Mitsubishi UFJ Financial Group, Inc. Sponsored ADR Stock

Good evening. I am Togawa, Group CFO. May I thank all the investors, shareholders and rating agencies for joining MUFG's online conference call today despite the late hour. Please look at the material titled Financial Highlights under JGAAP for the fiscal year ended March 31, 2026. First, let me explain our FY '25 financial results, followed by FY '26 performance targets, shareholder return policy and others.

Let me begin with the income statement summary. Please turn to Page 8. FY '24 on the far left column includes the impact of the change in financial results closing date at Krungsri in Thailand last year. Therefore, the far right column shows the actual year-on-year change after adjusting for this impact. I will explain this page using the adjusted year-on-year change.

Line 1, gross profits increased by JPY 1,290.2 billion year-on-year. Line 2 and below show the breakdown of gross profits. Net interest income increased by the impact of higher yen interest rates, increased lending with improved lending margins and improvements due to last year's bond portfolio rebalancing. In addition, net fees and commissions expanded significantly, mainly driven by domestic and overseas solution business and contribution from acquisitions. Fee income increased by around JPY 300 billion for 2 consecutive years.

On the other hand, Line 4, net trading profits and net other operating profits increased significantly year-on-year due to special factors. With the review of yen interest rate hedging operations in FY '25, JPY 200 billion of deferred hedging gains and losses recorded in net assets was recognized as realized losses. On the other hand, we had a rebound from approximately JPY 780 billion loss on sale of debt securities, mainly foreign bond following bond portfolio rebalancing in FY '24. Due to these 2 special factors, gross profits increased significantly. The review of yen interest rate hedging operations in FY '25 will boost our net interest income by approximately JPY 20 billion from FY '26 onward.

Next, Line 6, G&A expenses increased by JPY 424.6 billion year-on-year. The increase is around JPY 200 billion, excluding the FX impact of approximately JPY 100 billion and impact of acquisitions of around JPY 120 billion. This is due to strategic expense allocation in Retail and Digital Business Group, AI, cybersecurity, et cetera, and the impact of inflation, among other factors.

As a result, Line 8, net operating profits increased significantly by JPY 865.5 billion year-on-year. Next, Line 9, total credit costs increased by JPY 290.6 billion year-on-year. I will explain this later. Line 10, net gains on equity securities decreased by JPY 108.1 billion due to the absence of large gain on sale of equity holdings in FY '24. Line 12, equity in earnings of equity method investees increased significantly year-on-year, mainly thanks to exceptionally strong performance of Morgan Stanley. As a result, Line 16, profits attributable to owners of parent increased by JPY 586.3 billion year-on-year.

ROE on JPX basis reached 11.3%, exceeding 11% for the first time since MUFG was established. This demonstrates a solid improvement in both profitability and capital efficiency. ROE, excluding the impact of equity holdings is approximately 10.4%, indicating steady progress toward the medium- to long-term ROE target of 12%.

Page 9 through 12 show the results by business group. I will not go into detail, but in line with the steady evolution of our growth strategy, NOP increased year-on-year in all business groups.

Please turn to Page 14 on balance sheet summary. The left diagram shows the overview of our balance sheet. Loans on the upper left increased by approximately JPY 12.3 trillion from the end of FY '24. Excluding government loans in Japan, the increase was approximately JPY 17 trillion due to strong financing needs both in Japan and overseas as well as large high-profitability deals in Japan near the end of the fiscal year.

Next, Page 15 shows the status of domestic loans. The lower right graph shows the trend in domestic corporate lending spreads. The gradual uptrend in both large corporates in red and SMEs in orange continues, thanks to the successful profitability improvement measures. Page 16 shows the status of overseas loans. The bottom right graph shows the trend in overseas lending spreads. It has stabilized somewhat as the replacement of low profitability assets with high profitability assets in the U.S. has run its course, but we will continue to work on improving profitability in each region and expect to maintain a gradual improvement trend.

Please turn to Page 17 on asset quality. NPL ratio shown on the line graph on the left remains at a low level. The bottom right graph shows the breakdown of year-over-year changes in total credit costs. It increased significantly on a bank nonconsolidated basis due to reversal of large credit costs recorded mainly overseas in FY '24. Overseas subsidiaries also saw an increase due to the acquisition of a subsidiary at Krungsri in Thailand. Total credit costs were up by JPY 290.6 billion, a significant increase year-on-year, but were in line with the initial forecast of JPY 350 billion despite the impact of the weaker yen and the acquisition of a subsidiary by Krungsri.

Next, please turn to Page 18 on the breakdown of our credit portfolio. While there are concerns from investors regarding private credit and the Middle East, MUFG's exposure to such areas is currently limited, and we are mainly focusing on low-risk deals. Furthermore, in response to concerns about increased future credit risk stemming from the situation in the Middle East, we recorded a certain amount of provision, roughly JPY 25 billion in FY '25 based on a reasonable estimate at this time.

Please turn to Page 19. This shows the status of investment securities, such as equity and government bonds. I will explain the unrealized gains and losses shown in the table on the upper left. Regarding the balance of domestic equity securities in the third row, while we have made progress in reducing our equity holdings, the balance has increased by JPY 0.19 trillion compared to the end of March '25 due to rising stock prices. Unrealized gains and losses on domestic bonds reflected hedging positions in the upper part of the lower graph on the left, remains under control at a low level of JPY 0.2 trillion, even amid rising interest rates. Furthermore, unrealized gains on foreign bonds reflected hedging positions in the lower section are positive. We can say that the unrealized gains on available-for-sale securities are in an extremely sound condition.

Regarding the reduction of equity holdings on the right, the total agreed amounts to be sold under the current MTBP, including those not yet sold, has reached approximately JPY 600 billion. We will continue to strive to achieve our reduction target of JPY 700 billion. Furthermore, the ratio of domestic listed equity securities and deemed holdings to consolidated net assets stood at 18% partly due to a significant decrease in the balance of deemed holdings in fiscal year '25, raising the likelihood of achieving the ratio of less than 20% during the current MTBP period considerably.

Page 21 outlines our capital adequacy. CET1 ratio reflecting the finalized and fully implemented Basel III basis, excluding net unrealized gains, stood at 9.2%, a 1.6 percentage point decrease from the end of March 2025 and fell below the target range. This was due to capital allocation results shown in the lower right, including our investment in Shriram Finance and the significant increase in loans near the end of the fiscal year that I mentioned.

Originally, we had stated that this ratio was inflated by approximately 30 basis points compared to the end of March '25 due to yen depreciation and that the actual level was around 10.5%. Therefore, in real terms, this represents a decline of 1.3 percentage points. Half of this decline is attributable to the investment in Shriram Finance, while the majority of the remainder is due to risk-weighted asset factors resulting from the increase in lending. Given the rise in profit levels over the past few years, we believe that by steadily accumulating profits, we can restore capital while balancing shareholder returns and growth and to return to the target range within the current fiscal year.

Next, I would like to discuss our view of the business environment forming the basis of the assumptions for FY '26 targets. Please turn back to Page 3. The domestic economy is supported by an accommodative financial environment and various government policies designed to boost growth. While corporate earnings in Japan is facing some downward pressure such as from U.S. tariff policies, we believe the overall growth trend is continuing. At the same time, we currently face a highly uncertain business environment fraught with various risks, particularly the situation in the Middle East and cybersecurity risks. While we continue to monitor the situation closely, we will leverage our group's comprehensive strength and our resilient diversified business portfolio to respond flexibly to these environmental changes.

Please turn to Page 4 regarding our performance targets for FY 2026. As I just mentioned, although the current external business environment remains highly uncertain, our targets for profits attributable to owners of parent is JPY 2.7 trillion, representing an increase of over 10% from fiscal year 2025, which was a record high. As shown in the bottom left chart, growth in NOP, which demonstrates the strength of our core business will continue to be the main driver of growth. Furthermore, for FY 2026, as the financial target for the final year of our current MTBP, we aim for ROE of approximately 12%. We have previously referred to the 2 ROE 12% targets, and this will realize the 12% ROE we had expected to achieve in the short term. While there are various risk factors, including the current situation in the Middle East, none have materialized at this point. Therefore, they have not been factored into the plan's assumptions.

Next, on the right side of the page, we have shareholder returns. We continue to target a dividend payout ratio of around 40%. We have raised the annual dividend for fiscal year 2025 to JPY 86, an increase of JPY 22 from the previous fiscal year and JPY 12 from the most recent forecast. Furthermore, the projected annual dividend for fiscal year 2026 is JPY 96, a further increase of JPY 10 from fiscal year 2025. Regarding share buybacks, based on the trend in the CET1 ratio, we have resolved to repurchase common stock up to JPY 100 billion in the first half of the fiscal year. For the second half, we will evaluate the necessary capital level to ensure financial soundness, taking into account profit progress, the expected use of capital for growth, and the external environment at that time. We will continue to pursue shareholder returns while maintaining an optimal balance between capital soundness and growth investments.

Please turn to Page 5. This shows the progress towards the financial targets of the current MTBP. As I mentioned earlier, we have raised the ROE target for the current MTBP to approximately 12%. At the same time, we have also raised the profit target, which is the driver for achieving the ROE target. We will continue to manage our finances with a focus on 3 key areas: profit, expense and RWA.

Please turn to Page 6. I will now explain the progress of the 3 pillars of MTBP, which we position as the 3 years to pursue and produce growth. First, regarding the first pillar, expand and refine growth strategies. As shown in the graph on the left, the 7 growth strategies are each progressing steadily, resulting in an increase in profit of approximately JPY 440 billion compared to fiscal year 2023. In particular, for domestic retail, the launch of Emut announced last June has led to a significant increase in new account openings and expanded transactions across group companies. Going forward, we aim to further expand our services through new initiatives such as the launch of the digital bank, the integration of Mitsubishi UFJ eSmart Securities and WealthNavi and a strategic partnership with Google announced recently.

Finally, please turn to Page 7. The left side represents the second pillar, social and environmental progress. Even amid high level of uncertainty, we will continue to pursue decarbonization while balancing economic growth. Our recently published Transition Progress 2026 report focuses on the progress of our transition plan toward a sustainable society. Specifically regarding emissions reductions in our finance portfolio, we have revised interim targets for certain sectors and formulated a new 5-year action plan aimed at achieving net zero by 2050. We are also continuing to build a solid track record in sustainable finance.

On the right is the third pillar, transformation and innovation. In our current MTBP, to fully unlock MUFG's potential, we are promoting a group-wide effort that combines ongoing cultural reform with taking on new business challenges, investing in human capital and strengthening our infrastructure in areas such as AI and data. In particular, we are accelerating our efforts to expand the use of AI. By combining this with agile transformation, we are driving a group-wide transformation into an AI native company. The number of implemented AI use cases is progressing at a pace exceeding our plans.

The total investment amount during the current MTBP is expected to exceed JPY 70 billion, and we anticipate that nearly JPY 40 billion in expected benefits will materialize early by the end of fiscal 2026. We will continue to accelerate the use of AI across the entire group and promote initiatives such as partnerships with other companies. The environment surrounding us -- and I believe that I said something similar last year is currently at a major turning point, and we are living in an era of uncertainty. Even so, MUFG will strive for sustainable growth through our diversified business portfolio while working to realize our stated purpose committed to empowering a brighter future. We ask for your continued support. This concludes my presentation. Thank you.

Thank you, Togawa-san. We will now take questions from you. Let me introduce the first questioner. Mr. Takamiya from Nomura Securities, please.

This is Takamiya from Nomura Securities. I have 2 questions. The background behind the decision on the amount of share buyback and your underlying capabilities toward your NOP result for FY '25. Regarding the share buyback, I understand the opaque environment and the fact that CET1 ratio of 9.2% at the end of March '26 is slightly below the lower end of the target range of 9.5%, but the gap is only 30 basis points. Considering that MUFG had previously taken a forward-looking stance and given the net income guidance of JPY 2.7 trillion for FY '26 and the total payout ratio target, an early recovery of the CET1 ratio can be expected. So some investors may view JPY 100 billion as conservative. Could you explain the background and your thinking behind the points I just raised and other relevant points? That is my first question.

Secondly, regarding the increase in net interest income for FY '25, what does the core underlying performance look like? If you have any views on particular business group or region driving this growth, please explain.

Thank you for the question. First, regarding the basis for the JPY 100 billion share buyback, we had no intention of setting a conservative amount given the uncertainty of the future. CET1 ratio at the end of March was 9.2%, which was below the lower end of the target range. So clearly, we think we need to bring it back up to the lower end for the time being. As I mentioned earlier, even with a JPY 100 billion share buyback, we expect to recover to near the lower end of the target range during the first half of the year.

As for the scale of the share buyback for the second half, given the progress towards the JPY 2.7 trillion net income target for FY '26 and the fact that the higher-than-expected lending resulted in a slight shortfall from the target range, we will consider the amount of buyback after carefully assessing the balance with loan growth that will contribute to future profits. Please note that we are not taking future uncertainties into too much consideration. NII was up by about JPY 5 billion year-on-year as decline due to Krungsri impact, change in financial results closing date in FY '24 was offset by a positive impact of weaker yen in FY '25. That said, NII increased even with the absence of the JPY 135 billion in gains on investment trust cancellation in FY '24. So I believe the quality of our NII also improved significantly. I hope this answers your question.

Next, Mr. Nakamura of BofA Securities, please.

This is Nakamura of BofA Securities. I also have 2 questions. First, regarding the CET1 ratio, based on previous communications in the first half, Q3 after the Shriram deal was finalized, perhaps this is just my own assumption, but I expected CET1 ratio at the end of March '26 to be around 9.8%. So 9.2% seems lower than expected. Please explain if there were any factors such as a few dozen basis points from loans and others that caused it to fall below internal expectations. To put it somewhat harshly, was it within the scope of the CEO and other management team's expectations that CET1 ratio fell below the target range despite the hard work of the front offices to increase profits?

If I were in the front office, I would be wondering why CET1 ratio is dropping like this. Since a dividend increase was also announced, only short-term investors may be concerned about the temporary drop in CET1 ratio. But could you explain whether it was managed with the full understanding of everyone, including the CEO? That is my first question.

My second question overlaps with Mr. Takamiya's earlier question. I believe the amount of change in NOP by business group will be given at the IR presentation on the 19th. Could you explain the details of the projected growth in NOP for FY '26?

Thank you for the question. First, CET1 ratio as of the end of March '25 announced in May of last year was 10.8%. But excluding the FX impact on subsidiaries with change in financial results closing date of approximately plus 30 basis points, the actual ratio is around 10.5%. The initial expected impact when we announced the investment in Shriram Finance was approximately negative 60 basis points. Considering the negative impact of 30 to 35 basis points from increased lending, the ratio at the end of March '26 was estimated at around 9.5% to 9.7%.

The fluctuations from the forecast were as follows: approximately plus 10 basis points due to net profit upside, excluding dividend increase and FX impact, around negative 5 basis points impact from additional impact from Shriram Finance investment due to FX fluctuations, negative 9 basis points due to the JPY 3 trillion upside in the loan period end balance as opposed to the usual downtrend, negative 4 basis points due to higher profit accumulation at equity method investees, mainly Morgan Stanley and negative 20 basis points due to an increase in operational RWA resulting from higher gross profits. Therefore, the final CET1 ratio was 9.2%. While some of the upsides in operational RWA, which are technical factors were not fully anticipated, the increase in loan balance itself was within our expectation.

Looking at the results by business group. In FY '25, in Japan, JCIB and Commercial Banking and Wealth Management, in particular, increased their average loan balance while securing lending spreads. And the associated fee income from loan-related activities, LBOs, MBOs and real estate businesses -- so they were significant drivers. Another driver was global CIB, where O&D business, mainly large-scale project finance deals for AI and data centers was successful, although we hear various concerns and loan-related fees increased significantly.

I wanted to ask about the breakdown of your FY '26 plan by business group.

My apologies. For FY '26, we forecast a JPY 170 billion increase from rising yen interest rates. and JPY 140 billion increase due to the rebound from the realized losses resulting from the review of yen interest rate hedging operations, both after-tax basis. And as shown in the left graph on Page 4, JPY 140 billion increase in loan interest income and fee income. On the lending side, approximately JPY 80 billion in both domestic and overseas loans, JPY 45 billion to JPY 50 billion in fee income, JPY 38 billion to JPY 40 billion in AMIS, Asset Management and Investor Services and JPY 17 billion to JPY 18 billion from our Asian partner banks, where the contribution from acquisitions will be fully realized from FY '26. These are the positive factors to the growth in gross profits. We need to carefully monitor the impact of the situation in the Middle East on the performance of our Asian partner banks, but these are the main areas of expected gross profit increase.

I see that you have higher expectations on the domestic side.

Yes, you are right.

Are you expecting net gains and losses on equity securities to be around JPY 600 billion?

We reached JPY 560 billion at the end of FY '25. So in FY '26, we intend to sell the remaining amount to reach JPY 700 billion, including the agreed but unsold and yet to be agreed amount. Therefore, we expect unrealized gains to become gain on sale.

Next is Mr. Matsuno from Mizuho Securities, please.

This is Matsuno from Mizuho Securities. I have 2 questions. My first question is about lending. Please explain why overseas loans increased significantly. MUFG is actively promoting O&D. So is this happening because you are unable to distribute in this environment or that is not the case? This is my first question. My second question is on credit costs. In Q4 of FY '25, you accounted for forward-looking credit costs related to the situation in the Middle East. Could you give us the size of these provisions and your outlook for future credit costs?

Thank you for the question. Overseas lending includes bridge loans related to Japanese companies' overseas acquisitions and a temporary increase due to a timing difference between warehousing and sell-down in O&D. The increase is approximately JPY 5 trillion, excluding the FX impact. So please understand that there are some ad hoc factors.

Regarding credit costs, we accounted just under JPY 25 billion for a specific portfolio for the Middle East. This may be less than other mega banks, but MUFG's approach to building provision for specific portfolio is to calculate the additional required amount based on the reserve ratio relative to the total amount of exposure. Therefore, if the reserve ratio is higher than that of other mega banks, the additional reserve will be smaller. Overall, the historical average over the past 10 years is JPY 330 billion. So we are looking at that average. If the situation in the Middle East worsens and lingers like the COVID-19 pandemic, it could increase by about JPY 100 billion, but we are not currently making such assumptions.

Next, Mr. Yano from JPMorgan Securities.

This is Yano from JPMorgan Securities. I have 2 questions. The first question is on the guidance for FY '26. The interest rate assumption is around 1%. But when do you expect rates to rise to that level? In other words, if the BOJ's rate hike is delayed slightly, for example, if we have to wait until the end of the fiscal year, what would be the downside risk to the earnings forecast and guidance? That is my first question.

My second question concerns the fund-related exposure on Slide 18. I really appreciate you providing this information. Within this, for example, regarding BDCs, I'd like to know the balance or status regarding software-related companies, although I don't think this falls strictly under the BDC category, investments in the so-called data centers. Also, please tell me about the distribution status, whether you are successfully divesting to local investors as planned and within the expected range. Since you have provided an explanation on private credit, I'd like some additional color on data center and software sectors.

Thank you very much. First, regarding the assumption of when the policy rate hike will occur in fiscal year 2026. I understand that the current market consensus is that there is about a 60% chance it will happen in June with a view that it will likely be no later than July. We have based our earnings forecast for FY '26 on these timing assumptions. So as you all know, our interest rate sensitivity when the policy rate rises by 25 basis points is approximately JPY 100 billion in the first year. So please understand that if the rate hike is delayed by about 4 months, then the impact will be shifted accordingly.

Next, regarding your second question, financing for BDCs. I have spoken directly with people on the front lines, and I understand that these are extremely small and diversified loans. It was explained to me that the so-called packaged software and AI-related projects account for only about 20% of this BDC exposure. And I don't believe data centers were included at all. So there is no need for concern on that point.

Now regarding your large-scale data center loans, perhaps in the form of syndicated loans, are there any updates on the distribution or inquiries from local investors?

As of now, I haven't heard of any major cases of hung deals. Distribution is proceeding smoothly, but I believe we need to closely monitor the future environment and assess the business impact.

Next, we have Mr. Matsuda from Daiwa Securities.

This is Matsuda from Daiwa. I have 2 questions as well. My first point concerns the profit plan and actual results. The actual results were quite strong, and on top of that, the profit growth plan appears to be quite substantial. When compared to past trends, my impression is that this plan is less conservative. Could you explain what discussions took place in formulating this plan? There are also some swing factors such as the situation in the Middle East mentioned earlier or the possibility of rate hike delays. If such risk factors materialize, are there downside risks to the JPY 2.7 trillion target? In other words, has the certainty or probability of achieving this target changed compared to the past? That is my first question.

And my second point concerns the CET1 ratio. If my memory serves me right, your past comments suggested that one option for capital management was to consider the CET1 ratio based on the current Basel III basis rather than on the finalized and fully implemented Basel III basis. And looking at the current capital structure, the CET1 ratio appears sufficient. However, when you examine the details, the amount exceeding the 15% threshold for specified items has increased slightly, which I suspect may be partly due to the investment in Shriram Finance. So to summarize my question, I'd like to ask if there was any discussion about evaluating the CET1 level on the current rule basis. And also, given that the amount exceeding the 15% threshold is significant and the capital deduction portion has expanded, if this implies that investment in other financial institutions require greater control or if there are any differences in the direction of capital management that might arise from this balance?

First, regarding some additional color on the outlook for FY 2026. We did discuss internally that we should announce the current most likely scenario and that if the external environment deteriorates and results fall short, we will revise the forecast downward. The heads of each business have agreed to this approach. So in that sense, please understand that the forecast is somewhat less conservative than in the past.

In terms of downside risks, if the situation in the Middle East drags on for a long time or worsens further and given that supply chain disruptions have already occurred in some areas, this could lead to negative impacts on both business operations and credit costs. Additionally, there is the possibility of increased costs related to the Methos issue. While these downside risks do exist, there are some upside factors that have not been included in the plan because the likelihood is still low. Please understand that taking all this into account, we are representing this figure with the view that we can achieve JPY 2.7 trillion under the current environment.

Regarding the CET1 ratio, while there is always debate about whether we should assess on the current rules basis, we must manage the target range for the CET1 ratio, excluding unrealized gains under the finalized Basel III with greater sensitivity since the finalized and fully implemented basis will be in 3 years or so. We consider the gap between our CET1 ratio under the current Basel III basis and the finalized and fully implemented basis as a buffer in case of sudden surge in lending demand from customers or significant deterioration in the external environment. And in this instance, we believe it is best to return to the lower range of the target as soon as possible, thus setting the buyback amount at JPY 100 billion.

That is all for me. Sorry. And regarding the 15% threshold for specified items. One unique aspect for us is that this portion increases in proportion to our stake in Morgan Stanley as its retained earnings increase. While Morgan Stanley's significant profit increase is positive in terms of our share of earnings, it has aspects that are not so welcome from a capital ratio perspective. And that is where the impact is significant.

And on the second point, with that in mind, are you considering the need for more control going forward for investments?

Well, I can't go into much detail yet, but there is room for this to decrease. That is one. And additionally, we plan to review our business portfolio going forward, specifically regarding minority investments in financial institutions that are subject to deductions. We will periodically review the business portfolio and divest as deemed necessary. I believe that this will become even more important in terms of control.

There seems to be no further questions, but the floor is still open. No questions. We still have some time left, but there doesn't seem to be any other questions. So we will conclude the Q&A session. Finally, a few words from Mr. Togawa.

Thank you, and thank you so much for the lively Q&A and comments. While we are reasonably confident in our current performance and forecast, I understand that your primary concerns are the CET1 ratio and the volume of share buybacks. We intend to provide thorough explanations and continue to carefully consider our capital policy. Thank you. At the investor briefing on the 19th, our new CEO, Mr. Hanzawa, will provide a more detailed explanation of our strategy, including his own thoughts. And we look forward to your participation in that event as well. We ask for your continued understanding and support. Thank you very much for your time today in spite of the late hour.

This concludes MUFG online conference on financial results for the fiscal year ended March 31, 2026. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Good evening, investors, shareholders and rating agencies. I am Togawa, Group CFO. Thank you very much for joining MUFG's online conference call today despite the late hour. Please look at the material titled Financial Highlights under JGAAP for the first half of the fiscal year ending March 31, 2026.

Let me first explain our Q2 financial results, followed by revised FY '25 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 FY '24 on the far left column of the table include the impact of the change in the equity method accounting date at Krungsri 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 JPY 189.3 billion 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 JPY 127.9 billion 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 JPY 61.3 billion year-on-year. Next, Line 9, credit costs decreased by JPY 65.7 billion year-on-year. I will explain the reasons for this later. Line 10, net gains and losses on equity securities decreased by JPY 235.3 billion, due to the gain on sale of large equity holdings last year, which is in line with our projection at the beginning of FY '25. Line 12, equity in earnings of equity method 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 JPY 1,292.9 billion. 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 demonstrates the strength of our core business and also recorded onetime gains related to investments and organizational restructuring, resulting in a record high first half profit. Our progress toward initial full year target of JPY 2 trillion 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 JPY 1.8 trillion from the end of FY '24. Excluding government loans, it increased both in Japan and overseas by approximately JPY 4 trillion. 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 nonconsolidated 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 JPY 0.36 trillion 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 JPY 0.3 trillion 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 JPY 339 billion on an acquisition cost basis, which is about half of the JPY 700 billion 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 CET1 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 assets to continue to accumulate and the yen to appreciate based on the financial indicators, I 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 FY '25 financial targets and shareholder returns. As shown on the left, given the continued strong performance of NOP, particularly in the customer segment and increased income from equity method investee, we revised up our net income target by JPY 100 billion from initial target to JPY 2.1 trillion.

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 FY '25 was revised up to JPY 74, up JPY 10 from the previous year and JPY 4 from initial forecast. Regarding share repurchase, a resolution was approved today to acquire an additional JPY 250 billion in the second half of the year, bringing the total amount for the full year to JPY 500 billion.

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 ROE target and we will work to provide shareholder returns while taking the optimal balance with growth investments into account.

Turning to progress of 3 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 seasoning growth is on track, resulting in an increase in NOP of approximately JPY 150 billion compared to FY '23.

In particular, in the domestic retail business, a new service brand, EMUTO, was announced in June this year. The credit card reward programs and group-wide campaigns launched in conjunction with EMUTO 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 FY '26.

Current estimates suggest that the cumulative benefits over the 3 years of the current MTBP is approximately JPY 30 billion. 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 ROE 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 seize.

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. Kamezawa 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 MUFG. 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 achieved growth sometimes despite headwinds.

MUFG 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.

Let me introduce the first questioner, Mr. Takamiya of Nomura Securities.

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 current levels of the Nikkei stock average and the dollar-yen exchange rate.

Second, the revision of JPY 100 billion from JPY 2 trillion to JPY 2.1 trillion 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, reflecting the changes in the environment or tailwinds.

Thank you, Takamiya-san. Regarding the upward revision, our initial guidance was JPY 2 trillion 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 FY '24.

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 onetime 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 FY '26, resulting in a guidance of JPY 2.1 trillion.

There was internal discussion about whether a 5% revision was really necessary, but we decided to do so with the aim of disclosing our forecast 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-JPY 140s by the end of the fiscal year. The share price of around JPY 43,000 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.

Next, Mr. Nakamura of BofA Securities, please.

This is Nakamura from BofA Securities. I also have two questions. First, let me confirm the full year CET1 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 cost. In the first half, there was a reversal on the bank nonconsolidated 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.

First, regarding the outlook for CET1 ratio toward the end of FY '25, 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, et cetera, we expect the ratio to be somewhere between 10% and 10.5%.

Regarding the private credit market, MUFG 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, 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.

Next, Mr. Matsuno from Mizuho Securities.

Matsuno from Mizuho Securities. I have two questions. First question is on Page 3. Upward revision of financial targets for FY '25. Can you give a more detailed breakdown? The graph on the bottom left shows a breakdown into customer segment, equity method investees and review on financial indicators. Can you give a breakdown of each of them?

For example, weaker yen than the beginning of the year, would that be included in review on financial indicators or the equity market value? Can you give some color on the factors affecting changes in net income?

My second question is on the operational policy of Global Markets in the second half. In the first half of the year, it looks like you did well by drastically reducing yen bonds and super long-term bonds and making profits on foreign bonds. Is there anything you can speak about the operations of Global Markets in the second half of the year? Those are my two questions.

So starting with Page 3, your question on major factors affecting changes in full year targets. Earlier, I said the customer segment is expected to continue making steady progress in the second half of the year and is expected to exceed the initial plan by around JPY 30 billion for the full year.

Regarding equity and earnings of equity method investees, I must admit it is difficult to say how much is coming from Morgan Stanley, but a certain amount is factored in. There are also some one-offs. Please look at the footnote on Page 8.

Step-up gains from acquiring shares of JACCS, one-off gains from acquisition of Tidlor as a subsidiary and gains related to liquidation of local subsidiaries, a part of them were not factored in, accounting for approximately JPY 40 billion. The revision of financial indicators is expected to have an impact of approximately JPY 30 billion, mainly due to the weak yen. Stock price outlook was revised up, but gain on sales of equity holdings has been hedged for stocks scheduled for sale at the beginning of the fiscal year. So impact of sales of equity holdings is minimal.

Although there will be partial impact on earnings due to an increase in AUM in the asset management and investor services, the impact of the revision of stock price assumptions is not that big. The impact is primarily from ForEx, and the total adds up to JPY 100 billion.

For Global Markets, you are right. In Q1, reducing the balance of super long-term JGBs, partially offsetting with redemption gains on bear fund and gains on sale of foreign bonds, that's for the first half of the year.

Regarding yen bond management from the second half onwards, our policy of gradually building up our yen bond positions, while monitoring the rise in Japan's policy rate remains unchanged. Short-term JGBs decreased as the BOJ's growth-oriented lending support operation is gradually coming to an end and need for short-term JGBs as collateral has decreased. The balance of short-term government bonds has fallen significantly.

As for foreign bonds, the balance of long-term bonds appears to be increasing, while duration is decreasing and some might feel this doesn't sit well. This is due to categorizing mortgage bonds with long statutory maturities as long term. But overall duration shortened to 4 years.

Next is Mr. Matsuda from Daiwa Securities.

Matsuda from Daiwa Securities. I also have two questions. Regarding net fees and commissions. Net fees and commissions in the first half of the year was very strong for both domestic and nondomestic. Is this trend in the first half a temporary phenomenon? Or including the current pipeline, can we expect further growth going forward? That is my first question.

Second question is on CET1 ratio on Page 20. The impact of exchange rates was cited as a factor in the decline in the CET1 ratio in the first half of the year. It worsened by 40 basis points, but the yen did not appreciate significantly between the end of March and the end of September. Then why deteriorate by 40 basis points? Was it due to the Thai baht? What was the impact in the first half? If the weak yen environment continues, can we expect the CET1 ratio to improve further? These are my two questions.

Thank you for your questions. Fee revenues, fee income partially include impact of acquisitions. Acquisition of WealthNavi, MPMS acquired by our Trust Bank and NICOS acquiring Zenhoren has resulted in a total acquisition effect of about JPY 48 billion.

Apart from that, GCIB, in particular, is further promoting O&D initiatives, so fee income will grow. Domestically, fees related to loans such as MBOs and LBOs are growing. Solution-related fees are also growing. So we can expect continued growth in this area.

In addition, AUM in asset management is growing steadily, and IS has also issued a press release stating that outsourcing operations have quickly achieved the MTBP target. These areas are growing steadily. So I believe we can continue to grow.

Regarding CET1 ratio for the first half of the year, impact of U.S. MUA is large, as I might have said in May. The dollar-yen exchange rate from December to June saw the yen appreciate by about JPY 14. We took some hedging measures, but were implemented after April or May and hence, this impact. Regarding impact of the weak yen on CET1 ratio, it will depend on the trends in the dollar yen and Thai baht, but the weak yen will have a certain effect in lifting the CET1 ratio. That's all for me.

Next is Mr. Yano, JPMorgan.

I also have two questions. One is a detailed question, a follow-up to Mr. Matsuno's question. Regarding the revised target for this fiscal year, you referred to the waterfall chart on the lower left, but I'd like to confirm referring to the table above. NOP is up JPY 50 billion. Credit costs haven't changed and ordinary profits increased by JPY 150 billion. I assume this is coming from increase in ownership interest, stock-related and other factors accounting for JPY 100 billion. I'd like to know the breakdown. This is my first question.

The second question is a high-level question. Today, there was a headline in the news quoting CEO, Mr. Kamezawa about achieving top -- global top-tier ROE and corporate value. I assume this is along the same lines of what has he has been saying. But just to be sure, can we take this as a hint that the current ROE target of 12% will change? Is there no need to read too much into it? I would like to know what you mean by achieving global top-tier ROE, if there is anything we should know of.

Thank you for the questions. Should I explain both NOP and ordinary profit? Well, if you could elaborate on the variance, if there is anything that is tricky in NOP. Okay. Within NOP, JPY 25 billion is from ForEx, assuming the yen to be about JPY 5 stronger.

The rebound from treasury trading gains was concentrated in the first half, as I said, and the difference between first half and second half is about JPY 130 billion. Then there is increase in expenses, expense incurred in EMUTO, IT costs, AI, cyber-related impact from certain inflation-related costs, base wage increase, among others.

All in all, about JPY 100 billion in expense increase. We are also considering a certain level of structural improvements for next fiscal year as profits are also strong. Averaging them all out, we expected an upside of about JPY 50 billion in NOP.

Regarding ordinary profit, there is a one-off step-up gain from an increase in our ownership interest. This accounted for about JPY 100 billion in the first half. Some of it was not accounted for in the plan, as I said earlier. Combined with Morgan Stanley's profit increase, ordinary profit was revised up by JPY 150 billion.

To your second question, I appreciate the expectations you have on us, but we will first focus on achieving 12%. Mr. Kamezawa spoke in that context. Thank you.

It seems there are no further questions, so we will conclude the Q&A session.

Finally, Mr. Togawa would like to say a few words. Togawa-san, please.

Thank you very much for joining us today despite the late hour and on a day where many companies are announcing their results. Thank you for your diverse questions and comments.

Today, I mainly explain the progress made in Q2 of FY 2025, and President Kamezawa will provide a more detailed explanation, including his own thoughts at the investor briefing on the 18th. We look forward to your participation. We would appreciate your continued understanding and further support. Thank you very much for joining us today.

This concludes the online conference call on financial highlights for the first half of FY '25 of Mitsubishi UFJ Financial Group. Thank you very much for participating today.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]