Mizuho Financial Group Inc. and nine other banks responded to business-improvement orders Friday by cutting their projected fiscal 2003 earnings.
The orders were issued when the banks’ promised profits for fiscal 2001 and 2002 turned into steep losses.
Mizuho’s forecast fell 9 percent to a net profit of 200.1 billion yen. In May, the bank had forecast a 220 billion yen profit.
Sumitomo Mitsui Financial Group Inc. said its profit will stand at 100 billion yen. In May, it was looking at 150 billion yen.
Five major banks and 10 regional banks submitted revised business plans on the day, leading analysts and even a few regulators to say this is the first time their projections actually mean something.
“I believe banks this time are truly committed to make these new projections,” Financial Services Minister Heizo Takenaka said.
According to a new set of Financial Services Agency guidelines, if banks are unable to come within 30 percent of their targets, executives could be removed.
That would amount to a sea change in an industry where managers have always shared responsibility for the health of their institutions with regulators.
Regulators are known to interfere in the running of Japanese banks.
But the business-improvement orders, issued last month, sent a message that the FSA would carry through on its threat to overhaul management of banks struggling to return public funds.
The nation’s banks have yet to return 10.4 trillion yen in taxpayers’ money injected between 1998 and 2002. The injections came with a proviso — the government could take a controlling stake in any of the banks that fail to achieve earnings forecasts.
Up till now, the banks have been allowed to use the slumping stock market and a deflationary business environment as excuses for failing to meet these projections.
On Friday, 10 of the banks lowered their forecasts despite improved outlooks in their stock portfolios and renewed pledges of steep cost cuts.
Mizuho said it will slash 1,000 jobs by March 2005, while Sumitomo Mitsui said it will cut 1,424 employees this business year.
Unless they can reverse their losing streak, four of the six major banking groups that have yet to return public funds will be unable meet promised repayment obligations.
For example, according to an estimate based on operating profits for the past two years, it would take Mizuho until fiscal 2014 to accumulate adequate reserves to repurchase preferred shares held by the government.
That’s eight years behind Mizuho’s original pledge.
The government gained its nonvoting stake in Mizuho by injecting 1.95 trillion yen into its premerger components — Dai-Ichi Kangyo Bank, Fuji Bank and Industrial Bank of Japan.
According to another simulation, it would take Resona Holdings Inc. until 2028 to return nearly 3 trillion yen of public funds. Resona was not included among the banks that received the improvement order.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.