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Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) (8306 JP)

Despite Mitsubishi UFJ Financial Group (8306.JP/ MTU.US) [MUFG] being flush with liquidity in Japan given its surplus JPY deposits, the company desperately needs USD deposits to fund United States (US) growth, act as a backstop for the 22%-held Morgan Stanley (MS.US), and to offset the Bank of Japan’s (BOJ) negative interest rate program (NIRP) and weaker JPY in its home market. Whether it’s the current US regulatory framework or by managerial design, MUFG’s current US corporate structure does not lend itself very well to MUFG’s grand master plan of becoming a top 10 commercial lender in the US. The heavy cost of swapping JPY into USD from its own balance sheet isn’t helpful to Group bottom-line either. USD deposits at the Bank of Tokyo Mitsubishi’s New York (BTMU) branch do not fully support lending, and in fact branch loan outstanding have not grown since 2015 – which is odd given how meaningful this entity is to MUFG. Given the strength of its complementary sister company - MUFG Americas Holdings (MUAH), we would anticipate another major costly restructure of the entire US franchise – likely with a capital infusion from the Group.  * Pristine Fundamentals at MUAH: The strength of MUAH’s key fundamental metrics cannot be understated. This is an institution with de minimis problem loans, above average net interest margins (NIMs), strong fee generating capabilities, excess USD deposits, and a very robust capital base.* Significant Dollar Funding Needs at BTMU: From a funding perspective in the US, BTMU would appear to be MUAH’s polar opposite – and a good business complement at first blush. Unfortunately for MUFG, US regulations do not allow intercompany funding support. Given how short USD deposits that BTMU currently is, lending would appear to have been curtailed since 2015.* Another Internal US Restructure Appears Inevitable: As if MUFG’s 2014 internal US operational restructure wasn’t operationally disruptive and costly enough, it would now appear that yet another significant internal restructure is inevitable. In addition to the lack of loan growth at BTMU, swapping JPY for USD continues to be quite costly for MUFG. If MUFG does go the route of a restructure it will be disruptive, time consuming, costly, and likely require a capital infusion into MUAH upwards of USD 9 bn – although in the end it should free up the necessary cheap USD deposit funding for loan growth.

Despite Mitsubishi UFJ Financial Group (8306.JP/ MTU.US) [MUFG] being flush with liquidity in Japan given its surplus JPY deposits, the company desperately needs USD deposits to fund United States (US) growth, act as a backstop for the 22%-held Morgan Stanley (MS.US), and to offset the Bank of Japan’s (BOJ) negative interest rate program (NIRP) and weaker JPY in its home market. Whether it’s the current US regulatory framework or by managerial design, MUFG’s current US corporate structure does not lend itself very well to MUFG’s grand master plan of becoming a top 10 commercial lender in the US. The heavy cost of swapping JPY into USD from its own balance sheet isn’t helpful to Group bottom-line either. USD deposits at the Bank of Tokyo Mitsubishi’s New York (BTMU) branch do not fully support lending, and in fact branch loan outstanding have not grown since 2015 – which is odd given how meaningful this entity is to MUFG. Given the strength of its complementary sister company - MUFG Americas Holdings (MUAH), we would anticipate another major costly restructure of the entire US franchise – likely with a capital infusion from the Group.  * Pristine Fundamentals at MUAH: The strength of MUAH’s key fundamental metrics cannot be understated. This is an institution with de minimis problem loans, above average net interest margins (NIMs), strong fee generating capabilities, excess USD deposits, and a very robust capital base.* Significant Dollar Funding Needs at BTMU: From a funding perspective in the US, BTMU would appear to be MUAH’s polar opposite – and a good business complement at first blush. Unfortunately for MUFG, US regulations do not allow intercompany funding support. Given how short USD deposits that BTMU currently is, lending would appear to have been curtailed since 2015.* Another Internal US Restructure Appears Inevitable: As if MUFG’s 2014 internal US operational restructure wasn’t operationally disruptive and costly enough, it would now appear that yet another significant internal restructure is inevitable. In addition to the lack of loan growth at BTMU, swapping JPY for USD continues to be quite costly for MUFG. If MUFG does go the route of a restructure it will be disruptive, time consuming, costly, and likely require a capital infusion into MUAH upwards of USD 9 bn – although in the end it should free up the necessary cheap USD deposit funding for loan growth.

Sumitomo Mitsui Financial Group (8316 JP)

三菱UFJフィナンシャル・ホールディングス – 米ドル不足は米国の大規模なリストラを示唆