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25 Sep 2008
Moody's revises BTMU outlook to negative
Tokyo, September 25, 2008 -- Moody's Investors Service revised its outlooks from stable to negative
for the C bank financial strength ratings, the A3 baseline credit
assessments, the Aa2 long-term deposit ratings, and
the all long-term credit ratings (including ratings assigned to
preferred securities issued by subsidiaries of Mitsubishi UFJ Financial
Group Inc.) of The Bank of Tokyo-Mitsubishi UFJ, Ltd.
(BTMU) and Mitsubishi UFJ Trust and Banking Corporation (MUTB),
and for the all long-term ratings of other subsidiaries,
including those supported by a keep-well letter (Mitsubishi UFJ
Securities Co., Ltd. and Mitsubishi UFJ Securities
International plc) or guarantee from BTMU, and MUTB. Prime-1
short-term ratings of BTMU, MUTB and other supported subsidiaries
This action is in response to Mitsubishi UFJ Financial Group Inc's (MUFG)
announcement that it had entered a non-binding agreement with Morgan
Stanley (MS, rated A1) under which MUFG would acquire 10-20%
of MS's outstanding common stock, on a fully diluted basis.
In line with this capital injection, MUFG also formed a global strategic
alliance with MS.
The revised rating outlook reflects Moody's view that such a significant
investment (approximately JPY 900 billion) in an institution facing serious
challenges could negatively affect BTMU's financial profile, in
light of the ongoing deterioration in the US financial system.
The amount is roughly equal to a year and a half's projected earnings
for MUFG and more than 10% of its Tier I capital.
In Moody's view, this investment is likely to become MUFG's
largest corporate concentration exposure. Further potential downside
risk in the US financial system, as well as the current state of
international capital markets (which have made current access to Tier
I capital very difficult for any global financial institutions),
are other sources of concern.
Although BTMU has extremely strong liquidity -- it has the strongest
capital profile of the Japanese megabanks -- enabling it to make
such a large investment, MUFG's consolidated Tier I of 7.33%
as of June 30, 2008, will likely decline slightly as a result
of its recent investment initiatives in Japan and US. In Moody's
view, however, 7% Tier I capital is not necessarily
sufficient relative to MUFG's diverse and growing risk. As
no capital initiative is not taken at this moment, this would lead
to substantial increase of double leverage at MUFG.
Nevertheless, affirmation of all the ratings reflects Moody's view
that MUFG has the financial profiles, capital flexibility,
and earnings power to manage such capital pressures for the moment.
The C BFSRs for BTMU and MUTB is supported by their diversified domestic
businesses, which have produced a stable stream of earnings in Japan's
stable domestic environment. Such an earnings base and a declining
but still substantial financial cushion (approximately JPY 1.1
trillion unrealised gains) in its investment securities portfolio should
allow BTMU and MUTB to absorb the negative impact from such investments.
Downward triggers include situations such as 1) a large mark-down
of MUFG's investment in MS, 2) significant inflation of unrealised
losses (approximately JPY 300 billion) in its non-Japan securitisation
portfolio, 3) further deterioration of the Japanese equity market,
leading to a declining ability to absorb the risks associated with its
overseas investments such as investment into MS, and 4) an unexpected
rise in credit expenses from its domestic loan portfolio.
The rating outlooks may return to stable when MUFG's earnings results
are in line with current projections, with an improved prospect
of the stabilization of US financial markets, and recovery in its
Mitsubishi UFJ Financial Group, Inc. is the largest financial
group in Japan, with total consolidated assets of JPY 193 trillion.
Senior Vice President - Regional Credit Officer
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
VP - Senior Credit Officer
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
No Related Data.
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