June 20 (Bloomberg) -- Mizuho Financial Group Inc., the lender to more than half of Japan's biggest companies, is using those connections to overtake Goldman Sachs Group Inc. and Morgan Stanley in the nation's $60 billion market for stock offerings.

Mizuho doubled its fees for managing sales of shares and convertible bonds in Japan during the past 12 months to about $200 million, data compiled by Bloomberg show. The Tokyo-based based bank leapfrogged Goldman and Morgan Stanley to become the nation's fourth-ranked stock underwriter, trailing Japan's three largest securities firms, led by Nomura Holdings Inc.

Boosting revenue in Japan, where 11.5 percent of the world's equity capital was raised last year, is central to Mizuho's ambition to challenge global banks. Citigroup Inc., with just 12 percent more assets, has four times Mizuho's market value and generates almost 10 times its stock underwriting fees.

``Mizuho is acutely aware it needs to be strong in securities as well as banking to compete globally,'' said Masayuki Yasuoka, 60, former head of the lender's investment- banking unit, who now runs the Japan business of U.S. buyout firm Newbridge Capital LLC. ``It no longer sees Japan's banks as its only competitors.''

Mizuho, which posted a record loss of 2.4 trillion yen ($22 billion) two years ago, plans to increase staff by 12 percent at its main brokerage unit, Mizuho Securities Co., this year. Increased fee income would reduce its reliance on lending, which hasn't risen in Japan since 1996.

Japan's Banks

Japan's banks are focused on ways to boost revenue after spending the past two years clearing $121 billion of bad debt -- equivalent to the annual gross domestic product of Malaysia.

``Stronger and more competitive securities units of Japanese banks are a positive for all market participants, issuers and underwriters,'' said Jason Milazzo, 43, head of investment banking at Morgan Stanley in Tokyo. ``It should result in a more efficient, risk adjusted allocation of financial capital.''

Mizuho's net revenue from underwriting stocks more than tripled last fiscal year to $94 million, 1/12th of the $1.1 billion in fees that Citigroup earned, company reports show. New York-based Citigroup is the world's largest financial-services firm.

Still, Mizuho's share of the Japan equity and equity-linked underwriting market climbed to 10.8 percent this year from 1.9 percent in 2003, while New York-based Goldman's slipped to 3.3 percent from 11.5 percent and Morgan Stanley's fell to 6.5 percent from 9.6 percent, Bloomberg data show. Japan has the world's second-biggest stock market after the U.S.

Orlando Camargo, a Tokyo-based spokesman for Goldman, the world's No. 3 securities firm by market value, declined to comment.

`Rice Shoots'

Morgan Stanley, the biggest securities firm, lost Christopher Mothersill as head of equity capital markets in Tokyo in March, when he retired at the age of 48. He was replaced by Fusao Hara, 54, a vice chairman in Japan.

Nikko Citigroup Ltd., an investment-banking joint venture between Nikko Cordial Corp. and Citigroup, has a 30 percent share of Japan's stock sales market. Mizuho earlier this year bought 4.9 percent of Nikko Cordial as part of its plan to increase underwriting revenue.

Mizuho, which means ``rice shoots'' in Japanese, was formed five years ago from the merger of Dai-Ichi Kangyo Bank Ltd., Fuji Bank Ltd. and Industrial Bank of Japan Ltd. The company was renamed Mizuho Financial Group Inc. in 2003.

The bank had the largest-ever loss by a Japanese company in fiscal 2003, as it wrote off bad loans. It returned to profit a year later and earned $5.8 billion in the year ended March 31.

Paying Dividends

``We have big tasks to clear before Mizuho will be called a profitable financial firm,'' Chief Executive Officer Terunobu Maeda told a group of shareholders on June 1. ``We haven't given full play to our ability considering our vast client base.''

Maeda, 60, is counting on the bank's ties with 70 percent of Japan's publicly traded companies to fend off challengers, including Mitsubishi Tokyo Financial Group Inc., which will become the world's largest bank by assets when it merges with UFJ Holdings Inc. in March.

Those ties paid dividends in March when Mizuho was chosen with Nomura to manage a 30 billion yen sale of convertible bonds for Kawasaki Kisen Kaisha Ltd., Japan's third-largest shipping line. A year earlier, Nomura was the sole arranger of an identical sale by the Tokyo-based company, with Mizuho playing a supporting role.

``We gave Mizuho an equal role with Nomura in the most recent sale because we were convinced of its ability as a brokerage after it handled a convertible sale for Toshiba Corp.,'' said Keisuke Yoshida, general manager of the finance department at Kawasaki Kisen.

Profit Gains

Mizuho and Nomura arranged the 150 billion yen for Toshiba, Japan's second-largest chipmaker, in June 2004. ``Mizuho's proposals met our needs,'' said Keisuke Ohmori, a Toshiba spokesman, who declined to be more specific.

Net income at Mizuho Securities more than doubled to 28.1 billion yen in the year ended March, compared with 94.7 billion yen at Nomura.

Kentaro Azuma, Mizuho's 50-year-old head of capital markets, joined last May after 15 years at Nomura, Japan's biggest securities firm. He has hired six of his former colleagues to bolster Mizuho's underwriting business.

Azuma ran Nomura's branches in Germany, Switzerland and Hong Kong between 1993 and 1997. He obtained an MBA from the University of Pennsylvania's Wharton School in 1984.

Under Azuma, Mizuho handled 51 stock sales that raised 470 billion yen in the year ended March, Bloomberg data show. Nomura managed 144 deals valued at 1.48 trillion yen.

NTT Experience

Mizuho hired Seiichiro Kurahashi, who's now head of equity syndication, from Nikko Citigroup in January 2004. While at Nikko Citigroup, Kurahashi worked on a 1.23 trillion yen sale of shares in Nippon Telegraph & Telephone Corp., Japan's largest phone company, and a 950 billion yen sale of shares in NTT DoCoMo Inc., the biggest mobile phone company.

Mizuho Financial's biggest clients include Canon Inc., Toshiba, Hitachi Ltd., Nippon Steel Corp., Japan's biggest steelmaker, and NTT DoCoMo.

The market share gains by Mizuho Securities owe much to business pushed its way by the group's commercial banking units. For example, Mizuho Corporate Bank Ltd. sold 26.8 billion yen of shares in Canon, the world's second-biggest supplier of digital cameras, in March 2005. Mizuho Securities was hired as the main underwriter.

The brokerage in March also handled a 37.6 billion yen sale of new shares by Taisei Corp., a Tokyo-based construction company that uses Mizuho Corporate as its main bank.

Bond Connection

Taisei chose Mizuho from about five competing banks in part because unlike other firms it was willing to underwrite the sale at the end of the fiscal year, said a company finance official, who declined to be identified. The bank arranged six previous bond sales for the Tokyo-based builder, Bloomberg data show.

``In the past, we weren't invited to even handle share sales in which our banking units were the seller,'' Azuma said. ``Now we are handling such sales and that's a sign we're gaining the trust of companies that borrow from Mizuho's banking units.''

Azuma invited about 20 of his colleagues for a beer party to celebrate the completion of the Taisei share sale, the first such celebration since his appointment, he said in an interview.

Mizuho Securities hasn't always won the deals in which it had an advantage. Mizuho and other shareholders sold 43.2 billion yen of shares in Sharp Corp., the world's largest maker of liquid- crystal display televisions, in 2002 and Nomura was hired as the main underwriter.

When Mizuho and other shareholders sold 12 billion yen of shares in Advantest Corp., the world's largest maker of memory- chip testing equipment, in July 2002, Nomura was again given the underwriting mandate.

Lost Opportunity

Mizuho has also failed to win Japan's government as a client, missing out on 40 billion yen of privatization fees since 2000 when Mizuho Securities was created.

Mizuho Securities wasn't invited to a round of interviews to choose underwriters to handle a government sale of shares in Central Japan Railway Co., Japan's No. 2 railway operator by market value.

State-controlled JNR Settlement Headquarters, which plans to sell shares in Nagoya-based JR Central, in April invited three Japanese brokerages -- Nomura, Daiwa Securities SMBC Co. and Nikko Citigroup -- and five foreign banks for a round of interviews.

``There was a wide gap between the three Japanese short- listed ones and those which weren't in terms of experience in handling global share sales,'' said Kenichi Oki, vice director in charge of the share sale at JNR Settlement Headquarters. He wasn't more specific.

Bullet Train

Nomura and Zurich-based UBS AG, Europe's biggest bank by assets, were hired by Japan's government to sell as much as an 800 billion yen stake in the bullet-train operator. They'll probably share about 9 billion yen of fees, or 1.125 percent of the money raised, based on similar transactions in the past such as a 244 billion yen sale of shares in Japan Tobacco Inc. in 2004.

``It's a matter of time before we win a mandate for a global sale,'' Azuma said. ``We have the ability to do that.''

Mizuho's agreement with Nikko Cordial, Japan's third-largest securities firm, is to reach out to companies that neither institution counts as a client, Azuma said.

``Still, we want to win a mandate for the first global share sale on our own,'' Azuma said.

To contact the reporter on this story: Junko Fujita in Tokyo at jfujita@bloomberg.net

Last Updated: June 19, 2005 19:41 EDT