Mitsubishi UFJ Financial Group Inc (MUFG) 2020 Q4 法說會逐字稿

Thank you very much for waiting. We would now like to start our MUFJ fiscal 2019 investor briefing. First, let me introduce the attendees. Member of the Board, Representative Corporate Executive, President and Group CEO; Hironori Kamezawa. Next, Senior Managing Corporate Executive, Group CFO, Tetsuya Yonehana. And I will serve as the emcee. I am [Kanye] from the IR office, Financial Planning division.

Now about the proceedings today. We will first give a presentation covering the overview of the results for about 30 minutes. After that, we will be taking questions. The total time for the session is scheduled for about 1 hour and 15 minutes.

Before we start the briefing, let me give you some reminders. In the briefing, we may make future forecasts based on current outlook, but they are all accompanied by risk and uncertainty. Please be aware that the actual results may differ from the forecasts.

Now we will start the results briefing. Mr. Kamezawa, please.

Good morning. I assumed the Office of Group CEO this past April. My name is Kamezawa. Thank you very much for joining us for this MUFG briefing out of your busy schedules. This is the first results briefing for both myself as well as for Mr. Yonehana, the CFO. We would have very much liked to see you face-to-face. But unfortunately, because of the prevailing situation, we decided to hold this briefing in a conference call format.

Please look at the material entitled Fiscal 2019 IR presentation.

Please go to Page 3. These are the key messages that I want to deliver to you. First, the results. Fiscal '19 net profit regrettably is behind the target announced last year, due mostly to onetime amortization of goodwill of our overseas investments. Fiscal '20 target is set at JPY 550 billion after making certain assumptions for the business environment, which I will talk about later on.

The second is my management principles as CEO. Since this is my first investor briefing as CEO, I would like to talk about my views as well as my policy going forward. Broadly, there are 2 points. First, in responding to COVID-19, we will do our best in fulfilling our social mission, which is provision of financial services, including financing and settlement. In order to sufficiently meet financing demand, we would like to maintain soundness of our capital. This is one big point. Next, strategic emphasis. Given that COVID-19 is likely to accelerate changes in trends in the society, I will talk about our priority strategies.

Number three, our major existing initiatives, shift of sales channel, cost control and risk-weighted assets control. These are existing initiatives. I will talk about these later on. But in terms of securing our resilience, they are important, and we would like to accelerate them further. I will talk about them as well.

Number four, capital policy. Fiscal '19 dividend is in line with our dividend forecast announced 1 year ago at JPY 25, up JPY 3 year-on-year. Fiscal '20 dividend forecast is the same level as fiscal '19 at JPY 25.

Please go to Page 6, fiscal '19 financial results. Line 1, gross profit. They are up JPY 260.5 billion year-on-year at JPY 3,986.3 billion. There are 3 major factors: one is increases in global markets related revenue; second is consolidation of Bank Danamon; third is consolidation of an Australian asset management company, First Sentier Investors, or FSI, pushing up gross profits year-on-year.

Line 2, G&A expenses. They are also up year-on-year, led mostly by the consolidation of the 2 entities I mentioned. They are up by JPY 154.7 billion. As a result, net operating profits increased by $105.8 billion to JPY 1,184.4 billion. Ever since the introduction of negative interest rate policy by the Bank of Japan, net operating profits have been in a declining trend. But this time, they turned upward for the first time in 5 years.

Items below net operating profits. As I said at the outset as well as in our news releases, there was onetime amortization of goodwill of Bank Danamon and the Bank of Ayudhya. Also until last year, there were large amounts of write-backs of loan loss reserves. But in the absence of such a factor, profits attributable to owners of parent was down JPY 344.5 billion year-on-year at JPY 528.1 billion.

Please go to Page 7, financial targets. Fiscal '19 ROE was very low at 3.85%. Expense ratio was 70.2%. CET1 ratio on a finalized Basel III reforms basis was 11.7%. Now fiscal '20 targets, including ROE, it appears that it will be very difficult to achieve these targets. This year is the final year of the current mid-term plan as well as the year to develop the next mid-term business plan. In light of the COVID-19 impact, outlook is quite uncertain, but we would like to make tireless efforts towards achieving our targets.

Next, please go to Page 8, profits attributable to owners of parent. As the bar chart on the left shows, fiscal '19 net profits declined sharply, but this is due in large part to onetime amortization of goodwill.

As for reasons why targets were not achieved, please look at Page 9. There are 3 factors listed here. First one is onetime amortization of goodwill. The impact was JPY 343.3 billion. The breakdown is as provided in the table. The second one is equity, a sharp drop in the stock market at the end of the fiscal year led to impairment losses on our equity holdings as well as write-downs of Security Bank shares. A total of about JPY 65 billion of losses were booked. The third one, credit costs. These are precautionary credit costs. For industries that are likely to be hardest hit by COVID-19, we decided to make precautionary provisions.

Please go to Page 10, net operating profits by business group. As shown in the step chart on the right, profits from customer segments grew for 2 consecutive periods in a row, led by GCB, Global Commercial Banking, that had consolidation of Bank Danamon. But as is indicated, net operating profits, excluding foreign exchange impact, were positive for both JCIB, which is domestic corporate business, as well as GCIB. As for the details of the results of each business group, they are shown in the appendix of the material for your reference.

Please skip 1 page and go to Page 12, balance sheet. As the blue bar graph on the right shows, loan balance increased towards March end, due in part to financing support amidst COVID-19. The yellow bar graph in the lower right-hand corner shows deposit balance. Domestic corporates and individuals and overseas deposits are all maintaining growth trends.

As for the breakdown, Page 13, domestic loans. The line graph in the upper right-hand corner, deposit lending spread continues to shrink, albeit moderately, as the low interest rate environment continues.

Page 14, overseas loans. The bar graph on the left, the loan balance itself is up due to Bank Danamon, of course. But even without that element, it was higher year-on-year. The line graph in the upper right, this green line, deposit lending spread on a nonconsolidated basis. There was a emergency rate cut in the U.S. in the beginning of the year. And in response to the lowering of rates in the U.S., the spread became tighter. This is because lending rates reflect the change first. The line graph in the lower right shows net interest margin at partner banks. The top 1 in orange is Bank Danamon. It is up due to growth in low interest rate deposits. The middle line in yellow is the Bank of Ayudhya. Because of a rate cut by the Central Bank, it is down slightly. The bottom line in blue is MUAH in the U.S. We have been working to replace the portfolio with higher yielding assets to improve net interest margin. It is gradually producing results, and the margin is rising slightly.

Next page, investment securities. Please look at the table on the right. Line 1, the left column is the balance and the right column is unrealized gains. The total balance was up by about JPY 1.6 trillion, mainly due to an increase in foreign bonds in Line 5, unrealized gains or losses on the right. Line 2, domestic equity securities declined by JPY 620 billion due to a drop in the stock market. On the other hand, Line 5, foreign bonds increased by about JPY 560 billion. So together with domestic bonds in Line 3, unrealized gains of bonds as a whole were in excess of JPY 900 billion.

Please skip 1 page and go to Page 17, non-Japanese yen liquidity. On the left, as the balance sheet shows, the loans are being funded by stable customer deposits as well as mid- to long-term market funding. So we have stable funding.

Let me talk about the current position. Please look at the line graph in the upper right. This is the loan and deposit balance over fiscal year-end. The blue line on the left is loans. It increased due to usage of commitment lines at the fiscal year-end. But currently, it is stable and the curve is flat. The yellow line on the right is deposits. Here, again, it declined temporarily towards March end, but now it is turning upward. The loan deposit gap is in a narrowing trend. So overall, there are no major concerns in our non-Japanese yen liquidity.

Next page, risk-monitored loans. As the graph indicates, because of consolidation of Danamon, total amount as well as the ratio are slightly going up. But still, they are kept at a low level. The balance is about 2/3 of the level at the time of the Lehman crisis at the far left. For domestic, it is less than half, as you can see.

Page 19, credit costs. The graph is chronological. Please look at the far right, the second bar from the right. This is fiscal '19. The amount is JPY 222.9 billion. And the credit cost for fiscal '20, the red block, represents the COVID-19 impact, and JPY 200 billion is the amount being estimated. The total is JPY 450 billion. I would say that there is roughly an even split between domestic and overseas. At the bottom of the slide, we are showing the difference from the time of the Lehman crisis. This is a point that is often asked, so we included it in here. A big difference from the time of the Lehman crisis is, for domestic, for the real estate business, the quality of our portfolio has been greatly improved. And as for micro business loans, the so-called model credit screening business, this has been greatly reduced, and the balance is now less than 1/10. Also, in consumer finance, regulation on total lending limits has now been introduced and loss from interest repayment claims have already been covered by provisions. So this is another major difference.

On the other hand, overseas, these are investee companies in our Asia strategy. And including their portfolio, the loan balance is higher. I will talk about this later on. Overall, we are not projecting to book credit costs similar to the levels of that Lehman crisis. For fiscal '08, fiscal '09, in the upper graph, the numbers are JPY 570 billion or JPY 760 billion. Our view is that the credit costs will not reach that level.

Next, Page 20, specific credit portfolio. Overseas as well as the main ones are listed here. There are other industries impacted by COVID-19, but these are the ones that we get asked the most. First, upper left-hand corner, energy and mining. Currently, the exposure has been reduced to JPY 7.9 trillion. Four years ago, the balance was JPY 10.4 trillion and the quality of the portfolio has been improved.

Upper right-hand corner, air transportation-related. In November of last year, we acquired assets from DVB Bank, so the total exposure is up. But as you know, in Aviation Finance, bulk of transactions have collateral and guarantees. But of course, the biggest risk is the value of that collateral going down. So we want to stay vigilant. The bottom of the page, partner banks balances. January to March, first quarter numbers are shown here.

Line 2, NPL ratio. Generally, they maintain a favorable position against their local peer banks. And credit costs at the bottom. Introduction of CECL, or Current Expected Credit Loss model, has started from this period. This is the new U.S. accounting standard. And credit cost that factor that in are shown here, and the total comes to JPY 90 billion. This is a very large number compared to the traditional average, but this is a method to estimate credit costs with future expected losses, and that is why it is up. And this is reflected in this year's credit cost forecasts.

Please go to Page 21, capital. In providing support to our customers with financing and with the impact of downgrades, our risk-weighted assets may go up, but we believe that we can maintain sufficient level of capital.

Please go to Page 22, fiscal '20 targets. With this COVID-19, it is very difficult to make projections. But by making certain assumptions, we set our profit target at JPY 550 billion.

Let me talk a little bit about the impact. Line 1, net operating profits. The impact is about JPY 300 billion. This is due to lower rates, stock market declines, the so-called market changes, also due to a slowdown in economic activity and the resultant decline in the amount of business. We are estimating a 50-50 split between them, and the amount is JPY 300 billion. The items below net operating profits, we are also looking at a negative impact of JPY 300 billion, of which credit cost impact is projected to be JPY 200 billion. As a result, the impact on profits attributable to owners of parent is a negative JPY 420 billion. In these times of uncertainty, if there arises a need to amend our targets, we intend to promptly make an announcement.

Please go to Page 23. This is about the assumptions we used for the targets. At this point in time, it is difficult to make projections. But we used the IMF World Economic Outlook baseline scenario announced in April as a reference and made certain assumptions. There are 4 points as shown in the lower left-hand corner: depth of decline, longevity of deterioration, recovery pattern and timing of recovery. As shown on the right, these assumptions were made in coming up with the numbers that we did. But of course, uncertainties remain. So we will be conscious of downside risk, and we will continue to be alert in managing our business.

Next, I would like to briefly explain about the management principles as CEO. Please go to Page 25. As the impact of COVID-19 is at large, we are reconfirming our responsibility to continue supporting our customers and society through financial services, placing top priority on ensuring the safety of all of our stakeholders and maintaining stable financial services. As stated on the bottom of this page, 180,000 employees of over 50 countries around the world are conducting business operations with originality and inventiveness. Through these responses, I myself is once again feeling the weight of our responsibilities and societal responsibilities.

Please go to Page 26. As you can see, we have been rapidly responding with the measures you see here. With regards to branch management, we dispatched over 1,000 personnel from the head office to support the branches. Therefore, all of the domestic branches of both bank and trust bank did not have to put a stop to their operation. Secondly, COVID-19-related loan consultations have exceeded 10,000 cases, and we probably provided approximately JPY 2.5 trillion of loans. As for digitalization and non face-to-face transactions, which I will explain later, there was a rapid increase in non face-to-face customer channels. With regards to social contribution, we place importance on this. Therefore, we are providing donations, support and others to medical institutions, students and art-related activities. These are the areas which as CEO work done as priority matters. However, from the next page onwards, I would like to briefly explain the management policy moving forward.

Please go to Page 27. First, I will explain about our view on the world in an organized way. As shown on the left-hand side, the social structure has been largely changing even before the COVID-19 pandemic, and we recognize that whatever in here, such as low interest rates, digitalization, stakeholder capitalism as well as work-style reform have accelerated as we responded to COVID-19.

As previously explained, non face-to-face services or remote working has penetrated into our society at a faster speed than as ever before and has been diversifying the way we work as well as our values. With regards to S, social issues in ESG, awareness towards contributing to society has heightened to a level that has never occurred. In the midst of such large changes occurring in the society, various things are expected from financial institutions such as us. However, if I may summarize this in a simple way for myself, the important themes are response to societal digital shift and contribution to solution for social issues, as stated on the bottom. And these themes are 2 major ones.

Please go to Page 28. I would like to elaborate on the two, which I just mentioned. The left-hand side shows the societal digital shift. We consider this as a major change that will be irreversible and accelerate even more due to COVID-19 pandemic. As stated on the left, we believe that innovation is required for MUFG's whole operations such as responses to non face-to-face, paperless, no personal seals as well as physically going to the offices. As for the right-hand side, solutions for social issues, key points are stated here. We are working on combining solving societal issues with MUFG's strategy. However, it is important to further combine the two. Moreover, though this overlaps with digitalization, as a company that takes responsibility of the social infrastructure, it is important to synchronize our growth with the overall structural changes or contribution changes occurring in the Japanese society through our efforts such as authentication and no personal seal.

Please go to Page 29. This is the total strategic picture. The assumption here are the matters that were just mentioned. However, to begin with, we have been carrying out the existing strategies that reflected the conventional mega trend or social environment such as reorganization of business groups as well as digitalization and overseas. To this, the large wave of changes occurring in the society, as mentioned previously, and themes for financial institutions were added. And issues that we face have occurred. Therefore, we would like to proceed in working on the strategic emphasis you see on the bottom side and continue implementing existing initiatives.

In fiscal year 2020, there are many existing strategies. There are many that we need to proceed, and therefore, we will, of course, proceed on them. However, from a mid- to long-term perspective, what key points do we need to pay attention to will mainly be the strategic emphasis. Therefore, I would like to explain about those strategic emphasis on Page 30. I will briefly explain the management policy that will move forward these strategic emphasis as well as connect the social structure changes to our growth opportunity.

There are 3 key words that are written in red at the top, namely digitalization, business resilience and engagement. The first means to digitalize the company core. We do think that the balance with reality will be very much necessary. However, it is the first to be stated responding to society's shift towards digitalization. Second is focus on business resilience. This is something that was reconfirmed once again during the current crisis. We would like to be trusted under any circumstances. We will secure the soundness as a financial institution and strategically allocate our management resources to areas where we hold our strengths in.

Lastly is engagement centered management. In the midst of companies and individual employees being required to largely change, we would like to place importance on empathy towards the direction of transformation. We would like to create an attractive company where there is empathy amongst employees, organization, customers as well as with society, and where everyone can feel that they are participating.

These are the management policies, and I would like to place importance on policies that are practical and specific. Therefore, the 3 strategic emphasis represents initiatives that are based on the policy, which I would like to consider them as priority and proceed in a hands-on manner.

First of all, regarding the bottom left, digitalization of domestic retail business. This is closely related to the first point of the management policy. Through digitalization of customer interface as well as middle and back office and smartification, our goal is to lower the breakeven point of domestic retail business, which consists a large portion of our overall businesses. Of course, at the same time, it is responding to the social digitalization and shift to digitalization.

The second is reshaping global strategy. This is related to the second management point of resilience. Being impacted by the recent COVID-19 pandemic, we will identify the growth potential and strength of each region and optimize the allocation of management resources. Moreover, in Asia, we will put efforts in taking on the challenge of providing next-generation financial services through our collaboration with Grab.

The third is business infrastructure, process innovation. This has a relevance to company culture reform. We will proceed in improving the efficiency through changing the administrative processes to become paperless and halting personnel seal use and further move forward in developing an environment and platform, which reflects the diverse values and work style of our employees.

At the bottom of the slide, 3 of the major existing initiatives are listed. Shift of sales channel relates to digitalization, and cost control and risk-weighted assets relates to resilience. Therefore, we will continue to work on them as our major focus initiatives. Up to here were my management policies as CEO.

Now I would like you to skip a few pages and go to Page 32. Here, I will explain about the existing initiatives that I explained before.

Please go to Page 33. As for expanding the functions of smartphone apps and others, which we were focusing lately, please look at the far right column. You can see the progress of the efforts put into online functions that were mentioned at the beginning. Especially, second from the bottom on this chart, change of address, and the very bottom, replacement of unusable cards, the shift has largely increased. Thus, I feel that a major large shift is starting to occur.

Please go to Page 34. Due to the non face-to-face sales channel evolving, administrative processing work at the branch is steadily decreasing and Mitsubishi UFJ Direct is increasing.

Please go to Page 35. This page is about cost control. This is an area of great importance for us. The top left line graph shows the expense ratio of fiscal year 2019. The dotted line shows the assumption that was announced 2 years ago. As you can see, the recent expense ratio is below our assumption due to increase in gross profit and efforts put into keeping down expenses in Japan and overseas. However, we are aware that further curving of expenses is necessary.

Looking at this by business group. Due to the consolidation of Bank Danamon and FSI, the 2 business groups, namely Global Commercial Banking and Asset Management & Investor Services Business Group, shows a large increase. However, on the other hand, domestic retail and commercial banking is progressing in curbing expenses. The operation policy for fiscal year 2020 will foresee post COVID-19 and select necessary investments while reexamining how the business operations and process should be like as well as further reduce expenses.

Next page, Page 36 shows the review of domestic headcount and branches. As I have been explaining from before, this is progressing as expected due to placing control and the hiring number and requirement and stages of employees that were higher during the period of hiring in large numbers. With regards to branches, review of the network has progressed and the plan until fiscal year 2023 has increased to 40% from the original plan of 35%.

Please go to Page 37. This is regarding risk-weighted assets control. Please look at the left-side chart. Due to the consistent efforts by business groups and sales front, reduction of low profitability assets and equity holdings is progressing. We are also working on the update of risk measurement methods, and we are able to achieve an overall reduction of approximately JPY 9 trillion. The operational policy for fiscal year 2020 is providing support to our customers, which is recently the utmost priority, and maintaining soundness through risk-weighted assets control.

From Page 39 is regarding capital policy. The basic policy of capital triangle has not changed even when I assumed the position of CEO.

Please go to Page 40. This shows the actuals of capital allocation of fiscal year 2019 and the fiscal year 2020 outlook. Here, we are showing the increase and decrease of finalized Basel III reforms basis CET1 ratio. Fiscal year 2019, we have utilized our capital for 2 large strategic investments, namely Bank Danamon and FSI. We were able to have control on risk-weighted assets. Therefore, we generated increase in our capital due to the risk-weighted assets reduction effect through the upgrade of our risk measurement methods. As a result, finalized Basel III reforms basis CET1 ratio was 11.7%, and we were able to improve it by about 30 basis point. Fiscal year 2020 will use some of the capital due to the impact of release of special provisions of the Morgan Stanley investment. In addition, there is a possibility that risk-weighted assets will increase due to the increase of loans as part of supporting funding needs for responding to COVID-19 as well as downgrade and others. However, we will continue to conduct an efficient risk-weighted assets operation and maintain capital soundness.

Please go to Page 42. This is regarding shareholder return. There are no changes in the policy of putting efforts into fulfilling shareholder return basically through dividend and would like to increase the payout ratio up to 40%. Year-end dividend of fiscal year 2019 is JPY 12.5 and as forecasted at the start of the fiscal year. The total annual dividend will be JPY 25, which is a JPY 3 increase. The payout ratio for fiscal year 2019 is 61%. However, actual payout is 37% when you exclude the lump sum amortization of goodwill, which does not impact the regulated capital. Based on the assumption that performance target is JPY 550 billion and from the perspective of maintaining stable dividend, fiscal year 2020 dividend forecast is JPY 25, same as fiscal year 2019. Furthermore, as for share buybacks, we will defer on it this time. For the time being, we will place utmost priority on supporting the funding needs of our customers. However, at the same time, we will thoroughly control our risk-weighted assets and put efforts in securing buffer capital.

Please go to Page 43. Last part is regarding equity holdings. As you can see on the right-hand side, fiscal year 2019 made a reduction of JPY 139 billion based on acquisition price. In line with this, we have recorded a JPY 101 billion net gains. With this, our accumulated selling book value from the start of our selling plan is approximately JPY 733 billion. When added with the agreed amount of JPY 163 billion, the number becomes approximately JPY 900 billion. Therefore, we are expecting to achieve our target of selling and book value accumulated total of JPY 800 billion in 5 years by fiscal year 2020. We would like to also review setting a new target for end of fiscal year 2020 onwards.

This ends the explanation. However, if I may say a few words for closing. During my predecessor, Mr. Muneaki chairman office, MUFG has accelerated its domestic business model of unified operation of bank, trust bank and securities as well as completing acquisitions overseas. In addition, large steps forward were made to the next days such as realizing the turnaround of our operating net profit for the first time in 5 years. I believe that my role as a successor has to put efforts in transforming the group decisively without losing track as well as establishing MUFG to become always needed by society even during times of rapid changes. We will aim to put our utmost efforts in being always trusted by our customers and society under any circumstances by overcoming unprecedented difficulties. Therefore, we seek further understanding and support from our investors and rating agencies.

Thank you. That is all from my side.