Global Markets Company
We aim to become a leading Asian player in the global market by strengthening our capabilities for offering products for each customer segment
Medium– to Long–term Company Strategy
Although the world economy is continuing to recover at a moderate pace, concerns about rising populism and geopolitical risk and other factors are bringing greater uncertainty. Along with the transition to a stage of normalization in financial policy, primarily in the US, signs of change are emerging in the interest rate environment, such as shrinkage in the spreads between short–term and long–term rates. On the other hand, AI and other technology innovation are expected to bring changes in market structure. As this highly uncertain economic and market environment may continue, there are signs that customers are shifting from savings to investments/asset building, and the need for risk hedging, asset management, and cross–border transactions is increasing. Amidst this environment, we have a social responsibility to meet these needs while also responding to changes in the market structure accompanied by technology innovation.
The Global Markets Company conducts Sales & Trading business by offering solutions to customers, and engages in ALM*/Investment business through securities investment and liquidity management. The strengths of our company in Sales & Trading business include, under the One MIZUHO Strategy, our deep understanding of customers' needs, our capabilities for analysis and forecasting financial market trends in detail and our ability for providing products/solutions that draw on our knowledge, experience, and professional expertise. We are working to substantially strengthen these capabilities by adopting an operating structure that satisfies the needs of customer segments and individual companies and offering optimal product solutions to meet increasingly diverse needs, thereby contributing to their sustainable growth. Moreover, as global financial professionals, we are continuing to take initiatives to promote the sound development of financial markets through providing market liquidity and participating actively in industry associations.
The strengths of the ALM/Investment business include the early warning control to quickly identify changes in the markets and the efficient portfolio management based on prompt decision making and appropriate allocation. By carrying out efficient portfolio management thoroughly, we will maintain the soundness of our portfolios and work to secure stable profits.
Meanwhile, we will respond to the increasing need of global investors by enhancing our lineup of products and further development of our structure. In the medium to long term, we will develop a global business infrastructure that adopts cutting–edge technologies, and, by pursuing greater convenience for customers and operational excellence to promote efficiency and improvements of our operational processes, we will aim for further enhancement of our competitiveness.
Through these activities, we will achieve both customer satisfaction and high profitability, as a leading Asian player in the global market.
- *Asset Liability Management: Comprehensive management of assets and liabilities
Results in Fiscal 2016 and Plans for Fiscal 2017 and Beyond
In fiscal 2016, despite the difficult business environment affected by the impact of negative interest rates and the sharp rise in US treasury yield in the second half of the fiscal year, the Global Markets Company made Net Business Profits of JPY315.0 billion (excluding income related to ETFs1) and met its plan target for the fiscal year.
In the Sales & Trading business, as financial markets showed major fluctuations, we made profits well above the target by acquiring flow–type business, such as derivatives, foreign exchange, bonds, and equities to meet risk hedging and management needs of customers and by taking positions flexibly. Moreover, this development steadily increased our presence in the market. The collaboration between Mizuho's banking and securities functions including strengthening the sales approach to financial institutions started to bring some good results such as the steady rise of customers' evaluations in the market.
In the ALM/Investment business, the investment environment deteriorated further with the increasing global uncertainty due to Brexit and other factors, the widening of the negative margin on long–term government bonds in the Japanese market and subsequent reversal and rise in interest rates, and the sharp rise in US treasury yield following the presidential election in the US. However, the success of our appropriate position management in response to changes in the market environment combined with early warning control enabled us to maintain the soundness of our portfolio and achieve profits generally on target.
In fiscal 2017, a highly uncertain environment is likely to continue due to political developments in Europe and the US. In addition, as various financial regulations, including IRRBB2, are scheduled to be implemented, we are entering a stage where the ability to respond to these regulations will make competitive advantage.
Under these conditions, the Global Markets Company will allocate resources on a priority basis to its Sales & Trading business. We will take a flexible approach to risk taking and strengthen our product offering capabilities. Specifically, while we cope with the various regulations, we will reorganize our operating structure of derivatives business in the US, Europe, and Asia to allow integrated operation and strengthen our appeal to global customers, which will also lead to enhanced profitability. In addition, we will accelerate our efforts to improve CVA3 management under future Basel regulations. In fact, we became the first Japanese megabank to establish a CVA Office in April 2017.
In the ALM/Investment business, we will work to enhance non–yen currency funding capabilities through sophisticating the management of balance sheet. We will enhance the efficiency of our portfolio management through early warning control, diversification, and prompt decision making. We will make appropriate judgments on restructuring our bond portfolios. We will also accelerate initiatives to utilize cutting–edge technologies for efficient and sophisticated operations.
Going forward, through these efforts, we will endeavor to contribute to the sustainable growth of our customers and sound development of financial markets.
- 1.Exchange–traded Funds
- 2.Interest Rate Risk on Banking Book: With the Basel capital adequacy requirements, stricter rules were applied for disclosure of interest rate risk in the banking account
- 3.Credit Valuation Adjustment: Method to reflect counterparty’s credit risk in the valuation of derivatives transactions
1. Current Environment
Economy, Regulations, and Competition
- Increasing global political uncertainty and higher volatility
- Signs of change in the interest rate environment with shrinkage in the spreads between short–term and long–term rates
- Greater need to cope with tighter financial regulations
- Shift from savings to investments/asset building
- Greater need for risk hedging and asset management
- Increase in cross–border transactions
- Changes in market structure accompanied by AI and other technological progress
- Capabilities for offering sophisticated products and solutions through collaboration among banking, trust banking, and securities functions
- Operating structure tailored to each customer segment
- Efficient portfolio management structure characterized by early warning control and appropriate allocation
- Strengthen product offering capabilities
- Strengthen capabilities for meeting investor needs
- Develop a global business infrastructure
- Improve the sophistication of portfolio management
2. Value Creation
Value for Customers
- Offer optimal solutions that make use of market products to meet a wide range of customers' risk hedging and asset management needs
- Offer information on market trends based on global information gathering and analysis capabilities
Value for Society
- Continuously provide liquidity in offering a wide range of market products as global financial professionals
- Contribute to the development of sound financial markets by complying with various regulations and participating in industry associations
3. Business Plans
Risk Appetite Policy
- Strengthen capabilities for flexible risk taking and product offering by focusing resource to Sales & Trading business
- In addition to improving sophistication of balance sheet management, ensure accuracy in allocations and efficiency
- Make appropriate judgments on restructuring bond portfolios
- Further enhance product offering capabilities
- Achieve further integration by reorganizing derivatives business operations in the US, Europe, and Asia
- Sophisticate balance sheet management
- Maximize efficiency in portfolio management through early warning control and investment diversification and appropriate decision making
- Use cutting–edge technology to enhance operating efficiency and sophistication
- *FY2016 results recalculated based on FY2017 management account rules Excluding ETFs (including ETFs: JPY345 billion)
- *Global Markets Company management basis
- *Among 20 companies
Source: Greenwich Global Japanese Cash Equities Commission–weighted Trading Share
- *Among 35 companies
Source: Greenwich Quality Index Asia excluding Japan FX
Solutions that Support Sustainable Growth for Our Customers and Society
Offering Clearing Services and Active Participation in Industry Associations
Mizuho offers the clearing services of Japan Securities Clearing Corporation (JSCC). MHBK won the leading market share of customers using clearing services for JPY interest rate derivatives, for two years in a row since 2015. In addition, Mizuho is an active participant in the International Swap Dealers Association (ISDA) and other industry associations. By doing so we are supporting customers to meet various regulations and are contributing to the sound development of financial markets.
Established the CVA Office ahead of Other Japanese Banks
Since the collapse of Lehman Brothers, the importance of managing counterparty risk has become more important than ever in the derivatives market.
Credit Valuation Adjustment (CVA) is the method to reflect the counterparty's credit risk in the valuation of derivatives transactions. The Basel Committee on Banking Supervision requires banks to improve the framework for CVA.
MHBK established a CVA Office ahead of other Japanese banks in April 2017. Through the appropriate control of CVA risk, we will continue to contribute to sound development of derivatives markets and fulfill customers' needs.