Mitsubishi UFJ Financial Group Inc (MUFG) 2021 Q4 法說會逐字稿

This is Kamezawa. Thank you very much for taking time out of your busy schedule to attend MUFG IR presentation call today. We are holding this meeting virtually again this time. Please look at the IR presentation material.

Please turn to Page 4. This shows our main initiatives while we live with COVID-19. We will continue fulfilling our responsibilities as a financial infrastructure.

Please turn to Page 7. This shows our FY '20 financial results. Line 1. Gross profits increased by JPY 11.6 billion to JPY 3,997.9 billion, thanks to yen and foreign currency's loan margin improvement, higher revenue from securities business, including overseas DCM and from the consolidation of Bank Danamon and FSI despite negative impact on profit from interest rate decline due to the spread of COVID-19. Line 2. G&A expenses decreased for the first time in 9 years since 2011 by JPY 52.3 billion year-on-year, thanks to expense reduction in Japan and abroad despite an increase from the consolidation of the 2 companies mentioned earlier.

As a result, line 3, net operating profits increased for 2 consecutive years and reached JPY 1,248 billion, up JPY 63.9 billion year-on-year. Line 6. Profits attributable to owners of the parent was JPY 777 billion, up JPY 248.8 billion, thanks to the absence of extraordinary loss associated with lump sum goodwill amortization recorded the previous year despite an increase in credit risk and higher credit cost following the introduction of CECL to 3 partner banks in the U.S. and Asia. We exceeded our revised interim target of JPY 600 billion by JPY 177 billion.

Please turn to Page 9. This shows net operating profits by business group. As shown in the step chart on the right, profits declined in R&C and JCIB due to COVID-19 and the interest rate declined in the U.S. But thanks to the increase in other business groups, customer segments profit increased by JPY 32 billion year-on-year.

Please turn to Page 11, which shows our balance sheet summary. As shown in the red bar graphs on the upper right, domestic corporate loan balance increased by approximately JPY 4 trillion, but overseas loan decreased by around JPY 5 trillion. Therefore, loan balance declined by JPY 1.9 trillion from the end of March 2020.

On the other hand, deposit balance, shown in yellow bar graphs on the lower right, domestic corporate, domestic individual and overseas all increased significantly, resulting in JPY 24 trillion increase from the end of March 2020.

Page 12 shows domestic loans. Deposit lending spread in the yellow line graph on the upper right expanded and lending spread on the lower right is improving.

Page 13 shows our overseas loans. Deposit lending spread in bank and trust bank in yellow line graph on the upper right expanded due to the decline in deposit rate. Lending spread is on the uptrend as shown on the lower left graph.

Page 14 shows our non-Japanese yen liquidity. As shown by the gray bar graphs on the upper right, loan-to-deposit gap shrunk significantly. As a result, as shown on the lower right graph, mid- to long-term market funding, including yen swap, decreased dramatically and foreign currency funding costs dropped significantly, which contributed to the increase in foreign currency NII.

Page 15 shows our investment securities. Please look at the table on the left. Unrealized gains and losses decreased in both JGB and foreign bonds, but the bond in total is maintained at over JPY 200 billion. As a result of flexible position management capturing market changes, unrealized gain losses in equity and interest rate hedge included in others in Line 6 improved significantly.

Please turn to Page 17, which shows our risk-weighted assets. As shown in the step chart, we provided financial support to our clients, mainly centering on domestic lending, but we're able to control the increase by maintaining our disciplined risk asset management.

Page 18 shows our expenses. As shown by the red line graph on the left, expense ratio was 68.7%, up 1.5 percentage points year-on-year. Right side shows the amount of expense. We have tried to reduce our expenses in Japan and abroad by JPY 52.3 billion year-on-year and by JPY 87.3 billion excluding the impact of new consolidation of Bank Danamon and FSI.

Page 19 shows our risk-monitored loan balance. As shown by the bar graphs, it increased from the end of the previous fiscal year, but risk-monitored loan ratio, shown in the red line graph, is trending at a low level compared with the past.

Please turn to Page 20, which shows our credit costs. Credit costs for FY '20 were JPY 515.5 billion, as shown in the lower left. It increased significantly in bank and trust bank due to credit costs recorded mainly in air transportation and personal consumption sectors and additional allowance with CECL impact. In FY '21, we expect credit costs of JPY 350 billion due to a decrease in bank and trust bank and overseas partner banks.

Page 21 is on specific credit portfolio. Upper left. Partner banks credit costs are declining. Lower right. Certain amount of credit costs were recorded in air transportation sector due to poor performance of overseas airlines. We will remain cautious as airline industry's outlook is unforeseeable. Page 22 shows our capital status. As you can see, it remains at a sufficient level.

Page 23 shows our FY '21 target. The environment remains difficult with low interest rate and COVID-19 impact globally, but we will target JPY 850 billion, factoring in the decline in credit costs, thanks to the improvement in the macro economy of the industrialized countries. $270 million loss in our securities overseas subsidiary, which may have raised your concerns will be included in FY '21 results of MUFG.

Next let me explain our new medium-term business plan, or MTBP. Page 25 is a review of the financial targets in the previous MTBP. Due to COVID-19, we unfortunately missed the target with ROE of 5.63% and expense ratio of 68.7%. Please proceed to Page 26. Of the 11 transformation initiatives, the 3 measures shown on the left will be restrategized and promoted as our growth strategy in the new MTBP.

Page 27 shows our major achievements in the previous MTBP. As shown on the upper right, we established our commercial banking platform in ASEAN with the consolidation of Bank Danamon and strengthened our global asset management business through the consolidation of FSI, which resulted in the expansion of MUFG's unique business portfolio that other mega banks do not have and the diversified revenue source as shown on the lower left.

Page 28 shows our business environment and challenges. The business environment surrounding us is changing dramatically at an unprecedented speed. Our challenges are indicated on the right side. In other words, it means that we have not been able to fully leverage our strength, namely our group's consolidated power, customer base, global network and our management resources, including talents. We recognize the need to accelerate MUFG reimagining strategy that had been pursued from the previous MTBP and further enhance it.

Please turn to Page 29. Based on such environmental awareness, we asked ourselves what MUFG's purpose is in the first place, and established MUFG Way as our purpose by setting committed to empowering a brighter future as the core message. How we want to empower our stakeholders in the next 3 years is compiled in our new MTBP.

Please turn to Page 31, which shows the basic policy of the new MTBP. This new MTBP positions the 3-year term as the 3 years of new challenges and transformation in order for us to accurately analyze and understand the societal changes and achieve a quantum leap going forward. We will develop a business model in accordance with the environmental changes in aim to become the premier business partner that pioneers future through the power of finance and digital services in 3 years' time.

Please turn to Page 32. The 3 pillars of our strategy are corporate transformation, strategy for growth and structural reforms. I will explain them in more detail later.

Please turn to Page 33, which shows our financial targets. Our largest commitment is the achievement of 7.5% ROE in FY '23. We positioned profit, expenses and RWA as the 3 drivers to achieve the ROE target and will reinforce our efforts to control our resources further, strengthen our profit foundation in Japan and build a more resilient global business in order to become a financial group that can generate over JPY 1 trillion in profits attributable to owners of the parent on a stable basis.

In addition, we will raise the CET1 ratio target on a finalized Basel III regulation basis, excluding net unrealized gains to 9.5% to 10%, maintain sufficient capital level and a good balance between growth and shareholder return.

Page 34 shows our road map toward achieving our ROE target. As shown in the step chart on the right, we will control RWA, increase net operating profit, reduce credit costs in aim to achieve the ROE target. Let me add that ROE target of 7.5% in FY '23 is only a steppingstone. We will aim for 9% to 10% ROE in the medium to long term.

Please turn to Page 35. The theme of the new MTBP is digital and ESG. We will promote corporate transformation, which is the first pillar of our strategy by promoting digital transformation, contribution to addressing environmental and social issues and transformation of corporate cultures.

Please turn to Page 36. This is our first corporate transformation, which is digital transformation. In April, we established digital service business group that will take the lead and advance digital-driven corporate transformation. As you can see here, this business group is an L-shaped organization shown in pink.

In the vertical customer axis, it will strengthen non-face-to-face transaction with domestic corporate and individual customers. In the horizontal functional axis, it will advance the company-wide digital transformation.

Page 37 shows our initiatives in the vertical customer access. In our next-generation branches, on the left side, we will offer a comfortable experience to our customers through digitalization. In addition, majority of the procedures will shift to online. Right side shows our efforts in the new digital financial services, including our alliance with other companies. We will pursue the so-called Banking as a Service, or BaaS, model that offers financial functions as a financial platformer.

Furthermore, we will aim to become a financial and digital platformer, leveraging data as the next step. We signed a business partnership agreement with NTT DOCOMO the other day, through which we will offer new digital financial services that meet the current lifestyle needs centering on smartphone.

Page 38 shows our business case using AI and data. Please look at the upper left corner. Bank of Ayudhya or Krungsri offers microloan using cutting-edge technologies and data of Grab and is expanding new customer contact points. It is receiving many applications in the short period of time. In addition, as shown on the upper right, we established Mars Growth Capital last year, combining the AI technology of Liquidity Capital in Israel, our joint venture partner, and MUFG's presence in Asia and financial knowledge and expertise to initiate a finance business for startups, utilizing a new credit model.

Please turn to Page 39. As shown on the left side, we invested a cumulative total of more than JPY 120 billion in over 30 investees during the past 5 years. Their current valuation is well in excess of their book value, as shown in the case of Coinbase that launched its IPO and Grab that is scheduling its IPO after our investment.

Right side, GO-NET launched a network service for credit card operators last month, but had partial impairment of assets due to a shift in its initial business strategy. We will focus on domains such as e-commerce and IoT, where we can leverage our strengths going forward. We will continue taking on a challenge in nonfinancial services through open innovation based on MUFG's trust and customer base.

Please turn to Page 40. Transformation of corporate culture, which is one component of corporate transformation. We will transform into a free, open and speedy organization in which employees empathize with management and think autonomously, take action and take on challenges. Empathy with management and ownership will be promoted through town hall meetings and new challenge and participation will be encouraged through HR system reform. As shown on the lower left, we plan to construct a new MUFG main building in order to promote group-based integrated management and innovation.

Page 41 shows an example of our employee engagement that supports our cultural transformation. Approximately 60,000 employees attended the town hall meetings. Employees participated and asked questions in the dialogue and roundtable discussions between outside experts and myself shown on the lower left. And in finance of tomorrow project on the upper right, we met key figures playing important roles in various fields with our young employees. In straight talking with CEO, on the lower right, I had active discussions with members selected from the reports they submitted. I feel that we are gaining traction through various initiatives. We will continue promoting employee engagement focusing on practice, realization and synchronization in the new MTBP.

Please turn to Page 42. Next is growth strategy, the second pillar of the key strategies. Let me first explain our net operating profits plan. As shown in the step chart, we project positive contribution of approximately JPY 150 billion from strategy for growth and approximately JPY 100 billion from structural reforms toward the achievement of JPY 1.4 trillion net operating profit in FY '23.

Please turn to Page 43. Let me explain our 5 strategies for growth. First is wealth management. We will leverage the group's comprehensive capabilities between bank, trust bank and securities, which is our strong suit and expand cross transactions, including inheritance and real estate and increased investment management transactions. As shown in the lower left, we plan to increase our wealth management profit by JPY 41 billion in FY '23 vis-a-vis FY '20. As shown on the right side, we will take a fine-tuned and tailored approach according to the size of customers' total assets through our group-wide business model.

We established a new specialized organization to enhance our business with large asset owners. In addition, we are strengthening the frontline by doubling the number of wealth management specialized staffs at the bank to 500 and introduce a system of longer period of client coverage by RMs. Furthermore, wealth management digital platform is officially released to strengthen our proposals for integrated wealth planning services.

Page 44 shows our second strategy for growth, approach of proposing solutions for customers' issues. In Japanese large corporates business, we will aim to achieve our ROE target by establishing a sustainable business model focusing on ROE and by strengthening our approach of providing solutions for customers' challenges. As shown on the upper right, we will introduce performance evaluation scheme linked to ROE, visualize expenses and capital costs and manage profit for each customer thoroughly in order to establish an ROE-focused business model. In addition, as shown on the lower right, we will strive to generate new deals through proactive and group-based integrated support for customers' efforts to address changes in the industrial structure and social issues. Furthermore, we will consider providing new solutions through investment, joint venture, et cetera.

Page 45 shows our third strategy for growth, which is Asia business. Krungsri has realized strong synergy with MUFG since it was consolidated in 2013. As a result, it rose to the third rank in Thailand in 2020 based on net profits. We aim to leverage the successful case for Bank Danamon strategies to improve ROE. More specifically, we will promote MUFG group collaboration, as shown on the right side, capture customers' business channel and expand our customer base. In addition, we will transfer the professionals' expertise and know-how to Bank Danamon to strengthen our consumer finance business in Asia.

Page 46 shows our fourth strategy for growth, which is GCIB and Global Markets. We will promote our business model transformation from quantity to quality, continuing on from the previous MTBP. As part of our efforts on portfolio optimization, we will rebalance our business portfolio to institutional investors, increasing presence in the financial market as well as develop appropriate risk appetite and product offering capabilities. We will enhance GCIB and Global Markets integrated management further in the new MTBP. We will extend fee income from O&D, OtoD and cross-selling, establish ROE as the common target between the 2 business groups and aim to improve our profitability.

Please turn to Page 47. Our fifth strategy for growth is Global AM/IS. In global asset management, we will enhance our investment capability and expand our product lineup by allocating our human resources in high-growth domains such as infrastructure in enhancing the functions to achieve sustainable growth of FSI that we have invested in. In global IS, we will enhance high value-added services such as fund finance and fund FX and expand alternative fund business, which is promising going forward.

Please turn to Page 48. Now let me explain the third pillar of our new MTBP, which is structural reform. First is cost and RWA control. Improvement of expense ratio and reduction of our total expenses is one of the most important challenges of MUFG. As shown on the upper half, we will reduce base expenses by approximately JPY 50 billion on net in order to allocate funds to the area of growth.

Page 49 shows the breakdown of cost reduction. Upper left. Our headcount is decreasing faster than our initial plan due to restraint on new hire. We reduced our personnel expenses by over JPY 30 billion in the previous MTBP and expect the same level of reduction in the new MTBP. Right side. Facility expenses is expected to drop by approximately JPY 20 billion in the new MTBP through branch consolidation in Japan, continuing on from the previous MTBP. Lower left. Overseas expenses will decrease by approximately JPY 30 billion as the increase in regulatory costs in the previous MTBP will peak out.

Page 50 shows our RWA plan. We will continue ensuring thorough RWA control in the new MTBP, reduce low profitable transactions and replace them with profitable transactions in Japan and abroad. We plan RWA in FY '23 to be maintained roughly at FY '20 level.

Please turn to Page 51. The second structural reform is transformation of platform and our business infrastructure. Regarding IP investment on the left side, we will make necessary investments for our digital strategy while improving development efficiency to reduce IP investment costs.

Please turn to Page 52. The third structural reform is review of our business portfolio. Efforts in the previous MTBP is shown on the left side. In the Americas, we enhanced middle market and SME business and are promoting streamlining measures to review and reduce the branch network under back to basic strategy. In EMEA, as was announced through a press release the other day, we are optimizing and consolidating our office network. Efforts in the new MTBP is shown on the right side. The new position of the corporate executive in charge of overseas business transformation was established in April to enable swift decision-making and bold reforms to address the challenges facing our overseas business. In addition, business reform pursued in the Americas and e-mail in the previous MTBP will be promoted even further under the leadership of the new regional executives.

Page 53 shows the new investment business by Global Markets business group. As low interest rate environment continues globally, we will promote a new long-term diversified portfolio management, gathering our expertise in bank and trust bank. We will include alternative assets that have distinctively unique risk-return characteristics into our investment portfolio in order to secure stable profit in the medium to long run.

Please proceed to Page 57. I will now explain ESG. We will promote sustainability management, employing an integrated approach where the execution of management strategies go in tandem with the pursuit of solutions for environmental and social issues. The main revisions are: identification of 10 prioritized issues; the announcement of MUFG Carbon Neutrality Declaration and reflecting external ESG evaluation elements to compensation.

Please turn to Page 58. As shown here, we identified 10 priority issues as main issues where each business group will implement strategies and initiatives to address the challenges leveraging its unique characteristics and strength. We think climate change, aging population and low growth rate and inclusion and diversity are especially important.

Please turn to Page 59. MUFG released MUFG Carbon Neutrality Declaration this time to achieve Paris Agreement goals. It aims to achieve net zero greenhouse gas emission in its finance portfolio by 2050 and net zero greenhouse gases emission in its own operations by 2030. As part of this commitment, we became the first bank in Japan to join Net-Zero Banking Alliance led by the UN. We will promote our efforts to realize a sustainable environment and society and set targets and expand and improve transparency of disclosure to enable effective engagements with our investors.

Page 60 shows our major initiatives in the environmental area. Left side introduces an overseas financing case for renewable energy, which is MUFG's strong suit. CO2 reduction target through such initiatives was newly established. In the asset management business, on the upper right, ESG perspectives are incorporated into all asset classes to promote responsible investment. Regarding renewable energy for procured electricity on the lower right, we will realize 100% renewable energy in our domestic offices and branches of bank, trust bank and securities by the end of FY '21.

Please turn to Page 61. This shows our major initiatives in the social area. Upper left shows our sustainability-linked loan in the overseas market, and lower left shows our response to aging population and low birth rate as our initiatives to address social issues. Right side. In inclusion and diversity, we set the target for ratio of women in management for the new MTBP in order to realize an organization where diverse talents can play active roles.

Page 62 is on governance. Please look at the right side. External ESG evaluation was newly established as the KPI of executive compensation in order to enhance the effectiveness of sustainability management.

Please turn to Page 64. Let me explain our capital policy. We will continue focusing on the capital triangle in the new MTBP. Please look at the lower right. We used our capital to invest in Bank Danamon and FSI in the previous MTBP. But in the new MTBP, we will continuously consider new investments in digital and global AM/IS as well as focus on capturing returns in existing investments.

Please turn to Page 65, which shows our basic policies for shareholder returns. We will continue improving shareholder returns, focusing on dividends in the new MTBP. The target in the new MTBP is net profit of over JPY 1 trillion and dividend payout ratio of 40% by the end of FY '23. We will steadily increase dividend per share to achieve this target.

Please turn to Page 66. Our capital management policy in the new MTBP is shown on the left side. The target range for CET1 ratio on the finalized Basel III reforms basis, excluding net unrealized gains, is set at 9.5% to 10%. As long as we are in this range, we will maintain progressive dividend and consider capital accumulation, additional shareholder return and investment for growth according to the situation. The image of net profit, allocation or breakdown during the new MTBP period, is shown on the right side. We expect that the termination of the special treatment of investment in Morgan Stanley in FY '22 will lead to a capital surplus, which will be leveraged as an additional fund for shareholder returns and other purposes.

Please turn to Page 68, which shows our shareholder return. Dividend forecast for FY '21 is JPY 27, up JPY 2 from FY '20. With the economic uncertainties induced by COVID-19 pandemic, we needed to take a prudent approach as a financial institution and decided not to repurchase our shares in May, but we'll continue considering the repurchase during the year.

Please turn to Page 69, which is on our equity holdings. As shown on the right table, we reduced our equity holdings by JPY 137 billion on an acquisition cost basis in FY '20. As a result, cumulative amount of sale reached JPY 870 billion, exceeding the reduction target of JPY 800 billion. We will reduce our equity holdings by over JPY 300 billion over the next 3 years.

That concludes my explanation. We will continue taking on challenges with a strong determination that our future is not on the extension of the present and would like to ask the investors and rating agencies for your continuous understanding and support. Thank you very much for your attention.

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