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Mitsubishi UFJ Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 07 Mar 2024MUFG is the largest of Japan’s three megabanks, and has the most diversified operations by business line and geography. It has also been the most acquisitive until recently.
Core profitability had been weak due to Japan’s ultra-low interest rates and growth; that improved post an efficiency drive and a CEO change in April 2020. The bank has committed to at least JPY 1 tn in annual net income going forward, which we see as achievable.
Given its size and systemic importance, MUFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 07 Mar 2024- The 2 main banks of MUFG are MUFG Bank (earlier the Bank of Tokyo-Mitsubishi UFJ or BTMU) & Mitsubishi UFJ Trust & Banking. In the early stages of Japan's long banking crisis, Bank of Tokyo merged with Mitsubishi Bank, and in the late stages they absorbed UFJ (former Sanwa Bank & Tokai Bank) while Mitsubishi Trust absorbed Toyo Trust & Nippon Trust.
- The group includes consumer lenders Mitsubishi-UFJ NICOS & ACOM, and securities/IB joint ventures with Morgan Stanley. MUFG invested in Morgan Stanley in 2008 and now has a ~20% stake. In Dec-22, it completed the sale of its US retail and commercial bank, MUFG Union Bank, to US Bancorp.
- It has a majority stake in Thailand's Bank of Ayudhya (now Krungsri), 20% stakes in Vietnam's Vietinbank and Philippines' Security Bank, and has acquired control of Indonesia's Bank Danamon.
- In August 2019, it acquired Colonial First State from Commonwealth Bank of Australia to strengthen its global asset management business, in 2020 it invested $700 mn in SE Asia's Grab, and more recently has bought Home Credit's Philippine and Indonesian subsidiaries, Link, an Australian pension fund administrator, auto loan companies in Indonesia, Albacore Capital, an alternates fund manager, and StanChart's Indonesian retail operations.
Risk & Catalysts
AS OF 07 Mar 2024The group’s cost-income ratio was previously in the high 60’s, but improved efficiency, the sale of MUFG Union Bank (MUB) in the US, and better revenues has led to this ratio falling to the high 50’s.
MUFG is exposed to Japanese equities through large unrealised gains, but has steadily been decreasing its shareholdings every year. It reduced the MTM impact of rising yields on its $ bond portfolio, as well as the potential impact on its JGB portfolio given the modifications to yield curve controls.
MUFG had a good FY22 with impressive margin improvement, lower credit costs and the completion of the MUB sale. It has set a net income target of JPY 1.3 tn for FY23, by improving net operating profits in customer segments and expense control; it has met it in 9M23 aided by certain one-offs.
Key Metric
AS OF 07 Mar 2024| ¥ bn | FY19 | FY20 | FY21 | FY22 | 9M23 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.60% | 0.56% | 0.57% | 0.79% | 0.63% |
| Operating Income/Average Assets | 1.27% | 1.16% | 1.11% | 1.22% | 1.27% |
| Operating Expense/Operating Income | 70% | 68% | 69% | 65% | 58% |
| Pre-Impairment Operating Profit / Average Assets | 0.38% | 0.37% | 0.34% | 0.43% | 0.50% |
| Impairment charge/Average Loans | (0.21%) | (0.48%) | (0.30%) | (0.61%) | (0.31%) |
| ROAA | 0.17% | 0.23% | 0.32% | 0.30% | 0.45% |
| ROAE | 3.3% | 4.7% | 6.7% | 6.5% | 9.6% |
| CET1 Ratio excluding unrealised securities gains in AOCI | 9.8% | 9.7% | 9.5% | 9.8% | n/m |
CreditSight View Comment
AS OF 16 May 2024MUFG is the largest of the megabanks with more diversified business lines. Digitalisation and operational efficiency improvements are underway and efficiency has improved over the past 2-3 years, particularly with the sale of Union Bank in the US. Acquisitions have become more targeted. Capital levels are adequate (and have received a bump up from the Basel 3 implementation timeline), $ liquidity is the best amongst the megabanks, and government support is assured. Lending discipline has lifted international margins, which are now well higher than the other two. Divisional performance was reasonable in FY23. Its ~20% shareholding in Morgan Stanley has been a boon. The recent jump in Americas NPLs does raise some questions. It trades slightly back of JPM, which we see as appropriate.
Recommendation Reviewed: May 16, 2024
Recommendation Changed: January 02, 2024
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