WRAPUP 4-Mizuho back in black, SMFG profit doubles
* Mizuho Q2 net profit 92.3 bln yen vs 60.8 bln estimate
* SMFG Q2 profit 50.8 bln yen vs 21.6 bln avg estimate
* Mizuho, SMFG keep forecasts, SMFG cuts recurring 4 pct
* Mizuho says no plans now to issue common shares
* Mizuho shares up more than 7 pct in U.S. trading
By David Dolan
TOKYO, Nov 13 - Mizuho Financial Group's <8411.T> <MFG.N> first profit in five quarters and rival Sumitomo Mitsui Group's <8316.T> doubling of profit signal Japan's major banks are recovering from the economic crisis, albeit slowly.
Japanese lenders have suffered smaller credit losses than their Western rivals, but they have also taken longer to rebound, hampered by dependence on domestic lending and rock-bottom interest rates.
"These are not positive enough to get all worked up about, but at the same time are not all that bad," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, referring to the Mizuho and Sumitomo Mitsui earnings.
Economists expect Japan's deflation to persist until at least the second quarter of 2011, a recent Reuters poll showed, meaning that interest rates and revenue from lending will have little chance to rise. [ECILT/JP]
One of the few bright spots has been the decline in bad-loan costs, which spiked last year following the collapse of U.S. investment bank Lehman Brothers.
But analysts predict that as long as Japanese banks rely on loans for the bulk of their revenue -- instead of fees and commissions, for instance -- they will continue to be outpaced by more nimble rivals such as HSBC Holdings Plc <HSBA.L>.
Investors also worry that Mizuho, Sumitomo Mitsui and top lender Mitsubishi UFJ Financial Group <8306.T> may need to issue shares to meet stricter capital regulations. Japan's banking index <.IBNKS.T> is down 17 percent in the past 3 months, reflecting those concerns.
Mizuho President Takashi Tsukamoto told a news conference the bank had no plans at present to issue new common stock, but Goldman Sachs has estimated that Mizuho alone may need need at least $1.9 billion in equity. [ID:nT306019]
"Japanese banking shares have underperformed due to concerns about capital raising. For now that might not happen at Mizuho and Sumitomo Mitsui, but everyone is watching to see if something comes out at MUFG's earnings announcement," Daiwa's Ogawa said.
Mitsubishi UFJ, which owns a 21 percent stake in Morgan Stanley <MS.N>, is expected to post a fall in profit when it reports results on Nov. 18. [ID:nT215303]
PEDESTRIAN GROWTH
The outlook for Japanese banks remains "uninspired," said Ismael Pili, bank analyst at Macquarie Securities in Tokyo.
"We are not looking for any kind of double-digit growth, but just pedestrian growth."
Mizuho, Japan's second-largest bank by assets, had a group net profit of 92.3 billion yen for the July-September quarter, handily beating the average estimate of 60.8 billion yen in a survey of three analysts. [ID:nT30069]
U.S.-traded shares of Mizuho rose 7.6 percent to $4.13 on the results. The shares ended up 1.7 pct in trading in Japan before the results.
Bad-loan costs fell by more than a third, to 85.8 billion yen for the quarter. For a graphic on Mizuho's earnings, click on: http://r.reuters.com/fyq49f
Mizuho failed to turn a profit in the four previous quarters, losing a total of 726.3 billion yen, with much of that from exposure to the equity market. Japanese lenders traditionally take stakes in their corporate clients to cement business ties, making them vulnerable to swings in equity prices.
In July-September quarter the bank booked a 40 billion yen profit on its equities portfolio, helped by better performance of the benchmark Nikkei 225 <.N225>. The bank lost 65.1 billion yen on stocks during the same period a year ago.
Mizuho stuck to its forecast of a full-year profit of 200 billion yen. That compares with an average estimate of 144.2 billion yen in a poll of 10 analysts by Thomson Reuters I/B/E/S.
ECLIPSING MIZUHO
Sumitomo Mitsui in recent years has eclipsed Mizuho in terms of market value and profitability. It has also been on a push to bulk up its securities business, long a weak point.
The bank paid about $6 billion earlier this year for Citigroup's Japanese retail brokerage, Nikko Cordial Securities.
Sumitomo Mitsui's July-September net profit came to 50.8 billion yen, against an average estimate of 21.6 billion yen in a survey of three analysts. [ID:nT29718]
The bank's bad-loan costs fell by nearly 21 percent, while its losses on stocks fell by more than half.
Sumitomo Mitsui cut its annual forecast for pre-tax recurring profit by 20 billion yen to 490 billion yen but stuck to its forecast for a full-year net profit of 220 billion yen. That compares with an consensus forecast of 229.3 billion yen in the I/B/E/S poll. For a graphic of Sumitomo Mitsui's results, click on: http://r.reuters.com/gyq49f
Shares of Mizuho have fallen about 30 percent so far this year, making the stock one of the worst performers among Japanese banks, while Sumitomo Mitsui has dropped nearly 15 percent.
Japanese banks do not release July-September numbers. Reuters calculated the figures by subtracting the previous quarter's results from the April-September numbers released on Friday.