Mizuho to consider share buybacks, dividend hike if profits hold
TOKYO, Aug 9 (Reuters) - Mizuho Financial Group Inc , flush with cash, will consider buying back its shares from the market or raising its dividend in coming months if profit growth remains on target, a bank executive said.
Mizuho, Japan's second-largest lender by assets, has the lowest capital adequacy ratio of the country's three "megabanks" but is confident enough about its capital buffer to follow the other two with steps such as returning money to shareholders, if it stays on track to meet its profit goals during the second half of the financial year to next March, the executive said.
Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, the No. 1 and No. 3 banks, raised their dividends in the financial year ended in March, after they had comfortably cleared new Basel III global bank-capital requirements.
Japanese banks, with limited exposure to subprime mortgages and other markets ravaged in the global financial crisis, as well as to Europe's troubled economy, have maintained relatively sound balance sheets compared with many of their overseas rivals. And while their core lending business remains tepid, they have earned huge profits from Japanese government bond trading.
"What to do with excess capital is becoming a more important question than whether we can clear Basel III or not," said the executive, who spoke on condition of anonymity. "Options include a dividend increase, share buybacks, share cancellations and strategic acquisitions."
Under Basel III, banks must have Common Equity Tier I capital of at least 7 percent of risk-weighted assets by 2019. Mizuho's capital adequacy ratio was 8.29 percent at the end of March on a fully implemented basis, versus MUFG at 11.1 percent and SMFG at 8.6 percent.
The banks' capital buffers have risen as their massive equity holdings have increased in value with a rally in Japanese stocks. The Nikkei stock average rose 40 percent in the six months to March.
But even without such paper gains, Mizuho is set to secure a Common Equity Tier I ratio of more than 8 percent this financial year, the Mizuho executive said.
"We will have to start considering what to do with excess capital" once the bank is comfortable that it can achieve its annual net profit target of 500 billion yen ($5.21 billion), he said.
Still, uncertainty remains for Japan's banks, including increasing volatility in the stock market, a sharp drop in trading gains on Japanese government bonds and continued weakness in loan demand.
Japanese banks may also be cautious about how much cash they part with, given their painful experience in the aftermath of the financial crisis when generous payouts to shareholders had left them needing to raise funds to meet the new capital rules.
"Excessive shareholder returns could hurt management flexibility," said Nana Otsuki, banking analyst at Merrill Lynch Japan Securities. "Balance is important." ($1 = 95.8950 Japanese yen)
(Writing by Taiga Uranaka; Editing by William Mallard and Edmund Klamann)