Mizuho Financial Group (8411) Strategic Notes | Interest rates, returns, and AI ability to be tested after passing PBR1x

[Summary]

Mizuho Financial Group (8411, hereinafter referred to as Mizuho FG) posted a record-high profit for the fiscal year ending March 31, 2026, posting net profit for shareholders of the parent company of 1,248.6 billion yen. The company's plan for the fiscal year ending March 2027 is 1.3 trillion yen. TSE-based ROE has risen to 11.4%, and the discount that once attached to Mizuho due to its low profits and system concerns has largely fallen off.

However, the stock price as of May 22, 2026 is 7,457 yen. It has been bought further from 6,912 yen on the day of the earnings announcement, and the PBR is already around 1.6 times, not 1 times. From now on, the market is no longer "cheap because it's less than 1x PBR." The market is starting to view Mizuho not as a cheap bank stock, but as a financial stock that can maintain its ROE.

Rising interest rates, 150 yen annual dividend, 100 billion yen share buyback, sound bond portfolio, Americas CIB, Rakuten collaboration, AI utilization. There are many materials. The problem is that because there are so many good ingredients, expectations are also high. Looking ahead to 2027, we will enter a phase where we will be looking at the quality of profits, including credit costs, bond valuations, overseas credit, and expense ratios, rather than interest rate benefits.

First, the conclusion

I think Mizuho FG is a stock that still has room for review among megabanks heading into 2027. However, this is not because it is still cheap at less than 1x PBR.

In fact, we have already passed that point.

Assuming the stock price of 7,457 yen on May 22, 2026, the PBR is approximately 1.6 times the net assets per share of 4,640.23 yen for the fiscal year ending March 2026. The PER based on actual EPS of 502.92 yen is approximately 14.8 times, and even based on the expected EPS, which is simply dividing the company's target of 1.3 trillion yen for the fiscal year ending March 2027 by the number of shares, the PER is around 14 times. If the annual dividend is 150 yen, the dividend yield is approximately 2.0%.

Investors who know Mizuho from the past will be a little confused by this level. Bank stocks that were neglected with PBR in the 0.5x range, dividend yield in the 4% range, and system failure discounts are no longer in existence.

What the market is looking at from this point on is not whether PBR will recover to 1x, but whether ROE will not be a temporary level of 11% and whether it will be able to move closer to its medium-term target of over 12%. The numbers are good. The problem is that stock prices are also moving quite a bit ahead of time.

Mizuho came after PBR1x correction

The most important thing when looking at Mizuho FG this time is that ``the yardstick for evaluation has changed.''

Previously, Mizuho felt like it was lagging among the three megabanks, and in many cases it could be explained simply by the correction of PBR below 1x. Memories of system failures, low capital efficiency, and bank stock valuations with a strong sense of flatness. It was natural for the market to take a somewhat harsh view.

However, the TSE standard ROE for the fiscal year ending March 2026 is 11.4%. The company has set a medium-term financial target of over 12% for fiscal 2028. At this point, investors' views will change considerably.

Should I buy it as a cheap bank stock?

Should I buy it as a high ROE financial stock?

This difference is huge. If it is the former, it is easy to be satisfied with PBR 1x recovery once. If the latter is the case, a PBR in the mid-1x range can be explained as long as sustainability of ROE and return discipline can be confirmed. However, the market still does not fully trust it. In the case of Mizuho, ​​its past image is gradually peeling away, and institutional investors will need confirmation over several quarters before it can make any further significant moves.

Financial results are strong, but pricing has progressed slightly

The financial results for the fiscal year ending March 2026 are honestly strong.

Both consolidated net business profit and parent company shareholder net profit reached new record highs. The achievement rate against the forecast is also high, and the company is forecasting 1.3 trillion yen in the fiscal year ending March 2027. Mizuho's transformation into a bank that regularly generates profits in the low 1 trillion yen range is quite significant.

Still, looking at the stock price after earnings, the market temperature is a little mixed. The closing price on May 15th was 6,912 yen. The price then rose to 7,457 yen on May 22nd, but the year-to-date high of 7,960 yen has not yet been broken. While it was bought due to its good financial results, it was also a stock that had already reached a high price in February.

In other words, the numbers are good, but this is not the time for stock prices to jump just because of surprises. It will be strong if TOPIX value funds and foreigners buy bank stocks, but if the overall momentum of interest rate-sensitive sectors slows, profit-taking sell-offs are likely to occur.

Rising interest rates are a tailwind, but we're also seeing quality this time

On May 18, 2026, the yield on Japan's newly issued 10-year government bonds temporarily rose to 2.8%. This is easy to understand for bank stocks. Deposit and loan interest rate differential, securities management, and domestic lending rates. Banks like Mizuho, ​​which do a lot of business with large domestic companies, local governments, and corporations, can easily benefit from a world with high interest rates.

However, in the current bank stock market, simply saying "buy because interest rates are rising" is a little shallow.

If the interest rate curve is flat, it is easy to see a positive return on funds, but a sudden rise in interest rates also makes investors aware of bond valuation losses. If a company's financing costs rise, the estimate of its credit costs will change. Foreign currency procurement costs and overseas credits are not something to be taken lightly.

Mizuho disposed of approximately 150 billion yen in the fiscal year ending March 2026 to improve the health of its securities portfolio. This is worth evaluating. This is because once you have sorted out the weight of your past low-yielding assets and unrealized losses, it will be easier to shift to bond investment once interest rates rise.

But the market still looks at bond portfolios. As of the end of March 2026, the unrealized value of other securities is in negative territory, and foreign bonds are also experiencing unrealized losses. If interest rates worsen further, the perspective on bank stocks will suddenly change from ``interest margins'' to ``unrealized losses and credit costs.''

Now comes the difficult part.

Shareholder returns are strong, but don't read too much into the margin for surprises

Shareholder returns are a clear support.

Mizuho FG has set an annual dividend forecast of 150 yen for fiscal 2026. The dividend is expected to increase by 5 yen from the previous year, marking the sixth consecutive year of dividend increase. Furthermore, on May 15, 2026, the company has resolved to buy back up to 100 billion yen of its own shares, and plans to cancel all acquired shares.

I would like to tidy things up a bit here. What was announced at the same time as the financial results in mid-May 2026 was a share buyback of up to 100 billion yen instead of 300 billion yen. The 300 billion yen figure comes in the context of the acquisition quota that was expanded during the previous year, and should be viewed separately from this new resolution.

The market has viewed Mizuho's return policy quite positively. However, if the stock price rises to the mid-7,000 yen range, the annual dividend yield of 150 yen will drop to about 2.0%. It is no longer a stock that can be pushed forward simply by high dividends.

Therefore, the focus for 2027 is not so much on the dividend itself, but on how far expectations for additional returns will go when profits are progressing well. If you are aiming for an ROE of over 12%, it will be more important to show a balance between returns and growth investments rather than hoarding capital.

Digital and AI are more about implementation than dreams

Mizuho's digital/AI is unlikely to be an easy-to-understand stock theme like SMBC's Olive. To be honest, investors' evaluations tend to be mixed here.

J-Coin Pay is being developed as a smartphone payment service that handles remittances, payments, and deposits and withdrawals to accounts. Although it has compatibility with local governments, regional currencies, and workplace payments, it is not the type of material that the stock market will immediately price in high ARPU and fee income. I would like to see the actual number of payments, charge balances, fees for corporations and local governments, and the frequency of account connections rather than the number of members or the spread of affiliates.

The areas that have become a little more marketable are Rakuten collaboration and mass retail. The financial results briefing materials show a 26% increase in the number of new account openings compared to the previous year, an increase in NISA accounts and individual AUM, stronger links to Rakuten Securities, and the Mizuho Rakuten Card. Here, Mizuho aims to connect bank accounts, securities, cards, and point economic zones.

However, the market is still skeptical here. Even if the number of accounts increases, monetization is another story. How much can you cross-sell into investment trusts, insurance, foreign currencies, cards, and loans? How long does active use last? Even if the MAU of banking apps increases, the stock price will not react much unless it shows up in fee income and expense ratio.

Regarding AI, Mizuho Bank introduced AI-IVR that utilizes generated AI at its contact center in January 2026. The company aims to achieve an impact of around 300 billion yen by FY2030 compared to FY2024 through its comprehensive alliance in the AI ​​field with Softbank.

This number is large. However, it is easy to see the cost of AI investment at the beginning. Data maintenance, access control, audit logs, manual confirmation of model output, connection with legacy systems, and on-site training. In the case of Mizuho, ​​since the company has been criticized harshly in the past for its systems, the market is taking a calm look at the company's AI to see if it will actually be used in the field.

I think what we should be looking at in 2027 is not the word AI, but contact center processing time, number of paperwork, expense ratio, sales staff's case conversion rate, and lead time for corporate proposals.

One Mizuho's business model

Mizuho FG's strength lies in ``One Mizuho,'' which operates banking, trust, and securities as one.

MUFG's overseas network with Morgan Stanley, and SMBC's ability to implement cards and payments with Olive, stand out. Mizuho's ability to connect large companies, local governments, securities, and trusts within its group is likely to be its strength.

Don't miss the Americas CIB. The strengthening of investment banking functions, including the acquisition of Greenhill, is a move to create a source of income that is not solely dependent on domestic interest rates. Financial results briefing materials also show the expansion of Americas gross profit and IB-related business.

However, while overseas CIB fees increase during good times, the outlook changes when the U.S. economy or credit market collapses. Investors suddenly become more conservative as caution about commercial real estate, leveraged finance, and overseas credit increases. This is both a strength and a source of volatility.

Perspective on the stock market

As of May 22, 2026, Mizuho FG's stock price is 7,457 yen. The trading volume was 12.09 million shares, and the trading value was 89.9 billion yen. The year-to-date high was 7,960 yen on February 12th, and the year-to-date low was 5,775 yen on January 5th.

It is already difficult to dismiss this level as "cheap."

Even so, Mizuho is still interesting because it appears to be on the way to recovering market confidence compared to other megabanks. If ROE of 11.4% is seen as not just a one-year figure, but as a path to over 12%, then PBR of 1.6 times can be explained. On the other hand, if there is even the slightest doubt about credit costs, bond valuations, or overseas economic conditions, it is easy to sell as there is a sense that PBR corrections are coming to an end.

Bank stocks as a whole are strong when foreign funds and TOPIX value funds enter. If long-term interest rates remain high and expectations for further interest rate hikes by the Bank of Japan remain, Mizuho will also have easy access to funds. However, bank stocks are already heavily bought. If there are more days when stock prices are slow to react even when good news is released, it is a sign that expectations are too high.

Bullish scenario

In the bullish scenario, domestic interest rates will remain high and the long- and short-term interest rate differential will remain in a form that is not bad for banks.

In this case, domestic lending rates and securities investment yields will continue to improve, leaving Mizuho's consolidated net business income with room for upside. If progress is strong towards the 1.3 trillion yen plan for the fiscal year ending March 2027, it will be easy to expect additional returns.

What the market particularly wants to see is a path to ROE of over 12%. In addition to interest rate benefits, if non-interest income, Americas CIB, Rakuten collaboration, and improved expense ratios are all in place, Mizuho's view will change from a ``laggard bank stock'' to a ``high ROE financial stock.''

In this scenario, it is quite possible that the price will retest the year-to-date high of 7,960 yen. From there, however, volume and sector-wide strength will be needed. It is more likely that foreign funds will return to bank stocks as a whole, rather than moving up based on good news for Mizuho alone.

Bearish scenario

In a bearish scenario, the side effects of rising interest rates are the first to be noticed.

Credit-related costs will increase. Overseas credit is in trouble. U.S. commercial real estate and the situation in the Middle East are on alert. Bond valuation losses are becoming a hot topic again. In this case, even if the benefits of rising interest rates remain, investors will suddenly become defensive.

Mizuho has also set aside forward-looking reserves for the fiscal year ending March 2026. This can be praised as a measure of preparedness, but on the other hand, it means that the company is also conscious of the uncertainty. Bank stocks are likely to be sold all at once when the market is experiencing heightened concerns about credit costs.

The other thing is that expectations for AI and digital technology are in vain.

AI alliances and digital leads will be hot topics. However, it will take time for the profit contribution to show up in the expense ratio and fee income. What the market wants to see in the short term is ARPU, cross-selling, processing time, and sales productivity numbers rather than fancy announcements. When it starts to look like a cost upfront, digital investment turns into an explanation for increased expenses rather than a stock price factor.

Featured KPIs

When looking at Mizuho FG towards 2027, stock price alone is not enough. I want to chase the next number.

Personally, I think the most important thing is the combination of ROE and credit costs. Even if ROE rises, the market will immediately become suspicious if credit costs increase. On the other hand, if Mizuho can maintain an ROE of 11% while keeping credit costs down, my view of Mizuho will change considerably.

Summary

Mizuho FG is in a pretty interesting position heading into 2027.

Record-high profit, ROE of 11.4%, 1.3 trillion yen plan, 150 yen dividend, 100 billion yen share buyback, and healthy securities portfolio. When lined up this far, it looks different from the old Mizuho.

However, the stock price has also reached a different level. At a price in the mid-7,000 yen range and a PBR of around 1.6 times, it is difficult to raise the price just by "resolving the situation where the stock is undervalued." This is where you can see the quality. Can you turn interest rate benefits into core business profits? Can bond valuation losses and credit costs be reduced? Will AI and digital become a revenue driver rather than a cost driver?

The market has begun to trust Mizuho much more than before. But I still don't fully trust it. This slight lingering doubt provides room for upside toward 2027, and could also be a selling point if the progress in financial results slows down.

source

• Mizuho Financial Group "Financial Results Related Information"
• Mizuho Financial Group “Summary of FY2025 Financial Results”
• Mizuho Financial Group “IR Company Briefing Materials”
• Mizuho Financial Group “Capital Policy/Shareholder Return Policy/Dividend Information”
• Mizuho Financial Group “Notice Regarding Decision on Matters Related to Acquisition of Treasury Stock and Decision on Matters Related to Retirement of Treasury Stock”
• Nomura Securities “Mizuho Financial Group Stock Price”
• nippon.com / Jiji Press “Long-term interest rates temporarily rise to 2.8%”
• Mizuho Bank “J-Coin Pay”
• [Mizuho Bank "About the introduction of voice interactive automatic sorting function 'AI-IVR'"] (https://www.mizuhobank.co.jp/oshirase/20260122release_jp.html)
• Softbank “Mizuho FG and Softbank sign strategic comprehensive partnership agreement in AI field”
• Confirmation date: 2026-05-23