Mitsubishi UFJ Financial Group, Inc. (MUFG) Earnings

Management highlights

### Financial Results Summary - Gross profit increased by 1.29 trillion yen year-on-year (adjusted for closing date changes at the Thai Krumsi subsidiary), driven by two special factors: a rebound from the 78 billion yen FY24 foreign bond sale loss, and a 200 billion yen realized loss from yen interest rate hedging operation restructuring that will boost future net interest income. - Net interest income grew due to higher yen interest rates, expanded lending with improved margins, and prior bond portfolio rebalancing; net fees and commissions grew ~300 billion yen for the second consecutive year, driven by domestic/overseas solution businesses and acquisitions. - G&A expenses increased 424.6 billion yen year-on-year; ~200 billion yen of the increase came from strategic investments in retail, digital, AI, and cybersecurity plus inflation impacts, with the remainder from FX and acquisition effects. - Profit attributable to owners of parent increased 586.3 billion yen year-on-year; JPX-basis ROE reached 11.3%, the first time it exceeded 11% since MEFG's founding, and 10.4% excluding equity holding impacts, showing steady progress toward the 12% medium-term target. - Total loans grew ~12.3 trillion yen from the end of FY24; excluding Japanese government loans, loans grew ~17 trillion yen on strong domestic and overseas financing demand, with large high-margin domestic deals closing near fiscal year-end. - Domestic corporate lending spreads continue a gradual uptrend for both large corporates and SMEs; overseas lending spreads have stabilized after U.S. low-margin asset replacement concluded, with gradual improvement expected going forward. - The NPL ratio remains at a low level; total credit costs increased 290.6 billion yen year-on-year, in line with the initial 350 billion yen forecast. MEFG recorded a ~25 billion yen provision for Middle East situation-related credit risk in FY25. - Unrealized gains/losses on hedged domestic bonds remain controlled at 0.2 trillion yen amid rising rates, and foreign bonds have positive unrealized gains; equity holding reduction via the Medium-Term Business Plan (MTBP) has reached ~600 billion yen in agreed sales, on track to hit the 700 billion yen target. The ratio of domestic listed equity to consolidated net assets fell to 18%, making it very likely to hit the <20% target in the current MTBP. - The fully implemented Basel III CET1 (Set One) ratio was 9.2%, 1.6 percentage points below the end of FY24, below the 9.5%+ target range. The decline came from the Shriram Finance investment and larger-than-expected end-of-period loan growth; management expects to return to the target range in FY26 via retained profit accumulation. ### Growth Strategy Progress - All seven of the MTBP's core growth strategies are on track, delivering ~440 billion yen in profit growth compared to FY23. Domestic retail saw strong new account growth after the EMUT launch, with upcoming initiatives including a new digital bank, the integration of Mitsubishi UFJ eSmart Securities and Wealth Navi, and a strategic partnership with Google. ### Sustainability and Transformation - MEFG updated interim decarbonization targets for select sectors and released a new 5-year action plan to reach 2050 net zero, and continues to build a strong track record in sustainable finance. - Group-wide transformation to an AI-native company is progressing faster than planned; total AI investment in the current MTBP is expected to exceed 70 billion yen, with ~40 billion yen in benefits expected to materialize by the end of FY26. ### Shareholder Return - MEFG maintains a target payout ratio of ~40%; the FY25 annual dividend was raised to 86 yen (up 22 yen year-on-year), and the FY26 projected dividend is 96 yen (up 10 yen). A 100 billion yen common share buyback is approved for the first half of FY26, with the second half amount to be determined based on capital needs, profit progress, and market conditions.

Guidance

- For FY26, the final year of the current MTBP, management targets 2.7 trillion yen in profit attributable to owners of parent, representing over 10% year-on-year growth from the FY25 record high, and targets a 12% ROE, achieving the short-term ROE goal that the company has previously communicated. - Core drivers of FY26 gross profit growth are forecast as: 170 billion yen from rising yen interest rates, 140 billion yen from the reversal of FY25 hedging review realized losses (after tax), 80 billion yen from domestic and overseas loan growth, 45-50 billion yen from fee income growth, 38-40 billion yen from AMIS, and 17-18 billion yen from Asian partner banks. - Management expects 20 billion yen annual incremental net interest income starting in FY26 from the FY25 yen interest rate hedging operation review. - MEFG plans to complete the remaining 100 billion yen of equity holdings sales to hit the 700 billion yen MTBP reduction target in FY26.

Segment performance

Management confirmed that net operating profit (NOP) increased year-on-year across all of MEFG's business groups, aligned with the company's ongoing growth strategy: 1. **Domestic Corporate & Investment Banking (JCIB), Commercial Banking, and Wealth Management**: Average loan balances grew while improving lending spreads; loan-related fees from LBOs, MBOs, and real estate transactions were core profit drivers. 2. **Global Corporate & Investment Banking (Global CIB)**: Originations & Distribution (O&D) business, particularly large-scale project finance deals for AI infrastructure and data centers, delivered strong results, with significant growth in loan-related fees. 3. **Asset Management and Investor Services (AMIS)**: Expected to contribute 38-40 billion yen to gross profit growth in FY26. 4. **Asian Partner Banks**: Expected to contribute 17-18 billion yen to gross profit growth in FY26, as acquisition contributions fully materialize.

Risks & headwinds

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Analyst Q&A

• Q: Investors view the 100 billion yen first half FY26 share buyback as conservative, given CET1 is only 30 basis points below the target range, strong FY26 profit guidance, and the expectation of early CET1 recovery. What is the reasoning behind this size? What was core underlying net interest income (NII) performance in FY25? /

  A: CET1 is currently below the target range, so management prioritizes restoring it to the lower bound of the range first. A 100 billion yen buyback is expected to bring CET1 near the target lower bound in H1 FY26. The second half buyback will be set after assessing the balance between loan growth that drives future profits and capital needs. NII quality improved significantly in FY25: even after removing 135 billion yen in one-off FY24 investment trust cancellation gains, NII still grew year-on-year, with currency impacts offsetting each other across periods.

• Q: CET1 came in lower than the expected 9.8% at 9.2% — what unanticipated factors drove the drop, and was the decline within management expectations? What are the core sources of projected FY26 NOP growth? /

  A: The initial forecast after the Shriram Finance investment was 9.5-9.7%. Unanticipated technical factors, including a 20 basis point negative impact from higher gross profits increasing operational risk-weighted assets (RWA), and larger-than-expected end-of-period loan growth, brought the final ratio to 9.2%, though loan growth itself was within expectations. FY26 growth is driven by rate hikes, hedging loss reversal, loan growth, fee growth, AMIS expansion, and full acquisition contributions from Asian partners; Middle East risks have not materialized and are not priced into the plan.

• Q: Why did overseas loans grow significantly, and what is the size and outlook for Middle East credit provisions? /

  A: Most of the overseas loan increase (excluding FX impacts) is ~5 trillion yen from ad hoc factors: bridge loans for Japanese companies' overseas acquisitions, and temporary timing lags between warehousing and sell-down in O&D business. MEFG recorded just under 25 billion yen in provisions for specific Middle East exposures; baseline FY26 credit costs are expected to stay near the 10-year historical average of 330 billion yen, with a possible 100 billion yen increase only if the conflict worsens and drags on long-term, which is not currently assumed.

• Q: If the BOJ rate hike is delayed, what is the downside risk to the FY26 earnings forecast? What is the exposure to software/data center investments within private credit/BDCs, and how is syndication progressing? /

  A: The FY26 forecast assumes a rate hike by July 2026, aligned with market consensus. Every 25 basis point hike adds ~100 billion yen in annual NII, so a four-month delay shifts that impact proportionally. BDC exposure is small and highly diversified: only 20% goes to packaged software and AI-related projects, with no material data center exposure. Large data center syndicated loans are distributing smoothly to local investors, with no hung deals reported to date.

• Q: The 2.7 trillion yen FY26 target appears less conservative than past guidance — what was the internal discussion behind this, and are there material downside risks? Why did the CET1 deduction from 15% threshold excess holdings increase, and will this change capital allocation for minority financial investments? /

  A: Management chose to publish the most likely current scenario, and will revise guidance only if the external environment deteriorates, leading to a less conservative forecast than in prior years. Downside risks include prolonged worsening of the Middle East conflict, supply chain disruptions, and higher cybersecurity costs, but there are also unpriced upside factors, so management remains confident in hitting the target. The increased CET1 deduction is mostly from growth in retained earnings at MEFG's Morgan Stanley stake, which is positive for earnings but reduces capital ratios. Going forward, MEFG will periodically review its portfolio of minority financial investments and divest assets as needed to improve capital efficiency.