Mitsubishi UFJ Financial Group, Inc. — FY2021 Form 20-F
Reporting period: Fiscal year ended March 31, 2021; filed July 9, 2021. This is an annual report, not a standalone 2020 fourth-quarter filing. Financial statements use U.S. GAAP; regulatory capital figures use Japanese GAAP.
Business context and financial results
MUFG is a globally diversified financial group providing commercial and trust banking, securities, asset management, consumer finance and related services. It reported total assets of ¥353.82 trillion at year-end.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total interest and non-interest income | ¥5.910 trillion | ¥5.803 trillion | +1.8% |
| Net interest income | ¥2.004 trillion | ¥2.243 trillion | -10.6% |
| Provision for credit losses | ¥484.2 billion | ¥321.7 billion | +50.5% |
| Income before tax | ¥1.608 trillion | ¥433.2 billion | +271.3% |
| Net income attributable to MUFG | ¥1.117 trillion | ¥306.0 billion | +265.2% |
| Basic earnings per share | ¥86.88 | ¥23.69 | — |
| Cash dividend per common share paid during fiscal year | ¥25.00 | ¥23.50 | — |
Profit rebounded primarily because marketable equity securities generated ¥1.455 trillion in net gains, versus a ¥646.0 billion loss in FY2020. Equity-method earnings also rose to ¥355.7 billion, including the effect of investee performance such as Morgan Stanley. These gains more than offset weaker net interest income and higher credit provisioning.
Margins, credit, cash flow and liquidity
- Margins and returns: Net interest income as a share of average interest-earning assets was 0.75%, down from 0.91%; average interest-rate spread was 0.74%, down from 0.88%. Return on average equity was 7.12% versus 1.98%, and return on average assets was 0.31% versus 0.09%.
- Credit quality: Allowance for credit losses rose to ¥1.348 trillion from ¥809.5 billion, or 1.17% of loans versus 0.68%. Net loan charge-offs increased to ¥245.4 billion from ¥179.3 billion. Nonaccrual loans increased to ¥1.214 trillion from ¥778.5 billion.
- Cash flow: Operating activities used ¥245.1 billion; investing activities provided ¥3.657 trillion; and financing activities provided ¥20.964 trillion. Cash and cash equivalents increased ¥24.773 trillion to ¥103.329 trillion. Banking cash flows are affected by large securities and funding movements.
- Funding and liquidity: Deposits were ¥229.207 trillion, up from ¥203.955 trillion; loans, net of allowance, were ¥114.370 trillion, down from ¥117.377 trillion. Long-term debt increased to ¥35.158 trillion from ¥27.927 trillion. Consolidated LCR was 168.4% at March 31, 2021, versus 154.6% a year earlier, above the 100% minimum.
- Capital: Japanese-GAAP total capital ratio was 16.31% (15.87% prior year), Tier 1 was 13.96% (13.56%), CET1 was 12.33% (11.90%), and leverage ratio was 5.45% (4.42%). External TLAC ratios were 18.94% on risk-weighted assets and 8.96% on leverage exposure, versus minimums of 16.00% and 6.00%, respectively.
Material changes and unusual items
- Net interest income fell as lower central-bank rates reduced yields, particularly on foreign interest-earning assets. Average interest rate on interest-earning assets declined 0.57 percentage points.
- MUFG adopted the expected-credit-loss standard on April 1, 2020. Adoption increased opening allowances for loans and off-balance-sheet credit instruments by ¥408.1 billion and reduced retained earnings by ¥285.8 billion. FY2021 provision expense also reflected COVID-19 uncertainty.
- Goodwill impairment was ¥147.6 billion, mainly relating to MUFG Americas Holdings, down from ¥383.8 billion in FY2020, when the main charge related to Bank Danamon.
- Marketable equity securities increased in value as Japanese and U.S. stock prices rose; net gains of ¥1.455 trillion were a principal driver of the year’s earnings recovery.
- Assets grew 6.7% to ¥353.825 trillion. Cash and deposits with banks, including the Bank of Japan, rose substantially; domestic deposits also increased. Total loans declined 2.1% before allowance.
Outlook, risks and contingencies
Management expected a gradual, moderate and regionally uneven economic recovery as activity resumed, while warning that COVID-19 and volatile markets could further affect net interest income, fees, securities results, credit costs and regulatory capital. No specific numerical earnings guidance is provided in the supplied filing text. The new three-year plan, beginning FY2022, emphasizes digital transformation, sustainability, growth in wealth management and global businesses, and structural cost and risk-asset reforms; management noted that pandemic measures could delay some initiatives.
- Credit risks include possible deterioration among pandemic-affected borrowers, including Japanese small and medium-sized businesses after government-supported loans mature in FY2022, as well as exposures in real estate, energy and aviation-related sectors.
- Market and funding risks include interest-rate, foreign-exchange and equity-price movements, foreign-currency funding availability, and potential credit-rating downgrades. A one-notch downgrade across specified group entities could require about ¥100.2 billion of additional derivative collateral; a two-notch downgrade could require about ¥134.2 billion.
- Operational and regulatory exposures include cybersecurity, system failures, data protection, sanctions and anti-money-laundering compliance. MUFG Bank’s U.S. branches remain subject to OCC consent orders addressing compliance deficiencies. The filing also describes ongoing investigations and civil litigation; outcomes are uncertain, though management did not expect current matters, based on its knowledge and legal advice, to materially affect results or financial position.
- Off-balance-sheet commitments to extend credit totaled ¥84.614 trillion. The filing also reports ¥56.443 trillion of total guarantees and related instruments, a broad category that includes derivatives and trust-account liabilities; contractual totals do not represent expected cash outflows.
- MUFG reported ¥147.6 billion of goodwill impairment and continued to face valuation risk in its goodwill and equity holdings. Its strategic equity reduction target was approximately ¥300 billion over three years, announced after year-end.
Important facts for investors to verify
- Reconcile the earnings rebound to the ¥1.455 trillion marketable-equity gain and assess how much is repeatable versus market-sensitive.
- Review the credit-loss allowance and nonaccrual-loan trend, including the effects of CECL adoption and the maturity of pandemic-support loans.
- Check the underlying drivers of net interest income decline and sensitivity to low Japanese rates and foreign interest rates.
- Confirm regulatory capital and TLAC headroom after applicable buffers, upcoming Basel reforms and planned debt maturities.
- Assess whether the stated equity-security reduction, cost reforms and digital transformation targets are progressing, and review material legal, regulatory and cybersecurity developments.