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Feature on the Intra–Group Collaboration Business

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Provision of Sophisticated Financial Services via Intra–Group Collaboration

Collaboration between the Banking and Securities Businesses and Compliance

Gradual Deregulation of the Separation between Banking and Securities

In Japan, Article 65 of the former Securities and Exchange Law, which was implemented in 1948, prohibited Japanese corporations from dually engaging in the banking and securities businesses. The financial system reform of 1993, however, allowed banking and securities companies to mutually enter both industries by establishing subsidiaries specific to either banking or securities. At that time, firewall regulations to considerably restrict personnel and information exchanges between banks and securities companies ("firewall regulations") were established to prevent the adverse effects of conflicts of interest*1 which might be produced between depositors and investors, and the abuse of the dominant bargaining position of banks.

Thereafter, the firewall regulations were gradually deregulated as represented by the authorization to hold joint branches between banks and securities companies. Nevertheless, the regulations remained relatively strict compared to those of Western countries, and some observers said that "the firewall regulations are an obstacle to the provision of integrated services by comprehensive financial groups," and that "the convenience of users is impaired by the harsh firewall regulations." Taking into consideration these critical opinions, Japan is determined to review the firewall regulations.

  1. *1Conflicts of interest refers to situations where the interest of a certain customer disagrees with that of the Mizuho Group or of any other customer with which Mizuho has a transaction relationship. For example, in case a Group securities company assumes the role of underwriter for the issuance of corporate bonds of a Japanese corporation, to which a Group bank also makes a loan, and collects the loan for the bank with funds received from investors via the issuance of bonds, the bank and the investors fall into a conflict–of–interest relationship.

The Advent of One–Stop Services between Banking and Securities Businesses with the "Dual–Hat" Structure

Conventionally, Mizuho drew on its original strengths, which are derived from the collaboration among "banking, trust and securities" functions, and has mutually collaborated among intra–group banking, securities and trust banking companies. As for the collaboration between banking and securities businesses, Mizuho was active in developing collaboration at joint branches within the framework of the legal restrictions.

Taking advantage of the deregulation of the rule restricting the dual–hat structure for executives and employees following a revision to the law2 in June 2009, Mizuho has aggressively committed to the provision of integrated financial services based on the intra–group dual–hat structure. Specifically, in July 2009, part of the sales departments of Mizuho Corporate Bank and Mizuho Securities started to work collaboratively under the dual–hat structure allowing executives and employees to hold posts concurrently in both companies. At present, Mizuho strives to provide comprehensive and sophisticated financial services by fully demonstrating its group–wide financial capabilities. Moreover, on January 29, 2010, the consulting departments of Mizuho Bank and Mizuho Investors Securities began a similar collaboration under the dual–hat structure. As a result, comprehensive consulting with a long–term perspective by expert staff can be offered to customers who are interested in an IPO, even from a service counter at Mizuho Bank.

  1. *2The firewall regulations were amended by a partial revision to the Financial Instruments and Exchange Law implemented on June 1, 2009. Specifically, the restriction on executives and employees holding posts concurrently for a bank and a securities company was lifted. In addition, as for exchanges of private information on corporate customers between banks and securities companies, the law newly recognized an "opt–out" policy, according to which an accord in writing is deemed to have been obtained until the target corporate customer requests a suspension of providing its private information, as long as an opportunity to request a possible suspension is provided to the customer. Previously, an "opt–in" policy, which required that an accord in writing be obtained in advance from the target corporate customer, was required.

The Advent of One–Stop Services between Banking and Securities Businesses

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Thorough Compliance and Steady and Appropriate Internal Management Framework

Although the aforementioned dual–hat structure allows us to smoothly provide sophisticated services from the collaboration between the banking and securities businesses, we must be increasingly vigilant in complying with the stringent regulations regarding our business operations and information management for these services. Consequently, Mizuho has established the necessary internal management framework as set forth by the relevant laws and regulations including conflict–of–interest management. Moreover, strict compliance with laws, regulation and internal rules is thoroughly disseminated to all employees, regardless of whether they are dual–hat employees. Mizuho strives to continuously promote its initiatives as a reliable and trustworthy comprehensive financial group under a stable and appropriate internal management framework.

Conflict–of–Interest Management

In a possible scenario regarding an M&A project, a Mizuho Group company could be involved in a conflict of interest with two different customers, for example, by advising the respective customers. Such a situation obliges the relevant Group company to give contradictory advice to both parties of the transaction as a result of the conflict of interest. The Conflicts Management Office, which was established in the compliance control department of the respective Group companies in June 2009, concentrates relevant transaction information at the respective companies and carefully checks and evaluates conflict–of–interest risk by transaction agreement. For projects that might be subject to this risk, the contractual provisions of the transaction agreement may have to be changed or the exchange of communications cut off between the persons in charge depending on the situation, or the conclusion of the transaction agreement might have to be avoided.

Exchange of Information between Banking and Securities Businesses

The private information on customers is not exchanged, in principle, unless the customer's agreement is obtained in accordance with the relevant laws and regulations. At Mizuho, dual–hat sections in banking and securities businesses and the non–dual–hat sections are physically separated. In addition, in the dual–hat sections of Mizuho Bank, strict information management is followed with regard to this separation principle. Consequently, any correspondence regarding a new project, which might be communicated from a branch, may be received only by a non–dual–hat employee, and only those project(s) for which the exchange of information is agreed by the customer(s) shall be handled by a dual–hat employee. Furthermore, at Mizuho Corporate Bank's dual–hat sections, the private information on customers from which the legal accord has been obtained and the information on other customers, from which the accord has not been obtained, are separately stored in an easily identifiable manner.

Prevent Abuse of a Dominant Bargaining Position

The so–called abuse of a dominant bargaining position typically refers to the attempt to leverage a potentially dominant relationship, that is, intending to conclude an underwriter agreement for a Group securities company with regard to the customer's IPO by taking advantage of the bank's preferential position in the course of negotiating or executing a loan agreement. This kind of abuse is strictly forbidden by the Antitrust Law, the Banking Law and the revised Financial Instruments and Exchange Law. Mizuho thoroughly complies with these prohibited matters, fully explains what the regulations mean to the customer and has established a dedicated counter for relevant inquiries. With these measures in place, all the employees of the Group companies, including managers who concurrently hold positions, monitor their behavior so as not to abuse a dominant bargaining position vis–a–vis customers.

Prevent Misconception by Customers

The managers who concurrently hold positions in a bank and a securities company have posts in two different corporations. Consequently, when such a manager visits a customer for the first time, he/she explains his/her dual–hat positions in detail by disclosing that the bank and the securities company are different entities, showing a document that outlines the "points to consider regarding a dual–hat employee" and distributing business cards relative to the positions at both corporations.

To Individual Customers (Mizuho Bank and Mizuho Investors Securities)

Provide One–Stop Services Covering Banking and Securities Businesses with Joint Branches

As part of the provision of integrated financial services based on the collaboration between the banking and securities businesses, Mizuho Bank and Mizuho Investors Securities have opened joint branches since July 2003. To make convenient securities services available to potential customers, the Planet Booth, a consultation space of Mizuho Investors Securities, is being installed in Mizuho Bank lobbies to provide a full line of securities services to bank customers. As of March 31, 2010, there were 150 Planet Booths nationwide. Mizuho plans to extend the number of joint branches in the future to provide more customers with one–stop comprehensive financial services.

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Planet Booth

To Corporate Customers (Mizuho Bank and Mizuho Investors Securities)

Provide Long–Term and Comprehensive IPO Consulting Service Based on the Dual–Hat Structure

Affected by the sluggish equity market conditions in recent years, it has become increasingly difficult to complete an IPO. To ensure a successful IPO, an unlisted corporation must address various issues such as reinforcing its corporate governance system and compliance, ensuring fund–raising and strengthening its financial structure. Solving these issues tends to take a long time. Previously, in the dual–hat structure between a bank and a securities company, a securities manager who took over a project following an introduction by a bank manager could consult only after a bank manager had provided initial information to the customer and confirmed the intention for an IPO. Regarding this collaboration scheme, we received many requests from customers saying, "I would like to get more concrete proposals at the initial stage," or "I don't want the person in charge to be replaced at a crucial stage."

To appropriately respond to the feedback from customers, in January 2010, Mizuho Bank and Mizuho Investors Securities jointly started the industry's first IPO consulting service ahead of competitors based on the dual–hat structure allowing executives and employees to hold posts concurrently in Mizuho Corporate Bank and Mizuho Investors Securities. According to this system, it is possible for our expert staff on IPOs to propose a specific IPO plan in view of a long–term schedule and provide a continuing consulting service. As a dual–hat employee becomes the contact, even after the customer has entered into the preparatory stage with a securities company, Mizuho's optimum comprehensive financial services can be proposed on an ongoing basis, including not only the securities function but also banking services such as M&A intermediary and business matching, and trust services such as business inheritance and inheritance in association with the intended IPO.

Manager's Comments

Apart from the pursuit of convenience, I intend to comply with the rules to prevent misconceptions.

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Hideo Kobayashi Deputy General Manager, Capital Market Team No.2, Securities Division Mizuho Bank

I have received positive feedback from customers. They typically say, "IPO consulting is helpful because I can consult various matters from the study stage on listing." As a dual–hat employee, apart from the pursuit of convenience, I strive to comply with the rules to prevent misconceptions and for comprehensive information management to maintain long–term relationships such that customers can feel secure.

To Corporate Customers (Mizuho Bank and Mizuho Investors Securities)

One–Stop Response to Meet a Variety of Finance Needs of Corporations

Against the backdrop of an increase in M&A projects, which could lead to an industrial reorganization, the development of global transactions relative to the presence of overseas business partners and the further sophistication of financial technology, we should provide sophisticated and timely banking and securities solutions to meet the financial and strategic needs of customers.

To satisfy these requirements, the sales departments of Mizuho Corporate Bank and Mizuho Securities began working collaboratively in July 2009 under the dual–hat structure allowing executives and employees to hold posts concurrently in both companies. As a result, approximately 50 employees became managers who hold posts concurrently at the two companies. These salespersons swiftly address one–stop services to meet a wide range of financial needs such as financings, the issuance of corporate bonds, capital increases, M&A and securitization, which are often requested by our corporate customers.

Meanwhile, Mizuho pays close attention to compliance risk, which might be caused by the implementation of the dual–hat structure, and an ideal framework for the steady and appropriate compliance of laws has already been established. The compliance departments of Mizuho Corporate Bank and Mizuho Securities check all transactions from the viewpoint of managing conflicts of interest, ensuring secure information management, preventing the abuse of a dominant bargaining position and avoiding insider trading. In addition, both companies jointly conduct onsite monitoring on a regular basis to check transaction–related documents and conduct hearings for dual–hat employees. Moreover, compliance training for dual–hat employees is held often. Thus, Mizuho strives to thoroughly implement a framework for legal compliance.

Manager's Comments

We address the streamlining of the rules from the standpoint of both banks and securities companies.

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Hitoshi Nishimura General Management Team, Compliance Division (currently Corporate Banking Division) Mizuho Corporate Bank

As Mizuho's dual–hat structure was a pioneering initiative ahead of others in the industry, we often lacked good precedents for the preparation of specific rules and manuals. We therefore conducted studies among the relevant departments and sections to identify the best solutions before preparing these documents. Furthermore, after the details of the revisions to the laws, regulations and guidelines were clarified, we focused on streamlining our rules and preparing internal training to ensure that Mizuho could cope with and adapt to every revision.

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