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The Mizuho Financial Group said Tuesday its fiscal 2002 losses will hit 1.9 trillion yen, a nine-fold jump from estimates issued in November, after its two banks swallow more than 2 trillion yen in loan-loss provisions.

To cover these losses, Mizuho said it will seek to raise 1 trillion yen from close business partners and overseas investors, the largest single fundraising drive by any Japanese company.

The move by the world’s largest banking group by assets comes ahead of special inspections by financial regulators scheduled to begin in February.

Mizuho and other major Japanese banks are beefing up their provisions to cover potential losses on delinquent or irrecoverable loans.

In Mizuho’s case, the new loan-loss estimates are double levels forecast only in November.

Slumping stocks will cause a further 400 billion yen dent in profit, well above the 110 billion yen projected in November, as the firm seeks to slash its stockholdings by more than 1 trillion yen by March.

Failure to secure outside financing could result in the need for an injection of public funds, and with them nationalization.

“It’s a good attempt with some forward-looking elements,” said Yuri Yoshida, an analyst at U.S. credit rating agency Standard & Poor’s. “But it is unlikely to bring an end to Mizuho’s credit cost worries.”

The nitty-gritty work of dealing with problem loans — by writing them off as losses once and for all or by guiding companies back to a firm footing — has just begun, she noted.

“The planned 1 trillion yen capital increase will enhance Mizuho’s capital, but its effects will be limited because it will be in the form of preferred stocks,” that require dividend payments, she said.

Terunobu Maeda, president of Mizuho Holdings Inc., the holding company that heads Mizuho, said: “We set aside huge amounts of funds against problem loans every year. But prices are falling, company performance is down, 20,000 companies failed (in 2002) and new problem loans keep cropping up.”

Market observers have grown accustomed to drastic downward revisions of banks’ earnings forecasts, followed by promises that the worst is over and that banks will earn more on their core operations than they pay out for losses on past loans.

But this time, Maeda did not make any promises.

The banking group may not make it into the black in the fiscal year that starts in April, or pay dividends to investors holding ordinary shares, he indicated.

“We have to see what next year brings,” he said. “We’ve set aside so much this time, and I don’t think bad loan writeoffs will exceed 400 billion yen next year.”

Depending on next year’s economic climate, Mizuho may be unable to honor a promise to return public funds by 2005, Maeda said.

Mizuho projects an unconsolidated net profit of 510 billion yen in fiscal 2005, following salary-cuts and efforts to revamp its portfolio.

In seeking 1 trillion yen in capital, the bank will go to some of its largest business partners, some of whom seem less than eager to exchange funds for preferred stocks in these cash-strapped times.

Maeda said he will not step down to take responsibility for these new losses.

“Nobody will be able to manage a bank if you badger them too much about their responsibility for losses on loans,” Maeda said. “We are in the business of taking risks. To a certain degree it can’t be helped if there are losses.”

Mizuho said it expects its group capital adequacy ratio to exceed 9 percent at the end of March.

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