Mitsubishi UFJ Financial Group Inc (MUFG) 2024 Q2 法說會逐字稿

I am Kamezawa. Thank you very much for joining us for this MUFG briefing out of your busy schedules. As for our financial results, our CFO, Mr. Yonehana, has already given a presentation in the net conference held a few days ago. So today, I will go over just the highlights of our financial results, and then I'll take you through the progress in our medium-term business plan this year being the final year and talk about our efforts in the area of sustainability.

Please go to Page 6. In the first half of fiscal 2023, Line 6. Net profits were JPY 927.2 billion, a record high for an interim period since the inception of MUFG. Our full year target of JPY 1.3 trillion in net profits as well as an ROE of 7.5% are well within sight.

Year-over-year, profits are up by about JPY 700 billion. There are some onetime factors, including the absence of onetime losses recorded last year associated with the sale of Union Bank as well as change in the closing date in the equity method accounting for Morgan Stanley, but with the enhanced earning power, mainly in the customer segments, our net operating profit posted strong growth. That was the major driving force in setting highest ever results.

We're keeping our full year financial targets unchanged. This is because while net profit show a progress rate of 71% against a target of JPY 1.300 trillion. We have taken into consideration the changes in the external environment towards the fiscal year-end, especially uncertainties in the foreign exchange market as well as the need to work to improve to a certain extent the average cost of our bond portfolio.

In addition to net profits, we aim to achieve the ROE target of 7.5%, which is our biggest commitment in the current medium-term business plan and deliver on our medium-term plan to pave the way for further growth in the next medium-term business plan.

Please go to Page 24, the progress in our medium-term business plan. First, the financials. Profits in the lower left, these figures solidly reflect our efforts in our strategy for growth and structural reforms. The net operating profits in our customer segments increased by more than JPY 200 billion, fully offsetting the drop in profits from the sale of Union Bank. Profits attributable to owners of parent are also higher than the level we initially anticipated in the medium-term business plan.

Next, the expenses on the right. Expenses increased due to business expansion, inflation mostly outside of Japan and yen depreciation, but it is fully under control through structural reforms, including the sale of Union Bank. On risk-weighted assets, we continue with our operation of paying attention to risk and return and control our risk-weighted assets as we grow our net interest income.

Please go to Page 25. On this page, we show the historical trend of net operating profits and components of gross profit since MUFG inception. Until now, in the ultra low interest rate environment in Japan with quantitative easing and negative interest rate policy, yen net interest income in the red line graph have been kept low. Against this backdrop, net operating profits in the bar graph posted a record high. This is due to the growth in non-Japanese yen net interest income in orange as well as the fees and commissions in purple that set a record high. I believe that this is a reflection of our business portfolio that is distinctive to MUFG as well as our earning power, which we boosted in the current medium-term business plan.

Next, on Page 26. Here, we show the growth in our earning power in the current medium-term business plan period, steadily implementing the strategy, the customer segments are driving the growth in net operating profit. Despite the downward impact in profits this year due to the sale of Union Bank and even after excluding the foreign exchange impact, profits grew by about JPY 190 billion in this half year period. With the progress in the strategy for growth and structural reforms, our earning power is steadily being enhanced. From the next page onwards, I will talk about our progress in our key strategies.

Please go to Page 27. The first pillar of our corporate transformation is digital transformation. On this page, I will talk about our efforts to expand our customer touch points. In order to meet the diverse needs of customers, we must find the optimal mix of our branches in digital channels. In the current medium-term business plan, we have been working to add new customer touch points. In our branches, we improved the convenience of our customers by enhancing the functionality of self-service procedures using tablet. Going forward, we will consider developing new types of branches based on changes in foot traffic.

In the digital channel by improving the functionality of MUFG direct Internet banking, we're seeing steady increases in online transactions. We're also enhancing the functionality of our online consultation service that are offered to customers in their home. We will continue to expand our lineup and enhance coordination between different services to further improve customers' convenience.

In addition, to further expand our customer base, we're also working on Banking as a Service, where we will provide our financial functionality through services of external companies. By broadening the functions that we offer, we will try to meet the needs of our partner companies.

On the next page, I'll talk about our effort to become a financial and digital platform operator. The left-hand side is asset building using digital technology. Money Canvas is a service that supports a wide range of financial products, both in and outside of MUFG. The number of products it supports and the number of users are both steadily growing.

Going forward, we will be offering this functionality to the services of external companies as well. We will help more people build their assets, including those to whom we do not have direct access. Progmat on the right-hand side is a platform to enable distribution of assets such as real estate and corporate bonds in the form of small [lot] digital securities. So far, it has steadily grown the balance of assets managed, driving the development of the security token market to become the national infrastructure of the digital asset market and to facilitate cross-sectoral co-creation, the company was spun out in October as Progmat, Inc.

Page 29 is about incorporating external knowledge and technology. The left side of the page is about incorporation of new technology. At MUFG, we have formed a project team that cuts across the group to conduct studies for early practical application of generative AI technology. Going forward, we'll check its utility and safety through demonstrations and plan to deploy it in our internal operations.

In future, rather than completely automating our operations with AI, we aim to create an environment where technology will work with our people to perform the tasks and bring about the transformation in our operations. The right side is about supporting start-ups through financing. Mars Growth Capital provides financing to start-ups using AI and has steadily built up loan balance outstanding by leveraging the expertise in AI models that the company has accumulated, Mars Equity Fund was newly launched this time. MUIP has been making strategic investments to start-ups in Japan and abroad through Fund #1 and 2 as well as through Garuda Fund, which specializes in Indonesia. Now a JPY 20 billion fund #3 has been newly established. Through these programs, our investment to start-ups now totals JPY 640 billion. We will continue to support the growth of start-ups in Japan and abroad through equity as well as debt financing.

Please go to Page 30. Transformation of corporate culture, which is one component of our corporate transformation. As a result of various initiatives shown on the left, we're encountering more and more instances where our customers and investors tell us that MUFG has indeed changed. The mindset of taking on the challenge is now permeating through the organization. In this era of change in order for us to grow to become a company that proactively takes the initiative to lead the society, we will implement reforms with emphasis on speed and agility in the next medium-term business plan to the values we hold at MUFG of integrity and responsibility, professionalism and teamwork, growth and challenge, we will now add agility.

We will put in place a structure where each one of our employees will think for oneself, will take decisions on one's own initiative and put them into action at once. We will aim to cultivate the culture to build a new and strong MUFG with integrity, responsibility and agility.

Page 31 is about the progress in our strategy for growth and structural reforms. Our targets have been JPY 150 billion for strategy for growth and JPY 100 billion for structural reforms. The left graph is strategy for growth. It has increased to JPY 540 billion far exceeding the target. Of the 5 strategies, let me elaborate on the ones that drove this increase. The approach of proposing solutions to customers' issues and GCIB in global markets. The second bar from the left, in approach of proposing solutions to customers' issues, profits are growing, mainly driven by improved margins in loans and deposits.

For further expansion of business opportunities, we're actively providing support to our customers in addressing their business issues through enhanced risk taking, including launch of mezzanine debt funds or provision of new financing schemes. The fourth one from the left, GCIB in Global Markets, we are steadily growing institutional investors business that has higher profitability. And by expanding fee income through distribution of project finance, cross-sell of foreign exchange and derivatives, we are steadily growing our profits. We are steadily growing our profits. The right-hand graph is structural reforms with expense controls and with the sale of Union Bank, we have produced results that now exceed JPY 200 billion.

Please go to Page 40. Here, I talk about our strategic alliance with Morgan Stanley. In order to continue to provide high value-added services to our customers, we will deepen our 15-year-long strategic alliance with Morgan Stanley into Alliance 2.0. and even stronger partnership that will continue for decades into the future. We have already expanded our areas of collaboration from investment banking, wealth management to asset management.

Going forward, in addition to deepening our collaboration in existing areas, we will be collaborating in new areas. We will aim to become the top securities company through our 2 joint ventures, Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities combined.

Next, on Page 41. I will talk about the initiatives to build a strong asset management industry in Japan. First, on the left side, strengthening investment capabilities and ensuring transparency in governance in the asset management area. We are reviewing our compensation system to be able to secure high-quality talent in this area and we have decided to reorganize the capital structure of Mitsubishi UFJ Asset Management and brought it directly under the holding company. As for new NISA, we're working to enhance the lineup of eligible products. Mitsubishi UFJ Asset Management got a top share based on the balance of eligible installment-type products.

We are steadily producing results. The middle column at the bottom is our efforts in financial and economic education. To contribute to enhanced financial literacy in Japan, we are teaching class and providing educational material to elementary school students to university students. The right column is enhancement of functions in the asset administration area. We were ahead of others in launching single-party net asset value calculation. We are working to improve efficiency in the asset management industry by enhancing and improving the leading asset management and asset administration functions that MUFG has in Japan. We will contribute to the government's initiative to build a strong asset management industry in Japan.

Page 42. Here, I would like to touch upon the status of development of our next medium-term business plan. Under our purpose committed to empowering a brighter future, we said that the current medium-term plan period is to be 3 years of challenge and transformation. Corporate transformation, strategy for growth and structural reforms were identified as the 3 pillars of our strategy and various initiatives were implemented.

As social fragmentation is accelerating and business environment is changing greatly, in our next medium-term business plan, while we will maintain the thrust of the policy of the current plan, we want the next 3 years to be a period where we will go to capture growth proactively and with agility. Specific strategies are currently under discussion, but we will continue with our purpose-driven ROE-focused management.

In order to ensure that our growth will be sustainable, we want to work on investment for growth and strengthening all our business infrastructure. In the era of increasing fragmentation, leveraging the power that finance and digital technology have to connect the world, we will make a group-wide effort to create a better society and to empower a brighter future for our customers, investors, employees and all of our stakeholders.

Please go to Page 49. I will talk about our shareholder return for this period. Our CET1 ratio at the end of September was 10.5% on a finalized Basel III reforms basis, excluding unrealized gains, this exceeds our target range. We kept annual dividend per share unchanged from our initial forecast of JPY 41, which is an increase of JPY 9 from last year. And from the viewpoint of efficient capital management, we decided on a share repurchase of up to JPY 400 billion, which is an all-time high for an interim period.

Page 50 is about our equity holdings. As shown on the right, in the first half of fiscal 2023, we reduced our holdings by JPY 55 billion on an acquisition cost basis. Cumulative amount sold since fiscal 2021 is JPY 379 billion. Combined with JPY 127 billion for which we have obtained agreement to sell, we now have prospects of achieving the JPY 500 billion reduction target in the medium-term business plan.

Please go to Page 52. From here on, I will talk about our sustainability initiatives. Left-hand side, sustainable finance, we're seeing steady increases in the cumulative balance of JPY 27.7 trillion. In this interim period, as shown in the cases below, we are engaging in highly advanced and visible financing. The right-hand side are investment cases. In addition to investments in renewable energy and carbon credit related business, we are expanding our support for innovation that would help achieve carbon neutrality.

Page 53 is about publishing our positions and our initiatives in rule-making. As shown on the left, we issued our MUFG transition white paper in September this year. We built on last year's content and this year, it covers the technologies required for carbon neutrality in electricity and heat in Japan. In order to improve transparency of Japan's transition plan by issuing this white paper, we're trying to promote international community's understanding of our efforts. As the right-hand box shows, we're participating in multiple global initiatives. We are expanding our activities to proactively engage in the process from the rule-making stage.

Please go to Page 54, our initiatives to reduce GHG emissions. As for the GHG emissions from our financial portfolios, we will be setting new interim targets for Auto, Aviation and Coal sectors, and we plan to complete sector-specific interim targets of NZBA. Next spring, we plan to issue our transition plan. It will cover the initiatives previously disclosed in the progress report as well as risk management and engagement frameworks.

In the upper right-hand corner is our initiative as asset manager. We're making steady emission reductions against the interim target. We have also expanded our engagement targets from 50 companies to 100 companies. Lower right, GHG emissions from our own operations is steadily declining, and we have obtained third-party assurance for our actual emissions last year. We will continue to accelerate our efforts to reach net zero in our emissions from our own operations.

Please go to Page 55, our initiatives in human capital enhancement. To support each and every employee to be successful, we are working on 4 key initiatives, as shown in the upper left. One of them is nurturing professionals and reskilling in the lower left. We will put into place a system where our employees can upgrade their expertise in the business area of their choice. We are providing development and reskilling opportunities. We are also proactively hiring professional talent from outside and the number of mid-career hires has doubled year-over-year.

In the upper right-hand corner, promotion of DEI. Let me talk about our program to increase the ratio of women in management. First, we have a program where our offices become mentors to women in management, and the number of participants is increasing every year. Also targeting at all general managers, we are organizing forums to deepen people's understanding on the importance of developing and promoting women. We are working to make this idea of women's advancement to take root in our culture.

Please go to Page 56. To contribute to solving societal issues, we are working on employee participation-based social contribution activities that go hand-in-hand with our business activities. In the MUFG Kogei” Project, we are supporting preservation and handing down of craftsmanship and culture. The craft culture is one that continues to innovate while protecting tradition. We hope to get some clues on how one can continue to grow in times of big change and to apply that in our own corporate transformation.

We also have program for our employees plan programs, the people in the local community will provide support to the next generation through sports. Through various social contribution programs, we will put our purpose committed to empowering a brighter future into action. That is all from me.

To our investors and rating agencies, I'd like to ask for your continued understanding and your support. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]