Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

J. Brian Waterhouse has been covering the Japanese financial sector as an analyst continuously since 1976, working for CLSA, Japaninvest, Rabobank, HSBC Securities, James Capel, Marine Midland Bank of New York and National & Grindlays Bank.  He has been ranked No.1 overall in Japanese banks research in Japan by Asiamoney for 6 of the past 9 years and was runner-up in 2015.  He was awarded the coveted Starmine prize as top Japanese bank stock picker in 2012 and 2014 and was runner-up in 2013.  He frequently appears on TV, radio and in international print media as a commentator on Japanese banking.

Senior Bank Analyst - Japanese Banks

Mizuho Financial Group (8411 JP):  Gotohbi Gremlins

Mizuho Financial Group (8411 JP):  Systemic Failures - A Human Factor?

Mizuho Financial Group (8411 JP):  Not So Lucky 7

Mizuho Financial Group (8411 JP):  Anything But Consistent

Mizuho Financial – Not Exactly Golden This Week

Gravity Works As WeWork Doesn't; Now Plan B

Windamee Research

Japanese Banks

Equity Bottom-Up

Mizuho Financial Group / Equity Bottom-Up

“It’s déjà vu all over again” -  Attributed to Yogi Berra (1925-2015), legendary baseball Hall of FamerGetting money from a banker is sometimes likened to trying to squeeze blood out of a stone. Customers of Mizuho Bank, the principal commercial banking subsidiary of megabank holding company <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a> (MHFG), could be forgiven for agreeing with this derogatory epithet after over half of the bank’s 5,395 ATMs stopped working suddenly on Sunday 28 February.  Many customers were unable to draw cash out from the ATMs and some had their cash cards and savings passbooks ‘swallowed’ by the recalcitrant machines.  Internet banking was also apparently affected.This is not the first time that Mizuho has had major problems as a result of computer system crashes: there were similar issues in April 2002 and again in March 2011.  On both occasions, the Financial Services Agency (FSA) subsequently issued Business Correction Orders against the bank.  This time it appears that problems arose during a fixed deposit data update, causing the system to crash.Reputational damage is extremely difficult for any company to recover from easily, and perhaps more so for a bank where not only are issues of trust and public responsibility as a financial institution involved but also large sums of money.  What takes a generation to build can be lost in a moment when it comes to reputation and trust.  Smartkarma readers may well remember the public excoriation in 2010 on TV of a clutch of bank presidents both in the USA and the UK in the wake of the Global Financial Crisis. In Japan, where the megabanks emerged largely unscathed from the worst excesses of the GFC (although their investment portfolios took a severe hit in FY3/2009), incoming Mizuho Financial Group president &amp; CEO Yasuhiro Sato seemed to spend much of his first six months in office from June 2011 appearing on TV to repeatedly publicly apologize for Mizuho’s past systems errors and for the ongoing inconvenience to customers.Senior management clearly have much to do in the wake of this latest incident to restore Mizuho’s reputation among customers as a brand that is synonymous with reliability.Market reaction has been typically perverse, with Mizuho’s share price rising gently as part of the recovery from Friday’s Wall Street sell-off.  The stock is up close to +13% over the last 3 months (against an average +17% for peers) but is only +1.5% YoY (versus an average +2.5% for peers).  In short, the stock is underperforming even as the banking sector outperforms the Topix Index for the first time in several years.As we have said in past Smartkarma Insights, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  This latest systems débâcle will not improve its already battered reputation for reliability.  MHFG has time and again promised much but then either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and creating value.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

“It’s déjà vu all over again” -  Attributed to Yogi Berra (1925-2015),  legendary baseball Hall of FamerGetting money from a banker is sometimes likened to trying to squeeze blood out of a stone. Customers of Mizuho Bank, the principal commercial banking subsidiary of megabank holding company Mizuho Financial Group (8411 JP) (MHFG), could be forgiven for agreeing with this derogatory epithet after over half of the bank’s 5,395 ATMs stopped working suddenly on Sunday 28 February.  Many customers were unable to draw cash out from the ATMs and some had their cash cards and savings passbooks ‘swallowed’ by the recalcitrant machines.  Internet banking was also apparently affected.This is not the first time that Mizuho has had major problems as a result of computer system crashes: there were similar issues in April 2002 and again in March 2011.  On both occasions, the Financial Services Agency (FSA) subsequently issued Business Correction Orders against the bank.  This time it appears that problems arose during a fixed deposit data update, causing the system to crash.Reputational damage is extremely difficult for any company to recover from easily, and perhaps more so for a bank where not only are issues of trust and public responsibility as a financial institution involved but also large sums of money.  What takes a generation to build can be lost in a moment when it comes to reputation and trust.  Smartkarma readers may well remember the public excoriation in 2010 on TV of a clutch of bank presidents both in the USA and the UK in the wake of the Global Financial Crisis. In Japan, where the megabanks emerged largely unscathed from the worst excesses of the GFC (although their investment portfolios took a severe hit in FY3/2009), incoming Mizuho Financial Group president &amp; CEO Yasuhiro Sato seemed to spend much of his first six months in office from June 2011 appearing on TV to repeatedly publicly apologize for Mizuho’s past systems errors and for the ongoing inconvenience to customers.Senior management clearly have much to do in the wake of this latest incident to restore Mizuho’s reputation among customers as a brand that is synonymous with reliability.Market reaction has been typically perverse, with Mizuho’s share price rising gently as part of the recovery from Friday’s Wall Street sell-off.  The stock is up close to +13% over the last 3 months (against an average +17% for peers) but is only +1.5% YoY (versus an average +2.5% for peers).  In short, the stock is underperforming even as the banking sector outperforms the Topix Index for the first time in several years.As we have said in past Smartkarma Insights, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  This latest systems débâcle will not improve its already battered reputation for reliability.  MHFG has time and again promised much but then either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and creating value.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Sumitomo Mitsui Financial Group (8316 JP)

Mitsubishi UFJ Financial (MUFG) (8306 JP)

Mizuho Financial Group (8411 JP):  Deja Vu All Over Again