Business context and reporting period
Mitsubishi UFJ Financial Group, Inc. (MUFG) filed this annual report on Form 20-F on July 10, 2019. It covers the fiscal year ended March 31, 2019—not a standalone 2018 fourth quarter. The audited consolidated financial statements use U.S. GAAP and Japanese yen. MUFG is a global financial group with commercial and trust banking, securities, asset management, card and other businesses; total assets were ¥305.2 trillion at year-end.
Key financial metrics
Amounts below are in yen unless stated otherwise; income and cash-flow figures are for the fiscal year.
| Metric | FY2019 / March 31, 2019 | Prior comparable period |
|---|---|---|
| Total revenue (interest and non-interest income) | ¥5,408.6 billion | ¥5,194.1 billion |
| Net interest income | ¥2,295.4 billion | ¥2,230.3 billion |
| Provision for (reversal of) credit losses | ¥34.3 billion expense | ¥240.8 billion reversal |
| Non-interest income | ¥1,595.2 billion | ¥1,935.1 billion |
| Non-interest expense | ¥2,985.5 billion | ¥2,744.4 billion |
| Income before tax | ¥870.8 billion | ¥1,661.8 billion |
| Net income attributable to MUFG | ¥718.6 billion | ¥1,228.2 billion |
| Basic earnings per share | ¥55.03 | ¥92.40 |
| Operating cash flow | ¥228.3 billion provided | ¥563.8 billion used |
| Cash and cash equivalents | ¥74,577.1 billion | ¥75,873.5 billion |
- Margins: net interest income was 0.95% of average interest-earning assets, up from 0.93%; average interest-rate spread was 0.93%, up from 0.92%.
- Balance sheet: total assets rose 1.5% to ¥305.2 trillion; deposits increased to ¥199.3 trillion. Net loans were ¥116.2 trillion, broadly flat year over year. Total equity was ¥16.0 trillion, or 5.24% of assets.
- Debt and liquidity: long-term debt rose to ¥28.0 trillion. Deposits exceeded loans by ¥82.4 trillion. The consolidated liquidity coverage ratio was 141.2% at March 31, 2019, versus the 100% minimum.
- Regulatory capital: CET1 ratio was 12.23% versus an 8.54% required minimum; total capital ratio was 16.03% versus 12.04%; leverage ratio was 4.94% versus 3.00%. External TLAC ratios were 18.16% on risk-weighted assets and 7.90% on leverage exposure, above minimums of 16% and 6%, respectively.
- Credit quality: impaired loans fell to ¥1.21 trillion, or 1.04% of loans, from ¥1.33 trillion, or 1.14%. Allowance for credit losses declined to ¥658.2 billion, 0.56% of loans, from ¥764.1 billion, 0.65%.
Material changes versus the prior year
- Net income attributable to MUFG declined 41.5% and pretax income fell 47.6%, despite higher total revenue and net interest income. The reversal of credit losses in FY2018 became a provision in FY2019; non-interest expense also increased.
- Non-interest income fell mainly because FY2019 included ¥355.8 billion of net losses from marketable equity securities following an accounting-standard change that moved unrealized equity gains and losses into income. The prior period was not restated on the same basis.
- Non-interest expense included ¥116.1 billion of impairment on Mitsubishi UFJ NICOS system-integration assets after the company revised its system-integration plan. The filing reports total intangible-asset impairment of ¥118.1 billion.
- Operating cash flow turned positive, while investing cash flow was a ¥4.6 trillion outflow; cash and cash equivalents declined by ¥1.3 trillion.
- Common dividends paid during FY2019 were ¥21 per share. Shareholders subsequently approved a ¥11-per-share year-end dividend, making the FY2019 annual dividend ¥22 per share.
Outlook, commentary, risks and unusual items
- MUFG’s medium-term plan runs through March 31, 2021 and emphasizes integrated group management, digitalization, operational efficiency, wealth and asset management, and global growth. Management seeks to establish a future-oriented growth model by FY2024; the supplied filing text does not provide a clear numerical earnings forecast.
- Management cited Japan’s low and sometimes negative interest rates, domestic competition and demographic trends, alongside uncertain global growth, trade tensions, Brexit and market volatility. These factors may pressure margins, asset values and credit quality.
- Key exposures include Japanese assets and government bonds, foreign exchange and interest-rate movements, equity prices, borrower defaults, and concentrations in energy and real estate. MUFG noted that 63.6% of total assets were related to Japan.
- Regulatory and legal risks include U.S. BSA/AML and sanctions compliance matters and ongoing investigations and litigation. After year-end, MUFG Bank settled New York DFS litigation for $33 million. The filing also reports 2019 European Commission and Swiss regulatory decisions requiring forex-related fines, but the text provided does not state their amounts.
- After year-end, MUFG Bank increased its Bank Danamon ownership to 94.1%, making it a consolidated subsidiary. The CFSGAM asset-management acquisition and DVB aviation-finance acquisition were pending approvals and other conditions; completion was expected in 2019 and FY2020, respectively.
- MUFG issued senior debt intended to qualify as TLAC and became subject to TLAC requirements in March 2019. Minimum TLAC ratios are scheduled to increase in 2022. Management stated it was compliant with capital requirements at year-end.
Important facts for investors to verify
- Review the audited statements and accounting notes for the equity-security accounting change, the ¥355.8 billion marketable-equity loss, and the retained-earnings transition adjustment.
- Assess whether the FY2019 credit-cost comparison—reversal in FY2018 versus provision in FY2019—and the lower allowance remain appropriate as conditions change.
- Check the sustainability of net interest income given U.S. funding-cost increases and persistently low Japanese rates, and reconcile reported cash flows with balance-sheet liquidity measures.
- Track capital and TLAC headroom, planned debt issuance, and the scheduled 2022 regulatory increases.
- Verify post-year-end acquisition costs, integration progress, regulatory fines and remediation obligations, including the Danamon consolidation and pending CFSGAM and aviation-finance transactions.