Mitsubishi UFJ Financial Group (MTU)

• Article
• Discussion
• Edit
• History
• Bookmark

Bulls: Reasons To Buy Feeling Bullish? Be the first to explain why this would make a good investment Bears: Reasons To Sell Feeling Bearish? Be the first to explain why this would make a poor investment Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

Top Contributors Ann H. Heffron www.zacks.com Related Articles Japanese Markets Recovery U.S. Housing Market

Mitsubishi UFJ Financial Group, Inc. (also known as MUFG), headquartered in Tokyo, Japan and the world's largest bank holding company with 187 trillion (US$1.6 trillion) in assets at March 31, 2007, was formed through the merger of Mitsubishi Tokyo Financial Group, Inc. (MTF) and UFJ Holdings, Inc. (UFJ) on October 1, 2005. The company has a global branch network unmatched by any other Japanese bank with over 800 domestic offices and 100 foreign branches and trades on the Tokyo, Osaka, New York, and London stock exchanges. The company operates through four main customer business segments: corporate (accounting for about 64% of total revenues for the 2006 fiscal year ending March 31, 2007), retail (25%), trust assets (6%), and global markets and other (5%). Through its major subsidiaries and affiliated companies, MUFG engages in a broad range of domestic and international financial operations, including commercial banking, investment banking, asset management, and trust banking and securities-related businesses. The company also provides related services to 40 million retail and 280,000 corporate customers. Additionally, MUFG indirectly owns almost two-thirds of a San Francisco, California-based commercial banking organization, UnionBanCal Corporation.

For the 2006 fiscal year ending March 31, 2007, 51% of MUFG's revenue came from interest-bearing sources, while the remaining 49% came from non-interest sources. Geographically, 2005 fiscal year revenues (latest annual data available) divided 74% Japan, 15% U.S., 6% Europe, and 5% Asia/Oceania. The loan portfolio as of March 31, 2007 divided roughly 49% corporate and SME (small-medium enterprises), 21% consumer, 19% housing, and 11% overseas. MUFG s long-term credit rating is A by S&P.

At the forefront of our optimism on MUFG is the merger between Mitsubishi Financial and UFJ Holdings Inc. that formed the world's biggest bank, with approximately 187 trillion (US$1.6 trillion) in assets. The merger was completed in two steps: the holding companies, trust banks, and securities companies merged on October 1, 2005, while the banks merged on January 1, 2006. The delay in the banks' merger was necessary to enable additional testing of the two banks' systems.

Upon completion of the merger, MUFG's goal is to become one of the top five global financial institutions by market value by the end of fiscal year 2009 (ending March 31, 2010). In order to achieve this, MUFG has outlined ambitious growth targets. Fiscal year 2009 goals include earning consolidated net income of 1,100 billion (versus 881 billion for the March 2007 fiscal year), a consolidated ROE of 15% (compared to 11.4%), and a consolidated expense ratio of 40-45% (versus over 50% at present).

In order to achieve these goals, management expects 220 billion in cost synergies from personnel reductions ( 20 billion), branch and systems consolidations ( 100-110 billion), head office expenses ( 60 billion), and subsidiary-related ( 30 billion).

Revenue synergies are expected to amount to 70 billion in fiscal year 2009 as the company seeks to deliver innovative, value-added products and services to its customers. In the retail segment, MUFG will seek to expand investment product offerings through strategic alliances, while capitalizing on its distribution network to expand its housing loan and consumer finance business. In the corporate arena, MUFG plans to increase its share of the SME business and provide support for expansion into the non-Japan Asian markets. In the trust field, MUFG hopes to enhance its presence by expanding products offered, integrating production and sales functions, and strengthening its processing functions.

As a result of these initiatives, MUFG expects to grow the retail business to 35% of net operating profits from 15% at present to produce more stability in group results.

More recently, MUFG announced the restructuring of its consolidated consumer finance subsidiary, Mitsubishi UFJ NICOS Co., Ltd. (MUN). MUFG intends to capitalize on MUN's strength in the fast-growing credit card market by rationalizing operations, cutting headcount by almost 2,900 staff, and increasing market share. While this restructuring will result in a 111.8 billion loss for the fiscal year ending March 31, 2008 (versus a previous forecast of net earnings of 15.5 billion), MUN plans to achieve a profit of 38.1 billion in the fiscal year ending March 31, 2010 and 45.7 billion in the fiscal year ending March 31, 2011.

Reflecting its improved prospects, MUFG announced an increase in the total dividend for the March 2007 fiscal year to 11 per share ($0.09 per ADS) from its previously announced forecast of 10 ($0.08 per ADS) and 7 ($0.06 per ADS) in the year-ago period. At the same time, MUFG forecast an increase in the annual dividend for the fiscal year ending March 2008 to 14 per share ($0.12 per ADS), consisting of two payments of 7 each. MUFG targets a 20% payout ratio. More recently on October 31, 2007, MUFG announced a 150 billion share repurchase program.

[edit] References