Mitsubishi UFJ Financial Group Inc (MUFG) 2022 Q2 法說會逐字稿

This is Kamezawa. Thank you very much for joining the MUFG IR presentation despite your busy schedule. This session will once again be held remotely. Please have the IR presentation material on hand.

Please turn to Page 6, showing fiscal year 2021 first half financial results and targets. First, on the first half results. Please follow the middle row on the results for fiscal year '21 first half. First line, gross profit came to JPY 1,980.8 billion, down JPY 76.9 billion year-on-year. The major factor for the decline was a recording of substantial gain on sale of securities in treasury in the same period of the previous fiscal year, grasping the changes in the financial market.

G&A expenses, line 2, was up JPY 25.9 billion year-on-year. But if you exclude FX impact of JPY 24 billion, the level was generally unchanged from the previous year. As a result, net operating profits, line 3, was down JPY 102.8 billion at JPY 637.5 billion. But if consideration is given to inter account transfers below net operating profit, including net gains on equity securities and technical factors such as CVA, there was only a slight decrease in real terms.

Below net operating profits, line 4, total credit costs showed reversal on gain of JPY 17.9 billion as a result of reversal on gain at the bank, which recorded substantial expenses in the previous fiscal year and reversal allowance for CECL related to improvement in the economic environment at MUFG Union Bank in the U.S.

There was also an increase in the equity in earnings of equity method investees from our alliance partner, Morgan Stanley, in line 6, recording profits attributable to owners of parent of JPY 781.4 billion, up JPY 380.6 billion, which was a record profit for the first half for MUFG since its establishment. It translates to more than 90% progress against the JPY 850 billion target announced at the beginning of the fiscal year. Based on the progress made in the first half, our decision was made to revise upward the full year profits attributable to owners of parent target by JPY 200 billion to JPY 1,050 billion.

Please turn to Page 7. Net operating profit results by business group. As shown on the step chart on the right, Digital Service Business Group saw a decline in profit due to domestic consumer finance under its umbrella being negatively impacted by declining consumption under COVID-19. And GCB business group impacted by decline in loan balance of the overseas consumer areas and lower interest rate. But these declines were offset by increase in profit of other business groups to record an increase of JPY 45.9 billion for the customer segment as a whole.

On the other hand, Global Market business group, as I touched on earlier, recorded a decline due to rebound from the previous fiscal year. But in market operations, equities and securities are integrated, securing JPY 72.5 billion increase as gains on equity securities for those accounts not included in net operating profits.

Please turn to Page 8. Net income results by business group. In addition to changes in net operating profits, total credit cost reduction and recording of gain on sales of equity related to IPO of affiliated company of KS, the profits were up, except for the Global Markets. For more detailed information of each business group, please refer to Page 9 to Page 13.

Please proceed to Page 15, balance sheet summary. Top right red bar graph, loans declined JPY 2.9 trillion as domestic corporate loan was lower year-on-year by JPY 1.6 trillion due to large repayments related to COVID-19 measures and JPY 0.9 trillion decline in overseas loan. On the other hand, the bar graph in yellow, deposits, period end balance, domestic corporate deposit declined. But domestic individual deposit increased by JPY 1.5 trillion, resulting in a year-on-year increase of JPY 0.7 trillion.

Page 16 shows domestic loans. Domestic corporate lending spread, as shown on the bottom-right line graph, SME lending spread bottomed out, while large corporate lending spread show steady improvement.

Next, overseas loan on Page 17. Top right, the yellow line graph is a deposit lending spread for both the bank and the trust bank, which had expanded due to lower deposit rate. The lending spread bottom left is continuing to increase steadily.

Page 18 is a non-Japanese yen liquidity. As the top right gray bar shows loan-to-deposit gap has shrunk substantially. Accordingly, we are reducing mid- to long-term market funding, including yen investment, leading to suppression of cost of foreign currency funding.

Page 19 shows investment securities. Please look at the table on the left. Unrealized gains on AFS securities increased primarily due to increasing market value of domestic equity securities, line 2. Together with higher interest rate, unrealized gains on domestic bonds and foreign bonds declined, but others, excluding domestic equity securities has maintained unrealized gains of more than JPY 300 billion.

Please turn to Page 21 for credit costs, risk-monitored loans. On the left, total credit costs improved significantly with JPY 17.9 billion of reversal gain from JPY 258.4 billion recorded in the first half of the previous year, with improvement of portfolio of the bank and economic indicators in the U.S., leading to a decline in allowance for doubtful accounts of MUFG Union Bank. Fiscal year forecast of total credit cost is revised to JPY 150 billion in light of the interim results, the balance of risk-monitored loans bottom right, saw a slight decline year-on-year with risk monitored loan ratio, the red line graph continuing to stay at a low level.

Page 22 shows the capital situation. Bottom left, the CET1 ratio, finalized Basel III reform basis, excluding unrealized gains, was 10.4% at the end of September, continuing to secure an adequate level.

Starting from Page 24 is the progress of the medium-term business plan. First, progress against the financial targets. As for ROE, CET1 ratio with financial targets were at 10.91% and 10.4%, respectively, for the first half. The progress of the 3 drivers to achieve ROE target in fiscal year 2023, namely, profits, expenses and RWA is shown in the bottom half of the slide.

Profits, bottom left, as explained earlier, net operating profit was down from the previous year. But in the customer segment, centered around the growth strategy areas like Wealth Management and Global AM/IS was up JPY 45.9 billion year-on-year, showing steady increase in the profits attributable to owners of parent. I will explain in detail the status of expenses in RWA letter, but we can say that they are well controlled against the plan.

Next, I would like to update you on the progress of the key strategies under the 3 pillars of MTBP, namely corporate transformation, strategy for growth and structural reforms. First, digital transformation under corporate transformation.

Please turn to Page 26. I would like to introduce you to a new service, which came about through collaboration with external businesses. On the left is a service for individual customers. In December of this year, we will launch Money Canvas, an asset management platform. With Money Canvas overcoming the framework of the MUFG Group in collaboration with other financial institutions and fintech companies, you can choose from a wide range of financial products, asset formation solutions tailored to your needs and combine them on your mobile phones. On the right is a new financial service for the corporate customers. With Money Forward, we established this forward in August. We are planning to offer online factoring to SME customers before the end of the year.

Page 27 shows some of the initiatives to become a financial and digital platform operator. On the left is digital transformation support for our customers. Our decision has been made to make business deck a consolidated subsidiary of the bank. It offers problem solving platform, Busikul, for companies promoting digital transformation. Through Busikul, we'll be offering digital transformation solutions to various managerial challenges to establish a position as the unparalleled digital platform operator among the Japanese banks.

Progmat, top right, is a platform service that issue and manages security tokens using blockchain technology. And as the first Japanese bank, we publicly issued security tokens backed by real estate. ID-linkage services, bottom right, allow services via the use of Mitsubishi UFJ direct accounts to log into online services provided by outside businesses, also a first for a Japanese bank. Its biggest feature includes authorization functions that satisfy security standards of financial institutions and to gain reliable personnel verification data.

Page 28 shows initiatives of open innovation. Top left, we have made strategic investments into more than 20 domestic and overseas fintech companies through the MUIP No.1 Fund as part of investments in start-ups. The valuation of the industries far exceeds the invested amount. And as shown bottom left, collaboration is evolving further. With such track record, we established No.2 fund totaling JPY 20 billion in July. We will continue to expand the scope of investment in ESGs, SDGs and European innovation involving our customers further.

Top right is a start-up financing, utilizing AI in Asia. We have received inquiries from numerous companies and further expansion of the business is expected. Therefore, we increased the size of the fund to $200 million. We are also planning establishment of new funds targeting new customer segments. Bottom right shows our collaboration with Grab. In Thailand, KS is building up small lows, meeting the financial demands of customers during the COVID-19 pandemic, while in Indonesia, BDI launched Co-Branding Credit Card.

Page 29 shows transformation of corporate culture. We enacted MUFG way with a core message from our purpose studies committed to empowering a bright future. For its implementation, starting from myself to the executive officers, then executive officers to the managers of branches and other business bases, we are holding MUFG Way integration sessions. With each employee linking MUFG Way to their tasks and actions, they are urged to review the meaning of what they do while deepening mutual understanding.

Please look at some of the examples of our employees taking on challenges and implementing them on Page 30. On the left is a new business proposal system. Employees are encouraged to think outside of the box and propose projects to create new businesses or to improve their work, showing some of the proposals that were adopted. But even for those whose ideas were not adopted, we evaluated highly their challenges. And through roundtable meetings between applicants and executive officers, including myself, we are working on enhancing employee engagement. As shown on the right, initiative is promoted by business groups to help all employees ranging from juniors to executive offices to freely voice their opinions, not bound by their positions.

We are also providing Open EX, secondment of employees to other entities outside of MUFG to gain exposure to other cultures. Through such challenges, we are supporting autonomous career building of each employee.

Page 31 shows strategy for growth. The second pillar of the key strategies. First, on the progress of net operating profit, which declined due primarily to market factors in the first half, but is showing good progress towards the MTBP target of JPY 150 billion for strategy for growth and JPY 100 billion for structural reform, including cost reduction.

From Page 32, I will explain the progress of the 5 strategies for growth. First, on Wealth Management. Both gross profit and net operating profit for the first half recorded increases year-on-year. Bottom left shows progress of key strategies. We are advancing steadily enhancement of businesses with large asset owners. As for human resources and infrastructure, we have positioned Wealth Management specialized staff at the bank. And starting in the second half of fiscal year 2021, using the Wealth Management digital platform, we will start approaching customers, families and affiliate companies totaling 1.65 million.

On the right shows a cross transactions of entrusted testamentary trust and real estate and asset management, steadily increasing the number of GMAP users as well as the balance of investment assets. We will continue to enhance collaboration among the bank, trust bank and securities and further penetration of the advisory model.

Page 33 shows a second strategy for growth, approach of proposing solutions to customer issues. As shown top left, gross profit and net operating profit of corporate banking business group recorded year-on-year growth as well as steady improvement in the lending spread. As shown on the right, efforts to promotion of ROE-focused initiatives in each one of the projects are reflected in the improvements in lending spreads of new loans. Real estate business, one of the revenue drivers is also showing growth.

In sustainable business shown bottom right, the underwriting amount of green bonds was #1 in Japan. We made new investments in the largest hydrogen fuel station operator in California, further enhancing our initiatives to realize a decarbonized society.

Page 34 shows the third strategy for growth, the Asia business. The GDP growth rate in Thailand and Indonesia is expected to deviate downward from initial assumptions due to a new wave of COVID-19. However, we are seeing signs of recovery towards fiscal year 2022, for example, in new automobile sales in Indonesia. We are continuing supporting growth of BDI as shown on the right. Our collaboration framework is established between MUFG and BDI. And with effective approaches made to our customers, we are seeing expansion in the number of transactions. By transferring knowledge and know-how of KS to BDI, we're enhancing initiatives, especially in housing loans and auto loans.

Fourth strategy for growth, GCIB and Global Markets is shown on Page 35. Disciplined transaction screening, business expansion for institutional investors and reversal of credit losses all contributed to ROE improvement for the first half at 6.1%. As seen in the rise of institutional investor portfolio ratio, bottom left, we are steadily growing transactions with institutional investors. MUFG's market share in both Syndication and DCM wallet rank for IG and NIG is growing as shown top right. On the other hand, in the first half is global stagnation, foreign exchange, rates businesses struggled, but GCIB and Global Markets will work together to explore new business opportunities.

Page 36 is a fifth strategy for growth, Global AM and Global IS. Asset management and investor services, both showing steady progress against the MTBP initiatives with solid KPIs. In Global AM with robust performance of infrastructure fund of FSI, net operating profit grew significantly. In Global IS, we will continue to expand added value services, for example, fund finance and fund effects. And will further pursue synergistic effect with asset management business.

Page 37 is collaboration with Morgan Stanley. Examples of success cases in investment banks and Wealth Management are shown. I touched on it earlier, but on the right, this is a unique digital platform of MUFG developed using Morgan Stanley's know-how for Japanese customers. As explained earlier, it has already been pre-released in some of the sites and full-scale launch is planned for the second half of fiscal year 2021. With consolidation of customer information, we will accelerate making group-wide proposals to customers to fulfill their goals.

Page 38 focuses on cost and RWA control under the third strategy for growth, structural reform. We steadily implemented reduction of base expenses centered on reduction of domestic personnel cost. While resources were invested in the growth areas, for example, in global AM/IS, showing strong performances. Expenses stayed almost unchanged year-on-year, excluding the impact of foreign exchange fluctuations, giving us a very good feel. We'll continue in a disciplined manner, reduction of base expenses and investment of resources into growth areas.

Page 39 shows RWA with continuation of disciplined risk asset management. Excluding FX impact, we saw a reduction of JPY 1.1 trillion from the end of the previous fiscal year, while continuously providing appropriate control of the RWA level, we will work on increasing revenue through effective utilization.

Please turn to Page 40. In September, decision was made to sell MUB to U.S. Bancorp to meet MTBP goal of optimal allocation of management resources. Closing is expected first half of 2022. Subsequently, the U.S. business will focus on corporate transactions through collaboration among the bank, the trust bank and the securities as well as a strategic alliance with Morgan Stanley and through capital and alliance with U.S. Bancorp. We will continue indirect involvement in retail and commercial banking businesses. The importance MUFG places on the U.S. market remains unchanged.

Please turn to Page 43. I will explain the progress of MUFG carbon neutrality declaration announced in May, starting with measures on net-zero finance emissions. On the left, towards the goal of setting interim targets for 2030, we completed measuring the current emission intensity of the electricity sector. We are also conducting measurement of the oil and gas sectors as well with disclosure plan for next spring. We will set interim targets for electricity as well as oil and gas sectors next spring, and we'll disclose them in the progress report to be published.

The interim targets for other high-emitting sectors will be set and disclosed subsequently, following a scientific approach consistent with the Paris agreement. In addition, as shown bottom right, we joined Net Zero Asset Managers Initiative this month. We will aim for net zero in asset management business by the year 2050.

Page 44 shows decarbonization through financial services. The sustainable finance target, totaling JPY 35 trillion by fiscal year 2030, as shown on the right, we are seeing steady progress with cumulative total reaching JPY 10.4 trillion in the first half of fiscal year 2021. To provide good support of customers' transition, we will focus on engagement activities on a global base. In the first half, we had dialogue with more than 200 domestic and overseas customers, which allowed us to understand their situations and issues.

We'll be utilizing MUFG Group's capabilities fully in providing wide-ranging solutions. On the right, in both solution proposals and rule making, we will support customers' decarbonization efforts. To be more specific, we will take wide-ranging measures, including helping customer measure GHG emissions through collaboration with Zeroboard and development of transition guidelines in Asia. We will continue to enhance our initiatives further.

Page 45 shows initiatives towards achieving net zero of our own emissions. On the left, to achieve net zero by 2030, we completed ahead of schedule, shift of domestic electricity procurement directly by the bank, the trust bank and the securities to 100% renewable energy sources. This translates to a 60% reduction of domestic emission by our consolidated subsidiaries from fiscal year 2020. As shown on the right, we will advance measurement of emissions on a global basis, as shown on the right. And further consider reduction measures and implementation.

Page 46 shows enhancement of structure and participation in global initiatives. As shown on the left, to achieve our goal of MUFG carbon neutrality declaration, we formed project team comprising of 8 working groups. Through the steering committee made up of management, including myself, this will be managed on a group global basis. Together with the University of Tokyo and 12 major domestic companies, we have started researching to the pathway of decarbonization for Japan, and collaboration with external bodies as part of improving enhanced knowledge.

As shown on the right, we are proactively participating in a number of global initiatives as well. We were named representatives of Asia of the steering group of the Net-Zero Banking Alliance we joined in June, the first Japanese bank to be elected. We will acquire external knowledge and lead the discussion on decarbonization on a global scale.

Please turn to Page 50, showing our capital management policy. We have announced that we will align our approach to capital management policy with CET1 ratio target at 9.5% to 10%. Accordingly, we have made a decision on shareholders return as shown on the left-hand side of the page.

Please turn to Page 52. The year-end dividend will be raised JPY 1 from the initial forecast to JPY 28, a JPY 3 raise from the annual dividend in fiscal year 2020. We will continue to work progressively to achieve dividend payout ratio of 40% by fiscal year 2023. In light of the capital situation to improve capital efficiency, our decision was made to repurchase own shares up to JPY 150 billion.

Page 53 shows reduction of equity holdings. As shown on the right, it was reduced by JPY 46 billion in the first half of fiscal year 2021 on acquisition cost basis and net gains of JPY 85 billion is recorded.

That is all for me. With our purpose of committed to empowering a bright future, MUFG will work together as a group to advance challenges and transformation, so we can be an empowerment to move forward the society on the verge of change, and all stakeholders, including our customers. I ask for continued understanding and support from our investors and rating agencies. Thank you.

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