Fitch Rates Mizuho's Tier 2 Notes; First Basel III Issue by Japanese Bank

Wed Mar 12, 2014 9:36pm EDT

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(The following statement was released by the rating agency) HONG KONG, March 12 (Fitch) Fitch Ratings has assigned an expected 'BBB(EXP)' rating to the proposed Basel III-compliant Tier 2 ten-year subordinated notes issued by Mizuho Financial Group (Cayman) 3 Limited, a wholly-owned subsidiary of Mizuho Financial Group, Inc. (Mizuho; A-/Stable). The notes are fully and unconditionally guaranteed by Mizuho on a subordinated basis. This is the first cross-border Basel III-compliant instrument issued by a Japanese banking group. The US dollar-denominated Tier 2 notes will constitute unsecured and subordinated obligations of Mizuho Financial Group (Cayman) 3 Limited and rank pari passu among themselves equally with all other present and future unsecured, unconditional and dated subordinated obligations. The proceeds will be used as a subordinated loan to Mizuho's core banking subsidiary, Mizuho Bank, Ltd. (MHBK; A-/Stable). The notes include a non-viability clause and will qualify as Tier 2 capital for Mizuho. For MHBK, the subordinated loan from Mizuho Financial Group (Cayman) 3 Limited will qualify as Tier 2 capital. The final rating is contingent on the receipt of the final documents conforming to information already received. KEY RATING DRIVERS Fitch rates the notes two notch below Mizuho's Long-Term Issuer Default Rating (IDR). This is to reflect their poor recovery prospects relative to senior unsecured instruments given their subordination and the prospect of full and permanent write-down of the securities upon Mizuho reaching the point of non-viability (PONV). The PONV trigger is fully contractual and explicitly refers to a particular event: when the Japanese Prime Minister confirms that the Specified Item 2 Measures set forth in Article 126-2, Paragraph 1, Item 2 of the Deposit Insurance Law needs to be applied to Mizuho. The notes have been notched from the bank's IDR (the anchor rating) based on the agency's view that Mizuho is a systemically important financial institution (FI) in Japan. Fitch believes that support can be factored into such instrument ratings issued by systemically important and complex FIs because Japan's Deposit Insurance Law enables the government to pre-emptively provide financial assistance to such FIs when necessary under Specified Item 1 Measures of Article 126-2, Paragraph 1, Item 1 or Item 1 Measures of Article 102, Paragraph 1, Item 1. No further notching for non-performance risk applies for the Tier 2 notes in the absence of any more easily hit triggers that would result in coupon deferral. Under Fitch's methodology the instrument would not qualify for any equity credit. RATING SENSITIVITIES Any changes to Mizuho's IDR would impact the issue's rating. The IDR is sensitive to any change in assumptions around the probability of the Japanese government providing timely support to Mizuho as the rating is at the Support Rating Floor (SRF) of 'A-'. Changes in the resolution framework that increases the risk of the PONV being triggered or changes in assessment of Mizuho's systemic importance that reduce the likelihood of pre-emptive support would lead to a downgrade of Mizuho's SRF - and potentially the rating on the Tier 2 bonds. Japan's sovereign rating (A+/Negative) being downgraded to below 'A' would also result in a lower SRF. The prospect for an upgrade of the IDR is limited as it requires an unlikely upgrade of the Viability Rating (VR) by more than two notches. Currently, Mizuho's VR is at 'bbb+', one notch below its 'A-' IDRs. Contact: Primary Analyst Chikako Horiuchi Director +852 2263 9924 Fitch (Hong Kong) Limited 2801, Tower Two, Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Miki Murakami Director +81 3 3288 2686 Committee Chairperson Mark Young Managing Director +65 6796 7229 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Global Financial Institutions Rating Criteria", dated 31 January 2014 and "Assessing and Rating Bank Subordinated and Hybrid Securities Criteria", dated 31 January 2014 are available at www.fitchratings.com. Related Research: "Applying Fitch's Criteria to Japanese FIs' Basel 3 Capital Instruments" (26 June 2013) Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Applying Fitch's Criteria to Japanese FIs' Basel 3 Capital Instruments here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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