SEC Company Response from MITSUBISHI UFJ FINANCIAL GROUP INC (MUFG, MBFJF) (CIK 0000067088) (MUFG) — Jun 24, 2011
MITSUBISHI UFJ FINANCIAL GROUP INC (MUFG, MBFJF) (CIK 0000067088)
Date: June 24, 2011 · CIK: 0000067088 · Accession: 0001193125-11-172543
AI Filing Summary & Sentiment
File numbers found in text: 000-54189
Letter
VIA EDGAR Attention: Mitsubishi UFJ Financial Group, Inc. Form 20-F for year ended March 31, 2010, Filed August 16, 2010 Form 6-K, Filed April 21, 2011 File No. 000-54189
Dear Ms. Hunsaker:
We are submitting this letter on behalf of our client, Mitsubishi UFJ Financial Group, Inc. (the “Registrant”), in response to your letter, dated May 31, 2011. We appreciate the Staff’s review of and comments to the Registrant’s previous annual report on Form 20-F for the fiscal year ended March 31, 2010 (the “Annual Report”) and the Registrant’s report on Form 6-K submitted on April 21, 2011.
The Registrant is planning to submit its annual report on Form 20-F for the fiscal year ended March 31, 2011 in the next few weeks. As discussed further below, the Registrant will take into account the Staff’s comments in its future filings. We would greatly appreciate the Staff providing any further comments or questions relating to the responses set forth below as soon as possible, so that they may be further reflected in the upcoming filing of the Registrant’s annual report on Form 20-F.
Set forth below are the Staff’s comments together with the Registrant’s responses to the comments. Figures in the tabular presentation of this response letter are shown in millions unless otherwise stated.
U.S. Securities and Exchange Commission
Form 20-F
Risk Factors
“Because a large portion of our assets are located in Japan and our business operations are conducted primarily in Japan, we may incur further losses if economic conditions in Japan worsen”, page 9
Comment No. 1: You have disclosed that your performance is particularly affected by the general economic conditions of Japan. Given that you are headquartered in and conduct a significant amount of business in Japan, please explain to us the exposure that the recent natural and nuclear events has had on your business and how it has (or will) impact your operations. Additionally, please tell us how your business continuity plans discussed on page 143 performed in the wake of these natural disasters and whether any changes were necessary to your plans as a result.
Response to Comment No. 1: The operations of many Japanese companies have been adversely affected by the recent massive earthquake that struck the Tohoku region in Japan on March 11, 2011. The impact includes both direct and indirect negative effects on their operations.
With respect to the Registrant, the direct impact of the earthquake was primarily physical damage to its tangible assets, such as real estate properties and system infrastructure, and was limited only to the affected region. Of the more than 600 branches that The Bank of Tokyo Mitsubishi UFJ, Ltd., or BTMU, which is the Registrant’s main commercial banking subsidiary, has in Japan, only six branches are located in the region directly impacted by the earthquake. The Registrant’s real estate properties of those six branches did not suffer any serious damage, and all of them continued their operations through the end of normal business hours on the day of the earthquake and resumed their operations on the next business day of the earthquake. The Registrant does not have any branches or offices in the evacuation area established by the Japanese government due to the accidents at the Fukushima Daiichi Nuclear Power Plant.
The Registrant notes that the earthquake has resulted in, and will likely further cause, indirect adverse effects on its financial results such as an increase in credit costs as the credit quality of some borrowers have deteriorated. The Registrant’s loans outstanding to borrowers in the Tohoku region as of March 31, 2011 was proportionally small, constituting less than 1% of the Registrant’s total loans outstanding. The Registrant recognizes that borrowers in other regions in Japan may also be affected due to electricity power supply shortages, supply chain disruptions and other indirect consequences of the earthquake. As of March 31, 2011, the Registrant’s domestic loans in Japan accounted for approximately 80% of total loans outstanding.
In addition to the increase in credit costs, the Registrant notes that the earthquake has affected, and may continue to affect, Japanese stock prices as well as the value of Japanese government bonds. The Registrant has a significant portfolio of these securities that could be affected depending on how the Japanese economy reacts after the earthquake and what governmental policies may be adopted for reconstruction and recovery.
U.S. Securities and Exchange Commission
The Registrant estimates that the earthquake increased credit costs by approximately JPY22 billion for the fiscal year ended March 31, 2011. Although the Registrants believes that the earthquake contributed to the impairment losses from investment securities for the fiscal year ended March 31, 2011, the Registrant is unable to quantify the loss directly caused by the earthquake separately from losses caused by other economic factors. At this time, the Registrant is uncertain of the potential impact of the earthquake for the fiscal year ending March 31, 2012, because the operating environment will be influenced by numerous factors, including, but not limited to, general Japanese economic condition, pace of the market recovery (if any) and governmental policies for compensation and reconstruction.
In order to address the issues arising from the earthquake, the Registrant’s major subsidiaries have set up task forces pursuant to the Registrant’s rules relating to crisis management. The Registrant’s commercial banking, trust banking and securities subsidiaries recommenced their branch operations in the Tohoku region and nearby regions on the following business day after the earthquake, while some branches of other subsidiaries of the Registrant closed only on a temporary basis. The Registrant believes its business continuity plan functioned effectively to respond to the direct damages caused by the earthquake.
At the same time, the earthquake resulted in unprecedented and extreme circumstances, including radiation leakage caused by the accidents at the Fukushima Daiichi Nuclear Power Plant, an electricity power supply shortage and a need for all companies in Japan, including the Registrant, to reduce their electricity consumption this summer. The Registrant has initiated a comprehensive review of its existing business continuity plan to more effectively respond to these circumstances as well as further extreme scenarios, such as further radioactive contamination in the Tokyo metropolitan area and a sudden massive blackout in major metropolitan areas in Japan.
Item 4. Information on the Company, page 19
B. Business Overview, page 22
United States, page 37
Regulatory Reform Legislation, page 40
Comment No. 2: We note that you have extensive trading activities, including proprietary trading activities. Based on the disclosures throughout your filing, it is not clear how much of your foreign exchange and other trading revenues were generated from your proprietary trading business. We believe that separate quantification of your proprietary trading revenues, to the extent material, could provide useful information to allow readers to understand the significance of your proprietary trading activities to your overall results of operations. Additionally, to the extent that this revenue stream could be impacted by the Volcker rule, you should also discuss the effects of that potential limitation on your revenue stream. Accordingly, please revise your future filings to separately disclose your revenues earned from proprietary trading activities, if material. In addition, if the effects of the Volcker rule could potentially have a material effect on your operations, please clearly define what you consider to represent proprietary trading activities and discuss changes you plan to implement, or have implemented, as a result of future prohibitions or limitations on this type of activity in the future.
U.S. Securities and Exchange Commission
Response to Comment No. 2: Activities reported in the Registrant’s trading accounts can generally be classified into two categories:
•
Trading purpose activities – These activities are conducted mainly for the purpose of generating profits either through transaction fees or arbitrage gains through frequent and short-term selling and buying of securities, commodities or others.
•
Trading account assets relating to application of certain accounting rules – The Registrant has assets that are generally not related to trading purpose activities, but simply classified in its trading accounts due to the application of certain accounting rules, such as assets that are subject to fair value option accounting treatment or investment securities held by variable interest entities.
Of the two categories, trading purpose activities represent a smaller portion of the Registrant’s trading accounts profits.
Trading Purpose Activities: The Registrant’s commercial banking and securities subsidiaries are the main entities that conduct trading purpose activities. The profits generated by these subsidiaries accounted for more than a majority of the Registrant’s trading accounts profits from trading purpose activities during the fiscal year ended March 31, 2010.
The Registrant’s commercial banking subsidiaries generally do not separate customer originated trading activities from non-customer related trading activities, for financial reporting purposes. Based on managerial accounting figures, the Registrant’s management estimates that approximately one-half of the Registrant’s trading profits from the trading purpose activities related to customer originated trading activities.
The Registrant’s securities subsidiaries generally do not separate customer originated trading activities from non-customer related trading activities, either for financial reporting purposes or for managerial accountings purposes. They generally categorize trading purpose activities by types of operations such as primary operations, customer solutions, fixed income, equities and operations in relation to other financial products.
Trading Accounts relating to Application of Certain Accounting Rules: The Registrant holds assets that are not related to trading purpose activities, but rather are classified within trading accounts due to certain accounting treatments, such as assets subject to fair value option accounting treatment or investment securities held by variable interest entities.
U.S. Securities and Exchange Commission
Fair Value Option: Entities are permitted to choose, at specified election dates, to measure eligible financial assets and liabilities and certain other items at fair value that are not otherwise required to be measured at fair value. The Registrant elected the fair value option for foreign currency denominated debt securities, equity securities and certain other financial instruments held by its commercial banking, trust banking and securities subsidiaries effective on April 1, 2008. Since these accounts are recorded at fair value, gains and losses associated with these financial instruments constitute a part of our trading accounts profits under ASC 825-10-25. The nature of these accounts would have been available-for-sales investment securities rather than trading securities if the fair value option was not elected. Profits and losses of financial instruments subject to the fair value option are mainly comprised of gains/losses on sale of foreign currency denominated debt securities, gains/losses on valuation of foreign currency denominated debt securities, gains/losses on sale of foreign currency denominated equities, and gains/losses on valuation of foreign currency denominated equities. During the fiscal year ended March 31, 2010, profits from securities under the fair value option represented more than two-thirds of the trading account profits from trading accounts relating to application of certain accounting rules (i.e., non-trading purpose activities).
Variable Interest Entities: Trading accounts in relation to this category relate to investment trusts set up for the Registrant’s investment funds. The Registrant invests in investment trusts that are professionally managed collective investment schemes which pool money from many investors and invest in, among others, equity and debt securities. Most of these funds take the form of a trust where there is a separation in investment decisions, which is assumed by an investment manager who has no investment in the trust, and ownership through beneficiary interests issued by the trust are owned by investors. Therefore, these investment trusts are considered as variable interest entities (“VIE”s). The Registrant consolidates investment trusts when it owns a majority of the interests issued by investment trusts. Once investment trusts are consolidated, profits/losses associated with the investment trusts are accounted for as a part of trading accounts profits/losses. During the fiscal year ended March 31, 2010, most of the profits relating to these assets were derived from gains on valuation of debt securities and equities.
As noted above, trading profits associated with trading accounts relating to application of certain accounting rules account for a larger portion of the Registrant’s trading profits, and less than a majority of the Registrant’s trading accounts profits are derived from trading purpose activities in which the Registrant seeks profits by frequent selling and buying, with a short-term perspective, of securities, commodities and others for its own account. Furthermore, the Registrant’s primary sources of business are those of commercial banking businesses such as loans or deposit and of trust banking and securities businesses which are primarily conducted based on the Registrant’s established customer relationships. As a result, the Registrant believes a large part of its trading purpose activities relates to customer originated trading activities.
U.S. Securities and Exchange Commission
Furthermore, most of such trading purpose activities are generally executed in Japan and the Registrant’s has only a limited number of proprietary trading activities in U.S subsidiaries. The Registrant understands that the Volcker Rule may not impact proprietary trading activities that are conducted solely outside of the United States, which accounts for a large portion of the Registrant’s proprietary trading activities. Accordingly, the Registrant believes that the implementation of the Volcker Rule will not materially impact its business and operations. In the future, if the Registrant’s proprietary trading activities increases materially or becomes subject to material restrictions, the Registrant hereby undertakes to provide additional information regarding its proprietary trading revenues.
C. Organizational Structure, page 41
Comment No. 3: We note your disclosure on page 42 that you own 50% or less of the ownership interest and 50% or less of the proportion of voting interest in the following subsidiaries, yet these subsidiaries are consolidated into your consolidate financial statements:
•
The Master Trust Bank of Japan, Ltd.
•
Mitsubishi UFJ Capital Co., Ltd.
•
MU Hands-on Capital Co., Ltd.
•
BOT Lease Co., Ltd.
•
BTMU Participation (Thailand) Co., Ltd.
Please provide us with your accounting analysis for each of these entities supporting that that these entities are appropriately consolidated in your consolidated financial statements.
Response t
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CORRESP 1 filename1.htm Correspondence PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP FUKOKU SEIMEI BUILDING, 2-2 UCHISAIWAICHO 2-CHOME, CHIYODA-KU, TOKYO 100-0011, JAPAN June 24, 2011 VIA EDGAR U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 U.S.A. Attention: Ms. Stephanie Hunsaker Senior Assistant Chief Accountant Mitsubishi UFJ Financial Group, Inc. Form 20-F for year ended March 31, 2010, Filed August 16, 2010 Form 6-K, Filed April 21, 2011 File No. 000-54189 Dear Ms. Hunsaker: We are submitting this letter on behalf of our client, Mitsubishi UFJ Financial Group, Inc. (the “Registrant”), in response to your letter, dated May 31, 2011. We appreciate the Staff’s review of and comments to the Registrant’s previous annual report on Form 20-F for the fiscal year ended March 31, 2010 (the “Annual Report”) and the Registrant’s report on Form 6-K submitted on April 21, 2011. The Registrant is planning to submit its annual report on Form 20-F for the fiscal year ended March 31, 2011 in the next few weeks. As discussed further below, the Registrant will take into account the Staff’s comments in its future filings. We would greatly appreciate the Staff providing any further comments or questions relating to the responses set forth below as soon as possible, so that they may be further reflected in the upcoming filing of the Registrant’s annual report on Form 20-F. Set forth below are the Staff’s comments together with the Registrant’s responses to the comments. Figures in the tabular presentation of this response letter are shown in millions unless otherwise stated. U.S. Securities and Exchange Commission 2 Form 20-F Risk Factors “Because a large portion of our assets are located in Japan and our business operations are conducted primarily in Japan, we may incur further losses if economic conditions in Japan worsen”, page 9 Comment No. 1: You have disclosed that your performance is particularly affected by the general economic conditions of Japan. Given that you are headquartered in and conduct a significant amount of business in Japan, please explain to us the exposure that the recent natural and nuclear events has had on your business and how it has (or will) impact your operations. Additionally, please tell us how your business continuity plans discussed on page 143 performed in the wake of these natural disasters and whether any changes were necessary to your plans as a result. Response to Comment No. 1: The operations of many Japanese companies have been adversely affected by the recent massive earthquake that struck the Tohoku region in Japan on March 11, 2011. The impact includes both direct and indirect negative effects on their operations. With respect to the Registrant, the direct impact of the earthquake was primarily physical damage to its tangible assets, such as real estate properties and system infrastructure, and was limited only to the affected region. Of the more than 600 branches that The Bank of Tokyo Mitsubishi UFJ, Ltd., or BTMU, which is the Registrant’s main commercial banking subsidiary, has in Japan, only six branches are located in the region directly impacted by the earthquake. The Registrant’s real estate properties of those six branches did not suffer any serious damage, and all of them continued their operations through the end of normal business hours on the day of the earthquake and resumed their operations on the next business day of the earthquake. The Registrant does not have any branches or offices in the evacuation area established by the Japanese government due to the accidents at the Fukushima Daiichi Nuclear Power Plant. The Registrant notes that the earthquake has resulted in, and will likely further cause, indirect adverse effects on its financial results such as an increase in credit costs as the credit quality of some borrowers have deteriorated. The Registrant’s loans outstanding to borrowers in the Tohoku region as of March 31, 2011 was proportionally small, constituting less than 1% of the Registrant’s total loans outstanding. The Registrant recognizes that borrowers in other regions in Japan may also be affected due to electricity power supply shortages, supply chain disruptions and other indirect consequences of the earthquake. As of March 31, 2011, the Registrant’s domestic loans in Japan accounted for approximately 80% of total loans outstanding. In addition to the increase in credit costs, the Registrant notes that the earthquake has affected, and may continue to affect, Japanese stock prices as well as the value of Japanese government bonds. The Registrant has a significant portfolio of these securities that could be affected depending on how the Japanese economy reacts after the earthquake and what governmental policies may be adopted for reconstruction and recovery. U.S. Securities and Exchange Commission 3 The Registrant estimates that the earthquake increased credit costs by approximately JPY22 billion for the fiscal year ended March 31, 2011. Although the Registrants believes that the earthquake contributed to the impairment losses from investment securities for the fiscal year ended March 31, 2011, the Registrant is unable to quantify the loss directly caused by the earthquake separately from losses caused by other economic factors. At this time, the Registrant is uncertain of the potential impact of the earthquake for the fiscal year ending March 31, 2012, because the operating environment will be influenced by numerous factors, including, but not limited to, general Japanese economic condition, pace of the market recovery (if any) and governmental policies for compensation and reconstruction. In order to address the issues arising from the earthquake, the Registrant’s major subsidiaries have set up task forces pursuant to the Registrant’s rules relating to crisis management. The Registrant’s commercial banking, trust banking and securities subsidiaries recommenced their branch operations in the Tohoku region and nearby regions on the following business day after the earthquake, while some branches of other subsidiaries of the Registrant closed only on a temporary basis. The Registrant believes its business continuity plan functioned effectively to respond to the direct damages caused by the earthquake. At the same time, the earthquake resulted in unprecedented and extreme circumstances, including radiation leakage caused by the accidents at the Fukushima Daiichi Nuclear Power Plant, an electricity power supply shortage and a need for all companies in Japan, including the Registrant, to reduce their electricity consumption this summer. The Registrant has initiated a comprehensive review of its existing business continuity plan to more effectively respond to these circumstances as well as further extreme scenarios, such as further radioactive contamination in the Tokyo metropolitan area and a sudden massive blackout in major metropolitan areas in Japan. Item 4. Information on the Company, page 19 B. Business Overview, page 22 United States, page 37 Regulatory Reform Legislation, page 40 Comment No. 2: We note that you have extensive trading activities, including proprietary trading activities. Based on the disclosures throughout your filing, it is not clear how much of your foreign exchange and other trading revenues were generated from your proprietary trading business. We believe that separate quantification of your proprietary trading revenues, to the extent material, could provide useful information to allow readers to understand the significance of your proprietary trading activities to your overall results of operations. Additionally, to the extent that this revenue stream could be impacted by the Volcker rule, you should also discuss the effects of that potential limitation on your revenue stream. Accordingly, please revise your future filings to separately disclose your revenues earned from proprietary trading activities, if material. In addition, if the effects of the Volcker rule could potentially have a material effect on your operations, please clearly define what you consider to represent proprietary trading activities and discuss changes you plan to implement, or have implemented, as a result of future prohibitions or limitations on this type of activity in the future. U.S. Securities and Exchange Commission 4 Response to Comment No. 2: Activities reported in the Registrant’s trading accounts can generally be classified into two categories: • Trading purpose activities – These activities are conducted mainly for the purpose of generating profits either through transaction fees or arbitrage gains through frequent and short-term selling and buying of securities, commodities or others. • Trading account assets relating to application of certain accounting rules – The Registrant has assets that are generally not related to trading purpose activities, but simply classified in its trading accounts due to the application of certain accounting rules, such as assets that are subject to fair value option accounting treatment or investment securities held by variable interest entities. Of the two categories, trading purpose activities represent a smaller portion of the Registrant’s trading accounts profits. Trading Purpose Activities: The Registrant’s commercial banking and securities subsidiaries are the main entities that conduct trading purpose activities. The profits generated by these subsidiaries accounted for more than a majority of the Registrant’s trading accounts profits from trading purpose activities during the fiscal year ended March 31, 2010. The Registrant’s commercial banking subsidiaries generally do not separate customer originated trading activities from non-customer related trading activities, for financial reporting purposes. Based on managerial accounting figures, the Registrant’s management estimates that approximately one-half of the Registrant’s trading profits from the trading purpose activities related to customer originated trading activities. The Registrant’s securities subsidiaries generally do not separate customer originated trading activities from non-customer related trading activities, either for financial reporting purposes or for managerial accountings purposes. They generally categorize trading purpose activities by types of operations such as primary operations, customer solutions, fixed income, equities and operations in relation to other financial products. Trading Accounts relating to Application of Certain Accounting Rules: The Registrant holds assets that are not related to trading purpose activities, but rather are classified within trading accounts due to certain accounting treatments, such as assets subject to fair value option accounting treatment or investment securities held by variable interest entities. U.S. Securities and Exchange Commission 5 Fair Value Option: Entities are permitted to choose, at specified election dates, to measure eligible financial assets and liabilities and certain other items at fair value that are not otherwise required to be measured at fair value. The Registrant elected the fair value option for foreign currency denominated debt securities, equity securities and certain other financial instruments held by its commercial banking, trust banking and securities subsidiaries effective on April 1, 2008. Since these accounts are recorded at fair value, gains and losses associated with these financial instruments constitute a part of our trading accounts profits under ASC 825-10-25. The nature of these accounts would have been available-for-sales investment securities rather than trading securities if the fair value option was not elected. Profits and losses of financial instruments subject to the fair value option are mainly comprised of gains/losses on sale of foreign currency denominated debt securities, gains/losses on valuation of foreign currency denominated debt securities, gains/losses on sale of foreign currency denominated equities, and gains/losses on valuation of foreign currency denominated equities. During the fiscal year ended March 31, 2010, profits from securities under the fair value option represented more than two-thirds of the trading account profits from trading accounts relating to application of certain accounting rules (i.e., non-trading purpose activities). Variable Interest Entities: Trading accounts in relation to this category relate to investment trusts set up for the Registrant’s investment funds. The Registrant invests in investment trusts that are professionally managed collective investment schemes which pool money from many investors and invest in, among others, equity and debt securities. Most of these funds take the form of a trust where there is a separation in investment decisions, which is assumed by an investment manager who has no investment in the trust, and ownership through beneficiary interests issued by the trust are owned by investors. Therefore, these investment trusts are considered as variable interest entities (“VIE”s). The Registrant consolidates investment trusts when it owns a majority of the interests issued by investment trusts. Once investment trusts are consolidated, profits/losses associated with the investment trusts are accounted for as a part of trading accounts profits/losses. During the fiscal year ended March 31, 2010, most of the profits relating to these assets were derived from gains on valuation of debt securities and equities. As noted above, trading profits associated with trading accounts relating to application of certain accounting rules account for a larger portion of the Registrant’s trading profits, and less than a majority of the Registrant’s trading accounts profits are derived from trading purpose activities in which the Registrant seeks profits by frequent selling and buying, with a short-term perspective, of securities, commodities and others for its own account. Furthermore, the Registrant’s primary sources of business are those of commercial banking businesses such as loans or deposit and of trust banking and securities businesses which are primarily conducted based on the Registrant’s established customer relationships. As a result, the Registrant believes a large part of its trading purpose activities relates to customer originated trading activities. U.S. Securities and Exchange Commission 6 Furthermore, most of such trading purpose activities are generally executed in Japan and the Registrant’s has only a limited number of proprietary trading activities in U.S subsidiaries. The Registrant understands that the Volcker Rule may not impact proprietary trading activities that are conducted solely outside of the United States, which accounts for a large portion of the Registrant’s proprietary trading activities. Accordingly, the Registrant believes that the implementation of the Volcker Rule will not materially impact its business and operations. In the future, if the Registrant’s proprietary trading activities increases materially or becomes subject to material restrictions, the Registrant hereby undertakes to provide additional information regarding its proprietary trading revenues. C. Organizational Structure, page 41 Comment No. 3: We note your disclosure on page 42 that you own 50% or less of the ownership interest and 50% or less of the proportion of voting interest in the following subsidiaries, yet these subsidiaries are consolidated into your consolidate financial statements: • The Master Trust Bank of Japan, Ltd. • Mitsubishi UFJ Capital Co., Ltd. • MU Hands-on Capital Co., Ltd. • BOT Lease Co., Ltd. • BTMU Participation (Thailand) Co., Ltd. Please provide us with your accounting analysis for each of these entities supporting that that these entities are appropriately consolidated in your consolidated financial statements. Response t