The time has come to start the Net Conference for Mitsubishi UFJ Financial Group. We will give the presentation for the first half of fiscal year ending March 31, 2023. My name is Takahashi of the IR Office of the Financial Planning Division. We are joined by analysts and institutional investors, various organizations and individual investors. Let me give you the program today. Tetsuya Yonehana, Senior Managing Corporate Executive and the group CFO will give a 15-minute overview of the financial results, followed by a Q&A session. We will have a 50-minute meeting. In this presentation, we may state forward-looking statements based on our current expectations, all of which are subject to risks and uncertainties. Please be aware that actual results may differ materially from those discussed in the forward-looking statements. We would now like to begin the presentation of the financial results.

My name is Yonehana. Thank you very much for joining us at this late hour for the MUFG Net Conference. Please refer to the materials entitled financial highlights under Japanese GAAP for the first half of fiscal year ending March 31, 2023. I would like to explain the financial results of the first half and discuss the performance targets and shareholder return policy, progress of our midterm business plan and our sustainability initiatives. Page 7, an overview of profit and loss. The first line on the table on the left shows gross profit up by JPY 342.5 billion year-on-year. The second line and below are the breakdown of the gross profit, showing large increase and decreases depending on the item year-on-year. This is a result of the treasury operations using approximately JPY 490 billion in gains from the cancellation of [indiscernible] funds and gains from hedging derivatives to restructure the portfolio while cutting losses on foreign bonds. [indiscernible] fund cancellation gain is recorded in line 2 net interest income and gains in sales of foreign bonds is recorded in line 5 net gains in debt securities. It may be difficult to understand the actual increase and decrease because of these factors, but the drivers of the increase in gross profit are increases in loan and deposit income due to higher overseas interest rate and the risk return improvement and an increase in foreign exchange gains and trading income, capturing opportunities from the market fluctuations. G&A expenses increased by JPY 84.8 billion year-on-year. But in real terms, excluding the effect of the exchange rate increased by approximately JPY 27 billion. Net operating profit increased by JPY 257.7 billion to JPY 895.2 billion. We again had a negative impact of over JPY 100 billion. Even without the impact of foreign exchange, we are making strategic progress in implementing the measures of the midterm business plan with record high profit for an interim period. Line 8, total credit cards, JPY 231.9 billion in write-downs of loans receivables due to the impact of the accounting treatment of decision to sell MUB is posted. Although this impact increased credit cost by JPY 261.7 billion, excluding these valuation losses, a real credit card was low at approximately JPY 12 billion. Line 9, net gains and losses on equity securities. Sales of securities made progress about impairment losses on equity investment resulted in a decrease of JPY 49.9 billion to JPY 76.1 billion. Other nonrecurring gains and losses in line 13 are due to the same accounting treatment as credit costs, mainly due to JPY 331.8 billion, valuation loss of securities and other investments held by Union Bank, resulting in a deterioration of JPY 361.8 billion. Finally, the extraordinary income declined JPY 127.2 billion due to the absence of gain in equity associated with the Morgan Stanley's acquisition of Eaton Vance last year and the absence of gain on sale of the equity interest in Bank of Ayudhya. As a result, line 17, profits attributable to owners of the parent was JPY 231 billion, a decrease of JPY 550.3 billion. However, most of these onetime valuation losses associated with the accounting treatment will be reversed as extraordinary gains at the time of the sale of the Union Bank with a reversal of JPY 148.1 billion. Real amount is JPY 679.2 billion. Steady progress is made toward our target of JPY 1 trillion. Page 8, please. The lower left graph shows year-on-year changes in net operating profits by business segment. In the customer segment, AM/IS business posted a slight decrease in profit due to the absence of the large performance fees recorded in the previous year. The other business units steadily increased profits, including increases in deposits and loan revenues and foreign exchange-related revenues resulting in substantial JPY 218.4 billion increase in total customer segment profits. Global Markets also pursued gain on the cancellation of the Ayudhya funds while, recording a loss on the sale of foreign bonds reorganized its portfolio while reducing the financial impact and posted an increase of JPY 64.1 billion by capturing profit earning opportunities in market fluctuations. Page 9. On the right side, we showed changes in the net income by business segment. The business segments with the decline in net income include DS due to equity impairments, in GCB due to the absence of the reversal of the [indiscernible] credit costs, and AM/IS, in the absence of performance fees. However, R&C and JCIB and GCIB reported higher income and -- and so did the total customer segment and Global Markets. Page 11. This is the summary of the balance sheet. Line 2 on the left, loans, banking and trust accounts has increased by JPY 9.3 trillion. Of this amount, JPY 6.6 trillion was due to the impact of the weak yen. Excluding this impact, the increase was around JPY 3 trillion due to increase in overseas loans. Deposits in the 12th line increased by JPY 6.6 trillion, of which JPY 6.2 trillion was due to foreign exchange. So excluding this impact, deposits increased by approximately JPY 0.4 trillion. Page 12, the status of domestic loans. The graph on the lower right shows the trend of the interest margin on domestic corporate loans. And the red line indicates that the loan margin for large corporations continue to improve. Page 13 shows the status of overseas loans. The bottom line of the upper right shows the yield difference on loans and deposits of the banks and the trust banks combined, certainly increasing in response to rising interest rates overseas. In addition, the overseas lending spread is also steadily improving. Please turn to Page 14. The nonperforming loans balance in the left bar graph has remained almost unchanged from the end of the previous fiscal year, and the NPL ratio shown by the line graph, remains at a low level. Please turn to Page 15, which shows the status of investment securities such as stocks and government bonds. Unrealized gains losses shown in the upper left table, decreased from the end of the previous fiscal year, partly due to the rising interest rate overseas. In particular, line 7, unrealized losses on foreign bonds increased to approximately JPY 1.8 trillion. But as shown in the upper right graph, the actual unrealized losses, taking into account unrealized gains from hedging positions is approximately JPY 1 trillion. Next, Page 16 shows the status of capital adequacy. The CET1 ratio on finalized Basel III reforms basis, excluding unrealized gains, is 9.9%, which is close to the upper limit of the target range of 10% in the medium-term business plan and remains adequate from the soundness perspective. That concludes my explanation of the financial results. And I would now like to turn back to Page 2. Next, I will explain our performance targets. As shown on the right, we will maintain the JPY 1 trillion target for profits attributable to owners of parent announced at the beginning of the fiscal year. In addition, we revised our net operating profits target upward by JPY 200 billion in light of the strong progress made in the first half and also revised our credit costs and ordinary profit targets due to the accounting treatment in connection with the sale of Union Bank. Please turn to the next page. This page shows the progress of the medium-term business plan and the shareholder return policy. The left side shows the progress of the medium-term business plan. We believe that our earning power is steadily improving as net operating profits in the customer segments increased substantially by JPY 218.4 billion. Profits attributable to owners of parent is also trending steadily on a real-term basis. We've been able to firmly control expenses and risk-weighted assets and are feeling a certain level of confidence in this respect. The right side shows our shareholder return policy. First, the interim dividend is JPY 16 per common stock as forecasted at the beginning of the fiscal year and the FY '22 dividend forecast of JPY 32 per stock up by JPY 4 year-on-year remains unchanged. Regarding the repurchase of our own shares, the Board of Directors today approved a resolution to repurchase JPY 150 billion. This is in consideration of the capital release effect resulting from the confirmed sale of Union Bank, which is scheduled to be executed on December 1. In considering the amount of the share buyback, we judged that it is desirable to hold capital buffer for the time being, given the increasingly uncertain outlook for the business environment, including global inflation trends, rising volatility in financial markets and heightened geopolitical risks, and therefore, set it at JPY 150 billion. There is no change in our policy of disciplined capital management aimed at improving ROE. We will continue to consider implementing this policy in a flexible manner while keeping a close eye on future changes in the situation. Please turn to the next page. This is the progress of the main strategies of the medium-term business plan. This medium-term business plan is positioned as 3 years of new challenges and transformation, and we are making steady progress in the 3 key strategies of corporate transformation, strategy for growth and structural reforms. As described on the right, we've been working on various initiatives to update ourselves into a financial and digital platform operator to deepen and explore new fields of open innovation and digital transformation, to accelerate culture reform and to enhance profitability and efficiency through growth strategies and structural reforms. Please turn to Page 6. This is our approach to sustainability. Please look at the left side. We have set a target of JPY 35 trillion in cumulative sustainable finance from FY 2019 to FY 2030 to solve environmental and social issues and have made steady progress with a cumulative amount of around JPY 19.4 trillion up to the second quarter of FY '22. In addition, as shown on the lower left, we are actively engaged in rulemaking and communication of our view based on the situation in Japan and Asia are facing. In order to achieve carbon neutrality, in October we prepared the MUFG Transition White paper, which summarizes the efforts of Japanese companies toward decarbonization and the environment surrounding Japan's energy policy. We have been disseminating our view to policymakers overseas, and we'll continue to make firm efforts toward achieving carbon neutrality. That concludes my explanation. A - Masahisa Takahashi: We have until 7:50 p.m. today, so we will now take your questions. [Operator Instructions]. Let me introduce the first questioner. We would like to start with the first question. Takamiya, please.

My name is Takamiya from Nomura Securities. I have 2 questions. The first question is about the share buyback. And the second question is about the achievement of the net operating profit. Regarding the share buyback, I would like to confirm the JPY 150 billion announced this time is the amount of capital release associated with the transfer shares of the Union Bank. And it does not include the amount corresponding to the capital lease and earnings from the second half of the year. Is that correct? And based on that, if the capital adequacy ratio is within the target range, and profits are expected to increase in the second half of the fiscal year. Could the return of profit will be considered as an option. What are your thoughts? That is my first question. The second question is regarding the certainty of achieving the net operating profit. You mentioned that the first half of the fiscal year was very favorable. But in light of the current uncertain environment, what are your thoughts as the CFO on the probability of achieving the full year result.

Thank you very much for your question, Mr. Takamiya. First of all, to your first question, regarding the JPY 150 billion share buyback will be addressed. As you have mentioned in your comment, this is the effect of the capital release associated with the sale of MUB. Specifically, we have been considering a 1/3 share buyback for the portion of capital that will be freed up by the removal of risk-weighted assets. The share buyback on an ordinary basis is, therefore, not included for -- therefore, the ordinary base share buyback is not included. If I were to put a color on our capital, it is not included. Therefore, the CET1 ratio, finalized Basel III reforms basis, including net unrealized gains as of the end of September is 9.9%. But there is a difference between the first and second half of the year, the difference will vary according to the ins and outs of the MUB evaluation. We would like to consider future capital management, including the profit accumulation in the second half of the year. As mentioned, we will continue to consider share buyback in a faction manner. The second point is the certainty of the net operating profit target. Our bottom line target of JPY 1 trillion remains unchanged. As for net operating profit, we have revised upward by JPY 200 billion from the original JPY 1.3 trillion to JPY 1.5 trillion. As you can see, there is significant variation between the first half and the second half of the fiscal year. Specifically, we will be taking a more cautious look in the second half for treasury operations. We are more cautious for customer segment in the second half following the strong performance in sales and trading on the back of foreign exchange volatility in the first half. That is the reason why the second half outlook is conservative. Although there are various uncertainties regarding the revised forecast of the JPY 1.5 trillion, we are determined to achieve it. And I personally hope that the increase will be greater than what we are currently projecting, especially in the customer segments.

We will now take the next question from Mr. Nakamura, please.

Yes. I am Nakamura from BofA Securities. I have 2 questions. The first question is similar to the question asked by Mr. Takamiya. With respect to capital management, could you tell us why the CET1 ratio has declined by 30 basis points since the end of June? You also mentioned that the additional share buybacks will be considered in a flexible manner. But is the timing likely to be second quarter or fourth quarter, not the third quarter? Please elaborate. The second point is regarding the unrealized loss on foreign bonds. After hedging this JPY 1 trillion. It seems that you have a favorable assessment considering the rapid rise in the U.S. interest rate. Please clarify your assessment. You have talked about being cautious about the treasury operations in the second half of the year. Despite the successful operations, unrealized losses are incurred. Please tell us how to deal with this unrealized loss and how to build the position with a view of generating carry profits in the next fiscal year?

Thank you very much for your question, Mr. Nakamura. To your first point, in the first half, about the reason for the 0.3 point decline in the CET1 ratio from 10.2% at the end of June to 9.9% at the end of September. I will address this question first. First of all, the impact of the market movement is that depreciation of the yen has increased the foreign currency translation adjustment account while risk-weighted assets have increased. And Morgan Stanley's book value has also increased slightly due to the impact of foreign exchange. However, basically, the impact of the exchange rate has been offset, and the impact on the ratio is neutral. Against this backdrop, the changes from the end of June will be explained. This includes the impact of the loss on the sale of MUB in the profit and loss. It continued in the second quarter. And the impact of the offer of the interim dividend to be received at the end of September is included. And the share buyback conducted between the end of June to end of September have had an impact in monetary terms. These 2 items amounted to just under JPY 400 billion. These 2 accounted for most of the 30 basis point decline in the ratio between June and September. Regarding the second half of your first question, that MUFG will consider share buybacks in a flexible manner. MUFG has generally announced share buybacks at the timing of the interim and full year results. However, this time around, in light of the current situation, we decided to take a slightly more prudent approach, and we will consider making a decision in the third quarter as well. Therefore, the point at which we will make our next decision is when the Q3 financial results are announced. Now regarding your second point on foreign bonds. I would like to talk about how we evaluate the foreign bonds. Please refer to Page 15 of the financial highlights. In the table of valuation gains and losses on foreign bonds and other securities in the upper left-hand corner, the seventh line is for foreign bonds, which was JPY 1.8 trillion at the end of September. As shown on the right, the amount of the considering hedge position is approximately JPY 1 trillion. Now the loss -- after taking into account the hedge position, the loss was JPY 0.4 trillion at the end of March, but it was about JPY 1 trillion at the end of September, an increase of about JPY 0.6 trillion in the past 6 months occurred while interest rates were rising. So this is the total. So let me elaborate further on the details. Approximately JPY 550 billion is resulted on overall foreign bond position after taking hedging into consideration increased from the end of March. And foreign bond position, including hedge positions, increased by over JPY 150 billion from March to September due to foreign exchange fluctuations. On a net basis, we were able to limit the increase in unrealized losses to just under JPY 400 billion. In the meantime, we have generated revenue by recording losses on sales while taking gains on hedge cancellations. We were able to control the increase of unrealized losses. I believe that we have managed this process well. Operations were successful. As I mentioned earlier, excluding the impact of exchange rate fluctuations, the net effect of the 6-month period was JPY 400 billion. But for the second quarter alone, the increase was only about JPY 100 billion, meaning that position has been reduced considerably. That is how appropriate operations have been made. We have also reduced this position to a considerable level, taking steps to control the future increase in valuation losses. In terms of position management, having said that, we have been hedging in response to volatility in interest rates and have been successfully combining gains on hedging with losses on sales of foreign bonds and improving the value of our holdings of foreign bonds. In the recent past, we have been reducing positions, but I believe that the timing for restoring positions will come at some point, depending on the market.

I have a follow-up question I would like some clarification on the first question. If you were to make a decision in the third quarter, what changes would make you more positive?

Thank you for that question. As I mentioned, in my explanation at the beginning, global inflation trends and financial market volatility have been increasing. In addition, geopolitical risks are increasing as well. Considering these factors, we have judged that the economic outlook has become more uncertain than when we made our decision in May. And we have decided that it is better to increase the buffer of capital we hold. The key factor is the prevailing situation at the end of January or the beginning of February next year.

We will now move on to the third person, Mr. Matsuno, please.

I'm Matsuno from Mizuho Securities. I have 2 questions. The first question overlaps with Nakamura-san's question. But you mentioned that you have capital buffer. To what extent do you want to have excess capital? I understand that the weak yen will have a full-fledged impact on the foreign currency translation adjustment due to the 3-month lag. Also, the sale of MUB will raise the CET1 ratio by 50 basis points. And in my calculation as an outsider, the ratio was estimated to be in the high 10% range on the finalized Basel III reforms basis, excluding unrealized gains at the end of March. In that sense, it appears to me that you may already have capital buffer. But could you comment on the level of buffer you want to maintain? This is my first question. My second question is about how the revised full year target is structured? It is stated that consolidated net operating profit will be revised upward by JPY 200 billion and the impact of the sale of MUB will be unchanged at approximately JPY 200 billion for the full year. Could you please elaborate on the background to your decision of keeping consolidated net income unchanged at JPY 1 trillion? In addition, sorry for asking the same question I asked in the conference call 6 months ago, but could you also comment on the extraordinary gain on sale of JPY 90 billion associated with the sale of MUB and the trend?

Thank you for your questions, Mr. Matsuno. Regarding the first point, capital, we do not have a specific level of capital that we want to retain. It is true our CET1 ratio at the end of September was 9.9%. However, we are aware of the fact that the decision to sell MUB will result in the progress of profits being weighted towards the second half of the year and that the effect of the release of capital from MUB will be realized at the end of March due to the time lag factor, and that the foreign currency translation adjustment will also have a time lag, as you pointed out. CET1 ratio at the end of March may fluctuate depending on the exchange rate. But if we factor in the decision to buy back JPY 150 billion of our own shares, March CET1 ratio is expected to be higher than the September CET1 ratio, which is based on the exchange rate at the end of June. As Matsuno-san pointed out, we estimate that the ratio will exceed 10.5%. Therefore, we have decided on JPY 150 billion share buyback for the current fiscal year, considering the current level of 9.9%, which will be slightly above 10.5% at the end of March, 6 months from now. Naturally, we will keep an eye on the level of the CET1 ratio at the end of March next year as well as at the third quarter and the full year financial results in March, and we'll continue to manage it flexibly and with discipline. We will consider this without changing our stance. The first part of your second question is about the revision of the performance target this time and the breakdown of the revision and the upward revision of JPY 200 billion in net operating profit with no revision in net income. There are some changes in accounts due to the sale of MUB, which makes it a little confusing. So let me explain this, excluding these changes. The sale of MUB is not related to the revision of net operating profit target. So the upward revision is JPY 200 billion. We revised credit costs upward to JPY 800 billion as this incorporates the portion of MUB write-downs that have or will increase from now until the end of November due to rising interest rates. And we have not revised the portion excluding the MUB impact. As a result, excluding the gain from the sale of MUB, ordinary income is actually revised upward by JPY 150 billion. Therefore, excluding the impact of the sale of MUB, the net operating profit target was revised upward by JPY 200 billion and ordinary profit target up by JPY 150 billion. And as a result, the profits attributable to owners of parent was left unchanged. From net operating profit to ordinary profit, we lowered our initial target by JPY 50 billion. But the main reason is the impairment of Grab's shares, which was originally assumed in April or May. The share price of Grab has fallen further since then, so we assumed a larger impairment loss than we had originally estimated. In addition, we have left the profit attributable to owners of parent unchanged, although ordinary income is plus JPY 150 billion. This is related to the latter part of your second question, regarding the gain on sale of MUB as opposed to extraordinary gain. So let me explain the gain on sale of MUB first. When we first announced this in September last year, we explained that the extraordinary gain was JPY 150 billion. And during the process, there was a reversal of allowance for credit loss of JPY 60 billion, so we recorded the JPY 60 billion last fiscal year and the remaining JPY 90 billion is your question, right? Let me start again from the JPY 150 billion. The number of USB shares, which will be received as part of the consideration is determined at the time of signing of the purchase agreement in September. But the gain on sales is recognized based on the share price at the time of the closing. We assume that the share price has fallen by JPY 80 billion. The total foreign exchange impact is plus JPY 50 billion due to the weaker yen. So on net, the total gain on sale is assumed to be JPY 120 billion, down by JPY 30 billion from the JPY 150 billion gain that we initially explained. As I mentioned earlier, JPY 60 billion has already been accounted for in the previous fiscal year. So the remaining JPY 60 billion is carried over to the next accounting period. I will explain this JPY 60 billion in detail by showing a diagram at the investor meeting. But this time, in selling MUB, USD 3.5 billion is deferred for 5 years and paid from USB. Considering the timing of receipt, the interest portion would be discounted. Since the closing date is December 1, we can take in only 1 month this fiscal year. And the remaining JPY 60 billion will be deferred for 5 years and recorded every year. So in summary, JPY 150 billion is down to JPY 120 billion due to stock price and foreign exchange impact, 60 billion was recorded last year, and the remaining JPY 60 billion will be recorded for the next 5 years starting next fiscal year. Based on that, we have decided to leave the profit attributable to owners of parent unchanged despite the ordinary income of plus JPY 150 billion. We factored in the decrease in the gain on sale due to the decline in USB share price, which I mentioned earlier as well as the time lag in deferred payment. The increase in the amount of the deferred payment from the May assumption due to the rise in interest rates totals approximately JPY 100 billion. And this is included between ordinary income and profit attributable to owners of parent. I apologize for the rather complicated explanation, but that is all.

Thank you very much for your detailed explanation.

Thank you very much. The gain on sale or the MUB related part is not included in today's disclosure material due to space limitations but we will have more material for the investor meeting the day after tomorrow. So please take a look at it.

We have about 10 minutes left. No one is currently pressing the question button.

I would like to wait for a while. Any other questions?

Since there are no more questions, we will close the Q&A session. Before closing, Yonehana-san would like to say a few words.

Thank you very much for your valuable questions today. Today, I explained the results of the first half of FY 2022 and we will continue our efforts in financial and capital management to sustainably increase shareholder value while placing emphasis on our dialogue with shareholders and investors. I'd like to ask you for your continued understanding and further support. Thank you very much for your kind attention today.

Today's conference will be available on demand as an archive on the company hotline website until Monday, November 21. This concludes the web conference on Mitsubishi UFJ Financial Group's financial highlights for the first half of fiscal year ending March 31, 2023. Thank you very much for your attendance today. Please make sure to hang up your phones.