Mizuho's new
CEO faces
growth challenge
MIZUHO FINANCIAL GROUP ’s newly appointed
chief executive faces a tough task to turn
around the bank’s fortunes, according to
market observers.
Last week, Mizuho elevated Tatsufumi
Sakai , the head of its brokerage unit, to
chief executive. He will take over the reins
on April 1.
Outgoing CEO Yasuhiro Sato has been
appointed non-executive chairman, while
Koichi Iida , head of the strategic planning
group, will replace Sakai as securities head.
Mizuho, Japan’s third-largest bank,has struggled to adapt to the country’s
negative interest rate policy, which has
SAPPEDûPROlTABILITYûANDûPUTûPRESSUREûONû
costs. Its performance has lagged that of
rivals Mitsubishi UFJ Financial Group and
Sumitomo Mitsui Financial Group, both
of which are less reliant on income from
domestic loans.
In November, Mizuho reported a 12%
DROPûINûNETûPROlTûFORûTHEûSECONDûQUARTERûTOû
September 30, the worst performance of
the three megabanks.
It reported a 127% rise in gains from
THEûSALEûOFûSHARESûTOûcBNûFORûTHEûlRSTû
half, which accounted for 25% of its pre-tax
income, according to Moody’s.
Sakai will also have to deal with plans
announced by his predecessor to shed
ûJOBS ûEQUIVALENTûTOûAROUNDûAûQUARTERû
of the workforce, within the next decade.Observers said his main challenge would
be balancing the reduction in headcount in
Japan – often a politically sensitive issue –
with expansion overseas.
“We are least optimistic about Mizuho
among the megabanks because of its
reliance upon income from domestic
loans,” one analyst told IFR.
“Whether a new CEO changes things
ISûDIFlCULTûTOûGAUGEûATûTHEûMOMENTûSINCEû
changes in strategy in Japan are usually
gradual.”
Speaking at a press conference last
Monday, Sato told reporters that the bank
would need to lower costs and embrace risk
under the new CEO’s tenure.
“We have a (high) cost structure. Also, I
cannot deny that we are a bit conservative
in terms of risk taking. We need to change
that attitude,” he said.People
&Markets
China targets shadow banking
Rules tightened further as regulator warns of “black swan” event
The chairman of China’s banking regulator
sent a strong signal to banks last week
that it would step up oversight of shadow
banking as he warned of a “black swan”
event that could derail the country’s
lNANCIALûSYSTEM
His comments came shortly after the
China Banking Regulatory Commission
published tough new rules that would
force banks to better identify their credit
exposure to investments in structured
products.
“We need to focus on reducing the debt
ratio of companies ...strictly control cross-
lNANCIALûSECTORûPRODUCTSûANDûCONTINUEûTOû
dismantle shadow banking,” said CBRC
CHAIRMANû'UOû3HUQINGûINûANûINTERVIEWû
WITHûTHEû0EOPLESû$AILY ûTHEûOFlCIALû
newspaper of the Chinese Communist
Party.
On January 13, the CBRC also said in
a statement that it would increase its
supervision of the banking sector as it
grappled with systemic risk.
“Banking shareholder management,
corporate governance and risk control
mechanisms are still relatively weak, and
root causes creating market chaos have not
fundamentally changed,” it said.
China’s shadow banking problem
STEMSûFROMûTHEûAFTERMATHûOFûTHEûlNANCIALû
crisis, when the government’s stimulus
programme led to a surge in demand forcredit.
To circumvent regulatory restrictions
on lending to certain sectors such as
manufacturing and real estate, banks began
lending to corporate clients through off-
balance sheet products, essentially loans
disguised as investments through a long
line of intermediaries.
According to research from Nomura, the
shadow banking sector peaked at around
Rmb122.8trn (US$19.1trn) at the end of
2016.
On January 5, the CBRC issued draft
regulations that would limit a bank’s
EXPOSUREûTOûUNIDENTIlEDûCOUNTERPARTIESû
in the underlying assets of structured
investments to 15% of its Tier 1 capital.
This means that banks will be forced
to identify the counterparties on all
investments above this threshold, which
will result in an increase in the amount of
capital they need to hold.
“Basically, the new regulations aim to
close the loophole, which allowed banks
to package loans into products in order
to circumvent higher regulatory capital
REQUIREMENTS vûSAIDû.ICHOLASû:HU ûANû
analyst at Moody’s.
“Much of the underlying exposure of
banks’ investment in structured products
is to corporate borrowers and one of the
motivations to engage in these types of
transactions is the arbitrage of capitalREQUIREMENTSû)FûYOUûCHARGEûûORûûFORû
AûlNANCIALûCOUNTERPARTY ûINSTEADûOFûû
for a corporate borrower, that makes the
return much better.”
According to Moody’s analysis of the 16
banks the rating agency covers, the total
amount of investments for which the
counterparty will need to be disclosed is
Rmb7.8trn.
Most observers reckon that banks will
respond by deleveraging rather than issuing
new share capital.LEVERAGE CLAMPDOWN
China has been stepping up reforms
to tackle shadow banking since the
conclusion of the 19th Party Congress
last year, at which President Xi Jinping
UNDERSCOREDûTHEûNEEDûTOûTACKLEûlNANCIALû
risks.
“I think the leadership is clearly aware
OFûlNANCIALûRISK vûSAIDû*INGû5LRICH ûVICEû
CHAIRMANûFORû!SIAû0ACIlCûATû*0û-ORGANû
h3Oû)ûTHINKûlNANCIALûSCRUTINY ûlNANCIALû
regulation and further deleveraging will be
major themes throughout 2018.”
The CBRC’s latest draft regulations follow
on from a slew of other directives that are
designed to get to grips with this issue.
In November, it published draft proposals
THATûWOULDûREQUIREûINVESTORSûWISHINGûTOû
hold more than a 5% stake in any bank for
THEûlRSTûTIMEûTOûAPPLYûWITHûTHEûREGULATORTOP STORY STRUCTURED PRODUCTS