Japan's Mizuho slashes profit outlook, hit by $6 billion restructuring costs

TOKYO (Reuters) - Japan’s Mizuho Financial Group slashed its full-year profit outlook by 86 percent, citing one-time restructuring costs of 680 billion yen ($6 billion) at its bank and brokerage units and an overhaul of its securities portfolio.

FILE PHOTO: A pedestrian is reflected in a sign showing the logo of the Mizuho Financial Group Inc. outside its headquarters in Tokyo, Japan, May 15, 2015. REUTERS/Yuya Shino/File Photo

Japan’s second-largest bank by assets said it expects 80 billion yen in net income for the business year ending March 31, instead of 570 billion yen it had predicted earlier.

Mizuho said it would book about 500 billion yen of impairment losses on fixed assets, including costs from closing retail branches at home and software-related expenses. It will also book 180 billion yen of losses to restructure its securities portfolio of foreign bonds.

“Mizuho Financial Group’s profit warning highlights the key risks facing Japanese banks,” said Tetsuya Yamamoto of ratings agency Moody’s in emailed comments, adding the restructuring costs for the domestic business suggests bank branches are no longer valuable assets.

“All of these losses indicate Mizuho’s efforts in eliminating structural issues in order to reduce future downside risk. Other Japanese banks will also face losses if they take similar actions.”

Mizuho, like its rivals, has been accelerating cost-cutting as it grapples with the ultra-low interest rates and a declining population at home. In 2017, the bank said it would cut one-quarter of its workforce, or 19,000 positions, over a decade by scaling back hires. It has also said it would close about 100 of its 500 domestic branches by 2025.

But unlike its rivals, Mizuho has been dogged by a series of system troubles, for more than a decade. It had a costly “fat-finger” keyboard error at its securities arm in 2005 and suffered a breakdown at its ATMs after a devastating earthquake hit Japan in 2011.

Mizuho’s online brokerage platform crashed last year, forcing a suspension of trading for 2-1/2 days.

Chief Executive Tatsufumi Sakai told a media briefing that with the impairments losses announced on Wednesday, restructuring costs related to branch closures have completed.

Most of the impairment costs are associated with the banking group’s network, Sakai said.

“Amid growing uncertainty in financial markets ... the company will implement the restructuring of its securities portfolio in respect of past investment in foreign bonds,” Mizuho said in a statement.

The announcements on the slashed profit outlook and the impairment costs came after Tokyo’s stock market closed for the day.

Mizuho shares have delivered a total return of only 0.14 percent over the last five years, underperforming rivals Mitsubishi UFJ, which has returned nearly 12 percent and Sumitomo Mitsui, with around 2 percent.

Reporting by Takahiko Wada and Junko Fujita, Additional reporting by Sumeet Chatterjee; Editing by Himani Sarkar, Richard Borsuk and Gopakumar Warrier