MITSUBISHI UFJ FINANCIAL GROUP, INC
Fitch Ratings has affirmed
The Rating Outlook on the Long-Term IDR has been revised to Stable from Negative. Fitch has also affirmed MUAH's stand-alone Viability Rating (VR) at 'a', which supports the Long-Term IDR and Rating Outlook.
Fitch has also affirmed the ratings of
Key Rating Drivers
LONG-TERM IDR and VR
Fitch has since stabilized the Operating Environment factor score for
MUAH's conservative approach to capital management remains a core rating strength. The consolidated Common Equity Tier 1 (CET1) ratio stood at 15.9% as of 2Q21, well above that of large regional bank peers and at the high end of the 10%-15% range for Fitch's 'a-category' benchmark range. While the rating incorporates the expectation of periodic capital distributions to its
MUAH's asset quality has thus far held up well and shown less deterioration than Fitch had originally anticipated. As of 2Q21, the impaired loans were 1.19% of gross loans, relatively flat from the 1.15% reported at 4Q20. The modest increase in the ratio was driven by the 7.3% decline in average loans over the same period rather than an increase in impaired loans. Absolute impaired loans (defined as nonaccrual + accruing TDR + accruing >90 days past due) stood at
While MUAH continues to refine and execute its strategic objectives, Fitch has noticed tactical adjustments to the strategic direction of the bank over the past two years. The current goal is to simplify its operating model, deepen customer relationships and increase the overall efficiency of the bank, which meaningfully lags peers. Recent organizational change and leadership succession through internal promotions are indicative of depth of talent that Fitch anticipates will result in continuity in the execution of core strategic objectives as well as 2023 cost saving targets.
MUAH's profitability is weak on an absolute and basis and relative to peers and remains a rating constraint. During 1H21, MUAH's pre-impairment operating profit was impacted by a write-down of technology investments, softer broker dealer revenues and a drop in net interest income that drove a 30% decline compared to 1H20. While MUAH's cost structure remains higher than peers, core expenses have been relatively stable over the last 18 months as successful cost savings have been offset by additional investments in the franchise.
Fitch continues to view MUAH's funding and liquidity levels as commensurate with the assigned rating. MUAH carries a healthy level of on-balance sheet liquidity and maintains its liquidity coverage ratio well above regulatory limits. The loan to deposit ratio stood at 75.6% as of 2Q21 and has trended lower due to the influx of customer deposits at MUAH and the industry in general.
SENIOR DEBT
In light of the affirmation of MUAH and MUB's Long-Term IDRs at 'A', Fitch has also affirmed the senior unsecured debt ratings of these two entities. Fitch equalizes the senior unsecured debt ratings of MUAH and MUB with their respective Long-Term IDRs, in accordance with Fitch's bank rating criteria.
HOLDING COMPANY AND SUBSIDIARIES
MUAHs VR is equalized with MUB, reflecting its role as the bank holding company, which is mandated in the
SHORT-TERM IDRs
Fitch has affirmed the Short-Term IDRs of MUAH, MUB and MUSA in accordance with the Ratings Correspondence Table in Fitch's 'Bank Rating Criteria.'
LONG- AND SHORT-TERM DEPOSIT RATINGS
The uninsured long-term deposits of MUB are rated one notch higher than the bank's IDR and senior unsecured debt because
The short-term deposit ratings are mapped to IDRs, according to Fitch's bank rating criteria.
RATING SENSITIVITIES
LONG-TERM IDR and VR
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch views MUAHs ratings as being at the higher end of their ratings potential. Over the longer term, positive ratings momentum would depend on the bank demonstrating the ability to generate operating profit/RWA of above 1.5% on a sustained basis, while maintaining its current capital levels and without a material shift in risk appetite.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch notes that MUAH's rating would be at risk if its CET1 were to approach or ultimately dip below 14% and remain there for multiple quarters, absent a credible plan to build levels back above this threshold.
Pressure on MUAH's rating and/or Rating Outlook could also emerge over time if the company's four-year average impaired loans to gross loans becomes more in-line with a lower factor score. As noted above, as of 2Q21, this ratio stood at 1.19%, above the four-year average of 1% but still at the low end of the 1%-3% range for the 'a'-category.
MUAH's ratings are sensitive to the consistent execution of its strategic objectives. While clearly documented and articulated, Fitch considers MUAH's strategic objectives have evidenced modest shifting over the past few years. Over the near-to-medium term, should further strategic challenges arise or if evidence emerges that the company's objectives are more opportunistic, negative ratings action will be considered.
Downward pressure on MUAH's ratings will be driven by the extent to which negative action at MUFG has an adverse impact on the credit fundamentals of MUAH.
SENIOR DEBT
The rating of MUAH and MUB's senior unsecured debt is sensitive to changes in the respective entities Long-Term IDRs.
HOLDING COMPANY AND SUBISDIARIES
Should MUAH begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. Fitch does not expect such a scenario at MUAH's current high rating levels.
SHORT-TERM IDRs
MUAH's and its rated subsidiaries' Short-Term IDRs are sensitive to changes in the respective Long-Term IDRs.
LONG- AND SHORT-TERM DEPOSIT RATINGS
The long- and short-term deposit ratings are sensitive to any change to MUAH's Long-Term IDR.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The Support Rating is driven by the ratings of the ultimate parent,
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONSENTITY/DEBT RATING PRIOR
MUFG Americas Holdings Corporation LT IDR A Affirmed A
ST IDR F1 Affirmed F1
Viability a Affirmed a
Support 1 Affirmed 1
senior unsecured
LT A Affirmed A
MUFG Union Bank, National Association LT IDR A Affirmed A
ST IDR F1 Affirmed F1
Viability a Affirmed a
Support 1 Affirmed 1
senior unsecured
LT A Affirmed A
long-term deposits
LT A+ Affirmed A+
short-term deposits
ST F1 Affirmed F1
senior unsecured
ST F1 Affirmed F1
MUFG Securities Americas Inc. LT IDR A Affirmed A
ST IDR F1 Affirmed F1
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
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