Mitsubishi UFJ Financial Group, Inc. — Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2020; filed July 10, 2020. This is an annual report, not a standalone 2019 Q4 filing. Financial statements use U.S. GAAP and Japanese yen unless stated otherwise.
Business context and key financial metrics
MUFG is a diversified Japanese financial group spanning commercial and trust banking, securities, credit cards, asset management and related services. It reported total assets of ¥331.75 trillion and operated in Japan and more than 50 countries.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue (interest plus non-interest income) | ¥5,802.8 billion | ¥5,408.6 billion |
| Net interest income | ¥2,242.8 billion | ¥2,295.4 billion |
| Provision for credit losses | ¥321.7 billion | ¥34.3 billion |
| Non-interest income | ¥1,875.8 billion | ¥1,595.2 billion |
| Non-interest expense | ¥3,363.6 billion | ¥2,985.5 billion |
| Income before tax | ¥433.2 billion | ¥870.8 billion |
| Net income attributable to MUFG | ¥306.0 billion | ¥718.6 billion |
| Basic earnings per share | ¥23.69 | ¥55.03 |
Net interest margin (net interest income as a percentage of average interest-earning assets) was 0.91%, down from 0.95%; the average interest-rate spread fell to 0.88% from 0.93%. Return on average assets was 0.09%, versus 0.22%, and return on average equity was 1.98%, versus 4.47%.
Balance sheet and funding: Total assets were ¥331.75 trillion, up from ¥305.23 trillion; loans, net of allowance, were ¥117.38 trillion, compared with ¥116.23 trillion; deposits were ¥203.95 trillion, versus ¥199.28 trillion. Total liabilities were ¥316.01 trillion and total equity was ¥15.74 trillion, down from ¥15.98 trillion. Long-term debt was ¥27.93 trillion. Cash and cash equivalents increased to ¥78.56 trillion from ¥74.58 trillion.
Cash flow: Net cash used in operating activities was ¥1.36 trillion, compared with ¥0.23 trillion provided in FY2019. Investing activities used ¥18.09 trillion, and financing activities provided ¥23.78 trillion. Cash and cash equivalents increased ¥3.98 trillion during FY2020.
Capital and liquidity: At March 31, 2020, MUFG’s Japanese-regulatory Common Equity Tier 1 ratio was 11.90% (minimum 8.51% including applicable buffers), total capital ratio 15.87% (minimum 12.01%), and leverage ratio 4.42% (minimum 3.00%). External TLAC ratios were 18.62% on a risk-weighted-assets basis and 7.38% on a leverage-exposure basis, above respective minimums of 16.00% and 6.00%. Consolidated liquidity coverage ratio was 154.6%, above the 100% requirement. These regulatory ratios are calculated under Japanese rules and Japanese GAAP, not U.S. GAAP.
Material changes versus the prior year
- Net income attributable to MUFG fell 57%, mainly as credit-loss provisions rose sharply, non-interest expenses increased, and marketable-equity losses deepened.
- Credit-loss provisions increased to ¥321.7 billion, including ¥46.4 billion of qualitative reserves for estimated COVID-19 effects. Impaired loans rose to ¥1.31 trillion, or 1.11% of loans, from ¥1.21 trillion, or 1.04%; the allowance for credit losses rose to ¥809.5 billion from ¥658.2 billion.
- MUFG recorded ¥383.8 billion of goodwill impairment: ¥241.4 billion related to Bank Danamon, ¥80.3 billion to MUFG Americas Holdings, and ¥62.2 billion to Krungsri.
- Net investment-securities losses widened to ¥532.2 billion, including ¥646.0 billion of net losses on marketable equity securities. Higher trading-account profits—¥765.4 billion versus ¥168.9 billion—partly offset these and other pressures.
- Net interest income declined despite higher interest income, as foreign interest expense rose and Japanese loan yields remained under pressure. Foreign currency funding costs and narrowing gaps between long- and short-term rates weighed on spreads.
- Bank Danamon became a consolidated subsidiary in April 2019; First Sentier Investors was acquired in August 2019. These acquisitions expanded overseas banking and asset-management operations and contributed to higher reported revenue and expenses.
Outlook, risks, contingencies and unusual items
Management said COVID-19 had adversely affected FY2020 and expected further pressure on net interest income, fees and commissions, securities results, equity-method earnings, goodwill and other intangible assets, credit quality, and regulatory capital. It stated that the timing of containment and the full economic impact were uncertain. The filing provides no clear numerical earnings guidance for the next fiscal year.
- The report states that COVID-related credit-loss and off-balance-sheet provisions of about ¥84 billion, with an estimated ¥58 billion decrease to net income, would have resulted from recognizing an intervening event at March 31; they were not recognized in FY2020. A similar intervening-event goodwill impairment estimate of ¥80–¥110 billion was not recognized. The treatment reflects the filing’s reporting approach for certain foreign subsidiaries with December 31 year-ends.
- Effective April 1, 2020, adoption of the expected-credit-loss standard was estimated to increase loan and off-balance-sheet allowances by ¥380–¥450 billion and reduce opening retained earnings by ¥270–¥330 billion.
- Other key risks include deterioration in Japanese and global economies, low or volatile interest rates, foreign-currency funding and exchange-rate risk, credit losses, equity-market declines, cyber and operational threats, climate-related impacts, LIBOR transition, regulatory and compliance matters, and dependence on major overseas subsidiaries and the Morgan Stanley alliance.
- Fitch downgraded MUFG and two main banking subsidiaries by one notch in April 2020, after the reporting date; S&P changed their outlooks from Positive to Stable. The filing estimates a one-notch downgrade could trigger about ¥58.8 billion of additional derivative collateral requirements, and a two-notch downgrade about ¥87.0 billion.
- MUFG disclosed U.S. regulatory consent orders concerning sanctions and anti-money-laundering controls, ongoing investigations and civil litigation involving benchmark-rate and foreign-exchange practices, and other potential legal and regulatory exposures. Management said it did not believe current matters would materially affect results or financial position, while acknowledging uncertain outcomes.
- MUFG repurchased and cancelled 85.8 million shares for approximately ¥50.0 billion. The board recommended a FY2020 year-end dividend of ¥12.5 per share; the filing reports an annual dividend of ¥25 per share for FY2020, including the interim dividend.
Most important facts for investors to verify
- Confirm the impact of COVID-19 and the April 1, 2020 expected-credit-loss adoption on subsequent credit provisions, impaired loans, earnings and capital.
- Track whether goodwill impairments recur, especially at Danamon, MUFG Americas Holdings and Krungsri, and assess the assumptions behind those valuations.
- Reconcile the reported cash-flow movements and substantial increase in short-term borrowings and repurchase-agreement funding with liquidity disclosures and subsequent-period funding conditions.
- Monitor capital and TLAC headroom against regulatory minimums, upcoming rule changes and possible market-driven declines in capital.
- Review the sustainability of FY2020 earnings given the large trading gains, marketable-equity losses, goodwill charges and acquisition-related effects.
- Check progress on U.S. compliance remediation, legal and regulatory proceedings, LIBOR transition, and the integration and performance of recent acquisitions.