| Ÿ | modified the role of the Federal Reserve Board by specifying new relationships between the Federal Reserve Board and the functional regulators of nonbank subsidiaries of both bank holding companies and financial holding companies.
|
The BHCA generally prohibits each of a bank holding company and a foreign banking organization that maintains branches or agencies in the United States from, directly or indirectly, acquiring more than 5% of the voting shares of any company engaged in nonbanking activities in the United States unless the bank holding company or foreign banking organization has elected to become a financial holding company, as discussed above, or the Federal Reserve Board has determined, by order or regulation, that such activities are so closely
related to banking as to be a proper incident thereto and has granted its approval to the bank holding company or foreign
banking organization for such an acquisition. The BHCA also requires a bank holding company or foreign banking organization that maintains branches or agencies in the United States to obtain the prior approval of an appropriate federal banking authority before acquiring, directly or indirectly, the ownership of more than 5% of the voting shares or control of any US bank or bank holding company. In addition, under the BHCA, a US bank or a US branch or agency of a foreign bank is prohibited from engaging in various tying arrangements involving it or its affiliates in connection with any extension of credit, sale or lease of any property or provision of any services.
On October 6, 2008, we became a financial holding company. At the same time, BTMU, MUTB, and UNBC, which are also bank holding companies, elected to become financial holding companies. As noted above, as a financial holding company we are authorized to engage in an expanded list of activities. These activities include those deemed to be financial in nature or incidental to such financial activity, including among other things merchant banking, insurance underwriting, and a full range of securities activities. In addition, we are permitted to engage in certain specified nonbanking activities deemed to be closely related to banking, without prior notice to or approval from the Federal Reserve Board. To date, we have utilized this expanded authority by electing to engage in certain securities activities, including securities underwriting, indirectly through certain of our securities subsidiaries. In order to maintain our status as a financial holding company that allows us to expand our activities, we must continue to meet certain standards established by the Federal Reserve Board. Those standards require that we exceed the minimum standards applicable to bank holding companies that have not elected to become financial holding companies. These higher standards include meeting the “well capitalized” and “well managed” standards for financial holding companies as defined in the regulations of the Federal Reserve Board. In addition, as a financial holding company, we must ensure that our US banking subsidiaries identified below meet certain minimum standards under the Community Reinvestment Act of 1977. At this time, we continue to comply with these standards.
US branches and agencies of subsidiary Japanese banks. Under the authority of the IBA, our banking subsidiaries, in Japan, BTMU and MUTB, operate seven branches, two agencies and five representative offices in the United States. BTMU operates branches in Los Angeles and San Francisco, California; Chicago, Illinois; New York, New York; Portland, Oregon; and Seattle, Washington; agencies in Atlanta, Georgia and Houston, Texas; and representative offices in Washington, D.C; Minneapolis, Minnesota; Dallas, Texas; Jersey City, New Jersey; and Florence, Kentucky. MUTB operates a branch in New York, New York.
The IBA provides, among other things, that the Federal Reserve Board may examine US branches and agencies of foreign banks, and that each such branch and agency shall be subject to on-site examination by the appropriate federal or state bank supervisor as frequently as would a US bank. The IBA also provides that if the Federal Reserve Board determines that a foreign bank is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, or if there is reasonable cause to believe that the foreign bank or its affiliate has committed a violation of law or engaged in an unsafe or unsound banking practice in the United States, the Federal Reserve Board may order the foreign bank to terminate activities conducted at a branch or agency in the United States.
US branches and agencies of foreign banks must be licensed, and are also supervised and regulated, by a state or by the Office of the Comptroller of the Currency, or the OCC, the federal regulator of national banks. All of the branches and agencies of BTMU and MUTB in the United States are state-licensed. Under US federal banking laws, state-licensed branches and agencies of foreign banks may engage only in activities that would be permissible for their federally-licensed counterparts, unless the Federal Reserve Board determines that the additional activity is consistent with sound practices. US federal banking laws also subject state-licensed branches and agencies to the single-borrower lending limits that apply to federal branches and agencies, which generally are the same as the lending limits applicable to national banks, but are based on the capital of the entire foreign bank.
As an example of state supervision, the branches of BTMU and MUTB in New York are licensed by the New York State Superintendent of Banks, or the Superintendent, pursuant to the New York Banking Law. Under
the New York Banking Law and the Superintendent’s Regulations, each of BTMU and MUTB must maintain with banks in the State of New York eligible assets as defined and in amounts determined by the Superintendent. These New York branches must also submit written reports concerning their assets and liabilities and other matters, to the extent required by the Superintendent, and are examined at periodic intervals by the New York State Banking Department. In addition, the Superintendent is authorized to take possession of the business and property of BTMU and MUTB located in New York whenever events specified in the New York Banking Law occur.
US banking subsidiaries.We indirectly own and control three US banks:
Bank of Tokyo-Mitsubishi UFJ Trust Company, New York, New York (through BTMU, a registered bank holding company),
| Ÿ | Bank of Tokyo-Mitsubishi UFJ Trust Company, New York, New York (through BTMU, a registered bank holding company), |
Mitsubishi UFJ Trust & Banking Corporation (U.S.A.), New York, New York (through MUTB, a registered bank holding company), and
| Ÿ | Mitsubishi UFJ Trust & Banking Corporation (U.S.A.), New York, New York (through MUTB, a registered bank holding company), and |
| Ÿ | Union Bank (through BTMU and its subsidiary, UNBC, a registered bank holding company). |
UBOC (through BTMU and its subsidiary, UNBC, a registered bank holding company).
Bank of Tokyo-Mitsubishi UFJ Trust Company and Mitsubishi UFJ Trust & Banking Corporation (U.S.A.) are chartered by the State of New York and are subject to the supervision, examination and regulatory authority of the Superintendent pursuant to the New York Banking Law. UBOCUnion Bank is a national bank subject to the supervision, examination and regulatory authority of the OCC pursuant to the National Bank Act.
The Federal Deposit Insurance Corporation, or the FDIC, is the primary federal agency responsible for the supervision, examination and regulation of the two New York-chartered banks referred to above. The FDIC may take enforcement action, including the issuance of prohibitive and affirmative orders, if it determines that a financial institution under its supervision has engaged in unsafe or unsound banking practices, or has committed violations of applicable laws and regulations. The FDIC insures the deposits of all three US banking subsidiaries.subsidiaries up to legally specified maximum amounts. In the event of the failure of an FDIC-insured bank, the FDIC is virtually certain to be appointed as receiver, and would resolve the failure under provisions of the Federal Deposit Insurance Act. An FDIC-insured institution that is affiliated with a failed or failing FDIC-insured institution can be required to indemnify the FDIC for losses resulting from the insolvency of the failed institution, even if this causes the affiliated institution also to become insolvent. In the liquidation or other resolution of a failed FDIC-insured depository institution, deposits in its US offices and other claims for administrative expenses and employee compensation are afforded priority over other general unsecured claims, including deposits in offices outside the United States, non-deposit claims in all offices and claims of a parent company. Moreover, under longstanding Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength for its banking subsidiaries and to commit resources to support such banks.
Bank capital requirements and capital distributions. Our US banking subsidiaries and UNBC, our US subsidiary bank holding company, are subject to applicable risk-based and leverage capital guidelines issued by US regulators for banks and bank holding companies. In addition, BTMU and MUTB, as foreign banking organizations that have US branches and agencies and that are controlled by us as a financial holding company, are subject to the Federal Reserve’s requirements that they be “well-capitalized” based on Japan’s risk based capital standards, as well as “well managed.” All of our US banking subsidiaries and BTMU, MUTB, and UNBC are “well capitalized” as defined under, those guidelines as they apply to banks, and ourotherwise comply with, all US subsidiary bank holding company exceeds all minimum regulatory capital requirements applicable to domestic bank holding companies.them. The Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, provides, among other things, for expanded regulation of insured depository institutions, including banks, and their parent holding companies. As required by FDICIA, the federal banking agencies have established five capital tiers ranging from “well capitalized” to “critically undercapitalized” for insured depository institutions. As an institution’s capital position deteriorates, the federal banking regulators may take progressively stronger actions, such as further restricting affiliate transactions, activities, asset growth or interest payments. In addition, FDICIA generally prohibits an insured depository institution from making capital distributions, including the payment of dividends, or the payment of any management fee to its holding company, if the insured depository institution would subsequently become undercapitalized.
The availability of dividends from insured depository institutions in the United States is limited by various other statutes and regulations. The National Bank Act and other federal laws prohibit the payment of dividends by a national bank under various circumstances and limit the amount a national bank can pay without the prior approval of the OCC. In addition, state-chartered banking institutions are subject to dividend limitations imposed by applicable federal and state laws.
Other regulated US subsidiaries. Our nonbank subsidiaries that engage in securities-related activities in the United States are regulated by appropriate functional regulators, such as the SEC, any self-regulatory organizations of which they are members, and the appropriate state regulatory agencies. These nonbank subsidiaries are required to meet separate minimum capital standards as imposed by those regulatory authorities.
The Gramm-Leach-Bliley Act removed almost all of the pre-existing statutory barriers to affiliations between commercial banks and securities firms by repealing Sections 20 and 32 of the Glass-Steagall Act. At the same time, however, the so-called “push-out” provisions of the Gramm-Leach-Bliley Act narrowed the exclusion of banks, including the US branches of foreign banks, from the definitions of “broker” and “dealer” under the Securities Exchange Act of 1934, potentially requiring all such banks to transfer some activities to affiliated
broker-dealers. The SEC has issued rules regarding the push-out of “dealer” functions that became effective on September 30, 2003, and issued rules regarding the push-out requirements for “broker” functions that became effective on September 28, 2007. The rules must be complied with on the first day of each bank’s fiscal year commencing after September 30, 2008. At this time, we do not believe that these push-out rules as adopted will have a significant impact on our business as currently conducted in the United States.
Anti-Money Laundering Initiatives and the USA PATRIOT Act. A major focus of US governmental policy relating to financial institutions in recent years has been aimed at preventing money laundering and terrorist financing. The USA PATRIOT Act of 2001 substantially broadened the scope of US anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and expanding the extra-territorial jurisdiction of the United States. The US Department of the Treasury has issued a number of implementing regulations that impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, and to verify the identity of their customers. In addition, the bank regulatory agencies carefully scrutinize the adequacy of an institution’s policies, procedures and controls. As a result, there has been an increased number of regulatory sanctions and law enforcement authorities have been taking a more active role. Failure of a financial institution to maintain and implement adequate policies, procedures and controls to prevent money laundering and terrorist financing could in some cases have serious legal and reputational consequences for the institution, including the incurring of expenses to enhance the relevant programs, the imposition of limitations on the scope of their operations and the imposition of fines and other monetary penalties.
Recent Regulatory Actions.Reform Legislation. In December 2006, we and BTMU entered into a written agreement withresponse to the Federal Reserve Banks of San Francisco and New Yorkfinancial crisis and the New York State Banking Department, and Bank of Tokyo-Mitsubishi UFJ Trust Company, or BTMUT, a subsidiary of BTMU, consented to an Order to Cease and Desist issued by the Federal Deposit Insurance Corporation and the New York State Banking Department, to strengthen the compliance framework and operations of BTMU, the New York Branch of BTMU and BTMUT, respectively, for preventing money laundering. As a resultperception that lax supervision of the written agreementfinancial industry in the United States may have been a contributing cause, new legislation designed to reform the system for supervision and regulation of financial firms in the consent toUnited States called the Order to Cease“Dodd-Frank Wall Street Reform and Desist, we are required,Consumer Protection Act,” or the Dodd-Frank Act, was signed into law on July 21, 2010. The Dodd-Frank Act is complex and extensive in its coverage and contains a wide range of provisions that would affect financial institutions operating in the United States, including our US operations. Included among these provisions, among other things, are sweeping reforms designed to implement corrective measuresreduce systemic risk presented by very large financial firms, promote enhanced supervision, regulation, and submit periodic progress reports to the authorities.
Separately,prudential standards for financial firms, establish comprehensive supervision of financial markets, impose new limitations on September 14, 2007, Union Bank of California, N.A. agreed to a consent orderpermissible financial institution activities and payment of a civil money penalty of $10.0 million assessed concurrently by the US Officeinvestments, expand regulation of the Comptrollerderivatives markets, protect consumers and investors from financial abuse, and provide the government with the tools needed to manage a financial crisis. Many aspects of the Currency, or OCC, and the US Financial Crimes Enforcement Network, relatinglegislation require subsequent regulatory action by supervisory agencies for full implementation. Thus, we are unable to the Bank Secrecy Act/Anti-Money Laundering compliance controls and processes of Union Bank of California. On September 17, 2007, Union Bank of California also entered into a deferred prosecution agreement with the US Department of Justice under which Union Bank of California agreed to a payment of $21.6 million and the government agreed to defer prosecution of a Bank Secrecy Act Program violation primarily related to the discontinued international banking business of Union Bank of California and dismiss prosecution if Union Bank of California meets the conditions of the deferred prosecution agreement, including complying with the OCC consent order for one year.
In October 2004, Union Bank of California International, or UBOCI, a subsidiary of UNBC, entered into a written agreement with the Federal Reserve Bank of New York relating to its anti-money laundering controls and processes. With the liquidation of UBOCI in March 2007, the written agreement is no longer effective.
The SEC is also currently conducting an inquiry regarding marketing and distribution practices of mutual funds managed by a subsidiary of Union Bank of California. Neither we nor UNBC can be certainassess at this time as to the final resultspotential impact of that inquiry.any such enacted legislation on our operations.
C. Organizational Structure
| C. | Organizational Structure |
The following chart presents our corporate structure summary as at March 31, 2008:2010:
Set forth below is a list of our principal consolidated subsidiaries at March 31, 2008:2010:
Name | Country of Incorporation | Proportion of Ownership Interest (%) | Proportion of Voting Interest (%) | |||||
The Bank of Tokyo-Mitsubishi UFJ, Ltd. | Japan | 100.00 | % | 100.00 | % | |||
The Senshu Bank, Ltd. | Japan | 67.96 | % | 68.13 | % | |||
Mitsubishi UFJ Trust and Banking Corporation | Japan | 100.00 | % | 100.00 | % | |||
The Master Trust Bank of Japan, Ltd. | Japan | 46.50 | % | 46.50 | % | |||
Mitsubishi UFJ Securities Co., Ltd. | Japan | 100.00 | % | 100.00 | % | |||
kabu.com Securities Co., Ltd. | Japan | 52.01 | % | 52.01 | % | |||
Mitsubishi UFJ Wealth Management Securities, Ltd. | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ NICOS Co., Ltd(1). | Japan | 75.71 | % | 75.77 | % | |||
Tokyo Credit Services, Ltd. | Japan | 74.00 | % | 74.00 | % | |||
Ryoshin DC Card Company, Ltd. | Japan | 75.20 | % | 75.20 | % | |||
NBL Co., Ltd. | Japan | 89.74 | % | 89.74 | % | |||
Tokyo Associates Finance Corp. | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Factors Limited | Japan | 100.00 | % | 100.00 | % | |||
MU Frontier Servicer Co., Ltd. | Japan | 94.44 | % | 94.44 | % | |||
Mitsubishi UFJ Capital Co.,Ltd | Japan | 40.26 | % | 40.26 | % | |||
MU Hands-on Capital Co., Ltd. | Japan | 50.00 | % | 50.00 | % | |||
Defined Contribution Plan Consulting of Japan Co., Ltd. | Japan | 77.49 | % | 77.49 | % | |||
Kokusai Asset Management Co., Ltd. | Japan | 53.08 | % | 53.14 | % | |||
Mitsubishi UFJ Asset Management Co., Ltd. | Japan | 100.00 | % | 100.00 | % | |||
MU Investments Co.,Ltd. | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Real Estate Services Co., Ltd. | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Personal Financial Advisers Co., Ltd. | Japan | 73.69 | % | 73.69 | % | |||
Mitsubishi UFJ Research and Consulting Ltd. | Japan | 69.45 | % | 69.45 | % | |||
MU Business Engineering, Ltd. | Japan | 100.00 | % | 100.00 | % | |||
BOT Lease Co., Ltd. | Japan | 22.57 | % | 22.57 | % | |||
UnionBanCal Corporation(2) | USA | 65.40 | % | 65.40 | % | |||
Mitsubishi UFJ Trust & Banking Corporation (U.S.A.) | USA | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Global Custody S.A. | Luxembourg | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Wealth Management Bank (Switzerland), Ltd. | Switzerland | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities International plc | UK | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities (USA), Inc. | USA | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Trust International Limited | UK | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities (HK) Holdings, Limited | Peoples’ Republic of China | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities (Singapore), Limited. | USA | 100.00 | % | 100.00 | % | |||
BTMU Capital Corporation | USA | 100.00 | % | 100.00 | % | |||
BTMU Leasing & Finance, Inc. | USA | 100.00 | % | 100.00 | % | |||
PT U Finance Indonesia | Indonesia | 95.00 | % | 95.00 | % | |||
PT BTMU-BRI Finance | Indonesia | 55.00 | % | 55.00 | % | |||
BTMU Lease (Deutschland) GmbH | Germany | 100.00 | % | 100.00 | % | |||
BTMU Participation (Thailand) Co., Ltd. | Thailand | 24.49 | % | 24.49 | % | |||
Mitsubishi UFJ Baillie Gifford Asset Management Limited | UK | 51.00 | % | 51.00 | % | |||
MU Trust Consulting (Shanghai) Co., Ltd. | Peoples’ Republic of China | 100.00 | % | 100.00 | % |
Name | Country of Incorporation | Proportion of Ownership Interest (%) | Proportion of Voting Interest(1) (%) | |||||
The Bank of Tokyo-Mitsubishi UFJ, Ltd. | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Trust and Banking Corporation | Japan | 100.00 | % | 100.00 | % | |||
The Master Trust Bank of Japan, Ltd. | Japan | 46.50 | % | 46.50 | % | |||
Mitsubishi UFJ Securities Co., Ltd.(2) | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Merrill Lynch PB Securities Co., Ltd. | Japan | 50.98 | % | 50.98 | % | |||
kabu.com Securities Co., Ltd. | Japan | 54.85 | % | 54.85 | % | |||
Mitsubishi UFJ NICOS Co., Ltd. | Japan | 84.98 | % | 84.98 | % | |||
Tokyo Credit Services, Ltd. | Japan | 74.00 | % | 74.00 | % | |||
Ryoshin DC Card Company, Ltd. | Japan | 75.20 | % | 75.20 | % | |||
Tokyo Associates Finance Corp. | Japan | 100.00 | % | 100.00 | % | |||
NBL Co., Ltd. | Japan | 89.74 | % | 89.74 | % | |||
Mitsubishi UFJ Factors Limited | Japan | 100.00 | % | 100.00 | % | |||
MU Frontier Servicer Co., Ltd. | Japan | 94.44 | % | 94.44 | % | |||
Mitsubishi UFJ Capital Co., Ltd | Japan | 40.26 | % | 40.26 | % | |||
MU Hands-on Capital Co., Ltd. | Japan | 50.00 | % | 50.00 | % | |||
Defined Contribution Plan Consulting of Japan Co., Ltd. | Japan | 77.49 | % | 77.49 | % | |||
KOKUSAI Asset Management Co., Ltd. | Japan | 56.10 | % | 56.16 | % | |||
Mitsubishi UFJ Asset Management Co., Ltd. | Japan | 100.00 | % | 100.00 | % | |||
MU Investments Co., Ltd. | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Real Estate Services Co., Ltd. | Japan | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Personal Financial Advisers Co., Ltd. | Japan | 73.69 | % | 73.69 | % | |||
Mitsubishi UFJ Research and Consulting Ltd. | Japan | 69.45 | % | 69.45 | % | |||
MU Business Engineering, Ltd. | Japan | 100.00 | % | 100.00 | % | |||
Japan Shareholder Services Ltd. | Japan | 50.00 | % | 50.00 | % | |||
BOT Lease Co., Ltd. | Japan | 22.57 | % | 22.57 | % | |||
UnionBanCal Corporation | USA | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Trust & Banking Corporation (U.S.A.) | USA | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Global Custody S.A. | Luxembourg | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Wealth Management Bank (Switzerland), Ltd. | Switzerland | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities International plc | UK | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities (USA), Inc. | USA | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Trust International Limited | UK | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities (HK) Holdings, Limited | Peoples’ Republic of China | 100.00 | % | 100.00 | % | |||
Mitsubishi UFJ Securities (Singapore), Limited | Singapore | 100.00 | % | 100.00 | % | |||
BTMU Capital Corporation | USA | 100.00 | % | 100.00 | % | |||
BTMU Leasing & Finance, Inc. | USA | 100.00 | % | 100.00 | % | |||
PT U Finance Indonesia | Indonesia | 95.00 | % | 95.00 | % | |||
PT. BTMU-BRI Finance | Indonesia | 55.00 | % | 55.00 | % | |||
BTMU Lease (Deutschland) GmbH | Germany | 100.00 | % | 100.00 | % | |||
BTMU Participation (Thailand) Co., Ltd. | Thailand | 24.49 | % | 24.49 | % | |||
Mitsubishi UFJ Baillie Gifford Asset Management Limited | UK | 51.00 | % | 51.00 | % | |||
MU Trust Consulting (Shanghai) Co., Ltd. | Peoples’ Republic of China | 100.00 | % | 100.00 | % |
| Notes: |
| (1) |
| (2) | On |
D. Property, Plants and Equipment
| D. | Property, Plants and Equipment |
Premises and equipment at March 31, 20072009 and 20082010 consisted of the following:
| At March 31, | |||||||||||||
| 2007 | 2008 | 2009 (As restated) | 2010 | ||||||||||
| (in millions) | (in millions) | ||||||||||||
Land | ¥ | 449,283 | ¥ | 430,968 | ¥ | 413,257 | ¥ | 399,893 | |||||
Buildings | 551,188 | 585,196 | 673,011 | (1) | 680,085 | ||||||||
Equipment and furniture | 618,513 | 639,228 | 653,211 | 681,886 | |||||||||
Leasehold improvements | 346,254 | 355,484 | 250,284 | (1) | 235,807 | ||||||||
Construction in progress | 12,556 | 6,679 | 16,290 | 17,206 | |||||||||
Total | 1,977,794 | 2,017,555 | 2,006,053 | 2,014,877 | |||||||||
Less accumulated depreciation | 830,283 | 941,749 | 962,637 | 1,019,710 | |||||||||
Premises and equipment—net | ¥ | 1,147,511 | ¥ | 1,075,806 | ¥ | 1,043,416 | ¥ | 995,167 | |||||
| Note: |
| (1) | The balances of Buildings and Leasehold improvements at March 31, 2009 have been restated. For more information, see Note 7 to our consolidated financial statements included elsewhere in this Annual Report. |
Our registered address is 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo. At March 31, 2008,2010, we and our subsidiaries conducted our operations either in ourthe premises we owned premises or in leased properties.the properties we leased.
The following table presents the areas and book values of our material offices and other properties at March 31, 2008:2010:
| Area | Book value | ||||
| (in thousands of square feet) | (in millions) | ||||
Owned land | 65,901 | ¥ | 430,968 | ||
Leased land | 13,661 | — | |||
Owned buildings. | 29,167 | 253,719 | |||
Leased buildings | 15,106 | — | |||
| Book value | |||
| (in millions) | |||
Owned land | ¥ | 399,893 | |
Owned buildings. | 227,062 | ||
Our ownedThe buildings and land we own are primarily used by us and our subsidiaries. The above figures include 44,736 thousands of square feet of owned landsubsidiaries as offices and 11,731 thousands of square feet of leased land held through a variable interest entity, which property is not directly used for our operations.branches. Most of the buildings and land owned by uswe own are free from material encumbrances.
During the fiscal year ended March 31, 2008,2010, we invested approximately ¥187.7¥114.2 billion in our subsidiaries primarily for office renovations and relocation.
Item 4A. Unresolved Staff Comments.
| Item 4A. | Unresolved Staff Comments. |
None.We received a comment letter from the staff of the Division of Corporation Finance of the SEC dated March 15, 2010 and a subsequent comment letter dated August 10, 2010. The comments from the staff were issued with respect to its review of our annual report on Form 20-F for the fiscal year ended March 31, 2009. The comments covered information included in Item 3.D. Risk Factors, Item 5. Operating and Financial Review and Prospects, Item 6.B. Compensation and Item 7.B. Major Shareholders, and required either more robust disclosure or clarification with respect to our disclosure in those items.
| Item 5. | Operating and Financial Review and Prospects. |
The following discussion and analysis should be read in conjunction with “Item 3.A. Key Information—Selected Financial Data,” “Selected Statistical Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report.
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Accounting Changes and Recently Issued Accounting Pronouncements | ||||||
A. | ||||||
| 74 | ||||||
| 79 | ||||||
Effect of Change in Exchange Rates on Foreign Currency Translation | ||||||
B. | ||||||
C. | ||||||
D. | ||||||
E. | ||||||
F. | ||||||
G. | ||||||
We are a holding company for The Bank of Tokyo-Mitsubishi UFJ, Ltd., or BTMU, Mitsubishi UFJ Trust and Banking Corporation, or MUTB, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., or MUS,MUMSS through Mitsubishi UFJ Securities Holdings Co., Ltd., or MUSHD, an intermediate holding company, Mitsubishi UFJ NICOS Co., Ltd., or Mitsubishi UFJ NICOS, and other subsidiaries. Through our subsidiaries and affiliated companies, we engage in a broad range of financial operations,businesses and services, including commercial banking, investment banking, trust banking and asset management services, securities businesses, and credit card businesses, and provide related services to individual and corporate customers.
Key Financial Figures
The following are some key figures prepared in accordance with US GAAP relating to our business.
The resultsEffective April 1, 2009, we adopted new accounting guidance regarding noncontrolling interests in subsidiaries. As a result, we have reclassified “Non-interest expense” for the fiscal yearyears ended March 31, 2006 reflect the pre-merger results of Mitsubishi Tokyo Financial Group, Inc., or MTFG, for the six months ended September 30, 20052008 and the post-merger results of MUFG for the six months ended March 31, 2006 as2009. See “Noncontrolling Interests” under “Accounting Changes” in Note 1 to our merger with UFJ Holdings, Inc. completed on October 1, 2005.consolidated financial statements included elsewhere in this Annual Report.
| Fiscal years ended March 31, | Fiscal years ended March 31, | ||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | ||||||||||||||||
| (in billions) | (in billions) | ||||||||||||||||||||
Net interest income | ¥ | 1,648.6 | ¥ | 2,329.8 | ¥ | 2,279.7 | ¥ | 2,279.7 | ¥ | 2,296.4 | ¥ | 1,984.1 | |||||||||
Provision for credit losses | 110.2 | 358.6 | 385.7 | 385.7 | 626.9 | 647.8 | |||||||||||||||
Non-interest income | 1,067.4 | 1,947.9 | 1,778.1 | 1,778.1 | 175.1 | 2,453.9 | |||||||||||||||
Non-interest expense | 2,076.1 | 2,784.2 | 3,659.7 | 3,620.3 | 3,608.8 | 2,508.1 | |||||||||||||||
Net income (loss) | 363.5 | 581.3 | (542.4 | ) | |||||||||||||||||
Net income (loss) before attribution of noncontrolling interests | (504.0 | ) | (1,504.3 | ) | 875.1 | ||||||||||||||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | (542.4 | ) | (1,468.0 | ) | 859.8 | ||||||||||||||||
Total assets (at end of period) | 186,219.4 | 186,202.9 | 190,731.8 | 195,766.1 | 193,499.4 | 200,084.4 | |||||||||||||||
Our revenues consist of net interest income and non-interest income.
Net interest income.Net interest income is a function of:
| Ÿ | the amount of interest-earning assets, |
| Ÿ | the amount of interest-bearing liabilities, |
| Ÿ | the general level of interest rates, |
| Ÿ | the so-called “spread,” or the difference between the rate of interest earned on interest-earning assets and the rate of interest paid on interest-bearing liabilities, and |
| Ÿ | the proportion of interest-earning assets financed by non-interest-bearing liabilities and equity. |
Our net interest income for the fiscal year ended March 31, 2010 decreased compared to that for the prior fiscal year mainly as a result of decreases in our foreign deposit and lending volumes as well as decreases in interest rates. The following table shows changes in our net interest income by changes in volume and by changes in rate for the fiscal year ended March 31, 2009 compared to the fiscal year ended March 31, 2008 and the fiscal year ended March 31, 2010 compared to the fiscal year ended March 31, 2009:
| Fiscal year ended March 31, 2009 versus fiscal year ended March 31, 2008 | Fiscal year ended March 31, 2010 versus fiscal year ended March 31, 2009 | |||||||||||||||||||||
| Increase (decrease) due to changes in | Increase (decrease) due to changes in | |||||||||||||||||||||
| Volume(1) | Rate(1) | Net change | Volume(1) | Rate(1) | Net change | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||
Domestic | ¥ | (10,099 | ) | ¥ | 23,633 | ¥ | 13,534 | ¥ | 36,512 | ¥ | (138,086 | ) | ¥ | (101,574 | ) | |||||||
Foreign | (41,986 | ) | 45,140 | 3,154 | (148,262 | ) | (62,465 | ) | (210,727 | ) | ||||||||||||
Total | ¥ | (52,085 | ) | ¥ | 68,773 | ¥ | 16,688 | ¥ | (111,750 | ) | ¥ | (200,551 | ) | ¥ | (312,301 | ) | ||||||
| Note: |
| (1) | Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.” |
The continuing low global interest rate environment negatively affected our overall interest spread in the fiscal year ended March 31, 2010. The following is a summary of the amount of interest-earning assets
the general level of interest rates,
the so-called “spread,” or the difference between the rate of interest earned on interest-earning assets and the rate of interest paid on interest-bearing liabilities and
average interest rates, the proportion of interest-earning assets financed byinterest rate spread and non-interest-bearing liabilities for the fiscal years ended March 31, 2008, 2009 and equity.2010:
| Fiscal years ended March 31, | ||||||||||||||||||
| 2008 | 2009 | 2010 | ||||||||||||||||
| Average balance | Average rate | Average balance | Average rate | Average balance | Average rate | |||||||||||||
| (in billions, except percentages) | ||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||
Domestic | ¥ | 123,196.2 | 1.78 | % | ¥ | 121,686.4 | 1.70 | % | ¥ | 127,830.2 | 1.34 | % | ||||||
Foreign | 49,271.1 | 4.41 | 51,556.3 | 3.53 | 47,635.1 | 2.20 | ||||||||||||
Total | ¥ | 172,467.3 | 2.53 | % | ¥ | 173,242.7 | 2.25 | % | ¥ | 175,465.3 | 1.57 | % | ||||||
Financed by: | ||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||
Domestic | ¥ | 123,231.9 | 0.69 | % | ¥ | 124,716.0 | 0.58 | % | ¥ | 124,431.3 | 0.37 | % | ||||||
Foreign | 32,920.1 | 3.74 | 31,368.9 | 2.80 | 33,725.1 | 0.93 | ||||||||||||
Total | 156,152.0 | 1.34 | 156,084.9 | 1.02 | 158,156.4 | 0.49 | ||||||||||||
Non-interest-bearing liabilities | 16,315.3 | — | 17,157.8 | — | 17,308.9 | — | ||||||||||||
Total | ¥ | 172,467.3 | 1.21 | % | ¥ | 173,242.7 | 0.92 | % | ¥ | 175,465.3 | 0.44 | % | ||||||
Interest rate spread | 1.19 | % | 1.23 | % | 1.08 | % | ||||||||||||
Net interest income as a percentage of total interest-earning assets | 1.32 | % | 1.33 | % | 1.13 | % | ||||||||||||
Non-interest income consists of:
fees and commissions, including
trust fees,
fees on funds transfer and service chargesProvision for collections,
fees and commissions on international business,
fees and commissions on credit card business,
service charges on deposits,
fees and commissions on securities business,
fees on real estate business,
insurance commissions,
fees and commissions on stock transfer agency services,
guarantee fees,
fees on investment funds business, and
other fees and commissions;
foreign exchange gains (losses)—net, which primarily include net gains (losses) on currency derivative instruments entered into for trading purposes and transaction gains (losses) on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies;
trading account profits (losses)—net, which primarily include net profits (losses) on trading account securities and interest rate derivative contracts entered into for trading purposes;
investment securities gains (losses)—net, which primarily include net gains on sales and impairment losses on securities available for sale;
equity in earnings (losses) of equity method investees;
gains on sales of loans; and
other non-interest income.
losses.Provision for credit losses is charged to operations to maintain the allowance for credit losses at a level deemed appropriate by management.
Non-interest income. Non-interest income consists of:
| Ÿ | fees and commissions, including |
| Ÿ | trust fees, |
| Ÿ | fees on funds transfer and service charges for collections, |
| Ÿ | fees and commissions on international business, |
| Ÿ | fees and commissions on credit card business, |
| Ÿ | service charges on deposits, |
| Ÿ | fees and commissions on securities business, |
| Ÿ | fees on real estate business, |
| Ÿ | insurance commissions, |
| Ÿ | fees and commissions on stock transfer agency services, |
| Ÿ | guarantee fees, |
| Ÿ | fees on investment funds business, and |
| Ÿ | other fees and commissions; |
| Ÿ | foreign exchange gains (losses)—net, which primarily include net gains (losses) on currency derivative instruments entered into for trading purposes and transaction gains (losses) on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies; |
| Ÿ | trading account profits (losses)—net, which primarily include net profits (losses) on trading account securities and interest rate derivative contracts entered into for trading purposes; |
| Ÿ | investment securities gains (losses)—net, which primarily include net gains (losses) on sales and impairment losses on securities available for sale; |
| Ÿ | equity in losses of equity method investees; |
| Ÿ | gains on sales of loans; and |
| Ÿ | other non-interest income. |
The following table is a summary of our non-interest income for the fiscal years ended March 31, 2008, 2009 and 2010:
| Fiscal years ended March 31, | ||||||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (in billions) | ||||||||||||
Fees and commissions | ¥ | 1,317.1 | ¥ | 1,188.5 | ¥ | 1,139.5 | ||||||
Foreign exchange gains (losses)—net | 1,295.9 | (206.2 | ) | 216.7 | ||||||||
Trading account profits (losses)—net | 398.4 | (257.8 | ) | 761.5 | ||||||||
Investment securities gains (losses)—net | (1,373.1 | ) | (658.7 | ) | 223.0 | |||||||
Equity in losses of equity method investees | (34.5 | ) | (60.1 | ) | (104.0 | ) | ||||||
Gains on sales of loans | 11.8 | 6.4 | 21.2 | |||||||||
Other non-interest income | 162.5 | 163.0 | 196.0 | |||||||||
Total non-interest income | ¥ | 1,778.1 | ¥ | 175.1 | ¥ | 2,453.9 | ||||||
Core Business Areas
We operate our main businesses under an integrated business group system, which integrates the operations of BTMU, MUTB, MUS,MUMSS, Mitsubishi UFJ NICOS and other subsidiaries in the following three areas—Retail, Corporate and Trust Assets. These three businesses serve as the core sources of our revenue. Operations that are not covered under the integrated business group system are classified under Global Markets and Other.
Our business segment information is based on financial information prepared in accordance with Japanese GAAP, as adjusted in accordance with internal management accounting rules and practice and is not consistent with our consolidated financial statements included elsewhere in this Annual Report, which have been prepared in accordance with US GAAP. The following chart illustratestables sets forth the relative contributions to operating profit for the fiscal year ended March 31, 20082010 of the three core business areas and the other business areas based on our business segment information:
| Integrated Retail Banking Business Group | Integrated Corporate Banking Business Group | Integrated Trust Assets Business Group | Global Markets | Other | Total | ||||||||||||||||||||||||||
| Domestic | Overseas | Total | |||||||||||||||||||||||||||||
| Other than UNBC | UNBC | Overseas total | |||||||||||||||||||||||||||||
| (in billions) | |||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,433.3 | ¥ | 945.4 | ¥ | 348.4 | ¥ | 265.3 | ¥ | 613.7 | ¥ | 1,559.1 | ¥ | 157.2 | ¥ | 528.5 | ¥ | (73.0 | ) | ¥ | 3,605.1 | ||||||||||
Operating expenses | 988.2 | 511.7 | 204.6 | 168.1 | 372.7 | 884.4 | 91.4 | 61.3 | 179.2 | 2,204.5 | |||||||||||||||||||||
Operating profit (loss) | ¥ | 445.1 | ¥ | 433.7 | ¥ | 143.8 | ¥ | 97.2 | ¥ | 241.0 | ¥ | 674.7 | ¥ | 65.8 | ¥ | 467.2 | ¥ | (252.2 | ) | ¥ | 1,400.6 | ||||||||||
Summary of Our Recent Financial Results and Financial Condition
EstablishmentWe reported net income attributable to Mitsubishi UFJ Financial Group of ¥859.8 billion for the fiscal year ended March 31, 2010, compared to a net loss attributable to Mitsubishi UFJ Financial Group of ¥1,468.0 billion for the fiscal year ended March 31, 2009. Our diluted earnings per share of common stock (net income available to common shareholders of Mitsubishi UFJ Financial GroupGroup) for the fiscal year ended March 31, 2010 was ¥67.87, an improvement from a diluted loss per share of common stock of ¥137.84 for the fiscal year ended March 31, 2009. Income from continuing operations before income tax expense for the fiscal year ended March 31, 2010 was ¥1,282.1 billion, compared to a loss from continuing operations before income tax benefit of ¥1,764.2 billion for the fiscal year ended March 31, 2009.
In October 2005, MTFG merged with UFJ Holdings to form MUFG. At the same time,Our business and results of operations as well as our respective trust banking and securities companies merged to form MUTB and MUS. Subsequently, our subsidiary commercial banks merged to form BTMUassets are heavily influenced by trends in January 2006, and our credit card subsidiaries merged to form Mitsubishi UFJ NICOSeconomic conditions particularly in April 2007.
The merger marked the creation of a comprehensive financial group with a broad and balanced domestic and international network, and a diverse range of services provided by group companies, complemented by one of the largest customer bases in Japan.
As part of our integration process, we are currently undertaking a significant project to fully integrate the IT systems of the merged commercial bank subsidiaries and the merged trust bank subsidiaries respectively.
The merger of MTFG and UFJ Holdings was accounted for under the purchase method of accounting, and the assets and liabilities of UFJ Holdings and its subsidiaries were recorded at fair value as of October 1, 2005. The purchase price of UFJ Holdings amounted to ¥4,406.1 billion, of which ¥4,403.2 billion was recorded in capital surplus relating to the merger with UFJ Holdings and the direct acquisition costs of ¥2.9 billion were included in the purchase price. The total fair value of UFJ Holdings’ net assets acquired was ¥2,673.0 billion and the goodwill relating to the merger with UFJ Holdings was ¥1,733.1 billion.
In the fiscal year ended March 31, 2008,2010, there were signs of recovery in the Japanese economy from the negative trends that continued throughout the previous fiscal year. For example, although Japan’s real GDP contracted by 2.0% in the fiscal year ended March 31, 2010, stock prices in Japan generally increased during the fiscal year. The Nikkei Stock Average, which is an average of 225 blue chip stocks listed on the Tokyo Stock Exchange, increased from ¥8,109.53 at March 31, 2009 to ¥11,089.94 at March 31, 2010, mainly due to a rebound from the global financial crisis in the early part of the fiscal year. The closing price of the Tokyo Stock Price Index, or TOPIX, a composite index of all stocks listed on the First Section of the Tokyo Stock Exchange, also increased from 773.66 at March 31, 2009 to 978.81 at March 31, 2010. See “—Introduction—Business Environment.”
In addition to the macro economic factors, our net income attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 2010 mainly reflected the following:
| Ÿ | Net interest income was ¥1,984.1 billion, a decrease of ¥312.3 billion from ¥2,296.4 billion for the previous fiscal year mainly due to the lower interest rate environment, which negatively affected our interest spread, and the decrease in returns from our foreign loans; |
| Ÿ | Provision for credit losses was ¥647.8 billion, an increase of ¥20.9 billion from ¥626.9 billion for the fiscal year ended March 31, 2009, reflecting in part a significant amount of allocated allowance for specifically identified problem loans due to the weakening of the financial condition of borrowers, particularly domestic manufacturing, wholesale and retail borrowers and foreign governments and official institutions; |
| Ÿ | Fees and commissions were ¥1,139.5 billion, a decrease ¥49.0 billion from ¥1,188.5 billion for the fiscal year ended March 31, 2009 primarily due to decreases of ¥18.2 billion in trust fees, ¥9.9 billion in fees and commissions on stock transfer agency services and ¥7.1 billion in guarantee fees, reflecting a general decrease in the volume of these businesses, partially offset by a ¥17.6 billion increase in fees and commissions on securities businesses as the overall volume of securities trading recovered with the improvement in stock prices in general; |
| Ÿ | Net foreign exchange gains were ¥216.7 billion, compared to net foreign exchange losses of ¥206.2 billion for the fiscal year ended March 31, 2009, mainly due to an improvement in our overall position in currency swap contracts and options fees, partially offset by the losses associated with the appreciation of Japanese yen against the US dollar and other currencies; |
| Ÿ | Net trading account profits were ¥761.5 billion, compared to net trading account losses of ¥257.8 billion for the fiscal year ended March 31, 2009, largely due to recording net profits on trading securities, excluding derivatives, of ¥850.0 billion for the fiscal year ended March 31, 2010, partially offset by net losses on interest rate and other derivative contracts of ¥88.5 billion for the fiscal year ended March 31, 2010; |
| Ÿ | Net investment securities gains were ¥223.0 billion, compared to net losses of ¥658.7 billion for the fiscal year ended March 31, 2009, mainly reflecting net gains on sales of marketable equity securities of |
¥213.5 billion and net gains on sales of debt securities available for sale of ¥83.7 billion, partially offset by impairment losses on securities available for sale of ¥92.7 billion; and |
| Ÿ | Impairment of goodwill for the fiscal year ended March 31, 2010 was ¥0.5 billion, which was significantly lower than the impairment of goodwill of ¥845.8 billion for the fiscal year ended March 31, 2009. The impairment of goodwill for the fiscal year ended March 31, 2009 reflected the global financial market crisis and recession which negatively impacted the fair value of our reporting units for the purposes of our periodic testing of goodwill for impairment. |
For the fiscal year ended March 31, 2010, domestic revenue, which consists of interest income and non-interest income, was ¥3,605.0 billion, while total foreign revenue was ¥1,607.4 billion, with the United States contributing ¥604.4 billion, Asia and Oceania (excluding Japan) contributing ¥482.6 billion and Europe contributing ¥355.0 billion. As a percentage of total revenue, for the three fiscal years ended March 31, 2010, domestic revenue has been on a declining trend, declining to 69.2%, and Asia and Oceania (excluding Japan) has been on an increasing trend, increasing to 9.3%, while the other geographic regions have fluctuated.
For the fiscal year ended March 31, 2010, domestic net income attributable to Mitsubishi UFJ Financial Group was ¥189.7 billion, while the corresponding total foreign net income was ¥670.1 billion. In particular, Asia and Oceania (excluding Japan) contributed ¥241.4 billion to our net income, more than half of which derived from net interest income from China, whereas Europe and the United States contributed ¥199.1 billion and ¥193.0 billion, respectively, reflecting trading gains and net interest income. In light of these trends, we plan to seek growth opportunities particularly in Asia and the United States.
Our net loans outstanding at March 31, 2010 were ¥90.87 trillion, a decrease of ¥8.28 trillion from ¥99.15 trillion at March 31, 2009. Before unearned income, net unamortized premiums and net deferred loan fees, our loan balance at March 31, 2010 consisted of ¥72.02 trillion of domestic loans and ¥20.27 trillion of foreign loans. As a result of a general decrease in the demand for loans, between March 31, 2009 and March 31, 2010, domestic loans decreased ¥5.28 trillion and foreign loans decreased ¥2.83 trillion. However, the total allowance for credit losses at March 31, 2010 was ¥1,315.6 billion, an increase of ¥159.0 billion from ¥1,156.6 billion at March 31, 2009 as we recorded a provision for credit losses of ¥647.8 billion, whereas we had net charge-offs of ¥468.4 billion. The increase in allowance reflected an impairmentincrease in borrowers that may become bankrupt as well as an increase in restructured loans and nonaccrual loans throughout the period. As of goodwillMarch 31, 2010, our net loans outstanding accounted for 67.1% of ¥893.7 billionour total deposits.
Investment securities increased ¥17.41 trillion to ¥55.05 trillion at March 31, 2010 from ¥37.64 trillion at March 31, 2009, primarily due to an increase of ¥15.26 trillion in Japanese national government bonds and Japanese government agency bonds and an increase of ¥1.56 trillion in foreign government and official institutions bonds between March 31, 2009 and March 31, 2010, partially offset by a ¥0.41 trillion decrease in corporate bonds. Our investment in Japanese national government and government agency bonds increased as part of our asset and liability management policy with respect to investing the recent global financial market instability that negatively affectedamount of yen-denominated deposited funds exceeding our net loans. As a result, our holdings of Japanese national and government and Japanese government agency bonds as a percentage of our assets increased to relatively high levels as of March 31, 2010, accounting for 75.9% of our investment securities available for sale and being held to maturity, and 20.2% of our total assets. Regarding marketable equity securities, improvements in stock prices of Japanese equity securities resulted in an increase in our marketable equity securities by ¥0.59 trillion between March 31, 2009 and March 31, 2010.
Deferred tax assets decreased ¥0.88 trillion to ¥1.29 trillion at March 31, 2010 from ¥2.17 trillion at March 31, 2009. The decrease primarily reflected an increase in net unrealized gains on investment securities due to a recovery in the fair market value of these securities. A decrease in net operating loss carryforwards, which is attributable to our ability to utilize net operating loss carryforwards against taxable income for the fiscal year ended March 31, 2010, also contributed to the decrease in deferred tax assets.
In recent months, there have been some signs of improvement in the financial markets and general economy. Regarding the Japanese stock market, the closing price of the Nikkei Stock Average, which is an average of 225 blue chip stocks listed on the Tokyo Stock Exchange, increased from ¥8,109.53 at March 31, 2009 to ¥11,089.94 at March 31, 2010, and has been fluctuating between the ¥9,000 and ¥11,500 range since March 31, 2010. The current signs of improvement in the financial markets and overall economy, both in Japan and globally, may be temporary. Economic conditions may not improve as quickly or steadily as we anticipate, or there may be another economic downturn, in Japan or globally. Many of the negative trends in financial markets in Japan and globally may continue in the near future. The strong Japanese yen may affect our export-oriented borrowers and the value of our reporting unitsforeign assets as the Japanese yen appreciated against other currencies, fluctuating around ¥90 to US$1 in the last six months. As of August 6, 2010, the Japanese yen stood at ¥85.25 to US$1, an appreciation of ¥13.06 as compared to ¥98.31 as of March 31, 2009. As a result of such trends, we may suffer additional credit costs resulting mainly from deteriorating business conditions for our borrowers, and our fee income relating to investment products in retail business and derivative transactions in our corporate banking business and our trading income may decrease. The Bank of Japan has been maintaining a very low policy rate (uncollateralized overnight call rate) of 0.10% as part of its monetary easing policy. Interest rates in other major global financial markets, including the purposesUnited States and the European Union, have remained at historic low levels in recent years. In addition, the current interest rate environment may continue in the near future, impacting our net interest income. However, an unanticipated interest rate movement may significantly affect the value of our impairment testing. For further information, see Notes 2debt securities portfolio. See “Item 3.D. Risk Factors” and 10 to our consolidated financial statements included elsewhere in this Annual Report.
During the fiscal year ended March 31, 2010, we strengthened our alliances with other global financial institutions, including Morgan Stanley, and pursued a capital raising transaction to better respond to the rapidly changing regulatory and competitive environment and to contribute to the real economy, both domestically and globally, as a provider of a stable source of funds and high quality financial services.
Mitsubishi UFJ Securities Became a Wholly Owned SubsidiaryJoint Ventures with Morgan Stanley
On September 30, 2007,As part of our strategic alliance with Morgan Stanley, in May 2010, we and Morgan Stanley integrated our respective Japanese securities companies by forming two joint venture companies. We converted the wholesale and retail securities businesses conducted in Japan by MUS became our wholly ownedinto one of the joint venture entities called Mitsubishi UFJ Morgan Stanley Securities, Co., Ltd., or MUMSS. We also paid ¥26 billion in cash to Morgan Stanley at closing of the transaction (subject to certain post-closing cash adjustments). Morgan Stanley contributed the investment banking operations conducted in Japan by its formerly wholly-owned subsidiary, Morgan Stanley Japan Securities Co., Ltd., or “Morgan Stanley Japan,” to MUMSS, and converted the sales and trading and capital markets businesses conducted in Japan by Morgan Stanley Japan into a second joint venture entity called Morgan Stanley MUFG Securities, Co., Ltd., or “MSMS.” We hold a 60% economic interest in each of the joint venture companies and Morgan Stanley holds a 40% economic interest in each of the joint venture companies. We hold a 60% voting interest and Morgan Stanley holds a 40% voting interest in MUMSS, and we hold a 49% voting interest and Morgan Stanley holds a 51% voting interest in MSMS. Our and Morgan Stanley’s economic and voting interests in the joint venture companies are held through a share exchange between MUScombination of intermediate holding companies and us. The purpose of making MUSa partnership.
We created a wholly owned subsidiary is, among other factors,intermediate holding company called Mitsubishi UFJ Securities Holdings Co., Ltd., or MUSHD, which directly holds a 60% voting interest in MUMSS. Morgan Stanley created a wholly owned intermediate holding company called Morgan Stanley Japan Holdings Co., Ltd., or MSJHD, which directly holds a 51% voting interest in MSMS. The remaining voting shares in MUMSS and MSMS were contributed to seizea partnership created under the opportunities presented by the deregulationCivil Code of the Japanese financial marketsJapan called MM Partnership, in which MUSHD holds a 60% ownership interest and further enhance cooperation between our group companies. We believe that we will be able to further strengthen our securitiesMSJHD holds a 40% ownership interest. Through this ownership structure of MM Partnership, MUSHD holds a 60% economic interest, and investment banking businessesMSJHD holds a 40% economic interest, in each of MUMSS and maximize synergies among our banking, trust and securities businesses. The share exchange ratio was 1.02 shares of MUFG common stock to one share of MUS common stock, valuing the transaction at approximately ¥370 billion. The share exchange occurred subsequentMSMS. In addition, pursuant to the effectivenesspartnership agreement between us and Morgan Stanley,
MUSHD effectively holds a 49% voting interest in MSMS, and MSJHD effectively holds a 40% voting interest in MUMSS. MUMSS became our consolidated subsidiary, and MSMS became a consolidated subsidiary of the stock split of MUFG shares as described in “Investment Unit Reduction” below.Morgan Stanley.
MergerCompletion of UFJ NICOS and DC Card
On April 1, 2007, UFJ NICOS Co., Ltd. and DC Card Co., Ltd., our credit card subsidiaries, merged to become Mitsubishi UFJ NICOS. The objectiveGlobal Offering of the merger was to combine UFJ NICOS’ large and extensive network, reputation and product development capabilities with DC Card’s co-branding relationships with and acceptance of regional cards.
Share Exchange Transaction to Make Mitsubishi UFJ NICOS a Wholly Owned SubsidiaryCommon Stock
In November 2007,December 2009, we acquired ¥120 billioncompleted the sale of newly issued2,337,000,000 shares of Mitsubishi UFJ NICOS common stock thereby increasing our shareholding to approximately 76%in a public offering in Japan as well as private placements in other countries, including the United States, and the sale of Mitsubishi UFJ NICOS’ total issued shares. In addition, on May 28, 2008, we and Mitsubishi UFJ NICOS entered into163,000,000 additional shares of common stock through a share exchange agreement. Through a share exchange that became effective on August 1, 2008,third-party allotment pursuant to this agreement, Mitsubishi UFJ NICOS became a wholly owned subsidiary of MUFG. The share exchange ratios were set at 0.37the over-allotment option granted in connection with the Japanese offering. Immediately following the offering, we had 14,148,414,920 shares of MUFG common stock issued. The proceeds from the sale of these shares after underwriting discounts and commissions were ¥412.53 per share.
The total net proceeds from the offering after underwriting discounts and commissions and offering expenses were approximately ¥1.03 trillion. The total net proceeds from the offering after underwriting discounts and commissions and offering expenses were used to one share of Mitsubishi UFJ NICOS common stock and at 1.39 shares of MUFG common stock to one share of Mitsubishi UFJ NICOS Class 1 Stock. The objective of themake an equity investment and share exchange isin BTMU to strengthen our overall group capital base. BTMU applied the financial foundation of Mitsubishi UFJ NICOS, to further enhance the strategic integrity and flexibility of MUFG, including Mitsubishi UFJ NICOS, and to strivefunds for effective utilization of managerial resources within the MUFG Group, to position Mitsubishi UFJ NICOS on par with banks, trusts, and securities companies as a core business entity of the MUFG Group, and to further strengthen and nurture the card business operated by Mitsubishi UFJ NICOS as a strategic focus of our consumer finance business.general corporate purposes.
Mitsubishi UFJ NICOS Entered into aStrategic Business and Capital Alliance with Norinchukinbetween MUTB and Aberdeen
In May 2008, we entered intoAs part of our capital alliance with Aberdeen Asset Management PLC, or Aberdeen, in November 2009, a basic agreement with The Norinchukin Bank, or Norinchukin,corporate officer of MUTB became a non-executive director of Aberdeen. MUTB held a 17.01% equity interest in which we agreedAberdeen as of March 31, 2010. MUTB and Aberdeen plan to make Mitsubishi UFJ NICOS a wholly owned subsidiarycontinue to work towards further strengthening their strategic alliance by collaborating in marketing and then sell a portion of its shares of Mitsubishi UFJ NICOS common stock to Norinchukin in accordance with detailed terms to be set forth in a share purchase agreement. On August 1, 2008, in accordance with that basic agreement, we entered into a share purchase agreement with Norinchukin, pursuant to which we sold 244 million of Mitsubishi UFJ NICOS common shares to Norinchukin for ¥84,424 million on August 8, 2008.product development.
Business and Capital Alliance with JACCS
In September 2007, we entered into a basic agreement with BTMU, Mitsubishi UFJ NICOS and JACCS Co., Ltd., with respect to a business and capital alliance. As part of the basic agreement, Mitsubishi UFJ NICOS transferred its installment credit sales business, automobile loan business and automobile leasing business to JACCS on April 1, 2008. In addition to transferring installment credit sale contracts, Mitsubishi UFJ NICOS transferred approximately 340 personnel and five business offices to JACCS. At the same time, we, together with BTMU and Mitsubishi UFJ NICOS, formed a business alliance with JACCS with respect to credit card related operations, installment credit sales business, settlement operations and housing loan related operations. In addition, BTMU acquired approximately ¥9.0 billion of newly issued common shares of JACCS on March 17,
2008. As a result of the acquisition of the additional JACCS shares, BTMU owns approximately 20% of the voting rights in JACCS and, accordingly, JACCS became our equity method investee.
JALCARD Share Transfer and Business Partnership
In May 2008, BTMU reached an agreement with Japan Airline International Co., Ltd., or JALI, a subsidiary of Japan Airlines Corporation, on the transfer to BTMU of 49.375% of the issued shares of JALCARD Inc., a wholly owned subsidiary of JALI, effective on July 1, 2008. As part of the agreement, JALI, JALCARD, BTMU, Mitsubishi UFJ NICOS and JCB Co., Ltd. agreed on a business partnership relating to their credit card operations.
kabu.com Securities Became a Consolidated Subsidiary
To strengthen the retail online securities business and enhance comprehensive Internet-based financial services, BTMU acquired approximately 20% ownership of kabu.com Securities Co., Ltd., a retail online securities company in Japan through tender offers implemented in April and December 2007. As a result of these tender offers, our ownership in kabu.com Securities increased to approximately 51% with kabu.com Securities becoming our consolidated subsidiary.
Merger of Leasing Affiliates
In April 2007, Diamond Lease Company Limited and UFJ Central Leasing Co., Ltd., both of which were our equity method investees, merged to become Mitsubishi UFJ Lease & Finance Company Limited. The objective of the merger was to improve their competitiveness and presence in the domestic leasing market. The new company continues to be our equity method investee.
In February 2008, we acquired additional voting shares of Mitsubishi UFJ Lease & Finance. As a result of these acquisitions, our holding of voting shares in Mitsubishi UFJ Lease & Finance increased to approximately 25.9%.
Basic Agreement on Integration between Bank of Ikeda and Senshu Bank
On May 30, 2008, BTMU signed a basic agreement with theIn October 2009, The Senshu Bank, Ltd., a regional bank subsidiary of BTMU headquartered in Osaka, and The Bank of Ikeda Ltd., another regional bank headquartered in Osaka, concerningintegrated their businesses by creating a holding company, which became our equity method affiliate. As a leading independent financial group in the plannedOsaka region, the new integrated company seeks not only to contribute to the development of the regional society and economy but also to improve its enterprise value. In order to respect the business integration betweenindependence of the two regional banks.new financial group consisting of Bank of Ikeda, Senshu Bank and Bankthe new holding company, BTMU plans to divest a part of Ikeda are planningits common stock in the new holding company and intends to establish aexclude the new holding company on April 1, 2009 afterfrom being our equity method affiliate by September 30, 2014 at the execution of a definitive agreement, which is expectedlatest. However, BTMU also intends to occur by November 28, 2008. As of March 31, 2008, BTMU owned 3.43%continuously and appropriately support the formation and development of the outstanding common sharesnew financial group and, ¥30.0 billionfor that purpose, Nobuo Kuroyanagi, the Chairman of non-convertible preferred shares of Bank of Ikeda.
Commencement of a Cash Tender Offer to Acquire All Publicly Held Shares of UNBC
On August 18, 2008, we entered into a merger agreement with UnionBanCal Corporation, or UNBC, in which we hold approximately 65% of the outstanding common shares. In accordance with the merger agreement, on August 29, 2008, BTMU, commenced a tender offer to acquire all of the shares of UNBC’s common stock not owned by us for US$73.50 per share in cash. The tender offer will expire on September 26, 2008, unless it is extended. Under the merger agreement, the consummation of the tender offer is expected to be followed by a merger in which any share of UNBC not tendered through the tender offer will be acquired at the same price in cash, subject to customary appraisal rights. The tender offer and the subsequent merger are not subject to a financing condition and do not require Japanese or US bank regulatory or antitrust approval. Upon completion of the merger, UNBC will become our wholly owned subsidiary.
We estimate the total funds required to complete the acquisition of UNBC to be approximately US$3.5 billion. We intend to use cash on hand to fund the acquisition.
Commencement of a Cash Tender Offer to Acquire Additional Shares of ACOM
On September 16, 2008, we commenced a tender offer to acquire, for ¥4,000 per share in cash, up to 38,140,000 shares of common stock of ACOM Co., Ltd.,has served as an equity method investee in which we hold approximately 15% of the voting rights. The tender offer will expire on October 21, 2008, unless extended. Pursuant to a subscription agreement entered into between us and ACOM on September 8, 2008, we may purchase up to 18,000,000 newly issued shares of ACOM common stock subsequentoutside director to the expiration of the tender offer, allowing us to acquire additional shares to the extent we choose to increase our voting rights to approximately 40%.
Effects of Recent Global Financial Market Instability
The recent global market instabilitynew holding company since the second half of 2007 originating primarily from disruptions in the US residential mortgage market has negatively affected our investment portfolio. We continue to hold assets that may decline in value or that may otherwise lead to further losses, and the amount of assets exposed to such risk may increase in the future depending on market conditions and other factors. As of March 31, 2008, the estimated fair value of our securities available for sale was ¥32.4 trillion for debt securities and ¥6.3 trillion for marketable equity securities. Net investment securities losses for the fiscal year ended March 31, 2008 was ¥1.37 trillion, compared to ¥0.24 trillion in net investment securities gains for the previous fiscal year. This change mainly reflected the impairment losses of ¥0.33 trillion on marketable equity securities available for sale and ¥1.17 trillion on debt securities available for sale. The impairment losses on debt securities were mainly due to the effect of changes in exchange rates on foreign currency transactions amounting to ¥0.86 trillion. For a detailed discussion of our investment portfolio as of March 31, 2008, see “—A. Operating Results—Results of Operations—Net investment securities gains (losses)” and “—B. Financial Condition—Investment Portfolio” below.
The recent global financial market instability has also negatively affected our goodwill. In the fiscal year ended March 31, 2008, we recorded an impairment of goodwill of ¥893.7 billion. This impairment in goodwill was due to, among other factors, the recent global financial market instability which negatively impacted the fair value of our reporting units for purposes of our periodic testing of goodwill for impairment. For a more detailed discussion of our goodwill as of March 31, 2008, see “—Critical Accounting Estimates—Accounting for Goodwill and Intangible Assets” and “—A. Operating Results—Results of Operations—Non-Interest Expense” below.
Filing of a Bankruptcy Petition by Lehman Brothers Holdings
On September 15, 2008, Lehman Brothers Holdings Inc., or LBHI, filed a petition under Chapter 11 of the US Bankruptcy Code with the US Bankruptcy Court for the Southern District of New York. We determined that the filing by LBHI was attributable to the deterioration of the asset-backed securitization products market and residential mortgage market in the United States subsequent to March 31, 2008, and did not reflect the impact of LBHI’s bankruptcy on the accompanying consolidated financial statements for the fiscal year ended March 31, 2008. Although the impact of these developments is currently being reviewed, we estimate that these developments will adversely affect income from continuing operations before income tax expense for the fiscal year ending March 31, 2009 by approximately ¥20 to ¥30 billion.
Investment Unit Reduction
On September 30, 2007, our minimum stock investment unit with respect to our common stock was reduced to one-tenth of the prior unit through (a) a stock split by which one share was split into 1,000 shares and (b) the adoption of a unit share system under which one unit of our common stock is comprised of 100 shares. The purpose of the investment unit reduction was to broaden our investor base by making our common stock more accessible to potential individual shareholders, thereby achieving our medium and long-term objective of maximizing corporate value.
Regarding our ADRs which are traded on the New York Stock Exchange, we changed the ratio of the ADRs in relation to the underlying shares of our common stock as follows:
Ratio before change: 1,000 ADR = 1 common share
Ratio after change: 1,000 ADR = 1,000 common shares (1:1)
As a result, our share numbers and per share information in this report have been retroactively adjusted.
Stock-Based Compensation Plans
As part of our compensation structure, in December 2007, we allotted an aggregate of 10,699 stock acquisition rights to our directors, corporate auditors and officers for their respective services to MUFG and its subsidiaries. Each stock acquisition right represents a right to purchase 100 shares of MUFG common stock at ¥1 per common share. The stock acquisition rights were subject to a one-year vesting period. The rights are exercisable until December 5, 2037, but only after the date on which a grantee’s service as a director, corporate auditor or officer terminates. The fair value of each stock acquisition right was ¥103,200.
As part of our compensation structure, in July 2008, we allotted an aggregate of 13,681 stock acquisition rights to our directors, corporate auditors and officers for their respective services to MUFG and its subsidiaries. Each stock acquisition right represents a right to purchase 100 shares of MUFG common stock at ¥1 per common share. The stock acquisition rights are subject to a one-year vesting period. The rights are exercisable until July 14, 2038, but only after the date on which a grantee’s service as a director, corporate auditor or officer terminates. The fair value of each stock acquisition right was ¥92,300.
For more information on the stock-based compensation plans, see “Item 6.B. Compensation” and Note 32 to our consolidated financial statements included elsewhere in this Annual Report.
Repurchase of Our Own Common Shares
From December 3, 2007 to December 13, 2007, we repurchased 126,513,900 shares of our common stock for approximately ¥150 billion to improve our capital efficiency and to allow the implementation of flexible capital policies in response to changes in the business environment.
Issuance of Preferred Securities by Special Purpose Companies
In order to enhance the flexibility of our capital management, in December 2007, MUFG Capital Finance 6 Limited, a special purpose company established in the Cayman Islands, issued ¥150 billion in non-cumulative and non-dilutive perpetual preferred securities in an offering targeting Japanese institutional investors.
These preferred securities were reflected in our Tier I capital as of March 31, 2008 under the BIS capital adequacy requirements, which is calculated primarily from our Japanese GAAP financial information. However, for accounting purposes under US GAAP, because those special purpose companies are not consolidated entities, the loans, which are made to us from the proceeds from the preferred securities issued by the special purpose company, are presented as long-term debt on our consolidated balance sheet as of March 31, 2008.
Also, in September 2008, MUFG Capital Finance 7 Limited, a special purpose company established in the Cayman Islands, issued ¥222 billion in non-cumulative and non-dilutive perpetual preferred securities in an offering targeting Japanese institutional investors. These securities are also accounted for as part of our Tier I capital.incorporation.
Redemption of Preferred Securities issuedIssued by Special Purpose CompaniesCompany
In January 2008, UFJ Capital Finance 4 Limited,2010, we redeemed a special purpose company established in the Cayman Islands, redeemed in total ¥106of ¥5 billion of non-cumulative and non-dilutive perpetual preferred securities.securities issued by an overseas special purpose company in the Cayman Islands called UFJ Capital Finance 4 Limited. These preferred securities were previously accounted forreflected as part of our Tier I capital.capital before redemption.
Acquisition and Cancellation of First Series of Class 3 Preferred Stock
In June 2008, TokaiApril 2010, we acquired and cancelled all of the outstanding shares of our First Series of Class 3 Preferred Capital Company L.L.C., a special purpose company established in Delaware, redeemed in total US$1 billionStock at ¥2,500 per share for an aggregate purchase price of non-cumulative and non-dilutive perpetual¥250 billion. The preferred securities. These securities were previously accounted forstock was reflected as part of our Tier I capital.1 capital before acquisition and cancellation.
Agreements with the FDIC to Acquire Assets and Assume Liabilities of Failing Community Banks
In April 2010, Union Bank, our indirect wholly owned subsidiary in the United States, entered into a Purchase and Assumption Agreement with the FDIC as receiver of Frontier Bank of Everett, Washington to purchase certain assets and assume certain deposit and other liabilities of Frontier Bank. Of the approximately $3.2 billion in total assets acquired, Union Bank acquired approximately $2.8 billion in loans and other real estate owned which are covered under a loss share agreement with the FDIC. Union Bank also assumed approximately $2.5 billion in deposits.
Also in April 2010, Union Bank entered into a Purchase and Assumption Agreement with the FDIC as receiver of Tamalpais Bank of San Rafael, California to purchase certain assets and assume certain deposits and other liabilities of Tamalpais Bank. Of the approximately $0.6 billion in total assets acquired, Union Bank acquired approximately $0.5 billion in loans and other real estate owned which are covered under a loss share agreement with the FDIC. Union Bank also assumed more than $0.4 billion in deposits.
We engage, through our subsidiaries and affiliated companies, in a broad range of financial operations,businesses and services, including commercial banking, investment banking, trust banking and asset management services, securities businesses and credit card businesses, and provide related services to individuals primarily in Japan and the United States and to corporate customers around the world. Our results of operations and financial condition are exposed to changes in various external economic factors, including:
general economic conditions;
| Ÿ | general economic conditions; |
interest rates;
| Ÿ | interest rates; |
currency exchange rates; and
| Ÿ | currency exchange rates; and |
| Ÿ | stock and real estate prices. |
stock and real estate prices.
See “Item 3.D. Risk Factors.”
Economic Environment in Japan
Japan’s economy continues to show signs of recovery with increasing exports, especially to Asia, and with governmental economic stimulus measures continuing to produce positive effects. Japan’s real GDP grew at an annualized 5.0% quarter on quarter for the January-March 2010 period, marking the fourth straight quarter of positive growth, with net exports (exports minus imports) contributing 2.7 percentage points and domestic private demand, including consumption and capital expenditures, contributing 2.1 percentage points. Japan’s annualized GDP growth rate over the past four quarters averaged 4.2% quarter on quarter, exceeding the potential growth rate of 0.5% to 0.8%. The unemployment rate and capacity utilization rates for plants began to show signs of improvement. However, the Japanese economy showedis still merely recovering from the historic global recession that began in the latter half of 2008, and domestic demand, capital expenditure and employment has only started to improve gradually to a moderate slowdown, partly offset by Japan’s continuous strong exports to emerging countries. However, private consumption grew at a sluggish paceself-sustaining recovery. In addition, the recent GDP growth in Japan reflects the positive impact of one-time factors such as the recent increase in demand for home appliances due in part to the weaknessgovernment’s economic stimulus measures. Moreover, the current positive trends in the overall Japanese economy may slow down or discontinue if economic conditions in other regions or globally deteriorate. For example, the Greek fiscal crisis, and the fear of wage growth. Towardsanother global economic downturn caused by such crisis, may have an adverse impact on not only the European Union, or EU financial markets but also financial markets in other countries and regions, including Japan.
The Bank of Japan has maintained a very low policy rate (uncollateralized overnight call rate) of 0.10% in an effort to lift the economy out of deflation since December 2008, while increasingly supplying funds through its expanded new operations introduced at the end of the fiscal year ended March 31, 2008, business confidence rapidly worsened and uncertainty increased about a corporate performance downturn because of a slowdown in overseas economies as well as a steep rise in the price of raw materials and oil prices. The rate of increase in the consumer price index accelerated towards the end of2009. Short-term interest rates continued to decline throughout the fiscal year ended March 31, 2008 mainly due to soaring oil prices.
The2010 because of the Bank of Japan kept its uncollateralized overnight call rate target unchanged at 0.5% fromJapan’s so-called “monetary easing policy.” Euro-yen 3-month TIBOR fell to approximately 0.38% as of July 1, 2010, the prior year. Although long-termlowest level since 2006. Long-term interest rates rose in June, they have also been on a downward trend, with some fluctuations. As of mid-September 2008,as global risk aversion triggered by the uncollateralized overnight call rate target was around 0.5%Greek fiscal crisis and tightened fiscal regulations in Europe and in the United States resulted in lower benchmark government bond yields as investors preferred safer assets such as sovereign debt. The yield on newly-issued ten-year Japanese government bonds wasfell to around 1.5%.1.05% as of early August 2010. The following chart shows the interest rate trends in Japan since April 2006:2008:
Regarding the Japanese stock market, the closing price of the Nikkei Stock Average, which is an average of 225 blue chip stocks listed on the Tokyo Stock Exchange, declinedincreased from ¥17,287.65 at March 30, 2007 to ¥12,525.54¥8,109.53 at March 31, 2008. As for2009 to ¥11,089.94 at March 31, 2010, showing a rebound from the global financial crisis starting in the early part of calendar year 2009. The closing price of the Tokyo Stock Price Index, or TOPIX, a composite index of all stocks listed on the First Section of the Tokyo Stock Exchange, the index declinedalso increased from 1,713.61 at March 30, 2007 to 1,212.96773.66 at March 31, 2008, mainly2009 to 978.81 at March 31, 2010. The Nikkei Stock Average has been fluctuating between the ¥9,000 and ¥11,500 range, and has not yet recovered to the pre-Lehman shock level of ¥12,000 or higher. Improvements in the Japanese corporate sector’s profitability, signs of recovery from the global financial crisis and the Bank of Japan’s policy of increasing monetary supply, contributed to the upward stock price movement. However, investor sentiment remains cautious due in part to a slowdownconcerns surrounding the sovereign debt crises in several European countries, uncertainty regarding the Japanese political leadership and the appreciation of the Japanese economy andyen against other currencies that may reduce the uncertaintyprofitability of the overseas economies.export-oriented companies in Japan. As of mid-September 2008,August 9, 2010, the closing price of the Nikkei Stock Average was around ¥11,700¥9,572.49 and that of the TOPIX was around 1,120.857.62. The following chart shows the daily closing price of the Nikkei Stock Average since April 2006.2008.
In the foreign exchange markets, theThe Japanese yen/US dollar foreign exchange rate wasyen has appreciated against other currencies, somewhat fluctuating around ¥118 to US$1 at the beginning of April 2007, and the yen generally continued to appreciate during the year and broke ¥100¥90 to US$1 in March 2008. Thereafter,the last six months. As of August 6, 2010, the Japanese yen depreciated slightly to around ¥100 to ¥110stood at ¥85.25 to US$1, and,an appreciation of ¥13.06 as compared to ¥98.31 as of mid-September 2008, theMarch 31, 2009. The strong Japanese yen/US dollar foreign exchange rate was around ¥105yen appears to US$1. Againstreflect rising risk aversion and lower interest rates abroad, which led to lower capital outflow from Japan. The Japanese yen has also appreciated against the Euro increasingly since April 2010, reflecting the sovereign debt crises and the subsequent tightening of monetary policies in Europe. The Japanese yen was traded in a rangestood at ¥113.83 to €1 as of approximately between ¥157 and ¥168 during the fiscal year endedAugust 9, 2010 as compared to ¥130.52 to €1 as of March 31, 2008, and finished around ¥157 to the Euro at the end of March 2008. As of mid-September 2008, the Japanese yen/Euro foreign exchange rate was around ¥150 to the Euro.2009. The following chart shows the foreign exchange rates expressed in Japanese yen per US dollar since April 2006:2008:
Based onIn calendar year 2009, the average official land prices setfor both residential and commercial real estate experienced significant declines for the second consecutive year. According to a survey conducted by the Japanese government, the average residential land prices in Japan as ofprice declined by 4.2% between January 1, 2008 increased for two years in a row after a consecutive 16-year decline that ended in 2006. Nationwide residential land prices2009 and land prices for commercial properties as of January 1, 2008 rose2010. The average commercial land price declined by 1.3% and 3.8%, respectively, compared to January 1, 2007.6.1% during the same period. In the three major metropolitan areas of Tokyo, Osaka and Nagoya, the average residential land prices on average roseprice declined by 4.3% over the last two years starting in4.5% between January 1, 2006,2009 and commercial properties rose by 10.4% over the last three years starting in January 1, 2005. On2010, while the other hand, inaverage commercial land price declined by 7.1% during the same period. In the local regions of Japan, which consist of regions other than the major metropolitan areas in Japan, the average residential and commercial land prices on average declined by 1.8%, and commercial properties declined by 1.4%,continued to decline for four years in a row afterthe sixth consecutive year with the rates of decline between January 1, 2004.2009 and January 1, 2010, being 3.8% and 5.3%, respectively.
According to Teikoku Databank, a Japanese research institution, the number of companies whothat filed for legal bankruptcy in Japan betweenfrom April 2007 and2009 to March 20082010 was approximately 11,300, an increase of approximately 18%12,900, a decrease by 2.8% from the previous fiscal year, reflecting a moderate recovery of the Japanese economy since the second quarter of the fiscal year ended March 31, 2010. The decrease in the number of companies that filed for legal bankruptcy was mainly due to anthe positive effects of the Japanese government’s economic stimulus measures and policies to increase in legal bankruptcies of small sized companies, especially inpublic construction retail, and service sectors. Similarly, thework by commencing projects earlier than originally scheduled, which generated revenues for many construction companies. The aggregate amount of liabilities subject to bankruptcy filings forbetween April 2009 and March 2010 was approximately ¥7.0 trillion, including ¥2,322 billion attributable to the corporate reorganization filings by Japan Airlines group companies in January 2010. The aggregate amount of liabilities subject to bankruptcy filings decreased approximately 48.6% compared to the same period was approximately ¥5.5 trillion, an increase of approximately 5% from the previous fiscal year, owing to an increasereflecting the decrease in the number of legal bankruptcy filings, particularly in the number of large-scale bankruptcies in the construction and a large-scale real estate related bankruptcy.industries.
International Financial Markets
With respect to the international financial and economic environment, the US economy recently began to recover with the annualized real GDP growth rate averaging 3.9% in the second half of calendar year 2009. Our research division forecasts that the real GDP growth rate will continue to expand at around 3.1% throughout calendar year 2010. According to the US Bureau of Labor Statistics, the unemployment rate decreased from its cyclical high at 10.1% in October 2009 to 9.5% in June 2010. Reflecting the continued yet weak recovery of the US economy, inflationary pressure has been limited thus far. In March 2010, the core CPI (consumer inflation less food and energy) inflation rate on a year-on-year basis decreased to 1.1%, the slowest rate since and roughly matching November 2003, which is on the lowest end of the Federal Reserve’s central tendency range of 1.1% to 1.7% for the fiscalentire calendar year ended March 31, 2008, uncertainty about the outlook for overseas economies, especially the United States economy, significantly increased. The US economy2010. Although household disposable income has further decelerated since the beginning of 2008been increasing due to the turmoileffects of economic stimulus measures and tax reductions by the US government, consumer sentiment remains weak in part because of the high unemployment rates. In the corporate sector, production continues on an upward trend due to improved inventory cycles and increasing exports and capital investments.
In the EU, the signs of recovery from the global recession have been weaker and, according to our research division, the real GDP is expected to grow at 0.6% throughout calendar year 2010. The industrial production growth rate year over year since April 2009 has been 9.5%, with lower growth rates of 1.5% and 0.8% in March and in April 2010, respectively, reflecting concerns over the Greek fiscal crisis. Retail sales in April 2010 declined by 1.5% year over year, which reflected a decrease in the financial markets triggeredconsumer confidence index of 15.0 points. The unemployment rate in April 2010 was 10.1%, up by 0.1% from March 2010. While the collapse ofunemployment rate is on a moderate declining trend in Germany, in many other EU member states, the residential mortgage marketunemployment rates remain high, stemming household consumption. With regard to consumer prices, the preliminary inflation rate in May 2010 was 1.6% year over year, which has resulted in reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the United States. Meanwhile,was lower than the European economy has shown clear signsCentral Bank’s inflationary target of slowdown. In contrast, economies of the emerging countries, such as the Chinese economy, sustained high growth.2.0%. Inflationary pressure from higher oil prices appears to have so far been contained by weak domestic demand.
In the United States, the target for the federal funds rate has been lowered by 3.0 percentage pointsmaintained at a range of zero to 2.25% in total since last fall in response to0.25%. As of August 6, 2010, the deteriorating market conditions until March 2008, andrate was further lowered to 2.00% in April 2008. In the EU, the0.18%. The European Central Bank kept its keyBank’s interest rate unchangedpolicy has been established at 4.0% due to1.0%, which is the strong concern about inflationlowest level in Europe until March 2008, and raised it 0.25 percentage points to 4.25% in July 2008.
Our consolidated financial statements included elsewhere in this Annual Report are prepared in accordance with US GAAP. Many of the accounting policies require management to make difficult, complex or subjective judgments regarding the valuation of assets and liabilities. The accounting policies are fundamental to understanding our operating and financial review and prospects. The notes to our consolidated financial statements included elsewhere in this Annual Report provide a summary of our significant accounting policies. The following is a summary of the critical accounting estimates:
Allowance for Credit Losses
The allowance for credit losses represents management’s estimate of probable losses in our loan portfolio. The evaluation process, including credit-ratings and self-assessments, involves a number of estimates and judgments. The allowance is based on two principles of accounting:accounting guidance: (1) SFAS No. 5, “Accounting for Contingencies,” whichthe guidance on contingencies requires that losses be accrued when they are probable of occurring and can be estimated;estimated, and (2) SFAS No. 114, “Accountingthe guidance on accounting by Creditorscreditors for Impairmentimpairment of a Loan” and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures,” which requireloan requires that losses be accrued based on the difference between the loan balance, on the one hand, and the present value of expected future cash flows discounted at the loan’s effective interest rate and the fair value of collateral or the loan’s observable market value, on the other hand.
Our allowance for credit losses consists of an allocated allowance and an unallocated allowance. The allocated allowance comprises (a) the allowance for specifically identified problem loans, (b) the allowance for large groups of smaller balance homogeneous loans, (c) the allowance for loans exposed to specific country risk and (d) the formula allowance. Both the allowance for loans exposed to specific country risk and the formula
allowance are provided for performing loans that are not subject to either the allowance for specifically identified problem loans or the allowance for large groups of smaller balance homogeneous loans. The allowance for loans exposed to specific country risk covers transfer risk which is not specifically covered by other types of allowance. Each of these components is determined based upon estimates that can and do change when actual events occur.
The allowance for specifically identified problem loans, which represent large-balance, non-homogeneous loans that have been individually determined to be impaired, is calculated by using various techniques to arrive at an estimate of loss. Historical loss information, discountedthe present value of expected future cash flows, fair value of collateral and secondary market information are all used to estimate those losses.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment, and the allowance for such loans is established through a process that begins with estimates of probable losses inherent in the portfolio. These estimates are based upon various analyses, including historical delinquency and credit loss experience.
The allowance for loans exposed to specific country risk is based on an estimate of probable losses relating to our exposure to countries that we identify as having a high degree of transfer risk. We use a country risk grading system that assigns risk ratings to individual countries. To determine the risk rating, we consider the instability of foreign currency and difficulties regarding our borrowers’ ability to service their debt.
The formula allowance uses a model based on historical losses as an indicator of future probable losses. However, the use of historical losses is inherently uncertain and as a result could differ from losses incurred in the future. However, since this history is updated with the most recent loss information, the differences that might otherwise occur are mitigated.
Our actual losses could be more or less than the estimates. The unallocated allowance captures losses that are attributable to various economic events, industry or geographic sectors whose impact on the portfolio have occurred but have yet to be recognized in the allocated allowance. For further information regarding our
allowance for credit losses, see “—B. Liquidity and Capital Resources—Financial Condition—Allowance for Credit Losses, Nonperforming and Past Due Loans.”
In addition to the allowance for credit losses on our loan portfolio, we maintain an allowance for credit losses on off-balance-sheet credit instruments, including commitments to extend credit, a variety of guarantees and standby letters of credit.credit and other financial instruments. Such allowance is included in other liabilities. With regard to the allocated allowance for specifically identified credit exposure and the allocated formula allowance, we apply the same methodologymethodologies that we use in determining the allowance for loan credit losses.
Determining the adequacy of the allowance for credit losses requires the exercise of considerable judgment and the use of estimates, such as those discussed above. To the extent that actual losses differ from management’s estimates, additional provisions for credit losses may be required that would adversely impact our operating results and financial condition in future periods.
Impairment of Investment Securities
US GAAP requires the recognition in earnings of an impairment loss on investment securities for a decline in fair value that is other than temporary. Determination of whether a decline is other than temporary often involves estimating the outcome of future events. Management judgment is required in determining whether factors exist that indicate that an impairment loss has been incurred at the balance sheet date. These judgments are based on subjective as well as objective factors. We conduct a review semi-annually to identify and evaluate investment securities that have indications of possible impairment. The assessment of other than temporary impairment requires judgment and therefore can have an impact on the results of operations. Impairment is evaluated considering various factors, and their significance varies from case to case.
Debt and marketable equity securities. In determining whether a decline in fair value below cost is other than temporary for a particular equity security, we generally consider factors such as the ability and positive intent to hold the investments for a period of time sufficient to allow for any anticipated recovery in fair value. In addition, indicators of an other than temporary decline for both debt and marketable equity securities include, but are not limited to, the extent of decline in fair value below cost and the length of time that the decline in fair value below cost has continued. If a decline in fair value below cost is 20% or more or has continued for six months or more, we generally deem such decline as an indicator of an other than temporary decline. We also consider the current financial condition and near-term prospects of issuers primarily based on the credit standing of the issuers as determined by our credit rating system.
For debt securities, other than temporary impairment is recognized in earnings if we have an intent to sell the debt security or if it is more likely than not we will be required to sell the debt security before recovery of its amortized cost basis. When we do not intend to sell the debt security and if it is more likely than not that we will not be required to sell the debt security before recovery of its amortized cost basis, the credit component of an other than temporary impairment of a debt security is recognized in earnings, but the noncredit component is recognized in accumulated other changes in equity from nonowner sources.
Certain securities held by BTMU, MUTB and certain other subsidiaries, which primarily consist of debt securities issued by the Japanese national government and generally considered to be of minimal credit risk, wereare determined not to be impaired in some cases, on the basis ofas the respective subsidiary’s ability and positive intentsubsidiaries do not have intention to hold suchsell the securities, or those subsidiaries are not more likely than not required to maturity.sell before recovery of their amortized cost basis.
The determination of other than temporary impairment for certain debt securities held by UNBC, our US subsidiary, which primarily consist of residential mortgage backed securities backed by the full faith and credit of the US government and corporatecertain asset-backed and debt securities, are made on the basis of a cash flow analysis and monitoring of securities and/or the abilityperformance of UNBC to hold such securities, as well as whether UNBC intends to maturity.sell, or is more likely than not required to sell, the securities before recovery of their amortized cost basis.
Nonmarketable equity securities. Nonmarketable equity securities are equity securities of companies that are not publicly traded or are thinly traded. Such securities are primarily held at cost less other than temporary impairment if applicable. For the securities carried at cost, we consider factors such as the credit standing of issuers and the extent of decline in net assets of issuers to determine whether the decline is other than temporary. When we determine that the decline is other than temporary, nonmarketable equity securities are written down to the estimated fair value, determined based on such factors as the ratio of our investment in the issuer to the issuer’s net assets and the latest transaction price if applicable. When the decline is other than temporary, certain nonmarketable equity securities issued by public companies, such as preferred stock convertible to marketable
common stock in the future, are written down to fair value estimated by commonly accepted valuation models, such as option pricing models based on a number of factors, including the quoted market price of the underlying marketable common stock, volatility and dividend payments as appropriate.
The markets for equity securities and debt securities are inherently volatile, and the values of both types of securities have fluctuated significantly in recent years. Accordingly, our assessment of potential impairment involves risks and uncertainties depending on market conditions that are global or regional in nature and the condition of specific issuers or industries, as well as management’s subjective assessment of the estimated future performance of investments. If we later conclude that a decline is other than temporary, the impairment loss may significantly affect our operating results and financial condition in future periods.
For further information on the amount of the impairment losses and the aggregate amount of unrealized gross losses on investment securities, see Note 64 to our consolidated financial statements included elsewhere in this Annual Report.
Income Taxes
Valuation of deferred tax assets. A valuation allowance for deferred tax assets is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Future realization of the tax benefit of existing deductible temporary differences or carryforwards ultimately depends on the existence of sufficient taxable income in future periods.
In determining a valuation allowance, we perform a review of future taxable income (exclusive of reversing temporary differences and carryforwards) and future reversals of existing taxable temporary differences. Future taxable income is developed from forecasted operating results, based on recent historical trends and approved business plans, the eligible carryforward periods and other relevant factors. For certain subsidiaries where strong negative evidence exists, such as the existence of significant amounts of operating loss carryforwards, cumulative losses and the expiration of unused operating loss carryforwards in recent years, a valuation allowance is recognized against the deferred tax assets to the extent that it is more likely than not that they will not be realized.
Among other factors, forecasted operating results, which serve as the basis of our estimation of future taxable income, have a significant effect on the amount of the valuation allowance. In developing forecasted operating results, we assume that our operating performance is stable for certain entities where strong positive evidence exists, including core earnings based on past performance over a certain period of time. The actual results may be adversely affected by unexpected or sudden changes in interest rates as well as an increase in credit-related expenses due to the deterioration of economic conditions in Japan and material declines in the Japanese stock market to the extent that such impacts exceed our original forecast. In addition, near-term taxable income is also influential on the amount of the expiration of unused operating loss carryforwards since the Japanese corporate tax law permits operating losses to be deducted for a predetermined period generally no longer than seven years. For further information on the amount of operating loss carryforwards and the expiration dates, see Note 119 to our consolidated financial statements included elsewhere in this Annual Report.
Because the establishment of the valuation allowance is an inherently uncertain process involving estimates as discussed above, the currently established allowance may not be sufficient. If the estimated allowance is not sufficient, we will incur additional deferred tax expenses, which could materially affect our operating results and financial condition in future periods.
Tax reserves. We provide reserves for unrecognized tax benefits as required under FASB Interpretation, or FIN, No. 48, “Accountingguidance on accounting for Uncertaintyuncertainty in Income Taxes—An Interpretation of FASB Statement No. 109.”income taxes. In applying the standards of the Interpretation,guidance, we consider the relative risks and merits of positions taken in tax returns filed and to be filed, considering statutory, judicial, and regulatory guidance applicable to those positions.
The Interpretationguidance requires us to make assumptions and judgments about potential outcomes that lie outside management’s control. To the extent the tax authorities disagree with our conclusions, and depending on the final resolution of those disagreements, our effective tax rate may be materially affected in the period of final settlement with tax authorities.
Accounting for Goodwill and Intangible Assets
US GAAP requires us to test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that goodwill may be impaired, using a two-step process that begins with an estimation of the fair value of a reporting unit of our business, which is to be compared with the carrying amount of the unit, to identify potential impairment of goodwill. A reporting unit is an operating segment or component of an operating segment that constitutes a business for which discrete financial information is available and is regularly reviewed by management. The fair value of a reporting unit is defined as the amount at which the unit as a whole could be bought or sold in a current transaction between willing parties. For a reporting unit for which an observable quoted market price is available, the price is used for the fair value and control premium is also considered. For a reporting unit which an observable quoted market price is not available, the fair value is determined using an income approach. In the
income approach, discountedthe present value of expected future cash flows areis calculated by taking the net present value based on each reporting unit’s internal forecasts. Cash flows are discounted using a discount rate approximating the weighted average cost of capital, and theThe discount rate reflects current market capitalization. A control premium factor is also considered for thein relation to market capitalization as well. capitalization.
If the carrying amount of a reporting unit exceeds its estimated fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss recorded in income.our consolidated statements of operations. This test requires comparison of the implied fair value of the unit’s goodwill with the carrying amount of that goodwill. The estimate of the implied fair value of the reporting unit’s goodwill requires us to allocate the fair value of a reporting unit to all of the assets and liabilities of that reporting unit, including unrecognized intangible assets, if any, since the implied fair value is determined as the excess of the fair value of a reporting unit over the net amounts assigned to its assets and liabilities in the allocation. Accordingly, the second step of the impairment test also requires an estimate of the fair value of individual assets and liabilities, including any unrecognized intangible assets that belong to that unit. A change in the estimation could have an impact on impairment recognition since it is driven by hypothetical assumptions, such as customer behavior and interest rate forecasts. The estimation is based on information available to management at the time the estimation is made.
Intangible assets are amortized over their estimated useful lives unless they have indefinite useful lives. Amortization for intangible assets is computed in a manner that best reflects the economic benefits of the intangible assets. Intangible assets having indefinite useful lives are subject to annual impairment tests. An impairment exists if the carrying value of an indefinite-lived asset exceeds its fair value. For other intangible assets subject to amortization, an impairment is recognized if the carrying amount exceeds the fair value of the intangible asset.
Accrued Severance Indemnities and Pension Liabilities
We have defined retirement benefit plans, including lump-sum severance indemnities and pension plans, which cover substantially all of our employees. Severance indemnities and pension costs are calculated based upon a number of actuarial assumptions, including discount rates, expected long-term rates of return on our plan assets and rates of increase in future compensation levels. In accordance with US GAAP, actual results that differ from the assumptions are accumulated and amortized over future periods, and affect our recognized net periodic pension costs and accrued severance indemnities and pension obligations in future periods. Differences in actual experience or changes in assumptions may affect our financial condition and operating results in future periods.
The discount rates for the domestic plans are set to reflect the interest rates of high-quality fixed-rate instruments with maturities that correspond to the timing of future benefit payments.
In developing our assumptions for expected long-term rates of return, we refer to the historical average returns earned by the plan assets and the rates of return expected to be available for reinvestment of existing plan assets, which reflect recent changes in trends and economic conditions, including market price.prices. We also evaluate input from our actuaries, includingas well as their reviews of asset class return expectations.
Valuation of Financial Instruments
We adoptedmeasure certain financial assets and liabilities at fair value. The majority of such assets and liabilities are measured at fair value on a recurring basis, including trading securities, trading derivatives and investment securities. In addition, certain other assets and liabilities are measured at fair value on a non-recurring basis, including held for sale loans which are carried at the recognition provisionslower of SFAS No. 158, “Employers’ Accountingcost or fair value, collateral dependent loans and nonmarketable equity securities subject to impairment.
We have elected the fair value option for Defined Benefit Pensioncertain foreign securities classified as available for sale, whose unrealized gains and Other Postretirement Plans,losses are reported in income.
The guidance on the measurement of fair values defines fair value as the price that would be received to sell an amendmentasset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have an established and documented process for determining fair value in accordance with the guidance. To determine fair value, we use quoted market prices which include those provided from pricing vendors, where available. We generally obtain one price or quote per instrument and do not adjust it to determine fair value of FASB Statements No. 87, 88, 106,the instrument. Certain asset-backed securities are valued based on non-binding quotes provided by independent broker-dealers where no or few observable inputs are available to measure fair value. We do not adjust such broker-dealer quotes to the extent that there is no evidence that would indicate that the quotes are not indicative of the fair values of the securities. We perform internal price verification procedures to ensure that the quotes provided from the independent broker-dealers are reasonable. Such verification procedures include analytical review of periodic price changes, comparison analysis between periodic price changes and 132(R)”changes of indices such as a credit default swap index, or inquiries of March 31, 2007. See “Accounting Changes—Defined Benefit Pensionunderlying inputs and Other Postretirement Plans”assumptions used by the broker-dealers such as probability of default, prepayment rate and discount margin. These verification procedures are periodically performed by independent risk management departments. For collateralized loan obligations (“CLOs”) backed by general corporate loans, the fair value is determined by weighting the internal model valuation and the non-binding broker-dealer quotes. If quoted market prices are not available to determine fair value of derivatives, the fair value is based upon valuation techniques that use, where possible, current market-based or independently sourced parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and credit curves. The fair values of trading liabilities are determined by discounting future cash flows at a rate which incorporates our own creditworthiness. In addition, valuation adjustments may be made to ensure that the financial instruments are recorded at fair value. These adjustments include, but are not limited to, amounts that reflect counterparty credit quality, liquidity risk, and model risk. Our financial models are validated and periodically reviewed by risk management departments independent of divisions that created the models.
For a further discussion of the valuation techniques or models applied to the material assets or liabilities, see “Fair Value” in Note 1 and Note 1731 to our consolidated financial statements included elsewhere in this Annual Report for further information.Report.
Change in Valuation of Financial Instruments with No Available Market PricesMethod
Fair valuesWe observed that the market for CLOs backed by general corporate loans became significantly inactive compared with normal market activity due to the substantial majorityreduction in liquidity of our portfolio ofcertain debt securities resulting from the global financial instruments, including available-for-sale and held-to-maturity securities, trading accounts and derivatives, with no available market prices are determined based upon externally verifiable model inputs and quoted prices. All financial models, which are used for independent risk monitoring, must be validated and periodically reviewed by qualified personnel independentinstability in the second half of the areafiscal year ended March 31, 2009. Under such circumstances, we concluded that created the model.unadjusted non-binding quotes from broker-dealers became less reflective of the fair value as defined in guidance on the measurement of fair values with respect to CLOs backed by general corporate loans. Consequently, we changed the valuation method for estimating the fair value of such CLOs from the method adopting unadjusted quotes from independent broker-dealers to an estimation method by weighting the internal model prices and the non-binding broker-dealer quotes during the second half of the fiscal year ended March 31, 2009.
Fair Value Hierarchy
The guidance on the measurement of fair values establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Based on the observability of derivativesthe inputs used in the valuation techniques, the following three-level hierarchy is determinedestablished by the guidance:
| Ÿ | Level 1—Unadjusted quoted prices for identical instruments in active markets. |
| Ÿ | Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instruments. |
| Ÿ | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instruments. |
A financial instrument’s categorization within the valuation hierarchy is based upon liquid market prices evidenced by exchange-traded prices, broker-dealer quotations or pricesthe lowest level of other transactions with similarly rated counterparties. If available, quoted market prices provideinput that is significant to the best indication of value. If quoted market prices are not available for fixed maturity securities and derivatives, we discount expected cash flows using market interest rates commensurate with the credit quality and maturityfair value measurement of the investment. Alternatively, we may use matrix or model pricingfinancial instrument. We review and update the fair value hierarchy on a half year basis. For the categorization within the valuation hierarchy by the financial instruments, see “Fair Value” in Note 31 to determine an appropriate fair value. In determining fair values, we consider various factors, including time value, volatility factors and underlying options, warrants and derivatives.our consolidated financial statements included elsewhere in this Annual Report.
The estimatedfollowing table summarizes the assets and liabilities accounted for at fair values of financial instruments without quoted market prices were as follows:value on a recurring basis by level under the fair value hierarchy at March 31, 2009 and 2010:
| At March 31, | ||||||
| 2007 | 2008 | |||||
| (in billions) | ||||||
Financial assets: | ||||||
Trading account assets, excluding derivatives | ¥ | 6,927 | ¥ | 8,381 | ||
Investment securities | 40,556 | 35,819 | ||||
Derivative financial instruments, net | — | 834 | ||||
Financial liabilities: | ||||||
Trading account liabilities, excluding derivatives | 797 | 215 | ||||
Obligations to return securities received as collateral | 3,649 | 5,084 | ||||
Derivative financial instruments, net | 67 | — | ||||
| March 31, 2009 | March 31, 2010 | |||||||||||||
| Fair Value | Percentage of Total | Fair Value | Percentage of Total | |||||||||||
| (in billions) | (in billions) | |||||||||||||
Assets: | ||||||||||||||
Level 1 | ¥ | 40,664 | 63.0 | % | ¥ | 57,648 | 73.2 | % | ||||||
Level 2 | 18,239 | 28.2 | 17,164 | 21.8 | ||||||||||
Level 3 | 5,667 | 8.8 | 3,964 | 5.0 | ||||||||||
Total | ¥ | 64,570 | 100.0 | % | ¥ | 78,776 | 100.0 | % | ||||||
As a percentage of total assets | 33.4 | % | 39.4 | % | ||||||||||
Liabilities: | ||||||||||||||
Level 1 | ¥ | 2,742 | 21.8 | % | ¥ | 3,315 | 26.7 | % | ||||||
Level 2 | 9,632 | 76.4 | 8,659 | 69.6 | ||||||||||
Level 3 | 227 | 1.8 | 457 | 3.7 | ||||||||||
Total | ¥ | 12,601 | 100.0 | % | ¥ | 12,431 | 100.0 | % | ||||||
As a percentage of total liabilities | 6.7 | % | 6.5 | % | ||||||||||
Level 3 assets decreased ¥1,703 billion during the fiscal year ended March 31, 2010 mainly because Level 3 trading securities decreased ¥739 billion and Level 3 securities available for sale decreased ¥972 billion.
The decrease in Level 3 trading securities was driven by significant decreases in equity securities and foreign asset-backed securities. The decrease of ¥333 billion in equity securities was primarily due to sales and transfers from Level 3 to Level 2. The transfers were related to certain hedge funds to which the MUFG group adopted and applied the FASB’s new guidance for investments in certain entities that calculate net asset value per share issued in September 2009. The decrease of ¥314 billion in foreign asset-backed securities such as CLOs backed by general corporate loans was mainly due to sales, which were partially mitigated by gains resulting from their increased fair value.
The decrease in Level 3 securities available for sale was primarily attributable to the decrease in corporate bonds, most of which were private placement bonds issued by Japanese non-public companies. Such Level 3 corporate bonds decreased ¥880 billion for the fiscal year ended March 31, 2010 mainly due to redemption and transfers out of Level 3 of bonds. These transfers resulted from improvement in the creditworthiness of the private placement bonds.
A significant portiontotal of trading account assets and liabilities, excluding derivatives, investment¥133 billion of foreign asset-backed securities and obligationscategorized in securities available for sale were transferred out of Level 3 recurring measurements during the fiscal year ended March 31, 2010 mainly because CLOs held by a foreign subsidiary were reclassified from securities available for sale to return securities received as collateral consists of Japanese national government and agency bonds, and foreign government and official institutions bonds, for which prices are actively quoted among brokers and are readily available butbeing held to maturity. The securities being held to maturity are not publicly reportedmeasured at fair value and therefore are not considered quoted market prices. Additionally, a substantial portion of derivative financial instruments are comprised of over-the-counter interest rate and currency swaps and options. Estimates ofexcluded from the above fair value of these derivative transactions are determined using quantitative models with multiple market inputs, which can be validated through external sources, including brokers and market transactions with third parties.hierarchy disclosure on a recurring basis.
For further information regarding fair value measurements, see “Fair Value” in Note 31 to our consolidated financial statements included elsewhere in this Annual Report.
Accounting Changes and Recently Issued Accounting Pronouncements
See “Accounting Changes” and “Recently Issued Accounting Pronouncements” in Note 1 to our consolidated financial statements included elsewhere in this Annual Report.
| A. | Operating Results |
The following table sets forth a summary of our results of operations for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | ||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | ||||||||||||||||||
| (in billions) | (in billions) | ||||||||||||||||||||||
Interest income | ¥ | 2,530.7 | ¥ | 3,915.7 | ¥ | 4,366.8 | ¥ | 4,366.8 | ¥ | 3,895.8 | ¥ | 2,758.5 | |||||||||||
Interest expense | 882.1 | 1,585.9 | 2,087.1 | 2,087.1 | 1,599.4 | 774.4 | |||||||||||||||||
Net interest income | 1,648.6 | 2,329.8 | 2,279.7 | 2,279.7 | 2,296.4 | 1,984.1 | |||||||||||||||||
Provision for credit losses | 110.2 | 358.6 | 385.7 | 385.7 | 626.9 | 647.8 | |||||||||||||||||
Non-interest income | 1,067.4 | 1,947.9 | 1,778.1 | 1,778.1 | 175.1 | 2,453.9 | |||||||||||||||||
Non-interest expense | 2,076.1 | 2,784.2 | 3,659.7 | 3,620.3 | 3,608.8 | 2.508.1 | |||||||||||||||||
Income from continuing operations before income tax expense and cumulative effect of a change in accounting principle | 529.7 | 1,134.9 | 12.4 | ||||||||||||||||||||
Income tax expense | 165.5 | 552.8 | 553.1 | ||||||||||||||||||||
Income (loss) from continuing operations before income tax expense (benefit) | 51.8 | (1,764.2 | ) | 1,282.1 | |||||||||||||||||||
Income tax expense (benefit) | 553.1 | (259.9 | ) | 407.0 | |||||||||||||||||||
Income (loss) from continuing operations before cumulative effect of a change in accounting principle | 364.2 | 582.1 | (540.7 | ) | |||||||||||||||||||
Income (loss) from discontinued operations—net | 9.0 | (0.8 | ) | (1.7 | ) | ||||||||||||||||||
Cumulative effect of a change in accounting principle, net of tax | (9.7 | ) | — | — | |||||||||||||||||||
Income (loss) from continuing operations | (501.3 | ) | (1,504.3 | ) | 875.1 | ||||||||||||||||||
Loss from discontinued operations—net | (2.7 | ) | — | — | |||||||||||||||||||
Net income (loss) | ¥ | 363.5 | ¥ | 581.3 | ¥ | (542.4 | ) | ||||||||||||||||
Net income (loss) before attribution of noncontrolling interests | ¥ | (504.0 | ) | ¥ | (1,504.3 | ) | ¥ | 875.1 | |||||||||||||||
Net income (loss) attributable to noncontrolling interests | 38.4 | (36.3 | ) | 15.3 | |||||||||||||||||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | ¥ | (542.4 | ) | ¥ | (1,468.0 | ) | ¥ | 859.8 | |||||||||||||||
We reported a net lossincome attributable to Mitsubishi UFJ Financial Group of ¥542.4¥859.8 billion for the fiscal year ended March 31, 2008,2010, compared to a net incomeloss attributable to Mitsubishi UFJ Financial Group of ¥581.3¥1,468.0 billion for the fiscal year ended March 31, 2007.2009. Our basic lossdiluted earnings per share of common sharestock (net lossincome available to common shareholders)shareholders of Mitsubishi UFJ Financial Group) for the fiscal year ended March 31, 20082010 was ¥54.05, compared with our basic earnings¥67.87, an improvement from a diluted loss per common share of ¥29.86common stock of ¥137.84 for the fiscal year ended March 31, 2007.2009. Income from continuing operations before income tax expense and cumulative effect of a change in accounting principle for the fiscal year ended March 31, 20082010 was ¥12.4¥1,282.1 billion, compared with ¥1,134.9to a loss from continuing operations before income tax benefit of ¥1,764.2 billion for the fiscal year ended March 31, 2007.
Our merger with UFJ Holdings completed on October 1, 2005 was the major factor in many of the changes in our consolidated statements of operations between the two fiscal years ended March 31, 2006 and 2007. The results for the fiscal year ended March 31, 2006 reflect the pre-merger results of MTFG for the six months ended September 30, 2005 and the post-merger results of MUFG for the six months ended March 31, 2006. The results for the fiscal years ended March 31, 2007 and 2008 reflect the post-merger results of MUFG for the full twelve-month period.2009.
Net Interest Income
The following is a summary of the interest rate spread for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
| Average balance | Average rate | Average balance | Average rate | Average balance | Average rate | Average balance | Average rate | Average balance | Average rate | Average balance | Average rate | |||||||||||||||||||||||||
| (in billions, except percentages) | (in billions, except percentages) | |||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||
Domestic | ¥ | 104,942.8 | 1.30 | % | ¥ | 130,196.1 | 1.63 | % | ¥ | 123,196.2 | 1.78 | % | ¥ | 123,196.2 | 1.78 | % | ¥ | 121,686.4 | 1.70 | % | ¥ | 127,830.2 | 1.34 | % | ||||||||||||
Foreign | 30,442.5 | 3.85 | 38,571.2 | 4.65 | 49,271.1 | 4.41 | 49,271.1 | 4.41 | 51,556.3 | 3.53 | 47,635.1 | 2.20 | ||||||||||||||||||||||||
Total | ¥ | 135,385.3 | 1.87 | % | ¥ | 168,767.3 | 2.32 | % | ¥ | 172,467.3 | 2.53 | % | ¥ | 172,467.3 | 2.53 | % | ¥ | 173,242.7 | 2.25 | % | ¥ | 175,465.3 | 1.57 | % | ||||||||||||
Financed by: | ||||||||||||||||||||||||||||||||||||
Interest-bearing funds: | ||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||
Domestic | ¥ | 98,788.9 | 0.37 | % | ¥ | 122,332.7 | 0.54 | % | ¥ | 123,231.9 | 0.69 | % | ¥ | 123,231.9 | 0.69 | % | ¥ | 124,716.0 | 0.58 | % | ¥ | 124,431.3 | 0.37 | % | ||||||||||||
Foreign | 19,331.3 | 2.65 | 24,463.3 | 3.78 | 32,920.1 | 3.74 | 32,920.1 | 3.74 | 31,368.9 | 2.80 | 33,725.1 | 0.93 | ||||||||||||||||||||||||
Total | 118,120.2 | 0.75 | 146,796.0 | 1.08 | 156,152.0 | 1.34 | 156,152.0 | 1.34 | 156,084.9 | 1.02 | 158,156.4 | 0.49 | ||||||||||||||||||||||||
Non-interest-bearing funds | 17,265.1 | — | 21,971.3 | — | 16,315.3 | — | ||||||||||||||||||||||||||||||
Non-interest-bearing liabilities | 16,315.3 | — | 17,157.8 | — | 17,308.9 | — | ||||||||||||||||||||||||||||||
Total | ¥ | 135,385.3 | 0.65 | % | ¥ | 168,767.3 | 0.94 | % | ¥ | 172,467.3 | 1.21 | % | ¥ | 172,467.3 | 1.21 | % | ¥ | 173,242.7 | 0.92 | % | ¥ | 175,465.3 | 0.44 | % | ||||||||||||
Spread on: | ||||||||||||||||||||||||||||||||||||
Interest-bearing funds | 1.12 | % | 1.24 | % | 1.19 | % | ||||||||||||||||||||||||||||||
Total funds | 1.22 | % | 1.38 | % | 1.32 | % | ||||||||||||||||||||||||||||||
Interest rate spread | 1.19 | % | 1.23 | % | 1.08 | % | ||||||||||||||||||||||||||||||
Net interest income as a percentage of total interest-earning assets | 1.32 | % | 1.33 | % | 1.13 | % | ||||||||||||||||||||||||||||||
We use interest rate and other derivative contracts for hedging the risks affecting the values of our financial assets and liabilities. Although these contracts are generally entered into for risk management purposes, a majority of them do not meet the specific conditions to qualify for hedge accounting under US GAAP and thus are accounted for as trading positions.assets or liabilities. Any gains or losses resulting from such derivative instruments are recorded as part of net trading account profits or losses. Therefore, our net interest income for each of the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 was not materially affected by gains or losses resulting from such derivative instruments.
For a detailed discussion of our risk management systems, refer to “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.”
Fiscal Year Ended March 31, 20082010 Compared to Fiscal Year Ended March 31, 20072009
Net interest income for the fiscal year ended March 31, 20082010 was ¥2,279.7¥1,984.1 billion, a decrease of ¥50.1¥312.3 billion from ¥2,329.8¥2,296.4 billion for the fiscal year ended March 31, 2007. This2009. The decrease wasin our net interest income mainly due to an increasereflected the impact of the low interest rate environment that continued throughout the fiscal year ended March 31, 2010. In Japan, the Bank of Japan implemented monetary easing policies and maintained its “zero interest rate” policy throughout the fiscal year ended March 31, 2010. As a result, the average interest rate on domestic interest-earning assets decreased more than the decrease in the average interest rate on domestic interest-bearing fundsliabilities. Central banks outside of Japan also continued to reduce their base interest rates to counter deflationary pressures caused by the financial crisis and an increase in the average balance of foreign interest-bearing funds. These increases offset the effect of the increase in the average balance of foreign interest-earning assets.economic recession.
The average interest rate spread on interest-bearing fundsliabilities (average interest rate for interest-earning assets minus average interest rate for interest-bearing liabilities) decreased five15 basis points from 1.24%1.23% for the fiscal year ended March 31, 20072009 to 1.19%1.08% for the fiscal year ended March 31, 2008.2010. For the fiscal year ended March 31, 2007,2010, the average rate on interest-bearing liabilities decreased from 1.02% to 0.49% mainly due to lower foreign interest rates. However, the average rate on interest-earning assets increased partlydecreased further due to an increase in the expected cash flows from impaired loans acquired in the merger with UFJ Holdings,lower foreign interest rates, which cash flows are accounted for as adjustments to accretable yields under Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquiredresulted in a Transfer.” For the fiscal year ended March 31, 2008, the increasedecrease in the expected cash flows from such impaired loans was smaller than that for the previous fiscal year. The average interest rate spread on total fundsspread. Consequently, net interest income decreased showing a decrease of six basis points from 1.38% for the fiscal year ended March 31, 2007¥200.6 billion due to 1.32% for the fiscal year ended March 31, 2008.changes in interest rates.
Average interest-earning assets for the fiscal year ended March 31, 20082010 were ¥172,467.3¥175,465.3 billion, an increase of ¥3,700.0¥2,222.6 billion from ¥168,767.3¥173,242.7 billion for the fiscal year ended March 31, 2007.2009. This increase in average interest-earning assets was primarily attributable to an increase of ¥9,533.4 billion in investment securities, partially offset by a ¥4,654.9 billion decrease in both domestic and foreign loans. The increase in investment securities was mainly due to an increase in investment in Japanese national government and government agency bonds as part of our asset and liability management policy with respect to investing the amount of yen-denominated deposited funds. The increase in the average balance of domestic interest-earning assets resulted in an increase in our interest income from domestic assets for the fiscal year ended March 31, 2010 by ¥34.7 billion compared to the prior fiscal year, which was more than offset by a decrease in interest income from foreign assets of ¥92.9 billion due to lower average foreign interest-earning assets.
Average interest-bearing liabilities for the fiscal year ended March 31, 2010 were ¥158,156.4 billion, an increase of ¥2,071.5 billion from ¥156,084.9 billion for the fiscal year ended March 31, 2009. The increase was primarily attributable to an increase of ¥3,494.3¥2,723.2 billion in foreign call loans, funds sold, and receivables under resale agreements and securities borrowing transactions, an increase of ¥3,493.3 billion in foreign loans, an increase of ¥1,600.7 billion in foreign interest-earninginterest-bearing deposits, in other banks and an increase of ¥1,538.8 billion in foreign investment securities. These increases were partially offset by a decrease of ¥4,718.6¥1,822.4 billion in domestic investment securitiesother short-term borrowings and a decrease of ¥2,016.9 billion in domestic loans. The increase in foreign loans was mainly due to the growth of the lending to Japanese and non-Japanese customers in Asia, the United States and Europe.
Average interest-bearing funds for the fiscal year ended March 31, 2008 were ¥156,152.0 billion, an increase of ¥9,356.0 billion, from ¥146,796.0 billion for the fiscal year ended March 31, 2007. The increase was primarily attributable to an increase of ¥3,779.3 billion in foreign interest-bearing deposits, an increase of ¥3,494.3 billion in foreign call money, funds purchased, and payables under repurchase agreements and securities lending transactions and an increase of ¥2,183.3 billion in domestic deposits.trading account liabilities. The increase in foreign interest-bearing deposits was mainly due to increases in money market deposits and time deposits as depositors sought the fact thatsafety of deposits at large deposits from foreign central banks and government sponsored investment corporationsfinancial institutions in light of the unstable economic conditions. The increase in the average balance of interest-bearing liabilities increased in responseour interest expense for the fiscal year ended March 31, 2010 by ¥53.5 billion compared to the recent difficult market conditions.prior fiscal year.
Fiscal Year Ended March 31, 20072009 Compared to Fiscal Year Ended March 31, 20062008
Net interest income for the fiscal year ended March 31, 20072009 was ¥2,329.8¥2,296.4 billion, an increase of ¥681.2¥16.7 billion, from ¥1,648.6¥2,279.7 billion for the fiscal year ended March 31, 2006.2008. This increase was mainly due to decreases in the fact that netaverage interest income for the fiscal year ended March 31, 2006 reflected onlyrates on both domestic and foreign interest-bearing liabilities. The effect of these decreases exceeded that of the post-merger MUFG for six months (withdecreases in the first half of the fiscal year reflecting that of the pre-merger MTFG only), while net interest income for the fiscal year ended March 31, 2007 reflected that of the post-merger MUFG for the full twelve-month period. For the fiscal year ended March 31, 2007,average interest rates in Japan, the United Stateson both domestic and Europe generally increased. In the rising interest rate environment in Japan during the fiscal year ended March 31, 2007, the increase in average rates on domesticforeign interest-earning assets, such as loans, was larger than the increase in average rates on domestic interest-bearing funds, such as deposits. This increase in interest rate spread contributed to the increase in our net interest income.assets.
The average interest rate spread on interest-bearing fundsliabilities increased showing an increase of 12four basis points from 1.12%1.19% for the fiscal year ended March 31, 20062008 to 1.24%1.23% for the fiscal year ended March 31, 2007. The2009. For the fiscal year ended March 31, 2009, the average rate on interest-earning assets decreased mainly due to lower foreign interest rates. However, the average rate on interest-bearing liabilities further decreased, which resulted in an increase of the average interest rate spread on interest-bearing liabilities, mainly due to the lower foreign interest rates. The net interest income as a percentage of total funds alsointerest-earning assets increased, showing an increase of 16one basis pointspoint from 1.22%1.32% for the fiscal year ended March 31, 20062008 to 1.38%1.33% for the fiscal year ended March 31, 2007.2009.
Average interest-earning assets for the fiscal year ended March 31, 20072009 were ¥168,767.3¥173,242.7 billion, an increase of ¥33,382.0¥775.4 billion, from ¥135,385.3¥172,467.3 billion for the fiscal year ended March 31, 2006.2008. The increase was primarily attributable to an increase of ¥13,884.9 billion in domestictrading account assets and an increase of ¥3,529.3 billion in foreign loans. These increases were partially offset by a decrease of ¥9,601.7 billion in foreign investment securities, a decrease of ¥2,058.4 billion in foreign interest-earning deposits in other banks and a decrease of ¥2,001.2 billion in call loans, funds sold, and receivables under resale agreements and securities borrowing transactions. The increase in trading account assets aswas mainly due to the average balanceapplication of the fair value option, which resulted in the reclassification of some of our securities available for sale to trading account assets. For further information, see Note 31 to our consolidated financial statements included elsewhere in this Annual Report.
Average interest-bearing liabilities for the fiscal year ended March 31, 2007 reflected that2009 were ¥156,084.9 billion, a decrease of the post-merger results of MUFG for the full twelve-month period compared to the average balance for the previous fiscal year, which reflected only that of the post-merger MUFG for six months (with the first half of the fiscal year reflecting that of the pre-merger MTFG only).
Average interest-bearing funds for the fiscal year ended March 31, 2007 were ¥146,796.0 billion, an increase of ¥28,675.8¥67.1 billion, from ¥118,120.2¥156,152.0 billion for the fiscal year ended March 31, 2006.2008. The increasedecrease was primarily attributable to a decrease of ¥1,830.1 billion in foreign interest-bearing deposits and a decrease of ¥802.6 billion in domestic long-term debt. These decreases were partially offset by an increase of ¥2,581.3 billion in domestic interest-bearing deposits. The decrease in foreign interest-bearing deposits was mainly due to
the fact that large deposits from foreign financial institutions decreased in response to the recent difficult market conditions in addition to the appreciation of the Japanese yen against the US dollar and other foreign currencies. The increase in domestic interest-bearing deposits was mainly duepartially attributable to the fact that the fiscal year ended March 31, 2006 reflected only six monthsattractive interest rates of the post-merger MUFG (with the first half of the fiscal year reflecting the pre-merger MTFG only), while the fiscal year ended March 31, 2007 reflected the post-merger MUFG for the full twelve-month period.our time deposits.
Provision for Credit Losses
Provision for credit losses is charged to operations to maintain the allowance for credit losses at a level deemed appropriate by management. For a description of the approach and methodology used to establish the
allowance for credit losses, see “—B. Liquidity and Capital Resources—Financial Condition—Allowance for Credit Losses, Nonperforming and Past Due Loans.”
Fiscal Year Ended March 31, 20082010 Compared to Fiscal Year Ended March 31, 20072009
Provision for credit losses for the fiscal year ended March 31, 20082010 was ¥385.7¥647.8 billion, an increase of ¥27.1¥20.9 billion from ¥358.6¥626.9 billion for the fiscal year ended March 31, 2007.2009. The increase in provision for credit losses was mainly due to weakening of the downgradefinancial condition of borrowers, especially, in credit rating of certain overseas borrowers.the manufacturing, wholesale and retail, and other industries segments.
Fiscal Year Ended March 31, 20072009 Compared to Fiscal Year Ended March 31, 20062008
Provision for credit losses for the fiscal year ended March 31, 20072009 was ¥358.6¥626.9 billion, an increase of ¥248.4¥241.2 billion from ¥110.2¥385.7 billion for the fiscal year ended March 31, 2006.2008. The increase in provision for credit losses was mainly due to the downgrade in credit ratinggeneral weakening of a large borrower in the transportation industry. Additionally, provision for credit losses increased in the consumer finance industry.financial condition of borrowers, particularly overseas and small and medium sized borrowers.
Non-Interest Income
The following table is a summary of our non-interest income for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in billions) | (in billions) | |||||||||||||||||||||||
Fees and commissions: | ||||||||||||||||||||||||
Trust fees | ¥ | 121.4 | ¥ | 146.0 | ¥ | 156.3 | ¥ | 156.3 | ¥ | 125.4 | ¥ | 107.2 | ||||||||||||
Fees on funds transfer and service charges for collections | 105.5 | 151.3 | 152.9 | 152.9 | 147.7 | 145.9 | ||||||||||||||||||
Fees and commissions on international business | 62.2 | 70.2 | 69.7 | 69.7 | 64.1 | 61.2 | ||||||||||||||||||
Fees and commissions on credit card business | 110.1 | 164.2 | 138.0 | 138.0 | 141.4 | 137.4 | ||||||||||||||||||
Service charges on deposits | 35.9 | 37.5 | 36.1 | 36.1 | 31.6 | 27.4 | ||||||||||||||||||
Fees and commissions on securities business | 145.2 | 136.6 | 130.7 | 130.7 | 112.1 | 129.7 | ||||||||||||||||||
Fees on real estate business | 45.8 | 60.2 | 44.5 | 44.5 | 19.8 | 19.9 | ||||||||||||||||||
Insurance commissions | 48.5 | 52.2 | 43.0 | 43.0 | 28.1 | 22.9 | ||||||||||||||||||
Fees and commissions on stock transfer agency services | 39.4 | 73.7 | 72.3 | 72.3 | 62.9 | 53.0 | ||||||||||||||||||
Guarantee fees | 53.1 | 88.3 | 86.3 | 86.3 | 77.6 | 70.5 | ||||||||||||||||||
Fees on investment funds business | 79.7 | 152.8 | 161.5 | 161.5 | 130.6 | 127.3 | ||||||||||||||||||
Other fees and commissions | 186.5 | 274.2 | 225.8 | 225.8 | 247.2 | 237.1 | ||||||||||||||||||
Total | 1,033.3 | 1,407.2 | 1,317.1 | 1,317.1 | 1,188.5 | 1,139.5 | ||||||||||||||||||
Foreign exchange gains (losses)—net | (322.4 | ) | (162.0 | ) | 1,295.9 | 1,295.9 | (206.2 | ) | 216.7 | |||||||||||||||
Trading account profits—net: | ||||||||||||||||||||||||
Trading account profits (losses)—net: | ||||||||||||||||||||||||
Net profits (losses) on interest rate and other derivative contracts | (347.1 | ) | 212.8 | 520.6 | 520.6 | 555.5 | (88.5 | ) | ||||||||||||||||
Net profits (losses) on trading account securities, excluding derivatives | 363.5 | 192.0 | (122.2 | ) | (122.2 | ) | (813.3 | ) | 850.0 | |||||||||||||||
Total | 16.4 | 404.8 | 398.4 | 398.4 | (257.8 | ) | 761.5 | |||||||||||||||||
Investment securities gains (losses)—net: | ||||||||||||||||||||||||
Net gains on sales of securities available for sale: | ||||||||||||||||||||||||
Debt securities | 155.7 | 188.5 | 1.2 | 1.2 | 120.9 | 83.7 | ||||||||||||||||||
Marketable equity securities | 196.7 | 105.7 | 83.8 | 83.8 | 28.4 | 213.5 | ||||||||||||||||||
Impairment losses on securities available for sale: | ||||||||||||||||||||||||
Debt securities | (275.9 | ) | (38.1 | ) | (1,169.1 | ) | (1,169.1 | ) | (155.5 | ) | (29.8 | ) | ||||||||||||
Marketable equity securities | (5.2 | ) | (71.3 | ) | (331.3 | ) | (331.3 | ) | (660.7 | ) | (62.9 | ) | ||||||||||||
Other | 18.6 | 53.5 | 42.3 | 42.3 | 8.2 | 18.5 | ||||||||||||||||||
Total | 89.9 | 238.3 | (1,373.1 | ) | (1,373.1 | ) | (658.7 | ) | 223.0 | |||||||||||||||
Equity in earnings (losses) of equity method investees | 22.3 | (56.9 | ) | (34.5 | ) | |||||||||||||||||||
Government grant for transfer of substitutional portion of Employees’ Pension Fund Plans | 103.0 | — | — | |||||||||||||||||||||
Equity in losses of equity method investees | (34.5 | ) | (60.1 | ) | (104.0 | ) | ||||||||||||||||||
Gains on sales of loans | 34.8 | 23.1 | 11.8 | 11.8 | 6.4 | 21.2 | ||||||||||||||||||
Other non-interest income | 90.1 | 93.4 | 162.5 | 162.5 | 163.0 | 196.0 | ||||||||||||||||||
Total non-interest income | ¥ | 1,067.4 | ¥ | 1,947.9 | ¥ | 1,778.1 | ¥ | 1,778.1 | ¥ | 175.1 | ¥ | 2,453.9 | ||||||||||||
Net foreign exchange gains (losses) primarily include transaction gains (losses) on the translation into Japanese yen of monetary assets and liabilities denominated in foreign currencies and net gains (losses) on currency derivative instruments entered into for trading purposes. The transaction gains (losses) on the translation into Japanese yen fluctuate from period to period depending upon the spot rates at the end of each fiscal year. In principle, all transaction gains (losses) on translation of monetary liabilities denominated in foreign currencies are included in current earnings. Transaction gains (losses) on translation into Japanese yen of securities available for sale, such as bonds denominated in foreign currencies, are not included in current earnings, but are reflected in other changes in equity from nonowner sources. However, if we recognize an impairment loss on foreign currency-denominated securities available for sale due to the appreciation of the Japanese yen against the relevant foreign currency, such impairment loss is included in current earnings as part of investment securities losses.gains (losses).
Net trading account profits (losses) primarily include net gains (losses) on trading account securities and interest rate and other derivative instruments entered into for trading purposes. Trading account assets or liabilities are carried at fair value and any changes in the value of trading account assets or liabilities, including interest rate derivatives, are recorded in net trading account profits.profits (losses). Derivative instruments for trading purposes also include those used as hedges of net exposures rather than for specifically identified assets or liabilities, which do not meet the specific criteria for hedge accounting.
Net investment securities gains (losses) primarily include net gains (losses) on sales of marketable securities, particularly debt securities and marketable equity securities that are classified as securities available for sale. In addition, impairment losses are recognized as an offset of net investment securities gains (losses) when management concludes that declines in fair value of investment securities are other than temporary.
Fiscal Year Ended March 31, 20082010 Compared to Fiscal Year Ended March 31, 20072009
Non-interest income for the fiscal year ended March 31, 20082010 was ¥1,778.1¥2,453.9 billion, a decreasean increase of ¥169.8¥2,278.8 billion, from ¥1,947.9¥175.1 billion for the fiscal year ended March 31, 2007.2009. This decrease was primarily dueincrease reflects net foreign exchange gains of ¥216.7 billion for the fiscal year ended March 31, 2010 compared to a decreasenet losses of ¥1,611.4¥206.2 billion infor the fiscal year ended March 31, 2009, net trading account profits of ¥761.5 billion for the fiscal year ended March 31, 2010 compared to net losses of ¥257.8 billion for the fiscal year ended March 31, 2009, and net investment securities gains andof ¥223.0 billion for the fiscal year ended March 31, 2010 compared to net losses of ¥658.7 billion for the fiscal year ended March 31, 2009. These improvements were partially offset by a ¥49.0 billion decrease of ¥90.1 billion in fees and commissions. These decreases were offset by an increase of ¥1,457.9commissions from ¥1,188.5 billion in net foreign exchange gains and an increase of ¥69.1for the fiscal year ended March 31, 2009 to ¥1,139.5 billion in other non-interest income.for the fiscal year ended March 31, 2010.
Fees and commissions
Fees and commissions for the fiscal year ended March 31, 20082010 were ¥1,317.1¥1,139.5 billion, a decrease of ¥90.1¥49.0 billion from ¥1,407.2¥1,188.5 billion for the fiscal year ended March 31, 2007.2009. This decrease was primarily due to a decrease of ¥18.2 billion in trust fees, a decrease of ¥9.9 billion in fees and commissions on stock transfer agency services and a decrease of ¥7.1 billion in guarantee fees. The decreases in the various categories of fees and commissions reflected the general decrease in transaction volume for all types of financial transactions and activities as the economy remained weak. The decrease of the various categories was partially offset by a ¥17.6 billion increase in fees and commissions on securities businesses from the prior fiscal year as the overall volume of securities trading recovered with the improvement in stock prices in general.
Net foreign exchange gains (losses)
Net foreign exchange gains for the fiscal year ended March 31, 2010 were ¥216.7 billion, compared to net foreign exchange losses of ¥206.2 billion for the fiscal year ended March 31, 2009. The gains in foreign exchange were mainly due to an improvement in our overall position in currency swap contracts and options fees, partially offset by the losses associated with the appreciation of Japanese yen against the US dollar and other currencies.
Net trading account profits (losses)
Net trading account profits of ¥761.5 billion were recorded for the fiscal year ended March 31, 2010, compared to net trading account losses of ¥257.8 billion for the fiscal year ended March 31, 2009. This improvement was largely due to the net profits on trading account securities, excluding derivatives, of ¥850.0 billion for the fiscal year ended March 31, 2010, compared to net losses of ¥813.3 billion for the fiscal year ended March 31, 2009. This improvement mainly reflected an increase in profit on evaluation of foreign currency denominated securities that was recorded under the fair value option. This was partially offset by a net loss of ¥88.5 billion on interest rate and other derivative contracts for the fiscal year ended March 31, 2010 as compared
to net profits of ¥555.5 billion for the fiscal year ended March 31, 2009. Net losses on interest rate and other derivative contracts were mainly reflective of a ¥217 billion loss in equity contracts and a ¥97 billion loss in credit derivatives, partially offset by a ¥213 billion profit in interest rate contracts. Those derivative contracts were primarily held for risk management purposes, yet the majority did not meet the conditions to qualify for hedge accounting under US GAAP and thus were accounted for as trading positions.
Net investment securities gains (losses)
Net investment securities gains for the fiscal year ended March 31, 2010 were ¥223.0 billion compared to a net loss of ¥658.7 billion for the fiscal year ended March 31, 2009.
The net investment securities losses for the fiscal year ended March 31, 2009 mainly reflected large impairment losses of ¥660.7 billion on marketable equity securities available for sale and of ¥155.5 billion on debt securities available for sale. Impairment losses associated with marketable equity securities and debt securities available for sale for the fiscal year ended March 31, 2010 were ¥62.9 billion and ¥29.8 billion respectively, as the global market conditions throughout the fiscal year ended March 31, 2010 did not deteriorate further than the levels recorded at the end of the fiscal year ended March 31, 2009. In addition, net gains on sales of marketable equity securities increased to ¥213.5 billion for the fiscal year ended March 31, 2010 from ¥28.4 billion for the fiscal year ended March 31, 2009, reflecting the weak yet slightly improving market conditions as well as our increased volume of sales, while net gains on sales of debt securities available for sale decreased to ¥83.7 billion for the fiscal year ended March 31, 2010 from ¥120.9 billion for the fiscal year ended March 31, 2009, reflecting a decrease in the volume of sales of domestic securities by our banking subsidiaries.
Equity in losses of equity method investees
We recorded equity in losses of equity method investees of ¥104.0 billion for the fiscal year ended March 31, 2010, an increase of ¥43.9 billion from ¥60.1 billion for the fiscal year ended March 31, 2009. The larger losses in the fiscal year ended March 31, 2010 were mainly due to increased losses associated with our equity method investees primarily in the consumer finance industry.
Fiscal Year Ended March 31, 2009 Compared to Fiscal Year Ended March 31, 2008
Non-interest income for the fiscal year ended March 31, 2009 was ¥175.1 billion, a decrease of ¥1,603.0 billion from ¥1,778.1 billion for the fiscal year ended March 31, 2008. This decrease was primarily due to a decrease of ¥1,502.1 billion in foreign exchange gains and a decrease of ¥656.2 billion in trading account profits. These decreases were partially offset by a decrease of ¥714.4 billion in investment securities losses.
Fees and commissions
Fees and commissions for the fiscal year ended March 31, 2009 were ¥1,188.5 billion, a decrease of ¥128.6 billion from ¥1,317.1 billion for the fiscal year ended March 31, 2008. This decrease was primarily attributable to a decrease of ¥48.4¥30.9 billion in othertrust fees, and commissions, a decrease of ¥26.2¥30.9 billion in fees and commissions on credit cardinvestment funds business, and a decrease of ¥15.7¥24.7 billion in fees on real estate business due to a decrease of business volume.
Net foreign exchange gains (losses)
Net foreign exchange gainslosses for the fiscal year ended March 31, 20082009 were ¥1,295.9¥206.2 billion, compared to net foreign exchange lossesgains of ¥162.0¥1,295.9 billion for the fiscal year ended March 31, 2007.2008. The improvementlosses in foreign exchange gains (losses) waswere mainly due mainly to the larger appreciation of the Japanese yen against the US dollar in the fiscal year ended March 31, 2008,2009, compared to the fiscal year ended March 31, 2007.2008. For reference, the foreign exchange rate expressed in Japanese yen per US$1.00 by BTMU was ¥117.47 at March 31, 2006, ¥118.05 at March 30, 2007, and ¥100.19 at March 31, 2008. All2008 and ¥98.23 at March 31, 2009. As a result of adopting the fair value option, in principle, all transaction gains or
losses on translation of eligible monetary assets and liabilities denominated in foreign currencies are included in current earnings. We recorded losses on translation of securities available for sale denominated in foreign currencies as non-interest income for the fiscal year ended March 31, 2009, which were recorded as other comprehensive income in prior fiscal years. As we maintain monetary assets and liabilities denominated in foreign currencies for our asset liability management, net foreign exchange gains (losses)or losses fluctuate with the appreciation (depreciation)or depreciation of the Japanese yen.
Net trading account profits (losses)
Net trading account profitslosses of ¥398.4¥257.8 billion were recorded for the fiscal year ended March 31, 2008,2009, compared to net trading account profits of ¥404.8¥398.4 billion for the fiscal year ended March 31, 2007.
2008. Net profits (losses) on interest rate and other derivative contracts were largely affected by the impact of the decrease (increase) in Japanese long-term interest rates on interest rate swaps principally held for risk management purposes. Although such contracts are generally entered into for risk management purposes, athe majority of them did not meet the conditions to qualify for hedge accounting under US GAAP and thus are accounted for as trading positions.
Though Both Japanese yen short-term interest rates and long-term interest rates generally rosedeclined during the fiscal year ended March 31, 20082009 compared to the previous fiscal year, long-term interest rates generally declined. This declineyear. These declines in short-term and long-term interest rates had a favorable impact on our interest rate swap portfolios, in which we generally maintained net receive-fix and pay-variable positions, for managing interest rate risksrisk on domestic deposits. TheHowever, the increase in net profits on interest rate and other derivative contracts of ¥307.8¥34.9 billion was offset by a decreasean increase in net profitslosses on trading account securities, excluding derivatives, of ¥314.2¥691.1 billion, primarilymainly reflecting the increase in loss on sales and revaluation from trading in debt and equity securities, including securities reclassified under the fair value option, primarily due to unfavorable market conditions.
Net investment securities gains (losses)
Net investment securities losses for the fiscal year ended March 31, 20082009 were ¥1,373.1¥658.7 billion, compared to net investment securities gainsa decrease of ¥238.3¥714.4 billion, from ¥1,373.1 billion for the fiscal year ended March 31, 2007.2008.
The net investment securities losses for the fiscal year ended March 31, 20082009 mainly reflected the impairment losses of ¥1,169.1 billion on debt securities available for sale and of ¥331.3¥660.7 billion on marketable equity securities available for sale and of ¥155.5 billion on debt securities available for sale. The increase in impairmentImpairment losses on debt securities was mainlyfor the fiscal year ended March 31, 2008 were ¥1,169.1 billion due to the appreciation of the Japanese yen against the US dollar indollar. The impairment losses on debt securities for the fiscal year ended March 31, 2009 substantially decreased by ¥1,013.6 billion, compared to those for the fiscal year ended March 31, 2008, compareddue to the fiscal year ended March 31, 2007. The amount of impairment losses attributable to the appreciationelection of the Japanese yen againstfair value option for certain foreign currencies was ¥863.2 billion.securities. The increase in impairment losses on marketable equity securities was due to a general decline in Japanese stock prices in the fiscal year 2008.ended March 31, 2009. The Nikkei Stock Average, which is an average of 225 blue chip stocks listed on the Tokyo Stock Exchange, was ¥17,287.65 at March 30, 2007 and ¥12,525.54 at March 31, 2008.2008 and ¥8,109.53 at March 31, 2009.
Equity in earnings (losses)losses of equity method investees
We recorded equity in losses of equity method investees of ¥60.1 billion for the fiscal year ended March 31, 2009, an increase of ¥25.6 billion, from ¥34.5 billion for the fiscal year ended March 31, 2008, compared to equity in losses of equity method investees of ¥56.9 billion for the fiscal year ended March 31, 2007.2008. The decreaseincrease in losses in the fiscal year ended March 31, 20082009 was mainly due to reducedincreased losses of an equity method investee in the consumer finance business.
Fiscal Year Ended March 31, 2007 Compared to Fiscal Year Ended March 31, 2006
Non-interest income for the fiscal year ended March 31, 2007 was ¥1,947.9 billion, an increase of ¥880.5 billion, from ¥1,067.4 billion for the fiscal year ended March 31, 2006. This increase was primarily due to an increase of ¥388.4 billion in net trading account profits, an increase of ¥373.9 billion in fees and commissions and an increase of ¥148.4 billion in net investment securities gains. These increases were partially offset by a decrease of ¥103.0 billion in government grant for the transfer of the substitutional portion of employees’ pension fund plans, as there were no such transfers for the fiscal year ended March 31, 2007.
Fees and commissions
Fees and commissions for the fiscal year ended March 31, 2007 were ¥1,407.2 billion, an increase of ¥373.9 billion, from ¥1,033.3 billion for the fiscal year ended March 31, 2006. This increase was mainly due to the fact
that the fiscal year ended March 31, 2006 reflected only six months of the post-merger MUFG (with the first half of the fiscal year reflecting the pre-merger MTFG only), while the results for the fiscal year ended March 31, 2007 reflected the post-merger MUFG for the full twelve-month period.
Net foreign exchange gains (losses)
Net foreign exchange losses for the fiscal year ended March 31, 2007 were ¥162.0 billion, compared to net foreign exchange losses of ¥322.4 billion for the fiscal year ended March 31, 2006. The improvement in foreign exchange losses was due mainly to the smaller depreciation of the Japanese yen against foreign currencies in the fiscal year ended March 31, 2007, compared to the fiscal year ended March 31, 2006. For reference, the foreign exchange rate expressed in Japanese yen per US$1.00 by BTMU was ¥107.39 at March 31, 2005, ¥117.47 at March 31, 2006 and ¥118.05 at March 30, 2007. The foreign exchange rate expressed in Japanese yen per €1.00 by BTMU was ¥138.87 at March 31, 2005, ¥142.81 at March 31, 2006 and ¥157.33 at March 30, 2007. All transaction gains or losses on translation of monetary liabilities denominated in foreign currencies are included in current earnings. However, the transaction gains or losses on translation of securities available for sale, such as bonds denominated in foreign currencies, are not included in current earnings but are reflected in other changes in equity from nonowner sources. As we maintain monetary liabilities denominated in foreign currencies forassociated with our asset liability management, net foreign exchange gains (losses) fluctuate with the appreciation (depreciation) of the Japanese yen.
Net trading account profits (losses)
Net trading account profits of ¥404.8 billion were recorded for the fiscal year ended March 31, 2007, compared to net trading account profits of ¥16.4 billion for the fiscal year ended March 31, 2006.
Net profits (losses) on interest rate and other derivative contracts were largely affected by the impact of the increase (decrease) in Japanese long-term interest rates on interest rate swaps principally held for risk management purposes. Although such contracts are generally entered into for risk management purposes, a majority of them did not meet the conditions to qualify for hedge accounting under US GAAP and thus are accounted for as trading positions.
Though Japanese yen short-term interest rates generally rose during the fiscal year ended March 31, 2007 compared to the previous fiscal year, long-term interest rates generally declined. This decline in long-term interest rates had a favorable impact on our interest rate swap portfolios, in which we generally maintained net receive-fix and pay-variable positions, for managing interest rate risks on domestic deposits. The increase in net profits on interest rate and other derivative contracts of ¥559.9 billion was partially offset by a decrease in net profits on trading account securities, excluding derivatives of ¥171.5 billion, primarily reflecting the decline in profits from trading in debt and equity securities at MUS primarily due to unfavorable market conditions.
Net investment securities gains (losses)
Net investment securities gains for the fiscal year ended March 31, 2007 were ¥238.3 billion, an increase of ¥148.4 billion, from ¥89.9 billion for the fiscal year ended March 31, 2006.
The increase in net investment securities gains for the fiscal year ended March 31, 2007 mainly reflected the fact that net gains on sales of Japanese government bonds increased as the book value of such bonds declined due to impairment losses recorded during the fiscal year ended March 31, 2006. The increase was partially offset by a decrease in net gains on sales of marketable equity securities and an increase in impairment losses on marketable equity securities. The decrease in net gains on sales of marketable equity securities for the fiscal year ended March 31, 2007 was partly due to a one-time adjustment to the book value of some of our marketable equity securities in connection with the merger with UFJ Holdings. The increase in impairment losses on marketable equity securities was due to the fact that a larger number of our marketable equity securities were trading at depressed prices in a stagnant Japanese stock market in the fiscal year 2007, compared to a generally rising stock
market in the previous fiscal year. The Nikkei Stock Average, which is an average of 225 blue chip stocks listed on the Tokyo Stock Exchange, was ¥11,668.95 at March 31, 2005, ¥17,059.66 at March 31, 2006 and ¥17,287.65 at March 30, 2007.
Equity in earnings (losses) of equity method investees
We recorded equity in losses of equity method investees for the fiscal year ended March 31, 2007 of ¥56.9 billion, compared to equityprimarily in earnings of equity method investees of ¥22.3 billion for the fiscal year ended March 31, 2006. The negative change in the fiscal year ended March 31, 2007 was mainly due to losses in an equity method investee in the consumer finance business.and regional banking.
Non-Interest Expense
The following table shows a summary of our non-interest expense for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||
| (in billions) | (in billions) | |||||||||||||||||
Salaries and employee benefits | ¥ | 746.4 | ¥ | 862.4 | ¥ | 909.8 | ¥ | 909.8 | ¥ | 873.4 | ¥ | 908.2 | ||||||
Occupancy expenses—net | 146.9 | 179.4 | 173.2 | 173.2 | 171.9 | 171.1 | ||||||||||||
Fees and commission expenses | 218.4 | 238.0 | 218.1 | 218.1 | 209.8 | 196.5 | ||||||||||||
Outsourcing expenses, including data processing | 168.0 | 267.9 | 248.2 | 248.2 | 267.8 | 215.4 | ||||||||||||
Depreciation of premises and equipment | 81.3 | 118.9 | 179.6 | 179.6 | 132.1 | 120.3 | ||||||||||||
Amortization of intangible assets | 179.5 | 264.9 | 252.9 | 252.9 | 278.2 | 225.0 | ||||||||||||
Impairment of intangible assets | 0.3 | 184.8 | 78.7 | 78.7 | 126.9 | 12.4 | ||||||||||||
Insurance premiums, including deposit insurance | 89.7 | 112.8 | 112.4 | 112.4 | 113.8 | 112.5 | ||||||||||||
Minority interest in income of consolidated subsidiaries | 157.2 | 16.9 | 39.4 | |||||||||||||||
Communications | 44.4 | 62.2 | 65.3 | 65.3 | 62.9 | 57.1 | ||||||||||||
Taxes and public charges | 58.3 | 79.7 | 83.4 | 83.4 | 85.7 | 69.1 | ||||||||||||
Provision for repayment of excess interest | 12.9 | 106.2 | 2.8 | 2.8 | 47.9 | 44.8 | ||||||||||||
Impairment of goodwill | — | — | 893.7 | 893.7 | 845.8 | 0.5 | ||||||||||||
Other non-interest expenses | 172.8 | 290.1 | 402.2 | 402.2 | 392.6 | 375.2 | ||||||||||||
Total non-interest expense | ¥ | 2,076.1 | ¥ | 2,784.2 | ¥ | 3,659.7 | ¥ | 3,620.3 | ¥ | 3,608.8 | ¥ | 2,508.1 | ||||||
Fiscal Year Ended March 31, 20082010 Compared to Fiscal Year Ended March 31, 20072009
Non-interest expense for the fiscal year ended March 31, 20082010 was ¥3,659.7¥2,508.1 billion, an increasea decrease of ¥875.5¥1,100.7 billion from ¥3,608.8 billion for the previous fiscal year. This increasedecrease was primarily dueattributable to the significant decrease in impairment of both goodwill which weand other intangible assets. Impairment charges recorded duringwith respect to goodwill and other intangible assets were ¥0.5 billion and ¥12.4 billion, respectively, for the fiscal year ended March 31, 2008 in the amount of ¥893.72010, as compared to ¥845.8 billion but for which we did not record any amountand ¥126.9 billion, respectively, for the previous fiscal year.year ended March 31, 2009. The increasedecrease in these non-interest expenses was partially offset by decreasesa ¥34.8 billion increase in impairment of intangible assetssalaries and provision for repayment of excess interest.employee benefits.
Salaries and employee benefits
Salaries and employee benefits for the fiscal year ended March 31, 20082010 were ¥909.8¥908.2 billion, an increase of ¥47.4¥34.8 billion from ¥862.4¥873.4 billion for the previous fiscal year. This increase was mainly due to an increase in allowance for bonuses reflecting the one-time severance payments related toimprovement in operating results and an earlyincrease in employee retirement program, totaling approximately ¥37expenses as a result of an increase in the number of employees who retired in the fiscal year ended March 31, 2010 and an increase in amortization of net actuarial loss.
Fees and commission expenses
Fees and commission expenses for the fiscal year ended March 31, 2010 were ¥196.5 billion, made by a consumer finance subsidiary.decrease of ¥13.3 billion from ¥209.8 billion for the fiscal year ended March 31, 2009. The decrease reflects the overall decrease in transaction volume for all types of financial transactions and activities as the economy remained weak.
Depreciation of premises and equipment
Depreciation of premises and equipment for the fiscal year ended March 31, 20082010 was ¥179.6¥120.3 billion, an increasea decrease of ¥60.7¥11.8 billion from ¥118.9¥132.1 billion for the previous fiscal year. This decrease was primarily attributable to a smaller base for depreciation in which we applied the declining-balance method.
Amortization of Intangible Assets
Amortization of intangible assets for the fiscal year ended March 31, 2010 was ¥225.0 billion, a decrease of ¥53.2 billion from ¥278.2 billion for the previous fiscal year. The decrease was mainly due to a ¥31.4 billion decrease in amortization expenses on software at BTMU and termination of some of our software outsourcing contracts that reduced amortization expenses by ¥13.2 billion during the fiscal year ended March 31, 2010.
Impairment of intangible assets
Impairment of intangible assets for the fiscal year ended March 31, 2010 was ¥12.4 billion, a decrease of ¥114.5 billion from ¥126.9 billion for the previous fiscal year. The decrease reflected the fact that, as compared to the significant impairment of intangible assets related to our consumer finance subsidiary for the fiscal year ended March 31, 2009, we did not have an equally significant impairment of intangible assets for the fiscal year ended March 31, 2010.
Impairment of goodwill
In the fiscal year ended March 31, 2010, we recorded an impairment of goodwill of ¥0.5 billion that was significantly lower than the impairment of goodwill of ¥845.8 billion for the previous fiscal year. The impairment of goodwill for the previous fiscal year reflected, among other factors, the global financial market crisis and recession which negatively impacted the fair value of our reporting units for the purposes of our periodic testing of goodwill for impairment. For further information, see Note 8 to our consolidated financial statements included elsewhere in this Annual Report.
Fiscal Year Ended March 31, 2009 Compared to Fiscal Year Ended March 31, 2008
Non-interest expense for the fiscal year ended March 31, 2009 was ¥3,608.8 billion, a decrease of ¥11.5 billion from ¥3,620.3 billion for the previous fiscal year. This decrease was primarily due to a decrease of impairment of goodwill, depreciation of premises and equipment, and salaries and employee benefits. The decrease in these non-interest expenses was partially offset by an increase in impairment of intangible assets, provision for repayment of excess interest, amortization of intangible assets and outsourcing expenses, including data processing.
Salaries and employee benefits
Salaries and employee benefits for the fiscal year ended March 31, 2009 were ¥873.4 billion, a decrease of ¥36.4 billion from ¥909.8 billion for the previous fiscal year. This decrease was mainly due to the fact that our credit card subsidiary paid early retirement benefits during the fiscal year ended March 31, 2008, which were not paid for in the fiscal year ended March 31, 2009.
Depreciation of premises and equipment
Depreciation of premises and equipment for the fiscal year ended March 31, 2009 was ¥132.1 billion, a decrease of ¥47.5 billion from ¥179.6 billion for the previous fiscal year. This decrease primarily reflected the fact
that the depreciation of premises and equipment increased significantly for the fiscal year ended March 31, 2008, because we reviewed the salvage values of premises and equipment and decided to change the estimated salvage values of these assets to ¥1 during the fiscal year ended March 31, 2008. This change had an adverse impact on our income from continuing operations before income tax expense and net loss of ¥53 billion and ¥31 billion, respectively, forFor the fiscal year ended March 31, 2008.2009, we did not have such additional depreciation and this resulted in a decrease of depreciation of premises and equipment compared to the previous year. For further information, see Note 1 to our consolidated financial statements included elsewhere in this Annual Report.
Impairment of intangible assets
Impairment of intangible assets for the fiscal year ended March 31, 20082009 was ¥78.7¥126.9 billion, a decreasean increase of ¥106.1¥48.2 billion, from ¥184.8¥78.7 billion for the previous fiscal year. The decreaseincrease was mainly due to our having noan increase in impairment of intangible assets related to a subsidiary in theour consumer finance business whereas a significant amount was provided during the previous fiscal year.subsidiary.
Provision for repayment of excess interest
Provision for repayment of excess interest for the fiscal year ended March 31, 20082009 was ¥2.8¥47.9 billion, a decreasean increase of ¥103.4¥45.1 billion from ¥106.2¥2.8 billion for the previous fiscal year. The decreaseincrease was mainly due to a decreasean increase in the provision for repayment of excess interest at our consumer finance subsidiaries.credit card subsidiary following developments in recent court cases relating to gray-zone interest repayment claims.
Impairment of goodwill
In the fiscal year ended March 31, 2008,2009, we recorded an impairment of goodwill of ¥893.7¥845.8 billion. We recorded an impairment in goodwill due to, among other factors, the recent global financial market instabilitycrisis and recession which negatively impacted the fair value of our reporting units for the purposes of our periodic testing of goodwill for impairment. We did not recordrecorded an impairment of goodwill of ¥893.7 billion for the fiscal year ended March 31, 2007.2008. For further information, see Note 108 to our consolidated financial statements included elsewhere in this Annual Report.
Fiscal Year Ended March 31, 2007 Compared to Fiscal Year Ended March 31, 2006
Non-interest expense for the fiscal year ended March 31, 2007 was ¥2,784.2 billion, an increase of ¥708.1 billion from the previous fiscal year. This increase was primarily due to increases in most types of expenses, especially salaries and employee benefits and other non-interest expenses. These increases reflected the fact that the fiscal year ended March 31, 2006 reflected only six months of the post-merger MUFG (with the first half of the fiscal year reflecting the pre-merger MTFG only), while the results for the fiscal year ended March 31, 2007 reflected the post-merger MUFG for the full twelve-month period.
Outsourcing expenses, including data processing
Outsourcing expenses, including data processing, for the fiscal year ended March 31, 2007 was ¥267.9 billion, an increase of ¥99.9 billion, from ¥168.0 billion for the previous fiscal year. The increase was mainly due to increased expenses related to the merger with UFJ Holdings.
Amortization of intangible assets
Amortization of intangible assets for the fiscal year ended March 31, 2007 was ¥264.9 billion, an increase of ¥85.4 billion, from ¥179.5 billion for the previous fiscal year. This increase was mainly due to the amortization of core deposit intangibles recognized in the merger with UFJ Holdings, as well as the amortization of IT systems-related software, which also increased due to the merger.
Impairment of intangible assets
Impairment of intangible assets for the fiscal year ended March 31, 2007 was ¥184.8 billion, an increase of ¥184.5 billion, from ¥0.3 billion for the previous fiscal year. The increase was mainly due to the impairment of
intangible assets related to our subsidiary in the consumer finance business caused by the downward revision of projected earnings of the subsidiary due to adverse changes in the consumer finance business environment.
Minority interest in income of consolidated subsidiaries
Minority interest in income of consolidated subsidiaries for the fiscal year ended March 31, 2007 was ¥16.9 billion, a decrease of ¥140.3 billion, from ¥157.2 billion for the previous fiscal year. The decrease mainly reflects a decrease in income from our consolidated subsidiaries and variable interest entities, including, in particular, losses recorded at a consumer finance subsidiary.
Provision for repayment of excess interest
Provision for repayment of excess interest for the fiscal year ended March 31, 2007 was ¥106.2 billion, an increase of ¥93.3 billion from ¥12.9 billion for the previous fiscal year. The increase was mainly due to an increase in allowance for repayment at our consumer finance subsidiaries which reflected a rise in borrowers’ claims for reimbursement of excess interest payments.
Income Tax Expense (Benefit)
The following table presents a summary of our income tax expense:expense (benefit):
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in billions, except percentages) | (in billions, except percentages) | |||||||||||||||||||||||
Income from continuing operations before income tax expense and cumulative effect of a change in accounting principle | ¥ | 529.7 | ¥ | 1,134.9 | ¥ | 12.4 | ||||||||||||||||||
Income tax expense | ¥ | 165.5 | ¥ | 552.8 | ¥ | 553.1 | ||||||||||||||||||
Income (loss) from continuing operations before income tax expense (benefit) | ¥ | 51.8 | ¥ | (1,764.2 | ) | ¥ | 1,282.1 | |||||||||||||||||
Income tax expense (benefit) | ¥ | 553.1 | ¥ | (259.9 | ) | ¥ | 407.0 | |||||||||||||||||
Effective income tax rate | 31.2 | % | 48.7 | % | 4,476.3 | % | 1,068.6 | % | 14.7 | % | 31.7 | % | ||||||||||||
Combined normal effective statutory tax rate | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | ||||||||||||
Reconciling items between the combined normal effective statutory tax rates and the effective income tax rates for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 are summarized as follows:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||
Combined normal effective statutory tax rate | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | ||||||
Increase (decrease) in taxes resulting from: | ||||||||||||||||||
Nondeductible expenses | 0.7 | 0.2 | 24.9 | 5.9 | (0.2 | ) | 0.2 | |||||||||||
Dividends from foreign subsidiaries | 1.6 | 0.9 | 101.8 | 24.3 | (0.3 | ) | 0.0 | |||||||||||
Foreign tax credit and payments | 1.4 | 0.8 | 10.2 | |||||||||||||||
Foreign tax credits and payments | 2.4 | (0.7 | ) | 0.7 | ||||||||||||||
Lower tax rates applicable to income of subsidiaries | (6.9 | ) | (0.5 | ) | (79.0 | ) | (18.9 | ) | 0.0 | (0.7 | ) | |||||||
Minority interests | 9.5 | 0.6 | 143.7 | |||||||||||||||
Change in valuation allowance | 0.2 | 7.2 | 1,400.7 | 334.3 | (2.3 | ) | (5.8 | ) | ||||||||||
Realization of previously unrecognized tax effects of subsidiaries | (16.5 | ) | — | (5.0 | ) | (1.2 | ) | (1.7 | ) | (0.9 | ) | |||||||
Nontaxable dividends received | (1.7 | ) | (1.4 | ) | (152.3 | ) | (36.3 | ) | 0.4 | (0.1 | ) | |||||||
Tax expense on capital transactions by a subsidiary | 4.4 | — | — | |||||||||||||||
Impairment of goodwill | — | — | 2,937.4 | 701.2 | (19.5 | ) | 0.0 | |||||||||||
Undistributed earnings of subsidiaries | 2.2 | 0.9 | 36.3 | 8.7 | (1.5 | ) | (1.6 | ) | ||||||||||
Tax and interest expense for uncertainty in income taxes | 2.0 | (1.0 | ) | 0.6 | ||||||||||||||
Other—net | (4.3 | ) | (0.6 | ) | 17.0 | 5.6 | 0.9 | (1.3 | ) | |||||||||
Effective income tax rate | 31.2 | % | 48.7 | % | 4,476.3 | % | 1,068.6 | % | 14.7 | % | 31.7 | % | ||||||
The effective income tax rate of 4,476.3%31.7% for the fiscal year ended March 31, 2010 was 8.9 percentage points lower than the combined normal effective statutory tax rate of 40.6%. This lower effective income tax rate primarily reflected a decrease in the valuation allowance against deferred tax assets which accounted for 5.8 percentage points of the difference between the combined normal effective statutory tax rate and the effective
income tax rate. The valuation allowance decreased ¥88.3 billion to ¥641.6 billion at Mach 31, 2010 from ¥729.9 billion at March 31, 2009, as a result of our projected ability to utilize net operating loss carryforward, against future taxable income for the fiscal year ended March 31, 2010 in excess of the previously projected taxable income for the fiscal year ended March 31, 2009 and improved probability of realization of future tax benefits based on increased expected taxable income in future periods.
The effective income tax rate of 14.7% for the fiscal year ended March 31, 2009 was 25.9 percentage points lower than the combined normal effective statutory tax rate of 40.6%. This lower effective income tax rate primarily reflected an impairment loss on goodwill which was recognized as a result of declines in the fair value of reporting units used for impairment testing purposes due to the continuing global financial market instability. In addition, this lower tax rate reflected the increased valuation allowance for operating loss carryforwards that were no longer deemed to be realizable due to the global economic slowdown.
The effective income tax rate of 1,068.6% for the fiscal year ended March 31, 2008 was 4,435.71,028.0 percentage points higher than the combined normal effective statutory tax rate of 40.6%. This higher effective income tax rate was primarily due to the fact that an impairment of goodwill was recorded under US GAAP, decreasing our income from
continuing operations before income tax expense and the cumulative effect of a change in accounting principle to ¥12.4of ¥51.8 billion for the fiscal year ended March 31, 2008. Under Japanese tax law, such impairment of goodwill was not deductible in computing our taxable income and, accordingly, our income tax expense was significantly higher in comparison to our income from continuing operations before income tax expense and cumulative effect of a change in accounting principle reported under US GAAP. In addition, the higher effective income tax rate reflected an additional valuation allowance related to operating loss carryforwards that were no longer deemed to be “more likely than not” to be realized, due to a decline in estimated future taxable income resulting from the downturn in financial and banking businesses caused by disruptions in the global financial markets.
The effectiveNet income tax rate(loss) attributable to noncontrolling interests
Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009
We recorded net income attributable to noncontrolling interests of 48.7%¥15.3 billion for the fiscal year ended March 31, 20072010, compared to a net loss attributable to noncontrolling interests of ¥36.3 billion for the previous fiscal year. The improvement was 8.1 percentage points higher thanmainly due to the combined normal effective statutory tax rateabsence of 40.6%. This higher tax rate primarily reflected an addition¥29.1 billion of valuation allowance for certain companies, including a subsidiarygoodwill impairment losses at Mitsubishi UFJ NICOS that was recorded in the consumer finance business.fiscal year ended March 31, 2009.
The effective income tax rate of 31.2%Fiscal Year Ended March 31, 2009 Compared to Fiscal Year Ended March 31, 2008
Our net loss attributable to noncontrolling interests for the fiscal year ended March 31, 20062009 was 9.4 percentage points lower than¥36.3 billion, compared to net income attributable to noncontrolling interests of ¥38.4 billion for the combined normal effective statutory tax rate of 40.6%. This lower tax rate primarily reflected realization of previously unrecognized tax effectsprevious fiscal year. The decrease was mainly due to further investment in conjunction with the liquidation of certain subsidiariesUNBC, which resulted in UNBC becoming a wholly-owned subsidiary and recognition of tax benefits through the reorganization of business within the MUFG Group, which were partly offset by certain items, including minority interests and tax expense on capital transactions by a subsidiary.
We measure the performance of each of our business segments primarily in terms of “operating profit.” Operating profit and other segment information in this Annual Report are based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices. Accordingly, the format and information isare not consistent with our consolidated financial statements prepared on the basis of US GAAP. For example, operating profit does not reflect items such as a part of provision (credit) for credit losses (primarily an equivalent of formula allowance under US GAAP), foreign exchange gains (losses) and equity investment securities gains (losses).
We operate our main businesses under an integrated business group system, which integrates the operations of BTMU, MUTB, MUS,MUMSS (formerly MUS), Mitsubishi UFJ NICOS and other subsidiaries in the following three areas—Retail, Corporate, and Trust Assets. This integrated business group system is intended to enhance
synergies by promoting more effective and efficient collaboration between our subsidiaries. Under this system, as the holding company, we formulate strategystrategies for theour Group on an integrated basis, which is then executed by the subsidiaries. Through this system, we aim to reduce overlapping of functions within theour Group, thereby increasing efficiency and realizing the benefits of group resources and scale of operations. Moreover, through greater integration of our shared expertise in banking, trust and securities businesses, we aim to deliver a more diverse but integrated lineup of products and services for our customers.
Operations that are not covered by the integrated business group system are classified under Global Markets and Other.
The following is a brief explanation of our business segments:
Integrated Retail Banking Business Group—Covers all domestic retail businesses, including commercial banking, trust banking and securities businesses. This business group integrates the retail business of BTMU, MUTB, MUS,MUMSS (formerly MUS), Mitsubishi UFJ NICOS and other subsidiaries as well as retail product development, promotion and marketing in a single management structure. At the same time, thethis business group has developed and implemented MUFG Plaza, a one-stop, comprehensive financial services concept that provides integrated banking, trust and securities services.
Integrated Corporate Banking Business Group—Covers all domestic and overseas corporate businesses, including commercial banking, investment banking, trust banking and securities businesses as well as UNBC. Through the integration of these business lines, diverse financial products and services are provided to our corporate clients. TheThis business group has clarified strategic domains, sales channels and methods to match the different growth stages and financial needs of our corporate customers. As of March 31, 2008, BTMU owned approximately 65% of UNBC, whose shares are listed on the New York Stock Exchange. UNBC is a bank holding company, whose primary subsidiary, Union Bank, of California, N.A., or UBOC,Union Bank, is one of the largest commercial banks in California by both total assets and total deposits. UNBCUnion Bank provides a wide range of financial services to consumers, small businesses, middle market companies and major corporations, primarily in California, Oregon and Washington but also nationally and internationally. On August 29, 2008, BTMU commenced a cash tender offer to acquire all of the shares of UNBC’s common stock not owned by us. For further information, see “—Recent Developments.”
Integrated Trust Assets Business Group—Covers asset management and administration services for products such as pension trusts and security trusts by integrating the trust banking expertise of MUTB and the global network of BTMU. TheThis business group provides a full range of services to corporate and other pension funds, including stable and secure pension fund management and administration, advice on pension schemes and payment of benefits to scheme members.
Global Markets—Consists of the treasury operations of BTMU and MUTB. Global Markets also conducts asset liability management and liquidity management and provides various financial operations such as money markets and foreign exchange operations and securities investments.
Other—Consists mainly of the corporate centers of MUFG, BTMU and MUTB. The elimination of duplicated amounts of net revenue among business segments is also reflected in Other.
The following table sets forth the net revenue, operating expenses and operating profits (loss) of each of our business segments for the periods indicated. Our merger with UFJ Holdings completed on October 1, 2005 was the major factor in the changes in many of the items in our consolidated statements of operations between the fiscal years ended March 31, 2006 and 2007. The results for the fiscal year ended March 31, 2006 reflect the pre-merger results of MTFG for the six months ended September 30, 2005 and the post-merger results of MUFG for the six months ended March 31, 2006. The results for the fiscal years ended March 31, 2007 and 2008 reflect the post-merger results of MUFG for the full twelve-month period.
Effective April 1, 2007, there were changes made in the2009, we modified our managerial accounting methods, including those regarding revenue and expense distribution among MUFG’sour business segments. The presentation set forth below for the fiscal years ended March 31, 2008 and 2009 has been reclassified to conform to the new basis of managerial accounting. For further information, see Note 29 to our consolidated financial statements included elsewhere in this Annual Report. Our business segment information is based on financial information prepared in accordance with Japanese GAAP, as adjusted in accordance with internal management accounting rules and practices and is not consistent with our consolidated financial statements included elsewhere in this Annual Report, which has been prepared in accordance with US GAAP.
(in billions) | Integrated Retail Banking Business Group | Integrated Corporate Banking Business Group | Integrated Trust Assets Business Group | Global Markets | Other | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | Overseas | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other than UNBC | UNBC | Overseas total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Integrated Retail Banking Business Group | Integrated Corporate Banking Business Group | Integrated Trust Assets Business Group | Global Markets | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 918.2 | ¥ | 1,040.7 | ¥ | 234.7 | ¥ | 350.3 | ¥ | 585.0 | ¥ | 1,625.7 | ¥ | 123.4 | ¥ | 369.8 | ¥ | (31.4 | ) | ¥ | 3,005.7 | |||||||||||||||||||||||||||||||||||||||||
Operating expenses | 624.4 | 389.1 | 157.4 | 202.3 | 359.7 | 748.8 | 75.6 | 47.2 | 137.3 | 1,633.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | Overseas | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 293.8 | ¥ | 651.6 | ¥ | 77.3 | ¥ | 148.0 | ¥ | 225.3 | ¥ | 876.9 | ¥ | 47.8 | ¥ | 322.6 | ¥ | (168.7 | ) | ¥ | 1,372.4 | |||||||||||||||||||||||||||||||||||||||||
| Other than UNBC | UNBC | Overseas total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,300.1 | ¥ | 1,297.6 | ¥ | 303.4 | ¥ | 324.3 | ¥ | 627.7 | ¥ | 1,925.3 | ¥ | 194.2 | ¥ | 367.9 | ¥ | 14.8 | ¥ | 3,802.3 | ||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 919.5 | 537.5 | 178.4 | 200.8 | 379.2 | 916.7 | 103.8 | 54.9 | 177.0 | 2,171.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 380.6 | ¥ | 760.1 | ¥ | 125.0 | ¥ | 123.5 | ¥ | 248.5 | ¥ | 1,008.6 | ¥ | 90.4 | ¥ | 313.0 | ¥ | (162.2 | ) | ¥ | 1,630.4 | |||||||||||||||||||||||||||||||||||||||||
| (in billions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,328.9 | ¥ | 1,190.4 | ¥ | 305.1 | ¥ | 296.4 | ¥ | 601.5 | ¥ | 1,791.9 | ¥ | 198.5 | ¥ | 275.3 | ¥ | 25.5 | ¥ | 3,620.1 | ¥ | 1,345.2 | ¥ | 1,192.5 | ¥ | 302.3 | ¥ | 296.4 | ¥ | 598.7 | ¥ | 1,791.2 | ¥ | 198.5 | ¥ | 300.0 | ¥ | (18.7 | ) | ¥ | 3,616.2 | |||||||||||||||||||||
Operating expenses | 957.8 | 572.0 | 183.4 | 187.6 | 371.0 | 943.0 | 98.5 | 56.8 | 192.8 | 2,248.9 | 953.9 | 557.1 | 183.7 | 187.6 | 371.3 | 928.4 | 98.5 | 59.0 | 205.2 | 2,245.0 | ||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 371.1 | ¥ | 618.4 | ¥ | 121.7 | ¥ | 108.8 | ¥ | 230.5 | ¥ | 848.9 | ¥ | 100.0 | ¥ | 218.5 | ¥ | (167.3 | ) | ¥ | 1,371.2 | ¥ | 391.3 | ¥ | 635.4 | ¥ | 118.6 | ¥ | 108.8 | ¥ | 227.4 | ¥ | 862.8 | ¥ | 100.0 | ¥ | 241.0 | ¥ | (223.9 | ) | ¥ | 1,371.2 | ||||||||||||||||||||
Fiscal year ended March 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,320.0 | ¥ | 1,045.0 | ¥ | 358.7 | ¥ | 256.8 | ¥ | 615.5 | ¥ | 1,660.5 | ¥ | 171.1 | ¥ | 396.3 | ¥ | (213.7 | ) | ¥ | 3,334.2 | |||||||||||||||||||||||||||||||||||||||||
Operating expenses | 975.1 | 554.0 | 173.6 | 157.3 | 330.9 | 884.9 | 93.3 | 62.2 | 192.9 | 2,208.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 344.9 | ¥ | 491.0 | ¥ | 185.1 | ¥ | 99.5 | ¥ | 284.6 | ¥ | 775.6 | ¥ | 77.8 | ¥ | 334.1 | ¥ | (406.6 | ) | ¥ | 1,125.8 | |||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,433.3 | ¥ | 945.4 | ¥ | 348.4 | ¥ | 265.3 | ¥ | 613.7 | ¥ | 1,559.1 | ¥ | 157.2 | ¥ | 528.5 | ¥ | (73.0 | ) | ¥ | 3,605.1 | |||||||||||||||||||||||||||||||||||||||||
Operating expenses | 988.2 | 511.7 | 204.6 | 168.1 | 372.7 | 884.4 | 91.4 | 61.3 | 179.2 | 2,204.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 445.1 | ¥ | 433.7 | ¥ | 143.8 | ¥ | 97.2 | ¥ | 241.0 | ¥ | 674.7 | ¥ | 65.8 | ¥ | 467.2 | ¥ | (252.2 | ) | ¥ | 1,400.6 | |||||||||||||||||||||||||||||||||||||||||
Fiscal Year Ended March 31, 20082010 Compared to Fiscal Year Ended March 31, 20072009
Net revenue of the Integrated Retail Banking Business Group increased ¥28.8¥113.3 billion from ¥1,300.1to ¥1,433.3 billion for the fiscal year ended March 31, 2007 to ¥1,328.92010 from ¥1,320.0 billion for the fiscal year ended March 31, 2008.2009. Net revenue of the Integrated Retail Banking Business Group mainly consists of revenue from commercial banking operations, such as deposits and lending operations, and fees related to the sales of investment products to retail customers, as well as fees of subsidiaries within the Integrated Retail Banking Business Group. The increase in net revenue mainly reflects the consolidation for the full fiscal year of ACOM CO., LTD., a consumer finance company which became a consolidated subsidiary for purposes of Japanese GAAP in October 2008. ACOM remains an equity method investee under US GAAP. The increase was partially offset by a decrease in revenue from deposits caused by lower interest rates and a decrease in revenue from the operations of Mitsubishi UFJ NICOS reflecting lower consumption under the depressed economy.
Operating expenses of the Integrated Retail Banking Business Group increased ¥13.1 billion to ¥988.2 billion for the fiscal year ended March 31, 2010 from ¥975.1 billion for the fiscal year ended March 31, 2009. The increase in operating expenses mainly reflects the consolidation of ACOM for the full fiscal year.
Operating profit of the Integrated Retail Banking Business Group increased ¥100.2 billion to ¥445.1 billion for the fiscal year ended March 31, 2010 from ¥344.9 billion for the fiscal year ended March 31, 2009. This increase reflects the consolidation for the full fiscal year of ACOM, which increased operating profit by ¥154.0 billion.
Net revenue of the Integrated Corporate Banking Business Group decreased ¥101.4 billion to ¥1,559.1 billion for the fiscal year ended March 31, 2010 from ¥1,660.5 billion for the fiscal year ended March 31, 2009. Net revenue of the Integrated Corporate Banking Business Group mainly consists of revenues from corporate
lending and other commercial banking operations, investment banking and trust banking businesses in relation to corporate clients, as well as fees of subsidiaries within the Integrated Corporate Banking Business Group. The decrease in net revenue was mainly due to a decrease in net revenue from domestic businesses.
With regard to the domestic businesses, net revenue of ¥945.4 billion was recorded for the fiscal year ended March 31, 2010, a decrease of ¥99.6 billion from the previous fiscal year. This decrease was mainly due to a decrease in net interest income from deposits in other banks and due to losses associated with CDS transactions for managing credit risk exposures, partially offset by an increase in net interest income from corporate lending and an increase in profits from the securities business reflecting an increase in securities trading activity by our customers.
With regard to the overseas businesses, net revenue of ¥613.7 billion was recorded for the fiscal year ended March 31, 2010, a decrease of ¥1.8 billion from the previous fiscal year. This decrease was mainly due to losses associated with CDS hedging for managing credit risk exposures, partially offset by an increase in net interest and fee revenues.
Operating expenses of the Integrated Corporate Banking Business Group were ¥884.4 billion for the fiscal year ended March 31, 2010, a decrease of ¥0.5 billion from the fiscal year ended March 31, 2009.
Operating profit of the Integrated Corporate Banking Business Group decreased ¥100.9 billion to ¥674.7 billion for the fiscal year ended March 31, 2010 from ¥775.6 billion for the fiscal year ended March 31, 2009. This decrease was mainly due to the decrease in net revenue as stated above.
Net revenue of the Integrated Trust Assets Business Group decreased ¥13.9 billion to ¥157.2 billion for the fiscal year ended March 31, 2010 from ¥171.1 billion for the fiscal year ended March 31, 2009. Net revenue of the Integrated Trust Assets Business Group mainly consists of fees from asset management and administration services for products such as pension trusts and investment trusts. The decrease in net revenue was mainly due to a decrease in net revenue from pension trusts and investment trusts.
Operating expenses of the Integrated Trust Assets Business Group decreased ¥1.9 billion to ¥91.4 billion for the fiscal year ended March 31, 2010 from ¥93.3 billion for the fiscal year ended March 31, 2009.
Operating profit of the Integrated Trust Assets Business Group decreased ¥12.0 billion to ¥65.8 billion for the fiscal year ended March 31, 2010 from ¥77.8 billion for the fiscal year ended March 31, 2009. This decrease was mainly due to the decrease in net revenue as stated above.
Net revenue of Global Markets increased ¥132.2 billion to ¥528.5 billion for the fiscal year ended March 31, 2010 from ¥396.3 billion for the fiscal year ended March 31, 2009. The increase in net revenue was mainly due to improved results from our asset liability management for both domestic and overseas operations.
Fiscal Year Ended March 31, 2009 Compared to Fiscal Year Ended March 31, 2008
Net revenue of the Integrated Retail Banking Business Group decreased ¥25.2 billion from ¥1,345.2 billion for the fiscal year ended March 31, 2008 to ¥1,320.0 billion for the fiscal year ended March 31, 2009. Net revenue of the Integrated Retail Banking Business Group mainly consists of revenue from commercial banking operations, such as deposits and lending operations, and fees related to the sales of investment products to retail customers, as well as fees of subsidiaries within the Integrated Retail Banking Business Group. The decrease in net revenue was mainly due to decreases in net interest income in consumer finance as well as fees and commissions on securities businesses and investment funds business, which fully offset increases in net fees and revenue from the deposits and the revenuethose from kabu.com Securities, an online securitiesACOM, a consumer finance company that became a consolidated subsidiary during the fiscal year ended March 31, 2008.2009.
Operating expenses of the Integrated Retail Banking Business Group increased ¥38.3¥21.2 billion from ¥919.5¥953.9 billion for the fiscal year ended March 31, 20072008 to ¥957.8¥975.1 billion for the fiscal year ended March 31, 2008.2009. The increase in operating expenses was primarily due to an increase in expenses related to the integrationconsolidation of IT systems mainly for our merged commercial bank subsidiaries.ACOM.
Operating profit of the Integrated Retail Banking Business Group decreased ¥9.5¥46.4 billion from ¥380.6¥391.3 billion for the fiscal year ended March 31, 20072008 to ¥371.1¥344.9 billion for the fiscal year ended March 31, 2008.2009. This decrease was mainly due to thea decrease in net revenue and increase in operating expenses as stated above.
Net revenue of the Integrated Corporate Banking Business Group decreased ¥133.4¥130.7 billion from ¥1,925.3¥1,791.2 billion for the fiscal year ended March 31, 20072008 to ¥1,791.9¥1,660.5 billion for the fiscal year ended March 31, 2008.2009. Net revenue of the Integrated Corporate Banking Business Group mainly consists of revenues from lending and other commercial banking operations, investment banking and trust banking businesses in relation to corporate clients, as well as fees of subsidiaries within the Integrated Corporate Banking Business Group. The decrease in net revenue was mainly due to decreaseda decrease in net revenue in domestic businesses resulting from a decrease in interest spread and lending volume.businesses.
With regard to the domestic businesses, net revenue of ¥1,190.4¥1,045.0 billion, a decrease of ¥107.2¥147.5 billion from the previous fiscal year, was recorded for the fiscal year ended March 31, 2008.2009. This decrease was mainly due to a decrease in net interest income resulting from loansa decrease in loan interest margin and fees related todecreases in net revenue from sales of derivative products and from securities businesses. Intensified competition with other financial institutions increased downward pressure on the interest spreadThe decrease in net revenue was also attributable to losses from impairment and sales of our lending operations to large and medium-sized Japanese companies, and the recent deterioration in financial markets led to lower transaction volume in securities businesses.securitized products.
With regard to the overseas businesses, net revenue of ¥601.5¥615.5 billion, a decreasean increase of ¥26.2¥16.8 billion from the previous fiscal year, was recorded for the fiscal year ended March 31, 2008. Although2009. This increase was mainly due to an increase in net revenue from overseas lending and foreign exchange businesses to Japanese andbusiness mainly for non-Japanese corporate clients in growing markets in Asia as well as the markets in the Americas and Europe contributed to the expansion of our overseas businesses, net revenue decreased due to further appreciation of the Japanese yen against the US dollar.clients.
Operating expenses of the Integrated Corporate Banking Business Group were ¥943.0¥884.9 billion for the fiscal year ended March 31, 2008, an increase2009, a decrease of ¥26.3¥43.5 billion from the fiscal year ended March 31, 2007.2008.
Operating profit of the Integrated Corporate Banking Business Group decreased ¥159.7¥87.2 billion from ¥1,008.6¥862.8 billion for the fiscal year ended March 31, 20072008 to ¥848.9¥775.6 billion for the fiscal year ended March 31, 2008.2009. This decrease was mainly due to thea decrease in net revenue as stated above.
Net revenue of the Integrated Trust Assets Business Group increased ¥4.3decreased ¥27.4 billion from ¥194.2 billion for the fiscal year ended March 31, 2007 to ¥198.5 billion for the fiscal year ended March 31, 2008.2008 to ¥171.1 billion for the fiscal year ended March 31, 2009. Net revenue of the Integrated Trust Assets Business Group mainly consists of fees from asset management and administration services for products such as pension trusts and investment trusts. The increasedecrease in net revenue was mainly due to an increasea decrease in business innet revenue from pension trusts and investment trusts.
Operating expenses of the Integrated Trust Assets Business Group decreased ¥5.3¥5.2 billion from ¥103.8 billion for the fiscal year ended March 31, 2007 to ¥98.5 billion for the fiscal year ended March 31, 2008. This decrease was mainly due2008 to a decrease in costs of retirement benefits.¥93.3 billion for the fiscal year ended March 31, 2009.
Operating profit of the Integrated Trust Assets Business Group increased ¥9.6decreased ¥22.2 billion from ¥90.4 billion for the fiscal year ended March 31, 2007 to ¥100.0 billion for the fiscal year ended March 31, 2008. This increase was mainly due2008 to the decrease in operating expenses as stated above.
Net revenue of Global Markets decreased ¥92.6 billion from ¥367.9¥77.8 billion for the fiscal year ended March 31, 2007 to ¥275.3 billion for the fiscal year ended March 31, 2008. The2009. This decrease in net revenue was mainly due to losses on sales and impairment losses of investment securities, including asset-backed securities.
Fiscal Year Ended March 31, 2007 Compared to Fiscal Year Ended March 31, 2006
Net revenue of the Integrated Retail Banking Business Group increased ¥381.9 billion, from ¥918.2 billion for the fiscal year ended March 31, 2006 to ¥1,300.1 billion for the fiscal year ended March 31, 2007. Net revenue of the Integrated Retail Banking Business Group mainly consists of revenue from commercial banking operations, such as deposits and lending operations, and fees related to the sales of investment products to retail customers, as well as fees of subsidiaries within the Integrated Retail Banking Business Group. The increase in
net revenue was mainly due to increases in net fees and revenue from the deposits and consumer finance businesses, including those of UFJ NICOS (presently Mitsubishi UFJ NICOS). These increases primarily reflected the fact that the fiscal year ended March 31, 2006 reflected only six months of the post-merger MUFG (with the first half of the fiscal year reflecting the pre-merger MTFG only), while the results for the fiscal year ended March 31, 2007 reflected the post-merger MUFG for the full twelve-month period. Other factors which increased net revenue were increases in fee income from investment trusts and in interest spread from our domestic Japanese Yen deposits.
Operating expenses of the Integrated Retail Banking Business Group increased ¥295.1 billion, from ¥624.4 billion for the fiscal year ended March 31, 2006 to ¥919.5 billion for the fiscal year ended March 31, 2007. The increase primarily reflected the fact that operating expenses for the fiscal year ended March 31, 2006 reflected only those of the post-merger MUFG for six months (with the first half of the fiscal year reflecting those of the pre-merger MTFG only), while operating expenses for the fiscal year ended March 31, 2007 reflected those of the post-merger MUFG for the full twelve-month period. An increase in general expenses due to the expansion of our consumer finance business also increased our operating expenses.
Operating profit of the Integrated Retail Banking Business Group increased ¥86.8 billion from ¥293.8 billion for the fiscal year ended March 31, 2006 to ¥380.6 billion for the fiscal year ended March 31, 2007. This increase was mainly due to the increase in net revenue, as stated above.
Net revenue of the Integrated Corporate Banking Business Group increased ¥299.6 billion, from ¥1,625.7 billion for the fiscal year ended March 31, 2006 to ¥1,925.3 billion for the fiscal year ended March 31, 2007. Net revenue of the Integrated Corporate Banking Business Group mainly consists of revenue from lending and other commercial banking operations, investment banking and trust banking businesses in relation to corporate clients, as well as fees of subsidiaries within the Integrated Corporate Banking Business Group. The increase in net revenue was due mainly to increased net revenue in domestic businesses, resulting from the merger with UFJ Holdings.
With regard to the domestic businesses, net revenue of ¥1,297.6 billion, an increase of ¥256.9 billion from the previous fiscal year, was recorded for the fiscal year ended March 31, 2007. The increase primarily reflected the fact that net revenue for the fiscal year ended March 31, 2006 reflected only that of the post-merger MUFG for six months (with the first half of the fiscal year reflecting that of the pre-merger MTFG only), while net revenue for the fiscal year ended March 31, 2007 reflected that of the post-merger MUFG for the full twelve- month period. As a result, net revenue in most areas, such as net interest income from loans, and fees related to investment banking, settlements and securities businesses, increased. A decrease in interest spread from our lending operations to large- and medium-sized Japanese companies, due to the improved credit of many borrowers and increased competition with other financial institutions, partially offset the increase in net revenue.
With regard to the overseas businesses, net revenue of ¥627.7 billion, an increase of ¥42.7 billion from the previous fiscal year, was recorded for the fiscal year ended March 31, 2007. This increase was mainly due to increased overseas businesses mainly consisting of loans to Japanese corporate clients situated outside Japan. This increase primarily reflected the fact that the fiscal year ended March 31, 2006 reflected only six months of the post-merger MUFG (with the first half of the fiscal year reflecting the pre-merger MTFG only), while the results for the fiscal year ended March 31, 2007 reflected the post-merger MUFG for the full twelve-month period. An increase in lending and foreign exchange businesses to Japanese and non-Japanese corporate clients situated in Asia, excluding Japan, also contributed to the increase in net revenue. On the other hand, net revenue at UNBC decreased mainly due to a decrease in net interest income, caused by the shift in customer deposits from non-interest bearing deposits to interest bearing deposits or other investments, in response to rising short-term interest rates in the United States.
Operating expenses of the Integrated Corporate Banking Business Group increased ¥167.9 billion, from ¥748.8 billion for the fiscal year ended March 31, 2006 to ¥916.7 billion for the fiscal year ended March 31, 2007. The increase primarily reflected the fact that operating expenses for the fiscal year ended March 31, 2006
reflected only those of the post-merger MUFG for six months (with the first half of the fiscal year reflecting those of the pre-merger MTFG only), while operating expenses for the fiscal year ended March 31, 2007 reflected those of the post-merger MUFG for the full twelve-month period.
Operating profit of the Integrated Corporate Banking Business Group increased ¥131.7 billion, from ¥876.9 billion for the fiscal year ended March 31, 2006 to ¥1,008.6 billion for the fiscal year ended March 31, 2007. This increase was due mainly to the increase in net revenue as stated above.
Net revenue of the Integrated Trust Assets Business Group increased ¥70.8 billion, from ¥123.4 billion for the fiscal year ended March 31, 2006 to ¥194.2 billion for the fiscal year ended March 31, 2007. Net revenue of the Integrated Trust Assets Business Group mainly consists of fees from asset management and administration services for products such as pension trusts and investment trusts. The increase in net revenue was mainly due to an increase in business in pension products and investment trusts and the change in the managerial accounting method applied to trust fees. The managerial accounting change resulted in a ¥7.0 billion increase in net revenue and operating profit for the fiscal year ended March 31, 2007 compared to that for the fiscal year ended March 31, 2006. The consolidation of The Master Trust Bank of Japan, Ltd. and KOKUSAI Asset Management Co, Ltd. also contributed to the increase in net revenue. In addition, the increase in net revenue is partly attributable to the fact that net revenue for the fiscal year ended March 31, 2006 reflected only that of the post-merger MUFG for six months (with the first half of the fiscal year reflecting that of the pre-merger MTFG only), while net revenue for the fiscal year ended March 31, 2007 reflected that of the post-merger MUFG for the full twelve-month period.
Operating expenses of the Integrated Trust Assets Business Group increased ¥28.2 billion, from ¥75.6 billion for the fiscal year ended March 31, 2006 to ¥103.8 billion for the fiscal year ended March 31, 2007. The increase primarily reflected the fact that operating expenses for the fiscal year ended March 31, 2006 reflected only those of the post-merger MUFG for six months (with the first half of the fiscal year reflecting those of the pre-merger MTFG only), while operating expenses for the fiscal year ended March 31, 2007 reflected those of the post-merger MUFG for the full twelve-month period. The addition of newly consolidated subsidiaries also contributed to the increase in operating expenses.
Operating profit of the Integrated Trust Assets Business Group increased ¥42.6 billion, from ¥47.8 billion for the fiscal year ended March 31, 2006 to ¥90.4 billion for the fiscal year ended March 31, 2007. This increase was due mainly to the increase in net revenue as stated above.
Net revenue of Global Markets decreased ¥1.9increased ¥96.3 billion from ¥369.8¥300.0 billion for the fiscal year ended March 31, 20062008 to ¥367.9¥396.3 billion for the fiscal year ended March 31, 2007.2009. The decreaseincrease in net revenue was mainly caused by the risedue to improved performance in Japaneseasset liability management for both domestic and foreign currency interest rates, which resulted in a decline in revenue from our bond trading operations in such currencies. This decrease was partially offset by the fact that the fiscal year ended March 31, 2006 reflected only six months of the post-merger MUFG (with the first half of the fiscal year reflecting the pre-merger MTFG only), while the results for the fiscal year ended March 31, 2007 reflected the post-merger MUFG for the full twelve-month period.overseas operations.
The table immediately below sets forth our total revenue, income (loss) from continuing operations before income tax expense and cumulative effect of a change in accounting principle(benefit) and net income (loss) attributable to Mitsubishi UFJ Financial Group on a geographic basis for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008.2010. Assets, income and expenses attributable to foreign operations are allocated to geographical areas based on the domicile of the debtors and customers. For further information, see Note 30 to our consolidated financial statements included elsewhere in this Annual Report.
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||
| (in billions) | (in billions) | |||||||||||||||||||||
Total revenue (interest income and non-interest income): | ||||||||||||||||||||||
Domestic | ¥ | 2,168.6 | ¥ | 3,668.0 | ¥ | 4,691.0 | ¥ | 4,691.0 | ¥ | 2,924.4 | ¥ | 3,605.0 | ||||||||||
Foreign: | ||||||||||||||||||||||
United States of America | 907.4 | 1,191.6 | 228.1 | 228.1 | 568.7 | 604.4 | ||||||||||||||||
Europe | 221.1 | 540.6 | 699.8 | 699.8 | 233.7 | 355.0 | ||||||||||||||||
Asia/Oceania excluding Japan | 179.3 | 270.2 | 442.0 | 442.0 | 329.7 | 482.6 | ||||||||||||||||
Other areas(1) | 121.6 | 193.3 | 84.0 | 84.0 | 14.4 | 165.4 | ||||||||||||||||
Total foreign | 1,429.4 | 2,195.7 | 1,453.9 | 1,453.9 | 1,146.5 | 1,607.4 | ||||||||||||||||
Total | ¥ | 3,598.0 | ¥ | 5,863.7 | ¥ | 6,144.9 | ¥ | 6,144.9 | ¥ | 4,070.9 | ¥ | 5,212.4 | ||||||||||
Income (loss) from continuing operations before income tax expense and cumulative effect of a change in accounting principle: | ||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense (benefit): | ||||||||||||||||||||||
Domestic | ¥ | (25.7 | ) | ¥ | 236.8 | ¥ | 280.2 | ¥ | 316.2 | ¥ | (1,357.4 | ) | ¥ | 539.9 | ||||||||
Foreign: | ||||||||||||||||||||||
United States of America | 367.9 | 462.9 | (517.6 | ) | (516.1 | ) | (210.3 | ) | 208.4 | |||||||||||||
Europe | 53.6 | 254.5 | 91.8 | 91.0 | (237.5 | ) | 224.4 | |||||||||||||||
Asia/Oceania excluding Japan | 65.5 | 83.5 | 183.9 | 183.9 | 110.8 | 273.0 | ||||||||||||||||
Other areas(1) | 68.4 | 97.2 | (25.9 | ) | (23.2 | ) | (69.8 | ) | 36.4 | |||||||||||||
Total foreign | 555.4 | 898.1 | (267.8 | ) | (264.4 | ) | (406.8 | ) | 742.2 | |||||||||||||
Total | ¥ | 529.7 | ¥ | 1,134.9 | ¥ | 12.4 | ¥ | 51.8 | ¥ | (1,764.2 | ) | ¥ | 1,282.1 | |||||||||
Net income (loss): | ||||||||||||||||||||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | ||||||||||||||||||||||
Domestic | ¥ | (78.4 | ) | ¥ | 63.0 | ¥ | (227.1 | ) | ¥ | (227.1 | ) | ¥ | (1,064.3 | ) | ¥ | 189.7 | ||||||
Foreign: | ||||||||||||||||||||||
United States of America | 285.3 | 248.9 | (637.3 | ) | (637.3 | ) | (223.5 | ) | 193.0 | |||||||||||||
Europe | 44.4 | 169.2 | 121.3 | 121.3 | (229.5 | ) | 199.1 | |||||||||||||||
Asia/Oceania excluding Japan | 56.6 | 44.2 | 232.2 | 232.2 | 119.4 | 241.4 | ||||||||||||||||
Other areas(1) | 55.6 | 56.0 | (31.5 | ) | (31.5 | ) | (70.1 | ) | 36.6 | |||||||||||||
Total foreign | 441.9 | 518.3 | (315.3 | ) | (315.3 | ) | (403.7 | ) | 670.1 | |||||||||||||
Total | ¥ | 363.5 | ¥ | 581.3 | ¥ | (542.4 | ) | ¥ | (542.4 | ) | ¥ | (1,468.0 | ) | ¥ | 859.8 | |||||||
Note:
| Note: |
| (1) | Other areas primarily include Canada, Latin America and the Caribbean. |
Fiscal Year Ended March 31, 20082010 Compared to Fiscal Year Ended March 31, 20072009
Domestic net lossincome attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 20082010 was ¥227.1¥189.7 billion, compared to a net incomeloss attributable to Mitsubishi UFJ Financial Group of ¥63.0¥1,064.3 billion for the fiscal year ended March 31, 2007.2009. This deterioration wasimprovement mainly due to our recording an impairmentreflected lower losses associated with revaluation of goodwilltrading debt and equity securities that were recorded for the fiscal year ended March 31, 2008.2010, compared to significantly higher losses recorded in the previous fiscal year primarily due to unfavorable market conditions.
Foreign net lossincome attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 20082010 was ¥315.3¥670.1 billion, compared to a foreign net incomeloss attributable to Mitsubishi UFJ Financial Group of ¥518.3¥403.7 billion for the fiscal year ended March 31, 2007.2009. This deteriorationimprovement was primarily reflected the net lossdue to lower revaluation and foreign exchange losses attributable to our assets and operations in the United States mainly due to an increaseUS and Europe, which losses were significantly higher in impairment losses on investment securities denominated in US dollars.the fiscal year ended March 31, 2009.
Fiscal Year Ended March 31, 20072009 Compared to Fiscal Year Ended March 31, 20062008
Domestic net incomeloss attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 20072009 was ¥63.0¥1,064.3 billion, compared to a net loss attributable to Mitsubishi UFJ Financial Group of ¥78.4¥227.1 billion for the fiscal year ended March 31, 2006.2008. This improvement primarilydeterioration mainly reflected the increase in non-interest incomeloss on sales and revaluation from trading in debt and equity securities primarily due to increases in net trading profits and net investment securities gains and a decrease in net foreign exchange losses.unfavorable market conditions.
Foreign net incomeloss attributable to Mitsubishi UFJ Financial Group for the fiscal year ended March 31, 20072009 was ¥518.3¥403.7 billion, compared to ¥441.9an increase of ¥88.4 billion, from ¥315.3 billion for the fiscal year ended March 31, 2006.2008. This increase primarily reflected an increase in net loss attributable to Mitsubishi UFJ Financial Group in Europe of ¥350.8 billion over the same period, which was recorded mainly due to the appreciation of the Japanese yen against the euro and other foreign currencies.
Effect of Change in Exchange Rates on Foreign Currency Translation
Fiscal Year Ended March 31, 20082010 Compared to Fiscal Year Ended March 31, 20072009
The average exchange rate for the fiscal year ended March 31, 20082010 was ¥114.29¥92.85 per US$1.00, compared to the prior fiscal year’s average exchange rate of ¥117.02¥100.54 per US$1.00. The average exchange rate for the conversion of the US dollar financial statements of some of our foreign subsidiaries for the fiscal year ended December 31, 20072009 was ¥117.84¥93.57 per US$1.00, compared to the average exchange rate for the fiscal year ended December 31, 20062008 of ¥116.38¥103.46 per US$1.00.
The change in the average exchange rate of the Japanese yen against the US dollar and other foreign currencies had the effect of increasingdecreasing total revenue by ¥30.7¥181.3 billion, net interest income by ¥12.3¥67.0 billion and income from continuing operations before income taxestax expense by ¥0.3¥78.3 billion, respectively, for the fiscal year ended March 31, 2008.2010.
Fiscal Year Ended March 31, 20072009 Compared to Fiscal Year Ended March 31, 20062008
The average exchange rate for the fiscal year ended March 31, 20072009 was ¥117.02¥100.54 per US$1.00, compared to the prior fiscal year’s average exchange rate of ¥113.31¥114.29 per US$1.00. The average exchange rate for the conversion of the US dollar financial statements of some of our foreign subsidiaries for the fiscal year ended December 31, 20062008 was ¥116.38¥103.46 per US$1.00, compared to the average exchange rate for the fiscal year ended December 31, 20052007 of ¥110.21¥117.84 per US$1.00.
The change in the average exchange rate of the Japanese yen against the US dollar and other foreign currencies had the effect of increasingdecreasing total revenue by approximately ¥105¥477.2 billion, net interest income by approximately ¥37¥141.2 billion and income from continuing operations before income taxestax expense by approximately ¥19¥168.2 billion, respectively, for the fiscal year ended March 31, 2007.
B. Liquidity and Capital Resources
| B. | Liquidity and Capital Resources |
Total Assets
Our total assets at March 31, 20082010 were ¥190.73¥200.08 trillion, an increase of ¥4.53¥6.58 trillion from ¥ 186.20¥193.50 trillion at March 31, 2007.2009. The increase in total assets mainly reflected increases in net loansinvestment securities of ¥3.66
¥17.41 trillion, trading account assetsinterest-earning deposits in other banks of ¥2.97 trillion, receivables under resale agreement of ¥ 2.55¥1.24 trillion, and receivables under securities borrowing transactionsresale agreements of ¥2.01¥1.01 trillion. These increases were partially offset by a decreasedecreases in investment securitiesnet loans of ¥7.23¥8.28 trillion, primarily due to the saletrading account assets of Japanese government bonds to take advantage¥2.62 trillion, and deferred tax assets of lower market interest rates.¥0.89 trillion.
We have allocated a substantial portion of our assets to international activities. As a result, reported amounts are affected by changes in the value of the Japanese yen against the US dollar and other foreign currencies. Foreign assets are denominated primarily in US dollars. The following table shows our total assets at March 31, 20072009 and 20082010 by geographic region based principally on the domicile of the obligors:
| At March 31, | At March 31, | |||||||||||
| 2007 | 2008 | 2009 | 2010 | |||||||||
| (in trillions) | (in trillions) | |||||||||||
Japan | ¥ | 143.11 | ¥ | 136.67 | ¥ | 143.00 | ¥ | 149.02 | ||||
Foreign: | ||||||||||||
United States of America | 19.21 | 19.98 | 23.09 | 21.63 | ||||||||
Europe | 12.67 | 19.58 | 14.98 | 15.80 | ||||||||
Asia/Oceania excluding Japan | 6.67 | 8.25 | 7.47 | 8.42 | ||||||||
Other areas(1) | 4.54 | 6.25 | 4.96 | 5.21 | ||||||||
Total foreign | 43.09 | 54.06 | 50.50 | 51.06 | ||||||||
Total | ¥ | 186.20 | ¥ | 190.73 | ¥ | 193.50 | ¥ | 200.08 | ||||
Note:
| Note: |
| (1) | Other areas primarily include Canada, Latin America and the Caribbean. |
At March 31, 2008,2010, the foreign exchange rate expressed in Japanese yen per US$1.00 by BTMUus was ¥100.19,¥93.04, as compared with ¥118.05¥98.23 at March 30, 2007.31, 2009. The Japanese yen amount of foreign currency-denominated assets and liabilities decreasesdecreased as the relevant exchange rates resulted in an increase in the value of the Japanese yen relative to such foreign currencies. The appreciation of the Japanese yen against the US dollar and other foreign currencies during the fiscal year endedbetween March 31, 2008 decreased2009 and March 31, 2010 resulted in a decrease in the Japanese yen amount of our total assets at March 31, 2010 by ¥10.56¥0.33 trillion.
Loan Portfolio
The following table sets forth our loans outstanding, before deduction of allowance for credit losses, at March 31, 20072009 and 2008,2010, based on classification by industry segment as defined by the Bank of Japan for regulatory reporting purposes, which is not necessarily based on use of proceeds. Classification of loans by industry at March 31, 2007 has been restated. For further information, see Note 7 to our consolidated financial statements included elsewhere in this Annual report.
| At March 31, | At March 31, | |||||||||||||||
| 2007 (Restated) | 2008 | 2009 | 2010 | |||||||||||||
| (in billions) | (in billions) | |||||||||||||||
Domestic(1): | ||||||||||||||||
Domestic: | ||||||||||||||||
Manufacturing | ¥ | 10,988.3 | ¥ | 11,322.1 | ¥ | 12,922.8 | ¥ | 12,027.8 | ||||||||
Construction | 1,843.0 | 1,759.4 | 1,803.5 | 1,427.9 | ||||||||||||
Real estate | 8,307.4 | 8,248.0 | 10,436.8 | 12,261.6 | ||||||||||||
Services | 7,069.1 | 6,707.4 | 6,750.4 | 3,714.1 | ||||||||||||
Wholesale and retail | 9,430.0 | 9,437.0 | 9,760.8 | 8,597.2 | ||||||||||||
Banks and other financial institutions(2) | 4,484.3 | 4,825.4 | 4,836.0 | 4,159.6 | ||||||||||||
Communication and information services | 1,170.0 | 1,152.7 | 732.7 | 1,339.8 | ||||||||||||
Other industries | 10,264.7 | 10,412.3 | 9,515.9 | 9,393.0 | ||||||||||||
Consumer | 23,818.0 | 23,908.6 | 20,542.4 | 19,096.8 | ||||||||||||
Total domestic | 77,374.8 | 77,772.9 | 77,301.3 | 72,017.8 | ||||||||||||
Foreign: | ||||||||||||||||
Governments and official institutions | 374.2 | 316.8 | 351.1 | 490.4 | ||||||||||||
Banks and other financial institutions(2) | 1,694.9 | 2,100.1 | 2,687.0 | 2,970.5 | ||||||||||||
Commercial and industrial | 13,468.9 | 16,188.4 | 17,550.6 | 14,252.7 | ||||||||||||
Other | 2,460.9 | 2,708.0 | 2,510.5 | 2,554.2 | ||||||||||||
Total foreign | 17,998.9 | 21,313.3 | 23,099.2 | 20,267.8 | ||||||||||||
Unearned income, unamortized premium—net and deferred loan fees—net | (50.9 | ) | (84.1 | ) | (90.2 | ) | (99.7 | ) | ||||||||
Total(3) | ¥ | 95,322.8 | ¥ | 99,002.1 | ¥ | 100,310.3 | ¥ | 92,185.9 | ||||||||
Notes:
| Notes: |
| (1) | Since the |
| (2) | Loans to the so-called non-bank finance companies are generally included in the “Banks and other financial institutions” category. Non-bank finance companies are primarily engaged in consumer lending, factoring and credit card businesses. |
| (3) | The above table includes loans held for sale of |
Loans areaccount for our primarylargest use of funds. The average loan balance accounted for 56.62%57.81% of total interest-earning assets for the fiscal year ended March 31, 20072009 and 56.26%54.43% for the fiscal year ended March 31, 2008.2010.
At March 31, 2008,2010, our total loans were ¥99.00¥92.19 trillion, representing an increasea decrease of ¥3.68¥8.12 trillion from ¥95.32¥100.31 trillion at March 31, 2007.2009. Before unearned income, net unamortized premiums—premiums and net and deferred loan fees—net,fees, our loan balance at March 31, 20082010 consisted of ¥77.77¥72.02 trillion of domestic loans and ¥21.31¥20.27 trillion of foreign loans, while the loan balance at March 31, 20072009 consisted of ¥77.37¥77.30 trillion of domestic loans and ¥18.00¥23.10 trillion of foreign loans. Between March 31, 20072009 and March 31, 2008,2010, domestic loans increased ¥0.40decreased ¥5.28 trillion and foreign loans increased ¥3.31decreased ¥2.83 trillion.
Domestic loans outstandingOur domestic loan portfolio at March 31, 2008 remained approximately at2010 was ¥72.02 trillion, a decrease of ¥5.28 trillion from ¥77.30 trillion for the same level as those atfiscal year ended March 31, 2007. Breaking down2009. The decrease was mainly due to a decrease in our loans outstanding to the domestic portfolioservices, consumer, and wholesale and retail segments, which decreased ¥3.04 trillion, ¥1.45 trillion, and ¥1.16 trillion, respectively. This decrease was partially offset by industry segment,an increase of ¥1.82 trillion in the loan balance for manufacturing increased ¥0.33 trillion andto the loan balance for banks and other financial institutions increased ¥0.34 trillion, while the loan balance for services decreased ¥0.36 trillion.real estate segment.
DespiteThe decrease in foreign corporations’ increasing need for funds, the ability of corporations to obtain funds from the capital markets mainly in the United States and Europe was affected by the recent disruptions in the financial markets. The recent disruptions in the financial markets also caused US and European banks to reduce lending activity. As a result, loans to our customers increased mainly in the United States and Europe during the fiscal year ended March 31, 2008.2010 was mainly due to a decrease in demand for loans from the commercial and industrial segment.
Allowance for Credit Losses, Nonperforming and Past Due Loans
The following table shows a summary of the changes in the allowance for credit losses for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in billions) | (in billions) | |||||||||||||||||||||||
Balance at beginning of fiscal year | ¥ | 739.9 | ¥ | 1,012.2 | ¥ | 1,112.5 | ¥ | 1,112.5 | ¥ | 1,134.9 | ¥ | 1,156.6 | ||||||||||||
Additions resulting from the merger with UFJ Holdings(1) | 287.5 | — | — | |||||||||||||||||||||
Provision for credit losses | 110.2 | 358.6 | 385.7 | 385.7 | 626.9 | 647.8 | ||||||||||||||||||
Charge-offs: | ||||||||||||||||||||||||
Domestic | (153.6 | ) | (289.2 | ) | (380.0 | ) | (380.0 | ) | (559.0 | ) | (401.9 | ) | ||||||||||||
Foreign | (11.2 | ) | (13.9 | ) | (6.5 | ) | (6.5 | ) | (44.3 | ) | (118.9 | ) | ||||||||||||
Total | (164.8 | ) | (303.1 | ) | (386.5 | ) | (386.5 | ) | (603.3 | ) | (520.8 | ) | ||||||||||||
Recoveries: | ||||||||||||||||||||||||
Domestic | 11.4 | 35.5 | 28.5 | 28.5 | 23.7 | 48.3 | ||||||||||||||||||
Foreign | 17.2 | 5.0 | 2.1 | 2.1 | 2.8 | 4.1 | ||||||||||||||||||
Total | 28.6 | 40.5 | 30.6 | 30.6 | 26.5 | 52.4 | ||||||||||||||||||
Net charge-offs | (136.2 | ) | (262.6 | ) | (355.9 | ) | (355.9 | ) | (576.8 | ) | (468.4 | ) | ||||||||||||
Others(2) | 10.8 | �� | 4.3 | (7.4 | ) | |||||||||||||||||||
Others(1) | (7.4 | ) | (28.4 | ) | (20.4 | ) | ||||||||||||||||||
Balance at end of fiscal year | ¥ | 1,012.2 | ¥ | 1,112.5 | ¥ | 1,134.9 | ¥ | 1,134.9 | ¥ | 1,156.6 | ¥ | 1,315.6 | ||||||||||||
Notes:
| Note: |
| (1) |
As previously discussed, the provision for credit losses for the fiscal year ended March 31, 20082010 was ¥385.7¥647.8 billion, an increase of ¥27.1¥20.9 billion from ¥358.6¥626.9 billion for the fiscal year ended March 31, 2007.2009. The increase in the provision for credit losses was mainly due to the downgradeweakening of the financial condition of borrowers, especially, in credit rating of certain overseas borrowers.the manufacturing, wholesale and retail, and other industries segments.
For the fiscal year ended March 31, 2008,2010, the ratio of the provision for the credit losses of ¥385.7¥647.8 billion to the average loan balance of ¥97.04¥95.50 trillion was 0.40%0.68%, and that to the total average interest-earning assets of ¥172.47¥175.47 trillion was 0.22%0.37%.
Charge-offs for the fiscal year ended March 31, 20082010 were ¥386.5¥520.8 billion, an increasea decrease of ¥83.4¥82.5 billion from ¥303.1¥603.3 billion for the fiscal year ended March 31, 2007.2009. The increasedecrease in the charge-offs was mainly due to increasesdecreases in the charge-offs for the domestic manufacturing, wholesale and retail, segments.and services segments, mainly reflecting the gradual recovery of the domestic economy.
The total allowance for credit losses at March 31, 20082010 was ¥1,134.9¥1,315.6 billion, an increase of ¥22.4¥159.0 billion from ¥1,112.5¥1,156.6 billion at March 31, 20072009 as we recorded a provision for credit losses of ¥385.7¥647.8 billion, whereaswhile we had net charge-offs of ¥355.9¥468.4 billion.
The following table presents comparative data in relation to the principal amount of nonperforming loans sold and reversal of allowance for credit losses:
| Principal amount of loans(1) | Allowance for credit losses(2) | Loans, net of allowance | Reversal of allowance for credit losses | ||||||||||
| (in billions) | |||||||||||||
For the fiscal year ended March 31, 2007 | ¥ | 127.5 | ¥ | 35.8 | ¥ | 91.7 | ¥ | (32.0 | ) | ||||
For the fiscal year ended March 31, 2008 | ¥ | 78.3 | ¥ | 20.8 | ¥ | 57.5 | ¥ | (13.2 | ) | ||||
| Principal amount of loans(1) | Allowance for credit losses(2) | Loans, net of allowance | Reversal of allowance for credit losses | ||||||||||
| (in billions) | |||||||||||||
For the fiscal year ended March 31, 2009 | ¥ | 24.5 | ¥ | 9.4 | ¥ | 15.1 | ¥ | (0.3 | ) | ||||
For the fiscal year ended March 31, 2010 | ¥ | 74.6 | ¥ | 24.5 | ¥ | 50.1 | ¥ | (16.0 | ) | ||||
Notes:
| Notes: |
| (1) | Represents principal amount after the deduction of charge-offs made before the sales of nonperforming loans. |
| (2) | Represents allowance for credit losses at the latest balance-sheet date. |
Through the sale of nonperforming loans to third parties, additional provisions or gains may arise from factors such as a change in the credit quality of the borrowers or the value of the underlying collateral subsequent to the prior reporting date, and the risk appetite and investment policy of the purchasers.
Due to the inherent uncertainty of factors that may affect negotiated prices which reflect the borrowers’ financial condition and the value of underlying collateral, the fact that we recorded no additional cost during the reported periodsperiod is not necessarily indicative of the results that we may record in the future.
In connection with the sale of loans, including performing loans, we recorded net losses of ¥1.7 billion and net gains of ¥31.2 billion and ¥14.8¥17.8 billion for the fiscal years ended March 31, 20072009 and 2008,2010, respectively.
The following table summarizes the allowance for credit losses by component at March 31, 20072009 and 2008:2010:
| At March 31, | At March 31, | |||||||||||
| 2007 | 2008 | 2009 | 2010 | |||||||||
| (in billions) | (in billions) | |||||||||||
Allocated allowance: | ||||||||||||
Specific—specifically identified problem loans | ¥ | 569.7 | ¥ | 563.3 | ¥ | 618.5 | ¥ | 770.3 | ||||
Large groups of smaller balance homogeneous loans | 129.6 | 129.1 | 97.9 | 103.9 | ||||||||
Loans exposed to specific country risk | 0.1 | 0.1 | 1.1 | 0.8 | ||||||||
Formula—substandard, special mention and other loans | 406.1 | 432.7 | 432.8 | 423.0 | ||||||||
Unallocated allowance | 7.0 | 9.7 | 6.3 | 17.6 | ||||||||
Total allowance | ¥ | 1,112.5 | ¥ | 1,134.9 | ¥ | 1,156.6 | ¥ | 1,315.6 | ||||
Allowance Policypolicy
Our credit rating system is closely linked to the risk grading standards set by the Japanese regulatory authorities for asset evaluation and assessment, and is used as a basis for establishing the allowance for credit losses and charge-offs. The categorization is based on conditions that may affect the ability of borrowers to service their debt, such as current financial condition and results of operations, historical payment experience, credit documentation, other public information and current trends. For a discussion of our credit rating system, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management—Credit Rating System.”
Change in total allowance and provision for credit losses
At March 31, 2008,2010, the total allowance for credit losses was ¥1,134.9¥1,315.6 billion, representing 1.15%1.43% of our total loan portfolio. At March 31, 2007,2009, the total allowance for credit losses was ¥1,112.5¥1,156.6 billion, representing 1.17%1.15% of our total loan portfolio.
The total allowance increased from ¥1,112.5to ¥1,315.6 billion at March 31, 2007 to ¥1,134.92010 from ¥1,156.6 billion at March 31, 20082009 primarily as a result of the downgradedowngrades in the credit ratingratings of certain borrowers.
The provision for credit losses fordomestic borrowers in the manufacturing, wholesale and retail, and other industry segments and overseas borrowers during the fiscal year ended March 31, 2008 was ¥385.7 billion, an increase of ¥27.1 billion from ¥358.6 billion for the fiscal year ended March 31, 2007. The increase in the provision for credit losses was mainly due to the downgrade in credit rating of certain overseas borrowers.2010.
During the fiscal year ended March 31, 2008,2010, there were no significant changes in our general allowance policy, which affected our allowance for credit losses for the period, resulting from directives, advice or counsel from governmental or regulatory bodies.
Allocated allowance for specifically identified problem loans
The allocated credit loss allowance for specifically identified problem loans represents the allowance against impaired loans required under SFAS No. 114, “Accountingthe guidance on accounting by Creditorscreditors for Impairmentimpairment of a Loan.”loan. Impaired loans primarily include nonaccrual loans and restructured loans. We generally discontinue the accrual of interest income on loans when substantial doubt exists as to the full and timely collection of either principal or interest, or when principal or interest is contractually past due one month or more with respect to loans of our domestic banking subsidiaries, including BTMU and MUTB, and 90 days or more with respect to loans of certain banking subsidiaries abroad. Loans are classified as restructured loans when we grant a concession to borrowers for economic or legal reasons related to the borrowers’ financial difficulties.
Detailed reviews of impaired loans are performed after a borrower’s annual or semi-annual financial statements first become available. In addition, as part of an ongoing credit review process, our credit officers monitor changes in all customers’ creditworthiness, including bankruptcy, past due principal or interest, downgrades of external credit ratings, declines in the stock price, business restructuring and other events, and reassess our ratings of borrowers in response to such events. This credit monitoring process forms an integral part of our overall risk management process. An impaired loan is evaluated individually based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s estimated marketable price or the fair value of the collateral at the annual and semi-annual fiscal year end, if the loan is collateral-dependent as of a balance-sheet date.
The following table summarizes nonaccrual and restructured loans, and accruing loans that are contractually past due 90 days or more as to principal or interest payments, at March 31, 2007 and 2008:
| At March 31, | ||||||||
| 2007 | 2008 | |||||||
| (in billions, except percentages) | ||||||||
Nonaccrual loans: | ||||||||
Domestic:(1) | ||||||||
Manufacturing | ¥ | 82.2 | ¥ | 109.1 | ||||
Construction | 45.0 | 44.3 | ||||||
Real estate | 142.7 | 164.5 | ||||||
Services | 140.5 | 142.8 | ||||||
Wholesale and retail | 133.4 | 156.8 | ||||||
Banks and other financial institutions | 16.7 | 10.6 | ||||||
Communication and information services | 32.0 | 45.1 | ||||||
Other industries | 140.2 | 36.2 | ||||||
Consumer | 301.8 | 318.9 | ||||||
Total domestic | 1,034.5 | 1,028.3 | ||||||
Foreign | 51.8 | 116.2 | ||||||
Total nonaccrual loans | 1,086.3 | 1,144.5 | ||||||
Restructured loans: | ||||||||
Domestic:(1) | ||||||||
Manufacturing | 103.7 | 79.0 | ||||||
Construction | 14.0 | 16.4 | ||||||
Real estate | 98.4 | 119.3 | ||||||
Services | 50.2 | 32.7 | ||||||
Wholesale and retail | 111.3 | 32.1 | ||||||
Banks and other financial institutions | 0.6 | 2.0 | ||||||
Communication and information services | 2.9 | 2.6 | ||||||
Other industries | 93.9 | 145.5 | ||||||
Consumer | 73.6 | 62.6 | ||||||
Total domestic | 548.6 | 492.2 | ||||||
Foreign | 42.1 | 25.1 | ||||||
Total restructured loans | 590.7 | 517.3 | ||||||
Accruing loans contractually past due 90 days or more: | ||||||||
Domestic | 20.7 | 14.9 | ||||||
Foreign | 1.8 | 3.0 | ||||||
Total accruing loans contractually past due 90 days or more | 22.5 | 17.9 | ||||||
Total | ¥ | 1,699.5 | ¥ | 1,679.7 | ||||
Total loans | ¥ | 95,322.8 | ¥ | 99,002.1 | ||||
Nonaccrual and restructured loans, and accruing loans contractually past due 90 days or more as a percentage of total loans | 1.78 | % | 1.70 | % | ||||
Note:
Nonaccrual and restructured loans and accruing loans contractually past due 90 days or more decreased ¥19.8 billion from March 31, 2007 to ¥1,679.7 billion at March 31, 2008. Similarly, the percentage of nonperforming loans to total loans decreased to 1.70% at March 31, 2008 from 1.78% at March 31, 2007.
Total nonaccrual loans were ¥1,144.5 billion at March 31, 2008, an increase of ¥58.2 billion from ¥1,086.3 billion at March 31, 2007. While domestic nonaccrual loans at March 31, 2008 remained approximately at the same level as those at March 31, 2007, foreign nonaccrual loans were increased ¥64.4 billion between March 31, 2007 and 2008, mainly due to the downgrade in credit rating of certain overseas borrowers. Domestic nonaccrual loans in other industries decreased ¥104.0 billion mainly due to the upgrade in credit rating of certain borrowers.
Total restructured loans were ¥517.3 billion at March 31, 2008, a decrease of ¥73.4 billion from ¥590.7 billion at March 31, 2007. Domestic restructured loans decreased ¥56.4 billion to ¥492.2 billion at March 31, 2008 from ¥548.6 billion at March 31, 2007 mainly due to the upgrade in credit rating of certain large borrowers. While the restructured loans in the wholesale and retail segments decreased ¥79.2 billion and the restructured loans in the manufacturing segments decreased ¥24.7 billion, those in other industries increased ¥51.6 billion.
The following table summarizes the balances of impaired loans and related impairment allowances at March 31, 2007 and 2008, excluding smaller-balance homogeneous loans:
| At March 31, | ||||||||||||||
| 2007 | 2008 | |||||||||||||
| Loan balance | Impairment allowance | Loan balance | Impairment allowance | |||||||||||
| (in billions) | ||||||||||||||
Requiring an impairment allowance | ¥ | 1,118.9 | ¥ | 569.7 | ¥ | 1,131.8 | ¥ | 563.3 | ||||||
Not requiring an impairment allowance(1) | 263.1 | — | 311.8 | — | ||||||||||
Total(2) | ¥ | 1,382.0 | ¥ | 569.7 | ¥ | 1,443.6 | ¥ | 563.3 | ||||||
Percentage of the allocated allowance to total impaired loans | 41.2 | % | 39.0 | % | ||||||||||
Notes:
Impaired loans increased ¥61.6 billion from ¥1,382.0 billion at March 31, 2007 to ¥1,443.6 billion at March 31, 2008, reflecting the increase in restructured loans.
The percentage of the allocated allowance to total impaired loans decreased 2.2 percentage points to 39.0% at March 31, 2008 from 41.2% at March 31, 2007.
Based upon a review of the financial status of borrowers, our banking subsidiaries may grant various concessions (modification of loan terms) to troubled borrowers at the borrowers’ request, including reductions in the stated interest rates, debt write-offs, and extensions of the maturity date. According to the policies of each of our banking subsidiaries, such modifications are made to mitigate the near-term burden of the loans to the borrowers and to better match the payment terms with the borrowers’ expected future cash flows or, in cooperation with other creditors, to reduce the overall debt burden of the borrowers so that they may normalize their operations, in each case to improve the likelihood that the loans will be repaid in accordance with the revised terms. The nature and amount of the concessions depend on the particular financial condition of each borrower. In principle, however, none of our banking subsidiaries modify the terms of loans to borrowers that are
considered “Likely to Become Bankrupt,” “Virtually Bankrupt,” or “Bankrupt” under the self-assessment categories established by Japanese banking regulations because in these cases there is little likelihood that the modification of loan terms would enhance recovery of the loans.
The allowance for specifically identified problem loans as of March 31, 2010 was ¥770.3 billion, an increase of ¥151.8 billion from ¥618.5 billion as of March 31, 2009. This increase reflected an increase in nonaccrual loans to domestic other industries and foreign governments and official institutions segments.
Nonaccrual and restructured loans and accruing loans contractually past due 90 days or more
The following table summarizes nonaccrual and restructured loans, and accruing loans that are contractually past due 90 days or more as to principal or interest payments, at March 31, 2009 and 2010:
| At March 31, | ||||||||
| 2009 | 2010 | |||||||
| (in billions, except percentages) | ||||||||
Nonaccrual loans: | ||||||||
Domestic: | ||||||||
Manufacturing | ¥ | 87.7 | ¥ | 111.2 | ||||
Construction | 55.8 | 33.5 | ||||||
Real estate(1) | 263.8 | 214.4 | ||||||
Services(1) | 104.6 | 79.5 | ||||||
Wholesale and retail | 139.0 | 135.5 | ||||||
Banks and other financial institutions | 14.8 | 2.3 | ||||||
Communication and information services | 36.9 | 73.6 | ||||||
Other industries | 20.6 | 116.8 | ||||||
Consumer | 372.9 | 355.0 | ||||||
Total domestic | 1,096.1 | 1,121.8 | ||||||
Foreign | 153.4 | 247.2 | ||||||
Total nonaccrual loans | 1,249.5 | 1,369.0 | ||||||
Restructured loans: | ||||||||
Domestic: | ||||||||
Manufacturing | 67.5 | 140.1 | ||||||
Construction | 18.0 | 25.1 | ||||||
Real estate(1) | 59.4 | 56.8 | ||||||
Services(1) | 40.7 | 83.0 | ||||||
Wholesale and retail | 28.8 | 89.1 | ||||||
Banks and other financial institutions | 3.3 | 3.0 | ||||||
Communication and information services | 15.9 | 24.0 | ||||||
Other industries | 128.3 | 38.3 | ||||||
Consumer | 95.9 | 105.6 | ||||||
Total domestic | 457.8 | 565.0 | ||||||
Foreign | 63.8 | 47.2 | ||||||
Total restructured loans | 521.6 | 612.2 | ||||||
Accruing loans contractually past due 90 days or more: | ||||||||
Domestic | 15.1 | 25.9 | ||||||
Foreign | 6.4 | 0.5 | ||||||
Total accruing loans contractually past due 90 days or more | 21.5 | 26.4 | ||||||
Total nonaccrual and restructured loans and accruing loans contractually past due 90 days or more | ¥ | 1,792.6 | ¥ | 2,007.6 | ||||
Total loans | ¥ | 100,310.3 | ¥ | 92,185.9 | ||||
Nonaccrual and restructured loans and accruing loans contractually past due 90 days or more, as a percentage of total loans | 1.79 | % | 2.18 | % | ||||
| Note: |
| (1) | Since the classification by industry segment as defined by the Bank of Japan for regulatory reporting purposes was changed, nonaccrual loans to lease financing companies of ¥28.5 billion were included in “Real estate” at March 31, 2010. At March 31, 2009, the related balances had been included in “Services.” |
Nonaccrual and restructured loans and accruing loans contractually past due 90 days or more increased ¥215.0 billion to ¥2,007.6 billion at March 31, 2010 from ¥1,792.6 billion at March 31, 2009. Similarly, the percentage of such nonperforming loans to total loans increased to 2.18% at March 31, 2010 from 1.79% at March 31, 2009.
Total nonaccrual loans were ¥1,369.0 billion at March 31, 2010, an increase of ¥119.5 billion from ¥1,249.5 billion at March 31, 2009. Domestic nonaccrual loans increased ¥25.7 billion between March 31, 2009 and March 31, 2010, mainly due to the downgrades in the credit ratings of borrowers in the manufacturing, communication and information services, and other industry segments. Foreign nonaccrual loans increased ¥93.8 billion between March 31, 2009 and March 31, 2010, mainly due to the downgrades in the credit ratings of overseas borrowers included in the foreign governments and official institutions segment. As a result, foreign nonaccrual loans in governments and official institutions increased ¥66.3 billion.
Total restructured loans were ¥612.2 billion at March 31, 2010, an increase of ¥90.6 billion from ¥521.6 billion at March 31, 2009. The restructured loans set forth in the above table are current in accordance with the applicable restructured contractual terms. Domestic restructured loans increased ¥107.2 billion to ¥565.0 billion at March 31, 2010 from ¥457.8 billion at March 31, 2009 mainly due to the downgrades in the credit ratings of borrowers in the manufacturing, wholesale and retail, and services segments. Restructured loans in the manufacturing segment increased ¥72.6 billion, those in the wholesale and retail segment increased ¥60.3 billion and those in the services segment increased ¥42.2 billion, but those in the other industries segment decreased ¥90.0 billion.
We from time to time provide additional loans, equity capital or other forms of support, including repayment extensions, reductions in applicable interest rates, forbearance of exercising our rights as a creditor, or forgiveness of loans, to borrowers our outstanding loans to whom are classified as nonaccrual and restructured loans and accruing loans contractually past due 90 days or more, based on our internal policy, in order to facilitate their restructuring and revitalization efforts. We decide whether to grant additional financial supports to those borrowers on a case by case basis. Factors that affect our decision include the prospects of those borrowers recovering their ability to service their debt to an extent where they are reasonably expected to be reclassified as normal borrowers in the future, as a result of an improvement in the operations and financial condition of those borrowers.
Impaired loans and Impairment allowance
The following table summarizes the balances of impaired loans and related impairment allowances at March 31, 2009 and 2010, excluding smaller-balance homogeneous loans and restructured loans:
| At March 31, | ||||||||||||||
| 2009 | 2010 | |||||||||||||
| Loan balance | Impairment allowance | Loan balance | Impairment allowance | |||||||||||
| (in billions) | ||||||||||||||
Requiring an impairment allowance | ¥ | 1,168.5 | ¥ | 618.6 | ¥ | 1,465.1 | ¥ | 770.3 | ||||||
Not requiring an impairment allowance(1) | 407.7 | — | 360.8 | — | ||||||||||
Total(2) | ¥ | 1,576.2 | ¥ | 618.6 | ¥ | 1,825.9 | ¥ | 770.3 | ||||||
Percentage of the allocated allowance to total impaired loans | 39.2 | % | 42.2 | % | ||||||||||
Notes:
| (1) | These loans do not require an allowance for credit losses under the guidance on accounting by creditors for impairment of a loan since the fair values of the impaired loans equal or exceed the recorded investments in the loans. |
| (2) | In addition to impaired loans presented in the above table, there were loans held for sale that were impaired in the amount of ¥14.5 billion at March 31, 2010. There were no such impaired loans at March 31, 2009. |
Impaired loans increased by ¥249.7 billion from ¥1,576.2 billion at March 31, 2009 to ¥1,825.9 billion at March 31, 2010, reflecting the increase in nonaccrual loans and restructured loans.
The percentage of the allocated allowance to total impaired loans increased 3.0 percentage points to 42.2% at March 31, 2010 from 39.2% at March 31, 2009.
Allocated allowance for large groups of smaller-balance homogeneous loans
The allocated credit loss allowance for large groups of smaller-balance homogeneous loans is focused on loss experience for the pools of loans rather than on an analysis of individual loans. Large groups of smaller- balance homogeneous loans primarily consist of first mortgage housing loans to individuals. The allowance for groups of performing loans is based on historical loss experience over a period. In determining the level of the allowance for delinquent groups of loans, we classify groups of homogeneous loans based on the risk rating and/or the number of delinquencies. We determine the credit loss allowance for delinquent groups of loans based on the probability of insolvency by the number of actual delinquencies and actual loss experience.
The allocated credit loss allowance for large groups of smaller-balance homogeneous loans was ¥129.1¥103.9 billion at March 31, 2008, a decrease2010, an increase of ¥0.5¥6.0 billion from ¥129.6¥97.9 billion at March 31, 2007.2009.
Allocated allowance for country risk exposure
The allocated credit loss allowance for country risk exposure is based on an estimate of probable losses relating to the exposure to countries that we identify as having a high degree of transfer risk. The countries to which the allowance for country risk exposure relates are decided based on a country risk grading system used to assess and rate the transfer risk to individual countries. The allowance is generally determined based on a function of default probability and expected recovery ratios, taking external credit ratings into account.
The allocated allowance for country risk exposure was approximately ¥0.1¥0.8 billion at March 31, 2007 and 2008.2010, a decrease of ¥0.3 billion from ¥1.1 billion at March 31, 2009.
Formula allowance for substandard, special mention and unclassified loans
The formula allowance is calculated by applying estimated loss factors to outstanding substandard, special mention and unclassified loans. In evaluating the inherent loss for these loans, we rely on a statistical analysis that incorporates a percentage of total loans based on historical loss experience.
The formula allowance increased ¥26.6decreased ¥9.8 billion from ¥406.1to ¥423.0 billion at March 31, 2007 to ¥432.72010 from ¥432.8 billion at March 31, 2008. The main reason for this increase was downgrades of loans to some borrowers to substandard loans or special mention loans.2009.
Each of our banking subsidiaries has computed the formula allowance based on estimated credit losses using a methodology defined by the credit rating system. Estimated losses inherent in the loan portfolio at the balance sheet date are calculated by multiplying the default ratio by the nonrecoverable ratio (determined as a complement of the recovery ratio). The default ratio is determined by each credit risk rating, taking into account the historical number of defaults of borrowers within each credit risk rating divided by the total number of borrowers within that credit risk rating existing at the beginning of the three-year observation period. The recovery ratio is mainly determined by the historical experience of collections against loans in default. The default ratio, the recovery ratio and other indicators are continually reviewed and improved to compute the formula allowance and the allowance for off-balance-sheet instruments. In addition, an appropriate adjustment to the formula allowance and the allowance for off-balance-sheet instruments, considering the risk of losses from large obligors and other credit risks, is examined and made by analyzing the difference between the allowance computed by multiplying the default ratio by the nonrecoverable ratio and the allowance calculated based on the loss experience ratio.
UNBC, our largest overseas subsidiary, calculates the formula allowance by applying loss factors to outstanding loans and certain unused commitments, in each case based on the internal risk grade of such loans,
leases and commitments. Changes in risk grades affect the amount of the formula allowance. Loss factors are based on their historical loss experience and may be adjusted for significant factors that, in management’s judgment, affect the collectibility of the portfolio as of the evaluation date. Loss factors are developed in the following ways:
loss factors for individually graded credits are derived from a migration model that tracks historical losses over a period, which we believe captures the inherent losses in our loan portfolio; and
| Ÿ | loss factors for individually graded credits are derived from a migration model that tracks historical losses over a period, which we believe captures the inherent losses in our loan portfolio; and |
pooled loan loss factors (not individually graded loans) are based on expected net charge-offs. Pooled loans are loans that are homogeneous in nature, such as consumer installment, home equity, residential mortgage loans and certain small commercial and commercial real estate loans.
| Ÿ | pooled loan loss factors (not individually graded loans) are based on expected net charge-offs. Pooled loans are loans that are homogeneous in nature, such as consumer installment, home equity, residential mortgage loans and certain small commercial and commercial real estate loans. |
Though there are a few technical differences in the methodology used for the formula allowance for credit losses as mentioned above, we examine the overall sufficiency of the formula allowance periodically by back-test comparison with the actual loss experience subsequent to the balance sheet date.
Unallocated allowance
The unallocated allowance is based on management’s evaluation of conditions that are not directly reflected in the determination of the formula and specific allowances. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they may not be identified with specific problem credits or portfolio segments. The conditions evaluated in connection with the unallocated allowance include the following, which were considered to exist at the balance sheet date:
general economic and business conditions affecting our key lending areas;
| Ÿ | general economic and business conditions affecting our key lending areas; |
credit quality trends (including trends in nonperforming loans expected to result from existing conditions);
| Ÿ | credit quality trends (including trends in nonperforming loans expected to result from existing conditions); |
collateral values;
| Ÿ | collateral values; |
loan volumes and concentrations;
| Ÿ | loan volumes and concentrations; |
specific industry conditions within portfolio segments;
| Ÿ | specific industry conditions within portfolio segments; |
recent loss experience in particular segments of the portfolio;
| Ÿ | recent loss experience in particular segments of the portfolio; |
duration of the current economic cycle;
| Ÿ | duration of the current economic cycle; |
bank regulatory examination results; and
| Ÿ | bank regulatory examination results; and |
findings of internal credit examination.
| Ÿ | findings of internal credit examination. |
Executive management reviews these conditions quarterly in discussion with our senior credit officers. To the extent that any of these conditions isare evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such conditions may be reflected as a specific allowance, applicable to such credit or portfolio segment.allowance. Where any of these conditions isare not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the probable loss related to such conditionconditions is reflected in the unallocated allowance.
The unallocated allowance increased ¥2.7¥11.3 billion from ¥7.0to ¥17.6 billion at March 31, 2007 to ¥9.72010 from ¥6.3 billion at March 31, 2008. This increase resulted mainly from management’s negative outlook of economic and specific industry conditions.2009.
Allowance for Off-balance-sheet Credit Instruments
In addition to the allowance for credit losses on the loan portfolio, we maintain an allowance for credit losses on off-balance-sheet credit instruments, including commitments of credit, guarantees and standby letters of
credit. This allowance is included in other liabilities. With regard to the specific allocated allowance for specifically identified credit exposure and the allocated formula allowance, we apply the same methodology that we use in determining the allowance for loan credit losses. The allowance for credit losses on off-balance-sheet credit instruments was ¥97.3¥85.7 billion at March 31, 2008,2010, an increase of ¥12.3¥1.1 billion from ¥85.0¥84.6 billion at March 31, 2007. The increase in the allowance for credit losses on off-balance-sheet credit instruments was mainly due to the downgrade in credit rating of certain overseas borrowers.2009.
Investment Portfolio
Our investment securities are primarily comprised of marketable equity securities and Japanese national government and Japanese government agency bonds, whichcorporate bonds and marketable equity securities. Japanese national government and Japanese government agency bonds are mostly classified as available-for-sale securities.securities available for sale. We also hold Japanese national government bonds which are classified as securities being held to maturity.
Historically, we have held equity securities of some of our customers for strategic purposes, in particular, to maintain long-term relationships with these customers. However, we have been reducing the aggregate value of our equity securities because we believe that from a risk management perspective reducing the price fluctuation risk in our equity portfolio is imperative. As of March 31, 2008,2010, the aggregate value of our marketable equity securities under Japanese GAAP satisfiessatisfied the requirements of the legislation prohibiting banks from holding equity securities in excess of their Tier I capital.
Investment securities decreased ¥7.23increased ¥17.41 trillion from ¥49.38to ¥55.05 trillion at March 31, 2007 to ¥42.152010 from ¥37.64 trillion at March 31, 20082009 due primarily to the sale ofa ¥15.26 trillion increase in Japanese national government and Japanese government agency bonds to take advantage of lower market interest rates and to a lesser extent due to the¥1.14 trillion increase in U.S. Treasury and other U.S. government agencies bonds, partially offset by a ¥0.41 trillion decrease in net unrealized gaincorporate bonds. The general improvement in stock prices of Japanese equity securities resulted in an increase of our marketable equity securities relevantby ¥0.48 trillion at March 31, 2010 compared to the decline in the Japanese stock market.March 31, 2009. Investment securities other than securities available for sale or being held to maturity (i.e., nonmarketable equity securities set forth on our consolidated balance sheet as other investment securities) were primarily carried at cost of ¥1.43 trillion and ¥1.69 trillion at March 31, 2009 and March 31, 2010, respectively, because their fair values were not readily determinable. See“—Critical Accounting Estimates—Fair Value Hierarchy.”
The following table shows information as to the amortized costs and estimated fair values of our investment securities available for sale and being held to maturity at March 31, 20072009 and 2008:2010:
| At March 31, | |||||||||||||||||||
| 2007 | 2008 | ||||||||||||||||||
| Amortized cost | Estimated fair value | Net unrealized gains | Amortized cost | Estimated fair value | Net unrealized gains (losses) | ||||||||||||||
| (in billions) | |||||||||||||||||||
Securities available for sale: | |||||||||||||||||||
Debt securities: | |||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 20,939.8 | ¥ | 20,980.9 | ¥ | 41.1 | ¥ | 16,133.0 | ¥ | 16,185.9 | ¥ | 52.9 | |||||||
Japanese prefectural and municipal bonds | 238.0 | 239.6 | 1.6 | 203.1 | 208.2 | 5.1 | |||||||||||||
Foreign governments and official institutions bonds | 3,469.2 | 3,538.1 | 68.9 | 3,637.6 | 3,670.8 | 33.2 | |||||||||||||
Corporate bonds | 6,060.3 | 6,226.1 | 165.8 | 5,281.3 | 5,408.0 | 126.7 | |||||||||||||
Mortgage-backed securities | 2,728.0 | 2,793.8 | 65.8 | 3,439.5 | 3,438.7 | (0.8 | ) | ||||||||||||
Asset-backed securities, excluding mortgage-backed securities | 3,172.6 | 3,236.0 | 63.4 | 3,547.3 | 3,455.1 | (92.2 | ) | ||||||||||||
Other debt securities | 14.1 | 14.8 | 0.7 | 19.2 | 18.9 | (0.3 | ) | ||||||||||||
Marketable equity securities | 4,677.6 | 8,650.5 | 3,972.9 | 4,315.2 | 6,343.7 | 2,028.5 | |||||||||||||
Total securities available for sale | ¥ | 41,299.6 | ¥ | 45,679.8 | ¥ | 4,380.2 | ¥ | 36,576.2 | ¥ | 38,729.3 | ¥ | 2,153.1 | |||||||
Debt securities being held to maturity, principally Japanese government bonds | ¥ | 3,033.1 | ¥ | 3,034.6 | ¥ | 1.5 | ¥ | 2,839.7 | ¥ | 2,860.4 | ¥ | 20.7 | |||||||
The estimated fair value of available-for-sale securities decreased ¥6.95 trillion from ¥45.68 trillion at March 31, 2007 to ¥38.73 trillion at March 31, 2008. This decrease was primarily due to a decrease in our holdings of Japanese government bonds. As part of our asset-liability management operations, we decreased our Japanese government bond holdings, considering the interest rate market conditions and possible tightening of liquidity condition resulting from the effects of the market disruptions starting in the latter half of 2007.
| At March 31, | ||||||||||||||||||||
| 2009 | 2010 | |||||||||||||||||||
| Amortized cost | Estimated fair value | Net unrealized gains (losses) | Amortized cost | Estimated fair value | Net unrealized gains (losses) | |||||||||||||||
| (in billions) | ||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
Debt securities: | ||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 23,846.2 | ¥ | 23,892.8 | ¥ | 46.6 | ¥ | 39,431.1 | ¥ | 39,432.9 | ¥ | 1.8 | ||||||||
Japanese prefectural and municipal bonds | 277.9 | 282.5 | 4.6 | 272.8 | 280.9 | 8.1 | ||||||||||||||
Foreign governments and official institutions bonds | 185.6 | 190.6 | 5.0 | 1,340.8 | 1,345.2 | 4.4 | ||||||||||||||
Corporate bonds | 3,791.0 | 3,869.0 | 78.0 | 3,394.3 | 3,474.7 | 80.4 | ||||||||||||||
Mortgage-backed securities | 676.3 | 668.2 | (8.1 | ) | 991.3 | 994.7 | 3.4 | |||||||||||||
Asset-backed securities, excluding mortgage-backed securities(1) | 543.0 | 495.1 | (47.9 | ) | 329.6 | 327.8 | (1.8 | ) | ||||||||||||
Other debt securities | 33.3 | 32.1 | (1.2 | ) | 1.0 | 1.0 | — | |||||||||||||
Marketable equity securities | 3,340.3 | 3,959.8 | 619.5 | 3,083.0 | 4,554.7 | 1,471.7 | ||||||||||||||
Total securities available for sale | ¥ | 32,693.6 | ¥ | 33,390.1 | ¥ | 696.5 | ¥ | 48,843.9 | ¥ | 50,411.9 | ¥ | 1,568.0 | ||||||||
Debt securities being held to maturity(2) | ¥ | 2,812.4 | ¥ | 2,826.4 | ¥ | 14.0 | ¥ | 2,943.8 | ¥ | 3,027.9 | ¥ | 84.1 | ||||||||
| Notes: |
| (1) | AAA and AA-rated products account for approximately two-thirds of our asset-backed securities. |
| (2) | See Note 4 to our consolidated financial statements included elsewhere in this Annual Report for more details. |
Net unrealized gains on available-for-sale securities decreased ¥2.23 trillion from ¥4.38 trillionavailable for sale increased ¥871.5 billion to ¥1,568.0 billion at March 31, 2007 to ¥2.15 trillion2010 from ¥696.5 billion at March 31, 2008.2009. This decreaseincrease primarily consisted of a ¥1.95 trillion decrease¥852.2 billion increase in net unrealized gains on marketable equity securities and a ¥0.28 trillion decrease in net unrealized gains on debt securities. The decreaseincrease in net unrealized gains of ¥1.95 trillion¥852.2 billion on marketable equity securities was mainly due to the decreaseincrease in stock prices which negativelyfavorably affected our holdings of Japanese equity securities. The decrease in net unrealized gains on debt securities was mainly due to the appreciation of the Japanese yen against the US dollar that negatively affected the yen value of our foreign mortgage-backed securities and asset-backed securities. The decline in market prices of asset-backed securitization products due to the deterioration in credit markets was also a factor resulting in our reporting net unrealized losses on mortgage-backed securities and asset-backed securities.
The amortized cost of securities being held to maturity decreased ¥0.19 trillionincreased ¥131.4 billion compared to the previous fiscal year. The decrease wasyear mainly due to a ¥402.6 billion increase in foreign government bonds to counter the low interest rate environment in the domestic bond market, partially offset by the redemption of Japanese national government bonds.bonds classified as securities being held to maturity.
Cash and Due from Banks
Cash and due from banks fluctuate significantly from day to day depending upon financial market conditions. Cash and due from banks at March 31, 20082010 was ¥4.09¥2.86 trillion, an increasea decrease of ¥1.24¥0.21 trillion from ¥2.85¥3.07 trillion at March 31, 2007.2009. The increasedecrease was primarily due to an increasea decrease in our deposit balance with the Bank of Japan, resulting from an increase in our totalcash balance of time deposits.our domestic offices.
Interest-earning Deposits in Other Banks
Interest-earning deposits in other banks fluctuate significantly from day to day depending upon financial market conditions. Interest-earning deposits in other banks at March 31, 20082010 were ¥6.32¥4.78 trillion, an increase of ¥0.26¥1.24 trillion from ¥6.06¥3.54 trillion at March 31, 2007.2009. This increase primarily reflected an increase in released fundsinterest-earning deposits denominated in Euro-yen markets.foreign currencies of our overseas offices.
Receivables under resale agreementsResale Agreements
Receivables under resale agreements at March 31, 2008 was ¥7.112010 were ¥3.54 trillion, an increase of ¥2.55¥1.01 trillion from ¥4.56¥2.53 trillion at March 31, 2007.2009. The increase was primarily due to an increase in transaction volume of receivables under resale agreements at our overseas subsidiaries’ transactions with institutional investors.subsidiaries to manage and invest increased customer deposits.
Goodwill
Goodwill at March 31, 20082010 was ¥1.07 trillion, a decrease of ¥0.77 trillion¥381.5 billion, substantially unchanged from ¥1.84 trillion at March 31, 2007. This decrease was mainly because goodwill impairment loss of ¥893.7 billion was recognized for the fiscal year ended March 31, 2008, compared to no impairment for the previous fiscal year. For further information, see “—A. Operating Results—Impairment of Goodwill.”2009.
Deferred Tax Assets
Deferred tax assets increased ¥0.34decreased ¥0.88 trillion from ¥0.56to ¥1.29 trillion at March 31, 2007 to ¥0.902010 from ¥2.17 trillion at March 31, 2008. This2009. The decrease primarily reflected an increase was primarily due to a decrease in deferred tax liabilities related to a decline in net unrealized gains on investment securities due to a recovery in the fair market value of these securities. A decrease in net operating loss carryforwards, which was partly offset byis attributable to our ability to utilize net operating loss carryforwards against taxable income for the fiscal year ended March 31, 2010, also contributed to a decrease in deferred tax assets for utilized operating loss carryforwards and an additional valuation allowance related to operating loss carryforwards that were no longer deemed to be “more likely than not” to be realized due to a decline in estimated future taxable income resulting from the downturn in financial and banking businesses caused by disruptions in the global financial markets.
Total Liabilities
At March 31, 2008,2010, total liabilities were ¥182.24¥190.98 trillion, an increase of ¥6.47¥3.95 trillion from ¥175.77¥187.03 trillion at March 31, 2007, as2009, while the total balance of deposits was ¥129.24 trillion, an increase of ¥2.65 trillion from ¥126.59¥135.47 trillion at March 31, 2007.2010, an increase of ¥7.14 trillion from ¥128.33 trillion at March 31, 2009. The increase in interest bearingtotal deposits of ¥5.40¥7.14 trillion compared to the previous fiscal year end was partially offset by the decreasedecreases in non-interest bearing depositsother short-term borrowings of ¥2.74¥1.77 trillion, trading account liabilities of ¥0.80 trillion, and other liabilities of ¥0.68 trillion.
The appreciation of the Japanese yen against the US dollar and other foreign currencies during the fiscal year endedbetween March 31, 2008 decreased2009 and March 31, 2010 resulted in a decrease in the Japanese yen amount of foreign currency-denominated liabilities at March 31, 2010 by ¥9.02¥0.10 trillion.
Deposits
Deposits are our primary source of funds. Total average balance of deposits increased ¥3.49¥2.95 trillion from ¥123.53to ¥130.02 trillion for the fiscal year ended March 31, 2007 to ¥127.022010 from ¥127.07 trillion for the fiscal year ended March 31, 2008.2009. This increase primarily reflected an increase of ¥3.78¥2.72 trillion in average foreign interest-bearing deposits.deposits, principally money market deposits and time deposits as depositors sought the safety of deposits at large financial institutions in light of the unstable economic conditions, especially in the United States and Europe.
DomesticThe balance at the end of the fiscal year of domestic deposits increased ¥0.79¥1.90 trillion from ¥108.71to ¥112.73 trillion at March 31, 2007 to ¥109.502010 from ¥110.83 trillion at March 31, 2008,2009, and the balance at the end of the fiscal year of foreign deposits increased ¥1.87¥5.24 trillion from ¥17.87¥17.50 trillion at March 31, 20072009 to ¥19.74¥22.74 trillion at March 31, 2008. As for2010. Within domestic deposits, the balance of non-interest bearing deposits decreased while interest-bearing deposits increased, partially in response to depositors’ preference to seek the rising short-term interest rates that made interest-bearingsafety of deposits more attractive.at large financial institutions. The increase in foreign deposits was mainly due to an increase in foreign interest-bearing deposits was mainly due toof our overseas offices, especially in the fact that large deposits from foreign central banksUnited States and government sponsored investment corporations increased in response to the recent difficult market conditions.Europe.
Short-term Borrowings
We use short-term borrowings as a funding source and in our management of interest rate risk. For management of interest rate risk, short-term borrowings are used in asset-liability management operations to match interest rate risk exposure resulting from loans and other interest-earning assets and to manage funding costs of various financial instruments at an appropriate level, based on our forecast of future interest rate levels. Short-term borrowings consist of call money and funds purchased, payables under repurchase agreements, payables under securities lending transactions, due to trust accounts and other short-term borrowings.
Short-term borrowings increased ¥3.08decreased ¥3.07 trillion from ¥23.17to ¥25.02 trillion at March 31, 2007 to ¥26.252010 from ¥28.09 trillion at March 31, 2008.2009. This increasedecrease was primarily attributable to an increasea decrease of ¥3.68¥1.77 trillion in payables under repurchase agreements entered into to maintain liquidity in our money market operations.other short-term borrowings which were comprised of borrowings from the Bank of Japan and other financial institutions.
Long-term debt
Long-term debt at March 31, 20082010 was ¥13.68¥14.16 trillion, a decreasean increase of ¥0.71¥0.89 trillion from ¥14.39¥13.27 trillion at March 31, 2007.2009. This decreaseincrease was partlymainly due to a decreasean increase in the balanceunsubordinated debts by BTMU to maintain an appropriate level of unsubordinated debt and subordinated debt issued by BTMU.regulatory capital. For further information, see Note 1614 to our consolidated financial statements included elsewhere in this Annual Report.
Benefit Obligations
As of March 31, 2009 and 2010, we had benefit obligations of ¥2,000.3 billion and ¥1,887.1 billion, respectively, and the fair value of our plan assets was ¥1,814.0 billion and ¥2,108.5 billion, respectively. The fair value of our plan assets has fluctuated significantly depending on the general market conditions in recent fiscal years. If the fair value of our pension plan assets declines or our investment return on our pension plan assets decreases, or if a change is made in the actuarial assumptions on which the calculations of the projected pension obligations are based, we may incur losses. Changes in the interest rate environment could also result in an increase in our pension obligations and annual funding costs. In addition, unrecognized prior service costs may be incurred if our pension plans are amended.
Sources of Funding and Liquidity
Our primary source of liquidity is from a large balance of deposits, mainly ordinary deposits, certificates of deposit and time deposits. Time deposits have historically shown a historically high rollover rate among our corporate customers and individual depositors. Due to our broad customer base in Japan and the depositors’ preference to seek the safety of deposits at large financial institutions, the balance of our deposits increased from ¥128.33 trillion at March 31, 2009 to ¥135.47 trillion at March 31, 2010. As of March 31, 2008,2010, our deposits of ¥129.24 trillion exceeded
our loans, net of allowance for credit losses of ¥97.87¥90.87 trillion, by ¥31.37¥44.60 trillion. These deposits provide us with a sizable source of stable and low-cost funds. While approximately 44.8% of certificates of deposit and time deposits mature within three months, we continuously monitor relevant interest rate characteristics of these funds and utilize asset and liability management techniques to manage the possible impact of the rollovers on our net interest margin and liquidity. Our average deposits, combined with average shareholders’total equity of ¥7.86 trillion, funded 70.6%70.5% of our average total assets of ¥194.07¥195.56 trillion during the fiscal year ended March 31, 2008.
Most of the remaining funding was provided by short-term borrowings and long-term senior and subordinated debt. Short-term borrowings consist of call money and funds purchased, payables under repurchase agreements, payables under securities lending transactions, due to trust account, and other short-term borrowings. From time to time, we have issued long-term instruments such as straight bonds with mainly three to five years’ maturity. Liquidity may also be provided by the sale of financial assets, including securities available for sale, trading account securities and loans. Additional liquidity may be provided by the maturity of loans.
Total Shareholders’ Equity
The following table presents a summary of our total shareholders’ equity at March 31, 20072009 and 2008:2010:
| At March 31, | At March 31, | |||||||||||||||
| 2007 | 2008 | 2009 | 2010 | |||||||||||||
| (in billions, except percentages) | (in billions, except percentages) | |||||||||||||||
Preferred stock | ¥ | 247.1 | ¥ | 247.1 | ¥ | 442.1 | ¥ | 442.1 | ||||||||
Common stock | 1,084.7 | 1,084.7 | 1,127.6 | 1,643.2 | ||||||||||||
Capital surplus | 5,834.5 | 5,791.3 | 6,095.8 | 6,619.5 | ||||||||||||
Retained earnings | 1,876.4 | 1,174.9 | ||||||||||||||
Retained earnings appropriated for legal reserve | 239.6 | 239.6 | ||||||||||||||
Accumulated deficit | (845.8 | ) | (18.1 | ) | ||||||||||||
Accumulated other changes in equity from nonowner sources, net of taxes | 2,392.1 | 919.4 | (813.7 | ) | (45.4 | ) | ||||||||||
Treasury stock, at cost | (1,001.5 | ) | (727.3 | ) | (10.7 | ) | (14.0 | ) | ||||||||
Total shareholders’ equity | ¥ | 10,433.3 | ¥ | 8,490.1 | ||||||||||||
Total Mitsubishi UFJ Financial Group shareholders’ equity | ¥ | 6,234.9 | ¥ | 8,866.9 | ||||||||||||
Noncontrolling interests | 232.2 | 235.9 | ||||||||||||||
Ratio of total shareholders’ equity to total assets | 5.60 | % | 4.45 | % | ||||||||||||
Total equity | ¥ | 6,467.1 | ¥ | 9,102.8 | ||||||||||||
Ratio of total equity to total assets | 3.34 | % | 4.55 | % | ||||||||||||
Total shareholders’ equity decreased ¥1,943.2increased ¥2,635.7 billion from ¥10,433.3to ¥9,102.8 billion at March 31, 2007 to ¥8,490.12010 from ¥6,467.1 billion at March 31, 2008.2009. The ratio of total shareholders’ equity to total assets also showed a decreasean increase of 1.151.21 percentage points from 5.60%to 4.55% at March 31, 2007 to 4.45%2010 from 3.34% at March 31, 2008.2009. The decreaseincrease in total shareholders’ equity, and the resulting decreaseincrease in the ratio to total assets, at March 31, 20082010 were principally attributable to a decrease in accumulated deficit of ¥827.7 billion, an increase in accumulated other changes in equity from nonowner sources, net of taxes, of ¥1,472.7¥768.3 billion, an increase in capital surplus of ¥523.7 billion, and aan increase in common stock of ¥515.6 billion. The increase in common stock and capital surplus was mainly due to the capital procured through the common stock offering in December 2009. The decrease in retained earningsaccumulated deficit was mainly due to our recording net income available to common shareholders of ¥701.5Mitsubishi UFJ Financial Group of ¥838.1 billion which were partially offset by a decrease in treasury stock of ¥274.2 billion.for the fiscal year ended March 31, 2010. The decreaseincrease in accumulated other changes in equity from nonowner sources, net of taxes, was mainlyprimarily due to a declinean increase in the Japanese stock market, which resulted in a decrease in net unrealized gaingains on investment securities available for sale. The decreaseand an increase in retained earnings was mainly due to our recording a net loss for the fiscal year ended March 31, 2008. The decrease in treasury stock was primarily due to the use of our treasury stock in the share exchange transaction to make MUS a wholly owned subsidiary in September 2007, which was partially offset by the repurchase of our common shares in the market in December 2007.pension liability adjustments.
Due to our holdings of a large amount of marketable Japanese equity securities and the volatility of the equity markets in Japan, changes in the fair value of marketable equity securities have significantly affected our shareholders’ equity.total equity in recent years. The following table presents information relating to the accumulated net unrealized gains, net of taxes, in respect of investment securities classified as available for sale at March 31, 20072009 and 2008:2010:
| At March 31, | ||||||||
| 2007 | 2008 | |||||||
| (in billions, except percentages) | ||||||||
Accumulated net unrealized gains on investment securities available for sale | ¥ | 2,315.6 | ¥ | 973.7 | ||||
Accumulated net unrealized gains to total shareholder’s equity | 22.19 | % | 11.47 | % | ||||
| At March 31, | ||||||||
| 2009 | 2010 | |||||||
| (in billions, except percentages) | ||||||||
Accumulated net unrealized gains on investment securities | ¥ | 95.2 | ¥ | 588.2 | ||||
Accumulated net unrealized gains to total equity | 1.47 | % | 6.46 | % | ||||
We are subject to various regulatory capital requirements promulgated by the regulatory authorities of the countries in which we operate. Failure to meet minimum capital requirements can initiate mandatory actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Moreover, if our capital ratios are perceived to be low, our counterparties may avoid entering into transactions with us, which in turn could negatively affect our business and operations. For further information, see “Item 3.D. Risk Factors—We may not be able to maintain our capital ratios above minimum required levels, which could result in the suspension of some or all of our operations.”
We continually monitor our risk-adjusted capital ratio closely and manage our operations in consideration of the capital ratio requirements. These ratios are affected not only by fluctuations in the value of our assets, including our credit risk assets such as loans and equity securities, the risk weights of which depend on the borrowers’ or issuers’ internal ratings, marketable securities and deferred tax assets, but also by fluctuations in the value of the Japanese yen against the US dollar and other foreign currencies and by general price levels of Japanese equity securities.
Capital Requirements for Banking Institutions in Japan
A Japanese banking institution is subject to the minimum capital adequacy requirements both on a consolidated basis and a stand-alone basis, and is required to maintain the minimum capital irrespective of whether it operates independently or as a subsidiary under the control of another company. A bank holding company is also subject to the minimum capital adequacy requirements on a consolidated basis. Under the guidelines of the Financial Services Agency’s guidelines,Agency of Japan, or the FSA, capital is classified into three tiers, referred to as Tier I, Tier II and Tier III capital. Our Tier I capital generally consists of shareholders’ equity items, including common stock, non-cumulative preferred stock, capital surplus, minoritynoncontrolling interests and retained earnings (which includes deferred tax assets), but. However, recorded goodwill and other items, such as treasury stock and unrealized losses on investment securities classified as “securities available for sale” under Japanese GAAP, net of taxes, if any, are deducted from Tier I capital. Our Tier II capital generally consists of the amount (up to a maximum of 0.6% of credit risk-weighted assets) by which eligible reserves for credit losses exceedsexceed expected losses in the Internal Ratings Basedinternal ratings-based approach, or the IRB approach, and general reserves for credit losses, subject to a limit of 1.25% of modified risk-weighted assets determined by the partial use of the Standardized Approach (including a phased rollout of the IRB approach), 45% of the unrealized gains on investment securities classified as “other securities,”“securities available for sale” under Japanese GAAP, 45% of the land revaluation excess, the balance of perpetual subordinated debt and the balance of subordinated term debt with an original maturity of over five years subject to certain limitations, up to 50% of Tier I capital. Our Tier III capital consists of short-term subordinated debt with an original maturity of at least two years, subject to certain limitations. At least 50% of the minimum capital requirements must be maintained in the form of Tier I capital.
The eligible regulatory capital set forth in the Financial Services Agency’sFSA’s guidelines discussed above werewas modified as of March 31, 2007 to reflect the “International Convergence of Capital Measurement and Capital Standards: A Revised Framework,” often referred to as “Basel II.” In December 2009, the Basel Committee on Banking Supervision released proposals designed to strengthen global capital and liquidity regulations. If the proposals, including other proposals released thereafter, are adopted, they could impose stricter capital requirements and new liquidity requirements on global financial institutions such as us. For further information, see “Item 3.D. Risk Factors—We may not be able to maintain our capital ratios above minimum required levels, which could result in the suspension of some or all of our operations.”
As of March 31, 20072009 and 2008,2010, we have calculated our risk-weighted assets in accordance with the FSA guidelines reflecting Basel II. In determining capital ratios under the FSA guidelines reflecting Basel II, most ofwe and our majorbanking subsidiaries adoptedused the Foundation Internal Ratings Basedadvanced internal ratings-based approach, or the FIRBAIRB approach, to reflect thecalculate capital requirements for credit risk inas of the risk-weighted assets. Underend of March 2009 and 2010. The Standardized Approach is used for some subsidiaries that are considered to be immaterial to the FIRB approach, weoverall MUFG capital requirements and our major banking a few
subsidiaries generally take into account probabilityadopted a phased rollout of default, or PD, applicable to borrower rating and PD, loss given default and exposure at default applicable to pool assignment.the internal ratings-based approach. Market risk is reflected in the risk-weighted assets by applying the Internal Models Approach to calculate general market risk and the Standardized Methodology to calculate specific risk. Under the Internal Models Approach, we principally use a historical simulation model to calculate value-at-risk amounts by estimating the profit and loss on our portfolio by applying actual fluctuations in thehistorical market rates and prices over a fixed period inperiod. Under the past. UnderFSA guidelines reflecting Basel II, we newly reflectedreflect operational risk in the risk-weighted assets by applying the Standardized Approach. Specifically, operational risk capital charge is determined based on the amount of gross profit allocated to business lines multiplied by a factor ranging from 12% to 18%.
For additional discussion of the calculation of our capital ratios, under Basel II, see Note 2221 to our consolidated financial statements included elsewhere in this Annual Report.
Under the Japanese regulatory capital requirements, our consolidated capital components, including Tier I, Tier II and Tier III capital and risk-weighted assets, are calculated from our consolidated financial statements prepared under Japanese GAAP. Also, each of the consolidated and stand-alone capital components and risk-weighted assets of our banking subsidiaries in Japan is calculated from consolidated and non-consolidated financial statements prepared under Japanese GAAP.
For a detailed discussion of the capital adequacy guidelines adopted by the Financial Services AgencyFSA and proposed amendments, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—Japan—Capital Adequacy.”
Capital Requirements for Banking Institutions in the United States
In the United States, UNBC and its banking subsidiary, UBOC,Union Bank, our largest subsidiaries operating outside Japan, are subject to various regulatory capital requirements administered by US Federal banking agencies, including minimum capital requirements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, they must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under US regulatory accounting practices. Their capital amounts and prompt corrective action classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
In addition, BTMU and MUTB are subject to the Federal Reserve’s requirements as foreign banking organizations that have US branches and agencies and that are controlled by us as a financial holding company.
For a detailed discussion of the capital adequacy guidelines applicable to our US banking subsidiaries,us in the United States, see “Item 4.B. Information on the Company—Business Overview—Supervision and Regulation—United States—Bank Capital Requirements and Capital Distributions.”
Capital Requirements for Securities Firms in Japan and Overseas
We have securities subsidiaries in Japan and overseas, which are also subject to regulatory capital requirements. In Japan, the Financial Instruments and Exchange Law of Japan and related ordinances require financial instruments firms to maintain a minimum capital ratio of 120% calculated as a percentage of capital accounts less certain illiquidfixed assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty credit and operations risks. Specific guidelines are issued as a ministerial ordinance which detaildetails the definition of essential components of the capital ratios, including capital, illiquid assets deductions,deductible fixed asset items and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for regulatory reporting and a capital ratio of less than 100% may lead to a suspension of all or part of the business for a period of time and cancellation of registration. Overseas securities subsidiaries are subject to the relevant regulatory capital requirements of the countries or jurisdictions in which they operate.
Mitsubishi UFJ Financial Group Ratios
The table below presents our consolidated total capital, risk-weighted assets and risk-adjusted capital ratios at March 31, 20072009 and 2008 (underlying2010. (Underlying figures are calculated in accordance with Japanese banking regulations based on information derived from our consolidated financial statements prepared in accordance with Japanese GAAP, as required by the Financial Services Agency.FSA. The percentages in the tables below are rounded down).
The consolidated total capital, risk-weighted assets and risk-adjusted capital ratios at March 31, 2007 have been restated.down.) For further information, see Note 2221 to our consolidated financial statements included elsewhere in this Annual Report.
| At March 31, | Minimum capital ratios required | At March 31, | Minimum capital ratios required | |||||||||||||||||||
| 2007 (Restated) | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in billions, except percentages) | (in billions, except percentages) | |||||||||||||||||||||
Capital components: | ||||||||||||||||||||||
Tier I capital | ¥ | 8,054.9 | ¥ | 8,293.8 | ¥ | 7,575.2 | ¥ | 10,009.6 | ||||||||||||||
Tier II capital (qualifying capital) | 5,718.0 | 4,441.8 | ||||||||||||||||||||
Tier III capital (qualifying capital) | — | — | ||||||||||||||||||||
Tier II capital includable as qualifying capital | 4,216.1 | 4,449.6 | ||||||||||||||||||||
Tier III capital includable as qualifying capital | — | — | ||||||||||||||||||||
Deductions from total qualifying capital | 428.4 | 519.7 | (312.9 | ) | (467.4 | ) | ||||||||||||||||
Total capital | ¥ | 13,344.5 | ¥ | 12,215.9 | ||||||||||||||||||
Total risk-based capital | ¥ | 11,478.4 | ¥ | 13,991.8 | ||||||||||||||||||
Risk-weighted assets | ¥ | 106,395.5 | ¥ | 109,075.6 | ¥ | 97,493.5 | ¥ | 94,081.3 | ||||||||||||||
Capital ratios: | ||||||||||||||||||||||
Tier I capital | 7.57 | % | 7.60 | % | 4.00 | % | 7.76 | % | 10.63 | % | 4.00 | % | ||||||||||
Total risk-adjusted capital | 12.54 | 11.19 | 8.00 | 11.77 | 14.87 | 8.00 | ||||||||||||||||
Our Tier I capital ratio and total risk-adjusted capital ratio at March 31, 20082010 were 7.60%10.63% and 11.19%14.87%, respectively. The decreaseincrease in total risk-adjusted capital ratio was mainly due to an increase in Tier I capital resulting from a common stock offering in December 2009 and a decrease in Tier II capital resulting from the decrease in the amount of unrealized gains on investment securities and an increase in risk-weighted assets for credit risk.as our loan balance decreased. For a detailed discussion of the common stock offering, see “—Recent Developments—Completion of Global Offering of Common Stock.”
Capital Ratios of Our Major Banking Subsidiaries in Japan
The table below presents the risk-basedrisk-adjusted capital ratios of BTMU and MUTB at March 31, 20072009 and 20082010 (underlying figures are calculated in accordance with Japanese banking regulations based on information derived from their consolidated and non-consolidated financial statements prepared in accordance with Japanese GAAP, as required by the Financial Services Agency.FSA. The percentages in the tables below are rounded down.).
The consolidated total capital, risk-weighted assets and risk-adjusted capital ratios of BTMU at March 31, 2007 have been restated. For further information, see Note 2221 to our consolidated financial statements included elsewhere in this Annual Report.
| At March 31, | Minimum capital ratios required | At March 31, | Minimum capital ratios required | |||||||||||||||
| 2007 (Restated) | 2008 | 2009 | 2010 | |||||||||||||||
Consolidated capital ratios: | ||||||||||||||||||
BTMU | ||||||||||||||||||
Tier I capital | 7.68 | % | 7.43 | % | 4.00 | % | 7.64 | % | 10.84 | % | 4.00 | % | ||||||
Total risk-adjusted capital | 12.77 | 11.20 | 8.00 | 12.02 | 15.54 | 8.00 | ||||||||||||
MUTB | ||||||||||||||||||
Tier I capital | 8.40 | 9.94 | 4.00 | 10.17 | 12.47 | 4.00 | ||||||||||||
Total risk-adjusted capital | 13.20 | 13.13 | 8.00 | 12.70 | 16.02 | 8.00 | ||||||||||||
Stand-alone capital ratios: | ||||||||||||||||||
BTMU | ||||||||||||||||||
Tier I capital | 7.91 | 7.65 | 4.00 | 8.34 | 11.59 | 4.00 | ||||||||||||
Total risk-adjusted capital | 13.15 | 11.44 | 8.00 | 12.74 | 16.34 | 8.00 | ||||||||||||
MUTB | ||||||||||||||||||
Tier I capital | 8.01 | 9.55 | 4.00 | 9.85 | 12.09 | 4.00 | ||||||||||||
Total risk-adjusted capital | 12.85 | 12.87 | 8.00 | 12.49 | 16.10 | 8.00 | ||||||||||||
At March 31, 2008,2010, management believes that our banking subsidiaries were in compliance with all capital adequacy requirements to which they arewere subject.
Capital Ratios of Banking Subsidiaries in the United States
The table below presents the risk-adjusted capital ratios of UNBC and UBOC,Union Bank, both subsidiaries of BTMU, at December 31, 20062008 and 2007:2009:
| At December 31, | Minimum capital ratios required | Ratios OCC requires to be “well-capitalized” | At December 31, | Minimum capital ratios required | Ratios OCC requires to be “well-capitalized” | |||||||||||||||||||
| 2006 | 2007 | 2008 | 2009 | |||||||||||||||||||||
UNBC: | ||||||||||||||||||||||||
Tier I capital (to risk-weighted assets) | 8.68 | % | 8.30 | % | 4.00 | % | — | 8.78 | % | 11.82 | % | 4.00 | % | — | ||||||||||
Tier I capital (to quarterly average assets)(1) | 8.44 | 8.27 | 4.00 | — | 8.42 | 9.45 | 4.00 | — | ||||||||||||||||
Total capital (to risk-weighted assets) | 11.71 | 11.21 | 8.00 | — | 11.63 | 14.54 | 8.00 | — | ||||||||||||||||
UBOC: | ||||||||||||||||||||||||
Union Bank: | ||||||||||||||||||||||||
Tier I capital (to risk-weighted assets) | 8.46 | % | 8.20 | % | 4.00 | % | 6.00 | % | 8.67 | % | 11.39 | % | 4.00 | % | 6.00 | % | ||||||||
Tier I capital (to quarterly average assets)(1) | 8.25 | 8.20 | 4.00 | 5.00 | 8.31 | 9.05 | 4.00 | 5.00 | ||||||||||||||||
Total capital (to risk-weighted assets) | 10.69 | 10.38 | 8.00 | 10.00 | 11.01 | 13.73 | 8.00 | 10.00 | ||||||||||||||||
| Note: |
| (1) | Excludes certain intangible assets. |
Management believes that, as ofat December 31, 2007 and June 30, 2008,2009, UNBC and UBOCUnion Bank met all capital adequacy requirements to which they arewere subject.
As ofAt December 31, 2007,2008 and 2009, the Office of the Comptroller of the Currency, or OCC, categorized UBOCUnion Bank as “well-capitalized.” To be categorized as “well capitalized,“well-capitalized,” UBOCUnion Bank must maintain minimum ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to quarterly average assets (the Leverage ratio) as set forth in the table. There are no conditions or events since December 31, 2009 that notification thatwould cause management believes have changed UBOC’s category.to believe Union Bank’s category has changed.
Capital Adequacy Ratio of Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (MUMSS)
On April 1, 2010, MUS became an intermediate holding company and was renamed as Mitsubishi UFJ Securities Holdings Co., Ltd., or MUSHD, whose operating subsidiary succeeded to the former MUS’s domestic operations and, on May 1, 2010, succeeded to the investment banking operations conducted in Japan by Morgan Stanley Japan Securities Co., Ltd. and was renamed as Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., or MUMSS. MUMSS is required to meet the capital adequacy ratios.
At March 31, 20072009 and 2008, MUS’s2010, MUMSS’ capital accounts less certain fixed assets of ¥739.7¥502.8 billion and ¥619.3¥505.7 billion represented 371.1%353.7% and 299.4%342.9% of the total amounts equivalent to market, counterparty credit and operations risks, respectively, as calculated pursuant to the Financial Instruments and Exchange Law. The amountLaw of MUS’s capital accounts less certain fixed assets and its percentage to the total amounts equivalent to market, counterparty credit and operations risks at March 31, 2007 have been restated.Japan. For further information, see Note 2221 to our consolidated financial statements included elsewhere in this Annual Report.
Non-exchange Traded Contracts Accounted for at Fair Value
The use of non-exchange traded or over-the-counter contracts provides us with the ability to adapt to the varied requirements of a wide customer base while mitigating market risks. Non-exchange traded contracts are accounted for at fair value, which is generally based on pricing models or quoted market prices for instruments with similar characteristics. Gains or losses on non-exchange traded contracts are included in “Trading account profits—profits (losses)—net” in our consolidated statements of operations. These contracts consist primarily of crude oil commodity contracts.operations included elsewhere in this Annual Report. The following table summarizes the changes in fair value of non-exchange traded contracts for the fiscal years ended March 31, 20072009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||
| 2007 | 2008 | 2009 | 2010 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
Net fair value of contracts outstandings at beginning of fiscal year | ¥ | 70,803 | ¥ | 86,512 | ||||||||||||
Net fair value of contracts outstanding at beginning of fiscal year | ¥ | 87,772 | ¥ | 38,225 | ||||||||||||
Changes attributable to contracts realized or otherwise settled during the fiscal year | (17,684 | ) | (26,950 | ) | 11,137 | (8,079 | ) | |||||||||
Fair value of new contracts when entered into during the fiscal year | 8,069 | 734 | 17,272 | (3,433 | ) | |||||||||||
Other changes in fair value, principally revaluation at end of fiscal year | 25,324 | 27,476 | (77,956 | ) | 10,425 | |||||||||||
Net fair value of contracts outstanding at end of fiscal year | ¥ | 86,512 | ¥ | 87,772 | ¥ | 38,225 | ¥ | 37,138 | ||||||||
During the fiscal year ended March 31, 2008,2010, the fair value of non-exchange traded contracts increased primarilyslightly decreased mainly due to a decline in the fair value of credit default swaps embedded in collateralized debt obligations, which was partially offset by an increase in the fair value of oil commodity contracts indexed to the WTI crude oil prices, reflecting the projected increase in global oil demand.buy metals swap positions.
The following table summarizes the maturities of non-exchange traded contracts at March 31, 2008:2010:
| Net fair value of contracts—unrealized gains | Net fair value of contracts—unrealized gains | |||||||||||||
| Prices actively quoted | Prices based on models and other valuation methods | Prices provided by other external sources | Prices based on models and other valuation methods | |||||||||||
| (in millions) | (in millions) | |||||||||||||
Maturity less than 1 year | ¥ | 10,964 | ¥ | 11 | ¥ | (6 | ) | ¥ | 10,806 | |||||
Maturity less than 3 years | 29,685 | 1,957 | 394 | 15,473 | ||||||||||
Maturity less than 5 years | 17,550 | 6,437 | 52 | 3,222 | ||||||||||
Maturity 5 years or more | 21,242 | (74 | ) | (308 | ) | 7,505 | ||||||||
Total fair value | ¥ | 79,441 | ¥ | 8,331 | ¥ | 132 | ¥ | 37,006 | ||||||
C. Research and Development, Patents and Licenses, etc.
| C. | Research and Development, Patents and Licenses, etc. |
Not applicable.
| D. | Trend Information |
See the discussions in “—A. Operating Results” and “—B. Liquidity and Capital Resources.”
E. Off-balance-sheet Arrangements
| E. | Off-balance-sheet Arrangements |
In the normal course of our business, we engage in several types of off-balance-sheet arrangements to meet the financing needs of our customers, including various types of guarantees, commitments to extend credit and commercial letters of credit. The following table summarizes these commitments at March 31, 2008:2010:
| Amount of commitment by expiration period | Amount of commitment by expiration period | |||||||||||||||||||||||
| 1 year or less | 1-5 years | Over 5 years | Total | 1 year or less | 1-5 years | Over 5 years | Total | |||||||||||||||||
| (in billions) | (in billions) | |||||||||||||||||||||||
Guarantees: | ||||||||||||||||||||||||
Standby letters of credit and financial guarantees | ¥ | 2,262 | ¥ | 1,527 | ¥ | 1,465 | ¥ | 5,254 | ¥ | 2,147 | ¥ | 1,036 | ¥ | 1,040 | ¥ | 4,223 | ||||||||
Performance guarantees | 1,495 | 718 | 138 | 2,351 | 1,438 | 682 | 122 | 2,242 | ||||||||||||||||
Derivative instruments | 34,131 | 22,270 | 2,894 | 59,295 | 29,371 | 48,502 | 3,371 | 81,244 | ||||||||||||||||
Guarantees for the repayment of trust principal | 206 | 1,254 | 8 | 1,468 | 89 | 1,007 | 8 | 1,104 | ||||||||||||||||
Liabilities of trust account | 3,046 | 168 | 871 | 4,085 | 3,393 | 293 | 640 | 4,326 | ||||||||||||||||
Other | 720 | — | — | 720 | ||||||||||||||||||||
Others | 180 | 1 | 2 | 183 | ||||||||||||||||||||
Total guarantees | 41,860 | 25,937 | 5,376 | 73,173 | 36,618 | 51,521 | 5,183 | 93,322 | ||||||||||||||||
Other off-balance-sheet instruments: | ||||||||||||||||||||||||
Commitments to extend credit | 44,045 | 16,471 | 1,390 | 61,906 | 46,477 | 13,879 | 664 | 61,020 | ||||||||||||||||
Commercial letters of credit | 752 | 9 | 1 | 762 | 622 | 6 | — | 628 | ||||||||||||||||
Commitments to make investments | 42 | 20 | 52 | 114 | 25 | 66 | 35 | 126 | ||||||||||||||||
Other | 26 | — | — | 26 | ||||||||||||||||||||
Others | 6 | — | — | 6 | ||||||||||||||||||||
Total other off-balance-sheet instruments | 44,865 | 16,500 | 1,443 | 62,808 | 47,130 | 13,951 | 699 | 61,780 | ||||||||||||||||
Total | ¥ | 86,725 | ¥ | 42,437 | ¥ | 6,819 | ¥ | 135,981 | ¥ | 83,748 | ¥ | 65,472 | ¥ | 5,882 | ¥ | 155,102 | ||||||||
See Note 2524 to our consolidated financial statements, included elsewhere in this Annual Report, for a description of the nature of our guarantees and other off-balance-sheet instruments.
The contractual amounts of these guarantees and other off-balance-sheet instruments represent the amounts at risk shouldif the contracts were to be fully drawn upon withas a result of a subsequent default by our customer and a decline in the value of the underlying collateral. Because many of these commitments expire without being drawn upon, the total contractual or notional amounts of these commitments do not necessarily represent our future cash requirements. At March 31, 2008,2010, approximately 64%54% of these commitments will expire within one year, 31%42% from one year to five years and 5%4% after five years. Such risks are monitored and managed as a part of our risk management system as set forth in “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk.” In addition, in accordance with SFAS No. 5, weWe evaluate off-balance-sheet arrangementarrangements in the manner described in Note 1 to our consolidated financial statements included elsewhere in this Annual Report.
In the aggregate, the income generated from fees and commissions is one of our most important sources of revenue. Such income amounted to ¥1,317.1 billion during the fiscal year ended March 31, 2008, accounting for approximately 74% of our non-interest income which amounted to ¥1,778.1 billion for the fiscal year. However, theThe fees generated specifically from off-balance-sheet arrangements are not a dominant source of our overall fees and commissions.
Some of our off-balance-sheet arrangements are related to activities of special purpose entities, most of which are variable interest entities, or VIEs.
The following table presents, by type of VIE, the total assets of non-consolidated VIEs and the maximum exposures to non-consolidated VIEs at March 31, 2007 and 2008. The total assets of non-consolidated VIEs and the maximum exposure to non-consolidated VIEs at March 31, 2007 have been restated. For further information, see Note 2625 to our consolidated financial statements included elsewhere in this Annual Report.
| 2007 | 2008 | |||||||||||
Non-Consolidated VIEs | Assets (Restated) | Maximum exposure (Restated) | Assets | Maximum exposure | ||||||||
| (in billions) | ||||||||||||
Asset-backed commercial paper conduits | ¥ | 11,910.4 | ¥ | 2,418.4 | ¥ | 12,114.8 | ¥ | 2,225.0 | ||||
Securitization conduits of client properties | 2,918.0 | 832.4 | 3,257.5 | 946.9 | ||||||||
Investment funds | 40,796.1 | 1,613.4 | 48,652.9 | 1,277.3 | ||||||||
Special purpose entities created for structured financing | 27,354.7 | 2,555.5 | 26,554.0 | 3,075.5 | ||||||||
Repackaged instruments | 135,237.1 | 3,145.4 | 128,236.2 | 3,836.8 | ||||||||
Others | 14,992.8 | 1,791.9 | 16,097.6 | 1,744.5 | ||||||||
Total | ¥ | 233,209.1 | ¥ | 12,357.0 | ¥ | 234,913.0 | ¥ | 13,106.0 | ||||
| F. | Tabular Disclosure of Contractual Obligations |
Off-balance sheet arrangements include the following types of special purpose entities:
Asset-backed Commercial Paper Conduits
We administer several multi-seller finance entities (primarily commercial paper conduits) that purchase financial assets, primarily pools of receivables, from third-party customers. The assets purchased by these conduits are generally funded by issuing commercial paper to and/or by borrowings from us or third parties. While customers basically continue to provide servicing for the transferred trade receivables, we underwrite, distribute, make a market in commercial paper issued by the conduits, and also provide liquidity and credit support facilities to the entities.
Securitization Conduits of Client Properties
We administer several conduits that acquire assets, such as real estate, from third-party customers (“property sellers”) with the property sellers continuing to use the acquired real estate through lease-back agreements. The
equity of the conduits is provided by the property sellers but such equity holders have no ability to make decisions about the activities of the conduits. Thus, we consider those conduits to be VIEs. The assets acquired by these conduits are generally funded by borrowings from us or third parties.
Investment Funds
We hold investments and loans in various investment funds that collectively invest in equity and debt securities, including listed Japanese securities and investment grade bonds, and, to a limited extent, securities and other interests issued by companies, including those in a start-up or restructuring stage. Such investment funds are managed by investment advisory companies or fund management companies that make investment decisions and administer the funds.
We not only manage the composition of investment trust funds but also play a major role in composing venture capital funds. We generally do not have significant variable interests through composing these types of funds.
We occasionally sell assets such as nonperforming loans to these funds, in particular the Corporate Recovery Fund, when we believe that such sale may improve our asset quality.
Corporate Recovery Fund. We have non-controlling equity interests in corporate recovery funds whose principal business purpose is to generate profits by investing in companies in the process of restructuring and then, typically, to sell these investments after the companies complete their restructurings. Such funds purchase nonperforming loans from us or others and in some cases acquire majority ownership in the borrower companies by means of a debt-for-equity swap. Our non-voting interests in these funds amounted to ¥35.6 billion at March 31, 2007 and ¥55.6 billion at March 31, 2008, respectively. In addition, at March 31, 2008, we had commitments to make additional contributions up to ¥10.2 billion to these funds.
We sold to corporate recovery funds nonperforming loans with an aggregate net book value of ¥1.7 billion for ¥0.3 billion during the fiscal year ended March 31, 2007. For a detailed discussion on additional provisions for credit losses associated with the sale of such loans, see “—B. Liquidity and Capital Resources—Financial Condition—Allowance for Credit Losses, Nonperforming and Past Due Loans.”
Venture Capital Fund. We own non-controlling equity interests in investment funds managed by fund management companies who have discretionary investment powers. These funds seek to invest in start-up companies or companies that are rapidly developing. We made contributions to these funds amounting to ¥532.4 billion at March 31, 2008. At March 31, 2008, in accordance with the applicable limited partnership agreements, we had commitments to make additional contributions up to ¥83.1 billion when required by the fund management companies.
Investment Trust. We purchase the share units of investment trusts as mid- to long-term investments. These investment trusts are managed by investment advisory companies with the objective of investing in a diversified portfolio consisting of equity and debt securities, primarily shares of Japanese public companies.
Generally, we are not obligated to invest in or extend funds by purchasing additional share units and our off-balance-sheet exposures or commitments relating to this type of special purpose entity were not material.
Special Purpose Entities Created for Structured Financing
We extend non-recourse asset-backed loans to special purpose entities, which hold beneficial interests primarily in real properties, to provide financing for special purpose projects including real estate development and natural resource development managed by third parties.
We generally act as a member of a lending group and do not have any equity investment in the entities, which is typically provided by project owners. For most of these financings, the equity provided by the project owners is of sufficient level to absorb expected losses, while expected residual returns to the owners are arranged to be the most significant among all returns. Accordingly, we have determined that we are not the primary beneficiary of most of these entities. However, in transactions with entities whose investments at risk are exceptionally thin, where we provide most of the financing, we are ultimately required to consolidate this type of entity.
Repackaged Instruments
We have two types of relationships with special purpose entities that repackage financial instruments to create new financial instruments.
We provide repackaged instruments with features that meet the customers’ needs and preferences through special purpose entities. We purchase financial instruments such as bonds and transfer them to special purpose entities which then issue new instruments. The special purpose entities may enter into derivative transactions including interest rate and currency swaps with us or other financial institutions to modify the cash flows of the underlying financial instruments. We underwrite and market the new instruments issued by the special purpose entities to our customers.
We also invest in repackaged instruments arranged and issued by third parties.
Trust Arrangements
We offer a variety of asset management and administration services under trust arrangements including securities investment trusts, pension trusts and trusts used as securitization vehicles. Although in limited cases we may assume risks through guarantees or certain protections as provided in the agreements or relevant legislation, we have determined that we will not absorb a majority of expected losses in connection with such trust arrangements. In a typical trust arrangement, however, we manage and administer assets on behalf of the customers in an agency, fiduciary and trust capacity and do not assume risks associated with the entrusted assets. Customers receive and absorb expected residual returns and losses on the performance and operations of trust assets under our management. Accordingly, we have determined that we are generally not a primary beneficiary to any trust arrangements under management as our interests in the trust arrangements are insignificant in most cases. Fees on trust products that we offer for the fiscal years ended March 31, 2007 and 2008 were ¥146.0 billion and ¥156.4 billion, respectively.
See Notes 15, 25 and 28 to our consolidated financial statements included elsewhere in this Annual Report for further details.
Other Types of VIEs
We are also a party to other types of VIEs including special purpose entities created to hold assets on our behalf as an intermediary.
We identified borrowers that were determined to be VIEs due to an insufficient level of equity. We have determined that we are not the primary beneficiary of most of these borrowers because of our limited exposure as a lender to such borrowers. Such borrowers engage in diverse business activities of various sizes in industries such as manufacturing, distribution, construction and real estate development, independently from us.
F. Tabular Disclosure of Contractual Obligations
In the normal course of our business, we enter into contractual agreements whereby we commit to future purchases of products or services from unaffiliated parties. The following table shows a summary of our contractual cash obligations outstanding at March 31, 2008:2010:
| Payments due by period | Payments due by period | |||||||||||||||||||||||||||||
| Less than 1 year | 1-3 years | 3-5 years | Over 5 years | Total | Less than 1 year | 1-3 years | 3-5 years | Over 5 years | Total | |||||||||||||||||||||
| (in billions) | (in billions) | |||||||||||||||||||||||||||||
Contractual cash obligations: | ||||||||||||||||||||||||||||||
Time deposit obligations | ¥ | 49,127 | ¥ | 9,354 | ¥ | 1,752 | ¥ | 148 | ¥ | 60,381 | ¥ | 51,040 | ¥ | 8,753 | ¥ | 1,411 | ¥ | 161 | ¥ | 61,365 | ||||||||||
Long-term debt obligations | 2,152 | 3,576 | 2,134 | 5,663 | 13,525 | 2,008 | 2,642 | 2,131 | 7,305 | 14,086 | ||||||||||||||||||||
Capital lease obligations | 77 | 53 | 16 | 5 | 151 | 19 | 21 | 9 | 28 | 77 | ||||||||||||||||||||
Operating lease obligations | 46 | 68 | 41 | 33 | 188 | 66 | 105 | 77 | 296 | 544 | ||||||||||||||||||||
Purchase obligations | 8 | 5 | 7 | 63 | 83 | 18 | 22 | 42 | 30 | 112 | ||||||||||||||||||||
Total(1)(2) | ¥ | 51,410 | ¥ | 13,056 | ¥ | 3,950 | ¥ | 5,912 | ¥ | 74,328 | ¥ | 53,151 | ¥ | 11,543 | ¥ | 3,670 | ¥ | 7,820 | ¥ | 76,184 | ||||||||||
Notes:
| Notes: |
| (1) | The total amount of expected future pension payments is not included in the above table or the total amount of commitments outstanding at March 31, |
| (2) | The above table does not include unrecognized tax benefits and interest and penalties related to income tax associated with |
Purchase obligations include any legally binding contractual obligations that require us to spend more than ¥100 million annually under the contract. Purchase obligations in the table primarily include commitments to make investments into corporate recovery or private equity investment funds.
| G. | Safe Harbor |
See the discussion under “Forward-Looking Statements.”
| Item 6. Directors, |
A. Directors and Senior Management
| A. | Directors and Senior Management |
The following table sets forth the members of our board of directors as of July 31, 2008,2010, together with their respective dates of birth, positions and experience:
Name (Date of Birth) | Position in MUFG | Business Experience | |||||||
| Chairman | Joined Sanwa Bank | |||||||
|
| ||||||||
| |||||||||
January 2002 |
| ||||||||
| |||||||||
May 2003 | Senior Executive Officer of UFJ Bank | ||||||||
May 2004 |
| ||||||||
| |||||||||
June |
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| |||||||||
| |||||||||
October 2005 | Managing Officer of MUFG | ||||||||
January 2006 | Deputy President of BTMU | ||||||||
April 2008 | Deputy Chairman of BTMU (incumbent) | ||||||||
Retired from Managing officer of MUFG | |||||||||
June 2010 | Chairman of MUFG (incumbent) | ||||||||
| |||||||||
| |||||||||
Kinya Okauchi | Deputy Chairman and Chief Audit Officer | April | Joined Mitsubishi Trust Bank | ||||||
June | Director (Non-Board Member Director) of Mitsubishi Trust Bank | ||||||||
April 2003 | Managing Director (Non-Board Member Director) of Mitsubishi Trust Bank | ||||||||
March 2004 | Managing Director of Mitsubishi Trust Bank | ||||||||
June |
| ||||||||
| |||||||||
Director of MTFG | |||||||||
June 2005 |
| ||||||||
October 2005 |
| ||||||||
| |||||||||
June 2007 | Managing Officer of MUFG | ||||||||
June 2008 | President of MUTB (incumbent) | ||||||||
| |||||||||
April 2010 | Deputy Chairman of | ||||||||
| President and CEO | May 1970 | Joined Mitsubishi Bank | ||||||
June 1997 |
|
| |||||||
| June | Retired from Director of | |||||||
Managing Director of Nippon Trust Bank | |||||||||
April |
| ||||||||
| |||||||||
| |||||||||
| |||||||||
Director of MTFG | |||||||||
October 2001 | Managing Director of Mitsubishi Trust Bank | ||||||||
June 2002 | Retired from Managing Director of Mitsubishi Trust Bank | ||||||||
Managing Director of Bank of Tokyo-Mitsubishi | |||||||||
April 2004 | Director and Managing Officer of MTFG | ||||||||
June 2004 | Managing Officer of MTFG | ||||||||
January 2005 | Senior Managing Director of Bank of Tokyo-Mitsubishi | ||||||||
May 2005 | Deputy President of | ||||||||
October 2005 | Managing Officer of MUFG | ||||||||
December 2005 | Retired from Managing Officer of MUFG | ||||||||
January 2006 | Deputy President of BTMU | ||||||||
June 2006 | Deputy President of MUFG | ||||||||
April 2008 | Director of MUFG | ||||||||
President | |||||||||
| |||||||||
April 2010 | President and CEO of | ||||||||
| |||||||||
Name (Date of Birth) | Position in MUFG | Business Experience | ||||
Kyota Omori
| Deputy President and Chief Compliance Officer | April 1972 | Joined Mitsubishi Bank | |||
June 1999 | Director of | |||||
June 2001 | Non-Board Member Director of | |||||
May 2003 | Non-Board Member Managing Director of | |||||
June 2003 | Managing Director of | |||||
May 2004 | Non-Board Member Managing Director of | |||||
June 2005 | Managing Officer of MTFG | |||||
October 2005 | Managing Officer of MUFG | |||||
January 2006 | Managing Executive Officer of BTMU | |||||
October 2007 | Senior Managing Executive Officer of BTMU | |||||
April 2008 | Retired from Senior Managing Executive Officer of BTMU | |||||
Senior Managing Officer of MUFG | ||||||
June 2008 | Deputy President | |||||
|
|
| ||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
|
|
| ||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
|
| |||||
Hiroshi Saito
| Senior Managing Director and Chief Financial Officer | April 1974 | Joined Mitsubishi Trust Bank | |||
June 2002 | Director (Non-Board Member Director) of Mitsubishi Trust Bank | |||||
October 2005 | Executive Officer of MUTB | |||||
June 2006 | Managing Director of MUTB | |||||
May 2007 | Managing Officer of MUFG | |||||
June 2007 | Retired from Managing Director of MUTB | |||||
Director of BTMU (incumbent) | ||||||
Senior Managing Director | ||||||
Nobushige Kamei | Senior Managing Director and Chief Planning Officer | April | Joined | |||
January 2002 |
| |||||
| ||||||
| May |
| |||||
| ||||||
| ||||||
Senior Executive Officer of UFJ | ||||||
January 2006 | Managing Executive Officer of BTMU | |||||
May 2009 | Retired from | |||||
| ||||||
| ||||||
| ||||||
| June | Director of | |||||
| ||||||
| ||||||
| ||||||
Masao Hasegawa | Managing Director and Chief Risk Management Officer | April 1979 | Joined | |||
May 2005 | Managing Director & General Manager of Bank of Tokyo-Mitsubishi (Holland) N.V. | |||||
January 2006 | Managing Director & General Manager of Bank of Tokyo-Mitsubishi UFJ (Holland) N.V | |||||
April 2008 | Executive Officer of BTMU | |||||
May 2008 | Executive Officer of MUFG | |||||
May 2010 | Retired from Executive Officer of BTMU | |||||
Managing Officer of MUFG | ||||||
June | Director of | |||||
| ||||||
Managing Director of | ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
Name (Date of Birth) | Position in MUFG | Business Experience | ||||
Fumiyuki Akikusa | Director | Joined Mitsubishi Bank | ||||
| Director of | |||||
June 2001 |
| |||||
| ||||||
| ||||||
| ||||||
|
|
| ||||
| ||||||
| ||||||
| May 2003 | Non-Board Member Managing Director of | |||||
May 2004 | Managing Officer of MTFG | |||||
June 2004 | Managing Director of | |||||
May 2005 | Retired from Managing Officer of MTFG | |||||
June 2005 | Retired from Managing Director of | |||||
Senior Managing Director and Principal Executive Officer of Mitsubishi Securities Co., Ltd. | ||||||
October 2005 | Director and Principal Executive Officer of MUS | |||||
June 2006 | Deputy President of MUS | |||||
Director of MUFG (incumbent) | ||||||
June 2008 | President of MUS | |||||
April 2010 | President of Mitsubishi UFJ Securities Holdings Co., Ltd. (incumbent) | |||||
May 2010 | President & CEO of Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (incumbent) | |||||
Kazuo Takeuchi
| Director | April 1973 | Joined Tokai Bank | |||
April 1999 | Executive Officer of Tokai Bank | |||||
June 1999 | Director of Tokai Bank | |||||
March 2001 | Retired from Director of Tokai Bank | |||||
April 2001 | Executive Officer of UFJ Holdings | |||||
January 2002 | Retired from Executive Officer of UFJ Holdings | |||||
Senior Executive Officer of UFJ Bank | ||||||
May 2005 | Retired from Senior Executive Officer of UFJ Bank | |||||
June 2005 | Senior Executive Officer of UFJ Tsubasa Securities Co., Ltd. | |||||
October 2005 | Senior Executive Officer of MUS | |||||
June 2008 | Senior Managing Director of MUS | |||||
Director of MUFG (incumbent) | ||||||
| Senior Managing Director |
| ||||
| ||||||
| ||||||
May 2010 |
| |||||
Senior Managing Director of | ||||||
Name (Date of Birth) | Position in MUFG | Business Experience | ||||||||
Nobuyuki Hirano |
| April 1974 | Joined Mitsubishi Bank | |||||||
June 2001 | Non-Board Member Director of | |||||||||
July 2004 | Executive Officer of MTFG | |||||||||
May 2005 | Non-Board Member Managing Director of Bank of Tokyo-Mitsubishi | |||||||||
June 2005 | Managing Director of Bank of Tokyo-Mitsubishi | |||||||||
Director of MTFG | ||||||||||
October 2005 | Director of MUFG | |||||||||
January 2006 | Managing Director of BTMU | |||||||||
October 2008 | Senior Managing Director of BTMU | |||||||||
June 2009 | Deputy President of BTMU (incumbent) | |||||||||
Managing Officer of MUFG | ||||||||||
June 2010 | Director of MUFG (incumbent) | |||||||||
Shunsuke Teraoka | Director | April 1976 | Joined Toyo Trust Bank | |||||||
May 2002 | Executive Officer of UFJ Trust Bank | |||||||||
May 2004 | Director and Executive Officer of UFJ Trust Bank | |||||||||
May 2005 | Director and Senior Executive Officer of UFJ Trust Bank | |||||||||
October 2005 | Managing Executive Officer of MUTB | |||||||||
June 2008 | Senior Managing Director of MUTB | |||||||||
June |
| |||||||||
Deputy President of MUTB (incumbent) | ||||||||||
Director of MUFG (incumbent) | ||||||||||
|
|
| ||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
Kaoru Wachi
| Director | April 1978 | Joined Mitsubishi Trust Bank | |||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| April 2004 | General Manager of Asset Management and Administration Planning Division of MTFG | |||||||||
June 2005 | Executive Officer of MTFG | |||||||||
Director (Non-Board Member Director) of Mitsubishi Trust Bank | ||||||||||
October 2005 | Executive Officer of MUFG | |||||||||
Executive Officer of MUTB | ||||||||||
June 2008 | Managing Director of MUTB | |||||||||
Director of MUFG (incumbent) | ||||||||||
|
|
| ||||||||
| ||||||||||
| ||||||||||
Senior Managing Director | ||||||||||
Name (Date of Birth) | Position in MUFG | Business Experience | ||||
Takashi Oyamada | Director | April 1979 | Joined Mitsubishi Bank | |||
May 2004 | General Manager of Corporate Policy Division of MTFG | |||||
| ||||||
July 2004 |
| |||||
June 2005 | Executive Officer of MTFG | |||||
| ||||||
October 2005 |
| |||||
January 2006 |
| |||||
January 2009 |
| |||||
June 2009 |
| |||||
| ||||||
| ||||||
| ||||||
| ||||||
Director of MUFG (incumbent) | ||||||
| Director | April |
| |||
September 1992 |
| |||||
June 1997 | Managing Director, Member of the Board of TOYOTA | |||||
June 1999 |
| |||||
June 2001 |
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June 2002 |
| |||||
June |
| |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
June 2007 | Advisor of TFS | |||||
June 2008 | Advisor of TOYOTA (incumbent) | |||||
| ||||||
June | Retired from Advisor of TFS | |||||
Director of MUFG (incumbent) | ||||||
Name (Date of Birth) | Position in MUFG | Business Experience | ||||
Kazuhiro Watanabe | Director | April 1974 | Public Prosecutor, Tokyo District Public Prosecutors Office | |||
July 1998 | Assistant Vice-minister of Justice (Deputy Director-General for Criminal Affairs Bureau) | |||||
April 2001 | Public Prosecutor, Supreme Public Prosecutors Office | |||||
January 2002 | Chief Public Prosecutor, Nara District Public Prosecutors Office | |||||
September 2004 | Chief Public Prosecutor, Maebashi District Public Prosecutors Office | |||||
September 2005 | Chief Public Prosecutor, Nagoya District Public Prosecutors Office | |||||
June 2007 | Chief Public Prosecutor, Yokohama District Public Prosecutors Office | |||||
July 2008 | Superintending Prosecutor, Sapporo High Public Prosecutors Office | |||||
July 2009 | Retired from Superintending Prosecutor, Sapporo High Public Prosecutors Office | |||||
September 2009 | Attorney at Law Joined Dai-ichi Tokyo Bar Association (incumbent) | |||||
Professor of Law, Tokai University Law School (incumbent) | ||||||
June 2010 | Director of MUFG (incumbent) | |||||
Takuma Otoshi
| Director | July 1971 | Joined IBM Japan, Ltd. | |||
March 1994 | Director of IBM Japan | |||||
March 1997 | Managing Director of IBM Japan | |||||
December 1999 | President of IBM Japan | |||||
June 2004 | Director of MTFG | |||||
October 2005 | Director of MUFG (incumbent) | |||||
April 2008 | President | |||||
January 2009 | Chairman of IBM Japan (incumbent) | |||||
The following table sets forth our corporate auditors as of July 31, 2010, together with their respective dates of birth, positions and experience:
| ||||||
Name ( | Position in MUFG | Business | ||||
|
|
| ||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
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| ||||||
| ||||||
| ||||||
| ||||||
Shota Yasuda
| Corporate Auditor
| July 1971 | Joined Mitsubishi Bank | |||
June 1998 | Director of | |||||
June 2001 | Non-Board Member Director of Bank of Tokyo-Mitsubishi | |||||
| ||||||
| May 2002 | Managing Director (Non-Board Member Director) of | |||||
January 2006 | Senior Managing Director of BTMU | |||||
June 2007 | Retired from Senior Managing Director of BTMU | |||||
Corporate Auditor (Full-Time) of MUFG (incumbent) | ||||||
|
|
| ||||
| ||||||
| ||||||
| ||||||
Name ( | Position in MUFG | Business | ||||||||
Tetsuo Maeda | Corporate Auditor (Full-Time) | April 1974 | Joined Toyo Trust Bank | |||||||
May 2000 | Executive Officer of | |||||||||
January 2002 |
| |||||||||
May 2003 | Senior Executive Officer of UFJ Trust Bank | |||||||||
September 2004 | Director and Senior Executive Officer of UFJ Trust Bank | |||||||||
October 2005 | Managing Director of MUTB | |||||||||
June 2006 | Senior Managing Director of MUTB | |||||||||
June 2009 | Retired from Senior Managing Director of MUTB | |||||||||
Corporate Auditor (Full-Time) of | ||||||||||
Tsutomu Takasuka | Corporate Auditor | April 1967 | Became a member of the Japanese Institute of Certified Public Accountants | |||||||
June 1985 | Partner at Mita Audit Corporation | |||||||||
February 1990 | Partner at Tohmatsu & Co. | |||||||||
September 2002 | Resigned Tohmatsu & Co. | |||||||||
April 2004 | Professor, Department of Business Administration, Bunkyo Gakuin University | |||||||||
October 2004 | Full-time Corporate Auditor of | |||||||||
June 2005 | Corporate Auditor of MTFG | |||||||||
October 2005 | Corporate Auditor of MUFG (incumbent) | |||||||||
January 2006 | Full-time Corporate Auditor of BTMU (incumbent) | |||||||||
March 2010 | Retired from Professor, Department of Business Administration, Bunkyo Gakuin University | |||||||||
Kunie Okamoto | Corporate Auditor | June 1969 | Joined Nippon Life Insurance Company | |||||||
July 1995 | Director of Nippon Life | |||||||||
March 1999 | Managing Director of Nippon Life | |||||||||
March 2002 | Senior Managing Director of Nippon Life | |||||||||
April 2005 | President of Nippon Life (incumbent) | |||||||||
June 2005 | Corporate Auditor of UFJ Holdings | |||||||||
October 2005 | Corporate Auditor of MUFG (incumbent) | |||||||||
Yasushi Ikeda | Corporate Auditor | April 1972 | Admitted to the Bar Joined the Tokyo Bar Association | |||||||
April 1977 | Partner of the law firm Miyake Imai & Ikeda (incumbent) | |||||||||
June 2009 | Corporate Auditor of MUFG (incumbent) | |||||||||
The board of directors and corporate auditors may be contacted through our headquarters at Mitsubishi UFJ Financial Group, Inc., 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8330, Japan.
All directors and corporate auditors were elected at a general meeting of shareholders. The regular term of office of a director is one year from the date of election, and the regular term of office of a corporate auditor is four years from the date of assumption of office.election. Directors and corporate auditors may serve their terms until the close of the annual general meeting of shareholders held in the last year of their terms. Directors and corporate auditors may
serve any number of consecutive terms. No family relationship exists among any of our directors or corporate auditors. None of our directors is party to a service contract with MUFG or any of its subsidiaries that provides for benefits upon termination of employment.
B. Compensation
| B. | Compensation |
The aggregate amount of remuneration,compensation paid, including bonusesbenefits in kind granted and any contingent and deferred compensation but excluding retirement allowances paid, by MUFG and its subsidiaries during the fiscal year ended March 31, 20082010 to our directors and(excluding outside directors), to corporate auditors (excluding outside auditors) and to outside directors and auditors, was ¥818¥1,125 million, ¥82 million and ¥128¥99 million, respectively.
The following table sets forth the details of individual compensation paid, including benefits in kind granted but excluding retirement allowances paid, by MUFG and its subsidiaries in an amount equal to or exceeding ¥100 million during the fiscal year ended March 31, 2010:
Directors | Aggregate amount | Paid by | Compensation paid | |||||||||||
| Annual salary | Stock options | Bonus | ||||||||||||
(in millions) | ||||||||||||||
| Ryosuke Tamakoshi | ¥ | 105 | MUFG | ¥ | 54 | ¥ | 33 | ¥ | 18 | |||||
| Nobuo Kuroyanagi | 110 | MUFG | 28 | 17 | 10 | |||||||||
| BTMU | 28 | 17 | 10 | |||||||||||
| Katsunori Nagayasu | 110 | MUFG | 6 | 3 | 1 | |||||||||
| BTMU | 50 | 31 | 19 | |||||||||||
Prior to June 28, 2007, in accordance with customary Japanese practice, when a director or corporate auditor retired, a proposal to pay a retirement allowance was submitted at the annual ordinary general meeting of
shareholders for approval. The retirement allowance consisted of a one-time payment of a portion of the allowance paid at the time of retirement and periodic payments of the remaining amount for a prescribed number of years. After the shareholders’ approval was obtained, the retirement allowance for a director or corporate auditor was fixed by the board of directors or by consultation among the corporate auditors in accordance with our internal regulations and practice and generally reflected the position of the director or corporate auditor at the time of retirement, the length of his service as a director or corporate auditor and his contribution to our performance. MUFG did not set aside reserves for any retirement payments for directors and corporate auditors made under this practice. ThePursuant to a one-time shareholders’ approval in June 2007 for the retirement allowances to be paid to the directors and corporate auditors who were elected prior to that date at the time of their retirement, the aggregate amount of retirement allowance paid by MUFG and its subsidiaries during the fiscal year ended March 31, 20082010 to our directors (excluding outside directors), to corporate auditors (excluding outside auditors) and corporateto outside directors and auditors, who have retired from their respective positions held at MUFG or, if such directors and corporate auditors concurrently held positions at MUFG’s subsidiaries, who have retired from such positions, was ¥110¥44 million, ¥17 million and ¥59¥37 million, respectively.
MUFG has elected to discontinue its practice of paying a retirement allowance. MUFG, however, obtained a one-time shareholders’ approval on June 28, 2007 for the retirement allowances for the current directors and corporate auditors, other than those elected at shareholders’ meeting held after June 28, 2007. The current directors and corporate auditors other than those elected at shareholders’ meeting held after June 28, 2007 will be paid up to an aggregate amount of ¥287 million in the future at the time of retirement. MUFG set aside a reserve in the same amount for such retirement payments. In the future, MUFG does not plan to seek shareholder approvals for retirement allowances.
As part of our compensation structure, on June 28, 2007, our shareholders approved the creation of a stock-based compensation plan for our directors, corporate auditors and corporate auditors.certain of our officers. On November 21, 2007, the board of directors adopted a plan entitled “First Series of Stock Acquisition Rights of Mitsubishi UFJ Financial Group, Inc.” for our directors, corporate auditors and certain of our officers. Under the stock-based compensation plan, on December 6, 2007, we allotted an aggregate of 3,224 stock acquisition rights to our directors and an aggregate of 493 stock acquisition rights to our corporate auditors for their respective services to MUFG and its subsidiaries. Each stock acquisition right represents a right to purchase 100 shares of MUFG common stock at ¥1 per share of common share.stock. The stock acquisition rights were subject to a one-year vesting period. The rights are exercisable until December 5, 2037, but only after the date on which a grantee’s service as a director or corporate auditor or officer terminates. The fair value of each stock acquisition right was ¥103,200.
As part of our compensation structure, on June 27, 2008, the board of directors adopted another stock-based compensation plan entitled “Second Series of Stock Acquisition Rights of Mitsubishi UFJ Financial Group, Inc.” for our directors, corporate auditors and certain of our officers. Under the stock-based compensation plan, on July 15, 2008, we allotted an aggregate of 4,690 stock acquisition rights to our directors and an aggregate of 495 stock acquisition rights to our corporate auditors for their respective services to MUFG and its subsidiaries. Each stock acquisition right represents a right to purchase 100 shares of MUFG common stock at ¥1 per share of common share.stock. The stock acquisition rights arewere subject to a one-year vesting period. The rights are exercisable until July 14, 2038, but only after the date on which a grantee’s service as a director, corporate auditor or officer terminates. The fair value of each stock optionacquisition right was ¥92,300.
Additionally, MUFG obtained shareholder approval for a bonusAs part of our compensation structure, on June 26, 2009, the board of directors adopted another stock-based compensation plan entitled “Third Series of Stock Acquisition Rights of Mitsubishi UFJ Financial Group, Inc.” for our directors, corporate auditors and certain of our officers. Under the stock-based compensation plan, on June 27, 2008. Within one year of the shareholder approval, MUFG may pay up toJuly 14, 2009, we allotted an aggregate of ¥240 million in cash6,466 stock acquisition rights to our directors other thanand an aggregate of 872 stock acquisition rights to our corporate auditors for their respective services to MUFG and its subsidiaries. Each stock acquisition right represents a right to purchase 100 shares of MUFG common stock at ¥1 per share of common stock. The stock acquisition rights were subject to a one-year vesting period. The rights are exercisable until July 13, 2039, but only after the outside directors.date on which a grantee’s service as a director, corporate auditor or officer terminates. The specific amountfair value of each stock acquisition right was ¥48,700.
As part of our compensation structure, on June 29, 2010, the bonusboard of directors adopted another stock-based compensation plan entitled “Fourth Series of Stock Acquisition Rights of Mitsubishi UFJ Financial Group, Inc.” for our directors, corporate auditors and other detailscertain of our officers. Under the program have not been determinedstock-based compensation plan, on July 16, 2010, we allotted an aggregate of 8,014 stock acquisition rights to our directors and an aggregate of 1,149 stock acquisition rights to our corporate auditors for their respective services to MUFG and its subsidiaries. Each stock acquisition right represents a right to purchase 100 shares of MUFG common stock at ¥1 per share of common stock. The stock acquisition rights are subject to a one-year vesting period. The rights are exercisable until July 15, 2040, but will be determined by taking into consideration MUFG’s performance,only after the date on which a grantee’s service as a director, corporate auditor or officer terminates. The fair value of each director’s contribution to MUFG’s performance and other factors.
As of June 27, 2008,July 31, 2010, our directors and corporate auditors held the following numbers of shares of our common stock:
Directors | Number of Shares Registered | |
| ||
| ||
| ||
Kyota Omori | ||
| ||
| ||
Hiroshi Saito | ||
| ||
| ||
Fumiyuki Akikusa | ||
Kazuo Takeuchi | ||
| ||
Nobuyuki Hirano | ||
Shunsuke Teraoka | 4,740 | |
Kaoru Wachi | ||
| ||
| 9,000 | |
Kazuhiro Watanabe | — | |
Takuma Otoshi | 3,000 |
Corporate Auditors | Number of Shares Registered | |
| ||
Shota Yasuda | ||
| ||
Tsutomu Takasuka | — | |
Kunie Okamoto | 536 | |
Yasushi Ikeda | — | |
C. Board Practices
| C. | Board Practices |
Our articles of incorporation provide for a board of directors of not more than twenty members and not more than seven corporate auditors. Our corporate officers are responsible for executing our business operations, and our directors oversee these officers and set our fundamental strategies.
We currently have seventeensixteen directors. Our board of directors has ultimate responsibility for the administration of our affairs. By resolution, our board of directors shall appoint, representativefrom the directors, from therepresentative directors who may represent us severally. Our board of directors shall appoint a president and may also appoint a chairman, deputy chairmen, deputy presidents, senior managing directors and managing directors from their members by resolution. Deputy presidents assist the president, and senior managing directors and managing directors assist the president and deputy presidents, if any, in the management of our day-by-day operations.
We currently have three outside directors as members of our board of directors. Under the Company Law, an outside director is defined as a person who has never been an executive director(gyomu shikko torishimariyaku), executive officer(shikkoyaku), manager(shihainin) or any other type of employee of the company or any of its subsidiaries prior to his or her appointment.
Under the Company Law, a resolution of the board of directors is required if any director wishes to engage in any business that is in competition with us or any transaction with us. Additionally, no director may vote on a proposal, arrangement or contract in which that director is deemed to be materiallyparticularly interested.
Neither the Company Law nor our articles of incorporation contain special provisions as to the borrowing power exercisable by a director, the retirement age of our directors and corporate auditors or a requirement of our directors and corporate auditors to hold any shares of our capital stock.
The Company Law requires a resolution of the board of directors for a company to determine the execution of important business strategies,businesses, to acquire or dispose of material assets, to borrow substantial amounts of money, to employ or discharge executive officersmanagers(shihainin) and other important employees, and to establish, change or abolish branch offices or other material corporate organizations, to float bonds, to establish internal control systems, and to exempt a director from liability to the company in accordance with applicable laws and regulations.
We currently have five corporate auditors, including three outside corporate auditors (as defined below).auditors. An outside corporate auditor is defined under the Company Law as a person who has not served as a director, account assistant, executive officer(shikkoyaku), manager(shihainin) or any other type of employee of the company or any of its subsidiaries prior to his or her appointment.
Our corporate auditors, who are not required to be certified public accountants, have various statutory duties, including principally:
the examination of the financial statements, business reports, proposals and other documents which our board of directors prepares and submits to a general meeting of shareholders;
| Ÿ | the examination of the financial statements, business reports, proposals and other documents which our board of directors prepares and submits to a general meeting of shareholders; |
the examination of our directors’ administration of our affairs; and
| Ÿ | the examination of our directors’ administration of our affairs; and |
| Ÿ | the preparation and submission of a report on their examination to a general meeting of shareholders. |
the preparation and submission of a report on their examination to a general meeting of shareholders.
Our corporate auditors are obligated to attend meetings of our board of directors, and to make statements at the meetings if they deem necessary, although they are not entitled to vote at the meetings. Our corporate auditors comprise the board of corporate auditors, which determines matters relating to the performance of audits. The Company Law provides that a company that has or is required to have a board of corporate auditors must have three or more corporate auditors, and at least half of the corporate auditors must be outside corporate auditors. In a company that has or is required to have a board of corporate auditors, one or more of the corporate auditors must be designated by the board of corporate auditors to serve on a full-time basis.
Under the Company Law and our articles of incorporation, we may exempt, by resolution of the board of directors, our directors and corporate auditors from liabilities to the company arising in connection with their failure to execute their duties without gross negligence, within the limits stipulated by applicable laws and regulations. In addition, we have entered into a liability limitation agreement with each outside director and outside corporate auditor which limits the maximum amount of their liability to the company arising in connection with a failure to execute their duties without gross negligence to the greater of either ¥10 million or the aggregate sum of the amounts prescribed in paragraph 1 of Article 425 of the Company Law and ArticleArticles 113 and 114 of the Company Law Enforcement Regulations.
The Company Law permits two types of governance systems for large companies, including MUFG. The first system is for companies with audit, nomination and compensation committees, and the other is for companies with corporate auditors. We have elected to adopt a corporate governance system based on corporate auditors.
Under the Company Law, if a company has corporate auditors, the company is not obligated to have any outside directors or to have any audit, nomination andor compensation committees. Although we have adopted a board of corporate auditors, we have three outside directors as part of our efforts to further enhance corporate governance. In an effort to further enhance our corporate governance, we have also voluntarily established ouran internal audit and compliance committee and a nomination and compensation committee to support our board of directors.
Internal Audit and Compliance Committee. The internal audit and compliance committee, a majority of which is comprised of outside directors and specialists, deliberates important matters relating to internal audits, internal control of financial information, financial audits, compliance, corporate risk management, and other internal control systems. This committee makes reports and proposals to the board of directors about important matters for deliberation and necessary improvement measures. We aim to enhance the effectiveness of internal
audit functions by utilizing the external view points provided by the internal audit and compliance committee members. The chairman of the internal audit and compliance committee is Akio Harada,Ryuji Araki, who is an outside director. The other members of this committee are Iwao Okijima ,Kazuhiro Watanabe, an outside director, Kouji Tajika, a certified public accountant, Yoshinari Tsutsumi, an attorney-at-law, and Haruya Uehara,Kinya Okauchi, a deputy chairman and the chief audit officer. The internal audit and compliance committee met fourteentwelve times between April 20072009 and March 2008.2010.
Nomination andCompensation Committee. The nomination and compensation committee, was established through the integration of the nomination committee and the compensation committee on June 27, 2008. Prior to the integration, the nomination committee, a majority of which wasis comprised of outside directors, deliberateddeliberates matters relating to the appointment and dismissal of our directors and the directors of our subsidiaries. The nomination committee met five times between April 2007 and March 2008. The compensation committee, a majority of which was also comprised of outside directors, deliberated matters relating tosubsidiaries, the compensation framework of our directors and the directors of our subsidiaries, as well as the compensation of our top management and the top management of our subsidiaries. The compensation committee met five times between April 2007 and March 2008. The integrated nomination and compensation committee has assumed the responsibilities of the two former committees and makes reports and proposals to the board of directors about important matters for deliberation and necessary improvement measures. The chairman of the nomination and compensation committee is Iwao Okijima.Takuma Otoshi, an outside director. The other members of this committee are Akio Harada, Takuma Otoshi, an outside director,Ryuji Araki, Kazuhiro Watanabe and Nobuo Kuroyangi,Katsunori Nagayasu, President and CEO. The nomination and compensation committee met eight times between April 2009 and March 2010.
For additional information on our board practices see “Item 6.A. Directors and Senior Management.”
Summary of Significant Differencesthe significant differences in Corporate Governance Practicescorporate governance practices between MUFG and US Companies Listedcompanies listed on the New York Stock Exchange,
The New York Stock Exchange, or the NYSE, allows NYSE-listed companies that are foreign private issuers, such as MUFG, with certain exceptions, to follow home-country practices in lieu of the corporate governance practices followed by US companies pursuant to the NYSE’s Listed Company Manual. The following sections summarize the significant differences between MUFG’s corporate governance practices see “—A. Directors and those followed by US listed companies under the NYSE’s Listed Company Manual.
1. A NYSE-listed US company must have a majority of directors that meet the independence requirements under Section 303A of the NYSE’s Listed Company Manual.
As of August 31 2008, MUFG has three outside directors as members of its board of directors. For companies employing the corporate auditor system such as MUFG, the task of overseeing the management of the company is assigned to the corporate auditors as well as the board of directors. At least half of the corporate auditors are required to be an “outside corporate auditor” as defined below.
Under the Company Law, an “outside director” is defined as a director who has not served as an executive director, executive officer, manager or any other type of employee of the relevant company or any of its subsidiaries prior to his or her appointment.
For MUFGSenior Management” and other large Japanese companies employing a corporate governance system based on a board of corporate auditors, the Company Law has no independence or similar requirement with respect to directors.
2. A NYSE-listed US company must have an audit committee composed entirely of independent directors.
Under the Company Law, MUFG and other Japanese companies (excluding companies with committees established pursuant to the Company Law) are not obliged to establish an audit committee.
As discussed above, MUFG employs a corporate auditor system as stipulated by the Company Law. Accordingly, MUFG has established a board of corporate auditors consisting of corporate auditors with a“Item 16.G. Corporate Governance.”
statutory duty to audit MUFG director’s performance of their professional duties and to review and report on the manner and results of the audit of MUFG’s financial statements, for the benefit of the MUFG’s shareholders.
The Company Law requires companies employing the corporate auditor system, including MUFG, to elect at least three corporate auditors through a resolution adopted at a general meeting of shareholders. At least half of the corporate auditors must be an “outside corporate auditor,” which is defined as a corporate auditor who has not served as a director, account assistant, executive officer, manager, or any other employee of the relevant company or any of its subsidiaries.
As of August 31 2008, MUFG had five corporate auditors, three of whom are outside corporate auditors.
3. A NYSE-listed US company must have a compensation committee composed entirely of independent directors.
Under the Company Law, MUFG and other Japanese companies (excluding companies with committees established pursuant to the Company Law) are not obliged to establish a compensation committee.
The maximum aggregate amounts of compensation for MUFG’s directors and corporate auditors are approved at MUFG’s general meeting of shareholders. The amount and allocation of compensation for each MUFG director are then proposed to, and voted upon by, the board of directors. The amount and allocation of compensation for each MUFG corporate auditor are determined through discussions and agreement among MUFG’s corporate auditors.
4. A NYSE-listed US company must have a nominating or corporate governance committee composed entirely of independent directors.
Under the Company Law, MUFG and other Japanese companies (excluding companies with committees established pursuant to the Company Law) are not obliged to establish a nominating or corporate governance committee.
MUFG’s directors are elected or dismissed at MUFG’s general meeting of shareholders in accordance with the relevant provisions of the Company Law and MUFG’s articles of incorporation. MUFG’s corporate auditors are also elected or dismissed at MUFG’s general meeting of shareholders. A proposal by MUFG’s board of directors to elect a corporate auditor needs the consent of its board of corporate auditors. MUFG’s board of corporate auditors is empowered to adopt a resolution requesting that MUFG’s directors submit a proposal for election of a corporate auditor to MUFG’s general meeting of shareholders.
The corporate auditors have the right to state their opinion concerning the election or dismissal of a corporate auditor at MUFG’s general meeting of shareholders.
5. A NYSE-listed US company must obtain shareholder approval with respect to any equity compensation plan.
Under the Company Law, a public company seeking to issue “stock acquisition rights” (granting the holder thereof the right to acquire from the issuer shares of its stock at a prescribed price) must obtain the approval of its board of directors, not its shareholders.
When stock acquisition rights are issued under terms and conditions that are especially favorable to the recipients thereof, such issuance must be approved by a “special resolution” of a general meeting of shareholders. Under MUFG’s articles of incorporation, the quorum for a special resolution is at least one-third of the total outstanding voting rights, and the approval of at least two-thirds of the voting rights represented at the relevant general meeting of shareholders of MUFG is required to pass a special resolution.
6. A NYSE-listed US company must adopt and disclose Corporate Governance Guidelines and a Code of Business Conduct and Ethics, and it must also disclose any exemptions granted to directors or executives.
Under the Company Law, the Financial Instruments and Exchange Law of Japan and applicable stock exchange rules, Japanese companies, including MUFG, are not obliged to adopt and disclose corporate governance guidelines and a code of business conduct and ethics for directors, officers and employees. In order to further enhance its disclosure, MUFG has decided to disclose the details of its corporate governance in its Annual Securities Report and related disclosure reports.
MUFG has also adopted a code of ethics, compliance rules and a compliance manual which it believes are compliant with the requirements for a Code of Ethics as set forth under Section 406 of the Sarbanes-Oxley Act. MUFG has disclosed the relevant sections of its code of ethics, compliance rules and compliance manual as an exhibit to this Annual Report. No exemptions from MUFG’s code of ethics, compliance rules and compliance manual have been granted to its directors or executives during that period.
7. A NYSE-listed US company must hold regularly scheduled executive sessions where participants are limited to non-management directors.
Under the Company Law, Japanese corporations are not obliged to hold executive sessions where participants are limited to non-management directors. Such executive sessions are also not required under MUFG’s internal corporate governance rules.
D. Employees
| D. | Employees |
As of March 31, 2008,2010, we had approximately 78,30079,000 employees, a decrease of approximately 500 employees compared to approximatelywith the same number of employees as of March 31, 2007 and 80,000 as of March 31, 2006.2009. In addition, as of March 31, 2008,2010, we had approximately 45,50036,300 part-time and temporary employees. The following tables show the percentages of our employees in our different business units and geographicallyin different locations as of March 31, 2008:2010:
Business unit | |||
Bank of Tokyo-Mitsubishi UFJ: | |||
Retail Banking Business Unit | % | ||
Corporate Banking Business Unit | |||
Global Business Unit | 24 | ||
Global Markets Unit | 1 | ||
Operations and Systems Unit | 9 | ||
Corporate Center/Independent Divisions | |||
Mitsubishi UFJ Trust and Banking Corporation: | |||
Trust-Banking | |||
Trust Assets | |||
Real Estate | 2 | ||
Global Markets | 1 | ||
Administration and subsidiaries | 3 | ||
Mitsubishi UFJ Securities: | |||
Sales Marketing Business Unit | 5 | ||
Global Investment Banking Business Unit | |||
Global Markets Business Unit | 1 | ||
International Business Unit | 1 | ||
Corporate Center and Others | |||
Mitsubishi UFJ NICOS: | |||
Business Marketing Division | 2 | ||
Credit Risk Management & Risk Assets Administration Division | 2 | ||
Operations Division | 1 | ||
Systems Division | 0 | ||
Corporate Division | 0 | ||
Others | |||
| 100 | % | ||
Location | |||
Bank of Tokyo-Mitsubishi UFJ: | |||
Japan | % | ||
United States | |||
Europe | |||
Asia/Oceania excluding Japan | |||
Other areas | |||
Mitsubishi UFJ Trust and Banking Corporation: | |||
Japan | |||
United States | 0 | ||
Europe | 0 | ||
Asia/Oceania excluding Japan | 0 | ||
Mitsubishi UFJ Securities: | |||
Japan | 9 | ||
United States | 0 | ||
Europe | 1 | ||
Asia/Oceania excluding Japan | 0 | ||
Mitsubishi UFJ | |||
Japan | |||
United States | 0 | ||
Europe | |||
Asia/Oceania excluding Japan | 0 | ||
Others | |||
| 100 | % | ||
Most of our employees are members of our employee’semployees’ union, which negotiates on behalf of employees in relation to remuneration and working conditions. We believe our labor relations to be good.
E. Share Ownership
| E. | Share Ownership |
The information required by this item is set forth in “Item 6.B. Compensation” and “Item 7.B. Related Party Transactions.“—B. Compensation.”
| Item 7. | Major Shareholders and Related Party Transactions. |
A. Major Shareholders
| A. | Major Shareholders |
Common Stock
As of March 31, 2008,2010, we had 470,336776,669 registered shareholders of our common stock. The ten largest holders of our common stock appearing on the register of shareholders as of March 31, 2008,2010, and the number and the percentage of such shares held by them, were as follows:
Name | Number of shares held | Percentage of total shares in issue | Number of shares held | Percentage of total shares in issue | ||||||
Japan Trustee Services Bank, Ltd.(1) | 528,919,100 | 4.86 | % | |||||||
The Master Trust Bank of Japan, Ltd.(1) | 458,682,300 | 4.22 | ||||||||
Hero & Co.(2) | 345,922,541 | 3.18 | ||||||||
Japan Trustee Services Bank, Ltd. (Trust account)(1) | 847,661,900 | 5.99 | % | |||||||
The Master Trust Bank of Japan, Ltd. (Trust account)(1) | 629,455,000 | 4.44 | ||||||||
Nippon Life Insurance Company | 280,011,699 | 2.57 | 285,603,153 | 2.01 | ||||||
The Bank of New York Mellon as Depositary Bank for DR Holders(2) | 275,722,684 | 1.94 | ||||||||
State Street Bank and Trust Company | 217,112,712 | 1.99 | 217,214,650 | 1.53 | ||||||
Japan Trustee Services Bank, Ltd. (Trust account 9)(1) | 210,368,800 | 1.48 | ||||||||
SSBT OD05 Omnibus Account China Treaty Clients | 180,960,350 | 1.27 | ||||||||
Meiji Yasuda Life Insurance Company(3) | 175,000,000 | 1.61 | 175,000,000 | 1.23 | ||||||
State Street Bank and Trust Company 505103 | 152,482,956 | 1.40 | ||||||||
The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account | 162,305,975 | 1.14 | ||||||||
Toyota Motor Corporation | 149,263,153 | 1.37 | 149,263,153 | 1.05 | ||||||
Meiji Yasuda Life Insurance Company | 138,639,341 | 1.27 | ||||||||
Mitsubishi Heavy Industries, Ltd.(4) | 118,740,000 | 1.09 | ||||||||
Total | 2,564,773,802 | 23.61 | % | 3,133,555,665 | 22.14 | % | ||||
| Notes: |
| (1) | Includes the shares held in trust accounts, which do not disclose the names of beneficiaries. |
| (2) | An owner of record for our American depositary shares. |
| (3) | These shares are those held in a pension trust account with The Master Trust Bank of Japan, Ltd. for the benefit of retirement plans with voting rights retained by Meiji Yasuda Life Insurance Company. |
As of March 31, 2008, 222,8842010, 411,618 shares, representing less than 0.01% of our outstanding common stock, were held by our directors and corporate auditors. Our major shareholders do not have different voting rights.
As of March 31, 2008, 1,432,285,2782010, 1,958,941,291 shares, representing 13.18%13.84% of our outstanding common stock, were owned by 272352 US shareholders of record who are resident in the United States, one of whom is the ADR depository’s nominee holding 345,922,541275,722,684 shares, or 3.18%1.94%, of our issued common stock.
Preferred Stock
No holder of our preferred stock has the right to vote at a general meeting of shareholders, except:
| Ÿ | from the commencement of our ordinary general meeting of shareholders if an agenda for approval to declare a preferred dividend is not submitted to such meeting; or |
| Ÿ | from the close of any ordinary general meeting of shareholders if a proposed resolution to declare a preferred dividend is not approved at such meeting; |
in each case, unless and until such time as a resolution of an ordinary general meeting of shareholders declaring a preferred dividend is passed.
Holders of our preferred stock are entitled to vote at a meeting separately held for their respective classes of preferred stock in accordance with the Company Law. A resolution of a separate meeting of class shareholders is required for the following actions, but only if the action is likely to prejudice the interests of the relevant class shareholders:
| Ÿ | an amendment to our articles of incorporation to (a) create a new class of shares, (b) change the terms of shares, or (c) increase the total number of authorized shares or the total number of authorized shares of a |
class of stock, except in some cases, such as an amendment to change a class of stock to callable stock, the resolution of, or the unanimous consent from, relevant class shareholders is required, regardless of whether the action is likely to prejudice their interests; |
| Ÿ | a consolidation of shares; |
| Ÿ | a share split; |
| Ÿ | an allotment of shares to our existing shareholders; |
| Ÿ | an allotment of stock acquisition rights to our existing shareholders; and |
| Ÿ | a merger, corporate split, stock for stock exchange, or stock for stock transfer. |
Class 11 preferred stock is convertible into shares of our common stock as described in “Item 10.B. Additional Information—Memorandum and Articles of Association.”
The shareholders of our preferred stock, which are non-voting, appearing on the register of shareholders as of March 31, 2008,2010, and the number and the percentage of such shares held by them, were as follows:
First series of class 3 preferred stock
Name | Number of shares held | Percentage of total shares in issue | Number of shares held | Percentage of total shares in issue | ||||||
Tokio Marine & Nichido Fire Insurance Co., Ltd. | 40,000,000 | 40 | % | 40,000,000 | 40 | % | ||||
Meiji Yasuda Life Insurance Company | 40,000,000 | 40 | 40,000,000 | 40 | ||||||
Nippon Life Insurance Company | 20,000,000 | 20 | 20,000,000 | 20 | ||||||
Total | 100,000,000 | 100 | % | 100,000,000 | 100 | % | ||||
Class 8 preferred stock | ||||||||||
The outstanding shares of the first series of class 3 preferred stock were redeemed as of April 1, 2010.
First series of class 5 preferred stock
| The outstanding shares of the first series of class 3 preferred stock were redeemed as of April 1, 2010.
First series of class 5 preferred stock
|
| ||||||||
Name | Number of shares held | Percentage of total shares in issue | Number of shares held | Percentage of total shares in issue | ||||||
The Norinchukin Bank | 17,700,000 | 100 | % | |||||||
Nippon Life Insurance Company | 40,000,000 | 25.64 | % | |||||||
Meiji Yasuda Life Insurance Company | 40,000,000 | 25.64 | ||||||||
Taiyo Life Insurance Company | 20,000,000 | 12.82 | ||||||||
Daido Life Insurance Company | 20,000,000 | 12.82 | ||||||||
Tokio Marine & Nichido Fire Insurance Co., Ltd. | 20,000,000 | 12.82 | ||||||||
Nipponkoa Insurance Company, Limited | 12,000,000 | 7.69 | ||||||||
Aioi Insurance Company, Limited | 4,000,000 | 2.56 | ||||||||
Total | 17,700,000 | 100 | % | 156,000,000 | 100 | % | ||||
Class 11 preferred stock | Class 11 preferred stock
|
| ||||||||
Name | Number of shares held | Percentage of total shares in issue | Number of shares held | Percentage of total shares in issue | ||||||
UFJ Trustee Services PVT. (Bermuda) Limited as the trustee of UFJ International Finance (Bermuda) Trust | 1,000 | 100 | % | 1,000 | 100 | % | ||||
Total | 1,000 | 100 | % | 1,000 | 100 | % | ||||
Class 12 preferred stock | ||||||||||
Name | Number of shares held | Percentage of total shares in issue | ||||||||
The Norinchukin Bank | 22,400,000 | 66.46 | % | |||||||
Daido Life Insurance Company | 11,300,000 | 33.53 | ||||||||
Total | 33,700,000 | 100.00 | % | |||||||
| B. |
In May 2010, pursuant to definitive agreements entered into in March 2010, we and Morgan Stanley formed two joint ventures in Japan by contributing and integrating the investment banking and securities businesses conducted by our respective securities subsidiaries in Japan. We also made a cash payment of ¥26 billion to Morgan Stanley at closing of the transaction (subject to certain post-closing cash adjustments). We currently hold an approximately 20% interest (on a fully diluted basis) in Morgan Stanley, and a member of our senior management currently serves on the board of directors of Morgan Stanley. See “Item 4.B. Information on the Company—Business Overview” and “Item 5. Operating and Financial Review and Prospects—Recent Developments.”
We and our banking subsidiaries had, and expect to have in the future, banking transactions and other transactions in the ordinary course of business with our related parties. Although for the fiscal year ended
March 31, 2008,2010, such transactions included, but were not limited to, call money, loans, electronic data processing, leases and management of properties, those transactions were immaterial and were made at prevailing market rates, terms and conditions and do not involve more than the normal risk of collectibility or present other unfavorable features.
None of our directors or corporate auditors, and none of the close members of their respective families, has had any transactions or has any presently proposed transactions that are material or any transactions that are unusual in their nature or conditions, involving goods, services or tangible or intangible assets, to which we were, are or will be a party.
No loans have been made to our directors or corporate auditors other than in the normal course of business, on normal commercial terms and conditions, involving the normal risk of collectibility, and presenting normal features. In addition, no loans have been made to our directors or executive officers or corporate auditors other than as permitted under Section 13(k) of the US Securities Exchange Act and Rule 13k-1 promulgated thereunder.
No family relationship exists among any of our directors or corporate auditors. No arrangement or understanding exists between any of our directors or corporate auditors and any other person pursuant to which any director or corporate auditor was elected to their position at MUFG.
As part of our compensation structure, we have allottedgranted stock acquisition rights to our directors and corporate auditors. For a detailed discussion of the stock acquisition rights, see “Item 6.B. Directors, Senior Management and Employees—Compensation.”
C. Interests of Experts and Counsel
| C. | Interests of Experts and Counsel |
Not applicable.
| Item 8. | Financial Information. |
A. Consolidated Statements and Other Financial Information
| A. | Consolidated Statements and Other Financial Information |
The information required by this item is set forth in our consolidated financial statements starting on page F-1 of this Annual Report and in “Selected Statistical Data” starting on page A-1 of this Annual Report.
Legal Proceedings
From time to time, we are involved in various litigation matters. Although the final resolution of any such matters could have a material effect on our consolidated operating results for a particular reporting period, based on our current knowledge and consultation with legal counsel, we believe the current litigation matters, when ultimately determined, will not materially affect our results of operations or financial position.
Distributions
Our board of directors submits a recommendation for an annuala year-end dividend for our shareholders’ approval at the ordinary general meeting of shareholders customarily held in June of each year. The annualyear-end dividend is usually distributed immediately following shareholders’ approval to holders of record at the end of the preceding fiscal year. In addition to annualyear-end dividends, we may make cash distributions by way of interim dividends to shareholders of record as of September 30 of each year as distribution of surplus by resolution of our board of directors. On June 27, 2008,29, 2010, we paid year-end dividends in the amount of ¥7¥6 per share of common stock for the fiscal year ended March 31, 2008.2010.
See “Item 10.B. Memorandum and Articles of Association” for additional information on our dividends policy.
Under the Japanese foreign exchange regulations currently in effect, dividends paid on shares held by non-residents of Japan may be converted into any foreign currency and repatriated abroad. Under the terms of the deposit agreement pursuant to which ADSs are issued, the depositary is required, to the extent that in its judgment it can convert Japanese yen on a reasonable basis into US dollars and transfer the resulting US dollars to the United States, to convert all cash dividends that it receives in respect of deposited shares into US dollars and to distribute the amount received, after deduction of any applicable withholding taxes, to the holders of ADSs. See “Item 10.D. Additional Information—Exchange Controls—Foreign Exchange and Foreign Trade Law.”
B. Significant Changes
| B. | Significant Changes |
Other than as described in this Annual Report, no significant changes have occurred since the date of our consolidated financial statements included in this Annual Report.
| Item 9. | The Offer and Listing. |
A. Offer and Listing Details
| A. | Offer and Listing Details |
Market Price Information
The following table shows, for the periods indicated, the reported high and low sale prices for shares of our common stock on the Tokyo Stock Exchange, or the TSE, and of the ADSs on the New York Stock Exchange, or the NYSE.
| Price per share on the TSE | Price per ADS on the NYSE | Price per share on the TSE | Price per ADS on the NYSE | |||||||||||||
| High | Low | High | Low | High | Low | High | Low | |||||||||
| (yen) | (US$) | (yen) | (US$) | |||||||||||||
Fiscal year ended March 31, 2004 | 1,080 | 351 | 10.11 | 2.98 | ||||||||||||
Fiscal year ended March 31, 2005 | 1,230 | 800 | 10.40 | 7.12 | ||||||||||||
Fiscal year ended March 31, 2006 | 1,810 | 873 | 15.54 | 7.95 | 1,810 | 873 | 15.54 | 7.95 | ||||||||
Fiscal year ended March 31, 2007 | 1,950 | 1,260 | 16.75 | 11.01 | ||||||||||||
Fiscal year ended March 31, 2008 | 1,430 | 782 | 11.72 | 7.95 | ||||||||||||
Fiscal year ended March 31, 2009 | ||||||||||||||||
First quarter | 1,950 | 1,370 | 16.75 | 12.15 | 1,173 | 856 | 11.11 | 8.66 | ||||||||
Second quarter | 1,660 | 1,410 | 14.37 | 12.17 | 1,036 | 741 | 9.67 | 6.87 | ||||||||
Third quarter | 1,600 | 1,360 | 13.24 | 11.73 | 946 | 427 | 9.14 | 4.50 | ||||||||
Fourth quarter | 1,550 | 1,260 | 12.85 | 11.01 | 590 | 377 | 6.34 | 3.71 | ||||||||
Fiscal year ended March 31, 2008 | ||||||||||||||||
Fiscal year ended March 31, 2010 | ||||||||||||||||
First quarter | 1,430 | 1,240 | 11.72 | 10.41 | 699 | 470 | 6.84 | 4.79 | ||||||||
Second quarter | 1,390 | 990 | 11.48 | 8.28 | 624 | 475 | 6.53 | 5.32 | ||||||||
Third quarter | 1,252 | 881 | 11.22 | 8.04 | 523 | 437 | 5.78 | 4.89 | ||||||||
Fourth quarter | 1,068 | 782 | 9.90 | 7.95 | 506 | 443 | 5.54 | 4.91 | ||||||||
February | 482 | 443 | 5.39 | 4.94 | ||||||||||||
March | 933 | 782 | 9.28 | 7.95 | 504 | 453 | 5.41 | 5.06 | ||||||||
Fiscal year ending March 31, 2009 | ||||||||||||||||
Fiscal year ending March 31, 2011 | ||||||||||||||||
April | 1,173 | 856 | 11.11 | 8.87 | 520 | 481 | 5.56 | 5.16 | ||||||||
May | 1,169 | 973 | 11.10 | 9.45 | 480 | 435 | 5.26 | 4.76 | ||||||||
June | 1,156 | 926 | 10.94 | 8.66 | 449 | 399 | 4.93 | 4.48 | ||||||||
July | 1,036 | 902 | 9.67 | 8.51 | 440 | 396 | 5.05 | 4.52 | ||||||||
August | 964 | 789 | 8.78 | 7.21 | ||||||||||||
September (through September 17) | 883 | 741 | 8.08 | 6.87 | ||||||||||||
August (through August 9) | 439 | 425 | 5.06 | 4.91 | ||||||||||||
| Note: | The amounts in this table prior to |
B. Plan of Distribution
| B. | Plan of Distribution |
Not applicable.
C. Markets
| C. | Markets |
The primary market for our common stock is the TSE. Our common stock is also listed on the Osaka Securities Exchange and the Nagoya Stock Exchange in Japan. ADSs, each representing one share of common stock, are quoted on the NYSE under the symbol, “MTU.”
D. Selling Shareholders
| D. | Selling Shareholders |
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
| E. | Dilution |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
| Item 10. | Additional Information. |
A. Share Capital
| A. | Share Capital |
Not applicable.
B. Memorandum and Articles of Association
| B. | Memorandum and Articles of Association |
Our Corporate Purpose
Article 2 of our articlesArticles of incorporationIncorporation provides that our corporate purpose is to carry on the following businesses:
administration of management of banks, trust banks, specialized securities companies, insurance companies or other companies which we may own as our subsidiaries under the Japanese Banking Law; and
| Ÿ | administration of management of banks, trust banks, specialized securities companies, insurance companies or other companies which we may own as our subsidiaries under the Japanese Banking Law; and |
any other businesses incidental to the foregoing businesses mentioned in the preceding clause.
| Ÿ | any other businesses incidental to the foregoing businesses mentioned in the preceding clause. |
Board of Directors
For discussion of the provisions of our articlesArticles of incorporationIncorporation as they apply to our directors, see “Item 6.C. Directors, Senior Management and Employees—Board Practices.”
Common Stock
We summarize below the material provisions of our articlesArticles of incorporation,Incorporation, our share handling regulations and the Company Law (Law No. 86 of 2005, also known as the Companies Act) as they relate to a type of joint stock company known askabushiki kaisha, within which we fall. Because it is a summary, this discussion should be read together with our articlesArticles of incorporationIncorporation and share handling regulations, which have been filed as exhibits to this Annual Report.
General
A joint stock company is a legal entity incorporated under the Company Law. The investment and rights of the shareholders of a joint stock company are represented by shares of stock in the company and shareholders’ liability is limited to the amount of the subscription for the shares.
OurAs of June 29, 2010, our authorized common share capital as of June 27, 2008 was comprised of 33,000,000,000 shares of common stock with no par value. Effective as of September 30, 2007, each of our ordinary and preferred shares were split into 1,000 shares of the same class of securities, and our authorized number of common shares was increased accordingly.
As of March 31, 2008,2010, a total of 10,861,643,79014,148,414,920 shares of common stock (including 503,153,83521,069,229 shares of common stock held by us and our consolidated subsidiaries as treasury stock) had been issued. Each of the shares issued and outstanding was fully paid and non-assessable.
As of June 27, 2008,29, 2010, we were authorized to issue 1,076,901,000920,001,000 shares of preferred stock, including 120,000,000 shares of class 3 preferred shares,stock, 400,000,000 shares of each of the first to fourth series of class 5 preferred sharesstock (provided the aggregate number of shares authorized to be issued with respect to the four series of class 5 preferred sharesstock does not exceed 400,000,000 shares), 200,000,000 shares of each of the first to fourth series of class 6 preferred sharesstock (provided the aggregate number of shares authorized to be issued with respect to the four series of class 6 preferred sharesstock does not exceed
200,000,000 shares), 200,000,000 shares of each of the first to fourth series of class 7 preferred sharesstock (provided the aggregate number of shares authorized to be issued with respect to the four series of class 7 preferred sharesstock does not exceed 200,000,000 shares), 27,000,000 class 8 preferredand 1,000 shares 1,000of class 11 preferred shares and 129,900,000 class 12 preferred shares.stock. As of March 31, 2008,2010, we had 100,000,000 shares of class 3 preferred stock, 156,000,000 shares 17,700,000of first series class 85 preferred stock, and 1,000 shares 1,000of class 11 preferred shares and 33,700,000 class 12 preferred sharesstock issued and outstanding. The outstanding shares of the first series of class 3 preferred stock were redeemed on April 1, 2010.
We may issue shares from our authorized but unissued share capital following a resolution to that effect by our board of directors. An increase in our authorized share capital is only possible by amendment of our articlesArticles of incorporation,Incorporation, which generally requires shareholders’ special approval.
Under the Company Law and our articles of incorporation, shares are transferable by delivery of share certificates. Our articles of incorporation also provide that we will not issue share certificates for shares which do not constitute a whole unit, where a whole unit is comprised of 100 shares. In order to assert shareholders’shareholder rights against us, a shareholder must have its name and address registered on our register of shareholders, in accordance with the Company Law and our share handling regulations. The registered holder of deposited shares underlying the ADSs is the depositary for the ADSs, or its nominee. Accordingly, holders of ADSs will not be able to assert shareholders’shareholder rights other than as provided in the agreement among us, the depositary and the holders of the ADSs.
A holder of shares may choose, at its discretion, to participate in the central clearing system for share certificates under the Law Concerning Central Securities Depository and Book-Entry Transfer of Stock Certificates and Other Securities of Japan. Participating shareholders must deposit certificates representing the shares to be included in this clearing system with the Japan Securities Depository Center, Inc. If a holder is not a participating institution in the Japan Securities Depository Center, it must participate through a participating institution, such as a financial instruments firm or bank having a clearing account with the Japan Securities Depository Center. All shares deposited with the Japan Securities Depository Center will be registered in the name of the Japan Securities Depository Center on our register of shareholders. Each participating shareholder will in turn be registered on our register of beneficial shareholders and be treated in the same way as shareholders registered on our register of shareholders. Delivery of share certificates is not required to transfer deposited shares. Entry of the share transfer in the books maintained by the Japan Securities Depository Center for participating institutions, or in the books maintained by a participating institution for its customers, has the same effect as delivery of share certificates. This central clearing system is intended to reduce paperwork required in connection with transfers of shares. Beneficial owners may at any time withdraw their shares from deposit and receive share certificates.
A law to establish a new central clearing system for shares of listed companies and to eliminate the issuance and use of certificates for such shares was promulgated in June 2004 and the relevant part of the law will come into effect within five years of the date of the promulgation. On thebecame effective date, which is currently expected to beon January 5, 2009,2009. Under the “Law Concerning Book-Entry Transfer of Corporate Bonds, Stocks etc.,” a new central clearing system will bewas established and the shares of all Japanese companies listed on any Japanese stock exchange will beare now subject to the new central clearing system. On the same day,As of January 5, 2009, we will beare deemed to becomebe a company which shall notno longer issue share certificates for itsour shares, and all existing share certificates for such shares willhave become automatically null and void, without us being required to collect those share certificates from shareholders. The transfer of such shares will beis effected through entry in the books maintained under the new central clearing system. Only shares that were deposited with the Japan Securities Depository Center will beas of January 5, 2009 are immediately transferable under the new central clearing system. Upon the effective date, any requirement, reference and discussion relating to share certificates included in this section “Common Stock” will not be applicable.
Dividends
Dividends are distributed in proportion to the number of shares owned by each shareholder on the record date for the dividend. Dividends for each financial period may be distributed following shareholders’ approval at a general meeting of shareholders.
Payment of dividends on common stock is subject to the preferential dividend rights of holders of preferred stock.
Under the Banking Law and our articlesArticles of incorporation,Incorporation, our financial accounts are closed on March 31 of each year, and dividends, if any, are paid to shareholders of record as of March 31 following shareholders’ approval at a general meeting of shareholders. In addition to year-end dividends, our board of directors may by resolution declare an interim cash dividend to shareholders of record as of September 30 of each year. Under the Company Law, distribution of dividends will take the form of distribution of surplus (as defined below). We will be permitted to make distributions of surplus to our shareholders any number of times per fiscal year pursuant to resolutions of our general meetings of shareholders, subject to certain limitations described below. Distributions of surplus are in principle required to be authorized by a resolution of a general meeting of shareholders. Distributions of surplus would, however, be permitted to be made pursuant to a resolution of our board of directors if:
| (a) | our |
| (b) | the normal term of office of our directors is one year; and |
| (c) | certain conditions concerning our non-consolidated annual financial statements and certain documents for the latest fiscal year as required by an ordinance of the Ministry of Justice are satisfied. |
In an exception to the above rule, even if the requirements described in (a) through (c) are not met, we are permitted to make distributions of surplus in cash to our shareholders by resolutions of the board of directors once per fiscal year as mentioned above concerning interim cash dividend.
Under the Company Law, distributions of surplus may be made in cash or in kind in proportion to the number of shares of common stock held by each shareholder. A resolution of a general meeting of shareholders
or our board of directors authorizing a distribution of surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of surplus is to be made in kind, we may, pursuant to a resolution of a general meeting of shareholders or (as the case may be) our board of directors, grant to our shareholders the right to require us to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of surplus must be approved by a special resolution of a general meeting of shareholders (see the description of a “special resolution” in “—Voting Rights”).
Under the Company Law, we may make distribution of surplus to the extent that the aggregate book value of the assets to be distributed to shareholders does not exceed the distributable amount (as defined below) as of the effective date of such distribution of surplus. The amount of surplus (the “surplus”) at any given time shall be the amount of our assets and the book value of our treasury stock after subtracting the amounts of items (1) through (5) below as they appear on our non-consolidated balance sheet as of the end of our last fiscal year, and after reflecting the changes in our surplus after the end of our last fiscal year, by adding the amounts of items (6), (7) and (8) below and/or subtracting the amounts of items (9), (10) and (11) below:
| (1) | our liabilities; |
| (2) | our stated capital; |
| (3) | our additional paid-in capital; |
| (4) | our accumulated legal reserve; |
| (5) | other amounts as are set out in an ordinance of the Ministry of Justice; |
| (6) | (if we transferred our treasury stock after the end of the last fiscal year) the transfer price of our treasury stock after subtracting the book value thereof; |
| (7) | (if we decreased our stated capital after the end of the last fiscal year) the amount of decrease in our stated capital (excluding the amount transferred to additional paid-in capital or legal reserve); |
| (8) | (if we decreased our additional paid-in capital or legal reserve after the end of the last fiscal year) the amount of decrease in our additional paid-in capital or legal reserve (excluding the amount transferred to stated capital); |
| (9) | (if we cancelled our treasury stock after the end of the last fiscal year) the book value of the cancelled treasury stock; |
| (10) | (if we distributed surplus to shareholders after the end of the last fiscal year) the amount of the assets distributed to shareholders by way of such distribution of surplus; and |
| (11) | other amounts as are set out in an ordinance of the Ministry of Justice. |
A distributable amount (the “distributable amount”) at any given time shall be the aggregate amount of (a) the surplus, (b) the amount of profit as recorded for the period after the end of our last fiscal year until the date of an extraordinary settlement of account (if any) as is set out in an ordinance of the Ministry of Justice and (c) the transfer price of our treasury stock in the same period, after subtracting the amounts of the following items:
| (1) | the book value of our treasury stock; |
| (2) | (if we transferred our treasury stock after the end of the last fiscal year) the transfer price of our treasury stock; |
| (3) | the losses recorded for the period after the end of our last fiscal year until the date of an extraordinary settlement of account (if any) as set out in an ordinance of the Ministry of Justice; and |
| (4) | other amounts as set out in an ordinance of the Ministry of Justice. |
In Japan, the “ex-dividend” date and the record date for any dividends precede the date of determination of the amount of the dividend to be paid. The market price of shares generally becomes ex-dividend on the third
business day prior to the record date. Under our articlesArticles of incorporation,Incorporation, we are not obligated to pay any dividends which are left unclaimed for a period of five years after the date on which they first became payable.
Capital and Reserves
Under the Company Law, we may reduce our additional paid-in capital or legal reserve (without limitation as to the amount of such reduction) as mentioned previously, generally by resolution of a general meeting of shareholders and, if so resolved in the same resolution, may account for the whole or any part of the amount of such reduction as stated capital. We may also reduce our stated capital generally by special resolution of a general meeting of shareholdershareholders and, if so resolved in the same resolution, such reduction may account for the whole or any part of the amount of such reduction as additional paid-in capital or legal reserve. Conversely, we may reduce our surplus and increase either (i) stated capital or (ii) additional paid-in capital and/or legal reserve by the same amount, in either case by resolution of a general meeting of shareholders.
Stock Splits
Stock splits of our outstanding stock may be effected at any time by resolution of the board of directors. When a stock split is to be effected, we may increase the authorized share capital to cover the number of shares to be increased by the stock split by amending our articlesArticles of incorporationIncorporation by resolution of the board of directors
without approval by special resolution of the general meeting of shareholders, unless more than one class of stock is issued and outstanding. In general, shareholders will not be required to exchange stock certificates for new stock certificates, but certificates representing the additional stock resulting from the stock split will be issued to shareholders. We must give public notice of the stock split, specifying a record date at least two weeks prior to the record date.
We conducted a stock split pursuant to which each of theour shares of common and preferred sharesstock were split into 1,000 shares of the respective classes of securities, effective as of September 30, 2007. Our articlesArticles of incorporationIncorporation were amended to increase the authorized share capital to cover the number of shares increased by the stock split, which amendment became effective simultaneously with the effectiveness of the stock split.
Unit Share (tan-gen kabu) System
We adopt the unit share system, where 100 shares of ordinary andeither common or preferred sharesstock shall each constitute a unit, as the amendment of our articlesArticles of incorporationIncorporation to provide for such system has been approved at the shareholders’ meetings on June 27 and 28, 2007. Our articles of incorporation provide that we do not, as a general rule, issue certificates representing a number of shares less than a unit. Consequently, any fraction of a unit for which no share certificate is issued will not be transferable.
Under the unit share system, each unit of shares is entitled to one voting right. A holder of less than one unit of shares has no voting right. Our articlesArticles of incorporationIncorporation provide that the holders of shares constituting less than a full unit will not have shareholder rights except for those specified in the Company Law or an ordinance of the Ministry of Justice, including rights (i) to receive dividends, (ii) to receive cash or other assets in case of consolidation or split of shares, stock-for-stock exchange or stock-for-stock transfer, corporate split or merger or (iii) to be allotted rights to subscribe for free for new shares and stock acquisition rights when such rights are granted to shareholders. Shareholders may require us to purchase shares constituting less than a unit at the current market price. In addition, holders of shares constituting less than a unit may require us to sell them such number of shares, which, when combined with the number of shares already held by such holder, shall constitute a whole unit of share; provided that we will be obliged to comply with such request only when we own a sufficient number of shares to accommodate the desired sale and purchase. The board of directors may reduce the number of shares constituting a unit or cease to use the unit share system by amendments to the articlesArticles of incorporationIncorporation without shareholders’ approval even though amendments to the articlesArticles of incorporationIncorporation generally require a special resolution of the general meeting of shareholders.
General Meeting of Shareholders
The ordinary general meeting of our shareholders is usually held in June of each year in Tokyo. In addition, we may hold an extraordinary general meeting of shareholders whenever necessary by giving at least two weeks’
advance notice to shareholders who are entitled to vote at the relevant general meeting of shareholders. The record date for ordinary general meetings of our shareholders is March 31.
Any shareholder holding at least 300 voting rights or 1% of the total number of voting rights for six consecutive months or longer may propose a matter to be considered at a general meeting of shareholders by submitting a written request to a director at least eight weeks prior to the date of the meeting. The number of minimum voting rights, minimum percentage and time period necessary for exercising the minority shareholdersshareholder rights described above may be decreased or shortened if our articlesArticles of incorporationIncorporation so provide. Our articlesArticles of incorporationIncorporation currently contain no such provisions.
Voting Rights
A holder of shares of our common stock is generally entitled to one voting right for each unit of common sharesstock held. The following shares of common shares identified belowstock are not entitled to voting rights even when such shares
constitute a whole unit, and such shares of common sharesstock are not considered when determining whether a quorum exists for a shareholders’ meeting:
treasury shares;
| Ÿ | treasury stock; |
shares held by a company in which we, we and our subsidiaries or our subsidiaries owns 25% or more of the total voting rights; and
| Ÿ | shares held by a company in which we, we and our subsidiaries or our subsidiaries owns 25% or more of the total voting rights; and |
shares issued after the record date as a result of conversion of convertible stock, exercise of stock acquisition rights, and fractional shareholders becoming a shareholder of a whole unit share.
| Ÿ | shares issued after the record date as a result of conversion of convertible stock, exercise of stock acquisition rights, and fractional shareholders becoming a shareholder of a whole unit share. |
On the other hand, holders of certain class of preferred sharesstock shall be entitled to a voting right for each unit of preferred sharesstock held under certain conditions provided for by relevant laws or regulations and our articlesArticles of incorporation. ForIncorporation, for example, when a proposal to pay the full amount of preferential dividends on any class of preferred sharesstock in compliance with the terms of such preferred sharesstock is not included in the agenda of the relevant shareholders meeting. See “—Preferred Stock.”
Under our articlesArticles of incorporation,Incorporation, except as otherwise provided by law or by other provisions of our articlesArticles of incorporation,Incorporation, a resolution can be adopted at a shareholders’ meeting by the holders of a majority of the voting rights represented at the meeting. The Company Law and our articlesArticles of incorporationIncorporation require a quorum of not less than one-third of the total number of voting rights for election of our directors and corporate auditors.
The Company Law and our articlesArticles of incorporationIncorporation provide that a quorum of not less than one-third of outstanding voting rights, excluding those owned by our subsidiaries and affiliates of which we own, directly or indirectly, 25 percent or more, must be present at a shareholders’ meeting to approve specified corporate actions, such as:
the amendment of our articles of incorporation, except in some limited cases;
the repurchase of our own stock from a specific shareholder other than our subsidiary;
the consolidation of shares;
the offering to persons other than shareholders of stock at a specially favorable price, or of stock acquisition rights or bonds or notes with stock acquisition rights with specially favorable conditions;
the removal of a director who was elected by cumulative voting or corporate auditor;
the exemption from liability of a director or corporate auditor, with certain exceptions;
a reduction in stated capital with certain exceptions in which a shareholders’ resolution is not required;
a distribution of in-kind dividends which meets certain requirements;
the transfer of the whole or an important part of our business, except in some limited circumstances;
the acquisition of the whole business of another company, except in some limited circumstances;
a dissolution, merger or consolidation, except for certain types of mergers;
| Ÿ | the amendment of our Articles of Incorporation, except in some limited cases; |
the repurchase of our own stock from a specific shareholder other than our subsidiary; |
| Ÿ | the consolidation of shares; |
| Ÿ | the offering to persons other than shareholders of stock at a specially favorable price, or of stock acquisition rights or bonds or notes with stock acquisition rights with specially favorable conditions; |
| Ÿ | the removal of a corporate auditor; |
| Ÿ | the exemption from liability of a director or corporate auditor, with certain exceptions; |
| Ÿ | a reduction in stated capital with certain exceptions in which a shareholders’ resolution is not required; |
| Ÿ | a distribution of in-kind dividends which meets certain requirements; |
| Ÿ | the transfer of the whole or an important part of our business, except in some limited circumstances; |
| Ÿ | the acquisition of the whole business of another company, except in some limited circumstances; |
| Ÿ | a dissolution, merger or consolidation, except for certain types of mergers; |
| Ÿ | a stock-for-stock exchange (kabushiki-kokan) or stock-for-stock transfer (kabushiki-iten), except in some limited circumstances; and |
a corporate split, except in some limited circumstances.
| Ÿ | a corporate split, except in some limited circumstances. |
A special resolution representing at least two-thirds of the voting rights represented at the meeting is required to approve these actions.
Our articlesArticles of incorporationIncorporation do not include any provision that grants shareholders cumulative voting rights at elections of directors or corporate auditors.
Subscription Rights
Holders of our shares have no preemptive rights under our articlesArticles of incorporation.Incorporation. Under the Company Law, however, our board of directors may determine that shareholders be given subscription rights in connection with a particular issue of new shares. In this case, these subscription rights must be given on uniform terms to all shareholders, and if a specified record date is set, it must be announced in a public notice at least two weeks prior to the record date. A notification to each individual shareholder must also be given at least two weeks prior to the subscription date.
Under the Company Law, rights to subscribe for new shares may not be transferred; however, we may allot stock acquisition rights to shareholders without consideration, and such rights will be transferable.
Stock Acquisition Rights
We may issue stock acquisition rights (shinkabu yoyakuken), which in the United States are often in the form of warrants, or bonds with stock acquisition rights that cannot be detached (shinkabu yoyakuken-tsuki shasai), which in the United States are often in the form of convertible bonds or bonds with non-detachable warrants. Except where the issuance would be on “specially favorable” conditions, the issuance of stock acquisition rights or bonds with stock acquisition rights may be authorized by a resolution of our board of directors. Upon exercise of the stock acquisition rights, the holder of such rights may acquire shares by paying the applicable exercise price or, if so determined by a resolution of our board of directors, by making a substitute payment, such as having the convertible bonds redeemed for no cash in lieu of the exercise price.
Liquidation Rights
Upon our liquidation, the assets remaining after payment of all debts, liquidation expenses, taxes and preferred distributions to holders of shares of our preferred stock will be distributed among the holders of shares of our common stock in proportion to the number of shares they own.
Transfer Agent
MUTB is the transfer agent for our common stock. The office of MUTB for this purpose is located at 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan. MUTB maintains our register of shareholders andshareholders. MUTB maintained our register of lost share certificates and records transfers of ownership upon presentation of share certificates.until January 5, 2010, as required by the New Share Settlement Law.
Reports to Shareholders
We furnish to our shareholders notices, in Japanese, of shareholders’ meetings, annual business reports, including our financial statements, and notices of resolutions adopted at our shareholders’ meetings.
Record Dates
As stated above, March 31 is the record date for the payment of annual dividends, if any, and the determination of shareholders entitled to vote at ordinary general meetings of our shareholders. September 30 is the record date for the payment of interim dividends, if any. In addition, by a resolution of our board of directors and after giving at least two weeks’ prior public notice, we may at any time set a record date in order to determine the shareholders who are entitled to the rights pertaining to our shares.
Repurchase of Our Shares
We may repurchase our own shares:
through the Tokyo Stock Exchange or other stock exchanges on which our shares are listed, if authorized by a resolution of a general meeting of shareholders or our board of directors;
by way of a tender offer, if authorized by a resolution of a general meeting of shareholders or our board of directors;
| Ÿ | through the Tokyo Stock Exchange or other stock exchanges on which our shares are listed, if authorized by a resolution of a general meeting of shareholders or our board of directors; |
from a specific party, if authorized by a special resolution of a general meeting of shareholders and we give notice thereof to shareholders prior to such general meeting, in general;
| Ÿ | by way of a tender offer, if authorized by a resolution of a general meeting of shareholders or our board of directors; |
from all shareholders of a specific class of shares offering to sell their shares, if authorized by a resolution of a general meeting of shareholders or our board of directors and we give a public notice or notice thereof to all of the shareholders (if we repurchase any class of preferred shares, notices to all shareholders of the relevant class of preferred shares.); or
| Ÿ | from a specific party, if authorized by a special resolution of a general meeting of shareholders and we give notice thereof to shareholders prior to such general meeting, in general; |
| Ÿ | from all shareholders of a specific class of shares offering to sell their shares, if authorized by a resolution of a general meeting of shareholders or our board of directors and we give a public notice or notice thereof to all of the shareholders (if we repurchase any class of preferred stock, notices to all shareholders of the relevant class of preferred stock); or |
from our subsidiaries, if authorized by a resolution of the board of directors.
| Ÿ | from our subsidiaries, if authorized by a resolution of the board of directors. |
When the repurchase is made by us from a specific party, as authorized by a special resolution of a general meeting of shareholders, any shareholder may make a demand to a director, five days or more prior to the relevant shareholders’ meeting, that we also repurchase the shares held by that shareholder. However, no such right will be available if the shares have a market price, and if the purchase price does not exceed the then market price calculated in a manner set forth in an ordinance of the Ministry of Justice.
Repurchase of our own shares described above must satisfy various specified requirements. In general, the same restrictions on the distributable amount as described in the seventh paragraph under “—Common Stock—Dividends.” are applicable to the repurchase of our own shares, so the total amount of the repurchase price may not exceed the distributable amount.
We may hold our own shares so repurchased without restrictions. In addition, we may cancel or dispose of our repurchased shares by a resolution of our board of directors. As of March 31, 2008,2010, we (excluding our subsidiaries) owned 500,889,485426,985 shares of treasury shares.stock.
Preferred Stock
The following is a summary of information concerning the shares of our preferred stock, including brief summaries of the relevant provisions of our articlesArticles of incorporation,Incorporation, the share handling regulations and the Company Law as currently in effect. The detailed rights of our preferred sharesstock are set out in our articlesArticles of incorporationIncorporation and the resolutions of our board of directors relating to the issuance of the relevant stock.
General
As of March 31, 2007,2010, we were authorized under our articlesArticles of incorporationIncorporation to issue ninefive classes of preferred stock totaling 1,306,601920,001,000 shares of preferred stock, including 120,000120,000,000 shares of class 3 preferred shares, 400,000stock, 400,000,000 shares of each of the first to fourth series of class 5 preferred sharesstock (provided the aggregate number of shares authorized to be issued with respect to the four series of class 5 preferred sharesstock does not exceed 400,000400,000,000 shares), 200,000200,000,000 shares of each of the first to fourth series of class 6 preferred sharesstock (provided the aggregate number of shares authorized to be issued with respect to the four series of class 6 preferred sharesstock does not exceed 200,000200,000,000 shares), 200,000200,000,000 shares of each of the first to fourth series of class 7 preferred sharesstock (provided the aggregate number of shares authorized to be issued with respect to the four series of class 7 preferred sharesstock does not exceed 200,000200,000,000 shares) 27,000 class 8 preferredand 1,000 shares 79,700 class 9 preferred shares, 150,000 class 10 preferred shares, oneof class 11 preferred share and 129,900 class 12 preferred shares. Following the amendment of our articles of incorporation, as of June 28, 2007, we were authorized to issue seven classes ofstock. Our preferred stock totaling 1,076,901 (after the stock split becomes effective, 1,076,901,000) shares of preferred stock, including 120,000 (after the stock split becomes effective, 120,000,000) class 3 preferred shares, 400,000 (after the stock split becomes effective, 400,000,000) shares of each of the first to fourth series of class 5 preferred shares (provided the aggregate number of shares authorized to be issued with respect to the four series of class 5 preferred shares does not exceed 400,000 (after the stock split becomes effective, 400,000,000) shares), 200,000 (after the stock split becomes effective, 200,000,000) shares of each
of the first to fourth series of class 6 preferred shares (provided the aggregate number of shares authorized to be issued with respect to the four series of class 6 preferred shares does not exceed 200,000 (after the stock split becomes effective, 200,000,000) shares), 200,000 (after the stock split becomes effective, 200,000,000) shares of each of the first to fourth series of class 7 preferred shares (provided the aggregate number of shares authorized to be issued with respect to the four series of class 7 preferred shares does not exceed 200,000 (after the stock split becomes effective, 200,000,000) shares), 27,000 (after the stock split becomes effective, 270,000,000) class 8 preferred shares, one (after the stock split becomes effective, 1,000) class 11 preferred share and 129,900 (after the stock split becomes effective, 129,900,000) class 12 preferred shares. Our preferred shares havehas equal preference over our shares of common stock inwith respect ofto dividend entitlements and distribution of assets upon our liquidation. However, holders of shares of our preferred sharesstock are not entitled to vote at general meetings of shareholders, subject to the exceptions provided under our articlesArticles of incorporation.Incorporation. As of March 31, 2008,2010, 100,000,000 shares of class 3 preferred stock, 156,000,000 shares 17,700,000of first series class 85 preferred stock and 1,000 shares 1,000of class 11 preferred shares and 33,700,000 class 12 preferred sharesstock had been outstanding, but there were no shares of class 5 through6 or 7 preferred stock outstanding. The outstanding shares outstanding.of the first series of class 3 preferred stock were redeemed as of April 1, 2010. We may, at any time, following necessary authorization as described in the first paragraph under “Repurchase of Our Shares,” purchase and cancel, at fair value, any shares of preferred stock outstanding out of the distributable amount.
Class 3, first to fourth series of class 5 and first to fourth series of class 6 preferred shareholders are not entitled to request acquisition of their shares of preferred sharesstock in exchange for our shares of common stock but we may acquire shares of class 3, first to fourth series of class 5 and first to fourth series of class 6 preferred sharesstock at our discretion pursuant to the terms and conditions provided by our articlesArticles of incorporationIncorporation and the resolution of our board of directors. We may acquire shares of class 3 preferred sharesstock at ¥2,500 per share, in whole or in part, on or after February 18, 2010. The provisions for acquisition of shares of first to fourth series of class 5 and first to fourth series of class 6 preferred sharesstock will be determined by the board of directors at the time of issuance of such preferred shares.stock. When issued, any holder of shares of first to fourth series of class 6 andpreferred stock or first to fourth series of class 7 preferred sharesstock may request acquisition of shares of such preferred sharesstock in exchange for shares of our common stock during the period determined by resolution of the board of directors adopted at the time of issuance of such shares of preferred shares.stock. Any shares of first to fourth series of class 6 preferred sharesstock or first to fourth series of class 7 preferred sharesstock for which no request for acquisition in exchange for shares of our common stock is made during such period will be mandatorily acquired on the day immediately following the last day of such period (the “Mandatory Acquisition Date”) in the number obtained by dividing an amount equivalent to the subscription price per each relevant share of preferred sharestock by the average daily closing price of our common stock as reported by the Tokyo Stock Exchange for the 30 trading days commencing on the 45th trading day prior to the Mandatory Acquisition Date. Any holder of shares of class 8, 11 and 12 preferred sharesstock may request acquisition of shares of the relevant preferred sharesstock in exchange for shares of our common stock during the period as provided for in Attachments 1 through 3the attachment to our Articles of our articlesIncorporation. Any shares of incorporation. Any class 8, 11 and 12 preferred sharesstock for which no request for acquisition in exchange for shares of our common stock is made during such period will be mandatorily acquired on the Mandatory Acquisition Date in the number obtained by dividing an amount equivalent to the subscription price per each relevant share of preferred sharestock by the average daily closing price of our common stock as reported by the Tokyo Stock Exchange for the 30 trading days commencing on the 45th trading day prior to the Mandatory Acquisition Date.
Preferred Dividends
In priority to the payment of dividends to holders of our common stock, the amount of preferred dividends payable each fiscal year for each class of our preferred stock is set forth below.below:
| Ÿ | class 3 preferred stock: ¥60.00 per share as set by the resolution of our board of directors dated January 27, 2005 and amended to reflect the stock split pursuant to our Articles of Incorporation; |
class 3 preferred shares: ¥60 per share as set by the resolution of our board of directors dated January 27, 2005 and amended to reflect the stock split pursuant to our articles of incorporation
| Ÿ | first series of class 5 preferred stock: ¥115.00 per share; |
first to fourth series of class 5 preferred shares: to be set by resolution of our board of directors at the time of issuance, up to a maximum of ¥250 per share
| Ÿ | second to fourth series of class 5 preferred stock: to be set by resolution of our board of directors at the time of issuance, up to a maximum of ¥250.00 per share; |
first to fourth series of class 6 preferred shares: to be set by resolution of our board of directors at the time of issuance, up to a maximum of ¥125 per share
first to fourth series of class 7 preferred shares: to be set by resolution of our board of directors at the time of issuance, up to a maximum of ¥125 per share
| Ÿ | first to fourth series of class 6 preferred stock: to be set by resolution of our board of directors at the time of issuance, up to a maximum of ¥125.00 per share; |
class 8 preferred shares: ¥15.9 per share
| Ÿ | first to fourth series of class 7 preferred stock: to be set by resolution of our board of directors at the time of issuance, up to a maximum of ¥125.00 per share; and |
class 11 preferred shares: ¥5.30 per share
class 12 preferred shares: ¥11.5 per share
| Ÿ | class 11 preferred stock: ¥5.30 per share. |
In the event that our board of directors decides to pay an interim dividend to holders of record of our common stock as of September 30 of any year, we will, in priority to the payment of that interim dividend, pay a preferred interim dividend in the amount specified in our articlesArticles of incorporationIncorporation to holders of record of our preferred stock as of September 30 of the same time.year. The amount of any preferred interim dividend will be deducted from the preferred dividend payable on the relevant class of our preferred stock for the same fiscal year.
No preferred dividend will be paid on any of our preferred stock converted into our common stock for the period from the date following the record date for the preferred dividend or preferred interim dividend last preceding the relevant conversion date to the relevant conversion date, but the common stock issued upon conversion will be entitled to receive any dividend payable to holders of record of common stock upon the next succeeding record date for common stock dividends.
No payment of dividends on our preferred stock or any other shares can be made unless we have a sufficient distributable amount and a resolution to distribute such distributable amount is obtained at the relevant ordinary general meeting of shareholders, in the case of annual preferred dividends, or at the board of directors, in the case of preferred interim dividends.
Dividends on our preferred stock are non-cumulative. If the full amount of any dividend is not declared on our preferred stock in respect of any fiscal year, holders of our preferred stock do not have any right to receive dividends in respect of the deficiency in any subsequent fiscal year, and we will have no obligation to pay the deficiency or to pay any interest regardless of whether or not dividends are paid in respect of any subsequent fiscal year. The holders of our preferred stock are not entitled to any further dividends or other participation in or distribution of our profits.
Liquidation Rights
In the event of our voluntary or involuntary liquidation, record holders of our preferred stock are entitled, equally in rank as among themselves, to receive before any distribution out of our residual assets is made to holders of our common stock, a distribution out of our residual assets of:
¥2,500 per share of class 3 preferred shares,
| Ÿ | ¥2,500 per share of class 3 preferred stock; |
¥2,500 per share of first to fourth series of class 5 preferred shares,
| Ÿ | ¥2,500 per share of first to fourth series of class 5 preferred stock; |
¥2,500 per share of first to fourth series of class 6 preferred shares,
| Ÿ | ¥2,500 per share of first to fourth series of class 6 preferred stock; |
¥2,500 per share of first to fourth series of class 7 preferred shares,
| Ÿ | ¥2,500 per share of first to fourth series of class 7 preferred stock; and |
¥3,000 per share of class 8 preferred shares,
¥1,000 per share of class 11 preferred shares, and
¥1,000 per share of class 12 preferred shares.
| Ÿ | ¥1,000 per share of class 11 preferred stock. |
The holders of our preferred stock are not entitled to any further dividends or other participation in or distribution of our residual assets upon our liquidation.
Voting Rights
No holder of our preferred stock has the right to receive notice of, or to vote at, a general meeting of shareholders, except as otherwise specifically provided under our articlesArticles of incorporationIncorporation or other applicable law. Under our articlesArticles of incorporation,Incorporation, holders of our preferred stock will be entitled to receive notice of, and have one voting right per unit of preferred sharesstock at, our general meetings of shareholders:
from the commencement of our ordinary general meeting of shareholders if an agenda for approval to declare a preferred dividend is not submitted to such meeting; or
| Ÿ | from the commencement of our ordinary general meeting of shareholders if an agenda for approval to declare a preferred dividend is not submitted to such meeting; or |
from the close of any ordinary general meeting of shareholders if a proposed resolution to declare a preferred dividend is not approved at such meeting.
| Ÿ | from the close of any ordinary general meeting of shareholders if a proposed resolution to declare a preferred dividend is not approved at such meeting. |
In each case, holders of our preferred stock will be entitled to receive notice of and vote at the relevant general meetings of shareholders unless and until such time as a resolution of an ordinary general meeting of shareholders declaring a preferred dividend is passed.
American Depositary Shares
The Bank of New York Mellon will issue the American depositary receipts, or ADRs. Each ADR will represent ownership interests in American depositary shares, or ADSs. As a result of the 1,000-for-one stock split that became effective on September 30, 2007, each ADS represents one share of our common stock. Each ADS is held by The Bank of Tokyo-Mitsubishi UFJ, Ltd., or BTMU, acting as custodian, at its principal office in Tokyo, on behalf of The Bank of New York Mellon, acting as depositary. Each ADS will also represent securities, cash or other property deposited with The Bank of New York Mellon but not distributed to ADS holders. The Bank of New York Mellon’s corporate trust office is located at 101 Barclay Street, New York, New York 10286 and its principal executive office is located at One Wall Street, New York, New York 10286. For a detailed discussion of the stock split of our common stock, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”
You may hold ADSs either directly or indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADS holder. This description assumes you hold your ADSs directly. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.
The Bank of New York Mellon will actually be the registered holder of the common stock, so you will have to rely on it to exercise your rights as a shareholder. Our obligations and the obligations of The Bank of New York Mellon are set out in a deposit agreement among us, The Bank of New York Mellon and you, as an ADS holder. The deposit agreement and the ADSs are governed by New York law.
The following is a summary of the material terms of the deposit agreement. Because it is a summary, it does not contain all the information that may be important to you. For more complete information, you should read the entire deposit agreement and the form of ADR.
Share Dividends and Other Distributions
The Bank of New York Mellon has agreed to pay to you the cash dividends or other distributions it or the custodian receives on shares of common stock or other deposited securities, after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.
Cash. The Bank of New York Mellon will convert any cash dividend or other cash distribution we pay on our common stock into US dollars, if it can do so on a reasonable basis and can transfer the US dollars to the United States. If that is not possible or if any approval from the Japanese government is needed and cannot be obtained, the deposit agreement allows The Bank of New York Mellon to distribute the Japanese yen only to
those ADS holders to whom it is possible to do so. The Bank of New York Mellon will hold the Japanese yen it cannot convert for the account of the ADS holders who have not been paid. It will not invest the Japanese yen and it will not be liable for any interest.
Before making a distribution, any withholding taxes that must be paid under Japanese law will be deducted. See “—Taxation—Japanese Taxation.” The Bank of New York Mellon will distribute only whole US dollars and cents and will round fractional cents to the nearest whole cent. If the relevant exchange rates fluctuate during a time when The Bank of New York Mellon cannot convert the Japanese currency, you may lose some or all of the value of the distribution.
Shares. The Bank of New York Mellon may distribute new ADSs representing any shares we may distribute as a dividend or free distribution, if we furnish The Bank of New York Mellon promptly with satisfactory evidence that it is legal to do so. The Bank of New York Mellon will only distribute whole ADSs. It will sell shares which would require it to issue a fractional ADS and distribute the net proceeds in the same way as it distributes cash dividends. If The Bank of New York Mellon does not distribute additional ADSs, each ADS will also represent the new shares.
Rights to receive additional shares. If we offer holders of our common stock any rights to subscribe for additional shares of common stock or any other rights, The Bank of New York Mellon may, after consultation with us, make those rights available to you. We must first instruct The Bank of New York Mellon to do so and furnish it with satisfactory evidence that it is legal to do so. If we do not furnish this evidence and/or do not give these instructions, and The Bank of New York Mellon decides that it is practical to sell the rights, The Bank of New York Mellon will sell the rights and distribute the proceeds in the same way as it distributes cash dividends. The Bank of New York Mellon may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.
If The Bank of New York Mellon makes rights available to you, upon instruction from you it will exercise the rights and purchase the shares on your behalf. The Bank of New York Mellon will then deposit the shares and issue ADSs to you. It will only exercise the rights if you pay it the exercise price and any other charges the rights require you to pay.
US securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after the exercise of the rights. For example, you may not be able to trade the ADSs freely in the United States. In this case, The Bank of New York Mellon may issue the ADSs under a separate restricted deposit agreement which will contain the same provisions as the deposit agreement, except for changes needed to put the restrictions in place. The Bank of New York Mellon will not offer you rights unless those rights and the securities to which the rights relate are either exempt from registration or have been registered under the US Securities Act with respect to a distribution to you. We will have no obligation to register under the Securities Act those rights or the securities to which they relate.
Other distributions. The Bank of New York Mellon will send to you anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, The Bank of New York Mellon has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property.
The Bank of New York Mellon is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us or The Bank of New York Mellon to make them available to you.
Deposit, Withdrawal and Cancellation
The Bank of New York Mellon will issue ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as
stamp taxes or stock transfer taxes or fees, The Bank of New York Mellon will register the appropriate number of ADSs in the names you request and will deliver the ADSs at its corporate trust office to the persons you request.
In certain circumstances, subject to the provisions of the deposit agreement, The Bank of New York Mellon may issue ADSs before the deposit of the underlying shares. This is called a pre-release of ADSs. A pre-release is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive ADSs instead of the shares to close out a pre-release. The depositary may pre-release ADSs only on the following conditions:
Before or at the time of the pre-release, the person to whom the pre-release is made must represent to the depositary in writing that it or its customer, as the case may be, owns the shares to be deposited;
| Ÿ | Before or at the time of the pre-release, the person to whom the pre-release is made must represent to the depositary in writing that it or its customer, as the case may be, owns the shares to be deposited; |
The pre-release must be fully collateralized with cash or collateral that the depositary considers appropriate;
| Ÿ | The pre-release must be fully collateralized with cash or collateral that the depositary considers appropriate; and |
The depositary must be able to close out the pre-release on not more than five business days’ notice.
| Ÿ | The depositary must be able to close out the pre-release on not more than five business days’ notice. |
The pre-release will be subject to whatever indemnities and credit regulations that the depositary considers appropriate. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of a pre-release.
You may turn in your ADSs at the Corporate Trust Office of The Bank of New York Mellon’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New York Mellon will deliver (1) the underlying shares to an account designated by you and (2) any other deposited securities underlying the ADS at the office of the custodian. Or, at your request, risk and expense, The Bank of New York Mellon will deliver the deposited securities at its Corporate Trust Office.
As a result of the stock split and the adoption of the unit share system on September 30, 2007, the ADSs may only be presented for cancellation and release of the underlying shares of common stock or other deposited securities in multiples of 100 ADSs. Holders of ADRs evidencing less than 100 ADSs are not be entitled to delivery of any underlying shares or other deposited securities unless ADRs, together with other ADRs presented by the same holder at the same time, represent in the aggregate at least 100 ADSs. If any ADSs are surrendered but not cancelled pursuant to the preceding sentence, The Bank of New York Mellon will execute and deliver an ADR or ADRs evidencing the balance of ADSs not so cancelled to the person or persons surrendering the same.
Voting Rights
If you are an ADS holder on a record date fixed by The Bank of New York Mellon, you may instruct The Bank of New York Mellon to vote the shares underlying your ADSs at a meeting of our shareholders in accordance with the procedures set forth in the deposit agreement.
The Bank of New York Mellon will notify you of the upcoming meeting and arrange to deliver our voting materials to you. The notice shall contain (a) such information as is contained in such notice of meeting, (b) a statement that as of the close of business on a specified record date you will be entitled, subject to any applicable provision of Japanese law and our Articles of Incorporation, to instruct The Bank of New York Mellon as to the exercise of the voting rights, if any, pertaining to the amount of shares or other deposited securities represented by your ADSs, and (c) a brief statement as to the manner in which such instructions may be given, including an express indication that instructions may be given to The Bank of New York Mellon to give a discretionary proxy to a person designated by us. Upon your written request, received on or before the date established by The Bank of New York Mellon for such purpose, The Bank of New York Mellon shall endeavor in so far as practicable to
vote or cause to be voted the amount of shares or other deposited securities represented by your ADSs in accordance with the instructions set forth in your request. So long as Japanese law provides that votes may only be cast with respect to one or more whole shares or other deposited securities, The Bank of New York Mellon will aggregate voting instructions to the extent such instructions are the same and vote such whole shares or other
deposited securities in accordance with your instructions. If, after aggregation of all instructions to vote received by The Bank of New York Mellon, any portion of the aggregated instructions constitutes instructions with respect to less than a whole share or other deposited securities, The Bank of New York Mellon will not vote or cause to be voted the shares or other deposited securities to which such portion of the instructions apply. The Bank of New York Mellon will not vote or attempt to exercise the right to vote that attaches to the shares or other deposited securities, other than in accordance with the instructions of the ADS holders. If no instructions are received by The Bank of New York Mellon from you with respect to any of the deposited securities represented by your ADSs on or before the date established by The Bank of New York Mellon for such purpose, The Bank of New York Mellon shall deem you to have instructed The Bank of New York Mellon to give a discretionary proxy to a person designated by us with respect to such deposited securities and The Bank of New York Mellon shall give a discretionary proxy to a person designated by us to vote such deposited securities, provided that no such instruction shall be given with respect to any matter as to which we inform The Bank of New York Mellon (and we have agreed to provide such information as promptly as practicable in writing) that (1) we do not wish such proxy given, (2) substantial opposition exists or (3) such matter materially and adversely affects the rights of holders of shares.
We cannot assure you that you will receive the voting materials in time to ensure that you can instruct The Bank of New York Mellon to vote your shares. In addition, The Bank of New York Mellon is not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions as long as it has acted in good faith. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested.
Fees and Expenses
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See “Item 12.D. Description of Securities Other than Equity Securities—American Depositary Shares.”
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities underlying your ADSs. The Bank of New York Mellon may refuse to transfer your ADSs or allow you to withdraw the deposited securities underlying your ADSs until those taxes or other charges are paid. It may apply payments owed to you or sell deposited securities underlying your ADSs to pay any taxes owed and you will remain liable for any deficiency. If it sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to you any property remaining after it has paid the taxes.
Reclassifications, Recapitalizations and Mergers
If we:
reclassify, split up or consolidate any of our shares or the deposited securities,
| Ÿ | reclassify, split up or consolidate any of our shares or the deposited securities; |
recapitalize, reorganize, merge, liquidate, consolidate or sell all or substantially all of our assets or take any similar action, or
| Ÿ | recapitalize, reorganize, merge, liquidate, consolidate or sell all or substantially all of our assets or take any similar action; or |
distribute securities on the shares that are not distributed to you,
| Ÿ | distribute securities on the shares that are not distributed to you, then, |
| (1) | the cash, shares or other securities received by The Bank of New York Mellon will become deposited securities and each ADS will automatically represent its equal share of the new deposited securities unless additional ADSs are issued; and |
| (2) | The Bank of New York Mellon may, and will if we request, issue new ADSs or ask you to surrender your outstanding ADSs in exchange for new ADSs, identifying the new deposited securities. |
Amendment and Termination
We may agree with The Bank of New York Mellon to amend the deposit agreement and the ADSs without your consent for any reason. If the amendment adds or increases fees or charges, except for taxes and other governmental charges, registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses, or prejudices an important right of ADS holders, it will only become effective three months after The Bank of New York Mellon notifies you of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADS, to agree to the amendment and to be bound by the ADSs and the deposit agreement as amended. However, no amendment will impair your right to receive the deposited securities in exchange for your ADSs.
The Bank of New York Mellon will terminate the deposit agreement if we ask it to do so, in which case it must notify you at least 30 days before termination. The Bank of New York Mellon may also terminate the deposit agreement if The Bank of New York Mellon has told us that it would like to resign and we have not appointed a new depositary bank within 60 days.
If any ADSs remain outstanding after termination, The Bank of New York Mellon will stop registering the transfers of ADSs, will stop distributing dividends to ADS holders and will not give any further notices or do anything else under the deposit agreement other than:
| (1) | collect dividends and distributions on the deposited |
| (2) | sell rights and other property offered to holders of deposited |
| (3) | deliver shares and other deposited securities in exchange for ADSs surrendered to The Bank of New York Mellon. |
At any time after one year following termination, The Bank of New York Mellon may sell any remaining deposited securities. After that, The Bank of New York Mellon will hold the money it received on the sale, as
well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADS holders that have not surrendered their ADSs. It will not invest the money and has no liability for interest. The Bank of New York Mellon’s only obligations will be to account for the money and other cash and with respect to indemnification and to retain depositary documents. After termination, our only obligations will be with respect to indemnification and to pay certain amounts to The Bank of New York Mellon.
Limitations on Obligations and Liability to ADS Holders
The deposit agreement expressly limits our obligations and the obligations of The Bank of New York Mellon. It also limits our liability and the liability of The Bank of New York Mellon. We and The Bank of New York Mellon:
are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
| Ÿ | are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith; |
are not liable if either is prevented or delayed by law, any provision of our Articles of Incorporation or circumstances beyond their control from performing their obligations under the deposit agreement;
| Ÿ | are not liable if either is prevented or delayed by law, any provision of our Articles of Incorporation or circumstances beyond their control from performing their obligations under the deposit agreement; |
are not liable if either exercises or fails to exercise discretion permitted under the deposit agreement;
| Ÿ | are not liable if either exercises or fails to exercise discretion permitted under the deposit agreement; |
have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other party unless indemnified to their satisfaction; and
| Ÿ | have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other party unless indemnified to their satisfaction; and |
| Ÿ | may rely upon any advice of or information from legal counsel, accountants, any person depositing shares, any ADS holder or any other person believed in good faith to be competent to give them that advice or information. |
may rely upon any advice of or information from legal counsel, accountants, any person depositing shares, any ADS holder or any other person believed in good faith to be competent to give them that advice or information.
In the deposit agreement, we and The Bank of New York Mellon agree to indemnify each other for liabilities arising out of acts performed or omitted by the other party in accordance with the deposit agreement.
Requirements for Depositary Actions
Before The Bank of New York Mellon will issue or register transfer of an ADS, make a distribution on an ADS, or permit withdrawal of shares, it may require:
payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities,
| Ÿ | payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities; |
production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary, and
| Ÿ | production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and |
compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.
| Ÿ | compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents. |
The Bank of New York Mellon may refuse to deliver, transfer, or register transfers of ADSs generally when its transfer books are closed, when our transfer books are closed or at any time if it or we think it advisable to do so.
You have the right to cancel your ADSs and withdraw the underlying shares at any time except:
when temporary delays arise because: (1) The Bank of New York Mellon has closed its transfer books or we have closed our transfer books; (2) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on the shares;
| Ÿ | when temporary delays arise because: (1) The Bank of New York Mellon has closed its transfer books or we have closed our transfer books; (2) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on the shares; |
when you or other ADS holders seeking to withdraw shares owe money to pay fees, taxes and similar charges; or
| Ÿ | when you or other ADS holders seeking to withdraw shares owe money to pay fees, taxes and similar charges; or |
when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities.
| Ÿ | when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities. |
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Reports and Other Communications
The Bank of New York Mellon will make available for your inspection at its corporate trust office any reports and communications, including any proxy soliciting material, that it receives from us, if those reports and communications are both (a) received by The Bank of New York Mellon as the holder of the deposited securities and (b) made generally available by us to the holders of the deposited securities. If we ask it to, The Bank of New York Mellon will also send you copies of those reports it receives from us.
Inspection of Transfer Books
The Bank of New York Mellon will keep books for the registration and transfer of ADSs, which will be open for your inspection at all reasonable times. You will only have the right to inspect those books if the inspection is for the purpose of communicating with other owners of ADSs in connection with our business or a matter related to the deposit agreement or the ADSs.
C. Material Contracts
| C. | Material Contracts |
Except as described elsewhere in this Annual Report, all material contracts entered into by us in the past two years preceding the filing of this Annual Report were entered into in the ordinary course of business.
D. Exchange Controls
| D. | Exchange Controls |
Foreign Exchange and Foreign Trade Law
The Foreign Exchange and Foreign Trade Law of Japan and the cabinet orders and ministerial ordinances incidental thereto, collectively known as the Foreign Exchange Law, set forth, among other matters, the regulations relating to the receipt by non-residents of Japan of payment with respect to shares to be issued by us and the acquisition and holding of shares by non-residents of Japan and foreign investors, both as defined below. It also applies in some cases to the acquisition and holding of our shares or ADSs representing such shares acquired and held by non-residents of Japan and by foreign investors. Generally, the Foreign Exchange Law currently in effect does not affect the right of a non-resident of Japan to purchase or sell an ADR outside Japan for non-Japanese currency.
“Non-residents of Japan” are defined as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Generally, the branches and offices of non-resident corporations which are located in Japan are regarded as residents of Japan while the branches and offices of Japanese corporations located outside Japan are regarded as non-residents of Japan.
“Foreign investors” are defined as:
individuals not resident in Japan;
| Ÿ | non resident individuals; |
corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan;
| Ÿ | corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan; |
corporations of which 50% or more of the shares are directly or indirectly held by individuals not resident of Japan and corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan; and
| Ÿ | corporations of which 50% or more of the shares are directly or indirectly held by individuals not resident of Japan and corporations which are organized under the laws of foreign countries or whose principal offices are located outside Japan; and |
corporations, a majority of officers (or a majority of officers having the power of representation) of which are non-resident individuals.
| Ÿ | corporations, a majority of officers (or a majority of officers having the power of representation) of which are non-resident individuals. |
Dividends and Proceeds of Sales
Under the Foreign Exchange Law, dividends paid on, and the proceeds of sales in Japan of, shares held by non-residents of Japan may in general be converted into any foreign currency and repatriated abroad. The acquisition of our shares by non-residents by way of a stock split is not subject to any notification or reporting requirements.
Acquisition of Shares
In general, a non-resident who acquires shares from a resident of Japan is not subject to any prior filing requirement, although the Foreign Exchange Law empowers the Minister of Finance of Japan to require a prior approval for any such acquisition in certain limited circumstances.
If a foreign investor acquires our shares, and, together with parties who have a special relationship with that foreign investor, holds 10% or more of our issued shares as a result of such acquisition, the foreign investor must file a report of such acquisition with the Minister of Finance and any other competent Minister within 15 days from and includingby the fifteenth day of the month immediately following the month to which the date of such acquisition.acquisition belongs. In certain limited circumstances, however, a prior notification of such acquisition must be filed with the Minister of Finance and any other competent Minister, who may modify or prohibit the proposed acquisition.
Deposit and Withdrawal under American Depositary Facility
The deposit of shares with us, in our capacity as custodian and agent for the depositary, in Tokyo, the issuance of ADSs by the depositary to a non-resident of Japan in respect of the deposit and the withdrawal of the underlying shares upon the surrender of the ADSs are not subject to any of the formalities or restrictions referred
to above. However, where as a result of a deposit or withdrawal the aggregate number of shares held by the depositary, including shares deposited with us as custodian for the depositary, or the holder surrendering ADSs, as the case may be, would be 10% or more of the total outstanding shares, a report will be required, and in specified circumstances, a prior notification may be required, as noted above.
Reporting of Substantial Shareholdings
The Financial Instruments and Exchange Law of Japan requires any person who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of capital stock of a company listed on any Japanese financial instruments exchange or whose shares are traded on the over-the-counter market in Japan to file with the director of a competent finance bureau within 5 business days a report concerning such shareholdings.
A similar report must also be filed in respect of any subsequent change of 1% or more in any such holding ratio or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shareshares issuable to such person upon exchange of exchangeable securities, conversion of convertible securities or exercise of share subscription warrants or stock acquisition rights (including those incorporated in bonds with stock acquisition rights) are taken into account in determining both the number of shares held by such holder and the issuer’s total issued shares of capital stock. Copies of such report must also be furnished to the issuer of such shares and all Japanese financial instruments exchanges on which the shares are listed or (in the case of shares traded over-the-counter) the Japan Securities Dealers Association.
E. Taxation
| E. | Taxation |
Japanese Taxation
The following sets forth the material Japanese tax consequences to owners of shares of our common stock or ADSs who are non-resident individuals or non-Japanese corporations without a permanent establishment in Japan to which the relevant income is attributable, which we refer to as “non-resident holders” in this section. The statements regarding Japanese tax laws below are based on the laws in force and as interpreted by the Japanese taxation authorities as at the date of this Annual Report and are subject to changes in the applicable Japanese laws, double taxation treaties, conventions or agreements or interpretations thereof occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor, and potential investors are advised to satisfy themselves as to the overall tax consequences of the acquisition, ownership and disposition of shares of our common stock or ADSs, including specifically the tax consequences under Japanese law, the laws of the jurisdiction of which they are resident and any tax treaty between Japan and their country of residence, by consulting their own tax advisers.
For the purpose of Japanese tax law and the Tax Convention (as defined below), a US holder of ADSs will be treated as the owner of the shares of our common stock underlying the ADSs evidenced by the ADRs.
Generally, a non-resident holder of shares of our common stock or ADSs is subject to Japanese withholding tax on dividends paid by us. In the absence of any applicable tax treaty, convention or agreement reducing the maximum rate of withholding tax, the rate of Japanese withholding tax applicable to dividends paid by us to non-resident holders is 7% for dividends to be paid on or before MarchDecember 31, 20092011 pursuant to Japanese tax law. After such date, the maximum withholding rate for US holders (as defined below), which is generally set at 10% of the gross amount distributed, shall be applicable pursuant to the Tax Convention (as defined below).
On March 30, 2004, the Convention between the Government of the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “Tax Convention”), has becomebecame effective to replace its predecessor, which was signed on March 8, 1971 (the “Prior Treaty”). The Tax Convention establishes the maximum rate of Japanese withholding tax which may be imposed on dividends paid to a US resident not having a permanent establishment in Japan. Under the Tax Convention, the maximum withholding rate for US holders (as defined below) is generally set at 10% of the gross amount
distributed. However, the maximum rate is 5% of the gross amount distributed if the recipient is a corporation and owns directly or indirectly, on the date on which entitlement to the dividends is determined, at least 10% of the voting shares of the paying corporation. Furthermore, the amount distributed shall not be taxed if the recipient is (i) a pension fund which is a US resident, provided that such dividends are not derived from the carrying on of a business, directly or indirectly, by such pension fund or (ii) a parent company with a controlling interest in the paying company and satisfies certain other requirements. US holders (as defined below) are urged to consult their own tax advisors with respect to their eligibility for benefits under the Prior Treaty and the Tax Convention.
Japanese tax law provides in general that if the Japanese statutory rate is lower than the maximum rate applicable under tax treaties, conventions or agreements, the Japanese statutory rate shall be applicable. The rate of Japanese withholding tax applicable to dividends paid by us to non-resident holders is 7% for dividends to be paid on or before MarchDecember 31, 20092011 and 15% thereafter, except for dividends paid to any individual non-resident holder who holds 5% or more of our issued shares for which the applicable rate is 20%.
Non-resident holders of shares who are entitled to a reduced rate of Japanese withholding tax on payments of dividends on the shares of our common stock or ADSs by us are required to submit an Application Form for the Income Tax Convention regarding Relief from Japanese Income Tax on Dividends in advance through us to the relevant tax authority before the payment of dividends. A standing proxy for non-resident holders may provide this application service for the non-resident holders. Non-resident holders who do not submit an application in advance will generally be entitled to claim a refund from the relevant Japanese tax authority of withholding taxes withheld in excess of the rate of an applicable tax treaty.
Gains derived from the sale or other disposition of shares of our common stock or ADSs within or outside Japan by a non-resident holder are not, in general, subject to Japanese income or corporation taxes or other Japanese taxes.
Any deposits or withdrawals of shares of our common stock by a non-resident holder in exchange for ADSs are not subject to Japanese income or corporation tax.
Japanese inheritance and gift taxes, at progressive rates, may be payable by an individual who has acquired shares of our common stock or ADSs as legatee, heir or donee, even if none of the individual, the decedent or the donor is a Japanese resident.
US Taxation
The following sets forth the material US federal income tax consequences of the ownership of shares and ADSs by a US holder, as defined below. This summary is based on US federal income tax laws, including the US
Internal Revenue Code of 1986, or the Code, its legislative history, existing and proposed Treasury regulations thereunder, published rulings and court decisions, and on the Convention between the United States of America and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, or the Tax Convention (as defined above), all of which are subject to change, possibly with retroactive effect.
The following summary is not a complete analysis or description of all potential US federal income tax consequences to a particular US holder. It does not address all US federal income tax considerations that may be relevant to all categories of potential purchasers, certain of which (such as banks or other financial institutions, insurance companies, dealers in securities, tax-exempt entities, non-US persons, persons holding a share or an ADS as part of a “straddle,” “hedge,” conversion or integrated transaction, holders whose “functional currency” is not the US dollar, holders liable for alternative minimum tax and holders of 10% or more of our voting shares) are subject to special tax treatment. This summary does not address any foreign, state, local or other tax consequences of investments in our shares or ADSs.
This summary addresses only shares or ADSs that are held as capital assets within the meaning of Section 1221 of the Code.
As used herein, a “US holder” is a beneficial owner of shares or ADSs, as the case may be, that is, for US federal income tax purposes:
a citizen or resident of the US,
| Ÿ | a citizen or resident of the United States; |
a corporation or other entity taxable as a corporation created or organized under the laws of the US or any political subdivision thereof,
| Ÿ | a corporation or other entity taxable as a corporation created or organized under the laws of the United States or any political subdivision thereof; |
an estate, the income of which is subject to US federal income tax regardless of its source, or
| Ÿ | an estate, the income of which is subject to US federal income tax regardless of its source; or |
a trust
| Ÿ | a trust |
the administration of which is subject to (1) the supervision of a court within the US and (2) the control of one or more US persons as described in Section 7701(a)(30) of the Code; or
| Ÿ | the administration of which is subject to (1) the supervision of a court within the United States and (2) the control of one or more US persons as described in Section 7701(a)(30) of the Code; or |
that has a valid election in effect under applicable US Treasury regulations to be treated as a US person.
| Ÿ | that has a valid election in effect under applicable US Treasury regulations to be treated as a US person. |
A “Non-US holder” is any beneficial holder of shares or ADSs that is not a US holder.
If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares or ADSs, you should consult your tax advisor.
We urge US holders to consult their own tax advisors concerning the US federal, state and local and other tax consequences to them of the purchase, ownership and disposition of shares or ADSs.
This summary is based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with their respective terms. For US federal income tax purposes, holders of ADSs will be treated as the owners of the shares represented by the ADSs. Accordingly, withdrawals or deposits of shares in exchange for ADSs generally will not be subject to US federal income tax.
The US Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the beneficial ownership of the underlying shares (for example, pre-releasing ADSs to persons who do not have beneficial ownership of the securities underlying the ADSs). Accordingly, the discussion on the creditability of Japanese taxes and the availability of the reduced rate of tax for dividends received by certain non-corporate US holders, each as described below, could be affected by actions taken by intermediaries in the chain of ownership
between the holder of ADSs and MUFG if, as a result of such actions, the holders of ADSs andare not properly treated as beneficial owners of the underlying shares. We are not aware of any intention to take any such actions, and accordingly, the remainder of this discussion assumes that holders of ADSs will be properly treated as beneficial owners of the underlying shares.
Special adverse US federal income tax rules apply if a US holder holds shares or ADSs of a company that is treated as a “passive foreign investment company” (a “PFIC”) for any taxable year during which the US holder held shares or ADSs. Based upon proposed Treasury regulations and upon certain management estimates, we do not expect MUFG to be a PFIC for US federal income tax purposesADSs, as discussed in the current year or in future years. However, there can be no assurance that the described proposed regulations will be finalized in their current form, and the determination of whether MUFG is a PFIC is based upon, among other things, the composition of our income and assets and the value of our assets from time to time.more detail below. US holders should consult their own tax advisors as to the potential application of the PFIC rules to their ownership and disposition of shares or ADSs. This discussion assumes that we are not, and will not become, a PFIC.
Taxation of Dividends
Subject to the application of the PFIC rules discussed below, US holders will include the gross amount of any distribution received with respect to shares or ADSs (before reduction for Japanese withholding taxes), to the extent paid out of the current or accumulated earnings and profits (as determined for US federal income tax purposes) of MUFG, as ordinary income in their gross income. As discussed below, for certain US holders, dividends may be eligible for a reduced rate of taxation. The amount of distribution of property other than cash will be the fair market value of such property on the date of the distribution. Dividends received by a US holder will not be eligible for the “dividends-received
“dividends-received deduction” allowed to US corporations in respect of dividends received from other US corporations. To the extent that an amount received by a US holder exceeds such holder’s allocable share of our current earnings and profits, such excess will be applied first to reduce such holder’s tax basis in its shares or ADSs, thereby increasing the amount of gain or decreasing the amount of loss recognized on a subsequent disposition of the shares or ADSs. Then, to the extent such distribution exceeds such US holder’s tax basis, such excess will be treated as capital gain. However, MUFG does not maintain calculations of its earnings and profits in accordance with US federal income tax principles, and US holders should therefore assume that any distribution by MUFG with respect to shares or ADSs will constitute ordinary dividend income. The amount of the dividend will be the US dollar value of the Japanese yen payments received. This value will be determined at the spot Japanese yen/US dollar rate on the date the dividend is received by the depositary in the case of US holders of ADSs, or by the shareholder in the case of US holders of shares, regardless of whether the dividend payment is in fact converted into US dollars at that time. If the Japanese yen received as a dividend are not converted into US dollars on the date of receipt, a US holder will have basis in such Japanese yen equal to their US dollar value on the date of receipt, and any foreign currency gains or losses resulting from the conversion of the Japanese yen will generally be treated as US source ordinary income or loss. If the Japanese yen received as a dividend are converted into US dollars on the date of receipt, a US holder will generally not be required to recognize foreign currency gain or loss in respect of the dividend income.
If a US holder is eligible for benefits under the Tax Convention, the holder may be able to claim a reduced rate of Japanese withholding tax. All US holders should consult their tax advisors about their eligibility for reduction of Japanese withholding tax. A US holder may claim a deduction or a foreign tax credit, subject to other applicable limitations, only for tax withheld at the appropriate rate. A US holder should not be allowed a foreign tax credit for withholding tax for any portion of the tax that could have been avoided by claiming benefits under the Tax Convention. For foreign tax credit limitation purposes, the dividend will be income from sources outside the United States. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay will constitute “passive income” or, in the case of certain US holders, “financial services income.” The rules governing US foreign tax credits are very complex and US holders should consult their tax advisors regarding the availability of foreign tax credits under their particular circumstances.
The JobsSubject to applicable exceptions with respect to short-term and Growth Tax Relief Reconciliation Act of 2003, or the Act, affects the taxation of dividends. Qualifiedhedged positions, qualified dividends received by non-corporate US holders prior to January 1, 2011 from a qualified corporation may be eligible for reduced rates of taxation. Qualified corporations include those foreign corporations eligible for the benefits of a comprehensive income tax treaty with the United States that the US Treasury Department
determines to be satisfactory for these purposes and that includes an exchange of information provision. The Tax Convention meets these requirements. We believe that MUFG is a qualified foreign corporation and that dividends received by US investors with respect to shares or ADSs of MUFG will be qualified dividends. Dividends received by US investors from a foreign corporation that was a PFIC in either the taxable year of the distribution or the preceding taxable year are not qualified dividends. We
Passive Foreign Investment Company Considerations
Special adverse US federal income tax rules apply if a US holder holds shares or ADSs of a company that is treated as a PFIC, for any taxable year during which the US holder held shares or ADSs. A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income is passive income, or (ii) 50% or more of the average fair market value of its assets (determined quarterly) is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties, rents and certain gains from the sale of stock and securities. If a foreign corporation owns at least 25% (by value) of the stock of another corporation, the corporation will be treated, for purposes of the PFIC tests, as owning a proportionate share of the other corporation’s assets and receiving its proportionate share of the other corporation’s income. The determination of whether a foreign corporation is a PFIC is made annually.
Proposed Treasury regulations convert what would otherwise be passive income into non-passive income when such income is banking income earned by an active bank. Based upon these proposed Treasury regulations and upon certain management estimates and assumptions, we do not believe that we were a PFIC for the year
ending March 31, 2010 and do not expect to be a PFIC in the current or future years. However, there can be no assurance that the described proposed Treasury regulations will be finalized in their current form and the application of the proposed Treasury regulations is not clear. Moreover, the determination of whether MUFG is a qualified foreign corporationPFIC is based upon, among other things, the composition of our income and assets and the value of our assets from time to time and is made annually. Accordingly, it is possible that dividends received byMUFG may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. In addition, a decrease in the price of our shares may also result in MUFG becoming a PFIC. If MUFG were classified as a PFIC in any year during which a US investorsholder owns shares or ADSs and the US holder does not make a “mark-to-market” election, as discussed below, MUFG generally would continue to be treated as a PFIC as to such US holder in all succeeding years, regardless of whether MUFG continues to meet the income or asset test discussed above.
If MUFG were classified as a PFIC for any taxable year during which a US holder holds our shares or ADSs, the US holder would generally not receive capital gains treatment upon the sale of the shares or ADSs and would be subject to increased tax liability (generally including an interest charge) upon the sale or other disposition of the shares or ADSs or upon the receipt of certain distributions treated as “excess distributions,” unless the US holder makes the mark-to-market election described below. An excess distribution generally would be any distribution to a US holder with respect to shares or ADSs during a single taxable year that is greater than 125% of the average annual distributions received by a US holder with respect to shares or ADSs during the three preceding taxable years or, if shorter, during the US holder’s holding period for the shares or ADSs.
Mark-to-Market Election. If the shares or ADSs are regularly traded on a registered national securities exchange or certain other exchanges or markets, then such shares or ADSs would constitute “marketable stock” for purposes of the PFIC rules, and a US holder would not be subject to the foregoing PFIC rules if such holder made a mark-to-market election. After making such an election, the US holder generally would include as ordinary income each year during which the election is in effect and during which MUFG is a PFIC the excess, if any, of the fair market value of MUFG shares or ADSs at the end of the taxable year over such holder’s adjusted basis in such shares or ADSs. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. A US holder also would be allowed to take an ordinary loss in respect of the excess, if any, of the holder’s adjusted basis in MUFG shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of income that was previously included as a result of the mark-to-market election). A US holder’s tax basis in MUFG shares or ADSs would be adjusted to reflect any income or loss amounts resulting from a mark-to-market election. If made, a mark-to-market election would be effective for the taxable year for which the election was made and for all subsequent taxable years unless the shares or ADSs cease to qualify as “marketable stock” for purposes of the PFIC rules or the Internal Revenue Service consented to the revocation of the election. In the event that MUFG is classified as a PFIC, US holders are urged to consult their tax advisors regarding the availability of the mark-to-market election, and whether the election would be advisable in the holder’s particular circumstances.
QEF Election. The PFIC rules outlined above also would not apply to a US holder if such holder alternatively elected to treat MUFG as a “qualified electing fund” or “QEF”. An election to treat MUFG as a QEF will not be qualified dividends. Noteavailable, however, if MUFG does not provide the information necessary to make such an election. MUFG will not provide US holders with the information necessary to make a QEF election, and thus, the QEF election will not be available with respect to our shares.
Notwithstanding any election made with respect to MUFG shares, dividends received with respect to MUFG shares will not constitute “qualified dividend income” if MUFG is a PFIC in either the year of the distribution or the preceding taxable year. Dividends that these provisions do not affectconstitute qualified dividend income are not eligible for taxation at the reduced tax rate described above in “—Taxation of Dividends.” Instead, such dividends would be subject to tax at ordinary income rates.
If a US holder owns shares or ADSs during any year in which MUFG is a PFIC, the US holder must also file IRS Form 8621 regarding distributions received on the shares or ADSs, any gain realized on the shares or
ADSs, and any “reportable election” in accordance with the instructions to such form. In addition, under recently enacted legislation, each US shareholder of a PFIC is required to file such annual information as is specified by Non-US holders.the U.S. Treasury Department, which has not yet enacted regulations or other authority specifying what information must be filed. US holders are urged to consult their own tax advisors concerning the U.S. federal income tax consequences of holding Offered Shares if the Company were considered a PFIC in any taxable year.
Taxation of Capital Gains
UponSubject to the application of the PFIC rules discussed above, upon a sale or other disposition of shares or ADSs, a US holder will recognize a gain or loss in an amount equal to the difference between the US dollar value of the amount realized and the US holder’s tax basis, determined in US dollars, in such shares or ADSs. Such gaingains or losslosses will be capital gaingains or losslosses and will be long-term capital gaingains or losslosses if the US holder’s holding period for such shares or ADSs exceeds one year. A US holder’s adjusted tax basis in its shares or ADSs will generally be the cost to the holder of such shares or ADSs. Any such gaingains or losslosses realized by a US holder upon disposal of the shares or ADSs will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations under the Code.
Information Reporting and Backup Withholding
Dividends paid on shares or ADSs to a US holder, or proceeds from a US holder’s sale or other disposition of shares or ADSs, may be subject to information reporting requirements. Those dividends or proceeds from sale or disposition may also be subject to backup withholding unless the US holder:
is a corporation or other exempt recipient, and, when required, demonstrates this fact, or
| Ÿ | is a corporation or other exempt recipient, and, when required, demonstrates this fact; or |
provides a correct taxpayer identification number on a properly completed US Internal Revenue Service Form W-9 or substitute form, certifies that the US holder is not subject to backup withholding, and otherwise complies with applicable requirements of the backup withholding rules.
| Ÿ | provides a correct taxpayer identification number on a properly completed US Internal Revenue Service Form W-9 or substitute form, certifies that the US holder is not subject to backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. |
Backup withholding is not an additional tax. Any amount withheld under these rules will be creditable against the US holder’s US federal income tax liability or refundable to the extent that it exceeds such liability if the US holder provides the required information to the Internal Revenue Service. If a US holder is required to and does not provide a correct taxpayer identification number, the US holder may be subject to penalties imposed by the Internal Revenue Service. All holders should consult their tax advisors as to their qualification for the exemption from backup withholding and the procedure for obtaining an exemption.
F. DividendsIn addition, for taxable years beginning after March 18, 2010, new legislation requires certain U.S. holders who are individuals that hold certain foreign financial assets (which may include our shares or ADSs) to report information relating to such assets, subject to certain exceptions. U.S. Holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and Paying Agentsdisposition of our shares and ADSs.
| F. | Dividends and Paying Agents |
Not applicable.
G. Statement by Experts
| G. | Statement by Experts |
Not applicable.
H. Documents on Display
| H. | Documents on Display |
We file periodic reports and other information with the SEC. You may read and copy any document that we file with the SEC at the SEC’s public reference room at 100 F Street, N.E.,NE, Washington, D.C.DC 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of its public reference rooms. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC (http://www.sec.gov). You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 11 Wall Street, New York, New York 10005. Some of this information may also be found on our website at http://www.mufg.jp.
I. Subsidiary Information
| I. | Subsidiary Information |
Please refer to discussion under “Item 4.C. Information on the Company—Organizational Structure.”
| Item 11. | Quantitative and Qualitative Disclosures about Credit, Market and Other Risk. |
Numerous changes in our business environment have occurred as a result of deregulation and globalization of the financial industry, and the advancement of information technology.technology and changes in economic conditions. We aim to be a global and comprehensive financial group encompassing leading commercial and trust banks, and securities firms in Japan. Risk management plays an increasingly important role as the risks faced by financial groups such as us increase in scope and variety.
We identify various risks arising from businesses based on uniform criteria, and implement integrated risk management to ensure a stronger financial condition and to maximize shareholder value. Based on this policy, we identify, measure, control and monitor a wide variety of risks so as to achieve a stable balance between earnings and risks. We undertake risk management to create an appropriate capital structure and to achieve optimal allocation of resources.
Risk Classification
At the holding company level, we broadly classify and define risk categories faced by the Group including those that are summarized below. Group companies perform more detailed risk management based on their respective operations.
Type of Risk | Definition | |
Credit Risk | The risk of financial loss in credit assets (including off-balance sheet instruments) caused by deterioration in the credit conditions of counterparties. This category includes country risk. | |
Market Risk | Market risk is the risk of financial loss where the value of our assets and liabilities could be adversely affected by changes in market variables such as interest rates, securities prices and foreign exchange rates. Market liquidity risk is the risk of financial loss caused by the inability to secure market transactions at the required volume or price levels as a result of market turbulence or lack of trading liquidity. | |
Liquidity Risk | The risk of incurring loss if a poor financial position at a group company hampers the ability to meet funding requirements or necessitates fund procurement at interest rates markedly higher than normal. | |
Operational Risk | The risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. | |
| The risk of incurring loss that might be caused by negligence of correct operational processing, or by incidents or misconduct by either officers or staff, as well as risks similar to this risk. | |
| The risk of loss caused by loss, alteration, falsification or leakage of information, or by destruction, disruption, errors or misuse of information systems, as well as risks similar to this risk. | |
| The risk of loss due to deterioration in reputation as a consequence of the spread of rumors among customers or in the market, or as a consequence of inadequate response to the circumstance by MUFG, as well as risks similar to this risk. | |
Risk Management System
We have adopted an integrated risk management system and promotesto promote close cooperation among the holding company and group companies. The holding company and the major subsidiaries (which include The Bank of Tokyo-Mitsubishi UFJ, Ltd., or BTMU, Mitsubishi UFJ Trust and Banking Corporation, or MUTB, and Mitsubishi UFJ Securities Holdings Co., Ltd., or MUS)MUSHD) each appoint a Chief Risk Management OfficersOfficer and establish an independent risk management divisions.division. At the Risk Management Committees, our management members discuss and dynamically manage various types of risks from both qualitative and quantitative perspectives. The board of directors determines risk management policies for various types of risk based on the discussions held by these committees.
The holding company seeks to enhance group-wide risk identification, to integrate and improve the Group’s risk management system and related methods, to maintain asset quality, and to eliminate concentrations of specific risks. Group-wide risk management policy is determined at the holding company level and each group company implements and improves its own risk management system based on this policy.
Business Continuity Management
Based on a clear critical response rationale and associated decision-making criteria, we have developed systems to ensure that operations are not interrupted or can be restored to normal quickly in the event of a natural disaster or system failure so as to minimize any disruption to customers and markets. A crisis management team within the holding company is the central coordinating body in the event of any emergency. Based on information collected from crisis management personnel at the major subsidiaries, this central body would assess the overall impact of a crisis on the Group’s business and establish task forces that could implement all countermeasures to restore full operations. We have business continuity plans to maintain continuous operational viability in the event of natural disasters, system failures and other types of emergencies. Regular training drills are conducted to upgrade the practical effectiveness of these systems.
Implementation of Basel II
The Basel Committee on Banking SupervisionII is a comprehensive regulatory framework for ensuring the soundness and stability of the Bank for International Settlements has set capital adequacy standards for all internationally active banks to ensure minimum levels of capital. The Basel Committee worked over recent years to revise the 1988 Accord and, in June 2004, the Committee released “International Convergence of Capital Measurement and Capital Standards: A Revised Framework.” This new framework, called Basel II, has been applied to Japanese banks since March 31, 2007. Basel IIinternational banking system. It is based on “three pillars”: (1) minimum capital requirements, (2) the self-regulation of financial institutions based on supervisory review process, and (3) market discipline through the disclosure of information. The goal of Basel II is to have these three pillars mutually reinforce each other to ensure the effectiveness of regulations. Compared to the previous framework, Basel II is thus a more comprehensive regulatory framework for ensuring the soundness and stability of the international banking system. In addition, with respect to credit risk and operational risk, as compared to the previous framework, Basel II provides more risk-sensitive approaches and a range of options for measuring risks and determining the capital requirements. As a result, Basel II also reflects the nature of risks at each bank more closely. Basel II has been applied to Japanese banks since March 31, 2007.
Based on the principles of Basel II, MUFG has adopted the FoundationAdvanced Internal Ratings-Based Approach to calculate its capital requirements for credit risk.risk since March 31, 2009. The Standardized Approach is used for some subsidiaries that are considered to be immaterial to our overall capital requirements and a few subsidiaries have adopted a phased rollout of the internal ratings-based approach. MUFG has adopted the Standardized Approach to calculate its capital requirements for operational risk. As for market risk, MUFG has adopted the Internal Models Approach mainly to calculate general market risk and adopted the Standardized Method to calculate specific risk.
The Basel Committee of Banking Supervision has proposed revisions to Basel II in response to the recent global financial crisis. We intend to continue to monitor discussions and other developments relating to the proposed revisions.
Credit Risk Management
Credit risk is the risk of losses due to deterioration in the financial condition of a borrower. We have established risk management systems to maintain asset quality, manage credit risk exposure and achieve earnings commensurate with risk.
WeOur major banking subsidiaries (which include BTMU and MUTB) apply a uniform group-wide credit rating system for asset evaluation and assessment, loan pricing, and quantitative measurement of credit risk. This system also underpins the calculation of capital requirements and management of credit portfolios. We continually seek to upgrade credit portfolio management, or CPM, expertise to achieve an improved risk-adjusted return based on the Group’s credit portfolio status and flexible response capability to economic and other external changes.
Credit Risk Management System
The credit portfolios of our major banking subsidiaries are monitored and assessed on a regular basis by the holding company to maintain and improve asset qualities.quality. A uniform group-wide credit rating and asset evaluation and assessment system is used to ensure timely and proper evaluation of all credit risks.
Under our credit risk management system, each major banking subsidiary manages its respective credit risk on a consolidated and global basis, while the holding company oversees and manages credit risk on an overall group-wide basis. The holding company also convenes regular committee meetings to monitor credit risk management at banking subsidiaries and to issue guidance where necessary.
Each major banking subsidiary has in place a system of checks and balances in which a credit administration section that is independent of the business promotion sections screens individual transactions and manages the extension of credit.
At the management level, regular meetings of Credit and& Investment Management CommitteesCommittee and related deliberative bodies ensure full discussion of important matters related to credit risk management. Besides such checks and balances and internal oversight systems, credit examination sections also undertake credit testing and evaluation to ensure appropriate credit risk management management.
The following diagram summarizes the credit risk management framework for our major banking subsidiaries:
Credit Rating System
MUFG and its major banking subsidiaries have introduced an integrated group-wide credit rating system to evaluate credit risk. The credit rating system consists primarily of borrower rating, facility risk rating, structured finance rating and asset securitization rating.
Country risk is also rated on a uniform group-wide basis. Our country risk rating is reviewed periodically to take into account relevant political and economic factors, including foreign currency availability.
Risk exposure for small retail loans, such as residential mortgage loans, is managed by grouping loans into various pools and assigning ratings at the pool level.
Borrower rating
Our borrower rating classifies borrowers into 15 grades based on evaluations of their expected debt-service capability over the next three to five years.
The following table sets forth our borrower grades:
Definition of MUFG Borrower Rating
| Borrower rating | Definition | |||
1-2 | Borrower capacity to meet financial obligations deemed high and stable | |||
3-5 | Borrower capacity to meet financial obligations deemed free of problems | |||
6-8 | Borrower capacity to meet short-term financial obligations deemed free of problems | |||
9 | Borrower capacity to meet financial obligations deemed slightly insufficient | |||
10-12 | Close monitoring of borrower required due to one or more of following conditions: | |||
[1] Borrower who has problems meeting financial obligations (e.g., principal repayments or interest payments in arrears) | ||||
[2] Borrower whose business performance is poor or unsteady, or in an unfavorable financial condition | ||||
[3] Borrower who has problems with loan conditions (e.g., interest rates have been reduced or deferred) | ||||
| 10 | Causes for concern identified in borrower’s business management necessitate ongoing monitoring, despite only minor problems or significant ongoing improvement | |||
| 11 | Emergence of serious causes for concern in borrower’s business management signal need for caution in debt repayment due to major problems or requiring protracted resolution | |||
| 12 | Borrower | |||
13 | Borrower | |||
14 | Although not legally or officially bankrupt, borrower in virtual bankruptcy due to serious financial difficulties, without any realistic prospect of business recovery | |||
15 | Borrower legally or officially bankrupt and subject to specific procedures, such as legal liquidation/business suspension/winding up of business/private liquidation | |||
Facility risk rating
Facility risk rating is used to evaluate and classify the quality of individual credit facilities, including guarantees and collateral. Ratings are assigned by quantitatively measuring the estimated loss rate of a facility in the event of a default.
Structured finance rating and asset securitization rating
These ratings are also used to evaluate and classify the quality of individual credit facilities, including guarantees and collateral, and focus on the structure, including the applicable credit period, of each credit facility. In evaluating the debt service potential of a credit facility, we scrutinize its underlying structure to determine the likelihood of the planned future cash flows being achieved.
Pool assignment
Each major banking subsidiary has its own system for pooling and rating small retail loans designed to reflect the risk profile of its loan portfolios.
Asset Evaluation and Assessment System
The asset evaluation and assessment system is used to classify assets held by financial institutions according to the probability of collection and the risk of any impairment in value based on borrower classifications consistent with the borrower ratings and the status of collateral, guarantees, and other factors.
The system is used to conduct write-offs and allocate allowances against credit risk in a timely and adequate manner.
Quantitative Analysis of Credit Risk
MUFG and its major banking subsidiaries manage credit risk by monitoring credit amount and expected losses, and run simulations based on internal models to estimate the maximum amount of credit risk. These models are used for internal management purposes, including loan pricing and measuring economic capital.
When quantifying credit risk amounts using the internal models, MUFG and its major banking subsidiaries consider various parameters, including probability of default, or PD, loss given default, or LGD, and exposure at default, or EAD, used in their borrower ratings, facility risk ratings and pool assignments as well as any credit concentration risk in particular borrower groups or industry sectors. MUFG and its major banking subsidiaries also share credit portfolio data in appropriate cases.
Loan Portfolio Management
We aim to achieve and maintain levels of earnings commensurate with credit risk exposure. Products are priced to take into account expected losses, based on the internal credit ratings.
We assess and monitor loan amounts and credit exposure by credit rating, industry and region. Portfolios are appropriately managed to limit concentrations of risk in specific categories by establishing large exposure guidelines.Large Credit Guidelines.
To manage country risk, we have established specific credit ceilings by country. These ceilings are reviewed when there is any material change in a country’s credit standing, in addition to regular review.
Continuous CPM Improvement
With the growthprevalence of securitized products and credit derivatives in global markets, we actively seek to supplement conventional CPM techniques with advanced methods based on the use of such market-based instruments.
Through credit risk quantification and portfolio management, we aim to improve the risk return profile of the Group’s credit portfolio, using financial markets to rebalance credit portfolios in a dynamic and active manner based on an accurate assessment of credit risk. The following diagram summarizes our CPM framework:
Credit Portfolio Management (CPM) Framework
Risk Management of Strategic Equity Portfolio
Strategic equity investment risk is the risk of loss caused by a decline in the prices of our equity investments.
We use quantitative analysis to manage the risks associated with the portfolio of equities held for strategic purposes. According to internal calculations, the market value of our strategically held (Tokyo Stock Exchange-listed) stocks as of March 31, 20082010 was subject to a variation of approximately ¥4.2 billion perwhen TOPIX index moves one point of movement in the TOPIX index.either direction.
We seek to manage and reduce strategic equity portfolio risk based on such types of simulation. The aim is to keep this risk at appropriate levels compared with Tier 1 capital while generating returns commensurate with the degree of risk exposure.
Market Risk Management
Market risk is the risk that the value of our assets and liabilities could be adversely affected by changes in market variables such as interest rates, securities prices, or foreign exchange rates.
Management of market risk at MUFG aims to control related risk exposure across the Group while ensuring that earnings are commensurate with levels of risk.
Market Risk Management System
We have adopted an integrated system to manage market risk from itsour trading and non-trading activities. The holding company monitors group-wide market risk, while each of the major subsidiaries manages its market risks on a consolidated and global basis.
At each of the major subsidiaries, checks and balances are maintained through a system in which back and middle offices operate independently from front offices. In addition, separate Asset-Liability Management, or
ALM Committee, ALM Council and Risk Management Meetings are held at each of the major subsidiaries every month to deliberate important matters related to market risk and control.
The holding company and the major subsidiaries allocate economic capital commensurate with levels of market risk and determined within the scope of their capital bases. The major subsidiaries have established quantitative limits relating to market risk based on their allocated economic capital. In addition, in order to keep losses within predetermined limits, the major subsidiaries have also set limits for the maximum amount of losses arising from market activities. The following diagram summarizes the market risk management system of each major subsidiary:
Management System of Our Major Subsidiaries
Market Risk Management and Control
At the holding company and the major subsidiaries, market risk exposure is reported to the Chief Risk Management Officers on a daily basis. At the holding company, the Chief Risk Management Officer monitors market risk exposure across the Group as well as the major subsidiaries’ control over their quantitative limits for market risk and losses. Meanwhile, the Chief Risk Management Officers at the major subsidiaries monitor their own market risk exposure and their control over their quantitative limits for market risk and losses. In addition, various analyses on risk profiles, including stress testing, are conducted and reported to the Executive Committees and the Corporate Risk Management Committees on a regular basis. At the business unit levels in the major subsidiaries, the market risks on their marketable assets and liabilities, such as interest rate risk and foreign exchange rate risk, are controlled by entering into various hedging transactions using marketable securities and derivatives.
As part of our market risk management activities, we use certain derivative financial instruments to manage our interest rate and currency exposures. We maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. We enter into interest rate swaps and other contracts as part of our interest rate risk management strategy primarily to alter the interest rate sensitivity of itsour loans, investment securities and deposit liabilities. Our principal objectives in risk management include asset and liability management. Asset and liability management is viewed as one of the methods for us to manage itsour interest rate exposures on interest-bearing assets and liabilities. Interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options and futures, allow us to effectively manage our interest rate risk position. Option contracts primarily consist of caps, floors, swaptions and options on index futures. Futures contracts used for asset and liability management activities are primarily index futures providing for cash payments based upon the movement of an underlying rate index. We enter into forward exchange contracts, currency swaps and other contracts in response to currency exposures resulting from on-balance-sheet assets and liabilities denominated in foreign currencies in order to limit the net foreign exchange position by currency to an appropriate level.
These market risk management activities are performed in accordance with the predetermined rules and procedures. The internal auditors as well as independent accounting auditors regularly verify the appropriateness of the management controls over these activities and the risk evaluation models adopted.
Market Risk Measurement Model
Market risks consist of general risks and specific risks. General market risks result from changes in entire markets, while specific risks relate to changes in the prices of individual stocks and bonds which are independent of the overall direction of the market.
To measure general market risks, MUFG uses the VaR method which estimates changes in the market value of portfolios within a certain period by statistically analyzing past market data. Since the daily variation in market risk is significantly greater than that in other types of risk, MUFG measures and manages market risk using VaR on a daily basis.
Market risk for trading and non-trading activities is measured using a uniform market risk measurement model. The principleprincipal model used for these activities is historical simulation (HS) model (holding period, 10 business days; confidence interval, 99%; and observation period, 701 business days). The HS model calculates VaR amounts by estimating the profit and loss on the current portfolio by applying actual fluctuations in market rates and prices over a fixed period in the past. This method is capable of capturingdesigned to capture certain statistically infrequent movements, such as a fat tail, and accounts for the characteristics of financial instruments with non-linear behavior. Independent auditors, who were engaged only in the particular audit, verified the accuracy and appropriateness of this internal market risk model. The holding company and banking subsidiaries also use the HS model to calculate Basel II regulatory capital adequacy ratios. MUFG has notified the Financial Services Agency of its use as the internal market risk model, and received approval for its use of the model in March 2007.
In calculating VaR using the HS method, we have implemented an integrated market risk measurement system throughout the Group. Our major subsidiaries calculate their VaR based on the risk and market data prepared by the information systems of their front offices and other departments. The major subsidiaries providesprovide this risk data to the holding company, which calculates overall VaR taking into account the diversification effect among all portfolios of the major subsidiaries.
For the purpose of internally evaluating capital adequacy on an economic capital basis in terms of market risk, we use this market risk measurement model to calculate risk amounts based on a holding period of one year and a confidence interval of 99%.
Monitoring and managing our sensitivity to interest rate fluctuations is the key to managing market risk in MUFG’s non-trading activities. The major banking subsidiaries take the following approach to measuring risks concerning core deposits, loan prepayments and early deposit withdrawals.
To measure interest rate risk relating to deposits without contract-based fixed maturities, the amount of “core deposits” is calculated through a statistical analysis based on deposit balance trend data and the outlook for interest rates on deposits, business decisions, and other factors. The amount of “core deposit” is categorized into various groups of maturity terms of up to five years (2.5 years on average) to recognize interest rate risk. The calculation assumptions and methods to determine the amount of core deposits and maturity term categorization are regularly reviewed.
Meanwhile, deposits and loans with contract-based maturities are sometimes cancelled or repaid before their maturity dates. To measure interest rate risk for these deposits and loans, we reflect these early termination events mainly by applying early termination rates calculated based on a statistical analysis of historical repayment and cancellation data together with historical market interest rate data.
Summaries of Market Risks (Fiscal Year Ended March 2008)2010)
Trading activities
The aggregate VaR for our total trading activities as of March 31, 20082010 was ¥6.61¥17.06 billion, comprising interest-rate risk exposure of ¥5.65¥18.08 billion, foreign exchange risk exposure of ¥0.70¥4.05 billion, and equity-related risk exposure of ¥1.39¥1.94 billion. Compared with the VaR as of March 31, 2007,2009, we experienced a largeslight decrease in market risk during the fiscal year in review, particularlyended March 31, 2010, primarily due to increased diversification effect, though our exposure to foreign exchange and equity-related risk.interest rate risk increased.
Our average daily VaR for the fiscal year ended March 31, 20082010 was ¥10.99 billion, rising from our daily VaR¥18.02 billion. Based on a simple sum of ¥6.40 billion for the fiscal year ended March 31, 2007. This primarily reflected an increase infigures across market risk categories, interest rate risk andaccounted for approximately 66%, foreign exchange risk.risk for approximately 21% and equity-related risk for approximately 12% of our total trading activity market risks.
Due to the nature of trading operations which involves frequent changes in trading positions, market risk varied substantially during the fiscal year, depending on our trading positions.
The following tables set forth the VaR related to our trading activities by risk category for the periods indicated:
| Billions of Yen | ||||||||||||
April 1, 2006—March 31, 2007 | Average | Maximum | Minimum | Mar 31, 2007 | ||||||||
MUFG | ¥ | 6.40 | ¥ | 20.80 | ¥ | 2.79 | ¥ | 16.04 | ||||
Interest rate | 4.60 | 8.48 | 2.78 | 4.68 | ||||||||
Yen | 2.55 | 5.13 | 1.10 | 2.37 | ||||||||
Dollars | 1.25 | 3.27 | 0.43 | 1.32 | ||||||||
Foreign Exchange | 2.03 | 5.98 | 0.46 | 5.98 | ||||||||
Equities | 1.52 | 14.64 | 0.24 | 8.77 | ||||||||
Commodities | 0.11 | 0.34 | 0.04 | 0.16 | ||||||||
Diversification Effect | 1.85 | — | — | 3.55 | ||||||||
April 1, 2008—March 31, 2009 | Average | Maximum(1) | Minimum(1) | Mar 31, 2009 | ||||||||||||||||||||||
| Billions of Yen | (in billions) | |||||||||||||||||||||||||
April 1, 2007—March 31, 2008 | Average | Maximum | Minimum | Mar 31, 2008 | ||||||||||||||||||||||
MUFG | ¥ | 10.99 | ¥ | 16.72 | ¥ | 5.88 | ¥ | 6.61 | ¥ | 16.36 | ¥ | 27.73 | ¥ | 8.68 | ¥ | 17.29 | ||||||||||
Interest rate | 8.80 | 14.80 | 3.69 | 5.65 | 14.25 | 26.76 | 7.32 | 15.98 | ||||||||||||||||||
Yen | 5.90 | 11.26 | 1.97 | 3.88 | 8.82 | 15.60 | 3.69 | 9.16 | ||||||||||||||||||
Dollars | 1.92 | 4.54 | 0.73 | 0.94 | 5.49 | 9.70 | 1.12 | 6.97 | ||||||||||||||||||
Foreign Exchange | 3.32 | 7.88 | 0.70 | 0.70 | ||||||||||||||||||||||
Foreign exchange | 4.84 | 11.89 | 0.97 | 3.78 | ||||||||||||||||||||||
Equities | 1.31 | 8.39 | 0.17 | 1.39 | 1.78 | 4.49 | 0.74 | 2.26 | ||||||||||||||||||
Commodities | 0.21 | 0.51 | 0.06 | 0.23 | 0.32 | 0.74 | 0.06 | 0.21 | ||||||||||||||||||
Diversification Effect | 2.65 | — | — | 1.36 | ||||||||||||||||||||||
Less diversification effect | (4.83 | ) | — | — | (4.94 | ) | ||||||||||||||||||||
April 1, 2009—March 31, 2010 | Average | Maximum(1) | Minimum(1) | Mar 31, 2010 | ||||||||||||||||||||||
| (in billions) | ||||||||||||||||||||||||||
MUFG | ¥ | 18.02 | ¥ | 25.66 | ¥ | 11.29 | ¥ | 17.06 | ||||||||||||||||||
Interest rate | 16.36 | 22.06 | 11.90 | 18.08 | ||||||||||||||||||||||
Yen | 11.81 | 17.49 | 7.57 | 11.61 | ||||||||||||||||||||||
Dollars | 6.30 | 11.72 | 3.36 | 11.31 | ||||||||||||||||||||||
Foreign exchange | 5.11 | 10.36 | 1.70 | 4.05 | ||||||||||||||||||||||
Equities | 2.93 | 8.05 | 0.90 | 1.94 | ||||||||||||||||||||||
Commodities | 0.50 | 0.93 | 0.20 | 0.61 | ||||||||||||||||||||||
Less diversification effect | (6.88 | ) | — | — | (7.62 | ) | ||||||||||||||||||||
| ||
Historical simulation method | ||
Holding period: 10 business days | ||
Confidence interval: 99% | ||
Observation period: 701 business days |
| Note: |
| (1) | The maximum and minimum VaR overall and for various risk categories were taken from different days. A simple summation of VaR by risk category is not equal to total VaR due to the effect of diversification. |
The average daily VaR by quarter in the fiscal year ended March 31, 20082010 was as follows:
Quarter | Daily average VaR | ||
| (in billions) | |||
April—June | ¥ | ||
July—September | |||
October—December | |||
January—March | |||
The quantitative market risk figures from trading activities tend to fluctuate widely due to the market sensitive nature of trading business. During the fiscal year ended March 31, 2008,2010, the revenue from our trading activities has been relatively stable, keeping positive numbers in 179228 days out of 260 trading days in the period. During the same period, there were 99100 days with positive revenue exceeding ¥1 billion and 293 days with negative revenue exceeding minus ¥1 billion.
Non-trading Activities
The aggregate VaR for our total non-trading activities as of March 31, 2008,2010, excluding market risks related to our strategic equity portfolio and measured using the same standards as trading activities, was ¥251.6¥455.7 billion. Market risks related to interest rates equaled ¥211.0¥430.9 billion and equities-related risks equaled ¥72.0¥147.1 billion. Compared with the VaR for MUFG at March 31, 2007,2009, the increasedecrease in the overall market risk was ¥52.0¥47.6 billion. Market risks related to interest rate riskrates decreased ¥41.4 billion. Equity related risks increased ¥36.2 billion. Equities-related risks decreased ¥22.7¥88.8 billion.
Based on a simple sum of figures across market risk categories, interest rate risks accounted for approximately 75% of our total non-trading activity market risks. Looking at a breakdown of interest rate related risk by currency, at March 31, 2008,2010, the yen accounted for approximately 57%36% while the US dollar accounted for approximately 35%51%.
The following table shows the VaR related to our non-trading activities by risk category for the fiscal year ended March 31, 2008:2010:
April 1, 2009—March 31, 2010 | Average | Maximum(1) | Minimum(1) | Mar 31, 2010 | ||||||||||||||||||||
| Billions of Yen | (in billions) | |||||||||||||||||||||||
April 1, 2007—March 31, 2008 | Average | Maximum | Minimum | Mar 31, 2008 | ||||||||||||||||||||
Interest rate | ¥ | 172.6 | ¥ | 222.7 | ¥ | 128.2 | ¥ | 211.0 | ¥ | 439.0 | ¥ | 472.7 | ¥ | 414.8 | ¥ | 430.9 | ||||||||
Yen | 112.0 | 137.5 | 83.9 | 128.6 | 160.0 | 195.6 | 136.9 | 183.3 | ||||||||||||||||
Dollars | 63.6 | 96.1 | 37.6 | 79.2 | 293.5 | 333.3 | 254.4 | 263.6 | ||||||||||||||||
Foreign Exchange | 0.9 | 4.3 | 0.0 | 0.2 | ||||||||||||||||||||
Foreign exchange | 0.4 | 1.2 | 0.0 | 0.1 | ||||||||||||||||||||
Equities | 87.2 | 101.0 | 67.9 | 72.0 | 83.1 | 147.1 | 56.0 | 147.1 | ||||||||||||||||
Total | 204.1 | 258.9 | 156.4 | 251.6 | 467.1 | 502.6 | 442.6 | 455.7 | ||||||||||||||||
| ||
Historical simulation method | ||
Holding period: 10 business days | ||
Confidence interval: 99% | ||
Observation period: 701 business days |
| Note: |
| (1) | The maximum and minimum VaR overall for each category and in total were taken from different days. The equities-related risk figures do not include market risk exposure from our strategic equity portfolio. A simple summation of VaR by risk category is not equal to total VaR due to the effect of diversification. |
The average daily interest rate VaR by quarter in the fiscal year ended March 31, 20082010 was as follows.
Quarter | Daily average VaR | ||
| (in billions) | |||
April—June | ¥ | ||
July—September | |||
October—December | |||
January—March | |||
Comparing the proportion of each currency’s interest rate VaR to the total interest rate VaR as of March 31, 20082010 against that as of March 31, 2007,2009, there were a five7 percentage point increase in Japanese yen from 52%29% to 57% and36%, a four11 percentage point decrease in US dollar from 39%62% to 35%51%, and a 6 percentage point increase in Euro stays at the same level at 8%from 7% to 13%.
Backtesting
We conduct backtesting in which a VaR is compared with actual realized and unrealized losses on a daily basis to verify the accuracy of our VaR measurement model. We also conduct additional backtesting using other methods, including testing VaR against hypothetical losses and testing VaR by various changing parameters such as confidence intervals and observation periods used in the model.
Actual losses never exceeded VaR once in the fiscal year ended March 31, 2008.2010. This means that our VaR model provided reasonably accurate measurements of market risk during the fiscal year.
Stress Testing
We have adopted an HS-VaR model, which calculates a VaR as a statistically possible amount of losses in a fixed confidence interval based on historical market volatility. However, the HS-VaR model is not designed to capture certain abnormal market fluctuations. In order to complement this weakness of the model, MUFG conducts portfolio stress testing to measure potential losses using a variety of scenarios.
The holding company and the major subsidiaries conduct stress testing on a daily, monthly and quarterly basis to monitor their overall portfolio risk by applying various scenarios. For example, the holding company tests estimated potential losses resulting from scenarios reflecting the market conditions at the time of testing, scenarios based on extreme historic market conditions, such as Black Monday or the 1994 bond sell-off, and scenarios involving the largest fluctuations in markets over a specific period in the past.
Dailydaily stress testing at the holding company estimates maximum potential losses in each market on the current trading portfolio based on the worst ten-day historical volatility recorded during the VaR observation period of 701 days. As of March 31, 2008, the maximum predicted losses at the Group level on this basis were ¥8.4 billion for trading activities and ¥282.8 billion for non-trading activities, compared to ¥19.1 billion and ¥249.7 billion, respectively, as of March 31, 2007.
In light of increased market volatility since the second half of 2007, we have implemented additional tests under various stress scenarios to supplement VaR and are applying the test results to risk management.
Liquidity Risk Management
Liquidity risk is the risk of incurring losses if a poor financial position hampers the ability to meet funding requirements, or necessitates fund procurement at interest rates markedly higher than normal.
Our major subsidiaries maintain appropriate liquidity in both Japanese yen and foreign currencies by managing their funding sources and mechanism, such as liquidity gap, liquidity-supplying products such as commitment lines, and buffer assets.
We have established a group-wide system for managing liquidity risk by categorizing the risk in the following three stages: Normal, With-Concern, and Critical. The front offices and risk management offices of the major subsidiaries and the holding company exchange information and data on liquidity risk even at the Normal stage. At higher alert stages, we centralize information about liquidity risk and discuss issues relating to group-wide liquidity control actions among group companies, if necessary. We have also established a system for
liaison and consultation on funding in preparation for contingency, such as natural disasters, wars and terrorist attacks. The holding company and the major subsidiaries conduct group-wide contingency preparedness drills on a regular basis to ensure smooth implementation in the event of an emergency.
Operational Risk Management
Operational risk refers to the risk of loss caused by either internal control issues, such as inadequate operational processes or misconduct, system failures, or external factors such as aasserious political instability, major terrorist activity, health epidemics and natural disaster.disasters. The term includes a broad range of risks that could lead to losses, including operations risk, information asset risk, reputation risk, legal risk, and tangible asset risk. These risks that comprise operational risk are referred to as sub-category risks.
MUFG’s board of directors has approved the MUFG Operational Risk Management Policy as a group-wide policy for managing operational risk. This policy sets forth the core principles regarding operational risk management, including the definition of operational risk, and the risk management system and processes. The policy also requires the board of directors and the Executive Committee to formulate fundamental principles of operational risk management and establish and maintain an appropriate risk management system. The Chief Risk Management Officer is responsible for recognizing, evaluating, and appropriately managing operational risk in accordance with the fundamental principles formulated by the board of directors and the Executive Committee. A division in charge of operational risk management must be established that is independent of business promotion sections to manage overall operational risk in a comprehensive manner. These fundamental principles have also been approved by the boards of directors of the major subsidiaries, providing a consistent framework for operational risk management of the Group. The diagram below sets forth the operational risk management system of each major banking subsidiary:
Management System of Our Major Banking Subsidiaries
As set forth in the following diagram, we have established a risk management framework for loss data collection, control self assessment (CSA), and measurement of operational risk in order to appropriately identify, recognize, evaluate, measure, control, monitor and report operational risk.
We have also established group-wide reporting guidelines with respect to loss data collection and its monitoring. We focus our efforts on ensuring accurate assessment of the status of operational risk losses and the implementation of appropriate countermeasures, while maintaining databases of internal and external loss events.
The following diagram summarizes our operational risk management framework:
Risk Management Framework
Operations Risk Management
Operations risk refers to the risk of loss that is attributable to the actions of executives or employees, whether accidental or the result of neglect or deliberate misconduct. The Group companies offer a wide range of financial services, ranging from commercial banking products such as deposits, exchange services and loans to trust and related services covering pensions, securities, real estate and securitization, as well as transfer agent services. Cognizant of the potentially significant impact that operations risk-related events could have in terms of both economic losses and damage to our reputation, our banking subsidiaries continue to improve their management systems to create and apply appropriate operations risk-related controls.
Specific ongoing measures to reduce operations risk include the development of databases to manage, analyze and prevent the recurrence of related loss events; efforts to tighten controls over administrative procedures and related operating authority, while striving to improve human resources management; investments in systems to improve the efficiency of administrative operations; and programs to expand and upgrade internal auditing and operational guidance systems.
Senior management receives regular reports on the status of our businesses from an operations risk management perspective. We work to promote the sharing within the Group of information and expertise concerning any operational incidents and the measures implemented to prevent any recurrence.
Efforts to upgrade the management of operations risk continue with the aim of providing our customers with a variety of high-quality services.
Information Asset Risk Management
Information asset risk refers to the risk of loss caused by loss, alteration, falsification or leakage of information, or by destruction, disruption, errors or misuse of information systems, as well as risks similar to this risk. In order to ensure proper handling of information and prevent loss or leakage of information, our major banking subsidiaries strive to better manage and reduce such risks through the appointment of managers with
specific responsibilities for information security issues, the establishment of internal procedures, training courses designed for all staff, and the implementation of measures to ensure stable IT systems control. We have also formulated the Personal Information Protection Policy as the basis for ongoing programs to protect the confidentiality of personal information.
Systems planning, development and operations include appropriate design and extensive testing phases to ensure that systems are designed to help prevent failures while providing sufficient safeguards for the security of personal information. The status of the development of any mission-critical IT systems is reported regularly to senior management. We have developed disaster countermeasures systems and have also been investing in duplication of the Group’s IT infrastructure to minimize damage in the event of any system failure. Emergency drills are conducted to help increase staff preparedness.
With the aim of preventing any recurrence, we also work to promote sharing of information within the Group related to the causes of any loss or leakage of information, or system failure.
Compliance
Basic Policy
The MUFG Group’s policy is to strictly observe laws, regulations and internal rules, and conduct its business in a fair, trustworthy and highly transparent manner based on the Group’s management philosophy of obtaining the trust and confidence of society as a whole. Furthermore, we have established an ethical framework and code of conduct as the basic ethical guidelines for the Group’s directors and employees. We have expressed our commitment to building a corporate culture in which we act with integrity and fairness in conformity with these guidelines.
Despite these measures, in the previous fiscal year, wesome of our Group companies have recently received administrative orders from government authorities in Japan and abroad. We view these actions with the deepest concern. In response, we have been workingWe continue to work to ensure an appropriate compliance structure in Japan and abroad across the MUFG Group to enable sound and appropriate business management.
Ethical Framework
We, the directors and employees of MUFG, will comply with this Ethical Framework and Code of Conduct as the basis of our daily work, seeking to put into practice the management philosophy of our global comprehensive financial group and to build a corporate culture in which we act with integrity and fairness.
1. Establishment of trust
We will remain keenly aware of the Group’s social responsibilities and public mission and will exercise care and responsibility in the handling of customer and other information.
By conducting sound and appropriate business operations and disclosing corporate information in a timely and appropriate manner we will seek to establish enduring public trust in the Group.
2. Putting customers first
We will always consider our customers, and through close communication will endeavor to satisfy them and gain their support by providing financial services that best meet their needs.
3. Strict observance of laws, regulations and internal rules
We will strictly observe applicable laws, regulations and internal rules, and will conduct our business in a fair and trustworthy manner that conforms to societal norms. As a global comprehensive financial group we will also respect internationally accepted standards.
4. Respect for human rights and the environment
We will respect the character and individuality of others, work to maintain harmony with society, and place due importance on the protection of the global environment that belongs to all mankind.
5. Disavowal of anti-social elements
We will stand resolutely against any anti-social elements that threaten public order and safety.
Compliance Framework
Management and coordination of compliance-related matters are the responsibility of separate compliance management divisions established at the holding company and the major subsidiaries. Each compliance management division formulates compliance programs and organizes training courses to promote compliance, and regularly reports to each company’s board of directors and Executive Committee on the status of compliance activities.
The holding company and each major subsidiary have also established voluntary committees, such as an Internal Audit and Compliance Committee, where members from outside the Group account for a majority, and a Compliance Committee. Through these measures, we have established a structure for deliberating key issues related to compliance. Additionally, the holding company has the Group Chief Compliance Officer, or CCO, Committee which deliberates important matters related to compliance and compliance-related issues for which the Group should share a common understanding.
CCO of Holding Company
Directors responsible for compliance at the holding company and the major subsidiaries have been named the CCOs of their respective companies. The CCOs of the major subsidiaries have also been appointed as the deputy CCOs of the holding company to assist the CCO of the holding company. This system promotes the prompt reporting of group-wide compliance-related information to the holding company and also allows the CCO of the holding company to effectively provide compliance-related guidance, advice, and instructions to MUFG Group companies.
Group CCO Committee
A Group CCO Committee has been established under the Executive Committee of the holding company. The committee consists of the CCO of the holding company as the committee chairman and the CCOs of the major subsidiaries.
By timely holding meetings, the Group CCO Committee seeks to promote greater sharing of compliance-related information among the MUFG Group companies and works to strengthen the Group’s incident prevention controls and to help the Group companies respond to unforeseen problems. The Committee also continues to strive to improve compliance systems throughout the Group.
The following diagram summarizes our compliance framework:
Internal Reporting System and Accounting Auditing Hotline
The major subsidiaries have established internal reporting systems that aim to identify compliance issues early so that any problems can be quickly rectified. This system includes an independent external compliance hotline. Furthermore, the holding company has set up an MUFG Group Compliance Helpline that acts in pararellparallel with group-company internal reporting systems and provides a reporting channel for directors and employees of group companies.
In addition to these internal reporting systems, the holding company has also established an accounting auditing hotline that provides a means to report any problems related to MUFG accounting.
MUFG Accounting Auditing Hotline
MUFG has set up an accounting auditing hotline to be used to make reports related to instances of improper practices (violations of laws and regulations) and inappropriate practices, or of practices raising questions about such impropriety or inappropriateness, regarding accounting and internal control or audits related to accounting in Group companies. The reporting process works as follows, and may be carried out via letter or e-mail:
Hokusei Law Office
Address: Kojimachi 4-3-4, Chiyoda-ku, Tokyo
e-mail: MUFG-accounting-audit-hotline@hokusei-law.com
When reporting information please pay attention to the following:
Please include the name of the company concerned, and provide detailed information with respect to the matter. Without detailed factual information there is a limit to how much our investigations can achieve.
| Ÿ | Please include the name of the company concerned, and provide detailed information with respect to the matter. Without detailed factual information there is a limit to how much our investigations can achieve. |
Anonymous information will be accepted.
| Ÿ | Anonymous information will be accepted. |
| Ÿ | No information regarding the identity of the informant will be passed on to third parties without the approval of the informant him- or herself. However, this excludes instances where disclosure is legally mandated, or to the extent that the information is necessary for surveys or reports, when data may be passed on following the removal of the informant’s name. |
No information regarding the identity of the informant will be passed on to third parties without the approval of the informant him- or herself. However, this excludes instances where disclosure is legally mandated, or to the extent that the information is necessary for surveys or reports, when data may be passed on following the removal of the informant’s name.
| Ÿ | Please submit reports in either Japanese or English. |
Please submit reports in either Japanese or English.
If the informant wishes, we will endeavor to report back to the informant on the response taken within a reasonable period of time following the receipt of specific information, but cannot promise to do so in all instances.
| Ÿ | If the informant wishes, we will endeavor to report back to the informant on the response taken within a reasonable period of time following the receipt of specific information, but cannot promise to do so in all instances. |
Internal Audit
The Role of Internal Audit
Internal audit functions within MUFG seek to provide independent verification of the adequacy and effectiveness of internal control systems. This includes monitoring the status of risk management and compliance systems, which are critical to the maintenance of sound and appropriate business operations. Internal audit results are reported to senior management. An additional role forof internal audit is to make suggestions to help improve or rectify any issues or specific problems that are identified.
Group Internal Audit Framework
The board of directors at the holding company level has instituted MUFG’s internal audit policy to define the policy, function and organizational position of internal audits. Separate internal audit divisions have been created within the holding company and the major group subsidiaries (the Internal Audit Division at the holding company, the Internal Audit & Credit Examination Division at BTMU and the Audit Division at MUTB, and the Internal Audit Division at MUS) to conduct internal audits based on this policy. These divisions perform the core internal audit functions of the Group.certain subsidiaries. Through close cooperation and collaboration betweenamong the internal audit divisions in each of the four companies,these subsidiaries, these internal audit divisions provide coverage for the entire group and also support the board of directors in monitoring and overseeing all MUFG operations.
The boards of directors of BTMU, MUTB and MUS have also formulated separate internal audit policies consistent with MUFG’s internal audit policy. This arrangement ensures that a consistent and integrated internal audit framework applies to all MUFG operations, including subsidiaries of the major group subsidiaries.
In addition to having primary responsibility for initiating and preparing plans and proposals related to internal audits of the entire group, the Internal Audit Division at the holding company monitors and, as necessary, guides, advises and administers the internal audit divisions of subsidiaries and affiliated companies. The internal audit divisions within the major subsidiaries conduct audits of the respective head office and branch operations of these companies. In addition, each of these three internal audit divisions undertakes direct audits of their respective subsidiaries, and monitors and oversees the separate internal audit functions established within them. This helps to evaluate and verify the adequacy and effectiveness of internal controls within MUFG on a consolidated basis.
Implementing EfficientEffective and EffectiveEfficient Internal Audits
To ensure that internal audit processes use available resources with optimal efficiencyeffectiveness and effectiveness,efficiency, the internal audit divisions implement risk-focused internal audits in which the nature and magnitude of the associated risks are considered in determining audit priorities and the frequency and depth of internal audit activities. The internal audit divisions ensure that audit personnel attend key meetings, collect important internal control documents and access databases to facilitate efficient off-site monitoring.
Measures to EnhanceThe Independence of Internal Audit Independence and Supervision by the Boards of DirectorsDivisions
To strengthen the respective boards of directors’ monitoring and supervision of operational execution status and to enhance the independence of the internal audit divisions, the holding company BTMU, MUTB and MUSthe major subsidiaries have established internal audit and compliance committees that are chaired by external directors.committees. These committees receive direct reports from the internal audit divisions on important internal audit-related matters, including the results of all internal audits and basic policies for planning internal auditing plans requiring board approval.audits. The deliberations of the internal audit and compliance committees concerning such matters are then reported to the respective boards of directors. This structure is intended to enhance the independence of internal audit functions from functions responsible for business execution.
| Item 12. | Description of Securities Other than Equity Securities. |
| A. | Debt Securities |
Not applicable.
| B. | Warrants and Rights |
Not applicable.
| C. | Other Securities |
Not applicable.
| D. | American Depositary Shares |
Fees, charges and other payments relating to ADSs
As a holder of our ADSs, you will be required to pay to The Bank of New York Mellon, as depositary for the ADSs, or the “Depositary,” either directly or indirectly, the following fees or charges. The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.
ADR holders must pay: | For: | |
$5.00 (or less) per 100 ADSs (or portion thereof) | Each issuance of an ADS, including as a result of a distribution of shares or rights or other property Each cancellation of an ADS, including if the agreement terminates | |
$0.02 (or less) per ADSs | Any cash distribution, to the extent permitted by any securities exchange on which the ADSs may be listed for trading | |
| A fee equivalent to the fee that would be payable if securities distributed to the ADR holder had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders | |
Registration or transfer fees | Transfer and registration of shares on the share register of the foreign registrar from your name to the name of The Bank of New York Mellon or its agent when you deposit or withdraw shares | |
Expenses of The Bank of New York Mellon | Conversion of foreign currency to US dollars cable, telex and facsimile transmission expenses | |
| Taxes and other governmental charges The Bank of New York Mellon or BTMU, as custodian, have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | As necessary | |
Fees Waived by the Depositary for the Fiscal Year Ended March 31, 2010
For the fiscal year ended March 31, 2010, the Depositary waived $136,223.47 of standard out-of-pocket maintenance costs for the ADRs, which consisted of the expenses of postage and envelopes for mailing annual reports, printing and distributing dividend checks, stationery, postage, facsimile, and telephone calls.
Fees Waived by the Depositary for Future Periods
The Depositary has agreed to waive the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual reports, printing and distributing dividend checks, stationery, postage, facsimile, and telephone calls.
PART II
| Item 13. | Defaults, Dividend Arrearages and Delinquencies. |
None.
| Item 14. | Material Modifications |
None.
| Item 15. | Controls and Procedures. |
Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer, or CEO, and the Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the US Securities Exchange Act of 1934, as of the end of the period covered by this Annual Report.
Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2008.2010.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the US Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, MUFG’s principal executive and principal financial officers, and effected by MUFG’s board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP and includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of MUFG;
| (i) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of MUFG; |
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of MUFG are being made only in accordance with authorizations of management and directors of MUFG; and
| (ii) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of MUFG are being made only in accordance with authorizations of management and directors of MUFG; and |
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of MUFG’s assets that could have a material effect on the financial statements.
| (iii) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of MUFG’s assets that could have a material effect on the financial statements. |
Because of inherent limitations, internal control over financial reporting, no matter how well designed, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management evaluated the effectiveness of our internal control over financial reporting as of March 31, 20082010 based on the criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation, management has concluded that MUFG maintained effective internal control over financial reporting as of March 31, 2008.2010.
The effectiveness of our internal control over financial reporting as of March 31, 20082010 has been audited by Deloitte Touche Tohmatsu LLC, an independent registered public accounting firm, as stated in its report, presented on page 159.
Changes in Internal Control Over Financial Reporting
During the period covered by this Annual Report, there has been no change in our internal controlscontrol over financial reporting that havehas materially affected or areis reasonably likely to materially affect our internal controlscontrol over financial reporting.
Since our merger with the UFJ group, we have been integrating some of our operations with UFJ group’s operations. The integration of existing systems of The Bank of Tokyo Mitsubishi UFJ, Ltd., or BTMU, into a new common IT system is scheduled to complete in December 2008, and the integration of the existing systems of Mitsubishi UFJ Trust and Banking Corporation, or MUTB, is also scheduled to complete in December 2008.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Mitsubishi UFJ Financial Group, Inc.
(Kabushiki Kaisha Mitsubishi UFJ Financial Group):
We have audited the internal control over financial reporting of Mitsubishi UFJ Financial Group, Inc. (Kabushiki Kaisha Mitsubishi UFJ Financial Group) (“MUFG”) and subsidiaries (together, the “MUFG Group”) as of March 31, 2008,2010, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The MUFG Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the MUFG Group’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
The MUFG Group’s internal control over financial reporting is a process designed by, or under the supervision of, the MUFG Group’s principal executive and principal financial officers, or persons performing similar functions, and effected by the MUFG Group’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The MUFG Group’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the MUFG Group; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the MUFG Group are being made only in accordance with authorizations of management and directors of the MUFG Group; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the MUFG Group’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the MUFG Group maintained, in all material respects, effective internal control over financial reporting as of March 31, 2008,2010, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of the MUFG Group as of March 31, 20072009 and 2008,2010, and the related consolidated statements of operations, changes in equity from nonowner sources,
shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 20082010 (all
expressed in Japanese Yen) and our report dated September 18, 2008August 16, 2010 expressed an unqualified opinion on those financial statements and included explanatory paragraphs relating to i)(i) the merger with UFJ Holdings, Inc., ii)restatement of the restatementconsolidated statements of cash flows for the fiscal years ended March 31, 2008 and 2009 discussed in Note 35 to the consolidated financial statements, (ii) the restatements discussed in Notes 5 7, 11, 18, 22, 25 and 267 to the consolidated financial statements, and iii)(iii) the changes in methods of accounting for a) conditional asset retirement obligations, b) pension and other postretirement plans, c) stock-based compensation, d)(a) uncertainty in income taxes, and e)(b) leveraged leases, (c) defined benefit pension and other post retirement plans, (d) fair value measurements, (e) fair value option for financial assets and financial liabilities, (f) noncontrolling interests, and (g) other-than-temporary impairments on investment securities all described in Note 1 to the consolidated financial statements.
/s/ Deloitte Touche Tohmatsu LLC
DELOITTE TOUCHE TOHMATSU LLC
Tokyo, Japan
September 18, 2008August 16, 2010
| Item 16A. | Audit Committee Financial Expert. |
Our board of corporate auditors has determined that Mr. Tsutomu Takasuka is an “audit committee financial expert” as defined in Item 16A of Form 20-F and is “independent” as defined in the listing standards of the New York Stock Exchange. Mr. Takasuka, a corporate auditor, has spent most of his business career auditing Japanese corporations as a certified public accountant and has beenwas a professor at Bunkyo Gakuin University sincefrom April 2004.2004 to March 31, 2010. Mr. Takasuka is an “outside corporate auditor” under Japanese law.
| Item 16B. | Code of Ethics. |
We have adopted a code of ethics, which constitutes internal rules named ethical framework and code of conduct, compliance rules and compliance manual, each of which applies to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions.
Our compliance rules set forth the necessity of adherence to our ethical framework and code of conduct by our directors, executive officers and employees. These rules also set forth the roles and responsibilities of our employees, compliance officers, Compliance Division and others in the event of a breach of the compliance rules.
Our compliance manual was created to identify, and to promote compliance by our directors, executive officers and employees with, the relevant laws and regulations in conjunction with our ethical framework and code of conduct and compliance rules. This manual also sets forth the procedures regarding the handling of conflicts of interest for our directors and the promotion of conduct that meets our ethical framework and code of conduct and compliance rules for employees.
A copy of the sections of our ethical framework and code of conduct, compliance rules, compliance manual, and rules of employment relating to the “code of ethics” (as defined in paragraph (b) of Item 16B. of Form 20-F) is attached as Exhibit 11 to this Annual Report. There were no material changes to the code of ethics from the previous code of ethics. For a detailed discussion of our current compliance structure, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Compliance.” No waivers of the ethical framework and code of conduct, compliance rules, compliance manual and rules of employment have been granted to our principal executive officer, principal financial officer, principal accounting officer, directors and corporate auditors, during the fiscal year ended March 31, 2008.2010.
| Item 16C. | Principal Accountant Fees and Services. |
Fees and Services of Deloitte Touche Tohmatsu LLC
The aggregate fees billed by Deloitte Touche Tohmatsu LLC, our independent auditor, for the fiscal years ended March 31, 20072009 and 20082010 are presented in the following table:
| 2007 | 2008 | 2009 | 2010 | |||||||||
| (in millions) | (in millions) | |||||||||||
Audit fees | ¥ | 5,153 | ¥ | 4,801 | ¥ | 5,524 | ¥ | 5,100 | ||||
Audit-related fees | ¥ | 646 | ¥ | 302 | 700 | 210 | ||||||
Tax fees | ¥ | 212 | ¥ | 245 | 213 | 252 | ||||||
All other fees | ¥ | 161 | ¥ | 71 | 44 | 39 | ||||||
Total | ¥ | 6,172 | ¥ | 5,419 | ¥ | 6,481 | ¥ | 5,601 | ||||
The description of our fees billed for each category described above is as follows:
Audit fees—Audit fees are primarily for annual audit of our financial statements, review of our semi-annual condensed financial statements, statutory audit of our financial statements and audits of our subsidiary financial statements and attestation services relating to the implementation ofinternal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act.
Audit-related fees—Audit-related fees primarily include accounting consultations, agreed upon procedures on internal controls, employee benefit plan audit, and advisory services relating to the implementation of Section 404 of the Sarbanes-Oxley Act.internal control reviews.
Tax fees—Tax fees relate primarily to tax compliance, including assistance with preparation of tax return filings, tax advisory and tax planning services.
All other fees—All other fees primarily include agreed upon procedures related to advice on operational risk management, and to operational audits of our overseas branches.
Pre-Approval Policies and Procedures for Services by Deloitte Touche Tohmatsu LLC
Our board of corporate auditors performs the pre-approval function required by applicable SEC rules and regulations. Effective May 1, 2003, our board of corporate auditors has established pre-approval policies and
procedures that MUFG and its subsidiaries must follow before engaging Deloitte Touche Tohmatsu LLC to perform
audit and permitted non-audit services.
When MUFG or a subsidiary intends to engage Deloitte Touche Tohmatsu LLC to perform audit and permitted non-audit services, it must make an application for pre-approval on either a periodic or case-by-case basis.
Periodic applicationis an application for pre-approval made each fiscal year for services that are expected to be provided by Deloitte Touche Tohmatsu LLC during the next fiscal year. |
Case-by-case applicationis an application for pre-approval made on a case-by-case basis for services to be provided by Deloitte Touche Tohmatsu LLC that are not covered by the periodic application. |
Pre-approval is resolved in principle by our board of corporate auditors prior to engagement, although if necessary a full-time corporate auditor may consider any case-by-case application for pre-approval on behalf of the board of corporate auditors prior to the next scheduled board meeting. Such decisions made individually by a full-time corporate auditor are reported to and ratified by the board of corporate auditors as appropriate at the
next scheduled board meeting.
Fees approved pursuant to the procedures described in paragraph 2-01(c)(7)(i)(c)(C) of Regulation S-X, which provides for an exception to the general requirement for pre-approval in certain circumstances, were underless than 0.1% and approximately 0.3% of the total fees for each of the fiscal years ended March 31, 20072009 and 2008, respectively.2010.
| Item 16D. | Exemptions |
In reliance upon the general exemption contained in Rule 10A-3(c)(3) under the US Securities Exchange Act of 1934, MUFG does not have an audit committee. Rule 10A-3 provides an exemption from the listing standards of the New York Stock Exchange, or the NYSE, relating to audit committees for foreign companies like MUFG that have a board of corporate auditors established pursuant to applicable Japanese law and articlesArticles of incorporation.Incorporation. MUFG’s reliance on Rule 10A-3(c)(3) does not, in its opinion, materially adversely affect the ability of its board of corporate auditors to act independently and to satisfy the other requirements of Rule 10A-3.
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers. |
Issuer Purchases of Common SharesStock
| Total Number of Shares Purchased | Average Price Paid per Share (¥) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||
April 1 to April 30, 2007 | 104,810 | 1,339.49 | — | — | |||||
May 1 to May 31, 2007 | 105,640 | 1,322.18 | — | — | |||||
June 1 to June 30, 2007 | 150,840 | 1,399.24 | — | — | |||||
July 1 to July 31, 2007 | 249,260 | 1,347.08 | — | — | |||||
August 1 to August 31, 2007 | 161,100 | 1,176.97 | — | — | |||||
September 1 to September 30, 2007 | 199,090 | 1,049.19 | — | — | |||||
October 1 to October 31, 2007 | 0 | — | — | — | |||||
November 1 to November 30, 2007 | 21,959 | 1,073.75 | — | — | |||||
December 1 to December 31, 2007 | 126,571,910 | 1,185.61 | 126,513,900 | — | 3 | ||||
January 1 to January 31, 2008 | 22,224 | 1,015.53 | — | — | |||||
February 1 to February 29, 2008 | 19,237 | 966.19 | — | — | |||||
March 1 to March 31, 2008 | 10,488 | 895.59 | — | — | |||||
Total | 127,616,558 | 1,186.09 | 126,513,900 | — | 3 |
| Total Number of Shares Purchased(1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||
April 1 to April 30, 2009 | 9,690 | ¥ | 511.34 | — | — | ||||
May 1 to May 31, 2009 | 6,327 | 592.50 | — | — | |||||
June 1 to June 30, 2009 | 5,763 | 618.44 | — | — | |||||
July 1 to July 31, 2009 | 6,251 | 570.34 | — | — | |||||
August 1 to August 31, 2009 | 5,568 | 586.28 | — | — | |||||
September 1 to September 30, 2009 | 3,155 | 554.45 | — | — | |||||
October 1 to October 31, 2009 | 2,900 | 476.15 | — | — | |||||
November 1 to November 30, 2009 | 355,622 | 488.45 | — | — | |||||
December 1 to December 31, 2009 | 56,738 | 472.18 | — | — | |||||
January 1 to January 31, 2010 | 23,161 | 476.02 | — | — | |||||
February 1 to February 28, 2010 | 13,315 | 461.21 | — | — | |||||
March 1 to March 31, 2010 | 12,264 | 460.79 | — | — | |||||
Total | 500,754 | ¥ | 490.34 | — | — | ||||
| Note: |
| (1) | All of the purchased shares were shares constituting less than one unit (100 shares) purchased from registered holders of such shares at the current market price of those shares. |
We havedid not mademake any purchases of our shares other than the above for the fiscal year ended March 31, 2008.2010.
Notes:
|
| |||||
|
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FollowingNone.
| Item 16G. | Corporate Governance. |
The New York Stock Exchange, or the expirationNYSE, allows NYSE-listed companies that are foreign private issuers, such as MUFG, with certain exceptions, to follow home-country practices in lieu of the corporate governance practices followed by US companies pursuant to the NYSE’s Listed Company Manual. The following sections summarize the significant differences between MUFG’s corporate governance practices and those followed by US listed companies under the NYSE’s Listed Company Manual.
1. A NYSE-listed US company must have a majority of directors that meet the independence requirements under Section 303A of the NYSE’s Listed Company Manual.
As of July 31, 2010, MUFG has three outside directors as members of its board of directors. For companies employing the corporate auditor system such as MUFG, the task of overseeing the management of the company is assigned to the corporate auditors as well as the board of directors. At least half of the corporate auditors are required to be an “outside corporate auditor” as defined below.
Under the Company Law, an “outside director” is defined as a director who has not served as an executive director(gyomu shikko torishimariyaku), executive officer(shikkoyaku), manager(shihainin) or any other type of employee of the relevant company or any of its subsidiaries prior to his or her appointment.
For MUFG and other large Japanese companies employing a corporate governance system based on a board of corporate auditors, the Company Law has no independence or similar requirement with respect to directors. In December 2009, the Tokyo Stock Exchange adopted a new rule requiring listed companies, including MUFG, to identify at least one individual who the company believes will unlikely have a conflict of interests with general shareholders and have such individual serve as an independent director or corporate auditor.
2. A NYSE-listed US company must have an audit committee composed entirely of independent directors.
Under the Company Law, MUFG and other Japanese companies (excluding companies with committees established pursuant to the Company Law) are not obliged to establish an audit committee.
As discussed above, program, weMUFG employs a corporate auditor system as stipulated by the Company Law. Accordingly, MUFG has established a board of corporate auditors consisting of corporate auditors with a statutory duty to audit MUFG directors’ performance of their professional duties and to review and report on the manner and results of the audit of MUFG’s financial statements, for the benefit of MUFG’s shareholders.
The Company Law requires companies having a board of corporate auditors, including MUFG, to elect at least three corporate auditors through a resolution adopted at a general meeting of shareholders. At least half of the corporate auditors must be an “outside corporate auditor,” which is defined as a corporate auditor who has not served as a director, account assistant, executive officer(shikkoyaku), manager(shihainin), or any other employee of the relevant company or any of its subsidiaries.
As of July 31, 2010, MUFG had five corporate auditors, three of whom are outside corporate auditors.
3. A NYSE-listed US company must have a compensation committee composed entirely of independent directors.
Under the Company Law, MUFG and other Japanese companies (excluding companies with committees established pursuant to the Company Law) are not obliged to establish a compensation committee.
The maximum aggregate amounts of compensation for MUFG’s directors and corporate auditors are approved at MUFG’s general meeting of shareholders. The amount and allocation of compensation for each MUFG director are then proposed to, and voted upon by, the board of directors. The amount and allocation of compensation for each MUFG corporate auditor are determined through discussions and agreement among MUFG’s corporate auditors.
4. A NYSE-listed US company must have a nominating or corporate governance committee composed entirely of independent directors.
Under the Company Law, MUFG and other Japanese companies (excluding companies with committees established pursuant to the Company Law) are not obliged to establish a nominating or corporate governance committee.
MUFG’s directors are elected or dismissed at MUFG’s general meeting of shareholders in accordance with the relevant provisions of the Company Law and MUFG’s articles of incorporation. MUFG’s corporate auditors are also elected or dismissed at MUFG’s general meeting of shareholders. A proposal by MUFG’s board of directors to elect a corporate auditor needs the consent of its board of corporate auditors. MUFG’s board of corporate auditors is empowered to adopt a resolution requesting that MUFG’s directors submit a proposal for election of a corporate auditor to MUFG’s general meeting of shareholders.
The corporate auditors have the right to state their opinion concerning the election or dismissal of a corporate auditor at MUFG’s general meeting of shareholders.
5. A NYSE-listed US company must obtain shareholder approval with respect to any equity compensation plan.
Under the Company Law, a public company seeking to issue “stock acquisition rights” (granting the holder thereof the right to acquire from the issuer shares of its stock at a prescribed price) must obtain the approval of its board of directors, not its shareholders.
When stock acquisition rights are issued under terms and conditions that are especially favorable to the recipients thereof, such issuance must be approved by a “special resolution” of a general meeting of shareholders. Under MUFG’s articles of incorporation, the quorum for a special resolution is at least one-third of the total outstanding voting rights, and the approval of at least two-thirds of the voting rights represented at the relevant general meeting of shareholders of MUFG is required to pass a special resolution.
6. A NYSE-listed US company must adopt and disclose Corporate Governance Guidelines and a Code of Business Conduct and Ethics, and it must also disclose any exemptions granted to directors or executives.
Under the Company Law, the Financial Instruments and Exchange Law of Japan and applicable stock exchange rules, Japanese companies, including MUFG, are not obliged to adopt and disclose corporate governance guidelines or a code of business conduct and ethics for directors, officers and employees. In order to further enhance its disclosure, however, MUFG has decided to disclose the details of its corporate governance in its Annual Securities Report and related disclosure reports.
MUFG has also adopted any new plana code of ethics, compliance rules and a compliance manual which it believes are compliant with the requirements for a Code of Ethics as set forth under Section 406 of the Sarbanes-Oxley Act. MUFG has disclosed the relevant sections of its code of ethics, compliance rules and compliance manual as an exhibit to this Annual Report. No exemptions from MUFG’s code of ethics, compliance rules or program.compliance manual were granted to its directors or executives during the fiscal year ended March 31, 2010.
7. A NYSE-listed US company must hold regularly scheduled executive sessions where participants are limited to non-management directors.
Under the Company Law, Japanese corporations are not obliged to hold executive sessions where participants are limited to non-management directors. Such executive sessions are also not required under MUFG’s internal corporate governance rules.
PART III
| Item 17. |
In lieu of responding to this item, we have responded to Item 18 of this Annual Report.
| Item 18. |
The information required by this item is set forth in our consolidated financial statements starting on page F-1 of this Annual Report.
| Item 19. |
Exhibit | Description | ||
| Articles of Incorporation of Mitsubishi UFJ Financial Group, Inc., as amended on June | |||
| Board of Directors Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on June 29, 2006. (English translation)** | |||
| Corporation Meetings Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on July 31, 2006. (English translation)** | |||
| Share Handling Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on | |||
| Form of American Depositary Receipt.** | |||
| Form of Deposit Agreement, amended and restated as of December 22, 2004, among Mitsubishi Tokyo Financial Group, Inc. (subsequently renamed Mitsubishi UFJ Financial Group, Inc.), The Bank of New York Mellon and the holders from time to time of American Depositary Receipts issued thereunder.** | |||
| Agreement and Plan of Merger among UnionBanCal Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Merger Sub, dated as of August 18, 2008.*** | |||
| Securities Purchase Agreement dated as of September 29, 2008 by and between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc., the first amendment thereto entered into on October 3, 2008, the second amendment thereto entered into on October 8, 2008 and the third amendment thereto entered into on October 13, 2008, and Amended Certificate of Designations of Preferences and Rights of the 10% Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock ($1,000 Liquidation Preference per Share) of Morgan Stanley and Certificate of Designations of Preferences and Rights of the 10% Series C Non-Cumulative Non-Voting Perpetual Preferred Stock ($1,000 Liquidation Preference per Share) of Morgan Stanley.* | |||
| 4(c) | Investor Agreement dated as of October 13, 2008 by and between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc., and the first amendment thereto entered into on October 27, 2008.* | ||
| 4(d) | Registration Rights Agreement dated as of October 13, 2008 by and between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc.* | ||
| 4(e) | Integration and Investment Agreement, dated as of March 30, 2010, by and between Mitsubishi UFJ Financial Group, Inc. and Morgan Stanley. | ||
| 8 | Subsidiaries of the Company—see “Item 4.C. Information on the Company—Organizational Structure.” | ||
Exhibit | Description | ||
| 11 | Ethical framework and code of conduct, compliance rules, compliance manual and rules of employment of Mitsubishi UFJ Financial Group, Inc. applicable to its directors and managing officers, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. (English translation of relevant sections)**** | ||
| 12 | Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)). | ||
| 13 | Certifications required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | ||
| 15 | Consent of independent registered public accounting firm. | ||
| 101.INS | XBRL Instance Document | ||
| 101.SCH | XBRL Schema Document | ||
| 101.CAL | XBRL Calculation Linkbase Document | ||
| 101.DEF | XBRL Definition Linkbase Document | ||
| 101.LAB | XBRL Label Linkbase Document | ||
| 101.PRE | XBRL Presentation Linkbase Document | ||
| Notes: |
| * | Incorporated by reference to our annual report on Form 20-F (File No. 333-98061-99) filed on September |
| ** | Incorporated by reference to our annual report on Form 20-F (File No. 333-98061-99) filed on September 28, 2006. |
| *** | Incorporated by reference to |
| **** | Incorporated by reference to our annual report on Form 20-F (File No. 333-98061-99) filed on September 21, 2007. |
Due to close integration of our foreign and domestic activities, it is difficult to make a precise determination of the assets, liabilities, income and expenses of our foreign operations. The foreign operations as presented include the business conducted by overseas subsidiaries and branches, and the international business conducted by the several international banking related divisions headquartered in Japan. Our management believes that the results appropriately represent our domestic and foreign activities.
On October 1, 2005, Mitsubishi Tokyo Financial Group, Inc., or MTFG, merged with UFJ Holdings, Inc., or UFJ Holdings, with MTFG being the surviving entity. Upon consummation of the merger, MTFG changed its name to Mitsubishi UFJ Financial Group, Inc., or MUFG. The merger was accounted for under the purchase method of accounting, and the assets and liabilities of UFJ Holdings and its subsidiaries were recorded at fair value as of October 1, 2005. Therefore, numbers as of and for the fiscal years ended March 31, 2004 and 2005 reflect the financial position and results of MTFG and its subsidiaries, or the MTFG Group, only. Numbers as of March 31, 2006 reflect the financial position of MUFG and its subsidiaries, or the MUFG Group, while numbers for the fiscal year ended March 31, 2006 comprised the results of the MTFG Group for the six months ended September 30, 2005 and the results of the MUFG Group from October 1, 2005 to March 31, 2006. Numbers as of and for the fiscal years ended March 31, 2007, 2008, 2009 and 20082010 reflect the financial position and results of the MUFG Group. See note 2 to our consolidated financial statements for more information.
I. Distribution of Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential
| I. Distribution | of Assets, Liabilities and Equity; Interest Rates and Interest Differential |
Average Balance Sheets, Interest and Average Rates
The following table shows our average balances, interest and average interest rates for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008.2010. Average balances are generally based on a daily average while a month-end average is used for certain average balances when it is not practicable to obtain applicable daily averages. The average balances determined by such methods are considered to be representative of our operations.
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average balance | Interest income | Average rate | Average balance | Interest income | Average rate | Average balance | Interest income | Average rate | Average balance | Interest income | Average rate | Average balance | Interest income | Average rate | Average balance | Interest income | Average rate | |||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-earning deposits in other banks: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | ¥ | 465,293 | ¥ | 6,559 | 1.41 | % | ¥ | 696,025 | ¥ | 17,250 | 2.48 | % | ¥ | 715,565 | ¥ | 27,905 | 3.90 | % | ¥ | 715,565 | ¥ | 27,905 | 3.90 | % | ¥ | 644,550 | ¥ | 11,900 | 1.85 | % | ¥ | 894,396 | ¥ | 4,177 | 0.47 | % | ||||||||||||||||||||||||
Foreign | 4,269,326 | 140,013 | 3.28 | 5,561,241 | 233,784 | 4.20 | 7,161,894 | 230,639 | 3.22 | 7,161,894 | 230,639 | 3.22 | 5,103,530 | 112,932 | 2.21 | 3,734,585 | 22,520 | 0.60 | ||||||||||||||||||||||||||||||||||||||||||
Total | 4,734,619 | 146,572 | 3.10 | 6,257,266 | 251,034 | 4.01 | 7,877,459 | 258,544 | 3.28 | 7,877,459 | 258,544 | 3.28 | 5,748,080 | 124,832 | 2.17 | 4,628,981 | 26,697 | 0.58 | ||||||||||||||||||||||||||||||||||||||||||
Call loans, funds sold, and receivables under resale agreements and securities borrowing transactions: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 4,369,464 | 10,399 | 0.24 | 5,253,790 | 21,681 | 0.41 | 6,755,706 | 46,405 | 0.69 | 6,755,706 | 46,405 | 0.69 | 5,264,909 | 30,626 | 0.58 | 5,051,284 | 9,240 | 0.18 | ||||||||||||||||||||||||||||||||||||||||||
Foreign | 3,016,957 | 73,190 | 2.43 | 3,863,096 | 140,792 | 3.64 | 7,357,362 | 262,170 | 3.56 | 7,357,362 | 262,170 | 3.56 | 6,846,958 | 248,114 | 3.62 | 6,062,075 | 26,324 | 0.43 | ||||||||||||||||||||||||||||||||||||||||||
Total | 7,386,421 | 83,589 | 1.13 | 9,116,886 | 162,473 | 1.78 | 14,113,068 | 308,575 | 2.19 | 14,113,068 | 308,575 | 2.19 | 12,111,867 | 278,740 | 2.30 | 11,113,359 | 35,564 | 0.32 | ||||||||||||||||||||||||||||||||||||||||||
Trading account assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 5,374,674 | 41,808 | 0.78 | 6,133,100 | 58,151 | 0.95 | 4,347,140 | 66,046 | 1.52 | 4,347,140 | 66,046 | 1.52 | 7,305,737 | 72,511 | 0.99 | 7,601,584 | 56,612 | 0.74 | ||||||||||||||||||||||||||||||||||||||||||
Foreign | 1,931,499 | 15,596 | 0.81 | 2,056,877 | 41,767 | 2.03 | 2,629,800 | 44,302 | 1.68 | 2,629,800 | 44,302 | 1.68 | 13,556,131 | 388,023 | 2.86 | 12,721,988 | 251,346 | 1.98 | ||||||||||||||||||||||||||||||||||||||||||
Total | 7,306,173 | 57,404 | 0.79 | 8,189,977 | 99,918 | 1.22 | 6,976,940 | 110,348 | 1.58 | 6,976,940 | 110,348 | 1.58 | 20,861,868 | 460,534 | 2.21 | 20,323,572 | 307,958 | 1.52 | ||||||||||||||||||||||||||||||||||||||||||
Investment securities(1): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 34,280,534 | 182,490 | 0.53 | 39,170,309 | 305,411 | 0.78 | 34,451,745 | 345,242 | 1.00 | 34,451,745 | 345,242 | 1.00 | 31,950,811 | 352,235 | 1.10 | 40,039,924 | 293,874 | 0.73 | �� | |||||||||||||||||||||||||||||||||||||||||
Foreign | 8,760,844 | 332,580 | 3.80 | 10,474,119 | 449,390 | 4.29 | 12,012,930 | 553,597 | 4.61 | 12,012,930 | 553,597 | 4.61 | 2,411,191 | 121,092 | 5.02 | 3,855,490 | 179,706 | 4.66 | ||||||||||||||||||||||||||||||||||||||||||
Total | 43,041,378 | 515,070 | 1.20 | 49,644,428 | 754,801 | 1.52 | 46,464,675 | 898,839 | 1.93 | 46,464,675 | 898,839 | 1.93 | 34,362,002 | 473,327 | 1.38 | 43,895,414 | 473,580 | 1.08 | ||||||||||||||||||||||||||||||||||||||||||
Loans(2): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 60,452,898 | 1,118,072 | 1.85 | 78,942,886 | 1,721,442 | 2.18 | 76,926,024 | 1,709,133 | 2.22 | 76,926,024 | 1,709,133 | 2.22 | 76,520,426 | 1,607,122 | 2.10 | 74,242,963 | 1,347,611 | 1.82 | ||||||||||||||||||||||||||||||||||||||||||
Foreign | 12,463,840 | 609,975 | 4.89 | 16,615,898 | 926,061 | 5.57 | 20,109,157 | 1,081,372 | 5.38 | 20,109,157 | 1,081,372 | 5.38 | 23,638,502 | 951,239 | 4.02 | 21,261,004 | 567,094 | 2.67 | ||||||||||||||||||||||||||||||||||||||||||
Total | 72,916,738 | 1,728,047 | 2.37 | 95,558,784 | 2,647,503 | 2.77 | 97,035,181 | 2,790,505 | 2.88 | 97,035,181 | 2,790,505 | 2.88 | 100,158,928 | 2,558,361 | 2.55 | 95,503,967 | 1,914,705 | 2.00 | ||||||||||||||||||||||||||||||||||||||||||
Total interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 104,942,863 | 1,359,328 | 1.30 | 130,196,110 | 2,123,935 | 1.63 | 123,196,180 | 2,194,731 | 1.78 | 123,196,180 | 2,194,731 | 1.78 | 121,686,433 | 2,074,394 | 1.70 | 127,830,151 | 1,711,514 | 1.34 | ||||||||||||||||||||||||||||||||||||||||||
Foreign | 30,442,466 | 1,171,354 | 3.85 | 38,571,231 | 1,791,794 | 4.65 | 49,271,143 | 2,172,080 | 4.41 | 49,271,143 | 2,172,080 | 4.41 | 51,556,312 | 1,821,400 | 3.53 | 47,635,142 | 1,046,990 | 2.20 | ||||||||||||||||||||||||||||||||||||||||||
Total | 135,385,329 | 2,530,682 | 1.87 | 168,767,341 | 3,915,729 | 2.32 | 172,467,323 | 4,366,811 | 2.53 | 172,467,323 | 4,366,811 | 2.53 | 173,242,745 | 3,895,794 | 2.25 | 175,465,293 | 2,758,504 | 1.57 | ||||||||||||||||||||||||||||||||||||||||||
Non-interest-earning assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash and due from banks | 7,672,359 | 3,308,678 | 2,901,241 | 2,901,241 | 2,922,401 | 2,846,828 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-interest-earning assets | 17,259,898 | 14,639,864 | 19,845,643 | 23,726,071 | 21,240,425 | 18,456,550 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses | (1,178,954 | ) | (1,054,890 | ) | (1,147,943 | ) | (1,147,943 | ) | (1,191,181 | ) | (1,206,599 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Total non-interest-earning assets | 23,753,303 | 16,893,652 | 21,598,941 | �� | 25,479,369 | 22,971,645 | 20,096,779 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets from discontinued operations | 209,137 | 22,040 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total assets | ¥ | 159,347,769 | ¥ | 185,683,033 | ¥ | 194,066,264 | ¥ | 197,946,692 | ¥ | 196,214,390 | ¥ | 195,562,072 | ||||||||||||||||||||||||||||||||||||||||||||||||
Notes:
| (1) | Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material. |
| (2) | Average balances on loans outstanding include all nonaccrual and restructured loans. See “III. Loan Portfolio.” The amortized portion of net loan origination fees (costs) is included in interest income on loans, representing an adjustment to the yields |
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Average balance | Interest expense | Average rate | Average balance | Interest expense | Average rate | Average balance | Interest expense | Average rate | Average balance | Interest expense | Average rate | Average balance | Interest expense | Average rate | Average balance | Interest expense | Average rate | |||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and shareholders’ equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities and equity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | ¥ | 70,349,797 | ¥ | 131,127 | 0.19 | % | ¥ | 90,667,366 | ¥ | 290,589 | 0.32 | % | ¥ | 92,850,670 | ¥ | 442,938 | 0.48 | % | ¥ | 92,850,670 | ¥ | 442,938 | 0.48 | % | ¥ | 95,431,983 | ¥ | 381,109 | 0.40 | % | ¥ | 95,634,273 | ¥ | 220,073 | 0.23 | % | ||||||||||||||||||
Foreign | 11,868,158 | 318,271 | 2.68 | 14,510,114 | 545,310 | 3.76 | 18,289,382 | 651,018 | 3.56 | 18,289,382 | 651,018 | 3.56 | 16,459,276 | 355,347 | 2.16 | 19,182,441 | 133,796 | 0.70 | ||||||||||||||||||||||||||||||||||||
Total | 82,217,955 | 449,398 | 0.55 | 105,177,480 | 835,899 | 0.79 | 111,140,052 | 1,093,956 | 0.98 | 111,140,052 | 1,093,956 | 0.98 | 111,891,259 | 736,456 | 0.66 | 114,816,714 | 353,869 | 0.31 | ||||||||||||||||||||||||||||||||||||
Call money, funds purchased, and payables under repurchase agreements and securities lending transactions: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 8,185,487 | 87,839 | 1.07 | 10,880,404 | 131,616 | 1.21 | 11,425,960 | 164,593 | 1.44 | 11,425,960 | 164,593 | 1.44 | 11,263,438 | 89,694 | 0.80 | 10,938,556 | 21,632 | 0.20 | ||||||||||||||||||||||||||||||||||||
Foreign | 3,239,643 | 81,124 | 2.50 | 3,795,292 | 152,536 | 4.02 | 7,289,632 | 282,664 | 3.88 | 7,289,632 | 282,664 | 3.88 | 7,395,052 | 285,182 | 3.86 | 7,850,081 | 37,599 | 0.48 | ||||||||||||||||||||||||||||||||||||
Total | 11,425,130 | 168,963 | 1.48 | 14,675,696 | 284,152 | 1.94 | 18,715,592 | 447,257 | 2.39 | 18,715,592 | 447,257 | 2.39 | 18,658,490 | 374,876 | 2.01 | 18,788,637 | 59,231 | 0.32 | ||||||||||||||||||||||||||||||||||||
Due to trust account— Domestic | 2,099,745 | 5,091 | 0.24 | 1,981,427 | 5,863 | 0.30 | 1,653,717 | 8,014 | 0.48 | |||||||||||||||||||||||||||||||||||||||||||||
Due to trust account—Domestic | 1,653,717 | 8,014 | 0.48 | 1,479,736 | 6,843 | 0.46 | 1,683,607 | 6,119 | 0.36 | |||||||||||||||||||||||||||||||||||||||||||||
Other short-term borrowings and trading account liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 10,810,548 | 45,625 | 0.42 | 9,135,721 | 73,643 | 0.81 | 7,247,750 | 66,893 | 0.92 | 7,247,750 | 66,893 | 0.92 | 7,289,639 | 82,807 | 1.14 | 6,513,029 | 43,840 | 0.67 | ||||||||||||||||||||||||||||||||||||
Foreign | 1,822,046 | 58,329 | 3.20 | 2,416,109 | 101,602 | 4.21 | 3,231,819 | 139,470 | 4.32 | 3,231,819 | 139,470 | 4.32 | 3,599,444 | 87,717 | 2.44 | 2,553,648 | 21,914 | 0.86 | ||||||||||||||||||||||||||||||||||||
Total | 12,632,594 | 103,954 | 0.82 | 11,551,830 | 175,245 | 1.52 | 10,479,569 | 206,363 | 1.97 | 10,479,569 | 206,363 | 1.97 | 10,889,083 | 170,524 | 1.57 | 9,066,677 | 65,754 | 0.73 | ||||||||||||||||||||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 7,343,305 | 100,626 | 1.37 | 9,667,805 | 160,412 | 1.66 | 10,053,815 | 172,659 | 1.72 | 10,053,815 | 172,659 | 1.72 | 9,251,228 | 160,773 | 1.74 | 9,661,842 | 168,256 | 1.74 | ||||||||||||||||||||||||||||||||||||
Foreign | 2,401,456 | 54,037 | 2.25 | 3,741,775 | 124,392 | 3.32 | 4,109,237 | 158,845 | 3.87 | 4,109,237 | 158,845 | 3.87 | 3,915,063 | 149,917 | 3.83 | 4,138,886 | 121,171 | 2.93 | ||||||||||||||||||||||||||||||||||||
Total | 9,744,761 | 154,663 | 1.59 | 13,409,580 | 284,804 | 2.12 | 14,163,052 | 331,504 | 2.34 | 14,163,052 | 331,504 | 2.34 | 13,166,291 | 310,690 | 2.36 | 13,800,728 | 289,427 | 2.10 | ||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 98,788,882 | 370,308 | 0.37 | 122,332,723 | 662,123 | 0.54 | 123,231,912 | 855,097 | 0.69 | 123,231,912 | 855,097 | 0.69 | 124,716,024 | 721,226 | 0.58 | 124,431,307 | 459,920 | 0.37 | ||||||||||||||||||||||||||||||||||||
Foreign | 19,331,303 | 511,761 | 2.65 | 24,463,290 | 923,840 | 3.78 | 32,920,070 | 1,231,997 | 3.74 | 32,920,070 | 1,231,997 | 3.74 | 31,368,835 | 878,163 | 2.80 | 33,725,056 | 314,480 | 0.93 | ||||||||||||||||||||||||||||||||||||
Total | 118,120,185 | 882,069 | 0.75 | 146,796,013 | 1,585,963 | 1.08 | 156,151,982 | 2,087,094 | 1.34 | 156,151,982 | 2,087,094 | 1.34 | 156,084,859 | 1,599,389 | 1.02 | 158,156,363 | 774,400 | 0.49 | ||||||||||||||||||||||||||||||||||||
Non-interest-bearing liabilities | 33,967,457 | 29,045,972 | 27,956,900 | 31,756,325 | 32,060,269 | 29,544,432 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities from discontinued operations | 153,217 | 17,644 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total equity(1) | 10,038,385 | 8,069,262 | 7,861,277 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total shareholders’ equity | 7,106,910 | 9,823,404 | 9,957,382 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | ¥ | 159,347,769 | ¥ | 185,683,033 | ¥ | 194,066,264 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and equity | ¥ | 197,946,692 | ¥ | 196,214,390 | 195,562,072 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income and interest rate spread | ¥ | 1,648,613 | 1.12 | % | ¥ | 2,329,766 | 1.24 | % | ¥ | 2,279,717 | 1.19 | % | ¥ | 2,279,717 | 1.19 | % | ¥ | 2,296,405 | 1.23 | % | ¥ | 1,984,104 | 1.08 | % | ||||||||||||||||||||||||||||||
Net interest income as a percentage of total interest-earning assets | 1.22 | % | 1.38 | % | 1.32 | % | 1.32 | % | 1.33 | % | 1.13 | % | ||||||||||||||||||||||||||||||||||||||||||
Note:
| (1) | Effective April 1, 2009, we adopted new guidance regarding noncontrolling interests in subsidiaries. See “Noncontrolling Interests” under “Accounting Changes” in Note 1 to our consolidated financial statements included elsewhere in this Annual Report for the detail. As a result, we have reclassified average balances of “Non-interest-bearing liabilities” and “Total equity” for the fiscal years ended March 31, 2008 and 2009. |
The percentage of total average assets attributable to foreign activities was 22.5%28.0%, 23.6%30.1% and 28.6%28.7%, respectively, for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008.2010.
The percentage of total average liabilities attributable to foreign activities was 23.2%29.1%, 24.2%31.0% and 29.7%29.3%, respectively, for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008.
Analysis of Net Interest Income
The following table shows changes in our net interest income betweenby changes in volume and by changes in rate for the fiscal year ended March 31, 20072009 compared to the fiscal year ended March 31, 20062008 and the fiscal year ended March 31, 20082010 compared to the fiscal year ended March 31, 2007.2009.
| Fiscal year ended March 31, 2006 versus fiscal year ended March 31, 2007 | Fiscal year ended March 31, 2007 versus fiscal year ended March 31, 2008 | Fiscal year ended March 31, 2008 versus fiscal year ended March 31, 2009 | Fiscal year ended March 31, 2009 versus fiscal year ended March 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||
| Increase due to changes in | Increase (decrease) due to changes in | Increase (decrease) due to changes in | Net change | Increase (decrease) due to changes in | Net change | ||||||||||||||||||||||||||||||||||||||||
| Volume(1) | Rate(1) | Net change | Volume(1) | Rate(1) | Net change | Volume(1) | Rate(1) | Volume(1) | Rate(1) | ||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||||||||||||
Interest income: | |||||||||||||||||||||||||||||||||||||||||||||
Interest-earning deposits in other banks: | |||||||||||||||||||||||||||||||||||||||||||||
Domestic | ¥ | 4,228 | ¥ | 6,463 | ¥ | 10,691 | ¥ | 497 | ¥ | 10,158 | ¥ | 10,655 | ¥ | (1,443 | ) | ¥ | (14,562 | ) | ¥ | (16,005 | ) | ¥ | 3,436 | ¥ | (11,159 | ) | ¥ | (7,723 | ) | ||||||||||||||||
Foreign | 48,551 | 45,220 | 93,771 | 51,547 | (54,692 | ) | (3,145 | ) | (55,289 | ) | (62,418 | ) | (117,707 | ) | (24,356 | ) | (66,056 | ) | (90,412 | ) | |||||||||||||||||||||||||
Total | 52,779 | 51,683 | 104,462 | 52,044 | (44,534 | ) | 7,510 | (56,732 | ) | (76,980 | ) | (133,712 | ) | (20,920 | ) | (77,215 | ) | (98,135 | ) | ||||||||||||||||||||||||||
Call loans, funds sold, and receivables under resale agreements and securities borrowing transactions: | |||||||||||||||||||||||||||||||||||||||||||||
Domestic | 2,439 | 8,843 | 11,282 | 7,437 | 17,287 | 24,724 | (9,629 | ) | (6,150 | ) | (15,779 | ) | (1,195 | ) | (20,191 | ) | (21,386 | ) | |||||||||||||||||||||||||||
Foreign | 24,221 | 43,381 | 67,602 | 124,514 | (3,136 | ) | 121,378 | (18,188 | ) | 4,132 | (14,056 | ) | (25,557 | ) | (196,233 | ) | (221,790 | ) | |||||||||||||||||||||||||||
Total | 26,660 | 52,224 | 78,884 | 131,951 | 14,151 | 146,102 | (27,817 | ) | (2,018 | ) | (29,835 | ) | (26,752 | ) | (216,424 | ) | (243,176 | ) | |||||||||||||||||||||||||||
| �� | |||||||||||||||||||||||||||||||||||||||||||||
Trading account assets: | |||||||||||||||||||||||||||||||||||||||||||||
Domestic | 6,406 | 9,937 | 16,343 | (16,934 | ) | 24,829 | 7,895 | 29,365 | (22,900 | ) | 6,465 | 2,834 | (18,733 | ) | (15,899 | ) | |||||||||||||||||||||||||||||
Foreign | 1,075 | 25,096 | 26,171 | 9,652 | (7,117 | ) | 2,535 | 294,215 | 49,506 | 343,721 | (22,650 | ) | (114,027 | ) | (136,677 | ) | |||||||||||||||||||||||||||||
Total | 7,481 | 35,033 | 42,514 | (7,282 | ) | 17,712 | 10,430 | 323,580 | 26,606 | 350,186 | (19,816 | ) | (132,760 | ) | (152,576 | ) | |||||||||||||||||||||||||||||
Investment securities(2): | |||||||||||||||||||||||||||||||||||||||||||||
Domestic | 28,871 | 94,050 | 122,921 | (36,791 | ) | 76,622 | 39,831 | (25,062 | ) | 32,055 | 6,993 | 76,330 | (134,691 | ) | (58,361 | ) | |||||||||||||||||||||||||||||
Foreign | 70,123 | 46,687 | 116,810 | 69,274 | 34,933 | 104,207 | (442,481 | ) | 9,976 | (432,505 | ) | 67,878 | (9,264 | ) | 58,614 | ||||||||||||||||||||||||||||||
Total | 98,994 | 140,737 | 239,731 | 32,483 | 111,555 | 144,038 | (467,543 | ) | 42,031 | (425,512 | ) | 144,208 | (143,955 | ) | 253 | ||||||||||||||||||||||||||||||
Loans: | |||||||||||||||||||||||||||||||||||||||||||||
Domestic | 380,590 | 222,780 | 603,370 | (43,980 | ) | 31,671 | (12,309 | ) | (8,560 | ) | (93,451 | ) | (102,011 | ) | (46,665 | ) | (212,846 | ) | (259,511 | ) | |||||||||||||||||||||||||
Foreign | 223,111 | 92,975 | 316,086 | 187,850 | (32,539 | ) | 155,311 | 142,025 | (272,158 | ) | (130,133 | ) | (88,261 | ) | (295,884 | ) | (384,145 | ) | |||||||||||||||||||||||||||
Total | 603,701 | 315,755 | 919,456 | 143,870 | (868 | ) | 143,002 | 133,465 | (365,609 | ) | (232,144 | ) | (134,926 | ) | (508,730 | ) | (643,656 | ) | |||||||||||||||||||||||||||
Total interest income: | |||||||||||||||||||||||||||||||||||||||||||||
Domestic | 422,534 | 342,073 | 764,607 | (89,771 | ) | 160,567 | 70,796 | (15,329 | ) | (105,008 | ) | (120,337 | ) | 34,740 | (397,620 | ) | (362,880 | ) | |||||||||||||||||||||||||||
Foreign | 367,081 | 253,359 | 620,440 | 442,837 | (62,551 | ) | 380,286 | (79,718 | ) | (270,962 | ) | (350,680 | ) | (92,946 | ) | (681,464 | ) | (774,410 | ) | ||||||||||||||||||||||||||
Total | ¥ | 789,615 | ¥ | 595,432 | ¥ | 1,385,047 | ¥ | 353,066 | ¥ | 98,016 | ¥ | 451,082 | ¥ | (95,047 | ) | ¥ | (375,970 | ) | ¥ | (471,017 | ) | ¥ | (58,206 | ) | ¥ | (1,079,084 | ) | ¥ | (1,137,290 | ) | |||||||||||||||
Notes:
| (1) | Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.” |
| (2) | Tax-exempt income of tax-exempt investment securities has not been calculated on a tax equivalent basis because the effect of such calculation would not be material. |
| Fiscal year ended March 31, 2006 versus fiscal year ended March 31, 2007 | Fiscal year ended March 31, 2007 versus fiscal year ended March 31, 2008 | Fiscal year ended March 31, 2008 versus fiscal year ended March 31, 2009 | Fiscal year ended March 31, 2009 versus fiscal year ended March 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||
| Increase (decrease) due to changes in | Net change | Increase (decrease) due to changes in | Net change | Increase (decrease) due to changes in | Net change | Increase (decrease) due to changes in | Net change | ||||||||||||||||||||||||||||||||||||||||
| Volume(1) | Rate(1) | Volume(1) | Rate(1) | Volume(1) | Rate(1) | Volume(1) | Rate(1) | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||||||||||||||||||||||||||
Deposits: | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic | ¥ | 45,675 | ¥ | 113,787 | ¥ | 159,462 | ¥ | 7,158 | ¥ | 145,191 | ¥ | 152,349 | ¥ | 10,309 | ¥ | (72,138 | ) | ¥ | (61,829 | ) | ¥ | 806 | ¥ | (161,842 | ) | ¥ | (161,036 | ) | |||||||||||||||||||
Foreign | 80,995 | 146,044 | 227,039 | 134,525 | (28,817 | ) | 105,708 | (43,261 | ) | (252,410 | ) | (295,671 | ) | 50,975 | (272,526 | ) | (221,551 | ) | |||||||||||||||||||||||||||||
Total | 126,670 | 259,831 | 386,501 | 141,683 | 116,374 | 258,057 | (32,952 | ) | (324,548 | ) | (357,500 | ) | 51,781 | (434,368 | ) | (382,587 | ) | ||||||||||||||||||||||||||||||
Call money, funds purchased, and payables under repurchase agreements and securities lending transactions: | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 31,573 | 12,204 | 43,777 | 6,861 | 26,116 | 32,977 | (1,313 | ) | (73,586 | ) | (74,899 | ) | (2,515 | ) | (65,547 | ) | (68,062 | ) | |||||||||||||||||||||||||||||
Foreign | 15,773 | 55,639 | 71,412 | 135,497 | (5,369 | ) | 130,128 | 4,065 | (1,547 | ) | 2,518 | 16,539 | (264,122 | ) | (247,583 | ) | |||||||||||||||||||||||||||||||
Total | 47,346 | 67,843 | 115,189 | 142,358 | 20,747 | 163,105 | 2,752 | (75,133 | ) | (72,381 | ) | 14,024 | (329,669 | ) | (315,645 | ) | |||||||||||||||||||||||||||||||
Due to trust account—Domestic | (287 | ) | 1,059 | 772 | (970 | ) | 3,121 | 2,151 | (832 | ) | (339 | ) | (1,171 | ) | 864 | (1,588 | ) | (724 | ) | ||||||||||||||||||||||||||||
Other short-term borrowings and trading account liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic | (7,068 | ) | 35,086 | 28,018 | (15,219 | ) | 8,469 | (6,750 | ) | 389 | 15,525 | 15,914 | (8,077 | ) | (30,890 | ) | (38,967 | ) | |||||||||||||||||||||||||||||
Foreign | 22,058 | 21,215 | 43,273 | 35,137 | 2,731 | 37,868 | 8,959 | (60,712 | ) | (51,753 | ) | (20,374 | ) | (45,429 | ) | (65,803 | ) | ||||||||||||||||||||||||||||||
Total | 14,990 | 56,301 | 71,291 | 19,918 | 11,200 | 31,118 | 9,348 | (45,187 | ) | (35,839 | ) | (28,451 | ) | (76,319 | ) | (104,770 | ) | ||||||||||||||||||||||||||||||
| �� | |||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt: | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 35,884 | 23,902 | 59,786 | 6,524 | 5,723 | 12,247 | (13,783 | ) | 1,897 | (11,886 | ) | 7,150 | 333 | 7,483 | |||||||||||||||||||||||||||||||||
Foreign | 37,920 | 32,435 | 70,355 | 12,964 | 21,489 | 34,453 | (7,495 | ) | (1,433 | ) | (8,928 | ) | 8,176 | (36,922 | ) | (28,746 | ) | ||||||||||||||||||||||||||||||
Total | 73,804 | 56,337 | 130,141 | 19,488 | 27,212 | 46,700 | (21,278 | ) | 464 | (20,814 | ) | 15,326 | (36,589 | ) | (21,263 | ) | |||||||||||||||||||||||||||||||
Total interest expense: | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic | 105,777 | 186,038 | 291,815 | 4,354 | 188,620 | 192,974 | (5,230 | ) | (128,641 | ) | (133,871 | ) | (1,772 | ) | (259,534 | ) | (261,306 | ) | |||||||||||||||||||||||||||||
Foreign | 156,746 | 255,333 | 412,079 | 318,123 | (9,966 | ) | 308,157 | (37,732 | ) | (316,102 | ) | (353,834 | ) | 55,316 | (618,999 | ) | (563,683 | ) | |||||||||||||||||||||||||||||
Total | ¥ | 262,523 | ¥ | 441,371 | ¥ | 703,894 | ¥ | 322,477 | ¥ | 178,654 | ¥ | 501,131 | ¥ | (42,962 | ) | ¥ | (444,743 | ) | ¥ | (487,705 | ) | ¥ | 53,544 | ¥ | (878,533 | ) | ¥ | (824,989 | ) | ||||||||||||||||||
Net interest income: | |||||||||||||||||||||||||||||||||||||||||||||||
Domestic | ¥ | 316,757 | ¥ | 156,035 | ¥ | 472,792 | ¥ | (94,125 | ) | ¥ | (28,053 | ) | ¥ | (122,178 | ) | ¥ | (10,099 | ) | ¥ | 23,633 | ¥ | 13,534 | ¥ | 36,512 | ¥ | (138,086 | ) | ¥ | (101,574 | ) | |||||||||||||||||
Foreign | 210,335 | (1,974 | ) | 208,361 | 124,714 | (52,585 | ) | 72,129 | (41,986 | ) | 45,140 | 3,154 | (148,262 | ) | (62,465 | ) | (210,727 | ) | |||||||||||||||||||||||||||||
Total | ¥ | 527,092 | ¥ | 154,061 | ¥ | 681,153 | ¥ | 30,589 | ¥ | (80,638 | ) | ¥ | (50,049 | ) | ¥ | (52,085 | ) | ¥ | 68,773 | ¥ | 16,688 | ¥ | (111,750 | ) | ¥ | (200,551 | ) | ¥ | (312,301 | ) | |||||||||||||||||
Note:
| (1) | Volume/rate variance is allocated based on the percentage relationship of changes in volume and changes in rate to the total “net change.” |
II. Investment Portfolio
| II. | Investment Portfolio |
The following table shows information as to the value of our investment securities available for sale and being held to maturity at March 31, 2006, 20072008, 2009 and 2008:2010:
| At March 31, | At March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortized cost | Estimated fair value | Net unrealized gains (losses) | Amortized cost | Estimated fair value | Net unrealized gains (losses) | Amortized cost | Estimated fair value | Net unrealized gains (losses) | Amortized cost | Estimated fair value | Net unrealized gains (losses) | Amortized cost | Estimated fair value | Net unrealized gains (losses) | Amortized cost | Estimated fair value | Net unrealized gains (losses) | |||||||||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 23,912,143 | ¥ | 23,915,449 | ¥ | 3,306 | ¥ | 20,939,737 | ¥ | 20,980,858 | ¥ | 41,121 | ¥ | 16,133,001 | ¥ | 16,185,893 | ¥ | 52,892 | ¥ | 16,133,001 | ¥ | 16,185,893 | ¥ | 52,892 | ¥ | 23,846,153 | ¥ | 23,892,774 | ¥ | 46,621 | ¥ | 39,431,089 | ¥ | 39,432,861 | ¥ | 1,772 | ||||||||||||||||||||||||
Corporate bonds | 4,538,955 | 4,566,635 | 27,680 | 4,583,458 | 4,666,221 | 82,763 | 3,998,366 | 4,094,185 | 95,819 | 3,998,366 | 4,094,185 | 95,819 | 3,698,535 | 3,776,958 | 78,423 | 3,293,831 | 3,374,095 | 80,264 | ||||||||||||||||||||||||||||||||||||||||||
Marketable equity securities | 4,548,901 | 8,171,512 | 3,622,611 | 4,430,995 | 8,301,479 | 3,870,484 | 4,009,747 | 5,993,883 | 1,984,136 | 4,009,747 | 5,993,883 | 1,984,136 | 3,318,143 | 3,937,517 | 619,374 | 2,960,293 | 4,417,031 | 1,456,738 | ||||||||||||||||||||||||||||||||||||||||||
Other securities | 785,723 | 785,572 | (151 | ) | 820,836 | 823,259 | 2,423 | 714,627 | 720,370 | 5,743 | 714,627 | 720,370 | 5,743 | 737,866 | 739,494 | 1,628 | 611,292 | 615,010 | 3,718 | |||||||||||||||||||||||||||||||||||||||||
Total domestic | 33,785,722 | 37,439,168 | 3,653,446 | 30,775,026 | 34,771,817 | 3,996,791 | 24,855,741 | 26,994,331 | 2,138,590 | 24,855,741 | 26,994,331 | 2,138,590 | 31,600,697 | 32,346,743 | 746,046 | 46,296,505 | 47,838,997 | 1,542,492 | ||||||||||||||||||||||||||||||||||||||||||
Foreign: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies bonds | 1,040,708 | 1,045,140 | 4,432 | 2,080,476 | 2,094,353 | 13,877 | 1,912,224 | 1,918,466 | 6,242 | 1,912,224 | 1,918,466 | 6,242 | 87,998 | 91,044 | 3,046 | 1,180,899 | 1,178,334 | (2,565 | ) | |||||||||||||||||||||||||||||||||||||||||
Other governments and official institutions bonds | 1,076,330 | 1,095,995 | 19,665 | 1,388,746 | 1,443,758 | 55,012 | 1,725,342 | 1,752,357 | 27,015 | 1,725,342 | 1,752,357 | 27,015 | 97,563 | 99,587 | 2,024 | 159,851 | 166,892 | 7,041 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 2,624,901 | 2,690,634 | 65,733 | 2,654,875 | 2,720,421 | 65,546 | 3,376,511 | 3,375,585 | (926 | ) | 3,376,511 | 3,375,585 | (926 | ) | 559,937 | 555,397 | (4,540 | ) | 901,848 | 909,448 | 7,600 | |||||||||||||||||||||||||||||||||||||||
Other securities | 3,062,456 | 3,214,972 | 152,516 | 4,400,437 | 4,649,433 | 248,996 | 4,706,437 | 4,688,562 | (17,875 | ) | 4,706,437 | 4,688,562 | (17,875 | ) | 347,422 | 297,316 | (50,106 | ) | 304,761 | 318,205 | 13,444 | |||||||||||||||||||||||||||||||||||||||
Total foreign | 7,804,395 | 8,046,741 | 242,346 | 10,524,534 | 10,907,965 | 383,431 | 11,720,514 | 11,734,970 | 14,456 | 11,720,514 | 11,734,970 | 14,456 | 1,092,920 | 1,043,344 | (49,576 | ) | 2,547,359 | 2,572,879 | 25,520 | |||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 41,590,117 | ¥ | 45,485,909 | ¥ | 3,895,792 | ¥ | 41,299,560 | ¥ | 45,679,782 | ¥ | 4,380,222 | ¥ | 36,576,255 | ¥ | 38,729,301 | ¥ | 2,153,046 | ¥ | 36,576,255 | ¥ | 38,729,301 | ¥ | 2,153,046 | ¥ | 32,693,617 | ¥ | 33,390,087 | ¥ | 696,470 | ¥ | 48,843,864 | ¥ | 50,411,876 | ¥ | 1,568,012 | ||||||||||||||||||||||||
Securities being held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 2,281,211 | ¥ | 2,265,653 | ¥ | (15,558 | ) | ¥ | 2,809,445 | ¥ | 2,808,716 | ¥ | (729 | ) | ¥ | 2,601,852 | ¥ | 2,618,946 | ¥ | 17,094 | ¥ | 2,601,852 | ¥ | 2,618,946 | ¥ | 17,094 | ¥ | 1,352,213 | ¥ | 1,369,652 | ¥ | 17,439 | ¥ | 1,076,900 | ¥ | 1,094,150 | ¥ | 17,250 | ||||||||||||||||||||||
Other securities | 109,716 | 110,614 | 898 | 164,291 | 165,477 | 1,186 | 204,181 | 206,437 | 2,256 | 204,181 | 206,437 | 2,256 | 187,015 | 188,789 | 1,774 | 170,704 | 173,569 | 2,865 | ||||||||||||||||||||||||||||||||||||||||||
Total domestic | 2,390,927 | 2,376,267 | (14,660 | ) | 2,973,736 | 2,974,193 | 457 | 2,806,033 | 2,825,383 | 19,350 | 2,806,033 | 2,825,383 | 19,350 | 1,539,228 | 1,558,441 | 19,213 | 1,247,604 | 1,267,719 | 20,115 | |||||||||||||||||||||||||||||||||||||||||
Foreign: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies bonds | 15,154 | 15,467 | 313 | 7,451 | 7,842 | 391 | 4,592 | 5,256 | 664 | 4,592 | 5,256 | 664 | 82,491 | 83,892 | 1,401 | 139,039 | 142,086 | 3,047 | ||||||||||||||||||||||||||||||||||||||||||
Other governments and official institutions bonds | 5,079 | 4,992 | (87 | ) | 6,691 | 6,663 | (28 | ) | 5,010 | 5,010 | — | 5,010 | 5,010 | — | 122,463 | 123,153 | 690 | 468,519 | 473,481 | 4,962 | ||||||||||||||||||||||||||||||||||||||||
Other securities | 54,914 | 55,031 | 117 | 45,221 | 45,862 | 641 | 24,031 | 24,748 | 717 | 24,031 | 24,748 | 717 | 1,068,171 | 1,060,960 | (7,211 | ) | 1,088,639 | 1,144,635 | 55,996 | |||||||||||||||||||||||||||||||||||||||||
Total foreign | 75,147 | 75,490 | 343 | 59,363 | 60,367 | 1,004 | 33,633 | 35,014 | 1,381 | 33,633 | 35,014 | 1,381 | 1,273,125 | 1,268,005 | (5,120 | ) | 1,696,197 | 1,760,202 | 64,005 | |||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 2,466,074 | ¥ | 2,451,757 | ¥ | (14,317 | ) | ¥ | 3,033,099 | ¥ | 3,034,560 | ¥ | 1,461 | ¥ | 2,839,666 | ¥ | 2,860,397 | ¥ | 20,731 | ¥ | 2,839,666 | ¥ | 2,860,397 | ¥ | 20,731 | ¥ | 2,812,353 | ¥ | 2,826,446 | ¥ | 14,093 | ¥ | 2,943,801 | ¥ | 3,027,921 | ¥ | 84,120 | |||||||||||||||||||||||
Nonmarketable equity securities presented in Other investment securities in the consolidated financial statements were primarily carried at costscost of ¥794,305¥513,975 million, ¥623,430¥1,390,315 million and ¥513,975¥1,655,812 million, at March 31, 2006, 20072008, 2009 and 2008,2010, respectively. The corresponding estimated fair values at those dates were not readily determinable. Investment securities held by certain subsidiaries subject to specialized industry accounting principles in AICPA Guides presented in Other investment securities were carried at fair value of ¥68,664¥66,038 million, ¥47,529¥43,809 million and ¥66,038¥35,026 million, at March 31, 2006, 20072008, 2009 and 2008,2010, respectively.
The following table presents the book values, maturities and weighted average yields of investment securities available for sale and being held to maturity, excluding equity securities, at March 31, 2008.2010. Weighted average yields are calculated based on amortized cost. Yields on tax-exempt obligations have not been calculated on a tax equivalent basis because the effect of such calculation would not be material:
| Maturities within one year | Maturities after one year but within five years | Maturities after five years but within ten years | Maturities after ten years | Total | Maturities within one year | Maturities after one year but within five years | Maturities after five years but within ten years | Maturities after ten years | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | |||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 7,032,285 | 0.12 | % | ¥ | 3,285,030 | 1.15 | % | ¥ | 3,654,425 | 1.43 | % | ¥ | 2,214,153 | 1.29 | % | ¥ | 16,185,893 | 0.78 | % | ¥ | 15,096,928 | 0.03 | % | ¥ | 19,104,993 | 0.53 | % | ¥ | 2,807,673 | 1.11 | % | ¥ | 2,423,267 | 1.45 | % | ¥ | 39,432,861 | 0.43 | % | ||||||||||||||||||||
Corporate bonds | 505,331 | 0.86 | 2,750,381 | 1.13 | 799,212 | 1.34 | 39,261 | 1.52 | 4,094,185 | 1.14 | 524,418 | 0.95 | 2,277,930 | 1.11 | 521,420 | 1.12 | 50,327 | 1.66 | 3,374,095 | 1.10 | ||||||||||||||||||||||||||||||||||||||||
Other securities | 221,553 | 0.90 | 226,420 | 1.13 | 235,251 | 1.30 | 37,146 | 1.20 | 720,370 | 1.12 | 139,080 | 0.98 | 191,238 | 1.06 | 265,853 | 1.50 | 18,839 | 1.05 | 615,010 | 1.23 | ||||||||||||||||||||||||||||||||||||||||
Total domestic | 7,759,169 | 0.19 | 6,261,831 | 1.14 | 4,688,888 | 1.41 | 2,290,560 | 1.29 | 21,000,448 | 0.86 | 15,760,426 | 0.07 | 21,574,161 | 0.59 | 3,594,946 | 1.14 | 2,492,433 | 1.45 | 43,421,966 | 0.50 | ||||||||||||||||||||||||||||||||||||||||
Foreign: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies bonds | 135,059 | 4.17 | 1,300,211 | 3.31 | 327,195 | 3.82 | 156,001 | 5.58 | 1,918,466 | 3.64 | 355,756 | 0.57 | 821,198 | 1.61 | 1,380 | 9.20 | — | 0.00 | 1,178,334 | 1.30 | ||||||||||||||||||||||||||||||||||||||||
Other governments and official institutions bonds | 321,352 | 2.50 | 733,169 | 4.02 | 635,027 | 3.97 | 62,809 | 3.89 | 1,752,357 | 3.72 | 44,065 | 1.61 | 50,319 | 3.38 | 70,538 | 2.41 | 1,970 | 5.39 | 166,892 | 2.52 | ||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 112 | 5.93 | 9,778 | 3.61 | 233,128 | 4.29 | 3,132,567 | 5.02 | 3,375,585 | 4.97 | 1 | — | 29,183 | 3.69 | 138,165 | 3.84 | 742,099 | 4.16 | 909,448 | 4.10 | ||||||||||||||||||||||||||||||||||||||||
Other securities | 149,621 | 3.91 | 1,102,207 | 3.87 | 1,084,983 | 4.78 | 2,001,975 | 4.76 | 4,338,786 | 4.52 | 30,866 | 1.13 | 127,979 | 1.90 | 10,211 | 0.94 | 11,500 | 4.05 | 180,556 | 1.85 | ||||||||||||||||||||||||||||||||||||||||
Total foreign | 606,144 | 3.22 | 3,145,365 | 3.67 | 2,280,333 | 4.37 | 5,353,352 | 4.93 | 11,385,194 | 4.38 | 430,688 | 0.72 | 1,028,679 | 1.78 | 220,294 | 3.28 | 755,569 | 4.16 | 2,435,230 | 2.46 | ||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 8,365,313 | 0.41 | % | ¥ | 9,407,196 | 1.98 | % | ¥ | 6,969,221 | 2.39 | % | ¥ | 7,643,912 | 3.84 | % | ¥ | 32,385,642 | 2.11 | % | ¥ | 16,191,114 | 0.09 | % | ¥ | 22,602,840 | 0.65 | % | ¥ | 3,815,240 | 1.26 | % | ¥ | 3,248,002 | 2.08 | % | ¥ | 45,857,196 | 0.60 | % | ||||||||||||||||||||
Securities being held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 1,339,761 | 0.59 | % | ¥ | 1,207,769 | 1.11 | % | ¥ | 17,817 | 0.89 | % | ¥ | 36,505 | 1.33 | % | ¥ | 2,601,852 | 0.84 | % | ¥ | 252,382 | 1.14 | % | ¥ | 824,493 | 1.24 | % | ¥ | 25 | — | % | ¥ | — | — | % | ¥ | 1,076,900 | 1.22 | % | ||||||||||||||||||||
Other securities | 29,285 | 1.39 | 172,766 | 1.46 | 1,133 | 2.03 | 997 | 2.24 | 204,181 | 1.46 | 33,384 | 1.47 | 136,323 | 1.42 | — | — | 997 | 1.91 | 170,704 | 1.44 | ||||||||||||||||||||||||||||||||||||||||
Total domestic | 1,369,046 | 0.61 | 1,380,535 | 1.15 | 18,950 | 0.96 | 37,502 | 1.36 | 2,806,033 | 0.89 | 285,766 | 1.18 | 960,816 | 1.27 | 25 | — | 997 | 1.91 | 1,247,604 | 1.25 | ||||||||||||||||||||||||||||||||||||||||
Foreign: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury and other U.S. government agencies bonds | 569 | 0.00 | — | — | — | — | 4,023 | 7.08 | 4,592 | 6.21 | 9,302 | 1.62 | 126,968 | 2.61 | 1,940 | 8.20 | 829 | 8.56 | 139,039 | 2.66 | ||||||||||||||||||||||||||||||||||||||||
Other governments and official institutions bonds | 2,004 | 6.01 | 3,006 | 4.76 | — | — | — | — | 5,010 | 5.26 | 44,179 | 2.78 | 424,340 | 2.89 | — | — | — | — | 468,519 | 2.88 | ||||||||||||||||||||||||||||||||||||||||
Other securities | 6,451 | 2.85 | 4,619 | 3.83 | 12,961 | 1.80 | — | — | 24,031 | 2.47 | 2,749 | 3.78 | 11,365 | 1.50 | 356,844 | 0.90 | 717,681 | 0.67 | 1,088,639 | 0.76 | ||||||||||||||||||||||||||||||||||||||||
Total foreign | 9,024 | 3.37 | 7,625 | 4.20 | 12,961 | 1.80 | 4,023 | 7.08 | 33,633 | 3.40 | 56,230 | 2.64 | 562,673 | 2.80 | 358,784 | 0.94 | 718,510 | 0.68 | 1,696,197 | 1.50 | ||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 1,378,070 | 0.62 | % | ¥ | 1,388,160 | 1.17 | % | ¥ | 31,911 | 1.30 | % | ¥ | 41,525 | 1.91 | % | ¥ | 2,839,666 | 0.92 | % | ¥ | 341,996 | 1.42 | % | ¥ | 1,523,489 | 1.83 | % | ¥ | 358,809 | 0.94 | % | ¥ | 719,507 | 0.68 | % | ¥ | 2,943,801 | 1.40 | % | ||||||||||||||||||||
Excluding U.S. Treasury and other U.S. government agencies bonds and Japanese national government bonds, the following table sets forth the securitiesnone of individual issuers held in our investment securities portfolio which exceeded 10% of our consolidated total Mitsubishi UFJ Financial Group shareholders’ equity at March 31, 2008.2010.
| Amortized cost | Estimated fair value | |||||
| (in millions) | ||||||
Mortgage-backed securities issued by U.S. Federal National Mortgage Association | ¥ | 1,752,954 | ¥ | 1,752,706 | ||
Mortgage-backed securities issued by Federal Home Loan Mortgage Corporation | ¥ | 1,490,522 | ¥ | 1,489,556 | ||
III. Loan Portfolio
| III. | Loan Portfolio |
The following table shows our loans outstanding, before deduction of allowance for credit losses, by domicile and type of industry of borrower at March 31 of each of the five fiscal years ended March 31, 2008.2010. Classification of loans by industry is based on the industry segment loan classification as defined by the Bank of Japan for regulatory reporting purposes and is not necessarily based on use of proceeds:
| At March 31, | At March 31, | |||||||||||||||||||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007(4) | 2008 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||
Domestic(1): | ||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||
Manufacturing | ¥ | 6,028,324 | ¥ | 6,498,384 | ¥ | 10,766,623 | ¥ | 10,988,248 | ¥ | 11,322,092 | ¥ | 10,546,566 | ¥ | 10,869,329 | ¥ | 11,178,924 | ¥ | 12,922,822 | ¥ | 12,027,795 | ||||||||||||||||||
Construction | 1,029,722 | 990,217 | 1,994,180 | 1,843,033 | 1,759,436 | 1,835,104 | 1,812,454 | 1,728,534 | 1,803,541 | 1,427,933 | ||||||||||||||||||||||||||||
Real estate | 5,323,676 | 5,809,522 | 9,050,666 | 8,307,407 | 8,247,964 | 11,026,786 | 10,432,600 | 10,857,072 | 10,436,795 | 12,261,588 | ||||||||||||||||||||||||||||
Services | 4,575,563 | 3,815,090 | 6,760,142 | 7,069,095 | 6,707,417 | 7,220,040 | 6,902,660 | 6,553,980 | 6,750,442 | 3,714,148 | ||||||||||||||||||||||||||||
Wholesale and retail | 5,051,205 | 5,268,124 | 9,791,718 | 9,430,037 | 9,436,939 | 9,134,683 | 9,317,518 | 9,308,599 | 9,760,805 | 8,597,192 | ||||||||||||||||||||||||||||
Banks and other financial institutions(2) | 3,746,786 | 3,693,034 | 5,556,519 | 4,484,294 | 4,825,368 | 5,054,477 | 4,358,275 | 4,671,499 | 4,836,047 | 4,159,603 | ||||||||||||||||||||||||||||
Communication and information services | 878,685 | 787,982 | 1,188,789 | 1,170,036 | 1,152,727 | 1,177,137 | 1,167,630 | 1,150,438 | 732,652 | 1,339,753 | ||||||||||||||||||||||||||||
Other industries | 6,180,076 | 6,791,057 | 11,770,712 | 10,264,718 | 10,412,330 | 13,591,354 | 10,559,974 | 10,806,144 | 9,515,861 | 9,393,031 | ||||||||||||||||||||||||||||
Consumer | 6,954,984 | 7,334,101 | 23,068,813 | 23,817,981 | 23,908,589 | 20,362,015 | 21,954,409 | 21,517,672 | 20,542,398 | 19,096,832 | ||||||||||||||||||||||||||||
Total domestic | 39,769,021 | 40,987,511 | 79,948,162 | 77,374,849 | 77,772,862 | 79,948,162 | 77,374,849 | 77,772,862 | 77,301,363 | 72,017,875 | ||||||||||||||||||||||||||||
Foreign: | ||||||||||||||||||||||||||||||||||||||
Governments and official institutions | 183,117 | 212,750 | 332,213 | 374,157 | 316,761 | 332,213 | 374,157 | 316,761 | 351,134 | 490,376 | ||||||||||||||||||||||||||||
Banks and other financial institutions(2) | 1,043,904 | 917,409 | 1,101,152 | 1,694,951 | 2,100,057 | 1,101,152 | 1,694,951 | 2,100,057 | 2,687,004 | 2,970,470 | ||||||||||||||||||||||||||||
Commercial and industrial | 6,273,755 | 7,527,695 | 11,776,784 | 13,468,916 | 16,188,426 | 11,776,784 | 13,470,223 | 16,189,725 | 17,550,544 | 14,252,704 | ||||||||||||||||||||||||||||
Other | 1,116,459 | 1,277,329 | 2,337,237 | 2,460,884 | 2,708,049 | 2,337,237 | 2,459,577 | 2,706,750 | 2,510,521 | 2,554,209 | ||||||||||||||||||||||||||||
Total foreign | 8,617,235 | 9,935,183 | 15,547,386 | 17,998,908 | 21,313,293 | 15,547,386 | 17,998,908 | 21,313,293 | 23,099,203 | 20,267,759 | ||||||||||||||||||||||||||||
Total | 48,386,256 | 50,922,694 | 95,495,548 | 95,373,757 | 99,086,155 | 95,495,548 | 95,373,757 | 99,086,155 | 100,400,566 | 92,285,634 | ||||||||||||||||||||||||||||
Unearned income, unamortized premiums—net and deferred loan fees—net | (28,538 | ) | (18,678 | ) | 11,287 | (50,913 | ) | (84,076 | ) | 11,287 | (50,913 | ) | (84,076 | ) | (90,225 | ) | (99,724 | ) | ||||||||||||||||||||
Total(3) | ¥ | 48,357,718 | ¥ | 50,904,016 | ¥ | 95,506,835 | ¥ | 95,322,844 | ¥ | 99,002,079 | ¥ | 95,506,835 | ¥ | 95,322,844 | ¥ | 99,002,079 | ¥ | 100,310,341 | ¥ | 92,185,910 | ||||||||||||||||||
Notes:
| (1) | Since the |
| (2) | Loans to the so-called non-bank finance companies are generally included in the “Banks and other financial institutions” category. Non-bank finance companies are primarily engaged in consumer lending, factoring and credit card businesses. |
| (3) | The above table includes loans held for sale of |
| At March 31, 2007 | ||||||||
| As previously reported | As restated | |||||||
| (in millions) | ||||||||
Domestic: | ||||||||
Manufacturing | ¥ | 10,988,248 | ¥ | 10,988,248 | ||||
Construction | 1,843,033 | 1,843,033 | ||||||
Real estate | 8,291,493 | 8,307,407 | ||||||
Services | 7,054,058 | 7,069,095 | ||||||
Wholesale and retail | 9,430,335 | 9,430,037 | ||||||
Banks and other financial institutions | 4,396,455 | 4,484,294 | ||||||
Communication and information services | 1,134,493 | 1,170,036 | ||||||
Other industries | 10,416,743 | 10,264,718 | ||||||
Consumer | 23,893,621 | 23,817,981 | ||||||
Total domestic | 77,448,479 | 77,374,849 | ||||||
Foreign: | ||||||||
Governments and official institutions | 374,157 | 374,157 | ||||||
Banks and other financial institutions | 1,529,447 | 1,694,951 | ||||||
Commercial and industrial | 13,498,030 | 13,468,916 | ||||||
Other | 2,523,644 | 2,460,884 | ||||||
Total foreign | 17,925,278 | 17,998,908 | ||||||
Total | 95,373,757 | 95,373,757 | ||||||
Unearned income, unamortized premiums-net and deferred loan fees-net | (50,913 | ) | (50,913 | ) | ||||
Total | ¥ | 95,322,844 | ¥ | 95,322,844 | ||||
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the maturities of our loan portfolio at March 31, 2008:2010:
| Maturity | Maturity | |||||||||||||||||||||||
| One year or less | One to five years | Over five years | Total | One year or less | One to five years | Over five years | Total | |||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||
Manufacturing | ¥ | 7,719,759 | ¥ | 3,076,505 | ¥ | 525,828 | ¥ | 11,322,092 | ¥ | 7,515,341 | ¥ | 3,909,255 | ¥ | 603,199 | ¥ | 12,027,795 | ||||||||
Construction | 1,113,124 | 571,865 | 74,447 | 1,759,436 | 913,998 | 455,020 | 58,915 | 1,427,933 | ||||||||||||||||
Real estate | 3,081,312 | 3,546,961 | 1,619,691 | 8,247,964 | 3,470,386 | 4,630,112 | 4,161,090 | 12,261,588 | ||||||||||||||||
Services | 2,939,603 | 2,984,037 | 783,777 | 6,707,417 | 1,853,257 | 1,399,852 | 461,039 | 3,714,148 | ||||||||||||||||
Wholesale and retail | 6,430,377 | 2,590,946 | 415,616 | 9,436,939 | 5,730,517 | 2,570,322 | 296,353 | 8,597,192 | ||||||||||||||||
Banks and other financial institutions | 2,767,972 | 1,899,504 | 157,892 | 4,825,368 | 1,976,734 | 1,992,693 | 190,176 | 4,159,603 | ||||||||||||||||
Communication and information services | 551,566 | 514,104 | 87,057 | 1,152,727 | 649,647 | 626,692 | 63,414 | 1,339,753 | ||||||||||||||||
Other industries | 7,215,472 | 2,056,774 | 1,140,084 | 10,412,330 | 6,287,923 | 2,075,324 | 1,029,784 | 9,393,031 | ||||||||||||||||
Consumer | 2,495,948 | 4,207,844 | 17,204,797 | 23,908,589 | 2,488,182 | 4,103,589 | 12,505,061 | 19,096,832 | ||||||||||||||||
Total Domestic | 34,315,133 | 21,448,540 | 22,009,189 | 77,772,862 | 30,885,985 | 21,762,859 | 19,369,031 | 72,017,875 | ||||||||||||||||
Foreign | 9,841,675 | 7,284,448 | 4,187,170 | 21,313,293 | 8,564,070 | 7,761,489 | 3,942,200 | 20,267,759 | ||||||||||||||||
Total | ¥ | 44,156,808 | ¥ | 28,732,988 | ¥ | 26,196,359 | ¥ | 99,086,155 | ¥ | 39,450,055 | ¥ | 29,524,348 | ¥ | 23,311,231 | ¥ | 92,285,634 | ||||||||
The above loans due after one year which had predetermined interest rates and floating or adjustable interest rates at March 31, 20082010 are shown below.below:
| Domestic | Foreign | Total | Domestic | Foreign | Total | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
Predetermined rate | ¥ | 19,050,278 | ¥ | 1,724,906 | ¥ | 20,775,184 | ¥ | 15,472,202 | ¥ | 1,796,016 | ¥ | 17,268,218 | ||||||
Floating or adjustable rate | 24,407,451 | 9,746,712 | 34,154,163 | 25,659,688 | 9,907,673 | 35,567,361 | ||||||||||||
Total | ¥ | 43,457,729 | ¥ | 11,471,618 | ¥ | 54,929,347 | ¥ | 41,131,890 | ¥ | 11,703,689 | ¥ | 52,835,579 | ||||||
Note:
| (1) | Since the classification by industry segment as defined by the Bank of Japan for regulatory reporting purposes was changed, “Real estate” includes loans to lease financing companies of ¥1,021,945 million, ¥1,208,305 million, ¥162,175 million within the above maturity classifications, respectively at March 31, 2010. In prior periods through March 31, 2009, the related balances had been included in “Services.” |
Nonaccrual, Past Due and Restructured Loans
We generally discontinue the accrual of interest income on loans when substantial doubt exists as to the full and timely collection of either principal or interest, or when principal or interest is contractually past due one month or more with respect to loans of banking subsidiaries, including BTMU and MUTB, and 90 days or more with respect to loans of certain foreign banking subsidiaries.
The following table shows the distribution of our nonaccrual loans, restructured loans and accruing loans which are contractually past due 90 days or more as to principal or interest payments at March 31 of each of the five fiscal years ended March 31, 2008,2010, based on the domicile and type of industry of the borrowers:
| At March 31, | At March 31, | |||||||||||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||
Nonaccrual loans: | ||||||||||||||||||||||||||||||
Domestic(1): | ||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||
Manufacturing | ¥ | 177,257 | ¥ | 115,229 | ¥ | 128,055 | ¥ | 82,206 | ¥ | 109,023 | ¥ | 128,055 | ¥ | 82,206 | ¥ | 109,023 | ¥ | 87,649 | ¥ | 111,235 | ||||||||||
Construction | 59,908 | 48,750 | 38,406 | 45,027 | 44,322 | 38,406 | 45,027 | 44,322 | 55,760 | 33,449 | ||||||||||||||||||||
Real estate | 207,047 | 165,296 | 190,703 | 142,681 | 164,521 | 190,703 | 142,681 | 164,521 | 263,831 | 214,367 | ||||||||||||||||||||
Services | 87,154 | 183,294 | 70,339 | 140,464 | 142,795 | 70,339 | 140,464 | 142,795 | 104,594 | 79,517 | ||||||||||||||||||||
Wholesale and retail | 114,281 | 88,844 | 130,216 | 133,344 | 156,816 | 130,216 | 133,344 | 156,816 | 139,000 | 135,523 | ||||||||||||||||||||
Banks and other financial institutions | 21,388 | 4,364 | 15,794 | 16,712 | 10,591 | 15,794 | 16,712 | 10,591 | 14,826 | 2,322 | ||||||||||||||||||||
Communication and information services | 5,392 | 12,048 | 13,034 | 32,035 | 45,115 | 13,034 | 32,035 | 45,115 | 36,853 | 73,615 | ||||||||||||||||||||
Other industries | 39,783 | 22,702 | 29,523 | 140,224 | 36,192 | 29,523 | 140,224 | 36,192 | 20,615 | 116,741 | ||||||||||||||||||||
Consumer | 66,877 | 56,072 | 319,116 | 301,819 | 318,861 | 319,116 | 301,819 | 318,861 | 372,944 | 355,040 | ||||||||||||||||||||
Total domestic | 779,087 | 696,599 | 935,186 | 1,034,512 | 1,028,236 | 935,186 | 1,034,512 | 1,028,236 | 1,096,072 | 1,121,809 | ||||||||||||||||||||
Foreign: | ||||||||||||||||||||||||||||||
Governments and official institutions | 877 | 466 | 52 | 47 | 45 | 52 | 47 | 45 | 4,279 | 70,529 | ||||||||||||||||||||
Banks and other financial institutions | 87,162 | 45,091 | 38,796 | 3,730 | 2,793 | 38,796 | 3,730 | 2,793 | 56,628 | 19,880 | ||||||||||||||||||||
Commercial and industrial | 153,387 | 54,913 | 30,387 | 46,536 | 111,852 | 30,387 | 46,536 | 111,852 | 81,990 | 135,622 | ||||||||||||||||||||
Other | 62,521 | 23,835 | 5,413 | 1,519 | 1,529 | 5,413 | 1,519 | 1,529 | 10,553 | 21,169 | ||||||||||||||||||||
Total foreign | 303,947 | 124,305 | 74,648 | 51,832 | 116,219 | 74,648 | 51,832 | 116,219 | 153,450 | 247,200 | ||||||||||||||||||||
Total | ¥ | 1,083,034 | ¥ | 820,904 | ¥ | 1,009,834 | ¥ | 1,086,344 | ¥ | 1,144,455 | ¥ | 1,009,834 | ¥ | 1,086,344 | ¥ | 1,144,455 | ¥ | 1,249,522 | ¥ | 1,369,009 | ||||||||||
Restructured loans: | ||||||||||||||||||||||||||||||
Domestic | ¥ | 577,348 | ¥ | 431,036 | ¥ | 937,160 | ¥ | 548,569 | ¥ | 492,230 | ¥ | 937,160 | ¥ | 548,569 | ¥ | 492,230 | ¥ | 457,838 | ¥ | 565,008 | ||||||||||
Foreign | 55,015 | 23,153 | 74,676 | 42,117 | 25,035 | 74,676 | 42,117 | 25,035 | 63,750 | 47,184 | ||||||||||||||||||||
Total | ¥ | 632,363 | ¥ | 454,189 | ¥ | 1,011,836 | ¥ | 590,686 | ¥ | 517,265 | ¥ | 1,011,836 | ¥ | 590,686 | ¥ | 517,265 | ¥ | 521,588 | ¥ | 612,192 | ||||||||||
Accruing loans contractually past due 90 days or more: | ||||||||||||||||||||||||||||||
Domestic | ¥ | 14,696 | ¥ | 9,232 | ¥ | 21,896 | ¥ | 20,649 | ¥ | 14,954 | ¥ | 21,896 | ¥ | 20,649 | ¥ | 14,954 | ¥ | 15,047 | ¥ | 25,871 | ||||||||||
Foreign | 900 | 879 | 1,112 | 1,821 | 2,998 | 1,112 | 1,821 | 2,998 | 6,440 | 547 | ||||||||||||||||||||
Total | ¥ | 15,596 | ¥ | 10,111 | ¥ | 23,008 | ¥ | 22,470 | ¥ | 17,952 | ¥ | 23,008 | ¥ | 22,470 | ¥ | 17,952 | ¥ | 21,487 | ¥ | 26,418 | ||||||||||
Total | ¥ | 1,730,993 | ¥ | 1,285,204 | ¥ | 2,044,678 | ¥ | 1,699,500 | ¥ | 1,679,672 | ¥ | 2,044,678 | ¥ | 1,699,500 | ¥ | 1,679,672 | ¥ | 1,792,597 | ¥ | 2,007,619 | ||||||||||
Note:
| Note: |
| (1) | Since the |
Gross interest income which would have been accrued at the original terms on domestic nonaccrual and restructured loans outstanding during the fiscal year ended March 31, 20082010 was approximately ¥87.3¥84.0 billion, of which ¥62.7¥33.0 billion was included in the results of operations for the fiscal year. Gross interest income which
would have been accrued at the original terms on foreign nonaccrual and restructured loans outstanding for the fiscal year ended March 31, 20082010 was approximately ¥5.3¥12.2 billion, of which ¥5.3¥5.8 billion was included in the results of operations for the fiscal year.
Foreign Loans Outstanding
We had no cross-border outstandings to borrowers in any foreign country which in total exceeded 0.75% of consolidated total assets at March 31, 2006, 20072008, 2009 and 2008.2010. Cross-border outstandings are defined, for this purpose, as loans (including accrued interest), acceptances, interest-earning deposits with other banks, other interest-earning investments and any other monetary assets denominated in Japanese yen or other non-local currencies. Material local currency loans outstanding which are neither hedged nor funded by local currency borrowings are included in cross-border outstandings.
Guarantees of outstandings of borrowers of other countries are considered to be outstandings of the guarantor. Loans made to, or deposits placed with, a branch of a foreign bank located outside the foreign bank’s home country are considered to be loans to, or deposits with, the foreign bank. Outstandings of a country do not include principal or interest amounts of which are supported by written, legally enforceable guarantees by guarantors of other countries or the amounts of outstandings to the extent that they are secured by tangible, liquid collateral held and realizable by BTMU, MUTB and their subsidiaries outside the country in which they operate.
In addition to credit risk, cross-border outstandings are subject to country risk that as a result of political or economic conditions in a country, borrowers may be unable or unwilling to pay principal and interest according to contractual terms. Other risks related to cross-border outstandings include the possibility of insufficient foreign exchange and restrictions on its availability.
In order to manage country risk, we establish various risk management measures internally. Among other things, we regularly monitor economic conditions and other factors globally and assess country risk in each country where we have cross-border exposure. For purposes of monitoring and controlling the amount of credit exposed to country risk, we set a country limit, the maximum amount of credit exposure for an individual country, in consideration of the level of country risk and our ability to bear such potential risk. We also determine our credit policy for each country in accordance with our country risk level and our business plan with regard to the country. Assessment of country risk, establishment of country limits, and determination of country credit policies are subject to review and approval by our senior management and are updated periodically.
Loan Concentrations
At March 31, 2008,2010, there were no concentrations of loans to a single industry group of borrowers, as defined by the Bank of Japan industry segment loan classifications, which exceeded 10% of our consolidated total loans, except for loans in a category disclosed in the table of loans outstanding above.
Credit Risk Management
We have a credit rating system, under which borrowers and transactions are graded on a worldwide basis. We calculate probability of default by statistical means and manage our credit portfolio based on this credit rating system. For a detailed description of this system and other elements of our risk management structure, see “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk—Credit Risk Management.”
IV. Summary of Loan Loss Experience
| IV. | Summary of Loan Loss Experience |
The following table shows an analysis of our loan loss experience by type of borrowers’ business for each of the five fiscal years ended March 31, 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007 | 2008 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||
Allowance for credit losses at beginning of fiscal year | ¥ | 1,360,136 | ¥ | 888,120 | ¥ | 739,872 | ¥ | 1,012,227 | ¥ | 1,112,453 | ¥ | 739,872 | ¥ | 1,012,227 | ¥ | 1,112,453 | ¥ | 1,134,940 | ¥ | 1,156,638 | ||||||||||||||||||||
Additions resulting from the merger with UFJ Holdings(1) | — | — | 287,516 | — | — | 287,516 | — | — | — | — | ||||||||||||||||||||||||||||||
Provision (credit) for credit losses | (114,364 | ) | 108,338 | 110,167 | 358,603 | 385,740 | ||||||||||||||||||||||||||||||||||
Provision for credit losses | 110,167 | 358,603 | 385,740 | 626,947 | 647,793 | |||||||||||||||||||||||||||||||||||
Charge-offs: | ||||||||||||||||||||||||||||||||||||||||
Domestic(2): | ||||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||||
Manufacturing | 18,683 | 81,370 | 17,241 | 27,043 | 41,587 | 17,241 | 27,043 | 41,587 | 83,121 | 41,933 | ||||||||||||||||||||||||||||||
Construction | 35,612 | 10,634 | 6,798 | 18,902 | 24,097 | 6,798 | 18,902 | 24,097 | 44,180 | 22,707 | ||||||||||||||||||||||||||||||
Real estate | 128,486 | 44,433 | 16,911 | 12,845 | 11,775 | 16,911 | 12,845 | 11,775 | 76,734 | 75,446 | ||||||||||||||||||||||||||||||
Services | 19,917 | 11,848 | 41,722 | 26,274 | 39,336 | 41,722 | 26,274 | 39,336 | 64,418 | 29,264 | ||||||||||||||||||||||||||||||
Wholesale and retail | 44,768 | 26,822 | 15,397 | 43,169 | 70,173 | 15,397 | 43,169 | 70,173 | 118,144 | 76,407 | ||||||||||||||||||||||||||||||
Banks and other financial institutions | 1,516 | 8,920 | 701 | 1,790 | 13,873 | 701 | 1,790 | 13,873 | 25,310 | 542 | ||||||||||||||||||||||||||||||
Communication and information services | 2,256 | 1,312 | 2,621 | 16,322 | 30,868 | 2,621 | 16,322 | 30,868 | 19,632 | 23,540 | ||||||||||||||||||||||||||||||
Other industries | 6,148 | 6,468 | 2,644 | 5,396 | 9,865 | 2,644 | 5,396 | 9,865 | 10,472 | 7,225 | ||||||||||||||||||||||||||||||
Consumer | 36,778 | 25,692 | 49,496 | 137,461 | 138,370 | 49,496 | 137,461 | 138,370 | 117,021 | 124,792 | ||||||||||||||||||||||||||||||
Total domestic | 294,164 | 217,499 | 153,531 | 289,202 | 379,944 | 153,531 | 289,202 | 379,944 | 559,032 | 401,856 | ||||||||||||||||||||||||||||||
Total foreign | 83,682 | 80,440 | 11,202 | 13,912 | 6,540 | 11,202 | 13,912 | 6,540 | 44,266 | 118,916 | ||||||||||||||||||||||||||||||
Total | 377,846 | 297,939 | 164,733 | 303,114 | 386,484 | 164,733 | 303,114 | 386,484 | 603,298 | 520,772 | ||||||||||||||||||||||||||||||
Recoveries: | ||||||||||||||||||||||||||||||||||||||||
Domestic | 17,299 | 22,063 | 11,356 | 35,466 | 28,475 | 11,356 | 35,466 | 28,475 | 23,692 | 48,269 | ||||||||||||||||||||||||||||||
Foreign | 23,671 | 15,254 | 17,242 | 4,953 | 2,117 | 17,242 | 4,953 | 2,117 | 2,754 | 4,103 | ||||||||||||||||||||||||||||||
Total | 40,970 | 37,317 | 28,598 | 40,419 | 30,592 | 28,598 | 40,419 | 30,592 | 26,446 | 52,372 | ||||||||||||||||||||||||||||||
Net charge-offs | 336,876 | 260,622 | 136,135 | 262,695 | 355,892 | 136,135 | 262,695 | 355,892 | 576,852 | 468,400 | ||||||||||||||||||||||||||||||
Others(3) | (20,776 | ) | 4,036 | 10,807 | 4,318 | (7,361 | ) | 10,807 | 4,318 | (7,361 | ) | (28,397 | ) | (20,416 | ) | |||||||||||||||||||||||||
Allowance for credit losses at end of fiscal year | ¥ | 888,120 | ¥ | 739,872 | ¥ | 1,012,227 | ¥ | 1,112,453 | ¥ | 1,134,940 | ¥ | 1,012,227 | ¥ | 1,112,453 | ¥ | 1,134,940 | ¥ | 1,156,638 | ¥ | 1,315,615 | ||||||||||||||||||||
Allowance for credit losses applicable to foreign activities: | ||||||||||||||||||||||||||||||||||||||||
Balance at beginning of fiscal year | ¥ | 263,929 | ¥ | 245,835 | ¥ | 91,701 | ¥ | 123,080 | ¥ | 109,654 | ¥ | 91,701 | ¥ | 123,080 | ¥ | 109,654 | ¥ | 136,656 | ¥ | 307,343 | ||||||||||||||||||||
Balance at end of fiscal year | ¥ | 245,835 | ¥ | 91,701 | ¥ | 123,080 | ¥ | 109,654 | ¥ | 136,656 | ¥ | 123,080 | ¥ | 109,654 | ¥ | 136,656 | ¥ | 307,343 | ¥ | 327,568 | ||||||||||||||||||||
Provision (credit) for credit losses | ¥ | 55,541 | ¥ | (91,903 | ) | ¥ | 587 | ¥ | (8,516 | ) | ¥ | 38,637 | ¥ | 587 | ¥ | (8,516 | ) | ¥ | 38,637 | ¥ | 240,015 | ¥ | 134,966 | |||||||||||||||||
Ratio of net charge-offs during the fiscal year to average loans outstanding during the fiscal year | 0.69 | % | 0.51 | % | 0.19 | % | 0.27 | % | 0.37 | % | 0.19 | % | 0.27 | % | 0.37 | % | 0.58 | % | 0.49 | % | ||||||||||||||||||||
Notes:
| (1) | Additions resulting from the merger with UFJ Holdings represent the allowance for credit losses for acquired loans outside the scope of |
| (2) | Since the |
| (3) | Others |
The following table shows an allocation of our allowance for credit losses at March 31 of each of the five fiscal years ended March 31, 2008:2010:
| At March 31, | At March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2004 | 2005 | 2006 | 2007(2) | 2008 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | Amount | % of loans in each category to total loans | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic(1): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Domestic: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Manufacturing | ¥ | 124,554 | 12.46 | % | ¥ | 90,530 | 12.76 | % | ¥ | 130,734 | 11.27 | % | ¥ | 108,303 | 11.52 | % | ¥ | 125,824 | 11.43 | % | ¥ | 130,734 | 11.05 | % | ¥ | 108,303 | 11.40 | % | ¥ | 125,824 | 11.28 | % | ¥ | 112,412 | 12.87 | % | ¥ | 177,753 | 13.03 | % | ||||||||||||||||||||||||||||||
Construction | 32,104 | 2.13 | 44,750 | 1.94 | 28,142 | 2.09 | 41,016 | 1.93 | 43,043 | 1.78 | 28,142 | 1.92 | 41,016 | 1.90 | 43,043 | 1.74 | 45,234 | 1.80 | 31,764 | 1.55 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate | 119,300 | 11.00 | 94,844 | 11.41 | 99,947 | 9.48 | 85,183 | 8.71 | 112,899 | 8.32 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate(1) | 99,947 | 11.55 | 85,183 | 10.94 | 112,899 | 10.96 | 116,460 | 10.39 | 112,154 | 13.29 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Services | 84,607 | 9.46 | 145,726 | 7.49 | 71,653 | 7.08 | 123,020 | 7.41 | 126,832 | 6.77 | 71,653 | 7.56 | 123,020 | 7.24 | 126,832 | 6.61 | 88,829 | 6.72 | 88,435 | 4.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Wholesale and retail | 104,131 | 10.44 | 93,982 | 10.35 | 132,519 | 10.25 | 129,701 | 9.89 | 141,870 | 9.52 | 132,519 | 9.57 | 129,701 | 9.77 | 141,870 | 9.39 | 115,109 | 9.72 | 148,637 | 9.32 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Banks and other financial institutions | 33,957 | 7.74 | 22,237 | 7.25 | 51,500 | 5.82 | 73,925 | 4.70 | 59,200 | 4.87 | 51,500 | 5.29 | 73,925 | 4.57 | 59,200 | 4.72 | 38,189 | 4.82 | 20,015 | 4.51 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Communication and information services | 6,437 | 1.82 | 13,621 | 1.55 | 16,971 | 1.24 | 33,699 | 1.23 | 37,251 | 1.16 | 16,971 | 1.23 | 33,699 | 1.22 | 37,251 | 1.16 | 37,549 | 0.73 | 67,273 | 1.45 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other industries | 44,678 | 12.77 | 60,948 | 13.34 | 115,930 | 12.33 | 175,989 | 10.76 | 97,019 | 10.51 | 115,930 | 14.23 | 175,989 | 11.07 | 97,019 | 10.91 | 65,363 | 9.48 | 110,545 | 10.18 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Consumer | 73,989 | 14.38 | 72,916 | 14.40 | 234,073 | 24.16 | 224,926 | 24.98 | 244,652 | 24.13 | 234,073 | 21.32 | 224,926 | 23.02 | 244,652 | 21.72 | 223,865 | 20.46 | 213,889 | 20.69 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Governments and official institutions | 1,428 | 0.38 | 193 | 0.42 | 1,227 | 0.35 | 420 | 0.39 | 880 | 0.32 | 1,227 | 0.35 | 420 | 0.39 | 880 | 0.32 | 2,349 | 0.35 | 70,017 | 0.53 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Banks and other financial institutions | 60,064 | 2.16 | 10,840 | 1.80 | 13,680 | 1.15 | 3,668 | 1.78 | 6,858 | 2.12 | 13,680 | 1.15 | 3,668 | 1.78 | 6,858 | 2.12 | 76,518 | 2.68 | 29,030 | 3.22 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial and industrial | 148,887 | 12.96 | 70,101 | 14.78 | 104,443 | 12.33 | 103,259 | 14.12 | 126,693 | 16.34 | 104,443 | 12.33 | 103,259 | 14.12 | 126,693 | 16.34 | 211,307 | 17.48 | 203,611 | 15.44 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 35,456 | 2.30 | 10,567 | 2.51 | 3,730 | 2.45 | 2,307 | 2.58 | 2,225 | 2.73 | 3,730 | 2.45 | 2,307 | 2.58 | 2,225 | 2.73 | 17,169 | 2.50 | 24,910 | 2.77 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Unallocated | 18,528 | — | 8,617 | — | 7,678 | — | 7,037 | — | 9,694 | — | 7,678 | — | 7,037 | — | 9,694 | — | 6,285 | — | 17,582 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | ¥ | 888,120 | 100.00 | % | ¥ | 739,872 | 100.00 | % | ¥ | 1,012,227 | 100.00 | % | ¥ | 1,112,453 | 100.00 | % | ¥ | 1,134,940 | 100.00 | % | ¥ | 1,012,227 | 100.00 | % | ¥ | 1,112,453 | 100.00 | % | ¥ | 1,134,940 | 100.00 | % | ¥ | 1,156,638 | 100.00 | % | ¥ | 1,315,615 | 100.00 | % | ||||||||||||||||||||||||||||||
Allowance as a percentage of loans | 1.84 | % | 1.45 | % | 1.06 | % | 1.17 | % | 1.15 | % | 1.06 | % | 1.17 | % | 1.15 | % | 1.15 | % | 1.43 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance as a percentage of nonaccrual and restructured loans and accruing loans contractually past due 90 days or more | 51.31 | % | 57.57 | % | 49.51 | % | 65.46 | % | 67.57 | % | 49.51 | % | 65.46 | % | 67.57 | % | 64.52 | % | 65.53 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
Notes:Note:
| (1) | Since the |
| 2009, the related balances had been included in “Services.” Percentage of loans in |
| At March 31, 2007 | ||||||
| As previously reported | As restated | |||||
Domestic: | ||||||
Manufacturing | 11.52 | % | 11.52 | % | ||
Construction | 1.93 | 1.93 | ||||
Real estate | 8.70 | 8.71 | ||||
Services | 7.40 | 7.41 | ||||
Wholesale and retail | 9.89 | 9.89 | ||||
Banks and other financial institutions | 4.61 | 4.70 | ||||
Communication and information services | 1.19 | 1.23 | ||||
Other industries | 10.92 | 10.76 | ||||
Consumer | 25.05 | 24.98 | ||||
Foreign: | ||||||
Governments and official institutions | 0.39 | 0.39 | ||||
Banks and other financial institutions | 1.60 | 1.78 | ||||
Commercial and industrial | 14.15 | 14.12 | ||||
Other | 2.65 | 2.58 | ||||
Unallocated | — | — | ||||
Total | 100.00 | % | 100.00 | % | ||
While the allowance for credit losses contains amounts allocated to components of specifically identified loans as well as a group on portfolio of loans, the allowance for credit losses is available for credit losses in the entire loan portfolio and the allocations shown above are not intended to be restricted to the specific loan category. Accordingly, as the evaluation of credit risks changes, allocations of the allowance will be changed to reflect current conditions and various other factors.
V. Deposits
| V. | Deposits |
The following table shows the average amount of, and the average rate paid on, the following deposit categories for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
| Average amount | Average rate | Average amount | Average rate | Average amount | Average rate | Average amount | Average rate | Average amount | Average rate | Average amount | Average rate | |||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||
Domestic offices: | ||||||||||||||||||||||||||||||||||||
Non-interest-bearing demand deposits | ¥ | 13,194,012 | — | % | ¥ | 15,847,384 | — | % | ¥ | 13,738,148 | — | % | ¥ | 13,738,148 | — | % | ¥ | 12,896,727 | — | % | ¥ | 12,958,611 | — | % | ||||||||||||
Interest-bearing demand deposits | 32,965,194 | 0.03 | 43,943,651 | 0.13 | 44,493,991 | 0.24 | 44,493,991 | 0.24 | 44,359,163 | 0.17 | 45,659,544 | 0.05 | ||||||||||||||||||||||||
Deposits at notice | 1,649,625 | 1.44 | 2,447,318 | 2.71 | 2,479,141 | 2.54 | 2,479,141 | 2.54 | 1,890,640 | 0.83 | 1,647,972 | 0.12 | ||||||||||||||||||||||||
Time deposits | 32,137,422 | 0.30 | 39,121,506 | 0.39 | 41,016,140 | 0.59 | 41,016,140 | 0.59 | 43,895,395 | 0.58 | 43,178,140 | 0.42 | ||||||||||||||||||||||||
Certificates of deposit | 3,597,556 | 0.02 | 5,154,891 | 0.27 | 4,861,398 | 0.62 | 4,861,398 | 0.62 | 5,286,785 | 0.66 | 5,148,617 | 0.34 | ||||||||||||||||||||||||
Foreign offices: | ||||||||||||||||||||||||||||||||||||
Non-interest-bearing demand deposits | 2,847,005 | — | 2,509,494 | — | 2,141,934 | — | 2,141,934 | — | 2,280,553 | — | 2,240,971 | — | ||||||||||||||||||||||||
Interest-bearing deposits, principally time deposits and certificates of deposit | 11,868,158 | 2.68 | 14,510,114 | 3.76 | 18,289,382 | 3.56 | 18,289,382 | 3.56 | 16,459,276 | 2.16 | 19,182,441 | 0.70 | ||||||||||||||||||||||||
Total | ¥ | 98,258,972 | ¥ | 123,534,358 | ¥ | 127,020,134 | ¥ | 127,020,134 | ¥ | 127,068,539 | ¥ | 130,016,296 | ||||||||||||||||||||||||
Deposits at notice represent interest-bearing demand deposits which require the depositor to give two or more days notice in advance of withdrawal.
The average amounts of total deposits by foreign depositors included in domestic offices for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 were ¥634,514¥489,751 million, ¥523,819¥439,346 million and ¥489,751¥417,259 million, respectively.
At March 31, 2008,2010, the balances and remaining maturities of time deposits and certificates of deposit issued by domestic offices in amounts of ¥10 million (approximately US$100107 thousand at the Federal Reserve Bank of New York’s noon buying rate on March 31, 2008)2010) or more and total foreign deposits issued in amounts of US$100,000 or more are shown in the following table:
| Time deposits | Certificates of deposit | Total | Time deposits | Certificates of deposit | Total | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
Domestic offices: | ||||||||||||||||||
Three months or less | ¥ | 7,812,318 | ¥ | 4,123,136 | ¥ | 11,935,454 | ¥ | 8,332,280 | ¥ | 2,962,998 | ¥ | 11,295,278 | ||||||
Over three months through six months | 4,563,940 | 358,193 | 4,922,133 | 5,520,219 | 1,324,212 | 6,844,431 | ||||||||||||
Over six months through twelve months | 5,053,415 | 412,686 | 5,466,101 | 5,373,113 | 552,927 | 5,926,040 | ||||||||||||
Over twelve months | 4,295,496 | 46,655 | 4,342,151 | 3,105,054 | 82,232 | 3,187,286 | ||||||||||||
Total | ¥ | 21,725,169 | ¥ | 4,940,670 | ¥ | 26,665,839 | ¥ | 22,330,666 | ¥ | 4,922,369 | ¥ | 27,253,035 | ||||||
Foreign offices | ¥ | 12,687,960 | ¥ | 14,411,085 | ||||||||||||||
VI. Short-Term Borrowings
| VI. | Short-Term Borrowings |
The following table shows certain additional information with respect to our short-term borrowings for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008:2010:
| Fiscal years ended March 31, | Fiscal years ended March 31, | |||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||
Call money, funds purchased, and payables under repurchase agreements and securities lending transactions: | ||||||||||||||||||||||||
Average balance outstanding during the fiscal year | ¥ | 11,425,130 | ¥ | 14,675,696 | ¥ | 18,715,592 | ¥ | 18,715,592 | ¥ | 18,658,490 | ¥ | 18,788,637 | ||||||||||||
Maximum balance outstanding at any month-end during the fiscal year | 13,502,158 | 17,890,479 | 19,530,303 | 19,530,303 | 18,427,340 | 19,343,978 | ||||||||||||||||||
Balance at end of fiscal year | 11,384,527 | 15,893,355 | 18,769,133 | 18,769,133 | 18,427,340 | 17,364,371 | ||||||||||||||||||
Weighted average interest rate during the fiscal year | 1.48 | % | 1.94 | % | 2.39 | % | 2.39 | % | 2.01 | % | 0.32 | % | ||||||||||||
Weighted average interest rate on balance at end of fiscal year | 1.33 | % | 2.30 | % | 2.35 | % | 2.35 | % | 0.97 | % | 0.30 | % | ||||||||||||
Due to trust account: | ||||||||||||||||||||||||
Average balance outstanding during the fiscal year | ¥ | 2,099,745 | ¥ | 1,981,427 | ¥ | 1,653,717 | ¥ | 1,653,717 | ¥ | 1,479,736 | ¥ | 1,683,607 | ||||||||||||
Maximum balance outstanding at any month-end during the fiscal year | 3,438,160 | 2,229,225 | 2,171,467 | 2,171,467 | 1,796,846 | 1,795,280 | ||||||||||||||||||
Balance at end of fiscal year | 2,427,932 | 1,539,973 | 1,461,006 | 1,461,006 | 1,796,846 | 1,559,631 | ||||||||||||||||||
Weighted average interest rate during the fiscal year | 0.24 | % | 0.30 | % | 0.48 | % | 0.48 | % | 0.46 | % | 0.36 | % | ||||||||||||
Weighted average interest rate on balance at end of fiscal year | 0.19 | % | 0.44 | % | 0.49 | % | 0.49 | % | 0.42 | % | 0.32 | % | ||||||||||||
Other short-term borrowings: | ||||||||||||||||||||||||
Average balance outstanding during the fiscal year | ¥ | 11,828,663 | ¥ | 7,566,200 | ¥ | 5,729,422 | ¥ | 5,729,422 | ¥ | 6,664,948 | ¥ | 6,371,845 | ||||||||||||
Maximum balance outstanding at any month-end during the fiscal year | 16,059,642 | 8,549,745 | 6,802,404 | 6,802,404 | 9,190,011 | 6,319,721 | ||||||||||||||||||
Balance at end of fiscal year | 10,534,378 | 5,734,473 | 6,016,893 | 6,016,893 | 7,867,378 | 6,097,336 | ||||||||||||||||||
Weighted average interest rate during the fiscal year | 0.54 | % | 1.44 | % | 2.17 | % | 2.17 | % | 1.61 | % | 0.49 | % | ||||||||||||
Weighted average interest rate on balance at end of fiscal year | 0.68 | % | 2.17 | % | 1.82 | % | 1.82 | % | 0.85 | % | 0.27 | % | ||||||||||||
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
Consolidated Balance Sheets as of March 31, | ||
1. Basis of Financial Statements and Summary of Significant Accounting Policies | ||
| F-34 | ||
| F-36 | ||
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| F-84 | ||
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| F-116 | ||
| F-145 | ||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Mitsubishi UFJ Financial Group, Inc.
(Kabushiki Kaisha Mitsubishi UFJ Financial Group):
We have audited the accompanying consolidated balance sheets of Mitsubishi UFJ Financial Group, Inc. (Kabushiki Kaisha Mitsubishi UFJ Financial Group) (“MUFG”) and subsidiaries (together, the “MUFG Group”) as of March 31, 20072009 and 2008,2010, and the related consolidated statements of operations, changes in equity from nonowner sources, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 20082010 (all expressed in Japanese Yen). These financial statements are the responsibility of MUFG’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the MUFG Group as of March 31, 20072009 and 2008,2010, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2008,2010, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 235 to the consolidated financial statements, on October 1, 2005, Mitsubishi Tokyo Financial Group, Inc. merged with UFJ Holdings, Inc.the accompanying consolidated statements of cash flows for the fiscal years ended March 31, 2008 and was renamed MUFG.
2009 have been restated. As discussed in the respective footnotesNotes 5 and 7 to the consolidated financial statements, certain disclosures in Notes 5, 7, 11, 18, 22, 25loans and 26premises and equipment disclosure information have been restated.
As discussed in Note 1 to the consolidated financial statements, MUFG changed its method of accounting for conditional asset retirement obligations in the fiscal year ended March 31, 2006, its methods of accounting for pension and other postretirement plans and stock-based compensation in the fiscal year ended March 31, 2007 and its methods of accounting for uncertainty in income taxes and leveraged leases in the fiscal year ended March 31, 2008.2008, its methods of accounting for defined benefit pension and other postretirement plans (measurement date provision), fair value measurements, and fair value option for financial assets and financial liabilities in the fiscal year ended March 31, 2009, and its methods of accounting for noncontrolling interests and other-than-temporary impairments on investment securities in the fiscal year ended March 31, 2010.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), MUFG Group’s internal control over financial reporting as of March 31, 2008,2010, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 18, 2008August 16, 2010 expressed an unqualified opinion on MUFG Group’s internal control over financial reporting.
/s/ Deloitte Touche Tohmatsu LLC
DELOITTE TOUCHE TOHMATSU LLC
Tokyo, Japan
September 18, 2008August 16, 2010
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 20072009 AND 20082010
| 2007 | 2008 | |||||||
| (in millions) | ||||||||
| ASSETS | ||||||||
Cash and due from banks (Note 12) | ¥ | 2,847,469 | ¥ | 4,090,690 | ||||
Interest-earning deposits in other banks (Note 12) | 6,056,598 | 6,320,827 | ||||||
Call loans and funds sold (Note 14) | 1,990,116 | 1,210,238 | ||||||
Receivables under resale agreements | 4,556,543 | 7,105,819 | ||||||
Receivables under securities borrowing transactions | 6,320,179 | 8,329,371 | ||||||
Trading account assets (including assets pledged that secured parties are permitted to sell or repledge of ¥4,319,209 million in 2007 and ¥4,813,360 million in 2008) (Notes 5 and 12) | 10,446,080 | 13,411,755 | ||||||
Investment securities (Notes 6 and 12): | ||||||||
Securities available for sale—carried at estimated fair value (including assets pledged that secured parties are permitted to sell or repledge of ¥5,911,684 million in 2007 and ¥6,795,674 million in 2008) | 45,679,782 | 38,729,301 | ||||||
Securities being held to maturity—carried at amortized cost (including assets pledged that secured parties are permitted to sell or repledge of ¥751,931 million in 2007 and ¥174,915 million in 2008) (estimated fair value of ¥3,034,560 million in 2007 and ¥2,860,397 million in 2008) | 3,033,099 | 2,839,666 | ||||||
Other investment securities | 670,959 | 580,013 | ||||||
Total investment securities | 49,383,840 | 42,148,980 | ||||||
Loans, net of unearned income, unamortized premiums and deferred loan fees (including assets pledged that secured parties are permitted to sell or repledge of ¥3,723,906 million in 2007 and ¥3,774,314 million in 2008) (Notes 7 and 12) | 95,322,844 | 99,002,079 | ||||||
Allowance for credit losses (Notes 7 and 8) | (1,112,453 | ) | (1,134,940 | ) | ||||
Net loans | 94,210,391 | 97,867,139 | ||||||
Premises and equipment—net (Note 9) | 1,147,511 | 1,075,806 | ||||||
Accrued interest | 371,523 | 339,773 | ||||||
Customers’ acceptance liability | 68,754 | 71,003 | ||||||
Intangible assets—net (Notes 2, 10 and 17) | 1,265,080 | 1,338,924 | ||||||
Goodwill (Notes 2 and 10) | 1,844,809 | 1,074,137 | ||||||
Deferred tax assets (Notes 11 and 17) | 556,158 | 899,432 | ||||||
Other assets (Notes 7, 12, 17 and 18) | 5,135,425 | 5,447,892 | ||||||
Assets of discontinued operations to be disposed or sold (Note 3) | 2,435 | — | ||||||
Total assets | ¥ | 186,202,911 | ¥ | 190,731,786 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Deposits (Notes 12 and 13): | ||||||||
Domestic offices: | ||||||||
Non-interest-bearing | ¥ | 17,037,891 | ¥ | 14,693,953 | ||||
Interest-bearing | 91,677,030 | 94,807,696 | ||||||
Overseas offices: | ||||||||
Non-interest-bearing | 2,532,088 | 2,132,110 | ||||||
Interest-bearing | 15,340,000 | 17,606,369 | ||||||
Total deposits | 126,587,009 | 129,240,128 | ||||||
Call money and funds purchased (Notes 12 and 14) | 2,544,637 | 2,288,720 | ||||||
Payables under repurchase agreements (Note 12) | 8,211,210 | 11,892,902 | ||||||
Payables under securities lending transactions (Note 12) | 5,137,508 | 4,587,511 | ||||||
Due to trust account (Note 15) | 1,539,973 | 1,461,006 | ||||||
Other short-term borrowings (Notes 12 and 16) | 5,734,473 | 6,016,893 | ||||||
Trading account liabilities (Note 5) | 2,625,761 | 2,927,411 | ||||||
Obligations to return securities received as collateral | 3,652,864 | 5,094,993 | ||||||
Bank acceptances outstanding | 68,754 | 71,003 | ||||||
Accrued interest | 257,411 | 298,152 | ||||||
Long-term debt (Notes 12 and 16) | 14,389,930 | 13,675,250 | ||||||
Other liabilities (Notes 11, 17 and 18) | 5,019,523 | 4,687,702 | ||||||
Liabilities of discontinued operations to be extinguished or assumed (Note 3) | 546 | — | ||||||
Total liabilities | 175,769,599 | 182,241,671 | ||||||
Commitments and contingent liabilities (Notes 25 and 27) | ||||||||
Shareholders’ equity (Note 22): | ||||||||
Capital stock (Notes 19 and 20): | ||||||||
Preferred stock—aggregate liquidation preference of ¥336,801 million in 2007 and in 2008, with no stated value | 247,100 | 247,100 | ||||||
Common stock—authorized, 33,000,000,000 shares; issued, 10,861,643,790 shares in 2007 and in 2008, with no stated value | 1,084,708 | 1,084,708 | ||||||
Capital surplus (Note 20) | 5,834,529 | 5,791,300 | ||||||
Retained earnings (Notes 21 and 35): | ||||||||
Appropriated for legal reserve | 239,571 | 239,571 | ||||||
Unappropriated | 1,636,803 | 935,309 | ||||||
Accumulated other changes in equity from nonowner sources, net of taxes | 2,392,136 | 919,420 | ||||||
Treasury stock, at cost—652,968,181 common shares in 2007 and 503,153,835 common shares in 2008 | (1,001,535 | ) | (727,293 | ) | ||||
Total shareholders’ equity | 10,433,312 | 8,490,115 | ||||||
Total liabilities and shareholders’ equity | ¥ | 186,202,911 | ¥ | 190,731,786 | ||||
| 2009 | 2010 | |||||||
| (in millions) | ||||||||
| ASSETS | ||||||||
Cash and due from banks (Note 10) | ¥ | 3,071,252 | ¥ | 2,862,523 | ||||
Interest-earning deposits in other banks (including ¥22,768 million and ¥10,201 million measured at fair value under fair value option in 2009 and 2010) (Notes 10 and 31) | 3,543,551 | 4,780,861 | ||||||
Call loans and funds sold (Note 12) | 407,448 | 508,922 | ||||||
Receivables under resale agreements (including ¥36,066 million and ¥30,832 million measured at fair value under fair value option in 2009 and 2010) (Note 31) | 2,530,405 | 3,543,020 | ||||||
Receivables under securities borrowing transactions | 6,797,025 | 5,770,044 | ||||||
Trading account assets (including assets pledged that secured parties are permitted to sell or repledge of ¥10,643,443 million in 2009 and ¥8,712,347 million in 2010) (including ¥10,832,557 million and ¥8,918,156 million measured at fair value under fair value option in 2009 and 2010) (Notes 10, 23 and 31) | 30,281,525 | 27,663,076 | ||||||
Investment securities (Notes 4, 10 and 31): | ||||||||
Securities available for sale—carried at estimated fair value (including assets pledged that secured parties are permitted to sell or repledge of ¥1,899,512 million in 2009 and ¥4,107,734 million in 2010) | 33,390,087 | 50,411,876 | ||||||
Securities being held to maturity—carried at amortized cost (including assets pledged that secured parties are permitted to sell or repledge of ¥165,818 million in 2009 and ¥566,313 million in 2010) (estimated fair value of ¥2,826,446 million in 2009 and ¥3,027,921 million in 2010) | 2,812,353 | 2,943,801 | ||||||
Other investment securities | 1,434,124 | 1,690,838 | ||||||
Total investment securities | 37,636,564 | 55,046,515 | ||||||
Loans, net of unearned income, unamortized premiums and deferred loan fees (including assets pledged that secured parties are permitted to sell or repledge of ¥3,729,490 million in 2009 and ¥3,476,841 million in 2010) (Notes 5 and 10) | 100,310,341 | 92,185,910 | ||||||
Allowance for credit losses (Notes 5 and 6) | (1,156,638 | ) | (1,315,615 | ) | ||||
Net loans | 99,153,703 | 90,870,295 | ||||||
Premises and equipment—net (Note 7) | 1,043,416 | 995,167 | ||||||
Accrued interest | 267,747 | 240,267 | ||||||
Customers’ acceptance liability | 59,144 | 49,143 | ||||||
Intangible assets—net (Notes 3 and 8) | 1,191,941 | 1,116,117 | ||||||
Goodwill (Notes 3 and 8) | 379,426 | 381,498 | ||||||
Deferred tax assets (Notes 9 and 15) | 2,172,789 | 1,287,611 | ||||||
Other assets (Notes 5, 10, 15 and 16) | 4,963,481 | 4,969,338 | ||||||
Total assets | ¥ | 193,499,417 | ¥ | 200,084,397 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS—(Continued)
MARCH 31, 2009 AND 2010
| 2009 | 2010 | |||||||
| (in millions) | ||||||||
| LIABILITIES AND EQUITY | ||||||||
Deposits (Notes 10 and 11): | ||||||||
Domestic offices: | ||||||||
Non-interest-bearing | ¥ | 15,023,660 | ¥ | 15,201,298 | ||||
Interest-bearing | 95,802,559 | 97,526,535 | ||||||
Overseas offices: | ||||||||
Non-interest-bearing | 2,212,386 | 2,403,147 | ||||||
Interest-bearing (including ¥4,235 million and nil measured at fair value under fair value option in 2009 and 2010) (Note 31) | 15,292,447 | 20,341,516 | ||||||
Total deposits | 128,331,052 | 135,472,496 | ||||||
Call money and funds purchased (Notes 10 and 12) | 2,235,858 | 1,883,824 | ||||||
Payables under repurchase agreements (Note 10) | 11,911,615 | 11,846,656 | ||||||
Payables under securities lending transactions (Note 10) | 4,279,867 | 3,633,891 | ||||||
Due to trust account (Note 13) | 1,796,846 | 1,559,631 | ||||||
Other short-term borrowings (including ¥3,755 million and ¥4,506 million measured at fair value under fair value option in 2009 and in 2010) (Notes 10, 14 and 31) | 7,867,378 | 6,097,336 | ||||||
Trading account liabilities (Notes 23 and 31) | 9,492,561 | 8,688,826 | ||||||
Obligations to return securities received as collateral (Note 31) | 2,708,800 | 3,229,321 | ||||||
Bank acceptances outstanding | 59,144 | 49,143 | ||||||
Accrued interest | 251,285 | 218,117 | ||||||
Long-term debt (including ¥532,641 million and ¥615,618 million measured at fair value under fair value option in 2009 and in 2010) (Notes 10, 14 and 31) | 13,273,288 | 14,162,424 | ||||||
Other liabilities (Notes 1, 9, 10, 15 and 16) | 4,824,603 | 4,139,892 | ||||||
Total liabilities | 187,032,297 | 190,981,557 | ||||||
Commitments and contingent liabilities (Notes 24 and 26) | ||||||||
Mitsubishi UFJ Financial Group shareholders’ equity (Note 21): | ||||||||
Capital stock (Notes 17 and 18): | ||||||||
Preferred stock—aggregate liquidation preference of ¥640,001 million in 2009 and in 2010, with no stated value | 442,100 | 442,100 | ||||||
Common stock—authorized, 33,000,000,000 shares; issued, 11,648,360,720 shares in 2009, and 14,148,414,920 shares in 2010, with no stated value | 1,127,552 | 1,643,238 | ||||||
Capital surplus (Note 18) | 6,095,820 | 6,619,525 | ||||||
Retained earnings (Accumulated deficit) (Notes 19 and 36): | ||||||||
Appropriated for legal reserve | 239,571 | 239,571 | ||||||
Accumulated deficit | (845,778 | ) | (18,127 | ) | ||||
Accumulated other changes in equity from nonowner sources, net of taxes | (813,695 | ) | (45,435 | ) | ||||
Treasury stock, at cost—9,080,212 common shares in 2009 and 21,069,229 common shares in 2010 | (10,675 | ) | (13,954 | ) | ||||
Total Mitsubishi UFJ Financial Group shareholders’ equity | 6,234,895 | 8,866,918 | ||||||
Noncontrolling interests (Note 20) | 232,225 | 235,922 | ||||||
Total equity | 6,467,120 | 9,102,840 | ||||||
Total liabilities and equity | ¥ | 193,499,417 | ¥ | 200,084,397 | ||||
See the accompanying notes to Consolidated Financial Statements.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED MARCH 31, 2006, 20072008, 2009 AND 20082010
| 2006 | 2007 | 2008 | ||||||||||
| (in millions) | ||||||||||||
Interest income: | ||||||||||||
Loans, including fees (Note 7) | ¥ | 1,728,047 | ¥ | 2,647,503 | ¥ | 2,790,505 | ||||||
Deposits in other banks | 146,572 | 251,034 | 258,544 | |||||||||
Investment securities: | ||||||||||||
Interest | 463,602 | 641,705 | 771,763 | |||||||||
Dividends | 51,468 | 113,096 | 127,076 | |||||||||
Trading account assets | 57,404 | 99,918 | 110,348 | |||||||||
Call loans and funds sold | 19,271 | 26,546 | 24,969 | |||||||||
Receivables under resale agreements and securities borrowing transactions | 64,318 | 135,927 | 283,606 | |||||||||
Total | 2,530,682 | 3,915,729 | 4,366,811 | |||||||||
Interest expense: | ||||||||||||
Deposits | 449,398 | 835,899 | 1,093,956 | |||||||||
Call money and funds purchased | 7,445 | 27,870 | 45,180 | |||||||||
Payables under repurchase agreements and securities lending transactions | 161,518 | 256,282 | 402,077 | |||||||||
Due to trust account | 5,091 | 5,863 | 8,014 | |||||||||
Other short-term borrowings and trading account liabilities | 103,954 | 175,245 | 206,363 | |||||||||
Long-term debt | 154,663 | 284,804 | 331,504 | |||||||||
Total | 882,069 | 1,585,963 | 2,087,094 | |||||||||
Net interest income | 1,648,613 | 2,329,766 | 2,279,717 | |||||||||
Provision for credit losses (Notes 7 and 8) | 110,167 | 358,603 | 385,740 | |||||||||
Net interest income after provision for credit losses | 1,538,446 | 1,971,163 | 1,893,977 | |||||||||
Non-interest income: | ||||||||||||
Fees and commissions (Note 28) | 1,033,275 | 1,407,193 | 1,317,047 | |||||||||
Foreign exchange gains (losses)—net (Note 5) | (322,355 | ) | (162,005 | ) | 1,295,933 | |||||||
Trading account profits—net (Note 5) | 16,423 | 404,813 | 398,396 | |||||||||
Investment securities gains (losses)—net (Note 6) | 89,861 | 238,277 | (1,373,072 | ) | ||||||||
Equity in earnings (losses) of equity method investees | 22,258 | (56,879 | ) | (34,485 | ) | |||||||
Government grant for transfer of substitutional portion of Employees’ Pension Fund Plans (Note 17) | 103,001 | — | — | |||||||||
Gains on sales of loans (Note 7) | 34,831 | 23,093 | 11,789 | |||||||||
Other non-interest income | 90,058 | 93,444 | 162,506 | |||||||||
Total | 1,067,352 | 1,947,936 | 1,778,114 | |||||||||
Non-interest expense: | ||||||||||||
Salaries and employee benefits (Note 17) | 746,372 | 862,401 | 909,771 | |||||||||
Occupancy expenses—net (Notes 9 and 27) | 146,885 | 179,342 | 173,183 | |||||||||
Fees and commission expenses | 218,428 | 237,979 | 218,088 | |||||||||
Outsourcing expenses, including data processing | 168,007 | 267,921 | 248,265 | |||||||||
Depreciation of premises and equipment (Note 9) | 81,282 | 118,940 | 179,567 | |||||||||
Amortization of intangible assets (Note 10) | 179,543 | 264,930 | 252,890 | |||||||||
Impairment of intangible assets (Note 10) | 251 | 184,760 | 78,679 | |||||||||
Insurance premiums, including deposit insurance | 89,697 | 112,773 | 112,444 | |||||||||
Minority interest in income of consolidated subsidiaries | 157,222 | 16,915 | 39,400 | |||||||||
Communications | 44,420 | 62,209 | 65,286 | |||||||||
Taxes and public charges | 58,349 | 79,683 | 83,439 | |||||||||
Provision for repayment of excess interest (Note 27) | 12,898 | 106,245 | 2,826 | |||||||||
Impairment of goodwill (Note 10) | — | — | 893,721 | |||||||||
Other non-interest expenses | 172,771 | 290,070 | 402,177 | |||||||||
Total | 2,076,125 | 2,784,168 | 3,659,736 | |||||||||
Income from continuing operations before income tax expense and cumulative effect of a change in accounting principle | 529,673 | 1,134,931 | 12,355 | |||||||||
Income tax expense (Note 11) | 165,473 | 552,826 | 553,045 | |||||||||
Income (loss) from continuing operations before cumulative effect of a change in accounting principle | 364,200 | 582,105 | (540,690 | ) | ||||||||
Income (loss) from discontinued operations—net (Note 3) | 8,973 | (817 | ) | (1,746 | ) | |||||||
Cumulative effect of a change in accounting principle, net of tax (Note 1) | (9,662 | ) | — | — | ||||||||
Net income(loss) | ¥ | 363,511 | ¥ | 581,288 | ¥ | (542,436 | ) | |||||
Income allocable to preferred shareholders: | ||||||||||||
Cash dividends paid | ¥ | 5,386 | ¥ | 13,629 | ¥ | 6,669 | ||||||
Beneficial conversion feature (Note 19) | 201,283 | 267,432 | 7,909 | |||||||||
Net income (loss) available to common shareholders | ¥ | 156,842 | ¥ | 300,227 | ¥ | (557,014 | ) | |||||
| (in Yen) | ||||||||||||
Earnings (loss) per share (Notes 21, 23 and 35): | ||||||||||||
Basic earnings (loss) per common share—income (loss) from continuing operations available to common shareholders before cumulative effect of a change in accounting principle | ¥ | 19.40 | ¥ | 29.94 | ¥ | (53.88 | ) | |||||
Basic earnings (loss) per common share—net income (loss) available to common shareholders | 19.31 | 29.86 | (54.05 | ) | ||||||||
Diluted earnings (loss) per common share—income (loss) from continuing operations available to common shareholders before cumulative effect of a change in accounting principle | 19.04 | 29.76 | (53.88 | ) | ||||||||
Diluted earnings (loss) per common share—net income (loss) available to common shareholders | 18.95 | 29.68 | (54.05 | ) | ||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Interest income: | ||||||||||||
Loans, including fees (Note 5) | ¥ | 2,790,505 | ¥ | 2,558,361 | ¥ | 1,914,705 | ||||||
Deposits in other banks | 258,544 | 124,832 | 26,697 | |||||||||
Investment securities: | ||||||||||||
Interest | 771,763 | 309,835 | 305,080 | |||||||||
Dividends | 127,076 | 163,492 | 168,500 | |||||||||
Trading account assets | 110,348 | 460,534 | 307,958 | |||||||||
Call loans and funds sold | 24,969 | 15,010 | 4,110 | |||||||||
Receivables under resale agreements and securities borrowing transactions | 283,606 | 263,730 | 31,454 | |||||||||
Total | 4,366,811 | 3,895,794 | 2,758,504 | |||||||||
Interest expense: | ||||||||||||
Deposits | 1,093,956 | 736,456 | 353,869 | |||||||||
Call money and funds purchased | 45,180 | 24,973 | 5,683 | |||||||||
Payables under repurchase agreements and securities lending transactions | 402,077 | 349,903 | 53,548 | |||||||||
Due to trust account | 8,014 | 6,843 | 6,119 | |||||||||
Other short-term borrowings and trading account liabilities | 206,363 | 170,524 | 65,754 | |||||||||
Long-term debt | 331,504 | 310,690 | 289,427 | |||||||||
Total | 2,087,094 | 1,599,389 | 774,400 | |||||||||
Net interest income | 2,279,717 | 2,296,405 | 1,984,104 | |||||||||
Provision for credit losses (Notes 5 and 6) | 385,740 | 626,947 | 647,793 | |||||||||
Net interest income after provision for credit losses | 1,893,977 | 1,669,458 | 1,336,311 | |||||||||
Non-interest income: | ||||||||||||
Fees and commissions (Note 27) | 1,317,047 | 1,188,512 | 1,139,543 | |||||||||
Foreign exchange gains (losses)—net (Note 28) | 1,295,933 | (206,153 | ) | 216,720 | ||||||||
Trading account profits (losses)—net (Note 28) | 398,396 | (257,807 | ) | 761,472 | ||||||||
Investment securities gains (losses)—net (including credit loss of ¥29,822 million, consisting of ¥27,962 million decline in fair value and net of ¥1,860 million recognized in other changes in equity from nonowner sources in 2010) (Note 4) | (1,373,072 | ) | (658,679 | ) | 223,030 | |||||||
Equity in losses of equity method investees | (34,485 | ) | (60,051 | ) | (104,098 | ) | ||||||
Gains on sales of loans (Note 5) | 11,789 | 6,401 | 21,232 | |||||||||
Other non-interest income (Note 20) | 162,506 | 162,876 | 195,966 | |||||||||
Total | 1,778,114 | 175,099 | 2,453,865 | |||||||||
Non-interest expense: | ||||||||||||
Salaries and employee benefits (Note 15) | 909,771 | 873,371 | 908,213 | |||||||||
Occupancy expenses—net (Notes 7 and 26) | 173,183 | 171,902 | 171,098 | |||||||||
Fees and commission expenses | 218,088 | 209,750 | 196,515 | |||||||||
Outsourcing expenses, including data processing | 248,265 | 267,790 | 215,397 | |||||||||
Depreciation of premises and equipment (Note 7) | 179,567 | 132,121 | 120,268 | |||||||||
Amortization of intangible assets (Note 8) | 252,890 | 278,241 | 225,000 | |||||||||
Impairment of intangible assets (Note 8) | 78,679 | 126,885 | 12,400 | |||||||||
Insurance premiums, including deposit insurance | 112,444 | 113,803 | 112,539 | |||||||||
Communications | 65,286 | 62,943 | 57,064 | |||||||||
Taxes and public charges | 83,439 | 85,743 | 69,073 | |||||||||
Provision for repayment of excess interest (Note 26) | 2,826 | 47,865 | 44,808 | |||||||||
Impairment of goodwill (Note 8) | 893,721 | 845,842 | 461 | |||||||||
Other non-interest expenses (Notes 7 and 20) | 402,177 | 392,528 | 375,224 | |||||||||
Total | 3,620,336 | 3,608,784 | 2,508,060 | |||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2008, 2009 AND 2010
| 2008 | 2009 | 2010 | |||||||||
| (in millions) | |||||||||||
Income (loss) from continuing operations before income tax expense (benefit) | 51,755 | (1,764,227 | ) | 1,282,116 | |||||||
Income tax expense (benefit) (Note 9) | 553,045 | (259,928 | ) | 407,040 | |||||||
Income (loss) from continuing operations | (501,290 | ) | (1,504,299 | ) | 875,076 | ||||||
Loss from discontinued operations—net (Note 2) | (2,670 | ) | — | — | |||||||
Net income (loss) before attribution of noncontrolling interests | (503,960 | ) | (1,504,299 | ) | 875,076 | ||||||
Net income (loss) attributable to noncontrolling interests | 38,476 | (36,259 | ) | 15,257 | |||||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | ¥ | (542,436 | ) | ¥ | (1,468,040 | ) | ¥ | 859,819 | |||
Income allocable to preferred shareholders: | |||||||||||
Cash dividends paid | ¥ | 6,669 | ¥ | 6,399 | ¥ | 21,678 | |||||
Beneficial conversion feature (Note 17) | 7,909 | 9,478 | — | ||||||||
Income allocable to preferred shareholders of Mitsubishi UFJ NICOS Co., Ltd. : | |||||||||||
Effect of induced conversion of Mitsubishi UFJ NICOS Co., Ltd. Class 1 stock (Note 3) | — | 7,676 | — | ||||||||
Net income (loss) available to common shareholders of Mitsubishi UFJ Financial Group | ¥ | (557,014 | ) | ¥ | (1,491,593 | ) | ¥ | 838,141 | |||
| (in Yen) | |||||||||||
Earnings (loss) per share applicable to common shareholders of Mitsubishi UFJ Financial Group (Notes 19 and 22): | |||||||||||
Basic earnings (loss) per common share—income (loss) from continuing operations available to common shareholders of Mitsubishi UFJ Financial Group | ¥ | (53.79 | ) | ¥ | (137.84 | ) | ¥ | 68.01 | |||
Basic earnings (loss) per common share—net income (loss) available to common shareholders of Mitsubishi UFJ Financial Group | (54.05 | ) | (137.84 | ) | 68.01 | ||||||
Diluted earnings (loss) per common share—income (loss) from continuing operations available to common shareholders of Mitsubishi UFJ Financial Group | (53.79 | ) | (137.84 | ) | 67.87 | ||||||
Diluted earnings (loss) per common share—net income (loss) available to common shareholders of Mitsubishi UFJ Financial Group | (54.05 | ) | (137.84 | ) | 67.87 | ||||||
See the accompanying notes to Consolidated Financial Statements.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FROM NONOWNER SOURCES
FOR THE FISCAL YEARS ENDED MARCH 31, 2006, 20072008, 2009 AND 20082010
| Gains (Losses) before income tax expense (benefit) | Income tax (expense) benefit | Gains (Losses) net of income tax expense (benefit) | Gains (Losses) before income tax expense (benefit) | Income tax (expense) benefit | Gains (Losses) net of income tax expense (benefit) | |||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Fiscal year ended March 31, 2006: | ||||||||||||||||||||||||
Net income | ¥ | 363,511 | ||||||||||||||||||||||
Fiscal year ended March 31, 2008: | ||||||||||||||||||||||||
Net loss before attribution of noncontrolling interests | ¥ | (503,960 | ) | |||||||||||||||||||||
Other changes in equity from nonowner sources: | ||||||||||||||||||||||||
Net unrealized holding gains on investment securities available for sale | ¥ | 2,226,284 | ¥ | (905,855 | ) | 1,320,429 | ||||||||||||||||||
Reclassification adjustment for gains included in net income | (72,705 | ) | 28,657 | (44,048 | ) | |||||||||||||||||||
Net unrealized holding losses on investment securities | ¥ | (3,653,597 | ) | ¥ | 1,481,643 | (2,171,954 | ) | |||||||||||||||||
Reclassification adjustment for losses included in net loss before attribution of noncontrolling interests | 1,387,814 | (563,414 | ) | 824,400 | ||||||||||||||||||||
Total | 2,153,579 | (877,198 | ) | 1,276,381 | (2,265,783 | ) | 918,229 | (1,347,554 | ) | |||||||||||||||
Net unrealized losses on derivatives qualifying for cash flow hedges | (2,342 | ) | 896 | (1,446 | ) | |||||||||||||||||||
Reclassification adjustment for gains included in net income | (441 | ) | 169 | (272 | ) | |||||||||||||||||||
Net unrealized gains on derivatives qualifying for cash flow hedges | 4,444 | (1,564 | ) | 2,880 | ||||||||||||||||||||
Reclassification adjustment for losses included in net loss before attribution of noncontrolling interests | 3,085 | (1,326 | ) | 1,759 | ||||||||||||||||||||
Total | (2,783 | ) | 1,065 | (1,718 | ) | 7,529 | (2,890 | ) | 4,639 | |||||||||||||||
Minimum pension liability adjustments | 218,905 | (92,890 | ) | 126,015 | ||||||||||||||||||||
Pension liability adjustments | (69,498 | ) | 28,118 | (41,380 | ) | |||||||||||||||||||
Reclassification adjustment for gains included in net loss before attribution of noncontrolling interests | (17,346 | ) | 6,168 | (11,178 | ) | |||||||||||||||||||
Total | (86,844 | ) | 34,286 | (52,558 | ) | |||||||||||||||||||
Foreign currency translation adjustments | 97,545 | (5,634 | ) | 91,911 | (124,268 | ) | 30,975 | (93,293 | ) | |||||||||||||||
Reclassification adjustment for gains included in net income | (7,804 | ) | (1,152 | ) | (8,956 | ) | ||||||||||||||||||
Reclassification adjustment for losses included in net loss before attribution of noncontrolling interests | 162 | 690 | 852 | |||||||||||||||||||||
Total | 89,741 | (6,786 | ) | 82,955 | (124,106 | ) | 31,665 | (92,441 | ) | |||||||||||||||
Total changes in equity from nonowner sources | ¥ | 1,847,144 | (1,991,874 | ) | ||||||||||||||||||||
Fiscal year ended March 31, 2007: | ||||||||||||||||||||||||
Net income | ¥ | 581,288 | ||||||||||||||||||||||
Net income attributable to noncontrolling interests | 38,476 | |||||||||||||||||||||||
Other changes in equity from nonowner sources attributable to noncontrolling interests | (15,198 | ) | ||||||||||||||||||||||
Total changes in equity from nonowner sources attributable to Mitsubishi UFJ Financial Group | ¥ | (2,015,152 | ) | |||||||||||||||||||||
Fiscal year ended March 31, 2009: | ||||||||||||||||||||||||
Net loss before attribution of noncontrolling interests | ¥ | (1,504,299 | ) | |||||||||||||||||||||
Other changes in equity from nonowner sources: | ||||||||||||||||||||||||
Net unrealized holding gains on investment securities available for sale | ¥ | 764,721 | ¥ | (308,419 | ) | 456,302 | ||||||||||||||||||
Reclassification adjustment for gains included in net income | (247,921 | ) | 100,767 | (147,154 | ) | |||||||||||||||||||
Net unrealized holding losses on investment securities | ¥ | (2,070,144 | ) | ¥ | 840,309 | (1,229,835 | ) | |||||||||||||||||
Reclassification adjustment for losses included in net loss before attribution of noncontrolling interests | 629,566 | (254,987 | ) | 374,579 | ||||||||||||||||||||
Total | 516,800 | (207,652 | ) | 309,148 | (1,440,578 | ) | 585,322 | (855,256 | ) | |||||||||||||||
Net unrealized losses on derivatives qualifying for cash flow hedges | (3,161 | ) | 1,214 | (1,947 | ) | |||||||||||||||||||
Reclassification adjustment for losses included in net income | 2,762 | (1,056 | ) | 1,706 | ||||||||||||||||||||
Net unrealized gains on derivatives qualifying for cash flow hedges | 15,180 | (6,105 | ) | 9,075 | ||||||||||||||||||||
Reclassification adjustment for gains included in net loss before attribution of noncontrolling interests | (8,615 | ) | 3,380 | (5,235 | ) | |||||||||||||||||||
Total | (399 | ) | 158 | (241 | ) | 6,565 | (2,725 | ) | 3,840 | |||||||||||||||
Minimum pension liability adjustments | (2,563 | ) | 1,019 | (1,544 | ) | |||||||||||||||||||
Pension liability adjustments | (721,816 | ) | 289,201 | (432,615 | ) | |||||||||||||||||||
Reclassification adjustment for losses included in net loss before attribution of noncontrolling interests | 992 | (345 | ) | 647 | ||||||||||||||||||||
Total | (720,824 | ) | 288,856 | (431,968 | ) | |||||||||||||||||||
Foreign currency translation adjustments | 32,537 | (626 | ) | 31,911 | (332,132 | ) | 16,963 | (315,169 | ) | |||||||||||||||
Reclassification adjustment for gains included in net income | (6,420 | ) | 283 | (6,137 | ) | |||||||||||||||||||
Reclassification adjustment for losses included in net loss before attribution of noncontrolling interests | 11,094 | (1,959 | ) | 9,135 | ||||||||||||||||||||
Total | 26,117 | (343 | ) | 25,774 | (321,038 | ) | 15,004 | (306,034 | ) | |||||||||||||||
Total changes in equity from nonowner sources | ¥ | 914,425 | (3,093,717 | ) | ||||||||||||||||||||
Fiscal year ended March 31, 2008: | ||||||||||||||||||||||||
Net loss | ¥ | (542,436 | ) | |||||||||||||||||||||
Net loss attributable to noncontrolling interests | (36,259 | ) | ||||||||||||||||||||||
Other changes in equity from nonowner sources attributable to noncontrolling interests | (8,027 | ) | ||||||||||||||||||||||
Other changes in equity from nonowner sources: | ||||||||||||||||||||||||
Net unrealized holding losses on investment securities available for sale | ¥ | (3,640,989 | ) | ¥ | 1,476,878 | (2,164,111 | ) | |||||||||||||||||
Reclassification adjustment for losses included in net loss | 1,384,037 | (561,877 | ) | 822,160 | ||||||||||||||||||||
Total changes in equity from nonowner sources attributable to Mitsubishi UFJ Financial Group | ¥ | (3,049,431 | ) | |||||||||||||||||||||
Total | (2,256,952 | ) | 915,001 | (1,341,951 | ) | |||||||||||||||||||
Net unrealized gains on derivatives qualifying for cash flow hedges | 2,327 | (805 | ) | 1,522 | ||||||||||||||||||||
Reclassification adjustment for losses included in net loss | 2,018 | (867 | ) | 1,151 | ||||||||||||||||||||
Total | 4,345 | (1,672 | ) | 2,673 | ||||||||||||||||||||
Pension liability adjustments | (66,009 | ) | 26,800 | (39,209 | ) | |||||||||||||||||||
Reclassification adjustment for gains included in net loss | (17,168 | ) | 6,449 | (10,719 | ) | |||||||||||||||||||
Total | (83,177 | ) | 33,249 | (49,928 | ) | |||||||||||||||||||
Foreign currency translation adjustments | (115,347 | ) | 30,985 | (84,362 | ) | |||||||||||||||||||
Reclassification adjustment for losses included in net loss | 162 | 690 | 852 | |||||||||||||||||||||
Total | (115,185 | ) | 31,675 | (83,510 | ) | |||||||||||||||||||
Total changes in equity from nonowner sources | ¥ | (2,015,152 | ) | |||||||||||||||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FROM NONOWNER SOURCES—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2008, 2009 AND 2010
| Gains (Losses) before income tax expense (benefit) | Income tax (expense) benefit | Gains (Losses) net of income tax expense (benefit) | ||||||||||
| (in millions) | ||||||||||||
Fiscal year ended March 31, 2010: | ||||||||||||
Net income before attribution of noncontrolling interests | ¥ | 875,076 | ||||||||||
Other changes in equity from nonowner sources: | ||||||||||||
Net unrealized holding gains on investment securities (including unrealized gain of ¥1,103 million, net of tax, related to debt securities with credit component realized in earnings) | ¥ | 1,187,682 | ¥ | (441,401 | ) | 746,281 | ||||||
Reclassification adjustment for gains included in net income before attribution of noncontrolling interests | (224,560 | ) | 90,894 | (133,666 | ) | |||||||
Total | 963,122 | (350,507 | ) | 612,615 | ||||||||
Net unrealized gains on derivatives qualifying for cash flow hedges | 3,621 | (1,322 | ) | 2,299 | ||||||||
Reclassification adjustment for gains included in net income before attribution of noncontrolling interests | (11,711 | ) | 4,617 | (7,094 | ) | |||||||
Total | (8,090 | ) | 3,295 | (4,795 | ) | |||||||
Pension liability adjustments | 352,647 | (138,293 | ) | 214,354 | ||||||||
Reclassification adjustment for losses included in net income before attribution of noncontrolling interests | 48,296 | (19,427 | ) | 28,869 | ||||||||
Total | 400,943 | (157,720 | ) | 243,223 | ||||||||
Foreign currency translation adjustments | 25,036 | 5,542 | 30,578 | |||||||||
Reclassification adjustment for losses included in net income before attribution of noncontrolling interests | 18,420 | (8,136 | ) | 10,284 | ||||||||
Total | 43,456 | (2,594 | ) | 40,862 | ||||||||
Total changes in equity from nonowner sources | 1,766,981 | |||||||||||
Net income attributable to noncontrolling interests | 15,257 | |||||||||||
Other changes in equity from nonowner sources attributable to noncontrolling interests | 5,435 | |||||||||||
Total changes in equity from nonowner sources attributable to Mitsubishi UFJ Financial Group | ¥ | 1,746,289 | ||||||||||
See the accompanying notes to Consolidated Financial Statements.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE FISCAL YEARS ENDED MARCH 31, 2006, 20072008, 2009 AND 20082010
| 2006 | 2007 | 2008 | ||||||||||
| (in millions) | ||||||||||||
Preferred stock(Note 19): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 247,100 | ¥ | 247,100 | ¥ | 247,100 | ||||||
Balance at end of fiscal year | ¥ | 247,100 | ¥ | 247,100 | ¥ | 247,100 | ||||||
Common stock (Note 20): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 1,084,708 | ¥ | 1,084,708 | ¥ | 1,084,708 | ||||||
Balance at end of fiscal year | ¥ | 1,084,708 | ¥ | 1,084,708 | ¥ | 1,084,708 | ||||||
Capital surplus (Note 20): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 1,080,463 | ¥ | 5,566,894 | ¥ | 5,834,529 | ||||||
Redemption of Class 1 preferred stock (Note 19) | (122,100 | ) | — | — | ||||||||
Merger with UFJ Holdings, Inc. (Note 2) | 4,403,225 | — | — | |||||||||
Amortization of beneficial conversion feature of preferred stock (Note 19) | 201,283 | 267,432 | 7,909 | |||||||||
Gains (losses) on sales of shares of treasury stock, net of taxes | 2,677 | (1,048 | ) | (456 | ) | |||||||
Losses on exchange of shares of treasury stock for shares of Mitsubishi UFJ Securities Co., Ltd. (Note 4) | — | — | (56,134 | ) | ||||||||
Stock-based compensation expense (Note 32) | — | 3,257 | 5,747 | |||||||||
Impact of SFAS No.123R implementation of UnionBanCal corporation (Note 32) | — | (1,468 | ) | — | ||||||||
Other—net | 1,346 | (538 | ) | (295 | ) | |||||||
Balance at end of fiscal year | ¥ | 5,566,894 | ¥ | 5,834,529 | ¥ | 5,791,300 | ||||||
Retained earnings appropriated for legal reserve (Note 21): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 239,571 | ¥ | 239,571 | ¥ | 239,571 | ||||||
Balance at end of fiscal year | ¥ | 239,571 | ¥ | 239,571 | ¥ | 239,571 | ||||||
Unappropriated retained earnings (Note 21): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 1,327,894 | ¥ | 1,424,634 | ¥ | 1,636,803 | ||||||
Net income (loss) | 363,511 | 581,288 | (542,436 | ) | ||||||||
Cash dividends: | ||||||||||||
Common share—¥9.00 in 2006 and in 2007, and ¥13.00 in 2008 per share | (58,855 | ) | (89,526 | ) | (134,664 | ) | ||||||
Preferred share (Class 1)—¥41.25 in 2006 per share | (1,679 | ) | — | — | ||||||||
Preferred share (Class 3)—¥37.07 in 2006 and ¥60.00 in 2007 and in 2008 per share | (3,707 | ) | (6,000 | ) | (6,000 | ) | ||||||
Preferred share (Class 8)—¥23.85 in 2007 and ¥15.90 in 2008 per share | — | (570 | ) | (282 | ) | |||||||
Preferred share (Class 9)—¥18.60 in 2007 per share | — | (1,482 | ) | — | ||||||||
Preferred share (Class 10)—¥19.40 in 2007 per share | — | (2,910 | ) | — | ||||||||
Preferred share (Class 12)—¥17.25 in 2007 and ¥11.50 in 2008 per share | — | (2,667 | ) | (387 | ) | |||||||
Amortization of beneficial conversion feature of preferred stock (Note 19) | (201,283 | ) | (267,432 | ) | (7,909 | ) | ||||||
Impact of SFAS No.123R implementation of UnionBanCal Corporation (Note 32) | — | 1,468 | — | |||||||||
Deferred compensation-restricted stock awards of UnionBanCal Corporation (Note 32) | (1,247 | ) | — | — | ||||||||
FIN No.48 adjustment (Note 1) | — | — | (4,091 | ) | ||||||||
FSP SFAS No.13-2 adjustment (Note 1) | — | — | (5,725 | ) | ||||||||
Balance at end of fiscal year (Note 35) | ¥ | 1,424,634 | ¥ | 1,636,803 | ¥ | 935,309 | ||||||
Accumulated other changes in equity from nonowner sources, net of taxes: | ||||||||||||
Net unrealized gains on investment securities available for sale (Note 6): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 730,119 | ¥ | 2,006,500 | ¥ | 2,315,648 | ||||||
Net change during the fiscal year | 1,276,381 | 309,148 | (1,341,951 | ) | ||||||||
Balance at end of fiscal year | ¥ | 2,006,500 | ¥ | 2,315,648 | ¥ | 973,697 | ||||||
Net unrealized gains (losses) on derivatives qualifying for cash flow hedges (Note 24): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 1,050 | ¥ | (668 | ) | ¥ | (909 | ) | ||||
Net change during the fiscal year | (1,718 | ) | (241 | ) | 2,673 | |||||||
Balance at end of fiscal year | ¥ | (668 | ) | ¥ | (909 | ) | ¥ | 1,764 | ||||
Minimum pension liability adjustments (Note 17): | ||||||||||||
Balance at beginning of fiscal year | ¥ | (130,479 | ) | ¥ | (4,464 | ) | ¥ | — | ||||
Net change during the fiscal year | 126,015 | (1,544 | ) | — | ||||||||
Adjustments to initially apply SFAS No. 158 | — | 6,008 | — | |||||||||
Balance at end of fiscal year | ¥ | (4,464 | ) | ¥ | — | ¥ | — | |||||
Pension liability adjustments (Note 17): | ||||||||||||
Balance at beginning of fiscal year | ¥ | — | ¥ | — | ¥ | 172,776 | ||||||
Net change during the fiscal year | — | — | (49,928 | ) | ||||||||
Adjustments to initially apply SFAS No. 158 | — | 172,776 | — | |||||||||
Balance at end of fiscal year | ¥ | — | ¥ | 172,776 | ¥ | 122,848 | ||||||
Foreign currency translation adjustments: | ||||||||||||
Balance at beginning of fiscal year | ¥ | (204,108 | ) | ¥ | (121,153 | ) | ¥ | (95,379 | ) | |||
Net change during the fiscal year | 82,955 | 25,774 | (83,510 | ) | ||||||||
Balance at end of fiscal year | ¥ | (121,153 | ) | ¥ | (95,379 | ) | ¥ | (178,889 | ) | |||
Balance at end of fiscal year | ¥ | 1,880,215 | ¥ | 2,392,136 | ¥ | 919,420 | ||||||
Treasury stock: | ||||||||||||
Balance at beginning of fiscal year | ¥ | (3,221 | ) | ¥ | (774,969 | ) | ¥ | (1,001,535 | ) | |||
Purchases of shares of treasury stock (Note 20) | (775,242 | ) | (292,200 | ) | (151,365 | ) | ||||||
Sales of shares of treasury stock | 4,243 | 65,627 | 1,779 | |||||||||
Increase resulting from merger with UFJ Holdings, Inc. | (868 | ) | — | — | ||||||||
Exchange of shares of treasury stock for shares of Mitsubishi UFJ Securities Co., Ltd. (Note 4) | — | — | 425,530 | |||||||||
Net decrease (increase) resulting from changes in voting interests in its consolidated subsidiaries and affiliated companies | 119 | 7 | (1,702 | ) | ||||||||
Balance at end of fiscal year | ¥ | (774,969 | ) | ¥ | (1,001,535 | ) | ¥ | (727,293 | ) | |||
Total shareholders’ equity | ¥ | 9,668,153 | ¥ | 10,433,312 | ¥ | 8,490,115 | ||||||
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Preferred stock(Note 17): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 247,100 | ¥ | 247,100 | ¥ | 442,100 | ||||||
Issuance of new shares of Class 5 preferred stock | — | 195,000 | — | |||||||||
Balance at end of fiscal year | ¥ | 247,100 | ¥ | 442,100 | ¥ | 442,100 | ||||||
Common stock (Note 18): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 1,084,708 | ¥ | 1,084,708 | ¥ | 1,127,552 | ||||||
Issuance of new shares of common stock | — | 42,844 | 515,662 | |||||||||
Issuance of new shares of common stock by way of exercise of the stock acquisition rights | — | — | 24 | |||||||||
Balance at end of fiscal year | ¥ | 1,084,708 | ¥ | 1,127,552 | ¥ | 1,643,238 | ||||||
Capital surplus (Note 18): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 5,834,529 | ¥ | 5,791,300 | ¥ | 6,095,820 | ||||||
Losses on exchange of shares of treasury stock for shares of Mitsubishi UFJ Securities Co., Ltd. (Note 3) | (56,134 | ) | — | — | ||||||||
Gains on induced conversion of shares of Mitsubishi UFJ NICOS Co., Ltd. Class 1 stock (Note 3) | — | 71,103 | — | |||||||||
Beneficial conversion feature of preferred stock (Note 17) | 7,909 | 9,478 | — | |||||||||
Stock-based compensation expense (Note 32) | 5,747 | 14,418 | 1,695 | |||||||||
Stock option and other share based compensation payouts as a result of UnionBanCal Corporation’s privatization (Note 32) | — | (21,063 | ) | — | ||||||||
Conversion of preferred stock to common stock by a subsidiary | — | — | (641 | ) | ||||||||
Losses on sales of shares of treasury stock | (456 | ) | (7,500 | ) | — | |||||||
Issuance of new shares of Class 5 preferred stock (Note 17) | — | 194,183 | — | |||||||||
Issuance of new shares of common stock and sale of treasury stock (Note 18) | — | 43,906 | 522,414 | |||||||||
Other—net | (295 | ) | (5 | ) | 237 | |||||||
Balance at end of fiscal year | ¥ | 5,791,300 | ¥ | 6,095,820 | ¥ | 6,619,525 | ||||||
Retained earnings appropriated for legal reserve (Note 19): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 239,571 | ¥ | 239,571 | ¥ | 239,571 | ||||||
Balance at end of fiscal year | ¥ | 239,571 | ¥ | 239,571 | ¥ | 239,571 | ||||||
Unappropriated retained earnings (Accumulated deficit)(Note 19): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 1,636,803 | ¥ | 935,309 | ¥ | (845,778 | ) | |||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | (542,436 | ) | (1,468,040 | ) | 859,819 | |||||||
Cash dividends: | ||||||||||||
Common stock—¥13.00 in 2008, ¥14.00 in 2009 and ¥11.00 in 2010 per share | (134,664 | ) | (146,937 | ) | (128,062 | ) | ||||||
Preferred stock (Class 3)—¥60.00 in 2008, in 2009 and in 2010 per share | (6,000 | ) | (6,000 | ) | (6,000 | ) | ||||||
Preferred stock (Class 5)—¥100.50 in 2010 per share | — | — | (15,678 | ) | ||||||||
Preferred stock (Class 8)—¥15.90 in 2008 and ¥7.95 in 2009 per share | (282 | ) | (140 | ) | — | |||||||
Preferred stock (Class 12)— ¥11.50 in 2008 and in 2009 per share | (387 | ) | (259 | ) | — | |||||||
Beneficial conversion feature of preferred stock (Note 17) | (7,909 | ) | (9,478 | ) | — | |||||||
Effect of adopting new guidance on accounting for uncertainty in income taxes (Note 1) | (4,091 | ) | — | — | ||||||||
Effect of adopting new guidance on accounting for a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction (Note 1) | (5,725 | ) | — | — | ||||||||
Losses on exchange of shares of treasury stock for shares of Mitsubishi UFJ NICOS Co., Ltd. (Note 3) | — | (47,507 | ) | — | ||||||||
Losses on sales of shares of treasury stock for shares of Mitsubishi UFJ NICOS Co., Ltd. (Note 3) | — | (35,966 | ) | — | ||||||||
Losses on sales of shares of treasury stock | — | (119,223 | ) | (261 | ) | |||||||
Effect of induced conversion of Mitsubishi UFJ NICOS Co., Ltd. Class 1 stock (Note 3) | — | (7,676 | ) | — | ||||||||
Effect of adopting new guidance on recognition and presentation of other-than-temporary impairments (Note 1) | — | — | 118,210 | |||||||||
Effect of adopting new guidance on defined benefit pension and other postretirement plans (Note 1) | — | (132 | ) | — | ||||||||
Effect of adopting new guidance on fair value measurements (Note 1) | — | 27,317 | — | |||||||||
Effect of adopting new guidance on fair value option for financial assets and financial liabilities (Note 1) | — | 32,979 | — | |||||||||
Other—net | — | (25 | ) | (377 | ) | |||||||
Balance at end of fiscal year (Note 36) | ¥ | 935,309 | ¥ | (845,778 | ) | ¥ | (18,127 | ) | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2008, 2009 AND 2010
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Accumulated other changes in equity from nonowner sources, net of taxes: | ||||||||||||
Net unrealized gains on investment securities (Note 4): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 2,315,648 | ¥ | 973,697 | ¥ | 95,213 | ||||||
Net change during the fiscal year | (1,341,951 | ) | (858,334 | ) | 611,193 | |||||||
Effect of adopting new guidance on fair value option for financial assets and financial liabilities, net of taxes (Note 1) | — | (20,150 | ) | — | ||||||||
Effect of adopting new guidance on recognition and presentation of other-than-temporary impairments, net of taxes (Note 1) | — | — | (118,210 | ) | ||||||||
Balance at end of fiscal year | ¥ | 973,697 | ¥ | 95,213 | ¥ | 588,196 | ||||||
Net unrealized gains (losses) on derivatives qualifying for cash flow hedges (Note 23): | ||||||||||||
Balance at beginning of fiscal year | ¥ | (909 | ) | ¥ | 1,764 | ¥ | 6,507 | |||||
Net change during the fiscal year | 2,673 | 4,743 | (4,795 | ) | ||||||||
Balance at end of fiscal year | ¥ | 1,764 | ¥ | 6,507 | ¥ | 1,712 | ||||||
Pension liability adjustments (Note 15): | ||||||||||||
Balance at beginning of fiscal year | ¥ | 172,776 | ¥ | 122,848 | ¥ | (446,469 | ) | |||||
Net change during the fiscal year | (49,928 | ) | (437,743 | ) | 242,509 | |||||||
Effect of adopting new guidance on defined benefit pension and other postretirement plans, net of taxes (Note 1) | — | (131,574 | ) | — | ||||||||
Balance at end of fiscal year | ¥ | 122,848 | ¥ | (446,469 | ) | ¥ | (203,960 | ) | ||||
Foreign currency translation adjustments: | ||||||||||||
Balance at beginning of fiscal year | ¥ | (95,379 | ) | ¥ | (178,889 | ) | ¥ | (468,946 | ) | |||
Net change during the fiscal year | (83,510 | ) | (290,057 | ) | 37,563 | |||||||
Balance at end of fiscal year | ¥ | (178,889 | ) | ¥ | (468,946 | ) | ¥ | (431,383 | ) | |||
Balance at end of fiscal year | ¥ | 919,420 | ¥ | (813,695 | ) | ¥ | (45,435 | ) | ||||
Treasury stock: | ||||||||||||
Balance at beginning of fiscal year | ¥ | (1,001,535 | ) | ¥ | (727,293 | ) | ¥ | (10,675 | ) | |||
Purchases of shares of treasury stock (Note 18) | (151,365 | ) | (2,919 | ) | (5,588 | ) | ||||||
Sales of shares of treasury stock | 1,779 | 537,542 | 2,806 | |||||||||
Exchange of shares of treasury stock for shares of Mitsubishi UFJ Securities Co., Ltd. (Note 3) | 425,530 | — | — | |||||||||
Net increase resulting from changes in voting interests in its consolidated subsidiaries and affiliated companies | (1,702 | ) | (2,883 | ) | (497 | ) | ||||||
Exchange of shares of treasury stock for shares of Mitsubishi UFJ NICOS Co., Ltd. (Note 3) | — | 184,878 | — | |||||||||
Balance at end of fiscal year | ¥ | (727,293 | ) | ¥ | (10,675 | ) | ¥ | (13,954 | ) | |||
Total Mitsubishi UFJ Financial Group shareholders’ equity | ¥ | 8,490,115 | ¥ | 6,234,895 | ¥ | 8,866,918 | ||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2008, 2009 AND 2010
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Noncontrolling interests: | ||||||||||||
Balance at beginning of fiscal year | ¥ | 884,982 | ¥ | 663,816 | ¥ | 232,225 | ||||||
Initial origination of noncontrolling interests | 97,975 | 60,858 | 45,130 | |||||||||
Transactions with noncontrolling interest shareholders in relation to the consolidated subsidiaries | (272,001 | ) | (203,115 | ) | 3,555 | |||||||
Exchange of shares of treasury stock for shares of Mitsubishi UFJ NICOS Co., Ltd. and sale of shares of Mitsubishi UFJ NICOS Co., Ltd. | — | (137,603 | ) | — | ||||||||
Decrease in noncontrolling interests related to exclusion of subsidiaries from consolidation | (50,006 | ) | (92,298 | ) | (59,973 | ) | ||||||
Decrease in noncontrolling interests related to disposition of subsidiaries | (204 | ) | (2,778 | ) | — | |||||||
Net income (loss) attributable to noncontrolling interests | 38,476 | (36,259 | ) | 15,257 | ||||||||
Dividends paid to noncontrolling interests | (22,790 | ) | (9,698 | ) | (5,393 | ) | ||||||
Other changes in equity from nonowner sources, net of taxes: | ||||||||||||
Net unrealized holding gains (losses) on investment securities | (7,843 | ) | (86 | ) | 1,808 | |||||||
Reclassification adjustment for losses (gains) included in net income (loss) attributable to noncontrolling interests in relation to net unrealized holding gains (losses) on investment securities | 2,240 | 3,164 | (386 | ) | ||||||||
Net unrealized gains (losses) on derivatives qualifying for cash flow hedges | 1,358 | (93 | ) | — | ||||||||
Reclassification adjustment for losses (gains) included in net income (loss) attributable to noncontrolling interests in relation to net unrealized gains (losses) on derivatives qualifying for cash flow hedges | 608 | (810 | ) | — | ||||||||
Pension liability adjustments | (2,171 | ) | (655 | ) | 616 | |||||||
Reclassification adjustment for losses (gains) included in net income (loss) attributable to noncontrolling interests in relation to pension liability adjustments | (459 | ) | 6,430 | 98 | ||||||||
Foreign currency translation adjustments | (8,931 | ) | (15,973 | ) | 3,273 | |||||||
Reclassification adjustment for losses (gains) included in net income (loss) attributable to noncontrolling interests in relation to foreign currency translation adjustments | — | (4 | ) | 26 | ||||||||
Other—net | 2,582 | (2,671 | ) | (314 | ) | |||||||
Balance at end of fiscal year | ¥ | 663,816 | ¥ | 232,225 | ¥ | 235,922 | ||||||
Total equity | ¥ | 9,153,931 | ¥ | 6,467,120 | ¥ | 9,102,840 | ||||||
See the accompanying notes to Consolidated Financial Statements.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED MARCH 31, 2006, 20072008, 2009 AND 20082010
| 2006 | 2007 | 2008 | ||||||||||
| (in millions) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) | ¥ | 363,511 | ¥ | 581,288 | ¥ | (542,436 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
Loss (income) from discontinued operations—net (Note 3) | (8,973 | ) | 817 | 1,746 | ||||||||
Depreciation and amortization | 260,825 | 383,870 | 432,457 | |||||||||
Impairment of goodwill (Note 10) | — | — | 893,721 | |||||||||
Impairment of intangible assets (Note 10) | 251 | 184,760 | 78,679 | |||||||||
Provision for credit losses | 110,167 | 358,603 | 385,740 | |||||||||
Government grant for transfer of substitutional portion of Employees’ Pension Fund plans (Note 17) | (103,001 | ) | — | — | ||||||||
Investment securities losses (gains)—net | (89,861 | ) | (238,277 | ) | 1,373,072 | |||||||
Foreign exchange losses (gains)—net | 222,977 | (3,908 | ) | (1,544,073 | ) | |||||||
Equity in losses (earnings) of equity method investees | (22,258 | ) | 56,879 | 34,485 | ||||||||
Provision for deferred income tax expense | 67,261 | 434,993 | 446,253 | |||||||||
Decrease (increase) in trading account assets, excluding foreign exchange contracts | 958,487 | (280,834 | ) | (2,519,202 | ) | |||||||
Increase (decrease) in trading account liabilities, excluding foreign exchange contracts | (1,267,996 | ) | (395,668 | ) | 1,425,276 | |||||||
Decrease (increase) in accrued interest receivable and other receivables | 15,616 | 157,769 | (79,266 | ) | ||||||||
Increase (decrease) in accrued interest payable and other payables | (29,197 | ) | 127,769 | 90,984 | ||||||||
Net increase (decrease) in accrued income taxes and decrease (increase) in income tax receivables | (163,365 | ) | 116,933 | (17,843 | ) | |||||||
Increase (decrease) in allowance for repayment of excess interest (Note 27) | 9,733 | 92,741 | (22,290 | ) | ||||||||
Other—net | 29,909 | (14,723 | ) | (54,096 | ) | |||||||
Net cash provided by operating activities | 354,086 | 1,563,012 | 383,207 | |||||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from sales of investment securities available for sale | 47,801,160 | 36,262,585 | 51,204,443 | |||||||||
Proceeds from maturities of investment securities available for sale | 35,712,110 | 28,187,867 | 26,300,910 | |||||||||
Purchases of investment securities available for sale | (79,944,570 | ) | (63,170,653 | ) | (74,640,265 | ) | ||||||
Proceeds from maturities of investment securities being held to maturity | 42,264 | 47,334 | 543,799 | |||||||||
Purchases of investment securities being held to maturity | (241,001 | ) | (623,171 | ) | (354,008 | ) | ||||||
Proceeds from sales of other investment securities | 132,838 | 255,743 | 153,436 | |||||||||
Purchases of other investment securities | (53,240 | ) | (119,626 | ) | (78,352 | ) | ||||||
Net decrease (increase) in loans | (1,231,764 | ) | 410,203 | (5,942,696 | ) | |||||||
Net decrease (increase) in interest-earning deposits in other banks | (500,026 | ) | 462,314 | (806,005 | ) | |||||||
Net decrease (increase) in call loans, funds sold, and receivables under resale agreements and securities borrowing transactions | 876,349 | (3,912,447 | ) | (4,071,034 | ) | |||||||
Proceeds from sales of premises and equipment | 43,255 | 23,728 | 71,671 | |||||||||
Capital expenditures for premises and equipment | (82,390 | ) | (119,024 | ) | (187,745 | ) | ||||||
Cash acquired by the merger with UFJ Holdings, Inc.—net (Note 2) | 5,509,837 | — | — | |||||||||
Cash acquired due to increase of consolidated subsidiaries | 203,363 | — | — | |||||||||
Purchases of intangible assets | (111,800 | ) | (184,205 | ) | (231,300 | ) | ||||||
Proceeds from sales of consolidated VIEs and subsidiaries—net | — | 41,243 | 117,626 | |||||||||
Other—net | 98,877 | (53,964 | ) | 86,391 | ||||||||
Net cash provided by (used in) investing activities | 8,255,262 | (2,492,073 | ) | (7,833,129 | ) | |||||||
Cash flows from financing activities: | ||||||||||||
Net increase (decrease) in deposits | 696,735 | (889,962 | ) | 5,472,395 | ||||||||
Net increase (decrease) in call money, funds purchased, and payables under repurchase agreements and securities lending transactions | (168,928 | ) | 4,016,307 | 3,731,613 | ||||||||
Net decrease in due to trust account | (702,246 | ) | (886,416 | ) | (78,967 | ) | ||||||
Net increase (decrease) in other short-term borrowings | (6,628,777 | ) | (4,847,764 | ) | 202,589 | |||||||
Proceeds from issuance of long-term debt | 3,314,680 | 3,254,073 | 2,344,448 | |||||||||
Repayment of long-term debt | (2,122,116 | ) | (2,661,783 | ) | (2,662,527 | ) | ||||||
Proceeds from sales of preferred stock issued by a subsidiary | 108,250 | — | — | |||||||||
Payments for redemption of preferred stock | (122,100 | ) | — | — | ||||||||
Payments for redemption of preferred stock issued by a subsidiary | — | (120,000 | ) | — | ||||||||
Proceeds from sales of treasury stock | 7,832 | 64,041 | 1,173 | |||||||||
Payments to acquire treasury stock (Note 20) | (775,242 | ) | (292,182 | ) | (151,365 | ) | ||||||
Dividends paid | (64,220 | ) | (103,047 | ) | (141,159 | ) | ||||||
Dividends paid to minority interests | (62,435 | ) | (23,584 | ) | (22,990 | ) | ||||||
Other—net | (82,154 | ) | (5,764 | ) | 28,174 | |||||||
Net cash provided by (used in) financing activities | (6,600,721 | ) | (2,496,081 | ) | 8,723,384 | |||||||
Effect of exchange rate changes on cash and cash equivalents | 20,283 | 25,458 | (32,435 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | 2,028,910 | (3,399,684 | ) | 1,241,027 | ||||||||
Cash and cash equivalents at beginning of fiscal year (including cash and cash equivalents identified as discontinued operations of ¥13,939 million in 2006, ¥14,069 million in 2007 and ¥2,194 million in 2008) | 4,220,437 | 6,249,347 | 2,849,663 | |||||||||
Cash and cash equivalents at end of fiscal year (including cash and cash equivalents identified as discontinued operations of ¥14,069 million in 2006, ¥2,194 million in 2007 and nil in 2008) | ¥ | 6,249,347 | ¥ | 2,849,663 | ¥ | 4,090,690 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the fiscal year for: | ||||||||||||
Interest | ¥ | 913,783 | ¥ | 1,547,702 | ¥ | 2,055,790 | ||||||
Income taxes, net of refunds | 254,588 | 3,864 | 145,806 | |||||||||
Non-cash investing and financing activities: | ||||||||||||
Obtaining assets by entering into capital lease | 27,158 | 35,942 | 18,739 | |||||||||
Merger with UFJ Holdings, Inc. by stock-for-stock exchanges (Note 2): | ||||||||||||
Non-cash assets acquired at fair value | 78,619,706 | — | — | |||||||||
Liabilities assumed at fair value | 79,804,419 | — | — | |||||||||
Net | (1,184,713 | ) | — | — | ||||||||
Stocks issued in connection with the merger with UFJ Holdings, Inc. (Note 2) | 4,403,225 | — | — | |||||||||
Acquisition of minority interests in Mitsubishi UFJ Securities Co., Ltd. in exchange for treasury stock (Note 4) | — | — | 369,588 | |||||||||
| 2008 (As restated, see Note 35) | 2009 (As restated, see Note 35) | 2010
| ||||||||||
| (in millions) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income (loss) before attribution of noncontrolling interests | ¥ | (503,960 | ) | ¥ | (1,504,299 | ) | ¥ | 875,076 | ||||
Adjustments to reconcile net income (loss) before attribution of noncontrolling interests to net cash provided by (used in) operating activities: | ||||||||||||
Loss from discontinued operations—net (Note 2) | 2,670 | — | — | |||||||||
Depreciation and amortization | 432,457 | 410,362 | 345,268 | |||||||||
Impairment of goodwill (Note 8) | 893,721 | 845,842 | 461 | |||||||||
Impairment of intangible assets (Note 8) | 78,679 | 126,885 | 12,400 | |||||||||
Provision for credit losses (Notes 5 and 6) | 385,740 | 626,947 | 647,793 | |||||||||
Investment securities losses (gains)—net | 1,373,072 | 658,679 | (223,030 | ) | ||||||||
Foreign exchange losses (gains)—net | (1,466,299 | ) | 1,304,438 | (236,055 | ) | |||||||
Equity in losses of equity method investees | 34,485 | 60,051 | 104,098 | |||||||||
Provision for deferred income tax expense (benefit) | 446,253 | (401,367 | ) | 316,388 | ||||||||
Decrease (increase) in trading account assets, excluding foreign exchange contracts | (3,928,763 | ) | (4,390,178 | ) | 801,245 | |||||||
Increase (decrease) in trading account liabilities, excluding foreign exchange contracts | 2,875,793 | 1,493,062 | (184,013 | ) | ||||||||
Decrease (increase) in accrued interest receivable and other receivables | (85,575 | ) | 73,374 | 3,322 | ||||||||
Increase (decrease) in accrued interest payable and other payables | 105,442 | (103,573 | ) | (6,866 | ) | |||||||
Net increase (decrease) in accrued income taxes and decrease (increase) in income tax receivables | (17,843 | ) | 103,164 | 5,762 | ||||||||
Increase (decrease) in allowance for repayment of excess interest (Note 26) | (22,290 | ) | (3,316 | ) | 7,378 | |||||||
Net decrease (increase) in collaterals for derivative transactions | 133,522 | (497,629 | ) | (132,610 | ) | |||||||
Other—net | (183,712 | ) | 231,371 | (26,632 | ) | |||||||
Net cash provided by (used in) operating activities | 553,392 | (966,187 | ) | 2,309,985 | ||||||||
Cash flows from investing activities: | ||||||||||||
Proceeds from sales of investment securities available for sale (including proceeds from securities under fair value option for the fiscal years ended March 31, 2009 and 2010) (Note 4) | 51,204,443 | 76,089,849 | 74,475,416 | |||||||||
Proceeds from maturities of investment securities available for sale (including proceeds from securities under fair value option for the fiscal years ended March 31, 2009 and 2010) (Note 4) | 26,300,910 | 29,796,236 | 46,056,462 | |||||||||
Purchases of investment securities available for sale (including purchases of securities under fair value option for the fiscal years ended March 31, 2009 and 2010) (Note 4) | (74,651,166 | ) | (114,561,896 | ) | (135,509,931 | ) | ||||||
Proceeds from maturities of investment securities being held to maturity | 543,799 | 1,497,026 | 296,420 | |||||||||
Purchases of investment securities being held to maturity | (354,008 | ) | (296,772 | ) | (433,118 | ) | ||||||
Proceeds from sales of other investment securities | 153,436 | 37,773 | 104,040 | |||||||||
Purchases of common stock investment in ACOM CO., LTD., an affiliated company of MUFG | — | (152,971 | ) | — | ||||||||
Purchases of other investment securities | (78,352 | ) | (958,616 | ) | (379,154 | ) | ||||||
Net decrease (increase) in loans | (5,926,711 | ) | (6,286,913 | ) | 5,919,699 | |||||||
Net decrease (increase) in interest-earning deposits in other banks | (792,340 | ) | 2,236,492 | (1,273,410 | ) | |||||||
Net decrease (increase) in call loans, funds sold, and receivables under resale agreements and securities borrowing transactions | (4,086,565 | ) | 4,598,497 | 233,782 | ||||||||
Proceeds from sales of premises and equipment | 64,067 | 36,269 | 17,878 | |||||||||
Capital expenditures for premises and equipment | (187,745 | ) | (154,607 | ) | (114,230 | ) | ||||||
Purchases of intangible assets | (230,136 | ) | (195,482 | ) | (171,405 | ) | ||||||
Proceeds from sales of consolidated VIEs and subsidiaries—net | 117,626 | 110,010 | 1,290 | |||||||||
Other—net | 53,025 | (48,474 | ) | (38,171 | ) | |||||||
Net cash used in investing activities | | (7,869,717 | ) | (8,253,579 | ) | (10,814,432 | ) | |||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
FOR THE FISCAL YEARS ENDED MARCH 31, 2008, 2009 AND 2010
| 2008 (As restated, see Note 35) | 2009 (As restated, see Note 35) | 2010
| ||||||||||
| (in millions) | ||||||||||||
Cash flows from financing activities: | ||||||||||||
Net increase in deposits | 5,438,515 | 2,664,202 | 9,408,480 | |||||||||
Net increase (decrease) in call money, funds purchased, and payables under repurchase agreements and securities lending transactions | 3,699,282 | 2,343,192 | (1,048,232 | ) | ||||||||
Net increase (decrease) in due to trust account | (78,967 | ) | 335,840 | (237,215 | ) | |||||||
Net increase (decrease) in other short-term borrowings | 209,462 | 2,576,140 | (1,720,216 | ) | ||||||||
Proceeds from issuance of long-term debt | 2,342,824 | 2,917,573 | 3,478,615 | |||||||||
Repayment of long-term debt | (2,700,610 | ) | (2,756,725 | ) | (2,467,525 | ) | ||||||
Proceeds from issuance of common stock, net of stock issue expenses | — | 280,460 | 1,036,053 | |||||||||
Proceeds from issuance of new shares of preferred stock, net of stock issue expenses | — | 388,623 | — | |||||||||
Proceeds from sales of treasury stock | 1,173 | 187,147 | 1,077 | |||||||||
Payments to acquire treasury stock (Note 18) | (151,365 | ) | (2,697 | ) | (4,621 | ) | ||||||
Dividends paid | (141,159 | ) | (153,217 | ) | (149,486 | ) | ||||||
Dividends paid to noncontrolling interests | (22,990 | ) | (12,864 | ) | (5,908 | ) | ||||||
Payments related to privatization of UnionBanCal Corporation (Notes 3 and 32) | — | (410,373 | ) | — | ||||||||
Other—net | (6,378 | ) | (57,022 | ) | 4,256 | |||||||
Net cash provided by financing activities | 8,589,787 | 8,300,279 | 8,295,278 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (32,435 | ) | (99,951 | ) | 440 | |||||||
Net increase (decrease) in cash and cash equivalents | 1,241,027 | (1,019,438 | ) | (208,729 | ) | |||||||
Cash and cash equivalents at beginning of fiscal year (including cash and cash equivalents identified as discontinued operations of ¥2,194 million in 2008, nil in 2009 and 2010) | 2,849,663 | 4,090,690 | 3,071,252 | |||||||||
Cash and cash equivalents at end of fiscal year (no cash and cash equivalents identified as discontinued operations in 2008, 2009 and 2010) | ¥ | 4,090,690 | ¥ | 3,071,252 | ¥ | 2,862,523 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the fiscal year for: | ||||||||||||
Interest | ¥ | 2,055,790 | ¥ | 1,643,730 | ¥ | 831,847 | ||||||
Income taxes, net of refunds | 145,806 | 38,275 | 84,890 | |||||||||
Non-cash investing and financing activities: | ||||||||||||
Obtaining assets by entering into capital lease | 18,739 | 5,408 | 5,763 | |||||||||
Acquisition of noncontrolling interests in Mitsubishi UFJ Securities Co., Ltd. in exchange for treasury stock (Note 3) | 369,588 | — | — | |||||||||
Acquisition of noncontrolling interests in Mitsubishi UFJ NICOS Co., Ltd. in exchange for treasury stock (Note 3) | — | 131,445 | — | |||||||||
Transfer to securities from loans resulting from securitizations (Note 5) | — | 60,671 | — | |||||||||
Transfer to trading account assets from investment securities available for sale (Note 31) | — | 10,448,079 | — | |||||||||
Transfer to investment securities being held to maturity from trading account assets (Note 4) | — | 1,053,029 | — | |||||||||
Union Bank’s term borrowing issued in its fiscal year ended December 31, 2008, but settled on January 2, 2009 | — | 91,030 | — | |||||||||
Transfer to investment securities being held to maturity from investment securities available for sale (Note 4) | — | — | 111,895 | |||||||||
Exchange of shares in Senshu Bank for shares in Senshu Ikeda Holdings, Inc. (Note 20): | ||||||||||||
Acquisition of shares of Senshu Ikeda Holdings, Inc. recorded at fair value | — | — | 79,073 | |||||||||
Deconsolidation of Senshu Bank at book value | — | — | 50,069 | |||||||||
See the accompanying notes to Consolidated Financial Statements.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | BASIS OF FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Description of Business
Mitsubishi UFJ Financial Group, Inc. (“MUFG”) is a holding company for The Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), Mitsubishi UFJ Trust and Banking Corporation (“MUTB”), Mitsubishi UFJ Securities Co., Ltd. (“MUS”), Mitsubishi UFJ NICOS Co., Ltd. (“Mitsubishi UFJ NICOS”), and other subsidiaries. Through its subsidiaries and affiliated companies, MUFG engages in a broad range of financial operations, including commercial banking, investment banking, trust banking and asset management services, securities businesses, and credit card businesses, and provides related services to individual and corporate customers. See Note 29 for more information by business segment.
On October 1, 2005, Mitsubishi Tokyo Financial Group, Inc. (“MTFG”), the parent company of The Bank of Tokyo-Mitsubishi, Ltd. (“BTM”), Mitsubishi Trust and Banking Corporation (“Mitsubishi Trust”) and Mitsubishi Securities Co., Ltd. (“Mitsubishi Securities”), merged with UFJ Holdings, Inc. (“UFJ Holdings”), the parent company of UFJ Bank Limited (“UFJ Bank”), UFJ Trust Bank Limited (“UFJ Trust”) and UFJ Tsubasa Securities Co., Ltd. (“UFJ Tsubasa Securities”), with MTFG being the surviving entity. Upon consummation of the merger, MTFG changed its name to MUFG. The merger was accounted for under the purchase method of accounting, and the assets and liabilities of UFJ Holdings and its subsidiaries (the “UFJ Holdings Group”) were recorded at fair value as of October 1, 2005. The results of operations of the UFJ Holdings Group have been included in the accompanying consolidated financial statements since October 1, 2005. Unless otherwise mentioned, numbers as of March 31, 2006 reflect the financial position of MUFG and its subsidiaries (the “MUFG Group”) while numbers for the fiscal year ended March 31, 2006 comprised the results of the MTFG Group for the six months ended September 30, 2005 and the results of the MUFG Group from October 1, 2005 to March 31, 2006. Numbers as of and for the fiscal years ended March 31, 2007 and 2008 reflect the financial position and results of the MUFG Group. See Note 2 for further discussion of the merger.
Basis of Financial Statements
The accompanying consolidated financial statements are stated in Japanese yen, the currency of the country in which MUFG is incorporated and principally operates. The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“US GAAP”). In certain respects, the accompanying consolidated financial statements reflect adjustments which are not included in the consolidated financial statements issued by MUFG and certain of its subsidiaries in accordance with applicable statutory requirements and accounting practices in their respective countries of incorporation. The major adjustments include those relating to (1) investment securities, (2) derivative financial instruments, (3) allowance for credit losses, (4) income taxes, (5) consolidation, (6) premises and equipment, (7) transfer of financial assets, (8) accrued severance indemnities and pension liabilities, (9) goodwill and other intangible assets and (10) lease transactions.
Fiscal periods of certain subsidiaries, which end on or after December 31, and MUFG’s fiscal year, which ends on March 31, have been treated as coterminous. For the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, the effect of recording intervening events for the three-month periods ended March 31 on MUFG’s proportionate equity in net income of subsidiaries with fiscal periods ended on or after December 31, would have resulted in an increase of ¥8.63¥14.02 billion to net income, a decreaseloss, an increase of ¥0.20¥2.42 billion to net incomeloss and an increase of ¥14.02¥3.90 billion to net loss,income, respectively. No intervening events occurred during each of the three-month periods ended March 31, 2006, 20072008, 2009 and 20082010 which, if recorded, would have had material effects to consolidated total assets, loans, total liabilities, deposits or total shareholders’ equity as of March 31, 2006, 20072008, 2009 and 2008.
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Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near termmanagement judgment primarily relate to the allowance for credit losses on loans and off-balance-sheet credit instruments, valuation allowances of deferred tax assets, tax reserves, valuation of financial instruments, with no available market prices, goodwill, intangible assets, investment securities and accrued severance indemnities and pension liabilities.
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Summary of Significant Accounting Policies
Significant accounting policies applied in the accompanying consolidated financial statements are summarized below:
Consolidation—The consolidated financial statements include the accounts of MUFG and its subsidiaries (together, the “MUFG Group”) over which control is exercised through either majority ownership of voting stock and/or other means, including, but not limited to, the possession of the power to direct or cause the direction of the management and policies of entities. In situations in which the MUFG Group has less than 100% but greater than 50% of ownership in entities, such entities are consolidated and minoritynoncontrolling interests are also recorded in Other liabilities.Total equity. Intercompany items have been eliminated. Investments in affiliated companies (companies over which the MUFG Group has the ability to exercise significant influence) are accounted for by the equity method of accounting and are reported in Other assets. The MUFG Group’s equity interestsinterest in the earnings of these equity investees and gains or losses realized on disposition of such investments are reported in Equity in earnings (losses)losses of equity method investees.
Variable interest entities are consolidated when the MUFG Group has a variable interest that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. See Note 26.25 for the details of variable interest entities.
Assets that the MUFG Group holds in an agency, fiduciary or trust capacity are not assets of the MUFG Group and, accordingly, are not included in the accompanying consolidated balance sheets.
Cash Flows—For the purposes of reporting cash flows, cash and cash equivalents are defined as those amounts included in the consolidated balance sheets under the caption Cash and due from banks with original maturities of 90 days or less. Cash flows from qualified hedging activities are classified in the same category as the items being hedged.
Translation of Foreign Currency Financial Statements and Foreign Currency Transactions—Financial statements of overseas entities are translated into Japanese yen using the respective fiscal year-end exchange rates for assets and liabilities. Income and expense items are translated at average rates of exchange for the respective fiscal periods.
Except for overseas entities located in highly inflationary economies, foreignForeign currency translation gains and losses related to the financial statements of overseas entities of the MUFG Group, net of related income tax effects, are credited or charged directly to Foreign currency translation adjustments, a component of accumulated other changes in equity from nonowner sources. Tax effects of gains and losses on foreign currency translation of financial statements of overseas entities are not recognized unless it is apparent that the temporary differences will reverse in the foreseeable future. If applicable, foreign exchange translation gains and losses pertaining to entities located in highly inflationary economies are recorded in Foreign exchange gains (losses)—net, as appropriate. For these entities, premises and equipment and the related depreciation and amortization thereof are translated at exchange rates prevailing at dates of acquisition.
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Foreign currency denominatedcurrency-denominated assets and liabilities are translated into the functional currencies of the individual entities included in consolidation at the respective fiscal year-end foreign exchange rates. Foreign currency denominatedcurrency-denominated income and expenses are translated using average rates of exchange for the respective fiscal periods. Gains and losses from such translation are included in Foreign exchange gains (losses)—net, as appropriate.
Repurchase Agreements, Securities Lending and Other Secured Financing Transactions—Securities sold with agreements to repurchase (“repurchase agreements”), securities purchased with agreements to resell (“resale agreements”) and securities lending and borrowing transactions are accounted for as secured financing or lending transactions, if the control over the securities is not surrendered. If they meet the relevant conditions for the
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surrender of control, they are accounted for as sales of securities with related off-balance-sheetoff-balance sheet forward repurchase commitments or purchases of securities with related off-balance-sheetoff-balance sheet forward resale commitments, if they meetcommitments. For the relevant conditionsfiscal years ended March 31, 2008, 2009 and 2010, there were no such transactions accounted for the surrender of control as provided by Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125.” If the conditions are not met, the transactions are treated as secured financing or lending.sales.
Collateral—For secured lending transactions, including resale agreements, securities borrowing transactions, commercial lending and derivative transactions, the MUFG Group, as a secured party, generally has the right to require the counterparties to provide collateral, including letters of credit, cash, securities and other financial assets. For most securities lending transactions, the MUFG Group maintains strict levels of collateralization governed by daily mark-to-market analysis. Financial assets pledged as collateral are generally negotiable financial instruments and are permitted to be sold or repledged by secured parties. If the MUFG Group sells these financial assets received as collateral, it recognizes the proceeds from the sale and its obligation to return the collateral. For secured borrowing transactions, principally repurchase agreements and securities lending transactions and derivative transactions, where the secured party has the right to sell or repledge financial assets pledged as collateral, the MUFG Group separately discloses those financial assets pledged as collateral in the consolidated balance sheets.
Trading Account Securities—Securities and money market instruments held in anticipation of short-term market movements and for resale to customers are included in Trading account assets, and short trading positions of these instruments are included in Trading account liabilities. Trading positions are carried at fair value on the consolidated balance sheets and recorded on a trade date basis. Changes in the fair value of trading positions are recognized currently in Trading account profits—profits (losses)—net, as appropriate. The MUFG Group has elected fair value option accounting for certain foreign securities. See Note 31 for a further discussion of fair value option accounting.
Investment Securities—Debt securities for which the MUFG Group has both the ability and positive intent to hold to maturity are classified as Securities being held to maturity and carried at amortized cost. Debt securities that the MUFG Group may not hold to maturity and marketable equity securities, other than those classified as Trading account securities, are classified as Securities available for sale,available-for-sale, and are carried at their fair values, with unrealized gains and losses reported on a net-of-tax basis within accumulated other changes in equity from nonowner sources, which is a component of shareholders’ equity. Other investment securities include nonmarketable equity securities carried at their acquisition costs, and also securities held by subsidiaries that are investment companies or brokers and dealers in securities. Such securities held by those subsidiaries are not within the scope of SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and are subject to the specialized industry accounting principles for investment companies and brokers and dealers in AICPA Audit and Accounting Guides for “Investment Companies” and “Brokers and Dealers in Securities” (the “AICPA Guides”)securities applicable for those subsidiaries. Securities of those subsidiaries are carried at their fair values.
Individual debt and equity securities are written down to fair value with the resulting losses charged to operations when, in the opinion of management, a decline in estimated fair value below the cost of such securities is other than temporary. Such impairment loss is included in Investment securities gains (losses)—net
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in the consolidated statements of operations. In determining other than temporary declines in fair value to be recognized as an impairment loss on investment securities, the MUFG Group generally considers factors such as the ability and positive intent to hold the investments for a period of time sufficient to allow for any anticipated recovery in fair value, the financial condition of the issuer, the extent of decline in fair value, and the length of time that the decline in fair value below cost has existed. The MUFG Group adopted the new guidance which amends the other than temporary impairment model for debt securities on April 1, 2009. SeeAccounting Changes-Recognition and Presentation of Other-Than-Temporary Impairments and Note 64 for a further discussion of other-than-temporary impairment.discussion. This new guidance did not affect the other than temporary impairment model for equity securities. Interest and dividends on investment securities are reported in Interest income. Dividends are recognized when the shareholders’shareholder right to receive the dividend is established. Gains and losses on disposition of investment securities are computed using the average cost method and are recognized on the trade date.
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Derivative Financial Instruments—The MUFG Group engages in derivative activities involving swaps, forwards, futures, options, and other types of derivative contracts. Derivatives are used in trading activities to generate trading revenues and fee income for its own account and to respond to the customers’ financial needs. Derivatives are also used to manage its market risk exposures to fluctuations in interest and foreign exchange rates, equity and commodity prices, and counterparty credit risk.
Derivatives entered into for trading purposes are carried at fair value and are reported as Trading account assets or Trading account liabilities. Fair values are estimated basedPrior to the adoption of new guidance on market or broker-dealer quotes when available. Valuation models such as presentthe measurement of fair value, and pricing models are applied to current market information to estimate fair values when such quotes are not available. Thethe MUFG Group defersdeferred trade date gains or losses on derivatives where the fair values of those derivatives arewere not obtained from a quoted market price, supported by comparison to other observable market transactions, or based upon a valuation technique incorporatingwhich incorporated observable market data. SeeAccounting Changes—Fair Value Measurementsfor details related to adoption of the new guidance on the measurement of fair value. The fair values of derivative contracts executed with the same counterparty under legally enforceable master netting agreements are presented on a netgross basis. Changes in the fair value of such contracts are recognized currently in Foreign exchange gains (losses)—net with respect to foreign exchange contracts and in Trading account profits—profits (losses)—net with respect to interest rate contracts and other types of contracts.
Embedded features that are not clearly and closely related to the host contracts and meet the definition of derivatives are separated from the host contracts and measured at fair value unless the contracts embedding the derivatives are measured at fair value in their entirety.
Derivatives are also used to manage exposures to fluctuations in interest and foreign exchange rates arising from mismatches of asset and liability positions. Certain of those derivatives are designated by the MUFG Group and qualify for hedge accounting. A derivative is designated as a hedging instrument at the inception of each such hedge relationship and the MUFG Group documents, for such individual hedging relationships, the risk management objective and strategy, including identifying the item being hedged, identifying the specific risk being hedged and the method used to assess the hedge’s effectiveness. In order for a hedging relationship to qualify for hedge accounting, the changes in the fair value of the derivative instruments must be highly effective in achieving offsetting changes in fair values or variable cash flows of the hedged items attributable to the risk being hedged. Any ineffectiveness, which arises during the hedging relationship, is recognized in Non-interest income or expense in the period in which it arises. All qualifying hedging derivatives are valued at fair value and included in Other assets or Other liabilities. The fair values of derivative contracts executed with the same counterparty under legally enforceable master netting agreements are presented on a netgross basis. For fair value hedges of interest-bearing assets or liabilities, the change in the fair value of the hedged item and the hedging instruments is recognized in net interest income to the extent that it is effective. For all other fair value hedges, the change in the fair value of the hedged item and change in fair value of the derivative are recognized in non-interest income or expense. For cash flow hedges, the unrealized changes in fair value to the extent effective are recognized in accumulated other changes in equity from nonowner sources. Amounts realized on cash flow hedges related to variable rate loans are recognized in net interest income in the period when the cash flow from
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the hedged item is realized. The fair value of cash flow hedges related to forecasted transactions, if any, is recognized in non-interest income or expense in the period when the forecasted transaction occurs. Any difference that arises from gains or losses on hedging derivatives offsetting corresponding gains or losses on the hedged items, and gains and losses on derivatives attributable to the risks excluded from the assessment of hedge effectiveness are recognized in non-interest income or expense. Derivatives that do not qualify for hedge accounting are considered trading positions and are accounted for as such.
Loans—Loans originated by the MUFG Group (“originated loans”) are carried at the principal amount outstanding, adjusted for unearned income and deferred net nonrefundable loan fees and costs. Originated loans held and intended for dispositions or sales in secondary markets are transferred to the held-for-sale classification and carried at the lower of cost or estimated fair value generally on an individual loan basis. Loan origination
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fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the loan as an adjustment of yield using the method that approximates the interest method. Interest income on loans that are not impaired is accrued and credited to interest income as it is earned. Unearned income and discounts or premiums on purchased loans are deferred and recognized over the contractual lives of the loans using a method that approximates the interest method when such purchased loans are outside the scope of Statement of Position (“SOP”) 03-3 issued by the American Institute of Certified Public Accountants (“AICPA”), “Accounting for Certain Loans or Debt Securities Acquired in a Transfer,”guidance on loans and debt securities acquired with deteriorated credit quality as described below.
Originated loans are considered impaired when, based on current information and events, it is probable that the MUFG Group will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Originated loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.
Originated loans are generally placed on nonaccrual status when substantial doubt exists as to the full and timely collection of either principal or interest, or when principal or interest is contractually past due one month or more with respect to loans of domestic banking subsidiaries, including BTMU and MUTB, and 90 days or more with respect to loans of certain foreign banking subsidiaries. A nonaccrual loan may be restored to an accrual status when interest and principal payments become current and management expects that the borrower will make future contractual payments as scheduled. When a loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income. Cash receipts on nonaccrual loans, for which the ultimate collectibility of principal is uncertain, are applied as principal reductions; otherwise, such collections are credited to income. The MUFG Group does not capitalize any accrued interest in the principal balances of impaired loans at each balance sheet date.
In accordance with SOP 03-3 adopted by the MUFG Groupguidance on April 1, 2005,loans and debt securities acquired with deteriorated credit quality, impaired loans acquired for which it is probable that the MUFG Group will be unable to collect all contractual receivables are initially recorded at the present value of amounts expected to be received and the related valuation allowances are not carried over or created initially. Accretable yield is limited to the excess of the investor’s estimate of undiscounted cash flows over the investor’s initial investment in the loan and subsequent increases in cash flows expected to be collected are recognized prospectively through adjustment of the loan’s yield over its remaining
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life after reduction of any remaining allowance for credit losses for the loan established after its acquisition, if any, while any decrease in such cash flows below those initially expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition are recognized as impairments.
Loan Securitization—The MUFG Group securitizes and services commercial and industrial loans in the normal course of business. The MUFG Group accounts for a transfer of loans in a securitization transaction as a sale if it meets relevant conditions for the surrender of control in accordance with SFAS No. 140.control. Otherwise, the transfer is accounted for as a collateralized borrowing transaction. Interests in loans sold through a securitization accounted for as a sale may be retained in the form of subordinated tranches or beneficial interests. These retained interests are primarily recorded in Securities available for sale. The previous carrying amount of the loans involved in the transfer is allocated between the loans sold and the retained interests based on their relative fair values at the date of the
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securitization. Since quoted market prices are generally not available, the MUFG Group usually estimates fair value of these retained interests based on the present value of future expected cash flows by using modeling techniques that involve management’s best estimates of key assumptions, which may include default rates, recovery rates, and discount rates. Retained interests that can contractually be prepaid or otherwise settled in such a way that the MUFG Group would not recover substantially allSeeAccounting Changes—Fair Value Measurementsand Note 31 for details of its investment are accounted for as investment securities available for sale.fair value measurements.
Allowance for Credit Losses—The MUFG Group maintains an allowance for credit losses to absorb probable losses inherent in the loan portfolio. Actual credit losses (amounts deemed uncollectible, in whole or in part), net of recoveries, are deducted from the allowance for credit losses, as net charge-offs, generally based on detailed loan reviews and a credit assessment by management at each balance sheet date. The MUFG Group generally applies its charge-off policy to all loans in its portfolio regardless of the type of borrower. AThe provision for credit losses, which is a charge against earnings, is added to bring the allowance to a level which, in management’s opinion, is adequate to absorb probable losses inherent in the credit portfolio.
A key element relating to the policies and discipline used in determining the allowance for credit losses is the credit classification and the related borrower categorization process. The categorization is based on conditions that may affect the ability of borrowers to service their debt, taking into consideration current financial information, historical payment experience, credit documentation, public information, analyses of relevant industry segments and current trends. In determining the appropriate level of the allowance, the MUFG Group evaluates the probable loss by category of loan based on its type and characteristics.
The allowance for credit losses for non-homogeneous loans consists of an allocated allowance for specifically identified problem loans, an allocated allowance for country risk exposure, a formula allowance and an unallocated allowance. An allocated allowance is also established for large groups of smaller-balance homogeneous loans. Non-homogeneous loans such as commercial loans are evaluated individually and the allowance for such loans is comprised of specific, country risk, formula and unallocated allowances.
The credit loss allowance for individual customers represents the impairment allowance determined in accordance with SFAS No. 114, “Accountingthe guidance on accounting by Creditorscreditors for Impairmentimpairment of a Loan.”loan. The MUFG Group measures the impairment of a loan, with the exception of large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment, based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or on the loan’s observable market price, or based on the fair value of the collateral if the loan is collateral dependent, when it is probable that the MUFG Group will be unable to collect all amounts due according to the contractual terms of the loan agreement. For certain subsidiaries, some impaired loans are aggregated for the purpose of measuring impairment using historical loss factors. Generally, the MUFG Group’s impaired loans include nonaccrual loans, restructured loans and other loans specifically identified as impaired.
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The credit loss allowance for country risk exposure is a country-specific allowance for substandard, special mention and unclassified loans. The allowance is established to supplement the formula allowance for these loans, based on an estimate of probable losses relating to the exposure to countries that are identified by management to have a high degree of transfer risk. The measure is generally based on a function of default probability and the recovery ratio with reference to external credit ratings. For the allowance for specifically identified cross-border problem loans, the MUFG Group incorporates transfer risk in its determination of related allowance for credit losses.
The formula allowance is calculated for groups of loans collectively evaluated for impairmentsimpairment that cannot be attributed to specific loans by applying loss factors to outstanding substandard, special mention and unclassified loans. The evaluation of inherent loss for these loans involves a high degree of uncertainty, subjectivity and judgment. In determining the formula allowance, the MUFG Group, therefore, relies on a statistical analysis that incorporates historical loss factor percentages of total loans outstanding. Corresponding to the periodic impairment identification and self-assessment process, the estimation of the formula allowance is back-tested by
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comparing the allowance with the actual results subsequent to the balance sheet date. The results of such back-testing are evaluated by management to determine whether the manner and level of formula allowance needneeds to be changed in subsequent years.
The unallocated allowance represents an estimate of additional losses inherent in the loan portfolio and is composed of attribution factors, which are based upon management’s evaluation of various conditions that are not directly or indirectly measured in the determination of the allocated allowance. The conditions evaluated in connection with the unallocated allowance may include existing general economic and business conditions affecting the key lending areas of the MUFG Group, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent loss experience in particular segments of the portfolio, duration of the current business cycle, bank regulatory examination results and findings of the MUFG Group’s internal credit examiners.
The credit loss allowance for large groups of smaller-balance homogeneous loans is focused on loss experience for the pool rather than on a detailed analysis of individual loans. The allowance is determined primarily based on probable net charge-offs and the probability of insolvency based on the number of delinquencies.
Allowance for Off-Balance-Sheet Credit Instruments—The MUFG Group maintains an allowance for credit losses on off-balance-sheet credit instruments, including commitments to extend credit, guarantees, standby letters of credit and other financial instruments. The allowance is recorded as a liability in Other liabilities and includes the specific allowance for specifically identified credit exposure and the allocated formula allowance. With regard to the specific allowance for specifically identified credit exposure and allocated formula allowance, theliabilities. The MUFG Group adopts the same methodology used in determining the allowance for loan credit losses. Potential credit losses related to derivatives are considered in the fair valuation of the derivatives.
Net changes in the allowance for off-balance-sheet credit instruments are accounted for as Other non-interest expenses.
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Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is charged to operations over the estimated useful lives of the related assets. Leasehold improvements are depreciated over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter. MUFG, BTMU and MUTB apply the declining-balance method in depreciating their premises and equipment, while other subsidiaries mainly apply the straight-line method, at rates principally based on the following estimated useful lives:
| Years | ||
Buildings | 15 to 50 | |
Equipment and furniture | 2 to 20 | |
Leasehold improvements |
Maintenance, repairs and minor improvements are charged to operations as incurred. Major improvements are capitalized. Net gains or losses on dispositions of premises and equipment are included in Other non-interest income or expense, as appropriate.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount to future undiscounted net cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value. For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level with independent and identifiable cash flows. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less estimated cost to sell.
Asset retirement obligations related to restoration of certain leased properties upon lease termination are recorded in Other liabilities with a corresponding increase in leasehold improvements. The amounts represent the
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present value of expected future cash flows associated with returning such leased properties to their original condition. The difference between the gross and present value of expected future cash flows is accreted over the life of the related leases as a non-interest expense.
Goodwill—TheBefore April 1, 2009, the MUFG Group reportshad recognized goodwill, as of the acquisition date, measured as the excess of the cost of investments in subsidiaries over its share of the fair value of net assets. After the adoption of new guidance on accounting for business combinations on April 1, 2009, the MUFG Group recognizes goodwill, as of the acquisition date, measured as the excess of fair value, including that of noncontrolling interests, over net assets atof the date of acquisition as Goodwill.acquiree. Goodwill related to investments in equity method investees is included in Other assets as a part of the carrying amount of investments in equity method investees.
Goodwill arising from a business combination is not amortized but is tested at least annually for impairment in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”impairment. Goodwill is recorded at a designated reporting unit level for the purpose of assessing impairment. A reporting unit is an operating segment, or an identified business unit one level below an operating segment. An impairment loss is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value.
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Intangible assets—Intangible assets consist of software, core deposit intangibles, customer relationships, trade names and other intangible assets. These are amortized over their estimated useful lives unless they have indefinite useful lives. Amortization of intangible assets is computed in a manner that best reflects the economic benefits of the intangible assets as follows:
| Useful lives (years) | Amortization method | |||
Software | 2 to 10 | Straight-line | ||
Core deposit intangibles | Declining-balance | |||
Customer relationships | Declining-balance | |||
Trade names | Straight-line |
Intangible assets having indefinite useful lives, primarily certain customer relationships, are not amortized but are subject to annual impairment tests. An impairment exists if the carrying value of an indefinite-lived intangible asset exceeds its fair value. For other intangible assets subject to amortization, an impairment is recognized if the carrying amount is not recoverable and the carrying amount exceeds the fair value of the intangible asset.
The MUFG Group capitalizes certain costs associated with the acquisition or development of internal-use software. Costs subject to capitalization are salaries and employee benefits for employees who are directly associated with and who devote time to the internal-use computer software project, to the extent of time spent directly on the project. Once the software is ready for its intended use, the MUFG Group begins to amortize capitalized costs on a straight-line basis.
Accrued Severance and Pension Liabilities—The MUFG Group has defined benefit pension plans and other postretirement benefit plans, including severance indemnities plans. The liabilities related to these plans are computed and recognized based on actuarial computations. Unrecognized netNet actuarial gains and losses that arise from differences between actual experiencesexperience and assumptions are generally amortized over the average remaining service period of participating employees if it exceeds the corridor, which is defined as the greater of 10% of plan assets or the projected benefit obligation. PriorUnder the guidance related to employers’ accounting for defined benefit pension and other postretirement plans, the adoptionMUFG Group recognizes a net liability or asset to report the funded status of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pensionits defined benefit pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R),” an excess of the accumulated benefit obligation over the plan assets was recognizedother postretirement plans in the consolidated balance sheets asand recognizes changes in the minimum liability,funded status of defined benefit pension and a corresponding intangible assets was recognized up toother postretirement plans in the amount equal toyear in
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which the total of unrecognized prior service cost and unrecognized net obligation at transition. To the extent that the minimum liability exceeds the intangible asset, it was recognizedchanges occur in accumulated other changes in equity from nonowner sources. The costs of the plans, based on actuarial computations of current and future employee benefits, were charged to Salariessalaries and employee benefits.
The MUFG Group adopted the recognition provisionsmeasurement date provision of SFAS No. 158the new guidance on employers’ accounting for defined benefit pension and other post retirement plans as of March 31, 2007.April 1, 2008. SeeAccounting Changes—Defined Benefit Pension and Other Postretirement Plans and Note 1715 for further information.
Long-Term Debt—Premiums, discounts and issuance costs of long-term debt are amortized based on the method that approximates the interest method over the terms of the long-term debt.
Obligations under Guarantees—The MUFG Group provides customers with a variety of guarantees and similar arrangements, including standby letters of credit, financial and performance guarantees, credit protections, and liquidity facilities. The MUFG Group recognizes guarantee fee income over the guarantee period based on the contractual terms of the guarantee contracts. It is the MUFG Group’s dominant business practice to
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receive a guarantee fee at the inception of the guarantee, which approximates market value of the guarantee and is initially recorded as a liability, which is then recognized as guarantee fee income ratably over the guarantee period.
Allowance for repayment of excess interest—The MUFG Group maintains an allowance for repayment of excess interest under SFAS No. 5, “Accounting for Contingencies,” based on an analysis of past experience of reimbursement of excess interest, borrowers’ profile and recent trend of borrowers’ demand for reimbursement. The allowance is recorded as a liability in Other liabilities.
Fees and Commissions—Revenue recognition of major components of fees and commissions is as follows:
| Ÿ | Fees on funds transfer and collection services, service charges on deposit accounts, fees and commissions on securities business, fees on real estate business, insurance commissions, fees and commissions on stock transfer agency services, fees on investment funds business, and fees and commissions from |
| Ÿ | Fees from trade-related financing services are recognized over the period of the financing. |
| Ÿ | Trust fees are recognized on an accrual basis, generally based on the volume of trust assets under management and/or the operating performance for the accounting period of each trust account. With respect to trust accounts with guarantee of trust principal, trust fees are determined based on the profits earned by individual trust account during the trust accounting period, less deductions, including provision for reserve, impairment for individual investments and dividends paid to beneficiary certificate holders. The trust fees for these trust accounts are accrued based on the amounts expected to be earned during the accounting period of each trust account. |
| Ÿ | Annual fees and royalty and other service charges related to credit card business are recorded on a straight-line basis as services are provided. |
| Ÿ | Interchange income from credit card business is recognized as billed. |
| Ÿ | Fees on guarantees are generally recognized over the contractual periods of the respective guarantees. Amounts initially recorded as a liability corresponding to the obligations at fair value are generally recognized as revenue over the terms of the guarantees as the MUFG Group is deemed to be released from the risk under guarantees. |
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Income Taxes—The provision for income taxes is determined using the asset and liability method of accounting for income taxes. Under this method, deferred income taxes reflect the net tax effects of (1) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and the amounts used for income tax purposes, and (2) operating loss and tax credit carryforwards. A valuation allowance is recognized for any portion of the deferred tax assets where it is considered more likely than not that it will not be realized. The provision for deferred taxes is based on the change in the net deferred tax asset or liability during the fiscal year.
Free Distributions of Common Shares—As permitted by the Commercial Code of Japan (the “Code”) and as revised under the Company Law, Japanese companies, upon approval by the Board of Directors, may make a free distribution of shares, in the form of a “stock split” as defined, to shareholders. In accordance with generally accepted accounting practice in Japan, such distribution does not give rise to any change in capital stock or capital surplus accounts. Common shares distributed are recorded as shares issued on the distribution date. See Note 20.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)18 for further information.
Earnings (Loss) per Common Share—Basic earnings per share (“EPS”) excludes dilutive effects of potential common shares and is computed by dividing income available to common stock shareholders by the weighted average number of common shares outstanding for the period, while diluted EPS gives effect to all dilutive potential common shares that were outstanding during the period. See Note 2322 for the computation of basic and diluted EPS.
Treasury Stock—The MUFG Group presents its treasury stock, including shares of MUFG owned by its subsidiaries and affiliated companies, as a reduction of shareholders’ equity on the consolidated balance sheets at cost and accounts for treasury stock transactions under an average cost method. Gains (losses) on sales of the treasury stock are charged to capital surplus.surplus, and unappropriated retained earnings.
Comprehensive Income (Loss)—The MUFG Group’s comprehensiveComprehensive income (loss) includes net income (loss) before attribution to noncontrolling interests and other changes in equity from nonowner sources. All changes in unrealized gains and losses on investment securities, available for sale, unrealized gains and losses on derivatives qualifying for cash flow hedges, pension liability adjustments and foreign currency translation adjustments constitute the MUFG Group’s changes in equity from nonowner sources and are presented, with related income tax effects, in the consolidated statements of changes in equity from nonowner sources.
Stock-Based Compensation—MUFG and certain of its subsidiaries have stock-based compensation plans,plans. Stock-based compensation expenses are recognized based on the grant-date fair value of share based compensation over the period during which are described more fullyan employee is required to provide service in Note 32. Foraccordance with the fiscal year ended March 31, 2006, as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation,” compensation expense was recognized usingterms of the intrinsic value-based method of valuing stock options prescribed in Accounting Principles Board Opinions (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Under the intrinsic value-based method, compensation expense was measured as the amount by which the quoted market price of these subsidiaries’ stock at the date of grant exceeded the stock option exercise price. On April 1, 2006, the MUFG Group adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”).plans. SeeAccounting Changes—Share-Based Paymentand Note 32 for further information.
Had the employeediscussion of stock-based compensation plans been accounted for under the fair value method of SFAS No. 123, the MUFG Group’s compensation expense, net income, and net income per share would have been the pro forma amounts indicated in the following table:
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)plans.
Stock Split
Effective September 30, 2007, MUFG declared a stock split whereby each common and preferred share was split into 1,000 common and preferred shares. As a result, the number of shares and per share information have been retroactively adjusted.
Reclassifications
Certain reclassifications and format changes have been made to the consolidated financial statements for the fiscal years ended March 31, 20062008 and 20072009 to conform to the presentation for the fiscal year ended March 31, 2008.
These2010. The MUFG Group adopted new guidance regarding noncontrolling interests in subsidiaries in this fiscal year. As a result, noncontrolling interests were reclassified from “Other liabilities” to “Equity” in the consolidated balance sheets, and also other reclassifications and format changes include the presentation of “Proceeds from sales of consolidated VIEs and subsidiaries—net” as a separate line item inwere made to the consolidated statements of operations, consolidated statements of changes in equity from nonowner sources, consolidated statements of equity, consolidated statements of cash flows.
flows, and notes to the consolidated financial statements. See Accounting Changes—Noncontrolling Interests below for details. These reclassifications and format changes did not result in a change in previously reported net income, shareholders’ equity or total assets.financial positions and results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Change in Accounting Estimates
MUFG and its domestic subsidiaries have reviewed the salvage values of premises and equipment and decided to change the estimated salvage values of these assets to ¥1 during the fiscal year ended March 31, 2008. Under the provision of SFAS No. 154 “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3,” aA change in salvage values of depreciable assets is treated as a change in accounting estimate. The effect of this change has been reflected on a prospective basis beginning April 1, 2007. This change had an adverse impact on income from continuing operations before income tax expense and net loss attributable to Mitsubishi UFJ Financial Group of ¥53 billion and ¥31 billion, respectively, and a corresponding impact on both basic and diluted loss per share of ¥3.04 per share for the fiscal year ended March 31, 2008.
The MUFG Group periodically updates underlying assumptions to make a current estimate of the allowance for credit losses. During the fiscal year ended March 31, 2008, in addition to such routine update of estimates to reflect current conditions, BTMU adopted an advanced estimation to determine appropriate level of formula allowance, which is estimated based primarily on the default ratio and the recoverable ratio. Previously, the recoverable ratio was computed from the major cases of a default event such as legal bankruptcy. During the fiscal year ended March 31, 2008, BTMU began incorporating other credit events for its recoverable ratio to better reflect broader cases of default. In addition, BTMU made an adjustment for the impact of heterogeneous size of borrowers among its loan portfolio to estimate the appropriate level of the formula allowance for the fiscal year ended March 31, 2008. Since the default ratio is statistically computed by counting one credit event as one regardless of the size of borrowers, BTMU commenced making an additional reserve by looking to the monetary level of past defaults in addition to the number of defaults. TheSimilarly, during the fiscal year ended March 31, 2009, MUTB adopted an advanced estimation to determine appropriate level of formula allowance, which is estimated based primarily on the default ratio and the recoverable ratio. Previously, the recoverable ratio was computed according to the amount of the secured part of the loan or appraisal of the collateral, which was discounted by a certain rate. Due to the accumulation of the historical data, MUTB has begun incorporating the historical recovery data of the unsecured portion of loans and of the respective collateral for its respective recoverable ratios since the fiscal year ended March 31, 2009. For the fiscal year ended March 31, 2008, the effect from those changes had a positive impact on income from continuing operations before income tax expense and net loss attributable to Mitsubishi UFJ Financial Group of ¥45 billion and ¥27 billion, respectively, and a corresponding impact on both basic and diluted loss per share of ¥2.60 per share forshare. For the fiscal year ended March 31, 2008.2009, the effect from those changes had a positive impact on loss from continuing operations before income tax benefit and net loss attributable to Mitsubishi UFJ Financial Group of ¥104 billion and ¥62 billion, respectively, and a corresponding impact on both basic and diluted loss per share of ¥5.69 per share.
The MUFG Group observed that the market for collateralized loan obligations (“CLOs”) backed by general corporate loans became significantly inactive compared with normal market activity due to the reduction in liquidity of certain debt securities resulting from the global financial market instability in the second half of the fiscal year ended March 31, 2009. Under such circumstances, the MUFG Group concluded that the unadjusted non-binding quotes from broker-dealers became less reflective of the fair values for CLOs backed by general corporate loans. Consequently, during the second half of the fiscal year ended March 31, 2009, the MUFG Group changed the valuation method for estimating the fair value of such CLOs from the method adopting unadjusted quotes from independent broker-dealers to the estimation method by weighting the internal model prices and the non-binding broker-dealer quotes. This change in valuation method was accounted for prospectively as a change in accounting estimate. See Note 31 for the details of the valuation method.
Accounting Changes
Accounting for Conditional Asset Retirement ObligationsThe Codification and the Hierarchy of GAAPs—In March 2005,June 2009, the Financial Accounting Standards Board (the “FASB”) issued FASB Interpretation (“FIN”voted to approve the “FASB Accounting Standards Codification” (the “Codification”) No. 47, “Accounting for Conditional Asset Retirement Obligations—an interpretation. The Codification is not meant to change US GAAP, but is intended to improve the ease of FASB Statement No. 143.” FIN No. 47 clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations” refers to a legal obligation to perform an asset retirement activity in which the timing and/or methodresearching US GAAP
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
issues. The Codification reorganizes existing US GAAP pronouncements into approximately 90 accounting topics. The Codification is now the single source of settlement are conditional on a future event that may or mayauthoritative US GAAP. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards to become the single source of authoritative non-governmental US GAAP. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. All subsequent standards will be withinissued as “Accounting Standard Updates”, which will serve only to update the control of the entity.Codification. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. SFAS No. 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47Codification is effective no later than the end of fiscal yearsfor financial statements issued for interim and annual periods ending after DecemberSeptember 15, 2005. Effective March 31, 2006, the MUFG Group adopted FIN No. 47 to existing asset retirement obligations associated with commitments to return property subject to operating leases to its original condition upon lease termination. The cumulative effect of the change in accounting principle was to decrease net income by ¥9,662 million. This adjustment represents the cumulative depreciation and accretion that would have been recognized through the date of adoption of FIN No. 47 had the statement applied to the MUFG Group’s existing asset retirement obligations at the time they were initially incurred.
Had the asset retirement obligations been accounted for under FIN No. 47 at the inception of operating leases requiring restoration, the MUFG Group’s net income and net income per share would have been the pro forma amounts indicated in the following table:
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Share-Based Payment—In December 2004, the FASB issued SFAS No. 123R. SFAS No. 123R replaces SFAS No. 123, and supersedes APB No. 25. In March 2005, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 107, which provides interpretive guidance on SFAS No. 123R. SFAS No. 123 preferred a fair-value-based method of accounting for share-based payment transactions with employees, but it permitted the option of continuing to apply the intrinsic-value-based measurement method in APB No. 25, as long as the footnotes to the financial statements disclosed what net income would have been had the preferable fair-value-based method been used. SFAS No. 123R eliminates the alternative to use the intrinsic value method of accounting and requires entities to recognize the costs of share-based payment transactions with employees based on the grant-date fair value of those awards over the period during which an employee is required to provide service in exchange for the award. SFAS No. 123R is effective as of the beginning of the fiscal year or interim period beginning after June 15, 2005.2009. The MUFG Group adopted SFAS No. 123R on April 1, 2006 under the modified prospective method, which resulted in a decrease in income from continuing operations before income tax expense of ¥1,969 million and a decrease in income from continuing operations, net of taxes, of ¥1,026 million forCodification during the fiscal year ended March 31, 2007, which includes
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
estimated forfeitures for restricted stock and the amortization of compensation costs related to unvested stock options.2010. The corresponding impact on both basic and diluted earnings per share was a reduction of ¥0.10 per share for the fiscal year ended March 31, 2007. The adoption of SFAS No. 123RCodification did not have a materialan impact on the MUFG Group’s cash flows. See Note 32 for a further discussionfinancial position and results of operations. However, throughout the consolidated financial statements, all references to prior FASB, AICPA and EITF accounting pronouncements have been removed, and all non-SEC accounting guidance is referred to in terms of the adoption of SFAS No. 123R and stock-based compensation plans.applicable subject matter.
Defined Benefit Pension and Other Postretirement Plans—In September 2006, the FASB issued SFAS No. 158. SFAS No. 158 requires entitiesnew guidance related to recognize a net liability or asset to report the funded status of theiremployers’ accounting for defined benefit pension and other postretirement plans in its consolidated statement of financial position and recognize changes in the funded status of defined benefit pension and other postretirement plans in the year in which the changes occur in comprehensive income. SFAS No. 158 alsoplans. The new guidance clarifies that defined benefit assets and obligations should be measured as of the date of the entity’s fiscal year-end statement of financial positions. The requirement to recognize the funded status as of the date of the statement of financial position is effective for fiscal years ending after December 15, 2006.consolidated balance sheets. The requirement to measure plan assets and benefit obligations as of the date of the statement of financial position isconsolidated balance sheets was effective for fiscal years ending after December 15, 2008.
The MUFG Group adopted the recognitionnew measurement date provisions of SFAS No. 158on April 1, 2008 which resulted in an increase in accumulated other changes in equity from nonowner sources of ¥178,784 million, net of taxes, and had no impact on how the MUFG Group determined its net periodic benefit costs as of March 31, 2007.
The MUFG Group will adoptchanged the measurement date provisions of SFAS No. 158 that changes the measurement date for the plan assets and benefit obligations of BTMU and some of its domestic subsidiaries from December 31 to March 31 beginning on April 1, 2008 by using the approach that remeasuresremeasured plan assets and benefit obligations as of March 31, 2008. The MUFG Group recognized ¥411 million in gains on settlement during the period from January 1, 2008 to March 31, 2008 for the year ended March 31, 2008 and estimatesrecorded a decrease in the beginning balance of retained earnings as of April 1, 2008 by ¥3,890¥132 million, net of taxes, and a decrease in the beginning balance of accumulated other changes in equity from nonowner sources as of April 1, 2008 by ¥127,816¥131,574 million, net of taxes, fromas a result of adopting this provision. The estimated impact on the beginning balance of the accumulated other changes in equity from nonowner sources upon adoption of the new measurement date provision of SFAS No. 158provisions as of April 1, 2008 is mainly due to a decrease in the fair value of the plan assets of ¥175,680 million and an increase in benefit obligations of ¥32,382 million, net of ¥4,333 million in settlements during the period from January 1, 2008 to March 31, 2008 recognized as lump-sum payments for the fiscal year ended March 31, 2008. The increase was caused by a decline in the discount rate from December 31, 2007 to March 31, 2008.
Accounting for Certain Hybrid Financial Instruments—In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments.” SFAS No. 155 amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and resolves issues addressed in SFAS No. 133 Implementation Issue D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation and clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133. SFAS No. 155 establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS No. 155 also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The MUFG Group adopted SFAS No. 155 on April 1, 2007, which did not have a material impact on its financial position and results of operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accounting for Servicing of Financial Assets—In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets.” SFAS No. 156 amends SFAS No. 140 with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract, and requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. SFAS No. 156 permits an entity to choose either the amortization method or the fair value measurement method for each class of separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective for the fiscal year beginning after September 15, 2006. Earlier adoption is permitted. The MUFG Group adopted SFAS No. 156 on April 1, 2007, which did not have a material impact on its financial position and results of operations.
Determining the Variability to Be Considered in Applying FIN No. 46R—In April 2006, the FASB staff issued an FASB Staff Position (“FSP”) on FIN No. 46R, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)” (“FSP FIN No. 46R-6”). This FSP states that the variability to be considered in applying FIN No. 46R shall be based on an analysis of the design of the entity as outlined in the following two steps: (a) analyze the nature of the risks in the entity, (b) determine the purpose for which the entity was created and determine the variability (created by the risks identified in step (a)) the entity is designed to create and pass along to its interest holders. For the purposes of this FSP, interest holders include all potential variable interest holders (including contractual, ownership, or other pecuniary interests in the entity). After determining the variability to be considered, the reporting enterprise can determine which interests are designed to absorb that variability. The FSP should be applied prospectively to all entities (including newly created entities) with which an enterprise first becomes involved, and to all entities previously required to be analyzed under FIN No. 46R when a reconsideration event has occurred beginning the first day of the first reporting period beginning after June 15, 2006. Early application is permitted for periods for which financial statements have not yet been issued. Retrospective application to the date of the initial application of FIN No. 46R is permitted but not required. If retrospective application is elected, it must be completed no later than the end of the first annual reporting period ending after July 15, 2006. The MUFG Group adopted this FSP on April 1, 2007, which did not have a material impact on its financial position and results of operations.
Uncertainty in Income Taxes—In June 2006, the FASB issued FIN No. 48, “Accountingnew guidance on accounting for Uncertaintyuncertainty in Income Taxes.” FIN No. 48income taxes. This new guidance requires recognition of a tax benefit to the extent of management’s best estimate of the impact of a tax position based on the technical merits of the position, provided it is more likely than not that the tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. FIN No. 48This new guidance also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The MUFG Group adopted FIN No. 48this new guidance on April 1, 2007, which reduced the beginning balance of retained earnings by ¥4,091 million. See Note 11 for additional informationThe MUFG Group classifies accrued interest and penalties, if applicable, related to the adoption of FIN No. 48.income taxes as income tax expenses.
Leveraged Leases—In July 2006, the FASB issued an FSPnew guidance on SFAS No. 13, “Accountingaccounting for a Changechange or Projected Changeprojected change in the Timingtiming of Cash Flows Relatingcash flows relating to Income Taxes Generatedincome taxes generated by a Leveraged Lease Transaction.”leveraged lease transaction. This FSPnew guidance requires that if, during the lease term, the projected timing of the income tax cash flows generated by a leveraged lease is revised, the rate of return and the allocation of income shall be recalculated from the inception of the lease. At adoption, the cumulative effect of applying the provisions of this FSPnew guidance shall be reported as an adjustment to the beginning balance of retained earnings as of the beginning of the period in which this FSPit is adopted. This FSPnew guidance is effective in fiscal years beginning after December 15, 2006. The MUFG Group adopted this FSP on April 1, 2007, which reduced the beginning balance of retained earnings by ¥5,725 million,
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
adopted this new guidance on April 1, 2007, which reduced the beginning balance of retained earnings by ¥5,725 million, net of taxes. The reduction to retained earnings at adoption will be recognized in interest income over the remaining terms of the affected leases as tax benefits are realized.
Fair Value Measurements—In September 2006, the FASB issued new guidance on the measurement of fair value. This new guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. In addition, it applies under other accounting topics that require or permit fair value measurements since the FASB previously concluded in those accounting topics that fair value is the relevant measurement attribute. Accordingly, this new guidance does not require any new fair value measurements. Under the new guidance, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, a fair value hierarchy is established that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Fair value measurements are separately disclosed by level within the fair value hierarchy. This new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. It shall be applied prospectively, except for the provisions related to block discounts, and existing derivative and hybrid financial instruments measured at fair value using the transaction price. This new guidance nullifies the guidance which requires the deferral of trade date gains or losses on derivatives where the fair value of those derivatives were not obtained from a quoted market price, supported by comparison to other observable market transactions, or based upon a valuation technique incorporating observable market data. The new guidance also precludes the use of a blockage factor when measuring financial instruments traded in an active market at fair value and requires consideration of nonperformance risk when measuring liabilities at fair value. Effective April 1, 2008, the MUFG Group adopted the new guidance for measurement of fair value. Upon its adoption, the difference between the carrying amount and fair value of the derivatives measured under the previous guidance was recognized as a cumulative effect to the beginning balance of retained earnings as of April 1, 2008 in the amount of ¥27,317 million, net of taxes.
In February 2008, the FASB issued new guidance on the application of fair value measurements for purposes of lease classification or measurement and new guidance on the effective date of the application of fair value measurements. The first guidance amends the fair value measurement guidance to exclude lease accounting, and other accounting topics that address fair value measurements for the purposes of lease classification or measurement. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value, regardless of whether those assets and liabilities are related to leases. The second guidance applies to nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis and defers the effective date of the fair value measurement guidance to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for those items. The MUFG Group adopted the guidance on April 1, 2008 to all financial assets and liabilities measured and disclosed on a fair value basis, excluding the nonfinancial assets and liabilities. For the nonrecurring nonfinancial assets and nonfinancial liabilities, including premises and equipment, intangible assets and goodwill measured at fair value for impairment, the MUFG Group adopted the fair value measurement guidance on April 1, 2009. The adoption of this new guidance did not have a material impact on the MUFG Group’s financial position and results of operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In October 2008, the FASB issued new guidance to clarify how an entity would determine fair value in a market that is not active. This guidance was effective upon issuance and did not have a material impact on the MUFG Group’s financial position and results of operations.
In April 2009, the FASB staff issued an amendment to the fair value measurement guidance, providing additional guidance for estimating fair value when the volume and level of activity for the asset or liability has significantly decreased, including guidance on identifying circumstances that indicate a transaction is not orderly. This amendment requires entities to disclose, in both interim and annual periods, the inputs and valuation techniques used to measure fair value and provide by major categories of debt and equity securities, the fair value hierarchy and Level 3 roll-forward disclosures. This amendment was effective prospectively for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The MUFG Group adopted this amendment on April 1, 2009, which had no material impact on its financial position and results of operations.
See Note 31 for a further discussion of the adoption of the new fair value measurement guidance.
Fair Value Option for Financial Assets and Financial Liabilities—In February 2007, the FASB issued new guidance which provided an option for measuring certain financial assets and financial liabilities using fair value. This guidance allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities and certain other items at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. This guidance was effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to certain conditions. The MUFG Group adopted this guidance on April 1, 2008. The MUFG Group elected the fair value option for foreign securities classified as available-for-sale held by BTMU and MUTB in the amount of ¥10,448,079 million, whose unrealized gains and losses were reported within accumulated other changes in equity from nonowner sources as of March 31, 2008. BTMU and MUTB economically manage, through their asset and liability management activities, risks associated with their foreign currency-denominated financial assets and liabilities related to fluctuation of foreign exchange rates. However, prior to the adoption of this guidance for these securities, gains and losses on translation of these securities were reflected in other changes in equity from nonowner sources, while gains and losses on translation of foreign currency-denominated financial liabilities were included in current earnings. The MUFG Group elected the fair value option for these securities to mitigate accounting mismatches related to fluctuations of foreign exchange rates. As a result of adopting the fair value option on these securities, MUFG recorded an increase in the beginning balance of retained earnings as of April 1, 2008 of ¥20,150 million, net of taxes. In addition, the MUFG Group elected the fair value option for certain financial instruments held by MUS’s foreign subsidiaries, which increased the beginning balance of retained earnings as of April 1, 2008 of ¥12,829 million, net of taxes.
Business Combinations—In December 2007, the FASB issued new guidance that significantly changes the accounting for business combinations while retaining the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. This guidance further expands the definitions of a business and the fair value measurement and reporting in a business combination. This guidance states that all business combinations (whether full, partial or step acquisitions) will result in all the assets acquired and liabilities assumed and any noncontrolling (minority) interests in the acquiree being recorded at their acquisition-date fair values with limited exceptions. Certain forms of contingent considerations and certain acquired contingencies will be recorded at their acquisition-date fair value. This guidance also states acquisition costs will generally be expensed as incurred, restructuring costs will be expensed in periods after the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. A substantial number
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of new disclosure requirements are required to disclose all information necessary to evaluate and understand the nature and financial effect of the business combination. The accounting requirements of this guidance are applied on a prospective basis for all business combination transactions completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The MUFG Group adopted this guidance on April 1, 2009.
Noncontrolling Interests—In December 2007, the FASB issued new guidance which requires companies to clearly identify and present ownership interests in subsidiaries held by parties other than the parent in the consolidated financial statements within the equity section but separate from the parent’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interests be clearly identified and presented on the face of the consolidated statements of operations; changes in parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for similarly as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This guidance is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. The MUFG Group adopted this guidance on April 1, 2009. As a result, effective April 1, 2009, ¥ 232,225 million of noncontrolling interests as of March 31, 2009 was reclassified from Other liabilities to Equity on its consolidated balance sheets. Net income (loss) attributable to noncontrolling interests was ¥38,476 million, ¥(36,259) million and ¥15,257 million for the fiscal years ended March 31, 2008, 2009 and 2010, respectively.
Disclosure about Derivative Instruments and Hedging Activities—In March 2008, the FASB issued new guidance regarding a company’s disclosures on derivative instruments. This guidance requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under existing accounting guidance for derivatives and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The significant additional disclosures required by this guidance include (1) a tabular summary of the fair values of derivative instruments and their gains and losses, (2) disclosure of credit-risk-related contingent features in order to provide more information regarding an entity’s liquidity from using derivatives, and (3) cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments. This guidance is effective for fiscal years beginning after November 15, 2008, with early application encouraged. The MUFG Group adopted this guidance on April 1, 2009, and it affected the MUFG Group’s disclosures of derivative instruments and related hedging activities, and did not affect its financial position and results of operations. See Note 23 for the details of disclosures required by this guidance.
Accounting for Transfers of Financial Assets and Repurchase Financing Transactions—In February 2008, the FASB issued new guidance, which requires that an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously with, or in contemplation of, the initial transfer be evaluated together as a linked transaction unless certain criteria are met. This guidance is effective for the fiscal years beginning on or after November 15, 2008. The MUFG Group adopted this guidance on April 1, 2009, which had no material impact on its financial position and results of operations.
Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities—In June 2008, the FASB issued guidance for participating securities, which clarifies that unvested share based payment awards which contain nonforfeitable rights to dividends should be considered equivalent to participating securities and included in the computation of EPS using the two-class method currently prescribed under existing accounting guidance. This guidance is effective retrospectively for the fiscal years beginning on or after December 15, 2008. The MUFG Group adopted this guidance retrospectively effective April 1, 2009, which had no impact on its results of operations or basic and diluted EPS.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Recognition and Presentation of Other-Than-Temporary Impairments—In April 2009, the FASB staff issued guidance, which amends the other than temporary impairment model for debt securities. This guidance requires an entity to recognize an other than temporary impairment of a debt security if the entity has the intent to sell the debt security or if it is more likely than not the entity will be required to sell the debt security before recovery of its amortized cost basis. In addition, this guidance requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings or the noncredit component in accumulated other changes in equity from nonowner sources when the entity does not intend to sell the debt security and if it is more likely than not that the entity will not be required to sell the debt security before recovery of its amortized cost basis. This guidance also requires additional disclosures, such as the calculation of credit losses, as well as factors considered in reaching a conclusion that an investment is not other than temporarily impaired by major security types. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The MUFG Group adopted this guidance on April 1, 2009. The cumulative effect of the change included a decrease in the opening balance of Accumulated deficit at April 1, 2009 of ¥118,210 million, net of taxes with a corresponding adjustment to accumulated other changes in equity from nonowner sources. See Note 4 for a further discussion on this guidance.
Interim disclosures about Fair Value of Financial Instruments—In April 2009, the FASB staff issued guidance that requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also requires those disclosures in summarized financial information at interim reporting periods. This amendment is effective for interim reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The MUFG Group adopted this guidance from the condensed consolidated financial statements for the six months ended September 30, 2009, which did not have a significant impact on its financial position and results of operations.
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies—In April 2009, the FASB staff issued new guidance on disclosures and accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. This guidance requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if the acquisition date fair value can be reasonably determined. If the acquisition date fair value of such an asset or liability cannot be reasonably determined, the asset or liability would be measured using existing accounting guidance for contingencies. This guidance is effective on a prospective basis for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The MUFG Group adopted this guidance on April 1, 2009.
Subsequent Events—In May 2009, the FASB issued new guidance on subsequent events. This guidance established general guidance of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective for interim or annual financial periods ending after June 15, 2009. The MUFG Group adopted this guidance, which had no impact on its financial position or results of operations.
In February 2010, the FASB issued new guidance to amend the disclosure requirements on subsequent events that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued and is not required to disclose the date through which subsequent events are evaluated. This guidance is effective upon issuance of the guidance. The MUFG Group adopted this guidance immediately upon the issuance, which had no impact on its financial position or results of operations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Employers’ Disclosures and Postretirement Benefit Plan Assets—In December 2008, the FASB issued guidance to revise disclosures related to employers’ postretirement benefit plan assets. The guidance contains amendments to enhance the transparency surrounding the types of assets and associated risks in an employer’s defined benefit pension or other postretirement plan. It expands on the existing disclosure requirements by adding required disclosures about: (1) how investment allocation decisions are made by management, (2) major categories of plan assets, and (3) significant concentrations of risk. In addition, the guidance requires an employer to disclose information about the valuation techniques used to measure fair value. The new disclosures are required to be included in financial statements for fiscal years ending after December 15, 2009 with early application permitted. The MUFG Group adopted this guidance on March 31, 2010. These additional disclosures did not affect the MUFG Group’s financial position or results of operations. See Note 15 for details of the additional disclosures required by this guidance.
Investments in Certain Entities That Calculate Net Asset Value per Share—In September 2009, the FASB issued new guidance which amends the guidance on the measurement of fair value of an alternative investment which does not have a readily determinable fair value. This guidance permits entities to use net asset value per share as a practical expedient to measure the fair value of certain alternative investments. This guidance also requires disclosures about the attributes of investments by major category, determined based on the nature and risks of the investment. This guidance is effective for interim and annual reporting periods ending after December 15, 2009, with early application permitted. The MUFG Group adopted this guidance on March 31, 2010, which had no material impact on the MUFG Group's financial position or results of operations. See Note 31 for the details of disclosures required by this guidance.
Accounting and Reporting for Decreases in Ownership of a Subsidiary—In January 2010, the FASB issued new guidance which provides clarity over application of accounting and reporting for decreases in ownership of a subsidiary. This guidance clarifies that the scope of accounting and reporting for decreases in ownership of a subsidiary includes a subsidiary or group of assets that is a business or nonprofit activity, but excludes sales of in-substance real estate. This guidance also requires additional disclosures for fair value measurements relating to retained investments in a deconsolidated subsidiary or a preexisting interest held by an acquirer in a business combination. This guidance is effective beginning in the period that an entity adopts the new guidance on noncontrolling interests noted above, or if the new guidance on noncontrolling interests was adopted previously, it is effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The MUFG Group adopted this guidance for the annual period ended March 31, 2010, which had no material impact on its financial position or results of operations. See Note 20 for details of the additional disclosures required by this guidance.
Recently Issued Accounting PronouncementsBusiness Combinations—In December 2007, the FASB issued new guidance that significantly changes the accounting for business combinations while retaining the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. This guidance further expands the definitions of a business and the fair value measurement and reporting in a business combination. This guidance states that all business combinations (whether full, partial or step acquisitions) will result in all the assets acquired and liabilities assumed and any noncontrolling (minority) interests in the acquiree being recorded at their acquisition-date fair values with limited exceptions. Certain forms of contingent considerations and certain acquired contingencies will be recorded at their acquisition-date fair value. This guidance also states acquisition costs will generally be expensed as incurred, restructuring costs will be expensed in periods after the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. A substantial number
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of new disclosure requirements are required to disclose all information necessary to evaluate and understand the nature and financial effect of the business combination. The accounting requirements of this guidance are applied on a prospective basis for all business combination transactions completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The MUFG Group adopted this guidance on April 1, 2009.
Fair Value MeasurementsNoncontrolling Interests—In September 2006,December 2007, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair valuenew guidance which requires companies to clearly identify and present ownership interests in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies undersubsidiaries held by parties other accounting pronouncements that require or permit fair value measurements,than the FASB having previously concludedparent in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. Under SFAS No. 157, fair value refersconsolidated financial statements within the equity section but separate from the parent’s equity. It also requires the amount of consolidated net income attributable to the price that wouldparent and to the noncontrolling interests be received to sell an asset or paid to transferclearly identified and presented on the face of the consolidated statements of operations; changes in parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for similarly as equity transactions; and when a liability in an orderly transaction between market participantssubsidiary is deconsolidated, any retained noncontrolling equity investment in the market in whichformer subsidiary and the reporting entity transacts. SFAS No. 157 clarifies the principle that fair value should be basedgain or loss on the assumptions market participants would use when pricingdeconsolidation of the asset or liability. In support of this principle, SFAS No. 157 establishes asubsidiary be measured at fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under SFAS No. 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS No. 157value. This guidance is effective for financial statements issued for fiscal years beginning on or after NovemberDecember 15, 2007,2008. The MUFG Group adopted this guidance on April 1, 2009. As a result, effective April 1, 2009, ¥ 232,225 million of noncontrolling interests as of March 31, 2009 was reclassified from Other liabilities to Equity on its consolidated balance sheets. Net income (loss) attributable to noncontrolling interests was ¥38,476 million, ¥(36,259) million and interim periods within those¥15,257 million for the fiscal years with early adoption permitted. SFAS No. 157 shall be applied prospectively, except for the provisions related to block discounts and existing derivative and hybrid financial instruments measured at fair value under SFAS No. 133 as modified by SFAS No. 155 using the transaction price in accordance with the guidance in EITF Issue No. 02-3 “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.” SFAS No. 157 nullifies the guidance in EITF Issue No. 02-3 which requires the deferral of trade date gains or losses on derivatives where the fair value of those derivatives are not obtained from a quoted market price, supported by comparison to other observable market transactions, or based upon a valuation technique incorporating observable market data. Upon adoption of SFAS No. 157, the difference between the carrying amount and fair value of the derivatives measured using the guidance in EITF Issue No. 02-3 is to be recognized as an adjustment to the beginning balance of retained earnings. The outstanding balance of the deferred profit in accordance with EITF Issue No. 02-3 was approximately ¥41 billion, net of taxes atended March 31, 2008. SFAS No. 157 also precludes the use of a blockage factor when measuring financial instruments traded in an active market at fair value2008, 2009 and requires consideration of nonperformance risk when measuring liabilities at fair value. 2010, respectively.
Disclosure about Derivative Instruments and Hedging Activities—In FebruaryMarch 2008, the FASB staff issued another FSPnew guidance regarding a company’s disclosures on SFAS No. 157, “Application of FASB Statement No. 157 to FASB Statement No. 13derivative instruments. This guidance requires enhanced disclosures about (a) how and Other Accounting Pronouncements That Address Fair Value Measurementswhy an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for Purposes of Lease Classification or Measurement under Statement 13” (“FSP SFAS No. 157-1”). FSP SFAS No. 157-1 amends SFAS No. 157 to exclude SFAS No. 13, “Accountingexisting accounting guidance for Leases,”derivatives and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13. However, this scope exception does not apply to assets acquired(c) how derivative instruments and liabilities assumed in a business combination that are required to be measured at fair value under SFAS No. 141, or SFAS No. 141R, “Business Combinations,” regardless of whether those assets and liabilities are related to leases. In addition, in February 2008, the FASB staff issued an FSP on SFAS No. 157, “Effective Date of FASB Statement No. 157” (“FSP SFAS No. 157-2”). FSP SFAS No. 157-2 applies to nonfinancial assets and nonfinancial liabilities, except forhedged items that are recognized or disclosed at fair value inaffect an entity’s financial statements onposition, financial performance, and cash flows. The significant additional disclosures required by this guidance include (1) a recurring basistabular summary of the fair values of derivative instruments and defers thetheir gains and losses, (2) disclosure of credit-risk-related contingent features in order to provide more information regarding an entity’s liquidity from using derivatives, and (3) cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments. This guidance is effective date of SFAS No. 157 tofor fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for those items.with early application encouraged. The MUFG Group hasadopted this guidance on April 1, 2009, and it affected the MUFG Group’s disclosures of derivative instruments and related hedging activities, and did not completedaffect its financial position and results of operations. See Note 23 for the studydetails of what effect SFAS No. 157disclosures required by this guidance.
Accounting for Transfers of Financial Assets and these FSPs will haveRepurchase Financing Transactions—In February 2008, the FASB issued new guidance, which requires that an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously with, or in contemplation of, the initial transfer be evaluated together as a linked transaction unless certain criteria are met. This guidance is effective for the fiscal years beginning on or after November 15, 2008. The MUFG Group adopted this guidance on April 1, 2009, which had no material impact on its financial position and results of operations.
Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities—In June 2008, the FASB issued guidance for participating securities, which clarifies that unvested share based payment awards which contain nonforfeitable rights to dividends should be considered equivalent to participating securities and included in the computation of EPS using the two-class method currently prescribed under existing accounting guidance. This guidance is effective retrospectively for the fiscal years beginning on or after December 15, 2008. The MUFG Group adopted this guidance retrospectively effective April 1, 2009, which had no impact on its results of operations or basic and diluted EPS.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred CompensationRecognition and Postretirement Benefit AspectsPresentation of Endorsement Split-Dollar Life Insurance ArrangementsOther-Than-Temporary Impairments—In September 2006,April 2009, the FASB Emerging Issues Task Force (the “EITF”) reachedstaff issued guidance, which amends the other than temporary impairment model for debt securities. This guidance requires an entity to recognize an other than temporary impairment of a consensus on EITF Issue No. 06-4, “Accounting for Deferred Compensationdebt security if the entity has the intent to sell the debt security or if it is more likely than not the entity will be required to sell the debt security before recovery of its amortized cost basis. In addition, this guidance requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings or the noncredit component in accumulated other changes in equity from nonowner sources when the entity does not intend to sell the debt security and Postretirement Benefit Aspectsif it is more likely than not that the entity will not be required to sell the debt security before recovery of Endorsement Split-Dollar Life Insurance Arrangements.”its amortized cost basis. This EITFguidance also requires additional disclosures, such as the calculation of credit losses, as well as factors considered in reaching a conclusion that an agreementinvestment is not other than temporarily impaired by the employer to share a portion of the proceeds of a life insurance policymajor security types. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with the employee during the postretirement period is a postretirement benefit arrangementearly adoption permitted for which a liability must be recorded.periods ending after March 15, 2009. The MUFG Group will adoptadopted this EITFguidance on April 1, 2008.2009. The cumulative effect of the change included a decrease in the opening balance of Accumulated deficit at April 1, 2009 of ¥118,210 million, net of taxes with a corresponding adjustment to accumulated other changes in equity from nonowner sources. See Note 4 for a further discussion on this guidance.
Interim disclosures about Fair Value of Financial Instruments—In April 2009, the FASB staff issued guidance that requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also requires those disclosures in summarized financial information at interim reporting periods. This amendment is effective for interim reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The MUFG Group adopted this guidance from the condensed consolidated financial statements for the six months ended September 30, 2009, which did not have a significant impact of adopting EITF 06-4 is not expected to be significant on the MUFG Group’sits financial position and results of operations.
Fair Value OptionAccounting for Financial Assets Acquired and Financial Liabilities Assumed in a Business Combination That Arise from Contingencies—In February 2007,April 2009, the FASB staff issued SFAS No. 159, “The Fair Value Optionnew guidance on disclosures and accounting for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No 115.” SFAS No. 159 allows entities to choose, at specified election dates, to measure eligible financial assets acquired and liabilities assumed in a business combination that arise from contingencies. This guidance requires that assets acquired and certain other itemsliabilities assumed in a business combination that arise from contingencies be recognized at fair value that are not otherwise required toif the acquisition date fair value can be reasonably determined. If the acquisition date fair value of such an asset or liability cannot be reasonably determined, the asset or liability would be measured at fair value. If a company elects the fair value optionusing existing accounting guidance for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS No. 159contingencies. This guidance is effective on a prospective basis for fiscal yearsassets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after NovemberDecember 15, 2007. Early adoption is permitted subject to certain conditions.2008. The MUFG Group adopted SFAS No. 159this guidance on April 1, 2008.2009.
Subsequent Events—In May 2009, the FASB issued new guidance on subsequent events. This guidance established general guidance of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective for interim or annual financial periods ending after June 15, 2009. The MUFG Group elected the fair value option for foreign securities classified as available-for-sale held by BTMU and MUTB in the amount of ¥10,448,079 million, whose unrealized gains and losses are reported within accumulated other changes in equity from nonowner sources as of March 31, 2008. BTMU and MUTB economically manage, through their asset and liability management activities, risks associated with their foreign currency denominated financial assets and liabilities due to fluctuation of foreign exchange rates. However, prior to the adoption of SFAS No. 159 for these securities, gains and losses on translation of these securities were reflected in other changes in equity from nonowner sources, while gains and losses on translation of foreign currency denominated financial liabilities were included in current earnings. The MUFG Group elected the fair value option for these securities to mitigate accounting mismatches due to fluctuations of foreign exchange rates. As a result of adopting the fair value option on these securities, MUFG estimates an increase in the beginning balance of retained earnings as of April 1, 2008 of ¥20,150 million, net of tax. In addition, the MUFG Group elected the fair value option for certain financial instruments held by MUS’s foreign subsidiaries,adopted this guidance, which had no material impact on the MUFG Group’sits financial position andor results of operations.
Netting of Cash Collateral against Derivative Exposures—In April 2007,February 2010, the FASB staff issued new guidance to amend the disclosure requirements on subsequent events that an FSP on FIN No. 39, “Amendment of FASB Interpretation No. 39.” This FSP permits offsetting of fair value amounts recognized for the right to reclaim cash collateral (a receivable) or obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangements, and amends FIN No. 39 to replace the terms “conditional contracts” and “exchange contracts” with the term “derivative instruments”, as defined in SFAS No. 133. Upon adoption of this FSP, a reporting entity is permitted to change its accounting policy to offset or not offset fair value amounts recognized for derivative instruments under master netting arrangements, however, the effects of applying this FSPSEC filer is required to be recognized as a change in accounting principleevaluate subsequent events through retrospective application for allthe date that the financial statements presented unless itare issued and is impracticablenot required to do so.disclose the date through which subsequent events are evaluated. This FSPguidance is effective forupon issuance of the fiscal year beginning after November 15, 2007. Beginning April 1, 2008, theguidance. The MUFG Group is planning to changeadopted this guidance immediately upon the accounting policy to not offset fair value amounts recognized for derivative instruments under master netting agreements. Theissuance, which had no impact on its financial position or results of adopting this FSP is expected to result in an increase of total assets and total liabilities by ¥2,728,692 million at March 31, 2007 and ¥5,044,815 million at March 31, 2008.
Investment Company Accounting—In June 2007, the AICPA issued SOP 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies.” SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Guide. The statement also addresses whether the specializedoperations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
industry accounting principlesEmployers’ Disclosures and Postretirement Benefit Plan Assets—In December 2008, the FASB issued guidance to revise disclosures related to employers’ postretirement benefit plan assets. The guidance contains amendments to enhance the transparency surrounding the types of assets and associated risks in an employer’s defined benefit pension or other postretirement plan. It expands on the existing disclosure requirements by adding required disclosures about: (1) how investment allocation decisions are made by management, (2) major categories of plan assets, and (3) significant concentrations of risk. In addition, the guidance requires an employer to disclose information about the valuation techniques used to measure fair value. The new disclosures are required to be included in financial statements for fiscal years ending after December 15, 2009 with early application permitted. The MUFG Group adopted this guidance on March 31, 2010. These additional disclosures did not affect the MUFG Group’s financial position or results of operations. See Note 15 for details of the AICPA Guide should be retainedadditional disclosures required by this guidance.
Investments in Certain Entities That Calculate Net Asset Value per Share—In September 2009, the FASB issued new guidance which amends the guidance on the measurement of fair value of an alternative investment which does not have a parent companyreadily determinable fair value. This guidance permits entities to use net asset value per share as a practical expedient to measure the fair value of certain alternative investments. This guidance also requires disclosures about the attributes of investments by major category, determined based on the nature and risks of the investment. This guidance is effective for interim and annual reporting periods ending after December 15, 2009, with early application permitted. The MUFG Group adopted this guidance on March 31, 2010, which had no material impact on the MUFG Group's financial position or results of operations. See Note 31 for the details of disclosures required by this guidance.
Accounting and Reporting for Decreases in consolidation or by an investor that hasOwnership of a Subsidiary—In January 2010, the ability to exercise significant influenceFASB issued new guidance which provides clarity over the investment company and applies the equity methodapplication of accounting to its investmentand reporting for decreases in the entity. In addition, in May 2007, the FASB staff issued an FSP on FIN No. 46R, “Applicationownership of FIN No. 46R to Investment Companies” (“FSP FIN No. 46R-7”), which amends FIN No. 46R to make permanent the temporary deferral of the application of FIN No. 46R to entities withina subsidiary. This guidance clarifies that the scope of accounting and reporting for decreases in ownership of a subsidiary includes a subsidiary or group of assets that is a business or nonprofit activity, but excludes sales of in-substance real estate. This guidance also requires additional disclosures for fair value measurements relating to retained investments in a deconsolidated subsidiary or a preexisting interest held by an acquirer in a business combination. This guidance is effective beginning in the revised audit guide under SOP 07-1. Theseperiod that an entity adopts the new standards were expected to beguidance on noncontrolling interests noted above, or if the new guidance on noncontrolling interests was adopted previously, it is effective for fiscal years beginning in the first interim or annual reporting period ending on or after December 15, 2007, with earlier application encouraged. However, in February 2008, the FASB issued an FSP on SOP 07-1, “Effective Date of AICPA Statement of Position 07-1” (“FSP SOP 07-1-1”), to delay indefinitely the effective dates of SOP 07-1 and the effectivity of FSP FIN No. 46R-7 in order to address implementation issues. For entities that have not yet adopted the provisions of SOP 07-1 and FSP FIN No. 46R-7, early adoption will not be permitted during the indefinite deferral.
Income tax benefits on Share-Based Payment Awards—In June 2007, the EITF reached a consensus on Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”), which was ratified by the FASB in June 2007. EITF 06-11 requires that realized tax benefits from dividends or dividend equivalents paid on equity-classified share-based payment awards that are charged to retained earnings should be recorded as an increase to additional paid-in capital and included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 is effective prospectively for the income tax benefits on dividends declared in fiscal years beginning after December 15, 2007.2009. The MUFG Group has not completedadopted this guidance for the study of what effect EITF 06-11 will haveannual period ended March 31, 2010, which had no material impact on its financial position andor results of operations. See Note 20 for details of the additional disclosures required by this guidance.
Business Combinations—In December 2007, the FASB issued SFAS No. 141R. SFAS No. 141R willnew guidance that significantly changechanges the accounting for business combinations while retaining the fundamental requirements in SFAS No. 141, that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141RThis guidance further expands the definitions of a business and the fair value measurement and reporting in a business combination. SFAS No. 141RThis guidance states that all business combinations (whether full, partial or step acquisitions) will result in all the assets acquired and liabilities assumed and any noncontrolling (minority) interests in the acquiree being recorded at their acquisition-date fair values with limited exceptions. Certain forms of contingent considerations and certain acquired contingencies will be recorded at their acquisition-date fair value. SFAS No. 141RThis guidance also states acquisition costs will generally be expensed as incurred, restructuring costs will be expensed in periods after the acquisition date, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141R also includes aA substantial number
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of new disclosure requirements are required to disclose all information needednecessary to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141R applies prospectively toThe accounting requirements of this guidance are applied on a prospective basis for all business combinations for which the acquisition date iscombination transactions completed on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 with early adoption prohibited.2008. The MUFG Group has not completed the study of what effect SFAS No. 141R will haveadopted this guidance on its financial position and results of operations.April 1, 2009.
Noncontrolling Interests—In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” SFAS No. 160new guidance which requires a companycompanies to clearly identify and present ownership interests in subsidiaries held by parties other than the parent in the consolidated financial statements within the equity section but separate from the parent’s equity. It also requires the amount of consolidated net income attributable to the parent and to the noncontrolling interestinterests be clearly identified and presented on the face of the consolidated statements of operations; changes in parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for similarly as equity transactions; and when a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
SFAS No. 160 This guidance is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with early adoption prohibited.2008. The MUFG Group has not completed the studyadopted this guidance on April 1, 2009. As a result, effective April 1, 2009, ¥ 232,225 million of what effect SFAS No. 160 will havenoncontrolling interests as of March 31, 2009 was reclassified from Other liabilities to Equity on its financial positionconsolidated balance sheets. Net income (loss) attributable to noncontrolling interests was ¥38,476 million, ¥(36,259) million and results of operations.¥15,257 million for the fiscal years ended March 31, 2008, 2009 and 2010, respectively.
Disclosure about Derivative Instruments and Hedging Activities—In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133.” SFAS No. 161new guidance regarding a company’s disclosures on derivative instruments. This guidance requires enhanceenhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133existing accounting guidance for derivatives and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The significant additional disclosures required by SFAS No. 161this guidance include (1) a tabular summary of the fair values of derivative instruments and their gains and losses, (2) disclosure of credit-risk-related contingent features in order to provide more information regarding an entity’s liquidity from using derivatives, and (3) cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments. SFAS No. 161This guidance is effective for fiscal years beginning after November 15, 2008, with early application encouraged. It encourages but does not require comparative disclosures for earlier periods at initial adoption. SFAS No. 161 will only affectThe MUFG Group adopted this guidance on April 1, 2009, and it affected the MUFG Group’s disclosures of derivative instruments and related hedging activities, and willdid not affect its financial position and results of operations. See Note 23 for the details of disclosures required by this guidance.
Accounting for Transfers of Financial Assets and Repurchase Financing Transactions—In February 2008, the FASB issued new guidance, which requires that an initial transfer of a financial asset and a repurchase financing that was entered into contemporaneously with, or in contemplation of, the initial transfer be evaluated together as a linked transaction unless certain criteria are met. This guidance is effective for the fiscal years beginning on or after November 15, 2008. The MUFG Group adopted this guidance on April 1, 2009, which had no material impact on its financial position and results of operations.
Hierarchy of GAAPsDetermining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities—In MayJune 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” The main objective of SFAS No. 162 isguidance for participating securities, which clarifies that unvested share based payment awards which contain nonforfeitable rights to include the GAAP Hierarchy within the accounting literature established by the FASB rather than within AICPA’s Statement of Auditing Standards No. 69, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The impact of adopting SFAS No. 162 is not expected to be significant on the MUFG Group’s financial position and results of operations.
Disclosures about Credit Derivatives and Certain Guarantees—In September 2008, the FASB staff issued an FSP on SFAS No. 133 and FIN No. 45, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” This FSP amends SFAS No. 133 to require aseller of credit derivatives to disclose information about its credit derivatives and hybrid instruments that have embedded credit derivatives. In addition, the FSP amends FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB interpretation No. 34,” and requires guarantors to additionally disclose the current status of the payments/performance risk of the guarantee so that the disclosure will provide similar information as the disclosure relating to credit derivatives and hybrid instruments that have embedded credit derivatives under SFAS No. 133, as amended by this FSP. This FSP also clarifies the FASB’s intent that disclosure required by SFAS No. 161dividends should be provided for any reporting period (annual or interim) beginning after November 15, 2008. This FSP is effective for the reporting periods (annual or interim) ending after November 15, 2008. This FSP will affect the MUFG Group’s disclosures of credit derivativesconsidered equivalent to participating securities and certain guarantees, but will not affect its financial position and results of operations.
Merger with UFJ Holdings
Pursuant to the merger agreement dated April 20, 2005 between MTFG and UFJ Holdings and their respective subsidiaries, MTFG merged with UFJ Holdings on October 1, 2005 and was renamed MUFG.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Therefore, the results of the UFJ Holdings Group operations have been included in the consolidated financial statements subsequent to October 1, 2005.
The UFJ Holdings Group was onecomputation of Japan’s leading providers of financial services with a competitive domestic position inEPS using the Nagoya and Osaka areas, as well as a client base of small and medium-sized enterprises and retail customers which complements MTFG’s subsidiaries. These anticipated synergies contributed to a purchase price that resulted in the recognition of goodwill.
As a result of the merger, MUFGtwo-class method currently prescribed under existing accounting guidance. This guidance is expected to be a leading comprehensive financial group that is competitive on both a domestic and global basis, providing a broad range of financial products and services to customers with increasingly diverse and sophisticated needs.
As provided for by the merger agreement, MTFG remained as the surviving entity of the merger. Each outstanding share of common stock of UFJ Holdings was converted into 0.62 shares of common stock of MUFG. Each outstanding share of Preferred Stock (Class II, IV, V, VI and VII) of UFJ was converted into one share of Preferred Stock (Class 8, 9, 10, 11 and 12, respectively) of MUFG.
Purchase Price Allocation
The merger was accounted for under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations”. The purchase price of the UFJ Holdings Group amounted to ¥4,406,146 million as described below, of which ¥4,403,225 million was recorded in capital surplus relating to merger with the UFJ Holdings Group, and direct acquisition costs of ¥2,921 million were included in the purchase price.
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Notes:
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The purchase price of the UFJ Holdings Group was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of October 1, 2005, as summarized below:
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See Note 10effective retrospectively for the amountfiscal years beginning on or after December 15, 2008. The MUFG Group adopted this guidance retrospectively effective April 1, 2009, which had no impact on its results of goodwill by reportable segment.operations or basic and diluted EPS.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed statementRecognition and Presentation of Other-Than-Temporary Impairments—In April 2009, the FASB staff issued guidance, which amends the other than temporary impairment model for debt securities. This guidance requires an entity to recognize an other than temporary impairment of a debt security if the entity has the intent to sell the debt security or if it is more likely than not the entity will be required to sell the debt security before recovery of its amortized cost basis. In addition, this guidance requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings or the noncredit component in accumulated other changes in equity from nonowner sources when the entity does not intend to sell the debt security and if it is more likely than not that the entity will not be required to sell the debt security before recovery of its amortized cost basis. This guidance also requires additional disclosures, such as the calculation of credit losses, as well as factors considered in reaching a conclusion that an investment is not other than temporarily impaired by major security types. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The MUFG Group adopted this guidance on April 1, 2009. The cumulative effect of the change included a decrease in the opening balance of Accumulated deficit at April 1, 2009 of ¥118,210 million, net assets acquiredof taxes with a corresponding adjustment to accumulated other changes in equity from nonowner sources. See Note 4 for a further discussion on this guidance.
The following condensed statementInterim disclosures about Fair Value of net assets acquired reflectsFinancial Instruments—In April 2009, the FASB staff issued guidance that requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance also requires those disclosures in summarized financial information at interim reporting periods. This amendment is effective for interim reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The MUFG Group adopted this guidance from the condensed consolidated financial statements for the six months ended September 30, 2009, which did not have a significant impact on its financial position and results of operations.
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies—In April 2009, the FASB staff issued new guidance on disclosures and accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. This guidance requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if the acquisition date fair value can be reasonably determined. If the acquisition date fair value of such an asset or liability cannot be reasonably determined, the asset or liability would be measured using existing accounting guidance for contingencies. This guidance is effective on a prospective basis for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the UFJ Holdingsfirst annual reporting period beginning on or after December 15, 2008. The MUFG Group as of Octoberadopted this guidance on April 1, 2005:2009.
Subsequent Events—In May 2009, the FASB issued new guidance on subsequent events. This guidance established general guidance of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective for interim or annual financial periods ending after June 15, 2009. The MUFG Group adopted this guidance, which had no impact on its financial position or results of operations. In February 2010, the FASB issued new guidance to amend the disclosure requirements on subsequent events that an SEC filer is required to evaluate subsequent events through the date that the financial statements are issued and is not required to disclose the date through which subsequent events are evaluated. This guidance is effective upon issuance of the guidance. The MUFG Group adopted this guidance immediately upon the issuance, which had no impact on its financial position or results of operations. | |||
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Employers’ Disclosures and Postretirement Benefit Plan Assets—In December 2008, the FASB issued guidance to revise disclosures related to employers’ postretirement benefit plan assets. The guidance contains amendments to enhance the transparency surrounding the types of assets and associated risks in an employer’s defined benefit pension or other postretirement plan. It expands on the existing disclosure requirements by adding required disclosures about: (1) how investment allocation decisions are made by management, (2) major categories of plan assets, and (3) significant concentrations of risk. In addition, the guidance requires an employer to disclose information about the valuation techniques used to measure fair value. The new disclosures are required to be included in financial statements for fiscal years ending after December 15, 2009 with early application permitted. The MUFG Group adopted this guidance on March 31, 2010. These additional disclosures did not affect the MUFG Group’s financial position or results of operations. See Note 15 for details of the additional disclosures required by this guidance.
Investments in Certain Entities That Calculate Net Asset Value per Share—In September 2009, the FASB issued new guidance which amends the guidance on the measurement of fair value of an alternative investment which does not have a readily determinable fair value. This guidance permits entities to use net asset value per share as a practical expedient to measure the fair value of certain alternative investments. This guidance also requires disclosures about the attributes of investments by major category, determined based on the nature and risks of the investment. This guidance is effective for interim and annual reporting periods ending after December 15, 2009, with early application permitted. The MUFG Group adopted this guidance on March 31, 2010, which had no material impact on the MUFG Group's financial position or results of operations. See Note 31 for the details of disclosures required by this guidance.
Accounting and Reporting for Decreases in Ownership of a Subsidiary—In January 2010, the FASB issued new guidance which provides clarity over application of accounting and reporting for decreases in ownership of a subsidiary. This guidance clarifies that the scope of accounting and reporting for decreases in ownership of a subsidiary includes a subsidiary or group of assets that is a business or nonprofit activity, but excludes sales of in-substance real estate. This guidance also requires additional disclosures for fair value measurements relating to retained investments in a deconsolidated subsidiary or a preexisting interest held by an acquirer in a business combination. This guidance is effective beginning in the period that an entity adopts the new guidance on noncontrolling interests noted above, or if the new guidance on noncontrolling interests was adopted previously, it is effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The MUFG Group adopted this guidance for the annual period ended March 31, 2010, which had no material impact on its financial position or results of operations. See Note 20 for details of the additional disclosures required by this guidance.
Intangible assets acquiredRecently Issued Accounting Pronouncements
Amendment of Accounting for Transfers of Financial Assets—In June 2009, the FASB issued new guidance which clarifies the application of certain derecognition concepts and eliminates the concept of a qualifying special purpose entity. The estimated useful livesguidance also clarifies the concept of “surrendered control” to consider any continuing involvement with the intangibletransferred assets regardless of when the terms were agreed. In addition, the guidance introduces the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. Finally, the guidance eliminated certain alternatives with respect to initial recognition and measurement and replaced them with a requirement that a transferor recognize and initially measure all assets obtained including a transferor’s beneficial interest and liabilities incurred as a result of a transfer of financial assets accounted for as a sale, at October 1, 2005 were as follows:
| Fair value | Weighted average life | ||||
| (in millions) | (in years) | ||||
Intangible assets subject to amortization: | |||||
Core deposit intangibles | ¥ | 576,100 | 18 | ||
Customer relationships | 340,401 | 20 | |||
Software | 160,826 | 5 | |||
Trade names | 33,655 | 19 | |||
Other | 820 | 8 | |||
Sub-total | 1,111,802 | 17 | |||
Intangible assets not subject to amortization: | |||||
Indefinite-lived customer relationships | 126,427 | ||||
Indefinite-lived trade names | 17,682 | ||||
Other | 8,399 | ||||
Sub-total | 152,508 | ||||
Total | ¥ | 1,264,310 | |||
Unaudited pro forma combined condensed statementsfair value. This guidance is effective for the first annual reporting period beginning after November 15, 2009, and interim periods within that year. Early adoption is prohibited. The MUFG Group has not completed the study of income
The following unaudited pro forma combined condensed statements of income present thewhat effect this guidance will have on its financial position and results of operations had the merger taken place at the beginning of each period:
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MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amendment of Accounting for Consolidation of Variable Interest Entities—In June 2009, the FASB issued new guidance which amends the accounting for consolidation of variable interest entities. This guidance changes the current guidance by modifying the characteristics for assessing a primary beneficiary to include entities that have the power to direct the activities of the variable interest entity which significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. This must be reassessed on an ongoing basis. In addition, this guidance amends the identification of variable interest entities by eliminating the scope exception for qualified special purpose entities and adding an additional reconsideration event for determining whether an entity is a variable interest entity. This guidance is effective for the first annual reporting period beginning after November 15, 2009, and interim periods within that year. Early adoption is prohibited. The MUFG Group adopted this guidance on April 1, 2010. In February 2010, the FASB issued new guidance which amends this consolidation guidance to defer the requirements of the consolidation guidance for determining beneficiary of variable interest entities for certain investment funds including mutual funds, private equity funds, hedge funds, venture capital funds, mortgage real estate investment funds and certain real estate investment funds. See Note 25 for the additional information upon the adoption.
Measuring Liabilities at Fair Value—In August 2009, the FASB issued new guidance which provides amendments for the fair value measurements of liabilities. In situations where a quoted price in an active market for an identical liability is not available, a reporting entity is required to measure fair value using one of two prescribed valuation techniques. There is no requirement to consider transfer restrictions on the liability. This guidance is effective for the first interim and annual reporting periods beginning after August 26, 2009. The MUFG Group has not completed the study of what effect this guidance will have on its financial position and results of operations.
Disclosure about Fair Value Measurements—In January 2010, the FASB issued new guidance which requires a new disclosure and clarifies existing disclosure requirements on fair value measurements. The guidance requires additional disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and activity in Level 3 fair value measurement. This guidance also clarifies existing disclosure requirements regarding level of disaggregation and valuation inputs and techniques. This guidance is effective for interim and annual reporting period beginning after December 15, 2009, except for the disclosure of the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective for interim and annual reporting beginning after December 15, 2010. Early adoption of the guidance is permitted. The MUFG Group does not expect the provisions of this new guidance to have a material effect on its financial position and results of operations.
Technical Corrections to Various Topics—In February 2010, the FASB issued new guidance which eliminates inconsistencies and outdated provisions and provides needed clarifications, for example, for guidance on embedded derivatives and hedging and guidance on income tax accounting in a reorganization. The amendments are effective for the first interim and annual reporting periods beginning after issuance, except for certain amendments. The clarifications of the guidance on the embedded derivatives and hedging are effective for fiscal years beginning after December 15, 2009, and should be applied to existing contracts (hybrid instruments) containing embedded derivative features at the date of adoption. The amendments to the guidance on accounting for income taxes in a reorganization should be applied to reorganizations for which the date of the reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. For those reorganizations reflected in interim financial statements issued before the amendments in this new guidance are effective, retrospective application is required. The MUFG Group does not expect the provisions of this new guidance to have a material effect on its financial position and results of operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Amendments to Accounting Scope of Embedded Credit Derivatives—In March 2010, the FASB issued new guidance which clarifies the scope exception related to embedded credit derivatives. This guidance addresses how to determine which embedded credit derivative features, including those in collateralized debt obligations and synthetic collateralized debt obligations, are considered to be embedded derivatives that are exempt from potential bifurcation and separate accounting requirement. This guidance is effective for the first interim reporting period beginning after June 15, 2010 with early application permitted at the beginning of the first interim reporting period beginning after the issuance of this new guidance. In initially adopting this new guidance, an entity may elect the fair value option for any investment in a beneficial interest in a securitized financial asset. The election of the fair value option is irrevocable and should be determined on an instrument-by-instrument basis at the beginning of the reporting period of initial adoption. The MUFG Group has not completed the study of what effect this guidance will have on its financial position and results of operations.
Amendment of Accounting for Impaired Loan when the Pool of Loan is Accounted for as a Single Asset—In April 2010, the FASB issued new guidance which amends the accounting for modifications of loans that are acquired with evidence of credit deterioration and accounted for as a pool. The amendment provides that modifications of such loan, which are acquired with evidence of credit deterioration and accounted for as a pool, do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. No additional disclosures are required as a result of this guidance. This guidance is effective for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. Upon initial adoption of the guidance, an entity may make a one-time election to terminate accounting for loans as a pool. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration. Early adoption is permitted. The MUFG Group has not completed the study of what effect this guidance will have on its financial position and result of operations.
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses—In July 2010, the FASB issued new guidance which requires additional disclosures and amends existing disclosure requirements on allowances for credit losses and the credit quality of financial receivables. The guidance requires additional disclosures on credit quality indicators of financing receivables, aging of past due financing receivables, nature and extent of troubled debt restructuring and modifications, and significant purchases and sales of financing receivables on a disaggregate basis. Existing guidance is amended to require disclosure of financing receivables on a more disaggregated basis. This guidance will be required for interim and annual reporting periods ending on or after December 15, 2010. Specific items regarding activity that occurs during a reporting period, such as the allowance rollforward and modification disclosures will be required for interim and annual reporting periods beginning on or after December 15, 2010. This new guidance will only affect the MUFG Group’s disclosures about the credit quality of financing receivables and allowances for credit losses, and will not affect its financial position and results of operations.
During the fiscal year ended March 31, 2006, UnionBanCal Corporation (“UNBC”), a U.S. subsidiary of BTMU whose results were reported as a separate business segment, signed a definitive agreement to sell its international correspondent banking operations to Wachovia Bank, N.A., effective October 6, 2005, and the principal legal closing of the transaction took place on the same day, with UNBC receiving ¥25,220 million in cash from Wachovia Bank, N.A. At the principal closing, no loans or other assets were acquired by Wachovia Bank, N.A., and no liabilities were assumed. UNBC continued to operate the international business over a transition period of several months. All of UNBC’s offices designated for disposal were closed as of June 30, 2006. During the fiscal year ended March 31, 2007, UNBC received an additional ¥466 million as a contingent purchase price payment.
The MUFG Group accounted for these transactions as discontinued operations in accordance with SFAS No. 144, “Accountingthe accounting guidance for Impairmentimpairment or Disposaldisposal of Long-Lived Assets”long-lived assets and presented the results of discontinued operations as a separate line item in the consolidated statements of operations. In addition, assets to be disposed or sold, accounted for at the lower of cost or fair value, and liabilities to be extinguished or assumed in connection with discontinued operations were presented as separate assets and liabilities, respectively, in the consolidated balance sheets.
Interest expense was attributed to discontinued operations based on average net assets. The amount of interest expense allocated to discontinued operations for the fiscal years ended March 31, 2006, 2007 and 2008 was ¥1,708 million, ¥209 million and nil, respectively.
The severance reserve balances at March 31, 2007 and 2008 were ¥238 million and nil, respectively.
During the fiscal year ended March 31, 2008, UNBCUnionBanCal Corporation (“UNBC”) entered into a Deferred Prosecution Agreement with the United States Department of Justice (“DOJ”) relating to past violations of Bank Secrecy Act and other anti-money laundering regulations that occurred in UNBC’s now discontinued international banking business. As part of this agreement, UNBC paid the DOJ ¥2,545 million for the fiscal year
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ended March 31, 2008. The ¥2,545 million payment and ¥194 million of related legal and other outside services costs were allocated to discontinued operations as these past violations pertained to UNBC’s international banking business. The income tax benefit of ¥69 million for the fiscal year ended March 31, 2008 reflects the nondeductibility of the ¥2,545 million payment to the DOJ.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At March 31, 2007, the assets and liabilities identified as discontinued operations were comprised of the following:
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The components of incomeloss from discontinued operations for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 were as follows:
| 2006 | 2007 | 2008 | ||||||||||
| (in millions) | ||||||||||||
Total revenue | ¥ | 14,141 | ¥ | 1,604 | ¥ | — | ||||||
Loss from discontinued operations | ¥ | (2,563 | ) | ¥ | (2,451 | ) | ¥ | (2,739 | ) | |||
Gains on disposal | 25,220 | 466 | — | |||||||||
Minority interest in income (loss) of consolidated subsidiaries | 5,607 | (434 | ) | (924 | ) | |||||||
Income tax expense (benefit) | 8,077 | (734 | ) | (69 | ) | |||||||
Income (loss) from discontinued operations—net | ¥ | 8,973 | ¥ | (817 | ) | ¥ | (1,746 | ) | ||||
| 2008 | 2009 | 2010 | ||||||||
| (in millions) | ||||||||||
Loss from discontinued operations | ¥ | (2,739 | ) | ¥ | — | ¥ | — | |||
Income tax benefit | (69 | ) | — | — | ||||||
Loss from discontinued operations—net | (2,670 | ) | — | — | ||||||
Net loss attributable to noncontrolling interests | (924 | ) | — | — | ||||||
Net loss from discontinued operations attributable to Mitsubishi UFJ Financial Group | ¥ | (1,746 | ) | ¥ | — | ¥ | — | |||
4. OTHER3. BUSINESS DEVELOPMENTS
Mitsubishi UFJ NICOS Co., Ltd.
On April 1, 2007, the merger between UFJ NICOS Co., Ltd. (“UFJ NICOS”) and DC Card Co., Ltd. (“DC Card”), two credit card subsidiaries of BTMU, came into effect with UFJ NICOS being the surviving entity and UFJ NICOS renamed Mitsubishi UFJ NICOS. Each share of DC Card’s common stock was exchanged for 30 shares of UFJ NICOS’s common stock. The assets and liabilities acquired through the purchase of the minoritynoncontrolling interest in DC Card were measured based on their fair value as of April 1, 2007. The MUFG Group initially recorded approximately ¥4 billion of intangible assets.
On November 6, 2007, MUFG acquired ¥120 billion of new common shares in Mitsubishi UFJ NICOS. As a result, the MUFG Group has approximately 76% ownership of Mitsubishi UFJ NICOS compared with its prior holding of approximately 66%. The assets and liabilities acquired through the purchase of Mitsubishi UFJ NICOS shares were measured based on their fair value. The MUFG Group initially recorded approximately ¥19 billion of goodwill and approximately ¥16 billion of intangible assets. The objectives of this additional investment are to strengthen the financial base of Mitsubishi UFJ NICOS, utilize its financial resources effectively, and develop a new credit business strategy due to the changing business environment for consumer finance companies in Japan.
The MUFG Group reorganized the capital structure of Mitsubishi UFJ NICOS, a 76%-owned subsidiary, by eliminating the only outstanding class of capital stock other than the common stock and by having The Norinchukin Bank (“Norinchukin”) become the sole noncontrolling shareholder. This reorganization was carried out in order to further enhance the strategic integrity and flexibility of the MUFG Group and to strive for effective utilization of managerial resources within the MUFG Group.
Pursuant to such reorganization, on August 1, 2008, MUFG acquired, through a share exchange, all the outstanding Mitsubishi UFJ NICOS common stock and all the outstanding Mitsubishi UFJ NICOS Class 1 stock whereby MUFG issued MUFG common stock at a ratio of 0.37 shares of MUFG common stock for every one share of Mitsubishi UFJ NICOS common stock and 1.39 shares of MUFG common stock for every one share of Mitsubishi UFJ NICOS Class 1 stock. MUFG, then, sold 244 million shares of Mitsubishi UFJ NICOS common stock to Norinchukin. Furthermore, MUFG converted all of Mitsubishi UFJ NICOS Class 1 stock acquired from Norinchukin into Mitsubishi UFJ NICOS common stock. As a result, the ownership by MUFG of Mitsubishi UFJ NICOS decreased to approximately 85% from 100%.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The foregoing reorganization was accounted for as follows:
The assets and liabilities acquired through the purchase of the noncontrolling interest of Mitsubishi UFJ NICOS were accounted for using the purchase method of accounting and were recorded based on their fair value as of August 1, 2008. The MUFG common stock issued in the share exchange was valued at ¥131 billion based on the average market price for a reasonable period before and after the date the terms of the acquisition were agreed to and announced. As a result, MUFG owned all the outstanding Mitsubishi UFJ NICOS common stocks. The MUFG Group recorded approximately ¥23 billion of goodwill and ¥27 billion of intangible assets.
The acquisition of Mitsubishi UFJ NICOS Class 1 stock and the sale of Mitsubishi UFJ NICOS common stock were treated as one unit of account within the context of MUFG’s conversion of the Class 1 stock. The foregoing transactions were accounted for as: (i) a capital transaction representing an induced conversion by Norinchukin of Mitsubishi UFJ NICOS Class 1 stock for approximately 186.6 million shares of Mitsubishi UFJ NICOS common stock, and (ii) the sale by MUFG of approximately 57.4 million shares of Mitsubishi UFJ NICOS common stock, and (iii) the issuance of 69.5 million shares of MUFG common stock. As a result, MUFG recognized a credit to capital surplus of ¥71 billion and recognized ¥8 billion as a direct charge to retained earnings representing the effect of the inducement calculated based on the excess number of Mitsubishi UFJ NICOS common stock deemed received by Norinchukin (over the number of Mitsubishi UFJ NICOS common stock that it would have otherwise received had it converted Mitsubishi UFJ NICOS Class 1 stock under its contractual terms). In addition, gains on the sale of the 57.4 million shares of Mitsubishi UFJ NICOS common stock of ¥6 billion were recognized in the statements of operations. Furthermore, net loss available to common shareholders of Mitsubishi UFJ Financial Group was increased by ¥8 billion attributable to the effect of the induced conversion in the calculation of EPS.
All the MUFG common stock issued to effect the foregoing transactions were previously held as treasury stock. The difference between their carrying amounts and the amount at which the corresponding reissuance was measured was respectively recorded in capital surplus and unappropriated retained earnings.
kabu.com Securities Co., Ltd.
BTMU acquired approximately 20% ownership of kabu.com Securities Co., Ltd. (“kabu.com Securities”), a retail online securities company in Japan through tender offers, valuing the transaction at approximately ¥41 billion, resulting in increasing MUFG’s ownership to approximately 51% during the fiscal year ended March 31, 2008. The assets and liabilities acquired through purchases of the minoritynoncontrolling interest of kabu.com Securities were measured based on their fair value. The MUFG Group recorded approximately ¥78 billion of goodwill and approximately ¥10 billion of intangible assets. The purpose of the acquisition is to strengthen the retail online securities business and enhance the comprehensive Internet-based financial services the MUFG Group provides.
Mitsubishi UFJ Securities Co., Ltd.
On September 30, 2007, MUFG and MUS executed a share exchange. The share exchange ratio was set at 1.02 shares of MUFG common stock to one share of MUS common stock, valuing the transaction at approximately ¥370 billion. The share exchange ratio was calculated based on the MUFG’s stock after the stock split, which was effective on September 30, 2007. MUFG’s treasury stock was exchanged for the shares of MUS common stock and there was no issuance of new shares. Losses on the share exchange were charged to Capital surplus for the fiscal year ended March 31, 2008. As a result of the share exchange, MUS became a wholly owned subsidiary of MUFG. MUFG previously owned approximately 60% of MUS. The assets and liabilities acquired through the purchase of the minoritynoncontrolling interest of MUS were measured based on their fair value as
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of September 30, 2007. The MUFG Group initially recorded approximately ¥23 billion of goodwill and ¥98 billion of intangible assets. The purpose of making MUS a wholly-owned subsidiary is, among other factors, to seize the opportunities presented by the deregulation of the Japanese financial markets and further enhance cooperation between group companies.
UnionBanCal Corporation
BTMU acquired approximately 36% ownership of UNBC through cash tender offers, valuing the transaction at approximately ¥389 billion. The offer expired on September 26, 2008, with purchase of the shares being effective on October 1, 2008. After the offer, BTMU owned approximately 97 % of UNBC’s outstanding common stock and acquired the remaining common stock on November 4, 2008. As a result of the tender offers, followed by the second-step merger, UNBC became a wholly owned subsidiary of BTMU. BTMU previously owned approximately 64% of UNBC. The assets and liabilities acquired through the purchase of the noncontrolling interest of UNBC were measured based on their fair value as of October 1, 2008. The MUFG Group initially recorded approximately ¥175 billion of goodwill and ¥67 billion of intangible assets. The purpose of making UNBC a wholly-owned subsidiary is to achieve greater management flexibility and aim to further strengthen the MUFG Group’s presence in the United States.
The amortized costs, gross unrealized gains and losses and estimated fair values of investment securities available for sale and being held to maturity at March 31, 2009 and 2010 were as follows:
At March 31, 2009: | Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | ||||||||
| (in millions) | ||||||||||||
Securities available for sale: | ||||||||||||
Debt securities: | ||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 23,846,153 | ¥ | 55,409 | ¥ | 8,788 | ¥ | 23,892,774 | ||||
Japanese prefectural and municipal bonds | 277,895 | 4,684 | 101 | 282,478 | ||||||||
Foreign governments and official institutions bonds | 185,561 | 5,247 | 177 | 190,631 | ||||||||
Corporate bonds | 3,791,045 | 86,310 | 8,327 | 3,869,028 | ||||||||
Mortgage-backed securities | 676,326 | 8,232 | 16,320 | 668,238 | ||||||||
Other debt securities | 576,298 | 5,151 | 54,292 | 527,157 | ||||||||
Marketable equity securities | 3,340,339 | 730,038 | 110,596 | 3,959,781 | ||||||||
Total | ¥ | 32,693,617 | ¥ | 895,071 | ¥ | 198,601 | ¥ | 33,390,087 | ||||
Securities being held to maturity: | ||||||||||||
Debt securities: | ||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 1,352,213 | ¥ | 19,032 | ¥ | 1,593 | ¥ | 1,369,652 | ||||
Japanese prefectural and municipal bonds | 51,961 | 753 | — | 52,714 | ||||||||
Foreign governments and official institutions bonds | 204,954 | 2,337 | 246 | 207,045 | ||||||||
Corporate bonds | 143,236 | 1,647 | 7 | 144,876 | ||||||||
Other debt securities | 1,059,989 | 11,208 | 19,038 | 1,052,159 | ||||||||
Total | ¥ | 2,812,353 | ¥ | 34,977 | ¥ | 20,884 | ¥ | 2,826,446 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At March 31, 2010: | Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | |||||||||
| (in millions) | |||||||||||||
Securities available for sale: | |||||||||||||
Debt securities: | |||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 39,431,089 | ¥ | 63,871 | ¥ | 62,099 | ¥ | 39,432,861 | |||||
Japanese prefectural and municipal bonds | 272,829 | 8,148 | 77 | 280,900 | |||||||||
Foreign governments and official institutions bonds | 1,340,750 | 8,882 | 4,406 | 1,345,226 | |||||||||
Corporate bonds | 3,394,320 | 88,762 | 8,434 | 3,474,648 | |||||||||
Residential mortgage-backed securities | 934,203 | 16,004 | 8,796 | 941,411 | |||||||||
Commercial mortgage-backed securities | 57,098 | 2 | 3,805 | 53,295 | |||||||||
Asset-backed securities, excluding mortgage-backed securities | 329,590 | 773 | 2,545 | 327,818 | |||||||||
Other debt securities | 1,037 | — | — | 1,037 | |||||||||
Marketable equity securities | 3,082,948 | 1,477,616 | 5,884 | 4,554,680 | |||||||||
Total | ¥ | 48,843,864 | ¥ | 1,664,058 | ¥ | 96,046 | ¥ | 50,411,876 | |||||
Securities being held to maturity: | |||||||||||||
Debt securities: | |||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 1,076,900 | ¥ | 17,250 | ¥ | — | ¥ | 1,094,150 | |||||
Japanese prefectural and municipal bonds | 42,348 | 585 | — | 42,933 | |||||||||
Foreign governments and official institutions bonds | 607,558 | 8,309 | 300 | 615,567 | |||||||||
Corporate bonds | 127,369 | 2,280 | — | 129,649 | |||||||||
Asset-backed securities, excluding mortgage-backed securities | 1,086,788 | 56,245 | 253 | (1) | 1,142,780 | ||||||||
Other debt securities | 2,838 | 4 | — | 2,842 | |||||||||
Total | ¥ | 2,943,801 | ¥ | 84,673 | ¥ | 553 | ¥ | 3,027,921 | |||||
Note:
| (1) | UNBC reclassified CLOs, which totaled ¥111,895 million at fair value, from securities available for sale to securities being held to maturity during the fiscal year ended March 31, 2010. As a result of the reclassification, the unrealized losses at the date of transfer remained in accumulated other changes in equity from nonowner sources in the accompanying consolidated balance sheets was ¥48,914 million before taxes at March 31, 2010 and not included in the table above. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
5. TRADING ACCOUNT ASSETS AND LIABILITIES
The following table shows trading account assets and liabilities, carried at estimated fair value, at March 31, 2007 and 2008. For trading derivative contracts executed under legally enforceable master netting agreements, related assets and liabilities are bilaterally offset and reported net by each counterparty.
| 2007 | 2008 | |||||||
| (in millions) | ||||||||
Trading account assets: | ||||||||
Trading securities: | ||||||||
Japanese government, prefectural and municipal bonds | ¥ | 3,379,723 | ¥ | 4,540,158 | ||||
Commercial paper | 1,560,914 | 1,401,970 | ||||||
Equity securities, foreign governments bonds and other securities | 3,627,000 | 3,940,292 | ||||||
Total | 8,567,637 | 9,882,420 | ||||||
Trading derivative assets: | ||||||||
Interest rate contracts: | ||||||||
Forwards and futures | 15,333 | 25,634 | ||||||
Swaps and swap-related products | 2,659,600 | 4,539,518 | ||||||
Options purchased | 126,956 | 315,159 | ||||||
Total | 2,801,889 | 4,880,311 | ||||||
Foreign exchange contracts: | ||||||||
Forwards and futures | 774,458 | 1,473,413 | ||||||
Swaps | 439,078 | 952,094 | ||||||
Options purchased | 328,473 | 799,541 | ||||||
Total | 1,542,009 | 3,225,048 | ||||||
Other contracts, mainly commodity and credit-related contracts | 260,742 | 467,372 | ||||||
Offsetting of derivatives with the same counterparty under master netting agreements | (2,726,197 | ) | (5,043,396 | ) | ||||
Total | ¥ | 10,446,080 | ¥ | 13,411,755 | ||||
Trading account liabilities: | ||||||||
Trading securities sold, not yet purchased | ¥ | 839,908 | ¥ | 226,797 | ||||
Trading derivative liabilities: | ||||||||
Interest rate contracts: | ||||||||
Forwards and futures | 17,714 | 25,424 | ||||||
Swaps and swap-related products | 2,629,454 | 4,243,572 | ||||||
Options written | 111,319 | 307,926 | ||||||
Total | 2,758,487 | 4,576,922 | ||||||
Foreign exchange contracts: | ||||||||
Forwards and futures | 658,117 | 1,252,258 | ||||||
Swaps | 379,125 | 941,007 | ||||||
Options written | 533,260 | 614,498 | ||||||
Total | 1,570,502 | 2,807,763 | ||||||
Other contracts, mainly commodity and credit-related contracts | 183,061 | 360,614 | ||||||
Offsetting of derivatives with the same counterparty under master netting agreements | (2,726,197 | ) | (5,044,685 | ) | ||||
Total | ¥ | 2,625,761 | ¥ | 2,927,411 | ||||
See Note 31 forIn the methodologies and assumptions used to estimate fair values.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The MUFG Group performs trading activities through market-making, sales and arbitrage, while maintaining risk levels within appropriate limits in accordance with its risk management policy. Net trading gains forsecond half of the fiscal yearsyear ended March 31, 2006, 20072009, it was observed that there was a rare circumstance where the liquidity of certain foreign investment securities was significantly reduced due to the global financial market turmoil lasting for a substantial period of time, and 2008 were comprisedresulted in difficulties selling these securities at prices that would be realized under normal market conditions. In light of this rare circumstance, the MUFG Group changed its intent to hold certain foreign investment securities until their maturities. According to this change of the following:
| 2006 | 2007 | 2008 | ||||||||||
| (in millions) | ||||||||||||
Interest rate and other derivative contracts | ¥ | (347,089 | ) | ¥ | 212,778 | ¥ | 520,564 | |||||
Trading account securities, excluding derivatives | 363,512 | 192,035 | (122,168 | ) | ||||||||
Trading account profits—net | 16,423 | 404,813 | 398,396 | |||||||||
Foreign exchange derivative contracts(1) | 39,461 | (72,263 | ) | 26,832 | ||||||||
Net trading gains(1) | ¥ | 55,884 | ¥ | 332,550 | ¥ | 425,228 | ||||||
Note:
| For the fiscal year ended March 31, 2007 | |||||||
| As previously reported | As restated | ||||||
| (in millions) | |||||||
Foreign exchange derivative contracts | ¥ | 26,861 | ¥ | (72,263 | ) | ||
Net trading gains | 431,674 | 332,550 | |||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The amortized costs and estimated fair values ofintent, BTMU reclassified these investment securities, available for sale andwhich consist of asset-backed securities, from the trading category to the securities being held to maturity category on January 30, 2009. These securities, which were classified as “Other debt securities” of the held to maturity category at March 31, 20072009, are classified as “Asset-backed securities, excluding mortgage-backed securities” of the held to maturity category at March 31, 2010. The reclassification of these investment securities was made at fair value of ¥1,053,029 million on the date of reclassification. While these trading securities were measured at fair value with their unrealized holding gains and 2008losses recognized in earnings, the reclassified securities being held to maturity are measured at amortized cost as of the balance sheet date. The carrying amounts of the reclassified investment securities were as follows:¥1,056,339 million and ¥972,327 million at March 31, 2009 and 2010, respectively.
| 2007 | 2008 | |||||||||||||||||||||||
| Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Estimated fair value | |||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 20,939,737 | ¥ | 49,152 | ¥ | 8,031 | ¥ | 20,980,858 | ¥ | 16,133,001 | ¥ | 73,835 | ¥ | 20,943 | ¥ | 16,185,893 | ||||||||
Japanese prefectural and municipal bonds | 238,039 | 1,803 | 173 | 239,669 | 203,090 | 5,267 | 127 | 208,230 | ||||||||||||||||
Foreign governments and official institutions bonds | 3,469,222 | 78,535 | 9,646 | 3,538,111 | 3,637,566 | 37,728 | 4,471 | 3,670,823 | ||||||||||||||||
Corporate bonds | 6,060,236 | 169,997 | 4,208 | 6,226,025 | 5,281,321 | 137,543 | 10,895 | 5,407,969 | ||||||||||||||||
Mortgage-backed securities | 2,728,015 | 80,026 | 14,208 | 2,793,833 | 3,439,490 | 4,675 | 5,505 | 3,438,660 | ||||||||||||||||
Other debt securities | 3,186,722 | 67,780 | 3,726 | 3,250,776 | 3,566,554 | 11,056 | 103,543 | 3,474,067 | ||||||||||||||||
Marketable equity securities | 4,677,589 | 3,979,849 | 6,928 | 8,650,510 | 4,315,233 | 2,086,557 | 58,131 | 6,343,659 | ||||||||||||||||
Total | ¥ | 41,299,560 | ¥ | 4,427,142 | ¥ | 46,920 | ¥ | 45,679,782 | ¥ | 36,576,255 | ¥ | 2,356,661 | ¥ | 203,615 | ¥ | 38,729,301 | ||||||||
Securities being held to maturity: Debt securities: | ||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 2,809,445 | ¥ | 6,418 | ¥ | 7,147 | ¥ | 2,808,716 | ¥ | 2,601,852 | ¥ | 18,825 | ¥ | 1,731 | ¥ | 2,618,946 | ||||||||
Japanese prefectural and municipal bonds | 78,276 | 921 | 7 | 79,190 | 71,966 | 1,108 | — | 73,074 | ||||||||||||||||
Foreign governments and official institutions bonds | 14,142 | 402 | 39 | 14,505 | 9,602 | 664 | — | 10,266 | ||||||||||||||||
Corporate bonds | 127,576 | 937 | 30 | 128,483 | 154,313 | 1,887 | 22 | 156,178 | ||||||||||||||||
Other debt securities | 3,660 | 8 | 2 | 3,666 | 1,933 | — | — | 1,933 | ||||||||||||||||
Total | ¥ | 3,033,099 | ¥ | 8,686 | ¥ | 7,225 | ¥ | 3,034,560 | ¥ | 2,839,666 | ¥ | 22,484 | ¥ | 1,753 | ¥ | 2,860,397 | ||||||||
Investment securities other than securities available for sale or being held to maturity (i.e., nonmarketable equity securities presented in Other investment securities) were primarily carried at cost of ¥623,430¥1,390,315 million and ¥513,975¥1,655,812 million, at March 31, 20072009 and 2008,2010, respectively, because their fair values were not readily determinable. The MUFG Group periodically monitors the status of each investee including the credit ratings and changes in the MUFG Group’s share of net assets in the investees as compared with its shares at the time of investment, or utilizes commonly accepted valuation models for certain nonmarketable equity securities issued by public companies which are convertible to marketable common stock in the future, to determine if impairment losses if any, are to beexist. The impairment losses recognized on these nonmarketable securities. securities were ¥43,451 million, ¥42,620 million and ¥24,751 million in the fiscal years ended March 31, 2008, 2009 and 2010, respectively.
The impairment of cost-method investments is not evaluated when valuation models are not applicable if there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. Accordingly, the MUFG Group did not estimate the fair value of such investments in accordance with paragraph 14 and 15 of SFAS No. 107, “Disclosure about Fair Value of Financial Instruments.” These investmentswhich had aggregateaggregated costs of ¥194,150¥163,813 million and ¥167,803¥532,419 million, at March 31, 20072009 and 2008, respectively.2010, respectively, since it was not practical. Investment securities held by certain subsidiaries subject to specialized industry accounting principles in AICPA Guidesfor investment companies and brokers and dealers presented in Other investment securities were carried at fair value of ¥47,529¥43,809 million and ¥66,038¥35,026 million at March 31, 20072009 and 2008,2010, respectively.
See Note 31 for the methodologies and assumptions used to estimate the fair values.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The amortized cost and estimated fair values of debt securities being held to maturity and the estimated fair values of debt securities available for sale at March 31, 20082010 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. Securities not due at a single maturity date and securities embedded with call or prepayment options, such as mortgage-backed securities, are included in the table below based on their original final maturities.
| Held-to-maturity | Available-for-sale | Held-to-maturity | Available for sale | |||||||||||||||
| Amortized cost | Estimated fair value | Estimated fair value | Amortized cost | Estimated fair value | Estimated fair value | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
Due in one year or less | ¥ | 1,378,070 | ¥ | 1,378,886 | ¥ | 8,365,313 | ¥ | 341,996 | ¥ | 344,909 | ¥ | 16,191,114 | ||||||
Due from one year to five years | 1,388,160 | 1,407,636 | 9,407,196 | 1,523,489 | 1,548,319 | 22,602,840 | ||||||||||||
Due from five years to ten years | 31,911 | 32,581 | 6,969,221 | 358,809 | 385,880 | 3,815,240 | ||||||||||||
Due after ten years | 41,525 | 41,294 | 7,643,912 | 719,507 | 748,813 | 3,248,002 | ||||||||||||
Total | ¥ | 2,839,666 | ¥ | 2,860,397 | ¥ | 32,385,642 | ¥ | 2,943,801 | ¥ | 3,027,921 | ¥ | 45,857,196 | ||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, gross realized gains on sales of investment securities available for sale were ¥476,646¥324,715 million, ¥360,406¥224,507 million and ¥324,715¥344,353 million, respectively, and gross realized losses on sales of investment securities available for sale were ¥124,278¥239,635 million, ¥66,190¥75,165 million and ¥239,635¥47,117 million, respectively.
For the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, losses resulting from impairment of investment securities to reflect the decline in value considered to be other than temporary were ¥337,501¥1,543,779 million, ¥162,959¥858,874 million and ¥1,543,779¥117,485 million, respectively, which were included in Investment securities gains (losses)—net in the consolidated statements of operations. The losses of ¥337,501 million for the fiscal year ended March 31, 2006 included losses of ¥194,561 million from Japanese national government bonds classified as available for sale. The losses of ¥1,543,779 million for the fiscal year ended March 31, 2008 included losses of ¥1,169,069 million from debt securities available for sale mainly classified as Foreign governments and official institutions bonds and Mortgage-backed securities, and ¥331,259 million from marketable equity securities. The losses of ¥858,874 million for the fiscal year ended March 31, 2009 included losses of ¥155,489 million from debt securities available for sale mainly classified as Japanese national government bonds and corporate bonds, and ¥660,719 million from marketable equity securities. The losses of ¥117,485 million for the fiscal year ended March 31, 2010 primarily included losses of ¥29,822 million from debt securities available for sale mainly classified as corporate bonds and ¥62,912 million from marketable equity securities.
The following table shows the unrealized gross losses and estimated fair values of investment securities available for sale and being held to maturity at March 31, 2009 by length of time that individual securities in each category have been in a continuous loss position:
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||
At March 31, 2009: | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Number of securities | |||||||||||||
| (in millions) | ||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
Debt securities: | ||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 8,449,806 | ¥ | 8,788 | ¥ | — | ¥ | — | ¥ | 8,449,806 | ¥ | 8,788 | 97 | |||||||
Japanese prefectural and municipal bonds | 33,437 | 101 | — | — | 33,437 | 101 | 30 | |||||||||||||
Foreign governments and official institutions bonds | 7,860 | 176 | 152 | 1 | 8,012 | 177 | 19 | |||||||||||||
Corporate bonds | 667,722 | 8,327 | — | — | 667,722 | 8,327 | 5,178 | |||||||||||||
Mortgage-backed securities | 108,635 | 8,535 | 72,017 | 7,785 | 180,652 | 16,320 | 138 | |||||||||||||
Other debt securities | 29,804 | 1,077 | 98,703 | 53,215 | 128,507 | 54,292 | 228 | |||||||||||||
Marketable equity securities | 820,181 | 110,564 | 48 | 32 | 820,229 | 110,596 | 225 | |||||||||||||
Total | ¥ | 10,117,445 | ¥ | 137,568 | ¥ | 170,920 | ¥ | 61,033 | ¥ | 10,288,365 | ¥ | 198,601 | 5,915 | |||||||
Securities being held to maturity: | ||||||||||||||||||||
Debt securities: | ||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 2,524 | ¥ | 81 | ¥ | 23,244 | ¥ | 1,512 | ¥ | 25,768 | ¥ | 1,593 | 5 | |||||||
Foreign governments and official institutions bonds | 34,316 | 246 | — | — | 34,316 | 246 | 6 | |||||||||||||
Corporate bonds | 1,603 | 4 | 2,701 | 3 | 4,304 | 7 | 8 | |||||||||||||
Other debt securities | 670,774 | 19,038 | — | — | 670,774 | 19,038 | 75 | |||||||||||||
Total | ¥ | 709,217 | ¥ | 19,369 | ¥ | 25,945 | ¥ | 1,515 | ¥ | 735,162 | ¥ | 20,884 | 94 | |||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table shows the unrealized gross losses and estimated fair values of investment securities available for sale and being held to maturity at March 31, 2007 and 20082010 by length of time that individual securities in each category have been in a continuous loss position:
| Less than 12 months | 12 months or more | Total | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||||
At March 31, 2007: | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Number of securities | |||||||||||||||||||||||||||||||||
At March 31, 2010: | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Number of securities | |||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 7,450,507 | ¥ | 8,031 | ¥ | — | ¥ | — | ¥ | 7,450,507 | ¥ | 8,031 | 51 | ¥ | 21,109,870 | ¥ | 25,459 | ¥ | 1,806,501 | ¥ | 36,640 | ¥ | 22,916,371 | ¥ | 62,099 | 114 | ||||||||||||||
Japanese prefectural and municipal bonds | 19,118 | 173 | — | — | 19,118 | 173 | 8 | 10,009 | 77 | — | — | 10,009 | 77 | 3 | ||||||||||||||||||||||||||
Foreign governments and official institutions bonds | 1,046,605 | 8,766 | 74,270 | 880 | 1,120,875 | 9,646 | 243 | 822,500 | 4,404 | 138 | 2 | 822,638 | 4,406 | 122 | ||||||||||||||||||||||||||
Corporate bonds | 553,876 | 4,208 | — | — | 553,876 | 4,208 | 2,516 | 431,826 | 4,709 | 292,544 | 3,725 | 724,370 | 8,434 | 5,314 | ||||||||||||||||||||||||||
Mortgage-backed securities | 281,103 | 1,354 | 436,003 | 12,854 | 717,106 | 14,208 | 343 | |||||||||||||||||||||||||||||||||
Other debt securities | 273,935 | 3,372 | 28,579 | 354 | 302,514 | 3,726 | 86 | |||||||||||||||||||||||||||||||||
Residential mortgage-backed securities | 269,805 | 2,269 | 76,545 | 6,527 | 346,350 | 8,796 | 123 | |||||||||||||||||||||||||||||||||
Commercial mortgage-backed securities | 2,946 | 250 | 47,396 | 3,555 | 50,342 | 3,805 | 28 | |||||||||||||||||||||||||||||||||
Asset-backed securities, excluding mortgage-backed securities | 12,546 | 1,672 | 20,705 | 873 | 33,251 | 2,545 | 26 | |||||||||||||||||||||||||||||||||
Marketable equity securities | 95,056 | 6,928 | — | — | 95,056 | 6,928 | 65 | 96,997 | 5,711 | 1,554 | 173 | 98,551 | 5,884 | 119 | ||||||||||||||||||||||||||
Total | ¥ | 9,720,200 | ¥ | 32,832 | ¥ | 538,852 | ¥ | 14,088 | ¥ | 10,259,052 | ¥ | 46,920 | 3,312 | ¥ | 22,756,499 | ¥ | 44,551 | ¥ | 2,245,383 | ¥ | 51,495 | ¥ | 25,001,882 | ¥ | 96,046 | 5,849 | ||||||||||||||
Securities being held to maturity: | ||||||||||||||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 613,971 | ¥ | 756 | ¥ | 1,236,032 | ¥ | 6,391 | ¥ | 1,850,003 | ¥ | 7,147 | 36 | |||||||||||||||||||||||||||
Japanese prefectural and municipal bonds | 11,207 | 7 | — | — | 11,207 | 7 | 31 | |||||||||||||||||||||||||||||||||
Foreign governments and official institutions bonds | — | — | 749 | 39 | 749 | 39 | 1 | ¥ | 85,069 | ¥ | 300 | ¥ | — | ¥ | — | ¥ | 85,069 | ¥ | 300 | 9 | ||||||||||||||||||||
Corporate bonds | 22,319 | 23 | 2,715 | 7 | 25,034 | 30 | 32 | |||||||||||||||||||||||||||||||||
Other debt securities | 353 | 2 | — | — | 353 | 2 | 3 | |||||||||||||||||||||||||||||||||
Asset-backed securities, excluding mortgage-backed securities | 9,571 | 20 | 138,402 | 233 | 147,973 | 253 | 226 | |||||||||||||||||||||||||||||||||
Total | ¥ | 647,850 | ¥ | 788 | ¥ | 1,239,496 | ¥ | 6,437 | ¥ | 1,887,346 | ¥ | 7,225 | 103 | ¥ | 94,640 | ¥ | 320 | ¥ | 138,402 | ¥ | 233 | ¥ | 233,042 | ¥ | 553 | 235 | ||||||||||||||
| Less than 12 months | 12 months or more | Total | ||||||||||||||||||
At March 31, 2008: | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Estimated fair value | Unrealized losses | Number of securities | |||||||||||||
| (in millions) | ||||||||||||||||||||
Securities available for sale: | ||||||||||||||||||||
Debt securities: | ||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 7,193,164 | ¥ | 20,943 | ¥ | — | ¥ | — | ¥ | 7,193,164 | ¥ | 20,943 | 51 | |||||||
Japanese prefectural and municipal bonds | 23,113 | 127 | — | — | 23,113 | 127 | 3 | |||||||||||||
Foreign governments and official institution bonds | 137,363 | 4,391 | 12,920 | 80 | 150,283 | 4,471 | 74 | |||||||||||||
Corporate bonds | 262,242 | 10,895 | — | — | 262,242 | 10,895 | 1,097 | |||||||||||||
Mortgage-backed securities | 34,295 | 240 | 333,492 | 5,265 | 367,787 | 5,505 | 280 | |||||||||||||
Other securities | 854,265 | 101,552 | 32,171 | 1,991 | 886,436 | 103,543 | 325 | |||||||||||||
Marketable equity securities | 542,296 | 58,131 | — | — | 542,296 | 58,131 | 239 | |||||||||||||
Total | ¥ | 9,046,738 | ¥ | 196,279 | ¥ | 378,583 | ¥ | 7,336 | ¥ | 9,425,321 | ¥ | 203,615 | 2,069 | |||||||
Securities being held to maturity: | ||||||||||||||||||||
Debt securities: | ||||||||||||||||||||
Japanese national government and Japanese government agency bonds | ¥ | 4,398 | ¥ | 1 | ¥ | 243,025 | ¥ | 1,730 | ¥ | 247,423 | ¥ | 1,731 | 10 | |||||||
Corporate bonds | 10,185 | 21 | 3,996 | 1 | 14,181 | 22 | 16 | |||||||||||||
Total | ¥ | 14,583 | ¥ | 22 | ¥ | 247,021 | ¥ | 1,731 | ¥ | 261,604 | ¥ | 1,753 | 26 | |||||||
In April 2009, the FASB staff issued guidance, which amended the other-than-temporary impairment (“OTTI”) model for debt securities. Under the new guidance, OTTI losses must be recognized in earnings if an investor has the intent to sell the debt security, if it is more likely than not that the investor will be required to sell the debt security before recovery of its amortized cost basis, or if an investor does not expect to recover the entire amortized cost basis of the security. Any impairment on securities an investor intends to sell or is more likely than not required to sell is recognized in earnings for the entire difference between the amortized cost and its fair value. Any impairment on securities an investor does not intend to sell or it is not more likely than not that the investor will be required to sell before recovery is separated into an amount representing the credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in other changes in equity from nonowner sources.
The following describes the nature of the MUFG Group’s investments and the conclusions reached on the temporary or other than temporary status of the unrealized losses.
Japanese and foreign governments, agency, or municipal bonds
As of March 31, 2010, the unrealized losses associated with Japanese and foreign governments and agency bonds are not expected to have any credit losses due to the guarantees provided by the governments or such unrealized losses are primarily driven by changes in interest rates, not due to credit losses. Therefore, the MUFG Group expects to recover the entire amortized cost basis of these securities and as such has not recorded any impairment losses in the accompanying consolidated statements of operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Residential and commercial mortgage-backed securities
As of March 31, 2010, the unrealized losses associated with federal agency residential mortgage-backed securities, which are issued by Government-Sponsored Enterprises (“GSE”) of the United States and collateralized by residential mortgage loans, are expected to be primarily driven by changes in interest rates and not due to credit losses. The unrealized losses associated with other non-agency residential and commercial mortgage-backed securities issued by financial institutions with no guarantee from GSEs are primarily rated investment grade, and with consideration of other factors, such as expected cash flow analysis, the MUFG Group expects to recover the entire amortized cost basis of these securities. As such, no impairment was recorded in the accompanying consolidated statements of operations.
Asset-backed securities, excluding mortgage-backed securities
As of March 31, 2010, the unrealized losses associated with asset-backed securities are primarily related to certain CLOs, which are structured finance products that securitize diversified pool of loan assets into multiple classes of notes from the cash flows generated by such loans, and pay the note holders through the receipt of interest and principal repayments from the underlying loans. Certain of these CLOs are highly illiquid securities for which fair values are difficult to obtain. Unrealized losses arise from widening credit spreads, credit quality of the underlying collateral, uncertainty regarding the valuation of such securities and the market’s opinion of the performance of the fund managers. Cash flow analysis of the underlying collateral provides an estimate of other-than-temporary impairment, which is performed when the fair value of a security is lower than its amortized cost. Any security with a change in credit rating is also subject to cash flow analysis to determine whether or not an other-than-temporary impairment exists. The fair value of the CLO portfolio was adversely impacted during the fiscal years ended March 31, 2009 and 2010 by the overall financial market crisis. The MUFG Group monitored performance of securities and performed expected cash flow analysis, which indicated no observable credit quality issues on such securities at March 31, 2010. As a result, no impairment was recorded in the accompanying consolidated statements of operations.
Corporate bonds
As of March 31, 2010, the unrealized losses associated with the corporate bonds are primarily related to private placement bonds issued by Japanese non-public companies. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the bonds as estimated using the MUFG Group’s cash flow projections using its base assumptions. The key assumptions include probability of default based on credit rating of the bond issuers and loss given default.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents a roll-forward of the credit loss component recognized in earnings. The beginning balance represents the credit loss component for which OTTI occurred on debt securities in the periods prior to April 1, 2009. The additions represent the first time a debt security was credit impaired or when subsequent credit impairments have occurred. The credit loss component is reduced when the MUFG Group sells or the corporate bonds mature. Additionally, the credit loss component is reduced if the MUFG Group receives or expects to receive cash flows in excess of what the MUFG Group previously expected to receive over the remaining life of the credit-impaired debt securities.
| Fiscal year ended March 31, 2010 | ||||
| (in millions) | ||||
Beginning balance as of April 1, 2009 | ¥ | 40,556 | ||
Additions: | ||||
Initial credit impairments | 24,587 | |||
Subsequent credit impairments | 5,235 | |||
Reductions: | ||||
Realized losses for securities sold or matured | (33,787 | ) | ||
Ending balance as of March 31, 2010 | ¥ | 36,591 | ||
The cumulative decline in fair value of the credit impaired corporate bonds held at March 31, 2010 was ¥29,228 million. Of which, the credit loss component recognized in earnings was ¥36,591 million, and the remaining related to all other factors recognized in accumulated other changes in equity from nonowner sources before taxes was ¥7,363 million at March 31, 2010.
Marketable equity securities
The MUFG Group has determined that unrealized losses on investments at March 31, 2007 and 2008marketable equity securities are temporary based on its ability and positive intent to hold the investments for a period of time sufficient to allow for any anticipated recovery and the results of its review conducted to identify and evaluate investments that have indications of possible impairments. Impairment is evaluated considering various factors, and their relative significance varies from case to case. The MUFG Group’s review includes, but is not limited to, consideration of the following factors:
The length of time that fair value of the investment has been below cost—cost—The MUFG Group generally deems a continued decline of fair value below cost for six months or more to be other than temporary. Certain securities held by BTMU, MUTB and certain other subsidiaries, which primarily consist of debt securities issued by the Japanese national government and generally considered to be of minimal credit risk, were determined not to be impaired in some cases, on the basis of the respective subsidiary’s ability and positive intent to hold such securities to maturity.
The extent to which the fair value of investments has been below cost as of the end of the reporting period—period—The MUFG Group’s investment portfolio is exposed to volatile equity prices affected by many factors including investors’ perspectives as to future economic factors and the issuers’ performance, as well as cyclical market price fluctuation due to changes in market interest rates, foreign exchange rates, and changes in credit spreads etc. In view of the diversity and volume of equity investments as well as the fact that the majority of investments in debt securities are in high-grade fixed-rate bonds, including sovereign bonds, theperformance. The MUFG Group generally deems the decline in fair value below cost of 20% or more as an indicator of an other than temporary decline in fair value.
The financial condition and near-term prospects of the issuer—issuer—The MUFG Group considers the financial condition and near-term prospects of the issuer primarily based on the credit standing of the issuers as determined by its credit rating system.
UnrealizedAt March 31, 2010, unrealized losses on certain other debtmarketable equity securities held by BTMU, all of which have been in a continuous loss position for less than 12 months, are considered temporary since BTMU hasbased on the abilityevaluation as described above, and positive intent to hold the investments for a period of time sufficient to allow for any anticipated recovery in fair value. Unrealized losses on marketable equity securities, all of which have been in a continuous loss position for less than 12 months, are also considered temporary, since the MUFG Group primarily makes these investments for strategic purposes to maintain long-term relationship with its customers.
Certain securities held by UNBC, which primarily consist of debt securities backed by the full faith and credit of the U.S. government and corporate asset-backed and debt securities, were determined not to be impaired in some cases, on the basis of a cash flow analysis of such securities and/or UNBC’s ability and positive intent to hold such securities to maturity. As shown in the table above, there were no material unrealized losses that have been in a continuous loss position for 12 months or more, except for unrealized losses on certain foreign governments and official institutions bonds, mortgage-backed securities and other debt securities held by UNBC at March 31, 2008. Foreign governments and official institutions bonds in an unrealized loss position for 12 months or more were issued by one of the several Government-Sponsored Enterprises (“GSEs”) such as U.S. Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”), Federal Home Loan Banks or Federal Farm Credit Banks. These securities were issued with a stated interest rate and mature in less than five years. All of the unrealized losses on these securities resulted from rising interest rates subsequent to purchase. Unrealized losses will decline as interest rates fall below the purchased yield and as the securities approach maturity. Since UNBC has the ability and positive intent to hold the securities until recovery of the carrying value, which could be maturity, the unrealized loss is considered temporary. Mortgage-backed securities in an unrealized loss position for 12 months or more are primarily
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities guaranteed by a GSE such as Fannie Mae or Freddie Mac and relatively small amounts of AAA-rated private label mortgage securities. These securities are collateralized by residential mortgage loans and may be prepaid at par prior to maturity. All of the unrealized losses on the mortgage-backed securities resulted from rising interest rates subsequent to purchase and in the case of private label mortgage securities, additional credit spread widening since purchase. Other debt securities in an unrealized loss position for 12 months or more primarily consisted of credit card receivable securities and collateralized loan obligations held by UNBC. Unrealized losses on such securities arise from rising interest rates, widening credit spreads, credit quality of the underlying collateral, and the market’s opinion of the performance of the fund managers. Cash Flow analysis of the underlying collateral provides an estimate of other-then-temporary impairment, which is performed quarterly on those securities below Aa investment grade. Any security with a change in credit rating is also subject to cash flow analysis to determine whether or not an other-than-temporary impairment exists. During the fiscal year ended March 31, 2008, the fair value of the collateralized loan obligation portfolio was adversely impacted by the liquidity crisis caused by the subprime loan industry. Although none of the collateralized loan obligations in UNBC’s portfolio contain subprime loan assets, widening credit spreads caused their value to decline. Since the securities do not have observable credit quality issues and the UNBC has the ability and intent to hold the other debt securities until recovery of the carrying value, which could be maturity, the unrealized loss is considered temporary.
Banks’ Shareholdings Purchase Corporation
Under a Japanese law forbidding banks from holding marketable equity securities in excess of their Tier I capital after September 30, 2006, the Banks’ Shareholdings Purchase Corporation (“BSPC”) was established in January 2002 in order to soften the impact on the stock market of sales of cross-shareholdings. BSPC began accepting share offers from financial institutions on February 15, 2002. It has been funded by financial institutions, including BTMU and MUTB, which made initial contributions of ¥2,000 million (“preferred contributions”). BSPC will be disbanded when it sells all shares that it purchased from financial institutions, or by March 31, 2017, at the latest.
BSPC has two accounts to purchase stock from financial institutions; the General Account and the Special Account. In the General Account, each selling financial institution funds the amount of purchase by BSPC without guarantees by the Japanese government, and the financial institution will assume any gains or losses on sales by BSPC of the stocks. In the Special Account, each selling financial institution was required to make contributions of 8% of the selling prices to BSPC for purchases made prior to the effective date of the amendment to the above-mentioned law to fund any future losses (“subordinated contributions”). Effective in August 2003, the requirement for subordinated contributions was eliminated under the amendment to the legislation. The purchase amount in the Special Account is funded by borrowings guaranteed by the Japanese government with a limit of ¥2.0 trillion. The cumulative net loss on sales of stocks in the Special Account, which will not be determined and finalized before the liquidation of BSPC, will be compensated first by the subordinated contributions, and then by the preferred contributions. If there is a remaining loss, the government, as a guarantor, will be liable for the loss. On the other hand, if there is a cumulative net asset at the time of the liquidation, the asset is first used to repay the preferred contributions and then to repay the subordinated contributions. If any net assets remain after repayment of subordinated contributions, such net assets will be paid out and the amounts will be determined based on the amounts of both contributions. Any remaining net assets in excess of double the amount of the contributions will belong to the Japanese government.
At the establishment of BSPC in January 2002, BTMU and MUTB collectively paid ¥2,000 million to BSPC as preferred contributions. At the time of the sales, BTMU and MUTB made subordinated contributions to the Special Account of ¥1,652 million and ¥183 million for the fiscal years ended March 31, 2002 and 2003, respectively. For the fiscal year ended March 31, 2003, the MUFG Group evaluated its preferred contributions of
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
¥2,000 million and subordinated contributions of ¥1,835 million for impairment, and recognized an impairment loss of ¥3,835 million. On October 1, 2005, the MUFG Group acquired, at fair value, the preferred and subordinated contributions of the UFJ Holdings Group to BSPC for ¥4,000 million and ¥10,616 million, respectively.
The MUFG Group sold marketable equity securities to BSPC with aggregate market values of ¥3,537 million, nil and nil, respectively, during the fiscal years ended March 31, 2006, 2007 and 2008. Also, BTMU and MUTB made loans to BSPC to fund its purchases of marketable equity securities. Such loans to BSPC, which are guaranteed by the Japanese government, amounted to ¥273,100 million and nil at March 31, 2007 and 2008, respectively.
The MUFG Group accounts for the transfers of marketable equity securities to the General Account, if any, as secured borrowings. With respect to the transfers of marketable equity securities to the Special Account with the requirement of subordinated contributions, if the fair value of the securities sold to the Special Account is greater than 10% of the fair value of all securities held by the Special Account, the MUFG Group accounts for the subordinated contributions as a partial retained interest in the sale. For all periods presented, the MUFG Group had no sales of securities whose fair value was greater than 10% of the fair value of all securities held by the Special Account. For the fiscal years ended March 31, 2006, 2007 and 2008, the MUFG Group recognized gains of ¥769 million, nil and nil, respectively, on the sales of marketable equity securities to the Special Account. In September 2006, BSPC ceased purchasing marketable equity securities from banks.
Debt-for-equity Swap
The MUFG Group restructured certain debt by entering into debt-for-equity swap transactions. As a result of these debt-for-equity swap transactions, the MUFG Group’s loans to some borrowers, under standard terms available to similarly situated corporate borrowers, were effectively converted into equity interests in the borrowers, often in the form of preferred shares. The aggregate carrying amounts of debt swapped for equity, net of allowance, for the fiscal years ended March 31, 2006, 2007 and 2008 were ¥240 million, nil and nil, respectively. Such loans were often identified as impaired and, accordingly, the debt-for-equity swap transactions did not materially affect the MUFG Group’s results of operations for the fiscal years ended March 31, 2006, 2007 and 2008.
Equity interests acquired through a debt-for-equity swap transaction are accounted for as other investments and carried at cost on the consolidated balance sheets, and reviewed for impairment periodically. Due to regulatory and legal reasons, cash often changes hands between the parties to the debt-for-equity swap transactions. In such cases, the debt-for-equity swap is classified as a cash transaction in the consolidated statements of cash flows as a repayment of loans and purchases of other investment securities.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Loans at March 31, 20072009 and 2008,2010, by domicile and type of industry of borrowers are summarized below:
Classification of loans by industry is based on the industry segment loan classification as defined by the Bank of Japan.
| 2007(4) | 2008 | 2009 | 2010 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
Domestic(1): | ||||||||||||||||
Domestic: | ||||||||||||||||
Manufacturing | ¥ | 10,988,248 | ¥ | 11,322,092 | ¥ | 12,922,822 | ¥ | 12,027,795 | ||||||||
Construction | 1,843,033 | 1,759,436 | 1,803,541 | 1,427,933 | ||||||||||||
Real estate | 8,307,407 | 8,247,964 | 10,436,795 | 12,261,588 | ||||||||||||
Services | 7,069,095 | 6,707,417 | 6,750,442 | 3,714,148 | ||||||||||||
Wholesale and retail | 9,430,037 | 9,436,939 | 9,760,805 | 8,597,192 | ||||||||||||
Banks and other financial institutions(2) | 4,484,294 | 4,825,368 | 4,836,047 | 4,159,603 | ||||||||||||
Communication and information services | 1,170,036 | 1,152,727 | 732,652 | 1,339,753 | ||||||||||||
Other industries | 10,264,718 | 10,412,330 | 9,515,861 | 9,393,031 | ||||||||||||
Consumer | 23,817,981 | 23,908,589 | 20,542,398 | 19,096,832 | ||||||||||||
Total domestic | 77,374,849 | 77,772,862 | 77,301,363 | 72,017,875 | ||||||||||||
Foreign: | ||||||||||||||||
Governments and official institutions | 374,157 | 316,761 | 351,134 | 490,376 | ||||||||||||
Banks and other financial institutions(2) | 1,694,951 | 2,100,057 | 2,687,004 | 2,970,470 | ||||||||||||
Commercial and industrial | 13,468,916 | 16,188,426 | 17,550,544 | 14,252,704 | ||||||||||||
Other | 2,460,884 | 2,708,049 | 2,510,521 | 2,554,209 | ||||||||||||
Total foreign | 17,998,908 | 21,313,293 | 23,099,203 | 20,267,759 | ||||||||||||
Unearned income, unamortized premiums—net and deferred loan fees—net | (50,913 | ) | (84,076 | ) | (90,225 | ) | (99,724 | ) | ||||||||
Total(3) | ¥ | 95,322,844 | ¥ | 99,002,079 | ¥ | 100,310,341 | ¥ | 92,185,910 | ||||||||
Notes:
| (1) | Since the |
| (2) | Loans to the so-called non-bank finance companies are generally included in the “Banks and other financial institutions” category. |
Non-bank finance companies are primarily engaged in consumer lending, factoring and credit card businesses.
| Non-bank finance companies are primarily engaged in consumer lending, factoring and credit card businesses. |
| (3) | The above table includes loans held for sale of |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| As previously reported | As restated | |||||||
| (in millions) | ||||||||
Domestic: | ||||||||
Manufacturing | ¥ | 10,988,248 | ¥ | 10,988,248 | ||||
Construction | 1,843,033 | 1,843,033 | ||||||
Real estate | 8,291,493 | 8,307,407 | ||||||
Services | 7,054,058 | 7,069,095 | ||||||
Wholesale and retail | 9,430,335 | 9,430,037 | ||||||
Banks and other financial institutions | 4,396,455 | 4,484,294 | ||||||
Communication and information services | 1,134,493 | 1,170,036 | ||||||
Other industries | 10,416,743 | 10,264,718 | ||||||
Consumer | 23,893,621 | 23,817,981 | ||||||
Total domestic | 77,448,479 | 77,374,849 | ||||||
Foreign: | ||||||||
Governments and official institutions | 374,157 | 374,157 | ||||||
Banks and other financial institutions | 1,529,447 | 1,694,951 | ||||||
Commercial and industrial | 13,498,030 | 13,468,916 | ||||||
Other | 2,523,644 | 2,460,884 | ||||||
Total foreign | 17,925,278 | 17,998,908 | ||||||
Unearned income, unamortized premiums-net and deferred loan fees-net | (50,913 | ) | (50,913 | ) | ||||
Total | ¥ | 95,322,844 | ¥ | 95,322,844 | ||||
Substantially all domestic loans are made under agreements which, as is customary in Japan, provide that a bank may, under certain conditions, require the borrower to provide collateral (or additional collateral) or guarantees with respect to the loans, and that the bank may treat any collateral, whether furnished as security for loans or otherwise, as collateral for all indebtedness to the bank. At March 31, 2007 and 2008, such collateralized loans originated by the MUFG Group, which were principally collateralized by real estate, marketable securities and accounts receivable, amounted to ¥27,703,501 million and ¥28,073,672 million, respectively, which represented 36% and 36%, respectively, of the total domestic loans at March 31, 2007 and 2008.
Nonaccrual and restructured loans were ¥1,677,030¥1,771,110 million and ¥1,661,720¥1,981,201 million at March 31, 20072009 and 2008,2010, respectively. Had interest on these loans been accrued pursuant to the original terms, gross interest income on such loans for the fiscal years ended March 31, 20072009 and 20082010 would have been approximately ¥93.9¥93.4 billion and ¥92.6¥96.2 billion, respectively, of which approximately ¥68.1¥47.5 billion and ¥68.0¥38.8 billion, respectively, were included in interest income on loans in the accompanying consolidated statements of operations. Accruing loans contractually past due 90 days or more were ¥22,470¥21,487 million and ¥17,952¥26,418 million at March 31, 20072009 and 2008,2010, respectively.
The MUFG Group provided commitments to extend credit to customers with restructured loans. The amounts of such commitments were ¥20,473¥40,001 million and ¥16,897¥23,885 million at March 31, 20072009 and 2008,2010, respectively. See Note 2524 for further discussion of commitments to extend credit.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Impaired Loans
The MUFG Group’s impaired loans primarily include nonaccrual loans and restructured loans. A summary of the recorded balances of impaired loans and related impairment allowance at March 31, 20072009 and 20082010 is shown below:
| 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||
| Recorded loan balance | Impairment allowance | Recorded loan balance | Impairment allowance | Recorded loan balance | Impairment allowance | Recorded loan balance | Impairment allowance | |||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||
Requiring an impairment allowance | ¥ | 1,118,929 | ¥ | 569,685 | ¥ | 1,131,739 | ¥ | 563,285 | ¥ | 1,168,477 | ¥ | 618,560 | ¥ | 1,465,040 | ¥ | 770,262 | ||||||||
Not requiring an impairment allowance(1) | 263,031 | — | 311,813 | — | 407,755 | — | 360,812 | — | ||||||||||||||||
Total(2) | ¥ | 1,381,960 | ¥ | 569,685 | ¥ | 1,443,552 | ¥ | 563,285 | ¥ | 1,576,232 | ¥ | 618,560 | ¥ | 1,825,852 | ¥ | 770,262 | ||||||||
Notes:
| (1) | These loans do not require an allowance for credit losses under |
| (2) | In addition to impaired loans presented in the above table, there were loans held for sale that were impaired of |
The average recorded investments in impaired loans were approximately ¥1,244¥1,397 billion, ¥1,395¥1,556 billion and ¥1,397¥1,717 billion, respectively, for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008.2010.
For the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, the MUFG Group recognized interest income of approximately ¥25.8¥48.3 billion, ¥36.0¥40.0 billion and ¥48.3¥33.4 billion, respectively, on impaired loans. Interest income on nonaccrual loans was recognized on a cash basis when ultimate collectibility of principal was certain; otherwise, cash receipts were applied as principal reductions. Interest income on accruing impaired loans, including restructured loans, was recognized on an accrual basis to the extent that the collectibility of interest income was reasonably certain based on management’s assessment.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Loans Acquired in a Transfer
In accordance with SOP 03-3,the guidance on loans and debt securities acquired with deteriorated credit quality, the following table sets forth information primarily about loans of the UFJ Holdings Group acquired in connection with the merger, for which it is probable, at acquisition, that the MUFG Group will be unable to collect all contractually required payments receivable.
| 2007 | 2008 | 2009 | 2010 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
Loans acquired during the fiscal year: | ||||||||||||||||
Contractually required payments receivable at acquisitions | ¥ | 41,986 | ¥ | 38,703 | ¥ | 28,827 | ¥ | 807 | ||||||||
Cash flows expected to be collected at acquisitions | 4,195 | 6,680 | 6,366 | 90 | ||||||||||||
Fair value of loans at acquisitions | 3,266 | 6,099 | ||||||||||||||
Fair value of loans at acquisition | 6,366 | 90 | ||||||||||||||
Accretable yield for loans within the scope of SOP 03-3: | ||||||||||||||||
Accretable yield for loans within the scope of the guidance on loans and debt securities acquired with deteriorated credit quality: | ||||||||||||||||
Balance at beginning of fiscal year | ¥ | 260,959 | ¥ | 184,448 | ¥ | 122,063 | ¥ | 82,219 | ||||||||
Additions | 929 | 581 | — | — | ||||||||||||
Accretion | (103,127 | ) | (86,346 | ) | (50,386 | ) | (32,121 | ) | ||||||||
Disposals | (939 | ) | (4,521 | ) | — | — | ||||||||||
Reclassifications from nonaccretable difference | 26,626 | 27,901 | 10,542 | 11,035 | ||||||||||||
Deconsolidation of a subsidiary | — | (208 | ) | |||||||||||||
Balance at end of fiscal year | ¥ | 184,448 | ¥ | 122,063 | ¥ | 82,219 | ¥ | 60,925 | ||||||||
Loans within the scope of SOP 03-3: | ||||||||||||||||
Outstanding balance, beginning of fiscal year | ¥ | 2,139,043 | ¥ | 1,224,057 | ||||||||||||
Outstanding balance, end of fiscal year | 1,224,057 | 879,762 | ||||||||||||||
Carrying amount, beginning of fiscal year | 898,764 | 455,906 | ||||||||||||||
Carrying amount, end of fiscal year | 455,906 | 287,322 | ||||||||||||||
Loans within the scope of the guidance on loans and debt securities acquired with deteriorated credit quality: | ||||||||||||||||
Outstanding balance at beginning of fiscal year | ¥ | 879,762 | ¥ | 654,150 | ||||||||||||
Outstanding balance at end of fiscal year | 654,150 | 522,015 | ||||||||||||||
Carrying amount at beginning of fiscal year | 287,322 | 248,511 | ||||||||||||||
Carrying amount at end of fiscal year | 248,511 | 188,719 | ||||||||||||||
Nonaccruing loans within the scope of SOP 03-3: | ||||||||||||||||
Nonaccruing loans within the scope of the guidance on loans and debt securities acquired with deteriorated credit quality: | ||||||||||||||||
Carrying amount at acquisition date during fiscal year | ¥ | 786 | ¥ | 2,137 | ¥ | 6,366 | ¥ | 90 | ||||||||
Carrying amount at end of fiscal year | 158,065 | 95,794 | 73,260 | 53,459 | ||||||||||||
Provisions within the scope of SOP 03-3: | ||||||||||||||||
Provisions within the scope of the guidance on loans and debt securities acquired with deteriorated credit quality: | ||||||||||||||||
Balance of allowance for loan losses at beginning of fiscal year | ¥ | 27,175 | ¥ | 12,391 | ¥ | 19,779 | ¥ | 23,443 | ||||||||
Additional provisions during fiscal year | 50,369 | 35,952 | ||||||||||||||
Additional provisions during fiscal year(1) | 15,109 | 8,987 | ||||||||||||||
Reductions of allowance during fiscal year | 20,326 | 6,668 | 6,960 | 4,047 | ||||||||||||
Balance of allowance for loan losses at end of fiscal year | 12,391 | 19,779 | 23,443 | 25,906 | ||||||||||||
The MUFG Group considered prepayments in the determination of contractual cash flows and cash flows expected to be collected based on historical results.
Note:
| (1) | Additional provisions during the fiscal year ended March 31, 2009 have been restated from ¥36,862 million to ¥15,109 million. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Lease Receivable
As part of its financing activities, the MUFG Group enters into leasing arrangements with customers. The MUFG Group’s leasing operations are performed through leasing subsidiaries and consist principally of direct financing leases involving various types of data processing equipment, office equipment and transportation equipment.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of March 31, 20072009 and 2008,2010, the components of the investment in direct financing leases were as follows:
| 2007 | 2008 | 2009 | 2010 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
Minimum lease payment receivable | ¥ | 982,689 | ¥ | 970,477 | ¥ | 889,521 | ¥ | 744,027 | ||||||||
Estimated residual values of leased property | 41,949 | 44,048 | 34,097 | 33,339 | ||||||||||||
Less—unearned income | (73,637 | ) | (73,184 | ) | (68,493 | ) | (61,398 | ) | ||||||||
Net investment in direct financing leases | ¥ | 951,001 | ¥ | 941,341 | ¥ | 855,125 | ¥ | 715,968 | ||||||||
Future minimum lease payment receivables under noncancelable leasing agreements as of March 31, 20082010 were as follows:
| Direct financing leases | Direct financing leases | |||||
| (in millions) | (in millions) | |||||
Fiscal year ending March 31: | ||||||
2009 | ¥ | 301,675 | ||||
2010 | 244,968 | |||||
2011 | 179,021 | ¥ | 248,649 | |||
2012 | 123,559 | 198,061 | ||||
2013 | 58,448 | 131,452 | ||||
2014 and thereafter | 62,806 | |||||
2014 | 80,850 | |||||
2015 | 36,357 | |||||
2016 and thereafter | 48,658 | |||||
Total minimum lease payment receivables | ¥ | 970,477 | ¥ | 744,027 | ||
Government-led Loan Restructuring Program
Under the legislation enacted by the Japanese Diet in June 1996, which incorporates the restructuring program for the loans of seven failed housing-loan companies (the “Jusen”), the Deposit Insurance Corporation (“DIC”) established a Housing Loan Administration Corporation (“HLAC”) to collect and dispose of the loans of the liquidated Jusen. In 1999, HLAC merged with the Resolution and Collection Bank Limited to create the Resolution and Collection Corporation (“RCC”), which is wholly owned by the DIC.
Financial institutions, including the MUFG Group, waived the repayment of substantial amounts of the loans to the Jusen and transferred the remaining balances to HLAC. Financial institutions were requested to make loans to HLAC to finance its collection activities, and in the fiscal year ended March 31, 1997, the MUFG Group made loans of ¥407,078 million with an original maturity term of 15 years. The 15-year term loans to HLAC, which are guaranteed by the DIC under the legislation and the loan agreements, mature in 2011 and earn interest at TIBOR (Tokyo Interbank Offered Rate) plus 0.125%. On October 1, 2005, the MUFG Group acquired, at fair value, loans of the UFJ Holdings Group to HLAC in connection with the merger with UFJ Holdings. During the fiscal years ended March 31, 20072009 and 2008,2010, certain of these loans were repaid before maturity. At March 31, 20072009 and 2008,2010, outstanding loans to HLACRCC were ¥232,174¥193,628 million and ¥210,148¥179,270 million, respectively.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Under this restructuring program, a Financial Stabilization Fund (the “Special Fund”) was established within the DIC, and the Bank of Japan and other financial institutions established another fund (the “New Fund”). These funds are principally invested in Japanese government bonds. The MUFG Group made non-interest-earning deposits of ¥176,089 million with the Special Fund and the New Fund in the fiscal year ended March 31, 1997. The deposit balances as of March 31, 20072009 and 2008,2010, which are included in Other assets,
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
were ¥358,344¥372,114 million and ¥365,146¥378,119 million, respectively, reflecting a present value discount and subsequent amortizationaccretion of the discount during the period until the expected maturity date. The non-interest-earning deposits with these funds are expected to mature in 15 years from the deposit dates, which coincides with the planned operational lifespan of HLAC.RCC.
It is uncertain what losses (so-called “stage two loss”), if any, may ultimately be incurred by the RCC through the collection of the Jusen loans during the 15-year term. If any such losses ultimately occur, the Japanese government will be liable for half of such losses, and the investment income to be earned by the Special Fund during the 15 years is to be used to cover the remaining half of the losses. The investment income to be earned by the New Fund during the 15 years is to be used to compensate for a portion of the public funds used for the Jusen restructuring.
At this time management believes all loans and deposits will be collectible according to their respective terms.
Sales of Loans
The MUFG Group originates various types of loans to corporate and individual customers in Japan and overseas in the normal course of its business. In order to improve its loan quality, BTMU and MUTB actively disposed of nonperforming loans. Most of such nonperforming loans were disposed of by sales to third party purchasersparties without any continuing involvement. Management of BTMU and MUTB generally decide on approvals forapproves disposals after significant sales terms, including prices, are negotiated. As such, loans are disposed of by sales shortly after the loans are transferred to the held-for-sale classification. The net gains on the sales of loans were ¥47,083 million, ¥31,243¥14,771 million and ¥14,771¥17,764 million for the fiscal years ended March 31, 2006, 20072008 and 2008,2010, respectively. The net losses on the sales of loans was ¥1,728 million for the fiscal year ended March 31, 2009.
Loan Securitization
The MUFG Group securitized loans without recourse of ¥68,090 million to the special purpose entity which was in form of trust accounting and which issued senior beneficial interests and subordinated beneficial interests in the fiscal year ended March 31, 2009. The MUFG Group had no significant transfers of loans in securitization transactions accounted for as sales for the fiscal yearsyear ended March 31, 2006, 20072010.
For the fiscal year ended March 31, 2009, the MUFG Group’s retained interests consisted of senior beneficial interests of ¥60,671 million which were recorded as investment securities. The subordinated beneficial interests of ¥7,419 million were sold and 2008,the gains or losses recognized were not material. The carrying amount of the investment securities was allocated between the senior beneficial interests and did not retain any significantthe subordinated beneficial interests associated with loans transferredbased on their relative fair values at the date of the securitization. The senior beneficial interests are carried at their fair values and the unrealized holding gains and losses are excluded from earnings and reported as a net amount in securitizationsa separate component of equity until realized. The fair value of the senior beneficial interests at March 31, 2008.2010 was ¥38,227 million. The purpose of the special purpose entity is to hold and manage only loans without recourse. The MUFG Group provides servicing for beneficial interests in the securitized loans. However no servicing assets or liabilities were recorded as a result of this transaction since the MUFG Group received adequate compensation. The MUFG Group did not provide contractual or noncontractual financial support to the special purpose entity or subordinated beneficial interests holders. Also, there were no liquidity arrangements,
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
guarantees or other commitments provided by third parties related to the transferred financial assets. At March 31, 2009 and 2010, key economic assumptions used in measuring the fair value of the senior beneficial interests were as follows:
| 2009 | 2010 | |||||
One month forward rate | 0.21 - 1.15 | % | (0.20) - 0.90 | % | ||
Credit spread | 1.84 - 5.33 | % | 3.11 - 7.89 | % |
At March 31, 2009 and 2010, the sensitivities of the fair value to an immediate adverse change of 10 basis points (“bp”) and 20bp, and 10% and 20% were as follows:
| 2009 | 2010 | |||||
One month forward rate: | ||||||
Impact of 10bp adverse change | 99.72 - 99.85 | % | 99.70 - 99.91 | % | ||
Impact of 20bp adverse change | 99.44 - 99.70 | % | 99.42 - 99.84 | % | ||
Credit spread: | ||||||
Impact of 10% adverse change | 98.99 - 99.53 | % | 97.99 - 99.65 | % | ||
Impact of 20% adverse change | 97.97 - 99.07 | % | 96.00 - 99.31 | % |
The sensitivities are hypothetical. In this table, the effect of a variation in a particular assumption on the fair value of the senior beneficial interests was calculated without changing any other assumption; in reality, changes could be correlated and changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.
The table below summarizes certain cash flows between the MUFG Group and the special purpose entity for the fiscal year ended March 31, 2010.
| March 31, 2010 | ||
| (in millions) | ||
Cash flows from collections received on senior beneficial interests | 19,799 | |
Cash flows from dividends on senior beneficial interests | 419 | |
Servicing fees collected | 3 |
There were no other loans that were managed with the securitized loans, and both the transferred assets and the retained assets had no delinquencies at the end of March 31, 2010. No credit losses had been incurred from those loans for the fiscal year ended March 31, 2010.
Related Party Loans
In some cases, the banking subsidiaries of MUFG make loans to related parties, including their directors and executive officers, in the course of their normal commercial banking business. At March 31, 20072009 and 2008,2010, outstanding loans to such related parties were not significant.
In the opinion of management, these related party loans were made on substantially the same terms, including interest rates and collateral requirements, as those terms prevailing at the date these loans were made. For the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, there were no loans to related parties that were charged-off. Additionally, at March 31, 20072008, 2009, and 2008,2010, there were no loans to related parties that were impaired.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
8.6. ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 are shown below:
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||
Balance at beginning of fiscal year | ¥ | 739,872 | ¥ | 1,012,227 | ¥ | 1,112,453 | ¥ | 1,112,453 | ¥ | 1,134,940 | ¥ | 1,156,638 | ||||||||||
Additions resulting from the merger with UFJ Holdings(1) | 287,516 | — | — | |||||||||||||||||||
Provision for credit losses | 110,167 | 358,603 | 385,740 | 385,740 | 626,947 | 647,793 | ||||||||||||||||
Charge-offs | 164,733 | 303,114 | 386,484 | 386,484 | 603,298 | 520,772 | ||||||||||||||||
Less—Recoveries | 28,598 | 40,419 | 30,592 | 30,592 | 26,446 | 52,372 | ||||||||||||||||
Net charge-offs | 136,135 | 262,695 | 355,892 | 355,892 | 576,852 | 468,400 | ||||||||||||||||
Others(2) | 10,807 | 4,318 | (7,361 | ) | ||||||||||||||||||
Others(1) | (7,361 | ) | (28,397 | ) | (20,416 | ) | ||||||||||||||||
Balance at end of fiscal year | ¥ | 1,012,227 | ¥ | 1,112,453 | ¥ | 1,134,940 | ¥ | 1,134,940 | ¥ | 1,156,638 | ¥ | 1,315,615 | ||||||||||
Notes:Note:
| (1) |
| Others principally include losses (gains) from foreign exchange |
As explained in Note 7,5, nonperforming loans were actively disposed of by sales during recent years. The allocated allowance for credit losses for such loans was removed from the allowance for credit losses and transferred to the valuation allowance for loans held for sale upon a decision to sell. Net charge-offs in the above table include the decrease in the allowance for credit losses due to loan disposal activity amounting to ¥25.9¥5.9 billion, ¥4.6¥13.2 billion and ¥5.9¥6.8 billion for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, respectively.
Premises and equipment at March 31, 20072009 and 20082010 consisted of the following:
| 2007 | 2008 | 2009 | 2010 | |||||||||
| (in millions) | (in millions) | |||||||||||
Land | ¥ | 449,283 | ¥ | 430,968 | ¥ | 413,257 | ¥ | 399,893 | ||||
Buildings | 551,188 | 585,196 | 673,011 | 680,085 | ||||||||
Equipment and furniture | 618,513 | 639,228 | 653,211 | 681,886 | ||||||||
Leasehold improvements | 346,254 | 355,484 | 250,284 | 235,807 | ||||||||
Construction in progress | 12,556 | 6,679 | 16,290 | 17,206 | ||||||||
Total | 1,977,794 | 2,017,555 | 2,006,053 | 2,014,877 | ||||||||
Less accumulated depreciation | 830,283 | 941,749 | 962,637 | 1,019,710 | ||||||||
Premises and equipment—net | ¥ | 1,147,511 | ¥ | 1,075,806 | ||||||||
Premises and equipment-net | ¥ | 1,043,416 | ¥ | 995,167 | ||||||||
Premises and equipment include capitalized leases, principally related to data processing equipment, which amounted to ¥131,709 million and ¥124,433 million at March 31, 2007 and 2008, respectively. Accumulated depreciation on such capitalized leases at March 31, 2007 and 2008 amounted to ¥62,319 million and ¥72,176 million, respectively.Note:
| (1) | The balances of Buildings and Leasehold improvements at March 31, 2009 have been restated as follows: |
| As previously reported | As restated | |||||
| (in millions) | ||||||
Buildings | 566,310 | 673,011 | ||||
Leasehold improvements | 356,985 | 250,284 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In March 1999, BTMU sold a 50% undivided interest in its head office buildingPremises and land (including structure and equipment) for ¥91,500equipment include capitalized leases, principally related to data processing equipment, which amounted to ¥113,188 million and a 50% undivided interest in its main office building¥92,175 million at March 31, 2009 and land (including structure2010, respectively. Accumulated depreciation on such capitalized leases at March 31, 2009 and equipment) for ¥9,1002010 amounted to ¥77,777 million to a real estate company. At the same time, BTMU entered an agreement to lease back the 50% undivided interest in the buildings sold from the buyer over a period of 7 years. BTMU has accounted for these transactions as financing arrangements, and recorded the total proceeds of ¥100,600¥70,284 million, as a financing obligation.
In August 2005, BTMU bought back a 50% undivided interest in these office buildings and land for ¥111,597 million. The buy back resulted in an extinguishment of debt of ¥103,731 million, which included the finance obligation for the 50% of any improvements that was paid by the real estate company, and loss on extinguishment of liabilities of ¥7,866 million. The repurchase was undertaken to increase the stability and flexibility of the property as the office buildings and land are expected to function as a significant piece of the infrastructure for BTMU.respectively.
BTMU has entered into sales agreements to sell its buildings and land and, under separate agreements, leased those properties back for theirits business operations, including bank branches. BTMU either provided nonrecourse financings to the buyers for the sales proceeds or invested in the equities of the buyers. As a result, BTMU was considered to have continuing involvement with the properties. For accounting and reporting purposes, these transactions were accounted for under the financing method with the sales proceeds recognized as a financing obligation. The properties were reported on the consolidated balance sheets and depreciated. The financing obligation at March 31, 20072009 and 20082010 were ¥46,270¥56,053 million and ¥74,954¥52,189 million, respectively.
For the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, the MUFG Group recognized ¥7,201¥4,732 million, ¥12,602¥7,480 million and ¥4,732¥9,198 million, respectively, of impairment losses for long-lived assets, primarily real estate which was either formerly used for its banking operations and is no longer used or real estate that is being used where recovery of the carrying amount is doubtful. In addition, ¥1,941¥60 million, ¥319¥2,955 million and ¥60¥1,350 million of impairment losses were recognized for real estate held for sale for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, respectively. These losses are included in Other non-interest expenses. In computing the amount of impairment losses, fair value was determined primarily based on market prices, if available, or the estimated price based on an appraisal.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
10.8. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The table below presents the changes in the carrying amount of goodwill by business segment during the fiscal years ended March 31, 20072009 and 2008:2010:
| Integrated Retail Banking Business Group | Integrated Corporate Banking Business Group | Integrated Trust Assets Business Group | Global Markets | Total | |||||||||||||||||||||||||||||
| Domestic | Overseas | Total | |||||||||||||||||||||||||||||||
| (in millions) | Other than UNBC | UNBC | Overseas Total | ||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2007: | |||||||||||||||||||||||||||||||||
Balance at March 31, 2006 | ¥ | 741,006 | ¥ | 852,558 | ¥ | 148,613 | ¥ | 76,944 | ¥ | 225,557 | ¥ | 1,078,115 | ¥ | 22,527 | ¥ | 2,300 | ¥ | 1,843,948 | |||||||||||||||
Goodwill acquired during the fiscal year | — | 5,111 | — | 12,021 | 12,021 | 17,132 | — | — | 17,132 | ||||||||||||||||||||||||
Reduction due to elimination of valuation allowance for deferred tax assets | (9,010 | ) | (2,458 | ) | (548 | ) | — | (548 | ) | (3,006 | ) | — | — | (12,016 | ) | ||||||||||||||||||
Foreign currency translation adjustments and other | (5,790 | ) | (786 | ) | — | 2,321 | 2,321 | 1,535 | — | — | (4,255 | ) | |||||||||||||||||||||
Balance at March 31, 2007 | ¥ | 726,206 | ¥ | 854,425 | ¥ | 148,065 | ¥ | 91,286 | ¥ | 239,351 | ¥ | 1,093,776 | ¥ | 22,527 | ¥ | 2,300 | ¥ | 1,844,809 | |||||||||||||||
Fiscal year ended March 31, 2008: | |||||||||||||||||||||||||||||||||
Balance at March 31, 2007 | ¥ | 726,206 | ¥ | 854,425 | ¥ | 148,065 | ¥ | 91,286 | ¥ | 239,351 | ¥ | 1,093,776 | ¥ | 22,527 | ¥ | 2,300 | ¥ | 1,844,809 | |||||||||||||||
Goodwill acquired during the fiscal year | 108,982 | 25,169 | — | 1,578 | 1,578 | 26,747 | — | — | 135,729 | ||||||||||||||||||||||||
Impairment loss | (10,154 | ) | (883,567 | ) | — | — | — | (883,567 | ) | — | — | (893,721 | ) | ||||||||||||||||||||
Reduction due to elimination of valuation allowance for deferred tax assets | (8,694 | ) | (2,990 | ) | — | — | — | (2,990 | ) | — | — | (11,684 | ) | ||||||||||||||||||||
Foreign currency translation adjustments and other | (11,839 | ) | 6,963 | 3,606 | 274 | 3,880 | 10,843 | — | — | (996 | ) | ||||||||||||||||||||||
Balance at March 31, 2008 | ¥ | 804,501 | ¥ | — | ¥ | 151,671 | ¥ | 93,138 | ¥ | 244,809 | ¥ | 244,809 | ¥ | 22,527 | ¥ | 2,300 | ¥ | 1,074,137 | |||||||||||||||
| Integrated Retail Banking Business Group | Integrated Corporate Banking Business Group | Integrated Trust Assets Business Group | Global Markets | Total | |||||||||||||||||||||||||||||||
| Domestic | Overseas | Total | |||||||||||||||||||||||||||||||||
(in millions) | Other than UNBC | UNBC | Overseas Total | ||||||||||||||||||||||||||||||||
Balance at March 31, 2008: | |||||||||||||||||||||||||||||||||||
Goodwill | ¥ | 814,655 | ¥ | 883,567 | ¥ | 152,203 | ¥ | 93,138 | ¥ | 245,341 | ¥ | 1,128,908 | ¥ | 22,527 | ¥ | 2,300 | ¥ | 1,968,390 | |||||||||||||||||
Accumulated impairment losses | (10,154 | ) | (883,567 | ) | (532 | ) | — | (532 | ) | (884,099 | ) | — | — | (894,253 | ) | ||||||||||||||||||||
| ¥ | 804,501 | ¥ | — | ¥ | 151,671 | ¥ | 93,138 | ¥ | 244,809 | ¥ | 244,809 | ¥ | 22,527 | ¥ | 2,300 | ¥ | 1,074,137 | ||||||||||||||||||
Goodwill acquired during the fiscal year(2) | 25,860 | 1,713 | — | 175,262 | 175,262 | 176,975 | — | — | 202,835 | ||||||||||||||||||||||||||
Impairment loss | (829,901 | ) | (1,206 | ) | — | — | — | (1,206 | ) | (14,735 | ) | — | (845,842 | ) | |||||||||||||||||||||
Reduction due to elimination of valuation allowance for deferred tax assets | (103 | ) | — | — | — | — | — | — | — | (103 | ) | ||||||||||||||||||||||||
Reduction due to sales of subsidiaries | — | — | — | (9,666 | ) | (9,666 | ) | (9,666 | ) | — | — | (9,666 | ) | ||||||||||||||||||||||
Foreign currency translation adjustments and other | (357 | ) | (46 | ) | — | (41,532 | ) | (41,532 | ) | (41,578 | ) | — | — | (41,935 | ) | ||||||||||||||||||||
Balance at March 31, 2009: | |||||||||||||||||||||||||||||||||||
Goodwill | 840,055 | 885,234 | 152,203 | 217,202 | 369,405 | 1,254,639 | 22,527 | 2,300 | 2,119,521 | ||||||||||||||||||||||||||
Accumulated impairment losses | (840,055 | ) | (884,773 | ) | (532 | ) | — | (532 | ) | (885,305 | ) | (14,735 | ) | — | (1,740,095 | ) | |||||||||||||||||||
| ¥ | — | ¥ | 461 | ¥ | 151,671 | ¥ | 217,202 | ¥ | 368,873 | ¥ | 369,334 | ¥ | 7,792 | ¥ | 2,300 | ¥ | 379,426 | ||||||||||||||||||
Impairment loss | — | (461 | ) | — | — | — | (461 | ) | — | — | (461 | ) | |||||||||||||||||||||||
Foreign currency translation adjustments and other | — | — | — | 2,533 | 2,533 | 2,533 | — | — | 2,533 | ||||||||||||||||||||||||||
Balance at March 31, 2010: | |||||||||||||||||||||||||||||||||||
Goodwill | 840,055 | 885,234 | 152,203 | 219,735 | 371,938 | 1,257,172 | 22,527 | 2,300 | 2,122,054 | ||||||||||||||||||||||||||
Accumulated impairment losses | (840,055 | ) | (885,234 | ) | (532 | ) | — | (532 | ) | (885,766 | ) | (14,735 | ) | — | (1,740,556 | ) | |||||||||||||||||||
| ¥ | — | ¥ | — | ¥ | 151,671 | ¥ | 219,735 | ¥ | 371,406 | ¥ | 371,406 | ¥ | 7,792 | ¥ | 2,300 | ¥ | 381,498 | ||||||||||||||||||
Notes:
| (1) | See Note 29 for the business segment information of the MUFG Group. |
| (2) | See Note |
There was noGoodwill impairment losses of goodwill¥893,721 million, ¥845,842 million and ¥461 million were recognized for the fiscal year ended March 31, 2007. For the fiscal yearyears ended March 31, 2008, a goodwill impairment loss of ¥893,721 million was recognized. The reporting2009 and 2010, respectively. Reporting units for which an impairment loss waslosses were recognized are as follows:
|
| ||||
| |||||
| |||||
| |||||
| |||||
The Integrated Retail Banking Business Group covers all domestic retail businesses, including commercial banking, trust banking and securities businesses. The securities businesses of MUS recognized an impairment loss. The Integrated Corporate Banking Business Group-Domestic covers all domestic corporate businesses,
Business Segment | Reporting Unit | Impairment loss | |||||||||
| 2008 | 2009 | 2010 | |||||||||
| (in millions) | |||||||||||
Integrated Retail Banking Business Group | MUS-Retail | ¥ | 10,154 | ¥ | — | ¥ | — | ||||
Integrated Retail Banking Business Group | BTMU-Retail | — | 636,322 | — | |||||||
Integrated Retail Banking Business Group | Mitsubishi UFJ NICOS-Retail | — | 193,579 | — | |||||||
Integrated Corporate Banking Business Group—Domestic | BTMU-Corporate | 828,786 | — | 461 | |||||||
Integrated Corporate Banking Business Group—Domestic | MUTB-Real Estate | 14,950 | — | — | |||||||
Integrated Corporate Banking Business Group—Domestic | MUS-Corporate | 39,831 | 1,206 | — | |||||||
Integrated Trust Assets Business Group | MUTB-Trust | — | 14,735 | — | |||||||
| ¥ | 893,721 | ¥ | 845,842 | ¥ | 461 | ||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
including commercial/investment banking, trust banking and securities businesses. The commercial/investment bankingFor the fiscal year ended March 31, 2008, the MUFG group recognized ¥893,721 million as an impairment of BTMU, the trust real estate banking of MUTB and the securities businesses of MUS recognized impairment losses.
The reason for the impairment wasgoodwill, mainly due to the recent global financial market instability thatinstability. MUFG’s stock price declined from ¥1,330 at March 31, 2007 to ¥860 at March 31, 2008. It led to a decrease in market capitalization and negatively affected the fair value of our reporting units for the purpose of our annualperiodical goodwill impairment testing. As a result, goodwill relating to the MUS-Retail, BTMU-Corporate, MUTB-Real Estate and MUS-Corporate reporting units was impaired.
For the fiscal year ended March 31, 2009, MUFG’s stock price decreased to ¥476 and its market capitalization continuously diminished. The continuing financial crisis weakened our financial forecast, which resulted in further negative impacts to the fair value of our reporting units. As a result of the readjustment of future projections performed by management, the fair value of most reporting units, which is based on discounted cash flows, fell below their carrying amount. Based on these situations, the MUFG group recognized ¥845,842 million as an impairment of goodwill relating to the BTMU-Retail, Mitsubishi UFJ NICOS-Retail, MUS-Corporate and MUTB-Trust reporting units.
The fair value of thethose reporting unitunits was estimated using the expected present value of expected future cash flow.flows.
Other Intangible Assets
The table below presents the gross carrying amount, accumulated amortization and net carrying amount, in total and by major class of intangible assets at March 31, 20072009 and 2008:2010:
| 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||||||||||||||
Software | ¥ | 922,271 | ¥ | 407,592 | ¥ | 514,679 | ¥ | 1,117,276 | ¥ | 533,887 | ¥ | 583,389 | ¥ | 1,119,020 | ¥ | 583,143 | ¥ | 535,877 | ¥ | 1,263,031 | ¥ | 707,888 | ¥ | 555,143 | ||||||||||||
Core deposit intangibles | 599,907 | 134,191 | 465,716 | 597,967 | 204,479 | 393,488 | 637,568 | 265,402 | 372,166 | 638,290 | 329,163 | 309,127 | ||||||||||||||||||||||||
Customer relationships | 238,763 | 44,838 | 193,925 | 259,795 | 71,247 | 188,548 | 208,061 | 85,533 | 122,528 | 208,118 | 100,419 | 107,699 | ||||||||||||||||||||||||
Trade names | 32,982 | 2,539 | 30,443 | 57,467 | 4,886 | 52,581 | 62,740 | 8,007 | 54,733 | 60,058 | 8,616 | 51,442 | ||||||||||||||||||||||||
Other | 6,247 | 2,559 | 3,688 | 5,048 | 2,345 | 2,703 | 6,428 | 2,782 | 3,646 | 4,006 | 2,282 | 1,724 | ||||||||||||||||||||||||
Total | ¥ | 1,800,170 | ¥ | 591,719 | 1,208,451 | ¥ | 2,037,553 | ¥ | 816,844 | 1,220,709 | ¥ | 2,033,817 | ¥ | 944,867 | 1,088,950 | ¥ | 2,173,503 | ¥ | 1,148,368 | 1,025,135 | ||||||||||||||||
Intangible assets not subject to amortization: | ||||||||||||||||||||||||||||||||||||
Indefinite-lived customer relationships | 39,400 | 100,817 | 64,162 | 61,491 | ||||||||||||||||||||||||||||||||
Indefinite-lived trade names | 6,400 | 6,192 | 4,459 | 4,459 | ||||||||||||||||||||||||||||||||
Other | 10,829 | 11,206 | 34,370 | 25,032 | ||||||||||||||||||||||||||||||||
Total | 56,629 | 118,215 | 102,991 | 90,982 | ||||||||||||||||||||||||||||||||
Total | ¥ | 1,265,080 | ¥ | 1,338,924 | ¥ | 1,191,941 | ¥ | 1,116,117 | ||||||||||||||||||||||||||||
Intangible assets subject to amortization acquired during the fiscal year ended March 31, 20082009 amounted to ¥353,517¥263,129 million, which primarily consisted of ¥227,608¥157,291 million of software, ¥104,913¥50,138 million of core deposit intangibles and ¥44,153 million of customer relationships and ¥18,601 million of trade names.relationships. The weighted average amortization periods for these
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
assets are 6 years, 5 years 15 years and 3916 years, respectively. There is no significant residual value estimated for these assets. Intangible assets not subject to amortization acquired during the fiscal year ended March 31, 20082009 amounted to ¥67,789¥24,577 million.
Intangible assets subject to amortization acquired during the fiscal year ended March 31, 2010 amounted to ¥168,722 million, which primarily consisted of ¥61,417¥168,423 million of customer relationships.software. The weighted average amortization periods for these assets are 5 years. There is no significant residual value estimated for these assets. Intangible assets not subject to amortization acquired during the fiscal year ended March 31, 2010 amounted to ¥1,667 million.
For the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, the MUFG Group recognized ¥251¥78,679 million, ¥184,760¥126,885 million and ¥78,679¥12,400 million, respectively, of impairment losses for intangible assets whose carrying amount exceeded their fair value. In computing the amount of impairment losses, fair value was determined primarily based on market prices,the present value of expected future cash flows, if available, the estimated value based on appraisal,appraisals, or the discounted expected future cash flows.market prices.
The impairment loss for the fiscal year ended March 31, 2006 primarily consisted of leasehold and telephone subscription rights not subject to amortization. The impairment loss for the fiscal year ended March 31, 2007 included a loss of ¥183,959 million relating to customer relationships and trade names in the Integrated
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Retail Banking Business Group, which were both subject to and not subject to amortization. These intangible assets were initially valued based on discounted expected future cash flows. The future cash flows were negatively revised due to the adverse change in the business environment for consumer finance companies attributable to an ensuring action toward legal revisions of consumer lending law to lower the interest rate permissible on consumer loans and, accordingly, the MUFG Group reevaluated these intangible assets and recognized impairment losses. The impairment loss for the fiscal year ended March 31, 2008 included a loss of ¥77,107 million relating to customer relationships in the Integrated Retail Banking Business Group and Integrated Corporate Banking Business Group—Domestic, which were subject to amortization. These intangible assets were valued based on discountedthe present value of expected future cash flows. Estimated future cash flows were revised downwards due to the recent global financial market instability. Accordingly, the MUFG Group reevaluated these intangible assets and recognized impairment losses.
The impairment loss for the fiscal year ended March 31, 2009 included losses of ¥83,088 million and ¥36,672 million relating to customer relationships in the Integrated Retail Banking Business Group and Integrated Trust Assets Business Group, which were subject to and not subject to amortization, respectively. These intangible assets were valued based on the present value of expected future cash flows. Estimated future cash flows were revised downwards due to the global financial market instability. Accordingly, the MUFG Group reevaluated these intangible assets and recognized impairment losses.
The impairment loss for the fiscal year ended March 31, 2010 included a loss of ¥9,239 million relating to the contractual rights on business alliance, which was reported under the Integrated Retail Banking Business Group. The intangible asset was not subject to amortization and was aggregated in Other intangible assets. The fair value of the intangible asset was calculated based on the present value of expected future cash flows. Estimated future cash flows were revised downwards due to a change in the business environment within our credit card business. Accordingly, the MUFG Group reevaluated the intangible asset and recognized an impairment loss.
The estimated aggregate amortization expense for intangible assets for the next five fiscal years is as follows:
| (in millions) | (in millions) | |||||
Fiscal year ending March 31: | ||||||
2009 | ¥ | 256,003 | ||||
2010 | 204,012 | |||||
2011 | 176,222 | ¥ | 220,047 | |||
2012 | 144,611 | 188,936 | ||||
2013 | 107,857 | 155,484 | ||||
2014 | 112,051 | |||||
2015 | 78,079 | |||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The detail of current and deferred income tax expense (benefit) for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008 was2010 were as follows:
| 2006(1) | 2007(1) | 2008 | ||||||||||
| (in millions) | ||||||||||||
Current: | ||||||||||||
Domestic | ¥ | 41,279 | ¥ | 67,470 | ¥ | 41,437 | ||||||
Foreign | 56,933 | 50,363 | 65,355 | |||||||||
Total | 98,212 | 117,833 | 106,792 | |||||||||
Deferred: | ||||||||||||
Domestic | 65,316 | 420,204 | 470,859 | |||||||||
Foreign | 1,945 | 14,789 | (24,606 | ) | ||||||||
Total | 67,261 | 434,993 | 446,253 | |||||||||
Income tax expense from continuing operations | 165,473 | 552,826 | 553,045 | |||||||||
Income tax expense (benefit) from discontinued operations | 8,077 | (734 | ) | (69 | ) | |||||||
Income tax benefit from cumulative effect of a change in accounting principle | (6,605 | ) | — | — | ||||||||
Income tax expense (benefit) reported in shareholders’ equity relating to: | ||||||||||||
Investment securities available for sale | 877,198 | 207,652 | (915,001 | ) | ||||||||
Derivatives qualifying for cash flow hedges | (1,065 | ) | (158 | ) | 1,672 | |||||||
Minimum pension liability adjustments | 92,890 | (1,019 | ) | — | ||||||||
Pension liability adjustments | — | — | (33,249 | ) | ||||||||
Foreign currency translation adjustments | 6,786 | 343 | (31,675 | ) | ||||||||
Total | 975,809 | 206,818 | (978,253 | ) | ||||||||
Total | ¥ | 1,142,754 | ¥ | 758,910 | ¥ | (425,277 | ) | |||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 2008(1) | 2009(1) | 2010 | ||||||||||
| (in millions) | ||||||||||||
Current: | ||||||||||||
Domestic | ¥ | 41,437 | ¥ | 27,180 | ¥ | 36,993 | ||||||
Foreign | 65,355 | 114,259 | 53,659 | |||||||||
Total | 106,792 | 141,439 | 90,652 | |||||||||
Deferred: | ||||||||||||
Domestic | 470,859 | (293,849 | ) | 297,989 | ||||||||
Foreign | (24,606 | ) | (107,518 | ) | 18,399 | |||||||
Total | 446,253 | (401,367 | ) | 316,388 | ||||||||
Income tax expense (benefit) from continuing operations | 553,045 | (259,928 | ) | 407,040 | ||||||||
Income tax benefit from discontinued operations | (69 | ) | — | — | ||||||||
Income tax expense (benefit) reported in equity relating to: | ||||||||||||
Investment securities(1) | (918,229 | ) | (585,322 | ) | 350,507 | |||||||
Derivatives qualifying for cash flow hedges(1) | 2,890 | 2,725 | (3,295 | ) | ||||||||
Pension liability adjustments(1) | (34,286 | ) | (288,856 | ) | 157,720 | |||||||
Foreign currency translation adjustments(1) | (31,665 | ) | (15,004 | ) | 2,594 | |||||||
Total(1) | (981,290 | ) | (886,457 | ) | 507,526 | |||||||
Total(1) | ¥ | (428,314 | ) | ¥ | (1,146,385 | ) | ¥ | 914,566 | ||||
Note:
| (1) |
| As previously reported | As restated | ||||||||||||
| 2006 | 2007 | 2006 | 2007 | ||||||||||
| (in millions) | (in millions) | ||||||||||||
Deferred: | |||||||||||||
Domestic | ¥ | 70,942 | ¥ | 430,577 | ¥ | 65,316 | ¥ | 420,204 | |||||
Foreign | (3,681 | ) | 4,416 | 1,945 | 14,789 | ||||||||
Total | ¥ | 67,261 | ¥ | 434,993 | ¥ | 67,261 | ¥ | 434,993 | |||||
Reconciliation of Effective Income Tax Rate
Income taxes in Japan applicable to the MUFG Group are imposed by the national, prefectural and municipal governments, and in the aggregate resulted in a normal effective statutory rate of approximately 40.6% for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008.2010. Foreign subsidiaries are subject to income taxes of the countries in which they operate.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the effective income tax rate reflected in the accompanying consolidated statements of operations to the combined normal effective statutory tax rate for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008 is2010 are as follows:
| 2006 | 2007 | 2008 | 2008(1) | 2009(1) | 2010 | |||||||||||||
Combined normal effective statutory tax rate | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | 40.6 | % | ||||||
Increase (decrease) in taxes resulting from: | ||||||||||||||||||
Nondeductible expenses | 0.7 | 0.2 | 24.9 | 5.9 | (0.2 | ) | 0.2 | |||||||||||
Dividends from foreign subsidiaries | 1.6 | 0.9 | 101.8 | 24.3 | (0.3 | ) | 0.0 | |||||||||||
Foreign tax credit and payments | 1.4 | 0.8 | 10.2 | 2.4 | (0.7 | ) | 0.7 | |||||||||||
Lower tax rates applicable to income of subsidiaries | (6.9 | ) | (0.5 | ) | (79.0 | ) | (18.9 | ) | 0.0 | (0.7 | ) | |||||||
Minority interests | 9.5 | 0.6 | 143.7 | |||||||||||||||
Change in valuation allowance | 0.2 | 7.2 | 1,400.7 | 334.3 | (2.3 | ) | (5.8 | ) | ||||||||||
Realization of previously unrecognized tax effects of subsidiaries | (16.5 | ) | — | (5.0 | ) | (1.2 | ) | (1.7 | ) | (0.9 | ) | |||||||
Nontaxable dividends received | (1.7 | ) | (1.4 | ) | (152.3 | ) | (36.3 | ) | 0.4 | (0.1 | ) | |||||||
Tax expense on capital transactions by a subsidiary | 4.4 | — | — | |||||||||||||||
Impairment of goodwill | — | — | 2,937.4 | 701.2 | (19.5 | ) | 0.0 | |||||||||||
Undistributed earnings of subsidiaries | 2.2 | 0.9 | 36.3 | 8.7 | (1.5 | ) | (1.6 | ) | ||||||||||
Tax and interest expense for uncertainty in income taxes | 2.0 | (1.0 | ) | 0.6 | ||||||||||||||
Other—net | (4.3 | ) | (0.6 | ) | 17.0 | 5.6 | 0.9 | (1.3 | ) | |||||||||
Effective income tax rate | 31.2 | % | 48.7 | % | 4,476.3 | % | 1068.6 | % | 14.7 | % | 31.7 | % | ||||||
Note:
| (1) | Effective April 1, 2009, the MUFG Group adopted new guidance regarding noncontrolling interests in subsidiaries. See Note 1 “Noncontrolling Interests” under“Accounting Changes” section for the detail. As a result, a reconciliation of the effective income tax rate for the fiscal years ended March 31, 2008 and 2009 were adjusted. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are computed for each tax jurisdiction using currently enacted tax rates applicable to periods when the temporary differences are expected to reverse. The tax effects of the items comprising the MUFG Group’s net deferred tax assets at March 31, 20072009 and 20082010 were as follows:
| 2007 | 2008 | 2009 | 2010 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||
Deferred tax assets: | ||||||||||||||||
Allowance for credit losses | ¥ | 643,011 | ¥ | 678,935 | ¥ | 798,020 | ¥ | 902,282 | ||||||||
Operating loss carryforwards | 1,347,053 | 1,059,865 | 775,298 | 518,948 | ||||||||||||
Loans | 64,676 | 28,053 | 22,637 | 12,746 | ||||||||||||
Accrued liabilities and other | 359,761 | 364,009 | 394,606 | 397,255 | ||||||||||||
Premises and equipment, including sale-and-leaseback transactions | 105,622 | 142,861 | 124,582 | 128,158 | ||||||||||||
Derivative financial instruments | 135,907 | 38,068 | 44,868 | 28,861 | ||||||||||||
Investment securities (including trading account assets at fair value under fair value option) | 809,996 | 82,470 | ||||||||||||||
Accrued severance indemnities and pension plans | 269,799 | 100,804 | ||||||||||||||
Valuation allowance(1) | (509,463 | ) | (704,072 | ) | (729,874 | ) | (641,619 | ) | ||||||||
Total deferred tax assets | 2,146,567 | 1,607,719 | 2,509,932 | 1,529,905 | ||||||||||||
Deferred tax liabilities: | ||||||||||||||||
Investment securities | 1,298,266 | 287,442 | ||||||||||||||
Intangible assets | 296,744 | 299,876 | 247,003 | 212,845 | ||||||||||||
Lease transactions | 63,489 | 54,747 | 50,965 | 50,611 | ||||||||||||
Accrued severance indemnities and pension plans | 96,225 | 107,543 | ||||||||||||||
Other | 76,234 | 72,648 | 76,972 | 55,055 | ||||||||||||
Total deferred tax liabilities | 1,830,958 | 822,256 | 374,940 | 318,511 | ||||||||||||
Net deferred tax assets | ¥ | 315,609 | ¥ | 785,463 | ¥ | 2,134,992 | ¥ | 1,211,394 | ||||||||
Note:
| (1) | At March 31, |
The valuation allowance was provided primarily against deferred tax assets recorded at the MUFG Group’s domesticand its subsidiaries with operating loss carryforwards. The amount of the valuation allowance is determined based on a review of future taxable income (exclusive of reversing temporary differences and carryforwards) and future reversals of existing taxable temporary differences. Future taxable income is developed from forecasted operating results, based on recent historical trends and approved business plans, the eligible carryforward periods and other relevant factors. For certain subsidiaries where strong negative evidence exists, such as the existence of significant amounts of operating loss carryforwards, cumulative losses and the expiration of unused operating loss carryforwards in recent years, a valuation allowance was recognized against the deferred tax assets as of March 31, 20072009 and 20082010 to the extent that it is more likely than not that they will not be realized. The net changes in the valuation allowance for deferred tax assets were an increase of ¥77,844 million and ¥194,609 million for the fiscal years ended March 31, 2007 and 2008, respectively. The increase for the fiscal year ended March 31, 2007 primarily reflected the addition of valuation allowances for certain companies including a subsidiary in the consumer finance business due to the decline of their forecasted operating results and estimated future taxable income, and an increase in their deductible temporary differences. The increase for the fiscal year ended March 31, 2008 primarily reflected the addition of valuation allowance related to operating loss carryforwards that were no longer deemed to be “more likely than not” to be realized, due to a decline in estimated future taxable income resulting from the downturn in financial and banking businesses caused by disruptions in the global financial markets.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income taxes are not provided on undistributed earnings of certain foreign subsidiaries whichthat are considered to be indefinitely reinvested in the operations of such subsidiaries. At March 31, 2008, such2010, the undistributed earnings of such foreign subsidiaries amounted to approximately ¥440 billion.¥26,179 million. Determination of the amount of unrecognized deferred tax liabilities with respect to these undistributed earnings is not practicable because of the complexity associated with its hypothetical calculation including foreign withholding taxes and foreign tax credits. MUFG has neither plans nor the intention to dispose of investments in such foreign subsidiaries and, accordingly, does not expect to record capital gains or losses, or otherwise monetize itsthe undistributed earnings of such foreign subsidiaries’ undistributed earnings.subsidiaries.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Operating Loss and Tax Credit Carryforwards
At March 31, 2008,2010, the MUFG Group had operating loss carryforwards of ¥2,581,743¥1,175,452 million and tax credit carryforwards of ¥1,012¥5,976 million for tax purposes. Such carryforwards, if not utilized, are scheduled to expire as follows:
| Operating loss carryforwards | Tax credit carryforwards | Operating loss carryforwards | Tax credit carryforwards | |||||||||
| (in millions) | (in millions) | |||||||||||
Fiscal year ending March 31: | ||||||||||||
2009 | ¥ | 36,292 | ¥ | — | ||||||||
2010 | 818,156 | — | ||||||||||
2011 | 210,127 | — | ¥ | 96,799 | ¥ | — | ||||||
2012 | 1,031,830 | — | 697,417 | — | ||||||||
2013 | 239,958 | — | 205,803 | — | ||||||||
2014 | 44,869 | — | 28,096 | — | ||||||||
2015 and thereafter | 159,436 | — | ||||||||||
2015 | 47,801 | — | ||||||||||
2016 | 52,801 | — | ||||||||||
2017 and thereafter | 30,420 | 5,158 | ||||||||||
No definite expiration date | 41,075 | 1,012 | 16,315 | 818 | ||||||||
Total | ¥ | 2,581,743 | ¥ | 1,012 | ¥ | 1,175,452 | ¥ | 5,976 | ||||
Uncertainty in Income Tax
The MUFG Group adopted the provisions of FIN No. 48new guidance on accounting for uncertainty in income taxes on April 1, 2007. As a result, the MUFG Group recognized the liability of ¥13,559 million, including interest and penalties, for uncertain tax benefits, which resulted in a decrease to retained earnings by ¥4,091 million. The following is a roll-forward of the MUFG Group’s FIN No. 48 unrecognized tax benefits based on this guidance for the fiscal yearyears ended March 31, 2008:2008, 2009 and 2010:
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Balance at beginning of fiscal year | ¥ | 34,969 | ¥ | 44,764 | ¥ | 72,857 | ||||||
Gross amount of increases for current year’s tax positions | 14,764 | 23,960 | 2,771 | |||||||||
Gross amount of increases for prior years’ tax positions | 4,202 | 15,104 | 15,208 | |||||||||
Gross amount of decreases for prior years’ tax positions | (3,861 | ) | (5,459 | ) | (5,506 | ) | ||||||
Net amount of changes relating to settlements with tax authorities | 179 | 447 | (6,695 | ) | ||||||||
Decreases due to lapse of applicable statutes of limitations | (1,291 | ) | (14 | ) | (1,281 | ) | ||||||
Foreign exchange translation | (4,198 | ) | (5,945 | ) | (1,875 | ) | ||||||
Balance at end of fiscal year | ¥ | 44,764 | ¥ | 72,857 | ¥ | 75,479 | ||||||
TotalThe total amount of unrecognized tax benefits at March 31, 2008, 2009 and 2010 that, if recognized, would affect the effective tax rate isare ¥11,013 million.million, ¥25,471 million and ¥27,192 million, respectively. The remainder of the uncertain tax positions has offsetting amounts in other jurisdictions or areis a temporary differences.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)difference.
The MUFG Group classifies accrued interest and penalties, if applicable, related to income taxes as Income tax expenses. Interest and penalties (not included in the “unrecognized tax benefits” above) are a component of Accrued and otherOther liabilities. The following is a roll-forward of the interest and penalties recognized in the consolidated financial statements for the fiscal yearyears ended March 31, 2008:2008, 2009 and 2010:
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The MUFG Group is subject to ongoing tax examinations by the tax authorities of the various jurisdictions.jurisdictions in which it operates. The following are the major tax jurisdictions in which the MUFG Group operates and the status of years under audit or open to examination:
Jurisdiction | Tax years | |
Japan | ||
United States—Federal | ||
United States—California | ||
United States—New York | 2001 and forward | |
United States—New York City | 2000 and forward |
The U.S. Federal income tax returns of a certain affiliate for the years 1994 to 2001 have been examined by the Internal Revenue Service (“IRS”) and are currently being appealed. It is reasonably possible that the case will be settled by accepting a settlement offer during the next 12 months. As a result, the total amounts of unrecognized tax benefits may decrease by up to ¥2,061 million and the related accrued interest and penalties may decrease by up to ¥2,352 million. The federal income tax returns for the years 2002 and 2003 are currently under examination.
In addition, it is reasonably possible that the statute of limitations pertaining to tax positions taken by other certain affiliate with respect to the state income taxes in the United States may lapse. As a result, the total amounts of unrecognized tax benefits may decrease by up to ¥1,689 million. Should this decrease occur, the net impact on income tax expense, including interest, would be up to ¥1,370 million.
The MUFG Group does not anticipate any other materialsignificant increases or decreases to unrecognized tax benefits within the next 12 months. However, the MUFG Group is under continuous examinations by the tax authorities in various domestic and foreign jurisdictions and many of these examinations are resolved every year. Therefore, the MUFG Group’s estimate of unrecognized tax benefits is subject to change based on new developments and information.
Income (Loss) from Continuing Operations before Income Tax Expense (Benefit)
Income (loss) from continuing operations before income tax expense and cumulative effect of a change in accounting principle(benefit) by jurisdiction for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 was as follows:
| 2006(1) | 2007(1) | 2008 | ||||||||
| (in millions) | ||||||||||
Domestic income (loss) | ¥ | 332,712 | ¥ | 894,685 | ¥ | (164,500 | ) | |||
Foreign income | 196,961 | 240,246 | 176,855 | |||||||
Total | ¥ | 529,673 | ¥ | 1,134,931 | ¥ | 12,355 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 2008(1) | 2009(1) | 2010 | |||||||||
| (in millions) | |||||||||||
Domestic income (loss) | ¥ | (128,501 | ) | ¥ | (1,776,405 | ) | ¥ | 870,192 | |||
Foreign income | 180,256 | 12,178 | 411,924 | ||||||||
Total | ¥ | 51,755 | ¥ | (1,764,227 | ) | ¥ | 1,282,116 | ||||
Note:
| (1) |
| As previously reported | As restated | |||||||||||
| 2006 | 2007 | 2006 | 2007 | |||||||||
| (in millions) | (in millions) | |||||||||||
Domestic income | ¥ | 346,567 | ¥ | 920,235 | ¥ | 332,712 | ¥ | 894,685 | ||||
Foreign income | 183,106 | 214,696 | 196,961 | 240,246 | ||||||||
Total | ¥ | 529,673 | ¥ | 1,134,931 | ¥ | 529,673 | ¥ | 1,134,931 | ||||
12.10. PLEDGED ASSETS AND COLLATERAL
Pledged Assets
At March 31, 2008,2010, assets mortgaged, pledged, or otherwise subject to lien were as follows:
| (in millions) | |||
Trading account securities | ¥ | ||
Investment securities | |||
Loans | |||
Other | |||
Total | ¥ | ||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The above pledged assets were classified by type of liabilities to which they related as follows:
| (in millions) | |||
Deposits | ¥ | ||
Call money and funds purchased | |||
Payables under repurchase agreements and securities lending transactions | |||
Other short-term borrowings and long-term debt | |||
Other | |||
Total | ¥ | ||
In addition, at March 31, 2008, loans and2010, certain investment securities, principally Japanese national government and Japanese government agency bonds and loans, and other assets aggregating ¥11,645,784¥16,033,900 million were pledged as collateral for acting as a collection agent of public funds, for settlement of exchange at the Bank of Japan and Tokyo Bankers Association, for derivative transactions and for certain other purposes.
The MUFG Group engages in on-balance sheet securitizations. These securitizations of mortgage and apartment loans, that do not qualify for sales treatment, are accounted for as secured borrowings. The amount of loans in the table above represents, the carrying amount of these transactions with the carrying amount of the associated liabilities included in other short-term borrowings and long-term debt.
Under Japanese law, Japanese banks are required to maintain certain minimum reserves on deposit with the Bank of Japan based on the amount of deposit balances and certain other factors. There are similar reserve deposit requirements for foreign offices engaged in banking businesses in foreign countries. At March 31, 20072009 and 2008,2010, the reserve funds maintained by the MUFG Group, which are included in Cash and due from banks and Interest-earning deposits in other banks, were ¥1,059,151¥2,015,698 million and ¥2,359,024¥2,041,048 million, respectively. Average reserves during the fiscal years ended March 31, 20072009 and 20082010 were ¥1,651,564¥1,682,655 million and ¥1,565,247¥1,961,783 million, respectively.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Collateral
The MUFG Group accepts and provides financial assets as collateral for transactions, principally commercial loans, repurchase agreements and securities lending transactions, call money, and derivatives. Financial assets eligible for such collateral include, among others, marketable equity securities, trade and notes receivable and certificates of deposit.
Secured parties, including creditors and counterparties to certain transactions with the MUFG Group, may sell or repledge financial assets provided as collateral. Certain contracts, however, may not be specific about the secured party’s right to sell or repledge collateral under the applicable statutes and, therefore, whether or not the secured party is permitted to sell or repledge collateral would differ depending on the interpretations of specific provisions of the existing statutes, contract or certain market practices. If the MUFG Group determines, based on available information, that a financial asset provided as collateral might not be sold or repledged by the secured parties, such collateral is not separately reported in the consolidated balance sheets. If a secured party is permitted to sell or repledge financial assets provided as collateral by contract or custom under the existing statutes, the MUFG Group reports such pledged financial assets separately on the face of the consolidated balance sheets. At March 31, 2008,2010, the MUFG Group pledged ¥15,080¥19,370 billion of assets that may not be sold or repledged by the secured parties.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Certain banking subsidiaries accept collateral for commercial loans and certain banking transactions under a standardized agreement with customers, which provides that these banking subsidiaries may require the customers to provide collateral or guarantees with respect to the loans and other banking transactions. Financial assets pledged as collateral are generally negotiable and transferable instruments, and such negotiability and transferability is authorized by applicable legislation. In principle, Japanese legislation permits these banking subsidiaries to repledge financial assets accepted as collateral unless otherwise prohibited by contract or relevant statutes. Nevertheless, the MUFG Group did not sell or repledge nor does it plan to sell or repledge such collateral accepted in connection with commercial loans before a debtor’s default or other credit events specified in the agreements as it is not customary within the banking industry in Japan to dispose of collateral before a debtor’s default and other specified credit events. Derivative agreements commonly used in the marketplace do not prohibit a secured party’s disposition of financial assets received as collateral, and in resale agreements and securities borrowing transactions, securities accepted as collateral may be sold or repledged by the secured parties. At March 31, 20072009 and 2008,2010, the fair value of the collateral accepted by the MUFG Group that is permitted to be sold or repledged was approximately ¥19,454¥21,632 billion and ¥25,966¥19,093 billion, respectively, of which approximately ¥7,105¥6,730 billion and ¥10,228¥6,983 billion, respectively, was sold or repledged. The amount includes the collateral that may be repledged under the current Japanese legislation but the MUFG Group does not dispose of before the counterparties’ default in accordance with the customary practice within the Japanese banking industry.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)At March 31, 2009 and 2010, the cash collateral paid for derivative transactions, which is included in other assets, were ¥625,931 million and ¥634,299 million, respectively and the cash collateral received for derivative transactions, which is included in other liabilities, were ¥389,238 million and ¥260,233 million, respectively.
The balances of time deposits, including certificates of deposit (“CDs”), issued in amounts of ¥10 million (approximately US$100107 thousand at the Federal Reserve Bank of New York’s noon buying rate on March 31, 2008)2010) or more with respect to domestic deposits and issued in amounts of US$100,000 or more with respect to foreign deposits were ¥24,164,922¥27,257,532 million and ¥10,797,947¥11,546,556 million, respectively, at March 31, 2007,2009, and ¥26,665,839¥27,253,035 million and ¥12,687,960¥14,411,085 million, respectively, at March 31, 2008.2010.
The maturity information at March 31, 20082010 for domestic and foreign time deposits, including CDs, is summarized as follows:
| Domestic | Foreign | Domestic | Foreign | |||||||||
| (in millions) | (in millions) | |||||||||||
Due in one year or less | ¥ | 36,390,670 | ¥ | 12,736,266 | ¥ | 36,868,570 | ¥ | 14,171,222 | ||||
Due after one year through two years | 5,835,194 | 102,231 | 5,503,162 | 163,568 | ||||||||
Due after two years through three years | 3,378,509 | 37,826 | 3,041,640 | 44,745 | ||||||||
Due after three years through four years | 946,854 | 88,784 | 667,648 | 67,549 | ||||||||
Due after four years through five years | 700,210 | 15,927 | 661,462 | 14,580 | ||||||||
Due after five years | 113,767 | 34,489 | 154,558 | 6,756 | ||||||||
Total | ¥ | 47,365,204 | ¥ | 13,015,523 | ¥ | 46,897,040 | ¥ | 14,468,420 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14.12. CALL LOANS AND FUNDS SOLD, AND CALL MONEY AND FUNDS PURCHASED
A summary of funds transactions for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 is as follows:
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages and days) | |||||||||||||||||||||||
Average balance during the fiscal year: | ||||||||||||||||||||||||
Call money and funds purchased | ¥ | 2,566,249 | ¥ | 2,787,474 | ¥ | 3,426,605 | ¥ | 3,426,605 | ¥ | 3,051,725 | ¥ | 2,349,445 | ||||||||||||
Call loans and funds sold | 1,313,166 | 971,791 | 990,473 | 990,473 | 1,080,630 | 651,778 | ||||||||||||||||||
Net funds purchased position | ¥ | 1,253,083 | ¥ | 1,815,683 | ¥ | 2,436,132 | ¥ | 2,436,132 | ¥ | 1,971,095 | ¥ | 1,697,667 | ||||||||||||
Call money and funds purchased: | ||||||||||||||||||||||||
Outstanding at end of fiscal year: | ||||||||||||||||||||||||
Amount | ¥ | 2,273,754 | ¥ | 2,544,637 | ¥ | 2,288,720 | ¥ | 2,288,720 | ¥ | 2,235,858 | ¥ | 1,883,824 | ||||||||||||
Principal range of maturities | 1 day to 30 days | 1 day to 30 days | 1 day to 30 days | 1 day to 30 days | 1 day to 30 days | 1 day to 30 days | ||||||||||||||||||
Weighted average interest rate | 0.51 | % | 2.33 | % | 1.71 | % | 1.71 | % | 0.33 | % | 0.28 | % | ||||||||||||
Maximum balance at any month-end during the fiscal year | ¥ | 3,623,400 | ¥ | 3,078,633 | ¥ | 4,081,646 | ¥ | 4,081,646 | ¥ | 4,133,609 | ¥ | 2,611,306 | ||||||||||||
Weighted average interest rate paid during the fiscal year | 0.29 | % | 1.00 | % | 1.32 | % | 1.32 | % | 0.82 | % | 0.24 | % | ||||||||||||
Average balances are generally based on a daily average while a month-end average is used for certain average balances when it is not practicable to obtain applicable daily averages.
MUTB holds assets on behalf of its customers in an agent, fiduciary or trust capacity. Such trust account assets are not the MUFG Group’s proprietary assets and are managed and accounted for separately.
However, excess cash funds of individual trust accounts are often placed with MUTB which manages the funds together with its own funds in its proprietary account. Due to trust account reflects a temporary placement
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of the excess funds from individual trust accounts and, in view of the MUFG Group’s funding, due to trust account is similar to short-term funding, including demand deposits and other overnight funds purchased. The balance changes in response to the day-to-day changes in the excess funds placed by the trust accounts. A summary of due to trust account transactions for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 is as follows:
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||
Average balance outstanding during the fiscal year | ¥ | 2,099,745 | ¥ | 1,981,427 | ¥ | 1,653,717 | ¥ | 1,653,717 | ¥ | 1,479,736 | ¥ | 1,683,607 | ||||||||||||
Maximum balance at any month-end during the fiscal year | 3,438,160 | 2,229,225 | 2,171,467 | 2,171,467 | 1,796,846 | 1,795,280 | ||||||||||||||||||
Weighted average interest rate during the fiscal year | 0.24 | % | 0.30 | % | 0.48 | % | 0.48 | % | 0.46 | % | 0.36 | % | ||||||||||||
16.14. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
At March 31, 20072009 and 2008,2010, the MUFG Group had unused lines of credit for short-term financing amounting to ¥8,567,233¥13,242,174 million and ¥9,668,470¥9,802,803 million, respectively. The amounts principally consist of the lines of collateralized intraday overdrafts without interest charges and collateralized overnight loans on bills at the official discount rate granted by the Bank of Japan, which are used to cover shortages in the Bank of Japan account and to meet liquidity needs. The MUFG Group may borrow from the Bank of Japan on demand up to the total amount of collateral eligible for credit extension.
Other short-term borrowings at March 31, 2007 and 2008 were comprised of the following:
| 2007 | 2008 | |||||||
| (in millions, except percentages) | ||||||||
Domestic offices: | ||||||||
Commercial paper | ¥ | 1,485,748 | ¥ | 1,710,156 | ||||
Borrowing from the Bank of Japan | 1,911,000 | 2,037,400 | ||||||
Borrowings from other financial institutions | 271,885 | 202,167 | ||||||
Other | 74,781 | 15,927 | ||||||
Total domestic offices | 3,743,414 | 3,965,650 | ||||||
Foreign offices: | ||||||||
Commercial paper | 1,658,420 | 1,380,037 | ||||||
Other | 332,779 | 671,517 | ||||||
Total foreign offices | 1,991,199 | 2,051,554 | ||||||
Total | 5,734,613 | 6,017,204 | ||||||
Less unamortized discount | 140 | 311 | ||||||
Other short-term borrowings—net | ¥ | 5,734,473 | ¥ | 6,016,893 | ||||
Weighted average interest rate on outstanding balance at end of fiscal year | 2.17 | % | 1.82 | % | ||||
A summary of other short-term borrowing transactions for the fiscal years ended March 31, 2006, 2007 and 2008 is as follows:
| 2006 | 2007 | 2008 | ||||||||||
| (in millions, except percentages) | ||||||||||||
Average balance outstanding during the fiscal year | ¥ | 11,828,663 | ¥ | 7,566,200 | ¥ | 5,729,422 | ||||||
Maximum balance at any month-end during the fiscal year | 16,059,642 | 8,549,745 | 6,802,404 | |||||||||
Weighted average interest rate during the fiscal year | 0.54 | % | 1.44 | % | 2.17 | % | ||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-term debt (with original maturities of more than one year)Other short-term borrowings at March 31, 20072009 and 2008 was2010 were comprised of the following:
| 2007 | 2008 | |||||
| (in millions) | ||||||
MUFG: | ||||||
Unsubordinated debt: | ||||||
Fixed rate bonds, payable in Japanese yen, due 2008-2011, principally 0.31%-1.21% | ¥ | 641,600 | ¥ | 549,900 | ||
Floating rate bonds, payable in Japanese yen, due 2008, principally 2.18% | 25,000 | — | ||||
Subordinated debt: | ||||||
Floating rate borrowings, payable in Japanese yen, no stated maturity, principally 2.42%-3.58% | 23,808 | 17,710 | ||||
Floating rate borrowings, payable in United States dollars, no stated maturity, principally 6.25% | 590 | 501 | ||||
Floating rate borrowings, payable in Euro, no stated maturity, principally 4.75%-5.17% | 1,574 | 1,582 | ||||
Floating rate borrowings, payable in Great Britain pound, no stated maturity, principally 6.20% | 695 | 600 | ||||
Total | 693,267 | 570,293 | ||||
BTMU: | ||||||
Obligations under capital leases | ¥ | 154,004 | ¥ | 119,166 | ||
Obligation under sale-and-leaseback transactions | 46,270 | 57,925 | ||||
Unsubordinated debt(3): | ||||||
Fixed rate bonds, payable in Japanese yen, due 2008-2027, principally 0.36%-2.69% | 2,085,078 | 1,801,293 | ||||
Fixed rate borrowings, payable in Japanese yen, due 2008-2028, principally 0.25%-7.30%(1) | 66,841 | 46,884 | ||||
Fixed rate borrowings, payable in United States dollars, due 2009-2018, principally 6.37%-7.49% | 13,813 | 7,029 | ||||
Fixed rate borrowings, payable in Thai baht, due 2009-2013, principally 4.10%-5.65% | 6,056 | 4,675 | ||||
Adjustable rate borrowings, payable in United States dollars, due 2007-2011, principally 4.24%-4.72% | 1,023 | — | ||||
Floating rate bonds, payable in Japanese yen, due 2014, principally 1.38% | — | 20,000 | ||||
Floating rate borrowings, payable in Japanese yen, due 2009-2017, principally 0.98%-3.37% | — | 14,336 | ||||
Floating rate borrowings, payable in United States dollars, due 2008, principally 4.90% | 82,635 | 30,057 | ||||
Floating rate borrowings, payable in Philippine peso, due 2009, principally 8.82% | 591 | 552 | ||||
Floating rate borrowings, payable in Thai baht, due 2008-2009, principally 2.78%-2.90% | 420 | 894 | ||||
Total | 2,256,457 | 1,925,720 | ||||
Subordinated debt(3): | ||||||
Fixed rate bonds, payable in Japanese yen, due 2010-2022, principally 1.13%-2.39% | 625,532 | 677,942 | ||||
Fixed rate bonds, payable in United States dollars, due 2010-2011, principally 7.40%-8.40% | 490,165 | 408,268 | ||||
Fixed rate borrowings, payable in Japanese yen, due 2009-2035, principally 1.40%-3.98% | 571,576 | 463,676 | ||||
Fixed rate borrowings, payable in United States dollars, due 2008-2013, principally 6.76%-8.76% | 434,057 | 354,916 | ||||
Adjustable rate bonds, payable in Japanese yen, due 2012, principally 1.46% | 1,000 | — | ||||
Adjustable rate borrowings, payable in Japanese yen, due 2008-2021, principally 0.69%-2.01% | 197,800 | 127,800 | ||||
Floating rate bonds, payable in Euro, due 2015, principally 3.50% | 157,330 | 158,190 | ||||
Floating rate bonds, payable in Japanese yen, due 2013, principally 1.32% | 11,000 | — | ||||
Floating rate borrowings, payable in Japanese yen, due 2008-2028, principally 1.04%-4.01%(1) | 1,371,512 | 1,590,711 | ||||
Floating rate borrowings, payable in United States dollars, due 2008-2017, principally 3.03%-8.98% | 647,858 | 609,957 | ||||
Floating rate borrowings, payable in Euro, due 2015-2017, principally 4.72%-5.27% | 332,753 | 350,391 | ||||
Floating rate borrowings, payable in Great Britain pound, due 2017, principally 6.10%-6.20% | 194,653 | 168,092 | ||||
Total | 5,035,236 | 4,909,943 | ||||
Obligations under loan securitization transaction accounted for as secured borrowings, due 2008-2044, principally 0.53%-7.28% | 3,124,432 | 3,117,626 | ||||
Total | 10,616,399 | 10,130,380 | ||||
| 2009 | 2010 | |||||||
| (in millions, except percentages) | ||||||||
Domestic offices: | ||||||||
Commercial paper | ¥ | 1,228,573 | ¥ | 1,208,690 | ||||
Borrowings from the Bank of Japan | 3,473,323 | 2,861,400 | ||||||
Borrowings from other financial institutions | 357,150 | 209,030 | ||||||
Other | 122,578 | 73,560 | ||||||
Total domestic offices | 5,181,624 | 4,352,680 | ||||||
Foreign offices: | ||||||||
Commercial paper | 1,141,938 | 907,641 | ||||||
Borrowings from other financial institutions | 1,518,991 | 819,633 | ||||||
Other | 24,845 | 17,416 | ||||||
Total foreign offices | 2,685,774 | 1,744,690 | ||||||
Total | 7,867,398 | 6,097,370 | ||||||
Less unamortized discount | 20 | 34 | ||||||
Other short-term borrowings—net | ¥ | 7,867,378 | ¥ | 6,097,336 | ||||
Weighted average interest rate on outstanding balance at end of fiscal year | 0.85 | % | 0.27 | % | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 2007 | 2008 | |||||
| (in millions) | ||||||
MUTB: | ||||||
Obligations under capital leases | ¥ | 954 | ¥ | 572 | ||
Unsubordinated debt(3): | ||||||
Fixed rate borrowings, payable in Japanese yen, due 2008-2017, principally 0.25%-2.10%(1) | 71,295 | 71,244 | ||||
Adjustable rate borrowings, payable in Japanese yen, due 2014-2015, principally 0.75%-1.25%(1) | 3,000 | 6,500 | ||||
Floating rate borrowings, payable in Japanese yen, due 2012-2027, principally 0.10%-3.70%(1) | 1,000 | 8,749 | ||||
Floating rate borrowings, payable in United States dollars, due 2007, principally 5.33%(1) | 1,771 | — | ||||
Subordinated debt(3): | ||||||
Fixed rate bonds , payable in Japanese yen, due 2008-2014, principally 1.95%-4.00% | 59,189 | 59,911 | ||||
Fixed rate borrowings, payable in Japanese yen, due 2008-2017, principally 0.92%-4.00% | 114,516 | 108,374 | ||||
Adjustable rate bonds, payable in Japanese yen, due 2013-2018, principally 0.86%-2.45% | 144,700 | 129,500 | ||||
Adjustable rate borrowings, payable in Japanese yen, due 2012-2020, principally 1.56%-3.35% | 26,300 | 17,000 | ||||
Adjustable rate borrowings, payable in Japanese yen, no stated maturity, principally 3.15% | 1,400 | 1,400 | ||||
Perpetual Bonds payable in Japanese yen, principally 1.16%-2.17% | 94,700 | 74,000 | ||||
Obligations under loan securitization transaction accounted for as secured borrowings, due 2008-2015 principally 0.42%-7.80% | 158,971 | 178,008 | ||||
Total | 677,796 | 655,258 | ||||
Other subsidiaries: | ||||||
Unsubordinated debt(3): | ||||||
0.25% Convertible Bonds due 2014, payable in Japanese yen(2) | ¥ | 49,657 | ¥ | — | ||
Fixed rate bonds and notes, payable in Japanese yen, due 2008-2037, principally 0.00%-19.50%(1) | 768,727 | 583,249 | ||||
Fixed rate bonds and notes, payable in United States dollars, due 2008-2037, principally 0.00%-6.94% | 25,108 | 12,718 | ||||
Fixed rate bonds and notes, payable in Euro, due 2008, principally 1.55% | 358 | 120 | ||||
Fixed rate bonds and notes, payable in Australian dollars, due 2037, principally 0.00%-0.50% | — | 564 | ||||
Fixed rate bonds and notes, payable in Brazil real, due 2009, principally 4.92%(1) | 456 | — | ||||
Fixed rate bonds and notes, payable in Chinese yuen, due 2011, principally 4.70% | — | 357 | ||||
Fixed rate bonds and notes, payable in Indonesian rupiah, due 2008-2010, principally 8.50%-9.75% | 665 | 2,057 | ||||
Fixed rate bonds and notes, payable in Thai baht, due 2008-2012, principally 1.24%-5.14% | 769 | 1,264 | ||||
Adjustable rate bonds and notes, payable in United States dollars, due 2011-2012, principally 4.78%-8.77%(1) | 5,285 | 4,303 | ||||
Floating rate bonds and notes, payable in Japanese yen, due 2008-2038, principally 0.00%-20.00%(1) | 867,395 | 1,167,936 | ||||
Floating rate bonds and notes, payable in United States dollars, due 2008-2037, principally 0.00%-10.08% | 26,077 | 109,026 | ||||
Floating rate bonds and notes, payable in Euro, due 2009-2014, principally 0.00%-4.08% | 2,009 | 2,081 | ||||
Floating rate bonds and notes, payable in Australian dollars, due 2037, principally 0.00% | — | 528 | ||||
Floating rate bonds and notes, payable in Brazil real, due 2009, principally 4.92%(1) | 561 | 395 | ||||
Floating rate bonds and notes, payable in China yuen, due 2011, principally 8.00% | 1,158 | 1,186 | ||||
Floating rate bonds and notes, payable in Hong Kong dollars, due 2007-2010, principally 0.75%-5.83% | 4,415 | — | ||||
Floating rate bonds and notes, payable in Indonesian Rupiah, due 2007-2008, principally 5.33%-11.67% | 3,240 | — | ||||
Obligations under capital leases and other miscellaneous debt | 34,554 | 31,049 | ||||
Other institutions, due 2008-2035, principally 1.64%-3.58% | 13,194 | 7,137 | ||||
Total | 1,803,628 | 1,923,970 | ||||
Subordinated debt: | ||||||
Fixed rate bonds and notes, payable in Japanese yen, due 2009-2017, principally 0.69%-1.97%(1) | 44,118 | 72,468 | ||||
Fixed rate bonds and notes, payable in United States dollars, due 2009-2030, principally 4.70%-10.88% | 140,829 | 136,564 | ||||
Floating rate bonds and notes, payable in Japanese yen, due 2008-2014, principally 1.06%-2.80%(1) | 180,253 | 121,500 | ||||
Floating rate bonds and notes, payable in United States dollars, due 2009-2010, principally 4.70%-5.90% | 1,770 | — | ||||
Other miscellaneous debt(1) | 158 | 207 | ||||
Total | 367,128 | 330,739 | ||||
Obligations under loan securitization transaction accounted for as secured borrowings, due 2008-2013, principally 0.42%-7.29% | 231,712 | 64,610 | ||||
Total | 2,402,468 | 2,319,319 | ||||
Total | ¥ | 14,389,930 | ¥ | 13,675,250 | ||
Long-term debt (with original maturities of more than one year) at March 31, 2009 and 2010 was comprised of the following:
| 2009 | 2010 | |||||
| (in millions) | ||||||
MUFG: | ||||||
Obligations under capital leases | ¥ | 51 | ¥ | 45 | ||
Unsubordinated debt(1): | ||||||
Fixed rate bonds, payable in Japanese yen, due 2010-2011, principally 0.59%-1.21% | 330,000 | 230,000 | ||||
Subordinated debt(1): | ||||||
Adjustable rate bonds, payable in Japanese yen, no stated maturity, principally 3.92%-4.42% | — | 380,500 | ||||
Adjustable rate borrowings, payable in Japanese yen, no stated maturity, principally 2.42%-4.78% | 2,500 | 2,500 | ||||
Adjustable rate borrowings, payable in US dollars, no stated maturity, principally 6.25% | 491 | 465 | ||||
Adjustable rate borrowings, payable in Euro, no stated maturity, principally 4.75%-5.17% | 1,298 | 1,251 | ||||
Adjustable rate borrowings, payable in other currencies excluding Japanese yen, US dollars, Euro, no stated maturity, principally 6.20%(2) | 421 | 421 | ||||
Floating rate borrowings, payable in Japanese yen, no stated maturity, principally 3.17%-3.58% | 16,210 | 16,208 | ||||
Total | 350,971 | 631,390 | ||||
BTMU: | ||||||
Obligations under capital leases | ¥ | 41,158 | ¥ | 27,888 | ||
Obligation under sale-and-leaseback transactions | 56,053 | 52,189 | ||||
Unsubordinated debt(1): | ||||||
Fixed rate bonds, payable in Japanese yen, due 2010 - 2027, principally 0.40% - 2.69% | 1,495,272 | 1,626,600 | ||||
Fixed rate bonds, payable in US dollars, due 2012 - 2015, principally 2.51% - 3.85% | — | 219,574 | ||||
Fixed rate bonds, payable in other currencies excluding Japanese yen, US dollars, due 2012, principally 5.40%(2) | — | 17,056 | ||||
Fixed rate borrowings, payable in Japanese yen, due 2010 - 2023, principally 0.25% - 3.45% | 30,824 | 18,327 | ||||
Fixed rate borrowings, payable in US dollars, due 2018, principally 7.49% | 2,260 | 586 | ||||
Fixed rate borrowings, payable in other currencies excluding Japanese yen, US dollars, due 2010 - 2013, principally 1.15% - 5.65%(2) | 3,781 | 4,687 | ||||
Adjustable rate bonds, payable in Japanese yen, due 2014, principally 1.88% | 20,000 | 20,000 | ||||
Floating rate borrowings, payable in Japanese yen, due 2015, principally 1.02% - 1.24% | 5,000 | — | ||||
Floating rate borrowings, payable in US dollars, due 2014 - 2015, principally 0.68% - 0.73% | — | 325,640 | ||||
Floating rate borrowings, payable in other currencies excluding Japanese yen, US dollars, due 2009, principally 1.72% - -7.00%(2) | 1,995 | — | ||||
Total | 1,559,132 | 2,232,470 | ||||
Subordinated debt(1): | ||||||
Fixed rate bonds, payable in Japanese yen, due 2010 - 2029, principally 1.13% - 2.91% | 1,244,737 | 1,649,855 | ||||
Fixed rate borrowings, payable in Japanese yen, due 2010 - 2017, principally 1.73% - 3.62% | 201,446 | 129,433 | ||||
Fixed rate bonds, payable in US dollars, due 2010 - 2011, principally 7.40% - 8.40% | 396,111 | 371,098 | ||||
Fixed rate borrowings, payable in US dollars, due 2013, principally 6.76% | 280,177 | 122,714 | ||||
Adjustable rate bonds, payable in Japanese yen, due 2018 - 2019, principally 1.12% - 1.88% | 142,000 | 93,700 | ||||
Adjustable rate borrowings, payable in Japanese yen, due 2014 - 2025, principally 0.60% - 2.90% | 800,500 | 544,100 | ||||
Adjustable rate borrowings, payable in Japanese yen, no stated maturity, principally 0.96% - 4.78% | 992,900 | 1,392,700 | ||||
Adjustable rate borrowings, payable in US dollars, due 2015 - 2017, principally 0.66% - 1.01% | 241,943 | 229,157 | ||||
Adjustable rate borrowings, payable in US dollars, no stated maturity, principally 1.08% - 6.25% | 245,577 | 232,600 | ||||
Adjustable rate bonds, payable in Euro, due 2015, principally 3.50% | 129,840 | 124,920 | ||||
Adjustable rate borrowings, payable in Euro, due 2015 - 2017, principally 1.09% - 1.46% | 116,856 | 112,428 | ||||
Adjustable rate borrowings, payable in Euro, no stated maturity, principally 4.75% - 5.17% | 170,740 | 164,270 | ||||
Adjustable rate borrowings, payable in other currencies excluding Japanese yen, US dollars, Euro, due 2017, principally 1.14%(2) | 38,624 | 38,610 | ||||
Adjustable rate borrowings, payable in other currencies excluding Japanese yen, US dollars, Euro, no stated maturity, principally 6.20%(2) | 79,355 | 79,326 | ||||
Floating rate borrowings, payable in Japanese yen, due 2010 - 2035, principally 0.47% - 1.52% | 18,000 | 52,800 | ||||
Floating rate borrowings, payable in Japanese yen, no stated maturity, principally 3.58% | 150,700 | — | ||||
Total | 5,249,506 | 5,337,711 | ||||
Obligations under loan securitization transaction accounted for as secured borrowings, due 2010 - 2044, principally 0.50% - 7.02% | 3,040,196 | 2,847,735 | ||||
Total | 9,946,045 | 10,497,993 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes:
| (1) |
| Adjustable rate debts are debts where interest rates are reset in accordance with the terms of the debt agreements, and floating rate debts are debts where interest rates are repriced in accordance with movements of markets indices. |
| (2) | Minor currencies, such as British pound, Brazilian real, Chinese yuan, Indonesian rupiah, Hong Kong dollars etc, have been summarized into the “Other currencies” classification. |
BTMU, MUTB andThe MUFG Group uses derivative financial instruments for certain other subsidiaries entered intodebts to manage its interest rate and currency exposures. The derivative financial instruments include swaps, for certain debt in order to manage exposure to interest rateforwards, options and currency exchange rate movements.other types of derivatives. As a result of these swap arrangements,derivative instruments, the effective interest rates reflected in the table above may differ from the coupon rates reflected in the above table.rates. The interest rates for the adjustable and floating rate debt shown in the above table are those in effect at March 31, 20072009 and 2008. Certain interest rates are determined by formulas and may be subject to certain minimum and maximum rates. Floating and adjustable rate debt agreements may provide for interest rate floors to prevent negative interest payments (i.e., receipts).2010.
Certain debt agreements permit BTMU, MUTB and some other subsidiariesthe MUFG Group to redeem the related debt, in whole or in part, prior to maturity at the option of the issuer on terms specified in the respective agreements.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a summary of maturities of long-term debt subsequent to March 31, 2008:2010:
| MUFG | BTMU | MUTB | Other subsidiaries | Total | MUFG | BTMU | Other subsidiaries | Total | |||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||
Fiscal year ending March 31: | |||||||||||||||||||||||||||
2009 | ¥ | 220,000 | ¥ | 1,415,714 | ¥ | 45,265 | ¥ | 548,129 | ¥ | 2,229,108 | |||||||||||||||||
2010 | 100,000 | 1,009,300 | 49,822 | 340,836 | 1,499,958 | ||||||||||||||||||||||
2011 | 229,900 | 1,461,359 | 86,419 | 351,060 | 2,128,738 | ¥ | 230,020 | ¥ | 1,126,950 | ¥ | 669,720 | ¥ | 2,026,690 | ||||||||||||||
2012 | — | 1,041,901 | 67,692 | 108,433 | 1,218,026 | 13 | 863,110 | 468,682 | 1,331,805 | ||||||||||||||||||
2013 | — | 711,839 | 34,884 | 184,733 | 931,456 | 5 | 1,017,152 | 314,439 | 1,331,596 | ||||||||||||||||||
2014 and thereafter | 20,393 | 4,490,267 | 371,176 | 786,128 | 5,667,964 | ||||||||||||||||||||||
2014 | 3 | 766,321 | 258,044 | 1,024,368 | |||||||||||||||||||||||
2015 | 2 | 958,867 | 156,287 | 1,115,156 | |||||||||||||||||||||||
2016 and thereafter | 401,347 | 5,765,593 | 1,165,869 | 7,332,809 | |||||||||||||||||||||||
Total | ¥ | 570,293 | ¥ | 10,130,380 | ¥ | 655,258 | ¥ | 2,319,319 | ¥ | 13,675,250 | ¥ | 631,390 | ¥ | 10,497,993 | ¥ | 3,033,041 | ¥ | 14,162,424 | |||||||||
17.15. SEVERANCE INDEMNITIES AND PENSION PLANS
Defined Benefit Pension Plans
The MUFG Group has funded contributory orand non-contributory defined benefit pension plans (“pension benefits”), which cover substantially all of their employees and provide for lifetime annuity payments commencing at age 65 based on eligible compensation at the time of severance, rank, years of service and other factors.
On January 1, 2006, BTMU integrated BTM’s contributoryand certain domestic subsidiaries, MUS, Mitsubishi UFJ NICOS and some subsidiaries of MUFG have non-contributory Corporate Defined Benefit Pension planplans (“CDBP”CDBPs”) and UFJ Bank’s non-contributory CDBP plan and establishedwhich provide benefits to all their domestic employees. MUTB has a new non-contributory CDBP plan. The integration resulted in the change of the amounts of benefits earned based on employees’ services rendered in prior fiscal periods. The plan amendment did not have a significant impact on the MUFG Group’s results of operations and financial position. MUS and its domestic subsidiaries also have their own CDBP plans.
Until January 1, 2006, BTM’s contributory CDBP was referredsimilar to as Employees’ Pension Fund plans (“EPF”s), which were contributory defined benefit pension plans established under the Japanese Welfare Pension Insurance Law (“JWPIL”). These plans were composed of (a) substitutional portion based on the pay-related part
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
of the old-age pension benefits prescribed by JWPIL (similar to social security benefits in the United States) and (b) a corporate portion based on a contributory defined benefit pension arrangement established on a discretionary basis. BTMU and its domestic subsidiaries with EPF plans and their employees were exempted from contributions to Japanese Pension Insurance (“JPI”) that would otherwise be required if they had not elected to fund the substitutional portion of the benefit through an EPF arrangement. The EPF plans, in turn, had paid both the corporate and substitutional pension benefits to retired beneficiaries out of their plan assets. Benefits of the substitutional portion were based on a standard remuneration schedule as determined by the JWPIL, but the benefits of the corporate portion were based on a formula determined by each employer/EPF plan. Pension benefits and plan assets applicable to the substitutional portion were included in the corporate portion in the determination of net periodic costs and funded status.
In June 2001, JWPIL was amended to permit each employer/EPF plan to separate the substitutional portion from the EPF plan and transfer the obligation and related assets to the government. The separation process occurred in several phases.
In June 2003, BTMU submitted to the government an application to transfer the obligation to pay benefits for future employee service related to the substitutional portion and the application was approved in August 2003. In August 2004, BTMU made another application for transfer to the government of the remaining substitutional portion and the application was approved in November 2004. To complete the separation process, the substitutional obligation and related plan assets were transferred to a government agency on March 28, 2005.
In accordance with EITF 03-2, “Accounting for the Transfer to the Japanese Government of the Substitutional Portion of Employee Pension Fund Liabilities”, BTMU recognized (1) the difference of ¥103,001 million between the accumulated benefit obligations settled and the assets transferred to the Japanese Government as a government grant for transfer of the substitutional portion of the EPF plan, (2) the proportionate amount of the net unrealized loss of ¥69,257 million for the substitutional portion as settlement loss, and (3) the difference of ¥1,221 million between the projected benefit obligations and the accumulated benefit obligations related to the substitutional portion, as gain on derecognition of previously accrued salary progression for the fiscal year ended March 31, 2006.
The remaining portion of the EPF plan (that is, the corporate portion) was transferred to the BTM’s contributory CDBP plan after the separation process was completed.these non-contributory CDBPs.
In addition to the CDBP,CDBPs, BTMU and MUTB have non-contributory closed Tax-Qualified Pension Plans (“closed TQPPs”), which are non-contributory defined benefit pension plans that provide benefits to certain retired employees, excluding directors in Japan, based on eligible compensation at the time of severance, years of service and other factors. MUTB also has a contributory closed TQPP in addition to the non-contributory closed TQPPs.
The MUFG Group also offers qualified and nonqualified defined benefit pension plans in foreign offices and subsidiaries for their employees. The qualified plans are non-contributory defined pension plans, which provide benefits upon retirement based on years of service and average compensation and cover substantially all of the employees of such foreign offices and subsidiaries. With respect to the offices and subsidiaries in the United States of America, the qualified plans are funded on a current basis in compliance with the requirement of the Employee Retirement Income Security Act of the United States of America. The nonqualified plans are non-contributory defined benefit pension plans, under which certain employees earn pay and interest credits on compensation amounts above the maximum stipulated by applicable laws under the qualified plans.
Contributory defined benefit pension plans. MUTB established a new contributory defined benefit pension plan by integrating the defined benefit pension plans of both Mitsubishi Trust and UFJ Trust on March 31, 2007,
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
which is comprised of substitutional portion and corporate portion. The plan amendment did not have a significant impact on the MUFG Group’s results of operations and financial position.
In addition to the contributory defined benefit pension plan, MUTB has closed TQPPs, which are funded contributory defined benefit pension plans, providing benefits to certain retired employees, excluding directors in Japan, based on eligible compensation at the time of severance, years of service and other factors.
Severance Indemnities Plans
The MUFG Group has severance indemnities plans (“SIP”s) under which their employees in Japan, other than those who are directors, are entitled, under most circumstances, upon mandatory retirement at normal retirement age or earlier termination of employment, to lump-sum severance indemnities based on eligible compensation at the time of severance, rank, years of service and other factors. Under SIPs, benefit payments in the form of a lump-sum cash payment with no option to receive annuity payments, upon mandatory retirement at normal retirement age or earlier termination of employment, are provided. When a benefit is paid in a single payment to a benefit payee under the plans, the payment represents final relief of the obligation.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other Postretirement Plans
The MUFG Group’s foreign offices and subsidiaries, primarily in the United States of America, provide their employees with certain postretirement medical and life insurance benefits (“other benefits”). Plan assets are generally invested in government securities, corporate bonds and mutual funds.
Net periodic cost of pension benefits and other benefits for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 include the following components:
| Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2006 | 2007 | 2008 | ||||||||||||||||||||||||
| Pension benefits and SIP | Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
Service cost—benefits earned during the fiscal year | ¥ 27,545 | ¥ 41,123 | ¥ 38,247 | ¥ 7,170 | ¥ 799 | ¥ 7,956 | ¥ 969 | ¥ | 7,894 | ¥ | 1,103 | ||||||||||||||||||
Interest costs on projected benefit obligation | 25,319 | 36,203 | 36,861 | 8,942 | 1,080 | 10,706 | 1,234 | 11,976 | 1,502 | ||||||||||||||||||||
Expected return on plan assets | (37,916 | ) | (71,015 | ) | (72,884 | ) | (12,639 | ) | (1,146 | ) | (16,195 | ) | (1,353 | ) | (18,396 | ) | (1,639 | ) | |||||||||||
Amortization of net actuarial loss (gain) | 15,700 | (1,172 | ) | (5,591 | ) | 4,525 | 328 | 3,797 | 530 | 2,978 | 500 | ||||||||||||||||||
Amortization of prior service cost | (1,091 | ) | (4,197 | ) | (7,543 | ) | 179 | (85 | ) | 221 | (89 | ) | 125 | (87 | ) | ||||||||||||||
Amortization of net obligation at transition | 2,157 | 2,184 | 493 | 4 | 224 | 5 | 237 | — | 240 | ||||||||||||||||||||
Loss (gain) on settlements and curtailment | 68,940 | (3,569 | ) | (6,282 | ) | — | — | — | — | — | — | ||||||||||||||||||
Gain on derecognition of previously accrued salary progression | (1,221 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||
Net periodic benefit cost | ¥ 99,433 | ¥ (443) | ¥ (16,699) | ¥ 8,181 | ¥ 1,200 | ¥ 6,490 | ¥ 1,528 | ¥ 4,577 | ¥ 1,619 | ||||||||||||||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||||||||||||||||||||||
| 2008 | 2009 | 2010 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||
| Pension benefits and SIP | Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | ||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||
Service cost—benefits earned during the fiscal year | ¥ | 38,247 | ¥ | 39,443 | ¥ | 41,823 | ¥ | 7,894 | ¥ | 1,103 | ¥ | 7,448 | ¥ | 945 | ¥ | 6,414 | ¥ | 872 | ||||||||||||||||||
Interest costs on projected benefit obligation | 36,861 | 32,926 | 29,071 | 11,976 | 1,502 | 11,301 | 1,369 | 10,587 | 1,226 | |||||||||||||||||||||||||||
Expected return on plan assets | (72,884 | ) | (68,710 | ) | (49,826 | ) | (18,396 | ) | (1,639 | ) | (16,820 | ) | (1,373 | ) | (15,309 | ) | (936 | ) | ||||||||||||||||||
Amortization of net actuarial loss (gain) | (5,591 | ) | 1,653 | 51,980 | 2,978 | 500 | 2,133 | 320 | 2,682 | 678 | ||||||||||||||||||||||||||
Amortization of prior service cost | (7,543 | ) | (7,373 | ) | (9,801 | ) | 125 | (87 | ) | 77 | (78 | ) | 39 | (67 | ) | |||||||||||||||||||||
Amortization of net obligation at transition | 493 | (5 | ) | (1 | ) | — | 240 | — | 192 | — | 123 | |||||||||||||||||||||||||
Loss (gain) on settlements and curtailment | (6,282 | ) | 4,463 | 3,037 | — | — | — | — | — | — | ||||||||||||||||||||||||||
Net periodic benefit cost | ¥ | (16,699 | ) | ¥ | 2,397 | ¥ | 66,283 | ¥ | 4,577 | ¥ | 1,619 | ¥ | 4,139 | ¥ | 1,375 | ¥ | 4,413 | ¥ | 1,896 | |||||||||||||||||
The following table summarizes the assumptions used in computing the present value of the projected benefit obligations and the net periodic benefit cost:
| Domestic subsidiaries | Foreign offices and subsidiaries | Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||||||
| 2006 | 2007 | 2008 | 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||||||||||||
| Pension benefits and SIP | Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | Pension benefits and SIP | Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||||||||||||||||||||
Weighted-average assumptions used: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discount rates in determining expense | 2.17 | %(1) | 2.12 | % | 2.27 | % | 5.71 | % | 5.76 | % | 5.42 | % | 5.15 | % | 5.87 | % | 6.02 | % | 2.27 | % | 1.93 | % | 1.66 | % | 5.87 | % | 6.02 | % | 5.74 | % | 6.01 | % | 5.70 | % | 5.77 | % | ||||||||||||||||||
Discount rates in determining benefit obligation | 2.12 | 2.27 | 2.07 | 5.42 | 5.15 | 5.87 | 6.02 | 5.74 | 6.01 | 2.07 | 1.66 | 2.05 | 5.74 | 6.01 | 5.70 | 5.77 | 6.10 | 6.04 | ||||||||||||||||||||||||||||||||||||
Rates of increase in future compensation level for determining expense | 3.29 | (1) | 2.95 | 2.98 | 4.47 | — | 4.63 | — | 4.64 | — | 2.98 | 3.10 | 3.07 | 4.64 | — | 4.51 | — | 4.64 | — | |||||||||||||||||||||||||||||||||||
Rates of increase in future compensation level for determining benefit obligation | 2.95 | 2.98 | 3.10 | 4.63 | — | 4.64 | — | 4.51 | — | 3.10 | 3.07 | 3.06 | 4.51 | — | 4.64 | — | 4.72 | — | ||||||||||||||||||||||||||||||||||||
Expected rates of return on plan assets | 3.37 | (1) | 3.36 | 3.09 | 8.19 | 8.25 | 8.13 | 8.25 | 8.04 | 8.25 | 3.09 | 3.13 | 3.02 | 8.04 | 8.25 | 7.84 | 8.00 | 7.50 | 8.00 | |||||||||||||||||||||||||||||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
Note:NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| |||
| |||
|
The following tables present the assumed weighted-average other benefitshealth care cost trend rates for foreign offices and subsidiaries, which are used to measure the expected cost of benefits at year-end,for the next year, and the effect of a one-percentage-point change in the assumed medical benefitshealth care cost trend rate:
| UNBC | Other than UNBC | |||||||||||||||||||||||||||||||
| Years ended December 31, | Years ended December 31, | UNBC | Other than UNBC | |||||||||||||||||||||||||||||
| 2006 | 2007 | 2006 | 2007 | 2009(1) | 2010(1) | 2009(1) | 2010(1) | |||||||||||||||||||||||||
Initial trend rate | 8.06 | % | 9.36 | % | 7.00 | % | 9.00 | % | 9.36 | % | 9.38 | % | 8.00 | % | 8.00 | % | ||||||||||||||||
Ultimate trend rate | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | 5.00 | % | ||||||||||||||||
Year the rate reaches the ultimate trend rate | 2011 | 2013 | 2009 | 2011 | 2014 | 2018 | 2012 | 2016 | ||||||||||||||||||||||||
| UNBC | Other than UNBC | UNBC | Other than UNBC | |||||||||||||||||||||||||||||
| One-percentage- point increase | One-percentage- point decrease | One-percentage- point increase | One-percentage- point decrease | One-percentage- point increase | One-percentage- point decrease | One-percentage- point increase | One-percentage- point decrease | |||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||
Effect on total of service and interest cost components | ¥ | 321 | ¥ | (265 | ) | ¥ | 139 | ¥ | (44 | ) | ¥ | 266 | ¥ | (220 | ) | ¥ | 29 | ¥ | (36 | ) | ||||||||||||
Effect on postretirement benefit obligation | 2,504 | (2,126 | ) | 527 | (338 | ) | 2,291 | (1,945 | ) | 462 | (380 | ) | ||||||||||||||||||||
Note:
| (1) | Fiscal periods of UNBC and foreign subsidiaries end on December 31. Therefore, above tables present the rates and amounts at December 31, 2008 and 2009, respectively. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table sets forth the combined funded status and amounts recognized in the accompanying consolidated balance sheets at March 31, 20072009 and 2008 for the plans of BTMU, MUTB, MUS and other subsidiaries:2010:
| Domestic subsidiaries | Foreign offices and subsidiaries | Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2008 | 2007 | 2008 | 2009 | 2010 | 2009 | 2010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-contributory pension benefits and SIP | Contributory pension benefits | Non-contributory pension benefits and SIP | Contributory pension benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | Non-contributory pension benefits and SIP | Contributory pension benefits | Non-contributory pension benefits and SIP | Contributory pension benefits | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in benefit obligation: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit obligation at beginning of fiscal year | ¥ | 1,359,293 | ¥ | 385,715 | ¥ | 1,324,314 | ¥ | 358,221 | ¥ | 198,640 | ¥ | 22,400 | ¥ | 214,794 | ¥ | 24,609 | ¥ | 1,332,116 | ¥ | 382,611 | ¥ | 1,408,695 | ¥ | 389,060 | ¥ | 215,559 | ¥ | 26,028 | ¥ | 179,523 | ¥ | 22,990 | ||||||||||||||||||||||||||||||||
Adjustments due to adoption of new guidance on measurement date provisions(1) | 36,715 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Service cost | 35,122 | 6,001 | 33,297 | 4,950 | 7,956 | 969 | 7,894 | 1,103 | 34,044 | 5,399 | 35,593 | 6,230 | 7,448 | 945 | 6,414 | 872 | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest cost | 27,973 | 8,230 | 28,980 | 7,881 | 10,706 | 1,234 | 11,976 | 1,502 | 25,778 | 7,148 | 22,569 | 6,502 | 11,301 | 1,369 | 10,587 | 1,226 | ||||||||||||||||||||||||||||||||||||||||||||||||
Plan participants’ contributions | — | 1,194 | — | 1,096 | 8 | 304 | — | 346 | — | 1,088 | — | 1,065 | 10 | 439 | 14 | 408 | ||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | — | 270 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions/ Divestitures | 598 | — | (19,084 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amendments | (25,104 | ) | — | (50 | ) | — | 33 | — | — | — | (13 | ) | — | (19 | ) | — | 267 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Actuarial loss (gain) | (16,088 | ) | (31,024 | ) | 25,624 | 22,359 | (5,336 | ) | 788 | 154 | 1,604 | 50,900 | 5,645 | (75,323 | ) | (22,251 | ) | 8,915 | 1,745 | 766 | (349 | ) | ||||||||||||||||||||||||||||||||||||||||||
Benefits paid | (45,705 | ) | (11,895 | ) | (60,231 | ) | (11,896 | ) | (5,191 | ) | (1,533 | ) | (6,943 | ) | (1,778 | ) | (54,832 | ) | (12,831 | ) | (51,789 | ) | (13,105 | ) | (6,811 | ) | (1,717 | ) | (6,922 | ) | (1,762 | ) | ||||||||||||||||||||||||||||||||
Lump-sum payment | (11,177 | ) | — | (21,435 | ) | — | — | — | (414 | ) | (23 | ) | (16,993 | ) | — | (17,630 | ) | — | (156 | ) | (18 | ) | (79 | ) | (12 | ) | ||||||||||||||||||||||||||||||||||||||
Curtailment loss | — | — | 1,347 | — | — | — | — | — | 382 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustment | — | — | — | — | 7,978 | 447 | (11,902 | ) | (1,335 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value adjustment amount related to UNBC’s privatization | — | — | — | — | (7,817 | ) | (738 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | — | — | — | — | (49,193 | ) | (5,063 | ) | 2,705 | 179 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Benefit obligation at end of fiscal year | 1,324,314 | (1) | 358,221 | 1,332,116 | (1) | 382,611 | 214,794 | 24,609 | 215,559 | 26,028 | 1,408,695 | 389,060 | 1,303,012 | 367,501 | 179,523 | 22,990 | 193,008 | 23,552 | ||||||||||||||||||||||||||||||||||||||||||||||
Change in plan assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at beginning of fiscal year | 1,541,597 | 570,567 | 1,724,464 | 631,807 | 197,327 | 16,194 | 244,024 | 19,631 | 1,854,921 | 541,751 | 1,249,747 | 407,340 | 249,337 | 19,817 | 145,529 | 11,383 | ||||||||||||||||||||||||||||||||||||||||||||||||
Adjustments due to adoption of new guidance on measurement date provisions(1) | (175,680 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Actual return (loss) on plan assets | 180,136 | 58,746 | 143,708 | (86,673 | ) | 29,517 | 2,312 | 14,526 | 1,239 | (420,174 | ) | (128,307 | ) | 211,838 | 73,637 | (37,479 | ) | (3,366 | ) | 30,292 | 2,912 | |||||||||||||||||||||||||||||||||||||||||||
Employer contributions | 48,436 | 13,195 | 46,131 | 7,417 | 14,894 | 2,136 | 10,133 | 1,229 | 45,131 | 5,639 | 33,599 | 5,550 | 3,051 | 1,017 | 12,452 | 1,209 | ||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions | — | — | 849 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions/ Divestitures | 381 | — | (7,060 | ) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Plan participants’ contributions | — | 1,194 | — | 1,096 | 8 | 304 | — | 346 | — | 1,088 | — | 1,065 | 10 | 439 | 14 | 408 | ||||||||||||||||||||||||||||||||||||||||||||||||
Benefits paid | (45,705 | ) | (11,895 | ) | (60,231 | ) | (11,896 | ) | (5,191 | ) | (1,533 | ) | (6,943 | ) | (1,778 | ) | (54,832 | ) | (12,831 | ) | (51,789 | ) | (13,105 | ) | (6,811 | ) | (1,717 | ) | (6,922 | ) | (1,762 | ) | ||||||||||||||||||||||||||||||||
Fair value adjustment amount related to UNBC’s privatization | — | — | — | — | (13,843 | ) | (1,395 | ) | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Translation adjustments | — | — | — | — | 7,469 | 218 | (12,403 | ) | (850 | ) | — | — | — | — | (48,736 | ) | (3,412 | ) | 2,080 | 90 | ||||||||||||||||||||||||||||||||||||||||||||
Fair value of plan assets at end of fiscal year | 1,724,464 | (1) | 631,807 | 1,854,921 | (1) | 541,751 | 244,024 | 19,631 | 249,337 | 19,817 | 1,249,747 | 407,340 | 1,436,335 | 474,487 | 145,529 | 11,383 | 183,445 | 14,240 | ||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of funded status: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Funded status | 400,150 | 273,586 | 522,805 | 159,140 | 29,230 | (4,978 | ) | 33,778 | (6,211 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contributions to or benefits paid from plan assets during the three months ended March 31, 2007 and 2008 | 13,290 | — | 9,332 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net amount recognized | ¥ | 413,440 | ¥ | 273,586 | ¥ | 532,137 | ¥ | 159,140 | ¥ | 29,230 | ¥ | (4,978 | ) | ¥ | 33,778 | ¥ | (6,211 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Amounts recognized in the consolidated balance sheets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid benefit cost | ¥ | 452,245 | ¥ | 273,586 | ¥ | 583,251 | ¥ | 159,140 | ¥ | 48,989 | ¥ | — | ¥ | 51,579 | ¥ | — | ¥ | 7,335 | ¥ | 18,280 | ¥ | 176,107 | ¥ | 106,986 | ¥ | 2,912 | ¥ | — | ¥ | 7,732 | ¥ | — | ||||||||||||||||||||||||||||||||
Accrued benefit cost | (38,805 | ) | — | (51,114 | ) | — | (19,759 | ) | (4,978 | ) | (17,801 | ) | (6,211 | ) | (166,283 | ) | — | (42,784 | ) | — | (36,906 | ) | (11,607 | ) | (17,295 | ) | (9,312 | ) | ||||||||||||||||||||||||||||||||||||
Net amount recognized | ¥ | 413,440 | ¥ | 273,586 | ¥ | 532,137 | ¥ | 159,140 | ¥ | 29,230 | ¥ | (4,978 | ) | ¥ | 33,778 | ¥ | (6,211 | ) | ¥ | (158,948 | ) | ¥ | 18,280 | ¥ | 133,323 | ¥ | 106,986 | ¥ | (33,994 | ) | ¥ | (11,607 | ) | ¥ | (9,563 | ) | ¥ | (9,312 | ) | |||||||||||||||||||||||||
Note:
| (1) | For the fiscal year ended March 31, 2009, benefit obligations and plan assets are measured at March 31 in accordance with the measurement date provisions of new guidance on defined benefit pension and other postretirement plans. However, for prior fiscal years, benefit obligations and plan assets of BTMU and |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The aggregated accumulated benefit obligations of these plans at March 31, 20072009 and 20082010 were as follows;follows:
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||
| 2007 | 2008 | 2007 | 2008 | |||||||||
| (in millions) | ||||||||||||
Aggregated accumulated benefit obligations | ¥ | 1,663,030 | ¥ | 1,687,671 | ¥ | 194,400 | ¥ | 195,573 | ||||
The projected benefit obligations, accumulated benefit obligations and fair value of plan assets for the plans with accumulated benefit obligations in excess of plan assets at March 31, 2007 and 2008 were as follows: | ||||||||||||
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||
| 2007 | 2008 | 2007 | 2008 | |||||||||
| (in millions) | ||||||||||||
Projected benefit obligations | ¥ | 95,241 | ¥ | 133,715 | ¥ | 59,487 | ¥ | 36,067 | ||||
Accumulated benefit obligations | 92,647 | 127,258 | 58,651 | 35,698 | ||||||||
Fair value of plan assets | 57,509 | 82,483 | 39,927 | 18,291 | ||||||||
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||
| 2009 | 2010 | 2009 | 2010 | |||||||||
| (in millions) | ||||||||||||
Aggregated accumulated benefit obligations | ¥ | 1,781,607 | ¥ | 1,654,197 | ¥ | 170,293 | ¥ | 176,662 | ||||
In accordanceThe projected benefit obligations, accumulated benefit obligations and fair value of plan assets for the plans with BTMU’s, MUTB’s, MUS’s,accumulated benefit obligations in excess of plan assets at March 31, 2009 and 2010 were as follows:
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||
| 2009 | 2010 | 2009 | 2010 | |||||||||
| (in millions) | ||||||||||||
Projected benefit obligations | ¥ | 1,374,296 | ¥ | 112,287 | ¥ | 157,314 | ¥ | 40,061 | ||||
Accumulated benefit obligations | 1,359,075 | 107,247 | 141,260 | 38,926 | ||||||||
Fair value of plan assets | 1,214,578 | 69,503 | 120,403 | 23,855 | ||||||||
BTMU, MUTB, MUS, Mitsubishi UFJ NICOS’sNICOS and other subsidiaries’ employment practices, certain early-terminated employees are entitled tosubsidiaries paid special lump-sum termination benefits.benefits which are not a part of pension plans to certain early-terminated employees. The amounts charged to operations for such early termination benefits for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 were ¥13,916¥49,054 million, ¥13,137¥11,247 million and ¥49,054¥13,617 million, respectively. The ¥49,054 million chargecharged to operations for the fiscal year ended March 31, 2008 mainly consists of ¥36,613 million related to Mitsubishi UFJ NICOS of which ¥9,361 million is included in accrued benefit costs.
TheFor the fiscal year ended March 31, 2009, the MUFG Group adopted the recognitionmeasurement date provision of SFAS No. 158 at March 31, 2007.the pension accounting guidance which changed the measurement date for the plan assets and benefit obligations of BTMU and certain domestic subsidiaries to coincide with the MUFG Group’s fiscal year-end date. The MUFG Group recognizedrecorded a decrease in the overfunded status or underfunded statusbeginning balance of all plans as prepaid benefit cost or accrued benefit cost onretained earnings by ¥132 million, net of taxes, and a decrease in the consolidatedbeginning balance sheet at March 31, 2007 with an adjustment toof accumulated other changes in equity from nonowner sources by ¥131,574 million, net of taxes. SFAS No. 158 did not change the determinationtaxes, as a result of net periodic benefit costs.adopting this provision.
The following table presents the incremental effectamounts recognized in accumulated other changes in equity from nonowner sources of applying SFAS No. 158 on individual line items on the consolidated balance sheetMUFG Group at March 31, 2007:2009 and 2010:
| Before application of SFAS No. 158 | Effect of adjustment Increase/(Decrease) | After application of SFAS No. 158 | ||||||||
| (in millions) | ||||||||||
Intangible assets | ¥ | 1,266,188 | ¥ | (1,108 | ) | ¥ | 1,265,080 | |||
Deferred tax assets | ¥ | 636,246 | ¥ | (80,088 | ) | ¥ | 556,158 | |||
Other assets | ¥ | 4,851,683 | ¥ | 283,742 | ¥ | 5,135,425 | ||||
Total assets | ¥ | 186,000,365 | ¥ | 202,546 | ¥ | 186,202,911 | ||||
Other liabilities | ¥ | 4,995,761 | ¥ | 23,762 | ¥ | 5,019,523 | ||||
Total liabilities | ¥ | 175,745,837 | ¥ | 23,762 | ¥ | 175,769,599 | ||||
Accumulated other changes in equity from nonower sources, net of taxes | ¥ | 2,213,352 | ¥ | 178,784 | ¥ | 2,392,136 | ||||
Total shareholders’ equity | ¥ | 10,254,528 | ¥ | 178,784 | ¥ | 10,433,312 | ||||
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||||||||||
| 2009 | 2010 | 2009 | 2010 | |||||||||||||||||||||
| Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Net actuarial loss | ¥ | 729,352 | ¥ | 336,910 | ¥ | 71,275 | ¥ | 9,572 | ¥ | 55,454 | ¥ | 6,690 | ||||||||||||
Prior service cost | (72,388 | ) | (62,083 | ) | 260 | (385 | ) | 229 | (304 | ) | ||||||||||||||
Net obligation at transition | (1 | ) | — | — | 478 | — | 363 | |||||||||||||||||
Gross pension liability adjustments | 656,963 | 274,827 | 71,535 | 9,665 | 55,683 | 6,749 | ||||||||||||||||||
Taxes | (261,442 | ) | (110,688 | ) | (28,200 | ) | (3,756 | ) | (21,930 | ) | (2,607 | ) | ||||||||||||
Net pension liability adjustments | ¥ | 395,521 | ¥ | 164,139 | ¥ | 43,335 | ¥ | 5,909 | ¥ | 33,753 | ¥ | 4,142 | ||||||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the recognized amounts in accumulated other changes in equity from nonowner sources of the MUFG Group at March 31, 2007 and 2008:
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||||||||||
| 2007 | 2008 | 2007 | 2008 | |||||||||||||||||||||
| Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Net actuarial loss (gain) | ¥ | (235,527 | ) | ¥ | (159,187 | ) | ¥ | 31,124 | ¥ | 5,858 | ¥ | 30,767 | ¥ | 6,976 | ||||||||||
Prior service cost | (89,946 | ) | (80,798 | ) | 161 | (686 | ) | 107 | (528 | ) | ||||||||||||||
Net obligation at transition | 545 | 52 | — | 1,455 | — | 1,162 | ||||||||||||||||||
Gross pension liability adjustments | (324,928 | ) | (239,933 | ) | 31,285 | 6,627 | 30,874 | 7,610 | ||||||||||||||||
Taxes | 132,775 | 98,103 | (12,065 | ) | (2,541 | ) | (11,914 | ) | (2,916 | ) | ||||||||||||||
Net pension liability adjustments | ¥ | (192,153 | ) | ¥ | (141,830 | ) | ¥ | 19,220 | ¥ | 4,086 | ¥ | 18,960 | ¥ | 4,694 | ||||||||||
The following table presents the changes in equity from nonowner sources in the fiscal year ended March 31, 2008:2009 and 2010:
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||
| Pension benefits and SIP | Pension benefits | Other benefits | ||||||
| (in millions) | ||||||||
Net actuarial loss (gain) arising during the year | ¥ 64,852 | ¥ 4,433 | ¥ 1,969 | |||||
Prior service cost arising during the year | (137 | ) | 80 | (1) | ||||
Amortization of net actuarial loss (gain) | 5,591 | (2,978 | ) | (500) | ||||
Amortization of prior service cost | 7,543 | (125 | ) | 87 | ||||
Amortization of net obligation at transition | (493 | ) | — | (240) | ||||
Curtailment and settlement | 7,639 | — | — | |||||
Foreign currency translation adjustments | — | (1,821 | ) | (332) | ||||
Total changes in Other comprehensive income | ¥ 84,995 | ¥ (411 | ) | ¥ 983 | ||||
The following table presents the expected amounts that will be amortized from accumulated other changes in equity from nonowner sources as components of net periodic benefit cost, before taxes, for the fiscal year ending March 31, 2009:
| ||||||||
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||
| Pension benefits and SIP | Pension benefits | Other | ||||||
| (in millions) | ||||||||
Net actuarial loss | ¥ 1,182 | ¥ 1,927 | ¥ 495 | |||||
Prior service cost | (7,419 | ) | 59 | (79) | ||||
Net obligation at transition | (4 | ) | — | 232 | ||||
Total | ¥ (6,241 | ) | ¥ 1,986 | ¥ 648 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Asset allocation
| Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||||||||||
| 2009 | 2010 | 2009 | 2010 | |||||||||||||||||||||
| Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Adjustment due to adoption of new guidance on measurement date provisions | ¥ | 221,504 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ||||||||||||
Net actuarial loss (gain) arising during the year | 673,815 | (337,425 | ) | 62,766 | 6,481 | (14,070 | ) | (2,330 | ) | |||||||||||||||
Prior service cost arising during the year | 320 | 504 | 271 | 1 | 1 | — | ||||||||||||||||||
Amortization of net actuarial gain | (1,653 | ) | (51,980 | ) | (2,133 | ) | (320 | ) | (2,682 | ) | (678 | ) | ||||||||||||
Amortization of prior service cost | 7,373 | 9,801 | (77 | ) | 78 | (39 | ) | 67 | ||||||||||||||||
Amortization of net obligation at transition | 5 | 1 | — | (192 | ) | — | (123 | ) | ||||||||||||||||
Curtailment and settlement | (4,468 | ) | (3,037 | ) | — | — | — | — | ||||||||||||||||
Fair value adjustment amount related to UNBC’s privatization | — | — | (7,976 | ) | (1,994 | ) | — | — | ||||||||||||||||
Foreign currency translation adjustments | — | — | (12,190 | ) | (1,999 | ) | 938 | 148 | ||||||||||||||||
Total changes in Accumulated other changes in equity from nonowner sources | ¥ | 896,896 | ¥ | (382,136 | ) | ¥ | 40,661 | ¥ | 2,055 | ¥ | (15,852 | ) | ¥ | (2,916 | ) | |||||||||
The MUFG Group’s weighted-average asset allocationsfollowing table presents the expected amounts that will be amortized from accumulated other changes in equity from nonowner sources as components of plan assetsnet periodic benefit cost, before taxes, for the pension benefits and other benefits at Decemberfiscal year ending March 31, 2006 and 2007 were as follows:2011:
| Domestic subsidiaries | Foreign office and subsidiaries | |||||||||||||||||
| 2006 | 2007 | 2006 | 2007 | |||||||||||||||
Asset category | Pension benefits and SIP | Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits | Other benefits | ||||||||||||
Pension fund | ||||||||||||||||||
Japanese equity securities(1) | 14.59 | % | 11.89 | % | 0.45 | % | — | % | 0.47 | % | — | % | ||||||
Japanese debt securities(2) | 21.43 | 22.78 | — | — | — | — | ||||||||||||
Non-Japanese equity securities | 12.01 | 10.12 | 64.74 | 55.00 | 63.36 | 54.00 | ||||||||||||
Non-Japanese debt securities | 7.85 | 7.16 | 25.65 | 22.00 | 27.56 | 24.00 | ||||||||||||
General account of life insurance companies(3) | 4.41 | 4.47 | — | 23.00 | — | 22.00 | ||||||||||||
Real estate | 0.28 | 0.29 | 4.22 | — | 4.28 | — | ||||||||||||
Short-term assets | 1.34 | 1.60 | 4.94 | — | 4.33 | — | ||||||||||||
Employee retirement benefit trust, primarily Japanese equity securities | 38.09 | 41.69 | — | — | — | — | ||||||||||||
Total | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | 100.00 | % | ||||||
Notes:
| Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||
| Pension benefits and SIP | Pension benefits | Other benefits | |||||||||
| (in millions) | |||||||||||
Net actuarial loss | ¥ | 14,405 | ¥ | 1,691 | ¥ | 513 | |||||
Prior service cost | (10,823 | ) | 33 | (67 | ) | ||||||
Net obligation at transition | — | — | 121 | ||||||||
Total | ¥ | 3,582 | ¥ | 1,724 | ¥ | 567 | |||||
Investment policies
MUFG’s investment policy for plan assets is based on an asset liability matching strategy which is intended to maintain adequate liquidity for benefit payments and to achieve a stable increase in the plan assets in the medium and long term through proper risk control and return maximization. As a general rule, investment policies for each plan assets are reviewed periodically for some plans and in the following situations for all plans: (1) large fluctuations in pension plan liabilities caused by modifications ofto pension plans, or (2) changes in the market environment. The plan assets allocation strategies are the principal determinant in achieving expected investment returns on the plan assets. Actual asset allocations may fluctuate within acceptable ranges due to market value variability. Plan assets are managed by a combination of internal and external asset management companies and are rebalanced when
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
market fluctuations cause an asset category to fall outside of its strategic asset allocation range. Performance of each plan asset category is compared against established indices and similar plan asset groups to evaluate whether the risk associated with the portfolio is appropriate for the level of return.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The MUFG Group’s weighted-average target asset allocation of plan assets for the pension benefits and other benefits at DecemberMarch 31, 20072010 was as follows:
| Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||
Asset category | Pension benefits and SIP | Pension benefits | Other benefits | ||||||
Japanese equity securities | 29.9 | % | — | % | — | % | |||
Japanese debt securities | 41.2 | — | — | ||||||
Non-Japanese equity securities | 16.0 | 65.5 | 67.0 | ||||||
Non-Japanese debt securities | 9.5 | 27.7 | 28.0 | ||||||
Real estate | — | 4.6 | 5.0 | ||||||
Short term assets | 3.4 | 2.2 | — | ||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | |||
| Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||
Asset category | Pension benefits and SIP | Pension benefits | Other benefits | ||||||
Japanese equity securities | 26.7 | % | 0.3 | % | — | % | |||
Japanese debt securities | 46.2 | — | — | ||||||
Non-Japanese equity securities | 15.4 | 59.9 | 70.0 | ||||||
Non-Japanese debt securities | 7.4 | 29.2 | 30.0 | ||||||
Real estate | — | 8.0 | — | ||||||
Short-term assets | 4.3 | 2.6 | — | ||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | |||
Basis and procedure for estimating long-term return of each asset category
MUFG’s expected long-term rate of return on plan assets for domestic defined benefit pension plans and SIPs is based on a building-block methodology, which calculates the total long-term rate of return of the plan assets by aggregating the weighted rate of return derived from both long-term historical performance and forward-looking return expectations from each asset category.
MUFG has determined the expected long-term rate of return for each asset category as below:
| Ÿ | Japanese equity securities: the rate for Japanese debt securities plus a premium for the risk associated with Japanese equity securities |
| Ÿ | Japanese debt securities: economic growth rate of Japan |
| Ÿ | Non-Japanese equity securities: the rate for non-Japanese debt securities plus a premium for the risk associated with non-Japanese equity securities |
| Ÿ | Non-Japanese debt securities: global economic growth rate |
Foreign offices and subsidiaries periodically reconsider the expected long-term rate of return for their plan assets. TheThey evaluate the investment return volatility of different asset categories are evaluated and compared againstcompare the liability structure of thetheir pension and other benefits to those of other companies, while considering thetheir funding policy to maintain a funded status sufficient to meet participants’ benefit obligations, and reduce long-term funding requirements and pension costs. Based on this information, foreign offices and subsidiaries update the expected long-term rate of return.
Cash flows
The MUFG Group expects to contribute to the plan assets for the fiscal year ending March 31, 20092011 based upon its current funded status and expected asset return assumptions as follows:
For the pension benefits of domestic subsidiaries | ¥ | ||
For the pension benefits of foreign offices and subsidiaries | |||
For the other benefits of foreign offices and subsidiaries |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service for the fiscal years indicated:
| Domestic subsidiaries | Foreign offices and subsidiaries | Domestic subsidiaries | Foreign offices and subsidiaries | |||||||||||||||
| Pension benefits and SIP | Pension benefits | Other benefits | Pension benefits and SIP | Pension benefits | Other benefits | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
Fiscal year ending March 31: | ||||||||||||||||||
2009 | ¥ | 78,724 | ¥ | 6,979 | ¥ | 1,523 | ||||||||||||
2010 | 80,608 | 6,869 | 1,622 | |||||||||||||||
2011 | 81,645 | 7,332 | 1,721 | ¥ | 76,462 | ¥ | 6,398 | ¥ | 1,433 | |||||||||
2012 | 82,485 | 7,990 | 1,823 | 78,937 | 6,980 | 1,545 | ||||||||||||
2013 | 83,557 | 8,674 | 1,892 | 80,974 | 7,342 | 1,636 | ||||||||||||
Thereafter (2014-2018) | 435,534 | 56,161 | 10,821 | |||||||||||||||
2014 | 83,178 | 8,182 | 1,741 | |||||||||||||||
2015 | 85,261 | 8,724 | 1,832 | |||||||||||||||
Thereafter (2016-2020) | 442,320 | 57,121 | 10,569 | |||||||||||||||
Fair value measurement of the plan assets
The following is a description of the valuation methodologies used for plan assets measured at fair value as well as the classification of the plan assets pursuant to the valuation hierarchy described in Note 31 “Fair Value.”
Government bonds and other debt securities
When quoted market prices are available in an active market, the MUFG Group adopts the quoted market prices to measure the fair value of securities and such securities are classified in Level 1 of the valuation hierarchy. Level 1 securities include Japanese government bonds, most of non-Japanese government bonds and certain corporate bonds. When quoted market prices are available but not traded actively, such securities are classified in Level 2 of the valuation hierarchy. When quoted prices are not available, the MUFG Group generally estimates fair values by using non-binding prices obtained from independent pricing vendors. Such securities are generally classified in Level 2 of the valuation hierarchy. Level 2 securities include certain non-Japanese government bonds, official institutions bonds and corporate bonds. When there is lack of liquidity for securities or significant inputs adopted to the fair value measurements are unobservable, such securities are classified in Level 3 of the valuation hierarchy. Such Level 3 securities mainly consist of non-Japanese corporate bonds.
Marketable equity securities
When quoted market prices are available in an active market, the MUFG Group adopts the quoted market prices to measure the fair value of marketable equity securities and such securities are classified in Level 1 of the valuation hierarchy. When quoted market prices are available but not traded actively, such securities are classified in Level 2 of the valuation hierarchy.
Japanese pooled funds
Japanese pooled funds are investment fund vehicles designed for Japanese pension plan investments under Japanese pension trust fund regulations. Based upon the nature of the funds’ investments, Japanese pooled funds are categorized into four major fund types; Japanese marketable equity securities type, Japanese debt securities type, Non-Japanese marketable equity securities type and Non-Japanese debt securities type. The other types of funds invest in short-term financial instruments or loans receivable. Japanese pooled funds are generally readily
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
redeemable at their net asset values. The fair values of Japanese pooled funds are measured at their net asset values and generally classified in Level 2 of the valuation hierarchy. Japanese pooled funds classified in Level 3 of the valuation hierarchy have underlying investments in non-Japanese debt securities and loans receivable whose fair values are measured by using significant unobservable inputs and there is inherent lack of the funds’ liquidity.
Other investment funds
Other investment funds include mutual funds, private investments funds, common collective funds, private equity funds and real estate funds. The fair values are generally measured at their net asset values. The listed investment funds or mutual funds are valued at quoted market prices and generally classified in Level 1 or Level 2 of the valuation hierarchy. When there is no available market quotation, the fair values are determined at net asset values. These funds are classified either in Level 2 or Level 3 depending on the level of price observability of the underlying investments in the funds and the funds’ liquidity. Other investment funds classified in Level 3 of the valuation hierarchy mainly consist of certain private investment funds and real estate funds where their fair values are measured by using significant unobservable inputs and there is inherent lack of the funds’ liquidity.
Japanese general accounts of life insurance companies
These instruments are contracts with life insurance companies that guarantee return of a certain level of fixed income, which are mainly invested in assets with low market risk such as Japanese debt securities. They are measured at conversion value and classified in Level 2 in the valuation hierarchy.
Other investments
Other investments mainly consist of call loans and the rest consist of miscellaneous accounts such as deposits with banks and short term investments. These instruments are generally classified in Level 1 or Level 2 of the valuation hierarchy depending on observability of the inputs to measure their fair values.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the fair value of each major category of plan assets as of March 31, 2010:
Pension benefits and SIP Investments:
| Domestic subsidiaries | Foreign offices and subsidiaries | ||||||||||||||||||||||||
Assets category | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
Japanese government bonds | ¥ | 105,424 | ¥ | — | ¥ | — | ¥ | 105,424 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | |||||||||
Non-Japanese government bonds | 30,787 | 2,217 | — | 33,004 | 3,793 | — | — | 3,793 | |||||||||||||||||
Other debt securities(1) | 2,675 | 51,562 | 2,813 | 57,050 | — | 14,849 | — | 14,849 | |||||||||||||||||
Japanese marketable equity securities(2) | 700,991 | 1,372 | — | 702,363 | — | — | — | — | |||||||||||||||||
Non-Japanese marketable equity securities | 34,265 | 1,262 | — | 35,527 | 13,284 | — | — | 13,284 | |||||||||||||||||
Japanese Pooled funds: | |||||||||||||||||||||||||
Japanese marketable equity securities(2) | — | 119,103 | — | 119,103 | — | — | — | — | |||||||||||||||||
Japanese debt securities(1) | — | 243,673 | — | 243,673 | — | — | — | — | |||||||||||||||||
Non-Japanese marketable equity securities | — | 146,050 | — | 146,050 | — | — | — | — | |||||||||||||||||
Non-Japanese debt securities | — | 96,557 | 6,209 | 102,766 | — | — | — | — | |||||||||||||||||
Other | — | 11,958 | 2,501 | 14,459 | — | — | — | — | |||||||||||||||||
Total pooled funds | — | 617,341 | 8,710 | 626,051 | — | — | — | — | |||||||||||||||||
Other investment funds | — | 77,682 | 26,934 | 104,616 | 67,284 | 77,368 | 5,085 | 149,737 | (4) | ||||||||||||||||
Japanese general account of life insurance companies(3) | — | 153,644 | — | 153,644 | — | — | — | — | |||||||||||||||||
Other investments | 1,584 | 91,559 | — | 93,143 | 451 | 768 | 563 | 1,782 | |||||||||||||||||
Total | ¥ | 875,726 | ¥ | 996,639 | ¥ | 38,457 | ¥ | 1,910,822 | ¥ | 84,812 | ¥ | 92,985 | ¥ | 5,648 | ¥ | 183,445 | |||||||||
Notes:
| (1) | These debt securities include debt securities issued by the MUFG Group in the amount of ¥1,904 million (0.11% of plan assets) and ¥1,331 million (0.07% of plan assets) to the pension benefits and SIPs at March 31, 2009 and March 31, 2010, respectively. |
| (2) | Japanese marketable equity securities include common stocks issued by the MUFG Group in the amount of ¥6,203 million (0.37% of plan assets) and ¥7,169 million (0.38% of plan assets) to the pension benefits and SIPs at March 31, 2009 and March 31, 2010, respectively. |
| (3) | “Japanese general accounts of life insurance companies” is a contract with life insurance companies that guarantees a return of approximately 1.17% (from April 2008 to March 2009) and 1.18 % (from April 2009 to March 2010). |
| (4) | Other investment funds of the foreign offices and subsidiaries are mainly comprised of ¥62,688 million of mutual funds and ¥31,003 million of common collective funds which were held by UNBC. |
Other post retirement plan investments:
| Foreign offices and subsidiaries | ||||||||||||
Assets category | Level 1 | Level 2 | Level 3 | Total | ||||||||
| (in millions) | ||||||||||||
Other investment funds(1) | ¥ | 7,897 | ¥ | 6,343 | �� | ¥ | — | ¥ | 14,240 | |||
Note:
| (1) | Other investment funds mainly consist of mutual funds and common collective funds. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present a reconciliation of plan assets measured at fair value using significant unobservable inputs (Level 3) during the fiscal year ended March 31, 2010:
Pension benefits and SIP Investments:
| Domestic subsidiaries | |||||||||||||||||||||||||
Assets category | March 31, 2009 | Realized gains (losses) | Unrealized gains (losses) | Purchase, sales and settlements | Transfer into Level 3— beginning of year | Transfer out of Level 3— end of year | March 31, 2010 | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
Other debt securities | ¥ | 5,348 | ¥ | 387 | ¥ | 107 | ¥ | (3,270 | ) | ¥ | 303 | ¥ | (62 | ) | ¥ | 2,813 | |||||||||
Non-Japanese marketable equity securities | 7 | — | — | (7 | ) | — | — | — | |||||||||||||||||
Japanese Pooled funds: | |||||||||||||||||||||||||
Non-Japanese debt securities | 5,081 | — | 1,128 | — | — | — | 6,209 | ||||||||||||||||||
Other | 2,503 | — | (2 | ) | — | — | — | 2,501 | |||||||||||||||||
Total pooled funds | 7,584 | — | 1,126 | — | — | — | 8,710 | ||||||||||||||||||
Other investment funds | 17,848 | (100 | ) | 2,885 | 6,301 | — | — | 26,934 | |||||||||||||||||
Total | ¥ | 30,787 | ¥ | 287 | ¥ | 4,118 | ¥ | 3,024 | ¥ | 303 | ¥ | (62 | ) | ¥ | 38,457 | ||||||||||
| Foreign offices and subsidiaries | |||||||||||||||||||||||||
Assets category | March 31, 2009 | Realized gains (losses) | Unrealized gains (losses) | Purchase, sales and settlements | Transfer into Level 3— beginning of year | Transfer out of Level 3— end of year | March 31, 2010 | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
Other investment funds | ¥ | 7,481 | ¥ | — | ¥ | (2,501 | ) | ¥ | 105 | ¥ | — | ¥ | — | ¥ | 5,085 | ||||||||||
Other investments | 400 | — | 27 | 136 | — | — | 563 | ||||||||||||||||||
Total | ¥ | 7,881 | ¥ | — | ¥ | (2,474 | ) | ¥ | 241 | ¥ | — | ¥ | — | ¥ | 5,648 | ||||||||||
Defined Contribution Plans
The MUFG Group maintains several qualified defined contribution plans in its domestic and foreign offices and subsidiaries, all of which are administered in accordance with applicable local laws and regulations. Each office and subsidiary matches eligible employee contributions up to a certain percentage of benefits-eligible compensation per pay period, subject to plan and legal limits. Terms of the plan, including matching percentage and vesting periods, are individually determined by each office and subsidiary.
The cost of these defined contribution plans charged to operations for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 were ¥4,473¥4,951 million, ¥4,928¥5,242 million and ¥4,951¥4,735 million, respectively.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18.16. OTHER ASSETS AND LIABILITIES
Major components of other assets and liabilities at March 31, 20072009 and 20082010 were as follows:
| 2007 | 2008 | 2009 | 2010 | |||||||||||
| (in millions) | (in millions) | |||||||||||||
Other assets: | ||||||||||||||
Accounts receivable: | ||||||||||||||
Receivables from brokers, dealers and customers for securities transactions | ¥ | 653,200 | ¥ | 581,359 | ¥ | 727,644 | ¥ | 725,490 | ||||||
Other | 814,319 | 870,368 | 885,921 | 768,120 | ||||||||||
Investments in equity method investees | 578,453 | (1) | 503,536 | 555,745 | 585,459 | |||||||||
Non-interest-earning deposits with the Special Fund and the New Fund (See Note 7) | 358,344 | 365,146 | ||||||||||||
Prepaid benefit cost | 774,820 | 793,970 | ||||||||||||
Non-interest-earning deposits with the Special Fund and the New Fund | 372,114 | 378,119 | ||||||||||||
Prepaid benefit cost (Note 15) | 28,527 | 290,825 | ||||||||||||
Cash collateral paid (Note 10) | 625,931 | 634,299 | ||||||||||||
Other | 1,956,289 | (1) | 2,333,513 | 1,767,599 | 1,587,026 | |||||||||
Total | ¥ | 5,135,425 | ¥ | 5,447,892 | ¥ | 4,963,481 | ¥ | 4,969,338 | ||||||
Other liabilities: | ||||||||||||||
Accounts payable: | ||||||||||||||
Payables to brokers, dealers and customers for securities transactions | ¥ | 1,058,741 | ¥ | 618,496 | ¥ | 1,456,738 | ¥ | 996,985 | ||||||
Other | 804,497 | (2) | 758,409 | 691,256 | 775,149 | |||||||||
Deferred tax liabilities | 240,549 | 113,969 | 37,797 | 76,217 | ||||||||||
Allowance for off-balance-sheet credit instruments | 84,966 | 97,338 | 84,609 | 85,651 | ||||||||||
Accrued benefit cost | 63,542 | 84,517 | ||||||||||||
Minority interests | 884,982 | 663,816 | ||||||||||||
Accrued benefit cost (Note 15) | 214,796 | 69,391 | ||||||||||||
Guarantees and indemnifications | 88,369 | 72,831 | 63,386 | 52,655 | ||||||||||
Cash collateral received (Note 10) | 389,238 | 260,233 | ||||||||||||
Accrued and other liabilities | 1,793,877 | (2) | 2,278,326 | 1,886,783 | 1,823,611 | |||||||||
Total | ¥ | 5,019,523 | ¥ | 4,687,702 | ¥ | 4,824,603 | (1) | ¥ | 4,139,892 | |||||
Notes:Note:
| (1) |
Investments in equity method investees include marketable equity securities carried at ¥240,281¥242,263 million and ¥166,400¥219,867 million respectively, at March 31, 20072009 and 2008.2010, respectively. Corresponding aggregated market values were ¥306,938¥251,481 million and ¥173,285¥262,519 million, respectively.
The MUFG Group periodically evaluates whether a loss in value of investments in equity method investees is other than temporary. As a result of evaluations, the MUFG Group recognized other than temporary declines in the value of an investment and recorded impairment losses related to certain affiliated companies of ¥14,985¥57,113 million, ¥11,387¥60,871 million and ¥57,113¥104,045 million for the fiscal years ended March 31, 2006, 20072008, 2009 and 2008,2010, respectively. The impairment losses are included in Equity in earnings (losses)losses of equity method investees in the consolidated statements of operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The stock split (including required amendment to MUFG’s Articles of Incorporation) was approved at MUFG’s Board of Directors’ meeting on May 23, 2007, the general meeting of holders of class shares with respect to preferred shares on June 27, 2007, and the General Meeting of Shareholders on June 28, 2007. The stock split was effective as of September 30, 2007 and related changes were made as follows:
Pursuant to the Articles of Incorporation, MUFG was authorized to issue 120,000,000 shares of Class 3 Preferred Stock, 400,000,000 shares of Class 5 Preferred Stock, 200,000,000 shares of Class 6 Preferred Stock, 200,000,000 shares of Class 7 Preferred Stock 27,000,000 shares of Class 8 Preferred Stock,and 1,000 share of Class 11 Preferred Stock and 129,900,000 shares of Class 12 Preferred Stock, without par value.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
All classes of preferred stock to be issued are non-voting and have preference over common stock for the payment of dividends and the distribution of assets in the event of a liquidation or dissolution of MUFG. They are all non-cumulative and non-participating with respect to dividend payments. Shareholders of Class 3, Class 8,5 and Class 11 and Class 12 Preferred Stock have the right to receive a liquidation distribution at ¥2,500, ¥3,000, ¥1,000¥2,500 and ¥1,000 per share, respectively, and do not have the right to participate in any further liquidation distributions.
The number of shares of preferred stock issued and outstanding at March 31, 2006, 20072008, 2009 and 20082010 was as follows:
| Outstanding at March 31, 2006 | Net change | Outstanding at March 31, 2007 | Net change | Outstanding at March 31, 2008 | Outstanding at March 31, 2008 | Net change | Outstanding at March 31, 2009 | Net change | Outstanding at March 31, 2010 | |||||||||||||
| (number of shares) | (number of shares) | |||||||||||||||||||||
Preferred stock: | ||||||||||||||||||||||
Class 3 | 100,000,000 | — | 100,000,000 | — | 100,000,000 | 100,000,000 | — | 100,000,000 | — | 100,000,000 | ||||||||||||
Class 5 | — | 156,000,000 | 156,000,000 | — | 156,000,000 | |||||||||||||||||
Class 8 | 27,000,000 | (9,300,000 | ) | 17,700,000 | — | 17,700,000 | 17,700,000 | (17,700,000 | ) | — | — | — | ||||||||||
Class 9 | 79,700,000 | (79,700,000 | ) | — | — | — | ||||||||||||||||
Class 10 | 150,000,000 | (150,000,000 | ) | — | — | — | ||||||||||||||||
Class 11 | 1,000 | — | 1,000 | — | 1,000 | 1,000 | — | 1,000 | — | 1,000 | ||||||||||||
Class 12 | 175,300,000 | (141,600,000 | ) | 33,700,000 | — | 33,700,000 | 33,700,000 | (33,700,000 | ) | — | — | — | ||||||||||
Total | 532,001,000 | (380,600,000 | ) | 151,401,000 | — | 151,401,000 | 151,401,000 | 104,600,000 | 256,001,000 | — | 256,001,000 | |||||||||||
None of the Class 5, 6 and 7 Preferred Stock has been issued.
The aggregate liquidation preference of preferred stock issued and outstanding at March 31, 2006, 20072008, 2009 and 20082010 was as follows:
| Aggregate amount at March 31, 2006 | Net change | Aggregate amount at March 31, 2007 | Net change | Aggregate amount at March 31, 2008 | Aggregate amount at March 31, 2008 | Net change | Aggregate amount at March 31, 2009 | Net change | Aggregate amount at March 31, 2010 | |||||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||||||||
Preferred stock: | ||||||||||||||||||||||||||||||||
Class 3 | ¥ | 250,000 | ¥ | — | ¥ | 250,000 | ¥ | — | ¥ | 250,000 | ¥ | 250,000 | ¥ | — | ¥ | 250,000 | ¥ | — | ¥ | 250,000 | ||||||||||||
Class 5 | — | 390,000 | 390,000 | — | 390,000 | |||||||||||||||||||||||||||
Class 8 | 81,000 | (27,900 | ) | 53,100 | — | 53,100 | 53,100 | (53,100 | ) | — | — | — | ||||||||||||||||||||
Class 9 | 159,400 | (159,400 | ) | — | — | — | ||||||||||||||||||||||||||
Class 10 | 300,000 | (300,000 | ) | — | — | — | ||||||||||||||||||||||||||
Class 11 | 1 | — | 1 | — | 1 | 1 | — | 1 | — | 1 | ||||||||||||||||||||||
Class 12 | 175,300 | (141,600 | ) | 33,700 | — | 33,700 | 33,700 | (33,700 | ) | — | — | — | ||||||||||||||||||||
Total | ¥ | 965,701 | ¥ | (628,900 | ) | ¥ | 336,801 | ¥ | — | ¥ | 336,801 | ¥ | 336,801 | ¥ | 303,200 | ¥ | 640,001 | ¥ | — | ¥ | 640,001 | |||||||||||
Preferred stock included in Capital stock on the consolidated balance sheets at March 31, 2006, 2007 and 2008 was ¥247,100 million, which consisted of ¥122,100 million of Class 1 and ¥125,000 million of Class 3 Preferred Stock.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Preferred stock included in Capital stock on the consolidated balance sheets at March 31, 2009 and 2010 was ¥442,100 million, which consisted of ¥122,100 million of Class 1, ¥125,000 million of Class 3 and ¥195,000 million of Class 5 Preferred Stock.
The portion of proceeds from the sale of shares that is designated as capital stock is determined by resolution of the Board of Directors of MUFG, however, at least 50% of the issue price of newly issued shares is required to be designated as capital stock at the time of incorporation or share issuance under the Code and the Company Law. Proceeds in excess of amounts designated as capital stock are designated as capital surplus. However, these provisions are not applied in company reorganization, such as a merger, company split and share exchange. Preferred Stock Classes 8 through 12 were issued in exchange for UFJ Holdings’ preferred stock and recorded in Capital surplus.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On April 2, 2001, MUFG issued 81,400 shares of Class 1 Preferred Stock at an aggregate issue price of ¥244,200 million. ¥122,100 million was included in Preferred stock and the remaining amount was included in Capital surplus, net of stock issue expenses. MUFG redeemed 40,700 shares during the fiscal year ended March 31, 2005 and the remaining 40,700 shares during the fiscal year ended March 31, 2006. At each redemption, Capital surplus decreased by ¥122,100 million, totaling ¥244,200 million, as provided in the Commercial Code of Japan (“Code”) and the Articles of Incorporation of MUFG.
On February 17, 2005, MUFG issued 100,000 shares of Class 3 Preferred Stock at ¥2.5 million per share, the aggregate amount of the issue price being ¥250.0 billion.
On October 3, 2005, MUFG issued 200,000 shares of Class 8 Preferred Stock, 150,000 shares of Class 9 Preferred Stock, 150,000 shares of Class 10 Preferred Stock, 1 share of Class 11 Preferred Stock and 200,000 shares of Class 12 Preferred Stock in exchange for Class II, IV, V, VI and VII Preferred Stock of UFJ Holdings at an exchange ratio of 1 share of MUFG’s Class 8, 9, 10, 11 and 12 Preferred Stock for each share of UFJ Holdings’ Class II, IV, V, VI and VII Preferred Stock, respectively.
On October 4, 2005, 69,300 shares of Class 8 Preferred Stock and 57,850 shares of Class 9 Preferred Stock were converted into 122,763.51 and 127,096.45 shares of common stock, respectively, for the repayment of public funds.
On December 6, 2005, 51,900 shares of Class 8 Preferred Stock and 24,700 shares of Class 12 Preferred Stock were converted into 91,939.77 and 31,030.15 shares of common stock, respectively, for the repayment of public funds.
On February 28, 2006, 51,800 shares of Class 8 Preferred Stock and 12,450 shares of Class 9 Preferred Stock were converted into 91,762.63 and 22,733.70 shares of common stock, respectively, for the repayment of public funds.
On April 27, 2006, 45,400 shares of Class 12 Preferred Stock were converted into 57,035.18 shares of common stock.
On May 23, 2006, 9,300 shares of Class 8 Preferred Stock and 89,357 shares of Class 10 Preferred Stock originally issued by UFJ Holdings and held by the RCC were exchanged for 179,639 shares of common stock. The aggregate face amounts of the preferred stock exchanged were ¥27,900 million and ¥178,714 million, respectively. Subsequent to the exchanges, MUFG purchased 179,639 shares of common stock and an additional 7,923 shares of common stock as treasury stock for an aggregate amount of ¥286,970 million.
On June 8, 2006, 79,700 shares of Class 9 Preferred Stock, 60,643 shares of Class 10 Preferred Stock and 16,700 shares of Class 12 Preferred Stock were exchanged for 277,245 shares of common stock. The aggregate face amounts of the preferred stock exchanged were ¥159,400 million, ¥121,286 million and ¥16,700 million,
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
respectively. Subsequent to the exchanges, these shares of common stock were sold in the open market. As a result, MUFG completed the repayment of all public funds received by the MUFG Group in accordance with the Law Concerning Emergency Measures for the Early Strengthening of Financial Functions.
On June 29, 2006, 9,300 shares of Class 8 Preferred Stock, 79,700 shares of Class 9 Preferred Stock, 150,000 shares of Class 10 Preferred Stock and 16,700 shares of Class 12 Preferred Stock, which had been recorded as treasury stock, were retired.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On February 14, 2007, 22,800 shares of Class 12 Preferred Stock were exchanged for 28,643 shares of common stock.
On February 19, 2007, 45,400 shares of Class 12 Preferred Stock were exchanged for 57,035 shares of common stock.
On March 13, 2007, 11,300 shares of Class 12 Preferred Stock were exchanged for 14,195 shares of common stock.
On March 29, 2007, 79,500 shares of Class 12 Preferred Stock, which had been recorded as treasury stock, were retired.
On September 30, 2007, a share of all classes of Preferred Stock was divided into 1,000 shares.
Subsequent to March 31, 2008, onOn August 1, 2008, 17,700,000 shares of Class 8 Preferred Stock were converted intoexchanged for 43,895,180 shares of common stock.
On September 25, 2008, 17,700,000 shares of Class 8 Preferred Stock, which had been recorded as treasury stock, were retired.
On September 30, 2008, 22,400,000 shares of Class 12 Preferred Stock were exchanged for 28,140,710 shares of common stock.
On October 31, 2008, 22,400,000 shares of Class 12 Preferred Stock, which had been recorded as treasury stock, were retired.
On November 17, 2008, MUFG issued 156,000,000 shares of Class 5 Preferred Stock at ¥ 2,500 per share, the aggregate amount of the issue price being ¥390.0 billion.
Through the period from February 3, 2009 to February 16, 2009, 11,300,000 shares of Class 12 Preferred Stock were exchanged for 14,681,040 shares of common stock.
On February 27, 2009, 11,300,000 shares of Class 12 Preferred Stock, which had been recorded as treasury stock, were retired.
Subsequent to March 31, 2010, on April 1, 2010, MUFG acquired 100,000,000 shares of Class 3 Preferred Stock. On the same day, these 100,000,000 shares of Class 3 Preferred Stock were retired.
Preferred Stock IssuedOutstanding as of March 31, 20082010
Class 3 Preferred Stock
Class 3 Preferred Stock is redeemable at the option of MUFG. At the time of issuance, the Board of Directors determines an issue price, an annual dividend, (not to exceed ¥250 per share), and redemption terms, including a redemption price.
Class 3 Preferred Stock was issued by means of a third party allocation to Meiji Yasuda Life Insurance Company, Tokio Marine & Nichido Fire Insurance Co., Ltd. and Nippon Life Insurance Company. The preferred stock does not have voting rights at any general meetings of shareholders, unless otherwise provided by applicable laws and regulations. Preferred dividends are set to be ¥60 per share annually.
Class 8 Preferred Stock
Class 8 preferred stockholders are entitled to receive annual non-cumulative dividends of ¥15.90 per share with priority over common stockholders.
Class 8 Preferred Stock is convertible into fully paid shares of MUFG common stock at the election of holders from and including the day of establishment of MUFG to and including July 31, 2008, except during certain excluded periods, at an initial conversion price of ¥1,693.50 per share of common stock, subject to anti-dilution adjustments. The conversion price is subject to reset annually on August 1 from 2006 to 2007 to the average market price of the common stock for the 30 trading day period beginning 45 trading days prior to each reset date, multiplied by 1.025, but not less than ¥1,693.50 per share. All Class 8 Preferred Stock outstanding on August 1, 2008 will be mandatorily converted into shares of common stock at a conversion ratio of ¥3,000 divided by the higher of the average market price of the common stock for the 30 trading day period beginning 45 trading days prior to August 1, 2008 or ¥1,209.70.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Class 5 Preferred Stock
Class 5 Preferred Stock is redeemable at the option of MUFG. At the time of issuance, the Board of Directors determines an issue price, an annual dividend (not to exceed ¥250 per share), and redemption terms, including a redemption price.
Class 5 Preferred Stock was issued by means of a third party allocation to Nippon Life Insurance Company, Meiji Yasuda Life Insurance Company, TAIYO LIFE INSURANCE COMPANY, DAIDO LIFE INSURANCE COMPANY, Tokio Marine & Nichido Fire Insurance Co., Ltd., NIPPONKOA Insurance Company, Limited and Aioi Insurance Company, Limited. The preferred stock does not have voting rights at any general meetings of shareholders, unless otherwise provided by applicable laws and regulations. Preferred dividends are set to be ¥115 per share annually, except as of March 31, 2009. Preferred dividends were ¥43 per share as of March 31, 2009.
Class 11 Preferred Stock
Class 11 preferred stockholders are entitled to receive annual non-cumulative dividends of ¥5.30 per share with priority over common stockholders.
Class 11 Preferred Stock is convertible into fully paid shares of MUFG common stock at the election of holders from and including the day of establishment of MUFG to and including July 31, 2014, except during certain excluded periods, at an initial conversion price of ¥918.70 per share of common stock, subject to anti-dilution adjustments. The conversion price was subject to reset annually on July 15 from 2006 to 2013 to the average market price of the common stock for the 30 trading day period, if the average market price werewas less than the conversion price prior to the reset but not less than ¥918.70 per share. The acquisition price and the acquisition floor price of Class 11 Preferred Stock were adjusted as ¥889.60 per share on December 15, 2008, ¥888.40 per share on January 14, 2009, ¥867.60 per share on December 21, 2009, and ¥865.90 per share on December 25, 2009, in accordance with the provisions relating to the adjustment of the acquisition price set forth in the terms and conditions of Class 11 Preferred Stock.
All Class 11 Preferred Stock outstanding on August 1, 2014 will be mandatorily converted into shares of common stock at a conversion ratio of ¥1,000 divided by the higher of the average market price of the common stock for the 30 trading day period beginning 45 trading days prior to August 1, 2014 or ¥802.60.
Class 12 Preferred Stock
Class 12 preferred stockholders are entitled to receive annual non-cumulative dividends of ¥11.50 per share with priority over common stockholders.
Class 12 Preferred Stock is convertible into fully paid shares of MUFG common stock at the election of holders from and including the day of establishment of MUFG to and including July 31, 2009, except during certain excluded periods, at an initial conversion price of ¥796.00 per share of common stock, subject to anti-dilution adjustments. The conversion price was subject to reset annually on June 15 from 2006 to 2008 to the average market price of the common stock for the 30 trading day period, if the average market price were less than the conversion price prior to the reset, but not less than ¥796.00 per share. All Class 12 Preferred Stock outstanding on August 1, 2009 will be mandatorily converted into shares of common stock at a conversion ratio of ¥1,000 divided by the higher of the average market price of the common stock for the 30 trading day period beginning 45 trading days prior to August 1, 2009 or ¥795.20.
Beneficial Conversion Feature
Convertible preferred stock contains a beneficial conversion feature if the effective conversion price (either initially or after being reset) for a share of common stock upon conversion is less than the market price of a share of common stock when the preferred stock was issued. MUFG accounts for the beneficial conversion features of its preferred stock under the recognition and measurement principles of EITF Issue No. 98-5, “Accounting for Convertible Securities with Beneficial Conversions Features or Contingently Adjustable Conversion Ratios” and EITF Issue No. 00-27, “Application of EITF Issue No. 98-5 to Certain Convertible Instruments.”
Beneficial conversion feature discounts are measured as the excess of the market price of a share of common stock when the preferred stock is issued over the initial or reset preferred stock conversion price per share of common stock. Beneficial conversion feature discounts are charged to Capital surplus when recognized and amortized to retained earnings as non-cash preferred dividends using the effective yield method. Initial beneficial conversion feature discounts are amortized over the period from the issuance date of the preferred stock to the mandatory conversion date. Contingent beneficial conversion feature discounts are recognized when the reset conversion price is determinable and amortized over the period from the conversion price reset date to the mandatory conversion date. Any remaining unamortized beneficial conversion feature discount when preferred stock is converted at the option of the holder before the mandatory conversion date is immediately charged to retained earnings as a non-cash preferred dividend.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The changes in the unamortized discount arising from beneficial conversion features of the preferred stock during the fiscal yearsyear ended March 31, 2006, 2007 and 20082009 were as follows:
| Class 8(1) | Class 9 | Class 10 | Class 11(2) | Class 12(3) | Total | ||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Fiscal year ended | |||||||||||||||||||||||
Balance at March 31, 2006 | ¥ | 11,603 | ¥ | 65,831 | ¥ | 123,442 | ¥ | 1 | ¥ | 83,283 | ¥ | 284,160 | |||||||||||
Amortization to retained earnings | (3,382 | ) | (2,892 | ) | (5,431 | ) | — | (12,312 | ) | (24,017 | ) | ||||||||||||
Charged to retained earnings on conversion of preferred stock | (3,731 | ) | (62,939 | ) | (118,011 | ) | — | (58,734 | ) | (243,415 | ) | ||||||||||||
Balance at March 31, 2007 | ¥ | 4,490 | ¥ | — | ¥ | — | ¥ | 1 | ¥ | 12,237 | ¥ | 16,728 | |||||||||||
Fiscal year ended | |||||||||||||||||||||||
Balance at March 31, 2007 | ¥ | 4,490 | ¥ | — | ¥ | — | ¥ | 1 | ¥ | 12,237 | ¥ | 16,728 | |||||||||||
Amortization to retained earnings | (3,330 | ) | — | — | — | (4,579 | ) | (7,909 | ) | ||||||||||||||
Balance at March 31, 2008 | ¥ | 1,160 | ¥ | — | ¥ | — | ¥ | 1 | ¥ | 7,658 | ¥ | 8,819 | |||||||||||
| Class 8 | Class 11 | Class 12 | Total | |||||||||||||
| (in millions) | ||||||||||||||||
Fiscal year ended March 31, 2009: | ||||||||||||||||
Balance at March 31, 2008 | ¥ | 1,160 | ¥ | 1 | ¥ | 7,658 | ¥ | 8,819 | ||||||||
Addition on conversion price/ratio reset | — | — | 659 | 659 | ||||||||||||
Amortization to retained earnings | (1,160 | ) | (1 | ) | (3,618 | ) | (4,779 | ) | ||||||||
Charged to retained earnings on conversion of preferred stock | — | — | (4,699 | ) | (4,699 | ) | ||||||||||
Balance at March 31, 2009 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ||||||||
Notes:The above balances at March 31, 2008 were fully amortized to retained earnings or charged to retained earnings on conversion of preferred stock by March 31, 2009
20.18. COMMON STOCK AND CAPITAL SURPLUS
The changes in the number of issued shares of common stock during the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 were as follows:
| 2006 | 2007 | 2008 | ||||
| (shares) | ||||||
Balance at beginning of fiscal year | 6,545,353,370 | 10,247,851,610 | 10,861,643,790 | |||
Issuance of new shares of common stock by merger | 3,215,172,030 | — | — | |||
Issuance of new shares of common stock by conversion of Class 8 Preferred Stock | 306,465,910 | 16,474,000 | — | |||
Issuance of new shares of common stock by conversion of Class 9 Preferred Stock | 149,830,150 | 145,532,000 | — | |||
Issuance of new shares of common stock by conversion of Class 10 Preferred Stock | — | 273,899,000 | — | |||
Issuance of new shares of common stock by conversion of Class 12 Preferred Stock | 31,030,150 | 177,887,180 | — | |||
Balance at end of fiscal year | 10,247,851,610 | 10,861,643,790 | 10,861,643,790 | |||
On May 1, 2006, a new company law (“the Company Law”) became effective. The Company Law reformed and replaced the Code with various revisions that, for the most part, are applicable to events or transactions occurring on or after May 1, 2006 and for the fiscal years ending on or after May 1, 2006.
| 2008 | 2009 | 2010 | ||||
| (shares) | ||||||
Balance at beginning of fiscal year | 10,861,643,790 | 10,861,643,790 | 11,648,360,720 | |||
Issuance of new shares of common stock by conversion of Class 8 Preferred Stock | — | 43,895,180 | — | |||
Issuance of new shares of common stock by conversion of Class 12 Preferred Stock | — | 42,821,750 | — | |||
Issuance of new shares of common stock by way of Offering (Public Offering) | — | 634,800,000 | 2,337,000,000 | |||
Issuance of new shares of common stock by way of Third-Party Allotment | — | 65,200,000 | 163,000,000 | |||
Issuance of new shares of common stock by way of exercise of the stock acquisition rights | — | — | 54,200 | |||
Balance at end of fiscal year | 10,861,643,790 | 11,648,360,720 | 14,148,414,920 | |||
Under the Code and the Company Law, issuances of common stock, including conversions of bonds and notes, are required to be credited to the common stock account for at least 50% of the proceeds and to the legal capital surplus account (“legal capital surplus”) for the remaining amounts.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Code and the Company Law permitpermits Japanese companies, upon approval by the Board of Directors, to issue shares in the form of a “stock split,” as defined in the CodeCompany Law (see Note 1). Also, the Code prior to April 1, 1991, permitted Japanese companies were permitted to issue free share distributions. BTMU and MUTB from time to time made free share distributions. These free distributions usually ranged from 5% to 10% of outstanding common stock and publicly-owned corporations in the United States issuing shares in similar transactions would be required to account for them as stock dividends as of the shareholders’ record date by reducing retained earnings and increasing the appropriate capital accounts by an amount equal to the fair value of the shares issued. The application of such United States accounting practice to the cumulative free distributions made by BTMU and MUTB at March 31, 2008,2010, would have increased capital accounts by ¥1,910,106 million with a corresponding decrease in unappropriated retained earnings.earnings (accumulated deficit).
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
The Code permits, upon approval of the Board of Directors, the transfer of amounts from the legal capital surplus to the capital stock account. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company Law permits that common stock, legal reserve, additional paid-in capital, and other capital surplus and retained earnings can be transferred among these accounts under certain conditions upon the approval of a shareholders’ meeting. The Company Law limits the increase of paid in capital in case disposition of treasury stock and issuance of common stock are performed at the same time.
Common Stock Issued during the fiscal year ended March 31, 2009
On December 15, 2008, MUFG issued 634,800,000 shares of common stock by way of offering and sold 300,000,000 shares of common stock through a secondary offering of shares by way of sale of Treasury stock. Both types of stock were offered at ¥399.80 per share (issue price and selling price at ¥417.00 per share) for ¥253,793 million and ¥119,940 million, respectively. As a result, ¥29,811 million was included in Capital stock, and the same amount was also included in Capital surplus.
On December 16, 2008, MUFG sold 65,200,000 shares of common stock through a secondary offering of shares by way of over-allotment, in which an underwriter borrows securities from certain shareholder(s) of MUFG to sell the shares, at a selling price of ¥417.00 per shares for ¥27,188 million. In connection with the secondary offering by way of over-allotment, on January 14, 2009, MUFG issued 65,200,000 new shares of common stock by way of third-party allotment at ¥399.80 per share for ¥26,067 million. As a result, ¥13,033 million was included in Capital stock, and the same amount was also included in Capital surplus.
As for Capital surplus, the fee retained by MUFG’s subsidiary as underwriting compensation, net of stock issue expense, was included in the total Capital surplus balance in addition to the balance mentioned above.
Common Stock Issued during the fiscal year ended March 31, 2010
On December 21, 2009, MUFG issued 2,337,000,000 shares of common stock by way of offering. This type of stock was offered at ¥412.53 per share (issue price and selling price at ¥428.00 per share) for ¥964,082 million. As a result, ¥482,041 million was included in Capital stock, and the same amount was also included in Capital surplus.
On December 22, 2009, MUFG sold 163,000,000 shares of common stock through a secondary offering of shares by way of over-allotment, in which an underwriter borrows securities from certain shareholder(s) of MUFG to sell the shares, at a selling price of ¥428.00 per shares for ¥69,764 million. In connection with the secondary offering by way of over-allotment, on December 25, 2009, MUFG issued 163,000,000 new shares of common stock by way of third-party allotment at ¥412.53 per share for ¥67,242 million. As a result, ¥33,621 million was included in Capital stock, and the same amount was also included in Capital surplus.
As for Capital surplus, the fee retained by MUFG’s subsidiary as underwriting compensation, net of stock issue expense, was included in the total Capital surplus balance in addition to the balance mentioned above.
Treasury Stock
The Code and the Company Law permitpermits Japanese companies to effect purchases of their own shares pursuant to a resolution by the shareholders at an annual general meeting until the conclusion of the following ordinary general meeting of shareholders, and to hold such shares as itstheir treasury sharesstock indefinitely regardless of purpose. However, the Code and the Company Law requirerequires the amount of treasury stock purchased should be within the amount of retained earnings available for dividends. Disposition of treasury stock is subject to the approval of the Board of Directors and is to follow the procedures similar to a public offering of shares for subscription.
MITSUBISHI UFJ Holdings was a recipient of public funds from the RCC, a Japanese government entity. These public funds were injected in the form of a preferred stock investment and UFJ preferred stock was exchanged as part of the merger for newly issued preferred stock of MUFG.FINANCIAL GROUP, INC. AND SUBSIDIARIES
Related to the repayment of public funds received, the RCC converted certain preferred stock held into common stock. Subsequent to the conversions, the RCC sold these shares of common stock in the open market. Primarily in response to the sales by the RCC, MUFG repurchased a total of ¥1,047,882 million its common stock from the market on October 5, 2005, December 7, 2005, March 1, 2006 and May 24, 2006.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Parent Company Shares Held by Subsidiaries and Affiliated Companies
At March 31, 2008,2010, certain subsidiaries and affiliated companies owned shares of common stock of MUFG. Such shares are included in treasury stock in the consolidated balance sheets and deducted from the MUFG Group’sMUFG‘s shareholders’ equity.
21.19. RETAINED EARNINGS, LEGAL RESERVE AND DIVIDENDS
In addition to the Code and the Company Law, Japanese banks, including BTMU and MUTB, are required to comply with the Banking Law of Japan (the “Banking Law”).
Legal Reserve Set Aside as Appropriation of Retained Earnings and Legal Capital Surplus
Under the Code and the Company Law
The Code and the Company Law provideprovides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain appropriations of retained earnings associated with cash outlays applicable to each
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
period shall be appropriated and set aside as a legal reserve until the aggregate amount of legal reserve set aside as an appropriation of retained earnings and the legal capital surplus equals 25% of stated capital as defined in the Code.Company Law.
Under the Banking Law
The Banking Law provides that an amount at least equal to 20% of the aggregate amount of cash dividends and certain appropriations of retained earnings associated with cash outlays applicable to each fiscal period shall be appropriated and set aside as a legal reserve until the aggregate amount of legal reserve set aside as appropriation of retained earnings and the legal capital surplus equals 100% of stated capital as defined in the Code.Company Law.
Transfer of Legal Reserve
Under the CodeCompany Law
Under the Code,Company Law, Japanese companies, including MUFG, were permitted, pursuant to a resolution by the shareholders at a general meeting, to make legal reserve set aside as appropriation of retained earnings and legal capital surplus available for dividends until the aggregate amount of the legal reserve and legal capital surplus equals 25% of stated capital as defined in the Code.Company Law.
Under the Company Law, Japanese companies, including MUFG, BTMU and MUTB, are permitted, primarily pursuant to a resolution by the shareholders at a general meeting, to transfer legal capital surplus and legal reserve to stated capital and/or retained earnings without limitations of thresholds, thereby effectively removing the thresholds provided for in the Company Law and Banking Law at the company’s discretion.
Under the Banking Law
Under the Banking Law, Japanese banks, including BTMU and MUTB, were permitted, pursuant to a resolution by the shareholders at a general meeting, to make legal reserve set aside as an appropriation of retained earnings and legal capital surplus available for dividends until the aggregate amount of the legal reserve and legal capital surplus equals 100% of stated capital as defined in the Code.Company Law.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
Enactments of the Company Law and the Amendments of Banking Law Effective May 1, 2006NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Effective May 1, 2006, under the Company Law, Japanese companies, including MUFG, BTMU and MUTB, are permitted, primarily pursuant to a resolution by the shareholders at a general meeting, to transfer legal capital surplus and legal reserve to stated capital and/or retained earnings without limitations of thresholds, thereby effectively removing the thresholds provided for in the Code and Banking Law at the company’s discretion.
Unappropriated Retained Earnings (Accumulated Deficit) and Dividends
UnderIn addition to the Codeprovision that requires an appropriation for legal reserve as described above, the Company Law and the Banking Law impose certain limitations on the amount available for dividends.
Under the Company Law, the amount available for dividends is based on the amount recorded in MUFG’s general books of account maintained in accordance with accounting principles generally accepted in Japan (“Japanese GAAP”). The adjustments included in the accompanying consolidated financial statements but not recorded in MUFG’s general books of account, as explained in Note 1, have no effect on the determination of retained earnings available for dividends under the Code and the Company Law. In addition to the provision that requires an appropriation for legal reserve as described above, the Code, the Company Law and the Banking Law impose certain limitations on the amount available for dividends. Under the Banking Law, MUFG, BTMU and MUTB have to meet the minimum capital adequacy requirements and distributions of retained earnings of MUFG, BTMU and MUTB, which are otherwise distributable to shareholders, are restricted in order to maintain the minimum 4.0% Tier I capital for capital adequacy purpose.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
MUFG was established on April 2, 2001 with common stock of ¥924,400 million, preferred stock of ¥222,100 million, legal capital surplus of ¥2,838,693 million and no retained earnings in accordance with the Code and Japanese GAAP.
On October 1, 2005, MUFG started with common stock and preferred stock of ¥1,383,052 million, legal capital surplus of ¥3,577,570 million and retained earnings of ¥757,458 million in accordance with the Code and Japanese GAAP.
MUFG’s amount available for dividends, at March 31, 2008,2010, was ¥3,988,491¥4,421,862 million, which is based on the amount recorded in MUFG’s general books of account under Japanese GAAP.
Annual dividends, including those for preferred stock, are approved by the shareholders at an annual general meeting held subsequent to the fiscal year to which the dividends are applicable. In addition, a semi-annual interim dividend payment may be made by resolution of the Board of Directors, subject to limitations imposed by the Code, the Company Law and the Banking Law.
In the accompanying consolidated statements of shareholders’ equity, dividends and appropriations to legal reserve shown for each fiscal year represent dividends approved and paid during the fiscal year and the related appropriation to legal reserve.
22.20. NONCONTROLLING INTERESTS
Deconsolidation of the Subsidiaries
The amount of gains (losses) recognized due to deconsolidation of subsidiaries for the fiscal years ended March 31, 2008, 2009 and 2010 were ¥(778) million, ¥(320) million and ¥32,420 million, respectively, and gains related to the remeasurement of retained investments were ¥18,782 million for the fiscal year ended March 31, 2010. These gains and losses were recognized under “Other non-interest income” and “Other non-interest expenses,” respectively in the consolidated statements of operations.
On October 1, 2009, Senshu Bank, a former consolidated subsidiary of MUFG Group, and The Bank of Ikeda Ltd. (“Bank of Ikeda”) incorporated Senshu Ikeda Holdings, Inc. through share exchange transaction based on the business integration agreement entered into by BTMU, Senshu Bank and Bank of Ikeda on May 25, 2009. As a result of the business integration, MUFG Group acquired shares of Senshu Ikeda Holdings, Inc. in exchange for MUFG Group’s shares of Senshu Bank and ceased to have a controlling financial interest in Senshu Bank.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Senshu Bank was deconsolidated and Senshu Ikeda Holdings, Inc. became an equity method investee of MUFG from October 1, 2009. MUFG recorded the retained investment at fair value, as measured by the quoted market price of Senshu Ikeda Holdings, Inc. and recognized a gain of ¥29,004 million in the consolidated statement of operations.
Supplemental Schedule
Transactions between Mitsubishi UFJ Financial Group and the noncontrolling interests for the fiscal year ended March 31, 2010 were as follow:
| 2010 | ||||
| (in millions) | ||||
Net income attributable to Mitsubishi UFJ Financial Group | ¥ | 859,819 | ||
Transactions between Mitsubishi UFJ Financial Group and the noncontrolling interests: | ||||
Conversion of preferred stock to common stock issued by a subsidiary | (641 | ) | ||
Other | 221 | |||
Net transfers to noncontrolling interests | (420 | ) | ||
Change from net income attributable to Mitsubishi UFJ Financial Group and transactions between Mitsubishi UFJ Financial Group and the noncontrolling interests | ¥ | 859,399 | ||
21. REGULATORY CAPITAL REQUIREMENTS
Japan
MUFG, BTMU, MUTB and MUS are subject to various regulatory capital requirements promulgated by the regulatory authorities of the countries in which they operate. Failure to meet minimum capital requirements will initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on MUFG’s consolidated financial statements.
In Japan, MUFG, BTMU, and MUTB are subject to regulatory capital requirements promulgated by the FSAFinancial Services Agency of Japan (“FSA”) in accordance with the provisions of the Banking Law and related regulations. A banking institution is subject to the minimum capital requirements both on a consolidated basis and a stand-alone basis, and is required to maintain the minimum capital irrespective of whether it operates independently or as a subsidiary under the control of another company. When a bank holding company manages operations of its banking subsidiaries, it is required to maintain the minimum capital adequacy ratio on a consolidated basis in the same manner as its subsidiary banks. The FSA provides two sets of capital adequacy guidelines. One is a set of guidelines applicable to Japanese banks and bank holding companies with foreign offices conducting international operations, as defined, and the other is applicable to Japanese banks and bank holding companies that are not engaged in international operations.operations conducted by foreign offices.
Under the capital adequacy guidelines applicable to a Japanese banking institution with international operations conducted by foreign offices, a minimum capital ratio of 8.0% is required.
The Basel Committee on Banking Supervision of the Bank for International Settlements (BIS)(“BIS”) sets capital adequacy standards for all internationally active banks to ensure minimum level of capitals.
The Basel Committee worked over recent years to revise the 1988 Accord, and in June 2004, “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” called Basel II was released. Basel II has been applied to Japanese banks and bank holding companies as of March 31, 2008. MUFG calculated capital ratios as of March 31, 20072009 and 20082010 in accordance with Basel II.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Basel II is based on “three pillars”: (1) minimum capital requirements, (2) the self-regulation of financial institutions based on supervisory review process, and (3) market discipline through the disclosure of information. The framework of the 1988 Accord, Basel I, is improved and expanded to be included in “minimum capital requirements” as the first pillar of Basel II.
As for the denominator of the capital ratio, retaining the Basel I Framework, Basel II provides more risk-sensitive approaches and a range of options for determining the risk-weighted assets.
“Credit Risk”
The revised Framework provides options for determining the risk-weighted assets for credit risk to allow banks to select approaches that are most appropriate for their level of risk assessment while the Basel I Framework provided a sole measurement approach. Banks choose one of three approaches: “Standardized Approach”, “Foundation Internal Ratings-Based Approach (FIRB)(“FIRB”)” or “Advanced Internal Ratings-Based Approach (AIRB)(“AIRB”).”.
“Market Risk”
In the “Amendment to the Capital Accord to incorporate market risks” of the year 1996, a choice between two methodologies “the Standardized Methodology” and “Internal Models Approach” is permitted. “Combination of Internal Models Approach and the Standardized Methodology” is also allowed under certain conditions. This is unchanged in Basel II.
“Operational Risk”
Operational risk, which is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events, is newly added in Basel II. Basel II presents three methods for calculating operational risk capital charges: (i) the Basic Indicator Approach; (ii) the Standardized Approach; or (iii) Advanced Measurement Approaches (AMA)(“AMA”). Banks adopt one of the three approaches to determine the risk-weighted assets for operational risk.
Banks need to obtain approval from their supervisors prior to adopting the following approaches to calculate capital requirements for each risk:
| Ÿ | the Internal Ratings-Based |
| Ÿ | the Internal Models Approach for market risk |
| Ÿ | the Standardized Approach and AMA for operational risk |
On the other hand, as for the numerator of the capital ratio, Basel II takes over in principle the eligible regulatory capital stipulated in Basel I.
Capital is classified into three tiers, referred to as Tier I, Tier II and Tier III capital and deductions from capital.
Tier I capital generally consists of shareholders’ equity items, including common stock, preferred stock, capital surplus, minoritynoncontrolling interests and retained earnings, less any recorded goodwill and other items such as treasury stock. Tier II capital generally consists of general reserves for credit losses up to 1.25% of risk-weighted assets, 45% of the unrealized gains on investment securities available for sale, 45% of the land revaluation excess, the balance of perpetual subordinated debt and the balance of subordinated term debt with an original maturity of over five
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
maturity of over five years subject to some limitations, up to 50% of Tier I capital. Preferred stock is includable in Tier I capital unless the preferred stock has a fixed maturity, in which case, such preferred stock will be a component of Tier II capital. Tier III capital generally consists of short-term subordinated debt with an original maturity of at least two years, subject to certain limitations. At least 50% of a bank’s capital base must be maintained in the form of Tier I capital.
Deductions include a banks’ holdings of capital issued by other banks, or deposit-taking institutions and investments in subsidiaries engaged in banking and financial activities which are not consolidated in accordance with Japanese GAAP.
Due to a change in credit risk measurement by adopting Basel II, general provisions for credit losses can be included in Tier II capital according to the proportion of credit risk-weighted assets subject to the Standardized Approach only. Under the IRB approach, the capital is adjusted by the amount of the difference between total eligible provisions and total expected losses calculated within the IRB approach. Under certain conditions, banks are also required to deduct from regulatory capital securitization exposure, any increase in equity capital resulting from a securitization transaction and expected losses on equity exposures under the Probability of Default/Loss Given Default approach.
If a banking institution is not engaged in international operations conducted by foreign offices, it is subject to another set of capital adequacy requirements with a minimum capital ratio of 4.0%. Such guidelines incorporate measures of risk under the risk-weighted approach similar to the guidelines applicable to banking institutions with international operations. Qualifying capital is classified into Tier I and Tier II capital.
The Banking Law and related regulations require that one of three categories be assigned to banks and bank holding companies, based on its risk-adjusted capital adequacy ratio if the bank fails to meet the minimum target capital adequacy ratio. These categories indicate capital deterioration, which may be subject to certain prompt corrective action by the FSA.
MUFG, BTMU and MUTB have international operations conducted by foreign offices, as defined, and are subject to the 8.0% capital adequacy requirement.
The MUFG Group’s proprietary assets do not include trust assets under management and administration in a capacity of agent or fiduciary and, accordingly trust account assets are generally not included in the capital measure. However, guarantees for trust principal are counted as off-balance-sheet items requiring a capital charge in accordance with the capital adequacy guidelines.
In Basel II, MUFG and most of its major subsidiaries of MUFG adopted FIRBadopt AIRB to calculate capital requirements for credit risk. MUFG adoptedand most of its major subsidiaries adopt the Standardized Approach to calculate capital requirements for operational risk. As for market risk, MUFG adoptedand most of its major subsidiaries adopt the Internal Models Approach mainly to calculate general market risk and adoptedadopt the Standardized Methodology to calculate specific risk.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The risk-adjusted capital amounts and ratios of MUFG, BTMU and MUTB presented in the following table are based on amounts calculated in accordance with Japanese GAAP as required by the FSA:
| Actual | For capital adequacy purposes | |||||||||||
| Amount | Ratio | Amount | Ratio | |||||||||
| (in millions, except percentages) | ||||||||||||
Consolidated: | ||||||||||||
At March 31, 2007(1): | ||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||
MUFG | ¥ | 13,344,476 | 12.54 | % | ¥ | 8,511,641 | 8.00 | % | ||||
BTMU | 11,601,958 | 12.77 | 7,264,324 | 8.00 | ||||||||
MUTB | 1,847,826 | 13.20 | 1,119,578 | 8.00 | ||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||
MUFG | 8,054,872 | 7.57 | 4,255,820 | 4.00 | ||||||||
BTMU | 6,975,584 | 7.68 | 3,632,162 | 4.00 | ||||||||
MUTB | 1,175,558 | 8.40 | 559,789 | 4.00 | ||||||||
At March 31, 2008: | ||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||
MUFG | ¥ | 12,215,857 | 11.19 | % | ¥ | 8,726,050 | 8.00 | % | ||||
BTMU | 10,611,064 | 11.20 | 7,574,951 | 8.00 | ||||||||
MUTB | 1,650,220 | 13.13 | 1,005,213 | 8.00 | ||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||
MUFG | 8,293,762 | 7.60 | 4,363,025 | 4.00 | ||||||||
BTMU | 7,037,578 | 7.43 | 3,787,475 | 4.00 | ||||||||
MUTB | 1,248,993 | 9.94 | 502,607 | 4.00 | ||||||||
Stand-alone: | ||||||||||||
At March 31, 2007(1): | ||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||
BTMU | ¥ | 10,678,035 | 13.15 | % | ¥ | 6,494,333 | 8.00 | % | ||||
MUTB | 1,805,197 | 12.85 | 1,123,308 | 8.00 | ||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||
BTMU | 6,428,452 | 7.91 | 3,247,166 | 4.00 | ||||||||
MUTB | 1,125,255 | 8.01 | 561,654 | 4.00 | ||||||||
At March 31, 2008: | ||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||
BTMU | ¥ | 9,675,813 | 11.44 | % | ¥ | 6,760,684 | 8.00 | % | ||||
MUTB | 1,607,250 | 12.87 | 998,714 | 8.00 | ||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||
BTMU | 6,467,550 | 7.65 | 3,380,342 | 4.00 | ||||||||
MUTB | 1,192,890 | 9.55 | 499,357 | 4.00 | ||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note:
| Actual | For capital adequacy purposes | Actual | For capital adequacy purposes | |||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||
As previously reported | ||||||||||||||||||||||||
Consolidated: | ||||||||||||||||||||||||
At March 31, 2007: | ||||||||||||||||||||||||
At March 31, 2009: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||||||
MUFG | ¥ | 13,349,105 | 12.59 | % | ¥ | 8,483,861 | 8.00 | % | ¥ | 11,478,440 | 11.77 | % | ¥ | 7,799,477 | 8.00 | % | ||||||||
BTMU | 11,606,586 | 12.83 | 7,236,545 | 8.00 | 9,637,052 | 12.02 | 6,413,908 | 8.00 | ||||||||||||||||
MUTB | 1,847,826 | 13.20 | 1,119,578 | 8.00 | 1,447,919 | 12.70 | 911,627 | 8.00 | ||||||||||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||||||||||||||
MUFG | 8,054,872 | 7.60 | 4,241,931 | 4.00 | 7,575,189 | 7.76 | 3,899,738 | 4.00 | ||||||||||||||||
BTMU | 6,975,584 | 7.71 | 3,618,272 | 4.00 | 6,127,624 | 7.64 | 3,206,954 | 4.00 | ||||||||||||||||
MUTB | 1,175,558 | 8.40 | 559,789 | 4.00 | 1,159,785 | 10.17 | 455,814 | 4.00 | ||||||||||||||||
Stand-alone: | ||||||||||||||||||||||||
At March 31, 2007: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||||||
BTMU | ¥ | 10,682,663 | 13.22 | % | ¥ | 6,466,553 | 8.00 | % | ||||||||||||||||
MUTB | 1,805,197 | 12.86 | 1,123,308 | 8.00 | ||||||||||||||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||||||||||||||
BTMU | 6,428,565 | 7.95 | 3,233,277 | 4.00 | ||||||||||||||||||||
MUTB | 1,125,255 | 8.01 | 561,654 | 4.00 | ||||||||||||||||||||
As restated | ||||||||||||||||||||||||
Consolidated: | ||||||||||||||||||||||||
At March 31, 2007: | ||||||||||||||||||||||||
At March 31, 2010: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||||||
MUFG | ¥ | 13,344,476 | 12.54 | % | ¥ | 8,511,641 | 8.00 | % | ¥ | 13,991,766 | 14.87 | % | ¥ | 7,526,507 | 8.00 | % | ||||||||
BTMU | 11,601,958 | 12.77 | 7,264,324 | 8.00 | 11,965,085 | 15.54 | 6,158,125 | 8.00 | ||||||||||||||||
MUTB | 1,847,826 | 13.20 | 1,119,578 | 8.00 | 1,737,210 | 16.02 | 867,354 | 8.00 | ||||||||||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||||||||||||||
MUFG | 8,054,872 | 7.57 | 4,255,820 | 4.00 | 10,009,643 | 10.63 | 3,763,253 | 4.00 | ||||||||||||||||
BTMU | 6,975,584 | 7.68 | 3,632,162 | 4.00 | 8,349,500 | 10.84 | 3,079,062 | 4.00 | ||||||||||||||||
MUTB | 1,175,558 | 8.40 | 559,789 | 4.00 | 1,352,012 | 12.47 | 433,677 | 4.00 | ||||||||||||||||
Stand-alone: | ||||||||||||||||||||||||
At March 31, 2007: | ||||||||||||||||||||||||
At March 31, 2009: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||||||
BTMU | ¥ | 10,678,035 | 13.15 | % | ¥ | 6,494,333 | 8.00 | % | ¥ | 9,431,674 | 12.74 | % | ¥ | 5,920,101 | 8.00 | % | ||||||||
MUTB | 1,805,197 | 12.85 | 1,123,308 | 8.00 | 1,411,772 | 12.49 | 903,726 | 8.00 | ||||||||||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||||||||||||||
BTMU | 6,428,452 | 7.91 | 3,247,166 | 4.00 | 6,175,439 | 8.34 | 2,960,050 | 4.00 | ||||||||||||||||
MUTB | 1,125,255 | 8.01 | 561,654 | 4.00 | 1,112,966 | 9.85 | 451,863 | 4.00 | ||||||||||||||||
At March 31, 2010: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets): | ||||||||||||||||||||||||
BTMU | ¥ | 11,667,072 | 16.34 | % | ¥ | 5,711,394 | 8.00 | % | ||||||||||||||||
MUTB | 1,738,081 | 16.10 | 863,354 | 8.00 | ||||||||||||||||||||
Tier I capital (to risk-weighted assets): | ||||||||||||||||||||||||
BTMU | 8,276,159 | 11.59 | 2,855,697 | 4.00 | ||||||||||||||||||||
MUTB | 1,305,511 | 12.09 | 431,677 | 4.00 | ||||||||||||||||||||
MUS and other securities subsidiaries in Japan and overseas are also subject to regulatory capital requirements of the countries or jurisdictions in which they operate. In Japan, the Financial Instruments and Exchange Law and related ordinance require financial instruments firms to maintain a minimum capital ratio of 120% calculated as a percentage of capital accounts less certain fixed assets, as determined in accordance with Japanese GAAP, against amounts equivalent to market, counterparty credit and operations risks. Specific guidelines are issued as a ministerial ordinance which details the definition of essential components of the capital ratios, including capital, deductible fixed asset items and risks, and related measures. Failure to maintain a minimum capital ratio will trigger mandatory regulatory actions. A capital ratio of less than 140% will call for regulatory reporting and a capital ratio of less than 100% may lead to a suspension of all or part of the business for a period of time and cancellation of a registration.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At March 31, 20072009 and 2008,2010, MUS’s capital accounts less certain fixed assets of ¥739,672¥502,823 million and ¥619,275¥505,693 million, were 371.1%353.7% and 299.4%342.9 % of the total amounts equivalent to market, counterparty credit and operations risks, respectively.
Note:
The amount of MUS’s capital accounts less certain fixed assets and its percentage to the total amounts equivalent to market, counterparty credit and operations risks at March 31, 2007 have been restated from ¥689,484 million and 456.6% to ¥739,672 and 371.1%, respectively.
Management believes, as of March 31, 2008,2010, that MUFG, BTMU, MUTB and other regulated securities subsidiaries met all capital adequacy requirements to which they are subject.
United States of America
In the United States of America, UNBC and its banking subsidiary Union Bank, N.A. (On December 18, 2008, Union Bank changed its name from Union Bank of California, N.A. (“UBOC”), BTMU’s largest subsidiaries operating outside Japan, are subject to various regulatory capital requirements administered by U.S. Federal banking agencies, including minimum capital requirements. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, UNBC and UBOCUnion Bank must meet specific capital guidelines that involve quantitative measures of UNBC’s and UBOC’sUnion Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under U.S. regulatory accounting practices. UNBC’s and UBOC’sUnion Bank’s capital amounts and UBOC’sUnion Bank’s prompt corrective action classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require UNBC and UBOCUnion Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier I capital (as defined) to quarterly average assets (as defined).
Although Basel II is not yet effective in the U.S., the U.S. banking and thrift agencies published in July 2007 an interagency notice regarding the implementation of Basel II in the U.S. The agencies agreed to resolve major outstanding issues and lead to finalization of a rule implementing the advanced approaches for computing large banks’ risk-based capital requirements. The agencies also agreed to proceed promptly to issue a proposed rule that would provide all non-core banks with the option to adopt a standardized approach.
The figures on the tables below are calculated according to Basel I as UNBC and Union Bank do not meet the criteria in the new U.S. rules which would make adoption of the new Basel II is not yet effective in the U.S.rules mandatory. UNBC’s and the UBOC’sUnion Bank’s actual capital amounts and ratios are presented as follows:
| Actual | For capital adequacy purposes | Actual | For capital adequacy purposes | |||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||
UNBC: | ||||||||||||||||||||||||
At December 31, 2006: | ||||||||||||||||||||||||
At December 31, 2008: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 5,843 | 11.71 | % | $ | 3,992 | 8.00 | % | $ | 7,240 | 11.63 | % | $ | 4,980 | 8.00 | % | ||||||||
Tier I capital (to risk-weighted assets) | 4,334 | 8.68 | 1,996 | 4.00 | 5,467 | 8.78 | 2,490 | 4.00 | ||||||||||||||||
Tier I capital (to quarterly average assets)(1) | 4,334 | 8.44 | 2,054 | 4.00 | 5,467 | 8.42 | 2,597 | 4.00 | ||||||||||||||||
At December 31, 2007: | ||||||||||||||||||||||||
At December 31, 2009: | ||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 6,124 | 11.21 | % | $ | 4,369 | 8.00 | % | $ | 9,203 | 14.54 | % | $ | 5,064 | 8.00 | % | ||||||||
Tier I capital (to risk-weighted assets) | 4,534 | 8.30 | 2,184 | 4.00 | 7,485 | 11.82 | 2,532 | 4.00 | ||||||||||||||||
Tier I capital (to quarterly average assets)(1) | 4,534 | 8.27 | 2,194 | 4.00 | 7,485 | 9.45 | 3,169 | 4.00 | ||||||||||||||||
Note:
| (1) | Excludes certain intangible assets. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Actual | For capital adequacy purposes | Ratios OCC requires to be “well capitalized” | Actual | For capital adequacy purposes | Ratios OCC requires to be “well capitalized” | |||||||||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||
| (in millions, except percentages) | (in millions, except percentages) | |||||||||||||||||||||||||||||||||||
UBOC: | ||||||||||||||||||||||||||||||||||||
At December 31, 2006: | ||||||||||||||||||||||||||||||||||||
Union Bank: | ||||||||||||||||||||||||||||||||||||
At December 31, 2008: | ||||||||||||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 5,280 | 10.69 | % | $ | 3,951 | 8.00 | % | $ | 4,939 | 10.00 | % | $ | 6,831 | 11.01 | % | $ | 4,962 | 8.00 | % | $ | 6,203 | 10.00 | % | ||||||||||||
Tier I capital (to risk-weighted assets) | 4,179 | 8.46 | 1,975 | 4.00 | 2,963 | 6.00 | 5,380 | 8.67 | 2,481 | 4.00 | 3,722 | 6.00 | ||||||||||||||||||||||||
Tier I capital (to quarterly average assets)(1) | 4,179 | 8.25 | 2,027 | 4.00 | 2,534 | 5.00 | 5,380 | 8.31 | 2,590 | 4.00 | 3,237 | 5.00 | ||||||||||||||||||||||||
At December 31, 2007: | ||||||||||||||||||||||||||||||||||||
At December 31, 2009: | ||||||||||||||||||||||||||||||||||||
Total capital (to risk-weighted assets) | $ | 5,631 | 10.38 | % | $ | 4,339 | 8.00 | % | $ | 5,423 | 10.00 | % | $ | 8,686 | 13.73 | % | $ | 5,062 | 8.00 | % | $ | 6,327 | 10.00 | % | ||||||||||||
Tier I capital (to risk-weighted assets) | 4,449 | 8.20 | 2,169 | 4.00 | 3,254 | 6.00 | 7,207 | 11.39 | 2,531 | 4.00 | 3,796 | 6.00 | ||||||||||||||||||||||||
Tier I capital (to quarterly average assets)(1) | 4,449 | 8.20 | 2,171 | 4.00 | 2,714 | 5.00 | 7,207 | 9.05 | 3,184 | 4.00 | 3,980 | 5.00 | ||||||||||||||||||||||||
Note:
| (1) | Excludes certain intangible assets. |
Management believes, as of December 31, 2007,2009, that UNBC and UBOCUnion Bank met all capital adequacy requirements to which they are subject.
As of December 31, 20062008 and 2007,2009, the most recent notification from the U.S. Office of the Comptroller of the Currency (“OCC”) categorized UBOCUnion Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” UBOCUnion Bank must maintain a minimum total risk-based capital ratio of 10%, a Tier I risk-based capital ratio of 6%, and a Tier I leverage ratio of 5% as set forth in the table. There are no conditions or events since that notification that management believes have changed UBOC’sUnion Bank’s category.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
23.22. EARNINGS (LOSS) PER COMMON SHARE APPLICABLE TO COMMON SHAREHOLDERS OF MUFG
Reconciliations of net income (loss) and weighted average number of common shares outstanding used for the computation of basic earnings (loss) per common share to the adjusted amounts for the computation of diluted earnings (loss) per common share for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 are as follows:
| 2006 | 2007 | 2008 | ||||||||||
| (in millions) | ||||||||||||
Income (Numerator): | ||||||||||||
Income (loss) from continuing operations before cumulative effect of a change in accounting principle | ¥ | 364,200 | ¥ | 582,105 | ¥ | (540,690 | ) | |||||
Income (loss) from discontinued operations—net | 8,973 | (817 | ) | (1,746 | ) | |||||||
Cumulative effect of a change in accounting principle, net of tax | (9,662 | ) | — | — | ||||||||
Net income (loss) | 363,511 | 581,288 | (542,436 | ) | ||||||||
Income allocable to preferred shareholders: | ||||||||||||
Cash dividends paid | (5,386 | ) | (13,629 | ) | (6,669 | ) | ||||||
Beneficial conversion feature | (201,283 | ) | (267,432 | ) | (7,909 | ) | ||||||
Net income (loss) available to common shareholders | 156,842 | 300,227 | (557,014 | ) | ||||||||
Effect of dilutive instruments: | ||||||||||||
Convertible debt—MUS | (981 | ) | (985 | ) | — | |||||||
Stock options—MUS | (8 | ) | — | — | ||||||||
Stock options—UNBC | (1,081 | ) | (835 | ) | — | |||||||
Convertible preferred stock—Mitsubishi UFJ NICOS | (869 | ) | — | — | ||||||||
Net income (loss) available to common shareholders and assumed conversions | ¥ | 153,903 | ¥ | 298,407 | ¥ | (557,014 | ) | |||||
| 2006 | 2007 | 2008 | ||||||||||
| (thousands of shares) | ||||||||||||
Shares (Denominator): | ||||||||||||
Weighted average common shares outstanding | 8,120,732 | 10,053,408 | 10,305,911 | |||||||||
Effect of dilutive instruments: | ||||||||||||
Convertible preferred stock | 1 | 1 | — | |||||||||
Weighted average common shares for diluted computation | 8,120,733 | 10,053,409 | 10,305,911 | |||||||||
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Income (loss) (Numerator): | ||||||||||||
Income (loss) from continuing operations | ¥ | (501,290 | ) | ¥ | (1,504,299 | ) | ¥ | 875,076 | ||||
Loss from discontinued operations—net | (2,670 | ) | — | — | ||||||||
Net income (loss) before attribution of noncontrolling interests | (503,960 | ) | (1,504,299 | ) | 875,076 | |||||||
Net income (loss) attributable to noncontrolling interests | 38,476 | (36,259 | ) | 15,257 | ||||||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | (542,436 | ) | (1,468,040 | ) | 859,819 | |||||||
Income allocable to preferred shareholders: | ||||||||||||
Cash dividends paid | (6,669 | ) | (6,399 | ) | (21,678 | ) | ||||||
Beneficial conversion feature | (7,909 | ) | (9,478 | ) | — | |||||||
Effect of induced conversion of Mitsubishi UFJ NICOS Co., Ltd. Class 1 stock (Note 3) | — | (7,676 | ) | — | ||||||||
Net income (loss) available to common shareholders of Mitsubishi UFJ Financial Group | (557,014 | ) | (1,491,593 | ) | 838,141 | |||||||
Effect of dilutive instruments: | ||||||||||||
Convertible preferred stock—Mitsubishi UFJ Merrill Lynch PB Securities Co., Ltd. | — | — | (1,123 | ) | ||||||||
Stock options—kabu.com Securities | — | — | (1 | ) | ||||||||
Net income (loss) available to common shareholders of Mitsubishi UFJ Financial Group and assumed conversions | ¥ | (557,014 | ) | ¥ | (1,491,593 | ) | ¥ | 837,017 | ||||
| 2008 | 2009 | 2010 | ||||||||||
| (thousands of shares) | ||||||||||||
Shares (Denominator): | ||||||||||||
Weighted average common shares outstanding | 10,305,911 | 10,821,091 | 12,324,315 | �� | ||||||||
Effect of dilutive instruments: | ||||||||||||
Convertible preferred stock | — | — | 1 | |||||||||
Stock options | — | — | 8,365 | |||||||||
Weighted average common shares for diluted computation | 10,305,911 | 10,821,091 | 12,332,681 | |||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 2006 | 2007 | 2008 | ||||||||||
| (in yen) | ||||||||||||
Earnings (loss) per common share: | ||||||||||||
Basic earnings (loss) per common share: | ||||||||||||
Income (loss) from continuing operations available to common shareholders before cumulative effect of a change in accounting principle | ¥ | 19.40 | ¥ | 29.94 | ¥ | (53.88 | ) | |||||
Income (loss) from discontinued operations | 1.10 | (0.08 | ) | (0.17 | ) | |||||||
Income (loss) available to common shareholders before cumulative effect of a change in accounting principle | 20.50 | 29.86 | (54.05 | ) | ||||||||
Cumulative effect of a change in accounting principle | (1.19 | ) | — | — | ||||||||
Net income (loss) available to common shareholders | ¥ | 19.31 | ¥ | 29.86 | ¥ | (54.05 | ) | |||||
Diluted earnings (loss) per common share: | ||||||||||||
Income (loss) from continuing operations available to common shareholders before cumulative effect of a change in accounting principle | ¥ | 19.04 | ¥ | 29.76 | ¥ | (53.88 | ) | |||||
Income (loss) from discontinued operations | 1.10 | (0.08 | ) | (0.17 | ) | |||||||
Income (loss) available to common shareholders before cumulative effect of a change in accounting principle | 20.14 | 29.68 | (54.05 | ) | ||||||||
Cumulative effect of a change in accounting principle. | (1.19 | ) | — | — | ||||||||
Net income (loss) available to common shareholders | ¥ | 18.95 | ¥ | 29.68 | ¥ | (54.05 | ) | |||||
For the fiscal year ended March 31, 2006, Class 11 Preferred Stock, convertible preferred stock issued by Mitsubishi UFJ NICOS, 1/4% Convertible Bonds due 2014 issued by MUS and stock options issued by MUS and UNBC that could potentially dilute earnings per common share in the future were included in the computation of diluted earnings per common share. Class 8, Class 9, Class 10, and Class 12 Preferred Stock, convertible preferred stock issued by The Senshu Bank, Ltd. (“Senshu Bank”) and certain stock options issued by MUS and UNBC could potentially dilute earnings per common share but were not included in the computation of diluted earnings per common share due to their antidilutive effects.
For the fiscal year ended March 31, 2007, Class 11 Preferred Stock, 1/4% Convertible Bonds due 2014 issued by MUS and stock options issued by MUS and UNBC that could potentially dilute earnings per common share in the future were included in the computation of diluted earnings per common share. Class 8, Class 9, Class 10, and Class 12 Preferred Stock, convertible preferred stock issued by Senshu Bank and Mitsubishi UFJ NICOSand certain stock options issued by UNBC and MU Hands-on Capital Ltd. could potentially dilute earnings per common share but were not included in the computation of diluted earnings per common share due to their antidilutive effects.
| 2008 | 2009 | 2010 | |||||||||
| (in yen) | |||||||||||
Earnings (loss) per common share applicable to common shareholders of Mitsubishi UFJ Financial Group: | |||||||||||
Basic earnings (loss) per common share: | |||||||||||
Income (loss) from continuing operations available to common shareholders of Mitsubishi UFJ Financial Group | ¥ | (53.79 | ) | ¥ | (137.84 | ) | ¥ | 68.01 | |||
Loss from discontinued operations | (0.26 | ) | — | — | |||||||
Net income (loss) available to common shareholders of Mitsubishi UFJ Financial Group | ¥ | (54.05 | ) | ¥ | (137.84 | ) | ¥ | 68.01 | |||
Diluted earnings (loss) per common share: | |||||||||||
Income (loss) from continuing operations available to common shareholders of Mitsubishi UFJ Financial Group | ¥ | (53.79 | ) | ¥ | (137.84 | ) | ¥ | 67.87 | |||
Loss from discontinued operations | (0.26 | ) | — | — | |||||||
Net income (loss) available to common shareholders of Mitsubishi UFJ Financial Group | ¥ | (54.05 | ) | ¥ | (137.84 | ) | ¥ | 67.87 | |||
For the fiscal year ended March 31, 2008, Class 8, Class 11 and Class 12 Preferred Stock, convertible preferred stock issued by Senshu Bank and Mitsubishi UFJ NICOS,,1/4%4% Convertible Bonds due 2014 issued by MUS and stock options issued by MUFG, MUS, kabu.com Securities, UNBC, MU Hands-on Capital Ltd. and Palace Capital Partners A Co., Ltd. could potentially dilute earnings per common share but were not included in the computation of diluted earnings per common share due to their antidilutive effects.
For the fiscal year ended March 31, 2009, Class 11 Preferred Stock, convertible preferred stock issued by Senshu Bank and Mitsubishi UFJ Merrill Lynch PB Securities Co., Ltd. and stock options issued by MUFG, kabu.com Securities, MU Hands-on Capital Ltd. and FOODSNET Corporation could potentially dilute earnings per common share but were not included in the computation of diluted earnings per common share due to their antidilutive effects.
For the fiscal year ended March 31, 2010, stock options issued by MU Hands-on Capital Ltd. could potentially dilute earnings per common share but were not included in the computation of diluted earnings per common share due to their antidilutive effects.
In computing the number of the potentially dilutive common shares for the fiscal year ended March 31, 2006 and 2007,2010, Class 11 Preferred Stock has been based on the conversion price at March 31, 20072010 (i.e., ¥918.7)¥865.9).
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
24.23. DERIVATIVE FINANCIAL INSTRUMENTS
The MUFG Group uses various derivative financial instruments both for trading purposes and for purposes other than trading (primarily risk management purposes) in the normal course of business to meet the financial needs of its customers, as a source of revenue and to manage its exposures to a variety of risks. Market risk is the possibility that future changes in market indices make the financial instruments less valuable. The MUFG Group is a party to derivatives, including swaps, forwards, options and other types of derivatives, dealing primarily with market risk associated with interest rate, foreign currency, equity and commodity prices, and credit risk associated with counterparty’s nonperformance of transactions.
Market risk is the possibility that future changes in market indices make the financial instruments less valuable. Credit risk is the possibility that a loss may result from a counterparty’s failure to perform according to the terms and conditions of the contract, which may exceed the value of underlying collateral. To reduce credit risk,
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the MUFG Group may require collateral or guaranties based on a case-by-case assessment of creditworthiness of each customer and evaluation of the instrument. The MUFG Group also uses master netting agreements in order to mitigate overall counterparty credit risk.
Trading Activities
The MUFG Group’s trading activities include dealing and other activities measured at fair value with gains and losses recognized currently in earnings.customer accommodation activities. As part of its trading activities, the MUFG Group offers a variety of derivative financial instruments and debt instruments for managing interest rate and foreign exchange risk to its domestic and foreign corporate and financial institution customers. The MUFG Group also enters into other types of derivative transactions, including equity and credit-related contracts, for its own account.
Risk Management Activities
As part of itsMUFG’s risk management activities, the MUFG Group uses certain derivative financial instruments to manage its interest rate and currency exposures. The MUFG Group maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. The MUFG Group’s goal is to manage interest rate sensitivity so that movements in interest rates do not adversely affect net interest income. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in market value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation. Interest income and interest expense on hedged variable-rate assets and liabilities, respectively, increase or decrease as a result of interest rate fluctuations. Gains and losses on the derivative instruments that are linked to these hedged assets and liabilities are expected to substantially offset this variability in earnings.
The MUFG Group enters into interest rate swaps and other contracts as part of its interest rate risk management strategy primarily to alter the interest rate sensitivity of its loans, investment securities and deposit liabilities. The MUFG Group’s principal objectives in risk management include asset and liability management. Asset and liability management is viewed as one of the methods for the MUFG Group to manage its interest rate exposures on interest-bearing assets and liabilities. The MUFG Group uses certain derivative financial instruments in order to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. For example, an increase or a decrease of interest income and interest expense on hedged variable-rate assets and liabilities as a result of interest rate fluctuations are expected to substantially offset the variability in earnings by gains and losses on the derivative instruments that are linked to these hedged assets and liabilities.
The MUFG Group enters into interest rate swaps and other contracts primarily to manage the interest rate volatility of its loans, investment securities and deposit liabilities. Interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options and futures, allow the MUFG Group to effectively manage its interest rate risk position. Option contracts primarily consist of caps, floors, swaptions and options on index futures. Futures contracts used for asset and liability management activities are primarily index futures providing for cash payments based upon the movement of an underlying rate index. The MUFG Group enters into forward exchange contracts, currency swaps and other contracts in response to currency exposures resulting from on-balance-sheet assets and liabilities denominated in foreign currencies in order to limit the net foreign exchange position by currency to an appropriate level.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)Derivatives Designated as Hedges
The risk management activities reduce the MUFG Group’s risk exposures economically, however, derivatives used for risk management activities often fail to meet certain conditions to qualify forGroup adopts hedging strategies and applies hedge accounting and the MUFG Group accounts for such derivatives as trading positions.
For the fiscal years ended March 31, 2007 and 2008, except forto certain derivative transactions conductedentered by certain foreign subsidiaries, the MUFG Group accounted for derivatives held for risk management purposes as trading positions and measured them at fair value.
Embedded Derivatives
Features embedded in other non-derivative hybrid contracts are separated from the host contracts and measured at fair value when they are not clearly and closely related to the host contracts and meet the definition of a derivative. The change in the fair value of such an embedded derivative is recognized currently in earnings, unless it qualifies as a hedge. The fair value of the embedded derivative is presented in the consolidated balance sheets with the host contract. The MUFG Group accounts for credit-linked notes as host contracts with embedded derivatives and measures the entire contracts at fair value.
UNBC
Derivative positions are integral components of UNBC’s designated asset and liability management activities. UNBC uses interest rate derivatives to manage the sensitivity of UNBC’s net interest income to changes in interest rates. These instruments are used to manage interest rate risk relating to specified groups of assets and liabilities, primarily LIBOR-based commercial loans, certificates of deposit and subordinated debt.whose fiscal periods end on December 31.
Cash Flow Hedges
Hedging Strategies for Variable Rate Loans, Borrowings and Certificates of Deposit (“CD”) and Other Time Deposits
UNBC engages in several types of cash flow hedging strategies for which the hedged transactions arerelated to forecasted future loan interest payments, andwith the hedged risk isbeing the variability in those payments due to changes in the designated benchmark rate, e.g., U.S. dollar LIBOR. In these strategies, the hedging instruments are matched with groups of similar variable rate loansinstruments such that the reset tenor of the variable rate loansinstruments and that of the hedging instrument are identical. Cash flow hedging strategies include the utilization of purchased floor, cap, collarcollars and corridor options and interest rate swaps. At December 31, 2007,2009, the weighted average remaining life of the currently active (excluding any forward positions) cash flow hedges was approximately 1.72.2 years.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
UNBC uses purchased interest rate floors to hedge the variable cash flows associated with 1-month LIBOR or 3-month LIBOR indexed loans. Payments received under the floor contract offset the decline in loan interest income caused byif the relevant LIBOR index fallingfalls below the floor’s strike rate.
UNBC uses interest rate floor corridors to hedge the variable cash flows associated with 1-month LIBOR or 3-month LIBOR indexed loans. Net payments to be received under the floor corridor contracts offset the decline in loan interest income caused byif the relevant LIBOR index fallingfalls below the corridor’s upper strike rate, but only to the extent the index falls toremains above the lower strike rate. The corridor will not provide protection from declines in the relevant LIBOR index to the extent it falls below the corridor’s lower strike rate.
UNBC uses interest rate collars to hedge the variable cash flows associated with 1-month LIBOR or 3-month LIBOR indexed loans. Net payments to be received under the collar contract offset the declinedeclines in loan interest income caused byif the relevant LIBOR index fallingfalls below the collar’s floor strike rate, while net payments to be paid will reduce the increase in loan interest income caused byif the LIBOR index risingrises above the collar’s cap strike rate.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
UNBC uses interest rate swaps to hedge the variable cash flows associated with 1-month LIBOR or 3-month LIBOR indexed loans. Payments to be received (or paid) under the swap contract will offset the fluctuations in loan interest income caused by changes in the relevant LIBOR index. As such, these instruments hedge all fluctuations in the loans’ interest income caused by changes in the relevant LIBOR index.
UNBC uses purchased interest rate caps to hedge the variable interest cash flows associated with 1-month or 3-month LIBOR indexed borrowings. Payments received under the cap contract offset the increase in borrowing interest expense if the relevant LIBOR index rises above the cap’s strike rate.
UNBC uses purchased interest rate caps to hedge the variable interest cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In these hedging relationships, UNBC hedges the change in interest rates based on 1-month, 3-month, and 6-month LIBOR, component of the CD rates, which is 3-month LIBOR, based onconsistent with the CDs’ original term to maturity whichand reflects their repricing frequency. Net payments to be received under the cap contract offset the increaseincreases in interest expense caused by the relevant LIBOR index rising above the cap’s strike rate.
UNBC uses interest rate cap corridors to hedge the variable cash flows associated with the forecasted issuance and rollover of short-term, fixed rate CDs. In these hedging relationships, UNBC hedges the LIBOR component of the CDchanges in interest rates, either 1-month, LIBOR, 3-month, LIBOR, or 6-month LIBOR, based on the original term to maturity of the CDs, which reflects their repricing frequency.CDs. Net payments to be received under the cap corridor contract offset the increaseincreases in deposit interest expense caused by the relevant LIBOR index rising above the corridor’s lower strike rate, but only to the extent the index rises todoes not exceed the upper strike rate. The corridor will not provide protection from increases in the relevant LIBOR index to the extent it rises above the corridor’s upper strike rate.
Hedging transactions are structured at inception so that the notional amounts of the hedgehedging instruments are matched withto an equal principal amount of loans, CDs, or CDs,borrowings, the index and repricing frequencies of the hedgehedging instruments match those of the loans, CDs, or CDs,borrowings and the period in which the designated hedged cash flows occurs is equal to the term of the hedge.hedge instruments. As such, most of the ineffectiveness in the hedging relationship results from the mismatch between the timing of reset dates on the hedgehedging instruments versus those of the loans, CDs or CDs. For the year ended December 31, 2007, UNBC recognized a net loss of ¥2 million due to ineffectiveness, which is recognized in other noninterest expense, compared to a net loss of ¥11 million for the year ended December 31, 2005 and a net gain of ¥12 million for the year ended December 31, 2006.borrowings.
For cash flow hedges, basedthe effective portion of the gain or loss on the hedging instruments is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged cash flows are recognized in net interest income. Gains and losses representing hedge ineffectiveness or hedge components excluded from the assessment of hedge effectiveness are recognized in
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
noninterest expense in the period in which they arise. Based upon amounts included in Accumulatedaccumulated other changes in equity from nonowner sources at March 31, 2008,2010, the MUFG Group expects to realize approximately ¥1¥3.3 billion in net interest income for the fiscal year ending March 31, 2009.2011. This amount could differ from amounts actually realized due to changes in interest rates and the addition of other hedges subsequent to March 31, 2008.2010.
Fair Value Hedges
Economic Hedging Strategy for “MarketPath” Certificates of Deposit
UNBC engages in an economic hedging strategy in which interest bearing CDs issued to customers, which are tied to the changes in the Standard and Poor’s 500 index, are exchanged for a fixed rate of interest. UNBC accounts for the embedded derivative in the CDs at fair value. A total return swap that encompasses the value of a series of options that had individually hedged each CD is valued at fair value. The change in fair value of the embedded derivative and hedging instrument are recognized as interest expense.
Hedging Strategy for Subordinated Debt
In the first quarter of 2009, UNBC engages in anterminated all of its interest rate hedging strategyswaps, which were previously used to hedge subordinated debt. The notional amount of the terminated swaps was ¥87.5 billion. These swaps were not replaced. As a result of the termination, UNBC received ¥15.4 billion in cash, which anis treated as a deferred gain and recognized over the remaining contractual life of the subordinated debt.
Economic Hedging
In 2008, UNBC began offering markets-linked certificates of deposit. The terms of the market-linked CD allow the client to earn the higher of either a minimum fixed rate of interest rate swap is associatedor a return tied to the Standard and Poor’s 500 index (“S&P 500”) or the Dow Jones UBS Commodity Index. UNBC hedges its exposure to the embedded derivative contained in market-linked CDs with a specified interest bearing liability, UNBC’s ten-year, subordinated debt issuance, in order to convertperfectly matched over-the-counter call option. Both the liability from a fixed rate to a floating rate instrument. This strategy mitigatesembedded derivative and call option are recorded at fair value with the realized and unrealized changes in fair value recorded in noninterest income within trading account activities.
Impact of Derivatives on the hedged liability caused by changes inConsolidated Balance Sheet
The following table summarizes the designated benchmark interest rate, U.S. dollar LIBOR.notional amount of derivative contracts at March 31, 2010:
At March 31, 2010: | Notional amounts(1) | ||
| (in trillions) | |||
Interest rate contracts | ¥ | 692.2 | |
Foreign exchange contracts | 112.7 | ||
Equity contracts | 2.0 | ||
Commodity contracts | 1.4 | ||
Credit derivatives | 7.9 | ||
Others | 1.1 | ||
Total | ¥ | 817.3 | |
Note:
| (1) | Represents the total notional amount of derivative contracts and includes both written and purchased options. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes fair value hedging transactioninformation on derivative instruments that are recorded on the MUFG Group’s consolidated balance sheet at March 31, 2010:
| Fair Value of Derivative Instruments(1)(5) | |||||||||||
At March 31, 2010: | Not designated as hedges(2) | Designated as hedges(3) | Total derivatives(4) | ||||||||
| (in billions) | |||||||||||
Derivative assets: | |||||||||||
Interest rate contracts | ¥ | 6,372 | ¥ | 9 | ¥ | 6,381 | |||||
Foreign exchange contracts | 2,200 | — | 2,200 | ||||||||
Equity contracts | 46 | — | 46 | ||||||||
Commodity contracts | 172 | — | 172 | ||||||||
Credit derivatives | 65 | — | 65 | ||||||||
Total derivative assets | ¥ | 8,855 | ¥ | 9 | ¥ | 8,864 | |||||
Derivative liabilities: | |||||||||||
Interest rate contracts | ¥ | 6,118 | ¥ | 1 | ¥ | 6,119 | |||||
Foreign exchange contracts | 2,094 | — | 2,094 | ||||||||
Equity contracts | 121 | — | 121 | ||||||||
Commodity contracts | 118 | — | 118 | ||||||||
Credit derivatives | 69 | — | 69 | ||||||||
Others(6) | (108 | ) | — | (108 | ) | ||||||
Total derivative liabilities | ¥ | 8,412 | ¥ | 1 | ¥ | 8,413 | |||||
Notes:
| (1) | The fair value of derivative instruments is presented on a gross basis even when derivative instruments are subject to master netting agreements. Cash collateral payable and receivables associated with derivative instruments are not added to or netted against the fair value amounts. |
| (2) | The derivative instruments which are not designated as a hedging instrument are held for trading and risk management purpose, and are classified in Trading account assets/liabilities except for (6). |
| (3) | The MUFG Group adopts hedging strategies and applies hedge accounting to certain derivative transactions entered by UNBC. The derivative instruments which are designated as a hedging instrument are classified in Other assets or Other liabilities. |
| (4) | This table does not include contracts with embedded derivatives for which the fair value option has been elected. |
| (5) | For more information about fair value measurement and assumptions used to measure the fair value of derivatives, see Note 31. |
| (6) | Others include bifurcated embedded derivatives carried at fair value which are classified in deposits and long-term debt. |
Impact of Derivatives and Hedged Items on the Consolidated Statement of Operations and on Accumulated Other Changes in Equity from Nonowner Sources
The following tables reflect more detailed information regarding the derivative-related impact on the consolidated statement of operations by accounting designation for the subordinatedfiscal year ended March 31, 2010:
Gains and losses for trading and risk management derivatives (not designated as hedging instruments)
| Trading and Risk Management Derivatives gains and losses (Not designated as hedging instruments) | ||||||||||||
For the fiscal year ended March 31, 2010: | Foreign exchange gains (losses)—net | Trading account profits (losses)—net | Total | |||||||||
| (in billions) | ||||||||||||
Interest rate contracts | ¥ | — | ¥ | 213 | ¥ | 213 | ||||||
Foreign exchange contracts | 33 | — | 33 | |||||||||
Equity contracts | — | (217 | ) | (217 | ) | |||||||
Commodity contracts | — | (9 | ) | (9 | ) | |||||||
Credit derivatives | — | (97 | ) | (97 | ) | |||||||
Others | (2 | ) | 22 | 20 | ||||||||
Total | ¥ | 31 | ¥ | (88 | ) | ¥ | (57 | ) | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Gains and losses for derivatives designated as cash flow hedges
| Gains and losses for derivatives designated as cash flow hedges | |||||||||||||
| The amount of gains (losses) recognized in Accumulated other changes in equity from nonowner sources on derivative instruments (Effective portion) | Gains (Losses) reclassified from Accumulated other changes in equity from nonowner sources into income (Effective portion) | Gains (Losses) recognized in income on derivative instruments (Ineffective portion and amount excluded from effectiveness testing) | |||||||||||
For the fiscal year ended March 31, 2010: | Classification | Amount | Classification | Amount | |||||||||
| (in billions) | |||||||||||||
Interest rate contracts | ¥ | 4 | Interest income | ¥ | 12 | ¥ | — | ||||||
Total | ¥ | 4 | ¥ | 12 | ¥ | — | |||||||
Embedded Derivatives
Features embedded in other non-derivative hybrid contracts are separated from the host contracts and measured at fair value when they are not clearly and closely related to the host contracts and meet the definition of a derivative. The change in the fair value of such an embedded derivative is recognized currently in earnings, unless it qualifies as a hedge. The fair value of the embedded derivative is presented in the consolidated balance sheets with the host contract. The MUFG Group accounts for credit-linked notes as host contracts with embedded derivatives and measures the entire contracts at fair value.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Credit Derivatives
The MUFG Group enters into credit derivatives to manage credit risk exposures, to facilitate client transactions, and for proprietary trading purpose, under which they provide counterparty protection against the risk of default on a set of debt was structuredobligations issued by a specified reference entity or entities. Types of these credit derivatives include principally single name credit default swaps, index and basket credit default swaps and credit-linked notes. The MUFG Group will have to perform under a credit derivative if a credit event as defined under the contract occurs. Such credit events include bankruptcy, dissolution or insolvency of the referenced entity, default and restructuring of the obligations of the referenced entity. The MUFG Group’s counterparties are banks, broker-dealers, insurance and other financial institutions. The contractual or notional amounts of these instruments represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held or pledged. The table below summarizes certain information regarding protection sold through credit default swaps and credit-linked notes as of March 31, 2009 and 2010:
| Protection sold | ||||||||||||||||
| Maximum potential/Notional amount by expiration period | Estimated fair value | |||||||||||||||
At March 31, 2009: | Less than 1 year | 1-5 years | Over 5 years | Total | (Asset)/ Liability(1) | |||||||||||
| (in millions) | ||||||||||||||||
Single name credit default swaps: | ||||||||||||||||
Investment grade(2) | ¥ | 212,209 | ¥ | 1,895,384 | ¥ | 57,741 | ¥ | 2,165,334 | ¥ | 136,879 | ||||||
Non-investment grade | 29,923 | 257,401 | 1,277 | 288,601 | 38,339 | |||||||||||
Not rated | — | 15,911 | — | 15,911 | 595 | |||||||||||
Total | 242,132 | 2,168,696 | 59,018 | 2,469,846 | 175,813 | |||||||||||
Index and basket credit default swaps held by BTMU: | ||||||||||||||||
Investment grade(2) | 45,429 | 450,247 | 7,835 | 503,511 | 27,096 | |||||||||||
Non-investment grade | 1,991 | 39,555 | — | 41,546 | 4,521 | |||||||||||
Not rated | — | 17,342 | — | 17,342 | 9,922 | |||||||||||
Total | 47,420 | 507,144 | 7,835 | 562,399 | 41,539 | |||||||||||
Index and basket credit default swaps held by MUS: | ||||||||||||||||
Investment grade(2) | 10,000 | 393,922 | 2,000 | 405,922 | 40,838 | |||||||||||
Non-investment grade | — | 5,000 | — | 5,000 | 1,920 | |||||||||||
Not rated | — | 1,291 | — | 1,291 | (3 | ) | ||||||||||
Total | 10,000 | 400,213 | 2,000 | 412,213 | 42,755 | |||||||||||
Index and basket credit default swaps held by MUTB: | ||||||||||||||||
Normal | 42,000 | 30,000 | — | 72,000 | 3,241 | |||||||||||
Close Watch(3) | 3,000 | 3,000 | — | 6,000 | 1,361 | |||||||||||
Total | 45,000 | 33,000 | — | 78,000 | 4,602 | |||||||||||
Total index and basket credit default swaps sold | 102,420 | 940,357 | 9,835 | 1,052,612 | 88,896 | |||||||||||
Total credit default swaps sold | ¥ | 344,552 | ¥ | 3,109,053 | ¥ | 68,853 | ¥ | 3,522,458 | ¥ | 264,709 | ||||||
Credit-linked notes(4) | ¥ | 1,455 | ¥ | 71,597 | ¥ | 229,800 | ¥ | 302,852 | ¥ | (220,416 | ) | |||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Protection sold | ||||||||||||||||
| Maximum potential/Notional amount by expiration period | Estimated fair value | |||||||||||||||
At March 31, 2010: | Less than 1 year | 1-5 years | Over 5 years | Total | (Asset)/ Liability(1) | |||||||||||
| (in millions) | ||||||||||||||||
Single name credit default swaps: | ||||||||||||||||
Investment grade(2) | ¥ | 611,227 | ¥ | 1,990,256 | ¥ | 46,345 | ¥ | 2,647,828 | ¥ | (13,822 | ) | |||||
Non-investment grade | 66,900 | 173,671 | 279 | 240,850 | 4,035 | |||||||||||
Not rated | 5,499 | 11,334 | — | 16,833 | 13 | |||||||||||
Total | 683,626 | 2,175,261 | 46,624 | 2,905,511 | (9,774 | ) | ||||||||||
Index and basket credit default swaps held by BTMU: | ||||||||||||||||
Investment grade(2) | 80,460 | 177,249 | 149,174 | 406,883 | 923 | |||||||||||
Non-investment grade | 71,950 | 45,017 | — | 116,967 | 1,656 | |||||||||||
Not rated | 10,420 | — | — | 10,420 | (25 | ) | ||||||||||
Total | 162,830 | 222,266 | 149,174 | 534,270 | 2,554 | |||||||||||
Index and basket credit default swaps held by MUS: | ||||||||||||||||
Investment grade(2) | 980 | 298,140 | 4,000 | 303,120 | (5,380 | ) | ||||||||||
Non-investment grade | — | 30,867 | — | 30,867 | 455 | |||||||||||
Not rated | — | 35,116 | — | 35,116 | (926 | ) | ||||||||||
Total | 980 | 364,123 | 4,000 | 369,103 | (5,851 | ) | ||||||||||
Index and basket credit default swaps held by MUTB: | ||||||||||||||||
Normal | 30,000 | — | — | 30,000 | (103 | ) | ||||||||||
Close Watch(3) | 3,000 | — | — | 3,000 | 26 | |||||||||||
Total | 33,000 | — | — | 33,000 | (77 | ) | ||||||||||
Total index and basket credit default swaps sold | 196,810 | 586,389 | 153,174 | 936,373 | (3,374 | ) | ||||||||||
Total credit default swaps sold | ¥ | 880,436 | ¥ | 2,761,650 | ¥ | 199,798 | ¥ | 3,841,884 | ¥ | (13,148 | ) | |||||
Credit-linked notes(4) | ¥ | — | ¥ | 39,240 | ¥ | 195,005 | ¥ | 234,245 | ¥ | (199,863 | ) | |||||
Notes:
| (1) | Fair value amounts are shown on a gross basis prior to cash collateral or counterparty netting. |
| (2) | The MUFG Group considers ratings of Baa3/BBB- or higher to meet the definition of investment grade. |
| (3) | Reference entities classified as “Close Watch” require close scrutiny because their business performance is unstable or their financial condition is unfavorable. |
| (4) | Fair value amounts shown represent the fair value of the hybrid instruments. |
Single name credit default swaps—A credit default swap protects the buyer against the loss of principal on a bond or loan in case of a default by the issuer. The protection buyer pays a periodic premium over the life of the contracts and is protected for the period. The MUFG Group in turn will have to perform under a credit default swap if a credit event as defined under the contracts occurs. In order to provide an indication of the current payment/performance risk of the credit default swaps, the external credit ratings, primarily Moody’s and S&P credit ratings, of the underlying reference entity of the credit default swaps are disclosed.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Index and basket credit default swaps—Index and basket credit default swaps are credit default swaps that reference multiple names through underlying baskets or portfolios of single name credit default swaps. Typically, in the event of a default on one of underlying names, the MUFG Group will have to pay a pro rata portion of the total notional amount of the credit default index or basket contract. In order to provide an indication of the current payment/performance risk of these credit default swaps, BTMU and MUS rating scale based upon the internal ratings, which generally corresponds to ratings defined primarily by Moody’s and S&P, of the underlying reference entities comprising the basket or index were calculated and disclosed. As for the current payment/performance risk of these credit default swaps, MUTB rating scale is based upon the entity’s internal ratings, which is the same credit rating system utilized for estimating probabilities of default within its loan portfolio.
Credit-linked notes (“CLNs“)—The MUFG Group has invested in CLNs, which are hybrid instruments containing embedded derivatives, in which credit protection has been sold to the issuer of the note. If there is a credit event of a reference entity underlying the CLN, the principal balance of the note may not be repaid in full to the MUFG Group. As part of its financing activities, MUS and other securities subsidiaries in Japan and overseas issue CLNs.
The MUFG Group may economically hedge its exposure to credit derivatives by entering into offsetting derivative contracts. The carrying value and notional value of credit protection sold in which the MUFG Group held purchased protection with identical underlying referenced entities were approximately ¥201 billion and ¥2,605 billion, respectively, at inceptionMarch 31, 2009, and approximately ¥12 billion and ¥2,948 billion, respectively, at March 31, 2010.
Collateral is held by the MUFG Group in relation to mirrorthese instruments. Collateral requirements are determined at the counterparty level and cover numerous transactions and products as opposed to individual contracts.
Credit Risk, Liquidity Risk and Credit-risk-related Contingent Features
Certain of the MUFG Group’s derivative instruments contain provisions that require the MUFG Group’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the MUFG Group’s debt were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position on March 31, 2010, is approximately ¥3.3 trillion for which the MUFG Group has posted collateral of approximately ¥295 billion in the normal course of business. As of March 31, 2010, additional collateral and termination payments pursuant to bilateral agreements with certain counterparties are approximately ¥170 billion and ¥73 billion, respectively, which could have been called by counterparties, if all of the provisions of the subordinated debt, which allows UNBC to assume that no ineffectiveness exists.
Other
UNBC uses To-Be-Announced (“TBA”) contracts to fix the price and yield of anticipated purchases or sales of mortgage-backed securities that will be delivered at an agreed upon date. This strategy hedges the risk of variability in the cash flows to be paid or received upon settlement of the TBA contract.credit-risk-related contingent features underlying these agreements were triggered.
25.24. OBLIGATIONS UNDER GUARANTEES AND OTHER OFF-BALANCE-SHEET INSTRUMENTS
Obligations under Guarantees
The MUFG Group provides customers with a variety of guarantees and similar arrangements, including standby letters of credit, financial and performance guarantees, credit protections, liquidity facilities, other off-balance-sheet credit-related supports and similar instruments, in order to meet the customers’ financial and business needs. The table below summarizes the contractual or notional amounts with regard to obligations under guarantees and similar arrangements at March 31, 20072009 and 2008.2010. The contractual or notional amounts of these instruments represent the maximum potential amounts of future payments without consideration of possible recoveries under recourse provisions or from collateral held or pledged.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
For certain types of derivatives, such as written interest rate options and written currency options, the maximum potential future payments are unlimited. Accordingly, it is impracticable to estimate the maximum potential amount of future payments. As such, the notional amounts of the related contracts, other than the maximum potential payments, are included in the table.
The MUFG Group mitigates credit risk exposure resulting from guarantees by utilizing various techniques, including collateralization in the form of cash, securities, and real properties based on management’s credit assessment of the guaranteed parties and the related credit profile. In order to manage the credit risk exposure, the MUFG Group also enters into sub-participation contracts with third parties who will fund a portion of the credit facility and bear its share of the loss to be incurred in the event that the borrower fails to fulfill its obligations. The following table includes unfunded commitmentsguarantees of ¥178.9¥189.0 billion and ¥187.3¥195.7 billion at March 31, 20072009 and 2008,2010, respectively, which are participated out to third parties. The contractual or notional amounts summarized in the following table do not necessarily bear any direct relationship to the future actual credit exposure, primarily because of those risk management techniques.
| Maximum potential/ Contractual or Notional amount | Amount by expiration period | |||||||||||
At March 31, 2007: | Less than 1 year | 1-5 years | Over 5 years | |||||||||
| (in billions) | ||||||||||||
Standby letters of credit and financial guarantees | ¥ | 5,646 | ¥ | 2,346 | ¥ | 1,662 | ¥ | 1,638 | ||||
Performance guarantees | 2,208 | 1,371 | 762 | 75 | ||||||||
Derivative instruments(1) | 47,292 | 29,112 | 15,273 | 2,907 | ||||||||
Guarantees for the repayment of trust principal | 1,921 | 308 | 1,568 | 45 | ||||||||
Liabilities of trust accounts | 3,722 | 2,776 | 143 | 803 | ||||||||
Other | 820 | 814 | 1 | 5 | ||||||||
Total(1) | ¥ | 61,609 | ¥ | 36,727 | ¥ | 19,409 | ¥ | 5,473 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
| Maximum potential/ Contractual or Notional amount | Amount by expiration period | |||||||||||
At March 31, 2009: | Less than 1 year | 1-5 years | Over 5 years | |||||||||
| (in billions) | ||||||||||||
Standby letter of credit and financial guarantees | ¥ | 4,550 | ¥ | 2,095 | ¥ | 1,113 | ¥ | 1,342 | ||||
Performance guarantees | 2,489 | 1,573 | 785 | 131 | ||||||||
Derivative instruments | 67,954 | 29,656 | 34,946 | 3,352 | ||||||||
Guarantee for repayment of trust principal | 1,234 | 173 | 1,055 | 6 | ||||||||
Liabilities of trust accounts | 3,158 | 2,098 | 382 | 678 | ||||||||
Others | 128 | 128 | — | — | ||||||||
Total | ¥ | 79,513 | ¥ | 35,723 | ¥ | 38,281 | ¥ | 5,509 | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Maximum potential/ Contractual or Notional amount | Amount by expiration period | |||||||||||
At March 31, 2008: | Less than 1 year | 1-5 years | Over 5 years | |||||||||
| (in billions) | ||||||||||||
Standby letters of credit and financial guarantees | ¥ | 5,254 | ¥ | 2,262 | ¥ | 1,527 | ¥ | 1,465 | ||||
Performance guarantees | 2,351 | 1,495 | 718 | 138 | ||||||||
Derivative instruments | 59,295 | 34,131 | 22,270 | 2,894 | ||||||||
Guarantees for the repayment of trust principal | 1,468 | 206 | 1,254 | 8 | ||||||||
Liabilities of trust accounts | 4,085 | 3,046 | 168 | 871 | ||||||||
Other | 720 | 720 | — | — | ||||||||
Total | ¥ | 73,173 | ¥ | 41,860 | ¥ | 25,937 | ¥ | 5,376 | ||||
Note:
| Maximum potential/ Contractual or Notional amount | Amount by expiration period | Maximum potential/ Contractual or Notional amount | Amount by expiration period | |||||||||||||||||||||||||||||||||
| Less than 1 year | 1-5 years | Over 5 years | ||||||||||||||||||||||||||||||||||
| Maximum potential/ Contractual or Notional amount | Less than 1 year | 1-5 years | Over 5 years | (in billions) | ||||||||||||||||||||||||||||||||
| ¥ | 4,223 | ¥ | 2,147 | ¥ | 1,036 | ¥ | 1,040 | |||||||||||||||||||||||||||||
Performance guarantees | 2,242 | 1,438 | 682 | 122 | ||||||||||||||||||||||||||||||||
Derivative instruments | 81,244 | 29,371 | 48,502 | 3,371 | ||||||||||||||||||||||||||||||||
Guarantee for repayment of trust principal | 1,104 | 89 | 1,007 | 8 | ||||||||||||||||||||||||||||||||
Liabilities of trust accounts | 4,326 | 3,393 | 293 | 640 | ||||||||||||||||||||||||||||||||
Others | 183 | 180 | 1 | 2 | ||||||||||||||||||||||||||||||||
| As previously reported | As restated | As previously reported | As restated | As previously reported | As restated | As previously reported | As restated | |||||||||||||||||||||||||||||
Total | ¥ | 93,322 | ¥ | 36,618 | ¥ | 51,521 | ¥ | 5,183 | ||||||||||||||||||||||||||||
| (in billions) | ||||||||||||||||||||||||||||||||||||
Derivative instruments | ¥ | 42,353 | ¥ | 47,292 | ¥ | 24,327 | ¥ | 29,112 | ¥ | 15,121 | ¥ | 15,273 | ¥ | 2,905 | ¥ | 2,907 | ||||||||||||||||||||
Total | ¥ | 56,670 | ¥ | 61,609 | ¥ | 31,942 | ¥ | 36,727 | ¥ | 19,257 | ¥ | 19,409 | ¥ | 5,471 | ¥ | 5,473 | ||||||||||||||||||||
Nature of Guarantee Contracts
Standby letters of credit and financial guarantees generally include an obligation of an issuer or a designated third party to guarantee the performance of the customer to the beneficiary under the terms of contracts such as lending contracts and other similar financial transactions. The MUFG Group is required to make payments to the guaranteed parties in the events that the customers fail to fulfill the obligations under the contracts. The guarantees whose contractual maturities are over 5 years are mainly comprised of guarantees of housing loans.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Performance guarantees are the contracts that contingently require the MUFG Group to make payments to the guaranteed party based on another party’s failure to perform under an obligating agreement, except financial obligation. For example, performance guarantees include guarantees of completion of construction projects.
Derivative instruments that are deemed to be included within the definition of guarantees as prescribed in FIN No. 45the guidance on guarantees include certain written options and credit default swaps. In order for the MUFG Group to determine if those derivative instruments meet the definition of guarantees as prescribed in FIN No. 45,the guidance on guarantees, the MUFG Group has to track whether the counterparties are actually exposed to the losses that will result from the adverse change in the underlyings. Accordingly, the MUFG Group has disclosed information on all credit default swaps and certain written options for which there is a possibility of meeting the definition of guarantees as prescribed in FIN No. 45,the guidance on guarantees, regardless of whether the counterparties have assets or liabilities related to the underlyings of the derivatives. However, credit derivatives sold by the MUFG Group at March 31, 2009 and 2010 are excluded from this presentation, as they are disclosed in Note 23.
Guarantees for the repayment of trust principal include guarantees which the MUFG Group provides for the repayment of principal of certain types of trust products, including certain jointly operated designated money in trusts and loan trusts. The MUFG Group manages and administers trust assets in a capacity of agent or fiduciary on behalf of its customers and trust assets are segregated from the assets of the MUFG Group, which keeps
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
separate records for the trust activities. The MUFG Group, in principle, does not assume any risks associated with the trust assets under management, however, as permitted by applicable laws, the MUFG Group provides guarantees for the repayment of principal of such trust products. At March 31, 20072009 and 2008,2010, the contract amounts of such guarantees for repayment of trust principal were ¥1,921¥1,235 billion and ¥1,468¥1,104 billion, respectively. The accounting methods used for the segregated records of trust activities are different from financial accounting principles and practices. However, the MUFG Group follows an approach similar to those used for its own assets to identify an impairment of an asset included in the trusts with guaranteed principal, with inherent variations applicable to trust accounting. Amounts of loans deemed to be impaired are written off directly and are charged to the trust account profits earned during the trust accounting period. Write-downs of securities are also directly charged to the trust account profits. The amounts of trust assets written-off in the segregated records were ¥118¥9 million and ¥9 million,nil, for the fiscal years ended March 31, 20072009 and 2008,2010, respectively. These amounts were reflected in the segregated records as deductions before net profits earned by trust accounts for the accounting period. In addition, a part of trust account profits is set aside as a reserve to absorb losses in the trust asset portfolios in the segregated records in accordance with relevant legislation concerning the trust business and/or trust agreements. Statutory reserves for loan trusts are established at a rate of 4.0% of the trust fees up to the amounts of 0.5% of the trust principal in accordance with the legislation. Reserves for jointly operated designated money in trusts are established at a rate of 0.3% of the balance of loans and other assets in the trust account assets in accordance with the related trust agreement. The amounts of such reserves set aside in the segregated records were ¥2,888¥1,196 million and ¥1,839¥727 million at March 31, 20072009 and 2008,2010, respectively. The MUFG Group is required to provide an allowance for off-balance-sheet instruments on such guarantees in the financial statements only when aggregate losses on trust assets are judged to exceed the reserve and the profit earned by the trust account, and the principal is deemed to be impaired. Management believes that the MUFG Group will not incur any losses on the guarantees.
Liabilities of trust accounts represent the trustee’s potential responsibility for temporary payments to creditors of liabilities of trust accounts making use of funds of the MUFG Group, unless there are the certain agreements with trust creditors that have provisions limiting the MUFG Group’s responsibility as a trustee to the trust account assets. A trust may incur external liabilities to obtain certain services during the terms of the trust arrangement. While, in principle, any liabilities of a trust are payable by the trust account and its beneficiaries, a trustee’s responsibility may be interpreted to encompass temporary payments for the trust account liabilities when the trust account does not maintain sufficient liquidity available for such liabilities unless the agreement
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
with trust creditors does not limit the trustee’s responsibility to the trust account assets. At March 31, 20072009 and 2008,2010, there were liabilities of ¥3,722¥3,158 billion and ¥4,085¥4,326 billion, respectively, in the segregated records of trust accounts including the amounts related to liabilities with provisions limiting trustee responsibility. Liabilities of trust accounts principally included obligations to return collateral under security lending transactions. The MUFG Group has experienced no significant losses on such responsibilities and its exposure to the risk associated with the temporary payments is judged to be remote because trust account liabilities are generally covered by the corresponding trust account assets; the MUFG Group continuously monitors the liabilities of trust accounts and assesses the trust account’s ability to perform its obligations to prevent any unfavorable outcomes; and the MUFG Group claims its recourse for its temporary payments against the trust account assets and the beneficiaries.
Other includes contingent consideration agreements and security lending indemnifications. Contingent consideration agreements provide guarantees on additional payments to acquired insurance agencies’ shareholders based on the agencies’ future performance in excess of established revenue and/or earnings before interest, taxes, depreciation and amortization thresholds. Security lending indemnifications are the indemnifications for institutional customers of securities lending transactions against counterparty default. All lending transactions are collateralized, primarily by cash.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Carrying Amount
At March 31, 20072009 and 2008,2010, the carrying amounts of the liabilities related to guarantees and similar instruments set forth above were ¥763,234¥1,364,620 million and ¥1,145,698¥1,171,417 million, respectively, which are included in Other liabilities and Trading account liabilities. However, credit derivatives sold by the MUFG Group at March 31, 2009 and 2010 are excluded from this presentation, as they are disclosed in Note 23. In addition, Other liabilities also include an allowance for off-balance-sheet instruments of ¥51,406¥46,757 million and ¥58,316¥41,991 million, respectively, related to these transactions.
Performance Risk
The MUFG Group monitors the performance risk of its guarantees using the same credit rating system utilized for estimating probabilities of default within its loan portfolio. The MUFG Group credit rating system is consistent with both the method of evaluating credit risk under Basel II and those of third-party credit rating agencies. On certain underlying referenced credits or entities, ratings are not available. Such referenced credits are included in the “Not rated” category.
Presented in the table below is the maximum potential amount of future payments classified based upon internal credit ratings as of March 31, 2009 and 2010. The determination of the maximum potential future payments is based on the notional amount of the guarantees without consideration of possible recoveries under recourse provisions or from collateral held or pledged. Such amounts bear no relationship to the anticipated losses, if any, on these guarantees.
| Amount by borrower grade | |||||||||||||||
At March 31, 2009: | Maximum potential/ Contractual or Notional amount | Normal | Close watch(1) | Likely to become Bankrupt or Legally/ Virtually Bankrupt(2) | Not rated | ||||||||||
| (in billions) | |||||||||||||||
Standby letters of credit and financial guarantees | ¥ | 4,550 | ¥ | 4,213 | ¥ | 307 | ¥ | 18 | ¥ | 12 | |||||
Performance guarantees | 2,489 | 2,368 | 106 | 5 | 10 | ||||||||||
Total | ¥ | 7,039 | ¥ | 6,581 | ¥ | 413 | ¥ | 23 | ¥ | 22 | |||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Amount by borrower grade | |||||||||||||||
At March 31, 2010: | Maximum potential/ Contractual or Notional amount | Normal | Close watch(1) | Likely to become Bankrupt or Legally/ Virtually Bankrupt(2) | Not rated | ||||||||||
| (in billions) | |||||||||||||||
Standby letters of credit and financial guarantees | ¥ | 4,223 | ¥ | 3,876 | ¥ | 301 | ¥ | 17 | ¥ | 29 | |||||
Performance guarantees | 2,242 | 2,173 | 55 | 2 | 12 | ||||||||||
Total | ¥ | 6,465 | ¥ | 6,049 | ¥ | 356 | ¥ | 19 | ¥ | 41 | |||||
Notes:
| (1) | Borrowers classified as “Close watch” require close scrutiny because their business performance is unstable or their financial condition is unfavorable. |
| (2) | Borrowers classified as “Likely to become Bankrupt” are not yet bankrupt, but are in financial difficulty with poor progress in achieving their business restructuring plans or are likely to bankrupt in the future. Borrowers classified as “Legally or Virtually Bankrupt” are considered to be legally bankrupt or are virtually bankrupt. |
The guarantees the MUFG Group does not classify based upon internal credit ratings are as follows.
The MUFG Group records all derivative contracts at fair value. Aggregate market risk limits have been established, and market risk measures are routinely monitored against these limits. The MUFG Group also manages its exposure to these derivative contracts through a variety of risk mitigation strategies, including, but not limited to, offsetting economic hedge positions. The MUFG Group expects the risk of loss to be remote and believes that the notional amounts of the derivative contracts generally exceed its exposure.
Guarantees for the repayment of trust principal include guarantees which the MUFG Group provides for the repayment of principal of certain types of trust products, including certain jointly operated designated money in trusts and loan trusts. The MUFG Group stably manages and administers such trust products with attention to risk and the profitability of trust assets. Management believes that the MUFG Group will not incur any losses on the guarantees.
Liabilities of trust accounts represent the trustee’s potential responsibility for temporary payments to creditors of liabilities of trust accounts making use of funds of the MUFG Group. The MUFG Group has experienced no significant losses on such responsibilities and its exposure to the risk associated with the temporary payments is judged to be remote because trust account liabilities are generally covered by the corresponding trust account assets.
The MUFG Group conducts securities lending transactions for institutional customers as a fully disclosed agent. At times, securities lending indemnifications are issued to guarantee that a security lending customer will be made whole in the event the borrower does not return the security subject to the lending agreement and collateral held is insufficient to cover the market value of the security. All lending transactions are collateralized, primarily by cash. At March 31, 2010, the MUFG Group had no exposure that would require it to pay under this securities lending indemnification, since the collateral market value exceeds the securities lent.
Other Off-balance-sheet Instruments
In addition to obligations under guarantees and similar arrangements set forth above, the MUFG Group issues other off-balance-sheet instruments to meet the financial needs of its customers and for purposes other than trading. Such off-balance-sheet instruments consist of lending-related commitments, including commitments to extend credit and commercial letters of credit that the MUFG Group provides to meet the financing needs of
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
its customers. Once the MUFG Group issues these financial instruments, the MUFG Group is required to extend credit to or make certain payments to the customers or beneficiaries specified pursuant to the underlying contracts unless otherwise provided in the contracts. Since many of these commitments expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At March 31, 2008,2010, approximately 72%76% of these commitments will expire within one year, 26%23% from one year to five years and 2%1% after five years. The table below summarizes the contractual amounts with regard to these commitments at March 31, 20072009 and 2008:2010:
| 2007(1) | 2008 | |||||
| (in billions) | ||||||
Commitments to extend credit | ¥ | 61,963 | ¥ | 61,906 | ||
Commercial letters of credit | 762 | 762 | ||||
Commitments to make investments | 122 | 114 | ||||
Other | — | 26 | ||||
Note:
| As previously reported | As restated | 2009 | 2010 | |||||||||
| (in billions) | (in billions) | |||||||||||
Commitments to extend credit | ¥ | 62,146 | ¥ | 61,963 | ¥ | 59,373 | ¥ | 61,020 | ||||
Commercial letters of credit | 842 | 762 | 530 | 628 | ||||||||
Commitments to make investments | 33 | 122 | 144 | 126 | ||||||||
Other | 8 | 6 | ||||||||||
Commitments to extend credit, which generally have fixed expiration dates or other termination clauses, are legally binding agreements to lend to customers. Commitments are different from guarantees in that the commitments are generally revocable or have provisions that enable the MUFG Group to avoid payments in the event of violations of any conditions of the contracts and certain deterioration of the potential borrowers’ financial condition. Commitments to extend credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements.
Commercial letters of credit, used for facilitating trade transactions, are generally secured by underlying goods. The MUFG Group continually monitors the type and amount of collateral and other security, and requires counterparties to provide additional collateral or guarantors as necessary.
Commitments to make investments are legally binding contracts to make additional contributions to corporate recovery or private equity investment funds in accordance with limited partnership agreements. Some of these funds, in which the MUFG Group has significant variable interests, are described in Note 26.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)25.
26.25. VARIABLE INTEREST ENTITIES
In the normal course of its business, the MUFG Group has financial interests in various entities which may be deemed to be variable interest entities (“VIEs”) such as asset-backed commercial paper conduits, securitization conduits of client properties, various investment funds, special purpose entities created for structured financing, repackaged instruments, and repackaged instruments.
The following tables present, by typeentities created for the securitization of VIE, the total assets of consolidated and non-consolidated VIEs and the maximum exposure to non-consolidated VIEs at March 31, 2007 and 2008:MUFG Group’s assets.
Consolidated VIEs | 2007 | 2008 | ||||
| (in millions) | ||||||
Asset-backed commercial paper conduits | ¥ | 6,235,044 | ¥ | 6,693,615 | ||
Securitization conduits of client properties | 2,625 | 1,012 | ||||
Investment funds | 1,964,846 | 1,857,463 | ||||
Special purpose entities created for structured financing | 26,942 | 56,353 | ||||
Repackaged instruments | 155,971 | 108,348 | ||||
Others | 410,560 | 328,450 | ||||
Total | ¥ | 8,795,988 | ¥ | 9,045,241 | ||
| 2007(1) | 2008 | |||||||||||
Non-Consolidated VIEs | Assets | Maximum exposure | Assets | Maximum exposure | ||||||||
| (in millions) | ||||||||||||
Asset-backed commercial paper conduits | ¥ | 11,910,354 | ¥ | 2,418,413 | ¥ | 12,114,760 | ¥ | 2,224,975 | ||||
Securitization conduits of client properties | 2,918,035 | 832,373 | 3,257,455 | 946,880 | ||||||||
Investment funds | 40,796,111 | 1,613,470 | 48,652,948 | 1,277,302 | ||||||||
Special purpose entities created for structured financing | 27,354,689 | 2,555,472 | 26,554,038 | 3,075,533 | ||||||||
Repackaged instruments | 135,237,134 | 3,145,391 | 128,236,195 | 3,836,752 | ||||||||
Others | 14,992,821 | 1,791,888 | 16,097,602 | 1,744,514 | ||||||||
Total | ¥ | 233,209,144 | ¥ | 12,357,007 | ¥ | 234,912,998 | ¥ | 13,105,956 | ||||
Note:
| As previously reported | As restated | |||||||||||
| Assets | Maximum exposure | Assets | Maximum exposure | |||||||||
(in millions) | ||||||||||||
Asset-backed commercial paper conduits | ¥ | 39,357,613 | ¥ | 2,826,007 | ¥ | 11,910,354 | ¥ | 2,418,413 | ||||
Securitization conduits of client properties | 3,013,154 | 924,708 | 2,918,035 | 832,373 | ||||||||
Investment funds | 67,224,180 | 2,083,964 | 40,796,111 | 1,613,470 | ||||||||
Special purpose entities created for structured financing | 26,111,556 | 2,127,030 | 27,354,689 | 2,555,472 | ||||||||
Repackaged instruments | 116,842,810 | 2,602,834 | 135,237,134 | 3,145,391 | ||||||||
Others | 11,532,032 | 1,512,566 | 14,992,821 | 1,791,888 | ||||||||
Total | ¥ | 264,081,345 | ¥ | 12,077,109 | ¥ | 233,209,144 | ¥ | 12,357,007 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presentstables present the carrying amountassets and liabilities of consolidated VIEs, the total assets that correspondsof non-consolidated VIEs, the maximum exposure to VIEs’ obligationsloss resulting from its involvement with non-consolidated VIEs, and the assets and liabilities of non-consolidated VIEs recorded on the consolidated balance sheet at March 31, 20072009 and 2008:2010.
| 2007 | 2008 | |||||
| (in millions) | ||||||
Cash, due from banks and interest-earning deposits in other banks | ¥ | 250,338 | ¥ | 263,420 | ||
Trading account assets | 1,750,372 | 1,526,753 | ||||
Investment securities | 478,836 | 498,827 | ||||
Loans | 6,047,324 | 6,354,329 | ||||
Others | 269,118 | 401,912 | ||||
Total | ¥ | 8,795,988 | ¥ | 9,045,241 | ||
Consolidated VIEs | Consolidated assets | Consolidated liabilities | ||||||||||||||||||||||||||||||
At March 31, 2009: | Total | Cash | Trading account assets | Investment securities | Loans | All other assets | Total | Other short-term borrowings | Long-term debt | All other liabilities | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
Asset-backed conduits | ¥ | 6,450,238 | ¥ | 125,301 | ¥ | 904 | ¥ | 400,038 | ¥ | 5,912,685 | ¥ | 11,310 | ¥ | 6,456,798 | (1) | ¥ | 5,816,673 | ¥ | 395,614 | ¥ | 244,511 | (1) | ||||||||||
Investment funds | 1,284,010 | 51,016 | 965,110 | 25,998 | 1,782 | 240,104 | 98,876 | (1) | 2,461 | 34,006 | 62,409 | (1) | ||||||||||||||||||||
Special purpose entities created for structured financing | 164,614 | 1,515 | — | — | 159,990 | 3,109 | 165,726 | 12,736 | 152,740 | 250 | ||||||||||||||||||||||
Repackaged instruments | 85,679 | 71 | 84,569 | 1,039 | — | — | 91,866 | 540 | 84,743 | 6,583 | ||||||||||||||||||||||
Securitization of the MUFG group’s assets | 2,994,713 | 2,282 | — | — | 2,900,834 | 91,597 | 3,049,217 | — | 3,046,444 | 2,773 | ||||||||||||||||||||||
Others | 195,709 | 37,017 | 823 | — | 121,377 | 36,492 | 194,873 | 121,643 | 36,889 | 36,341 | ||||||||||||||||||||||
Total | ¥ | 11,174,963 | ¥ | 217,202 | ¥ | 1,051,406 | ¥ | 427,075 | ¥ | 9,096,668 | ¥ | 382,612 | ¥ | 10,057,356 | (1) | ¥ | 5,954,053 | ¥ | 3,750,436 | ¥ | 352,867 | (1) | ||||||||||
Note:
| (1) | Effective April 1, 2009, the MUFG Group adopted new guidance regarding noncontrolling interests in subsidiaries. See Note 1 “Noncontrolling Interests” under “Accounting Changes” section for the detail. As a result, the amounts of All other liabilities in Asset-backed conduits and Investment funds, and Total balance at March 31, 2009 were reclassified. |
Consolidated VIEs | Consolidated assets | Consolidated liabilities | ||||||||||||||||||||||||||||
At March 31, 2010: | Total | Cash | Trading account assets | Investment securities | Loans | All other assets | Total | Other short-term borrowings | Long-term debt | All other liabilities | ||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||
Asset-backed conduits | ¥ | 5,185,451 | ¥ | 83,516 | ¥ | 949 | ¥ | 305,942 | ¥ | 4,786,104 | ¥ | 8,940 | ¥ | 5,193,733 | ¥ | 4,534,058 | ¥ | 340,999 | ¥ | 318,676 | ||||||||||
Investment funds | 1,383,520 | 45,890 | 1,174,889 | 19,114 | 1,670 | 141,957 | 64,791 | 717 | 31,070 | 33,004 | ||||||||||||||||||||
Special purpose entities created for structured financing | 199,005 | 1,831 | — | 2,025 | 191,868 | 3,281 | 199,432 | 26,352 | 172,871 | 209 | ||||||||||||||||||||
Repackaged instruments | 55,047 | — | 42,032 | 13,015 | — | — | 55,319 | — | 54,743 | 576 | ||||||||||||||||||||
Securitization of the MUFG group’s assets | 2,692,795 | 213 | 3,851 | — | 2,603,024 | 85,707 | 2,710,615 | 13,000 | 2,696,043 | 1,572 | ||||||||||||||||||||
Others | 166,652 | 31,774 | 799 | — | 102,858 | 31,221 | 165,930 | 103,131 | 31,695 | 31,104 | ||||||||||||||||||||
Total | ¥ | 9,682,470 | ¥ | 163,224 | ¥ | 1,222,520 | ¥ | 340,096 | ¥ | 7,685,524 | ¥ | 271,106 | ¥ | 8,389,820 | ¥ | 4,677,258 | ¥ | 3,327,421 | ¥ | 385,141 | ||||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
In addition, certain transfers of financial assets that did not qualify for sale accounting were made to variable interest entities. The transferred assets, primarily consisting of performing loans, continued to be carried as assets of the MUFG Group. Such assets amounted to ¥3,796,861 million(1) and ¥3,326,738 million at March 31, 2007 and 2008, respectively.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A portion of the assets and liabilities of consolidated VIEs presented in the tabletables above were derived from transactions between consolidated VIEs and the MUFG Group, the primary beneficiary, and were eliminated as intercompany transactions. The eliminated amounts of assets were ¥143,483¥176,185 million of Cash and due from banks and interest-earningInterest-earning deposits in other banks, ¥3,595¥902 million of Trading account assets, ¥8,155¥25,708 million of Investment securities, ¥242,481¥259,838 million of Loans and ¥6,252¥8,428 million of OtherAll other assets at March 31, 2007,2009, and ¥210,222¥125,813 million of Cash and due from banks and interest-earningInterest-earning deposits in other banks, ¥1,431¥711 million of Trading account assets, ¥27,440¥415 million of Investment securities, ¥235,110¥193,953 million of Loans and ¥4,849¥7,414 million of OtherAll other assets at March 31, 2008.2010. The eliminated amounts of liabilities were ¥4,137,196 million of Other short-term borrowings, ¥1,640,992 million of Long-term debt and ¥70,369 million of All other liabilities at March 31, 2009, and ¥3,335,342 million of Other short-term borrowings, ¥1,518,273 million of Long-term debt and ¥57,591 million of All other liabilities at March 31, 2010.
In general, the creditors or beneficial interest holders of consolidated VIEs have recourse only to the assets of those VIEs and do not have recourse to other assets of the MUFG Group, except where the MUFG Group provides credit support as in the case of certain asset-backed commercial paper conduits.
Significant | On-balance sheet assets | On-balance sheet liabilities | ||||||||||||||||||||||||||||
At March 31, 2009: | Assets | Maximum exposure | Total | Trading account assets | Investment securities | Loans | Other assets | Total | Trading account liabilities | Other liabilities | ||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||
Asset-backed conduits | ¥ | 11,055,771 | ¥ | 2,091,098 | ¥ | 1,305,466 | ¥ | 1,540 | ¥ | 50,569 | ¥ | 1,253,357 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ||||||||||
Investment funds | 12,175,644 | 940,640 | 877,816 | 177,933 | 246,644 | 407,313 | 45,926 | — | — | — | ||||||||||||||||||||
Special purpose entities created for structured financing | 12,328,660 | 1,816,391 | 1,529,732 | 20,580 | 84,932 | 1,417,528 | 6,692 | — | — | — | ||||||||||||||||||||
Repackaged instruments | 57,393,642 | 1,823,526 | 1,738,573 | 430,501 | 799,351 | 508,721 | — | — | — | — | ||||||||||||||||||||
Others | 8,906,982 | 1,612,938 | 1,183,634 | 4,055 | 349,426 | 830,153 | — | 565 | 565 | — | ||||||||||||||||||||
Total | ¥ | 101,860,699 | ¥ | 8,284,593 | ¥ | 6,635,221 | ¥ | 634,609 | ¥ | 1,530,922 | ¥ | 4,417,072 | ¥ | 52,618 | ¥ | 565 | ¥ | 565 | ¥ | — | ||||||||||
Note:
Significant | On-balance sheet assets | On-balance sheet liabilities | ||||||||||||||||||||||||||||
At March 31, 2010: | Assets | Maximum exposure | Total | Trading account assets | Investment securities | Loans | Other assets | Total | Trading account liabilities | Other liabilities | ||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||
Asset-backed conduits | ¥ | 5,060,968 | ¥ | 1,972,562 | ¥ | 1,073,035 | ¥ | 1,375 | ¥ | 77,742 | ¥ | 993,918 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ||||||||||
Investment funds | 15,681,299 | 833,828 | 810,295 | 43,638 | 432,264 | 319,712 | 14,681 | — | — | — | ||||||||||||||||||||
Special purpose entities created for structured financing | 12,022,760 | 1,834,411 | 1,596,711 | 20,858 | 83,563 | 1,479,700 | 12,590 | — | — | — | ||||||||||||||||||||
Repackaged instruments | 36,848,306 | 1,430,813 | 1,426,517 | 256,111 | 716,754 | 453,652 | — | — | — | — | ||||||||||||||||||||
Others | 8,135,057 | 1,511,718 | 1,065,275 | 3,438 | 331,826 | 730,011 | — | 5,547 | — | 5,547 | ||||||||||||||||||||
Total | ¥ | 77,748,390 | ¥ | 7,583,332 | ¥ | 5,971,833 | ¥ | 325,420 | ¥ | 1,642,149 | �� | 3,976,993 | ¥ | 27,271 | ¥ | 5,547 | ¥ | — | ¥ | 5,547 | ||||||||||
Asset-backed Commercial Paper Conduits
The MUFG Group administers several multi-seller finance entities (primarily commercial paper conduits) that purchase financialMaximum exposure to loss on each type of entity is determined, based on the carrying amount of any on-balance-sheet assets primarily poolsand any off-balance-sheet liability held, net of receivables, from third-party customers. The assets purchased by these conduits are generally funded by issuing commercial paperany recourse liabilities. Therefore, the maximum exposure to and/or by borrowings fromloss represents the theoretical maximum loss the MUFG Group or third parties. While customers basically continuecould possibly incur at each balance sheet date and does not reflect the likelihood of ever incurring such a loss. The difference between the amount of on-balance-sheet assets and the maximum exposure to provide servicing forloss primarily comprises the transferred trade receivables, the MUFG Group underwrites, distributes, makes a market in commercial paper issued by the conduits, and also provides liquidity and credit support facilities to the entities.
Securitization Conduits of Client Properties
The MUFG Group administers several conduits that acquire assets, such as real estate, from third-party customers (“property sellers”) with the property sellers continuing to use the acquired real estate through lease-back agreements. The equity of the conduits is provided by the property sellers but such equity holders have no ability to make decisions about the activities of the conduits. Thus, the MUFG Group considers those conduits to be VIEs. The assets acquired by these conduits are generally funded by borrowings from the MUFG Group or third parties.remaining undrawn commitments.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Analysis of Each Transaction Category
Investment FundsAsset-Backed Conduits
This category primarily comprises the following:
Multi-Seller Conduits (MUFG-sponsored Asset-Backed Commercial Paper (“ABCP”) Conduits and Other ABCP Conduits)
The MUFG Group holds investments and loansadministers several conduits under asset-backed financing programs under which the conduits purchase financial assets from the MUFG Group’s customers, primarily trade accounts receivables, by issuing short-term financing instruments, primarily commercial paper, to third-party investors. Under the asset-backed financing programs, the MUFG Group acts as an agent for the conduits, which enter into agreements with the MUFG Group’s customers where the customers transfer assets to the conduits in various investment funds that collectively invest in equity and debt securities including listed Japanese securities and investment grade bonds, and, to a limited extent, securities and other interests issued by companies, including in a start-up or restructuring stage. Such investment funds are managed by investment advisory companies or fund management companies that make investment decisions and administer the funds.
exchange for monetary consideration. The MUFG Group not only managesalso underwrites commercial paper for the composition of investment trust funds but also plays a major role in composing venture capital funds.conduits that is secured by the assets held by them and provides program-wide liquidity and credit support facilities to the conduits. The MUFG Group generally doesreceives fees related to the services it provides to the conduits and the program-wide liquidity and credit support. Because of the program-wide credit support that the MUFG Group provides as a sponsor in respect to the financing by the conduits, it is exposed to the majority of the expected variability of the conduits. Therefore, the MUFG Group considers itself to be the primary beneficiary and consolidates the multi-seller conduits. While the MUFG Group has significant involvement with the conduits, it has never provided financial or any other support that are not havecontractually required to provide in the past. In addition, the assets purchased by the conduits are of high quality in their credit standing and mostly short-term in nature. Therefore, the MUFG Group believes the risks involved in these transactions are significantly limited relative to the transaction size.
In addition to the entities described above, the MUFG Group participates as a provider of financing to several conduits that are administered by third parties. Most of these conduits are established under a multi-seller asset-backed financing program and the MUFG Group provides financing along with other financial institutions. With respect to these conduits, the MUFG Group is not considered as the primary beneficiary because the MUFG Group’s participation in the financing is not significant variable interests through composing these types of funds.relative to the total financing provided by third parties or there is sufficient funding or financial support that is subordinate to the financing provided by the MUFG Group.
Special Purpose Entities Created for Structured FinancingAsset-Backed Conduits (MUFG-sponsored Asset-Backed Loan (“ABL”) Programs and Other Programs)
The MUFG Group extends non-recourseadministers several conduits under asset-backed loans to special purpose entities, which hold beneficial interests primarily in real properties, to provide financing for special purpose projects including real estate development and natural resource development managed by third parties.
The MUFG Group generally acts as a member of a lending group and does not have any equity investment in the entities, which is typically provided by project owners. For most of these financings, the equity provided by the project owners is of sufficient level to absorb expected losses, while expected residual returns to the owners are arranged to be the most significant among all returns. Accordingly, the MUFG Group has determined that the MUFG Group is not the primary beneficiary of most of these entities. However, in transactions with entities whose investments at risk are exceptionally thin,program where the MUFG Group provides financing to fund the conduits’ purchases of financial assets, comprising primarily trade accounts receivables, from its customers. The MUFG Group acts as an agent and sponsor for the conduits, which enter into agreements with the MUFG Group’s customers where the customers transfer assets to the conduits in exchange for monetary consideration. In most of the financing,cases the MUFG Group is ultimately required to consolidatethe sole provider of financing that is secured by the assets held by the conduits and because of this type of entity.
Repackaged Instruments
reason, the MUFG Group is considered as the primary beneficiary. The MUFG Group has two typesnever provided financial or any other support that are not contractually required to provide in the past. In addition, the assets purchased by the conduits are of relationships with special purpose entities that repackage financial instruments to create new financial instruments.
The MUFG Group provides repackaged instruments with features that meet the customers’ needshigh quality in their credit standing and preferences through special purpose entities. The MUFG Group purchases financial instruments such as bonds and transfers them to special purpose entities which then issue new instruments. The special purpose entities may enter into derivative transactions including interest rate and currency swaps withmostly short-term in nature. Therefore, the MUFG Group or other financial institutionsbelieves the risks involved in these transactions are significantly limited relative to modify the cash flows of the underlying financial instruments. The MUFG Group underwrites and markets the new instruments issued by the special purpose entities to its customers.transaction size.
The MUFG Group also invests in repackaged instruments arranged and issued by third parties.
Financing Vehicle
The MUFG Group has established several wholly owned funding vehicles to enhance the flexibility of its capital management. Management has determined thatIn addition, the MUFG Group does not have significant variable interestsis involved with entities, which take in these conduitsmost cases, the form of a trust, where originators of financial assets, which would require disclosure or consolidation.
Trust Arrangements
primarily comprise lease receivables, entrust the assets with trust banks and receive beneficial certificates in exchange. The originators then transfer the beneficiary certificates to the MUFG Group offersin exchange for cash. Because the MUFG Group participates in a varietymajority of asset managementthe economics generated from these entities through the beneficiary certificates that it holds, it is considered as the primary beneficiary and administration services under trust arrangements including securities investment trusts, pension trusts and trusts used as securitization vehicles.the MUFG Group consolidates these trusts.
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AlthoughThe MUFG Group also participates as a provider of financing the ABL programs that are managed by third parties. The MUFG Group is not considered as the primary beneficiary of the entities used in these programs as the MUFG Group’s participation to financing is not significant relative to the total financing provided by the third parties or there is sufficient funding or financial support that is subordinate to the financing provided by the MUFG Group.
Investment Funds
This category primarily comprises the following:
Corporate Recovery Funds
These entities are established by fund managers, which are unrelated to the MUFG Group, for the purpose of investing in debt or equity instruments issued by distressed companies. After investment, the fund managers work closely with the management of the issuers and attempt to enhance corporate value by various means including corporate restructuring and reorganization. Their exit strategies include, among other things, sales to others and Initial Public Offerings (“IPOs”).
Typically, these entities take the form of a limited partnership which is entirely funded by general and limited partner interests. In some cases, the general partners of the partnerships are entities that have no substantive decision making ability. The fund managers that establish these partnerships assume investment management and day-to-day operation by entering into asset management contracts with the general partners. These partnerships are, therefore, financing vehicles and as such are considered as VIEs. In other cases, the general partners have substantive decision making ability but the partnerships are considered as VIEs when the general partners’ investments in the partnerships are considered as non-substantive, usually based on the percentage interest held, and they do not have substantive limited partner interests.
The MUFG Group participates in these partnerships as a limited partner. While the MUFG Group’s share in partnership interests is limited in most cases, the MUFG Group is the only limited partner in some cases and it consolidates these partnerships as the primary beneficiary.
Private Equity Funds
The MUFG Group is involved in venture capital funds that are established by either the MUFG Group’s entities or fund managers unrelated to the MUFG Group. These entities have specific investment objectives in connection with their acquisition of equity interests, such as providing financing and other support to start-up businesses, medium and small entities in a particular geographical area, and to companies with certain technology or companies in a high-growth industry.
These entities typically take the form of limited partnerships and usually are entirely funded by general and limited partner interests. The general partners of the partnerships in some cases are entities that have no substantive decision making ability. The fund managers that establish these partnerships assume investment management and day-to-day operation by entering into asset management contracts with the general partners. These partnerships are therefore financing vehicles and as such are considered as VIEs. In other cases, the general partners have substantive decision making ability and the partnerships are considered as VIEs even when the general partners’ investments in the partnerships are considered as non-substantive, usually based on the percentage interest held, and they do not have substantive limited partner interests.
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The MUFG Group participates in these partnerships as a general partner or a limited partner. While the MUFG Group’s share in partnership interests is limited in most cases, the MUFG Group provides most of the financing to the partnerships in some cases and it consolidates them as the primary beneficiary.
Investment Trusts
The MUFG Group invests in investment trusts that are professionally managed collective investment schemes which pool money from many investors and invest in, among others, equity and debt securities. Most of these funds take the form of a trust where there is a separation in investment decisions, which is assumed by an investment manager who has no investment in a trust, and ownership through beneficiary interests issued by a trust are owned by investors. Therefore, these investment trusts are considered as VIEs. The MUFG Group consolidates investment trusts when it owns a majority of the interests issued by investment trusts.
Buy-out Financing Vehicles
The MUFG Group provides financing to buy-out vehicles. The vehicles are established by equity investments from, among others, private equity funds or the management of target companies for the purpose of purchasing equity shares of target companies. Along with other financial institutions, the MUFG Group provides financing to buy-out vehicles in the form of loans. While the buy-out vehicles’ equity is normally substantive in amount and the rights and obligations associated with it, in some cases the vehicles have equity that is insufficient to absorb variability primarily because the amount provided by equity investors is nominal in nature. These vehicles are considered as VIEs and an assessment as to whether the MUFG Group is the primary beneficiary is required. In most cases, however, the MUFG Group mitigates its risk by requiring third-party guarantees with collateral or reducing its exposure to an adequate level by providing loans as one of several lenders. As a result, the MUFG Group is not considered as the primary beneficiary of these entities.
Special Purpose Entities Created for Structured Financing
This category primarily comprises the following:
Leveraged Leasing Vehicles
These entities are established to raise funds to purchase or build equipment and machinery including commercial vessels, passenger and cargo aircrafts, production equipment and other machinery, for the purpose of leasing them to lessees who use the equipment and machinery as part of their business operations. These entities typically take the form of a limited partnership or a special purpose company where they fund their purchases of equipment and machinery via senior and subordinate financing. In some cases, the entities are funded only by senior financing or there is a guarantee provided to the senior financing by parties unrelated to those providing the senior financing. In most cases, the MUFG Group participates in the senior financing and does not participate in the subordinate financing or provide guarantees. The subordinate financing or the third-party guarantee is substantive and would absorb expected variability generated by the assets held by the entities. In exceptional cases where there is no guarantee from a third-party or there is not sufficient subordinate financing, the MUFG Group consolidates the entities as the primary beneficiary. In some limited cases, the MUFG Group may assume risks through guarantees or certain protections as provided inprovides a residual value guarantee to the agreements or relevant legislation,leased assets. Based on expected loss analysis, the MUFG Group has determined that it willdoes not absorb aparticipate in the majority of expected lossesvariability of the entities involved and does not consolidate these entities.
Project Financing Vehicles
These entities are established to raise funds in connection with, among other things, production of natural resources, construction and development of urban infrastructure (including power plants and grids, highways and
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ports), and the development of real estate properties or complexes. These projects typically involve special purpose companies which issue senior and subordinate financing to raise funds in connection with the various projects. The subordinate financing is usually provided by parties that will ultimately make use of the assets constructed or developed. By contrast, the senior financing is typically provided by financial institutions, including the MUFG Group. Because the MUFG Group’s participation in the financing is limited or there is sufficient subordinate financing, the MUFG Group is not considered as the primary beneficiary of these entities and does not consolidate these entities.
Sale and Leaseback Vehicles
The MUFG Group is involved with vehicles that acquire assets, primarily real estate, from the MUFG Group’s clients and other unrelated parties where the sellers of the assets continue to use the assets through leaseback agreements. These vehicles typically take the form of a limited partnership where the general partner has effectively no decision making ability because an equity holder of the general partner serves a perfunctory role. Therefore, these vehicles are considered as VIEs. The subordinated financing of these vehicles is usually provided by the sellers of the assets, with the MUFG Group providing senior financing for the vehicles. The subordinated financing of these entities absorbs the expected variability generated from the assets held and as such, the MUFG Group is not considered as the primary beneficiary.
Securitization of Client Real Estate Properties
These entities are established for the purpose of securitizing real estate properties held by the MUFG Group’s customers. In most cases, these entities take the form of a limited partnership or a special purpose company. These entities are designed to have non-substantive decision making ability because the general partner or an equity holder serves a perfunctory role. The entities are typically funded by senior and subordinated financing where the original owners of the properties provide the subordinated financing, primarily in the form of partnership interests or subordinated notes, and financial institutions, including the MUFG Group, provide senior financing in the form of senior loans. The subordinated financing of these entities absorbs the expected variability generated from the assets held and as such, the MUFG Group is not considered as the primary beneficiary.
Repackaged Instruments
This category primarily comprises the following:
Investments in Financially-Engineered Products
The MUFG Group is involved in special purpose entities that have been established to issue financial products through the engineering and repackaging of existing financial instruments, such as collateralized debt obligations (“CDOs”) and synthetic CDOs. These special purpose entities are considered as VIEs because they do not have substantive decision making ability. These special purpose entities are arranged and managed by parties that are not related to the MUFG Group. The MUFG Group’s involvement with these entities is for investment purposes. In most cases, the MUFG Group participates as one of many other investors and the MUFG Group typically holds investments in senior tranches or tranches with high credit ratings. Therefore, the MUFG Group is not considered as the primary beneficiary except in limited circumstances where the MUFG Group holds the majority of instruments issued by a single-tranche vehicle.
Investments in Securitized Financial Instruments
The MUFG Group holds investments in special purpose entities that issue securitized financial products. The assets held by the special purpose entities include credit card receivables and residential mortgage loans.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
These entities are established and managed by parties that are unrelated to the MUFG Group and the MUFG Group’s involvement with these entities is for its own investment purposes. In all cases, the MUFG Group participates as one of many other investors and the MUFG Group holds investments with high credit ratings. Therefore, the MUFG Group is not considered as the primary beneficiary of these entities.
Securitization of the MUFG Group’s Assets
The MUFG Group establishes entities to securitize its own financial assets that include, among others, corporate and retail loans and lease receivables. The entities used for securitization, which typically take the form of special purpose company and trusts, are established by the MUFG Group and, in most cases, issue senior and subordinate interests or financing. Where the MUFG Group retains subordinate interests or financing, it is considered as the primary beneficiary of the entities and the MUFG Group consolidates them. In some cases, all financing is provided by the MUFG Group but there is a substantive third-party guarantee, or most of the interests or financing issued by the entities is transferred to investors unrelated to the MUFG Group. In these cases, the MUFG Group does not consider itself as the primary beneficiary.
Others
This category primarily comprises the following:
Financing Vehicles of the MUFG Group’s Customers
The MUFG Group is involved with several entities that are established by the MUFG Group’s customers. These entities borrow funds from financial institutions and extend loans to their group entities. These entities effectively work as fund-raising vehicles for their respective group companies and enable the groups to achieve efficient financing by integrating their financing activities into a single entity. In all cases the MUFG Group is not considered as the primary beneficiary, either because it participates as one of two or more lenders, and therefore, its participation is less than a majority, and/or there is a substantive third-party guarantee provided with respect to the MUFG Group’s loans.
Funding Vehicles
The MUFG Group has established several wholly-owned, off-shore vehicles which issue securities, typically preferred stock that is fully guaranteed by the MUFG Group, to investors unrelated to us to fund purchases of debt instruments issued by the MUFG Group. These entities are considered as VIEs because the MUFG Group’s investment in the vehicles’ equity is not considered at risk and substantive as the entire amount raised by the vehicles was used to purchase debt instruments issued by the MUFG Group. As the third-party investors participate in the economics of these financing vehicles, as well as the vehicles themselves, these financing vehicles are not considered as the MUFG Group’s subsidiaries.
Trust Arrangements
The MUFG Group offers, primarily through its wholly-owned trust arrangements.banking subsidiary, MUTB, a variety of trust products and services including securities investment trusts, pension trusts and trusts used as securitization vehicles. In a typical trust arrangement, however, the MUFG Group manages and administers assets on behalf of the customers in an agency, fiduciary and trust capacity and does not assume risks associated with the entrusted assets. CustomersThe trusts are generally considered as VIEs because the trust beneficiaries, who provide all of the equity at risk, usually do not have substantive decision making ability. The MUFG Group, however, is not considered as the primary beneficiary because the trust beneficiaries receive and absorb expected losses and residual returns and losses on the performance and operations of trust assets under management of the MUFG Group. Accordingly,
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
With respect to the jointly operated designated money in trusts, however, MUTB is exposed to the risks involved with the entrusted assets, where MUTB provides the trust beneficiaries with guarantees on the repayment of trust principal through face value guarantees. In these products, MUTB pools money from general investors and invests it in financial assets that are of high credit standing, including bank deposits, government bonds, high-quality corporate bonds and high-quality corporate loans including loans to banking account of MUTB. MUTB manages and administers the trust assets in the capacity of a trustee and receives fees as compensation for services it provides. With respect to most of the jointly operated designated money in trusts, MUTB provides, as a sponsor of the products, the face value guarantees under which it is required to compensate a loss on the stated principal of the trust beneficial interests. MUTB is not considered as the primary beneficiary of these products because the event of loss is highly remote and in fact the face value guarantee has never been called upon in the trusts’ operational history that extends over decades. In addition, the trusts have substantial investments in loans to banking account of MUTB and MUTB’s face value guarantee is considered as non-substantive to the extent of the self guarantee.
Troubled Borrowers
During the normal course of business, the borrowers from the MUFG Group has determinedmay experience financial difficulties and sometimes enter into certain transactions that it is generally not a primary beneficiary to any trust arrangements under management as its interests in the trust arrangements are insignificant in most cases.
Other Types of VIEs
The MUFG Group is also a party to other types of VIEs including special purpose entities created to hold assets on behalf ofrequire the MUFG Group as an intermediary.
The MUFG Group identified borrowers that were determined to assess whether they would be considered as VIEs due to antheir difficult financial position. While in most cases such borrowers are not considered as VIEs when the transactions take place, in limited circumstances they are considered as VIEs due to insufficient level of equity. The MUFG Group has determined thatIn all cases, however, the MUFG Group is not considered as the primary beneficiary based on its assessment of mostscenario-based probability-weighted cash flow analysis.
The Adoption of these borrowers becauseNew Accounting Guidance for Consolidation of its limited exposure as a lender to such borrowers. Such borrowers engage in diverse business activitiesVariable Interest Entities
In June 2009, the FASB issued new accounting guidance that amends the existing guidance for consolidation of various sizes in industries such as manufacturing, distribution, construction and real estate development, independently fromvariable interest entities. This new accounting guidance, which was effective for the MUFG Group.Group on April 1, 2010, significantly changes the way an enterprise determines whether to consolidate a variable interest entity. The adoption of this new accounting guidance on April 1, 2010 resulted in the consolidation and deconsolidation of certain variable interest entities. The net increase of the MUFG Group’s consolidated assets and liabilities, on a preliminary basis, were approximately ¥242 billion and ¥219 billion, respectively, as of April 1, 2010. The impact of the newly consolidated variable interest entities were ¥268 billion and ¥240 billion of assets and liabilities, respectively. These newly consolidated variable interest entities primarily consist of jointly operated designated money in trusts of which the MUFG Group has the power to direct the activities as an asset manager and the obligation to absorb losses through the face value guarantee. SeeAnalysis of Each Transaction Category—Others—Trust Arrangements for the accounting for the jointly operated designated money in trust under the existing guidance.
27.26. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments
The MUFG Group leases certain technology systems, office space and equipment under noncancelable agreements expiring through the fiscal year 2046.
Future minimum rental commitments for noncancelable leases at March 31, 2008 were as follows:
| Capitalized leases | Operating leases | ||||||
| (in millions) | |||||||
Fiscal year ending March 31: | |||||||
2009 | ¥ | 80,835 | ¥ | 45,619 | |||
2010 | 32,156 | 39,275 | |||||
2011 | 23,259 | 29,201 | |||||
2012 | 11,733 | 25,491 | |||||
2013 | 4,533 | 15,064 | |||||
2014 and thereafter | 4,957 | 32,867 | |||||
Total minimum lease payments | 157,473 | ¥ | 187,517 | ||||
Amount representing interest | (6,686 | ) | |||||
Present value of minimum lease payments | ¥ | 150,787 | |||||
Total rental expense for the fiscal years ended March 31, 2006, 2007 and 2008 was ¥85,605 million, ¥112,055 million and ¥107,289 million, respectively.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Future minimum rental commitments for noncancelable leases at March 31, 2010 were as follows:
| Capitalized leases | Operating leases | ||||||
| (in millions) | |||||||
Fiscal year ending March 31: | |||||||
2011 | ¥ | 21,327 | ¥ | 65,673 | |||
2012 | 15,578 | 55,754 | |||||
2013 | 8,036 | 49,437 | |||||
2014 | 5,433 | 40,385 | |||||
2015 | 4,549 | 36,440 | |||||
2016 and thereafter | 30,217 | 296,368 | |||||
Total minimum lease payments | 85,140 | ¥ | 544,057 | ||||
Amount representing interest | (7,793 | ) | |||||
Present value of minimum lease payments(1) | ¥ | 77,347 | |||||
Note:
| (1) | One of our subsidiaries entered into a lease agreement in February 2009. The lease term will commence in February 2011 and will be accounted for as a capital lease in accordance with the relevant lease accounting guidance. The present value of minimum lease payments of ¥32,864 million under this commitment have been included in the above table. |
Total rental expense for the fiscal years ended March 31, 2008, 2009 and 2010 was ¥107,289 million, ¥110,433 million and ¥108,591 million, respectively.
Repayment of Excess Interest
The Japanese government is implementingimplemented regulatory reforms affecting the consumer lending industry. In December 2006, the Diet passed legislation to reduce the maximum permissible interest rate under the Investment Deposit and Interest Rate Law, which is currentlywas formerly 29.2% per annum, to 20% per annum. The reduction in interest rates will bewas implemented by mid-2010.in June 2010. Under the reforms, all interest rates will befor loans originated after this reform are subject to the lower limits imposed by Interest Rate Restriction Law, which will compel lending institutions to lower the interest rates they charge borrowers.
Currently,Formerly, consumer finance companies arewere able to charge interest rates exceeding the limits stipulated by the Interest Rate Restriction Law so long as the payment iswas made voluntarily by the borrowers and the lender compliescomplied with various notice and other requirements. Accordingly, MUFG’s consumer finance subsidiaries and equity method investee have offered loans at interest rates above the Interest Rate Restriction Law, thoughLaw. Upon the implementation in June 2010, they are in the process of loweringlowered the interest rates for loans originated after this reform to below the Interest Rate Restriction Law.
During the past year,In 2006, the Supreme Court of Japan passed decisions in a manner more favorable to borrowers requiring reimbursement of previously paid interest exceeding the limits stipulated by the Interest Rate Restriction Law in certain circumstances. Due to such decisions and other regulatory changes, borrowers’ claims for reimbursement of excess interest significantly increased during the fiscal year ended March 31, 2007. As a result, MUFG’s consumer finance subsidiaries increased the allowance for repayment of excess interest for the fiscal year ended March 31, 2007. At March 31, 20072009 and 2008,2010, the allowance for repayment of excess interest established by MUFG’s consumer finance subsidiaries, which was included in Other liabilities, was ¥102,474¥76,876 million and ¥80,187¥84,216 million, respectively. Also,See provision for repayment of excess interest in the consolidated statements of
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
operations for the expenses recognized in relation to the allowance. For the fiscal years ended March 31, 2008, 2009 and 2010, an MUFG’s equity method investee increased its allowance during the fiscal year ended March 31, 2007, which had a negative impact of ¥77,552¥2,982 million, ¥15,829 million and ¥23,109 million, respectively, on Equity in losses of equity method investees in the consolidated statement of operations. The provision for repayment of excess interest of the equity method investee did not have a material impact on the MUFG Group’s financial position or results of operations for the fiscal year ended March 31, 2008.
Litigation
The MUFG Group is involved in various litigation matters. Management, based upon their current knowledge and the results of consultation with counsel, makes appropriate levels of litigation reserve. Management believes that the amounts of the MUFG Group’s liabilities, when ultimately determined, will not have a material adverse effect on the MUFG Group’s results of operations and financial position.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
28.27. FEES AND COMMISSIONS INCOME
Details of fees and commissions income for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 were as follows:
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||
| (in millions) | (in millions) | |||||||||||||||||
Trust fees | ¥ | 121,350 | ¥ | 146,045 | ¥ | 156,302 | ¥ | 156,302 | ¥ | 125,451 | ¥ | 107,175 | ||||||
Fees on funds transfer and service charges for collections | 105,485 | 151,293 | 152,902 | 152,902 | 147,658 | 145,865 | ||||||||||||
Fees and commissions on international business | 62,235 | 70,175 | 69,717 | 69,717 | 64,128 | 61,201 | ||||||||||||
Fees and commissions on credit card business | 110,127 | 164,240 | 137,970 | 137,970 | 141,421 | 137,394 | ||||||||||||
Service charges on deposits | 35,930 | 37,457 | 36,109 | 36,109 | 31,586 | 27,420 | ||||||||||||
Fees and commissions on securities business | 145,137 | 136,596 | 130,738 | 130,738 | 112,143 | 129,730 | ||||||||||||
Fees on real estate business | 45,829 | 60,154 | 44,461 | 44,461 | 19,770 | 19,876 | ||||||||||||
Insurance commissions | 48,508 | 52,209 | 43,023 | 43,023 | 28,065 | 22,869 | ||||||||||||
Fees and commissions on stock transfer agency services | 39,389 | 73,715 | 72,292 | 72,292 | 62,878 | 53,040 | ||||||||||||
Guarantee fees | 53,040 | 88,254 | 86,317 | 86,317 | 77,592 | 70,489 | ||||||||||||
Fees on investment funds business | 79,758 | 152,861 | 161,467 | 161,467 | 130,654 | 127,329 | ||||||||||||
Other fees and commissions | 186,487 | 274,194 | 225,749 | 225,749 | 247,166 | 237,155 | ||||||||||||
Total | ¥ | 1,033,275 | ¥ | 1,407,193 | ¥ | 1,317,047 | ¥ | 1,317,047 | ¥ | 1,188,512 | ¥ | 1,139,543 | ||||||
Trust fees consist primarily of fees earned by fiduciary asset management and administration services for corporate pension plans, investment funds, etc. Fees on funds transfer and service charges for collection are earned by providing settlement services such as domestic fund remittances and domestic collection services. Fees and commissions on international business primarily consist of fees from international fund transfer and collection services, and trade-related financing services. Fees and commissions on credit card business are composed of interchange income, annual fees, royalty and other service charges from franchisees. Service charges on deposits are fees charged for deposits such as checking account deposits. Fees and commissions on securities business include underwriting, brokerage and advisory services and arrangement fees on securitizations. Fees on real estate business primarily consist of fees from real estate agent services. Insurance commissions are earned by acting as agent for insurance companies to sell insurance products. Fees and commissions on stock transfer agency services consist of fees earned primarily by stock title transfers and agency services for the calculation and payment of dividends. Guarantee fees are earned by providing guarantees on residential mortgage loans. Fees on investment funds business primarily consist of management fees for investment funds. Other fees and commissions include various arrangement fees and agent fees excluding the fees mentioned above.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
28. TRADING ACCOUNT PROFITS AND LOSSES
The MUFG Group performs trading activities through market-making, sales and arbitrage, while maintaining risk levels within appropriate limits in accordance with its risk management policy.
The MUFG Group has trading securities and trading derivative assets and liabilities for this purpose. In addition, the trading securities include foreign currency denominated debt securities such as foreign government or official institution bonds, corporate bonds and mortgage-backed securities, which are mainly comprised of securities measured at fair value under fair value option.
Net trading gains (losses) for the fiscal years ended March 31, 2008, 2009 and 2010 were comprised of the following:
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Interest rate and other derivative contracts | ¥ | 520,564 | ¥ | 555,505 | ¥ | (88,486 | ) | |||||
Trading account securities, excluding derivatives | (122,168 | ) | (813,312 | ) | 849,958 | |||||||
Trading account profits (losses)—net | 398,396 | (257,807 | ) | 761,472 | ||||||||
Foreign exchange derivative contracts | 26,832 | (829,605 | ) | 31,154 | ||||||||
Net trading gains (losses) | ¥ | 425,228 | ¥ | (1,087,412 | ) | ¥ | 792,626 | |||||
For further information on the methodologies and assumptions used to estimate fair value, see Note 31, which also shows fair values of trading securities by major category. Note 23 discloses further information on fair value of derivative assets and liabilities by major category.
The business segment information, set forth below, is derived from the internal management reporting system used by management to measure the performance of the MUFG Group’s business segments. Unlike financial accounting, there is no authoritative body of guidance for management accounting. The business segment information, set forth below, is based on the financial information prepared in accordance with Japanese GAAP as adjusted in accordance with internal management accounting rules and practices. Accordingly, the format and information is not consistent with the consolidated financial statements prepared on the basis of US GAAP. A reconciliation is provided for the total amounts of segments’ total operating profit with income from continuing operations before income tax expense and cumulative effect of a change in accounting principle(benefit) under US GAAP.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
See Note 30 for financial information relating to the MUFG Group’s operations by geographic area. The geographic financial information is consistent with the basis of the accompanying consolidated financial statement.
The following is a brief explanation of the MUFG Group’s business segments.
Integrated Retail Banking Business Group—Covers all domestic retail businesses, including commercial banking, trust banking and securities businesses. This business group integrates the retail business of BTMU, MUTB, MUS, Mitsubishi UFJ NICOS and other subsidiaries as well as retail product development, promotion and marketing in a single management structure. At the same time, the business group has developed and implemented MUFG Plaza, a one-stop, comprehensive financial services concept that provides integrated banking, trust and securities services.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Integrated Corporate Banking Business Group—Covers all domestic and overseas corporate businesses, including commercial banking, investment banking, trust banking and securities businesses as well as UNBC. Through the integration of these business lines, diverse financial products and services are provided to our corporate clients. The business group has clarified strategic domains, sales channels and methods to match the different growth stages and financial needs of our corporate customers. As of March 31, 2008, BTMU owned approximately 65% of UNBC, whose shares are listed on the New York Stock Exchange. UNBC is a bank holding company, whose primary subsidiary, UBOC,Union Bank, is one of the largest commercial banks in California by both total assets and total deposits. UNBCUnion Bank provides a wide range of financial services to consumers, small businesses, middle market companies and major corporations, primarily in California, Oregon and Washington but also nationally and internationally. On August 29, 2008, BTMU commencedAs a cashresult of the tender offer to acquire all ofthat was completed in September 2008, and the shares of UNBC’s common stock notsecond-step merger that was completed in November 2008, UNBC became MUFG’s wholly owned by us. For further information, see Note 35 for financial information relating to the MUFG Group’s events since March 31, 2008.subsidiary.
Integrated Trust Assets Business Group—Covers asset management and administration services for products such as pension trusts and security trusts by integrating the trust banking expertise of MUTB and the global network of BTMU. The business group provides a full range of services to corporate and other pension funds, including stable and secure pension fund management and administration, advice on pension schemes, and payment of benefits to scheme members.
Global Markets—Consists of the treasury operations of BTMU and MUTB. Global Markets also conducts asset liability management and liquidity management and provides various financial operations such as money markets and foreign exchange operations and securities investments.
Other—Consists mainly of the corporate centers of MUFG, BTMU and MUTB. The elimination of duplicated amounts of net revenue among business segments is also reflected in Other.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Effective April 1, 2007,2009, there were changes made in the managerial accounting methods, including those regarding revenue and expense distribution among MUFG’sthe MUFG Group’s business segments. The presentationtable set forth below has been reclassified to conform to the new basis of managerial accounting.accounting:
| Integrated Retail Banking Business Group | Integrated Corporate Banking Business Group | Integrated Trust Assets Business Group | Global Markets | Other | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | Overseas | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(in billions)
| Integrated Retail Banking Business Group | Integrated Corporate Banking Business Group | Integrated Trust Assets Business Group | Global Markets | Other | Total | Other than UNBC | UNBC | Overseas total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Domestic | Overseas | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other than UNBC | UNBC | Overseas total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2006: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 918.2 | ¥ | 1,040.7 | ¥ | 234.7 | ¥ | 350.3 | ¥ | 585.0 | ¥ | 1,625.7 | ¥ | 123.4 | ¥ | 369.8 | ¥ | (31.4 | ) | ¥ | 3,005.7 | |||||||||||||||||||||||||||||||||||||||||||||||
BTMU and MUTB: | 518.4 | 851.0 | 163.1 | — | 163.1 | 1,014.1 | 59.7 | 364.8 | (72.6 | ) | 1,884.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | 330.6 | 416.8 | 88.7 | — | 88.7 | 505.5 | 1.8 | 257.4 | 20.3 | 1,115.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net fees | 137.1 | 297.3 | 49.3 | — | 49.3 | 346.6 | 58.0 | (3.2 | ) | (18.1 | ) | 520.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 50.7 | 136.9 | 25.1 | — | 25.1 | 162.0 | (0.1 | ) | 110.6 | (74.8 | ) | 248.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other than BTMU and MUTB* | 399.8 | 189.7 | 71.6 | 350.3 | 421.9 | 611.6 | 63.7 | 5.0 | 41.2 | 1,121.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 624.4 | 389.1 | 157.4 | 202.3 | 359.7 | 748.8 | 75.6 | 47.2 | 137.3 | 1,633.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 293.8 | ¥ | 651.6 | ¥ | 77.3 | ¥ | 148.0 | ¥ | 225.3 | ¥ | 876.9 | ¥ | 47.8 | ¥ | 322.6 | ¥ | (168.7 | ) | ¥ | 1,372.4 | |||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2007: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,300.1 | ¥ | 1,297.6 | ¥ | 303.4 | ¥ | 324.3 | ¥ | 627.7 | ¥ | 1,925.3 | ¥ | 194.2 | ¥ | 367.9 | ¥ | 14.8 | ¥ | 3,802.3 | ||||||||||||||||||||||||||||||||||||||||||||||||
BTMU and MUTB: | 686.8 | 1,077.6 | 212.9 | — | 212.9 | 1,290.5 | 80.5 | 363.5 | (37.0 | ) | 2,384.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | 487.3 | 514.6 | 126.7 | — | 126.7 | 641.3 | 1.2 | 276.5 | (38.1 | ) | 1,368.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net fees | 169.5 | 400.0 | 60.0 | — | 60.0 | 460.0 | 80.6 | (10.9 | ) | (21.4 | ) | 677.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 30.0 | 163.0 | 26.2 | — | 26.2 | 189.2 | (1.3 | ) | 97.9 | 22.5 | 338.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other than BTMU and MUTB* | 613.3 | 220.0 | 90.5 | 324.3 | 414.8 | 634.8 | 113.7 | 4.4 | 51.8 | 1,418.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 919.5 | 537.5 | 178.4 | 200.8 | 379.2 | 916.7 | 103.8 | 54.9 | 177.0 | 2,171.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 380.6 | ¥ | 760.1 | ¥ | 125.0 | ¥ | 123.5 | ¥ | 248.5 | ¥ | 1,008.6 | ¥ | 90.4 | ¥ | 313.0 | ¥ | (162.2 | ) | ¥ | 1,630.4 | |||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2008: | Fiscal year ended March 31, 2008: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,328.9 | ¥ | 1,190.4 | ¥ | 305.1 | ¥ | 296.4 | ¥ | 601.5 | ¥ | 1,791.9 | ¥ | 198.5 | ¥ | 275.3 | ¥ | 25.5 | ¥ | 3,620.1 | ¥ | 1,345.2 | ¥ | 1,192.5 | ¥ | 302.3 | ¥ | 296.4 | ¥ | 598.7 | ¥ | 1,791.2 | ¥ | 198.5 | ¥ | 300.0 | ¥ | (18.7 | ) | ¥ | 3,616.2 | |||||||||||||||||||||||||||
BTMU and MUTB: | 738.4 | 1,009.2 | 195.4 | — | 195.4 | 1,204.6 | 84.5 | 270.7 | (37.8 | ) | 2,260.4 | 742.2 | 1,034.7 | 192.3 | — | 192.3 | 1,227.0 | 82.1 | 295.4 | (86.3 | ) | 2,260.4 | ||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | 576.2 | 514.3 | 106.0 | — | 106.0 | 620.3 | 1.0 | 179.8 | (15.8 | ) | 1,361.5 | 578.6 | 515.8 | 105.3 | — | 105.3 | 621.1 | — | 187.3 | (25.5 | ) | 1,361.5 | ||||||||||||||||||||||||||||||||||||||||||||||
Net fees | 143.7 | 361.1 | 54.6 | — | 54.6 | 415.7 | 83.2 | (14.7 | ) | (16.9 | ) | 611.0 | 144.9 | 362.8 | 51.3 | — | 51.3 | 414.1 | 82.1 | (4.8 | ) | (25.3 | ) | 611.0 | ||||||||||||||||||||||||||||||||||||||||||||
Other | 18.5 | 133.8 | 34.8 | — | 34.8 | 168.6 | 0.3 | 105.6 | (5.1 | ) | 287.9 | 18.7 | 156.1 | 35.7 | — | 35.7 | 191.8 | — | 112.9 | (35.5 | ) | 287.9 | ||||||||||||||||||||||||||||||||||||||||||||||
Other than BTMU and MUTB* | 590.5 | 181.2 | 109.7 | 296.4 | 406.1 | 587.3 | 114.0 | 4.6 | 63.3 | 1,359.7 | 603.0 | 157.8 | 110.0 | 296.4 | 406.4 | 564.2 | 116.4 | 4.6 | 67.6 | 1,355.8 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 957.8 | 572.0 | 183.4 | 187.6 | 371.0 | 943.0 | 98.5 | 56.8 | 192.8 | 2,248.9 | 953.9 | 557.1 | 183.7 | 187.6 | 371.3 | 928.4 | 98.5 | 59.0 | 205.2 | 2,245.0 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 371.1 | ¥ | 618.4 | ¥ | 121.7 | ¥ | 108.8 | ¥ | 230.5 | ¥ | 848.9 | ¥ | 100.0 | ¥ | 218.5 | ¥ | (167.3 | ) | ¥ | 1,371.2 | ¥ | 391.3 | ¥ | 635.4 | ¥ | 118.6 | ¥ | 108.8 | ¥ | 227.4 | ¥ | 862.8 | ¥ | 100.0 | ¥ | 241.0 | ¥ | (223.9 | ) | ¥ | 1,371.2 | ||||||||||||||||||||||||||
Fiscal year ended March 31, 2009: | Fiscal year ended March 31, 2009: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,320.0 | ¥ | 1,045.0 | ¥ | 358.7 | ¥ | 256.8 | ¥ | 615.5 | ¥ | 1,660.5 | ¥ | 171.1 | ¥ | 396.3 | ¥ | (213.7 | ) | ¥ | 3,334.2 | |||||||||||||||||||||||||||||||||||||||||||||||
BTMU and MUTB: | 732.5 | 918.8 | 254.3 | — | 254.3 | 1,173.1 | 70.8 | 388.1 | (265.8 | ) | 2,098.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | 614.9 | 474.5 | 110.5 | — | 110.5 | 585.0 | — | 246.0 | 6.5 | 1,452.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net fees | 107.5 | 343.3 | 94.4 | — | 94.4 | 437.7 | 70.8 | (10.9 | ) | (41.1 | ) | 564.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 10.1 | 101.0 | 49.4 | — | 49.4 | 150.4 | — | 153.0 | (231.2 | ) | 82.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other than BTMU and MUTB* | 587.5 | 126.2 | 104.4 | 256.8 | 361.2 | 487.4 | 100.3 | 8.2 | 52.1 | 1,235.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 975.1 | 554.0 | 173.6 | 157.3 | 330.9 | 884.9 | 93.3 | 62.2 | 192.9 | 2,208.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 344.9 | ¥ | 491.0 | ¥ | 185.1 | ¥ | 99.5 | ¥ | 284.6 | ¥ | 775.6 | ¥ | 77.8 | ¥ | 334.1 | ¥ | (406.6 | ) | ¥ | 1,125.8 | |||||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2010: | Fiscal year ended March 31, 2010: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenue | ¥ | 1,433.3 | ¥ | 945.4 | ¥ | 348.4 | ¥ | 265.3 | ¥ | 613.7 | ¥ | 1,559.1 | ¥ | 157.2 | ¥ | 528.5 | ¥ | (73.0 | ) | ¥ | 3,605.1 | |||||||||||||||||||||||||||||||||||||||||||||||
BTMU and MUTB: | 658.1 | 790.3 | 229.2 | — | 229.2 | 1,019.5 | 61.2 | 517.5 | (97.5 | ) | 2,158.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income | 541.2 | 442.8 | 140.5 | — | 140.5 | 583.3 | — | 355.1 | (27.9 | ) | 1,451.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net fees | 105.4 | 335.8 | 105.6 | — | 105.6 | 441.4 | 61.2 | (13.3 | ) | (44.5 | ) | 550.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 11.5 | 11.7 | (16.9 | ) | — | (16.9 | ) | (5.2 | ) | — | 175.7 | (25.1 | ) | 156.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other than BTMU and MUTB* | 775.2 | 155.1 | 119.2 | 265.3 | 384.5 | 539.6 | 96.0 | 11.0 | 24.5 | 1,446.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses | 988.2 | 511.7 | 204.6 | 168.1 | 372.7 | 884.4 | 91.4 | 61.3 | 179.2 | 2,204.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating profit (loss) | ¥ | 445.1 | ¥ | 433.7 | ¥ | 143.8 | ¥ | 97.2 | ¥ | 241.0 | ¥ | 674.7 | ¥ | 65.8 | ¥ | 467.2 | ¥ | (252.2 | ) | ¥ | 1,400.6 | |||||||||||||||||||||||||||||||||||||||||||||||
| * | Includes MUFG and its subsidiaries other than BTMU and MUTB. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Reconciliation
As set forth above, the measurement bases and the income and expenses items covered are very different between the internal management reporting system and the accompanying consolidated statements of operations. Therefore, it is impracticable to present reconciliations of the business segments’ total information, other than operating profit, to corresponding items in the accompanying consolidated statements of operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the operating profit under the internal management reporting system for the fiscal years ended March 31, 2006, 20072008, 2009 and 20082010 above to income (loss) from continuing operations before income tax expense and cumulative effect of a change in accounting principle(benefit) shown on the consolidated statements of operations is as follows:
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||||
| (in billions) | (in billions) | |||||||||||||||||||||||
Operating profit: | ¥ | 1,372 | ¥ | 1,630 | ¥ | 1,371 | ¥ | 1,371 | ¥ | 1,126 | ¥ | 1,401 | ||||||||||||
Trust fees adjusted for credit losses of trust assets | (1 | ) | — | — | ||||||||||||||||||||
Provision for credit losses | (110 | ) | (359 | ) | (386 | ) | (386 | ) | (627 | ) | (648 | ) | ||||||||||||
Trading account profits (losses)—net | (210 | ) | 199 | 81 | 81 | (392 | ) | 387 | ||||||||||||||||
Equity investment securities gains (losses)—net | 160 | (11 | ) | (224 | ) | (224 | ) | (538 | ) | 207 | ||||||||||||||
Debt investment securities gains (losses)—net | (11 | ) | 234 | (1,197 | ) | |||||||||||||||||||
Debt investment securities losses—net | (1,197 | ) | (104 | ) | (11 | ) | ||||||||||||||||||
Foreign exchange gains (losses)—net | (501 | ) | (223 | ) | 1,433 | 1,433 | (48 | ) | 118 | |||||||||||||||
Equity in earnings (losses) of equity method investees | 22 | (57 | ) | (34 | ) | |||||||||||||||||||
Impairment of Goodwill | — | — | (894 | ) | ||||||||||||||||||||
Equity in losses of equity method investees | (34 | ) | (60 | ) | (104 | ) | ||||||||||||||||||
Impairment of goodwill | (894 | ) | (846 | ) | — | |||||||||||||||||||
Impairment of intangible assets | — | (185 | ) | (79 | ) | (79 | ) | (127 | ) | (12 | ) | |||||||||||||
Minority interest in income of consolidated subsidiaries | (157 | ) | (17 | ) | (39 | ) | ||||||||||||||||||
Provision for repayment of excess interest | (3 | ) | (48 | ) | (45 | ) | ||||||||||||||||||
Other—net | (34 | ) | (76 | ) | (20 | ) | (16 | ) | (100 | ) | (11 | ) | ||||||||||||
Income from continuing operations before income tax expense and cumulative effect of a change in accounting principle | ¥ | 530 | ¥ | 1,135 | ¥ | 12 | ||||||||||||||||||
Income (loss) from continuing operations before income tax expense (benefit) | ¥ | 52 | (1) | ¥ | (1,764 | )(1) | ¥ | 1,282 | ||||||||||||||||
| Note: |
| (1) | Effective April 1, 2009, the MUFG Group adopted new guidance regarding noncontrolling interests in subsidiaries. See Note 1“Noncontrolling Interests” under“Accounting Changes” section for the detail. As a result, income (loss) from continuing operations before income tax expense (benefit) for the fiscal years ended March 31, 2008 and 2009 were reclassified. |
Foreign operations include the business conducted by overseas offices, as well as international business conducted from domestic offices, principally several international banking-related divisions of BTMU’s and MUTB’s Head Office in Tokyo, and involve various transactions with debtors and customers residing outside Japan. Close integration of the MUFG Group’s foreign and domestic activities makes precise estimates of the amounts of assets, liabilities, income and expenses attributable to foreign operations difficult and necessarily subjective. Assets, income and expenses attributable to foreign operations are allocated to geographical areas based on the domicile of the debtors and customers.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Generally, interest rates with respect to funds borrowed and loaned between domestic and foreign operations are based on prevailing money market rates appropriate for the transactions. In general, the MUFG Group has allocated all direct expenses and a proportionate share of general and administrative expenses to income derived from foreign loans and other transactions by the MUFG Group’s foreign operations. The following table sets forth estimated total assets at March 31, 2006, 20072008, 2009 and 2008,2010, and estimated total revenue, total expense, income (loss) from continuing operations before income tax expense and cumulative effect of a change in accounting principle(benefit) and net income (loss) attributable to Mitsubishi UFJ Financial Group for the respective fiscal years then ended:
| Domestic | Foreign | Total | Domestic | Foreign | Total | ||||||||||||||||||||||||||||||||||||||||
| (in millions) | Japan | United States of America | Europe | Asia/Oceania excluding Japan | Other areas(1) | ||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2006: | |||||||||||||||||||||||||||||||||||||||||||||
| Japan | United States of America | Europe | Asia/Oceania excluding Japan | Other areas(1) | |||||||||||||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2008: | |||||||||||||||||||||||||||||||||||||||||||||
Total revenue(2) | ¥ | 4,690,998 | ¥ | 228,069 | ¥ | 699,785 | ¥ | 442,056 | ¥ | 84,017 | ¥ | 6,144,925 | |||||||||||||||||||||||||||||||||
Total expense(3) (4) | 4,374,796 | 744,179 | 608,839 | 258,116 | 107,240 | 6,093,170 | |||||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense (benefit)(4) | 316,202 | (516,110 | ) | 90,946 | 183,940 | (23,223 | ) | 51,755 | |||||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | (227,095 | ) | (637,319 | ) | 121,257 | 232,242 | (31,521 | ) | (542,436 | ) | |||||||||||||||||||||||||||||||||||
Total assets at end of fiscal year | 140,607,568 | 20,620,865 | 19,970,118 | 8,318,426 | 6,249,106 | 195,766,083 | |||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2009: | |||||||||||||||||||||||||||||||||||||||||||||
Total revenue(2) | �� | ¥ | 2,924,414 | ¥ | 568,655 | ¥ | 233,703 | ¥ | 329,672 | ¥ | 14,449 | ¥ | 4,070,893 | ||||||||||||||||||||||||||||||||
Total expense(3) (4) | 4,281,841 | 778,956 | 471,273 | 218,851 | 84,199 | 5,835,120 | |||||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense (benefit)(4) | (1,357,427 | ) | (210,301 | ) | (237,570 | ) | 110,821 | (69,750 | ) | (1,764,227 | ) | ||||||||||||||||||||||||||||||||||
Net income (loss) attributable to Mitsubishi UFJ Financial Group | (1,064,387 | ) | (223,501 | ) | (229,462 | ) | 119,442 | (70,132 | ) | (1,468,040 | ) | ||||||||||||||||||||||||||||||||||
Total assets at end of fiscal year | 142,996,407 | 23,092,047 | 14,981,793 | 7,473,868 | 4,955,302 | 193,499,417 | |||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2010: | |||||||||||||||||||||||||||||||||||||||||||||
Total revenue(2) | ¥ | 2,168,643 | ¥ | 907,397 | ¥ | 221,134 | ¥ | 179,293 | ¥ | 121,567 | ¥ | 3,598,034 | ¥ | 3,604,965 | ¥ | 604,395 | ¥ | 355,005 | ¥ | 482,588 | ¥ | 165,416 | ¥ | 5,212,369 | |||||||||||||||||||||
Total expense(3) | 2,194,354 | 539,505 | 167,519 | 113,831 | 53,152 | 3,068,361 | 3,065,026 | 396,009 | 130,576 | 209,560 | 129,082 | 3,930,253 | |||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense and cumulative effect of a change in accounting principle | (25,711 | ) | 367,892 | 53,615 | 65,462 | 68,415 | 529,673 | ||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income tax expense | 539,939 | 208,386 | 224,429 | 273,028 | 36,334 | 1,282,116 | |||||||||||||||||||||||||||||||||||||||
Net income (loss) | (78,430 | ) | 285,301 | 44,405 | 56,576 | 55,659 | 363,511 | ||||||||||||||||||||||||||||||||||||||
Net income attributable to Mitsubishi UFJ Financial Group | 189,751 | 192,970 | 199,093 | 241,445 | 36,560 | 859,819 | |||||||||||||||||||||||||||||||||||||||
Total assets at end of fiscal year | 152,047,224 | 16,651,510 | 9,483,190 | 5,242,047 | 2,795,476 | 186,219,447 | 149,023,436 | 21,624,397 | 15,804,022 | 8,421,156 | 5,211,386 | 200,084,397 | |||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2007: | |||||||||||||||||||||||||||||||||||||||||||||
Total revenue(2) | ¥ | 3,667,946 | ¥ | 1,191,629 | ¥ | 540,653 | ¥ | 270,158 | ¥ | 193,279 | ¥ | 5,863,665 | |||||||||||||||||||||||||||||||||
Total expense(3) | 3,431,105 | 728,720 | 286,173 | 186,650 | 96,086 | 4,728,734 | |||||||||||||||||||||||||||||||||||||||
Income from continuing operations before income tax expense and cumulative effect of a change in accounting principle | 236,841 | 462,909 | 254,480 | 83,508 | 97,193 | 1,134,931 | |||||||||||||||||||||||||||||||||||||||
Net income | 63,027 | 248,884 | 169,174 | 44,204 | 55,999 | 581,288 | |||||||||||||||||||||||||||||||||||||||
Total assets at end of fiscal year | 143,106,520 | 19,215,047 | 12,672,389 | 6,671,657 | 4,537,298 | 186,202,911 | |||||||||||||||||||||||||||||||||||||||
Fiscal year ended March 31, 2008: | |||||||||||||||||||||||||||||||||||||||||||||
Total revenue(2) | ¥ | 4,690,998 | ¥ | 228,069 | ¥ | 699,785 | ¥ | 442,056 | ¥ | 84,017 | ¥ | 6,144,925 | |||||||||||||||||||||||||||||||||
Total expense(3) | 4,410,795 | 745,661 | 607,989 | 258,143 | 109,982 | 6,132,570 | |||||||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income tax expense and cumulative effect of a change in accounting principle | 280,203 | (517,592 | ) | 91,796 | 183,913 | (25,965 | ) | 12,355 | |||||||||||||||||||||||||||||||||||||
Net income (loss) | (227,095 | ) | (637,319 | ) | 121,257 | 232,242 | (31,521 | ) | (542,436 | ) | |||||||||||||||||||||||||||||||||||
Total assets at end of fiscal year | 136,672,848 | 19,980,528 | 19,584,983 | 8,245,060 | 6,248,367 | 190,731,786 | |||||||||||||||||||||||||||||||||||||||
Notes:
| (1) | Other areas primarily include Canada, Latin America and the Caribbean. |
| (2) | Total revenue is comprised of Interest income and Non-interest income. |
| (3) | Total expense is comprised of Interest expense, Provision for credit losses and Non-interest expense. |
| (4) | Effective April 1, 2009, the MUFG Group adopted new guidance regarding noncontrolling interests in subsidiaries. See Note 1 “Noncontrolling Interests” under “Accounting Changes” section for the detail of the changes. As a result, Total expenses and Income (loss) from continuing operations before income tax expense (benefit) for the fiscal years ended March 31, 2008 and 2009 were reclassified. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is an analysis of certain asset and liability accounts related to foreign activities at March 31, 20072009 and 2008:2010:
| 2007 | 2008 | 2009 | 2010 | |||||||||
| (in millions) | (in millions) | |||||||||||
Cash and due from banks | ¥ | 607,183 | ¥ | 593,080 | ¥ | 384,326 | ¥ | 347,773 | ||||
Interest-earning deposits in other banks | 4,606,268 | 5,795,209 | 2,696,266 | 4,039,789 | ||||||||
Total | ¥ | 5,213,451 | ¥ | 6,388,289 | ¥ | 3,080,592 | ¥ | 4,387,562 | ||||
Trading account assets | ¥ | 2,787,193 | ¥ | 5,227,474 | ¥ | 16,486,676 | ¥ | 14,826,329 | ||||
Investment securities | ¥ | 11,154,795 | ¥ | 11,911,318 | ¥ | 3,223,798 | ¥ | 5,648,126 | ||||
Loans—net of unearned income, unamortized premiums and deferred loan fees | ¥ | 17,861,327 | ¥ | 21,214,828 | ¥ | 23,024,766 | ¥ | 20,161,551 | ||||
Deposits | ¥ | 17,470,230 | ¥ | 19,350,699 | ¥ | 17,117,994 | ¥ | 22,672,788 | ||||
Funds borrowed: | ||||||||||||
Call money, funds purchased, and payables under repurchase agreements and securities lending transactions | ¥ | 5,673,050 | ¥ | 7,857,525 | ||||||||
Call money, funds purchased | ¥ | 569,563 | ¥ | 173,829 | ||||||||
Payables under repurchase agreements | 4,075,552 | 6,559,641 | ||||||||||
Payables under securities lending transactions | 75,467 | 261,270 | ||||||||||
Other short-term borrowings | 1,991,199 | 2,051,554 | 2,672,063 | 1,744,690 | ||||||||
Long-term debt | 3,721,089 | 3,841,507 | 3,848,553 | 3,913,889 | ||||||||
Total | ¥ | 11,385,338 | ¥ | 13,750,586 | ¥ | 11,241,198 | ¥ | 12,653,319 | ||||
Trading account liabilities | ¥ | 1,015,794 | ¥ | 2,616,821 | ¥ | 4,138,599 | ¥ | 2,778,540 | ||||
31. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
QuotedEffective April 1, 2008, the MUFG Group adopted new guidance on the measurement of fair value for all financial assets and liabilities measured and disclosed on a fair value basis. Effective April 1, 2009, the MUFG Group has applied new guidance on the measurement of fair value for all the nonrecurring nonfinancial assets and nonfinancial liabilities including premises and equipment, intangible assets and goodwill measured at fair value for impairment. Under the new guidance, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The new guidance on the measurement of fair value establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices whenin active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Based on the observability of the inputs used in the valuation techniques, the following three-level hierarchy is established by the new guidance:
| Ÿ | Level 1—Unadjusted quoted prices for identical instruments in active markets. |
| Ÿ | Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instruments. |
| Ÿ | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the instruments. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The MUFG Group has an established and documented process for determining fair values in accordance with the new guidance. When available, quoted market prices are used to estimatedetermine fair values of financial instruments. However,value. If quoted market prices are not available, forfair value is based upon valuation techniques that use, where possible, current market-based or non-market-based parameters, such as interest rates, yield curves, foreign exchange rates, volatilities and credit curves. The fair values of liabilities are determined by discounting future cash flows at a substantial portion ofrate which incorporates the MUFG Group’s own creditworthiness. In addition, valuation adjustments may be made to ensure the financial instruments are recorded at fair value. These adjustments include, but not limited to, amounts that reflect counterparty credit quality, liquidity risk and therefore,model risk.
The following section describes the valuation methodologies adopted by the MUFG Group to measure fair values of certain financial instruments. The discussion includes the general classification of such financial instruments in accordance with the valuation hierarchy, a brief explanation of the valuation techniques, the significant inputs to those models, and any additional significant assumptions.
Interest-earning Deposits in Other Banks
Certain interest-earning deposits are measured at fair value by using discounted cash flows due to election of the fair value option. Cash flows are estimated based on the terms of the contracts and discounted by markets rates applicable to the maturity of the contracts, which are adjusted to reflect credit risks on counterparties. As the inputs into the valuation are readily observable, these deposits are classified in Level 2 of the valuation hierarchy.
Receivables Under Resale Agreements
Certain receivables under resale agreements are measured at fair value by using discounted cash flows due to election of the fair value option. Cash flows are estimated based on the terms of the contracts and discounted by the interest rates applicable to the maturity of the contracts, which are adjusted to reflect credit risks on counterparties. These receivables are classified in Level 2 of the valuation hierarchy.
Trading Accounts Assets and Liabilities—Trading Securities
When quoted prices are available in an active market, the MUFG Group adopts the quoted market prices to measure the fair values of securities and such securities are classified in Level 1 of the valuation hierarchy. Examples of Level 1 securities include certain Japanese and foreign government bonds, residential mortgage-backed securities and marketable equity securities.
When quoted market prices are available but not traded actively, such securities are classified in Level 2 of the valuation hierarchy. When quoted market prices are not available, the MUFG Group estimates fair values by using internal valuation techniques, quoted price of securities with similar characteristics or non-binding prices obtained from independent pricing vendors. Examples of such instruments include commercial paper, corporate bonds and residential mortgage-backed securities. Such securities are generally classified in Level 2 of the valuation hierarchy.
When there is less liquidity for securities or significant inputs adopted to the fair value measurements are less observable, such securities are classified in Level 3 of the valuation hierarchy. Examples of such Level 3
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities include CLOs backed by general corporate loans that are measured by weighting the estimated amounts from the internal models and the non-binding quotes from the independent broker-dealers. The weight of the broker-dealer quote is determined based on the result of inquiries to the broker-dealers for their basis of the fair value calculation with consideration of activity level of the market. Key inputs of the internal models include projected cash flow through an analysis of underlying loans, probability of default which incorporates market indices such as LCDX which is an index of loan credit default swaps, repayment rate and discount rate reflecting liquidity premiums based on historical market data. The MUFG Group has adopted this valuation method for CLOs backed by general corporate loans from the second half of the fiscal year ended March 31, 2009. See Note 1, “Change in Accounting Estimates” section for details of the change in valuation method.
Trading Accounts Assets and Liabilities—Derivatives
Exchange-traded derivatives valued using quoted prices are classified in Level 1 of the valuation hierarchy. Examples of Level 1 derivative include security future transactions and interest rate future transactions. However, the majority of the derivative contracts entered into by the MUFG Group are traded over-the-counter and valued using internally developed techniques as there are no quoted market prices for such instruments. The valuation models and inputs vary depending on the types and contractual terms of the derivative instruments. The principal models adopted to value those instruments include discounted cash flows, Black-Scholes model and Hull-White model. The key inputs include interest rate yield curve, foreign currency exchange rate, volatility, credit quality of the counterparty or the MUFG Group and spot price of the underlying. These models are commonly accepted in the financial industry and key inputs to the models are readily observable from an actively quoted market. Derivative instruments valued by such models and inputs are generally classified in Level 2 of the valuation hierarchy. Examples of such Level 2 derivatives include plain interest rate swaps, foreign currency forward contracts and currency option contracts.
Derivatives that are valued based on models with significant unobservable input are classified in Level 3 of the valuation hierarchy. Examples of Level 3 derivatives include long-term interest rate or currency swaps and certain credit derivatives, where significant inputs such as volatility, credit curves and the correlation of such inputs are unobservable.
Investment Securities
Investment securities include available for sale debt and equity securities, whose fair values are measured using the same methodologies as the trading securities described above except for certain private placement bonds issued by Japanese non-public companies. Fair values of certain private placement bonds issued by Japanese non-public companies are measured based on discounted cash flow methods by using discount rate applicable to the maturity of the bonds, which are adjusted to reflect credit risk of issuers. From the second half of fiscal year ended March 31, 2010, the credit risk of issuers are included in the future cash flows being discounted at the date applicable to the maturity of the bonds. The private placement bonds are generally utilized to finance medium or small size non-public companies as an alternative of loans. These bonds are classified as either Level 2 or Level 3 of the valuation hierarchy depending on the significance of the adjustments for unobservable credit worthiness input. This account also includes investments in nonmarketable equity securities which are subject to specialized industry accounting practice. The valuation of such nonmarketable equity securities involves significant management judgment due to the absence of quoted market prices, lack of liquidity and the long term nature of these assets. Further, there may be restriction of transfer on nonmarketable equity securities. The MUFG Group values such securities initially at transaction price and subsequently adjusts valuations considering evidence such as current sales transactions of similar securities, initial public offerings, recent equity issuances and change in financial condition of an investee company. Nonmarketable equity securities are included in Level 3 of the valuation hierarchy.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other Assets
Other assets measured at fair value mainly consist of securities that may be sold or repledged under securities lending transactions, money in trust for segregating cash deposited by customers on security transactions and derivative assets designated as hedging instruments. The securities under lending transaction mainly consist of certain Japanese and foreign government bonds which are valued using the methodologies described in the “Trading Accounts Assets and Liabilities—Trading Securities” above.
Money in trust for segregating cash deposited by customers on security transactions mainly consists of certain Japanese government bonds which are valued using the methodologies described in the “Trading Accounts Assets and Liabilities—Trading Securities” above and is included in Level 1 or Level 2 of the valuation hierarchy depending on the component assets.
The fair values of derivatives designated as hedging instruments are measured using the methodologies described in the “Trading Accounts Assets and Liabilities—Derivatives” above.
Obligations to Return Securities Received as Collateral
Obligations to return securities received as collateral under the securities lending transactions are measured at fair values of securities received as collateral. The securities received as collateral consist primarily of certain Japanese and foreign government bonds, whose fair values are measured using the methodologies described in the “Trading Accounts Assets and Liabilities—Trading Securities” above.
Deposits, Other Short-term Borrowings and Long-term Debt
Certain deposits, other short-term borrowings and long-term debt are measured at fair values due to election of the fair value option. These instruments under the fair value option are measured principally using internally developed models such as the discounted cash flow method. Where the inputs into the valuation are mainly based on observable inputs, these instruments are classified in Level 2 of the valuation hierarchy. Where significant inputs are unobservable, they are classified in Level 3 of the valuation hierarchy.
Market Valuation Adjustments
Counterparty credit risk adjustments are applied to certain financial assets such as over-the-counter derivatives. As not all counterparties have the same credit rating, it is necessary to take into account the actual credit rating of a counterparty to arrive at the fair value. In addition, the counterparty credit risk adjustment takes into account the effect of credit risk mitigates such as pledged collateral and legal right of offsets with the counterparty.
Own credit risk adjustments which reflect own creditworthiness are applied to financial liabilities measured at fair value.
Liquidity adjustments are applied mainly to the instruments classified in Level 3 of the fair value hierarchy when recent prices of such instruments are not able to be observable in inactive or less active market. The liquidity adjustments are based on the facts and circumstances of the markets including the availability of external quotes and the time since the latest available quote.
Model valuation adjustments such as unobservable parameter valuation adjustments may be provided when the fair values of instruments are determined based on internally developed models. Examples of such
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
adjustments include adjustments to the model price of certain derivative financial instruments where parameters such as correlation are unobservable. Unobservable parameter valuation adjustments are applied to mitigate the possibility of error in the model based estimate value.
Investments in Certain Entities That Calculate Net Asset Value per Share
The MUFG Group has investments mainly in hedge funds, private equity funds, and real estate funds included in recurring and nonrecurring items.
Hedge funds are primarily multi-disciplinary hedge funds that employ a fundamental bottom-up investment approach across various asset classes and strategies. The MUFG Group’s investments in these funds are generally redeemable on monthly-quarterly basis with 30-90 days notice.
Private equity funds have specific investment objectives in connection with their acquisition of equity interests, such as providing financing and other support to start-up businesses, medium and small entities in a particular geographical area, and to companies with certain technology or companies in a high-growth industry. Generally, these investments cannot be redeemed with the funds and the return of invested capital and its gains are derived from distributions received upon the liquidation of the underlying assets of the fund. It is estimated that the underlying assets of the fund would be liquidated within ten year period.
Real estate funds invest globally, primarily in real estate companies, debt recapitalizations and direct property. These investments are generally not redeemable with the funds. Distributions from each fund will be received as the underlying investments of the funds are liquidated.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the financial instruments carried at fair value by level within the fair value hierarchy as of March 31, 2009 and 2010:
| March 31, 2009 | |||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||
| (in millions) | |||||||||||||
Assets | |||||||||||||
Trading account assets: | |||||||||||||
Trading securities(1) | ¥ | 13,132,900 | ¥ | 5,256,792 | ¥ | 1,906,009 | ¥ | 20,295,701 | |||||
Trading derivative assets | 24,073 | 9,596,896 | 364,855 | 9,985,824 | |||||||||
Investment securities: | |||||||||||||
Securities available for sales | 26,909,603 | 3,144,820 | 3,335,664 | 33,390,087 | |||||||||
Other investment securities | — | 1,128 | 42,681 | 43,809 | |||||||||
Others(2) | 597,822 | 238,905 | 18,312 | 855,039 | |||||||||
Total | ¥ | 40,664,398 | ¥ | 18,238,541 | ¥ | 5,667,521 | ¥ | 64,570,460 | |||||
Liabilities | |||||||||||||
Trading account liabilities: | |||||||||||||
Trading securities sold, not yet purchased | ¥ | 98,114 | ¥ | 4,842 | ¥ | — | ¥ | 102,956 | |||||
Trading derivative liabilities | 86,412 | 8,942,829 | 360,364 | 9,389,605 | |||||||||
Obligation to return securities received as collateral | 2,557,116 | 151,684 | — | 2,708,800 | |||||||||
Others(3) | — | 532,624 | (133,087 | ) | 399,537 | ||||||||
Total | ¥ | 2,741,642 | ¥ | 9,631,979 | ¥ | 227,277 | ¥ | 12,600,898 | |||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| March 31, 2010 | ||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||
| (in millions) | ||||||||||||
Assets | ||||||||||||
Trading account assets: | ||||||||||||
Trading securities(1) | ¥ | 13,308,112 | ¥ | 4,332,959 | ¥ | 1,166,538 | ¥ | 18,807,609 | ||||
Debt securities | ||||||||||||
Japanese national government and Japanese government agency bonds | 4,480,316 | 94,718 | — | 4,575,034 | ||||||||
Japanese prefectural and municipal bonds | — | 91,076 | — | 91,076 | ||||||||
Foreign governments and official institutions bonds | 6,237,215 | 487,898 | 171,534 | 6,896,647 | ||||||||
Corporate bonds | — | 1,072,625 | 494,987 | 1,567,612 | ||||||||
Residential mortgage-backed securities | 1,402,188 | 200,096 | 56,468 | 1,658,752 | ||||||||
Commercial mortgage-backed securities | — | — | 17,315 | 17,315 | ||||||||
Asset-backed securities | — | 127,301 | 389,061 | 516,362 | ||||||||
Other debt securities | — | 5,166 | — | 5,166 | ||||||||
Commercial paper | — | 1,473,625 | — | 1,473,625 | ||||||||
Equity securities(4) | 1,188,393 | 780,454 | 37,173 | 2,006,020 | ||||||||
Trading derivative assets | 25,878 | 8,446,637 | 382,952 | 8,855,467 | ||||||||
Investment securities: | ||||||||||||
Securities available for sale | 43,871,776 | 4,176,491 | 2,363,609 | 50,411,876 | ||||||||
Debt securities | ||||||||||||
Japanese national government and Japanese government agency bonds | 38,324,775 | 1,108,086 | — | 39,432,861 | ||||||||
Japanese prefectural and municipal bonds | — | 277,831 | 3,069 | 280,900 | ||||||||
Foreign governments and official institutions bonds | 1,223,777 | 33,852 | 87,597 | 1,345,226 | ||||||||
Corporate bonds | — | 1,311,183 | 2,163,465 | 3,474,648 | ||||||||
Residential mortgage-backed securities | 3,839 | 910,745 | 26,827 | 941,411 | ||||||||
Commercial mortgage-backed securities | — | 38,820 | 14,475 | 53,295 | ||||||||
Asset-backed securities | — | 260,723 | 67,095 | 327,818 | ||||||||
Other debt securities | — | 47 | 990 | 1,037 | ||||||||
Marketable equity securities | 4,319,385 | 235,204 | 91 | 4,554,680 | ||||||||
Other investment securities | — | 1,122 | 33,904 | 35,026 | ||||||||
Others(2)(5) | 442,086 | 206,447 | 17,217 | 665,750 | ||||||||
Total | ¥ | 57,647,852 | ¥ | 17,163,656 | ¥ | 3,964,220 | ¥ | 78,775,728 | ||||
Liabilities | ||||||||||||
Trading account liabilities: | ||||||||||||
Trading securities sold, not yet purchased | ¥ | 166,020 | ¥ | 2,629 | ¥ | — | ¥ | 168,649 | ||||
Trading derivative liabilities | 77,470 | 8,031,143 | 411,564 | 8,520,177 | ||||||||
Obligation to return securities received as collateral | 3,071,320 | 158,001 | — | 3,229,321 | ||||||||
Others(3) | — | 467,590 | 45,347 | 512,937 | ||||||||
Total | ¥ | 3,314,810 | ¥ | 8,659,363 | ¥ | 456,911 | ¥ | 12,431,084 | ||||
Notes:
| (1) | Include securities under fair value option. |
| (2) | Include interest-earning deposits in other banks, receivables under resale agreements, securities under lending transactions, money in trust for segregating cash deposited by customers on security transactions and derivative assets designated as hedging instruments. |
| (3) | Include deposits, other short-term borrowings, long-term debt, bifurcated embedded derivatives carried at fair value and derivative liabilities designated as hedging instruments. |
| (4) | Include investments valued at net asset value of ¥304,120 million. The unfunded commitments related to these investments are ¥6,455 million. These investments are mainly hedge funds. |
| (5) | Include investments valued at net asset value of real estate funds, hedge funds and private equity funds, valued at ¥7,050 million, ¥4,002 million and ¥3,972 million, respectively. The unfunded commitments related to these real estate funds, hedge funds and private equity funds are ¥2,758 million, ¥3,325 million and ¥3,532 million, respectively. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Changes in Level 3 Recurring Fair Value Measurements
The following table presents a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the fiscal years ended March 31, 2009 and 2010. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable parameters to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. The following tables reflect gains and losses for the fiscal years ended March 31, 2009 and 2010 for all assets and liabilities categorized as Level 3, including those transferred from or into Level 3 during the period.
| April 1, 2008 | Total realized/ unrealized gains (losses) | Purchases, sales, issuances and settlements | Transfer into Level 3— beginning of period | Transfer out of Level 3— end of period | March 31, 2009 | Change in unrealized gains (losses) included in earnings for assets and liabilities still held at March 31, 2009 | ||||||||||||||||||||||||
| Included in earnings | Included in other comprehensive income | |||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||
Trading account assets: | ||||||||||||||||||||||||||||||
Trading securities(1) | ¥ | 3,883,824 | ¥ | (719,313 | )(2) | ¥ | — | ¥ | (215,528 | ) | ¥ | 12,400 | ¥ | (1,055,374 | ) | ¥ | 1,906,009 | ¥ | (375,940 | )(2) | ||||||||||
Trading derivatives (Net) | 77,620 | 29,733 | (2) | (19,430 | ) | (49,772 | ) | 5,577 | (39,237 | ) | 4,491 | 26,838 | (2) | |||||||||||||||||
Investment securities: | ||||||||||||||||||||||||||||||
Securities available for sale | 3,542,099 | (10,654 | )(3) | (116,335 | ) | (271,657 | ) | 285,054 | (92,843 | ) | 3,335,664 | (31,977 | )(3) | |||||||||||||||||
Other investment securities | 65,090 | (18,321 | )(4) | (894 | ) | (5 | ) | — | (3,189 | ) | 42,681 | (18,800 | )(4) | |||||||||||||||||
Others | 76,845 | 21,336 | (4) | (24,347 | ) | (19,456 | ) | — | (36,066 | ) | 18,312 | 175 | (4) | |||||||||||||||||
Total | ¥ | 7,645,478 | ¥ | (697,219 | ) | ¥ | (161,006 | ) | ¥ | (556,418 | ) | ¥ | 303,031 | ¥ | (1,226,709 | ) | ¥ | 5,307,157 | ¥ | (399,704 | ) | |||||||||
Liabilities | ||||||||||||||||||||||||||||||
Others | ¥ | 432,149 | ¥ | (164,782 | )(4) | ¥ | 285,349 | ¥ | 374 | ¥ | — | ¥ | (445,043 | ) | ¥ | (133,087 | ) | ¥ | 28,826 | (4) | ||||||||||
Total | ¥ | 432,149 | ¥ | (164,782 | ) | ¥ | 285,349 | ¥ | 374 | ¥ | — | ¥ | (445,043 | ) | ¥ | (133,087 | ) | ¥ | 28,826 | |||||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| March 31, 2009(6) | Total realized/ unrealized gains (losses) | Purchases, issuances and settlements | Transfer into Level 3— beginning of period | Transfer out of Level 3— end of period | March 31, 2010 | Change in unrealized gains (losses) included in earnings for assets and liabilities still held at March 31, 2010 | |||||||||||||||||||||||||
| Included in earnings | Included in other changes in equity from nonowner sources | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||||
Trading account assets: | |||||||||||||||||||||||||||||||
Trading securities(1) | ¥ | 1,906,009 | ¥ | 182,968 | (2) | ¥ | — | ¥ | (580,019 | ) | ¥ | 14,582 | ¥ | (357,002 | ) | ¥ | 1,166,538 | ¥ | 91,316 | (2) | |||||||||||
Debt securities | |||||||||||||||||||||||||||||||
Foreign governments and official institutions bonds | 193,673 | 1,420 | — | (4,367 | ) | — | (19,192 | ) | 171,534 | (1,041 | ) | ||||||||||||||||||||
Corporate bonds | 509,257 | 29,123 | — | 3,631 | 14,582 | (61,606 | ) | 494,987 | 22,984 | ||||||||||||||||||||||
Residential mortgage-backed securities | 113,495 | 17,091 | — | (74,118 | ) | — | — | 56,468 | 11,328 | ||||||||||||||||||||||
Commercial mortgage-backed securities | 16,401 | 7,387 | — | (6,473 | ) | — | — | 17,315 | 6,763 | ||||||||||||||||||||||
Asset-backed securities | 702,996 | 70,737 | — | (330,899 | ) | — | (53,773 | ) | 389,061 | 45,512 | |||||||||||||||||||||
Other debt securities | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Commercial paper | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Equity securities | 370,187 | 57,210 | — | (167,793 | ) | — | (222,431 | )(5) | 37,173 | 5,770 | |||||||||||||||||||||
Trading derivatives (Net) | 4,491 | (16,391 | )(2) | (45 | ) | (37,378 | ) | 24,767 | (4,056 | ) | (28,612 | ) | 30,262 | (2) | |||||||||||||||||
Investment securities: | |||||||||||||||||||||||||||||||
Securities available for sale | 3,335,664 | (4,857 | )(3) | 30,835 | (349,625 | ) | 308,526 | (956,934 | ) | 2,363,609 | (24,775 | )(3) | |||||||||||||||||||
Debt securities | |||||||||||||||||||||||||||||||
Japanese prefectural and municipal bonds | 4,471 | 13 | — | (1,415 | ) | — | — | 3,069 | 8 | ||||||||||||||||||||||
Foreign governments and official institutions bonds | 24,148 | (6 | ) | 4,235 | 59,220 | — | — | 87,597 | (6 | ) | |||||||||||||||||||||
Corporate bonds | 3,043,083 | (4,845 | ) | 23,113 | (382,381 | ) | 308,526 | (824,031 | ) | 2,163,465 | (24,792 | ) | |||||||||||||||||||
Residential mortgage-backed securities | 32,302 | (1 | ) | 38 | (5,512 | ) | — | — | 26,827 | (1 | ) | ||||||||||||||||||||
Commercial mortgage-backed securities | 18,086 | 1 | (503 | ) | (3,109 | ) | — | — | 14,475 | 1 | |||||||||||||||||||||
Asset-backed securities | 205,271 | (85 | ) | 2,543 | (7,731 | ) | — | (132,903 | ) | 67,095 | (16 | ) | |||||||||||||||||||
Other debt securities | 1,357 | 56 | 40 | (463 | ) | — | — | 990 | 31 | ||||||||||||||||||||||
Marketable equity securities | 6,946 | 10 | 1,369 | (8,234 | ) | — | — | 91 | — | ||||||||||||||||||||||
Other investment securities | 42,681 | (7,757 | )(4) | 46 | (328 | ) | — | (738 | ) | 33,904 | (8,089 | )(4) | |||||||||||||||||||
Others | 18,312 | (1,212 | )(4) | — | 117 | — | — | 17,217 | (1,027 | )(4) | |||||||||||||||||||||
Total | ¥ | 5,307,157 | ¥ | 152,751 | ¥ | 30,836 | ¥ | (967,233) | ¥ | 347,875 | ¥ | (1,318,730) | ¥ | 3,552,656 | ¥ | 87,687 | |||||||||||||||
Liabilities | |||||||||||||||||||||||||||||||
Others | ¥ | (133,087 | ) | ¥ | (1,526 | )(4) | ¥ | (17,391 | ) | ¥ | 5,955 | ¥ | 153,524 | ¥ | 38 | ¥ | 45,347 | ¥ | 6,876 | (4) | |||||||||||
Total | ¥ | (133,087 | ) | ¥ | (1,526 | ) | ¥ | (17,391 | ) | ¥ | 5,955 | ¥ | 153,524 | ¥ | 38 | ¥ | 45,347 | ¥ | 6,876 | ||||||||||||
Notes:
| (1) | Include trading securities under fair value option. |
| (2) | Included in trading account profits (losses)—net and in foreign exchange gains (losses)—net. |
| (3) | Included in investment securities gains (losses)—net. |
| (4) | Included in trading account profits (losses)—net. |
| (5) | The MUFG Group reclassified investments in certain hedge funds from Level 3 to Level 2 because they were redeemable at net asset value at the measurement date or in the near future. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| (6) | The amounts of assets categorized in Level 3 at March 31, 2009, which were reported in the Form 6-K for the six months ended September 30, 2009, have been restated as follows: |
| As previously reported (Unaudited) | As restated | |||||
| (in millions) | ||||||
Assets | ||||||
Trading account assets: | ||||||
Trading securities | ||||||
Debt securities | ||||||
Residential mortgage-backed securities | ¥ | 10,643 | ¥ | 113,495 | ||
Commercial mortgage-backed securities | 13,948 | 16,401 | ||||
Asset-backed securities | 808,301 | 702,996 | ||||
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities may be measured at fair value on a nonrecurring basis in periods subsequent to their initial recognition. These assets are subject to fair value adjustments that result from the application of the lower of cost or fair value accounting or write-downs of individual assets. The following table presents the carrying value of assets measured at fair value on a nonrecurring basis by level within the fair value hierarchy as of March 31, 2009 and 2010:
| March 31, 2009 | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total carrying value | |||||||||
| (in millions) | ||||||||||||
Assets | ||||||||||||
Investment securities | ¥ | — | ¥ | — | ¥ | 24,912 | ¥ | 24,912 | ||||
Loans | 6,117 | 42,391 | 394,677 | 443,185 | ||||||||
Other assets | 222,563 | 1,905 | 35,487 | 259,955 | ||||||||
Total | ¥ | 228,680 | ¥ | 44,296 | ¥ | 455,076 | ¥ | 728,052 | ||||
| March 31, 2010 | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total carrying value | |||||||||
| (in millions) | ||||||||||||
Assets | ||||||||||||
Investment securities(1) | ¥ | — | ¥ | — | ¥ | 14,127 | ¥ | 14,127 | ||||
Loans | 10,346 | 37,247 | 385,979 | 433,572 | ||||||||
Premises and equipment | — | — | 11,025 | 11,025 | ||||||||
Intangible assets | — | — | 52,262 | 52,262 | ||||||||
Other assets(1) | 144,659 | — | 29,781 | 174,440 | ||||||||
Total | ¥ | 155,005 | ¥ | 37,247 | ¥ | 493,174 | ¥ | 685,426 | ||||
Note:
| (1) | Include investments valued at net asset value of ¥22,686 million. The unfunded commitments related to these investments of ¥12,269 million. These investments are private equity funds. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the nonrecurring changes in fair value which have been recorded during the fiscal years ended March 31, 2009 and 2010:
| Fiscal years ended March 31 | ||||||
| 2009 | 2010 | |||||
| (in millions) | ||||||
Investment securities | ¥ | 40,640 | ¥ | 26,262 | ||
Loans | 229,889 | 211,471 | ||||
Premises and equipment(1) | — | 10,548 | ||||
Intangible assets(1) | — | 12,400 | ||||
Other assets | 67,656 | 110,722 | ||||
Total | ¥ | 338,185 | ¥ | 371,403 | ||
Note:
| (1) | Effective April 1, 2009, the MUFG Group has applied new guidance on the measurement of fair value for premises and equipment and intangible assets measured at fair value for impairment. |
Investment securities include mainly impaired cost method nonmarketable equity securities which were written down to fair value during the period. The fair values are determined based on recent financial position and projected future cash flows of investees.
Loans include loans held for sale and collateral dependent loans. Loans held for sale are recorded at the lower of cost or fair value. The fair value of the loans held for sale is based on secondary market, recent transaction or discounted cash flows. These loans are principally classified in Level 3 of the valuation hierarchy, and when quoted prices are available but not traded actively, such loans held for sale are classified in Level 2 of the valuation hierarchy.
Collateral dependent loans are measured at fair value of the underlying collateral. Collaterals are comprised mainly of real estate and exchange traded equity securities. The MUFG Group maintains an established process for determining the fair value of real estate, using valuation techniques, including, but not limited to, the valuation derived mainly from current transaction prices of comparable assets and discounted cash flow models. Loans impaired that are measured based on underlying real estate collateral are classified in Level 3 of the valuation hierarchy.
Premises and equipment consist of those assets which were written down to fair value. The fair values are determined based on price obtained from an appraiser or discounted cash flows. These impaired premises and equipment are classified as Level 3 of the valuation hierarchy.
Intangible assets consist of those assets which were written down to fair values. The fair values are determined based on discounted cash flows. These impaired intangible assets are classified as Level 3 of the valuation hierarchy.
Other assets mainly consist of investments in equity method investees which were written down to fair value due to impairment. The MUFG Group recorded impairment losses on investments to certain affiliated companies, mainly the consumer finance company, of ¥104,045 million for the fiscal year ended March 31, 2010. The investment in such affiliated company is marketable equity security, and MUFG determined a decline in fair value below cost is other-than-temporary based on the quoted market price. The impairment losses are included in Equity in losses of equity method investees in the consolidated statements of operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
When investments in equity method investees are marketable equity securities, the fair values are determined based on quoted market price. Impaired investments in equity method investees which are marketable equity securities are classified in either Level 1 or Level 2 of the valuation hierarchy. When investments in equity method investees are nonmarketable equity securities, the fair values are determined using the same methodologies as impaired nonmarketable equity securities described above. Impaired investments in equity method investees which are nonmarketable equity securities are classified in Level 3 of the valuation hierarchy.
Fair Value Option
Entities are permitted to choose, at specified election dates, to measure eligible financial assets and liabilities and certain other items at fair value that are not otherwise required to be measured at fair value. Subsequent changes in fair value for designated items are required to be reported in earnings. Effective April 1, 2008, the MUFG Group elected the fair value option for foreign currency denominated debt securities and equity securities held by BTMU and MUTB in the amount of ¥10,448,079 million, which were previously classified as securities available for sale. The election was made to mitigate accounting mismatches related to fluctuations of foreign exchange rates as the gains and losses on translation of these securities were reflected in other changes in equity from nonowner sources, while the gains and losses on translation of foreign currency-denominated financial liabilities were included in current earnings.
The MUFG Group also elected the fair value option for certain financial instruments held by MUS’s foreign subsidiaries, because those financial instruments are managed on a fair value basis, and these exposures are considered to be trading-related positions. These financial assets are included in Interest-earning deposits in other banks and Receivables under resale agreements. These financial liabilities are included in Interest-bearing deposits, Other short-term borrowings and Long-term debt. Unrealized gains and losses on such financial instruments are estimated using discounted cash flow models or other valuation techniques. Although management uses its best judgmentrecognized in estimating fair valuesthe consolidated statements of financial instruments, estimation methodologies and assumptions used to estimate fair values are inherently subjective. Accordingly, the estimates presented herein are not necessarily indicative of net realizable or liquidation values. The use of different estimation methodologies and/or market assumptions may have a significant effect on the estimated fair values.operations.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the gains or losses recorded during the fiscal years ended March 31, 2009 and 2010 related to the eligible instruments for which the MUFG Group elected the fair value option:
| For the fiscal year ended March 31, | ||||||||||||||||||||||||
| 2009 | 2010 | |||||||||||||||||||||||
| Trading account profits (losses) | Foreign exchange gains (losses) | Total changes in fair value | Trading account profits (losses) | Foreign exchange gains (losses) | Total changes in fair value | |||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Interest-earning deposits in other banks | ¥ | 115 | ¥ | — | ¥ | 115 | ¥ | (1,277 | ) | ¥ | — | ¥ | (1,277 | ) | ||||||||||
Receivables under resale agreements(1) | 21,382 | — | 21,382 | (5,240 | ) | — | (5,240 | ) | ||||||||||||||||
Trading account securities (Previously classified as securities available for sale) | (301,077 | ) | (565,247 | ) | (866,324 | ) | 327,338 | (371,660 | ) | (44,322 | ) | |||||||||||||
Total | ¥ | (279,580 | ) | ¥ | (565,247 | ) | ¥ | (844,827 | ) | ¥ | 320,821 | ¥ | (371,660 | ) | ¥ | (50,839 | ) | |||||||
Financial liabilities: | ||||||||||||||||||||||||
Deposits in overseas offices: principally interest-bearing deposits(1) | ¥ | (3,485 | ) | ¥ | — | ¥ | (3,485 | ) | ¥ | — | ¥ | — | ¥ | — | ||||||||||
Other short-term borrowings(1) | (1,331 | ) | — | (1,331 | ) | 530 | — | 530 | ||||||||||||||||
Long-term debt(1) | (234,614 | ) | — | (234,614 | ) | 56,282 | — | 56,282 | ||||||||||||||||
Total | ¥ | (239,430 | ) | ¥ | — | ¥ | (239,430 | ) | ¥ | 56,812 | ¥ | — | ¥ | 56,812 | ||||||||||
Note:
| (1) | Change in value attributable to the instrument-specific credit risk related to those financial assets and liabilities are not material. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the differences between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31, 2009 and 2010, for long-term receivables and debt instruments for which the fair value option has been elected:
| March 31, 2009 | ||||||||||
| Remaining aggregate contractual amounts outstanding | Fair value | Fair value over (under) remaining aggregate contractual amounts outstanding | ||||||||
| (in millions) | ||||||||||
Financial Assets: | ||||||||||
Receivables under resale agreements | ¥ | 35,909 | ¥ | 36,066 | ¥ | 157 | ||||
Total | ¥ | 35,909 | ¥ | 36,066 | ¥ | 157 | ||||
Financial Liabilities: | ||||||||||
Deposits in overseas offices: Interest-bearing deposits | ¥ | 4,214 | ¥ | 4,235 | ¥ | 21 | ||||
Long-term debt | 719,697 | 532,641 | (187,056 | ) | ||||||
Total | ¥ | 723,911 | ¥ | 536,876 | ¥ | (187,035 | ) | |||
| March 31, 2010 | ||||||||||
| Remaining aggregate contractual amounts outstanding | Fair value | Fair value over (under) remaining aggregate contractual amounts outstanding | ||||||||
| (in millions) | ||||||||||
Financial Assets: | ||||||||||
Receivables under resale agreements | ¥ | 31,500 | ¥ | 30,832 | ¥ | (668 | ) | |||
Total | ¥ | 31,500 | ¥ | 30,832 | ¥ | (668 | ) | |||
Financial Liabilities: | ||||||||||
Long-term debt | ¥ | 792,059 | ¥ | 615,618 | ¥ | (176,441 | ) | |||
Total | ¥ | 792,059 | ¥ | 615,618 | ¥ | (176,441 | ) | |||
Interest income and expense and dividend income related to the assets and liabilities for which the fair value option is elected are measured based on the contractual rates specified in the transactions and reported in the consolidated statements of operations as either interest income or expense, depending on the nature of the related asset or liability.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Estimated Fair Value of Financial Instruments
In addition to financial instruments measured and disclosed on a fair value basis, the disclosure of the estimated fair value of financial instruments that are not carried at fair value is also required. The following is a summary of carrying amounts and estimated fair values of financial instruments at March 31, 20072009 and 2008:2010:
| 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||
| Carrying amount | Estimated fair value | Carrying amount | Estimated fair value | Carrying amount | Estimated fair value | Carrying amount | Estimated fair value | |||||||||||||||||
| (in billions) | (in billions) | |||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Cash, due from banks, call loans and funds sold, and receivables under resale agreements and securities borrowing transactions | ¥ | 21,771 | ¥ | 21,771 | ¥ | 27,057 | ¥ | 27,057 | ||||||||||||||||
Cash and due from banks, call loans and funds sold, and receivables under resale agreements and securities borrowing transactions | ¥ | 16,350 | ¥ | 16,350 | ¥ | 17,465 | ¥ | 17,465 | ||||||||||||||||
Trading account assets, excluding derivatives | 8,568 | 8,568 | 9,882 | 9,882 | 20,296 | 20,296 | 18,808 | 18,808 | ||||||||||||||||
Investment securities | 49,182 | 49,483 | 42,072 | 42,424 | 37,491 | 37,728 | 54,514 | 55,058 | ||||||||||||||||
Loans, net of allowance for credit losses | 94,210 | 94,611 | 97,867 | 98,704 | 99,154 | 100,455 | 90,870 | 91,812 | ||||||||||||||||
Other financial assets | 4,996 | 4,996 | 5,321 | 5,321 | 4,667 | 4,670 | 4,361 | 4,361 | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||||||||||
Trading activities | 1,878 | 1,878 | 3,529 | 3,529 | 9,986 | 9,986 | 8,855 | 8,855 | ||||||||||||||||
Activities qualifying for hedges | 3 | 3 | 16 | 16 | 27 | 27 | 9 | 9 | ||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Non-interest-bearing deposits, call money and funds purchased, and payables under repurchase agreements and securities lending transactions | ¥ | 35,463 | ¥ | 35,463 | ¥ | 35,595 | ¥ | 35,595 | ¥ | 35,663 | ¥ | 35,663 | ¥ | 34,969 | ¥ | 34,969 | ||||||||
Interest-bearing deposits | 107,017 | 106,904 | 112,414 | 112,399 | 111,095 | 111,215 | 117,868 | 117,972 | ||||||||||||||||
Trading account liabilities, excluding derivatives | 840 | 840 | 227 | 227 | 103 | 103 | 169 | 169 | ||||||||||||||||
Obligations to return securities received as collateral | 3,653 | 3,653 | 5,095 | 5,095 | 2,709 | 2,709 | 3,229 | 3,229 | ||||||||||||||||
Due to trust account | 1,540 | 1,540 | 1,461 | 1,461 | 1,797 | 1,797 | 1,560 | 1,560 | ||||||||||||||||
Other short-term borrowings | 5,734 | 5,734 | 6,017 | 6,017 | 7,867 | 7,867 | 6,097 | 6,097 | ||||||||||||||||
Long-term debt | 14,390 | 14,397 | 13,675 | 13,713 | 13,273 | 13,191 | 14,162 | 14,369 | ||||||||||||||||
Other financial liabilities | 3,990 | 3,990 | 3,959 | 3,959 | 4,633 | 4,633 | 3,981 | 3,981 | ||||||||||||||||
Derivative financial instruments: | ||||||||||||||||||||||||
Trading activities | 1,786 | 1,786 | 2,701 | 2,701 | 9,390 | 9,390 | 8,520 | 8,520 | ||||||||||||||||
Activities qualifying for hedges | 2 | 2 | — | — | — | — | 1 | 1 | ||||||||||||||||
Not all of the financial instruments held by the MUFG Group are recorded at fair value on the consolidated balance sheets. The methodologies and assumptions used to estimate the fair value of the financial instruments that are not recorded at fair value on the consolidated balance sheets are summarized below:
Cash dueand Due from banks, call loansBanks, Call Loans and funds sold,Funds Sold, and receivables under resale agreementsReceivables Under Resale Agreements and securities borrowing transactionsSecurities Borrowing Transactions—For cash, due from banks including interest-earning deposits, call loans and funds sold, and receivables under resale agreements and securities borrowing transactions, the carrying amounts are a reasonable estimate of the fair values because of their short-term nature and limited credit risk.
Trading account securities—Trading account securities and short trading positions of securities are carried at fair value, which is principally based on quoted market prices, when available. If the quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Investment securitiesSecurities—The fair values of investment securities, where quoted market prices or secondary market prices are available, are equal to such market prices. For investment securities, when quoted market prices or secondary market prices are not available, the fair values are estimated using quoted market prices for similar securities or based on appraised value as deemed appropriate by management. The fair values of investment
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities other than those classified as available for sale or being held to maturity (i.e., nonmarketable equity securities) are not readily determinable as they do not have quoted market prices or secondary market prices available. The fair values of certain nonmarketable equity securities, such as preferred stock convertible to marketable common stock in the future, issued by public
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
companies are determined by utilizing commonly accepted valuation models, such as option pricing models. It is not practicable for the MUFG Group to estimate the fair value of other nonmarketable securities issued by nonpublic companies for which a quoted market price is not available. For these securities, the MUFG Group is unable to estimate fair value without incurring undue cost because they comprise investments in numerous unlisted companies and each investment represents an insignificant percentage relative to each company. Therefore, the above summary does not include the carrying amounts of such investment securities. The amounts not included in the above summary are ¥202¥146 billion and ¥78¥532 billion at March 31, 20072009 and 2008,2010, respectively.
Loans—The fair valuesvalue of loans are estimated for groups with similar characteristics, including type of loan, credit quality and remaining maturity. In incorporating the credit risk factor, management concluded that the allowance for credit losses adequately adjusts the related book values for credit risk. For floating- or adjustable-rate loans, which mature or are repriced within a short period of time, the carrying values are considered to be a reasonable estimate of fair values. For fixed-rate loans, market prices are not generally available and the fair values are estimated by discounting the estimatedexpected future cash flows based on the contracted maturitytypes of loans, internal ratings and possibility of prepayment using the loans. The discount rates are based onwhich include adjustments to reflect the expectations about possible variations to the current market rates. For certain residential loans with variable interest rates correspondingprovided to individual home owners, the applicable maturity.carrying amount is presented as the fair value since such carrying amount approximates the fair value, unless the creditworthiness of the borrower has changed significantly since the loan origination. Where quoted market prices or estimated fair values are available, primarily for loans to refinancing countries, loans held for dispositions or sales and certain other foreign loans, the fair values are based on such market prices and estimated fair values, including secondary market prices. For nonperforming loans, the fair values are generally determined on an individual basis by discounting thereceivables from bankrupt, virtually bankrupt, and likely to become bankrupt borrowers, credit loss is estimated future cash flows and may be based on the appraisalpresent value of underlying collateralexpected future cash flow or the expected amount to be collected from collaterals and guarantees. The carrying amount is presented as appropriate.the fair value since the fair value approximates such carrying amount.
Other financial assetsFinancial Assets—The estimated fair values of other financial assets, which primarily include accrued interest receivable, customers’ acceptance liabilities and accounts receivable, approximate their carrying amounts. The above summary does not include the carrying amounts of investments in equity method investees amounting to ¥578¥556 billion and ¥504¥585 billion at March 31, 20072009 and 2008,2010, respectively.
Derivative financial instrumentsNon-interest-bearing Deposits, Call Money and Funds Purchased, Payables Under Repurchase Agreements and Securities Lending Transactions, and Obligations to Return Securities Received as Collateral—The estimated fair values of derivative financial instruments are the amounts the MUFG Group would receive or pay to terminate the contracts at the balance-sheet date, taking into account the current unrealized gains or losses on open contracts. They are based on market or dealer quotes when available. Valuation models such as present value and option pricing models are applied to current market information to estimate fair values when such quotes are not available.
Non-interest-bearing deposits, call money and funds purchased, payables under repurchase agreements and securities lending transactions, and obligations to return securities received as collateral—The fair values ofFor non-interest-bearing deposits, are equal to the amountsamount payable on demand.demand as of the consolidated balance sheet date (i.e., the carrying amount) is considered to be the fair value. For call money and funds purchased, payables under repurchase agreements and securities lending transactions and obligations to return securities received as collateral, the carrying amountsamount are a reasonable estimate of the fair valuesvalue because of their short-term nature and limited credit risk.
Interest–bearing depositsDeposits—TheFor variable rate time deposits, the carrying amount is presented as the fair values of demandvalue because the market interest rate is reflected in such deposits deposits at notice, and certificates of deposit maturing within a short period of time are the amounts payable on demand. Fair values ofperiod. Fixed rate time deposits and certificatesare grouped by certain maturity lengths. The fair value of deposit maturing after a short period of timesuch deposits are estimated by discounting the estimatedexpected future cash flows using the discount rates currently offered forthat would be applied to newly accepted deposits.
Due to Trust Account—Since these are cash deposits with no maturity, the carrying amount is presented as the fair value as the fair value approximates such carrying amount.
Other Short-term Borrowings—For most other short-term borrowings, the carrying amount is presented as the fair value since such carrying amount approximates the fair value because of similar remaining maturities ortheir short-term nature and limited credit risk.
Long-term Debt—The fair value of corporate bonds issued by the applicable currentMUFG Group is determined based on MUFG’s market rates.price. The fair value of fixed rate corporate bonds without market prices is the present value of
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Dueexpected future cash flow from these borrowings, which is discounted at an interest rate generally applicable to trust account—similar borrowings reflecting premium applicable to the MUFG Group. For due to trust account, which represents a temporary placement of excess funds from individual trust accounts managed by the trust banking subsidiary in their fiduciary and trust capacity,variable rate corporate bonds without market prices, the carrying amount of such bonds is a reasonable estimate ofpresented as the fair value since its naturesuch carrying amount approximates the fair value. This is similar to short-term funding, including demand deposits and other overnight funds purchased, in a manneron the basis that the balance changesmarket interest rate is reflected in response to the day-to-day changes in excess funds placed byfair value of such corporate bonds because such bond terms were set within a short time period and that there has been no significant impact on the trust accounts.fair value of those bonds.
Other short-term borrowings—For most other short-term borrowings, the carrying amounts are a reasonable estimate of the fair values because of their short-term nature. For certain borrowings, fair values are estimated by discounting the estimated future cash flows using applicable current market interest rates or comparable rates for similar instruments, which represent the MUFG Group’s cost to raise funds with a similar remaining maturity.
Long-term debt—For certain unsubordinated and subordinated debt, the fair values are estimated based on quoted market prices of the instruments. The fair values of other long-term debt are estimated using a discounted cash flow model based on rates applicable to the MUFG Group for debt with similar terms and remaining maturities.
Other financial liabilitiesFinancial Liabilities—The estimated fair values of other financial liabilities, which primarily include accrued interest payable, bank acceptances, accounts payable and obligations under standby letters of credit and guarantees, approximate their carrying amounts. The fair values of obligations under standby letters of credit and guarantees are based on fees received or receivable by the MUFG Group.
The fair values of certain off-balance-sheet financial instruments held for purposes other than trading, including commitments to extend credit and commercial letters of credit, are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit quality. The aggregate fair value of such instruments at March 31, 20072009 and 20082010 was not material.
The fair value estimates presented herein are based on pertinent information available to management at March 31, 20072009 and 2008.2010. These amounts have not been comprehensively revalued since that date and, therefore, current estimates of fair values may have changed significantly from the amounts presented herein.
The following describes stock-based compensation plans of MUFG, BTMU, MUTB, MUS and UNBC and the impact of the adoption of SFAS No. 123R.UNBC.
MUFG, BTMU, MUTB and MUTBMUS
MUFG, BTMU, MUTB and MUTBMUS elected to introduce a stock-based compensation plan for directors, executive officers and corporate auditors (“officers”) and obtained the necessary shareholder approval at their respective ordinary general meetings held in June 2007, while abolishing the retirement gratuities program for these officers.
Following the approval, MUFG resolved at the meeting of the Board of Directors to issue stock compensation type stock options (“Stock Acquisition Rights”) to officers of MUFG, BTMU, MUTB and MUTB.MUS. Usually, the Stock Acquisition Rights would be issued and granted to these officers once a year as a replacement of the former retirement gratuities program.
The class of shares to be issued or transferred on exercise of the Stock Acquisition Rights is common stock of MUFG. The number of shares to be issued or transferred on exercise of each Stock Acquisition Right
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(“ (“number of granted shares”) is 100 shares. In the event of stock split or stock merger of common stock of MUFG, the number of granted shares shall be adjusted in accordance with the ratio of stock split or stock merger. If any events occur that require the adjustment of the number of granted shares (e.g., mergers, consolidations, corporate separations or capital reductions of MUFG), MUFG shall appropriately adjust the number of granted shares to a reasonable extent.
The contractual term of the Stock Acquisition Rights is approximately 30 years from the date of grant. Some of the Stock Acquisition Rights vest on the date of grant and the rest of the rights graded-vest depending on the
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
holder’s service period as officers. The Stock Acquisition Rights are only exercisable after the date on which the following conditions are met: (1) holder as a director or an executive officer loses the status of both director and executive officer, (2) holder as a corporate auditor loses the status of a corporate auditor. The exercise price is ¥1 per share.
The following is a summary of the Stock Acquisition Rights transactions of MUFG, BTMU, MUTB and MUTBMUS for the fiscal year ended March 31, 2008:2010:
| For the fiscal year ended March 31, 2008 | For the fiscal year ended March 31, 2010 | ||||||||||||||||||||
| Number of shares | Weighted-average exercise price | Weighted-average remaining contractual term (in years) | Aggregate intrinsic value (in millions) | Number of shares | Weighted-average exercise price | Weighted-average remaining contractual term (in years) | Aggregate intrinsic value (in millions) | ||||||||||||||
Outstanding, beginning of the period | — | ¥ | — | 5,392,600 | ¥ | 1 | |||||||||||||||
Granted | 2,798,000 | 1 | 5,655,800 | 1 | |||||||||||||||||
Exercised | (1,025,100 | ) | 1 | ||||||||||||||||||
Forfeited or Expired | (48,500 | ) | 1 | ||||||||||||||||||
Outstanding, end of the period | 2,798,000 | ¥ | 1 | 29.68 | ¥ | 2,403 | 9,974,800 | ¥ | 1 | 28.75 | ¥ | 4,878 | |||||||||
Exercisable, end of the period | — | ¥ | — | — | ¥ | — | — | ¥ | — | — | ¥ | — | |||||||||
The fair value of the Stock Acquisition Rights is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions described in the following table. The risk-free rate is based on the Japanese government bonds yield curve in effect at the date of grant based on the expected term. The expected volatility is based on the historical data from traded common stock of MUFG. The expected term is based on the average service period of officers of MUFG, BTMU, MUTB and MUTB,MUS, which represents the expected outstanding period of the Stock Acquisition Rights granted. The expected dividend yield is based on the dividend rate of common stock of MUFG at the date of grant.
| |||
| |||
| |||
|
| For the fiscal year ended March 31, | ||||||
| 2009 | 2010 | |||||
Risk-free interest rate | 1.03 | % | 0.53 | % | ||
Expected volatility | 33.07 | % | 44.46 | % | ||
Expected term (in years) | 4 | 4 | ||||
Expected dividend yield | 1.43 | % | 2.25 | % | ||
The weighted-average grant-date fair value of the Stock Acquisition Rights granted during the fiscal yearyears ended March 31, 20082009 and 2010 was ¥103,200.¥92,300 and ¥48,700, respectively.
The MUFG Group recognized ¥2,408¥2,583 million and ¥2,638 million of compensation cost related to the Stock Acquisition Rights with ¥980¥1,051 million and ¥1,073 million of corresponding tax benefit during the fiscal yearyears ended March 31, 2008.2009 and 2010, respectively. As of March 31, 2008,2010, the total unrecognized compensation cost related to the Stock Acquisition Rights was ¥479¥545 million and it is expected to be recognized over a period of 3 months.
Cash received from exercise of the Stock Acquisition Rights for the fiscal year ended March 31, 2010 was ¥1 million. The actual tax benefit realized for the tax deductions from exercise of the Stock Acquisition Rights was ¥404 million for the fiscal year ended March 31, 2010.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
MUS
Under the Code and the Company Law, companies are permitted to purchase their own shares in the market in order to implement a stock option plan when approved by the shareholders.
Pursuant to resolutions approved at the general shareholders’ meetings, MUS offers stock option plans which provide directors, executive officers, eligible employees and certain other persons with options to purchase shares (at the respective exercise prices stipulated in each plan) as follows:
|
| |||
| ||||
| ||||
| ||||
| ||||
Note:
The plans provide for the granting of stock options having an exercise price not less than the market value of MUS’s common stock on the date of grant. The following table presents the stock option transactions for the fiscal years ended March 31, 2006 and 2007:
| 2006 | 2007 | |||||||||||
| Number of shares | Weighted-average exercise price | Number of shares | Weighted-average exercise price | |||||||||
Outstanding, beginning of fiscal year | 2,827,000 | ¥ | 1,311 | 310,000 | ¥ | 812 | ||||||
UFJ Tsubasa Securities Conversion | 1,992,060 | 1,412 | — | — | ||||||||
Exercised | (2,437,140 | ) | 1,266 | (202,000 | ) | 812 | ||||||
Forfeited | (2,071,920 | ) | 1,244 | (108,000 | ) | 812 | ||||||
Outstanding, end of fiscal year | 310,000 | ¥ | 812 | — | ¥ | — | ||||||
Exercisable, end of fiscal year | 310,000 | ¥ | 812 | — | ¥ | — | ||||||
MUS has not granted or modified any stock options after April 1, 2006, the effective date of SFAS No. 123R.
UNBC
On November 4, 2008, all outstanding awards under the management stock plans discussed below were canceled in exchange for the right to receive the cash value of those awards. These plans were terminated in December 2008, and no additional awards were granted under these plans in 2009. The discussion that follows relates to the management stock plan activities through termination in December 2008.
Prior to their termination, UNBC hashad two management stock plans. The Year 2000 UnionBanCal Corporation Management Stock Plan, as amended (the “20002000 Stock Plan”)Plan), and the UnionBanCal Corporation Management Stock Plan, restated effective June 1, 1997 (the “19971997 Stock Plan”)Plan), havehad 20.0 million and 6.6 million shares, respectively, of UNBC’s common stock authorized to be awardedfor awards to key employees, outside directors and consultants of UNBC at the discretion of the Executive Compensation and Benefits Committee of the Board of Directors (the “Committee”)Committee). Employees on rotational assignment from BTMU arewere not eligible for stock awards.
The Committee determinesdetermined the term of each stock option grant, up to a maximum of ten years from the date of grant. The exercise price of the options issued under the stock plans maycould not be less than the fair market value on the date the option iswas granted. Beginning in 2006, the value of options iswas recognized as compensation expense over the vesting period during which the employees arewere required to provide service. Prior to January 1, 2006, UNBC’s
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
unrecognized compensation expense for nonvested restricted stock reduced retained earnings. The adoption of SFAS No. 123R resulted in an increase of unappropriatedSubsequent to January 1, 2006, $19 million was reclassified from retained earnings and a decrease of capital surplus by ¥1,468 million, respectively, in the consolidated financial statements.to additional paid-in capital. The value of the restricted stock at the date of grant iswas recognized as compensation expense over its vesting period with a corresponding credit adjustment to capital surplus.additional paid-in capital. All cancelled or forfeited options and restricted stock becomebecame available for future grants. SFAS No. 123R requires the cash flows resulting from the tax benefits of tax deductions in excess of the compensation cost recognized for share-based compensation awards (i.e., excess tax benefits) to be classified as financing cash flows. The ¥269 million of the excess tax benefits and ¥2,647 million of the exercise of stock options are classified as other cash inflows from financing activities in the consolidated statement of cash flows for the fiscal year ended March 31, 2008.
Under the 2000 Stock Plan, UNBC grantsgranted stock options and restricted stock. Additionally under this plan,the Plan, UNBC issuesissued shares of common stock upon the vesting and settlement of restricted stock units, stock units and performance shares settled in common stock and restricted stock units, as well as upon the settlement of stock units.stock. Under the 1997 Stock Plan, UNBC issuesissued shares of common stock upon exercise of outstanding stock options. UNBC issuesissued new shares of common stock for all awards under the stock plans. AAfter taking into account the outstanding stock options and restricted stock, as well as the maximum number of shares that might be issued upon vesting and settlement of outstanding restricted stock units, stock units and performance shares settled in common stock, a total of 5,445,210 shares, 3,692,7361,095,526 shares and 1,095,526zero shares were available for future grants under the 2000 Stock Plan at December 31, 2005, 2006, 2007 respectively. These available shares have taken into account the outstanding number of shares of stock options and restricted stock, as well as the maximum number of shares that may be issued upon the vesting and settlement of outstanding performance shares settled in common stock and restricted stock units, and upon the settlement of outstanding stock units.2008, respectively. The remaining shares under the 1997 Stock Plan arewere not available for future grants.
The Committee determined that performance share awards granted in 2006 and 2007later were to be redeemed in shares.
Stock Options
UnderPrior to UNBC’s privatization, UNBC granted options under the 2000 Stock Plan, UNBC granted options to various key employees, including policy-making officers, and to non-employee directors for selected years. Under both the 1997 and 2000 Stock Plans, options granted to employees vestvested pro-rata on each anniversary of the grant date and becomebecame fully exercisable three years from the grant date, provided that the employee hashad completed the specified continuous service requirement. Generally, the options could vest earlier if the employee dies, isdied, was permanently disabled, or retiresretired under certain grant, age, and service conditions or terminatesterminated employment under certain conditions. Options granted to non-employee directors arewere fully vested on the grant date and exercisable 33 1/3 percent on each anniversary under the 1997 Stock Plan, and arewere fully vested and exercisable on the grant date under the 2000 Stock Plan.
The following is a summary of stock option transactions under the stock plans:
| For the year ended December 31, 2007 | |||||||||||
| Number of shares | Weighted-average exercise price | Weighted-average remaining contractual term (in years) | Aggregate intrinsic value (in thousands) | ||||||||
Options outstanding, beginning of the period(1) | 8,326,241 | $ | 49.24 | ||||||||
Granted | 2,219,403 | 55.33 | |||||||||
Exercised | (800,860 | ) | 41.58 | ||||||||
Forfeited | (71,638 | ) | 66.16 | ||||||||
Options outstanding, end of the period(1) | 9,673,146 | $ | 51.14 | 4.88 | $ | 35,555 | |||||
Options exercisable, end of the period | 6,519,040 | $ | 47.43 | 4.25 | $ | 25,478 | |||||
Note:
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value of each option grant iswas estimated on the date of grant utilizing the Black-Scholes option pricing model and using the assumptions noted in the following table. The Black-Scholes option pricing model iswas applied to option tranches based on expected terms that result in ranges of input assumptions, such ranges are disclosed below. Expected volatilities arewere based on historical data and implied volatilities from traded options on UNBC’s stock, and other factors. UNBC usesused historical data to estimate option exercise and employee terminations within the valuation model. The expected term of an option granted iswas derived from the output of the option valuation model, which iswas based on historical data and representsrepresented the period of time that the option granted iswas expected to be outstanding. The risk-free rate for periods within the contractual life of the option iswas based on the U.S. Treasury yield curve in effect at the time of grant based on the expected term.
| For the years ended December 31, | For the years ended December 31, | |||||||||||||||||||
| 2005 | 2006 | 2007 | 2007 | 2008 | ||||||||||||||||
Weighted-average fair value—per share | $ | 13.38 | $ | 12.31 | $ | 7.04 | $ | 7.04 | $ | 7.21 | ||||||||||
Risk-free interest rates (a range for 1 to 7 year tenors) | 3.4 - 4.3 | % | 4.3 - 5.05 | % | 3.71 | % | 3.71 | % | 2.2 - 3.3 | % | ||||||||||
Expected volatility | 27.0 | % | 16.6 - 22.9 | % | 16.9 - 21.0 | % | 16.9 - 21.0 | % | 22.2 - 27.4 | % | ||||||||||
Weighted-average expected volatility | 27.0 | % | 19.4 | % | 19.8 | % | 19.8 | % | 24.3 | % | ||||||||||
Expected term (in years) | 4.4 | 3.4 - 5.4 | 3.8-4.4 | 3.8 - 4.4 | 3.9 - 4.4 | |||||||||||||||
Weighted-average expected dividend yield | 2.7 | % | 2.7 | % | 4.3 | % | 4.3 | % | 4.4 | % | ||||||||||
The total intrinsic value of options exercised during 2005, 20062007 and 20072008 was $50.4 million, $37.9$16.0 million and $16.0$44.5 million, with a corresponding tax benefit of $17.9 million, $13.5$5.7 million and $5.7$15.9 million, respectively. The total intrinsic value of options that were canceled and settled in cash during 2008 as a result of UNBC’s privatization was $173.4 million with a corresponding tax benefit of $61.6 million. The total fair value of options vested during the years ended December 31, 2005, 20062007 and 20072008 was $38.3 million, $28.9$20.5 million and $20.5$13.0 million, respectively.
UNBC recognized $22.4$13.0 million and $13.0$23.8 million of compensation cost for share-based payment arrangements related to stock option awards with $8.4$5.0 million and $5.0$9.2 million of corresponding tax benefit during the years ended December 31, 20062007 and 2007,2008, respectively. In 2008, compensation cost of $12.8 million with a corresponding tax benefit of $4.9 million was recorded for the acceleration of expense due to UNBC’s privatization. As of December 31, 2007, the total2008, there was no unrecognized compensation cost related to nonvested stock option awards was $17.5 million andas a result of the weighted-average period over whichtermination of the cost is expected to be recognized was 1.2 years.management stock plans in December 2008.
Restricted Stock
In general, restricted stock awards arewere granted under the 2000 Stock Plan to key employees, and in 2005, to non-employee directors. The awards of restricted stock granted to employees vestvested pro-rata on each anniversary of the grant date and becomebecame fully vested four years from the grant date, provided that the employee hashad completed the specified continuous service requirement. Generally, they vestvested earlier if the employee dies, isdied, was permanently and totally disabled, retiresretired under certain grant, age, and service conditions or terminatesterminated employment under certain conditions. The awards of restricted stock granted to existing non-employee directors in 2005 vested in full in July 2006. Restricted stockholders havehad the right to vote their restricted shares and receive dividends. The grant date fair value of awards iswas equal to the closing price on date of grant.
The total fair value of the restricted stock awards vested was $15.6 million during 2007 and $52.5 million during 2008, with a corresponding tax benefit of $5.0 million and $22.6 million, respectively. In 2008, the fair value of the restricted stock awards vested included $44.4 million, with a corresponding tax benefit of $20.1 million, related to UNBC’s privatization.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a summary of UNBC’s nonvested restricted stock awards as of December 31, 2007 and changes during the period ended December 31, 2007:
| For the year ended December 31, 2007 | ||||||
| Number of shares | Weighted-average grant date fair value | |||||
Nonvested restricted awards, beginning of the period | 840,003 | $ | 62.59 | |||
Granted | 337,887 | 53.31 | ||||
Vested | (247,191 | ) | 62.94 | |||
Forfeited | (49,582 | ) | 62.15 | |||
Nonvested restricted awards, end of the period | 881,117 | $ | 59.00 | |||
The total fair value of the restricted stock awards vested was $1.5 million during 2005, $8.8 million during 2006 and $15.6 million during 2007, with a corresponding tax benefit of $0.6 million, $3.1 million and $5.0 million, respectively.
UNBC recognized $7.6 million, $14.4 million and $14.4$41.6 million of compensation cost for share-based payment arrangements related to restricted stock awards with $2.9 million, $5.4$5.5 million and $5.5$16.0 million of corresponding tax benefit during the years ended December 31, 2005, 20062007 and 2007,2008, respectively. AtIn 2008, compensation cost of $29.1 million with a corresponding tax benefit of $11.2 million was recorded for the acceleration of expense due to UNBC’s privatization. As of December 31, 2007, the total2008, there was no unrecognized compensation cost related to nonvested restricted awards was $41.0 million, andas a result of the weighted-average period over which it is expected to be recognized was 1.6 years.termination of the management stock plans in December 2008.
Restricted Stock Units and Stock Units
Starting in July 2006, UNBC granted restricted stock units to non-employee directors. These restricted stock units consistconsisted of an annual grant, and in the case of new non-employee directors, an annual grant and an initial grant. In general, the annual grant vestsvested in full on the first anniversary of the grant date, and the initial grant vestsvested in three equal installments on each of the first three anniversaries of the grant date. The grant date fair value of awards iswas equal to the closing price on date of grant. During the year ended December 31, 2007, UNBC granted 22,995 restricted stock units with a weighted-average grant date fair value of $57.84 per unit. There were no restricted stock units forfeited during the year ended December 31, 2007. The total fair value of the restricted stock units that vested during the year ended December 31, 2007 was $0.8 million. UNBC recognized $0.3$1.0 million and $1.0$2.4 million of compensation cost with a corresponding $0.1$0.4 million and $0.4$0.9 million in tax benefits related to these grants in 2007 and 2008, respectively. In 2008, compensation cost of $1.1 million with a corresponding tax benefit of $0.4 million was recorded for the year ended December 31, 2006 and 2007, respectively.acceleration of expense due to UNBC’s privatization. As of December 31, 2007, the total2008, there was no unrecognized compensation cost related to these restricted stock units was $1.0 million andas a result of the weighted-average period over which it is expected to be recognized was 9 months.termination of the management stock plans in December 2008.
The restricted stock unit participants dodid not have voting or other stockholder rights. However, the participants’ stock unit accounts receivereceived dividend equivalents, reflecting the aggregate dividends earned based on the total number of restricted stock units outstanding, in the form of additional restricted stock units. Participants maycould elect to defer the delivery of vested shares of common stock at predetermined dates as defined in the plan agreements. UNBC will issueissued new shares under the 2000 Stock Plan upon vesting and settlement of these grants, which arewere redeemable only in shares.
Non-employee directors maycould irrevocably elect to defer all or a portion of the cash retainer and/or fees payable to them for services on the Board of Directors and its committees in the form of stock units. At the time of deferral, a bookkeeping account iswas established on behalf of the director and credited with a number of fully vested stock units. The director will receivereceived a number of stock units equal to the number of shares of common stock when the deferred compensation was payable. Dividend equivalents were credited to the stock unit accounts. Stock units had no voting rights. UNBC issued new shares under the 2000 Stock Plan upon settlement of the stock units.
As a result of UNBC’s privatization, all restricted stock units and stock units were canceled and either paid out in cash in 2008 or deferred based on the participant’s prior elections or applicable tax requirements and recorded as a liability.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
stock when the deferred compensation is payable. Dividend equivalents are credite to the stock unit accounts. Stock units have no voting rights. UNBC will issue new shares under the 2000 Stock Plan upon settlement of the stock units.
Performance Share Plan
Effective January 1, 1997, UNBC established a Performance Share Plan. At the discretion of the Committee, eligible participants maywould earn performance share awards to be redeemed in cash and/or shares three years after the date of grant. Performance shares arewere linked to stockholder value in two ways: (1) the market price of UNBC’s common stock; and (2) return on equity, a performance measure closely linked to value creation. Eligible participants generally receivereceived grants of performance shares annually. The plan was amended in 2004 increasing the total number of shares that cancould be granted under the plan to 2.6 million shares. The following is a summary of shares granted and available for future grants under the Performance Share Plan:
| For the years ended December 31, | For the years ended December 31, | |||||||||
| 2005 | 2006 | 2007 | 2007 | 2008 | ||||||
Performance shares: | ||||||||||
Granted | 78,000 | 62,100 | 70,614 | 70,614 | 91,750 | |||||
Available for future grant, year end | 2,193,383 | 2,132,333 | 2,063,219 | 2,063,219 | — | |||||
Performance Shares—Redeemable in Cash
All performance shares granted prior to 2006 arewere redeemable in cash and therefore arewere accounted for as liabilities. The value of a performance share under the liability method iswas equal to the average month-end closing price of the UNBC’s common stock for the final six months of the performance period. All cancelled or forfeited performance shares would become available for future grants. The following is a summary of performance shares that are redeemable in cash under the Performance Share Plan:
| For the years ended December 31, | For the years ended December 31, | ||||||||||||||
| 2005 | 2006 | 2007 | 2007 | 2008 | |||||||||||
| (in millions, except number of shares) | (in millions) | ||||||||||||||
Performance shares granted | 78,000 | — | — | — | — | ||||||||||
Performance shares forfeited | 19,200 | — | — | — | — | ||||||||||
Fair value of performance shares that vested | $ | 4.5 | $ | 9.4 | $ | 6.7 | $ | 6.7 | — | ||||||
Cash payments made for performance shares that vested | $ | 6.5 | $ | 5.8 | $ | 7.8 | $ | 7.8 | $ | 5.7 | |||||
Fair value of performance shares that vested and deferred | $ | 0.4 | $ | 0.3 | — | — | — | ||||||||
Performance shares compensation expense | $ | 9.0 | $ | 1.8 | $ | 1.7 | $ | 1.7 | — | ||||||
Tax benefit related to compensation expense | $ | 3.4 | $ | 0.7 | $ | 0.6 | $ | 0.6 | — | ||||||
Liability for cash settlement of performance shares, year end | $ | 15.7 | $ | 11.7 | $ | 5.7 | $ | 5.7 | — | ||||||
The compensation cost related to these grants that are redeemable in cash was fully recognized as of December 31, 2007.
Performance Shares—Redeemable in Shares
Prior to UNBC’s privatization, performance shares granted in 2006 and thereafter were redeemable in shares. UNBC issued new shares under the 2000 Stock Plan upon vesting and settlement of these grants that were redeemable in shares.
As a result of UNBC’s privatization, performance shares that were redeemable in shares under the Performance Share Plan were canceled in 2008. In 2009, UNBC paid $25.2 million for the settlement of these grants and deferred $0.1 million. As of December 31, 2008, there was no unrecognized compensation cost related to grants that were redeemable in shares as a result of the termination of the management stock plans in December 2008.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Performance Shares—Redeemable in Shares
The following is a summary of performance shares that are redeemable in shares under the Performance Share Plan:
| For the years ended December 31, | ||||||
| 2006 | 2007 | |||||
| (in millions, except number of shares and per share amount) | ||||||
Performance shares granted | 62,100 | 70,614 | ||||
Weighted average grant date fair value—per share | $ | 69.96 | $ | 63.10 | ||
Performance shares forfeited | 1,050 | 1,500 | ||||
Fair value of performance shares that vested during the year | $ | 0.2 | $ | 0.6 | ||
Performance shares compensation expense | $ | 2.8 | $ | 4.8 | ||
Tax benefit related to compensation expense | $ | 1.1 | $ | 1.8 | ||
As of December 31, 2007, the total unrecognized compensation cost related to grants that are redeemable in shares was $4.6 million and the weighted-average period over which it is expected to be recognized was 11 months. UNBC issues new shares under the 2000 Stock Plan upon vesting and settlement of these grants that are redeemable in shares.
| For the years ended December 31, | ||||||
| 2007 | 2008 | |||||
| (in millions, except the number of shares and per share amounts) | ||||||
Performance shares granted | 70,614 | 91,750 | ||||
Weighted average grant date fair value—per share | $ | 63.10 | $ | 51.42 | ||
Performance shares forfeited | 1,500 | — | ||||
Fair value of performance shares that vested or cancelled during the year | $ | 0.6 | $ | 21.0 | ||
Performance shares compensation expense | $ | 4.8 | $ | 14.0 | ||
Tax benefit related to compensation expense | $ | 1.8 | $ | 5.4 | ||
Liability for cash settlement of performance shares, year end | — | $ | 25.3 | |||
33. PARENT COMPANY ONLY FINANCIAL INFORMATION
Distributions of retained earnings of BTMU and MUTB are restricted in order to meet the minimum capital adequacy requirements under the Banking Law. Also, retained earnings of these banking subsidiaries are restricted, except for ¥2,120,999¥3,951,062 million, in accordance with the statutory reserve requirements under the Company Law at March 31, 20082010 (see Notes 2119 and 22)21).
The following table presents the parent company only financial information of MUFG.MUFG:
Condensed Balance Sheets
| 2007 | 2008 | 2009 | 2010 | |||||||||
| (in millions) | (in millions) | |||||||||||
Assets: | ||||||||||||
Cash and interest-earning deposits with banks | ¥ | 42,225 | ¥ | 50,140 | ¥ | 33,602 | ¥ | 86,491 | ||||
Investments in subsidiaries and affiliated companies | 11,527,338 | 9,393,894 | 7,329,382 | 10,240,801 | ||||||||
Investment in Morgan Stanley | 927,944 | 988,731 | ||||||||||
Other assets | 112,151 | 118,504 | 82,150 | 73,868 | ||||||||
Total assets | ¥ | 11,681,714 | ¥ | 9,562,538 | ¥ | 8,373,078 | ¥ | 11,389,891 | ||||
Liabilities and shareholders’ equity: | ||||||||||||
Liabilities and Shareholders’ equity: | ||||||||||||
Short-term borrowings from subsidiaries | ¥ | 57,380 | ¥ | 174,000 | ¥ | 1,032,670 | ¥ | 1,129,452 | ||||
Long-term debt from subsidiaries and affiliated companies | 504,619 | 332,645 | 720,373 | 1,088,149 | ||||||||
Long-term debt | 666,600 | 549,900 | 330,051 | 230,045 | ||||||||
Other liabilities | 19,803 | 15,878 | 55,089 | 75,327 | ||||||||
Total liabilities | 1,248,402 | 1,072,423 | 2,138,183 | 2,522,973 | ||||||||
Total shareholders’ equity | 10,433,312 | 8,490,115 | 6,234,895 | 8,866,918 | ||||||||
Total liabilities and shareholders’ equity | ¥ | 11,681,714 | ¥ | 9,562,538 | ¥ | 8,373,078 | ¥ | 11,389,891 | ||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Condensed Statements of Operations
| 2006 | 2007 | 2008 | 2008 | 2009 | 2010 | |||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||
Income: | ||||||||||||||||||||||
Dividends from subsidiaries and affiliated companies | ¥ | 1,015,637 | ¥ | 500,776 | ¥ | 514,883 | ¥ | 514,883 | ¥ | 241,129 | ¥ | 203,443 | ||||||||||
Dividends from Morgan Stanley | — | 43,041 | 78,244 | |||||||||||||||||||
Management fees from subsidiaries | 11,674 | 11,749 | 13,970 | 13,970 | 16,985 | 17,522 | ||||||||||||||||
Interest income | 1 | 228 | 477 | 477 | 651 | 8 | ||||||||||||||||
Foreign exchange gains—net | 139 | 42,531 | 43,461 | |||||||||||||||||||
Other income | 16,329 | 506 | 591 | 452 | 6,043 | 5,946 | ||||||||||||||||
Total income | 1,043,641 | 513,259 | 529,921 | 529,921 | 350,380 | 348,624 | ||||||||||||||||
Expense: | ||||||||||||||||||||||
Operating expenses | 9,675 | 9,592 | 13,000 | 13,000 | 15,404 | 15,296 | ||||||||||||||||
Interest expense to subsidiaries and affiliated companies | 13,905 | 15,008 | 10,660 | 10,660 | 34,436 | 41,921 | ||||||||||||||||
Interest expense | 3,486 | 6,719 | 6,301 | 6,301 | 5,247 | 4,087 | ||||||||||||||||
Other expense | 5,273 | 3,294 | 1,193 | 1,193 | 1,758 | 1,326 | ||||||||||||||||
Total expense | 32,339 | 34,613 | 31,154 | 31,154 | 56,845 | 62,630 | ||||||||||||||||
Equity in undistributed net income (loss) of subsidiaries and affiliated companies | (643,016 | ) | 105,074 | (1,044,933 | ) | (1,044,933 | ) | (1,740,354 | ) | 613,264 | ||||||||||||
Income (loss) before income tax expense (benefit) | 368,286 | 583,720 | (546,166 | ) | (546,166 | ) | (1,446,819 | ) | 899,258 | |||||||||||||
Income tax expense (benefit) | 4,775 | 2,432 | (3,730 | ) | (3,730 | ) | 21,221 | 39,439 | ||||||||||||||
Net income (loss) | ¥ | 363,511 | ¥ | 581,288 | ¥ | (542,436 | ) | ¥ | (542,436 | ) | ¥ | (1,468,040 | ) | ¥ | 859,819 | |||||||
Condensed Statements of Cash Flows
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Operating activities: | ||||||||||||
Net income (loss) | ¥ | (542,436 | ) | ¥ | (1,468,040 | ) | ¥ | 859,819 | ||||
Adjustments and other | 1,035,759 | 1,793,971 | (634,891 | ) | ||||||||
Net cash provided by operating activities | 493,323 | 325,931 | 224,928 | |||||||||
Investing activities: | ||||||||||||
Proceeds from sales of stock investment in subsidiaries and affiliated companies | 1,792 | 24,002 | 1,526 | |||||||||
Purchases of equity investments in subsidiaries and affiliated companies | (148,541 | ) | (941,617 | ) | (1,406,479 | ) | ||||||
Purchases of other investment securities | — | (927,944 | ) | (5 | ) | |||||||
Net decrease (increase) in interest-earning deposits with banks | (3,406 | ) | 21,267 | (49,663 | ) | |||||||
Proceeds from capital repayment by a subsidiary | 118,018 | — | — | |||||||||
Other—net | 5,988 | (1,495 | ) | (52,481 | ) | |||||||
Net cash used in investing activities | (26,149 | ) | (1,825,787 | ) | (1,507,102 | ) | ||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| 2008 | 2009 | 2010 | ||||||||||
| (in millions) | ||||||||||||
Financing activities: | ||||||||||||
Net increase in short-term borrowings from subsidiaries | ¥ | 116,620 | ¥ | 879,460 | ¥ | 143,403 | ||||||
Proceeds from issuance of long-term debt to subsidiaries and affiliated companies | 500 | 391,997 | 380,499 | |||||||||
Repayment of long-term debt | (125,000 | ) | (220,000 | ) | (100,007 | ) | ||||||
Repayment of long-term debt to subsidiaries and affiliated companies | (163,998 | ) | (3,700 | ) | (12,800 | ) | ||||||
Proceeds from issuance of common stock, net of stock issue expenses | — | 278,725 | 1,026,341 | |||||||||
Proceeds from issuance of preferred stock, net of stock issue expenses | — | 388,623 | — | |||||||||
Proceeds from sales of treasury stock | 781 | 184,617 | 30 | |||||||||
Payments to acquire treasury stock | (151,365 | ) | (238,842 | ) | (246 | ) | ||||||
Dividends paid | (141,182 | ) | (153,260 | ) | (149,551 | ) | ||||||
Other—net | 979 | (3,035 | ) | (2,269 | ) | |||||||
Net cash provided by (used in) financing activities | (462,665 | ) | 1,504,585 | 1,285,400 | ||||||||
Net increase in cash and cash equivalents | 4,509 | 4,729 | 3,226 | |||||||||
Cash and cash equivalents at beginning of fiscal year | 4,024 | 8,533 | 13,262 | |||||||||
Cash and cash equivalents at end of fiscal year | ¥ | 8,533 | ¥ | 13,262 | ¥ | 16,488 | ||||||
Condensed Statements of Cash Flows34. SEC REGISTERED FUNDING VEHICLES ISSUING NON-DILUTIVE PREFERRED SECURITIES
| 2006 | 2007 | 2008 | ||||||||||
| (in millions) | ||||||||||||
Operating activities: | ||||||||||||
Net income (loss) | ¥ | 363,511 | ¥ | 581,288 | ¥ | (542,436 | ) | |||||
Adjustments and other | 480,264 | 5,268 | 1,035,759 | |||||||||
Net cash provided by operating activities | 843,775 | 586,556 | 493,323 | |||||||||
Investing activities: | ||||||||||||
Proceeds from sales of stock investment in subsidiaries and affiliated companies | 14,251 | — | 1,792 | |||||||||
Purchases of equity investments in subsidiaries and affiliated companies | (228,498 | ) | — | (148,541 | ) | |||||||
Net decrease (increase) in interest-earning deposits with banks | 25,488 | (4,683 | ) | (3,406 | ) | |||||||
Proceeds from capital repayment by a subsidiary | — | 52,085 | 118,018 | |||||||||
Other—net | 41,467 | 571 | 5,988 | |||||||||
Net cash provided by (used in) investing activities | (147,292 | ) | 47,973 | (26,149 | ) | |||||||
Financing activities: | ||||||||||||
Net increase (decrease) in short-term borrowings from subsidiaries | (323,600 | ) | 12,980 | 116,620 | ||||||||
Proceeds from issuance of long-term debt to subsidiaries and affiliated companies | 230,800 | 1,415 | 500 | |||||||||
Proceeds from issuance of long-term debt | 450,000 | — | — | |||||||||
Repayment of long-term debt | — | (25,000 | ) | (125,000 | ) | |||||||
Repayment of long-term debt to subsidiaries and affiliated companies | (84,046 | ) | (289,429 | ) | (163,998 | ) | ||||||
Proceeds from sales of treasury stock | 4,933 | 62,984 | 781 | |||||||||
Payments for redemption of preferred stock | (122,100 | ) | — | — | ||||||||
Payments to acquire treasury stock | (775,242 | ) | (292,182 | ) | (151,365 | ) | ||||||
Dividends paid | (64,220 | ) | (103,060 | ) | (141,182 | ) | ||||||
Other—net | (11,395 | ) | (3,105 | ) | 979 | |||||||
Net cash used in financing activities | (694,870 | ) | (635,397 | ) | (462,665 | ) | ||||||
Net increase (decrease) in cash and cash equivalents | 1,613 | (868 | ) | 4,509 | ||||||||
Cash and cash equivalents at beginning of fiscal year | 3,279 | 4,892 | 4,024 | |||||||||
Cash and cash equivalents at end of fiscal year | ¥ | 4,892 | ¥ | 4,024 | ¥ | 8,533 | ||||||
In February 2006, MUFG established MUFG Capital Finance 1 Limited, MUFG Capital Finance 2 Limited and MUFG Capital Finance 3 Limited, wholly owned funding vehicles in the Cayman Islands, for the issuance of preferred securities to enhance the flexibility of its capital management.
On March 17, 2006, MUFG Capital Finance 1 Limited, MUFG Capital Finance 2 Limited and MUFG Capital Finance 3 Limited registered with the SEC and issued $2,300,000,000 in 6.346% non-cumulative preferred securities, €750,000,000 in 4.850% non-cumulative preferred securities and ¥120,000,000,000 in 2.680% non-cumulative preferred
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
securities (collectively, the “Preferred Securities”), respectively. Total net proceeds before expenses were approximately $4.17 billion. All of the ordinary shares of MUFG Capital Finance 1 Limited, MUFG Capital Finance 2 Limited and MUFG Capital Finance 3 Limited are owned by MUFG. MUFG fully and unconditionally guarantees the payment of dividends and payments on liquidation or redemption of the obligations under the Preferred Securities.
The Preferred Securities entitle holders to receive a non-cumulative preferential cash dividend starting on July 25, 2006 and on January 25 and July 25 of each year thereafter. The finance subsidiariesThese funding vehicles will not be obligated to pay dividends on the Preferred Securities upon the occurrence of certain events relating to the financial condition of MUFG. From July 25, 2016, dividends on the Preferred Securities will be re-calculated at a floating rate per annum.
The dollar-denominated and euro-denominated preferred securities are subject to redemption on any dividend payment date on or after July 25, 2016, the2016. The yen-denominated preferred securities are subject to redemption on any dividend payment date on or after July 25, 2011 and2011. All the Preferred Securities are subject to
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
redemption in whole (but not in part) at any time upon the occurrence of specified events, in each case at the option of each of the finance subsidiariesfunding vehicles and subject to necessary government approvals.
The Preferred Securities are non-dilutive and not convertible into MUFG’s common shares. The Preferred Securities were accountedincluded as part of MUFG’s Tier I capital at March 31, 20072009 and 20082010 under its capital adequacy requirements.
These funding vehicles are not consolidated in accordance with FIN No. 46R as more fully discussed inthe MUFG Group’s subsidiaries. See Note 26.25 for discussion. The funds raised through such funding vehicles are primarily loaned to the MUFG Group and presented as Long-term debt in the consolidated balance sheet at March 31, 20072009 and 2008.2010.
35. EVENTS SINCE MARCHRESTATEMENT OF CONSOLIDATED STATEMENTS OF CASH FLOWS
Subsequent to the issuance of the consolidated financial statements for the fiscal year ended March 31, 2009, MUFG’s management determined that the MUFG Group erroneously presented certain transactions and adjustments in the consolidated statements of cash flows, which resulted in the misstatements of various line items. The significant portion of these misstatements was attributed to erroneous elimination of non-cash foreign currency adjustments and non-cash securities transactions at certain foreign subsidiaries, and intercompany balances of trading account assets and liabilities. The restatement of the consolidated statements of cash flows did not affect previously reported amounts in the consolidated balance sheets, consolidated statements of operations, consolidated statements of changes in equity from nonowner sources, consolidated statements of equity, and cash and cash equivalents in the consolidated statements of cash flows. The following tables set forth the effects of the restatement for the fiscal years ended March 31, 2008 and 2009.
| Fiscal year ended March 31, 2008 | ||||||||||||||||
| As previously reported | Restatement amounts | Reclassification amounts(1) | As restated and reclassified | |||||||||||||
| (in millions) | ||||||||||||||||
Net loss | ¥ | (542,436 | ) | ¥ | — | ¥ | 38,476 | ¥ | (503,960 | ) | ||||||
Loss from discontinued operations—net | 1,746 | — | 924 | 2,670 | ||||||||||||
Foreign exchange gains-net | (1,544,073 | ) | 77,774 | — | (1,466,299 | ) | ||||||||||
Increase in trading account assets, excluding foreign exchange contracts | (3,996,790 | ) | 68,027 | — | (3,928,763 | ) | ||||||||||
Increase in trading account liabilities, excluding foreign exchange contracts | 2,904,153 | (28,360 | ) | — | 2,875,793 | |||||||||||
Increase in accrued interest receivable and other receivables | (79,266 | ) | (6,309 | ) | — | (85,575 | ) | |||||||||
Increase in accrued interest payable and other payables | 90,984 | 14,458 | — | 105,442 | ||||||||||||
Net decrease in collaterals for derivative transactions | 82,720 | 50,802 | — | 133,522 | ||||||||||||
Other—net | (138,105 | ) | (6,207 | ) | (39,400 | ) | (183,712 | ) | ||||||||
Net cash provided by operating activities | 383,207 | 170,185 | — | 553,392 | ||||||||||||
Purchases of investment securities available for sale | (74,640,265 | ) | (10,901 | ) | — | (74,651,166 | ) | |||||||||
Net increase in loans | (5,942,696 | ) | 15,985 | — | (5,926,711 | ) | ||||||||||
Net increase in interest-earning deposits in other banks | (806,005 | ) | 13,665 | — | (792,340 | ) | ||||||||||
Net increase in call loans, funds sold, and receivable under resale agreement and securities borrowing transactions | (4,071,034 | ) | (15,531 | ) | | — | | (4,086,565 | ) | |||||||
Proceeds from sales of premises and equipment | 71,671 | (7,604 | ) | — | 64,067 | |||||||||||
Purchases of intangible assets | (231,300 | ) | 1,164 | — | (230,136 | ) | ||||||||||
Other—net | 86,391 | (33,366 | ) | — | 53,025 | |||||||||||
Net cash used in investing activities | (7,833,129 | ) | (36,588 | ) | — | (7,869,717 | ) | |||||||||
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
| Fiscal year ended March 31, 2008 | |||||||||||
| As previously reported | Restatement amounts | Reclassification amounts(1) | As restated and reclassified | ||||||||
| (in millions) | |||||||||||
Net increase in deposits | 5,472,395 | (33,880 | ) | — | 5,438,515 | ||||||
Net increase in call money, funds purchased, and payables under repurchase agreements and securities lending transactions | 3,731,613 | (32,331 | ) | — | 3,699,282 | ||||||
Net increase in other short-term borrowings | 202,589 | 6,873 | — | 209,462 | |||||||
Proceeds from issuance of long-term debt | 2,344,448 | (1,624 | ) | — | 2,342,824 | ||||||
Repayment of long-term debt | (2,662,527 | ) | (38,083 | ) | — | (2,700,610 | ) | ||||
Other—net | 28,174 | (34,552 | ) | — | (6,378 | ) | |||||
Net cash provided by financing activities | 8,723,384 | (133,597 | ) | — | 8,589,787 | ||||||
| Fiscal year ended March 31, 2009 | ||||||||||||||||
| As previously reported | Restatement amounts | Reclassification amounts(1) | As restated and reclassified | |||||||||||||
| (in millions) | ||||||||||||||||
Net loss | ¥ | (1,468,040 | ) | ¥ | — | ¥ | (36,259 | ) | ¥ | (1,504,299 | ) | |||||
Foreign exchange losses-net | 983,290 | 321,148 | — | 1,304,438 | ||||||||||||
Increase in trading account assets, excluding foreign exchange contracts | (4,334,635 | ) | (55,543 | ) | — | (4,390,178 | ) | |||||||||
Increase in trading account liabilities, excluding foreign exchange contracts | 1,541,797 | (48,735 | ) | — | 1,493,062 | |||||||||||
Decrease in accrued interest receivable and other receivables | 37,407 | 35,967 | — | 73,374 | ||||||||||||
Decrease in accrued interest payable and other payables | (76,143 | ) | (27,430 | ) | — | (103,573 | ) | |||||||||
Net increase in collaterals for derivative transactions | (414,933 | ) | (82,696 | ) | — | (497,629 | ) | |||||||||
Other—net | 163,507 | 31,605 | 36,259 | 231,371 | ||||||||||||
Net cash used in operating activities | (1,140,503 | ) | 174,316 | — | (966,187 | ) | ||||||||||
Purchases of investment securities available for sale | (114,572,826 | ) | 10,930 | — | (114,561,896 | ) | ||||||||||
Net increase in loans | (6,266,505 | ) | (20,408 | ) | — | (6,286,913 | ) | |||||||||
Net decrease in interest-earning deposits in other banks | 2,264,774 | (28,282 | ) | — | 2,236,492 | |||||||||||
Net decrease in call loans, funds sold, and receivable under resale agreement and securities borrowing transactions | 4,556,274 | 42,223 | — | 4,598,497 | ||||||||||||
Purchases of intangible assets | (191,834 | ) | (3,648 | ) | — | (195,482 | ) | |||||||||
Other—net | (60,111 | ) | 11,637 | — | (48,474 | ) | ||||||||||
Net cash used in investing activities | (8,266,031 | ) | 12,452 | — | (8,253,579 | ) | ||||||||||
Net increase in deposits | 2,619,867 | 44,335 | — | 2,664,202 | ||||||||||||
Net increase in call money, funds purchased, and payables under repurchase agreements and securities lending transactions | 2,621,516 | (278,324 | ) | — | 2,343,192 | |||||||||||
Net increase in other short-term borrowings | 2,566,975 | 9,165 | — | 2,576,140 | ||||||||||||
Proceeds from issuance of long-term debt | 2,876,261 | 41,312 | — | 2,917,573 | ||||||||||||
Repayment of long-term debt | (2,752,600 | ) | (4,125 | ) | — | (2,756,725 | ) | |||||||||
Dividends paid to noncontrolling interests | (16,429 | ) | 3,565 | — | (12,864 | ) | ||||||||||
Other—net | (54,326 | ) | (2,696 | ) | — | (57,022 | ) | |||||||||
Net cash provided by financing activities | 8,487,047 | (186,768 | ) | — | 8,300,279 | |||||||||||
| Note: |
| (1) | Effective April 1, 2009, the MUFG Group adopted new guidance regarding noncontrolling interests in subsidiaries. See Note 1 “Noncontrolling Interests” under “Accounting Changes” section for the detail. As a result, Net loss, Loss from discontinued operations—net and Other—net in Cash flows from operating activities for the fiscal years ended March 31, 2008 and 2009 were reclassified. |
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
MUFG has evaluated subsequent events requiring recognition or disclosure in the consolidated financial statements through the date these consolidated financial statements were issued.
Approval of Dividends
On June 27, 2008,29, 2010, the shareholders approved the payment of cash dividends to the shareholders of record on March 31, 2008,2010, of ¥30.00 per share of Class 3 Preferred Stock, ¥7.95¥57.50 per share of Class 85 Preferred Stock, ¥2.65 per share of Class 11 Preferred Stock, ¥5.75 per share of Class 12 Preferred Stock, totaling ¥3,334¥11, 970 million, and ¥7.00¥6.00 per share of Common stock, totaling ¥72,525¥84,887 million.
AgreementSecurities Joint Ventures with JAL International on JALCARD Share Transfer and Business PartnershipMorgan Stanley
On May 2, 2008, BTMU reached an agreement with Japan Airlines International1, 2010, MUFG and Morgan Stanley created two companies comprising their joint venture, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (“JALI”MUMSS”), and Morgan Stanley MUFG Securities Co., Ltd. (“MSMS”). MUMSS continued the existing Japan-based retail, middle markets, capital markets, and sales and trading businesses of MUS. The investment banking team of Morgan Stanley Japan Securities Co., Ltd. (“MSJS”) was integrated with the investment banking team of MUS to create the preeminent investment banking organization in Japan, serving both MUFG’s and Morgan Stanley’s significant local and global client networks. MUFG holds a subsidiary60 percent interest in MUMSS while Morgan Stanley holds a 40 percent interest.
MSMS comprises the existing sales and trading and capital markets operations of MSJS. While the economic interests of MUFG and Morgan Stanley in MSMS are 60 percent and 40 percent respectively, Morgan Stanley has a 51 percent voting interest in MSMS and MUFG has 49 percent. The two joint venture companies will collaborate in providing capital markets services to investment banking clients of MUFG and Morgan Stanley and in offering a wide range of products and services, including Morgan Stanley’s global products and services to MUFG’s retail and middle market customers in Japan as well as to investment banking clients of both parties. The two joint venture companies will continue to offer products and services in sales and trading and research areas separately.
In relation to the integration of the securities companies in Japan, Airlines Corporation, onMUFG and Morgan Stanley determined to form a partnership under the transfer to BTMUCivil Code of Japan, (“MM Partnership”). Upon the issued shares of JALCARD Inc. (“JALCARD”), a wholly owned subsidiary of JALI. JALI transferred 3,950 shares out of its total holding of 8,000 JALCARD shares (representing 49.375% of voting rights) to BTMU as of July 1, 2008.
Also as part of the agreement, JALI, JALCARD, BTMU,integration, Mitsubishi UFJ NICOS, and JCBSecurities Holdings Co., Ltd. agreed on, (“MUSHD”), MUFG’s intermediate holding company, and Morgan Stanley Japan Holdings Co., Ltd., (“MSJHD”), Morgan Stanley’s intermediate holding company, directly hold shares representing controlling voting interests in MUMSS and MSMS, respectively with MUSHD holding a business partnership relating60% voting interest in MUMSS and MSJHD holding a 51% voting interest in MSMS, and contribute to the credit card operations. AsMM Partnership all other shares issued by MUMSS and MSMS. Economic interests in MUMSS and MSMS were allocated 60:40 between MUSHD and MSJHD as a result of this business alliance, JALI planstheir acquisitions of a 60% interest and a 40% interest in MM Partnership, respectively. MM Partnership was formed for such purpose. A cash adjustment was made between MUSHD and MSJHD based on the partnership interests in MM Partnership (MUSHD: 60%, MSJHD: 40%), taking into account the agreed value of the shares contributed into MM Partnership and the net asset value of each of MUMSS and MSMS as of the closing. Pursuant to grant BTMU certain priorityan agreement in the partnership agreement regarding exercise of the voting rights relatingattached to the issuanceMUMSS and MSMS shares held by MM Partnership, MUSHD acquired in substance 49% of JAL branded credit cards.the voting rights with respect to MSMS in addition to rights to receive 60% of dividends distributed by MUMSS and MSMS, and MSJHD acquired in substance 40% of the voting rights with respect to MUMSS in addition to rights to receive 40% of dividends distributed by MUMSS and MSMS.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Share Exchange Transaction to Make Mitsubishi UFJ NICOS a Wholly Owned SubsidiaryAcquisition and Cancellation of First Series of Class 3 Preferred Stock
On May 28, 2008,April 1, 2010, MUFG acquired and Mitsubishi UFJ NICOS entered into a share exchange agreement to make Mitsubishi UFJ NICOS a wholly owned subsidiarycancelled the First Series of MUFG.Class 3 Preferred Stock. The share exchange ratios were set at 0.37 shares of MUFG common stock to one share of Mitsubishi UFJ NICOS common stock and at 1.39 shares of MUFG common stock to one share of Mitsubishi UFJ NICOS Class 1 Stock.
On June 27, 2008, Mitsubishi UFJ NICOS shareholders approved the share exchange transaction. Accordingly, Mitsubishi UFJ NICOS commonpreferred stock was delisted from the Tokyo Stock Exchange on July 28, 2008 and the share exchange became effective on August 1, 2008. MUFG allocated 447,982,086 shares of common stock, previously held as treasury stock, for this transaction.
Share Transfer Agreement with Norinchukin
On May 28, 2008, MUFG entered into a basic agreement with the Norinchukin Bank (“Norinchukin”) in which MUFG agreed to make Mitsubishi UFJ NICOS a wholly owned subsidiary and then transfer a portion of its shares of Mitsubishi UFJ NICOS common stock to Norinchukin. On August 1, 2008, in accordance with the basic agreement, MUFG entered into a share transfer agreement, pursuant to which MUFG transferred 244 million shares of Mitsubishi UFJ NICOS common stock to Norinchukin in exchange for ¥84,424 million on August 8, 2008.
Basic Agreement on the Business Integration between Bank of Ikeda and Senshu Bank
On May 30, 2008, BTMU signed a basic agreement with Senshu Bank, a regional bank subsidiary of BTMU headquartered in Osaka, and the Bank of Ikeda Ltd. (“Bank of Ikeda”), another regional bank headquartered in Osaka, concerning the planned business integration between the two regional banks.
Senshu Bank and Bank of Ikeda are planning to establish a new company on April 1, 2009 after the execution of a definitive agreement, which is expected to occur by November 28, 2008.
Redemption of “Non-dilutive” Preferred Securities Issued by a Special Purpose Company
On June 30, 2008, Tokai Preferred Capital Company L.L.C., a special purpose company established in Delaware, redeemed total $1 billion of non-cumulative and non-dilutive perpetual preferred securities. These securities were accounted forreflected as part of MUFG’s Tier I1 capital atas of March 31, 2008 under the BIS capital adequacy requirements.2010.
Stock Compensation Type Stock Options (Stock Acquisition Rights)
On July 15, 2008,16, 2010, MUFG allotted the directors, executive officers and corporate auditors of MUFG, BTMU, MUTB, MUSHD and MUSMUMSS stock acquisition rights to acquire an aggregate amount of 3,263,6007,911,800 shares of MUFG’s common stock. The stock acquisition rights have an exercise price of ¥1 per common share, and are exercisable until July 14, 2038.15, 2040.
Repurchase of MUFG’s Common Stock from BTMU and MUTB
On July 31, 2008, MUFG resolved, at the meeting of the Board of Directors, to repurchase its own shares which were once allocated to BTMU and MUTB pursuant to the share exchange on August 1, 2008. MUFG repurchased 247,677,147 shares from BTMU and 765,900 shares from MUTB respectively, and the aggregate purchase price was ¥239,251 million.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Issuance of “Non-dilutive” Preferred Securities by a Special Purpose Company
On July 31, 2008, MUFG established MUFG Capital Finance 7 Limited, a special purpose company in the Cayman Islands, for the issuance of preferred securities to strengthen the capital base of BTMU and MUTB.
On September 2, 2008, MUFG Capital Finance 7 Limited issued ¥222 billion in non-cumulative perpetual preferred securities. These securities are accounted for as part of MUFG’s Tier I capital under the BIS capital adequacy requirements.
Conversion of Class 8 Preferred Stock
On August 1, 2008, 17,700,000 shares of Class 8 Preferred Stock owned by Norinchukin were converted into 43,895,180 shares of newly issued common stock. As a result, numbers of outstanding common stock of MUFG increased to 10,905,538,970 shares.
Commencement of a Cash Tender Offer by BTMU to Make UNBC a Wholly Owned Subsidiary
On August 18, 2008, MUFG and BTMU resolved, at the meeting of the Board of Directors, to commence a cash tender offer in the United States for all of the outstanding shares of common stock of UNBC and to execute the definitive merger agreement which has been approved by the Board of Directors of UNBC as well.
In accordance with the merger agreement, on August 29, 2008, BTMU commenced a tender offer to acquire all of the shares of UNBC’s common stock not owned by BTMU for $73.50 per share in cash. The tender offer will expire on September 26, 2008, unless it is extended.
Under the merger agreement, the consummation of the tender offer will be followed by a merger in which any shares of UNBC not tendered through the tender offer will be acquired at the same price in cash, subject to customary appraisal rights. Upon completion of the merger, UNBC will become a wholly owned subsidiary of BTMU. The total funds required to complete the acquisition of UNBC by BTMU are estimated to be approximately ¥385 billion. BTMU intends to use cash on hand to fund the acquisition.
Commencement of a Cash Tender Offer for Shares of ACOM
On September 16, 2008, MUFG commenced a tender offer for up to 38,140,000 common shares of ACOM CO., LTD. (“ACOM”), which amounts to 23.89% of the total number of issued shares of ACOM. ACOM is one of the largest consumer finance company in Japan, which mainly engages in loan business, credit card business and loan guarantee business. Through the tender offer, the MUFG Group expects to increase the voting rights ratio in ACOM to 40.04%. The purchase price has been set at ¥4,000 per share, and the aggregate purchase price is expected to be ¥152,560 million. The tender offer is scheduled to expire on October 21, 2008, unless it is extended through October 29, 2008 by ACOM.
On September 8, 2008, ACOM agreed to issue up to 18,000,000 shares for ¥3,200 per share to MUFG with a payment period between October 23, 2008 and December 12, 2008. MUFG also agreed to purchase the additional shares to the extent that the MUFG Group’s voting rights ratio in ACOM does not exceed 40.04% after the tender offer and the purchase of additional shares.
MITSUBISHI UFJ FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Filing of a Bankruptcy Petition by Lehman Brothers Holdings
On September 15, 2008, Lehman Brothers Holdings Inc. (“LBHI”) filed a petition under Chapter 11 of the US Bankruptcy Code with the US Bankruptcy Court for the Southern District of New York. The MUFG Group determined that the filing by LBHI was attributable to the deterioration of the asset-backed securitization products market and residential mortgage market in the United States subsequent to March 31, 2008, and did not reflect the impact of LBHI’s bankruptcy on the accompanying consolidated financial statements for the fiscal year ended March 31, 2008. Although the impact of these developments is currently being reviewed, the MUFG Group estimates that these developments will adversely affect income from continuing operations before income tax expense for the fiscal year ending March 31, 2009 by approximately ¥20 to ¥30 billion.
* * * * *
Signature
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
MITSUBISHI UFJ FINANCIAL GROUP, INC. | ||
By: | /s/ KATSUNORIN | |
| Name: | ||
| Title: | President and Chief Executive Officer | |
Date: September 19, 2008August 16, 2010
EXHIBIT INDEX
Exhibit | Description | ||
| Articles of Incorporation of Mitsubishi UFJ Financial Group, Inc., as amended on June | |||
| Board of Directors Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on June 29, 2006. (English translation)** | |||
| Corporation Meetings Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on July 31, 2006. (English translation)** | |||
| Share Handling Regulations of Mitsubishi UFJ Financial Group, Inc., as amended on | |||
| Form of American Depositary Receipt.** | |||
| Form of Deposit Agreement, amended and restated as of December 22, 2004, among Mitsubishi Tokyo Financial Group, Inc. (subsequently renamed Mitsubishi UFJ Financial Group, Inc.), The Bank of New York Mellon and the holders from time to time of American Depositary Receipts issued thereunder.** | |||
| Agreement and Plan of Merger among UnionBanCal Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Merger Sub, dated as of August 18, 2008.*** | |||
| Securities Purchase Agreement dated as of September 29, 2008 by and between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc., the first amendment thereto entered into on October 3, 2008, the second amendment thereto entered into on October 8, 2008 and the third amendment thereto entered into on October 13, 2008, and Amended Certificate of Designations of Preferences and Rights of the 10% Series B Non-Cumulative Non-Voting Perpetual Convertible Preferred Stock ($1,000 Liquidation Preference per Share) of Morgan Stanley and Certificate of Designations of Preferences and Rights of the 10% Series C Non-Cumulative Non-Voting Perpetual Preferred Stock ($1,000 Liquidation Preference per Share) of Morgan Stanley.* | |||
| 4(c) | Investor Agreement dated as of October 13, 2008 by and between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc., and the first amendment thereto entered into on October 27, 2008.* | ||
| 4(d) | Registration Rights Agreement dated as of October 13, 2008 by and between Morgan Stanley and Mitsubishi UFJ Financial Group, Inc.* | ||
| 4(e) | Integration and Investment Agreement, dated as of March 30, 2010, by and between Mitsubishi UFJ Financial Group, Inc. and Morgan Stanley. | ||
| 8 | Subsidiaries of the Company—see “Item 4.C. Information on the Company—Organizational Structure.” | ||
| 11 | Ethical framework and code of conduct, compliance rules, compliance manual and rules of employment of Mitsubishi UFJ Financial Group, Inc. applicable to its directors and managing officers, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. (English translation of relevant sections)**** | ||
| 12 | Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)). | ||
| 13 | Certifications required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). | ||
| 15 | Consent of independent registered public accounting firm. | ||
Exhibit | Description | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Schema Document | |
| 101.CAL | XBRL Calculation Linkbase Document | |
| 101.DEF | XBRL Definition Linkbase Document | |
| 101.LAB | XBRL Label Linkbase Document | |
| 101.PRE | XBRL Presentation Linkbase Document | |
| Notes: |
| * | Incorporated by reference to our annual report on Form 20-F (File No. 333-98061-99) filed on September |
| ** | Incorporated by reference to our annual report on Form 20-F (File No. 333-98061-99) filed on September 28, 2006. |
| *** | Incorporated by reference to |
| **** | Incorporated by reference to our annual report on Form 20-F (File No. 333-98061-99) filed on September 21, 2007. |