Mitsubishi UFJ Financial Group, Inc. — FY2010 Form 20-F
Reporting period: Fiscal year ended March 31, 2010; filed August 16, 2010. Although the request metadata refers to “2009 Q4,” this filing is an annual report, not a quarterly filing. Financial statements are prepared under U.S. GAAP and reported in Japanese yen unless stated otherwise.
Business context and reporting period
MUFG is a Japan-based financial holding company with commercial and trust banking, securities, asset management, credit card and consumer finance operations, and businesses across more than 40 countries. Its principal subsidiaries include BTMU, MUTB and Union Bank. Deloitte issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The 2008 and 2009 cash flow statements were restated; the filing also describes other accounting changes and restated disclosures.
Key financial metrics
| Metric | FY2010 / March 31, 2010 | FY2009 / March 31, 2009 |
|---|---|---|
| Total revenue (interest plus non-interest income) | ¥5.212 trillion | ¥4.071 trillion |
| Net interest income | ¥1.984 trillion | ¥2.296 trillion |
| Provision for credit losses | ¥647.8 billion | ¥626.9 billion |
| Non-interest income | ¥2.454 trillion | ¥175.1 billion |
| Non-interest expense | ¥2.508 trillion | ¥3.609 trillion |
| Income (loss) before tax | ¥1.282 trillion | (¥1.764 trillion) |
| Net income (loss) attributable to MUFG | ¥859.8 billion | (¥1.468 trillion) |
| Diluted earnings (loss) per common share | ¥67.87 | (¥137.84) |
| Total assets | ¥200.08 trillion | ¥193.50 trillion |
| Deposits | ¥135.47 trillion | ¥128.33 trillion |
| Long-term debt | ¥14.16 trillion | ¥13.27 trillion |
| Total equity | ¥9.10 trillion | ¥6.47 trillion |
- Margins and returns: Net interest income was 1.13% of average interest-earning assets, down from 1.33%; average interest rate spread was 1.08%, down from 1.23%. Return on average assets was 0.43% and return on average equity was 10.66%, following losses in FY2009.
- Credit quality: Net loans were ¥90.87 trillion. Nonaccrual and restructured loans, plus accruing loans past due 90 days or more, rose to ¥2.008 trillion, or 2.18% of total loans, from 1.79%. The allowance for credit losses increased to ¥1.316 trillion, or 1.43% of loans, from ¥1.157 trillion, or 1.15%.
- Cash flow: Operating activities provided ¥2.310 trillion; investing activities used ¥10.814 trillion; financing activities provided ¥8.295 trillion. Cash and cash equivalents decreased ¥208.7 billion to ¥2.863 trillion. The cash flow statements for FY2008 and FY2009 were restated.
- Liquidity and capital: Deposits exceeded net loans by ¥44.60 trillion. MUFG’s Japanese-GAAP risk-adjusted capital ratio was 14.87% and Tier I ratio was 10.63%, above respective minimums of 8.00% and 4.00%. The common stock offering generated approximately ¥1.03 trillion net proceeds, invested in BTMU to strengthen group capital.
Material changes versus the prior comparable period
- MUFG returned to profitability from FY2009’s substantial loss. The improvement reflected a reversal in trading and foreign exchange results, gains on investment securities, and sharply lower goodwill and intangible-asset impairment charges.
- Non-interest income rose to ¥2.454 trillion from ¥175.1 billion, including trading profits of ¥761.5 billion versus losses of ¥257.8 billion, foreign exchange gains of ¥216.7 billion versus losses of ¥206.2 billion, and investment securities gains of ¥223.0 billion versus losses of ¥658.7 billion. FY2009’s unusually low result included substantial market-related losses.
- Non-interest expense fell by ¥1.101 trillion, largely because goodwill impairment declined to ¥0.5 billion from ¥845.8 billion. Net interest income fell ¥312.3 billion amid low interest rates and weaker foreign lending returns; credit-loss provision increased ¥20.9 billion.
- Investment securities increased ¥17.41 trillion to ¥55.05 trillion, mainly through purchases of Japanese government and government agency bonds. Net loans declined ¥8.28 trillion, while deposits rose ¥7.14 trillion.
- Equity increased ¥2.636 trillion, supported by FY2010 earnings, higher unrealized investment gains and the December 2009 common stock offering.
Outlook, management commentary, risks and unusual items
- Management described signs of economic and market recovery but cautioned that improvement could be temporary or uneven. It highlighted low interest rates, yen strength, weak transaction volumes and possible renewed global or Japanese downturns as pressures on earnings and credit quality. No specific consolidated earnings guidance for the next fiscal year is provided in the supplied filing text.
- Credit risk remains a central concern: problem-loan ratios increased, the allowance rose, and management cited borrower deterioration in manufacturing, wholesale and retail, services, and foreign government segments. The filing warns that actual losses could exceed estimates and allowances.
- MUFG had substantial exposure to Japanese government and agency bonds—20.2% of total assets—and warned that unexpected interest-rate increases could reduce bond values. Market declines could also affect equity holdings and regulatory capital.
- Consumer finance faces lower permitted lending rates and borrower reimbursement claims for excess interest. The allowance for repayment of excess interest was ¥84.2 billion at March 31, 2010; FY2010 provision was ¥44.8 billion.
- The Morgan Stanley alliance created two Japanese securities joint ventures in May 2010. MUFG holds 60% economic interests in both, but 49% of MSMS voting rights; integration, cross-selling and execution are identified risks. MUFG also held approximately 20% of Morgan Stanley on a fully diluted basis.
- After year-end, Union Bank acquired assets and assumed deposits of Frontier Bank and Tamalpais Bank under FDIC agreements with loss-share provisions. The filing also discusses proposed Basel capital and liquidity rules and the Dodd-Frank Act, whose effects were not yet clear.
- Off-balance-sheet guarantees and other instruments totaled ¥155.1 trillion, including ¥81.2 trillion of derivative notional amounts and ¥61.0 trillion of credit commitments. Contractual amounts are not equivalent to expected cash outflows; many commitments expire undrawn.
- Management stated that current litigation was not expected to materially affect results or financial position. The filing also discloses prior FSA orders involving securities subsidiaries and continuing compliance and reputational risks.
- MUFG declared common dividends of ¥11 per share during FY2010; it paid a ¥6 per-share year-end dividend on June 29, 2010. It redeemed and cancelled all Class 3 preferred stock for ¥250 billion on April 1, 2010.
Most important facts for an investor to verify
- Whether the FY2010 profit turnaround is sustainable given its reliance on volatile trading, foreign exchange and securities results, alongside the decline in recurring net interest income.
- Subsequent loan-quality trends, credit-loss provisions and adequacy of the ¥1.316 trillion allowance, particularly in domestic and foreign sectors noted as deteriorating.
- Capital and liquidity effects of the enlarged government-bond portfolio, potential rate moves, proposed regulatory rules and the post-year-end preferred-stock redemption.
- Execution, governance and financial effects of the Morgan Stanley securities joint ventures and the Union Bank FDIC-assisted acquisitions.
- The impact of consumer-finance interest-rate reforms and excess-interest repayment claims, plus the status of regulatory, litigation and compliance matters.
- The cash flow restatements and disclosed accounting changes; consult the audited statements and notes for reconciliations and effects.