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Japan’s biggest banks prepare for massive downsizing and cost overhauls

Bloomberg

Years of shrinking interest rates, demographic challenges and threats from rapidly advancing technology are finally coming to a head at Japan’s biggest banks as they prepare to eliminate thousands of positions and downsize branches.

Mizuho Financial Group Inc. is considering cutting as many as 19,000 jobs — about a third of its workforce — mainly through attrition over the next 10 years, according to people with knowledge of the matter. Mitsubishi UFJ Financial Group Inc. is considering shrinking its workforce by about 10,000 over a decade, Chief Executive Officer Nobuyuki Hirano has said. Sumitomo Mitsui Financial Group Inc. plans to “streamline” 4,000 positions over three years by digitizing branches and making processes more efficient.

The CEOs of the three Tokyo-based banks may expound on their cost-cutting plans next week when they brief on fiscal second-quarter results. Their profits probably fell in the period, according to analysts surveyed by Bloomberg, underscoring the challenges they face as negative interest rates cut into lending income and a push overseas adds to their costs.

“Expenses grew, mainly overseas, as banks implemented their growth strategies,” Ken Takamiya, a Tokyo-based analyst at Nomura Securities Co., said in a presentation in Tokyo this month. “But as their bodies got bigger, their fat ratios also increased.”

The Bank of Japan said last month that the nation’s lenders may have too many employees and branches, and the overcapacity is contributing to a drop in earnings power that may hurt the financial system. BOJ Gov. Haruhiko Kuroda’s unprecedented monetary easing has added to their woes by making loans less profitable, even as it helped to spur an economic and stock market recovery.

Mizuho’s profit outlook is the “bleakest” of the three banks, Bloomberg Intelligence analyst Francis Chan wrote in a note on Oct. 31. With slimmer lending margins and lower cost efficiency than its bigger rivals, Mizuho is under the most pressure to reduce expenses.

“Limited loan growth and margin squeeze should have dampened domestic lending income, while trading income on bonds and securities may have stayed low after a weak first quarter,” Chan wrote.

Net income at Mizuho dropped about 35 percent in the quarter ended Sept. 30 from a year earlier, while MUFG’s slid 12 percent and Sumitomo Mitsui’s declined 8 percent, according to the average estimates of five analysts surveyed by Bloomberg. Mizuho reports results on Monday, followed by the other two on Tuesday.

Mizuho will conclude the scope of the job cuts later this month, the people said, asking not to be identified discussing the plans, which were reported earlier by local media. Spokeswoman Masako Shiono said nothing has been decided.

Mizuho is also considering reducing services at about half of its 800 branches in Japan by around 2025, the Nikkei newspaper reported this week. MUFG’s main banking unit plans to halve its full-service outlets to around 250 by March 2024, the Yomiuri Shimbun newspaper reported Thursday.

Mitigating the pressure on lending income, the three banks may have received a boost from gains on sales of shareholdings in the quarter as they continued to offload stakes in client companies. The Financial Services Agency said last month that reducing cross-shareholdings remains a major issue for mega-banks as they seek to comply with the government’s drive to boost corporate governance.

“We can expect to see gains on sales when the banks unwind their cross-shareholdings given the large unrealized gains on their equity holdings,” Akira Takai, an analyst at Daiwa Securities Group Inc. in Tokyo, said in an emailed note.