Fresh out of issuance – an attractive AUD bank paper from Mizuho

Mizuho Financial Group, Inc. (“Mizuho”) is one of the largest financial institution groups in the world, being one of the global systemically important banks (“G-SIBs”) and providing a broad range of financial services in domestic and overseas markets. Based in Japan, it operates through three business entities – Mizuho Bank Ltd., Mizuho Trust & Banking Co., Ltd., and Mizuho Securities Co., Ltd. – each catering to a subset of clients and offering different types of financial services. As of 31 March 2023, approximately 80% of the companies listed in Japan had been its customers, and approximately 90% of the Forbes Global 200, excluding financial institutions, were its clients as well.

For the three months ended 30 June 2023, the first quarter of Mizuho’s fiscal year (“1Q23”), Mizuho saw a significant increase in attributable net income by about 52% YoY, from JPY 161.8b in 1Q22 to JPY 246.3b in 1Q23. The significant rise was largely the result of higher net trading income – increasing from JPY 6.9b in 1Q22 to JPY 117.5b in 1Q23, despite a sharp drop in overall trading activities in 1Q23 as compared to the previous year. While interest income saw a significant increase from JPY 444.9b in 1Q22 to JPY 1,293.6b in 1Q23, net interest income fell from JPY 253.2b in 1Q22 to JPY 217.6b in 1Q23 – where higher interest expense had a substantial impact on Mizuho’s income.

Mizuho’s CET1 ratio stands at 11.98% as of June 2023, a slight increase from the 11.80% as of March 2023. The liquidity coverage ratio stands at 136.9% in 1Q23, improving from 130.6% in 4Q22 and well above the regulatory requirement of 100%. Total high-quality liquid assets (“HQLA”) stand at JPY 80,351.5b, covering approximately 48% of the customer deposits. Mizuho’s loan book remains relatively healthy, with a non-performing loans ratio of 1.10% as of June 2023, compared against 1.05% as of March 2023 and 1.15% as of March 2022.

Table 1
Senior unsecured AUD papers at similar credit ratings

Mizuho had recently issued the MIZUHO 6.025% 28Aug2029 Corp (AUD), a senior unsecured AUD paper. Mizuho is rated A1/A-/A- by Moody’s/S&P/Fitch respectively, while MIZUHO 6.025% 28Aug2029 Corp (AUD) is expected to be rated A1 by Moody’s and A- by Fitch. The bond has a call date of 28 August 2028 and a maturity date of 28 August 2029.

If uncalled, the note will switch to a floating rate interest basis, which resets every quarter – starting on the call date at AUD three-month Bank Bill Swap Rate (“BBSW”) plus 1.80% margin per annum. The coupon will be distributed on a semi-annual basis prior to the call date, while it will be distributed on a quarterly basis upon the switch to floating rate.

At similar credit rating levels, the MIZUHO 6.025% 28Aug2029 Corp (AUD) offers comparative yields for a senior unsecured paper. While some Tier 2 subordinated AUD notes offer slightly higher yields (at similar bond credit ratings), these notes are associated with a higher risk of loss absorption due to the lower seniority.

The MIZUHO 6.025% 28Aug2029 Corp (AUD) provides a slight yield pick-up against other senior unsecured papers, compensating investors for the slight increase in duration to undertake. The issue will be attractive for investors looking at short to medium term bank notes, especially for risk-averse investors looking for non-subordinated bonds.

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) hold a position in MIZUHO 6.025% 28Aug2029 Corp (AUD) and the analyst who produced this report hold a NIL position in the abovementioned securities.

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