As filed with the Securities and Exchange Commission on July 24, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
THE SECURITIES EXCHANGE ACT OF 1934
OR
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31 , 2023
OR
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number 000-54189
KABUSHIKI KAISHA MITSUBISHI UFJ FINANCIAL GROUP
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
Japan
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | |||||||||||||||
| (1) | |||||||||||||||||
(1)The listing of the registrant’s common stock on the New York Stock Exchange is for technical purposes only and without trading privileges.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
As of March 31, 2023, 12,687,710,920 shares of common stock (including 665,392,775 shares of common stock held by the registrant and its consolidated subsidiaries as treasury stock)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Emerging growth company | ||||||||||||||||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | Other | ☐ | |||||||||||||
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
TABLE OF CONTENTS
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| Item 16I | ||||||||
| A-1 | ||||||||
For purposes of this Annual Report, we have presented our consolidated financial statements in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, except for risk-adjusted capital ratios, capital components, risk-weighted assets, business segment financial information and some other specifically identified information.
In this Annual Report, unless otherwise indicated or the context otherwise requires, all figures are rounded to the figures shown except for the capital ratios, capital components, risk-weighted assets, leverage ratios, liquidity coverage ratios and net stable funding ratios of MUFG and its domestic subsidiaries, which are rounded down and truncated to the figures shown. In some cases, figures presented in tables are adjusted to match the sum of the figures with the total amount, and such figures are also referred to in the related text.
When we refer in this Annual Report to “MUFG,” “we,” “us,” “our” and the “Group,” we generally mean Mitsubishi UFJ Financial Group, Inc. and its consolidated subsidiaries, but from time to time as the context requires, we mean Mitsubishi UFJ Financial Group, Inc. as an individual legal entity. In addition, our “commercial banking subsidiaries” refers to MUFG Bank, Ltd. and, as the context requires, its consolidated subsidiaries engaged in the commercial banking business. Our “trust banking subsidiaries” refers to Mitsubishi UFJ Trust and Banking Corporation and, as the context requires, its consolidated subsidiaries engaged in the trust banking business. Our “banking subsidiaries” refers to MUFG Bank and Mitsubishi UFJ Trust and Banking and, as the context
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requires, their respective consolidated subsidiaries engaged in the banking business. Our “securities subsidiaries” refers to Mitsubishi UFJ Securities Holdings Co., Ltd., and, as the context requires, its consolidated subsidiaries engaged in the securities business.
References to “MUAH” are to MUFG Americas Holdings Corporation, as a single entity, as well as to MUFG Americas Holdings and its consolidated subsidiaries, as the context requires.
References to “Krungsri” are to Bank of Ayudhya Public Company Limited, as a single entity, as well as to Bank of Ayudhya Public Company Limited and its consolidated subsidiaries, as the context requires.
References to “Bank Danamon” are to PT Bank Danamon Indonesia, Tbk., as a single entity, as well as to PT Bank Danamon Indonesia, Tbk. and its consolidated subsidiaries, as the context requires.
References to “First Sentier Investors” are to First Sentier Investors Holdings Pty Ltd., as a single entity, as well as to First Sentier Investors Holdings Pty Ltd. and its consolidated subsidiaries, as the context requires.
References to the “FSA” are to the Financial Services Agency, an agency of the Cabinet Office of Japan.
Our fiscal year ends on March 31 of each year. References to years not specified as being fiscal years are to calendar years.
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Forward-Looking Statements
We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in documents filed with, or submitted to, the U.S. Securities and Exchange Commission, or SEC, including this Annual Report, and other reports to shareholders and other communications.
The U.S. Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves. We rely on this safe harbor in making these forward-looking statements.
Forward-looking statements appear in a number of places in this Annual Report and include statements regarding our current intent, business plan, targets (including, but not limited to, our sustainability-related targets), belief or expectations or the current belief or current expectations of our management with respect to our results of operations and financial condition, including, among other matters, our problem loans and loan losses. In many, but not all cases, we use words such as “anticipate,” “aim,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probability,” “risk,” “will,” “may” and similar expressions, as they relate to us or our management, to identify forward-looking statements. These statements reflect our current views with respect to future events and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those which are aimed, anticipated, believed, estimated, expected, intended or planned, or otherwise stated.
Our forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ from those in the forward-looking statements as a result of various factors. Important factors that could cause such differences include, without limitation,
•deterioration in economic conditions in Japan and around the world,
•external events, such as natural disasters and other health pandemics or epidemics, terrorism, and geopolitical and social conflicts,
•reforms of London Interbank Offered Rate and other interest rate benchmarks,
•climate change and resulting physical damages and changes in the business environment,
•competitive pressures resulting from regulatory and market changes,
•failure to implement our business expansion strategy as planned and to manage new or expanded risks that entail such strategy, as well as incurrence of impairment or valuation losses on our acquired assets,
•negative developments relating to our strategic alliance with Morgan Stanley,
•failure to maintain our capital ratios and other regulatory ratios above minimum required levels,
•significant unexpected increases in credit costs,
•financial difficulties of other financial institutions that affect the overall banking environment and their borrowers,
•fluctuations in interest rates, foreign currency exchange rates and stock prices,
•reduction in our ability to access or maintain liquidity,
•failure to address regulatory or public concerns or to meet market or industry rules or standards, customer protection requirements, or corporate behavior expectations,
•cyber-attacks and other information security threats,
•problems with the proper functioning and development of information, communications and transaction management systems,
•transactions with counterparties in countries designated by the U.S. Department of State as state sponsors of terrorism,
•changes in laws, regulations, rules, policies, accounting standards or methods, voluntary codes of practices, and interpretations,
•changes in the business and regulatory environment for consumer finance companies,
•damage to our reputation resulting from our failure to prevent or properly address negative perceptions held by customers, investors, regulators and the general public regarding us and our operations, and
•other risks and uncertainties discussed in “Item 3.D. Key Information—Risk Factors,” “Item 4.B. Information on the Company—Business Overview,” “Item 5. Operating and Financial Review and Prospects,” “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk” and elsewhere in this Annual Report.
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Given these and other risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Annual Report. We are under no obligation, and disclaim any obligation, to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise unless required by law.
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PART I
Item 1. Identity of Directors, Senior Management and Advisers.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
A.[Reserved]
B.Capitalization and Indebtedness
Not applicable.
C.Reasons for the Offer and Use of Proceeds
Not applicable.
D.Risk Factors
Investing in our securities involves a high degree of risk. You should carefully consider the risks described in this section, which is intended to disclose all of the risks that we consider material based on the information currently available to us, as well as all the other information in this Annual Report, including our consolidated financial statements and related notes, “Item 5. Operating and Financial Review and Prospects,” “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk” and “Selected Statistical Data.”
Our business, operating results and financial condition could be materially and adversely affected by any of the factors discussed below. The trading price of our securities could decline due to any of these factors. This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those described in this section and elsewhere in this Annual Report. See “Forward-Looking Statements.”
Risks Related to Our Business Environment
Because a large portion of our assets as well as our business operations are in Japan, we may incur losses if economic conditions in Japan worsen.
Our performance is particularly affected by the general economic conditions of Japan where we are headquartered and conduct a significant amount of our business. As of March 31, 2023, 65.4% of our total assets were related to Japanese domestic assets, including Japanese national government and Japanese government agency bonds, which accounted for 64.1% of our total investment securities portfolio and 10.5% of our total assets, respectively. Interest and non-interest income in Japan represented 41.5% of our total interest and non-interest income for the fiscal year ended March 31, 2023. Furthermore, as of March 31, 2023, our loans in Japan accounted for 57.5% of our total loans outstanding.
There is significant uncertainty surrounding Japan’s economy. For example, Japan’s fiscal health and sovereign creditworthiness may deteriorate if the Japanese government’s economic measures and the Bank of Japan’s monetary policies prove ineffective or result in negative consequences. If the prices of Japanese government bonds decline rapidly, resulting in an unexpectedly sudden increase in interest rates, our investment securities portfolio as well as our lending, borrowing, trading and other operations may be negatively impacted. In addition, interest rates may suddenly increase as a result of a decision made by the Bank of Japan to end or modify its current interest rate policy, including the negative interest rate of minus 0.1% applied to certain current account amounts that financial institutions hold at the Bank of Japan and the Japanese government bond purchase program with an aim to keep the yield of 10-year Japanese government bonds around zero percent, or market expectations relating to any such decision.
Instability in the Japanese stock market and foreign currency exchange rates, particularly between the Japanese yen and other major currencies, may also have an adverse impact on our asset and liability management as well as our results of operations. Various other factors, including large-scale public health issues, significant or prolonged inflationary or deflationary price trends, the decreasing and aging demographics in Japan, stagnation or deterioration of economic and market conditions in other countries,
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growing global competition, and trade conflicts, may also have a material negative impact on the Japanese economy. For a detailed discussion on the business environment in Japan and abroad, see “Item 5. Operating and Financial Review and Prospects—Business Environment.”
Since our domestic loans in Japan accounted for a significant portion of our loan portfolio, deteriorating or stagnant economic conditions in Japan may cause adverse effects on our financial results, such as increases in credit costs, as the credit quality of our borrowers could deteriorate. Borrowers in particular industries may be adversely affected by disruptions in commodity supply chains, changes in economic behavior, trade restrictions and other consequences of pandemics, geopolitical and geoeconomic conflicts, and other events that are beyond the control of those that are affected. Our domestic loan portfolio may also be adversely affected by interest rate fluctuations in Japan. For example, as a result of the Bank of Japan’s interest rate policy and measures to purchase Japanese government bonds in the market, the yield on many financial instruments and other market interest rates in Japan have declined to low or negative levels. If the Bank of Japan’s policy and measures are maintained for an extended period, or if the Bank of Japan’s negative interest rate is lowered from the current level, market interest rates may decline further, and our interest rate spread on our domestic loan portfolio may narrow further, reducing our net interest income.
Our results of operations may be materially affected by deterioration of economic conditions in Japan and around the world.
Economic conditions in Japan and around the world may deteriorate due to various factors such as global inflation trends, changes in the monetary and fiscal policies in major jurisdictions and the fiscal condition of major countries, rapid and significant fluctuations in foreign exchange rates, and concerns and developments affecting financial institutions. Uncertainty over the Japanese and global economies still remain because of such other factors as concerns over political developments in the United States, concerns over the U.S.-China conflict, geopolitical instabilities and conflicts, interruptions in international supply chains and trade, and political turmoil in various regions around the world. As of March 31, 2023, based principally on the domicile of the obligors, assets related to the United States accounted for approximately 15.6% of our total assets, assets related to Asia and Oceania excluding Japan accounted for approximately 9.0% of our total assets, and assets related to Europe accounted for approximately 6.5% of our total assets.
Worsening economic conditions in Japan and around the world may result in, among other things, impairment or valuation losses on securities and other assets that we hold due to declines in the market value of such assets, an increase in our non-performing loans and credit costs due to deterioration in borrowers’ business performance, a decrease in our profits due to deterioration in the creditworthiness of counterparties in market transactions, a reduction in foreign currency funding liquidity, an increase in our foreign currency funding costs, and an increase in the level of risk in the risk assets that we hold. Our profitability may be adversely affected by various other factors, including a decline in our net interest income caused by such factors as changes in the monetary policies of central banks in various jurisdictions. In addition, an economic downturn may result in a decline in new investments and business transactions by customers due to stagnation in economic activity, weak consumer spending, diminished investor appetite for making investments in uncertain financial markets, and a decrease in our assets under custody or management.
Our business operations are exposed to risks of natural disasters, terrorism, geopolitical conflicts and other disruptions caused by external events.
As a major financial institution incorporated in Japan and operating in major international financial markets, our business operations, ATMs and other information technology systems, personnel, and facilities and other physical assets are subject to the risks of earthquakes, typhoons, floods and other natural disasters, terrorism, geopolitical, political and social conflicts, health pandemics or epidemics, and other disruptions caused by external events, which are beyond our control. Such external events may result in loss of facility and human and other resources, suspension or delay in all or part of our operations, inability to implement business strategic measures or respond to changes in the market or regulatory environment as planned, and other disruptions to our operations. We may also be required to incur significant costs and expenses, including those incurred for preventive or remedial measures, to deal with the consequences of such external events. In addition, such external events may negatively impact the economic conditions in the markets we or our customers operate. As a result, our business, operating results and financial condition may be materially and adversely affected.
For example, the geopolitical developments in Ukraine have led to the imposition of economic and financial sanctions against certain banks, companies and individuals in or related to Russia by the governments of Japan, the United States, the European Union and other jurisdictions, resulting in increased complexity in our compliance and control environment. These geopolitical tensions have also led to increased risk of cyber-attacks. A further continuation or escalation of these and other geopolitical conflicts and tensions may hamper our ability to manage such complexity or risk and may result in significant financial, reputational and other losses.
As with other Japanese companies, we are exposed to heightened risks of large-scale natural disasters, particularly earthquakes. In particular, a large-scale earthquake occurring in the Tokyo metropolitan area and other areas where we have our important business functions may have a material adverse effect on our business, operating results and financial condition.
Our risk management policies and procedures may be insufficient to address the consequences of these external events, resulting in our inability to continue to operate a part or the whole of our business. In addition, our redundancy and backup measures may not be sufficient to avoid a material disruption in our operations, and our contingency and business continuity plans may not address all eventualities that may occur in the event of a material disruption caused by a large-scale natural disaster.
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Reforms of London Interbank Offered Rate and other interest rate benchmarks could adversely affect our business, financial condition and results of operations.
We have various transactions, including derivatives, loans, bonds, and securitized products, that reference London Interbank Offered Rate, or LIBOR, and other interest rate benchmarks. ICE Benchmark Administration Limited, the LIBOR administrator, ceased publication of short-term U.S. dollar LIBOR settings and all non-U.S. dollar LIBOR settings on a representative basis after December 31, 2021, ceased publication of all other U.S. dollar LIBOR settings after June 30, 2023.
In preparation for the discontinuation of the publication of LIBOR, we have been taking measures to deal with the reform of LIBOR and other interest rate benchmarks and the transition to alternative reference rates, and our transition away from LIBOR with respect to transactions referencing LIBOR settings which ceased to be published at the end of calendar year 2021 have been mostly completed, with a strategy in place for the remainder of such transactions. With respect to transactions referencing U.S. dollar LIBOR settings which ceased to be published at the end of June 2023, we continue to take measures to complete our transition away from U.S. dollar LIBOR, while legislative solutions have been developed to address existing contracts that cannot feasibly be transitioned away from U.S. dollar LIBOR. Such transition from LIBOR and other interest rate benchmarks to alternative reference rates is complex and entails uncertainty, including as to the economic characteristics and performance, market acceptance, and accounting and regulatory treatment of such alternative reference rates and the transition to such rates, and may have various adverse impacts on our business, financial position and operating results. In particular, among other things,
•such transition may adversely affect the price, liquidity, profitability, and tradability of a wide range of financial instruments, such as loans and derivatives, included in our financial assets and liabilities that reference LIBOR and other interest rate benchmarks;
•we may be unable to modify contracts with our counterparties to replace the reference rate for existing contracts based on or linked to LIBOR and other interest rate benchmarks with alternative reference rates as planned;
•such transition may result in disputes with customers and counterparties concerning the interpretation of affected contracts or economic adjustments to the alternative reference rate adopted in connection with the reform of LIBOR and other interest rate benchmarks and the transition to alternative reference rates, or disputes concerning inappropriate trade practices or abuse of a dominant bargaining position in transactions with customers;
•such transition may require us to respond to regulatory authorities in connection with the reform of LIBOR and other interest rate benchmarks and the transition to alternative reference rates; and
•our operational and risk management systems may not be fully effective to deal with the reform of LIBOR and other interest rate benchmarks and the transition to alternative reference rates.
Climate change could have a material adverse impact on us and our clients.
We are exposed to risks of physical impacts of climate change and risks arising from the process of transitioning to a less carbon-dependent economy. Climate change-related physical risks include increased severity and frequency of adverse weather events, such as extreme storms and flooding, and longer-term shifts in climate patterns, such as rising temperatures and sea levels and changes in precipitation amount and distribution. Such physical risks may have adverse impacts on us, both directly on our business operations and as a result of impacts on our borrowers and counterparties, such as declines in the value of loans, investments, real estate and other assets, disruptions in business operations and economic activity, including supply chains, and market volatility.
Transition risks include changes in regulations, market preferences and technologies toward a less carbon-dependent economy. The possible adverse impacts of transition risks include asset devaluations, increased operational and compliance costs, and an inability to meet regulatory or market expectations. For example, we and our borrowers and counterparties may become subject to new or heightened regulatory requirements and stakeholder expectations regarding climate change, including those relating to lending, investing and advisory as well as natural resource extraction and processing, energy generation and other business activities, capital and liquidity adequacy, operational resiliency, and disclosure and financial reporting. We and our borrowers and counterparties may also be unable to adapt product and service offerings or loan and investment portfolio management approaches to changes occurring in the course of transitioning to a less carbon-dependent economy.
Because the timing and nature of climate change events and regulatory and market changes in reaction to them may be difficult or impossible to predict, our risk management strategies may not be effective in mitigating climate change-related risk exposure. Regulatory and market expectations regarding climate change continue to evolve rapidly and generate conflicting views and approaches and may further develop in ways that diverge from our expectations or vary from market to market. The methodologies and data used to monitor and manage climate change-related risks also continue to evolve and currently utilize information and estimates derived from information or factors that are currently available which may be revised or replaced. In light of these and other developments and uncertainties, we expect that climate change-related risks will increase over time.
We have defined and disclosed our aspirational goals and other information relating to climate change based on the standards that have been adopted by us or are applicable to us. Such goals may prove to be considerably more costly or difficult than currently expected, or even impossible, to achieve, particularly given the high degree of uncertainties surrounding climate change. In addition, if
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our risk assessment and disclosure relating to climate change that we make and plan to enhance with the intent to be aligned with the recommendations of the Task Force on Climate-related Financial Disclosures, or TCFD, and other standards are deemed insufficient, if our measures designed to combat climate change or facilitate the transition to a less carbon-dependent economy do not proceed as planned, if our climate change-related risk management proves not to be as effective as expected, if we fail, or are deemed to have failed, to comply with regulatory requirements relating to climate change, or if, as a result of any of the foregoing, we are considered to be failing to fulfill our responsibility to society, then our corporate value may be impaired and our business, financial condition and results of operations may be adversely affected.
Risks Related to Our Strategies and Our Major Investees
Our business may be adversely affected by competitive pressures, which have partly increased due to regulatory changes and recent market changes in the financial industry domestically and globally.
Competition in the financial services industry may further intensify due to the increase in the number of non-financial institutions entering the financial services industry with alternative services such as electronic settlement services as a result of development of new technologies as well as significant changes in regulatory barriers. Competition may also further increase as other global financial institutions enhance their competitive strength through development or adoption of such new technologies as well as mergers, acquisitions, strategic alliances, and profit enhancement and other measures.
Under such circumstances, although we have been implementing various business strategies on a global basis designed to strengthen our competitive position and profitability, our business, financial condition and results of operations may be adversely affected if these strategies fail to produce the results we expect or if we are required to delay or otherwise change these strategies. Our competitiveness may decline because of various factors, including where:
•the volume of loans made to borrowers cannot be maintained or does not increase as anticipated;
•our income from interest spreads on the existing loans does not improve as anticipated;
•our loan interest spread further narrows as a result of the “quantitative and qualitative monetary easing with yield curve control” program being maintained in Japan for an extended period or the negative interest rate being lowered from the current level;
•the fair value of our financial assets fluctuate to a larger extent than anticipated;
•our fee income does not increase as much or quickly as we aim to do;
•our strategy to build a business infrastructure for new services and products through digital transformation or otherwise does not proceed as planned;
•clients and business opportunities are lost, or costs and expenses significantly exceed our expectations, as a result of the ongoing or planned strategies to streamline our business portfolio, to integrate our systems, or to improve financial and operational efficiency not being achieved as expected;
•we are unable to hire or retain sufficient human resources;
•our foreign currency funding becomes limited or unavailable;
•we are restricted in agility or flexibility in investing in non-financial institutions under applicable laws and regulations in and outside of Japan; and
•rapid and significant deposit outflows caused by deteriorated customer confidence in our financial health or market confidence in the financial industry result in a lack of liquidity.
Our strategy to expand the range of our financial products and services and the geographic scope of our business globally may fail if we are unable to anticipate or manage new or expanded risks that entail such global expansion.
As we expand our business operations and operate our business as a global financial institution, we may become exposed to new and increasingly complex risks associated therewith. We may not be able to establish appropriate internal controls or risk management systems or to hire or retain necessary human resources to effectively deal with compliance, regulatory, market and other risks entailing the expanded scope of our operations, products and services, including adoption or integration of new technologies, in all cases and, as a consequence, our financial condition and results of operations may be adversely affected.
As a strategic measure implemented in an effort to become the world’s most trusted financial group, we acquire businesses, make investments and enter into capital alliances globally. We may continue to pursue opportunities to acquire businesses, make investments and enter into capital alliances. Our major overseas subsidiaries include Krungsri, a subsidiary in Thailand, and Bank Danamon, a subsidiary in Indonesia. Our acquisition, investments and capital alliances may not proceed as planned or may be changed or dissolved, we may not achieve the synergies or other results that we expected, or we may incur impairment or valuation losses on
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securities acquired or intangible assets, including goodwill, recorded in connection with such business acquisitions, investments or business alliances, because of, among other things, political and social instability, stagnation of the economy, fluctuations of the financial market, inability to obtain regulatory approvals, changes in the laws, regulations or accounting standards, changes in the strategies or financial condition of our acquirees, investees or alliance partners that are inconsistent with our interests, and unanticipated changes in the local market, industry or business environment affecting our acquirees, investees or alliance partners. These and other similar circumstances may adversely affect our business strategies, financial condition and results of operations. In addition, we may be unable to achieve the benefits expected from our efforts to expand business operations if our expansion strategy does not proceed as planned.
If the goodwill recorded in connection with our acquisitions becomes impaired, we may be required to record impairment losses, which may adversely affect our financial results. We record the excess of the purchase price over the fair value of the assets and liabilities of the acquired companies as goodwill. As of March 31, 2023, the total balance of goodwill was ¥296.8 billion. U.S. GAAP requires us to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. For further information, see Note 6 to our consolidated financial statements.
Our efforts to offer new products and services or penetrate new markets may not succeed due to any of the foregoing reasons or other reasons, including if product or market opportunities develop more slowly than expected, if our new products and services are not well accepted among customers, if the profitability of opportunities is undermined by competitive pressures, regulatory limitations or changes in our business environment, if our planned acquisitions, investments or capital alliances are not approved by regulators or do not proceed as planned, or if our acquisitions, investments or capital alliances fail to achieve the synergies or other results that we expect.
If our strategic alliance with Morgan Stanley fails, we could suffer financial or reputational loss.
We have a global strategic alliance with Morgan Stanley, under which we operate two joint venture securities companies in Japan, engage in joint corporate finance operations in the United States and pursue other cooperative opportunities. We hold approximately 22.6% of the voting rights in Morgan Stanley as of March 31, 2023 and continue to hold approximately $521.4 million of perpetual non-cumulative non-convertible preferred stock with a 10% dividend. In addition, we currently have two representatives on Morgan Stanley’s board of directors. We maintain this strategic alliance with a view towards long-term cooperation with Morgan Stanley, and plan to deepen the strategic alliance. However, due to any unexpected changes in social, economic, market or financial conditions, changes in the regulatory environment, or any failure to integrate or share staff, products or services, or to operate, manage or implement the business strategy of the joint venture securities companies or other cooperative opportunities as planned, we may be unable to achieve the expected synergies from this alliance.
If our strategic alliance with Morgan Stanley is terminated, it could have a material negative impact on our business strategy, financial condition, and results of operations. For example, because we conduct our securities operations in Japan through the joint venture companies we have with Morgan Stanley, such termination may result in our inability to attain the planned growth in this line of business.
In addition, with our current investment in Morgan Stanley, we have neither a controlling interest in, nor control over the business operations of, Morgan Stanley. If Morgan Stanley makes any business decisions that are inconsistent with our interests, we may be unable to achieve the goals set out for the strategic alliance. Furthermore, although we do not control Morgan Stanley, given the magnitude of our investment, if Morgan Stanley encounters financial or other business difficulties due to adverse changes in the economy, regulatory environment or other factors, we may suffer a financial loss on our investment or damage to our reputation.
We apply equity method accounting to our investment in Morgan Stanley in our consolidated financial statements. As a result, Morgan Stanley’s performance affects our results of operations, and Morgan Stanley has contributed to a significant portion of our net income and revenue in recent periods. Rule 3-09 of Regulation S-X requires Morgan Stanley’s financial statements to be included in this Annual Report. In addition, fluctuations in Morgan Stanley’s stock price or in our equity ownership interest in Morgan Stanley may cause us to recognize losses on our investment in Morgan Stanley.
Risks Related to Our Ability to Meet Regulatory Capital Requirements
We may not be able to maintain our capital ratios and other regulatory ratios above minimum required levels, which could result in various regulatory actions, including the suspension of some or all of our operations.
We, as a holding company, and our Japanese banking subsidiaries are required to maintain risk-weighted capital ratios and leverage ratios above the levels specified in the guidelines adopted by the FSA to implement the Basel III framework. As of March 31, 2023, our total risk-adjusted capital ratio was 13.91% compared to the minimum risk-adjusted capital ratio required of 12.04%, our Tier 1 capital ratio was 12.04% compared to the minimum Tier 1 capital ratio required of 10.04%, and our Common Equity Tier 1 capital ratio was 10.76% compared to the minimum Common Equity Tier 1 capital ratio required of 8.54%, each including a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.04%. As of the same date, our leverage ratio was 4.70% compared to the minimum leverage ratio required of 3.75%, which is the sum of a minimum leverage ratio requirement at 3.00% plus a leverage ratio buffer set at 50% of the G-SIB surcharge. On and after April 1, 2024, the applicable minimum leverage ratio requirement is expected to be raised to 3.15%, and the applicable leverage ratio buffer requirement is expected to be set at 50% of a G-SIB surcharge plus an additional 0.05%, while deposits with the Bank of Japan will continue to be excluded from the leverage
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exposure for the purpose of the calculation of the leverage ratio, in light of exceptional macroeconomic conditions and other circumstances. Basel III risk measurement reforms are expected to be phased in from 2024. Our capital and leverage ratios are calculated in accordance with Japanese banking regulations based on information derived from our financial statements prepared in accordance with Japanese GAAP.
The Financial Stability Board has identified us as one of G-SIBs. The banks that are included in the list of G-SIBs are subject to a capital surcharge to varying degrees depending on the bucket to which each bank is allocated. As the list of G-SIBs is expected to be updated annually, we may be required to meet stricter capital ratio requirements.
If our or our Japanese banking subsidiaries’ capital ratios or leverage ratios fall below the required levels, including various capital buffers or a leverage buffer, the FSA may require us to take a variety of corrective actions, including abstention from making capital distributions, such as dividends, share buybacks, interest payments on, and redemption and repurchase of, Additional Tier 1 capital instruments and bonus payments, and suspension of our business operations. In addition, some of our banking subsidiaries are subject to the local capital adequacy ratio and other regulatory ratio requirements of various foreign countries, including the United States, and if their ratios fall below the required levels, the local regulators will require them to take a variety of corrective actions.
Factors that will affect our and our bank subsidiaries’ capital ratios or leverage ratios include:
•fluctuations in our or our banking subsidiaries’ portfolios due to deterioration in the creditworthiness of borrowers and the issuers of equity and debt securities;
•difficulty in refinancing or issuing instruments upon redemption or at maturity of such instruments to raise capital under terms and conditions similar to prior financings or issuances;
•declines in the value of our or our banking subsidiaries’ securities portfolios;
•adverse changes in foreign currency exchange rates;
•adverse revisions to the capital ratio and other regulatory ratio requirements;
•reductions in the value of our or our banking subsidiaries’ deferred tax assets; and
•other adverse developments.
We are also subject to the FSA’s regulations requiring G-SIBs in Japan to maintain certain minimum levels of capital and liabilities that are deemed to have loss-absorbing and recapitalization capacity, or External TLAC, and allocate a certain minimum level of External TLAC to any material subsidiary within their respective groups of companies, or Internal TLAC. As of March 31, 2023, we maintained 20.22% of External TLAC on a risk-weighted assets basis compared to the required minimum ratio of 18.00% and 9.47% of External TLAC on a leverage exposure basis compared to the required minimum ratio of 6.75%. The required minimum ratio of External TLAC on a total exposure basis on and after April 1, 2024 is expected to be raised to 7.10%, while deposits with the Bank of Japan will continue to be excluded from the total exposure for the purpose of the calculation of the external TLAC ratio, in light of exceptional macroeconomic conditions and other circumstances. Within the MUFG Group, MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. and MUFG Americas Holdings are designated as our material subsidiaries. We may become subject to various regulatory actions, including restrictions on capital distributions, if we are unable to maintain our External TLAC ratios or the amount of Internal TLAC allocated to any of our material subsidiaries in Japan above the minimum levels required by the standards imposed by the FSA, or if the capital buffers are used and reduced below the required level to make up for our required External TLAC ratio on a risk-weighted assets basis. Our External TLAC ratios and the amount of our Internal TLAC are affected by various factors that affect our capital ratios and leverage ratios described above. Although we plan to issue TLAC-qualified debt in an effort to meet the minimum required levels of External TLAC ratios and Internal TLAC amounts, we may fail to do so if we are unable to issue or refinance TLAC-qualified debt as planned.
For a discussion of the applicable regulatory guidelines and our capital ratios, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Adequacy.”
Fluctuations in foreign currency exchange rates may result in transaction losses on translation of monetary assets and liabilities denominated in foreign currencies as well as foreign currency translation losses with respect to our foreign subsidiaries and equity method investees.
Fluctuations in foreign currency exchange rates against the Japanese yen create transaction gains or losses on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies. To the extent that our foreign currency-denominated assets and liabilities are not matched in the same currency or appropriately hedged, we could incur losses due to future foreign exchange rate fluctuations. During the fiscal year ended March 31, 2023, the average balance of our foreign interest-earning assets was ¥115,159.2 billion and the average balance of our foreign interest-bearing liabilities was ¥76,295.0 billion, representing 39.6% of our average total interest-earning assets and 25.9% of our average total interest-bearing liabilities during the same period. Due to foreign currency exchange rate fluctuations, we may incur losses attributable to net transaction losses on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies, net losses on currency derivative instruments entered into for trading purposes, and net losses on translation into Japanese yen of securities accounted for under the fair value option. In addition, we may
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incur foreign currency translation losses with respect to our foreign subsidiaries and equity method investees due to fluctuations in foreign currency exchange rates.
Credit Risk
We may suffer additional credit-related losses in the future if our borrowers are unable to repay their loans as expected or if the measures we take in reaction to, or in anticipation of, our borrowers’ deteriorating repayment abilities prove inappropriate or insufficient.
If the economic conditions in Japan or other parts of the world, including emerging countries, or in particular industries, including the real estate industry, to which we have significant credit risk exposure, worsen, or if climate change, public health issues, geopolitical conflicts, fluctuations in commodity, real estate or stock prices or in interest or foreign exchange rates, changes in the competitive environment or other developments adversely affect global or local economic conditions or particular industries or borrowers, our problem loans and credit-related expenses and losses may increase. An increase in problem loans and credit-related expenses and losses would adversely affect our results of operations, weaken our financial condition and erode our capital base.
We may provide additional loans, equity capital or other forms of support to troubled borrowers in order to facilitate their restructuring and revitalization efforts. We may also forbear from exercising some or all of our rights as a creditor against them, and we may forgive loans to them in conjunction with their debt restructurings. We may take these steps even when such steps might not be warranted from the perspective of our short-term or narrow economic interests or a technical analysis of our legal rights against those borrowers, in light of other factors such as our longer-term economic interests and our commitment to supporting the Japanese economy. These practices may substantially increase our exposure to troubled borrowers and increase our losses. Credit losses may also increase if we elect, or are forced by economic or other considerations, to sell or write off our problem loans at a larger discount, in a larger amount or in a different time or manner, than we may otherwise want.
Our loan losses could prove to be materially different from our estimates and could materially exceed our current allowance for credit losses, in which case we may need to provide for additional allowance for credit losses and may also record credit losses beyond our allowance. Our allowance for credit losses in our loan portfolio is based on evaluations of customers’ creditworthiness and the value of collateral we hold as well as macroeconomic trends. While we closely observe conditions of our individual borrowers and industry and macroeconomic trends, if we need to provide for additional allowance for credit losses, or the value or liquidity of collateral declines, due to deterioration in domestic and global economic conditions, commodity price fluctuations or other conditions specific to certain borrowers, we may incur significant credit losses.
Also, the regulatory standards or guidance on establishing allowances may also change, causing us to change some of the evaluations used in determining the allowances. As a result, we may need to provide for additional allowance for credit losses.
Our efforts to diversify our portfolio to avoid any concentration of credit risk exposures to particular industries or counterparties may prove insufficient. For example, our credit exposures to the real estate industry are relatively high in comparison to other industries. The credit quality of borrowers in such industry does not necessarily correspond to general economic conditions in Japan or other parts of the world, and adverse developments in the real estate market may disproportionately increase our credit losses.
We may incur further losses as a result of financial difficulties relating to other financial institutions, both directly and through the effect they may have on the overall banking environment and on their borrowers.
Declining asset quality and other financial problems may exist, arise or worsen at some domestic and foreign financial institutions, including banks, non-bank lending and credit institutions, securities companies and insurance companies. Such problems recently manifested in a series of high-profile failures of financial institutions in the United States and Europe. Financial difficulties relating to financial institutions may not only lead to liquidity and insolvency problems for such financial institutions but also result in systemic problems adversely affecting the financial market and the wider economy. Financial difficulties relating to financial institutions could adversely affect us because we have extended loans, some of which may need to be classified as impaired loans, to banks, securities companies, insurance companies and other financial institutions that are not our consolidated subsidiaries. Our loans to banks and other financial institutions have been more than 10% of our total loans as of each year-end in the three fiscal years ended March 31, 2023, with the percentage being 18.9% as of March 31, 2023. We may also be adversely affected because we enter into transactions, such as derivative transactions, in the ordinary course of business, with other banks and financial institutions as counterparties. For example, we enter into credit derivatives with banks, broker-dealers, insurance companies and other financial institutions for managing credit risk exposures, for facilitating client transactions, and for proprietary trading purposes. In addition, we may be adversely affected because:
•we are shareholders of financial institutions;
•financial institutions that face difficulties may terminate or reduce financial support to borrowers, putting such borrowers under financial stress and causing our loans to such borrowers to be impaired;
•we may be requested to participate in providing support to distressed financial institutions;
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•the government may elect to provide regulatory, tax, funding or other benefits to financial institutions under its supervision or control to strengthen their capital or increase their profitability or for other purposes, causing our competitiveness against such financial institutions to weaken;
•our deposit insurance premiums may rise if deposit insurance funds prove to be inadequate;
•bankruptcies or government control or other intervention of financial institutions may generally undermine the confidence of depositors and investors in, or adversely affect the overall business environment for, financial institutions; and
•negative media coverage of the financial industry or system, regardless of its accuracy and applicability to us, may harm our reputation as well as market confidence in the financial industry and system.
Risk Relating to Our Strategic Equity Portfolio
If the Japanese stock market or other global markets decline in the future, we may incur losses on our securities portfolio and our capital ratios will be adversely affected.
Our strategic equity investments in Japan, which account for a vast majority of our total domestic marketable equity securities, were approximately ¥4.2 trillion as of March 31, 2023. A decline in stock prices adversely affects the value of our equity portfolio and may also reduce our regulatory capital ratios because unrealized gains and losses on the equity securities we hold are reflected in the calculation of such ratios. Weakening or stagnant economic conditions in Japan, the United States, China, the Eurozone and Asian countries may have a significant negative impact on Japanese companies, which in turn will cause their stock prices to decline. Japanese stock prices may fluctuate significantly and negatively in future periods, as the global economy remains volatile and investors continue to observe the changes in economic, monetary and trade policies mainly in these countries and regions. Concerns over the impact of geopolitical tensions and conflicts in various parts of the world on Japanese companies may also adversely affect stock prices in Japan. In addition, the global trend towards further reduction in risk assets could result in lower stock prices.
Market Risk
Fluctuations in interest rates, foreign currency exchange rates and stock prices could adversely affect the value or the yield of our portfolio.
We undertake extensive financial market operations involving a variety of financial instruments, including derivatives, and hold large volumes of such financial instruments. As a result, our financial condition and results of operations are subject to the risks relating to these operations and holdings. The primary risks are fluctuations in interest rates, foreign currency exchange rates and stock prices in and outside of Japan. As of March 31, 2023, approximately 23.2% of our total assets were financial instruments which we measure at fair value. The aggregate carrying amount of the Japanese government and corporate bonds and foreign bonds, including U.S. Treasury bonds, that we held as of March 31, 2023 was 11.5% of our total assets. In particular, the Japanese national government and Japanese government agency bonds accounted for 10.5% of our total assets as of March 31, 2023. If market interest rates decline due to such factors as changes in the monetary policies of central banks in various jurisdictions, the yield on the Japanese government bonds and foreign government bonds that we hold may also decline. Furthermore, if short-term interest rates rise to a larger extent than long-term interest rates, our net interest income may be adversely affected as banks, including us, generally pay interest on deposits based on short-term interest rates and earn income on loans based on long-term interest rates. While the Bank of Japan has maintained its negative interest rate policy, the central banks in the United States and other major jurisdictions have increased interest rates in response to the ongoing inflation. If interest rates in and outside of Japan rise, we may incur significant losses on sales of, and valuation losses on, our bond portfolio, and our debt funding costs may also increase significantly.
Appreciation of the Japanese yen against the U.S. dollar and other major currencies causes the yen-converted value of our foreign currency-denominated investments to decline and may cause us to recognize significant losses on sales of, or valuation losses on, such investments in our financial statements. Furthermore, if stock prices decline, the value of marketable equity securities and trading account securities that we hold also declines, we may incur significant losses on sales of, and valuation losses on, our equity securities and trading account securities portfolios. In addition, the derivative financial instruments in our trading portfolio may cause us to record significant gains or losses, when sold or marked to market, and may fluctuate from period to period due to numerous factors that are beyond our control, including interest rate levels, foreign currency exchange rates, stock price fluctuations, the credit risk of our counterparties, and general market volatility. Our assessment and management of market risks, including those related to fluctuations in interest rates, foreign currency exchange rates and securities prices, may prove insufficient and, as a result, our actual losses in the future may exceed our estimated market risk exposure.
Funding Liquidity Risk
Market liquidity and other external circumstances and an actual or perceived decline in our creditworthiness could negatively affect our ability to access and maintain liquidity
Our liquidity may be impaired by factors such as an inability to raise funding in financial markets, an increase in our funding costs, unexpected increases in cash or collateral requirements, an inability to sell assets or enter into or settle other transactions as
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planned or needed, and an inability to attract or retain deposits. These situations may arise due to circumstances which we may be unable to control but which have occurred in the past, including market or economic disruptions, financial system instability, and a downgrade in our credit ratings, or circumstances specific to us, including an actual or perceived decline in our creditworthiness. Insufficient liquidity may have a material adverse impact on our business, operating results and financial condition.
Assuming all of the relevant credit rating agencies downgraded the credit ratings of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings as of March 31, 2023 by one-notch on the same date, we estimate that MUFG and its three main subsidiaries would have been required to provide approximately ¥180.1 billion of additional collateral postings under their derivative contracts. Assuming a two-notch downgrade by all of the same credit rating agencies occurring on the same date, we estimate that the additional collateral postings for the same MUFG group companies under their derivative contracts would have been approximately ¥210.6 billion.
Rating agencies regularly evaluate us and our major subsidiaries as well as our and their respective debt securities. Their ratings are based on a number of factors, including their assessment of the relative financial strength of MUFG or of the relevant subsidiary, as well as conditions generally affecting the financial services industry in Japan or on a global basis, some of which are not entirely within our control. As a result of changes in their evaluation of these factors or in their rating methodologies, rating agencies may downgrade our ratings or our subsidiaries’ ratings.
Operational Risk
We may become subject to regulatory actions or other legal proceedings relating to our transactions or other aspects of our operations, which could result in significant financial losses, restrictions on our operations and damage to our reputation.
We conduct our business subject to ongoing regulation and associated regulatory and legal risks. Global financial institutions, including us, currently face heightened regulatory scrutiny as a result of the concerns developing in the global financial sector, and growing public pressure to demand even greater regulatory surveillance following several high-profile scandals and risk management failures in the financial industry. In the current regulatory environment, we are subject to various regulatory inquiries or investigations from time to time in connection with various aspects of our business and operations. In addition, multiple government authorities with overlapping jurisdiction more frequently conduct investigations and take other regulatory actions in coordination with one another or separately on the same or related matters. Our controls may be found insufficient in addressing regulatory or public concerns relating to money laundering, economic sanctions, bribery, corruption, financial crimes, or unfair or inappropriate business practices, or in meeting market or industry rules or standards, customer protection requirements, or corporate behavior expectations.
For example, we have received requests and subpoenas for information from government agencies in some jurisdictions that are conducting investigations into past submissions made by panel members, including us, to the bodies that set various interbank benchmark rates as well as investigations into foreign exchange related practices of global financial institutions. Some of the investigations into foreign exchange related practices resulted in our payment of monetary penalties to the relevant government agencies. We are cooperating with the ongoing investigations and have been conducting an internal investigation, among other things. In connection with these matters, we and other financial institutions are involved as defendants in a number of civil lawsuits, including putative class actions, in the United States.
These developments or other similar matters may result in additional regulatory actions against us or agreements to make significant additional settlement payments. These developments or other matters to which we are subject from time to time may also expose us to substantial monetary damages, legal defense costs, criminal and civil liability, and restrictions on our business operations as well as damage to our reputation. Our ability to obtain regulatory approvals for future strategic initiatives may also be adversely affected. The outcome of such matters, including the extent of the potential impact of any unfavorable outcome on our financial results, however, is inherently uncertain and difficult to predict. The extent of financial, human and other resources required to conduct any investigations or to implement any corrective or preventive measures is similarly uncertain and could be significant. Such resources may also be difficult for us to secure in a timely manner.
Failure to safeguard personal and other confidential information may result in liability, reputational damage or financial losses.
As our operations expand in volume, complexity and geographic scope, we are exposed to increased risk of confidential information in our possession being lost, leaked, altered or falsified as a result of human or system error, misconduct, unlawful behavior or scheme, unauthorized access or natural or human-caused disasters. Our information systems and information management policies and procedures may not be sufficient to safeguard confidential information against such risks. As a financial institution in possession of customer information, we are obligated to treat personal and other confidential information as required by the Act on the Protection of Personal Information, the Act on the Use of Personal Identification Numbers in the Administration of Government Affairs, the Banking Act and the Financial Instruments and Exchange Act of Japan, as well as other similar laws and regulations of other jurisdictions in which we operate. In the event that personal information in our possession about our customers or employees is leaked or improperly accessed and subsequently misused, we may be subject to liability and regulatory action. We may have to provide compensation for economic loss and emotional distress arising out of a failure to protect such information. In addition, such
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incidents could create a negative public perception of our operations, systems or brand, which may in turn decrease customer and market confidence and materially and adversely affect our business, operating results and financial condition. Moreover, any loss, leakage, alteration or falsification of confidential information, or any malfunction or failure of our information systems, may result in significant disruptions to our business operations or plans or may require us to incur significant financial, human and other resources to implement corrective measures or enhance our information systems and information management policies and procedures.
Our operations are highly dependent on our information, communications and transaction management systems and are subject to an increasing risk of cyber-attacks and other information security threats and to changes in the business and regulatory environment.
Our information, communications and transaction management systems, which include not only our own proprietary systems but also those third-party systems that are provided for our use or to which our systems are connected, constitute a core infrastructure for our operations. The proper functioning of our information, communications and transaction management systems is critical to our ability to efficiently and accurately process a large volume of transactions, ensure adequate internal controls, appropriately manage various risks, and otherwise service our clients and customers, particularly in the current business environment with increasing dependence on remote or online networks and our strategy to promote digitization.
Cyber-attacks, unauthorized access and computer viruses are becoming increasingly more sophisticated and more difficult to predict, detect and prevent. For instance, bank internal financial transaction systems or automatic teller machines may become the target of cyber-attacks for monetary gain, and bank internal information systems may become the target of confidential information theft. In addition, banks’ websites or customer internet banking systems may become the target of cyber-attacks for political, geopolitical and other purposes. These cyber threats, as well as our failure to appropriately and timely anticipate and deal with changes associated with technological advances and new systems and tools introduced in response to industry, regulatory and other developments, could cause disruptions to, and malfunctions of, information, communications and transaction management systems and result in fraud or other misconduct, unintended releases of confidential and proprietary information stored in or transmitted through the systems, interruptions in the operations of our clients, customers, counterparties and service providers, and deterioration in our ability to service our clients and customers. In addition, our banking and other transaction management systems may not meet all applicable business and regulatory requirements in an environment where such requirements are becoming increasingly sophisticated and complicated. Furthermore, our system development or improvement projects, many of which are critical to our ability to operate in accordance with market and regulatory standards, may not be completed as planned due to the complexity and other difficulty relating to such projects. These consequences could result in financial losses, including costs and expenses incurred in connection with countermeasures and improvements as well as compensation to affected parties, lead to regulatory actions, diminish our clients’ and customers’ satisfaction with and confidence in us, and harm our reputation in the market, which could in turn adversely affect our business, financial condition and results of operations. Moreover, significant financial, human and other resources may be required to design, implement and enhance measures to manage cyber and information security risks and comply with regulatory requirements.
Transactions with counterparties in countries designated by the U.S. Department of State as state sponsors of terrorism may lead some potential customers and investors in the United States and other countries to avoid doing business with us or investing in our shares.
We, through our subsidiaries, engage in limited business activities with entities in or affiliated with Iran, including transactions with counterparties owned or controlled by the Iranian government, and our commercial banking subsidiary has a representative office in Iran for information gathering purposes only. The U.S. Department of State has designated Iran and other countries as “state sponsors of terrorism,” and U.S. law generally prohibits U.S. persons from doing business with such countries. We currently have limited business activities conducted with entities in or affiliated with such countries. Such business activities are conducted in accordance with our policies and procedures designed to ensure compliance with regulations applicable in the jurisdictions in which we operate and with exemptions and general licenses available under U.S. law. We have transactions with counterparties in or affiliated with countries designated as state sponsors of terrorism which consist of receiving deposits or holding assets on behalf of individuals residing in Japan who are citizens of countries designated as state sponsors of terrorism and processing payments to or from entities in or affiliated with these countries on behalf of our customers. These transactions do not have a material impact on our business or financial condition. For a further discussion of transactions required to be disclosed under the U.S. Iran Threat Reduction and Syria Human Rights Act of 2012, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—United States—Disclosure pursuant to Section 13(r) of the Securities Exchange Act of 1934.”
We are aware of initiatives by U.S. governmental entities and non-government entities, including institutional investors such as pension funds, to adopt or consider adopting laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with Iran and other countries identified as state sponsors of terrorism. It is possible that such initiatives may result in our being unable to gain or retain entities subject to such prohibitions as customers, counter-parties or investors in our shares. In addition, depending on socio-political developments, our reputation may suffer due to our transactions with counterparties in or affiliated with these countries. The above circumstances could have an adverse effect on our business and financial condition.
Global financial institutions, including us, have become subject to an increasingly complex set of sanctions laws and regulations in recent years, and this regulatory environment is expected to continue. Moreover, the measures proposed or adopted vary across the
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major jurisdictions, increasing the cost and resources necessary to design and implement an appropriate global compliance program. The U.S. federal government and some state governments in the United States have enacted legislation designed to limit economic and financial transactions with Iran by limiting the ability of financial institutions that may have engaged in any one of a broad range of activities related to Iran to conduct various transactions in the relevant jurisdictions. In addition, in May 2018, the United States withdrew from participation in the Joint Comprehensive Plan of Action. Under subsequently issued executive orders, the United States may impose secondary sanctions against non-U.S. persons who engage in or facilitate a broad range of transactions and activities involving Iran. The Japanese government has also implemented a series of measures under the Foreign Exchange and Foreign Trade Act, such as freezing the assets of persons involved in Iran’s sensitive nuclear activities and development of nuclear weapon delivery systems, and our most recently modified policies and procedures take into account the current Japanese regulatory requirements. We continue to implement measures to enhance our policies and procedures to comply with such legislative and regulatory requirements. There remains a risk of potential regulatory action against us, however, if regulators perceive the modified policies and procedures not to be in compliance with applicable legislation and regulations.
Legal and regulatory changes could have a negative impact on our business, financial condition and results of operations.
As a global financial services provider, our business is subject to ongoing changes in laws, regulations, rules, policies, accounting standards or methods, voluntary codes of practice and interpretations in Japan and other markets where we operate. Major global financial institutions currently face an increasingly stricter set of laws, regulations and standards as a result of emerging technologies, political and geopolitical developments, environmental, social and governance concerns, and other concerns enveloping the global financial sector. There is also growing political pressure to demand even greater capital and liquidity requirements and internal compliance and risk management systems following several high-profile scandals and risk management failures in the financial industry. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation.” The laws, regulations and standards that apply to us are often complex and, in many cases, we must make interpretive decisions regarding the application of such laws, regulations and standards to our business activities. Future developments or changes in laws, regulations, rules, policies, accounting standards or methods, voluntary codes of practice, interpretations and their effects are expected to require greater capital, human and technological resources as well as significant management attention, and may require us to modify our business strategies and plans. We may be unable to enhance our compliance management programs and systems, which, in some cases, are supported by third-party service providers, as required or planned. Our failure or inability to comply fully with applicable laws and regulations may lead to penalties, fines, public reprimands, damage to reputation, issuance of business improvement and other administrative orders, enforced suspension of operations, our inability to obtain regulatory approvals for future strategic initiatives or, in extreme cases, withdrawal of authorization to operate, adversely affecting our business and results of operations.
Because of our loans to consumers and our shareholdings in companies engaged in consumer lending, changes in the business or regulatory environment for consumer finance companies in Japan may further adversely affect our financial results.
We have a large loan portfolio in the consumer lending industry as well as large shareholdings in subsidiaries and equity method investees in the consumer finance industry. Our domestic loans to consumers amount to approximately one-seventh of our total outstanding loans. Of this amount, the consumer loans provided by Mitsubishi UFJ NICOS, Co., Ltd., which is our primary consumer financing subsidiary, were ¥472.8 billion as of March 31, 2023, compared to ¥464.3 billion as of March 31, 2022.
Mitsubishi UFJ NICOS’s consumer loan portfolio has been adversely affected by a series of legislative reforms and judicial decisions that were put in place in Japan through 2010, which have negatively affected the domestic consumer lending industry. These legal developments effectively reduced the maximum rate of interest that may be charged on consumer loans from 29.2% per annum to 15 to 20% per annum depending on the amount of loan principal, while leaving interest payments previously made in excess of the reduced maximum permissible interest rate, which is commonly referred to as “gray-zone interest,” generally recoverable. Following these legal developments and other industry developments, Mitsubishi UFJ NICOS revises its estimate of allowance for repayment of excess interest by updating management’s future forecast semi-annually to reflect updated reimbursement claims information and other data. As of March 31, 2021, 2022 and 2023, we had ¥24.9 billion, ¥21.1 billion and ¥12.1 billion of allowance for repayment of excess interest, respectively.
These developments have adversely affected, and these and any future developments may further adversely affect, the operations and financial condition of our subsidiaries, equity method investees and borrowers which are engaged in consumer lending, which in turn may affect the value of our related shareholdings and loan portfolio. For further information, See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan.”
Damage to our reputation could harm our businesses.
We are one of the leading financial institutions in Japan and one of the handful G-SIBs in the world, and we aim to be the world’s most trusted financial group. Our ability to conduct business is indispensably dependent on the trust and confidence of our customers as well as local and international communities Our reputation is critical in maintaining our relationships with stakeholders, including customers, investors, regulators, workforce and the general public. Our reputation may be damaged by their negative perceptions of us and our operations in light of their concerns over human rights, the environment, public health and safety, or other corporate social responsibilities, or by our transactions or operations if they are deemed adverse to the intent and policy underlying
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applicable laws and regulations such as anti-money laundering, economic sanctions and competition laws as well as the prohibition on dealing with anti-social forces. Failure to prevent or properly address these issues may result in impairment of our corporate brand, loss of our existing or prospective customers or investors, or increased public or regulatory scrutiny, and may adversely affect our business, financial condition and results of operations.
Risks Related to Owning Our Shares
It may not be possible for investors to effect service of process within the United States upon us or our directors or management members, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws.
We are a joint stock company incorporated under the laws of Japan. Almost all of our directors or management members reside outside the United States. Many of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in the U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws. We believe there is doubt as to the enforceability in Japan, in original actions or in actions brought in Japanese courts to enforce judgments of U.S. courts, of claims predicated solely upon the U.S. federal or state securities laws mainly because the Civil Execution Act of Japan requires Japanese courts to deny requests for the enforcement of judgments of foreign courts if foreign judgments fail to satisfy the requirements prescribed by the Civil Execution Act, including:
•the jurisdiction of the foreign court be recognized under laws, regulations, treaties or conventions;
•proper service of process be made on relevant defendants, or relevant defendants be given appropriate protection if such service is not received;
•the judgment and proceedings of the foreign court not be repugnant to public policy as applied in Japan; and
•there exist reciprocity as to the recognition by a court of the relevant foreign jurisdiction of a final judgment of a Japanese court.
Judgments obtained in the U.S. courts predicated upon the civil liability provisions of the U.S. federal or state securities laws may not satisfy these requirements.
Risks Related to Owning Our American Depositary Shares
As a holder of American Depositary Shares, you have fewer rights than a shareholder of record in our shareholder register since you must act through the depositary to exercise these rights.
The rights of our shareholders under Japanese law to take actions such as voting, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its custodian, is the record holder of the shares underlying the American Depositary Shares, or ADSs, only the depositary can exercise shareholder rights relating to the deposited shares. ADS holders, in their capacity, will not be able to directly bring a derivative action, examine our accounting books and records and exercise appraisal rights. We have appointed The Bank of New York Mellon as depositary, and we have the authority to replace the depositary.
Pursuant to the deposit agreement among us, the depositary and a holder of ADSs, the depositary will make efforts to exercise voting or any other rights associated with shares underlying ADSs in accordance with the instructions given by ADS holders, and to pay to ADS holders dividends and distributions collected from us. However, the depositary can exercise reasonable discretion in carrying out the instructions or making distributions, and is not liable for failure to do so as long as it has acted in good faith. Therefore, ADS holders may not be able to exercise voting or any other rights in the manner that they had intended, or may lose some or all of the value of the dividends or the distributions. Moreover, the depositary agreement that governs the obligations of the depositary may be amended or terminated by us and the depositary without ADS holders’ consent, notice, or any reason. As a result, ADS holders may be prevented from having the rights in connection with the deposited shares exercised in the way ADS holders had wished or at all.
ADS holders are dependent on the depositary to receive our communications. We send to the depositary all of our communications to ADS holders, including annual reports, notices and voting materials, in Japanese. ADS holders may not receive all of our communications with shareholders of record in our shareholder register in the same manner or on an equal basis. In addition, ADS holders may not be able to exercise their rights as ADS holders due to delays in the depositary transmitting our shareholder communications to ADS holders. For a detailed discussion of the rights of ADS holders and the terms of the deposit agreement, see Exhibit 2(c) to this Annual Report.
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Item 4. Information on the Company.
A.History and Development of the Company
MUFG is a bank holding company incorporated as a joint stock company (kabushiki kaisha) under the Companies Act of Japan. We are the holding company for MUFG Bank, Ltd. (formerly, The Bank of Tokyo-Mitsubishi UFJ, Ltd.), Mitsubishi UFJ Trust and Banking Corporation, Mitsubishi UFJ Securities Holdings Co., Ltd., Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Mitsubishi UFJ NICOS Co., Ltd., and other companies engaged in a wide range of financial businesses.
On April 2, 2001, The Bank of Tokyo-Mitsubishi, Ltd., Mitsubishi Trust and Banking Corporation, or Mitsubishi Trust Bank, and Nippon Trust and Banking Co., Ltd. established Mitsubishi Tokyo Financial Group, Inc., or MTFG, to be a holding company for the three entities. Before that, each of the banks had been a publicly traded company. On April 2, 2001, through a stock-for-stock exchange, they became wholly-owned subsidiaries of MTFG, and the former shareholders of the three banks became shareholders of MTFG. Nippon Trust and Banking was later merged into Mitsubishi Trust Bank.
On June 29, 2005, the merger agreement between MTFG and UFJ Holdings, Inc. was approved at the general shareholders meetings of MTFG and UFJ Holdings. As the surviving entity, MTFG was renamed “Mitsubishi UFJ Financial Group, Inc.” The merger of the two bank holding companies was completed on October 1, 2005.
On September 30, 2007, Mitsubishi UFJ Securities Holdings, which was then called “Mitsubishi UFJ Securities Co., Ltd.,” or MUS, became our wholly-owned subsidiary through a share exchange transaction.
On October 13, 2008, we formed a global strategic alliance with Morgan Stanley and, as part of the alliance, made an equity investment in Morgan Stanley in the form of convertible and non-convertible preferred stock, and subsequently appointed a representative to Morgan Stanley’s board of directors.
On October 21, 2008, we completed a tender offer for outstanding shares of ACOM CO., LTD. common stock, raising our ownership in ACOM to approximately 40%.
On November 4, 2008, Bank of Tokyo-Mitsubishi UFJ completed the acquisition of all of the shares of common stock of UnionBanCal Corporation, or UNBC, not previously owned by Bank of Tokyo-Mitsubishi UFJ and, as a result, UNBC became a wholly-owned indirect subsidiary of MUFG.
On May 1, 2010, we and Morgan Stanley integrated our securities and investment banking businesses in Japan into two joint venture securities companies, one of which is Mitsubishi UFJ Morgan Stanley Securities. Mitsubishi UFJ Morgan Stanley Securities was created by spinning off the wholesale and retail securities businesses conducted in Japan from Mitsubishi UFJ Securities Holdings and subsequently assuming certain operations in Japan from a subsidiary of Morgan Stanley.
On June 30, 2011, we converted all of our Morgan Stanley’s convertible preferred stock into Morgan Stanley’s common stock, resulting in our holding approximately 22.4% of the voting rights in Morgan Stanley. Further, we appointed a second representative to Morgan Stanley’s board of directors on July 20, 2011. Following the conversion on June 30, 2011, Morgan Stanley became our equity-method affiliate. As of March 31, 2023, we held approximately 22.6% of the voting rights in Morgan Stanley and had two representatives appointed to Morgan Stanley’s board of directors. We and Morgan Stanley continue to pursue a variety of business opportunities in Japan and abroad in accordance with the global strategic alliance.
On December 18, 2013, we acquired approximately 72.0% of the total outstanding shares of Krungsri through Bank of Tokyo-Mitsubishi UFJ. As a result of the transaction, Krungsri has become a consolidated subsidiary of Bank of Tokyo-Mitsubishi UFJ.
On July 1, 2014, we integrated Bank of Tokyo-Mitsubishi UFJ’s operations in the Americas region with UNBC’s operations and changed UNBC’s corporate name to “MUFG Americas Holdings Corporation.” On the same day, Union Bank, N.A., which was MUFG Americas Holdings’ principal subsidiary and our primary operating subsidiary in the United States, was also renamed “MUFG Union Bank, N.A.” On July 1, 2016, MUFG Americas Holdings was designated as our U.S. intermediate holding company to comply with the FRB’s enhanced prudential standards.
On January 5, 2015, Bank of Tokyo-Mitsubishi UFJ integrated its Bangkok branch with Krungsri through a contribution in kind of the Bank of Tokyo-Mitsubishi UFJ Bangkok branch business to Krungsri, and Bank of Tokyo-Mitsubishi UFJ received newly issued shares of Krungsri common stock. As a result of this transaction, Bank of Tokyo-Mitsubishi UFJ’s ownership interest in Krungsri increased to 76.9%.
On October 1, 2017, we acquired all of the shares of common stock of Mitsubishi UFJ NICOS which we did not previously own and, as a result, Mitsubishi UFJ NICOS became a wholly-owned subsidiary of MUFG.
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On December 29, 2017, Bank of Tokyo-Mitsubishi UFJ initially acquired 19.9% of the shares of common stock of PT Bank Danamon Indonesia, Tbk. On May 1, 2019, MUFG Bank, Ltd. completed a series of transactions to increase its ownership interest in Bank Danamon to 94.1%, as a result of which Bank Danamon became MUFG Bank’s consolidated subsidiary.
On April 1, 2018, we changed Bank of Tokyo-Mitsubishi UFJ’s corporate name to “MUFG Bank, Ltd.”
On August 2, 2019, Mitsubishi UFJ Trust and Banking completed its acquisition of 100% of the shares in each of nine subsidiaries of Colonial First State Group Limited which collectively represent the global asset management business known as Colonial First State Global Asset Management, or CFSGAM, from Australian financial group Commonwealth Bank of Australia and its wholly-owned subsidiary Colonial First State Group Limited. As a result of the acquisition, the nine subsidiaries became our consolidated subsidiaries. In September 2019, CFSGAM was rebranded as First Sentier Investors.
On April 2, 2021, Mitsubishi UFJ NICOS announced a plan to integrate its credit card settlement systems that have been maintained separately for various credit card brands. Specifically, Mitsubishi UFJ NICOS plans to integrate the systems currently used for the DC credit card brand and the NICOS credit card brand into the system currently used for the MUFG card brand. The plan has an estimated budget of approximately ¥140 billion through the end of calendar year 2030. The plan may be modified to flexibly respond to changes in the business environment.
On December 1, 2022, MUFG Americas Holding completed the transfer of all of the shares in MUFG Union Bank to U.S. Bancorp. See “Item 5. Operating and Financial Review and Prospects—Recent Developments—Sale of MUFG Union Bank and Investment in Shares of U.S. Bancorp.”
Our registered address is 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, Japan, and our telephone number is 81-3-3240-8111.
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B.Business Overview
We are one of the world’s largest and most diversified financial groups with total assets of ¥381.74 trillion as of March 31, 2023. The Group is comprised of MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities (through Mitsubishi UFJ Securities Holdings), Mitsubishi UFJ NICOS and other subsidiaries and affiliates, for which we are the holding company. As a bank holding company, we are regulated under the Banking Act of Japan. Our services include commercial banking, trust banking, securities, credit cards, consumer finance, asset management, leasing and many more fields of financial services. As of March 31, 2023, the Group had the largest overseas network among Japanese banks, consisting of approximately 2,400 business locations in more than 50 countries, including Krungsri in Thailand and Bank Danamon in Indonesia. MUFG’s role as the holding company is to strategically manage and coordinate the activities of our business groups. Group-wide strategies are determined by the holding company and executed by our subsidiaries. On December 1, 2022, we completed the sale of the shares in MUFG Union Bank to U.S. Bancorp.
Medium-Term Business Plan
We believe Japan faces challenges such as a declining birth rate, an aging society and a shrinking population, while low economic growth has become the norm throughout the world. The environment we operate in has been affected by issues including the growing awareness of environmental and social issues and advances in digital technologies that enable the entry of new competitors into the financial sector and, more recently, concerns about inflation rates remaining high or continuing to accelerate globally, increasing geopolitical risks, and instability in financial markets and financial systems originating in the United States and Europe. These developments are changing the business environment in significant ways.
MUFG seeks to meet these changes with clear visions and to make the most of these challenges as opportunities for growth to become a leading force in the new era. It is with this goal that we defined and have been working towards our purpose: “Empowering a brighter future.” Our current Medium-Term Business Plan being implemented for the three-year period ending March 31, 2024, outlines our current strategies to leverage our financial and digital strengths to help our stakeholders around the world. In the fiscal year ended March 31, 2023, we sought to make unified and concerted efforts to achieve results, continuing from the fiscal year ended March 31, 2022.
We continue to strive to meet the expectations of all stakeholders, including customers, shareholders, and employees, by structuring our business model to suit the changes in our environment and seeking to achieve higher profitability and improved return on equity.
The descriptions of our Medium-Term Business Plan below contain forward-looking statements reflecting our current intent, plans, targets, beliefs or expectations and are subject to risks, uncertainties and assumptions. See “Forward-Looking Statements” and “Item 3.D. Key Information—Risk Factors.”
Basic Company Policy
In our Medium-term Business Plan, our goal at the end of its three-year span is to leverage our financial and digital capabilities to be the leading business partner that pioneers the future. We set this goal with a desire to help all our stakeholders take the next step forward in a time of constant change. The key words for the transformative changes we will be pursuing are (1) Digital Transformation, (2) Sustainability Management, and (3) New Challenges/Speed. We seek to address issues that confront our customers and wider society, working to provide optimal financial solutions.
Furthermore, for MUFG to achieve sustainable corporate growth and improvement in our corporate value, it is important to secure a business portfolio generating even higher and more stable profits, and to that end, we believe that strategic investment in growth areas is essential. In addition, we aim to be regarded as a company where employees can direct their energies into their work, and through best practices for creating new values and supporting employees who are doing their best to take on new challenges, we also aim to create a virtuous cycle of new challenges spreading forth from our Purpose.
Under the Medium-term Business Plan, we will continue with our initiatives to secure business stability (focusing on business resilience) and maintain our management policy that is attractive to employees and fosters greater motivation for employee participation (engagement-focused management).
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Group Business Strategy
In order to attain our vision for the three-year period to leverage our financial and digital capabilities to be the leading business partner that pioneers the future, we have identified three strategic pillars of “Corporate Transformation,” “Strategy for Growth,” and “Structural Reforms.”
Under our “Corporate Transformation” strategy, we seek to change how we operate and execute. While focusing on “Digital transformation” and “Contribution to addressing environmental and social issues,” we also aim to implement “Cultural Reforms” in order to accelerate decision making.
Under our “Strategy for Growth” strategy, in order to strengthen profitability, we seek to promote our “Wealth Management Business,” “Approach of proposing solutions to issues faced by our corporate customers,” “Asia Business,” “GCIB and Global Markets” and “Global Asset Management / Investor Services.”
Under our “Structural Reforms” strategy, to ensure resilience, we will seek to promote “Cost and risk-weighted asset control,” “Transformation of platforms and our business infrastructure,” and a “Review of our business portfolios” by reconsidering businesses that do not meet our profitability expectations and undertaking to find new business opportunities.
Progress on some of our strategic measures may be delayed due to the impact of policies implemented to deal with developments in our business environment, and we will carefully identify the extent of the impact on our measures.
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Key Strategies
(1)Corporate Transformation
| Main strategies | Main initiatives | ||||
| Digital transformation (DX) | •Enhance our contact points for digital services for all customers while pushing ahead with digitalizing our products and services . •Reduce the workload via the use of digital technologies. | ||||
| Contribution to addressing environmental and social issues | •Step up an integrated approach in which the execution of management strategies go in tandem with the pursuit of solutions for environmental and social issues. To this end, realign our business strategies, risk management and social contribution initiatives in light of 10 priority issues we have identified. | ||||
| Transform our corporate culture (a culture with a focus placed on “speed” and “new challenges”) | •Encourage employees to always act in line with our Purpose while fostering an open-minded corporate culture, with the aim of speeding up strategic execution and empowering employees to autonomously take on new challenges. | ||||
(2)Strategy for Growth
| Main strategies | Main initiatives | ||||
| Wealth Management | • Strengthen the wealth management business via the development of infrastructure for enhancing our comprehensive asset management proposal capabilities, the allocation of human resources and the provision of solutions for business owners. | ||||
| Approach of proposing solutions to customers' issues | •Help resolve management challenges confronting large Japanese corporate clients via the strengthening of risk-taking capabilities and the use of a group-wide, integrated approach. | ||||
| Asia Business | •Seize growth opportunities in Asia by taking advantage of our broad regional network consisting mainly of Bank of Ayudhya (Thailand) and Bank Danamon (Indonesia), both of which are consolidated subsidiaries, in addition to promoting digital transformation. | ||||
| GCIB and Global Markets | •Promote the optimization of our portfolio by, for example, rebalancing the portfolio to the institutional investor business. Also, step up asset velocity and cross-selling approach via the integrated operation of GCIB and Global Markets business groups. | ||||
| Global Asset Management/Investor Services | •Push ahead with our businesses in the global AM/IS field, an industry that has robust growth potential, in a way that takes full advantage of our strength. | ||||
(3) Structural Reforms
| Main strategies | Main initiatives | ||||
| Cost and RWA control | •Execute necessary investment for growth while thoroughly curbing base expenses. •Enhance RWA control via replacing low-profitability assets with high-profitability assets. | ||||
| Transformation of our platforms and our business infrastructure | •Carry out efficient and effective investment for the digital shift. •Simplify procedures and rules to facilitate reforms while reviewing our decision-making process. | ||||
| Review of our business portfolios | •Review resource allocations to low-profitability businesses. •Step up external collaboration and other initiatives related to new businesses. | ||||
MUFG’s Approach to Sustainability
Governance
(1) Sustainability
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Sustainability-related issues are managed by the Executive Committee with various management sub-committees, subject to the oversight of the Board of Directors.
For more information on our governance structure, see “Item 6.C. Directors, Senior Management and Employees—Board Practices.”
The Sustainability Committee, which is a sub-committee formed under the Executive Committee and is chaired by the Chief Sustainability Officer, regularly deliberates policies on addressing sustainability-related matters, including risks and opportunities arising from such matters, and monitors the progress on the MUFG Group’s measures designed to address such matters. The committee reports to the Executive Committee and, as necessary, reports to the Board of Directors.
The Executive Committee is established as a decision-making body for business execution and discusses and decides on important matters related to management of the operations of the MUFG Group based on the basic policies determined by the Board of Directors. The Executive Committee reports to the Board of Directors from time to time as necessary.
The Board of Directors oversees management of sustainability-related matters in line with its business strategy, risk management and financial oversight. Such oversight is performed based on, among other things, a plan-do-check-act, or PDCA, cycle. The Board of Directors deems sustainability-related matters including climate change to be of high-priority importance and accordingly discusses and deliberates them regularly based on an annual schedule or as appropriate.
From the perspective of objectively evaluating the effectiveness of our wide-ranging sustainability initiatives, in the fiscal year ended March 31, 2022, we began to assess the degree of improvement in the external ratings granted by major ESG rating agencies as part of performance-linked indicators to be used to determine performance-based stock compensation for qualified directors (excluding outside directors and directors serving as audit committee members), corporate executives and others of MUFG and its major domestic subsidiaries.
(2) Climate Change
In order to contribute to the achievement of a sustainable society, we have identified climate change measures and environmental protection as one of our priority environmental and social issues. As an essential part of sustainability, climate change-related matters are managed by the Executive Committee with various management sub-groups, subject to the oversight of the Board of Directors.
We have established a Carbon Neutral Project Team, which is a project team on a group-wide and global basis and is tasked with ensuring progress on initiatives. Each initiative is reported to and discussed by the Steering Committee, which includes the Group CEO and other key management members, and by the Sustainability Committee. These committees report to the Executive Committee.
In addition, since we consider climate change-related risks to be our top risks requiring close attention, such risks are reviewed by the Credit & Investment Management Committee, the Credit Committee and the Risk Management Committee, which are also sub-committees formed under the Executive Committee, based on their respective expertise. The deliberations of these sub-committees are reported to the Executive Committee.
In addition, the Risk Committee, which is a sub-committee of the Board of Directors, deliberates and reports on matters regarding group-wide risk management, including climate change, and top risk matters.
(3) Human Capital
Basic policies and strategies related to human capital for the MUFG Group are discussed and determined by the Human Resources Management Committee and the Sustainability Committee, in which the Group Chief Human Resources Officer (CHRO), the Group CEO, and other relevant members of the Executive Committee and the Board of Directors participate. Group companies determine and implement their own detailed initiatives and action plans under the leadership of their respective CHROs or directors in charge of human capital-related matters based on the basic policies and key strategies determined by the holding company.
The progress on each initiative and human capital-related risks are monitored and managed at the Group company level in the first instance, while matters relating to key initiatives and significant risks are reported to the Human Resources Division of the holding company and the Group CHRO, who is responsible for the division, and are further reported to the Human Resources Management Committee, the Sustainability Committee, the Executive Committee and the Board of Directors of the holding company when appropriate.
Strategy
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(1) Sustainability
We have defined 10 priority issues that we believe must be tackled to help achieve environmental and social sustainability in light of our newly established Purpose, “Committed to empowering a brighter future,” with an eye to better fulfilling society's expectations in areas where MUFG's capabilities can be brought to bear.
Based on such 10 priority issues, the following chart lists various opportunities and risks that we currently recognize.
| Priority Issues | MUFG’s recognition | ||||
1. Climate change measures & environmental protection | Opportunities and risks: The ongoing trend toward decarbonization is expected to result in major changes in the global industrial structure which, in turn, will position MUFG and its customers to face both risks affecting their business continuity and opportunities for growth. It is important to ensure smooth transition to a carbon-neutral society and a virtuous cycle of environmental and economic improvement in order to realize a sustainable society. Opportunities and risks: The scope of across-the-board environmental protection initiatives is likely to expand to include not only climate change measures but also the protection of biodiversity, etc. | ||||
2. Response to aging population & low birthrate | Opportunities： Leveraging our comprehensive financial service capabilities is important in order to meet evolving and diversifying customer needs in the face of changes in social structure due to aging population and low birthrate. Risks： The aging population and low birthrate may lead to economic stagnation and a decline in growth potential, leading to shrinkage of both funding demand and interest margins, a situation that could, in turn, have a particularly negative impact on the traditional commercial banking businesses. | ||||
3. Inclusion & diversity | Opportunities： Empowering diverse talents to inspire one another will facilitate the creation of new concepts and ideas and the transformation of employee modes of behavior, enabling MUFG to transform its corporate culture and deliver new values that surpass the expectations of customers and society as a whole, while it will also contribute to inclusion of diverse individuals. Risks： Developing a resilient organization and society capable of empowering diverse talents with differing sense of values is essential to flexibly adapting to a time of rapid changes. | ||||
4. Developing social infrastructure | Opportunities： Robust countermeasures against the aging of infrastructure at home and abroad are key to the creation of a sustainable society, as is the construction of social infrastructure, particularly in developing countries. Risks：For us to maintain trust and reliability as a financial institution and a component of social infrastructure, proper handling of threats to safety and security is a requisite. It is therefore essential to strengthen security measures safeguarding informational assets and prevent financial crimes that have become ever more complex and sophisticated. | ||||
5. Supporting industrial development & innovation | Opportunities and risks： Offering assistance for the creation of growing industries, which are drivers of economies, and vibrant venture startups are essential to avoiding economic stagnation and securing sustainable growth. Our financial functions are expected to play an important role as such endeavors require a financier capable of risk-taking. | ||||
6. Ensuring equal access to financial services | Opportunities and risks：Providing more customers with opportunities to access financial services and investment not only contributes to improving the growth of economies but is also expected to provide MUFG with opportunities to secure an even more robust foundation for growth. | ||||
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7. Promoting workstyle reforms | Opportunities and risks：On the back of Japan’s declining population, businesses are expected to provide their employees with opportunities to embrace flexible workstyles aligned with an evolving sense of values, changes in the social structure and a growing need to strike a work-life balance. Fulfilling these expectations can provide a baseline for effective utilization of human resources and achievement of corporate growth and, in light of the impact of COVID-19, has become a matter of even greater importance. Opportunities and risks：Improving the efficiency of our financial functions, which constitute a part of social infrastructure, is expected to help society as a whole achieve higher productivity while positioning us for greater productivity as well. | ||||
8. Response to poverty | Risks：Poverty often results in a variety of other problems posing serious threats to social stability (e.g., public health, hygiene and security) and human rights (e.g., sufficiency in food, clothing and housing) as well as to the formation of a basis for sustainable economic growth (e.g., educational equality). | ||||
9. Reduction of educational disparities | Opportunities： Those who are now students will shape the next generation and, therefore, constitute the foundation of future society. Among them may also be our potential colleagues. Therefore, supporting them is of great importance. Risks： Proper education is at the base of social stability and sustainable economic growth. Thus, educational shortfalls can result in a negative heritage of inequality that will be passed down to future generations. The lack of educational opportunity due to economic disadvantage therefore deserves major public attention and needs to be tackled. | ||||
10. Overcoming threats to health | Opportunities： Innovation in the healthcare sector will contribute to improvement in social and economic resilience. Risks： The sustainability of economic activities will be largely dependent on the strengthening of capabilities for preventing novel infectious viruses from spreading (via the development of vaccines, etc.) and responsiveness to a pandemic (via the development of medical technologies and institutions) in order to ensure robust social functions in anticipation of the further aging of population. | ||||
(2) Climate Change
MUFG recognizes that addressing climate change measures and environmental protection is one of the most important management issues. We seek to respond to them by regarding them as business opportunities and matters requiring careful risk management.
We participate in various initiatives to address climate change, including the Partnership for Carbon Accounting Financials, the Net-Zero Banking Alliance and the Glasgow Financial Alliance for Net Zero, and support the recommendations formulated by the TCFD, a special taskforce established by the Financial Stability Board.
Based on the TCFD recommendations, we have identified, and are working to address, two categories of climate change-related risks for financial institution. The first category includes risks arising from physical damage due to increased severity and frequency of adverse weather events, such as extreme storms and flooding, and longer-term shifts in climate patterns, such as rising temperatures and sea levels and changes in precipitation amount and distribution, and is often referred to as “physical risks.” The second category includes risks arising in connection with the transition to a decarbonized society, such as changes in regulations, market preferences and technologies toward a decarbonized society, and is often referred to as “transition risks.”
Cognizant of our share of responsibilities as a global financial institution in combatting climate change, we are committed to supporting efforts to transition to a decarbonized society through products and services we provide to clients and measures designed to reduce the adverse impact of our operational activities on the environment.
(3) Human Capital
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Attracting, developing and retaining a highly qualified and motivated workforce that enables us to better serve our clients, generate long-term value for our shareholders and other stakeholders, and contribute to society, is a strategic priority for us. We intend to accelerate our effort to further transform the MUFG Group into a workplace that fosters integrity, responsibility, professionalism, teamwork and diversity, with a robust culture and opportunities for our employees to challenge themselves and grow and develop in their career, in line with our core values set forth in “MUFG Way,” our foundational group policy. Built on this group policy, the MUFG Human Resources Principles serve as the common basis for the human resources management strategy of our group companies, each tailored to their particular circumstances.
(a) Human Resource Development
As set out in the MUFG Human Resources Principles, a basic policy of human resource development in MUFG is “to develop human resources who can realize MUFG Way by providing educational opportunities where each employee can raise his or her insights and values as well as his or her knowledge and expertise.” We encourage and support career growth and professional development through various training programs and on-the-job training.
Our sustainable growth and long-term success depend on our ability to attract, develop and retain talented individuals in all of our business fields. We seek to recruit highly competent talents from external candidate pools and internal human resources flexibly based on the qualifications required for the particular position to be filled.
(b) Internal Environmental Improvement
We consider a diverse workforce and an inclusive and equitable culture to be essential for our ability to maintain organizational resilience and remain competitive. We continue to strive to develop a work environment which fosters diverse experience, backgrounds and perspectives, which, in turn, facilitate creativity and innovation.
We also consider the well-being of our employees to be an essential element of our success. To this end, we are working to implement “Workstyle Reforms” designed to enable employees to build a sustainable professional career. As part of such reforms, we have made enhancements to our operational infrastructure to allow for flexibility in workstyles, including remote work and paperless capabilities.
We are also working to support the physical and mental health of our employees through a range of medical advisory and personal wellness services. For example, such services are made available to employees through industrial physicians and counselors on-site at our group companies in Japan. We also have programs designed to help our employees in Japan build a stable asset portfolio and improve their financial wellness through, among others, asset accumulation savings, corporate pensions, and employee stock ownership associations.
Furthermore, we continuously review and update our human resource management framework and compensation in order to attract and retain human resources and maximizes the abilities of our employees.
Risk Management
(1) Sustainability
Based on the MUFG Environmental Policy Statement and the MUFG Human Rights Policy Statement, in an effort to promote environmentally and socially responsible financing, we have implemented the MUFG Environmental and Social Policy Framework to manage environmental and social risks associated with finance operations (which mainly consist of credit, bond and equity underwriting for corporate clients of MUFG Bank, Mitsubishi UFJ Trust and Banking, and Mitsubishi UFJ Securities Holdings). We have established a finance policy and introduced a due diligence process to identify and assess the environmental and social risks or impacts associated with such transactions.
Standard due diligence is conducted by departments that have a direct contact with customers to identify and assess the environmental and social risks of the business that is to be financed by us. If it is determined that the business needs to be examined more carefully, we conduct enhanced due diligence and decide whether or not to finance the business.
As for businesses that are considered to have significant environmental and social risks and could potentially damage our corporate value or develop into a reputational risk, we hold discussions on how to handle it within a framework participated in by senior management. In addition, MUFG Bank adopted the Equator Principles, a framework for identifying, assessing and controlling the environmental and social risks of large-scale projects, and conducts risk assessments in accordance with its Guidelines.
The status of policies and initiatives relating to environmental and social risks are reviewed and discussed by the Credit & Investment Management Committee, the Credit Committee and the Risk Management Committee depending on the areas of their respective expertise. Conclusions reached by these committees are reported to the Executive Committee, and important matters
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discussed by the Executive Committee are reported to and, in turn, discussed by the Board of Directors, which oversees the management of risks related to environmental and social issues.
The process of identifying and assessing the environmental and social risks or impacts of a business to be financed
(2) Climate Change
In order to strengthen our response to risks related to climate change, climate change-related risk management is currently being integrated into our overall risk management framework based on our governance structure described above with an aim to better enable identification, measurement and reduction of climate change-related risks and their potential portfolio, business and financial impact from a comprehensive group-wide perspective. Our risk management framework is intended to address physical risks and transition risks.
In the MUFG Environmental and Social Policy Framework mentioned above, with respect to the coal-fired power generation, mining (coal), oil and gas, and other specific sectors in which concerns are raised over environmental and social impacts, including climate change, we have established our finance policy and a due diligence process to identify and assess the environmental and social risks or impacts associated with transactions has been introduced.
For a discussion of our climate change-related risks, see “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business Environment—Climate change could have a material adverse impact on us and our clients.” For more information on our risk management framework, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.”
(3) Human Capital
MUFG has positioned human capital as one of the most important capital in the Group, and considers it critical to acquire and retain qualified talents for its business competitiveness. In order to manage human capital retention risk, among other risks, each of our group companies has established a human capital management framework designed to attract talents and help employees make the best of their capabilities and provide competitive benefits.
MUFG also considers both physical and mental health of its employees crucial for a sustainable development of MUFG. Various employee health programs are in place at Group companies. In addition, employee health-related issues are regularly monitored and reported to the Group CHRO and the Executive Committee, including relevant subcommittees, as appropriate.
Metrics & Targets
(1) Sustainability
MUFG sets and monitors specific metrics and targets for initiatives intended to address environmental and social issues. We have set a sustainable finance target of providing a cumulative ¥35 trillion (including ¥18 trillion in the environmental sector) of financing from the fiscal year ended March 31, 2020 to the fiscal year ending March 31, 2031. Our sustainable finance currently consists of the provision of financing, including loans, equity investments in funds, arrangements of project finance and syndicated
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loans, underwriting of equities and bonds, and financial advisory service, with reference to the relevant external standards, such as the Green Loan Principles, the Green Bond Principles and the Social Bond Principles, to businesses that are considered to contribute to the adaptation to and moderation of climate change, to the development of startups, job creation, and poverty alleviation and to the energization of local communities and regional revitalization, as well as fundamental service businesses including those involved in basic infrastructure and essential public services.
(2) Climate Change
In May 2021, we announced our intent to achieve net zero greenhouse gas, or GHG, emissions from our financed portfolio by the end of 2050 and net zero GHG emissions from our operations by the end of 2030 in the MUFG Carbon Neutrality Declaration. These goals demonstrate our support for the goals of the Paris Agreement on Climate Change and our recognition of climate change-related risks and opportunities as a top strategic priority for the MUFG Group.
In order to achieve net zero GHG emissions from our financed portfolio, so far we have set 2030 interim targets for the power, oil and gas, real estate, steel and shipping sectors. For each interim target, we have considered and reflected, among other factors, the relevant characteristics of decarbonization pathways as well as the uniqueness of our financed portfolio for each sector.
(3) Human Capital
MUFG regards human capital as one of its highest priorities, and through the expansion of human capital, we seek to create an enabling environment for employees to grow and take on challenges and self-innovation. In the fiscal year ending March 31, 2024, we plan to invest ¥4.2 billion in the aggregate in externally sourced education and training for employees of MUFG Bank, Mitsubishi UFJ Trust and Banking, and Mitsubishi UFJ Morgan Stanley Securities in Japan. In addition, MUFG and each company in the group provide a variety of internal educational opportunities for executives and employees through training where executives and employees of MUFG Group entities serve as instructors.
We are working to create a workplace where each and every employee can make the most of his or her abilities. In particular, recognizing that increasing female representation in management is an important issue, we have set a target of 22% for the ratio of women in line management (jicho or kacho) or higher positions in Japan in MUFG Bank, Mitsubishi UFJ Trust and Banking, and Mitsubishi UFJ Morgan Stanley Securities on a combined basis by March 2024. As of March 2023, the ratio was 19.6%.
(4) Uncertainties and Risks
Our ability to achieve any one or more of the foregoing targets is subject to various uncertainties and risks, which may be beyond our control. If any such uncertainty or risk materializes, we may be unable to achieve our targets. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Business Environment—Climate change could have a material adverse impact on us and our clients.” and “Item 3.D. Key Information—Risk Factors—Operational Risk—Damage to our reputation could harm our businesses.”
Business Groups
Under the current Medium-term Business Plan, our business groups have been reorganized as follows in an effort to further integrate the expertise and capabilities of our subsidiaries to respond to the needs of our customers more effectively and efficiently.
Digital Service Business Group
The Digital Service Business Group focuses on providing digital-based financial services to “mass-segment” customers (i.e., retail customers and small and medium–sized enterprise customers) and on introducing digital technologies into MUFG. This business group was established on April 1, 2021 mainly by separating the mass-segment businesses that previously belonged to the Retail & Commercial Banking Business Group.
The digital transformation is one of our most important strategies. Particularly in the current mass-segment customers market, user interface and user experience (UI/UX) enhancement and cost structure reform are quite significant.
The primary mission of the business group is to strengthen the competitiveness and customer base of the mass-segment customer business by creating “new customer experiences that are integrated into everyday life” through a variety of flexible channels. In order to achieve this mission, this business group aims to thoroughly refine our channels, products, services, and marketing by using digital technology, and provide the most advanced and optimal financial services for our customers. By freeing customers and employees from complicated flows of actions by simplifying workflow and utilizing digital technology, this business group seeks to provide our customers with convenience and high-value-added services. In addition, the business group continues leading the company-wide digital transformation to become a financial digital platformer.
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Retail & Commercial Banking Business Group
The Retail & Commercial Banking Business Group integrates the domestic retail and commercial banking businesses of MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings and other group companies of MUFG. This business group offers retail customers (with a strategic focus on high net-worth individuals) and small and medium–sized enterprise customers in Japan an extensive array of commercial banking, trust banking and securities products and services.
Business Strategy
In the domestic market in which we operate, demographic changes, including Japan’s aging population with a declining birthrate, further acceleration of digital transformation and promotion of work style reforms continue to diversify customer expectations for financial institutions. With the goals of “being Japan’s leading financial professional group” and “contributing to the development of the Japanese economy and the people’s livelihood and wealth,” we seek to enhance and integrate the capabilities of our group companies to deliver value that exceeds customer expectations and improve customer satisfaction.
In the wealth management (WM) business, which is one of our key strategic focus areas, we are accelerating utilization of tools to offer wealth management solutions, including asset management, asset and business succession transfer, and real estate services. For example, we have begun operating the “WM Digital Platform,” a digital tool for understanding customers’ assets and needs across the MUFG Group, at all of our business locations. Through this tool, we have established a system designed to provide comprehensive solutions on a group-wide basis to the various challenges our customers face.
Japanese Corporate & Investment Banking Business Group
The Japanese Corporate & Investment Banking Business Group provides services to help large Japanese corporate customers seeking global expansion achieve growth in their corporate value. We are engaged in the lending, fund settlement, and foreign exchange businesses and also provide comprehensive solutions for M&As and real estate-related services, fully employing the expertise of each group entity.
We seek to increase our lending spreads by reducing low-profitability loans and improving risk-taking for projects with high profitability potential. In addition, we are working to accelerate the reduction of our equity holdings and have made significant progress towards achieving the reduction target under the Medium-Term Business Plan.
We also intend to expand and deepen our engagement with customers to resolve environmental and social issues as well as management issues of our customers which are becoming more complex and diverse. We have also made investments with customers in multiple businesses that are expected to contribute to solving social issues.
Asset Management & Investor Services Business Group
The Asset Management & Investor Services Business Group covers the asset management and asset administration businesses of Mitsubishi UFJ Trust and Banking and MUFG Bank. By integrating the trust banking expertise of Mitsubishi UFJ Trust and Banking and the global strengths of MUFG Bank, the business group offers a full range of asset management and administration services for corporations and pension funds, including pension fund management and administration, advice on pension structures, and payments to beneficiaries, and also offers investment trusts for retail customers.
We aim to expand our asset management and asset administration services business by enhancing the quality of our products and services, effectively utilizing the broad customer base of the MUFG Group and improving our operational efficiency through IT technology.
Global Corporate & Investment Banking Business Group
The Global Corporate & Investment Banking Business Group covers the corporate, investment and transaction banking businesses of MUFG Bank and Mitsubishi UFJ Securities Holdings. Through a global network of offices and branches, we provide non-Japanese large corporate and financial institution customers with a comprehensive set of solutions that meet their increasingly diverse and sophisticated financing needs.
Through the integrated business management structure between the Global Corporate & Investment Banking Business Group and the Global Markets Business Group, we aim to offer a wide range of financial services to meet the diverse needs of both corporate and institutional investor customers.
The expansion of the global corporate and investment banking and global markets businesses has been an important pillar of the MUFG Group’s growth strategy. We continue to work to strengthen the strategic alignment and collaboration among our group companies and across global geographies in order to best deploy our comprehensive expertise to provide our customers with value-added solutions and services.
Corporate Banking
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Through our global network of offices and branches, we provide a full range of corporate banking solutions, such as project finance, export credit agency finance, and financing through asset-backed commercial paper. Our primary customers include large corporations, financial institutions, sovereign and multinational organizations, and institutional investors that are headquartered outside of Japan.
Investment Banking
We provide investment banking services such as debt and equity issuance and M&A-related services to help our customers develop their financial strategies and realize their business goals. In order to meet customers’ various financing needs, we have established a customer-oriented coverage model through which our product experts coordinate with one another to offer innovative financing services globally. We have further integrated the management of the operations of our commercial banking and securities subsidiaries to enhance collaboration. We are one of the world’s top providers of project finance, one of the core businesses of the Global Corporate & Investment Banking Business Group. We provide sophisticated professional services in arranging limited-recourse finance and secured finance, and offering financial advice in various sectors, including natural resources, power, and infrastructure, backed by our experience, expertise, knowledge, and global network.
Transaction Banking
We provide commercial banking products and services for large corporations and financial institutions in managing and processing domestic and cross-border payments, mitigating risks in international trade, and providing working capital optimization. We provide customers with support for their domestic, regional and global trade finance and cash management programs through our extensive global network.
Global Commercial Banking Business Group
The Global Commercial Banking Business Group provides a comprehensive array of financial products and services such as loans, deposits, fund transfers, investments and asset management services for local retail, small and medium-sized enterprise, and corporate customers across the Asia-Pacific region through our major local commercial banking subsidiaries and affiliates outside of Japan referred to as “Partner Banks.” Our Partner Banks include Krungsri in Thailand, Bank Danamon in Indonesia, VietinBank in Vietnam and Security Bank in the Philippines. MUFG Union Bank, a Partner Bank in the United States, was sold to U.S. Bancorp on December 1, 2022.
The network among the Partner Banks covers a vast market, consisting of four countries with population totaling approximately 557 million. The market is expected to expand further in the medium to long term as the GDP growth rates are relatively high in these countries and financial needs are expected to increase as average income rise in the ASEAN countries. We believe that our network, which combines the global reach of the MUFG Group companies with strong regional presence of the Partner Banks each carrying an established brand, provides us with unique competitive advantages. Through sharing and integration of the expertise and capabilities of the Partner Banks, we seek to achieve synergy effects and capture the business opportunities arising from the economic growth of the region.
Bank of Ayudhya Public Company Limited (Krungsri)
Krungsri is a strategic subsidiary of MUFG Bank in Thailand. Krungsri provides a comprehensive range of banking, consumer finance, investment, asset management, and other financial products and services to retail consumers, small and medium-sized enterprises, and large corporations mainly in Thailand through 614 branches (consisting of 575 banking branches, 40 automobile finance business branches and one overseas branch) and other service outlets nationwide. In addition, Krungsri’s consolidated subsidiaries include the largest credit card issuer in Thailand with a market share of 15%, sales finance and personal loan accounts in its portfolio, a major auto finance provider, a fast growing asset management company and a leading microfinance service provider in Thailand.
MUFG owns a 76.88% ownership interest in Krungsri through MUFG Bank as of March 31, 2023. By combining Krungsri’s local franchise with competitive presence in the retail and small and medium-sized enterprise banking markets in Thailand with MUFG Bank’s global financial expertise, we seek to offer a wider range of high-value financial products and services to a more diverse and larger customer base.
PT Bank Danamon Indonesia, Tbk. (“Bank Danamon”)
Bank Danamon is a strategic subsidiary of MUFG Bank in Indonesia. Bank Danamon provides a comprehensive range of banking and other financial products and services to retail consumers, small and medium-sized enterprises, and large corporations in Indonesia. It operates an extensive distribution network spread out from Aceh to Papua, with more than 879 branches and service outlets. In addition, Bank Danamon provides financing for automotive and consumer goods through PT Adira Dinamika Multi Finance Tbk, a subsidiary of Bank Danamon.
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MUFG made an initial investment in December 2017 and owns a 92.47% ownership interest in Bank Danamon through MUFG Bank as of March 31, 2023. This investment in Bank Danamon represents another milestone for our growth strategy in Indonesia and Southeast Asia. We aim to offer a unique and unparalleled retail and small and medium-sized enterprise banking business model based on the established local networks of our Partner Banks and MUFG’s global network to provide holistic financial services to a wider range of customers.
Other Activities in Southeast Asia
We have been expanding our operations in Southeast Asia with an effort to further develop our businesses abroad. In addition to Krungsri and Bank Danamon, we have strategic business and capital alliances with other banks in Southeast Asia, including VietinBank in Vietnam and Security Bank in the Philippines, as our Partner Banks.
VietinBank provides a wide range of financial services to consumers, small businesses, middle-market and large companies through its branch network predominantly in Vietnam. We own a 19.73% equity interest in VietinBank.
Security Bank provides a wide range of financial services to consumers, small businesses, middle-market and large companies through its branch network in the Philippines. We own a 20% equity interest in Security Bank.
In November 2022, we agreed to acquire 100.0% of the shares of HC Consumer Finance Philippines, Inc. and 85.0% of the shares of PT Home Credit Indonesia, both of which are subsidiaries of Home Credit B.V., a Dutch consumer finance company. Through this acquisition, we plan to reinforce and expand our retail business in the Philippines and Indonesia.
See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Strategies and Our Major Investees—Our strategy to expand the range of our financial products and services and the geographic scope of our business globally may fail if we are unable to anticipate or manage new or expanded risks that entail such expansion.”
Global Markets Business Group
The Global Markets Business Group covers the customer business and the treasury operations of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings. The customer business includes sales and trading in fixed income instruments, currencies and equities as well as other investment products, and origination and distribution of financial products. The treasury operations include asset and liability management as well as global investments for the MUFG Group. In the fiscal year ended March 31, 2022, we started a new investment business in the Global Markets Business Group involving long-term diversified investments as a new sustainable revenue source.
Customer Business
Sales and Trading in Fixed Income Instruments, Currencies and Equities. We provide financing, hedging, and investment solutions to our retail, corporate, institutional, and governmental customers through sales and trading in financial market products such as fixed income instruments, currencies, and equities.
Investment Products for Non-Institutional Customers in Japan. We provide investment products such as mutual funds, and structured bonds, notes and deposits to non-institutional customers in Japan. We offer solutions using these investment products to help customers better manage their assets and liabilities. This business is conducted through the integrated operations management structure among the Global Markets Business Group, the Asset Management & Investor Service Business Group, the Retail & Commercial Banking Business Group, and the Japanese Corporate and Investment Banking Business Group.
Origination and Distribution. We provide financing solutions to institutional customers through origination and distribution of financial products such as syndicated loans and securities issuances. This business is conducted through the integrated operations management structure between the Global Markets Business Group and the Global Corporate and Investment Banking Business Group.
Treasury Operations
Asset and Liability Management. We seek to manage interest rate and liquidity risks residing in our balance sheets through, among other things, transactions designed to manage the profit and loss impact attributable to market movements based on our balance sheet analyses and forecasts. Such transactions include investments in high quality liquid securities such as Japanese government bonds and U.S. Treasury bonds and trading in other financial products such as interest rate swaps and cross currency swaps.
Global Investment. Through our treasury operations, we also seek to enhance our profitability by diversifying our portfolio and strategically investing in financial products including corporate bonds and funds.
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Global Strategic Alliance with Morgan Stanley
As of March 31, 2023, we held approximately 377 million shares of Morgan Stanley’s common stock representing approximately 22.6% of the voting rights in Morgan Stanley and Series C Preferred Stock with a face value of approximately $521.4 million and 10% dividend. As of the same date, we had two representatives appointed to Morgan Stanley’s board of directors. We adopted the equity method of accounting for our investment in Morgan Stanley beginning with the fiscal year ended March 31, 2012.
In conjunction with Morgan Stanley, we formed two securities joint venture companies in May 2010 to integrate our respective Japanese securities companies. We converted the wholesale and retail securities businesses conducted in Japan by Mitsubishi UFJ Securities into Mitsubishi UFJ Morgan Stanley Securities. Morgan Stanley contributed the investment banking operations conducted in Japan by its former wholly-owned subsidiary, Morgan Stanley Japan, to Mitsubishi UFJ Morgan Stanley Securities, and converted the sales and trading and capital markets businesses conducted in Japan by Morgan Stanley Japan into an entity called Morgan Stanley MUFG Securities, Co., Ltd. We hold a 60% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities, and Morgan Stanley holds a 40% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities. We hold a 60% voting interest and Morgan Stanley holds a 40% voting interest in Mitsubishi UFJ Morgan Stanley Securities, and we hold a 49% voting interest and Morgan Stanley holds a 51% voting interest in Morgan Stanley MUFG Securities. Morgan Stanley’s and our economic and voting interests in the securities joint venture companies are held through intermediate holding companies. We have retained control of Mitsubishi UFJ Morgan Stanley Securities and we account for our interest in Morgan Stanley MUFG Securities under the equity method due to our significant influence over Morgan Stanley MUFG Securities. The board of directors of Mitsubishi UFJ Morgan Stanley Securities has fifteen members, nine of whom are designated by us and six of whom are designated by Morgan Stanley. The board of directors of Morgan Stanley MUFG Securities has ten members, six of whom are designated by Morgan Stanley and four of whom are designated by us. The CEO of Mitsubishi UFJ Morgan Stanley Securities is designated by us and the CEO of Morgan Stanley MUFG Securities is designated by Morgan Stanley.
We have also expanded the scope of our global strategic alliance with Morgan Stanley into other geographies and businesses, including (1) a loan marketing joint venture that provides clients in the United States with access to the world-class lending and capital markets services from both companies, (2) business referral arrangements in Asia, Europe, the Middle East and Africa, covering capital markets, loans, fixed income sales and other businesses, (3) global commodities referral arrangements whereby MUFG Bank and its affiliates refer clients in need of commodities-related hedging solutions to certain affiliates of Morgan Stanley, and (4) an employee secondment program to share best practices and expertise in a wide range of business areas.
In July 2023, we jointly announced with Morgan Stanley the launch of “Alliance 2.0”, an enhanced Global Strategic Alliance for further collaboration between both companies for the next decade and beyond. In launching “Alliance 2.0”, we and Morgan Stanley have entered into memoranda of understanding to collaborate in foreign exchange trading and in the Japanese research and equity businesses for institutional clients. Both companies will work to conclude definitive agreements regarding each collaboration initiative with a targeted implementation date in the first half of 2024, subject to regulatory approval.
See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Strategies and Our Major Investees—If our strategic alliance with Morgan Stanley fails, we could suffer financial or reputational loss.”
Competition
We face strong competition in all of our principal areas of operation. The structural reforms in financial industry regulations and recent developments in financial markets have resulted in some significant changes in the Japanese financial system and prompted banks to merge or reorganize their operations. In addition, development of new technologies such as artificial intelligence and blockchain has also allowed non-financial institutions to enter the financial services industry with alternative services, thus changing the nature of competition from other financial institutions as well as from other types of businesses. See “Item 3.D. Key Information—Risk Factors—Risks Related to Our Strategies and Our Major Investees—Our business may be adversely affected by competitive pressures, which have partly increased due to regulatory changes and recent market changes in the financial industry domestically and globally.”
Japan
Our major competitors in Japan include:
•Japan’s other major banking groups: Mizuho Financial Group and Sumitomo Mitsui Financial Group;
•Government financial institutions: Japan Finance Corporation, Japan Post Bank, Development Bank of Japan and Japan Bank for International Cooperation;
•Other commercial banking institutions: Resona Bank, SBI Shinsei Bank, regional banks, and credit associations (shinkin banks);
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•Securities companies and investment banks: Nomura group and Daiwa group; and
•Asset management companies.
Foreign
In foreign markets, we face competition from local and global commercial banks, money center banks, regional banks, thrift institutions, asset management companies, investment advisory companies, credit unions and other similar financial institutions.
The Japanese Financial System
Japanese financial institutions may be categorized into three types:
•the central bank, namely the Bank of Japan;
•private banking institutions; and
•government financial institutions.
The Bank of Japan
The Bank of Japan’s role is to maintain price stability and the stability of the financial system to ensure a solid foundation for sound economic development.
Private Banking Institutions
Private banking institutions in Japan are commonly classified into two categories (the following numbers are based on information published by the FSA available as of January 4, 2023):
•ordinary banks (121 ordinary banks and 56 foreign commercial banks with ordinary banking operations); and
•trust banks (13 trust banks, including two Japanese subsidiaries of foreign financial institutions).
Ordinary banks in turn are classified as city banks, of which there are four, including MUFG Bank, and regional banks, of which there are 99 and other banks, of which there are 18. In general, the operations of ordinary banks correspond to commercial banking operations in the United States. City banks and regional banks are distinguished based on head office location as well as the size and scope of their operations.
The city banks are generally considered to constitute the largest and most influential group of banks in Japan. Generally, these banks are based in large cities, such as Tokyo and Osaka, and operate nationally through networks of branch offices. The city banks provide a wide variety of banking and other financial products and services to large corporate customers, including the major industrial companies in Japan, as well as small and medium-sized companies and retail customers.
With some exceptions, the regional banks tend to be much smaller in terms of total assets than the city banks. Historically, each of the regional banks has been based in one of the Japanese prefectures and has extended its operations into neighboring prefectures. Their customers are mostly regional enterprises and local public utilities. Trust banks, including Mitsubishi UFJ Trust and Banking, provide various trust services relating to money trusts, pension trusts and investment trusts and offer other services relating to real estate, stock transfer agency and testamentary services, as well as banking services.
Government Financial Institutions
There are a number of government financial institutions in Japan, which are corporations wholly owned or majority-owned by the government and operate under the government’s supervision. Their funds are provided mainly from government sources. Certain types of operations undertaken by these institutions have been or are planned to be assumed by, or integrated with the operations of, private corporations through privatizations and other measures.
Among them are the following:
•The Development Bank of Japan, which was established for the purpose of contributing to the economic development of Japan by extending long-term loans, mainly to primary and secondary sector industries, and which was reorganized as a joint stock company in October 2008 as part of its ongoing privatization process, with the government being required by law to continue to hold 50% or more of the shares in the bank until the completion of certain specified investment operations, which the bank is required to endeavor to achieve by March 2026, and more than one-third for an unspecified period thereafter;
•Japan Finance Corporation, which was formed in October 2008, through the merger of the international financial operations of the former Japan Bank for International Cooperation, National Life Finance Corporation, Agriculture, Forestry and Fisheries Finance Corporation, and Japan Finance Corporation for Small and Medium Enterprise, for the
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primary purposes of supplementing and encouraging the private financing of exports, imports, overseas investments and overseas economic cooperation, and supplementing private financing to the general public, small and medium-sized enterprises and those engaged in agriculture, forestry and fishery. In April 2012, Japan Finance Corporation spun off its international operations to create Japan Bank for International Cooperation as a separate government-owned entity;
•Japan Housing Finance Agency, which was originally established in June 1950 as the Government Housing Loan Corporation for the purpose of providing housing loans to the general public, and which was reorganized as an incorporated administrative agency and started to specialize in securitization of housing loans in April 2007; and
•The Japan Post Group companies, a group of joint stock companies including Japan Post Bank, which were formed in October 2007 as part of the Japanese government’s privatization plan for the former Japan Post, a government-run public services corporation, which had been the Postal Service Agency until March 2003. In November 2015, approximately 11% of the outstanding shares of each of Japan Post Bank, Japan Post Insurance and Japan Post Holdings were sold to the public, and these companies are currently listed on the Tokyo Stock Exchange. As of March 31, 2023, Japan Post Holdings held 60.62% of the outstanding shares of Japan Post Bank, with a publicly announced target to reduce its shareholding in Japan Post Bank to 50% or below by the end of March 2026. As of March 31, 2023, Japan Post Holdings held 49.84% of the outstanding shares of Japan Post Insurance.
Supervision and Regulation
Japan
Supervision. The FSA is responsible for supervising and overseeing financial institutions, making policy for the overall Japanese financial system and conducting insolvency proceedings with respect to financial institutions. The Bank of Japan, as the central bank for financial institutions, also has supervisory authority over banks in Japan, based primarily on its contractual agreements and transactions with the banks.
The Banking Act. Among the various laws that regulate financial institutions, the Banking Act and its subordinated orders and ordinances are regarded as the fundamental law for ordinary banks and other private financial institutions. The Banking Act addresses capital adequacy, inspections and reporting of banks and bank holding companies, as well as the scope of business activities, disclosure, accounting, limitation on granting credit and standards for arm’s length transactions for them. Bank holding companies, banks and other financial institutions are required to establish an appropriate system to cope with conflicts of interest that may arise from their business operations.
The Banking Act and various other financial regulation related laws have recently been amended, including certain deregulations on restrictions for shareholdings by banks. For example, although a bank is generally prohibited from holding more than 5% of the outstanding shares of another company (other than certain financial businesses) under the Banking Act, an amendment to the Banking Act which took effect in April 2017 allows banks to acquire and hold more than 5% of the voting rights in certain financial technology companies if approved by the FSA. An additional amendment to the Banking Act which took effect in June 2018 introduced a framework for affiliation and cooperation between financial institutions and financial technology companies while adding measures designed to ensure customer protection. A further amendment to the Banking Act which took effect in May 2020 allows banks to engage in certain information provision services relating to customer and other information. In addition, an amendment to the Banking Act which took effect in November 2021 allows banks to engage in certain services contributory to the construction of a sustainable society such as regional revitalization or productivity enhancement and allows banks, with the FSA’s approval, to acquire and hold more than 5% of the voting rights in companies which engage in certain services contributory to the construction of a sustainable society such as regional revitalization or productivity enhancement.
Bank holding company regulations. A bank holding company is prohibited from carrying out any business other than the management of its subsidiaries and other incidental businesses. A bank holding company may have any of the following as a subsidiary: a bank, a securities company, an insurance company, a foreign subsidiary that is engaged in the banking, securities or insurance business and any company that is engaged in a finance-related business, such as a credit card company, a leasing company, investment advisory company, or financial technology company as permitted by the April 1, 2017 amendments to the Banking Act. Certain companies that are designated by a ministerial ordinance as those that cultivate new business fields may also become the subsidiaries of a bank holding company.
In addition, under the April 1, 2017 amendments to the Banking Act, a bank holding company (i) is required to perform certain specified functions as a bank holding company to ensure effective management of its subsidiaries and (ii) is allowed to engage in certain specified common operations of its subsidiaries so as to improve the efficiency of the operations of its group companies.
Capital adequacy. The capital adequacy guidelines adopted by the FSA that are applicable to Japanese bank holding companies and banks with international operations closely follow the risk-weighted approach introduced by the Basel Committee on Banking Supervision of the Bank for International Settlements.
Basel II, as adopted by the FSA, has been applied to Japanese banks since March 31, 2007. Basel III, as adopted by the FSA, has been applied to Japanese banking institutions with international operations conducted through their foreign offices since March 31, 2013. Basel III is built on “three pillars”: (1) minimum capital requirements, (2) the self-regulation of financial institutions based on supervisory review process, and (3) market discipline through the disclosure of information.
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The Group of Central Bank Governors and Heads of Supervision reached an agreement on the new global regulatory framework, which has been referred to as “Basel III,” in July and September 2010. In December 2010, the Basel Committee agreed on the details of the Basel III rules. The agreement on Basel III includes the following: (1) raising the quality of capital to ensure banks are able to better absorb losses both on a going concern basis and on a gone concern basis, (2) increasing the risk coverage of the capital framework, in particular for trading activities, securitizations, exposures to off-balance sheet vehicles and counterparty credit exposures arising from derivatives, (3) raising the level of minimum capital requirements, including an increase in the minimum common equity requirement from 2% to 4.5%, which was phased in between January 1, 2013 and the end of the calendar year 2014, and a capital conservation buffer of 2.5%, which was phased in between January 1, 2016 and the end of the calendar year 2018, bringing the total common equity requirement to 7%, (4) introducing an internationally harmonized leverage ratio to serve as a backstop to the risk-based capital measure and to contain the build-up of excessive leverage in the system, (5) raising standards for the supervisory review process (Pillar 2) and public disclosures (Pillar 3), together with additional guidance in the areas of valuation practices, stress testing, liquidity risk management, corporate governance and compensation, (6) introducing minimum global liquidity standards consisting of both a short term liquidity coverage ratio, or LCR, and a longer term structural net stable funding ratio, or NSFR, and (7) promoting the build-up of capital buffers that can be drawn down in periods of stress, including both a capital conservation buffer and a countercyclical buffer to protect the banking sector from periods of excess credit growth.
Under Basel III, Common Equity Tier 1, Tier 1 and total capital ratios are used to assess capital adequacy, which ratios are determined by dividing applicable capital components by risk-weighted assets. Total capital is defined as the sum of Tier 1 and Tier 2 capital.
Under Basel III, Tier 1 capital is defined to include Common Equity Tier 1 and Additional Tier 1 capital. Common Equity Tier 1 capital is a new category of capital primarily consisting of:
•common stock,
•capital surplus,
•retained earnings, and
•accumulated other comprehensive income.
Regulatory adjustments including certain intangible fixed assets, such as goodwill, and defined benefit pension fund net assets (prepaid pension costs) will be deducted from Common Equity Tier 1 capital.
Additional Tier 1 capital generally consists of Basel III compliant preferred shares and perpetual subordinated obligations, net of regulatory adjustments.
Tier 2 capital generally consists of:
•Basel III compliant subordinated obligations,
•allowances for credit losses, and
•non-controlling interests in subsidiaries’ Tier 2 capital instruments.
In order to qualify as Tier 1 or Tier 2 capital under Basel III, applicable instruments such as preferred shares and subordinated debt must have a clause in their terms and conditions that requires them to be written-off or forced to be converted into common stock upon the occurrence of certain trigger events.
Risk-weighted assets are the sum of risk-weighted assets compiled for credit risk purposes, quotient of dividing the amount equivalent to market risk by 8%, and quotient of dividing the amount equivalent to operational risk by 8%, and also include any amount to be added due to transitional measures as well as floor adjustments, if necessary. Risk-weighted assets include the capital charge of the credit valuation adjustment, or CVA, the credit risk related to asset value correlation multiplier for large financial institutions, the 250% risk-weighted threshold items not deducted from Common Equity Tier 1 capital, and certain Basel II capital deductions that were converted to risk-weighted assets under Basel III, such as securitizations and significant investments in commercial entities. Certain Basel III provisions were adopted by the FSA with transitional measures and became effective March 31, 2013.
The capital ratio standards applicable to us are as follows:
•a minimum total capital ratio of 8.0%,
•a minimum Tier 1 capital ratio of 6.0%, and
•a minimum Common Equity Tier 1 capital ratio of 4.5%.
These minimum capital ratios are applicable to MUFG on a consolidated basis and to MUFG Bank and Mitsubishi UFJ Trust and Banking on a consolidated as well as stand-alone basis.
The approval granted to us by the FSA to exclude the majority of our investment in Morgan Stanley from being subject to double gearing adjustments, which had been phased out over a ten-year period, expired on March 30, 2023.
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The Financial Stability Board identified us as a global systemically important bank, or G-SIB, in its most recent annual report published in November 2022, and is expected to update the list of G-SIB annually. In December 2015, the FSA also designated us as a G-SIB as well as a domestic systemically important bank generally referred to as a “D-SIB.”
Effective March 31, 2016, the FSA’s capital conservation buffer, countercyclical buffer and G-SIB surcharge requirements became applicable to Japanese banking institutions with international operations conducted through foreign offices, including us. The requirements as of March 31, 2023 consist of a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.04% in addition to the 4.5% minimum Common Equity Tier 1 capital ratio.
In December 2017, the Group of Central Bank Governors and Heads of Supervision released final Basel III reforms. The reforms are designed, among other things, to help reduce excessive variability in risk-weighted assets among banks and improve the comparability and transparency of banks’ risk-based capital ratios. The reforms endorsed by the Group of Central Bank Governors and Heads of Supervision include the following elements:
•a revised standardized approach for credit risk, which is designed to improve the robustness and risk sensitivity of the existing approach;
•revisions to the internal ratings-based approach for credit risk, where the use of the most advanced internally modelled approaches for low-default portfolios will be limited;
•revisions to CVA framework, including the removal of the internally modelled approach and the introduction of a revised standardized approach;
•a revised standardized approach for operational risk, which will replace the existing standardized approaches and the advanced measurement approaches;
•revisions to the measurement of the leverage ratio and a leverage ratio buffer for G-SIBs, which will take the form of a Tier 1 capital buffer set at 50% of a G-SIB’s risk-weighted capital buffer; and
•an aggregate output floor, which is designed to ensure that banks’ risk-weighted assets generated by internal models are no lower than 72.5% of risk-weighted assets as calculated by the Basel III framework’s standardized approaches. Banks will also be required to disclose their risk-weighted assets based on these standardized approaches.
Most of the reforms was scheduled to become effective on January 1, 2022, subject to implementation through legislation and regulation in each of the relevant jurisdictions, including Japan. In March 2020, the implementation date was deferred by one year to January 1, 2023 in light of the COVID-19 pandemic. In April 2022, the FSA announced a further deferment of the implementation date by one more year to March 31, 2024 for banking institutions with international operations conducted through foreign offices, including us.
In January 2019, the Group of Central Bank Governors and Heads of Supervision approved the Basel Committee on Banking Supervision’s finalized market risk capital framework. The approved market risk framework was scheduled to become effective on January 1, 2022, subject to implementation through legislation and regulation in each of the relevant jurisdictions, including Japan. In March 2020, the implementation date was deferred by one year to January 1, 2023 in light of the COVID-19 pandemic. In April 2022, the FSA announced a further deferment of the implementation date by one more year to March 31, 2024 for banking institutions with international operations conducted through foreign offices, including us.
For a discussion on our capital ratios, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Adequacy.”
Leverage ratio. Japanese banks and bank holding companies with international operations, including us, are required to maintain a minimum leverage ratio and disclose their leverage ratios calculated in accordance with the methodology prescribed in the FSA guidelines that have been adopted to implement the relevant Basel III standard. The leverage ratio is designed for monitoring and preventing the build-up of excessive leverage in the banking sector and is expressed as the ratio of Tier 1 capital to total balance sheet assets adjusted in accordance with the FSA guidelines. In December 2017, the Group of Central Bank Governors and Heads of Supervision announced final Basel III reforms. The announced reforms include the revisions to the measurement of the leverage ratio and a 3.00% minimum leverage ratio requirement, plus a G-SIB leverage ratio buffer equal to 50% of the applicable G-SIB capital surcharge. The announcement sets forth implementation dates of January 1, 2018 for the minimum leverage ratio requirement and January 1, 2022 for the G-SIB leverage ratio buffer requirement. In Japan, the FSA adopted a minimum leverage ratio requirement at 3.00%, effective March 31, 2019, and the minimum leverage ratio requirement applied to us as of March 31, 2023 is 3.75%, including a leverage ratio buffer set at 50% of a G-SIB surcharge which, as applied to us, equals 0.75%. Since June 30, 2020, deposits with the Bank of Japan have been temporarily excluded from the calculation of the leverage ratio. On November 11, 2022, the FSA announced that the applicable minimum leverage ratio requirement including the applicable minimum leverage ratio buffer requirement will be raised from 3.00% plus a G-SIB leverage ratio buffer set at 50% of a G-SIB surcharge to 3.15% plus a G-SIB leverage ratio buffer set at 50% of a G-SIB surcharge plus 0.05% on and after April 1, 2024, while deposits with the Bank of Japan will continue to be excluded from the leverage exposure for the purpose of the calculation of the leverage ratio, in light of exceptional macroeconomic conditions and other circumstances.
Total loss-absorbing capacity. In November 2015, the Financial Stability Board issued the final Total Loss-Absorbing Capacity, or TLAC, standard for G-SIBs, including us. The Financial Stability Board’s TLAC standard is designed to ensure that if a G-SIB
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fails, it has sufficient loss-absorbing and recapitalization capacity available in resolution to implement an orderly resolution that minimizes impacts on financial stability, ensures the continuity of critical functions, and avoids exposing public funds to loss. The Financial Stability Board’s TLAC standard defines a minimum requirement for the instruments and liabilities that should be readily available to absorb losses in resolution.
The TLAC standard which was set forth in the regulatory notices and related materials for the implementation of the Financial Stability Board’s TLAC standard in Japan published by the FSA in March 2019 and which became applicable to (i) G-SIBs in Japan in phases starting on March 31, 2019 until fully implemented on March 31, 2022, and (ii) a domestic systemically important bank designated by the FSA, or D-SIB, in Japan deemed to be in particular need for a cross-border resolution arrangement and of particular systemic significance to the Japanese financial system if it fails (such G-SIBs and D-SIB, collectively, “Covered SIBs”) in phases starting on March 31, 2021 until its scheduled full implementation on March 31, 2024, respectively, or the Japanese TLAC Standard, requires entities designated by the FSA as Domestic Resolution Entities for Covered-SIBs to meet certain minimum external total loss-absorbing capacity, or External TLAC, requirements. The Japanese TLAC Standard and the Financial Stability Board’s TLAC standard also require the Domestic Resolution Entities to cause any of their material subsidiaries in Japan designated as systemically important by the FSA or their foreign subsidiaries subject to TLAC or similar requirements in the relevant jurisdictions to maintain certain minimum level of capital and debt having internal total loss-absorbing and recapitalization capacity, or Internal TLAC.
In the Japanese TLAC Standard, the FSA has designated the relevant ultimate holding companies in Japan as Domestic Resolution Entities for the Covered SIBs and, in our case, MUFG as the Domestic Resolution Entity for our Group, making MUFG subject to the External TLAC requirements in Japan. The FSA has also designated MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Morgan Stanley Securities as MUFG’s material subsidiaries in Japan, which are subject to the Internal TLAC requirements applicable to MUFG.
External TLAC debt generally consists of Basel III compliant regulatory capital and the Japanese TLAC Standard compliant obligations, net of regulatory adjustments. Internal TLAC debt generally consists of Basel III compliant regulatory capital and the Japanese TLAC Standard compliant subordinated obligations, net of regulatory adjustments. The Japanese TLAC Standard does not require that, in order for unsecured senior debt issued by the Domestic Resolution Entity of a Japanese G-SIB to qualify as External TLAC debt, such debt be subject to any contractual write-down, write-off or conversion provisions or to any subordination provisions so long as its creditors are recognized as structurally subordinated to the creditors of its subsidiaries and affiliates by the FSA on the ground that the amount of excluded liabilities of such Domestic Resolution Entity ranking pari passu with, or junior to, its unsecured senior liabilities does not, in principle, exceed 5% of the aggregate amount of its External TLAC. In contrast, Internal TLAC debt incurred by a material subsidiary of a Japanese G-SIB is required to be subject to contractual loss absorption provisions and to be subordinated to such subsidiary’s excluded liabilities.
The Japanese TLAC Standard currently requires a Japanese G-SIB, including us, to issue and maintain TLAC debt in an amount not less than 18% of its consolidated risk-weighted assets and 6.75% of the applicable Basel III leverage ratio denominator. In addition, under the Japanese TLAC Standard, Japanese G-SIBs are allowed to count as external TLAC the Japanese Deposit Insurance Fund Reserves in an amount equivalent to 3.5% of their consolidated risk-weighted assets.
Deposits with the Bank of Japan are temporarily excluded from the calculation of External TLAC ratio and Internal TLAC amounts on a total exposure basis as well as the leverage ratio from June 30, 2020 until March 31, 2024. On November 11, 2022, the FSA announced that the applicable external TLAC ratio on a total exposure basis will be raised from 6.75% to 7.10% on and after April 1, 2024, while deposits with the Bank of Japan continue to be excluded from the total exposure for the purpose of the calculation of External TLAC ratio and Internal TLAC amounts in light of exceptional macroeconomic conditions and other circumstances.
Under the Japanese TLAC Standard, the FSA may order the Domestic Resolution Entity of a Covered SIB to submit a report outlining an improvement plan if the External TLAC ratio of the Domestic Resolution Entity or the Internal TLAC of its material subsidiaries in Japan falls below the minimum requirements. If the FSA further deems it necessary to ensure improvement, the FSA may issue a business improvement order to such Domestic Resolution Entity.
The Domestic Resolution Entity may also be subject to a capital distribution constraints plan if the capital buffers are used and reduced below the required level to make up for its required External TLAC on a risk-weighted assets basis.
See “Item 3.D Key Information—Risk Factors—Risks Related to Our Ability to Meet Regulatory Capital Requirements—We may not be able to maintain our capital ratios and other regulatory ratios above minimum required levels, which could result in various regulatory actions, including the suspension of some or all of our operations.”
Prompt corrective action system. Under the prompt corrective action system, the FSA may take corrective action, if a bank or a bank holding company fails to meet the minimum capital adequacy ratio or leverage ratio. These actions include requiring such bank or bank holding company to formulate and implement capital improvement measures, requiring it to reduce assets or the bank’s business operations or take other specific actions, and issuing an order to dispose of shares of its subsidiaries or suspend all or part of the bank’s business operations.
Capital distribution constraints system. Under the capital distribution constraints system, the FSA may order a bank or a bank holding company to submit and carry out a capital distribution constraints plan, if the bank or the bank holding company fails to maintain Common Equity Tier 1 capital required as applicable capital buffers. In July and November 2022, the FSA published amendments to the regulatory notices and related ordinances regarding the leverage ratio buffer requirement which became applicable to Japanese G-SIBs, including us, from March 31, 2023. Under these amendments, the FSA may order a bank or a bank holding
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company to submit and carry out a capital distribution constraints plan, if the bank or the bank holding company fails to maintain Tier 1 capital required as the applicable leverage buffer. A capital distribution constraints plan must be determined to be reasonably designed to restore the required capital buffers by restricting capital distributions, such as dividends, share buybacks, interest payments on, and redemption and repurchase of, Additional Tier 1 capital instruments, and bonus payments, up to a certain amount depending on the level of the deficit in the required capital buffers of the bank or the bank holding company.
Prompt warning system. Under the prompt warning system, the FSA may take precautionary measures to maintain and promote the sound operations of financial institutions, even before those financial institutions become subject to prompt corrective actions. These measures require a financial institution to enhance profitability, credit risk management, stability and cash flows.
Deposit insurance system and government measures for troubled financial institutions. The Deposit Insurance Act is intended to protect depositors if a financial institution fails to meet its obligations. The Deposit Insurance Corporation was established in accordance with the Deposit Insurance Act.
City banks, including MUFG Bank, regional banks, trust banks, including Mitsubishi UFJ Trust and Banking, and various other credit institutions participate in the deposit insurance system on a compulsory basis.
Under the Deposit Insurance Act, the maximum amount of protection is ¥10 million per customer within one bank. The ¥10 million maximum applies to all deposits except for non-interest bearing deposits, which are non-interest bearing deposits redeemable on demand and maintained by depositors primarily in settlement accounts for payment and settlement purposes. Deposits in settlement accounts are fully protected without a maximum amount limitation. Certain types of deposits are not covered by the deposit insurance system, such as foreign currency deposits and negotiable certificates of deposit. As of April 1, 2023, the Deposit Insurance Corporation charged an insurance premium equal to 0.021% per year on the deposits in the settlement accounts, and a premium equal to 0.014% per year on the deposits in other accounts.
Under the Deposit Insurance Act, a Financial Reorganization Administrator can be appointed by the Prime Minister if a bank’s liabilities exceed its assets or a bank has suspended, or is likely to suspend, repayment of deposits. The Financial Reorganization Administrator will take control of the assets of the troubled bank, dispose of the assets and search for another institution willing to take over the troubled bank’s business. The troubled bank’s business may also be transferred to a “bridge bank” established by the Deposit Insurance Corporation to enable the troubled bank’s operations to be maintained and continue temporarily, and the bridge bank will seek to transfer the troubled bank’s assets to another financial institution or dissolve the troubled bank. The Deposit Insurance Corporation protects deposits, as described above, either by providing financial aid for costs incurred by the financial institution succeeding the insolvent bank or by paying insurance money directly to depositors. The financial aid provided by the Deposit Insurance Corporation may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debt, subscription for preferred stock, or loss sharing.
The Deposit Insurance Act also provides for exceptional measures to cope with systemic risk in the financial industry. Where the Prime Minister recognizes that the failure of a bank which falls into any of (i) through (iii) below may cause an extremely grave problem to the maintenance of the financial order in Japan or the region where such bank is operating, or systemic risk, if none of the measures described in (i) through (iii) below is implemented, the Prime Minister may, following deliberation by the Financial Crisis Response Council, confirm (nintei) the need to take any of the following measures: (i) if the bank does not fall into either of the categories described in (ii) or (iii) below, the Deposit Insurance Corporation may subscribe for shares or subordinated bonds of, or extend subordinated loans to the bank, or subscribe for shares of the bank holding company of the bank, in order to enhance the bank’s regulatory capital (“Item 1 measures” (dai ichigo sochi)); (ii) if the bank has suspended, or is likely to suspend, repayment of deposits, or its liabilities exceed its assets, financial aid exceeding the pay-off cost may be made available to such bank (“Item 2 measures” (dai nigo sochi)); and (iii) if the bank has suspended, or is likely suspend, repayment of deposits, and its liabilities exceed its assets, and the systemic risk cannot be avoided by the measures mentioned in (ii) above, the Deposit Insurance Corporation may acquire all of the bank’s shares (“Item 3 measures” (dai sango sochi)). The expenses for the implementation of the above measures will be borne by the banking industry, with an exception under which the Japanese government may provide partial subsidies for such expenses.
Under the new orderly resolution regime established by amendments to the Deposit Insurance Act that were promulgated in June 2013 and became effective on March 6, 2014, financial institutions, including banks, insurance companies and securities companies and their holding companies, are subject to the regime. Further, where the Prime Minister recognizes that the failure of a financial institution which falls into either of (a) or (b) below may cause a significant disruption to the Japanese financial market or system in Japan if measures described in (a) or measures described in (b) are not taken, the Prime Minister may, following deliberation by the Financial Response Crisis Council, confirm (nintei) that any of the following measures need to be applied to the financial institution:
(a)if the financial institution is not a financial institution whose liabilities exceed its assets, the financial institution shall be placed under the special supervision by the Deposit Insurance Corporation over the financial institution’s business operations and management and the disposal of the financial institution’s assets, and the Deposit Insurance Corporation may provide the financial institution with loans or guarantees necessary to avoid the risk of significant disruption to the financial system in Japan, or subscribe for shares or subordinated bonds of, or extend subordinated loans to, the financial institution, taking into consideration the financial condition of the financial institution (“Specified Item 1 measures” (tokutei dai ichigo sochi) under Article 126-2, Paragraph 1, Item 1 of the Deposit Insurance Act); or
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(b)if the financial institution is a financial institution whose liabilities exceed, or are likely to exceed, its assets or which has suspended, or is likely to suspend, payments on its obligations, the financial institution shall be placed under the special supervision by the Deposit Insurance Corporation over the financial institution’s business operations and management and the disposal of the financial institution’s assets, and the Deposit Insurance Corporation may provide financial aid necessary to assist a merger, business transfer, corporate split or other reorganization in respect of such failed financial institution (“Specified Item 2 measures” (tokutei dai nigo sochi) under Article 126-2, Paragraph 1, Item 2 of the Deposit Insurance Act).
If the Prime Minister confirms that any of the measures set out in (b) above needs to be applied to a failed financial institution, the Prime Minister may order that the failed financial institution’s business operations and management and the disposal of the failed financial institution’s assets be placed under the special control of the Deposit Insurance Corporation. The business or liabilities of the financial institution subject to the special supervision or the special control of the Deposit Insurance Corporation as set forth above may also be transferred to a “bridge financial institution” established by the Deposit Insurance Corporation to enable the financial institution’s operations to be maintained and continue temporarily, or the financial institution’s liabilities to be repaid, and the bridge financial institution will seek to transfer the financial institution’s business or liabilities to another financial institution or dissolve the financial institution. The financial aid provided by the Deposit Insurance Corporation to assist a merger, business transfer, corporate split or other reorganization in respect of the failed financial institution set out in (b) above may take the form of a monetary grant, loan or deposit of funds, purchase of assets, guarantee or assumption of debts, subscription for preferred stock or subordinated bonds, subordinated loan, or loss sharing. If the Deposit Insurance Corporation has provided such financial assistance, the Prime Minister may designate the movable assets and claims of the failed financial institution as not subject to attachment, and such merger, business transfer, corporate split or other reorganization may be conducted outside of the court-administrated insolvency proceedings. If the financial institution subject to the special supervision or the special control by the Deposit Insurance Corporation as set forth above has liabilities that exceed, or are likely to exceed, its assets, or has suspended, or is likely to suspend, payments on its obligations, the financial institution may transfer all or a material portion of its business or all or a material portion of shares of its subsidiaries or implement corporate split or certain other corporate actions with court permission in lieu of any shareholder resolutions. In addition, the Deposit Insurance Corporation must request other financial institution creditors of the failed financial institution to refrain from exercising their rights against the failed financial institution until measures necessary to avoid the risk of significant disruption to the financial system in Japan have been taken, if it is recognized that such exercise of their rights is likely to make the orderly resolution of the failed financial institution difficult.
The expenses for implementation of the measures under this regime will be borne by the financial industry, with an exception under which the Japanese government may provide partial subsidies for such expenses within the limit to be specified in the government budget in cases where it is likely to cause extremely serious hindrance to the maintenance of the credit system in Japan or significant turmoil in the Japanese financial market or system if such expenses are to be borne only by the financial industry.
According to the announcement made by the FSA in March 2014, (i) Additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank must be written down or converted into common shares when the Prime Minister confirms (nintei) that Item 2 measures (dai nigo sochi), Item 3 measures (dai sango sochi), or Specified Item 2 measures (tokutei dai nigo sochi) need to be applied to the bank and (ii) Additional Tier 1 instruments and Tier 2 instruments under Basel III issued by a bank holding company must be written down or converted into common shares when the Prime Minister confirms (nintei) that Specified Item 2 measures (tokutei dai nigo sochi) need to be applied to the bank holding company.
Further, in an explanatory paper outlining the FSA’s approach for the introduction of the TLAC framework in Japan published by the FSA in April 2016 and revisions to the paper published by the FSA in April 2018, collectively the FSA TLAC Approach, as well as in the Japanese TLAC Standard, the FSA expressed its view that single point of entry, or SPE, resolution, in which a single national resolution authority applies its resolution tools to the ultimate holding company in Japan of a financial group, would be the preferred strategy for resolution of the Covered SIBs. However, it is uncertain which measure is to be taken in a given case, including whether or not the SPE resolution strategy will actually be elected and implemented in a given case, and the actual measures to be taken will be determined on a case-by-case basis considering the actual condition of the relevant Japanese G-SIB in distress. Under a possible model of resolution of a Japanese G-SIB based on the SPE resolution strategy as described in the Japanese TLAC Standard, if the FSA determines that a material subsidiary in Japan of a financial institution that is a Japanese G-SIB is non-viable due to material deterioration in its financial condition and issues an order concerning restoration of financial soundness, including recapitalization and restoration of liquidity of such material subsidiary, to the ultimate holding company in Japan designated by the FSA as Domestic Resolution Entity for the financial institution under the Banking Act of Japan (Act No. 59 of 1981), the material subsidiary’s Internal TLAC instruments will be written off or, if applicable, converted into equity in accordance with the applicable contractual loss absorption provisions of such Internal TLAC instruments. Following the write-off or conversion of Internal TLAC instruments, if the Prime Minister recognizes that the financial institution’s liabilities exceed, or are likely to exceed, its assets, or that it has suspended, or is likely to suspend, payments on its obligations, as a result of the financial institution’s loans to, or other investment in, the material subsidiary becoming subject to loss absorption or otherwise, and further recognizes that the failure of such financial institution is likely to cause a significant disruption to the Japanese financial market or system, the Prime Minister may, following deliberation by the Financial Crisis Response Council, confirm that Specified Item 2 Measures (tokutei dai nigo sochi) need to be applied to the financial institution for its orderly resolution. Any such confirmation by the Prime Minister also triggers the point of non-viability clauses of Additional Tier 1 and Tier 2 instruments issued by the financial institution, causing such instruments to be written off or, if applicable, converted into equity, as described above.
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Upon the application of Specified Item 2 Measures (tokutei dai nigo sochi), a financial institution will be placed under the special supervision by, or if the Prime Minister so orders, under the special control of, the Deposit Insurance Corporation. In an orderly resolution, the Deposit Insurance Corporation would control the operation and management of a financial institution’s business, assets and liabilities, including the potential transfer to a bridge financial institution established by the Deposit Insurance Corporation as its subsidiary, or such other financial institution as the Deposit Insurance Corporation may determine, of the financial institution’s systemically important assets and liabilities, which we expect in the case of MUFG would include the shares of our material subsidiaries based on the Japanese TLAC Standard. The Prime Minister may prohibit creditors of the financial institution from attaching any of our assets and claims which are to be transferred to a bridge financial institution or another financial institution. Based on the Japanese TLAC Standard, it is currently expected that the External TLAC eligible senior notes issued by the financial institution will not be transferred to a bridge financial institution or other transferee in the orderly resolution process but will remain as such financial institution’s liabilities subject to court-administered insolvency proceedings. On the other hand, in an orderly resolution process, the shares of material subsidiaries of such financial institution may be transferred to a bridge financial institution or other transferee, and such financial institution would only be entitled to receive consideration representing the fair value of such shares, which could be significantly less than the book value of such shares. Following such business transfer, the recoverable value of such financial institution’s residual assets in court-administered insolvency proceedings may not be sufficient to fully satisfy any payment obligations that such financial institution may have under its liabilities, including the External TLAC eligible senior notes.
Recovery and resolution plan. In November 2022, the Financial Stability Board published the latest list of G-SIBs, which includes us. The list is annually updated by the Financial Stability Board. A recovery and resolution plan must be put in place for each G-SIB, and the plans must be regularly reviewed and updated. In Japan, under the Banking Act and the Comprehensive Guidelines for Supervision of Major Banks, etc., financial institutions identified as G-SIBs must, as part of their crisis management, prepare and submit a recovery plan, including triggers for the recovery plan and an analysis of recovery options, to the FSA. The Comprehensive Guidelines also provide that resolution plans for such financial institutions are prepared by the FSA. We have submitted our most recent recovery plan to the FSA in a timely manner.
Liquidity Coverage Ratio. Japanese banks and bank holding companies with international operations conducted through foreign offices are required to maintain a minimum LCR and disclose their LCRs calculated in accordance with the methodology prescribed in the FSA guidelines that have been adopted to implement the relevant Basel III standard. The LCR is a measure to determine whether a bank has a sufficient amount of high-quality liquid assets, which are assets that can be converted easily and immediately into cash in private markets in order to meet the bank’s liquidity needs, to survive in a 30-day financial stress scenario, including sizable deposit outflows, inability to issue new bonds or access the interbank market, stoppage of the collateralized funding market, need for additional collateral in connection with derivative transactions, and significant outflows of cash under commitment lines to customers. Once a bank or bank holding company fails to meet the minimum LCR of 100%, it is required to immediately report such failure to the FSA. If the FSA deems the financial condition of the bank or bank holding company to be serious, the FSA may issue a business improvement order. A minimum LCR of 100% is currently required.
Net Stable Funding Ratio. Japanese banks and bank holding companies with international operations conducted through foreign offices are also required to maintain a minimum NSFR and disclose their NSFRs calculated in accordance with the methodology prescribed in the FSA guidelines that have been adopted to implement the relevant Basel III standard. The NSFR is a measure to determine whether a bank has sustainable and long-term liabilities and capital for its assets and activities. The Basel Committee on Banking Supervision issued the final standard of NSFR in October 2014. In Japan, the FSA promulgated its NSFR guidelines on March 31, 2021, and the NSFR requirements became applicable on September 30, 2021, requiring a minimum NSFR of 100%. Once a bank or bank holding company fails to meet the minimum NSFR of 100%, it is required to immediately report such failure to the FSA. If the FSA deems the financial condition of the bank or bank holding company to be serious, the FSA may issue a business improvement order.
Inspection and reporting. The FSA has the authority to order reporting from, and inspect, banks and banking holding companies in Japan. Based on its “Principles and Approaches of Inspection and Supervision,” the FSA seeks to evaluate the effectiveness of the operations and functions of financial institutions, supervise financial institutions based on proactive and forward-looking analyses, facilitate best practices among financial institutions, focus monitoring on high-priority issues, and integrate on- and off-site monitoring.
Furthermore, the Securities and Exchange Surveillance Commission of Japan, or SESC, inspects banks in connection with their securities business as well as financial instruments business operators, such as securities firms. The Bank of Japan also conducts inspections of banks. The Bank of Japan Law provides that the Bank of Japan and financial institutions may agree as to the form of inspection to be conducted by the Bank of Japan.
Laws limiting shareholdings of banks. The provisions of the Antimonopoly Act that generally prohibit a bank from holding more than 5% of another company’s voting rights do not apply to a bank holding company.
However, the Banking Act prohibits a bank holding company and its subsidiaries from holding, on an aggregated basis, more than 15% of the voting rights of companies other than those which can legally become subsidiaries of bank holding companies. There have recently been amendments to various financial regulation related laws, including the Banking Act, which include certain deregulations of restrictions on shareholdings by banks, as described above.
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In addition, a bank is prohibited from holding shares in other companies exceeding the aggregate of its Common Equity Tier 1 capital amount and Additional Tier 1 capital amount.
Restrictions on exposures to single large counterparties. The Banking Act prohibits banks and bank holding companies (on a consolidated basis with their subsidiaries and affiliates) from having large exposure exceeding 25% of their Tier 1 capital to a single counterparty and also prohibits a G-SIB’s exposure to another G-SIB exceeding 15% of its Tier 1 capital.
Financial Instruments and Exchange Act. The Financial Instruments and Exchange Act provides protection for investors and also regulates sales of a wide range of financial instruments and services, requiring financial institutions to improve their sales rules and strengthen compliance frameworks and procedures. Among the instruments that the Japanese banks deal in, derivatives, foreign currency-denominated deposits, and variable insurance and annuity products are subject to regulations covered by the sales-related rules of conduct under the law.
Article 33 of the Financial Instruments and Exchange Act generally prohibits banks from engaging in securities transactions. However, bank holding companies and banks may, through a domestic or overseas securities subsidiary, conduct all types of securities businesses, with appropriate approval from the FSA. Similarly, registered banks are permitted to provide securities intermediation services and engage in certain other similar types of securities related transactions, including retail sales of investment funds and government and municipal bonds. In June 2021, certain amendments to the Cabinet Office Ordinance under the Act became effective, which allowed non-public and other information of foreign company customers to be shared within a financial group. In addition, on June 22, 2022, certain amendments to the Cabinet Office Ordinance under the Act became effective, which allowed non-public and other information of certain subject companies such as listed companies to be shared within a financial group without consent of such companies, but required financial institutions to establish measures to respond to a request from relevant companies for suspension of sharing of such information. At the same time, financial institutions are required to strengthen the effectiveness of measures to prevent market abuse.
Subsidiaries of bank holding companies engaging in the securities business are subject to the supervision of the FSA as financial instruments business operators. The Prime Minister has the authority to regulate the securities industry and securities companies, which authority is delegated to the Commissioner of the FSA under the Financial Instruments and Exchange Act. In addition, the SESC, an external agency of the FSA, is independent from the FSA’s other bureaus and is vested with the authority to conduct day-to-day monitoring of the securities markets and to investigate irregular activities that hinder fair trading of securities, including inspections of securities companies as well as banks in connection with their securities business. Furthermore, the Commissioner of the FSA delegates certain authority to the Director General of the Local Finance Bureau to inspect local securities companies and their branches. A violation of applicable laws and ordinances may result in various administrative sanctions, including revocation of registration, suspension of business, administrative monetary penalty or an order to discharge any director or executive officer who has failed to comply with applicable laws and ordinances. Securities companies are also subject to the rules and regulations of the Japanese stock exchanges and the Japan Securities Dealers Association, a self-regulatory organization of securities companies.
Act on Provision of Financial Services. Under the Act on Provision of Financial Services, sellers of financial instruments have a duty to their potential customers to explain important matters such as the nature and magnitude of risks involved regarding the financial instruments that they intend to sell. If a seller fails to comply with the duty, there is a rebuttable presumption that the loss suffered by the customer due to the seller’s failure to explain is equal to the amount of decrease in the value of the purchased financial instruments.
In addition, under a single registration for financial services intermediary business, registrants are permitted to provide intermediary services of each of banking, securities and insurance. The Act does not require any provider of financial services intermediary business to belong to a specific financial institution, but imposes certain regulations on such provider to protect customers, including limitations on the type of services that they may provide, prohibitions on the acceptance of assets of customers and the lodging of a security deposit.
Anti-money laundering laws. Under the Act on Prevention of Transfer of Criminal Proceeds, specified business operators, including financial institutions, are required to verify customer identification data, preserve transaction records, and file suspicious transaction reports with the FSA or other regulatory authorities in cases where any asset received through their business operations is suspected of being criminal proceeds.
Based on “Guidelines on Anti-Money Laundering and Terrorist Financing”, the FSA requires financial institutions to strengthen their management of anti-money laundering and terrorist financing functions and their risk-based approach used in such functions.
Recent amendments to the Enforcement Ordinance of the Act introduced requirements relating to online KYC processes in November 2018 and strengthened the requirements for KYC processes for customers residing in remote areas in April 2020.
Acts concerning trust business conducted by financial institutions. Under the Trust Business Act, joint stock companies that are licensed by the Prime Minister as trust companies, including non-financial companies, are allowed to conduct trust business. In addition, under the Act on Provision, etc. of Trust Business by Financial Institutions, banks and other financial institutions, as permitted by the Prime Minister, are able to conduct trust business. The Trust Business Act provides for a separate type of registration for trustees who conduct only administration type trust business. The Trust Business Act also provides for various duties imposed on the trustee in accordance with and in addition to the Trust Act.
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Act on the Protection of Personal Information. With regard to protection of personal information, the Act on the Protection of Personal Information requires, among other things, Japanese banking institutions to limit the use of personal information to the stated purposes and to properly manage the personal information in their possession, and forbids them from providing personal information to third parties without consent. If a bank violates certain provisions of the Act, the Personal Information Protection Commission of Japan may advise or order the bank to take proper action. In addition, the Banking Act and the Financial Instruments and Exchange Act contain certain provisions with respect to appropriate handling of customer information.
Act on the Use of Personal Identification Numbers in the Administration of Government Affairs. Pursuant to the Act on the Use of Personal Identification Numbers in the Administration of Government Affairs, which became effective in October 2015, the Japanese government has adopted a Social Security and Tax Number System, which is designed to (1) improve social security services, (2) enhance public convenience in obtaining government services, and (3) increase the efficiency of the administration of government affairs. Under this system, a 12-digit unique number is assigned to each resident of Japan to identify and manage information relating to the resident for government service and tax purposes. Financial institutions are required to implement measures to ensure that such customer information will be protected from inappropriate disclosure and other unauthorized use.
Act Concerning Protection of Depositors from Illegal Withdrawals Made by Counterfeit or Stolen Cards. The Act on Protection, etc. of Depositors and Postal Saving Holders from Unauthorized Automated Withdrawal, etc. Using Counterfeit Cards, etc. and Stolen Cards, etc. requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits made using counterfeit or stolen bank cards. The Act also requires a financial institution to compensate depositors for any amount illegally withdrawn using stolen bank cards except in certain cases, including those where the financial institution can verify that it acted in good faith without negligence and there was gross negligence on the part of the relevant depositor. In addition, the Act provides that illegal withdrawals with counterfeit bank cards are invalid unless the financial institution acted in good faith without negligence and there was gross negligence on the part of the relevant account holder.
Government reforms to restrict maximum interest rates on consumer lending business. In December 2006, the Diet passed legislation to reform the regulations relating to the consumer lending business, including amendments to the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates which, effective June 18, 2010, reduced the maximum permissible interest rate from 29.2% per annum to 20% per annum. The regulatory reforms also included amendments to the Money Lending Business Act which, effective June 18, 2010, abolished the so-called “gray-zone interest.” Gray-zone interest refers to interest rates exceeding the limits stipulated by the Interest Rate Restriction Act (between 15% per annum and 20% per annum depending on the amount of principal). Prior to June 18, 2010, gray-zone interests were permitted under certain conditions set forth in the Money Lending Business Act. As a result of the regulatory reforms, all interest rates are now subject to the lower limits imposed by the Interest Rate Restriction Act, compelling lending institutions, including our consumer finance subsidiaries and equity method investees, to lower the interest rates they charge borrowers. Furthermore, the new regulations, which became effective on June 18, 2010, require, among other things, consumer finance companies to limit their lending to a single customer to a maximum of one third of the customer’s annual income regardless of the customer’s repayment capability.
In addition, as a result of decisions made by the Supreme Court of Japan prior to June 18, 2010, imposing stringent requirements for charging such gray-zone interest rates, consumer finance companies have been responding to borrowers’ claims for reimbursement of previously collected interest payments in excess of the limits stipulated by the Interest Rate Restriction Act. See “Item 3.D. Key Information—Risk Factors—Operational Risk—Because of our loans to consumers and our shareholdings in companies engaged in consumer lending, changes in the business or regulatory environment for consumer finance companies in Japan may further adversely affect our financial results.”
Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act Incidental to Enforcement of Tax Treaties. Pursuant to the Amendments to the Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act Incidental to Enforcement of Tax Treaties, which became effective in January 2017, financial institutions are required to collect certain information from their accountholders, including jurisdictions of tax residence, and report such information to the National Tax Agency in accordance with the Common Reporting Standard as developed by the Organization for Economic Co-operation and Development.
United States
As a result of our operations in the United States, we are subject to extensive U.S. federal and state supervision and regulation.
Overall supervision and regulation. The MUFG Group is subject to supervision, regulation and examination with respect to our U.S. operations by the FRB pursuant to the U.S. Bank Holding Company Act of 1956, as amended, or the BHCA, and the International Banking Act of 1978, as amended, or the IBA, because we and MUFG Bank are bank holding companies and foreign banking organizations, as defined pursuant to those statutes. The FRB functions as our “umbrella” supervisor under amendments to the BHCA effected by the Gramm-Leach-Bliley Act of 1999, which among other things:
•authorized qualifying bank holding companies to opt to become “financial holding companies,” and thereby obtain the authority to engage in an expanded list of activities; and
•modified the role of the FRB by redefining the relationships between the FRB and the functional regulators of non-bank subsidiaries of both bank holding companies and financial holding companies.
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The BHCA generally prohibits each of a bank holding company and a foreign banking organization that maintains branches or agencies in the United States from, directly or indirectly, acquiring more than 5% of the voting shares of any company engaged in non-banking activities in the United States unless the bank holding company or foreign banking organization has elected to become a financial holding company, as discussed above, or the FRB has determined, by order or regulation, that such activities are so closely related to banking as to be a proper incident thereto and has granted its approval to the bank holding company or foreign banking organization for such an acquisition. The BHCA also requires a bank holding company or foreign banking organization that maintains branches or agencies in the United States to obtain the prior approval of an appropriate federal banking authority before acquiring, directly or indirectly, the ownership of more than 5% of the voting shares or control of any U.S. bank or bank holding company. In addition, under the BHCA, a U.S. bank or a U.S. branch or agency of a foreign banking organization is prohibited from engaging in various tying arrangements involving it or its affiliates in connection with any extension of credit, taking of deposits, sale or lease of any property or provision of most services.
In October 2008, we, MUFG Bank, Mitsubishi UFJ Trust and Banking and MUFG Americas Holdings initially attained financial holding company status. In August 2016, Mitsubishi UFJ Trust and Banking relinquished its financial holding company status. A financial holding company is authorized to engage in an expanded list of activities deemed to be financial in nature or incidental to such financial activity as well as certain specified non-banking activities deemed to be closely related to banking. In order to maintain the status as a financial holding company, a bank holding company must continue to meet certain standards established by the FRB. Those standards require that a financial holding company exceed the minimum standards applicable to bank holding companies that have not elected to become financial holding companies. These higher standards include meeting the “well capitalized” and “well managed” standards for financial holding companies as defined in regulations of the FRB. Failure to meet these standards, due to inadequate capital management or shortcomings in operations, results in restrictions on the ability to engage in expanded activities, including making acquisitions, as a financial holding company. In addition, a financial holding company must ensure that its U.S. insured banking subsidiaries meet certain minimum standards under the Community Reinvestment Act of 1977.
U.S. branches and agencies of subsidiary Japanese banks. Under the authority of the IBA, our banking subsidiaries, MUFG Bank and Mitsubishi UFJ Trust and Banking, operate five branches, two agencies and 17 representative offices in the United States. MUFG Bank operates branches in Los Angeles, California; Chicago, Illinois; and two branches in New York, New York; agencies in Houston and Dallas, Texas; and representative offices in Washington, D.C.; Tempe, Arizona; Los Angeles, Menlo Park, Monterey Park, Redwood City, San Diego and San Francisco, California; Danbury, Connecticut; Atlanta, Georgia; Florence, Kentucky; Boston, Massachusetts; Edina, Minnesota; Jersey City, New Jersey; Charlotte, North Carolina; Irving, Texas; and Seattle, Washington. Mitsubishi UFJ Trust and Banking operates a branch in New York, New York.
The IBA provides, among other things, that the FRB may examine U.S. branches and agencies of foreign banks, and each branch and agency shall be subject to on-site examination by the appropriate federal or state bank supervisor as frequently as would a U.S. bank. The IBA also provides that if the FRB determines that a foreign bank is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, or if there is reasonable cause to believe that the foreign bank or its affiliates have committed a violation of law or engaged in an unsafe or unsound banking practice in the United States, the FRB may order the foreign bank to terminate activities conducted at a branch or agency in the United States.
U.S. branches and agencies of foreign banks must be licensed, and are also supervised and regulated, by a state or by the Office of the Comptroller of the Currency (the “OCC”), the federal regulator of U.S. national banks. The OCC is an independent bureau of the U.S. Department of the Treasury. Effective November 7, 2017, all of the branches and agencies of MUFG Bank and Mitsubishi UFJ Trust and Banking in the United States converted from state-licensed branches and agencies to federally-licensed branches and agencies supervised and regulated by the OCC.
When opening a federal branch or agency, a foreign bank must establish and maintain a deposit account with an FRB member bank of at least (1) the amount of capital that would be required of a national bank being organized at the same location or (2) five percent of the total liabilities of the federal branch or agency, including acceptances but excluding (i) accrued expenses and (ii) amounts due and other liabilities to offices, branches, and subsidiaries of the foreign bank, whichever is greater. Federally-licensed branches and agencies must also submit written reports concerning their assets and liabilities and other matters, to the extent required by the OCC or the FRB, and are examined at periodic intervals by the OCC and the FRB.
U.S. banking subsidiaries. We previously owned and controlled one U.S. bank, MUFG Union Bank, N.A. (known prior to July 1, 2014 as Union Bank, N.A.), through MUFG Bank and its subsidiary, MUFG Americas Holdings, a bank holding company. Effective December 1, 2022, MUFG Union Bank, N.A. was sold to U.S. Bancorp.
Bank capital requirements and capital distributions. MUFG Bank and Mitsubishi UFJ Trust and Banking, as foreign banking organizations that have U.S. branches and agencies and are controlled by us, are subject to the FRB’s requirements that they be “well-capitalized” based on Japan’s risk based capital standards. MUFG Bank, Mitsubishi UFJ Trust and Banking, and MUFG Americas Holdings are all “well capitalized” as defined under, and otherwise comply with, all U.S. regulatory capital requirements applicable to them.
Other regulated U.S. subsidiaries. Our non-bank subsidiaries that engage in securities-related activities in the United States are regulated by appropriate functional regulators, such as the SEC, any self-regulatory organizations of which they are members, and the appropriate state regulatory agencies. These non-bank subsidiaries are required to meet separate minimum capital standards as imposed by those regulatory authorities.
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Anti-Money Laundering Initiatives, the Bank Secrecy Act, the USA PATRIOT Act. A major focus of U.S. governmental policy relating to financial institutions in recent years has been, and continues to be, aimed at preventing money laundering and terrorist financing. The USA PATRIOT Act of 2001, as incorporated into the Bank Secrecy Act, substantially broadened the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The U.S. Department of the Treasury has issued a number of regulations that impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report potential money laundering and terrorist financing, including the collection of beneficial ownership information. The bank regulatory agencies carefully scrutinize the adequacy of an institution’s compliance with these regulations and, as a result, there have been an increased number of regulatory enforcement actions. A financial institution’s failure to maintain and implement adequate policies, procedures and controls to prevent and detect money laundering and terrorist financing could have serious legal and reputational consequences for the institution, including the incurrence of expenses to enhance the relevant programs, the imposition of limitations on the scope of its operations and the imposition of fines and other monetary penalties. See “—Recent regulatory developments” below.
Foreign Corrupt Practices Act. In recent years, U.S. regulatory and enforcement agencies including the SEC and the U.S. Department of Justice have significantly increased their enforcement efforts of the Foreign Corrupt Practices Act, or the FCPA. The FCPA prohibits U.S. securities issuers, U.S. domestic entities, and parties doing substantial business within the United States (including their shareholders, directors, agents, officers, and employees) from giving, offering, or promising anything of value to foreign public officials in order to obtain or retain any business advantage. The FCPA also requires U.S. securities issuers to maintain adequate books and records in such a way that they fairly reflect all transactions and dispositions of assets. Enforcement efforts have targeted a wide range of U.S. and foreign-based entities and have been based on a broad variety of alleged fact patterns, and in a number of cases have resulted in the imposition of substantial criminal and civil penalties or in agreed payments in settlement of alleged violations. Failure to maintain adequate anti-bribery policies, procedures, internal controls, and books and records globally could have serious legal and reputational consequences for the institution, including the incurrence of expenses to enhance the relevant programs, as well as the imposition of civil and criminal penalties.
Regulatory Reform Legislation. In response to the global financial crisis of 2007-2008 and the perception that lax supervision of the financial industry in the United States may have been a contributing cause to the crisis, legislation designed to reform the system for supervision and regulation of financial firms doing business in the United States, the so-called Dodd-Frank Act, was signed into law on July 21, 2010. The Dodd-Frank Act is complex and extensive in its coverage and contains a wide range of provisions that affect financial institutions operating in the United States, including our U.S. operations. Included among these provisions are sweeping reforms designed to reduce systemic risk presented by largest financial firms, promote enhanced supervision, regulation, and prudential standards for financial firms, establish comprehensive supervision of financial markets, impose new limitations on permissible financial institution activities and investments, expand regulation of the derivatives markets, protect consumers and investors from financial abuse, and provide the government with the tools needed to manage a financial crisis. Key provisions that impact our operations are summarized below.
Among the components of the Dodd-Frank Act that have impacted or may impact our operations are the provisions relating to enhanced prudential standards, including capital, liquidity and structural requirements, the “Volcker Rule,” derivatives regulation, credit reporting, resolution plans, incentive-based compensation, the establishment of the Consumer Financial Protection Bureau, and debit interchange fees. Based on information currently available to us, other than the Volcker Rule and derivatives regulations as discussed below, the impact of these components is expected to be mainly limited to our U.S. operations and not to be material to us on a consolidated basis. We monitor developments that relate to the Dodd-Frank Act and the potential impact of its implementing regulations on our activities inside and outside of the United States.
With respect to the Dodd-Frank Act provisions related to enhanced prudential standards, in February 2014 the FRB issued final rules that established enhanced prudential standards for the U.S. operations of foreign banking organizations such as MUFG. These rules required us to organize by July 1, 2016 all of our U.S. bank and non-bank subsidiaries, with certain limited exceptions, under a U.S. Intermediate Holdings Company (“IHC”) that is subject to U.S. capital requirements and enhanced prudential standards comparable to those applicable to top-tier U.S. bank holding companies of the same size. Under these rules, we were required to change the structure of our U.S. operations, including the manner in which we oversee and manage those operations, and may be required to inject additional capital into our U.S. operations. We have designated MUFG Americas Holdings as our IHC. We will be required to maintain an IHC in the U.S. as long as the average sum of the consolidated assets of our top-tier U.S. subsidiary for the four most recent calendar quarters equals $50 billion or more.
MUFG Americas Holdings is subject to various U.S. prudential requirements as a BHC and became subject to additional requirements with the designation of MUFG Americas Holdings as our IHC as of July 1, 2016. As an IHC, MUFG Americas Holdings is subject to risk-based and leverage capital requirements, capital planning and stress testing, liquidity requirements, including liquidity stress testing, enhanced risk management and other enhanced prudential standards similar to the standards applicable to large U.S. bank holding companies. In calendar year 2022, MUFG Americas Holdings was subject to the FRB supervisory Dodd-Frank Act stress testing cycle, the results of which were initially released on June 27, 2022. Under the 2022 stress testing cycle, the FRB noted that due to certain accounting reclassifications by MUFG Americas Holdings related to the then-pending sale of MUFG Union Bank, the Board determined not to include MUFG Americas Holdings’ detailed projections in the 2022 stress test. The FRB did note, however, that it conducted an evaluation and determined that MUFG Americas Holdings’ has sufficient capital to absorb losses and continue to serve as a credit intermediary under a severe recession. Under tailoring of regulations applicable to domestic and foreign
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banks to more closely match their risk profiles, which became effective December 31, 2019, MUFG Americas Holdings is classified as a Category IV firm under which it is minimally subject to biennial supervisory stress testing in even years.
The FRB has the authority to examine an IHC and any of its subsidiaries. U.S. leverage requirements applicable to the IHC took effect beginning in January 2018. Our combined U.S. operations, including MUFG Bank’s and Mitsubishi UFJ Trust and Banking’s branches, are also subject to certain requirements related to liquidity and risk management.
The Volcker Rule was issued in final form by the FRB originally in December 2013, and substantive portions were subsequently amended in November 2019. The Volcker Rule restricts the ability of banking entities to conduct certain proprietary trading activities, which means trading in securities and financial instruments for their own account, subject to certain exceptions, including market-making, hedging, and underwriting if such activities are conducted within a rigorous compliance framework. The Volcker Rule also restricts banking entities from engaging in certain activities regarding hedge funds and private equity funds known as covered funds. The Volcker Rule excludes restrictions on such activities if they are conducted solely outside of the United States. The Volcker Rule requires banking entities to implement a number of policies, procedures, quantitative metrics reporting that are reasonably designed to ensure and monitor compliance with the restrictions under the Rule. Our proprietary trading and covered funds activities are generally executed outside of the United States, but certain activities are conducted within the United States, and, therefore, we have undertaken steps that we believe are appropriate to bring our activities and investments into compliance with the Rule. Given its complexity, the Rule may be subject to further rule-making and regulatory interpretation in the future.
U.S. regulators continue to issue final regulations and regulatory determinations governing swaps and derivatives markets as contemplated by the Dodd-Frank Act. To date, MUFG Bank and MUFG Securities EMEA plc have registered as swap dealers with the U.S. Commodity Futures Trading Commission, or CFTC. In addition, MUFG Securities EMEA plc registered with the SEC as a securities-based swap dealer during the fiscal year ended March 31, 2022. Depending on the finalization of regulations and regulatory determinations governing swaps and derivatives markets under the Dodd-Frank Act, as well as the activities of our other subsidiaries located inside and outside of the United States, our other subsidiaries may have to register as swap dealers with, or be subject to the regulations of, the CFTC and/or SEC. Regulation of swap dealers by the CFTC and security-based swap dealers by the SEC imposes numerous corporate governance, business conduct, capital, margin, reporting, clearing, execution, and other regulatory requirements on our operations, which may adversely impact our derivatives businesses and make us less competitive than those competitors that are not subject to the same regulations. On July 23, 2020, the CFTC voted to approve final rules that modify and codify the cross-border application of certain of its Title VII swap rules to both U.S. and non-U.S. registered swap dealers. Similarly, the SEC has adopted a package of rule amendments, guidance, and a related order designed to expand and clarify the framework for regulating cross-border security-based swaps, including single-name credit default swaps. We have implemented measures designed to comply with the relevant rules and regulations by the prescribed compliance dates while continuing to consider the effects of other proposed rules and final regulatory changes.
On June 14, 2018, the FRB approved a final rule regarding single counterparty credit limits, or SCCL, for large banking organizations. The SCCL final rule is considered the last major piece of regulatory action needed to implement Section 165(e) of the Dodd-Frank Act. Section 165(e) was a response to the concern that failure or financial distress of one large, interconnected financial institution could cascade through the U.S. financial system and impair the financial condition of that firm’s counterparties, including other large, interconnected firms. Section 165(e) generally, and the SCCL final rule specifically, seek to mitigate this risk by limiting the aggregate exposure among such financial institutions and their counterparties.
The final rule establishes separate SCCLs, one applicable to the combined U.S. operations, or CUSO, of MUFG and another to MUAH as MUFG’s IHC. In July 2021, MUFG CUSO began complying with its CUSO-level requirements by certifying as to home-country compliance with Basel Committee standards in lieu of complying with the final U.S. SCCL rule.
Separately, based on the categorization of MUAH as a Category IV entity under the final rules tailoring prudential standards for large banking organization (“Tailoring Final Rules”), SCCL no longer applies to MUAH. The following paragraphs discuss the Tailoring Final Rules in greater detail.
On October 10, 2019, the FRB issued two final rules that (1) tailor the framework for application of enhanced prudential standards to U.S. and foreign banking organizations and (2) modify the application of capital and liquidity requirements to the operations of U.S. banking organizations and the U.S. operations of foreign banking organizations. The Tailoring Final Rules apply the same framework as to the U.S. and foreign BHCs but use a differing calibration for foreign BHCs. The Tailoring Final Rules became effective on December 31, 2019.
The final rule that was issued solely by the FRB determined the applicability of certain enhanced prudential standards requirements, including liquidity stress testing and management, capital planning and stress testing, risk management, single counterparty credit limits requirements, and related regulatory reporting by categorizing all foreign banking organizations with $100 billion or more in combined U.S. assets into one of three categories. The categorization framework was based on aggregate U.S. assets and four other risk-based indicators, including weighted short-term wholesale funding, cross-jurisdictional activity, nonbank assets, and off-balance sheet exposure. The second final rule, issued jointly by the FRB, the OCC, and the FDIC, similarly categorized foreign banking organizations and tailored the application of the agencies’ regulatory capital and standardized liquidity requirements on that basis. Under the framework of the final rules, MUFG’s U.S. operations are subject to a split category treatment: (i) the combined U.S. operations are classified as Category II, subject to the most stringent requirements other than those applicable to U.S.
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G-SIBs; and (ii) MUAH, the U.S. IHC, is classified as Category IV, a classification that provides certain capital and liquidity relief from prior requirements, taking into account the size and other risk characteristics of MUFG’s U.S. subsidiary operations.
On October 10, 2019, the FRB issued with the FDIC final rule amendments revising their joint resolution planning requirements of Section 165(d) of the Dodd-Frank Act. Resolution plans, also known as living wills, describe a firm’s strategy for orderly resolution under bankruptcy in the event of material financial distress or failure of the firm. As informed by the FRB tailoring rule, the final rule tailors the requirements for firms that do not pose the same systemic risk as the largest institutions, requiring resolution plans for these firms to be submitted on a three-year cycle. MUFG is classified as a triennial full filer as applicable to large foreign and domestic banks classified within Category II and Category III, and MUFG is subject to alternating between submitting full and targeted resolution plans every three years. On May 6, 2020, the agencies, in recognition of immediate challenges of the COVID-19 pandemic, extended the then-upcoming submission date by 90 days to September 29, 2021, and subsequently extended the submission date again to December 17, 2021 as a Targeted Information Request focusing on covered companies’ actions in response to COVID-19 was added to industry required submissions. MUFG submitted on December 17, 2021 its Targeted 165(d) Resolution Plan and the required Targeted Information Request. MUFG’s full resolution plan is currently due July 1, 2024.
On January 30, 2020 the Federal Reserve adopted a final rule revising the “controlling influence” prong of its “control” rules under the Bank Holding Company Act of 1956, as amended. The final rule largely adopts the proposed rule issued by the FRB in April 2019, reaffirms the Federal Reserve’s conceptual framework for analyzing “controlling influence,” and rejects a number of banking industry recommendations for liberalization of the “control” rules. The issue of “control” is a central concept under the Bank Holding Company Act. Among other things, control determines whether an investor in a banking organization is subject to the requirements and restrictions of the Bank Holding Company Act, whether a bank holding company’s investment in a company is permissible and/or subjects the investee company to the requirements and restrictions of the Bank Holding Company Act, and whether an investor in any depository organization is subject to the Volcker Rule. As a result, a determination of whether or not an investment constitutes “control” is often determinative of whether an investment can be made (or, at least, must be restructured to avoid control). The final rule was effective as of September 30, 2020 and applies to MUFG’s investments globally.
Foreign Account Tax Compliance Act. The Hiring Incentives to Restore Employment Act was enacted in March 2010 and contains provisions commonly referred to as the Foreign Account Tax Compliance Act, or FATCA. The U.S. Treasury, acting through the Internal Revenue Service, or the IRS, issued final FATCA regulations in January 2013. FATCA created a new reporting and withholding regime for U.S. and foreign financial institutions, or FFIs, and certain non-financial foreign entities, or NFFEs.
In addition, the FATCA framework has been expanded with the introduction of Intergovernmental Agreements between the U.S. Treasury and foreign governments, which pursue a framework for intergovernmental cooperation to facilitate the implementation of FATCA. The United States has entered into various Intergovernmental Agreements with non-U.S. jurisdictions including Japan. FATCA and the Intergovernmental Agreements became effective from July 1, 2014.
In connection with FATCA, we have assessed and determined if our group entities are U.S. withholding agents, FFIs, or NFFEs. Each identified U.S. withholding agent and FFI has also evaluated pre-existing and new entity accounts to the extent required to determine their respective FATCA classifications. We have continuously developed internal procedures and processes that we believe address the regulatory requirements under FATCA.
However, FATCA compliance has required us to develop extensive systems capabilities and internal processes to identify and report U.S. account holders who are subject to FATCA requirements, which has been a complex and costly process requiring significant internal resources. If our procedures and processes are determined not to be adequate to meet the requirements of FATCA, we could potentially be subject to serious legal and reputational consequences, including the imposition of withholding taxes on certain amounts payable to us from U.S. sources, and could be required to expend additional resources to enhance our systems, procedures and processes and take other measures in response to such consequences.
Capital Adequacy. MUFG Americas Holdings is required to maintain minimum capital ratios in accordance with rules issued by the U.S. Federal banking agencies. In July 2013, the U.S. Federal banking agencies issued final rules to implement the Basel Committee on Banking Supervision’s capital guidance for U.S. banking organizations, or U.S. Basel III. These rules establish more restrictive capital definitions, create additional categories and higher risk weightings for certain asset classes and off-balance sheet exposures, higher minimum capital and leverage ratios and capital conservation buffers that will be added to the minimum capital requirements. These rules supersede the U.S. federal banking agencies’ general risk-based capital rules generally referred to as Basel I, the advanced approaches rules generally referred to as Basel II, which are applicable to firms classified as Category II under the tailoring rules issued October 10, 2019, and leverage rules. MUFG Americas Holdings continues to be subject to the U.S. Basel III capital rules which were substantially phased in by January 1, 2019. In addition, on July 22, 2019, U.S. federal banking agencies jointly issued a final rule which became effective on October 1, 2019. The final rule simplifies certain aspects of the Basel III capital rules that mostly apply to banking organizations that are not subject to the advanced approaches rules.
The Federal Reserve issued amendments to the Regulatory Capital, Capital Plan, and Stress Test Rules which became effective on October 1, 2021. Under the amended rules, the Federal Reserve uses the results of its supervisory stress test to establish the size of a firm’s stress capital buffer requirement, which replaces the static 2.5% of risk-weighted assets component of a firm’s capital conservation buffer requirement. MUFG Americas Holdings is currently subject to a firm specific stress capital buffer, or SCB, of 3.3%. A firm that does not maintain capital ratios above risk-based regulatory minimums plus its specified SCB requirements faces restrictions on its capital distributions and discretionary bonus payments. With the application of the specified SCB, MUFG Americas
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Holdings capital distributions and discretionary bonus payments are subject to the following regulatory minimum risk-based capital ratios: (1) 7.8% Common Equity Tier 1 capital ratio, (2) 9.3% Tier 1 capital ratio and (3) 11.3% total capital ratio. In addition, failure by MUFG Americas Holdings to meet minimum risk-based capital ratios of: (1) 4.5% Common Equity Tier 1 capital ratio, (2) 6.0% Tier 1 capital ratio and (3) 8.0% total capital ratio, or to a Tier 1 leverage ratio regulatory minimum requirement of 4% and a well-capitalized prompt corrective action standard of 5%, can result in additional certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on MUFG Americas Holdings’ consolidated financial statements. For more information, see Note 21 to our consolidated financial statements.
In October 2015, the FRB proposed long-term debt and TLAC requirements for U.S. globally systemically important bank holding companies and U.S. IHCs of non-U.S. globally systemically important banks, including MUFG Americas Holdings. In December 2016, the FRB finalized rules imposing such requirements. Under the final rules, a covered IHC such as MUFG Americas Holdings is required to maintain a minimum amount of eligible long-term debt issued to a non-U.S. parent entity that could be cancelled or converted to equity in order to absorb losses and recapitalize the IHC’s operating subsidiaries at or near the point of resolution. A covered IHC is also required to maintain a minimum level of eligible TLAC issued to a non-U.S. parent entity consisting of regulatory capital and eligible long-term debt and maintain related buffers consisting of Common Equity Tier 1 capital. In addition, an IHC is restricted from issuing short-term debt and certain other types of liabilities that are structurally senior to eligible long-term debt. MUFG Americas Holdings became subject to these rules on January 1, 2019. Pursuant to 12 CFR § 252.164(a), we have certified to the FRB that MUFG plans to follow an SPE resolution strategy, MUFG Americas Holdings met applicable TLAC long-term debt and associated additional TLAC requirements by the initial implementation date of January 1, 2019.
Recent regulatory developments. MUFG Bank undertook necessary actions relating to the consent order which MUFG Bank entered into with the OCC in February 2019, and the OCC terminated the consent order in December 2022. The consent order was related to deficiencies identified by the OCC in the Bank Secrecy Act/Anti-Money Laundering compliance program of MUFG Bank’s U.S. branches in New York, Los Angeles, and Chicago. The consent order required MUFG Bank and its U.S. branches to implement various remedial measures to address the deficiencies found in the OCC examination, including a comprehensive action plan satisfactory to the OCC, implementation of measures to ensure effective compliance management and qualified staffing, the adoption of comprehensive Bank Secrecy Act/Anti-Money Laundering risk assessment policies and procedures, and other remedial actions.
Disclosure pursuant to Section 13(r) of the US Securities Exchange Act of 1934
We are disclosing the following information pursuant to Section 13(r) of the Securities Exchange Act of 1934 (Exchange Act), which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified Executive Orders. The scope of activities that must be reported includes activities not prohibited by U.S. law and conducted outside the United States in compliance with applicable local law.
During the fiscal year ended March 31, 2023, our non-U.S. subsidiary, MUFG Bank, engaged in certain limited business activities with entities in, or affiliated with, Iran, including counterparties owned or controlled by the Iranian government. Specifically, our non-U.S. banking subsidiary, MUFG Bank, has previously issued guarantees outstanding mainly in connection with prior petroleum-related transactions with Iran by its customers that were permissible under applicable sanctions regulations. These transactions did not involve U.S. dollars or clearing services of U.S. banks for the settlement of payments. For the fiscal year ended March 31, 2023, the aggregate fee income relating to these transactions was less than ¥5 million, representing less than 0.0005 percent of our total fee income. In addition, some Iranian financial institutions and other entities in, or affiliated with, Iran maintained non-U.S. dollar correspondent accounts and other similar settlement accounts with MUFG Bank outside the United States. In addition to such accounts, MUFG Bank received deposits in Japan from, and provided settlement services in Japan to, fewer than 10 Iranian government-related entities, and MUFG Bank and a non-U.S. affiliate of MUFG provided credit and/or settlement services to fewer than 100 Iranian government-related individuals including Iranian diplomats. MUFG Bank also maintains settlement accounts outside the United States for certain other entities specified in Executive Order 13224 or 13382, which settlement accounts were frozen in accordance with applicable laws and regulations. For the fiscal year ended March 31, 2023, the average aggregate balance of deposits held in these accounts represented less than 0.05 percent of the average balance of our total deposits. The interest and fee income from the transactions attributable to these account holders was less than ¥50 million, representing less than 0.001 percent of our total interest and fee income.
We recognize that following the withdrawal in May 2018 by the United States from the Joint Comprehensive Plan of Action, the United States has imposed secondary sanctions against non-U.S. persons who engage in or facilitate a broad range of transactions and activities involving Iran. We have taken the recent sanctions related developments into account and will continue to monitor transactions relating to Iran in order to comply with applicable U.S. and Japanese regulations as well as U.S., Japanese and other international sanctions.
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C.Organizational Structure
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Set forth below is a list of our principal consolidated subsidiaries as of March 31, 2023
| Name | Country of Incorporation | Proportion of Ownership Interest (%) | Proportion of Voting Interest (%) | ||||||||||||||
| MUFG Bank, Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Trust and Banking Corporation | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Real Estate Services Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Japan Shareholder Services Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| The Master Trust Bank of Japan, Ltd. | Japan | 46.50 | % | 46.50 | % | ||||||||||||
| MU Investments Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Kokusai Asset Management Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Alternative Investments Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Human Resources Governance Leaders Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Securities Holdings Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | Japan | 60.00 | % | 60.00 | % | ||||||||||||
| au Kabucom Securities Co., Ltd. | Japan | 51.00 | % | 51.00 | % | ||||||||||||
| Mitsubishi UFJ NICOS Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| Japan Digital Design, Inc | Japan | 94.19 | % | 94.19 | % | ||||||||||||
| Global Open Network, Inc. | Japan | 80.00 | % | 80.00 | % | ||||||||||||
| MUFG Innovation Partners Co., Ltd. | Japan | 100.00 | % | 100.00 | % | ||||||||||||
| MUFG Americas Holdings Corporation | USA | 100.00 | % | 100.00 | % | ||||||||||||
| Bank of Ayudhya Public Company Limited | Thailand | 76.88 | % | 76.88 | % | ||||||||||||
| PT Bank Danamon Indonesia, Tbk. | Indonesia | 92.47 | % | 92.47 | % | ||||||||||||
| Mitsubishi UFJ Baillie Gifford Asset Management Limited | UK | 51.00 | % | 51.00 | % | ||||||||||||
| Mitsubishi UFJ Investor Services & Banking (Luxembourg) S.A. | Luxembourg | 100.00 | % | 100.00 | % | ||||||||||||
| MUFG Lux Management Company S.A. | Luxembourg | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Asset Management (UK) Ltd. | UK | 100.00 | % | 100.00 | % | ||||||||||||
| MUFG Investor Services Holdings Limited | Bermuda | 100.00 | % | 100.00 | % | ||||||||||||
| First Sentier Investors Holdings Pty Ltd | Australia | 100.00 | % | 100.00 | % | ||||||||||||
| Mitsubishi UFJ Trust International Limited | UK | 100.00 | % | 100.00 | % | ||||||||||||
| MUFG Securities EMEA plc | UK | 100.00 | % | 100.00 | % | ||||||||||||
| MUFG Securities Asia Limited | China | 100.00 | % | 100.00 | % | ||||||||||||
| MUFG Securities (Canada), Ltd. | Canada | 100.00 | % | 100.00 | % | ||||||||||||
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D.Property, Plant and Equipment
| As of March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Land | ¥ | 372,710 | ¥ | 393,932 | |||||||
| Buildings | 766,945 | 800,821 | |||||||||
| Equipment and furniture | 497,478 | 509,828 | |||||||||
| Leasehold improvements | 255,679 | 255,712 | |||||||||
| Construction in progress | 30,894 | 34,679 | |||||||||
| Total | 1,923,706 | 1,994,972 | |||||||||
| Less accumulated depreciation | 1,107,877 | 1,134,394 | |||||||||
| Premises and equipment—net | ¥ | 815,829 | ¥ | 860,578 | |||||||
Our registered address is 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, Japan. As of March 31, 2023, we and our subsidiaries conducted our operations either in premises we owned or in properties we leased.
We decided to build a new MUFG headquarters building at the location where the current MUFG and MUFG Bank head office building stands. In conjunction with the construction of the new building, the head offices for MUFG and MUFG Bank are planned to be temporarily relocated to 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo, Japan in July 2024. Details of the construction project, including the construction period and the total expenditure, are yet to be determined. For the fiscal year ended March 31, 2023, ¥1,602 million was invested in the project.
The following table presents the book values of our material offices and other properties as of March 31, 2023:
| Book Value | |||||
| (in millions) | |||||
| Owned land | ¥ | 393,932 | |||
| Owned buildings | ¥ | 255,168 | |||
The buildings and land we own are primarily used by us and our subsidiaries as offices and branches. Most of the buildings and land we own are free from material encumbrances.
During the fiscal year ended March 31, 2023, we invested approximately ¥116,367 million in premises and equipment, primarily for office renovations and relocation on an MUFG consolidated base.
Item 4A. Unresolved Staff Comments.
None.
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Item 5. Operating and Financial Review and Prospects.
The following discussion and analysis should be read in conjunction with “Selected Statistical Data” and our consolidated financial statements and related notes.
| Page | |||||
| Summary of Financial Data | |||||
E.Critical Accounting Estimates | |||||
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Summary of Financial Data
The selected statement of operations data and selected balance sheet data set forth below have been derived from our consolidated financial statements.
Except for risk-adjusted capital ratios, which are calculated in accordance with Japanese banking regulations based on information derived from our consolidated financial statements prepared in accordance with accounting principles generally accepted in Japan, or Japanese GAAP, the summary of financial data set forth below are derived from our consolidated financial statements prepared in accordance with U.S. GAAP.
You should read the summary of financial data set forth below in conjunction with the remainder of this Item 5, “Selected Statistical Data” and our consolidated financial statements and related notes and other financial data included elsewhere in this Annual Report. These data are qualified in their entirety by reference to all of that information.
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| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions, except per share data and number of shares) | |||||||||||||||||
| Statement of operations data: | |||||||||||||||||
| Interest income | ¥ | 2,751,996 | ¥ | 2,530,938 | ¥ | 4,611,410 | |||||||||||
| Interest expense | 747,902 | 560,357 | 2,221,996 | ||||||||||||||
| Net interest income | 2,004,094 | 1,970,581 | 2,389,414 | ||||||||||||||
| Provision for credit losses | 484,210 | 277,995 | 8,148 | ||||||||||||||
| Net interest income after provision for credit losses | 1,519,884 | 1,692,586 | 2,381,266 | ||||||||||||||
| Non-interest income | 3,157,787 | 1,394,789 | 1,695,422 | ||||||||||||||
| Non-interest expense | 3,069,329 | 3,146,102 | 3,419,954 | ||||||||||||||
| Income (loss) before income tax expense (benefit) | 1,608,342 | (58,727) | 656,734 | ||||||||||||||
| Income tax expense (benefit) | 444,948 | (14,511) | 26,413 | ||||||||||||||
| Net income (loss) before attribution of noncontrolling interests | 1,163,394 | (44,216) | 630,321 | ||||||||||||||
| Net income attributable to noncontrolling interests | 46,096 | 39,104 | 30,413 | ||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ¥ | 1,117,298 | ¥ | (83,320) | ¥ | 599,908 | |||||||||||
| Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group | ¥ | 1,117,298 | ¥ | (83,320) | ¥ | 599,908 | |||||||||||
| Amounts per share: | |||||||||||||||||
| Basic earnings (loss) per common share—Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group | ¥ | 86.88 | ¥ | (6.51) | ¥ | 48.70 | |||||||||||
| Diluted earnings (loss) per common share—Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group | 86.56 | (6.93) | 48.39 | ||||||||||||||
| Number of shares used to calculate basic earnings per common share (in thousands) | 12,859,737 | 12,798,060 | 12,317,723 | ||||||||||||||
Number of shares used to calculate diluted earnings per common share (in thousands)(1) | 12,859,737 | 12,798,060 | 12,318,855 | ||||||||||||||
| Cash dividends per share paid during the fiscal year: | |||||||||||||||||
| —Common stock | ¥ | 25.00 | ¥ | 26.00 | ¥ | 30.50 | |||||||||||
| $ | 0.24 | $ | 0.23 | $ | 0.23 | ||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Balance sheet data: | |||||||||||||||||
| Total assets | ¥ | 353,824,625 | ¥ | 367,650,018 | ¥ | 381,735,733 | |||||||||||
| Loans, net of allowance for credit losses | 114,370,472 | 111,678,692 | 118,682,562 | ||||||||||||||
| Total liabilities | 337,580,071 | 351,353,496 | 365,269,566 | ||||||||||||||
| Deposits | 229,206,936 | 224,589,943 | 235,276,781 | ||||||||||||||
| Long-term debt | 35,157,651 | 34,696,599 | 39,071,755 | ||||||||||||||
| Total equity | 16,244,554 | 16,296,522 | 16,466,167 | ||||||||||||||
| Capital stock | 2,090,270 | 2,090,270 | 2,090,270 | ||||||||||||||
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| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions, except percentages) | |||||||||||||||||
| Other financial data: | |||||||||||||||||
| Average balances: | |||||||||||||||||
| Interest-earning assets | ¥ | 268,916,481 | ¥ | 276,179,049 | ¥ | 291,018,346 | |||||||||||
| Interest-bearing liabilities | 265,912,928 | 279,759,500 | 294,877,689 | ||||||||||||||
| Total assets | 355,992,571 | 370,588,337 | 396,151,869 | ||||||||||||||
| Total equity | 15,681,527 | 16,269,224 | 16,300,493 | ||||||||||||||
| Return on equity and assets: | |||||||||||||||||
| Earnings (loss) applicable to common shareholders as a percentage of average total assets | 0.31 | % | (0.02) | % | 0.15 | % | |||||||||||
| Earnings (loss) applicable to common shareholders as a percentage of average total equity | 7.12 | % | (0.51) | % | 3.68 | % | |||||||||||
| Dividends per common share as a percentage of basic earnings per common share | 28.78 | % | — | (3) | 62.63 | % | |||||||||||
Average total equity as a percentage of average total assets | 4.41 | % | 4.39 | % | 4.11 | % | |||||||||||
| Net interest income as a percentage of average total interest-earning assets | 0.75 | % | 0.71 | % | 0.82 | % | |||||||||||
| Credit quality data: | |||||||||||||||||
| Allowance for credit losses | ¥ | 1,348,391 | ¥ | 1,470,701 | ¥ | 1,272,898 | |||||||||||
| Allowance for credit losses as a percentage of loans | 1.17 | % | 1.30 | % | 1.06 | % | |||||||||||
| Net loan charge-offs | ¥ | 245,424 | ¥ | 179,297 | ¥ | 259,608 | |||||||||||
| Net loan charge-offs as a percentage of average loans | 0.21 | % | 0.16 | % | 0.21 | % | |||||||||||
| Average interest rate spread | 0.74 | % | 0.72 | % | 0.83 | % | |||||||||||
Risk-adjusted capital ratio calculated under Japanese GAAP(2) | 16.31 | % | 14.29 | % | 13.91 | % | |||||||||||
Notes:
(1)Includes the common shares held by the trusts under the Board Incentive Plan. See “ Item 6.B. Directors, Senior Management and Employees—Compensation.”
(2)Risk-adjusted capital ratios have been calculated in accordance with Japanese banking regulations as applicable on the relevant calculation date, based on information derived from our consolidated financial statements prepared in accordance with Japanese GAAP. For a description of the applicable capital ratio calculation and other requirements applicable, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Capital adequacy” and “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Adequacy.”
(3)Dividends per common share have not been presented because such information is not meaningful.
Business Environment
Through our subsidiaries and affiliated companies, we engage in a broad range of financial businesses and services, including commercial banking, investment banking, trust assets and asset management services, securities businesses and credit card businesses, and provide related services to individuals primarily in Japan, Thailand and Indonesia and to corporate customers around the world. Our results of operations and financial condition are exposed to changes in various external economic factors, including:
•general economic conditions,
•interest rates,
•foreign currency exchange rates, and
•stock prices.
General Economic Conditions
The global economy remained vulnerable to external events during the fiscal year ended March 31, 2023. The global economy faced a sharp rise in energy prices triggered by the conflict in Ukraine. This led to a rise in inflation globally, followed by considerable monetary tightening in major markets, which put downward pressure on economies. Nevertheless, economic activities continued to normalize as the effects of COVID-19 on people's daily lives lessened, and, on the whole, the global economy was beginning to recover gradually. However, there are signs that the conflict in Ukraine may continue for a longer period, and the cumulative effects of monetary tightening have caused instability in the financial system particularly in the United States and Europe and have also increased downward pressure on the global economy. As a result, there has recently been a marked slowing of economic growth. In addition, any new or expansion or prolongation of geopolitical conflicts, the financial system uncertainty that originated in the United States and Europe, and other uncertainties, events and developments may have a further adverse effect on the real economy.
Japan’s economy generally followed the global economic trends, showing a mixture of negative and positive trends, during the fiscal year ended March 31, 2023. Japan’s real gross domestic product, or GDP, grew by 1.4% for the quarter ended June 30, 2022, contracted by 0.4% for the quarter ended September 30, 2022, grew by 0.1% for the quarter ended December 31, 2022, and grew by 0.7% for the quarter ended March 31, 2023 on a quarter-on-quarter basis. These fluctuations mainly reflected the progress in balancing the normalization of economic activities with COVID-19 measures since the priority preventative measures were lifted in March 2022
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as well as the negative impact of such factors as supply chain disruptions and inflation. On a year-on-year basis, Japan’s real GDP grew by 1.8% for the quarter ended June 30, 2022, 1.5% for the quarter ended September 30, 2022, 0.4% for the quarter ended December 31, 2022, and 1.9% for the quarter ended March 31, 2023. Japan’s Consumer Price Index, or CPI, fluctuated between negative 0.6% and positive 0.4% on a month-on-month basis and between positive 1.2% and positive 4.3% on a year-over-year basis during the fiscal year ended March 31, 2023. The unemployment rate in Japan remained low while slightly increasing from 2.6% in March 2022 to 2.8% in March 2023. According to Teikoku Databank, a Japanese research institution, the number of companies that filed for legal bankruptcy in Japan between April 2022 and March 2023 was 6,799, a 14.9% increase from the same period of the previous year. The total liabilities of companies that filed for legal bankruptcy during the fiscal year ended March 31, 2023 were ¥2,339 billion, an increase of 97.7% from the previous fiscal year. The Japanese economy remains subject to instabilities resulting from geopolitical developments, increasing public debt, intensifying trade conflicts and global competition, declining domestic population, inflationary trends, downward pressure on private consumption, and various other factors that could adversely affect economic conditions in Japan.
The U.S. economy generally underwent upward trends during the fiscal year ended March 31, 2023, with U.S. real GDP contracting by 0.6% for the quarter ended June 30, 2022, but growing by 3.2% for the quarter ended September 30, 2022, 2.6% for the quarter ended December 31, 2022, and 2.0% for the quarter ended March 31, 2023, on a quarter-on-quarter annualized basis. On a year-on-year basis, U.S. real GDP grew by 1.8% for the quarter ended June 30, 2022, 1.9% for the quarter ended September 30, 2022, 0.9% for the quarter ended December 31, 2022 and 1.8% for the quarter ended March 31, 2023. The unemployment rate declined to 3.5% in March 2023, from 3.6% in March 2022. The long-term prospects of the U.S. economy remain uncertain in light of the impact of instabilities resulting from inflationary trends, geopolitical developments, political situation, bank failures, and the government’s economic, monetary, trade and foreign relations policies, and various other factors.
The Eurozone economy also grew modestly during the fiscal year ended March 31, 2023, with Eurozone real GDP growing by 0.8% for the quarter ended June 30, 2022, and 0.4% for the quarter ended September 30, 2022, and contracting by 0.1% for the quarter ended December 31, 2022, and 0.1% for the quarter ended March 31, 2023, on a quarter-on-quarter basis. On a year-over-year basis, Eurozone real GDP grew by 4.3% for the quarter ended June 30, 2022, 2.5% for the quarter ended September 30, 2022, 1.8% for the quarter ended December 31, 2022, and 1.0% for the quarter ended March 31, 2023. The unemployment rate in the Eurozone declined to 6.6% in March 2023, from 6.8% in March 2022. The Eurozone economy remains subject to various uncertainties, including instabilities resulting from inflationary trends, geopolitical developments, concerns over the financial system and other factors.
In Asia excluding Japan, economic conditions in ASEAN (Association of Southeast Asian Nations) and NIEs (Newly Industrializing Economies) generally improved but the economic growth remained relatively modest during the fiscal year ended March 31, 2023. The economic conditions of these regions remain subject to various uncertainties, including the fluctuations in the global and local economies as well as geopolitical developments.
Interest Rates
Interest rates remained at historical low levels in Japan under the Bank of Japan’s monetary policy. The yield on 10-year Japanese government bonds fluctuated between 0.168% and 0.527% during the fiscal year ended March 31, 2023. The Bank of Japan has maintained its quantitative and qualitative monetary easing policy with yield curve control currently applying a negative interest rate of minus 0.1% to the “Policy-Rate Balances,” which are a part of current account amounts held by financial institutions at the Bank of Japan, and aiming to keep the yield of 10-year Japanese government bonds around zero percent, and with exchange-traded fund, bond and commercial paper purchase programs. In December 2022, the Bank of Japan announced that it would expand the target range of fluctuations in the yield of 10-year Japanese government bonds from between around plus and minus 0.25 percentage points to between around plus and minus 0.5 percentage points, causing some volatility in the Japanese government bond market. However, the Bank of Japan has since announced its intent to retain its monetary easing policy until such time as the 2% CPI inflation target is achieved and maintained in a sustainable and stable manner accompanied by wage increases.
In the United States, since the Federal Open Market Committee meeting in March 2022, the Committee has continued to raise the target range for the federal funds rate in light of, among other factors, inflated inflation. Between March 2022 and May 2023, the target range for the federal funds rate rose from 0.25% to 0.50% to 5.00% to 5.25%. The Committee also began reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities in June 2022. Following the meeting in June 2023, the Committee decided to keep the target range for the federal funds rate at 5.00% to 5.25% and closely monitor incoming information for the economic outlook and assess the appropriate stance of monetary policy. In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the Committee stated that it will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. Also, the Committee announced that the current median projection by FRB members for the federal funds rate at the end of calendar year 2023 is 5.1%. The 10-year U.S. Treasury bond yield increased from 2.341% at the end of March 2022 to 3.5% at the end of March 2023, while fluctuating between 2.341% and 4.244% during the period. The yield currently fluctuates between 3.3% and 3.8%.
Foreign Currency Exchange Rates
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The Japanese yen depreciated against the U.S. dollar from ¥122.39 to the U.S. dollar as of March 31, 2022 to ¥133.53 to the U.S. dollar as of March 31, 2023. The Japanese yen has been fluctuating between around ¥130 and ¥140 to the U.S. dollar since April 2023.
The Japanese yen was on a generally depreciating trend against the euro during the fiscal year ended March 31, 2023, with the exchange rate being ¥145.72 to the euro as of March 31, 2023 compared to ¥136.70 to the euro as of March 31, 2022. The Japanese yen has been fluctuating between around ¥140 and ¥150 to the euro since April 2023.
The Japanese yen was on a generally depreciating trend against the Thai baht during the fiscal year ended March 31, 2023, with the exchange rate being ¥3.91 to the Thai baht as of March 31, 2023 compared to ¥3.68 to the Thai baht as of March 31, 2022. The Japanese yen has been fluctuating between ¥3.85 and ¥4.10 to the Thai baht since April 2023.
Stock Prices
The closing price of the Nikkei Stock Average, which is the average of 225 blue chip stocks listed on the Tokyo Stock Exchange, increased from ¥27,821.43 on March 31, 2022 to ¥28,041.50 on March 31, 2023. The closing price of the Nikkei Stock Average has since risen and has been fluctuating between ¥25,000 and ¥30,000 and has risen above ¥33,000 in June 2023.
Recent Developments
During the fiscal year ended March 31, 2023, we engaged in transactions to ensure adequate capital base and structure, while pursuing strategies to improve our capital management and streamline our group companies. Japan faces some challenges such as a declining birth rate, an aging society and a shrinking population, while low growth has become normalized throughout the world. The environment we operate in has been affected by issues including significant inflationary price trends, instability in the financial system, geographical conflicts, growing awareness of environmental and social issues, and advances in digital technologies that enable the entry of new competitors in the financial sector. These developments are changing the business environment in significant ways and with unprecedented speed. MUFG seeks to meet these changes with clear visions and to make the most of these challenges as opportunities for growth. Under our medium-term business plan for the three years ending in the fiscal year ending March 31, 2024, we aim to leverage our financial and digital strengths to provide value to our stakeholders around the world.
Implementation of Share Repurchase Programs and Cancellation of Treasury Shares
During May 2022 and October 2022, we repurchased 418,926,300 shares of our common stock for ¥299,999,909,768 under a share repurchase program that was adopted in May 2022 and completed in October 2022. Under the program, we were authorized by the Board of Directors to repurchase up to the lesser of 600,000,000 shares of our common stock and ¥300.0 billion between May 2022 and November 2022 and to cancel the repurchased shares. We cancelled all of the repurchased shares on November 30, 2022.
During November 2022 and January 2023, we repurchased 175,357,900 shares of our common stock for ¥149,999,996,001 under a share repurchase program that was adopted in November 2022 and completed in January 2023. Under the program, we were authorized by the Board of Directors to repurchase up to the lesser of 300,000,000 shares of our common stock and ¥150.0 billion between November 2022 and January 2023 and to cancel the repurchased shares. We cancelled all of the repurchased shares on February 28, 2023.
We intend to agilely engage in repurchases of shares of our own stock as a means to return profits to shareholders and improve capital efficiency, taking into account our business performance and capital position, opportunities for growth investments, and market conditions including stock prices. As a general policy, we intend to cancel treasury shares to the extent that such shares exceed approximately 5% of our total issued shares (including treasury shares).
Issuances of TLAC Eligible Senior Debt
During the fiscal year ended March 31, 2023, we obtained $16.3 billion, or ¥2,171.9 billion, ¥624.5 billion, and €3.1 billion, or ¥444.5 billion, aggregate principal amount of external TLAC eligible senior debt financing in the form of securities and borrowings. In April 2023, we issued $2.5 billion, or ¥333.7 billion, aggregate principal amount of external TLAC eligible senior debt in the form of securities. In June 2023, we obtained ¥255.0 billion, and €0.5 billion, or ¥75.1 billion, aggregate principal amount of external TLAC eligible senior debt financing in the form of securities and borrowings.
As of March 31, 2023, our external TLAC ratios were 20.22% on a risk-weighted assets basis and 9.47% on a leverage exposure basis. We are required to maintain external TLAC ratios of 18% on a risk-weighted assets basis and 6.75% on a leverage exposure basis as of the same date. See “—B. Liquidity and Capital Resources—Capital Adequacy” below and “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Total loss-absorbing capacity.”
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Issuances of Basel III-Compliant Domestic Subordinated Debt
During the fiscal year ended March 31, 2023, we obtained ¥100.0 billion aggregate principal amount of perpetual subordinated Additional Tier 1 debt financing in the form of securities and borrowings in Japan. In June 2023, we issued ¥330.0 billion aggregate principal amount of perpetual subordinated Additional Tier 1 debt in the form of securities in Japan. These securities and borrowings are subject to our discretion to cease interest payments and a write-down of the principal upon the occurrence of certain events, including when our Common Equity Tier 1 capital ratio declines below 5.125%, when we are deemed to be at risk of becoming non-viable or when we become subject to bankruptcy proceedings, but, following any write-down, the principal may be reinstated to the extent permitted by the Japanese banking regulator.
During the fiscal year ended March 31, 2023, we obtained ¥476.0 billion aggregate principal amount of subordinated term Tier 2 debt financing in the form of securities and borrowings in Japan. We can be exempted from the obligation to pay principal of and interest on these securities and borrowings upon reaching the point of non-viability (PONV). According to the FSA’s approach, PONV will be deemed to have been reached when the Prime Minister of Japan, following deliberation by Japan’s Financial Response Crisis Council pursuant to the Deposit Insurance Act of Japan (“DIA”), confirms that Specified Item 2 Measures need to be applied to MUFG under circumstances where its liabilities exceed or are likely to exceed its assets, or it has suspended or is likely to suspend payment of its obligations.
Sale of MUFG Union Bank and Investment in Shares of U.S. Bancorp
On December 1, 2022, MUFG and MUFG Bank completed the sale of all shares of MUFG Union Bank (“MUB”), MUFG’s subsidiary owned through MUFG Americas Holdings (“MUAH”), to U.S. Bancorp (“USB”) (the “Share Transfer”) pursuant to a Share Purchase Agreement, dated as of September 21, 2021, by and among MUFG, MUAH and USB (as amended, supplemented and modified from time to time, the “Share Purchase Agreement”). The MUB businesses that were transferred to USB excluded the Global Corporate & Investment Banking (GCIB) business (with certain exceptions as agreed to by the parties, including certain deposits of the GCIB business that were retained by MUB), the Global Markets business to the extent related to the GCIB business, which consisted of transactions with clients and investors, and certain assets and liabilities that were part of shared middle and back office functions. Such businesses, and the customer assets and liabilities related to these businesses (including related transactions with such customers) were transferred to MUFG Bank and MUAH prior to the Share Transfer. In addition, the corporate credit card business for GCIB business customers and certain Japanese customers was transferred from MUB to MUFG Bank in April 2023.
As consideration for the Share Transfer, MUFG Bank and MUAH received from USB ¥754.0 billion in cash and 44,374,155 shares of USB common stock (representing approximately 3% of USB’s outstanding shares) on the closing date, and will receive from USB an additional ¥464.5 billion in cash within five years of the closing date. Before the closing of the Share Transfer, MUB declared and paid a special dividend of approximately ¥636.8 billion to MUAH.
MUFG recorded a pretax gain on sale of MUB of ¥557,954 million, which was included in Gain on sale of MUB in the consolidated statements of operations for the fiscal year ended March 31, 2023.
The MUB businesses that were transferred to USB recorded pretax losses of ¥11.4 billion for the fiscal year ended March 31, 2022 and ¥506.3 billion for the fiscal years ended March 31, 2023, mainly attributable to loss on valuation adjustment for loans held for sale of ¥282.5 billion and impairment of investment securities losses of ¥359.6 billion.
For further information on the impact of the transaction on our financial statements as of and for the fiscal year ended March 31, 2023, see Note 2 to our consolidated financial statements. See also “—A. Operating Results—Results of Operations—Non-Interest Income” and “—A. Operating Results—Results of Operations—Non-Interest Expense.”
MUFG to Acquire HC Consumer Finance Philippines, Inc & PT Home Credit Indonesia
In November 2022, MUFG agreed to acquire 100.0% of the shares of HC Consumer Finance Philippines, Inc. (“HC Philippines”) and 85.0% of shares of PT Home Credit Indonesia (“HC Indonesia”), both of which are subsidiaries of Home Credit B.V. (“HC”), for estimated maximum total consideration of €596 million, or ¥87 billion, through its subsidiaries, MUFG Bank, Krungsri and PT. Adira Dinamika Multi Finance (“ADMF”). The acquisition is expected to be completed within calendar year 2023, subject to receipt of approvals from the relevant regulatory authorities. Following the completion of the acquisition, Krungsri will hold 75% of the shares of HC Philippines and 75% of the shares of HC Indonesia, MUFG Bank will hold 25% of the shares of HC Philippines, and ADMF will hold 10% of shares of HC Indonesia.
Headquartered in the Netherlands, HC is a consumer finance company engaged primarily in the point-of-sale loan business. Each of HC Philippines and HC Indonesia is a leading point-of-sale lender in its respective market. With our equity method affiliate Security Bank Corporation in the Philippines and our consolidated subsidiary Bank Danamon in Indonesia, we plan to continue to reinforce and expand our retail business in both countries through these acquisitions.
MUFG to Acquire PT Mandala Multifinance Tbk
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In June 2023, MUFG Bank and its consolidated subsidiary PT Adira Dinamika Multi Finance Tbk (“ADMF”, a finance company in Indonesia) agreed with PT Jayamandiri Gemasejati and certain other shareholders on the acquisition of 81% of the shares in PT Mandala Multifinance Tbk (“MFIN”), at a cost of approximately IDR7,042 billion, or ¥66billion. The acquisition is expected to be completed by early calendar year 2024, subject to the receipt of approvals from the relevant regulatory authorities. The completion of this acquisition will result in MUFG Bank becoming the largest shareholder in MFIN by directly holding 71% of shares, while ADMF would be directly holding 10% of the shares of MFIN.
MFIN is an Indonesian company which mainly provides auto loans for new motorbikes and multi-purpose loans secured by motorbikes in the domestic market, with strong presence especially in eastern Indonesia. MUFG Bank and ADMF intend to leverage MFIN’s strengths, in both products and geography, to further reinforce and expand our auto loan business in Indonesia.
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A.Operating Results
The following discussion relates to our operating results for the fiscal years ended March 31, 2023 compared to our operating results for the fiscal year ended March 31, 2022, unless otherwise noted. For the discussion on our operating results for the fiscal year ended March 31, 2021, including certain comparative discussion on our operating results for the fiscal years ended March 31, 2021 and 2022, please refer to “Item 5. Operating and Financial Review and Prospects—5.A. Operating Results” in our annual report on Form 20-F for the fiscal year ended March 31, 2021, filed with the SEC on July 8, 2022.
Results of Operations
| Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Interest income | ¥ | 2,531.0 | ¥ | 4,611.4 | 82.2 | % | |||||||||||
| Interest expense | 560.4 | 2,222.0 | 296.5 | ||||||||||||||
| Net interest income | 1,970.6 | 2,389.4 | 21.3 | ||||||||||||||
| Provision for credit losses | 278.0 | 8.1 | (97.1) | ||||||||||||||
| Non-interest income | 1,394.8 | 1,695.4 | 21.6 | ||||||||||||||
| Non-interest expense | 3,146.1 | 3,420.0 | 8.7 | ||||||||||||||
| Income (loss) before income tax expense (benefit) | (58.7) | 656.7 | N/M | ||||||||||||||
| Income tax expense (benefit) | (14.5) | 26.4 | N/M | ||||||||||||||
| Net income (loss) before attribution of noncontrolling interests | ¥ | (44.2) | ¥ | 630.3 | N/M | ||||||||||||
| Net income attributable to noncontrolling interests | 39.1 | 30.4 | (22.2) | ||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ¥ | (83.3) | ¥ | 599.9 | N/M | ||||||||||||
We recorded net income attributable to Mitsubishi UFJ Financial Group of ¥599.9 billion primarily due to an increase in net interest income mainly as a result of an increase in foreign interest income and the gain on sale of MUFG Union Bank as well as a decrease in provision for credit losses.
Net interest income increased 21.3% mainly due to an increase in foreign interest income, particularly on foreign loans, reflecting the higher average interest rate on the larger average asset balance. Our average interest rate spread (which is the average interest rate on interest-earning assets less the average interest rate on interest-bearing liabilities) increased 0.11 percentage points to 0.83%.
Provision for credit losses decreased 97.1% mainly due to changes in our assessment of the impact of the COVID-19 pandemic on our loan portfolio and the qualitative reserve which, for the previous fiscal year, reflected our assessment of the rapidly changing Russia-Ukraine situation.
Non-interest income increased 21.6% primarily due to the gain on sale of MUFG Union Bank and financing-related fees in foreign branches of MUFG Bank, while non-interest expense increased 8.7% due to loss on valuation adjustment for loans held for sale held by MUFG Union Bank and an increase in salaries and employee benefits.
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Net Interest Income
Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2023 | % Change | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
Average balance(1) | Interest income (expense) | Average rate | Average balance(1) | Interest income (expense) | Average rate | Average balance(1) | Interest income (expense) | Average rate 2023 minus 2022 (percentage points) | |||||||||||||||||||||||||||||||||||||||||||||
(in billions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | ¥ | 175,474.0 | ¥ | 825.6 | 0.47 | % | ¥ | 175,859.2 | ¥ | 997.1 | 0.57 | % | 0.2 | % | 20.8 | % | 0.10 | ||||||||||||||||||||||||||||||||||||
| Foreign | 100,705.1 | 1,705.4 | 1.69 | 115,159.2 | 3,614.3 | 3.14 | 14.4 | 111.9 | 1.45 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | 276,179.1 | ¥ | 2,531.0 | 0.92 | % | ¥ | 291,018.4 | ¥ | 4,611.4 | 1.58 | % | 5.4 | % | 82.2 | % | 0.66 | ||||||||||||||||||||||||||||||||||||
| Financed by: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | ¥ | 211,839.0 | ¥ | (277.1) | 0.13 | % | ¥ | 218,582.7 | ¥ | (772.2) | 0.35 | % | 3.2 | % | 178.7 | % | 0.22 | ||||||||||||||||||||||||||||||||||||
| Foreign | 67,920.5 | (283.3) | 0.42 | 76,295.0 | (1,449.8) | 1.90 | 12.3 | N/M | 1.48 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 279,759.5 | (560.4) | 0.20 | 294,877.7 | (2,222.0) | 0.75 | 5.4 | 296.5 | 0.55 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-interest-bearing liabilities (assets) | (3,580.4) | — | (3,859.3) | — | 7.8 | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | 276,179.1 | 0.20 | % | ¥ | 291,018.4 | 0.76 | % | 5.4 | % | 0.56 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest income and interest rate spread | ¥ | 1,970.6 | 0.72 | % | ¥ | 2,389.4 | 0.83 | % | 21.3 | % | 0.11 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest income as a percentage of total interest-earning assets | 0.71 | % | 0.82 | % | 0.11 | ||||||||||||||||||||||||||||||||||||||||||||||||
Effect of Volume and Rate Changes on Net Interest Income
| Fiscal Year Ended March 31, 2022 versus Fiscal Year Ended March 31, 2023 | |||||||||||||||||
Increase (decrease) due to changes in | |||||||||||||||||
Volume(2) | Rate(2) | Net change | |||||||||||||||
(in millions) | |||||||||||||||||
| Domestic | ¥ | 250 | ¥ | (323,933) | ¥ | (323,683) | |||||||||||
| Foreign | 306,410 | 436,106 | 742,516 | ||||||||||||||
| Total | ¥ | 306,660 | ¥ | 112,173 | ¥ | 418,833 | |||||||||||
Notes:
(1)Average balances are generally based on a daily average while a month-end average is used for certain average balances when it is not practicable to obtain applicable daily averages.
(2)Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.”
Net interest income increased 21.3% primarily due to a significant increase in net foreign interest income, particularly on foreign loans. Foreign interest income increased due to the higher average rate in overseas branches and subsidiaries of our commercial banking subsidiaries. The average interest rate on foreign interest-earning assets increased to 3.14% from 1.69%, while the average interest rate on interest-bearing liabilities increased to 1.90% from 0.42%, resulting in a decrease in the average foreign interest rate spread to 1.24% for the fiscal year ended March 31, 2023 from 1.27% for the previous fiscal year. However, the impact of the interest rate increase on foreign interest income was larger than the impact of the interest rate increase on foreign interest expense because the average balance of foreign interest-earning assets was approximately 1.5 times the average balance of foreign interest-bearing liabilities. Domestic interest expense increased 178.7% due to an increase in the average interest rate on domestic interest-bearing liabilities and increases in the average balances of payables under repurchase agreements and long-term debt. Domestic interest income increased 20.8% due to the higher average interest rate on domestic interest-bearing assets. Our average domestic interest rate spread decreased to 0.22% for the fiscal year ended March 31, 2023 from 0.34% for the previous fiscal year. As a result, net domestic interest income significantly decreased.
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Provision for credit losses
We recorded ¥8.1 billion of provision for credit losses for the fiscal year ended March 31, 2023, compared to ¥278.0 billion of provision for credit losses for the previous fiscal year. Provision for credit losses decreased ¥269.9 billion mainly due to a decrease in provision for credit losses for the Commercial segment, primarily reflecting improvements in the business performance of some large domestic borrowers and a decrease in qualitative reserve recorded for the Russia-Ukraine situation.
Non-Interest Income
Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Fees and commissions income: | |||||||||||||||||
| Fees and commissions on deposits | ¥ | 51.0 | ¥ | 49.8 | (2.4) | % | |||||||||||
| Fees and commissions on remittances and transfers | 157.2 | 147.6 | (6.1) | ||||||||||||||
| Fees and commissions on foreign trading business | 56.3 | 69.0 | 22.5 | ||||||||||||||
| Fees and commissions on credit card business | 207.1 | 230.4 | 11.3 | ||||||||||||||
| Fees and commissions on security-related services | 264.5 | 224.9 | (15.0) | ||||||||||||||
| Fees and commissions on administration and management services for investment funds | 286.6 | 282.3 | (1.5) | ||||||||||||||
| Trust fees | 133.3 | 131.0 | (1.7) | ||||||||||||||
| Guarantee fees | 45.9 | 48.0 | 4.7 | ||||||||||||||
| Insurance commissions | 42.4 | 49.4 | 16.7 | ||||||||||||||
| Fees and commissions on real estate business | 65.6 | 68.4 | 4.3 | ||||||||||||||
| Other fees and commissions | 349.0 | 400.8 | 14.9 | ||||||||||||||
| Total | 1,658.9 | 1,701.6 | 2.6 | ||||||||||||||
| Foreign exchange gains—net | 106.9 | 25.2 | (76.4) | ||||||||||||||
| Trading account losses—net: | |||||||||||||||||
| Net profits (losses) on interest rate and other derivative contracts | (102.1) | 238.2 | N/M | ||||||||||||||
| Net losses on trading account securities, excluding derivatives | (722.3) | (1,030.3) | (42.6) | ||||||||||||||
| Total | (824.4) | (792.1) | 3.9 | ||||||||||||||
| Investment securities losses—net: | |||||||||||||||||
| Net gains (losses) on sales of available-for-sale debt securities | 48.8 | (62.4) | N/M | ||||||||||||||
| Impairment losses on available-for-sale debt securities | (47.3) | (359.3) | N/M | ||||||||||||||
| Net gains (losses) from marketable equity securities | (131.7) | 89.0 | N/M | ||||||||||||||
| Other | 11.2 | 78.5 | N/M | ||||||||||||||
| Total | (119.0) | (254.2) | (113.5) | ||||||||||||||
| Equity in earnings of equity method investees—net | 436.6 | 398.1 | (8.8) | ||||||||||||||
| Gains (losses) on sales of loans including valuation adjustment for loans held for sale | 16.6 | (34.0) | N/M | ||||||||||||||
| Gain on sale of MUFG Union Bank | — | 558.0 | N/M | ||||||||||||||
| Other non-interest income | 119.2 | 92.8 | (22.1) | ||||||||||||||
| Total non-interest income | ¥ | 1,394.8 | ¥ | 1,695.4 | 21.6 | % | |||||||||||
Non-interest income increased 21.6% mainly due to the gain on the sale of MUFG Union Bank, partially offset by an increase in net investment securities losses.
Fees and commissions income
Fees and commissions income increased 2.6% primarily due to an increase in financing-related fees in foreign branches of MUFG Bank, which are included in Other fees and commissions, and an increase in fees and commissions on foreign trading business reflecting larger volumes of money transfers and foreign exchange trading activities. These increases were partially offset by a decrease in fees and commissions security-related services due to decreases in commissions on underwriting, secondary distribution
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of, and offering to sell to and solicitation of offers to buy from professional investors, securities in our securities and banking subsidiaries.
Net foreign exchange gains (losses)
Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Foreign exchange gains—net: | |||||||||||||||||
| Net foreign exchange gains (losses) on derivative contracts | ¥ | (44.7) | ¥ | 57.9 | N/M | ||||||||||||
| Net foreign exchange losses on other than derivative contracts | (1,601.4) | (1,401.8) | 12.5 | ||||||||||||||
| Net foreign exchange gains related to the fair value option | 1,753.0 | 1,369.1 | (21.9) | ||||||||||||||
| Total | ¥ | 106.9 | ¥ | 25.2 | (76.4) | % | |||||||||||
Net foreign exchange gains (losses) consist of the following:
•Net foreign exchange gains (losses) on derivative contracts are net gains (losses) primarily on currency derivative instruments entered into for trading purposes.
•Net foreign exchange gains (losses) on other than derivative contracts include foreign exchange trading gains (losses) as well as transaction gains (losses) on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies. The transaction gains (losses) on the translation into Japanese yen fluctuate from period to period depending upon the spot rates at the end of each fiscal year. In principle, all transaction gains (losses) on translation of monetary assets and liabilities denominated in foreign currencies are included in current earnings.
•Net foreign exchange gains (losses) related to the fair value option include transaction gains (losses) on the translation into Japanese yen of securities under the fair value option. See Note 31 to our consolidated financial statements.
Net foreign exchange gains for the fiscal year ended March 31, 2023 mainly reflected net foreign exchange gains related to the fair value option applied to foreign currency-denominated trading account securities such as U.S. Treasury bonds as the Japanese yen depreciated against the U.S. dollar from ¥122.39 to the U.S. dollar as of March 31, 2022 to ¥133.53 to the U.S. dollar as of March 31, 2023, which represented a slightly smaller exchange rate fluctuation compared to the previous fiscal year when the Japanese yen depreciated against the U.S. dollar from ¥110.71 to the U.S. dollar as of March 31, 2021 to ¥122.39 to the U.S. dollar as of March 31, 2022. The gains on such securities for the fiscal year ended March 31, 2023 were offset by net foreign exchange losses on other than derivative contracts reflecting the negative impact of fluctuations in the foreign currency exchange rates on the Japanese yen translated amounts of assets and liabilities of our commercial banking subsidiaries as the Japanese yen depreciated against other major currencies on a spot rate basis between March 31, 2022 and March 31, 2023.
Net trading account profits (losses)
Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Trading account losses—net: | |||||||||||||||||
| Net profits (losses) on interest rate and other derivative contracts | |||||||||||||||||
| Interest rate contracts | ¥ | 50.9 | ¥ | 262.8 | N/M | ||||||||||||
| Equity contracts | (98.1) | (12.7) | 87.1 | ||||||||||||||
| Credit derivatives | (33.8) | (19.9) | 41.1 | ||||||||||||||
| Other | (21.1) | 8.0 | N/M | ||||||||||||||
| Total | ¥ | (102.1) | ¥ | 238.2 | N/M | ||||||||||||
| Net losses on trading account securities, excluding derivatives | |||||||||||||||||
| Trading account securities | ¥ | 262.3 | ¥ | 150.0 | (42.8) | % | |||||||||||
| Trading account securities under the fair value option | (984.6) | (1,180.3) | (19.9) | ||||||||||||||
| Total | ¥ | (722.3) | ¥ | (1,030.3) | (42.6) | % | |||||||||||
| Total | ¥ | (824.4) | ¥ | (792.1) | 3.9 | % | |||||||||||
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Trading account assets and liabilities are carried at fair value and changes in the value of trading account assets and liabilities are recorded in net trading account profits (losses). Activities reported in our net trading account profits (losses) can generally be classified into two categories:
•trading purpose activities, which are conducted mainly for the purpose of generating profits either through transaction fees or arbitrage gains and involve frequent and short-term selling and buying of securities, commodities or others; and
•trading account assets relating to the application of certain accounting rules, which are generally not related to trading purpose activities, but simply classified as trading accounts due to the application of certain accounting rules.
Of the two categories, trading account assets relating to the application of certain accounting rules represent a larger portion of our trading account losses for the fiscal year ended March 31, 2023.
We generally do not separate, for financial reporting purposes, customer originated trading activities from non-customer related, proprietary trading activities. When an order for a financial product is placed by a customer, a dealer offers a price which includes certain transaction fees, often referred to as the “margin” to the market price. The margin is determined by considering factors such as administrative costs, transaction amount and liquidity of the applicable financial product. Once the customer agrees to the offered price, the deal is completed, and the position is recorded in our ledger as a single entry without any separation of components. To manage the risk relating to the customer side position, we often enter into an offsetting transaction with the market. Unrealized gains and losses as of the period-end for both the customer side position and the market side position are recorded within the same trading account profits and losses.
Net trading account profits (losses) consist of net profits (losses) on interest rate and other derivative contracts and net profits (losses) on trading account securities, excluding derivatives.
Net profits (losses) on interest rate and other derivative contracts are reported for net profits (losses) on derivative instruments which primarily relate to trading purpose activities and include:
•Interest rate contracts: Interest rate contracts are mainly utilized to manage interest rate risks which could arise from mismatches between assets and liabilities resulting from customer originated trading activities;
•Equity contracts: Equity contracts are mainly utilized to manage the risk that would arise from price fluctuations of stocks held in connection with customer transactions; and
•Credit derivatives: Credit derivatives are mainly utilized as a part of our credit portfolio risk management.
Derivative instruments for trading purposes also include those used as hedges of net exposures rather than for specifically identified assets or liabilities, which do not meet the specific criteria for hedge accounting.
Net profits (losses) on trading account securities, excluding derivatives, consist of:
•Net profits (losses) on trading account securities, which primarily consist of gains and losses on trading and valuation of trading securities which relate to trading purpose activities. Net profits (losses) on investment securities held by certain consolidated variable interest entities, or VIEs, are included in accordance with the applicable accounting rules.
•Net profits (losses) on trading account securities under the fair value option, which are classified into trading accounts profits (losses) in accordance with certain accounting rules.
Net trading account losses for the fiscal year ended March 31, 2023 mainly reflected net losses on trading account securities under the fair value option. During the fiscal year ended March 31, 2023, long-term U.S. interest rates gradually increased, and the fair value of trading account securities under the fair value option decreased at the end of March 2023. Net losses on credit derivatives resulted from losses on such derivatives for hedging purposes at our commercial banking subsidiaries. These losses were partially offset by net profits on interest rate contracts which reflected interest rate swap gains in our trust banking subsidiary.
Net investment securities gains (losses)
Net investment securities gains (losses) include net gains (losses) on sales of available-for-sale debt securities, impairment losses on available-for-sale debt securities, and net gains (losses) from marketable equity securities. Impairment loss on an available-for-sale debt security is recognized as part of investment securities losses if the fair value of such security is below its amortized cost basis and (1) such debt security is held by us with the intent to sell or (2) it is more likely than not that we will be required to sell such debt security before recovering its amortized cost basis. In other circumstances where the fair value of available-for-sale debt securities is less than the amortized cost basis, we recognize the credit component of the impairment loss as part of investment securities losses, and record an allowance for credit losses to the same extent, while recording the noncredit component of the impairment loss in accumulated other comprehensive losses. Net gains (losses) from marketable equity securities include net gains (losses) on sales of marketable equity securities as well as unrealized gains (losses) on such securities.
Net investment securities losses for the fiscal year ended March 31, 2023 were ¥254.2 billion, compared to net losses of ¥119.0 billion for the fiscal year ended March 31, 2022. This was mainly due to larger impairment losses on the available-for-sale debt securities held for sale related to the transferred business of MUFG Union Bank. These losses were partially offset by net gains from
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marketable equity securities which reflected slightly higher stock prices in Japan as of March 31, 2023 compared to the end of the previous fiscal year, with an upward trend towards the end of March 2023.
Net equity in earnings of equity method investees
Net equity in earnings of equity method investees for the fiscal year ended March 31, 2023 was ¥398.1 billion, compared to ¥436.6 billion for the previous fiscal year, reflecting lower earnings of our equity method investees, including Morgan Stanley.
Gain on sale of MUFG Union Bank
We recorded a pre-tax gain on the sale of MUFG Union Bank in the amount of ¥558.0 billion for the fiscal year ended March 31, 2023. For further information on the transaction, see Note 2 to our consolidated financial statements.
Non-Interest Expense
Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Salaries and employee benefits | ¥ | 1,277.4 | ¥ | 1,343.6 | 5.2 | % | |||||||||||
| Occupancy expenses—net | 165.3 | 162.2 | (1.9) | ||||||||||||||
| Fees and commissions expenses | 310.9 | 340.1 | 9.4 | ||||||||||||||
| Outsourcing expenses, including data processing | 318.0 | 351.3 | 10.5 | ||||||||||||||
| Depreciation of premises and equipment | 82.7 | 73.8 | (10.7) | ||||||||||||||
| Amortization of intangible assets | 261.0 | 274.4 | 5.1 | ||||||||||||||
| Impairment of intangible assets | 33.3 | 5.2 | (84.5) | ||||||||||||||
| Insurance premiums, including deposit insurance | 95.6 | 74.3 | (22.2) | ||||||||||||||
| Communications | 57.4 | 58.4 | 1.8 | ||||||||||||||
| Taxes and public charges | 99.7 | 100.3 | 0.6 | ||||||||||||||
| Impairment of goodwill | — | 33.6 | N/M | ||||||||||||||
| Provision for (reversal of) off-balance sheet credit instruments | 46.3 | 20.7 | 55.2 | ||||||||||||||
| Impairment (reversal of impairment) of assets held for sale | 134.1 | (134.1) | N/M | ||||||||||||||
| Loss on valuation adjustment for loans held for sale held by MUFG Union Bank | 3.2 | 282.5 | N/M | ||||||||||||||
| Other non-interest expenses | 261.2 | 433.7 | 65.9 | ||||||||||||||
| Total non-interest expense | ¥ | 3,146.1 | ¥ | 3,420.0 | 8.7 | % | |||||||||||
Non-interest expense increased 8.7% mainly due to loss on valuation adjustment for loans held for sale related to the sale of MUFG Union Bank and increases in salaries and employee benefits, as well as impairment of goodwill relating to First Sentier Investors, partially offset by reversal of impairment of assets held for sale related to the sale of MUFG Union Bank.
Loss on valuation adjustment for loans held for sale held by MUFG Union Bank
Loss on valuation adjustment for loans held for sale held by MUFG Union Bank of ¥282.5 billion was recorded for the fiscal year ended March 31, 2023 due to the valuation losses on the loans held for sale related to the transferred business of MUFG Union Bank. These valuation losses were reflected in the carrying value of net assets transferred. Since these valuation losses had no impact on the consideration for the sale of shares of MUFG Union Bank, to the extent of the decrease in the carrying amount of the loans held for sale resulting from these valuation losses, the gains on the sale of shares of MUFG Union Bank increased. For more information on business developments and fair value valuation, see Notes 2 and 31 to our consolidated financial statements.
Salaries and employee benefits
Salaries and employee benefits increased ¥66.2 billion mainly due to the foreign exchange translation impact of the depreciation of the Japanese yen against other major currencies and an increase in employee retention costs abroad in the tighter labor market especially in North America.
Impairment (reversal of impairment) of assets held for sale
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Reversal of impairment of assets held for sale of ¥134.1 billion was recorded for the fiscal year ended March 31, 2023. During the second half of the fiscal year ended March 31, 2022, ¥134.1 billion of impairment of assets held for sale was recognized through the application of the lower of cost or market method to the disposal group related to the sale of MUFG Union Bank. However, as of March 31, 2023, the fair value less cost to sell exceeded the carrying value and the reversal was recognized. For more information, see Notes 2 and 31 to our consolidated financial statements.
Impairment of goodwill
Impairment of goodwill of ¥33.6 billion was recorded relating to the First Sentier Investors reporting unit within the Asset Management & Investor Services Business Group segment for the fiscal year ended March 31, 2023 since the cash flow forecast for the reporting unit was revised downwards due to a decrease in the balance of assets under management, which reflected a decline in equity markets. See Note 6 to our consolidated financial statements.
Given the three-month difference between our consolidated reporting period and the reporting period of some of our subsidiaries, including First Sentier Investors, our fair value assessment with respect to such subsidiaries after December 31 of each year is reflected in our consolidated financial statements for a period ending after March 31 of each year. See Note 1 to our consolidated financial statements.
Income Tax Expense (Benefit)
Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Income (loss) before income tax expense (benefit) | ¥ | (58.7) | ¥ | 656.7 | N/M | ||||||||||||
| Income tax expense (benefit) | (14.5) | 26.4 | N/M | ||||||||||||||
| Effective income tax rate | 24.7 | % | 4.0 | % | — | ||||||||||||
| Combined normal effective statutory tax rate | 30.6 | % | 30.6 | % | — | ||||||||||||
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Reconciliation of Combined Normal Effective Statutory Tax Rate to Effective Income Tax Rate
Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | Net Change (percentage points) | |||||||||||||||
| Combined normal effective statutory tax rate | 30.6 | % | 30.6 | % | — | ||||||||||||
| Increase (decrease) in taxes resulting from: | |||||||||||||||||
| Nondeductible expenses | (12.0) | 0.8 | 12.8 | ||||||||||||||
| Impairment of goodwill | — | 1.5 | 1.5 | ||||||||||||||
| Foreign tax credit and payments | 28.7 | (4.7) | (33.4) | ||||||||||||||
| Lower tax rates applicable to income of subsidiaries | 30.8 | (5.3) | (36.1) | ||||||||||||||
| Change in valuation allowance | (90.1) | (10.5) | 79.6 | ||||||||||||||
Taxation for gain on sale of shares in subsidiary(1) | — | 3.4 | 3.4 | ||||||||||||||
| Nontaxable dividends received | 85.1 | (14.8) | (99.9) | ||||||||||||||
| Undistributed earnings of subsidiaries | (25.6) | (0.3) | 25.3 | ||||||||||||||
| Tax and interest expense for uncertainty in income taxes | (10.8) | — | 10.8 | ||||||||||||||
| Noncontrolling interest income | (0.7) | 0.3 | 1.0 | ||||||||||||||
| Effect of changes in tax laws | (2.4) | 0.6 | 3.0 | ||||||||||||||
| Expiration of loss carryforward | (7.0) | 0.1 | 7.1 | ||||||||||||||
| Other—net | (1.9) | 2.3 | 4.2 | ||||||||||||||
| Effective income tax rate | 24.7 | % | 4.0 | % | (20.7) | ||||||||||||
Note:
(1)In March 2023, MUAH repurchased a portion of the shares in MUAH held by MUFG and MUFG Bank. The transaction resulted in the realization of a difference between the book value of the shares in MUAH for accounting and tax purposes, resulting in a ¥22,250 million increase in income tax expense and a 3.4 percentage points increase in the effective tax rate for the fiscal year ended March 31, 2023.
Income taxes applicable to us in Japan are imposed by the national, prefectural and municipal governments, and the aggregate of these taxes resulted in a combined normal effective statutory tax rate of 30.6% for each of the fiscal years ended March 31, 2022 and 2023. Foreign subsidiaries are subject to income taxes of the jurisdictions in which they operate. These taxes are reflected in the effective income tax rate.
Prior to the fiscal year ended March 31, 2023, the MUFG Group filed tax returns on a consolidated basis for corporate income taxes within Japan, and from the beginning of fiscal year ended March 31, 2023, the MUFG Group applied the Group Tax Sharing System, where the calculation of taxable income or loss is still made based upon the combined profits or losses of the parent company and its wholly-owned domestic subsidiaries, but the tax payments are made by each of these companies.
Fiscal Year Ended March 31, 2023
The effective income tax rate for the fiscal year ended March 31, 2023 was 4.0%, which was 26.6 percentage points lower than the combined normal effective statutory rate of 30.6%.
This lower effective income tax rate primarily reflected our receipt of nontaxable dividends, which resulted in a decrease of ¥97.2 billion in income tax expense and a decrease of 14.8 percentage points in the effective income tax rate for the fiscal year ended March 31, 2023. Under Japanese tax law, a certain percentage of dividends received is considered nontaxable and excluded from gross revenue in computing taxable income. This creates a permanent difference between our taxable income for Japanese tax purposes and our income before income tax expense reported under U.S. GAAP.
Another factor contributing to the lower effective income tax rate was a reduction in valuation allowance against deferred tax assets for certain subsidiaries, which resulted in a decrease of ¥68.7 billion in income tax expense and a decrease of 10.5 percentage points in the effective income tax rate for the fiscal year ended March 31, 2023. The decrease in valuation allowance included a release of valuation allowance related to the loss which was previously expected on the sale of all of the shares in MUFG Union Bank to U.S. Bancorp.
Fiscal Year Ended March 31, 2022
The effective income tax rate for the fiscal year ended March 31, 2022 was 24.7%, which was 5.9 percentage points lower than the combined normal effective statutory rate of 30.6%. This lower effective income tax rate primarily reflected an addition of ¥47.4
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billion of valuation allowance against deferred tax assets for certain subsidiaries, which resulted in an increase of ¥52.9 billion in income tax expense and a decrease of 90.1 percentage points in the effective income tax rate for the fiscal year ended March 31, 2022. The increase in valuation allowance includes recognition of valuation allowance related to the loss which is expected on the sale of the shares in MUFG Union Bank to U.S. Bancorp. This impact was partially offset by an increase of 85.1 percentage points in the effective income tax rate resulting from our receipt of nontaxable dividends, which resulted in a decrease of ¥50.0 billion in income tax expense for the fiscal year ended March 31, 2022. Under Japanese tax law, a certain percentage of dividends received is considered nontaxable and excluded from gross revenue in computing taxable income. This creates a permanent difference between our taxable income for Japanese tax purposes and our income before income tax expense reported under U.S. GAAP.
Net income attributable to noncontrolling interests
We recorded ¥30.4 billion of net income attributable to noncontrolling interests for the fiscal year ended March 31, 2023, compared to ¥39.1 billion of net income attributable to noncontrolling interests for the previous fiscal year. This mainly reflected a decrease in net income of certain consolidated VIEs.
66
Business Segment Analysis
We measure the performance of each of our business segments primarily in terms of “operating profit.” Operating profit and other segment information in this Annual Report are based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices. Accordingly, the format and information are not consistent with our consolidated financial statements prepared in accordance with U.S. GAAP. For example, operating profit does not reflect items such as a component of the provision for credit losses (primarily equivalent to the formula allowance under U.S. GAAP), foreign exchange gains (losses) and investment securities gains (losses). For a reconciliation of operating profit under the internal management reporting system to income (loss) before income tax expense (benefit) shown on the consolidated statements of operations, see Note 29 to our consolidated financial statements. We do not use information on the segments’ total assets to allocate our resources and assess performance. Accordingly, business segment information on total assets is not presented. However, in order to ensure more efficient management of resources, and to strengthen controls on profits and losses in each business group, we have allocated fixed assets of both MUFG Bank on a stand-alone basis and Mitsubishi UFJ Trust and Banking on a stand-alone basis to each business unit of such subsidiaries as of March 31, 2022. Accordingly, such fixed assets allocated to business groups are presented below.
In addition, we made modifications to our internal management accounting rules and practices, effective April 1, 2022, including reallocation of au Kabucom Securities Co., Ltd., an internet securities subsidiary, to the Digital Service Business Group from the Retail & Commercial Banking Business Group as well as updates to internal booking rules relating to certain net fees and other net revenue in the customer business groups and corresponding adjustments in Other.
These changes had the following impact on our previously reported business segment information for the fiscal years ended March 31, 2021 and 2022:
•increasing the operating profits of the Digital Service Business Group, the Japanese Corporate & Investment Banking Business Group, the Global Corporate & Investment Banking Business Group and the Global Commercial Banking Business Group by ¥8.2 billion, ¥5.7 billion, ¥4.9 billion and ¥0.8 billion, respectively, for the fiscal year ended March 31, 2021,
•reducing the operating profits of the Retail & Commercial Banking Business Group, Other, the Global Markets Business Group and the Asset Management & Investor Services Business Group by ¥9.1 billion, ¥7.4 billion, ¥2.9 billion and ¥0.2 billion, respectively, for the fiscal year ended March 31, 2021,
•increasing the operating profits of the Digital Service Business Group, the Global Corporate & Investment Banking Business Group, the Japanese Corporate & Investment Banking Business Group and the Global Commercial Banking Business Group by ¥10.3 billion, ¥6.5 billion, ¥0.9 billion and ¥0.3 billion, respectively, for the fiscal year ended March 31, 2022, and
•reducing the operating profits of the Retail & Commercial Banking Business Group, Other, the Global Markets Business Group and the Asset Management & Investor Services Business Group by ¥11.0 billion, ¥3.9 billion, ¥3.0 billion and ¥0.1 billion, respectively, for the fiscal year ended March 31, 2022.
Prior period business segment information has been restated to enable comparison between the relevant amounts for the fiscal years ended March 31, 2021, 2022 and 2023.
For further information, see Note 29 to our consolidated financial statements.
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| Customer Business | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Digital Service Business Group | Retail & Commercial Banking Business Group | Japanese Corporate & Investment Banking Business Group | Global Commercial Banking Business Group | Asset Management & Investor Services Business Group | Global Corporate & Investment Banking Business Group | Total | Global Markets Business Group | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | ¥ | 744.7 | ¥ | 550.3 | ¥ | 565.7 | ¥ | 778.7 | ¥ | 293.4 | ¥ | 438.7 | ¥ | 3,371.5 | ¥ | 640.3 | ¥ | (7.2) | ¥ | 4,004.6 | |||||||||||||||||||||||||||||||||||||||
BK and TB(1): | 255.5 | 373.2 | 453.5 | 1.0 | 99.4 | 274.7 | 1,457.3 | 386.3 | 34.2 | 1,877.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | 223.4 | 165.9 | 187.4 | 3.3 | 5.5 | 138.2 | 723.7 | 166.9 | 80.8 | 971.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net fees | 29.2 | 188.9 | 218.6 | — | 93.9 | 136.9 | 667.5 | (2.4) | (58.8) | 606.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 2.9 | 18.4 | 47.5 | (2.3) | — | (0.4) | 66.1 | 221.8 | 12.2 | 300.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other than BK and TB | 489.2 | 177.1 | 112.2 | 777.7 | 194.0 | 164.0 | 1,914.2 | 254.0 | (41.4) | 2,126.8 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | 565.0 | 492.2 | 319.9 | 501.7 | 213.0 | 272.2 | 2,364.0 | 243.1 | 150.5 | 2,757.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ¥ | 179.7 | ¥ | 58.1 | ¥ | 245.8 | ¥ | 277.0 | ¥ | 80.4 | ¥ | 166.5 | ¥ | 1,007.5 | ¥ | 397.2 | ¥ | (157.7) | ¥ | 1,247.0 | |||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | ¥ | 741.6 | ¥ | 584.6 | ¥ | 623.2 | ¥ | 771.7 | ¥ | 348.9 | ¥ | 540.1 | ¥ | 3,610.1 | ¥ | 427.0 | ¥ | 11.3 | ¥ | 4,048.4 | |||||||||||||||||||||||||||||||||||||||
BK and TB(1): | 257.2 | 390.3 | 496.8 | 1.9 | 106.3 | 362.2 | 1,614.7 | 203.4 | 53.2 | 1,871.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | 219.3 | 166.8 | 231.6 | 1.9 | 9.3 | 172.2 | 801.1 | 231.5 | 120.0 | 1,152.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net fees | 36.0 | 201.7 | 212.7 | — | 97.0 | 173.8 | 721.2 | (8.7) | (55.9) | 656.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 1.9 | 21.8 | 52.5 | — | — | 16.2 | 92.4 | (19.4) | (10.9) | 62.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other than BK and TB | 484.4 | 194.3 | 126.4 | 769.8 | 242.6 | 177.9 | 1,995.4 | 223.6 | (41.9) | 2,177.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | 558.9 | 490.9 | 320.9 | 528.0 | 241.4 | 295.3 | 2,435.4 | 253.0 | 127.6 | 2,816.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ¥ | 182.7 | ¥ | 93.7 | ¥ | 302.3 | ¥ | 243.7 | ¥ | 107.5 | ¥ | 244.8 | ¥ | 1,174.7 | ¥ | 174.0 | ¥ | (116.3) | ¥ | 1,232.4 | |||||||||||||||||||||||||||||||||||||||
Fixed assets(2) | ¥ | 140.6 | ¥ | 191.7 | ¥ | 155.8 | ¥ | 1.0 | ¥ | 13.3 | ¥ | 133.0 | ¥ | 635.4 | ¥ | 108.4 | ¥ | 550.3 | ¥ | 1,294.1 | |||||||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue | ¥ | 747.6 | ¥ | 614.1 | ¥ | 805.7 | ¥ | 870.6 | ¥ | 360.8 | ¥ | 712.9 | ¥ | 4,111.7 | ¥ | 408.9 | ¥ | (4.8) | ¥ | 4,515.8 | |||||||||||||||||||||||||||||||||||||||
BK and TB(1): | 251.4 | 429.6 | 647.4 | 35.1 | 105.4 | 531.9 | 2,000.8 | 130.6 | 19.2 | 2,150.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | 215.4 | 196.5 | 355.0 | 35.7 | 9.4 | 260.3 | 1,072.3 | 710.4 | 71.9 | 1,854.6 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net fees | 32.9 | 200.5 | 230.6 | — | 96.0 | 243.1 | 803.1 | (16.6) | (50.0) | 736.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 3.1 | 32.6 | 61.8 | (0.6) | — | 28.5 | 125.4 | (563.2) | (2.7) | (440.5) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other than BK and TB | 496.2 | 184.5 | 158.3 | 835.5 | 255.4 | 181.0 | 2,110.9 | 278.3 | (24.0) | 2,365.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | 533.2 | 456.8 | 331.1 | 580.3 | 255.7 | 336.9 | 2,494.0 | 271.8 | 172.4 | 2,938.2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ¥ | 214.4 | ¥ | 157.3 | ¥ | 474.6 | ¥ | 290.3 | ¥ | 105.1 | ¥ | 376.0 | ¥ | 1,617.7 | ¥ | 137.1 | ¥ | (177.2) | ¥ | 1,577.6 | |||||||||||||||||||||||||||||||||||||||
Fixed assets(2) | ¥ | 156.9 | ¥ | 201.9 | ¥ | 161.2 | ¥ | 1.1 | ¥ | 18.8 | ¥ | 171.2 | ¥ | 711.2 | ¥ | 110.6 | ¥ | 546.3 | ¥ | 1,368.1 | |||||||||||||||||||||||||||||||||||||||
Increase in fixed assets(3) | ¥ | 37.0 | ¥ | 41.9 | ¥ | 37.1 | ¥ | 0.6 | ¥ | 11.6 | ¥ | 23.4 | ¥ | 151.5 | ¥ | 23.2 | ¥ | 34.2 | ¥ | 208.9 | |||||||||||||||||||||||||||||||||||||||
Depreciation(3) | ¥ | 10.6 | ¥ | 21.1 | ¥ | 36.6 | ¥ | 0.2 | ¥ | 6.0 | ¥ | 35.2 | ¥ | 109.8 | ¥ | 28.3 | ¥ | 19.5 | ¥ | 157.6 | |||||||||||||||||||||||||||||||||||||||
Notes:
(1)“BK and TB” is a sum of MUFG Bank on a stand-alone basis (BK) and Mitsubishi UFJ Trust and Banking on a stand-alone basis (TB).
(2)Fixed assets in the above table are based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices, and it corresponds to the U.S. GAAP amounts of premises and equipment-net, intangible assets-net and goodwill of BK and TB. Fixed assets of MUFG and other consolidated subsidiaries and Japanese GAAP consolidation adjustments amounting to ¥1,286.1 billion as of March 31, 2022 and ¥1,210.2 billion as of March 31, 2023, respectively, are not allocated to each business segment when determining the allocation of management resources and assessing performance and, therefore, such amounts are not included in the table above.
(3)These amounts are related to the fixed assets of BK and TB included in the table above.
Fiscal Year Ended March 31, 2023 Compared to Fiscal Year Ended March 31, 2022
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Digital Service Business Group—Covers digital-based non-face-to-face businesses servicing “mass-segment” customers, or retail customers and small and medium-sized enterprise customers, of Mitsubishi UFJ NICOS, other consumer finance companies, and MUFG Bank in Japan. Its net revenue mainly consists of interest income from lending and deposit-taking operations and fees relating to credit card settlement and consumer financing products and services.
Net revenue increased slightly due to increases in consumer finance and foreign exchange revenue. The decrease in operating expenses was primarily due to the progress on our sales channel reforms and lower deposit insurance premium rates. The increase in operating profit mainly reflected the decrease in operating expenses.
Retail & Commercial Banking Business Group—Covers the domestic retail and commercial banking businesses. This business group mainly offers retail customers (with a strategic focus on high net-worth individuals) and small and medium-sized enterprise customers in Japan an extensive array of commercial banking, trust banking and securities products and services. Its net revenue mainly consists of interest income from lending and deposit-taking operations and fees relating to domestic and foreign exchange settlement services and wealth management solutions, including asset management, asset and business succession transfer and real estate services.
Net revenue increased mainly due to higher interest income from lending and deposit-taking operations reflecting an improvement in interest margins partly due to a rise in U.S. interest rates as well as increases in fees on foreign exchange and foreign exchange derivatives transactions due to a transaction volume increase. Operating expenses decreased due to lower deposit insurance premium rates, a decrease in depreciation cost following asset impairment charges being recorded in the previous fiscal year, and measures implemented to optimize staff utilization and restructure sales channels.
Japanese Corporate & Investment Banking Business Group—Covers the large Japanese corporate businesses. This business group offers large Japanese corporations advanced financial solutions designed to respond to their diversified and globalized needs and to contribute to their business and financial strategies through the global network of our group companies. Its net revenue mainly consists of interest income from lending and deposit-taking operations and fees relating to financing, investment banking, real estate and stock transfer services for large Japanese corporate customers.
Net revenue increased mainly due to an increase in loan interest income reflecting improved interest margins partly due to a rise in U.S. interest rates as well as an increase in foreign exchange transactions seeking profits from market fluctuations. The increase in operating expenses was mainly due to increased system expenses in our banking subsidiary and an increase in performance-linked expenses in our securities subsidiary.
Global Commercial Banking Business Group—Covers the retail and commercial banking businesses of Krungsri and PT Bank Danamon Indonesia, Tbk. This business group offers a comprehensive array of financial products and services such as loans, deposits, fund transfers, investments and asset management services for local retail, small and medium-sized enterprise, and corporate customers across the Asia-Pacific region. Its revenue mainly consists of interest income from lending and deposit-taking operations and fees from remittances and transfers, consumer finance and wealth-related services for individual and small to medium-sized corporate customers of Krungsri and Bank Danamon.
Net revenue increased mainly due to higher net interest income reflecting the escalation of policy interest rate increases in the United States and Thailand. The increase in operating expenses was mainly due to increases in performance-linked expenses and IT-related cost in Krungsri and personnel cost in Bank Danamon.
Asset Management & Investor Services Business Group—Covers the asset management and asset administration businesses of Mitsubishi UFJ Trust and Banking, MUFG Bank and First Sentier Investors. By integrating the trust banking expertise of Mitsubishi UFJ Trust and Banking and the global strengths of MUFG Bank, the business group offers a full range of asset management and administration services for corporations and pension funds, including pension fund management and administration, advice on pension structures, and payments to beneficiaries, and also offers investment trusts for retail customers. Its net revenue mainly consists of fees from asset management and administration services for products, such as pension trusts and mutual funds.
Net revenue increased primarily due to an increase in income from bundled services provided to global investors and an increase in income from funds under administration reflecting higher U.S. interest rates. The increase in operating expenses primarily resulted from the foreign exchange translation impact of the depreciation of the Japanese yen against other major currencies on overseas expenses denominated in such other currencies as well as office relocation cost in our banking subsidiary.
Global Corporate & Investment Banking Business Group—Covers the global corporate, investment and transaction banking businesses of MUFG Bank and Mitsubishi UFJ Securities Holdings. Through a global network of offices and branches, this business group provides large non-Japanese corporate and financial institution customers outside Japan with a comprehensive set of solutions that meet their increasingly diverse and sophisticated financing needs. Its net revenue mainly consists of interest income from lending
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and deposit-taking operations and fees and commissions from investment banking services and foreign exchange and derivatives transactions.
Net revenue increased mainly due to higher interest income from loans reflecting a rise in U.S. interest rates as well as increases in flow transactions and cross-selling transactions under fluctuating market conditions. The increase in operating expenses was mainly due to employee retention costs abroad increasing in the tighter labor market especially in North America, particularly with the foreign exchange translation impact of the depreciation of the Japanese yen on such costs.
Global Markets Business Group—Covers the customer business and the treasury operations of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings. The customer business includes sales and trading in fixed income instruments, currencies, equities and other investment products as well as origination and distribution of financial products. The treasury operations include asset and liability management as well as global investments for the MUFG Group.
Net revenue decreased mainly due to net losses on debt securities primarily associated with our foreign bond portfolio re-balancing operations in the treasury business in the rising interest rate environment, partially offset by an improvement in the customer business due to an increase in flow transactions seeking profits from market fluctuations. The increase in operating expenses mainly reflected the impact of foreign exchange translation and inflation on overseas expenses.
Other—Consists mainly of the corporate centers of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Morgan Stanley Securities. The elimination of duplicated amounts of net revenues among business segments is also reflected in Other.
Fiscal Year Ended March 31, 2022 Compared to Fiscal Year Ended March 31, 2021
Digital Service Business Group
Net revenue decreased mainly due to a decrease in interest income associated with mortgage loans because the lending spread on newly executed loans was lower than that on repaid loans. Money transfer revenue also decreased since money transfer fee rates were lowered following revisions of money transfer fee rates for inter-bank transactions and also because customers shifted to internet banking where money transfer fees are lower than those for money transfers through branches or ATMs. In addition, consumer finance business revenue decreased due to the adverse impact of the prolonged COVID-19 pandemic. The decrease in operating expenses was primarily due to measures implemented to optimize our branch network.
Retail & Commercial Banking Business Group
Net revenue increased mainly due to an increase in investment product sales as well as strong performance of our real estate business, derivative solutions business and primary capital markets business. In addition, our domestic small and medium-sized enterprise lending spread improved slightly. Operating expenses decreased due to measures implemented to optimize staff utilization and restructure sales channels.
Japanese Corporate & Investment Banking Business Group
Net revenue increased mainly due to an increase in loan interest income reflecting an improvement in our lending spread as well as an increase in income from primary market securities transactions, while the solutions business was stagnant. The increase in operating expenses was mainly due to the impact of foreign exchange translation on overseas expenses.
Global Commercial Banking Business Group
Net revenue decreased mainly due to the lower net interest income reflecting declines in the policy interest rates in the United States, Thailand and Indonesia as well as a decrease in the automobile loan balance of Bank Danamon. The increase in operating expenses primarily resulted from expenditures for system development and regulatory compliance.
Asset Management & Investor Services Business Group
Net revenue increased primarily due to an increase in performance fees reflecting strong investment returns as well as an increase in fund administration revenue from bundled services to global investors. The increase in operating expenses primarily resulted from additional personnel expenses to support increased business, especially the global asset management business.
Global Corporate & Investment Banking Business Group
Net revenue increased mainly due to an increase in debt capital markets revenue as the funding requirements of our customers increased, while revenue generated from deposited funds decreased due to declines in U.S. interest rates. The increase in operating expense was mainly attributable to increases in overseas business acquisition cost and system infrastructure development cost.
Global Markets Business Group
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Net revenue decreased mainly due to losses on sale of foreign bonds during the quarter ended March 31, 2022 when interest rates rose in the United States, a decrease in flow transactions in the customer business, and net losses in overseas securities subsidiaries. The increase in operating expense mainly reflected the impact of foreign exchange translation on overseas expenses.
Geographic Segment Analysis
Assets, income and expenses attributable to foreign operations are allocated to geographical areas based on the domicile of the debtors and customers. In general, we have allocated all direct expenses and a proportionate share of general and administrative expenses to income derived from foreign loans and other transactions by our foreign operations to the relevant foreign geographical areas. Certain charges, such as most impairment charges on goodwill, are recognized as domestic expenses. For further information, see Note 30 to our consolidated financial statements.
Fiscal years ended March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
| (in billions, except percentages) | |||||||||||||||||
| Total revenue (interest income and non-interest income): | |||||||||||||||||
| Domestic | ¥ | 2,160.5 | ¥ | 2,618.0 | 21.2 | % | |||||||||||
| Foreign: | |||||||||||||||||
| United States of America | 500.6 | 1,527.8 | 205.2 | ||||||||||||||
| Europe | 67.7 | 173.0 | 155.6 | ||||||||||||||
| Asia/Oceania excluding Japan | 975.3 | 1,479.6 | 51.7 | ||||||||||||||
Other areas(1) | 221.6 | 508.4 | 129.5 | ||||||||||||||
| Total foreign | 1,765.2 | 3,688.8 | 109.0 | ||||||||||||||
| Total | ¥ | 3,925.7 | ¥ | 6,306.8 | 60.7 | % | |||||||||||
| Income (loss) before income tax expense (benefit): | |||||||||||||||||
| Domestic | ¥ | (38.1) | ¥ | 543.6 | N/M | ||||||||||||
| Foreign: | |||||||||||||||||
| United States of America | (166.0) | (93.7) | 43.5 | ||||||||||||||
| Europe | (244.0) | (197.1) | 19.2 | ||||||||||||||
| Asia/Oceania excluding Japan | 249.3 | 196.8 | (21.1) | ||||||||||||||
Other areas(1) | 140.1 | 207.1 | 47.9 | ||||||||||||||
| Total foreign | (20.6) | 113.1 | N/M | ||||||||||||||
| Total | ¥ | (58.7) | ¥ | 656.7 | N/M | ||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group: | |||||||||||||||||
| Domestic | ¥ | (7.4) | ¥ | 616.2 | N/M | ||||||||||||
| Foreign: | |||||||||||||||||
| United States of America | (498.2) | 113.0 | N/M | ||||||||||||||
| Europe | (344.0) | (246.1) | 28.5 | ||||||||||||||
| Asia/Oceania excluding Japan | 506.6 | 9.1 | (98.2) | ||||||||||||||
Other areas(1) | 259.7 | 107.7 | (58.5) | ||||||||||||||
| Total foreign | (75.9) | (16.3) | 78.5 | ||||||||||||||
| Total | ¥ | (83.3) | ¥ | 599.9 | N/M | ||||||||||||
Note:
(1)Other areas primarily include Canada, Latin America, the Caribbean and the Middle East.
Domestic net income attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 2023 was ¥616.2 billion compared to net loss of ¥7.4 billion for the fiscal year ended March 31, 2022. This improvement was primarily due to a decrease in provision for credit losses for the fiscal year ended March 31, 2023.
Foreign net loss attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 2023 was ¥16.3 billion compared to net loss of ¥75.9 billion for the fiscal year ended March 31, 2022. This improvement was mainly due to the gain on the sale of MUFG Union Bank. However, net income for Asia/Oceania excluding Japan decreased mainly due to an increase in income
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tax expense for the fiscal year ended March 31, 2023. Net loss was recorded for Europe for each of the fiscal years ended March 31, 2022 and 2023 primarily because of net trading account losses, primarily reflecting net losses on trading account securities under the fair value option.
Effect of Change in Exchange Rates on Foreign Currency Translation
The average exchange rate for the fiscal year ended March 31, 2023 was ¥135.47 per US$1.00, compared to the prior fiscal year's average exchange rate of ¥112.38 per US$1.00. The average exchange rate for the conversion of the US dollar financial statements of some of our foreign subsidiaries for the fiscal year ended December 31, 2022 was ¥131.43 per US$1.00, compared to the average exchange rate for the fiscal year ended December 31, 2021 of ¥109.80 per US$1.00.
The change in the average exchange rate of the Japanese yen against the US dollar and other foreign currencies had the effect of increasing total revenue by ¥609.7 billion, net interest income by ¥336.0 billion and income before income taxes by ¥133.6 billion, respectively, for the fiscal year ended March 31, 2023.
B.Liquidity and Capital Resources
Financial Condition
Our total assets and total liabilities as of March 31, 2023 were ¥381,735.7 billion and ¥365,269.6 billion, respectively, compared to ¥367,650.0 billion and ¥351,353.5 billion, respectively, as of March 31, 2022.
The assets and liabilities related to the business of MUFG Union Bank that were expected to be transferred to U.S. Bancorp were reclassified as assets held for sale and liabilities held for sale and were included in Other assets and Other liabilities, respectively, as of March 31, 2022, and such assets and liabilities were transferred to U.S. Bancorp on December 1, 2022. The business of MUFG Union Bank that was transferred to U.S. Bancorp included ¥2,251.3 billion of interest-earning deposits in other banks, ¥3,123.3 billion of investment securities, ¥7,567.7 billion of loans and ¥11,789.9 billion of deposits as of December 1, 2022. See Notes 2 to our consolidated financial statements.
For information on our off-balance sheet arrangements, see Note 24 to our consolidated financial statements, and for information on our contractual obligations, see Notes 10 and 12 to our consolidated financial statements.
Total Assets
Our total assets as of March 31, 2023 were ¥381,735.7 billion, an increase of ¥14,085.7 billion from ¥367,650.0 billion as of March 31, 2022. The increase in total foreign assets was ¥11,183.7 billion, mainly due to a ¥5,119.0 billion increase in the United States, a ¥2,355.9 billion increase in Europe and a ¥2,542.8 billion increase in Asia/Oceania excluding Japan. These increases primarily reflected an increase in investment securities in the United States as well as increases in loan assets in Europe and Asia/Oceania excluding Japan.
| As of March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Japan | ¥ | 246,637.1 | ¥ | 249,539.1 | 1.2 | % | |||||||||||
Foreign(1): | |||||||||||||||||
| United States | 54,576.6 | 59,695.6 | 9.4 | ||||||||||||||
| Europe | 22,319.4 | 24,675.3 | 10.6 | ||||||||||||||
| Asia/Oceania excluding Japan | 31,909.3 | 34,452.1 | 8.0 | ||||||||||||||
Other areas(2) | 12,207.6 | 13,373.6 | 9.6 | ||||||||||||||
| Total foreign | 121,012.9 | 132,196.6 | 9.2 | ||||||||||||||
| Total | ¥ | 367,650.0 | ¥ | 381,735.7 | 3.8 | % | |||||||||||
Notes:
(1)Foreign assets are denominated primarily in the U.S. dollar. Geographic regions are based principally on the domicile of the obligors.
(2)Other areas primarily include Canada, Latin America, the Caribbean and the Middle East.
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Loan Portfolio
The following table sets forth our loans outstanding, before deduction of allowance for credit losses by class. We classify our loan portfolio into the following portfolio segments—Commercial, Residential, Card, Krungsri, and Other based on the grouping to determine the allowance for credit losses. We further classify the Commercial segment into Domestic and Foreign classes based on initial measurement attributes, risk characteristics, and method of monitoring and assessing credit risk. The Domestic Commercial segment includes commercial loans to borrowers in Japan, and the Foreign Commercial segment includes commercial loans other than those included in the Domestic Commercial, Krungsri and Other segments. The Residential segment includes housing loans to borrowers in Japan, and the Card segment includes consumer loans to borrowers in Japan. The Krungsri segment includes loans held by Krungsri and its subsidiaries. The Other segment mainly consists of Bank Danamon. In addition, as a result of the sale of MUFG Union Bank and an internal reorganization within the MUFG Group, which involved the transfer of assets, including loans of ¥2,614.5 billion, from the MUFG Americas Holdings segment to the Foreign Commercial segment on November 14, 2022, the importance of the remaining MUFG Americas Holdings segment as a segment declined. Accordingly, the remaining MUFG Americas Holdings segment is included in the Other segment in the following discussion of our loan portfolio as of and for the fiscal year ended March 31, 2023. These changes have not been retroactively applied to the information on our loan portfolio as of the end of and for prior fiscal years.
As of March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Commercial | |||||||||||||||||
| Domestic | ¥ | 54,044.7 | ¥ | 55,626.1 | 2.9 | % | |||||||||||
| Foreign | 34,980.2 | 42,189.7 | 20.6 | ||||||||||||||
| Residential | 13,301.5 | 12,874.9 | (3.2) | ||||||||||||||
| Card | 464.3 | 472.8 | 1.8 | ||||||||||||||
| MUFG Americas Holdings | 2,813.0 | — | (100.0) | ||||||||||||||
| Krungsri | 6,822.8 | 7,782.6 | 14.1 | ||||||||||||||
Other(1) | 1,045.1 | 1,410.4 | 35.0 | ||||||||||||||
Total(2) | 113,471.6 | 120,356.5 | 6.1 | ||||||||||||||
| Unearned income, unamortized premium—net and deferred loan fees—net | (322.2) | (401.0) | (24.4) | ||||||||||||||
Total(2) | ¥ | 113,149.4 | ¥ | 119,955.5 | 6.0 | % | |||||||||||
Notes:
(1)The Other segment in the above table included loans of ¥176.7 billion, which was previously included in the MUAH segment, as of March 31, 2023.
(2)The above table includes loans held for sale of ¥514.1 billion and ¥967.1 billion as of March 31, 2022 and 2023, respectively, which are carried at the lower of cost or fair value, but excludes the loans held for sale related to the transferred business of MUFG Union Bank as of March 31, 2022.
As of March 31, 2023, our total loan balance increased 6.0% compared to March 31 2022, and our total loans accounted for 31.4% of total assets as of March 31, 2023, compared to 30.8% as of March 31, 2022. Our domestic commercial loan balance increased mainly due to increased funding needs of customers with economic activity gradually resuming as COVID-19 pandemic-related restrictions began to ease. Our foreign commercial loan balance increased mainly due to the reorganization within the MUFG Group by the transfer of certain assets, including loans, of MUFG Union Bank to MUFG Bank prior to the sale of MUFG Union Bank. As of March 31, 2023, loans, off-balance sheet credit instruments and due from banks held in relation to borrowers and counterparties that are subject to Russia country risk monitoring in accordance with our internal credit management policy amounted to approximately ¥0.25 trillion on a gross basis before taking into account any allowances.
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Credit quality indicator
As of March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages)(1) | |||||||||||||||||
| Commercial | ¥ | 88,581.7 | ¥ | 96,848.6 | 9.3 | % | |||||||||||
| Domestic | 53,975.4 | 55,538.4 | 2.9 | ||||||||||||||
| Normal | 51,999.4 | 53,692.9 | 3.3 | ||||||||||||||
| Close Watch | 1,559.4 | 1,538.3 | (1.4) | ||||||||||||||
| Likely to become Bankrupt or Legally/Virtually Bankrupt | 416.6 | 307.2 | (26.3) | ||||||||||||||
| Foreign | 34,606.3 | 41,310.2 | 19.4 | ||||||||||||||
| Normal | 33,602.5 | 40,339.7 | 20.0 | ||||||||||||||
| Close Watch | 783.7 | 733.7 | (6.4) | ||||||||||||||
| Likely to become Bankrupt or Legally/Virtually Bankrupt | 220.1 | 236.8 | 7.6 | ||||||||||||||
| Residential | ¥ | 13,301.5 | ¥ | 12,874.9 | (3.2) | % | |||||||||||
| Accrual | 13,246.6 | 12,828.4 | (3.2) | ||||||||||||||
| Nonaccrual | 54.9 | 46.5 | (15.3) | ||||||||||||||
| Card | ¥ | 464.3 | ¥ | 472.8 | 1.8 | % | |||||||||||
| Accrual | 401.7 | 405.6 | 1.0 | ||||||||||||||
| Nonaccrual | 62.6 | 67.2 | 7.3 | ||||||||||||||
| MUFG Americas Holdings | ¥ | 2,742.1 | ¥ | — | (100.0) | % | |||||||||||
| Credit Quality Based on Internal Credit Ratings | |||||||||||||||||
| Pass | 2,635.4 | — | (100.0) | ||||||||||||||
| Special Mention | 65.8 | — | (100.0) | ||||||||||||||
| Classified | 40.9 | — | (100.0) | ||||||||||||||
| Krungsri | ¥ | 6,822.8 | ¥ | 7,782.6 | 14.1 | % | |||||||||||
| Performing | 6,147.3 | 6,928.0 | 12.7 | ||||||||||||||
| Under-Performing | 509.7 | 642.9 | 26.1 | ||||||||||||||
| Non-Performing | 165.8 | 211.7 | 27.7 | ||||||||||||||
| Other | ¥ | 1,045.1 | ¥ | 1,410.4 | 35.0 | % | |||||||||||
| Accrual | 1,018.5 | 1,380.6 | 35.6 | ||||||||||||||
| Nonaccrual | 26.6 | 29.8 | 12.1 | ||||||||||||||
Note:
(1)Total loans in the above table do not include loans held for sale, and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.
We classify loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, historical and current financial information, historical and current payment experience, credit documentation, public and non-public information about borrowers and current economic trends as deemed appropriate to each segment.
The primary credit quality indicator for loans within all classes of the Commercial segment is the internal credit rating assigned to each borrower based on our internal borrower ratings of 1 through 15 with the rating of 1 assigned to a borrower with the highest quality of credit. When assigning a credit rating to a borrower, we evaluate the borrower’s expected debt-service capability based on various information, including financial and operating information of the borrower as well as information on the industry in which the borrower operates, and the borrower’s business profile, management and compliance system. In evaluating a borrower’s debt-service capability, we also conduct an assessment of the level of earnings and an analysis of the borrower’s net worth. Based on the internal borrower rating, loans within the Commercial segment are categorized as Normal (internal borrower ratings of 1 through 9), Close Watch (internal borrower ratings of 10 through 12), and Likely to become Bankrupt or Legally/Virtually Bankrupt (internal borrower ratings of 13 through 15).
Loans to borrowers categorized as Normal represent those that are not deemed to have collectability issues. Loans to borrowers categorized as Close Watch represent those that require close monitoring as the borrower has begun to exhibit elements of potential
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concern with respect to its business performance and financial condition, the borrower has begun to exhibit elements of serious concern with respect to its business performance and financial condition, including business problems requiring long-term solutions, or the borrower’s loans are troubled debt restructuring or loans contractually past due 90 days or more for special reasons. Loans to borrowers categorized as Likely to become Bankrupt or Legally/Virtually Bankrupt represent those that have a higher probability of default than those categorized as Close Watch due to serious debt repayment problems with poor progress in achieving restructuring plans, the borrower being considered virtually bankrupt with no prospects for an improvement in business operations, or the borrower being legally bankrupt with no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation or filing for legal liquidation.
For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”
The accrual status is a primary credit quality indicator for loans within the Residential segment, the Card segment and the Other segment. The accrual status of these loans is determined based on the number of delinquent payments.
Loans within the Krungsri segment are categorized as Performing, Under-Performing or Non-Performing based on their delinquency status. Loans categorized as Under-Performing generally represent those that have significant increases in credit risk since origination, including, among other things, loans that are 30 days or more past due. Loans categorized as Non-Performing generally represent those that are 90 days or more past due.
Commercial loans within the MUFG Americas Holdings segment were categorized as either pass or criticized based on the internal credit rating assigned to each borrower. Criticized credits are those that are internally risk graded as Special Mention, Substandard or Doubtful. Special Mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, may jeopardize repayment of the loan and result in a further downgrade. Classified credits are those that are internally risk graded as Substandard or Doubtful. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as Doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.
For the Commercial, Residential and Card segments, credit quality indicators are based on information as of March 31. For the MUFG Americas Holdings, Krungsri and Other segments, credit quality indicators are generally based on information as of December 31.
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Allowance for credit losses
Fiscal year ended March 31, 2022: | Commercial | Residential | Card | MUFG Americas Holdings | Krungsri | Other | Total | ||||||||||||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | 734.6 | ¥ | 82.9 | ¥ | 44.2 | ¥ | 131.8 | ¥ | 293.4 | ¥ | 61.5 | ¥ | 1,348.4 | |||||||||||||||||||||||||||
| Provision for(reversal of) credit losses | 236.6 | (10.9) | 15.5 | (101.1) | 90.5 | 47.4 | 278.0 | ||||||||||||||||||||||||||||||||||
| Charge-offs | 57.8 | 2.1 | 20.2 | 19.2 | 83.5 | 55.2 | 238.0 | ||||||||||||||||||||||||||||||||||
| Recoveries collected | 11.8 | 0.0 | 1.3 | 9.5 | 22.9 | 13.2 | 58.7 | ||||||||||||||||||||||||||||||||||
| Net charge-offs | 46.0 | 2.1 | 18.9 | 9.7 | 60.6 | 42.0 | 179.3 | ||||||||||||||||||||||||||||||||||
Other(1) | 8.8 | — | — | 9.4 | (0.9) | 6.3 | 23.6 | ||||||||||||||||||||||||||||||||||
| Balance at end of fiscal year | ¥ | 934.0 | ¥ | 69.9 | ¥ | 40.8 | ¥ | 30.4 | ¥ | 322.4 | ¥ | 73.2 | ¥ | 1,470.7 | |||||||||||||||||||||||||||
Fiscal year ended March 31, 2023: | Commercial | Residential | Card | Krungsri | Other(2) | Total | |||||||||||||||||||||||||||||
(in billions) | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | 934.0 | ¥ | 69.9 | ¥ | 40.8 | ¥ | 322.4 | ¥ | 103.6 | ¥ | 1,470.7 | |||||||||||||||||||||||
| Transfer from MUAH to Commercial segment | 33.1 | — | — | — | (33.1) | — | |||||||||||||||||||||||||||||
| Provision for (reversal of) credit losses | (113.9) | (9.5) | 19.2 | 70.7 | 41.6 | 8.1 | |||||||||||||||||||||||||||||
| Charge-offs | 158.8 | 0.6 | 18.3 | 95.5 | 55.9 | 329.1 | |||||||||||||||||||||||||||||
| Recoveries collected | 18.8 | 0.0 | 0.7 | 25.5 | 24.5 | 69.5 | |||||||||||||||||||||||||||||
| Net charge-offs | 140.0 | 0.6 | 17.6 | 70.0 | 31.4 | 259.6 | |||||||||||||||||||||||||||||
Other(1) | 6.4 | — | — | 34.9 | 12.4 | 53.7 | |||||||||||||||||||||||||||||
| Balance at end of fiscal year | ¥ | 719.6 | ¥ | 59.8 | ¥ | 42.4 | ¥ | 358.0 | ¥ | 93.1 | ¥ | 1,272.9 | |||||||||||||||||||||||
Notes:
(1)Other is principally comprised of gains or losses from foreign exchange translation.
(2)For the fiscal year ended March 31, 2023, the beginning balance and the ending balance of the Other segment in the above table includes the allowance for credit losses of ¥30.4 billion and ¥3.4 billion respectively, which were previously included in the MUAH segment.
We recorded ¥8.1 billion of provision for credit losses for the fiscal year ended March 31, 2023, compared to ¥278.0 billion of provision for credit losses for the previous fiscal year. Our total allowance for credit losses as of March 31, 2023 was ¥1,272.9 billion, a decrease of ¥197.8 billion from ¥1,470.7 billion as of March 31, 2022. The total allowance for credit losses represented 1.06% of the total loan balance as of March 31, 2023, compared to 1.30% as of March 31, 2022.
Provision for credit losses for the fiscal year ended March 31, 2023 decreased ¥269.9 billion compared to the previous fiscal year mainly due to reversal of credit losses in the Commercial segment, reflecting improvements in the business performance of some large domestic borrowers and a decrease in qualitative reserve recorded for the Russia-Ukraine situation, for the fiscal year ended March 31, 2023, partially offset by a decrease in reversal of credit losses relating to loans transferred from the MUFG Americas Holdings segment to the Other segment in connection with the sale of MUFG Union Bank and the internal reorganization within the MUFG Group.
Significant trends in our portfolio segments are discussed below.
Commercial segment—We recorded ¥113.9 billion of reversal of credit losses for the fiscal year ended March 31, 2023, compared to ¥236.6 billion of provision for credit losses for the previous fiscal year. The reversal of credit losses for the fiscal year ended March 31, 2023 was primarily due to improvements in the business performance of some large domestic borrowers and a decrease in qualitative reserve recorded for the Russia-Ukraine situation. The ratio of loans classified as Close Watch to total loans in the segment decreased to 2.35% as of March 31, 2023 from 2.65% as of March 31, 2022. The ratio of loans classified as Likely to become Bankrupt or Legally/Virtually Bankrupt to total loans in the segment decreased to 0.56% as of March 31, 2023 from 0.72% as of March 31, 2022. The ratio of total allowance for credit losses to the total loan balance in this segment decreased to 0.74% as of March 31, 2023 from 1.05% as of March 31, 2022.
Krungsri segment—We recorded ¥70.7 billion of provision for credit losses for the fiscal year ended March 31, 2023, compared to ¥90.5 billion of provision for credit losses for the previous fiscal year. The provision recorded for the fiscal year mainly reflected
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the additional provision for credit losses due to increased uncertainty over inflation and geopolitical risks. The ratio of loans classified as Under-Performing or below to total loans in the segment increased to 10.98% as of March 31, 2023 from 9.90% as of March 31, 2022. The ratio of total allowance for credit losses to the total loan balance in this segment decreased to 4.60% as of March 31, 2023 from 4.73% as of March 31, 2022.
When there is an improvement in asset quality, reversal of credit losses is recorded in our consolidated statements of operations to maintain the allowance for credit losses at a level management deems appropriate. We have historically provided for credit losses, and in future periods we may need to recognize a provision for credit losses. See “Item 3.D. Key Information—Risk Factors—Credit Risk—We may suffer additional credit-related losses in the future if our borrowers are unable to repay their loans as expected or if the measures we take in reaction to, or in anticipation of, our borrowers’ deteriorating repayment abilities prove inappropriate or insufficient.”
Allowance policy
We apply the current expected credit loss model that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information under Accounting Standards Codification 326 Financial Instruments - Credit Losses, to estimate credit losses.
We maintain an allowance for credit losses to absorb expected losses on the loan portfolio. We have divided our allowance for credit losses into five portfolio segments—Commercial, Residential, Card, Krungsri and Other.
For all portfolio segments, key elements relating to the policies and discipline used in determining the allowance for credit losses are our credit classification and related borrower categorization process, which are closely linked to the risk grading standards set by the Japanese regulatory authorities for asset evaluation and assessment, and are used as a basis for establishing the allowance for credit losses and charge-offs. The categorization is based on conditions that may affect the ability of borrowers to service their debt, such as current financial condition and results of operations, historical payment experience, credit documentation, other public information and current trends.
For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”
For the Commercial and Krungsri segments, our allowance for credit losses represents an estimate of the credit losses that are expected over the life of the financial instrument or exposure and is recognized by incorporating relevant available information relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses primarily consists of (1) an allowance for loans measured on a collective basis, when similar risk characteristics exist, and (2) an allowance for loans measured on an individual basis, for loans that do not share similar risk characteristics. Expected losses are calculated using quantitative models that incorporate historical loss information and economic forecast scenarios and qualitative adjustments are also implemented to account for the risks that are not adequately captured in the quantitative model or economic forecasting assumptions. For the Residential and Card segments, the loans are smaller-balance homogeneous loans that are pooled by the risk ratings based on the number of delinquencies.
For more information on our methodologies used to estimate the allowance for each portfolio segment, see “Summary of Significant Accounting Policies” in Note 1 to our consolidated financial statements and “—E. Critical Accounting Estimates—Allowance for Credit Losses” below.
Allowance for off-balance sheet credit instruments
We maintain an allowance for credit losses on off-balance sheet credit instruments, including commitments to extend credit, guarantees, standby letters of credit and other financial instruments. The allowance is included in other liabilities. We have adopted for such instruments the same methodology as that which is used in determining the allowance for credit losses on loans.
The allowance for credit losses on off-balance sheet credit instruments was ¥143.8 billion as of March 31, 2023, an increase of ¥17.7 billion from ¥126.1 billion as of March 31, 2022. The increase was primarily due to the additional provision for allowance reflecting the deterioration in the financial performance of some large borrowers.
Nonaccrual loans
We consider a loan to be a nonaccrual loan when substantial doubt exists as to the full and timely payment of interest on, or repayment of, the principal of the loan, which is a borrower condition that generally corresponds to borrowers in categories 13 and below in our internal rating system (which corresponds to “Likely to become Bankrupt,” “Virtually Bankrupt” and “Bankrupt or de facto Bankrupt” status under Japanese banking regulations). Loans are also placed in nonaccrual status when principal or interest is contractually past due one month or more with respect to loans within the Commercial segment, three months or more with respect to loans within the Card, MUFG Americas Holdings, and Krungsri segments, and six months or more with respect to loans within the Residential segment.
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For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”
| As of March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Commercial | ¥ | 858.3 | ¥ | 648.5 | (24.4) | % | |||||||||||
| Domestic | 633.7 | 401.8 | (36.6) | ||||||||||||||
| Foreign | 224.6 | 246.7 | 9.8 | ||||||||||||||
| Residential | 56.2 | 47.9 | (14.7) | ||||||||||||||
| Card | 62.6 | 67.2 | 7.3 | ||||||||||||||
| MUFG Americas Holdings | 15.3 | — | (100.0) | ||||||||||||||
| Krungsri | 165.8 | 211.7 | 27.7 | ||||||||||||||
| Other | 26.6 | 29.8 | 12.1 | ||||||||||||||
Total(1) | ¥ | 1,184.8 | ¥ | 1,005.1 | (15.2) | % | |||||||||||
Note:
(1)The above table does not include loans held for sale of ¥7.9 billion and ¥9.2 billion as of March 31, 2022 and 2023, respectively, and does not include the loans held for sale related to the business of MUFG Union Bank to be transferred to U.S. Bancorp as of March 31, 2022.
Nonaccrual loans in the Domestic Commercial segment decreased ¥231.9 billion between March 31, 2022 and March 31, 2023. This decrease mainly related to the loans to a large borrower in the domestic automobile industry. The increase in nonaccrual loans in the Krungsri segment was mainly attributable to the deterioration in the financial condition of small and medium-sized enterprise borrowers after the government’s COVID-19 financial assistance program was discontinued.
Troubled debt restructurings
Total troubled debt restructurings, or TDRs, for the fiscal year ended March 31, 2023 were ¥256.4 billion compared to ¥263.5 billion for the previous fiscal year. TDRs in the Krugsri segment for the fiscal year ended March 31, 2023 were ¥94.8 billion compared to ¥14.9 billion for the previous fiscal year. The TDRs in this segment mainly related to loans to small and medium-sized enterprise borrowers whose financial condition deteriorated after the government’s COVID-19 financial assistance program was discontinued. In addition, TDRs in the foreign Commercial segment for the fiscal year ended March 31, 2023 were ¥35.3 billion compared to ¥16.1 billion for the previous fiscal year. The TDRs in this segment mainly related to modifications of loans to some borrowers whose financial condition deteriorated. On the other hand, TDRs in the domestic Commercial segment for the fiscal year ended March 31, 2023 were ¥68.5 billion compared to ¥167.3 billion for the previous fiscal year. The TDRs in this segment decreased mainly due to repayment by some large borrowers. The TDR amounts in this paragraph are on a post-modification outstanding recorded investment basis. See Note 4 to our consolidated financial statements.
Investment Portfolio
Our investment securities primarily consist of Japanese government bonds and marketable equity securities. Japanese government bonds are mostly classified as available-for-sale debt securities. Our investment in Japanese government bonds is a part of our asset and liability management policy with respect to investing the amount of Japanese yen-denominated funds exceeding our net loans. The percentage of our holding of available-for-sale Japanese government bonds to the total investment securities was 41.8% as of March 31, 2023, compared to 61.5% as of March 31, 2022, as we sold a significant portion of our available-for-sale Japanese government bond portfolio with unrealized losses. On the other hand, our holding of Japanese government bonds that are classified as held-to-maturity debt securities increased between March 31, 2022 and March 31, 2023, accounting for 22.3% of the total investment securities as of March 31, 2023, compared to 3.2% as of March 31, 2022. Our total investment securities increased 11.5% as of March 31, 2023, compared to March 31, 2022, mainly due to an increase in held-to-maturity debt securities, particularly Japanese government bonds.
Historically, we have held equity securities of some of our customers primarily for strategic purposes, in particular to maintain long-term relationships with these customers. We continue to focus on reducing our investment in equity securities for such purposes in order to reduce the price fluctuation risk in our equity portfolio from a risk management perspective and to respond to applicable regulatory requirements as well as increasing market expectations for us to reduce our equity portfolio. As of March 31, 2022 and 2023, the aggregate book value of our marketable equity securities under Japanese GAAP satisfied the requirements of the legislation prohibiting banks from holding equity securities in excess of their Tier 1 capital. In May 2022, we announced that we have increased our target to reduce the balance of equity securities held for strategic purposes on an acquisition cost basis to ¥500.0 billion within the three years ending March 31, 2024. During the two fiscal years ended March 31, 2023, we sold down an aggregate of approximately ¥323.0 billion of equity securities held in our strategic equity investment portfolio on an acquisition cost basis. However, various
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factors, including market conditions and changes, may affect the amount of equity securities we should sell and our ability to achieve the target as planned. For more information, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Risk Management of Strategic Equity Portfolio.
Debt Securities
| As of March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized cost | Fair value | Net unrealized gains (losses) | Amortized cost | Fair value | Net unrealized gains (losses) | Amortized cost | Fair value | Net unrealized gains (losses) | |||||||||||||||||||||||||||||||||||||||||||||
(in billions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | 34,383.1 | ¥ | 34,327.8 | ¥ | (55.3) | ¥ | 26,153.9 | ¥ | 26,046.6 | ¥ | (107.3) | (23.9) | % | (24.1) | % | (93.7) | % | |||||||||||||||||||||||||||||||||||
| Japanese prefectural and municipal bonds | 4,154.5 | 4,146.1 | (8.4) | 2,773.8 | 2,759.9 | (13.9) | (33.2) | (33.4) | (66.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | 2,671.8 | 2,631.3 | (40.5) | 3,029.0 | 2,922.7 | (106.3) | 13.4 | 11.1 | (162.8) | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | 1,081.6 | 1,090.1 | 8.5 | 1,051.3 | 1,058.2 | 6.9 | (2.8) | (2.9) | (20.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | 900.8 | 900.5 | (0.3) | 1,110.0 | 1,110.3 | 0.3 | 23.2 | 23.3 | 132.7 | ||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | 1,547.1 | 1,588.4 | 41.3 | 1,418.6 | 1,430.3 | 11.7 | (8.3) | (10.0) | (71.6) | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | 1,010.6 | 1,010.6 | 0.0 | — | — | — | (100.0) | (100.0) | (100.0) | ||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | 104.9 | 103.6 | (1.3) | 417.8 | 412.8 | (5.0) | 298.4 | 298.5 | (285.2) | ||||||||||||||||||||||||||||||||||||||||||||
| Total available-for-sale debt securities | ¥ | 45,854.4 | ¥ | 45,798.4 | ¥ | (56.0) | ¥ | 35,954.4 | ¥ | 35,740.8 | ¥ | (213.6) | (21.6) | % | (22.0) | % | (281.9) | % | |||||||||||||||||||||||||||||||||||
Held-to-maturity debt securities(1) | ¥ | 4,595.1 | ¥ | 4,606.3 | ¥ | 11.2 | ¥ | 21,520.1 | ¥ | 21,386.2 | ¥ | (133.9) | 368.3 | % | 364.3 | % | N/M | ||||||||||||||||||||||||||||||||||||
Note:
(1)See Note 3 to our consolidated financial statements for more details.
Net unrealized losses on available-for-sale debt securities increased 281.9% for the fiscal year ended March 31, 2023 compared to the previous fiscal year primarily due to increases in net unrealized losses on Japanese national government and Japanese government agency bonds and foreign government and official institution bonds. Net unrealized losses on Japanese national government and Japanese government agency bonds increased because interest rates on such bonds were higher at the end of March 2023 compared to the end of March 2022. Net unrealized losses on foreign government and official institution bonds increased because interest rates in the United States were higher at the end of March 2023 compared to the end of March 2022.
The amortized cost of available-for-sale debt securities decreased 21.6% mainly due to a 23.9% decrease in Japanese government and Japanese government agency bonds and a 33.2% decrease in Japanese prefectural and municipal bonds because we sold down these bonds with unrealized losses as interest rates rose in Japan. All of the commercial paper which we held as collateral for loans extended under the Bank of Japan's COVID-19 program was redeemed during the fiscal year ended March 31, 2023. These decreases were partially offset by increases in mortgage-backed securities and foreign government and official institution bonds. On the other hand, the amortized cost of held-to-maturity debt securities significantly increased as we purchased Japanese government and other bonds in the rising interest rate environment globally. See “—Business Environment.”
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Equity Securities
| As of March 31, | |||||||||||||||||
2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Marketable equity securities | ¥ | 4,986.1 | ¥ | 4,463.6 | (10.5) | % | |||||||||||
| Nonmarketable equity securities: | |||||||||||||||||
Unlisted preferred securities(1) | 81.1 | 81.9 | 0.9 | ||||||||||||||
Other(2) | 299.1 | 380.7 | 27.3 | ||||||||||||||
Investment securities held by investment companies and brokers and dealers(3) | 55.9 | 74.8 | 33.8 | ||||||||||||||
| Total | ¥ | 5,422.2 | ¥ | 5,001.0 | (7.8) | % | |||||||||||
Notes:
(1)These securities are mainly issued by public companies, including preferred stocks issued by Morgan Stanley, and other unlisted preferred securities issued by several public companies. Those securities are primarily carried at cost.
(2)These securities are equity securities issued by unlisted companies other than unlisted preferred securities. Those securities are primarily carried at cost.
(3)These investment securities are held by certain subsidiaries subject to specialized industry accounting principles for investment companies and brokers and dealers, and are measured at fair value.
Equity securities decreased 7.8% mainly because marketable equity securities decreased due to sales of equity securities held in our strategic equity investment portfolio. Marketable equity securities largely consist of listed equity securities in Japan.
Cash and Due from Banks, and Interest-earning Deposits in Other Banks
Cash and due from banks increased ¥9,078.1 billion to ¥60,050.6 billion as of March 31, 2023 from ¥50,972.5 billion as of March 31, 2022. This increase was primarily because of an increase in deposits with the Bank of Japan.
Interest-earning deposits in other banks decreased ¥4,858.2 billion to ¥53,989.9 billion as of March 31, 2023 from ¥58,848.1 billion as of March 31, 2022. This decrease was mainly because of a decrease in deposits with the Bank of Japan.
Receivables under Resale Agreements
Receivables under resale agreements increased ¥1,555.6 billion to ¥14,059.0 billion as of March 31, 2023 from ¥12,503.4 billion as of March 31, 2022. This increase was mainly because of an increase in short-term funding transactions as part of our asset and liability management.
Receivables under Securities Borrowing Transactions
Receivables under securities borrowing transactions increased ¥59.3 billion to ¥4,555.7 billion as of March 31, 2023 from ¥4,496.4 billion as of March 31, 2022. This increase was mainly due to an increase in collateral deposited for funding in our domestic banking and securities subsidiaries.
Trading Account Assets
Trading account assets increased ¥3,500.2 billion to ¥46,168.5 billion as of March 31, 2023 from ¥42,668.3 billion as of March 31, 2022. Trading account assets mainly consist of trading account securities and trading derivative assets. Trading account securities increased ¥1,106.0 billion to ¥33,252.9 billion as of March 31, 2023 from ¥32,146.9 billion as of March 31, 2022. Trading derivative assets increased ¥2,380.3 billion to ¥12,901.7 billion as of March 31, 2023 from ¥10,521.4 billion as of March 31, 2022 mainly due to increased dealing on volatile interest rate fluctuations in and outside of Japan.
Total Liabilities
As of March 31, 2023, total liabilities were ¥365,269.6 billion, an increase of ¥13,916.1 billion from ¥351,353.5 billion as of March 31, 2022. This was primarily due to a ¥12,406.9 billion increase in payables under repurchase agreements.
Deposits
Deposits are our primary source of funds. The balance of deposits increased ¥10,686.9 billion to ¥235,276.8 billion as of March 31, 2023 from ¥224,589.9 billion as of March 31, 2022. The increase was mainly because of an increase in foreign interest-bearing deposits, including such deposits in the United States and other regions, both on a local currency basis and as translated into Japanese yen. Domestic deposits also increased between March 31, 2022 and March 31, 2023.
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The total average balance of interest-bearing deposits increased ¥7,807.1 billion to ¥198,834.0 billion for the fiscal year ended March 31, 2023 from ¥191,026.9 billion for the fiscal year ended March 31, 2022. The increase was mainly because of an increase in foreign interest-bearing deposits, including such deposits in the United States and other regions, both on a local currency basis and as translated into Japanese yen. The average balance of domestic deposits also increased between the same periods. The average balance for each fiscal year (up to the sale of MUFG Union Bank) included the interest-bearing deposits related to the business of MUFG Union Bank transferred to U.S. Bancorp.
Payables under Repurchase Agreements
Payables under repurchase agreements increased ¥12,406.9 billion to ¥40,132.5 billion as of March 31, 2023 from ¥27,725.6 billion as of March 31, 2022. This increase was mainly because of our funding strategy in the low interest rate environment in Japan.
Other Short-Term Borrowings
Other short-term borrowings decreased ¥8,105.1 billion to ¥8,438.0 billion as of March 31, 2023 from ¥16,543.1 billion as of March 31, 2022. This decrease was mainly because we decreased borrowings from the Bank of Japan.
Trading Account Liabilities
Trading account liabilities increased ¥3,159.3 billion to ¥14,178.3 billion as of March 31, 2023 from ¥11,019.0 billion as of March 31, 2022. This increase was mainly due to an increase in the fair value of interest rate-related derivatives in our securities subsidiaries.
Long-term Debt
Long-term debt increased ¥4,375.2 billion to ¥39,071.8 billion as of March 31, 2023 from ¥34,696.6 billion as of March 31, 2022. This increase was mainly due to an increase in the outstanding bonds issued by MUFG and an increase in long-term debt of MUFG Bank.
The average balance of long-term debt for the fiscal year ended March 31, 2023 was ¥36,503.3 billion, an increase of ¥1,780.1 billion from ¥34,723.2 billion for the previous fiscal year. The average balance for each fiscal year (up to the sale of MUFG Union Bank) included the long-term debt related to the business of MUFG Union Bank transferred to U.S. Bancorp.
Sources of Funding and Liquidity
Our primary source of liquidity is from a large balance of deposits, mainly ordinary deposits, certificates of deposit and time deposits. Time deposits have historically shown a high rollover rate among our corporate customers and individual depositors. The average deposit balance, including those related to the transferred business of MUFG Union Bank for the period up to the sale of MUFG Union Bank, increased to ¥235,852.1 billion for the fiscal year ended March 31, 2023 from ¥227,850.5 billion for the fiscal year ended March 31, 2022. These deposits provide us with a sizable source of stable and low-cost funds. Our average deposits, including those related to the transferred business of MUFG Union Bank for the period up to the sale of MUFG Union Bank, combined with our average total equity of ¥16,300.5 billion, funded 63.7% of our average total assets of ¥396,151.9 billion during the fiscal year ended March 31, 2023. Our deposits exceeded our loans before allowance for credit losses by ¥115,321.3 billion as of March 31, 2023 compared to ¥111,440.5 billion as of March 31, 2022. As part of our asset and liability management policy, a significant portion of the amount of Japanese yen-denominated funds exceeding our loans has been deposited with the Bank of Japan or invested in Japanese government bonds in recent periods.
The remaining funding was primarily provided by short-term borrowings and long-term senior and subordinated debt. Short-term borrowings consist of call money, funds purchased, payables under repurchase agreements, payables under securities lending transactions, due to trust account, and other short-term borrowings. From time to time, we have issued long-term instruments, including various fixed and floating interest rate senior and subordinated bonds with and without maturities. The average balance of short-term borrowings, including those related to the transferred business of MUFG Union Bank for the period up to the sale of MUFG Union Bank, for the fiscal year ended March 31, 2023 was ¥52,505.9 billion. The average balance of long-term debt, including those related to the transferred business of MUFG Union Bank for the period up to the sale of MUFG Union Bank, for the fiscal year ended March 31, 2023 was ¥36,503.3 billion. Liquidity may also be provided by the sale of financial assets, including available-for-sale debt securities, marketable equity securities, trading account securities and loans. Additional liquidity may be provided by the maturity of loans.
Our liquidity may be impaired by factors such as an inability to raise funding in financial markets, an increase in our funding costs, unexpected increases in cash or collateral requirements, an inability to sell assets or enter into or settle other transactions as planned or needed, and an inability to attract or retain deposits. See “Item 3.D. Key Information—Risk Factors—Funding Liquidity
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Risk—Market illiquidity and other external circumstances and an actual or perceived decline in our creditworthiness could negatively affect our ability to access and maintain liquidity.”
We manage our group-wide liquidity on a consolidated basis based on the tests and analyses conducted at the subsidiary level. Our major banking subsidiaries, MUFG Bank and Mitsubishi UFJ Trust and Banking, set liquidity and funding limits designed to maintain their respective requirements for funding from market sources below pre-determined levels for certain periods (e.g., one-day, two-week and one-month). They also monitor the balance of buffer assets they respectively hold, including Japanese government bonds and U.S. Treasury bonds, which can be used for cash funding even in periods of stress. In addition, they regularly perform liquidity stress testing designed to evaluate the impact of systemic market stress conditions and institution-specific stress events, including credit rating downgrades, on their liquidity positions.
We collect and evaluate the results of the stress tests individually performed by our major subsidiaries to ensure our ability to meet our liquidity requirements on a consolidated basis in stress scenarios.
We manage our funding sources by setting limits on, or targets for, our holdings of buffer assets, primarily Japanese government bonds. We also regard deposits with the Bank of Japan as buffer assets. In addition, our commercial banking subsidiaries manage their funding sources through liquidity-supplying products such as commitment lines and through a liquidity gap, or the excess of cash inflows over cash outflows.
For information on our commitments, guarantees and other off-balance sheet credit instruments, please see Note 24 to our consolidated financial statements.
Liquidity Requirements for Banking Institutions in Japan
We are required to calculate and disclose our LCR calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the relevant Basel III standard. Starting in calendar year 2019, we are required to maintain a minimum LCR of 100%. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Liquidity Coverage Ratio” and “—Capital Adequacy—Liquidity Coverage Ratios of MUFG and Major Banking Subsidiaries in Japan” below.
Stable Funding Requirements for Banking Institutions in Japan
We are required to calculate and disclose our NSFR calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the relevant Basel III standard. Starting in September 2021, we are required to maintain a minimum NSFR of 100%. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Net Stable Funding Ratio” and “—Capital Adequacy—Net Stable Funding Ratios of MUFG and Major Banking Subsidiaries in Japan” below.
Total Equity
As of March 31, | |||||||||||||||||
| 2022 | 2023 | % Change | |||||||||||||||
(in billions, except percentages) | |||||||||||||||||
| Capital stock | ¥ | 2,090.3 | ¥ | 2,090.3 | — | % | |||||||||||
| Capital surplus | 5,327.8 | 4,902.2 | (8.0) | ||||||||||||||
| Retained earnings | 8,412.2 | 8,409.2 | 0.0 | ||||||||||||||
| Retained earnings appropriated for legal reserve | 239.6 | 239.6 | — | ||||||||||||||
Unappropriated retained earnings(1) | 8,172.6 | 8,169.6 | 0.0 | ||||||||||||||
Accumulated other comprehensive income, net of taxes(1) | 227.0 | 844.2 | 271.8 | ||||||||||||||
| Treasury stock, at cost | (452.2) | (482.6) | (6.7) | ||||||||||||||
| Total Mitsubishi UFJ Financial Group shareholders’ equity | ¥ | 15,605.1 | ¥ | 15,763.3 | 1.0 | ||||||||||||
| Noncontrolling interests | 691.4 | 702.8 | 1.7 | ||||||||||||||
| Total equity | ¥ | 16,296.5 | ¥ | 16,466.1 | 1.0 | % | |||||||||||
| Ratio of total equity to total assets | 4.43 | % | 4.31 | % | |||||||||||||
Note:
(1)Fiscal years of certain subsidiaries, which end on December 31, and MUFG’s fiscal year, which ends on March 31, have been treated as coterminous despite a three-month lag period. In connection with the sale of MUFG Union Bank, whose fiscal year ends on December 31, such difference in reporting periods was eliminated, and MUFG Union Bank's profit, loss and other comprehensive income for the period from September 1, 2022 to November 30, 2022, which is the
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three-month lag period preceding the sale date of December 1, 2022, have been recognized as direct adjustments to retained earnings and accumulated other comprehensive income, respectively, as of March 31, 2023 (and have not been reflected on the consolidated statements of operations and the consolidated statements of comprehensive income for the fiscal year ended March 31, 2023). In addition, the assets and liabilities of the MUFG Union Bank operations that were excluded from those which were transferred to U.S. Bancorp were transferred to MUFG Bank with a fiscal year end of March 31 before the sale of MUFG Union Bank, which required the reporting lag associated with such transferred assets and liabilities to be eliminated. At the time of transfer, the three months of activity immediately preceding the transfer were recognized directly in equity. The effects of the elimination of the difference in reporting periods in connection with the sale of MUFG Union Bank and the transfer of such assets and liabilities to MUFG Bank prior to the sale resulted in a net adjustment to unappropriated retained earnings of ¥223.3 billion including Loss on valuation adjustment for loans held for sale of ¥114.1 billion and impairment of Investment securities losses of ¥143.4 billion, and to accumulated other comprehensive income (loss), net of taxes of ¥20.3 billion, which is recorded in Elimination of the difference in reporting periods of the transferred business in the consolidated statements of equity for the fiscal year ended March 31, 2023. For further information, see Note 2 to our consolidated financial statements.
Capital Adequacy
We are subject to various regulatory capital requirements promulgated by the regulatory authorities of the countries in which we operate. Failure to meet minimum capital requirements can result in mandatory actions being taken by regulators that could have a direct material effect on our consolidated financial statements. Moreover, if our capital ratios are perceived to be low, our counterparties may avoid entering into transactions with us, which in turn could negatively affect our business and operations. For further information, see “Item 3.D. Key Information—Risk Factors—Risks Related to Our Ability to Meet Regulatory Capital Requirements—We may not be able to maintain our capital ratios and other regulatory ratios above minimum required levels, which could result in various regulatory actions, including the suspension of some or all of our operations.”
We continually monitor our risk-adjusted capital ratios, leverage ratio and TLAC ratios closely, and manage our operations in consideration of the capital requirements. Factors that affect some or all of these ratios include fluctuations in the value of our assets, including our credit risk assets such as loans and equity securities, the risk weights of which depend on the borrowers’ or issuers’ internal ratings, and marketable securities, and fluctuations in the value of the Japanese yen against the U.S. dollar and other foreign currencies, as well as general price levels of Japanese equity securities.
Capital Requirements for Banking Institutions in Japan
Under Japanese regulatory capital requirements, our consolidated capital components, including Common Equity Tier 1, Tier 1, and Tier 2 capital and risk-weighted assets, are calculated based on our consolidated financial statements prepared under Japanese GAAP. Each of the consolidated and stand-alone capital components and risk-weighted assets of our banking subsidiaries in Japan is also calculated based on consolidated and non-consolidated financial statements prepared under Japanese GAAP.
As of March 31, 2023, we were required to maintain a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.04% in addition to the 4.5% minimum Common Equity Tier 1 capital ratio. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Capital adequacy.”
For information on the issuances of Additional Tier 1 and Tier 2 securities, see also “Recent Developments—Issuances of Basel III-Compliant Domestic Subordinated Debt.”
Leverage Requirements for Banking Institutions in Japan
Our consolidated leverage ratio is calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the relevant Basel III standard. The leverage ratio is designed for monitoring and preventing the build-up of excessive leverage in the banking sector and is expressed as the ratio of Tier 1 capital to total balance sheet assets adjusted in accordance with the FSA guidance. As of March 31, 2023, we were required to maintain a minimum leverage ratio of 3.75%, including a leverage ratio buffer equal to 50% of the applicable G-SIB capital surcharge. The minimum leverage ratio on or after April 1 ,2024 is expected to be raised to 3.15% plus a G-SIB leverage ratio buffer set at 50% of a G-SIB surcharge plus 0.05% while deposits with the Bank of Japan will continue to be excluded from the leverage ratio calculation. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Leverage Ratio.”
TLAC Requirements for Banking Institutions in Japan
Our external TLAC ratios are calculated in accordance with the methodology prescribed in the FSA guidance that has been adopted to implement the TLAC Principle published by the FSB in November 2015. External TLAC ratios are expressed as the ratio of external TLAC amount to risk-weighted assets or a total exposure in accordance with the FSA guidance. We are required to maintain external TLAC ratios of 18% on a risk-weighted assets basis and 6.75% on a total exposure basis. The minimum external TLAC ratio on a total exposure basis on or after April 1 ,2024 is expected to be raised to 7.10% in line with the expected increase in the minimum leverage ratio. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Total loss-absorbing capacity.” For information on the issuances of TLAC-qualified securities, see also “—Recent Developments—Issuances of TLAC Eligible Senior Debt.”
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Capital Ratios, Leverage Ratio and External TLAC Ratios of MUFG
The figures underlying the amounts and ratios in the table below are calculated in accordance with Japanese banking regulations based on information derived from our consolidated financial statements prepared in accordance with Japanese GAAP, as required by the FSA. The amounts and ratios below are rounded down.
As of March 31, 2022 | Minimum ratios required(1) | As of March 31, 2023 | Minimum ratios required(1) | ||||||||||||||||||||
(in billions, except percentages) | |||||||||||||||||||||||
| Capital components: | |||||||||||||||||||||||
| Common Equity Tier 1 | ¥ | 13,823.9 | ¥ | 13,280.8 | |||||||||||||||||||
| Additional Tier 1 | 1,652.3 | 1,582.8 | |||||||||||||||||||||
| Tier 1 capital | 15,476.2 | 14,863.7 | |||||||||||||||||||||
| Tier 2 capital | 2,382.3 | 2,302.3 | |||||||||||||||||||||
| Total capital | ¥ | 17,858.6 | ¥ | 17,166.1 | |||||||||||||||||||
| Risk-weighted assets | ¥ | 124,914.2 | ¥ | 123,363.3 | |||||||||||||||||||
| Capital ratios: | |||||||||||||||||||||||
| Common Equity Tier 1 capital | 11.06 | % | 8.51 | % | 10.76 | % | 8.54 | % | |||||||||||||||
| Tier 1 capital | 12.38 | % | 10.01 | % | 12.04 | % | 10.04 | % | |||||||||||||||
| Total capital | 14.29 | % | 12.01 | % | 13.91 | % | 12.04 | % | |||||||||||||||
Leverage ratio(2) | 5.14 | % | 3.00 | % | 4.70 | % | 3.75 | % | |||||||||||||||
| External TLAC ratios | |||||||||||||||||||||||
Risk-weighted assets basis(3) | 18.23 | % | 18.00 | % | 20.22 | % | 18.00 | % | |||||||||||||||
| Leverage exposure basis | 9.23 | % | 6.75 | % | 9.47 | % | 6.75 | % | |||||||||||||||
Notes:
(1)The minimum capital ratios required as of March 31, 2022 include a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.01%. The minimum capital ratios required as of March 31, 2023 include a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.04%.
(2)Deposits with the Bank of Japan are excluded from the leverage exposure based on notification issued by the FSA.
(3)The TLAC ratio on a risk-weighted assets basis and the required minimum ratios as of March 31, 2022 do not include the regulatory capital buffers consisting of a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.01%. The TLAC ratio on a risk-weighted assets basis and the required minimum ratios as of March 31, 2023 do not include the regulatory capital buffers consisting of a capital conservation buffer of 2.5%, a G-SIB surcharge of 1.5% and a countercyclical buffer of 0.04%.
Management believes that, as of March 31, 2023, we were in compliance with all capital adequacy requirements to which we were subject.
Our Common Equity Tier 1 capital ratio as of March 31, 2023 was lower compared to the ratio as of March 31, 2022 primarily due to a decrease in Common Equity Tier 1 capital. The decrease in Common Equity Tier 1 capital was mainly due to an increase in double gearing adjustments. See “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Capital adequacy.”
Capital Ratios and Leverage Ratios of Major Banking Subsidiaries in Japan
The figures underlying the rations in the table below are calculated in accordance with Japanese banking regulations based on information derived from each bank’s consolidated and non-consolidated financial statements prepared in accordance with Japanese GAAP, as required by the FSA. The ratios below are rounded down
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| As of March 31, 2022 | Minimum ratios required | As of March 31, 2023 | Minimum ratios required | ||||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||
| MUFG Bank | |||||||||||||||||||||||
| Common Equity Tier 1 capital ratio | 9.86 | % | 4.50 | % | 9.89 | % | 4.50 | % | |||||||||||||||
| Tier 1 capital ratio | 11.11 | % | 6.00 | % | 11.04 | % | 6.00 | % | |||||||||||||||
| Total capital ratio | 12.94 | % | 8.00 | % | 12.58 | % | 8.00 | % | |||||||||||||||
Leverage ratio(1) | 4.96 | % | 3.00 | % | 4.75 | % | 3.00 | % | |||||||||||||||
| Mitsubishi UFJ Trust and Banking | |||||||||||||||||||||||
| Common Equity Tier 1 capital ratio | 17.31 | % | 4.50 | % | 16.41 | % | 4.50 | % | |||||||||||||||
| Tier 1 capital ratio | 19.03 | % | 6.00 | % | 17.93 | % | 6.00 | % | |||||||||||||||
| Total capital ratio | 20.78 | % | 8.00 | % | 20.67 | % | 8.00 | % | |||||||||||||||
Leverage ratio(1) | 6.77 | % | 3.00 | % | 7.29 | % | 3.00 | % | |||||||||||||||
| Stand-alone: | |||||||||||||||||||||||
| MUFG Bank | |||||||||||||||||||||||
| Common Equity Tier 1 capital ratio | 8.81 | % | 4.50 | % | 8.11 | % | 4.50 | % | |||||||||||||||
| Tier 1 capital ratio | 10.20 | % | 6.00 | % | 9.30 | % | 6.00 | % | |||||||||||||||
| Total capital ratio | 11.91 | % | 8.00 | % | 10.71 | % | 8.00 | % | |||||||||||||||
Leverage ratio(1) | 4.59 | % | 3.00 | % | 4.02 | % | 3.00 | % | |||||||||||||||
| Mitsubishi UFJ Trust and Banking | |||||||||||||||||||||||
| Common Equity Tier 1 capital ratio | 16.89 | % | 4.50 | % | 15.74 | % | 4.50 | % | |||||||||||||||
| Tier 1 capital ratio | 18.42 | % | 6.00 | % | 17.11 | % | 6.00 | % | |||||||||||||||
| Total capital ratio | 19.97 | % | 8.00 | % | 19.60 | % | 8.00 | % | |||||||||||||||
Leverage ratio(1) | 7.81 | % | 3.00 | % | 8.15 | % | 3.00 | % | |||||||||||||||
Note:
(1)Deposits with the Bank of Japan are excluded from the leverage exposure based on notification issued by the FSA.
Management believes that, as of March 31, 2023, our banking subsidiaries were in compliance with all capital adequacy requirements to which they were subject.
Liquidity Coverage Ratios of MUFG and Major Banking Subsidiaries in Japan
The LCRs in the table below are calculated in accordance with Basel III as adopted by the FSA for the periods indicated. The figures underlying the ratios are calculated in accordance with Japanese banking regulations. The percentages below are rounded down.
| Three months ended | |||||||||||||||||
March 31, 2022(1),(6) | June 30, 2022(2),(6) | September 30, 2022(3),(6) | December 31, 2022(4),(6) | March 31, 2023(5),(6) | |||||||||||||
| MUFG (consolidated) | 169.4 | % | 163.4 | % | 158.6 | % | 152.8 | % | 152.2 | % | |||||||
| MUFG Bank (consolidated) | 185.0 | % | 177.0 | % | 169.5 | % | 160.6 | % | 162.5 | % | |||||||
| MUFG Bank (stand-alone) | 198.1 | % | 191.0 | % | 182.0 | % | 168.9 | % | 166.5 | % | |||||||
| Mitsubishi UFJ Trust and Banking (consolidated) | 112.9 | % | 110.6 | % | 114.0 | % | 123.1 | % | 116.8 | % | |||||||
| Mitsubishi UFJ Trust and Banking (stand-alone) | 132.9 | % | 128.1 | % | 134.6 | % | 149.7 | % | 143.2 | % | |||||||
Notes:
(1)Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between January 4, 2022 and March 31 2022 divided by the average amount of net cash outflows for the same 59 business days.
(2)Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between April 1, 2022 and June 30 2022 divided by the average amount of net cash outflows for the same 61 business days.
(3)Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between July 1, 2022 and September 30 2022 divided by the average amount of net cash outflows for the same 62 business days.
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(4)Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between October 3, 2022 and December 30, 2022 divided by the average amount of net cash outflows for the same 62 business days.
(5)Each of the ratios is calculated as the average balance of High-Quality Liquid Assets on the business days between January 4, 2023 and March 31, 2023 divided by the average amount of net cash outflows for the same 60 business days.
(6)The LCR is to be calculated as an average based on daily values in accordance with the Japanese banking regulations.
See “—B. Liquidity and Capital Resources—Sources of Funding and Liquidity.”
Net Stable Funding Ratios of MUFG and Major Banking Subsidiaries in Japan
The NSFRs in the table below are calculated in accordance with Basel III as adopted by the FSA as of the date indicated. The figures underlying the ratios are calculated in accordance with Japanese banking regulations. The percentages below are rounded down.
| As of March 31, 2022 | As of June 30, 2022 | As of September 30, 2022 | As of December 31, 2022 | As of March 31, 2023 | |||||||||||||
| MUFG (consolidated) | 132.4 | % | 127.3 | % | 120.5 | % | 122.0 | % | 132.8 | % | |||||||
| MUFG Bank (consolidated) | 146.0 | % | 140.7 | % | 132.7 | % | 134.5 | % | 146.2 | % | |||||||
| MUFG Bank (stand-alone) | 154.5 | % | 147.9 | % | 138.8 | % | 136.0 | % | 148.2 | % | |||||||
| Mitsubishi UFJ Trust and Banking (consolidated) | 114.3 | % | 110.2 | % | 119.4 | % | 130.5 | % | 128.1 | % | |||||||
| Mitsubishi UFJ Trust and Banking (stand-alone) | 111.4 | % | 111.8 | % | 120.9 | % | 135.0 | % | 130.7 | % | |||||||
See “—B. Liquidity and Capital Resources—Sources of Funding and Liquidity.”
Capital Requirements for Securities Firms in Japan and Overseas
We have securities subsidiaries in Japan and overseas, which are also subject to regulatory capital requirements. In Japan, the Financial Instruments and Exchange Act of Japan and related ordinances require financial instruments firms to maintain a minimum capital ratio of 120% calculated as a percentage of capital accounts less certain fixed assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty credit and operational risks. Specific guidelines are issued as a ministerial ordinance which details the definitions of essential components of the capital ratios, including capital, deductible fixed asset items and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for additional regulatory reporting, a capital ratio of less than 120% may result in an order to change the method of business, and a capital ratio of less than 100% may lead to a suspension of all or part of the business for a period of time and cancellation of a registration. Overseas securities subsidiaries are subject to the relevant regulatory capital requirements of the countries or jurisdictions in which they operate.
Capital Ratio of Mitsubishi UFJ Morgan Stanley Securities
As of March 31, 2023, Mitsubishi UFJ Morgan Stanley Securities’ capital accounts less certain fixed assets of ¥550.3 billion represented 310.9% of the total amounts equivalent to market, counterparty credit and operational risks. As of March 31, 2022, Mitsubishi UFJ Morgan Stanley Securities’ capital accounts less certain fixed assets of ¥486.8 billion represented 317.1% of the total amounts equivalent to market, counterparty credit and operational risks. These figures are calculated in accordance with Japanese GAAP, pursuant to the Financial Instruments and Exchange Act of Japan.
For further information, see Note 21 to our consolidated financial statements.
Capital Ratios of Banking Subsidiaries in the United States
The MUFG Group sold all the issued and outstanding shares of common stock of MUFG Union Bank to U.S. Bancorp on December 1, 2022 and the portion of the business operated in MUFG Americas Holdings became immaterial in the MUFG group perspective. For capital requirements for banking institutions in the United States and capital ratios of MUFG Americas Holdings and MUFG Union Bank, see Note 21 to our consolidated financial statements.
Non-exchange Traded Contracts Accounted for at Fair Value
The use of non-exchange traded or over-the-counter contracts provides us with the ability to adapt to the varied requirements of a wide customer base while mitigating market risks. Non-exchange traded contracts are accounted for at fair value, which is generally based on pricing models or quoted prices for instruments with similar characteristics. Gains or losses on non-exchange traded contracts are included in “Trading account losses—net” in our consolidated statements of operations.
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Fiscal years ended March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
(in millions) | |||||||||||
| Net fair value of contracts outstanding at beginning of fiscal year | ¥ | 680 | ¥ | (14) | |||||||
| Changes attributable to contracts realized or otherwise settled during the fiscal year | (22) | (46) | |||||||||
| Fair value of new contracts entered into during the fiscal year | — | 358 | |||||||||
| Changes in fair values attributable to changes in valuation techniques and assumptions | 30 | 153 | |||||||||
| Other changes in fair value, principally revaluation at end of fiscal year | (702) | (3) | |||||||||
| Net fair value of contracts outstanding at end of fiscal year | ¥ | (14) | ¥ | 448 | |||||||
Maturities of Non-exchange Traded Contracts
As of March 31, 2023 | |||||||||||
| Net fair value of contracts—unrealized gains | |||||||||||
Prices provided by other external sources | Prices based on models and other valuation methods | ||||||||||
(in millions) | |||||||||||
| Maturity less than 1 year | ¥ | — | ¥ | 5 | |||||||
| Maturity less than 3 years | — | 353 | |||||||||
| Maturity less than 5 years | — | — | |||||||||
| Maturity 5 years or more | — | 90 | |||||||||
| Total fair value | ¥ | — | ¥ | 448 | |||||||
C.Research and Development, Patents and Licenses, etc.
Not applicable.
D.Trend Information
See the discussions in “—Business Environment,” “—Recent Developments,” “—A. Operating Results” and “—B. Liquidity and Capital Resources.”
E.Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. Certain accounting policies require management to make difficult, complex or subjective judgments regarding the valuation of assets and liabilities. The accounting policies are fundamental to understanding our operating and financial review and prospects. The notes to our consolidated financial statements provide a summary of our significant accounting policies. The following is a summary of the critical accounting estimates:
Allowance for Credit Losses
The allowance for credit losses represents an estimate of the credit losses that are expected over the life of the financial instrument or exposure and has three components: the allowance for loans measured on a collective basis, when similar risk characteristics exist, the allowance for loans measured on an individual basis, for loans that do not share similar risk characteristics, and the allowance for losses on unfunded credit commitments, which is included in other liabilities.
The methodology for estimating credit losses uses relevant available information relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made over a forecast period to account for differences between current and expected future conditions and those reflected in historical loss information. Beyond the forecast period, estimated expected credit losses revert to average historical loss experience. The estimation of the allowance for credit losses involves significant judgment on a number of assumptions including the assessment of risk characteristics, assignment of a borrower’s internal credit rating, valuation of collateral, expectations of future economic conditions and the development of qualitative adjustments. We divide our loan portfolio into the following segments—Commercial, Residential, Card, Krungsri, and Other—and determine the allowance for credit losses for each segment.
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At March 31, 2023, we had ¥97,815.7 billion and ¥7,782.6 billion of loans in the Commercial segment and the Krungsri segments, respectively, and recorded an allowance for credit losses against these loans of ¥719.6 billion and ¥358.0 billion, respectively.
The allowance for credit losses is estimated using quantitative models that incorporate economic forecast scenarios. These economic forecast scenarios include macroeconomic variables that have historically been correlated with historical credit losses. These variables include, but are not limited to, unemployment rates and gross domestic product. As any one economic forecast scenario is inherently uncertain, multiple economic forecast scenarios were leveraged. The macroeconomic variables in multiple economic forecast scenarios and weightings given to each scenario depend on a variety of factors including recent economic conditions and views of internal as well as third-party economists.
The determination of the allowance for credit losses for the Commercial and the Krungsri segments required management to make significant judgements due to the subjectivity and uncertainty associated with expectations of future economic conditions. Particularly significant judgment was required to be made to determine certain macroeconomic variables in the multiple economic forecast scenarios and the weightings given to each scenario, to capture the heightened volatility and uncertainty in future economic conditions arising mainly from the prolonged COVID-19 and Russia-Ukraine situation.
The allowance for credit losses includes qualitative adjustments to cover losses that are expected but were not reflected in the modeled allowance. The determination of the allowance for credit losses for the Commercial and Krungsri segments required management to make significant judgements due to the subjectivity and uncertainty associated with the development of qualitative adjustments. Particularly significant judgment was required to be made to develop certain qualitative adjustments to capture the heightened volatility and uncertainty in the economy and events primarily due to the prolonged COVID-19 and Russia-Ukraine situation.
The determination of the allowance for credit losses for the Commercial segment required management to make significant judgements, due to the subjectivity and uncertainty associated with the determination of a borrower’s internal credit rating, which were highly dependent on the estimation of a borrower’s performance and business sustainability, particularly in cases in which borrowers were experiencing weaknesses in their business performance. Particularly significant judgment was required to be made when these borrowers’ performance and business sustainability were affected by changes in the external and internal business environment, including the prolonged COVID-19 and Russia-Ukraine situation. Key elements relating to the policies and discipline used in determining the allowance for credit losses for the Commercial segment are our credit classification and the related borrower categorization process. Each of these components is determined based on estimates subject to change when actual events occur. The categorization is based on conditions that may affect the ability of borrowers to service their debt, taking into consideration current financial information, historical payment experience, credit documentation, public information, analyses of relevant industry segments and current trends. In determining the appropriate level of allowance, we evaluate the probable loss by category of the loan based on its type and characteristics.
Determining the adequacy of the allowance for credit losses requires the exercise of considerable judgment and the use of estimates, such as those discussed above. Our actual losses could be more or less than the estimates. To the extent that actual losses differ from management’s estimates, additional provisions for credit losses may be required that would adversely impact our operating results and financial condition in future periods. For further information regarding our methodologies used in establishing the allowance for credit losses by portfolio segments and allowance for credit losses policies, see Note 1 to our consolidated financial statements and “—B. Liquidity and Capital Resources—Financial Condition—Loan Portfolio.” For more information on our credit and borrower ratings, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”
Allowance for Repayment of Excess Interest
We maintain an allowance for repayment of excess interest based on our estimate of the potential liability exposure. Our estimate of the potential liability exposure represents the estimated amount of claims for repayment of excess interest to be received in the future. We expect that any such claim will be made on the basis of a 2006 ruling of the Japanese Supreme Court, or the Ruling. Under the Ruling, lenders are generally required to reimburse borrowers for interest payments made in excess of the limits stipulated by the Interest Rate Restriction Act upon receiving claims for reimbursement, despite the then-effective provisions of the Law Concerning Lending Business that exempted a lender from this requirement if the lender provided required notices to the borrower and met other specified requirements, and the borrower voluntarily made the interest payment.
While we have not entered into any consumer loan agreement after April 2007 that imposes an interest rate exceeding the limits stipulated by the Interest Rate Restriction Act, we need to estimate the number of possible claims for reimbursement of excess interest payments. To determine the allowance for repayment of excess interest, we analyze the historical number of repayment claims we have received, the amount of such claims, borrowers’ profiles, the actual amount of reimbursements we have made, management’s future forecasts, and other events that are expected to possibly affect the repayment claim trends in order to arrive at our best estimate of the potential liability. We believe that the provision for repayment of excess interest is adequate and the allowance is at the appropriate amount to absorb probable losses, so that the impact of future claims for reimbursement of excess interest will not have a material adverse effect on our financial position and results of operations. The allowance is recorded as a liability in Other liabilities.
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For further information, see Note 26 to our consolidated financial statements and “Item 3.D. Key Information—Risk Factors—Operational Risk—Because of our loans to consumers and our shareholdings in companies engaged in consumer lending, changes in the business or regulatory environment for consumer finance companies in Japan may further adversely affect our financial results.”
Goodwill
As part of our global strategies, we have executed multiple large-scale acquisitions, investments and capital alliances, and recorded goodwill resulting from these business combinations. U.S. GAAP requires us to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired, using a process that compares the carrying amount of a reporting unit with its fair value. An impairment loss is recognized to the extent that the carrying amount of a reporting unit exceeds its fair value, but not exceeding the total amount of goodwill allocated to that reporting unit. A reporting unit is an operating segment or component of an operating segment that constitutes a business for which discrete financial information is available and is regularly reviewed by management. The fair value of a reporting unit is defined as the amount at which the unit as a whole could be bought or sold in a current transaction between willing parties. Our consolidated goodwill balance was ¥296.8 billion at March 31, 2023, which was allocated to our reporting units. For a reporting unit for which an observable quoted price is not available, we determined the fair value of each reporting unit mainly using the income approach. The income approach determined the fair value of the reporting units by discounting management’s projections of each reporting unit’s cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, using a discount rate derived from the capital asset pricing model.
The determination of the fair value of these reporting units requires management to make significant judgments related to significant assumptions due to the subjectivity and uncertainty associated with the assumptions. The significant assumptions included projected future operating cash flows based on forecasted future income in the income approach.
For the fiscal year ended March 31, 2023, the MUFG Group recognized ¥33,553 million of impairment of goodwill relating to the First Sentier Investors reporting unit within the Asset Management & Investor Services Business Group segment. Due largely to market volatility and a decline in the equity markets, the portfolio balance of assets under management decreased, which resulted in a decrease in the reporting unit’s cash flow projections. As a result, the fair value of the reporting unit was measured on December 31, 2022 for the quantitative goodwill impairment test, and led to an impairment of goodwill as the fair value had fallen below the carrying amount of the reporting unit. The income approach estimates the fair value of the reporting unit by discounting management’s projections of the reporting unit’s cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, using a discount rate derived from the capital asset pricing model.
Valuation of Financial Instruments
We measure certain financial assets and liabilities at fair value. The majority of such assets and liabilities are measured at fair value on a recurring basis, including trading securities, trading derivatives and investment securities. In addition, certain other assets and liabilities are measured at fair value on a non-recurring basis, including held for sale loans which are carried at the lower of cost or fair value, collateral dependent loans and nonmarketable equity securities subject to impairment.
We have elected the fair value option for certain foreign securities classified as available-for-sale debt securities, whose unrealized gains and losses are reported in income, and marketable equity securities.
The guidance on the measurement of fair value defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have an established and documented process for determining fair value in accordance with the guidance. To determine the fair value, we use quoted prices which include those provided from pricing vendors, where available. We generally obtain one price or quote per instrument and do not adjust it to determine the fair value of the instrument. We perform internal price verification procedures to ensure that the prices and quotes provided from the independent pricing vendors are reasonable. Such verification procedures include a comparison of pricing sources and analysis of variances among pricing sources. These verification procedures are periodically performed by independent risk management departments. For collateralized loan obligations, or CLOs, backed by general corporate loans, the fair value is determined by weighting the internal model valuation and the non-binding broker-dealer quotes. If quoted prices are not available to determine the fair value of derivatives, the fair value is based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and credit curves. The fair values of trading liabilities are determined by discounting future cash flows at a rate which incorporates our own creditworthiness. In addition, valuation adjustments may be made to ensure that the financial instruments are recorded at fair value. These adjustments include, but are not limited to, amounts that reflect counterparty credit quality, funding cost, liquidity risk, and model risk. Our financial models are validated and periodically reviewed by risk management departments independent of divisions that created the models.
For a further discussion of the valuation techniques applied to the material assets or liabilities, see Note 31 to our consolidated financial statements.
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Accounting Changes and Recently Issued Accounting Pronouncements
See “Accounting Changes” and “Recently Issued Accounting Pronouncements” in Note 1 to our consolidated financial statements.
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Item 6. Directors, Senior Management and Employees.
A.Directors and Senior Management
Members of the Board of Directors
The following table sets forth the members of our board of directors as of July 1, 2023, together with their respective dates of birth, positions and experience:
Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Mariko Fujii (March 9, 1955) | Member of the Board of Directors (Outside Director) | April 1977 | Joined Ministry of Finance of Japan | |||||||||||||||||
| July 1997 | Director, International Affairs and Research Division, Customs and Tariff Bureau, Ministry of Finance | |||||||||||||||||||
| April 1999 | Associate Professor, Research Center for Advanced Science and Technology, The University of Tokyo | |||||||||||||||||||
| March 2001 | Professor, Research Center for Advanced Economic Engineering, The University of Tokyo | |||||||||||||||||||
| April 2004 | Professor, Research Center for Advanced Science and Technology, National University Corporation, The University of Tokyo | |||||||||||||||||||
| June 2014 | Outside Director of Electric Power Development Co., Ltd. | |||||||||||||||||||
| October 2015 | Ambassador Extraordinary and Plenipotentiary of Japan to the Republic of Latvia | |||||||||||||||||||
| June 2016 | Emeritus Professor of The University of Tokyo (incumbent) | |||||||||||||||||||
| January 2019 | Retired from Ambassador of Japan to the Republic of Latvia | |||||||||||||||||||
| June 2019 | Outside Director of NTT DATA CORPORATION (currently NTT DATA GROUP CORPORATION) (incumbent) | |||||||||||||||||||
| Member of the Board of Directors (Outside Director) of MUFG (incumbent) | ||||||||||||||||||||
Keiko Honda (September 27, 1961) | Member of the Board of Directors (Outside Director) | April 1984 | Joined Bain & Company Japan, Incorporated | |||||||||||||||||
| May 1986 | Joined Shearson Lehman Brothers Securities Co., Ltd. | |||||||||||||||||||
| July 1989 | Joined McKinsey & Company, Inc. Japan | |||||||||||||||||||
| July 1999 | Partner of McKinsey & Company | |||||||||||||||||||
| July 2007 | Director (Senior Partner) of McKinsey & Company | |||||||||||||||||||
| July 2013 | Executive Vice President of Multilateral Investment Guarantee Agency (World Bank Group) | |||||||||||||||||||
| June 2014 | Executive Vice President & CEO of Multilateral Investment Guarantee Agency (World Bank Group) | |||||||||||||||||||
| October 2019 | Retired from Multilateral Investment Guarantee Agency (World Bank Group) | |||||||||||||||||||
| January 2020 | Columbia University School of International and Public Affairs as Adjunct Professor and Adjunct Senior Research Scholar (incumbent) | |||||||||||||||||||
| March 2020 | Outside Director of AGC Inc. (incumbent) | |||||||||||||||||||
| June 2020 | Member of the Board of Directors (Outside Director) of MUFG (incumbent) | |||||||||||||||||||
| June 2022 | Outside Director of the Board of Recruit Holdings Co., Ltd.(incumbent) | |||||||||||||||||||
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Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Kaoru Kato (May 20, 1951) | Member of the Board of Directors (Outside Director) | April 1977 | Joined Nippon Telegraph and Telephone Public Corporation (NTT) | |||||||||||||||||
| July 1999 | General Manager of Plant Department of NTT Kansai Mobile Communications Network, Inc. | |||||||||||||||||||
| April 2000 | General Manager of Plant Department of NTT DoCoMo Kansai, Inc. | |||||||||||||||||||
| June 2002 | General Manager of Corporate Strategy and Planning Department, Member of the Board of Directors of NTT DoCoMo Kansai, Inc. | |||||||||||||||||||
| July 2005 | Representative Director and Senior Corporate Executive Officer of Sumitomo Mitsui Card Co., Ltd. | |||||||||||||||||||
| July 2007 | Executive Vice President, General Manager of Corporate Strategy and Planning Department, Member of the Board of Directors of NTT DoCoMo Kansai, Inc. | |||||||||||||||||||
| June 2008 | Executive Vice President, General Manager of Corporate Strategy and Planning Department, Member of the Board of Directors of NTT DOCOMO, INC. | |||||||||||||||||||
| June 2012 | President and Chief Executive Officer, Member of the Board of Directors of NTT DOCOMO, INC. | |||||||||||||||||||
| June 2016 | Corporate Advisor, Member of the Board of Directors of NTT DOCOMO, INC. | |||||||||||||||||||
| June 2018 | Corporate Advisor of NTT DOCOMO, INC. | |||||||||||||||||||
| June 2019 | Member of the Board of Directors (Outside Director) of MUFG (incumbent) | |||||||||||||||||||
| March 2021 | Non-executive Director of Kirin Holdings Company, Limited | |||||||||||||||||||
| June 2022 | Senior Advisor of NTT DOCOMO, INC. | |||||||||||||||||||
Satoko Kuwabara (November 1, 1964) | Member of the Board of Directors (Outside Director) | April 1990 | Registered as an attorney at law, Member of the Daini Tokyo Bar Association | |||||||||||||||||
| Joined Mori Sogo (currently Mori Hamada & Matsumoto) | ||||||||||||||||||||
| January 1998 | Partner of Mori Hamada & Matsumoto | |||||||||||||||||||
| June 2016 | Outside Director of BANDAI NAMCO Holdings Inc. (incumbent) | |||||||||||||||||||
| March 2020 | Outside Auditor of Unicafe Inc. (incumbent) | |||||||||||||||||||
| April 2020 | Partner of Gaien Partners (incumbent) | |||||||||||||||||||
| June 2020 | Outside Audit and Supervisory Board Member of Nippon Yusen Kabushiki Kaisha | |||||||||||||||||||
| June 2021 | Member of the Board of Director (Outside Director) of MUFG (incumbent) | |||||||||||||||||||
| June 2023 | Outside Director of Nippon Yusen Kabushiki Kaisha (incumbent) | |||||||||||||||||||
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Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Hirofumi Nomoto (September 27, 1947) | Member of the Board of Directors (Outside Director) | April 1971 | Joined TOKYU CORPORATION | |||||||||||||||||
| April 2003 | Executive General Manager of Media Business Headquarters of TOKYU CORPORATION | |||||||||||||||||||
| April 2004 | President & Representative Director of its communications Inc. | |||||||||||||||||||
| June 2007 | Director of TOKYU CORPORATION | |||||||||||||||||||
| Executive Officer of Real Estate Development Business Unit of TOKYU CORPORATION | ||||||||||||||||||||
| January 2008 | Managing Director of TOKYU CORPORATION | |||||||||||||||||||
| June 2008 | Senior Managing Director of TOKYU CORPORATION | |||||||||||||||||||
| April 2010 | Executive Officer & Senior Executive General Manager of Urban Life Produce Business Unit of TOKYU CORPORATION | |||||||||||||||||||
| June 2010 | Senior Managing Director & Representative Director of TOKYU CORPORATION | |||||||||||||||||||
| April 2011 | President & Representative Director of TOKYU CORPORATION | |||||||||||||||||||
| April 2018 | Chairman & Representative Director of TOKYU CORPORATION (incumbent) | |||||||||||||||||||
| June 2019 | President & CEO of THREE HUNDRED CLUB CO., LTD. (incumbent) Member of the Board of Directors (Outside Director) of MUFG (incumbent) | |||||||||||||||||||
| David Sneider (July 25, 1957) | Member of the Board of Directors (Outside Director) | December 1984 | Associate of Paul, Weiss, Rifkind, Wharton & Garrison LLP | |||||||||||||||||
| June 1985 | Registered as an attorney at law, admitted in States of New York in the United States | |||||||||||||||||||
| July 1987 | Director and Counsel of Legal Department, Salomon Brothers Inc. | |||||||||||||||||||
| February 1992 | Associate of Simpson Thacher & Bartlett LLP | |||||||||||||||||||
| January 1994 | Partner of Simpson Thacher & Bartlett LLP | |||||||||||||||||||
| June 2022 | Outside Director of PHC Holdings Corporation (incumbent) | |||||||||||||||||||
| June 2023 | Member of the Board of Directors (Outside Director) of MUFG (incumbent) | |||||||||||||||||||
| Koichi Tsuji (April 10, 1957) | Member of the Board of Directors (Outside Director) | October 1984 | Joined Peat Marwick Mitchell & Company | |||||||||||||||||
| September 1988 | Registered as Certified Public Accountant in Japan | |||||||||||||||||||
| February 1989 | Resident Representative, Zurich, Switzerland | |||||||||||||||||||
| July 2004 | Senior Partner of Ernst & Young ShinNihon LLC | |||||||||||||||||||
| February 2016 | Chairman and CEO of Ernst & Young ShinNihon LLC | |||||||||||||||||||
| July 2019 | Chairman & CEO of EY Japan Godo Kaisha | |||||||||||||||||||
| Member of the Board of Directors of EY Japan Co., Ltd. | ||||||||||||||||||||
| June 2021 | Member of the Board of Directors (Outside Director) of MUFG (incumbent) | |||||||||||||||||||
| June 2023 | Outside Statutory Auditor of TEIJIN LIMITED (incumbent) | |||||||||||||||||||
| Outside Director of MARUICHI STEEL TUBE LTD. (incumbent) | ||||||||||||||||||||
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Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
| Tarisa Watanagase (November 30, 1949) | Member of the Board of Directors (Outside Director) | June 1975 | Joined the Bank of Thailand | |||||||||||||||||
| January 1988 | Economist, International Monetary Fund (On the Secondment) | |||||||||||||||||||
| October 2002 | Deputy Governor of the Bank of Thailand | |||||||||||||||||||
| November 2006 | Governor of the Bank of Thailand | |||||||||||||||||||
| September 2010 | Retired from the Bank of Thailand | |||||||||||||||||||
| March 2013 | Outside Director of the Siam Cement Public Company Limited | |||||||||||||||||||
| June 2017 | Member of the Board of Directors (Outside Director) of MUFG (incumbent) | |||||||||||||||||||
Kenichi Miyanaga (February 25, 1960) | Member of the Board of Directors | April 1982 | Joined The Toyo Trust and Banking Company, Limited | |||||||||||||||||
| June 2009 | Executive Officer of TB | |||||||||||||||||||
| June 2013 | Director and Managing Executive Officer of TB | |||||||||||||||||||
| June 2016 | Senior Managing Executive Officer of TB | |||||||||||||||||||
| June 2017 | Director, Deputy President, and Executive Officer of TB | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| June 2021 | Member of the Board of Directors of MUFG (incumbent) | |||||||||||||||||||
Ryoichi Shinke (December 8, 1965) | Member of the Board of Directors | April 1988 | Joined The Sanwa Bank, Limited | |||||||||||||||||
| June 2014 | Executive Officer of BK | |||||||||||||||||||
| May 2018 | Managing Executive Officer of BK | |||||||||||||||||||
| May 2020 | Managing Executive Officer of MUFG | |||||||||||||||||||
| April 2022 | Senior Managing Executive Officer of BK | |||||||||||||||||||
| June 2023 | Member of the Board of Directors of MUFG (incumbent) | |||||||||||||||||||
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Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Kanetsugu Mike (November 4, 1956) | Member of the Board of Directors Chairman (Corporate Executive) | April 1979 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2005 | Executive Officer of The Bank of Tokyo-Mitsubishi,Ltd. | |||||||||||||||||||
| Executive Officer of Mitsubishi Tokyo Financial Group, Inc. | ||||||||||||||||||||
| May 2009 | Managing Executive Officer of BK | |||||||||||||||||||
| May 2011 | Managing Executive Officer of MUFG | |||||||||||||||||||
| June 2011 | Member of the Board of Directors, Managing Executive Officer of BK | |||||||||||||||||||
| May 2013 | Senior Managing Executive Officer of BK | |||||||||||||||||||
| October 2015 | Executive Chairman of MUAH | |||||||||||||||||||
| Executive Chairman of MUFG Union Bank, N.A. | ||||||||||||||||||||
| May 2016 | Deputy President and Executive Officer of BK | |||||||||||||||||||
| Senior Managing Corporate Executive of MUFG | ||||||||||||||||||||
| June 2016 | Member of the Board of Directors, Deputy President of BK | |||||||||||||||||||
| June 2017 | President & CEO of BK | |||||||||||||||||||
| Member of the Board of Directors, Deputy Chairman of MUFG | ||||||||||||||||||||
| April 2019 | Member of the Board of Directors, President & Group CEO of MUFG | |||||||||||||||||||
| April 2020 | Member of the Board of Directors, Deputy Chairman of MUFG | |||||||||||||||||||
| April 2021 | Member of the Board of Directors, Chairman of MUFG (incumbent) | |||||||||||||||||||
Hironori Kamezawa (November 18, 1961) | Member of the Board of Directors President & Group CEO (Representative Corporate Executive) | April 1986 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2010 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| May 2014 | Managing Executive Officer of BK | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| July 2014 | Deputy CEO of Americas at MUFG Union Bank, N.A. | |||||||||||||||||||
| May 2017 | Managing Corporate Executive of MUFG | |||||||||||||||||||
| June 2017 | Member of the Board of Directors, Managing Executive Officer of BK | |||||||||||||||||||
| May 2018 | Member of the Board of Directors, Senior Managing Executive Officer of BK | |||||||||||||||||||
| Senior Managing Corporate Executive of MUFG | ||||||||||||||||||||
| December 2018 | CEO and Representative of the Board of Directors of Global Open Network, Inc. | |||||||||||||||||||
| April 2019 | Deputy President of MUFG | |||||||||||||||||||
| Member of the Board of Directors, Deputy President of BK | ||||||||||||||||||||
| CEO and Representative of the Board of Directors of Global Open Network Japan, Inc. | ||||||||||||||||||||
| June 2019 | Member of the Board of Directors, Deputy President of MUFG | |||||||||||||||||||
| August 2019 | Chairman of Global Open Network Japan, Inc. | |||||||||||||||||||
| April 2020 | Member of the Board of Directors of BK (incumbent) | |||||||||||||||||||
| Member of the Board of Directors, President & Group CEO of MUFG (incumbent) | ||||||||||||||||||||
| May 2021 | Director of Morgan Stanley (incumbent) | |||||||||||||||||||
95
Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Iwao Nagashima (March 15, 1963) | Member of the Board of Directors | April 1985 | Joined The Mitsubishi Trust and Banking Corporation | |||||||||||||||||
| June 2011 | Executive Officer of TB | |||||||||||||||||||
| June 2013 | Managing Executive Officer of TB | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| June 2015 | Director and Managing Executive Officer of TB | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| June 2016 | Director and Senior Managing Executive Officer of TB | |||||||||||||||||||
| April 2019 | Director, Deputy President, and Executive Officer of TB | |||||||||||||||||||
| Senior Managing Corporate Executive of MUFG | ||||||||||||||||||||
| President & CEO of MU Trust Apple Planning Company, Ltd. | ||||||||||||||||||||
| April 2020 | President and CEO of TB (incumbent) | |||||||||||||||||||
| Deputy Chairman of MUFG | ||||||||||||||||||||
| June 2020 | Member of the Board of Directors, Deputy Chairman of MUFG | |||||||||||||||||||
| April 2022 | Member of the Board of Directors of MUFG (incumbent) | |||||||||||||||||||
Junichi Hanzawa (January 19, 1965) | Member of the Board of Directors | April 1988 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2014 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| May 2018 | Managing Executive Officer of BK | |||||||||||||||||||
| April 2019 | Managing Corporate Executive of MUFG | |||||||||||||||||||
| June 2019 | Member of the Board of Directors, Managing Executive Officer of BK | |||||||||||||||||||
| April 2021 | President & CEO of BK (incumbent) | |||||||||||||||||||
| Deputy Chairman of MUFG | ||||||||||||||||||||
| June 2021 | Member of the Board of Directors, Deputy Chairman of MUFG | |||||||||||||||||||
| April 2022 | Member of the Board of Directors of MUFG (incumbent) | |||||||||||||||||||
Makoto Kobayashi (February 22, 1962) | Member of the Board of Directors | April 1985 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2011 | Executive Officer of BK | |||||||||||||||||||
| May 2015 | Managing Executive Officer of BK | |||||||||||||||||||
| July 2015 | Executive Officer of MUFG | |||||||||||||||||||
| July 2018 | Managing Executive Officer of SCHD | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| October 2018 | Managing Executive Officer of TB | |||||||||||||||||||
| April 2020 | Senior Managing Executive Officer of SCHD | |||||||||||||||||||
| Deputy President of MUMSS | ||||||||||||||||||||
| June 2020 | Member of the Board of Directors, Senior Managing Executive Officer of SCHD | |||||||||||||||||||
| June 2021 | Member of the Board of Directors, Deputy President of MUMSS | |||||||||||||||||||
| April 2022 | President & Global CEO of SCHD (incumbent) | |||||||||||||||||||
| President & CEO of MUMSS (incumbent) | ||||||||||||||||||||
| June 2022 | Member of the Board of Directors of MUFG (incumbent) | |||||||||||||||||||
96
| Notes: | The following abbreviations are used in the table above: | ||||
| “BK” refers to MUFG Bank, Ltd. or its former name The Bank of Tokyo-Mitsubishi UFJ, Ltd. | |||||
| “TB” refers to Mitsubishi UFJ Trust and Banking Corporation. | |||||
| “SCHD” refers to Mitsubishi UFJ Securities Holdings Co., Ltd. | |||||
| “MUMSS” refers to Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | |||||
| “MUAH” refers to MUFG Americas Holdings Corporation. | |||||
97
Corporate Executives
The following table sets forth our corporate executives as of June 29, 2023, together with their respective dates of birth, positions and experience:
Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Kanetsugu Mike (November 4, 1956) | See “Members of the Board of Directors” under this Item 6.A. | See “Members of the Board of Directors” under this Item 6.A. | ||||||||||||||||||
Hironori Kamezawa (November 18, 1961) | See “Members of the Board of Directors” under this Item 6.A. | See “Members of the Board of Directors” under this Item 6.A. | ||||||||||||||||||
| Yoshitaka Shiba (July 25, 1961) | Senior Managing Corporate Executive (Group Chief Audit Officer, or Group CAO) Managing Director, Head of Internal Audit Division | April 1986 | Joined The Tokai Bank, Ltd. | |||||||||||||||||
| June 2012 | Executive Officer of BK | |||||||||||||||||||
| July 2015 | Executive Officer of MUFG | |||||||||||||||||||
| May 2016 | Managing Executive Officer of BK | |||||||||||||||||||
| April 2020 | Senior Managing Corporate Executive of MUFG (incumbent) | |||||||||||||||||||
| Tetsuya Yonehana (February 10, 1964) | Senior Managing Corporate Executive (Representative Corporate Executive) (Group Chief Financial Officer, or Group CFO) | April 1986 | Joined The Mitsubishi Trust and Banking Corporation | |||||||||||||||||
| June 2012 | Executive Officer of TB | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| June 2015 | Managing Executive Officer of TB | |||||||||||||||||||
| June 2016 | Director and Managing Executive Officer of TB | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| April 2019 | Director and Senior Managing Executive Officer of TB | |||||||||||||||||||
| April 2020 | Senior Managing Executive Officer of BK | |||||||||||||||||||
| Senior Managing Corporate Executive of MUFG | ||||||||||||||||||||
| June 2020 | Member of the Board of Directors, Senior Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| April 2022 | Senior Managing Corporate Executive (Representative Corporate Executive) of MUFG (incumbent) | |||||||||||||||||||
Takayuki Yasuda (June 19, 1963) | Senior Managing Corporate Executive (Group Head, Asset Management & Investor Services Business Group) | April 1987 | Joined The Mitsubishi Trust and Banking Corporation | |||||||||||||||||
| June 2013 | Executive Officer of TB | |||||||||||||||||||
| February 2015 | Executive Officer of MUFG | |||||||||||||||||||
| June 2017 | Managing Executive Officer of TB | |||||||||||||||||||
| April 2021 | Director and Senior Managing Executive Officer of TB | |||||||||||||||||||
| Senior Managing Corporate Executive of MUFG (incumbent) | ||||||||||||||||||||
| April 2023 | Director, Deputy President, and Executive Officer of TB (incumbent) | |||||||||||||||||||
98
Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Yasushi Itagaki (May 24, 1964) | Senior Managing Corporate Executive (Group Chief Operating Officer-International, or Group COO-I, Group Head Global Commercial Banking Business Group) | April 1987 | Joined The Bank of Tokyo, Ltd. | |||||||||||||||||
| June 2013 | Executive Officer of BK | |||||||||||||||||||
| July 2013 | Executive Officer of MUFG | |||||||||||||||||||
| May 2017 | Managing Executive Officer of BK | |||||||||||||||||||
| October 2019 | President & CEO of PT Bank Danamon Indonesia, Tbk. | |||||||||||||||||||
| April 2021 | Senior Managing Corporate Executive of BK | |||||||||||||||||||
| April 2022 | Deputy President of BK | |||||||||||||||||||
| April 2023 | Senior Managing Corporate Executive of MUFG (incumbent) | |||||||||||||||||||
| June 2023 | Member of the Board of Directors, Deputy President of BK (incumbent) | |||||||||||||||||||
Seiichiro Akita (November 11, 1966) | Senior Managing Corporate Executive (Representative Corporate Executive) (Group Head, Japanese Corporate & Investment Banking Business Group(excluding in charge of Wealth Management Research Division)) | April 1989 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2015 | Executive Officer of BK | |||||||||||||||||||
| April 2019 | Managing Executive Officer of BK | |||||||||||||||||||
| May 2019 | President & CEO, Bank of Ayudhya Public Company Limited | |||||||||||||||||||
| May 2023 | Deputy President of BK | |||||||||||||||||||
| Senior Managing Corporate Executive (Representative Corporate Executive) of MUFG (incumbent) | ||||||||||||||||||||
| June 2023 | Member of the Board of Directors, Deputy President of BK (incumbent) | |||||||||||||||||||
| Hiroshi Mori (February 21, 1965) | Managing Corporate Executive (Group Chief Legal Officer, or Group CLO) | April 1989 | Joined Development Bank of Japan (currently Development Bank of Japan, Inc.) | |||||||||||||||||
| April 1993 | Seconded to Finance Bureau of Ministry of Home Affairs | |||||||||||||||||||
| June 2003 | Seconded to Tesac Corporation, a Company under Reorganization Trustee Representative, Manager of Corporate Planning Department | |||||||||||||||||||
| October 2006 | Registered as attorney at law | |||||||||||||||||||
| Joined Nishimura & Asahi | ||||||||||||||||||||
| November 2010 | Outside Director, USEN Corporation | |||||||||||||||||||
| January 2012 | Partner at Nishimura & Asahi | |||||||||||||||||||
| June 2013 | Substitute Auditor of KAGOME CO., LTD. | |||||||||||||||||||
| March 2016 | Outside Director, Audit & Supervisory Committee Member of KAGOME CO., LTD. | |||||||||||||||||||
| June 2016 | Outside Director, Audit & Supervisory Committee Member of SCHD | |||||||||||||||||||
| June 2019 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| Managing Corporate Executive of MUFG (incumbent) | ||||||||||||||||||||
99
Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
Yutaka Miyashita (October 11, 1967) | Managing Corporate Executive (Representative Corporate Executive) (Group Head, Retail & Commercial Banking Business Group (excluding in charge of Wealth Management Research Division)) | April 1990 | Joined The Sanwa Bank, Limited | |||||||||||||||||
| June 2016 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| April 2020 | Managing Executive Officer of BK | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| June 2020 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| April 2021 | Managing Corporate Executive of MUFG | |||||||||||||||||||
| April 2022 | Managing Corporate Executive (Representative Corporate Executive) of MUFG (incumbent) | |||||||||||||||||||
| Keitaro Tsukiyama (December 7, 1967) | Managing Corporate Executive (Group Chief Compliance Officer, or Group CCO) | April 1991 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2018 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| April 2021 | Managing Executive Officer of BK | |||||||||||||||||||
| Managing Corporate Executive of MUFG (incumbent) | ||||||||||||||||||||
| June 2021 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| Fumitaka Nakahama (July 28, 1966) | Managing Corporate Executive (Group Head, Global Corporate & Investment Banking Business Group) | December 2009 | Joined The Bank of Tokyo-Mitsubishi UFJ, Ltd. | |||||||||||||||||
| June 2018 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| April 2021 | Managing Executive Officer of BK | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| April 2022 | Managing Corporate Executive of MUFG (incumbent) | |||||||||||||||||||
| June 2022 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| Toshiki Ochi (June 23, 1968) | Managing Corporate Executive (Group Chief Information Officer, or Group CIO) | April 1991 | Joined The Sanwa Bank, Limited | |||||||||||||||||
| June 2018 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| April 2019 | Managing Executive Officer of Mitsubishi UFJ NICOS Co., Ltd. | |||||||||||||||||||
| April 2022 | Managing Executive Officer of BK | |||||||||||||||||||
| Managing Corporate Executive of MUFG (incumbent) | ||||||||||||||||||||
| June 2022 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| Hiroyuki Seki (March 10, 1968) | Managing Corporate Executive (Group Head, Global Markets Business Group) | April 1990 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2016 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| April 2021 | Managing Executive Officer of BK | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| April 2022 | Managing Corporate Executive of MUFG (incumbent) | |||||||||||||||||||
| June 2022 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
100
Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||||||||||||
| Hideaki Takase (December 14, 1968) | Managing Corporate Executive (Group Chief Strategy Officer, or Group CSO (Corporate Planning Division excluding Finances & Resources Management and Global Business) In charge of Corporate Administration Division) | April 1991 | Joined The Mitsubishi Bank, Limited | |||||||||||||||||
| June 2018 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| August 2019 | President & CEO of MUFG Bank (Europe) N.V. | |||||||||||||||||||
| April 2021 | Managing Executive Officer of BK | |||||||||||||||||||
| April 2022 | Managing Corporate Executive of MUFG | |||||||||||||||||||
| June 2022 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| April 2023 | Managing Corporate Executive (Representative Corporate Executive) of MUFG (incumbent) | |||||||||||||||||||
| Shuichi Yokoyama (December 17, 1965) | Managing Corporate Executive (Group Chief Risk Officer, or Group CRO) | April 1990 | Joined The Bank of Tokyo, Ltd. | |||||||||||||||||
| June 2016 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| April 2020 | Managing Executive Officer of BK | |||||||||||||||||||
| April 2022 | Managing Corporate Executive of MUFG (incumbent) | |||||||||||||||||||
| June 2022 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| Kenji Horikawa (December 9, 1967) | Managing Corporate Executive (Group Chief Human Resources Officer, or Group CHRO) | April 1990 | Joined The Sanwa Bank, Limited | |||||||||||||||||
| June 2016 | Executive Officer of BK | |||||||||||||||||||
| April 2020 | Managing Executive Officer of SCHD | |||||||||||||||||||
| Managing Executive Officer of MUMSS | ||||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| April 2022 | Member of the Board of Directors, Managing Executive Officer of SCHD | |||||||||||||||||||
| Member of the Board of Directors, Managing Executive Officer of MUMSS | ||||||||||||||||||||
| April 2023 | Managing Corporate Executive of MUFG (incumbent) | |||||||||||||||||||
| Tadashi Yamamoto (May 23, 1969) | Managing Corporate Executive (Group Head, Digital Service Business Group Group Chief Digital Transformation Officer, or Group CDTO) | April 1992 | Joined The Bank of Tokyo, Ltd. | |||||||||||||||||
| June 2018 | Executive Officer of BK | |||||||||||||||||||
| Executive Officer of MUFG | ||||||||||||||||||||
| April 2022 | Managing Executive Officer of BK | |||||||||||||||||||
| Managing Executive Officer of MUFG | ||||||||||||||||||||
| June 2022 | Member of the Board of Directors, Managing Executive Officer of BK (incumbent) | |||||||||||||||||||
| April 2023 | Managing Corporate Executive of MUFG (incumbent) | |||||||||||||||||||
| Notes: | The following abbreviations are used in the table above: | ||||
| “BK” refers to MUFG Bank, Ltd. or its former name The Bank of Tokyo-Mitsubishi UFJ, Ltd. | |||||
| “TB” refers to Mitsubishi UFJ Trust and Banking Corporation. | |||||
| “SCHD” refers to Mitsubishi UFJ Securities Holdings Co., Ltd. | |||||
| “MUMSS” refers to Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | |||||
| “MUAH” refers to MUFG Americas Holdings Corporation. | |||||
The board of directors and corporate executives may be contacted through our headquarters at Mitsubishi UFJ Financial Group, Inc., 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, Japan.
No family relationship exists among any of our directors or corporate executives.
101
B.Compensation
The compensation paid by MUFG and its subsidiaries during the fiscal year ended March 31, 2023 to our directors and corporate executives consisted of annual base salaries, performance-based stock compensation, cash bonuses and other benefits. MUFG’s compensation committee determines the compensation paid to our directors and corporate executives.
The following table sets forth details of the aggregate compensation paid by MUFG and its subsidiaries during the fiscal year ended March 31, 2023 to our directors (excluding outside directors), corporate executives and outside directors:
| Non-Adjustable Compensation | Adjustable Compensation | |||||||||||||||||||||||||||||||||||||||||||
| Classification | Number of Recipients(1) | Aggregate Compensation | Annual Base Salary(2) | Performance- based Stock Compensation | Cash Bonuses | Performance- based Stock Compensation | ||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Directors (excluding outside directors) | 6 | ¥ | 721 | ¥ | 338 | ¥ | 59 | ¥ | 217 | ¥ | 107 | |||||||||||||||||||||||||||||||||
| Corporate Executives | 18 | ¥ | 1,968 | ¥ | 1,046 | ¥ | 318 | ¥ | 416 | ¥ | 188 | |||||||||||||||||||||||||||||||||
| Outside Directors | 9 | ¥ | 244 | ¥ | 244 | ― | ― | ― | ||||||||||||||||||||||||||||||||||||
Notes:
(1)Includes the current directors and corporate executives as well as those who retired during the fiscal year ended March 31, 2023.
(2)Includes other benefits.
The following table sets forth the details of individual compensation paid, including benefits in kind granted by MUFG and its subsidiaries, in an amount equal to or exceeding ¥100 million during the fiscal year ended March 31, 2023:
| Non-Adjustable Compensation | Adjustable Compensation | ||||||||||||||||||||||||||||||||||||||||
| Directors | Aggregate Compensation | Paid by | Annual Base Salary | Performance- based Stock Compensation | Cash Bonuses | Performance- based Stock Compensation | |||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Kanetsugu Mike | ¥ | 162 | MUFG | ¥ | 52 | ¥ | 21 | ¥ | 66 | ¥ | 23 | ||||||||||||||||||||||||||||||
| Hironori Kamezawa | ¥ | 257 | MUFG | ¥ | 71 | ¥ | 23 | ¥ | 99 | ¥ | 39 | ||||||||||||||||||||||||||||||
| BK | 18 | 7 | ― | ― | |||||||||||||||||||||||||||||||||||||
| Iwao Nagashima | ¥ | 194 | MUFG | ¥ | 35 | ¥ | 8 | ¥ | 37 | ¥ | 17 | ||||||||||||||||||||||||||||||
| TB | 35 | 14 | 31 | 17 | |||||||||||||||||||||||||||||||||||||
| Junichi Hanzawa | ¥ | 250 | MUFG | ¥ | 42 | ¥ | 10 | ¥ | 49 | ¥ | 20 | ||||||||||||||||||||||||||||||
| BK | 46 | 14 | 49 | 20 | |||||||||||||||||||||||||||||||||||||
| Makoto Kobayashi | ¥ | 113 | MUFG | ¥ | 19 | ¥ | 3 | ¥ | 24 | ¥ | 11 | ||||||||||||||||||||||||||||||
| SCHD | 9 | 2 | 12 | 5 | |||||||||||||||||||||||||||||||||||||
| MUMSS | ¥ | 9 | ¥ | 2 | ¥ | 12 | ¥ | 5 | |||||||||||||||||||||||||||||||||
| Yoshitaka Shiba | ¥ | 100 | MUFG | ¥ | 61 | ¥ | 13 | ¥ | 17 | ¥ | 9 | ||||||||||||||||||||||||||||||
| Naomi Hayashi | ¥ | 141 | MUFG | ¥ | 44 | ¥ | 10 | ¥ | 20 | ¥ | 7 | ||||||||||||||||||||||||||||||
| BK | 26 | 16 | 13 | 5 | |||||||||||||||||||||||||||||||||||||
| Atsushi Miyata | ¥ | 141 | MUFG | ¥ | 44 | ¥ | 10 | ¥ | 20 | ¥ | 7 | ||||||||||||||||||||||||||||||
| BK | 26 | 16 | 13 | 5 | |||||||||||||||||||||||||||||||||||||
| Teruyuki Sasaki | ¥ | 116 | MUFG | ¥ | 39 | ¥ | 7 | ¥ | 10 | ¥ | 5 | ||||||||||||||||||||||||||||||
| BK | 22 | 23 | 6 | 4 | |||||||||||||||||||||||||||||||||||||
| Note: | (1) The following abbreviations are used in the table above: | ||||
| “BK” refers to MUFG Bank, Ltd. (or its former name The Bank of Tokyo-Mitsubishi UFJ, Ltd.) | |||||
| “TB” refers to Mitsubishi UFJ Trust and Banking Corporation. | |||||
| “SCHD” refers to Mitsubishi UFJ Securities Holdings Co., Ltd. | |||||
| “MUMSS” refers to Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. | |||||
102
Annual Base Salary
Annual base salaries were paid to our directors (including outside directors) and corporate executives in the form of monthly cash installment payments.
Performance-based Stock Compensation Plans
Under our performance-based stock compensation plans, qualified directors (excluding outside directors and directors serving as audit committee members), corporate executives and others of MUFG and its major domestic subsidiaries are assigned, on a monthly basis, (1) points based on their job responsibilities, or non-adjustable points, and (2) additional points based on their job responsibilities which are adjusted at the end of each fiscal year and at the end of each plan period to reflect the extent to which a financial or ESG performance target determined by the compensation committee is attained, or adjustable points. Each plan period corresponds to the period covered by the three-year medium-term business plan of MUFG. Each accumulated point represents a right to receive one share of MUFG common stock from a trust established in Japan to administer the plan grants as determined by the compensation committee.
The right to receive shares of MUFG common stock in exchange for non-adjustable points becomes vested and non-forfeitable, and the shares are delivered, upon the grantee’s departure from his or her job responsibilities based on which the right was granted. The right to receive shares of MUFG common stock in exchange for adjustable points becomes vested and non-forfeitable, and the shares are delivered, at the end of each plan period. The vesting in either case is subject to conditions imposed by the compensation committee, including non-engagement in misconduct. A portion of the shares subject to a grantee’s vested right may be delivered in cash.
The grantees are entitled to “dividend equivalent credits” on their granted but unvested rights under the plan when MUFG pays dividends to its shareholders. The credit is equal to the dividends that the grantees would have received on the shares had the shares been issued to the grantees in exchange for their granted but unvested rights under the plan, less expenses relating to the administration of the plan. Accumulated dividend equivalents are paid to grantees at the time of the delivery of the shares.
The shares to be delivered to grantees are purchased on the open market by the trustee of a trust pursuant to a trust agreement among MUFG, the trustee and the independent caretaker of the trust. Each plan is funded in cash up to a maximum aggregate amount determined by our compensation committee.
The initial performance-based stock compensation plan commenced on July 1, 2016. The grants under the plan were tied to MUFG’s previous medium-term business plan for the three-year period ended March 31, 2018. The trust for the plan was funded with ¥9.8 billion in cash, and 18,785,400 shares of MUFG common stock were purchased by the trustee of the plan trust in May 2016. The plan was adopted after our compensation committee decided in May 2016 to cease to provide any additional stock acquisition rights under our previous stock-based compensation structure and to introduce the performance-based stock compensation plan.
The second performance-based stock compensation plan commenced on December 1, 2016. The trust for the plan was funded with 8.8 billion in cash, and an aggregate of 13,004,300 shares of MUFG common stock were purchased by the trustee of the plan trust in November 2016 and May 2017. The plan was adopted to replace the outstanding stock acquisition rights under our previous stock-based compensation structure. Upon the adoption of the plan, the stock acquisition rights that had been allotted to grantees but remained unexercised under the then-outstanding stock-based compensation plans were exchanged for points under the performance-based stock compensation plan, and the rights to receive shares of MUFG common stock represented by these points were vested. The outstanding stock acquisition rights of grantees who were on overseas assignments at the time of the adoption of the plan were exchanged for points under the performance-based stock compensation plan upon their return to Japan. Each grantee receives shares of MUFG common stock in exchange for points upon the grantee’s departure from his or her job responsibilities based on which the right to receive such shares was granted.
On May 15, 2018, the compensation committee approved additional grants under the initial performance-based stock compensation plan, which was amended in connection with the launch of MUFG’s previous medium-term business plan for the three-year period ending March 31, 2021. The trust period of the plan trust was extended until August 31, 2021, and the maximum amount of funds to be contributed to the plan trust was reset at ¥26.3 billion. The formula for determining adjustable points under the plan was also revised. In May 2018, the plan trust was funded with ¥9.6 billion in cash, and 13,049,600 shares of MUFG common stock were purchased by the trustee of the plan trust.
On May 17, 2021, the compensation committee approved new grants under the initial performance-based stock compensation plan, which was amended in connection with the launch of MUFG’s current medium-term business plan for the three-year period ending March 31, 2024. The trust period of the plan trust was extended until August 31, 2024, and the maximum amount of funds to be contributed to the plan trust was reset at ¥26.6 billion. The formula for determining adjustable points under the plan was also revised. In May 2021, the plan trust was funded with ¥8.3 billion in cash, and 13,381,500 shares of MUFG common stock were purchased by the trustee of the plan trust.
For more information on the Performance-based Stock Compensation Plans, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”
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Cash Bonuses
We from time to time pay cash bonuses to our directors and corporate executives to further motivate them to contribute to the improvement of our stock prices and profits if such bonuses are deemed appropriate based on a balanced scorecard approach taking into account the results of operations of the MUFG Group and each director’s or corporate executive’s individual performance of his or her duties as a director or corporate executive in light of both quantitative and qualitative criteria, including our medium-term strategy for improving our corporate value. None of the outside directors is eligible to receive a cash bonus. The compensation committee determines the cash bonus for each director and corporate executive based on our financial results and his or her job performance for the preceding fiscal year as well as his or her seniority and experience.
MUFG Americas Holdings Corporation Stock Bonus Plan
Under the MUFG Americas Holdings Corporation Stock Bonus Plan, qualified key employees of MUFG Americas Holdings are granted Restricted Share Units, or RSUs, representing a right to receive American Depositary Receipts, or ADRs, evidencing ADSs, each exchangeable for one share of MUFG common stock, from an independent trust established to administer the plan grants, upon the satisfaction of vesting conditions, to be determined pursuant to the plan as well as a Restricted Share Unit Agreement between MUFG Americas Holdings and the grantees.
Unless otherwise provided in the relevant Restricted Share Unit Agreement, RSUs become vested and non-forfeitable as follows: one-third (33 1/3%) of a grantee’s RSUs vests on May 20 of each of the three years following the date of the grant such that all of the RSUs become fully vested after three years from the grant date so long as the grantee satisfies the specified continuous service requirements and any other conditions under the applicable plan documents, subject to certain claw-back and notice period provisions.
Under the plan, the grantees are entitled to “dividend equivalent credits” on their granted but unvested RSUs when MUFG pays dividends to its shareholders. The credit is equal to the dividends that the grantees would have received on the shares had the shares been issued to the grantees in exchange for their granted but unvested RSUs. Accumulated dividend equivalents are paid to grantees in whole shares on an annual basis. Any fractional share will be paid to the participants in cash.
Grants made under the plan are not entitled to any dividend rights, voting rights, or other stockholder rights unless and until RSUs are vested and ADSs are delivered to grantees.
The ADSs to be delivered to grantees will be purchased on the open market by the trustee of the independent trust pursuant to a trust agreement between MUFG Americas Holdings and the trustee. As of June 30, 2023, 148,089,572 RSUs have been granted under the plan, of which 15,614,429 RSUs were outstanding as of June 30, 2023.
For more information on the plan, see “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.”
Share Ownership
As of July 1, 2023, our directors and corporate executives held the following numbers of shares of our common stock:
| Directors | Number of Shares Registered | ||||
| Mariko Fujii | — | ||||
| Keiko Honda | — | ||||
| Kaoru Kato | — | ||||
| Satoko Kuwabara | — | ||||
| Hirofumi Nomoto | 25,000 | ||||
| David Sneider | ― | ||||
| Koichi Tsuji | — | ||||
| Tarisa Watanagase | — | ||||
| Kenichi Miyanaga | 183,678 | ||||
| Ryoichi Shinke | 1,100 | ||||
| Iwao Nagashima | 129,081 | ||||
| Junichi Hanzawa | 58,900 | ||||
| Makoto Kobayashi | 153,058 | ||||
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| Corporate Executives | Number of Shares Registered | ||||
| Kanetsugu Mike | 292,062 | ||||
| Hironori Kamezawa | 69,639 | ||||
| Yoshitaka Shiba | 129,403 | ||||
| Tetsuya Yonehana | 89,922 | ||||
| Takayuki Yasuda | 30,500 | ||||
| Yasushi Itagaki | ― | ||||
| Hiroshi Mori | 8,285 | ||||
| Yutaka Miyashita | 26,400 | ||||
| Keitaro Tsukiyama | 26,769 | ||||
| Fumitaka Nakahama | 11,269 | ||||
| Toshiki Ochi | 18,800 | ||||
| Hiroyuki Seki | 23,150 | ||||
| Hideaki Takase | 15,800 | ||||
| Shuichi Yokoyama | 39,800 | ||||
| Kenji Horikawa | 61,667 | ||||
| Tadashi Yamamoto | 9,400 | ||||
| Seiichiro Akita | 3,712 | ||||
None of the shares of our common stock held by our directors and corporate executives have voting rights that are different from shares of our common stock held by any other shareholder.
For information on the performance-based stock compensation for our directors and corporate executives, see “—Performance-based Stock Compensation Plans.”
C.Board Practices
Our articles of incorporation provide for a board of directors with statutorily mandated nominating and governance committee, audit committee and compensation committee, each consisting of members of the board of directors. We have also elected, though not statutorily mandated under the Companies Act of Japan, to establish a risk committee consisting of directors and external experts. We also have a U.S. risk committee pursuant to the U.S. Enhanced Prudential Standards for foreign banking organizations. Our corporate executives are responsible for executing and managing our business operations based on a delegation of authority by the board of directors, and our directors set our key management policies and oversee the execution of duties by these corporate executives.
In June 2015, our shareholders approved an amendment to our articles of incorporation to adopt our current governance framework with a board of directors and board committees. We previously had a governance framework with a board of directors and a board of corporate auditors. The Companies Act permits three types of governance system for large companies such as MUFG: (1) a company with a nominating committee, an audit committee and a compensation committee, (2) a company with a board of corporate auditors, and (3) a company with an audit and supervisory committee. Our previous governance framework was based on the second system, and our current governance system is based on the first system.
With respect to companies adopting the first system, including MUFG, each of the nominating, audit and compensation committees must consist of members of the board of directors, and the majority of each committee must be outside directors as defined by the Companies Act.
An “outside director” is defined by the Companies Act as a person who meets all of the following conditions:
•the person is not currently, and has not been in the ten years prior to his or her assumption of office as outside director, an executive director, who is a director concurrently performing an executive role (gyomu shikko torishimariyaku), a corporate executive, a manager (shihainin), or any other type of employee of the company or any of its subsidiaries;
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•if the person has been a non-executive director, a corporate auditor, or an accounting adviser (kaikei sanyo) of the company or any of its subsidiaries within the ten years prior to his or her assumption of office as outside director, the person was not an executive director, who is a director concurrently performing an executive role, a corporate executive, a manager or any other type of employee of the company or any of its subsidiary in the ten years prior to his or her assumption of office as such;
•the person is not a director, a corporate executive, a manager or any other type of employee of the company’s parent company, or a natural person who controls the company;
•the person is not an executive director, who is a director concurrently performing an executive role, a corporate executive, a manager or any other type of employee of another subsidiary of the company’s parent company or another company controlled by a natural person who controls the company; and
•the person is not the spouse or a family member within the second degree of kinship of a director, a corporate executive, a manager, or any other type of important employee of the company, or a natural person who controls the company.
Further, companies listed on the Prime Market of the Tokyo Stock Exchange, including us, must have the majority of each of nominating and compensation committee members in principle qualify as outside directors who are considered independent based on such internal standards as each company establishes pursuant to the Tokyo Stock Exchange requirements, or independent outside directors, or publicly disclose the reason for not having such directors on each such committee.
The board of directors must appoint corporate executives (shikkoyaku) to execute and manage the business operations of the company under the authority delegated by the board of directors. Based on this system, our current governance framework is designed to facilitate more flexible and swifter decision-making and increase transparency in our management processes.
Board of Directors
Our board of directors consists of directors who are elected at a general meeting of shareholders. Under our articles of incorporation, the number of directors may not exceed 20. We currently have 15 directors, eight of whom are independent outside directors and two of whom are internal non-executive directors. Companies listed on the Prime Market of the Tokyo Stock Exchange, including us, must have one third (or, in cases where such companies deem appropriate, the majority) of directors qualify as independent outside directors, or publicly disclose the reason for not having such directors on the board of directors.
The regular term of office of a director is one year from the date of election, and directors may serve their terms until the close of the annual general meeting of shareholders held for the following year after their election. Directors may serve any number of consecutive terms.
Under the Companies Act, the board of directors has the authority to determine our basic management policy, make decisions on the execution and management of our business operations, and oversee the execution by the corporate executives of their duties. The board of directors may delegate, to the extent permitted by the Companies Act, the authority to make decisions on the execution and management of our business operations. Our board of directors has delegated most of this authority to the corporate executives.
The board of directors elects the Chairman and the Deputy Chairman from among its members and appoints key management members based on recommendations submitted to it by the nominating committee.
Under the Companies Act, a resolution of the board of directors is required if any director wishes to engage in any business that is in competition with us or any transaction with us. Additionally, no director may vote on a proposal, arrangement or contract in which that director is deemed to be particularly interested.
Neither the Companies Act nor our articles of incorporation contain special provisions as to the borrowing power exercisable by a director, the retirement age of our directors, or a requirement of our directors to hold any shares of our capital stock.
Under the Companies Act and our articles of incorporation, we may exempt, by resolution of the board of directors, our directors from liabilities to MUFG arising in connection with their failure to execute their duties in good faith and without gross negligence within the limits stipulated by applicable laws and regulations. In addition, we have entered into a liability limitation agreement with each outside director and non-executive director which limits the maximum amount of their liability to MUFG arising in connection with a failure to execute their duties in good faith and without gross negligence to the greater of either ¥10 million or the aggregate sum of the amounts prescribed in Paragraph 1 of Article 425 of the Companies Act and Articles 113 and 114 of the Companies Act Enforcement Regulations.
None of our directors is party to a service contract with MUFG or any of its subsidiaries that provides for benefits upon end of their director term.
Nominating Committee
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Our nominating committee, which we call the nominating and governance committee, determines the contents of proposals regarding the election and removal of director candidates to be submitted to general meetings of shareholders. The committee also considers and makes recommendations to the board of directors regarding the appointment and removal of the Chairman and the Deputy Chairman of the board of directors and the President & Group CEO of MUFG as well as the chairman and the deputy chairman of the board of directors, the president and others of each of our major subsidiaries. In addition, the committee discusses and makes recommendations to the board of directors on matters pertaining to our governance policy and framework.
Under the Companies Act, the nominating committee must consist of at least three directors, and the majority of its members must be outside directors. Further, companies listed on the Prime Market of the Tokyo Stock Exchange, including us, must have the majority of nominating committee members in principle qualify as independent outside directors or publicly disclose the reason for not having such directors on the nominating committee. Our nominating committee, which we call the nominating and governance committee, currently consists of five directors. The chairman of the committee is Hirofumi Nomoto, an independent outside director. The other members of this committee are Mariko Fujii, Kaoru Kato and Satoko Kuwabara, who are independent outside directors, and Hironori Kamezawa, Director, President & Group CEO. Between April 2022 and March 2023, the nominating and governance committee met 11 times.
Audit Committee
The audit committee determines the contents of proposals pertaining to the election, termination and non-appointment of our independent auditor to be submitted to general meetings of shareholders. The committee also monitors and audits the execution by the directors and the corporate executives of their duties and prepares audit reports to the board of directors. In order to effectively perform its duties, the committee reviews, inspects and investigates, as necessary, the management of the operations of MUFG and its subsidiaries, including financial reporting and internal controls. In addition, the committee has the power to consent to decisions on the compensation to be paid to our independent auditor.
Under the Companies Act, the audit committee must consist of at least three non-executive directors, and the majority of its members must be outside directors. Our committee currently has five members. The chairman of the committee is Koichi Tsuji, an independent outside director. The other members of the committee are Keiko Honda and Kaoru Kato, who are independent outside directors, and Kenichi Miyanaga and Ryoichi Shinke, who are non-executive directors. Between April 2022 and March 2023, the audit committee met 16 times.
Compensation Committee
The compensation committee establishes our policy regarding the determination of the compensation of MUFG’s directors, corporate executives, executive officers (shikko yakuin) and others and also determines the details of individual compensation based on the policy. The committee discusses and makes recommendations to the board of directors regarding the establishment, revision and abolition of compensation systems for the chairman, the deputy chairman, the president and others of each of our major subsidiaries.
Under the Companies Act, the compensation committee must consist of at least three directors, and the majority of its members must be outside directors. Further, companies listed on the Prime Market of the Tokyo Stock Exchange, including us, must have the majority of compensation committee members in principle qualify as independent outside directors or publicly disclose the reason for not having such directors on the compensation committee. Our compensation committee currently consist of five directors. The chairman of the committee is Satoko Kuwabara, an independent outside director. The other members of this committee are Mariko Fujii, Kaoru Kato and Hirofumi Nomoto, who are independent outside directors, and Hironori Kamezawa, Director, President & Group CEO. Between April 2022 and March 2023, the compensation committee met 7 times.
Risk Committee
In addition to the foregoing three committees, which are mandated by the Companies Act, we have a risk committee, which was initially established under our previous governance framework and which we continue to have under our current governance framework on a voluntary basis. The risk committee deliberates and makes recommendations to the board of directors on matters regarding group-wide risk management as well as top risk matters.
MUFG Corporate Governance Policies provide that the committee shall consist of directors and external experts. External experts are professionals with no prior employment relationship with any of the MUFG group companies. The committee currently has eight members. The chairperson of the committee is Mariko Fujii, an independent outside director. The other members of this committee are David Sneider and Tarisa Watanagase, who are independent outside directors, Hideaki Takase, Managing Corporate Executive and Group CSO, and Shinichi Koide, Atsushi Miyanoya, Kazuhiko Ohashi and Takeo Hoshi, who are external experts. Between April 2022 and March 2023, the risk committee met four times.
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U.S. Risk Committee
The U.S. risk committee oversees the risk management function for our combined U.S. operations. Its oversight role includes, but is not limited to, all roles and responsibilities required under the FRB’s final rules for Enhanced Prudential Standards for foreign banking organizations. The committee monitors liquidity and all other types of risk exposures, reviews the risk management policies and procedures, and oversees compliance with such policies and procedures for our combined U.S. operations. The committee is a subcommittee of the board of directors of MUFG, and reports and makes recommendations to MUFG’s board of directors and MUFG’s risk committee.
The members of the U.S. risk committee are appointed by MUFG’s board of directors after consideration of member candidates reviewed and recommended by MUFG’s risk committee and nominating and governance committee. The committee shall consist of five or more members including members of the MUFG Americas Holdings Risk Committee, delegates from MUFG, the Chairman of the MUFG Americas Holdings Board and MUFG Americas Holdings’ CEO, with the chairperson of the committee being an outside director of MUFG Americas Holdings.
Corporate Executives
Our corporate executives are responsible for executing and managing our business operations within the scope of the authority delegated to them by the board of directors.
Under the Companies Act, at least one corporate executive must be appointed by a resolution of the board of directors. We currently have 17 corporate executives. Under our articles of incorporation, the board of directors shall appoint a president and a deputy president, who, as representative corporate executives, may represent us severally. The term of office of each corporate executive expires at the conclusion of the first meeting of the board of directors convened after the ordinary general meeting of shareholders for the last fiscal year that ends within one year following the corporate executive’s assumption of office.
Under the Companies Act, a resolution of the board of directors is required if any corporate executive wishes to engage in any business that is in competition with us or any transaction with us.
Under the Companies Act and our articles of incorporation, we may exempt, by resolution of the board of directors, our corporate executives from liabilities to MUFG arising in connection with their failure to execute their duties in good faith and without gross negligence within the limits stipulated by applicable laws and regulations. We, however, currently have no such arrangements with any of our corporate executives.
D.Employees
As of March 31, 2023, we had approximately 121,800 employees, a decrease of approximately 7,900 employees compared with the number of employees as of March 31, 2022 primarily due to the sale of MUFG Union Bank, N.A. in December 2022. In addition, as of March 31, 2023, we had approximately 27,900 part-time and temporary employees. The following tables show the percentages of our employees across our different business units and in different locations as of March 31, 2023:
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| Business unit | |||||
| MUFG Bank: | |||||
| Retail & Commercial Banking Business Unit | 13 | % | |||
| Japanese Corporate & Investment Banking Business Unit | 3 | ||||
| Global Corporate & Investment Banking Business Unit | 2 | ||||
| Global Commercial Banking Business Unit | 40 | ||||
| Global Markets Business Unit | 1 | ||||
| Digital Service Business Unit | 2 | ||||
| Corporate Center/Corporate Staff | 16 | ||||
| Mitsubishi UFJ Trust and Banking: | |||||
| Trust-Banking | 3 | ||||
| Trust Assets | 5 | ||||
| Real Estate | 1 | ||||
| Global Markets | 0 | ||||
| Administration and subsidiaries | 2 | ||||
| Mitsubishi UFJ Securities Holdings: | |||||
| Retail & Commercial Banking Business Unit | 2 | ||||
| Japanese Corporate & Investment Banking Business Unit | 1 | ||||
| Global Corporate & Investment Banking Business Unit | 0 | ||||
| Global Commercial Banking Business Unit | 0 | ||||
| Trust Assets Business Unit | 0 | ||||
| Global Markets Business Unit | 1 | ||||
| Digital Service Business Unit | 0 | ||||
| Corporate Center/Corporate Staff | 2 | ||||
| Mitsubishi UFJ NICOS: | |||||
| Business Marketing Division | 1 | ||||
| Credit Risk Management & Risk Assets Administration Division | 1 | ||||
| Operations Division | 1 | ||||
| Systems & Systems Integration Division | 0 | ||||
| Corporate Division | 0 | ||||
| Others | 0 | ||||
| Others | 3 | ||||
| 100 | % | ||||
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| Location | |||||
| MUFG Bank: | |||||
| Japan | 25 | % | |||
| United States | 4 | ||||
| Europe | 2 | ||||
| Asia/Oceania excluding Japan | 46 | ||||
| Other areas | 1 | ||||
| Mitsubishi UFJ Trust and Banking: | |||||
| Japan | 8 | ||||
| United States | 1 | ||||
| Europe | 1 | ||||
| Asia/Oceania excluding Japan | 1 | ||||
| Mitsubishi UFJ Securities Holdings: | |||||
| Japan | 5 | ||||
| United States | 0 | ||||
| Europe | 0 | ||||
| Asia/Oceania excluding Japan | 0 | ||||
| Mitsubishi UFJ NICOS: | |||||
| Japan | 3 | ||||
| United States | 0 | ||||
| Europe | 0 | ||||
| Asia/Oceania excluding Japan | 0 | ||||
| Others | 3 | ||||
| 100 | % | ||||
Most of our employees are members of an employees’ union, which negotiates on behalf of employees in relation to remuneration and working conditions. We believe our labor relations to be good.
E.Share Ownership
The information required by this item is set forth in “—B. Compensation.”
F.Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
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Item 7. Major Shareholders and Related Party Transactions.
A.Major Shareholders
Common Stock
As of March 31, 2023, we had 1,064,553 registered shareholders of our common stock. The ten largest holders of our common stock appearing on the register of shareholders as of March 31, 2023, and the number and the percentage of such shares held by each of them, were as follows:
| Name | Number of shares held | Percentage of total shares in issue(3) | |||||||||
The Master Trust Bank of Japan, Ltd. (Trust account)(1) | 1,945,291,400 | 15.33 | % | ||||||||
Custody Bank of Japan, Ltd. (Trust account)(1) | 741,362,200 | 5.84 | % | ||||||||
SSBTC CLIENT OMNIBUS ACCOUNT | 257,748,540 | 2.03 | % | ||||||||
THE BANK OF NEW YORK MELLON AS DEPOSITARY BANK FOR DR HOLDERS(2) | 241,322,875 | 1.90 | % | ||||||||
| STATE STREET BANK WEST CLIENT - TREATY 505234 | 218,331,191 | 1.72 | % | ||||||||
| The Master Trust Bank of Japan, Ltd. (Meiji Yasuda Life Insurance Company retirement benefit trust account) | 175,000,000 | 1.37 | % | ||||||||
JP MORGAN CHASE BANK 385781 | 166,053,638 | 1.30 | % | ||||||||
JPMorgan Securities Japan Co., Ltd. | 152,600,825 | 1.20 | % | ||||||||
Toyota Motor Corporation | 149,263,153 | 1.17 | % | ||||||||
GOVERNMENT OF NORWAY | 147,989,424 | 1.16 | % | ||||||||
| Total | 4,194,963,246 | 33.02 | % | ||||||||
Notes:
(1)Includes the shares held in trust accounts, which do not disclose the names of beneficiaries.
(2)An owner of record for our ADSs.
(3)Numbers are truncated after two decimal points.
(4)According to a beneficial ownership report on Schedule 13G filed with the SEC by BlackRock Inc. on February 1, 2023, BlackRock and its consolidated subsidiaries beneficially owned an aggregate of 6.2% of the outstanding shares of our common stock as of December 31, 2022. Other than as described in the table above, we have not independently confirmed this beneficial ownership information. According to a beneficial ownership report on Schedule 13G filed with the SEC by Sumitomo Mitsui Trust Holdings, Inc. on February 3, 2023, Sumitomo Mitsui Trust Holdings and its consolidated subsidiaries beneficially owned an aggregate of 5.6% of the outstanding shares of our common stock as of December 31, 2022. Other than as described in the table above, we have not independently confirmed this beneficial ownership information.
As of March 31, 2023, 1,573,884 shares, representing approximately 0.01% of our outstanding common stock, were held by our directors and corporate executives.
As of March 31, 2023, 1,815,944,634 shares, representing 14.31% of our outstanding common stock, were owned by 407 U.S. shareholders of record who are resident in the United States, one of whom is the ADR depository’s nominee holding 241,322,875 shares, or 1.90%, of our total issued shares of common stock.
Our major shareholders do not have different voting rights.
B.Related Party Transactions
As of March 31, 2023, we held approximately 22.6% of the voting rights in Morgan Stanley and Series C Preferred Stock with a face value of approximately $521.4 million and 10% dividend. We also have two representatives appointed to Morgan Stanley’s board of directors. We adopted the equity method of accounting for our investment in Morgan Stanley beginning with the fiscal year ended March 31, 2012. In April 2018, we entered into a sales plan with Morgan Stanley and Morgan Stanley & Co. LLC, pursuant to which we will sell portions of the shares of Morgan Stanley common stock that we hold to Morgan Stanley through Morgan Stanley & Co. LLC acting as agent for Morgan Stanley to the extent necessary to ensure that our beneficial ownership will remain below 24. 9%. In December 2020, this sales plan was suspended upon notice by Morgan Stanley to us in accordance with the terms of the plan.
We and Morgan Stanley have two securities joint venture companies, namely, Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities, in Japan. We hold a 60% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities, and Morgan Stanley holds a 40% economic interest in Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities. We hold a 60% voting interest and Morgan Stanley holds a 40% voting interest in Mitsubishi
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UFJ Morgan Stanley Securities, and we hold a 49% voting interest and Morgan Stanley holds a 51% voting interest in Morgan Stanley MUFG Securities.
We and Morgan Stanley continue to pursue a variety of business opportunities in Japan and abroad in accordance with the global strategic alliance. For a detailed discussion of our global alliance with Morgan Stanley, see “Item 4.B. Information on the Company—Business Overview—Global Strategic Alliance with Morgan Stanley.”
We and our banking subsidiaries had, and expect to have in the future, banking transactions and other transactions in the ordinary course of business with our related parties. Although for the fiscal year ended March 31, 2023, such transactions included, but were not limited to, call money, loans, electronic data processing, leases and management of properties, those transactions were immaterial and were made at prevailing market rates, terms and conditions and do not involve more than the normal risk of collectability or present other unfavorable features.
None of our directors or corporate executives, nor any of the close members of their respective families, has had any transactions or has any presently proposed transactions that are material or any transactions that are unusual in their nature or conditions, involving goods, services or tangible or intangible assets, to which we were, are or will be a party.
No loans have been made to our directors or corporate executives other than in the normal course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, involving no more than the normal risk of collectability and presenting no other unfavorable features. In addition, no loans have been made to our directors or corporate executives other than as permitted under Section 13(k) of the U.S. Securities Exchange Act and Rule 13k-1 promulgated thereunder.
No family relationship exists among any of our directors or corporate executives. No arrangement or understanding exists between any of our directors or corporate executives and any other person pursuant to which any director or corporate executive was elected to his or her position at MUFG.
As part of our compensation structure, we have granted performance-based stock compensation rights to our directors and corporate executives. For a detailed discussion of the stock acquisition rights, see “Item 6.B. Directors, Senior Management and Employees—Compensation.”
C.Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information.
A.Consolidated Statements and Other Financial Information
The information required by this item is set forth in our consolidated financial statements starting on page F-1 of this Annual Report and in “Selected Statistical Data” starting on page A-1 of this Annual Report.
Pursuant to Rule 3-09 of Regulation S-X, the financial statements and supplementary data of Morgan Stanley, our equity method investee, as of December 31, 2021 and 2022 and for the fiscal years ended December 31, 2020, 2021 and 2022, are incorporated in this Annual Report as Exhibit 99(c) by reference to Morgan Stanley’s annual report on Form 10-K filed on February 24, 2023.
Legal Proceedings
From time to time, we are involved in various litigation matters and other legal proceedings, including regulatory actions. Although the final resolution of any such matters and proceedings could have a material effect on our consolidated operating results for a particular reporting period, based on our current knowledge and consultation with legal counsel, we believe the current litigation matters and other legal proceedings, when ultimately determined, will not materially affect our results of operations or financial position. For more information, see “Item 3.D. Key Information—Risk Factors—Operational Risk—We may become subject to regulatory actions or other legal proceedings relating to our transactions or other aspects of our operations, which could result in significant financial losses, restrictions on our operations and damage to our reputation.” and Note 26 to our consolidated financial statements.
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Distributions
Our board of directors submits a recommendation for a year-end dividend for our shareholders’ approval at the ordinary general meeting of shareholders customarily held in June of each year. The year-end dividend is usually distributed immediately following shareholders’ approval to holders of record at the end of the preceding fiscal year. In addition to year-end dividends, we may make cash distributions by way of interim dividends to shareholders of record as of September 30 of each year as distribution of surplus by resolution of our board of directors. Year-end dividends in the amount of ¥16.0 per share of our common stock (in addition to interim dividends of ¥16.0 per share of our common stock) for the fiscal year ended March 31, 2023 were approved by shareholders at the ordinary general meeting of shareholders held on June 29, 2023.
See Exhibit 2(c) to this Annual Report for additional information on our dividends policy.
Under the Japanese foreign exchange regulations currently in effect, dividends paid on shares held by non-residents of Japan may be converted into any foreign currency and repatriated abroad. Under the terms of the deposit agreement pursuant to which ADSs are issued, the depositary is required, to the extent that in its judgment it can convert Japanese yen on a reasonable basis into U.S. dollars and transfer the resulting U.S. dollars to the United States, to convert all cash dividends that it receives in respect of deposited shares into U.S. dollars and to distribute the amount received, after deduction of any applicable withholding taxes, to the holders of ADSs. See “Item 10.D. Additional Information—Exchange Controls” and Exhibit 2(c) to this Annual Report.
B.Significant Changes
Other than as described in this Annual Report, no significant changes have occurred since the date of our consolidated financial statements included in this Annual Report.
Item 9. The Offer and Listing.
A.Offer and Listing Details
The principal market for our common stock is the Tokyo Stock Exchange in Japan. Our common stock is also listed on the Nagoya Stock Exchange in Japan. The listing code assigned to our common stock in Japan is 8306.
In the United States, ADSs, each representing one share of common stock, are quoted on the New York Stock Exchange under the symbol, “MUFG.”
B.Plan of Distribution
Not applicable.
C.Markets
The information required by this item is set forth in “—A. Offer and Listing Details.”
D.Selling Shareholders
Not applicable.
E.Dilution
Not applicable.
F.Expenses of the Issue
Not applicable.
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Item 10. Additional Information.
A.Share Capital
Not applicable.
B.Memorandum and Articles of Association
Our Corporate Purpose
Article 2 of our Articles of Incorporation provides that our corporate purpose is to carry on the following businesses:
•administration of management of banks, trust banks, specialized securities companies, insurance companies or other companies which we may own as our subsidiaries under the Banking Act;
•any businesses incidental to the foregoing businesses mentioned in the preceding item; and
•any other businesses in which bank holding companies are permitted to engage under the Banking Act in addition to the foregoing businesses mentioned in the preceding two items.
Board of Directors
For discussion of the provisions of our Articles of Incorporation as they apply to our directors, see “Item 6.C. Directors, Senior Management and Employees—Board Practices.”
Common Stock
As of March 31, 2023, a total of 12,687,710,920 shares of common stock (including 665,392,775 shares of common stock held by us and our consolidated subsidiaries as treasury stock) had been issued. Each of the shares issued and outstanding was fully paid and non-assessable.
For a description of our common stock, see Exhibit 2(c) to this Annual Report.
Preferred Stock
We currently have no shares of preferred stock issued.
For a description of preferred stock we are authorized to issue under our Articles of Incorporation, see Exhibit 2(c) to this Annual Report.
C.Material Contracts
Except as described elsewhere in this Annual Report, all material contracts entered into by us in the past two years preceding the filing of this Annual Report were entered into in the ordinary course of business.
D.Exchange Controls
Foreign Exchange and Foreign Trade Law
The following is a general summary of major Japanese foreign exchange controls regulations applicable to holders of shares of our common stock or voting rights thereunder who are “foreign investors,” as described below. The statements regarding Japanese foreign exchange controls regulations set forth below are based on the laws and regulations in force and as interpreted by the Japanese authorities as of the date of this Annual Report and are subject to subsequent changes in the applicable Japanese laws or interpretations thereof. This summary is not exhaustive of all possible foreign exchange controls considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall foreign exchange controls consequences of the acquisition, ownership and disposition of shares of our common stock or voting rights thereunder by consulting their own advisors.
The Foreign Exchange and Foreign Trade Law of Japan and the cabinet orders and ministerial ordinances incidental thereto, collectively known as the Foreign Exchange Law, set forth, among other matters, regulations relating to the receipt by non-residents of Japan of payment with respect to shares to be issued by us and the acquisition and holding of shares and voting rights by non-residents
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of Japan and foreign investors, both as defined below. It also applies to the acquisition and holding of ADSs representing authority to exercise our voting rights by foreign investors that constitutes an “inward direct investment” as described below.
“Non-residents of Japan” are defined as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Generally, the branches and offices of non-resident corporations which are located in Japan are regarded as residents of Japan while the branches and offices of Japanese corporations located outside Japan are regarded as non-residents of Japan.
“Foreign investors” are defined as:
•natural persons who are non-residents of Japan;
•corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan;
•corporations of which 50% or more of the shares are directly or indirectly held by individuals not resident of Japan and corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan;
•(A) partnerships 50% or more of whose contributions are made by (1) natural persons who are non-residents of Japan, (2) corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan, (3) corporations of which 50% or more of the shares are directly or indirectly held by individuals not resident of Japan and corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan, (4) corporations, a majority of the officers (or a majority of the officers having the power to represent the corporation) of which are non-resident individuals, or (5) other partnerships a majority of whose operating partners fall under any of (1) through (4), or (B) partnerships a majority of whose operating partners are (i) any of (1) through (5) above, (ii) other partnerships 50% or more of whose contributions are made by non-residents of Japan or partnerships that are any of (1) through (5) above, or (iii) certain limited liability partnerships under the Limited Liability Partnership Act; and
•corporations, a majority of officers (or a majority of officers having the power of representation) of which are non-resident individuals.
Dividends and Proceeds of Sales
Under the Foreign Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. The acquisition of our shares by non-residents of Japan by way of a stock split is not subject to any notification or reporting requirements.
Acquisition of Shares
In general, a non-resident of Japan who acquires shares from a resident of Japan is not subject to any prior filing requirement, although the Foreign Exchange Law empowers the Minister of Finance of Japan to require a prior approval for any such acquisition in certain limited circumstances.
Inward Direct Investment in Shares of Listed Companies
For the purpose of the regulations in connection with an “inward direct investment” under the Foreign Exchange Law, Japanese listed companies are classified into the following categories:
(i) companies engaged only in the businesses other than certain businesses (the “Designated Businesses”) designated by the Foreign Exchange Act as Designated Businesses;
(ii) companies engaged in the Designated Businesses other than the certain Designated Businesses designated by the Foreign Exchange Act as core sector businesses (the “Core Sector Designated Businesses”); and
(iii) companies engaged in the Core Sector Designated Businesses.
For reference purposes only, the Minister of Finance publishes, and may update from time to time, a list that classifies Japanese listed companies into the above categories, and according to the list published by the Minister of Finance at April 24, 2023, businesses which are currently engaged in by us are classified as category (ii), i.e., the Designated Business other than the Core Sector Designated Businesses.
Definition of Inward Direct Investment
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If a foreign investor acquires shares or voting rights of a Japanese company that is listed on a Japanese stock exchange and, as a result of the acquisition, the foreign investor, in combination with any existing holdings, directly or indirectly holds 1% or more of the issued shares or the total number of voting rights of the relevant company, such acquisition constitutes an “inward direct investment.” In addition, acquisition of the authority to exercise, or instruct to exercise, voting rights held by other shareholders that results in the foreign investor, in combination with any existing shareholding, directly or indirectly holding 1% or more of the total number of voting rights of the relevant company, constitutes an “inward direct investment.”
In addition to the acquisitions of shares or voting rights described above, if a foreign investor (i) is granted the authority to exercise proxy voting rights on behalf of other shareholders of the relevant company regarding certain matters which may control substantially or have material influence on the management of such company such as the election or removal of directors or (ii) obtains consent from another foreign investor holding the voting rights of the relevant company to exercise the voting rights of such company jointly, and, in each case, as a result of any of these arrangements, the number of the voting rights directly or indirectly held by the foreign investor, including the total number of the voting rights subject to such proxy, or the sum of the number of the voting rights directly or indirectly held by the foreign investor and such other foreign investors subject to such joint voting agreement, as the case may be, is 10% or more of the total number of voting rights of the relevant company, each such arrangement regarding voting rights (“voting arrangement”) constitutes an “inward direct investment.” Additionally, if a foreign investor who directly or indirectly holds 1% or more of the total voting rights of a Japanese listed company, at a general meeting of shareholders, consents to certain proposals having material influence on the management of such company such as (i) election of such foreign investor or its related persons (as defined in the Foreign Exchange Act) as directors or corporate auditors of the relevant company or (ii) transfer or discontinuation of its business, such consent will also constitute an “inward direct investment.”
Prior Notification Requirements
If a foreign investor intends to consummate an acquisition of shares or voting rights of a Japanese listed company that constitutes an “inward direct investment” as described above, in certain circumstances, such as where the foreign investor is in a country that is not listed on an exemption schedule in the Foreign Exchange Act or where that Japanese company is engaged in the Designated Businesses, prior notification of the relevant inward direct investment must be filed with the Minister of Finance and any other competent Ministers.
However, a foreign investor seeking to acquire shares or voting rights of a Japanese listed company or the authority to exercise, either directly or through instructions, voting rights held by other shareholders that constitutes an “inward direct investment” may be eligible for the exemptions, if certain conditions are met.
In the case of an acquisition of shares or voting rights or the authority to exercise, voting rights of a Japanese listed company that is engaged in the Designated Businesses other than Core Sector Designated Businesses, like us, the foreign investor may be exempted from the prior notification requirement if such foreign investor complies with the following conditions:
(i) the foreign investor or its closely-related persons (as defined in the Foreign Exchange Law) will not become directors or corporate auditors of the relevant company;
(ii) the foreign investor will not make certain proposals (as prescribed in the Foreign Exchange Law) at a general meeting of shareholders, including transfer or discontinuation of the Designated Businesses of the relevant company; and
(iii) the foreign investor will not access non-public technical information in relation to the Designated Businesses of the relevant company, or take certain other actions that may lead to the leak of such non-public technical information (as prescribed in the Foreign Exchange Law).
Notwithstanding the above, if a foreign investor falls under a category of disqualified investors designated by the Foreign Exchange Law (including (a) investors who have records of certain sanctions due to violations of the Foreign Exchange Law and (b) certain investors who are state-owned enterprises or other related entities excluding those who are accredited by the Minister of Finance), in no event may such foreign investor be eligible for the exemptions described above.
In addition, if a foreign investor intends to make a voting arrangement with respect to a Japanese listed company engaged in the Designated Businesses or consents to a proposal at a general meeting of shareholders of such company, in each case, that constitutes an “inward direct investment” as described above, in certain circumstances, prior notification of the relevant inward direct investment must be filed with the Minister of Finance and any other competent Ministers. However, the exemptions from the prior notification requirements may be available in the cases where the relevant voting arrangement is regarding matters other than certain matters which may control substantially or have material influence on the management of the relevant company, such as the election or removal of directors, which would have required prior notification.
Procedures for Prior Notification
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If such prior notification is filed, the proposed inward direct investment may not be consummated until after 30 days have passed from the date of filing, although this screening period may be shortened to two weeks unless the Ministers deem it necessary to review the proposed inward direct investment. The Ministers may extend the screening period up to five months if they deem it necessary to review the proposed inward direct investment and may recommend any modification or abandonment of the proposed inward direct investment and, if the foreign investor does not accept such recommendation, the Ministers may order the modification or abandonment of such inward direct investment. In addition, if the Ministers consider the proposed inward direct investment to be an inward direct investment that is likely to cause damage to the national security of Japan and, if a foreign investor (i) consummates such inward direct investment without filing the prior notification described above; (ii) consummates such inward direct investment before the expiration of the screening period described above; (iii) in connection with such inward direct investment, makes false statements in the prior notification described above; or (iv) does not follow the recommendation or order issued by the Ministers to modify or abandon such inward direct investment, the Ministers may order such foreign investor to dispose of all or part of the shares acquired or take other measures.
Post Facto Reporting Requirements
A foreign investor who consummates an inward direct investment as described above through an acquisition of shares or voting rights or the authority to exercise, directly or through instructions, voting rights of a Japanese listed company that is engaged in the Designated Businesses, but is not subject to the prior notification requirements described above due to the exemptions from such prior notification requirements, in general, must file a report of the relevant inward direct investment with the Minister of Finance and any other competent Ministers having jurisdiction over such Japanese company within 45 days of such inward direct investment when, as a result of such acquisition, the foreign investor (excluding, in the cases of (i) and (ii) below, a foreign investor who falls under a category of certain foreign financial institutions (as prescribed in the Foreign Exchange Law)) directly or indirectly holds (i) 1% or more but less than 3% of the total number of issued shares or voting rights, for the first time, (ii) 3% or more but less than 10% of the total number of issued shares or voting rights, for the first time, or (iii) 10% or more of the total number of issued shares or voting rights.
Deposit and Withdrawal under American Depositary Facility
The deposit of shares with us, in our capacity as custodian and agent for the depositary, in Tokyo, the issuance of ADSs by the depositary to a non-resident of Japan in respect of the deposit and the withdrawal of the underlying shares upon the surrender of the ADSs, in each case by a foreign investor, where such acquisition of ADSs or withdrawal of the underlying shares constitutes an inward direct investment, in general, a prior notification will be required unless the exemption is available, as noted above, and if such prior notification is not required due to the exemption, a post facto report will be required, as noted above.
Reporting of Substantial Shareholdings
The Financial Instruments and Exchange Act of Japan requires any person who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of capital stock of a company listed on any Japanese financial instruments exchange or whose shares are traded on the over-the-counter market in Japan to file with the director of a competent finance bureau within five business days a report concerning such shareholding.
A similar report must also be filed in respect of any subsequent change of 1% or more in any such holding ratio or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shares issuable to such person upon exchange of exchangeable securities, conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights (including those incorporated in bonds with stock acquisition rights) are taken into account in determining both the number of shares held by such holder and the issuer’s total issued shares of capital stock.
E.Taxation
Japanese Taxation
The following sets forth the material Japanese tax consequences to owners of shares of our common stock or ADSs who are non-resident individuals or non-Japanese corporations without a permanent establishment in Japan to which the relevant income is attributable, which we refer to as “non-resident holders” in this section. The statements regarding Japanese tax laws below are based on the laws in force and as interpreted by the Japanese taxation authorities as at the date of this Annual Report and are subject to changes in the applicable Japanese laws, double taxation treaties, conventions or agreements or interpretations thereof occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of shares of our common stock or ADSs, including specifically the tax consequences under Japanese law, the laws of the jurisdiction of which they are resident and any tax treaty between Japan and their country of residence, by consulting their own tax advisers.
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Generally, a non-resident holder of shares of our common stock or ADSs is subject to Japanese withholding tax on dividends paid by us. In the absence of any applicable tax treaty, convention or agreement reducing the rate of withholding tax, the rate of Japanese withholding tax applicable to dividends paid by us to non-resident holders is (i) 15.315% for dividends to be paid on or before December 31, 2037 and (ii) 15% for dividends to be paid thereafter, except for dividends paid to any individual non-resident holder who holds 3% or more of our issued shares for which the applicable rate is (a) 20.42% for dividends to be paid on or before December 31, 2037 and (b) 20% for dividends to be paid thereafter, pursuant to Japanese tax law.
The Tax Convention establishes the maximum rate of Japanese withholding tax which may be imposed on dividends paid to a U.S. resident not having a permanent establishment in Japan. Under the Tax Convention, the maximum withholding rate for U.S. holders (as defined below) is generally set at 10% of the gross amount distributed. However, the maximum rate is 5% of the gross amount distributed if the recipient is a corporation and owns directly or indirectly, on the date on which entitlement to the dividends is determined, at least 10% of the voting shares of the paying corporation. Furthermore, the amount distributed shall not be taxed if the recipient is (i) a pension fund which is a U.S. resident, provided that such dividends are not derived from the carrying on of a business, directly or indirectly, by such pension fund or (ii) a company with a 50% or more interest in the paying company and satisfies certain other requirements. U.S. holders (as defined below) are urged to consult their own tax advisors with respect to their eligibility for benefits under the Tax Convention.
Japanese tax law provides in general that if the Japanese statutory rate is lower than the maximum rate applicable under tax treaties, conventions or agreements, the Japanese statutory rate as stated above shall be applicable.
Non-resident holders of shares who are entitled to a reduced rate of Japanese withholding tax on payments of dividends on the shares of our common stock or ADSs by us are required to submit an Application Form for the Income Tax Convention regarding Relief from Japanese Income Tax on Dividends, or an Application Form for the Income Tax Convention, in advance through a paying handling agent to the relevant tax authority before the payment of dividends. A standing proxy for non-resident holders may provide this application service for the non-resident holders. In this regard, a certain simplified special filing procedure is available for non-resident holders to claim treaty benefits of exemption from or reduction of Japanese withholding tax with respect to dividends to be paid on or after January 1, 2014, by submitting a Special Application Form for Income Tax Convention regarding Relief from Japanese Income Tax and Special Income Tax for Reconstruction on Dividends of Listed Stocks (together with any other required forms and documents). With respect to ADSs, this reduced rate or exemption will be applicable to non-resident holders of ADSs if the depositary or its agent submits two Application Forms (one before payment of dividends and the other within eight months after the record date concerning such payment of dividends), together with certain other documents. To claim this reduced rate or exemption, non-resident holders of ADSs will be required to file a proof of taxpayer status, residence and beneficial ownership, as applicable, and to provide other information or documents as may be required by the depositary. Non-resident holders who are entitled, under any applicable tax treaty, to a reduced rate of Japanese withholding tax below the rate otherwise applicable under Japanese tax law, or exemption therefrom, as the case may be, but fail to submit the required application in advance may nevertheless be entitled to claim a refund from the relevant Japanese tax authority of withholding taxes withheld in excess of the rate under an applicable tax treaty (if such non-resident holders are entitled to a reduced treaty rate under the applicable tax treaty) or the full amount of tax withheld (if such non-resident holders are entitled to an exemption under the applicable tax treaty), as the case may be, by complying with a certain subsequent filing procedure. We do not assume any responsibility to ensure withholding at the reduced rate, or an exemption therefrom, for non-resident holders who would be so eligible under an applicable tax treaty but where the required procedures as stated above are not followed.
Gains derived from the sale or other disposition of shares of our common stock or ADSs by a non-resident holder are not, in general, subject to Japanese income or corporation taxes or other Japanese taxes.
Any deposits or withdrawals of shares of our common stock by a non-resident holder in exchange for ADSs are not subject to Japanese income or corporation tax.
Japanese inheritance and gift taxes, at progressive rates, may be payable by an individual who has acquired shares of our common stock or ADSs as legatee, heir or donee, even if none of the individual, the decedent or the donor is a Japanese resident.
U.S. Taxation
The following sets forth the material U.S. federal income tax consequences of the ownership of shares and ADSs by a U.S. holder, as defined below. This summary is based on U.S. federal income tax laws, including the U.S. Internal Revenue Code of 1986, or the Code, its legislative history, existing and proposed Treasury regulations thereunder, published rulings and court decisions, and the Tax Convention (as defined above), all of which are subject to change, possibly with retroactive effect.
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The following summary is not a complete analysis or description of all potential U.S. federal income tax consequences to a particular U.S. holder. It does not address all U.S. federal income tax considerations that may be relevant to all categories of potential purchasers, certain of which (such as banks or other financial institutions, insurance companies, dealers in securities, tax-exempt entities, non-U.S. persons, persons holding a share or an ADS as part of a “straddle,” “hedge,” conversion or integrated transaction, holders whose “functional currency” is not the U.S. dollar, holders liable for alternative minimum tax, holders required to report income no later than when such income is reported on an “applicable financial statement,” and holders of 10% or more of our shares by vote or value) are subject to special tax treatment. This summary does not address any foreign, state, local or other tax consequences of investments in our shares or ADSs.
This summary addresses only shares or ADSs that are held as capital assets within the meaning of Section 1221 of the Code.
As used herein, a “U.S. holder” is a beneficial owner of shares or ADSs, as the case may be, that is:
•a citizen or resident of the United States as determined for U.S. federal income tax purposes;
•a corporation or other entity taxable as a corporation created or organized under the laws of the United States, any state thereof or the District of Columbia;
•an estate, the income of which is subject to U.S. federal income tax regardless of its source; or a trust
•the administration of which is subject to (1) the supervision of a court within the United States and (2) the control of one or more U.S. persons as described in Section 7701(a)(30) of the Code; or
•that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares or ADSs, you should consult your tax advisor.
We urge U.S. holders to consult their own tax advisors concerning the U.S. federal, state and local and other tax consequences to them of the purchase, ownership and disposition of shares or ADSs.
This summary is based in part on the assumption that each obligation under the deposit agreement and any related agreement will be performed in accordance with its respective terms. Subject to the discussion in the next paragraph, for U.S. federal income tax purposes, holders of ADSs will be treated as the owners of the shares represented by the ADSs. Accordingly, withdrawals or deposits of shares in exchange for ADSs generally will not be subject to U.S. federal income tax.
The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying shares (for example, pre-releasing ADSs to persons who do not have beneficial ownership of the securities underlying the ADSs). Accordingly, the discussion on the creditability of Japanese taxes and the availability of the reduced rate of tax for dividends received by certain non-corporate U.S. holders, each as described below, could be affected by actions taken by intermediaries in the chain of ownership between the holder of ADSs and us if, as a result of such actions, the holders of ADSs are not properly treated as beneficial owners of the underlying shares. We are not aware of any intention to take any such actions, and accordingly, the remainder of this discussion assumes that holders of ADSs will be properly treated as beneficial owners of the underlying shares.
Special adverse U.S. federal income tax rules apply if a U.S. holder holds shares or ADSs of a company that is treated as a “passive foreign investment company” (a “PFIC”) for any taxable year during which the U.S. holder held shares or ADSs, as discussed in more detail below. U.S. holders should consult their own tax advisors as to the potential application of the PFIC rules to their ownership and disposition of shares or ADSs.
Taxation of Dividends
Subject to the application of the PFIC rules discussed below, U.S. holders will include the gross amount of any distribution received with respect to shares or ADSs (before reduction for Japanese withholding taxes), to the extent paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), as ordinary income in their gross income. As discussed below, for certain U.S. holders, dividends may be eligible for a reduced rate of taxation. The amount of distribution of property other than cash will be the fair market value of such property on the date of the distribution. Dividends received by a U.S. holder will not be eligible for the “dividends-received deduction” allowed to U.S. corporations in respect of dividends received from other U.S. corporations. To the extent that an amount received by a U.S. holder exceeds such holder’s allocable share of our current earnings and profits, such excess will be applied first to reduce such holder’s tax basis in its shares or ADSs, thereby increasing the amount of gain or decreasing the amount of loss recognized on a subsequent disposition of the shares or ADSs. Then, to the extent such distribution exceeds such U.S. holder’s tax basis, such excess will be treated as capital gain. However, we do not maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles, and U.S. holders should therefore assume that any distribution by us with respect to shares or ADSs will constitute ordinary dividend income. The amount of the
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dividend will be the U.S. dollar value of the Japanese yen payments received. This value will be determined at the spot Japanese yen/U.S. dollar rate on the date the dividend is received by the depositary in the case of U.S. holders of ADSs, or by the shareholder in the case of U.S. holders of shares, regardless of whether the dividend payment is in fact converted into U.S. dollars at that time. If the Japanese yen received as a dividend are not converted into U.S. dollars on the date of receipt, a U.S. holder will have basis in such Japanese yen equal to their U.S. dollar value on the date of receipt, and any foreign currency gains or losses resulting from the conversion of the Japanese yen will generally be treated as U.S. source ordinary income or loss. If the Japanese yen received as a dividend are converted into U.S. dollars on the date of receipt, a U.S. holder will generally not be required to recognize foreign currency gain or loss in respect of the dividend income.
If a U.S. holder is eligible for benefits under the Tax Convention, the holder may be able to claim a reduced rate of Japanese withholding tax. All U.S. holders should consult their tax advisors about their eligibility for reduction of Japanese withholding tax. A U.S. holder may claim a deduction or a foreign tax credit, subject to other applicable limitations, only for tax withheld at the appropriate rate. A U.S. holder would be allowed a foreign tax credit for withholding tax for any portion of the tax that could have been avoided by claiming benefits under the Tax Convention. For foreign tax credit limitation purposes, the dividend will be income from sources outside the United States. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay will constitute “passive income” or, in the case of certain U.S. holders, “financial services income.” However, recently issued Treasury regulations that apply to taxes paid or accrued in taxable years beginning on or after December 28, 2021 impose additional requirements for foreign taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied. Further, in certain circumstances, if a U.S. holder:
•has held shares or ADSs for less than a specified minimum period during which such U.S. holder is not protected from the risk of loss; or
•is obligated to make payments related to the dividends,
such U.S. holder will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on shares or ADSs. Instead of claiming a foreign tax credit, a U.S. holder may be able to deduct Japanese withholding taxes on dividends in computing such holder’s taxable income, subject to generally applicable limitations under U.S. law (including that a U.S. holder is not eligible for a deduction for foreign income taxes paid or accrued in a taxable year if such U.S. holder claims a foreign tax credit for any foreign income taxes paid or accrued in the same taxable year). The rules governing U.S. foreign tax credits are very complex and U.S. holders should consult their tax advisors regarding the availability of foreign tax credits under their particular circumstances.
Subject to applicable exceptions with respect to short-term and hedged positions, qualified dividends received by non-corporate U.S. holders from a qualified corporation may be eligible for reduced rates of taxation. Qualified corporations include those foreign corporations eligible for the benefits of a comprehensive income tax treaty with the United States that the U.S. Treasury Department determines to be satisfactory for these purposes and that includes an exchange of information provision. The Tax Convention meets these requirements. Subject to the PFIC discussion below, we believe that we are a qualified foreign corporation and that dividends received by U.S. investors with respect to our shares or ADSs will be qualified dividends. Dividends received by U.S. investors from a foreign corporation that was a PFIC in either the taxable year of the distribution or the preceding taxable year are not qualified dividends.
Passive Foreign Investment Company Considerations
Special adverse U.S. federal income tax rules apply if a U.S. holder holds shares or ADSs of a company that is treated as a PFIC, for any taxable year during which the U.S. holder held shares or ADSs. A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income is passive income (the “income test”), or (ii) 50% or more of the average fair market value of its assets (determined quarterly) is attributable to assets that produce or are held for the production of passive income (the “asset test”). For this purpose, passive income generally includes dividends, interest, royalties, rents and certain gains from the sale of stock and securities. If a foreign corporation owns at least 25% (by value) of the stock of another corporation, the corporation will be treated, for purposes of the PFIC tests, as owning a proportionate share of the other corporation’s assets and receiving its proportionate share of the other corporation’s income. The determination of whether a foreign corporation is a PFIC is made annually.
Multiple sets of proposed Treasury regulations and an earlier IRS notice would convert what would otherwise be passive income into non-passive income when such income is banking income earned by an active bank. The various proposed Treasury regulations and IRS notice have different (and in some respects inconsistent) requirements for qualifying as an active bank, and for determining the banking income that may be excluded from passive income under this special rule for active banks. Moreover, the proposed Treasury regulations (some of which have been outstanding since 1995, and others of which were recently issued in 2021) will not be effective unless finalized. There can be no assurance that the proposed Treasury regulations will be finalized in their current form. Because final regulations have not been issued, the definition of banking income for purposes of the active bank exception is unclear under both the proposed Treasury regulations and the notice. Based upon certain management estimates and assumptions, we do not believe that we were a PFIC for the year ended March 31, 2023. The determination of whether we are a PFIC must be made annually and involves a fact-intensive analysis based upon, among other things, the composition of our income and assets and the value of our assets from time to time. It is possible that we may become a PFIC in the fiscal year ending March 31, 2024 or any future taxable year
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due to changes in our income or asset composition or changes to applicable Treasury and IRS guidance (including as a result of the final regulations). In addition, a decrease in the price of our shares may also result in our becoming a PFIC. If we were classified as a PFIC in any year during which a U.S. holder owns shares or ADSs and the U.S. holder does not make a “mark-to-market” election, as discussed below, we generally would continue to be treated as a PFIC as to such U.S. holder in all succeeding years, regardless of whether we continue to meet the income or asset test discussed above. U.S. Holders are urged to consult their own tax advisors with respect to the tax consequences to them if we were to become a PFIC for any taxable year in which they own our shares or ADSs.
If we were classified as a PFIC for any taxable year during which a U.S. holder holds our shares or ADSs, the U.S. holder would generally not receive capital gains treatment upon the sale of the shares or ADSs and would be subject to increased tax liability (generally including an interest charge) upon the sale or other disposition of the shares or ADSs or upon the receipt of certain distributions treated as “excess distributions,” unless the U.S. holder makes the mark-to-market election described below. An excess distribution generally would be any distribution to a U.S. holder with respect to shares or ADSs during a single taxable year that is greater than 125% of the average annual distributions received by a U.S. holder with respect to shares or ADSs during the three preceding taxable years or, if shorter, during the U.S. holder’s holding period for the shares or ADSs.
Mark-to-Market Election. If the shares or ADSs are regularly traded on a registered national securities exchange or certain other exchanges or markets, then such shares or ADSs would constitute “marketable stock” for purposes of the PFIC rules, and a U.S. holder would not be subject to the foregoing PFIC rules if such holder made a mark-to-market election. After making such an election, the U.S. holder generally would include as ordinary income each year during which the election is in effect and during which we are a PFIC the excess, if any, of the fair market value of our shares or ADSs at the end of the taxable year over such holder’s adjusted basis in such shares or ADSs. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. A U.S. holder also would be allowed to take an ordinary loss in respect of the excess, if any, of the holder’s adjusted basis in our shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income that was previously included as a result of the mark-to-market election). A U.S. holder’s tax basis in our shares or ADSs would be adjusted to reflect any income or loss amounts resulting from a mark-to-market election. If made, a mark-to-market election would be effective for the taxable year for which the election was made and for all subsequent taxable years unless the shares or ADSs cease to qualify as “marketable stock” for purposes of the PFIC rules or the IRS consented to the revocation of the election. In the event that we are classified as a PFIC, U.S. holders are urged to consult their tax advisors regarding the availability of the mark-to-market election, and whether the election would be advisable in the holder’s particular circumstances.
QEF Election. The PFIC rules outlined above also would not apply to a U.S. holder if such holder alternatively elected to treat us as a “qualified electing fund” or “QEF.” An election to treat us as a QEF will not be available, however, if we do not provide the information necessary to make such an election. We will not provide U.S. holders with the information necessary to make a QEF election, and thus, the QEF election will not be available with respect to our shares.
Notwithstanding any election made with respect to our shares, dividends received with respect to our shares will not constitute “qualified dividend income” if we are a PFIC in either the year of the distribution or the preceding taxable year. Dividends that do not constitute qualified dividend income are not eligible for taxation at the reduced tax rate described above in “—Taxation of Dividends.” Instead, such dividends would be subject to tax at ordinary income rates.
If a U.S. holder owns shares or ADSs during any year in which we are a PFIC, the U.S. holder must also file IRS Form 8621 regarding distributions received on the shares or ADSs, any gain realized on the shares or ADSs, and any “reportable election” in accordance with the instructions to such form. In addition, each U.S. holder is required to file a separate IRS Form 8621 if such U.S. holder owns shares or ADSs during any year in which we are a PFIC whether or not such U.S. holder received distributions on the shares or ADSs, realized a gain on the shares or ADSs or made a “reportable election” during such year. U.S. holders are urged to consult their own tax advisors concerning the U.S. federal income tax consequences of holding shares or ADSs if the Company were considered a PFIC in any taxable year.
Taxation of Capital Gains
Subject to the application of the PFIC rules discussed above, upon a sale or other disposition of shares or ADSs, a U.S. holder will recognize a gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized and the U.S. holder’s tax basis, determined in U.S. dollars, in such shares or ADSs. Such gains or losses will be capital gains or losses and will be long-term capital gains or losses if the U.S. holder’s holding period for such shares or ADSs exceeds one year. Long-term capital gains of non-corporate U.S. holders (including individuals) are generally eligible for reduced rates of taxation. A U.S. holder’s adjusted tax basis in its shares or ADSs will generally be the cost to the holder of such shares or ADSs. Any such gains or losses realized by a U.S. holder upon disposal of the shares or ADSs will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations under the Code.
Information Reporting and Backup Withholding
Dividends paid on shares or ADSs to a U.S. holder, or proceeds from a U.S. holder’s sale or other disposition of shares or ADSs, may be subject to information reporting requirements. Those dividends or proceeds from sale or disposition may also be subject to backup withholding unless the U.S. holder:
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•is a corporation or other exempt recipient, and, when required, demonstrates this fact; or
•provides a correct taxpayer identification number on a properly completed U.S. IRS Form W-9 or other appropriate form which certifies that the U.S. holder is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax. Any amount withheld under these rules will be creditable against the U.S. holder’s U.S. federal income tax liability or refundable to the extent that it exceeds such liability if the U.S. holder provides the required information to the IRS. If a U.S. holder is required to and does not provide a correct taxpayer identification number, the U.S. holder may be subject to penalties imposed by the IRS. All holders should consult their tax advisors as to their qualification for the exemption from backup withholding and the procedure for obtaining an exemption.
In addition, certain U.S. holders who are individuals that hold certain foreign financial assets (which may include our shares or ADSs) are required to report information relating to such assets, subject to certain exceptions. U.S. holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of our shares and ADSs.
Additional Tax on Investment Income
U.S. holders that are individuals, estates or trusts and whose income exceeds certain thresholds will be subject to an additional 3.8% tax on unearned income, including, among other things, dividends on, and capital gains from the sale or other taxable disposition of, shares or ADSs, subject to certain limitations and exceptions.
F.Dividends and Paying Agents
Not applicable.
G.Statement by Experts
Not applicable.
H.Documents on Display
We file periodic reports and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. The SEC maintains a web site (http://www.sec.gov) that contains periodic reports and other information regarding registrants, including us, electronically filed with the SEC. Except otherwise specified in this Annual Report, no information is incorporated by reference in this Annual Report (including, without limitation, information on our website at https://www.mufg.jp/).
I.Subsidiary Information
Please refer to the discussion under “Item 4.C. Information on the Company—Organizational Structure.”
J.Annual Report to Security Holders
We submitted an English translation of our local annual report to security holders in electronic format as exhibits to a report on Form 6-K, dated May 31, 2023.
Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.
In the current market and regulatory environment, financial groups such as us are expected to ensure increasingly more sophisticated and comprehensive risk management. Risk management plays an increasingly important role in our operations as a financial group operating globally through various subsidiaries.
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We identify various risks arising from businesses based on group-wide uniform criteria and implement integrated risk management to ensure a stronger financial condition and to maximize shareholder value. Based on this approach, we identify, measure, control and monitor a wide variety of risks so as to achieve a stable balance between earnings and risks. We undertake risk management to create an appropriate capital structure and to achieve optimal allocation of resources. However, our risk management measures may not be fully effective in identifying all risks or mitigating the impact of any materialized risk on us.
Risk Classification
At the holding company level, we broadly classify and define risk categories faced by the Group, including those that are summarized below. Group companies perform more detailed risk management based on their respective operations.
| Type of Risk | Definition | |||||||
| Credit Risk | The risk of financial loss in credit assets (including off-balance sheet instruments) caused by deterioration in the credit condition of counterparties. This category includes country risk. | |||||||
| Market Risk | The risk of financial loss where the value of our assets and liabilities could be adversely affected by changes in market variables such as interest rates, securities prices and foreign exchange rates. Market liquidity risk is the risk of financial loss caused by the inability to secure market transactions at the required volume or price levels as a result of market turbulence or lack of trading liquidity. | |||||||
| Funding Liquidity Risk | The risk of incurring loss if a poor financial position at a group company hampers the ability to meet funding requirements or necessitates fund procurement at interest rates markedly higher than normal. | |||||||
| Operational Risk | The risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. | |||||||
•Operations Risk | The risk of incurring losses arising from negligence of correct operational processing, incidents or misconduct involving officers or staff, as well as risks similar to this risk. | |||||||
•Information Risk | The risk of loss caused by loss, alteration, falsification or leakage of personal or other confidential information, as well as risks similar to such risk. | |||||||
• IT Risk | The risk of loss arising from destruction, suspension, malfunction or misuse of IT, or unauthorized alteration and leakage of electronic data caused by insufficient IT systems planning, development or operations or by vulnerabilities of or external threats to IT system security, including cybersecurity, as well as risks similar to such risk. | |||||||
•Tangible Asset Risk | The risk of loss due to damage to tangible assets or deterioration in the operational environment caused by disasters or inadequate asset maintenance, as well as risks similar to this risk. Tangible assets include movable and immovable property, including owned or leased land and buildings, facilities incidental to buildings, and fixtures and fittings. | |||||||
• Personnel Risk | The risk of loss due to an outflow or loss of human resources or deterioration in employee morale, as well as risks similar to this risk. | |||||||
•Incompliance with Laws and Regulations Risk | The risk of loss due to failure to comply with laws and regulations, as well as risks similar to such risk. | |||||||
• Legal Risk | The risk of loss due to failure to identify or address legal issues relating to contracts and other business operations or insufficient handling of lawsuits, as well as risks similar to such risk. | |||||||
| Reputation Risk | The risk of harm to our corporate value arising from perceptions of our customers, shareholders, investors or other stakeholders and in the market or society that we deviate from their expectations or confidence. | |||||||
| Model Risk | The risk of loss due to decision-making based on information provided by an inaccurate model or the misuse of a model. | |||||||
Risk Management System
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We have adopted an integrated risk management system to promote close cooperation among the holding company and group companies. The holding company and our banking and securities subsidiaries each have appointed a chief risk officer and established an independent risk management division. The board of directors of the holding company determines risk management policies for various types of risks based on the discussions at, and reports and recommendations from, committees established specially for risk management purposes. The holding company has established committees to oversee management in managing risks relevant to the Group. Following the fundamental risk management policies determined by the board of directors, each group company establishes its own systems and procedures for identifying, analyzing and managing various types of risks from both quantitative and qualitative perspectives. The holding company seeks to enhance group-wide risk identification, to integrate and improve the Group’s risk management system and related methods, to maintain asset quality, and to eliminate concentrations of specific risks.
The following diagram summarizes our integrated risk management framework:
Risk Management System
Crisis Management Framework
In order to have a clear critical response rationale and associated decision-making criteria, we have developed systems designed to ensure that our operations are not interrupted or can be restored to normal quickly in the event of a crisis such as a natural disaster, a pandemic of an infectious disease or system failure so as to minimize any disruption to customers and markets. A crisis management team within the holding company is the central coordinating body in the event of any emergency. Based on information collected from crisis management personnel at the major subsidiaries, this central body would assess the overall impact of a crisis on the Group’s business and establish task forces that could implement all countermeasures to restore full operations. We have business continuity
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plans to maintain continuous operational viability in the event of natural disasters, system failures and other types of emergencies. Regular training drills are conducted to upgrade the practical effectiveness of these systems.
We conduct a comprehensive review of our existing business continuity plan to more effectively respond to such extreme scenarios, and contemplate and implement measures to augment our current business continuity management framework, including enhancing our off-site back-up data storage and other information technology systems.
Implementation of Basel Standards
In determining capital ratios under the FSA guidelines implementing Basel III, we and our major banking subsidiaries used the Advanced Internal Ratings-Based approach, or the AIRB approach, to calculate capital requirements for credit risk as of March 31, 2023. The Standardized Approach is used for some subsidiaries that are considered to be immaterial to the overall MUFG capital requirements, and MUFG Americas Holdings has adopted a phased rollout of the Internal Ratings-Based Approach. We reflect market risk in our risk-weighted assets by applying the Internal Models Approach to calculate general market risk and the Standardized Measurement Method to calculate specific risk. Under the Internal Models Approach, we principally use a historical simulation model to calculate value-at-risk, or VaR, amounts by estimating the profit and loss on our portfolio by applying actual fluctuations in historical market rates and prices over a fixed period. Under the FSA guidelines implementing Basel III, we reflect operational risk in our risk-weighted assets by using the Advanced Measurement Approach and the Basic Indicator Approach.
Based on the Basel III framework, the Japanese capital ratio framework has been revised to implement the more stringent requirements, which are being implemented in phases beginning on March 31, 2013. Likewise, local banking regulators outside of Japan, such as those in the United States, have begun, or are expected, to revise the capital and liquidity requirements imposed on our subsidiaries and operations in those countries to implement the more stringent requirements of Basel III as adopted in those countries. We intend to carefully monitor further developments with an aim to enhance our corporate value and maximize shareholder value by integrating the various strengths within the Group. For more information on the Basel regulatory framework and requirements, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation.”
Credit Risk Management
We have established risk management systems to maintain asset quality, manage credit risk exposure and achieve earnings commensurate with risk.
MUFG and its major banking subsidiaries apply a uniform credit rating system for asset evaluation and assessment, loan pricing, and quantitative measurement of credit risk. This system also underpins the calculation of capital requirements and the management of credit portfolios. We continually seek to upgrade our credit portfolio management, or CPM, expertise to achieve an improved risk-adjusted return based on the Group’s credit portfolio status and flexible response capability to economic and other external changes.
Credit Risk Management System
The credit portfolios of our banking and securities subsidiaries are monitored and assessed on a regular basis by the holding company to maintain and improve asset quality. A uniform credit rating and asset evaluation and assessment system is used to ensure timely and proper evaluation of all credit risks. Under our credit risk management system, each of our subsidiaries in the banking, securities, consumer finance, and leasing businesses, manages its respective credit risk on a consolidated basis based on the attributes of the risk, while the holding company oversees and manages credit risk on an overall group-wide basis. The holding company also convenes regular committee meetings to monitor credit risk management at banking subsidiaries and to issue guidance where necessary.
Each major banking subsidiary has in place a system of checks and balances in which a credit administration section that is independent of the business promotion sections screens individual transactions and manages the extension of credit. At the management level, regular meetings of the Credit & Investment Management Committee and related deliberative bodies ensure full discussion of important matters related to credit risk management. Besides such checks and balances and internal oversight systems, credit examination sections also undertake credit testing and evaluation to ensure appropriate credit risk management.
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The following diagram summarizes the credit risk management framework for our major banking subsidiaries:
Credit Rating System
MUFG and its major banking subsidiaries use an integrated credit rating system to evaluate credit risk. The credit rating system consists primarily of borrower rating, facility risk rating, structured finance rating and asset securitization rating.
Country risk is also rated on a uniform group-wide basis. Our country risk rating is reviewed periodically to take into account relevant political and economic factors, including foreign currency availability.
Risk exposure for small retail loans, such as residential mortgage loans, is managed by grouping loans into various pools and assigning ratings at the pool level.
Borrower rating
Our borrower rating classifies borrowers into 15 grades based on evaluations of their expected debt-service capability over the next three to five years.
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The following table sets forth our borrower grades:
Definition of MUFG Borrower Rating
MUFG Borrower Rating | MUFG Borrower Rating Definition | ||||||||||
| 1 | The capacity to meet financial commitments is extremely certain, and the borrower has the highest level of creditworthiness. | ||||||||||
| 2 | The capacity to meet financial commitments is highly certain, but there are some elements that may result in lower creditworthiness in the future. | ||||||||||
| 3 | The capacity to meet financial commitments is sufficiently certain, but there is the possibility that creditworthiness may fall in the long run. | ||||||||||
| 4 | There are no problems concerning the capacity to meet financial commitments, but there is the possibility that creditworthiness may fall in the long run. | ||||||||||
| 5 | There are no problems concerning the capacity to meet financial commitments, and creditworthiness is in the middle range. | ||||||||||
| 6 | There are no problems concerning the capacity to meet financial commitments presently, but there are elements that require attention if the situation changes. | ||||||||||
| 7 | There are no problems concerning the capacity to meet financial commitments presently, but long-term stability is poor. | ||||||||||
| 8 | There are no problems concerning the capacity to meet financial commitments presently, but long-term stability is poor, and creditworthiness is relatively low. | ||||||||||
| 9 | The capacity to meet financial commitments is somewhat poor, and creditworthiness is the lowest among “Normal” customers. | ||||||||||
| Borrowers who must be closely monitored because of the following business performance and financial conditions: | |||||||||||
| 10 through 12 | (1)Borrowers who have problematic business performance, such as virtually delinquent principal repayment or interest payment; | ||||||||||
(2)Borrowers whose business performance is unsteady, or who have unfavorable financial conditions; | |||||||||||
(3) Borrowers who have problems with loan conditions and for whom interest rates have been reduced or shelved. | |||||||||||
| 10 | Although business problems are not serious or their improvement is seen to be remarkable, there are elements of potential concern with respect to the borrower’s management, and close monitoring is required. | ||||||||||
| 11 | Business problems are serious, or require long-term solutions. Serious elements concerning business administration of the borrower have emerged, and subsequent debt repayment needs to be monitored closely. | ||||||||||
| 12 | Borrowers who fall under the criteria of Rating 10 or 11 and have a loan concession granted. Borrowers who have “Loans contractually past due 90 days or more.” (As a rule, delinquent borrowers are categorized as “Likely to Become Bankrupt,” but the definition here applies to borrowers delinquent for 90 days or more because of inheritance and other special reasons.) | ||||||||||
| 13 | Borrowers who pose a serious risk with respect to debt repayment and with whom loss is likely to occur in the course of transactions. While still not bankrupt, these borrowers are in financial difficulty, with poor progress in achieving restructuring plans, and are likely to become bankrupt in the future. | ||||||||||
| 14 | While not legally bankrupt, borrowers who are considered to be virtually bankrupt because they are in serious financial difficulty and have no prospects for an improvement in their business operations. | ||||||||||
| 15 | Borrowers who are legally bankrupt (i.e., who have no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation, or filing for legal liquidation). | ||||||||||
Japanese banks were historically required to use the following categories of borrowers under the then applicable FSA inspection manual, which was abolished in December 2019, and are currently expected to use them as a basis for their borrower categorization with appropriate adjustments under the FSA’s discussion paper:
•Normal borrowers (generally corresponding to borrowers in categories 1 through 9 in our ratings), which are borrowers that are performing well, with no significant financial concerns,
•Borrowers requiring close watch (generally corresponding to borrowers in categories 10 through 12 in our ratings), which include loans that have been amended to allow for delays or forgiveness of interest payments, borrowers experiencing difficulty in complying with loan terms and conditions and borrowers that are recording losses or performing badly,
•Borrowers likely to become bankrupt (generally corresponding to borrowers in category 13 in our ratings), which relate to borrowers who pose a serious risk with respect to debt repayment and with whom loss is likely to occur in the course of transactions. While still not bankrupt, these borrowers are in financial difficulty, with poor progress in achieving restructuring plans, and are likely to become bankrupt in the future,
•Virtually bankrupt borrowers (generally corresponding to borrowers in category 14 in our ratings), which are not legally bankrupt, but borrowers who are considered to be virtually bankrupt because they are in serious financial difficulty and have no prospects for an improvement in their business operations, and
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•Bankrupt borrowers or de facto bankrupt borrowers (generally corresponding to borrowers in category 15 in our ratings), which are borrowers who are legally bankrupt (i.e., who have no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation, or filing for legal liquidation proceedings).
The primary data utilized in our assessment of borrowers include the borrower’s financial statements and notes thereto as well as other public disclosure made by the borrower. In addition, when appropriate and possible, we obtain non-public financial and operating information from borrowers, such as the borrower’s business plan, borrower’s self-evaluation of its operating assets and other borrower information about its business and products.
Based on the borrower and industry information, we assign borrower ratings mainly by applying financial scoring models—either developed internally or by third-party vendors, depending on the borrower’s attributes, whether the borrower is domestic or foreign, whether the borrower is a large corporation or a small and medium-sized corporation, and whether the borrower is a corporate entity or another type of legal entity (such as a school, hospital or fund).
For example, for domestic small and medium-sized corporations, which constitute the largest borrower attribute in our current loan portfolio in terms of number of borrowers, we have adopted an internally developed financial scoring model, exclusively designed and developed for such attribute. We have selected various financial ratios that we believe to be useful and meaningful to quantitatively measure and assess the borrowers’ financial standing and repayment capability. Such financial ratios represent, among other things, borrowers’ growth, profitability, stability, cash flow, company size and capital efficiency. The model is periodically tested against historical results. The following is an illustration of some of the financial ratios we utilize as part of our financial scoring model:
•To measure growth: Sales growth, and growth in total assets,
•To measure profitability: Current profit to sales, and profit before tax to sales, and
•To measure stability: Equity ratio and current ratio.
The financial score obtained through the models is reviewed and, when necessary, adjusted downward to reflect our qualitative assessment of the borrower’s financial strength and other factors that could affect the borrower’s ability to service the debt. For example, we take into account: capability of turning around the business (in case of borrowers with losses) or recovering positive net worth (in case of borrowers with negative net worth), industry risk, management risk, legal risk, as well as our assessment of the probability of receiving support from parent companies (if the borrower is a subsidiary of a large listed company).
When adjusting the results of primary financial scoring assigned to borrowers with losses, we consider the severity of losses and the possibility of improving operating results. We analyze and assess whether the loss is temporary, the trend in operating results is improving, or the loss is expected to continue for an extended period. When adjusting the results of primary financial scoring assigned to borrowers with losses or borrowers with negative net worth, we also analyze whether the borrower can return to a positive net worth, and the time period needed to achieve such recovery (one to two years, three to five years, or five years or more).
In addition, adjustments based on industry risk are based on future prospects, applicable laws and regulations, and other factors surrounding the industry. Adjustments for management risk reflect our assessment of management’s track record, the composition of the management team including the board of directors, any management succession plan as well as the risk management and compliance framework of the borrower. Adjustments for legal risk are made when the borrower is facing a lawsuit and when there is a possibility of a significant claim payment related to product liability, intellectual property, environmental problems, building standard law, and other legal issues.
When assessing the probability of receiving support from parent companies, various factors are examined, such as the parent company’s credit standings, whether key management personnel are sent by the parent, whether the borrower is consolidated by the parent, and the proportion of the borrower in consolidated sales and profits of the parent.
In addition, we consider outside ratings, and our internal borrower ratings may be adjusted when deemed appropriate.
Facility risk rating
Facility risk rating is used to evaluate and classify the quality of individual credit facilities, including guarantees and collateral. Ratings are assigned by quantitatively measuring the estimated loss rate of a facility in the event of a default.
Structured finance rating and asset securitization rating
Structured finance rating and asset securitization rating are used to evaluate and classify the quality of individual credit facilities, including guarantees and collateral, and focus on the structure, including the applicable credit period, of each credit facility. In evaluating the debt service potential of a credit facility, we scrutinize its underlying structure to determine the likelihood of the planned future cash flows being achieved.
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Pool assignment
Each major banking subsidiary has its own system for pooling and rating small retail loans designed to reflect the risk profile of its loan portfolios.
Asset evaluation and assessment system
The asset evaluation and assessment system is used to classify assets held by us according to the probability of collection and the risk of any impairment in value based on borrower classifications consistent with the borrower ratings and the status of collateral, guarantees, and other factors.
The system is used to conduct write-offs and allocate allowances against credit risk in a timely and adequate manner.
Quantitative Analysis of Credit Risk
MUFG and its major banking subsidiaries manage credit risk by monitoring credit amount and expected losses, and run simulations based on internal models to estimate the maximum amount of credit risk. These models are used for internal management purposes, including loan pricing and measuring economic capital.
When quantifying credit risk amounts using the internal models, MUFG and its major banking subsidiaries consider various parameters, including the probability of default, loss given default, and exposure at default used in their borrower ratings, facility risk ratings and pool assignments as well as any credit concentration risk in particular borrower groups or industry sectors. MUFG and its major banking subsidiaries also share credit portfolio data in appropriate cases.
Loan Portfolio Management
We aim to achieve and maintain levels of earnings commensurate with credit risk exposure. Products are priced to take into account expected losses, based on the internal credit ratings.
We assess and monitor loan amounts and credit exposure by credit rating, industry and region. Portfolios are managed to limit concentrations of risk in specific categories in accordance with our Large Credit Guidelines.
To manage country risk, we have established specific credit ceilings by country. These ceilings are reviewed when there is a material change in a country’s credit standing, in addition to being subject to a regular periodic review.
Continuous CPM Improvement
With the prevalence of securitized products and credit derivatives in global markets, we seek to supplement conventional CPM techniques with advanced methods based on the use of such market-based instruments.
Through credit risk quantification and portfolio management, we aim to improve the risk return profile of the Group’s credit portfolio, using financial markets to rebalance credit portfolios in a dynamic and active manner based on an accurate assessment of credit risk.
Risk Management of Strategic Equity Portfolio
We hold shares of various corporate clients for strategic purposes, in particular to maintain long-term relationships with these clients. These investments have the potential to increase business revenue and appreciate in value. At the same time, we are exposed to the risk of price fluctuations in the Japanese stock market. For that reason, in recent years, it has been a high priority for us to reduce our equity portfolio to limit the risks associated with holding a large equity portfolio, but also to respond to applicable regulatory requirements as well as increasing market expectations and demands for us to reduce our equity portfolio. We are required to comply with a regulatory framework that prohibits Japanese banks from holding an amount of shares in excess of their adjusted Tier 1 capital. See “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financial Condition—Investment Portfolio.”
We use quantitative analysis to manage the risks associated with the portfolio of equities held for strategic purposes. According to internal calculations, the market value of our strategically held (Tokyo Stock Exchange-listed) stocks (excluding foreign stock exchange-listed stocks) as of March 31, 2023 was subject to a variation of approximately ¥2.0 billion when TOPIX index moves one point in either direction.
We seek to manage and reduce strategic equity portfolio risk based on quantitative analysis such as the sensitivity analysis described above. The aim is to keep this risk at appropriate levels compared with Tier 1 capital while generating returns commensurate with the degree of risk exposure.
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Market Risk Management
Management of market risk at MUFG aims to control our risk exposure to fluctuations in market variables across the Group while ensuring that earnings are commensurate with levels of risk.
Market Risk Management System
We have adopted an integrated system to manage market risk from our trading and non-trading activities. The holding company monitors group-wide market risk, while each of the major subsidiaries manages its market risks on a consolidated and global basis.
At each of the major subsidiaries, checks and balances are maintained through a system in which back and middle offices operate independently from front offices. In addition, separate Asset-Liability Management, or ALM, Committee and Risk Management Meetings are held at each of the major subsidiaries every month to deliberate important matters related to market risk and control.
The holding company and the major subsidiaries allocate economic capital commensurate with levels of market risk and determined within the scope of their capital bases. The major subsidiaries have established quantitative limits relating to market risk based on their allocated economic capital. In addition, in order to keep losses within predetermined limits, the major subsidiaries have also set limits for the maximum amount of losses arising from market activities. The following diagram summarizes the market risk management system of each major subsidiary:
Market Risk Management System of Our Major Subsidiaries
Market Risk Management and Control
At the holding company and the major subsidiaries, market risk exposure is reported to the Chief Risk Officers on a daily basis. At the holding company, the Chief Risk Officer monitors market risk exposure across the Group as well as the major subsidiaries’ control over their quantitative limits for market risk and losses. Meanwhile, the Chief Risk Officers at the major subsidiaries monitor their own market risk exposure and their control over their quantitative limits for market risk and losses. In addition, various analyses on risk profiles, including stress testing, are conducted and reported to the Executive Committees and the Corporate Risk Management Committees on a regular basis. At the business unit levels in the major subsidiaries, the market risks on their marketable assets and liabilities, such as interest rate risk and foreign exchange rate risk, are controlled by entering into various hedging transactions using marketable securities and derivatives.
As part of our market risk management activities, we use certain derivative financial instruments to manage our interest rate and currency exposures. We maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. We enter into interest rate swaps and other contracts as part of our interest rate risk management strategy primarily to alter the interest rate sensitivity of our loans, investment securities and deposit liabilities. Our principal objectives in risk management include asset and liability management. Asset and liability management is viewed as one of the methods for us to manage our interest rate exposures on interest-earning assets and interest-bearing liabilities. Interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options and futures, allow us to effectively manage our interest rate risk position. Option contracts primarily consist of caps, floors, swaptions and options on index futures. Futures contracts used for asset and liability management activities are primarily index futures providing for cash payments based upon the movement of an underlying rate index. We enter into forward exchange contracts, currency swaps and other contracts in response to currency exposures resulting from on-balance sheet assets and liabilities denominated in foreign currencies in order to limit the net foreign exchange position by currency to an appropriate level.
These market risk management activities are performed in accordance with the predetermined rules and procedures. The internal auditors regularly verify the appropriateness of the management controls over these activities and the risk evaluation models adopted.
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Market Risk Measurement Model
Market risks consist of general risks and specific risks. General market risks result from changes in entire markets, while specific risks relate to changes in the prices of individual financial instruments which are independent of the overall direction of the market.
To measure market risks, MUFG uses the VaR method which estimates changes in the market value of portfolios within a certain period by statistically analyzing past market data. Since the daily variation in market risk is significantly greater than that in other types of risk, MUFG measures and manages market risk using VaR on a daily basis.
Market risk for trading and non-trading activities is measured using a market risk measurement model. The principal model used for these activities is a historical simulation, or HS, model (Trading activities: holding period, one business day; confidence interval, 95%; and observation period, 250 business days. Non-trading activities: holding period, 10 business days; confidence interval, 99%; and observation period, 701 business days). The HS model calculates VaR amounts by estimating the profit and loss on the current portfolio by applying actual fluctuations in market rates and prices over a fixed period in the past. This method is designed to capture certain statistically infrequent movements, such as a fat tail, and accounts for the characteristics of financial instruments with non-linear behavior. The holding company and the major banking subsidiaries also use the HS model as part of the calculation of their Basel III regulatory capital adequacy ratios.
In calculating VaR using the HS method, we have implemented an integrated market risk measurement system throughout the Group. Our major subsidiaries calculate their VaR based on the risk and market data prepared by the information systems of their front offices and other departments. The major subsidiaries provide this risk data to the holding company, which calculates overall VaR, taking into account the diversification effect among all portfolios of the major subsidiaries.
For the purpose of internally evaluating capital adequacy on an economic capital basis in terms of market risk, we use this market risk measurement model to calculate risk amounts based on a holding period of one year and a confidence interval of 99.9%.
Monitoring and managing our sensitivity to interest rate fluctuations is the key to managing market risk in MUFG’s non-trading activities. The major banking subsidiaries take the following approach to measuring risks concerning core deposits, loan prepayments and early deposit withdrawals.
To measure interest rate risk relating to deposits without contract-based fixed maturities, the amount of “core deposits” is calculated through a statistical analysis based on deposit balance trend data and the outlook for interest rates on deposits, business decisions, and other factors. The amount of “core deposits” is categorized into various groups of maturity terms of up to ten years to recognize interest rate risk. The calculation assumptions and methods to determine the amount of core deposits and maturity term categorization are regularly reviewed.
Meanwhile, deposits and loans with contract-based maturities are sometimes cancelled or repaid before their maturity dates. To measure interest rate risk for these deposits and loans, we reflect these early termination events mainly by applying early termination rates calculated based on a statistical analysis of historical repayment and cancellation data together with historical market interest rate data.
Summaries of Market Risks
Trading activities
The aggregate VaR for our total trading activities as of March 31, 2023 was ¥ 2.88 billion, comprising interest rate risk exposure of ¥2.27 billion, foreign exchange risk exposure of ¥1.23 billion, and equity-related risk exposure of ¥0.25 billion. Our average daily VaR for the fiscal year ended March 31, 2023 was ¥2.14 billion.
Due to the nature of trading operations which involves frequent changes in trading positions, market risk may vary substantially during and between measurement periods, depending on our trading positions.
The following tables set forth the VaR related to our trading activities by risk category for the periods indicated:
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| April 1, 2021—March 31, 2022 | Average | Maximum(1) | Minimum(1) | March 31, 2022 | |||||||||||||||||||
(in billions) | |||||||||||||||||||||||
| MUFG | ¥ | 1.37 | ¥ | 1.97 | ¥ | 0.97 | ¥ | 1.14 | |||||||||||||||
| Interest rate | 1.41 | 2.03 | 1.11 | 1.35 | |||||||||||||||||||
| Yen | 0.85 | 1.39 | 0.53 | 0.82 | |||||||||||||||||||
| U.S. Dollars | 1.11 | 3.77 | 0.56 | 1.01 | |||||||||||||||||||
| Foreign exchange | 0.38 | 0.81 | 0.23 | 0.24 | |||||||||||||||||||
| Equities | 0.24 | 0.82 | 0.11 | 0.16 | |||||||||||||||||||
| Commodities | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||||||
| Less diversification effect | (0.66) | — | — | (0.61) | |||||||||||||||||||
| April 1, 2022—March 31, 2023 | Average | Maximum(1) | Minimum(1) | March 31, 2023 | |||||||||||||||||||
(in billions) | |||||||||||||||||||||||
| MUFG | ¥ | 2.14 | ¥ | 3.25 | ¥ | 1.25 | ¥ | 2.88 | |||||||||||||||
| Interest rate | 2.02 | 2.74 | 1.36 | 2.27 | |||||||||||||||||||
| Yen | 1.19 | 2.41 | 0.76 | 1.21 | |||||||||||||||||||
| U.S. Dollars | 1.43 | 1.92 | 0.89 | 1.55 | |||||||||||||||||||
| Foreign exchange | 0.64 | 1.36 | 0.21 | 1.23 | |||||||||||||||||||
| Equities | 0.22 | 0.55 | 0.07 | 0.25 | |||||||||||||||||||
| Commodities | 0.00 | 0.01 | 0.00 | 0.00 | |||||||||||||||||||
| Less diversification effect | (0.74) | — | — | (0.87) | |||||||||||||||||||
| Assumptions for VaR calculations: | ||
| Historical simulation method | ||
| Holding period: 1 business day | ||
| Confidence interval: 95% | ||
| Observation period: 250 business days | ||
Note:
(1)The maximum and minimum VaR overall and for various risk categories were taken from different days. A simple summation of VaR by risk category is not equal to total VaR due to the effect of diversification.
The average daily VaR by quarter in the fiscal year ended March 31, 2023 was as follows:
| Quarter | Daily average VaR | ||||
| (in billions) | |||||
| April—June 2022 | ¥ | 1.58 | |||
| July—September 2022 | 1.97 | ||||
| October—December 2022 | 2.39 | ||||
| January—March 2023 | 2.63 | ||||
The quantitative market risk figures from trading activities tend to fluctuate widely due to the market sensitive nature of the trading business. During the fiscal year ended March 31, 2023, the revenue from our trading activities has been relatively stable, keeping positive numbers in 217 days out of 261 trading days in the period. During the same period, there were 146 days with positive revenue exceeding ¥1 billion and 15 days with negative revenue exceeding minus ¥1 billion.
Non-trading Activities
The aggregate VaR for our total non-trading activities as of March 31, 2023, excluding market risks related to our strategic equity portfolio, was ¥974.0 billion. Market risk related to interest rates equaled ¥923.4 billion and equities-related risk equaled ¥85.9 billion. Compared with the VaR as of March 31, 2022, we experienced an increase in market risk during the fiscal year ended March 31, 2023, primarily due to an increase in interest rate risk.
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Based on a simple sum of figures across market risk categories, interest rate risks accounted for approximately 91% of our total non-trading activity market risks as of March 31, 2023. Looking at a breakdown of interest rate related risk by currency, as of March 31, 2023, the Japanese yen accounted for approximately 29% while the U.S. dollar accounted for approximately 67%, and the euro approximately 4%, with a 12 percentage point decrease in the Japanese yen, a 12 percentage point increase in the U.S. dollar and the euro remaining unchanged compared to March 31, 2022.
For a description of our strategic equity investment risk management, see “—Risk Management of Strategic Equity Portfolio.”
The following tables set forth the VaR related to our non-trading activities by risk category for the periods indicated:
| April 1, 2021—March 31, 2022 | Average | Maximum(1) | Minimum(1) | March 31, 2022 | |||||||||||||||||||
(in billions) | |||||||||||||||||||||||
| Interest rate | ¥ | 460.0 | ¥ | 517.0 | ¥ | 397.6 | ¥ | 506.9 | |||||||||||||||
| Yen | 201.5 | 257.7 | 174.8 | 252.7 | |||||||||||||||||||
| U.S. Dollars | 313.0 | 370.8 | 276.6 | 336.0 | |||||||||||||||||||
| Foreign exchange | 2.1 | 3.9 | 1.3 | 2.1 | |||||||||||||||||||
Equities(2) | 234.4 | 329.3 | 169.9 | 197.6 | |||||||||||||||||||
| Commodities | 0.4 | 4.5 | 0.0 | 0.0 | |||||||||||||||||||
| Less diversification effect | (143.2) | — | — | (123.7) | |||||||||||||||||||
| Total | 553.7 | 623.5 | 479.0 | 582.9 | |||||||||||||||||||
| April 1, 2022—March 31, 2023 | Average | Maximum(1) | Minimum(1) | March 31, 2023 | |||||||||||||||||||
(in billions) | |||||||||||||||||||||||
| Interest rate | ¥ | 628.4 | ¥ | 923.4 | ¥ | 463.1 | ¥ | 923.4 | |||||||||||||||
| Yen | 272.0 | 332.6 | 207.1 | 332.6 | |||||||||||||||||||
| U.S. Dollars | 439.6 | 751.7 | 322.9 | 751.7 | |||||||||||||||||||
| Foreign exchange | 4.4 | 7.7 | 1.6 | 7.1 | |||||||||||||||||||
Equities(2) | 156.8 | 204.9 | 85.9 | 85.9 | |||||||||||||||||||
| Commodities | 0.1 | 1.2 | 0.0 | 0.1 | |||||||||||||||||||
| Less diversification effect | (72.4) | — | — | (42.5) | |||||||||||||||||||
| Total | 717.3 | 974.0 | 551.8 | 974.0 | |||||||||||||||||||
| Assumptions for VaR calculations: | ||
| Historical simulation method | ||
| Holding period: 10 business days | ||
| Confidence interval: 99% | ||
| Observation period: 701 business days | ||
Notes:
(1)The maximum and minimum VaR overall for each category and in total were taken from different days. A simple summation of VaR by risk category is not equal to total VaR due to the effect of diversification.
(2)The equities-related risk figures do not include market risk exposure from our strategic equity portfolio.
The average daily interest rate VaR by quarter in the fiscal year ended March 31, 2023 was as follows.
| Quarter | Daily average VaR | ||||
| (in billions) | |||||
| April—June 2022 | ¥ | 490.32 | |||
| July—September 2022 | 576.70 | ||||
| October—December 2022 | 706.65 | ||||
| January—March 2023 | 740.91 | ||||
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Backtesting
We conduct backtesting in which a VaR is compared with hypothetical profits and losses on a daily basis to verify the accuracy of our VaR measurement model. We also conduct additional backtesting using other methods, including testing VaR against actual realized and unrealized losses and testing VaR by various changing parameters such as confidence intervals and observation periods used in the model.
Hypothetical losses never exceeded the VaR amount in the fiscal year ended March 31, 2023. This means that our VaR model provided reasonably accurate measurements of market risk during the fiscal year.
The following graph shows daily VaR of trading activities and the distribution of corresponding hypothetical profits and losses for the fiscal year ended March 31, 2023:
The following graph shows VaR of trading activities and hypothetical profits and losses on a daily basis for the fiscal year ended March 31, 2023:
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Stress Testing
Actual losses may exceed the value at risk obtained by the application of an HS VaR model in the event, for example, that the market fluctuates to a degree not accounted for in the observation period, or that the correlations among various risk factors, including interest rates and foreign currency exchange rates, deviate from those assumed in the model. In order to complement these weaknesses of the HS-VaR model and measure potential losses that the model is not designed to capture, we conduct stress testing, as appropriate, on our HS-VaR model for our non-trading activities by applying various stress scenarios, including those which take into account estimates regarding future market volatility, in order to better identify risks and manage our portfolio in a more stable and appropriate manner. In addition, MUFG and its major subsidiaries measure stressed VaR for their trading activities and non-trading activities relating to foreign exchange and commodities on an aggregate basis based on a one-year observation period with the highest VaR at least in the immediately preceding ten years.
Funding Liquidity Risk Management
Our major subsidiaries seek to maintain appropriate liquidity in both Japanese yen and foreign currencies by managing their funding sources and mechanisms, such as deposits, short-term borrowings and long-term debt, liquidity gap, liquidity-supplying products such as commitment lines, and buffer assets, primarily government bonds.
We have established a group-wide system for managing liquidity risk by categorizing the risk in the following three stages: normal, concern and crisis. The front offices and risk management offices of the major subsidiaries and the holding company exchange information and data on liquidity risk even at the normal stage. At higher alert stages, we centralize information about liquidity risk and discuss issues relating to group-wide liquidity control actions, including formulating contingency plans, among Group companies, if necessary. We have also established a system for liaison and consultation on funding in preparation for contingency, such as natural disasters, wars and terrorist attacks. The holding company and the major subsidiaries conduct group-wide contingency preparedness drills on a regular basis to ensure smooth implementation in the event of an emergency.
In addition, we have established a group-wide system for ensuring compliance with the minimum regulatory LCR and NSFR requirements by categorizing the risk in the following three stages: sufficient, concern and insufficient. The holding company and the major subsidiaries exchange information and data on LCR and NSFR even at the sufficient stage. At higher alert stages, we hold group-wide LCR and NSFR liaison meetings to discuss issues relating to LCR and NSFR and, based on the discussion as well as the information and data that have been shared, take countermeasures to improve LCR and NSFR as necessary.
For more information, see “Item 5.B. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financial Condition—Sources of Funding and Liquidity.” See also “Item 3.D. Key Information—Risk Factors—Funding Liquidity Risk—Market illiquidity and other external circumstances and an actual or perceived decline in our creditworthiness could negatively affect our ability to access and maintain liquidity.”
Operational Risk Management
The holding company has established, based on its Executive Committee’s determination, the MUFG Operational Risk Management Policy as a group-wide policy for managing operational risk. This policy sets forth the core principles regarding operational risk management, including the definition of operational risk, and the risk management system and processes. Under the policy, the board of directors and the Executive Committee formulate fundamental principles of operational risk management and establish and maintain an appropriate risk management system. The Chief Risk Officer is responsible for recognizing, evaluating, and appropriately managing operational risk in accordance with the fundamental principles formulated by the board of directors and the Executive Committee. A division in charge of operational risk management has been established that is independent of business promotion sections to manage overall operational risk in a comprehensive manner. These fundamental principles have also been approved by the boards of directors of the major subsidiaries, providing a consistent framework for operational risk management of the Group. The diagram below sets forth the operational risk management system of each major banking subsidiary:
Operational Risk Management System of Our Major Banking Subsidiaries
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As set forth in the following diagram, we have established a risk management framework for loss data collection, control self-assessment, and measurement of operational risk in order to appropriately identify, recognize, evaluate, measure, control, monitor and report operational risk.
We have also established group-wide reporting guidelines with respect to loss data collection and its monitoring. We focus our efforts on ensuring accurate assessment of the status of operational risk losses and the implementation of appropriate countermeasures, while maintaining databases of internal and external loss events.
The following diagram summarizes our operational risk management framework:
Operational Risk Management Framework
Operations Risk Management
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The Group companies offer a wide range of financial services, ranging from commercial banking products such as deposits, exchange services and loans to trust and related services covering pensions, securities, real estate and securitization, as well as transfer agent services. Cognizant of the potentially significant impact that operations risk-related events could have in terms of both economic losses and damage to our reputation, our major subsidiaries continue to work on improving their management systems to create and apply appropriate operations risk-related controls.
Specific ongoing measures to reduce operations risk include the development of databases to manage, analyze and prevent the recurrence of related loss events; efforts to tighten controls over administrative procedures and related operating authority, while striving to improve human resources management, investments in systems to improve the efficiency of administrative operations, and programs to expand and upgrade internal auditing and operational guidance systems.
Senior management receives regular reports on the status of our businesses from an operations risk management perspective. We work to promote the sharing within the Group of information and expertise concerning any operational incidents and the measures implemented to prevent any recurrence.
Efforts to upgrade the management of operations risk continue with the aim of providing our customers with a variety of high-quality services.
Information Risk Management
Complying with laws and regulations requiring proper handling of customer information, we implement information security management measures, including the establishment of an information risk management framework, enhancement of our internal operational procedures, and training courses mandatory for all officers and staff.
We have also formulated our Personal Information Protection Policy as the basis for our ongoing programs designed to protect the confidentiality of personal information.
With the aim of preventing any recurrence and minimizing risk or loss, we also work to promote sharing on a group-wide basis of experience, knowledge and expertise related to information risk incidents.
IT Risk Management
IT risk refers to the risk of loss arising from destruction, suspension, malfunction or misuse of IT, or unauthorized alteration and leakage of electronic data caused by insufficient IT systems planning, development or operations or by vulnerabilities of or external threats to IT system security, including cybersecurity, as well as risks similar to these risks.
Systems planning, development and operations include appropriate design and extensive testing phases to ensure that systems are designed to help prevent failures while providing sufficient safeguards for the security of electronic data including personal information.
System development projects are managed and overseen by a team dedicated to performing such management and oversight functions, and the development status of any mission-critical IT systems is reported regularly to senior management.
We have developed disaster countermeasure systems and have also been investing in duplication of the Group’s IT infrastructure to minimize damage in the event of any system failure. Emergency drills are conducted to help increase staff preparedness.
With the aim of preventing any recurrence and minimizing risk or loss, we also work to promote sharing on a group-wide basis of experience, knowledge and expertise related to system failures. In addition, we have contingency plans, including alternatives for both operations and systems, designed for our operational resilience to recover quickly and reduce the scope and magnitude of impact of such failures.
In addition, the risk of increasingly sophisticated cyber-attacks is a significant focus of the Board of Directors, and the Board regularly receives reports on our cybersecurity program. We continue to work to strengthen measures designed to address and mitigate the risk, including the establishment of MUFG-CERT, our Computer Security Incident Response Team, implementation of multi-layered defense and detection measures, enhancement of monitoring systems through our Security Operation Centers, and cooperation with global organizations with relevant expertise. MUFG-CERT is charged with the responsibility of taking, coordinating and managing prompt action in response to cyber security incidents to mitigate their impact.
We continue to develop our risk management capabilities for emerging technologies, such as artificial intelligence (AI), robotic process automation (RPA) and blockchain, considering, among other things, the maturity and usage of such technologies.
Tangible Asset Risk Management
Tangible assets include movable physical properties and immovable properties, owned or leased, such as land, buildings, equipment attached to buildings, fixtures and furniture. We recognize the potentially significant impact tangible asset risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic losses to, or
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diminished market confidence in, the Group. Accordingly, we continue to improve our risk control framework designed to appropriately manage such risk.
Personnel Risk Management
We recognize the potentially significant impact personnel risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic losses to, or diminished market confidence in, the Group. Accordingly, we continue to work on improving our risk control framework designed to appropriately manage such risk.
Incompliance with Laws and Regulations Risk Management
We recognize the potentially significant impact compliance risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic, reputation and other losses to, or diminished market confidence in, the Group. Accordingly, we continue to work on improving our compliance risk control framework designed to appropriately manage such risk.
Specifically, we have established our MUFG Group Code of Conduct as the basic guideline for the Group’s directors and employees. In addition, a compliance management division has been established at each of the holding company and the major subsidiaries. See “—Compliance” below.
Legal Risk Management
The legal division at each of the holding company and the major subsidiaries centrally and uniformly evaluates legal issues prior to entering into contracts or commencing new business operations, deals with legal disputes and manages other legal matters. With the aim of effectively managing our legal risk arising from our globally expanding business operations, we have established a global and group-wide legal risk management framework and promote sharing of experience, knowledge and practices relating to legal risk issues on a global and group-wide basis.
Regulatory Capital Requirements for Operational Risk
(1)Adoption of the Advanced Measurement Approach (AMA)
We have employed the AMA since March 31, 2012, in place of the Standardized Approach that we had been using previously, for calculation of the operational risk equivalent amount in connection with measuring capital adequacy ratios based on the Basel Standards. On the other hand, we use the Basic Indicator Approach, or BIA, for entities that are deemed to be less important in the calculation of the operational risk equivalent amount and for entities that are still preparing to implement the AMA.
(2)Outline of AMA
We have established a measurement model designed to account for four data elements—internal loss data, external loss data, scenario analysis, and business environment and internal control factors, or BEICFs—and calculate the operational risk equivalent amount by estimating the maximum loss using a 99.9th percentile one-tailed confidence interval and a one-year holding period.
In calculating the operational risk equivalent amount, we exclude expected losses relating to the amount of allowance for repayment of excess interest associated with the consumer finance business of a subsidiary. We do not exclude any other expected losses and do not reflect the risk mitigating impact of insurance. In addition, we take into account credit risk-related events that are not reflected in the measurement of the credit risk equivalent amount.
(3)Outline of Measurement Model
Our operational risk equivalent amount measured under the AMA is a simple sum of the amounts calculated separately for (1) MUFG Bank on a consolidated basis, (2) Mitsubishi UFJ Trust and Banking on a consolidated basis, and (3) the holding company and other principal consolidated subsidiaries, in accordance with applicable FSA rules. For each of MUFG Bank and Mitsubishi UFJ Trust and Banking on a consolidated basis, the operational risk equivalent amount is a simple sum of the amounts calculated based on the seven loss event types defined by the Basel Standards. For other Group companies, the operational risk equivalent amount is a simple sum of the amounts calculated based on eight loss event types consisting of the seven loss event types defined by the Basel Standards and an additional loss event type representing losses relating to repayment of excess interest associated with the consumer finance business of a subsidiary. We do not reflect the correlation effects among the loss event types in the calculation of our operational risk equivalent amount.
Outline of Measurement Model
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The risk equivalent amount for each loss event type represents the amount of maximum loss estimated with a 99.9th percentile one-tailed confidence interval and a one-year holding period based on the distribution of losses arising from all relevant risk events for a one-year period (Loss Distribution). A Loss Distribution combines a Frequency Distribution (through which the frequency of occurrence of risk events is expressed) and a Loss Severity Distribution (through which the amounts of losses resulting from risk events are expressed) through Monte Carlo simulations. The data used for this purpose include internal loss data and scenario data. Scenario data are generated through a scenario analysis. External data and BEICFs are taken into account in the scenario analysis and reflected in scenario data. The Frequency Distribution is derived from the occurrence frequency information in internal loss data and scenario data expressed through a Poisson Distribution. The Loss Severity Distribution is derived from the amount information in internal loss data and scenario data expressed in a non-parametric manner (where no underlying distribution is assumed).
With respect to the risk of losses relating to repayment of excess interest associated with the consumer finance business of a subsidiary, the risk equivalent amount represents the amount of maximum loss estimated with a 99.9th percentile one-tailed confidence interval and a one-year holding period based on a normal distribution assumed by applying data on losses that arose in a given period, excluding any related expected losses.
We confirm the appropriateness of the measurement models by periodic verification and back testing.
(4)Outline of Scenario Analysis
As an initial step of our scenario analysis, we identify potential severe loss events that we have not experienced but may potentially experience in the future. In this identification process, we seek to ensure exhaustive coverage of potential severe loss events by comprehensively examining our experience relating to loss events and legal proceedings, external loss data, the control self-assessment results and other relevant information.
In the next step, we prepare scenario data for each identified severe loss event by quantifying the values depending on its occurrence frequency and loss severity, taking into account relevant transaction amounts and restructuring costs as well as BEICFs. In preparing scenario data, we apply an analysis method we deem appropriate for the type and nature of the operational risk involved.
In order to obtain an operational risk equivalent amount that is commensurate with, and appropriate for, our risk profile, we assess the need for an additional scenario or modification to our existing scenarios semi-annually.
We then reflect, as necessary, new risks arising as a result of changes in the business environment and the results of the implementation of measures to enhance our internal controls in response to newly identified risks in our scenario data.
Reputation Risk Management
Reputation risk refers to the risk of harm to our corporate value arising from perceptions of our customers, shareholders, investors or other stakeholders and in the market or society that we deviate from their expectations or confidence. We recognize that such risk, if materialized, can have a material negative impact on our business and continue to work on enhancing our framework designed to appropriately manage the risk based on MUFG Way, MUFG Group Code of Conduct, and other rules and codes of the Group.
Specifically, in order to manage our reputation risk effectively on a group-wide basis, we have established a risk management system designed to ensure mutual consultation and reporting if a reputation risk-related event occurs or is anticipated and, through this system, share relevant information within the Group.
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Through the risk control framework and risk management system, we seek to prevent reputation risk-related events and minimize damage to the corporate value of the Group by promptly obtaining an accurate understanding of relevant facts relating to risk events and disclosing information concerning such events and the measures we take in response to such events in an appropriate and timely manner.
Model Risk Management
We recognize the potentially significant impact model risk-related events can have on the management and execution of the Group’s businesses, which in turn can result in economic losses to, or diminished market confidence in, the Group. Models are used for increasingly wider and more important purposes, including valuing exposures, instruments and positions, measuring risks, and determining capital adequacy. Accordingly, we continue to work on improving our risk control framework.
Compliance
Basic Policy
In April 2021, MUFG renamed its Corporate Vision as “MUFG Way” and newly defined its social purpose—the purpose of its existence, along with its shared values and medium- to long-term goal. MUFG Way serves as the group’s basic policy in conducting its business activities and provides guidelines for all group activities. Furthermore, we have established MUFG Group Code of Conduct as the guidelines for how the Group’s directors and employees act to realize the Corporate Vision, in which we have expressed our commitment to complying with laws and regulations, to acting with honesty and integrity, and to behaving in a manner that supports and strengthens the trust and confidence of society.
In addition, as we expand the geographic scope of our business globally, we are committed to keeping abreast of developments in laws and regulations of the jurisdictions in which we operate including anti-money laundering and anti-bribery, as well as paying attention to trends in financial crimes.
See “Item 3.D. Key Information—Risk Factors—Operational Risk—Legal and regulatory changes could have a negative impact on our business, financial condition and results of operations.” and “Item 3.D. Key Information—Risk Factors—Operational Risk—We may become subject to regulatory actions or other legal proceedings relating to our transactions or other aspects of our operations, which could result in significant financial losses, restrictions on our operations and damage to our reputation.” See also “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation.”
Compliance Framework
Management and coordination of compliance-related matters are the responsibility of separate compliance management divisions established at the holding company and the major subsidiaries. Each compliance management division formulates compliance programs and organizes training courses to promote compliance, and regularly reports to each company’s board of directors and Executive Committee on the status of compliance activities.
The holding company has established a Group Compliance Committee and each major subsidiary has established a Compliance Committee for deliberating key issues related to compliance. Additionally, the holding company has a Group Chief Compliance Officer, or CCO, Committee, which consists of the CCO of the holding company acting as committee chair and the CCOs of the major subsidiaries. The Group CCO Committee deliberates important matters related to compliance and compliance-related issues for which the Group should share a common understanding.
The following diagram summarizes our compliance framework:
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Compliance Framework
Internal Reporting System and Accounting Auditing Hotline
The major subsidiaries have established internal reporting systems that aim to identify compliance issues early so that any problems can be quickly rectified. This system includes an independent external compliance hotline. Furthermore, the holding company has set up an MUFG Group Compliance Helpline that acts in parallel with group-company internal reporting systems and provides a reporting channel for directors and employees of Group companies. In the holding company, the contents of the reported cases as well as the results of surveys are reported to the audit committee on a regular basis or whenever necessary.
In addition to these internal reporting systems, the holding company has also established an accounting auditing hotline that provides a means to report any problems related to MUFG's accounting practices.
MUFG Accounting Auditing Hotline
MUFG has set up an accounting auditing hotline to be used to make reports related to instances of improper practices (violations of laws and regulations) and inappropriate practices, or of practices raising questions about such impropriety or inappropriateness, regarding accounting and internal control or audits related to accounting in Group companies. The audit committee oversees the reporting process to ensure the appropriateness and effectiveness of the reporting process and monitors the reports received through the hotline. The reporting process works as follows, and may be carried out via letter or e-mail:
Hokusei Law Office, P.C.
Address: Sanshikaikan Bldg. 8th Floor 1-9-4 Yurakucho, Chiyoda-ku, Tokyo
e-mail:MUFG-accounting-audit-hotline@hokusei-law.com
When reporting information please pay attention to the following:
•Matters subject to reporting are limited to instances regarding the Group companies.
•Please provide detailed information with respect to the matter. Without detailed factual information there is a limit to how much our investigations can achieve.
•Anonymous information will be accepted.
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•No information regarding the identity of the informant will be passed on to third parties without the approval of the informant him- or herself. However, this excludes instances where disclosure is legally mandated, or to the extent that the information is necessary for surveys or reports, when data may be passed on following the removal of the informant’s name.
•Please submit reports in either Japanese or English.
•If the informant wishes, we will endeavor to report back to the informant on the response taken within a reasonable period of time following the receipt of specific information, but cannot promise to do so in all instances.
Internal Audit
Role of Internal Audit
Internal Audit aims to evaluate and assist in the improvement of the effectiveness of governance, risk management and control processes with high proficiency and independence, thereby contributing to the enhancement of the corporate value of the MUFG Group and to the achievement of MUFG Way. Internal Audit covers all aspects of the Group’s business activities and discusses and evaluates the management and operational frameworks and the implementation of business operations from legal compliance, rationality and efficiency perspectives, beyond checking compliance with defined procedures.
In addition, Internal Audit provides instructions and recommendations for operational improvement to audited divisions and reports to senior management on such instructions and recommendations, thereby contributing to safeguarding and development of the Group’s assets.
Three Lines of Defense Framework
Risk management is conducted at multiple levels within a business organization, including front-office divisions in charge of managing specific categories of risk, a compliance division, and an internal audit division.
As for financial institutions, including the MUFG Group, based on the experience of past financial crises, the traditional risk management structure that was heavily dependent on front-office divisions has been under close scrutiny. As a result, there is an increasing expectation for financial institutions to achieve more effective risk management through, for example, appropriate allocation of risk management roles and responsibilities among various divisions.
Cognizant of the importance of these developments, we have adopted the concept of “Three Lines of Defense” where the roles and responsibilities of each division in risk management are defined, classifying divisions within a financial institution into “the 1st Line of Defense”, “the 2nd Line of Defense” and “the 3rd Line of Defense”.
| Line | Divisions | Roles | ||||||||||||
| The 1st Line of Defense | Business divisions and client-facing divisions | •Undertake risks within the extent of risk exposure assigned • Responsible and accountable for identifying, evaluating and controlling business risks | ||||||||||||
| The 2nd Line of Defense | Risk management division, compliance division, etc. | •Ensure that risks are appropriately identified and managed by the 1st Line of Defense | ||||||||||||
| The 3rd Line of Defense | Internal audit division | • Independently evaluate the effectiveness of the governance, risk management, and control processes implemented by the 1st and 2nd Lines of Defense | ||||||||||||
Internal Audit plays an essential role in the Group’s risk management through ongoing communications with the 1st and 2nd Lines of Defense, while maintaining independence.
Group Internal Audit Framework
The MUFG Group has internal audit functions at the holding company level as well as at the subsidiary level, which are designed to ensure proficiency and independence through effective collaboration.
The internal audit division of the holding company receives reports from the internal audit divisions of subsidiaries on the status and results of their internal audits and provides them with instructions and evaluations as needed.
Reports to the Audit Committee
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The holding company has an audit committee within its board of directors as required by the Companies Act of Japan, and each of the major subsidiaries has established an audit and supervisory committee. Within each of the holding company and the major subsidiaries, the internal audit division reports to the committee on important matters, including governing principles for internal audit plans and the status and results of internal audits.
MUFG Internal Audit Activity Charter
In April 2019, we adopted “MUFG Internal Audit Activity Charter”, which defines our basic policies for Internal Audit, including its mission, purposes, responsibilities, and roles.
This charter is designed to encourage Internal Audit staff to conduct internal audits in accordance with the global standards set by the Institute of Internal Auditors, an international organization established for, among other purposes, formulating practical internal audit standards.
Item 12. Description of Securities Other than Equity Securities.
A.Debt Securities
Not applicable.
B.Warrants and Rights
Not applicable.
C.Other Securities
Not applicable.
D.American Depositary Shares
For a description of ADSs, each representing one share of our common stock, see Exhibit 2(c) to this Annual Report.
Fees, charges and other payments relating to ADSs
As a holder of our ADSs, you will be required to pay to The Bank of New York Mellon, as depositary for the ADRs, or the Depositary, either directly or indirectly, the following fees or charges. The Depositary collects its fees for delivery and surrender of ADRs directly from investors depositing shares or surrendering ADRs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.
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| ADS holders must pay: | For: | |||||||
| $5.00 (or less) per 100 ADSs (or portion thereof) | Each issuance of an ADR, including as a result of a distribution of shares or rights or other property Each cancellation of an ADR, including if the agreement terminates | |||||||
| $0.02 (or less) per ADS | Any cash distribution, to the extent permitted by any securities exchange on which the ADSs may be listed for trading | |||||||
| A fee equivalent to the fee that would be payable if securities distributed to the ADS holder had been shares and the shares had been deposited for issuance of ADRs | Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to registered ADS holders | |||||||
| Registration or transfer fees | Transfer and registration of shares on the share register from your name to the name of The Bank of New York Mellon or its agent and vice versa when you deposit or withdraw shares | |||||||
| Expenses of The Bank of New York Mellon | Conversion of foreign currency to U.S. dollars, as well as cable, telex and facsimile transmission expenses | |||||||
| Taxes and other governmental charges The Bank of New York Mellon or MUFG Bank, as custodian, have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | As necessary | |||||||
Fees Waived or Paid by the Depositary
The Depositary has agreed to waive the standard out-of-pocket administrative, maintenance and other expenses for providing services to the registered holders of our ADSs, which include the expenses relating to the delivery of annual reports, dividend fund remittances, stationery, postage and photocopying. For the fiscal year ended March 31, 2023, the Depositary waived $130,968.31 of standard out-of-pocket expenses.
The Depositary has also agreed to reimburse us for expenses related to the administration and maintenance of the ADS program, including investor relations expenses, the annual New York Stock Exchange listing fees and other program-related expenses. There is a limit on the amount of expenses for which the Depositary will reimburse us based and conditioned on the number of outstanding ADSs and the amount of dividend fees collected by the Depositary. For the fiscal year ended March 31, 2023, the Depositary reimbursed us $1.0 million for such expenses.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.
None.
Item 15. Controls and Procedures.
Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and the Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the U.S. Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report.
Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2023.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the U.S. Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, MUFG’s principal executive and principal financial officers, and effected by MUFG’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that:
(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of MUFG,
(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of MUFG are being made only in accordance with authorizations of management and directors of MUFG, and
(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of MUFG’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management evaluated the effectiveness of our internal control over financial reporting as of March 31, 2023 based on the criteria established in “Internal Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management has concluded that MUFG maintained effective internal control over financial reporting as of March 31, 2023.
The effectiveness of our internal control over financial reporting as of March 31, 2023 has been audited by Deloitte Touche Tohmatsu LLC, an independent registered public accounting firm, as stated in its report, presented on page 146.
Changes in Internal Control Over Financial Reporting
During the period covered by this Annual Report, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of
Mitsubishi UFJ Financial Group, Inc.
(Kabushiki Kaisha Mitsubishi UFJ Financial Group):
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Mitsubishi UFJ Financial Group, Inc. (Kabushiki Kaisha Mitsubishi UFJ Financial Group) (“MUFG”) and subsidiaries (together, the “MUFG Group”) as of March 31, 2023, based on criteria established in Internal Control—Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the MUFG Group maintained, in all material respects, effective internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control—Integrated Framework(2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements as of and for the year ended March 31, 2023, of the MUFG Group and our report dated July 24, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The MUFG Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the MUFG Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the MUFG Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/Deloitte Touche Tohmatsu LLC
Tokyo, Japan
July 24, 2023
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Item 16A. Audit Committee Financial Expert.
Our board of directors has determined that Mr. Koichi Tsuji, an outside director, is an “audit committee financial expert” as defined in Item 16A of Form 20-F and is, and has remained since his assumption of office as a member of our audit committee, “independent” as defined in the listing standards of the NYSE. Mr. Tsuji has spent most of his professional carrier as a certified public accountant in Japan, auditing Japanese corporations, including those registered with the U.S. Securities and Exchange Commission. Mr. Tsuji is also the chair of our audit committee.
Item 16B. Code of Ethics.
We have adopted a code of ethics, which consists of internal rules named MUFG Group Code of Conduct, compliance rules, compliance manual and rules of employment. Each of these rules applies to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The MUFG Group Code of Conduct was most recently amended on April 1, 2023 primarily to update and streamline explanatory commentaries. A copy of the MUFG Group Code of Conduct and the sections of our compliance rules, compliance manual and rules of employment relating to the “code of ethics” (as defined in paragraph (b) of Item 16B of Form 20-F) is attached as Exhibit 11 to this Annual Report.
No waivers of the MUFG Group Code of Conduct or the relevant sections of our compliance rules, compliance manual and rules of employment were granted to our principal executive officer, principal financial officer, principal accounting officer, directors or corporate auditors during the fiscal year ended March 31, 2023.
Item 16C. Principal Accountant Fees and Services.
Fees and Services of Deloitte Touche Tohmatsu LLC
The aggregate fees billed by Deloitte Touche Tohmatsu LLC, our independent registered public accounting firm and its affiliates, for the fiscal years ended March 31, 2022 and 2023 are presented in the following table:
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Audit fees | ¥ | 9,716 | ¥ | 9,077 | |||||||
| Audit-related fees | 262 | 591 | |||||||||
| Tax fees | 131 | 105 | |||||||||
| Total | ¥ | 10,109 | ¥ | 9,774 | |||||||
The description of our fees billed for each category described above is as follows:
Audit fees—Audit fees are primarily for an annual audit of our financial statements, review of our semi-annual condensed financial statements, statutory audit of our financial statements and audits of our subsidiary financial statements and attestation services relating to the internal controls over financial reporting under Section 404 of the U.S. Sarbanes-Oxley Act of 2002.
Audit-related fees—Audit-related fees primarily include accounting consultations, assurance services and agreed upon procedures on internal controls, employee benefit plan audit, and advisory services relating to internal control reviews.
Tax fees—Tax fees relate primarily to tax compliance, including assistance with preparation of tax return filings, tax advisory and tax planning services.
Pre-Approval Policies and Procedures for Services by Deloitte Touche Tohmatsu LLC
Our audit committee performs the pre-approval function required by applicable SEC rules and regulations. Our audit committee has established pre-approval policies and procedures that MUFG and its subsidiaries must follow before engaging Deloitte Touche Tohmatsu LLC to perform audit and permitted non-audit services.
When MUFG or a subsidiary intends to engage Deloitte Touche Tohmatsu LLC to perform audit and permitted non-audit services, it must make an application for pre-approval on either a periodic or case-by-case basis.
•Periodic application is an application for pre-approval made each fiscal year for services that are expected to be provided by Deloitte Touche Tohmatsu LLC during the next fiscal year.
•Case-by-case application is an application for pre-approval made on a case-by-case basis for services to be provided by Deloitte Touche Tohmatsu LLC that are not covered by the periodic application.
Pre-approval is resolved in principle by our audit committee prior to engagement, although if necessary a full-time member of our audit committee may consider any case-by-case application for pre-approval on behalf of the audit committee prior to the next
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scheduled audit committee meeting. Such decisions made individually by a full-time member of our audit committee are reported to the audit committee as appropriate at the next scheduled audit committee meeting.
Fees approved pursuant to the procedures described in paragraph 2-01(c)(7)(i)(C) of Regulation S-X, which provides for an exception to the general requirement for pre-approval in certain circumstances, were less than 0.1% of the total fees paid to Deloitte Touche Tohmatsu LLC for each of the fiscal years ended March 31, 2022 and 2023.
Item 16D. Exemptions from the Listing Standards for Audit Committees.
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
Issuer Purchases of Common Stock
Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2) | ||||||||||||||||||||
| April 1 to April 30, 2022 | 1,575 | ¥ | 763.37 | — | — | ||||||||||||||||||
| May 1 to May 31, 2022 | 35,305,055 | 729.68 | 35,303,700 | 564,696,300 | |||||||||||||||||||
| June 1 to June 30, 2022 | 70,159,360 | 741.07 | 70,157,900 | 494,538,400 | |||||||||||||||||||
| July 1 to July 31, 2022 | 77,152,763 | 725.28 | 77,150,300 | 417,388,100 | |||||||||||||||||||
| August 1 to August 31, 2022 | 83,246,373 | 726.55 | 83,244,200 | 334,143,900 | |||||||||||||||||||
| September 1 to September 30, 2022 | 61,443,812 | 723.56 | 61,441,900 | 272,702,000 | |||||||||||||||||||
| October 1 to October 31, 2022 | 91,629,464 | 669.58 | 91,628,300 | 181,073,700 | |||||||||||||||||||
| November 1 to November 30, 2022 | 1,753 | 710.34 | — | — | |||||||||||||||||||
| December 1 to December 31, 2022 | 90,509,235 | 776.78 | 90,506,600 | 209,493,400 | |||||||||||||||||||
| January 1 to January 31, 2023 | 77,452,725 | 936.26 | 77,450,700 | 132,042,700 | |||||||||||||||||||
| February 1 to February 28, 2023 | 7,403,168 | 970.36 | 7,400,600 | 124,642,100 | |||||||||||||||||||
| March 1 to March 31, 2023 | 2,670 | 910.90 | — | — | |||||||||||||||||||
| Total | 594,307,953 | ¥ | 757.21 | 594,284,200 | ー | ||||||||||||||||||
Notes:
(1)The shares purchased were shares constituting less than one unit (100 shares) purchased from registered holders of the shares, each at the current market price, in addition to those purchased as part of the publicly announced program described in Note (2) below.
(2)During May to October 2022, we repurchased 418,926,300 shares of our common stock for ¥299,999,909,768 under a share repurchase program that was adopted D May 16, 2022 and completed in November 2022. Under the program, we were authorized by the Board of Directors to repurchase up to the lesser of 600,000,000 shares of our common stock and ¥300 billion between May 17, 2022 and November 11, 2022. On November 30, 2022, we cancelled the repurchased shares. Also, During December 2022 to January 2023, we repurchased 175,357,900 shares of our common stock for ¥149,999,996,001 under a share repurchase program that was adopted on November 14, 2022 and completed in January 2023. Under the program, we were authorized by the Board of Directors to repurchase up to the lesser of 300,000,000 shares of our common stock and ¥150 billion between December 2, 2022 and January 31, 2023. On February 28, 2023, we cancelled the repurchased securities.
We did not make any purchases of shares of our common stock other than as shown in the above table for the fiscal year ended March 31, 2023.
As for our Performance-based Stock Compensation Plans, there were no stock purchases during the fiscal year ended March 31, 2023. In connection with the MUFG Americas Holdings Corporation Stock Bonus Plan, 13,700,757 ADSs were purchased by the trustee of the independent trust between April 1, 2022 and March 31, 2023.
For descriptions of our stock compensation and bonus plans, see “Item 6.B. Directors, Senior Management and Employees—Compensation.”
Item 16F. Change in Registrant's Certifying Accountant.
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None.
Item 16G. Corporate Governance.
The NYSE allows NYSE-listed companies that are foreign private issuers, such as MUFG, with certain exceptions, to follow home-country practices in lieu of the corporate governance practices followed by U.S. companies pursuant to the NYSE’s Listed Company Manual. The following is a summary of the significant differences between MUFG’s corporate governance practices and those followed by U.S. listed companies under the NYSE’s Listed Company Manual.
1. A NYSE-listed U.S. company must have a majority of directors that meet the independence requirements under Section 303A of the NYSE’s Listed Company Manual.
As of the date of this Annual Report, we have eight outside directors as members of our board of directors, which consists of a total of fifteen members. Under our governance system, we are required to have independent outside directors on each of our nominating, audit and compensation committees, constituting a majority of its members. For a description of an outside director, see “Item 6.C. Directors and Senior Management—Board Practices.”
The Tokyo Stock Exchange rules require listed companies, including us, to identify at least one individual who the company believes is unlikely to have a conflict of interest with general shareholders and have such individual serve as an independent director or outside corporate auditor.
Further, companies listed on the Prime Market of the Tokyo Stock Exchange, including us, must have one third (or, in cases where such companies deem appropriate, the majority) of directors qualify as outside directors who are considered independent based on such internal standards as each company establishes pursuant to the Tokyo Stock Exchange requirements, or independent outside directors, or publicly disclose the reason for not having such directors on the board of directors. We have adopted and made public our corporate governance policy providing, among other things, that, in general, the majority of the members of our board of directors will be independent outside directors.
2. A NYSE-listed U.S. company must have an audit committee composed entirely of independent directors.
Under the Companies Act, we are required to have an audit committee consisting of at least three non-executive directors, and the majority of its members must be outside directors. Currently, our audit committee consists of three outside directors and two non-executive directors. Our audit committee satisfies the requirements of Rule 10A-3 under the U.S. Securities Exchange Act of 1934, including the independence requirements thereunder.
3. A NYSE-listed U.S. company must have a compensation committee composed entirely of independent directors.
Under the Companies Act, we are required to have a compensation committee consisting of at least three directors, and the majority of its members must be outside directors. Further, companies listed on the Prime Market of the Tokyo Stock Exchange, including us, must have the majority of compensation committee members in principle qualify as independent outside directors or publicly disclose the reason for not having such directors on the compensation committee. Currently, our compensation committee consists of five directors, four of whom are independent outside directors.
4. A NYSE-listed U.S. company must have a nominating or corporate governance committee composed entirely of independent directors.
Under the Companies Act, we are required to have a nominating committee consisting of at least three directors, and the majority of its members must be outside directors. Further, companies listed on the Prime Market of the Tokyo Stock Exchange, including us, must have the majority of nominating committee members in principle qualify as independent outside directors or publicly disclose the reason for not having such directors on the nominating committee. Currently, our nominating committee, which we call the nominating and governance committee, consists of five directors, four of whom are independent outside directors.
5. A NYSE-listed U.S. company must obtain shareholder approval with respect to any equity compensation plan.
Under the Companies Act, an equity compensation plan for directors and corporate executives is deemed to be compensation for the services performed by the company’s directors and corporate executives. Our compensation committee establishes the policy with respect to the determination of the individual compensation of our directors and corporate executives, including equity compensation in the form of performance-based stock compensation plan, and determines individual compensation in accordance with the policy. Under the Companies Act, a public company with board audit, compensation and nominating committees seeking to introduce a performance-based stock compensation plan must obtain the approval of its compensation committee, not its shareholders.
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6. A NYSE-listed U.S. company must adopt and disclose Corporate Governance Guidelines and a Code of Business Conduct and Ethics, and it must also disclose any exemptions granted to directors or executives.
Our corporate governance policies, which are called the “MUFG Corporate Governance Policies,” are based on applicable home-country rules, particularly the Tokyo Stock Exchange rules, which require listed companies, such as us, to adopt a corporate governance code setting forth fundamental principles designed to establish an effective corporate governance system or explain in their corporate governance reports the reasons for not adopting such a code. We disclose these policies on our website. The Tokyo Stock Exchange rules regarding corporate governance became stricter for companies listed on the Prime Market, including us, starting in April 2022, including without limitation those discussed in 1, 3 and 4 above.
We have adopted a code of conduct, compliance rules, compliance manual and rules of employment, which meet the definition of “code of ethics” in “Item 16B. Code of Ethics.”
7. A NYSE-listed U.S. company must hold regularly scheduled executive sessions where participants are limited to non-management directors.
Under the Companies Act, Japanese corporations are not obliged to hold executive sessions where participants are limited to non-management directors. Such executive sessions are also not required under our internal corporate governance rules.
Item 16H. Mine Safety Disclosure.
Not Applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections.
Not Applicable.
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PART III
Item 17. Financial Statements.
In lieu of responding to this item, we have responded to Item 18 of this Annual Report.
Item 18. Financial Statements.
Our consolidated financial statements are included in this Annual Report, as required by this item, starting on page F-1.
Pursuant to Rule 3-09 of Regulation S-X, the financial statements and supplementary data of Morgan Stanley, our equity method investee, as of December 31, 2021 and 2022 and for the fiscal years ended December 31, 2020, 2021 and 2022, are incorporated in this Annual Report as Exhibit 99(c) by reference to Morgan Stanley’s annual report on Form 10-K filed on February 24, 2023.
Item 19. Exhibits.
| Exhibit | Description | |||||||
| 1(a) | Articles of Incorporation of Mitsubishi UFJ Financial Group, Inc., as amended on June 29, 2022 (English translation) | |||||||
| 1(b) | Board of Directors Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on June 25, 2015 (English translation)* | |||||||
| 1(c) | Corporation Meetings Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on April 1, 2022 (English translation)** | |||||||
| 1(d) | Share Handling Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on August 2, 2022 (English Translation) | |||||||
| 1(e) | Charter of the Audit Committee of Mitsubishi UFJ Financial Group, Inc., as amended on February 3. 2023 (English translation) | |||||||
| 1(f) | Charter of the Compensation Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)* | |||||||
| 1(g) | Charter of the Nominating and Governance Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)* | |||||||
| 1(h) | Charter of the Risk Committee of Mitsubishi UFJ Financial Group, Inc., as amended on July 1, 2018 (English translation)* | |||||||
| 2(a) | Form of American Depositary Receipt* | |||||||
| 2(b) | Form of Deposit Agreement, amended and restated as of December 22, 2004, among Mitsubishi Tokyo Financial Group, Inc. (subsequently renamed Mitsubishi UFJ Financial Group, Inc.), The Bank of New York Mellon and the holders from time to time of American Depositary Receipts issued thereunder* | |||||||
| 2(c) | Description of Securities*** | |||||||
| 4(a) | Share Purchase Agreement, dated September 21, 2021, among Mitsubishi UFJ Financial Group, Inc., MUFG Americas Holdings Corporation and U.S. Bancorp** | |||||||
| 4(b) | Amendment No. 1 to the Share Purchase Agreement, dated May 10, 2022 | |||||||
| 8 | Subsidiaries of the Company—see “Item 4.C. Information on the Company—Organizational Structure.” | |||||||
| 11 | MUFG Group Code of Conduct, Compliance Rules, Compliance Manual, and Rules of Employment of Mitsubishi UFJ Financial Group, Inc. applicable to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions (English translation of relevant sections) | |||||||
| 12 | Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a)(17 CFR 240.15d-14(a)) | |||||||
| 13 | Certifications required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b)(17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) | |||||||
| 15(a) | Consent of independent registered public accounting firm (Deloitte Touche Tohmatsu LLC) | |||||||
| 15(b) | Consent of independent registered public accounting firm (Deloitte & Touche LLP) | |||||||
| 99(a) | Capitalization and Indebtedness of Mitsubishi UFJ Financial Group, Inc. as of March 31, 2023**** | |||||||
| 99(b) | Unaudited Reverse Reconciliation of Selected Financial Information of Mitsubishi UFJ Financial Group, Inc. as of and for the fiscal year ended March 31, 2023***** | |||||||
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| Exhibit | Description | |||||||
| 99(c) | Financial Statements and Supplementary Data of Morgan Stanley****** | |||||||
| 101.INS | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | The cover page for the Company’s Annual Report on From 20-F for the year ended March 31, 2023, has been formatted in Inline XBRL | |||||||
Notes:
* Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 12, 2018.
** Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 8, 2022.
*** Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 9, 2021.
**** Deemed to be incorporated by reference into the registration statement on Form F-3 (No. 333-242048) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.
***** Deemed to be incorporated as Annex A to the registration statement on Form F-3 (No. 333-242048) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.
****** Incorporated by reference to Morgan Stanley’s annual report on Form 10-K (File No. 001-11758) filed on February 24, 2023.
152
SELECTED STATISTICAL DATA
Due to close integration of our foreign and domestic activities, it is difficult to make a precise determination of the assets, liabilities, income and expenses of our foreign operations. The foreign operations as presented include the business conducted by overseas subsidiaries and branches, and the international business principally conducted by the international banking-related divisions headquartered in Japan. Our management believes that the results appropriately represent our domestic and foreign activities.
A-1
I. Distribution of Assets, Liabilities and Equity; Interest Rates and Interest Differential
Average Balance Sheets, Interest and Average Rates
The following table shows our average balances, interest and average interest rates for the fiscal years ended March 31, 2021, 2022 and 2023. Average balances are generally based on a daily average while a month-end average is used for certain average balances when it is not practicable to obtain applicable daily averages. Average balances in the tables include those relating to the assets and liabilities held for sale of MUFG Union Bank. For more information, see Note 2 to our consolidated financial statements included elsewhere in this Annual Report.
Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Average balance | Interest income | Average rate | Average balance | Interest income | Average rate | Average balance | Interest income | Average rate | |||||||||||||||||||||||||||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning deposits in other banks: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | ¥ | 38,009,750 | ¥ | 33,413 | 0.09 | % | ¥ | 41,455,342 | ¥ | 35,325 | 0.09 | % | ¥ | 36,816,513 | ¥ | 29,336 | 0.08 | % | |||||||||||||||||||||||||||||||||||
| Foreign | 9,905,602 | 23,142 | 0.23 | 12,303,262 | 22,067 | 0.18 | 14,346,858 | 329,718 | 2.30 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 47,915,352 | 56,555 | 0.12 | 53,758,604 | 57,392 | 0.11 | 51,163,371 | 359,054 | 0.70 | ||||||||||||||||||||||||||||||||||||||||||||
| Call loans and funds sold: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 514,946 | 107 | 0.02 | 1,083,472 | 62 | 0.01 | 1,196,362 | 3,677 | 0.31 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 505,869 | 4,614 | 0.91 | 396,886 | 4,356 | 1.10 | 583,746 | 16,177 | 2.77 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 1,020,815 | 4,721 | 0.46 | 1,480,358 | 4,418 | 0.30 | 1,780,108 | 19,854 | 1.12 | ||||||||||||||||||||||||||||||||||||||||||||
| Receivables under resale agreements: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 6,318,701 | (5,121) | (0.08) | 5,112,747 | (4,910) | (0.10) | 5,937,814 | (21,614) | (0.36) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 8,234,923 | 74,175 | 0.90 | 7,263,156 | 24,401 | 0.34 | 7,790,682 | 137,645 | 1.77 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 14,553,624 | 69,054 | 0.47 | 12,375,903 | 19,491 | 0.16 | 13,728,496 | 116,031 | 0.85 | ||||||||||||||||||||||||||||||||||||||||||||
| Receivables under securities borrowing transactions: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 1,938,906 | 1,782 | 0.09 | 1,789,988 | 2,487 | 0.14 | 2,115,629 | 16,330 | 0.77 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 1,153,667 | 7,670 | 0.66 | 1,232,193 | 507 | 0.04 | 1,815,906 | 27,114 | 1.49 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 3,092,573 | 9,452 | 0.31 | 3,022,181 | 2,994 | 0.10 | 3,931,535 | 43,444 | 1.11 | ||||||||||||||||||||||||||||||||||||||||||||
| Trading account assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 9,641,674 | 38,554 | 0.40 | 9,980,365 | 48,607 | 0.49 | 11,245,370 | 57,270 | 0.51 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 22,805,949 | 334,646 | 1.47 | 23,319,951 | 351,578 | 1.51 | 21,076,033 | 494,102 | 2.34 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 32,447,623 | 373,200 | 1.15 | 33,300,316 | 400,185 | 1.20 | 32,321,403 | 551,372 | 1.71 | ||||||||||||||||||||||||||||||||||||||||||||
Investment securities(1): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 43,679,522 | 141,557 | 0.32 | 49,365,484 | 145,586 | 0.29 | 50,504,454 | 165,188 | 0.33 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 8,568,989 | 156,703 | 1.83 | 9,417,502 | 168,910 | 1.79 | 12,603,729 | 382,800 | 3.04 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 52,248,511 | 298,260 | 0.57 | 58,782,986 | 314,496 | 0.54 | 63,108,183 | 547,988 | 0.87 | ||||||||||||||||||||||||||||||||||||||||||||
Loans(2): | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 68,785,326 | 618,678 | 0.90 | 66,686,589 | 598,484 | 0.90 | 68,042,979 | 746,937 | 1.10 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 48,852,657 | 1,322,076 | 2.71 | 46,772,112 | 1,133,478 | 2.42 | 56,942,271 | 2,226,730 | 3.91 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 117,637,983 | 1,940,754 | 1.65 | 113,458,701 | 1,731,962 | 1.53 | 124,985,250 | 2,973,667 | 2.38 | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 168,888,825 | 828,970 | 0.49 | 175,473,987 | 825,641 | 0.47 | 175,859,121 | 997,124 | 0.57 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 100,027,656 | 1,923,026 | 1.92 | 100,705,062 | 1,705,297 | 1.69 | 115,159,225 | 3,614,286 | 3.14 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 268,916,481 | 2,751,996 | 1.02 | 276,179,049 | 2,530,938 | 0.92 | 291,018,346 | 4,611,410 | 1.58 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-interest-earning assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 42,417,354 | 51,911,727 | 54,355,901 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other non-interest-earning assets | 45,669,470 | 43,795,286 | 52,138,693 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses | (1,010,734) | (1,297,725) | (1,361,071) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total non-interest-earning assets | 87,076,090 | 94,409,288 | 105,133,523 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | ¥ | 355,992,571 | ¥ | 370,588,337 | ¥ | 396,151,869 | |||||||||||||||||||||||||||||||||||||||||||||||
A-2
Notes:
(1)Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material.
(2)Average balances on loans outstanding include all nonaccrual loans and loans modified into troubled debt restructurings. The amortized portion of net loan origination fees (costs) is included in interest income on loans, which accounts for an insignificant amount of an adjustment to the yields.
Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Average balance | Interest expense | Average rate | Average balance | Interest expense | Average rate | Average balance | Interest expense | Average rate | |||||||||||||||||||||||||||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | ¥ | 135,662,556 | ¥ | 35,308 | 0.03 | % | ¥ | 142,382,405 | ¥ | 34,432 | 0.02 | % | ¥ | 143,977,238 | ¥ | 100,837 | 0.07 | % | |||||||||||||||||||||||||||||||||||
| Foreign | 47,092,772 | 294,084 | 0.62 | 48,644,527 | 182,159 | 0.37 | 54,856,782 | 1,069,318 | 1.95 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 182,755,328 | 329,392 | 0.18 | 191,026,932 | 216,591 | 0.11 | 198,834,020 | 1,170,155 | 0.59 | ||||||||||||||||||||||||||||||||||||||||||||
| Call money and funds purchased: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 2,054,431 | (536) | (0.03) | 1,756,392 | (259) | (0.01) | 2,876,551 | (238) | (0.01) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 218,895 | 1,641 | 0.75 | 357,691 | 944 | 0.26 | 156,406 | 4,021 | 2.57 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 2,273,326 | 1,105 | 0.05 | 2,114,083 | 685 | 0.03 | 3,032,957 | 3,783 | 0.12 | ||||||||||||||||||||||||||||||||||||||||||||
| Payables under repurchase agreements: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 15,408,367 | 40,346 | 0.26 | 15,565,212 | 20,883 | 0.13 | 20,895,775 | 308,826 | 1.48 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 10,715,710 | 47,998 | 0.45 | 10,153,952 | 6,226 | 0.06 | 10,566,506 | 169,171 | 1.60 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 26,124,077 | 88,344 | 0.34 | 25,719,164 | 27,109 | 0.11 | 31,462,281 | 477,997 | 1.52 | ||||||||||||||||||||||||||||||||||||||||||||
| Payables under securities lending transactions: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 622,100 | (85) | (0.01) | 362,987 | 402 | 0.11 | 451,216 | 486 | 0.11 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 66,076 | 3,249 | 4.92 | 80,008 | 4,066 | 5.08 | 50,939 | 687 | 1.35 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 688,176 | 3,164 | 0.46 | 442,995 | 4,468 | 1.01 | 502,155 | 1,173 | 0.23 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 1,027,741 | (85) | (0.01) | 1,232,999 | (76) | (0.01) | 1,414,564 | (439) | (0.03) | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 3,376,101 | 18,869 | 0.56 | 3,181,684 | 4,980 | 0.16 | 4,863,555 | 130,175 | 2.68 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 4,403,842 | 18,784 | 0.43 | 4,414,683 | 4,904 | 0.11 | 6,278,119 | 129,736 | 2.07 | ||||||||||||||||||||||||||||||||||||||||||||
| Due to trust account, other short-term borrowings and trading account liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 14,997,400 | 26,549 | 0.18 | 18,302,064 | 27,177 | 0.15 | 14,486,918 | 31,123 | 0.21 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 2,833,046 | 27,070 | 0.96 | 3,016,333 | 19,897 | 0.66 | 3,777,939 | 27,939 | 0.74 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 17,830,446 | 53,619 | 0.30 | 21,318,397 | 47,074 | 0.22 | 18,264,857 | 59,062 | 0.32 | ||||||||||||||||||||||||||||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 29,205,636 | 181,679 | 0.62 | 32,236,949 | 194,458 | 0.60 | 34,480,413 | 331,588 | 0.96 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 2,632,097 | 71,815 | 2.73 | 2,486,297 | 65,068 | 2.62 | 2,022,887 | 48,502 | 2.40 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 31,837,733 | 253,494 | 0.80 | 34,723,246 | 259,526 | 0.75 | 36,503,300 | 380,090 | 1.04 | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | 198,978,231 | 283,176 | 0.14 | 211,839,008 | 277,017 | 0.13 | 218,582,675 | 772,183 | 0.35 | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign | 66,934,697 | 464,726 | 0.69 | 67,920,492 | 283,340 | 0.42 | 76,295,014 | 1,449,813 | 1.90 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | 265,912,928 | 747,902 | 0.28 | 279,759,500 | 560,357 | 0.20 | 294,877,689 | 2,221,996 | 0.75 | ||||||||||||||||||||||||||||||||||||||||||||
| Non-interest-bearing liabilities | 74,398,116 | 74,559,613 | 84,973,687 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total equity | 15,681,527 | 16,269,224 | 16,300,493 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and equity | ¥ | 355,992,571 | ¥ | 370,588,337 | ¥ | 396,151,869 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income and interest rate spread | ¥ | 2,004,094 | 0.74 | % | ¥ | 1,970,581 | 0.72 | % | ¥ | 2,389,414 | 0.83 | % | |||||||||||||||||||||||||||||||||||||||||
| Net interest income as a percentage of total interest-earning assets | 0.75 | % | 0.71 | % | 0.82 | % | |||||||||||||||||||||||||||||||||||||||||||||||
The percentage of total average assets attributable to foreign activities was 33.6%, 32.5% and 35.3% respectively, for the fiscal years ended March 31, 2021, 2022 and 2023.
A-3
The percentage of total average liabilities attributable to foreign activities was 33.8%, 32.8% and 35.2%, respectively, for the fiscal years ended March 31, 2021, 2022 and 2023.
Analysis of Net Interest Income
The following table shows changes in our net interest income by changes in volume and by changes in interest rate for the fiscal year ended March 31, 2022 compared to the fiscal year ended March 31, 2021, and the fiscal year ended March 31, 2023 compared to the fiscal year ended March 31, 2022.
Fiscal year ended March 31, 2021 versus fiscal year ended March 31, 2022 | Fiscal year ended March 31, 2022 versus fiscal year ended March 31, 2023 | ||||||||||||||||||||||||||||||||||
Increase (decrease) due to changes in | Net change | Increase (decrease) due to changes in | Net change | ||||||||||||||||||||||||||||||||
Volume(1) | Rate(1) | Volume(1) | Rate(1) | ||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||||||||||||||
| Interest-earning deposits in other banks: | |||||||||||||||||||||||||||||||||||
| Domestic | ¥ | 2,959 | ¥ | (1,047) | ¥ | 1,912 | ¥ | (3,790) | ¥ | (2,199) | ¥ | (5,989) | |||||||||||||||||||||||
| Foreign | 4,938 | (6,013) | (1,075) | 4,265 | 303,386 | 307,651 | |||||||||||||||||||||||||||||
| Total | 7,897 | (7,060) | 837 | 475 | 301,187 | 301,662 | |||||||||||||||||||||||||||||
| Call loans and funds sold: | |||||||||||||||||||||||||||||||||||
| Domestic | 66 | (111) | (45) | 7 | 3,608 | 3,615 | |||||||||||||||||||||||||||||
| Foreign | (1,098) | 840 | (258) | 2,789 | 9,032 | 11,821 | |||||||||||||||||||||||||||||
| Total | (1,032) | 729 | (303) | 2,796 | 12,640 | 15,436 | |||||||||||||||||||||||||||||
| Receivables under resale agreements: | |||||||||||||||||||||||||||||||||||
| Domestic | 1,069 | (858) | 211 | (913) | (15,791) | (16,704) | |||||||||||||||||||||||||||||
| Foreign | (7,884) | (41,890) | (49,774) | 1,899 | 111,345 | 113,244 | |||||||||||||||||||||||||||||
| Total | (6,815) | (42,748) | (49,563) | 986 | 95,554 | 96,540 | |||||||||||||||||||||||||||||
| Receivables under securities borrowing transactions: | |||||||||||||||||||||||||||||||||||
| Domestic | (146) | 851 | 705 | 531 | 13,312 | 13,843 | |||||||||||||||||||||||||||||
| Foreign | 489 | (7,652) | (7,163) | 352 | 26,255 | 26,607 | |||||||||||||||||||||||||||||
| Total | 343 | (6,801) | (6,458) | 883 | 39,567 | 40,450 | |||||||||||||||||||||||||||||
| Trading account assets: | |||||||||||||||||||||||||||||||||||
| Domestic | 1,395 | 8,658 | 10,053 | 6,368 | 2,295 | 8,663 | |||||||||||||||||||||||||||||
| Foreign | 7,635 | 9,297 | 16,932 | (36,604) | 179,128 | 142,524 | |||||||||||||||||||||||||||||
| Total | 9,030 | 17,955 | 26,985 | (30,236) | 181,423 | 151,187 | |||||||||||||||||||||||||||||
Investment securities(2)： | |||||||||||||||||||||||||||||||||||
| Domestic | 17,447 | (13,418) | 4,029 | 3,423 | 16,179 | 19,602 | |||||||||||||||||||||||||||||
| Foreign | 15,267 | (3,060) | 12,207 | 70,141 | 143,749 | 213,890 | |||||||||||||||||||||||||||||
| Total | 32,714 | (16,478) | 16,236 | 73,564 | 159,928 | 233,492 | |||||||||||||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||||||||
| Domestic | (18,839) | (1,355) | (20,194) | 12,400 | 136,053 | 148,453 | |||||||||||||||||||||||||||||
| Foreign | (54,601) | (133,997) | (188,598) | 286,034 | 807,218 | 1,093,252 | |||||||||||||||||||||||||||||
| Total | (73,440) | (135,352) | (208,792) | 298,434 | 943,271 | 1,241,705 | |||||||||||||||||||||||||||||
| Total interest income: | |||||||||||||||||||||||||||||||||||
| Domestic | 3,951 | (7,280) | (3,329) | 18,026 | 153,457 | 171,483 | |||||||||||||||||||||||||||||
| Foreign | (35,254) | (182,475) | (217,729) | 328,876 | 1,580,113 | 1,908,989 | |||||||||||||||||||||||||||||
| Total | ¥ | (31,303) | ¥ | (189,755) | ¥ | (221,058) | ¥ | 346,902 | ¥ | 1,733,570 | ¥ | 2,080,472 | |||||||||||||||||||||||
Notes:
(1)Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.”
(2)Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material.
A-4
Fiscal year ended March 31, 2021 versus fiscal year ended March 31, 2022 | Fiscal year ended March 31, 2022 versus fiscal year ended March 31, 2023 | ||||||||||||||||||||||||||||||||||
Increase (decrease) due to changes in | Net change | Increase (decrease) due to changes in | Net change | ||||||||||||||||||||||||||||||||
Volume(1) | Rate(1) | Volume(1) | Rate(1) | ||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||||||||
| Domestic | ¥ | 1,698 | ¥ | (2,574) | ¥ | (876) | ¥ | 390 | ¥ | 66,015 | ¥ | 66,405 | |||||||||||||||||||||||
| Foreign | 9,395 | (121,320) | (111,925) | 26,146 | 861,013 | 887,159 | |||||||||||||||||||||||||||||
| Total | 11,093 | (123,894) | (112,801) | 26,536 | 927,028 | 953,564 | |||||||||||||||||||||||||||||
| Call money and funds purchased: | |||||||||||||||||||||||||||||||||||
| Domestic | 69 | 208 | 277 | (122) | 143 | 21 | |||||||||||||||||||||||||||||
| Foreign | 708 | (1,405) | (697) | (812) | 3,889 | 3,077 | |||||||||||||||||||||||||||||
| Total | 777 | (1,197) | (420) | (934) | 4,032 | 3,098 | |||||||||||||||||||||||||||||
| Payables under repurchase agreements: | |||||||||||||||||||||||||||||||||||
| Domestic | 407 | (19,870) | (19,463) | 9,520 | 278,423 | 287,943 | |||||||||||||||||||||||||||||
| Foreign | (2,392) | (39,380) | (41,772) | 263 | 162,682 | 162,945 | |||||||||||||||||||||||||||||
| Total | (1,985) | (59,250) | (61,235) | 9,783 | 441,105 | 450,888 | |||||||||||||||||||||||||||||
| Payables under securities lending transactions: | |||||||||||||||||||||||||||||||||||
| Domestic | 21 | 466 | 487 | 95 | (11) | 84 | |||||||||||||||||||||||||||||
| Foreign | 705 | 112 | 817 | (1,118) | (2,261) | (3,379) | |||||||||||||||||||||||||||||
| Total | 726 | 578 | 1,304 | (1,023) | (2,272) | (3,295) | |||||||||||||||||||||||||||||
| Commercial paper: | |||||||||||||||||||||||||||||||||||
| Domestic | (15) | 24 | 9 | (13) | (350) | (363) | |||||||||||||||||||||||||||||
| Foreign | (1,029) | (12,860) | (13,889) | 3,979 | 121,216 | 125,195 | |||||||||||||||||||||||||||||
| Total | (1,044) | (12,836) | (13,880) | 3,966 | 120,866 | 124,832 | |||||||||||||||||||||||||||||
| Due to trust account, other short-term borrowings and trading account liabilities: | |||||||||||||||||||||||||||||||||||
| Domestic | 5,305 | (4,677) | 628 | (6,470) | 10,416 | 3,946 | |||||||||||||||||||||||||||||
| Foreign | 1,657 | (8,830) | (7,173) | 5,435 | 2,607 | 8,042 | |||||||||||||||||||||||||||||
| Total | 6,962 | (13,507) | (6,545) | (1,035) | 13,023 | 11,988 | |||||||||||||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||||||||||||||
| Domestic | 18,414 | (5,635) | 12,779 | 14,376 | 122,754 | 137,130 | |||||||||||||||||||||||||||||
| Foreign | (3,885) | (2,862) | (6,747) | (11,427) | (5,139) | (16,566) | |||||||||||||||||||||||||||||
| Total | 14,529 | (8,497) | 6,032 | 2,949 | 117,615 | 120,564 | |||||||||||||||||||||||||||||
| Total interest expense: | |||||||||||||||||||||||||||||||||||
| Domestic | 25,899 | (32,058) | (6,159) | 17,776 | 477,390 | 495,166 | |||||||||||||||||||||||||||||
| Foreign | 5,159 | (186,545) | (181,386) | 22,466 | 1,144,007 | 1,166,473 | |||||||||||||||||||||||||||||
| Total | ¥ | 31,058 | ¥ | (218,603) | ¥ | (187,545) | ¥ | 40,242 | ¥ | 1,621,397 | ¥ | 1,661,639 | |||||||||||||||||||||||
| Net interest income: | |||||||||||||||||||||||||||||||||||
| Domestic | ¥ | (21,948) | ¥ | 24,778 | ¥ | 2,830 | ¥ | 250 | ¥ | (323,933) | ¥ | (323,683) | |||||||||||||||||||||||
| Foreign | (40,413) | 4,070 | (36,343) | 306,410 | 436,106 | 742,516 | |||||||||||||||||||||||||||||
| Total | ¥ | (62,361) | ¥ | 28,848 | ¥ | (33,513) | ¥ | 306,660 | ¥ | 112,173 | ¥ | 418,833 | |||||||||||||||||||||||
Note:
(1)Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.”
A-5
II. Investments in Debt Securities
The following table presents the book values, maturities and weighted average yields of Available-for-sale debt securities and Held-to-maturity debt securities at March 31, 2023. Weighted average yields are calculated based on amortized cost. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material:
Maturities within one year | Maturities after one year but within five years | Maturities after five years but within ten years | Maturities after ten years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||||||||||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | 20,439,073 | 0.00 | % | ¥ | 2,746,984 | 0.07 | % | ¥ | 478,541 | 0.35 | % | ¥ | 2,382,005 | 0.55 | % | ¥ | 26,046,603 | 0.07 | % | |||||||||||||||||||||||||||||||||||||||
| Japanese prefectural and municipal bonds | 294,617 | 0.27 | 1,627,564 | 0.17 | 837,760 | 0.13 | — | — | 2,759,941 | 0.17 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | 562,166 | 1.92 | 1,725,065 | 2.69 | 635,511 | 3.17 | — | — | 2,922,742 | 2.65 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | 194,127 | 0.47 | 663,968 | 0.59 | 193,721 | 0.49 | 6,345 | 0.58 | 1,058,161 | 0.55 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | — | — | 6,651 | 0.41 | 86,863 | 0.29 | 1,016,740 | 0.21 | 1,110,254 | 0.21 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | 332,953 | 3.01 | 1,050,555 | 2.51 | 46,807 | 0.67 | — | — | 1,430,315 | 2.57 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | 303,714 | 0.40 | 96,221 | 4.41 | 983 | 0.31 | 11,868 | 0.17 | 412,786 | 1.35 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | 22,126,650 | 0.11 | % | ¥ | 7,917,008 | 1.09 | % | ¥ | 2,280,186 | 1.11 | % | ¥ | 3,416,958 | 0.45 | % | ¥ | 35,740,802 | 0.43 | % | |||||||||||||||||||||||||||||||||||||||
| Held-to-maturity debt securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | 602,851 | 0.20 | % | ¥ | 9,458,590 | 0.09 | % | ¥ | 3,778,663 | 0.25 | % | ¥ | 20,353 | 1.02 | % | ¥ | 13,860,457 | 0.14 | % | |||||||||||||||||||||||||||||||||||||||
| Japanese prefectural and municipal bonds | — | — | 448,524 | 0.13 | 696,301 | 0.33 | — | — | 1,144,825 | 0.25 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | — | — | 46,730 | 0.39 | — | — | — | — | 46,730 | 0.39 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage -backed securities | — | — | — | — | — | — | 3,913,346 | 4.53 | 3,913,346 | 4.53 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | — | — | — | — | 1,668,563 | 4.28 | 886,160 | 6.01 | 2,554,723 | 4.88 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | 602,851 | 0.20 | % | ¥ | 9,953,844 | 0.09 | % | ¥ | 6,143,527 | 1.36 | % | ¥ | 4,819,859 | 4.79 | % | ¥ | 21,520,081 | 1.51 | % | |||||||||||||||||||||||||||||||||||||||
A-6
III. Loan Portfolio
The following table shows the maturities of our loan portfolio at March 31, 2023:
| Maturity | |||||||||||||||||||||||||||||
| One year or less | One to five years | Five to 15 years | Over 15 years | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||
| Domestic | ¥ | 26,064,531 | ¥ | 18,692,608 | ¥ | 9,172,398 | ¥ | 1,696,521 | ¥ | 55,626,058 | |||||||||||||||||||
| Foreign | 20,858,775 | 17,069,934 | 3,827,703 | 433,260 | 42,189,672 | ||||||||||||||||||||||||
| Residential | 679,793 | 2,473,756 | 5,227,704 | 4,493,602 | 12,874,855 | ||||||||||||||||||||||||
| Card | 292,296 | 175,354 | 5,192 | — | 472,842 | ||||||||||||||||||||||||
| Krungsri | 2,275,789 | 2,798,337 | 1,765,121 | 943,388 | 7,782,635 | ||||||||||||||||||||||||
| Other | 648,163 | 612,546 | 53,987 | 95,714 | 1,410,410 | ||||||||||||||||||||||||
| Total | ¥ | 50,819,347 | ¥ | 41,822,535 | ¥ | 20,052,105 | ¥ | 7,662,485 | ¥ | 120,356,472 | |||||||||||||||||||
| Unearned income, unamortized premiums—net and deferred loan fees—net | (401,012) | ||||||||||||||||||||||||||||
| Total | ¥ | 119,955,460 | |||||||||||||||||||||||||||
The above loans due after one year which had predetermined interest rates and floating or adjustable interest rates at March 31, 2023 are shown below:
Predetermined rate | Floating or adjustable rate | Total | |||||||||||||||
| (in millions) | |||||||||||||||||
| Commercial | |||||||||||||||||
| Domestic | ¥ | 19,063,208 | ¥ | 10,498,319 | ¥ | 29,561,527 | |||||||||||
| Foreign | 1,085,413 | 20,245,484 | 21,330,897 | ||||||||||||||
| Residential | 2,174,635 | 10,020,427 | 12,195,062 | ||||||||||||||
| Card | 180,546 | — | 180,546 | ||||||||||||||
| Krungsri | 2,907,512 | 2,599,334 | 5,506,846 | ||||||||||||||
| Other | 570,206 | 192,041 | 762,247 | ||||||||||||||
| Total | ¥ | 25,981,520 | ¥ | 43,555,605 | ¥ | 69,537,125 | |||||||||||
A-7
IV. Allowance for Credit Losses
The following table shows an allocation of our allowance for credit losses, credit ratios, and components for ratio calculations at March 31, 2022 and 2023:
| 2022 | ||||||||||||||
| Amount | % of loans in each category to total loans | |||||||||||||
| (in millions, except percentages) | ||||||||||||||
| Commercial | ||||||||||||||
| Domestic | ¥ | 659,601 | 47.63 | % | ||||||||||
| Foreign | 274,485 | 30.83 | ||||||||||||
| Residential | 69,887 | 11.72 | ||||||||||||
| Card | 40,768 | 0.41 | ||||||||||||
| MUAH | 30,365 | 2.48 | ||||||||||||
| Krungsri | 322,386 | 6.01 | ||||||||||||
| Other | 73,209 | 0.92 | ||||||||||||
| Allowance for credit losses Total | ¥ | 1,470,701 | 100.00 | % | ||||||||||
| Loans, net of unearned income, unamortized premiums and deferred loan fees | ¥ | 113,149,393 | ||||||||||||
| Nonaccrual loans | ¥ | 1,192,775 | ||||||||||||
| Allowance for credit losses as a percentage of loans | 1.30% | |||||||||||||
| Nonaccrual loans as a percentage of loans | 1.05% | |||||||||||||
| Allowance for credit losses as a percentage of Nonaccrual loans | 123.30% | |||||||||||||
| 2023 | |||||||||||
| Amount | % of loans in each category to total loans | ||||||||||
| (in millions, except percentages) | |||||||||||
| Commercial | |||||||||||
| Domestic | ¥ | 392,723 | 46.22 | % | |||||||
| Foreign | 326,866 | 35.05 | |||||||||
| Residential | 59,747 | 10.70 | |||||||||
| Card | 42,469 | 0.39 | |||||||||
| Krungsri | 358,031 | 6.47 | |||||||||
| Other | 93,062 | 1.17 | |||||||||
| Allowance for credit losses Total | ¥ | 1,272,898 | 100.00 | % | |||||||
| Loans, net of unearned income, unamortized premiums and deferred loan fees | ¥ | 119,955,460 | |||||||||
| Nonaccrual loans | ¥ | 1,014,338 | |||||||||
| Allowance for credit losses as a percentage of loans | 1.06% | ||||||||||
| Nonaccrual loans as a percentage of loans | 0.85% | ||||||||||
| Allowance for credit losses as a percentage of Nonaccrual loans | 125.49% | ||||||||||
A-8
The following table shows ratio of net charge-offs to average loans outstanding for the fiscal years ended March 31, 2021, 2022 and 2023:
Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||
2021 | 2022 | ||||||||||||||||||||||||||||||||||
| Net charge-offs | Average loans outstanding | Ratio | Net charge-offs | Average loans outstanding | Ratio | ||||||||||||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||||||||
| Domestic | ¥ | 12,059 | ¥ | 54,596,412 | 0.02 | % | ¥ | 24,299 | ¥ | 53,231,613 | 0.05 | % | |||||||||||||||||||||||
| Foreign | 56,583 | 32,307,809 | 0.18 | 21,651 | 30,604,489 | 0.07 | |||||||||||||||||||||||||||||
| Residential | 2,732 | 13,662,900 | 0.02 | 2,107 | 12,967,432 | 0.02 | |||||||||||||||||||||||||||||
| Card | 23,101 | 525,334 | 4.40 | 18,922 | 487,509 | 3.88 | |||||||||||||||||||||||||||||
| MUAH | 36,014 | 9,232,029 | 0.39 | 9,676 | 8,774,764 | 0.11 | |||||||||||||||||||||||||||||
| Krungsri | 69,777 | 6,290,791 | 1.11 | 60,584 | 6,388,121 | 0.95 | |||||||||||||||||||||||||||||
| Other | 45,158 | 1,022,708 | 4.42 | 42,058 | 1,004,773 | 4.19 | |||||||||||||||||||||||||||||
| Total | ¥ | 245,424 | ¥ | 117,637,983 | 0.21 | % | ¥ | 179,297 | ¥ | 113,458,701 | 0.16 | % | |||||||||||||||||||||||
Fiscal years ended March 31, | |||||||||||||||||
2023 | |||||||||||||||||
| Net charge-offs | Average loans outstanding | Ratio | |||||||||||||||
(in millions, except percentages) | |||||||||||||||||
| Commercial | |||||||||||||||||
| Domestic | ¥ | 128,300 | ¥ | 54,556,136 | 0.24 | % | |||||||||||
| Foreign | 11,696 | 41,259,989 | 0.03 | ||||||||||||||
| Residential | 629 | 13,020,801 | 0.00 | ||||||||||||||
| Card | 17,535 | 466,042 | 3.76 | ||||||||||||||
| Krungsri | 70,032 | 7,319,483 | 0.96 | ||||||||||||||
| Other | 31,416 | 8,362,799 | 0.38 | ||||||||||||||
| Total | ¥ | 259,608 | ¥ | 124,985,250 | 0.21 | % | |||||||||||
A-9
V. Deposits
The following table shows the average amount of, and the average rate paid on, the following deposit categories for the fiscal years ended March 31, 2021, 2022 and 2023:
Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||
2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||
Average amount | Average rate | Average amount | Average rate | Average amount | Average rate | ||||||||||||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||||||||||||||
| Domestic offices: | |||||||||||||||||||||||||||||||||||
| Non-interest-bearing demand deposits | ¥ | 29,531,551 | — | % | ¥ | 32,195,640 | — | % | ¥ | 34,108,393 | — | % | |||||||||||||||||||||||
| Interest-bearing demand deposits | 93,175,326 | 0.01 | 100,484,992 | 0.01 | 103,411,286 | 0.06 | |||||||||||||||||||||||||||||
| Deposits at notice | 1,575,097 | 0.00 | 1,666,104 | 0.00 | 1,556,368 | 0.03 | |||||||||||||||||||||||||||||
| Time deposits | 39,404,132 | 0.07 | 38,602,335 | 0.07 | 36,563,214 | 0.11 | |||||||||||||||||||||||||||||
| Certificates of deposit | 1,508,001 | 0.01 | 1,628,974 | 0.01 | 2,446,370 | 0.01 | |||||||||||||||||||||||||||||
| Foreign offices: | |||||||||||||||||||||||||||||||||||
| Non-interest-bearing demand deposits | 5,654,123 | — | 4,627,968 | — | 2,909,735 | — | |||||||||||||||||||||||||||||
| Interest-bearing deposits, principally time deposits and certificates of deposit | 47,092,772 | 0.62 | 48,644,527 | 0.37 | 54,856,782 | 1.95 | |||||||||||||||||||||||||||||
| Total | ¥ | 217,941,002 | ¥ | 227,850,540 | ¥ | 235,852,148 | |||||||||||||||||||||||||||||
Deposits at notice represent interest-bearing demand deposits which require the depositor to give two or more days notice in advance of withdrawal.
The average amounts of total deposits by foreign depositors included in domestic offices for the fiscal years ended March 31, 2021, 2022 and 2023 were ¥720,283 million, ¥757,724 million and ¥945,588 million, respectively.
At March 31, 2022 and 2023, our uninsured deposits were ¥138,119 billion and ¥147,197 billion, respectively. Our uninsured deposits consist of (1) the portion of deposits in domestic offices that are in excess of the limit stipulated by the Deposit Insurance Act in Japan and (2) deposits that are otherwise uninsured (including for example, uninsured account deposits in domestic offices, uninsured account deposits in foreign offices, or the portion of deposits in foreign offices that are in excess of any country-specific insurance fund limit). Under the Deposit Insurance Act in Japan, the maximum amount of protection is ¥10 million per customer within one bank. The ¥10 million maximum applies to all deposits in domestic offices, except for non-interest bearing deposits, which are non-interest bearing deposits redeemable on demand and maintained by depositors primarily in settlement accounts for payment and settlement purposes. Domestic office's deposits in settlement accounts are fully protected without a maximum amount limitation. Certain types of deposits in domestic offices are not covered by the deposit insurance system, such as foreign currency deposits and negotiable certificates of deposit.
At March 31, 2023, (1) the portion of time deposits in domestic offices that are in excess of the limit stipulated by the Deposit Insurance Act in Japan and (2) time deposits that are otherwise uninsured (including for example, uninsured account time deposits in domestic offices, uninsured account time deposits in foreign offices, or the portion of time deposits in foreign offices that are in excess of any country-specific insurance fund limit), by remaining maturity, are shown in the following table:
Portion of time deposits in domestic offices that are in excess of the limit stipulated by the Deposit Insurance Act in Japan | Time deposits that are otherwise uninsured | Total | |||||||||||||||
| (in millions) | |||||||||||||||||
| Three months or less | ¥ | 5,547,682 | ¥ | 25,186,766 | ¥ | 30,734,448 | |||||||||||
| Over three months through six months | 4,071,479 | 5,322,334 | 9,393,813 | ||||||||||||||
| Over six months through twelve months | 9,473,145 | 3,551,711 | 13,024,856 | ||||||||||||||
| Over twelve months | 4,099,389 | 1,014,655 | 5,114,044 | ||||||||||||||
| Total | ¥ | 23,191,695 | ¥ | 35,075,466 | ¥ | 58,267,161 | |||||||||||
A-10
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
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F-1
(This page is intentionally left blank)
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and the Shareholders of
Mitsubishi UFJ Financial Group, Inc.
(Kabushiki Kaisha Mitsubishi UFJ Financial Group)
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Mitsubishi UFJ Financial Group, Inc. (Kabushiki Kaisha Mitsubishi UFJ Financial Group) (“MUFG”) and subsidiaries (together, the “MUFG Group”) as of March 31, 2022 and 2023, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended March 31, 2023, and the related notes (collectively referred to as the “financial statements”) (all expressed in Japanese yen). In our opinion, the financial statements present fairly, in all material respects, the financial position of the MUFG Group as of March 31, 2022 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the MUFG Group’s internal control over financial reporting as of March 31, 2023, based on criteria established in Internal Control—Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 24, 2023, expressed an unqualified opinion on the MUFG Group’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the MUFG Group’s management. Our responsibility is to express an opinion on the MUFG Group’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the MUFG Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-3
Allowance for Credit Losses—Commercial and Krungsri Segments — Macroeconomic Variables in Multiple Economic Forecast Scenarios and Weightings Given to Each Scenario—Refer to Notes 1 and 4 to the Financial Statements
Critical Audit Matter Description
The MUFG Group has banking subsidiaries that engage in lending as one of their core businesses. It maintains an allowance for credit losses, which is an estimate of the credit losses that are expected over the life, or exposure, of the financial instrument. The estimation of the allowance for credit losses involves significant judgments on a number of assumptions, including the assessment of risk characteristics, assignment of a borrower’s internal credit rating, valuation of collateral, expectations of future economic conditions and the development of qualitative adjustments. The MUFG Group divides its loan portfolio into the following segments—Commercial, Residential, Card, Krungsri, and Other—and determines the allowance for credit losses for each segment. At March 31, 2023, the MUFG Group recorded ¥97,815.7 billion and ¥7,782.6 billion of loans in the Commercial segment and the Krungsri segment, respectively, and recorded an allowance for credit losses against these loans of ¥719.6 billion and ¥358.0 billion, respectively.
The allowance for credit losses is estimated using quantitative models that incorporate economic forecast scenarios. These economic forecast scenarios include macroeconomic variables that have historically been correlated with historical credit losses. These variables include, but are not limited to, unemployment rates and gross domestic product. As any one economic forecast scenario is inherently uncertain, multiple economic forecast scenarios were leveraged. The macroeconomic variables in multiple economic forecast scenarios and weightings given to each scenario depend on a variety of factors including recent economic conditions and views of internal as well as third-party economists.
The determination of the allowance for credit losses for the Commercial and the Krungsri segments required management to make significant judgements due to the subjectivity and uncertainty associated with expectations of future economic conditions. Due to the heightened volatility and uncertainty in future economic conditions arising mainly from the prolonged COVID-19 and Russia-Ukraine situation, there was a particularly high degree of uncertainty necessitating subjective judgments to be made by management to determine certain macroeconomic variables in the multiple economic forecast scenarios and the weightings given to each scenario.
Thus, we identified certain macroeconomic variables in the multiple economic forecast scenarios and the weightings given to each scenario, which are used to determine the allowance for credit losses for the Commercial and the Krungsri segments as critical audit matters. Auditing these significant assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists, when performing audit procedures to evaluate the reasonableness of these significant assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to certain macroeconomic variables in the multiple economic forecast scenarios and the weightings given to each scenario used to determine the allowance for credit losses for the Commercial and the Krungsri segments included the following, among others:
•We tested the effectiveness of controls, including the review and approval of certain macroeconomic variables in the multiple economic forecast scenarios, and the review and approval of the weightings given to each scenario.
•We tested the effectiveness of controls over the completeness and accuracy of the key information used in performing the aforementioned controls.
•With the assistance of our credit specialists, we evaluated the reasonableness of certain macroeconomic variables in the multiple economic forecast scenarios, such as unemployment rate and gross domestic product, and the reasonableness of the weightings given to each scenario by comparing to macroeconomic forecasts from available external sources.
F-4
Allowance for Credit Losses—Commercial and Krungsri Segments — Qualitative Adjustments—Refer to Notes 1 and 4 to the Financial Statements
Critical Audit Matter Description
The allowance for credit losses includes qualitative adjustments to cover losses that are expected but were not reflected in the modeled allowance.
The determination of the allowance for credit losses for the Commercial and Krungsri segments required management to make significant judgements due to the subjectivity and uncertainty associated with the development of qualitative adjustments. There was a particularly high degree of uncertainty necessitating subjective judgments to be made by management to develop certain qualitative adjustments to capture the heightened volatility and uncertainty in the economy and events primarily due to the prolonged COVID-19 and Russia-Ukraine situation.
Thus, we identified certain qualitative adjustments included in the allowance for credit losses for the Commercial and Krungsri segments as a critical audit matter. Auditing these significant assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists, when performing audit procedures to evaluate the reasonableness of these significant assumptions.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to certain qualitative adjustments included in the allowance for credit losses for the Commercial and Krungsri segments included the following, among others:
•We tested the effectiveness of controls, including the review and approval of the quantitative models and methodologies, and the review and approval of certain qualitative adjustments to modeled results.
•We tested the effectiveness of controls over the completeness and accuracy of the key information used in performing the aforementioned controls.
•With the assistance of our credit specialists, we evaluated the appropriateness of the quantitative models and methodologies by assessing the conceptual soundness and model performance by inspecting model documentation as well as reperforming model performance testing to determine whether the models operated as intended.
•With the assistance of credit specialists, we evaluated the reasonableness of the use of qualitative adjustments to modeled results and tested significant judgments applied by management by comparing management’s results to available relevant external information.
Allowance for Credit Losses—Commercial Segment—Internal Credit Rating—Refer to Notes 1 and 4 to the Financial Statements
Critical Audit Matter Description
The determination of the allowance for credit losses for the Commercial segment required management to make significant judgments due to the subjectivity and uncertainty associated with the determination of a borrower’s internal credit rating, which were highly dependent on the estimation of a borrower’s performance and business sustainability, particularly in cases in which borrowers were experiencing weaknesses in their business performance. When these borrowers’ performance and business sustainability were affected by changes in the external and internal business environment, including the prolonged COVID-19 and Russia-Ukraine situation, there was a particularly high degree of uncertainty necessitating subjective judgments to be made by management to determine the borrowers’ internal credit rating.
Thus, for particular borrowers heavily impacted by the prolonged COVID-19 and Russia-Ukraine situation, we identified the internal credit rating used to determine the allowance for credit losses for the Commercial segment as a critical audit matter. Auditing the borrowers’ internal credit rating required a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists, when performing audit procedures to evaluate the reasonableness of these significant assumptions.
F-5
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the internal credit rating for particular borrowers used to determine the allowance for credit losses for the Commercial segment included the following, among others:
•We tested the effectiveness of controls, including the review and approval of the borrowers’ internal credit rating.
•We tested the effectiveness of controls over the completeness and accuracy of the key information used in performing the aforementioned controls, including the borrowers’ underlying information.
•With the assistance of our credit specialists, we tested significant judgments applied by management to determine the internal credit rating and the appropriateness of the borrowers’ underlying information by comparing them with available relevant external information.
/s/Deloitte Touche Tohmatsu LLC
July 24, 2023
We have served as the MUFG Group’s auditor since 1976.
F-6
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2022 AND 2023
| (in millions) | 2022 | 2023 | ||||||||||||
| ASSETS | ||||||||||||||
| Cash and due from banks (Note 9) | ¥ | ¥ | ||||||||||||
| Interest-earning deposits in other banks (Note 9) | ||||||||||||||
| Cash, due from banks and interest-earning deposits in other banks | ||||||||||||||
| Call loans and funds sold | ||||||||||||||
| Receivables under resale agreements (Note 15) | ||||||||||||||
| Receivables under securities borrowing transactions (Note 15) | ||||||||||||||
Trading account assets (including assets pledged that secured parties are permitted to sell or repledge of ¥ | ||||||||||||||
| Investment securities (Notes 3, 9 and 31): | ||||||||||||||
Available-for-sale debt securities (including assets pledged that secured parties are permitted to sell or repledge of ¥ | ||||||||||||||
Held-to-maturity debt securities (including assets pledged that secured parties are permitted to sell or repledge of ¥ | ||||||||||||||
Equity securities (including assets pledged that secured parties are permitted to sell or repledge of ¥ | ||||||||||||||
| Total investment securities | ||||||||||||||
Loans, net of unearned income, unamortized premiums and deferred loan fees (including assets pledged that secured parties are permitted to sell or repledge of ¥ | ||||||||||||||
| Allowance for credit losses (Note 4) | ( | ( | ||||||||||||
| Net loans | ||||||||||||||
| Premises and equipment—net (Notes 5 and 7) | ||||||||||||||
| Customers’ acceptance liability | ||||||||||||||
| Intangible assets—net (Notes 2 and 6) | ||||||||||||||
| Goodwill (Notes 2 and 6) | ||||||||||||||
Other assets (including assets held for sale relating to transferred business of MUFG Union Bank of ¥ | ||||||||||||||
| Total assets | ¥ | ¥ | ||||||||||||
Assets of consolidated VIEs included in total assets above that can be used only to settle obligations of consolidated VIEs (Note 25) | ||||||||||||||
| Cash and due from banks | ¥ | ¥ | ||||||||||||
| Interest-earning deposits in other banks | ||||||||||||||
| Trading account assets | ||||||||||||||
| Investment securities | ||||||||||||||
| Loans | ||||||||||||||
| All other assets | ||||||||||||||
| Total assets of consolidated VIEs | ¥ | ¥ | ||||||||||||
F-7
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS—(Continued)
AS OF MARCH 31, 2022 AND 2023
| (in millions, except shares) | 2022 | 2023 | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Deposits (Notes 9 and 10): | ||||||||||||||
| Domestic offices: | ||||||||||||||
| Non-interest-bearing | ¥ | ¥ | ||||||||||||
| Interest-bearing | ||||||||||||||
| Overseas offices: | ||||||||||||||
| Non-interest-bearing | ||||||||||||||
| Interest-bearing | ||||||||||||||
| Total deposits | ||||||||||||||
| Call money and funds purchased (Notes 9 and 11) | ||||||||||||||
| Payables under repurchase agreements (Notes 9, 15 and 16) | ||||||||||||||
| Payables under securities lending transactions (Notes 9, 15 and 16) | ||||||||||||||
Due to trust account and other short-term borrowings (including ¥ | ||||||||||||||
| Trading account liabilities (Notes 15, 23 and 31) | ||||||||||||||
| Bank acceptances outstanding | ||||||||||||||
Long-term debt (including ¥ | ||||||||||||||
Other liabilities (including liabilities held for sale relating to transferred business of MUFG Union Bank of ¥ | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingent liabilities (Notes 24 and 26) | ||||||||||||||
| Mitsubishi UFJ Financial Group shareholders’ equity: | ||||||||||||||
Capital stock (Notes 17 and 18)—common stock authorized, | ||||||||||||||
| Capital surplus (Note 18) | ||||||||||||||
| Retained earnings (Notes 19 and 33): | ||||||||||||||
| Appropriated for legal reserve | ||||||||||||||
| Unappropriated retained earnings | ||||||||||||||
| Accumulated other comprehensive income, net of taxes (Note 20) | ||||||||||||||
Treasury stock, at cost— | ( | ( | ||||||||||||
| Total Mitsubishi UFJ Financial Group shareholders’ equity | ||||||||||||||
| Noncontrolling interests | ||||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | ¥ | ¥ | ||||||||||||
Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of Mitsubishi UFJ Financial Group (Note 25) | ||||||||||||||
| Other short-term borrowings | ¥ | ¥ | ||||||||||||
| Long-term debt | ||||||||||||||
| All other liabilities | ||||||||||||||
| Total liabilities of consolidated VIEs | ¥ | ¥ | ||||||||||||
F-8
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED MARCH 31, 2021, 2022 AND 2023
| (in millions) | 2021 | 2022 | 2023 | |||||||||||||||||
| Interest income: | ||||||||||||||||||||
| Loans, including fees (Note 4) | ¥ | ¥ | ¥ | |||||||||||||||||
| Deposits in other banks | ||||||||||||||||||||
| Investment securities: | ||||||||||||||||||||
| Interest | ||||||||||||||||||||
| Dividends | ||||||||||||||||||||
| Trading account assets | ||||||||||||||||||||
| Call loans and funds sold | ||||||||||||||||||||
| Receivables under resale agreements and securities borrowing transactions | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Interest expense: | ||||||||||||||||||||
| Deposits | ||||||||||||||||||||
| Call money and funds purchased | ||||||||||||||||||||
| Payables under repurchase agreements and securities lending transactions | ||||||||||||||||||||
| Due to trust account, other short-term borrowings and trading account liabilities | ||||||||||||||||||||
| Long-term debt | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Net interest income | ||||||||||||||||||||
Provision for credit losses (Note 4) | ||||||||||||||||||||
| Net interest income after provision for credit losses | ||||||||||||||||||||
| Non-interest income: | ||||||||||||||||||||
| Fees and commissions income (Note 27) | ||||||||||||||||||||
| Foreign exchange gains—net (Note 28) | ||||||||||||||||||||
| Trading account losses—net (Notes 28 and 31) | ( | ( | ( | |||||||||||||||||
| Investment securities gains (losses)—net (Note 3) | ( | ( | ||||||||||||||||||
| Equity in earnings of equity method investees—net (Note 14) | ||||||||||||||||||||
| Gains (losses) on sales of loans including valuation adjustment for loans held for sale (Note 4) | ( | |||||||||||||||||||
| Gain on sale of MUFG Union Bank (Note 2) | ||||||||||||||||||||
| Other non-interest income | ||||||||||||||||||||
| Total | ||||||||||||||||||||
| Non-interest expense: | ||||||||||||||||||||
| Salaries and employee benefits (Note 13) | ||||||||||||||||||||
| Occupancy expenses—net (Notes 5 and 26) | ||||||||||||||||||||
| Fees and commissions expenses | ||||||||||||||||||||
| Outsourcing expenses, including data processing | ||||||||||||||||||||
| Depreciation of premises and equipment (Note 5) | ||||||||||||||||||||
| Amortization of intangible assets (Note 6) | ||||||||||||||||||||
| Impairment of intangible assets (Note 6) | ||||||||||||||||||||
| Insurance premiums, including deposit insurance | ||||||||||||||||||||
| Communications | ||||||||||||||||||||
| Taxes and public charges | ||||||||||||||||||||
| Impairment of goodwill (Note 6) | ||||||||||||||||||||
| Provision for (reversal of) off-balance sheet credit instruments | ( | |||||||||||||||||||
| Impairment (reversal of impairment) of assets held for sale (Note 2) | ( | |||||||||||||||||||
| Loss on valuation adjustment for loans held for sale held by MUFG Union Bank (Note 2) | ||||||||||||||||||||
| Other non-interest expenses (Notes 5 and 26) | ||||||||||||||||||||
| Total | ||||||||||||||||||||
F-9
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2021, 2022AND 2023
| (in millions, except per share amount) | 2021 | 2022 | 2023 | |||||||||||||||||
| Income (loss) before income tax expense (benefit) | ( | |||||||||||||||||||
Income tax expense (benefit) (Note 8) | ( | |||||||||||||||||||
| Net income (loss) before attribution of noncontrolling interests | ( | |||||||||||||||||||
| Net income attributable to noncontrolling interests | ||||||||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ¥ | ¥ | ( | ¥ | ||||||||||||||||
| Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group | ¥ | ¥ | ( | ¥ | ||||||||||||||||
Earnings (loss) per common share applicable to common shareholders of Mitsubishi UFJ Financial Group (Notes 19 and 22): | ||||||||||||||||||||
| Basic earnings (loss) per common share—Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group | ¥ | ¥ | ( | ¥ | ||||||||||||||||
| Diluted earnings (loss) per common share—Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group | ( | |||||||||||||||||||
| Cash dividend per common share | ||||||||||||||||||||
| Weighted average common shares outstanding | ||||||||||||||||||||
| Weighted average diluted common shares outstanding | ||||||||||||||||||||
See the accompanying notes to Consolidated Financial Statements.
F-10
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE FISCAL YEARS ENDED MARCH 31, 2021, 2022 AND 2023
| (in millions) | 2021 | 2022 | 2023 | |||||||||||||||||
| Net income (loss) before attribution of noncontrolling interests | ¥ | ¥ | ( | ¥ | ||||||||||||||||
Other comprehensive income, net of tax (Note 20): | ||||||||||||||||||||
| Net unrealized losses on investment securities | ( | ( | ( | |||||||||||||||||
| Net debt valuation adjustments | ( | |||||||||||||||||||
| Net unrealized gains (losses) on derivatives qualifying for cash flow hedges | ( | |||||||||||||||||||
| Defined benefit plans (Note 13) | ||||||||||||||||||||
| Foreign currency translation adjustments | ( | |||||||||||||||||||
| Total | ||||||||||||||||||||
| Comprehensive income | ||||||||||||||||||||
| Net income attributable to noncontrolling interests | ||||||||||||||||||||
| Other comprehensive income (loss) attributable to noncontrolling interests | ( | |||||||||||||||||||
| Comprehensive income attributable to Mitsubishi UFJ Financial Group | ¥ | ¥ | ¥ | |||||||||||||||||
See the accompanying notes to Consolidated Financial Statements.
F-11
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 2021, 2022 AND 2023
| (in millions, except per share amount) | 2021 | 2022 | 2023 | |||||||||||||||||
Capital stock (Notes 17 and 18): | ||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
Capital surplus (Note 18): | ||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
| Stock-based compensation | ( | |||||||||||||||||||
| Retirement of common stock | ( | ( | ||||||||||||||||||
| Other—net | ( | ( | ( | |||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
Retained earnings appropriated for legal reserve (Note 19): | ||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
Unappropriated retained earnings (Note 19): | ||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ( | |||||||||||||||||||
| Cash dividends: | ||||||||||||||||||||
Common stock—¥ | ( | ( | ( | |||||||||||||||||
| Losses on sales of shares of treasury stock | ( | |||||||||||||||||||
| Effect of adopting new guidance on measurement of credit losses on financial instruments | ( | |||||||||||||||||||
| Elimination of the difference in reporting periods of the transferred business (Note 2) | ( | |||||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
F-12
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2021, 2022 AND 2023
| (in millions) | 2021 | 2022 | 2023 | |||||||||||||||||
| Accumulated other comprehensive income (loss), net of taxes: | ||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ( | ¥ | ( | ¥ | |||||||||||||||
| Net change during the fiscal year | ||||||||||||||||||||
| Effect of adopting new guidance on measurement of credit losses on financial instruments | ||||||||||||||||||||
Elimination of the difference in reporting periods of the transferred business (Note 2) | ( | |||||||||||||||||||
| Balance at end of fiscal year | ¥ | ( | ¥ | ¥ | ||||||||||||||||
| Treasury stock, at cost: | ||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ( | ¥ | ( | ¥ | ( | ||||||||||||||
| Purchases of shares of treasury stock (Note 18) | ( | ( | ( | |||||||||||||||||
| Sales of shares of treasury stock | ||||||||||||||||||||
| Retirement of common stock | ||||||||||||||||||||
| Net decrease (increase) resulting from changes in interests in consolidated subsidiaries, consolidated VIEs, and affiliated companies | ( | ( | ||||||||||||||||||
| Balance at end of fiscal year | ¥ | ( | ¥ | ( | ¥ | ( | ||||||||||||||
| Total Mitsubishi UFJ Financial Group shareholders’ equity | ¥ | ¥ | ¥ | |||||||||||||||||
| Noncontrolling interests: | ||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
| Initial subscriptions of noncontrolling interests | ||||||||||||||||||||
| Transactions between the consolidated subsidiaries and the related noncontrolling interest shareholders | ( | ( | ||||||||||||||||||
| Decrease in noncontrolling interests related to deconsolidation of subsidiaries | ( | ( | ( | |||||||||||||||||
| Decrease in noncontrolling interests related to disposition of subsidiaries | ( | ( | ( | |||||||||||||||||
| Net income attributable to noncontrolling interests | ||||||||||||||||||||
| Dividends paid to noncontrolling interests | ( | ( | ( | |||||||||||||||||
| Other comprehensive income (loss), net of taxes | ( | |||||||||||||||||||
| Effect of adopting new guidance on measurement of credit losses on financial instruments | ( | |||||||||||||||||||
| Other—net | ( | ( | ||||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
| Total equity | ¥ | ¥ | ¥ | |||||||||||||||||
See the accompanying notes to Consolidated Financial Statements.
F-13
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 2021, 2022 AND 2023
| (in millions) | 2021 | 2022 | 2023 | |||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income (loss) before attribution of noncontrolling interests | ¥ | ¥ | ( | ¥ | ||||||||||||||||
| Adjustments to reconcile net income before attribution of noncontrolling interests to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization (Notes 5 and 6) | ||||||||||||||||||||
| Impairment of goodwill (Note 6) | ||||||||||||||||||||
| Impairment of intangible assets (Note 6) | ||||||||||||||||||||
| Gain on sale of MUFG Union Bank (Note 2) | ( | |||||||||||||||||||
| Impairment (reversal of impairment) of assets held for sale (Note 2) | ( | |||||||||||||||||||
| Loss on valuation adjustment for loans held for sale held by MUFG Union Bank (Note 2) | ||||||||||||||||||||
| Provision for credit losses (Note 4) | ||||||||||||||||||||
| Employee benefit cost (income) for severance indemnities and pension plans (Note 13) | ( | |||||||||||||||||||
| Investment securities (gains) losses—net | ( | |||||||||||||||||||
| Amortization of premiums on investment securities | ||||||||||||||||||||
| Changes in financial instruments measured at fair value under fair value option, excluding trading account securities—net (Note 31) | ( | ( | ||||||||||||||||||
| Foreign exchange gains—net | ( | ( | ( | |||||||||||||||||
| Equity in earnings of equity method investees—net | ( | ( | ( | |||||||||||||||||
| Provision (benefit) for deferred income tax expense | ( | ( | ||||||||||||||||||
| Decrease (increase) in trading account assets, excluding foreign exchange contracts | ( | |||||||||||||||||||
| Increase (decrease) in trading account liabilities, excluding foreign exchange contracts | ( | ( | ||||||||||||||||||
| Net decrease (increase) in collateral for derivative transactions | ( | ( | ||||||||||||||||||
| Net decrease (increase) in margin for listed derivative transactions | ( | ( | ||||||||||||||||||
| Decrease (increase) in cash collateral for the use of the Bank of Japan’s settlement infrastructure | ( | |||||||||||||||||||
| Net increase in loans held for sale in the business transferred to U.S. Bancorp (Note 2) | ( | |||||||||||||||||||
| Other—net | ( | |||||||||||||||||||
| Net cash provided by (used in) operating activities | ( | |||||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Proceeds from sales of Available-for-sale debt securities (including proceeds from debt securities under the fair value option) (Note 3) | ||||||||||||||||||||
| Proceeds from maturities of Available-for-sale debt securities (including proceeds from debt securities under the fair value option) (Note 3) | ||||||||||||||||||||
| Purchases of Available-for-sale debt securities (including purchases of debt securities under the fair value option) (Note 3) | ( | ( | ( | |||||||||||||||||
| Proceeds from maturities of Held-to-maturity debt securities | ||||||||||||||||||||
| Purchases of Held-to-maturity debt securities | ( | ( | ( | |||||||||||||||||
| Proceeds from sales and redemption of Equity securities (including proceeds from equity securities under the fair value option) | ||||||||||||||||||||
| Purchases of Equity securities (including purchases of equity securities under the fair value option) | ( | ( | ( | |||||||||||||||||
| Net decrease in cash from sale of MUB | ( | |||||||||||||||||||
| Net cash paid for dispositions of certain business of MUAH | ( | |||||||||||||||||||
| Net decrease (increase) in loans | ( | |||||||||||||||||||
| Net decrease (increase) in call loans, funds sold, and receivables under resale agreements and securities borrowing transactions | ( | |||||||||||||||||||
| Proceeds from sales of premises and equipment | ||||||||||||||||||||
| Capital expenditures for premises and equipment | ( | ( | ( | |||||||||||||||||
| Purchases of intangible assets | ( | ( | ( | |||||||||||||||||
| Proceeds from sales and dispositions of investments in equity method investees | ||||||||||||||||||||
| Proceeds from sales of consolidated VIEs and subsidiaries—net | ||||||||||||||||||||
| Other—net | ( | ( | ( | |||||||||||||||||
| Net cash provided by (used in) investing activities | ( | |||||||||||||||||||
F-14
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2021, 2022 AND 2023
| (in millions) | 2021 | 2022 | 2023 | |||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Net increase in deposits | ||||||||||||||||||||
| Net increase (decrease) in call money, funds purchased, and payables under repurchase agreements and securities lending transactions | ( | |||||||||||||||||||
| Net increase (decrease) in due to trust account and other short-term borrowings | ( | ( | ||||||||||||||||||
| Proceeds from issuance of long-term debt | ||||||||||||||||||||
| Repayments of long-term debt | ( | ( | ( | |||||||||||||||||
| Proceeds from sales of treasury stock | ||||||||||||||||||||
| Payments for acquisition of treasury stock (Note 18) | ( | ( | ( | |||||||||||||||||
| Dividends paid | ( | ( | ( | |||||||||||||||||
| Dividends paid by subsidiaries to noncontrolling interests | ( | ( | ( | |||||||||||||||||
| Other—net | ( | ( | ||||||||||||||||||
| Net cash provided by financing activities | ||||||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||||||||||||||
| Net increase in cash and cash equivalents | ||||||||||||||||||||
| Cash and cash equivalents at beginning of fiscal year | ||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||
| Cash, due from banks and interest-earning deposits in other banks | ||||||||||||||||||||
| Restricted cash included in other assets | ||||||||||||||||||||
| Cash and cash equivalents classified as assets held for sale included in other assets (Note 2) | ||||||||||||||||||||
| Cash and cash equivalents at end of fiscal year | ¥ | ¥ | ¥ | |||||||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||||||||||
| Cash paid during the fiscal year for: | ||||||||||||||||||||
| Interest | ¥ | ¥ | ¥ | |||||||||||||||||
| Income taxes, net of refunds | ||||||||||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||||||||
| Assets acquired under finance lease arrangements (Note 7) | ||||||||||||||||||||
| Assets acquired under operating lease arrangements (Note 7) | ||||||||||||||||||||
| Reclassification of assets and liabilities in transferred business of MUFG Union Bank to assets and liabilities held for sale (Note 2) | ||||||||||||||||||||
| Assets reclassified, excluding cash and cash equivalents | ||||||||||||||||||||
| Liabilities reclassified | ||||||||||||||||||||
| Dispositions of certain business of MUAH | ||||||||||||||||||||
| Assets transferred, excluding cash and cash equivalents | — | — | ||||||||||||||||||
| Liabilities transferred | — | — | ||||||||||||||||||
| Sale of MUFG Union Bank (Note 2) | ||||||||||||||||||||
| Assets sold, excluding cash and cash equivalents | — | — | ||||||||||||||||||
| Liabilities sold | — | — | ||||||||||||||||||
| Shares of U.S. Bancorp common stock received | — | — | ||||||||||||||||||
| Non-interest bearing note receivable from U.S. Bancorp | — | — | ||||||||||||||||||
F-15
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statements
The accompanying consolidated financial statements are presented in Japanese yen, the currency of the country in which MUFG is incorporated and principally operates. The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”). In certain respects, the accompanying consolidated financial statements reflect adjustments to conform with U.S. GAAP and therefore are not included in the consolidated financial statements issued by MUFG in accordance with accounting principles generally accepted in Japan (“Japanese GAAP”) and certain of its subsidiaries in accordance with the corresponding applicable statutory requirements and accounting practices in their respective countries of incorporation. The major adjustments include those relating to (1) investment securities, (2) derivative financial instruments, (3) allowance for credit losses, (4) income taxes, (5) consolidation, (6) premises and equipment, (7) transfer of financial assets, (8) accrued severance indemnities and pension liabilities, (9) goodwill and other intangible assets and (10) lease transactions.
Summary of Significant Accounting Policies
Significant accounting policies applied in the accompanying consolidated financial statements are summarized below:
F-16
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
length of time and the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the investees, and the intent and ability to retain its investment in the investees for a period of time sufficient to allow for any anticipated recovery in the fair value. The MUFG Group also evaluates additional factors, such as the condition and trend of the economic cycle, and trends in the general market.
The MUFG Group consolidates VIEs if it has the power to direct the activities of a VIE which most significantly impact the VIE’s economic performance and has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. To assess whether a VIE should be consolidated or not, the MUFG Group considers all factors, such as the purpose and design of the VIE, contractual arrangements, and the MUFG Group’s involvement in both the establishment of the VIE and day-to-day activities of the VIE. The MUFG Group considers a right to make the most significant decisions affecting a VIE to determine whether it is deemed to have the power to direct the activities of the VIE. Furthermore, the MUFG Group considers its economic interests in the VIE, including investments in debt or equity instruments issued by the VIE, liquidity and credit enhancement, and guarantees to determine whether such interests are potentially significant to the VIE or not.
Translation of Foreign Currency Financial Statements and Foreign Currency Transactions—Financial statements of overseas entities are translated into Japanese yen using the respective fiscal year-end exchange rates for assets and liabilities. Income and expense items are translated at average rates of exchange for the respective fiscal years.
Foreign currency translation gains and losses related to the financial statements of overseas entities of the MUFG Group, net of related income tax effects, are credited or charged directly to Foreign currency translation adjustments, a component of Accumulated other comprehensive income (“Accumulated OCI”). Tax effects of gains and losses on foreign currency translation of the financial statements of overseas entities are not recognized unless it is apparent that the temporary differences will reverse in the foreseeable future.
F-17
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Investment Securities—Debt securities for which the MUFG Group has both the ability and positive intent to hold to maturity are classified as Held-to-maturity debt securities and are carried at amortized cost. Debt securities that the MUFG Group may not hold to maturity other than those classified as Trading account securities, are classified as Available-for-sale debt securities, and are carried at their fair values, with unrealized gains and losses reported on a net-of-tax basis within Accumulated OCI, which is a component of equity. Available-for-sale debt securities are considered to be impaired if the fair value is less than the amortized cost basis. An impairment loss is recognized in earnings for a security if the MUFG Group has intent to sell such a debt security or if it is more likely than not the MUFG Group will be required to sell such a debt security before recovery of its amortized cost basis. If not, the credit component of an impairment loss is recognized in earnings by recording an allowance for credit losses, limited by the amount of impairment loss. However, the noncredit component of an impairment loss is recognized in Accumulated OCI. In determining whether a credit loss exists, the MUFG Group generally considers factors such as the financial condition of the issuer and the extent of decline in fair value. For Held-to-maturity debt securities, an allowance for expected credit losses over the remaining expected life is required to be provided.
Equity securities include marketable equity investment securities and nonmarketable equity investment securities. Marketable equity investment securities are measured at fair value with unrealized gains or losses reflected in net income. Nonmarketable equity investment securities are primarily measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes. Nonmarketable equity investment securities held by subsidiaries that are investment companies or brokers and dealers, are subject to the specialized industry accounting principles for investment companies and brokers and dealers. Securities of those subsidiaries are carried at their fair values.
Derivative Financial Instruments—The MUFG Group engages in derivative activities involving swaps, forwards, futures, options, and other types of derivative contracts. Derivatives are used in trading activities to generate trading revenues and fee income for its own account and to respond to customers’ financial needs. Derivatives are also used to manage counterparty credit risk and market risk exposures to fluctuations in interest and foreign exchange rates, equity and commodity prices.
Derivatives entered into for trading purposes are carried at fair value and are reported as Trading account assets or Trading account liabilities, as appropriate. The fair values of derivative contracts executed with the same counterparty under legally enforceable master netting agreements are presented on a gross basis. Changes in the fair value of such contracts are recognized currently in Foreign exchange gains (losses)—net with respect to foreign exchange contracts and in Trading account profits (losses)—net with respect to interest rate contracts and other types of contracts.
Embedded features that are not clearly and closely related to the host contracts and meet the definition of derivatives are separated from the host contracts and measured at fair value unless the contracts embedding the derivatives are measured at fair value in their entirety.
F-18
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Loans—Loans originated by the MUFG Group (“originated loans”) are carried at the principal amount outstanding, adjusted for unearned income and deferred net nonrefundable loan fees and costs. Originated loans held and intended for dispositions or sale in secondary markets are transferred to the held-for-sale classification and carried at the lower of cost or estimated fair value generally on an individual loan basis. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the loan as an adjustment to yield using a method that approximates the interest method.
The MUFG Group classifies its loan portfolio into the following portfolio segments—Commercial, Residential, Card, MUFG Americas Holdings Corporation (“MUFG Americas Holdings” or “MUAH”), Bank of Ayudhya Public Company Limited (“Krungsri”), and Other based on the grouping used by the MUFG Group to determine the allowance for credit losses. The MUFG Group further classifies the Commercial segment into classes based on initial measurement attributes, risk characteristics, and its method of monitoring and assessing credit risk. The MUFG Americas Holdings segment was eliminated due to the transfer of the MUFG Union Bank shares to U.S. Bancorp and the internal reorganization within the MUFG Group. Please refer to Note 2 and Note 4 for further information of the transfer.
Past due status is determined based on the contractual terms of the loan and the actual number of days since the date the last payment was made.
Originated loans are generally placed on nonaccrual status when substantial doubt exists as to the full and timely collection of either principal or interest, specifically when principal or interest is contractually past due one month or more with respect to loans within all classes of the Commercial segment, three months six months or more with respect to loans within the Residential segment. A nonaccrual loan may be restored to an accrual status when interest and principal payments become current and management expects that the borrower will make future contractual payments as scheduled. When a loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income. Cash receipts on nonaccrual loans, for which the ultimate collectibility of principal is uncertain, are applied as principal reductions; otherwise, such collections are credited to income.
The MUFG Group modifies certain loans in conjunction with its loss-mitigation activities. Through these modifications, concessions are granted to a borrower who is experiencing financial difficulty, generally in order to minimize economic loss, to avoid foreclosure or repossession of collateral, and to ultimately maximize payments received from the borrower. The concessions granted vary by portfolio segment, by program, and by borrower-specific characteristics, and may include interest rate reductions, term extensions, payment deferrals, and partial principal forgiveness. Loan modifications that represent concessions made to borrowers who are experiencing financial difficulties are identified as troubled debt restructurings (“TDRs”).
Allowance for Credit Losses (Loans)—The MUFG Group maintains an allowance for credit losses, which is a valuation account that is deducted from the amortized cost basis of the loans to present the net amount expected to be collected on the loans. The amount necessary to adjust the allowance for credit losses for management’s current estimate of expected credit losses on loans is reported in net income as a credit loss expense.
Actual credit losses (amounts deemed uncollectible, in whole or in part), net of recoveries, are generally determined based on detailed loan reviews and a credit assessment by management at each balance sheet date and are deducted from the allowance for credit losses as net charge-offs. The MUFG Group generally applies its charge-off policy to all loans in its portfolio regardless of the type of borrower. Management believes that the provision for credit losses is adequate.
Key elements relating to the policies and discipline used in determining the allowance for credit losses are credit classification and the related borrower categorization process. The categorization is based on conditions that may affect the ability of borrowers to
F-19
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
service their debt, taking into consideration current financial information, historical payment experience, credit documentation, public information, analyses of relevant industry segments and existing economic conditions. In determining the appropriate level of the allowance, the MUFG Group evaluates the probable loss by collateral value, historical loss experience, probability of insolvency and category of loan based on its type and characteristics.
For the allowance methodology, the MUFG Group uses quantitative models that incorporate economic forecast scenarios. These economic forecast scenarios include macroeconomic variables that have historically been correlated with historical credit losses. These variables include, but are not limited to, unemployment rates and gross domestic product. As any one economic forecast scenario is inherently uncertain, multiple economic forecast scenarios were leveraged. The macroeconomic variables in multiple economic forecast scenarios and weightings given to each scenario depend on a variety of factors including recent economic conditions and views of internal, as well as third-party, economists. The allowance for credit losses for TDR is measured using the discounted cash flow method, or based on the fair value of the collateral if the loan is collateral dependent.
The allowance for credit losses includes qualitative adjustments to cover losses that are expected but were not reflected in the modeled allowance. For example, factors that the MUFG considers include remaining time to maturity and extent of prepayments, credit concentration, the volume and severity of past due, changes in lending policy and procedures, among others.
In all segments, when estimating the allowance for credit losses, significant management assumptions are incorporated in economic variables, qualitative adjustments, or both to capture the heightened volatility and uncertainty in future economic conditions arising mainly from the prolonged COVID-19 and Russia-Ukraine situation.
There are de minimis or zero expected credit losses, for example, for lending and financing transactions, such as Interest-earning deposits in other banks, Call loans and funds sold, Receivables under resale agreements and Receivables under securities borrowing transactions because the term is short and the credit quality of the borrowers is normal.
The methodologies used to estimate the allowance and the charge-off policy for the major portfolio segments are as follows:
Commercial segment
In the Commercial segment, expected credit losses of loans are measured on a collective basis when similar risk characteristics exist. Risk characteristics that are considered for aggregation of loans include internal credit ratings, geographical location, and industry of the borrower. The collectively-assessed allowance is measured over the contractual term of the loans that is adjusted for expected prepayments, using probability of default (“PD”), loss given default (“LGD”) and exposure at default (“EAD”) loss forecasting model, which is based on historical information and adjusted to incorporate expectations of future economic conditions considering economic variables such as gross domestic product and unemployment rates. The PD is determined as the marginal PD that denotes the likelihood that a borrower is observed to experience the default during a defined period of time, based on internal credit rating, geographical location, or industry of the borrower. The LGD is determined as the estimated loss on the loan that would be realized upon the default of the borrower, mainly based on the historical experience of collections against loans in default. The PD and LGD are continually reviewed to determine the appropriate level of the allowance for credit loss.
Qualitative adjustments are made to cover losses that are expected but not adequately captured in the quantitative forecasting model or economic assumptions, considering factors such as remaining time to maturity and extent of prepayments, the volume and severity of past due loans, changes in lending policy and procedures, the industry in which a borrower operates, and changes in other external factors. The collectively-assessed allowance methodology incorporates an economic forecast over a three-year period. Beyond the three-year economic forecast, the allowance methodology reverts to an average historical loss information on a straight-line basis over a two-year period. When a loan does not share risk characteristics with other loans, expected credit losses for that loan are measured on an individual basis. Individually-assessed allowance is measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the fair value of the collateral if the loan is collateral dependent.
The allowance for loans that have been modified into a TDR or reasonably expected to be modified into a TDR are measured on an individual basis. For nonaccrual TDRs, the allowance for credit losses is provided for these loans using the discounted cash flow method, or based on the fair value of the collateral. For TDRs accounted for as accruing loans, the allowance for credit losses is determined by discounting the estimated future cash flows using the original effective interest rate of the loans prior to modification.
In relation to loans categorized as Legally/Virtually Bankrupt, the carrying amount of loans less estimated value of the collateral and guaranteed amount is generally considered uncollectible, and is charged off.
F-20
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Residential segment
In the Residential segment, the loans are comprised of smaller-balance homogeneous loans and expected credit losses of loans are measured on a collective basis. The allowance for credit losses is measured over the contractual term of the loans that is adjusted for expected prepayments, using the state transition probability matrix, which captures delinquency status changes and prepayments by loans’ remaining term, and is based on historical information and adjusted to incorporate expectations of future economic conditions considering economic variables, such as unemployment rates. The LGD is also used to capture the estimated loss on the loan that would be realized upon the default of the borrower. The collectively-assessed allowance methodology incorporates an economic forecast over a three-year period. Beyond the three-year economic forecast, the allowance methodology reverts to average historical loss information on a straight-line basis over a two-year period.
The allowance for loans that have been modified into a TDR or reasonably expected to be modified into a TDR are measured on an individual basis. For nonaccrual TDRs, the allowance for credit losses is provided for these loans using the discounted cash flow method, or based on the fair value of the collateral. For TDRs accounted for as accruing loans, the allowance for credit losses is determined by discounting the estimated future cash flows using the original effective interest rate of the loans prior to modification.
In relation to loans that are in past due status over a certain period of time and deemed uncollectible, the carrying amount of loans less estimated value of the collateral and guaranteed amount is generally considered uncollectible and charged off.
Card segment
In the Card segment, the loans are smaller-balance homogeneous loans and expected credit losses of loans are measured on a collective basis. The allowance for credit losses is measured over the contractual term of the loans that is adjusted for expected prepayments, using the state transition probability matrix, which captures delinquency status changes and prepayments by loans’ remaining term, and is based on historical information and adjusted to incorporate expectations of future economic conditions considering economic variables, such as unemployment rate. The collectively-assessed allowance methodology incorporates an economic forecast over a three-year period. Beyond the three-year economic forecast, the allowance methodology reverts to average historical loss information.
The allowance for loans that have been modified into a TDR or reasonably expected to be modified into a TDR are measured on an individual basis, and the allowance for credit losses is determined using the discounted cash flow method whereby the estimated future cash flows are discounted using the original effective interest rate of the loans prior to modification.
In relation to loans that are in past due status over a certain period of time and deemed uncollectible, the amount of loans is generally fully charged off.
Krungsri segment
In the Krungsri segment, expected credit losses are measured on a collective basis for portfolios of loans that share similar economic risk characteristics. Expected credit losses are a probability-weighted estimate of the present value of credit losses. These are measured as the present value of the difference between the cash flows under the contract and the cash flows expected to be received arising from the weighting of multiple future economic scenarios that consider economic variables such as gross domestic product and unemployment rates, discounted at the loan’s effective interest rate. Qualitative adjustments are made to cover losses that are expected but not adequately captured in the quantitative forecasting model. Loans that do not share risk characteristics are evaluated individually to determine the allowance balance. Individually-assessed allowance is measured based on the present value of expected future cash flows discounted at the loan’s original effective interest rate, or the fair value of the collateral if the loan is collateral dependent.
The allocated allowance for large groups of smaller-balance homogeneous loans is established for smaller balance loans such as housing loans, credit card loans, and personal loans. These loans are managed on a pool basis, and loss factors are based on expected net charge-off ranges.
The allowance for loans that have been modified into a TDR or reasonably expected to be modified into a TDR are measured on an individual basis. For nonaccrual TDRs, the allowance for credit losses is provided for these loans using the discounted cash flow method, or based on the fair value of the collateral. For TDRs accounted for as accruing loans, the allowance for credit losses is determined by using the discounted cash flow method whereby the estimated future cash flows are discounted using the original effective interest rate of the loans prior to modification.
F-21
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to operations over the estimated useful lives of the related assets. Leasehold improvements are depreciated over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking apply the declining-balance method in depreciating their premises and equipment, while other subsidiaries mainly apply the straight-line method, at rates principally based on the following estimated useful lives:
| Years | |||||
| Buildings | |||||
| Equipment and furniture | |||||
| Leasehold improvements | |||||
Maintenance, repairs and minor improvements are charged to operations as incurred. Major improvements are capitalized. Net gains or losses on dispositions of premises and equipment are included in Other non-interest income or expense, as appropriate.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount to future undiscounted net cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value. For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level with independent and identifiable cash flows. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less estimated cost to sell.
Goodwill—The MUFG Group recognizes goodwill, as of the acquisition date, measured as the excess of the purchase price over the fair value of the net assets acquired. Goodwill related to investments in equity method investees is included in Other assets as a part of the carrying amount of investments in equity method investees.
Goodwill arising from a business combination is not amortized but is tested at least annually for impairment. Goodwill is recorded at a designated reporting unit level for the purpose of assessing impairment.
F-22
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Useful lives (years) | Amortization method | ||||||||||
| Software | Straight-line | ||||||||||
| Core deposit intangibles | Straight-line | ||||||||||
| Customer relationships | Straight-line, Declining-balance | ||||||||||
| Trade names | Straight-line | ||||||||||
Intangible assets having indefinite useful lives are not amortized but are subject to annual impairment tests. An impairment exists if the carrying value of an indefinite-lived intangible asset exceeds its fair value. For other intangible assets subject to amortization, an impairment is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible asset.
Assets and Liabilities Held for Sale—The MUFG Group classifies assets and liabilities as held for sale (“disposal group”) when management, having the authority to approve the action, commits to a plan to sell the disposal group and the sale is probable within one year, actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn, and the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups. The disposal group is measured at the lower of carrying value or fair value less costs to sell. Any loss resulting from the measurement is recognized in the period the held-for-sale criteria are met. Conversely, gains are not recognized until the date of the sale. After being classified as held for sale, loans held for investment are transferred to loans held for sale, carried at the lower of cost or fair value measured on a portfolio basis, and no allowance for loan losses is estimated. After being classified as held for sale, held-to-maturity debt securities are transferred to securities available for sale and assets are not depreciated or amortized.
In September 2021, the MUFG Group agreed to the sale of all shares in MUFG Union Bank, N.A., the wholly-owned primary operating subsidiary in the United States, to U.S. Bancorp. As a result, the assets and liabilities of MUFG Union Bank, which were transferred to U.S. Bancorp, were reclassified as held for sale, and included in Other assets and Other liabilities in the accompanying consolidated balance sheets at March 31, 2022. See Note 2 for further discussion. Unless otherwise indicated, all other notes to the consolidated financial statements do not include amounts of assets and liabilities held for sale.
F-23
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fees and Commissions—The MUFG Group recognizes revenue from contracts with customers in the amount of consideration it expects to receive upon the transfer of control of a good or service. The timing of recognition is dependent on whether the MUFG Group satisfies a performance obligation by transferring control of the product or service to a customer over time or at a point in time.
The following is an explanation of the MUFG Group’s key revenue from contracts with customers and the timing of its recognition.
Fees and commissions on deposits consist of fees and commissions charged for transaction-based services such as usage of automated teller machines and withdrawal services, and for periodic account maintenance services. The MUFG Group’s performance obligation for transaction-based services is satisfied and the fees and commissions are recognized at the point in time when the MUFG Group’s performance under the terms of a contractual arrangement is completed, which is at the settlement of a transaction, while the MUFG Group’s performance obligation for maintenance services is satisfied and the fees and commissions are recognized over the course of each month.
Fees and commissions on remittances and transfers consist of fees and commissions charged for settlement transactions such as domestic fund remittances, including electronic banking transactions, and are recognized at the point in time when the MUFG Group’s performance under the terms of a contractual arrangement is completed, which is at the settlement of a transaction.
Fees and commissions on foreign trading business consist of fees and commissions charged for fund collection and trade-related financing services related to foreign trading business, and are recognized in the period in which the related service is provided. If they arise from foreign trading business activities under which the customer consumes the related services at a point in time (e.g. foreign exchange fees), such fees are recognized at the same point in time. If they arise from foreign trading business activities under which the customer consumes the related services equally over the period of service (e.g. commercial letters of credit), such fees are recognized over the same period.
Fees and commissions on credit card business consist of fees and commissions such as interchange income, royalty and other service charges from franchisees. Interchange income from the credit card business is recognized as processed transactions are settled through the associated payment networks, while royalty and other service charges related to the credit card business are recognized on a straight-line basis over the period of service.
Fees and commissions on security-related services primarily consist of fees and commissions for sales and transfers of securities including investment funds, underwriting, brokerage and advisory services, arrangement fees on securitizations, and agency services for the calculation and payment of dividends. Fees and commissions on security-related services are recognized in the period in which the related service is provided. If they arise from security-related services under which the customer consumes the related services at a point in time (e.g. sales and transfers of securities are executed at the customer’s direction; underwritings of debt and equity securities or securitizations are completed at the trade date; advice is provided to the clients; and dividends are calculated and then paid to investors), such fees are recognized at the same point in time. If they arise from security-related services under which the customer consumes the related services equally over the period of service (e.g. retainer fees on M&A advisory fees), such fees are recognized over the same period. The advisory fees which are paid upon meeting certain performance goals (e.g. success fees on M&A advisory fees) are recognized at the point in time when the performance goals are met.
Fees and commissions on administration and management services for investment funds primarily consist of fees and commissions earned from administrating and managing investment funds, including assets under management on behalf of clients. Such fees and commissions are recognized equally over the period of service at the amount calculated primarily based on the outstanding amount of each entrusted asset, the percentage of fees, and the extent of the service provided to administer the investment funds.
Trust fees consist primarily of fees earned by fiduciary asset management and administration services for corporate pension plans and investment funds, and are recognized on an accrual basis, generally based on the volume of trust assets under management and/or the operating performance for the accounting period of each trust account. With respect to the trust accounts with a guarantee of trust principal, trust fees are determined based on the profits earned by individual trust accounts during the trust accounting period, less deductions, including provision for reserves, impairment for individual investments and dividends paid to beneficiary certificate holders. The trust fees for these trust accounts are accrued based on the amounts expected to be earned during the accounting period of each trust account.
Guarantee fees consist of fees related to the guarantee business such as providing guarantees on residential mortgage loans and other loans, and are recognized over the contractual periods of the respective guarantees.
F-24
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Insurance commissions consist of commissions earned from third-party insurance companies for marketing and selling insurance products and for the maintenance of insurance contracts. The former is recognized at the point in time which the associated service is fulfilled as the insurance contract is established by the insurance company, while the latter is recognized over the insurance period.
Fees and commissions on real estate business primarily consist of fees from real estate agent services, and are recognized in the period in which the related service is provided when assisting customers in the sales or purchase of real estate property.
Income Taxes—The MUFG Group accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and deferred tax liabilities for the expected future tax consequences of events that have been included in the accompanying consolidated financial statements. Under this method, deferred tax assets and deferred tax liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and deferred tax liabilities is recognized in income in the period that includes the enactment date.
The MUFG Group records net deferred tax assets to the extent these assets will more likely than not be realized. In making such determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the MUFG Group were to determine that it would be able to realize deferred tax assets in the future in excess of their net recorded amount, the MUFG Group would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
F-25
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Reclassifications
Reclassifications have been made to the consolidated financial statements for the fiscal year ended March 31, 2022 to conform to the presentation for the fiscal year ended March 31, 2023. These reclassifications consist of the presentation of “Loss on valuation adjustment for loans held for sale held by MUFG Union Bank” as a new line item which had previously been presented in “Other non-interest expenses” in the consolidated statement of operations and had been previously included in “Other-net” in the statement of cash flows for the fiscal year ended March 31, 2022, respectively. These reclassifications did not result in a change to previously reported financial position, results of operations or cash flows.
Accounting Changes
Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for Platform Users—In March 2022, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 121 which expresses the views of the SEC staff regarding the accounting for obligations to safeguard crypto-assets an entity holds for platform users. This guidance requires an entity that performs crypto asset custodial activities, whether directly or through an agent acting on its behalf, to record a liability with a corresponding asset. In addition, the guidance requires disclosure of the nature and amount of crypto assets the entity is responsible for safeguarding for its customers. This guidance is effective for interim and annual periods ending after June 15, 2022. The MUFG Group adopted this guidance on April 1, 2022, and there was no material impact on its financial position and results of operations.
Recently Issued Accounting Pronouncements
Troubled Debt Restructurings and Vintage Disclosures—In March 2022, the Financial Accounting Standards Board (“FASB”) issued new guidance which eliminates the accounting and disclosure requirements for TDRs by creditors and introduces new required disclosures for loan modifications made to borrowers experiencing financial difficulty. The guidance also amends the requirement for vintage disclosures to disclose current period gross charge-offs by year of origination. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The guidance should be applied prospectively, except for requirements related to the recognition and measurement of TDRs, for which entities have the option to apply a modified retrospective transition method. The MUFG Group adopted the guidance on April 1, 2023, using the modified retrospective transition method on the requirements related to the recognition and measurement of TDRs, and there will be no material impact on its financial position and results of operations. The allowance for modified loans will mainly be measured using a discounted cash flow methodology, that utilizes a discount rate that is based on the post-modification contractual interest rate, other than those in the Card segment, for which the allowance will be measured using collectively-assessed allowance methodology.
Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions—In June 2022, the FASB issued new guidance which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security. The guidance also introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value. This guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The MUFG Group is currently evaluating what effect this guidance will have on its consolidated financial statements and related disclosures.
2. BUSINESS DEVELOPMENTS
Sale of MUFG Union Bank and Investment in Shares of U.S. Bancorp
In September 2021, the MUFG Group agreed to the sale of all shares in MUFG Union Bank, N.A. (“MUFG Union Bank”), the wholly-owned primary operating subsidiary in the United States, to U.S. Bancorp (“USB”), which is not a related party of the MUFG Group. The businesses of MUFG Union Bank that the MUFG Group transferred to USB exclude the Global Corporate & Investment
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Banking (GCIB) business (with certain exceptions as agreed to by the parties, including certain deposits of the GCIB business that were retained by MUFG Union Bank), the Global Markets business to the extent related to the GCIB business and certain assets and liabilities that are part of shared middle and back office functions. Under a legal agreement, the assets and liabilities of these operations were transferred to other entities within the MUFG Group before it sold the shares of MUFG Union Bank. Through this transaction, the MUFG Group aimed to maximize shareholder value by improving our capital efficiency. In addition, as of the end of the reporting period (ended March 31, 2023), the corporate credit card business for GCIB business customers and certain Japanese customers was expected to be transferred from MUFG Union Bank to MUFG Bank, subject to contractual conditions precedent. Such transfer was completed subsequent to the reporting period.
The assets and liabilities of MUFG Union Bank, which were transferred to USB, were reclassified as held for sale, and included in Other assets and Other liabilities in the accompanying consolidated balance sheets at March 31, 2022.
Assets and liabilities reclassified as held for sale at March 31, 2022 are shown below:
At March 31, 2022 | |||||
| (in millions) | |||||
| Assets held for sale: | |||||
| Interest-earning deposits in other banks | ¥ | ||||
| Investment securities | |||||
| Loans, net of allowance for credit losses | |||||
| Other | |||||
| Total | ¥ | ||||
| Liabilities held for sale: | |||||
| Deposits | ¥ | ||||
| Other | |||||
| Total | ¥ | ||||
The carrying amount of any assets that are not covered by the guidance on long-lived assets and included in the disposal group, must be adjusted in accordance with other applicable guidance before measuring the disposal group by lower of cost or market method. The loss amount, which was recognized through lower of cost or market method from the assets and liabilities held for sale, was ¥134,141 million for the fiscal year ended March 31, 2022. Such amount, which included the fluctuation of the fair value related to the transferred business from the date of the contract to March 31, 2022, is included in Impairment (reversal of impairment) of assets held for sale in the consolidated statements of operations. However, the fair value less cost to sell exceeded the carrying value during the first half of the fiscal year ended March 31, 2023, and the reversal of ¥134,141 million, which is included in Impairment (reversal of impairment) of assets held for sale in the consolidated statements of operations, was recognized, and as a result, the valuation allowance for assets held for sale which was included in Other Asset was fully reversed.
On December 1, 2022, the MUFG Group sold all the issued and outstanding shares of common stock of MUFG Union Bank to USB for the agreed upon consideration, received ¥754.0 billion in cash and 44,374,155 shares, ¥276.1 billion, of USB common stock representing approximately 3 % of the outstanding shares subject to future closing adjustments. The MUFG Group will receive from USB an additional ¥464.5 billion in cash within five years of the closing date, whose discounted present value at sale was ¥396.6 billion. Before the closing of the share transfer, MUFG Union Bank declared and paid a special dividend of approximately ¥636.8 billion to MUAH. The MUFG Group recorded a pretax gain on the sale of MUFG Union Bank of ¥557,954 million, net of cost to sell the business. The gain was included in Gain on sale of MUFG Union Bank in the consolidated statements of operations for the fiscal year ended March 31, 2023. The business of MUFG Union Bank that was transferred to USB had ¥13,935.6 billion in assets at sale, including ¥2,251.3 billion of interest-earning deposits in other banks, ¥3,123.3 billion of investment securities, and ¥7,567.7 billion of loans. The total amount of liabilities was ¥13,128.0 billion, including ¥11,789.9 billion of deposits. The pretax loss recorded for the business transferred to USB was ¥52,021 million, ¥11,385 million and ¥506,329 million for the fiscal years ended March 31, 2021, 2022 and 2023, respectively. The cash receipts and cash payments for loans held for sale that were originated by MUFG Union Bank during the current year, prior to the sale to USB, are presented within Net increase in loans held for sale in the business transferred to U.S. Bancorp in the consolidated statement of cash flows for the fiscal year ended March 31, 2023. MUFG Union Bank's cash and cash equivalents balance at sale was ¥2,433.8 billion, which when combined with ¥754.0 billion in cash received from USB and certain adjustments resulted in a net decrease in cash and cash equivalents at sale of ¥1,711.8 billion.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
3. INVESTMENT SECURITIES
The following tables present the amortized cost, gross unrealized gains and losses, and fair value of Available-for-sale debt securities and Held-to-maturity debt securities at March 31, 2022 and 2023:
| At March 31, 2022: | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Held-to-maturity debt securities: | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| At March 31, 2023: | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Held-to-maturity debt securities: | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
Contractual Maturities
The amortized cost and fair values of Held-to-maturity debt securities and the fair values of Available-for-sale debt securities at March 31, 2023 by contractual maturity are shown below. Expected maturities may be shorter than contractual maturities because issuers of debt securities may have the right to call or prepay obligations with or without penalties. Debt securities not due at a single maturity date and securities embedded with call or prepayment options, such as mortgage-backed securities, are included in the table below based on their contractual maturities.
Held-to-maturity debt securities | Available-for-sale debt securities | ||||||||||||||||
Amortized cost | Fair value | Fair value | |||||||||||||||
| (in millions) | |||||||||||||||||
| Due in one year or less | ¥ | ¥ | ¥ | ||||||||||||||
| Due from one year to five years | |||||||||||||||||
| Due from five years to ten years | |||||||||||||||||
| Due after ten years | |||||||||||||||||
| Total | ¥ | ¥ | ¥ | ||||||||||||||
Realized Gains and Losses
For the fiscal years ended March 31, 2021, 2022 and 2023, gross realized gains on sales of Available-for-sale debt securities were ¥42,123 million, ¥85,525 million and ¥107,238 million, respectively, and gross realized losses on sales of Available-for-sale debt securities were ¥48,606 million, ¥36,698 million and ¥169,686 million, respectively.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Impairment Losses on Investment Securities
For the fiscal year ended March 31, 2021, impairment losses on Available-for-sale debt securities, which mainly comprised of corporate bonds, were included in Investment securities gains (losses)—net in the accompanying consolidated statements of operations and were not material.
For the fiscal years ended March 31, 2022 and 2023, impairment losses on Available-for-sale debt securities of ¥47,281 million and ¥359,330 million were included in Investment securities gains (losses)—net in the accompanying consolidated statements of operations. These were mainly the impairment losses on the Available-for-sale debt securities held by MUFG Union Bank, which were reclassified as held for sale, and included in Other assets in the accompanying consolidated balance sheets at March 31, 2022, and then sold on December 1, 2022.
For the fiscal years ended March 31, 2021, 2022 and 2023, the MUFG Group’s Held-to-maturity debt securities were explicitly or implicitly guaranteed by Japanese or U.S. government entities or agencies and had a long history of no credit losses or were rated investment grade. Therefore, no credit losses were expected on these securities.
Gross Unrealized Losses and Fair Value
The following tables show the gross unrealized losses and fair value of Available-for-sale debt securities at March 31, 2022 and 2023 by length of time that individual securities in each category have been in a continuous loss position:
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||
| At March 31, 2022: | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Number of securities | ||||||||||||||||||||||||||||||||||
| (in millions, except number of securities) | |||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||||||
| At March 31, 2023: | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Fair value | Gross unrealized losses | Number of securities | ||||||||||||||||||||||||||||||||||
| (in millions, except number of securities) | |||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||||||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Evaluating Available-for-sale debt securities for Impairment losses
The following describes the nature of the MUFG Group’s Available-for-sale debt securities and the conclusions reached in determining whether impairment losses exist.
Japanese national government and Japanese government agency bonds, Japanese prefectural and municipal bonds, Foreign government and official institution bonds
As of March 31, 2023, unrealized losses associated with these securities were deemed to be attributable to changes in market interest rates rather than a deterioration in the creditworthiness of the underlying obligor. Based on a consideration of factors, including cash flow analysis, the MUFG Group expects to recover the entire amortized cost basis of these securities. Accordingly, no credit loss was identified as of March 31, 2023 and no impairment loss has been recorded.
Corporate bonds
As of March 31, 2023, unrealized losses associated with corporate bonds were primarily related to private placement bonds issued by Japanese non-public companies. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining terms of the bonds as estimated using the MUFG Group’s cash flow projections. The key assumptions include probability of default based on credit ratings of the bond issuers and loss given default.
Residential mortgage-backed securities
As of March 31, 2023, unrealized losses on these securities were primarily driven by securities guaranteed by a U.S. government agency or a government-sponsored agency which are collateralized by residential mortgage loans. Unrealized losses mainly resulted from changes in interest rates and not from changes in credit quality. The MUFG Group determined through analysis that no credit loss was identified on such securities as of March 31, 2023 because the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is expected to be sufficient to recover the entire amortized cost basis of these securities.
Asset-backed securities
As of March 31, 2023, unrealized losses on these securities were primarily driven by certain CLOs, highly illiquid securities for which fair values are difficult to determine. Unrealized losses arise from widening credit spreads, deterioration of the credit quality of the underlying collateral, uncertainty regarding the valuation of such securities and the market’s view of the performance of the fund managers. When the fair value of a security is lower than its amortized cost or when any security is subject to a deterioration in credit rating, the MUFG Group undertakes a cash flow analysis of the underlying collateral to estimate the credit loss and confirms the intent and ability to hold these securities until recovery. Based on the analysis performed, no credit loss was identified as of March 31, 2023 and no impairment loss has been recorded.
F-31
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Equity Securities
The following table presents net realized gains (losses) on sales of equity securities, and net unrealized gains (losses) on equity securities still held at March 31, 2021, 2022 and 2023:
Fiscal years ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
Net gains (losses) recognized during the period(1) | ¥ | ¥ | ( | ¥ | |||||||||||||
| Less: | |||||||||||||||||
| Net gains (losses) recognized during the period on equity securities sold during the period | ( | ||||||||||||||||
| Net unrealized gains (losses) recognized during the reporting period still held at the reporting date | ¥ | ¥ | ( | ¥ | |||||||||||||
Note:
Measurement Alternative of Equity Securities
The following table presents the carrying value of nonmarketable equity securities that are measured at cost minus impairment, if any, plus or minus changes resulting from observable price changes (“measurement alternative”), held at March 31, 2022 and 2023:
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Measurement alternative balance | ¥ | ¥ | |||||||||
The related adjustments for these securities for the fiscal years ended March 31, 2021, 2022 and 2023 were as follows:
Fiscal years ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
Measurement alternative impairment losses(1)(4) | ¥ | ( | ¥ | ( | ¥ | ( | |||||||||||
Measurement alternative downward changes for observable prices(1)(2)(3)(5) | ¥ | ¥ | ¥ | ( | |||||||||||||
Measurement alternative upward changes for observable prices(1)(2)(3)(6) | ¥ | ¥ | ¥ | ||||||||||||||
Notes:
(1)Included in Investment securities gains (losses)—net.
(2)Under the measurement alternative, nonmarketable equity securities are carried at cost plus or minus changes resulting from observable prices in orderly transactions for the identical or a similar investment of the same issuer.
(3)The MUFG Group applied measurement alternative downward or upward changes to certain nonmarketable equity securities, resulting from observable prices in orderly transactions, such as partial repurchase and transactions by other entities.
(4)The cumulative impairment losses at March 31, 2022 and 2023 were ¥12,354 million and ¥20,151 million respectively.
(5)The cumulative downward changes for observable prices at March 31, 2022 and 2023 were ¥954 million and ¥1,393 million, respectively.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
The MUFG Group classifies its loan portfolio into the following portfolio segments—Commercial, Residential, Card, MUAH, Krungsri, and Other based on the grouping used by the MUFG Group to determine the allowance for credit losses. The MUFG Group further classifies the Commercial segment into classes based on initial measurement attributes, risk characteristics, and its method of monitoring and assessing credit risk. See Note 1 for further information.
However, for the fiscal year ended March 2023, the MUAH segment is included in the Other segment in the respective tables, because its importance as a segment declined as a result of the sale of MUFG Union Bank and an internal reorganization within the MUFG Group. The reorganization involved the transfer of assets, including loans of ¥2,614,535 million from the MUAH segment to the Commercial segment on November 14, 2022. See Note 2 for further information.
F-33
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Total Outstanding Loans and Past Due Analysis
The table below presents total outstanding loans and past due analysis by class at March 31, 2022 and 2023.
| Past Due | |||||||||||||||||||||||||||||||||||||||||
| At March 31, 2022: | 1-3 months | Greater Than 3 months | Total Past Due | Current | Loans Held for Sale(1) | Total Loans | Past Due 90 Days and Accruing | ||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||||||||||||||
| Domestic | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Foreign | |||||||||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||||||||
| Card | |||||||||||||||||||||||||||||||||||||||||
| MUAH | |||||||||||||||||||||||||||||||||||||||||
| Krungsri | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Unearned income, unamortized premiums—net and deferred loan fees—net | ( | ||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ||||||||||||||||||||||||||||||||||||||||
| Past Due | |||||||||||||||||||||||||||||||||||||||||
| At March 31, 2023: | 1-3 months | Greater Than 3 months | Total Past Due | Current | Loans Held for Sale | Total Loans | Past Due 90 Days and Accruing | ||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Commercial | |||||||||||||||||||||||||||||||||||||||||
| Domestic | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Foreign | |||||||||||||||||||||||||||||||||||||||||
| Residential | |||||||||||||||||||||||||||||||||||||||||
| Card | |||||||||||||||||||||||||||||||||||||||||
| Krungsri | |||||||||||||||||||||||||||||||||||||||||
Other(2) | |||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Unearned income, unamortized premiums—net and deferred loan fees—net | ( | ||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ||||||||||||||||||||||||||||||||||||||||
Notes:
(1)Does not include the loans in transferred business of MUFG Union Bank to U.S. Bancorp, which is included in Other assets in the accompanying consolidated balance sheets at March 31, 2022. See Note 2 for further information.
(2)The Other segment in the above table included loans of ¥176,691 million, which was previously included in the MUAH segment, at March 31, 2023.
F-34
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Nonaccrual Loans
Originated loans are generally placed on nonaccrual status when substantial doubt exists as to the full and timely collection of either principal or interest, when principal or interest is contractually past due one month or more with respect to loans within all classes of the Commercial segment, three months six months or more with respect to loans within the Residential segment. See Note 1 for further information.
The information on nonaccrual loans by class at March 31, 2022 and 2023, and recognized interest income on nonaccrual loans by class for the fiscal years ended March 31, 2022 and 2023 are shown below:
Recorded Loan Balance | |||||||||||||||||
| March 31, 2022: | Nonaccrual Loans(1) | Nonaccrual Loans Not Requiring an Allowance for Credit Losses(2) | Recognized Interest Income | ||||||||||||||
| (in millions) | |||||||||||||||||
| Commercial | |||||||||||||||||
| Domestic | ¥ | ¥ | ¥ | ||||||||||||||
| Foreign | |||||||||||||||||
| Residential | |||||||||||||||||
| Card | |||||||||||||||||
| MUAH | |||||||||||||||||
| Krungsri | |||||||||||||||||
| Other | |||||||||||||||||
| Total | ¥ | ¥ | ¥ | ||||||||||||||
| Recorded Loan Balance | |||||||||||||||||
| March 31, 2023: | Nonaccrual Loans(1) | Nonaccrual Loans Not Requiring an Allowance for Credit Losses(2) | Recognized Interest Income | ||||||||||||||
| (in millions) | |||||||||||||||||
| Commercial | |||||||||||||||||
| Domestic | ¥ | ¥ | ¥ | ||||||||||||||
| Foreign | |||||||||||||||||
| Residential | |||||||||||||||||
| Card | |||||||||||||||||
| Krungsri | |||||||||||||||||
| Other | |||||||||||||||||
| Total | ¥ | ¥ | ¥ | ||||||||||||||
Notes:
(1)Nonaccrual loans in the above table do not include loans held for sale of ¥7,946 million and ¥9,205 million at March 31, 2022 and 2023, respectively.
F-35
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Troubled Debt Restructurings
The following table summarizes the MUFG Group’s TDRs by class for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | |||||||||||||||||||||||||
| Troubled Debt Restructurings | ||||||||||||||||||||||||||
Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | |||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
Commercial(1)(3) | ||||||||||||||||||||||||||
| Domestic | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||
| Foreign | ||||||||||||||||||||||||||
Residential(1)(3) | ||||||||||||||||||||||||||
Card(2)(3) | ||||||||||||||||||||||||||
MUAH(2)(3) | ||||||||||||||||||||||||||
Krungsri(2)(3) | ||||||||||||||||||||||||||
Other(2) | ||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||
| 2021 | 2022 | ||||||||||
| Troubled Debt Restructurings That Subsequently Defaulted | |||||||||||
| Recorded Investment | |||||||||||
| (in millions) | |||||||||||
Commercial(1)(3) | |||||||||||
| Domestic | ¥ | ¥ | |||||||||
| Foreign | |||||||||||
Residential(1)(3) | |||||||||||
Card(2)(3) | |||||||||||
MUAH(2)(3) | |||||||||||
Krungsri(2)(3) | |||||||||||
Other(2) | |||||||||||
| Total | ¥ | ¥ | |||||||||
Notes:
(1)TDRs for the Commercial and Residential segments include accruing loans, and do not include nonaccrual loans.
(2)TDRs for the Card, MUAH, Krungsri and Other segments include accrual and nonaccrual loans.
(3)For the fiscal year ended March 31, 2021, extension of the stated maturity date of loans was the primary concession type in the Commercial, Residential and Krungsri segments, reduction in the stated rate was the primary concession type in the Card segment and forbearance was the primary concession type in the MUAH segment. For the fiscal year ended March 31, 2022, extension of the stated maturity date of loans was the primary concession type in the Commercial, Residential and Krungsri segments, reduction in the stated rate was the primary concession type in the Card segment and forbearance was the primary concession type in the MUAH segment.
F-36
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| 2023 | |||||||||||
| Troubled Debt Restructurings | |||||||||||
Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | ||||||||||
| (in millions) | |||||||||||
Commercial(1)(3) | |||||||||||
| Domestic | ¥ | ¥ | |||||||||
| Foreign | |||||||||||
Residential(1)(3) | |||||||||||
Card(2)(3) | |||||||||||
Krungsri(2)(3) | |||||||||||
Other(2) | |||||||||||
| Total | ¥ | ¥ | |||||||||
| 2023 | |||||
| Troubled Debt Restructurings That Subsequently Defaulted | |||||
| Recorded Investment | |||||
| (in millions) | |||||
Commercial(1)(3) | |||||
| Domestic | ¥ | ||||
| Foreign | |||||
Residential(1)(3) | |||||
Card(2)(3) | |||||
Krungsri(2)(3) | |||||
Other(2) | |||||
| Total | ¥ | ||||
Notes:
(1)TDRs for the Commercial and Residential segments include accruing loans, and do not include nonaccrual loans.
(2)TDRs for the Card, Krungsri and Other segments include accrual and nonaccrual loans.
A modification of terms of a loan under a TDR mainly involves: (i) a reduction in the stated interest rate applicable to the loan, (ii) an extension of the stated maturity date of the loan, (iii) a partial forgiveness of the principal of the loan, or (iv) a combination of all of these. The amount of pre-modification outstanding recorded investment and post-modification outstanding recorded investment may differ due to write-offs made as part of the concession. The impact of write-offs associated with TDRs on the MUFG Group’s results of operations for the fiscal years ended March 31, 2021, 2022 and 2023 was not material.
TDRs for the Commercial and Residential segments in the above tables include accruing loans, and do not include nonaccrual loans. Once a loan is classified as a nonaccrual loan, a modification would have little likelihood of resulting in the recovery of the loan in view of the severity of the financial difficulty of the borrower. Therefore, even if a nonaccrual loan is modified, the loan continues to be classified as a nonaccrual loan. The vast majority of modifications to nonaccrual loans are temporary extensions of the maturity dates, typically for periods up to 90
TDRs that subsequently defaulted in the Commercial and Residential segments in the above tables include those accruing loans that became past due one month or more within the Commercial segment and six months or more within the Residential segment, and those accruing loans reclassified to nonaccrual loans due to financial difficulties even without delinquencies. This is because
F-37
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
classification as a nonaccrual loan is regarded as default under the MUFG Group’s credit policy. Also, the MUFG Group defines default as payment default for the purpose of the disclosure.
In regards to the Card, MUAH, Krungsri and Other segments, the TDRs in the above tables represent nonaccrual and accruing loans, and the defaulted loans in the above table represent nonaccrual and accruing loans that became past due one month or more within the Card segment, 60 days or more within the MUAH segment, and six months or more within the Krungsri segment.
Historical payment defaults are one of the factors considered when projecting future cash flows in determining the allowance for credit losses for each segment.
The MUFG Group provided commitments to extend credit to customers with TDRs. The amounts of such commitments were ¥132,456 million and ¥101,339 million at March 31, 2022 and 2023, respectively. See Note 24 for further discussion of commitments to extend credit.
In the Krungsri segment, TDR accounting was suspended for loan modifications, where COVID-19 related short-term modifications (i.e., six months or less) were granted to loans that were current as of the loan modification date, based on interagency statements issued by the U.S. federal bank regulatory agencies. These loan modifications included payment deferrals and reductions in stated rate, and the related borrowers’ past due and nonaccrual status will not be impacted during the deferral period. Interest income will continue to be recognized over the contractual life of the loan.
F-38
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Credit Quality Indicator
Credit quality indicators of loans and fiscal year of origination by class at March 31, 2022 and 2023 are shown below:
Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term Loans Amortized Cost Basis | Total(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| At March 31, 2022: | 2021 | 2020 | 2019 | 2018 | 2017 | Prior | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial: | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Domestic | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Normal | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Close Watch | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Likely to become Bankrupt or Legally/Virtually Bankrupt | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Normal | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Close Watch | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Likely to become Bankrupt or Legally/Virtually Bankrupt | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Accrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonaccrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Card | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Accrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonaccrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| MUAH | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Credit Quality Based on Internal Credit Ratings | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Classified | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Krungsri | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Performing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Under-Performing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Performing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Accrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonaccrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
F-39
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Term Loans Amortized Cost Basis by Origination Year | Revolving Loans Amortized Cost Basis | Revolving Loans Converted to Term Loans Amortized Cost Basis | Total(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| At March 31, 2023: | 2022 | 2021 | 2020 | 2019 | 2018 | Prior | |||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial: | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Domestic | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Normal | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Close Watch | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Likely to become Bankrupt or Legally/Virtually Bankrupt | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Normal | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Close Watch | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Likely to become Bankrupt or Legally/Virtually Bankrupt | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Accrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonaccrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Card | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Accrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonaccrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Krungsri | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Performing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Under-Performing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Performing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Accrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonaccrual | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Note:
(1)Total loans in the above table do not include loans held for sale, and represent balances without adjustments in relation to unearned income, unamortized premiums and deferred loan fees.
The MUFG Group classifies loans into risk categories based on relevant information about the ability of borrowers to service their debt, including, but not limited to, historical and current financial information, historical and current payment experience, credit documentation, public and non-public information about borrowers and current economic trends as deemed appropriate to each segment.
The primary credit quality indicator for loans within all classes of the Commercial segment is the internal credit rating assigned to each borrower based on the MUFG Group’s internal borrower ratings of 1 through 15, with the rating of 1 assigned to a borrower with the highest quality of credit. When assigning a credit rating to a borrower, the MUFG Group evaluates the borrower’s expected debt-service capability based on various information, including financial and operating information of the borrower as well as information on the industry in which the borrower operates, and the borrower’s business profile, management and compliance system. In evaluating a borrower’s debt-service capability, the MUFG Group also conducts an assessment of the level of earnings and an analysis of the borrower’s net worth. Based on the internal borrower rating, loans within the Commercial segment are categorized as Normal (internal borrower ratings of 1 through 9), Close Watch (internal borrower ratings of 10 through 12), and Likely to become Bankrupt or Legally/Virtually Bankrupt (internal borrower ratings of 13 through 15).
Loans to borrowers categorized as Normal represent those that are not deemed to have collectibility issues.
Loans to borrowers categorized as Close Watch represent those that require close monitoring as the borrower has begun to exhibit elements of potential concern with respect to its business performance and financial condition, the borrower has begun to exhibit elements of serious concern with respect to its business performance and financial condition, including business problems requiring long-term solutions, or the borrower’s loans are TDRs or loans contractually past due 90 days or more for special reasons.
Loans to borrowers categorized as Likely to become Bankrupt or Legally/Virtually Bankrupt represent those that have a higher probability of default than those categorized as Close Watch due to serious debt repayment problems with poor progress in achieving
F-40
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
restructuring plans, the borrower being considered virtually bankrupt with no prospects for an improvement in business operations, or the borrower being legally bankrupt with no prospects for continued business operations because of non-payment, suspension of business, voluntary liquidation or filing for legal liquidation.
The accrual status is a primary credit quality indicator for loans within the Residential segment, the Card segment and the Other segment. The accrual status of these loans is determined based on the number of delinquent payments. See Note 1 for further details of categorization of Accrual and Nonaccrual.
Commercial loans within the MUAH segment are categorized as either pass or criticized based on the internal credit rating assigned to each borrower. Criticized credits are those that are internally risk graded as Special Mention, Substandard or Doubtful. Special Mention credits are potentially weak, as the borrower has begun to exhibit deteriorating trends, which, if not corrected, may jeopardize repayment of the loan and result in further downgrade. Classified credits are those that are internally risk graded as Substandard or Doubtful. Substandard credits have well-defined weaknesses, which, if not corrected, could jeopardize the full satisfaction of the debt. A credit classified as Doubtful has critical weaknesses that make full collection improbable on the basis of currently existing facts and conditions.
Loans within the Krungsri segment are categorized as Performing, Under-Performing or Non-Performing based on their delinquency status. Loans categorized as Under-Performing generally represent those that have significant increases in credit risk since origination, including, among other things, loans that are 30 days or more past due, and loans categorized as Non-Performing generally represent those that are 90 days or more past due.
For the Commercial, Residential and Card segments, credit quality indicators are based on information as of March 31. For the MUAH, Krungsri and Other segments, credit quality indicators are generally based on information as of December 31.
Allowance for Credit Losses
Changes in the allowance for credit losses by portfolio segment for the fiscal years ended March 31, 2021, 2022 and 2023 are shown below:
| Fiscal year ended March 31, 2021: | Commercial | Residential | Card | MUAH | Krungsri | Other | Total | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
Effect of adopting new guidance on measurement of credit losses on financial instruments(1) | |||||||||||||||||||||||||||||||||||||||||
| Provision for credit losses | |||||||||||||||||||||||||||||||||||||||||
| Charge-offs | |||||||||||||||||||||||||||||||||||||||||
| Recoveries collected | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | |||||||||||||||||||||||||||||||||||||||||
Other(2) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
F-41
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| Fiscal year ended March 31, 2022: | Commercial | Residential | Card | MUAH | Krungsri | Other | Total | ||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Provision for (reversal of) credit losses | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Charge-offs | |||||||||||||||||||||||||||||||||||||||||
| Recoveries collected | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | |||||||||||||||||||||||||||||||||||||||||
Other(2) | ( | ||||||||||||||||||||||||||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2023: | Commercial | Residential | Card | Krungsri | Other(3) | Total | |||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | |||||||||||||||||||||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
| Transfer from MUAH to Commercial segment | ( | ||||||||||||||||||||||||||||||||||
| Provision for (reversal of) credit losses | ( | ( | |||||||||||||||||||||||||||||||||
| Charge-offs | |||||||||||||||||||||||||||||||||||
| Recoveries collected | |||||||||||||||||||||||||||||||||||
| Net charge-offs | |||||||||||||||||||||||||||||||||||
Other(2) | |||||||||||||||||||||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
Notes:
(1)Effective as of April 1, 2020, the MUFG Group adopted new guidance on measurement of credit losses on financial instruments.
(2)Other is principally comprised of gains or losses from foreign exchange translation.
(3)For the fiscal year ended March 31, 2023, the beginning balance and the ending balance of the Other segment in the above table includes the allowance for credit losses of ¥30,365 million and ¥3,428 million, respectively, which were previously included in the MUAH segment.
Nonperforming loans were actively disposed of by sales during recent years. The allocated allowance for credit losses for such loans was removed from the allowance for credit losses and transferred to the valuation allowance for loans held for sale upon a decision to sell. Net charge-offs in the above table include a decrease from charge-offs in the allowance for credit losses amounting to ¥16.8 billion, ¥0.4 billion and ¥79.9 billion for the fiscal years ended March 31, 2021, 2022 and 2023, respectively, due to loan disposal activity.
The MUFG Group sold ¥1,684 billion, ¥2,011 billion and ¥2,879 billion of loans within the Commercial segment during the fiscal years ended March 31, 2021, 2022 and 2023, respectively.
The MUFG Group sold ¥586 billion and ¥518 billion of loans within the MUAH segment during the fiscal years ended March 31, 2021 and 2022, respectively. The MUFG Group sold ¥556 billion of loans within the current Other segment, previously included in the MUAH segment, during the fiscal year ended March 31, 2023.
Collateral Dependent Loans
The MUFG Group uses, as a practical expedient, the fair value of the collateral when recording the net carrying amounts of loans and determining the allowance for credit losses of such loans, for which the repayment is expected to be provided substantially through the operation or sale of the collateral, when the borrower is experiencing financial difficulty based on the assessment as of the reporting date.
F-42
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. PREMISES AND EQUIPMENT
Premises and equipment at March 31, 2022 and 2023 consisted of the following:
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Land | ¥ | ¥ | |||||||||
| Buildings | |||||||||||
| Equipment and furniture | |||||||||||
| Leasehold improvements | |||||||||||
| Construction in progress | |||||||||||
| Total | |||||||||||
| Less accumulated depreciation | |||||||||||
| Premises and equipment-net | ¥ | ¥ | |||||||||
F-43
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The table below presents the movement in the carrying amount of goodwill by business segment during the fiscal years ended March 31, 2022 and 2023:
Global Corporate & Investment Banking Business Group | Global Commercial Banking Business Group | Asset Management & Investor Services Business Group | Global Markets Business Group | Total | |||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
| Balance at March 31, 2021: | |||||||||||||||||||||||||||||
| Goodwill | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
Accumulated impairment losses(1) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Foreign currency translation adjustments and other | |||||||||||||||||||||||||||||
| Balance at March 31, 2022: | |||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||
| Accumulated impairment losses | ( | ( | ( | ( | |||||||||||||||||||||||||
Less: Goodwill, net of accumulated impairment losses in transferred business of MUFG Union Bank(2) | ( | ( | ( | ||||||||||||||||||||||||||
| ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||
| Impairment loss | ( | ( | |||||||||||||||||||||||||||
| Foreign currency translation adjustments and other | ( | ||||||||||||||||||||||||||||
| Balance at March 31, 2023: | |||||||||||||||||||||||||||||
Goodwill(3) | |||||||||||||||||||||||||||||
Accumulated impairment losses(3) | ( | ( | ( | ( | |||||||||||||||||||||||||
| ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||
Notes:
(1)Effective April 1, 2018, the MUFG Group reorganized its business groups. Goodwill originally recognized for Retail Banking Business Group, Corporate Banking Business Group, Trust Assets Business Group and Global Business Group other than MUAH and Krungsri was ¥1,900,019 million, which has been fully impaired before April 1, 2017. As these impairment losses recorded in past before the reorganization of the segment and are irrelevant to the annual impairment test under the new segment, the accumulated impaired loss is not allocated to new business segments after the reorganization of business group.
(2)Represents goodwill, net of accumulated impairment losses in transferred business of MUFG Union Bank, which is included in Other assets in the accompanying consolidated balance sheet at March 31, 2022.
(3)For the balance at March 31, 2023, the Goodwill and Accumulated impairment losses of the Global Corporate & Investment Banking Business Group and Global Commercial Banking Business Group in the above table exclude the goodwill and accumulated impairment losses previously recorded for MUFG Union Bank, which was sold during the fiscal year ended March 31, 2023. See Note 2 for further information.
U.S. GAAP requires to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired, using a process that compares the carrying amount of a reporting unit with its fair value. An impairment loss is recognized to the extent that the carrying amount of a reporting unit exceeds its fair value, but not exceeding the total amount of goodwill allocated to that reporting unit.
For the fiscal year ended March 31, 2021, the MUFG Group recognized ¥147,564 million in impairment of goodwill relating to MUAH reporting unit within the Global Commercial Banking Business Group segment and Global Corporate & Investment Banking Business Group segment. Due largely to increases in observed market discount rates, the fair values of the reporting units were lowered. This led management to believe that the fair values of certain reporting unit was below carrying value. As a result, the fair value of the reporting unit was measured for the quantitative goodwill impairment test, and led to impairment of goodwill with the fair
F-44
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
value fallen below the carrying amount of the reporting unit. The MUFG Group estimated the fair value of its reporting units using a combination of the income and the market approaches. This goodwill impairment includes the impact of an intervening event due to the economic environment triggered by COVID-19 for the three-month period ended March 31, 2020.
For the fiscal year ended March 31, 2023, the MUFG Group recognized ¥33,553 million of impairment of goodwill relating to the First Sentier Investors reporting unit within the Asset Management & Investor Services Business Group segment. Due largely to market volatility and a decline in the equity markets, the portfolio balance of assets under management decreased, which resulted in a decrease in the reporting unit’s cash flow projections. As a result, the fair value of the reporting unit was measured on December 31, 2022 for the quantitative goodwill impairment test, and led to an impairment of goodwill as the fair value had fallen below the carrying amount of the reporting unit. The income approach estimates the fair value of the reporting unit by discounting management’s projections of the reporting unit’s cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of projected results, using a discount rate derived from the capital asset pricing model.
The MUFG Group consolidates certain subsidiaries, including MUAH, based on financial information for the year ended December 31 as this date and MUFG’s fiscal year which ends on March 31 have been treated as coterminous.
Other Intangible Assets
The table below presents the gross carrying amount, accumulated amortization and net carrying amount, in total and by major class of other intangible assets at March 31, 2022 and 2023:
| 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||||||||||||||||||||
| Software | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
| Customer relationships | |||||||||||||||||||||||||||||||||||
| Core deposit intangibles | |||||||||||||||||||||||||||||||||||
| Trade names | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||
| Intangible assets not subject to amortization: | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | |||||||||||||||||||||||||||||||||
Intangible assets subject to amortization acquired during the fiscal year ended March 31, 2022 amounted to ¥262,826 million, which primarily consisted of ¥262,645 million of software. The weighted average amortization periods for these assets are 6 years. There is no significant residual value estimated for these assets. Intangible assets not subject to amortization acquired during the fiscal year ended March 31, 2022 amounted to ¥3,498 million.
Intangible assets subject to amortization acquired during the fiscal year ended March 31, 2023 amounted to ¥273,108 million, which primarily consisted of ¥272,410 million of software. The weighted average amortization periods for these assets are 5 years. There is no significant residual value estimated for these assets. Intangible assets not subject to amortization acquired during the fiscal year ended March 31, 2023 amounted to ¥1,479 million.
For the fiscal years ended March 31, 2021, 2022 and 2023, the MUFG Group recognized ¥21,680 million, ¥33,301 million and ¥5,151 million, respectively, of impairment losses for intangible assets whose carrying amounts exceeded their fair value. In computing the amount of impairment losses, fair value was determined primarily based on the present value of expected future cash flows, the estimated value based on appraisals, or market prices.
F-45
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The estimated aggregate amortization expense for intangible assets for the next five fiscal years is as follows:
| (in millions) | |||||
| Fiscal year ending March 31: | |||||
| 2024 | ¥ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
7. LEASE TRANSACTIONS
Lease transactions as a lessee
Right-of-use assets of finance leases, which are principally related to data processing equipment and included in in the accompanying consolidated balance sheets, amounted to ¥12,980 million and ¥16,402 million at March 31, 2022 and 2023, respectively. Lease liabilities of these finance leases, which are included in in the accompanying consolidated balance sheets, amounted to ¥16,104 million and ¥19,470 million at March 31, 2022 and 2023, respectively.
Right-of-use assets of operating leases, which are principally related to office space and equipment are included in in the accompanying consolidated balance sheets, amounted to ¥261,803 million and ¥227,112 million at March 31, 2022 and 2023, respectively. Lease liabilities of these operating leases, which are included in in the accompanying consolidated balance sheets, amounted to ¥384,183 million and ¥337,391 million at March 31, 2022 and 2023, respectively.
For the fiscal years ended March 31, 2022 and 2023, the MUFG Group recognized ¥20,830 million and ¥15,720 million, respectively, of impairment losses for Right-of-use assets of operating leases, where recovery of the carrying amount is doubtful. The losses are included in Other non-interest expenses.
The discount rates used in determining the present value of leases are the MUFG Group’s incremental borrowing rate, developed based upon each lease’s term and currency of payment. The lease term includes options to extend or terminate the lease when it is reasonably certain that the MUFG Group will exercise that option. The MUFG Group has elected to exclude leases with original terms of less than one year from the operating lease right-of-use assets and lease liabilities. The MUFG Group’s lease arrangements that have not yet commenced as of March 31, 2023 are not material. Variable lease costs did not have a material impact on the MUFG Group’s results of operations.
The following table presents profit or loss of lease transactions as a lessee for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Finance lease cost: | |||||||||||||||||
| Amortization of right-of-use assets | ¥ | ¥ | ¥ | ||||||||||||||
| Interest on lease liabilities | |||||||||||||||||
| Operating lease cost | |||||||||||||||||
F-46
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents information of lease transactions as a lessee for the fiscal years ended March 31, 2022 and 2023:
| 2022 | 2023 | ||||||||||
(in millions, except years and percentages) | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from finance leases | ¥ | ¥ | |||||||||
| Operating cash flows from operating leases | |||||||||||
| Financing cash flows from finance leases | |||||||||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | |||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | |||||||||||
| Weighted-average remaining lease term: | |||||||||||
| Finance leases | |||||||||||
| Operating leases | |||||||||||
| Weighted-average discount rate: | |||||||||||
| Finance leases | % | % | |||||||||
| Operating leases | % | % | |||||||||
Maturities of lease liabilities as of March 31, 2023 are as follows:
Finance leases | Operating leases | ||||||||||
(in millions) | |||||||||||
| 2024 | ¥ | ¥ | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 and thereafter | |||||||||||
| Total undiscounted cash flows | |||||||||||
| Difference between undiscounted and discounted cash flows | ( | ( | |||||||||
| Amount on balance sheet | ¥ | ¥ | |||||||||
Lease transactions as a lessor
As part of its financing activities, the MUFG Group enters into leasing arrangements with customers. The MUFG Group’s leasing operations are conducted through leasing subsidiaries and consist principally of various types of data processing equipment, office equipment and transportation equipment. Sales type and direct financing lease are presented in loans. In certain case, the MUFG Group requests lessees to deposit in advance an amount nearly equal or equal to the residual value of leased assets.
F-47
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents profit or loss of lease transactions as a lessor for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Sales type and direct financing leases: | |||||||||||||||||
| Finance income on net investment | ¥ | ¥ | ¥ | ||||||||||||||
| Operating leases: | |||||||||||||||||
| Lease income | |||||||||||||||||
| Total | ¥ | ¥ | ¥ | ||||||||||||||
Finance income on net investment is included in Interest income—Loans, including fees in the consolidated statements of operations. Lease income from operating lease transactions is included in Other non-interest income in the consolidated statements of operations.
The following table presents the components of sales type and direct financing leases transactions as of March 31, 2022 and 2023:
| 2022 | 2023 | ||||||||||
(in millions) | |||||||||||
| Lease receivables (undiscounted) | ¥ | ¥ | |||||||||
| Adjustments: | |||||||||||
| Discounted unguaranteed residual value | |||||||||||
| Initial direct cost on sales type and direct financing leases | |||||||||||
| Deferred selling profit | ( | ( | |||||||||
| Net investment in sales type and direct financing leases | ¥ | ¥ | |||||||||
The following table presents maturity of the lease payment receivables of sales type and direct financing lease transactions as of March 31, 2023:
Lease receivables | |||||
(in millions) | |||||
| 2024 | ¥ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 and thereafter | |||||
| Total undiscounted cash flows | |||||
| Difference between undiscounted cash flows and the lease receivables recognized on balance sheet | ( | ||||
| Amount on balance sheet | ¥ | ||||
F-48
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
8. INCOME TAXES
Income (Loss) before Income Tax Expense (Benefit)
Income (loss) before income tax expense (benefit) by jurisdiction for the fiscal years ended March 31, 2021, 2022 and 2023 was as follows:
| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Domestic income (loss) | ¥ | ¥ | ( | ¥ | ( | ||||||||||||
| Foreign income | |||||||||||||||||
| Total | ¥ | ¥ | ( | ¥ | |||||||||||||
Income Tax Expense (Benefit)
The detail of current and deferred income tax expense (benefit) for the fiscal years ended March 31, 2021, 2022 and 2023 was as follows:
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Current: | |||||||||||||||||
| Domestic | ¥ | ¥ | ¥ | ||||||||||||||
| Foreign | |||||||||||||||||
| Total | |||||||||||||||||
| Deferred: | |||||||||||||||||
| Domestic | ( | ( | |||||||||||||||
| Foreign | ( | ( | ( | ||||||||||||||
| Total | ( | ( | |||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||
| Income tax expense (benefit) reported in Accumulated OCI relating to: | |||||||||||||||||
| Investment securities | ( | ( | |||||||||||||||
| Debt valuation adjustments | ( | ||||||||||||||||
| Derivatives qualifying for cash flow hedges | ( | ||||||||||||||||
| Defined benefit plans | ( | ||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||
| Total | |||||||||||||||||
| Total | ¥ | ¥ | ¥ | ||||||||||||||
Prior to the fiscal year ended March 31, 2023, the MUFG Group filed tax returns on a consolidated basis for corporate income taxes within Japan, and from the beginning of fiscal year ended March 31, 2023, the MUFG Group applied the Group Tax Sharing System, where the calculation of taxable income or loss is still made based upon the combined profits or losses of the parent company and its wholly-owned domestic subsidiaries, but the tax payments are made by each of these companies.
Reconciliation of Effective Income Tax Rate
Income taxes in Japan applicable to the MUFG Group are imposed by the national, prefectural and municipal governments, and in the aggregate resulted in a normal effective statutory rate of approximately 30.6 %, 30.6 %, and 30.6 % for the fiscal years ended March 31, 2021, 2022 and 2023, respectively. Foreign subsidiaries are subject to income taxes of the countries in which they operate.
F-49
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A reconciliation of the effective income tax rates reflected in the accompanying consolidated statements of operations to the combined normal effective statutory tax rates for the fiscal years ended March 31, 2021, 2022 and 2023 is as follows:
| 2021 | 2022 | 2023 | ||||||||||||||||||
| Combined normal effective statutory tax rate | % | % | % | |||||||||||||||||
| Nondeductible expenses | ( | |||||||||||||||||||
| Impairment of goodwill | ||||||||||||||||||||
| Foreign tax credit and payments | ( | ( | ||||||||||||||||||
| Lower tax rates applicable to income of subsidiaries | ( | ( | ||||||||||||||||||
| Change in valuation allowance | ( | ( | ( | |||||||||||||||||
| Taxation for gain on sale of shares in subsidiary | (1) | |||||||||||||||||||
| Nontaxable dividends received | ( | ( | ||||||||||||||||||
| Undistributed earnings of subsidiaries | ( | ( | ||||||||||||||||||
| Tax and interest expense for uncertainty in income taxes | ( | ( | ||||||||||||||||||
| Noncontrolling interest income | ( | |||||||||||||||||||
| Effect of changes in tax laws | ( | ( | ||||||||||||||||||
| Expiration of loss carryforward | ( | |||||||||||||||||||
| Other—net | ( | ( | ||||||||||||||||||
| Effective income tax rate | % | % | % | |||||||||||||||||
Note:
(1)In March 2023, MUAH repurchased a portion of the shares in MUAH held by MUFG and MUFG Bank. The transaction resulted in the realization of a difference between the book value of the shares in MUAH for accounting and tax purposes, resulting in a ¥22,250 million increase in income tax expense and a 3.4 percentage points increase in the effective tax rate for the fiscal year ended March 31, 2023.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are computed for each tax jurisdiction using currently enacted tax rates applicable to periods when the temporary differences are expected to reverse. The tax effects of the items comprising the MUFG Group’s net deferred tax assets at March 31, 2022 and 2023 were as follows:
| 2022 | 2023 | ||||||||||
(in millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Allowance for credit losses | ¥ | ¥ | |||||||||
| Operating loss carryforwards | |||||||||||
| Loans | |||||||||||
| Accrued liabilities and other | |||||||||||
| Premises and equipment | |||||||||||
| Derivative financial instruments | |||||||||||
| Obligations under operating leases | |||||||||||
| Valuation allowance | ( | ( | |||||||||
| Total deferred tax assets | |||||||||||
F-50
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| 2022 | 2023 | ||||||||||
(in millions) | |||||||||||
| Deferred tax liabilities: | |||||||||||
| Investment securities (including trading account assets at fair value under the fair value option) | |||||||||||
| Intangible assets | |||||||||||
| Lease transactions | |||||||||||
| Defined benefit plans | |||||||||||
| Investments in subsidiaries and affiliates | |||||||||||
| Right-of-use assets of operating leases | |||||||||||
| Other | |||||||||||
| Total deferred tax liabilities | |||||||||||
| Net deferred tax liabilities | ¥ | ( | ¥ | ( | |||||||
The valuation allowance was provided primarily against deferred tax assets recorded at MUFG and its subsidiaries with operating loss carryforwards. The valuation allowance is determined to reduce the measurement of deferred tax assets not expected to be realized. Management considers all available evidence, both positive and negative, to determine whether the valuation allowance is necessary based on the weight of that evidence. Management determines the amount of the valuation allowance based on future reversals of existing taxable temporary differences and future taxable income exclusive of reversing temporary differences. Future taxable income is developed from forecasted operating results, based on recent historical trends and approved business plans, the eligible carryforward periods and other relevant factors.
For certain subsidiaries where strong negative evidence exists, such as the existence of significant amounts of operating loss carryforwards, cumulative losses and the expiration of unused operating loss carryforwards in recent years, a valuation allowance was recognized against the deferred tax assets as of March 31, 2022 and 2023 to the extent that it is more likely than not that they will not be realized.
Income taxes are not provided on undistributed earnings of certain foreign subsidiaries that are considered to be indefinitely reinvested in the operations of such subsidiaries. At March 31, 2022 and 2023, the undistributed earnings of such foreign subsidiaries amounted to approximately ¥108,311 million and ¥66,897 million, respectively. Determination of the amount of unrecognized deferred tax liabilities with respect to these undistributed earnings is not practicable because of the complexity associated with its hypothetical calculation including foreign withholding taxes and foreign tax credits. MUFG has neither the plan nor the intention to dispose of investments in such foreign subsidiaries and, accordingly, does not expect to record capital gains or losses, or otherwise monetize the undistributed earnings of such foreign subsidiaries.
Furthermore, under the Japanese tax law, 95 % of a dividend received from a foreign company in which a domestic company has held generally at least 25 % of the outstanding shares for a continuous period of six months or more ending on the date on which the dividend is declared can be excluded from the domestic company’s taxable income. Therefore, if undistributed earnings of certain foreign subsidiaries are repatriated through dividends, only 5 % of the amount of dividends will be included in taxable income.
Operating Loss and Tax Credit Carryforwards
At March 31, 2023, the MUFG Group had operating loss carryforwards for corporate tax of ¥221,609 million and tax credit carryforwards of ¥57,084 million for tax purposes. Such carryforwards, if not utilized, are scheduled to expire as follows:
F-51
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Operating loss carryforwards | Tax credit carryforwards | ||||||||||
| (in millions) | |||||||||||
| Fiscal year ending March 31: | |||||||||||
| 2024 | ¥ | ¥ | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| 2029 | |||||||||||
| 2030 and thereafter | |||||||||||
| No definite expiration date | |||||||||||
| Total | ¥ | ¥ | |||||||||
Uncertainty in Income Tax
The following is a roll-forward of the MUFG Group’s unrecognized tax benefits for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
| Gross amount of increases for current year’s tax positions | |||||||||||||||||
| Gross amount of decreases for current year’s tax positions | ( | ||||||||||||||||
| Gross amount of increases for prior years’ tax positions | |||||||||||||||||
| Gross amount of decreases for prior years’ tax positions | ( | ( | ( | ||||||||||||||
| Decreases due to lapse of applicable statutes of limitations | ( | ( | ( | ||||||||||||||
| Foreign exchange translation and other | ( | ||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
The MUFG Group classifies interest and penalties, if applicable, related to income taxes as Income tax expense. Accrued interest and penalties (not included in the “unrecognized tax benefits” above) are a component of Other liabilities. The following is a roll-forward of the interest and penalties recognized in the accompanying consolidated financial statements for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
| Total interest and penalties in the consolidated statements of operations | ( | ( | |||||||||||||||
| Total cash settlements, foreign exchange translation and other | |||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
F-52
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The MUFG Group is subject to ongoing tax examinations by the tax authorities of the various jurisdictions in which it operates. The following are the major tax jurisdictions in which the MUFG Group operates and the status of years under audit or open to examination:
| Jurisdiction | Tax years | ||||
| Japan | 2022 and forward | ||||
| United States—Federal | 2019 and forward | ||||
| United States—California | 2015 and forward | ||||
| Indonesia | 2018 and forward | ||||
9. PLEDGED ASSETS AND COLLATERAL
Pledged Assets
At March 31, 2023, assets mortgaged, pledged, or otherwise subject to lien were as follows:
| 2023 | |||||
| (in millions) | |||||
| Trading account securities | ¥ | ||||
| Investment securities | |||||
| Loans | |||||
| Other | |||||
| Total | ¥ | ||||
The above pledged assets were classified by type of liabilities to which they related as follows:
| 2023 | |||||
| (in millions) | |||||
| Deposits | ¥ | ||||
| Payables under repurchase agreements and securities lending transactions | |||||
| Other short-term borrowings and long-term debt | |||||
| Other | |||||
| Total | ¥ | ||||
At March 31, 2023, certain investment securities, principally Japanese national government and Japanese government agency bonds, loans, and other assets with a combined carrying value of ¥19,436,978 million were pledged for acting as a collection agent of public funds, for settlement of exchange at the Bank of Japan and Japanese Banks’ Payment Clearing Network, for derivative transactions and for certain other purposes.
The MUFG Group engages in on-balance sheet securitizations. These securitizations of mortgage and apartment loans, which do not qualify for sales treatment, are accounted for as secured borrowings. The amount of loans in the table above represents the carrying amount of these transactions with the carrying amount of the associated liabilities included in Other short-term borrowings and Long-term debt.
Under Japanese law, Japanese banks are required to maintain certain reserves on deposit with the Bank of Japan based on the amount of deposit balances and certain other factors. There are similar reserve deposit requirements for foreign offices and subsidiaries engaged in banking businesses in foreign countries. At March 31, 2022 and 2023, the reserve funds required to be maintained by the MUFG Group, which are included in Cash and due from banks and Interest-earning deposits in other banks, were ¥2,991,833 million and ¥2,918,282 million, respectively.
F-53
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Collateral
The MUFG Group accepts and provides financial assets as collateral for transactions, principally commercial loans, repurchase agreements and securities lending transactions, call money, and derivatives. Financial assets eligible for such collateral include, among others, marketable equity securities, trade and notes receivable and certificates of deposit (“CDs”).
Secured parties, including creditors and counterparties to certain transactions with the MUFG Group, may sell or repledge financial assets provided as collateral. Certain contracts, however, may not be specific about the secured party’s right to sell or repledge collateral under the applicable statutes and, therefore, whether or not the secured party is permitted to sell or repledge collateral would differ depending on the interpretations of specific provisions of the existing statutes, contract or certain market practices.
If the MUFG Group determines, based on available information, that a financial asset provided as collateral might not be sold or repledged by the secured parties, such collateral is not separately reported in the accompanying consolidated balance sheets. If a secured party is permitted to sell or repledge financial assets provided as collateral by contract or custom under the existing statutes, the MUFG Group reports such pledged financial assets separately on the face of the accompanying consolidated balance sheets. At March 31, 2023, the MUFG Group pledged ¥35,115 billion of assets that may not be sold or repledged by the secured parties.
Certain banking subsidiaries accept collateral for commercial loans and certain banking transactions under a standardized agreement with customers, which provides that these banking subsidiaries may require the customers to provide collateral or guarantees with respect to the loans and other banking transactions. Financial assets pledged as collateral are generally negotiable and transferable instruments, and such negotiability and transferability are authorized by applicable legislation. In principle, Japanese legislation permits these banking subsidiaries to repledge financial assets accepted as collateral unless otherwise prohibited by contract or relevant statutes. Nevertheless, the MUFG Group did not sell or repledge nor does it plan to sell or repledge such collateral accepted in connection with commercial loans before a debtor’s default or other credit events specified in the agreements as it is not customary within the banking industry in Japan to dispose of collateral before a debtor’s default and other specified credit events. Derivative agreements commonly used in the marketplace do not prohibit a secured party’s disposition of financial assets received as collateral, and in resale agreements and securities borrowing transactions, securities accepted as collateral may be sold or repledged by the secured parties. At March 31, 2022 and 2023, the fair value of the collateral accepted by the MUFG Group that is permitted to be sold or repledged was ¥31,167 billion and ¥32,111 billion, respectively, of which ¥23,699 billion and ¥24,063 billion, respectively, was sold or repledged.
10. DEPOSITS
At March 31, 2022 and 2023, the aggregate amount of time deposit accounts (including CDs) in denominations that meet or exceed the insured limit were ¥54,819,050 million and ¥60,245,700 million, respectively. These time deposits included domestic time deposits in denominations that meet or exceed the limit stipulated by the Deposit Insurance Act in Japan, which is ¥10 million, and foreign time deposits in denominations that meet or exceed any country-specific insurance fund limit.
The maturity information at March 31, 2023 for domestic and foreign time deposits, including CDs, is summarized as follows:
| Domestic | Foreign | ||||||||||
| (in millions) | |||||||||||
| Due in one year or less | ¥ | ¥ | |||||||||
| Due after one year through two years | |||||||||||
| Due after two years through three years | |||||||||||
| Due after three years through four years | |||||||||||
| Due after four years through five years | |||||||||||
| Due after five years | |||||||||||
| Total | ¥ | ¥ | |||||||||
F-54
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. CALL MONEY AND FUNDS PURCHASED
A summary of funds transactions for the fiscal years ended March 31, 2022 and 2023 is as follows:
| 2022 | 2023 | ||||||||||
(in millions, except percentages and days) | |||||||||||
| Outstanding at end of fiscal year: | |||||||||||
| Amount | ¥ | ¥ | |||||||||
| Principal range of maturities | |||||||||||
| Weighted average interest rate | % | % | |||||||||
12. DUE TO TRUST ACCOUNT, SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Mitsubishi UFJ Trust and Banking holds assets on behalf of its customers in an agent, fiduciary or trust capacity. Such trust account assets are not the MUFG Group’s proprietary assets and are managed and accounted for separately.
However, excess cash funds of individual trust accounts are often placed with Mitsubishi UFJ Trust and Banking which manages the funds together with its own funds in its proprietary account. Due to trust account reflects a temporary placement of the excess funds from individual trust accounts and, in view of the MUFG Group’s funding, due to trust account is similar to short-term funding, including demand deposits and other overnight funds purchased. The balance changes in response to the day-to-day changes in the excess funds placed by the trust accounts. A summary of due to trust account transactions at March 31, 2022 and 2023 is as follows:
| 2022 | 2023 | ||||||||||
(in millions, except percentages) | |||||||||||
| Amount outstanding at end of fiscal year | ¥ | ¥ | |||||||||
| Weighted average interest rate on outstanding balance at end of fiscal year | % | % | |||||||||
At March 31, 2022 and 2023, the MUFG Group had unused lines of credit for financing amounting to ¥4,741,464 million and ¥3,321,061 million, respectively. The amounts principally consist of pooled collateral which are used to cover shortages in the Bank of Japan account and to meet liquidity needs. The MUFG Group may borrow from the Bank of Japan on demand up to the total amount of collateral eligible for credit extension.
F-55
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Other short-term borrowings at March 31, 2022 and 2023 were comprised of the following:
| 2022 | 2023 | ||||||||||
| (in millions, except percentages) | |||||||||||
| Domestic offices: | |||||||||||
| Commercial paper | ¥ | ¥ | |||||||||
| Borrowings from the Bank of Japan | |||||||||||
| Borrowings from other financial institutions | |||||||||||
Other(1) | |||||||||||
| Total domestic offices | |||||||||||
| Foreign offices: | |||||||||||
| Commercial paper | |||||||||||
| Borrowings from other financial institutions | |||||||||||
| Short-term debentures | |||||||||||
| Other | |||||||||||
| Total foreign offices | |||||||||||
| Total | |||||||||||
| Less unamortized discount | |||||||||||
| Other short-term borrowings—net | ¥ | ¥ | |||||||||
| Weighted average interest rate on outstanding balance at end of fiscal year | % | % | |||||||||
Note:
(1)Includes borrowings from the jointly operated designated money in trusts.
F-56
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Long-term debt (with original maturities of more than one year) at March 31, 2022 and 2023 was comprised of the following:
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| MUFG: | |||||||||||
| Obligations under finance leases | ¥ | ¥ | |||||||||
Unsubordinated debt (1): | |||||||||||
Fixed rate bonds, payable in US dollars, due 2023-2039, principally | |||||||||||
Fixed rate bonds, payable in Euro, due 2023-2033, principally | |||||||||||
Fixed rate bonds, payable in other currencies, due 2024-2029, principally | |||||||||||
Adjustable rate bonds, payable in Japanese yen, due 2024-2034, principally | |||||||||||
Adjustable rate bonds, payable in Euro, due 2025-2027, principally | |||||||||||
Adjustable rate borrowings, payable in Japanese yen, due 2025-2037, principally | |||||||||||
Floating rate bonds, payable in US dollars, due 2023-2026, principally | |||||||||||
Floating rate bonds, payable in Euro, due 2023, principally | |||||||||||
Floating rate bonds, payable in other currencies, due 2024, principally | |||||||||||
| Total | |||||||||||
Subordinated debt (1): | |||||||||||
Fixed rate bonds, payable in Japanese yen, due 2024-2033, principally | |||||||||||
Fixed rate borrowings, payable in Japanese yen, due 2025-2028, principally | |||||||||||
Adjustable rate bonds, payable in Japanese yen, due 2028-2033, principally | |||||||||||
Adjustable rate bonds, payable in Japanese yen, no stated maturity, principally | |||||||||||
Adjustable rate borrowings, payable in Japanese yen, due 2029-2032, principally | |||||||||||
Adjustable rate borrowings, payable in Japanese yen, no stated maturity, principally | |||||||||||
Floating rate borrowings, payable in Japanese yen, due 2025-2028, principally | |||||||||||
| Total | |||||||||||
| Total | |||||||||||
| MUFG Bank: | |||||||||||
| Obligations under finance leases | ¥ | ¥ | |||||||||
Unsubordinated debt (1): | |||||||||||
Fixed rate bonds, payable in Japanese yen, due 2023-2027, principally | |||||||||||
Fixed rate bonds, payable in US dollars, due 2023-2052, principally | |||||||||||
Fixed rate bonds, payable in Euro, due 2033, principally | |||||||||||
Fixed rate borrowings, payable in Japanese yen, due 2023-2028, principally | |||||||||||
Fixed rate borrowings, payable in US dollars, due 2030, principally | |||||||||||
Adjustable rate borrowings, payable in US dollars, due 2023, principally | |||||||||||
Floating rate borrowings, payable in US dollars, due 2023-2031, principally | |||||||||||
Floating rate borrowings, payable in Euro, due 2025-2036, principally | |||||||||||
| Total | |||||||||||
Subordinated debt (1): | |||||||||||
Fixed rate bonds, payable in Japanese yen, due 2025-2031, principally | |||||||||||
Fixed rate borrowings, payable in Japanese yen, due 2023-2035, principally | |||||||||||
Adjustable rate borrowings, payable in Japanese yen, due 2028, principally | |||||||||||
Floating rate borrowings, payable in Japanese yen, due 2027, principally | |||||||||||
| Total | |||||||||||
Obligations under loan securitization transaction accounted for as secured borrowings due 2023-2080, principally | |||||||||||
| Total | |||||||||||
F-57
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Other subsidiaries: | |||||||||||
| Obligations under finance leases | ¥ | ¥ | |||||||||
Unsubordinated debt (1): | |||||||||||
Fixed rate borrowings, bonds and notes, payable in Japanese yen, due 2023-2051, principally | |||||||||||
Fixed rate borrowings, bonds and notes, payable in US dollars, due 2023-2036, principally | |||||||||||
Fixed rate borrowings, bonds and notes, payable in Euro, due 2024-2030, principally | |||||||||||
Fixed rate borrowings, bonds and notes, payable in Thai baht, due 2023-2028, principally | |||||||||||
Fixed rate borrowings, bonds and notes, payable in other currencies, due 2023-2037, principally | |||||||||||
Floating/Adjustable rate borrowings, bonds and notes, payable in Japanese yen, due 2023-2053, principally | |||||||||||
Floating/Adjustable rate borrowings, bonds and notes, payable in US dollars, due 2023-2032, principally | |||||||||||
Adjustable rate bonds and notes, payable in Euro, due 2024-2025, principally | |||||||||||
| Total | |||||||||||
Subordinated debt (1): | |||||||||||
Fixed rate borrowings, bonds and notes, payable in Japanese yen, due 2023-2030, principally | |||||||||||
Fixed rate bonds and notes, payable in US dollars, due 2027-2030, principally | |||||||||||
Fixed rate bonds and notes, payable in Thai baht, due 2029-2032, principally | |||||||||||
Floating rate bonds and notes, payable in US dollars, due 2028, principally | |||||||||||
| Total | |||||||||||
Obligations under loan securitization transaction accounted for as secured borrowings due 2022, principally 2.25% | |||||||||||
| Total | |||||||||||
| Total | |||||||||||
| Debt issuance cost | ¥ | ( | ¥ | ( | |||||||
| Total | ¥ | ¥ | |||||||||
Notes:
(1)Adjustable rate debts are debts where interest rates are reset in accordance with the terms of the debt agreements, and floating rate debts are debts where interest rates are repriced in accordance with movements of markets indices.
The MUFG Group uses derivative financial instruments to manage its interest rate and currency exposures for certain debts. The derivative financial instruments include swaps, forwards, options and other types of derivatives. As a result of these derivative instruments, the effective rates reflected in the table above may differ from the coupon rates. The interest rates for the adjustable and floating rate debt shown in the above table are those in effect at March 31, 2022 and 2023.
Certain debt agreements permit the MUFG Group to redeem the related debt, in whole or in part, prior to maturity at the option of the issuer on terms specified in the respective agreements.
F-58
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following is a summary of maturities of long-term debt subsequent to March 31, 2023 :
| MUFG | BK | Other subsidiaries | Total | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Fiscal year ending March 31: | |||||||||||||||||||||||
| 2024 | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||
| 2027 | |||||||||||||||||||||||
| 2028 | |||||||||||||||||||||||
| 2029 and thereafter | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
New Issuances of Debt for Basel III
For the fiscal year ended March 31, 2023, the MUFG Group issued to institutional investors in Japan ¥90,000 million aggregate principal amount of unsecured perpetual subordinated Additional Tier 1 notes. These notes are subject to the MUFG Group’s discretion to cease interest payments and a write-down of the principal upon the occurrence of certain events, including when the MUFG Group’s Common Equity Tier 1 ratio declines below 5.125 %, when the MUFG Group is deemed to be at risk of becoming non-viable or when the MUFG Group becomes subject to bankruptcy proceedings.
13. SEVERANCE INDEMNITIES AND PENSION PLANS
Defined Benefit Pension Plans
The MUFG Group has funded non-contributory defined benefit pension plans, which cover substantially all of its employees and mainly provide for lifetime annuity payments commencing at age 65 (“pension benefits”) based on eligible compensation at the time of severance, rank, years of service and other factors.
MUFG Bank and certain domestic subsidiaries, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and some subsidiaries of MUFG have non-contributory Corporate Defined Benefit Pension plans which provide benefits to all their domestic employees.
The MUFG Group also offers qualified and nonqualified defined benefit pension plans in foreign offices and subsidiaries for their employees. The qualified plans are non-contributory defined pension plans, which provide benefits upon retirement based on years of service and average compensation and cover substantially all of the employees of such foreign offices and subsidiaries. With respect to the offices and subsidiaries in the United States of America, the qualified plans are funded on a current basis in compliance with the requirement of the Employee Retirement Income Security Act of the United States of America. The nonqualified plans are non-contributory defined benefit pension plans, under which certain employees earn pay and interest credits on compensation amounts above the maximum stipulated by applicable laws under the qualified plans.
Severance Indemnities Plans
The MUFG Group has SIPs under which their employees in Japan, other than those who are directors, are entitled, under most circumstances, upon mandatory retirement at normal retirement age or earlier termination of employment, to lump-sum severance indemnities based on eligible compensation at the time of severance, rank, years of service and other factors. Under SIPs, benefit payments in the form of a lump-sum cash payment with no option to receive annuity payments, upon mandatory retirement at normal retirement age or earlier termination of employment, are provided. When a benefit is paid in a single payment to a benefit payee under the plans, the payment represents final relief of the obligation.
F-59
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Other Postretirement Plans
The MUFG Group’s foreign offices and subsidiaries, primarily in the United States of America, provide their employees with certain postretirement medical and life insurance benefits (“other benefits”).
As part of the transaction discussed in Note 2, assets and obligations of defined benefit pension plan and other postretirement plan, which MUFG Union Bank had maintained, were assigned to MUFG Bank and U.S. Bancorp in proportion to each entity’s share of the underlying participant obligations of the plans, and the related profit, loss and other comprehensive income for the three-month lag period are not reflected on the consolidated statements of operations and the consolidated statements of comprehensive income for the fiscal year ended March 31, 2023, and instead have been recognized as direct adjustments to retained earnings and Accumulated OCI, respectively. The effects of the elimination of the difference in reporting periods for the assets and obligations of defined pension plan and other postretirement plan resulted in a net adjustment to unappropriated retained earnings of ¥2,086 million and Accumulated OCI, net of taxes of ¥27,593 million, which is recorded in Elimination of the difference in reporting periods of the transferred business in the consolidated statements of equity for the fiscal year ended March 31, 2023. However, the disclosures in the remainder of this note disregard the separate presentation of this effect in the funded status, and the removal of these gains, losses, and OCI for the three months period from the components of net periodic cost and OCI.
Net periodic cost of pension benefits and other benefits for the fiscal years ended March 31, 2021, 2022 and 2023 include the following components:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
Pension benefits and SIP | Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service cost—benefits earned during the fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Interest cost on projected benefit obligation | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization of net actuarial loss (gain) | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service cost | ( | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Loss (gain) on settlements and curtailment | ( | ( | ( | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost (income) | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | ( | ||||||||||||||||||||||||||||||||||||||
Note:
(1)One-time write off of unrecognized retirement benefit obligations of ¥84,345 million was recorded in connection with a pension buyout transaction to transfer portions of the defined benefit pension plans of MUFG Bank’s overseas branches.
F-60
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table summarizes the assumptions used in computing the present value of the projected benefit obligations and the net periodic benefit cost:
| Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Pension benefits and SIP | Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted-average assumptions used: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount rates in determining expense | % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||||||||||||||
| Discount rates in determining benefit obligation | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rates of increase in future compensation level for determining expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rates of increase in future compensation level for determining benefit obligation | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expected rates of return on plan assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash balance crediting rate for determining expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash balance crediting rate for determining benefit obligation | |||||||||||||||||||||||||||||||||||||||||||||||||||||
The following tables present the assumed health care cost trend rates for foreign offices and subsidiaries, which are used to measure the expected cost of benefits for the next year:
| MUAH | Other than MUAH | ||||||||||||||||||||||
2022(1) | 2023 | 2022(1) | 2023(1) | ||||||||||||||||||||
| Initial trend rate | % | % | % | ||||||||||||||||||||
| Ultimate trend rate | % | % | % | ||||||||||||||||||||
| Year the rate reaches the ultimate trend rate | 2029 | — | 2029 | 2031 | |||||||||||||||||||
Note:
F-61
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table sets forth the combined funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 2022 and 2023:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||||||
Non-contributory pension benefits and SIP | Non-contributory pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | ||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
| Change in benefit obligation: | |||||||||||||||||||||||||||||||||||
| Benefit obligation at beginning of fiscal year | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
| Service cost | |||||||||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||
| Plan participants’ contributions | |||||||||||||||||||||||||||||||||||
| Acquisitions/ Divestitures | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Amendments | ( | ( | |||||||||||||||||||||||||||||||||
| Actuarial loss (gain) | ( | ( | ( | (1) | ( | ( | (1) | ( | |||||||||||||||||||||||||||
| Benefits paid | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Lump-sum payment | ( | ( | ( | — | ( | — | |||||||||||||||||||||||||||||
| Translation adjustments and other | ( | (2) | |||||||||||||||||||||||||||||||||
| Benefit obligation at end of fiscal year | |||||||||||||||||||||||||||||||||||
| Change in plan assets: | |||||||||||||||||||||||||||||||||||
| Fair value of plan assets at beginning of fiscal year | |||||||||||||||||||||||||||||||||||
| Actual return on plan assets | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Employer contributions | ( | ( | |||||||||||||||||||||||||||||||||
| Acquisitions/ Divestitures | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Plan participants’ contributions | |||||||||||||||||||||||||||||||||||
| Benefits paid | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Translation adjustments and other | ( | (2) | |||||||||||||||||||||||||||||||||
| Fair value of plan assets at end of fiscal year | |||||||||||||||||||||||||||||||||||
| Amounts recognized in the consolidated balance sheets: | |||||||||||||||||||||||||||||||||||
| Prepaid benefit cost | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
| Accrued benefit cost | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Net amount recognized | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ||||||||||||||||||||||||||||
Notes:
(1)Significant gains and losses related to changes in the benefit obligation for the fiscal years ended March 31, 2022 and 2023 primarily result from changes in the discount rate.
(2)In connection with a pension buyout transaction, portions of the defined benefit pension plans of MUFG Bank’s overseas branches were transferred. The related obligations and assets were ¥327,203 million and ¥327,203 million, respectively.
F-62
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The aggregated accumulated benefit obligations of these plans at March 31, 2022 and 2023 were as follows:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Aggregated accumulated benefit obligations | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
The projected benefit obligations, accumulated benefit obligations and fair value of plan assets for the plans with accumulated benefit obligations in excess of plan assets at March 31, 2022 and 2023 were as follows:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Projected benefit obligations | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Accumulated benefit obligations | |||||||||||||||||||||||
| Fair value of plan assets | |||||||||||||||||||||||
MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ NICOS and other subsidiaries paid special lump-sum termination benefits which are not a part of pension plans to certain early-terminated employees. The amounts charged to operations for such early termination benefits for the fiscal years ended March 31, 2021, 2022 and 2023 were ¥16,716 million, ¥16,235 million and ¥16,888 million, respectively.
The following table presents the amounts recognized in Accumulated OCI of the MUFG Group at March 31, 2022 and 2023:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||||||
Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | ||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
| Net actuarial loss (gain) | ¥ | ( | ¥ | ¥ | ¥ | ( | ¥ | ¥ | |||||||||||||||||||||||||||
| Prior service cost | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Gross amount recognized in Accumulated OCI | ( | ( | |||||||||||||||||||||||||||||||||
| Taxes | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Net amount recognized in Accumulated OCI | ¥ | ( | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | ||||||||||||||||||||||||||
F-63
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents OCI for the fiscal years ended March 31, 2022 and 2023:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||||||||||||
Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | ||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
| Net actuarial loss (gain) arising during the year | ¥ | ( | ¥ | ¥ | ( | ¥ | ( | ¥ | ¥ | ||||||||||||||||||||||||||
| Prior service cost arising during the year | ( | ( | |||||||||||||||||||||||||||||||||
| Losses (gains) due to amortization: | |||||||||||||||||||||||||||||||||||
| Net actuarial loss (gain) | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Prior service cost | |||||||||||||||||||||||||||||||||||
| Curtailment and settlement | ( | ( | (1) | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||||||||||||||||||||||||||
| Total changes in Accumulated OCI | ¥ | ( | ¥ | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | |||||||||||||||||||||||||
Note:
(1)One-time write off of unrecognized retirement benefit obligations of ¥84,345 million was recorded in connection with a pension buyout transaction to transfer portions of the defined benefit pension plans of MUFG Bank’s overseas branches.
F-64
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Investment policies
MUFG’s investment policy for plan assets is based on an asset liability matching strategy which is intended to maintain adequate liquidity for benefit payments and to achieve a stable increase in the plan assets in the medium and long-term through proper risk control and return maximization. As a general rule, investment policies for plan assets are reviewed periodically for some plans and in the following situations for all plans: (1) large fluctuations in pension plan liabilities caused by modifications to pension plans, or (2) changes in the market environment. The plan assets allocation strategies are the principal determinant in achieving expected investment returns on the plan assets. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. Plan assets are managed by a combination of internal and external asset management companies and are rebalanced when market fluctuations cause an asset category to fall outside of its strategic asset allocation range. Performance of each plan asset category is compared against established indices and similar plan asset groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.
The weighted-average target asset allocation of plan assets for the pension benefits and other benefits at March 31, 2023 was as follows:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||
| Asset category | Pension benefits and SIP | Pension benefits | Other benefits | ||||||||||||||
| Japanese equity securities | % | % | % | ||||||||||||||
| Japanese debt securities | |||||||||||||||||
| Non-Japanese equity securities | |||||||||||||||||
| Non-Japanese debt securities | |||||||||||||||||
| Real estate | |||||||||||||||||
| Short-term assets and other | |||||||||||||||||
| Total | % | % | % | ||||||||||||||
Basis and procedure for estimating long-term return of each asset category
MUFG’s expected long-term rate of return on plan assets for domestic defined benefit pension plans and SIPs is based on a building-block methodology, which calculates the total long-term rate of return of the plan assets by aggregating the weighted rate of return derived from both long-term historical performance and forward-looking return expectations from each asset category.
MUFG has determined the expected long-term rate of return for each asset category as follows:
•Japanese equity securities: the rate for Japanese debt securities plus a premium for the risk associated with Japanese equity securities
•Japanese debt securities: economic growth rate of Japan
•Non-Japanese equity securities: the rate for non-Japanese debt securities plus a premium for the risk associated with non-Japanese equity securities
•Non-Japanese debt securities: global economic growth rate
Foreign offices and subsidiaries periodically reconsider the expected long-term rate of return for their plan assets. They evaluate the investment return volatility of different asset categories and compare the liability structure of their pension and other benefits to those of other companies, while considering their funding policy to maintain a funded status sufficient to meet participants’ benefit obligations, and reduce long-term funding requirements and pension costs. Based on this information, foreign offices and subsidiaries update the expected long-term rate of return.
F-65
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service for the fiscal years indicated:
Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||
Pension benefits and SIP | Pension benefits | Other benefits | |||||||||||||||
| (in millions) | |||||||||||||||||
| Fiscal year ending March 31: | |||||||||||||||||
| 2024 | ¥ | ¥ | ¥ | ||||||||||||||
| 2025 | |||||||||||||||||
| 2026 | |||||||||||||||||
| 2027 | |||||||||||||||||
| 2028 | |||||||||||||||||
| Thereafter (2029-2033) | |||||||||||||||||
Fair value measurement of the plan assets
The following is a description of the valuation methodologies used for plan assets measured at fair value as well as the classification of the plan assets pursuant to the fair value hierarchy described in Note 31.
Government bonds and other debt securities
When quoted prices are available in an active market, the MUFG Group adopts the quoted prices to measure the fair value of securities and such securities are classified in Level 1 of the fair value hierarchy. Level 1 securities include Japanese government bonds, most non-Japanese government bonds and certain corporate bonds. When quoted prices are available but not traded actively, such securities are classified in Level 2 of the fair value hierarchy. When quoted prices are not available, the MUFG Group generally estimates fair values by using non-binding prices obtained from independent pricing vendors. Such securities are generally classified in Level 2 of the fair value hierarchy. Level 2 securities include certain non-Japanese government bonds, official institution bonds and corporate bonds. When there is lack of liquidity for securities or significant inputs adopted to the fair value measurements are unobservable, such securities are classified in Level 3 of the fair value hierarchy. Such Level 3 securities mainly consist of non-Japanese corporate bonds.
Marketable equity securities
When quoted prices are available in an active market, the MUFG Group adopts the quoted prices to measure the fair value of marketable equity securities and such securities are classified in Level 1 of the fair value hierarchy. When quoted prices are available but not traded actively, such securities are classified in Level 2 of the fair value hierarchy.
Japanese pooled funds
Japanese pooled funds are investment fund vehicles designed for Japanese pension plan investments under Japanese pension trust fund regulations. Based upon the nature of the funds’ investments, Japanese pooled funds are categorized into four major fund types: Japanese marketable equity securities type, Japanese debt securities type, Non-Japanese marketable equity securities type and Non-Japanese debt securities type. The other types of funds invest in short-term financial instruments or loans receivable. Japanese pooled funds are generally readily redeemable at their net asset values. The fair values of Japanese pooled funds are measured at their net asset values per share (or its equivalent) as a practical expedient.
Other investment funds
Other investment funds include mutual funds, private investments funds, common collective funds, private equity funds and real estate funds. The listed investment funds or mutual funds are valued at quoted prices and classified in Level 1 or Level 2 of the fair value hierarchy. When there is no available market quotation, the fair values are generally determined at net asset values per share (or
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
its equivalent) as a practical expedient. Other investment funds classified in Level 3 of the fair value hierarchy consist of certain real estate funds whose fair values are not measured at their net asset values but by using significant unobservable inputs and there is inherent lack of the funds’ liquidity.
Japanese general accounts of life insurance companies
These instruments are contracts with life insurance companies that guarantee return of a certain level of fixed income, which are mainly invested in assets with low market risk such as Japanese debt securities. They are measured at conversion value and classified in Level 2 of the fair value hierarchy.
Other investments
Other investments mainly consist of call loans with the remainder consisting of miscellaneous accounts such as deposits with banks and short-term investments. These instruments are generally classified in Level 1 or Level 2 of the fair value hierarchy.
The following table presents the fair value of each major category of plan assets as of March 31, 2022 and 2023:
Pension benefits and SIP Investments:
| At March 31, 2022 | Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||
| Assets category | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Japanese government bonds | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||
| Non-Japanese government bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Japanese marketable equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Japanese marketable equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investment funds | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||
Japanese general account of life insurance companies(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||
| At March 31, 2023 | Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||||||||||||||||||||||
| Assets category | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Japanese government bonds | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||
| Non-Japanese government bonds | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Japanese marketable equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Japanese marketable equity securities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investment funds | ||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese general account of life insurance companies(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other investments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||
Notes:
(1)“Japanese general accounts of life insurance companies” is a contract with life insurance companies that guarantees a return of approximately 1.25 % from April 1, 2021 to March 31, 2022 and 1.25 % from April 1, 2022 to March 31, 2023.
(2)Other investment funds of the foreign offices and subsidiaries include mutual funds and common collective funds of ¥86,724 million and ¥146,169 million, respectively, which were held by MUFG Americas Holdings at December 31, 2021.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents fair values of certain investments valued at net asset value per share (or its equivalent) as a practical expedient that were excluded from the above table as of March 31, 2022 and 2023:
Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||||||||||||
| Assets category | 2022 | 2023 | 2022 | 2023 | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Japanese pooled funds: | ||||||||||||||||||||||||||
| Japanese marketable equity securities | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||
| Japanese debt securities | ||||||||||||||||||||||||||
| Non-Japanese marketable equity securities | ||||||||||||||||||||||||||
| Non-Japanese debt securities | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total pooled funds | ||||||||||||||||||||||||||
| Other investment funds | (1) | (1) | (2) | (2) | ||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||
Notes:
(1)Other investment funds of the domestic subsidiaries include mutual funds and real estate funds of ¥625,237 million and ¥15,417 million, respectively, at March 31, 2022 and ¥690,781 million and ¥12,351 million, respectively, at March 31, 2023.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14.OTHER ASSETS AND LIABILITIES
Major components of other assets and liabilities at March 31, 2022 and 2023 were as follows:
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Other assets: | |||||||||||
| Accounts receivable: | |||||||||||
| Receivables from brokers, dealers and customers for securities transactions | ¥ | ¥ | |||||||||
Other(1) | |||||||||||
| Investments in equity method investees | |||||||||||
| Prepaid benefit cost (Note 13) | |||||||||||
| Cash collateral pledged for derivative transactions (Note 9) | |||||||||||
| Cash collateral for the use of Bank of Japan’s settlement infrastructure | |||||||||||
| Accrued interest | |||||||||||
| Deferred tax assets (Note 8) | |||||||||||
| Right-of-use assets of operating leases (Note 7) | |||||||||||
| Assets held for sale relating to transferred business of MUFG Union Bank (Note 2) | |||||||||||
| Other | |||||||||||
| Total | ¥ | ¥ | |||||||||
| Other liabilities: | |||||||||||
| Accounts payable: | |||||||||||
| Payables to brokers, dealers and customers for securities transactions | ¥ | ¥ | |||||||||
| Other | |||||||||||
| Obligations to return securities received as collateral (Notes 15, 16 and 31) | |||||||||||
| Accrued interest | |||||||||||
| Deferred tax liabilities (Note 8) | |||||||||||
| Allowance for off-balance sheet credit instruments | |||||||||||
| Accrued benefit cost (Note 13) | |||||||||||
| Guarantees and indemnifications | |||||||||||
| Cash collateral received for derivative transactions (Note 9) | |||||||||||
| Obligations under operating leases (Note 7) | |||||||||||
| Liabilities held for sale relating to transferred business of MUFG Union Bank (Note 2) | |||||||||||
| Accrued and other liabilities | |||||||||||
| Total | ¥ | ¥ | |||||||||
Note:
Investments in equity method investees include marketable equity securities carried at ¥2,481,644 million and ¥2,918,480 million at March 31, 2022 and 2023, respectively. Corresponding aggregated market values were ¥4,714,562 million and ¥5,099,671 million, respectively. Marketable equity securities include Morgan Stanley’s common stock carried at ¥2,058,638 million and ¥2,443,602 million at March 31, 2022 and 2023, respectively. As of March 31, 2023, the MUFG Group held approximately 22.58 % of its common stock. Investments in equity method investees also include investments in Morgan Stanley MUFG Securities, Co., Ltd. at ¥183,932 million and ¥194,225 million at March 31, 2022 and 2023, respectively.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The MUFG Group periodically evaluates whether a loss in value of investments in equity method investees is other-than-temporary. As a result of evaluations, the MUFG Group recognized other-than-temporary declines in the value of an investment and recorded impairment losses related to certain affiliated companies of ¥53,758 million, ¥6,949 million and ¥58,061 million for the fiscal years ended March 31, 2021, 2022 and 2023 respectively. The impairment losses are included in Equity in earnings of equity method investees—net in the accompanying consolidated statements of operations.
Summarized Financial Information of the MUFG Group’s Equity Method Investees
Summarized financial information of Morgan Stanley, the largest portion of the MUFG Group’s equity method investees, as of March 31, 2022 and 2023, and for each of the three years ended March 31, 2023 is as follows:
| 2022 | 2023 | ||||||||||
| (in billions) | |||||||||||
| Trading assets | ¥ | ¥ | |||||||||
| Securities purchased under agreements to resell | |||||||||||
| Securities borrowed | |||||||||||
| Total assets | |||||||||||
| Deposits | |||||||||||
| Customer and other payables | |||||||||||
| Borrowings | |||||||||||
| Total liabilities | |||||||||||
| Noncontrolling interests | |||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (in billions) | |||||||||||||||||
| Net revenues | ¥ | ¥ | ¥ | ||||||||||||||
| Total non-interest expenses | |||||||||||||||||
| Income from continuing operations before income taxes | |||||||||||||||||
| Net income applicable to Morgan Stanley | |||||||||||||||||
Summarized financial information of the MUFG Group’s equity method investees, other than Morgan Stanley as of March 31, 2022 and 2023, and for each of the three years ended March 31, 2023 is as follows:
| 2022 | 2023 | ||||||||||
| (in billions) | |||||||||||
| Net loans | ¥ | ¥ | |||||||||
| Total assets | |||||||||||
| Deposits | |||||||||||
| Total liabilities | |||||||||||
| Noncontrolling interests | |||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
| (in billions) | |||||||||||||||||
| Total interest income | ¥ | ¥ | ¥ | ||||||||||||||
| Total interest expense | |||||||||||||||||
| Net interest income | |||||||||||||||||
| Provision for credit losses | |||||||||||||||||
| Income before income tax expense | |||||||||||||||||
| Net income | |||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
15.OFFSETTING OF DERIVATIVES, REPURCHASE AGREEMENTS, AND SECURITIES LENDING TRANSACTIONS
The following tables present, as of March 31, 2022 and 2023, the gross and net amounts of the derivatives, resale and repurchase agreements, and securities borrowing and lending transactions, including the related gross amounts subject to an enforceable master netting arrangement or similar agreement not offset in the consolidated balance sheets. The MUFG Group primarily enters into International Swaps and Derivatives Association master netting agreements, master repurchase agreements and master securities lending agreements or similar agreements for derivative contracts, resale and repurchase agreements, and securities borrowing and lending transactions. In the event of default on or termination of any one contract, these agreements provide the contracting parties with the right to net a counterparty’s rights and obligations and to liquidate and setoff collateral against any net amount owed by the counterparty. Generally, as the MUFG Group has elected to present such amounts on a gross basis, the amounts subject to these agreements are included in “Gross amounts not offset in the consolidated balance sheet” column in the tabular disclosure below. For certain transactions where a legal opinion with respect to the enforceability of netting has not been sought or obtained, the related amounts are not subject to enforceable master netting agreements and not included in “Gross amounts not offset in the consolidated balance sheet” column in the tabular disclosure below.
| At March 31, 2022: | Gross amounts of recognized assets/liabilities | Gross amounts offset in the consolidated balance sheet | Net amounts presented in the consolidated balance sheet(1) | Gross amounts not offset in the consolidated balance sheet | Net amounts | ||||||||||||||||||||||||||||||
Financial instruments | Cash collateral received/pledged | ||||||||||||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||||||||
| Derivative assets | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | |||||||||||||||||||||||||||
| Receivables under resale agreements | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Receivables under securities borrowing transactions | ( | ( | |||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ( | ¥ | ¥ | ( | ¥ | ( | ¥ | ||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||||||||
| Derivative liabilities | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | |||||||||||||||||||||||||||
| Payables under repurchase agreements | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Payables under securities lending transactions | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Obligations to return securities received as collateral | ( | ||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ( | ¥ | ¥ | ( | ¥ | ( | ¥ | ||||||||||||||||||||||||||
| At March 31, 2023: | Gross amounts of recognized assets/liabilities | Gross amounts offset in the consolidated balance sheet | Net amounts presented in the consolidated balance sheet | Gross amounts not offset in the consolidated balance sheet | Net amounts | ||||||||||||||||||||||||||||||
Financial instruments | Cash collateral received/pledged | ||||||||||||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||||||||
| Derivative assets | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | |||||||||||||||||||||||||||
| Receivables under resale agreements | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Receivables under securities borrowing transactions | ( | ( | |||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ( | ¥ | ¥ | ( | ¥ | ( | ¥ | ||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||||||||
| Derivative liabilities | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | |||||||||||||||||||||||||||
| Payables under repurchase agreements | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Payables under securities lending transactions | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Obligations to return securities received as collateral | ( | ||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ( | ¥ | ¥ | ( | ¥ | ( | ¥ | ||||||||||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Note:
(1)Net amounts in this table includes those relating to Financial assets and liabilities of transferred business of MUFG Union Bank. See Note 2 for more information.
16.REPURCHASE AGREEMENTS, AND SECURITIES LENDING TRANSACTIONS ACCOUNTED FOR AS SECURED BORROWINGS
The following tables present gross obligations for payables under repurchase agreements, payables under securities lending transactions and obligations to return securities received as collateral by remaining contractual maturity and class of collateral pledged at March 31, 2022 and 2023. Potential risks associated with these arrangements primarily relate to market and liquidity risks. To manage risks associated with market exposure, the MUFG Group generally revalues the collateral underlying its repurchase agreements and securities lending transactions on a daily basis and monitors the value of the underlying securities, consisting of primarily high-quality securities such as Japanese national government and Japanese government agency bonds, and foreign government and official institution bonds. In the event the market value of such securities falls below the related agreements at contract amounts plus accrued interest, the MUFG Group may be required to deposit additional collateral when appropriate. To address liquidity risks, the MUFG Group conducts stress tests to ensure the adequate level of liquidity is maintained in the event of a decline in the fair value of any collateral pledged.
| March 31, 2022 | |||||||||||||||||||||||||||||
| Remaining Contractual Maturity | |||||||||||||||||||||||||||||
Overnight and open | 30 days or less | 31-90 days | Over 90 days | Total | |||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||
| Payables under repurchase agreements | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Payables under securities lending transactions | |||||||||||||||||||||||||||||
| Obligations to return securities received as collateral | |||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| March 31, 2023 | |||||||||||||||||||||||||||||
| Remaining Contractual Maturity | |||||||||||||||||||||||||||||
Overnight and open | 30 days or less | 31-90 days | Over 90 days | Total | |||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||
| Payables under repurchase agreements | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Payables under securities lending transactions | |||||||||||||||||||||||||||||
| Obligations to return securities received as collateral | |||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Secured borrowing by the class of collateral pledged at March 31, 2022 and 2023 was as follows:
| March 31, 2022 | |||||||||||||||||||||||
Payables under repurchase agreements | Payables under securities lending transactions | Obligations to return securities received as collateral | Total | ||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Marketable equity securities | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| March 31, 2023 | |||||||||||||||||||||||
Payables under repurchase agreements | Payables under securities lending transactions | Obligations to return securities received as collateral | Total | ||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Marketable equity securities | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
17.PREFERRED STOCK
Pursuant to the Articles of Incorporation, MUFG had been authorized to issue 400,000,000 shares of Class 5 Preferred Stock, 200,000,000 shares of Class 6 Preferred Stock, and 200,000,000 shares of Class 7 Preferred Stock without par value as of March 31, 2023.
All classes of preferred stock are non-voting and have preference over common stock for the payment of dividends and the distribution of assets in the event of a liquidation or dissolution of MUFG. They are all non-cumulative and non-participating with respect to dividend payments. Shareholders of all classes of preferred stock have the right to receive a liquidation distribution at ¥2,500
18.COMMON STOCK AND CAPITAL SURPLUS
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| 2021 | 2022 | 2023 | |||||||||||||||
| (shares) | |||||||||||||||||
| Balance at beginning of fiscal year | |||||||||||||||||
| Retirement of shares of common stock | ( | ( | |||||||||||||||
| Balance at end of fiscal year | |||||||||||||||||
Under the Companies Act, issuances of common stock, including conversions of bonds and notes, are required to be credited to the common stock account for at least 50 % of the proceeds and to the legal capital surplus account (“legal capital surplus”) for the remaining amounts.
The Companies Act permits Japanese companies, upon approval by the Board of Directors, to issue shares in the form of a “stock split,” as defined in the Companies Act. Also, prior to April 1, 1991, Japanese companies were permitted to issue free share distributions. MUFG Bank and Mitsubishi UFJ Trust and Banking from time to time made free share distributions. These free distributions usually ranged from 5 % to 10 % of outstanding common stock and publicly-owned corporations in the United States issuing shares in similar transactions would be required to account for them as stock dividends as of the shareholders’ record date by reducing retained earnings and increasing the appropriate capital accounts by an amount equal to the fair value of the shares issued. The application of such U.S. accounting practices to the cumulative free distributions made by MUFG Bank and Mitsubishi UFJ Trust and Banking at March 31, 2023, would have increased capital accounts by ¥1,910,106
The Companies Act permits that common stock, legal reserve, additional paid-in capital, and other capital surplus and retained earnings can be transferred among these accounts under certain conditions upon the approval of a shareholders’ meeting. The Companies Act limits the increase of paid-in capital in case disposition of treasury stock and issuance of common stock are performed at the same time.
As for Capital surplus, the fee retained by MUFG’s subsidiary as underwriting compensation, net of stock issuance expense, was included in the total Capital surplus balance.
Treasury Stock
The Companies Act permits Japanese companies to effect purchases of their own shares pursuant to a resolution by the shareholders at an annual general meeting until the conclusion of the following ordinary general meeting of shareholders, and to hold such shares as their treasury stock indefinitely regardless of purpose. However, the Companies Act requires the amount of treasury stock purchased should be within the amount of retained earnings available for dividends. Disposition of treasury stock is subject to the approval of the Board of Directors and is to follow the procedures similar to a public offering of shares for subscription.
MUFG resolved at the meeting of Board of Directors held on November 15, 2021 to repurchase up to the lesser of 300,000,000 shares of our common stock and ¥150 billion from November 16, 2021 to March 31, 2022. Under this share repurchase program, MUFG repurchased 225,408,800 shares of MUFG's common stock for ¥149,999,964,962 from November 2021 to March 2022. Also, MUFG cancelled 300,000,000 shares of treasury stock on November 30, 2021.
MUFG resolved at the meeting of Board of Directors held on May 16, 2022 to repurchase up to the lesser of 600,000,000 shares of our common stock and ¥300 billion from May 17, 2022 to November 11, 2022. Under this share repurchase program, MUFG repurchased 418,926,300 shares of MUFG's common stock for ¥299,999,909,768 from May 2022 to October 2022. Also, MUFG cancelled 418,926,300 shares of treasury stock on November 30, 2022.
MUFG resolved at the meeting of Board of Directors held on November 14, 2022 to repurchase up to the lesser of 300,000,000 shares of our common stock and ¥150 billion from December 2, 2022 to January 31, 2023. Under this share repurchase program, MUFG repurchased 175,357,900 shares of MUFG's common stock for ¥149,999,996,001 from December 2022 to January 2023. Also, MUFG cancelled 175,357,900 shares of treasury stock on February 28, 2023.
MUFG intends to agilely engage in repurchases of shares of MUFG's own stock as a means to return profits to shareholders and improve capital efficiency, taking into account MUFG's business performance and capital position, opportunities for growth investments, and market conditions including stock prices. As a general policy, MUFG intends to cancel treasury shares to the extent that such shares exceed approximately 5 % of our total issued shares (including treasury shares).
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
19.RETAINED EARNINGS, LEGAL RESERVE AND DIVIDENDS
In addition to the Companies Act, Japanese banks, including MUFG Bank and Mitsubishi UFJ Trust and Banking, are required to comply with the Banking Law of Japan (the “Banking Law”).
Legal Reserve Set Aside as Appropriation of Retained Earnings and Legal Capital Surplus
Under the Companies Act
The Companies Act provides that an amount at least equal to 10 % of the aggregate amount of cash dividends and certain appropriations of retained earnings associated with cash outlays applicable to each period shall be appropriated and set aside as a legal reserve until the aggregate amount of legal reserve set aside as an appropriation of retained earnings and the legal capital surplus equals 25 % of stated capital as defined in the Companies Act.
Under the Banking Law
The Banking Law provides that an amount at least equal to 20 % of the aggregate amount of cash dividends and certain appropriations of retained earnings associated with cash outlays applicable to each fiscal year shall be appropriated and set aside as a legal reserve until the aggregate amount of legal reserve set aside as appropriation of retained earnings and the legal capital surplus equals 100 % of stated capital as defined in the Companies Act.
Transfer of Legal Reserve
Under the Companies Act
Under the Companies Act, Japanese companies, including MUFG, were permitted, pursuant to a resolution by the shareholders at a general meeting, to make legal reserve set aside as appropriation of retained earnings and legal capital surplus available for dividends until the aggregate amount of the legal reserve and legal capital surplus equals 25 % of stated capital as defined in the Companies Act.
Under the Companies Act, Japanese companies, including MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking, are permitted, primarily pursuant to a resolution by the shareholders at a general meeting, to transfer legal capital surplus and legal reserve to stated capital and/or retained earnings without limitations of thresholds, thereby effectively removing the thresholds provided for in the Companies Act and Banking Law at the company’s discretion.
Under the Banking Law
Under the Banking Law, Japanese banks, including MUFG Bank and Mitsubishi UFJ Trust and Banking, were permitted, pursuant to a resolution by the shareholders at a general meeting, to set aside a legal reserve as an appropriation of retained earnings and legal capital surplus available for dividends until the aggregate amount of the legal reserve and legal capital surplus equals 100 % of stated capital as defined in the Companies Act.
Unappropriated Retained Earnings and Dividends
In addition to the provision that requires an appropriation for legal reserve as described above, the Companies Act and the Banking Law impose certain limitations on the amount available for dividends.
Under the Companies Act, the amount available for dividends is based on the amount recorded in MUFG’s general books of account maintained in accordance with Japanese GAAP. The adjustments included in the accompanying consolidated financial statements but not recorded in MUFG’s general books of account, as explained in Note 1, have no effect on the determination of retained earnings available for dividends under the Companies Act. Under the Banking Law, MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking have to meet the minimum capital adequacy requirements and distributions of retained earnings of MUFG, MUFG Bank and Mitsubishi UFJ Trust and Banking, which are otherwise distributable to shareholders, are restricted in order to maintain the minimum capital requirements.
MUFG, formerly known as Mitsubishi Tokyo Financial Group, was established on April 2, 2001 with common stock of ¥924,400 million, preferred stock of ¥222,100 million, legal capital surplus of ¥2,838,693 million and no retained earnings in accordance with the Commercial Code of Japan (“the Code”), which was replaced by the Companies Act, and Japanese GAAP.
F-75
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
On October 1, 2005, MUFG started with common stock and preferred stock of ¥1,383,052 million, a legal capital surplus of ¥3,577,570 million and retained earnings of ¥757,458 million in accordance with the Code and Japanese GAAP.
MUFG’s amount available for dividends, at March 31, 2023, was ¥4,214,685 million, which is based on the amount recorded in MUFG’s general books of account under Japanese GAAP.
Annual dividends, including those for preferred stock, are approved by the shareholders at an annual general meeting held subsequent to the fiscal year to which the dividends are applicable. In addition, a semi-annual interim dividend payment may be made by resolution of the Board of Directors, subject to limitations imposed by the Companies Act and the Banking Law.
20.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the changes in Accumulated OCI, net of tax and net of noncontrolling interests, for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Accumulated other comprehensive income (loss), net of taxes: | |||||||||||||||||
| Net unrealized gains (losses) on investment securities: | |||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ( | ¥ | ( | ¥ | ( | |||||||||||
| Net change during the fiscal year | ( | ( | ( | ||||||||||||||
| Effect of adopting new guidance on measurement of credit losses on financial instruments | |||||||||||||||||
| Elimination of the difference in reporting periods of the transferred business (Note 2) | |||||||||||||||||
| Balance at end of fiscal year | ¥ | ( | ¥ | ( | ¥ | ( | |||||||||||
| Net debt valuation adjustments: | |||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ( | ¥ | ( | ||||||||||||
| Net change during the fiscal year | ( | ||||||||||||||||
| Balance at end of fiscal year | ¥ | ( | ¥ | ( | ¥ | ||||||||||||
| Net unrealized gains (losses) on derivatives qualifying for cash flow hedges: | |||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ( | ¥ | ¥ | |||||||||||||
| Net change during the fiscal year | ( | ||||||||||||||||
| Elimination of the difference in reporting periods of the transferred business (Note 2) | ( | ||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
| Defined benefit plans: | |||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ( | ¥ | ( | ¥ | ||||||||||||
| Net change during the fiscal year | |||||||||||||||||
| Elimination of the difference in reporting periods of the transferred business (Note 2) | ( | ||||||||||||||||
| Balance at end of fiscal year | ¥ | ( | ¥ | ¥ | |||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||
| Balance at beginning of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
| Net change during the fiscal year | ( | ||||||||||||||||
| Balance at end of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
| Balance at end of fiscal year | ¥ | ( | ¥ | ¥ | |||||||||||||
F-76
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents the before tax and net of tax changes in each component of Accumulated OCI for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Before tax | Tax (expense) or benefit | Net of tax | Before tax | Tax (expense) or benefit | Net of tax | Before tax | Tax (expense) or benefit | Net of tax | |||||||||||||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on investment securities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized losses on investment securities | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ¥ | ( | ¥ | ( | ¥ | ¥ | ( | |||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for losses (gains) included in net income (loss) before attribution of noncontrolling interests | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Elimination of the difference in reporting periods of the transferred business (Note 2) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net change | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on investment securities attributable to noncontrolling interests | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized losses on investment securities attributable to Mitsubishi UFJ Financial Group | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net debt valuation adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net debt valuation adjustments | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for losses included in net income (loss) before attribution of noncontrolling interests | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net change | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net debt valuation adjustments attributable to noncontrolling interests | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net debt valuation adjustments attributable to Mitsubishi UFJ Financial Group | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on derivatives qualifying for cash flow hedges: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on derivatives qualifying for cash flow hedges | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for losses (gains) included in net income (loss) before attribution of noncontrolling interests | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Elimination of the difference in reporting periods of the transferred business (Note 2) | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net change | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
F-77
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Before tax | Tax (expense) or benefit | Net of tax | Before tax | Tax (expense) or benefit | Net of tax | Before tax | Tax (expense) or benefit | Net of tax | |||||||||||||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on derivatives qualifying for cash flow hedges attributable to noncontrolling interests | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net unrealized gains (losses) on derivatives qualifying for cash flow hedges attributable to Mitsubishi UFJ Financial Group | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined benefit plans | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for losses included in net income (loss) before attribution of noncontrolling interests | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Elimination of the difference in reporting periods of the transferred business (Note 2) | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net change | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined benefit plans attributable to noncontrolling interests | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Defined benefit plans attributable to Mitsubishi UFJ Financial Group | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for gains included in net income (loss) before attribution of noncontrolling interests | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Net change | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments attributable to noncontrolling interests | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments attributable to Mitsubishi UFJ Financial Group | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income attributable to Mitsubishi UFJ Financial Group | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||||
F-78
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents the effect of the reclassification of significant items out of Accumulated OCI on the respective line items of the accompanying consolidated statements of operations for the fiscal years ended March 31, 2021, 2022 and 2023:
| 2021 | 2022 | 2023 | |||||||||||||||||||||
| Details of Accumulated OCI components | Amount reclassified out of Accumulated OCI | Line items in the consolidated statements of operations | |||||||||||||||||||||
(in millions) | |||||||||||||||||||||||
| Net unrealized losses (gains) on investment securities | |||||||||||||||||||||||
| Net losses (gains) on sales and redemptions of Available-for-sale debt securities | ¥ | ¥ | ( | ¥ | ( | Investment securities gains (losses)—net | |||||||||||||||||
| Impairment losses on investment securities | Investment securities gains (losses)—net | ||||||||||||||||||||||
| Gain on sale of MUFG Union Bank (Note 2) | ( | Gain on sale of MUFG Union Bank | |||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| ( | ( | Total before tax | |||||||||||||||||||||
| ( | ( | Income tax expense (benefit) | |||||||||||||||||||||
| ¥ | ( | ¥ | ¥ | Net of tax | |||||||||||||||||||
| Net debt valuation adjustments | ¥ | ¥ | ¥ | Equity in earnings of equity method investees—net or Other non-interest income | |||||||||||||||||||
| Total before tax | |||||||||||||||||||||||
| ( | ( | ( | Income tax expense (benefit) | ||||||||||||||||||||
| ¥ | ¥ | ¥ | Net of tax | ||||||||||||||||||||
| Net unrealized losses (gains) on derivatives qualifying for cash flow hedges Interest rate contracts | |||||||||||||||||||||||
| Interest rate contracts | ¥ | ( | ¥ | ( | ¥ | ( | Interest income on Loans, including fees | ||||||||||||||||
| Foreign exchange contracts | ( | ( | Interest expense on Long-term debt or Foreign exchange gains—net | ||||||||||||||||||||
| Gain on sale of MUFG Union Bank (Note 2) | Gain on sale of MUFG Union Bank | ||||||||||||||||||||||
| ( | Total before tax | ||||||||||||||||||||||
| ( | Income tax expense (benefit) | ||||||||||||||||||||||
| ¥ | ¥ | ( | ¥ | Net of tax | |||||||||||||||||||
| Defined benefit plans | |||||||||||||||||||||||
Net actuarial loss(1) | ¥ | ¥ | ¥ | Other non-interest expenses | |||||||||||||||||||
Prior service cost(1) | ( | ( | ( | Other non-interest expenses | |||||||||||||||||||
Loss (gain) on settlements and curtailment, and other(1) | ( | ( | Other non-interest income or expenses | ||||||||||||||||||||
| Gain on sale of MUFG Union Bank (Note 2) | Gain on sale of MUFG Union Bank | ||||||||||||||||||||||
| Total before tax | |||||||||||||||||||||||
| ( | ( | ( | Income tax expense (benefit) | ||||||||||||||||||||
| ¥ | ¥ | ¥ | Net of tax | ||||||||||||||||||||
| Foreign currency translation adjustments | ¥ | ( | ¥ | ( | ¥ | ( | Other non-interest income | ||||||||||||||||
| Other non-interest expenses | |||||||||||||||||||||||
| ( | ( | ( | Total before tax | ||||||||||||||||||||
| Income tax expense (benefit) | |||||||||||||||||||||||
| ¥ | ( | ¥ | ( | ¥ | ( | Net of tax | |||||||||||||||||
| Total reclassifications for the period | ¥ | ( | ¥ | ( | ¥ | Total before tax | |||||||||||||||||
| ( | Income tax expense (benefit) | ||||||||||||||||||||||
| ¥ | ( | ¥ | ¥ | Net of tax | |||||||||||||||||||
Note:
F-79
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
21.REGULATORY CAPITAL REQUIREMENTS
Japan
MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings are subject to various regulatory capital requirements promulgated by the regulatory authorities of the countries in which they operate. Failure to meet minimum capital requirements will initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on MUFG’s consolidated financial statements.
In Japan, MUFG, MUFG Bank, and Mitsubishi UFJ Trust and Banking are subject to regulatory capital requirements promulgated by the Financial Services Agency of Japan (“FSA”) in accordance with the provisions of the Banking Law and related regulations. A banking institution is subject to the minimum capital requirements both on a consolidated basis and a stand-alone basis, and is required to maintain the minimum capital irrespective of whether it operates independently or as a subsidiary under the control of another company. When a bank holding company manages operations of its banking subsidiaries, it is required to maintain the minimum capital adequacy ratio on a consolidated basis in the same manner as its subsidiary banks. The FSA provides two sets of capital adequacy guidelines. One is a set of guidelines applicable to Japanese banks and bank holding companies with their foreign offices conducting international operations, as defined, and the other is applicable to Japanese banks and bank holding companies that are not engaged in international operations conducted by their foreign offices.
The Basel Committee on Banking Supervision (“BCBS”) of the Bank for International Settlements (“BIS”) sets capital adequacy standards for all internationally active banks to ensure minimum levels of capital.
The Group of Central Bank Governors and Heads of Supervision reached an agreement on the new global regulatory framework, which has been referred to as “Basel III,” in July and September 2010. In December 2010, the Basel Committee agreed on the details of the Basel III rules. Effective as of March 31, 2013, Basel III was adopted by the FSA with transitional measures for Japanese banking institutions with international operations conducted by their foreign offices. MUFG calculated capital ratios as of March 31, 2022 and 2023 in accordance with Basel III.
Capital Ratios
Basel III is based on “three pillars”: (1) minimum capital requirements, (2) the self-regulation of financial institutions based on supervisory review process, and (3) market discipline through the disclosure of information.
As for the denominator of the capital ratio, the Basel framework provides the following risk-based approaches and a range of options for determining risk-weighted assets.
“Credit Risk”
The Basel framework provides options for determining the risk-weighted assets for credit risk to allow banks to select approaches that are most appropriate for their level of risk assessment. Banks choose one of three approaches: “Standardized Approach,” “Foundation Internal Ratings-Based Approach” or “Advanced Internal Ratings-Based Approach (“AIRB”).”
“Market Risk”
In the “Amendment to the Capital Accord to incorporate market risks” of the year 1996, a choice between two methodologies “the Standardized Measurement Method” and “Internal Models Approach” is permitted. “Combination of Internal Models Approach and the Standardized Measurement Method” is also allowed under certain conditions. This is unchanged in Basel III.
“Operational Risk”
Operational risk, which is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, is newly added in Basel II. The Basel framework presents three methods for calculating operational risk capital charges: (i) the Basic Indicator Approach; (ii) the Standardized Approach; or (iii) Advanced Measurement Approaches (“AMA”). Banks adopt one of the three approaches to determine the risk-weighted assets for operational risk.
Banks need to obtain approval from their supervisors prior to adopting the following approaches to calculate capital requirements for each risk:
F-80
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
•the Advanced Internal Ratings-Based Approach for credit risk
•the Internal Models Approach for market risk
•the Standardized Approach and AMA for operational risk
With approval from the FSA, MUFG and most of its major subsidiaries adopt AIRB to calculate capital requirements for credit risk, adopt the AMA to calculate capital requirements for operational risk, as for market risk, adopt the Internal Models Approach mainly to calculate general market risk and adopt the Standardized Measurement Method to calculate specific risk.
The MUFG Group’s proprietary assets do not include trust assets under management and administration in a capacity of agent or fiduciary and, accordingly trust account assets are generally not included in the capital measure. However, guarantees for trust principal are counted as off-balance sheet items requiring a capital charge in accordance with the capital adequacy guidelines.
Under Basel III, as adopted by the FSA, MUFG’s risk-weighted assets increased, largely reflecting the new capital charge of the credit valuation adjustment (“CVA”), the credit risk related to asset value correlation multiplier for large financial institutions, and the 250 % risk-weighted threshold items not deducted from Common Equity Tier 1 capital, as well as the conversion of certain Basel II capital deductions to risk-weighted assets, such as securitizations.
On the other hand, as for the numerator of the capital ratio, there are three primary regulatory capital ratios used to assess capital adequacy, Common Equity Tier 1, Tier 1 and Total capital ratios, which are determined by dividing applicable capital components by risk-weighted assets. Tier 1 capital consists of Common Equity Tier 1 capital and Additional Tier 1 capital. Common Equity Tier 1 capital is primarily consisting of common stock, capital surplus, retained earnings, and Accumulated OCI. Regulatory adjustments including certain intangible fixed assets, such as goodwill, and defined-benefit pension fund assets, are made to Common Equity Tier 1. Additional Tier 1 capital generally consists of Basel III compliant preferred securities, and during the transition period, other capital that meets Tier 1 requirements under Basel II standards.
Tier 2 capital generally consists of Basel III compliant subordinated debts, capital that meets Tier 2 requirements under Basel II standards during the transition period, certain allowances for credit losses, and noncontrolling interests in subsidiaries’ Tier 2 instruments. Total capital is defined as the sum of Tier 1 and Tier 2 capital.
Effective March 31, 2016, the FSA’s capital conservation buffer, countercyclical buffer and the Global Systemically Important Bank (“G-SIB”), as designated by the FSB, surcharge requirements became applicable to Japanese banking institutions with international operations conducted through foreign offices. The requirements had been phased in and fully implemented as of March 31, 2022. In addition to the 4.50 % minimum Common Equity Tier 1 capital ratio, MUFG is required to maintain a capital conservation buffer of 2.5 1.5 0.01 % and 0.04 % as of March 31, 2022 and 2023, respectively.
Leverage Ratios
The leverage ratio is designed for monitoring and preventing the build-up of excessive leverage in the banking sector and is expressed as the ratio of Tier 1 capital to both on and off-balance sheet assets adjusted in accordance with the FSA guidance. In December 2017, the Group of Central Bank Governors and Heads of Supervision announced final Basel III reforms. The announced reforms include revisions to the measurement of the leverage ratio and a 3 % minimum leverage ratio requirement, plus a G-SIB leverage ratio buffer equal to 50 % of the applicable G-SIB capital surcharge. The announcement sets forth implementation dates of January 1, 2018 for the minimum leverage ratio requirement and January 1, 2022 for the G-SIB leverage ratio buffer requirement. Effective as of March 31, 2019, the minimum leverage ratio requirement was adopted by the FSA. In addition, effective as of March 31, 2023, a leverage ratio buffer set at 50 % of a G-SIB surcharge, which is 0.75 % for MUFG, was adopted by the FSA.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Actual | For capital adequacy purposes | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | ||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||
| Consolidated: | |||||||||||||||||||||||
| At March 31, 2022: | |||||||||||||||||||||||
| Total capital (to risk-weighted assets): | |||||||||||||||||||||||
MUFG(1) | ¥ | % | ¥ | % | |||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
MUFG(1) | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
MUFG(1) | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Leverage ratio: | |||||||||||||||||||||||
| MUFG | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| At March 31, 2023: | |||||||||||||||||||||||
| Total capital (to risk-weighted assets): | |||||||||||||||||||||||
MUFG(1) | ¥ | % | ¥ | % | |||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
MUFG(1) | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
MUFG(1) | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Leverage ratio: | |||||||||||||||||||||||
MUFG(2) | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| Actual | For capital adequacy purposes | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | ||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||
| Stand-alone: | |||||||||||||||||||||||
| At March 31, 2022: | |||||||||||||||||||||||
| Total capital (to risk-weighted assets): | |||||||||||||||||||||||
| BK | ¥ | % | ¥ | % | |||||||||||||||||||
| TB | |||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Leverage ratio: | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| At March 31, 2023: | |||||||||||||||||||||||
| Total capital (to risk-weighted assets): | |||||||||||||||||||||||
| BK | ¥ | % | ¥ | % | |||||||||||||||||||
| TB | |||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets): | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
| Leverage ratio: | |||||||||||||||||||||||
| BK | |||||||||||||||||||||||
| TB | |||||||||||||||||||||||
Notes:
(1)Effective March 31, 2016, the FSA’s capital conservation buffer, countercyclical buffer and G-SIB surcharge requirements became applicable to Japanese banking institutions with international operations conducted through foreign offices. As a result, in addition to the 4.50 2.5 1.5 0.01 % and 0.04 % as of March 31, 2022 and 2023, respectively.
(2)Effective March 31, 2023, the G-SIB leverage ratio buffer requirement became applicable to Japanese banking institutions with international operations conducted through foreign offices. As a result, in addition to the 3.0 % minimum leverage ratio, MUFG is required to maintain a G-SIB leverage ratio buffer of 0.75 % as of March 31, 2023.
Mitsubishi UFJ Morgan Stanley Securities and other securities subsidiaries in Japan and overseas are also subject to regulatory capital requirements of the countries or jurisdictions in which they operate. In Japan, the Financial Instruments and Exchange Act and related ordinance require financial instruments firms to maintain a minimum capital ratio of 120 % calculated as a percentage of capital accounts less certain fixed assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty credit and operational risks. Specific guidelines are issued as a ministerial ordinance which details the definition of essential components of the capital ratios, including capital, deductible fixed asset items and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140 % will call for regulatory reporting and a capital ratio of less than 100 % may lead to a suspension of all or part of the business for a period of time and cancellation of a registration.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At March 31, 2022, Mitsubishi UFJ Morgan Stanley Securities’s capital accounts less certain fixed assets of ¥486,756 million on a stand-alone basis were 317.1 % of the total amounts equivalent to market, counterparty credit and operational risks. At March 31, 2023, its capital accounts less certain fixed assets of ¥550,276 310.9
Management believes, as of March 31, 2023, that MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking, Mitsubishi UFJ Morgan Stanley Securities and other regulated securities subsidiaries met all capital adequacy requirements to which they are subject.
United States of America
In the United States of America, MUFG Americas Holdings and its banking subsidiary MUFG Union Bank, N.A. (“MUFG Union Bank” or “BK(US)”) are subject to various regulatory capital requirements administered by the U. S. Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on MUFG Americas Holdings’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, MUFG Americas Holdings must meet specific capital guidelines that involve quantitative measures of MUFG Americas Holdings’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. MUFG Americas Holdings’s capital amounts are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
Quantitative measures established by regulation to help ensure capital adequacy require MUFG Americas Holdings and MUFG Union Bank to maintain minimum amounts and ratios (set forth in the tables below) of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to quarterly average assets (as defined).
In July 2013, the Board of Governors of the Federal Reserve System and the other U.S. Federal banking agencies adopted final rules making significant changes to the U.S. regulatory capital framework for U.S. banking organizations (U.S. Basel III). The final rules are intended to conform this framework to the BCBS’ current international regulatory capital accord (Basel III). These rules replace the U.S. Federal banking agencies’ general risk-based capital rules (commonly known as “Basel I”), advanced approaches rules (commonly known as “Basel II”) that are applicable to certain large banking organizations (including MUFG Union Bank), and leverage rules, and are subject to certain transition provisions. Among other requirements, the U.S. Basel III rules revise the definition of capital, increase minimum capital ratios, and introduce a minimum Common Equity Tier 1 capital ratio of 4.5 % and a capital conservation buffer of 2.5 % (for a total minimum Common Equity Tier 1 capital ratio of 7 %) and a potential countercyclical buffer of up to 2.5 %, which would be imposed by regulators at their discretion if it is determined that a period of excessive credit growth is contributing to an increase in financial institution systemic risk; mandate a Tier 1 leverage ratio of 4 % and introduce, for large and internationally active bank holding companies, a Tier 1 Supplementary Leverage Ratio that is currently set at 3 % and which incorporates off-balance sheet exposures; revise Basel I rules for calculating risk-weighted assets under a standardized approach; modify the existing Basel II advanced approaches rules for calculating risk-weighted assets under U.S. Basel III; and eliminate, for advanced approaches institutions, over a four-year phase-in period beginning on January 1, 2014, the Accumulated OCI or loss exclusion that had applied under Basel I and Basel II rules.
As required under U.S. Basel III rules, the 2.5 % capital conservation buffer is being implemented on a phased-in basis in equal increments of 0.625 % per year over a four-year period that commenced on January 1, 2016. MUFG Americas Holdings and MUFG Union Bank satisfy the minimum capital requirements including the capital conservation buffer on a fully phased-in basis as those requirements were effective as of December 31, 2021.
As described in Note 2, the MUFG Group sold all the issued and outstanding shares of common stock of MUFG Union Bank to U.S. Bancorp on December 1, 2022 and the portion of the business operated in MUFG Americas Holdings became immaterial in the MUFG group perspective. The figures on the table below are calculated according to U.S. Basel III as of December 31,2021. MUFG Americas Holdings’s actual capital amounts and ratios are presented as follows:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Actual | Minimum capital ratios required(1) | ||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | ||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||
| MUAH: | |||||||||||||||||||||||
| At December 31, 2021: | |||||||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | % | $ | % | |||||||||||||||||||
| Tier 1 capital (to risk-weighted assets) | |||||||||||||||||||||||
Tier 1 capital (to quarterly average assets)(2) | |||||||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets) | |||||||||||||||||||||||
Notes:
(1)The minimum capital requirement includes a capital conservation buffer of 3.3 % at December 31, 2021.
(2)Excludes certain deductions.
The figures on the table below are calculated according to U.S. Basel III as of December 31, 2021. MUFG Union Bank’s actual capital amounts and ratios are presented as follows:
Actual | Minimum capital ratios required(1) | Ratios OCC requires to be “well capitalized” | |||||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||
(in millions, except percentages) | |||||||||||||||||||||||||||||||||||
| BK(US): | |||||||||||||||||||||||||||||||||||
| At December 31, 2021: | |||||||||||||||||||||||||||||||||||
| Total capital (to risk-weighted assets) | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||
| Tier 1 capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
Tier 1 capital (to quarterly average assets)(2) | |||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 capital (to risk-weighted assets) | |||||||||||||||||||||||||||||||||||
Notes:
(1)Beginning January 1, 2019, the minimum capital requirement includes a capital conservation buffer of 2.5 %.
(2)Excludes certain deductions.
22.EARNINGS (LOSS) PER COMMON SHARE APPLICABLE TO COMMON SHAREHOLDERS OF MUFG
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Income (loss) (Numerator): | |||||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ¥ | ¥ | ( | ¥ | |||||||||||||
| Effect of dilutive instruments: | |||||||||||||||||
| Stock acquisition rights and restricted stock units—Morgan Stanley | ( | ( | ( | ||||||||||||||
| Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group and assumed conversions | ¥ | ¥ | ( | ¥ | |||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
(thousands of shares) | |||||||||||||||||
| Shares (Denominator): | |||||||||||||||||
| Weighted average common shares outstanding | |||||||||||||||||
| Effect of dilutive instruments: | |||||||||||||||||
Stock acquisition rights and the common shares of MUFG under the Board Incentive Plan(1) | |||||||||||||||||
| Weighted average common shares for diluted computation | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
(in yen) | |||||||||||||||||
| Earnings (loss) per common share applicable to common shareholders of Mitsubishi UFJ Financial Group: | |||||||||||||||||
| Basic earnings (loss) per common share: | |||||||||||||||||
| Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group | ¥ | ¥ | ( | ¥ | |||||||||||||
| Diluted earnings (loss) per common share: | |||||||||||||||||
Earnings (loss) applicable to common shareholders of Mitsubishi UFJ Financial Group(1) | ¥ | ¥ | ( | ¥ | |||||||||||||
Note:
23.DERIVATIVE FINANCIAL INSTRUMENTS
The MUFG Group uses various derivative financial instruments both for trading purposes and for purposes other than trading (primarily risk management purposes) in the normal course of business to meet the financial needs of its customers, as a source of revenue and to manage its exposures to a variety of risks.
Market risk is the possibility that future changes in market indices make the financial instruments less valuable. The MUFG Group is a party to derivative financial instruments, including swaps, forwards, options and other types of derivatives, dealing primarily with market risk associated with interest rates, foreign currencies, equity and commodity prices, and credit risk associated with counterparty’s nonperformance of transactions.
Credit risk is the possibility that a loss may result from a counterparty’s failure to perform according to the terms and conditions of the contract, which may exceed the value of underlying collateral. To reduce credit risk, the MUFG Group may require collateral or guarantees based on a case-by-case assessment of creditworthiness of each customer and evaluation of the instrument. The MUFG Group also uses master netting agreements in order to mitigate overall counterparty credit risk.
Trading Activities
The MUFG Group’s trading activities include dealing and customer accommodation activities. As part of its trading activities, the MUFG Group offers a variety of derivative financial instruments for managing interest rate and foreign exchange risk to its domestic and foreign corporate and financial institution customers. The MUFG Group also enters into other types of derivative transactions, including equity and credit-related contracts, for its own account.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Risk Management Activities
As part of the MUFG Group’s risk management activities, asset and liability management is viewed as one of the methods for the MUFG Group to manage its interest rate exposures on interest-bearing assets and liabilities. The MUFG Group uses certain derivative financial instruments in order to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. For example, an increase or a decrease in interest income and interest expense on hedged variable rate assets and liabilities as a result of interest rate fluctuations are expected to be substantially offset by the variability in earnings by gains and losses on the derivative instruments that are linked to these hedged assets and liabilities.
The MUFG Group enters into interest rate swaps and other contracts primarily to manage the interest rate risk of its loans, investment securities and deposit liabilities. Interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options and futures, allow the MUFG Group to effectively manage its interest rate risk position. Option contracts primarily consist of caps, floors, swaptions and options on index futures. Futures contracts used for asset and liability management activities are primarily index futures providing for cash payments based upon the movement of an underlying rate index.
The MUFG Group enters into forward exchange contracts, currency swaps and other contracts in response to currency exposures resulting from on-balance sheet assets and liabilities denominated in foreign currencies in order to limit the net foreign exchange position by currency to an appropriate level.
Notional Amounts of Derivative Contracts
The following table summarizes the notional amounts of derivative contracts at March 31, 2022 and 2023:
Notional amounts(1) | |||||||||||
| 2022 | 2023 | ||||||||||
| (in trillions) | |||||||||||
| Interest rate contracts | ¥ | ¥ | |||||||||
| Foreign exchange contracts | |||||||||||
| Equity contracts | |||||||||||
| Commodity contracts | |||||||||||
| Credit derivatives | |||||||||||
| Other | |||||||||||
| Total | ¥ | ¥ | |||||||||
Note:
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Impact of Derivatives on the Consolidated Balance Sheets
The following table summarizes fair value information on derivative instruments that are recorded on the MUFG Group’s consolidated balance sheets at March 31, 2022 and 2023:
Fair value of derivative instruments | |||||||||||||||||||||||||||||||||||
2022(1)(5) | 2023(1)(5) | ||||||||||||||||||||||||||||||||||
Not designated as hedges(2) | Designated as hedges(3) | Total derivatives(4) | Not designated as hedges(2) | Designated as hedges(3) | Total derivatives(4) | ||||||||||||||||||||||||||||||
(in billions) | |||||||||||||||||||||||||||||||||||
| Derivative assets: | |||||||||||||||||||||||||||||||||||
| Interest rate contracts | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||
| Equity contracts | |||||||||||||||||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||||||||||||||
| Credit derivatives | |||||||||||||||||||||||||||||||||||
Other(6) | |||||||||||||||||||||||||||||||||||
| Total derivative assets | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
| Derivative liabilities: | |||||||||||||||||||||||||||||||||||
| Interest rate contracts | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||
| Equity contracts | |||||||||||||||||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||||||||||||||
| Credit derivatives | |||||||||||||||||||||||||||||||||||
Other(6) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Total derivative liabilities | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
Notes:
(1)The fair value of derivative instruments is presented on a gross basis even when derivative instruments are subject to master netting agreements. Cash collateral payable and receivable associated with derivative instruments are not added to or netted against the fair value amounts.
(2)The derivative instruments which are not designated as a hedging instrument are held for trading and risk management purposes, and are presented in and except for (6).
(3)The MUFG Group adopts hedging strategies and applies hedge accounting to certain derivative transactions entered into by certain subsidiaries. The derivative instruments which are designated as hedging instruments are presented in Other assets or Other liabilities on the accompanying consolidated balance sheets.
(4)This table does not include contracts with embedded derivatives for which the fair value option has been elected.
(5)For more information about fair value measurement and assumptions used to measure the fair value of derivatives, see Note 31.
Impact of Derivatives on the Consolidated Statements of Operations
The following table provides more detailed information regarding the derivative-related impact on the accompanying consolidated statements of operations for the fiscal years ended March 31, 2021, 2022 and 2023:
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Trading and risk management derivatives gains and losses (Not designated as hedging instruments) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange gains (losses) —net | Trading account profits (losses) —net | Total | Foreign exchange gains (losses) —net | Trading account profits (losses) —net | Total | Foreign exchange gains (losses) —net | Trading account profits (losses) —net | Total | |||||||||||||||||||||||||||||||||||||||||||||
(in billions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Equity contracts | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Credit derivatives | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
Other(1) | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||
Note:
Credit Derivatives
The MUFG Group enters into credit derivatives to manage its credit risk exposure, to facilitate client transactions, and for proprietary trading purposes, under which they provide the counterparty protection against the risk of default on a set of debt obligations issued by a specified reference entity or entities. Types of such credit derivatives primarily include single name credit default swaps, index and basket credit default swaps. The MUFG Group will have to perform under a credit derivative if a credit event as defined under the contract occurs. Such credit events include bankruptcy, dissolution or insolvency of the referenced entity, default and restructuring of the obligations of the referenced entity. The MUFG Group’s counterparties are banks, broker-dealers, insurance and other financial institutions. The contractual or notional amounts of these credit derivatives represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held or pledged.
The table below summarizes certain information regarding protection sold through credit derivatives as of March 31, 2022 and 2023:
Protection sold | |||||||||||||||||||||||||||||
Maximum potential/Notional amount by expiration period | Fair value | ||||||||||||||||||||||||||||
| At March 31, 2022: | 1 year or less | 1-5 years | Over 5 years | Total | (Asset)/ Liability(1) | ||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
| Single name credit default swaps: | |||||||||||||||||||||||||||||
Investment grade(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ( | |||||||||||||||||||||||
| Non-investment grade | |||||||||||||||||||||||||||||
| Total | ( | ||||||||||||||||||||||||||||
| Index and basket credit default swaps: | |||||||||||||||||||||||||||||
Investment grade(2) | ( | ||||||||||||||||||||||||||||
| Non-investment grade | ( | ||||||||||||||||||||||||||||
| Not rated | ( | ||||||||||||||||||||||||||||
| Total | ( | ||||||||||||||||||||||||||||
| Total credit default swaps sold | ¥ | ¥ | ¥ | ¥ | ¥ | ( | |||||||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Protection sold | |||||||||||||||||||||||||||||
Maximum potential/Notional amount by expiration period | Fair value | ||||||||||||||||||||||||||||
| At March 31, 2023: | 1 year or less | 1-5 years | Over 5 years | Total | (Asset)/ Liability(1) | ||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
| Single name credit default swaps: | |||||||||||||||||||||||||||||
Investment grade(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ( | |||||||||||||||||||||||
| Non-investment grade | |||||||||||||||||||||||||||||
| Total | ( | ||||||||||||||||||||||||||||
| Index and basket credit default swaps: | |||||||||||||||||||||||||||||
Investment grade(2) | ( | ||||||||||||||||||||||||||||
| Non-investment grade | ( | ||||||||||||||||||||||||||||
| Not rated | ( | ||||||||||||||||||||||||||||
| Total | ( | ||||||||||||||||||||||||||||
| Total credit default swaps sold | ¥ | ¥ | ¥ | ¥ | ¥ | ( | |||||||||||||||||||||||
Notes:
(1)Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting.
(2)The MUFG Group considers ratings of Baa3/BBB- or higher to meet the definition of investment grade.
Single name credit default swaps—Single name credit default swap protects the buyer against the loss of principal on a bond or loan in case of a default by the issuer. The protection buyer pays a premium to the MUFG Group and is protected for the period of the credit default swap. As the seller of protection, the MUFG Group in turn will have to perform under a credit default swap if a credit event as defined under the contracts occurs. In order to provide an indication of the current payment/performance risk of the credit default swaps, the external credit ratings, primarily those provided by Moody’s and Standard & Poor’s (“S&P”), of the underlying reference entity of the credit default swaps are disclosed.
Index and basket credit default swaps—Index and basket credit default swaps are credit default swaps that reference multiple names through underlying baskets or portfolios of single name credit default swaps. Typically, in the event of a default on one of the underlying names, the MUFG Group, as the seller of protection, will have to pay a pro-rata portion of the total notional amount of the credit default index or basket contract. In order to provide an indication of the current payment/performance risk of these credit default swaps, the rating scale based upon internal ratings, which generally correspond to ratings defined by primarily Moody’s and S&P, of the underlying reference entities comprising the basket or index were calculated and disclosed.
The MUFG Group may economically hedge its exposure to credit derivatives by entering into offsetting derivative contracts. The carrying value and notional amounts of credit protection sold in which the MUFG Group held purchased protection with identical underlying referenced entities were approximately ¥70 billion and ¥4,083 billion, respectively, at March 31, 2022, and approximately ¥27 billion and ¥4,880 billion, respectively, at March 31, 2023.
Collateral is held by the MUFG Group in relation to these instruments. Collateral requirements are determined at the counterparty level and cover numerous transactions and products as opposed to individual contracts.
Credit Risk, Liquidity Risk and Credit-risk-related Contingent Features
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
24.OBLIGATIONS UNDER GUARANTEES AND OTHER OFF-BALANCE SHEET INSTRUMENTS
Obligations under Guarantees
The MUFG Group provides customers with a variety of guarantees and similar arrangements, including standby letters of credit, financial and performance guarantees, credit protection, liquidity facilities, other off-balance sheet credit-related support and similar instruments, in order to meet the customers’ financial and business needs. The tables below present the contractual or notional amounts of such guarantees at March 31, 2022 and 2023. The contractual or notional amounts of these instruments represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held or pledged.
For certain types of derivatives, such as written interest rate options and written currency options, the maximum potential future payments are unlimited. Accordingly, it is impracticable to estimate the maximum potential amount of future payments. As such, the notional amounts of the related contracts, other than the maximum potential payments, are included in the table.
The MUFG Group mitigates its credit risk exposure resulting from guarantees by utilizing various techniques, including collateralization in the form of cash, securities, and real estate properties based on management’s credit assessment of the guaranteed parties and the related credit profile. In order to manage the credit risk exposure, the MUFG Group also enters into sub-participation contracts with third parties who will fund a portion of the credit facility and bear its share of the loss to be incurred in the event that the customer fails to fulfill its obligations. The following table includes guarantees of ¥646.1 billion and ¥549.1 billion at March 31, 2022 and 2023, respectively, which are syndicated out to third parties. The contractual or notional amounts summarized in the following table do not necessarily bear any direct relationship to the future actual credit exposure, primarily because of risk management techniques of the MUFG Group.
Maximum potential/ Contractual or Notional amount | Amount by expiration period | ||||||||||||||||||||||
| At March 31, 2022: | 1 year or less | 1-5 years | Over 5 years | ||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||
| Standby letters of credit and financial guarantees | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Performance guarantees | |||||||||||||||||||||||
Derivative instruments(1) | |||||||||||||||||||||||
| Liabilities of trust accounts | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
Maximum potential/ Contractual or Notional amount | Amount by expiration period | ||||||||||||||||||||||
| At March 31, 2023: | 1 year or less | 1-5 years | Over 5 years | ||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||
| Standby letters of credit and financial guarantees | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Performance guarantees | |||||||||||||||||||||||
Derivative instruments(1) | |||||||||||||||||||||||
| Liabilities of trust accounts | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
Note:
Nature of Guarantee Contracts
Standby letters of credit and financial guarantees generally include an obligation of an issuer or a designated third-party to guarantee the performance of the customer to the beneficiary under the terms of contracts such as lending contracts and other similar
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
financial transactions. The MUFG Group is required to make payments to the guaranteed parties in the event that the customers fail to fulfill the obligations under the contracts. The guarantees whose contractual maturities are over 5 years are mainly comprised of guarantees of housing loans.
Performance guarantees are contracts that contingently require the MUFG Group to make payments to the guaranteed party based on another party’s failure to perform under an obligating agreement, except financial obligation. For example, performance guarantees include guarantees of completion of construction projects.
Derivative instruments that are deemed to be included within the definition of guarantees as prescribed in the guidance on guarantees include certain written options and credit default swaps. In order for the MUFG Group to determine if those derivative instruments meet the definition of guarantees, as prescribed in the guidance on guarantees, the MUFG Group has to track whether the counterparties are actually exposed to losses that will result from the adverse change in the underlyings. Accordingly, the MUFG Group has disclosed information on all credit default swaps and certain written options for which there is a possibility of meeting the definition of guarantees as prescribed in the guidance on guarantees, regardless of whether the counterparties have assets or liabilities related to the underlyings of the derivatives. However, credit derivatives sold by the MUFG Group at March 31, 2022 and 2023 are excluded from this presentation, as they are disclosed in Note 23.
Liabilities of trust accounts represent the trustee’s potential responsibility for temporary payments to creditors of liabilities of trust accounts making use of funds of the MUFG Group, unless there are certain agreements with trust creditors that have provisions limiting the MUFG Group’s exposure as a trustee to the trust account assets. A trust may incur external liabilities to obtain certain services during the terms of the trust arrangement. While in principle, any liabilities of a trust are payable by the trust account and its beneficiaries. A trustee’s responsibility may be interpreted to encompass temporary payments for the trust account liabilities when the trust account does not maintain sufficient liquidity available for such liabilities unless the agreement with trust creditors limits the trustee’s exposure to the trust account assets. Liabilities of trust accounts principally includes obligations to return collateral under security lending transactions. The MUFG Group has experienced no significant losses on such responsibilities and its exposure to the risk associated with the temporary payments is judged to be remote because trust account liabilities are generally covered by the corresponding trust account assets. The MUFG Group continuously monitors the liabilities of trust accounts and assesses the trust account’s ability to perform its obligations to prevent any unfavorable outcomes; the MUFG Group claims its recourse for its temporary payments against the trust account assets and the beneficiaries.
Carrying Amount
At March 31, 2022 and 2023, the carrying amounts of the liabilities related to guarantees and similar instruments set forth above were ¥814,734 million and ¥1,243,157 million, respectively, which are included in Other liabilities and Trading account liabilities. The guarantees and similar instruments comprising the largest components of the total were options sold in the amount of ¥769,376 million and ¥1,188,798 million as of March 31, 2022 and 2023, respectively. Credit derivatives sold by the MUFG Group at March 31, 2022 and 2023 are excluded from this presentation, as they are disclosed in Note 23. In addition, Other liabilities include an allowance for off-balance sheet instruments of ¥51,852 million and ¥48,615 million at March 31, 2022 and 2023, respectively, related to these transactions.
Performance Risk
The MUFG Group monitors performance risk of its guarantees using the same credit rating system utilized for estimating probabilities of default with its loan portfolio. The MUFG Group’s credit rating system is consistent with both the method of evaluating credit risk under Basel III and those of third-party credit rating agencies. On certain underlying referenced credits or entities, ratings are not available. Such referenced credits are included in the “Not rated” category in the following tables.
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| Amount by borrower grade | |||||||||||||||||||||||||||||
| At March 31, 2022: | Maximum potential/ Contractual or Notional amount | Normal | Close Watch(1) | Likely to become Bankrupt or Legally/ Virtually Bankrupt(2) | Not rated | ||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||
| Standby letters of credit and financial guarantees | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Performance guarantees | |||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Amount by borrower grade | |||||||||||||||||||||||||||||
| At March 31, 2023: | Maximum potential/ Contractual or Notional amount | Normal | Close Watch(1) | Likely to become Bankrupt or Legally/ Virtually Bankrupt(2) | Not rated | ||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||
| Standby letters of credit and financial guarantees | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Performance guarantees | |||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
Notes:
(1)Borrowers classified as Close Watch represent those that require close monitoring as the borrower has begun to exhibit elements of potential concern with respect to its business performance and financial condition, the borrower has begun to exhibit elements of serious concern with respect to its business performance and financial condition, including business problems requiring long-term solutions, or the borrower’s loans are TDRs or loans contractually past due 90 days or more for special reasons.
The guarantees the MUFG Group does not classify based upon internal credit ratings are as follows.
The MUFG Group records all derivative contracts at fair value. Aggregate market risk limits have been established, and market risk measures are routinely monitored against these limits. The MUFG Group also manages its exposure to these derivative contracts through a variety of risk mitigation strategies, including, but not limited to, offsetting economic hedge positions. The MUFG Group expects the risk of loss to be remote and believes that the notional amounts of the derivative contracts generally exceed its exposure.
Liabilities of trust accounts represent the trustee’s potential responsibility for temporary payments to creditors of liabilities of trust accounts using funds of the MUFG Group. The MUFG Group has experienced no significant losses on such responsibilities and its exposure to the risk associated with the temporary payments is judged to be remote because trust account liabilities are generally covered by the corresponding trust account assets.
Other Off-balance Sheet Instruments
In addition to obligations under guarantees and similar arrangements set forth above, the MUFG Group issues other off-balance sheet instruments to meet the financial needs of its customers and for purposes other than trading. Such off-balance sheet instruments consist of lending-related commitments, including commitments to extend credit and commercial letters of credit that the MUFG Group provides to meet the financing needs of its customers. Once the MUFG Group issues these off-balance sheet instruments, the MUFG Group is required to extend credit to or make certain payments to the customers or beneficiaries specified pursuant to the underlying contracts unless otherwise provided in the contracts. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Substantially all of our off-balance sheet instruments is comprised of commitments to extend credit at March 31, 2023, and approximately 62 % of these commitments will expire within one year, 34 % from one year to five years and 4 % after five years. The table below presents the contractual amounts with regard to the other off-balance sheet instruments at March 31, 2022 and 2023:
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| 2022 | 2023 | ||||||||||
| (in billions) | |||||||||||
| Commitments to extend credit | ¥ | ¥ | |||||||||
| Commercial letters of credit | |||||||||||
| Commitments to make investments | |||||||||||
Commitments to extend credit, which generally have fixed expiration dates or other termination clauses, are binding agreements to lend to customers. Commitments are different from guarantees in that the commitments are generally revocable or have provisions that enable the MUFG Group to avoid payments in the event of violations of any conditions of the contracts and certain deterioration of the potential borrowers’ financial condition.
Commercial letters of credit, generally used for trade transactions, are typically secured by the underlying goods. The MUFG Group continually monitors the type and amount of collateral and other securities, and requires counterparties to provide additional collateral or guarantors as necessary.
25.VARIABLE INTEREST ENTITIES
In the normal course of business, the MUFG Group has financial interests and other contractual obligations in various entities which may be deemed to be VIEs such as asset-backed conduits, various investment funds, special purpose entities created for structured financing, repackaged instruments, entities created for the securitization of the MUFG Group’s assets and trust arrangements.
The following tables present the assets and liabilities of consolidated VIEs recorded on the accompanying consolidated balance sheets at March 31, 2022 and 2023:
| Consolidated VIEs | Consolidated assets | ||||||||||||||||||||||||||||||||||||||||
| At March 31, 2022: | Total | Cash and due from banks | Interest-earning deposits in other banks | Trading account assets | Investment securities | Loans | All other assets | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||
| Asset-backed conduits | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||
| Special purpose entities created for structured financing | |||||||||||||||||||||||||||||||||||||||||
| Repackaged instruments | |||||||||||||||||||||||||||||||||||||||||
| Securitization of the MUFG Group’s assets | |||||||||||||||||||||||||||||||||||||||||
| Trust arrangements | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Total consolidated assets before elimination | |||||||||||||||||||||||||||||||||||||||||
| The amounts eliminated in consolidation | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Total consolidated assets | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Consolidated liabilities | |||||||||||||||||||||||||||||
Total | Deposits | Other short-term borrowings | Long-term debt | All other liabilities | |||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
| Asset-backed conduits | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||
| Special purpose entities created for structured financing | |||||||||||||||||||||||||||||
| Repackaged instruments | |||||||||||||||||||||||||||||
| Securitization of the MUFG Group’s assets | |||||||||||||||||||||||||||||
| Trust arrangements | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total consolidated liabilities before elimination | |||||||||||||||||||||||||||||
| The amounts eliminated in consolidation | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| The amount of liabilities with recourse to the general credit of the MUFG Group | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of the MUFG Group | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Consolidated VIEs | Consolidated assets | ||||||||||||||||||||||||||||||||||||||||
| At March 31, 2023: | Total | Cash and due from banks | Interest-earning deposits in other banks | Trading account assets | Investment securities | Loans | All other assets | ||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||
| Asset-backed conduits | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||
| Special purpose entities created for structured financing | |||||||||||||||||||||||||||||||||||||||||
| Repackaged instruments | |||||||||||||||||||||||||||||||||||||||||
| Securitization of the MUFG Group’s assets | |||||||||||||||||||||||||||||||||||||||||
| Trust arrangements | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Total consolidated assets before elimination | |||||||||||||||||||||||||||||||||||||||||
| The amounts eliminated in consolidation | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Total consolidated assets | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Consolidated liabilities | |||||||||||||||||||||||||||||
Total | Deposits | Other short-term borrowings | Long-term debt | All other liabilities | |||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||
| Asset-backed conduits | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||
| Special purpose entities created for structured financing | |||||||||||||||||||||||||||||
| Repackaged instruments | |||||||||||||||||||||||||||||
| Securitization of the MUFG Group’s assets | |||||||||||||||||||||||||||||
| Trust arrangements | |||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||
| Total consolidated liabilities before elimination | |||||||||||||||||||||||||||||
| The amounts eliminated in consolidation | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| The amount of liabilities with recourse to the general credit of the MUFG Group | ( | ( | ( | ( | ( | ||||||||||||||||||||||||
| Liabilities of consolidated VIEs for which creditors or beneficial interest holders do not have recourse to the general credit of the MUFG Group | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
In general, the creditors or beneficial interest holders of consolidated VIEs have recourse not only to the assets of those VIEs of which they are creditors or beneficial interest holders, but also to other assets of the MUFG Group, since the MUFG Group is also contractually required to provide credit enhancement or program-wide liquidity to these VIEs.
The following tables present the total assets of non-consolidated VIEs, the maximum exposure to loss resulting from the MUFG Group’s involvement with non-consolidated VIEs and the assets and liabilities which relate to the MUFG’s variable interests in non-consolidated VIEs at March 31, 2022 and 2023:
| Non-consolidated VIEs | On-balance sheet assets | On-balance sheet liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||
| At March 31, 2022: | Total assets | Maximum exposure | Total | Trading account assets | Investment securities | Loans | All other assets | Total | All other liabilities | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed conduits | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special purpose entities created for structured financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repackaged instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Non-consolidated VIEs | On-balance sheet assets | On-balance sheet liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||
| At March 31, 2023: | Total assets | Maximum exposure | Total | Trading account assets | Investment securities | Loans | All other assets | Total | All other liabilities | ||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed conduits | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
| Investment funds | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Special purpose entities created for structured financing | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repackaged instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Maximum exposure to loss on each type of entity is determined based on the carrying amount of any on-balance sheet assets and any off-balance sheet liabilities held, net of any recourse liabilities. Therefore, the maximum exposure to loss represents the maximum loss the MUFG Group could possibly incur at each balance sheet date and does not reflect the likelihood of such a loss being incurred. The difference between the amount of on-balance sheet assets and the maximum exposure to loss primarily comprises the remaining undrawn commitments.
Analysis of Each Transaction Category
Asset-Backed Conduits
This category primarily comprises the following:
Multi-Seller Conduits (MUFG-sponsored Asset-Backed Commercial Paper (“ABCP”) Conduits and Other ABCP Conduits)
The MUFG Group administers several conduits under asset-backed financing programs under which the conduits purchase financial assets, primarily trade accounts receivable, from the MUFG Group’s customers by issuing short-term financing instruments, primarily commercial paper, to third-party investors. Under the asset-backed financing programs, the MUFG Group acts as an agent for the conduits, which enter into agreements with the MUFG Group’s customers where the customers transfer financial assets to the conduits in exchange for monetary consideration. The MUFG Group also underwrites commercial paper for the conduits that is secured by the assets held by them and provides program-wide liquidity and credit enhancement facilities to the conduits. The MUFG Group receives fees related to the services it provides to the conduits and the program-wide liquidity and credit enhancement. The MUFG Group considers itself to be the primary beneficiary of the multi-seller conduits because, as an agent and sponsor, the MUFG Group has the power to direct activities of the conduits that most significantly impact the conduits’ economic performance and also has the obligation to absorb losses of the conduits that could potentially be significant to the conduits through the program-wide liquidity and credit enhancement. Consequently, the MUFG Group consolidates the conduits.
In addition to the entities described above, the MUFG Group participates as a provider of financing to several conduits that are administered by third parties. Most of these conduits are established under a multi-seller asset-backed financing program and the MUFG Group provides financing along with other financial institutions. With respect to these conduits, the MUFG Group is not considered as the primary beneficiary because the MUFG Group’s participation in the conduits is only to provide financing along with other third-party financial institutions and it does not have the power to direct the activities of the conduits. Consequently, the MUFG Group does not consolidate the conduits.
Asset-Backed Conduits (MUFG-sponsored Asset-Backed Loan (“ABL”) Programs and Other Programs)
The MUFG Group administers several conduits under asset-backed financing programs where the MUFG Group provides financing to fund the conduits’ purchases of financial assets, comprising primarily trade accounts receivable, from its customers. The MUFG Group acts as an agent and sponsor for the conduits, which enter into agreements with the MUFG Group’s customers where the customers transfer assets to the conduits in exchange for monetary consideration. In most cases, the MUFG Group is the sole provider of financing that is secured by the assets held by the conduits. The MUFG Group considers itself to be the primary beneficiary of the conduits because, as an agent and sponsor for the conduits, the MUFG Group has the power to direct activities of the conduits, such as selection of the assets to be purchased and condition for purchases, and debt collection from the original obligors, that most significantly impact the conduits’ economic performance, and also has the obligation to absorb losses of the conduits that could potentially be significant to the conduits through financing it provides. Consequently, the MUFG Group consolidates the conduits.
In addition, the MUFG Group is involved with entities, which take in most cases the form of a trust, where originators of financial assets, which primarily comprise lease receivables, entrust the assets with trust banks and receive beneficial certificates of trusts in exchange. The originators then transfer the beneficiary certificates to the MUFG Group in exchange for cash. The originators of the financial assets entrusted continue to be involved in the assets as servicers. Because the originators are deemed to have the power to direct activities of the entities that most significantly impact the entities’ economic performance through their role as a servicer, the MUFG Group is not considered as the primary beneficiary of these entities. Consequently, the MUFG Group does not consolidate these entities.
The MUFG Group also participates as a provider of financing to the ABL programs that are managed by third parties. The MUFG Group is not considered as the primary beneficiary of the entities used in these programs as the MUFG Group’s participation
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
in the entities is only to provide financing along with other third parties and it does not have the power to direct the activities of the entities. Consequently, the MUFG Group does not consolidate the entities used in these programs.
Investment Funds
This category primarily comprises the following:
Corporate Recovery Funds
These entities are established by fund managers, which are unrelated to the MUFG Group, for the purpose of investing in debt or equity instruments issued by distressed companies. After investment, the fund managers work closely with the management of the entities and attempt to enhance corporate value by various means including corporate restructuring and reorganization. Their exit strategies include, among others, sales to others and initial public offerings.
Typically, these entities take the form of a limited partnership which is entirely funded by general and limited partner interests. These partnerships are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights.
The MUFG Group mostly serves as a limited partner in corporate recovery funds that are considered as VIEs, and does not have the power to direct the activities of these funds that most significantly impact the economic performance of these funds. Therefore, the MUFG Group does not consider itself to be the primary beneficiary of these funds and does not consolidate them.
Private Equity Funds
The MUFG Group is involved in venture capital funds that are established by either the MUFG Group’s entities or fund managers unrelated to the MUFG Group. These entities have specific investment objectives in connection with their acquisition of equity interests, such as providing financing and other support to start-up businesses, medium and small entities in a particular geographical area, and to companies with certain technology or companies in a high-growth industry.
These entities typically take the form of a limited partnership and usually are entirely funded by general and limited partner interests. These partnerships are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights.
The MUFG Group participates in these partnerships as a general partner or limited partner. The MUFG Group consolidates these funds, which are considered as VIEs, if the MUFG Group has the power to direct the activities of these funds that most significantly impact the economic performance of these funds, and also has the obligation to absorb losses of these funds that could potentially be significant to these funds or the right to receive benefits from these funds that could potentially be significant to these funds.
Investment Trusts
The MUFG Group invests in investment trusts that are professionally managed collective investment schemes which pool money from many investors and invest in, among others, equity and debt securities. Most of these funds take the form of a trust where there is a separation in investment decisions, which is assumed by an investment manager who has no investment in a trust, and ownership through beneficiary interests issued by a trust are owned by investors. Therefore, these investment trusts are considered as VIEs. The MUFG Group consolidates these funds if the MUFG Group has the power to direct the activities of these funds that most significantly impact the economic performance of these funds, and also has the obligation to absorb losses of these funds that could potentially be significant to these funds or the right to receive benefits from these funds that could potentially be significant to these funds.
Buy-out Financing Vehicles
The MUFG Group provides financing to buy-out vehicles. The buy-out vehicles are established by equity investments from, among others, private equity funds or the management of target companies for the purpose of purchasing the equity shares of target companies. Along with other financial institutions, the MUFG Group provides financing to the buy-out vehicles in the form of loans. While the buy-out vehicles’ equity is normally substantive in its amount and the rights and obligations associated with it, in some cases, the vehicles have equity that is insufficient to absorb expected variability primarily because the amount provided by equity investors is nominal in nature. These vehicles engage in non-investment activities, and are considered as VIEs. In most cases, the MUFG Group’s participation in these vehicles is only to provide financing to the vehicles, and the power to direct the activities that most significantly impact the economic performance of the vehicles is held by the management of target companies. As a result, the MUFG Group is not considered as the primary beneficiary of these vehicles and does not consolidate them.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Special Purpose Entities Created for Structured Financing
This category primarily comprises the following:
Leasing Transaction Vehicles
These entities are established to raise funds to purchase or build equipment and machinery including, among others, commercial vessels, passenger and cargo aircraft, and production equipment for the purpose of leasing them to lessees who use the equipment and machinery as part of their business operations. These entities typically take the form of a limited partnership or a special purpose company where they fund their purchases of equipment and machinery via senior and subordinate financing. When entities take the form of a limited partnership, these entities are considered as VIEs unless limited partners hold substantive kick-out rights or participating rights. The entities considered as VIEs are typically funded only by senior financing or there is a guarantee provided to the senior financing by parties unrelated to those providing the senior financing. In most cases, the MUFG Group participates in the senior financing and does not participate in the subordinate financing or provide guarantees. Generally, because the MUFG Group’s participation in these entities is only to provide financing, it does not have the power to direct the activities of the entities that most significantly impact the economic performance of the entities. Therefore, the MUFG Group does not consider itself to be the primary beneficiary of these entities and does not consolidate them, except for limited circumstances where the MUFG Group is directly involved with the structuring of the transaction and has the power to direct the activities of the entities that most significantly impact the economic performance of the entities.
Project Financing Vehicles
These entities are established to raise funds in connection with, among others, production of natural resources, construction and development of urban infrastructure (including power plants and grids, highways and ports), and the development of real estate properties or complexes. These projects typically involve special purpose companies which issue senior and subordinate financing to raise funds in connection with the various projects. The subordinate financing is usually provided by parties that will ultimately make use of the assets constructed or developed. By contrast, the senior financing is typically provided by financial institutions, including the MUFG Group. Because the MUFG Group’s participation in these entities is only to provide financing, it does not have the power to direct the activities that most significantly impact the economic performance of these entities. Therefore, the MUFG Group is not considered as the primary beneficiary of these entities and does not consolidate them.
Sale-and-Leaseback Vehicles
The MUFG Group is involved with vehicles that acquire assets, primarily real estate, from the MUFG Group’s customers and other unrelated parties where the sellers of the assets continue to use the assets through leaseback agreements. These vehicles typically take the form of a limited partnership, and are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights. The subordinated financing of these vehicles considered as VIEs is usually provided by the sellers of the assets, with the MUFG Group providing senior financing for the vehicles. Because the MUFG Group’s participation in these vehicles is only to provide senior financing, it does not have the power to direct the activities that most significantly impact the economic performance of these vehicles. Therefore, the MUFG Group is not considered as the primary beneficiary and does not consolidate them.
Securitization of Client Real Estate Properties
These entities are established for the purpose of securitizing real estate properties held by the MUFG Group’s customers. In most cases, these entities take the form of a limited partnership or a special purpose company. When entities take the form of a limited partnership, these entities are considered as VIEs unless the limited partners hold substantive kick-out rights or participating rights. The entities considered as VIEs are typically funded by senior and subordinated financing where the original owners of the real estate properties provide the subordinated financing, primarily in the form of partnership interests or subordinated notes, and financial institutions, including the MUFG Group, provide senior financing in the form of senior loans. Because the MUFG Group’s participation in these vehicles is only to provide a portion of senior financing, it does not have the power to direct the activities that most significantly impact the economic performance of these entities. Therefore, the MUFG Group is not considered as the primary beneficiary and does not consolidate these entities.
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Repackaged Instruments
This category primarily comprises the following:
Investments in Financially-Engineered Products
The MUFG Group is involved in special purpose entities that have been established to issue financial products through the engineering and repackaging of existing financial instruments such as collateralized debt obligations (“CDOs”). These entities are considered as VIEs because the holders of the equity investment at risk do not have the power to direct the activities that most significantly impact their economic performance. These entities are generally arranged and managed by parties that are not related to the MUFG Group. The MUFG Group’s involvement with the entities arranged and managed by third parties is for investment purposes. In these cases, the MUFG Group participates as one of many other investors and the MUFG Group typically holds investments in senior tranches or tranches with high credit ratings. Therefore, the MUFG Group does not have the power to direct activities of the entities that most significantly impact the entities’ economic performance, and thus is not considered as the primary beneficiary of these entities and does not consolidate these entities.
In certain instances, special purpose entities have been established and are managed by the MUFG Group. The MUFG Group’s involvement includes establishing and arranging the transaction and underwriting securities issued by the entities to general investors. For these entities, the MUFG Group has the power to direct activities that most significantly impact the economic performance and it has the obligation to absorb losses or receive benefits that could potentially be significant to the entities. As such, the MUFG Group considers itself as the primary beneficiary of these entities and consolidates them.
Investments in Securitized Financial Instruments
The MUFG Group holds investments in special purpose entities that issue securitized financial products. The assets held by the entities include credit card receivables and residential mortgage loans. These entities are established and managed by parties that are unrelated to the MUFG Group and the MUFG Group’s involvement with these entities is for its own investment purposes. In all cases, the MUFG Group participates as one of many other investors and the MUFG Group does not have the power to direct activities of the entities that most significantly impact the entities’ economic performance. Therefore, the MUFG Group is not considered as the primary beneficiary of these entities and does not consolidate them.
Securitization of the MUFG Group’s Assets
This category primarily comprises the following:
Securitization for issuing interests or financing
The MUFG Group establishes entities to securitize its own financial assets that include, among others, corporate and retail loans and lease receivables. The entities used for securitization, which typically take the form of a special purpose company or a trust, are established by the MUFG Group and, in most cases, issue senior and subordinate interests or financing. After securitization, the MUFG Group typically continues to service securitized assets as a servicer. The MUFG Group may also retain subordinate interests or financing or other interests. The MUFG Group is considered as the primary beneficiary and consolidates the entities used for securitization since it has the obligation to absorb losses through subordinate interests, and also has the power for determining and implementing policies as servicer that give it the ability to manage the entities’ assets that become delinquent or are in default in order to improve the economic performance of the entities.
Eligible beneficiary interests in housing loan trusts
The MUFG Group establishes trusts, which acquire the MUFG Group’s housing loans and in turn issue beneficiary interests to the MUFG Group, to pledge these beneficiary interests as collateral for borrowings from the Bank of Japan, as a result of the decision by the Bank of Japan on June 30, 2016 to accept these beneficial interests as collateral in the same way as it does for Japanese national government bonds. The MUFG Group is considered as the primary beneficiary and consolidates the trusts since it has the obligation to absorb losses through beneficiary interests, and also has the power for determining and implementing policies as servicer that give it the ability to manage housing loans owned by the trusts that become delinquent or are in default in order to improve the economic performance of the trusts.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Trust Arrangements
The MUFG Group offers, primarily through Mitsubishi UFJ Trust and Banking, a variety of trust products and services including securities investment trusts, pension trusts and trusts used as securitization vehicles. In a typical trust arrangement, however, the MUFG Group manages and administers assets on behalf of the customers in an agency, fiduciary and trust capacity and does not assume risks associated with the entrusted assets. The trusts are generally considered as VIEs because the trust beneficiaries, who provide all of the equity at risk, usually do not have power to direct the activities that most significantly impact its economic performance in the arrangements. The MUFG Group, however, is not considered as the primary beneficiary, mainly, except for the case mentioned below, because it merely receives fees for compensation for its services on terms that are customary for these activities and the fees are insignificant relative to the total amount of the trusts’ economic performance and variability. Therefore, the MUFG Group does not consolidate these entities.
With respect to the jointly operated designated money in trusts, Mitsubishi UFJ Trust and Banking pools money from investors and determines how best to invest it. In addition, certain investors, such as money reserve funds and investment funds, place excess funds in the jointly operated designated money trusts. Mitsubishi UFJ Trust and Banking typically invests in high-quality financial assets, including government bonds, corporate bonds and corporate loans including loans to Mitsubishi UFJ Trust and Banking and receives fees as compensation for services. In this role as a sponsor of these trusts’ Mitsubishi UFJ Trust and Banking provides guarantees under which it is required to compensate a loss on the stated principal of the trust beneficial interests. Mitsubishi UFJ Trust and Banking is considered as the primary beneficiary of these trusts’ because it is exposed to a potentially significant amount of losses and also has the power to direct activities of these trusts’ that most significantly impact their economic performance. Upon consolidation of the trusts, the certificates issued to the investors are accounted for as deposit liabilities as the products are structured and marketed to customers similar to Mitsubishi UFJ Trust and Banking’s term deposit products.
Mitsubishi UFJ Trust and Banking considers the likelihood of incurring losses on the stated principal guarantee to be highly remote. In the trusts’ operational history that extends over decades, the stated principal guarantee has never been called upon. The variability in fair value of the net assets of the trusts has been primarily affected by the fluctuations in interest rates, and the majority of such variability has been absorbed by investors or trust beneficiaries.
Other
This category primarily comprises the following:
Financing Vehicles of the MUFG Group’s Customers
The MUFG Group is involved with several entities that are established by the MUFG Group’s customers. These entities borrow funds from financial institutions and extend loans to their group entities. These entities effectively work as fund-raising vehicles for their respective group entities and enable the groups to achieve efficient financing by integrating their financing activities into a single entity. In all cases, the MUFG Group is not considered as the primary beneficiary because the MUFG Group’s participation in these entities is only to provide financing, and the customers effectively hold the power to direct activities of these entities that most significantly impact the economic performance of the entities. Consequently, the MUFG Group does not consolidate these entities.
Funding Vehicles
The MUFG Group has established several wholly-owned off-shore vehicles which issue securities, typically preferred stock that is fully guaranteed by the MUFG Group, to investors unrelated to the MUFG Group to fund purchases of debt instruments issued by the MUFG Group. These entities are considered as VIEs because the MUFG Group’s investment in the vehicles’ equity is not considered at risk and substantive as the entire amount raised by the vehicles was used to purchase debt instruments issued by the MUFG Group. Because the MUFG Group does not have variable interests in these vehicles, the MUFG Group does not consolidate these entities.
Troubled Borrowers
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
26.CONTINGENT LIABILITIES
Repayment of Excess Interest
The MUFG Group maintains an allowance for repayment of excess interest based on an analysis of past experience of reimbursement of excess interest, borrowers’ profile, recent trend of borrowers’ claims for reimbursement, and management future forecasts. Management believes that the provision for repayment of excess interest is adequate and the allowance is at the appropriate amount to absorb probable losses, so that the impact of future claims for reimbursement of excess interest will not have a material adverse effect on the MUFG Group’s financial position and results of operations. The allowance for repayment of excess interest established by MUFG’s consumer finance subsidiaries, which was included in Other liabilities, was ¥21,120 million and ¥12,113 million as of March 31, 2022 and 2023, respectively. Provision (reversal) related to the allowance is included in Other non-interest expenses in the accompanying consolidated statements of operations. For the fiscal years ended March 31, 2021, 2022 and 2023, there was a negative impact of nil , ¥23,332 million and nil , respectively, on Equity in earnings of equity method investees—net in the accompanying consolidated statements of operations.
Litigation
27.FEES AND COMMISSIONS INCOME
Disaggregation of Contract Revenue
Details of fees and commissions income for the fiscal years ended March 31, 2021, 2022 and 2023 were as follows:
| 2021 | 2022 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Fees and commissions on deposits | ¥ | ¥ | ¥ | ||||||||||||||
| Fees and commissions on remittances and transfers | |||||||||||||||||
| Fees and commissions on foreign trading business | |||||||||||||||||
| Fees and commissions on credit card business | |||||||||||||||||
| Fees and commissions on security-related services | |||||||||||||||||
| Fees and commissions on administration and management services for investment funds | |||||||||||||||||
| Trust fees | |||||||||||||||||
Guarantee fees(1) | |||||||||||||||||
| Insurance commissions | |||||||||||||||||
| Fees and commissions on real estate business | |||||||||||||||||
Other fees and commissions(2) | |||||||||||||||||
| Total | ¥ | ¥ | ¥ | ||||||||||||||
Notes:
(1)Guarantee fees are not within the scope of the guidance on revenue from contracts with customers.
The following is an explanation of the relationship with revenue information disclosed for each reportable segment.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
These revenues from contracts with customers are related to various reportable segments disclosed in Note 29. The business segment information is derived from the internal management reporting system used by management to measure the performance of the MUFG Group’s business segments. In addition, the business segment information is primarily based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices. Further, the format and information as disclosed in Note 29 are not consistent with the accompanying consolidated financial statements prepared on the basis of U.S. GAAP. For example, management does not use information on segments’ gross revenue to allocate resources and assess performance.
The majority of fees and commissions on deposits are attributable to Digital Service Business Group (“DS”) and Global Commercial Banking Business Group (“GCB”) with no significant concentration in any particular segments.
The business activities relevant to fees and commissions on remittances and transfers are attributable to DS, Retail & Commercial Banking Business Group (“R&C”), Japanese Corporate Investment Banking Business Group (“JCIB”), Global Corporate Investment Banking Business Group (“GCIB”), and GCB with no significant concentration in any particular segments.
The business activities relevant to fees and commissions on foreign trading business are attributable to DS, R&C, JCIB, GCIB, and GCB with no significant concentration in any particular segments.
The business activities relevant to fees and commissions on credit card business are substantially attributable to DS.
The majority of fees and commissions on security-related services are from the business activities relevant to R&C, with JCIB and GCIB providing a smaller impact.
The business activities relevant to fees and commissions on administration and management services for investment funds are substantially attributable to Asset Management & Investor Service Business Group (“AM/IS”).
The business activities relevant to trust fees are attributable to R&C, JCIB, and AM/IS with no significant concentration in any particular segments.
The majority of insurance commissions are from the business activities relevant to DS, R&C, JCIB, and GCB with no significant concentration in any particular segments.
28.TRADING ACCOUNT PROFITS AND LOSSES
The MUFG Group performs trading activities through market-making, sales and arbitrage, while maintaining risk levels within appropriate limits in accordance with its risk management policy.
The MUFG Group has trading account securities and trading derivative assets and liabilities for this purpose. In addition, the trading account securities include foreign currency-denominated debt securities such as foreign government or official institution bonds, corporate bonds and mortgage-backed securities, which are mainly comprised of securities measured at fair value under the fair value option.
Net trading gains (losses) for the fiscal years ended March 31, 2021, 2022 and 2023 were comprised of the following:
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Interest rate and other derivative contracts | ¥ | ( | ¥ | ( | ¥ | ||||||||||||
| Trading account securities, excluding derivatives | ( | ( | |||||||||||||||
| Trading account losses—net | ( | ( | ( | ||||||||||||||
Foreign exchange derivative contracts(1) | ( | ( | |||||||||||||||
| Net trading losses | ¥ | ( | ¥ | ( | ¥ | ( | |||||||||||
Note:
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
29.BUSINESS SEGMENTS
The reportable segments of the MUFG Group are subject to the periodical review by the Executive Committee, which represents the MUFG Group’s chief operating decision maker, to determine the allocation of management resources and assess performance. The MUFG Group has established its business units according to the characteristics of customers and the nature of the underlying business. Each business unit engages in business activities based on comprehensive strategies developed for and aimed at respective targeted customers and businesses. The business segment information is primarily based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices. Accordingly, the format and information are not consistent with the accompanying consolidated financial statements prepared on the basis of U.S. GAAP. A reconciliation is provided for the total amounts of segments’ operating profit with income before income tax expense under U.S. GAAP. The MUFG Group does not use information on the segments’ total assets to allocate its resources and assess performance. Accordingly, business segment information on total assets is not presented. However, in order to ensure more efficient management of resources, and to strengthen controls on profits and losses in each business group, the MUFG Group has allocated fixed assets of both MUFG Bank on a stand-alone basis and Mitsubishi UFJ Trust and Banking on a stand-alone basis to each business unit of such subsidiaries as of March 31, 2022. Accordingly, such fixed assets allocated to business groups are presented below.
See Note 30 for financial information relating to the MUFG Group’s operations by geographic area. The geographic financial information is consistent with the basis of the accompanying consolidated financial statements.
The MUFG Group integrated the operations of its consolidated subsidiaries into seven business segments.—Digital Service, Retail & Commercial Banking, Japanese Corporate & Investment Banking, Global Commercial Banking, Asset Management & Investor Services, Global Corporate & Investment Banking, and Global Markets.
The following is a brief explanation of the MUFG Group’s business segments:
Digital Service Business Group—Covers digital-based non-face-to-face businesses servicing “mass-segment” customers, or retail customers and small and medium-sized enterprise customers, of Mitsubishi UFJ NICOS, other consumer finance companies, and MUFG Bank in Japan.
Retail & Commercial Banking Business Group—Covers the domestic retail and commercial banking businesses. This business group mainly offers retail customers (with a strategic focus on high net-worth individuals) and small and medium-sized enterprise customers in Japan an extensive array of commercial banking, trust banking and securities products and services.
Japanese Corporate & Investment Banking Business Group—Covers the large Japanese corporate businesses. This business group offers large Japanese corporations advanced financial solutions designed to respond to their diversified and globalized needs and to contribute to their business and financial strategies through the global network of the MUFG group companies.
Global Commercial Banking Business Group—Covers the retail and commercial banking businesses of Krungsri and Bank Danamon. This business group offers a comprehensive array of financial products and services such as loans, deposits, fund transfers, investments and asset management services for local retail, small and medium-sized enterprise, and corporate customers across the Asia-Pacific region.
Asset Management & Investor Services Business Group—Covers the asset management and asset administration businesses of Mitsubishi UFJ Trust and Banking, MUFG Bank and First Sentier Investors. By integrating the trust banking expertise of Mitsubishi UFJ Trust and Banking and the global strengths of MUFG Bank, the business group offers a full range of asset management and administration services for corporations and pension funds, including pension fund management and administration, advice on pension structures, and payments to beneficiaries, and also offers investment trusts for retail customers.
Global Corporate & Investment Banking Business Group—Covers the global corporate, investment and transaction banking businesses of MUFG Bank and Mitsubishi UFJ Securities Holdings. Through a global network of offices and branches, this business
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
group provides large non-Japanese corporate and financial institution customers outside Japan with a comprehensive set of solutions that meet their increasingly diverse and sophisticated financing needs.
Global Markets Business Group—Covers the customer business and the treasury operations of MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities Holdings. The customer business includes sales and trading in fixed income instruments, currencies, equities and other investment products as well as origination and distribution of financial products. The treasury operations include asset and liability management as well as global investments for the MUFG Group.
Other—Consists mainly of the corporate centers of MUFG, MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Morgan Stanley Securities. The elimination of duplicated amounts of net revenues among business segments is also reflected in Other.
The MUFG Group made modifications to its internal management accounting rules and practices, effective April 1, 2022, including reallocation of au Kabucom Securities Co., Ltd., an internet securities subsidiary, to the Digital Service Business Group from the Retail & Commercial Banking Business Group as well as updates to internal booking rules relating to certain net fees and other net revenue in the customer business groups and corresponding adjustments in Other.
These changes had the following impact on its previously reported business segment information for the fiscal years ended March 31, 2021 and 2022:
•increasing the operating profits of the Digital Service Business Group, the Japanese Corporate & Investment Banking Business Group, the Global Corporate & Investment Banking Business Group and the Global Commercial Banking Business Group by ¥8.2 billion, ¥5.7 billion, ¥4.9 billion and ¥0.8 billion, respectively, for the fiscal year ended March 31, 2021,
•reducing the operating profits of the Retail & Commercial Banking Business Group, Other, the Global Markets Business Group and the Asset Management & Investor Services Business Group by ¥9.1 billion, ¥7.4 billion, ¥2.9 billion and ¥0.2 billion, respectively, for the fiscal year ended March 31, 2021,
•increasing the operating profits of the Digital Service Business Group, the Global Corporate & Investment Banking Business Group, the Japanese Corporate & Investment Banking Business Group and the Global Commercial Banking Business Group by ¥10.3 billion, ¥6.5 billion, ¥0.9 billion and ¥0.3 billion, respectively, for the fiscal year ended March 31, 2022, and
•reducing the operating profits of the Retail & Commercial Banking Business Group, Other, the Global Markets Business Group and the Asset Management & Investor Services Business Group by ¥11.0 billion, ¥3.9 billion, ¥3.0 billion and ¥0.1 billion, respectively, for the fiscal year ended March 31, 2022.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| Customer Business | Global Markets Business Group | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Digital Service Business Group | Retail & Commercial Banking Business Group | Japanese Corporate & Investment Banking Business Group | Global Commercial Banking Business Group | Asset Management & Investor Services Business Group | Global Corporate & Investment Banking Business Group | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2021: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue: | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||
BK and TB(1): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net fees | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other than BK and TB | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2022: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue: | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||||||||||
BK and TB(1): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net fees | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other than BK and TB | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed assets(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2023: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net revenue: | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||
BK and TB(1): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net fees | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other than BK and TB | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating profit (loss) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed assets(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||||||||||
Increase in fixed assets(3) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||||||||||
Depreciation(3) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||||||||||
Notes:
(1)“BK and TB” is a sum of MUFG Bank on a stand-alone basis (BK) and Mitsubishi UFJ Trust and Banking on a stand-alone basis (TB).
(2)Fixed assets in the above table are based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices, and it corresponds to the U.S. GAAP amounts of premises and equipment-net, intangible assets-net and goodwill of BK and TB. Fixed assets of MUFG and other consolidated subsidiaries and Japanese GAAP consolidation adjustments amounting to ¥1,286.1 billion as of March 31, 2022 and ¥1,210.2 billion as of March 31, 2023, respectively, are not allocated to each business segment when determining the allocation of management resources and assessing performance and, therefore, such amounts are not included in the table above.
(3)These amounts are related to the fixed assets of BK and TB included in the table above.
Reconciliation
As set forth above, the measurement basis and the income and expense items of the internal management reporting system are different from the accompanying consolidated statements of operations. Therefore, it is impracticable to present reconciliations of all of the business segments’ information, other than operating profit, to corresponding items in the accompanying consolidated statements of operations.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A reconciliation of operating profit and fixed assets under the internal management reporting system for the fiscal years ended March 31, 2021, 2022 and 2023 above to income before income tax expense shown in the accompanying consolidated statements of operations and the total amount of premises and equipment-net, intangible assets-net and goodwill are as follows:
| 2021 | 2022 | 2023 | |||||||||||||||
(in billions) | |||||||||||||||||
| Operating profit: | ¥ | ¥ | ¥ | ||||||||||||||
| Provision for credit losses | ( | ( | ( | ||||||||||||||
| Trading account losses—net | ( | ( | ( | ||||||||||||||
| Equity investment securities gains (losses)—net | ( | ( | |||||||||||||||
| Debt investment securities gains (losses)—net | ( | ||||||||||||||||
| Foreign exchange gains (losses)—net | ( | ( | |||||||||||||||
| Equity in earnings of equity method investees—net | |||||||||||||||||
| Impairment of goodwill | ( | ( | |||||||||||||||
| Impairment of intangible assets | ( | ( | ( | ||||||||||||||
| Reversal of (provision for) off-balance sheet credit instruments | ( | ( | |||||||||||||||
| Reversal of impairment (impairment) of assets held for sale | ( | ||||||||||||||||
| Loss on valuation adjustment for loans held for sale held by MUFG Union Bank | ( | ( | |||||||||||||||
| Gain on sale of MUFG Union Bank | |||||||||||||||||
| Loss on pension buyout | ( | ||||||||||||||||
| Other—net | ( | ( | ( | ||||||||||||||
| Income (loss) before income tax expense (benefit) | ¥ | ¥ | ( | ¥ | |||||||||||||
| Fixed assets: | ¥ | ¥ | ¥ | ||||||||||||||
| U.S. GAAP adjustments and other | |||||||||||||||||
| Premises and equipment-net, Intangible assets-net and Goodwill | ¥ | ¥ | ¥ | ||||||||||||||
30.FOREIGN ACTIVITIES
Foreign operations include the business conducted by overseas offices, as well as international business conducted from domestic offices, principally several international banking-related divisions of MUFG Bank’s and Mitsubishi UFJ Trust and Banking’s head office in Tokyo, and involve various transactions with debtors and customers residing outside Japan. Close integration of the MUFG Group’s foreign and domestic activities makes precise estimates of the amounts of assets, liabilities, income and expenses attributable to foreign operations difficult and necessarily subjective. Assets, income and expenses attributable to foreign operations are allocated to geographical areas based on the domicile of the debtors and customers.
Generally, interest rates with respect to funds borrowed and loaned between domestic and foreign operations are based on prevailing money market rates appropriate for the transactions. In general, the MUFG Group has allocated all direct expenses and a proportionate share of general and administrative expenses to income derived from foreign loans and other transactions by the MUFG Group’s foreign operations. The following table sets forth estimated total assets at March 31, 2021, 2022 and 2023, and estimated total revenue, total expense, income (loss) before income tax expense (benefit) and net income (loss) attributable to Mitsubishi UFJ Financial Group for the respective fiscal years then ended:
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Domestic | Foreign | Total | |||||||||||||||||||||||||||||||||
Japan | United States of America | Europe | Asia/ Oceania excluding Japan | Other areas(1) | |||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2021: | |||||||||||||||||||||||||||||||||||
Total revenue(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
Total expense(3) | |||||||||||||||||||||||||||||||||||
| Income before income tax expense | |||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ( | ||||||||||||||||||||||||||||||||||
| Total assets at end of fiscal year | |||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2022: | |||||||||||||||||||||||||||||||||||
Total revenue(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
Total expense(3) | |||||||||||||||||||||||||||||||||||
| Income (loss) before income tax expense (benefit) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
Total assets at end of fiscal year(4) | |||||||||||||||||||||||||||||||||||
| Fiscal year ended March 31, 2023: | |||||||||||||||||||||||||||||||||||
Total revenue(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||
Total expense(3) | |||||||||||||||||||||||||||||||||||
| Income (loss) before income tax expense (benefit) | ( | ( | |||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Mitsubishi UFJ Financial Group | ( | ||||||||||||||||||||||||||||||||||
| Total assets at end of fiscal year | |||||||||||||||||||||||||||||||||||
Notes:
(1)Other areas primarily include Canada, Latin America, the Caribbean and the Middle East.
(2)Total revenue is comprised of Interest income and Non-interest income.
(3)Total expense is comprised of Interest expense, Provision for credit losses and Non-interest expense.
(4)Total assets at the fiscal year ended March 31, 2022 in this table includes those relating to financial assets and liabilities of transferred business of MUFG Union Bank. See Note 2 for more information.
The following is an analysis of certain asset and liability accounts related to foreign activities at March 31, 2022 and 2023:
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Cash and due from banks | ¥ | ¥ | |||||||||
| Interest-earning deposits in other banks | |||||||||||
| Total | ¥ | ¥ | |||||||||
| Trading account assets | ¥ | ¥ | |||||||||
| Investment securities | ¥ | ¥ | |||||||||
| Loans—net of unearned income, unamortized premiums and deferred loan fees | ¥ | ¥ | |||||||||
| Deposits | ¥ | ¥ | |||||||||
| Funds borrowed: | |||||||||||
| Call money, funds purchased | ¥ | ¥ | |||||||||
| Payables under repurchase agreements | |||||||||||
| Payables under securities lending transactions | |||||||||||
| Other short-term borrowings | |||||||||||
| Long-term debt | |||||||||||
| Total | ¥ | ¥ | |||||||||
| Trading account liabilities | ¥ | ¥ | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
31.FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance on fair value measurements also specifies a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable inputs, for example, the reporting entity’s own data. Based on the observability of the inputs used in the valuation techniques, the following three-level hierarchy is specified by the guidance:
•Level 1—Unadjusted quoted prices for identical instruments in active markets.
•Level 2—Observable inputs other than Level 1 prices for substantially the full term of the instruments, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; other inputs that are observable; or market-corroborated inputs.
•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instruments.
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The tables in this note except for Estimated Fair Value of Financial Instruments include the portion of the assets and liabilities held for sale.
The MUFG Group has an established and documented process for determining fair values in accordance with the guidance. When available, quoted prices are used to determine fair value. If quoted prices are not available, fair value is based upon valuation techniques that use observable or unobservable inputs. The fair values of liabilities are determined by discounting future cash flows at a rate which incorporates the MUFG Group’s own creditworthiness. In addition, valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include, but are not limited to, amounts that reflect counterparty credit quality, funding cost, liquidity risk and model risk.
The following section describes the valuation techniques used by the MUFG Group to measure fair values of certain financial instruments. The discussion includes the general classification of such financial instruments in accordance with the fair value hierarchy, a brief explanation of the valuation techniques, the significant inputs to those valuation techniques, and any additional significant assumptions.
Trading Account Assets and Liabilities—Trading Account Securities
When quoted prices are available in an active market, the MUFG Group uses quoted prices to measure the fair values of securities and such securities are classified in Level 1 of the fair value hierarchy. Examples of Level 1 securities include certain Japanese and foreign government bonds, and marketable equity securities.
When quoted prices are available but the securities are not traded in active markets, such securities are classified in Level 2 of the fair value hierarchy. These securities include certain Japanese government agency bonds, Japanese prefectural and municipal bonds, foreign government and official institution bonds, corporate bonds, residential mortgage-backed securities and equity securities.
As for quoted prices provided by third-party vendors, independent price verification is performed by the MUFG group to determine the quality and reliability of the data for fair value measurement purposes. As part of its independent price verification procedures, the MUFG group obtains a sufficient understanding of the vendors’ pricing sources and valuation processes. Further, the MUFG group performs internal price verification procedures to ensure that the quoted prices provided from the third-party vendors are reasonable. Such verification procedures include comparison of pricing sources and analysis of variances beyond certain thresholds.
When quoted prices are not available, the MUFG Group estimates fair values by using an internal model, quoted prices of securities with similar characteristics or non-binding prices obtained from independent third parties. Such securities include certain commercial paper, corporate bonds, asset-backed securities and residential mortgage-backed securities. For commercial paper, the MUFG Group estimates fair value using discounted cash flows. The cash flows are estimated in accordance with the terms of contracts and discounted using a discount rate based on the yield curve estimated from market interest rates appropriate to the securities. Commercial paper is generally classified in Level 2 of the fair value hierarchy. For corporate bonds, the MUFG Group estimates fair value using discounted cash flows. The cash flows are estimated in accordance with the terms of contracts and discounted using
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
discount rates applicable to the maturity of the bonds, which are adjusted to reflect credit risk of issuers. Credit risk of issuers is reflected in the future cash flows being discounted by the interest rate applicable to the maturity of the bonds. Corporate bonds are classified in either Level 1, Level 2 or Level 3 of the fair value hierarchy, depending primarily on the significance of the adjustments to the unobservable input of credit worthiness. For residential mortgage-backed securities, the MUFG Group estimates fair value using non-binding prices obtained from independent third parties. Residential mortgage-backed securities are classified as level 2 unless otherwise significant unobservable input is used for the valuation.
When there is less liquidity for securities or significant inputs used in the fair value measurements are unobservable, such securities are classified in Level 3 of the fair value hierarchy. Examples of such Level 3 securities include CLOs backed by general corporate loans, which are classified in asset-backed securities. The fair value of CLOs is measured by weighing the estimated fair value amounts from the internal model and the non-binding quotes from the independent broker-dealers. The weight of the quotes from independent broker-dealers is determined based on the result of inquiries with the broker-dealers to understand their basis of fair value calculation with consideration given to transaction volume. Key inputs to the internal model include projected cash flows through an analysis of underlying loans, probability of default which incorporates market indices such as LCDX (which is an index of loan credit default swaps), prepayment rates and discount rates reflecting liquidity premiums based on historical market data.
Trading Account Assets and Liabilities—Derivatives
Exchange-traded derivatives valued using quoted prices are classified in Level 1 of the fair value hierarchy. Examples of Level 1 derivatives include stock futures index and interest rate futures. However, the majority of the derivative contracts entered into by the MUFG Group are traded over-the-counter and valued using valuation techniques as there are no quoted prices for such derivatives. The valuation techniques and inputs vary depending on the types and contractual terms of the derivatives. The principal valuation techniques used to value derivatives include discounted cash flows, the Black-Scholes model and the Hull-White model. The key inputs include interest rate yield curve, foreign currency exchange rate, volatility, credit quality of the counterparty or the MUFG Group and spot price of the underlying. These models are commonly accepted in the financial industry and key inputs to the models are generally readily observable in an active market. Derivatives valued using such valuation techniques and inputs are generally classified in Level 2 of the fair value hierarchy. Examples of such Level 2 derivatives include plain-vanilla interest rate swaps, foreign currency forward contracts and currency option contracts.
Derivatives that are valued using valuation techniques with significant unobservable inputs are classified in Level 3 of the fair value hierarchy. Examples of Level 3 derivatives include long-term interest rate or currency swaps and certain credit derivatives, where significant inputs such as volatility and correlation of such inputs are unobservable.
Investment Securities
Investment securities include Available-for-sale debt and equity securities, whose fair values are measured using the same valuation techniques as the trading account securities described above. Investment securities also include investments in nonmarketable equity securities which are subject to specialized industry accounting principles. The valuation of such nonmarketable equity securities involves significant management judgment due to the absence of quoted prices, lack of liquidity and the long term nature of these investments. Further, there may be restriction on transfers of nonmarketable equity securities. The MUFG Group values such securities initially at transaction price and subsequently adjusts such valuations, considering evidence such as current sales transactions of similar securities, initial public offerings, recent equity issuances and change in financial condition of the investee company. Nonmarketable equity securities are included in Level 3 of the fair value hierarchy.
Other Assets
Other assets measured at fair value mainly consist of securities received as collateral that may be sold or repledged under securities lending transactions. The securities received as collateral under lending transactions mainly consist of certain Japanese and foreign government bonds which are valued using the valuation techniques previously described in the section entitled “Trading Accounts Assets and Liabilities—Trading Account Securities” above.
Obligations to Return Securities Received as Collateral
Obligations to return securities received as collateral under securities lending transactions included in Other liabilities are measured at the fair values of the securities received as collateral. The securities received as collateral consist primarily of certain Japanese and foreign government bonds, whose fair values are measured using the valuation techniques described in the “Trading Account Assets and Liabilities—Trading Account Securities” above.
Other Short-term Borrowings and Long-term Debt
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Certain short-term borrowings and long-term debt are measured at fair value due to the election of the fair value option. The fair value of these instruments are measured principally based on the discounted cash flows. Where the inputs into the valuation techniques are mainly based on observable inputs, these instruments are classified in Level 2 of the fair value hierarchy. Where significant inputs are unobservable, they are classified in Level 3 of the fair value hierarchy.
Market Valuation Adjustments
Counterparty credit risk adjustments are made to certain financial assets such as over-the-counter derivatives to factor in counterparty credit exposure. As not all counterparties have the same credit risk, it is necessary in calculating credit risk adjustments, to take into account probability of a default event occurring for each counterparty, which is primarily derived from observed or estimated spreads on credit default swaps. In addition, the counterparty credit risk adjustment takes into account the effect of credit risk mitigation such as pledged collateral and the legal right of offset with the counterparty.
Funding valuation adjustment (“FVA”) represents the adjustment to reflect the impact of uncollateralized funding. The FVA is calculated using the MUFG’s market funding spread and the funding exposure of any uncollateralized component of the over-the-counter derivative instrument. The MUFG Group’s FVA framework incorporates key inputs, such as the expected future funding requirements arising from the MUFG Group’s positions with each counterparty and collateral arrangements, and the estimated market funding cost in the principal market, which considers the MUFG Group’s credit risk.
Liquidity adjustments are applied mainly to the instruments classified in Level 3 of the fair value hierarchy when recent observable prices of such instruments are not available or such instruments are traded in inactive or less active markets. The liquidity adjustments are based on the facts and circumstances of the markets including the availability of external quotes and the time since the latest available quote.
Model valuation adjustments such as unobservable parameter valuation adjustments may be provided when the fair values of instruments are determined based on internally developed valuation techniques. Examples of such adjustments include adjustments to the model price of certain derivatives where parameters such as correlation are unobservable. Unobservable parameter valuation adjustments are applied to mitigate the uncertainty inherent in the resulting valuation estimate.
Investments in Certain Entities That Calculate Net Asset Value per Share
The MUFG Group has interests in investment funds mainly private equity funds, and real estate funds that are measured at fair value on a recurring or nonrecurring basis.
Private equity funds have specific investment objectives in connection with their acquisition of equity interests, such as providing financing and other support to start-up businesses, medium and small entities in a particular geographical area, and to companies with certain technology or companies in a high-growth industry. Generally, these investments cannot be redeemed with the funds, and the return of invested capital and its gains are derived from distributions received upon the liquidation of the underlying assets of the fund, the timing of which is uncertain.
Real estate funds invest globally and primarily in real estate companies, debt recapitalizations and direct property. These investments are generally not redeemable with the funds. Distributions from each fund will be received as the underlying investments of the funds are liquidated, the timing of which is uncertain.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| At March 31, 2022 | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Trading account assets: | |||||||||||||||||||||||
Trading securities(1) | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Debt securities | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | |||||||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Commercial mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
Equity securities(2) | |||||||||||||||||||||||
| Trading derivative assets | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||
| Equity contracts | |||||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Credit derivatives | |||||||||||||||||||||||
Other(8) | |||||||||||||||||||||||
| Investment securities: | |||||||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | |||||||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| Marketable equity securities | |||||||||||||||||||||||
Nonmarketable equity securities(4) | |||||||||||||||||||||||
Other(5) | |||||||||||||||||||||||
| Assets held for sale | |||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| At March 31, 2022 | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Trading account liabilities: | |||||||||||||||||||||||
| Trading securities sold, not yet purchased | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Trading derivative liabilities | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||
| Equity contracts | |||||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Credit derivatives | |||||||||||||||||||||||
Other(8) | |||||||||||||||||||||||
Obligation to return securities received as collateral(6) | |||||||||||||||||||||||
Other(7) | |||||||||||||||||||||||
| Liabilities held for sale | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| At March 31, 2023 | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Trading account assets: | |||||||||||||||||||||||
Trading securities(1) | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Debt securities | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | |||||||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Commercial mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
Equity securities(2) | |||||||||||||||||||||||
| Trading derivative assets | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||
| Equity contracts | |||||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Credit derivatives | |||||||||||||||||||||||
Other(8) | |||||||||||||||||||||||
Trading loans(3) | |||||||||||||||||||||||
| Investment securities: | |||||||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Japanese national government and Japanese government agency bonds | |||||||||||||||||||||||
| Japanese prefectural and municipal bonds | |||||||||||||||||||||||
| Foreign government and official institution bonds | |||||||||||||||||||||||
| Corporate bonds | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Other debt securities | |||||||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| Marketable equity securities | |||||||||||||||||||||||
Nonmarketable equity securities(4) | |||||||||||||||||||||||
Other(5) | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| At March 31, 2023 | Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Trading account liabilities: | |||||||||||||||||||||||
| Trading securities sold, not yet purchased | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
| Trading derivative liabilities | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||
| Equity contracts | |||||||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Credit derivatives | |||||||||||||||||||||||
Other(8) | |||||||||||||||||||||||
Obligation to return securities received as collateral(6) | |||||||||||||||||||||||
Other(7) | |||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||
Notes:
(1)Includes securities measured under the fair value option.
(2)Excludes certain investments valued at net asset value of private equity funds whose fair values were ¥179,278 million and ¥225,972 million at March 31, 2022 and 2023, respectively. The amounts of unfunded commitments related to these private equity funds were ¥110,360 million and ¥172,562 million at March 31, 2022 and 2023, respectively.
(3)Includes loans measured under the fair value option.
(4)Excludes certain investments valued at net asset value of real estate funds and private equity and other funds whose fair values at March 31, 2022 were ¥30,142 million and ¥39,462 million, respectively, and those at March 31, 2023 were ¥29,308 million and ¥51,458 million, respectively. The amounts of unfunded commitments related to these real estate funds and private equity and other funds at March 31, 2022 were ¥1,011 million and nil , respectively, and those at March 31, 2023 were ¥1,305 million and nil , respectively.
(5)Mainly comprises securities received as collateral that may be sold or repledged under securities lending transactions.
(6)Included in Other liabilities.
(7)Mainly includes other short-term borrowings, long-term debt, bifurcated embedded derivatives carried at fair value.
Changes in Level 3 Recurring Fair Value Measurements
The following tables present a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the fiscal years ended March 31, 2022 and 2023. The determination to classify a financial instrument within Level 3 is based upon the significance of the unobservable inputs to overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 input, observable inputs (inputs that are actively quoted and can be validated to external sources). Accordingly, the gains and losses in the tables below include changes in fair value due in part to observable inputs used in the valuation techniques.
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| March 31, 2021 | Total gains (losses) for the period | March 31, 2022 | Change in unrealized gains (losses) for assets and liabilities still held at March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Included in earnings | Included in other comprehensive income | Purchases | Issues | Sales | Settlements | Transfers into Level 3(10) | Transfers out of Level 3(10) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading account assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading securities(1) | ¥ | ¥ | (2) | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | ¥ | ¥ | ¥ | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading derivatives—net | (2) | ( | ( | ( | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts—net | ( | (5) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts—net | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity contracts—net | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commodity contracts—net | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit derivatives—net | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other—net(9) | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities | (3) | ( | ( | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ( | (8) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | (3) | ( | ( | (3) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonmarketable equity securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | (7) | ( | ( | ( | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets held for sale | ( | (11) | ( | (11) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ¥ | ( | ¥ | (4) | ¥ | ( | ¥ | ¥ | ¥ | ¥ | ( | ¥ | (6) | ¥ | (6) | ¥ | ¥ | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| March 31, 2022 | Total gains (losses) for the period | Purchases | Issues | Sales | Settlements | Transfers into Level 3 | Transfers out of Level 3 | March 31, 2023 | Change in unrealized gains (losses) for assets and liabilities still held at March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Included in earnings and retained earnings(12) | Included in other comprehensive income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading account assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading securities(1) | ¥ | ¥ | (2) | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading derivatives—net | ( | (2) | ( | ( | ( | (2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate contracts—net | ( | (5) | ( | (5) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts—net | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity contracts—net | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commodity contracts—net | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit derivatives—net | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other—net(9) | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale debt securities | ( | (3) | ( | ( | (3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other debt securities | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity securities | (3) | ( | ( | ( | (3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nonmarketable equity securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (7) | ( | ( | (7) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets held for sale | (11) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ( | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Obligation to return securities received as collateral | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (4) | ( | ( | (6) | ( | (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes:
(1)Includes Trading securities measured under the fair value option.
(2)Included in and .
(3)Included in Investment securities gains (losses)—net and .
(4)Included in
(5)Transfers into (out of) Level 3 for Interest rate contracts—net were mainly caused by changes in the impact of unobservable input to the entire fair value measurement. Unobservable input includes loss given default.
(6)Transfers into (out of) Level 3 for long-term debt in Other were mainly caused by the decrease (increase) in the observability of the key inputs to the valuation models and a corresponding increase (decrease) in the significance of the unobservable inputs.
(7)Included in Fees and commissions income and Other non-interest income.
(8)Transfers relate to the reclassification of certain securities.
(9)Includes certain derivatives such as earthquake derivatives.
(10)Includes the reclassification of assets and liabilities in transferred business of MUFG Union Bank to assets and liabilities held for sale.
(11)Included in Investment securities gains (losses)—net, Trading account losses—net, Fees and commissions income and Other comprehensive income—net.
(12)Included the profits and losses recognized in three months before the sale of MUFG Union Bank which were reclassified to retained earnings.
F-117
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Quantitative Information about Level 3 Fair Value Measurements
The following tables present information on the valuation techniques, significant unobservable inputs and their ranges for each major category of assets and liabilities measured at fair value on a recurring basis and classified in Level 3:
| At March 31, 2022 | Fair value(1) | Valuation technique | Significant unobservable inputs | Range | Weighted average(2) | |||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Trading securities, Investment securities and Other assets: | ||||||||||||||||||||||||||||||||
| Foreign government and official institution bonds | ¥ | Return on equity method | Probability of default | |||||||||||||||||||||||||||||
| Recovery rate | ||||||||||||||||||||||||||||||||
| Market-required return on capital | ||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities, Commercial mortgage-backed securities and Asset-backed securities | Discounted cash flow | Recovery rate | ||||||||||||||||||||||||||||||
Internal model(4) | Asset correlations | |||||||||||||||||||||||||||||||
| Discount factor | ||||||||||||||||||||||||||||||||
| Prepayment rate | ||||||||||||||||||||||||||||||||
| Probability of default | (3) | |||||||||||||||||||||||||||||||
| Recovery rate | ||||||||||||||||||||||||||||||||
| Other debt securities | Discounted cash flow | Liquidity premium | ||||||||||||||||||||||||||||||
| Return on equity method | Probability of default | |||||||||||||||||||||||||||||||
| Recovery rate | ||||||||||||||||||||||||||||||||
| Market-required return on capital | ||||||||||||||||||||||||||||||||
| At March 31, 2022 | Fair value(1) | Valuation technique | Significant unobservable inputs | Range | Median(2) | |||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
| Trading derivatives—net: | ||||||||||||||||||||||||||||||||
| Interest rate contracts—net | Option model | Correlation between interest rates | ||||||||||||||||||||||||||||||
| Correlation between interest rate and foreign exchange rate | ||||||||||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts—net | Option model | Correlation between interest rates | ||||||||||||||||||||||||||||||
| Correlation between interest rate and foreign exchange rate | ||||||||||||||||||||||||||||||||
| Correlation between foreign exchange rates | ||||||||||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||||||||
| Equity contracts—net | Option model | Correlation between foreign exchange rate and equity | ( | |||||||||||||||||||||||||||||
| Correlation between equities | ||||||||||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||||||||
| Discounted cash flow | Term of litigation | |||||||||||||||||||||||||||||||
F-118
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
| At March 31, 2023 | Fair value(1) | Valuation technique | Significant unobservable inputs | Range | Weighted average(2) | |||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Trading securities and Investment securities: | ||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities and Asset-backed securities | ¥ | Discounted cash flow | Recovery rate | |||||||||||||||||||||||||||||
Internal model(4) | Asset correlations | |||||||||||||||||||||||||||||||
| Discount factor | ||||||||||||||||||||||||||||||||
| Prepayment rate | ||||||||||||||||||||||||||||||||
| Probability of default | (3) | |||||||||||||||||||||||||||||||
| Recovery rate | ||||||||||||||||||||||||||||||||
| Other debt securities | Discounted cash flow | Liquidity premium | ||||||||||||||||||||||||||||||
| At March 31, 2023 | Fair value(1) | Valuation technique | Significant unobservable inputs | Range | Median(2) | |||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
| Trading derivatives—net: | ||||||||||||||||||||||||||||||||
| Interest rate contracts—net | Option model | Correlation between interest rates | ||||||||||||||||||||||||||||||
| Correlation between interest rate and foreign exchange rate | ||||||||||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||||||||
| Foreign exchange contracts—net | Option model | Correlation between interest rates | ||||||||||||||||||||||||||||||
| Correlation between interest rate and foreign exchange rate | ||||||||||||||||||||||||||||||||
| Correlation between foreign exchange rates | ||||||||||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||||||||
| Equity contracts—net | Option model | Correlation between foreign exchange rate and equity | ( | |||||||||||||||||||||||||||||
| Correlation between equities | ||||||||||||||||||||||||||||||||
| Volatility | ||||||||||||||||||||||||||||||||
| Discounted cash flow | Term of litigation | |||||||||||||||||||||||||||||||
Notes:
(1)The fair value as of March 31, 2022 and 2023 excludes the fair value of investments valued using vendor prices.
(2)Weighted average is calculated by weighing each input by the relative fair value of the respective financial instruments for investment securities. Median is used for derivative instruments.
(3)See “Probability of default” in “Changes in and range of unobservable inputs.”
(4)For further detail of Internal model, refer to the last paragraph of “Trading Account Assets and Liabilities—Trading Account Securities.”
Changes in and range of unobservable inputs
Probability of default—Probability of default is an estimate of the likelihood that the default event will occur and the MUFG Group will be unable to collect the contractual amounts. A significant increase (decrease) in the default rate would have resulted in a significant decrease (increase) in a fair value through a decrease (increase) in the estimated cash flows. Probability of default used in internal model of Residential mortgage-backed securities, Commercial mortgage-backed securities and Asset-backed securities represents that of underlying assets, whereas probability of default used in other valuation techniques represents the counterparty default risks, determined through the MUFG Group’s credit rating system.
The wide range of probability of default used in the internal model of Residential mortgage-backed securities, Commercial mortgage-backed securities and Asset-backed securities is mainly caused by Asset-backed securities. Asset-backed securities have a large number of underlying loans, mainly corporate loans, in several industries. The MUFG Group primarily makes investments in the senior tranches of such securities, with no investments in the equity portion. Thus, the MUFG Group’s investments have higher priority of payments than mezzanine and equity and even if some of underlying loans become default, the MUFG Group may still be able to receive the full contractual payments.
F-119
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Discount factor and Liquidity premium—Discount factor and liquidity premium are adjustments to discount rates to reflect uncertainty of cash flows and liquidity of the instruments. When recent prices of similar instruments are unobservable in inactive or less active markets, discount rates are adjusted based on the facts and circumstances of the markets including the availability of quotes and the time since the latest available quotes. A significant increase (decrease) in discount rate would have resulted in a significant decrease (increase) in a fair value.
Recovery rate and Prepayment rate—Recovery rate is the proportion of the total outstanding balance of a bond or loan that is expected to be collected in a liquidation scenario. For many debt securities (such as asset-backed securities), there is no directly observable market input for recovery, but indications of recovery levels are available from third-party pricing services. The assumed recovery of a security may differ from its actual recovery that will be observable in the future. Prepayment rate represents the proportion of principal that is expected to be paid prematurely in each period on a security or pool of securities. Prepayment rates change the future cash flows for the investor and thereby change the fair value of the security. Recovery rate and prepayment rate would affect estimation of future cash flows to a certain extent and changes in these inputs could have resulted in a significant increase or decrease in fair value.
Volatility—Volatility is a measure of the speed and severity of market price changes and is a key factor in pricing. Typically, instruments can become more expensive if volatility increases. A significant increase (decrease) in volatility would cause a significant increase (decrease) in the value of an option resulting in the significant increase (decrease) in fair value.
The level of volatility generally depends on the tenor of the underlying instrument and the strike price or level defined in the contract. Volatilities for certain combinations of tenor and strike price are not observable. The volatility inputs used to estimate fair value of interest rate contracts are distributed throughout the range.
Correlation—Correlation is a measure of the relationship between the movements of two variables (i.e., how the change in one variable influences a change in the other variables). A variety of correlation-related assumptions are required for a wide range of instruments including foreign government and official institution bonds, asset-backed securities, corporate bonds, derivatives and certain other instruments. In most cases, correlations used are not observable in the market and must be estimated using historical information. Changes in correlation inputs can have a major impact, favorable or unfavorable, on the value of an instrument, depending on its nature. In addition, the wide range of correlation inputs are primarily due to the complex and unique nature of these instruments. There are many different types of correlation inputs, including cross-asset correlation (such as correlation between interest rate and equity), and same-asset correlation (such as correlation between interest rates). Correlation levels are highly dependent on market conditions and could have a relatively wide range of levels within or across asset classes.
For interest rate contracts and foreign exchange contracts, the diversity in the portfolio held by the MUFG Group is reflected in wide ranges of correlation, as the fair values of transactions with a variety of currencies and tenors are determined using several foreign exchange and interest rate curves. For equity derivative contracts, the wide range of correlation between interest rate and equity is primarily due to the large number of correlation pairs with different maturities of contracts. For credit derivative contracts, the wide range of correlation between underlying assets is primarily due to factors such as reference assets with different maturities, capital structure subordinations, and credit quality.
Term of litigation—Term of litigation is the estimated period until the resolution of a certain litigation matter that relates to an issuer’s restricted shares (“Covered Litigation”) that the MUFG Group purchased, which is referenced in certain swap transactions.
These swaps are valued using a discounted cash flow methodology and are dependent upon the final resolution of the Covered Litigation. The settlement timing of the Covered Litigation is not observable in the market, therefore the estimated term is classified as a level 3 input.
The restricted shares which the MUFG Group purchased will be convertible to listed shares of the issuer at the end of the Covered Litigation. The restricted shares will be diluted dependent upon the settlement amount of the Covered Litigation and the dilution of the restricted shares is accomplished through an adjustment to the conversion rate of the restricted shares. In order to hedge the reduction of the conversion rate, the MUFG Group entered into certain swaps with the seller which references the conversion rate. The value generated by these trades is subject to the ultimate term of the issuer’s litigation, subject to a minimum term referenced within the trade contracts.
Market-required return on capital—Market-required return on capital is the return on capital expected by the secondary market. A significant increase (decrease) in the market-required return on capital would have resulted in a significant decrease (increase) in a fair value of a financial asset.
F-120
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities may be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting, write-downs of individual assets or the measurement alternative for nonmarketable equity securities. The following table presents the carrying value of assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of March 31, 2022 and 2023:
| 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total carrying value | Level 1 | Level 2 | Level 3 | Total carrying value | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Assets(3) | |||||||||||||||||||||||||||||||||||||||||||||||
Investment securities(1)(2) | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||
| Loans | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||||||||||||||||||||
| Collateral dependent loans | |||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment | |||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||||||||||||||||||||
Investments in equity method investees(1) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||||||||
| Assets held for sale | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||
Notes:
(1)Excludes certain investments valued at net asset value of ¥26,644 million and ¥33,595 million at March 31, 2022 and 2023, respectively. The unfunded commitments related to these investments are ¥22,197 million and ¥23,029 million at March 31, 2022 and 2023, respectively. These investments are in private equity funds.
(2)Includes certain nonmarketable equity securities that are measured at fair value on a nonrecurring basis, including impairment and observable price change for nonmarketable equity securities measured under the measurement alternative.
(3)In addition to the above table, the assets and liabilities of MUFG Union Bank, which were transferred to U.S. Bancorp, were reclassified as held for sale. As a result, the disposal group was measured at fair value less expected costs to sell which was lower than its carrying amount. The amount of the fair value is ¥1,992,632 million as of March 31, 2022 and classified in Level 3 based on the transaction's expected consideration.
F-121
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents losses (gains) recorded as a result of changes in the fair value of assets measured at fair value on a nonrecurring basis for the fiscal years ended March 31, 2022 and 2023:
| 2022 | 2023(2) | ||||||||||
(in millions) | |||||||||||
| Investment securities | ¥ | ¥ | |||||||||
| Loans | |||||||||||
| Loans held for sale | |||||||||||
| Collateral dependent loans | |||||||||||
| Premises and equipment | |||||||||||
| Intangible assets | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Investments in equity method investees | |||||||||||
| Other | |||||||||||
| Assets held for sale | |||||||||||
| Loans held for sale | |||||||||||
Total(1) | ¥ | ¥ | |||||||||
Notes:
(1)In addition to the above table, the assets and liabilities of MUFG Union Bank, which were transferred to U.S. Bancorp, were reclassified as held for sale. As a result, the disposal group was measured at fair value less expected costs to sell which was lower than its carrying amount. The impairment of assets held for sale was ¥134,141 million for the fiscal year ended March 31, 2022. See Note 2 for further information.
(2)The profits and losses which were recognized in the three months before the sale of MUFG Union Bank were reclassified to retained earnings.
Investment securities for the year ended March 31, 2022 and 2023 primarily include nonmarketable equity securities measured under the measurement alternative. See Note 3 for the details of the measurement alternative.
Loans include loans held for sale and collateral dependent loans. Loans held for sale are recorded at the lower of cost or estimated fair value. The fair value of the loans held for sale is based on secondary market prices, recent transactions or discounted cash flows. These loans are principally classified in Level 3 of the fair value hierarchy, and when quoted prices are available but not traded actively, such loans held for sale are classified in Level 2 of the fair value hierarchy. Collateral dependent loans are measured at fair value of the underlying collateral. Collateral is comprised mainly of real estate and exchange-traded equity securities. The MUFG Group maintains an established process for internally determining the fair value of real estate, using the following valuation techniques and assumptions. Collateral dependent loans that are measured based on underlying real estate collateral are classified in Level 3 of the fair value hierarchy.
•Replacement cost approach. The replacement cost approach is primarily used for buildings and the land they are built on. This approach calculates the fair value of the collateral using the replacement cost of the property as of the valuation date. Replacement cost tables and useful life tables used for this approach are developed by subsidiaries of MUFG.
•Sales comparison approach. The sales comparison approach is mainly used for land. The fair value of the collateral located in Japan is based on Japanese government official land prices and standard land prices, considering the results of comparison analysis between the official roadside value which is used for tax purposes and the related government official land and standard land prices.
•Income approach. The income approach is, as a general rule, applied to all rental properties based on the highest and best use concept. This approach calculates the fair value of the collateral using expected future cash flows. In this approach, the expected annual net operating income is discounted using the related capitalization yield. The significant assumptions within the income approach are the expected annual net operating income and capitalization yield. The expected annual net operating income is estimated based on rental income of the property. The capitalization yield is determined based on the
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
location and use of the property by subsidiaries of MUFG. The capitalization yield may be adjusted to reflect the trends in locations, occupancy rates and rent level and other factors.
Premises and equipment consist of those assets which were written down to fair value. The fair values are determined based on prices obtained from an appraiser or discounted cash flows. These impaired premises and equipment are classified as Level 3 of the fair value hierarchy.
Intangible assets consist of those assets which were written down to fair value. The fair values are determined based on discounted cash flows. These impaired intangible assets are classified as Level 3 of the fair value hierarchy.
Other assets mainly consist of investments in equity method investees which were written down to fair value due to impairment and loans held for sale which will be transferred to U.S. Bancorp and were written down to fair value. When investments in equity method investees are marketable equity securities, the fair values are determined based on quoted prices. Impaired investments in equity method investees which are marketable equity securities are classified in either Level 1 or Level 2 of the fair value hierarchy. When investments in equity method investees are nonmarketable equity securities, the fair values are determined using the same methodologies as those for impaired nonmarketable equity securities described above. Impaired investments in equity method investees which are nonmarketable equity securities are classified in Level 3 of the fair value hierarchy.
Fair Value Option
The MUFG Group elected the fair value option for foreign currency-denominated debt securities and equity securities held by MUFG Bank and Mitsubishi UFJ Trust and Banking. The election was made to mitigate accounting mismatches related to fluctuations of foreign exchange rates by allowing the gains and losses on translation of these securities to be included in current earnings. The gains and losses on translation of debt securities without the fair value option, are included in OCI, while the gains and losses on translation of foreign currency-denominated financial liabilities are included in current earnings.
The MUFG Group also elected the fair value option for certain financial instruments held by Mitsubishi UFJ Securities Holdings’s foreign subsidiaries because those financial instruments are managed on a fair value basis, and these exposures are considered to be trading-related positions. These financial assets are included in Other assets. These financial liabilities are mainly included in Other short-term borrowings and Long-term debt. Unrealized gains and losses on such financial instruments are recognized in the accompanying consolidated statements of operations.
The following table presents the gains or losses recorded for the fiscal years ended March 31, 2021, 2022 and 2023 related to the eligible instruments for which the MUFG Group elected the fair value option:
| 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Trading account profits (losses) | Foreign exchange gains (losses) | Total changes in fair value | Trading account profits (losses) | Foreign exchange gains (losses) | Total changes in fair value | Trading account profits (losses) | Foreign exchange gains (losses) | Total changes in fair value | |||||||||||||||||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trading account securities | ¥ | ( | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ( | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ( | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ( | ¥ | ¥ | |||||||||||||||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other short-term borrowings(1) | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ( | ||||||||||||||||||||||||||||||||||||||||
Long-term debt(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | ¥ | ( | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||||||||||||||||||||
Note:
F-123
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents the differences between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31, 2022 and 2023 for long-term debt instruments for which the fair value option has been elected:
| 2022 | 2023 | ||||||||||||||||||||||||||||||||||
Remaining aggregate contractual amounts outstanding | Fair value | Fair value over (under) remaining aggregate contractual amounts outstanding | Remaining aggregate contractual amounts outstanding | Fair value | Fair value over (under) remaining aggregate contractual amounts outstanding | ||||||||||||||||||||||||||||||
(in millions) | |||||||||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||||||||
| Long-term debt | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ( | |||||||||||||||||||||||||||
| Total | ¥ | ¥ | ¥ | ( | ¥ | ¥ | ¥ | ( | |||||||||||||||||||||||||||
Interest income and expense related to the assets and liabilities for which the fair value option is elected are measured based on the contractual rates and dividend income related to these assets are recognized when the shareholder right to receive the dividend is established. These interest income and expense and dividend income are reported in the accompanying consolidated statements of operations as either interest income or expense, depending on the nature of the related asset or liability.
Estimated Fair Value of Financial Instruments
F-124
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Carrying amount | Estimated fair value | ||||||||||||||||||||||||||||
| At March 31, 2022 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Interest-earning deposits in other banks | |||||||||||||||||||||||||||||
| Call loans and funds sold | |||||||||||||||||||||||||||||
| Receivables under resale agreements | |||||||||||||||||||||||||||||
| Receivables under securities borrowing transactions | |||||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
Loans, net of allowance for credit losses(1) | |||||||||||||||||||||||||||||
Other financial assets(2) | |||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Non-interest-bearing | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Interest-bearing | |||||||||||||||||||||||||||||
| Total deposits | |||||||||||||||||||||||||||||
| Call money and funds purchased | |||||||||||||||||||||||||||||
| Payables under repurchase agreements | |||||||||||||||||||||||||||||
| Payables under securities lending transactions | |||||||||||||||||||||||||||||
| Due to trust account and other short-term borrowings | |||||||||||||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||||||||
| Other financial liabilities | |||||||||||||||||||||||||||||
F-125
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Carrying amount | Estimated fair value | ||||||||||||||||||||||||||||
| At March 31, 2023 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from banks | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Interest-earning deposits in other banks | |||||||||||||||||||||||||||||
| Call loans and funds sold | |||||||||||||||||||||||||||||
| Receivables under resale agreements | |||||||||||||||||||||||||||||
| Receivables under securities borrowing transactions | |||||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
Loans, net of allowance for credit losses(1) | |||||||||||||||||||||||||||||
Other financial assets(2) | |||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||||||||
| Non-interest-bearing | ¥ | ¥ | ¥ | ¥ | ¥ | ||||||||||||||||||||||||
| Interest-bearing | |||||||||||||||||||||||||||||
| Total deposits | |||||||||||||||||||||||||||||
| Call money and funds purchased | |||||||||||||||||||||||||||||
| Payables under repurchase agreements | |||||||||||||||||||||||||||||
| Payables under securities lending transactions | |||||||||||||||||||||||||||||
| Due to trust account and other short-term borrowings | |||||||||||||||||||||||||||||
| Long-term debt | |||||||||||||||||||||||||||||
| Other financial liabilities | |||||||||||||||||||||||||||||
Notes:
(1)Includes loans held for sale and collateral dependent loans measured at fair value on a nonrecurring basis. Refer to “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” for the details of the level classification.
The fair values of certain off-balance sheet financial instruments held for purposes other than trading, including commitments to extend credit and commercial letters of credit, are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit quality. The aggregate fair value of such instruments at March 31, 2022 and 2023 was not material.
32.PARENT COMPANY ONLY FINANCIAL INFORMATION
Distributions of retained earnings of MUFG Bank and Mitsubishi UFJ Trust and Banking are restricted in order to meet the minimum capital adequacy requirements under the Banking Law. Additionally, retained earnings of these banking subsidiaries are restricted, except for approximately ¥5,094 billion and ¥5,837 billion, in accordance with the statutory reserve requirements under the Companies Act at March 31, 2022 and 2023, respectively. See Notes 19 and 21 for further information.
The Banking Law and related regulations restrict the ability of these banking subsidiaries to extend loans or credit to the parent company. Such loans or credits to the parent company are generally limited to 15 % of the banking subsidiary’s consolidated total capital, as determined by the capital adequacy guidelines.
At March 31, 2022 and 2023, approximately ¥5,662 billion and ¥5,352 billion, respectively, of net assets of consolidated subsidiaries may be restricted as to payment of cash dividends and loans to the parent company.
F-126
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents the parent company only financial information of MUFG:
Condensed Balance Sheets
| As of March 31, | |||||||||||
| 2022 | 2023 | ||||||||||
| (in millions) | |||||||||||
| Assets: | |||||||||||
| Cash and interest-earning deposits with banking subsidiaries | ¥ | ¥ | |||||||||
| Investments in subsidiaries and affiliated companies | |||||||||||
| Banking subsidiaries | |||||||||||
| Non-banking subsidiaries and affiliated companies | |||||||||||
| Loans to subsidiaries | |||||||||||
| Banking subsidiaries | |||||||||||
| Non-banking subsidiaries | |||||||||||
| Other assets | |||||||||||
| Total assets | ¥ | ¥ | |||||||||
| Liabilities and Shareholders’ equity: | |||||||||||
| Short-term borrowings from banking subsidiaries | ¥ | ¥ | |||||||||
| Long-term debt from non-banking subsidiaries and affiliated companies | |||||||||||
| Long-term debt | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | ¥ | ¥ | |||||||||
F-127
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Condensed Statements of Operations
| Fiscal years ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Income: | |||||||||||||||||
| Dividends from subsidiaries and affiliated companies | ¥ | ¥ | ¥ | ||||||||||||||
| Banking subsidiaries | |||||||||||||||||
| Non-banking subsidiaries and affiliated companies | |||||||||||||||||
| Management fees from subsidiaries | |||||||||||||||||
| Interest income from subsidiaries | |||||||||||||||||
| Foreign exchange gains—net | |||||||||||||||||
| Trading account profits (losses)—net | ( | ( | |||||||||||||||
| Gains on sales of investment in subsidiaries and affiliated companies—net | |||||||||||||||||
| Other income | |||||||||||||||||
| Total income | |||||||||||||||||
| Expense: | |||||||||||||||||
| Operating expenses | |||||||||||||||||
| Interest expense to subsidiaries and affiliated companies | |||||||||||||||||
| Interest expense | |||||||||||||||||
| Other expense | |||||||||||||||||
| Total expense | |||||||||||||||||
| Equity in undistributed net income (loss) of subsidiaries and affiliated companies—net | ( | ( | |||||||||||||||
| Income (loss) before income tax expense | ( | ||||||||||||||||
| Income tax expense | |||||||||||||||||
| Net income (loss) | ¥ | ¥ | ( | ¥ | |||||||||||||
F-128
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Condensed Statements of Cash Flows
| Fiscal years ended March 31, | |||||||||||||||||
| 2021 | 2022 | 2023 | |||||||||||||||
(in millions) | |||||||||||||||||
| Operating activities: | |||||||||||||||||
| Net income (loss) | ¥ | ¥ | ( | ¥ | |||||||||||||
| Adjustments and other | ( | ||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Investing activities: | |||||||||||||||||
| Proceeds from sales of investment in subsidiaries and affiliated companies | |||||||||||||||||
| Purchase of equity investment in subsidiaries and an affiliated company | ( | ||||||||||||||||
| Net increase in loans to subsidiaries | ( | ( | ( | ||||||||||||||
| Other—net | ( | ( | ( | ||||||||||||||
| Net cash used in investing activities | ( | ( | ( | ||||||||||||||
| Financing activities: | |||||||||||||||||
| Net increase (decrease) in short-term borrowings from subsidiaries | ( | ( | |||||||||||||||
| Proceeds from issuance of long-term debt | |||||||||||||||||
| Repayment of long-term debt | ( | ( | ( | ||||||||||||||
| Repayment of long-term debt to affiliated companies | ( | ||||||||||||||||
| Proceeds from sales of treasury stock | |||||||||||||||||
| Payments for acquisition of treasury stock | ( | ( | ( | ||||||||||||||
| Dividends paid | ( | ( | ( | ||||||||||||||
| Other—net | ( | ( | ( | ||||||||||||||
| Net cash provided by (used in) financing activities | ( | ( | |||||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ||||||||||||||||
| Cash and cash equivalents at beginning of fiscal year | |||||||||||||||||
| Cash and cash equivalents at end of fiscal year | ¥ | ¥ | ¥ | ||||||||||||||
33.SUBSEQUENT EVENTS
Approval of Dividends
On June 29, 2023, the shareholders approved the payment of cash dividends of ¥16.0 per share of Common stock, totaling ¥192,860 million, that were payable on June 30, 2023, to the shareholders of record on March 31, 2023.
* * * * *
F-129
EXHIBIT INDEX
| Exhibit | Description | |||||||
| 1(a) | ||||||||
| 1(b) | ||||||||
| 1(c) | ||||||||
| 1(d) | ||||||||
| 1(e) | ||||||||
| 1(f) | ||||||||
| 1(g) | ||||||||
| 1(h) | ||||||||
| 2(a) | ||||||||
| 2(b) | ||||||||
| 2(c) | ||||||||
| 4(a) | ||||||||
| 4(b) | ||||||||
| 8 | ||||||||
| 11 | ||||||||
| 12 | ||||||||
| 13 | ||||||||
| 15(a) | ||||||||
| 15(b) | ||||||||
| 99(a) | ||||||||
| 99(b) | ||||||||
| 99(c) | ||||||||
| 101.INS | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | The cover page for the Company’s Annual Report on From 20-F for the year ended March 31, 2023, has been formatted in Inline XBRL | |||||||
Notes:
* Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 12, 2018.
** Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 8, 2022.
*** Incorporated by reference to our annual report on Form 20-F (File No. 000-54189) filed on July 9, 2021.
**** Deemed to be incorporated by reference into the registration statement on Form F-3 (No. 333-242048) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.
***** Deemed to be incorporated as Annex A to the registration statement on Form F-3 (No. 333-242048) of Mitsubishi UFJ Financial Group, Inc. and to be a part thereof.
****** Incorporated by reference to Morgan Stanley’s annual report on Form 10-K (File No. 001-11758) filed on February 24, 2023.
Signature
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| MITSUBISHI UFJ FINANCIAL GROUP, INC. | |||||
| By: | /s/ HIRONORI KAMEZAWA | ||||
| Name: | Hironori Kamezawa | ||||
| Title: | President & Group Chief Executive Officer | ||||
Date: July 24, 2023