Breakingviews - Mizuho’s harsh medicine gives taste of Japan ills

Mizuho Financial Group's Chief Executive Officer Tatsufumi Sakai attends an interview with Reuters at the company's headquarters in Tokyo, Japan August 20, 2018. Picture taken August 20, 2018. REUTERS/Toru Hanai

Local financial institutions have long suffered under the central bank’s unconventional negative interest rate regime. Unable or unwilling to pass on higher costs of holding cash to their corporate clients, they have watched margins erode. Many are chasing higher returns in overseas markets to compensate. Mizuho is overhauling its securities portfolio in part because of “past investments in foreign bonds,” suggesting how fraught such efforts can be.

Kuroda is not unsympathetic to the plight at banks, which trade at parlous discounts to their book value, but has signaled he thinks cost savings can compensate. In Japan, the rural population is aging and shrinking and yet hosts some 100 regional banks. Consolidation is the obvious solution, and indeed most of Mizuho’s latest loss comes from one-time charges to close and rethink branches outside cities.

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Mizuho’s harsh medicine gives taste of Japan illsThe country’s second-biggest bank took a $6 bln hit and slashed its annual profit forecast by 86 pct. Losses on dozy rural branches and duff offshore trades are symptomatic of ultra-loose monetary policy. New rules to ease consolidation should at least offer some partial relief.
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