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DAIWA INSTITUTE OF RESEARCH LTD.

6 December 2007 (No of pages: 19)

Earnings Analysis of Major –I —1H FY07 Earnings Summary and Operating Environment— (Sumitomo Banking Corp is affiliated with Daiwa Securities SMBC. See disclaimer below.)

Equity Research Dept Akira Takai

• Major banks’ aggregate 1H FY07 parent real net business profit (total sum of group banks) edged down 2.6% y/y to Y1,614.8 billion. Domestic net interest income expanded, mainly thanks to improvement in loan-deposit interest rate spreads. Treasury operations apparently improved overall, helped by lower overseas interest rates. Meanwhile, slow growth in net fee/commission income and an increase in overhead weighed on profit.

• However, the main factor dragging down profit was aggregate credit costs net of recoveries, which reached Y366.1 billion, reversing course net credit recoveries of Y244.9 booked a year earlier. A number of banks took a hit from earnings deterioration at group non-banks and higher income taxes due to the realization of deferred tax assets during the year-earlier period. This capped aggregate consolidated net income at Y947.9 billion, 45.4% below the 1H FY06 figure, which was the highest in history. However, solid profitability prompted some banks to resume or raise common dividends in 1H.

• The BOJ did not raise interest rates in 1H, after having lifted the unsecured overnight call rate 0.25% twice in FY06. The bond market retreated in 1Q but began to rebound in 2Q. Meanwhile, global equity markets pulled back in response to the deepening subprime loan crisis in August, causing Japanese equities to plummet. However, the Fed cut the federal funds rate in the latter half of September, sparking a recovery in the equity market which lifted TOPIX to a notch below the end-March level at end-September 2007.

• For FY07, major banks envisage a 2.2% drop in aggregate real net business profit on a parent basis. Since recoveries of loan-loss reserves have peaked, credit costs should normalize at low levels. Some banks foresee a considerable profit decline, mainly on the absence of lower income tax payments, so consolidated net income is expected to slide 21.2% y/y to Y2,225 billion. The majority of major banks intend to raise dividends, believing that the overall impact from the subprime loan fiasco will be minor.

The originator of this report, Daiwa Institute of Research (DIR), and the main users, Daiwa Securities and Daiwa Securities SMBC, are subsidiaries of . Daiwa Securities Group, DIR, Daiwa Securities, Daiwa Securities SMBC, and other group companies may hold, buy, and sell shares in companies mentioned in this report. Daiwa Securities and Daiwa Securities SMBC offer services and may make a market for stocks mentioned in this report.

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED ON THE LAST TWO PAGES OF THIS REPORT.

Japanese Equity Research

1. Summary of 1H FY07 Results

Real net business profit In 1H FY07, major banks’ parent* aggregate net business profit climbed 3.3% y/y to rose 2.6% to Y1,614.8 Y1,611.4 billion (Chart 1). Aggregate real net business profit (net business profit billion before additions to/recoveries from general loan-loss reserves, plus credit costs for trust accounts), which indicates core profit levels, edged up 2.6% to Y1,614.8 billion. Overall, the figures came in nearly on par with banks’ initial projections.

Wider loan-deposit Looking at major factors impacting core profit, loan growth in mainstay domestic interest rate spreads, lending operations undershot bank projections, but rate hikes since last year improved recovery in treasury the loan-deposit interest rate spread, albeit slightly. Major gaps opened up between income, weak growth in banks, but combined treasury income recovered, underpinned by wider spreads due to net fee/commission lower overseas interest rates and improvement in net bond-related gains/losses vs. the income, and higher massive losses booked in 1H FY06. Sales commissions from the investment trusts and overhead other financial products remained solid, but wholesale securities operations fared poorly. Overhead remained on an uptrend, with both personnel and non-personnel costs rising across the subsector.

Net credit costs increased As for non-operating items, aggregate net credit costs swelled to Y366.1 billion, the to Y366.1 billion; net largest drag on profit in 1H. In comparison, 1H FY06 earnings gained from Y244.9 equity-related losses billion in net credit recoveries. Negatives included contraction in loan-loss reserve reached Y2 billion releases and write-off recoveries, lower internal credit ratings for some major borrowers, and higher provisions for losses on loans to many medium-sized companies and SMEs. Aggregate net equity-related losses reached Y2 billion (vs. the year-earlier Y134.5 billion in net equity-related gains), largely because Sumitomo Mitsui booked hefty impairment losses on shareholdings of non-banks.

Losses related to Aggregate consolidated losses pertaining to the subprime loan fiasco were capped at subprime loan crisis Y113.9 billion, including impairment charges and losses on the sale of securitized limited to Y113.9 billion products, as well as related provision expenses. The crisis hit banking groups differently, but on the whole, major banks’ low exposure to such products translated into lower damage than at overseas financial institutions.

Consolidated net income Income tax payments returned to normal at almost all banks, in stark comparison to the plunged 45.4%, but some year-earlier period, when the realization of deferred tax assets reduced taxes at many banks resumed and lifted banks (notably, deferred tax assets surged as high as Y231 billion at Resona Bank in 1H dividends 1H FY06). Also, significant losses at subsidiaries and UFJ Nicos dragged down consolidated earnings at and Mitsubishi UFJ Financial Group, respectively. As a result, aggregate net income plunged 49.1% y/y to Y821.9 billion on a parent basis and slid 45.4% to Y947.9 billion on a consolidated basis. However, we believe aggregate net income approached normal levels in 1H FY07, as the record figure a year earlier owed heavily to one-time factors (net credit recoveries and lower income taxes). Also in 1H FY07, stable profitability prompted some banks to resume or raise common dividends.

* In calculating aggregate major bank parent figures, we added group bank figures for banking groups under structures. Thus, Mizuho Financial Group represents the sum of and . Likewise, Mitsubishi UFJ Financial Group is the sum of (1) Bank of -Mitsubishi UFJ (formerly Bank of Tokyo Mitsubishi and UFJ Bank) and (2) Mitsubishi UFJ Trust & Banking (formerly Mitsubishi Trust & Banking and UFJ Trust Bank). Others are as follows: Sumitomo Mitsui Financial Group (Sumitomo Mitsui Banking), (Resona Bank and Resona Bank), and Mitsui Trust Holdings (Chuo Mitsui Trust & Banking and Mitsui Asset Trust & Banking). 2 Earnings Analysis of Major Banks–I

1H FY07 Parent Results (period-end; Y bil) Chart 1 Ordinary Real net Net Ordinary Net Total DPS 4) Total Share- income 1) business business profit income credit (Y) assets holders' profit 2) profit costs 3) equity, etc 5) Mizuho 1H FY06 601.2 216.6 216.6 209.7 125.4 -5.3 - 68,678.1 1,934.0 1H FY07 687.8 199.7209.7 96.0 100.9 -81.8 - 66,769.31,881.1 % chg 14.4 -7.8-3.2 -54.2 -19.6 - - -2.8-2.7 Mizuho Corporate 1H FY06 809.5 137.5 137.5 201.5 213.3 96.2 - 63,409.4 3,148.2 1H FY07 1,078.2 178.3 178.3 188.8 173.8 6.2 - 66,260.0 3,250.1 % chg 33.2 29.629.6 -6.3 -18.5 - - 4.53.2 Sum of Mizuho 1H FY06 1,410.8 354.2 354.2 411.1 338.7 91.0 - 132,087.6 5,082.2 2 banks 1H FY07 1,766.0 378.0 388.0 284.8 274.7 -75.6 - 133,029.3 5,131.2 % chg 25.2 6.79.6 -30.7 -18.9 - - 0.7 1.0 8411 Mizuho Financial 1H FY06 1,234.4 - - 1,219.7 1,241.8 - 0.00 4,772.2 3,178.8 Group 1H FY07 604.9 - - 588.3 626.5 - 0.00 4,623.6 3,328.4 % chg -51.0 -- -51.8 -49.6 - - -3.14.7

Tokyo-Mitsubishi 1H FY06 1,694.9 426.1 426.1 358.4 422.9 178.8 - 140,550.7 6,733.1 UFJ 1H FY07 1,941.9 389.2 397.7 272.2 188.1 -130.0 - 137,208.7 6,890.7 % chg 14.6 -8.7-6.7 -24.0 -55.5 - - -2.42.3 Mitsubishi UFJ 1H FY06 346.1 122.8 122.7 127.3 112.6 49.0 - 19,540.6 1,563.3 Trust 1H FY07 344.3 115.6 114.3 97.8 60.7 -8.4 - 18,973.6 1,526.7 % chg -0.5 -5.8 -6.9 -23.2 -46.1 - - -2.9 -2.3 Sum of MUFG 1H FY06 2,041.1 548.9 548.9 485.6 535.5 227.8 - 160,091.3 8,296.4 2 banks 1H FY07 2,286.1 504.8 512.0 370.0 248.8 -138.4 - 156,182.3 8,417.4 % chg 12.0 -8.0-6.7 -23.8 -53.5 - - -2.4 1.5 8306 MUFG 6) 1H FY06 163.6 - - 146.6 146.8 - 5,000.00 7,464.65,982.5 1H FY07 197.2 - - 183.0 105.5 - 7.00 7,677.3 6,670.0 % chg 20.5 -- 24.8 -28.2 - - 2.811.5

Sumitomo Mitsui 1H FY06 1,115.7 311.6 311.6 269.1 183.6 -33.2 - 93,149.2 3,492.4 Banking 1H FY07 1,307.7 390.9 383.1 157.8 63.8 -114.2 - 94,307.2 3,856.3 Corporation % chg 17.2 25.4 22.9 -41.3 -65.3 - - 1.2 10.4 8316 Sumitomo Mitsui 1H FY06 321.3 - - 319.1 318.2 - 0.00 3,929.8 3,252.2 Financial Group 1H FY07 23.9 - - 11.7 9.4 - 5,000.00 4,001.5 2,940.1 % chg -92.6 -- -96.3 -97.1 - - 1.8-9.6

Resona 1H FY06 400.6 117.8 117.2 143.4 386.8 -15.8 - 27,373.6 1,368.6 1H FY07 362.8 98.0 113.2 71.5 87.8 -5.3 - 26,597.1 1,173.7 % chg -9.4 -16.9 -3.4 -50.1 -77.3 - - -2.8 -14.2 Saitama Resona 1H FY06 94.1 38.9 35.7 32.2 19.0 -3.7 - 9,502.9 271.2 1H FY07 109.0 44.6 46.8 39.1 23.0 -4.4 - 9,520.2 300.7 % chg 15.7 14.630.8 21.4 21.0 - - 0.210.9 Sum of Resona 1H FY06 494.8 156.7 153.0 175.6 405.7 -19.5 - 36,876.5 1,639.8 2 banks 1H FY07 471.8 142.6 160.0 110.6 110.7 -9.7 - 36,117.3 1,474.3 % chg -4.6 -9.1 4.6 -37.0 -72.7 - - -2.1 -10.1 8308 Resona Holdings 1H FY06 261.5 - - 256.0 287.6 - 0.00 1,728.7 1,336.1 1H FY07 391.6 - - 385.1 389.0 - 0.00 2,058.9 1,705.1 % chg 49.7 -- 50.4 35.3 - - 19.127.6

Sum of Chuo Mitsui 1H FY06 190.8 76.8 67.2 67.3 70.2 -13.6 - 12,653.1 895.6 Trust banks 1H FY07 216.5 81.6 73.5 63.7 40.6 -17.0 - 13,654.1 982.6 % chg 13.5 6.2 9.4 -5.3 -42.2 - - 7.9 9.7 8309 Chuo Mitsui Trust 1H FY06 24.7 - - 21.6 21.6 - 0.00 683.7 578.7 Holdings 1H FY07 31.4 - - 27.7 27.8 - 0.00 704.2 596.9 % chg 27.1 -- 28.5 28.3 - - 3.03.2

8403 Sumitomo Trust 1H FY06 267.2 86.8 90.0 85.9 55.5 -3.2 8.50 20,689.2 1,117.8 1H FY07 316.8 80.8 58.5 42.8 32.0 -34.4 8.50 21,354.1 1,134.6 % chg 18.6 -7.0-34.9 -50.2 -42.4 - - 3.21.5 8404 Mizuho Trust 1H FY06 112.3 39.0 35.4 39.5 24.1 -4.3 0.00 6,248.4 424.5 1H FY07 116.3 36.3 36.3 34.9 51.4 23.2 0.00 6,483.7 463.1 % chg 3.6 -7.0 2.5 -11.7 113.6 - - 3.8 9.1 Total 1H FY06 5,632.6 1,574.1 1,560.1 1,534.2 1,613.3 244.9 - 461,795.2 20,948.7 1H FY07 6,481.2 1,614.81,611.4 1,064.7 821.9 -366.1 - 461,128.021,459.6 % chg 15.1 2.63.3 -30.6 -49.1 - - -0.12.4 Source: Company materials; compiled by DIR. Notes: The following notes apply to all charts in this report. 1) In the case of holding companies, we have used operating revenue. 2) Before provisions for/recoveries from general loan-loss reserves; for trust banks, also before posting credit costs for trust bank accounts. 3) Net credit costs (gross credit costs in excess of loan-loss reserve releases/write-off recoveries) are shown negative, and net credit recoveries (the opposite) positive. 4) Common dividends per share. 5) Shareholders’ equity, etc = net assets – minority interests – stock options. 6) Mitsubishi UFJ Financial Group (MUFG) implemented 1,000-for-1 stock split on 30 Sep 2007.

Earnings Analysis of Major Banks–I 3

Highlights of 1H FY07 Results at Each Major Bank Mizuho Financial Group In 1H FY07, real net business profit of the two banks under Mizuho Financial Group’s umbrella rose 6.7% y/y to Y378 billion. Positives included a wider loan-deposit interest rate spread in domestic operations, plus brisk growth in treasury income, thanks to lower US interest rates. However, the group booked aggregate credit costs net of recoveries, in contrast to net credit recoveries in 1H FY06, as both Mizuho Bank and Mizuho Corporate Bank dealt with earnings deterioration at several major borrowers. Turmoil in financial markets in the wake of the subprime loan meltdown triggered a Y68.9 billion negative, including Y27 billion in net losses from securitized product trading. Such losses soared to Y35.3 billion at consolidated subsidiary Mizuho Securities alone. As a result, consolidated net income undershot the bank’s initial projection slightly, dropping 16.6% to Y327.1 billion. Mizuho Securities held around Y380 billion in RBMS backed by foreign assets at end-September and foresees additional losses of roughly Y100 million in 2H. As a result, the merger of Mizuho Securities and Shinko Securities slated for January 2008 has been postponed until May 2008. Looking at capital policy, Mizuho FG repurchased and cancelled common shares owned by banks under its umbrella, while buying back common shares worth a total of Y149.9 billion on the open market in 1H. Management plans to raise the annual common dividend to Y10,000 in FY07.

Mitsubishi UFJ Aggregate real net business profit of the two banks under Mitsubishi UFJ Financial Financial Group Group’s (MUFG) umbrella (Bank of Tokyo-Mitsubishi UFJ and Mitsubishi UFJ Trust & Banking) declined 8% to Y504.8 billion. Domestic net interest income improved, but fee/commission income was weak in commercial operations, and treasury income undershot expectations. 1H profit took the hardest hit from credit costs net of recoveries, which totaled Y138.4 billion at the two banks. In contrast, net credit recoveries came to Y227.8 billion in 1H FY06. Consolidated net income plunged 49% y/y, partly on a massive net loss at consolidated subsidiary UFJ Nicos. On the other hand, 1H losses related to the subprime fiasco came to only Y4 billion. At end- September 2007, the group’s exposure to subprime /securities was Y260 billion, but 1H damage was limited to unrealized losses of only Y20 billion. The bank plans to raise its annual common dividend to Y14 in FY07 (Y7 in 2H) and repurchase up to 150 million shares for a maximum of Y150 billion between 3 December 2007 and 24 March 2008. The bank also reduced its trading unit to 1/10 the previous level at end-September 2007 in a bid to attract more individual shareholders.

Sumitomo Mitsui Sumitomo Mitsui Financial Group’s (SMFG) real net business profit jumped 25.4% to Financial Group Y390.9 billion. The loan-deposit interest rate spread widened in domestic operations, and earnings from international banking operations delivered brisk growth, backed in part by lower US interest rates. Granted, the low y/y hurdle provided a significant boost, as the group posted major net bond-related losses 1H FY06. The bank also gained from a recovery in both investment trust sales commissions and revenue from derivative sales. However, net income plunged 30% on a consolidated basis and 65% at the parent, after credit costs net of recoveries jumped to Y114.2 billion, and net equity- related gains/losses reversed course, with the parent booking Y103.8 billion in losses, mainly for write-downs of shares in non banks. Even so, we think consolidated net income will grow a robust 29% for full-FY07, backed by Y100 billion in reversals of general loan-loss reserves in line with a lower loan-loss ratio and Y100 billion in an accounting gain on the merger of subsidiary leasing companies recorded under extraordinary gains. Management plans to lift the annual per-share dividend to Y10,000 in FY07 (Y50,000 in 1H). Direct fallout from the subprime loans crisis reached Y32 billion in 1H, and we foresee additional losses of Y55 billion in 2H (full- year total of Y87 billion), in light of the current deterioration in the market.

Resona Holdings Real net business profit declined 16.9% to Y98 billion at Resona Bank but rose 14.6% to Y44.6 billion at Saitama Resona Bank. Both banks booked robust income from retail operations, thanks to an increase in housing loans and brisk sales of financial products. However, Resona Bank disposed of losses worth Y35 billion on domestic equity investment trusts, part of the bank’s portfolio investment, which knocked Y35 billion off

4 Earnings Analysis of Major Banks–I

core profit. On a brighter note, credit costs undershot initial estimates, as the bank lifted its internal credit rating for some major borrowers due to their improved earnings. The group has no exposure to subprime mortgage loans/securities, a definite plus. Meanwhile, net income plummeted over 70% both at the parent (Resona Bank) and on a consolidated basis, as 1H FY06 net income was inflated by deferred tax assets, which grew Y231 billion at the parent and Y251.1 billion on a consolidated basis. To quickly raise funds to repurchase/cancel preferreds issued for public funds, the bank issued Y350 billion in convertible preferreds by private placement to Lynch Finance on 5 June and Y100 billion in convertible preferreds to Daiichi Mutual Life on 28 August 2007.

Chuo Mitsui Trust The company changed its name from Mitsui Trust Holdings to Chuo Mitsui Trust Holdings Holdings on 1 October 2007. Aggregate real net business profit increased 6.2% to Y81.6 billion. Net interest income jumped significantly, backed by wider spreads on loans and strong growth in treasury income. Non-interest income advanced on higher sales of investment trusts and other financial products and upbeat real estate brokerage commissions. Even so, consolidated net income declined 47% in the absence of (1) year-earlier gains on the partial return of retirement benefit funds (Y15.8 billion) and (2) benefits from deferred tax assets. The group booked no losses related to subprime loan woes. Meanwhile, the group had RCC convert preferreds issued for public funds (aggregate principal of Y32 billion) into common shares and sell them on the open market for Y97.9 billion in August 2007, as it did in July 2006. Management plans to raise the annual per-share dividend from Y5 to Y7 in FY07.

Sumitomo Trust & In 1H FY07, real net business profit edged down 7% to Y80.8 billion. Revenue from real Banking estate operations, trust services, and sales of investment trusts was robust but failed to offset highly volatile treasury operations, which fared poorly. Credit costs swelled to Y34.4 billion, vs. Y3.2 billion a year earlier. Apparently, the bank increased provisions for non-banks and other consumer finance companies, credit exposure to which was categorized as exposure to “watch-list borrowers excluding loans needing management.” As a result, consolidated net income plunged 41% to Y37.7 billion. The bank booked roughly Y9 billion in losses (included in the credit cost figure) from turmoil in financial markets due to the subprime loan crisis and may post additional losses of around Y10 billion in 2H. Management intends to keep the FY07 common dividend at Y17/share (Y8.5 in 1H), flat with the FY06 level. The bank also announced a tie-up with (8403) in real estate, trust, and money management operations.

Mizuho Trust & Banking Real net business profit slid 7% to Y36.3 billion. Loan operations took a hit from both lower lending volumes and narrower spreads, but lower US interest rates improved income from foreign bond investments. Turning to non-operating items, net equity- related gains contracted in the absence of year-earlier gains on the sale of preferreds. Meanwhile, net credit recoveries reached Y23.2 billion, thanks to Y22.2 billion in loan- loss reserve releases (booked as extraordinary income) in line with improved earnings at some major borrowers. Consolidated net income overshot the bank’s initial projection, doubling y/y to Y51.8 billion, largely because the conservative booking of deferred tax assets in the past limited the income tax burden. As it did last year, the group repurchased and cancelled a portion of preferreds held by parent Mizuho FG in September (worth Y24 billion at principal and Y60 billion at market value).

Earnings Analysis of Major Banks–I 5

1H FY07 Consolidated Results (period-end; Y bil) Chart 2 Ordinary Ordinary Net EPS Total assets Shareholders' income profit income (Y) equity, etc. 8411 Mizuho FG 1H FY06 1,864.0 530.2 392.3 33,498.34 148,962.3 4,333.9 1H FY07 2,256.1 399.2 327.1 28,272.51 151,711.9 4,641.0 % chg 21.0 -24.7 -16.6 -15.6 1.8 7.1

8306 MUFG1) 1H FY06 2,840.2 663.6 507.3 50,454.49 184,735.4 7,699.2 1H FY07 3,250.2 497.5 256.7 24.76 189,894.4 8,859.2 % chg 14.4 -25.0 -49.4 -100.0 2.8 15.1

8316 SMFG 1H FY06 1,825.8 357.1 243.7 32,782.19 102,552.0 3,560.8 1H FY07 2,077.6 353.2 170.6 21,694.19 105,927.6 3,847.9 % chg 13.8 -1.1 -30.0 -33.8 3.3 8.1

8308 Resona Holdings 1H FY06 574.7 207.3 461.0 40,449.00 39,436.0 2,086.4 1H FY07 551.3 127.5 120.2 10,550.40 39,392.1 2,290.9 % chg -4.1 -38.5 -73.9 -73.9 -0.1 9.8

8309 Chuo Mitsui Trust 1H FY06 214.3 68.5 67.0 78.62 13,415.2 888.8 Holdings 1H FY07 239.4 64.1 35.6 38.03 14,371.8 983.6 % chg 11.7 -6.5 -46.9 -51.6 7.1 10.7

8403 Sumitomo Trust 1H FY06 387.8 99.2 64.0 38.23 20,915.0 1,148.1 1H FY07 522.2 61.4 37.7 22.52 22,059.4 1,182.8 % chg 34.7 -38.1 -41.0 -41.1 5.5 3.0 8404 Mizuho Trust 1H FY06 128.0 40.3 23.9 4.76 6,392.6 429.5 1H FY07 131.7 36.3 51.8 10.30 6,592.0 468.0 % chg 2.9 -10.0 116.7 116.4 3.1 9.0 Total* 1H FY06 7,706.71,925.8 1,735.2 - 510,015.9 19,717.4 1H FY07 8,896.8 1,502.9 947.9 - 523,357.2 21,805.3 % chg 15.4 -22.0 -45.4 - 2.6 10.6 Source: Company materials; compiled by DIR. *Excluding Mizuho Trust to eliminate overlapping data, which applies to all consolidated charts in this report.

Differences Between End-1H FY07 Consol and Parent Results (Y bil) Chart 3 Ordinary income Ordinary profit Net income Total assets Shareholders' equity, etc 8411 Mizuho FG Parent 1,766.0 284.8 274.7 133,029.3 5,131.2 Consol 2,256.1 399.2 327.1 151,711.9 4,641.0 Difference 490.2 114.4 52.4 18,682.6 -490.3

8306 MUFG Parent 2,286.1 370.0 248.8 156,182.3 8,417.4 Consol 3,250.2 497.5 256.7 189,894.4 8,859.2 Difference 964.1 127.6 7.9 33,712.1 441.8

8316 SMFG Parent 1,307.7 157.8 63.8 94,307.2 3,856.3 Consol 2,077.6 353.2 170.6 105,927.6 3,847.9 Difference 769.9 195.4 106.8 11,620.4 -8.4

8308 Resona Holdings Parent 471.8 110.6 110.7 36,117.3 1,474.3 Consol 551.3 127.5 120.2 39,392.1 2,290.9 Difference 79.5 16.9 9.5 3,274.8 816.5

8309 Chuo Mitsui Trust Parent 216.5 63.7 40.6 13,654.1 982.6 Holdings Consol 239.4 64.1 35.6 14,371.8 983.6 Difference 22.9 0.3 -5.0 717.7 1.0

8403 Sumitomo Trust Parent 316.8 42.8 32.0 21,354.1 1,134.6 Consol 522.2 61.4 37.7 22,059.4 1,182.8 Difference 205.4 18.6 5.8 705.3 48.2 8404 Mizuho Trust Parent 116.3 34.9 51.4 6,483.7 463.1 Consol 131.7 36.3 51.8 6,592.0 468.0 Difference 15.4 1.4 0.4 108.3 4.9 Total Parent 6,481.2 1,064.7 821.9 461,128.0 21,459.6 Consol 8,896.8 1,502.9 947.9 523,357.2 21,805.3 Difference 2,415.6 438.2 126.0 62,229.2 345.7 Source: Company materials; compiled by DIR. Note: Holding companies’ parent results represent sum of group banks articulated in Chart 1 notes.

6 Earnings Analysis of Major Banks–I

Total assets flattened out; At end-September 2007, combined total assets at major banks declined 0.1% y/y on a net worth expanded parent basis, nearly flat with the 1H FY06 level. In domestic operations, loans outstanding continued to stagnate, and JGB holdings contracted, as well. Meanwhile, overseas loans and other assets expanded measurably. Deposits remained stable. Shareholders’ equity increased on both a parent and consolidated basis at almost all banks, thanks mainly to higher retained earnings and statutory reserves in line with the booking of net income. Swing factors included the repayment of public funds and equity financing by Sumitomo Mitsui and Resona over the past year.

No major difference Chart 3 compares parent and consolidated results. Net income dropped significantly between directions of y/y on both a parent and consolidated basis. However, consolidated and parent earnings consolidated and parent at the three mega banking groups differed measurably due to impact from subsidiaries results such as non-banks, including companies and leasing firms, as well as securities firms with high earnings. Notably, Mitsubishi UFJ Financial Group sees major contributions from US subsidiary Union Bank of California. Overall, bank earnings still account for an overwhelming proportion of net income, but securities subsidiaries have been making higher profit contributions following group-wide reorganization, especially in recent years. The difference tends to be greater at the ordinary than the net level, but this is largely due to different accounting practices for parent and consolidated figures regarding interest payments on primary capital certificates (issued by 100% parent-owned special purpose companies).

Overseas operations in Chart 4 depicts ordinary income and profit by region. Overseas operations were the black; shift to generally profitable, especially in the Americas, Asia (outside Japan), and Europe. aggressive stance in Major banks have been shifting to an aggressive posture overseas, primarily in the Europe and US; damage lending business, aided by improved risk tolerance and their upgraded credit ratings. from subprime loan woes Previously, most banks concentrated managerial resources in and other Asian countries, but they are now stepping up business development in the Americas and Europe in a bid to catch up with MUFG. Mizuho FG listed on the NYSE, and expectations are mounting for medium- to long-term growth in overseas markets. Nevertheless, increased volatility in overseas financial markets as the subprime loan crisis deepened deteriorated earnings at some European and US banks. Banking groups may need to change their growth strategies for overseas securities investment and investment banking operations depending on how the subprime loan fiasco pans out.

Overview of mega Chart 5 provides an overview of the three mega banking groups and their 1H FY07 banking group earnings; earnings. The red ink at Mizuho Securities stands out among securities subsidiaries. impairment charges at Consumer finance companies and non-banks now face a more challenging operating parent banks environment, due to the need for massive refunds of excess interest payments after having slashed their lending rates to comply with the revised Money Lending Business Law enacted at end-2006. Mitsubishi UFJ Nicos slid into huge losses in 1H FY07, but consumer finance companies affiliated with every other major banking group turned a profit. A number of parent banks booked impairment charges on shares in consumer finance companies and non-banks, whose share prices had pulled back sharply. Meanwhile, on a consolidated basis, some banks wrote down goodwill due to large gaps between the purchase price of their stake in consumer finance firms and such firms’ net assets. Mitsubishi UFJ and Sumitomo Mitsui wrote off the remaining goodwill associated with its stakes in consumer finance companies at end-FY06, thus escaping any direct impact from the share price setback on their 1H FY07 consolidated accounts.

Earnings Analysis of Major Banks–I 7

1H FY07 Consolidated Results by Region (Y bil) Chart 4 Asia*/ Elimination/ Japan Americas Europe Subtotal Total Oceania unallocated 8411 Mizuho FG Ordinary income 1,495.8 474.0 351.8 122.1 2,443.7 -187.6 2,256.1 Ordinary expenses -1,164.6 -411.8 -360.5 -96.9 -2,033.8 176.9 -1,857.0 Ordinary profit 331.2 62.2 -8.7 25.2 409.9 -10.7 399.2

8306 MUFG Ordinary income 2,413.8 571.1 345.4 212.6 3,542.8 -292.6 3,250.2 Ordinary expenses -2,041.7 -483.2 -328.5 -182.9 -3,036.3 283.6 -2,752.7 Ordinary profit 372.1 88.0 16.8 29.7 506.5 -9.0 497.5

8316 SMFG Ordinary income 1,749.7 166.0 138.7 137.5 2,191.9 -114.3 2,077.6 Ordinary expenses -1,475.8 -128.7 -122.8 -102.5 -1,829.8 105.5 -1,724.3 Ordinary profit 273.8 37.4 15.9 35.0 362.0 -8.8 353.2

8403 Sumitomo Trust Ordinary income 458.6 44.3 27.7 15.6 546.2 -24.0 522.2 Ordinary expenses -397.8 -46.4 -24.6 -14.4 -483.1 22.3 -460.8 Ordinary profit 60.8 -2.1 3.2 1.2 63.0 -1.7 61.4 8404 Mizuho Trust Ordinary income 127.0 5.4 132.4 -0.7 131.7 Ordinary expenses -90.7 -5.0 -95.7 0.3 -95.4 Ordinary profit 36.3 0.4 36.7 -0.4 36.3 Total Ordinary income 6,117.8 1,255.4 863.6 487.8 8,724.6 -618.4 8,106.1 Ordinary expenses -5,079.9 -1,070.0 -836.4 -396.7 -7,383.1 588.3 -6,794.8 Ordinary profit 1,037.9 185.4 27.2 91.0 1,341.5 -30.2 1,311.3 Source: Company materials; compiled by DIR. *Excluding Japan. Note: If no regional breakdown disclosed, overseas earnings added to total for Americas.

Three Mega-banking Groups and Their Securities Houses Chart 5 Mitsubishi UFJ Financial Group (Y bil) Mitsubishi Mitsubishi UFJ Financial Group 1H FY07 Mitsubishi UFJ Acom (consol) UFJ Nicos Securities Bank of Tokyo- Mitsubishi UFJ Mitsubishi UFJ Ordinary profit 33.8 -56.8 50.5 Mitsubishi UFJ Trust & Banking Securities Net income 25.8 -119.9 24.8

(100%) Mitsubishi UFJ Nicos Acom (66.3%) (15.7%)

Mizuho Financial Group (Y bil) Mizuho Mizuho Financial Group 1H FY07 Mizuho Mizuho Shinko Investors (consol) Trust Securities Securities Securities Mizuho Trust & Banking Mizuho Bank Mizuho Corporate Bank Ordinary profit 36.3 -33.4 9.2 17.8 Net income 51.8 -27.1 5.6 12.5 Mizuho Investors Mizuho Securities Securities (66.8%)* (81.5%) Shinko Securities (27.4%)*

Sumitomo Mitsui Financial Group (Y bil) SMBC Daiwa Sumitomo Mitsui Financial Group Daiwa Securities Group 1H FY07 Friend Securities Promise (consol) Securities SMBC Ordinary profit 13.7 21.8 18.2 SMBC SMBC Friend Securities Daiwa Securities SMBC Net income 8.0 13.1 11.9

(100%) (40.0%) Promise (22%)

Source: Company materials; compiled by DIR. *As of end-Mar 2007. Notes: 1) As of end-Sep 2007. Figures in parentheses indicate combined equity stake of all group companies at end-Sep 2007. 2) Mizuho Securities and Shinko Securities plan to merge in May 2008.

8 Earnings Analysis of Major Banks–I

Aggregate real net Chart 6 contains banks’ FY07 earnings projections. Aggregate parent net business business profit expected profit is tentatively expected to decline 2.4% y/y to Y3,346 billion, excluding additions to drop 2.2% in FY07 to/reversals of general loan-loss reserves, which could have a significant impact. Banks also project a slight drop in combined real net business profit (net business profit before additions to/recoveries from general loan-loss reserves and credit costs for trust banking accounts), anticipating Y3,375 billion (down 2.2%). If major banks’ outlook is accurate, real net business profit will drop for the sixth consecutive accounting period since FY02.

Improvement in spread Conditions surrounding real net business profit are not likely to change significantly between interbank and between 1H and 2H FY07. We foresee no sharp rise in loans outstanding or widening deposit rates; solid of interest spreads, but domestic net interest income should remain on a favorable treasury income; increase uptrend, thanks to an ongoing widening of spreads between interbank and deposit rates in overhead in line with key rate hikes. Treasury income should also remain solid, backed by lower US short rates. On the other hand, we think net fee/commission income from investment banking operations and the sale of financial products will peak, partly because the Financial Instruments & Exchange Law, enacted at end-September amid ongoing turmoil in financial markets, mandates higher attention to investor protection when marketing financial products. A continued rise in overhead will likely weigh on profit, as well.

Parent net income to Major banks expect ordinary profit to drop 3.7% to Y2,790 billion on an aggregate plunge 23.8% but come basis. In contrast, combined net income is expected to decline in double digits (down in at high level 23.8% to Y1,963 billion). Even so, as seen in Chart 7, profit will likely be sufficiently high versus historical levels, albeit lower than in FY05 and FY06. Net income is expected to drop considerably at Mitsubishi UFJ, due to high net credit recoveries in FY06, and at Resona Holdings and Chuo Mitsui Trust & Banking, in the absence of benefits from deferred tax assets.

Major banks project Major banks believe aggregate credit costs net of recoveries will reach Y514.5 billion combined credit costs of on a parent basis in FY07—well above the Y167.3 billion booked in FY06 but modest Y514.5 billion, with compared to core profits at each bank. Meanwhile, 2H credit costs will likely drop narrower differences below the 1H level due to conservative provisioning in 1H. Non-performing assets are between banks already low, so banks’ efforts to remove NPAs from their balance sheets have been slowing. Loan-loss reserve releases and write-off recoveries probably peaked by end- FY06. Gaps between banks’ credit costs should narrow further as costs settle down at normal levels.

Wider gaps between Turning to net equity-related gains, the unwinding of crossholdings has generally banks in terms of net peaked, and we have no high expectations for gains on the sale of preferreds or ETFs equity-related gains held for money management purposes. We think some banks will aggressively realize gains on the sale of shares, but high impairment charges on non-bank shares will likely widen gaps between net equity-related gains at each bank, as in 1H.

Consolidated net income As seen on Charts 8 and 9, major banks expect consolidated earnings to move in the to drop 20% to Y2,225 same direction as at the parent, with ordinary profit declining 6.6% to Y3,495 billion billion and net income dropping 21.6% to Y2,225 billion. Almost all banking groups believe consolidated net income will exceed the parent level, with a combined overshoot of Y262 billion. We think gaps between consolidated and parent figures will largely be explained by one-time swing factors in 1H and the likelihood that consolidated securities firms and non-banks will bleed red ink through full-FY07.

Earnings Analysis of Major Banks–I 9

FY07 Parent Earnings Projections (Y bil) Chart 6 Ordinary Real net Net business Ordinary Net income Credit costs DPS income1) business profit profit2) profit (Y) Mizuho FY06 1,264.2 451.5 431.1 179.1 206.3 -65.5 - FY07 CP 1,450.0 455.0 455.0 310.0 280.0 -130.0 - % chg 14.7 0.8 5.5 73.1 35.7 - - Mizuho Corporate FY06 1,804.2 306.9 306.9 313.6 323.1 62.3 - FY07 CP 2,350.0 300.0 300.0 410.0 350.0 20.0 - % chg 30.3 -2.3 -2.3 30.7 8.3 - - Sum of Mizuho 2 banks FY06 3,068.4 758.5 738.0 492.7 529.4 -3.1 - FY07 CP 3,800.0 755.0 755.0 720.0 630.0 -110.0 - % chg 23.8 -0.5 2.3 46.1 19.0 - - 8411 Mizuho FG FY06 1,250.1 - - 1,218.5 1,239.7 - 7,000.00 FY07 CP 810.0 - - 770.0 810.0 - 10,000.00 % chg -35.2 - - -36.8 -34.7 - -

Tokyo-Mitsubishi UFJ FY06 3,651.5 899.8 899.8 834.5 669.3 53.4 - FY07 CP 3,900.0 825.0 825.0 675.0 440.0 -180.0 - % chg 6.8 -8.3 -8.3 -19.1 -34.3 - - Mitsubishi UFJ Trust FY06 709.1 274.3 272.4 278.4 211.6 8.1 - FY07 CP 700.0 220.0 220.0 200.0 120.0 -20.0 - % chg -1.3 -19.8 -19.3 -28.2 -43.3 - - Sum of MUFG 2 banks FY06 4,360.6 1,174.1 1,172.2 1,112.9 880.9 61.5 - FY07 CP 4,600.0 1,045.0 1,045.0 875.0 560.0 -200.0 - % chg 5.5 -11.0 -10.9 -21.4 -36.4 - - 8306 MUFG FY06 510.8 - - 478.0 473.9 - 11,000.00 FY07 CP 520.0 - - 490.0 410.0 - 14.00 % chg 1.8 - - 2.5 -13.5 - -

SMBC FY06 2,451.4 740.6 782.3 573.3 315.7 -89.5 - FY07 CP 2,700.0 830.0 830.0 600.0 315.0 -110.0 - % chg 10.1 12.1 6.1 4.7 -0.2 - - 8316 SMFG FY06 376.5 - - 364.5 363.5 - 7,000.00 FY07 CP 110.0 - - 90.0 80.0 - 10,000.00 % chg -70.8 - - -75.3 -78.0 - -

Resona FY06 796.4 263.1 259.4 284.9 546.9 -42.2 - FY07 CP 720.0 220.5 220.5 175.0 160.0 -33.0 - % chg -9.6 -16.2 -15.0 -38.6 -70.7 - - Saitama Resona FY06 195.7 76.4 75.3 64.8 35.7 -8.4 - FY07 CP 220.0 83.5 83.5 70.0 43.0 -8.5 - % chg 12.4 9.4 10.8 7.9 20.6 - - Sum of Resona 2 banks FY06 992.1 339.5 334.7 349.8 582.5 -50.6 - FY07 CP 940.0 304.0 304.0 245.0 203.0 -41.5 - % chg -5.3 -10.5 -9.2 -30.0 -65.2 - - 8308 Resona Holdings FY06 395.8 - - 384.4 419.1 - 1,000.00 FY07 CP 600.0 - - 590.0 590.0 - 1,000.00 % chg 51.6 - - 53.5 40.8 - -

Sum of Chuo Mitsui Trust FY06 392.8 177.1 155.2 154.2 118.4 -26.4 - banks FY07 CP 430.0 180.0 176.0 150.0 90.0 -20.0 - % chg 9.5 1.7 13.4 -2.7 -24.0 - - 8309 Chuo Mitsui Trust Holdings FY06 25.8 - - 19.1 19.2 - 5.00 FY07 CP 32.0 - - 26.0 26.0 - 7.00 % chg 23.9 - - 36.0 35.7 - -

8403 Sumitomo Trust FY06 558.5 175.9 155.7 134.6 81.8 -40.1 17.00 FY07 CP 650.0 175.0 150.0 120.0 80.0 -50.0 17.00 % chg 16.4 -0.5 -3.6 -10.8 -2.2 - - 8404 Mizuho Trust FY06 241.6 86.1 89.3 79.8 68.8 -19.2 1.00 FY07 CP 240.0 86.0 86.0 80.0 85.0 17.0 1.00 % chg -0.6 -0.1 -3.7 0.3 23.5 - - Total FY06 12,065.3 3,451.8 3,427.4 2,897.2 2,577.7 -167.3 - FY07 CP 13,360.0 3,375.0 3,346.0 2,790.0 1,963.0 -514.5 - % chg 10.7 -2.2 -2.4 -3.7 -23.8 - - Source: Company materials; compiled by DIR. Notes: 1) FY07 figures for banks under holding companies are our forecasts. 2) In cases where banks disclosed projections only for real net business profit in FY07, we have tentatively used these figures for net business profit. CP: Company projections.

10 Earnings Analysis of Major Banks–I

Banks likely to hike Many major banks expect to raise common dividends again in FY07, backed by full FY07 common dividends, repayment of public funds and net income at high, stable levels. Some plan to follow in but payout ratio still low Sumitomo Trust’s footsteps and aggressively enhance shareholder returns, targeting a vs. overseas peers payout ratio of 20-30% over the medium to long term, but we foresee sustained dividend hikes across the board during that period. Even so, we expect Japanese banks’ dividend payout ratios to remain relatively modest compared to overseas peers, given their lower capital adequacy ratios, plus murky visibility for financial markets for the time being.

Resona and Chuo Mitsui The early repayment of remaining public funds still remains a key challenge for Trust still face issue of Resona Holdings and Chuo Mitsui Trust Holdings. As mentioned, Chuo Mitsui Trust early public fund repaid a portion of public funds in August 2007 by having RCC convert preferreds into repayment common shares and sell them on the open market, and Resona secured funds for repayment by issuing convertible preferreds worth Y350 billion in June 2007 and dated preferreds worth Y100 billion in August. Bank shares must rally to protect taxpayers’ interests, and this first involves repurchasing all preferreds issued under the Financial Function Early Strengthening Law, in our view.

Foresee limited damage As you know, overseas financial markets remained in turmoil entering 2H, and the from subprime loan market value of financial products based on subprime loans could continue to plummet. meltdown in FY07 Japanese major banks are very likely to face increased impairment charges on securitized products backed by subprime loans and higher provisions against losses from such products in full-FY07. At this point, bank projections factor in aggregate additional losses of Y165 billion in 2H (total of Y280 billion for FY07). Naturally, losses could expand even further, depending on the direction of financial markets. However, Japanese banks are less exposed to subprime mortgage loans/securities than overseas, so the direct fallout from the crisis should be extremely mild, from a comparative standpoint.

Aggregate Major Bank Operating Performance (parent; Y bil) Chart 7 6,000 Real net business profit Ordinary profit/losses Net income/losses

4,000

2,000

0

-2,000

-4,000

-6,000 FY89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 CP

Source: Company materials; compiled by DIR. CP: Company projections.

Earnings Analysis of Major Banks–I 11

FY07 Consolidated Earnings Projections (Y bil) Chart 8 Ordinary income Ordinary profit Net income EPS (Y) 8411 Mizuho FG FY06 4,099.7 748.2 621.0 51,474.49 FY07 CP 4,800.0 830.0 650.0 54,880.12 % chg 17.1 10.9 4.7 6.6

8306 MUFG FY06 6,094.0 1,457.1 881.0 86,795.08 FY07 CP 6,500.0 1,150.0 600.0 57.47 % chg 6.7 -21.1 -31.9 -99.9

8316 SMFG FY06 3,901.3 798.6 441.4 57,085.83 FY07 CP 4,300.0 940.0 570.0 73,635.36 % chg 10.2 17.7 29.1 29.0

8308 Resona Holdings FY06 1,153.3 409.9 664.9 53,933.18 FY07 CP 1,090.0 270.0 230.0 17,300.17 % chg -5.5 -34.1 -65.4 -67.9

8309 Chuo Mitsui Trust Holdings FY06 447.1 160.0 112.8 123.33 FY07 CP 470.0 155.0 85.0 82.02 % chg 5.1 -3.1 -24.6 -33.5

8403 Sumitomo Trust FY06 853.4 170.2 103.8 62.05 FY07 CP 1,060.0 150.0 90.0 53.74 % chg 24.2 -11.9 -13.3 -13.4 8404 Mizuho Trust FY06 277.1 83.2 67.7 12.88 FY07 CP 275.0 84.0 86.0 16.57 % chg -0.7 1.0 26.9 28.6 Total FY06 16,548.7 3,743.9 2,824.8 - FY07 CP 18,220.0 3,495.0 2,225.0 - % chg 10.1 -6.6 -21.2 - Source: Company materials; compiled by DIR. CP: Company projections.

Differences Between FY07 Consol and Parent Profit Projections (Y bil) Chart 9 Ordinary income Ordinary profit Net income EPS (Y) 8411 Mizuho FG* Parent 3,800.0 720.0 630.0 - Consol 4,800.0 830.0 650.0 54,880.12 Difference 1,000.0 110.0 20.0 -

8306 MUFG* Parent 4,600.0 875.0 560.0 - Consol 6,500.0 1,150.0 600.0 57.47 Difference 1,900.0 275.0 40.0 -

8316 SMFG* Parent 2,700.0 600.0 315.0 - Consol 4,300.0 940.0 570.0 73,635.36 Difference 1,600.0 340.0 255.0 -

8308 Resona Holdings* Parent 940.0 245.0 203.0 - Consol 1,090.0 270.0 230.0 17,300.17 Difference 150.0 25.0 27.0 -

8309 Chuo Mitsui Trust Holdings* Parent 430.0 150.0 90.0 - Consol 470.0 155.0 85.0 82.02 Difference 40.0 5.0 -5.0 -

8403 Sumitomo Trust Parent 650.0 120.0 80.0 47.77 Consol 1,060.0 150.0 90.0 53.74 Difference 410.0 30.0 10.0 5.97 8404 Mizuho Trust Parent 240.0 80.0 85.0 16.37 Consol 275.0 84.0 86.0 16.57 Difference 35.0 4.0 1.0 0.20 Total Parent 13,360.0 2,790.0 1,963.0 - Consol 18,220.0 3,495.0 2,225.0 - Difference 4,860.0 705.0 262.0 - Source: Company materials; compiled by DIR. *Holding companies’ parent projections indicate sum of parent earnings projected by banks under their umbrella. However, Resona Holdings’ projections are sum of Resona Bank and Saitama Resona Bank.

12 Earnings Analysis of Major Banks–I

2. 1H FY07 Operating Environment

BOJ did not raise Below, we review the operating environment in 1H FY07. Charts 10-12 illustrate unsecured overnight call trends in Japanese money market rates. The BOJ rescinded its zero interest rate policy rate in 1H and raised the overnight call rate 25bp twice in FY06 at its monetary policy meetings in July 2006 and February 2007. However, the central bank implemented no rate hikes in 1H FY07.

Interest rates and prime Turning to 1H FY07 money market rates, overnight call rates ranged from 0.50% to rates 0.60% in 1H, in accordance with the BOJ’s policy. Expectation of an additional increase in the official rate over the next year caused other short-term interest rates to start rising moderately from the onset of FY06. In the absence of a hike in the key rate, the short-term prime rate (a benchmark for lending rates) stayed flat at 1.875% at most major banks. With rates increasing in major overseas countries, Japanese medium- and long-term interest rates rose through 1Q. However, bond prices started turning up in mid-July (fall in medium- and long-term interest rates) in line with a flight to quality given the rapid spread of the subprime loan problem, as well as the BOJ’s lack of further key rate hikes. Thus, the long-term prime rate continued to rise in June and July but dropped below the April level in September.

Loan-deposit interest The BOJ’s tightening cycle gradually improved interest spreads in 1H FY07. More spreads improved in line specifically, the BOJ kept the unsecured overnight call rate flat, slowing the increase in with interest rate hikes; funding costs, mainly for deposits. Noticeable benefits from higher lending rates in line time deposits lost with the FY06 rate hikes started to materialize in 1H. Meanwhile, the profitability of profitability long-term fixed-rate time deposits improved in 1Q but seems to have lost ground in 2Q, due to a thinner spread between long- and short-term interest rates.

Japanese Short- and Long-term Interest Rates (%) Chart 10 2.50

2.00

1.50

1.00

0.50

0.00 1/06 4 7 10 1/07 4 7 (month-end) 1H FY06 1H FY07

Official discount rate 3-month Y TIBOR (B) TSE 10-year JGB futures (A) Spread (A – B)

Source: BOJ; compiled by DIR.

Earnings Analysis of Major Banks–I 13

US tightening cycle Chart 13 shows 1H FY07 trends in US interest rates. At the nine meetings from August ended; US Treasury 2006 to 7 August 2007, the Federal Open Market Committee (FOMC) kept the federal market reversed funds rate intact at 5.25%, fearing an economic slowdown and inflation. However, downtrend from July volatility in financial and equity markets in line with deepening subprime loan woes prompted the committee to slash the official discount rate 50bp to 5.75% at its ad hoc meeting on 17 August. On 18 September, the FOMC cut the federal funds rate 50bp to 4.25%, the first reduction in four years and three months. In response, the US Treasury market remained sluggish in 1Q (through June 07) but rebounded from July. The yield on corporate bonds did not drop significantly, in contrast to the sharp decline in Treasury yields, evidence of a flight to quality. Japanese banks basically raise funds in money markets and put proceeds in long-term financial instruments, so the monetary tightening had made the earnings environment difficult. However, 1H results reflected a gradual recovery in earnings from foreign currency-denominated treasury operations in line with a drop in funding costs.

Y115.43/$ at end- Turning to the forex market (Chart 14), the yen weakened steadily against the dollar September, so exchange through 1Q but began to appreciate rapidly in July, finishing at Y115.43/$ at end- rate fluctuations had September 2007, or 2.3% stronger than the end-March level of Y118.05/$. As a rule, minimal impact on banks take no currency risks, so direct impact from currency fluctuations is limited to earnings higher/lower income from foreign currency-denominated assets in terms of the yen and an increase/decrease in the value of foreign currency-denominated risk-weighted assets.

Bond market fell in 1Q In the Japanese bond market (Chart 15), yields rose seriously through mid-July and and rebounded from mid- then reversed course as the subprime loan woes deepened. However, the FOMC’s July 2007 reduction of the federal funds rate in late September helped ease concerns over a credit crunch and dented a rally in the bond market. As a result, the end-September yield on long-term bonds was nearly on par with the end-March level.

Short-term Prime Rate and Money Market Rates (%) Chart 11 2.00

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00 1/06 4 7 10 1/07 4 7 (month-end) 1H FY06 1H FY07

Unsecured overnight call rate 3-month Y TIBOR (B) Short-term prime rate (A) Spread (A – B)

Source: BOJ; compiled by DIR.

14 Earnings Analysis of Major Banks–I

Long-term Prime Rate and One- to Five-year Interest Rate Swaps (%) Chart 12 3.00

2.50

2.00

1.50

1.00

0.50

0.00 1/06 4 7 10 1/07 4 7 (month-end) 1H FY06 1H FY07

3-month Y TIBOR Long-term prime rate 1-year swap rate 3-year swap rate 5-year swap rate

Source: BOJ and Bloomberg; compiled by DIR.

US Interest Rates (%) Chart 13 7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00 1/06 4 7 10 1/07 4 7 (month-end) 1H FY06 1H FY07

3-month TB (secondary) 5-year TBs 10-year government bonds Corporate bonds (Aaa)

Source: Compiled by DIR.

Earnings Analysis of Major Banks–I 15

Turnover in Forex Market Chart 14 ($ mil) (Y/$) 60,000 130

50,000 125

40,000 120

30,000 115

20,000 110

10,000 105

0 100 1/06 4 7 10 1/07 4 7 1H FY06 1H FY07

Daily average turnover (Tokyo; left) Spot rate (month-end; right)

Source: BOJ; compiled by DIR.

Domestic Bond Yields (%) Chart 15 2.50

2.00

1.50

1.00

0.50

0.00 1/06 4 7 10 1/07 4 7 1H 1H FY07

YTM on new ly issued 10-year JGBs Yield on TSE 10-year JGB futures YTM on 5-year JGBs

Source: BOJ, and other; compiled by DIR. 16 Earnings Analysis of Major Banks–I

Aggregate net bond- On a parent basis, major banks’ aggregate net domestic/foreign bond-related gains related gains hit Y25.1 stood at Y25.1 billion at end-1H FY07, improving from net losses of Y66.2 billion at billion in 1H; and net end-1H FY06 and pushing up net business income. Impairment charges for/losses on unrealized losses on bond the sale of investment trusts and securitized products (including foreign currency- holdings contracted to denominated products) drove up costs at some banks, in contrast to year-earlier losses Y466.2 billion on the sale of bonds with unrealized losses. Combined net unrealized losses on domestic bonds totaled Y466.2 billion, more or less flat with the Y470.2 billion booked a year earlier. We believe that long-term FRNs accounted for a major portion of that figure.

Stock market finished 1H Chart 16 illustrates stock market trends in 1H. The market rebounded in May, after slightly below the end- FY06 results announcements had gotten into full swing, driven by favorable corporate FY06 level earnings and aided in part by a recovery in bank stocks. Japanese equities pulled back sharply late in July amid the global setback triggered by the subprime loan meltdown, and then rebounded in the latter half of September after the Fed lowered the official rate. Thus, the Nikkei Average closed 1H at Y16,785.69, and TOPIX ended at 1,616.62 points, both slightly below the end-March levels (Y17,287.65 and 1,713.61 points, respectively).

Aggregate net equity- Aggregate net equity-related losses reached Y2 billion in 1H, vs. year-earlier gains of related losses hit Y2 Y134.5 billion. Some banks reported losses on the sale of ETFs and preferred shares billion; net unrealized purchased as financial support for ailing borrowers. Notably, though, Sumitomo Mitsui gains on shareholdings booked Y103.8 billion in losses, mainly impairment charges for shares of non-banks. reached Y8,012 billion At end-September, net unrealized gains on shareholdings among major banks reached Y8,012 billion, down slightly from Y9,215.5 billion at end-March 2007. Major banks hold few bank stocks, which fared poorly in 1H, so we believe the market value of bank shareholdings dropped slightly less than market average.

Stock Market Performance Chart 16 (end-Mar 2007 = 100) (Y) 160 20,000

140 17,500

120 15,000

100 12,500

80 10,000

60 7,500

40 5,000 1/06 4 7 10 1/07 4 7 (month-end) 1H FY06 1H FY07

TOPIX (left) Banks (left) Electronics (left) Steel products (left) Transport equipment (left) Nikkei Average (right)

Source: Compiled by DIR.

Translation: M.M. Style check: M.M. Accuracy check: H.M. Earnings Analysis of Major Banks–I 17

The data contained in this report were taken from statistical services, reports in our possession, and from other sources. The opinions and estimates expressed are our own, and we make no representations either as to the accuracy or as to the existence or non-existence of other facts or interpretations which might be significant. The information herein was gathered from responsible sources but we cannot guarantee its accuracy or completeness.

Issues are rated 1, 2, 3, 4, or 5 as follows: 1: Outperform TOPIX/benchmark index by more than 15% over the next six months. 2: Outperform TOPIX/benchmark index by 5-15% over the next six months. 3: Out/underperform TOPIX/benchmark index by less than 5% over the next six months. 4: Underperform TOPIX/benchmark index by 5-15% over the next six months. 5: Underperform TOPIX/benchmark index by more than 15% over the next six months.

IMPORTANT

Japan Daiwa Institute of Research Ltd., and Daiwa Securities SMBC Co. Ltd., are members of the Daiwa Securities Group Inc., and public offerings and/or secondary offerings by the corporations listed below were lead-managed by Daiwa Securities SMBC in the last twelve months (excluding straight bond issues).

List of the Companies as of 3 Dec 2007: China Boqi Environmental Solutions Technology (Holding) Co.,Ltd. (1412); Japan Petroleum Exploration (1662); Trust Works (2154); Saylor Advertising (2156); Artner (2163); WebMoney (2167); Snow Brand Milk Products (2262); Infomart (2492); Pharmarise (2796); Stream (3071); Choushimaru (3075); Horiifoodservice (3077); DVx (3079); Bronco Billy (3091); Real Estate Sales (3225); Will (3241); Parking Management Organization (3251); Pressance Corporation (3254); Toridoll (3397); (3402); VeriServe (3724); NTT Data Intramart (3850); Nippon Ichi Software (3851); Cyber Com (3852); I’LL (3854); Synergy Marketing (3859); Takagi Seiko (4242); Higashiyama Film (4244); SHiDAX (4837); Noevir (4916); Toyo Tanso (5310); Fujishoji (6257); Produce (6263); Kito Corporation (6409); Takeuchi Mfg. (6432); NetIndex (6634); Syswave (6636); Mimaki Engineering (6638); Techno Medica (6678); (6976); Sanoyas Hishino Meisho (7020); Megane Top (7541); Umenohana (7604); Shinko Shoji (8141); Ehime Bank (8541); MoneySquare Japan (8728); Mitsui Sumitomo Insurance (8752); eGuarantee (8771); Sun Frontier Fudousan (8934); FJ Next (8935); Human21 (8937); Daiwasystem (8939); Land Business (8944); Noel (8947); JREIT (8954); Nippon Residential Investment (8962); Japan Logistics Fund (8967); Creed Office Investment (8983).

Hong Kong This publication is produced by Daiwa Institute of Research Ltd. and distributed by Daiwa Institute of Research (Hong Kong) Limited and/or its affiliates. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use, disclosure, distribution, dissemination, copying, printing or reliance on this publication for any other purpose without our prior consent or approval is strictly prohibited. Neither Daiwa Institute of Research (Hong Kong) Limited, nor Daiwa Institute of Research Ltd., nor any of its or their respective parent, holding, subsidiaries or affiliate companies, nor any of its or their respective directors, officers, servants and employees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neither this publication, nor any content herein, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities or investments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view, recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Institute of Research (Hong Kong) Limited, except where the publication states otherwise.

Daiwa Institute of Research (Hong Kong) Limited, its parent, holding, subsidiaries or affiliates, or its or their respective directors, officers, servants and employees may have positions in or may be materially interested in the securities in any of the markets mentioned or may have also performed investment banking and other services for the issuers of such securities.

United Kingdom This material was produced by Daiwa Institute of Research Ltd., and is distributed by Daiwa Securities SMBC Europe Limited which is regulated by The Authority and is a member of the London Stock Exchange. Daiwa Securities SMBC Europe Limited may, from time to time, to the extent permitted by applicable UK law and other applicable law or regulation, participate or invest in other financing transactions with the issuers of the Securities referred to herein (the “Securities”), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities or options therefore and/or may have acted as an underwriter during the past three years for the issuer of such Securities. In addition, employees of Daiwa Securities SMBC Europe Limited and its affiliate may have positions and effect transactions in such Securities or options and may serve as directors of such issuers. Daiwa Securities SMBC Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the Securities before this material is published to recipients.

This document is intended for investors who are not Private Customers within the meaning of the Rules of The Financial Services Authority and should not, therefore, be distributed to Private Customers in the United Kingdom. This document is not to be used or considered as an offer to sell or solicitation of an offer to buy any Securities. Information and opinions contained herein have been compiled or arrived at from sources believed to be reliable, but neither Daiwa Securities SMBC Europe Limited and/or its affiliates accepts liability for any loss arising from the use hereof or makes any representation as to their accuracy or completeness. Any information to which no source has been attributed should be taken as an estimate by Daiwa Institute of Research Ltd. This document is not be relied upon as such or used in substitution for the exercise of independent judgment. Should you enter into investment business with any Daiwa Securities SMBC Europe Limited affiliate outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatory system may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.

Germany This document has been approved by Daiwa Securities SMBC Europe Ltd and is distributed in Germany by Daiwa Securities SMBC Europe Ltd, Niederlassung Frankfurt which is regulated by BaFin (Bundesanstalt fuer Finanzdienstleistungsaufsicht) for the conduct of business in Germany.

North America This report was prepared by Daiwa Institute of Research ("DIR"), a Japanese company. It may not be accurate or complete and should not be relied upon as such. It reflects the preparer's views at the time of its preparation, but it is provided with a time delay and does not reflect events occurring after its preparation. The preparer has no obligation to update this report or to continue to prepare research on this subject. This report is not an offer to sell or the solicitation of any offer to buy securities. Unless this report says otherwise, any recommendation it makes is risky and appropriate only for sophisticated speculative investors able to incur significant losses. Readers should consult their financial advisors to determine whether any such recommendation is consistent with their own investment objectives, financial situation, and needs.

This report does not recommend to U.S. recipients the use of Daiwa Securities SMBC or its non-U.S. affiliates to effect trades in any security and is not supplied with any understanding that U.S. recipients will direct commission business to such entities. Unless applicable law permits otherwise, non-U.S. customers wishing to effect a transaction in any securities referenced in this material should contact a Daiwa entity in their local jurisdiction. U.S. customers wishing to obtain further information or effect transactions in any securities mentioned in this report should contact Daiwa Securities America Inc. ("DSA"), Financial Square, 32 Old Slip, New York, New York 10005 (telephone 212-612-7000).

Ownership of Securities. DSA and its affiliates beneficially own one percent or more of a class of common equity securities of the following issuers: Alpha Corporation; Belx Co., Ltd.; Cabin Co. Ltd.; Daiko Denshi Tsushin Ltd.; Daiwa Seiko, Inc.; Ehime Bank Ltd.; Fuji Television Network, Inc.; GDH KK; Imperial Hotel, Ltd.; Japan Securities Agents, Ltd.; Japan Securities Finance Co. Ltd.; Kokusai Densetu Co., Ltd.; Maruzen Company, Limited; Meisei Electric Co., Ltd.; Mitsui Mining Co. Ltd.; NIF SMBC Ventures Co. Ltd.; Nomura Co., Ltd.; Shinkin Central Bank; Sumitomo Mitsui Construction Co. Ltd.; Taito Corporation; LP..

Investment Banking Relationships. DSA or an affiliate has managed or co-managed a public offering of securities in the past 12 months, or has received compensation for investment banking services in the past 12 months, or expects to receive or intends to seek compensation for investment banking services in the next three months, for or from the following issuers: ABN Amro; Abu Dhabi ; ACCA NETWORKS CO. LTD.; Accordia Golf Co. Ltd.; Acom Co. Ltd.; AD Works Co. Ltd.; Advance Create Co. Ltd.; Advance Residence Investment Corp.; Aeon Credit Service Co. Ltd.; Air Products and Chemicals Inc.; Albany International Corp.; Albemarle Corporation; Alliance & Leicester Plc.; Alpha Credit Group, Inc.; AMB Property Corporation; American Express Credit Corp.; American General Finance; American International Group Inc.; AnGes MG Inc.; Anglo American Capital; Anglo Irish Bank Corp. Plc; Anritsu Corp.; Anta Sports Products Limited; ANX National International; ANZ Banking Group Limited; ANZ National International London; Apamanshop Co. Ltd.; Aplus Co. Ltd.; AQ Interactive Inc.; Aramark Services; ARCLAND SERVICE Co. Ltd.; Art Corporation; Artnature Inc.; Artner Co. Ltd.; Ltd.; Asahi Glass Co. Ltd.; Asax Co. Ltd.; ASB Bank Ltd.; ASIF; Asset Investors Co. Ltd.; Australia and New Zealand Banking Group Ltd.; AutoNation; AviChina Industry and Technology Company Limited; Avis Budget Car Rental, LLC.; Azko Nobel; Balls Corp.; Banca Aletti; Banca Comerciala Romana SA; Banca Intesa; Banca Popolare di Vicenza; Banco BPI S.A.; Banco BPI SA Cayman; Banco Guipuzcoano; Banco Popolare di Verona e Novara; Bank Nederlandse Gemeeten; Bank of America Corp; Bank of Austria Creditanstalt; Bank of Ireland; Bank of Scotia Ltd.; Bank of Western Australia; Banque Centrale de Tunisie; BAT International Finance; Bayerische Landesbank; BBVA Senior Finance SA; BCP Finance Bank; Belo Corp.; Bemis Corp.; BHP Finance USA Ltd.; BHW Bausparkasse AG; BMW Finance BV; BNP Paribas; Boeing Co.; Boise Cascade Corporation; BOS International Australia Ltd.; Boston Scientific Corp; BP Capital Markets; Bradford & Bingley; BRONCO BILLY Co. Ltd.; Brookfield Asset Management Inc.; Brother Industries Ltd.; Brunswick Corp.; BSK; Bunadarbanki Islands; BYD Co. Ltd.; Caceis Bank Espana SA; CAISSE NATIONALE DES CAISSES D'EPARGNE ET DE PREVOYANCE; Caixa Catalunya International Finance; Caixa D’estalvis Catunun; Caja Duero; CAM Global Finance; Canadian Imperial Bank; Canadian Natural Resources; Capmark Financial Group Inc.; Carenet Inc.; Cargill 18 Earnings Analysis of Major Banks–I

Inc.; Carview Corp.; CBS; CCS Inc.; Cedant Timeshare; Central General Development Co. Ltd,; Central Japan Railway Co.; Cetelon; CFF; Chelsea Building Society; Chimney Co. Ltd.; China Automation Group Limited; China Boqi Environmental Solutions Technology Holding Co. Ltd.; China CITIC Bank Corporation Ltd.; China High Speed Transmission Equipment Group Co. Limited; China Merchants Bank Co. Ltd.; China Minsheng Banking; China Resources Power Holdings Co.; Choushinmaru Co. Ltd.; Co. Inc.; CIGNA Corp.; CIT Group, Inc.; CITIC 1616 Holdings Ltd.; Global Markets; Citigroup Inc.; Clear Channel Communications; Clementoni; CMS Energy; Comcast Corp.; Commonwealth Bank of Australia; Companhia Vale do Rio Doce; Companie de Financement Foncier; ConocoPhilips; Consumers Energy Company; Contec Co. Ltd.; Cooperative Centrale Raiffeisen-Boerenleenbank; Corp Andina de Fomento; Covidien Ltd.; Co. Ltd.; Crescendo Investment Corp.; CS Group Finance; CVS Corporation; Cyber Com Co. Ltd.; DA Office Investment Corp.; Dah Chong Hong Holdings Ltd.; Dah Sing Bank; Daihatsu Diesel Manufacturing Co. Ltd.; Industries Ltd.; Daimler Chrysler; Manufacturing Co. Ltd.; Daio Paper Corp.; Daiseki Co. Ltd.; Daiwa Securities Group Inc.; Daiwa Seiko, Inc.; Daiwasystem Co. Ltd.; Data Applications Co. Ltd.; Davide Campari-Milano S.p.A; Dekabank; Denki Kagaku Kogyo K K; Depfa ACS Bank; Depfa Bank plc.; Depfa Deutsche Pfandbriefbank AG; Deutsche Apotheke Aerztebank; Deutsche Bahn Finance BV; AG; Deutsche Bank AG/London; Deutsche Bank Aktiengesellshaft; Deutsche Bank Capital Finance Trust; Deutsche Bank Finance; Dexia Credit Local; Dexia Municipal Agency; Di- Nikko Engineering KK; Dow Chemical Company; DTZ Holdings PLC; Duskin Co. Ltd.; DVB Group Merchant Bank Asia; Dvx Inc.; Dydo Drinco, Inc.; Early Age Co. Ltd.; East Japan Railway Co.; ; EFG Hellas plc.; Egnatia Finance; eGuarantee Inc.; Elmo Co. Ltd.; Emirates Bank International PJSC; Eneserve Corp.; Enterprise Products Operating LP; ES-Con Japan Ltd.; E*Trade Securities Co. Ltd.; Eurofima; Eurohypo AG.; Export Development Canada; Export-Import Bank of Korea; FCE Bank Plc; FEDEX Corporation; Finconsumo SPA; FJ Next Co. Ltd.; Florida Power and Light; Fontainebleau Las Vegas Holdings; Ford Credit Australia Limited; Ford Motor Company; Ford Motor Credit Company; Finance NV ; Freddie Mac; Co. Ltd.; Fuji Food System Co. Ltd.; Ltd.; Fujishoji Co. Ltd.; ; Inc.; Fukuoka REIT Investment Fund; Co. Ltd.; GABA Corp.; Gannett Co. Inc.; GE Capital Australia Funding; GECC; General Electric Capital Corporation; Georgia Pacific Corp.; Global One Real Estate Investment Corp.; GM; GMAC; Group, Inc.; Graphisoft; Hankyu Hanshin Holdings Inc.; Hankyu Reit Inc.; Hanwa Co. Ltd.; Harrah’s Entertainment Inc.; Harrah’s Inc.; Harrah’s Operating Company; Hawker Beechcraft Acquisition Co.; HBOS Treasury Service; HCA Inc.; Health Net; Co. Ltd.; Hellenic Bank; Hershey Company; Hertz Corp.; HI Corp.; Hirata Corp.; Construction Machinery Co. Ltd.; Hitachi Metals Ltd.; Electric Power Co. Inc.; Hokuriku Electric Power Co.; Horiba Ltd.; Horiifoodservice Co. Ltd.; Hoshiden Corp.; HSH N Finance; HSH Nordbank AG; Human21 Corp.; Humana Inc.; Hypo Real Estate International; IKB Finance BV; I'll Inc.; Imasen Electric Industrial; Impexbank; Indian Railway Finance Corporation; Industrial & Infrastructure Fund Investment Corp.; Industrial Bank of Korea; Infomart Corp.; Instituto de Credito Official; International Business Machine Corp; International Elite Ltd.; International Finance Corp.; International Hotel Group; International Lease Finance Corp.; Intesa Bank Ireland plc.; Intrance Co. Ltd.; Ishikawajima-Harima Heavy Industries Co., Ltd.; Islandsbanki FBA; Islandsbanki FBA HF; Ito En Ltd.; Corp.; Corp.; Japan Bank for International Co-operation; Japan Best Rescue System Co. Ltd.; Japan Expressway Holding and Debt Repayment Agency; Japan Hotel & Resort Investment Corp.; Japan Logistics Fund, Inc.; Japan Petroleum Exploration Co.; Japan Prime Realty Investment Corp.; Japan Single-Residence REIT Inc.; Inc.; J-Com Co. Ltd.; JFE Holdings Inc.; Joint Corp.; Joint Reit Investment Corp.; JPMorgan Chase & Co.; J-Product Corp.; Kansai Electric Power Co.; Kansai Urban Banking Corp.; Kaupthing Bank HF; Kaupthing Bunadarbanki HF; Kawasaki Heavy Industries Ltd.; Kawasaki Kisen Kaisha Ltd.; KBC IFIMA NV; Keihan Electric Railway Co. Ltd.; Keihin Electric Express Railway Co. Ltd.; Keio Electric Railway Co. Ltd.; Kenedix Inc.; Kenedix Realty Investment Corp.; Kennedy-Wilson Japan; KFW Bankengruppe; KFW International Finance; KGaA; Kichiri & Co. Ltd.; Kinki Nippon Railway Co. Ltd.; Kito Corp.; Kohnan Shoji Co. Ltd.; Kokuyo Co. Ltd.; Komatsu Ltd.; Kommunalbanken Norway; Kookmin Bank; Korea Development Bank; Korea Electric Power Co.; Korea National Housing Corporation; Kumho Tire Co. Inc.; Kuraudia Co. Ltd.; Kyoei Steel Ltd.; Kyoritsu Maintenance Co. Ltd.; Kyushu Electric Power Co. Ltd.; L Create Co Ltd.; Land Business Co. Ltd.; Landesbank Baden-Wuerttemberg; Landeskreditbank BW Foerdebank; Landsbanki Islands HF; Landwirtschaftliche Rentenbank; LB Baden-Wuerttemberg; LBHI MTNG; Lehman Brothers Holdings Inc.; Li Ning Company Ltd.; Life Foods Co. Ltd.; Lotte Shopping; Louis Vuitton Moet-Hennessy; LVMH; Macquarie Bank Ltd.; Maeda Kosen Co. Ltd.; Marathon Oil Corp.; Corp.; Maruzen Co. Ltd.; Masco Corp.; MasterCard Incorporated; Motor Corp.; McGraw-Hill Companies; Meadwestvaco Corp.; MediciNova Inc.; Megalos Co. Ltd.; Megane TOP Co. Ltd.; Meiji Seika Kaisha Ltd.; Meiko Electronics Co. Ltd.; Meisei Electric Co. Ltd.; Merrill Lynch & Co. Inc.; MGM Mirage Inc; Midsouth Holdings; Millea Holdings Inc.; Millennium America; Mimaki Engineering Co. Ltd.; Mitsubishi Chemical Corp.; Mitsubishi Corp.; Mitsubishi Heavy Industries Ltd.; Mitsui & Associates Telepark Corp.; Mitsui & Co. Ltd.; Inc.; Co. Ltd.; Mitsui Mining & Smelting Co. Ltd.; Mitsui OSK; Mitsui Sumitomo Insurance Co. Ltd.; Mitsui Trust Holdings Inc.; Mitsui-Soko Co. Ltd.; Miyachi Technos Corp.; Mizuho Bank Ltd.; Mizuho Corporate Bank Ltd.; Moneysquare Japan Inc.; MonotaRO Co. Ltd.; ; Mori Hills REIT Investment Corp.; Morinaga Milk Industry Co. Ltd.; NACF; Railroad Co. Ltd.; Namco Bandai Holdings Inc.; Nankai Electric Railway Co. Ltd.; Natexis; National Agricultural Co.; National Australia Bank Ltd.; National Bank of Canada; National Grid Co. Plc.; National Rural Utilities Cooperation Finance Corp.; Nationwide Building Society; NEC Leasing Ltd.; Nestle Australia Limited; Nestle Holdings; NetIndex Inc.; New City Residence Investment Corp.; Newmont Mining Corp.; Nexen; NGK Spark Plug Co. Ltd.; NIB Capital Bank; Corp.; -Read Corp.; Nihon M&A Center Inc.; Nikko Citigroup; Co. Ltd.; Nippon Broadcasting System, Inc.; Nippon Ichi Software Inc.; Nippon Life; Nippon Life Insurance; Nippon Residential Investment Corp.; Nippon Restaurant Corp.; Nippon Sanso Corp.; ; Nippon Shokubai Co. Ltd.; Nippon Telegraph & Telephone Corp.; Nippon Unipac Holding; Nishi- Nippon Railroad Co. Ltd.; Diesel Motor Co. Ltd.; Nissan Financial Services Co. Ltd.; Noel Co. Ltd.; Noevir Co. Ltd.; Nomura International PLC; Nomura Real Estate Residential Fund Inc.; Norddeutsche LB; Noritz Corp; Northern Rock Plc.; NRW Bank; NTT Data Intramart Corp.; NTT Leasing; NTT Urban Development Corp.; Nuflare Technology Inc.; NYSE Group Inc.; Obara Corp.; Co. Ltd.; Oenon Holdings Inc.; OJSC NK Rosneft; Okamura Corp.; Okinawa Electric Power; OKO Bank plc.; Okuma Holdings Inc.; Oracle Corp.; ORIX Corp.; Orix JREIT Inc.; Gas Co. Ltd.; Overnight Corporation; Owens Corning; Oxford Diffraction; Pacific Management Corp.; Pacific Systems Corp.; Paragon Partners; Parking Management Organization Ltd.; Pegasus Sewing Machine Manufacturing Co. Ltd.; Peoples Insurance Company of China; Pharmarise Corp.; PHH Corp.; Piped Bits Co. Ltd.; Plains All American; Pocket Card Co. Ltd.; Polar Tankers INC.; Post Properties, Inc.; Prologis; Promise Co. Ltd.; Properst Co. Ltd.; PTT PCL; Rabo Australia Ltd.; Nederland; Rann International; RCI Banque SA; Realcom Inc.; Realogy Corp.; Reins International Inc.; Renault S.A.; Re-plus residential investment Inc.; Resona Holdings Inc.; Riester; Right On Co. Ltd.; Rinnai Corp.; ; Sabre Holdings; Sagami Railway Co Ltd.; Saitama Resona Bank Ltd.; Sakai Moving Service Co. Ltd.; SAMTY Co. Ltd.; Sanden Corp.; Sankei Building Co. Ltd.; Sanoyas Hishino Meisho Corp.; Santander International; Sanyo Shinpan Finance Co. Ltd.; Breweries Ltd.; Sawai Pharmaceutical Co. Ltd.; Saylor Advertising Inc.; Schering-Plough Corp.; Senko; Senshu Electric Co. Ltd.; Severn Trent Water; Shandong Molong Petroleum Machinery Co. Ltd.; Shidax Corp.; Electric Power Co. Inc.; Shinko Shoji Co. Ltd.; Co. Ltd.; Showa Shell Sekiyu KK; Sihuan Pharmaceutical Holdings Group Ltd.; Simon Property Group LP; SK Corp.; Snow Brand Milk Products Co. Ltd.; SNS Bank Nederland; Societe Nationale des Chemins de Fer Francais; Softbank Corp.; Corp.; Financial Holdings Inc.; Sovrisc BV; Sparebanken Rogaland; Sprint Nextel Corp.; St George Bank Ltd.; State of North Rhine-Westphalia; Stream Co. Ltd.; Sumco Corp; Sumikin Bussan Corp.; Co. Ltd.; Sumitomo Life Insurance Co.; Sumitomo Light Metal; Sumitomo Metal Industries Ltd.; Sumitomo Metal Mining Co. Ltd.; Sumitomo Mitsui Banking Corp.; Sumitomo Osaka Cement Co. Ltd.; Sumitomo Realty & Development Co. Ltd.; Sumitomo Rubber Industries Inc.; Sun Capital Management Corp.; Sun Frontier Fudousan Co. Ltd.; Suncor Energy Inc.; Svensk Exportkredit AB; Synergy Marketing Inc.; System Integrator Corp.; Syswave Corp.; Tac Co. Ltd.; Corp.; Tai-I International Holdings; Taisei Co. Ltd.; Taiyo Yuden Co. Ltd.; Takagi Seiko Corp.; Inc.; Talisman Energy; Tao Heung Holding Limited; Telefonica; Telefonica Europe BV; Telepark Corp.; Telstra Corp. Ltd.; Terna spa; The Bank of Ikeda Ltd.; The Bank of Iwate Ltd.; The Bank of Kochi Ltd.; The Bank of Ltd.; The Bank of Nagoya Ltd.; The Bank of Tokyo-Mitsubishi Ltd.; The Cos Inc.; The Chugoku Electric Power Co., Inc.; The Daisan Bank Ltd.; The Higashi-Nippon Bank Ltd.; The Hokkoku Bank Ltd.; The Japan General Estate Co. Ltd.; The Juroku Bank Ltd.; The Kansai Electric Power Co. Inc.; The Minato Bank Ltd.; The Miyazaki Bank Ltd.; The Nisshin Oillio Group Ltd.; The Norinchukin Bank; The Ogaki Kyoritsu Bank Ltd.; The Senshu Bank Ltd.; The Shikoku Bank Ltd.; The Shimizu Bank Ltd.; The Sumitomo Trust & Banking Co. Ltd.; The Tokyo Star Bank Ltd.; Tiangong International Co. Ltd.; Time Warner, Inc.; Co. Ltd.; Gas Co Ltd.; Tohoku Electric Power Co. Inc.; Tokyo Electric Power Co.; Co. Ltd.; Tokyo Tatemono Co. Ltd.; Tokyo Tatemono Real Estate Sales Co. Ltd.; Corporation; Tokyu REIT Inc.; Tokyu Store Chain; Toll Brothers; Top Engineering Co. Ltd.; Topy Industries Ltd.; Toray Industries Inc.; Toridoll Corp.; Corp.; Total Capital SA; TOTO Ltd.; Toyo Tanso Co. Ltd.; Co. Ltd.; Credit Canada, Inc.; Toyota Finance Australia Ltd.; Toyota Finance Corp.; Toyota Motor Corp.; Toyota Motor Credit Corporation; Trust Works Inc.; TS Tech Co. Ltd.; Turkiye Halk Bankasi AS; Ltd./Japan; Ubic Inc.; UBS AG; UBS Jersey; UBS Preferred Funding Trust; UFJ Bank; Umenohana Co. Ltd.; Unicredito Italiano; Unifund Plc; Union Pacific Corp.; Unione di Banche Italiane SCPA; United Technologies; Universe Co. Ltd.; Urbanet Corp. Co. Ltd.; US Cellular Corp.; USJ Co. Ltd.; Vale Overseas Limited.; Valero Energy Corp.; Vantec Group Holdings Corp.; Verite Co. Ltd.; Verizon Global Funding Corp.; Viacom Inc.; Village Vanguard Co. Ltd.; Volkswagen International Finance NV; VSN Inc.; Wal Mart Inc.; WDI Corp.; Welcia Kanto Co. Ltd.; Wellpoint Inc.; West Japan Railway Co.; West LB; Westpac Banking Corporation; Whirlpool Corp.; Will Co. Ltd.; William Street Funding; WPP FINANCE SA; Wuerttembergische Versicherung; Xcel Energy, Inc.; Xingda International Holdings Ltd.; Yachiyo Bank Ltd.; Yamaguchi Financial Group Inc.; Zakkaya Bulldog Co. Ltd.; Zenrin Co. Ltd.; Zephyr Co. Ltd. .

The statements in the two preceding paragraphs are made as of November 1, 2007.

DSA Market Making. DSA made a market in securities or ADRs of the following issuers at the time this report was published: Daiei Inc.; FUJIFILM Holdings Corp.; Internet Initiative Japan Inc.; Makita Corp.; MediciNova Inc.; Millea Holdings Inc.; Mitsui & Co. Ltd.; NEC Corp.; Nissan Motor Co. Ltd.; Inc.; Wacoal Holdings Corp.

Research Analyst Conflicts. The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not aware of any material relevant conflict of interest involving them or DSA, except as noted: no exceptions.

Research Certification. The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analysts[s) is named on the report); and no part of the compensation of such analyst(s) (or no part of the compensation of the firm if no individual analyst[s] is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report.

Earnings Analysis of Major Banks–I 19