Mitsubishi UFJ Financial Group, Inc.

Good evening, investors, shareholders, and rating agencies. I am Togawa, Group CFO. Thank you very much for joining MEFG's online conference call today, despite the late hour. Please look at the material titled Financial Highlights Under J-GAP for the first half of the fiscal year ending March 31, 2026. Let me first explain our Q2 financial results, followed by revised FY25 performance targets and shareholder return measures. Let me start from the income statement summary. Please turn to page 8. First, the figures for the first half of FY24 on the far left column of the table include the impact of the change in the equity method accounting date at Koon See in Thailand. So the far right column shows the actual year-over-year change, adjusting this impact. All explanations on this page will be based on adjusted year-on-year comparisons. Line 1, gross profits increased by 189.3 billion yen year-on-year. Line 2 and below shows the breakdown of gross profits. Net interest income increased thanks to the impact of rising yen interest rates, improving lending spreads, and benefits from last year's bond portfolio rebalancing. In addition... Net fees and commissions expanded significantly, primarily due to growth in various fee revenues from domestic and overseas solution services and effects of acquisitions. Next, line 6, G&A expenses, increased by 127.9 billion yen year-on-year due to the impact of inflation and acquisitions, as well as strategic expense allocation, mainly in retail and digital business group. Expense ratio was flat year-on-year at 56.1%. As a result, Line 8 net operating profits increased by 61.3 billion yen year-on-year. Next, Line 9 credit costs decreased by 65.7 billion yen year-on-year. I will explain the reasons for this later. Line 10, net gains and losses on equity securities decreased by 235.3 billion yen due to the gain on sale of large equity holdings last year, which is in line with our projection at the beginning of FY25. Line 12, equity in earnings of equity method of investees, increased significantly year on year, mainly due to the extremely strong performance of Morgan Stanley. As a result, line 16, profits attributable to owners of parent, was 1,292,900,000,000 yen. Although gain on sale of equity holdings decreased year on year, we were able to achieve steady growth in net operating profits and equity-accounted earnings, which demonstrate the strength of our core business, and also recorded one-time gains related to investments and organizational restructuring, resulting in a record-high first-half profit. Our progress toward initial four-year target of 2 trillion yen stands at a high level of 64.6%. Performance by business group is shown on pages 9 through 12. I will not go into detail, but customer segment NOP is growing steadily, with the exception of retail and digital, where strategic expenditures were made, and global commercial banking, which was affected by the economic slowdown in Asia. All business groups achieved an increase in net income. Please turn to page 14 on balance sheet summary. The diagram on the left shows the overview. Loans shown in the top left increased by approximately 1.8 trillion yen from the end of FY24, excluding government loans. It increased both in Japan and overseas by approximately 4 trillion yen. Page 15 shows the status of domestic loans. The graph on the bottom right shows the trend in domestic corporate lending spreads. Spreads for large corporates in red line is rising thanks to the accumulation of large, highly profitable loans. Along with SMEs in orange, profit improvement measures have been successful, and the upward trend is continuing. Next, page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. The Americas has settled somewhat as the replacement of low-profit assets with high-profit assets has run its course, but we continue to work on improving profitability in each region and maintain the gradual recovery trend. Meanwhile, GCIB has seen a significant increase in fee income as their O&D measures are progressing, and we are working to improve capital efficiency on both fronts. Please turn to page 17 on asset quality. The NPL ratio shown by the line graph on the left continues to remain at a low level. The bottom right graph shows the breakdown of year-on-year changes in total credit costs. While there was an increase in large loan loss provisions overseas last year on the bank non-consolidated basis, the sale was completed this fiscal year, resulting in a reversal. There were also multiple significant reversals in Japan, resulting in a significant decrease in credit costs. Credit costs also decreased at our overseas subsidiaries due to the effect of stricter screening criteria for new credit transactions in Asian partner banks. Taking the current situation into account, we kept our full year outlook for credit costs unchanged. Please turn to page 18 on investment securities including equities and government bonds. I will explain the unrealized gains and losses in the upper left table. Line 3, unrealized gains on domestic equity securities increased by 0.36 trillion yen compared to the end of March 2025 due to rising stock prices despite progress in reducing equity holdings. In addition, unrealized gains and losses on domestic bonds reflecting hedging positions, showing in the upper half of the lower left graph, is controlled at a low level of just under 0.3 trillion yen, and unrealized gains and losses on foreign bonds in the bottom half are slightly positive. Given the scale of our balance sheet and income statement, we think we are in an extremely healthy state with reasonable degree of flexibility. Regarding the reduction of equity holdings on the right, the cumulative sales during the current MTBP were 339 billion yen on an acquisition cost basis, which is about half of the 700 billion yen target. The agreed amount has reached nearly 80% of the target, and we are making steady progress toward achieving this target.

Page 20 shows capital adequacy. The set-one ratio excluding unrealized gains on the finalized and fully implemented Basel III basis fell 30 basis points from the end of March to 10.5% at the upper end of our target range due to growth investments and increase in loans, as well as yen appreciation versus end of March. Towards the end of the fiscal year, we expect risk-weighted asset to continue to accumulate and the yen to appreciate based on the financial indicators that will come back later. Therefore, we expect the ratio to remain around the midpoint of the target range. Capital allocation results are shown on the lower right. We will continue to manage capital with an eye on balancing shareholder returns and growth investments. Please go back to page 3. Let me turn to our FY25 financial targets and shareholder returns. As shown on the left, given the continued strong performance of NLP, particularly in the customer segment, and increased income from equity method investee, we revised up our net income target by 100 billion yen from initial target to 2.1 trillion yen. turning to shareholder returns on the right. We continue to aim for a dividend payout ratio of approximately 40%, and in line with the upward revision of profit target, our annual dividend forecast for FY25 was revised up to ¥74, up ¥10 from the previous year, and ¥4 from initial forecast. Regarding share repurchase, a resolution was approved today to acquire an additional 250 billion yen in the second half of the year, bringing the total amount for the full year to 500 billion yen. As discussed in May, this is due to take into account total shareholder return over the past few years. We also announced today the cancellation of 200 million treasury shares. We aim to achieve our mid- to long-term ROI target and will work to provide shareholder returns while taking the optimal balance with growth investments into account. Turning to progress of three pillars of MTBP, please turn to page 4. First pillar is expand and refine growth strategies, as shown on the left. Each of the seven strategies for season growth is on track, resulting in an increase in NOP of approximately 150 billion yen compared to FY23. In particular, in the domestic retail business, a new service brand, Emutto, was announced in June this year. The credit card reward programs and group-wide campaigns launched in conjunction with Emutto generated strong response, leading to increased transactions for each group company. We will continue to demonstrate the collective strength of the group and aim to expand our services, including digital banking. Please turn to page 5. Second pillar, social and environmental progress, is shown on the left. Sustainable finance has steadily built up a track record, even with different vectors at play globally. A white paper will be published again this year to communicate our view on contributing to accelerating transition. On the right is our third pillar, transformation and innovation. Under the current midterm plan to maximize MUFG's potential, we are working as a group to pursue new business initiatives, invest in human capital, and strengthen our foundations in areas such as AI and data, in addition to continuing cultural reform. Corporate transformation using AI is a particular urgent priority, and by combining this with agile management, we are working to transform into an AI-native company. The number of AI use cases has reached 116, and the aim is to increase to over 250 cases by FY26. Current estimates suggest that the cumulative benefits over the three years of the current MTBP is approximately 30 billion yen. The launch of a new strategic partnership with OpenAI is expected to accelerate use of AI across the company and to collaborate on various services primarily in the retail sector such as digital banking. Moving on to page 6, let me take you through our path to achieving mid- to long-term ROI target of 12%, which has been a popular question since our announcement in May. We assume that the policy rate will rise to around 1%, while the sale of equity holdings will come to an end and capital gains will cease. After solidifying the goals of the growth strategy of the current MTBP, as explained on page 4, We will pursue both organic growth by refining existing areas, both domestically and overseas, and inorganic growth by focusing on the areas described in the slide, thereby making steady progress towards an ROE of 12%. Mr. Kamizawa will share his thoughts on this point at the investor meeting on the 18th. Page 7, my last slide. Last month in October, we celebrated our 20th anniversary as MEFG. Looking back over the past 20 years, thanks to the understanding and support of our stakeholders, including our investors, we have taken on many challenges, gone through three major transitions, and and achieved growth, sometimes despite headwinds. MEFG will continue to push ourselves forward and, guided by our purpose of committed to empowering a brighter future, we will aim to further increase our corporate value even in a rapidly changing external environment. Your continued understanding and support is very much appreciated. That is all for me.

We will now take questions. Let me introduce the first questioner, Mr. Takamiya of Nomura Securities. Please go ahead. This is Takamiya from Nomura Securities. I have two questions on the upward revision of your guidance and the 12% ROE target. I would like to hear your thoughts on the upward revision from two perspectives. First, I wonder if the assumptions are too conservative, considering the concurrent levels of the Nikkei stock average and the dollar-yen exchange rate. Second, the revision of 100 billion yen from 2 trillion to 2.1 trillion yen is not small, but it is a somewhat small revision to your bottom line profit. What was the aim and your thoughts on this small revision? This is my question on your guidance. My second question is on your ROE target. On page 6, you explained verbally the general direction you are heading, including assumptions like interest rate of around 1% and no gain on sale from reducing your equity holdings, but I think this is the first time you have clarified this in writing. Regarding the mid- to long-term ROE target of 12%, I want to know if there were any changes in your thinking and the management's perspective regarding reflecting the changes in the environment or tailwinds. Thank you. Thank you, Takamiya-san. Regarding the upward revision, our initial guidance was 2 trillion yen based on the assumption that the decrease in net gains and losses on equity securities and the absence of reversal of large loan loss provisions will be offset by continued growth in customer segment NOP, improvement in treasury interest income benefiting from last year's bond portfolio rebalance, and a rebound from the loss due to bond portfolio rebalance in FY24. Decrease in gains and losses on equity securities, absence of reversal of large loan loss provisions, Treasury interest income improvement, and rebound from last year's bond portfolio rebalance are in line with our initial forecast. Meanwhile, progress in the first half exceeded expectations thanks to better-than-planned customer segment NOP, lower credit costs, upside in Morgan Stanley equity-accounted earnings, and one-time gains not factored in our initial forecast. I will explain our assumptions for the second half later, but we forecast strong yen toward the end of the fiscal year, slower Treasury sales in the second half, as trading gains were weighted to the first half, credit costs in line with our initial forecast, though the full year will depend on the impact of tariffs, and an increase in strategic expense allocation, including retail, and also included certain financial measures for FY26, resulting in a guidance of 2.1 trillion yen. There was internal discussion about whether 5% revision was really necessary, but we decided to do so with the aim of disclosing our forecasts appropriately at each point in time since the first half of last year. We may not have done this in the past, but that is our line of thinking. Regarding the assumptions, the yen assumption against the dollar is quite strong given the current level. But depending on interest rate trends, it is not unreasonable for the yen to be in the mid-140s by the end of the fiscal year. The share price of around 43,000 yen may also seem conservative, but the impact of share prices on our earnings is not significant, so this was not the reason for the conservative profit target. As for future upside, we expect further growth in the customer segment. and decline in credit costs, which is again subject to tariffs, and also an upside in FX that you mentioned. whether there has been a change in our view on the 12% target. We originally began the discussions to set the 12% target by trying to see how much we can increase our profit under the assumptions that Japan's policy interest rate will be around 1% and that we have no gain on sale of equity holdings, which I strongly insisted. Since investors asked questions based on different assumptions, such as including gain on sale of equity holdings, we made that clear. We are fleshing out the details to achieve this as we speak. One change in our thinking, both in terms of inorganic investment and the use of capital, as I may have mentioned before, is that we are now discussing potential investments internally based on whether or not they contribute to achieving 12% ROE. That is all for me. Thank you very much. Thank you. Next, Mr. Nakamura of B of A Securities, please. This is Nakamura from B of A Securities. Thank you for the explanation. I also have two questions. First, let me confirm the full year set one ratio forecast on page 20 again. It doesn't seem like it will approach the middle of the range, so if you could share with us your view on the level and the breakdown to the extent possible. There was an article in Bloomberg about your inorganic investments, and you denied that the information came from you. Could you elaborate on this, if possible? Sorry for asking too much. That is my first question. My second question is on credit costs. In the first half, there was a reversal on the bank non-consolidated basis. So if you achieve your target in the second half, this is a reasonable level. So my question is on the current situation of private credit in the U.S. Although MUFG has not directly mentioned it, we are seeing large-scale loans to Oracle's data center investment, among others, which is widening credit spreads as a result. What are your thoughts on this increasing concentration of risk? Thank you. Thank you. First, regarding the outlook for Set 1 ratio toward the end of FY25, the end of March 26, approximately 80 basis points up in the second half from the accumulation of net income based on the revised performance targets. 65 basis points down due to shareholder returns, including dividends and share buybacks, as I explained earlier, around 30 basis points down from the planned increase in risk assets, and with Morgan Stanley's accumulated profit from its extremely strong performance, etc., We expect the ratio to be somewhere between 10 and 10.5%. Regarding the private credit market, MEFG actually does not have a significant exposure. We have some exposure to companies that have been mentioned in the media, but as you saw earlier, our NPL ratio is declining, so I do not think we have a significant exposure. That said, the private credit market is extremely strong now, so we need to keep a close eye on the recent increase in volatility. I think the risk of lending to data centers depends on the project. We have extensive knowledge on project finance. So it is important to carefully select projects, taking into account factors like sources of cash flow and technical conditions such as proper installation of high-voltage cables. Regarding the first question on inorganic investment, oh, sorry, I skipped that, but actually I have no comment. We continue to consider opportunities in three areas, namely AMIS, digital, and U.S. Asia. I understand. Thank you.