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Masahisa Takahashi : Thank you for waiting. We will now begin the online conference call on financial highlights for the fiscal year ended March 31, 2023, of Mitsubishi UFJ Financial Group. I am Takahashi from Investor Relations Office, Financial Planning division and will serve as the moderator today. Tetsuya Yonehana, Senior Managing Corporate Executive and Group CFO, will give a 15-minute presentation on the financial highlights followed by a Q&A session. The entire session is scheduled to be about 50 minutes. 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 those forecasts. We will now begin the financial results briefing. Mr. Yonehana, please begin.

Tetsuya Yonehana : I am Yonehana. Thank you very much for joining us today at this late hour for MUFG’s online conference call. Please look at the material titled Financial Highlights under JGAAP for the Fiscal Year Ended March 31, 2023. First, let me explain our financial results for FY ’22, followed by our performance targets and shareholder return policy for FY ’23. Please skip to Page 7. I will start with the income statement summary. As shown in line 17 on the left table, profits attributable to owners of parent was ¥1.1164 trillion, roughly flat year-on-year, achieving the performance target of ¥1 trillion and the second highest after FY ’21, which was the highest profit ever. As a result, ROE was 7.03% as shown in line 19.

Regarding the breakdown of the financial results, Line 1, gross profit was an increase of ¥539 billion year-on-year. Line 2 and below is the breakdown of gross profits, which shows a large year-on-year increase or decrease, depending on the item. This is a result of the treasury business using ¥555.7 billion in gains on cancellation of their fund and gains on derivative hedging to rebalance the portfolio centering on foreign bonds. Gains on cancellation of the bear fund is included in Line 2, net interest income and the losses on the sale of foreign bonds is included in Line 5, net gains or losses on debt securities. Although it is difficult to see the actual increase or decrease due to these factors, the drivers of the increase in gross profits are an increase of overseas interest income of loans and deposits due to global interest rate hikes and improvement of lending spread, an increase in foreign exchange and trading income by capturing market fluctuations, and an increase in foreign loan-related fees.

Next, Line 6, G&A expenses increased by ¥161.4 billion year-on-year, but decreased by around ¥30 billion in real terms excluding the impact of foreign exchange and the sale of Union Bank or MUB. Line 20, expense ratio was 64.5%, a significant improvement of 4.7 percentage points year-on-year, thanks to expense controls and a significant increase in gross profits. As a result, Line 7, NOP was ¥1.5942 trillion, up by ¥377.5 billion, recovering to the level prior to the introduction of negative interest rates. Next, Line 8, total credit costs increased by ¥343.4 billion year-on-year mainly due to ¥393.9 billion valuation losses on loans held by MUB, resulting from the accounting treatment associated with the decision to sell MUB. However, the valuation losses were reversed as part of extraordinary gains.

So in real terms, after adjusting for this effect, credit costs decreased by ¥50.5 billion year-on-year. Line 13, other nonrecurring gains or losses after adjusting for the amount of valuation losses of bonds held by MUB that were reversed as extraordinary gains due to the same accounting treatment as credit costs, expenses increased by ¥149.5 billion year-on-year due to a portion of the valuation losses of bonds held by MUB and the impact of onetime expenses related to the sale of MUB. Finally, Line 15, net extraordinary gains or losses increased by ¥596.9 billion mainly due to ¥699.5 billion gain on sale of MUB shares, including the reversal of valuation losses related to MUB share transfer, which was recorded in the item up to ordinary income.

However, most of the increase was due to shifts between accounts. So excluding this factor, the decrease was ¥138 billion year-on-year due to onetime expenses associated with the implementation of structural reforms. As a result, Line 17, profits attributable to owners of parent was ¥1.1164 trillion, a decrease of ¥14.3 billion. FY ’22 financial results are difficult to understand because of the shifts between accounts due to the sale of MUB, but in a nutshell, NOP, which is a profit from the core business, increased significantly while we pursued the disposal of valuation losses on foreign bonds. This offset onetime costs and losses associated with the sale of MUB as well as onetime costs associated with structural reforms. Therefore, profits attributable to owners of parent was on par with the record-high income in FY ’21 while achieving for the second straight year the goal of stable profit of ¥1 trillion or more set forth in the medium-term business plan.

Please turn to Page 8. The lower-left graph shows year-on-year changes in NOP by business segment. In customer segments, profits in AM/IS decreased slightly due to the absence of large performance fees we had in FY ’21, but other business groups enjoyed a profit increase, including higher net interest income from loans and deposits and foreign exchange-related income, resulting in a significant increase of ¥443.1 billion in total customer segments. In addition, Global Markets business group made progress in recording loss on sale of foreign bonds. But on the other hand, sales and trading revenues from foreign exchange and interest rates grew substantially, which curbed the decline in profit. Please turn to Page 9. The right side shows the changes in net income by business segment.

In addition to AM/IS and Global Markets with lower NOP, GCB business group posted a decrease in net income due to the absence of reversal of credit costs in MUAH we had in FY ’21. While the other business groups, DS, R&C, JCIB and GCIB recorded an increase in net income, thanks to higher NOP and customer segments as a whole reported an increase of ¥120.1 billion. Please skip to Page 11, which shows the balance sheet summary. On the left table, Line 2 and below, loans show an increase of ¥1.3 trillion in domestic corporate loans and decrease of ¥1.8 trillion in overseas loans from the end of March ’22. Overseas loan decreased due to a ¥7.5 trillion decrease from the sale of MUB, but was an increase excluding this factor. Also, in deposits, Line 12 and below, while both domestic individual and corporate deposits increased, overseas deposits decreased.

This was also due to the approximately ¥12 trillion decrease in deposits resulting from the sale of MUB. And excluding this effect, overseas deposits increased. Page 12 shows the status of domestic loans. The lower-right graph shows a trend of the domestic corporate lending spread. The red-dotted line shows the lending spread of large corporates, which is continuing to show trends of improvement. The orange line shows a lending spread of small- and medium-sized enterprises, showing a gradual improvement with the bottoming out, except for the effect of the timing of recording of interest income on interest subsidy system. The next page, Page 13, shows the status of overseas loans. The bottom line in the upper-right graph shows the differences in yield between lending rate and deposit rate of nonconsolidated, that is the Bank and the Trust Bank combined, which has shown a slight decline with higher interest rate but is steadily expanding from the previous year.

The bottom-right graph shows the trend of the overseas lending spread. The lending spread has been steadily improving as a result of our efforts to improve profitability. Please proceed to the next page, Page 14, showing the status of loan assets. The balance of nonperforming loans are shown as a line graph on the left, increased slightly from the end of the previous fiscal year. However, the NPL ratio indicated by the dotted line is still at a low level. On Page 15 is the status of investment securities, such as equity securities and government bonds. Although unrealized gains shown in the upper-left table decreased from the end of the previous fiscal year partly due to rising interest rates overseas, the total unrealized gains on available-for-sale securities amounted to ¥1.4 trillion.

Of this amount, the unrealized loss on foreign bonds as of the end of March, the seventh line, is approximately ¥1.1 trillion. But as shown in the upper-right graph, the valuation loss on the actual basis, taking into account valuation gains from hedging positions, was approximately ¥0.7 trillion, improving from the peak at the end of September 2022. Page 16 shows the status of capital adequacy. The CET1 ratio excluding unrealized gains on a finalized Basel III reform basis was 10.3%, which exceeded the upper limit of the target range of 10% in the medium-term business plan with the ratio continuing to be adequate from the viewpoint of soundness. That is all for the explanation of the financial results. Please turn back to Page 2. Next, I would like to explain our performance targets for fiscal year ’23.

In February ’23, the final year of our medium-term business plan, we have set a target of ¥1.3 trillion, the highest ever for profits attributable to owners of parent. Although we expect a decrease in profit due to the absence of net operating profit from Union Bank and the appreciation of the Japanese yen, we expect to see accumulation of net operating profit in the customer segments and start to achieve ROE of 7.5%, the financial target of the medium-term business plan. The business environment will continue to be difficult due to rising interest rates in the U.S. and Europe and concern that the bankruptcies of some overseas financial institutions will have a ripple effect on the real economy. However, we have been able to build a strong business model both in Japan and overseas through the structural reforms we have undertaken to date.

We believe that we can meet the needs of various customers on a group-wide basis, including our partner banks in Asia and Morgan Stanley. In FY ’23, as a final stage of the current medium-term business plan, we will work to ensure that the effects of the measures we have taken are linked to results that we achieve our goals at all costs. Please turn to the next page. This is the progress of the 3 drivers for achieving ROE target, namely profits, expenses and risk-weighted assets. In terms of profit at the top, net operating profits in the customer segments increased significantly by ¥443.1 billion as a result of our efforts in line with our growth strategy showing that the earning power is steadily improving. Profits attributable to owners of parent also remained steady, exceeding ¥1 trillion 2 years in a row.

We are also able to confirm that control of expenses was done and RWA shown in the lower section, and we are feeling a certain level of responses in the respect. Please turn to Page 4. First, the ROE target and capital management target in the upper left-hand corner. Although ROE for fiscal year ’22 was 7.03% down from the previous year, we are making steady progress toward achieving the target of 7.5% for the final year of the medium-term business plan. The common equity Tier 1 ratio was 10.3%, which is above the target range. However, with the recent bankruptcies of overseas financial institutions, we believe it is necessary to assess the impact on the real economy as well as the effect on the regulatory environment. We believe that we are at a point in our business where we need to manage our capital comfortably.

Next, regarding shareholder returns shown in the upper-right corner, we consider the enhancement of shareholder returns to be an important management issue for MUFG. And there are policies to strive to enhance shareholder returns based on dividends while considering the optimal balance between capital soundness and investment focus. Based on this policy, in FY ’22, we increased the annual dividend per share by ¥4 in addition to a share buyback of ¥450 billion, the largest ever. In FY ’23, in order to realize a dividend payout ratio of 40% set forth in our medium-term business plan, we forecast an annual dividend of ¥41 per share, an increase of ¥9 share, the largest increase in our history. Lastly, regarding the initiatives to enhance shareholder value in the lower part of the slide, through initiatives, including pursuance of growth strategies, structural reforms and capital management, as outlined in the medium-term business plan, achieving medium- and long-term increases in ROE, we will link this to increasing shareholder value continuously.

That is all. Thank you.

A – Masahisa Takahashi: Thank you. We will now take questions for the remaining 35 minutes. [Operator Instructions] So first questioner, Mr. Takamiya, please.

Masahisa Takahashi : We have a few minutes remaining, so we would like to have Yonehana give you some closing remarks.

Tetsuya Yonehana : Thank you very much for your valuable questions today. Today, I explained our achievements in fiscal year 2022. With continued focus on dialogue with our shareholders and investors, we will pursue financial and capital management aimed at sustainable enhancement of shareholder value. I would like to ask for your continued understanding and support. Thank you very much for your kind attention today.

Masahisa Takahashi: So with that, we will end this conference. On the company web page, this conference can be seen as an archive. With that, MUFG, the financial results conference will come to a close. Thank you very much for your participation today.