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MITSUBISHI UFJ FINANCIAL GROUP, INC

(8306)
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Mitsubishi UFJ Financial : English Translation of Excerpts from Quarterly Securities Report Filed in Japan - Form 6-K

08/12/2022 | 06:45am EDT

English Translation of Excerpts from Quarterly Securities Report Filed in Japan

This document is an English translation of selected information included in the Quarterly Securities Report for the quarter ended June 30, 2022 filed by Mitsubishi UFJ Financial Group, Inc. ("MUFG" or "we") with the Kanto Local Financial Bureau, the Ministry of Finance of Japan, on August 12, 2022 (the "Quarterly Securities Report"). An English translation of certain information included in the Quarterly Securities Report was previously submitted in a report on Form 6-K dated August 2, 2022. Accordingly, this document should be read together with the previously submitted report.

The Quarterly Securities Report has been prepared and filed in Japan in accordance with applicable Japanese disclosure requirements as well as generally accepted accounting principles in Japan ("J-GAAP"). There are significant differences between J-GAAP and generally accepted accounting principles in the United States. In addition, the Quarterly Securities Report is being filed in the context of other prior disclosures filed by MUFG in Japan and discusses selected recent developments taking into account those prior disclosures. Accordingly, you may need to review the following disclosure, together with other prior disclosures, to obtain all of the information that is important to you. For a more complete discussion of the background to information provided below, please see our annual report on Form 20-F for the fiscal year ended March 31, 2022 and other reports filed with or submitted to the U.S. Securities and Exchange Commission by MUFG.

The following disclosure contains forward-looking statements, which, unless specifically stated otherwise, reflects our understanding as of the date of filing of the Quarterly Securities Report. Actual results may significantly differ from those expressed or implied by such forward-looking statements. In addition, although the Risk Committee identified the top risks below, there may be other material risks that emerge as we operate our businesses.

Risks Relating to Our Business

We describe below some major developments and changes to update our risk factor disclosure previously included in our annual securities report for the fiscal year ended March 31, 2022 filed in Japan on June 27, 2022 The updates below are not a complete update of the prior disclosure, but instead intended to explain only the significant developments and changes that we believe may have a material impact on the risks to our business and other risks. The discussion below contains forward-looking statements, which, unless specifically described otherwise, reflect our understanding as of the date of filing of the Quarterly Securities Report.

We determine the significance of various risk scenarios based on their impact and probability and identify potential risk events that are deemed to require close monitoring and attention for the next one-year period as top risks. The main top risks identified by our Risk Committee in July 2022 are as follows. By identifying these top risks, we seek to implement necessary risk management measures designed to minimize such risks to the extent possible and manage them in such a manner that they can be agilely dealt with in the event that they materialize. In addition, through management's participation in discussions on such top risks, we strive to take effective measures based on a shared assessment of risks.

Main Top Risks

Risk events Risk scenarios
A decline in profitability
(including a decline in net interest income)

•  Our overall profitability may be adversely affected by, among other things, a decline in our net interest income due to low interest rates in Japan, an increase in net valuation losses on debt securities due to a rise in foreign currency (such as U.S. dollar) interest rates, and an increase in our funding costs.

Foreign currency liquidity risk

•  Deterioration in market conditions may result in a depletion of foreign currency funding liquidity and an increase in our foreign currency funding costs.

An increase in credit costs

•  Sudden deterioration in global economic activities may result in an increase in our credit costs.

•  Deterioration in the credit quality of particular industries or counterparties, to which we have relatively larger exposures, may result in an increase in our credit costs.

IT risk

•  Cyber-attacks may result in customer information leakage, suspension of our services, and reputational damage.

•  System problems may result in our payment of financial compensation and damage to our reputation.

Risks relating to external circumstances or events (such as health pandemics, earthquakes, floods, terrorism and geopolitical conflicts)

•  Health pandemics, natural disasters, conflicts, terrorism, geopolitical conflicts and ensuing economic sanctions may result in disruptions to all or part of our operations or an increase in costs and expenses in addressing such circumstances or events.

Risks relating to climate changes

•  If our efforts to address climate change-related risks or to make appropriate disclosure are deemed insufficient, our corporate value may be impaired.

•  Our credit portfolio may be adversely affected by the negative impact of climate change on our borrowers and transaction counterparties.

*

These risk events are among the risk events that were reported to MUFG's Board of Directors following the Risk Committee's discussion in July 2022. These risk events include risk events of general applicability.

1

Additional Japanese GAAP Financial Information for the Three Months Ended June 30, 2022

1.

Changes in the Scope of Consolidation or Application of the Equity Method

I.

Significant changes in the scope of consolidation

None.

II.

Significant changes in the scope of application of the equity method

None.

2

2.

Changes in Accounting Policies

(Changes in Accounting Policies Due to Revisions to Accounting Standards, etc.)

(Implementation Guidance on Accounting Standard for Fair Value Measurement)

"Implementation Guidance on Accounting Standard for Fair Value Measurement" (Accounting Standards Board of Japan ("ASBJ") Guidance No. 31, June 17, 2021) (the "Implementation Guidance for Fair Value Measurement") has been applied from the beginning of the quarter ended June 30, 2022. In accordance with the transitional treatment set forth in paragraph 27-2 of the Implementation Guidance for Fair Value Measurement, MUFG has applied new accounting policies based on the Implementation Guidance for Fair Value Measurement prospectively.

There is no impact on our consolidated financial statements due to the application of this Guidelines.

3

3.

Additional Information

(Estimated impact of the COVID-19 pandemic and the Russia-Ukraine situation relating to allowance for credit losses)

The process of calculating allowance for credit losses in our principal consolidated domestic banking subsidiaries involves various estimates such as determination of counterparty credit ratings which are based on evaluation and classification of counterparties' debt-service capacity, assessment of the value of collateral provided by borrowers, and adjustments for future loss projections and other factors to the loss rates calculated based on historical credit loss experience.

Among these, internal credit ratings are assigned to counterparties based on qualitative factors such as the current and expected future business environment of the industry to which they belong as well as their management and funding risks in addition to quantitative financial evaluations through an analysis of their financial results. In particular, the prolonged COVID-19 pandemic and the uncertainty in the business environment caused by the Russia-Ukraine situation have had a significant impact on the financial position and operating results of certain counterparties. Determination of internal credit ratings for these counterparties may be highly dependent on our assessment of the prospects of improvements in their operating results and their ability to continue as going concerns.

When calculating allowance for credit losses, MUFG Bank, Ltd., our principal consolidated domestic banking subsidiary, determines expected loss rates primarily by calculating a rate of loss based on a historical average of the credit loss rate or a historical average of the default probability derived from actual credit loss experience or actual bankruptcy experience and making necessary adjustments based on future projections and other factors. The subsidiary makes such adjustments based on future loss projections and other factors to loss rates calculated based on historical loss experience, when and to the extent such adjustments are deemed appropriate, by taking into account the rate of increase in the credit loss rate or the default probability in a more recent period, additional expected losses and other factors, especially in light of the prolonged COVID-19 pandemic and the Russia-Ukraine situation. The amount of impact of these adjustments was ¥67,028 million as of June 30, 2022 (¥77,572 million as of March 31, 2022).

In addition, certain overseas subsidiaries which apply Generally Accepted Accounting Principles in the United States ("U.S. GAAP") have adopted Accounting Standards Codification ("ASC") Topic 326, "Financial Instruments-Credit losses," issued by the Financial Accounting Standards Board and provide for allowance for credit losses by estimating credit losses currently expected for the remaining term of the relevant contracts. Expected credit losses are calculated using a quantitative model that reflects economic forecast scenarios based on macroeconomic variables. The calculation process includes determination of macroeconomic variables used in multiple economic forecast scenarios and the weightings applied to each economic forecast scenario. Expected credit losses are adjusted for qualitative factors to compensate for expected credit losses that are not reflected in a quantitative model. No allowance for credit losses was recorded for the loans reclassified as loans held for sale in connection with the execution of the Share Purchase Agreement pursuant to which all of the shares of MUFG Union Bank, N.A. ("MUB") held by MUFG Americas Holdings Corporation ("MUAH") will be sold to U.S. Bancorp because these loans are measured at fair value in accordance with ASC Topic 310, "Receivables".

Significant assumptions used in our calculation of allowance for credit losses, including those described above, are subject to uncertainty. In particular, certain counterparties' prospects of improvements in their operating results and expectations as to their ability to continue as going concerns, and adjustments to the rate of loss calculated based on actual experience for future projections and other factors, as well as determination of the macroeconomic variables used in, and the weightings applied to, multiple economic forecast scenarios, and adjustments thereto for qualitative factors, by certain subsidiaries which apply U.S. GAAP, are based on estimation relating to the economic environment with respect to which objective data are not readily available. The outlook relating to the COVID-19 pandemic and the Russia-Ukraine situation, which are expected to further impact our counterparties' operating environment and the economic environment, remains subject to significant uncertainty. Accordingly, we make certain assumptions, including that, although the impact of the COVID-19 pandemic will continue, economic conditions will be on a gradually improving trend, with economic activity resuming while infection control measures are implemented, and that the uncertainty in the business environment caused by the Russia-Ukraine situation will remain. The recorded allowance for credit losses represents our best estimation made in a manner designed to ensure objectivity and rationality.

For the three-month period ended June 30, 2022, the assumptions for making estimates relating to allowance for credit losses remained substantially unchanged because the observable changes subsequent to the end of the previous fiscal year in the factors and circumstances underlying the assumptions were not sufficiently significant to cause such change in the assumptions. However, these assumptions are highly uncertain, and significant additional provision for credit losses may be recognized for the six-month period ending September 30, 2022 and subsequent reporting periods due to developments affecting the impact of the COVID-19 pandemic and the Russia-Ukraine situation on the financial performance of counterparties or on the economic environment.

(Transition from the Consolidated Taxation System to the Group Tax Sharing System)

MUFG and some of its domestic consolidated subsidiaries have shifted from the consolidated taxation system to the group tax sharing system from the beginning of the three months ended June 30, 2022. Accordingly, the accounting treatment and disclosure of corporate tax, local corporation tax, and tax-effect accounting are applied and made in accordance with ASBJ Practical Issues Task Force Report No. 42, "Practical Solution on the Accounting and Disclosure under the Group Tax Sharing System" (August 12, 2021) ("Practical Issues Report No. 42"). Based on paragraph 32(1) of Practical Issues Report No. 42, MUFG has concluded that there is no impact from the changes in its accounting policies resulting from the application of Practical Issues Report No. 42.

4

4.

Consolidated Balance Sheets

I.

Loans to be disclosed under the Banking Act and the Financial Reconstruction Act (the "FRA") were as follows. Disclosed loans include corporate bonds included in Securities (to the extent that such bonds were issued through private placements as stipulated in Article 2-3 of the Financial Instruments and Exchange Act and that the principal of and interest on such bonds are partly or fully guaranteed by MUFG), Loans and bills discounted, Foreign exchanges, accrued interest and suspense payments included in Other assets, and Customers' liabilities for acceptances and guarantees, each as included in the consolidated balance sheets, and securities loaned (to the extent borrowers have the right to sell or pledge such securities) as included in the notes to the consolidated balance sheets.

(in millions of yen)
March 31, 2021 June 30, 2022

Bankrupt or De facto Bankrupt

¥ 252,148 ¥ 265,841

Doubtful

799,214 694,009

Special Attention

420,453 464,387

Accruing loans contractually past due 3 months or more

12,104 22,423

Restructured loans

408,348 441,963

Subtotal

¥ 1,471,816 ¥ 1,424,238

Normal

¥ 122,326,614 ¥ 127,567,448

Total

¥ 123,798,430 ¥ 128,991,686

The amounts in the above table represent gross amounts before deduction of allowance for credit losses.

II.

The principal amount of money trusts entrusted to domestic trust banking subsidiaries for which repayment of the principal to the customers was guaranteed

(in millions of yen)
March 31, 2022 June 30, 2022

Principal-guaranteed money trusts

¥ 7,064,123 ¥ 5,749,488
III.

Guarantee obligations for private placement bonds (provided in accordance with Article 2-3 of the Financial Instruments and Exchange Law) among the bonds and other securities included in "Securities"

(in millions of yen)
March 31, 2022 June 30, 2022

Guarantee obligations for private placement bonds

¥ 259,497 ¥ 281,879
IV.

Contingent liabilities

(Litigation)

In the ordinary course of business, MUFG is subject to various litigation and regulatory matters. In accordance with applicable accounting guidance, MUFG establishes a Reserve for Contingent Losses arising from litigation and regulatory matters when they are determined to be probable in their occurrences and the probable loss amount can be reasonably estimated. Based upon current knowledge and consultation with counsel, management believes the eventual outcome of such litigation and regulatory matters, where losses are probable and the probable loss amounts can be reasonably estimated, would not have a material adverse effect on MUFG's financial position, results of operations or cash flows.

Management also believes the amount of loss that is reasonably possible, but not probable, from various litigation and regulatory matters is not material to MUFG's financial position, results of operations or cash flows.

5

5.

Consolidated Statements of Income

I.

"Other ordinary income" for the periods indicated included the following:

(in millions of yen)
For the three months ended June 30,
2021 2022

Equity in earnings of the equity method investees

¥ 119,475 ¥ 123,039

Gains on sales of equity securities

76,049 73,709
II.

"Other ordinary expenses" for the periods indicated included the following:

(in millions of yen)
For the three months ended June 30,
2021 2022

Write-offs of loans

¥ 32,323 ¥ 82,599

Write-offs of equity securities

3,163 46,473
III.

(Additional information)

In connection with the planned sale of the shares in MUB, MUAH recognized an aggregate of ¥271,288 million of losses for the quarter ended March 31, 2022, primarily in accordance with ASC Topic 326, "Financial Instruments-Credit losses," and ASC Topic 310, "Receivables," issued by the FASB. Of the aggregate losses, MUAH recorded ¥217,761 million of valuation losses related to securities held for sale as Other operating expenses and ¥44,472 million of valuation losses related to loans held for sale as Other ordinary expenses.

6

6.

Consolidated Statements of Cash Flows

No consolidated statements of cash flows have been prepared for the three-month periods ended June 30, 2021 and 2022. Depreciation (including amortization of intangible assets other than goodwill) and amortization of goodwill for the periods indicated were as follows:

(in millions of yen)
For the three months ended June 30,
2021 2022

Depreciation

¥ 85,064 ¥ 74,569

Amortization of goodwill

4,486 4,873

7

7.

Shareholders' Equity

For the three months ended June 30, 2021

I.

Cash dividends

Date of approval

Type of stock Total
Dividends
(in millions
of yen)
Dividend
per share
(in yen)
Dividend
record date
Effective date Source of dividends

Annual General Meeting of Shareholders on June 29, 2021

Common stock 160,918 12.5 March 31, 2021 June 30, 2021 Retained earnings
II.

Dividends the record date for which fell within the three-month period and the effective date of which was after the end of the three-month period

None.

For the three months ended June 30, 2022

I.

Cash dividends

Date of approval

Type of stock Total
Dividends
(in millions
of yen)
Dividend
per share
(in yen)
Dividend
record date
Effective date Source of dividends

Annual General Meeting of Shareholders on June 29, 2022

Common stock 183,396 14.5 March 31, 2022 June 30, 2022 Retained earnings
II.

Dividends the record date for which fell within the three-month period and the effective date of which was after the end of the three-month period

None.

8

8.

Segment Information

I.

Business segment information

(1)

Information on net revenue and operating profit (loss) for each reporting segment

For the three months ended June 30, 2021

(in millions of yen)
For the three months ended June 30, 2021
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 of
Customer
Business
Global
Markets
Business
Group
Other Total

Net revenue

¥ 181,693 ¥ 132,150 ¥ 130,572 ¥ 192,246 ¥ 87,946 ¥ 116,295 ¥ 840,905 ¥ 129,921 ¥ (570 ) ¥ 970,255

Operating expenses

138,566 122,755 78,528 134,273 58,165 69,544 601,834 60,402 26,462 688,699

Operating profit (loss)

¥ 43,126 ¥ 9,395 ¥ 52,043 ¥ 57,972 ¥ 29,780 ¥ 46,751 ¥ 239,070 ¥ 69,518 ¥ (27,032 ) ¥ 281,556

(Notes)

1.  "Net revenue" in the above table is used in lieu of net sales generally used by Japanese non-financial companies.

2.  "Net revenue" includes net interest income, trust fees, net fees and commissions, net trading profit, and net other operating profit.

3.  "Operating expenses" includes personnel expenses and premise expenses.

For the three months ended June 30, 2022

(in millions of yen)
For the three months ended June 30, 2022
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 of
Customer
Business
Global
Markets
Business
Group
Other Total

Net revenue

¥ 182,192 ¥ 134,247 ¥ 157,868 ¥ 205,917 ¥ 86,037 ¥ 159,548 ¥ 925,812 ¥ 225,090 ¥ (3,922 ) ¥ 1,146,979

Operating expenses

129,441 113,014 81,051 141,477 59,253 79,536 603,774 66,176 47,973 717,925

Operating profit (loss)

¥ 52,750 ¥ 21,233 ¥ 76,817 ¥ 64,440 ¥ 26,783 ¥ 80,011 ¥ 322,037 ¥ 158,914 ¥ (51,896 ) ¥ 429,054

(Notes)

1.  "Net revenue" in the above table is used in lieu of net sales generally used by Japanese non-financial companies.

2.  "Net revenue" includes net interest income, trust fees, net fees and commissions, net trading profit, and net other operating profit.

3.  "Operating expenses" includes personnel expenses and premise expenses.

9

(2)

Reconciliation of the total operating profit in each of the above tables to the ordinary profit in the consolidated statement of income for the corresponding three-month period

(in millions of yen)
For the three months ended June 30,
2021 2022

Total operating profit of reporting segments

¥ 281,556 ¥ 429,054

Operating profit of consolidated subsidiaries excluded from reporting segments

(116 ) (200 )

Provision for general allowance for credit losses

- 11,235

Credit related expenses

(34,696 ) (125,189 )

Gains on reversal of allowance for credit losses

8,339 -

Gains on reversal of reserve for contingent losses included in credit costs

- 19,016

Gains on loans written-off

21,213 20,962

Net gains on equity securities and other securities

66,049 19,020

Equity in earnings of the equity method investees

119,475 123,039

Others

(1,496 ) (233,975 )

Ordinary profit in the consolidated statement of income

¥ 460,323 ¥ 262,961

(Note)

In connection with the planned sale of the shares in MUB, an aggregate of ¥271,288 million of losses were recognized primarily in accordance with ASC Topic 326, "Financial Instruments-Credit losses," and ASC Topic 310, "Receivables." These losses consist mainly of ¥217,761 million of valuation losses related to securities held for sale, which are included in "Others", and ¥44,472 million of valuation losses related to loans held for sale, which are included in "Credit related expenses."

(3)

Changes relating to reporting segments

From the three months ended June 30, 2022, MUFG has changed the method of allocation of net revenue and operating expenses among reporting segments and has accordingly changed the method of calculation of operating profit (loss) of each reporting segment.

The business segment information for the three months ended June 30, 2021 has been restated based on the new calculation method.

10

9.

Financial Instruments

The following shows those financial instruments as of June 30, 2022 which were deemed material in the management of our group company businesses and showed material changes as compared to those as of March 31, 2022.

The fair values of financial instruments are classified into the following three levels depending on the observability and significance of the input used in the fair value calculation.

Level 1: Fair value determined based on (unadjusted) quoted prices in active markets for identical assets or liabilities

Level 2: Fair value determined based on directly or indirectly observable inputs other than the Level 1 inputs

Level 3: Fair value determined based on significant unobservable inputs

Where multiple inputs are used with a significant impact on the fair value calculation, the fair value of a financial instrument is classified based on the lowest of the priority levels to which any of those inputs belongs.

(1)

Financial assets and liabilities at fair value on the consolidated balance sheets

As of March 31, 2022

(in millions of yen)

Category

Amount on
consolidated
balance sheet
Level 1 Level 2 Level 3 Total

Securities (Available-for-sale securities)

Government bonds

30,989,318 422,535 - 31,411,854

As of June 30, 2022

(in millions of yen)

Category

Amount on
consolidated
balance sheet
Level 1 Level 2 Level 3 Total

Securities (Available-for-sale securities)

Government bonds

30,106,359 790,844 - 30,897,203
(2)

Financial assets and liabilities which are not stated at fair value on the consolidated balance sheets

As of March 31, 2022

(in millions of yen)

Category

Fair value Amount on
consolidated
balance sheet
Difference

Securities (held to maturity)

Government bonds

1,758,197 1,748,029 10,167

As of June 30, 2022

(in millions of yen)

Category

Fair value Amount on
consolidated
balance sheet
Difference

Securities (held to maturity)

Government bonds

5,675,997 5,673,943 2,054

11

10.

Securities

*1

The following shows those securities as of June 30, 2022 which were deemed material in the management of our group company businesses and showed material changes as compared to those as of March 31, 2022.

*2

In addition to "Securities" on the consolidated balance sheet, the figures in the following tables include negotiable certificates of deposit in "Cash and due from banks," securitized products in "Monetary claims bought" and others.

I.

Debt securities being held to maturity

(in millions of yen)
March 31, 2022
Amount on
consolidated
balance sheet
Fair value Difference

Domestic bonds

¥ 1,983,383 ¥ 1,992,330 ¥ 8,946

Government bonds

1,748,029 1,758,197 10,167

Municipal bonds

175,071 173,960 (1,111 )

Short-term corporate bonds

- - -

Corporate bonds

60,283 60,173 (110 )

Other securities

2,611,724 2,617,015 5,290

Foreign bonds

234,652 225,923 (8,728 )

Other

2,377,072 2,391,092 14,019

Total

¥ 4,595,108 ¥ 4,609,345 ¥ 14,236
(in millions of yen)
June 30, 2022
Amount on
consolidated
balance sheet
Fair value Difference

Domestic bonds

¥ 6,174,486 ¥ 6,174,186 ¥ (300 )

Government bonds

5,673,943 5,675,997 2,054

Municipal bonds

402,649 400,418 (2,231 )

Short-term corporate bonds

- - -

Corporate bonds

97,893 97,770 (123 )

Other securities

4,243,753 4,200,946 (42,807 )

Foreign bonds

1,661,095 1,628,502 (32,592 )

Other

2,582,658 2,572,443 (10,215 )

Total

¥ 10,418,240 ¥ 10,375,132 ¥ (43,107 )

II. Available-for-sale securities

(in millions of yen)
March 31, 2022
Acquisition
cost
Amount on
consolidated
balance sheet
Difference

Domestic equity securities

¥ 1,699,604 ¥ 4,613,704 ¥ 2,914,100

Domestic bonds

40,495,453 40,433,641 (61,811 )

Government bonds

31,467,256 31,411,854 (55,402 )

Municipal bonds

4,154,461 4,146,145 (8,315 )

Short-term corporate bonds

1,010,607 1,010,637 29

Corporate bonds

3,863,128 3,865,004 1,876

Other securities

30,322,736 29,862,332 (460,404 )

Foreign equity securities

190,808 218,599 27,791

Foreign bonds

22,883,393 22,030,527 (852,866 )

Other

7,248,535 7,613,205 364,670

Total

¥ 72,517,794 ¥ 74,909,679 ¥ 2,391,884

12

(in millions of yen)
June 30, 2022
Acquisition cost Amount on
consolidated
balance sheet
Difference

Domestic equity securities

¥ 1,675,746 ¥ 4,376,347 ¥ 2,700,600

Domestic bonds

39,352,162 39,228,416 (123,745 )

Government bonds

30,998,488 30,897,203 (101,284 )

Municipal bonds

4,075,929 4,059,179 (16,750 )

Short-term corporate bonds

512,031 512,030 (0 )

Corporate bonds

3,765,713 3,760,002 (5,710 )

Other securities

29,828,924 28,647,419 (1,181,504 )

Foreign equity securities

173,563 201,978 28,415

Foreign bonds

21,785,409 20,567,250 (1,218,159 )

Other

7,869,952 7,878,191 8,239

Total

¥ 70,856,834 ¥ 72,252,183 ¥ 1,395,349
(Note 1)

Available-for-sale securities (excluding certain equity securities with no quoted market price available and investments in partnerships and others) are subject to write-downs when their fair value significantly declines and it is determined as of the end of the reporting period that it is not probable that the value will recover to the acquisition cost. In such case, the fair value is recorded on the consolidated balance sheet and the difference between the fair value and the acquisition cost is recognized as losses for the reporting period.

Whether there is any "significant decline in the fair value" is determined for each category of issuers in accordance with the internal standards for self-assessment of asset quality as provided below:

(a) Bankrupt issuers, virtually bankrupt issuers and likely to become bankrupt issuers:

Fair value is lower than acquisition cost.

(b) Issuers requiring close watch:

Fair value has declined by 30% or more from acquisition cost.

(c) Normal issuers:

Fair value has declined by 50% or more from acquisition cost.

"Bankrupt issuers" means issuers who have entered into bankruptcy, special liquidation proceedings or similar legal proceedings or whose notes have been dishonored and suspended from processing through clearing houses. "Virtually bankrupt issuers" means issuers who are not legally or formally bankrupt but are regarded as substantially in similar condition. "Likely to become bankrupt issuers" means issuers who are not yet legally or formally bankrupt but deemed to have a high possibility of becoming bankrupt. "Issuers requiring close watch" means issuers who are financially weak and are under close monitoring by our subsidiaries. "Normal issuers" means issuers other than those who are classified in the four categories mentioned above.

(Note 2)

The total difference as of March 31, 2022 includes ¥174,462 million of revaluation gains on securities by application of the fair value hedge accounting method. The total difference as of June 30, 2022 includes ¥153,848 million of revaluation gains on securities by application of the fair value hedge accounting method.

(Note 3)

In connection with the planned sale of the shares in MUB, unrealized losses on such securities which are reported at fair value on the consolidated balance sheet are reported as valuation losses in accordance with ASC Topic 326, "Financial Instruments-Credit losses." The reported acquisition cost is based on the amount after valuation losses, and, therefore, "Acquisition cost" and "Difference" as of June 30, 2022 do not include ¥217,761 million of such valuation losses.

11.

Money Held in Trust

There are no material changes to be disclosed as of June 30, 2022 compared to March 31, 2022.

13

12.

Derivatives

The following shows those derivatives as of June 30, 2022 which were deemed material in the management of our group company businesses and showed material changes as compared to those as of March 31, 2022.

I.

Interest rate-related derivatives

(in millions of yen)
March 31, 2022

Classification

Type of transaction

Contract amount Fair value Valuation
gains (losses)

Transactions listed on exchanges

Interest rate futures ¥ 8,989,096 ¥ 1,571 ¥ 1,571
Interest rate options 3,685,156 5,036 1,909

Over-the-counter

Forward rate agreements 18,632,902 (103 ) (103 )

("OTC") transactions

Interest rate swaps

1,246,944,650 70,836 70,836

Interest rate swaptions

45,977,168 (66,647 ) 11,436
Other 9,678,953 (3,531 ) (12,358 )

Total

- ¥ 7,163 ¥ 73,292

(Notes)

1.

The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statements of income.

2.

Those derivatives transactions to which the hedge accounting is applied are excluded from the above table.

(in millions of yen)
June 30, 2022

Classification

Type of transaction

Contract amount Fair value Valuation
gains (losses)

Transactions listed on exchanges

Interest rate futures ¥ 11,786,920 ¥ 6,474 ¥ 6,474
Interest rate options 4,258,186 17,093 12,961

OTC transactions

Forward rate agreements 23,758,271 (12 ) (12 )

Interest rate swaps

1,315,356,471 (350,075 ) (350,075 )

Interest rate swaptions

44,921,803 (86,557 ) (13,887 )
Other 10,033,211 (20,748 ) (29,630 )

Total

- ¥ (433,825 ) ¥ (374,170 )

(Notes)

1.

The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statements of income.

2.

Those derivatives transactions to which the hedge accounting is applied are excluded from the above table.

14

II.

Currency-related derivatives

(in millions of yen)
March 31, 2022

Classification

Type of transaction

Contract amount Fair value Valuation
gains (losses)

Transactions listed on exchanges

Currency futures ¥ 330,667 ¥ (1,469 ) ¥ (1,469 )

OTC transactions

Currency swaps 63,070,732 168,927 168,927

Forward contracts on foreign exchange

157,443,042 93,453 93,453
Currency options 14,839,405 (45,290 ) (35,162 )

Total

- ¥ 215,620 ¥ 225,748

(Notes)

1.

The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statements of income.

2.

Those derivatives transactions to which the hedge accounting is applied are excluded from the above table.

(in millions of yen)
June 30, 2022

Classification

Type of transaction

Contract amount Fair value Valuation
gains (losses)

Transactions listed on exchanges

Currency futures ¥ 488,099 ¥ 953 ¥ 953

OTC transactions

Currency swaps 66,254,113 155,931 155,931

Forward contracts on foreign exchange

173,481,972 86,531 86,531
Currency options 15,731,932 (83,883 ) (89,769 )

Total

- ¥ 159,533 ¥ 153,647

(Notes)

1.

The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statements of income.

2.

Those derivatives transactions to which the hedge accounting is applied are excluded from the above table.

15

III.

Bond-related derivatives

(in millions of yen)
March 31, 2022

Classification

Type of transaction

Contract amount Fair value Valuation
gains (losses)

Transactions listed on exchanges

Bond futures ¥ 2,055,049 ¥ 7,800 ¥ 7,800
Bond futures options 968,783 2,311 (5,300 )

OTC transactions

Bond OTC options 398,194 178 166
Bond forward contracts 1,144,538 585 585

Bond OTC swaps

487,554 75,507 75,507
Total return swaps 297,204 287 287

Total

- ¥ 86,671 ¥ 79,047

(Notes)

1.

The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statements of income.

2.

Those derivatives transactions to which the hedge accounting is applied are excluded from the above table.

(in millions of yen)
June 30, 2022

Classification

Type of transaction

Contract amount Fair value Valuation
gains (losses)

Transactions listed on exchanges

Bond futures ¥ 2,817,748 ¥ 1,161 ¥ 1,161
Bond futures options 452,017 519 (795 )

OTC transactions

Bond OTC options 469,490 261 259
Bond forward contracts 2,987,116 28,420 28,420

Bond OTC swaps

569,306 111,456 111,456
Total return swaps 322,776 (3,100 ) (3,100 )

Total

- ¥ 138,718 ¥ 137,401

(Notes)

1.

The transactions above are stated at fair value and the related valuation gains (losses) are reported in the consolidated statements of income.

2.

Those derivatives transactions to which the hedge accounting is applied are excluded from the above table.

16

13.

Revenue Recognition

Disaggregated information on revenues from contracts with customers

(in millions of yen)
For the three months ended June 30,
2021 2022

Fees and commissions

¥ 406,998 ¥ 412,122

Fees and commissions on remittances and transfers

43,977 39,422

Fees and commissions on deposits

14,312 15,745

Fees and commissions on loans (*1)

54,626 71,644

Fees and commissions on trust-related services

22,404 25,436

Fees and commissions on security-related services

48,600 36,560

Fees and commissions on credit card business (*1)

68,802 72,773

Fees and commissions on administration and management services for investment funds and investment advisory services

64,566 57,981

Guarantee fees (*2)

28,411 29,433

Other fees and commissions (*1)

61,298 63,125

Trust fees

35,508 35,524

(Notes)

1.

Include revenues that are not within the scope of ASBJ Statement No.29, "Accounting Standard for Revenue Recognition."

2.

Guarantee fees are not included within the scope of ASBJ Statement No.29, "Accounting Standard for Revenue Recognition."

3.

Fees and commissions on remittances and transfers were generated mainly through the Digital Service Business Group, the Retail & Commercial Banking Business Group, the Japanese Corporate & Investment Banking Business Group, the Global Commercial Banking Business Group and the Global Corporate & Investment Banking Business Group. Fees and commissions on deposits were generated mainly through the Digital Service Business Group and the Global Commercial Banking Business Group. Fees and commissions on loans were generated mainly through the Digital Service Business Group, the Retail & Commercial Banking Business Group, the Japanese Corporate & Investment Banking Business Group and the Global Corporate & Investment Banking Business Group. Fees and commissions on trust-related services were generated mainly through the Asset Management & Investor Services Business Group. Fees and commissions on security-related services were generated mainly through the Retail & Commercial Banking Business Group, the Japanese Corporate & Investment Banking Business Group and the Global Corporate & Investment Banking Business Group. Fees and commissions on credit card business were generated mainly through the Digital Service Business Group. Fees and commissions on administration and management services for investment funds and investment advisory services were generated mainly through the Asset Management & Investor Services Business Group. Trust fees were generated mainly through the Retail & Commercial Banking Business Group, the Japanese Corporate & Investment Banking Business Group and the Asset Management & Investor Services Business Group.

17

14.

Business Combinations

(Additional Information)

(Valuation losses of a foreign subsidiary which are expected to be reflected in MUFG's consolidated financial statements as of the end of and for the first half of the fiscal year ending March 31, 2023)

In connection with the planned sale of the shares in MUB, it is currently estimated that MUAH will recognize an aggregate of approximately ¥360 billion of losses for the quarter ended June 30, 2022, primarily in accordance with ASC Topic 326, "Financial Instruments-Credit losses," and ASC Topic 310, "Receivables," issued by the FASB. It is also currently estimated that, of the aggregate estimated losses, MUAH will record approximately ¥170 billion of valuation losses related to securities held for sale as Other operating expenses and approximately ¥190 billion of valuation losses related to loans held for sale as Other ordinary expenses. All of the losses recognized by MUAH are expected to be reflected in MUFG's consolidated financial statements as of the end of and for the first half of the fiscal year ending March 31, 2023.

18

15.

Per Share Information

Basic earnings per common share and diluted earnings per common share and the bases for the calculation for the periods indicated were as follows:

(in yen)
For the three months ended June 30,
2021 2022

Basic earnings per common share

¥ 29.83 ¥ 9.03

Diluted earnings per common share

29.74 8.93
(in millions of yen)
For the three months ended June 30,
2021 2022

Profits attributable to owners of parent

¥ 383,082 ¥ 113,685

Profits not attributable to common shareholders

- -

Profits attributable to common shareholders of parent

383,082 113,685
(in thousands)
For the three months ended June 30,
2021 2022

Average number of common shares during the periods

12,839,240 12,586,897
(in millions of yen)
For the three months ended June 30,
2021 2022

Diluted earnings per share

Adjustments to profits attributable to owners of parent

¥ (1,162 ) ¥ (1,174 )

Adjustments related to dilutive shares of consolidated subsidiaries and others

(1,162 ) (1,174 )
(in thousands)
For the three months ended June 30,
2021 2022

Increase in common shares

- -

For the three months ended June 30,

2021

2022

Description of antidilutive securities which were not included in the calculation of diluted earnings per common share but which materially changed after the end of the previous fiscal year

Share subscription rights issued by equity method affiliates:

Morgan Stanley

Stock options and others

- 0 million units as of March 31, 2021

Share subscription rights issued by equity method affiliates:

Morgan Stanley

Stock options and others

- 4 million units as of March 31, 2022

19

Disclaimer

Mitsubishi UFJ Financial Group Inc. published this content on 12 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 August 2022 10:44:03 UTC.


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Hironori Kamezawa President, Group CEO & Representative Director
Tetsuya Yonehana Chief Financial Officer & Representative Director
Hiroki Kameda Group Chief Information Officer
Takayoshi Futae Group Co-COO & GM-Global Commercial Banking
Tsutomu Okuda Independent Outside Director
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