Mitsubishi UFJ Financial Group Q4 2025 Earnings Call Transcript

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May 18, 2025

Key Takeaways

  • MEFG delivered a record-high profit attributable to owners of parent of ¥1,862.9 bn in FY24, underpinned by steady net interest and fee income growth.
  • A bond-portfolio rebalance generated net losses of around ¥780 bn, which weighed on gross profit growth despite higher margins from rising yen interest rates.
  • For FY25, MEFG targets profits of ¥2 trn (the first such level since its establishment) and a 10% ROE, while raising the dividend to ¥70 per share and approving a ¥250 bn share buyback.
  • The CET1 capital ratio was 10.8% at March-end—above the 9.5–10.5% target range—with hedging plans in place to mitigate FX volatility and a goal to return to range by end-FY25.
  • Credit-cost guidance for FY25 was raised to ¥350 bn, reflecting acquisition-related provisions and potential impacts from new global trade policies.
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Earnings Conference Call
Mitsubishi UFJ Financial Group Q4 2025
00:00 / 00:00

There are 2 speakers on the call.

Operator

Thank you for waiting. We will now begin the online conference call on financial highlights for fiscal year ended 03/31/2025 of Mitsubishi FJ Financial Group. I am Okamoto from Investor Relations Office, Financial Planning Division and will serve as the moderator today. Jun Togawa, Senior Managing Corporate Executive and Group CFO will give a fifteen minute presentation on the financial highlights for FY 'twenty four followed by a Q and A session. The entire session is scheduled to be about fifty minutes.

Operator

Before we begin, let me read the disclaimer. In this presentation, we may state forward looking statements based on current expectations, all of which are subject to risks and uncertainties. Please be aware that actual results may differ materially from these forecasts. We will now begin the financial results briefing. Mr.

Operator

Togawa, please begin. Good evening. I am Togawa, Group CFO of MEFG. May I thank all the investors, shareholders and rating agencies for joining MEFG's online conference call today despite the late hour. Please look at the material titled Financial Highlights under J GAAP for the fiscal year ended 03/31/2025.

Operator

First, let me explain our FY 'twenty four financial results followed by FY 2025 performance targets, shareholder return measures and the status of administrative actions. Let me start from the income statement summary on Page nine. For FY 2024, we include fifteen months' worth of profits for currency in Thailand due to the change in the equity method accounting date. The impact of this change for currency is summarized on Page 14, so please take a look at it later. FX impact is stronger yen against the dollar compared to the end of FY 2023, but weaker yen in our U.

Operator

S. Subsidiary with changes in the financial results closing date and weaker yen against the Thai baht. Weaker yen had a major impact on gross profits and expenses where currency accounts for a large portion and stronger yen had impact on net income where Morgan Stanley accounts for a large part. As a result, the FX impact on net income is almost flat this time. Line one in the left table, gross profits increased by 86,700,000,000.0 year on year.

Operator

Line two and below shows the breakdown of gross profits. Both net interest income and fee income increased steadily, thanks to the impact of the increased net interest income with improved margins by capturing the impact of yen interest rate hike, growth of fee businesses in Japan and overseas, such as Solutions, Wealth Management, AMIS business as well as currency impact mentioned earlier and M and A impact mainly in Asia. On the other hand, we accounted net losses on debt securities of around JPY $780,000,000,000 realized through rebalance of the bond portfolio, which leveraged the onetime gain on sale of equity holdings and the reversal of large credit costs. Therefore, gross profit increase was marginal. Next, Line six.

Operator

G and A expenses increased by 339,300,000,000.0 year on year due to currency impact, the impact of overseas acquisitions as well as investments for the growth and effects of inflation. Expense ratio increased significantly as gross profits decreased through the rebalance of bond portfolio. However, as shown in two on the right and footnote three, excluding this impact, it improved year on year, thanks to successful expense control combined with the increase in gross profit. As a result, Line eight, net operating profit was JPY 1,591,100,000,000.0, down by JPY 252,500,000,000.0. But excluding the impact of the bond portfolio rebalance, as I explained earlier, it increased significantly by JPY 327,400,000,000.0 year on year as shown in Line nine.

Operator

Next, Line 10, credit costs was down significantly by 389,100,000,000.0 year on year. I will explain this in a separate slide later. Line 11, net gains on equity securities increased significantly, thanks to the progress in the sale of equity holdings. As a result, Line 17, profits attributable to owners of parent was JPY 1,862,900,000,000.0, a record high for two consecutive years. As shown on Line 18, excluding the impact of the change in the closing period for Morgan Stanley in FY 2023 and Fruunsee in FY 2024, profits increased by JPY 434,100,000,000.0.

Operator

Pages 10 through 13 show the performance by business group. I will not go into detail, but Page 13, Global Markets profit decreased due to recording of losses from bond portfolio rebalance. While in customer segments, all business groups steadily increased their net operating profits, thanks to increases in net interest income from loans and deposits and fee income. On the other hand, net income decreased due to Global Markets and Retail and Digital Business Group with Nikos system impairment and the increase in ACOM's provision for loss on interest repayment and GCV and AMIS with the goodwill impairment of investees. However, these are all one off events that will lead to the accumulation of future profits.

Operator

Please turn to Page 15 on balance sheet summary. The diagram on the left shows the overview of our balance sheet. Loans on the upper left increased by approximately 4,500,000,000,000.0 from the end of FY 'twenty three. This is due to an increase in government loans in Japan, but it is a transfer from short term JGB for ALM purpose, as I mentioned in the first half results. The balance of overseas loans decreased, thanks to credit management focusing on profitability.

Operator

Page 16 shows the status of domestic loans. The left graph changes in the period and balance shows that large corporates decreased by JPY 1,000,000,000,000, while SMEs increased by JPY 1,000,000,000,000 compared to the March '24. However, due to the definition of the graph, loans to SPCs such as LBOs and real estate non recourse loans are counted as SMEs. So by market, both the large corporates and SMEs markets remained flat as profit management continues to be tightened. The graph on the bottom right shows the trend in domestic corporate lending spreads.

Operator

The red line for large corporates is currently flat due to the timing of repayments for large LBO transactions, but the uptrend continues along with the orange line for SMEs, thanks to the success of profitability improvement measures. Next, Page 17 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. While the balance is decreasing, lending spreads continue to expand as profitability improvement efforts have been successful just like in Japan. Please turn to Page 18 on asset quality.

Operator

Non performing loan balance shown in the left bar graph decreased in Europe and The U. S. Following a significant increase at the March. As a result, NPL ratio, the line graph also declined. The bottom right graph shows the breakdown of year over year changes in total credit costs.

Operator

On the bank non consolidated basis, there was a large increase in provisions last year, mainly overseas, but credit costs decreased significantly this year due to reversal of large credit costs. On the other hand, credit costs increased at overseas subsidiaries due to the impact of business expansion of subsidiaries acquired in the Asian Partner Bank domain and the economic slowdown in countries around the world. However, this is within our expectations. In addition, we recorded the impact of recent trade policies in major countries on credit costs to a certain degree in our FY twenty twenty four financial results based on reasonable estimates at this time.

Speaker 1

Please turn to Page 19. The status of investment securities such as equities and government bonds. Left top table shows unrealized gains and losses. The valuation gain on domestic equity securities in the third row decreased by JPY 1,300,000,000,000.0 compared to the March '24 due to progress in reducing equity holdings and year on year decline in stock prices. On the other hand, the valuation loss on foreign bonds shown in the April has been largely eliminated due to the rebalancing of the bond portfolio as explained earlier.

Speaker 1

Although some valuation losses related to bonds subject to regulations on collateral remain. And additionally, as shown on the lower left bottom graph, the valuation has turned positive at the March '25 on a net basis after considering unrealized gains and losses from hedging positions. There are no valuation losses when considering hedging positions at the April either on approximate basis. Regarding domestic bonds shown in the upper graph, the estimated unrealized valuation loss after reflecting hedging positions at the April remains at JPY 200,000,000,000.0. Regarding the reduction of equity holdings shown on the right, we sold JPY $276,000,000,000 of equity at acquisition cost basis in FY 'twenty four, which is 40% progress against target of JPY 700,000,000,000.

Speaker 1

The agreed amount to be sold also exceeds 70% against our target. Please proceed to Page 21 for capital adequacy. The CET1 ratio based on the finalized and fully implemented Basel III and excluding net unrealized gains on AFS securities was 10.8%, primarily due to the larger foreign currency translation reserve due to yen depreciation recognition delay. While we should aim to be within the target range, given the current dollar yen exchange rate, the excess portion is already diminished, and we expect to return to the target range by the end of FY 'twenty five, considering the increase in risk weighted assets. The capital allocation results are shown in the lower right.

Speaker 1

We will continue to manage capital with a focus on balancing shareholder returns and growth investment. Next, FY 'twenty five financial targets. Please kindly turn back to Page three. On the left side, profits attributable to owners apparent. FY 2025 target is to reach JPY 2,000,000,000,000, the first time since the establishment of MUSD despite the high level of uncertainty in the current business environment with JPX basis ROE target of 10%.

Speaker 1

As shown in the chart on the lower left, although there will be some impact from the one off gains and losses recorded in FY 'twenty four, continued profit growth in the customer segment and the improvement in accrual interest income resulting from the rebalance of bond portfolio were the main drivers of profit growth. The assumptions for the business environment is that trade negotiations between major countries will progress to a certain extent and that the global supply chain will not be significantly disrupted. Please refer to the financial indicators shown below the table. If these assumptions change significantly, we will consider review of our financial targets during the fiscal year. The right side shows shareholder returns.

Speaker 1

We will continue to aim for the dividend payout ratio of approximately 40%, while considering the optimal balance between capital soundness and growth investment and strive for a sustainable increase in dividends per share based on profit growth. For FY 2025, the annual dividend forecast is JPY 70 per share, an increase of JPY 6 from the previous fiscal year. Additionally, we have resolved share repurchase of up to JPY $250,000,000,000 in the first half of the fiscal year today. Please turn to Page four for the impact of the new U. S.

Speaker 1

Trade policy and our medium term financial targets. As you are aware, the global economy is facing increased uncertainty due to changes in the trade policies of major countries. We have established a cross functional project team to follow-up on the potential negative impact of these changes on various aspects of our business, including the macro economy, financial markets and on our customers. Under these circumstances, it is currently difficult to assess the FY 'twenty six business environment and impact on our business performance. Therefore, we have decided to reassess and announce our financial targets for FY 'twenty six after thoroughly assessing the environment.

Speaker 1

However, if the changes in the business environment remains within the current assumptions outlined here, we aim to achieve sustainable profit growth in FY 2026, exceeding FY 2025 levels with net income over JPY 2,000,000,000,000 and ROE based on JPX basis of over 10%. For now, we will focus on the FY 2025 results, continue to place emphasis on ROE and leverage our group's comprehensive capabilities and resilient and diverse business portfolio to respond flexibly to the changes in the environment. Our CEO, Mr. Kamizawa, will provide more details at the investor briefing on the nineteenth. Please proceed to Page five.

Speaker 1

Despite the current uncertain environment, our policy of increasing ROE over the medium to long term remains unchanged as shown here. Since achieved the previous target of 9% to 10% in FY24, we have adopted the JPX definition and set the new target as approximately 12%. This is almost on par with the major financial institutions in Europe and The United States. And after achieving this target, our ultimate goal is to become a global top tier in terms of profitability and corporate value. Lastly, Page eight.

Speaker 1

In FY24, we caused concern and inconvenience to our customers and stakeholders due to the business improvement orders related to inappropriate collaboration between banking and securities operations as well as an incident involving the theft of customer assets from the safe deposit box. We once again sincerely apologize for this. In addition to thoroughly implementing measures to prevent recurrence, we will continue to make relentless efforts to enhance governance, striving to restore the trust and confidence of our customers and society. MUFG is committed to empowering a brighter future even amidst the heightened uncertainty of recent times. We look forward to your continued understanding and support.

Speaker 1

This concludes my presentation.

Operator

Let me introduce the first questioner. Mr. Takamiya of Nomura Securities. Please go ahead. I am Takamiya of Nomura Securities.

Operator

I have one question. Please share with us the internal discussions leading up to the decision on the amount of share buyback, the key discussion points and the message you want to convey as management. The JPY $250,000,000,000 this time appears to be sizable under the current uncertain environment. The amount of share buyback over the past two years was around JPY 400,000,000,000 a year, half of that is JPY 200,000,000,000. So it seems like a considerable amount this time given the uncertainty.

Operator

On the other hand, considering that the total payout ratio is within the conventional range of 50% to 60% for the conservative guidance of

Speaker 1

JPY 2,000,000,000,000,

Operator

I think this amount of buyback is reasonable even with a conservative assumption and the irregularities of FX impact given that your CET1 ratio is above the target range? I would like to ask you about the internal discussions that led to the decision on the amount of share buyback, the points of discussion and the message that the management wants to convey to stock market participants in deciding this amount of share repurchase at this timing? Thank you. Thank you very much for the question. First of all, before the trade policy issue arose at the April, we had said that we would aim for profits attributable to owners of parent of around JPY 2,000,000,000,000 in FY 2025 and announced that our financial target for the final year of the MTBP is to exceed FY 2025, although the amount was not quantified.

Operator

In that sense, the underlying premise was that the amount of buyback should be commensurate with the higher profit. On the other hand, as the uncertainty in the world increased, we debated internally whether the full year amount should remain unchanged at JPY 400,000,000,000 or increase in line with profit growth. Since we need to assess and ascertain this uncertainty, we cannot commit to a full year amount at this time, but have decided to increase the amount to JPY $250,000,000,000, up from JPY 200,000,000,000, which is JPY 400,000,000,000 divided by two. If JPY $250,000,000,000 can be repurchased in the first and second half of FY twenty twenty five, it would mean that total payout ratio for JPY 2,000,000,000,000 net income is comparable to the previous levels and can also expect to raise EPS by around 2%. So that is why we have decided on JPY $250,000,000,000.

Operator

Understood. Thank you very much.

Speaker 1

Thank you very much. Next, BOB Securities, Nakamura san, please. Thank you. I have two questions. First is on how the guidance was issued.

Speaker 1

The MUFC that I knew would have issued a conservative guidance like the other mega banks, reflecting the impact from the trade policies on the business impact. SMBC says bottom line impact, 100,000,000,000 and Mizuho JPY 110,000,000,000. Of course, you did provide FX and UK average assumptions, but did not provide the impact on financial performance. So why didn't you? What changed from the traditionally conservative MESG approach?

Speaker 1

Also, if you were to provide guidance on the business impact, like the other mega banks, such as credit costs and slower loan growth, how much of a downside risk do you think exists? That's my first question. And second question, and it's fine if you don't have an answer today, is on the mid to long term ROE target of 12%. Under what kind of conditions will we achieve this mid to long term 12% ROE target? For example, interest rate, dollar yen exchange rate and how low gains from equity sales will be at that time and overall time line and so forth?

Speaker 1

You may not be able to provide such details now, but I would appreciate some color on this topic. Thank you very much for the question. Regarding the business impact, frankly, we think that there is possibility of both upside and downside impact. So if that trade policy impact is under the expected environment outlined on Page three. And we have also provided financial indicators for our annual guidance.

Speaker 1

So we assess that there will be certain level of impact regarding interest rates, FX and stock price leading to interest income reduction. However, for the business impact, we drew no conclusions. So in that sense, it is a different approach as what Kamezawa san was looking for was the most likely and also aggressive plan. So if these assumptions completely change, then we will consider whether the guidance needs to be revised. On the mid to long term target of ROE 12%, we may have mentioned this at the interim results briefing, but we have been discussing at length the mid to long term ROE target when there is no contribution from the sale of equity holdings.

Speaker 1

In this discussion, compared to the group of U. S. Banks with the very high ROE and PBR, there is a gap in the absolute value of interest rate in our mother markets. While on the other hand, we are more leveraged comparatively. So considering the positive and negative factors, we arrived at 12% as the mid to long term target level to pursue.

Speaker 1

Now in order to achieve ROE of 12%, we will need to change our risk appetite, which means that we would probably have to go beyond the current CET1 range of 9.5% to 10.5%. But during this medium term business plan, we will maintain this 9.5% to 10.5% range. Now in this beginning of the fiscal year, with the lingering issue of uncertainty, we will like to be above the target range. Thank you very much. So the management does understand the expectations on markets and have discussed and produced guidance that is aggressive to some extent.

Speaker 1

So I look forward to the company's performance. Thank you.

Operator

Next, Mizuho Securities. Mr. Matsuno, please. This is Matsuno from Mizuho Securities. Thank you very much for today.

Operator

I have two questions. First question is on capital on Page 21. Your CET1 ratio was 10.8% at the March, which is above the target range. And I think you also assume yen to appreciate. Please explain your view on 10.8% and the FX sensitivity of the current CET1 ratio?

Operator

This is my first question. My second question is about the background behind your decision to increase the credit cost guidance by JPY 241,300,000,000.0 to JPY $350,000,000,000 in your targets for FY 'twenty five. Is this a conservative level taking into account the impact of trade policy negotiations? Could you elaborate on your thinking on the credit cost of $350,000,000,000 yen? As mentioned earlier, yen was quite weak, yen 158 against the dollar at the December 2024.

Operator

But as yen appreciated toward the March, CET1 ratio is already being pushed down by about 35 basis points due to the recognition delay of foreign currency translation reserve. Looking at the current dollar yen rate, this factor is now gone. So this was the biggest impact. So far, 1 yen depreciation has had the effect of put pushing up the CET1 ratio by one to two basis points As you have pointed out in the past, we recognize FX impact on CET1 ratio as an issue to be addressed. We started some hedging this month, which we wanted to do in FY '23.

Operator

We believe we can reduce volatility going forward. To your second question, the average credit costs after the acquisition of Krumsi and Bank Danamon was about $320,000,000,000. On the other hand, in FY '23, excluding the reversal of large credit costs, the actual amount was less than 300,000,000,000 yen. Therefore, we forecasted 350,000,000,000 yen taking into account last year's actuals, the past average level, and the reversal of large credit costs and provisions as well as the impact of trade policy. However, we think it may fluctuate if uncertainties increase and the environment changes significantly.

Speaker 1

Thank you very much. Thank you. Next, JPMorgan, Yanosan, please. Thank you. This is Yanos from JPMorgan.

Speaker 1

I also have two questions. My first question is regarding Investment Securities Treasury business. As shown on Slide 20, from the end of Q3, you have increased the balance of JGBs over ten years. And since April, there have been significant increase in interest rates ten years and above, like thirty years. So how has this impacted Q1 results or FY 2025 full year results for treasury operations?

Speaker 1

I'd like to know if you have any thoughts regarding negative implications from the rise in long term interest rates. And my second question, and this is from the media reporting. As your competitor has issued a press release regarding India's YES Bank, For MEFG, there have been reports on some negotiation with the same Indian company, I presume, a year ago as well as currently. So I'd like to ask how far the discussions progressed and what prevented the deal from happening. If you could kindly give some color on this topic.

Speaker 1

Thank you. Thank you very much. For your first question, last fiscal year, we rebalanced our bond portfolio by JPY $780,000,000,000 and almost completely eliminated our negative carry positions. So this alone boosts our treasury interest income by JPY 100,000,000,000. So that's the first point.

Speaker 1

Now while we do see future rate hikes in the future, and we have been increasing the balance of long term JGBs, but there is a lack of visibility when it comes to interest rates. So we are taking a very cautious approach in increasing our balance. And at the minimum, I am factoring in the growth in interest income of JPY 100,000,000,000 from the rebalancing of our bond portfolio. Now on your second question, India, while we have made various studies, the local regulations do pose difficulties, and we are not moving ahead with any negotiations at this time. Thank you very much.

Speaker 1

Well, we still have some time left, but there seems to be no further questions. So we would like to close the Q and A session here. Lastly, Togawa san, please make closing remarks. Thank you very much for your questions and comments. Today, we talked about the details of the financial results for March 25.

Speaker 1

But on the nineteenth, at the investor briefing, our President, Kamezawa, will share more details on his thinking and views on the current environment. We look forward to your continued support and understanding. Once again, thank you very much. This concludes MEFG online conference on financial results for the fiscal year ended 03/31/2025. Thank you very much for your participation.

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