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Rating Action:

Moody's affirms MUFG's ratings with a stable outlook; confirms MUFG Bank's a3 BCA

 The document has been translated in other languages

21 Nov 2019

Tokyo, November 21, 2019 -- Moody's Japan K.K. has today affirmed Mitsubishi UFJ Financial Group Inc.'s (MUFG) A1 long-term senior unsecured debt ratings, as well as MUFG Bank, Ltd.'s and Mitsubishi UFJ Trust and Banking Corporation's (MUTB) A1 long-term deposit and senior unsecured debt ratings.

Moody's refers to the two banks collectively as the MUFG banks.

The outlook on the ratings above is stable.

At the same time, Moody's has confirmed MUFG banks' a3 Baseline Credit Assessment (BCA) and Adjusted BCA; thereby concluding Moody's review of the banks' ratings for downgrade, initiated on August 28, 2019. The review was driven by the structural challenges the banks face in maintaining profitability, amid persistently low domestic interest rates and severe competition among banks. Another factor was slower internal capital generation than its megabank peers, partly because of its higher returns to shareholders.

Moody's has also affirmed Mitsubishi UFJ Trust International Limited's A1 backed issuer ratings. The outlook remains stable.

All of the ratings affected by Moody's actions are listed at the end of this press release.

RATINGS RATIONALE

MUFG banks' a3 BCAs were confirmed, based on Moody's expectation that MUFG can sustain and improve its recurring profitability, which will allow the group to strengthen its capitalization, without materially expanding its risk profile.

MUFG's and MUFG banks' A1 debt ratings incorporate a two-notch uplift from the MUFG banks' a3 BCA. The two-notch uplift reflects Moody's assessment of a very high probability of government support to the banks in times of stress, given the banks' importance to Japan's financial system.

The MUFG banks' a3 BCAs reflect MUFG's (1) modest but improving capitalization; (2) weak but stable profitability, despite persistently low domestic interest rates and severe competition; (3) low asset risk, reflecting MUFG's conservative risk appetite; and (4) strong overall liquidity, despite MUFG's dependence on corporate deposits and market funding for non-yen currencies in its wholesale businesses.

The MUFG banks' BCAs reflect Moody's overall assessment of MUFG on a group consolidated basis.

The BCAs of the two MUFG banks are at the same level, based on Moody's assessment that (1) they are closely interconnected and are under MUFG's management, (2) their capital management is centralized at the holding company level, and (3) they have close interbank support relationships. At the end of March 2019, the MUFG banks' combined consolidated assets accounted for more than 90% of MUFG's consolidated assets.

MUFG's profitability remains under pressure, due to ultralow domestic interest rates and stiff competition. MUFG is executing initiatives to increase profit contributions from its overseas businesses and reduce expenses domestically. However, given MUFG's cautious approach in growing new businesses, profits from overseas will only grow slowly.

Most of the earnings improvements in MUFG's domestic businesses will come from cost reductions, as the challenging operating environment — marked by slow economic growth, ultralow domestic interest rates, and Japan's aging population — continues to pressure domestic topline growth. The cost benefits of branch consolidations and process automation will emerge over time, because long standing business practices in Japan result in headcount reduction being a long drawn out process.

Moody's expects that the topline contribution from MUFG's Asian operations will grow, reflecting the region's faster economic growth rate, while its US-based operations — mainly through MUFG Americas Holdings Corporation (MUAH: A2 stable) — will help stabilize earnings, because the more favorable banking environment in the US results in banks there earning higher profits than in Japan.

MUFG's 24% ownership in Morgan Stanley (A3 stable) and the resulting strong business relationship supplements its overseas business flow by providing MUFG with an opportunity to participate in transactions originated by Morgan Stanley. The income from the equity method affiliate is also an important earnings contributor.

Moody's expects that MUFG will continue to build its capital base. MUFG's TCE ratio as of June 30, 2019 was at 10.3%, and has remained above 10% for six consecutive quarters. In addition, MUFG's decision to reduce stock repurchases will help reduce its shareholder return ratio to about 40% from over 45% in the past four fiscal years.

Although, governance is highly relevant for the banking industry, Moody's does not have any particular governance concerns for MUFG, and does not apply any corporate behavior adjustment to the bank.

FACTORS THAT COULD LEAD TO AN UPGRADE

Moody's will unlikely upgrade MUFG's ratings, given that they are already at the same level as the Government of Japan's A1 sovereign rating, with a stable outlook.

Upward pressure on the MUFG banks' BCAs are unlikely, unless there is a material change in Japan's operating environment that is conducive to higher profitability and results in stronger capital generation.

FACTORS THAT COULD LEAD TO A DOWNGRADE

Factors that could result in a downgrade of the ratings include, but are not limited to: (1) a continuous decline in recurring profitability; (2) signs of asset quality deterioration; (3) acquisitions or expansions that materially increase MUFG's overall risk profile; and (4) a reduction in the government support assumptions incorporated into the senior unsecured and subordinated instruments, if the Japanese government's support framework changes and moves toward supporting particular debt class(es) rather than the banking entity that includes the bank holding company.

The principal methodology used in rating Mitsubishi UFJ Financial Group, Inc., MUFG Bank, Ltd., BTMU (Curacao) Holdings N.V., MUFG Bank, Ltd., Auckland Branch, MUFG Bank, Ltd., Hong Kong Branch, MUFG Bank, Ltd., Los Angeles Branch, MUFG Bank, Ltd., New York Branch, MUFG Bank, Ltd., Singapore Branch, MUFG Bank, Ltd., Sydney Branch, Mitsubishi UFJ Trust and Banking Corporation, Mitsubishi UFJ Trust & Bank Corp., Singapore, Mitsubishi UFJ Trust & Bank Corp., NY Branch was Banks (Japanese) published in August 2018. The methodologies used in rating Mitsubishi UFJ Trust International Limited were Banks (Japanese) published in August 2018, and Securities Industry Market Makers (Japanese) published in July 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

Mitsubishi UFJ Financial Group, Inc. (MUFG) is a bank holding group that provides diversified financial services, focusing on banking, trust banking and securities operations. As of September 30, 2019, MUFG reported a consolidated asset base of JPY314.5 trillion.

MUFG Bank, Ltd., headquartered in Tokyo, is one of Japan's largest banks.

Mitsubishi UFJ Trust and Banking Corporation, headquartered in Tokyo, is a major trust bank in Japan.

Mitsubishi UFJ Trust International Limited is a securities company headquartered in London. It is a wholly owned UK subsidiary of Mitsubishi UFJ Trust and Banking Corporation, which is wholly owned by Mitsubishi UFJ Financial Group, Inc. As of December 31, 2018, the company had consolidated assets of GBP74 million.

List of affected ratings and inputs to ratings:

Mitsubishi UFJ Financial Group, Inc.

- Long-term Issuer Rating (domestic and foreign currency): affirmed at A1, outlook stable

- Short-term Issuer Rating (domestic and foreign currency): affirmed at Prime-1

- Senior Unsecured Medium Term Note Program (foreign currency): affirmed at (P)A1

- Senior Unsecured Shelf (foreign currency): affirmed at (P)A1

- Senior Unsecured Debt (foreign currency): affirmed at A1, outlook stable

- Subordinated Medium Term Note Program (foreign currency): affirmed at (P)A2

- Outlook remains at stable

MUFG Bank, Ltd.

- Baseline Credit Assessment (BCA): confirmed at a3

- Adjusted BCA: confirmed at a3

- Counterparty Risk Assessment: affirmed at A1(cr)/Prime-1(cr)

- Issuer Rating: affirmed at A1, outlook stable

- Long-term Deposit Rating (domestic and foreign currency): affirmed at A1, outlook stable

- Short-term Deposit Rating (domestic and foreign currency): affirmed at Prime-1

- Senior Unsecured Medium Term Note Program (foreign currency): affirmed at (P)A1

- Senior Unsecured Shelf (domestic currency): affirmed at (P)A1

- Senior Unsecured Debt (domestic and foreign currency): affirmed at A1, outlook stable

- Senior Subordinate Debt (domestic currency): affirmed at A2

- Outlook remains at stable

BTMU (Curacao) Holdings N.V.

- Backed Subordinate Debt (foreign currency): affirmed at A2

MUFG Bank, Ltd., Auckland Branch

- Long-term Deposit Note/CD Program (domestic currency): affirmed at (P)A1

- Long-term Deposit Note/CD (domestic currency): affirmed at A1, outlook stable

- Long-term Counterparty Risk Assessment: affirmed at A1(cr)

- Outlook remains stable

MUFG Bank, Ltd., Hong Kong Branch

- Long-term Deposit Note/CD Program (domestic and foreign currency): affirmed at (P)A1

- Counterparty Risk Assessment: affirmed at A1(cr)/Prime-1(cr)

- Outlook remains stable

MUFG Bank, Ltd., Los Angeles Branch

- Counterparty Risk Assessment: affirmed at A1(cr)/Prime-1(cr)

- Long-term Issuer Rating (domestic and foreign currency): affirmed at A1, outlook stable

- Short-term Issuer Rating (domestic and foreign currency): affirmed at Prime-1

- Long-term Deposit Rating (domestic and foreign currency): affirmed at A1, outlook stable

- Short-term Deposit Rating (domestic and foreign currency): affirmed at Prime-1

- Outlook remains stable

MUFG Bank, Ltd., New York Branch

- Counterparty Risk Assessment: affirmed at A1(cr)/Prime-1(cr)

- Long-term Issuer Rating (domestic and foreign currency): affirmed at A1, outlook stable

- Short-term Issuer Rating (domestic and foreign currency): affirmed at Prime-1

- Long-term Deposit Rating (domestic and foreign currency): affirmed at A1, outlook stable

- Short-term Deposit Rating (domestic and foreign currency): affirmed at Prime-1

- Commercial Paper (domestic currency): affirmed at Prime-1

- Outlook remains stable

MUFG Bank, Ltd., Singapore Branch

- Long-term Deposit Note/CD Program (foreign currency): affirmed at (P)A1

- Short-term Deposit Note/CD Program (foreign currency): affirmed at (P)Prime-1

- Counterparty Risk Assessment: affirmed at A1(cr)/Prime-1(cr)

- Outlook remains stable

MUFG Bank, Ltd., Sydney Branch

- Counterparty Risk Assessment: affirmed at A1(cr)/Prime-1(cr)

- Long-term Deposit Note/CD Program (domestic and foreign currency): affirmed at (P)A1

- Short-term Deposit Note/CD Program (domestic and foreign currency): affirmed at (P)Prime-1

- Long-term Deposit Note/CD (domestic currency): affirmed at A1, outlook stable

- Senior Unsecured Medium Term Note Program (domestic currency): affirmed at (P)A1

- Outlook remains stable

Mitsubishi UFJ Trust and Banking Corporation

- Baseline Credit Assessment (BCA): confirmed at a3

- Adjusted BCA: confirmed at a3

- Counterparty Risk Assessment: affirmed at A1(cr)/Prime-1(cr)

- Long-term Deposit Rating (domestic and foreign currency): affirmed at A1, outlook stable

- Short-term Deposit Rating (domestic and foreign currency): affirmed at Prime-1

- Senior Unsecured Debt (foreign currency): affirmed at A1, outlook stable

- Outlook remains at stable

Mitsubishi UFJ Trust & Bank Corp., Singapore

- Commercial Paper (foreign currency): affirmed at Prime-1

- Short-term Counterparty Risk Assessment: affirmed at Prime-1(cr)

Mitsubishi UFJ Trust & Bank Corp., NY Branch

- Commercial Paper (domestic currency): affirmed at Prime-1

- Short-term Counterparty Risk Assessment: affirmed at Prime-1(cr)

Mitsubishi UFJ Trust International Limited

- Long-term Issuer Rating (domestic and foreign currency): Affirmed at A1, outlook stable

- Outlook remains stable

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Shunsaku Sato
VP - Senior Credit Officer
Financial Institutions Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

Graeme Knowd
MD - Banking
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100

No Related Data.
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