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Mizuho faces capital questions
TOKYO, Japan (Reuters) -- Japan's embattled Mizuho Financial Group finds itself in a new controversy over a plan to cover massive losses as the financial year draws to an end this month. Mizuho, the result of three big banks joining forces to create the world's largest bank by assets, is forecasting a group net loss of 1.95 trillion yen ($16.44 billion). It is also raising 1.08 trillion yen ($9.2 billion) in fresh capital by allocating new shares to 3,500 Japanese companies -- a move that has drawn criticism. Mizuho shares have shed as much as 36 percent over the past month, partly on dilution concerns as the fresh money will be raised via preferred shares. "Existing shareholders could end up owning only about 30 percent of Mizuho if the preferred shares are converted at 50,000 yen (the minimum conversion price)," said Ned Akov, financials analyst at ING Securities. The bank's shares finished down 0.31 percent to 96,800 yen on Wednesday, after earlier touching a record low of 90,300 yen. The broader market, measured by the Nikkei, rose 1.2 percent. Mizuho President Terunobu Maeda says he is "certainly" responsible but insists it is his mission to stay on and see a turnaround in the business. Mizuho shareholders approved the financing plan in early February after a marathon meeting. But managers could have a tougher time at the next meeting of shareholders, when they report results for the year to March 31. Some see it as an opportunity to impose stricter corporate governance on the bank. "(Japanese) banks have destroyed massive amounts of investor capital, yet their shareholders have remained largely silent," said Darrel Whitten, director at IR Corp, an investor relations consultancy in Japan. If banks can't change themselves and outright state control is undesirable, shareholders are the key to steering banks in the right direction, he said. "I think shareholder activism should and could be used to put corporate governance pressure on the banks," Whitten said. Analysts said Mizuho's funding appeared to be an attempt to avoid a capital shortfall that could put it at risk of being nationalized. 'Act of desperation'
"The biggest problem is, the capital increase was an act of desperation but Mizuho didn't outline a business plan to back up the funding," said Noboru Yanai, president of Arrow Consulting and once a director at the failed Long-Term Credit Bank of Japan. With the government cracking down on banks to improve their capital and loan asset quality, megabanks with global operations are hard-pressed to maintain the required eight percent capital adequacy ratio -- a measure of capital against risky assets. Mizuho tapped traditional business ties, notably life insurers, for its financing, highlighting the risk of cross-held capital by banks and life insurers which makes them prone to be affected by each other's problems. One of Japan's most profitable manufacturers, Canon Inc, said it chipped in because it was an attractive investment -- a dividend of some two percent -- and a desire to keep friendly relationships with its major creditor. Mizuho recently regrouped under a new holding firm which came on top of an existing holding firm structure. The move was seen by analysts as hard to justify for business purposes, except that it provided accounting benefits that boost its capital. Over the past year, Mizuho has received two administrative orders from the government to improve operations, one for its computer glitches and the other for failing to meet a target for lending to smaller firms, required for banks that have received public funds in the past. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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