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Mizuho posts Q4 loss on subprime, forecasts rebound

Reuters - Friday, May 16

Mizuho's shares finished up 3.9 percent at 537,000 yen before its earnings release on Thursday. The stock has been roughly flat since the start of 2008, in line with Tokyo's index of bank stocks . (Reporting by David Dolan; Editing by Kim Coghill and Hugh Lawson) - TOKYO, May 15 - Mizuho Financial Group , Japan's second-largest bank, booked its first quarterly loss in five years on Thursday, hit by a $2.9 billion subprime meltdown at its brokerage unit, but forecast a rebound.

Mizuho said investments related to risky U.S. mortgages cost it 300 billion yen in the January-March quarter and 645 billion yen for the full year to March 2008. The bank last month estimated the damage at 565 billion yen.

Mizuho also said it aims to buy up to 400 billion yen of its own shares, equal to about 6.5 percent of its market value, in the current year to offset dilution from a conversion of preferred shares that starts in July.

Teranobu Maeda, Mizuho's president, said the bank may buy back another 400 billion yen worth in the year to March 2010 as well.

While most Asian lenders have skirted the massive credit-related write-downs that tore through Western rivals such as UBS AG and Merrill Lynch & Co , Mizuho was one of the region's most aggressive subprime players.

"I'm ashamed," Maeda told a news briefing following the results. "There's no merit in becoming the top in Japan in something like this."

Maeda said he expected further subprime-related damage in the year to March 2009. Mizuho estimates its remaining exposure to subprime-related products at 994 billion yen as of the end of March 2008.

Much of the damage so far stemmed from bad bets at the London office of its unlisted brokerage, Mizuho Securities, where the bank employed a trading team poached from French rival Calyon.

"This is a world-class loss," analyst David Threadgold of Fox, Pitt-Kelton told Reuters earlier this week, referring to the bank's previous estimate of 565 billion yen in damage.

"It doesn't get you into the top-tier of screw-ups on subprime, but it certainly gets you into the play-offs."

Mizuho, like other Japanese banks, is also burdened with a weak economy and sluggish loan growth in its home market.

NET LOSS

The bank booked a group net loss of 81.8 billion for the January-March fourth quarter, compared with a net profit of 41 billion yen in the same period a year earlier.

Mizuho does not release quarterly results, but a spokeswoman for the bank, Masako Shiono, confirmed the figure.

A poll of eight analysts by Reuters Estimates implied an average estimate of a 82.1 billion yen net loss for the fourth quarter.

Mizuho has not fallen into the red since the year to March 2003, when it reported a massive annual net loss as Japan flirted with a financial crisis. At that time, the newly formed bank reported earnings only twice a year.

For the year to March 2008, group net profit totalled 311.22 billion yen. Mizuho had originally expected a record profit of 750 billion yen for the year, but cut that estimate three times, citing spiralling subprime losses.

For the year to March 2009, the bank said it expected its profit to rise 80 percent to 560 billion yen, a bit below the market consensus of 590 billion yen from 15 analysts.

Tokyo banks have also been hurt by slow lending in the world's second-largest economy. Many Japanese corporates now shun loans after recovering from the 1990s asset bubble and cleaning up their balance sheets.

The balance of outstanding loans held by most Japanese banks rose just 1.1 percent in March from a year earlier, with February and January even slighter, data from the Bank of Japan has shown.

CORE LENDING

Net interest income, a guage of earnings from lending, slipped more than 2 percent in the year to March 2008, as a strong yen eroded earnings on overseas loans.

The results at home were also negative. Domestic net interest income at Mizuho's three main banks, also ticked downward, as lending in Japan remains largely stagnant.

The bank said it expects credit costs to jump three-fold in the coming year, in part a reflection of Japan's slowing economy. Analysts have been wary of a spike in bankruptcies in recent months, a sign that banks will need to raise provisions against bad loans.

Also on Thursday, mid-size lender Aozora Bank saw its full-year net profit fall 93 percent on subprime losses to 5.9 billion yen. Aozora is nearly 46 percent-owned by U.S. fund Cerberus Capital Management [CBS.UL].

Mizuho's shares finished up 3.9 percent at 537,000 yen before its earnings release on Thursday. The stock has been roughly flat since the start of 2008, in line with Tokyo's index of bank stocks . (Reporting by David Dolan; Editing by Kim Coghill and Hugh Lawson)

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