Trading and others (8)				MHIS (9)				Others (10)				Total				MHTB (11)				Others (12)				Others (13)				Total
		(in billions of yen)
Gross profits:
Net interest income (expense)			457.0				395.8				176.0				86.3				133.5				(9.2	)			70.4				614.5				571.8				248.2				266.9				56.7				0.6				42.1				43.4				42.5				0.9				(5.4	)			1,109.5
Net noninterest income			483.5				282.5				115.2				56.9				110.4				158.9				42.1				294.8				237.5				34.6				124.9				78.0				49.8				7.5				134.0				89.4				44.6				11.5				923.8
Total			940.5				678.3				291.2				143.2				243.9				149.7				112.5				909.3				809.3				282.8				391.8				134.7				50.4				49.6				177.4				131.9				45.5				6.1				2,033.3
General and administrative expenses			471.3				235.0				88.8				62.1				84.1				160.9				75.4				605.3				554.8				237.7				223.7				93.4				41.0				9.5				125.5				87.4				38.1				0.2				1,202.3
Others			(56.7	)			—				—				—				—				—				(56.7	)			(15.9	)			—				—				—				—				—				(15.9	)			(2.1	)			—				(2.1	)			(14.6	)			(89.3	)
Net business profits (losses)			412.5				443.3				202.4				81.1				159.8				(11.2	)			(19.6	)			288.1				254.5				45.1				168.1				41.3				9.4				24.2				49.8				44.5				5.3				(8.7	)			741.7

 

Notes:

(1)	For the period before the merger of MHSC and Shinko (i.e. May 7, 2009), (4)MHSC does not include Shinko’s figures, as Shinko was an equity method affiliate for the period.

(2)	(5) Others, (10) Others, and (12) Others include elimination of transactions between companies within the Global Corporate Group, the Global Retail Group, and the Global Asset & Wealth Management Group, respectively. (13) Others include elimination of transactions between the Global Groups.

 

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Reconciliation

As explained above, the measurement base for the internal management reporting system and the income and expenses items covered are different from the accompanying consolidated statements of income. Therefore, it is impracticable to present reconciliations of all the business segments’ information, other than net business profits, to corresponding items in the accompanying consolidated statements of income.

A reconciliation of total net business profits under the internal management reporting system for the fiscal years ended March 31, 2009, 2010 and 2011 presented above to Income (loss) before income tax expense (benefit) shown on the consolidated statements of income is as follows:

 

		2009				2010				2011
		(in billions of yen)
Net business profits			622.6				702.6				741.7
U.S. GAAP adjustments			(124.9	)			144.1				(98.4	)
(Provision) credit for loan losses			(567.4	)			(222.1	)			(0.6	)
Net gains (losses) related to equity investments			(246.4	)			34.1				2.2
Non-recurring personnel expense			(13.2	)			(43.9	)			(22.8	)
Gains on disposal of premises and equipment			23.4				27.6				13.5
(Provision) credit for losses on off-balance-sheet instruments			(83.6	)			24.1				(4.4	)
Others—net (Note)			31.4				20.0				(19.8	)
Income (loss) before income tax expense (benefit)			(358.1	)			686.5				611.4

 

Note:

With respect to the hedges related to credit risk mitigation transactions, the MHFG Group recognized a gain of ¥75.2 billion recorded in Other noninterest income, a loss of ¥90.6 billion recorded in Other noninterest expenses and a loss of ¥8.2 billion recorded in Other noninterest expenses, for the fiscal years ended March 31, 2009, 2010 and 2011, respectively. Amount for the fiscal year ended March 31, 2010 also includes a gain of ¥106.3 billion on a bargain purchase of Shinko which is included in Other noninterest income. See Note 24 “Derivative financial instruments” and Note 3 “Business combination” for further information.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

32. Foreign activities

The following table presents consolidated income statement and total assets information by major geographic area. Foreign activities are defined as business transactions that involve customers residing outside of Japan. However, as the MHFG Group’s operations are highly integrated globally, estimates and assumptions have been made for an allocation among the geographic areas.

 

		Japan				Americas				Europe				Asia/Oceania excluding Japan, and others				Total
		(in billions of yen)
Fiscal year ended March 31, 2009:
Total revenue (1)			1,867.3				423.9				347.0				198.2				2,836.4
Total expenses (2)			2,424.5				262.4				364.3				143.3				3,194.5
Income before income tax expense			(557.2	)			161.5				(17.3	)			54.9				(358.1	)
Net income (loss)			(1,276.8	)			130.7				(20.2	)			46.3				(1,120.0	)
Total assets at end of fiscal year			115,588.4				24,995.2				9,816.0				4,683.4				155,083.0
Fiscal year ended March 31, 2010:
Total revenue (1)			2,324.3				284.5				229.6				124.7				2,963.1
Total expenses (2)			1,907.6				134.8				163.0				71.2				2,276.6
Income before income tax expense			416.7				149.7				66.6				53.5				686.5
Net income			784.5				149.2				65.5				47.5				1,046.7
Total assets at end of fiscal year			121,555.8				21,951.5				10,178.7				4,665.5				158,351.5
Fiscal year ended March 31, 2011:
Total revenue (1)			1,943.1				281.6				128.0				144.0				2,496.7
Total expenses (2)			1,627.8				111.6				69.5				76.4				1,885.3
Income before income tax expense			315.3				170.0				58.5				67.6				611.4
Net income			133.7				165.8				57.5				61.1				418.1
Total assets at end of fiscal year			125,412.6				21,795.4				8,521.6				6,256.1				161,985.7

 

Notes:

(1)	Total revenue is comprised of Interest and dividend income and Noninterest income.

(2)	Total expenses are comprised of Interest expense, Provision (credit) for loan losses and Noninterest expenses.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

33. Mizuho Financial Group, Inc., parent company

The following tables present the parent company only financial information of MHFG:

Condensed balance sheets

 

		2010				2011
		(in millions of yen)
Assets:
Cash and due from banks			142				155
Interest-bearing deposits in other banks			14,991				16,336
Investments in subsidiaries and affiliated companies			4,142,271				4,959,426
Other			23,635				79,845
Total			4,181,039				5,055,762
Liabilities and shareholders’ equity:
Short-term borrowings			960,000				1,121,575
Long-term debt			240,000				240,000
Other liabilities			14,824				20,700
Shareholders’ equity			2,966,215				3,673,487
Total			4,181,039				5,055,762

Condensed statements of income

 

		2009				2010				2011
		(in millions of yen)
Income:
Dividends from subsidiaries			410,517				3,847				16,544
Management fees from subsidiaries			32,184				29,945				29,879
Other income			2,130				7,981				22,157
Total			444,831				41,773				68,580
Expenses:
Operating expenses			19,968				19,808				19,674
Interest expense			10,957				13,918				16,165
Other expense			79,397				4,750				4,471
Total			110,322				38,476				40,310
Equity in undistributed net income (loss) of subsidiaries			(1,393,076	)			996,309				384,463
Income (loss) before income tax expense (benefit)			(1,058,567	)			999,606				412,733
Income tax expense (benefit)			(120	)			(83	)			64
Net income (loss)			(1,058,447	)			999,689				412,669

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Condensed statements of cash flows

 

		2009				2010				2011
		(in millions of yen)
Cash flows from operating activities:
Net income (loss)			(1,058,447	)			999,689				412,669
Adjustments and other			1,544,410				(908,244	)			(396,510	)
Net cash provided by operating activities			485,963				91,445				16,159
Cash flows from investing activities:
Proceeds from sales of securities of subsidiaries			79,000				—				—
Payments for purchases of securities of subsidiaries			(15	)			(846,587	)			(751,620	)
Net change in other investing activities			(2,018	)			15,755				(43,582	)
Net cash provided by (used in) investing activities			76,967				(830,832	)			(795,202	)
Cash flows from financing activities:
Net change in short-term borrowings			(280,000	)			100,000				161,265
Proceeds from issuance of long-term debt			—				240,000				—
Proceeds from issuance of common stock			—				529,200				751,620
Purchases of treasury stock			(150,359	)			(5	)			(3	)
Dividends paid			(133,723	)			(130,802	)			(134,644	)
Net change in other financing activities			1,207				988				818
Net cash provided by (used in) financing activities			(562,875	)			739,381				779,056
Net increase (decrease) in cash and due from banks			55				(6	)			13
Cash and due from banks at beginning of fiscal year			93				148				142
Cash and due from banks at end of fiscal year			148				142				155

34. Subsequent events

Turning MHTB, MHSC and MHIS into MHFG’s wholly-owned subsidiaries

MHFG and its relevant subsidiaries determined, at their respective meetings of the board of directors held on April 28, 2011, to turn MHTB, MHSC and MHIS into MHFG’s wholly-owned subsidiaries by means of share exchanges, and signed share exchange agreements. Prior to the share exchanges, which are scheduled to be effective on September 1, 2011, shares of common stock of MHTB, MHSC and MHIS are scheduled to be delisted from Exchanges as of August 29, 2011. The main purpose of the captioned is to further enhance the “group collective capabilities” by integrating group-wide business operations, optimizing management resources such as workforce and branch network, and accelerating the implementation of the Transformation Program announced in May 2010. In the share exchanges, 0.54 shares, 1.48 shares and 0.56 shares of MHFG’s common stock are to be allotted for one share of common stock of MHTB, MHSC and MHIS, respectively.

The share exchange agreements set forth above were approved by the shareholders of MHTB and MHSC on June 22, 2011, and those of MHIS on June 29, 2011.

 

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Redemption of preferred securities

On May 13, 2011, the board of directors of MHFG resolved to redeem in full non-cumulative perpetual preferred securities issued by an overseas special purpose company whose voting rights are wholly owned by MHFG. This entity is not consolidated in accordance with ASC 810 since the Group is not the primary beneficiary. Thus, the redemption of preferred securities did not reduce Noncontrolling interests in consolidated subsidiaries, but Long-term debt in the Group’s consolidated balance sheets. However, on June 30, 2011, when the preferred securities were redeemed, it decreased Tier 1 capital. The following table describes the details of the redeemed preferred securities.

 

Issuer		Aggregate     redemption amount				Reason for the redemption
		(in millions of euro)
Mizuho Capital Investment (EUR) 1 Limited			500			Arrival of optional redemption date

Increase in authorized shares of common stock

The common stock shareholders and the preferred stock shareholders of MHFG approved an amendment to the Articles of Incorporation on June 21, 2011 and June 29, 2011, respectively. As a result of the amendment, effective on June 29, 2011, the total number of authorized shares of common stock increased from 24,115,759,000 shares to 48,000,000,000 shares.

 

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Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

July 20, 2011

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EXHIBIT INDEX

 

Exhibit Number				Description of Exhibits
	1.1			Articles of Incorporation of Mizuho Financial Group, Inc., dated June 29, 2011 (English Translation)
	1.2			Bylaws Regarding the Board of Directors of Mizuho Financial Group, Inc., effective from January 8, 2003 and as amended on June 8, 2003 and amended on June 27, 2006 (English Translation)*
	1.3			Regulations of Board of Corporate Auditors of Mizuho Financial Group, Inc., effective from January 9, 2003 and as amended on September 25, 2006 (English Translation)*
	1.4			Share Handling Regulations of Mizuho Financial Group, Inc., dated January 6, 2010 (English Translation)**
	2.1			Form of American Depositary Receipt***
	2.2			Form of Deposit Agreement among the registrant, The Bank of New York Mellon (formerly The Bank of New York) as Depositary and all owners and holders from time to time of American Depositary Receipts issued thereunder*
	8			List of significant subsidiaries of Mizuho Financial Group, Inc.—see “Item 4.C. Information on the Company—Organizational Structure.”
	11			Code of Ethics of Mizuho Financial Group, Inc.****
	12.1			CEO Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).
	12.2			CFO Certification required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).
	13.1			Certification required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

 

*	Incorporated by reference to our registration statement on Form 20-F (No. 001-33098) filed on October 19, 2006.

**	Incorporated by reference to our annual report on Form 20-F (No. 001-33098) filed on July 29, 2010.

***	Incorporated by reference to our annual report on Form 20-F (No. 001-33098) filed on August 19, 2009.

****	Incorporated by reference to our annual report on Form 20-F (No. 001-33098) filed on August 10, 2007.