UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 under

the Securities Exchange Act of 1934

For the month of November 2019

Commission File No. 000-54189

 

 

MITSUBISHI UFJ FINANCIAL GROUP, INC.

(Translation of registrant’s name into English)

 

 

7-1, Marunouchi 2-chome, Chiyoda-ku

Tokyo 100-8330, Japan

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or

will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F      X        Form 40-F                  

Indicate by check mark if the registrant is submitting the Form 6-K

in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K

in paper as permitted by Regulation S-T Rule 101(b)(7):

 

 

 

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT ON FORM F-3 (NO. 333-229697) OF MITSUBISHI UFJ FINANCIAL GROUP, INC. AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED TO THE U.S. SECURITIES AND EXCHANGE COMMISSION TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED WITH OR FURNISHED TO THE U.S. SECURITIES AND EXCHANGE COMMISSION.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 29, 2019

 

English Translation of Excerpts from Quarterly Securities Report Filed in Japan

This document is an English translation of selected information included in the Quarterly Securities Report for the quarter ended September 30, 2019 filed by Mitsubishi UFJ Financial Group, Inc. (“MUFG” or “we”) with the Kanto Local Financial Bureau, the Ministry of Finance of Japan, on November 29, 2019 (the “Quarterly Securities Report”). An English translation of certain information included in the Quarterly Securities Report was previously submitted in a report on Form 6-K dated November 13, 2019. Accordingly, this document should be read together with the previously submitted report.

The Quarterly Securities Report has been prepared and filed in Japan in accordance with applicable Japanese disclosure requirements as well as generally accepted accounting principles in Japan (“J-GAAP”). There are significant differences between J-GAAP and generally accepted accounting principles in the United States. In addition, the Quarterly Securities Report is intended to update prior disclosures filed by MUFG in Japan and discusses selected recent developments in the context of those prior disclosures. Accordingly, the Quarterly Securities Report may not contain all of the information that is important to you. For a more complete discussion of the background to information provided in the Quarterly Securities Report disclosure, please see our annual report on Form 20-F for the fiscal year ended March 31, 2019 and the other reports filed with or submitted to the U.S. Securities and Exchange Commission by MUFG.

 

1

Additional Japanese GAAP Financial Information for the Six Months Ended September 30, 2019

Consolidated Statements of Cash Flows

 

		(in millions of yen)
		For the six months ended September 30, 2018				For the six months ended September 30, 2019
Cash flows from operating activities:
Profits before income taxes			868,761				786,104
Depreciation and amortization			155,871				159,485
Impairment losses			8,507				16,609
Amortization of goodwill			8,595				11,596
Equity in losses (gains) of equity method investees			(163,778	)			(149,612	)
Increase (decrease) in allowance for credit losses			(110,467	)			(52,322	)
Increase (decrease) in reserve for bonuses			(19,378	)			(14,000	)
Increase (decrease) in reserve for bonuses to directors			(266	)			(685	)
Increase (decrease) in reserve for stock payment			(1,485	)			(457	)
Decrease (increase) in net defined benefit assets			(60,214	)			(45,006	)
Increase (decrease) in net defined benefit liabilities			271				1,479
Increase (decrease) in reserve for retirement benefits to directors			(176	)			(106	)
Increase (decrease) in reserve for loyalty award credits			1,273				1,378
Increase (decrease) in reserve for contingent losses			(87,782	)			(76,902	)
Interest income recognized on statement of income			(1,805,570	)			(1,961,292	)
Interest expenses recognized on statement of income			835,371				1,027,255
Losses (gains) on securities			(82,017	)			(224,228	)
Losses (gains) on money held in trust			4,873				7,638
Foreign exchange losses (gains)			(1,012,255	)			900,192
Losses (gains) on sales of fixed assets			(6,379	)			356
Net decrease (increase) in trading assets			(1,436,867	)			(2,679,068	)
Net increase (decrease) in trading liabilities			255,087				2,056,216
Adjustment of unsettled trading accounts			1,370,991				(521,756	)
Net decrease (increase) in loans and bills discounted			(990,046	)			1,879,877
Net increase (decrease) in deposits			(813,018	)			(64,837	)
Net increase (decrease) in negotiable certificates of deposit			(1,989,384	)			(692,412	)
Net increase (decrease) in borrowed money (excluding subordinated borrowings)			18,417				(1,255,869	)
Net decrease (increase) in call loans and bills bought and others			(6,088,211	)			(4,952,846	)
Net decrease (increase) in receivables under securities borrowing transactions			6,107,388				(191,323	)
Net increase (decrease) in call money and bills sold and others			7,625,302				1,453,568
Net increase (decrease) in commercial papers			359,197				661,068
Net increase (decrease) in payables under securities lending transactions			(6,219,684	)			228,946
Net decrease (increase) in foreign exchanges (assets)			277,871				226,854
Net increase (decrease) in foreign exchanges (liabilities)			304,235				(231,184	)
Net increase (decrease) in short-term bonds payable			(117,799	)			(108,000	)
Net increase (decrease) in issuance and redemption of unsubordinated bonds payable			1,068,580				486,482
Net increase (decrease) in due to trust accounts			(287,749	)			(412,163	)
Interest income (cash basis)			1,815,593				2,025,870
Interest expenses (cash basis)			(809,948	)			(1,013,263	)
Others			(534,928	)			26,930
Sub-total			(1,551,220	)			(2,689,427	)
Income taxes			(239,967	)			(133,375	)
Refund of income taxes			25,960				68,654
Net cash provided by (used in) operating activities			(1,765,228	)			(2,754,148	)

 

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		(in millions of yen)
		For the six months ended September 30, 2018				For the six months ended September 30, 2019
Cash flows from investing activities:
Purchases of securities			(28,604,915	)			(40,327,763	)
Proceeds from sales of securities			17,405,834				31,976,817
Proceeds from redemption of securities			12,372,064				10,856,633
Payments for increase in money held in trust			(347,763	)			(267,954	)
Proceeds from decrease in money held in trust			329,346				243,000
Purchases of tangible fixed assets			(76,788	)			(47,462	)
Purchases of intangible fixed assets			(137,303	)			(161,795	)
Proceeds from sales of tangible fixed assets			15,362				25,715
Proceeds from sales of intangible fixed assets			0				790
Payments for acquisition of businesses			—				(4,311	)
Payments for acquisition of subsidiaries’ equity affecting the scope of consolidation			(1,106	)			(493,399	)
Proceeds from sales of subsidiaries’ equity affecting the scope of consolidation			—				28,096
Others			(411	)			(611	)
Net cash provided by (used in) investing activities			954,320				1,827,754
Cash flows from financing activities:
Proceeds from subordinated borrowings			10,000				145,324
Repayments of subordinated borrowings			(24,315	)			(79,084	)
Proceeds from issuance of subordinated bonds payable and bonds with warrants			138,400				265,722
Payments for redemption of subordinated bonds payable and bonds with warrants			(2,606	)			(10,824	)
Proceeds from issuance of common stock to non-controlling shareholders			358				2,503
Payments for redemption of preferred securities			—				(90,000	)
Dividends paid by MUFG			(131,954	)			(142,544	)
Dividends paid by subsidiaries to non-controlling shareholders			(26,252	)			(30,899	)
Purchases of treasury stock			(59,639	)			(10	)
Proceeds from sales of treasury stock			4,088				2,233
Payments for purchases of subsidiaries’ equity not affecting the scope of consolidation			(38	)			(6,494	)
Proceeds from sales of subsidiaries’ equity not affecting the scope of consolidation			—				11,758
Net cash provided by (used in) financing activities			(91,960	)			67,685
Effect of foreign exchange rate changes on cash and cash equivalents			202,911				(358,967	)
Net increase (decrease) in cash and cash equivalents			(699,956	)			(1,217,676	)
Cash and cash equivalents at the beginning of the period			74,713,689				74,206,895
Cash and cash equivalents at the end of the period			74,013,732				72,989,219

 

3

Additional Japanese GAAP Financial Information for the Six Months Ended September 30, 2019

 

1.	Significant Accounting Policies Applied to the Semi-Annual Consolidated Financial Statements

 

I.

Scope of consolidation

 

(1)

Number of consolidated subsidiaries: 248

Principal companies:

MUFG Bank, Ltd.

Mitsubishi UFJ Trust and Banking Corporation

Mitsubishi UFJ Securities Holdings Co., Ltd.

Mitsubishi UFJ NICOS Co., Ltd.

ACOM CO., LTD.

 

(a)

Changes in the scope of consolidation in the six months ended September 30, 2019

PT Bank Danamon Indonesia, Tbk. and 38 other companies were newly included in the scope of consolidation due to the transfer from the scope of application of the equity method or other reasons. In addition, MUFG Capital Finance 7 Limited and 12 other companies were excluded from the scope of consolidation due to liquidation or other reasons.

 

(2)

Non-consolidated subsidiaries: None

 

(3)

Entities not regarded as subsidiaries even though Mitsubishi UFJ Financial Group, Inc. (“MUFG”) owns the majority of voting rights:

Hygeia Co., Ltd.

A&M Drug Development, LLC

OiDE RYO-UN Co, Inc.

OiDE BetaRevive, Inc.

 

(a)

Reasons for excluding from the scope of consolidation

These entities were not treated as subsidiaries because they were established as property management agents for land trust projects without any intent to control, or because MUFG’s consolidated venture capital subsidiaries owned the majority of voting rights primarily to benefit from the appreciation of their investments resulting from growth of the investees’ businesses without any intent to control.

 

II.

Application of the equity method

 

(1)

Number of non-consolidated subsidiaries accounted for under the equity method: None

 

(2)

Number of equity method affiliates: 54

Principal companies:

Mitsubishi UFJ Lease & Finance Company Limited

Morgan Stanley

 

(a)

Changes in the scope of application of the equity method in the six months ended September 30, 2019

PT Bank Danamon Indonesia, Tbk. was excluded from the scope of application of the equity method due to the transfer to the scope of consolidation.

 

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(3)

Number of non-consolidated subsidiaries not accounted for under the equity method: None

 

(4)

Number of affiliates not accounted for under the equity method: None

 

(5)

Entities not regarded as affiliates in which MUFG owns 20% to 50% of their voting rights:

Hirosaki Co., Ltd.

ISLE Co., Ltd.

AKITAYA Co., Ltd.

Sanriku Resort Co., LTD

Fun Place Co., Ltd.

Shonai Paradiso Co., LTD

Kamui Pharma Co., Ltd.

GEXVal Inc.

 

(a)

Reasons for excluding from the scope of affiliates

These entities were not regarded as affiliates because MUFG’s consolidated venture capital subsidiaries owned 20% to 50% of voting rights primarily to benefit from the appreciation of their investments resulting from growth or restructuring of the investees’ businesses without any intent to control.

 

III.

Semi-annual balance sheet dates of consolidated subsidiaries

 

(1)

The semi-annual balance sheet dates of consolidated subsidiaries were as follows:

 

January 24:		2		subsidiaries
The end of February:		1		subsidiary
The end of June:		134		subsidiaries
July 24:		2		subsidiaries
The end of September:		80		subsidiaries
The end of December:		29		subsidiaries

 

(2)

The subsidiaries whose balance sheet date is January 24 were consolidated based on their preliminary financial statements as of July 24.

The subsidiary whose balance sheet date is the end of February was consolidated based on its preliminary financial statements as of the end of August.

The subsidiaries whose balance sheet date is the end of December were consolidated based on their preliminary financial statements as of August 2, 2019.

The remaining subsidiaries were consolidated based on their financial statements as of their respective balance sheet dates.

Adjustments were made to the consolidated financial statements to reflect any significant transactions that occurred between the balance sheet dates of the subsidiaries and the consolidated balance sheet date.

 

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IV.

Accounting policies

 

(1)

Trading assets and Trading liabilities; Trading income and expenses

Transactions involving short-term fluctuations or arbitrage opportunities in interest rates, currency exchange rates, market prices of financial instruments or other market indices (“trading purposes”) are presented in “Trading assets” and “Trading liabilities” on the consolidated balance sheet on a trade-date basis, and gains and losses from trading transactions (interest and dividends, gains or losses on sales and gains or losses on valuation) are presented in “Trading income” and “Trading expenses” on the consolidated statement of income.

Trading assets and trading liabilities are stated at fair value on the consolidated balance sheet date.

 

(2)

Securities

 

(a)

Debt securities being held to maturity are stated at amortized cost (using the straight-line method) computed using the moving-average method. Available-for-sale securities are primarily stated at their quoted market prices on the consolidated balance sheet date (cost of securities sold is calculated primarily using the moving-average method), and available-for-sale securities whose fair value cannot be reliably determined are stated at acquisition costs computed using the moving-average method.

Net unrealized gains (losses) on available-for-sale securities are included directly in net assets, net of applicable income taxes, except in the case of application of the fair value hedge accounting method, in which the change in fair value recognized is recorded in current earnings.

 

(b)

Securities included in trust assets in money held in trust are accounted for on the same basis as noted above in Notes (1) and (2)(a).

Net unrealized gains (losses) on securities in money held in trust, which are not held for trading purposes or held to maturity, are included directly in net assets, net of applicable income taxes.

 

(3)

Derivatives

Derivative transactions (excluding those for trading purposes) are calculated primarily at fair value.

 

(4)

Depreciation and amortization of fixed assets

 

(a)

Tangible fixed assets (except for lease assets)

Depreciation of tangible fixed assets of MUFG and its domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries is computed using the declining-balance method, and is recorded based on the semi-annual period allocation of the estimated depreciation amount for the full year computed using the declining-balance method over the estimated useful lives of the assets. The useful lives are primarily estimated as follows:

Buildings: 15 to 50 years

Equipment: 2 to 20 years

Depreciation of tangible fixed assets of other consolidated subsidiaries is computed primarily using the straight-line method based on their estimated useful lives and other factors.

 

(b)

Intangible fixed assets (except for lease assets)

Amortization of intangible fixed assets is computed using the straight-line method.

Development costs for internally used software are amortized using the straight-line method over the estimated useful lives of primarily 3 to 10 years.

 

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(c)

Lease assets

Depreciation or amortization of lease assets in “Tangible fixed assets” or “Intangible fixed assets” under finance leases other than those that are deemed to transfer the ownership of leased property to the lessees is computed using the straight-line method over the lease periods with zero residual value unless residual value is guaranteed by the corresponding lease contracts, in which case the residual value equals the guaranteed amount.

 

(5)

Deferred assets

Bond issuance costs and stock issuance costs are expensed as incurred.

 

(6)

Allowance for credit losses

Principal domestic consolidated subsidiaries determine the amount of allowance for credit losses in accordance with the internal standards for self-assessment of asset quality and the internal standards for write-offs and provisions.

For claims on borrowers that have entered into bankruptcy, special liquidation proceedings or similar legal proceedings or whose notes have been dishonored and suspended from processing through clearing houses (“bankrupt borrowers”) or borrowers that are not legally or formally bankrupt but are regarded as substantially in similar condition (“virtually bankrupt borrowers”), allowances are provided based on the amount of claims, after the write-offs as stated below, net of expected amounts to be collected through the disposal of collateral and the execution of guarantees.

For claims on borrowers that are not yet legally or formally bankrupt but deemed to have a high possibility of becoming bankrupt (“likely to become bankrupt borrowers”), where the amounts of principal repayments and interest payments cannot be reasonably estimated from the borrowers’ cash flows, allowances are provided based on an overall solvency assessment of the claims, net of expected amounts to be collected through the disposal of collateral and the execution of guarantees.

For claims on likely to become bankrupt borrowers and claims on borrowers requiring close monitoring, where the amounts of principal repayments and interest payments can be reasonably estimated from the borrowers’ cash flows, allowances are provided in an amount equal to the difference between the book value of the claims and the relevant cash flows discounted by the initial contractual interest rates.

For other claims, allowances are provided based on historical credit loss experience.

For claims originated in certain foreign countries, additional allowances are provided based on an assessment of political and economic conditions of these countries.

All claims are assessed by the relevant branches and credit supervision departments in accordance with the internal standards for self-assessment of asset quality. The credit review department, which is independent from those operating sections, subsequently audits these assessments.

For claims on bankrupt borrowers and virtually bankrupt borrowers, the amount of claims exceeding the estimated value of collateral or guarantees, which is deemed uncollectible, is written off. The total amount of write-offs was ¥304,428 million as of September 30, 2019 (¥332,364 million as of March 31, 2019).

Consolidated subsidiaries not adopting the procedures stated above provide for allowances based on their historical credit loss experience for collectively assessed claims and based on individual assessments of the possibility of collection for specific deteriorated claims.

 

(7)

Reserve for bonuses

Reserve for bonuses, which is provided for future bonus payments to employees, is recorded in the amount deemed to have accrued based on the estimated amount of bonuses as of the consolidated balance sheet date.

 

(8)

Reserve for bonuses to directors

Reserve for bonuses to directors, which is provided for future bonus payments to directors, is recorded in the amount deemed to have accrued based on the estimated amount of bonuses as of the consolidated balance sheet date.

 

7

(9)

Reserve for stocks payment

Reserve for stocks payment, which is provided for future payments of compensation under the stock compensation plan for directors and officers of MUFG and certain domestic consolidated subsidiaries, is recorded in the amount deemed to have accrued based on the estimated amount of compensation as of the consolidated balance sheet date.

 

(10)

Reserve for retirement benefits to directors

Reserve for retirement benefits to directors, which is provided for future payments of retirement benefits to directors of consolidated subsidiaries, is recorded in the amount deemed to have accrued based on the estimated amount of benefits as of the consolidated balance sheet date.

 

(11)

Reserve for loyalty award credits

Reserve for loyalty award credits, which is provided for the future redemption of points awarded to customers through Super IC Cards, etc., is calculated by rationally estimating an amount that will be redeemed in the future based on the monetary amount converted from the awarded but unused points, and is recorded in the appropriate amount as a reserve.

 

(12)

Reserve for contingent losses

Reserve for contingent losses, which is provided for possible losses from contingent events related to off-balance sheet transactions and various litigation and regulatory matters, is calculated by estimating the impact of such contingent events. This reserve also includes future claims for repayment of excess interest payments on consumer loans that are estimated based on the past repayments, the pending claims and other factors.

 

(13)

Reserves under special laws

Reserves under special laws represent the reserves for contingent liabilities from derivative financial instruments transactions executed for clients, which are recorded in accordance with Article 46-5-1 of the Financial Instruments and Exchange Law and Article 175 of the Cabinet Office Ordinance on Financial Instruments Business.

 

(14)

Retirement benefits

In calculating benefit obligation, the portion of projected benefit obligation attributed to the six-month period ended September 30, 2019 is determined using the benefit formula basis.

Prior service cost is amortized using the straight-line method over a fixed period, primarily over 10 years, within the employees’ average remaining service period.

Net actuarial gains (losses) are amortized using the straight-line method over a fixed period, primarily over 10 years, within the employees’ average remaining service period, primarily beginning in the subsequent fiscal year after such gains (losses) are recognized.

For certain overseas branches of domestic consolidated subsidiaries and some of consolidated subsidiaries, net defined benefit liability and retirement benefit expenses are calculated using the simplified method.

 

(15)

Translation of assets and liabilities denominated in foreign currencies

Assets and liabilities denominated in foreign currencies or booked at overseas branches of domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries are translated into yen primarily at exchange rates prevailing at the consolidated balance sheet date, except for investments in non-consolidated affiliates which are translated into yen at exchange rates prevailing at the acquisition dates.

Assets and liabilities denominated in foreign currencies of other consolidated subsidiaries are translated into yen at exchange rates prevailing at the respective balance sheet date.

 

8

(16)

Leasing transactions

(As Lessees)

Domestic consolidated subsidiaries’ finance leases other than those that are deemed to transfer the ownership of leased property to the lessees are accounted for in a similar way to purchases, and depreciation of lease assets is computed using the straight-line method over the lease term with zero residual value unless residual value is guaranteed by the corresponding lease contracts, in which case the residual value equals the guaranteed amount.

(As Lessors)

Finance leases other than those that are deemed to transfer the ownership of leased property to the lessees are accounted for in a similar way to sales and income and expenses related to such leases are recognized by allocating interest equivalents to applicable fiscal periods instead of recording sales as “Other ordinary income.”

 

(17)

Hedge accounting

 

(a)

Hedge accounting for interest rate risks

Domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries have adopted the deferred hedge accounting method for hedging transactions to hedge interest rate risks arising from financial assets and liabilities. Portfolio hedging or individual hedging, as described in the Japanese Institute of Certified Public Accountants (“JICPA”) Industry Audit Committee Report No. 24, “Treatment of Accounting and Auditing of Application of Accounting Standard for Financial Instruments in Banking Industry” (February 13, 2002) and JICPA Accounting Committee Report No. 14, “Practical Guidelines for Accounting for Financial Instruments” (January 31, 2000), are primarily applied to determine hedged items.

With respect to hedging transactions to offset fluctuations in the fair value of fixed rate deposits, loans and other instruments, hedging instruments (e.g., interest rate swaps) are designated to hedged items individually or collectively by their maturities in accordance with JICPA Industry Audit Committee Report No. 24. With respect to hedging transactions to offset fluctuations in the fair value of fixed rate bonds classified as available-for-sale securities, hedging instruments (e.g., interest rate swaps) are designated to hedged items collectively by the type of bond. Since material terms related to hedged items and hedging instruments are substantially identical, and such hedging transactions are deemed highly effective, the assessment of effectiveness is based on the similarity of the terms.

With respect to hedging transactions to fix the cash flows of forecasted transactions related to floating rate deposits, loans and other instruments as well as forecasted transactions related to short-term fixed rate deposits, loans and other instruments, hedging instruments (e.g., interest rate swaps) are designated to hedged items collectively by interest rate indices and tenors in accordance with JICPA Industry Audit Committee Report No. 24. Since material terms related to hedged items and hedging instruments are substantially identical, and such hedging transactions are deemed highly effective, the assessment of effectiveness is based on the similarity of the terms. The effectiveness of hedging transactions is also assessed by the correlation between factors that cause fluctuations in interest rates of hedged items and those of hedging instruments.

 

(b)

Hedge accounting for foreign currency risks

Domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries have adopted the deferred hedge accounting method for hedging foreign currency risks arising from financial assets and liabilities denominated in foreign currencies. Portfolio hedging is applied to determine hedged items as described in JICPA Industry Audit Committee Report No. 25, “Treatment of Accounting and Auditing concerning Accounting for Foreign Currency Transactions in the Banking Industry” (July 29, 2002). Hedging instruments (e.g., currency swaps and forward exchange contracts) are designated to hedged items collectively by currencies.

Portfolio hedging and individual hedging are applied to hedge foreign currency risks arising from equity investments in foreign subsidiaries and foreign affiliates and from available-for-sale securities (other than bonds) denominated in foreign currencies. Monetary claims and liabilities denominated in the same foreign currencies or forward exchange contracts are used as hedging instruments. As for the hedge accounting method applied to equity investments in foreign subsidiaries and foreign affiliates, foreign currency translation differences arising from hedging instruments are recorded as foreign currency translation adjustments. The fair value hedge accounting method is applied to available-for-sale securities (other than bonds) denominated in foreign currencies.

 

9

(c)

Hedge accounting for stock price fluctuation risks

Individual hedging is applied to hedge market fluctuation risks arising from strategic equity securities held by domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries. Instruments such as total return swaps are used as hedging instruments. The effectiveness of hedging transactions is assessed by the correlation between changes in fair value of hedged items and changes in fair value of hedging instruments. The fair value hedge accounting method is applied.

 

(d)

Transactions among consolidated subsidiaries

Derivative transactions including interest rate swaps and currency swaps which are designated as hedging instruments among consolidated subsidiaries or between trading accounts and other accounts (or among internal sections) are not eliminated from the consolidated statements of income or valuation difference, but are recognized as related gains or losses or deferred under hedge accounting because these derivative transactions meet certain criteria under JICPA Industry Audit Committee Reports No. 24 and No. 25 and are regarded as equivalent to external third-party cover transactions.

 

(18)

Cash and cash equivalents in the consolidated statements of cash flows

Cash and cash equivalents in the consolidated statements of cash flows are defined as “Cash and due from banks” on the consolidated balance sheet.

 

(19)

Consumption taxes

National and local consumption taxes are excluded from transaction amounts of MUFG and its domestic consolidated subsidiaries. Non-deductible portions of consumption taxes on the purchases of tangible fixed assets are expensed when incurred.

 

(20)

Adoption of consolidated taxation system

MUFG and some of its domestic consolidated subsidiaries have adopted the consolidated taxation system.

 

(21)

Accounting of bills discounted and rediscounted

Bills discounted and rediscounted are accounted for as financial trading in accordance with JICPA Industry Audit Committee Report No. 24.

 

(22)

Accounting standards for foreign subsidiaries

If the financial statements of foreign subsidiaries are prepared in accordance with the International Financial Reporting Standards (“IFRS”) or the Generally Accepted Accounting Principles in the United States (“U.S. GAAP”), such financial statements are used in the consolidated accounting process.

If the financial statements of foreign subsidiaries are prepared in accordance with generally accepted accounting principles in each domicile country and not in accordance with IFRS or U.S. GAAP, the financial statements of foreign subsidiaries are mainly rearranged in accordance with U.S. GAAP.

Adjustments are also made when necessary in the consolidated accounting process.

 

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2.	Additional Information

(A Board Incentive Plan (“BIP”) for directors and officers)

 

I.	Outline of the plan

MUFG has implemented a performance-based director and officer stock compensation plan using a BIP trust. The plan is designed to prevent excessive risk-taking and raise motivation to contribute to both short-term and medium- to long-term improvement of financial results, thereby enabling sustainable growth and medium- to long-term enhancement of the enterprise value of the MUFG Group.

The plan’s beneficiaries are directors and officers of MUFG and certain domestic consolidated subsidiaries who satisfy prescribed beneficiary requirements. The trust entrusted with funds approved by the Compensation Committee of MUFG, together with funds contributed by certain domestic consolidated subsidiaries (collectively, “Acquisition Funds”), acquired shares of MUFG in the stock market with the Acquisition Funds.

During the trust period, in accordance with the prescribed share delivery rules, points are allocated to the beneficiaries, and the beneficiaries receive the delivery of shares of MUFG in the number representing a certain percentage of their respective allocated points. In addition, in accordance with the provisions of the trust agreement, the shares of MUFG representing the remaining points are liquidated within the trust, and the beneficiaries receive cash in the amount equal to the liquidated share price.

 

II.	Shares of MUFG remaining in the trust

At the end of the reporting period ended September 30, 2019, the carrying amount and number of shares which remain in the trust are ¥19,974 million and 31,165 thousand shares, respectively (¥22,422 million and 35,036 thousand shares, respectively, at the end of the fiscal year ended March 31, 2019), and are included in the treasury stock reported as part of total net assets.

 

11

3.	Consolidated Balance Sheets

 

I.	Equity securities and other capital investments in affiliates

 

The amount of investments in jointly controlled companies included in the amounts in the above table was as follows:

 

 

II.	Securities loaned under unsecured securities lending transactions included in “Securities”

 

Securities borrowed under securities borrowing transactions and securities purchased under resale agreements where the borrowers or purchasers have the right to dispose of the securities through sale or re-pledging without any restrictions

 

Bank acceptance bills discounted, commercial bills discounted, documentary bills discounted and foreign currency bills bought discounted with the right to dispose of the bills discounted through sale or re-pledging without any restrictions

 

Foreign currency bills bought which were re-discounted upon transfer

 

 

III.	Loans to bankrupt borrowers and Non-accrual delinquent loans included in “Loans and bills discounted”

 

Loans to bankrupt borrowers are loans, after write-offs, to bankrupt borrowers as defined in Articles 96-1-3-1 to 5 and 96-1-4 of the Enforcement Ordinance of the Corporate Tax Law (No. 97 in 1965) on which accrued interest income is not recognized (“Non-accrual loans”) as there is substantial doubt as to the collection of principal and/or interest because of delinquencies in repayments of principal and/or payments of interest for a significant period of time or for some other reasons.

Non-accrual delinquent loans represent non-accrual loans other than loans to bankrupt borrowers and loans renegotiated at concessionary terms, including reduction or deferral of interest payments, to assist borrowers in improving their financial condition.

 

12

IV.	Accruing loans contractually past due 3 months or more

 

Accruing loans contractually past due 3 months or more represent loans whose principal repayments and/or interest payments have been past due for 3 months or more, other than loans to bankrupt borrowers and non-accrual delinquent loans.

 

V.	Restructured loans

 

Restructured loans represent loans renegotiated at concessionary terms, including interest rate reductions, deferral of interest payments, deferral of principal repayments, waivers of loan claims, and other negotiated terms, that are favorable to the borrower, for the purpose of business reconstruction of or support for the borrower, other than loans to bankrupt borrowers, non-accrual delinquent loans and accruing loans contractually past due 3 months or more.

 

VI.	Total of loans to bankrupt borrowers, non-accrual delinquent loans, accruing loans contractually past due 3 months or more and restructured loans

 

The amounts provided in Notes III to VI above represent gross amounts before the deduction of allowance for credit losses.

 

VII.	Assets pledged as collateral

Assets pledged as collateral and their relevant liabilities as of March 31, 2019 and September 30, 2019 were as follows:

 

 

13

In addition to the above, the following assets were pledged as collateral for cash settlements and other transactions or as deposits for margin accounts for futures and other transactions:

 

Furthermore, the following assets were sold under repurchase agreements or loaned under securities lending transactions with cash collateral as of March 31, 2019 and September 30, 2019:

 

In addition, the following assets were pledged under general collateral repurchase agreements using the subsequent collateral allocation method as of March 31, 2019 and September 30, 2019:

 

 

VIII.

Overdraft facilities and commitment lines of credit are binding contracts under which MUFG’s consolidated subsidiaries have obligations to disburse funds up to predetermined limits upon the borrower’s request as long as there has been no breach of contracts. The total amount of the unused portion of these facilities as of March 31, 2019 and September 30, 2019 was as follows:

 

The total amount of the unused portion does not necessarily represent actual future cash requirements because many of these contracts are expected to expire without being drawn upon. In addition, most of these contracts include clauses that allow MUFG’s consolidated subsidiaries to decline the borrower’s request for disbursement or decrease contracted limits for cause, such as changes in financial market conditions or deterioration in the borrower’s creditworthiness. MUFG’s consolidated subsidiaries may request borrowers to pledge real property and/or securities as collateral upon signing of contracts and will perform periodic monitoring on each borrower’s business conditions in accordance with internal procedures, which may lead to renegotiation of the terms and conditions of the contracts and/or initiate the request for additional collateral and/or guarantees.

 

14

IX.	The amount of assets that belonged to the declaration of trust for which domestic trust banking subsidiaries were the settlor and the trustee was as follows:

 

 

X.

In accordance with the “Law concerning Revaluation of Land” (the “Law”) (No. 34, March 31, 1998), land used for business operations of domestic consolidated banking subsidiaries and domestic consolidated trust banking subsidiaries has been revalued as of the dates indicated below. The total excess from revaluation, net of income taxes corresponding to the excess that were recognized as “Deferred tax liabilities for land revaluation,” is stated as “Land revaluation excess” in net assets. Land revaluation excess includes MUFG’s share of affiliated companies’ Land revaluation excess.

Dates of revaluation:

Domestic consolidated banking subsidiaries: March 31, 1998.

Domestic consolidated trust banking subsidiaries: March 31, 1998, December 31, 2001 and March 31, 2002.

The method of revaluation as set forth in Article 3, Paragraph 3 of the Land Revaluation Law:

Fair values are determined based on (1) “published land price under the Land Price Publication Law” stipulated in Article 2-1 of the “Enforcement Ordinance of the Law concerning Revaluation of Land” (“Ordinance”) (No. 119, March 31, 1998), (2) “standard land price determined on measurement spots under the Enforcement Ordinance of National Land Planning Law” stipulated in Article 2-2 of the “Ordinance,” (3) “land price determined by the method established and published by the Director General of the National Tax Agency in order to calculate land value that is used for determining taxable amounts subject to landholding tax articulated in Article 16 of the Landholding Tax Law” stipulated in Article 2-4 of the “Ordinance” with price adjustments for shape and time and (4) appraisal by certified real estate appraisers stipulated in Article 2-5 of the “Ordinance” with price adjustments for time.

In addition, some of MUFG’s affiliates that were accounted for under the equity method conducted a revaluation for land used for business operations on March 31, 2002.

 

XI.	Accumulated depreciation on tangible fixed assets

 

 

XII.	Subordinated borrowings with special contractual provisions which rank below other debts with regard to the fulfillment of obligations included in “Borrowed money”

 

 

XIII.

Subordinated bonds included in “Bonds payable”

 

 

XIV.	The principal amount of money trusts entrusted to domestic trust banking subsidiaries, for which repayment of the principal to the customers was guaranteed

 

 

XV.	Guarantee obligations for private placement bonds (provided in accordance with the Article 2-3 of the Financial Instruments and Exchange Law) among the bonds and other securities included in “Securities”

 

 

15

XVI.	Contingent liabilities

(Litigation)

In the ordinary course of business, MUFG is subject to various litigation and regulatory matters. In accordance with applicable accounting guidance, MUFG establishes a Reserve for Contingent Losses arising from litigation and regulatory matters when they are determined to be probable in their occurrences and the probable loss amount can be reasonably estimated. Based upon current knowledge and consultation with counsel, management believes the eventual outcome of such litigation and regulatory matters, where losses are probable and the probable loss amounts can be reasonably estimated, would not have a material adverse effect on MUFG’s financial position, results of operations or cash flows.

Management also believes the amount of loss that is reasonably possible, but not probable, from various litigation and regulatory matters is not material to MUFG’s financial position, results of operations or cash flows.

 

16

4.	Consolidated Statements of Income

 

I.	“Other ordinary income” for the periods indicated included the following:

 

II.	“Other ordinary expenses” for the periods indicated included the following:

 

17

5.	Consolidated Statements of Changes in Net Assets

For the six months ended September 30, 2018

 

I.	Information on the class and number of issued shares and treasury stock

		(Thousand shares)
		Number of shares as of April 1, 2018				Number of shares increased				Number of shares decreased				Number of shares as of September 30, 2018				Note
Issued shares:
Common stock			13,900,028				—				72,420				13,827,607				(Note 1)
Total			13,900,028				—				72,420				13,827,607
Treasury stock:
Common stock			737,138				86,958				79,095				745,002				(Notes 2 and 3)
Total			737,138				86,958				79,095				745,002

 

(Notes)

 

1.	The decrease in the number of shares of common stock by 72,420 thousand shares was due to the cancellation of shares.

2.

The increase in the number of shares of common stock held in treasury by 86,958 thousand shares was mainly due to the acquisitions of shares pursuant to provisions of the Articles of Incorporation, the acquisition of shares for the BIP trust, the repurchases of shares in response to requests made by shareholders holding shares constituting less than one whole unit, the acquisitions of shares held by untraceable shareholders and an increase in the number of shares held by equity method affiliates. The decrease in the number of shares of common stock held in treasury by 79,095 thousand shares was mainly due to the cancellation of shares, the sale of shares for the BIP trust, the sale of shares in response to requests made by shareholders holding shares constituting less than one whole unit and a decrease in the number of shares held by equity method affiliates.

3.

The number of shares of common stock as of April 1, 2018 and September 30, 2018 includes 28,733 thousand shares and 35,109 thousand shares held by the BIP trust, respectively. For the six months ended September 30, 2018, the number of shares held by the BIP trust increased by 13,049 thousand shares and decreased by 6,673 thousand shares.

 

II.	Information on share subscription rights

 

Issuer

Type of share subscription rights

Class of shares to be issued

Number of shares subject to subscription rights

Balance as of September 30, 2018 (in millions of yen)

As of April 1, 2018

Increase

Decrease

As of September 30, 2018

MUFG

Stock options

—

189

Consolidated subsidiaries

—

—

27

Total

—

217

 

18

III.	Information on cash dividends

 

(1)	Cash dividends paid during the six-month period ended September 30, 2018

 

Date of approval		Type of stock		Total dividends (in millions of yen)		Dividend per share (in yen)		Dividend record date		Effective date
Annual General Meeting of Shareholders on June 28, 2018		Common stock		131,934		10		March 31, 2018		June 29, 2018

 

(Note)

The total dividend amount includes ¥287 million of dividends on the treasury shares held by the BIP trust.

 

(2)	Dividends the record date for which fell within the six-month period and the effective date of which was after the six-month period ended September 30, 2018

 

Date of approval

Type of stock

Total dividends (in millions of yen)

Source of dividends

Dividend per share (in yen)

Dividend record date

Effective date

Meeting of Board of Directors on November 13, 2018

Common stock

144,314

Retained earnings

11

September 30, 2018

December 5, 2018

 

(Note)

The total dividend amount includes ¥386 million of dividends on the treasury shares held by the BIP trust.

For the six months ended September 30, 2019

 

I.	Information on the class and number of issued shares and treasury stock

 

		(Thousand shares)
		Number of shares as of April 1, 2019				Number of shares increased				Number of shares decreased				Number of shares as of September 30, 2019				Note
Issued shares:
Common stock			13,667,770				—				—				13,667,770
Total			13,667,770				—				—				13,667,770
Treasury stock:
Common stock			745,316				19				3,875				741,460				(Notes 1 and 2)
Total			745,316				19				3,875				741,460

 

(Notes)

 

1.

The increase in the number of shares of common stock held in treasury by 19 thousand shares was due to the repurchases of shares in response to requests made by shareholders holding shares constituting less than one whole unit. The decrease in the number of shares of common stock held in treasury by 3,875 thousand shares was due to the sale of shares for the BIP trust, the sale of shares in response to requests made by shareholders holding shares constituting less than one whole unit and a decrease in the number of shares held by equity method affiliates.

2.	The number of shares of common stock as of April 1, 2019 and September 30, 2019 includes 35,036 thousand shares and 31,165 thousand shares held by the BIP trust, respectively. For the six months ended September 30, 2019, the number of shares held by the BIP trust decreased by 3,870 thousand shares.

 

19

II.	Information on share subscription rights

 

Issuer

Type of share subscription rights

Class of shares to be issued

Number of shares subject to subscription rights

Balance as of September 30, 2019 (in millions of yen)

As of April 1, 2019

Increase

Decrease

As of September 30, 2019

MUFG

Stock options

—

59

Total

—

59

 

III.	Information on cash dividends

 

(1)	Cash dividends paid during the six-month period ended September 30, 2019

 

Date of approval		Type of stock		Total dividends (in millions of yen)		Dividend per share (in yen)		Dividend record date		Effective date
Annual General Meeting of Shareholders on June 27, 2019		Common stock		142,552		11		March 31, 2019		June 28, 2019

 

(Note)

The total dividend amount includes ¥385 million of dividends on the treasury shares held by the BIP trust.

 

(2)	Dividends the record date for which fell within the six-month period and the effective date of which was after the six-month period ended September 30, 2019

 

Date of approval

Type of stock

Total dividends (in millions of yen)

Source of dividends

Dividend per share (in yen)

Dividend record date

Effective date

Meeting of Board of Directors on November 13, 2019

Common stock

161,991

Retained earnings

12.5

September 30, 2019

December 5, 2019

 

(Note)

The total dividend amount includes ¥389 million of dividends on the treasury shares held by the BIP trust.

 

6.	Consolidated Statements of Cash Flows

“Cash and cash equivalents” compared to items presented on the consolidated balance sheet:

 

		(in millions of yen)
		For the six months ended September 30,
		2018				2019
Cash and due from banks		¥	74,013,732			¥	72,989,219
Cash and cash equivalents			74,013,732				72,989,219

 

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7.

Leases

Operating leases

 

(1)

Lessee

Future lease payments, including interest expenses, under non-cancelable operating leases as of March 31, 2019 and September 30, 2019 were as follows:

 

 

(Note)

The above table does not include lease payments that are booked as “Right-of-use asset” at overseas subsidiaries.

 

(2)

Lessor

Future lease receivables, including interest receivables, under non-cancelable operating leases as of March 31, 2019 and September 30, 2019 were as follows:

 

 

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8.	Financial Instruments

The following table summarizes the amounts stated on the consolidated balance sheet and the fair value of financial instruments as of March 31, 2019 and September 30, 2019 together with their differences. Note that the following table does not include non-listed equity securities and certain other securities of which fair value cannot be reliably determined (see Note 2).

 

		(in millions of yen)
		March 31, 2019
		Amount on consolidated balance sheet				Fair value				Difference
(1)   Cash and due from banks		¥	74,206,895			¥	74,206,895			¥	—
(2)   Call loans and bills bought			451,668				451,668				—
(3)   Receivables under resale agreements			10,868,179				10,868,179				—
(4)   Receivables under securities borrowing transactions			2,739,363				2,739,363				—
(5)   Monetary claims bought (*1)			7,254,708				7,243,861				(10,847	)
(6)   Trading assets			6,722,866				6,722,866				—
(7)   Money held in trust			912,961				913,318				356
(8)   Securities:
Debt securities being held to maturity			2,314,249				2,335,727				21,478
Available-for-sale securities			58,735,655				58,735,655				—
(9)   Loans and bills discounted			107,412,468
Allowance for credit losses (*1)			(531,266	)
			106,881,202				107,758,349				877,147
(10)  Foreign exchanges (*1)			2,134,807				2,134,807				—
Total assets		¥	273,222,557			¥	274,110,692			¥	888,135
(1)   Deposits		¥	180,171,279			¥	180,235,432			¥	64,153
(2)   Negotiable certificates of deposit			9,413,420				9,429,765				16,345
(3)   Call money and bills sold			2,465,093				2,465,093				—
(4)   Payables under repurchase agreements			25,112,121				25,112,121				—
(5)   Payables under securities lending transactions			903,219				903,219				—
(6)   Commercial papers			2,316,338				2,316,338				—
(7)   Trading liabilities			2,493,030				2,493,030				—
(8)   Borrowed money			16,268,170				16,277,719				9,549
(9)   Foreign exchanges			2,271,145				2,271,145				—
(10)  Short-term bonds payable			793,999				793,999				—
(11)  Bonds payable			12,179,680				12,378,944				199,263
(12)  Due to trust accounts			10,282,227				10,282,227				—
(13)  Other liabilities (*2)			249,000				249,000				—
Total liabilities		¥	264,918,726			¥	265,208,038			¥	289,312
Derivative transactions (*3):
Activities not qualifying for hedge accounting		¥	548,318			¥	548,318			¥	—
Activities qualifying for hedge accounting			73,867				73,867				—
Total derivative transactions		¥	622,185			¥	622,185			¥	—

 

(*1)	General and specific allowances for credit losses corresponding to loans are deducted. However, with respect to items other than loans, the amount stated on the consolidated balance sheet is shown since the amount of allowance for credit losses corresponding to these items is insignificant.

(*2)	The amount of derivative transactions is excluded. This line-item includes other financial instruments subject to the financial instrument fair value disclosure requirement.

(*3)	Derivative transactions included in trading assets and liabilities as well as those included in other assets and liabilities are shown together. Assets and liabilities arising from derivative transactions are presented on a net basis.

 

22

		(in millions of yen)
		September 30, 2019
		Amount on consolidated balance sheet				Fair value				Difference
(1)   Cash and due from banks		¥	72,989,219			¥	72,989,219			¥	—
(2)   Call loans and bills bought			373,598				373,598				—
(3)   Receivables under resale agreements			16,234,900				16,234,900				—
(4)   Receivables under securities borrowing transactions			2,898,731				2,898,731				—
(5)   Monetary claims bought (*1)			6,819,706				6,798,688				(21,018	)
(6)   Trading assets			7,786,155				7,786,155				—
(7)   Money held in trust			928,124				929,228				1,104
(8)   Securities:
Debt securities being held to maturity			2,168,967				2,224,683				55,715
Available-for-sale securities			56,723,670				56,723,670				—
(9)   Loans and bills discounted			106,189,204
Allowance for credit losses (*1)			(541,715	)
			105,647,489				106,726,559				1,079,070
(10)  Foreign exchanges (*1)			1,986,278				1,986,278				—
Total assets		¥	274,556,842			¥	275,671,713			¥	1,114,871
(1)   Deposits		¥	180,663,551			¥	180,720,902			¥	57,350
(2)   Negotiable certificates of deposit			8,716,442				8,735,073				18,630
(3)   Call money and bills sold			2,356,431				2,356,431				—
(4)   Payables under repurchase agreements			26,541,538				26,541,538				—
(5)   Payables under securities lending transactions			1,131,477				1,131,477				—
(6)   Commercial papers			2,973,475				2,973,475				—
(7)   Trading liabilities			3,294,278				3,294,278				—
(8)   Borrowed money			14,984,084				15,003,783				19,698
(9)   Foreign exchanges			2,040,143				2,040,143				—
(10)  Short-term bonds payable			685,999				685,999				—
(11)  Bonds payable			13,016,757				13,359,550				342,793
(12)  Due to trust accounts			9,870,064				9,870,064				—
(13)  Other liabilities (*2)			324,600				324,600				—
Total liabilities		¥	266,598,846			¥	267,037,319			¥	438,473
Derivative transactions (*3):
Activities not qualifying for hedge accounting		¥	710,755			¥	710,755			¥	—
Activities qualifying for hedge accounting			190,861				190,861				—
Total derivative transactions		¥	901,617			¥	901,617			¥	—

 

(*1)	General and specific allowances for credit losses corresponding to loans are deducted. However, with respect to items other than loans, the amount stated on the consolidated balance sheet is shown since the amount of allowance for credit losses corresponding to these items is insignificant.

(*2)	The amount of derivative transactions is excluded. This line-item includes other financial instruments subject to the financial instrument fair value disclosure requirement.

(*3)	Derivative transactions included in trading assets and liabilities as well as those included in other assets and liabilities are shown together. Assets and liabilities arising from derivative transactions are presented on a net basis.

 

23

(Note 1)

Method used for determining the fair value of financial instruments

Assets

 

(1)	Cash and due from banks

For deposits without maturity, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount. For deposits with maturity, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because the remaining maturity period of the majority of such deposits is short (maturity within 1 year).

 

(2)	Call loans and bills bought, (3) Receivables under resale agreements and (4) Receivables under securities borrowing transactions

For each of these items, the contract terms of the majority of the transactions are short (1 year or less). Thus, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount.

 

(5)	Monetary claims bought

The fair value of monetary claims bought is determined based on the price obtained from external parties (brokers, etc.) or on the amount reasonably calculated according to a reasonable estimate.

For certain securitized products whose underlying assets are corporate loan receivables, the fair value is determined by taking into account two different prices. The first price is calculated based on the expected future cash flow derived from such factors as default probability and prepayment rate based on analyses of the underlying assets and discounted at a rate equal to the yield of such securitized products adjusted for the liquidity premium based on the actual historical market data. The second is the price obtained from external parties (brokers, etc.). For other securitized products, the fair value is determined based on the price obtained from external parties after considering the results of periodic confirmation of the current status of these products, including price comparison with similar products, time series data comparison of the same product, and analysis of consistency with publicly available market indices.

For certain monetary claims bought for which these methods do not apply, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount from their qualitative viewpoint.

 

(6)	Trading assets

For securities such as bonds that are held for trading purposes, the fair value is determined based on the price quoted by stock exchanges or by the financial institutions from which these securities are purchased, or determined at the present value of the expected future cash flow discounted at an interest rate based on the market interest rate as of the date of evaluation with certain adjustments.

 

(7)	Money held in trust

For securities that are part of trust property in an independently managed monetary trust with the primary purpose to manage securities, the fair value is determined based on the price quoted by the financial institutions from which these securities are purchased.

See “Money Held in Trust” for notes on money held in trust by category based on each purpose of holding the money held in trust.

 

24

(8)	Securities

The fair value of equity securities is determined based on the price quoted by stock exchanges. The fair value of bonds is determined based on the market price or by the financial institutions from which they are purchased, or based on the price reasonably calculated. The fair value of investment trusts is determined based on the publicly available price.

For privately placed guaranteed bonds held by MUFG’s banking or trust banking subsidiaries, the fair value is determined based on the present value of expected future cash flow, which is adjusted to reflect default risk, the amount expected to be collected from collateral and guarantees and the guarantee fees, and discounted at an interest rate based on the market interest rate as of the date of evaluation with certain adjustments.

The fair value of floating rate Japanese government bonds is determined based on the present value as calculated by discounting the expected future cash flow, estimated based on factors such as the yield of government bonds and discounted at a rate based on such yield of government bonds adjusted for the value of embedded options and the liquidity premium based on the actual market premiums observed in the past.

See “Securities” for notes on securities by category based on each purpose of holding the securities.

 

(9)	Loans and bills discounted

With respect to loans, for each category of loans based on types of loans, internal ratings and maturity period, the fair value is determined based on the present value of expected future cash flow, which is adjusted to reflect default risk and the amount expected to be collected from collateral and guarantees and discounted at an interest rate based on the market interest rate as of the date of evaluation with certain adjustments. For loans with floating interest rates such as certain residential loans provided to individual home owners, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount, unless the creditworthiness of the borrower has changed significantly since the loan origination.

For receivables from bankrupt, virtually bankrupt and likely to become bankrupt borrowers, credit loss is estimated based on factors such as the present value of expected future cash flow or the amount expected to be collected from collateral and guarantees. Since the fair value of these items approximates the net amount of receivables after the deduction of allowance for credit losses on the consolidated balance sheet as of the consolidated balance sheet date, such amount is presented as the fair value. The fair value of loans qualifying for special hedge accounting treatment for interest rate swaps or designation of forward exchange contracts and other contracts under Generally Accepted Accounting Principles in Japan (“JGAAP”) reflects the fair value of such interest rate swaps or forward exchange contracts and other contracts.

 

(10)	Foreign exchanges

Foreign exchanges consists of foreign currency deposits with other banks that are “due from foreign banks (deposits with foreign banks),” short-term loans involving foreign currencies that are “due from other foreign banks (loans to foreign banks),” export bills, traveler’s checks and other bills (purchased foreign bills), and loans on notes using import bills (foreign bills receivables). For these items, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because most of these items are deposits without maturity or have short contract terms (1 year or less).

Liabilities

 

(1)	Deposits and (2) Negotiable certificates of deposit

For demand deposits, the amount payable on demand as of the consolidated balance sheet date (i.e., the carrying amount) is considered to be the fair value. For floating rate time deposits, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because the market interest rate is reflected in such deposits within a short time period. Fixed rate time deposits are grouped by certain maturity periods. The fair value of such deposits is the present value discounted by expected future cash flow. The discount rate used is the interest rate that would be applied to newly accepted deposits.

 

(3)	Call money and bills sold, (4) Payables under repurchase agreements, (5) Payables under securities lending transactions and (6) Commercial papers

For each of these items, the majority of transactions have short contract terms (1 year or less). Thus, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount.

 

25

(7)	Trading liabilities

For securities such as bonds that are sold short for trading purposes, the fair value is determined based on the price quoted by stock exchanges or the financial institutions to which these securities were sold.

 

(8)	Borrowed money

For floating rate borrowings, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount. The basis for this is that the interest rate of such floating rate borrowings reflects the market interest rate within a short time period and that there has been no significant change in MUFG’s or MUFG’s consolidated subsidiaries’ creditworthiness after such borrowings were made. For fixed rate borrowings, the fair value is calculated as the present value of expected future cash flow from these borrowings grouped by certain maturity periods, which is discounted at an interest rate generally applicable to similar borrowings reflecting the premium applicable to MUFG or MUFG’s consolidated subsidiaries.

 

(9)	Foreign exchanges

Among foreign exchange contracts, foreign currency deposits accepted from other banks and non-resident yen deposits (due to other foreign banks (deposits from foreign banks)) are deposits without maturity. Moreover, foreign currency short-term borrowings (due to other foreign banks (borrowings from foreign banks)) have short contract terms (1 year or less). Thus, the carrying amount is presented as the fair value of these contracts, as the fair value approximates such carrying amount.

 

(10)	Short-term bonds payable

For short-term bonds payable, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because they have short contract terms (1 year or less).

 

(11)	Bonds payable

The fair value of corporate bonds issued by MUFG and MUFG’s consolidated subsidiaries is determined based on their market price. For certain corporate bonds, the fair value is calculated as the present value of expected future cash flow discounted at an interest rate generally applicable to issuance of similar corporate bonds. For floating rate corporate bonds without market prices, the carrying amount of such bonds is presented as the fair value, as the fair value approximates such carrying amount. This is on the basis that the interest rate of such floating rate corporate bonds reflects the market interest rate within a short time period and that there has been no significant change in MUFG’s nor MUFG’s consolidated subsidiaries’ creditworthiness after their issuance. For fixed rate corporate bonds, the fair value is the present value of expected future cash flow from these borrowings, which is discounted at an interest rate generally applicable to similar borrowings reflecting the premium applicable to MUFG or MUFG’s consolidated subsidiaries. The fair value of corporate bonds qualifying for special hedge accounting treatment for interest rate swaps under JGAAP reflects the fair value of such interest rate swaps.

 

(12)	Due to trust accounts

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.

 

(13)	Other liabilities

For other liabilities, the carrying amount is presented as the fair value, as the fair value approximates such carrying amount because they have short contract terms (1 year or less).

Derivative transactions

See “Derivatives” for notes on derivative transactions.

 

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(Note 2)

The following table summarizes the amounts of financial instruments on the consolidated balance sheet whose fair value cannot be reliably determined. These securities are not included in the amount presented under the line-item “(8) Securities — Available-for-sale securities” as a component of Total assets in the above table summarizing the fair value of financial instruments.

 

 

(*1)

Unlisted equity securities do not carry quoted market prices. Since the fair value of these securities cannot be reliably determined, such securities are not subject to the fair value disclosure requirement.

(*2)

With respect to non-listed equity securities, an impairment loss of ¥3,259 million and ¥2,329 million was recorded in the fiscal year ended March 31, 2019 and in the six months ended September 30, 2019, respectively.

(*3)

Investments in partnerships and others mainly include silent partnerships and investment partnerships and other partnerships, and they do not carry quoted market prices. Since the fair value of these securities cannot be reliably determined, such securities are not subject to the fair value disclosure requirement.

 

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9.	Securities

In addition to “Securities” on the consolidated balance sheet, the figures in the following tables include negotiable certificates of deposit in “Cash and due from banks” and beneficiary certificates in trusts in “Monetary claims bought” and others.

 

I.	Debt securities being held to maturity

 

		(in millions of yen)
		March 31, 2019
		Amount on consolidated balance sheet				Fair value				Difference
Securities whose fair value exceeds amount on consolidated balance sheet:
Domestic bonds		¥	1,100,701			¥	1,142,320			¥	41,618
Government bonds			1,100,701				1,142,320				41,618
Municipal bonds			—				—				—
Corporate bonds			—				—				—
Other securities			847,676				852,422				4,746
Foreign bonds			392,592				395,923				3,330
Other			455,083				456,499				1,415
Subtotal		¥	1,948,377			¥	1,994,742			¥	46,365
Securities whose fair value does not exceed amount on consolidated balance sheet:
Domestic bonds		¥	—			¥	—			¥	—
Government bonds			—				—				—
Municipal bonds			—				—				—
Corporate bonds			—				—				—
Other securities			2,499,789				2,464,472				(35,317	)
Foreign bonds			820,955				797,484				(23,471	)
Other			1,678,834				1,666,987				(11,846	)
Subtotal		¥	2,499,789			¥	2,464,472			¥	(35,317	)
Total		¥	4,448,167			¥	4,459,215			¥	11,047

 

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		(in millions of yen)
		September 30, 2019
		Amount on consolidated balance sheet				Fair value				Difference
Securities whose fair value exceeds amount on consolidated balance sheet:
Domestic bonds		¥	1,100,637			¥	1,147,130			¥	46,492
Government bonds			1,100,637				1,147,130				46,492
Municipal bonds			—				—				—
Corporate bonds			—				—				—
Other securities			972,896				988,280				15,383
Foreign bonds			674,345				688,117				13,772
Other			298,551				300,163				1,611
Subtotal		¥	2,073,534			¥	2,135,410			¥	61,876
Securities whose fair value does not exceed amount on consolidated balance sheet:
Domestic bonds		¥	—			¥	—			¥	—
Government bonds			—				—				—
Municipal bonds			—				—				—
Corporate bonds			—				—				—
Other securities			2,148,955				2,124,762				(24,193	)
Foreign bonds			393,503				388,948				(4,555	)
Other			1,755,452				1,735,813				(19,638	)
Subtotal		¥	2,148,955			¥	2,124,762			¥	(24,193	)
Total		¥	4,222,490			¥	4,260,172			¥	37,682

 

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II.	Available-for-sale securities

 

		(in millions of yen)
		March 31, 2019
		Amount on consolidated balance sheet				Acquisition cost				Difference
Securities whose fair value exceeds the acquisition cost:
Domestic equity securities		¥	4,722,446			¥	1,895,377			¥	2,827,068
Domestic bonds			22,822,098				22,463,006				359,092
Government bonds			17,471,174				17,191,370				279,803
Municipal bonds			2,207,913				2,185,320				22,593
Corporate bonds			3,143,010				3,086,315				56,695
Other securities			17,444,398				16,990,459				453,939
Foreign equity securities			104,061				51,462				52,598
Foreign bonds			14,461,138				14,175,824				285,313
Other			2,879,199				2,763,171				116,027
Subtotal		¥	44,988,943			¥	41,348,843			¥	3,640,100
Securities whose fair value does not exceed the acquisition cost:
Domestic equity securities		¥	230,946			¥	293,653			¥	(62,706	)
Domestic bonds			4,439,107				4,440,707				(1,600	)
Government bonds			4,071,160				4,071,994				(833	)
Municipal bonds			18,651				18,656				(4	)
Corporate bonds			349,294				350,057				(762	)
Other securities			10,919,656				11,159,758				(240,101	)
Foreign equity securities			10,817				10,829				(11	)
Foreign bonds			7,071,776				7,183,441				(111,665	)
Other			3,837,062				3,965,486				(128,424	)
Subtotal		¥	15,589,710			¥	15,894,119			¥	(304,408	)
Total		¥	60,578,654			¥	57,242,962			¥	3,335,691

 

(Note)

The total difference amount shown in the table above includes ¥101,289 million of revaluation gains on securities by application of the fair value hedge accounting method.

 

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