The CEOs speak out: Mizuho Corporate Bank

Mizuho Corporate bank hit the headlines when it invested $1.2 billion in Merrill Lynch in January. The group’s CEO was unavailable for comment, but Hidetake Nakamura, head of the corporate bank’s international division, stepped up. He discusses the Merrill Lynch deal in this month’s main feature on the megabanks; in this extended interview he talks about the Japanese banking recovery, the group’s other investments and Mizuho’s global objectives.

Before the so-called lost decade the Japanese banks were on the verge of becoming top global names. Most market participants agree that much ground has been recovered in the past 10 years, but how far do you think the recovery has really come?

It’s certainly important to understand the track record of the Japanese banks. I think around 1984 was perhaps the first time Japanese banks began to be treated as among the top-ranked institutions in international markets, I believe that’s when we got AAA ratings and were recognized as an international force. Then came the 1990s, when things got tougher, and then after the crisis of 1997/98 we had a lost decade. Now I think if you look at performance figures – if you look at the scale of our overseas networks – the answer to the question of whether we have in a sense returned to a pre-crisis condition is yes.

However, it’s important to understand that there have been many changes in the global markets during the past 10 years: new frontiers have opened up in China, Russia, the Middle East, and South America – the latter admittedly a weak spot for this bank. Financial innovation has also accelerated rapidly, and considering all these new factors we’re probably running at about 70% strength compared with what we’d like to be.

Talking about the changing fortunes of the Japanese banks and how they’re perceived globally, it’s something of a turnaround to see a Japanese bank helping out a huge Wall Street name with some fresh capital. Now that you’re past the problems of the past 10 years, what are Mizuho’s goals?

We’d like to be a top global player, but that doesn’t necessarily mean we want to be exactly like a US bank. They are international conglomerates; we’re more concerned with using our Japanese corporate customer base and origins as a bank from the Japanese market to grow. To take India as an example, if we want to develop a good business there we’ll look and see if they have business with Japanese corporates, if there are sales receivables we can work with. We can then introduce firms to the Tokyo markets, whether via samurai bonds or otherwise. In other words we’re aiming to be a global bank, but with Japanese origins.

Is it fair to assume that Mizuho, like the other megabanks, sees Asia as the big growth area for the next few years?

Yes, it’s probably the region where we can best utilize our strengths. These are rough figures, but around 10 years ago the megabanks’ profits broken down by region probably went something like: 50% US, 30% Asia, 20% Europe. Now, for us at least, it’s more like 45% Asia, 55% US and Europe.

Mizuho Corporate bank has been very buy in the past 12 months in Asia, making an acquisition in Russia, a tie-up with State Bank of India and more. What’s the decision-making process behind deals like these? How do you decide what regions and products to target?

We announced to the public in October 2006 that globalization is a core strategy of Mizuho Financial Group: we’ve got to open new offices, develop new frontiers and new markets. It’s not hard to identify where we need to expand: we just look at where our customers are going. There are more than 200 Japanese companies operating in Moscow, for example, I’ve no idea how many more there are in Russia as a whole but it’s a large number. We found it takes two to three years to get a new office licence in Russia, so we got the idea to approach Michinoku – which has been a very good customer for us – and since both parties’ needs matched well we were able to buy its Moscow subsidiary.

Many market participants in Tokyo say that the country’s particularly strict firewall regulations, preventing intra-group information exchange, are holding back Japanese banks. Others say that the law is much stricter in theory than in practice. What’s your take on the matter?

This issue has not been much criticized in the past, but if we leave it as it is I think it’ll be fatal for Japanese markets. I welcome the discussion the government is having on this issue: we need to listen to our customers, and they are moving from just requiring loans and deposits to needing services like M&A. In order for us to be able to better help them, the market might have to be deregulated a little. Of course it’s vital to maintain standards of compliance at the same time.