Filed pursuant to Rule 424(b)(5)
Registration No. 333-98061
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 16, 2002)
[LOGO]
MTFG
[LOGO]
Mitsubishi Tokyo Financial Group, Inc.
68,000 Shares of Common Stock
IN THE FORM OF SHARES AND AMERICAN DEPOSITARY SHARES
-----------------
Mitsubishi Tokyo Financial Group, Inc. is offering 50,000 shares of its
common stock, in the form of shares and ADSs. In addition, our wholly owned
subsidiaries, The Bank of Tokyo-Mitsubishi, Ltd. and The Mitsubishi Trust and
Banking Corporation, as selling shareholders, are offering an aggregate
of 18,000 shares of our common stock, in the form of shares and ADSs. Because
the selling shareholders are our wholly owned subsidiaries, the offering of
shares of our common stock by them will be considered a primary offering under
U.S. securities laws. Each ADS represents 1/1000 of a share of our common stock.
-----------------
Concurrent with this offering, we and the selling shareholders are
conducting an offering of 343,027 shares of our common stock in Japan and an
offering of 164,000 shares of our common stock, in the form of shares and ADSs,
outside of Japan, the United States and Canada.
-----------------
Shares of our common stock are listed on the First Section of the Tokyo
Stock Exchange and the Osaka Securities Exchange in Japan. Shares of our common
stock are also listed on the Official List of the UK Listing Authority and
traded on the market for listed securities on the London Stock Exchange in the
United Kingdom. The ADSs are listed on the New York Stock Exchange under the
symbol "MTF". The last reported sales price was (Yen)485,000 per share of our
common stock on the Tokyo Stock Exchange on March 3, 2003 and $4.43 per ADS on
the New York Stock Exchange on February 28, 2003.
-----------------
Investing in shares of our common stock or ADSs involves risks. See "Risk
Factors" beginning on page S-12 of this prospectus supplement and page 4 of the
accompanying prospectus.
Underwriting Proceeds, Before Proceeds, Before
Discounts and Expenses, Expenses,
Price to the Public Commission to MTFG to Selling Shareholders
------------------- ------------------ ------------------- -----------------------
Per share of common stock.......... (Yen) 475,000 (Yen) 19,400 (Yen) 455,600 (Yen) 455,600
Per ADS............................ $ 4.03 $ 0.1646 $ 3.8656 $ 3.8656
Total.............................. (Yen)32,300,000,000 (Yen)1,319,200,000 (Yen)22,780,000,000 (Yen)8,200,800,000
Total (U.S. dollar translation) (1) $ 274,056,288 $ 11,193,036 $ 193,281,803 $ 69,581,449
-------------
(1) Based on an exchange rate of (Yen)117.859 = $1.00.
We have granted the U.S. underwriters and the international managers options to
purchase up to an additional 10,000 shares and 24,000 shares, respectively, of
our common stock, in the form of shares or ADSs, solely to cover any
over-allotments. In addition, we have granted the representative of the
Japanese underwriters an option, to purchase up to an additional 50,000 shares
of our common stock for the purpose of covering any over-allotments in the
Japanese offering.
The U.S. Securities and Exchange Commission, or the SEC, and state securities
regulators have not approved or disapproved these securities, or determined if
this prospectus supplement or the accompanying prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The U.S. underwriters expect to deliver the ADSs to purchasers in New York, New
York on March 12, 2003 and to deliver the shares to purchasers in Tokyo, Japan
on March 12, 2003.
-----------------
Joint Global Coordinators
Morgan Stanley Nomura Securities
Co-Global Coordinators
Mitsubishi Securities Tokyo-Mitsubishi
Co., Ltd. International plc
Joint Bookrunners
Morgan Stanley Nomura Securities
International, Inc.
Senior Co-Managers
Merrill Lynch & Co. UBS Warburg
Co-Managers
NikkoSalomonSmithBarney Americas Lehman Brothers Deutsche Bank Securities
March 3, 2003
TABLE OF CONTENTS
Prospectus Supplement
Page
----
About This Prospectus Supplement.......... S-3
Prospectus Supplement Summary............. S-4
Risk Factors.............................. S-12
Forward-Looking Statements................ S-24
Exchange Rates............................ S-25
Market Information........................ S-26
Dividend Policy........................... S-27
Use of Proceeds........................... S-28
Capitalization............................ S-29
Dilution.................................. S-31
Selected Financial and Operating Data..... S-32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. S-35
Business.................................. S-78
Recent Developments....................... S-80
Selling Shareholders...................... S-89
Underwriting.............................. S-90
Legal Matters............................. S-95
Experts................................... S-95
Where You Can Obtain More Information..... S-95
Incorporation of Documents by Reference... S-95
Limitations on Enforcement of U.S. Laws... S-96
Selected Statistical Data................. A-1
Index to Consolidated Financial Statements F-1
Prospectus
Page
----
About This Prospectus................... 3
Risk Factors............................ 4
Forward-Looking Statements.............. 13
Capitalization.......................... 14
Use of Proceeds......................... 16
Determination of Offering Price......... 16
Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends 17
Description of Securities............... 18
Taxation................................ 42
Plan of Distribution.................... 47
Legal Matters........................... 50
Experts................................. 50
Where You Can Obtain More Information... 50
Incorporation of Documents by Reference. 50
Limitations of Enforcement of U.S. Laws. 51
-----------------
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We and the selling shareholders
have not authorized anyone to provide you with information different from that
contained in this prospectus supplement and the accompanying prospectus. We and
the selling shareholders are offering to sell, and seeking offers to buy,
shares of common stock and ADSs only in jurisdictions where offers and sales
are permitted. The information contained in, or incorporated by reference into,
this prospectus supplement and the accompanying prospectus is accurate only as
of their respective dates, regardless of the time of delivery of this
prospectus supplement and the accompanying prospectus or of any sale of our
shares of common stock or ADSs.
The U.S. and Japanese underwriters and the international managers in the
global offering may engage in transactions that stabilize, maintain or
otherwise affect the price of our common stock or ADSs, including
over-allotment, stabilizing and short-covering transactions in our common stock
or ADSs, and the imposition of a penalty bid, during and after the global
offering. The stabilization, if commenced, may be discontinued at any time. For
a description of these activities, please see the section in this prospectus
supplement entitled "Underwriting."
S-2
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement contains the terms of this offering. A
description of our common stock is contained in the accompanying prospectus.
This prospectus supplement and the information incorporated by reference into
this prospectus supplement adds, updates and changes information in the
accompanying prospectus. If the information contained in this prospectus
supplement, or the information incorporated by reference into this prospectus
supplement, is inconsistent with the accompanying prospectus, this prospectus
supplement or the information incorporated by reference into this prospectus
supplement will apply and will supersede the information in the accompanying
prospectus.
It is important for you to read and consider all information contained in,
or incorporated by reference into, this prospectus supplement and the
accompanying prospectus in making your investment decision. You should also
read and consider the information in the documents we have referred you to in
"Where You Can Obtain More Information."
S-3
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights some of the information in this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference. Because this is only a summary, it does not contain all of the
information that may be important to you. You should read the entire prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference carefully, including the section entitled "Risk Factors" and our
consolidated financial statements and related notes to those statements
included in this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference.
Mitsubishi Tokyo Financial Group, Inc.
We are one of the world's leading bank holding companies, with (Yen)92.32
trillion in total assets as of September 30, 2002. We are a holding company for
The Bank of Tokyo-Mitsubishi, Ltd., or Bank of Tokyo-Mitsubishi, and The
Mitsubishi Trust and Banking Corporation, or Mitsubishi Trust Bank. We work
with our subsidiary banks to define business goals and strategies and to
implement those strategies, to assist them to achieve synergies among their
operations, and to manage risk globally. We are the only Japanese banking group
listed on the New York Stock Exchange.
We provide a broad range of financial services, including commercial
banking, investment banking, trust-banking and asset management services, to
individuals and corporate customers through our two principal subsidiaries and
their respective subsidiaries:
. Bank of Tokyo-Mitsubishi is one of the major commercial banks in Japan
and provides a wide range of financial services in Japan and around the
world through its eight major business units: retail banking, commercial
banking, global corporate banking, investment banking, asset management,
UnionBanCal Corporation, operations services and treasury. Bank of
Tokyo-Mitsubishi's domestic network includes approximately 280 branches,
sub-branches and agencies. Its overseas operations consist of more than
120 branches, sub-branches, representative offices and overseas
subsidiaries located in the major financial and commercial centers of the
world.
. Mitsubishi Trust Bank is one of the major trust banks in Japan and
provides trust, banking and real estate services through its four major
business groups: trust-banking, trust assets, real estate and global
markets. Mitsubishi Trust Bank is a major provider of pension, fiduciary
asset management, custody, real estate, stock transfer agency and
additional services for retail and corporate customers.
As of September 30, 2002, we had total loans, net of allowance for credit
losses, of (Yen)46.52 trillion, total deposits of (Yen)63.84 trillion and
shareholders' equity of (Yen)2.34 trillion.
Business Strategy
To address the extraordinary challenges facing us, we have, together with
our principal subsidiaries, developed a business strategy designed to:
. strengthen our balance sheet for future growth by reducing the volume of
our problem loans and the size of our equity portfolio;
. improve our profit structure by increasing loan volume to creditworthy
borrowers and improving the risk-adjusted returns on our lending
business, expanding our offerings of fee-generating financial services
and promoting cost efficiency; and
S-4
. capture the benefits of operating as an integrated, diversified financial
group by promoting integrated management and intra-group cooperation.
As we continue our efforts to complete the strengthening of our financial
base through the reduction of our problems loans and equity portfolio and focus
on improving our profit structure, we are building on our solid position within
the Japanese financial sector to emerge as a globally competitive, diversified
financial services group. By offering a broad range of value-added financial
products and services from our commercial, trust, investment and other banking
capabilities and moving aggressively ahead of our competitors to bolster our
financial position, we seek to further enhance customer confidence, leverage
our competitive advantages to expand our businesses and enhance shareholder
value.
Recent Developments
There have been several recent developments in our business, including the
following:
. On September 1, 2002, four of our securities subsidiaries and affiliates
were merged to form Mitsubishi Securities Co., Ltd.
. As of September 30, 2002, we have opened three joint branches shared by
Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, and have plans to
open more joint branches shared by Bank of Tokyo-Mitsubishi and
Mitsubishi Securities.
In recent months, the Financial Services Agency, the Bank of Japan and other
elements of the Japanese government have announced initiatives:
. to normalize problems with nonperforming loans by March 31, 2005, by
reducing the major banks' ratios of nonperforming to total loans by half;
. intended to increase the rigor of banks' assessment of assets;
. to reconsider the inclusion of deferred tax assets in the calculation of
Tier I capital;
. to increase governmental oversight over banks that have received public
funding;
. to extend the unlimited Deposit Insurance Corporation guarantee of liquid
deposits until March 31, 2005;
. to promote banks' sales of non-performing loans to the Resolution and
Collection Corporation;
. to facilitate banks' sales of listed stocks to the Bank of Japan; and
. to revitalize over-indebted but economically viable business enterprises.
For additional information about these matters and other recent
developments, see "Recent Developments--Recent Developments in Our Company" and
"Recent Developments--Recent Regulatory Developments."
Risk Factors
Investing in shares of our common stock or ADSs involves risks. You should
carefully consider all the information contained in, or incorporated by
reference into, this prospectus supplement and the accompanying prospectus
prior to investing in our shares of common stock or ADSs. In particular, we
urge you to consider carefully the factors set forth under "Risk Factors"
beginning on page S-12 of this prospectus supplement and beginning on page 4 of
the accompanying prospectus.
S-5
-----------------
Our head office is located at 4-1 Marunouchi 2-chome, Chiyoda-ku, Tokyo
100-6326, Japan, and our telephone number is 81-3-3240-8111. Our web site
address is http://www.mtfg.co.jp. The information contained on our web site is
not part of this prospectus supplement or the accompanying prospectus.
-----------------
In this prospectus supplement, "MTFG," "we," "us," and "our" refer to
Mitsubishi Tokyo Financial Group, Inc. and its consolidated subsidiaries.
References to the "selling shareholders" refer to Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank. "You" refers to prospective investors in our shares of
common stock and ADSs.
The financial data in this prospectus supplement are presented in Japanese
yen. In this prospectus supplement, when we refer to "US dollars," "dollars,"
"US $," and "$," we mean US dollars, and when we refer to "yen" and "(Yen)," we
mean Japanese yen. This prospectus supplement contains translations of some
Japanese yen amounts into US dollars solely for your convenience. See the
section entitled "Exchange Rates" for a discussion of the exchange rates of the
Japanese yen compared to the US dollar.
For purposes of this prospectus supplement, we have presented our
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America ("US GAAP"), except for the
business segment financial information and some other specifically identified
information, which are prepared in accordance with accounting principles
generally accepted in Japan ("Japanese GAAP"). Unless otherwise stated or the
context otherwise requires, all amounts in our financial statements are
expressed in Japanese yen.
S-6
The Global Offering
Shares offered in the global offering by:
MTFG.................... 420,000 shares of our common stock, which may be
delivered in the form of shares or ADSs.
Selling shareholders.... 155,027 shares of our common stock, which may be
delivered in the form of shares or ADSs,
consisting of 124,179 shares offered by Bank of
Tokyo-Mitsubishi and 30,848 shares offered by
Mitsubishi Trust Bank.
Total......... 575,027 shares of our common stock, which may be
delivered in the form of shares or ADSs.
Global offering............. The global offering consists of the following
concurrent offerings, which are conditioned on
one another:
U.S. offering......... 68,000 shares of common stock to be offered in
the United States and Canada in the form of
shares or, if you so choose, ADSs, including
15,000 shares offered by Bank of Tokyo-Mitsubishi
and 3,000 shares offered by Mitsubishi Trust Bank;
Japanese offering..... 343,027 shares of common stock to be offered in
Japan in the form of shares including 74,179
shares offered by Bank of Tokyo-Mitsubishi and
18,848 shares offered by Mitsubishi Trust Bank;
and
International offering 164,000 shares of common stock to be offered
outside of Japan, the United States and Canada in
the form of shares, or if you so choose, ADSs,
including 35,000 shares offered by Bank of
Tokyo-Mitsubishi and 9,000 shares offered by
Mitsubishi Trust Bank.
Over-allotment option granted We have granted the U.S. underwriters and the
international managers options to purchase up to
an additional 10,000 shares and 24,000 shares,
respectively, of our common stock, in the form of
shares or ADSs, solely to cover any
over-allotments. In addition, we have granted the
representative of the Japanese underwriters an
option to purchase up to an additional 50,000
shares of our common stock for the purpose of
covering any over-allotments in the Japanese
offering. See the section entitled "Underwriting"
for additional details with respect to these
options. Unless we state otherwise, the
information in this prospectus supplement does
not take into account the possible sale of these
shares.
Shares that will have been
issued immediately after
the global offering....... 6,162,468 shares of common stock, including
shares represented by ADSs.
American depositary shares.. Each ADS represents 1/1000 of one share of our
common stock. The ADSs are evidenced by American
depositary receipts, or ADRs, issued under a
deposit agreement for the ADSs among us, The Bank
of New York, acting as depositary, and the owners
and holders from time to time of ADSs. See
"Description of Securities--American Depositary
Shares" in the accompanying prospectus for a
description of the material features of the ADSs
and the ADRs.
S-7
Depositary for the ADSs..... The Bank of New York.
Offering price.............. (Yen) 475,000 per share of common stock.
$4.03 per ADS, based on an exchange rate of
(Yen)117.859 = $1.00 and adjusted for the ratio
of 1/1000th share per ADS
Use of proceeds............. We expect to receive net proceeds from the global
offering of approximately (Yen)189.7 billion,
which we will use to invest in our wholly owned
subsidiary banks and for general corporate
purposes. Bank of Tokyo-Mitsubishi and Mitsubishi
Trust Bank, as selling shareholders, expect to
receive aggregate net proceeds from the global
offering of approximately (Yen)70.6 billion. They
intend to use the net proceeds from the global
offering for general corporate purposes. See "Use
of Proceeds."
Dividends................... Purchasers of shares of our common stock or ADSs
will be entitled to receive the full amount of
any dividend that may be paid to shareholders of
record as of March 31, 2003. Dividend payments to
a non-resident holder of shares or ADSs will be
subject to Japanese withholding taxes. Dividends
on our common stock are paid in Japanese yen.
Subject to the terms of the deposit agreement,
the depositary for the ADSs will convert any cash
dividends into US dollars. Any dividends paid to
holders of ADSs will be less the fees and
expenses payable under the deposit agreement and
any applicable taxes. See "Description of
Securities--American Depositary Shares" in the
accompanying prospectus.
Listing..................... Shares of our common stock are listed on the
First Section of the Tokyo Stock Exchange and the
Osaka Securities Exchange in Japan. Shares of our
common stock are also listed on the Official List
of the UK Listing Authority and traded on the
market for listed securities on the London Stock
Exchange in the United Kingdom. The ADSs are
listed on the New York Stock Exchange under the
symbol "MTF".
We have applied to the UK Listing Authority for
admission of the newly issued shares of common
stock to the Official List maintained by the UK
Listing Authority and to the London Stock
Exchange for admission of the newly issued shares
of common stock to trading on the London Stock
Exchange market for listed securities. It is
expected that admission will become effective and
dealings in the newly issued shares of common
stock on the London Stock Exchange will commence
on March 12, 2003.
Voting rights............... Holders of our common stock have the right to one
vote for each share held on all matters submitted
to a vote of shareholders, as described in
"Description of Securities--Common Stock" in the
accompanying prospectus. Holders of ADSs will
have the right to instruct the depositary to
exercise on their behalf one vote per 1,000 ADSs,
subject to some restrictions. For more
information, see the section entitled
"Description of Securities--American Depositary
Shares--Voting Rights" in the accompanying
prospectus.
S-8
Lock-up..................... We have agreed that, without the prior written
consent of the joint global coordinators, we will
not, and will not permit any of our subsidiaries,
or any person acting on our behalf to, during the
period commencing on the date of this prospectus
supplement and ending 180 days after the date of
this prospectus supplement, enter into any
transaction, with some exceptions, to sell or
transfer the economic value of any share of the
same class or series as the common stock, the
ADSs or any securities convertible into or
exchangeable for shares of our common stock. For
a detailed discussion of the lock-up agreement
and the exceptions, see "Underwriting."
Payment and settlement...... The underwriters expect to deliver ADSs against
payment therefor in US dollars in New York, New
York through the facilities of The Depository
Trust Company on March 12, 2003 (New York City
time). The underwriters expect to deliver the
common stock in Tokyo through clearing accounts
with the Japan Securities Depositary Center
Incorporated, or JASDEC, against payment in yen
on March 12, 2003 (Tokyo time). Delivery of the
shares and the ADSs is expected to occur, subject
to receipt and acceptance by the underwriters, on
March 12, 2003, which is later than three
business days after pricing of the global
offering, as described in the expected timetable
below. Because of the longer settlement period,
purchasers who wish to trade shares or ADSs on or
soon after pricing may need to specify
alternative settlement arrangements to prevent a
failed settlement. Until delivery by the
underwriters against payment, ADSs relating to
the shares sold in the global offering will be
traded on the New York Stock Exchange on a "when
issued" basis. The shares and ADSs will not be
traded on a "when issued" basis on the Tokyo
Stock Exchange, the Osaka Securities Exchange,
the London Stock Exchange or any other market.
Because of this longer settlement period, the
margin requirements of the New York Stock
Exchange may require certain purchasers of the
shares and ADSs in the global offering to deposit
and maintain margin during such period.
Expected timetable.......... The expected timetable for the global offering is
as follows:
. Marketing of the global offering commenced on
February 7, 2003.
. Pricing of the global offering was determined
on March 3, 2003 (the pricing date).
. Japanese subscription period will commence one
trading day after the pricing date (Tokyo
time) and close three trading days after the
pricing date (Tokyo time).
. Delivery of the shares of common stock in the
U.S. offering, the Japanese offering and the
international offering is expected on the
seventh trading day after the pricing date
(Tokyo time).
. Delivery of the ADSs in the U.S. and
international offerings are expected on the
seventh trading day after the pricing date
(New York City time).
S-9
Summary Financial and Operating Data
Summary statement of operations data for the fiscal years ended March 31,
2000, 2001 and 2002, and summary balance sheet data at March 31, 2000, 2001 and
2002 set forth below have been derived from our audited financial statements.
Summary statement of operations data for the six months ended September 30,
2001 and 2002, and summary balance sheet data at September 30, 2001 and 2002
set forth below have been derived from our unaudited consolidated financial
statements, which we believe include all adjustments necessary for a fair
presentation of the results of operations and financial condition for those
periods. The results of operations for the six-month periods are not
necessarily indicative of the results for a full year's operations. Except for
risk-adjusted capital ratios based on information derived from our financial
statements prepared in accordance with Japanese GAAP, and the average balance
information, the summary financial and operating data set forth below are
derived from our financial statements prepared in accordance with US GAAP.
You should read the summary financial and operating data set forth below in
conjunction with "Selected Financial and Operating Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes to those statements and
the other financial data included in this prospectus supplement, the
accompanying prospectus and the documents incorporated by reference. These data
are qualified in their entirety by reference to all of that information.
Years Ended March 31, Six Months Ended September 30,
---------------------------------------------------------- ---------------------------------------------
2000 2001 2002 2002/(1)/ 2001 2002 2002/(1)/
-------------- --------------- --------------- -------- -------------- -------------- -----------
(in millions, except per share data and numbers of shares)
(unaudited) (unaudited) (unaudited)
Statement of
operations data:
Interest income. (Yen)2,165,643 (Yen) 2,282,974 (Yen) 2,016,961 $ 16,568 (Yen)1,088,622 (Yen) 818,464 $ 6,723
Interest expense 1,086,126 1,310,618 939,063 7,714 547,517 285,748 2,347
-------------- --------------- --------------- -------- -------------- -------------- -------
Net interest
income........ 1,079,517 972,356 1,077,898 8,854 541,105 532,716 4,376
Provision for
credit losses. 372,449 797,081 601,689 4,942 309,425 232,632 1,911
-------------- --------------- --------------- -------- -------------- -------------- -------
Net interest
income after
provision for
credit losses. 707,068 175,275 476,209 3,912 231,680 300,084 2,465
Non-interest
income........ 519,892 955,824 700,741 5,756 442,660 571,452 4,694
Non-interest
expense....... 1,224,342 1,127,510 1,501,183 12,331 683,483 603,661 4,959
-------------- --------------- --------------- -------- -------------- -------------- -------
Income (loss)
before income
tax expense
(benefit) and
cumulative
effect of a
change in
accounting
principle..... 2,618 3,589 (324,233) (2,663) (9,143) 267,875 2,200
Income tax
expense
(benefit)..... 50,160 62,763 (101,832) (836) (1,480) 163,622 1,344
-------------- --------------- --------------- -------- -------------- -------------- -------
Income (loss)
before
cumulative
effect of a
change in
accounting
principle..... (47,542) (59,174) (222,401) (1,827) (7,663) 104,253 856
-------------- --------------- --------------- -------- -------------- -------------- -------
Cumulative
effect of a
change in
accounting
principle,
net of
tax/(2)/...... -- -- 5,867 48 5,867 (532) (4)
-------------- --------------- --------------- -------- -------------- -------------- -------
Net income
(loss)........ (Yen) (47,542) (Yen) (59,174) (Yen) (216,534) $ (1,779) (Yen) (1,796) (Yen) 103,721 $ 852
============== =============== =============== ======== ============== ============== =======
Net income
(loss)
attributable
to common
shareholders.. (Yen) (53,006) (Yen) (67,510) (Yen) (220,702) $ (1,813) (Yen) (5,964) (Yen) 95,385 $ 784
============== =============== =============== ======== ============== ============== =======
Amounts per
share/(3)/:
Basic earnings
(loss) per
common share:
--Income (loss)
before
cumulative
effect of a
change in
accounting
principle..... (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(40,789.57) $(335.05) (Yen)(2,134.35) (Yen)17,191.86 $141.22
--Net income
(loss)........ (9,663.81) (12,274.55) (39,733.32) (326.38) (1,075.90) 17,096.50 140.43
Diluted
earnings
(loss) per
common share:
--Income (loss)
before
cumulative
effect of a
change in
accounting
principle..... (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(40,789.57) $(335.05) (Yen)(2,134.35) (Yen)15,147.97 $124.43
--Net income
(loss)........ (9,663.81) (12,274.55) (39,733.32) (326.38) (1,075.90) 15,057.33 123.68
Number of
shares used
to calculate
earnings per
common share
(in
thousands):
--Basic
earnings
(loss) per
common share.. 5,485 5,500 5,555 5,555 5,543 5,579 5,579
--Diluted
earnings
(loss) per
common share.. 5,485 5,500 5,555 5,555 5,543 5,870/(4)/ 5,870/(4)/
Cash dividends
per share
declared
during the
period/(3)/:..
--Common shares. (Yen) 8,255.25 (Yen) 8,255.25 (Yen) 4,127.63 -- (Yen) 4,127.63 (Yen) 6,000.00 --
$ 67.81 $ 67.81 $ 33.91 $ 33.91 $ 33.91 $ 49.29 $ 49.29
--Preferred
shares (Class
1)............ (Yen)57,120.00 (Yen) 82,500.00 (Yen) 41,250.00 -- (Yen)41,250.00 (Yen)82,500.00 --
$ 469.20 $ 677.67 $ 338.84 $ 338.84 $ 338.84 $ 677.67 $677.67
--Preferred
shares (Class
2)............ (Yen) 8,150.00 (Yen) 16,200.00 (Yen) 8,100.00 -- (Yen) 8,100.00 (Yen)16,200.00 --
$ 66.95 $ 133.07 $ 66.54 $ 66.54 $ 66.54 $ 133.07 $133.07
S-10
At March 31,
--------------------------------------------------------------------------------
2000 2001 2002 2002/(1)/
---------------- ---------------- ---------------- ------------
Balance sheet data:
Total assets....... (Yen) 84,996,000 (Yen) 93,488,950 (Yen) 94,365,114 $ 775,136
Loans, net of
allowance for
credit losses.... 48,563,172 47,953,919 48,494,545 398,345
Total liabilities.. 80,981,592 90,287,654 91,738,617 753,562
Deposits........... 54,777,171 60,105,742 63,659,501 522,914
Long-term debt..... 4,540,277 4,963,455 5,183,841 42,581
Shareholders'
equity........... 4,014,408 3,201,296 2,626,497 21,574
Capital stock/(5)/. 956,664 956,664 973,156 7,994
Years Ended March 31,
---------------------------------------------------------------------------
2000 2001 2002 2002/(3)/
---------------- ---------------- ---------------- ------------
Other operating
data:
Average balances: (unaudited) (unaudited) (unaudited) (unaudited)
Interest-earning
assets........... (Yen) 83,166,023 (Yen) 83,396,382 (Yen) 85,192,376 $ 699,790
Interest-bearing
liabilities...... 74,566,168 75,749,784 78,749,705 646,868
Total assets....... 86,620,645 89,341,483 92,376,000 758,797
Shareholders' 3,599,596 3,464,251 3,045,608 25,017
equity...........
Return on equity
and assets: (unaudited) (unaudited) (unaudited) (unaudited)
Net income (loss)
attributable to
common
shareholders as
a percentage of
total average
assets/(6)/...... (0.06)% (0.08)% (0.24)% (0.24)%
Net income (loss)
attributable to
common
shareholders as
a percentage of
average
shareholders'
equity/(6)/...... (1.47)% (1.95)% (7.25)% (7.25)%
Dividends per
common share as
a percentage of
basic earnings
per common share. --/(7)/ --/(7) --/(7)/ --/(7)/
Average
shareholders'
equity as a
percentage of
total average
assets........... 4.16% 3.88% 3.30% 3.30%
Net interest
income as a
percentage of
total average
interest-earning
assets/(6)/...... 1.30% 1.17% 1.27% 1.27%
Credit quality data:
Allowance for
credit losses.... (Yen) 1,486,212 (Yen) 1,716,984 (Yen) 1,735,180 $ 14,253
Allowance for
credit losses as
a percentage of
loans............ 2.97% 3.46% 3.45% 3.45%
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more.......... (Yen) 2,844,915 (Yen) 4,272,794 (Yen) 4,164,982 $ 34,212
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more as a
percentage of
loans............ 5.68% 8.60% 8.29% 8.29%
Net loan
charge-offs...... (Yen) 679,736 (Yen) 598,362 (Yen) 603,404 $ 4,956
(unaudited) (unaudited) (unaudited) (unaudited)
Net loan
charge-offs as a
percentage of
average
loans/(6)/....... 1.30% 1.21% 1.23% 1.23%
Average interest
rate spread/(6)/. 1.14% 1.01% 1.18% 1.18%
Risk-adjusted
capital ratio
derived from
Japanese GAAP
data/(8)/........ 11.43% 10.15% 10.30% 10.30%
At September 30,
----------------------------------------------------
2001 2002 2002/(1)/
---------------- ---------------- ------------
Balance sheet data: (unaudited) (unaudited) (unaudited)
Total assets....... (Yen) 89,483,354 (Yen) 92,316,029 $ 758,305
Loans, net of
allowance for
credit losses.... 46,513,725 46,520,013 382,126
Total liabilities.. 86,966,239 89,969,890 739,033
Deposits........... 59,173,675 63,844,120 524,430
Long-term debt..... 5,093,871 5,323,484 43,728
Shareholders'
equity........... 2,517,115 2,346,139 19,272
Capital stock/(5)/. 973,156 973,156 7,994
Six Months Ended September 30,
----------------------------------------------------
2001 2002 2002/(3)/
---------------- ---------------- ------------
Other operating
data:
Average balances: (unaudited) (unaudited) (unaudited)
Interest-earning
assets........... (Yen) 85,213,110 (Yen) 85,555,468 $ 702,772
Interest-bearing
liabilities...... 78,957,713 78,538,741 645,135
Total assets....... 93,304,828 92,940,735 763,436
Shareholders' 3,029,348 2,534,166 20,816
equity...........
Return on equity
and assets: (unaudited) (unaudited) (unaudited)
Net income (loss)
attributable to
common
shareholders as
a percentage of
total average
assets/(6)/...... (0.01)% 0.20% 0.20%
Net income (loss)
attributable to
common
shareholders as
a percentage of
average
shareholders'
equity/(6)/...... (0.39)% 7.51% 7.51%
Dividends per
common share as
a percentage of
basic earnings
per common share. --/(7)/ 35.09% 35.09%
Average
shareholders'
equity as a
percentage of
total average
assets........... 3.25% 2.73% 2.73%
Net interest
income as a
percentage of
total average
interest-earning
assets/(6)/...... 1.27% 1.24% 1.24%
Credit quality data: (unaudited) (unaudited) (unaudited)
Allowance for
credit losses.... (Yen) 1,794,045 (Yen) 1,571,232 $ 12,906
Allowance for
credit losses as
a percentage of
loans............ 3.71% 3.27% 3.27%
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more.......... (Yen) 4,453,510 (Yen) 3,571,818 $ 29,340
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more as a
percentage of
loans............ 9.22% 7.43% 7.43%
Net loan
charge-offs...... (Yen) 225,644 (Yen) 383,610 $ 3,151
(unaudited) (unaudited) (unaudited)
Net loan
charge-offs as a
percentage of
average
loans/(6)/....... 0.91% 1.54% 1.54%
Average interest
rate spread/(6)/. 1.17% 1.18% 1.18%
Risk-adjusted
capital ratio
derived from
Japanese GAAP
data/(8)/........ 10.31% 10.49% 10.49%
--------
Notes:
(1) For the convenience of readers, US dollar amounts are presented as
translations of Japanese yen amounts at the rate of (Yen)121.74 = US$1.00,
the noon buying rate on September 30, 2002 in New York City for cable
transfers in Japanese yen as certified for customs purposes by the Federal
Reserve Bank of New York.
(2) Effective April 1, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. On April
1, 2002, we also adopted SFAS No. 142, "Goodwill and Other Intangible
Assets."
(3) Amounts for the years ended March 31, 2000 and 2001 have been adjusted to
reflect the stock-for-stock exchanges creating Mitsubishi Tokyo Financial
Group, Inc.
(4) Includes the common shares potentially issuable pursuant to the 3%
exchangeable guaranteed notes due 2002 and class 2 preferred stock. The 3%
exchangeable guaranteed notes due 2002 were redeemed in November 2002.
(5) Amounts include common stock and non-redeemable Class 2 preferred stock.
Redeemable Class 1 preferred stock is excluded.
(6) Percentages for the six months ended September 30, 2001 and 2002 have been
annualized.
(7) Percentages against basic loss per common share have not been presented
because such information is not meaningful.
(8) Risk-adjusted capital ratios have been calculated in accordance with
Japanese banking regulations, based on information derived from our
financial statements prepared in accordance with Japanese GAAP. Ratios for
the years ended March 31, 2000 and 2001 represent combined risk-adjusted
capital ratios of Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank before
any combination-related adjustments.
S-11
RISK FACTORS
Investing in our securities involves a high degree of risk. You should
carefully consider the risks described below as well as all the other
information, including our consolidated financial statements and related notes
contained in, or incorporated by reference into, this prospectus supplement and
the accompanying prospectus.
Our business, operating results and financial condition could be materially
adversely affected by any of the factors discussed below. The trading price of
our securities could decline due to any of these factors. This prospectus
supplement also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including the risks faced by us described below and elsewhere in this
prospectus supplement. See "Forward-Looking Statements."
Risks Related to Our Business
We may suffer additional losses in the future due to problem loans.
We have a substantial volume of problem loans and have suffered from
worsening asset quality problems since the early 1990s. A number of our
borrowers are facing increasingly challenging circumstances, and some others
are rumored to be in extremely difficult financial conditions. Our problem
loans and credit-related expenses could increase if:
. economic conditions in Japan do not improve;
. real estate prices or stock prices in Japan continue to decline;
. our large borrowers become insolvent or must be restructured;
. the level of corporate bankruptcies in Japan continues to rise;
. additional economic problems arise elsewhere in the world; or
. the global economic environment deteriorates generally.
An increase in problem loans and credit-related expenses would adversely affect
our results of operations, weaken our financial condition and erode our capital
base. For a discussion of our historical problem loans, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition" and "Selected Statistical Data--Loan
Portfolio."
Our allowance for credit losses may be insufficient to cover future loan
losses.
We base the allowance for credit losses in our loan portfolio on assumptions
and estimates about our customers, the value of collateral we hold and the
economy as a whole. Our actual loan losses could prove to be materially
different from our estimates and could materially exceed our allowance. If our
actual loan losses are higher than we currently expect, our current allowance
for credit losses could be insufficient. If general economic conditions
deteriorate, causing us to change some of our assumptions and estimates, if the
value of collateral we hold declines or if we are adversely affected by other
factors to an extent worse than anticipated, we may have to provide for
additional allowance for credit losses. For a detailed discussion of our
allowance policy and the historical trend of increasing allowances for credit
losses, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition."
S-12
The credit quality of our loan portfolio may be adversely affected by the
continuing financial difficulties of the Japanese real estate and construction
sectors.
As of September 30, 2002, approximately 16.2% of our domestic loans were
made to real estate and construction companies, of which 20.8% were classified
as nonaccrual and restructured loans. The Japanese real estate and construction
industries have been severely and adversely affected by the sharp decline in
Japanese real estate values and the number of construction projects. Japanese
real estate prices have declined for eleven straight years, and may still be
falling. Several larger companies in these industries have been restructured
through legal proceedings or through out-of-court agreements, including
concessions by lenders. We expect these problems to continue for the
foreseeable future. A number of large real estate and construction companies,
including some to which we have extended credit, are widely rumored to be in
restructuring negotiations or considering seeking bankruptcy protection. If
these companies seek bankruptcy protection or are unsuccessful in their
restructuring efforts, we may suffer further loan losses. If other lenders to
troubled real estate and construction companies discontinue or decrease their
financial support to those companies for any reason, there may be further
significant deteriorations of the credit quality of our loan portfolio to these
companies. For a detailed discussion of our exposure to the Japanese real
estate and construction sectors and our historical problem loans in those
sectors, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition" and "Selected Statistical
Data--Loan Portfolio."
The credit quality of our loan portfolio may be adversely affected by the
continuing financial difficulties of the Japanese wholesale and retail sectors.
As of September 30, 2002, approximately 18.1% of our domestic loans were
made to wholesale and retail borrowers, of which 9.9% were classified as
nonaccrual and restructured loans. Several Japanese wholesalers and retailers
have been restructured or are undergoing restructurings through legal
proceedings or through out-of-court agreements, including concessions by
lenders. If consumer spending continues to shrink in the extended economic
downturn, if other lenders to distressed wholesalers and retailers discontinue
or decrease their financial support to those companies for any reason, or if
their restructuring efforts are not successful, there may be additional
significant failures of wholesalers and retailers. A further or extended
deterioration within these industries would expose us to substantial additional
credit losses. For a detailed discussion of our exposure to the Japanese
wholesale and retail sectors and our historical problem loans in those sectors,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition" and "Selected Statistical Data--Loan
Portfolio."
Our exposure to troubled borrowers may increase, and our recoveries from
them may be lower than expected.
We may provide additional loans to troubled borrowers. We may forbear from
exercising some or all of our rights as a creditor against them, and we may
forgive loans to them in conjunction with their debt restructuring. We may take
these steps even when our legal rights might permit us to take stronger action
against the borrower and even when others might take stronger action against
the borrower to maximize recovery or to reduce exposure in the short term. We
may provide support to troubled borrowers for any of the following reasons or
for other reasons:
. political or regulatory considerations;
. reluctance to push a major client into default or bankruptcy or to
disrupt a restructuring plan supported by other lenders; and
. a perceived responsibility for the obligations of our affiliated and
associated companies.
These practices may substantially increase our exposure to troubled borrowers
and increase our loan losses.
S-13
We may experience losses because our remedies for credit defaults by our
borrowers are limited.
We may not be able to realize the value of collateral we hold or enforce our
rights against defaulting customers because of:
. difficulty of foreclosing on collateral in Japan;
. illiquidity of and depressed values in the Japanese real estate market;
and
. depressed values of pledged securities held as collateral.
Any adverse changes in UNBC's business could significantly affect our
results of operations.
Approximately 17.3% of our operating profit for the fiscal year ended March
31, 2002 and approximately 17.0 % of our operating profit for the six months
ended September 30, 2002, both as calculated under Japanese GAAP, were
generated from the operations of our subsidiaries in California, UnionBanCal
Corporation and Union Bank of California, N.A. Any adverse change in the
business or operations of those subsidiaries, which we refer to as "UNBC,"
could significantly affect our results of operations. Factors that could
negatively affect UNBC's results include adverse economic conditions in
California, particularly the energy crisis and the decline in the technology
sector, adverse conditions following the terrorist attacks in September 2001, a
potential downturn in the real estate and housing industries in California,
substantial competition in the California banking market and negative trends in
debt ratings and equity valuations of various borrowers, such as power
companies, resulting from large corporate bankruptcy filings. In addition,
appreciation of the Japanese yen against the US dollar reduces UNBC's reported
profits in our operating results. For a detailed segment discussion relating to
UNBC, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Business Segment Analysis."
We may not be able to maintain our capital ratios above minimum required
levels, which could result in the suspension of some or all of our operations.
Mitsubishi Tokyo Financial Group, as a holding company, and our Japanese
subsidiary banks, Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, are each
required to maintain risk-weighted capital ratios above the levels specified in
the capital adequacy guidelines of the Japanese Financial Services Agency. The
capital ratios are calculated in accordance with Japanese banking regulations
based on information derived from our financial statements prepared in
accordance with Japanese GAAP. UNBC is subject to similar U.S. capital adequacy
guidelines. We or our subsidiary banks may be unable to continue to satisfy the
capital adequacy requirements, because of:
. declines in the value of our securities portfolio;
. credit costs we may incur as we dispose of problem loans and remove
impaired assets from our balance sheet;
. credit costs we may incur due to losses from a future deterioration in
asset quality;
. changes in accounting rules or in the guidelines regarding the
calculation of banks' or bank holding companies' capital ratios;
. our inability to refinance our subordinated debt obligations with equally
subordinated debt;
. adverse changes in foreign currency exchange rates; and
. other adverse developments discussed in these "Risk Factors."
S-14
If our capital ratios fall below required levels, the Japanese Financial
Services Agency could require us to take a variety of corrective actions,
including withdrawal from all international operations or suspension of all or
part of our business operations. For a discussion of our capital ratios and the
related regulatory guidelines, see "Recent Developments--Recent Regulatory
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Capital Adequacy."
Our capital ratios may also be negatively affected by contemplated
regulatory changes.
Several proposed regulatory changes and market factors could have an adverse
impact on our capital ratios:
. The Financial Services Agency is contemplating the adoption of rules
limiting the amount of deferred tax assets that may be included in the
calculation of Tier I and/or total regulatory capital. Because deferred
tax assets constituted approximately 36.7% of our Tier I and 18.7% of our
total risk-based capital as of September 30, 2002, the imposition of such
limits would likely reduce our regulatory capital, perhaps materially.
. Japanese GAAP is proposed to be changed, effective March 31, 2003, to
calculate loan loss reserves by analyzing the projected cash flows from
certain loan assets, discounted to present value, instead of basing
reserves on historical loan loss data. This change may increase the size
of our allowance for credit losses under Japanese GAAP. Because our
capital ratios are calculated under Japanese GAAP, this change may reduce
our capital ratios materially.
For a more detailed description of these proposals, see "Recent
Developments--Recent Regulatory Developments" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Capital Adequacy."
Our results of operations and capital ratios will be negatively affected if
we are required to reduce our deferred tax assets.
We and our Japanese subsidiary banks determine the amount of our net
deferred tax assets and our regulatory capital pursuant to Japanese GAAP and
the Japanese banking regulations, which differ from US GAAP and U.S.
regulations. Under current Japanese banking regulations, all deferred tax
assets established pursuant to Japanese GAAP are included in regulatory
capital. Japanese GAAP currently permits the establishment of deferred tax
assets in certain cases for the tax benefits that are expected to be utilized
in the subsequent five fiscal years. The calculation of deferred tax assets is
based upon various assumptions, including assumptions with respect to future
taxable income. Actual results may differ significantly from these assumptions.
Even if our ability to include deferred tax assets in regulatory capital is not
affected by rule changes, if we conclude, based on our taxable income
projections, that we or our subsidiary banks will be unable to realize a
portion of the deferred tax assets, our deferred tax assets may be reduced and,
as a result, our results of operations may be negatively affected and our
capital ratios may decline. See "Recent Developments--Recent Regulatory
Developments" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Capital Adequacy."
If the Japanese stock market declines further, we may incur additional
losses on our securities portfolio and our capital ratios will be adversely
affected.
We hold large amounts of marketable equity securities. The market values of
these securities are inherently volatile and have generally and substantially
been declining in recent years. We will incur losses on our securities
portfolio if the Japanese stock market continues to decline. Material declines
in the Japanese stock market after September 30, 2002 may also materially
adversely affect our capital ratios. For a detailed discussion of material
declines in the Japanese stock market since September 30, 2002, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Business Environment;" and for a detailed discussion of our
holdings of marketable equity securities and the effect of market declines on
our capital adequacy ratios, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Market Risk" and "Selected
Statistical Data."
S-15
The value of our equity portfolio could decline due to expected sales of
shares in the market by us and others.
Many Japanese financial institutions have traditionally held large amounts
of equity securities of their customers, business counterparts and related
companies. In November 2001, the Japanese government enacted a law forbidding
bank holding companies and banks, including us, Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank, from holding stock, the aggregate value of which is in
excess of their adjusted Tier I capital after September 30, 2004. Partly in
response to this legislation and partly to reduce risk-weighted assets, we and
many other financial institutions have been selling and will continue to sell
off large amounts of equity securities. The sale of equity securities by
Japanese financial institutions may have depressed and may further depress the
value of Japanese equity securities, including those in our securities
portfolio. In order to comply with the new legislation, we may be forced to
sell some of our equity securities at depressed prices. For a detailed
discussion of our equity securities portfolio, see "Selected Statistical Data."
Our efforts to reduce our holdings of equity securities may adversely affect
our relationships with customers.
A substantial portion of our equity securities portfolio is held under
cross-shareholding relationships where we hold the customer's securities for
business relationship purposes. Sales of equity securities, whether to comply
with the prohibition on holding stock in excess of adjusted Tier I capital
after September 30, 2004, to reduce our risk exposure to fluctuations in equity
security prices or otherwise, will reduce our cross-shareholdings, which may
have an adverse effect on our relationships with our customers. In addition,
our plans to reduce our cross-shareholdings may encourage some of our customers
to sell their shares of our common stock, which may have a negative impact on
our stock price. For a detailed discussion of recent declines in the Japanese
stock market, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Business Environment--Economic Environment in Japan."
Our business may be adversely affected by competitive pressures, which have
increased significantly due to regulatory changes.
In recent years, the Japanese financial system has been increasingly
deregulated and barriers to competition have been reduced. In addition, the
Japanese financial industry has been undergoing significant consolidation, as a
result of which larger, more integrated financial institutions have emerged as
our competitors. If we are unable to compete effectively in this more
competitive and deregulated business environment, our business, results of
operations and financial condition will be adversely affected.
Our trading and investment activities expose us to interest rate, exchange
rate and other risks.
We undertake extensive trading and investment activities involving a variety
of financial instruments, including derivatives. Our income from these
activities is subject to volatility, caused by, among other things, changes in
interest rates, foreign currency exchange rates and equity and debt prices. For
example:
. Increases in interest rates have an adverse effect on the value of our
fixed income securities portfolio.
. The strengthening of the yen against the dollar and other foreign
currencies reduces the value, in our financial statements, of our
substantial portfolio of foreign-currency denominated investments.
In addition, downgrades of the credit ratings of some of the fixed income
securities that we hold in our portfolio could negatively affect our results of
operations. Our results of operations and financial condition in future periods
will be exposed to risks of loss associated with these activities. For a
discussion of our investment
S-16
portfolio and related risks see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Market Risk" and "Selected
Statistical Data."
A significant downgrade of our credit ratings could have a negative effect
on us.
A significant downgrade of our credit ratings by one or more of the credit
rating agencies could have a negative effect on our treasury operations and
other aspects of our business. In the event of a downgrade of our credit
ratings, our treasury unit may have to accept less favorable terms in its
transactions with counterparties, including capital raising activities, or may
be unable to enter into certain transactions. This could have a negative impact
on the profitability of our treasury and other operations and adversely affect
our results of operations and financial condition.
We will be exposed to increased risks as we expand the range of our products
and services.
As we expand the range of our products and services beyond our traditional
banking and trust businesses and as the sophistication of financial products
and management systems grows, we will be exposed to new and increasingly
complex risks. For example, through the recent formation of Mitsubishi
Securities Co. Ltd., we intend to expand our securities business. We may have
no experience or only limited experience with the risks related to the expanded
range of products and services. Moreover, some of the activities in which our
subsidiaries engage, such as derivatives and foreign currency trading, present
volatile and substantial risks. Our risk management systems may prove to be
inadequate, and may not work in all cases or to the degree required. As a
result, we are subject to substantial market, credit and other risks in
relation to these expanding products and services and trading activities, which
could result in our incurring substantial losses. In addition, our efforts to
offer new services and products may not succeed if product or market
opportunities develop more slowly than expected, or if the profitability of
opportunities is undermined by competitive pressures.
Our income and expenses relating to our international operations and our
foreign assets and liabilities are all exposed to foreign currency fluctuations.
Our international operations are subject to fluctuations in foreign currency
exchange rates against the Japanese yen. When the yen appreciates, yen amounts
for transactions denominated in foreign currencies, including a substantial
portion of UNBC's transactions, decline. In addition, a portion of our assets
and liabilities are denominated in foreign currencies. To the extent that our
foreign-currency denominated assets and liabilities are not matched in the same
currency or appropriately hedged, fluctuations in foreign currency exchange
rates against the Japanese yen may adversely affect our financial condition,
including our capital adequacy ratios. In addition, fluctuations in foreign
exchange rates will create foreign currency translation gains or losses.
Recent corporate credibility issues may increase our problem loans or
otherwise negatively affect our results of operations.
In recent months, several high-profile bankruptcy filings such as the filing
by United Air Lines Inc., and reports of past accounting irregularities,
including fraud, in the United States, such as those relating to Enron
Corporation, have raised corporate credibility issues, particularly with
respect to public companies. In response to these developments and U.S.
regulatory responses to these developments, regulators, auditors and corporate
managers generally have begun to review financial statements more thoroughly
and conservatively. As a result, additional accounting irregularities may be
uncovered and additional bankruptcy filings may be made in the United States
and elsewhere. Such developments could increase our credit costs if they
directly involve our borrowers or indirectly affect our borrowers' credit.
We may not be able to achieve the goals of our business strategies.
We are currently pursuing various business strategies to improve our
profitability. For various reasons, these strategies may be unsuccessful or
have unintended consequences. For example:
. We may be unable to increase the volume of our loans to financially sound
clients.
S-17
. We may be unable to increase our lending spreads with pre-existing
customers.
. Greater competition or market conditions may prevent us from increasing
our level of fee income.
. We may have difficulty in coordinating the operations of our subsidiaries
and affiliates as planned due to legal restrictions, internal resistance
or market resistance.
. The costs of integration may be higher than we expect, and we may not
achieve cost reductions as fully or as quickly as expected.
. We may lose customers and business as we integrate and, in some cases,
rebrand some of our subsidiaries' and/or affiliates' operations.
. Our efforts to streamline operations may require more time than expected
and cause some negative reactions from our customers.
. We may have difficulty in integrating the systems within our financial
group.
Losses relating to our pension plans and a decline in returns on our plan
assets may negatively affect our results of operations and our financial
condition.
We may incur losses if the fair value of our pension plans' assets declines,
if the rate of return on our pension assets declines, or if there is a change
in the actuarial assumptions on which the calculations of the projected benefit
obligation are based. In addition, we may have unrecognized prior service costs
resulting from amendments to our pension plans. Changes in the interest rate
environment and other factors may also adversely affect the amount of unfunded
pension obligations and the resulting annual amortization expense.
We may not be able to refinance our subordinated debt obligations with
equally subordinated debt, and as a result our capital ratios may be adversely
affected.
Under Japanese GAAP, at September 30, 2002, subordinated debt accounted for
approximately 35.2% of Mitsubishi Tokyo Financial Group's total capital,
approximately 35.6% of Bank of Tokyo-Mitsubishi's total capital and
approximately 32.6% of Mitsubishi Trust Bank's total capital. We may not be
able to refinance our subordinated debt obligations with equally subordinated
debt. The failure to refinance these subordinated debt obligations with equally
subordinated debt may reduce our total capital and, as a result, negatively
affect our risk-weighted capital ratios.
We may have to compensate for losses in our loan trusts and jointly operated
designated money trusts. This could have a negative effect on our operating
results.
Mitsubishi Trust Bank compensates for losses of principal of all loan trusts
and some designated money trusts. As of September 30, 2002, the principal
balance of those indemnified trusts was (Yen)2,772 billion. Funds in those
indemnified trusts are generally invested in loans and securities. Mitsubishi
Trust Bank is required to maintain reserves in the accounts of those
indemnified trusts for loan losses and other impairments of principal, but the
amount of these compensation obligations does not appear as a liability on our
balance sheet. If the amount of assets and reserves held in the indemnified
trusts falls below the principal as a result of loan losses, losses in the
investment portfolio or otherwise, Mitsubishi Trust Bank would be required to
make a payment on the indemnities.
Trust beneficiaries of loan trusts and jointly operated designated money
trusts are entitled to a semi-annual dividend, which in practice is the
"projected rate" published semi-annually. As a result, sharp declines in
interest rates or in the value of the securities held in its trusts' investment
portfolios will reduce the performance dependent trust fees that Mitsubishi
Trust Bank generates from its loan trusts and jointly operated designated money
trusts and will thus adversely affect our results of operations.
S-18
We are exposed to substantial credit and market risks in Asian and Latin
American countries.
We are active in the Asian and Latin American regions through a network of
branches and subsidiaries, and are thus exposed to a variety of credit and
market risks associated with countries in these regions. If a decline in the
value of Asian or Latin American currencies occurs, it could adversely affect
the creditworthiness of some of our borrowers in the region. The loans we make
to Asian and Latin American borrowers and banks are often denominated in yen,
US dollars or other foreign currencies. The borrowers often do not hedge the
loans to protect against fluctuations in the values of local currencies. A
devaluation of the local currency would make it more difficult for a borrower
earning income in that currency to pay its debts to us and others. In addition,
some Asian and Latin American countries may attempt to support the value of
their currencies by raising domestic interest rates. If this happens, the
borrowers in these countries would have to devote more of their resources to
repaying their domestic obligations, which may adversely affect their ability
to repay their debts to us and other foreign lenders. The restriction of credit
resulting from these and related conditions may adversely affect economic
conditions in some countries. This could cause a further deterioration of the
credit quality of borrowers and banks in those countries, and further losses to
us. In addition, we are active in other regions that expose us to similar risks
described above and also risks specific to that region, which may cause losses
to us or other adverse effects. For a more detailed discussion of our credit
exposure to Asian and Latin American countries, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Financial
Condition."
Restrictions on our subsidiaries' ability to pay dividends and make other
distributions could limit amounts payable to us.
As a holding company, substantially all of our cash flow comes from
dividends that our Japanese bank subsidiaries pay to us. Under some
circumstances, various statutory or contractual provisions may restrict the
amount of dividends our subsidiaries can pay to us. Among other things, if our
operating subsidiaries do not have sufficient earnings, they will be unable to
pay us dividends and we, in turn, may be unable to pay dividends. On November
25, 2002, we announced that we expect to incur a consolidated net loss for the
year ending March 31, 2003 for our financial results calculated in accordance
with Japanese GAAP, primarily due to the losses at our principal banking
subsidiaries. If those subsidiaries suffer further losses under Japanese GAAP,
we may not be able to pay dividends in the future.
Risks Related to the Japanese Banking Industry
Recent efforts by the Japanese government to encourage the disposal of
problem loans within the next two years could exacerbate our credit losses.
The Japanese Financial Services Agency announced in October 2002 that it
will strive to reduce the aggregate ratio of non-performing credits to total
credits of major banks, which include Bank of Tokyo-Mitsubishi and Mitsubishi
Trust Bank, by about half by March 31, 2005. The disposal of non-performing
credits pursuant to this policy could increase credit losses we incur if we are
required or elect to sell or write-off our problem loans at a larger discount
and/or in a larger amount and/or in a different time or manner than we would
have otherwise. For a more detailed discussion of recent government
initiatives, see "Recent Developments--Recent Regulatory Developments."
Adverse regulatory developments or changes in government policies or
economic controls could have a negative impact on our results of operations.
We conduct our business subject to ongoing regulation and associated
regulatory risks, including the effects of changes in the laws, regulations,
policies, voluntary codes of practice and interpretations in Japan and the
other markets we operate in. Future changes in laws, regulations, policies,
voluntary codes of practice, and fiscal or other policies and their effects are
unpredictable and beyond our control. In particular, the Japanese Financial
Services Agency recently announced various regulatory changes that it would
consider. In addition, the Financial Services Agency announced that it will
conduct another round of special inspections reviewing banks' accounts,
S-19
including those of Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, by March
31, 2003. These changes, if adopted, could negatively affect our business and
results of operations. For a more detailed discussion of recent regulatory
developments, see "Recent Developments--Recent Regulatory Developments."
Our business may be adversely affected by negative developments with respect
to other Japanese financial institutions, both directly and by the effect they
may have on the overall Japanese banking environment and on their borrowers.
Many Japanese financial institutions, including banks, non-bank lending and
credit institutions, affiliates of securities companies and insurance
companies, are experiencing and expect to continue to experience declining
asset quality and capital adequacy and other financial problems. This may lead
to severe liquidity and solvency problems, which have resulted in the
liquidation, government control or restructuring of affected institutions in
the past. The continued financial difficulties of other financial institutions
could adversely affect us because:
. as of September 30, 2002, approximately 9.3% of our domestic loans were
made to banks and other financial institutions outside the MTFG group,
and of those loans 2.8% were classified as nonaccrual and restructured
loans;
. we are a shareholder of some other banks and financial institutions that
are not our consolidated subsidiaries;
. we may be requested to participate in providing assistance to support
distressed financial institutions outside the MTFG group;
. troubled banks and financial institutions may discontinue or decrease
their credit support to troubled borrowers to whom we are also a lender,
resulting in significant failures of those borrowers or a deterioration
in the quality of our loan portfolio;
. financial institutions may become majority owned and/or controlled by the
Japanese government as a result of the government's conversion of their
preferred shares into common stock and/or injection of additional public
funds pursuant to the Deposit Insurance Law or other newly introduced
framework for the injection of public funds into financial institutions;
. if the government takes control of major financial institutions, we may
become a direct competitor of government-controlled financial
institutions;
. we may be put at a competitive disadvantage if the Japanese government
provides regulatory, tax, funding or other benefits to other financial
institutions, to strengthen their capital, facilitate their sale or
otherwise;
. deposit insurance premiums could rise if deposit insurance funds prove to
be inadequate; and
. repeated or large-scale bankruptcies and/or government support or control
of financial institutions could undermine depositor confidence generally
or adversely affect the overall banking environment.
For a more detailed discussion of our loans to Japanese financial institutions,
see "Selected Statistical Data."
We might have to pay risk premiums on borrowings from international
financial institutions, or be subject to credit limitations by them.
As a result of concerns regarding asset quality and the failure of several
large Japanese financial institutions, international financial institutions
have in the past:
. charged an additional risk premium to Japanese financial institutions for
short-term borrowings in the interbank market; and
. placed restrictions on the amount of credit, including interbank
deposits, that they extend to Japanese banks.
S-20
These restrictions on credit result in higher operating expenses and decreased
profitability for affected Japanese banks. If conditions in the Japanese
banking and other financial sectors further deteriorate, international markets
could again impose risk premiums or credit restrictions on Japanese banks,
including us.
We may be adversely affected if the current economic conditions in Japan
continue or worsen.
Since the early 1990s, the Japanese economy has performed poorly due to a
number of factors, including weak consumer spending and lower capital
investment by Japanese companies, causing a large number of corporate
bankruptcies and the failure of several major financial institutions. The
outlook for the economy as a whole remains uncertain because:
. recent economic data show that the Japanese economy may not be recovering;
. unemployment rates are at an historic high;
. real estate prices have declined for the past decade; and
. Japanese stock prices have declined significantly, reaching their lowest
levels in 20 years at the end of calendar 2002.
These factors may continue or worsen. If they do, our earnings and credit
quality may be adversely affected. For a discussion of Japan's current economic
environment, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Business Environment."
We may have to pay more regional or nationwide bank taxes.
In April 2000, the Tokyo Metropolitan Government began imposing a tax of
3.0% on the gross operating profits of banks operating within its jurisdiction.
In May 2000, the Osaka Prefecture introduced a similar tax on operating profits
of banks conducting business within its jurisdiction. In March 2002, the Tokyo
District Court overturned the Tokyo local tax, and on January 30, 2003, the
Tokyo High Court upheld the lower court's judgment. The Tokyo Metropolitan
Government, however, has appealed the judgment to the Supreme Court of Japan.
Banks are also challenging in court the legality of the Osaka local tax. Other
prefectures may implement similar local bank taxes, and the Japanese government
may introduce a similar bank tax nationwide. Depending on the outcome of these
court cases and the decisions of other prefectures and the Japanese government,
we may have to pay more regional or nationwide bank taxes.
A change to current interest rate policy could adversely affect our results
of operations.
The Bank of Japan now maintains interest rates at near zero percent. If
interest rate policies change, we could be adversely affected through lower
spreads or a decline in the value of our investments in Japanese government
bonds. In addition, an increase in interest rates may increase our problem
loans as some of our borrowers may not be able to meet the increased interest
payment requirements. This would adversely affect our results of operations and
financial condition.
Risks Related to Owning Our Shares
Efforts by other companies to reduce their shareholdings may adversely
affect our stock price.
Many companies in Japan that hold our shares have announced plans to reduce
their shareholdings in other companies. Our own announced plans to sell
cross-held shares in other companies may further encourage those companies and
other companies to sell our shares. If an increased number of shares of our
common stock are sold in the market, it will adversely affect the trading price
of our shares.
Negative media coverage of Japan's banking industry may have a materially
adverse effect on our stock price.
Recently, Japan's banking industry has been covered extensively by both
Japanese and foreign media. This coverage includes Japanese banks' problem
loans. Much of this coverage has been negative and some of this
S-21
coverage suggests that the amount of problem loans that Japanese banks actually
hold is greater than what is disclosed. Negative media coverage of Japan's
banking industry focusing on problem loans and other issues, whether or not
accurate and whether or not applicable to us, may have a materially adverse
effect on our stock price.
Rights of shareholders under Japanese law may be different from those under
the laws of jurisdictions within the United States and other countries.
Our articles of incorporation, the regulations of our board of directors and
the Japanese Commercial Code govern our corporate affairs. Legal principles
relating to such matters as the validity of corporate procedures, directors'
and officers' fiduciary duties and shareholders' rights may be different from
those that would apply if we were a non-Japanese company. Shareholders' rights
under Japanese law are different in some respects from shareholders' rights
under the laws of jurisdictions within the United States and other countries.
You may have more difficulty in asserting your rights as a shareholder than you
would as a shareholder of a corporation organized in a jurisdiction outside of
Japan.
Risks Related to Owning ADSs
As a holder of ADSs, you will have fewer rights than a shareholder has, and
you will have to act through the depositary to exercise these rights.
The rights of our shareholders under Japanese law to take actions including
voting their shares, receiving dividends and distributions, bringing derivative
actions, examining our accounting books and records and exercising appraisal
rights are available only to shareholders of record. Because the depositary,
through its custodian, is the record holder of the shares underlying the ADSs,
a holder of ADSs may not be entitled to the same rights as a shareholder. In
your capacity as an ADS holder, you will not be able to bring a derivative
action, examine our accounting books and records or exercise appraisal rights
except through the depositary.
Foreign exchange rate fluctuations may affect the dollar value of our ADSs
and dividends payable to holders of our ADSs.
Market prices for our ADSs may fall if the value of the yen declines against
the US dollar. In addition, the US dollar amount of cash dividends and other
cash payments made to holders of our ADSs would be reduced if the value of the
yen declines against the US dollar.
Risks Related to the Offering
It may not be possible for investors to effect service of process within the
United States upon us or our directors, senior management or corporate
auditors, or to enforce against us or those persons judgments obtained in U.S.
courts predicated upon the civil liability provisions of the Federal securities
laws of the United States.
We are a joint stock company incorporated under the laws of Japan. All of
our directors, senior management and corporate auditors reside outside of the
United States. Many of our and their assets are located in Japan and elsewhere
outside the United States. It may not be possible, therefore, for U.S.
investors to effect service of process within the United States upon us or
these persons or to enforce against us or these persons judgments obtained in
the United States courts predicated upon the civil liability provisions of the
Federal securities laws of the United States. We believe that there is doubt as
to the enforceability in Japan, in original actions or in actions to enforce
judgments of U.S. courts, of liabilities predicated solely upon the Federal
securities laws of the United States.
S-22
A long settlement period may impair the liquidity of your shares and ADSs.
Delivery of the shares and the ADSs is expected to occur, subject to our
receipt of payment and acceptance of delivery by the underwriters, on the
seventh trading day after the global offering is priced, which is later than
the typical three business day settlement period following the pricing of an
offering. Until delivery of the ADSs by the underwriters against payment, we
expect that the ADSs offered by this prospectus supplement will trade on the
New York Stock Exchange on a "when issued" basis. The shares and ADSs, however,
will not trade on a "when issued" basis on the Tokyo Stock Exchange, the London
Stock Exchange, the Osaka Securities Exchange or any other market. Accordingly,
during the period between pricing and settlement, the liquidity of your shares
or ADSs may be impaired. In addition, because of the longer settlement period,
you may need to specify alternative settlement arrangements to prevent a failed
settlement if you wish to trade your shares or ADSs, and may be required to
comply with margin requirements of the New York Stock Exchange.
S-23
FORWARD-LOOKING STATEMENTS
We may from time to time make written or oral forward-looking statements.
Written forward-looking statements may appear in documents filed with the SEC,
including this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference and other reports to shareholders and other
communications.
The U.S. Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking information to encourage companies to provide
prospective information about themselves without fear of litigation so long as
the information is identified as forward looking and is accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the information. We
rely on this safe harbor in making these disclosures.
Forward-looking statements appear in a number of places in this prospectus
supplement, the accompanying prospectus and the documents incorporated by
reference and include statements regarding our intent, belief or current
expectations and/or the current belief or current expectations of our
management with respect to our results of operations and financial condition,
including, among other matters, our problem loans and loan losses. In many, but
not all cases, we use words such as "anticipate," "aim," "believe," "estimate,"
"expect," "intend," "plan," "probability," "risk" and similar expressions, as
they relate to us or our management, to identify forward-looking statements.
These statements reflect our current views with respect to future events and
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those which are
anticipated, aimed at, believed, estimated, expected, intended or planned. We
do not intend to update these forward-looking statements.
The forward-looking statements we make are not a guarantee of future
performance and involve risks and uncertainties. Actual results may differ from
those in forward-looking statements as a result of various factors. We identify
in this prospectus supplement, the accompanying prospectus and the documents
incorporated by reference, in "Risk Factors" and elsewhere, the important
factors that could cause these differences.
S-24
EXCHANGE RATES
We maintain our accounts in Japanese yen. Merely for your convenience, this
prospectus supplement contains translations of certain yen amounts into US
dollars at specified rates. These translations should not be construed as
representations that the yen amounts actually represent such US dollar amounts
or could be converted into US dollars at the rate indicated. Unless otherwise
stated, the translations of yen into US dollars have been made at the rate of
(Yen)121.74 = US $1.00, the noon buying rate in New York City for cable
transfers in yen as certified for customs purposes by the Federal Reserve Bank
of New York on September 30, 2002.
The tables below set forth, for each period indicated, the Federal Reserve
Bank of New York's noon buying rate for Japanese yen, expressed in Japanese yen
per $1.00. On February 28, 2003, the noon buying rate was $1.00 equals
(Yen)118.22.
Year 2002 Year 2003
---------------------------------------------------------------- ------------------------
August September October November December January February
------------ ------------ ------------ ------------ ------------ ------------ -----------
High (Yen) 121.14 (Yen) 123.93 (Yen) 125.52 (Yen) 122.92 (Yen) 124.99 (Yen) 120.18 (Yen)121.30
Low. 116.53 117.12 122.55 119.57 118.38 117.80 117.14
Six Months Ended
Years Ended March 31, September 30,
---------------------------------------------------------------- -------------------------
1998 1999 2000 2001 2002 2001 2002
------------ ------------ ------------ ------------ ------------ ------------ ------------
High....................... (Yen) 133.99 (Yen) 147.14 (Yen) 124.45 (Yen) 125.54 (Yen) 134.77 (Yen) 126.75 (Yen) 133.40
Low........................ 111.42 108.83 101.53 104.19 115.89 115.89 115.71
Average (of month-end rate) 123.56 128.10 110.02 111.65 125.64 121.69 122.12
At period-end.............. 133.29 118.43 102.73 125.54 132.70 119.23 121.74
S-25
MARKET INFORMATION
The primary market for our shares is the Tokyo Stock Exchange, or the TSE.
Our shares of common stock are also listed on the Osaka Securities Exchange in
Japan and on the Official List of the UK Listing Authority and traded on the
market for listed securities on the London Stock Exchange in the United
Kingdom. ADSs, each representing 1/1000 of one share, are quoted on the New
York Stock Exchange, or the NYSE, under the symbol, "MTF". The last reported
sales price was (Yen)485,000 per share of our common stock on the Tokyo Stock
Exchange on March 3, 2003 and $4.43 per ADS on the New York Stock Exchange on
February 28, 2003.
The following table shows, for the periods indicated, the reported high and
low sale prices for shares of our common stock on the TSE and of the ADSs on
the NYSE. The table also includes high and low market price quotations from the
TSE translated in each case into US dollars per ADS at the Federal Reserve Bank
of New York's noon buying rate on the relevant date.
Translated into
Price per share U.S. dollars Price per ADS
on the TSE per ADS/(1)/ on the NYSE
-------------------------------- ----------------- ------------
High Low High Low High Low
-------------- ------------ ------ ----- ------ -----
(yen) (US$) (US$)
Fiscal year ended March 31, 2002
First quarter................ (Yen)1,350,000/(2)/ (Yen)970,000 $11.13/(3)/ $7.87 $11.27 $8.00
Second quarter............... 1,140,000 886,000 9.84 7.13 9.50 7.26
Third quarter................ 1,020,000 754,000 8.45 5.97 8.35 5.95
Fourth quarter............... 948,000 688,000 7.40 5.15 7.40 5.15
Fiscal year ended March 31, 2003
First quarter................ 1,060,000 770,000 8.52 6.43 8.42 5.91
Second quarter............... 925,000 700,000 7.80 5.93 7.64 5.98
Third quarter................ 901,000 620,000 7.31 5.13 7.34 5.08
September.................... 915,000 700,000 7.53 5.93 7.40 5.98
October...................... 901,000 750,000 7.31 6.04 7.34 6.15
November..................... 816,000 628,000 6.68 5.16 6.66 5.26
December..................... 765,000 620,000 6.15 5.13 6.12 5.08
January...................... 737,000 611,000 6.25/(4)/ 5.11 6.20 5.11
February..................... 673,000 519,000 5.59 4.39 5.51 4.42
-------------
(1) US dollar amounts have been translated, for your convenience, from yen at
the Federal Reserve Bank of New York's noon buying rate as of the relevant
high and low market quotation dates.
(2) (Yen)1,350,000 was the high market price quotation for both May 2 and May
7, 2001.
(3) The US dollar amount has been translated, for your convenience, from yen at
the rate of (Yen)121.34 = $1.00, which was the Federal Reserve Bank of New
York noon buying rate as of May 7, 2001.
(4) The US dollar amount has been translated, for your convenience, from yen at
the rate of (Yen)117.88 = $1.00, which was the Federal Reserve Bank of New
York noon buying rate as of January 17, 2003.
S-26
DIVIDEND POLICY
Our board of directors recommends an annual dividend for shareholders'
approval at the ordinary general meeting of shareholders customarily held in
June of each year. The annual dividend is usually distributed immediately
following shareholders' approval to holders of record on the preceding March
31. In addition to annual dividends, we may make cash distributions by way of
interim dividends from retained earnings to shareholders of record as of
September 30 in each year by resolution of our board of directors. Our board of
directors, however, has elected not to pay any interim dividends to
shareholders of record of our common stock as of September 30, 2002 in light of
the volatile financial and economic conditions prevailing in the Japanese
financial sector. Purchasers of shares or ADSs in this offering will be
entitled to the full amount of any dividend that may be paid to shareholders of
record of our common stock as of March 31, 2003.
Under our articles of incorporation, we will be released from our obligation
to pay dividends if you have not collected them after five years from the
payment date. Dividends will not bear any interest. The paying agent for
dividend payments is Mitsubishi Trust Bank.
Under Japanese foreign exchange regulations currently in effect, dividends
paid on shares held by non-residents of Japan may, in general, be converted
into any foreign currency and repatriated abroad. Under the terms of the
deposit agreement under which ADSs are issued, the depositary is required, to
the extent that in its judgment it can convert Japanese yen on a reasonable
basis into US dollars and transfer the resulting dollars to the United States,
to convert all cash dividends that it receives in respect of deposited shares
into US dollars and to distribute the amount received, after deduction of any
applicable withholding taxes, to the holders of ADSs.
S-27
USE OF PROCEEDS
We expect to receive approximately (Yen)189.7 billion in net cash proceeds
from the issuance and sale of our new shares in the global offering, which will
be used to make equity investments in our subsidiary banks and for general
corporate purposes. Our wholly owned subsidiaries, Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank, as selling shareholders, expect to receive (Yen)70.6
billion in aggregate net cash proceeds from the sale of our shares in the
global offering. Because the selling shareholders are our wholly owned
subsidiaries, any offering of our shares by them will be considered a primary
offering under U.S. securities laws and the net proceeds received by them from
the global offering will be reflected in our consolidated financial statements
for accounting purposes. However, Mitsubishi Tokyo Financial Group will not
directly receive any proceeds from Bank of Tokyo-Mitsubishi's and Mitsubishi
Trust Bank's sale of our shares, and the proceeds will be received by the
selling shareholders, in proportion to the shares sold by them. Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank intend to use the net proceeds
received from the global offering for general corporate purposes.
These amounts are after deducting the U.S. underwriters', the Japanese
underwriters' and the international managers' discounts and commissions and
(Yen)1.6 billion of estimated aggregate expenses payable by us and the selling
shareholders, but are before the payment of any Japanese corporate taxes to
which Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank may be subject as a
result of their sale of shares at a profit.
If the U.S. underwriters, the international managers and the Japanese
underwriters elect to exercise their over-allotment options in full, we expect
to receive an additional (Yen)38.0 billion in net cash proceeds.
S-28
CAPITALIZATION
The following table presents our capitalization at September 30, 2002 on an
actual basis and on an as adjusted basis to give effect to the receipt and
application by us of the net proceeds of the shares we are issuing and selling
and the sale by our wholly owned subsidiaries, as selling shareholders, of our
shares and the receipt by them of the net proceeds from that sale:
At September 30, 2002(1)
-------------------------------------------------
Actual As Adjusted
------------------------ ------------------------
(in millions)
Total short-term borrowings/(4)(5)/............................................... (Yen)13,219,753 $108,590 (Yen)13,219,753 $108,590
Debentures/(6)/................................................................... 1,198,007 9,841 1,198,007 9,841
Long-term debt:/(5)(7)/
Obligations under capital leases................................................ 25,949 213 25,949 213
Obligations under sale-and-leaseback transactions............................... 101,817 836 101,817 836
Unsubordinated debt/(8)/........................................................ 2,637,426 21,664 2,637,426 21,664
Subordinated debt/(9)/.......................................................... 2,514,524 20,655 2,514,524 20,655
Mandatorily redeemable preferred securities of subsidiary grantor trust......... 43,768 360 43,768 360
--------------- -------- --------------- --------
Total long-term debt........................................................... 5,323,484 43,728 5,323,484 43,728
--------------- -------- --------------- --------
Minority interest/(10)/........................................................... 347,766 2,857 347,766 2,857
Shareholders' equity/(3)(15)/:
Preferred stock (Class 1), with no stated value/(11)/........................... 122,100 1,003 122,100 1,003
Preferred stock (Class 2), with no stated value/(12)/........................... 100,000 821 100,000 821
Common stock, with no stated value/(13)/........................................ 873,156 7,172 968,832 7,958
Capital surplus/(2)/............................................................ 908,461 7,462 993,888 8,164
Retained earnings:/(2)/
Appropriated for legal reserve................................................. 237,474 1,951 237,474 1,951
Unappropriated................................................................. 72,637 597 72,637 597
Accumulated other changes in equity from nonowner sources, net of taxes/(2)/.... 115,067 945 115,067 945
--------------- -------- --------------- --------
Total.......................................................................... 2,428,895 19,951 2,609,998 21,439
Less treasury stock, at cost: 158,034 common shares actual; 3,007 common shares
as adjusted/(14)/.............................................................. 82,756 680 3,500 29
--------------- -------- --------------- --------
Shareholders' equity--net................................................... 2,346,139 19,271 2,606,498 21,410
--------------- -------- --------------- --------
Total capitalization..................................................... (Yen)22,435,149 $184,287 (Yen)22,695,508 $186,426
=============== ======== =============== ========
-------------
(1) For the convenience of readers, US dollar amounts are presented as
translations of Japanese yen amounts at the rate of (Yen)121.74 = $1.00,
the noon buying rate on September 30, 2002 in New York City for cable
transfers in Japanese yen as certified for customs purposes by the Federal
Reserve Bank of New York.
(2) Does not reflect the results of operations and other changes in equity from
nonowner sources for any period subsequent to September 30, 2002, including
the payment of cash dividends on preferred stock approved by the board of
directors on November 25, 2002. The aggregate amount of cash dividends
approved by the board of directors on November 25, 2002 was (Yen)4.2
billion.
(3) Excludes the effects of tax benefit arising from losses on sales of shares
by Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank. Such losses are
expected to result in a tax benefit of approximately (Yen)44.3 billion.
However, it is currently uncertain whether all or part of such amount is
more likely than not to be realized.
(4) It is impracticable for us to determine the amount of short-term borrowings
that are guaranteed by third parties. There were changes in total
short-term borrowings, attributable to normal business activities,
subsequent to September 30, 2002.
(5) At September 30, 2002, (Yen)7,314.3 billion of short-term debt and
long-term debt was secured.
(6) At September 30, 2002, the debentures were not guaranteed by a third party
and were unsecured. Debentures of (Yen)443.8 billion were redeemed between
October 1, 2002 and February 24, 2003.
(7) Represents debt with original maturities of more than one year. At
September 30, 2002, (Yen)26.0 billion of long-term debt was guaranteed by a
third party.
(8) Unsecured unsubordinated bonds of (Yen)260.0 billion due 2005 through 2022
were issued between October 1, 2002 and February 24, 2003. Unsubordinated
bonds of (Yen)360.9 billion were redeemed between October 1, 2002 and
February 24, 2003.
(9) Subordinated bonds of (Yen)4.0 billion due 2012 were issued between October
1, 2002 and February 24, 2003. In addition, undated subordinated bonds of
(Yen)36.2 billion were issued between October 1, 2002 and February 24,
2003. Subordinated bonds of (Yen)67.2 billion were redeemed between October
1, 2002 and February 24, 2003. Subordinated borrowings of (Yen)47.0 billion
were repaid between October 1, 2002 and February 24, 2003.
(10) Included in other liabilities in our consolidated financial statements.
(11) At September 30, 2002, the authorized, issued and outstanding number of
class 1 preferred shares was 81,400. Class 1 preferred shares are
redeemable at our option under the redemption terms stipulated by the
articles of incorporation. We may redeem class 1 preferred shares at
(Yen)3,000 thousand per share on or after January 21, 2004.
S-29
(12) At September 30, 2002, the authorized, issued and outstanding number of
class 2 preferred shares was 100,000. Class 2 preferred shares are
convertible into common stock at the option of the shareholders during a
conversion period.
(13) At September 30, 2002, the authorized number of shares and issued number
of shares were 22,000,000 and 5,742,468, respectively.
(14) 625 common shares held by Mitsubishi Trust Bank as treasury stock at cost
of (Yen)0.9 billion were sold for (Yen)0.5 billion between October 1, 2002
and February 24, 2003.
(15) If the U.S. underwriters, the international managers and the Japanese
underwriters exercise their options in full to purchase 84,000 additional
shares of common stock, our common stock as adjusted and capital surplus
as adjusted are expected to increase by (Yen)19.1 billion and (Yen)18.9
billion, respectively, from the amounts set forth in the table, resulting
in an increase of (Yen)38.0 billion in our shareholders' equity-net as
adjusted and total capitalization as adjusted.
(16) At September 30, 2002, the total balance of guarantees for repayment of
trust principal, standby letters of credit and other guarantees and
commercial letters of credit was (Yen)7,958 billion. With respect to
contingent liabilities, we are involved in various litigation matters. In
the opinion of management, our liabilities, if any, when ultimately
determined will not have a material adverse effect on our financial
position.
S-30
DILUTION
If you invest in our shares or ADSs, your interest will be diluted by the
amount of the difference between the public offering price per share and the
adjusted net tangible book value per share after the global offering.
Our net tangible book value as of September 30, 2002 was (Yen)1,660,528
million, or (Yen)297,349.40 per share.
The selling shareholders are our wholly owned subsidiaries, and the shares
held by them prior to the offering were reflected as treasury stock. Following
the sale of our common stock by the selling shareholders in the global
offering, such shares will be reflected as our outstanding shares of common
stock.
After giving effect to our sale of 420,000 newly issued shares of common
stock and the sale by the selling shareholders of 155,027 shares of common
stock in the global offering at the public offering price of (Yen)475,000 per
share, and after deducting underwriters' discounts and underwriting commissions
and estimated offering expenses, our adjusted net tangible book value as of
September 30, 2002 would have been (Yen)1,920,887 million, or (Yen)311,859.65
per share. This amount represents an immediate increase in pro forma net
tangible book value of (Yen)14,510.25 per share to existing shareholders and an
immediate dilution of (Yen)163,140.35 per share to new investors purchasing
shares in the global offering. In making these calculations:
. "Net tangible book value" is calculated by subtracting goodwill and other
intangible assets, total liabilities, minority interests and preferred
stock from total assets.
. "Net tangible book value per share" is determined by dividing our net
tangible book value by the number of our outstanding shares of common
stock.
. "Dilution per share" is the difference between the price per share paid
by purchasers in the global offering and our unaudited pro forma net
tangible book value per share after the global offering.
The following table illustrates this per share dilution.
Per Share/(1)(2)/
- ----------------
Public offering price per share................................................................... (Yen)475,000.00
Net tangible book value per share at September 30, 2002........................................... 297,349.40
Increase in net tangible book value per share attributable to the issuance of shares by us and
the sale of shares by the selling shareholders............................................... 14,510.25
Adjusted net tangible book value per share after the global offering........................... 311,859.65
Dilution per share to new investors............................................................... 163,140.35
-------------
(1) Shares of class 2 preferred stock are potentially convertible into shares
of common stock but are excluded from these calculations due to their
antidilutive effects.
(2) Excludes the effects of tax benefit arising from losses on sales by Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank. Such losses are expected to
result in a tax benefit of approximately (Yen)44.3 billion. However, it is
currently uncertain whether all or part of such amount is more likely than
not to be realized.
If the U.S. underwriters, the international managers and the Japanese
underwriters exercise their options in full to purchase 84,000 additional
shares of common stock from us in the global offering, our pro forma adjusted
net tangible book value as of September 30, 2002 would have been (Yen)1,958,876
million, or (Yen)313,748.38 per share, representing an immediate increase in
net tangible book value to our existing shareholders of (Yen)16,398.98 per
share and immediate dilution to new investors of (Yen)161,251.62 per share.
S-31
SELECTED FINANCIAL AND OPERATING DATA
On April 2, 2001, we were formed as a holding company for Bank of
Tokyo-Mitsubishi, Mitsubishi Trust Bank and Nippon Trust Bank. Nippon Trust
Bank was formerly a majority-owned subsidiary of Bank of Tokyo-Mitsubishi and
merged into Mitsubishi Trust Bank in October 2001. The business combination
between Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank was accounted for
under the pooling-of-interests method and, accordingly, the selected statement
of operations and balance sheet data shown below for the periods ended before
the combination set forth the combined results of Bank of Tokyo-Mitsubishi,
including Nippon Trust Bank, and Mitsubishi Trust Bank as if the combination
had been in effect for all the periods presented.
Selected statement of operations data for the fiscal years ended March 31,
1999, 2000, 2001 and 2002, and selected balance sheet data at March 31, 2000,
2001 and 2002 set forth below have been derived from our audited consolidated
financial statements. Selected statement of operations data for the fiscal year
ended March 31, 1998 and selected balance sheet data at March 31, 1998 and 1999
set forth below have been derived from the audited financial statements of Bank
of Tokyo-Mitsubishi and unaudited financial information derived from the
accounting records of Mitsubishi Trust Bank.
Selected statement of operations data for the six months ended September 30,
2001 and 2002 and selected balance sheet data at September 30, 2001 and 2002
set forth below have been derived from our unaudited consolidated financial
statements, which we believe include all adjustments necessary for a fair
presentation of the results of operations and financial condition for those
periods. The results of operations for the six-month periods are not
necessarily indicative of the results for a full year's operations.
Except for risk-adjusted capital ratios which are calculated in accordance
with Japanese banking regulations based on information derived from our
financial statements prepared in accordance with Japanese GAAP, and the average
balance information, the selected financial data set forth below are derived
from our financial statements prepared in accordance with US GAAP.
You should read the selected financial and operating data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
other financial data included in this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference. These data are
qualified in their entirety by reference to all of that information.
S-32
Years Ended
March 31,
-----------------
1998
----------------
Statement of
operations data: (unaudited)
Interest income.... (Yen) 2,971,119
Interest expense... 1,999,409
----------------
Net interest income 971,710
Provision for
credit losses.... 1,476,027
----------------
Net interest
income (loss)
after provision
for credit losses (504,317)
Non-interest income 793,978
Non-interest
expense.......... 1,488,527
----------------
Income (loss)
before income
tax expense
(benefit) and
cumulative
effect of a
change in
accounting
principle........ (1,198,866)
Income tax expense
(benefit)........ (425,490)
----------------
Income (loss)
before
cumulative
effect of a
change in
accounting
principle........ (773,376)
----------------
Cumulative effect
of a change in
accounting
principle, net
of tax/(1)/...... --
----------------
Net income (loss).. (Yen) (773,376)
================
Net income (loss)
attributable to
common
shareholders..... (Yen) (773,376)
================
Amounts per
share/(2)/:
Basic earnings
(loss) per
common share:
--Income (loss)
before
cumulative
effect of a
change in
accounting
principle........ (Yen)(141,127.01)
--Net income (loss) (141,127.01)
Diluted earnings
(loss) per
common share:
--Income (loss)
before
cumulative
effect of a
change in
accounting
principle........ (Yen)(141,127.01)
--Net income (loss) (141,127.01)
Number of shares
used to
calculate
earnings per
common share (in
thousands):
--Basic earnings
(loss) per
common share..... 5,480
--Diluted earnings
(loss) per
common share..... 5,480
Cash dividends per
share declared
during the
period/(4)/:
--Common shares.... (Yen) 8,418.42
$ 69.15
--Preferred shares
(Class 1)........ --
--Preferred shares
(Class 2)........ --
Six Months Ended
Years Ended March 31, September 30,
----------------------------------------------------------------- --------------------------------
1999 2000 2001 2002 2001 2002
--------------- -------------- --------------- --------------- --------------- ---------------
Statement of
operations data: (unaudited) (unaudited)
Interest income.... (Yen) 2,811,638 (Yen)2,165,643 (Yen) 2,282,974 (Yen) 2,016,961 (Yen) 1,088,622 (Yen) 818,464
Interest expense... 1,677,554 1,086,126 1,310,618 939,063 547,517 285,748
--------------- -------------- --------------- --------------- --------------- ---------------
Net interest income 1,134,084 1,079,517 972,356 1,077,898 541,105 532,716
Provision for
credit losses.... 1,239,000 372,449 797,081 601,689 309,425 232,632
--------------- -------------- --------------- --------------- --------------- ---------------
Net interest
income (loss)
after provision
for credit losses (104,916) 707,068 175,275 476,209 231,680 300,084
Non-interest income 695,229 519,892 955,824 700,741 442,660 571,452
Non-interest
expense.......... 1,247,273 1,224,342 1,127,510 1,501,183 683,483 603,661
--------------- -------------- --------------- --------------- --------------- ---------------
Income (loss)
before income
tax expense
(benefit) and
cumulative
effect of a
change in
accounting
principle........ (656,960) 2,618 3,589 (324,233) (9,143) 267,875
Income tax expense
(benefit)........ (174,537) 50,160 62,763 (101,832) (1,480) 163,622
--------------- -------------- --------------- --------------- --------------- ---------------
Income (loss)
before
cumulative
effect of a
change in
accounting
principle........ (482,423) (47,542) (59,174) (222,401) (7,663) 104,253
--------------- -------------- --------------- --------------- --------------- ---------------
Cumulative effect
of a change in
accounting
principle, net
of tax/(1)/...... -- -- -- 5,867 5,867 (532)
--------------- -------------- --------------- --------------- --------------- ---------------
Net income (loss).. (Yen) (482,423) (Yen) (47,542) (Yen) (59,174) (Yen) (216,534) (Yen) (1,796) (Yen) 103,721
=============== ============== =============== =============== =============== ===============
Net income (loss)
attributable to
common
shareholders..... (Yen) (482,423) (Yen) (53,006) (Yen) (67,510) (Yen) (220,702) (Yen) (5,964) (Yen) 95,385
=============== ============== =============== =============== =============== ===============
Amounts per
share/(2)/:
Basic earnings
(loss) per
common share:
--Income (loss)
before
cumulative
effect of a
change in
accounting
principle........ (Yen)(87,953.14) (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(40,789.57) (Yen) (2,134.35) (Yen) 17,191.86
--Net income (loss) (87,953.14) (9,663.81) (12,274.55) (39,733.32) (1,075.90) 17,096.50
Diluted earnings
(loss) per
common share:
--Income (loss)
before
cumulative
effect of a
change in
accounting
principle........ (Yen)(87,953.14) (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(40,789.57) (Yen) (2,134.35) (Yen) 15,147.97
--Net income (loss) (87,953.14) (9,663.81) (12,274.55) (39,733.32) (1,075.90) 15,057.33
Number of shares
used to
calculate
earnings per
common share (in
thousands):
--Basic earnings
(loss) per
common share..... 5,485 5,485 5,500 5,555 5,543 5,579
--Diluted earnings
(loss) per
common share..... 5,485 5,485 5,500 5,555 5,543 5,870/(3)/
Cash dividends per
share declared
during the
period/(4)/:
--Common shares.... (Yen) 8,418.42 (Yen) 8,255.25 (Yen) 8,255.25 (Yen) 4,127.63 (Yen) 4,127.63 (Yen) 6,000.00
$ 69.15 $ 67.81 $ 67.81 $ 33.91 $ 33.91 $ 49.29
--Preferred shares
(Class 1)........ -- (Yen)57,120.00 (Yen) 82,500.00 (Yen) 41,250.00 (Yen) 41,250.00 (Yen) 82,500.00
$ 469.20 $ 677.67 $ 338.84 $ 338.84 $ 677.67
--Preferred shares
(Class 2)........ -- (Yen) 8,150.00 (Yen) 16,200.00 (Yen) 8,100.00 (Yen) 8,100.00 (Yen) 16,200.00
$ 66.95 $ 133.07 $ 66.54 $ 66.54 $ 133.07
S-33
At March 31,
----------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
---------------- --------------- --------------- --------------- ---------------
(in millions)
Balance sheet data: (unaudited) (unaudited)
Total assets....... (Yen)101,273,096 (Yen)86,392,525 (Yen)84,996,000 (Yen)93,488,950 (Yen)94,365,114
Loans, net of
allowance for
credit losses.... 56,864,082 53,215,070 48,563,172 47,953,919 48,494,545
Total liabilities.. 97,762,900 82,923,595 80,981,592 90,287,654 91,738,617
Deposits........... 64,157,285 56,094,893 54,777,171 60,105,742 63,659,501
Long-term debt..... 3,961,219 4,131,329 4,540,277 4,963,455 5,183,841
Shareholders'
equity........... 3,510,196 3,468,930 4,014,408 3,201,296 2,626,497
Capital stock/(5)/. 856,663 956,664 956,664 956,664 973,156
Years Ended March 31,
----------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
---------------- --------------- --------------- --------------- ---------------
(in millions, except percentages)
Other operating
data:
Average balances: (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Interest-earning
assets........... (Yen) 94,209,422 (Yen)90,683,194 (Yen)83,166,023 (Yen)83,396,382 (Yen)85,192,376
Interest-bearing
liabilities...... 86,642,633 84,033,397 74,566,168 75,749,784 78,749,705
Total assets....... 99,723,902 96,090,045 86,620,645 89,341,483 92,376,000
Shareholders'
equity........... 3,848,452 3,356,754 3,599,596 3,464,251 3,045,608
Return on equity
and assets: (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net income (loss)
attributable to
common
shareholders as
a percentage of
total average
assets/(6)/...... (0.78)% (0.50)% (0.06)% (0.08)% (0.24)%
Net income (loss)
attributable to
common
shareholders as
a percentage of
average
shareholders'
equity/(6)/...... (20.10)% (14.37)% (1.47)% (1.95)% (7.25)%
Dividends per
common share as
a percentage of
basic earnings
per common share. -- /(7)/ -- /(7)/ -- /(7)/ -- /(7)/ -- /(7)/
Average
shareholders'
equity as a
percentage of
total average
assets........... 3.86% 3.49% 4.16% 3.88% 3.30%
Net interest
income as a
percentage of
total average
interest-earning
assets/(6)/...... 1.03% 1.25% 1.30% 1.17% 1.27%
Credit quality data: (unaudited) (unaudited)
Allowance for
credit losses.... (Yen) 1,281,091 (Yen) 1,813,680 (Yen) 1,486,212 (Yen) 1,716,984 (Yen) 1,735,180
Allowance for
credit losses as
a percentage of
loans............ 2.20% 3.30% 2.97% 3.46% 3.45%
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more.......... (Yen) 2,282,529 (Yen) 3,477,768 (Yen) 2,844,915 (Yen) 4,272,794 (Yen) 4,164,982
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more as a
percentage of
loans............ 3.93% 6.32% 5.68% 8.60% 8.29%
Net loan
charge-offs...... (Yen) 1,765,356 (Yen) 663,453 (Yen) 679,736 (Yen) 598,362 (Yen) 603,404
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net loan
charge-offs as a
percentage of
average
loans/(6)/....... 3.01% 1.15% 1.30% 1.21% 1.23%
Average interest
rate spread/(6)/. 0.84% 1.10% 1.14% 1.01% 1.18%
Risk-adjusted
capital ratio
derived from
Japanese GAAP
data/(8)/........ -- -- 11.43% 10.15% 10.30%
At September 30,
------------------------------------
2001 2002
--------------- ---------------
Balance sheet data: (unaudited) (unaudited)
Total assets....... (Yen)89,483,354 (Yen)92,316,029
Loans, net of
allowance for
credit losses.... 46,513,725 46,520,013
Total liabilities.. 86,966,239 89,969,890
Deposits........... 59,173,675 63,844,120
Long-term debt..... 5,093,871 5,323,484
Shareholders'
equity........... 2,517,115 2,346,139
Capital stock/(5)/. 973,156 973,156
Six Months Ended
September 30,
------------------------------------
2001 2002
--------------- ---------------
Other operating
data:
Average balances: (unaudited) (unaudited)
Interest-earning
assets........... (Yen)85,213,110 (Yen)85,555,468
Interest-bearing
liabilities...... 78,957,713 78,538,741
Total assets....... 93,304,828 92,940,735
Shareholders'
equity........... 3,029,348 2,534,166
Return on equity
and assets: (unaudited) (unaudited)
Net income (loss)
attributable to
common
shareholders as
a percentage of
total average
assets/(6)/...... (0.01)% 0.20%
Net income (loss)
attributable to
common
shareholders as
a percentage of
average
shareholders'
equity/(6)/...... (0.39)% 7.51%
Dividends per
common share as
a percentage of
basic earnings
per common share. -- /(7)/ 35.09%
Average
shareholders'
equity as a
percentage of
total average
assets........... 3.25% 2.73%
Net interest
income as a
percentage of
total average
interest-earning
assets/(6)/...... 1.27% 1.24%
Credit quality data: (unaudited) (unaudited)
Allowance for
credit losses.... (Yen) 1,794,045 (Yen) 1,571,232
Allowance for
credit losses as
a percentage of
loans............ 3.71% 3.27%
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more.......... (Yen) 4,453,510 (Yen) 3,571,818
Nonaccrual and
restructured
loans, and
accruing loans
contractually
past due 90 days
or more as a
percentage of
loans............ 9.22% 7.43%
Net loan
charge-offs...... (Yen) 225,644 (Yen) 383,610
(unaudited) (unaudited)
Net loan
charge-offs as a
percentage of
average
loans/(6)/....... 0.91% 1.54%
Average interest
rate spread/(6)/. 1.17% 1.18%
Risk-adjusted
capital ratio
derived from
Japanese GAAP
data/(8)/........ 10.31% 10.49%
-------------
Notes:
(1) Effective April 1, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. On April
1, 2002, we also adopted SFAS No. 142, "Goodwill and Other Intangible
Assets."
(2) Amounts for the years ended March 31, 1998, 1999, 2000 and 2001 have been
adjusted to reflect the stock-for-stock exchanges creating Mitsubishi Tokyo
Financial Group, Inc.
(3) Includes the common shares potentially issuable pursuant to the 3%
exchangeable guaranteed notes due 2002 and class 2 preferred stock. The 3%
exchangeable guaranteed notes due 2002 were redeemed in November 2002.
(4) For the convenience of readers, US dollar amounts are presented as
translations of Japanese yen amounts at the rate of (Yen)121.74 = US$1.00,
the noon buying rate on September 30, 2002 in New York City for cable
transfers in Japanese yen as certified for customs purposes by the Federal
Reserve Bank of New York.
(5) Amounts include common stock and non-redeemable Class 2 preferred stock.
Redeemable Class 1 preferred stock is excluded.
(6) Percentages for the six months ended September 30, 2001 and 2002 have been
annualized.
(7) Percentages against basic loss per common share have not been presented
because such information is not meaningful.
(8) Risk-adjusted capital ratios have been calculated in accordance with
Japanese banking regulations, based on information derived from our
financial statements prepared in accordance with Japanese GAAP. Ratios for
the years ended March 31, 2000 and 2001 represent combined risk-adjusted
capital ratios of Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank before
any combination-related adjustments.
S-34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial and Operating Data," our consolidated financial statements
and related notes included elsewhere in this Prospectus Supplement.
Introduction
We are a holding company for Bank of Tokyo-Mitsubishi and Mitsubishi Trust
Bank. Through our subsidiary banks, we provide a broad range of financial
services, including commercial banking, investment banking, and trust banking
and asset management services, to individual and corporate customers. The
banking industry and the global financial markets are influenced by many
unpredictable factors, including economic conditions, monetary policy,
international political events, liquidity in global markets and regulatory
developments. Our operations are significantly affected by external factors,
such as the level and volatility of interest rates, currency exchange rates,
securities and real estate markets, and other economic and market conditions.
In particular, serious problems with non-performing assets and depressed equity
and real estate markets resulting from prolonged severe economic conditions in
Japan have significantly affected our operations in recent years. Japanese
financial institutions have experienced and in some cases are still
experiencing protracted asset quality problems. In addition, we hold a
significant number of shares in some of our customers for strategic purposes,
in particular to maintain long-term relationships. These equity securities
expose us to a risk of losses resulting from a decline in the prices of
marketable securities. Accordingly, our results of operations may vary
significantly from period to period because of unpredictable events, including
unexpected failures of large corporate borrowers, defaults in emerging markets
and market volatility.
Recent Developments
Acquisition and Merger of Securities Companies
On September 1, 2002, KOKUSAI Securities Co., Ltd., a former equity method
investee and one of the major securities firms in Japan, Tokyo-Mitsubishi
Securities Co., Ltd., a former subsidiary, Tokyo-Mitsubishi Personal Securities
Co., Ltd., a former subsidiary, and Issei Securities Co., Ltd., a former equity
method investee, were merged, with KOKUSAI Securities continuing as the
surviving corporation under the new name of Mitsubishi Securities Co., Ltd. The
merger was consummated through a stock-for-stock exchange, and as a result of
the merger, we have an equity interest of 56.76% in Mitsubishi Securities. Our
additional acquisitions of the net assets of KOKUSAI Securities, Issei
Securities and Tokyo-Mitsubishi Personal Securities were accounted for using
the purchase method. The cost of acquisition was determined based on the quoted
market price of KOKUSAI Securities' common stock for a certain period before
and after April 8, 2002 when the terms of the acquisition were agreed to and
announced. As a result of the merger, no goodwill was recognized. The decrease
in net assets in Tokyo-Mitsubishi Securities was accounted for as a sale of
investment in a subsidiary, resulting in a (Yen)22.5 billion loss for the six
months ended September 30, 2002, which was included in non-interest
expense-other.
Application of Consolidated Corporate-Tax System
On September 30, 2002, we applied to the Japanese tax authorities to file
our tax returns under the consolidated corporate-tax system. We have not
received any notice on the application from the tax authorities. If we do not
receive a notice that denies our application before March 31, 2003, the
consolidated corporate-tax system will be viewed as approved by the tax
authorities and will be retroactively applied to the fiscal year beginning on
April 1, 2002. During the six months ended September 30, 2002, however, we
accounted for current and deferred income taxes under the previous individual
corporate-tax system, as the change in tax status to the new consolidated tax
status is viewed as effective as of the date approval is received (or as of
March 31, 2003, if we do not receive any notice from the tax authorities). The
new consolidated system allows companies to base tax payments on the combined
profits or losses of a parent company and its wholly owned domestic
subsidiaries. When a company elects the consolidated corporate-tax system, it
is required to pay, until the fiscal year ending March 31, 2004, a surcharge
tax of 2.0% of taxable income in addition to the national corporate
S-35
income tax rate, which is currently 30.0%. Although we believe that the
election of the consolidated corporate-tax system will contribute to tax
savings in the future, it is impracticable to estimate the likely impact on our
results of operations for the year ending March 31, 2003 because such savings
are dependent upon future operating results.
Pension Plan Amendment
In November 2002, one of our subsidiary banks, Bank of Tokyo-Mitsubishi, as
part of a cost-cutting program, amended its pension plan to reduce employee
pension benefits by amounts ranging from 7% to 20% commencing with employees
who will retire on and after April 1, 2003. This plan amendment is expected to
lower our periodic pension costs and decrease our pension obligations.
Government Plan to Revive Financial Sector
In recent months, the Financial Services Agency of Japan, the Bank of Japan
and other elements of the government of Japan have taken steps intended to
restore confidence in the Japanese financial system, address the asset quality
problems faced by many Japanese financial institutions, strengthen the capital
base and improve governance of major Japanese banks and bring greater stability
to the financial system. These steps announced or taken by the government
include more rigorous assessment of assets, improvement of capital ratios,
improvement of governance, extension of deposit guarantees, government support
of distressed financial institutions, improvement of the Financial Services
Agency monitoring system, and a new framework for corporate revival. For a more
detailed discussion of each step, see "Recent Developments--Recent Regulatory
Developments."
The government plan primarily features acceleration of disposals of
nonperforming loans held by major banks, including Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank, and rehabilitation of companies in financial difficulty.
Under the Program for Financial Revival, the Financial Services Agency states
that it will strive to normalize the problems with nonperforming loans by March
31, 2005, by reducing the major banks' ratios of nonperforming to total loans
by about half, and will aim to create a stronger financial system that can
support the structural reforms. In connection with the acceleration of
disposals of nonperforming loans, the Resolution and Collection Corporation,
which is wholly owned by the Deposit Insurance Corporation, is expected to play
an important role as a purchaser of nonperforming loans. The revised Financial
Rehabilitation Law, which became effective January 11, 2002, substantially
strengthened the function of the Resolution and Collection Corporation and has
enabled the Resolution and Collection Corporation to raise the prices at which
it will buy out problem loans to their estimated fair values. We increased the
sales of nonperforming loans to the Resolution and Collection Corporation from
(Yen)5.0 billion for the six months ended September 30, 2001 to (Yen)326.7
billion for the six months ended September 30, 2002 on a principal-amount basis.
Under the government plan, in order to assist commercial banks to reduce the
size of their equity share portfolios without materially adversely affecting
prevailing market prices, the Bank of Japan began purchasing stocks held by
banks. Seeking to comply with the legislation forbidding banks from holding
stocks with aggregate market values less unrealized gains in excess of their
Tier I capital after September 30, 2004, we have substantially reduced our
holdings of strategic equity investments. In addition to the sale of our equity
holdings in the market and transfer to the Banks' Shareholdings Purchase
Corporation established in January 2002, we expect that purchases by the Bank
of Japan will increase our alternatives to dispose of our equity holdings.
On December 11, 2002, the Deposit Insurance Law and other related laws were
amended. Prior to the amendment, guarantees of liquid deposits, such as
ordinary deposits and current deposits were set to be capped at (Yen)10 million
per customer within one bank from April 1, 2003. Under the amended deposit
insurance system, the Deposit Insurance Corporation will guarantee in full all
current deposits, ordinary deposits and other specified deposits until March
31, 2005. From April 1, 2005, all deposits will be subject to the (Yen)10
million cap, which is currently applicable only to time deposits, except for
non-interest bearing deposits that are redeemable on demand and used by the
depositor primarily for payment and settlement functions. The termination of
the Deposit Insurance Corporation's guarantee on time deposits at the end of
March 2002 had led some depositors to transfer their deposits to banks that are
perceived to be more financially stable. Also, within the same bank, some
depositors had transferred deposits from accounts that did not qualify for full
protection, such as time deposits, to accounts that qualified for full
protection, such as ordinary deposits.
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Legal Proceedings for Local Taxes
In April 2000, the Tokyo Metropolitan Government began imposing a tax of
3.0% on the gross operating profits of banks conducting business within its
jurisdiction. In May 2000, the Osaka Prefecture introduced a similar tax on
operating profits of banks conducting business within its jurisdiction. Banks
subject to the newly imposed tax, including our subsidiary banks, filed a
complaint in October 2000 challenging the new Tokyo local tax legislation. In
March 2002, the Tokyo District Court overturned the Tokyo local tax and ordered
the Tokyo Metropolitan Government to refund the tax payments previously paid by
the banks and to pay additional compensation. On March 29, 2002, the Tokyo
Metropolitan Government lodged an appeal to the Tokyo High Court.
After the decision of the Tokyo District Court, 16 major banks filed a
lawsuit in April 2002 with the Osaka District Court against the Osaka
Prefectural Government, seeking to nullify the new Osaka tax rule. In response
to the lawsuit, on May 30, 2002, the Osaka Prefectural Government revised its
tax rule for the fiscal year ended March 31, 2002 and the fiscal years subject
to the rule. Under the revised tax rule, large banks are required to pay the
lower of the 3.0% local tax on their gross operating income or the local tax
computed based on their net income.
On January 30, 2003, the Tokyo High Court upheld the Tokyo District Court's
ruling and ordered the Tokyo Metropolitan Government to refund tax payments
that the banks had paid over the past two fiscal years, which represents the
difference between the 3.0% tax on the gross operating profits paid by the
banks and the amount computed based on net income under the former rule. The
order includes the refund of (Yen)30.4 billion to our subsidiary banks.
However, the Tokyo High Court reversed the lower court on the issue of
additional compensation. The Tokyo Metropolitan Government has appealed this
decision to the Supreme Court of Japan. To date, there have been no decisions
made by the Osaka District Court.
Given the fact that the legal process has not been completed, we have not
recorded any gain in our consolidated financial statements. If the lawsuits
reach a final decision, we expect to receive the refund of (Yen)30.4 billion
from the Tokyo Metropolitan Government. In addition, we would adjust our net
deferred tax assets based on the revised effective tax rate.
Business Environment
Economic Environment in Japan
There have been growing concerns over the prospects for Japan's fragile
economic recovery, in part, due to unresolved issues with nonperforming assets
held by financial institutions. In the continuing weak economy in Japan, the
Japanese stock markets have experienced a significant downturn during the six
months ended September 30, 2002 and thereafter. The Nikkei Stock Average, which
is an average of 225 stocks listed on the Tokyo Stock Exchange, declined 14.9%
from 11,024.94 at March 29, 2002 to 9,383.29 at September 30, 2002. After
September 30, 2002, the Nikkei Stock Average has further declined, mostly
staying at 8,000 levels, and ended calendar 2002 at a 20-year low of 8,578.95.
High levels of corporate bankruptcy filings continued during the six months
ended September 30, 2002 although the number and the total liability amount
slightly decreased as compared with the corresponding period in the previous
fiscal year. The Bank of Japan maintained a policy of near zero interest rates
during the six months ended September 30, 2002. In the foreign exchange market,
foreign exchange rate movements were volatile, as the noon buying rates were
(Yen)132.70 per $1.00 at March 29, 2002 and (Yen)121.74 per $1.00 at
September 30, 2002.
Despite the severe conditions in the Japanese financial markets discussed
above, in response to the measures and steps taken by the government, we
substantially decreased nonperforming loans through bulk sales or by other
means, and sold marketable equity securities in the market, including through
the use of exchange-traded funds, for the six months ended September 30, 2002.
In addition, a number of Japanese companies have recently announced or
commenced negotiations for corporate restructuring measures, including debt
restructurings.
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International Financial Markets
The weakness in international financial markets continued during the six
months ended September 30, 2002. Most equity markets worldwide experienced a
significant loss during the six months ended September 30, 2002. In particular,
U.S. equity indices were down sharply for the six months ended September 30,
2002. The Dow Jones Industrial Average was down 27.0% from 10,403.94 at March
29, 2002 to 7,591.93 at September 30, 2002, and the Nasdaq composite Index
decreased 36.5% from 1,845.35 at March 29, 2002 to 1,172.06 at September 30,
2002. The United States and major European countries continued maintaining
easy-monetary policies. During the six months ended September 30, 2002, the
U.S. Federal Reserve maintained its discount rate of 1.25% and federal funds
rate of 1.75%. Subsequent to September 30, 2002, the U.S. Federal Reserve
reduced its discount rate to 0.75% and federal funds rate to 1.25%.
Critical Accounting Policies
Our financial statements are prepared in accordance with US GAAP. Many of
the accounting policies require management to make difficult, complex or
subjective judgments regarding valuation of assets and liabilities. The
accounting policies are fundamental to understanding our operating and
financial review and prospects. The most critical accounting policies are
impairment of marketable equity securities, allowance for credit losses,
valuation allowance for deferred tax assets, and valuation of financial
instruments with no available market prices. For a further discussion, see
"Item 5. Operating and Financial Review and Prospects--Critical Accounting
Policies" and the Notes to Consolidated Financial Statements in our Annual
Report on Form 20-F for the year ended March 31, 2002. There have been no
material changes to our critical accounting policies that affected our
financial condition or results of operations for the six months ended September
30, 2002.
Recently Issued Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.142, "Goodwill and
Other Intangible Assets." Under SFAS No.142, goodwill and intangible assets
with indefinite lives are no longer to be amortized. Instead, these assets are
tested annually for impairment. Effective April 1, 2002, we adopted the
provisions of SFAS No.142 and performed the required transitional impairment
tests of goodwill and intangible assets with indefinite lives. The adoption of
SFAS No.142 resulted in a cumulative adjustment charge to earnings of (Yen)0.6
billion relating to impairment of goodwill.
In June 2001, the FASB issued SFAS No.143, "Accounting for Asset Retirement
Obligations." This statement addresses the financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS No.143 applies to the legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development, and/or the normal operation of
a long-lived asset. A legal obligation is an obligation that a party is
required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract, or by legal construction of a contract
under the doctrine of promissory estoppel. This statement is effective for
fiscal years beginning after June 15, 2002. We do not expect that the adoption
of this statement will have a material impact on our financial condition or
results of operations.
In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets by
establishing additional criteria as compared to existing generally accepted
accounting principles to determine when a long-lived asset is held for sale. It
also broadens the definition of discontinued operations. SFAS No.144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The adoption of SFAS No.144 did not have a material impact
on our financial condition or results of operations.
In April 2002, the FASB issued SFAS No.145, "Rescission of FASB Statements
No.4, 44, and 64, Amendment of FASB Statement No.13, and Technical
Corrections". The provisions of SFAS No.145 related to the rescission of
Statement No.4 are effective for fiscal years beginning after May 15, 2002. Any
gain or loss on extinguishment of debt that was classified as an extraordinary
item in prior periods presented that does not meet the criteria in APB Opinion
30 for classification as an extraordinary item shall be reclassified. The
provisions of
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this statement related to SFAS No.13 are effective for transactions occurring
after May 15, 2002. All other provisions of SFAS No.145 are effective for
financial statements issued on or after May 15, 2002. We do not expect that the
adoption of this statement will have a material impact on our financial
condition or results of operations.
In June 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement replaces the guidance
provided by Emerging Issues Task Force (EITF) issue No.94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No.146
requires that costs associated with an exit or disposal activity be recognized
when a liability is incurred rather than at the date of a commitment to an exit
or disposal plan. This statement is effective for exit or disposal activities
initiated after December 31, 2002. We do not expect that the adoption of this
statement will have a material impact on our financial position or results of
operations.
In October 2002, the FASB issued SFAS No.147, "Acquisitions of Certain
Financial Institutions, an amendment of FASB Statements No.72 and 144 and FASB
Interpretation No.9." This statement provides guidance on the accounting for
the acquisition of a financial institution, which had previously been addressed
in SFAS No.72, "Accounting for Certain Acquisitions of Banking or Thrift
Institutions," and requires that those transactions be accounted for in
accordance with SFAS No.141, "Business Combinations," and SFAS No.142. In
addition, this statement amends SFAS No.144, to include long-term
customer-relationship intangible assets such as depositor and credit cardholder
intangible assets and would require these assets to be subject to an
undiscounted cash flow recoverability impairment test that SFAS No.144 requires
for other long-lived assets that are held and used. This statement was
effective October 1, 2002 and its adoption will not have a material impact on
our financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No.45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an interpretation of FASB Statements
No.5, 57, and 107 and rescission of FASB Interpretation No.34." The
Interpretation requires that guarantors recognize a liability for the fair
value of the obligations it has undertaken in issuing a guarantee. In addition,
the Interpretation will require entities to disclose the nature of the
guarantees, the maximum potential amount of future payments under the
guarantee, the carrying amount of the liability for the guarantor's obligations
under the guarantee and the nature of recourse provisions or available
collateral that would enable the guarantor to recover the amounts paid under
the guarantee. The recognition requirements are only required for guarantees
that are not accounted for as derivatives under SFAS No.133, "Accounting for
Derivative Instruments and Hedging Activities." The disclosures are required
for guarantees including those accounted for as derivatives under SFAS No.133.
The initial recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31, 2002,
regardless of the guarantor's fiscal year-end. The disclosure requirements in
the Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. We have not completed our assessment of
the impact of the Interpretation on our financial statements.
In December 2002, the FASB issued SFAS No.148, "Accounting for Stock-Based
Compensation-Transition and Disclosure, an amendment of FASB Statement No.123."
SFAS No.148 amends SFAS No.123, "Accounting for Stock-Based Compensation," to
provide alternative methods of the transition accounting for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
SFAS No.123 to require prominent disclosures about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS
No.148 are effective for fiscal years ending after December 15, 2002, with
earlier application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002.
S-39
In January 2003, the FASB issued Interpretation No.46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No.51." Interpretation
No.46 addresses consolidation by business enterprises of variable interest
entities. The consolidation requirements of Interpretation No.46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period beginning after June 15, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. We have not
completed our assessment of the impact of the Interpretation on our financial
statements.
Results of Operations for the Six Months Ended September 30, 2002 Compared to
the Six Months Ended September 30, 2001
The following table sets forth a summary of our results of operations for
the six months ended September 30, 2001 and 2002:
Six Months Ended
September 30,
------------------------
2001 2002
------------ ----------
(in billions)
Interest income....................................................................... (Yen)1,088.6 (Yen)818.5
Interest expense...................................................................... 547.5 285.8
------------ ----------
Net interest income................................................................ 541.1 532.7
------------ ----------
Provision for credit losses........................................................... 309.4 232.6
Non-interest income................................................................... 442.7 571.5
Non-interest expense.................................................................. 683.5 603.7
------------ ----------
Income (loss) before income tax expense (benefit) and cumulative effect of a change in
accounting principle................................................................ (9.1) 267.9
Income tax expense (benefit).......................................................... (1.5) 163.6
------------ ----------
Income (loss) before cumulative effect of a change in accounting principle............ (7.6) 104.3
Cumulative effect of a change in accounting principle, net of tax..................... 5.8 (0.6)
------------ ----------
Net income (loss).................................................................. (Yen) (1.8) (Yen)103.7
============ ==========
We recorded (Yen)103.7 billion of net income for the six months ended
September 30, 2002, compared to a (Yen)1.8 billion loss for the six months
ended September 30, 2001. Our earnings per share for the six months ended
September 30, 2002 were (Yen)17,096.50 (basic) and (Yen)15,057.33 (diluted),
compared to a net loss per share of (Yen)1,075.90 (basic and diluted) for the
six months ended September 30, 2001. Income before income tax expense and
cumulative effect of a change in accounting principle for the six months ended
September 30, 2002 was (Yen)267.9 billion, compared with a (Yen)9.1 billion
loss for the six months ended September 30, 2001. This significant change in
our operating results was primarily attributable to the following:
. Provision for credit losses decreased (Yen)76.8 billion, or 24.8%, from
(Yen)309.4 billion for the six months ended September 30, 2001 to
(Yen)232.6 billion for the six months ended September 30, 2002, due
primarily to a decrease in impaired loans, in particular nonaccrual
loans. Impaired loans decreased (Yen)570.0 billion, or 14.1%, during the
six months ended September 30, 2002. The decrease in impaired loans for
the six months ended September 30, 2002 primarily resulted from bulk
sales and charge-offs of domestic nonaccrual loans.
. Non-interest income increased (Yen)128.8 billion, or 29.1%, from
(Yen)442.7 billion for the six months ended September 30, 2001 to
(Yen)571.5 billion for the six months ended September 30, 2002. The
increase in non-interest income was primarily attributable to an
increase in foreign exchange gains-net of (Yen)50.9 billion, an increase
in net trading account profits of (Yen)39.4 billion and investment
securities gains-net of (Yen)28.9 billion for the six months ended
September 30, 2002 compared to investment securities losses-net of
(Yen)92.9 billion for the six months ended September 30, 2001.
. Non-interest expense decreased (Yen)79.8 billion, or 11.7%, from
(Yen)683.5 billion for the six months ended September 30, 2001 to
(Yen)603.7 billion for the six months ended September 30, 2002. The
decrease
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primarily reflected the absence of investment securities losses-net for
the six-months ended September 30, 2002 compared to investment
securities losses-net of (Yen)92.9 billion for the six months ended
September 30, 2001.
Because of severe weakness in several Japanese business sectors, recent
declines in the Japanese stock market and foreign currency exchange
fluctuations, our net income for the six months ended September 30, 2002 may
not be indicative of our full-year results, which could be a net loss. For a
detailed discussion of recent trends in the economic environment in Japan,
please see "--Business Environment--Economic Environment in Japan."
Net Interest Income
Net interest income is a function of:
. the amount of interest-earning assets;
. the so-called "spread," or the difference between the rate of interest
earned on interest-earning assets and the rate of interest paid on
interest-bearing liabilities;
. the general level of interest rates; and
. the proportion of interest-earning assets financed by
non-interest-bearing liabilities and equity.
Interest-earning assets are generally less sensitive to interest rate
changes than interest-bearing liabilities. As a result, in the absence of
contrary hedging transactions, in general, net interest income tends to
increase when interest rates are declining and decrease when interest rates are
rising. However, a stable but extremely low interest rate environment, such as
the current environment in Japan, makes it difficult for us to obtain a
sufficient spread to improve profitability. If interest rates increase and
remain stable at the higher rate, we may be able to improve our spread and
thereby increase net interest income.
For the six months ended September 30, 2002, the Bank of Japan maintained a
near zero interest rate policy. Under the policy of near zero interest rates,
the short-term prime lending rate, which serves as the benchmark for loans of
less than one year, remained at 1.375% per annum during the six months ended
September 30, 2001 and 2002. In connection with the increase in deposit
insurance premiums, Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank lowered
the interest rates offered to depositors on their ordinary deposits from 0.02%
to 0.001% in April 2002.
The following is a summary of the interest rate spread for the six months
ended September 30, 2001 and 2002:
Six Months Ended September 30,
----------------------------------------------------
2001 2002
------------------------- -------------------------
Average Average rate Average Average rate
balance (Annualized) balance (Annualized)
------------- ------------ ------------- ------------
(in billions, except percentages)
Interest-earning assets:
Domestic............... (Yen)59,465.9 1.40% (Yen)61,874.2 1.22%
Foreign................ 25,747.2 5.21 23,681.3 3.70
------------- -------------
Total.............. (Yen)85,213.1 2.55% (Yen)85,555.5 1.91%
------------- -------------
Financed by:
Interest-bearing funds:
Domestic............... (Yen)60,698.3 0.62% (Yen)63,963.1 0.35%
Foreign................ 18,259.4 3.93 14,575.6 2.38
------------- -------------
Total.............. (Yen)78,957.7 1.38 (Yen)78,538.7 0.73
------------- -------------
Non-interest-bearing funds 6,255.4 -- 7,016.8 --
------------- -------------
Total........... (Yen)85,213.1 1.28% (Yen)85,555.5 0.67%
============= =============
Spread on:
Interest-bearing funds. 1.17% 1.18%
Total funds............ 1.27% 1.24%
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Net interest income for the six months ended September 30, 2002 was
(Yen)532.7 billion, a decrease of (Yen)8.4 billion, or 1.6%, from
(Yen)541.1 billion for the six months ended September 30, 2001. Interest income
and interest expense both decreased during the six months ended September 30,
2002 due to the declining interest rate environment in Japan and overseas. The
slight decrease in net interest income primarily reflected a decrease in
average foreign interest-earning assets with relatively high interest rates.
Average foreign interest-earning assets decreased (Yen)2,065.9 billion, or
8.0%, to (Yen)23,681.3 billion for the six months ended September 30, 2002
while average domestic interest-earning assets increased (Yen)2,408.3 billion,
or 4.0%, to (Yen)61,874.2 billion. The decrease in average foreign
interest-earning assets for the six months ended September 30, 2002 primarily
reflected a decrease in average foreign interest-earning deposits of
(Yen)2,304.6 billion. Average foreign interest-bearing liabilities decreased
(Yen)3,683.8 billion, or 20.2%, to (Yen)14,575.6 billion for the six months
ended September 30, 2002 while average domestic interest-bearing liabilities
increased (Yen)3,264.8 billion, or 5.4%, to (Yen)63,963.1 billion. The decrease
in foreign interest-earning assets was not matched by the decrease in foreign
interest-bearing funds. During this period, we often used foreign currency
swaps to manage a portion of our foreign currency exposures associated with
foreign currency investments funded by yen-denominated liabilities.
Net interest income as a percentage of average total interest-earning assets
decreased 3 basis points from 1.27% for the six months ended September 30, 2001
to 1.24% for the six months ended September 30, 2002. The average interest rate
spread on interest-bearing funds increased 1 basis point from 1.17% for the six
months ended September 30, 2001 to 1.18% for the six months ended September 30,
2002. The average interest rate spread between foreign interest-earning assets
and foreign interest-bearing liabilities for the six months ended September 30,
2002 increased 4 basis points, and the average interest rate spread between
domestic interest-earning assets and domestic interest-bearing liabilities
increased 9 basis points. The increase in the average domestic interest rate
spread was primarily due to the decrease in average interest rates on deposits
resulting from lower interest rates on demand deposits.
See "Selected Statistical Data--I. Distribution of Assets, Liabilities and
Shareholders' Equity; Interest Rates and Interest Differential--Average Balance
Sheets, Interest and Average Rates" for a more detailed analysis of interest
rate spread.
Provision for Credit Losses
Provisions for credit losses are charged to operating income to maintain the
allowance for credit losses at a level deemed appropriate by management.
The provision for credit losses for the six months ended September 30, 2002
was (Yen)232.6 billion, a decrease of (Yen)76.8 billion, or 24.8%, from
(Yen)309.4 billion for the six months ended September 30, 2001. The decrease in
the provision for credit losses was due primarily to a decrease in impaired
loans, in particular nonaccrual loans. Impaired loans decreased
(Yen)570.0 billion, or 14.1%, for the six months ended September 30, 2002 while
impaired loans increased (Yen)149.9 billion, or 3.6%, for the six months ended
September 30, 2001. The decrease in impaired loans for the six months ended
September 30, 2002 primarily resulted from bulk sales and charge-offs of
domestic nonaccrual loans. See "--Financial Condition--Allowance for Credit
Losses, Nonperforming Loans and Past Due Loans" for a detailed discussion of
impaired loans.
Non-Interest Income
Non-interest income includes, in addition to fees and commissions and other
non-interest income, net trading account profits, net foreign exchange gains
and net investment securities gains. If we have net losses in any of those
categories for a particular period, those net losses would not be reflected in
non-interest income but would be included in non-interest expense.
Net trading account profits or losses primarily include net gains or losses
on trading securities and interest rate derivative instruments entered into for
trading purposes. Trading account assets or liabilities are carried at fair
value and any changes in the value of trading account assets or liabilities,
including interest rate derivatives, are recorded in net trading account
profits or losses. Derivative instruments for trading purposes also include
those used as hedges of net exposures rather than specifically identified
assets or liabilities, which do not meet the specific criteria for hedge
accounting.
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Net foreign exchange gains or losses primarily include net gains or losses
on currency derivative instruments entered into for trading purposes, and
transaction gains or losses on the translation into Japanese yen of monetary
assets and liabilities denominated in foreign currencies. The transaction gains
or losses on the translation into Japanese yen fluctuate from period to period
depending upon the spot rates at the end of period. This is primarily because
the transaction gains or losses on translation of securities available for
sale, such as bonds denominated in foreign currencies, are not included in
current earnings but are reflected in other changes in equity from nonowner
sources, while in principle all transaction gains or losses on translation of
monetary liabilities denominated in foreign currencies are included in current
earnings.
Net investment securities gains or losses primarily include net gains or
losses on sales of marketable securities, particularly marketable equity
securities. In addition, impairment losses are recognized as part of net
investment securities gains or losses when our management concludes that
declines in fair value for certain marketable securities are other than
temporary. We have recognized high levels of impairment losses in recent years
as fair values continued to decline in sluggish equity markets and worsening
financial conditions.
The following table is a summary of our non-interest income for the six
months ended September 30, 2001 and 2002:
Six Months Ended
September 30,
--------------------------
2001 2002
---------- ----------
(in billions)
Fees and commissions:
Trust fees................................................. (Yen) 62.8 (Yen) 54.9
Fees on funds transfer and service charges for collections. 29.8 30.6
Commissions and fees on international business............. 26.4 27.0
Fees and commissions on credit card business............... 25.5 26.0
Service charges on deposits................................ 10.7 17.8
Other fees and commissions................................. 89.9 95.5
---------- ----------
Total fees and commissions............................. 245.1 251.8
Trading account profits--net.................................. 106.1 145.5
Foreign exchange gains--net................................... 62.6 113.5
Investment securities gains--net.............................. -- /(1)/ 28.9
Other......................................................... 28.9 31.8
---------- ----------
Total non-interest income........................... (Yen)442.7 (Yen)571.5
========== ==========
-------------
(1) Net loss of (Yen)92.9 billion reflected in non-interest expense.
Non-interest income for the six months ended September 30, 2002 was
(Yen)571.5 billion, an increase of (Yen)128.8 billion, or 29.1%, from
(Yen)442.7 billion for the six months ended September 30, 2001. The increase in
non-interest income was primarily attributable to an increase in foreign
exchange gains--net of (Yen)50.9 billion, an increase in net trading account
profits of (Yen)39.4 billion, and investment securities gains--net of (Yen)28.9
billion for the six months ended September 30, 2002 compared to investment
securities losses--net of (Yen)92.9 billion for the six months ended September
30, 2001.
Fees and commissions for the six months ended September 30, 2002 were
(Yen)251.8 billion, an increase of (Yen)6.7 billion, or 2.8%, from (Yen)245.1
billion for the six months ended September 30, 2001. The increase in fees and
commissions was due primarily to an increase of (Yen)7.1 billion in service
charges on deposits of overseas offices and an increase of (Yen)5.6 billion in
other fees and commissions, offset by a decrease in trust fees of (Yen)7.9
billion.
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Trading account profits-net increased (Yen)39.4 billion, or 37.1%, to
(Yen)145.5 billion for the six months ended September 30, 2002. The net trading
account profits for the six months ended September 30, 2001 and 2002 consisted
of the following:
Six Months Ended
September 30,
----------------------
2001 2002
---------- ----------
(in billions)
Net profits on derivative instruments, primarily interest rate futures, swaps and
options........................................................................ (Yen)119.7 (Yen)151.0
Net losses on trading securities................................................. (13.6) (5.5)
---------- ----------
Net trading account profits................................................... (Yen)106.1 (Yen)145.5
========== ==========
The increase in net profits on derivative instruments was due primarily to
an increase in gains on interest rate swaps principally held for risk
management purposes. We use interest rate derivatives and manage our interest
rate positions to mitigate the exposures arising from mismatches in our asset
and liability positions and capitalize on interest rate movements prevailing in
the market. For the six months ended September 30, 2002, we generally
accumulated net receive-fix and pay-variable positions in our interest rate
swap portfolios in response to the increases in deposit liabilities, and our
interest rate swap positions resulted in gains in value under the declining
interest rate environment.
Net foreign exchange gains for the six months ended September 30, 2002 were
(Yen)113.5 billion, an increase of (Yen)50.9 billion, or 81.5%, from (Yen)62.6
billion for the six months ended September 30, 2001. The increase in net
foreign exchange gains primarily reflected an increase in transaction gains on
translation of monetary liabilities denominated in foreign currencies due to
the yen appreciation. As discussed above, the transaction gains or losses on
translation of securities available for sale, such as bonds denominated in
foreign currencies, are not included in current earnings but are reflected in
other changes in equity from nonowner sources, while in principle all
transaction gains or losses on translation of monetary liabilities denominated
in foreign currencies are included in current earnings.
Net investment securities gains for the six months ended September 30, 2002
were (Yen)28.9 billion, compared to net losses of (Yen)92.9 billion for the six
months ended September 30, 2001. Major components of net investment securities
gains or losses for the six months ended September 30, 2001 and 2002 are
summarized below:
Six Months Ended
September 30,
------------------------
2001 2002
----------- -----------
(in billions)
Net gains on sales of marketable equity securities....... (Yen) 132.6 (Yen) 106.8
Impairment losses on marketable equity securities........ (275.6) (176.5)
Other--net, principally gains on sales of debt securities 50.1 98.6
----------- -----------
Net investment securities gains (losses).............. (Yen) (92.9) (Yen) 28.9
=========== ===========
The change to net investment gains of (Yen)28.9 billion for the six months
ended September 30, 2002 from net investment losses of (Yen)92.9 billion for
the six months ended September 30, 2001 was due primarily to a decrease in
impairment losses on marketable equity securities and an increase in net gains
on sales of bonds as discussed below.
Net gains on sales of marketable equity securities decreased (Yen)25.8
billion from (Yen)132.6 billion for the six months ended September 30, 2001 to
(Yen)106.8 billion for the six months ended September 30, 2002. The decrease in
net gains on sales of marketable equity securities primarily reflected
declining market prices. Partly in response to the legislation forbidding
banks, including our subsidiary banks, from holding stocks in excess of
S-44
their Tier I capital after September 30, 2004 and partly to reduce
risk-weighted assets, we sold large amounts of equity securities, including
through the use of an exchange-traded fund.
Impairment losses on marketable equity securities decreased (Yen)99.1
billion from (Yen)275.6 billion for the six months ended September 30, 2001 to
(Yen)176.5 billion for the six months ended September 30, 2002. The decrease in
impairment losses primarily reflected a decrease in marketable equity
securities resulting from sales and lesser declines in market prices of equity
securities for the six months ended September 30, 2002 than for the six months
ended September 30, 2001. The Nikkei Stock Average declined 14.9% from
11,024.94 at March 29, 2002 to 9,383.29 at September 30, 2002 while it declined
24.8% from 12,999.70 at March 30, 2001 to 9,774.68 at September 28, 2001. The
Tokyo Stock Price Index, or TOPIX, which is a composite index of all stocks
listed on the First Section of the Tokyo Stock Exchange, declined 13.1% from
1,060.19 at March 29, 2002 to 921.05 at September 30, 2002 while it declined
19.9% from 1,277.27 at March 30, 2001 to 1,023.42 at September 28, 2001.
Other net gains for the six months ended September 30, 2001 and 2002
primarily consisted of net gains on our sales of bonds. The increase in other
gains of (Yen)48.5 billion from (Yen)50.1 billion for the six months ended
September 30, 2001 to (Yen)98.6 billion for the six months ended September 30,
2002 was mainly attributable to an increase in net gains on sales of bonds
issued by foreign entities. The prices of such bonds generally increased in a
declining interest rate environment during the six months ended September 30,
2002.
Other non-interest income consists primarily of lease income under operating
lease agreements. Other non-interest income for the six months ended September
30, 2002 was substantially unchanged, representing an increase of (Yen)2.9
billion, or 9.6%, from (Yen)28.9 billion for the six months ended September 30,
2001 to (Yen)31.8 billion for the six months ended September 30, 2002.
Non-Interest Expense
The following table shows a summary of our non-interest expense for the six
months ended September 30, 2001 and 2002:
Six Months Ended
September 30,
---------------------
2001 2002
---------- ----------
(in billions)
Salaries and employee benefits... (Yen)228.5 (Yen)241.7
Occupancy expenses--net.......... 67.4 60.4
Investment securities losses--net 92.9 -- /(1)/
Other............................ 294.7 301.6
---------- ----------
Total non-interest expense.... (Yen)683.5 (Yen)603.7
========== ==========
-------------
(1) Net gain of (Yen)28.9 billion reflected in non-interest income
Non-interest expense for the six months ended September 30, 2002 was
(Yen)603.7 billion, a decrease of (Yen)79.8 billion, or 11.7%, from (Yen)683.5
billion for the six months ended September 30, 2001. The decrease primarily
reflected no investment securities losses-net for the six months ended
September 30, 2002 compared to investment securities losses-net of (Yen)92.9
billion for the six months ended September 30, 2001. The decrease was partly
offset by an increase of (Yen)13.2 billion in salaries and employee benefits.
For a discussion of the change in investment securities gains (losses)-net, see
non-interest income above.
Salaries and employee benefits for the six months ended September 30, 2002
were (Yen)241.7 billion, an increase of (Yen)13.2 billion, or 5.8%, from
(Yen)228.5 billion for the six months ended September 30, 2001. The increase in
salaries and employee benefits primarily reflected an increase in net periodic
pension costs and an increase in salaries and employee benefits at UnionBanCal
Corporation and its subsidiaries. The increase in net periodic pension costs
was due mainly to an increase in amortization of unrecognized loss. The
increase in
S-45
salaries and employee benefits at UnionBanCal Corporation and subsidiaries was
primarily attributable to increases in staff reflecting their strategy of
expanding key businesses. These increases were partially offset by a decrease
in salary expense resulting from a reduction in the number of employees in
Japan.
Net occupancy expenses for the six months ended September 30, 2002, were
(Yen)60.4 billion, a decrease of (Yen)7.0 billion, or 10.3%, from (Yen)67.4
billion for the six months ended September 30, 2001. The decrease was due
primarily to a decrease in depreciation and lease expenses resulting from the
closing and consolidation of offices.
Other non-interest expense for the six months ended September 30, 2002 was
(Yen)301.6 billion, an increase of (Yen)6.9 billion, or 2.3%, from (Yen)294.7
billion for the six months ended September 30, 2001. Other non-interest expense
for the six months ended September 30, 2002 included a (Yen)22.5 billion loss
resulting from the decrease in our equity investment in a subsidiary that was
accounted for as a sale in connection with the merger of the four securities
companies described under "--Recent Developments--Acquisition and Merger of
Securities Companies." Excluding the loss of (Yen)22.5 billion, other
non-interest expense decreased (Yen)15.6 billion for the six months ended
September 30, 2002. The decrease was due primarily to a decrease in provision
for credit losses on off-balance sheet financial instruments.
Income Tax Expense (Benefit)
The following table presents a summary of our income tax expense (benefit)
for the six months ended September 30, 2001 and 2002:
Six Months Ended
September 30,
---------------------
2001 2002
--------- ----------
(in billions)
Income (loss) before income tax expense (benefit) and cumulative effect of a change
in accounting principle.......................................................... (Yen)(9.1) (Yen)267.9
Income tax expense (benefit)....................................................... (1.5) 163.6
Effective tax rate................................................................. 16.2% 61.1%
Normal effective statutory tax rate................................................ 38.0% 38.0%
The combined normal effective statutory tax was 38.0% for the six months
ended September 30, 2001 and 2002. For the six months ended September 30, 2002,
income tax expense as a percentage of income before income tax expense and
cumulative effect of a change in accounting principle was 61.1%, which was
23.1% higher than the statutory tax rate of 38.0%. The higher tax rate was due
principally to an increase in the valuation allowance against deferred tax
assets and nondeductible expenses, including the (Yen)22.5 billion loss
resulting from the decrease in our equity investment in a subsidiary discussed
above. The valuation allowance increased (Yen)69.9 billion from (Yen)256.6
billion at March 31, 2002, to (Yen)326.5 billion at September 30, 2002. These
effects were partially offset by nontaxable dividends received and foreign tax
credits.
S-46
Results of Operations for Three Fiscal Years Ended March 31, 2000, 2001 and 2002
The following table sets forth a summary of our results of operations for
the fiscal years ended March 31, 2000, 2001 and 2002:
Years Ended March 31,
----------------------------------------
2000 2001 2002
------------ ------------ ------------
(in billions)
Interest income............................................................. (Yen)2,165.6 (Yen)2,283.0 (Yen)2,017.0
Interest expense............................................................ 1,086.1 1,310.6 939.1
------------ ------------ ------------
Net interest income......................................................... 1,079.5 972.4 1,077.9
------------ ------------ ------------
Provision for credit losses................................................. 372.4 797.1 601.7
Non-interest income......................................................... 519.9 955.8 700.8
Non-interest expense........................................................ 1,224.3 1,127.5 1,501.2
------------ ------------ ------------
Income (loss) before income tax expense (benefit) and cumulative effect of a
change in accounting principle............................................ 2.7 3.6 (324.2)
Income tax expense (benefit)................................................ 50.2 62.8 (101.8)
Loss before cumulative effect of a change in accounting principle........... (47.5) (59.2) (222.4)
Cumulative effect of a change in accounting principle, net of tax........... -- -- 5.9
------------ ------------ ------------
Net loss.................................................................... (Yen) (47.5) (Yen) (59.2) (Yen) (216.5)
============ ============ ============
We recorded a (Yen)216.5 billion net loss, or (Yen)39,733.32 per share, for
the fiscal year ended March 31, 2002, compared to a (Yen)59.2 billion net loss,
or (Yen)12,274.55 per share, for the fiscal year ended March 31, 2001. During
the three fiscal years ended March 31, 2002, our results of operations have
been materially affected by high levels of credit losses and a substantial
increase in impaired loans as a result of the continuing weak economy,
unprecedented levels of corporate bankruptcy filings, impaired collateral
values resulting from the protracted decline in real estate values, and, as a
result of the continuing declines in prices of marketable equity securities,
significant write-downs of securities in our portfolio.
Net Interest Income
Throughout the fiscal year ended March 31, 2002, the Bank of Japan
maintained a near zero interest rate policy and cut 15 basis points from the
official discount rate, to 0.10%, in September 2001. As a consequence of the
policy of near zero interest rates, interest rates on ordinary deposits stayed
at 0.02% per annum and the short-term prime lending rate, which serves as the
benchmark for loans of less than one year, remained at 1.375% per annum during
the fiscal year ended March 31, 2002. In connection with the end of full
government protection on certain bank deposits, Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank lowered their interest rates on ordinary deposits from
0.02% to 0.001%, a record low, effective April 2002.
S-47
The following is a summary of the interest rate spread in the fiscal years
ended March 31, 2000, 2001 and 2002:
Years Ended March 31,
----------------------------------------------------------------
2000 2001 2002
-------------------- -------------------- --------------------
Average Average Average Average Average Average
balance rate balance rate balance rate
------------- ------- ------------- ------- ------------- -------
(in billions, except percentages)
Interest-earning assets:
Domestic................... (Yen)62,351.8 1.55% (Yen)61,175.9 1.50% (Yen)59,823.9 1.37%
Foreign.................... 20,814.2 5.76 22,220.5 6.16 25,368.5 4.73
------------- ------------- -------------
Total.................. (Yen)83,166.0 2.60% (Yen)83,396.4 2.74% (Yen)85,192.4 2.37%
============= ==== ============= ==== ============= ====
Financed by:
Interest-bearing funds:
Domestic................... (Yen)57,660.8 0.72% (Yen)58,048.5 0.83% (Yen)61,150.4 0.53%
Foreign.................... 16,905.4 3.95 17,701.3 4.69 17,599.3 3.50
------------- ------------- -------------
Total.................. 74,566.2 1.46 75,749.8 1.73 78,749.7 1.19
Non-interest bearing funds. 8,599.8 -- 7,646.6 -- 6,442.7 --
------------- ------------- -------------
Total.................. (Yen)83,166.0 1.30% (Yen)83,396.4 1.57% (Yen)85,192.4 1.10%
============= ============= =============
Spread on:
Interest-bearing funds..... 1.14% 1.01% 1.18%
Total funds................ 1.30% 1.17% 1.27%
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31,
2001
Net interest income in the fiscal year ended March 31, 2002 was (Yen)1,077.9
billion, an increase of (Yen)105.5 billion, or 10.9%, from (Yen)972.4 billion
in the fiscal year ended March 31, 2001. Although interest income and interest
expense both decreased during the fiscal year ended March 31, 2002 due to the
declining interest rate environment in Japan and overseas, an increase in
average foreign interest-earning assets (not matched by an increase in foreign
interest-bearing funds) contributed to the increase in net interest income.
Average foreign interest-earning assets increased (Yen)3,148.0 billion, or
14.2%, to (Yen)25,368.5 billion in the fiscal year ended March 31, 2002 while
average domestic interest-earning assets decreased (Yen)1,352.0 billion, or
2.2%, to (Yen)59,823.9 billion in the fiscal year ended March 31, 2002. The
increase in average foreign interest-earning assets in the fiscal year ended
March 31, 2002 primarily reflected an increase in average foreign investment
securities of (Yen)1,704.1 billion and an increase in average foreign loans of
(Yen)1,466.8 billion, which were primarily funded by an increase in domestic
deposits. During this period, we often used foreign currency swaps in order to
effectively hedge foreign currency exposures associated with foreign currency
investments funded by yen-denominated liabilities. The average domestic
deposits increased (Yen)3,628.6 billion to (Yen)44,807.0 billion in the fiscal
year ended March 31, 2002. The increase in interest income due to the increase
in average interest-earning assets more than offset the increase in interest
expense due to the increase in average interest-bearing liabilities.
Net interest income as a percentage of average total interest-earning assets
increased 10 basis points from 1.17% in the fiscal year ended March 31, 2001 to
1.27% in the fiscal year ended March 31, 2002. The average interest rate spread
increased 17 basis points from 1.01% in the fiscal year ended March 31, 2001 to
1.18% in the fiscal year ended March 31, 2002. Although the total interest rate
spread increased in the fiscal year ended March 31, 2002, this increase did not
materially contribute to the increase in total net interest income. The average
interest rate spread between foreign interest-earning assets and foreign
interest-bearing liabilities in the fiscal year ended March 31, 2002 decreased
24 basis points while the average interest rate spread between domestic
interest-earning assets and domestic interest-bearing liabilities increased 17
basis points. The decrease in average foreign interest rate spread was
primarily due to a decline in average interest rates on foreign currency
S-48
denominated assets, principally investment securities and loans, under the
declining interest environment in the United States and other foreign
countries. The increase in average domestic interest rate spread was primarily
due to the decrease in average interest rates on deposits, resulting from
customers shifting funds from time deposits to demand deposits bearing lower
interest in anticipation of the termination of protection of deposit in Japan.
The decrease in net interest income due to the decreased average interest rate
spread on foreign activities, more than offset the increase in net interest
income due to the increased spread on domestic activities.
Net interest income in the fiscal year ended March 31, 2002 included a net
gain of approximately (Yen)7.6 billion resulting from derivative financial
instruments used for hedging purposes while net interest income in the fiscal
year ended March 31, 2001 included such a gain of (Yen)1.6 billion. These net
gains increased our net interest margin 0.3 basis points in the fiscal year
ended March 31, 2001 and 0.9 basis points in the fiscal year ended March 31,
2002.
Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31,
2000
Net interest income in the fiscal year ended March 31, 2001 was (Yen)972.4
billion, a decrease of (Yen)107.1 billion, or 9.9%, from (Yen)1,079.5 billion
in the fiscal year ended March 31, 2000. The decrease in net interest income
was primarily attributable to a decline in spread. Net interest income as a
percentage of average total interest-earning assets decreased 13 basis points
from 1.30% in the fiscal year ended March 31, 2000 to 1.17% in the fiscal year
ended March 31, 2001. The decline in spread in the fiscal year ended March 31,
2001 reflected the rising interest rate environment in Japan in the second half
of the fiscal year ended March 31, 2001 and the intensifying competition among
lenders for retail customers under the weak economic conditions in Japan. In
addition, reflecting the rising interest rate environment in the first half of
the fiscal year ended March 31, 2001 in the United States and elsewhere, the
average interest rate on foreign interest-earning assets increased to 6.16% and
foreign interest-bearing funds increased to 4.69%, while the spread declined 13
basis points in the fiscal year ended March 31, 2001 compared to the previous
year.
See "Selected Statistical Data--I. Distribution of Assets, Liabilities and
Shareholders' Equity; Interest Rates and Interest Differential--Average Balance
Sheets, Interest and Average Rates" for more detailed analysis of interest rate
spread.
Provision for Credit Losses
Provision for credit losses was charged to operating income to maintain the
allowance for credit losses at a level deemed appropriate by management.
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31,
2001
The provision for credit losses in the fiscal year ended March 31, 2002 was
(Yen)601.7 billion, representing a decrease of (Yen)195.4 billion, or 24.5%,
from (Yen)797.1 billion in the fiscal year ended March 31, 2001. The decrease
in provision for credit losses in the fiscal year ended March 31, 2002 was
primarily attributable to a decrease of (Yen)156.6 billion in impaired loans.
The provision for credit losses, while high in the fiscal year ended March 31,
2002, declined from the prior year's level. In the fiscal year ended March 31,
2001, provisions for credit losses were high primarily because of a significant
increase in impaired loans, in particular restructured loans, as compared with
the previous year.
Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31,
2000
The provision for credit losses in the fiscal year ended March 31, 2001 was
(Yen)797.1 billion, representing an increase of (Yen)424.7 billion, or 114.0%,
from (Yen)372.4 billion in the fiscal year ended March 31, 2000. The increase
in provision for credit losses in the fiscal year ended March 31, 2001 was
primarily attributable to an increase of (Yen)1,425.6 billion in impaired
loans. Specifically, an increase of (Yen)274.4 billion was determined necessary
as the
S-49
allocated allowance for specifically identified problem loans. This increase
was partially offset by a decrease of (Yen)84.6 billion in the formula
allowance for substandard, special mention and unclassified loans. In addition,
during the fiscal year ended March 31, 2001, Bank of Tokyo-Mitsubishi refined
its methodology for estimating credit losses. Under the revised methodology,
credit exposures, default and recovery ratios are three essential factors
considered in establishing the formula allowance. The revision to Bank of
Tokyo-Mitsubishi's methodology resulted in an increase of (Yen)17.6 billion in
provision for credit losses for the fiscal year ended March 31, 2001,
accounting for 4.1% of total increase in provision for credit losses.
Non-Interest Income
The following table is a summary of our non-interest income in the fiscal
years ended March 31, 2000, 2001 and 2002:
Years Ended March 31,
--------------------------------
2000 2001 2002
---------- ---------- ----------
(in billions)
Fees and commissions:
Trust fees............................................ (Yen)106.2 (Yen)114.6 (Yen)123.6
Fees on funds transfer service charges for collection. 60.7 60.0 60.9
Commission and fees on international business......... 37.1 51.3 53.5
Fees and commissions on credit card business.......... 0.4 47.9 51.0
Service charges on deposits........................... 19.7 22.7 29.8
Other fees and commissions............................ 145.1 162.9 173.1
---------- ---------- ----------
Total fees and commissions........................ 369.2 459.4 491.9
Trading account profit-net............................... -- 229.5 138.5
Foreign exchange gains-net............................... 32.6 -- --
Investment securities gains-net.......................... 79.8 232.5 20.6
Other.................................................... 38.3 34.4 49.7
---------- ---------- ----------
Total non-interest income...................... (Yen)519.9 (Yen)955.8 (Yen)700.7
========== ========== ==========
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31,
2001
Non-interest income in the fiscal year ended March 31, 2002 was (Yen)700.7
billion, a decrease of (Yen)255.1 billion, or 26.7%, from (Yen)955.8 billion in
the fiscal year ended March 31, 2001. The decrease in non-interest income was
primarily attributable to a decrease in net trading account profits of
(Yen)91.0 billion and a decrease in net investment securities gains of
(Yen)211.9 billion. These decreases were partially offset by an increase in
fees and commissions of (Yen)32.5 billion.
Fees and commissions in the fiscal year ended March 31, 2002 were (Yen)491.9
billion, an increase of (Yen)32.5 or 7.1%, from (Yen)459.4 billion in the
fiscal year ended March 31, 2001. The increase in fees and commissions was due
primarily to an increase of (Yen)9.0 billion in trust fees and an increase of
(Yen)10.2 billion in other fees and commissions. Other fees and commissions
primarily include fees on issuing guaranties, fees on underwriting business,
and commissions on custodial services. These fees and commissions have
increased in recent years partially because of strengthened investment banking
and asset management businesses. Also, the yen depreciation against US dollar
and other foreign currencies increased the level of fees and commissions
received by overseas subsidiaries and branches. In terms of the average
exchange rate, the yen depreciated approximately 13% against US dollar for the
fiscal year ended March 31, 2002 and for calendar 2001 compared with the
previous corresponding year.
S-50
Trading account profits-net decreased (Yen)91.0 billion, or 39.7%, to
(Yen)138.5 billion in the fiscal year ended March 31, 2002. The net trading
account profits for the fiscal years ended March 31, 2001 and 2002 consisted of
the following:
Years Ended
March 31,
---------------------
2001 2002
---------- ----------
(in billions)
Net profits on derivative instruments, primarily interest rate futures, swaps
and options................................................................ (Yen)199.5 (Yen)149.3
Net profits (losses) on trading securities................................... 30.0 (10.8)
---------- ----------
Net trading account profits............................................... (Yen)229.5 (Yen)138.5
========== ==========
The decrease in net profits on derivative instruments was due primarily to a
decrease in gains on foreign currency interest rate swaps principally used for
risk management purposes, partially offset by an increase in gains on foreign
currency interest rate futures. As our foreign currency-denominated interest
rate swap portfolio was in a net receive-variable and pay-fix position, our
portfolio lost value under the declining interest rates for debt denominated in
US dollar and other foreign currencies in the fiscal year ended March 31, 2002.
The loss was partially offset by a gain from long positions of foreign
currency-denominated interest rate futures in our trading activities. As these
derivatives used to manage interest rate exposures do not meet the specified
criteria for hedge accounting, we accounted for such derivatives as trading
instruments. The net losses on trading securities for the fiscal year ended
March 31, 2002 as compared with the net profits for the previous fiscal year
were due primarily to unfavorable financial markets in which interest rates
were stable but low.
Net investment securities gains in the fiscal year ended March 31, 2002 were
(Yen)20.6 billion, representing a decrease of (Yen)211.9 billion, or 91.1%,
from net gains of (Yen)232.5 billion in the fiscal year ended March 31, 2001.
Major components of net investment securities gains in the fiscal years ended
March 31, 2001 and 2002 are summarized below:
Years Ended
March 31,
------------------------
2001 2002
----------- -----------
(in billions)
Net gains on sales of marketable equity securities (Yen) 440.7 (Yen) 277.2
Impairment losses on marketable equity securities. (262.0) (281.0)
Other--net........................................ 53.8 24.4
----------- -----------
Net investment securities gains................ (Yen) 232.5 (Yen) 20.6
=========== ===========
During the fiscal year ended March 31, 2002, the Japanese stock markets
continued to experience the significant downturn of recent years. The Nikkei
Stock Average declined 15.2% from 12,999.70 at March 30, 2001 to 11,024.94 at
March 29, 2002, and the Tokyo Stock Price Index, or TOPIX, which is a composite
index of all stocks listed on the First Section of Tokyo Stock Exchange,
declined 17.0% from 1,277.27 at March 30, 2001 to 1,060.19 at March 29, 2002.
The decrease in net gains on sale of marketable equity securities in the
fiscal year ended March 31, 2002 was due primarily to declining market prices
and an increase in losses on sales of equity securities with relatively high
cost bases. Net investment securities gains included gross realized losses on
sales of available-for-sale securities of (Yen)107.6 billion in the fiscal year
ended March 31, 2001 and (Yen)172.4 billion in the fiscal year ended March 31,
2002. In the fiscal year ended March 31, 2001, we selectively sold equity
securities with relatively low cost bases.
S-51
The increase in impairment losses on marketable equity securities in the
fiscal year ended March 31, 2002 primarily reflected the continuing decline in
stock prices during the fiscal year.
Other net gains for the fiscal years ended March 31, 2001 and 2002 primarily
reflected net gains on our sales of bonds, principally Japanese government
bonds and bonds issued by foreign governments. The net gains on sales of
domestic bonds in the fiscal year ended March 31, 2002 decreased under a stable
but low interest rate environment, while the net gains on sales of foreign
bonds in the fiscal year ended March 31, 2002 increased under a declining
interest rate environment.
Other non-interest income includes lease income under operating lease
agreements, income on interbank refinancing and other sundry income. Other
non-interest income in the fiscal year ended March 31, 2002 increased (Yen)15.3
billion, or 44.8%, to (Yen)49.7 billion in the fiscal year ended March 31,
2002. The increase primarily reflected an increase in sundry income of overseas
operations such as lease income due primarily to the depreciation of the yen
against the US dollar and other foreign currencies, and sundry income of
domestic subsidiaries.
Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31,
2000
Non-interest income in the fiscal year ended March 31, 2001 was (Yen)955.8
billion, an increase of (Yen)435.9 billion, or 83.9%, from (Yen)519.9 billion
in the fiscal year ended March 31, 2000. The increase in non-interest income
was attributable primarily to a net trading account profit of (Yen)229.5
billion in the fiscal year ended March 31, 2001 compared to a net trading
account loss of (Yen)143.1 billion in the fiscal year ended March 31, 2000, an
increase in net investment securities gains of (Yen)152.7 billion and an
increase in fees and commissions of (Yen)90.2 billion. These increases were
partially offset by net foreign exchange losses of (Yen)104.6 billion being
reported in non-interest expense compared to foreign exchange net gains of
(Yen)32.6 billion for the fiscal year ended March 31, 2000.
The increase in fees and commissions in the fiscal year ended March 31, 2001
was due primarily to inclusion of the results of DC Card Co., Ltd., which was
newly consolidated at the end of the fiscal year ended March 31, 2000,
contributing significantly to the (Yen)47.5 billion increase in fees and
commissions generated by our credit card business, fees on issuing guarantees,
fees on underwriting business, service charges on deposits of overseas offices,
and commissions on custodial services.
Trading activities improved from net trading account losses of (Yen)143.1
billion in the fiscal year ended March 31, 2000 to net trading account profits
of (Yen)229.5 billion in the fiscal year ended March 31, 2001.
Net trading account profits (losses) for the fiscal years ended March 31,
2000 and 2001 consisted of the following:
Years Ended
March 31,
-----------------------
2000 2001
----------- ----------
(in billions)
Net profits (losses) on derivative instruments, primarily interest-rate futures, swaps
and options......................................................................... (Yen)(125.7) (Yen)199.5
Net profits (losses) on trading securities............................................ (17.4) 30.0
----------- ----------
Net trading account profits (losses)............................................... (Yen)(143.1) (Yen)229.5
=========== ==========
The net trading account profits for the fiscal year ended March 31, 2001
included (Yen)199.5 billion net profits on interest rate and other derivatives,
primarily reflecting market conditions favorable to our interest rate
derivative positions in a declining interest rate environment in yen and US
dollars, and trading securities net profits of (Yen)30.0 billion.
S-52
Net investment securities gains in the fiscal year ended March 31, 2001
increased (Yen)152.7 billion from (Yen)79.8 billion in the fiscal year ended
March 31, 2000 to (Yen)232.5 billion. Major components of net investment
securities gains in the fiscal years ended March 31, 2000 and 2001 are
summarized below:
Years Ended
March 31,
------------------------
2000 2001
----------- -----------
(in billions)
Net gains on sales of marketable equity securities (Yen) 304.3 (Yen) 440.7
Impairment losses on marketable equity securities. (184.0) (262.0)
Other--net........................................ (40.5) 53.8
----------- -----------
Net investment securities gains................ (Yen) 79.8 (Yen) 232.5
=========== ===========
The increase in net investment securities gains in the fiscal year ended
March 31, 2001 was due primarily to an increase in net gains of (Yen)136.4
billion on sales of marketable equity securities as we reduced our strategic
shareholdings, and in net gains of (Yen)97.9 billion on our sales of Japanese
government bonds and bonds issued by foreign governments and other issuers.
These increases were partially offset by an increase of (Yen)78.0 billion in
impairment losses of marketable equity securities.
Non-Interest Expense
The following table shows a summary of non-interest expense in the fiscal
years ended March 31, 2000, 2001 and 2002:
Years Ended March 31,
--------------------------------------
2000 2001 2002
------------ ------------ ------------
(in billions)
Salaries and employee benefits... (Yen) 429.4 (Yen) 403.7 (Yen) 456.6
Occupancy expenses--net.......... 130.1 137.4 134.8
Trading accounts losses--net..... 143.1 -- --
Foreign exchange losses--net..... -- 104.6 333.0
Losses on other real estate owned 70.2 16.4 6.2
Goodwill amortization............ 2.8 4.4 7.9
Other............................ 448.7 461.0 562.7
------------ ------------ ------------
Total non-interest expense.... (Yen)1,224.3 (Yen)1,127.5 (Yen)1,501.2
============ ============ ============
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31, 2001
Non-interest expense in the fiscal year ended March 31, 2002 was
(Yen)1,501.2 billion, an increase of (Yen)373.7 billion, or 33.1%, from
(Yen)1,127.5 billion in the fiscal year ended March 31, 2001. The increase
primarily reflected an increase in salaries and employee benefits of (Yen)52.9
billion, an increase in net foreign exchange losses of (Yen)228.4 billion, and
an increase in other non-interest expenses of (Yen)101.7 billion.
Salaries and employee benefits in the fiscal year ended March 31, 2002 were
(Yen)456.6 billion, an increase of (Yen)52.9 billion, or 13.1%, from (Yen)403.7
billion in the fiscal year ended March 31, 2001. The increase in salaries and
employee benefits primarily reflected an increase in net periodic pension
costs, as well as an increase in amounts paid to employees outside Japan, whose
salaries and other benefits denominated in currencies other than yen increased
due to the depreciation of the yen against the US dollar and other foreign
currencies. The increase in net periodic pension costs was due primarily to an
increase in amortization of net actuarial loss and a decrease in expected
return on plan assets. In accordance with SFAS No. 87, "Employers' Accounting
for Pensions," the minimum amortization of actuarial loss was included as a
component of net periodic pension cost in the fiscal year ended March 31, 2002
as the unrecognized net actuarial loss exceeded 10% of the projected benefit
obligation. The decrease in expected return on plan assets for the plans of
Bank of Tokyo-Mitsubishi, Mitsubishi
S-53
Trust Bank and certain domestic subsidiaries resulted from a decrease in
expected rate of return on plan assets from 4.79% in the fiscal year ended
March 31, 2001 to 4.45% in the fiscal year ended March 31, 2002. Plan assets,
which included pension trust funds managed by certain life insurance companies,
investment advisory companies and trust banks, consisted of interest-earning
deposits at banks, Japanese government bonds, other debt securities and
marketable equity securities issued by domestic and foreign entities. Pension
assets managed by insurance companies were included in pooled investment
portfolios. The continuously depressed Japanese economy had an influence on
domestic equity and debt securities markets. As a result, with respect to the
domestic subsidiaries' plans, the actual return on the plan assets was negative
by (Yen)53.1 billion in the fiscal year ended March 31, 2001 and negative by
(Yen)48.7 billion in the fiscal year ended March 31, 2002. These increases were
partially offset by a decrease in salary expense resulting from a reduction in
the number of employees.
Net occupancy expenses in the fiscal year ended March 31, 2002 were
(Yen)134.8 billion, a decrease of (Yen)2.6 billion, or 1.9%, from (Yen)137.4
billion in the fiscal year ended March 31, 2001. The decrease was due primarily
to the closing and consolidation of offices, which was partially offset by an
increase in overseas occupancy expenses resulting from the depreciation of the
yen against the US dollar and other foreign currencies.
Net foreign exchange losses in the fiscal year ended March 31, 2002 were
(Yen)333.0 billion, an increase of (Yen)228.4 billion from (Yen)104.6 billion
in the fiscal year ended March 31, 2001. Major components of net foreign
exchange gains or losses in the fiscal years ended March 31, 2001 and 2002 are
summarized below:
Years Ended
March 31,
------------------------
2001 2002
----------- -----------
(in billions)
Losses on translation of foreign currency long-term debt.................. (Yen) (35.9) (Yen) (18.7)
Net losses on foreign exchange contracts entered into for trading purposes (156.1) (78.0)
Other--net................................................................ 87.4 (236.3)
----------- -----------
Total foreign exchange losses--net..................................... (Yen)(104.6) (Yen)(333.0)
=========== ===========
Losses on translation of foreign currency long-term debt in the fiscal year
ended March 31, 2002 reflected the depreciation of the yen against the US
dollar and other foreign currencies. We had net losses on foreign exchange
contracts entered into for trading purposes in the fiscal year ended March 31,
2002 under the unfavorable foreign exchange markets. Other foreign exchange net
losses, included in "Other--net," in the fiscal year ended March 31, 2002
partially reflected the fact that foreign-currency-denominated liabilities used
to hedge the foreign currency exposure of available-for-sale debt securities
had no longer qualified as hedging instruments under SFAS No. 133 since April
1, 2001 and, therefore, the transaction losses on such liabilities were
recognized in earnings in the fiscal year ended March 31, 2002.
Losses on other real estate owned in the fiscal year ended March 31, 2002
were (Yen)6.2 billion, a decrease of (Yen)10.2 billion, or 62.2%, from
(Yen)16.4 billion in the fiscal year ended March 31, 2001. Losses on other real
estate owned include valuation losses, operating expenses and net losses on
sales of real estate. Losses on other real estate owned in recent years
resulted mainly from the continuing decline in real estate values in Japan,
evidenced by average declines in government-appraised land prices of 5.2% for
residential areas and 8.3% for commercial areas in calendar 2001. However,
losses on other real estate owned decreased in the fiscal year ended March 31,
2002 as we reduced our other real estate owned from (Yen)33.9 billion at March
31, 2001 to (Yen)11.7 billion at March 31, 2002 through asset sales to third
parties.
Goodwill amortization in the fiscal year ended March 31, 2002 was (Yen)7.9
billion, an increase of (Yen)3.5 billion, or 79.5%, from (Yen)4.4 billion in
the fiscal year ended March 31, 2001. The increase was primarily due to
amortization of goodwill related to the acquisition of the 17.0% minority
ownership in Nippon Trust Bank on April 2, 2001.
S-54
Other non-interest expenses in the fiscal year ended March 31, 2002 were
(Yen)562.7 billion, an increase of (Yen)101.7 billion, or 22.1%, from
(Yen)461.0 billion in the fiscal year ended March 31, 2001. The increase in
other non-interest expenses was primarily due to an increase of (Yen)36.2
billion in provision for credit losses on off-balance sheet instruments, an
increase of (Yen)14.6 billion in overseas operating expenses, and an increase
in fees paid to outside servicers. The increase in overseas operating expenses
primarily reflected the depreciation of the yen against the US dollar and other
foreign currencies and an increase in advertising and other operating expenses
of UnionBanCal Corporation.
Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31, 2000
Non-interest expense in the fiscal year ended March 31, 2001 was
(Yen)1,127.5 billion, a decrease of (Yen)96.8 billion, or 7.9%, from
(Yen)1,224.3 billion in the fiscal year ended March 31, 2000. The decrease
primarily reflected a decrease in losses on other real estate owned of
(Yen)53.8 billion, and net trading account profits being recorded as
non-interest income in the fiscal year ended March 31, 2001 compared to net
trading account losses of (Yen)143.1 billion being reported in the fiscal year
ended March 31, 2000. These decreases were partially offset by net foreign
exchange losses of (Yen)104.6 billion in the fiscal year ended March 31, 2001
compared to net foreign exchange gains of (Yen)32.6 billion being reported in
the fiscal year ended March 31, 2000.
Net foreign exchange losses in the fiscal year ended March 31, 2001 were
(Yen)104.6 billion, compared to net foreign exchange gains of (Yen)32.6 billion
in the fiscal year ended March 31, 2000. Major components of net foreign
exchange gains or losses, as the case may be, in the fiscal years ended March
31, 2000 and 2001 are summarized below:
Years Ended
March 31,
-----------------------
2000 2001
---------- -----------
(in billions)
Gains (losses) on translation of foreign currency long-term debt......... (Yen) 28.7 (Yen) (35.9)
Net gains (losses) on foreign exchange contracts entered into for trading
purposes............................................................... 82.3 (156.1)
Other--net............................................................... (78.4) 87.4
---------- -----------
Total foreign exchange gains (losses)--net............................ (Yen) 32.6 (Yen)(104.6)
========== ===========
The change to net foreign exchange losses of (Yen)104.6 billion in the
fiscal year ended March 31, 2001 from net foreign exchange gains of (Yen)32.6
billion in the fiscal year ended March 31, 2000 was due primarily to
translation losses on foreign currency long-term debts resulting from the
depreciation of the yen against the US dollar and other foreign currencies and
net losses on foreign exchange contracts entered into for trading purposes in
the fiscal year ended March 31, 2001.
The decrease in losses on other real estate owned in the fiscal year ended
March 31, 2001 was due primarily to a decrease in valuation losses on other
real estate owned as we reduced our other real estate owned from
(Yen)65.9 billion at March 31, 2000 to (Yen)33.9 billion at March 31, 2001
through asset sales to third parties.
S-55
Income Tax Expense (Benefit)
The following table presents a summary of our income tax expense (benefit):
Years Ended March 31,
---------------------------------------
2000 2001 2002
------------ ------------ -----------
(in billions)
Income (loss) before income tax expense (benefit) (Yen) 2.6 (Yen) 3.6 (Yen)(324.2)
Income tax expense (benefit)..................... (Yen) 50.2 (Yen) 62.8 (Yen)(101.8)
Effective tax rate............................... 1,916.0% 1,748.8% 31.4%
Normal effective statutory tax rate.............. 41.9% 38.9% 38.0%
Effective April 1, 2000, the normal effective statutory income tax rate
decreased to 38.9% as a result of a change in the local taxation. The Tokyo
Metropolitan Assembly enacted a new tax law on March 30, 2000 that changed the
basis on which it taxes large banks doing business in Tokyo, including Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank, from a tax based on regional income
to a tax based on gross operating income attributable to the operations in
Tokyo. Effective April 1,2001, the normal effective statutory income tax rate
further decreased to 38.0% as a result of the change in the local taxation as
the Osaka Prefectural Assembly passed a new tax law that is substantially the
same as the law approved by the Tokyo Metropolitan Assembly. The effect of the
decreases in income tax rates on our net deferred tax assets was an increase of
(Yen)9.4 billion in income tax expense in the fiscal year ended March 31, 2000
and an increase of (Yen)12.7 billion in income tax expense in the fiscal year
ended March 31, 2001. The new local taxes have been accounted for as
non-interest expenses.
Reconciling items between combined normal effective statutory tax rates and
effective income tax rates for the fiscal years ended March 31, 2000, 2001 and
2002 are summarized as follows:
Years Ended March 31,
-----------------------
2000 2001 2002
------- ------- -----
Combined normal effective statutory tax rate........................... 41.9% 38.9% (38.0)%
Increase (decrease) in taxes resulting from:
Nondeductible expenses.............................................. 753.5 237.3 2.9
Goodwill amortization............................................... 26.2 31.0 0.7
Nontaxable dividends received....................................... 234.8 225.8 1.3
Foreign tax credit.................................................. (271.4) (90.4) (1.9)
Lower tax rates applicable to income of foreign subsidiaries........ (255.5) (93.8) (2.7)
Foreign income exempted for income tax purpose...................... 23.5 (88.9) (0.5)
Foreign tax assessment (refund)..................................... (645.8) 30.1 (0.7)
Minority interest................................................... 278.5 184.3 2.5
Change in valuation allowance....................................... 489.8 284.7 16.8
Expiration of loss carryforwards of subsidiaries.................... 884.8 733.1 0.1
Enacted change in tax rates......................................... 357.3 245.4 --
Realization of previously unrecognized tax benefits of subsidiaries. -- -- (11.2)
Other--net.......................................................... (1.6) 11.3 (0.7)
------- ------- -----
Effective income tax rate.............................................. 1,916.0% 1,748.8% (31.4)%
======= ======= =====
The effective income tax rate of 31.4% in the fiscal year ended March 31,
2002 was 6.6 points lower than the combined normal effective statutory tax rate
of 38.0%. The lower effective income tax rate in the fiscal year ended
March 31, 2002 was attributable primarily to an increase in valuation
allowance. Valuation allowance was provided against the portion of deferred tax
assets that was more likely than not to be realized. The valuation allowance
provided against deferred tax assets increased (Yen)43.5 billion from
(Yen)213.1 billion at March 31, 2001 to (Yen)256.6 billion at March 31, 2002.
The increase in valuation allowance in part reflects an increase of
(Yen)14.6 billion
S-56
relating to accumulated other changes in equity from nonowner sources
(principally, unrealized losses on investment securities available for sale and
minimum pension liability adjustments). The remainder of the increase in total
valuation allowance primarily reflected an increase in the valuation allowance
provided against a portion of deferred tax assets on operating loss
carryforwards of our domestic subsidiaries that were not expected to be
realized. The effect of the increase in valuation allowance was partially
offset by realization of previously unrecognized tax benefits of subsidiaries.
Due to the relatively small amounts of income before income tax expense in
the fiscal years ended March 31, 2000 and 2001, individual reconciling items
had a significant impact on the effective income tax rate in each period. In
particular, change in valuation allowance, expiration of loss carryforwards of
subsidiaries, and enacted change in tax rates were special reconciling items in
the fiscal year ended March 31, 2001.
Total valuation allowance against deferred tax assets increased
(Yen)14.5 billion from (Yen)198.6 billion at March 31, 2000 to (Yen)213.1
billion at March 31, 2001. The net increase in total valuation allowance of
(Yen)14.5 billion in the fiscal year ended March 31, 2001 comprised an increase
of (Yen)38.3 billion in valuation allowance of non-bank subsidiaries, mainly
Diamond Mortgage Co., Ltd., a subsidiary of Bank of Tokyo-Mitsubishi, and a net
decrease of (Yen)23.8 billion in valuation allowance, resulting primarily from
the expiration of operating loss carry forwards of Nippon Trust Bank. As
deferred tax assets for such operating loss carry forwards were fully reduced
by the valuation allowance at March 31, 2000, the decrease in valuation
allowance in the fiscal year ended March 31, 2001 had no impact on the income
tax expense.
Business Segment Analysis
We measure the performance of each business segment in terms of "operating
profit" in accordance with the Japanese banks' regulatory reporting
requirements to the Financial Services Agency. Operating profit and other
segment information is based on Japanese GAAP and is not consistent with our
financial statements prepared on the basis of US GAAP. For example, operating
profit under Japanese GAAP does not reflect items such as most of the
provisions for credit losses, foreign exchange gains (losses) and equity
investment securities gains (losses).
Nippon Trust Bank and Tokyo Trust Bank, both former subsidiaries of Bank of
Tokyo-Mitsubishi, were merged with and into Mitsubishi Trust Bank on October 1,
2001. The segment information for Bank of Tokyo- Mitsubishi for the fiscal
years ended March 31, 2000 and 2001, and for the six months ended September 30,
2001 has been restated and does not include the operating results of Nippon
Trust Bank and Tokyo Trust Bank. The segment information for Mitsubishi Trust
Bank has not been restated although it reflects the combined results of
operations after the merger on October 1, 2001. The operating results of Nippon
Trust Bank and Tokyo Trust Bank are separately presented following the segment
information of Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank.
Bank of Tokyo-Mitsubishi
Bank of Tokyo-Mitsubishi maintains its business unit system based on
customer and product segmentation. Bank of Tokyo-Mitsubishi's major business
units are:
. retail banking, which provides banking products and services to
individuals and some small and medium-sized companies;
. commercial banking, which provides banking products and services to large
corporations and some small and medium-sized companies;
. global corporate banking, which provides banking products and services to
large corporations and some small and medium-sized companies,
particularly those with banking needs outside of Japan, and overseas
customers except for UNBC's customers;
S-57
. investment banking, which provides advisory and other services related to
mergers and acquisitions, private and public securities offerings,
project financing, derivatives and securitization and other investment
banking activities;
. asset management, which is responsible for planning and supporting asset
management products and services, and risk management of the trust and
asset management subsidiaries;
. UNBC, which includes Bank of Tokyo-Mitsubishi's subsidiaries in
California, UnionBanCal Corporation and Union Bank of California, N.A.;
. operations services, which provides operations and settlement services to
Bank of Tokyo-Mitsubishi's other business units, including settlement and
foreign exchange;
. treasury, which conducts Bank of Tokyo-Mitsubishi's asset and liability
management and liquidity management; and
. other, which consists of;
. system services, which is responsible for Bank of Tokyo-Mitsubishi's
computer systems;
. e-Business and IT Initiatives, which is responsible for developing
information technology business opportunities;
. the corporate center, which retains functions such as strategic
planning, overall risk management, internal auditing and compliance
within Bank of Tokyo-Mitsubishi; and
. the elimination of duplicated amounts of net revenue among Bank of
Tokyo-Mitsubishi's other business segments.
Six Months Ended September 30, 2002 Compared to Six Months Ended September
30, 2001
The following table shows the business segment information for the six
months ended September 30, 2001 and 2002:
Global
Retail Commercial Corporate Investment Asset Operations
Banking Banking Banking Banking Management UNBC Services Treasury Other Total
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
(in billions)
Six months ended
September 30,
2001:
Net revenue... (Yen)142.1 (Yen)151.1 (Yen)138.3 (Yen)59.1 (Yen) (2.0) (Yen)136.5 (Yen)10.6 (Yen)102.8 (Yen) (14.3) (Yen)724.2
Operating
expenses..... 113.0 67.5 64.4 35.3 6.3 75.9 8.6 13.3 38.5 422.8
---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------- ----------
Operating
profit....... (Yen) 29.1 (Yen) 83.6 (Yen) 73.9 (Yen)23.8 (Yen) (8.3) (Yen) 60.6 (Yen) 2.0 (Yen) 89.5 (Yen) (52.8) (Yen)301.4
========== ========== ========== ========= ========== ========== ========= ========== =========== ==========
Six months ended
September 30,
2002:
Net revenue... (Yen)135.0 (Yen)142.1 (Yen)128.6 (Yen)62.3 (Yen) (5.3) (Yen)134.6 (Yen)10.2 (Yen)156.0 (Yen) (42.7) (Yen)720.8
Operating
expenses..... 107.9 63.7 70.5 40.7 8.0 78.0 8.5 13.4 74.3 465.0
---------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------- ----------
Operating
profit....... (Yen) 27.1 (Yen) 78.4 (Yen) 58.1 (Yen)21.6 (Yen)(13.3) (Yen) 56.6 (Yen) 1.7 (Yen)142.6 (Yen)(117.0) (Yen)255.8
========== ========== ========== ========= ========== ========== ========= ========== =========== ==========
S-58
When Bank of Tokyo-Mitsubishi's business units work together to provide
services to customers, we assign the total amount of net revenue derived from
those services to each participating business unit without dividing the net
revenue. As a result, some items of net revenue are duplicated among the
participating segments. The duplicated amounts are eliminated in the "Other"
column. The following table sets forth the amounts that were assigned to each
business unit for the same services and the total duplicated amount that is
eliminated for each period:
Global Total
Commercial Corporate Amount
Banking Banking Eliminated
---------- --------- ----------
(in billions)
Six months ended September 30, 2001:
Investment banking............... (Yen)3.3 (Yen)11.8 (Yen)15.1
======== ========= =========
Six months ended September 30, 2002:
Investment banking............... (Yen)4.3 (Yen)13.6 (Yen)17.9
======== ========= =========
Total net revenue decreased (Yen)3.4 billion, or 0.5%, from
(Yen)724.2 billion for the six months ended September 30, 2001 to (Yen)720.8
billion for the six months ended September 30, 2002. The decrease primarily
reflected a (Yen)28.4 billion decrease in "Other" column, a (Yen)9.7 billion
decrease in the global corporate banking unit, a (Yen)9.0 billion decrease in
the commercial banking unit and a (Yen)7.1 billion decrease in the retail
banking unit, while the treasury unit showed an increase of (Yen)53.2 billion
in net revenue.
Total operating expenses of all segments increased (Yen)42.2 billion, or
10.0%, from (Yen)422.8 billion for the six months ended September 30, 2001 to
(Yen)465.0 billion for the six months ended September 30, 2002. The increase in
total operating expenses was mainly attributable to an increase of
(Yen)35.8 billion in operating expenses included in the "Other" column and an
increase of (Yen)6.1 billion in the global corporate banking unit.
Net revenue of the retail banking business unit decreased (Yen)7.1 billion,
or 5.0%, from (Yen)142.1 billion for the six months ended September 30, 2001 to
(Yen)135.0 billion for the six months ended September 30, 2002. The decrease
was mainly attributable to a decrease in net interest income of (Yen)
9.2 billion, reflecting a decline in interest margin, which primarily consists
of a spread of interest rate applied for lending over interest rates offered to
the depositors. The decline in interest margin was mainly because the decrease
of interest rates offered to depositors was not as substantial as the
corresponding decrease of interest rates applied for lending.
Net revenue of the commercial banking business unit decreased
(Yen)9.0 billion, or 5.9%, from (Yen)151.1 billion for the six months ended
September 30, 2001 to (Yen)142.1 billion for the six months ended September 30,
2002. The decrease was mainly attributable to a decrease of (Yen)13.3 billion
in net interest income, which resulted mainly from the continuing decline of
interest rates and a decrease of dividend income resulting from the absence of
the effect of a change in Japanese GAAP, which was made for the six months
ended September 30, 2001, applied for recognizing dividends receivable,
partially offset by an increase of (Yen)3.6 billion in other income, such as
gains on derivative transactions.
Net revenue of the global corporate banking business unit decreased (Yen)9.7
billion, or 7.0%, from (Yen)138.3 billion for the six months ended September
30, 2001 to (Yen)128.6 billion for the six months ended September 30, 2002. The
decrease was mainly attributable to a decrease of (Yen)7.2 billion in net
interest income, which resulted mainly from the continuing decline of interest
rates, a decrease of dividend income resulting from the absence of the effect
of a change in Japanese GAAP, which was made for the six months ended September
30, 2001, applied for recognizing dividends receivable and a decrease of
(Yen)3.3 billion in other income (including a (Yen)5.4 billion decrease in
gains on foreign currency and foreign bonds transactions principally resulting
from the appreciation of the yen against the US dollar).
S-59
Net revenue of the investment banking business unit increased (Yen)3.2
billion, or 5.4%, from (Yen)59.1 billion for the six months ended September 30,
2001 to (Yen)62.3 billion for the six months ended September 30, 2002. The
increase was mainly attributable to an increase of (Yen)3.5 billion in other
income relating to gains on derivative transactions.
Net revenue of the asset management business unit decreased (Yen)3.3
billion, or 159.5%, from a loss of (Yen)2.0 billion for the six months ended
September 30, 2001 to a loss of (Yen)5.3 billion for the six months ended
September 30, 2002. The decrease was mainly attributable to a decrease of
(Yen)1.7 billion in other income, which primarily resulted from a decline in
the value of investment trusts.
Net revenue of the UNBC business unit decreased (Yen)1.9 billion, or 1.4%,
from (Yen)136.5 billion for the six months ended September 30, 2001 to
(Yen)134.6 billion for the six months ended September 30, 2002. The decrease
was largely due to appreciation of the US dollar against the yen at the end of
the first half of UNBC's 2002 fiscal year compared to that of the previous year.
Net revenue of the operations services unit decreased (Yen)0.4 billion, or
3.5%, from (Yen)10.6 billion for the six months ended September 30, 2001 to
(Yen)10.2 billion for the six months ended September 30, 2002.
Net revenue of the treasury unit increased (Yen)53.2 billion, or 51.8%, from
(Yen)102.8 billion for the six months ended September 30, 2001 to (Yen)156.0
billion for the six months ended September 30, 2002. The increase was mainly
attributable to an increase of (Yen)28.0 billion in interest income and an
increase of (Yen)25.4 billion in other income. The increase in interest income
primarily reflected an increase in profits from our management of interest rate
swap portfolios, generally creating net receive-fix and pay-variable positions
which achieved favorable results under the declining interest rate environment.
An increase of other income primarily reflected an increase in gains on sales
of domestic and foreign bonds resulting from the continual decline of interest
rates.
Net revenue included in "Other" decreased (Yen)28.4 billion, or 199.9%, from
a loss of (Yen)14.3 billion for the six months ended September 30, 2001 to a
loss of (Yen)42.7 billion for the six months ended September 30, 2002. The
decrease was mainly attributable to a decrease in dividend income resulting
from the absence of the effect of a change of Japanese GAAP, which was made for
the six months ended September 30, 2001, applied for recognizing dividends
receivable and an increase in foreign exchange losses resulting from forward
exchange contracts used for mitigating the foreign currency risk of convertible
bonds. Under Japanese GAAP, convertible bonds which are determined to have no
possibility of conversion are translated at the current rate. For the six
months ended September 30, 2002, some of the convertible bonds were translated
at the current rate and those translation gains were not included in this
segment measure of performance.
The increase in operating expenses of "Other" column primarily reflected a
significant increase in the general provision for credit loss reserves,
amounting to (Yen)40.6 billion for the six months ended September 30, 2002.
Most of the general provision for credit loss reserves is reflected in the
corporate center rather than being allocated to each business segment.
S-60
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31, 2001
and Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31,
2000
The following table shows the business segment information in the fiscal
years ended March 31, 2000, 2001 and 2002:
Global
Retail Commercial Corporate Investment Asset Operations
Banking Banking Banking Banking Management UNBC Services Treasury Other
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
(in billions)
Fiscal year ended
March 31, 2000:
Net revenue.... (Yen)244.7 (Yen)284.6 (Yen)255.0 (Yen) 76.3 (Yen) 8.8 (Yen)205.1 (Yen)19.9 (Yen)140.4 (Yen) (52.9)
Operating
expenses...... 186.3 132.3 108.5 49.4 5.6 122.6 16.6 22.0 37.1
---------- ---------- ---------- ---------- --------- ---------- --------- ---------- -----------
Operating
profit........ (Yen) 58.4 (Yen)152.3 (Yen)146.5 (Yen) 26.9 (Yen) 3.2 (Yen) 82.5 (Yen) 3.3 (Yen)118.4 (Yen) (90.0)
========== ========== ========== ========== ========= ========== ========= ========== ===========
Fiscal year ended
March 31, 2001:
Net revenue.... (Yen)301.5 (Yen)286.7 (Yen)270.6 (Yen) 94.3 (Yen) 8.8 (Yen)256.2 (Yen)22.4 (Yen)105.1 (Yen) (27.2)
Operating
expenses...... 231.3 130.5 124.5 72.1 12.7 131.9 18.1 23.2 146.8
---------- ---------- ---------- ---------- --------- ---------- --------- ---------- -----------
Operating
profit........ (Yen) 70.2 (Yen)156.2 (Yen)146.1 (Yen) 22.2 (Yen)(3.9) (Yen)124.3 (Yen) 4.3 (Yen) 81.9 (Yen)(174.0)
========== ========== ========== ========== ========= ========== ========= ========== ===========
Fiscal year ended
March 31, 2002:
Net revenue.... (Yen)283.1 (Yen)297.7 (Yen)282.1 (Yen)114.5 (Yen) 8.9 (Yen)295.9 (Yen)21.5 (Yen)207.1 (Yen) (58.3)
Operating
expenses...... 230.6 126.8 134.6 72.6 13.9 163.6 17.6 28.4 57.0
---------- ---------- ---------- ---------- --------- ---------- --------- ---------- -----------
Operating
profit........ (Yen) 52.5 (Yen)170.9 (Yen)147.5 (Yen) 41.9 (Yen)(5.0) (Yen)132.3 (Yen) 3.9 (Yen)178.7 (Yen)(115.3)
========== ========== ========== ========== ========= ========== ========= ========== ===========
Total
------------
Fiscal year ended
March 31, 2000:
Net revenue.... (Yen)1,181.9
Operating
expenses...... 680.4
------------
Operating
profit........ (Yen) 501.5
============
Fiscal year ended
March 31, 2001:
Net revenue.... (Yen)1,318.4
Operating
expenses...... 891.1
------------
Operating
profit........ (Yen) 427.3
============
Fiscal year ended
March 31, 2002:
Net revenue.... (Yen)1,452.5
Operating
expenses...... 845.1
------------
Operating
profit........ (Yen) 607.4
============
-------------
Note--The segment information for the fiscal years ended March 31, 2000 and
2001 was restated to conform to the presentation for the fiscal year ended
March 31, 2002.
When Bank of Tokyo-Mitsubishi's business units work together to provide
services to customers, we assign the total amount of net revenue derived from
those services to each participating business unit without dividing the net
revenue. As a result, some items of net revenue are duplicated among the
participating segments. The duplicated amounts are eliminated in the "Other"
column. The following is a summary of the duplicated amounts between those
segments shown in columns and those shown in the rows. The total of such
duplicated amounts is included in "Other" in the table above.
Global Total
Commercial Corporate Asset Amount
Banking Banking Management Eliminated
---------- --------- ---------- ----------
(in billions)
Fiscal year ended March 31, 2000:
Investment banking............ (Yen)3.8 (Yen)21.8 (Yen)0.6 (Yen)26.2
======== ========= ======== =========
Fiscal year ended March 31, 2001:
Investment banking............ (Yen)5.6 (Yen)28.0 (Yen)0.5 (Yen)34.1
======== ========= ======== =========
Fiscal year ended March 31, 2002:
Investment banking............ (Yen)7.8 (Yen)30.2 (Yen) -- (Yen)38.0
======== ========= ======== =========
S-61
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31, 2001
Total net revenue increased (Yen)134.1 billion, or 10.2%, from
(Yen)1,318.4 billion in the fiscal year ended March 31, 2001 to
(Yen)1,452.5 billion in the fiscal year ended March 31, 2002. The increase in
total net revenue was due mainly to an increase of (Yen)102.0 billion in the
treasury unit and an increase of (Yen)39.7 billion in the UNBC business unit.
These increases were partially offset by a decrease of (Yen)18.4 billion in the
retail banking business unit.
Total operating expenses decreased (Yen)46.0 billion, or 5.2%, from
(Yen)891.1 billion in the fiscal year ended March 31, 2001 to
(Yen)845.1 billion in the fiscal year ended March 31, 2002. The decrease in
total operating expenses was due mainly to a decrease of (Yen)89.8 billion in
operating expenses included in the "Other" column. The decrease was partially
offset by an increase of (Yen)31.7 billion in the UNBC business unit due mainly
to an increase in advertising and other operating expenses.
Net revenue of the retail banking business unit decreased (Yen)18.4 billion,
or 6.1%, from (Yen)301.5 billion in the fiscal year ended March 31, 2001 to
(Yen)283.1 billion in the fiscal year ended March 31, 2002. The decrease was
mainly due to a decrease in net interest income of (Yen)21.3 billion,
reflecting a decline in interest margins between interest rates offered to the
depositors and interest rates applied for funds sold. The decline in interest
margins was mainly due to a decrease in interest rates applied for funds sold,
which was larger than a decrease in interest rates offered to the depositors.
Net revenue of the commercial banking business unit increased (Yen)11.0
billion, or 3.9%, from (Yen)286.7 billion in the fiscal year ended March 31,
2001 to (Yen)297.7 billion in the fiscal year ended March 31, 2002. The
increase was mainly due to an increase of (Yen)4.0 billion in net fee income
(mainly increases in commitment line fees and safe deposit box rental income),
an increase of (Yen)3.9 billion in other income (mainly gains on derivative
transactions), and an increase of (Yen)2.3 billion in revenues from a newly
consolidated subsidiary.
Net revenue of the global corporate banking business unit increased
(Yen)11.5 billion, or 4.2%, from (Yen)270.6 billion in the fiscal year ended
March 31, 2001 to (Yen)282.1 billion in the fiscal year ended March 31, 2002.
The increase was mainly due to an increase of (Yen)7.9 billion in net fee
income such as commitment line fees and fees on investment banking business.
These increases were partially offset by an increase in foreign exchange losses
relating to the economic crisis in Argentina.
Net revenue of the investment banking business unit increased (Yen)20.2
billion, or 21.5%, from (Yen)94.3 billion in the fiscal year ended March 31,
2001 to (Yen)114.5 billion in the fiscal year ended Mach 31, 2002. The increase
was largely attributable to an increase of (Yen)5.9 billion in net interest
income relating mainly to structured finance, an increase of (Yen)3.7 billion
in net fee income relating mainly to securitization of loans and syndication of
loans, and an increase of (Yen)4.5 billion in other income relating mainly to
gains on derivative transactions. The profits of subsidiaries also contributed
to the increase.
Net revenue of the asset management business unit increased (Yen)0.1
billion, or 1.7%, from (Yen)8.8 billion in the fiscal year ended March 31, 2001
to (Yen)8.9 billion in the fiscal year ended March 31, 2002. The increase
reflected an increase of (Yen)4.1 billion in net interest income, which
primarily resulted from a decrease in funding costs. The increase was partially
offset by a decrease in trust fees.
Net revenue of the UNBC business unit increased (Yen)39.7 billion, or 15.5%,
from (Yen)256.2 billion in the fiscal year ended March 31, 2001 to (Yen)295.9
billion in the fiscal year ended March 31, 2002. The increase was largely due
to the depreciation of the yen against the US dollar.
Net revenue of the operations services unit decreased (Yen)0.9 billion, or
4.1%, from (Yen)22.4 billion in the fiscal year ended March 31, 2001 to
(Yen)21.5 billion in the fiscal year ended March 31, 2002, mainly due to a
decrease in the volume of domestic operation and settlement services.
S-62
Net revenue of the treasury unit increased (Yen)102.0 billion, or 97.0%,
from (Yen)105.1 billion in the fiscal year ended March 31, 2001 to (Yen)207.1
billion in the fiscal year ended March 31, 2002. The increase was mainly due to
an increase in net interest income, which primarily reflected an increase in
interest income on foreign currency treasury business, resulting from a decline
in the foreign currency interest rate and an increase in gains on investment in
foreign bonds.
The decrease in operating expenses of "Other" column primarily reflected a
significant decrease in the general provision for credit losses. Credit losses
are reflected in the corporate center rather than being allocated to each
business segment.
Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31,
2000
Total net revenue increased (Yen)136.5 billion, or 11.6%, from (Yen)1,181.9
billion in the fiscal year ended March 31, 2000 to (Yen)1,318.4 billion in the
fiscal year ended March 31, 2001. An increase of (Yen)56.8 billion in the
retail banking business unit and an increase of (Yen)51.1 billion in the UNBC
business unit were primary contributors to the increase in net revenue, while a
decline in the treasury business unit partially offset these increases.
The increase in net revenue of the retail banking business unit was
primarily attributable to the addition of revenues of DC Card Co., Ltd., which
was newly consolidated at the end of the fiscal year ended March 31, 2000. The
increase in net revenue of the UNBC business unit was primarily attributable to
the depreciation of the yen against the US dollar, an increase in net interest
income, which resulted from an increase in average interest earning assets and
improved net interest margin, and an increase in non-interest income,
particularly growth in trust and investment management fees and merchant
banking fees. The decrease in net revenue of the treasury business unit was
principally due to the decrease in net revenue in yen-denominated treasury
activities and losses on securities investment activities.
Total operating profit decreased (Yen)74.2 billion, or 14.8%, from
(Yen)501.5 billion in the fiscal year ended March 31, 2000 to (Yen)427.3
billion in the fiscal year ended March 31, 2001. The decrease in total
operating profit primarily resulted from an increase in operating expenses of
Bank of Tokyo-Mitsubishi's corporate center included in the "Other" column. The
increase in operating expenses of Bank of Tokyo-Mitsubishi's corporate center
primarily reflected a significant increase in the provision for credit losses.
Credit losses were reflected in the corporate center rather than being
allocated to each business segment.
Mitsubishi Trust Bank
Mitsubishi Trust Bank has the following business groups:
. trust-banking, which provides retail banking and trust services,
corporate financing services and stock transfer agency services;
. trust assets, which provides fiduciary asset management and
administration services;
. real estate, which provides brokerage, sales and leasing, appraisal,
advisory and other real estate services;
. global markets, which provides various financial services including money
markets and capital markets operations, securities investments and
international finance; and
. other, which consists of:
. interest and dividends on certain investment securities held for
relationship management; and
. administrative divisions of the headquarters, such as personnel and
planning.
Mitsubishi Trust Bank measures the financial performance of its subsidiaries
based on ordinary profit or loss shown in their financial statements. Because
of the limited significance of subsidiary operations, Mitsubishi
S-63
Trust Bank does not allocate the subsidiaries' financial performance to
business groups, and manages them on an aggregate basis. The results of these
subsidiaries are included in "Other."
Effective April 1, 2001, the former banking business group was renamed the
trust-banking business group to reflect the emphasis the group places on the
development of the synergies between the banking businesses and the trust
businesses. In addition, the real estate business group was newly established
effective April 1, 2001, to handle the real estate business which was
previously part of the banking business group based on the management's belief
that this business would grow as its customer base expands. The segment
information for the fiscal years ended March 31, 2000 and 2001 is restated to
reflect these changes made in the fiscal year ended March 31, 2002.
As mentioned above, Nippon Trust Bank and Tokyo Trust Bank were merged with
and into Mitsubishi Trust Bank on October 1, 2001. However, it is not
practicable to restate the business segment information for the fiscal years
ended March 31, 2000 and 2001 and for the six months ended September 30, 2001
to reflect the effect of the merger because the differences in the policies and
processes of compiling and summarizing segment information among Mitsubishi
Trust Bank, Nippon Trust Bank and Tokyo Trust Bank made it impractical to
precisely and reasonably allocate the financial performance of Nippon Trust
Bank and Tokyo Trust Bank to each of the relevant business groups of Mitsubishi
Trust Bank.
Six Months Ended September 30, 2002 Compared to Six Months Ended September
30, 2001
The following table shows the business segment information for the six
months ended September 30, 2001 and 2002:
Trust- Trust Real Global
Banking Assets Estate Markets Other Total
--------- --------- -------- --------- --------- ----------
(in billions)
Six months ended September 30, 2001:
Net revenue...................... (Yen)58.2 (Yen)18.4 (Yen)3.6 (Yen)55.2 (Yen)14.8 (Yen)150.2
Operating expenses............... 33.5 15.2 3.3 8.2 15.0 75.2
Subsidiaries..................... -- -- -- -- 2.3 2.3
--------- --------- -------- --------- --------- ----------
Operating profit............. (Yen)24.7 (Yen) 3.2 (Yen)0.3 (Yen)47.0 (Yen) 2.1 (Yen) 77.3
========= ========= ======== ========= ========= ==========
Six months ended September 30, 2002:
Net revenue...................... (Yen)59.8 (Yen)16.8 (Yen)7.7 (Yen)58.1 (Yen) 9.4 (Yen)151.8
Operating expenses............... 36.8 14.6 4.7 8.9 13.8 78.8
Subsidiaries..................... -- -- -- -- 3.5 3.5
--------- --------- -------- --------- --------- ----------
Operating profit............. (Yen)23.0 (Yen) 2.2 (Yen)3.0 (Yen)49.2 (Yen)(0.9) (Yen) 76.5
========= ========= ======== ========= ========= ==========
Total net revenue increased (Yen)1.6 billion, or 1.1%, from (Yen)150.2
billion for the six months ended September 30, 2001 to (Yen)151.8 billion for
the six months ended September 30, 2002. The increase primarily reflected a
(Yen)4.1 billion increase in net revenue of the real estate business group and
a (Yen)2.9 billion increase in the global markets business group, partially
offset by a decrease of (Yen)5.4 billion in "Other."
Net revenue of the trust-banking business group increased (Yen)1.6 billion,
or 2.8%, from (Yen)58.2 billion for the six months ended September 30, 2001 to
(Yen)59.8 billion for the six months ended September 30, 2002. The increase was
due to an increase of (Yen)3.2 billion in net interest income and an increase
of (Yen)2.1 billion in fee income. These increases were partially offset by a
decrease of (Yen)3.7 billion in trust fees earned with respect to jointly
operated designated money trusts. Fees on jointly operated designated money
trusts include trust fees, accounted for on a cash basis, which are associated
with loan trusts and other types of jointly operated designated money in
trusts, including certain money trusts with guarantees for repayment of
principal. The increase in net interest income was mainly attributable to an
improvement in interest spread margin, which reflected a decrease in funding
costs resulting from a decline in market interest rates. The increase in fee
income was due to an increase in fees and commissions on sales of investment
trusts.
S-64
Net revenue of the trust assets business group decreased (Yen)1.6 billion,
or 8.3%, from (Yen)18.4 billion for the six months ended September 30, 2001 to
(Yen)16.8 billion for the six months ended September 30, 2002. The decrease was
mainly due to a decrease in fee income for asset administration services
resulting from transferring certain trust assets to Master Trust Bank of Japan
Ltd., an equity investee of Mitsubishi Trust Bank.
Net revenue of the real estate business group increased (Yen)4.1 billion, or
116.6%, from (Yen)3.6 billion for the six months ended September 30, 2001 to
(Yen)7.7 billion for the six months ended September 30, 2002. The increase was
mainly due to an increase in real estate brokerage commissions.
Net revenue of the global markets business group increased (Yen)2.9 billion,
or 5.3%, from (Yen)55.2 billion for the six months ended September 30, 2001 to
(Yen)58.1 billion for the six months ended September 30, 2002. The increase was
mainly due to an increase in net interest income, which reflected a decrease in
funding costs resulting from a decline in short-term foreign currency interest
rates. The increase was partially offset by a decrease in other income
resulting from a decrease in net gains on debt securities.
Net revenue reflected in "Other" decreased (Yen)5.4 billion, or 37.1%, from
(Yen)14.8 billion for the six months ended September 30, 2001 to (Yen)9.4
billion for the six months ended September 30, 2002. The decrease was mainly
due to a decrease in dividend income resulting from a reduction in investment
equity securities held to maintain long-term customer relationships.
Total operating expenses increased (Yen)3.6 billion, or 4.8%, from (Yen)75.2
billion for the six months ended September 30, 2001 to (Yen)78.8 billion for
the six months ended September 30, 2002. The increase was primarily due to the
addition of personnel following the October 2001 merger with Nippon Trust Bank
and Tokyo Trust Bank.
For the six months ended September 30, 2002, subsidiaries on a combined
basis recorded an operating profit of (Yen)3.5 billion, a (Yen)1.2 billion
increase from an operating profit of (Yen)2.3 billion for the six months ended
September 30, 2001. The increase was mainly due to an increase in their
operating profit following the October 2001 merger with Nippon Trust Bank and
Tokyo Trust Bank.
As a result of the foregoing, total operating profit for the six months
ended September 30, 2002 amounted to (Yen)76.5 billion, a decrease of (Yen)0.8
billion, or 0.9%, from (Yen)77.3 billion for the six months ended September 30,
2001.
S-65
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31, 2001
and Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31,
2000
The following table shows the business segment information used by
Mitsubishi Trust Bank executive management with respect to the fiscal years
ended March 31, 2000, 2001 and 2002:
Trust- Trust Real Global
Banking Assets Estate Markets Other Total
---------- --------- --------- ---------- --------- ----------
(in billions)
Fiscal year ended March 31, 2000:
Net revenue................... (Yen)112.8 (Yen)50.0 (Yen) 9.0 (Yen)120.7 (Yen)29.1 (Yen)321.6
Operating expenses............ 68.2 28.9 6.7 16.7 23.4 143.9
Subsidiaries.................. -- -- -- -- 6.0 6.0
---------- --------- --------- ---------- --------- ----------
Operating profit.......... (Yen) 44.6 (Yen)21.1 (Yen) 2.3 (Yen)104.0 (Yen)11.7 (Yen)183.7
========== ========= ========= ========== ========= ==========
Fiscal year ended March 31, 2001:
Net revenue................... (Yen)114.6 (Yen)49.9 (Yen)12.0 (Yen)101.1 (Yen)30.0 (Yen)307.6
Operating expenses............ 67.7 26.8 6.3 16.6 27.2 144.6
Subsidiaries.................. -- -- -- -- 3.0 3.0
---------- --------- --------- ---------- --------- ----------
Operating profit.......... (Yen) 46.9 (Yen)23.1 (Yen) 5.7 (Yen) 84.5 (Yen) 5.8 (Yen)166.0
========== ========= ========= ========== ========= ==========
Fiscal year ended March 31, 2002:
Net revenue................... (Yen)116.4 (Yen)54.3 (Yen)11.7 (Yen)105.9 (Yen)27.7 (Yen)316.0
Operating expenses............ 69.1 33.2 8.1 17.9 31.5 159.8
Subsidiaries.................. -- -- -- -- (0.3) (0.3)
---------- --------- --------- ---------- --------- ----------
Operating profit.......... (Yen) 47.3 (Yen)21.1 (Yen) 3.6 (Yen) 88.0 (Yen)(4.1) (Yen)155.9
========== ========= ========= ========== ========= ==========
-------------
Note--Business segment information for the fiscal years ended March 31, 2000
and 2001 has been restated to reflect changes in group structure and inclusion
of subsidiary information.
Fiscal Year Ended March 31, 2002 Compared to Fiscal Year Ended March 31,
2001
Total net revenue increased (Yen)8.4 billion, or 2.7%, from (Yen)307.6
billion in the fiscal year ended March 31, 2001 to (Yen)316.0 billion in the
fiscal year ended March 31, 2002. The improvement in total net revenue was
largely due to a (Yen)4.4 billion increase in the trust assets business group
net revenue and a (Yen)4.8 billion increase in the global markets business
group net revenue.
Net revenue of the trust-banking business group increased (Yen)1.8 billion,
or 1.6%, from (Yen)114.6 billion in the fiscal year ended March 31, 2001 to
(Yen)116.4 billion in the fiscal year ended March 31, 2002. The increase was
mainly due to an increase of (Yen)7.6 billion in fee income, resulting from
increases in fees and commissions obtained for arrangements of off-balancing
trade receivables, securitization of real estate, sales of investment trusts
and stock transfer agency services. The increase in fee income was partially
offset by a decrease of (Yen)3.1 billion in net interest income on loans and a
decrease of (Yen)2.6 billion in trust fees earned with respect to jointly
operated designated money trusts.
Net revenue of the trust assets business group increased (Yen)4.4 billion,
or 8.9%, from (Yen)49.9 billion in the fiscal year ended March 31, 2001 to
(Yen)54.3 billion in the fiscal year ended March 31, 2002. The increase was
mainly due to an increase in fee income such as the securities-trust-related
fees including trust fees on specified money trusts (Tokkin) and independently
operated designated money trusts (Shiteitan), and fees for debt security paying
agent services.
Net revenue of the real estate business group decreased (Yen)0.3 billion, or
2.7%, from (Yen)12.0 billion in the fiscal year ended March 31, 2001 to
(Yen)11.7 billion in the fiscal year ended March 31, 2002. The decrease was
largely due to a decrease in the number of brokerage transactions.
S-66
Net revenue of the global markets business group increased (Yen)4.8 billion,
or 4.8%, from (Yen)101.1 billion in the fiscal year ended March 31, 2001 to
(Yen)105.9 billion in the fiscal year ended March 31, 2002. Although other
income decreased by (Yen)23.9 billion from the fiscal year ended March 31, 2001
mainly due to the reduced profit on sale of bonds, including government bonds,
net interest income increased by (Yen)36.8 billion from the previous fiscal
year largely due to decreased funding costs resulting from a decline in
short-term foreign currency interest rates.
Total operating expenses for the fiscal year ended March 31, 2002 were
(Yen)159.8 billion, an increase of (Yen)15.2 billion, or 10.5%, from previous
fiscal year operating expenses of (Yen)144.6 billion. The increase was
primarily due to the addition of personnel following the October 2001 merger
with Nippon Trust Bank and Tokyo Trust Bank.
In the fiscal year ended March 31, 2002, subsidiaries on a combined basis
recorded an operating loss of (Yen)0.3 billion, a decrease of (Yen)3.3 billion
from the previous fiscal year profit of (Yen)3.0 billion. The loss was mainly
due to an increase in credit costs resulting from increased disposals of
problem assets by an overseas subsidiary.
As a result, total operating profit in the fiscal year ended March 31, 2002
amounted to (Yen)155.9 billion, a decrease of (Yen)10.1 billion, or 6.1%, from
(Yen)166.0 billion in the fiscal year ended March 31, 2001.
Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31, 2000
Total net revenue decreased (Yen)14.0 billion, or 4.3%, from (Yen)321.6
billion in the fiscal year ended March 31, 2000 to (Yen)307.6 billion in the
fiscal year ended March 31, 2001. The decrease in total net revenue primarily
reflected a decrease of (Yen)19.6 billion in the global markets group due
primarily to a decrease in investment debt securities gains, which was
partially offset by an increase of (Yen)3.0 billion in the real estate group.
Total operating profit decreased (Yen)17.7 billion, or 9.7%, from (Yen)183.7
billion in the fiscal year ended March 31, 2000 to (Yen)166.0 billion in the
fiscal year ended March 31, 2001. The decrease in total operating profit
primarily resulted from the decrease of (Yen)19.6 billion in net revenue of the
global markets group.
S-67
Nippon Trust Bank and Tokyo Trust Bank
As discussed above, operating results of Nippon Trust Bank and Tokyo Trust
Bank for the fiscal years ended March 31, 2000 and 2001, and for the six months
ended September 30, 2001, are not included in the segment information for Bank
of Tokyo-Mitsubishi or Mitsubishi Trust Bank. The following is a summary of net
revenue, operating expenses and operating profit of these companies for each of
such periods, derived from the internal management systems of Nippon Trust Bank
and Tokyo Trust Bank without any adjustments:
Nippon Trust Tokyo Trust
Bank Bank Total
------------ ----------- ---------
(in billions)
Fiscal year ended March 31, 2000:
Net revenue...................... (Yen)38.3 (Yen)2.6 (Yen)40.9
Operating expenses............... 25.1 1.2 26.3
--------- -------- ---------
Operating profit................. (Yen)13.2 (Yen)1.4 (Yen)14.6
========= ======== =========
Fiscal year ended March 31, 2001:
Net revenue...................... (Yen)33.9 (Yen)3.1 (Yen)37.0
Operating expenses............... 19.0 1.2 20.2
--------- -------- ---------
Operating profit................. (Yen)14.9 (Yen)1.9 (Yen)16.8
========= ======== =========
Six months ended September 30, 2001:
Net revenue...................... (Yen)11.3 (Yen)0.8 (Yen)12.1
Operating expenses............... 13.7 0.6 14.3
--------- -------- ---------
Operating profit (loss).......... (Yen)(2.4) (Yen)0.2 (Yen)(2.2)
========= ======== =========
The operating loss of Nippon Trust Bank for the six months ended September
30, 2001 resulted from a decrease in net revenue and an increase in operating
expenses, as compared to the corresponding period in the prior fiscal period.
The decrease in net revenue primarily reflected a decrease in loan trust
balances due to termination of such operations and a decrease in the number of
real estate brokerage transactions. The increase in operating expenses was
attributable to an increase in net periodic pension cost.
Financial Condition
The following discussion of financial condition as of September 30, 2002
primarily focuses on changes and developments since March 31, 2002.
Total Assets
Our total assets at September 30, 2002 were (Yen)92.32 trillion,
representing a decrease of (Yen)2.05 trillion, or 2.2%, from (Yen)94.37
trillion at March 31, 2002. The decrease was primarily attributable to a
decrease in total loans of (Yen)2.14 trillion.
Loan Portfolio
At September 30, 2002, our total loans were (Yen)48.09 trillion,
representing a decrease of (Yen)2.14 trillion, or 4.3%, from (Yen)50.23
trillion at March 31, 2002. The loan balance at September 30, 2002 consisted of
(Yen)37.61 trillion of domestic loans and (Yen)10.48 trillion of foreign loans.
The loan balance at March 31, 2002 consisted of (Yen)38.56 trillion of domestic
loans and (Yen)11.67 trillion of foreign loans.
Domestic loans decreased (Yen)0.95 trillion to (Yen)37.61 trillion at
September 30, 2002 from (Yen)38.56 trillion at March 31, 2002. Domestic
corporate loans decreased primarily due to depressed loan demand in a variety
of industries in the continued weak economy in Japan and disposals of
nonperforming loans, while consumer loans increased primarily as a result of
increased residential mortgage loans.
Foreign loans decreased (Yen)1.19 trillion to (Yen)10.48 trillion at
September 30, 2002 from (Yen)11.67 trillion at March 31, 2002. The decrease
primarily reflected the appreciation of the yen against the US dollar and other
S-68
foreign currencies and the slowdown in the economy of the United States. The
yen appreciated approximately 8.3% against the US dollar from (Yen)132.70 per
$1.00 at March 29, 2002 to (Yen)121.74 per $1.00 at September 30, 2002 in terms
of the noon buying rate.
Loans of (Yen)1.68 trillion at September 30, 2002 were pledged as
collateral. Loans pledged as collateral increased (Yen)0.67 trillion, or 66.2%,
from (Yen)1.01 trillion at March 31, 2002. The increase was due primarily to an
increase in loans pledged to the Bank of Japan for regular interbank settlement.
Allowance for Credit Losses, Nonperforming Loans and Past Due Loans
The following table shows a summary of the change in the allowance for
credit losses for the fiscal year ended March 31, 2002 and the six months ended
September 30, 2001 and 2002:
Year Ended
March 31, Six Months Ended Six Months Ended
2002 September 30, 2001 September 30, 2002
------------ ------------------ ------------------
(in billions)
Balance at beginning of period................. (Yen)1,717.0 (Yen)1,717.0 (Yen)1,735.2
------------ ------------ ------------
Provision for credit losses.................... 601.7 309.4 232.6
------------ ------------ ------------
Charge-offs:
Domestic.................................... 513.2 168.4 327.0
Foreign..................................... 156.2 79.9 93.0
------------ ------------ ------------
Total................................... 669.4 248.3 420.0
Recoveries..................................... 66.0 22.7 36.4
------------ ------------ ------------
Net charge-offs................................ 603.4 225.6 383.6
------------ ------------ ------------
Other, principally foreign exchange translation
adjustments.................................. 19.9 (6.8) (13.0)
------------ ------------ ------------
Balance at end of period....................... (Yen)1,735.2 (Yen)1,794.0 (Yen)1,571.2
============ ============ ============
The following table summarizes the allowance for credit losses by component
at each period end:
At March 31, At September 30,
2002 2002
------------ ----------------
(in billions)
Allocated allowance:
Specific--specifically identified problem loans....... (Yen)1,301.6 (Yen)1,127.9
Large groups of smaller-balance homogeneous loans..... 38.3 34.1
Loans exposed to specific country risk................ 28.3 18.4
Formula--substandard, special mention and other loans. 344.4 368.2
Unallocated allowance.................................... 22.6 22.6
------------ ------------
Total allowance................................... (Yen)1,735.2 (Yen)1,571.2
============ ============
At September 30, 2002, total allowance for credit losses was
(Yen)1,571.2 billion, or 3.27% of our total loan portfolio and 43.99% of total
nonaccrual and restructured loans and accruing loans contractually past due
90 days or more. At March 31, 2002, total allowance for credit losses was
(Yen)1,735.2 billion, or 3.45% of our total loan portfolio and 41.66% of total
nonaccrual and restructured loans and accruing loans contractually past due
90 days or more. The decrease in allowance for credit losses of
(Yen)164.0 billion, or 9.45%, was primarily attributable to a decrease in
allocated allowance for specifically identified problem loans of
(Yen)173.7 billion. The provision for credit losses for the six months ended
September 30, 2002 was (Yen)232.6 billion, a decrease of (Yen)76.8 billion from
(Yen)309.4 billion for the six months ended September 30, 2001. The decrease in
provision for credit losses for the six months ended September 30, 2002 was
primarily attributable to a decrease in impaired loans as discussed below.
S-69
The allocated allowance for specifically identified problem loans represents
the impairment allowance against impaired loans called for in SFAS No. 114
"Accounting by Creditors for Impairment of a Loan." Impaired loans include
nonaccrual loans, restructured loans and other loans specifically recognized
for impairment. The following table summarizes nonaccrual and restructured
loans, and accruing loans that are contractually past due 90 days or more as to
principal or interest payments, at March 31, 2002 and September 30, 2002:
At March 31, At September 30,
2002 2002
------------- ----------------
(in billions, except percentages)
Nonaccrual loans:
Domestic:
Manufacturing..................................................... (Yen) 142.6 (Yen) 135.4
Construction...................................................... 213.5 181.2
Real estate....................................................... 841.4 560.7
Services.......................................................... 214.9 131.5
Wholesale and retail.............................................. 251.0 254.7
Banks and other financial institutions............................ 58.6 47.4
Other industries.................................................. 39.7 34.4
Consumer.......................................................... 166.3 164.0
------------- -------------
Total domestic................................................ 1,928.0 1,509.3
Foreign............................................................. 245.6 269.9
------------- -------------
Total nonaccrual loans........................................ 2,173.6 1,779.2
------------- -------------
Restructured loans:
Domestic:
Manufacturing..................................................... 303.0 290.1
Construction...................................................... 190.0 164.5
Real estate....................................................... 422.5 357.2
Services.......................................................... 248.6 231.2
Wholesale and retail.............................................. 442.4 416.7
Banks and other financial institutions............................ 55.4 51.2
Other industries.................................................. 83.5 72.9
Consumer.......................................................... 113.8 93.9
------------- -------------
Total domestic................................................ 1,859.2 1,677.7
Foreign............................................................. 109.2 100.9
------------- -------------
Total restructured loans...................................... 1,968.4 1,778.6
------------- -------------
Accruing loans contractually past due 90 days or more:
Domestic............................................................ 20.3 9.3
Foreign............................................................. 2.7 4.7
------------- -------------
Total accruing loans contractually past due 90 days or
more........................................................ 23.0 14.0
------------- -------------
Total......................................................... (Yen) 4,165.0 (Yen) 3,571.8
============= =============
Total loans.......................................................... (Yen)50,229.7 (Yen)48,091.2
============= =============
Nonaccrual loans, restructured loans and accruing loans contractually
past due 90 days or more as a percentage of total loans............ 8.29% 7.43 %
============= =============
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The following table summarizes the balance of impaired loans and related
impairment allowance at March 31, 2002 and September 30, 2002, excluding large
groups of smaller-balance homogeneous loans:
At March 31, At September 30,
2002 2002
-------------------------- --------------------------
Loan Impairment Loan Impairment
balance allowance balance allowance
------------ ------------ ------------ ------------
(in billions)
Requiring an impairment allowance...................... (Yen)3,556.6 (Yen)1,296.3 (Yen)3,006.3 (Yen)1,120.3
Not requiring an impairment allowance.................. 489.1 -- 469.4 --
------------ ------------ ------------ ------------
Total............................................... (Yen)4,045.7 (Yen)1,296.3 (Yen)3,475.7 (Yen)1,120.3
============ ============ ============ ============
Percentage of the allocated allowance to total impaired
loans................................................ 32.0% 32.2%
============ ============
Impaired loans decreased (Yen)570.0 billion, or 14.1%, from (Yen)4,045.7
billion at March 31, 2002 to (Yen)3,475.7 billion at September 30, 2002. The
decrease primarily reflected a decrease in nonaccrual loans of (Yen)394.4
billion and restructured loans of (Yen)189.8 billion. The decrease in
nonaccrual loans was due primarily to disposals of loans, primarily through
bulk sales and charge-offs for the six months ended September 30, 2002. The
percentage of the allocated allowance to total impaired loans at September 30,
2002 was 32.2%, an increase of 0.2% from 32.0% at March 31, 2002. The increase
in percentage of allocated allowance to impaired loans was due primarily to
decreased collateral values resulting from a continuing decline in real estate
and equity markets.
The following is a summary of changes in domestic nonaccrual loans and
restructured loans by industry segment for the six months ended September 30,
2002:
. Decrease of (Yen)120.9 billion in the manufacturing industry and the
services industry segment. Although bankruptcy filings in the services
industry were the worst on record for the six months ended September 30,
2002, and there were no signs of improvements in the manufacturing
industry, we disposed of large amounts of nonaccrual loans to borrowers
in the manufacturing and services industries through bulk sales and made
substantial charge-offs for this period.
. Decrease of (Yen)403.8 billion in the construction industry and the real
estate industry segment. Bankruptcy filings in the construction industry
decreased for the six months ended September 30, 2002 compared to the
corresponding period in the previous year although the real estate and
construction industries continued to be severely and adversely affected
by the sharp decline in Japanese real estate values and construction
projects and lack of liquidity in the real estate market. Nonaccrual and
restructured loans to borrowers in these industries decreased due
primarily to disposals through bulk sales and charge-offs. Also, certain
nonaccrual loans and restructured loans in this segment decreased through
repayments by certain borrowers.
. Decrease of (Yen)22.0 billion in the wholesale and retail industry
segment. Although the wholesale and retail industries have not improved,
many retailers and wholesalers have attempted to restructure their
operations through cost reductions and other actions. Nonaccrual and
restructured loans to this sector decreased due primarily to disposals
through bulk sales, charge-offs and repayments by some of our customers.
S-71
The following is a summary of cross-border outstandings to counterparties in
major Asian and Latin American countries at March 31, 2002 and September 30,
2002:
At March 31, At September 30,
2002 2002
------------ ----------------
(in billions)
South Korea............... (Yen)218.9 (Yen)215.8
Indonesia................. 78.2 59.1
Thailand.................. 223.7 194.2
Malaysia.................. 156.1 142.6
Philippines............... 80.0 52.5
Hong Kong................. 409.3 340.8
People's Republic of China 222.9 181.7
Argentina................. 74.4 56.4
Brazil.................... 145.4 146.7
Mexico.................... 110.0 85.0
For the six months ended September 30, 2002, our cross-border outstandings
to counterparties in major Asian and Latin American countries generally
declined primarily through collections and sales of loans.
Investment Portfolio
Investment securities increased (Yen)0.10 trillion, or 0.4%, from (Yen)23.68
trillion at March 31, 2002 to (Yen)23.78 trillion at September 30, 2002, due
primarily to an increase in available-for-sale securities of
(Yen)0.11 trillion. Available-for-sale securities increased (Yen)0.11 trillion
from (Yen)23.28 trillion at March 31, 2002 to (Yen)23.39 trillion at September
30, 2002. The increase in available-for-sale securities was primarily
attributable to an increase in foreign government bonds. The increase was
partly offset by a decrease in marketable equity securities of (Yen)1.01
trillion. The decrease in marketable equity securities reflected sales of
certain marketable equity securities and declines in fair value of equity
securities.
Investment securities of (Yen)8.35 trillion at September 30, 2002 were
pledged as collateral, representing an increase of (Yen)0.58 trillion, or 7.4%,
from (Yen)7.77 trillion at March 31, 2002. The increase primarily reflected an
increase in securities sold under repurchase agreements, under which securities
sold are deemed as collateral.
Net unrealized gains included in the investment portfolio were (Yen)1.38
trillion at September 30, 2002. These net unrealized gains related principally
to Japanese marketable equity securities.
Interest-earning Deposits in Other Banks
Interest-earning deposits in other banks significantly fluctuate from day to
day depending upon the volatility of financial markets. Interest-earning
deposits in other banks at September 30, 2002 were (Yen)4.15 trillion, a
decrease of (Yen)0.18 trillion, or 4.2%, from (Yen)4.33 trillion at March 31,
2002. The decrease in interest-earning deposits in other banks primarily
reflected the lower interest rate environment in interbank markets.
Trading Account Assets
Trading account assets at September 30, 2002 were (Yen)7.33 trillion, a
decrease of (Yen)0.17 trillion, or 2.3%, from (Yen)7.50 trillion at March 31,
2002. The decrease was primarily attributable to a decrease of (Yen)0.22
trillion in trading securities.
Total Liabilities
At September 30, 2002, total liabilities were (Yen)89.97 trillion, a
decrease of (Yen)1.77 trillion, or 1.9%, from (Yen)91.74 trillion at March 31,
2002. The decrease reflected decreases of (Yen)1.07 trillion in debentures and
(Yen)1.62 trillion in short-term borrowings. The decrease in debentures
reflected redemptions at maturity. As a result of a change in law, we no longer
issued debentures after March 31, 2002. The appreciation of the yen against the
US dollar and other foreign currencies during the six months ended September
30, 2002 also contributed to the decrease in total liabilities.
S-72
Deposits
At September 30, 2002, total deposits were (Yen)63.84 trillion, an increase
of (Yen)0.18 trillion, or 0.3%, from (Yen)63.66 trillion at March 31, 2002.
Domestic deposits increased (Yen)1.37 trillion, or 2.6%, from (Yen)51.92
trillion at March 31, 2002 to (Yen)53.29 trillion at September 30, 2002, while
foreign deposits decreased (Yen)1.18 trillion from (Yen)11.74 trillion at March
31, 2002 to (Yen)10.56 trillion at September 30, 2002. The increase in domestic
deposits resulted partly from the planned removal of blanket deposit insurance,
which led some depositors to transfer their deposits to banks that are
perceived to be more financially stable. As discussed under "--Recent
Developments--Government Plan to Revive Financial Sector," subsequent to
September 30, 2002, the Financial Services Agency announced that the Deposit
Insurance Corporation's unlimited guaranty of deposits in current accounts and
ordinary accounts would be extended until the end of March 2005. The decrease
in foreign deposits primarily reflected the appreciation of the yen against the
US dollar and other foreign currencies.
Short-term borrowings
Short-term borrowings decreased (Yen)1.62 trillion, or 10.9%, from
(Yen)14.84 trillion at March 31, 2002 to (Yen)13.22 trillion at September 30,
2002. Short-term borrowings include call money and funds purchased, payables
under repurchase agreements, payables under lending transactions, due to trust
account and other short-term borrowings. We use short-term borrowings as a
funding source and in our management of interest rate risk. The decrease in
short-term borrowings primarily reflected the unfavorable market conditions for
funding around the end of September 30, 2002.
Long-term debt
Long-term debt increased (Yen)0.14 trillion from (Yen)5.18 trillion at March
31, 2002 to (Yen)5.32 trillion at September 30, 2002, due primarily to bond
issuances.
Funding and Liquidity
Our primary source of liquidity is from a large balance of deposits, mainly
ordinary deposits, certificates of deposit and time deposits. Time deposits
have shown a historically high rollover rate among our corporate customers and
individual depositors. These deposit products provide us with a sizable source
of stable and low-cost funds. While approximately 60% of certificates of
deposits and time deposits mature within three months, we continuously monitor
relevant interest rate characteristics of these funds and utilize asset and
liability management procedures to manage the possible impact of the rollovers
on our net interest margin. Our average deposits, combined with average
shareholders' equity, funded 70.9% of our average total assets of (Yen)92.94
trillion during the six months ended September 30, 2002. Most of the remaining
funding was provided by short-term borrowings and long-term senior and
subordinated debt. Short-term borrowings consist of call money and funds
purchased, payables under repurchase agreements, payables under securities
lending transactions, due to trust account and other short-term borrowings.
From time to time, we have issued long-term instruments such as straight bonds
with mainly three to five years' maturity. Liquidity may also be provided by
the sale of financial assets, including securities available for sale, trading
account securities, and certain loans. Additional liquidity may be provided by
maturity of loans. In connection with our plan to sell down our strategic
equity investments, we have commenced the process of reducing our holdings of
strategic equity investments, primarily through sales in the market. To
implement that plan, we are also evaluating and implementing alternative
strategies that facilitate the sale of our equity holdings, such as the
transfers of certain holdings to an existing exchange traded fund, the Banks'
Shareholdings Purchase Corporation and the Bank of Japan. Our access to
liquidity from sales of strategic equity investments and other equity
securities is dependent on market conditions at the time of each sale. We do
not, however, anticipate that we will be dependent on sales of equity
securities for liquidity.
S-73
Shareholders' Equity
The following table presents a summary of our shareholders' equity at March
31, 2002 and September 30, 2002:
At March 31, At September 30,
2002 2002
------------ ----------------
(in billions, except percentages)
Preferred stock.......................................... (Yen) 222.1 (Yen) 222.1
Common stock............................................. 873.2 873.2
Capital surplus.......................................... 850.8 908.5
Retained earnings........................................ 248.1 310.0
Accumulated other changes in equity from nonowner sources 523.3 115.1
Less treasury stock, at cost............................. (91.0) (82.8)
------------ ------------
Total shareholders' equity............................ (Yen)2,626.5 (Yen)2,346.1
============ ============
Ratio of total shareholders' equity to total assets...... 2.78% 2.54%
Total shareholders' equity decreased (Yen)280.4 billion, or 10.7%, from
(Yen)2,626.5 billion at March 31, 2002 to (Yen)2,346.1 billion at September 30,
2002, and the ratio of total shareholders' equity to total assets also showed a
decrease of 0.24 points from 2.78% at March 31, 2002 to 2.54% at September 30,
2002. The decrease in total shareholders' equity for the six months ended
September 30, 2002, and the resulting decrease of the ratio to total assets,
were principally attributable to a (Yen)327.9 billion decrease in net
unrealized gains on investment securities available for sale, net of taxes,
recorded as part of accumulated other changes in equity from nonowner sources.
The decrease was partly offset by an increase of (Yen)61.9 billion in retained
earnings, resulting from net income for the six months ended September 30, 2002
and an increase in capital surplus of (Yen)57.7 billion resulting primarily
from recognition of a tax benefit arising from the write-down for tax purposes
of treasury stock held by Bank of Tokyo-Mitsubishi. The tax consequence of such
write-down was treated as a capital transaction and credited to capital surplus.
Due to our holding a large amount of marketable Japanese equity securities
and the volatility of the equity markets in Japan, changes in the fair value of
marketable equity securities have significantly affected our shareholders'
equity. The following table presents information relating to the accumulated
net unrealized gains before tax effect in respect of marketable equity
securities at March 31, 2002 and September 30, 2002:
At March 31, At September 30,
2002 2002
------------ ----------------
(in billions, except percentages)
Accumulated net unrealized gains................ (Yen)1,611 (Yen)1,113
Accumulated net unrealized gains to total assets 1.71% 1.21%
The decrease in accumulated net unrealized gains on marketable equity
securities at September 30, 2002 was mainly due to declines in Japanese stock
markets.
Off-Balance Sheet Transactions
Off-balance sheet arrangements
In the normal course of business, we are engaged in several types of
off-balance sheet financial arrangements, some of which call for and rely on
activities of special purpose entities in the performance of the arrangements.
These arrangements involving special purpose entities include, but are not
limited to, disposals of nonperforming assets, repackaging of existing
financial instruments to create other investments for customers that otherwise
would not be readily available in the market, and securitizations of our
customers' assets for their off-balance sheet arrangements. During the six
months ended September 30, 2002, we did not enter into new material off-balance
sheet arrangements. For more information, see "Other Commitments, Including
Off-balance Sheet Credit-related Commitments" in our 2002 Annual Report on Form
20-F.
S-74
Off-balance sheet credit-related commitments
As a financial services provider, we routinely enter into commitments to
extend credit, standby letters of credit, financial guarantees, and commercial
letters of credit. These contract amounts represent the possible credit risk
associated with failure of the counterparty to perform in accordance with the
terms and conditions of the contracts. Since many of these commitments expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total credit-related commitments at
September 30, 2002 were (Yen)37,202 billion, a decrease of (Yen)1,279 billion
from (Yen)38,481 billion at March 31, 2002. Most of the commitments will expire
within one year. For more information, see "Other Commitments, Including
Off-balance Sheet Credit-related Commitments" in our 2002 Annual Report on Form
20-F.
Capital Adequacy
The table below presents our consolidated risk-based capital, risk-adjusted
assets, and risk-based capital ratios at March 31, 2002 and September 30, 2002
(underlying figures are calculated in accordance with Japanese banking
regulations based on information derived from our financial statements prepared
in accordance with Japanese GAAP, as required by the Financial Services Agency
of Japan):
At March 31, At September 30, Minimum capital
2002 2002 ratios required
------------- ---------------- ---------------
(in billions, except percentages)
Capital components:
Tier I capital........... (Yen) 3,181.1 (Yen) 3,053.1
Tier II capital.......... 3,145.3 2,942.8
Total risk-based capital. 6,220.5 6,002.0
Risk-weighted assets........ 60,335.8 57,190.3
Capital ratios:
Tier I capital........... 5.27 % 5.33% 4.00%
Total risk-based capital. 10.30 10.49 8.00
The table below presents the risk-based capital ratios of Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank at March 31, 2002 and September 30,
2002 (underlying figures are calculated in accordance with Japanese banking
regulations based on information derived from our financial statements prepared
in accordance with Japanese GAAP as required by the Financial Services Agency
of Japan):
At March 31, At September 30, Minimum capital
2002 2002 ratios required
------------ ---------------- ---------------
Consolidated capital ratios:
Bank of Tokyo-Mitsubishi:
Tier I capital............... 5.25% 5.24% 4.00%
Total risk-based capital..... 10.29 10.43 8.00
Mitsubishi Trust Bank:
Tier I capital............... 6.23 6.49 4.00
Total risk-based capital..... 10.83 11.44 8.00
Stand-alone capital ratios:
Bank of Tokyo-Mitsubishi:
Tier I capital............... 5.19 5.07 4.00
Total risk-based capital..... 10.37 10.14 8.00
Mitsubishi Trust Bank:
Tier I capital............... 6.25 6.51 4.00
Total risk-based capital..... 10.90 11.47 8.00
S-75
The table below presents the risk-based capital ratios of UnionBanCal and
Union Bank of California, both subsidiaries of Bank of Tokyo-Mitsubishi, at
December 31, 2001 and June 30, 2002:
At At Minimum
December 31, June 30, capital ratios
2001 2002 required
------------ -------- --------------
UnionBanCal:
Tier I capital (to risk-weighted assets)..... 11.47% 11.90% 4.00%
Tier I capital (to quarterly average assets). 10.53 10.77 4.00
Total capital (to risk-weighted assets)...... 13.35 13.65 8.00
At At Minimum Ratios OCC*
December 31, June 30, capital ratios requires to be
2001 2002 required "well capitalized"
------------ -------- -------------- ------------------
Union Bank of California:
Tier I capital (to risk-weighted assets)..... 10.63% 11.00% 4.00% 6.00%
Tier I capital (to quarterly average assets). 9.69 9.89 4.00 5.00
Total capital (to risk-weighted assets)...... 12.19 12.49 8.00 10.00
-------------
* OCC represents the Office of the Comptroller of the Currency of the United
States of America.
Market Risk
1. Trading activities
The value at risk, or VaR for our total trading activities in the six months
ended September 30, 2002 is presented in the table below. Quantitative market
risk as of September 30, 2002 was lower compared to that as of March 31, 2002.
On a quarterly basis, the daily average VaR was (Yen)2.70 billion in the three
months ended June 30, 2002, and (Yen)2.93 billion in the three months ended
September 30, 2002. We conducted back-testing for the 250 past business days
prior to September 30, 2002 and the absolute value of losses never exceeded VaR.
VaR for Trading Activities (April 2002-September
2002)/(1)/
- --------------------------------------------------------
At
At March 31,
Daily September 30, 2002
average High Low 2002 (reference)
Risk category ---------- --------- --------- ------------- -----------
(in billions)
Interest rate........... (Yen) 1.56 (Yen)2.52 (Yen)0.93 (Yen) 0.96 (Yen) 1.18
Of which, yen........... 0.61 1.05 0.25 0.25 0.79
Of which, US dollar..... 0.72 1.39 0.37 0.42 0.44
Foreign exchange........ 0.71 1.56 0.20 0.26 0.41
Equities................ 0.84 1.44 0.52 1.14 0.75
Commodities............. 0.18 0.28 0.09 0.09 0.18
(Diversification effect) (0.47) -- -- (0.41) (0.38)
---------- ---------- ----------
Total................ (Yen) 2.82 (Yen)3.59 (Yen)2.04 (Yen) 2.04 (Yen) 2.14
========== ========== ==========
-------------
(1) Based on a one-day holding period, with a confidence interval of 99% based
on three years of historical data. The highest and lowest VaRs were taken
from different days. Simple summation of VaRs by risk category is not equal
to total VaR due to the effect of diversification.
2. Non-trading activities
VaR for our non-trading activities as of September 30, 2002, excluding
market risks related to strategic equity investment and measured using the same
standard as used for trading activities, increased (Yen)0.46 billion to
(Yen)27.93 billion compared to that as of March 31, 2002.
S-76
After converting foreign currency-denominated assets in Argentina to pesos,
as required by Argentinean regulation, foreign exchange-related market risks
was (Yen)4.75 billion.
Interest rate risks accounted for approximately 93% of our non-trading
activity market risks, excluding those risks related to the foreign exchange
transaction stated above, and measured (Yen)21.83 billion as of September 30,
2002. The daily average interest rate VaR totaled (Yen)20.65 billion, with the
highest recorded VaR being (Yen)25.03 billion, and the lowest being (Yen)16.87
billion. On a quarterly basis, the daily average VaR was (Yen)19.55 billion in
the three months ended June 30, 2002, and (Yen)21.74 billion in the three
months ended September 30, 2002. The chart below analyzes interest rate risks
by major currencies. Among these, the Japanese yen risk ratio as of September
30, 2002 decreased compared to that as of March 31, 2002, while US dollar and
euro risk ratios increased.
[CHART]
Interest Rate VaR
for Non-Trading Activities by Currencies
JPY USD EUR Others
3/31/2002 46 44 7 3
9/30/2002 32 49 17 2
Note: Composition of interest rate VaR (1-day holding period,
99% confidence interval 3 years historical data)
S-77
BUSINESS
We are one of the world's leading bank holding companies with (Yen)92.32
trillion in total assets as of September 30, 2002. We are a holding company for
Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, and we work with our
subsidiary banks to set business goals and strategies and to implement those
strategies, to oversee the operations of our subsidiaries, to facilitate
business synergies among them, and to manage risk globally. We are the only
Japanese banking group listed on the New York Stock Exchange.
We are a joint stock company (kabushiki kaisha) incorporated in Japan under
the Japanese Commercial Code. On April 2, 2001, Bank of Tokyo-Mitsubishi,
Mitsubishi Trust Bank and Nippon Trust Bank established Mitsubishi Tokyo
Financial Group to be their holding company. Before that, each of the banks had
been a publicly held company. On April 2, 2001, through a stock-for-stock
exchange, they became wholly owned subsidiaries of Mitsubishi Tokyo Financial
Group, and the former shareholders of the three banks became shareholders of
Mitsubishi Tokyo Financial Group. Nippon Trust Bank was later merged into
Mitsubishi Trust Bank. As a result, we now have two directly held banking
subsidiaries, Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, although each
of these two banks also has other subsidiaries of its own.
We provide a broad range of financial services, including commercial
banking, investment banking, trust-banking and asset management services, to
individuals and corporate customers through Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank and their respective subsidiaries.
Bank of Tokyo-Mitsubishi
Bank of Tokyo-Mitsubishi is a major Japanese commercial banking
organization. It provides a wide range of domestic and international banking
services in Japan and around the world. As of September 30, 2002, Bank of
Tokyo-Mitsubishi's network in Japan included 263 branches, 22 sub-branches, two
agencies, 57 loan plazas, 477 branch ATMs, and 10,952 convenience store-based,
non-exclusive ATMs. Bank of Tokyo-Mitsubishi organizes its operations based on
customer and product segmentation, as follows:
. The retail banking business unit offers a full range of banking products
and services, including financial consulting services, to small corporate
and individual customers in Japan. In addition to branch offices and
other direct distribution channels, the retail banking business unit
offers products and services through convenience store-based ATMs
utilized by a number of different banks, via telephone, via Internet and
by mail order.
. The commercial banking business unit mainly provides banking products and
services to a wide range of business customers, from large corporations
to medium-sized and small businesses, and is responsible for customer
relationships. The unit provides traditional commercial banking services,
such as deposits, settlement, foreign exchange, loans and Mitsubishi
Trust Bank's trust products as well as electronic banking and highly
sophisticated consulting services.
. The global corporate banking business unit provides banking services to
large Japanese corporations and their overseas operations, as well as
non-Japanese corporations who do business on a global basis. The business
of UNBC is categorized under a separate segment.
. The investment banking business unit provides capital markets,
derivatives, structured finance, corporate advisory and other securities
services. Other business units of Bank of Tokyo-Mitsubishi work with the
investment banking business unit in offering its services to their
customers. Most of the investment banking business is conducted through
its subsidiary, Mitsubishi Securities, which was formed recently through
the consolidation of several securities companies in our group.
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. The asset management business unit provides asset management and trust
products and services mainly to wealthy individuals, branch customers and
corporate clients in Japan. Generally, these products and services are
provided to customers of Bank of Tokyo-Mitsubishi through the retail
banking business unit and commercial banking business unit, and are
sourced from Tokyo-Mitsubishi Asset Management, Ltd., a subsidiary of
Bank of Tokyo-Mitsubishi included in the unit, and from Mitsubishi Trust
Bank.
. The UNBC business unit includes Bank of Tokyo-Mitsubishi's subsidiaries
in California, UnionBanCal Corporation and Union Bank of California, N.A.
UnionBanCal Corporation is a U.S. commercial bank holding company and is
among the oldest banks on the West Coast, having roots as far back as
1864. Union Bank of California, N.A., UNBC's bank subsidiary, is the
third largest commercial bank in California based on total assets and
total deposits as of September 30, 2002.
. The operations services unit provides operations and settlement services
to the other business units of Bank of Tokyo-Mitsubishi and to Bank of
Tokyo-Mitsubishi's customers. In addition, the unit offers operations and
settlement services to other financial institutions to meet their
outsourcing needs.
. The treasury unit manages Bank of Tokyo-Mitsubishi's overall funding
requirements. The unit is responsible for Bank of Tokyo-Mitsubishi's
asset liability management functions and manages Bank of
Tokyo-Mitsubishi's debt securities portfolio, foreign exchange and
derivatives transactions, including trading, for Bank of
Tokyo-Mitsubishi's own account.
. Other segments consists of:
- system services, which is responsible for Bank of Tokyo-Mitsubishi's
computer systems;
- e-Business and IT Initiatives, which is responsible for developing
information technology business opportunities; and
- the corporate center, which retains functions such as strategic
planning, overall risk management, internal auditing and compliance
within Bank of Tokyo-Mitsubishi.
Mitsubishi Trust Bank
Mitsubishi Trust Bank is one of the major trust banks in Japan. As of
September 30, 2002, it had a network of 51 branches and four sub-branches.
Mitsubishi Trust Bank engages in the following businesses:
. The trust-banking business group provides retail banking and trust
services, corporate financing services and stock transfer agency
services. The trust-banking business group provides a full range of
commercial banking products, trust products and various financial
services to individuals, corporations, institutional investors and public
organizations.
. The trust assets business group manages investment funds, corporate
pensions, public pensions, public sector funds and individual funds, on
behalf of its clients and in accordance with their investment objectives.
In addition, the group provides a broad range of custodial services to
corporations, institutional investors and other clients.
. The real estate business group includes real estate brokerage and rental
operations. In addition, the group offers trust vehicles, such as real
estate management trusts, disposal trusts and land trusts, as well as
appraisals, sales of residential condominiums and advice on the
development, utilization and disposal of real estate.
. The global markets business group undertakes various financial services,
including money markets and capital markets operations, securities
investments and international finance. The group is active in three key
regions, the United States, Europe and Asia.
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RECENT DEVELOPMENTS
Business Strategy
To address the extraordinary challenges facing us, we have developed a
business strategy designed to:
. strengthen our balance sheet for future growth;
. improve our profit structure; and
. capture the benefits of operating as an integrated, diversified financial
group.
As we continue our efforts to complete the strengthening of our financial
base through the reduction of our problem loans and equity portfolio and focus
on improving our profit structure, we are building on our solid position within
the Japanese financial sector to emerge as a globally competitive, diversified
financial services group. By offering a broad range of value-added financial
products and services from our commercial, trust, investment and other banking
capabilities and moving aggressively ahead of our competitors to bolster our
financial position, we seek to further enhance customer confidence, leverage
our competitive advantages to expand our businesses and enhance shareholder
value.
Strengthen our Balance Sheet for Future Growth
In light of the serious structural challenges facing the Japanese financial
sector, we view the strengthening of our balance sheet as the key to
maintaining the trust of our customers and enabling us to focus more
aggressively on the future growth of our businesses. Building on our efforts to
date, our strategy includes:
. reducing the volume of problem loans on our balance sheet; and
. reducing the size of our equity portfolio.
In addressing our non-performing loan issues, our strategy involves several
initiatives:
. We have sold more non-performing loans to the Resolution and Collection
Corporation than any other financial group. We expect to continue to sell
non-performing loans to the Resolution and Collection Corporation, taking
advantage of the Resolution and Collection Corporation's newly acquired
capacity to purchase loans at prices that reflect fair value on an
aggregate basis, as more fully described below.
. We have implemented a system whereby we reach out and cooperate with
troubled borrowers to assist them in revitalizing their operations and
restructuring their finances to minimize unnecessary crises before they
arise. In addition, we are actively seeking new schemes to dispose of our
substandard loans, such as taking advantage of newly emerging private
sector restructuring funds.
. As the Japanese government implements its program to foster corporate
sector revival through the Industrial Revitalization Corp. and other
mechanisms, we will seek to maximize our utilization of these
opportunities to further improve the overall quality of our loan assets.
To comply with the legal requirements to reduce the level of our equity
portfolio below the level of our adjusted Tier 1 capital by September 30, 2004
and to curb our exposure to the volatility in the equity markets, we plan to
reduce our equity portfolio by:
. selling in the market;
. transferring equity holdings to exchange-traded funds, which diversifies
our portfolio risk and facilities ultimate disposition;
. selling to the Bank of Japan under its new scheme to purchase stock from
commercial banks, as more fully described below; and
. selling to the Banks' Shareholdings Purchase Corporation.
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Improve our Profit Structure
We seek to increase our profitability by:
. increasing loan volume to creditworthy borrowers and improving the
risk-adjusted returns on our lending business;
. expanding our offerings of fee-generating value-added financial services;
and
. promoting cost efficiency through further streamlining of our branch
network and personnel structure.
Improving Volume and Risk-Adjusted Returns. Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank both seek to enhance the risk-adjusted return on their
lending activities by selectively increasing loan volume and readjusting loan
pricing. For several reasons, we see opportunities to profitably increase our
loan volume:
. Some creditworthy borrowers have discovered that their reliance on a
banking group or groups has increased as a result of recent
consolidations in the Japanese banking industry, and are now diversifying
their banking relationships and seeking banks perceived to be more
financially stable.
. Some Japanese banks will need to reduce their volume of loan assets in
order to improve their capital adequacy ratios.
. Some borrowers with international banking needs will need to seek
alternative banking relationships as some Japanese banks are scaling back
or withdrawing from their international operations.
We believe these factors, combined with our market-leading position in our
core businesses, global network, range of loan products and relative capital
strength enhanced by this offering, create an opportunity for our subsidiary
banks selectively to increase their volume of lending to financially sound
clients. In addition, our large customer base and widely recognized brand image
enables us to increase our loans to retail customers, particularly housing
loans.
Within the same market environment, we see an opportunity to readjust
lending spreads to align risk and return more accurately. To this end, we are
pricing our loans to more appropriately correlate with credit risk in
accordance with our internal credit rating system. In addition, the interest
rate adjustments will often be undertaken as part of a comprehensive review of
the client's funding and other financial needs, to readjust the financial
products, services and pricing available to the client, to more effectively
meet the client's needs and appropriately reflect the risk to us.
Our efforts to enhance both volume and spread on our lending operations are
supported by our increasing access to retail deposits. We believe this funding
source, which in the current market environment is both stable and low-cost,
will allow us to enhance our profitability on the funding as well as lending
side.
Expanding Fee-Generating Value Added Services. In the low interest rate
environment currently prevailing in Japan, diversifying our revenue base to
include a higher component of fee-generating revenue, which was 18% of our
gross total income for the six months ended September 30, 2002, is a key
element in our plan to improve overall profitability. We perceive several
opportunities to increase our fee revenues further from value-added services:
. Our leading position in Japan and established global network enables us
to offer our corporate clients various fee-based banking services, such
as global cash management, trade settlement and foreign exchange
services. We will seek to expand these services by further investing in
our information technology systems. In addition, we are seeking to
increase our sales of various financial products, such as investment
trust sales and insurance products, to our large retail customer base.
. In addition to increased investment trust sales, Mitsubishi Trust Bank is
pursuing other trust-related fee revenue by actively offering services
such as corporate pension asset management and private wealth management.
Since the combination of Bank of Tokyo-Mitsubishi and Mitsubishi Trust
Bank under us as their common holding company, we have sought to offer to
Bank of Tokyo-Mitsubishi's client base several of Mitsubishi Trust Bank's
services, including trust and estate administration, real estate
brokerage and stock transfer services.
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. We believe that our 57.5%-owned subsidiary, Mitsubishi Securities, which
was formed on September 1, 2002 through the merger of KOKUSAI Securities
Co., Ltd., Tokyo-Mitsubishi Securities Co., Ltd. and two other affiliated
securities companies, is well-positioned to grow our investment banking
and securities businesses. With the combination of Tokyo-Mitsubishi
Securities' corporate and institutional client base and KOKUSAI
Securities' middle market strength and retail network and with the
transfer of part of Bank of Tokyo-Mitsubishi's investment banking
business to Mitsubishi Securities, we see opportunities to offer a
competitive range of value-added financing, securitization, M&A and other
securities-related products and services to our broader client base. In
addition, we will seek to offer Mitsubishi Securities' brokerage services
to high net worth customers of Bank of Tokyo-Mitsubishi and Mitsubishi
Trust Bank.
Promoting Efficiency and Streamlining. From March 31, 1998 to September 30,
2002, we reduced the aggregate number of Bank of Tokyo-Mitsubishi's and
Mitsubishi Trust Bank's domestic branches, sub-branches and agencies from 436
to 342 and the number of their aggregate domestic employees by 10% to
approximately 21,500. We aim to further reduce the number of domestic branches,
sub-branches and agencies and the number of domestic personnel. At the same
time, to enhance customer convenience, we will seek to expand alternative
service delivery channels to both retail and corporate clients by continuing to
invest in our information technology. We see additional opportunities to
increase efficiencies as we reduce duplicative operations and system sites for
Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank. For example, we have
combined the locations of the central computer systems of Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank, which we expect will reduce related
operational and real estate expenses in the future.
Capture the Benefits of Operating as an Integrated, Diversified Financial Group
Building upon Bank of Tokyo-Mitsubishi's solid customer base and global
network and expertise, Mitsubishi Trust Bank's strengths in trust banking
products and services and most recently Mitsubishi Securities' growing
capabilities in the securities business, we have sought to build a financial
group that is diversified in the products we offer and markets we serve, but
integrated in terms of management vision and financial discipline. To help
achieve this, we intend to implement the following:
Promote Integrated Management. We will seek to work with our subsidiary
banks to maximize the potential we believe is inherent in the combination of
our business units, by:
. realizing both revenue opportunities and operational efficiencies through
cooperation among the different financial institutions in our group; and
. imposing integrated and disciplined risk management and compliance
systems on group operations.
Realize Benefits of Intra-Group Cooperation. We will seek to increase the
level of cross-selling of products and services among our various operations.
In particular,
. as of September 30, 2002, we established three joint branches for Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank to facilitate the
cross-selling of their products and services.
. we plan to establish approximately 35 joint branches for Bank of
Tokyo-Mitsubishi and Mitsubishi Securities by the end of 2003. We are
also considering establishing joint branches for Mitsubishi Trust Bank
and Mitsubishi Securities. We believe the joint branches will enable us
to reduce costs and better attract individual investors to our securities
brokerage services.
We believe that by implementing these strategic initiatives at a time when
many of our competitors are downsizing their domestic assets and pulling back
from international markets, we can build upon our already solid market position
to enhance our competitive position within Japan and enhance shareholder value.
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Recent Developments in Our Company
Formation of Mitsubishi Securities
On September 1, 2002, we completed the merger of our securities subsidiaries
and affiliates, KOKUSAI Securities Co., Ltd., Tokyo-Mitsubishi Securities Co.,
Ltd., Tokyo-Mitsubishi Personal Securities Co., Ltd. and Issei Securities Co.,
Ltd., to form Mitsubishi Securities Co., Ltd. We have transferred a portion of
Bank of Tokyo-Mitsubishi's derivatives, corporate advisory and securitization
operations to Mitsubishi Securities. We may transfer additional investment
banking and securities related operations from Bank of Tokyo-Mitsubishi to
Mitsubishi Securities. At the time of its formation, Mitsubishi Securities had
approximately 4,400 employees.
Following its formation, Mitsubishi Securities announced a "Retail Revival
Plan" that includes the formation of joint branches with Bank of
Tokyo-Mitsubishi and a broad review of its current branch network. Through
these measures, we aim to significantly reduce fixed costs and strengthen our
ability to generate profits. Through this "Retail Revival Plan," Mitsubishi
Securities intends to reduce its domestic branch network from 95 to 65-70
branches by March 2004. Approximately 35 of those branches will be operated as
joint branches with Bank of Tokyo-Mitsubishi.
In October 2002, Mitsubishi Securities increased its ownership in
Tokyo-Mitsubishi TD Waterhouse Securities Co., an on-line brokerage company
jointly set up by Bank of Tokyo-Mitsubishi and TD Waterhouse Group in March
2000, from 21.8% to 50.8%. Effective November 1, 2002, the on-line brokerage
company changed its name to Me Net Securities Co., Ltd.
Master Trust Bank of Japan
In May 2002, Mitsubishi Trust Bank transferred to Master Trust Bank of
Japan, Ltd. assets under management encompassing marketable securities held by
funds including pension trusts, specified money trusts and securities
investment trusts. Master Trust Bank of Japan is a trust bank which specializes
in asset administration. It was established in May 2000 by Mitsubishi Trust
Bank, Nippon Life, UFJ Trust Bank, Meiji Life and Deutsche Bank. In October
2002, UFJ Trust Bank also transferred a part of its assets under management to
Master Trust Bank of Japan, bringing the total assets under management to more
than (Yen)60 trillion.
Opening of Joint Branches
As of September 30, 2002, we have three joint branches shared by Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank. At these joint branches, Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank aim to cross-sell their products and
services. In addition, we plan to open approximately 35 joint branches shared
by Bank of Tokyo-Mitsubishi and Mitsubishi Securities by the end of 2003. At
the joint branches, Bank of Tokyo-Mitsubishi expects to accept deposits and
sell investment trusts, while Mitsubishi Securities expects to sell stocks and
bonds. We believe the joint branches will enable us to improve the efficiency
of our branch operations and better attract individual investors to our
products and services. In addition, we are currently developing advanced
automated teller machines that will allow customers to access both their bank
accounts and their brokerage accounts.
Establishment of Diamond Private Office
In June 2002, Bank of Tokyo-Mitsubishi, Mitsubishi Trust Bank, Meiji Life,
Tokio Marine and Fire Insurance Co., Ltd. and Mitsubishi Estate Co., Ltd.
jointly founded Diamond Private Office Co., Ltd., a wealth management
consulting firm. Diamond Private Office provides comprehensive financial
consulting, from investment management, business succession and asset
management to estate planning services for wealthy individuals.
Alliance with China Development Bank (CDB)
In August 2002, Bank of Tokyo-Mitsubishi entered into an alliance with China
Development Bank, a Chinese government affiliated financial institution.
Through the alliance, China Development Bank will focus on offering mid-term
and long-term loans in China, primarily to corporate customers establishing
operations in China who are recommended by Bank of Tokyo-Mitsubishi. Under the
alliance arrangement, the repayment of those loans will generally be guaranteed
by Bank of Tokyo-Mitsubishi.
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Dissolution of Diamond Mortgage
In February 2003, we resolved to dissolve our mortgage securities
subsidiary, The Diamond Mortgage Co., Ltd. due to the adverse business
environment for the mortgage securities business.
Recent Regulatory Developments
In recent months, the Financial Services Agency, the Bank of Japan and other
elements of the government of Japan have taken steps designed to restore
confidence in the Japanese financial system, address the asset quality problems
faced by many Japanese financial institutions, strengthen the capital base and
improve governance of major Japanese banks and bring greater stability to the
financial system. One of the goals announced in October 2002 is to reduce the
aggregate ratio of non-performing loans to total outstanding loans of major
banks by about half by March 31, 2005. The steps announced or taken by the
government include the following:
Tightening of Assessment of Assets
The Financial Services Agency has announced that it will provide for more
rigorous assessment of assets, as follows:
. With respect to major banks, reserves on impaired loans to large
borrowers that are classified as "need special attention" will be based
upon the estimated discounted cash flows of the impaired loans. Japanese
GAAP allows loan loss reserves for such loans to be accrued either based
on historical loan loss experience or projected future recoveries
discounted at the loan's original interest rate. Many major Japanese
banks record loan loss reserves for such loans based on historical loan
loss experience and the proposed change may affect their loan loss
reserve level. For Japanese GAAP purposes, we have elected to calculate
our loan loss reserves for these credits based on their estimated cash
flows, although the methodology we have employed for this purpose may
differ from the calculation methodology that is ultimately applied by the
Financial Services Agency. Our loan loss reserve for US GAAP purposes is
based on SFAS No. 114 "Accounting by Creditors for Impairment of a Loan"
and therefore we do not expect that our loan loss reserve will be
materially affected by this change in application of Japanese GAAP.
. The Financial Services Agency will implement a mechanism to harmonize the
major banks' classification of troubled large borrowers, through its
inspections beginning after January 2003.
. The accounting for debt-equity swaps is proposed to be based upon the
fair value of stock received in the swap, with respect to borrowers whose
stock is listed or otherwise easily valued, regardless of the timing or
ordering of the swap transaction. Our US GAAP accounting for debt-equity
swaps is already based upon the fair value of stock received in swap
transactions.
. The Financial Services Agency is examining the use of independent real
estate appraisers to appraise real estate held by banks as collateral,
beginning with collateral reflected in financial statements as of and for
the year ending March 31, 2003.
. The Financial Services Agency announced that it will conduct another
round of special inspections, reviewing banks' accounts, including those
of Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, by March 31, 2003.
These special inspections are intended, among other things, to uncover
deficiencies that may exist in the banks' self-assessment of problem
loans and related reserves.
Improvement of Capital Ratios
Deferred Tax Assets. Under Japanese banking regulations, all deferred tax
assets established pursuant to Japanese GAAP are included in regulatory
capital. The Financial Services Agency, noting that deferred tax
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assets, which are currently included in the calculation of Tier I capital, are
"a less solid component of capital," has announced that:
. It has requested major banks to assess rigorously and external auditors
to audit rigorously deferred tax assets.
. It has begun considering whether an upper limit should be imposed on the
amount of deferred tax assets that may be included in regulatory capital.
Request for Tax Law Changes. In November 2002, the Financial Services
Agency requested the Ministry of Finance and Cabinet Office to consider tax law
changes intended to improve the capital adequacy of financial institutions.
These changes would:
. allow banks to deduct as losses the amount of additional loan loss
reserves established as a result of borrowers being classified as "in
danger of bankruptcy" under Japanese banking laws or banks'
self-assessments under the supervision and inspection of the Financial
Services Agency and the amount of losses recognized, for accounting
purposes, in connection with a partial write-off of a loan;
. allow the "carry-back" of losses to obtain a refund of prior years'
taxes, which has been prohibited since April 1, 1992 and prior to that
was limited to one year; and
. increase the number of years that operating losses can be "carried
forward" and deducted against future income from the current limitation
of five years.
These proposed changes are controversial, may be reviewed for an extended
period of time and may not be adopted. These changes would require amendments
to tax laws and regulations.
Improvement of Governance
The Financial Services Agency announced in October 2002 that it:
. will review the standards and measures applicable in the prompt
corrective action system, which allows the Financial Services Agency to
require financial institutions to establish a self-assessment program to
assess their capital base using capital adequacy ratios; and
. will establish new methods to monitor indicators such as profitability
and liquidity to try to detect problems at banks at an earlier stage than
at present.
Although not currently applicable to us because we have no government-owned
shares, the Financial Services Agency has also announced that it intends:
. to improve the guidelines to convert the preferred shares that it holds
in a financial institution to common stock if it concludes that the
financial institution's business conditions have deteriorated
significantly and government control would be appropriate; and
. to issue administrative orders to financial institutions that submit
business improvement plans due to government ownership but fail to
achieve those business improvement plans.
Government Support of Distressed Financial Institutions
The Financial Services Agency has announced that, if a financial institution
falls into financial distress, and has inadequate capital to carry on its
business or faces similar prospects, and if it becomes necessary to avoid a
threat of a financial crisis, the Financial Services Agency will immediately
implement a "special support" framework in cooperation with the Bank of Japan,
and inject public funds under the Deposit Insurance Law and/or request the Bank
of Japan to extend emergency loans.
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The Financial Services Agency will obtain significant powers over the
management of a financial institution that receives "special support",
including the ability:
. to appoint inspectors to attend board of directors meetings and executive
committee meetings;
. to strongly urge management to clarify its responsibilities;
. to require such institution to divide its loan accounts into a "new
account" and a "revival account" for the purposes of properly monitoring
the ongoing business and historical problem loan portfolio; and
. to review business plans that the institutions that receive "special
support" submit to the Financial Services Agency. The "Task Force on
Financial Issues" established within the Financial Services Agency on
December 27, 2002 will advise troubled financial institutions as to
whether their plans are appropriate and will also advise the Financial
Services Agency on appropriate actions if a financial institution is
expected to remain unprofitable even after adopting management reforms.
If needed, the Japanese government will promptly inject public funds based
on the current Deposit Insurance Law. In addition, the Financial Services
Agency will review whether a new legislative framework should be established to
allow the Japanese government to invest new public funds into a financial
institution, in order to maintain stability in the Japanese financial system.
Improvement of Financial Services Agency Monitoring System
Monitoring Problem Loan Issues. The task force on financial issues will
also monitor the status of non-performing loan issues with the goal of
resolving such issues by March 31, 2005.
Protection of Small and Medium-sized Enterprises. The Financial Services
Agency also issued policy directives designed to prevent any marked
deterioration of the financing environment for small and medium-sized
enterprises. In particular, the Agency announced that:
. it will expedite the approval of banking licenses for new financial
institutions targeting loans to small and medium-sized enterprises,
. it has strengthened its monitoring system over financing to small and
medium-sized enterprises to prevent "unjustified 'credit withdrawal' and
other actions taken by financial institutions,"
. it has established "hotline" mechanisms to allow small and medium-sized
enterprises to report unjust withdrawal of credit by financial
institutions, and
. if serious problems are identified based on these "hotline" reports or
otherwise, it will take appropriate administrative measures, including
issuing administrative orders, requiring the institution to submit
reports and subjecting the institution to additional inspections.
Extension of Deposit Guarantee
On December 11, 2002, the Deposit Insurance Law and other related laws were
amended. Prior to the amendment, guarantees of liquid deposits, such as
ordinary deposits and current deposits, were set to be capped at (Yen)10
million per customer at any one bank, beginning April 1, 2003. Under the
amended deposit insurance system, the Deposit Insurance Corporation will
guarantee in full all current deposits, ordinary deposits and other specified
deposits until March 31, 2005. From April 1, 2005, all deposits will be subject
to the (Yen)10 million cap, which is currently applicable only to time
deposits, except for non-interest bearing deposits that are redeemable on
demand and used by depositors primarily for payment and settlement functions.
New Framework for Corporate Revival
Resolution and Collection Corporation. In accordance with a change in
regulation that became effective on January 11, 2002, the Resolution and
Collection Corporation has greater authority to purchase non-performing loans
at the loans' fair value. Previously, the Resolution and Collection Corporation
was required to consider the possibility of collection of principal and the
expenses relating to the collection of principal or disposal of loan assets in
determining the purchase price for loan assets. Under the new law, the
Resolution and Collection
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Corporation is able to purchase loan assets at a fair market value calculated
on a reasonable basis. The Financial Services Agency has also announced that
the Resolution and Collection Corporation will seek:
. to strengthen its corporate revival section;
. to play a role in facilitating the corporate restructuring of borrowers
capable of business revival;
. to work with other government-affiliated financial institutions to foster
a secondary market for loan assets in Japan; and
. to raise further financing and transfer a portion of its increasingly
large loan portfolio through asset securitizations and/or the issuance of
asset-backed securities.
Establishment of Industrial Revitalization Corp. The government plans to
newly establish an organization, tentatively named the Industrial
Revitalization Corp. The Industrial Revitalization Corp. will purchase from
financial institutions loans to borrowers that the Industrial Revitalization
Corp. believes have viable business plans. The organization is then expected to
assist the borrower in reorganizing its business and operations.
Bank of Japan to Acquire Shares from Banks. On October 11, 2002, the Policy
Board of the Bank of Japan issued guidelines for the Bank of Japan's purchase
of listed stocks from commercial banks whose aggregate value of stockholdings
exceed their Tier I capital. The Bank of Japan's guidelines contemplate that:
. it will acquire up to (Yen)2 trillion of stock from commercial banks'
portfolios, at prevailing market prices;
. it will only purchase stocks that meet minimum liquidity and issuer
credit quality standards and certain other requirements;
. purchases from a single bank will not exceed the lesser of (Yen)500
billion and the amount by which the market value of the bank's
stockholdings exceeds its Tier I capital;
. it will not acquire stock of any single issuer in excess of the lesser of
5.0% of that issuer's voting shares and value-based purchase limits set
by a matrix of annual trading volume and issuer credit quality; and
. it will not sell the acquired securities until after September 2007,
although it may sell shares back to the issuer at the higher of market
price or purchase price.
The Bank of Japan has adopted this policy for the purpose of assisting
commercial banks to reduce the size of their share portfolios without
materially adversely affecting prevailing market prices.
Recent Developments in Japanese Commercial Code
When the amendments to the Commercial Code of Japan become effective on
April 1, 2003, the following changes will occur:
. On and after April 1, 2003, any shareholder holding at least 300 voting
shares or 1% of the total number of voting shares for six months or
longer may propose a matter to be considered at a general meeting of
shareholders by submitting a written request to a representative director
at least eight weeks prior to the date of the meeting. Under the current
law, only six weeks prior notice is required.
. By amending our articles of incorporation, we may elect to allow a
shareholder who holds fractional shares to require us to sell to that
shareholder additional fractional shares to allow the shareholder to hold
one full share, unless we do not own any such fractional shares to meet
the shareholder's request.
. If we adopt the unit share system (tan-gen kabu), by amending our
articles of incorporation, we may allow a shareholder who holds a number
of shares that are less than a unit to require us to sell to that
shareholder its shares to allow the shareholder to hold one full unit,
unless we do not own any shares to meet the shareholder's request.
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. By amending our articles of incorporation, we may lower the quorum for a
special resolution of the general shareholders meeting to approve certain
specified corporate actions including, among other items, an amendment of
the articles of incorporation except in some limited cases, so long as it
is at least one-third of the outstanding voting rights.
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SELLING SHAREHOLDERS
The selling shareholders are our wholly owned subsidiaries, Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank. The address of the principal
executive office of Bank of Tokyo-Mitsubishi is 7-1, Marunouchi 2-chome,
Chiyoda-ku, Tokyo 100-8388 Japan. The address of the principal executive office
of Mitsubishi Trust Bank is 11-1, Nagatacho 2-chome, Chiyoda-ku, Tokyo,
100-8212 Japan. In connection with the stock-for-stock exchange transaction
forming Mitsubishi Tokyo Financial Group, Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank each received shares of our common stock in exchange for
shares held in each other.
The following table shows the current beneficial ownership of our common
stock by Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, and their
respective beneficial ownership as adjusted to reflect the issuance of new
shares by us and the sale of the common stock by Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank in the global offering.
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering After the Offering
------------------------ Number of -------------------------
Name Number Percentage/(1)/ Shares Offered Number Percentage
----------------------------- ------- -------------- -------------- ------ ----------
Bank of Tokyo-Mitsubishi/(2)/ 124,179 2.2% 124,179 0 --
Mitsubishi Trust Bank/(2)/... 30,848 0.5% 30,848 0 --
-------------
(1) The calculation of percentages is based on 5,742,468 shares of common stock
issued as of January 31, 2003, including shares of common stock held by us
and our subsidiaries, including the selling shareholders, as treasury stock.
(2) Excludes shares owned by subsidiaries of Bank of Tokyo-Mitsubishi and
Mitsubishi Trust Bank.
S-89
UNDERWRITING
Under the terms and subject to the conditions contained in the U.S.
underwriting agreement dated the date of this prospectus supplement, the U.S.
underwriters named below, for whom Morgan Stanley & Co. Incorporated and Nomura
Securities International, Inc. are acting as U.S. representatives, have
severally and not jointly agreed to purchase, and we and the selling
shareholders have agreed to sell to them, the number of shares set forth
opposite the names of the U.S. underwriters below:
Name of U.S. Underwriter Number of Shares
-------------------------------------------------- ----------------
Morgan Stanley & Co. Incorporated................. 27,880
Nomura Securities International, Inc.............. 27,880
Merrill Lynch, Pierce, Fenner & Smith Incorporated 5,440
UBS Warburg LLC................................... 4,080
Salomon Smith Barney Inc.......................... 1,360
Lehman Brothers Inc............................... 680
Deutsche Bank Securities Inc...................... 680
------
Total............................................. 68,000
======
Morgan Stanley & Co. Incorporated and Nomura Securities International, Inc.
are the joint bookrunners of the offering. As joint bookrunners on behalf of
the U.S. underwriting syndicate, Morgan Stanley & Co. Incorporated and Nomura
Securities International, Inc. will be responsible for recording a list of
potential investors that have expressed an interest in purchasing the shares or
ADSs as part of this offering. You may contact the representatives of the U.S.
underwriters for information on how to purchase common shares or ADSs in this
offering. You may contact Morgan Stanley & Co. Incorporated at 1585 Broadway,
New York, New York 10036 and Nomura Securities International, Inc. at 2 World
Financial Center, Building B, New York, New York 10281-1198.
The U.S. underwriters may elect to take delivery of all or a portion of the
shares purchased in the form of ADSs. The U.S. underwriters are offering the
ADSs and shares subject to their acceptance of the ADSs and shares from us and
the selling shareholders and subject to prior sale. The U.S. underwriting
agreement provides that the obligations of the several U.S. underwriters to pay
for and accept delivery of the ADSs and shares offered by this prospectus
supplement are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The U.S. underwriters are obligated to
take and pay for all of the ADSs and shares offered by this prospectus
supplement if any such ADSs or shares are taken. However, the U.S. underwriters
are not required to take or pay for the ADSs and shares covered by the U.S.
underwriters' overallotment option described below. If a U.S. underwriter
defaults, the U.S. underwriting agreement provides that the underwriting
commitments of the non-defaulting U.S. underwriters may be increased or the
U.S. underwriting agreement may be terminated.
We and the selling shareholders have also entered into an international
underwriting agreement with certain international managers. The international
underwriting agreement provides for the concurrent offering and sale by us and
the selling shareholders outside the United States, Japan and Canada of an
aggregate of 164,000 shares of common stock, all or a portion of which may be
represented by ADSs. Morgan Stanley & Co. International Limited and Nomura
International plc are the joint bookrunners of the international offering.
Further, we and the selling shareholders have entered into Japanese
underwriting agreements with certain Japanese underwriters. The Japanese
underwriting agreements provide for the concurrent offering and sale by us and
the selling shareholders in Japan of an aggregate of 343,027 shares of common
stock. Nomura Securities Co., Ltd. is the lead underwriter of the Japanese
offering. The closing for the sale of shares in the U.S. offering, the
international offering and the Japanese offering are conditioned on one
another. If the sale of shares in one of these offerings does not close, the
sale of the shares in the other offerings will not close unless the joint
global coordinators elect to waive the closing condition.
We and the selling shareholders have appointed Morgan Stanley & Co.
International Limited and Nomura Securities Co., Ltd. to act as joint global
coordinators in connection with the global offering. To provide for the
S-90
coordination of their activities, the U.S. underwriters, the international
managers and the Japanese underwriters have entered into an intersyndicate
agreement which provides, among other things, that sales may be made among the
U.S. underwriters, the international managers and the Japanese underwriters of
any number of ADSs or shares as may be mutually agreed. The price of an ADS so
sold shall be the public offering price listed on the cover page of this
prospectus supplement, in US dollars, less an amount not greater than the per
ADS amount of the concession to dealers set forth below. The per share price of
any shares so sold shall be the public offering price listed on the cover page
of this prospectus supplement, in Japanese yen, less an amount not greater than
the per share amount of the concession to dealers described below.
The U.S. representatives have advised us and the selling shareholders that
the U.S. underwriters initially propose to offer part of the ADSs and shares
directly to the public, subject to the limitations below, at the public
offering prices listed on the cover page of this prospectus supplement and part
to certain dealers at prices that represent a concession not in excess of
$0.0988 an ADS and (Yen)11,640 a share under the public offering price. Any
U.S. underwriter may allow, and such dealers may reallow, a concession not in
excess of $0.0988 an ADS and (Yen)11,640 a share to other U.S. underwriters or
to certain dealers. After the initial offering of the ADSs and shares, the
offering prices and other selling terms may from time to time be varied by the
U.S. representatives.
The purchase price for shares offered hereby and in the international and
Japanese offerings, as well as the commission we and the selling shareholders
must pay on each share, will be the same (subject to currency conversion).
We have granted the U.S. underwriters and the international managers
options, exercisable for three business days from the date of this prospectus
supplement, to purchase up to an additional 10,000 shares and 24,000 shares,
respectively, of our common stock, in the form of shares or ADSs, at the public
offering price set forth on the cover page of this prospectus supplement, less
underwriting discounts and commissions, solely for the purpose of covering any
over-allotments made in connection with the global offering. If any shares or
ADSs are purchased by the U.S. underwriters pursuant to these options, the U.S.
underwriters will severally purchase shares or ADSs in approximately the same
proportions set forth in the preceding table. In addition, we have granted the
representative of the Japanese underwriters an option, exercisable during the
period beginning on the fourth business day from the date of this prospectus
supplement and ending on March 24, 2003, to purchase up to an additional 50,000
shares of our common stock for the purpose of covering any over-allotments in
the Japanese offering. In connection with the Japanese offering, the Japanese
lead underwriter will enter into share borrowing arrangements for the purpose
of any over-allotment sales.
The following tables show the underwriting discounts and commissions to be
paid by us and by the selling shareholders to the U.S. underwriters:
If over-allotment If over-allotment
option is not option is exercised
Paid by Us exercised in full
------------------------- ----------------- -------------------
Per share of common stock (Yen)19,400 (Yen)19,400
Per ADS.................. $0.1646 $0.1646
Total at share price..... (Yen)970,000,000 (Yen)1,164,000,000
Total at ADS price....... $8,230,173 $9,876,208
Paid by the Selling Shareholders
-------------------------------- ----------------
Per share of common stock.... (Yen)19,400
Per ADS...................... $0.1646
Total at share price......... (Yen)349,200,000
Total at ADS price........... $2,962,862
The U.S. underwriting discount consists of the difference between the
amounts paid by the U.S. underwriters to purchase the ADSs and shares from us
and the offering price of the ADSs and shares to the public. The U.S.
underwriting discounts and commissions are 4.08% of the total gross amount of
the U.S. offering.
S-91
We estimate that the total expenses of the U.S. offering, excluding U.S.
underwriting discounts and commissions, will be approximately $2,891,500. The
expenses are payable by us and consist of the following:
. a Securities and Exchange Commission registration fee of $55,000,
. an National Association of Securities Dealers, Inc. filing fee of $30,500,
. a New York Stock Exchange listing fee of $273,000,
. estimated printing and engraving expenses of $450,000,
. estimated legal fees and expenses of $421,000,
. estimated accounting fees and expenses of $250,000,
. reimbursement of travel, advertising and other expenses of $83,000, and
. estimated miscellaneous fees and expenses of $1,329,000.
Our common stock is listed on the First Section of the Tokyo Stock Exchange
and the Osaka Securities Exchange in Japan. Our common stock is also listed on
the Official List of the UK Listing Authority and traded on the market for
listed securities on the London Stock Exchange in the United Kingdom. ADSs
representing our common stock are listed on the New York Stock Exchange under
the symbol "MTF".
This prospectus supplement may be used by the underwriters and other dealers
in connection with offers and sales of the shares and ADSs, including sales of
shares and ADSs initially sold by the underwriters in the offerings being made
outside of the United States, to persons located in the United States.
A prospectus in electronic format may be made available on the web sites
maintained by one or more underwriters. The underwriters may agree to allocate
a number of shares or ADSs to underwriters for sale to their online brokerage
account holders. Internet distributions will be allocated by the U.S.
representatives to underwriters that may make Internet distributions on the
same basis as other allocations.
We have agreed that, without the prior written consent of the joint global
coordinators, we will not, and will not permit any of our subsidiaries, or any
person acting on our behalf to, during the period ending 180 days after the
date hereof,
. offer, pledge, issue, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or ADSs or any
securities convertible into or exercisable or exchangeable for our shares
of common stock or ADSs or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of our
shares of common stock or ADSs,
whether any such transaction described in the clauses above is to be settled by
delivery of our shares of common stock or ADSs or such other securities, in
cash or otherwise. The restrictions described above do not apply to
. the ADSs and shares to be sold hereunder and under the international
underwriting agreement and the Japanese underwriting agreements,
. the shares of common stock held by us as a result of our purchase of
fractional shares of common stock upon request of any holders thereof,
. the shares of common stock held by us to be sold to the holders of
fractional shares of common stock upon request of any holders thereof,
. the shares of common stock to be transferred to exchange-traded funds,
S-92
. the units of exchange-traded funds to which the shares of common stock
are transferred,
. the shares of common stock to be sold to the special account of the
Banks' Shareholding Acquisition Corporation,
. the shares of common stock to be sold to the Bank of Japan in accordance
with the stock purchase guidelines,
. the shares of common stock held as collateral or received in satisfaction
of a loan of a borrower,
. the shares of common stock held in a trust account of a financial
institution conducting trust business, and
. the shares of common stock held or traded by an entity in its ordinary
course of business that is a securities company over which we exercise
control.
The U.S. underwriters, the international managers and the Japanese
underwriters are collectively referred to as the "underwriters" in this
paragraph. In order to facilitate the global offering of the ADSs and the
shares, the underwriters may engage in transactions that stabilize, maintain or
otherwise affect the price of our shares of common stock or ADSs, including
over-allotment, stabilizing and short-covering transactions in our shares of
common stock or ADSs, and the imposition of a penalty bid, for a limited period
during and after the global offering, in accordance with applicable laws and
regulations. An over-allotment, or short sale, involves the sale of more ADSs
or shares than the underwriters are obligated to purchase under the
underwriting agreements, creating a short position. The short sale is "covered"
if the short position is no greater than the number of ADSs or shares available
for purchase by the underwriters under the over-allotment option. The
underwriters can close out a covered short sale by exercising the
over-allotment option or purchasing ADSs or shares in the open market. In
determining the source of ADSs or shares to close out a covered short sale, the
underwriter will consider, among other things, the open market price of ADSs or
shares compared to the price available under the over-allotment option. The
underwriters may also sell ADSs or shares in excess of the over-allotment
option, creating a "naked" short position. The underwriters must close out any
naked short position by purchasing ADSs or shares in the open market. A naked
short position is more likely to be created if the underwriters are concerned
that there may be downward pressure on the price of the ADSs or shares in the
open market after pricing that could adversely affect investors who purchase in
the global offering. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or retarding a decline in the
market price of the ADSs or shares while the global offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a particular
underwriter or dealer repays to the underwriters a portion of the underwriting
discount and commission allowed to such underwriter or dealer because the
underwriters have repurchased ADSs or shares sold by or for the account of such
underwriter or dealer in stabilizing or short covering transactions. These
activities may raise or maintain the market price of the ADSs or shares above
independent market levels or prevent or retard a decline in the market price of
the ADSs or shares. As a result, the price of the ADSs or shares may be higher
than the price that otherwise might exist in the open market. The underwriters
are not required to engage in these activities, and if commenced, may end any
of these activities at any time. These activities may be effected on the Tokyo
Stock Exchange, the Osaka Securities Exchange, the London Stock Exchange, the
New York Stock Exchange, in the over-the-counter market or otherwise.
Our affiliate, Tokyo-Mitsubishi Securities (USA), Inc., a member of the U.S.
National Association of Securities Dealers, Inc., will participate in the U.S.
offering pursuant to the provisions of NASD Rule 2720.
We, the selling shareholders and the U.S. underwriters have agreed to
indemnify each other against various liabilities, including liabilities under
the Securities Act.
Some of the U.S. underwriters, the international managers and the Japanese
underwriters have in the past provided, and may in the future provide,
investment banking and underwriting services to us and our affiliates or the
selling shareholders and its affiliates for which they have received customary
compensation.
S-93
Selling Restrictions
Pursuant to the intersyndicate agreement, as part of the distribution of the
ADSs and shares and subject to certain exceptions, the U.S. underwriters, the
international managers and the Japanese underwriters have agreed that
. the U.S. underwriters will neither purchase, directly or indirectly, any
ADSs or shares for the account of any person or entity other than a
United States or Canadian Person, nor offer or sell, directly or
indirectly, any ADSs or shares or distribute any prospectus relating to
the ADSs or shares outside the United States or Canada or to any person
or entity other than a United States or Canadian Person,
. the international managers will neither purchase, directly or indirectly,
any shares or ADSs for the account of any United States, Canadian or
Japanese Person, nor offer or sell, directly or indirectly, any shares or
ADSs or distribute any prospectus relating to the shares or ADSs in the
United States, Canada or Japan or to any United States, Canadian or
Japanese Person, and
. the Japanese underwriters will neither purchase, directly or indirectly,
any shares or ADSs for the account of any person or entity other than a
Japanese Person, nor offer or sell, directly or indirectly, any shares or
ADSs or distribute any prospectus relating to the shares or ADSs outside
Japan or to any person or entity other than a Japanese Person.
"United States or Canadian Person" means any national or resident of the
United States or Canada, or any corporation, person, profit-sharing or other
trust or other entity organized under the laws of the United States or Canada
or of any political subdivision thereof but not including a branch located
outside the United States and Canada of any United States or Canadian Person,
and includes any United States or Canadian branch of a person who is otherwise
not a United States or Canadian Person.
"Japanese Person" means any national or resident of Japan, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of Japan or of any political subdivision thereof but not
including a branch located outside Japan of any Japanese Person.
The foregoing limitations do not apply to stabilization transactions or to
some other transactions specified in the intersyndicate agreement.
S-94
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison LLP, our U.S. counsel, will pass
upon certain legal matters and U.S. federal income tax matters. The address of
Paul, Weiss, Rifkind, Wharton & Garrison LLP is 1285 Avenue of the Americas,
New York, New York 10019-6064. Mori Hamada and Matsumoto, our Japanese counsel,
will pass upon the validity of the shares of common stock, certain legal
matters and Japanese tax matters. The address of Mori Hamada and Matsumoto is
NKK Building, 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005. Davis Polk &
Wardwell will pass upon certain U.S. legal matters for the underwriters.
Mitsui, Yasuda Wani & Maeda will pass upon certain Japanese legal matters for
the underwriters.
EXPERTS
The consolidated financial statements as of March 31, 2001 and 2002, and for
each of the three years in the period ended March 31, 2002 included in this
prospectus supplement and which also are incorporated by reference in the
registration statement and the accompanying prospectus from our Annual Report
on Form 20-F have been audited by Deloitte Touche Tohmatsu, independent
auditors, as stated in their report, which is included in this prospectus
supplement and also incorporated herein by reference (which report expresses an
unqualified opinion and includes an explanatory paragraph referring to the
change in method of accounting for derivative financial instruments and hedging
activities), and have been so included and incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
Deloitte Touche Tohmatsu's address is MS Shibaura Building, 13-23, Shibaura
4-chome, Minato-ku, Tokyo, 108-8530, Japan.
WHERE YOU CAN OBTAIN MORE INFORMATION
We file annual reports, special reports and other information with the SEC.
You may read and copy any document filed with the SEC at the SEC's public
reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices. Please call the SEC
at (800) SEC-0330 for further information on the public reference rooms. The
SEC also maintains a web site that contains reports, proxy and information
statements, and other information regarding registrants that file
electronically with the SEC (http://www.sec.gov).
We are currently exempt from the rules under the U.S. Securities Exchange
Act of 1934 that prescribe the furnishing and content of proxy statements, and
our officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16 of
the Exchange Act. We are not required under the Exchange Act to publish
financial statements as frequently or as promptly as are U.S. companies subject
to the Exchange Act. We will, however, continue to furnish our shareholders
with annual reports containing audited financial statements and will issue
interim press releases containing unaudited results of operations as well as
such other reports as may from time to time be authorized by our board of
directors or as may be otherwise required.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" in this prospectus
supplement some or all of the documents we file with the SEC. This means that
we can disclose important information to you by referring you to those
documents. The information in a document that is incorporated by reference is
considered to be a part of this prospectus supplement. We incorporate by
reference our Annual Report on Form 20-F for the fiscal year ended March 31,
2002, filed on August 12, 2002 and the form of underwriting agreement filed on
Form 6-K dated February 7, 2003. In addition, the description of common stock
and ADSs set forth in our predecessor's registration statement on Form 20-F,
dated June 30, 1989, registering the ADSs and common stock under the Exchange
Act, as the description has been amended by our Annual Report on Form 20-F
dated August 12, 2002, is incorporated by reference into this prospectus
supplement.
S-95
In addition, all documents that we file with the SEC on Forms 10-Q and 8-K
in the future pursuant to the Exchange Act, any future reports on Form 6-K that
indicate they are incorporated into this registration statement and any future
Annual Reports on Form 20-F, Form 40-F or Form 10-K after the date of this
prospectus supplement and prior to the termination of the offering shall be
deemed to be incorporated by reference in this prospectus supplement.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus supplement shall be deemed to be
modified or superseded for the purposes of this prospectus supplement to the
extent that a statement contained in this prospectus supplement or in any
subsequently filed document which also is or is deemed to be incorporated by
reference in this prospectus supplement modifies or supersedes that statement.
The modifying or superseding statement need not state that it has modified or
superseded a prior statement or include any other information set forth in the
document that it modifies or supersedes. The making of a modifying or
superseding statement shall not be deemed an admission for any purposes that
the modified or superseded statement, when made, constituted a
misrepresentation, an untrue statement of a material fact or an omission to
state a material fact that is required to be stated or that is necessary to
make a statement not misleading in light of the circumstances in which it was
made. Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus supplement.
We will provide you without charge upon written or oral request a copy of
any of the documents that are incorporated by reference in this prospectus
supplement, other than exhibits that are not specifically incorporated by
reference into this prospectus supplement. If you would like us to provide you
with any of these documents, please contact us at the following address or
telephone number: 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-6326, Japan,
Attention: Public Relations Office, telephone: 81-3-3240-8136.
Except as described above, no other information is incorporated by reference
in this prospectus supplement, including, without limitation, information on
our website.
LIMITATIONS ON ENFORCEMENT OF U.S. LAWS
We are a joint stock company incorporated in Japan. All of our directors,
corporate auditors and executive officers are residents of countries other than
the United States. As a result, you should note that it may be difficult or
impossible to serve legal process on us or our directors, corporate auditors
and executive officers, or to force us or them to appear in a U.S. court. Our
legal counsel in Japan has advised us that there is doubt as to the
enforceability in Japan, in original actions or in actions to enforce judgments
of U.S. courts, of civil liabilities based solely on U.S. securities laws. A
Japanese court may refuse to allow an original action based on U.S. securities
laws.
Our legal counsel has further advised that the United States and Japan do
not currently have a treaty providing for reciprocal recognition and
enforcement of judgments, other than arbitration awards, in civil and
commercial matters. Therefore, if you obtain a civil judgment by a U.S. court,
you will not necessarily be able to enforce it directly in Japan. Our agent for
service of process is The Bank of Tokyo-Mitsubishi, Ltd., Headquarters for the
Americas, located at 1251 Avenue of the Americas, New York, New York
10020-1104, Attention: Robert E. Hand, Esq., General Counsel and Director of
Public Affairs, Legal and Compliance Office for the Americas.
S-96
SELECTED STATISTICAL DATA
Due to close integration of our foreign and domestic activities, it is
difficult to make a precise determination of assets, liabilities, income and
expenses of our foreign operations. The foreign operations as presented include
the business conducted by overseas subsidiaries and branches, and the
international business conducted by the several international banking related
divisions headquartered in Japan. Our management believes that the results
appropriately represent our domestic and foreign activities.
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
Average Balance Sheets, Interest and Average Rates
The following table shows our average balances, interest and average
interest rates for the six months ended September 30, 2001 and 2002. Average
balances are generally based on a daily average while a month-end average is
used for certain average balances when it is not practicable to obtain
applicable daily averages. The average balances determined by such methods are
considered to be representative of our operations.
Six Months Ended September 30,
--------------------------------------------------------------------------------------
2001 2002
------------------------------------------- -----------------------------------------
Average Average rate Average Average rate
balance Interest (Annualized) balance Interest (Annualized)
--------------- -------------- ------------ --------------- ------------ ------------
(in millions, except percentages)
Assets:
Interest-earning assets:
Interest-earning deposits in other
banks................................ (Yen) 5,533,901 (Yen) 96,233 3.47% (Yen) 3,475,664 (Yen) 41,077 2.36%
Call loans, funds sold, and
receivables under resale agreements
and securities borrowing transactions 5,642,440 102,160 3.61 3,994,051 31,173 1.56
Trading account assets................. 3,903,514 7,844 0.40 4,444,002 4,706 0.21
Investment securities (see Note 1)..... 20,937,232 207,379 1.98 24,091,386 196,536 1.63
Loans (see Note 2)..................... 49,196,023 675,006 2.74 49,550,365 544,972 2.19
--------------- -------------- ---- --------------- ------------ ----
Total interest-earning assets.......... 85,213,110 1,088,622 2.55 85,555,468 818,464 1.91
--------------- -------------- ---- --------------- ------------ ----
Non-interest-earning assets:
Cash and due from banks................ 1,374,675 1,745,596
Other non-interest-earning assets...... 8,408,015 7,341,140
Allowance for credit losses............ (1,690,972) (1,701,469)
--------------- ---------------
Total non-interest-earning assets...... 8,091,718 7,385,267
--------------- ---------------
Total average assets.................... (Yen)93,304,828 (Yen)92,940,735
=============== ===============
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Deposits............................... (Yen)55,085,177 296,623 1.07 (Yen)58,325,956 130,277 0.45
Debentures............................. 3,223,235 11,834 0.73 1,787,337 5,657 0.63
Call money, funds purchased, and
payables under repurchase agreements
and securities lending transactions.. 8,702,063 116,534 2.67 8,293,538 53,949 1.30
Due to trust account, other short-term
borrowings and trading account
liabilities.......................... 6,870,397 25,963 0.75 5,137,591 18,928 0.73
Long-term debt......................... 5,076,841 96,563 3.79 4,994,319 76,937 3.07
--------------- -------------- ---- --------------- ------------ ----
Total interest-bearing liabilities..... 78,957,713 547,517 1.38 78,538,741 285,748 0.73
--------------- -------------- ---- --------------- ------------ ----
Non-interest-bearing liabilities....... 11,317,767 11,867,828
--------------- ---------------
Shareholders' equity................... 3,029,348 2,534,166
--------------- ---------------
Total average liabilities and
shareholders' equity................. (Yen)93,304,828 (Yen)92,940,735
=============== ===============
Net interest income and average
interest rate spread................. (Yen) 541,105 1.17% (Yen)532,716 1.18%
============== ==== ============ ====
Net interest income as a percentage of
total average interest-earning assets 1.27% 1.24%
==== ====
--------
Notes:
1. Tax-exempt income of tax-exempt investment securities has not been
calculated on a tax equivalent basis because the effect of such calculation
would not be material.
2. Average balances of loans include nonaccrual and restructured loans. See
"--III. Loan Portfolio." The amortized portion of net loan origination fees
(costs) is included in interest income on loans, representing an adjustment
to the yields with insignificant effect.
A-1
The following table shows our average balances, interest and average
interest rates for the last three fiscal years. Average balances are generally
based on a daily average while a month-end average is used for certain average
balances when it is not practicable to obtain applicable daily averages. The
average balances determined by such methods are considered to be representative
of our operations.
Years Ended March 31,
-------------------------------------------------------------------------------
2000 2001
-------------------------------------- --------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
--------------- -------------- ------- --------------- -------------- -------
(in millions, except percentages)
Assets:
Interest-earning assets:
Interest-earning deposits in
other banks:
Domestic...................... (Yen) 284,958 (Yen) 7,223 2.53% (Yen) 402,084 (Yen) 14,013 3.49%
Foreign....................... 3,986,517 129,107 3.24 5,275,074 222,613 4.22
--------------- -------------- --------------- --------------
Total........................ 4,271,475 136,330 3.19 5,677,158 236,626 4.17
--------------- -------------- --------------- --------------
Call loans, funds sold, and
receivables under resale
agreements and securities
borrowing transactions:
Domestic...................... 2,152,650 7,923 0.37 2,473,617 11,454 0.46
Foreign....................... 1,856,035 111,447 6.00 2,620,118 173,050 6.60
--------------- -------------- --------------- --------------
Total........................ 4,008,685 119,370 2.98 5,093,735 184,504 3.62
--------------- -------------- --------------- --------------
Trading account assets:
Domestic...................... 2,157,629 7,010 0.32 2,676,732 12,541 0.47
Foreign....................... 625,533 8,696 1.39 607,061 4,413 0.73
--------------- -------------- --------------- --------------
Total........................ 2,783,162 15,706 0.56 3,283,793 16,954 0.52
--------------- -------------- --------------- --------------
Investment securities (see Note 1):
Domestic...................... 15,813,885 164,655 1.04 15,684,644 128,838 0.82
Foreign....................... 3,974,410 235,511 5.93 4,090,733 239,843 5.86
--------------- -------------- --------------- --------------
Total........................ 19,788,295 400,166 2.02 19,775,377 368,681 1.86
--------------- -------------- --------------- --------------
Loans (see Note 2):
Domestic...................... 41,942,695 780,633 1.86 39,938,817 748,113 1.87
Foreign....................... 10,371,711 713,438 6.88 9,627,502 728,096 7.56
--------------- -------------- --------------- --------------
Total........................ 52,314,406 1,494,071 2.86 49,566,319 1,476,209 2.98
--------------- -------------- --------------- --------------
Total interest-earning assets:
Domestic...................... 62,351,817 967,444 1.55 61,175,894 914,959 1.50
Foreign....................... 20,814,206 1,198,199 5.76 22,220,488 1,368,015 6.16
--------------- -------------- --------------- --------------
Total........................ 83,166,023 2,165,643 2.60 83,396,382 2,282,974 2.74
--------------- -------------- --------------- --------------
Non-interest-earning assets:
Cash and due from banks........ 1,362,465 1,272,323
Other non-interest-earning
assets........................ 3,911,447 6,152,635
Allowance for credit losses.... (1,819,290) (1,479,857)
--------------- ---------------
Total non-interest-
earning assets.............. 3,454,622 5,945,101
--------------- ---------------
Total average assets............. (Yen)86,620,645 (Yen)89,341,483
=============== ===============
Years Ended March 31
--------------------------------------
2002
--------------------------------------
Average Average
balance Interest rate
--------------- -------------- -------
Assets:
Interest-earning assets:
Interest-earning deposits in
other banks:
Domestic...................... (Yen) 472,188 (Yen) 8,690 1.84%
Foreign....................... 4,862,738 151,094 3.11
--------------- --------------
Total........................ 5,334,926 159,784 3.00
--------------- --------------
Call loans, funds sold, and
receivables under resale
agreements and securities
borrowing transactions:
Domestic...................... 2,008,863 6,341 0.32
Foreign....................... 2,895,879 159,478 5.51
--------------- --------------
Total........................ 4,904,742 165,819 3.38
--------------- --------------
Trading account assets:
Domestic...................... 3,165,218 11,525 0.36
Foreign....................... 720,614 3,619 0.50
--------------- --------------
Total........................ 3,885,832 15,144 0.39
--------------- --------------
Investment securities (see Note 1):
Domestic...................... 16,142,601 128,352 0.80
Foreign....................... 5,794,882 271,041 4.68
--------------- --------------
Total........................ 21,937,483 399,393 1.82
--------------- --------------
Loans (see Note 2):
Domestic...................... 38,035,043 661,904 1.74
Foreign....................... 11,094,350 614,917 5.54
--------------- --------------
Total........................ 49,129,393 1,276,821 2.60
--------------- --------------
Total interest-earning assets:
Domestic...................... 59,823,913 816,812 1.37
Foreign....................... 25,368,463 1,200,149 4.73
--------------- --------------
Total........................ 85,192,376 2,016,961 2.37
--------------- --------------
Non-interest-earning assets:
Cash and due from banks........ 1,487,867
Other non-interest-earning
assets........................ 7,423,316
Allowance for credit losses.... (1,727,559)
---------------
Total non-interest-
earning assets.............. 7,183,624
---------------
Total average assets............. (Yen)92,376,000
===============
--------
Notes:
1. Tax-exempt income of tax-exempt investment securities has not been
calculated on a tax equivalent basis because the effect of such calculation
would not be material.
2. Average balances of loans include nonaccrual and restructured loans. See
"--III. Loan Portfolio." The amortized portion of net loan origination fees
(costs) is included in interest income on loans, representing an adjustment
to the yields with insignificant effect.
A-2
Years Ended March 31,
-----------------------------------------------------------------------------
2000 2001
------------------------------------- -------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
--------------- -------------- ------- --------------- -------------- -------
(in millions, except percentages)
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Deposits:
Domestic............................. (Yen)41,147,676 (Yen) 209,104 0.51% (Yen)41,178,462 (Yen) 245,180 0.60%
Foreign.............................. 11,244,201 391,003 3.48 11,552,974 529,332 4.58
--------------- -------------- --------------- --------------
Total............................... 52,391,877 600,107 1.15 52,731,436 774,512 1.47
--------------- -------------- --------------- --------------
Debentures--Domestic................... 4,931,852 51,718 1.05 3,915,720 32,285 0.82
--------------- -------------- --------------- --------------
Call money, funds purchased, and
payables under repurchase agreements
and securities lending transactions:
Domestic............................. 2,756,197 13,014 0.47 4,074,516 66,475 1.63
Foreign.............................. 2,392,563 112,443 4.70 3,127,256 194,210 6.21
--------------- -------------- --------------- --------------
Total............................... 5,148,760 125,457 2.44 7,201,772 260,685 3.62
--------------- -------------- --------------- --------------
Due to trust account-- Domestic........ 4,181,966 32,413 0.78 4,023,941 27,825 0.69
--------------- -------------- --------------- --------------
Other short-term borrowings and
trading account liabilities:
Domestic............................. 2,738,601 41,590 1.52 2,125,283 18,173 0.86
Foreign.............................. 849,927 42,759 5.03 874,676 19,057 2.18
--------------- -------------- --------------- --------------
Total............................... 3,588,528 84,349 2.35 2,999,959 37,230 1.24
--------------- -------------- --------------- --------------
Long-term debt:
Domestic............................. 1,904,487 69,810 3.67 2,730,602 91,182 3.34
Foreign.............................. 2,418,698 122,272 5.06 2,146,354 86,899 4.05
--------------- -------------- --------------- --------------
Total............................... 4,323,185 192,082 4.44 4,876,956 178,081 3.65
--------------- -------------- --------------- --------------
Total interest-bearing liabilities:
Domestic............................. 57,660,779 417,649 0.72 58,048,524 481,120 0.83
Foreign.............................. 16,905,389 668,477 3.95 17,701,260 829,498 4.69
--------------- -------------- --------------- --------------
Total............................... 74,566,168 1,086,126 1.46 75,749,784 1,310,618 1.73
--------------- -------------- --------------- --------------
Non-interest-bearing liabilities........ 8,454,881 10,127,448
--------------- ---------------
Shareholders' equity.................... 3,599,596 3,464,251
--------------- ---------------
Total average liabilities and
shareholders' equity................... (Yen)86,620,645 (Yen)89,341,483
=============== ===============
Net interest income and average
interest rate spread................... (Yen)1,079,517 1.14% (Yen) 972,356 1.01%
============== ==== ============== ====
Net interest income as a percentage of
total average interest-earning assets.. 1.30% 1.17%
==== ====
Years Ended March 31,
-------------------------------------
2002
-------------------------------------
Average Average
balance Interest rate
--------------- -------------- -------
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Deposits:
Domestic............................. (Yen)44,807,025 (Yen) 157,484 0.35%
Foreign.............................. 10,982,859 328,159 2.99
--------------- --------------
Total............................... 55,789,884 485,643 0.87
--------------- --------------
Debentures--Domestic................... 2,931,103 20,491 0.70
--------------- --------------
Call money, funds purchased, and
payables under repurchase agreements
and securities lending transactions:
Domestic............................. 5,392,511 23,944 0.44
Foreign.............................. 3,603,909 176,396 4.89
--------------- --------------
Total............................... 8,996,420 200,340 2.23
--------------- --------------
Due to trust account-- Domestic........ 2,940,975 16,683 0.57
--------------- --------------
Other short-term borrowings and
trading account liabilities:
Domestic............................. 2,071,577 15,784 0.76
Foreign.............................. 1,001,886 30,783 3.07
--------------- --------------
Total............................... 3,073,463 46,567 1.52
--------------- --------------
Long-term debt:
Domestic............................. 3,007,228 89,028 2.96
Foreign.............................. 2,010,632 80,311 3.99
--------------- --------------
Total............................... 5,017,860 169,339 3.37
--------------- --------------
Total interest-bearing liabilities:
Domestic............................. 61,150,419 323,414 0.53
Foreign.............................. 17,599,286 615,649 3.50
--------------- --------------
Total............................... 78,749,705 939,063 1.19
--------------- --------------
Non-interest-bearing liabilities........ 10,580,687
---------------
Shareholders' equity.................... 3,045,608
---------------
Total average liabilities and
shareholders' equity................... (Yen)92,376,000
===============
Net interest income and average
interest rate spread................... (Yen)1,077,898 1.18%
============== ====
Net interest income as a percentage of
total average interest-earning assets.. 1.27%
====
The percentage of total average assets attributable to foreign activities
was 26.3%, 28.7% and 33.6%, respectively, in the fiscal years ended March 31,
2000, 2001 and 2002.
The percentage of total average liabilities attributable to foreign
activities was 27.5%, 29.9% and 33.9% in the fiscal years ended March 31, 2000,
2001 and 2002.
A-3
Analysis of Net Interest Income
The following table shows changes in our net interest income between changes
in volume and changes in rate for the six months ended September 30, 2001
compared to the six months ended September 30, 2002:
Six Months Ended September 30, 2001
versus Six Months Ended September 30, 2002
--------------------------------------------------------
Increase (decrease)
due to changes in
-------------------------------------
Volume Rate Net Change
----------------- ------------------ -----------------
(in millions)
Interest income:
Interest-earning deposits in other banks..................... (Yen)(32,966) (Yen)(22,190) (Yen)(55,156)
Call loans, funds sold, and receivables under resale
agreements and securities borrowing transactions........... (9,072) (61,915) (70,987)
Trading account assets....................................... 428 (3,566) (3,138)
Investment securities (see Note 2)........................... 33,348 (44,191) (10,843)
Loans........................................................ (109) (129,925) (130,034)
----------------- ------------------ -----------------
Total interest income........................................ (Yen) (8,371) (Yen) (261,787) (Yen) (270,158)
================= ================== =================
Interest expense:
Deposits..................................................... (Yen)(26,227) (Yen)(140,119) (Yen) (166,346)
Debentures................................................... (5,151) (1,026) (6,177)
Call money, funds purchased, and payables under
repurchase agreements and securities lending
transactions............................................... (19) (62,566) (62,585)
Due to trust account, other short-term borrowings and trading
account liabilities........................................ (8,343) 1,308 (7,035)
Long-term debt............................................... (4,691) (14,935) (19,626)
----------------- ------------------ -----------------
Total interest expense....................................... (Yen) (44,431) (Yen) (217,338) (Yen) (261,769)
================= ================== =================
Net interest income.......................................... (Yen) 36,060 (Yen) (44,449) (Yen) (8,389)
================= ================== =================
--------
Notes:
1. Rate/volume variance is allocated based on the percentage relationship of
changes in volume and changes in rate to the total "net change."
2. Tax-exempt income of tax-exempt investment securities has not been
calculated on a tax equivalent basis because the effect of such calculation
would not be material.
A-4
The following table shows changes in our net interest income between changes
in volume and changes in rate for the fiscal year ended March 31, 2000 compared
to the fiscal year ended March 31, 2001 and the fiscal year ended March 31,
2001 compared to the fiscal year ended March 31, 2002.
Year Ended March 31, 2000 versus Year Year Ended March 31, 2001 versus Year
Ended March 31, 2001 Ended March 31, 2002
---------------------------------------- ------------------------------------------
Increase (decrease) Increase (decrease)
due to changes in due to changes in
-------------------------- ---------------------------
Volume Rate Net change Volume Rate Net change
------------ ------------ ------------ ------------ ------------- -------------
(in millions)
Interest income:
Interest-earning deposits in other
banks:
Domestic........................ (Yen) 3,551 (Yen) 3,239 (Yen) 6,790 (Yen) 1,290 (Yen) (6,613) (Yen) (5,323)
Foreign......................... 48,258 45,248 93,506 (13,690) (57,829) (71,519)
------------ ------------ ------------ ------------ ------------- -------------
Total....................... 51,809 48,487 100,296 (12,400) (64,442) (76,842)
------------ ------------ ------------ ------------ ------------- -------------
Call loans, funds sold, and
receivables under resale
agreements and securities
borrowing transactions:
Domestic........................ 1,293 2,238 3,531 (1,694) (3,419) (5,113)
Foreign......................... 49,569 12,034 61,603 15,186 (28,758) (13,572)
------------ ------------ ------------ ------------ ------------- -------------
Total....................... 50,862 14,272 65,134 13,492 (32,177) (18,685)
------------ ------------ ------------ ------------ ------------- -------------
Trading account assets:
Domestic........................ 1,949 3,582 5,531 1,779 (2,795) (1,016)
Foreign......................... (138) (4,145) (4,283) 570 (1,364) (794)
------------ ------------ ------------ ------------ ------------- -------------
Total....................... 1,811 (563) 1,248 2,349 (4,159) (1,810)
------------ ------------ ------------ ------------ ------------- -------------
Investment securities (see Note 2):
Domestic........................ (1,070) (34,747) (35,817) 3,641 (4,127) (486)
Foreign......................... 6,820 (2,488) 4,332 79,707 (48,509) 31,198
------------ ------------ ------------ ------------ ------------- -------------
Total....................... 5,750 (37,235) (31,485) 83,348 (52,636) 30,712
------------ ------------ ------------ ------------ ------------- -------------
Loans:
Domestic........................ (37,296) 4,776 (32,520) (34,132) (52,077) (86,209)
Foreign......................... (51,192) 65,850 14,658 81,302 (194,481) (113,179)
------------ ------------ ------------ ------------ ------------- -------------
Total....................... (88,488) 70,626 (17,862) 47,170 (246,558) (199,388)
------------ ------------ ------------ ------------ ------------- -------------
Total interest income:
Domestic........................ (31,573) (20,912) (52,485) (29,116) (69,031) (98,147)
Foreign......................... 53,317 116,499 169,816 163,075 (330,941) (167,866)
------------ ------------ ------------ ------------ ------------- -------------
Total....................... (Yen) 21,744 (Yen) 95,587 (Yen)117,331 (Yen)133,959 (Yen)(399,972) (Yen)(266,013)
============ ============ ============ ============ ============= =============
--------
Notes:
1. Rate/volume variance is allocated based on the percentage relationship of
changes in volume and changes in rate to the total "net change."
2. Tax-exempt income of tax-exempt investment securities has not been
calculated on a tax equivalent basis because the effect of such calculation
would not be material.
A-5
Year Ended March 31, 2000 versus Year Year Ended March 31, 2001 versus Year
Ended March 31, 2001 Ended March 31, 2002
----------------------------------------- ------------------------------------------
Increase (decrease) Increase (decrease)
due to changes in due to changes in
-------------------------- ---------------------------
Volume Rate Net change Volume Rate Net change
------------ ------------ ------------- ------------ ------------- -------------
(in millions)
Interest expense:
Deposits:
Domestic.................... (Yen) 157 (Yen) 35,919 (Yen) 36,076 (Yen) 12,753 (Yen)(100,449) (Yen) (87,696)
Foreign..................... 11,009 127,320 138,329 (17,840) (183,333) (201,173)
------------ ------------ ------------- ------------ ------------- -------------
Total................... 11,166 163,239 174,405 (5,087) (283,782) (288,869)
------------ ------------ ------------- ------------ ------------- -------------
Debentures--Domestic........... (9,490) (9,943) (19,433) (7,688) (4,106) (11,794)
------------ ------------ ------------- ------------ ------------- -------------
Call money, funds purchased,
and payables under
repurchase agreements and
securities lending
transactions:
Domestic.................... 8,717 44,744 53,461 5,852 (48,383) (42,531)
Foreign..................... 39,951 41,816 81,767 23,330 (41,144) (17,814)
------------ ------------ ------------- ------------ ------------- -------------
Total................... 48,668 86,560 135,228 29,182 (89,527) (60,345)
------------ ------------ ------------- ------------ ------------- -------------
Due to trust
account--Domestic............ (1,125) (3,463) (4,588) (6,987) (4,155) (11,142)
------------ ------------ ------------- ------------ ------------- -------------
Other short-term borrowings and
trading account liabilities:
Domestic.................... (6,348) (17,069) (23,417) (418) (1,971) (2,389)
Foreign..................... 539 (24,241) (23,702) 3,069 8,657 11,726
------------ ------------ ------------- ------------ ------------- -------------
Total................... (5,809) (41,310) (47,119) 2,651 6,686 9,337
------------ ------------ ------------- ------------ ------------- -------------
Long-term debt:
Domestic.................... 27,586 (6,214) 21,372 8,189 (10,343) (2,154)
Foreign..................... (11,953) (23,420) (35,373) (5,483) (1,105) (6,588)
------------ ------------ ------------- ------------ ------------- -------------
Total................... 15,633 (29,634) (14,001) 2,706 (11,448) (8,742)
------------ ------------ ------------- ------------ ------------- -------------
Total interest expense:
Domestic.................... 19,497 43,974 63,471 11,701 (169,407) (157,706)
Foreign..................... 39,546 121,475 161,021 3,076 (216,925) (213,849)
------------ ------------ ------------- ------------ ------------- -------------
Total................... (Yen) 59,043 (Yen)165,449 (Yen) 224,492 (Yen) 14,777 (Yen)(386,332) (Yen)(371,555)
============ ============ ============= ============ ============= =============
Net interest income:
Domestic.................... (Yen)(51,070) (Yen)(64,886) (Yen)(115,956) (Yen)(40,817) (Yen) 100,376 (Yen) 59,559
Foreign..................... 13,771 (4,976) 8,795 159,999 (114,016) 45,983
------------ ------------ ------------- ------------ ------------- -------------
Total................... (Yen)(37,299) (Yen)(69,862) (Yen)(107,161) (Yen)119,182 (Yen) (13,640) (Yen) 105,542
============ ============ ============= ============ ============= =============
--------
Note--Rate/volume variance is allocated based on the percentage relationship of
changes in volume and changes in rate to the total "net change."
A-6
II. Investment Portfolio
The following table shows information as to the value of our investment
securities available for sale and being held to maturity at March 31, 2002 and
September 30, 2002:
At March 31, 2002 At September 30, 2002
---------------------------------------------- ----------------------------------------------
Net Net
Amortized Estimated unrealized Amortized Estimated unrealized
cost fair value gains cost fair value gains
--------------- --------------- -------------- --------------- --------------- --------------
(in millions)
Securities available for sale:
Debt securities, principally
Japanese government bonds and
corporate bonds................. (Yen)17,478,446 (Yen)17,794,325 (Yen) 315,879 (Yen)18,659,112 (Yen)18,912,886 (Yen) 253,774
Equity securities................. 3,877,975 5,488,491 1,610,516 3,368,904 4,481,764 1,112,860
--------------- --------------- -------------- --------------- --------------- --------------
Total securities available for
sale............................ 21,356,421 23,282,816 1,926,395 22,028,016 23,394,650 1,366,634
--------------- --------------- -------------- --------------- --------------- --------------
Debt securities being held to
maturity, principally Japanese
prefectural and official
institutions bonds................ 272,163 284,724 12,561 242,168 255,271 13,103
--------------- --------------- -------------- --------------- --------------- --------------
Total............................. (Yen)21,628,584 (Yen)23,567,540 (Yen)1,938,956 (Yen)22,270,184 (Yen)23,649,921 (Yen)1,379,737
=============== =============== ============== =============== =============== ==============
Investment securities other than available for sale or being held to
maturity (i.e., nonmarketable equity securities presented in Other investment
securities) were carried at cost of (Yen)129,498 million and
(Yen)138,289 million, at March 31, 2002 and September 30, 2002, respectively.
The corresponding estimated fair values at those dates were not readily
determinable.
A-7
The following table shows information as to the value of our investment
securities available for sale and being held to maturity at March 31, 2000,
2001 and 2002.
At March 31,
----------------------------------------------------------------------------------------------
2000 2001
---------------------------------------------- ----------------------------------------------
Net
Estimated unrealized Estimated Net
Amortized market gains Amortized market unrealized
cost value (losses) cost value gains
--------------- --------------- -------------- --------------- --------------- --------------
(in millions)
Securities available
for sale:
Domestic:
Japanese national
government and
Japanese
government
agency bonds...... (Yen) 5,211,110 (Yen) 5,241,473 (Yen) 30,363 (Yen) 7,940,554 (Yen) 8,018,687 (Yen) 78,133
Corporate bonds.... 1,099,260 1,294,239 194,979 1,263,076 1,283,096 20,020
Marketable equity
securities........ 4,238,216 7,666,605 3,428,389 4,145,826 6,483,719 2,337,893
Other securities... 505,341 518,236 12,895 459,380 469,988 10,608
--------------- --------------- -------------- --------------- --------------- --------------
Total domestic.... 11,053,927 14,720,553 3,666,626 13,808,836 16,255,490 2,446,654
--------------- --------------- -------------- --------------- --------------- --------------
Foreign:
U.S. Treasury and
other U.S.
government
agencies bonds.... 488,368 479,869 (8,499) 723,624 738,957 15,333
Other governments
and official
institutions
bonds............. 787,631 788,037 406 1,131,873 1,153,331 21,458
Mortgage-backed
securities........ 1,071,523 1,056,743 (14,780) 2,110,821 2,135,756 24,935
Other securities... 596,444 626,969 30,525 1,403,352 1,447,381 44,029
--------------- --------------- -------------- --------------- --------------- --------------
Total foreign..... 2,943,966 2,951,618 7,652 5,369,670 5,475,425 105,755
--------------- --------------- -------------- --------------- --------------- --------------
Total............ (Yen)13,997,893 (Yen)17,672,171 (Yen)3,674,278 (Yen)19,178,506 (Yen)21,730,915 (Yen)2,552,409
=============== =============== ============== =============== =============== ==============
Securities being held
to maturity:
Domestic:
Japanese national
government and
Japanese
government
agency bonds...... (Yen) 120,536 (Yen) 120,617 (Yen) 81 (Yen) 114,489 (Yen) 120,118 (Yen) 5,629
Corporate bonds.... 206,790 210,492 3,702 -- -- --
Other securities... 87,062 87,062 -- 116,773 122,482 5,709
--------------- --------------- -------------- --------------- --------------- --------------
Total domestic.... 414,388 418,171 3,783 231,262 242,600 11,338
--------------- --------------- -------------- --------------- --------------- --------------
Foreign:
U.S. Treasury and
other U.S.
government
agencies bonds.... 9,395 9,919 524 4,301 4,320 19
Other governments
and official
institutions
bonds............. 140,860 141,592 732 68,168 71,441 3,273
Other securities... 114,403 115,561 1,158 2,476 2,566 90
--------------- --------------- -------------- --------------- --------------- --------------
Total foreign..... 264,658 267,072 2,414 74,945 78,327 3,382
--------------- --------------- -------------- --------------- --------------- --------------
Total............ (Yen) 679,046 (Yen) 685,243 (Yen) 6,197 (Yen) 306,207 (Yen) 320,927 (Yen) 14,720
=============== =============== ============== =============== =============== ==============
At March 31,
----------------------------------------------
2002
----------------------------------------------
Estimated Net
Amortized market unrealized
cost value gains
--------------- --------------- --------------
Securities available
for sale:
Domestic:
Japanese national
government and
Japanese
government
agency bonds...... (Yen) 9,887,613 (Yen) 9,951,250 (Yen) 63,637
Corporate bonds.... 1,341,079 1,353,028 11,949
Marketable equity
securities........ 3,695,451 5,279,562 1,584,111
Other securities... 844,695 854,358 9,663
--------------- --------------- --------------
Total domestic.... 15,768,838 17,438,198 1,669,360
--------------- --------------- --------------
Foreign:
U.S. Treasury and
other U.S.
government
agencies bonds.... 1,007,414 1,031,942 24,528
Other governments
and official
institutions
bonds............. 1,753,882 1,790,712 36,830
Mortgage-backed
securities........ 1,455,274 1,523,026 67,752
Other securities... 1,371,013 1,498,938 127,925
--------------- --------------- --------------
Total foreign..... 5,587,583 5,844,618 257,035
--------------- --------------- --------------
Total............ (Yen)21,356,421 (Yen)23,282,816 (Yen)1,926,395
=============== =============== ==============
Securities being held
to maturity:
Domestic:
Japanese national
government and
Japanese
government
agency bonds...... (Yen) 89,945 (Yen) 94,266 (Yen) 4,321
Corporate bonds.... -- -- --
Other securities... 107,544 112,296 4,752
--------------- --------------- --------------
Total domestic.... 197,489 206,562 9,073
--------------- --------------- --------------
Foreign:
U.S. Treasury and
other U.S.
government
agencies bonds.... -- -- --
Other governments
and official
institutions
bonds............. 69,529 72,822 3,293
Other securities... 5,145 5,340 195
--------------- --------------- --------------
Total foreign..... 74,674 78,162 3,488
--------------- --------------- --------------
Total............ (Yen) 272,163 (Yen) 284,724 (Yen) 12,561
=============== =============== ==============
A-8
Investment securities other than available for sale or being held to
maturity (i.e., nonmarketable equity securities, presented in Other investment
securities in the consolidated financial statements) were carried at costs of
(Yen)175,233 million, (Yen)168,547 million and (Yen)129,498 million, at March
31, 2000, 2001 and 2002, respectively. The corresponding estimated fair values
at those dates were not readily determinable.
The following table presents the book values, maturities and weighted
average yields of investment securities available for sale and being held to
maturity, excluding equity securities, at March 31, 2002. Weighted average
yields are calculated based on amortized cost. Yields on tax-exempt obligations
have not been calculated on a tax equivalent basis because the effect of such
calculation would not be material.
Maturities Maturities
after one year after five years Maturities
Maturities within but within but within after
one year five years ten years ten years
------------------- ------------------- ------------------- ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------------- ----- -------------- ----- -------------- ----- ------------- -----
(in millions, except percentages)
Securities available for sale:
Domestic:
Japanese national government
and Japanese government
agency bonds............... (Yen)3,758,056 0.12% (Yen)5,217,644 1.07% (Yen) 975,550 1.56% (Yen)-- --%
Corporate bonds.............. 186,423 2.43 1,100,046 1.64 63,773 2.35 2,786 1.47
Other securities............. 9,405 4.80 630,224 2.07 142,338 1.92 72,391 0.55
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Total domestic............. 3,953,884 0.24 6,947,914 1.25 1,181,661 1.65 75,177 0.58
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Foreign:
U.S. Treasury and other U.S.
government Agencies........ 79,649 2.39 707,550 4.84 172,213 5.14 72,530 6.09
Other governments and
official institutions...... 267,153 4.06 1,088,294 4.72 419,558 5.31 15,707 7.03
Mortgage-backed securities... 174,830 6.14 460,602 5.17 358,164 5.46 529,430 5.55
Other securities............. 247,464 1.37 664,084 3.19 228,309 5.44 150,152 3.56
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Total foreign.............. 769,096 3.48 2,920,530 4.47 1,178,244 5.36 767,819 5.25
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Total..................... (Yen)4,722,980 0.77% (Yen)9,868,444 2.19% (Yen)2,359,905 3.49% (Yen)842,996 4.83%
============== ==== ============== ==== ============== ==== ============ = ====
Securities being held to
maturity:
Domestic:
Japanese national government
and Japanese government
agency bonds............... (Yen) 17,666 2.54% (Yen) 48,690 2.23% (Yen) 23,589 2.33% (Yen)-- --%
Other securities............. 7,051 5.09 36,882 2.52 63,611 1.77 -- --
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Total domestic............. 24,717 3.26 85,572 2.36 87,200 1.92 -- --
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Foreign:
U.S. Treasury and other U.S.
government agencies........ -- -- -- -- -- -- -- --
Other governments and
official institutions...... 40,611 7.22 27,003 7.11 1,915 6.79 -- --
Other securities............. 2,664 7.03 -- -- 2,481 8.14 -- --
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Total foreign.............. 43,275 7.21 27,003 7.11 4,396 7.55 -- --
-------------- ---- -------------- ---- -------------- ---- ------------ - ----
Total..................... (Yen) 67,992 5.78% (Yen) 112,575 3.50% (Yen) 91,596 2.19% (Yen) -- --%
============== ==== ============== ==== ============== ==== ============ = ====
Total
--------------------
Amount Yield
--------------- -----
Securities available for sale:
Domestic:
Japanese national government
and Japanese government
agency bonds............... (Yen) 9,951,250 0.76%
Corporate bonds.............. 1,353,028 1.78
Other securities............. 854,358 1.94
--------------- ----
Total domestic............. 12,158,636 0.96
--------------- ----
Foreign:
U.S. Treasury and other U.S.
government Agencies........ 1,031,942 4.80
Other governments and
official institutions...... 1,790,712 4.78
Mortgage-backed securities... 1,523,026 5.49
Other securities............. 1,290,009 3.27
--------------- ----
Total foreign.............. 5,635,689 4.63
--------------- ----
Total..................... (Yen)17,794,325 2.10%
=============== ====
Securities being held to
maturity:
Domestic:
Japanese national government
and Japanese government
agency bonds............... (Yen) 89,945 2.32%
Other securities............. 107,544 2.24
--------------- ----
Total domestic............. 197,489 2.28
--------------- ----
Foreign:
U.S. Treasury and other U.S.
government agencies........ -- --
Other governments and
official institutions...... 69,529 7.17
Other securities............. 5,145 7.56
--------------- ----
Total foreign.............. 74,674 7.19
--------------- ----
Total..................... (Yen) 272,163 3.63%
=============== ====
A-9
Excluding Japanese national government bonds, the following table sets forth
the securities of individual issuers held in our investment securities
portfolio which exceeded 10% of our consolidated shareholders' equity at March
31, 2002.
Amortized
cost Fair Value
-------------- --------------
(in millions)
U.S. Treasury and other U.S. government agencies bonds.............. (Yen)1,007,414 (Yen)1,031,942
Mortgage-backed securities issued by U.S. Federal National Mortgage
Association....................................................... 408,786 419,389
Mortgage-backed securities issued by U.S. Federal Home Loan Mortgage
Corporation....................................................... 329,506 344,361
French government bonds............................................. 461,629 454,505
III. Loan Portfolio
The following table shows our loans outstanding, before deduction of
allowance for credit losses, by domicile and type of industry of borrower at
March 31, 2002 and September 30, 2002. Classification of loans by industry is
based on the industry segment loan classification as defined by The Bank of
Japan for regulatory reporting purposes and is not necessarily based on use of
proceeds.
At March 31, At September 30,
2002 2002
---------------- ----------------
(in millions)
Domestic:
Manufacturing........................... (Yen) 6,394,459 (Yen) 6,271,210
Construction............................ 1,535,191 1,454,111
Real estate............................. 4,923,688 4,634,573
Services................................ 4,549,692 4,286,308
Wholesale and retail.................... 5,983,958 6,802,213
Banks and other financial institutions.. 4,271,182 3,515,716
Other industries........................ 3,850,153 3,420,371
Consumer................................ 7,049,095 7,227,780
---------------- ---------------
Total domestic...................... 38,557,418 37,612,282
---------------- ---------------
Foreign:
Governments and official institutions... 326,086 201,669
Banks and other financial institutions.. 680,449 868,913
Commercial and industrial............... 9,708,102 8,398,089
Other................................... 1,000,044 1,044,303
---------------- ---------------
Total foreign....................... 11,714,681 10,512,974
---------------- ---------------
Less unearned income and deferred loan fees 42,374 34,011
---------------- ---------------
Total............................... (Yen) 50,229,725 (Yen)48,091,245
================ ===============
--------
Notes:
1. The table includes loans held for sale of (Yen)3,178 million at March 31,
2002 and (Yen)8,685 million at September 30, 2002, respectively.
2. Loans to the so-called non-bank finance companies are generally included in
the "Banks and other financial institutions" category. Non-bank finance
companies are primarily engaged in consumer lending, factoring, mortgage
lending and credit card businesses.
A-10
The following table shows our loans outstanding, before deduction of
allowance for credit losses, by domicile and type of industry of borrower at
March 31 of each of the five years in the period ended March 31, 2002.
Classification of loans by industry is based on the industry segment loan
classification as defined by The Bank of Japan for regulatory reporting
purposes and is not necessarily based on use of proceeds.
At March 31,
-------------------------------------------------------------------------------
1998 1999 2000 2001 2002
--------------- --------------- --------------- --------------- ---------------
(in millions)
Domestic:
Manufacturing................. (Yen) 7,188,038 (Yen) 7,171,934 (Yen) 6,877,734 (Yen) 6,451,672 (Yen) 6,394,459
Construction.................. 1,886,422 1,931,928 1,816,338 1,726,278 1,535,191
Real estate................... 5,564,330 5,594,982 5,045,318 5,272,787 4,923,688
Services...................... 6,147,240 5,398,917 5,010,678 4,763,938 4,549,692
Wholesale and retail.......... 7,849,323 7,734,297 6,926,200 6,592,660 5,983,958
Banks and other financial
institutions................ 4,321,616 4,241,691 3,947,735 4,069,828 4,271,182
Other industries.............. 2,640,445 3,649,278 3,837,809 2,797,419 3,850,153
Consumer...................... 6,774,501 6,905,666 7,141,689 6,934,440 7,049,095
--------------- --------------- --------------- --------------- ---------------
Total domestic............ 42,371,915 42,628,693 40,603,501 38,609,022 38,557,418
--------------- --------------- --------------- --------------- ---------------
Foreign:
Governments and official
institutions................ 429,244 362,404 244,172 315,321 326,086
Banks and other financial
institutions................ 1,613,190 745,783 692,322 783,501 680,449
Commercial and industrial..... 11,422,794 9,617,336 7,652,750 8,820,141 9,708,102
Other......................... 2,379,437 1,711,988 887,507 1,173,223 1,000,044
--------------- --------------- --------------- --------------- ---------------
Total foreign............. 15,844,665 12,437,511 9,476,751 11,092,186 11,714,681
--------------- --------------- --------------- --------------- ---------------
Total.................. 58,216,580 55,066,204 50,080,252 49,701,208 50,272,099
Less unearned income and deferred
loan fees...................... 71,407 37,454 30,868 30,305 42,374
--------------- --------------- --------------- --------------- ---------------
Total.................. (Yen)58,145,173 (Yen)55,028,750 (Yen)50,049,384 (Yen)49,670,903 (Yen)50,229,725
=============== =============== =============== =============== ===============
--------
Note--Loans to the so-called non-bank finance companies are generally included
in the "Banks and other financial institutions" category. Non-bank finance
companies are primarily engaged in consumer lending, factoring, mortgage
lending and credit card businesses.
A-11
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table shows the maturities of our loan portfolio at March 31,
2002:
Maturity
------------------------------------------------------------------
One year or less One to five years Over five years Total
---------------- ----------------- --------------- ---------------
(in millions)
Domestic:
Manufacturing............................ (Yen) 4,525,631 (Yen) 1,703,447 (Yen) 165,381 (Yen) 6,394,459
Construction............................. 1,118,493 338,966 77,732 1,535,191
Real estate.............................. 2,322,887 1,638,583 962,218 4,923,688
Services................................. 2,481,125 1,560,883 507,684 4,549,692
Wholesale and retail..................... 4,454,273 1,298,957 230,728 5,983,958
Banks and other financial institutions... 2,698,320 956,258 616,604 4,271,182
Other industries......................... 2,527,453 925,232 397,468 3,850,153
Consumer:
Installment loans to individuals..... 431,577 1,393,167 4,515,210 6,339,954
Other................................ 553,521 56,282 99,338 709,141
--------------- --------------- -------------- ---------------
Total domestic.................... 21,113,280 9,871,775 7,572,363 38,557,418
Foreign: 5,923,417 3,400,647 2,390,617 11,714,681
--------------- --------------- -------------- ---------------
Total............................. (Yen)27,036,697 (Yen)13,272,422 (Yen)9,962,980 (Yen)50,272,099
=============== =============== ============== ===============
The above loans due after one year which had predetermined interest rates
and floating or adjustable interest rates at March 31, 2002 are shown below.
Domestic Foreign Total
--------------- -------------- ---------------
(in millions)
Predetermined rate......... (Yen) 6,732,905 (Yen)1,646,957 (Yen) 8,379,862
Floating or adjustable rate 10,711,233 4,144,307 14,855,540
--------------- -------------- ---------------
Total................... (Yen)17,444,138 (Yen)5,791,264 (Yen)23,235,402
=============== ============== ===============
Nonaccrual, Past Due and Restructured Loans
We generally discontinue the accrual of interest income on loans when
substantial doubt exists as to the full and timely collection of either
principal or interest, or when principal and interest is contractually past
due, except when the loans are in the process of collection based upon the
judgment of management. Prior to April 1, 1998, loans by Bank of
Tokyo-Mitsubishi, Mitsubishi Trust Bank and some of other domestic subsidiaries
were generally placed on nonaccrual status when they were past due more than
six months, in each case as to either principal or interest. The change in
nonaccrual policy resulted in an increase in nonaccrual loans of approximately
(Yen)1,327 billion and decreases in accruing restructured loans and accruing
loans contractually past due 90 days or more of approximately (Yen)1,037
billion and (Yen)290 billion, respectively, at March 31, 1999. For past due
loans, we continue the accrual of interest income on loans without collecting
any payment of interest or principal under terms of the related loan agreements
only for a period of up to three months.
A-12
The following table shows the distribution of our nonaccrual loans,
restructured loans and accruing loans which are contractually past due 90 days
or more as to principal or interest payments at March 31, 2002 and September
30, 2002, based on the domicile and type of industry of the borrowers.
At March 31, At September 30,
2002 2002
-------------- ----------------
(in millions)
Nonaccrual loans:
Domestic:
Manufacturing.................................... (Yen) 142,572 (Yen) 135,408
Construction..................................... 213,491 181,200
Real estate...................................... 841,414 560,740
Services......................................... 214,877 131,526
Wholesale and retail............................. 251,061 254,680
Banks and other financial institutions........... 58,568 47,379
Other industries................................. 39,687 34,373
Consumer......................................... 166,333 163,975
-------------- --------------
Total domestic................................. 1,928,003 1,509,281
-------------- --------------
Foreign:
Governments and official institutions............ 3,341 1,493
Banks and other financial institutions........... 9,119 11,294
Commercial and industrial........................ 226,054 227,149
Other............................................ 7,059 29,973
-------------- --------------
Total foreign.................................. 245,573 269,909
-------------- --------------
Total.......................................... 2,173,576 1,779,190
-------------- --------------
Restructured loans:
Domestic........................................... 1,859,176 1,677,797
Foreign............................................ 109,190 100,862
-------------- --------------
Total.......................................... 1,968,366 1,778,659
-------------- --------------
Accruing loans contractually past due 90 days or more:
Domestic........................................... 20,276 9,315
Foreign............................................ 2,764 4,654
-------------- --------------
Total.......................................... 23,040 13,969
-------------- --------------
Total.......................................... (Yen)4,164,982 (Yen)3,571,818
============== ==============
--------
Note--The above table does not include real estate acquired in full or partial
satisfaction of debt and certain assets under the management of the Cooperative
Credit Purchasing Company which are recorded at estimated fair value less
estimated cost to sell.
A-13
The following table shows the distribution of our nonaccrual loans,
restructured loans and accruing loans which are contractually past due 90 days
or more as to principal or interest payments at March 31 of each of the five
years in the period ended March 31, 2002, based on the domicile and type of
industry of the borrowers.
At March 31,
--------------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------- -------------- -------------- -------------- --------------
(in millions)
Nonaccrual loans:
Domestic:
Manufacturing.................... (Yen) 27,203 (Yen) 141,830 (Yen) 112,245 (Yen) 118,935 (Yen) 142,572
Construction..................... 32,365 138,803 226,170 202,506 213,491
Real estate...................... 195,421 981,504 829,616 939,267 841,414
Services......................... 114,555 457,083 290,286 247,697 214,877
Wholesale and retail............. 64,719 380,076 389,262 229,965 251,061
Banks and other financial
institutions................... 113,405 245,533 140,928 125,649 58,568
Other industries................. 6,072 26,848 23,921 39,963 39,687
Consumer......................... 24,271 83,809 56,206 163,076 166,333
-------------- -------------- -------------- -------------- --------------
Total domestic................ 578,011 2,455,486 2,068,634 2,067,058 1,928,003
-------------- -------------- -------------- -------------- --------------
Foreign:
Governments and official
institutions................... 951 895 1,032 2,336 3,341
Banks and other financial
institutions................... 1,931 19,670 14,458 8,403 9,119
Commercial and industrial........ 61,914 198,951 167,271 180,760 226,054
Other............................ 3,256 31,599 26,604 32,345 7,059
-------------- -------------- -------------- -------------- --------------
Total foreign................. 68,052 251,115 209,365 223,844 245,573
-------------- -------------- -------------- -------------- --------------
Total......................... 646,063 2,706,601 2,277,999 2,290,902 2,173,576
-------------- -------------- -------------- -------------- --------------
Restructured loans:
Domestic............................. 1,151,905 632,187 449,673 1,855,616 1,859,176
Foreign.............................. 96,696 23,143 53,206 98,879 109,190
-------------- -------------- -------------- -------------- --------------
Total......................... 1,248,601 655,330 502,879 1,954,495 1,968,366
-------------- -------------- -------------- -------------- --------------
Accruing loans contractually past due 90
days or more:
Domestic............................. 363,200 78,129 62,286 24,005 20,276
Foreign.............................. 24,665 37,708 1,751 3,392 2,764
-------------- -------------- -------------- -------------- --------------
Total......................... 387,865 115,837 64,037 27,397 23,040
-------------- -------------- -------------- -------------- --------------
Total......................... (Yen)2,282,529 (Yen)3,477,768 (Yen)2,844,915 (Yen)4,272,794 (Yen)4,164,982
============== ============== ============== ============== ==============
--------
Note--The above table does not include real estate acquired in full or partial
satisfaction of debt and certain assets under the management of the Cooperative
Credit Purchasing Company which are recorded at estimated fair value less
estimated cost to sell.
Gross interest income which would have been accrued at the original terms on
domestic nonaccrual and restructured loans outstanding during the fiscal year
ended March 31, 2002 was approximately (Yen)83.7 billion, of which (Yen)67.6
billion was included in the results of operations for the year. Gross interest
income which would have been accrued at the original terms on foreign
nonaccrual and restructured loans outstanding for the fiscal year ended March
31, 2002 was approximately (Yen)17.3 billion, of which (Yen)7.7 billion was
included in the results of operations for the year.
A-14
Foreign Loans Outstanding
We had no cross-border outstandings to borrowers in any foreign country
which in total exceeded 0.75% of consolidated total assets at March 31, 2000,
2001 and 2002. Cross-border outstandings are defined, for this purpose, as
including loans (including accrued interest), acceptances, interest-earning
deposits with other banks, other interest-earning investments and any other
monetary assets denominated in Japanese yen or other non-local currencies.
Material local currency loans outstanding which are neither hedged nor funded
by local currency borrowings are included in cross-border outstandings.
Guarantees of outstandings of borrowers of other countries are considered to
be outstandings of the guarantor. Loans made to, or deposits placed with, a
branch of a foreign bank located outside the foreign bank's home country are
considered to be loans to, or deposits with, the foreign bank. Outstandings of
a country do not include principal or interest amounts of which are supported
by written, legally enforceable guarantees by guarantors of other countries or
the amounts of outstandings to the extent that they are secured by tangible,
liquid collateral held and realizable by Bank of Tokyo-Mitsubishi, Mitsubishi
Trust Bank and their subsidiaries outside the country in which they operate.
In addition to credit risk, cross-border outstandings are subject to country
risk that as a result of political or economic conditions in a country,
borrowers may be unable or unwilling to pay principal and interest according to
contractual terms. Other risks related to cross-border outstandings include the
possibility of insufficient foreign exchange and restrictions on its
availability.
In order to manage country risk, we establish various risk management
measures internally. Among other things, we first regularly monitor economic
conditions and other factors globally and assess country risk in each country
where we have cross-border exposure. For purposes of monitoring and controlling
the amount of credit exposed to country risk, we set a country limit, the
maximum amount of credit exposure for an individual country, in consideration
of the level of country risk and our ability to bear such potential risk. We
also determine our credit policy for each country in accordance with its
country risk level and our business plan with regard to the country. Assessment
of country risk, establishment of country limits, and determination of country
credit policies are subject to review and approval by our senior management and
are updated periodically.
Exposure to East Asia
For a period beginning in mid-1997, some East Asian countries experienced
severe economic and financial difficulties. In response to such economic
deterioration, the Republic of Korea, or South Korea, Thailand and Indonesia
implemented financial reform programs under the supervision of the
International Monetary Fund, or IMF. The region has now generally recovered
from these difficulties, with certain exceptions.
We maintain a substantial network of branches and subsidiaries in East Asia
and the region has been an important market for our financial services. In
response to recent developments in the regional economy, we regularly reassess
the country risk of each country in the region, to adjust exposure levels, and
to review and revise country credit policies.
A-15
The following is a summary of cross-border outstandings to counterparties in
major Asian countries at March 31, 2002 and September 30, 2002:
At March 31, At September 30,
2002 2002
------------ ----------------
(in billions)
South Korea............... (Yen)218.9 (Yen)215.8
Indonesia................. 78.2 59.1
Thailand.................. 223.7 194.2
Malaysia.................. 156.1 142.6
Philippines............... 80.0 52.5
Hong Kong................. 409.3 340.8
People's Republic of China 222.9 181.7
The following table represents our cross-border outstandings and commitments
at March 31, 2001 and 2002, to certain East Asian countries significantly
affected by the crisis:
At March 31,
-------------------------------------------------
2001 2002
------------------------ ------------------------
Cross-border Cross-border
Outstanding Commitments Outstanding Commitments
------------ ----------- ------------ -----------
(in billions)
South Korea............... (Yen)225.8 (Yen) 0.5 (Yen)218.9 (Yen) 1.1
Indonesia................. 141.8 19.1 78.2 11.2
Thailand.................. 248.9 5.9 223.7 6.8
Malaysia.................. 151.8 7.5 156.1 10.7
Philippines............... 70.5 7.2 80.0 13.7
Hong Kong................. 455.0 21.7 409.3 2.2
People's Republic of China 185.2 11.4 222.9 4.7
In addition to the exposure to the seven countries shown in the above table,
we had cross-border outstandings of (Yen)255.7 billion to counterparties in
Singapore at March 31, 2002. Our management does not expect any significant
credit problems with exposure to that country. At March 31, 2002, the total
cross-border outstandings to the five countries (South Korea, Indonesia,
Thailand, Malaysia and the Philippines) decreased (Yen)81.9 billion, or 9.8%,
to (Yen)756.9 billion in the aggregate from (Yen)838.8 billion of outstandings
recorded at March 31, 2001, due primarily to reduction of exposure to
Indonesia, through our proactive exposure management.
Exposure to South America
The following is a summary of cross-border outstandings to counterparties in
major Latin American countries at March 31, 2002 and September 30, 2002:
At March 31, At September 30,
2002 2002
------------ ----------------
(in billions)
Argentina (Yen) 74.4 (Yen) 56.4
Brazil... 145.4 146.7
Mexico... 110.0 85.0
A-16
The following is a summary of cross-border outstandings to counterparties in
major Latin American countries at March 31, 2001 and 2002:
At March 31,
---------------------
2001 2002
---------- ----------
(in billions)
Argentina (Yen)116.7 (Yen) 74.4
Brazil... 139.8 145.4
Mexico... 75.2 110.0
Argentina--In late 2001, Argentina began to experience significant economic
turmoil and deterioration, including the suspension of foreign debt payments.
The Argentine government implemented substantial economic changes, and
abandoned the fixed US dollar-to-peso exchange rate in favor of a floating
exchange rate. The adoption of the floating rate occurred in parallel with
increased restrictions on deposits and liquidity. The Argentine government has
defaulted on its debt, and the outcome of talks between the Argentine
government and the International Monetary Fund on receiving financial
assistance remains uncertain. The Argentine government and other parties are
working on a debt-restructuring program. At March 31, 2002, we had cross-border
outstandings of approximately (Yen)74.4 billion to borrowers in Argentina and
provided an allocated credit loss allowance for country risk exposure of
(Yen)18.1 billion.
During 2002, Argentina continued to experience significant political and
economic changes, including severe recessionary conditions, high inflation and
political uncertainty. The Argentina government implemented substantial
economic changes, such as redenominating substantially all of the banking
industry's loans, deposits and other assets and liabilities previously
denominated in US dollars into pesos at different rates. In addition, the
government issued certain instruments to financial institutions to compensate
them in part for losses incurred as a result of the redenomination events. The
government also announced a 180 day moratorium against creditors filing
foreclosures or bankruptcy proceedings against borrowers. Later in 2002, the
government modified the terms of certain of its obligations making them less
valuable. At September 30, 2002, we had cross-border outstandings of
approximately (Yen)56.4 billion to borrowers in Argentina and provided an
allocated credit loss allowance of (Yen)28.8 billion. We continue to assess our
credit exposure to Argentina.
Loan Concentrations
At March 31, 2002, there were no concentrations of loans to a single
industry group of borrowers, as defined by The Bank of Japan for industry
segment loan classification, which exceeded 10% of our consolidated total loans
except for domestic consumer loans.
Credit Risk Management
We have a credit rating system, under which borrowers and transactions are
graded based on objective standards on a worldwide basis. We calculate
probability of default by statistical means and manage our credit portfolio
based on this credit rating system.
A-17
IV. Summary of Loan Loss Experience
The following table shows an analysis of our loan loss experience by type of
borrowers' business for the six months ended September 30, 2001 and 2002.
Six Months Ended
September 30,
--------------------------------
2001 2002
-------------- --------------
(in millions, except percentages)
Allowance for credit losses at beginning of period................................ (Yen)1,716,984 (Yen)1,735,180
-------------- --------------
Provision for credit losses....................................................... 309,425 232,632
-------------- --------------
Charge-offs:
Domestic:
Manufacturing.............................................................. 17,081 43,362
Construction............................................................... 10,420 39,315
Real estate................................................................ 36,169 96,750
Services................................................................... 18,068 47,117
Wholesale and retail....................................................... 36,682 46,804
Banks and other financial institutions..................................... 23,564 9,572
Other industries........................................................... 6,023 14,087
Consumer................................................................... 20,418 30,024
-------------- --------------
Total Domestic................................................................. 168,425 327,031
Foreign........................................................................ 79,882 92,968
-------------- --------------
Total.......................................................................... 248,307 419,999
-------------- --------------
Recoveries:
Domestic....................................................................... 12,960 25,339
Foreign........................................................................ 9,703 11,050
-------------- --------------
Total.......................................................................... 22,663 36,389
-------------- --------------
Net charge-offs................................................................... 225,644 383,610
-------------- --------------
Other--principally foreign exchange
translation adjustments......................................................... (6,720) (12,970)
-------------- --------------
Allowance for credit losses at end of period...................................... (Yen)1,794,045 (Yen)1,571,232
============== ==============
Allowance for credit losses applicable to foreign activities:
Balance at beginning of period................................................. (Yen) 243,716 (Yen) 244,650
============== ==============
Balance at end of period....................................................... (Yen) 236,285 (Yen) 224,938
-------------- --------------
Provision for credit losses.................................................... (Yen) 77,377 (Yen) 75,538
============== ==============
Ratio of net charge-offs during the period to average loans outstanding during the
period/(1)/..................................................................... 0.91% 1.54%
(1) Annualized for the six months ended September 30, 2001 and 2002.
A-18
The following table shows an analysis of our loan loss experience by type of
borrowers' business for each of the five years in the period ended March 31,
2002.
Years Ended March 31,
------------------------------------------------------------------------------
1998 1999 2000 2001 2002
-------------- -------------- -------------- -------------- --------------
(in millions, except percentages)
Allowance for credit losses at beginning of
year..................................... (Yen)1,556,825 (Yen)1,281,091 (Yen)1,813,680 (Yen)1,486,212 (Yen)1,716,984
-------------- -------------- -------------- -------------- --------------
Provision for credit losses................ 1,476,027 1,239,000 372,449 797,081 601,689
-------------- -------------- -------------- -------------- --------------
Charge-offs:
Domestic:
Manufacturing....................... 91,486 25,224 25,537 31,386 55,916
Construction........................ 460,446 27,530 77,878 82,078 35,365
Real estate......................... 153,059 135,597 98,201 154,887 150,684
Services............................ 229,087 160,194 53,877 72,673 51,803
Wholesale and retail................ 208,777 29,031 191,839 152,723 96,745
Banks and other financial
institutions...................... 306,594 106,727 67,782 22,453 64,615
Other industries.................... 8,370 10,172 47,209 6,069 11,500
Consumer............................ 175,943 38,119 39,827 34,291 46,550
-------------- -------------- -------------- -------------- --------------
Total domestic.......................... 1,633,762 532,594 602,150 556,560 513,178
-------------- -------------- -------------- -------------- --------------
Foreign................................. 140,404 140,981 121,882 87,879 156,203
-------------- -------------- -------------- -------------- --------------
Total................................... 1,774,166 673,575 724,032 644,439 669,381
-------------- -------------- -------------- -------------- --------------
Recoveries:
Domestic................................ 455 1,338 25,244 26,666 42,112
Foreign................................. 8,355 8,784 19,052 19,411 23,865
-------------- -------------- -------------- -------------- --------------
Total................................... 8,810 10,122 44,296 46,077 65,977
-------------- -------------- -------------- -------------- --------------
Net charge-offs............................ 1,765,356 663,453 679,736 598,362 603,404
-------------- -------------- -------------- -------------- --------------
Other--principally foreign exchange
translation adjustments.................. 13,595 (42,958) (20,181) 32,053 19,911
-------------- -------------- -------------- -------------- --------------
Allowance for credit losses at end of year. (Yen)1,281,091 (Yen)1,813,680 (Yen)1,486,212 (Yen)1,716,984 (Yen)1,735,180
============== ============== ============== ============== ==============
Allowance for credit losses applicable to
foreign activities:
Balance at beginning of year............ (Yen) 190,526 (Yen) 264,186 (Yen) 295,131 (Yen) 190,571 (Yen) 243,716
============== ============== ============== ============== ==============
Balance at end of year.................. (Yen) 264,186 (Yen) 295,131 (Yen) 190,571 (Yen) 243,716 (Yen) 244,650
============== ============== ============== ============== ==============
Provision for credit losses............. (Yen) 194,613 (Yen) 193,610 (Yen) 25,661 (Yen) 105,664 (Yen) 127,348
============== ============== ============== ============== ==============
Ratio of net charge-offs during the year to
average loans outstanding during the
year..................................... 3.01% 1.15% 1.30% 1.21% 1.23%
A-19
The following table shows an allocation of our allowance for credit losses
at March 31, 2002 and September 30, 2002.
At March 31, 2002 At September 30, 2002
----------------------- -----------------------
% of % of
loans in loans
each in each
category category
to total to total
Amount loans Amount loans
-------------- -------- -------------- --------
(in millions, except percentages)
Domestic:
Manufacturing.............................................. (Yen) 162,828 12.72% (Yen) 166,375 13.03%
Construction............................................... 168,595 3.05 169,011 3.02
Real estate................................................ 541,093 9.79 421,309 9.63
Services................................................... 175,281 9.05 133,926 8.91
Wholesale and retail....................................... 216,510 11.90 243,653 14.13
Banks and other financial institutions..................... 59,971 8.50 56,041 7.31
Other industries........................................... 48,466 7.67 46,324 7.11
Consumer................................................... 95,156 14.02 86,950 15.02
Foreign....................................................... 244,650 23.30 224,938 21.84
Unallocated................................................... 22,630 -- 22,705 --
-------------- ------ -------------- ------
Total.................................................. (Yen)1,735,180 100.00% (Yen)1,571,232 100.00%
============== ====== ============== ======
Allowance as a percentage of loans............................ 3.45% 3.27%
Allowance as a percentage of nonaccrual and restructured loans
and accruing loans contractually past due 90 days or more... 41.66% 43.99%
A-20
The following table shows an allocation of our allowance for credit losses
at the end of each of the five years in the period ended March 31, 2002.
At March 31,
---------------------------------------------------------------------------------------------------
1998 1999 2000 2001
----------------------- ----------------------- ----------------------- -----------------------
% of % of % of % of
loans loans loans loans
in each in each in each in each
category category category category
to total to total to total to total
Amount loans Amount loans Amount loans Amount loans
-------------- -------- -------------- -------- -------------- -------- -------------- --------
(in millions, except percentages)
Domestic:
Manufacturing.... (Yen) 57,090 12.35% (Yen) 92,791 13.02% (Yen) 98,296 13.73% (Yen) 159,387 12.98%
Construction..... 42,801 3.24 119,853 3.51 124,352 3.63 133,752 3.47
Real estate...... 333,991 9.56 498,246 10.16 429,928 10.07 505,479 10.61
Services......... 163,017 10.56 225,420 9.80 178,237 10.01 172,568 9.59
Wholesale and
retail.......... 152,464 13.48 294,605 14.05 221,466 13.83 203,814 13.26
Banks and other
financial
institutions.... 165,835 7.42 171,477 7.70 64,934 7.88 86,470 8.19
Other industries. 5,868 4.53 15,641 6.63 57,684 7.67 47,607 5.63
Consumer......... 73,487 11.64 75,684 12.54 104,139 14.26 106,031 13.95
Foreign:
Governments and
official
institutions.... 17,001 0.74 30,299 0.66 14,769 0.49 18,571 0.63
Banks and other
financial
institutions.... 27,100 2.77 27,133 1.35 9,328 1.38 11,322 1.58
Commercial and
industrial...... 188,041 19.62 217,736 17.47 144,028 15.28 192,484 17.75
Other............ 32,044 4.09 19,963 3.11 22,446 1.77 21,339 2.36
Unallocated........ 22,352 -- 24,832 -- 16,605 -- 58,160 --
-------------- ------ -------------- ------ -------------- ------ -------------- ------
Total........... (Yen)1,281,091 100.00% (Yen)1,813,680 100.00% (Yen)1,486,212 100.00% (Yen)1,716,984 100.00%
============== ====== ============== ====== ============== ====== ============== ======
Allowance as a
percentage of
loans............. 2.20% 3.30% 2.97% 3.46%
Allowance as a
percentage of
nonaccrual and
restructured loans
and accruing loans
contractually past
due 90 days or
more.............. 56.13% 52.15% 52.24% 40.18%
At March 31,
-----------------------
2002
-----------------------
% of
loans
in each
category
to total
Amount loans
-------------- --------
Domestic:
Manufacturing.... (Yen) 162,828 12.72%
Construction..... 168,595 3.05
Real estate...... 541,093 9.79
Services......... 175,281 9.05
Wholesale and
retail.......... 216,510 11.90
Banks and other
financial
institutions.... 59,971 8.50
Other industries. 48,466 7.67
Consumer......... 95,156 14.02
Foreign:
Governments and
official
institutions.... 33,304 0.65
Banks and other
financial
institutions.... 6,847 1.35
Commercial and
industrial...... 189,332 19.31
Other............ 15,167 1.99
Unallocated........ 22,630 --
-------------- ------
Total........... (Yen)1,735,180 100.00%
============== ======
Allowance as a
percentage of
loans............. 3.45%
Allowance as a
percentage of
nonaccrual and
restructured loans
and accruing loans
contractually past
due 90 days or
more.............. 41.66%
While allowance for credit losses contains amounts allocated to components
of specifically identified loans as well as a group on portfolio of loans, the
allowance for credit losses is available for credit losses in the entire loan
portfolio and the allocations shown above are not intended to be restricted to
the specific loan category. Accordingly, as the evaluation of credit risks
changes, allocations of the allowance will be changed to reflect current
conditions and various other factors.
A-21
V. Deposits
The following table shows the average amount of, and the average rate paid
on, the following deposit categories for each of the three years in the period
ended March 31, 2002.
Years Ended March 31,
----------------------------------------------------------------------
2000 2001 2002
---------------------- ---------------------- ----------------------
Average Average Average Average Average Average
amount rate amount rate amount rate
--------------- ------- --------------- ------- --------------- -------
(in millions, except percentages)
Domestic offices:
Non-interest-bearing demand
deposits.......................... (Yen) 2,236,420 -- (Yen) 2,186,090 -- (Yen) 2,621,296 --
Interest-bearing demand
deposits.......................... 11,680,850 0.11% 11,803,418 0.13% 14,385,013 0.04%
Deposits at notice.................. 1,847,522 1.13 1,564,168 1.49 1,800,904 1.01
Time deposits....................... 24,888,624 0.69 25,372,595 0.78 26,272,795 0.49
Certificates of deposit............. 2,730,680 0.18 2,438,281 0.33 2,348,313 0.14
Foreign offices, principally from banks
located in foreign countries:
Non-interest-bearing demand
deposits.......................... 1,433,729 -- 1,412,761 -- 1,654,887 --
Interest-bearing deposits,
principally time deposits and
certificates of deposit........... 11,244,201 3.48 11,552,974 4.58 10,982,859 2.99
--------------- --------------- ---------------
Total........................... (Yen)56,062,026 (Yen)56,330,287 (Yen)60,066,067
=============== =============== ===============
Deposits at notice represent interest-bearing demand deposits which require
the depositor to give two or more days notice in advance to withdrawal.
The average amounts of total deposits by foreign depositors included in
domestic offices for the fiscal years ended March 31, 2000, 2001 and 2002 were
(Yen)387,118 million, (Yen)378,840 million and (Yen)485,399 million,
respectively.
At March 31, 2002, the balance and remaining maturities of time deposits and
certificates of deposit issued by domestic offices in amounts of (Yen)10
million (approximately US$75 thousand at the Federal Reserve Bank of New York's
noon buying rate on March 29, 2002) or more and such deposits issued in amounts
of US$100,000 or more are shown in the following table.
Certificates of
Time deposits deposit Total
--------------- --------------- ---------------
(in millions)
Domestic offices:
Three months or less.................. (Yen) 7,200,783 (Yen)2,500,997 (Yen) 9,701,780
Over three months through six months.. 1,842,497 113,773 1,956,270
Over six months through twelve months. 2,349,447 48,135 2,397,582
Over twelve months.................... 2,829,237 160 2,829,397
--------------- -------------- ---------------
Total............................. (Yen)14,221,964 (Yen)2,663,065 (Yen)16,885,029
=============== ============== ===============
Foreign offices.......................... (Yen) 6,783,568
===============
A-22
VI. Short-Term Borrowings
The following table shows certain additional information with respect to our
short-term borrowings for each of the three years in the period ended March 31,
2002.
Years Ended March 31,
-----------------------------------------------
2000 2001 2002
-------------- --------------- --------------
(in millions, except percentages)
Call money, funds purchased, and payables under repurchase
agreements and securities lending transactions:
Average balance outstanding during the year.............. (Yen)5,148,760 (Yen) 7,201,772 (Yen)8,996,420
Maximum balance outstanding at any month-end during the
year................................................... 6,259,026 10,546,870 9,252,127
Balance at end of year................................... 4,226,936 8,727,358 9,243,032
Weighted average interest rate during the year........... 2.44% 3.62% 2.23%
Weighted average interest rate on balance at end of year. 2.32% 2.01% 1.09%
Due to trust account:
Average balance outstanding during the year.............. (Yen)4,181,966 (Yen) 4,023,941 (Yen)2,940,975
Maximum balance outstanding at any month-end during the
year................................................... 4,397,143 4,488,591 3,353,489
Balance at end of year................................... 4,271,918 3,672,718 2,282,225
Weighted average interest rate during the year........... 0.78% 0.69% 0.57%
Weighted average interest rate on balance at end of year. 0.77% 0.73% 0.51%
Other short-term borrowings:
Average balance outstanding during the year.............. (Yen)1,839,452 (Yen) 1,641,905 (Yen)2,077,604
Maximum balance outstanding at any month-end during the
year................................................... 2,431,224 3,032,747 3,318,634
Balance at end of year................................... 1,655,819 2,129,991 3,318,634
Weighted average interest rate during the year........... 2.79% 1.65% 2.22%
Weighted average interest rate on balance at end of year. 1.71% 1.48% 1.09%
* * * * *
A-23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors.................................................................. F-2
Consolidated Balance Sheets as of March 31, 2001 and 2002....................................... F-3
Consolidated Statements of Operations for the Years ended March 31, 2000, 2001 and 2002......... F-4
Consolidated Statements of Changes in Equity from Nonowner Sources for the Years ended March 31,
2000, 2001 and 2002........................................................................... F-5
Consolidated Statements of Shareholders' Equity for the Years ended March 31, 2000, 2001 and
2002.......................................................................................... F-6
Consolidated Statements of Cash Flows for the Years ended March 31, 2000, 2001 and 2002......... F-7
Notes to Consolidated Financial Statements...................................................... F-8
Condensed Consolidated Balance Sheets as of September 30, 2001 and 2002 (Unaudited)............. F-77
Condensed Consolidated Statements of Operations for the Six Months ended September 30, 2001 and
2002 (Unaudited).............................................................................. F-78
Condensed Consolidated Statements of Changes in Equity from Nonowner Sources for the Six Months
ended September 30, 2001 and 2002 (Unaudited)................................................. F-79
Condensed Consolidated Statements of Shareholders' Equity for the Six Months ended September 30,
2001 and 2002 (Unaudited)..................................................................... F-80
Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2001 and
2002 (Unaudited).............................................................................. F-81
Notes to Condensed Consolidated Financial Statements (Unaudited)................................ F-82
F-1
REPORT OF INDEPENDENT AUDITORS
Mitsubishi Tokyo Financial Group, Inc.
(Kabushiki Kaisha Mitsubishi Tokyo Financial Group):
We have audited the accompanying consolidated balance sheets of Mitsubishi
Tokyo Financial Group, Inc. (Kabushiki Kaisha Mitsubishi Tokyo Financial Group)
("MTFG") and subsidiaries as of March 31, 2001 and 2002, and the related
consolidated statements of operations, changes in equity from nonowner sources,
shareholders' equity, and cash flows for each of the three years in the period
ended March 31, 2002. These financial statements are the responsibility of
MTFG's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of MTFG and subsidiaries at March
31, 2001 and 2002, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, in the year
ended March 31, 2002, MTFG changed its method of accounting for derivative
financial instruments and hedging activities.
/s/ Deloitte Touche Tohmatsu
DELOITTE TOUCHE TOHMATSU
Tokyo, Japan
July 19, 2002 (January 30, 2003 as to Note 32)
F-2
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND 2002
2001 2002
--------------- ---------------
(in millions)
ASSETS
Cash and due from banks (Note 9)................................................... (Yen) 1,729,668 (Yen) 1,832,399
Interest-earning deposits in other banks (Note 9).................................. 6,014,905 4,332,180
Call loans and funds sold (Note 12)................................................ 1,828,749 1,626,760
Receivables under resale agreements................................................ 1,428,488 1,122,680
Receivables under securities borrowing transactions................................ 1,938,500 1,953,242
Trading account assets (including assets pledged that secured parties are
permitted to sell or repledge of (Yen)532,116 million in 2001 and (Yen)856,331
million in 2002) (Notes 3 and 9).................................................. 7,143,309 7,497,253
Investment securities (Notes 4 and 9):
Securities available for sale--carried at estimated fair value (including
assets pledged that secured parties are permitted to sell or repledge of
(Yen)1,112,209 million in 2001 and (Yen)2,101,338 million in 2002)............... 21,730,915 23,282,816
Securities being held to maturity--carried at amortized cost (estimated fair
value of (Yen)320,927 million in 2001 and (Yen)284,724 million in 2002).......... 306,207 272,163
Other investment securities....................................................... 168,547 129,498
--------------- ---------------
Total investment securities...................................................... 22,205,669 23,684,477
--------------- ---------------
Loans, net of unearned income and deferred loan fees (including assets pledged
that secured parties are permitted to sell or repledge of (Yen)944,153 million
in 2001 and (Yen)765,575 million in 2002) (Notes 5 and 9)......................... 49,670,903 50,229,725
Allowance for credit losses (Notes 5 and 6)........................................ (1,716,984) (1,735,180)
--------------- ---------------
Net loans......................................................................... 47,953,919 48,494,545
--------------- ---------------
Premises and equipment--net (Note 7)............................................... 689,663 681,366
Accrued interest................................................................... 316,941 213,697
Customers' acceptance liability.................................................... 43,552 37,608
Intangible assets.................................................................. 169,602 186,617
Goodwill........................................................................... 5,888 41,386
Other assets (Notes 5, 8 and 17)................................................... 2,020,097 2,660,904
--------------- ---------------
Total......................................................................... (Yen)93,488,950 (Yen)94,365,114
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 10):
Domestic offices:
Non-interest-bearing............................................................. (Yen) 2,884,031 (Yen) 3,091,407
Interest-bearing................................................................. 43,064,927 48,826,155
Overseas offices:
Non-interest-bearing............................................................. 1,675,511 2,166,464
Interest-bearing................................................................. 12,481,273 9,575,475
--------------- ---------------
Total deposits................................................................ 60,105,742 63,659,501
Debentures (Note 11)............................................................... 3,404,411 2,269,122
Call money and funds purchased (Notes 9 and 12).................................... 2,358,036 2,542,489
Payables under repurchase agreements (Note 9)...................................... 3,046,618 3,786,560
Payables under securities lending transactions (Note 9)............................ 3,322,704 2,913,983
Due to trust account (Note 13)..................................................... 3,672,718 2,282,225
Other short-term borrowings (Notes 9 and 14)....................................... 2,129,991 3,318,634
Trading account liabilities (Note 3)............................................... 4,072,807 2,495,768
Obligations to return securities received as collateral............................ 295,694 315,538
Bank acceptances outstanding....................................................... 43,552 37,608
Accrued interest................................................................... 389,301 211,010
Long-term debt (Notes 9 and 14).................................................... 4,963,455 5,183,841
Other liabilities (Notes 8, 16 and 17)............................................. 2,482,625 2,722,338
--------------- ---------------
Total liabilities............................................................. 90,287,654 91,738,617
--------------- ---------------
Commitments and contingent liabilities (Notes 23, 24 and 25)
Shareholders' equity (Note 21):
Capital stock (Notes 18 and 19) (*):
Preferred stock:
Class 1--authorized, 81,400 shares; issued and outstanding, 81,400 shares
in 2001 and 2002, with no stated value (aggregate liquidation preference
of (Yen)244,200 million)..................................................... 122,100 122,100
Class 2--convertible: authorized, 100,000 shares; issued and outstanding,
100,000 shares in 2001 and 2002, with no stated value (aggregate
liquidation preference of (Yen)200,000 million).............................. 100,000 100,000
Class 3--authorized, 120,000 shares; no shares issued or outstanding.......... -- --
Class 4--convertible: authorized, 120,000 shares; no shares issued or
outstanding.................................................................. -- --
Common stock--authorized, 22,000,000 shares; issued, 5,587,068 shares in 2001
and 5,742,468 shares 2002, with no stated value................................ 856,664 873,156
Capital surplus (Note 19)......................................................... 831,105 850,835
Retained earnings (Notes 20 and 32):
Appropriated for legal reserve................................................... 221,689 236,537
Unappropriated................................................................... 271,246 11,593
Accumulated other changes in equity from nonowner sources, net of taxes........... 907,424 523,250
--------------- ---------------
Total............................................................................ 3,310,228 2,717,471
Less treasury stock, at cost--72,541 common shares in 2001 and 169,639 common
shares in 2002................................................................. 108,932 90,974
--------------- ---------------
Shareholders' equity--net........................................................ 3,201,296 2,626,497
--------------- ---------------
Total......................................................................... (Yen)93,488,950 (Yen)94,365,114
=============== ===============
--------
(*) The number of shares in 2001 has been adjusted to reflect the
stock-for-stock exchanges on April 2, 2001 creating MTFG (see Note 2).
See the accompanying notes to Consolidated Financial Statements.
F-3
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000, 2001 AND 2002
2000 2001
-------------- ---------------
(in millions)
Interest income:
Loans, including fees (Note 5)........................................................ (Yen)1,494,071 (Yen) 1,476,209
Deposits in other banks............................................................... 136,330 236,626
Investment securities:
Interest............................................................................ 326,920 305,832
Dividends........................................................................... 73,246 62,849
Trading account assets................................................................ 15,706 16,954
Call loans and funds sold............................................................. 21,707 28,499
Receivables under resale agreements and securities borrowing transactions............. 97,663 156,005
-------------- ---------------
Total.............................................................................. 2,165,643 2,282,974
-------------- ---------------
Interest expense:
Deposits.............................................................................. 600,107 774,512
Debentures............................................................................ 51,718 32,285
Call money and funds purchased........................................................ 16,068 22,452
Payables under repurchase agreements and securities lending transactions.............. 109,389 238,233
Due to trust account.................................................................. 32,413 27,825
Other short-term borrowings and trading account liabilities........................... 84,349 37,230
Long-term debt........................................................................ 192,082 178,081
-------------- ---------------
Total.............................................................................. 1,086,126 1,310,618
-------------- ---------------
Net interest income................................................................... 1,079,517 972,356
Provision for credit losses (Notes 5 and 6)........................................... 372,449 797,081
-------------- ---------------
Net interest income after provision for credit losses................................. 707,068 175,275
-------------- ---------------
Non-interest income:
Fees and commissions (Note 26)........................................................ 369,156 459,403
Foreign exchange gains--net (Note 3).................................................. 32,578 --
Trading account profits--net (Note 3)................................................. -- 229,508
Investment securities gains--net (Note 4)............................................. 79,845 232,502
Other non-interest income............................................................. 38,313 34,411
-------------- ---------------
Total.............................................................................. 519,892 955,824
-------------- ---------------
Non-interest expense:
Salaries and employee benefits (Note 16).............................................. 429,403 403,739
Occupancy expenses--net (Notes 7 and 25).............................................. 130,111 137,373
Foreign exchange losses--net (Note 3)................................................. -- 104,617
Trading account losses--net (Note 3).................................................. 143,065 --
Losses on other real estate owned..................................................... 70,200 16,434
Goodwill amortization................................................................. 2,862 4,444
Other non-interest expenses........................................................... 448,701 460,903
-------------- ---------------
Total.............................................................................. 1,224,342 1,127,510
-------------- ---------------
Income (loss) before income tax expense (benefit) and cumulative effect of a change in
accounting principle................................................................. 2,618 3,589
Income tax expense (benefit) (Note 8)................................................. 50,160 62,763
-------------- ---------------
Loss before cumulative effect of a change in accounting principle..................... (47,542) (59,174)
Cumulative effect of a change in accounting principle, net of tax..................... -- --
-------------- ---------------
Net loss.............................................................................. (Yen) (47,542) (Yen) (59,174)
============== ===============
Income attributable to preferred shareholders......................................... (Yen) 5,464 (Yen) 8,336
-------------- ---------------
Net loss attributable to common shareholders.......................................... (Yen) (53,006) (Yen) (67,510)
============== ===============
(in Yen)
Amounts per share (*) (Notes 20 and 22):
Basic and diluted loss per common share--loss before cumulative effect of a change in
accounting principle................................................................. (Yen)(9,663.81) (Yen)(12,274.55)
Basic and diluted loss per common share--net loss..................................... (9,663.81) (12,274.55)
2002
---------------
Interest income:
Loans, including fees (Note 5)........................................................ (Yen) 1,276,821
Deposits in other banks............................................................... 159,784
Investment securities:
Interest............................................................................ 336,278
Dividends........................................................................... 63,115
Trading account assets................................................................ 15,144
Call loans and funds sold............................................................. 19,318
Receivables under resale agreements and securities borrowing transactions............. 146,501
---------------
Total.............................................................................. 2,016,961
---------------
Interest expense:
Deposits.............................................................................. 485,643
Debentures............................................................................ 20,491
Call money and funds purchased........................................................ 17,853
Payables under repurchase agreements and securities lending transactions.............. 182,487
Due to trust account.................................................................. 16,683
Other short-term borrowings and trading account liabilities........................... 46,567
Long-term debt........................................................................ 169,339
---------------
Total.............................................................................. 939,063
---------------
Net interest income................................................................... 1,077,898
Provision for credit losses (Notes 5 and 6)........................................... 601,689
---------------
Net interest income after provision for credit losses................................. 476,209
---------------
Non-interest income:
Fees and commissions (Note 26)........................................................ 491,864
Foreign exchange gains--net (Note 3).................................................. --
Trading account profits--net (Note 3)................................................. 138,460
Investment securities gains--net (Note 4)............................................. 20,598
Other non-interest income............................................................. 49,819
---------------
Total.............................................................................. 700,741
---------------
Non-interest expense:
Salaries and employee benefits (Note 16).............................................. 456,568
Occupancy expenses--net (Notes 7 and 25).............................................. 134,787
Foreign exchange losses--net (Note 3)................................................. 333,034
Trading account losses--net (Note 3).................................................. --
Losses on other real estate owned..................................................... 6,233
Goodwill amortization................................................................. 7,862
Other non-interest expenses........................................................... 562,699
---------------
Total.............................................................................. 1,501,183
---------------
Income (loss) before income tax expense (benefit) and cumulative effect of a change in
accounting principle................................................................. (324,233)
Income tax expense (benefit) (Note 8)................................................. (101,832)
---------------
Loss before cumulative effect of a change in accounting principle..................... (222,401)
Cumulative effect of a change in accounting principle, net of tax..................... 5,867
---------------
Net loss.............................................................................. (Yen) (216,534)
===============
Income attributable to preferred shareholders......................................... (Yen) 4,168
---------------
Net loss attributable to common shareholders.......................................... (Yen) (220,702)
===============
Amounts per share (*) (Notes 20 and 22):
Basic and diluted loss per common share--loss before cumulative effect of a change in
accounting principle................................................................. (Yen)(40,789.57)
Basic and diluted loss per common share--net loss..................................... (39,733.32)
--------
(*) Amounts for the years ended March 31,2000 and 2001 have been adjusted to
reflect the stock-for-stock exchanges on April 2, 2001 creating MTFG (see
Note 2).
See the accompanying notes to Consolidated Financial Statements.
F-4
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FROM NONOWNER SOURCES
FOR THE YEARS ENDED MARCH 31, 2000, 2001 AND 2002
Gains (Losses) Income Tax Gains (Losses)
before Income (Expense) Net of Income
Taxes Benefit Taxes
--------------- ------------- --------------
(in millions)
Year ended March 31, 2000:
Net loss........................................................................ (Yen) (47,542)
-------------
Other changes in equity from nonowner sources:
Net unrealized holding gains on investment securities available for sale.... 1,247,967 (521,880) 726,087
Reclassification adjustment for gains included in net loss.................. (84,800) 35,414 (49,386)
--------------- ------------- -------------
Total.................................................................... 1,163,167 (486,466) 676,701
--------------- ------------- -------------
Minimum pension liability adjustments....................................... 43,160 (16,185) 26,975
--------------- ------------- -------------
Foreign currency translation adjustments.................................... (79,496) 15,213 (64,283)
Reclassification adjustment for losses included in net loss................. 11,131 (4,163) 6,968
--------------- ------------- -------------
Total.................................................................... (68,365) 11,050 (57,315)
--------------- ------------- -------------
Total changes in equity from nonowner sources............................... (Yen) 598,819
=============
Year ended March 31, 2001:
Net loss........................................................................ (Yen) (59,174)
-------------
Other changes in equity from nonowner sources:
Net unrealized holding losses on investment securities available for sale... (874,301) 339,259 (535,042)
Reclassification adjustment for gains included in net loss.................. (275,460) 107,452 (168,008)
--------------- ------------- -------------
Total.................................................................... (1,149,761) 446,711 (703,050)
--------------- ------------- -------------
Minimum pension liability adjustments....................................... (114,171) 39,735 (74,436)
--------------- ------------- -------------
Foreign currency translation adjustments.................................... 52,415 (15,415) 37,000
Reclassification adjustment for losses included in net loss................. 6,502 (1,438) 5,064
--------------- ------------- -------------
Total.................................................................... 58,917 (16,853) 42,064
--------------- ------------- -------------
Total changes in equity from nonowner sources............................... (Yen)(794,596)
=============
Year ended March 31, 2002:
Net loss........................................................................ (Yen)(216,534)
-------------
Other changes in equity from nonowner sources:
Net unrealized holding losses on investment securities available for sale... (Yen) (558,583) (Yen) 211,868 (346,715)
Reclassification adjustment for gains included in net loss.................. (46,325) 18,075 (28,250)
--------------- ------------- -------------
Total.................................................................... (604,908) 229,943 (374,965)
--------------- ------------- -------------
Cumulative effect of a change in accounting principle....................... 2,065 (808) 1,257
Net unrealized gains on derivatives qualifying for cash flow hedges......... 7,982 (2,916) 5,066
Reclassification adjustment for gains included in net loss.................. (4,254) 1,627 (2,627)
--------------- ------------- -------------
Total.................................................................... 5,793 (2,097) 3,696
--------------- ------------- -------------
Minimum pension liability adjustments....................................... (122,746) 30,815 (91,931)
--------------- ------------- -------------
Foreign currency translation adjustments.................................... 84,355 (5,444) 78,911
Reclassification adjustment for losses included in net loss................. 115 -- 115
--------------- ------------- -------------
Total.................................................................... 84,470 (5,444) 79,026
--------------- ------------- -------------
Total changes in equity from nonowner sources............................... (Yen)(600,708)
=============
See the accompanying notes to Consolidated Financial Statements.
F-5
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31,
2000, 2001 AND 2002
2000 2001 2002
-------------- -------------- --------------
(in millions)
Preferred stock (Class 1)
(Note 18):
Balance at beginning of year.. (Yen) 122,100 (Yen) 122,100 (Yen) 122,100
-------------- -------------- --------------
Balance at end of year........ (Yen) 122,100 (Yen) 122,100 (Yen) 122,100
============== ============== ==============
Preferred stock (Class 2)
(Note 18):
Balance at beginning of year.. (Yen) 100,000 (Yen) 100,000 (Yen) 100,000
-------------- -------------- --------------
Balance at end of year........ (Yen) 100,000 (Yen) 100,000 (Yen) 100,000
============== ============== ==============
Common stock (Note 19):
Balance at beginning of year.. (Yen) 856,664 (Yen) 856,664 (Yen) 856,664
Issuance of common stock in
exchange for the minority
shares of NTB................ -- -- 16,492
-------------- -------------- --------------
Balance at end of year........ (Yen) 856,664 (Yen) 856,664 (Yen) 873,156
============== ============== ==============
Capital surplus (Note 19):
Balance at beginning of year.. (Yen) 838,015 (Yen) 838,008 (Yen) 831,105
Issuance of common stock in
exchange for the minority
shares of NTB................ -- -- 16,120
Gains (losses) on sales of
treasury stock, net of taxes. (7) (6,903) 3,610
-------------- -------------- --------------
Balance at end of year........ (Yen) 838,008 (Yen) 831,105 (Yen) 850,835
============== ============== ==============
Retained earnings
appropriated for legal
reserve (Note 20):
Balance at beginning of year.. (Yen) 199,263 (Yen) 210,196 (Yen) 221,689
Transfer from unappropriated
retained earnings............ 10,933 11,493 14,848
-------------- -------------- --------------
Balance at end of year (Note
32).......................... (Yen) 210,196 (Yen) 221,689 (Yen) 236,537
============== ============== ==============
Unappropriated retained
earnings (Note 20):
Balance at beginning of year.. (Yen) 510,134 (Yen) 398,263 (Yen) 271,246
Net loss...................... (47,542) (59,174) (216,534)
-------------- -------------- --------------
Total..................... 462,592 339,089 54,712
-------------- -------------- --------------
Deduction:
Cash dividends declared
(Note 1) (*):
Common
share--(Yen)8,255.25,
(Yen)8,255.25 and
(Yen)4,127.63 per share
in 2000, 2001 and 2002.... (47,932) (48,014) (24,103)
Preferred share (Class
1)--(Yen)57,120.00,
(Yen)82,500.00 and
(Yen)41,250.00 per share
in 2000, 2001 and 2002.... (4,649) (6,716) (3,358)
Preferred share (Class
2)--(Yen)8,150.00,
(Yen)16,200.00 and
(Yen)8,100.00 per share
in 2000, 2001 and 2002.... (815) (1,620) (810)
Transfer to retained
earnings appropriated for
legal reserve............... (10,933) (11,493) (14,848)
-------------- -------------- --------------
Total..................... (64,329) (67,843) (43,119)
-------------- -------------- --------------
Balance at end of year (Note
32).......................... (Yen) 398,263 (Yen) 271,246 (Yen) 11,593
============== ============== ==============
Accumulated other changes in
equity from nonowner
sources, net of taxes:
Net unrealized gains on
investment securities
available for sale (Note 4):
Balance at beginning of year. (Yen)1,228,594 (Yen)1,905,295 (Yen)1,202,245
Net change during the year... 676,701 (703,050) (374,965)
-------------- -------------- --------------
Balance at end of year....... (Yen)1,905,295 (Yen)1,202,245 (Yen) 827,280
-------------- -------------- --------------
Net unrealized gains on
derivatives qualifying for
cash flow hedges (Note 23):
Cumulative effect of a
change in accounting
principle................... (Yen) -- (Yen) -- (Yen) 1,257
Net change during the year... -- -- 2,439
-------------- -------------- --------------
Balance at end of year....... (Yen) -- (Yen) -- (Yen) 3,696
-------------- -------------- --------------
Minimum pension liability
adjustments (Note 16):
Balance at beginning of year. (Yen) (42,903) (Yen) (15,928) (Yen) (90,364)
Net change during the year... 26,975 (74,436) (91,931)
-------------- -------------- --------------
Balance at end of year....... (Yen) (15,928) (Yen) (90,364) (Yen) (182,295)
-------------- -------------- --------------
Foreign currency translation
adjustments:
Balance at beginning of year. (Yen) (189,206) (Yen) (246,521) (Yen) (204,457)
Net change during the year... (57,315) 42,064 79,026
-------------- -------------- --------------
Balance at end of year....... (Yen) (246,521) (Yen) (204,457) (Yen) (125,431)
-------------- -------------- --------------
Balance at end of year........ (Yen)1,642,846 (Yen) 907,424 (Yen) 523,250
============== ============== ==============
Treasury stock:
Balance at beginning of year.. (Yen) (153,731) (Yen) (153,669) (Yen) (108,932)
Purchase of treasury stock.... (1,089) (1,005) (7,381)
Sale of treasury stock........ 1,093 46,057 25,339
Net decrease (increase)
resulting from changes in
consolidated subsidiaries.... 58 (315) --
-------------- -------------- --------------
Balance at end of year........ (Yen) (153,669) (Yen) (108,932) (Yen) (90,974)
============== ============== ==============
Total shareholders' equity.... (Yen)4,014,408 (Yen)3,201,296 (Yen)2,626,497
============== ============== ==============
--------
(*) Amounts have been adjusted to reflect the stock-for-stock exchanges on
April 2, 2001 creating MTFG (see Note 2).
See the accompanying notes to Consolidated Financial Statements.
F-6
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000, 2001 AND 2002
2000 2001
---------------- ----------------
(in millions)
Cash flows from operating activities:
Net loss................................................................................... (Yen) (47,542) (Yen) (59,174)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................. 91,696 93,216
Goodwill amortization..................................................................... 2,862 4,444
Provision for credit losses............................................................... 372,449 797,081
Investment securities gains--net.......................................................... (79,845) (232,502)
Foreign exchange losses (gains)--net...................................................... (67,942) 24,241
Provision for deferred income tax benefit................................................. (163,432) (40,372)
Decrease (increase) in trading account assets, excluding foreign exchange contracts....... 691,232 (1,769,413)
Increase (decrease) in trading account liabilities, excluding foreign exchange
contracts................................................................................ (586,096) 227,502
Decrease (increase) in accrued interest receivable and other receivables.................. 98,976 (44,750)
Increase (decrease) in accrued interest payable and other payables........................ (145,175) 171,781
Other--net................................................................................ 123,403 (95,779)
---------------- ----------------
Net cash provided by (used in) operating activities.................................... 290,586 (923,725)
---------------- ----------------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale............................ 28,887,875 31,027,773
Proceeds from maturities of investment securities available for sale....................... 5,599,064 16,154,100
Purchases of investment securities available for sale...................................... (35,801,317) (50,785,346)
Proceeds from maturities of investment securities being held to maturity................... 201,174 79,579
Purchases of investment securities being held to maturity.................................. (473,050) (211,016)
Proceeds from sales of other investment securities......................................... 94,944 33,469
Purchases of other investment securities................................................... (61,290) (15,111)
Net decrease (increase) in loans........................................................... 2,191,104 884,808
Net decrease (increase) in interest-earning deposits in other banks........................ (2,181,666) (567,952)
Net decrease (increase) in call loans, funds sold, and receivables under resale agreements
and securities borrowing transactions..................................................... 1,383,239 (2,334,422)
Capital expenditures for premises and equipment............................................ (44,738) (54,405)
Other--net................................................................................. (16,941) (132,794)
---------------- ----------------
Net cash used in investing activities.................................................. (221,602) (5,921,317)
---------------- ----------------
Cash flows from financing activities:
Net increase in deposits................................................................... 669,981 3,423,211
Net decrease in debentures................................................................. (473,180) (1,135,584)
Net increase (decrease) in call money, funds purchased, and payables under repurchase
agreements and securities lending transactions............................................ (1,181,417) 4,286,605
Net increase (decrease) in due to trust account............................................ 480,755 (7,758)
Net increase (decrease) in other short-term borrowings..................................... (86,380) (65,043)
Proceeds from issuance of long-term debt................................................... 1,034,625 1,159,777
Repayment of long-term debt................................................................ (499,654) (920,967)
Proceeds from sales of treasury stock...................................................... 1,082 34,878
Payments to acquire treasury stock......................................................... (1,089) (1,005)
Dividends paid............................................................................. (53,391) (56,342)
Other--net................................................................................. 193,777 (282,109)
---------------- ----------------
Net cash provided by financing activities.............................................. 85,109 6,435,663
---------------- ----------------
Effect of exchange rate changes on cash and cash equivalents................................. (47,071) 26,070
---------------- ----------------
Net increase (decrease) in cash and cash equivalents......................................... 107,022 (383,309)
Cash and cash equivalents at beginning of year............................................... 2,005,955 2,112,977
---------------- ----------------
Cash and cash equivalents at end of year..................................................... (Yen) 2,112,977 (Yen) 1,729,668
================ ================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest..................................................................................... (Yen) 1,227,027 (Yen) 1,125,616
Income taxes, net of refunds................................................................. 152,647 227,900
Non-cash investing activities:
Loans transferred to other real estate owned................................................. 12,361 6,432
Investment securities being held to maturity transferred to available-for-sale category
(Note 4).................................................................................... -- 369,039
Marketable equity securities transferred to employee retirement benefit trusts
(Note 16)................................................................................... -- --
2002
----------------
Cash flows from operating activities:
Net loss................................................................................... (Yen) (216,534)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................. 105,094
Goodwill amortization..................................................................... 7,862
Provision for credit losses............................................................... 601,689
Investment securities gains--net.......................................................... (20,598)
Foreign exchange losses (gains)--net...................................................... 524,272
Provision for deferred income tax benefit................................................. (129,151)
Decrease (increase) in trading account assets, excluding foreign exchange contracts....... (196,044)
Increase (decrease) in trading account liabilities, excluding foreign exchange
contracts................................................................................ (1,604,006)
Decrease (increase) in accrued interest receivable and other receivables.................. 128,646
Increase (decrease) in accrued interest payable and other payables........................ (190,986)
Other--net................................................................................ 67,013
----------------
Net cash provided by (used in) operating activities.................................... (922,743)
----------------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale............................ 34,164,318
Proceeds from maturities of investment securities available for sale....................... 8,495,287
Purchases of investment securities available for sale...................................... (45,404,685)
Proceeds from maturities of investment securities being held to maturity................... 36,970
Purchases of investment securities being held to maturity.................................. --
Proceeds from sales of other investment securities......................................... 53,872
Purchases of other investment securities................................................... (19,111)
Net decrease (increase) in loans........................................................... (552,865)
Net decrease (increase) in interest-earning deposits in other banks........................ 1,920,108
Net decrease (increase) in call loans, funds sold, and receivables under resale agreements
and securities borrowing transactions..................................................... 927,975
Capital expenditures for premises and equipment............................................ (110,391)
Other--net................................................................................. (58,366)
----------------
Net cash used in investing activities.................................................. (546,888)
----------------
Cash flows from financing activities:
Net increase in deposits................................................................... 2,274,803
Net decrease in debentures................................................................. (1,136,959)
Net increase (decrease) in call money, funds purchased, and payables under repurchase
agreements and securities lending transactions............................................ 88,080
Net increase (decrease) in due to trust account............................................ (1,390,493)
Net increase (decrease) in other short-term borrowings..................................... 1,355,660
Proceeds from issuance of long-term debt................................................... 884,991
Repayment of long-term debt................................................................ (767,312)
Proceeds from sales of treasury stock...................................................... 32,577
Payments to acquire treasury stock......................................................... (7,381)
Dividends paid............................................................................. (28,275)
Other--net................................................................................. 202,481
----------------
Net cash provided by financing activities.............................................. 1,508,172
----------------
Effect of exchange rate changes on cash and cash equivalents................................. 64,190
----------------
Net increase (decrease) in cash and cash equivalents......................................... 102,731
Cash and cash equivalents at beginning of year............................................... 1,729,668
----------------
Cash and cash equivalents at end of year..................................................... (Yen) 1,832,399
================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest..................................................................................... (Yen) 1,127,859
Income taxes, net of refunds................................................................. 98,203
Non-cash investing activities:
Loans transferred to other real estate owned................................................. 7,605
Investment securities being held to maturity transferred to available-for-sale category
(Note 4).................................................................................... --
Marketable equity securities transferred to employee retirement benefit trusts
(Note 16)................................................................................... 133,158
See the accompanying notes to Consolidated Financial Statements.
F-7
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Financial Statements
On April 2, 2001, Mitsubishi Tokyo Financial Group, Inc. (Kabushiki Kaisha
Mitsubishi Tokyo Financial Group) ("MTFG") was established, as a bank holding
company, through which The Bank of Tokyo-Mitsubishi, Ltd. ("BTM"), The
Mitsubishi Trust and Banking Corporation ("Mitsubishi Trust"), and Nippon Trust
Bank Limited ("NTB"), a former subsidiary of BTM, have become wholly-owned
subsidiaries pursuant to stock-for-stock exchanges. The business combination
was accounted for as a pooling of interests and, accordingly, the historical
information has been restated as if the combination had been in effect for all
periods presented. See Note 2 for further information regarding the business
combination.
The accompanying consolidated financial statements are stated in Japanese
yen, the currency of the country in which MTFG is incorporated and principally
operates. The accompanying consolidated financial statements have been prepared
on the basis of generally accepted accounting principles and prevailing
practices within the banking industry in the United States of America. In
certain respects, the accompanying consolidated financial statements reflect
adjustments which are not included in the consolidated financial statements
issued by MTFG and certain of its subsidiaries in accordance with applicable
statutory requirements and accounting practices in the countries of
incorporation. The major adjustments include those relating to (1) investment
securities, (2) derivative financial instruments, (3) allowance for credit
losses, (4) income taxes, (5) foreign currency translation, (6) premises and
equipment, (7) transfer of financial assets, (8) pension liability, (9) other
real estate owned, and (10) lease transactions.
Fiscal periods of certain subsidiaries, which ended on or after December 31,
and MTFG's fiscal year, which ended on March 31, have been treated as
coterminous. For the fiscal years ended March 31, 2000, 2001 and 2002, the
effect of recording intervening events for the three-month periods ended March
31 on MTFG's proportionate equity in net income of subsidiaries with fiscal
periods ending on December 31, would have been (Yen)0.57 billion, (Yen)4.74
billion and (Yen)2.29 billion, respectively. No intervening events occurred
during each of the three-month periods ended March 31, 2001 and 2002 which, if
recorded, would have had effects of more than 1% of total assets, loans, total
liabilities, deposits or shareholders' equity as of March 31, 2001 and 2002.
Description of Business
MTFG and its subsidiaries (together, the "MTFG Group") conduct domestic and
international financial business through BTM and Mitsubishi Trust, each of the
principal subsidiaries of MTFG having domestic and international networks of
branches, offices and subsidiaries in Japan and around the world. BTM is a
major commercial banking institution, providing a broad range of financial
services to consumers and corporations through commercial banking, investment
banking and other activities. NTB was one of the major subsidiaries of BTM
before the business combination and was acting as a trust vehicle for BTM and
was merged with and into Mitsubishi Trust on October 1, 2001. Mitsubishi Trust
is a trust and banking subsidiary whose primary business encompasses banking,
asset management and administration, fiduciary and agency services, real estate
services. MTFG management recognizes that BTM and Mitsubishi Trust, including
their subsidiaries, conducting each of their business with substantial
autonomy, constitute principal segments of the MTFG Group. See Note 27 for more
information by business segment
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
F-8
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term primarily
relate to the determination of the allowance for credit losses on loans and
off-balance-sheet credit instruments, deferred tax assets, derivative financial
instruments, other real estate owned and decline in value of marketable equity
securities and impairment of loan portfolio subsequent to the balance-sheet
date.
Summary of Significant Accounting Policies
Significant accounting policies applied in the accompanying consolidated
financial statements are summarized below:
Consolidation--The consolidated financial statements include the accounts of
MTFG and its subsidiaries over which substantive control is exercised through
either majority ownership of voting stock and/or other means, including, but
not limited to, the possession of the power to direct or cause the direction of
the management and policies of entities. In situations in which the MTFG Group
has less than 100% but greater than 50% of ownership in entities, such entities
are consolidated and minority interests are also recorded in Other Liabilities.
Minority interests in earnings or losses of subsidiaries are reported in Other
Non-interest Expense. Intercompany items have been eliminated. Investments in
affiliated companies (companies over which the MTFG Group has the ability to
exercise significant influence) are accounted for by the equity method of
accounting and are reported in Other Assets. MTFG's equity interest in the
earnings of these equity investees and gains or losses realized on disposition
of investments are reported in Other Non-interest Income or Expense.
Assets that the MTFG Group holds in an agency, fiduciary or trust capacity
are not assets of the MTFG Group and, accordingly, are not included in the
accompanying consolidated balance sheets.
Cash Flows--For the purposes of reporting cash flows, cash and cash
equivalents are defined as those amounts included in the consolidated balance
sheets under the caption Cash and Due from Banks, all of which mature within 90
days. Cash flows from qualified hedging activities are classified in the same
category as the item being hedged.
Translation of Foreign Currency Financial Statements and Foreign Currency
Transactions--Financial statements of overseas entities are translated into
Japanese yen using the respective year-end exchange rates for assets and
liabilities. Income and expense items are translated at average rates of
exchange for the respective periods.
Except for overseas entities located in highly inflationary economies,
foreign currency translation gains and losses related to the financial
statements of overseas entities of the MTFG Group, net of related income tax
effects, are credited or charged directly to Foreign Currency Translation
Adjustments, a component of accumulated other changes in equity from nonowner
sources. Tax effects of gains and losses on foreign currency translation of
financial statements of overseas entities are not recognized unless it is
apparent that the temporary difference will reverse in the foreseeable future.
If applicable, foreign exchange translation gains and losses pertaining to
entities located in highly inflationary economies are recorded in Foreign
Exchange Gains or Losses--Net, as appropriate. For these entities, premises and
equipment and the related depreciation and amortization thereof are translated
at exchange rates prevailing at dates of acquisition.
Foreign currency denominated assets and liabilities are translated into
Japanese yen at the respective year-end exchange rates and resulting gains or
losses are included in earnings. Income and expenses are translated using
average rates of exchange for the respective periods. Gains and losses from
such translation are included in Foreign Exchange Gains or Losses--Net, as
appropriate.
F-9
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Repurchase Agreements, Securities Lending and Other Secured Financing
Transactions--Securities sold with agreements to repurchase ("repurchase
agreements") and securities purchased with agreements to resell ("resale
agreements") are generally treated as sales of securities with related
off-balance-sheet forward repurchase commitments and purchases of securities
with related off-balance-sheet forward resale commitments, respectively.
Securities lending and borrowing transactions are generally treated as secured
financing and lending. A transfer of securities is accounted for as a sale if
it meets the relevant conditions for the surrender of control as provided by
Statement of Financial Accounting Standards ("SFAS") No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
a replacement of FASB Statement No. 125." If the conditions are not met, the
transfer is accounted for as collateralized financing and lending.
On April 1, 2001, the MTFG Group adopted SFAS No. 140, which revises the
standards for accounting for the securitization and other transfers of
financial assets and collateral, and requires certain disclosures, but carries
over most of SFAS No. 125's provisions. SFAS No. 140 is effective for the
transfer and servicing of financial assets and extinguishment of liabilities
occurring after March 31, 2001, except for certain disclosures of
securitizations of financial assets accounted for as sales and disclosures of
collateral pledged, which was effective for fiscal years ended after December
15, 2000. SFAS No. 140 modifies the criteria for determining whether the
transferor has relinquished control of assets and, therefore, whether the
transfer should be accounted for as a sale. The adoption of SFAS No. 140's
provisions that are applicable after March 31, 2001 did not have a material
impact on the MTFG Group's financial position or results of operations.
Collateral--For secured lending transactions, including resale agreements,
securities borrowing transactions, commercial lending and derivative
transactions, the MTFG Group, as a secured party, has the right to require
collateral, including letters of credit, and cash, securities and other
financial assets. The MTFG Group maintains strict levels of collateralization
governed by daily mark-to-market analysis for most securities lending
transactions. Financial assets pledged as collateral are generally negotiable
financial instruments and are permitted to be sold or repledged by secured
parties. If the MTFG Group sells these financial assets pledged as collateral,
it recognizes the proceeds from the sale and its obligation to return the
collateral. For secured borrowing transactions, principally repurchase
agreements and securities lending transactions and derivative transactions,
where the secured party has the right to sell or repledge financial assets
pledged as collateral, the MTFG Group separately reports those financial assets
pledged as collateral in the consolidated balance sheets.
Trading Account Securities--Trading account securities (i.e., securities and
money market instruments held in anticipation of short-term market movements
and for resale to customers) are included in Trading Account Assets, and short
trading positions of instruments are included in Trading Account Liabilities.
Trading positions are carried at fair value on the consolidated balance sheets
and recorded on a trade date basis. Changes in the fair value of trading
positions are recognized currently in Trading Account Profits or Losses--Net,
as appropriate.
Investment Securities--Debt securities for which the MTFG Group has both the
positive intent and ability to hold to maturity are classified as Securities
Being Held to Maturity and carried at amortized cost. The MTFG Group maintains
a portfolio of securities being held to maturity that had been classified by
Mitsubishi Trust before the business combination on April 2, 2001. In the year
ended March 31, 2001, BTM changed its intent to hold securities and transferred
securities previously classified as held to maturity and transferred such
securities to the available-for-sale category. Any remaining securities in
BTM's held-to-maturity portfolio were reclassified as securities available for
sale for the year ended March 31, 2001. All subsequent acquisitions of
securities are classified as either available for sale or trading for at least
two years. Debt securities that the MTFG Group may not hold to maturity and
marketable equity securities, other than those classified as trading
securities, are classified as Securities Available for Sale, and are carried at
their fair values, with unrealized gains and losses
F-10
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
reported on a net-of-tax basis within accumulated other changes in equity from
nonowner sources, which is a component of shareholders' equity. Nonmarketable
equity securities are stated at cost as Other Investment Securities. Individual
debt and equity securities are written down to fair value and the amount of
write-down is charged to operations when, in the opinion of management, a
decline in estimated fair value below the cost of such securities is other than
temporary. Interest and dividends on investment securities are reported in
Interest Income. Dividends are recognized when the shareholders' right to
receive dividend is established. Gains and losses on disposition of investment
securities are computed using the average cost method and are recognized on the
trade date.
Derivative Financial Instruments--The MTFG Group engages in derivative
activities involving swaps, forwards and options, and other types of derivative
contracts. Derivatives are used in trading activities to generate trading
revenues and fee income for its own account and to respond to the customers'
financial needs. Derivatives are also used to manage its exposures to
fluctuations in interest and foreign exchange rates, equity and commodity
prices.
Derivatives entered into for trading purposes are carried at fair value and
are reported as Trading Account Assets or Trading Account Liabilities. Fair
values are based on market or broker-dealer quotes when available. Valuation
models such as present value and pricing models are applied to current market
information to estimate fair values when such quotes are not available. The
fair value of derivative contracts executed with the same counterparty under
legally enforceable master netting agreements are presented on a net basis.
Change in the fair value of such contracts are recognized currently in Foreign
Exchange Gains or Losses--Net with respect to foreign exchange contracts and in
Trading Account Profit or Losses--Net with respect to interest rate contracts
and other types of contracts.
Embedded derivatives that are not clearly and closely related to the host
contracts and meet the definition of derivatives are separated from the host
contracts and measured at fair value unless the contracts embedding derivatives
are measured at fair value in its entirety.
Derivatives are used for asset and liability management to manage exposures
to fluctuations in interest and foreign exchange rates arising from mismatches
of asset and liability positions. Such derivatives may include contracts that
qualify for hedge accounting. Derivatives are evaluated in order to determine
if they qualify for hedge accounting. The hedging derivative instruments must
be highly effective in achieving offsetting changes in fair values or variable
cash flows from the hedged items attributable to the risk being hedged. Any
ineffectiveness, which arises during the hedging relationship, is recognized in
Non-interest Expense in the period in which it arises. All qualifying hedges
are valued at fair value and included in Other Assets or Other Liabilities. For
fair value hedges of interest-bearing assets or liabilities, the change in the
fair value of the hedged item and the hedging instruments to the extent
effective is recognized in net interest income. For all other fair value
hedges, the change in the fair value of the hedged item and change in fair
value of the derivative are recognized in non-interest income or expense. For
cash flow hedges, the unrealized changes in fair value to the extent effective
are recognized in accumulated other changes from nonowner sources. Amounts
realized on cash flow hedges related to variable rate loans are recognized in
net interest income in the period when the cash flow from the hedged item is
realized. The fair value of cash flow hedges related to forecasted
transactions, if any, is recognized in non-interest income or expense in the
period when the forecasted transaction occurs. Any difference that arises from
gains or losses on hedging derivatives offsetting corresponding gains or losses
on the hedged items, and gains and losses on derivatives attributable to the
risks excluded from the assessment of hedge effectiveness are currently
recognized in non-interest income or expense. Derivatives that do not qualify
for hedge accounting are considered trading positions and are accounted for as
such.
Prior to the adoption of SFAS No.133, fair value of derivatives used for
hedging purposes generally were not recorded on the consolidated balance sheet.
Amounts payable and receivable on interest rate swap and
F-11
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
currency swap were accrued according to the contractual terms and included in
the related revenue and expense category as an element of the yield on the
associated instruments.
On April 1, 2001, the MTFG adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No.
138, which establishes accounting and reporting standards for derivative
instruments, as well as certain derivative instruments embedded in other
contracts, and for hedging activities. The cumulative effect of the change in
accounting principle, net of tax, was a gain of (Yen)5,867 million and an
increase of (Yen)1,257 million in accumulated other changes in equity from
nonowner sources.
Loans--Loans are carried at the principal amount outstanding, adjusted for
unearned income and deferred net nonrefundable loan fees and costs. Loans held
and intended for dispostions or sales in secondary market are carried at the
lower of cost or estimated fair value generally on an individual basis. Loan
origination fees, net of certain direct origination costs are deferred and
recognized over the contractual life of the loan as an adjustment of yield
using the method that approximates the interest method. Interest income on
loans that are not impaired are accrued and credited to interest income as it
is earned. Unearned income and discount and premium of a purchased loan is
deferred and recognized over the life of the loan using the method that
approximates the interest method.
Loans are generally placed on nonaccrual status when substantial doubt exist
as to the full and timely collection of either principal or interest, or when
principal or interest is contractually past due, except when the loans are in
the process of collection based upon the judgment of management. A nonaccrual
loan may be restored to an accrual basis when interest and principal payments
are current and management expects that the borrower will make future
contractual payments as scheduled. When a loan is placed on nonaccrual status,
interest accrued but not received is generally reversed against interest
income. Cash receipts on nonaccrual loans, for which the ultimate
collectibility of principal is uncertain, are applied as principal reductions;
otherwise, such collections are credited to income. The MTFG Group does not
capitalize any accrued interest in its principal balances of impaired loans at
each balance sheet date.
Loan Securitization--The MTFG Group securitizes and services commercial and
industrial loans in the normal course of business. The MTFG Group accounts for
a transfer of loans in a securitization transaction as a sale if it meets
relevant conditions for the surrender of control in accordance with SFAS No.
140. Otherwise, the transfer is accounted for as a collateralized borrowing
transaction. Interests in loans sold through a securitization accounted for as
a sale may be retained in the form of subordinated tranches or beneficial
interests. These retained interests are primarily recorded in Securities
Available for Sale. The previous carrying amount of the loans involved in the
transfer is allocated between the loans sold and the retained interest based on
their relative fair values at the date of the securitization. Since quoted
market prices are generally not available, the MTFG Group usually estimates
fair value of these retained interests by determining the present value of
future expected cash flows using modeling techniques that involve management's
best estimates of key assumptions, which may include default rates, recovery
rates, and discount rates. Retained interests that can contractually be prepaid
or otherwise settled in such a way that the MTFG Group would not recover
substantially all of its investment are accounted for as investment securities
available for sale.
Allowance for Credit Losses--The MTFG Group maintains an allowance for
credit losses to absorb losses inherent in the loan portfolio. Actual credit
losses (amounts deemed uncollectible, in whole or in part), net of recoveries,
are deducted from the allowance for credit losses, as net charge-offs. A
provision for credit losses, which is a charge against earnings, is added to
bring the allowance to a level which, in management's opinion, is appropriate
to absorb probable losses inherent in the credit portfolio.
F-12
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A key element relating to policies and discipline used in determining the
allowance for credit losses is the credit classification and the related
borrower categorization process. The categorization is based on conditions that
may affect the ability of borrowers to service their debt, taking into
consideration current financial information, historical payment experience,
credit documentation, public information, analyses of relevant industry
segments and current trends. In determining the appropriate level of the
allowance, the MTFG Group evaluates the probable loss by category of loan based
on its type and characteristics.
The allowance for credit losses for non-homogeneous loans consists of an
allocated allowance for specifically identified problem loans, an allocated
allowance for country risk exposure, a formula allowance, an unallocated
allowance. An allocated allowance is also established for large groups of
smaller-balance homogeneous loans. Non-homogeneous loans such as commercial
loans are evaluated individually and the allowance for such loans is comprised
of specific, country risk, formula and unallocated allowances.
The credit loss allowance for individual customers represents the impairment
allowance determined in accordance with SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." The MTFG Group measures the impairment of a loan,
with the exception of groups of smaller-balance homogeneous loans that are
collectively evaluated for impairment, based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or on the
loan's observable market price, or based on the fair value of the collateral if
the loan is collateral dependent, when it is probable that the MTFG Group will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. For certain subsidiaries, some impaired loans are aggregated
for the purpose of measuring impairment using historical loss factors.
Generally, the MTFG Group's impaired loans include nonaccrual loans,
restructured loans and other loans specifically recognized for impairment.
The credit loss allowance for country risk exposure is a country-specific
allowance for substandard, special mention and unclassified loans. The
allowance is established to supplement the formula allowance for these loans,
based on an estimate of probable losses relating to the exposure to countries
that are identified by management to have a high degree of transfer risk. The
measure is generally based on a function of default probability and recovery
ratio with reference to external credit ratings. For allowance for specifically
identified cross-border problem loans, the MTFG Group incorporates transfer
risk in its determination of related allowance for credit losses.
The formula allowance is calculated by applying loss factors to outstanding
substandard, special mention and unclassified loans. The evaluation of inherent
loss for these loans involves a high degree of uncertainty, subjectivity and
judgment because probable credit losses are not easily identifiable or
measurable. In determining the formula allowance, the MTFG Group, therefore,
relies on a mathematical calculation that incorporates loss factor percentages
of total loans outstanding based on historical experience. Corresponding to the
periodical impairment identification and self-assessment process, the
estimation of formula allowance is back-tested comparing with the actual
results subsequent to the balance sheet date. With respect to BTM, before the
fiscal year ended March 31, 2001, the average annual charge-offs rate over a
designated time period by the category of substandard, special mention and
unclassified loans was used as a basis for the historical loss experience,
adjusted for recent changes in trends and economic conditions. On April 1,
1996, BTM implemented a new credit rating system to capture default data by
credit risk rating and started accumulating historical data for borrowers'
default and recovery from defaulted loans. On March 31, 2001, BTM decided that
it had accumulated sufficient data and began estimating credit losses using
methodology defined by the new credit rating system. Estimated losses inherent
in the loan portfolio at the balance sheet date are calculated by multiplying
the default ratio by the irrecoverable ratio (determined as a complement of the
recovery ratio). The default ratio represents the survivability of individual
borrowers by each credit risk rating over the defined observation period and is
determined by credit risk rating, taking into account the historical number of
defaults of borrowers within each
F-13
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
credit risk rating divided by the total number of borrowers within such credit
risk rating existing at the beginning of the observation period. The recovery
ratio is determined by the historical experience of collections against loans
in default. This change resulted in an increase to the provision for credit
losses of (Yen)17,620 million, and an increase in net loss of (Yen)10,924
million, equivalent to (Yen)2.34 per basic and diluted loss per share, for the
year ended March 31, 2001.
The unallocated allowance is composed of attribution factors, which are
based upon management's evaluation of various conditions that are not directly
measured in the determination of the allocated allowance. The conditions
evaluated in connection with the unallocated allowance may include existing
general economic and business conditions affecting the key lending areas of the
MTFG Group, credit quality trends, collateral values, loan volumes and
concentrations, seasoning of the loan portfolio, specific industry conditions
within portfolio segments, recent loss experience in particular segments of the
portfolio, duration of the current business cycle, bank regulatory examination
results and findings of the MTFG Group's internal credit examiners.
The credit loss allowance for large groups of smaller-balance homogeneous
loans is focused on loss experience for the pool rather than on a detailed
analysis of individual loans. The allowance is determined primarily based on
probable net charge-offs and the probability of insolvency based on the number
of delinquencies.
Allowance for Off-Balance-Sheet Credit Instruments--The MTFG Group maintains
an allowance for credit losses on off-balance-sheet credit instruments,
including commitments to extend credit, guarantees, standby letters of credit
and other financial instruments. The allowance is recorded as a liability and
includes the specific allowance for specifically identified credit exposure and
the allocated formula allowance. With regard to the specific allowance for
specifically identified credit exposure and allocated formula allowance, the
MTFG Group adopts the same methodology used in determining the allowance for
loan credit losses. As described in "Allowance for Credit Losses" above, in the
year ended March 31, 2001 BTM refined its methodology for estimating credit
losses. Credit losses related to derivatives carried at fair value are
considered in the fair valuation of the derivatives.
The MTFG Group periodically assesses the credit exposures related to
individual investment assets within trust accounts in order to determine the
level of allowance required for guarantees for repayment of certain trust
principal. Provisions for credit losses are recognized in the consolidated
financial statements when, in the opinion of management, aggregate credit
losses are judged to exceed the statutory reserve set aside within the trust
account and profits earned during each trust accounting period, and the trust
principal is deemed to be impaired.
Net changes in the allowance for off-balance-sheet credit instruments are
accounted for as Other Non-interest Expense.
Premises and Equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is charged to operating expenses over the estimated
useful lives of the related assets. Leasehold improvements are depreciated over
the terms of the respective leases or the estimated useful lives of the
improvements, whichever are shorter. Depreciation of premises and equipment is
computed under the declining-balance method with respect to premises and
equipment of BTM, Mitsubishi Trust and certain other subsidiaries, and under
the straight-line method with respect to premises and equipment of other
subsidiaries, at rates principally based on the following estimated useful
lives:
Years
--------
Buildings.............. 15 to 50
Equipment and furniture 2 to 15
Leasehold improvements. 3 to 39
F-14
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Maintenance, repairs and minor improvements are charged to operating
expenses as incurred. Major improvements are capitalized. Net gains or losses
on dispositions of premises and equipment are included in Other Non-interest
Income or Expense, as appropriate.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount to future undiscounted net cash flows
expected to be generated by the asset. If an asset is considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the asset exceeds the fair value. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
estimated cost to sell.
Other Real Estate Owned--Real estate assets acquired in full or partial
satisfaction of debt are held for sale, and are initially recorded at fair
value less estimated cost to sell at the date of acquisition and classified as
Other Assets. After acquisition, valuations are periodically performed by
management and the real estate assets are carried at the lower of the carrying
amount or fair value less estimated cost to sell. Routine holding costs,
subsequent declines in appraisal value, and net gains or losses on disposal are
included in Losses on Other Real Estate Owned as incurred.
Goodwill--The MTFG Group has classified as goodwill (included in Other
Assets) the excess of the cost of the MTFG Group's investments in subsidiaries
and affiliated companies over the MTFG Group's share of net assets at dates of
acquisition in purchase transactions. Goodwill is being amortized over periods
not exceeding 10 years. Semiannually, the MTFG Group assesses the
recoverability of goodwill for impairment. For that purpose, the MTFG Group
generally uses expected future undiscounted cash flows to be produced by each
subsidiary and affiliated company. Future cash flows are primarily provided
from operating activities and the MTFG Group focuses on the historical results
of operations, adjusted for current earnings projections and certain available
information, in order to estimate future cash flows. When goodwill exceeds the
expected future undiscounted cash flows, an impairment is calculated as the
difference between the present value of expected future cash flows and its
carrying value. On April 1, 2002, the MTFG Group adopted SFAS No. 142,
"Goodwill and Other Intangible Assets," which provides goodwill acquired in a
purchase business combination should not be amortized and is subject to the
impairment test. Goodwill is recorded at a designated reporting unit level for
the purpose of assessing impairment. An impairment loss, if any, will be
recognized to the extent that the carrying amount of goodwill exceeds its
implied fair value.
Software--The MTFG Group capitalizes certain costs associated with the
acquisition or development of internal-use software. Costs subject to
capitalization are salaries and employee benefits for employees who are
directly associated with and who devote time to the internal-use computer
software project, to the extent of the time spent directly on the project. Once
the software is ready for its intended use, the MTFG Group begins to amortize
capitalized costs on a straight-line basis over a period not longer than 5
years.
Accrued Severance and Pension Liabilities--BTM, Mitsubishi Trust and certain
other subsidiaries have defined benefit retirement plans, including lump-sum
severance indemnities plans. The costs of the plans, based on actuarial
computations of current and future employee benefits, are charged to Salaries
and Employee Benefits.
Debentures and Long-Term Debt--Premiums, discounts and issuance costs of
debentures and long-term debt are amortized based on the method that
approximates the interest method over the terms of the debentures and long-term
debt.
Fees and Commissions--Commission and fees on international business
primarily consist of fees from international funds transfer and collection
services, and trade-related financing services. Commissions and fees
F-15
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
on credit card business are composed of interchange income, annual fees,
royalty and other service charges from franchisees. Other fees and commissions
primarily include fees from investment banking service, including underwriting,
brokerage and advisory services, arrangement fees on securitizations, service
charges on deposit accounts, fees on guarantees, and fees on other services.
Revenue recognition of major components of fees and commissions is as
follows; (1) fees on funds transfer and collection services, fees from
investing banking services are generally recognized as revenue when the related
services are performed, (2) fees from trade-related financing services are
recognized over the period of the financing, (3) trust fees are recorded on an
accrual basis, generally based on the volume of trust assets under management
and/or the operating performance for the accounting period of each trust
account. With respect to trust accounts with guarantee of trust principal,
trust fees are determined based on the profits earned by individual trust
account during the trust accounting period, less provision for statutory
reserve, impairment for individual investments and dividends paid to
beneficiary certificate holders. The trust fees for these trust accounts are
accrued based on the amounts expected to be earned during the accounting period
of each trust account, (4) annual fees and royalty and other service charges
related to the credit card business are recorded on a straight-line basis as
services are provided, (5) interchange income from credit card business is
recognized as billed, (6) service charges on deposit accounts, fees on
guarantees, and fees and commissions from other services are generally
recognized over the period that the service is provided.
Income Taxes--The provision for income taxes is determined using the asset
and liability method of accounting for income taxes. Under this method,
deferred income taxes reflect the net tax effects of (1) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (2) operating loss
and tax credit carryforwards. A valuation allowance is recognized for any
portion of the deferred tax assets where it is considered more likely than not
that it will not be realized. The provision for deferred taxes is based on the
change in the net deferred tax asset or liability from period to period.
Free Distributions of Common Shares--As permitted by the Commercial Code of
Japan (the "Code"), Japanese companies, upon approval by the Board of
Directors, may make a free distribution of shares, in the form of a "stock
split" as defined, to shareholders. In accordance with accepted accounting
practice in Japan, such distribution does not give rise to any change in
capital stock or capital surplus account. Common shares distributed are
recorded as shares issued on the distribution date. See Note 19.
Amounts per Common Share--Basic earnings per share ("EPS") excludes dilutive
effects of potential common shares and is computed by dividing income available
to common stock shareholders by the weighted average number of common shares
outstanding for the period, while diluted EPS gives effect to all dilutive
potential common shares that were outstanding during the period. See Note 22
for the computation of basic and diluted EPSs.
Comprehensive Income (Loss)--The MTFG Group's comprehensive income includes
net income or loss and other changes in equity from nonowner sources. All
changes in unrealized gains and losses on investment securities available for
sale, unrealized gains and losses on derivatives qualifying for cash flow
hedges, minimum pension liability adjustments and foreign currency translation
adjustments constitute the MTFG Group's changes in equity from nonowner sources
and are presented, with related income tax effect, in the consolidated
statements of changes in equity from nonowner sources.
Recently Issued Accounting Pronouncements
Business Combination, Goodwill and Other Intangible Assets--Effective July
1, 2001, the MTFG Group adopted, the provisions of SFAS No. 141, "Business
Combination," and certain provisions of SFAS No. 142,
F-16
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
"Goodwill and Other Intangible Assets" as required for goodwill and intangible
assets resulting from business combinations consummated after June 30, 2001.
These statements require that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. The nonamortization
provisions of the new rules affecting goodwill and intangible assets deemed to
have indefinite lives are effective for all purchase business combinations
completed after June 30, 2001. Based on amortization expense recorded in the
year ended March 31, 2002, the MTFG Group estimates that the elimination of
goodwill amortization expense will increase net income by approximately (Yen)8
billion subject to the impairment test. SFAS No. 142 became effective for the
MTFG Group on April 1, 2002 and primarily addresses the accounting for goodwill
and intangible assets subsequent to their acquisition. SFAS No. 142 requires
that goodwill be recorded at the reporting unit level for the impairment test.
An impairment loss is recorded to the extent that the carrying amount of
goodwill exceeds its implied fair value. At March 31, 2002, the MTFG Group had
unamortized goodwill of (Yen)41,386 million.
Impairment or Disposal of Long-Lived Assets--In August 2001, the FASB issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"). SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001. This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets by establishes additional criteria as compared to existing generally
accepted accounting principles to determine when a long-lived asset is held for
sale. It also broadens the definition of discontinued operations. The MTFG
Group does not expect the adoption of SFAS No. 144 to have a material impact on
the results of operations or financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). The provisions of SFAS No. 145 related to the
rescission of Statement No. 4 are effective for fiscal years beginning after
May 15, 2002. Any gain or loss on extinguishment of debt that was classified as
an extraordinary item in prior periods presented that does not meet the
criteria in APB Opinion 30 for classification as an extraordinary item shall be
reclassified. The provisions of this Statement related to SFAS No. 13 are
effective for transactions occurring after May 15, 2002. All other provisions
of SFAS No. 145 are effective for financial statements issued on or after May
15, 2002. The MTFG Group does not expect the adoption of SFAS No.145 to have a
material impact on the results of operations or financial position.
2. BUSINESS COMBINATION
As discussed in Note 1, on April 2, 2001, MTFG was established as a bank
holding company through which BTM, Mitsubishi Trust and NTB have become
wholly-owned subsidiaries pursuant to stock-for-stock exchanges. 5,742 thousand
shares of MTFG's common stock were issued in exchange for all of the
outstanding shares of BTM's, Mitsubishi Trust's and NTB's common stock based on
exchange ratio of 1.00, 0.70 and 0.14 shares of MTFG's common stock for each
1,000 shares of BTM, Mitsubishi Trust and NTB, respectively. Each 1,000 shares
of BTM's Class 1 Preferred Stock and each 1,000 shares of Mitsubishi Trust's
Class 1 Preferred Stock were exchanged for a share of Class 1 and Class 2
Preferred Stock of MTFG, respectively. The business combination was accounted
for under the pooling-of-interests method and, accordingly, the historical
financial information has been restated as if the business combination had been
in effect for all the periods presented.
The stock-for-stock exchanges also involved the exchange of 27,951 shares of
MTFG's common stock of (Yen)33.0 billion at fair value with 199,655 thousands
of common shares held by NTB's minority shareholders, which has been accounted
for as a purchase.
F-17
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth certain financial data with respect to the
combined and separate results of BTM and Mitsubishi Trust for the two years
ended March 31, 2001. The results for NTB are included within BTM because NTB
had been a consolidated subsidiary of BTM before the consummation of the
business combination.
2000 2001
-------------- --------------
(in millions)
Interest income and non-interest income:
BTM............................................................................... (Yen)2,326,137 (Yen)2,561,842
Mitsubishi Trust.................................................................. 503,643 674,135
-------------- --------------
Total......................................................................... 2,829,780 3,235,977
Adjustments to eliminate securities unrealized losses and impairment losses of cross-
shareholding of common stock....................................................... -- 23,827
Adjustment to reflect the combining interests in consolidated subsidiaries and equity
method investees................................................................... 79 413
Elimination of other intercompany transactions....................................... (6,899) (21,419)
Reclassification to conform to the combined presentation of MTFG (see note).......... (137,425) --
-------------- --------------
Combined, as restated................................................................ (Yen)2,685,535 (Yen)3,238,798
============== ==============
Net income (loss):
BTM............................................................................... (Yen) 35,475 (Yen) (107,684)
Mitsubishi Trust.................................................................. (83,330) 36,874
-------------- --------------
Total......................................................................... (47,855) (70,810)
Adjustments to eliminate securities unrealized losses and impairment losses of cross-
shareholding of common stock, net of related income taxes.......................... 228 14,914
Adjustment to reflect the combining interests in consolidated subsidiaries and equity
method investees, net of income taxes.............................................. 1,019 431
Elimination of other intercompany transactions....................................... (934) (3,709)
-------------- --------------
Combined, as restated................................................................ (Yen) (47,542) (Yen) (59,174)
============== ==============
Accumulated other changes in equity from nonowner sources:
BTM............................................................................... (Yen)1,250,231 (Yen) 620,701
Mitsubishi Trust.................................................................. 386,280 274,363
-------------- --------------
Total......................................................................... 1,636,511 895,064
Adjustments to eliminate securities unrealized losses and impairment losses of cross-
shareholding of common stock, net of related income taxes.......................... 6,910 12,494
Adjustment to reflect the combining interests in consolidated subsidiaries and equity
method investees, net of income taxes.............................................. (575) (134)
-------------- --------------
Combined, as restated................................................................ (Yen)1,642,846 (Yen) 907,424
============== ==============
--------
Note: The combined and restated amounts of interest income and non-interest
income presented above reflect reclassifications of certain revenue and
expense items, including foreign exchange gains or losses, investment
securities gains or losses and trading account profits and losses, all of
which are presented on a net basis as non-interest income or expense in
the MTFG Group's statements of operations.
On October 1, 2001, as part of the business combination, NTB and The Tokyo
Trust Bank, Ltd.("TTB"), which was another one of trust subsidiaries, merged
with and into Mitsubishi Trust through a stock-for-stock exchange. This merger
was recorded at historical cost as transfers and exchanges among entities under
common control.
F-18
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. TRADING ACCOUNT ASSETS AND LIABILITIES
The following table shows trading account assets and liabilities, carried at
estimated fair value, at March 31, 2001 and 2002. For trading derivative
contracts executed under legally enforceable master netting agreements, related
assets and liabilities are bilaterally offset and reported net by counterparty.
March 31
--------------------------------
2001 2002
--------------- ---------------
(in millions)
Trading account assets:
Trading securities:
Japanese government, prefectual and municipal bonds.............. (Yen) 2,287,456 (Yen) 1,425,588
Commercial paper................................................. 1,151,217 2,804,750
Foreign governments bonds and other securities................... 540,298 789,344
--------------- ---------------
Total......................................................... 3,978,971 5,019,682
--------------- ---------------
Trading derivative assets:
Interest rate contracts:
Forward and futures.............................................. 123,523 141,377
Swap and swap-related products................................... 3,374,162 3,501,232
Options purchased................................................ 89,236 75,371
--------------- ---------------
Total......................................................... 3,586,921 3,717,980
--------------- ---------------
Foreign exchange contracts:
Forward and futures.............................................. 1,204,655 612,148
Swaps............................................................ 398,715 463,794
Options purchased................................................ 97,931 73,369
--------------- ---------------
Total......................................................... 1,701,301 1,149,311
--------------- ---------------
Other contracts, mainly equity and credit-related contracts........ 133,697 178,481
Bilateral netting of derivatives under master netting agreements... (2,257,581) (2,568,201)
--------------- ---------------
Total................................................................... (Yen) 7,143,309 (Yen) 7,497,253
=============== ===============
Trading account liabilities:
Trading securities sold, not yet purchased........................... (Yen) 1,451,401 (Yen) 176,954
Trading derivative liabilities:
Interest rate contracts:
Forward and futures.............................................. 129,907 140,695
Swap and swap-related products................................... 2,863,792 3,122,510
Options written.................................................. 79,010 78,720
--------------- ---------------
Total......................................................... 3,072,709 3,341,925
--------------- ---------------
Foreign exchange contracts:
Forward and futures.............................................. 1,184,923 740,248
Swaps............................................................ 436,925 625,064
Options written.................................................. 80,336 66,977
--------------- ---------------
Total......................................................... 1,702,184 1,432,289
--------------- ---------------
Other contracts, mainly equity and credit-related contracts........ 104,094 112,801
Bilateral netting of derivatives under master netting agreements... (2,257,581) (2,568,201)
--------------- ---------------
Total................................................................... (Yen) 4,072,807 (Yen) 2,495,768
=============== ===============
See Note 29 for the methodologies and assumptions used to estimate the fair
values.
F-19
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The MTFG Group performs trading activities through market-making, sales and
arbitrage, while maintaining risk levels within appropriate limits in
accordance with its risk management policy. Net trading gains or losses for the
years ended March 31, 2000, 2001 and 2002 comprised the following:
2000 2001 2002
------------- ------------- ------------
(in millions)
Interest rate and other derivative contracts..... (Yen)(125,679) (Yen) 199,445 (Yen)149,301
Foreign exchange derivative contracts............ 82,220 (156,113) (78,020)
Trading account securities, excluding derivatives (17,386) 30,063 (10,841)
------------- ------------- ------------
Net trading gains (losses)....................... (Yen) (60,845) (Yen) 73,395 (Yen) 60,440
============= ============= ============
4. INVESTMENT SECURITIES
The amortized costs and estimated fair values of investment securities
available for sale and being held to maturity at March 31, 2001 and 2002 were
as follows:
2001 2002
----------------------------------------------------------- ---------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Amortized
Cost Gains Losses Value Cost
--------------- -------------- ------------ --------------- ---------------
(in millions)
Securities available for
sale:
Debt securities:
Japanese national
government and
Japanese
government agency
bonds.................. (Yen) 7,940,554 (Yen) 87,352 (Yen) 9,219 (Yen) 8,018,687 (Yen) 9,887,613
Japanese prefectural
and municipal
bonds.................. 313,124 10,383 -- 323,507 509,850
Foreign governments
and official
institutions bonds..... 1,855,497 45,614 8,823 1,892,288 2,761,296
Corporate bonds......... 2,419,632 40,061 9,703 2,449,990 2,232,789
Mortgage-backed
securities............. 2,110,821 28,402 3,467 2,135,756 1,463,274
Other debt securities... 264,409 521 85 264,845 623,624
Marketable equity
securities.............. 4,274,469 2,463,485 92,112 6,645,842 3,877,975
--------------- -------------- ------------ --------------- ---------------
Total...................... (Yen)19,178,506 (Yen)2,675,818 (Yen)123,409 (Yen)21,730,915 (Yen)21,356,421
=============== ============== ============ =============== ===============
Securities being held to
maturity--debt
securities:
Japanese government
agency bonds............ (Yen) 114,489 (Yen) 5,629 (Yen) -- (Yen) 120,118 (Yen) 89,945
Japanese prefectural and
municipal bonds......... 116,773 5,711 2 122,482 107,544
Foreign governments
and official
institutions bonds...... 72,469 3,306 14 75,761 69,529
Corporate bonds.......... 2,476 90 -- 2,566 2,664
Other debt securities.... -- -- -- -- 2,481
--------------- -------------- ------------ --------------- ---------------
Total...................... (Yen) 306,207 (Yen) 14,736 (Yen) 16 (Yen) 320,927 (Yen) 272,163
=============== ============== ============ =============== ===============
2002
-----------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Gains Losses Value
-------------- ------------ ---------------
Securities available for
sale:
Debt securities:
Japanese national
government and
Japanese
government agency
bonds.................. (Yen) 67,280 (Yen) 3,643 (Yen) 9,951,250
Japanese prefectural
and municipal
bonds.................. 10,439 224 520,065
Foreign governments
and official
institutions bonds..... 106,298 44,940 2,822,654
Corporate bonds......... 64,976 8,198 2,289,567
Mortgage-backed
securities............. 80,779 13,087 1,530,966
Other debt securities... 61,185 4,986 679,823
Marketable equity
securities.............. 2,010,664 400,148 5,488,491
-------------- ------------ ---------------
Total...................... (Yen)2,401,621 (Yen)475,226 (Yen)23,282,816
============== ============ ===============
Securities being held to
maturity--debt
securities:
Japanese government
agency bonds............ (Yen) 4,321 (Yen) -- (Yen) 94,266
Japanese prefectural and
municipal bonds......... 4,754 2 112,296
Foreign governments
and official
institutions bonds...... 3,293 -- 72,822
Corporate bonds.......... 95 -- 2,759
Other debt securities.... 100 -- 2,581
-------------- ------------ ---------------
Total...................... (Yen) 12,563 (Yen) 2 (Yen) 284,724
============== ============ ===============
F-20
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investment securities other than available for sale or being held to
maturity (i.e., nonmarketable equity securities presented in Other investment
securities) were carried at cost of (Yen)168,547 million and (Yen)129,498
million, at March 31, 2001 and 2002, respectively. The corresponding estimated
fair values at those dates were not readily determinable.
See Note 29 for the methodologies and assumptions used to estimate the fair
values.
The amortized cost and estimated fair value of debt securities being held to
maturity and the estimated fair value of debt securities available for sale at
March 31, 2002 by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without penalties. Securities not due at a
single maturity date and securities embedded with call or prepayment options,
such as mortgage-backed securities, are included in the table below based on
their original final maturities.
Held-to-Maturity Available-for-Sale
------------------------- ------------------
Amortized Estimated Estimated
Cost Fair Value Fair Value
------------ ------------ ------------------
(in millions)
Due in one year or less......... (Yen) 67,992 (Yen) 69,782 (Yen) 4,722,980
Due from one year to five years. 112,575 118,888 9,868,444
Due from five years to ten years 91,596 96,054 2,359,905
Due after ten years............. -- -- 842,996
------------ ------------ ---------------
Total........................... (Yen)272,163 (Yen)284,724 (Yen)17,794,325
============ ============ ===============
For the years ended March 31, 2000, 2001 and 2002, proceeds from sales of
securities available for sale were (Yen)28,887,875 million, (Yen)31,027,773
million and (Yen)34,164,318 million, respectively. For the years ended March
31, 2000, 2001 and 2002, gross realized gains on those sales were (Yen)394,863
million, (Yen)605,014 million and (Yen)492,145 million, respectively, and gross
realized losses on those sales were (Yen)131,791 million, (Yen)107,640 million
and (Yen)172,427 million, respectively. In September 2000, BTM changed its
intent to hold securities originally classified as held-to-maturity and
transferred (Yen)369 billion (carrying value) of such securities to the
securities available for sale category while Mitsubishi Trust maintained its
positive intent and ability to hold its held-to-maturity securities without any
sales or transfers of securities being held to maturity during the years ended
March 31, 2000 and 2001. As a result of the transfer, unrealized gains on
securities available for sale were recorded against shareholders' equity and
were not significant. The MTFG Group classifies all acquisitions of securities
as either available for sale or trading for the period of two years after BTM's
transfer of securities being held to maturity into another category.
For the years ended March 31, 2000, 2001 and 2002, losses resulting from
write-downs of investment securities to reflect the decline in value considered
to be other than temporary were (Yen)184,581 million, (Yen)264,783 million and
(Yen)293,861 million, respectively.
Exchange Traded Fund
During the year ended March 31, 2002, BTM transferred marketable equity
securities to an exchange-traded fund ("ETF"), sponsored by an independent
securities firm, BTM concurrently entered into the two separate agreements with
the independent securities firm and BTM sold its marketable equity securities
of (Yen)325,749 million at acquisition cost to an independent securities firm
at the fair value of (Yen)391,698 million in accordance with these agreements.
The securities firm contributed these marketable equity securities and
additional securities purchased from the market to the ETF in order to link the
ETF performance to TOPIX. Certificates issued by the
F-21
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ETF (the "ETF certificates") are linked to TOPIX (a composite index of all
stocks listed on the first section of the Tokyo Stock Exchange ("TSE")) and
have been listed on TSE. BTM purchased the ETF certificates at the fair value
of (Yen)527,967 million with an intention to sell them in the market or to the
securities firm in the near future.
The MTFG Group accounted for the ETF certificates purchased from the
securities firm as retained interests in the marketable equity securities
transferred to the securities firm. The MTFG Group accounted for the transfer
of marketable equity securities as a sale when the MTFG Group received as
proceeds cash or financial instruments other than the ETF certificates. During
the year ended March 31, 2002, the MTFG Group recognized a gain of (Yen)35,442
million on the sales of the marketable equity securities. At March 31, 2002,
the MTFG Group held the ETF certificates of (Yen)91,252 million at fair value
in the Securities Available for Sale. The ETF certificates are carried at fair
value based on the market prices observed in TSE and the fair value change is
closely linked with the movement of TOPIX (1,060.19 points at March 29, 2002).
Banks' Shareholdings Purchase Corporation
Under a law forbidding banks from holding stocks in excess of their primary
(Tier 1) capital after September 30, 2004, which was enacted in November 2001,
the Banks' Shareholdings Purchase Corporation ("BSPC") was established in late
January 2002 in order to soften the impact on the stock market of sales of
cross-shareholdings. BSPC began accepting share offers from financial
institutions on February 15, 2002. It has been funded by financial
institutions, including BTM and Mitsubishi Trust, which made initial
contributions of (Yen)2,000 million ("preferred contributions"). BSPC started
to purchase marketable equity securities beginning in February 2002 for a
period through September 2006, and will be disbanded when BSPC sells all shares
that it purchased from financial institutions, or by January 2012 at the latest.
BSPC has set up two accounts to facilitate selling of cross-shareholdings;
the General Account and the Special Account. In the General Account, each
selling financial institution funds the amount of purchase by BSPC without
guarantees by the Japanese government, and the financial institution will
assume any gains or losses on sales by BSPC of the stocks. In the Special
Account, each selling financial institution has to make a contribution of 8% of
the selling prices to BSPC to fund any future losses ("subordinated
contributions"). The purchase amount in the Special Account is funded by
borrowings guaranteed by the Japanese government with a limit of (Yen)2.0
trillion. The cumulative net loss on sales of stocks in the Special Account,
which will not be determined and finalized before the liquidation of BSPC, will
be compensated by the subordinated contributions at first, and then by the
preferred contributions. If there is a remaining loss, the government, as a
guarantor, will be liable for the loss. On the other hand, if there is a
cumulative net asset at the time of the liquidation, the asset is used to repay
the initial contributions at first and to repay the subordinated contributions
next, and any remaining asset will be paid out as dividends on the
contributions. The remaining gain, if any, will belong to the Japanese
government.
At the establishment, BTM and Mitsubishi Trust paid (Yen)2,000 million in
total to BSPC as initial contributions (preferred contributions). In March
2002, BTM and Mitsubishi Trust sold marketable equity securities with a fair
value of (Yen)20,647 million to the Special Account, and contributed (Yen)1,652
million, an amount equivalent to 8% of the sale price (subordinated
contributions). Also, BTM and Mitsubishi Trust made loans of (Yen)35,600
million to fund BSPC's purchases of marketable equity securities, which are
guaranteed by the government.
The MTFG Group accounts for the sales of marketable equity securities to the
General Account, if any, as secured borrowings, and sales to the Special
Account as sales with subordinated contributions as proceeds of the sales. For
the year ended March 31, 2002, the MTFG Group recognized a gain of (Yen)5,913
million on the sale of marketable equity securities to the Special Account.
Preferred and subordinated contributions are recorded at cost less any
impairment in Other Assets.
F-22
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. LOANS
Loans at March 31, 2001 and 2002 by domicile and type of industry of
borrower are summarized below:
2001 2002
--------------- ---------------
(in millions)
Domestic:
Manufacturing........................... (Yen) 6,451,672 (Yen) 6,394,459
Construction............................ 1,726,278 1,535,191
Real estate............................. 5,272,787 4,923,688
Services................................ 4,763,938 4,549,692
Wholesale and retail.................... 6,592,660 5,983,958
Banks and other financial institutions.. 4,069,828 4,271,182
Other industries........................ 2,797,419 3,850,153
Consumer................................ 6,934,440 7,049,095
--------------- ---------------
Total domestic...................... 38,609,022 38,557,418
--------------- ---------------
Foreign:
Governments and official institutions... 315,321 326,086
Banks and other financial institutions.. 783,501 680,449
Commercial and industrial............... 8,820,141 9,708,102
Other................................... 1,173,223 1,000,044
--------------- ---------------
Total foreign....................... 11,092,186 11,714,681
--------------- ---------------
Less unearned income and deferred loan fees 30,305 42,374
--------------- ---------------
Total............................... (Yen)49,670,903 (Yen)50,229,725
=============== ===============
Substantially all domestic loans are made under agreements which, as
customary in Japan, provide that a bank may, under certain conditions, require
the borrower to provide collateral (or additional collateral) or guarantors
with respect to the loans, and that the bank may treat any collateral, whether
furnished as security for loans or otherwise, as collateral for all
indebtedness to the bank. At March 31, 2001 and 2002, such collateralized loans
originated by the MTFG Group, which were principally collateralized by real
estate, marketable securities and accounts receivable, amounted to
(Yen)9,340,354 million and (Yen)9,003,420 million, respectively, which
represented 24% and 23%, respectively, of the total domestic outstanding loans
at March 31, 2001 and 2002.
Nonaccrual and restructured loans were (Yen)4,245,397 million and
(Yen)4,141,942 million at March 31, 2001 and 2002, respectively. Had interest
on these loans been accrued at the original terms of agreement, gross interest
income on such loans for the years ended March 31, 2001 and 2002 would have
been approximately (Yen)105.6 billion and (Yen)101.1 billion, respectively, of
which approximately (Yen)78.2 billion and (Yen)75.4 billion, respectively, was
included in interest income on loans in the accompanying consolidated
statements of operations. Accruing loans contractually past due 90 days or more
were (Yen)27,397 million and (Yen)23,040 million at March 31, 2001 and 2002,
respectively.
F-23
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impaired Loans
Generally, the MTFG Group's impaired loans include nonaccrual loans,
restructured loans and other loans specifically recognized for impairment. A
summary of the recorded balances of impaired loans and related impairment
allowance at March 31, 2001 and 2002 is shown below:
2001 2002
----------------------------- -----------------------------
Recorded Recorded
Loan Impairment Loan Impairment
Balance Allowance Balance Allowance
-------------- -------------- -------------- --------------
(in millions)
Requiring an impairment allowance.... (Yen)3,650,932 (Yen)1,243,855 (Yen)3,556,557 (Yen)1,296,281
Not requiring an impairment allowance 551,411 -- 489,131 --
-------------- -------------- -------------- --------------
Total................................ (Yen)4,202,343 (Yen)1,243,855 (Yen)4,045,688 (Yen)1,296,281
============== ============== ============== ==============
The average recorded investments in impaired loans were approximately
(Yen)3,108 billion, (Yen)3,217 billion and (Yen)4,209 billion, respectively,
for the years ended March 31, 2000, 2001 and 2002.
For the years ended March 31, 2000, 2001 and 2002, the MTFG Group recognized
interest income of approximately (Yen)21.8 billion, (Yen)57.1 billion and
(Yen)77.0 billion, respectively, on impaired loans. Interest income on
nonaccrual loans was recognized on a cash basis unless ultimate collectibility
of principal is certain, in which cash receipts are applied as principal
reductions. Interest income on accruing impaired loans, including restructured
loans and other loans specifically recognized for impairment, was recognized on
an accrual basis to the extent that the collectibility of interest income was
reasonably certain based on management's assessment.
Lease Receivable
As part of its financing activities, the MTFG Group enters into leasing
arrangements with customers. The MTFG Group's leasing operations are performed
through leasing subsidiaries and consist principally of direct financing leases
involving various types of data processing equipment, office equipment and
transportation equipment.
As of March 31, 2001 and 2002, the components of the investment in direct
financing leases were as follows:
2001 2002
------------ ------------
(in millions)
Minimum lease payment receivable............ (Yen)409,714 (Yen)510,180
Estimated residual values of leased property 31,999 49,225
Less--unearned income....................... (27,110) (47,251)
------------ ------------
Net investment in direct financing leases... (Yen)414,603 (Yen)512,154
============ ============
F-24
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payment receivables under noncancelable leasing
agreements as of March 31, 2002 are as follows:
Direct
Financing
Leases
-------------
(in millions)
Year ending March 31:
2003................................ (Yen)135,617
2004................................ 112,570
2005................................ 96,343
2006................................ 63,807
2007................................ 34,717
2008 and thereafter................. 67,126
------------
Total minimum lease payment receivables (Yen)510,180
============
Government-led Loan Restructuring Program
Under the legislation enacted by the Japanese Diet in June 1996, which
incorporates the restructuring program for the loans of seven failed
housing-loan companies (the "Jusen"), the Deposit Insurance Corporation ("DIC")
established a Housing Loan Corporation ( "HLAC") to collect and dispose of the
loans of the liquidated Jusen. In 1999, HLAC merged with the Resolution and
Collection Bank Limited to create the Resolution and Collection Corporation
("RCC"). RCC is wholly owned by DIC.
Financial institutions, including the MTFG Group, waived the repayment of
substantial amounts of the loans to Jusen and transferred the remaining
balances to HLAC. Financial institutions were requested to make loans to HLAC
to finance its collection activities, and in the year ended March 31, 1997 the
MTFG Group made loans of (Yen)407,078 million, which were included in the loan
portfolio as of March 31, 2001, and 2002. The 15-year term loans to HLAC, which
are guaranteed by DIC under the legislation and the loan agreements, mature in
2011 and earn interest at TIBOR (Tokyo Interbank Offered Rate) plus 0.125%. The
terms and conditions on the loans of other financial institutions to HLAC are
the same except for agricultural financial institutions.
Under this restructuring program, a Financial Stabilization Fund (the
"Special Fund") was established within DIC, and The Bank of Japan and other
financial institutions established another fund (the "New Fund"). These funds
are principally invested in Japanese government bonds. The MTFG Group made
non-interest-earning deposits of (Yen)176,089 million with the Special Fund and
the New Fund in the year ended March 31, 1997. The deposit balances as of March
31, 2001 and 2002, which are included in Other Assets, were (Yen)128,749
million and (Yen)132,655 million, respectively, reflecting a present value
discount and subsequent amortization of the discount during the period until
the expected maturity date. The non-interest-earning deposits with these funds
are expected to mature in 15 years from the deposit dates, which coincides with
the planned operational lifespan of HLAC.
It is uncertain what losses (so-called Stage Two Loss), if any, may
ultimately be incurred by RCC through the collection of the Jusen loans during
the 15-year term. If any such losses ultimately occur, the Japanese government
will be liable for half of such losses, and the investment income to be earned
by the Special Fund during the 15 years is to be used to cover the remaining
half of the losses. The investment income to be earned by the New Fund during
the 15 years is used to compensate for a portion of the public funds used for
the Jusen restructuring.
F-25
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Although the impact on future financial results is subject to reasonable
estimation, at this time management believes all loans and deposits will be
collectible according to their respective terms.
Loan Securitization
The MTFG Group had no significant transfers of loans in securitization
transactions accounted for as sales for the years ended March 31, 2001 and
2002, and did not retain any significant interests associated with loans
transferred in securitizations at March 31, 2002.
6. ALLOWANCE FOR CREDIT LOSSES
Changes in the allowance for credit losses for the years ended March 31,
2000, 2001 and 2002 are shown below:
2000 2001 2002
-------------- -------------- --------------
(in millions)
Balance at beginning of year............................... (Yen)1,813,680 (Yen)1,486,212 (Yen)1,716,984
-------------- -------------- --------------
Provision for credit losses................................ 372,449 797,081 601,689
-------------- -------------- --------------
Charge-offs................................................ 724,032 644,439 669,381
Less--Recoveries........................................... 44,296 46,077 65,977
-------------- -------------- --------------
Net charge-offs............................................ 679,736 598,362 603,404
-------------- -------------- --------------
Other, principally foreign exchange translation adjustments (20,181) 32,053 19,911
-------------- -------------- --------------
Balance at end of year..................................... (Yen)1,486,212 (Yen)1,716,984 (Yen)1,735,180
============== ============== ==============
7. PREMISES AND EQUIPMENT
Premises and equipment at March 31, 2001 and 2002 consisted of the following:
2001 2002
-------------- --------------
(in millions)
Land......................... (Yen) 215,090 (Yen) 200,191
Buildings.................... 451,810 443,828
Equipment and furniture...... 479,659 530,380
Leasehold improvements....... 288,301 232,509
Construction in progress..... 3,329 3,294
-------------- --------------
Total..................... 1,438,189 1,410,202
Less accumulated depreciation 748,526 728,836
-------------- --------------
Premises and equipment--net.. (Yen) 689,663 (Yen) 681,366
============== ==============
Premises and equipment include capitalized leases, principally related to
data processing equipment, which amounted to (Yen)62,839 million of acquisition
cost at March 31, 2001 and (Yen)37,763 million at March 31, 2002. Accumulated
depreciation on such capitalized leases at March 31, 2001 and 2002 amounted to
(Yen)14,916 million and (Yen)17,627 million, respectively.
Depreciation expense of premises and equipment for the years ended March 31,
2000, 2001 and 2002 was (Yen)73,389 million, (Yen)61,482 million and
(Yen)68,162 million, respectively.
F-26
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1999, BTM sold a 50% undivided interest in each of its head office
land and building (including structure and equipment) for (Yen)91,500 million
and of its main office land and building (including structure and equipment)
for (Yen)9,100 million to a real estate company. At the same time, BTM entered
an agreement to lease back the 50% undivided interests of the buildings sold
from the buyer over a period of 7 years. BTM accounted for these transactions
as financing arrangements, and recorded the total proceeds of (Yen)100,600
million as a financing obligation. Under the lease agreement, BTM made
non-interest-bearing deposits of (Yen)8,000 million with the buyer-lessor in
March 1999. The lease payments are determined each year upon negotiations with
the buyer-lessor, based on future market conditions and expenditures for
significant improvements and related expenses of the buildings to be born by
the buyer-lessor. The lease agreement is noncancelable during the lease period
of 7 years. At the end of lease, BTM has no obligations or options specified in
the lease agreement.
At March 31, 2001 and 2002, the financing obligation was (Yen)101,210
million and (Yen)101,806 million, respectively, and total rental payments
amounted to (Yen)6,372 million and (Yen)6,504 million, respectively, for the
years ended March 31, 2001 and 2002.
8. INCOME TAXES
The detail of current and deferred income tax expense or benefit for the
years ended March 31, 2000, 2001 and 2002 was as follows:
2000 2001 2002
------------- ------------- -------------
(in millions)
Current:
Domestic............................................................... (Yen) 164,354 (Yen) 53,683 (Yen) (8,612)
Foreign................................................................ 49,238 49,452 39,454
------------- ------------- -------------
Total.............................................................. 213,592 103,135 30,842
------------- ------------- -------------
Deferred:
Domestic............................................................... (132,333) (41,730) (118,358)
Foreign................................................................ (31,099) 1,358 (14,316)
------------- ------------- -------------
Total.............................................................. (163,432) (40,372) (132,674)
------------- ------------- -------------
Income tax expense (benefit)........................................... 50,160 62,763 (101,832)
------------- ------------- -------------
Income tax expense reported in cumulative effect of a change in
accounting principle.................................................... -- -- 3,523
------------- ------------- -------------
Income tax expense (benefit) reported in shareholders' equity relating to:
Investment securities available for sale............................... 486,466 (446,711) (229,943)
Cumulative effect of a change in accounting principle.................. -- -- 808
Derivatives qualifying for cash flow hedges............................ -- -- 1,289
Minimum pension liability adjustments.................................. 16,185 (39,735) (30,815)
Foreign currency translation adjustments............................... (11,050) 16,853 5,444
------------- ------------- -------------
Total.............................................................. 491,601 (469,593) (253,217)
------------- ------------- -------------
Total..................................................................... (Yen) 541,761 (Yen)(406,830) (Yen)(351,526)
============= ============= =============
Income taxes in Japan applicable to the MTFG Group are imposed by the
national, prefectural and municipal governments, and in the aggregate resulted
in a normal effective statutory rate of approximately 41.9%, 38.9% and 38.0%,
respectively, for the years ended March 31, 2000, 2001 and 2002. Foreign
subsidiaries are subject to income taxes of the countries in which they operate.
F-27
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 30, 2000, the Tokyo Metropolitan Assembly passed a new tax rule
that changed the basis on which it taxes large banks doing business in Tokyo.
BTM, Mitsubishi Trust and NTB are subject to the new regulation. The new rule
requires large banks to pay a 3% local tax on their gross operating income
derived from their Tokyo operations for a period of five years commencing April
1, 2000. Prior to April 1, 2000, the banking institutions paid a local tax
based on their net income. The new 3% tax has been accounted for as
non-interest expenses from the year ended March 31, 2001. With respect to
effective income tax rate, the new taxation decreased the normal statutory rate
by 3.0% to 38.9%.
On May 30, 2000, Osaka Prefectural Assembly also passed a new tax rule that
is substantially the same as the rule approved by the Tokyo Metropolitan
Assembly. The new rule requires large banks to pay a 3% local tax on their
gross operating income derived from Osaka operations for a period of five years
commencing April 1, 2001. With respect to effective income tax rate, the new
taxation decreased the normal effective statutory rate by 0.9% to 38.0%.
As a result of the changing tax rates mentioned above, income tax expenses
increased (Yen)9,381 million and (Yen)12,727 million for the years ended March
31, 2000 and 2001, respectively.
The banks subject to the new tax rule, including BTM, Mitsubishi Trust and
NTB, filed a complaint in October 2000 with the Tokyo District Court, calling
for nullification of the new tax, which they claimed, unfairly targets banks.
On March 26, 2002, the Tokyo District Court rejected the new tax enacted by the
Tokyo Metropolitan Assembly. The court ordered the Tokyo Metropolitan
Government to refund (Yen)72.4 billion in tax payments to 18 major banks and to
pay an additional (Yen)1.8 billion in compensation.
On March 29, 2002, the Metropolitan Government lodged an appeal at the Tokyo
High Court. Following the decision of the Tokyo District Court, 16 major banks
filed a lawsuit on April 4, 2002 with the Osaka District Court against the
Osaka Prefectual Government, seeking to nullify the new tax rule. In response
to the lawsuit, on May 30, 2002, the Osaka Prefectual Government enacted a
revised tax rule that changed the taxation for the year ended March 31, 2002
and the fiscal years subject to the new tax rule. Under the revised tax rule,
for the year ended March 31, 2002, large banks are supposed to pay the lower of
the 3% local tax on their gross operating income or the local tax computed
based on net income. As a result of the revisions, BTM and Mitsubishi Trust did
not pay any local taxes to the Osaka Prefectual Government for the year ended
March 31, 2002. BTM, Mitsubishi Trust and NTB incurred tax expense related to
the new local taxes of (Yen)18.4 billion and (Yen)18.6 billion of the Tokyo
Metropolitan Government for the years ended March 31, 2001 and 2002,
respectively. Had BTM, Mitsubishi Trust and NTB paid the local taxes based on
net income under the former rule, tax expense would have been (Yen)6.6 billion
for the year ended March 31, 2001, and zero for the fiscal year ended March 31,
2002, respectively. To date, there have not been any decisions made by the
Tokyo High Court and the Osaka District Court. As the outcome of these cases is
uncertain, no gain has been recorded in MTFG Group's consolidated financial
statements.
F-28
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the effective income tax rate reflected in the
accompanying consolidated statements of operations to the combined normal
effective statutory tax rate for the years ended March 31, 2000, 2001 and 2002
was as follows:
2000 2001 2002
------- ------- -----
Combined normal effective statutory tax rate........................... 41.9 % 38.9 % (38.0)%
Increase (decrease) in taxes resulting from:
Nondeductible expenses.............................................. 753.5 237.3 2.9
Goodwill amortization............................................... 26.2 31.0 0.7
Nontaxable dividends received....................................... 234.8 225.8 1.3
Foreign tax credit.................................................. (271.4) (90.4) (1.9)
Lower tax rates applicable to income of foreign subsidiaries........ (255.5) (93.8) (2.7)
Foreign income exempted for income tax purpose...................... 23.5 (88.9) (0.5)
Foreign tax assessment (refund)..................................... (645.8) 30.1 (0.7)
Minority interest................................................... 278.5 184.3 2.5
Change in valuation allowance....................................... 489.8 284.7 16.8
Expiration of loss carryforwards of subsidiaries.................... 884.8 733.1 0.1
Enacted change in tax rates......................................... 357.3 245.4 --
Realization of previously unrecognized tax benefits of subsidiaries. -- -- (11.2)
Other--net.......................................................... (1.6) 11.3 (0.7)
------- ------- -----
Effective income tax rate.............................................. 1,916.0% 1,748.8% (31.4)%
======= ======= =====
Deferred tax assets and liabilities are computed for each tax jurisdiction
using current enacted tax rates applicable to periods when the temporary
differences are expected to reverse. The tax effects of the items comprising
the MTFG Group's net deferred tax assets at March 31, 2001 and 2002 were as
follows:
2001 2002
-------------- --------------
(in millions)
Deferred tax assets:
Allowance for credit losses.................................. (Yen) 844,129 (Yen) 930,745
Net operating loss carryforwards............................. 147,339 250,188
Accrued severance indemnities and pension liabilities........ 85,487 125,702
Other real estate owned...................................... 27,806 22,317
Accrued liabilities and other................................ 46,482 53,963
Sale-and-leaseback transactions.............................. 36,165 36,338
Foreign currency translation losses on foreign currency debt. 17,589 24,693
Depreciation................................................. 28,950 20,780
Valuation allowance.......................................... (213,128) (256,579)
-------------- --------------
Total deferred tax assets................................ 1,020,819 1,208,147
-------------- --------------
Deferred tax liabilities:
Investment securities........................................ 212,898 180
Deferred profit on property for income tax purposes.......... 15,172 14,865
Equipment and auto leasing................................... 66,557 102,505
Derivative financial instruments............................. 37,360 23,578
Other........................................................ 2,698 7,666
-------------- --------------
Total deferred tax liabilities........................... 334,685 148,794
-------------- --------------
Net deferred tax assets......................................... (Yen) 686,134 (Yen)1,059,353
============== ==============
F-29
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At March 31, 2002 certain subsidiaries had operating loss carryforwards of
(Yen)646,443 million, which included (Yen)170,521 million of BTM and
(Yen)238,635 million of Mitsubishi Trust, and tax credit carryforwards of
(Yen)1,282 million for tax purposes. Such carryforwards, if not utilized, are
scheduled to expire as follows:
Operating Loss Tax Credit
Carryforwards Carryforwards
-------------- -------------
(in millions)
Year ending March 31:
2003.................... (Yen) 24,424 (Yen) --
2004.................... 51,190 --
2005.................... 79,178 --
2006.................... 143,352 --
2007 and thereafter..... 320,683 --
No definite expiration date 27,616 1,282
------------ ----------
Total............... (Yen)646,443 (Yen)1,282
============ ==========
Income taxes are not provided on undistributed earnings of foreign
subsidiaries, which are considered to be indefinitely reinvested in the
operations of such subsidiaries. At March 31, 2002, such undistributed earnings
of foreign subsidiaries amounted to approximately (Yen)247 billion.
Determination of the amount of unrecognized deferred tax liabilities with
respect to these undistributed earnings is not practicable because of the
complexity associated with its hypothetical calculation including foreign
withholding taxes and foreign tax credits. MTFG has neither plans nor the
intention of disposing of investments in foreign subsidiaries and, accordingly,
does not expect to record capital gains or losses, or otherwise monetize its
foreign subsidiaries' undistributed earnings. Rather, MTFG will receive a
return on investments in foreign subsidiaries by way of dividends.
Income (loss) before income tax expense or benefit for the years ended March
31, 2000, 2001 and 2002 was as follows:
2000 2001 2002
----------- ------------- -------------
(in millions)
Domestic income (loss) (Yen) 5,241 (Yen)(153,242) (Yen)(386,432)
Foreign income (loss). (2,623) 156,831 62,199
----------- ------------- -------------
Total.............. (Yen) 2,618 (Yen) 3,589 (Yen)(324,233)
=========== ============= =============
9. PLEDGED ASSETS AND COLLATERAL
Pledged Assets
At March 31, 2002 assets mortgaged, pledged, or otherwise subject to lien
were as follows:
(in millions)
Due from banks............ (Yen) 1,145
Trading account securities 1,398,056
Investment securities 3,398,756
Loans................ 985,368
Other................ 26,181
--------------
Total............. (Yen)5,809,506
==============
F-30
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The above pledged assets are classified by type of liabilities to which they
relate as follows:
(in millions)
Deposits................................................................ (Yen) 177,266
Call money and funds purchased.......................................... 847,486
Payables under repurchase agreements and securities lending transactions 3,064,291
Other short-term borrowings and long-term debt.......................... 1,713,010
Other................................................................... 7,453
--------------
Total................................................................ (Yen)5,809,506
==============
In addition, at March 31, 2002, certain investment securities, principally
Japanese national government and Japanese government agency bonds, aggregating
(Yen)4,675,786 million were pledged as collateral for acting as a collection
agent of public funds, for settlement of exchange at The Bank of Japan and
Tokyo Bankers Association, for derivative transactions and for certain other
purposes.
Under Japanese law, Japanese banks are required to maintain certain minimum
reserves on deposit with The Bank of Japan based on the amount of deposit
balances and certain other factors. There are similar reserve deposit
requirements for foreign offices engaged in banking businesses in foreign
countries. At March 31, 2001 and 2002, the reserve funds maintained by the MTFG
Group, which are included in Cash and Due from Banks and Interest-earning
Deposits in Other Banks, were (Yen)605,702 million and (Yen)650,642 million,
respectively. Average reserves during the years ended March 31, 2001 and 2002
were (Yen)567,424 million and (Yen)659,602 million, respectively.
Collateral
The MTFG Group accepts and provides financial assets as collateral for
transactions, principally commercial loans, repurchase agreements and
securities lending transactions, call money, and derivatives. Financial assets
eligible for such collateral include, among others, marketable equity
securities, trade and note receivables and certificates of deposit.
Secured parties, including creditors and counterparties to certain
transactions with the MTFG Group, may sell or repledge financial assets
provided as collateral. Certain contracts, however, may not be specific about
the secured party's right to sell or repledge collateral under the applicable
statutes and, therefore, whether or not the secured party is permitted to sell
or repledge a collateral would differ depending on the interpretations of
specific provisions of the existing statutes, contract or certain market
practices. If the MTFG Group determines, based on available information that a
financial asset provided as collateral might not be sold or repledged by the
secured parties, such collateral is not separately reported in the consolidated
balance sheets. If a secured party is permitted to sell or repledge financial
assets provided as collateral by contract or custom under the existing
statutes, the MTFG Group reports such pledged financial assets separately on
the face of the consolidated balance sheets. At March 31, 2002, the MTFG Group
had pledged (Yen)2,060 billion of collateral that may not be sold or repledged
by the secured parties.
Certain banking subsidiaries accept collateral for commercial loans and
certain banking transactions under a standardized agreement with customers,
which provides that these banking subsidiaries may require the customer to
provide collateral or guarantors with respect to the loans and other banking
transactions. Financial assets pledged as collateral are generally negotiable
and transferable instruments, and such negotiability and transferability is
authorized by applicable legislation. In principle, Japanese legislation
permits these banking subsidiaries to repledge financial assets accepted as
collateral unless otherwise prohibited by contract or relevant
F-31
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
statutes. Nevertheless, the MTFG Group did not sell or repledge nor does plan
to sell or repledge such collateral accepted in connection with commercial
loans before a debtor's default or other credit events specified in the
agreements as it is not customary within the banking industry in Japan to
dispose of collateral before a debtor's default and other specified credit
events. Derivative agreements commonly used in the marketplace do not prohibit
a secured party's disposition of financial assets received as collateral, and
in resale agreements and securities borrowing transactions, securities accepted
as collateral may be sold or repledged by the secured parties. At March 31,
2002, the fair value of the collateral accepted by the MTFG Group that is
permitted to be sold or repledged was approximately (Yen)5,011 billion, of
which approximately (Yen)2,614 billion was sold or repledged. The amount
includes the collateral that may be repledged under the current Japanese
legislation but the MTFG Group does not dispose of before counterparties'
default in accordance with the customary practice within the Japanese banking
industry.
10. DEPOSITS
The balances of time deposits, including certificates of deposit ("CDs"),
issued in amounts of (Yen)10 million (approximately US$75 thousand at the
Federal Reserve Bank of New York's noon buying rate on March 29, 2002) or more
with respect to domestic deposits and issued in amounts of US$100,000 or more
with respect to foreign deposits were (Yen)19,646,210 million and
(Yen)9,779,763 million, respectively, at March 31, 2001, and (Yen)16,885,029
million and (Yen)6,783,568 million, respectively, at March 31, 2002.
The maturity information at March 31, 2002 for domestic and foreign time
deposits, including CDs, with a remaining term of more than one year is
summarized as follows:
Domestic Foreign
-------------- ------------
(in millions)
Due after one year through two years.... (Yen)3,736,169 (Yen)181,705
Due after two years through three years. 2,282,090 30,142
Due after three years through four years 1,252,995 17,342
Due after four years through five years. 862,737 13,781
Due after five years.................... 33,805 8,306
-------------- ------------
Total................................ (Yen)8,167,796 (Yen)251,276
============== ============
11. DEBENTURES
In Japan, certain banks, including BTM, issue discount and coupon debentures
in the domestic market under applicable banking laws. The Bank of Tokyo, Ltd.,
which merged with The Mitsubishi Bank, Limited to create BTM, was authorized to
issue such debentures and, after the merger in 1996, BTM is permitted to issue
discount and coupon debentures in the domestic market through March 2002 under
the Law concerning the Merger and Conversion of Financial Institutions of Japan.
F-32
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Debentures at March 31, 2001 and 2002 comprised the following:
2001 2002
-------------- --------------
(in millions)
One-year discount debentures, net of amortized discount of (Yen)1,460 million
in 2001 and (Yen)98 million in 2002--discount at issuance of 0.01% to 0.04%
(0.04% to 0.24% in 2001)................................................... (Yen)1,369,907 (Yen) 824,722
Three-year coupon debentures with interest of 0.02% to 0.80%
(0.06% to 1.20% in 2001)................................................... 936,531 655,101
Five-year coupon debentures with interest of 0.80% to 2.10%
(0.80% to 2.70% in 2001)................................................... 1,097,973 789,299
-------------- --------------
Total..................................................................... (Yen)3,404,411 (Yen)2,269,122
============== ==============
The following is a summary of maturities of debentures subsequent to March
31, 2002:
(in millions)
--------------
Year ending March 31:
2003.............. (Yen)1,600,687
2004.............. 382,782
2005.............. 285,653
--------------
Total......... (Yen)2,269,122
==============
12. CALL LOANS AND FUNDS SOLD, AND CALL MONEY AND FUNDS PURCHASED
A summary of funds transactions for the years ended March 31, 2000, 2001 and
2002 is as follows:
2000 2001 2002
--------------------- --------------------- ---------------------
(in millions)
Average balance during the year:
Call money and funds purchased.............. (Yen) 1,652,202 (Yen) 1,799,133 (Yen) 1,968,252
Call loans and funds sold................... 1,231,727 1,212,028 1,230,103
--------------------- --------------------- ---------------------
Net funds purchased position................... (Yen) 420,475 (Yen) 587,105 (Yen) 738,149
===================== ===================== =====================
Call money and funds purchased:
Outstanding at end of year:
Amount.................................. (Yen) 1,184,573 (Yen) 2,358,036 (Yen) 2,542,489
Principal range of maturities........... 1 day to 30 days 1 day to 30 days 1 day to 30 days
Weighted average interest rate.......... 0.84% 0.90% 0.61%
Maximum balance at any month-end
during the year....................... (Yen) 2,233,024 (Yen) 2,406,836 (Yen) 2,542,489
Weighted average interest rate paid
during the year....................... 0.97% 1.25% 0.91%
Average balances are generally based on a daily average while a month-end
average is used for certain average balances when it is not practicable to
obtain applicable daily averages.
F-33
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. DUE TO TRUST ACCOUNT
Trust banking subsidiaries hold assets in an agent, fiduciary or trust
capacity. Such trust account assets are not the MTFG Group's proprietary assets
and are managed and accounted for separately. However, excess cash funds of
individual trust accounts are often placed with the trust banking subsidiaries
that manage the funds together with their own funds in their proprietary
account. Due to trust account reflects a temporary placement of the excess
funds from individual trust accounts managed by the trust banking subsidiaries
in their fiduciary and trust capacity. In view of the MTFG Group's funding, due
to trust account bears a nature similar to short-term funding, including demand
deposits and other overnight funds purchased, in a manner that the balance
changes in response to the day-to-day changes in the excess funds placed by the
trust accounts. A summary of due to trust account transactions for the years
ended March 31, 2000, 2001 and 2002 is as follows:
2000 2001 2002
-------------- -------------- --------------
(in millions)
Average balance outstanding during the year..... (Yen)4,181,966 (Yen)4,023,941 (Yen)2,940,975
Maximum balance at any month-end during the year 4,397,143 4,488,591 3,533,489
Weighted average interest rate during the year.. 0.78% 0.69% 0.57%
14. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
At March 31, 2001 and 2002, the MTFG Group had unused lines of credit
amounting to (Yen)3,095,092 million and (Yen)3,492,516 million, respectively.
The amounts principally consist of the lines of collateralized intraday
overdrafts without interest charges and collateralized overnight loans on bills
at the official discount rate granted by the BOJ, which are used to cover
shortages in the BOJ account and to meet liquidity needs. The MTFG Group may
borrow from the BOJ on demand up to the total amount of collateral eligible for
credit extension.
Other short-term borrowings at March 31, 2001 and 2002 comprised the
following:
2001 2002
-------------- --------------
(in millions)
Domestic offices:
Loans on notes and acceptances transferred with recourse (rediscount). (Yen) 836,767 (Yen)1,462,940
Commercial paper...................................................... 150,000 596,000
Borrowings from financial institution................................. 578,563 587,372
Other................................................................. 121,091 324,692
-------------- --------------
Total domestic offices............................................ 1,686,421 2,971,004
-------------- --------------
Foreign offices:
Commercial paper...................................................... 298,757 198,367
Other................................................................. 145,847 149,766
-------------- --------------
Total foreign offices............................................. 444,604 348,133
-------------- --------------
Total............................................................. 2,131,025 3,319,137
Less unamortized discount................................................ 1,034 503
-------------- --------------
Other short-term borrowings--net......................................... (Yen)2,129,991 (Yen)3,318,634
============== ==============
Weighted average interest rate on outstanding balance at end of year..... 1.48% 1.09%
F-34
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of other short-term borrowing transactions for the years ended
March 31, 2000, 2001 and 2002 is as follows:
2000 2001 2002
-------------- -------------- --------------
(in millions)
Average balance outstanding during the year..... (Yen)1,839,452 (Yen)1,641,905 (Yen)2,077,604
Maximum balance at any month-end during the year 2,431,224 3,032,747 3,318,634
Weighted average interest rate during the year.. 2.79% 1.65% 2.22%
Long-term debt (with original maturities of more than one year) at March 31,
2001 and 2002 comprised the following:
2001 2002
-------------- --------------
(in millions)
BTM:
Obligations under capital leases........ (Yen) 24,273 (Yen) 26,122
Obligations under sale-and-leaseback
transactions.......................... 101,210 101,806
Unsubordinated debt:
Insurance companies and other
institutions, maturing serially
through 2022, principally
0.06%-6.37%........................ 295,033 271,402
Fixed rate bonds, payable in
Japanese yen, due 2002-2020,
principally 0.26%-2.69%............ 879,400 1,340,000
Adjustable rate bonds, payable in
Japanese yen, due 2005, 0.20%...... 16,360 36,890
Subordinated debt:
Fixed rate notes, payable in
United States dollars, due
2010-2011, 8.40%................... 245,979 266,311
Fixed rate bonds, payable in
Japanese yen, due 2010-2011,
principally 1.93%-2.25%............ 69,700 120,000
Fixed rate borrowings, payable in
Japanese yen, due 2002-2012,
principally 1.27%- 6.20%........... 395,373 428,555
Adjustable rate bonds, payable in
Japanese yen, due 2011, 1.00%...... -- 32,000
Adjustable rate borrowings,
payable in Japanese yen, due
2007-2012, principally
0.10%-6.30%........................ 258,600 157,600
Floating rate borrowings, payable
in Japanese yen, due 2002-2010,
principally 0.08%- 2.30%........... 75,500 26,000
-------------- --------------
Total............................. 2,361,428 2,806,686
-------------- --------------
Mitsubishi Trust:
Obligations under capital leases........ 1,096 1,302
Unsubordinated debt:
Insurance companies and other
institutions, due 2002-2007,
principally 0.00%-4.75%............ 48,951 48,205
Subordinated debt:
Fixed rate borrowings, payable in
Japanese yen, due 2004-2012,
principally 2.00-4.92%............. 35,000 50,000
Adjustable rate borrowings,
payable in Japanese yen, due
2006-2012, principally
0.65%-3.25%........................ 33,000 44,000
Floating rate borrowings, payable
in Japanese yen, due 2002-2003,
principally 2.30%- 3.70%........... 65,000 65,000
Perpetual bonds, payable in
Japanese yen, principally
1.15%-2.25%........................ 29,700 42,200
Fixed rate bonds, payable in
Japanese yen, due 2010, 2.70%...... 27,300 30,000
Adjustable rate bonds, payable in
Japanese yen, due 2010-016,
principally 0.80%- 2.45%........... 42,500 91,300
-------------- --------------
Total............................. 282,547 372,007
-------------- --------------
F-35
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2001 2002
-------------- --------------
(in millions)
Other subsidiaries:
Unsubordinated debt:
Insurance companies and other
institutions, due 2002-2008,
principally 0.38%-7.71%............ (Yen) 108,095 (Yen) 119,733
3% Exchangeable Guaranteed Notes
due 2002, payable in United
States dollars (see Note 15)....... 247,723 266,417
Fixed rate bonds and notes,
payable in United States
dollars, due 2004-2013,
principally 5.45%-7.00%............ 22,028 40,259
Fixed rate bonds and notes,
payable in Japanese yen, due
2002-2017, principally 0.01%-
7.20%.............................. 237,698 178,982
Adjustable rate bonds and notes,
payable in United States
dollars, due 2003, principally
3.03%-7.26%........................ 37,498 16,942
Adjustable rate bonds and notes,
payable in Japanese yen, due
2007-2013, principally
0.00%-6.06%........................ 73,197 57,690
Floating rate bonds and notes,
payable in United States
dollars, due 2003-2021,
principally 0.73%-6.75%............ 64,930 9,264
Floating rate bonds and notes,
payable in Japanese yen, due
2002-2010, principally
0.00%-5.61%........................ 72,911 59,148
Floating rate notes, payable in
Euro, due 2001, 5.25%.............. 29,129 --
Obligations under capital leases
and other miscellaneous debt....... 15,890 14,782
-------------- --------------
Total unsubordinated debt......... 909,099 763,217
-------------- --------------
Subordinated debt:
Insurance companies and other
institutions, due 2010,
principally 3.21%-3.39%............ 21,568 1,553
Undated notes, payable primarily
in Japanese yen, principally
0.39%-4.90%........................ 60,000 60,000
Perpetual bonds, payable in
Japanese yen, principally
1.51%-3.15%........................ 20,300 20,300
Fixed rate bonds and notes,
payable in United States
dollars, due 2007, principally
6.20%-7.75%........................ 36,532 26,995
Fixed rate bonds and notes,
payable in Japanese yen, due
2003-2028, principally 0.40%-
5.10%.............................. 128,403 101,795
Adjustable rate undated notes,
payable in United States
dollars, principally 2.40%-
3.55%.............................. 66,555 76,531
Adjustable rate undated notes,
payable in Japanese yen,
principally 0.58%-3.16%............ 359,764 359,490
Adjustable rate bonds and notes,
payable in United States
dollars, due 2007-2009,
principally 2.19%-7.50%............ 103,104 114,129
Adjustable rate bonds and notes,
payable in Japanese yen, due
2002-2014, principally
0.14%-6.63%........................ 472,886 368,858
Floating rate bonds and notes,
payable in United States
dollars, due 2003, 5.12%........... 19,971 2,645
Floating rate bonds and notes,
payable in Japanese yen, due
2002-2027, principally
0.00%-5.19%........................ 78,850 58,915
Other miscellaneous debt............. 2,285 2,700
-------------- --------------
Total subordinated debt........... 1,370,218 1,193,911
Mandatorily redeemable preferred
securities of subsidiary grantor
trust (see Note 23)................... 40,163 48,020
-------------- --------------
Total............................. 2,319,480 2,005,148
-------------- --------------
Total...................................... (Yen)4,963,455 (Yen)5,183,841
============== ==============
--------
Note: Adjustable rate debts are debts where interest rates are reset in
accordance with the terms of the debt agreements, and floating rate debts
are debts where interest rates are repriced in accordance with movements
of market indices.
F-36
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain unsubordinated bonds and notes (aggregating (Yen)1,148,788 million
at March 31, 2002) issued by subsidiaries, including the above exchangeable
notes, are guaranteed, on a subordinated basis, by MTFG, BTM, Mitsubishi Trust
or a subsidiary as to payment of principal and interest.
BTM, Mitsubishi Trust and certain of other subsidiaries entered into
interest rate and currency swaps for certain debt in order to manage exposure
to interest rate and currency exchange rate movements. As a result of these
swap arrangements, the effective interest rates may differ from the coupon
rates reflected in the above table. The interest rates for the adjustable and
floating rate debt shown in the above table are those in effect at March 31,
2001 and 2002. Certain rates are determined by formulas and may be subject to
certain minimum and maximum rates. Floating and adjustable debt agreements may
provide for interest rate floors to prevent negative interest payments (i.e.,
receipts).
Certain debt agreements permit BTM, Mitsubishi Trust and some of other
subsidiaries to redeem the related debt, as a whole or in part, prior to
maturity at the option of the issuer on terms specified in the respective
agreements.
The following is a summary of maturities of long-term debt subsequent to
March 31, 2002:
Mitsubishi Other
BTM Trust Subsidiaries Total
-------------- ------------ -------------- --------------
(in millions)
Year ending March 31:
2003................ (Yen) 168,885 (Yen) 11,985 (Yen) 367,656 (Yen) 548,526
2004................ 268,618 56,452 161,826 486,896
2005................ 510,496 22,248 90,921 623,665
2006................ 389,339 30,716 52,719 472,774
2007................ 369,773 23,106 113,137 506,016
2008 and thereafter. 1,099,575 227,500 1,218,889 2,545,964
-------------- ------------ -------------- --------------
Total........... (Yen)2,806,686 (Yen)372,007 (Yen)2,005,148 (Yen)5,183,841
============== ============ ============== ==============
15. SUBSIDIARY FINANCIAL INFORMATION
MBL International Finance (Bermuda) Trust (the "Bermuda Trust"), a
wholly-owned finance subsidiary of BTM, issued 3% Exchangeable Guaranteed Notes
due 2002 (the "Exchangeable Notes"). MTFG and BTM irrevocably and
unconditionally guarantee all of the obligations of the Bermuda Trust. The
Exchangeable Notes are exchangeable for shares or American Depositary Shares
("ADSs") of MTFG through November 30, 2002 at an exchange price of US$13.62 per
ADS or share as of March 31, 2001. The exchange price was reset annually
through 2001 to the lesser of the prevailing average ADS price, as defined, or
the exchange price prior to such reset, but not less than US$13.62. The
Exchangeable Notes were redeemable at the option of the issuer or MTFG in
shares or ADSs on November 30 in any year beginning in 1998 through 2001 at an
exchange price of US$13.62.
F-37
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with the rules of the Securities and Exchange Commission of
the United States of America regarding the parent company guarantees of
subsidiary securities, the following table sets forth the condensed
consolidating financial information of MTFG, BTM, the Bermuda Trust and
non-guarantor subsidiaries.
Condensed Consolidating Balance Sheets
Bermuda Non-guarantor Consolidating
MTFG BTM Trust Subsidiaries Adjustments
---------- ----------- -------- ------------- -------------
(in billions)
At March 31, 2001:
Cash, due from banks, interest-earning deposits in other banks,
Call loans and funds sold, and receivables under resale
agreements and securities borrowing transactions............... (Yen) -- (Yen) 9,116 (Yen) -- (Yen) 6,320 (Yen)(2,496)
Investment securities........................................... -- 15,378 250 6,974 (396)
Loans, net of allowance for credit losses....................... -- 34,193 -- 15,698 (1,937)
Other assets.................................................... 3,201 6,318 2 4,957 (4,089)
---------- ----------- -------- ----------- -----------
Total assets.................................................... (Yen)3,201 (Yen)65,005 (Yen)252 (Yen)33,949 (Yen)(8,918)
========== =========== ======== =========== ===========
Deposits........................................................ (Yen) -- (Yen)45,573 (Yen) -- (Yen)15,745 (Yen)(1,212)
Call money and funds purchased, and payables under resale
agreements and securities lending transactions................. -- 5,402 -- 4,394 (1,069)
Debentures, other short-term borrowings, and due to trust
account........................................................ -- 4,352 -- 5,371 (516)
Long-term debt.................................................. -- 3,664 248 2,819 (1,768)
Other liabilities............................................... -- 3,604 2 3,811 (132)
---------- ----------- -------- ----------- -----------
Total liabilities............................................. -- 62,595 250 32,140 (4,697)
Total shareholders' equity.................................... 3,201 2,410 2 1,809 (4,221)
---------- ----------- -------- ----------- -----------
Total liabilities and shareholders' equity...................... (Yen)3,201 (Yen)65,005 (Yen)252 (Yen)33,949 (Yen)(8,918)
========== =========== ======== =========== ===========
At March 31, 2002:
Cash, due from banks, interest-earning deposits in other banks,
call loans and funds sold, and receivables under resale
agreements and securities borrowing transactions............... (Yen) 39 (Yen) 8,040 (Yen) -- (Yen) 5,612 (Yen)(2,824)
Investment securities........................................... 266 16,064 267 7,689 (602)
Loans, net of allowance for credit losses....................... -- 35,080 -- 15,157 (1,742)
Other assets.................................................... 2,594 8,898 2 4,486 (4,661)
---------- ----------- -------- ----------- -----------
Total assets.................................................... (Yen)2,899 (Yen)68,082 (Yen)269 (Yen)32,944 (Yen)(9,829)
========== =========== ======== =========== ===========
Deposits........................................................ (Yen) -- (Yen)47,756 (Yen) -- (Yen)17,313 (Yen)(1,409)
Call money and funds purchased, and payables under resale
agreements and securities lending transactions................. -- 6,882 -- 3,736 (1,375)
Debentures, other short-term borrowings, and due to trust
account........................................................ -- 3,580 -- 4,752 (462)
Long-term debt.................................................. 266 3,994 266 2,524 (1,866)
Other liabilities............................................... 7 3,963 3 2,860 (1,051)
---------- ----------- -------- ----------- -----------
Total liabilities............................................. 273 66,175 269 31,185 (6,163)
Total shareholders' equity.................................... 2,626 1,907 -- 1,759 (3,666)
---------- ----------- -------- ----------- -----------
Total liabilities and shareholders' equity...................... (Yen)2,899 (Yen)68,082 (Yen)269 (Yen)32,944 (Yen)(9,829)
========== =========== ======== =========== ===========
Total
-----------
At March 31, 2001:
Cash, due from banks, interest-earning deposits in other banks,
Call loans and funds sold, and receivables under resale
agreements and securities borrowing transactions............... (Yen)12,940
Investment securities........................................... 22,206
Loans, net of allowance for credit losses....................... 47,954
Other assets.................................................... 10,389
-----------
Total assets.................................................... (Yen)93,489
===========
Deposits........................................................ (Yen)60,106
Call money and funds purchased, and payables under resale
agreements and securities lending transactions................. 8,727
Debentures, other short-term borrowings, and due to trust
account........................................................ 9,207
Long-term debt.................................................. 4,963
Other liabilities............................................... 7,285
-----------
Total liabilities............................................. 90,288
Total shareholders' equity.................................... 3,201
-----------
Total liabilities and shareholders' equity...................... (Yen)93,489
===========
At March 31, 2002:
Cash, due from banks, interest-earning deposits in other banks,
call loans and funds sold, and receivables under resale
agreements and securities borrowing transactions............... (Yen)10,867
Investment securities........................................... 23,684
Loans, net of allowance for credit losses....................... 48,495
Other assets.................................................... 11,319
-----------
Total assets.................................................... (Yen)94,365
===========
Deposits........................................................ (Yen)63,660
Call money and funds purchased, and payables under resale
agreements and securities lending transactions................. 9,243
Debentures, other short-term borrowings, and due to trust
account........................................................ 7,870
Long-term debt.................................................. 5,184
Other liabilities............................................... 5,782
-----------
Total liabilities............................................. 91,739
Total shareholders' equity.................................... 2,626
-----------
Total liabilities and shareholders' equity...................... (Yen)94,365
===========
F-38
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statements of Operations
Bermuda Non-guarantor Consolidating
MTFG BTM Trust Subsidiaries Adjustments
--------- ---------- ------- ------------- -------------
(in billions)
For the year ended March 31, 2000:
Interest income............................................ (Yen) -- (Yen)1,354 (Yen) 7 (Yen) 978 (Yen)(173)
Interest expense........................................... -- 703 7 541 (165)
--------- ---------- ------- ---------- ---------
Net interest income........................................ -- 651 -- 437 (8)
Provision for credit losses................................ -- 248 -- 117 8
--------- ---------- ------- ---------- ---------
Net interest income after provision for credit losses...... -- 403 -- 320 (16)
Non-interest income........................................ -- 397 -- 210 (87)
Non-interest expense....................................... -- 739 -- 664 (179)
Equity interest in earnings................................ (48) 20 -- -- 28
--------- ---------- ------- ---------- ---------
Income (loss) before income tax expense or benefit......... (48) 81 -- (134) 104
Income tax expense (benefit)............................... -- 46 -- 37 (32)
--------- ---------- ------- ---------- ---------
Net income (loss).......................................... (Yen) (48) (Yen) 35 (Yen)-- (Yen) (171) (Yen) 136
========= ========== ======= ========== =========
For the year ended March 31, 2001:
Interest income............................................ (Yen) -- (Yen)1,399 (Yen) 7 (Yen)1,052 (Yen)(175)
Interest expense........................................... -- 827 7 647 (170)
--------- ---------- ------- ---------- ---------
Net interest income........................................ -- 572 -- 405 (5)
Provision for credit losses................................ -- 552 -- 245 --
--------- ---------- ------- ---------- ---------
Net interest income after provision for credit losses...... -- 20 -- 160 (5)
Non-interest income........................................ -- 432 -- 638 (114)
Non-interest expense....................................... -- 577 -- 645 (97)
Equity interest in earnings................................ (59) (22) -- -- 79
--------- ---------- ------- ---------- ---------
Income (loss) before income tax expense or benefit......... (59) (147) -- 153 57
Income tax expense (benefit)............................... -- (39) -- 103 (1)
--------- ---------- ------- ---------- ---------
Net income (loss).......................................... (Yen) (59) (Yen) (108) (Yen)-- (Yen) 50 (Yen) 58
========= ========== ======= ========== =========
For the year ended March 31, 2002:
Interest income............................................ (Yen) 75 (Yen)1,167 (Yen) 8 (Yen) 961 (Yen)(194)
Interest expense........................................... 7 540 8 508 (124)
--------- ---------- ------- ---------- ---------
Net interest income........................................ 68 627 -- 453 (70)
Provision for credit losses................................ -- 377 -- 220 5
--------- ---------- ------- ---------- ---------
Net interest income after provision for credit losses...... 68 250 -- 233 (75)
Non-interest income........................................ 5 314 -- 525 (143)
Non-interest expense....................................... 5 826 -- 760 (98)
Equity interest in earnings................................ (285) 28 -- (1) 249
--------- ---------- ------- ---------- ---------
Income (loss) before income tax expense or benefit......... (217) (234) -- (3) 129
Income tax expense (benefit)............................... -- (95) -- 19 (26)
Cumulative effect of a change in accounting principle, net
of tax.................................................... -- (6) -- 1 (1)
--------- ---------- ------- ---------- ---------
Net income (loss).......................................... (Yen)(217) (Yen) (133) (Yen)-- (Yen) (23) (Yen) 156
========= ========== ======= ========== =========
Total
----------
For the year ended March 31, 2000:
Interest income............................................ (Yen)2,166
Interest expense........................................... 1,086
----------
Net interest income........................................ 1,080
Provision for credit losses................................ 373
----------
Net interest income after provision for credit losses...... 707
Non-interest income........................................ 520
Non-interest expense....................................... 1,224
Equity interest in earnings................................ --
----------
Income (loss) before income tax expense or benefit......... 3
Income tax expense (benefit)............................... 51
----------
Net income (loss).......................................... (Yen) (48)
==========
For the year ended March 31, 2001:
Interest income............................................ (Yen)2,283
Interest expense........................................... 1,311
----------
Net interest income........................................ 972
Provision for credit losses................................ 797
----------
Net interest income after provision for credit losses...... 175
Non-interest income........................................ 956
Non-interest expense....................................... 1,125
Equity interest in earnings................................ (2)
----------
Income (loss) before income tax expense or benefit......... 4
Income tax expense (benefit)............................... 63
----------
Net income (loss).......................................... (Yen) (59)
==========
For the year ended March 31, 2002:
Interest income............................................ (Yen)2,017
Interest expense........................................... 939
----------
Net interest income........................................ 1,078
Provision for credit losses................................ 602
----------
Net interest income after provision for credit losses...... 476
Non-interest income........................................ 701
Non-interest expense....................................... 1,493
Equity interest in earnings................................ (9)
----------
Income (loss) before income tax expense or benefit......... (325)
Income tax expense (benefit)............................... (102)
Cumulative effect of a change in accounting principle, net
of tax.................................................... (6)
----------
Net income (loss).......................................... (Yen) (217)
==========
F-39
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statements of Cash Flows
Bermuda Non-guarantor Consolidating
MTFG BTM Trust Subsidiaries Adjustments Total
-------- ----------- --------- ------------- ------------- -----------
(in billions)
For the year ended March 31, 2000:
Net cash from operating activities................... (Yen) -- (Yen) 457 (Yen) -- (Yen) 156 (Yen)(322) (Yen) 291
Net cash from investing activities................... -- (235) -- (454) 467 (222)
Net cash from financing activities................... -- (254) -- 498 (159) 85
Effect of exchange rate changes on cash and cash
equivalents......................................... -- (12) -- (81) 46 (47)
-------- ----------- --------- ----------- --------- -----------
Net increase (decrease) in cash and cash equivalents. (Yen) -- (Yen) (44) (Yen) -- (Yen) 119 (Yen) 32 (Yen) 107
======== =========== ========= =========== ========= ===========
For the year ended March 31, 2001:
Net cash from operating activities................... (Yen) -- (Yen) (548) (Yen) -- (Yen) (527) (Yen) 151 (Yen) (924)
Net cash from investing activities................... -- (3,378) -- (2,282) (261) (5,921)
Net cash from financing activities................... -- 3,536 -- 2,700 200 6,436
Effect of exchange rate changes on cash and cash
equivalents......................................... -- 8 -- 73 (55) 26
-------- ----------- --------- ----------- --------- -----------
Net increase (decrease) in cash and cash equivalents. (Yen) -- (Yen) (382) (Yen) -- (Yen) (36) (Yen) 35 (Yen) (383)
======== =========== ========= =========== ========= ===========
For the year ended March 31, 2002:
Net cash from operating activities................... (Yen) 67 (Yen) (895) (Yen) -- (Yen) 25 (Yen)(120) (Yen) (923)
Net cash from investing activities................... (66) (1,701) -- 1,153 67 (547)
Net cash from financing activities................... -- 2,542 -- (1,094) 60 1,508
Effect of exchange rate changes on cash and cash
equivalents......................................... -- 9 -- 58 (3) 64
-------- ----------- --------- ----------- --------- -----------
Net increase (decrease) in cash and cash equivalents. (Yen) 1 (Yen) (45) (Yen) -- (Yen) 142 (Yen) 4 (Yen) 102
======== =========== ========= =========== ========= ===========
16. SEVERANCE INDEMNITIES AND PENSION PLANS
All employees of MTFG are loaned from BTM and Mitsubishi Trust. The
employees are subject to severance indemnities and pension plans of each of
these subsidiaries described below, and included in the calculation of pension
costs and liabilities of BTM and Mitsubishi Trust.
Domestic Subsidiaries
BTM, Mitsubishi Trust, and certain other domestic subsidiaries have
severance indemnities plans under which their employees in Japan, other than
those who are directors, are entitled, under most circumstances, upon mandatory
retirement at normal retirement age or earlier termination of employment, to
lump-sum severance indemnities. Under the severance indemnities plans, benefit
payments in the form of lump-sum cash payment without allowing a benefit payee
an option to receive annuity payments, upon mandatory retirement at normal
retirement age or earlier termination of employment, are provided. When a
benefit is paid in a single payment to a benefit payee under the plans, the
payment represents final relief of the obligation.
BTM, Mitsubishi Trust, and certain other domestic subsidiaries also have
funded contributory defined benefit pension plans (private plans) which cover
substantially all of their employees in Japan and provide for lifetime annuity
payments commencing at age 65 based on eligible compensation at the time of
severance, years of service and other factors. These domestic subsidiaries
participate in a contributory defined benefit Japanese government welfare
pension program for their employees under which they have the administrative
and trustee responsibility, through employer/employee owned special judicial
foundations, for premiums collected and invested and payment of benefits. This
government program is combined with the private pension plans through
F-40
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the special judicial foundations. Pension benefits and plan assets applicable
to the government program are included with the contributory pension plans of
these domestic subsidiaries in the determination of net periodic costs and
funded status.
BTM and Mitsubishi Trust also have funded non-contributory defined benefit
pension plans, providing benefits to certain retired employees, excluding
directors, in Japan, based on eligible compensation at the time of severance,
years of service and other factors. BTM's plan covers retired employees whose
service period with BTM was 5 years or more, and provides for lifetime or
certain limited period annuity payments commencing at age 60. Mitsubishi
Trust's plan covers retired employees whose service period with Mitsubishi
Trust was 20 years or more, and provides for a 10-year period annuity payment
commencing at the month following the retirement or, at the option of each
eligible employee, at age 60.
Net periodic cost of the severance indemnities and pension plans, net of
contributions made by employees, for the years ended March 31, 2000, 2001 and
2002 included the following components:
2000 2001 2002
------------ ------------ ------------
(in millions)
Service cost--benefits earned during the year............................. (Yen) 27,031 (Yen) 22,108 (Yen) 22,741
Interest costs on projected benefit obligation............................ 26,814 25,291 25,166
Expected return on plan assets............................................ (18,558) (27,271) (24,403)
Amortization of unrecognized net obligation at transition................. 4,212 4,272 4,199
Amortization of prior service cost........................................ 4,088 3,521 3,405
Amortization of net actuarial loss........................................ 6,826 2,058 10,998
Loss on settlements....................................................... -- 4,295 5,240
------------ ------------ ------------
Net periodic benefit cost................................................. (Yen) 50,413 (Yen) 34,274 (Yen) 47,346
============ ============ ============
Weighted-average assumptions used:
Discount rates in determining expense.................................. 3.30% 3.10% 2.88%
Discount rates in determining benefit obligation....................... 3.10 2.88 2.47
Rates of increase in future compensation level for determining expense. 3.45 2.88 3.12
Rates of increase in future compensation level for determining benefit
obligation........................................................... 2.88 3.12 3.09
Expected rates of return on plan assets................................ 4.01 4.79 4.45
F-41
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the combined funded status and amounts
recognized in the accompanying consolidated balance sheets at March 31, 2001
and 2002 for the plans of BTM, Mitsubishi Trust and certain other domestic
subsidiaries. BTM and some of its domestic subsidiaries have measured plan
assets and benefit obligations at December 31 each year for the purpose of
financial statements whereas Mitsubishi Trust has used March 31 each year for
the measurement date. Accordingly, funded status and amounts recognized in the
table below shows the combined amounts of those presented in the consolidated
financial statements of these subsidiaries.
2001 2002
------------------------------------------- -------------------------------------------
Severance Severance
indemnities indemnities
plans and non- plans and non-
contributory Contributory contributory Contributory
pension plans pension plans Total pension plans pension plans Total
-------------- ------------- ------------- -------------- ------------- -------------
(in millions)
Change in benefit obligation:
Benefit obligation at beginning
of year........................... (Yen) 136,817 (Yen) 684,714 (Yen) 821,531 (Yen)140,487 (Yen) 748,468 (Yen) 888,955
Service cost...................... 6,568 15,540 22,108 6,362 16,379 22,741
Interest cost..................... 4,195 21,096 25,291 3,953 21,213 25,166
Plan participants' contributions.. -- 3,001 3,001 -- 2,974 2,974
Amendments........................ -- (4,319) (4,319) -- (3,431) (3,431)
Actuarial loss.................... 7,956 46,620 54,576 7,677 69,546 77,223
Benefits paid..................... (1,292) (18,184) (19,476) (2,607) (19,207) (21,814)
Lump-sum payment.................. (13,757) -- (13,757) (12,807) -- (12,807)
------------- ------------- ------------- ------------ ------------- -------------
Benefit obligation at end of
year............................. 140,487 748,468 888,955 143,065 835,942 979,007
------------- ------------- ------------- ------------ ------------- -------------
Change in plan assets:
Fair value of plan assets at
beginning of year................. 20,190 532,324 552,514 20,250 515,772 536,022
Actual return (negative return)
on plan assets.................... (200) (52,866) (53,066) (11,138) (37,610) (48,748)
Employer contributions.............. 1,559 51,497 53,056 71,606 118,582 190,188
Plan participants' contributions.... -- 3,001 3,001 -- 2,974 2,974
Benefits paid....................... (1,299) (18,184) (19,483) (2,116) (19,207) (21,323)
------------- ------------- ------------- ------------ ------------- -------------
Fair value of plan assets at end
of year........................... 20,250 515,772 536,022 78,602 580,511 659,113
------------- ------------- ------------- ------------ ------------- -------------
Projected benefit obligation in
excess of plan assets at end of
year................................ (120,237) (232,696) (352,933) (64,463) (255,431) (319,894)
Contributions to or benefits paid
from plan assets during the three
month periods ended March 31,
2001 and 2002....................... 2,313 10,094 12,407 2,698 10,716 13,414
Unrecognized net actuarial loss..... 39,461 166,660 206,121 50,882 289,644 340,526
Unrecognized prior service cost..... 1,833 26,390 28,223 1,621 19,766 21,387
Unrecognized net (asset)
obligation at transition.......... (1,750) 21,478 19,728 (1,538) 16,796 15,258
------------- ------------- ------------- ------------ ------------- -------------
Net amount recognized............... (Yen) (78,380) (Yen) (8,074) (Yen) (86,454) (Yen)(10,800) (Yen) 81,491 (Yen) 70,691
============= ============= ============= ============ ============= =============
Amounts recognized in the balance
sheets:
Prepaid pension cost................ (Yen) 200 (Yen) -- (Yen) 200 (Yen) 301 (Yen) -- (Yen) 301
Accrued benefit liability........... (105,253) (187,520) (292,773) (45,595) (203,819) (249,414)
Intangible assets................... 2,288 49,136 51,424 1,927 40,586 42,513
Accumulated other changes in
equity from nonowner sources...... 24,385 130,310 154,695 32,567 244,724 277,291
------------- ------------- ------------- ------------ ------------- -------------
Net amount recognized............... (Yen) (78,380) (Yen) (8,074) (Yen) (86,454) (Yen)(10,800) (Yen) 81,491 (Yen) 70,691
============= ============= ============= ============ ============= =============
--------
Note: The aggregated accumulated benefit obligations of these plans were
(Yen)839,339 million and (Yen)921,527 million, respectively, in the years
ended March 31, 2001 and 2002. The severance indemnities plans generally
employ a multi-variable, non-linear formula based upon compensation at
the time of severance, rank and years of service. Employees with service
in excess of one year are qualified to receive lump-sum severance
indemnities.
F-42
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plan assets, which include pension trust funds managed by certain life
insurance companies, investment advisory companies and trust banks, consisted
of interest-earning deposits at banks, Japanese government bonds, other debt
securities and marketable equity securities issued by domestic and foreign
entities. Pension assets managed by insurance companies are included in pooled
investment portfolios.
In accordance with the provisions of SFAS No. 87, the MTFG Group has
recorded an additional minimum liability representing the excess of the
accumulated benefit obligation over the fair value of plan assets and accrued
pension liabilities previously recorded. A corresponding amount is recognized
as an intangible asset to the extent of unrecognized net obligation at
transition and prior service costs, with the balance recorded as a separate
reduction of shareholders' equity, net of income taxes.
In accordance with BTM's, Mitsubishi Trust's and certain domestic
subsidiaries' employment practices, certain early-terminated employees are
entitled to special lump-sum termination benefits. The amounts charged to
operations for such early termination benefits for the years ended March 31,
2000, 2001 and 2002 were (Yen)10,287 million, (Yen)10,386 million and
(Yen)9,914 million, respectively.
In the year ended March 31, 2001, Mitsubishi Trust first compiled and
published its financial statements in accordance with US GAAP. In the course of
the compilation, Mitsubishi Trust management concluded that it is not feasible
to obtain the actuarial information necessary to implement SFAS No. 87 as of
the effective date specified in the standard, which was the fiscal year ended
March 31, 1990 for Mitsubishi Trust. Accordingly, Mitsubishi Trust assumed that
it adopted SFAS No. 87 as of April 1, 1995 for the purpose of the consolidated
financial statements. The net obligation at transition was (Yen)33,577 million
and the estimated remaining service period is 17.5 years at the date of
adoption. Six years have passed between the effective date and the assumed
adoption date. Mitsubishi Trust recorded (Yen)11,512 million of the net
transition obligation directly to equity and is amortizing the remaining
portion of the obligation over the 11.5 years.
In accordance with an amendment to the relevant welfare pension legislation
in the year ended March 31, 2002, BTM and Mitsubishi Trust amended their
contributory defined benefit pension plans to change the age of commencement of
lifetime annuity payments from 60 to 65. The effect of the negative amendment
was a decrease in (Yen)13,544 million of the projected benefit obligation, of
which (Yen)10,113 million was associated with BTM's plan amendment and was not
reflected in the consolidated financial statements for the year ended March 31,
2002 as BTM amended its plan in January 2002 after BTM's measurement date of
December 31, 2001.
During the year ended March 31, 2002, BTM and Mitsubishi Trust entered into
pension trust agreements with a local trust bank and contributed marketable
equity securities at fair value of (Yen)133,158 million to the trusts
designated to pay benefits for their severance indemnities plans and
contributory pension plans. The transactions were accounted for as sales with
an aggregate gain of (Yen)26,225 million recognized for the year then ended.
After the merger between Mitsubishi Trust, NTB and Tokyo Trust, the pension
plans of NTB and Tokyo Trust were merged and integrated into Mitsubishi Trust'
plans. NTB's and Tokyo Trust's plans have been separately administered and
managed under the Mitsubishi Trust's plans and continue to provide the same
level of benefits to the eligible employees of NTB and Tokyo Trust without
amendment.
Foreign Offices and Subsidiaries
Foreign offices and subsidiaries also have defined contribution plans and/or
defined benefit plans, which in the aggregate are not considered significant.
The cost of such plans charged to operations for the years ended March 31,
2000, 2001 and 2002 were (Yen)7,205 million, (Yen)5,688 million and (Yen)5,682
million, respectively, including (Yen)2,617 million, (Yen)2,678 million and
(Yen)2,584 million, respectively, for defined contribution plans.
F-43
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign offices and subsidiaries have post employment and/or postretirement
plans for eligible employees and retirees. The costs charged to operations for
the years ended March 31, 2000, 2001 and 2002 were (Yen)1,420 million,
(Yen)1,136 million and (Yen)1,373 million, respectively.
Certain of the MTFG's subsidiaries in the United States of America maintain
employees' retirement plans, which are qualified retirement plans covering
substantially all of the employees of such subsidiaries. The plans are
non-contributory defined benefit plans, which provide benefit upon retirement
based on years of service and average compensation. The plans are funded on a
current basis in compliance with the requirement of the Employee Retirement
Income Security Act of the United States of America. These subsidiaries also
provide certain post employment benefits and postretirement benefits other than
pensions for employees. Plan assets are generally invested in U.S. government
securities, corporate bonds and mutual funds.
Net periodic cost of the employees' retirement and other benefit plans of
certain subsidiaries in the United States of America for the years ended March
31, 2000, 2001 and 2002 included the following components:
2000 2001 2002
----------- ----------- -----------
(in millions)
Service cost--benefits during the year.................................... (Yen) 3,533 (Yen) 3,016 (Yen) 3,521
Interest costs on projected benefit obligation............................ 4,587 5,163 6,317
Expected return on plan assets............................................ (4,867) (5,980) (7,462)
Amortization of unrecognized net obligation at transition................. 479 403 233
Amortization of unrecognized prior service cost........................... 79 (26) (30)
Recognized actuarial loss................................................. 235 28 378
----------- ----------- -----------
Net periodic benefit cost.......................................... 4,046 2,604 2,957
Loss on curtailment....................................................... 699 661 --
Loss (gain) on Settlement................................................. 132 (31) --
----------- ----------- -----------
Net cost after curtailment and settlement.......................... (Yen) 4,877 (Yen) 3,234 (Yen) 2,957
=========== =========== ===========
1999 2000 2001
----------- ----------- -----------
Weighted-average assumptions at December 31:
Discount rates in determining expense.................................. 6.52% 7.71% 7.53%
Discount rates in determining benefit obligation at year end........... 7.71 7.53 7.30
Rates of increase in future compensation level for determining expense. 5.00 5.00 5.00
Rates of increase in future compensation level for determining benefit
obligation at year end............................................... 5.00 5.00 4.89
Expected rates of return on plan assets................................ 8.30 8.35 8.30
F-44
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the funded status and amounts recognized in
the accompanying consolidated balance sheets at March 31, 2001 and 2002 for the
employees' retirement and other benefit plans of certain subsidiaries in the
United States of America:
2000 2001
----------- ------------
(in millions)
Change in benefit obligation:
Benefit obligation at January 1, 2000 and 2001.......................................... (Yen)59,649 (Yen) 80,144
Service cost............................................................................ 3,016 3,521
Interest cost........................................................................... 5,163 6,317
Plan participants' contributions........................................................ 123 168
Amendments.............................................................................. (166) --
Actuarial loss.......................................................................... 7,405 8,422
Settlements............................................................................. (9) --
Benefits paid........................................................................... (3,034) (3,912)
Translation adjustments................................................................. 7,997 13,256
----------- ------------
Benefit obligation at December 31, 2000 and 2001........................................ 80,144 107,916
----------- ------------
Change in plan assets:
Fair value of plan assets at January 1, 2000 and 2001................................... 70,047 80,577
Actual return (negative return) on plan assets.......................................... 1,408 (3,749)
Employer contribution................................................................... 3,379 9,427
Plan participants' contributions........................................................ 123 168
Benefits paid........................................................................... (2,955) (3,882)
Translation adjustments................................................................. 8,575 12,246
----------- ------------
Fair value of plan assets at December 31, 2000 and 2001................................. 80,577 94,787
----------- ------------
Fair value of plan assets (projected benefit obligation) in excess of projected benefit
obligation (fair value of plan assets) at December 31, 2000 and 2001.................. 433 (13,129)
Unrecognized net actuarial loss (gain).................................................. (2,946) 17,486
Unrecognized prior service cost......................................................... 25 62
Unrecognized net obligation at transition............................................... 4,718 5,443
----------- ------------
Net amount recognized................................................................... (Yen) 2,230 (Yen) 9,862
=========== ============
Amounts recognized in the balance sheets:
Prepaid pension cost.................................................................... (Yen) 5,432 (Yen) 13,211
Accrued benefit liability............................................................... (3,325) (2,887)
Intangible assets....................................................................... 31 26
Accumulated other changes in equity from nonowner sources............................... 92 (488)
----------- ------------
Net amount recognized................................................................... (Yen) 2,230 (Yen) 9,862
=========== ============
F-45
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. OTHER ASSETS AND LIABILITIES
Major components of other assets and liabilities at March 31, 2001 and 2002
were as follows:
2001 2002
-------------- --------------
(in millions)
Other assets:
Accounts receivable:
Receivables from brokers, dealers and customers for securities
transactions............................................................. (Yen) 584,518 (Yen) 499,588
Other...................................................................... 107,845 332,403
Deferred income tax assets..................................................... 728,319 1,120,831
Investments in affiliated companies............................................ 119,451 95,421
Other real estate owned........................................................ 33,892 11,724
Other.......................................................................... 446,072 600,937
-------------- --------------
Total................................................................... (Yen)2,020,097 (Yen)2,660,904
============== ==============
Other liabilities:
Accounts payable:
Payables to brokers, dealers and customers for securities transactions..... (Yen)1,296,509 (Yen)1,255,434
Other...................................................................... 387,733 407,185
Deferred income tax liabilities................................................ 42,185 61,478
Allowance for off-balance-sheet credit instruments............................. 56,302 102,629
Accrued pension liability...................................................... 298,756 254,955
Minority interest.............................................................. 173,388 210,503
Accrued and other liabilities.................................................. 227,752 430,154
-------------- --------------
Total................................................................... (Yen)2,482,625 (Yen)2,722,338
============== ==============
At March 31, 2001 and 2002, the valuation allowance to write down the
carrying amounts of other real estate owned to their estimated fair value less
estimated cost to sell was (Yen)37,656 million and (Yen)11,195 million,
respectively. The valuation allowance decreased by (Yen)69,201 million,
(Yen)56,190 million and (Yen)26,461 million, respectively, during the years
ended March 31, 2000, 2001 and 2002.
Investments in affiliated companies, which are accounted for using the
equity method, include marketable equity securities carried at (Yen)96,501
million and (Yen)68,341 million, respectively, at March 31, 2001 and 2002.
Corresponding aggregated market values were (Yen)101,716 million and
(Yen)71,680 million, respectively.
At March 31, 2001 and 2002, capitalized costs of software for internal uses
are (Yen)98,475 million and (Yen)126,441 million, which are included in
"Other." Related amortization expenses are (Yen)31,734 million and (Yen)36,932
million respectively, for the years ended March 31, 2001 and 2002.
18. PREFERRED STOCK
MTFG is authorized to issue 81,400 shares of Class 1 Preferred Stock,
100,000 shares of Class 2 Preferred Stock, 120,000 shares of Class 3 Preferred
Stock and 120,000 shares of Class 4, without par value.
All classes of preferred stock are non-voting and have equal preference over
MTFG's common stock for the payment of dividends and the distribution of assets
in the event of a liquidation or dissolution of MTFG. They are all
non-cumulative and non-participating for dividend payments. Shareholders of
Class 1, Class 2, Class 3 and
F-46
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Class 4 Preferred Stock receive a liquidation distribution at (Yen)3,000
thousand, (Yen)2,000 thousand, (Yen)2,500 thousand and (Yen)2,500 thousand per
share, respectively, and do not have the right to participate in any further
liquidation distributions.
Class 1 Preferred Stock
Class 1 Preferred Stock is redeemable at the option of MTFG. At the time of
issuance, the Board of Directors determines an issue price, while an annual
dividend (not to exceed (Yen)82,500 per share) and redemption terms, including
a redemption price, are stipulated by the articles of incorporation.
On January 21, 1999, BTM issued 81,400 thousand shares of Class 1 preferred
stock at (Yen)3,000 per share ((Yen)244,200 million in the aggregate). On April
2, 2001, MTFG issued 81,400 shares of Class 1 Preferred Stock in exchange for
Class 1 preferred stock of BTM at an exchange ratio of one share of MTFG's
Class 1 Preferred Stock for each 1,000 shares of BTM Class 1 preferred stock.
MTFG may redeem shares of Class 1 Preferred Stock at (Yen)3,000 thousand per
share, in whole or in part, on or after January 21, 2004.
Class 2 Preferred Stock
Class 2 Preferred Stock is convertible into common stock at the option of
the shareholders during a conversion period. The conversion is mandatorily
required on the date immediately following the closing date of the conversion
period. At the time of issuance, the Board of Directors determines an issue
price, while an annual dividend (not to exceed (Yen)16,200 per share) and
conversion terms, including a conversion period, are stipulated by the articles
of incorporation.
On March 31, 1999, Mitsubishi Trust issued 100,000 thousand shares of Class
1 preferred stock at (Yen)2,000 per share ((Yen)200,000 million in the
aggregate). On April 2, 2001, MTFG issued 100,000 shares of Class 2 Preferred
Stock in exchange for Class 1 preferred stock of Mitsubishi Trust on exchange
ratio of one share of MTFG's Class 2 Preferred Stock for each 1,000 shares of
Mitsubishi Trust Class 1 preferred stock.
At the option of the shareholders, Class 2 Preferred Stock is convertible
into common stock during the period from July 31, 2003 to July 31, 2008 at the
conversion price of (Yen)1,391,428 per share. The conversion price will be
revised annually on August 1 of each year from 2003 through 2007 to reflect,
with certain adjustments, as defined, the average market closing price of the
common stock traded on the Tokyo Stock Exchange for the 30 business days
starting from the 45th business day prior to the date of revision of the
conversion price. The conversion price will not exceed the initial conversion
price of (Yen)1,391,428 nor be below (Yen)714,285 unless certain events or
circumstance, as defined, arise after the issuance of the Class 2 Preferred
Stock shares.
Class 2 Preferred Stock shares which are not converted at the option of the
shareholders will be mandatorily converted into common stock on August 1, 2008,
at the conversion price determined based on the average market closing price of
the common stock traded on the Tokyo Stock Exchange for the 30 business days
starting from the 45th business day prior to the date of mandatory conversion.
In the event the average market closing price is below (Yen)714,285, the
conversion price will be (Yen)714,285.
Class 3 Preferred Stock
Class 3 Preferred Stock is redeemable at the option of MTFG. At the time of
issuance, the Board of Directors determines an issue price, an annual dividend
(not to exceed (Yen)250,000 per share), and redemption terms, including a
redemption price. No shares of the Class 3 Preferred Stock are issued and
outstanding at March 31, 2001 and 2002.
F-47
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Class 4 Preferred Stock
Class 4 Preferred Stock is convertible into common stock at the option of
preferred stock shareholders during a conversion period. The conversion is
mandatorily required on the date immediately following the closing date of the
conversion period. At the time of issuance, the Board of Directors determines
an issue price, an annual dividend (not to exceed (Yen)125,000 per share), and
conversion terms, including a conversion period. No shares of the Class 4
Preferred Stock are issued and outstanding at March 31, 2001 and 2002.
MTFG may, at any time, purchase and retire, at fair value, of Classes 1
through 4 Preferred Stock out of earnings available for distribution to the
shareholders.
19. COMMON STOCK AND CAPITAL SURPLUS
The changes in the number of issued shares of common stock during the years
ended March 31, 2000, 2001 and 2002 were as follows:
2000 2001 2002
--------- --------- ---------
(shares)
Balance at beginning of year............ 5,587,068 5,587,068 5,587,068
Issued in exchange for the shares of NTB -- -- 155,400
--------- --------- ---------
Balance at end of year.................. 5,587,068 5,587,068 5,742,468
========= ========= =========
Under the Code, issuances of common stock, including conversions of bonds
and notes, are required to be credited to the common stock account for at least
50% of the proceeds and to the legal capital surplus account ("legal capital
surplus") for the remaining amounts.
At March 31, 2002, 146,797 shares were reserved for the conversion of
outstanding bonds and notes discussed in Note 14.
The Code permits Japanese companies, upon approval by the Board of
Directors, to issue shares in the form of a "stock split," as defined in the
Code (see Note 1). Also, the Code prior to April 1, 1991 permitted Japanese
companies to issue free share distributions. BTM and Mitsubishi Trust from time
to time made free share distributions. These free distributions usually were
from 5% to 10% of outstanding common stock and publicly-owned corporations in
the United States issuing shares in similar transactions would be required to
account for them as stock dividends as of the shareholders' record date by
reducing retained earnings and increasing the appropriate capital accounts by
an amount equal to the fair value of the shares issued. The application of such
United States accounting practice to the cumulative free distributions made by
BTM and Mitsubishi Trust at March 31, 2002, would have increased capital
accounts by (Yen)1,910,106 million with a corresponding decrease in
unappropriated retained earnings.
The Code permits, upon approval of the Board of Directors, the transfer of
amounts from the legal capital surplus to the capital stock account.
The Code, as amended effective on October 1, 2001 (the "Code Amendments")
permits Japanese companies to effect purchases of their own shares pursuant to
a resolution by the shareholders at an annual general meeting until the
conclusion of the following ordinary general meeting of shareholders, and to
hold such shares as its treasury shares indefinitely regardless of any purpose.
However, the Code requires the amount of treasury stock purchased be within the
amount of retained earnings available for dividends. Disposition of treasury
stock is subject to the approval of the Board of Directors and is to follow the
procedures similar to the public offering of shares for subscription. Prior to
the amendment, in principle, reacquisition of treasury shares was prohibited
with
F-48
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the exception of reacquisition for retirement and certain limited purposes, as
specified by the Code. Any treasury shares were required to be disposed of
shortly.
20. RETAINED EARNINGS, LEGAL RESERVE AND DIVIDENDS
In addition to the Code, Japanese banks, including BTM and Mitsubishi Trust,
are required to comply with the Banking Law of Japan (the "Banking Law").
Legal Reserve Set Aside as Appropriation of Retained Earnings and Legal Capital
Surplus
Under the Code
Effective October 1, 2001, the Code Amendments provide that an amount at
least equal to 10% of the aggregate amount of cash dividends and certain
appropriations of retained earnings associated with cash outlays applicable to
each period shall be appropriated and set aside as a legal reserve until the
aggregate amount of legal reserve set aside as appropriation of retained
earnings and the legal capital surplus equals 25% of common stock.
Prior to the Code Amendments, the Code provided that an amount at least
equal to 10% of the aggregate amount of cash dividends and certain
appropriations of retained earnings associated with cash outlays applicable to
each period shall be appropriated and set aside as a legal reserve until such
reserve equals 25% of common stock. The retained earnings so appropriated may
be used to eliminate or reduce a deficit by resolution of the shareholders or
may be transferred to capital stock by resolution of the Board of Directors.
Under the Banking Law
In line with the Code Amendments, on June 29, 2001, amendments to the
Banking Law (the "Banking Law Amendments") were promulgated and became
effective on October 1, 2001. The Banking Law Amendments provide that an amount
at least equal to 20% of the aggregate amount of cash dividends and certain
appropriations of retained earnings associated with cash outlays applicable to
each fiscal period shall be appropriated and set aside as a legal reserve until
the aggregate amount of legal reserve set aside as appropriation of retained
earnings and the legal capital surplus equals 100% of common stock.
Prior to the Banking Law Amendments, the Banking Law provided that an amount
at least equal to 20% of the aggregate amount of cash dividends and certain
appropriations of retained earnings associated with cash outlays applicable to
each fiscal period shall be appropriated and set aside as a legal reserve until
such reserve equals 100% of common stock. The retained earnings so appropriated
may be used to eliminate or reduce a deficit by resolution of the shareholders
or may be transferred to capital stock by resolution of the Board of Directors.
Unappropriated Retained Earnings and Dividends
Under the Code, the amount of retained earnings available for dividends is
based on the amount recorded in the MTFG's general books of account maintained
in accordance with accepted Japanese accounting practices. The adjustments
included in the accompanying consolidated financial statements but not recorded
in MTFG's general books of account as explained in Note 1 have no effect on the
determination of retained earnings available for dividends under the Code. In
addition to the provision that requires an appropriation for legal reserve as
described above, the Code and the Banking Law impose certain limitations on the
amount of retained earnings available for dividends. Under the Banking Law,
MTFG, BTM and Mitsubishi Trust have to meet the minimum capital adequacy
requirements and distributions of the retained earnings of MTFG, BTM and
Mitsubishi Trust, which are otherwise distributable to shareholders, are
restricted in order to maintain the minimum 4% Tier I capital for capital
adequacy purpose.
F-49
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
MTFG was established on April 2, 2001 with common stock of (Yen)924,400
million, preferred stock of (Yen)222,100 million, legal capital surplus of
(Yen)2,838,693 million and no retained earnings in accordance with the Code and
accounting principles generally accepted in Japan. None of the retained
earnings recorded in the MTFG's general books of account, prepared in
accordance with accounting principles generally accepted in Japan, as of March
31, 2002 ((Yen)67,541 million, exclusive of the amounts to be appropriated for
legal reserves and gross unrealized gains on fair valuation of assets, as
defined, if any), is restricted by such limitations under the Code or by the
Banking Law as described above.
Transfer of Legal Reserve to Retained Earnings
Under the Code Amendments
Effective October 1, 2001, under the Code Amendments, Japanese companies,
including MTFG, are permitted, pursuant to a resolution by the shareholders at
a general meeting, to transfer legal reserve set aside as appropriation of
retained earnings and legal capital surplus to retained earnings and
unrestricted capital surplus, respectively, until the aggregate amount of the
legal reserve and legal capital surplus equals 25% of common stock, which were
formerly permitted only to reduce deficit and to transfer to common stock.
Under the Banking Law Amendments
Effective October 1, 2001, under the Banking Law Amendments, Japanese banks,
including BTM and Mitsubishi Trust, are permitted, pursuant to a resolution by
the shareholders at a general meeting, to transfer legal reserve set aside as
appropriation of retained earnings and legal capital surplus to retained
earnings and unrestricted capital surplus, respectively, until the aggregate
amount of the legal reserve and legal capital surplus equals 100% of common
stock.
The Code permits the transfer, upon approval of the shareholders, of a
portion of unappropriated retained earnings available for dividends to the
common stock account.
Annual dividends, including those for preferred stock, are approved by the
shareholders at an annual general meeting held subsequent to the fiscal year to
which the dividends are applicable. In addition, a semi-annual interim dividend
payment may be made by resolution of the Board of Directors, subject to
limitations imposed by the Code and the Banking Law.
In the accompanying consolidated statements of shareholders' equity,
dividends and appropriations to legal reserve shown for each year represent
dividends approved and paid during the year and the related appropriation to
legal reserve.
21. REGULATORY CAPITAL REQUIREMENTS
Japan
MTFG, BTM and Mitsubishi Trust are subject to various regulatory capital
requirements promulgated by the regulatory authorities of the countries in
which they operate. Failure to meet minimum capital requirements will initiate
certain mandatory actions by regulators that, if undertaken, could have a
direct material effect on MTFG's consolidated financial statements.
In Japan, MTFG, BTM, and Mitsubishi Trust are subject to regulatory capital
requirements administered by the Financial Services Agency of Japan in
accordance with the provisions of the Banking Law. A banking institution is
subject to the minimum capital adequacy requirements both on a consolidated
basis and a stand-alone basis, and is required to maintain the minimum capital
irrespective of whether it operates independently or
F-50
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as a subsidiary under the control of another company. When a bank holding
company manages operations of its banking subsidiaries, it is required to
maintain the minimum capital adequacy ratio in the same manner as its
subsidiary banks. The Financial Services Agency provides two sets of capital
adequacy guidelines. One is a set of guidelines applicable to Japanese banks
and bank holding companies with foreign offices conducting international
operations, as defined, and the other is applicable to Japanese banks and bank
holding companies that are not engaged in international operations.
Under the capital adequacy guidelines applicable to a Japanese banking
institution with international operations conducted by foreign offices, the
minimum target capital ratio of 8.0% is required. The capital adequacy
guidelines adopt the approach of risk-weighted capital measure based on the
framework developed and proposed by the Basel Committee on Banking Supervision
of the Bank for International Settlements and involve quantitative credit
measures of the assets and certain off-balance-sheet items as calculated under
accounting principles generally accepted in Japan. The MTFG Group's proprietary
assets do not include trust assets under management and administration in a
capacity of agent or fiduciary and trust assets are generally not included in
the capital measure. However, guarantees for trust principals are counted as
off-balance-sheet items requiring for a capital charge in accordance with the
capital adequacy guidelines. Also, a banking institution engaged in certain
qualified trading activities, as defined, is required to calculate an
additional capital charge for market risk using either the institution's own
internal risk measurement model or a standardized process proposed and defined
by the Bank for International Settlements. Capital is classified into three
tiers, referred to as Tier I, Tier II and Tier III. Tier I generally consists
of shareholders' equity (including common stock, preferred stock, capital
surplus and retained earnings) less any recorded goodwill. Tier II generally
consists of general reserves for credit losses, 45% of the unrealized gains on
investment securities available for sale, 45% of the land revaluation excess
and the balance of subordinated term debt with an original maturity of over
five years, up to 50% of Tier I capital. Preferred stocks are includable in
Tier I capital unless the preferred stocks have fixed maturity, in which case,
such preferred stocks will be components of Tier II capital. Tier III capital
generally consists of short-term subordinated debt with an original maturity of
at least two years, subject to certain limitations. At least 50% of the minimum
capital ratio must be maintained in the form of Tier I capital.
If a banking institution is not engaged in international operations
conducted by foreign offices, it is subject to the other set of capital
adequacy requirements with a minimum target capital ratio of 4.0%. Such
guidelines incorporate measures of risk under the risk-weighted approach
similar to the guidelines applicable to banking institutions with international
operations. Qualifying capital is classified into Tier I and Tier II capital.
The Banking Law and related regulations require that one of three categories
be assigned to banks and bank holding companies, based on its risk-adjusted
capital adequacy ratio if the bank fails to meet the minimum target capital
adequacy ratio. These categories indicate capital deterioration, which may be
subject to certain prompt corrective action by the Financial Services Agency.
If the capital ratio of a banking institution is equal to or greater than the
specific preestablished minimum target capital ratio, MTFG, BTM and Mitsubishi
Trust are not subject to prompt corrective action.
MTFG, BTM and Mitsubishi Trust have international operations conducted by
foreign offices, as defined, and are subject to the 8.0% capital adequacy
requirement, while NTB which had no international operations and is subject to
the 4.0% minimum requirement. For the purpose of calculating the additional
charge for market risk, MTFG, BTM and Mitsubishi Trust have adopted the
internal risk measurement model approach for general market risk calculations.
The risk-adjusted capital amounts and ratios of MTFG, BTM, Mitsubishi Trust
and NTB, presented in the following table are based on amounts calculated in
accordance with accounting principles generally accepted in
F-51
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Japan. As MTFG was established at April 2, 2001, the risk-weighted assets and
capital ratios of MTFG at March 31, 2001 set forth below present the combined
amounts and ratios of BTM and Mitsubishi Trust before any adjustments including
elimination of transactions and balances. These figures are calculated in
accordance with Japanese GAAP as required by the Financial Services Agency.
For Capital
Actual Adequacy Purposes
-------------------- -------------------
Amount Ratio Amount Ratio
-------------- ----- -------------- -----
(in millions except percentages)
Consolidated:
At March 31, 2001:
Total capital (to risk-weighted assets):
MTFG (combined)............................ (Yen)6,367,748 10.15% (Yen)5,017,264 8.00%
BTM........................................ 4,896,616 9.69 4,041,520 8.00
Mitsubishi Trust........................... 1,471,132 12.06 975,745 8.00
NTB........................................ 54,530 8.17 26,675 4.00
Tier I capital (to risk-weighted assets):
MTFG (combined)............................ 3,339,260 5.32 2,508,632 4.00
BTM........................................ 2,498,222 4.94 2,020,760 4.00
Mitsubishi Trust........................... 841,038 6.89 487,873 4.00
NTB........................................ 35,362 5.30 13,337 2.00
At March 31, 2002:
Total capital (to risk-weighted assets):
MTFG....................................... (Yen)6,220,529 10.30% (Yen)4,826,869 8.00%
BTM........................................ 5,010,273 10.29 3,892,627 8.00
Mitsubishi Trust........................... 1,309,224 10.83 966,824 8.00
Tier I capital (to risk-weighted assets):
MTFG....................................... 3,181,174 5.27 2,413,435 4.00
BTM........................................ 2,556,677 5.25 1,946,313 4.00
Mitsubishi Trust........................... 753,834 6.23 483,412 4.00
Stand-alone:
At March 31, 2001:
Total capital (to risk-weighted assets):
BTM........................................ 4,903,619 11.28 3,476,715 8.00
Mitsubishi Trust........................... 1,411,144 11.80 957,029 8.00
NTB........................................ 54,004 8.10 26,656 4.00
Tier I capital (to risk-weighted assets):
BTM........................................ 2,475,698 5.70 1,738,357 4.00
Mitsubishi Trust........................... 783,148 6.55 478,514 4.00
NTB........................................ 34,839 5.23 13,328 2.00
At March 31, 2002:
Total capital (to risk-weighted assets):
BTM........................................ 4,360,606 10.37 3,363,679 8.00
Mitsubishi Trust........................... 1,298,313 10.90 952,869 8.00
Tier I capital (to risk-weighted assets):
BTM........................................ 2,182,853 5.19 1,681,839 4.00
Mitsubishi Trust........................... 744,493 6.25 476,434 4.00
F-52
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Group has securities subsidiaries in Japan and abroad, which are also
subject to regulatory capital requirements. In Japan, the Securities and
Exchange Law of Japan requires securities firms to maintain a minimum capital
ratio of 120% calculated by as a percentage of capital accounts less certain
fixed assets, as determined in accordance with Japan GAAP, against amounts
equivalent to market, counterparty credit and operations risks. Specific
guidelines are issued as a ministerial ordinance which detail the definition of
essential components of the capital ratios, including capital, fixed assets
deductions, risks, and related measures. Failure to maintain minimum capital
ratio will trigger mandatory regulatory actions and a capital ratio of 100% or
less may lead to a suspension of all or part of the business for a period of
time and cancellation of a license. Overseas securities subsidiaries are
subject to the relevant regulatory capital requirements of the countries or
jurisdictions in which they operate.
Management believes, as of March 31, 2002, that MTFG, BTM, Mitsubishi Trust
and other regulated securities subsidiaries meet all capital adequacy
requirements to which they are subject.
United States of America
In the United States of America, UnionBanCal Corporation ("UNBC") and its
banking subsidiary Union Bank of California, N.A. ("UBOC"), BTM's largest
subsidiaries operating outside Japan, are subject to various regulatory capital
requirements administered by U.S. Federal banking agencies, including minimum
capital requirements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, UNBC and UBOC must meet specific
capital guidelines that involve quantitative measures of UNBC's and UBOC's
assets, liabilities, and certain off-balance-sheet items as calculated under
U.S. regulatory accounting practices. UNBC's and UBOC's capital amounts and
UBOC's prompt corrective action classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require UNBC and UBOC to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to
quarterly average assets (as defined).
UNBC's and the UBOC's actual capital amounts and ratios are presented as
follows:
For Capital
Actual Adequacy Purposes
------------ ----------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(in millions except percentages)
UNBC:
At December 31, 2000:
Total capital (to risk-weighted assets).......... $4,091 12.07% $2,712 8.0%
Tier I capital (to risk-weighted assets)......... 3,471 10.24 1,356 4.0
Tier I capital (to quarterly average assets)..... 3,471 10.19 1,363 4.0
At December 31, 2001:
Total capital (to risk-weighted assets).......... 4,260 13.35 2,553 8.0
Tier I capital (to risk-weighted assets)......... 3,661 11.47 1,276 4.0
Tier I capital (to quarterly average assets)..... 3,661 10.53 1,390 4.0
F-53
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Ratios OCC
For Capital Requires to Be
Actual Adequacy Purposes "Well Capitalized"
------------ ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(in millions except percentages)
UBOC:
At December 31, 2000:
Total capital (to risk-weighted assets)...... $3,671 11.01% $2,667 8.0% $3,334 10.0%
Tier I capital (to risk-weighted assets)..... 3,158 9.47 1,334 4.0 2,001 6.0
Tier I capital (to quarterly average
assets).................................... 3,158 9.24 1,367 4.0 1,709 5.0
At December 31, 2001:
Total capital (to risk-weighted assets)...... 3,811 12.19 2,502 8.0 3,127 10.0
Tier I capital (to risk-weighted assets)..... 3,323 10.63 1,251 4.0 1,876 6.0
Tier I capital (to quarterly average
assets).................................... 3,323 9.69 1,371 4.0 1,714 5.0
Management believes, as of December 31, 2001, that UNBC and UBOC met all
capital adequacy requirements to which they are subject.
As of December 31, 2000 and 2001, the most recent notification from the U.S.
Office of the Comptroller of the Currency ("OCC") categorized UBOC as "well
capitalized" under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized," UBOC must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table. There
are no conditions or events since that notification that management believes
have changed UBOC's category.
22. LOSS PER COMMON SHARE
Reconciliations of net loss and weighted average number of common shares
outstanding used for the computation of loss per common share--basic to the
adjusted amounts for the computation of loss per common share--assuming
dilution for the years ended March 31, 2000, 2001 and 2002 were as follows:
2000 2001 2002
------------ ------------ -------------
(in millions)
Net loss before cumulative effect of a change in accounting principle (Yen)(47,542) (Yen)(59,174) (Yen)(222,401)
Cumulative effect of a change in accounting principle................ -- -- 5,867
------------ ------------ -------------
Net loss............................................................. (47,542) (59,174) (216,534)
------------ ------------ -------------
Income attributable to preferred shareholders........................ (5,464) (8,336) (4,168)
------------ ------------ -------------
Loss available to common shareholders................................ (Yen)(53,006) (Yen)(67,510) (Yen)(220,702)
============ ============ =============
Loss adjusted to diluted computation................................. (Yen)(53,006) (Yen)(67,510) (Yen)(220,702)
============ ============ =============
F-54
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2000 2001 2002
-------------- --------------- ---------------
(thousands of shares)
Weighted average common shares outstanding....................... 5,485 5,500 5,555
============== =============== ===============
Weighted average common shares for diluted computation........... 5,485 5,500 5,555
============== =============== ===============
(in yen)
Loss per common share--basic
Loss before cumulative effect of a change in accounting principle (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(40,789.57)
-------------- --------------- ---------------
Cumulative effect of a change in accounting principle............ -- -- 1,056.25
-------------- --------------- ---------------
Net loss......................................................... (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(39,733.32)
============== =============== ===============
Loss per common share--assuming dilution
Loss before cumulative effect of a change in accounting principle (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(40,789.57)
-------------- --------------- ---------------
Cumulative effect of a change in accounting principle............ -- -- 1,056.25
-------------- --------------- ---------------
Net loss......................................................... (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(39,733.32)
============== =============== ===============
The weighted average number of common shares outstanding during each year is
appropriately adjusted to give retroactive effect to the free distribution of
shares made to shareholders, if any, and the stock-for-stock exchanges in
connection with the business combination, as described in Note 2. Accordingly,
the number of common shares and per-share amounts set forth above are
hypothetical and do not reflect actual amounts recorded in the historical
financial statements of BTM and Mitsubishi Trust.
1 3/4% Convertible Bonds due 2002, 3% Exchangeable Guaranteed Notes due
2002, Exchangeable undated bonds, 2 1/2% Convertible Bonds due 2001, 3 1/4%
Convertible Bonds due 2003 and Class 2 Preferred Stock could potentially dilute
earnings per common share in the future but were not included in the
computation of earnings per common share--assuming dilution for the years ended
March 31, 2000 and 2001 due to their antidilutive effects. For the year ended
March 31, 2002, 3% Exchangeable Guaranteed Notes due 2002 and Class 2 Preferred
Stock could potentially dilute earnings per common share in the future but were
not included in the computation of earnings per common share--assuming dilution
due to their antidilutive effects.
23. DERIVATIVE FINANCIAL INSTRUMENTS
The MTFG Group uses various derivative financial instruments both for
trading purposes and for purposes other than trading (primarily risk management
purposes) in the normal course of business to meet the financial needs of its
customers, as a source of revenue and to manage its exposures to a variety of
risks. The MTFG Group is a party to derivatives, including swaps, forwards,
options and other types of derivatives, dealing primarily with market risk
associated with interest rate, foreign currency, equity and commodity prices,
and credit risk associated with counterparty's nonperformance of transactions.
Market risk is the possibility that future changes in market indices make
the financial instruments less valuable. Credit risk is the possibility that a
loss may result from a counterparty's failure to perform according to the terms
and conditions of the contract, which may exceed the value of underlying
collateral. To reduce credit risk, the MTFG Group may require collateral or
guaranties based on a case-by-case assessment of creditworthiness of each
customer and evaluation of the instrument. The MTFG Group also uses master
netting agreements in order to mitigate overall counterparty credit risk.
Trading Activities
The MTFG Group's trading activities include dealing and other activities
measured at fair value with gains and losses recognized currently in earnings.
As part of its trading activities, the MTFG Group offers a variety of
F-55
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
derivative financial instruments and debt instruments for managing interest
rate and foreign exchange risk to its domestic and foreign corporate and
financial institution customers. The MTFG Group also enters into other types of
derivative transactions, including equity and credit-related contracts, for its
own account.
Risk Management Activities
As part of risk management activities, the MTFG Group uses certain
derivative transactions to manage its interest rate and currency exposures. The
MTFG Group maintains an overall interest rate risk management strategy that
incorporates the use of interest rate contracts to minimize significant
unplanned fluctuations in earnings that are caused by interest rate volatility.
The MTFG Group's goal is to manage interest rate sensitivity so that movements
in interest rates do not adversely affect net interest income. As a result of
interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate
or depreciate in market value. Gains or losses on the derivative instruments
that are linked to the hedged fixed-rate assets and liabilities are expected to
substantially offset this unrealized appreciation or depreciation. Interest
income and interest expense on hedged variable-rate assets and liabilities,
respectively, increase or decrease as a result of interest rate fluctuations.
Gains and losses on the derivative instruments that are linked to these hedged
assets and liabilities are expected to substantially offset this variability in
earnings.
The MTFG Group enters into interest rate swaps and other contracts as part
of its interest rate risk management strategy primarily to alter the interest
rate sensitivity of its loans, investment securities and deposit liabilities.
The MTFG Group's principal objectives in risk management include asset and
liability management. Asset and liability management is viewed as one of the
methods for the MTFG Group to manage its interest rate exposures on
interest-bearing assets and liabilities. Interest rate contracts, which are
generally non-leveraged generic interest rate and basis swaps, options and
futures, allow the MTFG Group to effectively manage its interest rate risk
position. Option contracts primarily consist of caps, floors, swaptions and
options on index futures. Futures contracts used for ALM activities are
primarily index futures providing for cash payments based upon the movement of
an underlying rate index. The MTFG Group enters into forward exchange
contracts, currency swaps and other contracts in response to currency exposures
resulting from on-balance-sheet assets and liabilities denominated in foreign
currencies in order to limit the net foreign exchange position by currency to
an appropriate level.
The risk management activities reduces the MTFG Group's risk exposures
economically, however, derivatives used for the risk management activities
often fail to meet certain conditions to qualify for hedge accounting and the
MTFG Group accounts for such derivatives as trading positions.
For the years ended March 31, 2001 and 2002, except for derivative
transactions conducted by certain foreign subsidiaries, the MTFG Group accounts
for derivatives held for risk management purposes as trading positions and
measured them at fair value.
Embedded Derivatives
Derivative features embedded in other non-derivative host contracts are
separated from the host contracts measured at fair value when they are not
clearly and closely related to the host contract and meet the definition of a
derivative. Unless qualified as a hedge, change in the fair value of such an
embedded derivative is recognized currently in earnings. The carrying amount is
reported on the consolidated balance sheet with the host contract. The MTFG
Group accounts for credit-linked notes as host contracts with embedded
derivatives and measures the entire contracts at fair value.
F-56
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
UnionBanCal Corporation
UNBC adopts hedging strategies and uses some types of derivatives to achieve
cash flow and fair value hedge accounting for certain transactions.
Cash Flow Hedges
UNBC engages in a few types of cash flow hedging strategies for which the
hedged transactions are forecasted future loan interest payments, and the
hedged risk is the variability in those payments due to changes in the
designated benchmark rate, e.g., US dollar LIBOR. In these strategies, the
hedging instruments are matched with groups of variable rate loans such that
the tenor of the variable rate loans and that of the hedging instrument is
identical. Cash flow hedging strategies include the utilization of purchased
floor, caps corridors and interest rate swaps. The maximum length of time over
which UNBC is hedging this exposure is 4 years.
UNBC uses purchased interest rate floors to hedge the variable cash flows
associated with 1-month LIBOR or 3-month LIBOR indexed loans. Payment received
under the floor contract offset the decline in loan interest income caused by
the relevant LIBOR index falling below the floor's strike rate.
UNBC uses interest rate corridors to hedge the variable cash flows
associated with 1-month LIBOR or 3-month LIBOR indexed loans. Net payments to
be received under the floor corridor contracts offset the decline in loan
interest income caused by the relevant LIBOR index falling below the corridor's
upper strike rate, but only to the extent the index falls to the lower strike
rate.
UNBC uses interest rate swaps to hedge the variable cash flows associated with
1-month LIBOR or 3-month LIBOR indexed loan portfolio. Payment to be received
(or paid) under the swap contracts will offset the fluctuation in loan interest
receipt caused by changes in the relevant LIBOR index. As such, these
instruments hedge all fluctuation in the loans' interest receipt caused by
change in LIBOR.
UNBC uses purchased interest rate caps to hedge the variable cash flows
associated with 3-month LIBOR or 6-month LIBOR negotiable certificate of
deposits ("CDs"). Net payments to be received under the cap contract offset the
increase in interest payments caused by the relevant LIBOR index rising above
the cap's strike rate.
Hedging transactions are structured at inception so that the notional
amounts of the hedge are matched with an equal principal amount of loans or
CDs, the index and repricing frequencies of the hedge matches those of the
loans or CDs, and the period in which the designated hedged cash flows occur is
equal to the term of the hedge. As such, most of the ineffectiveness in the
hedging relationship results from the mismatch between the timing of reset date
on the hedge versus those of the loans or CDs. During 2001, UNBC recognized a
net loss of US$0.5 million due to ineffectiveness, which is recognized in
Non-interest expense. Most of the ineffectiveness related to the portion of the
options that were being excluded from the assessment of hedge effectiveness.
For cash flow hedges, based upon amounts included in accumulated other
comprehensive income at March 31, 2002, the MTFG Group expects to recognize a
gross increase of (Yen)5 billion in net interest income during 2002. This
amount could differ from amounts actually realized due to changes in interest
rate and the addition of other hedges subsequent to March 31, 2002.
Fair Value Hedge
UNBC engages in an interest rate hedging strategy in which an interest rate
swap is associated with a specific interest bearing liability, UnionBanCal
Corporation's obligated mandatorily redeemable Preferred
F-57
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Securities of Subsidiary Grantor Trust ("Trust Preferred Securities"), in order
to essentially convert a portion of the liability from a fixed rate to a
floating rate instrument. This strategy mitigates the changes in fair value of
the hedged liability caused by changes in the designated benchmark interest
rate, US dollar LIBOR.
Fair value hedging transactions are structured at inception so that the
notional amounts of the swap match an associated principal amount of the Trust
Preferred Securities. The interest payment dates, the expiration date, and the
embedded call option of the swap match those of the Trust Preferred Securities.
The ineffectiveness on fair value hedges in 2001 resulted in a net gain
US$0.1 million, which is recognized in Non-interest Expense.
24. OFF-BALANCE-SHEET CREDIT-RELATED FINANCIAL INSTRUMENTS
The MTFG Group issues off-balance-sheet credit-related financial instruments
for purposes other than trading. Such credit-related financial instruments
contain lending-related commitments, including commitments to extend credit,
standby letters of credit, guaranties, and commercial letters of credit that
the MTFG Group provides to meet the financing needs of its customers. For these
financial instruments, the contract amount represents the possible credit risk
associated with failure of the counterparty to perform in accordance with the
terms and conditions of the contract, and the decline in value of the
underlying collaterals. The credit risk associated with these financial
instruments varies depending on the counterparty's creditworthiness and the
value of any collateral held. Since many of these commitments expire without
being drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. At March 31, 2002, approximately 74% of these
commitments will expire within one year, 22% from one year to five years and 4%
after five years.
Off-Balance-Sheet Lending-Related Commitments
The following is a summary of the contract amounts of these financial
instruments at March 31, 2001 and 2002:
2001 2002
----------- -----------
(in billions)
Commitments to extend credit............ (Yen)26,752 (Yen)29,367
Standby letters of credit and guarantees 5,263 5,295
Commercial letters of credit............ 353 378
Commitments to extend credit, which generally have fixed expiration dates or
other termination clauses, are legally binding agreements to lend to customers
as long as there is no violation of any condition established in the contract.
Standby letters of credit and guarantees are conditional commitments issued
by the MTFG Group to guarantee the performance of a customer to a third party.
The MTFG Group is obliged to pay the third party upon presentation of a claim
that meets the conditions of the commitment; however, based on its past
experience, the MTFG Group does not expect the third party to draw significant
amounts of funds under such commitment. These guaranties at March 31, 2001 and
2002 included guaranties of securities of other issuers, principally domestic
corporate customers, aggregating (Yen)370 billion and (Yen)388 billion,
respectively, for the payment of bond and note principal and related interest.
Commercial letters of credit, used for facilitating trade transactions, are
generally secured by underlying goods. The MTFG Group continually monitors the
type and amount of collateral and other security, and requires counterparties
to provide additional collateral or guarantors as necessary.
F-58
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Guarantee for Repayment of Trust Principal
Trust banks, offering a variety of trust arrangements, manage trust funds
that contain various portfolios of assets and properties. Some trust
arrangements are in the form of money in trusts. Money in trust is a trust
arrangement in which money is entrusted to form a trust fund and may be managed
jointly to collect funds from individual investors through issuance of
beneficiary certificates, which are pooled to achieve greater diversification
of investments, stability of income, or other investment objectives. Loan trust
is a type of jointly operated designated money in trust, of which funds are
principally invested in commercial lending. In view of the trust bank's
investment discretion, money trusts are categorized as specified money trust
and designated money trust. As to specified money trust, investors decide on
and specifically instruct investments of trust assets. A trust bank does not
exercise investment decisions, and invests each trust asset in accordance with
the specific instructions from the investors. As to designated money trusts,
however, a trust bank is allowed to exercise certain investment discretion,
subject to the investors' designation of classes of the investment assets.
Mitsubishi Trust manages and administers trust assets in a capacity of agent
or fiduciary on behalf of its customers and, in principle, will not assume any
risks associated with trust assets. However, as permitted by applicable laws,
Mitsubishi Trust may provide guarantees for repayment of principal of certain
jointly operated designated money trusts, such as loan trusts, and is
contingently liable to the guarantee for principal of individual trust assets.
The accounting principles and practices used for the trust banking
subsidiary's consolidated financial statements do not apply to the trust
accounts under management. Generally, the application of trust accounting does
not affect the recorded assets and liabilities of Mitsubishi Trust. However,
for the purpose of identifying an impairment of a loan within the trust
account, Mitsubishi Trust follows substantially the same methodology used in
determining the specific allowance for loan credit losses, with inherent
variations in treatment peculiar to trust fund accounting. Under the trust
accounting of the trust banking subsidiary, amounts of the loans deemed to be
impaired are written off directly and are charged to the profit earned by the
trust account during the trust accounting period. Related write-downs of these
securities are also directly charged to the trust account profits. In addition,
a statutory reserve is set aside to absorb losses in the trust asset portfolios
within each trust account in accordance with relevant legislation concerning
trust business. An allowance for losses on such guarantees is required in the
financial statements only when aggregate losses on trust assets are judged to
exceed the statutory reserve and the profit earned in the trust account, and
the principal is deemed to be impaired.
At March 31, 2001 and 2002, contract amounts of such guarantees for
repayment of trust principal were (Yen)4,878 billion and (Yen)3,441 billion,
respectively. Management believes that the statutory reserve is sufficient to
absorb probable losses inherent in the trust portfolio and has not recorded an
allowance for credit losses on guarantee for repayment of trust principal in
the accompanying consolidated balance sheets at March 31, 2001 and 2002.
Resale and Repurchase Agreements and Security Lending Transactions
Security lending transactions involve the lending of securities borrowed
from other financial institutions or customers' securities held in custody to
third party borrowers. The MTFG Group generally obtains collateral from
borrowers, including cash and securities, with similar fair value. The MTFG
Group follows strict levels of collateralization governed by daily
mark-to-market analyses and a review of the creditworthiness of borrowers to
control exposure to credit losses resulting from a reduction in the underlying
collateral value and nonperformance by borrowers.
Certain subsidiaries lend customer securities as agent and, at times,
indemnify their customers against counterparty default. At March 31, 2001 and
2002, notional amounts of such security lending transactions with
indemnification were (Yen)441 billion and (Yen)648 billion, respectively.
F-59
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The MTFG Group enters into repurchase and resale transactions. In a sale of
securities or other financial instruments with agreement to repurchase them,
the MTFG Group sells securities or other financial instruments at a stated
price to a counterparty and agrees to repurchase identical financial
instruments from the same counterparty at a later date at the predetermined
price which reflect the principal amount and interest. In a purchase of
securities or other financial instruments with agreement to resale them, the
MTFG Group receives securities or other financial instruments for a stated
price from a counterparty and agrees to sell them to the same counterparty at a
later date at the predetermined price reflecting the principal amount and
interest.
When certain conditions specified in SFAS No. 140 are met, the MTFG Group
accounts for resale agreements as purchase of financial instruments with
related off-balance-sheet forward resale commitments and repurchase agreements
as sale of financial instruments with related off-balance-sheet forward
repurchase agreements. The MTFG Group bears the off-balance-sheet risk related
to the forward repurchase commitments, including credit risk and market risk.
At March 31, 2001 and 2002, contract amounts of such forward repurchase
commitments were (Yen)4,526 billion and (Yen)677 billion, respectively.
Concentration of Credit Risk
Although the MTFG Group's portfolio of financial instruments, including
on-balance-sheet instruments, is widely diversified along industry and
geographic lines, a significant portion of the transactions with
off-balance-sheet risk are entered into with other financial institutions.
25. COMMITMENTS AND CONTINGENT LIABILITIES
The MTFG Group leases certain office space and equipment under noncancelable
agreements expiring through the year 2015.
Future minimum rental commitments for noncancelable leases at March 31, 2002
were as follows:
Capitalized Operating
Leases Leases
----------- ------------
(in millions)
Year ending March 31:
2003................................. (Yen) 6,134 (Yen) 23,864
2004................................. 5,812 21,399
2005................................. 5,423 20,250
2006................................. 4,918 18,820
2007................................. 3,988 11,232
2008 and thereafter.................. 4,089 48,272
----------- ------------
Total minimum lease payments..... 30,364 (Yen)143,837
============
Amount representing interest............ (1,948)
-----------
Present value of minimum lease payments. (Yen)28,416
===========
Total rental expense for the years ended March 31, 2000, 2001 and 2002 was
(Yen)52,524 million, (Yen)46,545 million and (Yen)47,610 million, respectively.
The MTFG Group is involved in various litigation matters. In the opinion of
management, the MTFG Group's liabilities, if any, when ultimately determined
will not have a material adverse effect on the MTFG Group's financial position.
F-60
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
26. FEES AND COMMISSION INCOME
Details of fees and commission income for the years ended March 31, 2000,
2001 and 2002 were as follows:
2000 2001 2002
------------ ------------ ------------
(in millions)
Trust fees................................................ (Yen)106,183 (Yen)114,604 (Yen)123,645
Fees on funds transfer and service charges for collections 60,682 60,038 60,910
Commissions and fees on international business............ 37,089 51,354 53,469
Commissions and fees on credit card business.............. 371 47,852 51,005
Service charges on deposits............................... 19,681 22,672 29,791
Other fees and commissions................................ 145,150 162,883 173,044
------------ ------------ ------------
Total.................................................. (Yen)369,156 (Yen)459,403 (Yen)491,864
============ ============ ============
27. BUSINESS SEGMENTS
MTFG conducts its business through its principal subsidiaries, BTM and
Mitsubishi Trust, which have been granted substantial autonomy in conducting
their business, and, therefore, management currently recognizes each of BTM and
Mitsubishi Trust as a principal business segment of the MTFG Group.
The business segment information of BTM and its subsidiaries ("BTM Group")
and Mitsubishi Trust and its subsidiaries ("Mitsubishi Trust Group"), set forth
below, is derived from the internal management reporting system used by
management to measure the performance of the business segments. Unlike
financial accounting, there is no authoritative body of guidance for management
accounting. The business segment information, set forth below, is based on the
financial information prepared in accordance with Japanese GAAP along with
internal management accounting rules and practices. Accordingly, the format and
information is presented primarily on the basis of Japanese GAAP and is not
consistent with the consolidated financial statements
prepared on the basis of US GAAP. A reconciliation is provided for the total
amount of the both groups' segments' total operating profit with income (loss)
before income tax expense or benefit under US GAAP.
See Note 28 for financial information relating to the MTFG Group's
operations by geographic area. The geographic financial information is
consistent with the basis of the accompanying consolidated financial statements.
BTM Group
BTM Group is organized based on a business unit system as follows:
.. The Retail Banking and Commercial Banking business units provide a full
range of banking products and services for a broad range of customers. The
Retail Banking business unit serves individuals and small corporate
customers. The Commercial Banking business unit serves large and
medium-sized corporations.
.. The Global Corporate Banking business unit serves large corporations and
some small and medium-sized companies, particularly those with banking
needs outside of Japan, and overseas customers (except for UnionBanCal
Corporation's customers).
.. The Investment Banking business unit provides advisory and other services
related to mergers and acquisitions (M&A), private and public securities
offerings, project financing, derivatives and securitization and other
investment banking activities.
F-61
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
.. The Asset Management business unit is responsible for strategic planning
and support, including planning and development of asset management
products and services, and risk management of the unit's trust and asset
management subsidiaries.
.. The UNBC business unit is comprised of UnionBanCal Corporation, a publicly
traded majority-owned U.S. banking subsidiary that is the holding company
for Union Bank of California, N.A.
.. The Operations Services unit provides operations and settlement services to
BTM Group's other business units, including settlement and foreign exchange.
.. The Treasury unit is responsible for BTM Group's asset and liability
management and liquidity
The financial performances of BTM Group's major business units, derived from
the internal management reporting system, are summarized below. Management does
not use information on segments' total assets to allocate resources and assess
performance and has not prepared information on segment assets. Accordingly,
business segments' information on total assets is also not available.
Global Asset
Retail Commercial Corporate Investment Manage- Operations
Banking Banking Banking Banking ment UNBC Services
------------ ------------ ------------ ------------ ----------- ------------ -----------
(in millions)
Year ended March 31, 2000:
Net revenue:
BTM:
Net interest income... (Yen)199,182 (Yen)219,264 (Yen)127,086 (Yen) (8) (Yen)(5,297) (Yen) -- (Yen) 1,020
Net fees.............. 18,100 34,859 49,788 21,371 7,003 -- 3,465
Other................. 10,721 24,319 27,808 17,908 5,440 -- 1,090
BTM's subsidiaries..... 16,653 6,141 50,286 37,053 1,633 205,065 14,361
------------ ------------ ------------ ------------ ----------- ------------ -----------
Total................ 244,656 284,583 254,968 76,324 8,779 205,065 19,936
Operating expenses....... 186,280 132,336 108,478 49,407 5,564 122,570 16,563
------------ ------------ ------------ ------------ ----------- ------------ -----------
Operating profit......... (Yen) 58,376 (Yen)152,247 (Yen)146,490 (Yen) 26,917 (Yen) 3,215 (Yen) 82,495 (Yen) 3,373
============ ============ ============ ============ =========== ============ ===========
Year ended March 31, 2001:
Net revenue:
BTM:
Net interest income... (Yen)197,587 (Yen)215,171 (Yen)133,659 (Yen) (1,934) (Yen)(4,443) (Yen) -- (Yen) 1,380
Net fees.............. 19,716 39,652 60,478 27,833 6,440 -- 3,572
Other................. 11,872 22,803 22,612 22,253 (2,255) -- 1,380
BTM's subsidiaries..... 72,276 9,047 53,850 46,141 9,046 256,225 16,040
------------ ------------ ------------ ------------ ----------- ------------ -----------
Total................ 301,451 286,673 270,599 94,293 8,788 256,225 22,372
Operating expenses....... 231,343 130,453 124,491 72,112 12,737 131,869 18,107
------------ ------------ ------------ ------------ ----------- ------------ -----------
Operating profit......... (Yen) 70,108 (Yen)156,220 (Yen)146,108 (Yen) 22,181 (Yen)(3,949) (Yen)124,356 (Yen) 4,265
============ ============ ============ ============ =========== ============ ===========
Year ended March 31, 2002:
Net revenue:
BTM:
Net interest income... (Yen)176,297 (Yen)216,041 (Yen)136,872 (Yen) 3,941 (Yen) (361) (Yen) -- (Yen) 867
Net fees.............. 23,314 43,631 68,365 31,492 5,274 -- 3,988
Other................. 10,737 26,723 18,956 26,748 (4,915) -- 1,137
BTM's subsidiaries..... 72,787 11,342 57,887 52,357 8,943 295,898 15,458
------------ ------------ ------------ ------------ ----------- ------------ -----------
Total................ 283,135 297,737 282,080 114,538 8,941 295,898 21,450
Operating expenses..... 230,602 126,834 134,559 72,577 13,884 163,641 17,635
------------ ------------ ------------ ------------ ----------- ------------ -----------
Operating profit....... (Yen) 52,533 (Yen)170,903 (Yen)147,521 (Yen) 41,961 (Yen)(4,943) (Yen)132,257 (Yen) 3,815
============ ============ ============ ============ =========== ============ ===========
Treasury Other* Total
------------ ------------- --------------
Year ended March 31, 2000:
Net revenue:
BTM:
Net interest income... (Yen)150,733 (Yen) (33,825) (Yen) 658,155
Net fees.............. (2,057) (30,797) 101,732
Other................. (8,995) 3,172 81,463
BTM's subsidiaries..... 751 8,594 340,537
------------ ------------- --------------
Total................ 140,432 (52,856) 1,181,887
Operating expenses....... 21,982 37,223 680,403
------------ ------------- --------------
Operating profit......... (Yen)118,450 (Yen) (90,079) (Yen) 501,484
============ ============= ==============
Year ended March 31, 2001:
Net revenue:
BTM:
Net interest income... (Yen) 60,507 (Yen) (42,988) (Yen) 558,939
Net fees.............. (2,924) (35,577) 119,190
Other................. 46,047 43,014 167,726
BTM's subsidiaries..... 1,500 8,432 472,557
------------ ------------- --------------
Total................ 105,130 (27,119) 1,318,412
Operating expenses....... 23,211 146,766 891,089
------------ ------------- --------------
Operating profit......... (Yen) 81,919 (Yen)(173,885) (Yen) 427,323
============ ============= ==============
Year ended March 31, 2002:
Net revenue:
BTM:
Net interest income... (Yen)152,008 (Yen) (21,416) (Yen) 664,249
Net fees.............. (5,009) (40,522) 130,533
Other................. 57,811 (4,960) 132,237
BTM's subsidiaries..... 2,265 8,571 525,508
------------ ------------- --------------
Total................ 207,075 (58,327) 1,452,527
Operating expenses..... 28,370 57,001 845,103
------------ ------------- --------------
Operating profit....... (Yen)178,705 (Yen)(115,328) (Yen) 607,424
============ ============= ==============
--------
* Other includes the Systems Services unit, the e-Business & Initiatives unit,
and the Corporate Center and eliminates overlapping allocation.
F-62
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Management measures performance of each business unit by "operating profit",
which includes profits or losses of BTM's subsidiaries. Financial information
of each BTM's subsidiary is assigned to only one business unit, based on its
major products or services provided and its major type of customers. "Operating
profit" is a defined term in BTM's regulatory reporting to the Financial
Services Agency.
"Net revenue" above includes net interest income, net fees (that is, fees
and commissions received, net of fees paid and other related expenses), and
other gains, such as net trading gains, net foreign exchange gains, and net
gains from sales of debt investment securities measured under Japanese GAAP.
Interest income and expenses between business units are determined using an
internal transfer pricing system, based on current market rates. "Operating
expenses" include salaries and employee benefits, occupancy and certain other
non-interest expenses. In determining operating profit, BTM Group does not
assign to each business unit certain income and expense items such as specific
provisions for loan loss reserve, equity investment securities gains or losses,
minority interest in earnings or losses of BTM's subsidiaries, equity in
earnings or losses of BTM's affiliated companies, goodwill amortization and
impairment, net gains or losses from disposition of premises and equipment, and
other certain non-interest income and expense items.
Frequently, the business units work together in connection with providing
services to customers. In accordance with BTM Group's internal management
accounting policies, BTM Group does not apportion the net revenue relating to a
particular transaction among the participating business units. Instead, BTM
Group assigns the total amount of net revenue relating to each of these
transactions to each participating business unit. As a result, some items of
net revenue are recorded as part of the operating results of more than one
business unit. Any overlapping allocations are eliminated in the "Other"
column. The following is the summary of the aggregate amounts of this
overlapping allocation of net revenue for the business units for the years
ended March 31, 2000, 2001 and 2002.
Global Total
Retail Commercial Corporate Asset Amount
Banking Banking Banking Management Eliminated
-------- ---------- ----------- ---------- -----------
(in millions)
Year ended March 31, 2000:
Investment banking...... (Yen) -- (Yen)3,823 (Yen)21,785 (Yen)629 (Yen)26,237
Year ended March 31, 2001:
Investment banking...... 3 5,606 28,005 538 34,152
Year ended March 31, 2002:
Investment banking...... -- 7,837 30,157 -- 37,994
On April 2, 2001, NTB became a wholly owned subsidiary of MTFG and has been
excluded from BTM's consolidation. On October 1, 2001, NTB and TTB merged with
and into Mitsubishi Trust and, accordingly, BTM's segment internal management
reports do not include the financial performance of NTB and TTB subsequent to
the merger. Their post-merger financial performance is reflected in Mitsubishi
Trust's segment information. BTM's segment information for the years ended
March 31, 2000 and 2001 has been restated to reflect the exclusion of NTB and
TTB from its consolidation. NTB's operation principally includes pension trust
services, securities operations, real estate services, property management
services, and stock transfer agency services. TTB's principal business includes
securities lending transactions, asset securitizations and other financial
securities. The following is a summary of financial performance of NTB and TTB
for the years ended March 31, 2000 and 2001 and the six months ended September
30, 2001, derived from the internal management systems of these banks without
any adjustments.
F-63
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended March 31, Six Months Ended
----------------------- September 30,
2000 2001 2001
----------- ----------- ----------------
(in millions)
Net revenue....... (Yen)40,891 (Yen)37,020 (Yen)12,100
Operating expenses 26,298 20,210 14,341
----------- ----------- -----------
Operating profit.. (Yen)14,593 (Yen)16,810 (Yen)(2,241)
=========== =========== ===========
Mitsubishi Trust Group
Effective April 1, 2001, Mitsubishi Trust reorganized its business group
structure and redefined functions and activities performed by each of its
operating groups; Trust-Banking, Trust Assets, Real Estate and Global Markets.
In addition, Mitsubishi Trust includes the financial performance of
subsidiaries in its internal management reporting for the year ended March 31,
2002. Due to merger of NTB and TTB on October 1, 2001, only the financial
performance of NTB and TTB for the second half of the year ended March 31, 2002
are reflected on Mitsubishi Trust's business segment information.
.. The Trust-Banking business group provides a full range of commercial
banking products and services to corporations, institutional investors,
public organizations and individual customers. It serves the corporate
customers by providing financial products to meet the customers' short- and
long-term asset management and fund-raising objectives. It also provides
retail customers with investment and other products for the creation of
wealth. The Trust-Banking business group also manages loan portfolios
associated with certain jointly operated designated money trusts such as
loan trusts. A jointly operated designated money trust manages pooled funds
collected from individual investors for investment returns. A loan trust is
a type of jointly operated designated money trust primarily investing in
long-term commercial loans. Other services provided by the Trust-Banking
business group include stock transfer agency services. Mitsubishi Trust
offers agency services for the transfer of the title of stocks and related
advisory services.
.. The Trust Assets business group covers fiduciary asset management and
administration services. In line with fiduciary asset management services,
Mitsubishi Trust takes charge of corporate pensions, public pensions,
public sector funds, individual funds and certain other funds, based on the
customers' needs. Actuarial and other pension-related consulting services
are provided. In the asset administration service, a broad range of
custodial services is also provided to corporations, institutional
investors and other customers.
.. The Real Estate business group offers real estate services including
brokerage of real estate purchases, sale and leasing transactions, advising
customers of how to optimize the strategic use of their real estate assets,
and offering real estate trust products, such as management, disposal and
land trusts. Mitsubishi Trust employs highly qualified experts from a
number of property-related fields to execute its real estate business,
ranging from real estate agents and licensed real estate appraisers to
architects and real estate financing transaction specialists.
.. The Global Markets business group is active in various financial
operations, including banking, money and capital markets operations,
securities investments and custody operations and asset management, through
the network of foreign branches and subsidiaries in the Americas, Europe
and Asia. The Global Markets business group also manages investment
securities portfolios and placements of excess funds associated with
certain jointly operated designated money trusts.
The financial performance of the Mitsubishi Trust Group's business groups,
derived from the internal management reporting system, is summarized below.
Business segment information for the years ended March 31, 2000 and 2001 has
been restated to reflect changes in group structure and inclusion of subsidiary
information discussed above. However, it is not practicable to restate business
segment information for the years ended
F-64
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
March 31, 2000 and 2001 to reflect the effect of merger of NTB and TTB because
the differences in the policy and process of compiling and summarizing segment
information between Mitsubishi Trust and NTB and TTB have made impractical the
precise and reasonable allocation of financial performance of NTB and TTB to
each of the Mitsubishi Trust's business groups. Management does not use
information on segments' total assets to allocate resources and assess
performance, and has not prepared information on segment assets. Accordingly,
business segments' information on total assets is not available.
Trust- Global
Banking Trust Assets Real Estate Markets Other* Total
------------ ------------ ----------- ------------ ----------- ------------
(in millions)
Year ended March 31, 2000:
Mitsubishi Trust:
Net revenue:
Net interest income...................... (Yen) 69,429 (Yen) -- (Yen) -- (Yen) 65,243 (Yen) 8,243 (Yen)142,915
Fees on jointly operated designated
money trusts............................ 25,668 -- -- 33,513 21,160 80,341
Other fees............................... 17,364 49,996 8,991 (129) -- 76,222
Other.................................... 312 -- -- 22,044 (210) 22,146
------------ ----------- ----------- ------------ ----------- ------------
Total................................. 112,773 49,996 8,991 120,671 29,193 321,624
Operating expenses.......................... 68,190 28,872 6,728 16,725 23,336 143,851
Mitsubishi Trust's subsidiaries............. -- -- -- -- 6,045 6,045
------------ ----------- ----------- ------------ ----------- ------------
Operating profit............................ (Yen) 44,583 (Yen)21,124 (Yen) 2,263 (Yen)103,946 (Yen)11,902 (Yen)183,818
============ =========== =========== ============ =========== ============
Year ended March 31, 2001:
Mitsubishi Trust:
Net revenue:
Net interest income...................... (Yen) 75,848 (Yen) -- (Yen) -- (Yen) 59,255 (Yen)15,069 (Yen)150,172
Fees on jointly operated designated
money trusts............................ 19,163 -- -- 32,415 14,612 66,190
Other fees............................... 19,380 49,904 12,004 287 -- 81,575
Other.................................... 213 -- -- 9,140 350 9,703
------------ ----------- ----------- ------------ ----------- ------------
Total................................. 114,604 49,904 12,004 101,097 30,031 307,640
Operating expenses.......................... 67,654 26,796 6,316 16,587 27,212 144,565
Mitsubishi Trust's subsidiaries............. -- -- -- -- 3,003 3,003
------------ ----------- ----------- ------------ ----------- ------------
Operating profit............................ (Yen) 46,950 (Yen)23,108 (Yen) 5,688 (Yen) 84,510 (Yen) 5,822 (Yen)166,078
============ =========== =========== ============ =========== ============
Year ended March 31, 2002:
Mitsubishi Trust:
Net revenue:
Net interest income...................... (Yen) 72,706 (Yen) -- (Yen) -- (Yen) 96,072 (Yen)10,711 (Yen)179,489
Fees on jointly operated designated
money trusts............................ 16,563 -- -- 27,910 17,016 61,489
Other fees............................... 27,017 54,334 11,683 (3,306) -- 89,728
Other.................................... 105 -- -- (14,768) (50) (14,713)
------------ ----------- ----------- ------------ ----------- ------------
Total................................. 116,391 54,334 11,683 105,908 27,677 315,993
Operating expenses.......................... 69,139 33,249 8,083 17,858 31,421 159,750
Mitsubishi Trust's subsidiaries............. -- -- -- -- (293) (293)
------------ ----------- ----------- ------------ ----------- ------------
Operating profit............................ (Yen) 47,252 (Yen)21,085 (Yen) 3,600 (Yen) 88,050 (Yen)(4,037) (Yen)155,950
============ =========== =========== ============ =========== ============
--------
* Other includes certain divisions of the corporate headquarters
(e.g., personnel and planning) and adjustments.
F-65
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Management measures performance of each business group by "operating
profit". "Operating profit" is a defined term in Mitsubishi Trust's regulatory
reporting to the Financial Services Agency. The financial performance of
subsidiaries are measured by ordinary profit or loss derived from the financial
statements of Mitsubishi Trust's subsidiaries. Because of limited significance
of subsidiary operations, Mitsubishi Trust does not assign the subsidiary
financial performances to business groups and manage them on an aggregate basis.
"Net revenue" above includes net interest income, net fees (that is, fees
and commissions received, net of fees paid and other related expenses), and
other gains, such as net trading gains, net foreign exchange gains, and net
gains from sales of investment debt securities measured under Japanese GAAP.
"Operating expenses" include salaries and employee benefits, occupancy and
certain other non-interest expenses. In determining operating profit, the
Mitsubishi Trust Group does not assign to each business group certain income
and expense items such as provisions for loan loss reserve, equity investment
securities gains or losses, minority interest in earnings or losses of
Mitsubishi Trust's subsidiaries, equity in earnings or losses of Mitsubishi
Trust's affiliated companies, goodwill amortization and impairment, net gains
or losses from disposition of premises and equipment, and other certain
non-interest income and expense items.
"Fees on jointly operated designated money trusts" include trust fees,
accounted for on a cash basis, which are associated with loan trusts and other
types of jointly operated designated money in trusts, including certain money
trusts with guarantee for repayment of principal. The amounts assigned to the
Trust-Banking business group are fees associated with the return on lending
activities and the amounts assigned to the Global Markets business group are
fees resulting from the management of investment securities included in the
trust accounts. Amounts of write-downs for trust assets recorded within each
trust account, which eventually reduce the trust fees to be recognized in
Mitsubishi Trust's financial statements, are excluded from the business group's
performance measure on jointly operated designated money trusts, and the fee
amounts are before provision for write-downs of individual investments. Such
write-downs, recognized within each trust, are shown in the reconciliations of
the business segments' total operating profit to income or loss before income
tax expense or benefit. Fees on such trusts are determined at the end of
respective accounting periods of individual trust accounts and Mitsubishi Trust
recognizes such fees, on a cash basis, in its Japanese GAAP financial
statements. For measuring the performance of the Trust-Banking and Global
Markets business groups, Mitsubishi Trust focuses on the results of performance
during the term corresponding to the fiscal period. Since the trust accounting
periods do not necessarily correspond with Mitsubishi Trust's fiscal period,
fee amounts shown in the Japanese GAAP financial statements do not meet the
objective of management reporting without certain adjustments. Accordingly,
Mitsubishi Trust allocates amounts to the business group to show the fee
amounts that would have been earned, on an accrual basis, if each trust
accounting period have corresponded with Mitsubishi Trust's fiscal period.
"Other fees" include trust fees other than fees on certain jointly operated
designated money trusts, such as retirement benefit trusts and
securities-related trust, including specified money trust and independently
operated designated money trust, and fiduciary and custodial services related
to asset management and administration. Fees and commissions on
securitizations, stock transfer agency services and real estate business are
also included in this line.
"Net revenue" included in the "Other" column includes interest and dividends
on certain investment securities held for relationship management. "Fees on
jointly operated designated money trusts" under " Other" include the amounts
representing the recoveries of trust assets previously written off and reversal
of the statutory reserve, both of which are accounted for as a reduction of the
trust fees. Also, included in the amounts under "Other" are the adjustments for
the amounts of the Trust-Banking business group based on Mitsubishi Trust's
fiscal period to the segments' total amounts, which are determined, based on
the accounting periods of the trust accounts.
F-66
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation
As set forth above, the measurement bases and the income and expenses items
covered are very different between the internal management reporting system and
the accompanying consolidated statements of operations. Therefore, it is
impracticable to present reconciliations of the business segments' total
information, other than operating profit, to corresponding items in the
accompanying consolidated statements of operations.
Reconciliations of the total amount of the both Groups' segments' total
operating profit under the internal management reporting system for the years
ended March 31, 2000, 2001 and 2002 above to income or loss before income tax
expense or benefit shown on the consolidated statements of operations are as
follows:
2000 2001 2002
--------- --------- ---------
(in billions)
Operating profit:
BTM................................................. (Yen) 501 (Yen) 427 (Yen) 607
Mitsubishi Trust.................................... 184 166 156
--------- --------- ---------
Total........................................... 685 593 763
Trust fees adjusted for write-downs of trust assets. (60) (37) (19)
Provision for credit losses......................... (368) (688) (580)
Trading account profit (loss)....................... (181) 96 12
Equity investment securities gains (losses)--net.... 100 169 (23)
Foreign exchange gains (losses)--net................ 88 (73) (275)
Losses on other real estate owned................... (70) (16) (6)
Goodwill amortization............................... (3) (4) (8)
Minority interest................................... (16) (20) (22)
Other--net.......................................... (172) (16) (166)
--------- --------- ---------
Income (loss) before income tax expense (benefit)...... (Yen) 3 (Yen) 4 (Yen)(324)
========= ========= =========
28. FOREIGN ACTIVITIES
Foreign operations include the business conducted by overseas offices, as
well as international business conducted from domestic offices, principally
several international banking-related divisions of BTM's and Mitsubishi Trust's
Head Office in Tokyo and involve various transactions with debtors and
customers residing outside Japan. Close integration of the MTFG Group's foreign
and domestic activities makes precise estimates of the amounts of assets,
liabilities, income and expenses attributable to foreign operations difficult
and necessarily subjective. Assets, income and expenses attributable to foreign
operations are allocated to geographical areas based on the domiciles of the
debtors and customers.
Generally, interest rates with respect to funds borrowed and loaned between
domestic and foreign operations are based on prevailing money market rates
appropriate for the transactions. In general, the MTFG Group has allocated all
direct expenses and a proportionate share of general and administrative
expenses to income derived from foreign loans and other transactions by the
MTFG Group's foreign operations. The following table sets forth estimated total
assets at March 31, 2000, 2001 and 2002, and estimated gross revenue, total
expenses, income or loss before income tax expense or benefit and net income or
loss for the respective years then ended.
F-67
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Domestic Foreign
--------------- ---------------------------------------------------------------
United
States of Asia/Oceania Other
Japan America Europe Excluding Japan Areas*
--------------- --------------- -------------- --------------- --------------
(in millions)
Year ended March 31, 2000:
Total revenue........................... (Yen) 1,491,063 (Yen) 606,245 (Yen) 187,728 (Yen) 237,083 (Yen) 163,416
Total expenses.......................... 1,536,170 573,106 295,939 171,653 106,049
Income (loss) before income tax expense
or benefit............................. (45,107) 33,139 (108,211) 65,430 57,367
Net income (loss)....................... (33,359) (8,754) (113,921) 53,895 54,597
Total assets at end of year............. 65,749,190 9,279,498 4,448,318 3,497,869 2,021,125
Year ended March 31, 2001:
Total revenue........................... 1,605,832 759,958 411,683 256,602 204,723
Total expenses.......................... 1,950,675 671,420 298,086 172,512 142,516
Income (loss) before income tax expense
or benefit............................. (344,843) 88,538 113,597 84,090 62,207
Net income (loss)....................... (362,280) 58,104 111,950 72,011 61,041
Total assets at end of year............. 68,251,884 11,890,868 7,333,229 3,408,333 2,604,636
Year ended March 31, 2002:
Total revenue........................... 1,258,746 701,739 364,926 259,934 132,357
Total expenses.......................... 1,645,897 733,180 356,406 215,119 91,333
Income (loss) before income tax expense
or benefit and cumulative effect of a
change in accounting principle......... (387,151) (31,441) 8,520 44,815 41,024
Net income (loss)....................... (236,546) (57,036) 4,131 34,984 37,933
Total assets at end of year............. 69,162,382 12,346,379 6,668,616 3,297,980 2,889,757
Total
---------------
Year ended March 31, 2000:
Total revenue........................... (Yen) 2,685,535
Total expenses.......................... 2,682,917
Income (loss) before income tax expense
or benefit............................. 2,618
Net income (loss)....................... (47,542)
Total assets at end of year............. 84,996,000
Year ended March 31, 2001:
Total revenue........................... 3,238,798
Total expenses.......................... 3,235,209
Income (loss) before income tax expense
or benefit............................. 3,589
Net income (loss)....................... (59,174)
Total assets at end of year............. 93,488,950
Year ended March 31, 2002:
Total revenue........................... 2,717,702
Total expenses.......................... 3,041,935
Income (loss) before income tax expense
or benefit and cumulative effect of a
change in accounting principle......... (324,233)
Net income (loss)....................... (216,534)
Total assets at end of year............. 94,365,114
--------
* Other Areas primarily include Canada, Latin America and the Caribbean.
The following is an analysis of certain asset and liability accounts related
to foreign activities at March 31, 2001 and 2002:
2001 2002
--------------- ---------------
(in millions)
Cash and due from banks......................................................... (Yen) 502,337 (Yen) 251,135
Interest-earning deposits in other banks........................................ 2,796,979 2,641,903
--------------- ---------------
Total.................................................................... (Yen) 3,299,316 (Yen) 2,893,038
=============== ===============
Trading account assets.......................................................... (Yen) 2,432,219 (Yen) 1,868,779
=============== ===============
Investment securities........................................................... (Yen) 5,555,952 (Yen) 5,937,177
=============== ===============
Loans--net of unearned income and deferred loan fees............................ (Yen)11,062,646 (Yen)11,668,017
=============== ===============
Deposits, principally time deposits and certificates of deposit by foreign banks (Yen)14,156,784 (Yen)11,791,971
=============== ===============
Funds borrowed:
Call money, funds purchased, and receivables under repurchase agreements
and securities lending transactions........................................ (Yen) 1,993,420 (Yen) 2,429,634
Other short-term borrowings.................................................. 442,558 622,414
Long-term debt............................................................... 2,120,321 1,833,252
--------------- ---------------
Total.................................................................... (Yen) 4,556,299 (Yen) 4,885,300
=============== ===============
Trading account liabilities..................................................... (Yen) 2,229,001 (Yen) 1,456,605
=============== ===============
F-68
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The MTFG Group had no cross-border outstandings, as defined in the
Securities Act Industry Guides 3, in any foreign country, which exceeded 0.75%
of consolidated total assets at March 31, 2001, and 2002.
29. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Quoted market prices, where available, are used to estimate fair values of
financial instruments. However, quoted market prices are not available for a
substantial portion of financial instruments and, therefore, fair values for
such financial instruments are estimated using discounted cash flow models or
other valuation techniques. Although management uses its best judgment in
estimating fair values of financial instruments, estimation methodologies and
assumptions used to estimate fair values are inherently subjective.
Accordingly, the estimates presented herein are not necessarily indicative of
net realizable or liquidation values. The use of different estimation
methodologies and/or market assumptions may have a significant effect on the
estimated fair values. The estimated fair values of financial instruments do
not include valuations of related intangible assets such as core deposits.
The following is a summary of carrying amounts and estimated fair values of
financial instruments at March 31, 2001 and 2002:
2001 2002
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
(in billions)
Financial assets:
Cash, due from banks, call loans and funds sold, and
receivables under resale agreements and securities borrowing
transactions................................................. (Yen)12,940 (Yen)12,940 (Yen)10,867 (Yen)10,867
Trading account assets, excluding derivatives.................. 3,979 3,979 5,020 5,020
Investment securities.......................................... 22,037 22,052 23,555 23,568
Loans, net of allowance for credit losses...................... 47,954 48,238 48,495 48,741
Other financial assets......................................... 1,417 1,417 2,524 2,524
Derivative financial instruments:
Trading activities......................................... 3,164 3,164 2,478 2,478
Activities qualifying for hedges........................... 5 31 13 13
Financial liabilities:
Non-interest-bearing deposits, call money and funds purchased,
and payables under repurchase agreements and securities
lending transactions......................................... 13,287 13,287 14,501 14,501
Interest-bearing deposits...................................... 55,546 55,689 58,402 58,416
Debentures..................................................... 3,404 3,438 2,269 2,280
Trading account liabilities, excluding derivatives............. 1,451 1,451 177 177
Obligations to return securities received as collateral........ 296 296 316 316
Due to trust account........................................... 3,673 3,673 2,282 2,282
Other short-term borrowings.................................... 2,130 2,130 3,319 3,319
Long-term debt................................................. 4,963 5,158 5,184 5,340
Other financial liabilities.................................... 2,286 2,286 2,603 2,603
Derivative financial instruments:..............................
Trading activities......................................... 2,621 2,621 2,319 2,319
Activities qualifying for hedges........................... 4 17 2 2
F-69
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The methodologies and assumptions used to estimate the fair value of the
financial instruments are summarized below.
Cash, due from banks, call loans and funds sold, and receivables under
resale agreements and securities borrowing transactions--For cash, due from
banks including interest-earning deposits, and call loans and funds sold, the
carrying amounts are a reasonable estimate of the fair values because of their
short-term nature and limited credit risk. For receivables under resale
agreements and securities borrowing transactions, the fair values are based on
quoted market prices, when available, or estimated with reference to quoted
market prices for similar instruments when quoted market prices are not
available.
Trading account securities--Trading securities and short trading positions
of securities are carried at fair value, which is principally based on quoted
market prices, when available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Investment securities--The fair values of investment securities, where
quoted market prices or secondary market prices are available, are equal to
such market prices. For investment securities, when quoted market prices or
secondary market prices are not available, the fair values are estimated using
quoted market prices for similar securities or based on appraised value as
deemed appropriate by management. The fair value of investment securities other
than those classified neither available for sale nor being held to maturity
(i.e., nonmarketable equity securities) at March 31, 2001 and 2002 were not
readily determinable. Therefore, the above summary does not include the
carrying amounts of such investment securities amounting to (Yen)169 billion
and (Yen)129 billion at March 31, 2001 and 2002, respectively.
Loans--The fair values of loans are estimated for groups of similar loans
based on type of loan, credit quality and remaining maturity. In incorporating
the credit risk factor, management concluded that the allowance for credit
losses adequately adjusts the related book values for credit risk. For
floating- or adjustable-rate loans, which mature or reprice within a short
period of time, the carrying values are considered to be a reasonable estimate
of fair values. For fixed-rate loans, market prices are not generally available
and the fair values are estimated by discounting the estimated future cash
flows based on the contracted maturity of the loans. The discount rates are
based on the current market rates corresponding to the applicable maturity.
Where market prices are available, primarily for loans to refinancing countries
and certain other foreign loans, the fair values are based on such market
prices, including secondary market prices. For non-performing loans, the fair
values are generally determined on an individual basis by discounting the
estimated future cash flows and may be based on the appraisal value of
underlying collateral as appropriate.
Other financial assets--The estimated fair values of other financial assets,
which primarily include accrued interest receivable, customers' acceptance
liabilities and accounts receivable, approximate their carrying amounts.
Derivative financial instruments--The estimated fair values of derivative
financial instruments are the amounts the MTFG Group would receive or pay to
terminate the contracts at the balance-sheet date, taking into account the
current unrealized gains or losses on open contracts. They are based on market
or dealer quotes when available. Valuation models such as present value and
option pricing models are applied to current market information to estimate
fair values when such quotes are not available.
Non-interest-bearing deposits, call money and funds purchased, payables
under repurchase agreements and securities lending transactions, and
obligations to return securities received as collateral--The fair values of
non-interest-bearing deposits are equal to the amounts payable on demand. For
call money and funds purchased, the carrying amounts are a reasonable estimate
of the fair values because of their short-term nature.
F-70
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For payables under repurchase agreements and securities lending transactions
and obligations to return securities received as collateral, the fair values
are generally based on quoted market prices, when available, or estimated using
quoted market prices for similar instruments when quoted market prices are not
available.
Interest-bearing deposits--The fair values of demand deposits, deposits at
notice, and certificates of deposit maturing within a short period of time are
the amounts payable on demand. Fair values of time deposits and certificates of
deposit maturing after a short period of time are estimated by discounting the
estimated cash flows using the rates currently offered for deposits of similar
remaining maturities or the applicable current market rates.
Debentures--The fair values of debentures are estimated using a discounted
cash flow model based on quoted market rates or, if available, secondary market
rates currently available for debentures with similar terms and remaining
maturities.
Due to trust account--For due to trust account, which reflects a temporary
placement of excess fund from individual trust accounts managed by the trust
banking subsidiary in their fiduciary and trust capacity, the carrying amount
is a reasonable estimate of the fair value due to its nature similar to
short-term funding, including demand deposits and other overnight funds
purchased, in a manner that the balance changes in response to the day-to-day
changes in excess funds placed by the trust accounts.
Other short-term borrowings--For most other short-term borrowings, the
carrying amounts are a reasonable estimate of the fair values because of their
short-term nature. For certain borrowings, fair values are estimated by
discounting the estimated future cash flows using applicable current market
interest rates or comparable rates for similar instruments, which represent the
MTFG Group's cost to raise funds with a similar remaining maturity.
Long-term debt--For convertible bonds and certain subordinated debt, the
fair values are estimated based on quoted market prices of the instruments. The
fair value of other long-term debt are estimated using a discounted cash flow
model based on rates applicable to the MTFG Group for debt with similar terms
and remaining maturities.
Other financial liabilities--The estimated fair values of other financial
liabilities, which primarily include accrued interest payable, bank acceptances
and accounts payable, approximate their carrying amounts.
The fair values of certain off-balanced-sheet credit-related financial
instruments held for purposes other than trading, including commitments to
extend credit, guarantee for repayment of trust principal, standby letters of
credit and guaranties and commercial letters of credit, are estimated using the
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the credit quality. The aggregate
fair value of such instruments at March 31, 2001 and 2002 was not material.
The fair value estimates presented herein are based on pertinent information
available to management as of March 31, 2001 and 2002. These amounts have not
been comprehensively revalued since that date and, therefore, current estimates
of fair values may have changed significantly from the amounts presented herein.
30. UNBC MANAGEMENT STOCK PLAN
UNBC has two management stock plans. The Year 2000 UnionBanCal Corporation
Stock Plan, effective January 1, 2000 (the "2000 Stock Plan"), and the
UnionBanCal Corporation Management Stock Plan, restated effective June 1, 1997
(the "1997 Stock Plan"), have 10.0 million and 6.6 million shares,
respectively, of UNBC's common stock authorized to be awarded to key employees
and outside directors of UNBC at the
F-71
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
discretion of the Executive Compensation and Benefits Committee of UNBC's Board
of Directors (the "Committee"). Employees on rotational assignment from BTM are
not eligible for stock awards.
The Committee determines the term of each stock option grant, up to a
maximum of ten years from the date of grant. The exercise price of the options
issued under the Stock Plan shall not be less than the fair market value on the
date the option is granted. Unvested restricted stock issued under the Stock
Plan is shown as a reduction to retained earnings in UNBC's financial
statements. The value of the restricted shares at the date of grant is
amortized to compensation expense over its vesting period. All cancelled or
forfeited options and restricted stock become available for future grants.
In 1999, 2000 and 2001, UNBC granted options to non-employee directors and
various key employees, including policy-making officers under the 1997 and 2000
Stock Plans. Under both Stock Plans, options granted to employees vest pro-rata
on each anniversary of the grant date and become fully exercisable three years
from the grant date, provided that the employee has completed the specified
continuous service requirement. The options vest earlier if the employee dies,
is permanently disabled, or retires under certain grant, age, and service
conditions. Options granted to non-employee directors are fully vested on the
grant date and exercisable 33 1/3 percent on each anniversary under the 1997
Stock Plan, and fully vested and exercisable on the grant date under the 2000
Stock Plan. The following is a summary of stock option transactions under the
Stock Plans.
Years Ended December 31,
- -----------------------------------------------------------------------------------
1999 2000 2001
--------------------------- --------------------------- ---------------------------
Number of Weighted-Average Number Weighted-Average Number of Weighted-Average
Shares Exercise Price of Shares Exercise Price Shares Exercise Price
--------- ---------------- --------- ---------------- --------- ----------------
Options outstanding,
beginning of year. 1,740,081 $21.47 3,281,273 $28.46 5,191,899 $28.47
Granted............ 1,747,750 34.31 2,126,506 27.99 3,448,242 30.03
Exercised.......... (157,007) 14.65 (98,004) 13.18 (557,597) 19.02
Forfeited.......... (49,551) 33.04 (117,876) 32.04 (143,273) 29.91
--------- --------- ---------
Options outstanding,
end of year....... 3,281,273 $28.46 5,191,899 $28.47 7,939,271 $29.79
========= ========= =========
Options exercisable,
end of year....... 1,266,976 $20.01 2,135,228 $25.90 3,009,555 $29.53
========= ========= =========
The weighted-average fair value of options granted was $9.77 during 1999,
$10.21 during 2000, and $10.38 during 2001.
The following table summarizes information about stock options outstanding.
Options Exercisable at
Options Outstanding at December 31, 2001 December 31, 2001
--------------------------------------------- ----------------------------
Weighted-Average
Range of Exercise Number Remaining Weighted-Average Number Weighted-Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------ ----------- ---------------- ---------------- ----------- ----------------
$ 8.92 - 12.83 189,601 2.4 years $10.99 189,601 $10.99
18.29 - 25.00 558,381 4.7 21.55 479,191 21.26
27.56 - 37.96 7,168,289 7.9 30.88 2,325,431 32.65
44.56 - 44.56 23,000 7.9 44.56 15,332 44.56
--------- ---------
7,939,271 3,009,555
========= =========
F-72
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1999, 2000, and 2001, UNBC also granted 1,050, 13,500 and 6,000 shares,
respectively, of restricted stock to key officers, including policy-making
officers, under the Stock Plan. The awards of restricted stock vest pro rata on
each anniversary of the grant date and become fully vested four years from the
grant date, provided that the employee has completed the specified continuos
service requirement. They vest earlier if the employee dies, is permanently and
totally disabled, or retires under certain grant, age, and service conditions.
Restricted shareholders have the right to vote their restricted shares and
receive dividends.
The following is a summary of restricted stock transactions under the Stock
Plan.
Years Ended December 31,
- -----------------------------------------------------------------------------------
1999 2000 2001
--------------------------- --------------------------- ---------------------------
Weighted-Average Weighted-Average Weighted-Average
Number of Grant Date Fair Number Grant Date Fair Number Grant Date Fair
Shares Value of Shares Value of Shares Value
--------- ---------------- --------- ---------------- --------- ----------------
Restricted stock
awards outstanding,
beginning of year.. 1,504,302 $14.12 1,496,106 $14.05 1,506,162 $14.11
Granted............. 1,050 32.88 13,500 25.00 6,000 37.10
Cancelled........... (9,246) 27.60 (3,444) 31.66 (636) 37.47
--------- --------- ---------
Restricted stock
awards outstanding,
end of year........ 1,496,106 $14.05 1,506,162 $14.11 1,511,526 $14.19
========= ========= =========
Restricted stock
awards vested, end
of year............ 1,290,900 $11.84 1,408,696 $13.00 1,469,354 $13.66
========= ========= =========
At December 31, 1999, 2000 and 2001, 989,811, 8,969,424 and 5,659,091
shares, respectively, were available for future grants as either stock options
or restricted stock under the Stock Plan.
UNBC follows the intrinsic value based method prescribed in Accounting
Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its employee stock-based compensation
plan. Accordingly, no compensation cost has been recognized for its stock
option grants. Had compensation cost for UNBC's stock-based plan been
determined based on the fair value at the grant dates for awards under that
plan consistent with the method of SFAS No. 123, "Accounting for Stock-Based
Compensation", UNBC's net income and net income per share would have decreased
to the pro forma amounts indicated in the following table.
Years Ended December 31,
- --------------------------
(Dollars in thousands, except per share data) 1999 2000 2001
--------------------------------------------- -------- -------- --------
Net income As reported $441,731 $439,900 $481,428
Pro forma 435,766 429,730 464,750
Net income per share--basic As reported $ 2.65 $ 2.72 $ 3.05
Pro forma 2.62 2.66 2.94
Net income per share--diluted As reported $ 2.64 $ 2.72 $ 3.04
Pro forma 2.61 2.65 2.93
F-73
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants made in 1999, 2000 and 2001; risk-free interest
rates of 5.2 percent in 1999, 6.4 percent in 2000, and 4.9 percent in 2001;
expected volatility of 30 percent in 1999, 44 percent in 2000, and 45 percent
in 2001; expected lives of 5 years for 1999, 2000, and 2001; and expected
dividend yields of 2.2 percent in 1999, 3.5 percent in 2000, and 3.4 percent in
2001.
Effective January 1, 1997, UNBC established a Performance Share Plan.
Eligible participants may earn performance share awards to be redeemed in cash
three years after the date of grant. Performance shares are linked to
shareholder value in two ways: (1) the market price of UNBC's common stock, and
(2) return on equity, a performance measure closely linked to value creation.
Eligible participants generally receive grants of performance shares annually.
The total number of performance shares granted under the plan cannot exceed
600,000. UNBC granted 22,000 shares in 1999, 31,500 shares in 2000, and 68,000
shares in 2001. No performance shares were forfeited in either 1999 or in 2000.
In 2001, 9,000 performance shares were forfeited. The value of a performance
share is equal to the market price of UNBC's common stock. All cancelled or
forfeited performance shares become available for future grants.
When the stock option is exercised, the MTFG Group accounts for a decrease
in its ownership as a sale of a portion of its investment in UNBC, and the
resulting gains or losses are recognized in earnings.
31. PARENT COMPANY ONLY FINANCIAL INFORMATION
Distributions of retained earnings of BTM and Mitsubishi Trust are
restricted in order to meet the minimum capital adequacy requirements under the
Banking Law. Also, retained earnings of these banking subsidiaries are
restricted in accordance with the statutory reserve requirements under the Code
(see Note 21).
The following table presents the parent company only financial information
of MTFG for the years ended March 31, 2002.
Condensed balance sheets
2001 2002
-------------- --------------
(in millions)
Assets:
Cash and interest-earning deposits with banks...... (Yen) -- (Yen) 39,212
Investments in subsidiaries........................ 3,201,578 2,573,874
Investments in convertible bonds of a subsidiary... -- 266,417
Other assets....................................... -- 19,883
-------------- --------------
Total assets................................... (Yen)3,201,578 (Yen)2,899,386
============== ==============
Liabilities and shareholders' equity:
Convertible bonds.................................. (Yen) -- (Yen) 266,417
Other liabilities.................................. -- 6,472
-------------- --------------
Total liabilities.................................. -- 272,889
-------------- --------------
Shareholders' equity.................................. 3,201,578 2,626,497
-------------- --------------
Total liabilities and shareholders' equity..... (Yen)3,201,578 (Yen)2,899,386
============== ==============
F-74
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Statements of Operations
2000 2001 2002
------------ ------------ -------------
(in millions)
Income:
Dividends from subsidiaries.................. (Yen) -- (Yen) -- (Yen) 67,523
Management fees from subsidiaries............ -- -- 4,967
Interest income.............................. -- -- 7,145
Other income................................. -- -- 191
------------ ------------ -------------
Total income.................................... -- -- 79,826
------------ ------------ -------------
Expense:
Operating expenses........................... -- -- 5,426
Interest expense............................. -- -- 7,166
Other expense................................ -- -- 49
------------ ------------ -------------
Total expense............................ -- -- 12,641
------------ ------------ -------------
Equity in undistributed net loss of subsidiaries (47,542) (59,174) (283,855)
------------ ------------ -------------
Loss before income tax benefit.................. (47,542) (59,174) (216,670)
Income tax benefit.............................. -- -- (136)
------------ ------------ -------------
Net loss........................................ (Yen)(47,542) (Yen)(59,174) (Yen)(216,534)
============ ============ =============
Condensed Statement of Cash Flows
2002
-------------
(in millions)
Operating activities:
Net loss............................................. (Yen)(216,534)
Adjustments and other................................ 283,365
-------------
Net cash provided by operating activities............... 66,831
-------------
Investing activities:
Net increase in interest-earning deposits with banks. (38,700)
Purchase of equity investment in a subsidiary........ (12,827)
Other................................................ (14,639)
-------------
Net cash used in investing activities................... (66,166)
-------------
Financing activities:
Proceeds from sales of treasury stock................ 6,998
Payments to acquire treasury stock................... (7,381)
Other................................................ 230
-------------
Net cash used in financing activities................... (153)
-------------
Net increase in cash and cash equivalents............... 512
-------------
Cash and cash equivalents at end of period.............. (Yen) 512
=============
--------
Note -- For the years ended March 31, 2000 and 2001, there were no activities
involving cash flows.
F-75
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
32. EVENTS SINCE MARCH 31, 2002
Approval of Dividends
On June 27, 2002, the shareholders approved (1) payment of cash dividends to
the shareholders of record on March 31, 2002 of (Yen)82,500 per share of Class
1 preferred stock, totaling (Yen)6,716 million, of (Yen)16,200 per share of
Class 2 preferred stock, totaling (Yen)1,620 million, and of (Yen)6,000 per
share of common stock, totaling (Yen)34,453 million and (2) a reduction of
legal capital surplus and transfer to unrestricted capital surplus of
(Yen)600,000 million.
On November 25, 2002, the Board of Directors approved payment of cash
dividends to the shareholders of record on September 30, 2002 of (Yen)41,250
per share of Class 1 preferred stock, totaling (Yen)3,358 million, and
(Yen)8,100 per share of Class 2 preferred stock, totaling (Yen)810 million.
Adoption of SFAS No. 142
The MTFG Group has performed the required transitional impairment tests of
goodwill and intangible assets with indefinite lives upon adoption of SFAS No.
142. The initial adoption resulted in a cumulative adjustment charge to
earnings of (Yen)532 million related to the impairment of goodwill. Net loss
and amounts per common share for the years ended March 31, 2000, 2001 and 2002
adjusted to exclude amortization expense (net of taxes) related to goodwill are
as follows:
2000 2001 2002
-------------- --------------- ---------------
Net income (loss): (in millions)
Reported net loss.............................. (Yen) (47,542) (Yen) (59,174) (Yen) (216,534)
Goodwill amortization, net of tax.............. 4,431 5,014 7,877
-------------- --------------- ---------------
As adjusted.................................... (Yen) (43,111) (Yen) (54,160) (Yen) (208,657)
============== =============== ===============
Basic earnings (loss) per common share: (in yen)
Reported net loss.............................. (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(39,733.32)
Goodwill amortization, net of tax.............. 807.84 911.64 1,418.11
-------------- --------------- ---------------
As adjusted.................................... (Yen)(8,855.97) (Yen)(11,362.91) (Yen)(38,315.21)
============== =============== ===============
Diluted earnings (loss) per common share: (in yen)
Reported net loss.............................. (Yen)(9,663.81) (Yen)(12,274.55) (Yen)(39,733.32)
Goodwill amortization, net of tax.............. 807.84 911.64 1,418.11
-------------- --------------- ---------------
As adjusted.................................... (Yen)(8,855.97) (Yen)(11,362.91) (Yen)(38,315.21)
============== =============== ===============
Intangible assets with indefinite lives, that were amortized in the years
ended March 31, 2000, 2001 and 2002, were immaterial.
Legal Proceedings for Local Taxes
On January 30, 2003, the Tokyo High Court upheld the Tokyo District Court's
ruling and ordered the Tokyo Metropolitan Government to refund tax payments
that the banks had paid over the past two fiscal years, which represents the
difference between the 3.0% tax on the gross operating profits paid by the
banks and the amount computed based on net income under the former rule. The
order includes the refund of (Yen)30.4 billion to BTM and Mitsubishi Trust.
However, the Tokyo High Court reversed the lower court on the issue of
additional compensation. The Tokyo Metropolitan Government may appeal this
decision to the Supreme Court of Japan. To date, there have been no decisions
made by the Osaka District Court. Given the fact that the legal process has not
been completed, MTFG Group has not recorded any gain in MTFG Group's
consolidated financial statements.
* * * * *
F-76
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
SEPTEMBER 30, 2001 AND 2002
2001 2002
--------------- ---------------
(in millions)
ASSETS
Cash and due from banks............................. (Yen) 1,825,644 (Yen) 2,248,902
Interest-earning deposits in other banks............ 5,376,805 4,148,565
Call loans, funds sold, and receivables under
resale agreements.................................. 3,116,152 2,359,578
Receivables under securities borrowing
transactions....................................... 2,039,577 1,990,738
Trading account assets (including assets pledged
that secured parties are permitted to sell or
repledge of (Yen)1,056,857 million at September
30, 2001, and (Yen)1,090,382 million at
September 30, 2002)................................ 6,542,695 7,327,701
Investment securities:
Securities available for sale--at fair value
(including assets pledged that secured parties
are permitted to sell or repledge of
(Yen)515,824 million at September 30, 2001,
and (Yen)2,909,808 million at September 30,
2002)............................................ 20,084,360 23,394,650
Securities being held to maturity--at amortized
cost............................................. 283,143 242,168
Other investment securities........................ 170,963 138,289
--------------- ---------------
Total investment securities...................... 20,538,466 23,775,107
--------------- ---------------
Loans, net of unearned income and deferred loan
fees (including assets pledged that secured
parties are permitted to sell or repledge of
(Yen)702,894 million at September 30, 2001, and
(Yen)739,146 million at September 30, 2002)........ 48,307,770 48,091,245
Allowance for credit losses......................... (1,794,045) (1,571,232)
--------------- ---------------
Net loans.......................................... 46,513,725 46,520,013
--------------- ---------------
Premises and equipment--net......................... 709,759 635,139
Accrued interest.................................... 222,287 181,262
Customers' acceptance liability..................... 35,635 30,775
Intangible assets................................... 181,555 200,341
Goodwill............................................ 35,441 41,070
Other assets........................................ 2,345,613 2,856,838
--------------- ---------------
Total........................................ (Yen)89,483,354 (Yen)92,316,029
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits :
Domestic offices :
Non-interest-bearing............................. (Yen) 2,962,423 (Yen) 3,544,419
Interest-bearing................................. 43,856,571 49,743,486
Overseas offices, principally interest-bearing..... 12,354,681 10,556,215
--------------- ---------------
Total deposits............................... 59,173,675 63,844,120
Debentures.......................................... 2,993,854 1,198,007
Call money, funds purchased, and payables under
repurchase agreements.............................. 5,072,054 6,504,990
Payables under securities lending transactions...... 3,053,634 2,222,914
Due to trust account and other short-term
borrowings......................................... 5,152,873 4,491,849
Trading account liabilities......................... 3,330,651 2,656,621
Obligations to return securities received as
collateral......................................... 604,105 742,487
Bank acceptances outstanding........................ 35,635 30,775
Accrued interest.................................... 236,364 152,248
Long-term debt...................................... 5,093,871 5,323,484
Other liabilities................................... 2,219,523 2,802,395
--------------- ---------------
Total liabilities............................ 86,966,239 89,969,890
--------------- ---------------
Commitments and contingent liabilities
Shareholders' equity :
Capital stock :
Preferred stock :
Class 1--authorized, 81,400 shares; issued
and outstanding, 81,400 shares at
September 30, 2001 and 2002, with no
stated value (aggregate liquidation
preference of (Yen)244,200 million).......... 122,100 122,100
Class 2--convertible: authorized, 100,000
shares; issued and outstanding, 100,000
shares at September 30, 2001 and 2002,
with no stated value (aggregate
liquidation preference of (Yen)200,000
million)..................................... 100,000 100,000
Class 3--authorized, 120,000 shares; no
shares issued or outstanding................. -- --
Class 4--convertible: authorized, 120,000
shares; no shares issued or outstanding...... -- --
Common stock--authorized, 22,000,000 shares;
issued, 5,742,468 shares at September 30,
2001 and 2002, with no stated value............. 873,156 873,156
Capital surplus.................................... 846,932 908,461
Retained earnings :
Appropriated for legal reserve................... 227,462 237,474
Unappropriated................................... 235,406 72,637
Accumulated other changes in equity from
nonowner sources, net of taxes................... 217,651 115,067
--------------- ---------------
Total............................................ 2,622,707 2,428,895
Less treasury stock, at cost--196,636 common
shares at September 30, 2001 and 158,034
common shares at September 30, 2002............. 105,592 82,756
--------------- ---------------
Shareholders' equity--net........................ 2,517,115 2,346,139
--------------- ---------------
Total........................................ (Yen)89,483,354 (Yen)92,316,029
=============== ===============
See the accompanying notes to condensed consolidated financial statements.
F-77
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
2001 2002
-------------- --------------
(in millions)
Interest income :
Loans, including fees................................................................... (Yen) 675,006 (Yen) 544,972
Deposits in other banks................................................................. 96,233 41,077
Investment securities................................................................... 207,379 196,536
Trading account assets.................................................................. 7,844 4,706
Call loans, funds sold, and receivables under resale agreements and securities borrowing
transactions.......................................................................... 102,160 31,173
-------------- --------------
Total................................................................................ 1,088,622 818,464
-------------- --------------
Interest expense :
Deposits................................................................................ 296,623 130,277
Debentures.............................................................................. 11,834 5,657
Call money, funds purchased, and payables under repurchase agreements and securities
lending transactions.................................................................. 116,534 53,949
Due to trust account, other short-term borrowings, and trading account liabilities...... 25,963 18,928
Long-term debt.......................................................................... 96,563 76,937
-------------- --------------
Total................................................................................ 547,517 285,748
-------------- --------------
Net interest income..................................................................... 541,105 532,716
Provision for credit losses............................................................. 309,425 232,632
-------------- --------------
Net interest income after provision for credit losses................................... 231,680 300,084
-------------- --------------
Non-interest income :
Fees and commissions.................................................................... 245,079 251,841
Foreign exchange gains--net............................................................. 62,543 113,511
Trading account profits--net............................................................ 106,129 145,548
Investment securities gains--net........................................................ -- 28,870
Other non-interest income............................................................... 28,909 31,682
-------------- --------------
Total................................................................................ 442,660 571,452
-------------- --------------
Non-interest expense :
Salaries and employee benefits.......................................................... 228,455 241,732
Occupancy expenses--net................................................................. 67,391 60,418
Investment securities losses--net....................................................... 92,882 --
Other non-interest expenses............................................................. 294,755 301,511
-------------- --------------
Total................................................................................ 683,483 603,661
-------------- --------------
Income (loss) before income tax expense (benefit) and cumulative effect of a change in
accounting principle.................................................................. (9,143) 267,875
Income tax expense (benefit)............................................................ (1,480) 163,622
-------------- --------------
Income (loss) before cumulative effect of a change in accounting principle.............. (7,663) 104,253
Cumulative effect of a change in accounting principle, net of tax....................... 5,867 (532)
-------------- --------------
Net income (loss)....................................................................... (Yen) (1,796) (Yen) 103,721
============== ==============
Income attributable to preferred shareholders........................................... (Yen) 4,168 (Yen) 8,336
-------------- --------------
Net income (loss) attributable to common shareholders................................... (Yen) (5,964) (Yen) 95,385
============== ==============
(in Yen)
Amounts per share :
Basic earnings (loss) per common share--income (loss) before cumulative effect of a
change in accounting principle........................................................ (Yen)(2,134.35) (Yen)17,191.86
Basic earnings (loss) per common share--net income (loss)............................... (1,075.90) 17,096.50
Diluted earnings (loss) per common share--income (loss) before cumulative effect of a
change in accounting principle........................................................ (2,134.35) 15,147.97
Diluted earnings (loss) per common share--net income (loss)............................. (1,075.90) 15,057.33
See the accompanying notes to condensed consolidated financial statements.
F-78
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY FROM NONOWNER SOURCES (Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
Gains (Losses), Net of Income Taxes
----------------------------------
2001 2002
------------- -------------
(in millions)
Net Income (loss)........................................................... (Yen) (1,796) (Yen) 103,721
------------- -------------
Other changes in equity from nonowner sources:
Net unrealized holding losses on investment securities available for
sale................................................................... (684,606) (287,675)
Reclassification adjustment for (gains) losses included in net income or
loss................................................................... 2,358 (40,296)
------------- -------------
Total................................................................ (682,248) (327,971)
------------- -------------
Cumulative effect of a change in accounting principle.................... 1,257 --
Net unrealized gains on derivatives qualifying for cash flow hedges...... 2,079 2,649
Reclassification adjustment for gains included in net income or loss..... (626) (2,965)
------------- -------------
Total................................................................ 2,710 (316)
------------- -------------
Minimum pension liability adjustments.................................... (49,967) (18,500)
------------- -------------
Foreign currency translation adjustments................................. 39,732 (61,457)
Reclassification adjustment for losses included in net income or loss.... -- 61
------------- -------------
Total............................................................... 39,732 (61,396)
------------- -------------
Total changes in equity from nonowner sources............................ (Yen)(691,569) (Yen)(304,462)
============= =============
See the accompanying notes to condensed consolidated financial statements.
F-79
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
2001 2002
-------------- --------------
(in millions)
Preferred stock (Class 1) :
Balance at beginning of period...................................................... (Yen) 122,100 (Yen) 122,100
-------------- --------------
Balance at end of period............................................................ (Yen) 122,100 (Yen) 122,100
============== ==============
Preferred stock (Class 2) :
Balance at beginning of period...................................................... (Yen) 100,000 (Yen) 100,000
-------------- --------------
Balance at end of period............................................................ (Yen) 100,000 (Yen) 100,000
============== ==============
Common stock :
Balance at beginning of period...................................................... (Yen) 856,664 (Yen) 873,156
Issuance of common stock............................................................ 16,492 --
-------------- --------------
Balance at end of period............................................................ (Yen) 873,156 (Yen) 873,156
============== ==============
Capital surplus :
Balance at beginning of period...................................................... (Yen) 831,105 (Yen) 850,835
Issuance of common stock and gains or losses on sale of treasury stock, net of taxes 15,827 3,618
Recognition of tax benefit arising from treasury stock held by a subsidiary......... -- 54,008
-------------- --------------
Balance at end of period............................................................ (Yen) 846,932 (Yen) 908,461
============== ==============
Retained earnings appropriated for legal reserve :
Balance at beginning of period...................................................... (Yen) 221,689 (Yen) 236,537
Transfer from unappropriated retained earnings...................................... 5,773 937
-------------- --------------
Balance at end of period............................................................ (Yen) 227,462 (Yen) 237,474
============== ==============
Unappropriated retained earnings :
Balance at beginning of period...................................................... (Yen) 271,246 (Yen) 11,593
Net income (loss)................................................................... (1,796) 103,721
-------------- --------------
Total.......................................................................... 269,450 115,314
-------------- --------------
Deduction :
Cash dividends :
Common share..................................................................... (24,103) (33,404)
Preferred share (Class 1)........................................................ (3,358) (6,716)
Preferred share (Class 2)........................................................ (810) (1,620)
Transfer to retained earnings appropriated for legal reserve...................... (5,773) (937)
-------------- --------------
Total.......................................................................... (34,044) (42,677)
-------------- --------------
Balance at end of period............................................................ (Yen) 235,406 (Yen) 72,637
============== ==============
Accumulated other changes in equity from nonowner sources, net of taxes :
Balance at beginning of period...................................................... (Yen) 907,424 (Yen) 523,250
Cumulative effect of a change in accounting principle............................... 1,257 --
Net change during the period........................................................ (691,030) (408,183)
-------------- --------------
Balance at end of period............................................................ (Yen) 217,651 (Yen) 115,067
============== ==============
Treasury stock:
Balance at beginning of period...................................................... (Yen) (108,932) (Yen) (90,974)
Purchase of treasury stock.......................................................... (7,105) (1,571)
Sale of treasury stock.............................................................. 10,445 9,789
-------------- --------------
Balance at end of period............................................................ (Yen) (105,592) (Yen) (82,756)
============== ==============
Total shareholders' equity.......................................................... (Yen)2,517,115 (Yen)2,346,139
============== ==============
See the accompanying notes to condensed consolidated financial statements.
F-80
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
2001 2002
---------------- ----------------
(in millions)
Cash flows from operating activities:
Net income (loss)................................. (Yen) (1,796) (Yen) 103,721
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Provision for credit losses..................... 309,425 232,632
Investment securities losses (gains)--net....... 92,882 (28,870)
Foreign exchange losses (gains)--net............ (205,421) 115,979
Provision for deferred income tax expense
(benefit)...................................... (46,328) 132,954
Increase in trading account assets, excluding
foreign exchange contracts..................... (311,383) (257,898)
Increase in trading account liabilities,
excluding foreign exchange contracts........... 356,061 700,851
Decrease in accrued interest receivable and
other receivables.............................. 95,482 27,017
Decrease in accrued interest payable and other
payables....................................... (155,196) (55,765)
Other--net...................................... 135,883 99,612
---------------- ----------------
Net cash provided by operating activities..... 269,609 1,070,233
---------------- ----------------
Cash flows from investing activities:
Proceeds from sales and maturities of investment
securities available for sale................... 17,593,691 22,204,801
Purchases of investment securities available for
sale............................................ (17,539,622) (22,768,633)
Proceeds from maturities of investment
securities being held to maturity............... 19,726 23,945
Proceeds from sales of other investment
securities...................................... 7,016 6,512
Purchases of other investment securities.......... (6,545) (17,558)
Net decrease in loans............................. 1,137,826 915,611
Net decrease (increase) in interest-earning
deposits in other banks......................... 512,523 (43,849)
Net decrease in call loans, funds sold, and
receivable under resale agreements and
securities borrowing transactions............... 322,065 364,751
Other--net........................................ (250,062) 116,322
---------------- ----------------
Net cash provided by investing activities..... 1,796,618 801,902
---------------- ----------------
Cash flows from financing activities:
Net increase (decrease) in deposits............... (1,006,123) 1,107,440
Net decrease in debentures........................ (411,750) (1,071,192)
Net decrease in call money, funds purchased, and
payable under repurchase agreements and
securities lending transactions................. (661,474) (402,844)
Net increase (decrease) in other short-term
borrowings...................................... 85,375 (526,124)
Net decrease in due to trust account.............. (615,599) (646,757)
Proceeds from issuance of long-term debt.......... 878,196 572,193
Repayment of long-term debt....................... (495,691) (396,598)
Dividends paid.................................... (28,258) (41,724)
Other--net........................................ 253,643 18,350
---------------- ----------------
Net cash used in financing activities......... (2,001,681) (1,387,256)
---------------- ----------------
Effect of exchange rate changes on cash and cash
equivalents....................................... 31,430 (68,376)
---------------- ----------------
Net increase in cash and cash equivalents.......... 95,976 416,503
Cash and cash equivalents at beginning of period... 1,729,668 1,832,399
---------------- ----------------
Cash and cash equivalents at end of period......... (Yen) 1,825,644 (Yen) 2,248,902
================ ================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest........................................... (Yen) 700,811 (Yen) 341,273
Income taxes....................................... 49,406 21,522
Non cash investing activities:
Loans transferred to other real estate owned....... 6,432 793
Marketable equity securities transferred to
employee retirement benefit trusts................ 133,158 --
See the accompanying notes to condensed consolidated financial statements.
F-81
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF SEMIANNUAL CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On April 2, 2001, Mitsubishi Tokyo Financial Group, Inc. (Kabushiki Kaisha
Mitsubishi Tokyo Financial Group) ("MTFG"), was established as a bank holding
company through a stock-for-stock exchange when The Bank of Tokyo-Mitsubishi,
Ltd. ("BTM"), The Mitsubishi Trust and Banking Corporation ("Mitsubishi
Trust"), and Nippon Trust Bank Limited ("NTB"), a former subsidiary of BTM,
became wholly owned subsidiaries of MTFG. On October 1, 2001, NTB and The Tokyo
Trust Bank, Ltd. ("TTB"), which was another trust subsidiary of BTM, merged
with and into Mitsubishi Trust through a stock-for-stock exchange.
The accompanying unaudited semiannual condensed consolidated financial
statements are stated in Japanese yen, the currency of the country in which
MTFG is incorporated and principally operates. Such condensed consolidated
financial statements include the accounts of MTFG and its subsidiaries
(collectively, the "MTFG Group") and reflect all adjustments (consisting of
normal recurring adjustments) that, in the opinion of management, are necessary
for a fair presentation of amounts involved to conform with generally accepted
accounting principles and prevailing practices within the banking industry in
the United States of America ("US GAAP"). The accompanying unaudited condensed
consolidated financial statements should be read in conjunction with
consolidated financial statements included in MTFG's Annual Report on Form 20-F
for the fiscal year ended March 31, 2002. Certain information that would be
included in annual financial statements but not required for semiannual
reporting purpose under US GAAP has been omitted or condensed.
The preparation of condensed consolidated financial statements in conformity
with US GAAP requires management to use estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
Accounting Change
Goodwill and Other Intangible Assets--Effective April 1, 2002, the MTFG
Group adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets". SFAS No. 142 requires that goodwill,
formerly amortized over its useful life, no longer be amortized and be tested
for impairment at least annually. Further, SFAS No. 142 requires that
intangible assets that have finite useful lives will continue to be amortized
over their useful lives while intangible assets with indefinite lives will no
longer be amortized and are subject to impairment testing at least annually.
The MTFG Group has performed the required transitional impairment tests of
goodwill and intangible assets with indefinite lives upon adoption of SFAS No.
142. The initial adoption resulted in a cumulative adjustment charge to
earnings of (Yen)532 million related to the impairment of goodwill. Such
cumulative adjustment primarily resulted from an impairment of goodwill related
to a U.S. leasing business and was measured using the discounted future cash
flows method. Net loss and amounts per common share for the six months ended
September 30, 2001 adjusted to exclude amortization expense (net of taxes)
related to goodwill are as follows:
Net income (loss): (in millions)
Reported net loss................. (Yen)(1,796)
Goodwill amortization, net of tax. 3,849
-----------
As adjusted....................... (Yen) 2,053
===========
F-82
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Basic earnings (loss) per common share: (in yen)
Reported net loss.............................. (Yen)(1,075.90)
Goodwill amortization, net of tax.............. 694.36
--------------
As adjusted.................................... (Yen) (381.54)
==============
Diluted earnings (loss) per common share: (in yen)
Reported net loss.............................. (Yen)(1,075.90)
Goodwill amortization, net of tax.............. 694.36
--------------
As adjusted.................................... (Yen) (381.54)
==============
Intangible assets with indefinite lives, that were amortized in the prior
periods, were immaterial.
Intangible assets, other than goodwill, as of September 30, 2002, primarily
consist of the capitalized cost of software amounting to (Yen)139,985 million
(gross amount of (Yen)296,609 million and accumulated amortization of
(Yen)156,624 million) and unrecognized prior service cost amounting to
(Yen)41,383 million recorded in accordance with SFAS No. 87, "Employer's
Accounting for Pensions." Amortization expense of intangible assets, other than
goodwill, for the six months ended September 30, 2002, amounted to (Yen)24,709
million.
Amortization expense for the net carrying amount of intangible assets at
September 30, 2002 is estimated to be (Yen)23,025 million for the remainder of
the fiscal year ending March 31, 2003 (exclusive of (Yen)24,709 million
recorded for the six months ended September 30, 2002), (Yen)39,657 million for
the fiscal year ending March 31, 2004, (Yen)34,813 million for the fiscal year
ending March 31, 2005, (Yen)27,095 million for the fiscal year ending March 31,
2006, (Yen)17,265 million for the year ending March 31, 2007, and (Yen)4,251
million for the fiscal year ending March 31, 2008.
Impairment or Disposal of Long-Lived Assets--In August 2001, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." This statement addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets by establishing additional criteria as compared to existing US GAAP to
determine when a long-lived asset is held for sale. It also broadens the
definition of discontinued operations. This statement carries over the
framework established in SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," and was adopted
by the MTFG Group on April 1, 2002. The adoption of this statement had no
material impact on the results of operations or financial position.
Derivative Instruments and Hedging Activities--On April 1, 2001, the MTFG
Group adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 requires
that all derivatives, whether designated as a hedge or not, be recorded on the
balance sheet at fair value. SFAS No. 133 also requires that derivative
instruments used to hedge be identified specifically to assets, liabilities,
firm commitments or anticipated transactions and be expected to remain
effective throughout the life of the hedge. Derivative instruments that do not
qualify as either a fair value or cash flow hedge are valued at fair value and
classified as trading account assets or liabilities with the resultant gain or
loss recognized in current earnings. The cumulative effect of the change in
accounting principle, net of tax, was to increase net income by (Yen)5,867
million and other changes in equity from nonowner sources by (Yen)1,257 million.
Recently Issued Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses the financial accounting and reporting
for obligations associated with the retirement of
F-83
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 applies to the legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development,
and/or the normal operation of a long-lived asset. A legal obligation that a
party is required to settle as a result of an existing or enacted law, statute,
ordinance, or written or oral contract, or by legal construction of a contract
under the doctrine of promissory estoppel. This statement is effective for
fiscal years beginning after June 15, 2002. The MTFG Group does not expect that
the adoption of this statement will have a material impact on our financial
condition or results of operations.
Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13--In April
2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The
provisions of SFAS No. 145 related to the rescission of Statement No. 4 are
effective for fiscal years beginning after May 15, 2002. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB Opinion 30 for
classification as an extraordinary item shall be reclassified. The provisions
of this statement related to SFAS No. 13 are effective for transactions
occurring after May 15, 2002. All other provisions of SFAS No. 145 are
effective for financial statements issued on or after May 15, 2002. The MTFG
Group does not expect the adoption of SFAS No.145 to have a material impact on
the results of operations or financial position.
Costs Associated with Exit or Disposal Activities--In June 2002, the FASB
issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. This
statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The provisions of SFAS No. 146 are
generally to be applied prospectively.
Acquisitions of Certain Financial Institutions--In October 2002, the FASB
issued SFAS No. 147, "Acquisitions of Certain Financial Institutions, an
amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9."
This statement eliminates specialized accounting guidance related to certain
acquisitions. The adoption of the standard did not impact the MTFG Group's
financial condition or results of operations.
Guarantor's Accounting and Disclosure Requirements for Guarantees--In
November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an interpretation of FASB Statements No.
5, 57 and 107 and rescission of FASB Interpretation No. 34." The initial
recognition and initial measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, irrespective of the guarantor's fiscal year-end. The
disclosure requirements in this interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002. The
MTFG Group has not completed evaluating the impact of adoption.
Stock-Based Compensation--In December 2002, the FASB issued SFAS No. 148,
"Accounting for Stock-Based Compensation--Transition and Disclosure, an
amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS
No.148 are effective for fiscal years ending after December 15, 2002, with
F-84
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
earlier application permitted in certain circumstances. The interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The MTFG Group has not
completed evaluating the impact of adoption.
Consolidation of Variable Interest Entities--In January 2003, the FASB
issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB No.51." Interpretation No.46 addresses consolidation by
business enterprises of variable interest entities. The consolidation
requirements of Interpretation No.46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply
to older entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The MTFG Group has not completed its
assessment of the impact of the Interpretation on our financial statements.
2. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share ("EPS") excludes the dilutive effects
of potential common shares and is computed by dividing net income (loss)
available to common stock shareholders by the weighted average number of common
shares outstanding for the period, while diluted EPS gives effect to all
dilutive potential common shares that were outstanding for the period.
The weighted average number of shares used in the computations of basic EPS
and diluted EPS were 5,543 thousand shares and 5,543 thousand shares,
respectively, for the six months ended September 30, 2001, and 5,579 thousand
shares and 5,870 thousand shares, respectively, for the six months ended
September 30, 2002.
For the six months ended September 30, 2001, no potential common stock was
included in the computation of diluted EPS due to their antidilutive effects.
For the six months ended September 30, 2002, 3% Exchangeable Guaranteed Notes
due 2002 and Class 2 Preferred Stock were included to compute diluted EPS.
3. NONACCRUAL LOANS, RESTRUCTURED LOANS, ACCRUING LOANS PAST DUE 90 DAYS OR
MORE AND IMPAIRED LOANS
Loans are generally placed on nonaccrual status when substantial doubt
exists as to the full and timely collection of either principal or interest, or
when principal or interest is contractually past due, except when the loans are
in the process of collection based upon the judgment of management. Impaired
loans generally include nonaccrual loans, restructured loans and other loans
specifically recognized for impairment.
The following is a summary of nonaccrual loans, restructured loans, accruing
loans past due 90 days or more and impaired loans at September 30, 2001 and
2002:
2001 2002
-------------- --------------
(in millions)
Nonaccrual loans..................................... (Yen)2,354,189 (Yen)1,779,190
Restructured loans................................... 2,080,856 1,778,659
Accruing loans contractually past due 90 days or more 18,465 13,969
-------------- --------------
Total/(1)/........................................ (Yen)4,453,510 (Yen)3,571,818
============== ==============
Impaired loans/(1)/.................................. (Yen)4,352,232 (Yen)3,475,715
============== ==============
--------
(1) Includes loans held for sale of (Yen)7,403 million at September 30, 2002.
F-85
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Changes in the allowance for credit losses for the six months ended
September 30, 2001 and 2002 were as follows:
2001 2002
- -------------- --------------
(in millions)
Balance at beginning of period............................. (Yen)1,716,984 (Yen)1,735,180
-------------- --------------
Provision for credit losses................................ 309,425 232,632
-------------- --------------
Charge-offs................................................ 248,307 419,999
Less-Recoveries............................................ 22,663 36,389
-------------- --------------
Net charge-offs............................................ 225,644 383,610
-------------- --------------
Other, principally foreign exchange translation adjustments (6,720) (12,970)
-------------- --------------
Balance at end of period................................... (Yen)1,794,045 (Yen)1,571,232
============== ==============
4. ASSETS PLEDGED
At September 30, 2002, assets pledged as collateral for call money, funds
purchased, payables for repurchase agreements and securities lending
transactions, other short-term borrowings, and long-term debt and for certain
other purposes were as follows:
2002
---------------
(in millions)
Trading account assets (Yen) 1,431,494
Investment securities. 8,349,298
Loans................. 1,681,633
Due from banks........ 294,316
Other................. 39,726
---------------
Total.............. (Yen)11,796,467
===============
5. COMMITMENTS AND CONTINGENT LIABILITIES
The following is a summary of contract amounts of credit-related off-balance
sheet financial instruments at September 30, 2001 and 2002:
2001 2002
----------- -----------
(in billions)
Commitments to extend credit............ (Yen)27,474 (Yen)29,244
Guaranteed principal of trust accounts.. 4,078 2,772
Standby letters of credit and guarantees 5,196 4,842
Commercial letters of credit............ 372 344
The MTFG Group is involved in various litigation matters. In the opinion of
management, the MTFG Group's liabilities, if any, when ultimately determined,
will not have a material adverse effect on the MTFG Group's financial position.
F-86
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
6. REGULATORY CAPITAL REQUIREMENTS
MTFG, BTM, Mitsubishi Trust, UnionBanCal Corporation ("UNBC"), a subsidiary
of BTM, and certain other subsidiaries are subject to various banking and other
regulatory requirements including capital requirements promulgated by the
regulatory authorities in countries they operate. As such, failure to meet such
regulatory requirements, including evolving regulatory measures being
implemented by the Japanese government with respect to the Japanese banking
industry, may have a direct material effect on MTFG's consolidated financial
statements.
The table below presents MTFG's consolidated risk-based capital,
risk-adjusted assets, and risk-based capital ratios at September 30, 2001 and
2002 (underlying figures are calculated in accordance with Japanese banking
regulations based on information derived from the financial statements prepared
in accordance with Japanese GAAP as required by the Financial Services Agency
of Japan):
Actual Actual Minimum capital
2001 2002 ratios required
--------------- --------------- ---------------
(in millions, except percentages)
Capital components:
Tier I capital........... (Yen) 3,193,312 (Yen) 3,053,108
Tier II capital.......... 3,050,110 2,942,872
Total risk-based capital. 6,139,211 6,002,033
Risk-weighted assets........ 59,542,761 57,190,304
Capital ratios:
Tier I capital........... 5.36 % 5.33 % 4.00%
Total risk-based capital. 10.31 10.49 8.00
The table below presents the consolidated and stand-alone risk-based capital
ratios of BTM and Mitsubishi Trust at September 30, 2001 and 2002 (underlying
figures are calculated in accordance with Japanese banking regulations based on
information derived from the financial statements prepared in accordance with
Japanese GAAP as required by the Financial Services Agency of Japan):
Actual Actual Minimum capital
2001 2002 ratios required
------ ------ ---------------
Consolidated capital ratios:
BTM:
Tier I capital............... 5.18% 5.24% 4.00%
Total risk-based capital..... 10.13 10.43 8.00
Mitsubishi Trust:
Tier I capital............... 6.81 6.49 4.00
Total risk-based capital..... 11.55 11.44 8.00
Stand-alone capital ratios:
BTM:
Tier I capital............... 5.34 5.07 4.00
Total risk-based capital..... 10.65 10.14 8.00
Mitsubishi Trust:
Tier I capital............... 6.45 6.51 4.00
Total risk-based capital..... 11.07 11.47 8.00
F-87
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
The table below presents the risk-based capital ratios of UNBC and Union
Bank of California, a subsidiary of UNBC, at June 30, 2001 and 2002:
Actual Actual Minimum capital
2001 2002 ratios required
------ ------ ---------------
UNBC:
Tier I capital (to risk-weighted assets)..... 10.85% 11.90% 4.00%
Tier I capital (to quarterly average assets). 10.33 10.77 4.00
Total capital (to risk-weighted assets)...... 12.70 13.65 8.00
Actual Actual Minimum capital Ratios OCC* requires to
2001 2002 ratios required be "well capitalized"
------ ------ --------------- -----------------------
Union Bank of California:
Tier I capital (to risk-weighted assets)..... 9.85% 11.00% 4.00% 6.00%
Tier I capital (to quarterly average assets). 9.33 9.89 4.00 5.00
Total capital (to risk-weighted assets)...... 11.40 12.49 8.00 10.00
--------
* OCC represents the Office of the Comptroller of the Currency of the United
States of America.
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The MTFG Group uses various derivative financial instruments, including
interest rate swaps and foreign currency forward contracts, for trading,
customer accommodation and risk management purposes. The MTFG Group's trading
activities include dealing and customer accommodation activities to meet the
financial needs of its customers and related derivatives are measured at fair
value with gains and losses recognized currently in earnings. The MTFG Group
also accounts for derivatives held for risk management purpose as trading
positions and measures them at fair value unless such derivatives qualify for
hedge accounting.
UNBC adopts hedging strategies and uses certain derivatives to achieve hedge
accounting. Cash flow hedge strategy is adopted primarily for the purpose of
hedging forecasted future loan interest payments as well as future interest
income from variable rate loans, utilizing interest rate swaps and various
other interest rate options. A fair value hedge is intended to effectively
convert certain fixed rate liabilities (including a trust preferred security
and medium-term notes) into floating rate instruments. Gains and losses
recorded due to hedge ineffectiveness were not material for the six months
ended September 30, 2001 and 2002.
8. BUSINESS SEGMENTS
MTFG conducts its business through its principal subsidiaries, BTM and
Mitsubishi Trust, which have been granted substantial autonomy in conducting
their business. Management currently recognizes BTM and Mitsubishi Trust as
principal business segments of the MTFG Group.
The business segment information of BTM and its subsidiaries ("BTM Group")
and Mitsubishi Trust and its subsidiaries ("Mitsubishi Trust Group"), set forth
below, is derived from the internal management reporting systems used by
management to measure the performance of the business segments.
Unlike financial accounting, there is no authoritative body of guidance for
management accounting. The business segment information is based on the
financial information prepared in accordance with Japanese GAAP along with
internal management accounting rules and practices. Accordingly, the format and
information is presented primarily on the basis of Japanese GAAP and is not
consistent with the condensed consolidated
F-88
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
financial statements prepared on the basis of US GAAP. Management of each
subsidiary does not use information on segment total assets to allocate
resources and assess performance of their segments and has not prepared
information on segment assets. Accordingly, business segment information on
total assets is not available.
BTM Group
Global
Retail Commercial Corporate Investment Asset Operations
Banking Banking Banking Banking Management UNBC Services Treasury
------------ ------------ ------------ ----------- ------------ ------------ ----------- ------------
(in millions)
Six months ended
September 30, 2001:
Net revenue:
BTM:
Net interest
income.......... (Yen) 90,994 (Yen)113,472 (Yen) 66,597 (Yen) 3,775 (Yen) 289 (Yen) -- (Yen) 510 (Yen) 63,407
Net fees......... 9,761 21,466 30,016 11,601 2,435 -- 1,948 (2,818)
Other............ 5,375 11,414 13,654 15,162 (9,087) -- 550 41,160
BTM's
subsidiaries..... 35,967 4,761 28,025 28,544 4,318 136,523 7,563 1,023
------------ ------------ ------------ ----------- ------------ ------------ ----------- ------------
Total............ 142,097 151,113 138,292 59,082 (2,045) 136,523 10,571 102,772
Operating expenses. 113,017 67,523 64,351 35,305 6,276 75,851 8,622 13,334
------------ ------------ ------------ ----------- ------------ ------------ ----------- ------------
Operating profit... (Yen) 29,080 (Yen) 83,590 (Yen) 73,941 (Yen)23,777 (Yen) (8,321) (Yen) 60,672 (Yen) 1,949 (Yen) 89,438
============ ============ ============ =========== ============ ============ =========== ============
Six months ended
September 30, 2002:
Net revenue:
BTM:
Net interest
income.......... (Yen) 81,797 (Yen)100,154 (Yen) 59,370 (Yen) 2,666 (Yen) (138) (Yen) -- (Yen) 402 (Yen) 91,425
Net fees......... 10,065 22,029 33,970 13,289 1,965 -- 1,914 (3,186)
Other............ 5,815 15,004 10,348 18,637 (10,800) -- 406 66,598
BTM's
subsidiaries..... 37,317 4,943 24,885 27,683 3,667 134,564 7,476 1,122
------------ ------------ ------------ ----------- ------------ ------------ ----------- ------------
Total............ 134,994 142,130 128,573 62,275 (5,306) 134,564 10,198 155,959
Operating expenses. 107,883 63,761 70,485 40,679 7,959 77,968 8,465 13,396
------------ ------------ ------------ ----------- ------------ ------------ ----------- ------------
Operating profit... (Yen) 27,111 (Yen) 78,369 (Yen) 58,088 (Yen)21,596 (Yen)(13,265) (Yen) 56,596 (Yen) 1,733 (Yen)142,563
============ ============ ============ =========== ============ ============ =========== ============
Other* Total
------------- ------------
Six months ended
September 30, 2001:
Net revenue:
BTM:
Net interest
income.......... (Yen) (2,688) (Yen)336,356
Net fees......... (14,351) 60,058
Other............ (1,579) 76,649
BTM's
subsidiaries..... 4,418 251,142
------------- ------------
Total............ (14,200) 724,205
Operating expenses. 38,539 422,818
------------- ------------
Operating profit... (Yen) (52,739) (Yen)301,387
============= ============
Six months ended
September 30, 2002:
Net revenue:
BTM:
Net interest
income.......... (Yen) (24,843) (Yen)310,833
Net fees......... (18,035) 62,011
Other............ (4,051) 101,957
BTM's
subsidiaries..... 4,339 245,996
------------- ------------
Total............ (42,590) 720,797
Operating expenses. 74,397 464,993
------------- ------------
Operating profit... (Yen)(116,987) (Yen)255,804
============= ============
--------
* Other includes the Systems Services unit, the e-Business & Initiatives unit,
and the Corporate Center and eliminates overlapping allocation.
Management measures the performance of each business unit by "operating
profit," which includes profits or losses of BTM's subsidiaries. Financial
information for each of BTM's subsidiaries is assigned to only one business
unit, based on its major products or services provided and its major type of
customers. Operating profit is a defined term in the regulatory reporting to
the Financial Services Agency of Japan.
F-89
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Frequently, the business units work together in connection with providing
services to customers. In accordance with the BTM Group's internal management
accounting policies, BTM Group does not apportion the net revenue relating to
any particular transaction among the participating business units. Instead, BTM
Group assigns the total amount of net revenue relating to each of these
transactions to each participating business unit. As a result, some items of
net revenue are recorded as part of the operating results of more than one
business unit. Any overlapping allocations are eliminated in the "Other"
column. The following is the summary of the aggregate amounts of this
overlapping allocation of net revenue for the business units for the six months
ended September 30, 2001 and 2002:
Global Total
Commercial Corporate Amount
Banking Banking Eliminated
---------- ----------- -----------
(in millions)
Six months ended September 30, 2001:
Investment banking............... (Yen)3,325 (Yen)11,757 (Yen)15,082
Six months ended September 30, 2002:
Investment banking............... 4,337 13,610 17,947
On April 2, 2001, NTB became a wholly owned subsidiary of MTFG and has been
excluded from BTM's consolidation. On October 1, 2001, NTB and TTB merged with
and into Mitsubishi Trust and, accordingly, BTM's segment internal management
reports do not include the financial performance of NTB and TTB subsequent to
the merger. Their post-merger financial performance is reflected in Mitsubishi
Trust's segment information. BTM's segment information for the six months ended
September 30, 2001 has been restated to reflect the exclusion of NTB and TTB
from its consolidation. NTB's operation principally includes pension trust
services, securities operations, real estate services, property management
services, and stock transfer agency services. TTB's principal business includes
securities lending transactions, asset securitizations and other financial
securities. The following is a summary of financial performance of NTB and TTB
for the six months ended September 30, 2001, derived from the internal
management system of these banks without any adjustments.
Six Months Ended
September 30,
2001
----------------
(in millions)
Net revenue....... (Yen)12,100
Operating expenses 14,341
-----------
Operating loss.... (Yen)(2,241)
===========
F-90
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
Mitsubishi Trust Group
Trust- Trust Real Global
Banking Assets Estate Markets Other* Total
----------- ----------- ---------- ----------- ----------- ------------
(in millions)
Six months ended September 30, 2001:
Mitsubishi Trust:
Net revenue:
Net interest income..................... (Yen)35,514 (Yen) -- (Yen) -- (Yen)35,888 (Yen) 4,938 (Yen) 76,340
Fees on jointly operated designated
money trusts.......................... 9,856 -- -- 13,201 9,996 33,053
Other fees.............................. 12,807 18,353 3,566 (1,459) -- 33,267
Other................................... 26 -- -- 7,542 (49) 7,519
----------- ----------- ---------- ----------- ----------- ------------
Total................................ 58,203 18,353 3,566 55,172 14,885 150,179
Operating expenses.......................... 33,491 15,174 3,266 8,174 15,053 75,158
Mitsubishi Trust's subsidiaries............. -- -- -- -- 2,246 2,246
----------- ----------- ---------- ----------- ----------- ------------
Operating profit............................ (Yen)24,712 (Yen) 3,179 (Yen) 300 (Yen)46,998 (Yen) 2,078 (Yen) 77,267
=========== =========== ========== =========== =========== ============
Six months ended September 30, 2002:
Mitsubishi Trust:
Net revenue:
Net interest income..................... (Yen)38,762 (Yen) -- (Yen) -- (Yen)56,162 (Yen) 2,342 (Yen) 97,266
Fees on jointly operated designated
money trusts.......................... 6,126 -- -- 12,236 7,140 25,502
Other fees.............................. 14,904 16,825 7,724 (2,665) -- 36,788
Other................................... 15 -- -- (7,648) (118) (7,751)
----------- ----------- ---------- ----------- ----------- ------------
Total................................ 59,807 16,825 7,724 58,085 9,364 151,805
Operating expenses.......................... 36,811 14,606 4,737 8,906 13,723 78,783
Mitsubishi Trust's subsidiaries............. -- -- -- -- 3,516 3,516
----------- ----------- ---------- ----------- ----------- ------------
Operating profit............................ (Yen)22,996 (Yen) 2,219 (Yen)2,987 (Yen)49,179 (Yen) (843) (Yen) 76,538
=========== =========== ========== =========== =========== ============
--------
* Other includes certain divisions of the corporate headquarters (e.g.,
personnel and planning) and adjustments.
Mitsubishi Trust uses "operating profit" to measure the performance of each
business group, except for the financial performance of subsidiaries which is
measured by ordinary profit or loss derived from the financial statements of
subsidiaries. Because of the limited significance of subsidiary operations,
Mitsubishi Trust does not assign the subsidiary financial performances to any
business groups, and manages them on an aggregate basis.
It is not practicable to restate business segment information for the six
months ended September 30, 2001 to reflect the effect of the merger of NTB and
TTB because the differences in the policy and process of compiling and
summarizing segment information between Mitsubishi Trust and NTB and TTB have
made impractical the precise and reasonable allocation of financial performance
of NTB and TTB to each of Mitsubishi Trust's business groups.
Reconciliation
As explained above, the measurement bases and the income and expense items
covered are very different between the internal management reporting system and
the accompanying condensed consolidated statements of
F-91
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)
operations. Therefore, it is impracticable to present reconciliations of the
business segments' total information, other than operating profit, to
corresponding items in the accompanying condensed consolidated statements of
operations.
Reconciliation of the total of segment operating profit of BTM Group and
Mitsubishi Trust Group from the internal management reporting systems for the
six months ended September 30, 2001 and 2002, to income (loss) before income
tax expense or benefit and cumulative effect of a change in accounting
principle shown on the condensed consolidated statements of operations is as
follows:
2001 2002
--------- ---------
(in billions)
Operating profit:
BTM................................................................................ (Yen) 301 (Yen) 256
Mitsubishi Trust................................................................... 77 77
--------- ---------
Total.......................................................................... 378 333
Trust fees adjusted for write-downs of trust assets................................ (10) (5)
Provision for credit losses........................................................ (341) (173)
Trading account profit............................................................. 36 29
Equity investment securities losses-net............................................ (145) (82)
Debt investment securities gains-net............................................... 9 79
Foreign exchange gains-net......................................................... 123 136
Losses on other real estate owned.................................................. (1) (6)
Goodwill amortization.............................................................. (4) --
Minority interest.................................................................. (11) --
Other--net......................................................................... (43) (43)
--------- ---------
Income (loss) before income tax expense (benefit) and cumulative effect of a change in
accounting principle................................................................ (Yen) (9) (Yen) 268
========= =========
9. PARENT COMPANY SHARES HELD BY SUBSIDIARY BANKS
BTM and Mitsubishi Trust own common stock of MTFG. Such shares are included
in treasury stock in the condensed consolidated balance sheet and deducted from
MTFG's shareholders' equity.
During the six months ended September 30, 2002, the MTFG shares held by BTM
were written down for tax purposes. The tax consequence of such write-down was
treated as a capital transaction and credited to capital surplus.
10. EVENTS SINCE SEPTEMBER 30, 2002
Approval of Dividends
On November 25, 2002, the Board of Directors approved payment of cash
dividends to the shareholders of record on September 30, 2002 of (Yen)41,250
per share of Class 1 preferred stock, totaling (Yen)3,358 million, and
(Yen)8,100 per share of Class 2 preferred stock, totaling (Yen)810 million.
Legal Proceedings for Local Taxes
On January 30, 2003, the Tokyo High Court upheld the Tokyo District Court's
ruling and ordered the Tokyo Metropolitan Government to refund tax payments
that the banks had paid over the past two fiscal years, which
F-92
MITSUBISHI TOKYO FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Concluded)
represents the difference between the 3.0% tax on the gross operating profits
paid by the banks and the amount computed based on net income under the former
rule. The order includes the refund of (Yen)30.4 billion to BTM and Mitsubishi
Trust. However, the Tokyo High Court reversed the lower court on the issue of
additional compensation. The Tokyo Metropolitan Government may appeal this
decision to the Supreme Court of Japan. To date, there have been no decisions
made by the Osaka District Court. Given the fact that the legal process has not
been completed, MTFG Group has not recorded any gain in MTFG Group's condensed
consolidated financial statements.
* * * * *
F-93
PROSPECTUS
Mitsubishi Tokyo Financial Group, Inc.
COMMON STOCK
AMERICAN DEPOSITARY SHARES REPRESENTING COMMON STOCK DEBT SECURITIES
-----------------
We may offer, from time to time, any of the following securities:
.. common stock;
.. American depositary shares, or ADSs, representing common stock; and
.. debt securities.
In addition, our wholly-owned subsidiaries, The Bank of Tokyo-Mitsubishi, Ltd.
and The Mitsubishi Trust and Banking Corporation, as selling shareholders, may
offer, from time to time, the shares of our common stock that they hold in the
form of common stock or ADSs. Because the selling shareholders are our
wholly-owned subsidiaries, any offering of shares of our common stock by them
will be considered a primary offering under U.S. securities laws.
In a supplement to this prospectus, we will identify the particular securities
to be offered, and if debt securities are offered, we will provide the specific
terms of any debt securities we offer. The prospectus supplement will further
describe the manner in which the securities will be offered and will also
contain the names of any underwriters, dealers or agents involved in the
offering of the securities, together with any applicable commissions or
discounts. This prospectus may not be used to offer securities unless
accompanied by a prospectus supplement. You should read this prospectus and any
prospectus supplement carefully before you make a decision to invest.
Our common stock is listed on the First Section of the Tokyo Stock Exchange and
the Osaka Securities Exchange in Japan and on the London Stock Exchange in the
United Kingdom. ADSs representing our common stock are listed on the New York
Stock Exchange under the symbol "MTF." The applicable prospectus supplement
will contain information, where applicable, as to any other listing on any
securities exchange of the securities covered by the prospectus supplement.
-----------------
Investing in the securities involves risks. See "Risk Factors" beginning on
page 4.
-----------------
The U.S. Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
-----------------
These securities are not deposits or savings accounts. These securities are not
insured by the U.S. Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality.
-----------------
The date of this prospectus is October 16, 2002.
TABLE OF CONTENTS
Page
----
About This Prospectus.................. 3
Risk Factors........................... 4
Forward-Looking Statements............. 13
Capitalization......................... 14
Use of Proceeds........................ 16
Determination of Offering Price........ 16
Ratios of Earnings to Fixed Charges and
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends 17
Page
----
Description of Securities.............. 18
Taxation............................... 42
Plan of Distribution................... 47
Legal Matters.......................... 50
Experts................................ 50
Where You Can Obtain More Information.. 50
Incorporation of Documents by Reference 50
Limitations on Enforcement of U.S. Laws 51
2
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
U.S. Securities and Exchange Commission, or SEC, using the "shelf" registration
process. Under the shelf registration process, we may sell any combination of
the securities described in this prospectus, and our wholly-owned subsidiaries,
Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, may sell their shares of
our common stock, from time to time in the future in one or more offerings up
to a total dollar amount of U.S.$1,000,000,000. Because the selling
shareholders are our wholly-owned subsidiaries, any offering of shares of our
common stock by them will be considered a primary offering under U.S.
securities laws.
This prospectus provides you with a general description of the securities
that can be offered. Each time securities are offered under this prospectus, we
will provide prospective investors with a prospectus supplement that will
contain specific information about the terms of the securities. The prospectus
supplement may also add to or update or change information contained in this
prospectus. You should read both this prospectus and any prospectus supplement
together with the additional information described under the heading "Where You
Can Obtain More Information."
You should rely only on the information provided or incorporated by
reference in this prospectus or any prospectus supplement. We have not
authorized anyone to provide you with different or additional information. You
should not assume that the information in this prospectus or any prospectus
supplement, or in any document incorporated by reference, is accurate as of any
date after their respective dates.
Unless we indicate otherwise or the context otherwise requires, when we use
the words "we," "us," "our" or the "MTFG Group," we mean Mitsubishi Tokyo
Financial Group, Inc. and its subsidiaries. "Bank of Tokyo-Mitsubishi" refers
to The Bank of Tokyo-Mitsubishi, Ltd. and its subsidiaries, and "Mitsubishi
Trust Bank" refers to The Mitsubishi Trust and Banking Corporation and its
subsidiaries. We use the word "you" to refer to prospective investors in the
securities.
Our head office is located at 4-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo
100-6326, Japan and our telephone number is 81-3-3240-8111.
In this prospectus and any prospectus supplement, when we refer to
"dollars," "U.S.$" and "$," we mean U.S. dollars and, when we refer to "yen"
and "(Yen)," we mean Japanese yen. This prospectus contains a translation of
some Japanese yen amounts into U.S. dollars solely for your convenience.
The financial information presented in this prospectus and our consolidated
financial statements, which are incorporated by reference into this prospectus,
are prepared in accordance with accounting principles generally accepted in the
United States, or U.S. GAAP, except for the risk-adjusted capital ratio, the
business segment financial information and certain other information, which are
prepared in accordance with accounting principles generally accepted in Japan,
or Japanese GAAP. Our consolidated financial statements for the fiscal years
ended March 31, 1998, 1999, 2000 and 2001, which are incorporated by reference
into this prospectus, reflect the combined results of Bank of Tokyo-Mitsubishi,
including Nippon Trust Bank, and Mitsubishi Trust Bank as if the business
integration between those banks had been in effect for those periods. Unless we
indicate otherwise or the context otherwise requires, the financial and
statistical data for those periods presented in or incorporated by reference
into this prospectus also reflect the combined results of the banks as if the
business integration had been in effect for those periods. References to fiscal
2001 are to the fiscal year ended March 31, 2002 and references to other fiscal
years have the corresponding meaning.
3
RISK FACTORS
Investing in our securities involves a high degree of risk. You should
carefully consider the risks described below as well as all the other
information presented in, or incorporated by reference into, this prospectus
and any prospectus supplement before investing in our securities.
Our business, operating results and financial condition could be materially
adversely affected by any of the factors discussed below. The trading price of
our securities could decline due to any of these factors. This prospectus also
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including the risks
faced by us described below and elsewhere in this prospectus. See
"Forward-Looking Statements."
Risks Related to Our Business
We may suffer additional losses in the future due to problem loans.
We have a substantial volume of problem loans and have suffered from
worsening asset quality problems since the early 1990s. Our problem loans and
credit-related expenses could increase if:
.. economic conditions in Japan do not improve;
.. real estate prices or stock prices in Japan continue to decline;
.. our large borrowers become insolvent, or the level of corporate bankruptcies
in Japan continues to rise;
.. additional economic problems arise elsewhere in Asia or in the Americas; or
.. the global economic environment deteriorates generally.
This would adversely affect our results of operations, weaken our financial
condition and erode our capital base.
Our allowance for credit losses may be insufficient to cover future loan
losses.
We base the allowance for credit losses in our loan portfolio on assumptions
and estimates about our customers, the value of collateral we hold and the
economy as a whole. Our actual loan losses could prove to be materially
different from our estimates and could materially exceed our allowance. If our
actual loan losses are higher than we currently expect, our current allowance
for credit losses could be insufficient. If we change some of our assumptions
and estimates as general economic conditions deteriorate or the value of
collateral declines, we may have to provide for additional allowance for credit
losses.
The credit quality of our loan portfolio may be adversely affected by the
continuing financial difficulties of the Japanese real estate and construction
sectors.
As of March 31, 2002, approximately 16.7% of our domestic loans were made to
real estate and construction companies. The Japanese real estate and
construction industries have been severely and adversely affected by the sharp
decline in Japanese real estate values and construction projects. Japanese real
estate prices have declined for 11 straight years, and may still be falling.
This has materially adversely affected the credit quality of our loan portfolio
in the last decade. We expect these problems to continue for the foreseeable
future, especially if the Japanese economy is slow to recover.
The credit quality of our loan portfolio may be adversely affected by the
continuing financial difficulties of the Japanese wholesale and retail sectors.
As of March 31, 2002, approximately 15.5% of our domestic loans were made to
wholesale and retail borrowers. Many Japanese wholesalers and retailers have
been restructured or are undergoing restructurings through legal proceedings or
through out-of-court agreements, including concessions by lenders. If consumer
spending
4
continues shrinking in the extended economic downturn, or if restructuring
efforts of distressed wholesalers and retailers are not successful, there may
be additional significant failures of wholesalers and retailers. A further or
extended deterioration within these industries would expose us to substantial
additional credit losses.
Our exposure to troubled borrowers may increase, and our recoveries from
them may be lower than expected.
We may provide additional loans to troubled borrowers. We may forbear from
exercising all of our rights as a creditor against them, and we may forgive
loans to them in conjunction with their debt restructuring. We may take these
steps even when our legal rights might permit us to take stronger action
against the borrower and even when others might take stronger action against
the borrower to maximize recovery or to reduce exposure in the short term. We
may provide support to troubled borrowers for any of the following reasons or
for other reasons:
.. political or regulatory considerations;
.. reluctance to push a major client into default or bankruptcy or to disrupt a
restructuring plan supported by other lenders; and
.. a perceived responsibility for the obligations of our affiliated and
associated companies.
These practices may substantially increase our exposure to troubled borrowers.
We may experience losses because our remedies for credit defaults by our
borrowers are limited.
We may not be able to realize the value of collateral held or enforce our
rights against defaulting customers because of:
.. the difficulty of foreclosing on collateral in Japan,
.. the illiquidity of and depressed values in the Japanese real estate market,
and
.. depressed values of pledged securities held as collateral.
Recent corporate credibility issues may increase our problem loans or
otherwise negatively affect our results of operations.
In recent months, several high-profile bankruptcy filings and reports of
past accounting irregularities, including fraud, in the United States, such as
those relating to Enron Corporation, have raised corporate credibility issues,
particularly with respect to public companies. In response to these
developments and U.S. regulatory responses to these developments, auditors and
corporate managers generally have begun to review financial statements more
thoroughly and conservatively. As a result, additional accounting
irregularities may be uncovered and additional bankruptcy filings may be made
in the United States and elsewhere. Such developments could increase our credit
costs if they directly involve our borrowers or indirectly affect our
borrowers' credit.
Any adverse changes in UNBC's business could significantly affect our
results of operations.
During the fiscal year ended March 31, 2002, approximately 17.3% of our
operating profit (which equals 21.8% of the operating profit of Bank of
Tokyo-Mitsubishi), as calculated under Japanese GAAP, was generated from the
operations of our subsidiaries in California, UnionBanCal Corporation and Union
Bank of California, N.A. Any adverse change in the business or operations of
those subsidiaries, which we refer to as "UNBC," could significantly affect our
results of operations. Factors that could negatively affect UNBC's results
include adverse economic conditions in California, such as energy
sector-related problems and falling export levels, U.S. legislative and
regulatory reactions following the terrorist attacks in September 2001, and
large corporate bankruptcy filings, such as that of Enron Corporation. UNBC
could also be adversely affected by a downturn in real estate prices in
California. In addition, appreciation of the Japanese yen against the U.S.
dollar would reduce UNBC's reported profits in our operating results.
5
We may not be able to maintain our capital ratios above minimum required
levels, which could result in the suspension of some or all of our operations.
Mitsubishi Tokyo Financial Group, as a holding company, and our Japanese
subsidiary banks, Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, are each
required to maintain risk-weighted capital ratios above the levels specified in
the capital adequacy guidelines of the Japanese Financial Services Agency. UNBC
is subject to similar U.S. capital adequacy guidelines. We or our subsidiary
banks may be unable to continue to satisfy the capital adequacy requirements,
because of:
.. credit costs we may incur as we dispose of problem loans and remove impaired
assets from our balance sheet;
.. credit costs we may incur due to losses from a future deterioration in asset
quality;
.. adverse changes in foreign currency exchange rates;
.. declines in the value of our securities portfolio; and
.. changes in accounting rules or in the guidelines regarding the calculation
of banks' or bank holding companies' capital ratios, resulting from recently
adopted guidelines of the Basel Committee on Banking Supervision or
otherwise.
If our capital ratios fall below required levels, the Japanese Financial
Services Agency could require us to take a variety of corrective actions,
including the withdrawal from all international operations or the suspension of
all or part of our business operations.
Our capital ratios may be negatively affected if we reduce our deferred tax
assets.
We and our Japanese subsidiary banks determine the amount of our net
deferred tax assets and our regulatory capital pursuant to Japanese GAAP and
the Japanese banking regulations, which differ from U.S. GAAP and the
respective U.S. regulations. Under the Japanese banking regulations, all
deferred tax assets established pursuant to Japanese GAAP are included in
regulatory capital. Japanese GAAP permits the establishment of deferred tax
assets for the tax benefits that are expected to be utilized in the subsequent
five fiscal years. The calculation of deferred tax assets is based upon various
assumptions, including assumptions with respect to future taxable income.
Actual results may differ from these assumptions. At March 31, 2002, our
deferred tax assets amounted to (Yen)1,032 billion under Japanese GAAP. From
time to time, we reassess whether we are able to realize our deferred tax
assets based on our taxable income projections, and make necessary increases or
reductions. If we conclude that we or our subsidiary banks are unable to
realize a portion of the deferred tax assets, our deferred tax assets may be
reduced and as a result, our capital ratios may decline.
If the Japanese stock market declines, we may incur losses on our securities
portfolio and our capital ratios may be adversely affected.
We hold large amounts of marketable equity securities. The market values of
these securities are inherently volatile and have generally been declining in
recent years. We will incur losses on our securities portfolio if the Japanese
stock market continues to decline. Material declines in the Japanese stock
market would also materially adversely affect our capital ratios.
The value of our equity portfolio could decline due to expected sales of
shares in the market by us and others.
Many Japanese financial institutions have traditionally held large amounts
of equity securities of their customers, business counterparts and related
companies. In November 2001, the Japanese government enacted a law forbidding
banks, including Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank, from
holding stocks in excess of their Tier I capital after September 30, 2004.
Partly in response to this legislation and partly to reduce
6
risk-weighted assets, we and many other financial institutions have been
selling and will continue to sell off large amounts of equity securities. The
sale of equity securities by Japanese financial institutions may depress the
value of Japanese equity securities, including those in our securities
portfolio. In order to comply with the new legislation, we may be forced to
sell some of our equity securities at depressed prices.
Our business may be adversely affected by competitive pressures, which have
increased significantly due to regulatory changes.
In recent years, the Japanese financial system has been increasingly
deregulated and barriers to competition have been reduced. In addition, the
Japanese financial industry has been undergoing significant consolidation, as a
result of which larger, more integrated financial institutions have emerged as
our competitors. If we are unable to compete effectively in this more
competitive and deregulated business environment, our business, results of
operations and financial condition will be adversely affected.
Our trading and investment activities expose us to exchange rate, interest
rate and other risks.
We undertake extensive trading and investment activities involving a variety
of financial instruments, including derivatives. Our income from these
activities is subject to volatility, caused by, among other things, changes in
interest rates, foreign currency exchange rates and equity prices. For example:
.. Increases in interest rates have an adverse effect on the value of our fixed
income securities portfolio.
.. Strengthening of the yen against the dollar and other foreign currencies
reduces the value, in our financial statements, of our substantial portfolio
of foreign-currency denominated investments.
Our results of operations and financial condition in future periods will be
exposed to risks of loss associated with these activities.
A significant downgrade of our credit ratings could have a negative effect
on our treasury operations.
A significant downgrade of our credit ratings by one or more of the credit
rating agencies could have a negative effect on our treasury operations. In the
event of a downgrade of our credit ratings, our treasury unit may have to
accept less favorable terms in its transactions with counterparties or may be
unable to enter into certain transactions. This could have a negative impact on
the profitability of our treasury operations and adversely affect our results
of operations and financial condition.
We will be exposed to increased risks as we expand the range of our products
and services.
As we expand the range of our products and services beyond our traditional
banking business and as the sophistication of financial products and management
systems grows, we will be exposed to new and increasingly complex risks. In
many cases, we will have no experience or only limited experience with these
risks. Some of the activities in which our subsidiaries engage, such as
derivatives and foreign currency trading, present volatile and substantial
risks. Our risk management systems may prove to be inadequate, and may not work
in all cases or to the degree required. As a result, we are subject to
substantial market, credit and other risks in relation to these expanding
products and services and trading activities, which could result in our
incurring substantial losses. In addition, our efforts to offer new services
and products may not succeed if product or market opportunities develop more
slowly than expected, or if the profitability of opportunities is undermined by
competitive pressures.
Our income and expenses relating to our international operations and our
foreign assets and liabilities are all exposed to foreign currency fluctuations.
Our international operations are subject to fluctuations in foreign currency
exchange rates against the Japanese yen. When the yen appreciates, yen amounts
for transactions denominated in foreign currencies, including a substantial
portion of UNBC's transactions, decline. In addition, a portion of our assets
and liabilities are denominated in foreign currencies. To the extent that our
foreign-currency-denominated assets and liabilities
7
are not matched in the same currency or appropriately hedged, fluctuations in
foreign currency exchange rates against the Japanese yen may adversely affect
our financial condition, including our capital adequacy ratios. In addition,
fluctuations in foreign exchange rates will create foreign currency translation
gains or losses.
We may not be able to achieve the expected benefits of integrating into a
single financial services group.
Our success in combining Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank
into a single financial services group depends on our ability to integrate the
operations of our subsidiaries and affiliates, achieve expected cost savings
and foster cooperation between the institutions in customer and product
cross-selling. We may not be able to accomplish these goals as expected. For
example:
.. We may have difficulty in implementing our strategies as an integrated
financial group.
.. We may not be able to integrate our operations as quickly as planned due to
legal restrictions, internal resistance or market resistance. As a result,
we may not achieve cost reductions as fully or as quickly as we expect.
.. The costs of integration may be higher than we expect.
.. We may encounter problems with system integration and incompatibility at the
subsidiary and affiliate level, market resistance to new technologies or
distribution channels, or technical difficulties. As a result, our efforts
to increase our operational efficiency and broaden the distribution channels
for our financial products and services through investments in information
technology may not succeed as we expect.
.. We may lose customers and business as we consolidate and, in some cases,
rebrand some of our affiliates' operations, such as in the case of the
merger of several securities subsidiaries and affiliates creating Mitsubishi
Securities Co., Ltd.
Losses relating to our pension plans and a decline in returns on our plan
assets may negatively affect our results of operations and our financial
condition.
We may incur losses if the fair value of our pension plans' assets decline,
if the rate of return on our pension assets declines, or if there is a change
in the actuarial assumptions on which the calculations of the projected benefit
obligation is based. In addition, we may have unrecognized prior service costs
resulting from amendments to our pension plans. Changes in the interest rate
environment and other factors may also adversely affect the amount of unfunded
pension obligations and the resulting annual amortization expense.
We may not be able to refinance our subordinated debt obligations with
equally subordinated debt, and as a result our capital ratios may be adversely
affected.
Under Japanese GAAP, at March 31, 2002, subordinated debt accounted for
approximately 35% of Mitsubishi Tokyo Financial Group's total capital,
approximately 36% of Bank of Tokyo-Mitsubishi's total capital and approximately
34% of Mitsubishi Trust Bank's total capital. We may not be able to refinance
these subordinated debt obligations with equally subordinated debt. The failure
to refinance these subordinated debt obligations with equally subordinated debt
may reduce our total capital and as a result negatively affect our
risk-weighted capital ratios.
We may have to compensate for losses in our loan trusts and jointly operated
designated money trusts. This could have a negative effect on our operating
results.
Mitsubishi Trust Bank compensates for losses of principal of loan trusts and
some designated money trusts. As of March 31, 2002, the principal balance of
those indemnified trusts was (Yen)3,441 billion. Funds in those indemnified
trusts are generally invested in loans and securities. Mitsubishi Trust Bank is
required to maintain reserves in the accounts of those indemnified trusts for
loan losses and other impairments of principal, but the amount of these
compensation obligations does not appear as a liability on our balance sheet.
If the amount of
8
assets and reserves held in the indemnified trusts falls below the principal as
a result of loan losses, losses in the investment portfolio or otherwise,
Mitsubishi Trust Bank would be required to make a payment on the indemnities.
Trust beneficiaries of loan trusts and jointly operated designated money
trusts are entitled to a semi-annual dividend, which in practice is the
"projected rate" published semi-annually. As a result, sharp declines in
interest rates or in the value of the securities held in its trusts' investment
portfolios will reduce the performance-dependent trust fees that Mitsubishi
Trust Bank generates from its loan trusts and jointly operated designated money
trusts and will thus adversely affect our results of operations.
We are exposed to substantial credit and market risks in Asian countries.
We are active in the Asian region through a network of branches and
subsidiaries, and are thus exposed to a variety of credit and market risks
associated with these countries. If a decline in the value of Asian currencies
occurs, it could adversely affect the creditworthiness of some of our borrowers
in the region. The loans we make to Asian borrowers and banks are often
denominated in yen, U.S. dollars or other foreign currencies. The borrowers
often do not hedge the loans to protect against fluctuations in the values of
local currencies. A devaluation of the local currency would make it more
difficult for a borrower earning income in that currency to pay its debts to us
and others. In addition, some Asian countries may attempt to support the value
of their currencies by raising domestic interest rates. If this happens, the
borrowers in these countries would have to devote more of their resources to
repaying their domestic obligations, which may adversely affect their ability
to repay their debts to us and other foreign lenders. The restriction of credit
resulting from these and related conditions may adversely affect economic
conditions in some countries. This could cause a further deterioration of the
credit quality of borrowers and banks in those countries, and further losses to
us.
Our efforts to reduce our holdings of equity securities may adversely affect
our relationships with customers.
Japanese law prohibits banks from holding stocks in excess of their Tier I
capital after September 30, 2004. In order to comply with this requirement and
to reduce our risk exposure to fluctuations in equity security prices, we
intend to sell a substantial portion of our equity securities. Most of these
securities are held under cross-shareholding arrangements where we acquire the
customer's securities for business relation purposes. The planned sale of
securities will reduce our cross-shareholdings, which may have an adverse
affect on our relationships with our customers.
Restrictions on our subsidiaries' ability to pay dividends and make other
distributions could limit amounts payable to us.
As a holding company, a substantial portion of our cash flow comes from
dividends that our Japanese bank subsidiaries pay to us. Under some
circumstances, various statutory or contractual provisions restrict the amount
of dividends our subsidiaries can pay to us. In addition, if any of our
subsidiaries enter into bankruptcy or reorganization proceedings or liquidate,
that subsidiary's creditors will be entitled to receive distributions from the
assets of that subsidiary to satisfy their claims against it before we, as a
holder of an equity interest in the subsidiary, will be entitled to receive any
of the assets of the subsidiary.
It may not be possible for investors to effect service of process within the
United States upon us or our directors, executive officers or corporate
auditors, or to enforce against us or those persons judgments obtained in U.S.
courts predicated upon the civil liability provisions of the Federal securities
laws of the United States.
We are a joint stock company incorporated under the laws of Japan. All of
our directors, executive officers and corporate auditors reside outside of the
United States. Many of our and their assets are located in Japan and elsewhere
outside the United States. It may not be possible, therefore, for U.S.
investors to effect service of process within the United States upon us or
these persons or to enforce against us or these persons judgments obtained in
the United States courts predicated upon the civil liability provisions of the
Federal securities laws of
9
the United States. We believe that there is doubt as to the enforceability in
Japan, in original actions or in actions to enforce judgments of U.S. courts,
of liabilities predicated solely upon the Federal securities laws of the United
States.
Risks Related to the Japanese Banking Industry
Recent efforts by the Japanese government to encourage the disposal of
problem loans in two to three years could exacerbate our credit losses.
The Japanese government's emergency economic package, released in April
2001, strongly urges major banks, including Bank of Tokyo-Mitsubishi and
Mitsubishi Trust-Bank, to remove non-performing loans from their balance sheets
within two to three years. These guidelines for the disposal of non-performing
loans could increase our credit losses if we sell our problem loans at a larger
discount than we had expected.
Any significant adverse regulatory developments or changes in government
policies or economic controls could have a negative impact on our results of
operations.
We conduct our business subject to ongoing regulation and associated
regulatory risks, including the effects of changes in the laws, regulations,
policies, voluntary codes of practice and interpretations in Japan and the
other markets we operate in. Future changes in regulation, fiscal or other
policies are unpredictable and beyond our control.
Our business may be adversely affected by negative developments with respect
to other Japanese financial institutions, both directly and by the effect they
may have on the overall Japanese banking environment.
Many Japanese financial institutions, including banks, non-bank lending and
credit institutions, financial affiliates of securities companies and insurance
companies, continue to experience severe asset quality and other financial
problems, in part as a result of Japan's protracted recession. This may lead to
severe liquidity and solvency problems, which have resulted in the liquidation
or restructuring of affected institutions. The continued financial difficulties
of financial institutions could adversely affect us because:
.. as of March 31, 2002, approximately 11.1% of our domestic loans were made to
banks and other financial institutions, and of those loans 2.7% were
classified as nonaccrual and restructured loans;
.. we are a shareholder of some other banks and financial institutions;
.. we may be requested to participate in providing assistance to support
distressed financial institutions;
.. deposit insurance premiums could rise if deposit insurance funds prove to be
inadequate; and
.. repeated bankruptcies could undermine depositor confidence generally or
adversely affect the overall banking environment.
We might have to pay risk premiums on borrowings from international
financial institutions, or be subject to credit limitations by them.
As a result of concerns regarding asset quality and the failure of several
large Japanese financial institutions, international financial institutions
have in the past:
.. charged an additional risk premium to Japanese financial institutions for
short-term borrowings in the interbank market; and
.. placed restrictions on the amount of credit, including interbank deposits,
that they extend to Japanese banks.
These restrictions on credit result in higher operating expenses and decreased
profitability for affected Japanese banks. If conditions in the Japanese
banking and other financial sectors deteriorate, international markets could
again impose risk premiums or credit restrictions on Japanese banks, including
us.
10
We may be adversely affected if the current economic conditions in Japan
continue or worsen.
Since the early 1990s, the Japanese economy has performed poorly due to a
number of factors, including weak consumer spending and lower capital
investment by Japanese companies, causing a large number of corporate
bankruptcies and the failure of several major financial institutions. The
outlook for the economy as a whole remains uncertain because:
.. recent economic data show that the Japanese economy is not recovering;
.. unemployment rates are at an historic high;
.. real estate prices have declined for the past 11 years, and may still be
declining; and
.. Japanese stock prices have declined to their lowest levels in 18 years.
These factors may continue or worsen. If they do, our earnings and credit
quality may be adversely affected.
We may have to pay more regional or national bank taxes.
In April 2000, the Tokyo Metropolitan Government began imposing a tax of 3%
on the gross operating profits of banks operating within its jurisdiction. In
May 2000, Osaka Prefecture introduced a similar tax on operating profits of
banks operating within its jurisdiction. In March 2002, the Tokyo District
Court overturned the Tokyo local tax, but the decision is under appeal. Banks
are also challenging in court the legality of the Osaka local tax. Other
prefectures may implement similar local bank taxes, and the Japanese government
may introduce a similar bank tax nationwide. Depending on the outcome of these
court cases and the decisions of other prefectures and the Japanese government,
we may have to pay more regional or national bank taxes.
A change to current interest rate policy could adversely affect our results
of operations.
The Bank of Japan now maintains interest rates at near zero percent. If
interest rate policies change, we could be adversely affected through lower
spreads or declines in the value of our investments in Japanese government
bonds. In addition, an increase in interest rates may increase our problem
loans as some of our borrowers may not be able to meet the increased interest
payment requirements. This would adversely affect our results of operations.
Risks Related to Owning Our Shares
Sales of our shares by our subsidiaries may adversely affect our stock price.
Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank hold shares of our common
stock. Under the Japanese Commercial Code, they are legally required to dispose
of all of our shares within a reasonable time of the formation of Mitsubishi
Tokyo Financial Group. No implementing timetable has been specified by the
relevant regulators, but Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank
plan to sell their shares as soon as market circumstances permit a favorable
offering. If Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank fulfill that
legal requirement by selling our shares in the market, it could adversely
affect the trading price of our shares.
Efforts by other companies to reduce their cross-shareholdings may adversely
affect our stock price.
Many companies in Japan that hold our shares, have announced plans to reduce
their cross-shareholdings in other companies. Our own announced plans to sell
cross-held shares in other companies may encourage them to sell our shares. If
these companies sell our shares in the market, it could adversely affect the
trading price of our shares.
Negative media coverage of Japan's banking industry may have a materially
adverse effect on our stock price.
Recently, Japan's banking industry has been covered extensively by both
Japanese and foreign media. The main focus of this coverage has been Japanese
banks' problem loans. Most of this coverage has been negative
11
and suggests that the amount of problem loans that Japanese banks actually hold
is greater than what is disclosed. Negative media coverage of Japan's banking
industry regarding problem loans and other issues, whether or not accurate and
whether or not applicable to us, may have a materially adverse effect on our
stock price.
Rights of shareholders under Japanese law may be more limited than under the
laws of jurisdictions within the United States.
Our articles of incorporation, the regulations of our board of directors and
the Japanese Commercial Code govern our corporate affairs. Legal principles
relating to such matters as the validity of corporate procedures, directors'
and officers' fiduciary duties and shareholders' rights may be different from
those that would apply if we were a non-Japanese company. Shareholders' rights
under Japanese law are different in some respects from shareholders' rights
under the laws of jurisdictions within the United States. You may have more
difficulty in asserting your rights as a shareholder than you would as a
shareholder of a corporation organized in a jurisdiction within the United
States.
Risks Related to Owning Our Debt Securities
The indentures will not limit our ability to incur additional debt,
including senior debt.
The indentures relating to the debt securities do not limit or restrict the
amount of other indebtedness, including senior indebtedness, that we or our
subsidiaries may incur in the future.
There may be no active market for the debt securities.
The debt securities will constitute new issues of securities for which there
is no established trading market. No market for the debt securities may
develop, and there may be no liquidity for the debt securities. As a result,
you may not be able to resell the debt securities at all or at prices that you
desire.
Risks Related to Owning Our Subordinated Debt Securities
The subordination provisions in the subordinated debt securities could
hinder your ability to receive payment.
Under some circumstances, your right to receive payment on the subordinated
debt securities will be subordinated and subject in right of payment in full to
the prior payment of all our senior indebtedness. We expect from time to time
to incur additional indebtedness and other obligations that will constitute
senior indebtedness, and the subordinated debt indenture does not contain any
provisions restricting our ability to incur senior indebtedness.
Risks Related to Owning ADSs
As a holder of ADSs, you will have fewer rights than a shareholder has, and
you will have to act through the depositary to exercise these rights.
The rights of our shareholders under Japanese law to take actions including
voting their shares, receiving dividends and distributions, bringing derivative
actions, examining our accounting books and records and exercising appraisal
rights are available only to holders of record. Because the depositary, through
its custodian agent, is the record holder of the shares underlying the ADSs,
only the depositary can exercise those rights in connection with the deposited
shares. The depositary will make efforts to vote the shares underlying your
ADSs as instructed by you and will pay to you the dividends and distributions
collected from us. In your capacity as an ADS holder, however, you will not be
able to bring a derivative action, examine our accounting books and records or
exercise appraisal rights except through the depositary.
Foreign exchange rate fluctuations may affect the dollar value of our ADSs
and dividends payable to holders of our ADSs.
Market prices for our ADSs may fall if the value of the yen declines against
the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and
other cash payments made to holders of our ADSs would be reduced if the value
of the yen declines against the U.S. dollar.
12
FORWARD-LOOKING STATEMENTS
We may from time to time make written or oral forward-looking statements.
Written forward-looking statements may appear in documents filed with the SEC,
including this prospectus, any prospectus supplement, documents incorporated by
reference, reports to shareholders and other communications.
The U.S. Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking information to encourage companies to provide
prospective information about themselves without fear of litigation so long as
the information is identified as forward looking and is accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the information. We
rely on this safe harbor in making these disclosures.
Forward-looking statements include statements regarding our intent, belief
or current expectations and/or the current belief or current expectations of
our management with respect to our results of operations and financial
condition, including, among other matters, our problem loans and loan losses.
We use words such as "anticipate," "aim," "believe," "estimate," "expect,"
"intend," "plan," "probability," "risk" and similar expressions, as they relate
to us or our management, to identify forward-looking statements. These
statements reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described in
this respect as anticipated, aimed at, believed, estimated, expected, intended
or planned. We do not intend to update these forward-looking statements.
The forward-looking statements we make are not guarantees of future
performance and involve risks and uncertainties. Actual results may differ from
those in forward-looking statements as a result of various factors. We identify
in this prospectus and any prospectus supplement, in "Risk Factors" and
elsewhere, the important factors that could cause these differences.
We are under no obligation, and expressly disclaim any obligation, to update
or alter our forward-looking statements, whether as a result of new
information, future events or otherwise.
13
CAPITALIZATION
The following table presents our capitalization at March 31, 2002:
March 31, 2002 (1)
------------------------
(in millions)
Actual
Total short-term borrowings(3)(4)............................................. (Yen)14,843,891 $111,861
Debentures(5)................................................................. 2,269,122 17,100
Long-term debt:(4)(6)
Obligations under capital leases........................................... 42,206 318
Obligation under sale-and-leaseback transactions........................... 101,806 767
Unsubordinated debt(7)..................................................... 2,444,932 18,425
Subordinated debt(8)....................................................... 2,546,877 19,193
Mandatorily redeemable preferred securities of subsidiary grantor trust.... 48,020 362
--------------- --------
Total long-term debt................................................ 5,183,841 39,065
--------------- --------
Minority interest(9).......................................................... 210,503 1,586
Shareholders' equity:
Preferred stock (Class 1), with no par value(10)........................... 122,100 920
Preferred stock (Class 2), with no par value(11)........................... 100,000 754
Common stock, with no par value(12)........................................ 873,156 6,580
Capital surplus(2)......................................................... 850,835 6,412
Retained earnings(2):
Appropriated for legal reserve......................................... 236,537 1,782
Unappropriated......................................................... 11,593 87
Accumulated other changes in equity from nonowner sources, net of taxes(2). 523,250 3,943
--------------- --------
Total............................................................... 2,717,471 20,478
Less treasury stock, at cost: 169,639 common shares........................ 90,974 686
--------------- --------
Shareholders' equity--net.............................................. 2,626,497 19,792
--------------- --------
Total capitalization................................................ (Yen)25,133,854 $189,404
=============== ========
--------
(1)The US dollar amounts represent translations of the yen amounts at the rate
of (Yen)132.70 = US$1.00, the Federal Reserve Bank of New York's noon buying
rate on March 29, 2002.
(2)Does not reflect the results of operations and other changes in equity from
nonowner sources for any period subsequent to March 31, 2002, including the
payment of cash dividends approved by the shareholders meeting on June 27,
2002 and a reduction of legal capital surplus and transfer to unappropriated
retained earnings. The aggregate amount of cash dividends approved by the
shareholders meeting on June 27, 2002 was (Yen)42.8 billion, and the amount
of the reduction of legal capital surplus and transfer to unappropriated
retained earnings was (Yen)600 billion.
(3)It is impracticable for us to determine the amount of short-term borrowings
that are guaranteed by third parties. There were changes in total short-term
borrowings, attributable to normal business activities, between April 1,
2002 and August 31, 2002.
(4)At March 31, 2002, short-term debt and long-term debt of 5,624.8 billion
were secured.
(5)At March 31, 2002, the debentures were not guaranteed by a third party and
were unsecured. Debentures of (Yen)873.0 billion were redeemed between April
1, 2002 and August 31, 2002.
(6)Represents debt with original maturities of more than one year. At March 31,
2002, (Yen)28.2 billion of long-term debt was guaranteed by a third party.
(7)Unsecured unsubordinated bonds of (Yen)240.0 billion due 2005 through 2012
were issued between April 1, 2002 and August 31, 2002. Unsubordinated bonds
of (Yen)49.6 billion were redeemed between April 1, 2002 and August 31, 2002.
14
(8)Subordinated bonds of (Yen)145.5 billion due 2004 through 2015 were issued
between April 1, 2002 and August 31, 2002. In addition, undated subordinated
bonds of (Yen)24.6 billion were issued between April 1, 2002 and August 31,
2002. Subordinated bonds of (Yen)152.8 billion were redeemed between April
1, 2002 and August 31, 2002. Subordinated borrowings of (Yen)96.0 billion
were obtained and subordinated borrowings of (Yen)63.6 billion were repaid
between April 1, 2002 and August 31, 2002.
(9)Included in other liabilities in our consolidated financial statements.
(10)At March 31, 2002, the authorized, issued and outstanding number of class 1
preferred shares was 81,400. Class 1 preferred shares are redeemable at our
option under the redemption terms stipulated by the articles of
incorporation. We may redeem shares of class 1 preferred shares at
(Yen)3,000 thousand per share on or after January 21, 2004.
(11)At March 31, 2002, the authorized, issued and outstanding number of class 2
preferred shares was 100,000. Class 2 preferred shares are convertible into
common stock at the option of the shareholders during a conversion period.
(12)At March 31, 2002, the authorized number of shares and issued number of
shares were 22,000,000 and 5,742,467.72, respectively.
(13)At March 31, 2002, the total balance of guarantee for repayment of trust
principal, standby letters of credit and other guarantees and commercial
letters of credit was (Yen)9,114 billion. With respect to contingent
liabilities, we are involved in various litigation matters. In the opinion
of management, our liabilities, if any, when ultimately determined will not
have a material adverse effect on our financial position.
(14)Except as disclosed above, there has been no material change in our
consolidated capitalization and indebtedness since March 31, 2002.
15
USE OF PROCEEDS
Unless otherwise disclosed in the accompanying prospectus supplement, we
will use the net proceeds from our sale of securities to fund our business and
the businesses of our wholly-owned subsidiaries and, except with respect to
senior debt securities, to strengthen our capital base. We will provide further
details about our use of proceeds from a particular offering in the applicable
prospectus supplement.
Our wholly-owned subsidiaries, Bank of Tokyo-Mitsubishi and Mitsubishi Trust
Bank, as selling shareholders, may be offering the shares of our common stock
that they hold, in the form of common stock or ADSs. Because the selling
shareholders are our wholly-owned subsidiaries, any offering of shares of our
common stock by them will be considered a primary offering under U.S.
securities laws and the net proceeds from the offering will be reflected in our
consolidated financial statements. However, Mitsubishi Tokyo Financial Group
will not directly receive the proceeds from their sales of shares of our common
stock, and the proceeds will be allocated to the selling shareholder in
proportion to the shares sold by them. Unless otherwise disclosed in the
accompanying prospectus supplement, we intend to have Bank of Tokyo-Mitsubishi
and Mitsubishi Trust Bank use the proceeds from their sale of the securities to
fund their business. We will provide further details about their use of
proceeds from a particular offering in the applicable prospectus supplement.
DETERMINATION OF OFFERING PRICE
We may sell securities, or the selling shareholders may sell shares of our
common stock, from time to time on any national securities exchange or
automated interdealer quotation system on which our shares of common stock or
other securities are listed or quoted, through negotiated transactions with
underwriters or with other persons, through a combination of such methods of
sale or otherwise, including private sales. See "Plan of Distribution." We may
sell securities, or the selling shareholders may sell shares of our common
stock, at market prices at the time of sale, at prices related to those market
prices, at varying prices determined at the time of sale or at negotiated or
fixed prices, in each case as determined by agreement between ourselves and
underwriters, brokers, dealers or agents, or purchasers.
16
RATIOS OF EARNINGS TO FIXED CHARGES AND RATIOS OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The following table shows our ratios of earnings to fixed charges and
preferred stock dividends for the periods indicated:
Year Ended March 31,
--------------------------------------------
1998 1999 2000 2001 2002
------------ ---------- ---- ---- ----------
(in billions, except ratios)
U.S. GAAP:
Ratio of earnings to fixed charges:
Excluding interest on deposits.............................. -- -- 1.04 1.05 --
Including interest on deposits.............................. -- -- 1.02 1.02 --
Fixed charge deficiency..................................... (Yen)1,190.8 (Yen)655.5 -- -- (Yen)293.5
Ratio of earnings to combined fixed charges and preferred stock
dividends:
Excluding interest on deposits.............................. -- -- 0.98 0.98 --
Including interest on deposits.............................. -- -- 1.01 1.01 --
Fixed charge deficiency..................................... (Yen)1,190.8 (Yen)655.5 -- -- (Yen)293.5
The ratios of earnings to fixed charges are computed by dividing earnings by
fixed charges. Earnings consist primarily of income (loss) before income taxes
and cumulative effect of a change in accounting principle, as adjusted for some
equity method investments and for fixed charges. Fixed charges consist
primarily of interest expenses on deposits, debentures and short-term and
long-term debt, amortization of debt expense and discount and one-third (the
portion deemed representative of the interest factor) of net rental expense
under long-term leases. To compute the ratios of earnings to combined fixed
charges and preferred stock dividends, fixed charges are then combined with
preferred stock dividend requirements. As of the date of this prospectus, our
outstanding classes of preferred stock are class 1 and 2 preferred shares.
Dividends on the class 1 and 2 preferred shares were declared during the fiscal
years ended March 31, 2000, 2001 and 2002.
For the fiscal years ended March 31, 1998, 1999 and 2002, as the ratios of
earnings to (combined) fixed charges (and preferred stock dividends) indicated
less than one-to-one coverage, only the yen amounts of the deficiencies are
disclosed in the above table. These deficiencies resulted primarily from
provisions for possible credit losses of (Yen)1,476 billion and (Yen)1,239
billion in the fiscal years ended March 31, 1998 and 1999, respectively, which
were substantially greater than other historical levels. In the fiscal year
ended March 31, 2002, the deficiency resulted primarily due to the increase in
non-interest expenses.
17
DESCRIPTION OF SECURITIES
Common Stock
We summarize below the material provisions of our articles of incorporation
and our share handling regulations and the Commercial Code of Japan (Law No. 48
of 1899) as they relate to joint stock companies, also known as kabushiki
kaisha. Because it is a summary, this discussion should be read together with
our articles of incorporation and the share handling regulations which have
been filed, or incorporated by reference, as exhibits to the registration
statement of which this prospectus is a part.
General
A joint stock company is a legal entity incorporated under the Commercial
Code. The investment and rights of the shareholders of a joint stock company
are represented by shares of stock in the company, and shareholders' liability
is limited to the amount of the subscription for the shares.
Our authorized common share capital is 22,000,000 shares of common stock
with no par value. As of March 31, 2002, a total of 5,742,467.72 shares of
common stock (including 169,639 shares of common stock held by Mitsubishi Tokyo
Financial Group and its consolidated subsidiaries as treasury stock) were
issued. Each of the shares issued and outstanding is fully paid and
non-assessable. We also are authorized to issue 421,400 shares of preferred
stock, including 81,400 class 1 preferred shares, 100,000 class 2 preferred
shares, 120,000 class 3 preferred shares and 120,000 class 4 preferred shares.
As of March 31, 2002, we had 81,400 class 1 preferred shares, 100,000 class 2
preferred shares, and no class 3 and class 4 preferred shares issued and
outstanding.
We may issue shares from our authorized but unissued share capital following
a resolution to that effect by our board of directors. An increase in our
authorized share capital is only possible by amendment of our articles of
incorporation which generally requires shareholders' approval.
Our wholly-owned subsidiaries, Bank of Tokyo-Mitsubishi and Mitsubishi Trust
Bank, may under this prospectus sell the shares of our common stock that they
own. Because Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank are our
wholly-owned subsidiaries, any offering of shares of our common stock by them
will be considered a primary offering for U.S. securities law purposes. In
connection with the stock-for-stock exchange transaction forming Mitsubishi
Tokyo Financial Group, Bank of Tokyo-Mitsubishi and Mitsubishi Trust Bank
received shares of our common stock in April 2001. As of March 31, 2002, Bank
of Tokyo-Mitsubishi held 128,111 shares, excluding 4,900 shares held in trust,
of our common stock, representing 2.23% of the issued shares of our common
stock, and Mitsubishi Trust Bank held 27,840 shares, excluding 7,700 shares
held in trust, of our common stock, representing 0.48% of the issued shares of
our common stock.
Under the Commercial Code, shares must be registered and are transferable by
delivery of share certificates. In order to assert shareholders' rights against
us, a shareholder must have its name and address registered on our register of
shareholders, in accordance with our share handling regulations. The registered
holder of deposited shares underlying the ADSs is the depositary for the ADSs,
or its nominee. Accordingly, holders of ADSs will not be able to assert
shareholders' rights other than as provided in the agreement between us, the
depositary and the holders of the ADSs.
A holder of shares may choose, at its discretion, to participate in the
central clearing system for share certificates under the Law Concerning Central
Clearing of Share Certificates and Other Securities of Japan. Participating
shareholders must deposit certificates representing the shares to be included
in this clearing system with the Japan Securities Depository Center, Inc. If a
holder is not a participating institution in the Japan Securities Depositary
Center, it must participate through a participating institution, such as a
securities company or bank having a clearing account with the Japan Securities
Depositary Center. All shares deposited with the Japan Securities Depositary
Center will be registered in the name of the Japan Securities Depositary Center
on
18
our register of shareholders. Each participating shareholder will in turn be
registered on our register of beneficial shareholders and be treated in the
same way as shareholders registered on our register of shareholders. Delivery
of share certificates is not required to transfer deposited shares. Entry of
the share transfer in the books maintained by the Japan Securities Depositary
Center for participating institutions, or in the books maintained by a
participating institution for its customers, has the same effect as delivery of
share certificates. This central clearing system is intended to reduce
paperwork required in connection with transfers of shares. Beneficial owners
may at any time withdraw their shares from deposit and receive share
certificates.
Dividends
Dividends are distributed in proportion to the number of shares owned by
each shareholder on the record date for the dividend, subject to the customary
Japanese practice that in case of a newly issued share, a dividend is paid on a
pro rata basis for the portion of a dividend period during which such share has
been owned. Any shares sold by Bank of Tokyo-Mitsubishi and Mitsubishi Trust
Bank will not, for this purpose, be treated as newly issued shares. Dividends
for each financial period may be distributed following shareholders' approval
at an ordinary general meeting. Payment of dividends on common stock is subject
to the preferential dividend rights of holders of preferred stock.
Under our articles of incorporation, our financial accounts will be closed
on March 31 of each year, and dividends, if any, will be paid to shareholders
of record at March 31 following shareholders' approval at an ordinary general
meeting of shareholders. In addition to year-end dividends, our board of
directors may by resolution declare an interim cash dividend to shareholders of
record as of September 30 of each year. Under the Commercial Code, we may not
make any distribution of profits by way of annual or interim dividend unless we
have set aside in our legal reserve an amount equal to at least one-tenth of
the cash dividend and other amount paid by us as an appropriation of retained
earnings or of any interim dividend, as the case may be, until the aggregate
amount of our legal reserve and additional paid-in capital is at least
one-quarter of our stated capital. We may distribute annual or interim
dividends out of the excess of our net assets, on a non-consolidated basis,
over the aggregate of:
(1) our stated capital,
(2) our additional paid-in capital,
(3) our accumulated legal reserve,
(4) the legal reserve to be set aside in respect of the dividend concerned
and any other proposed payment by way of appropriation of retained
earnings,
(5) the excess, if any, of unamortized expenses incurred in preparation for
the commencement of business and in connection with certain research and
development over the aggregate of the amounts referred to in (2), (3)
and (4) above, and
(6) if assets are stated at market value on our balance sheet, the excess,
if any, of the aggregate market value over the aggregate acquisition
cost of those assets.
In the case of interim dividends, net assets are calculated by reference to
the balance sheet as of the end of the preceding fiscal year, adjusted to
reflect:
(a) any subsequent payment by way of appropriation of retained earnings and
transfer to legal reserve in respect of such payment;
(b) any subsequent transfer of retained earnings to stated capital; and
(c) if we have been authorized, pursuant to a resolution of an ordinary
general meeting of shareholders or the board of directors, to repurchase
our own shares, the total amount of the repurchase price for those
shares that may be paid by us.
Interim dividends may not be paid if there is a risk that at the end of the
fiscal year, there might not be any excess of net assets over the aggregate of
the amounts referred to in (1) through (6) above.
In Japan, the "ex-dividend" date and the record date for any dividends
precede the date of determination of the amount of the dividend to be paid. The
market price of shares generally becomes ex-dividend on the third business day
prior to the record date.
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Stock Splits
Stock splits of our outstanding stock may be effected at any time by
resolution of the board of directors. When a stock split is to be effected, we
may increase the amount of the authorized share capital to cover the stock
split by amending our articles of incorporation by resolution of the board of
directors without approval by special resolution of the general meeting of
shareholders, unless more than one class of stock is issued and outstanding.
Shareholders will not be required to exchange stock certificates for new stock
certificates, but certificates representing the additional stock resulting from
the stock split will be issued to shareholders. We must give public notice of
the stock split, specifying a record date at least two weeks prior to the
record date and, in addition, promptly after the stock split takes effect, give
notice to each shareholder specifying the number of shares to which such
shareholder is entitled by virtue of the stock split.
Fractional Shares
Fractional shares may arise from, among other things, a stock split or a
combination of outstanding shares into a smaller number of shares. A holder of
fractional shares constituting one-hundredth of one share or any integral
multiple of one-hundredth of one share will be registered in our register of
fractional shares. Fractional shares will carry no voting rights, but, pursuant
to the Commercial Code and our articles of incorporation, the holders of
fractional shares will have the right to receive dividends and interim
dividends, if any, on their fractional shares. No certificates for fractional
shares will be issued and therefore fractional shares will not normally be
transferable. However, the registered holders of fractional shares may at any
time require us to purchase the fractional shares at the shares' current market
price.
New Unit Share System
The new unit share system (tan-gen kabu) was introduced by amendments to the
Commercial Code which became effective on October 1, 2001. Currently, we do not
use the new unit share system. However, we may use the new unit share system by
amending our articles of incorporation which requires shareholders' approval.
Under the new unit share system, a company may provide in its articles of
incorporation that a unit comprises a specified number of shares that is equal
to or less than 1,000 and that does not exceed one-two hundredth of the number
of issued shares. A company may provide in its articles of incorporation that
the company will not issue certificates representing a number of shares less
than a unit. Under the new unit share system, one unit of shares has one voting
right. A holder of less than one unit of shares has no voting right. If we
adopt the new unit share system, shareholders may require us to purchase shares
constituting less than a unit at the current market price. The board of
directors may reduce the number of shares constituting a unit or cease to use
the unit share system by amendments to our articles of incorporation even
though amendments to the articles of incorporation generally require a special
resolution of the general meeting of shareholders.
General Meeting of Shareholders
The ordinary general meeting of our shareholders is usually held in June of
each year in Chiyoda-ku, Tokyo. In addition, we may hold an extraordinary
general meeting of shareholders whenever necessary by giving at least two
weeks' advance notice to shareholders. The record date for ordinary general
meetings of our shareholders is March 31.
Any shareholder holding at least 300 voting rights or 1% of the total number
of voting rights for six months or longer may propose a matter to be considered
at a general meeting of shareholders by submitting a written request to a
representative director at least six weeks prior to the date of the meeting.
Voting Rights
A shareholder has one voting right for each whole share. However, a
corporate shareholder may not exercise its voting rights if we hold more than
one quarter of the total voting rights with respect to that shareholder.
Consequently, neither Bank of Tokyo-Mitsubishi nor Mitsubishi Trust Bank may
vote shares of our common
20
stock that they hold. Under our articles of incorporation, except as otherwise
provided by law or by other provisions of our articles of incorporation, a
resolution can be adopted at a shareholders' meeting by the holders of a
majority of the voting rights represented at the meeting. The Commercial Code
and our articles of incorporation require a quorum of not less than one third
of the total number of voting rights for election of our directors and
corporate auditors.
The Commercial Code provides that a quorum of a majority of outstanding
voting rights, excluding those owned by our subsidiaries and affiliates of
which we own, directly or indirectly, more than 25 percent, must be present at
a shareholders' meeting to approve specified corporate actions, such as:
.. amendment of the articles of incorporation, except in some limited cases;
.. the removal of a director or corporate auditor;
.. a dissolution, merger or consolidation, except for certain types of mergers;
.. a stock-for-stock exchange or stock-for-stock transfer, except in some
limited circumstances;
.. the transfer of the whole or an important part of our business;
.. a reduction of stated capital;
.. a corporate split, except in some limited circumstances;
.. the acquisition of the whole business of another company, except in some
limited circumstances;
.. the offering to persons other than shareholders of stock at a specially
favorable price, or of stock acquisition rights or bonds or notes with stock
acquisition rights with specially favorable conditions; and
.. the repurchase of our own stock from a specific party.
At least two-thirds of the voting rights represented at the meeting must
approve these actions.
There is no cumulative voting for the election of directors or corporate
auditors.
Subscription Rights
Holders of shares have no preemptive rights under our articles of
incorporation. Under the Commercial Code, however, our board of directors may
determine that shareholders be given subscription rights in connection with a
particular issue of new shares. In this case, these subscription rights must be
given on uniform terms to all shareholders as of a specified record date by
public notice at least two weeks prior to the record date. A notification to
each individual shareholder must also be given at least two weeks prior to the
date of expiration of the subscription rights.
Rights to subscribe for new shares may be transferable or non-transferable,
as determined by the board of directors. If subscription rights are not
transferable, a purported transfer by a shareholder will not be enforceable
against us.
Stock Acquisition Rights
We may issue stock acquisition rights (shinkabu yoyakuken), which in the
U.S. are often in the form of warrants, or bonds with stock acquisition rights
that cannot be detached (shinkabu yoyakuken-tsuki shasai), which in the U.S.
are often in the form of convertible bonds or bonds with non-detachable
warrants. Except where the issuance would be on "specially favorable" terms,
the issuance of stock acquisition rights or bonds with stock acquisition rights
may be authorized by a resolution of the board of directors. Upon exercise of
the stock acquisition rights, the holder of such rights may either acquire
shares by paying the applicable exercise price or, if so determined by a
resolution of the board of directors, by making a substitute payment, such as
having the convertible bonds redeemed for no cash in lieu of the exercise price.
21
Liquidation Rights
Upon our liquidation, the assets remaining after payment of all debts,
liquidation expenses, taxes and preferred distributions to holders of shares of
preferred stock will be distributed among the holders of our common stock in
proportion to the number of shares they own.
Transfer Agent
Mitsubishi Trust Bank is the transfer agent for our common stock. The office
of Mitsubishi Trust Bank for this purpose is located at 11-1, Nagatacho
2-chome, Chiyoda-ku, Tokyo, 100-8212, Japan. Mitsubishi Trust Bank maintains
our register of shareholders and records transfers of record ownership upon
presentation of share certificates.
Reports to Shareholders
We furnish to our shareholders notices, in Japanese, of shareholders'
meetings, annual business reports, including our financial statements, and
notices of resolutions adopted at our shareholders' meetings.
Record Dates and Closing of Shareholders' Register
As stated above, March 31 is the record date for the payment of annual
dividends if any, and the determination of shareholders entitled to vote at
ordinary general meetings of our shareholders. September 30 is the record date
for the payment of interim dividends, if any. In addition, by a resolution of
the board of directors and after giving at least two weeks' prior public
notice, we may at any time set a record date or close the shareholders'
register temporarily, for a period not in excess of three months, in order to
determine the shareholders who are entitled to the rights pertaining to the
shares. The trading of shares and the delivery of certificates may continue
even while the shareholders' register is closed.
Repurchase of Our Shares of Common Stock
We may repurchase our own shares:
.. through the Tokyo Stock Exchange or other stock exchanges on which the
shares are listed, if authorized by an ordinary resolution of an ordinary
general meeting of shareholders,
.. by way of a tender offer, if authorized by an ordinary resolution of an
ordinary general meeting of shareholders,
.. from a specific party, if authorized by a special resolution of an ordinary
general meeting of shareholders, or
.. from subsidiaries, if authorized by a resolution of the board of directors.
When the repurchase is made by us from a specific party, as authorized by a
special resolution of an ordinary meeting of shareholders, any shareholder may
make a demand to a director, five days or more prior to the relevant
shareholders' meeting, that we also repurchase the shares held by that
shareholder.
Any repurchase of our own shares from persons other than our subsidiaries
must satisfy certain requirements, including that the total amount of the
repurchase price may not exceed the amount of the retained earnings available
for annual dividend payments after taking into account any reduction, if any,
of the stated capital, additional paid-in capital or legal reserve (if such
reduction of the stated capital, additional paid-in capital or legal reserve
has been authorized pursuant to a resolution of the relevant ordinary general
meeting of shareholders), minus the amount to be paid by way of appropriation
of retained earnings for the relevant fiscal year and the amount to be
transferred to stated capital. If we repurchase shares from subsidiaries, the
total amount of the repurchase price may not exceed the amount of the retained
earnings available for interim dividend payment minus the amount of interim
dividend, if paid. If it is anticipated that the net assets on the balance
sheet as at the end of the relevant fiscal year will be less than the aggregate
amount of the stated capital, additional paid-in capital and other items as
described in (1) through (6) in the second paragraph under "--Dividends" above,
we may not repurchase our own shares.
22
We may hold our own shares so repurchased without restrictions. In addition,
we may cancel or dispose of our own shares that we hold by a resolution of the
board of directors. As of March 31, 2002, Mitsubishi Tokyo Financial Group
(excluding its subsidiaries) owned 374.24 treasury shares.
Preferred Stock
The following is a summary of information concerning the shares of our
preferred stock, including brief summaries of certain provisions of our
articles of incorporation and share handling regulations and of the Commercial
Code as currently in effect. The detailed rights of the preferred shares are
set out in the articles of incorporation and the resolutions of the board of
directors relating to the issuance of the relevant stock.
General
Under our articles of incorporation, we are authorized to issue four classes
of preferred shares. The preferred shares have equal preference over shares of
common stock in respect of dividend entitlements and distribution upon our
liquidation, but holders of the preferred shares are not entitled to vote at
general meetings of shareholders, subject to the exceptions provided under the
Commercial Code. Currently, 81,400 shares of class 1 and 100,000 shares of
class 2 preferred shares are outstanding, but class 3 and class 4 preferred
shares are not outstanding. We may, at any time, purchase and redeem, at fair
value, any shares of preferred stock outstanding out of earnings available for
distribution to shareholders.
Class 1 and class 3 preferred shares are not convertible into our common
stock but are redeemable at our discretion. We may redeem shares of class 1
preferred shares at (Yen)3,000,000 per share, in whole or in part, on or after
January 21, 2004. The redemption terms of class 3 preferred shares will be
determined by the board of directors at the time of issuance of class 3
preferred shares. Class 2 and class 4 preferred shares are convertible into our
common stock at the option of the holder during a conversion period. At the
option of the holders, class 2 preferred shares are convertible into common
stock from July 31, 2003 to July 31, 2008 at the conversion price of
(Yen)1,391,428 per share. The conversion price will be revised annually on
August 1 of each year from 2003 through 2007 to reflect, subject to certain
adjustments, the average market closing price of our common stock on the Tokyo
Stock Exchange for the 30 business days starting from the 45th business day
prior to the date of revision of the conversion price. The conversion price
will not exceed the initial conversion price of (Yen)1,391,428 nor be below
(Yen)714,285 unless certain events or circumstances arise. Class 2 preferred
shares which are not converted at the option of the holders will be mandatorily
converted into common stock on August 1, 2008, at the conversion price
determined based on the average market closing price of the common stock traded
on the Tokyo Stock Exchange for the 30 business days starting from the 45th
business day prior to the date of mandatory conversion. In the event the
average market closing price is below (Yen)714,285, the conversion price will
be (Yen)714,285. The conversion terms of class 4 preferred shares will be
determined by the board of directors at the time of issuance of class 4
preferred shares.
Preferred Dividends
The amount of the preferred dividends for class 1 preferred shares is
(Yen)82,500 per share per fiscal year and for class 2 preferred shares is
(Yen)16,200 per share per fiscal year. The amounts of the preferred dividends
for class 3 and class 4 preferred shares are to be set by the resolutions of
the board of directors at the time of issuance. The annual dividend per share
may not exceed (Yen)250,000 per share per fiscal year for class 3 preferred
shares and (Yen)125,000 per share per fiscal year for class 4 preferred shares.
In the event that the board of directors determines to pay an interim dividend
to holders of the common stock, we will, in priority to the payment of that
interim dividend, pay a preferred interim dividend to holders of the preferred
shares and the amount of that preferred interim dividend will be deducted from
the preferred dividend payable on preferred shares in respect of that same
fiscal year.
No payment of dividends on the preferred shares or any other shares can be
made unless we have sufficient retained earnings and, in the case of annual
preferred dividends, the shareholders at the relevant ordinary general meeting
of shareholders or, in the case of preferred interim dividends, the board of
directors, resolves to distribute the retained earnings.
23
Dividends on the preferred shares are non-cumulative. If the full amount of
any dividend is not declared on the preferred shares in respect of any fiscal
year, holders of the preferred shares do not have any right to receive
dividends in respect of the deficiency in any subsequent fiscal year, and we
will have no obligation to pay the deficiency or to pay any interest whether or
not dividends are paid in respect of any subsequent fiscal year. The holders of
the preferred shares are not entitled to any further dividends or other
participation in or distribution of our profits.
Liquidation Rights
In the event of our voluntary or involuntary liquidation, holders of the
preferred shares will be entitled, equally in rank as among themselves, to
receive out of the residual assets upon liquidation a distribution of
(Yen)3,000,000 per share for class 1 preferred shares, (Yen)2,000,000 per share
for class 2 preferred shares and (Yen)2,500,000 per share in the case of each
of the class 3 preferred shares and class 4 preferred shares before any
distribution of assets is made to holders of common stock. The holders of
preferred shares are not entitled to any further dividends or other
participation in or distribution of our residual assets upon our liquidation.
Voting Rights
No holder of preferred shares has the right to receive notice of, or to vote
at, a general meeting of shareholders, except as otherwise specifically
provided under the Commercial Code or other applicable law. Under the
Commercial Code, holders of the preferred shares will be entitled to receive
notice of, and have one voting right per preferred share at, general meetings
of shareholders (1) from the commencement of our ordinary general meeting of
shareholders if an agenda for approval to declare a preferred dividend is not
submitted to such meeting or (2) from the close of our ordinary general meeting
of shareholders if a proposed resolution to declare a preferred dividend is not
approved at such meeting until such time as a resolution of an ordinary general
meeting of shareholders declaring a preferred dividend is passed.
American Depositary Shares
The Bank of New York will issue the American depositary receipts, or ADRs.
Each ADR will represent ownership interests in American depositary shares, or
ADSs. Each ADS represents one thousandth of a share of our common stock. Each
ADS is held by Bank of Tokyo-Mitsubishi, acting as custodian, at its principal
office in Tokyo, on behalf of The Bank of New York, acting as depositary. Each
ADS will also represent securities, cash or other property deposited with The
Bank of New York but not distributed to ADS holders. The Bank of New York's
corporate trust office is located at 101 Barclay Street, New York, New York
10286 and its principal executive office is located at One Wall Street, New
York, New York 10286, U.S.A.
You may hold ADSs either directly or indirectly through your broker or other
financial institution. If you hold ADSs directly, you are an ADS holder. This
description assumes you hold your ADSs directly. If you hold the ADSs
indirectly, you must rely on the procedures of your broker or other financial
institution to assert the rights of ADS holders described in this section. You
should consult with your broker or financial institution to find out what those
procedures are.
The Bank of New York will actually be the registered holder of the common
stock, so you will have to rely on it to exercise your rights as a shareholder.
Our obligations and the obligations of The Bank of New York are set out in a
deposit agreement among us, The Bank of New York and you, as an ADS holder. The
deposit agreement and the ADSs are governed by New York law.
The following is a summary of the material terms of the deposit agreement.
Because it is a summary, it does not contain all the information that may be
important to you. For more complete information, you should read the entire
deposit agreement and the form of ADR. You can find directions on how to obtain
copies of these in the section entitled "Where You Can Obtain More Information."
24
Share Dividends and Other Distributions
The Bank of New York has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on shares of common stock or other
deposited securities, after deducting its fees and expenses. You will receive
these distributions in proportion to the number of shares your ADSs represent.
Cash. The Bank of New York will convert any cash dividend or other cash
distribution we pay on our common stock into U.S. dollars, if it can do so on a
reasonable basis and can transfer the U.S. dollars to the United States. If
that is not possible or if any approval from the Japanese government is needed
and cannot be obtained, the deposit agreement allows The Bank of New York to
distribute the yen only to those ADS holders to whom it is possible to do so.
The Bank of New York will hold the yen it cannot convert for the account of the
ADS holders who have not been paid. It will not invest the yen and it will not
be liable for any interest.
Before making a distribution, any withholding taxes that must be paid under
Japanese law will be deducted. See "Taxation--Japanese Taxation." The Bank of
New York will distribute only whole U.S. dollars and cents and will round
fractional cents to the nearest whole cent. If the relevant exchange rates
fluctuate during a time when The Bank of New York cannot convert the Japanese
currency, you may lose some or all of the value of the distribution.
Shares. The Bank of New York may distribute new ADSs representing any
shares we may distribute as a dividend or free distribution, if we furnish The
Bank of New York promptly with satisfactory evidence that it is legal to do so.
The Bank of New York will only distribute whole ADSs. It will sell shares which
would require it to issue a fractional ADS and distribute the net proceeds in
the same way as it distributes cash dividends. If The Bank of New York does not
distribute additional ADSs, each ADS will also represent the new shares.
Rights to Receive Additional Shares. If we offer holders of our common
stock any rights to subscribe for additional shares of common stock or any
other rights, The Bank of New York may, after consultation with us, make those
rights available to you. We must first instruct The Bank of New York to do so
and furnish it with satisfactory evidence that it is legal to do so. If we do
not furnish this evidence and/or do not give these instructions, and The Bank
of New York decides it is practical to sell the rights, The Bank of New York
will sell the rights and distribute the proceeds in the same way as it
distributes cash dividends. The Bank of New York may allow rights that are not
distributed or sold to lapse. In that case, you will receive no value for them.
If The Bank of New York makes rights available to you, upon instruction from
you it will exercise the rights and purchase the shares on your behalf. The
Bank of New York will then deposit the shares and issue ADSs to you. It will
only exercise the rights if you pay it the exercise price and any other charges
the rights require you to pay.
U.S. securities laws may restrict the sale, deposit, cancellation and
transfer of the ADSs issued after the exercise of the rights. For example, you
may not be able to trade the ADSs freely in the United States. In this case,
The Bank of New York may issue the ADSs under a separate restricted deposit
agreement which will contain the same provisions as the deposit agreement,
except for changes needed to put the restrictions in place. The Bank of New
York will not offer you rights unless those rights and the securities to which
the rights relate are either exempt from registration or have been registered
under the U.S. Securities Act with respect to a distribution to you. We will
have no obligation to register under the Securities Act those rights or the
securities to which they relate.
Other Distributions. The Bank of New York will send to you anything else we
distribute on deposited securities by any means it thinks is legal, fair and
practical. If it cannot make the distribution in that way, The Bank of New York
has a choice. It may decide to sell what we distributed and distribute the net
proceeds, in the same way as it does with cash. Or, it may decide to hold what
we distributed, in which case ADSs will also represent the newly distributed
property.
The Bank of New York is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any ADS holders. We have no
obligation to register ADSs, shares, rights or other securities under the
Securities Act. We also have no obligation to take any other action to permit
the distribution
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of ADSs, shares, rights or anything else to ADS holders. This means that you
may not receive the distributions we make on our shares or any value for them
if it is illegal or impractical for us or The Bank of New York to make them
available to you.
Deposit, Withdrawal and Cancellation
The Bank of New York will issue ADSs if you or your broker deposits shares
or evidence of rights to receive shares with the custodian. Upon payment of its
fees and expenses and of any taxes or charges, such as stamp taxes or stock
transfer taxes or fees, The Bank of New York will register the appropriate
number of ADSs in the names you request and will deliver the ADSs at its
corporate trust office to the persons you request.
In certain circumstances, subject to the provisions of the deposit
agreement, the Bank of New York may issue ADSs before the deposit of the
underlying shares. This is called a pre-release of ADSs. A pre-release is
closed out as soon as the underlying shares are delivered to the depositary.
The depositary may receive ADSs instead of the shares to close out a
pre-release. The depositary may pre-release ADSs only on the following
conditions:
.. Before or at the time of the pre-release, the person to whom the pre-release
is made must represent to the depositary in writing that it or its customer,
as the case may be, owns the shares to be deposited;
.. The pre-release must be fully collateralized with cash or collateral that
the depositary considers appropriate;
.. The depositary must be able to close out the pre-release on not more than
five business days' notice.
The pre-release will be subject to whatever indemnities and credit
regulations that the depositary considers appropriate. In addition, the
depositary will limit the number of ADSs that may be outstanding at any time as
a result of a pre-release.
You may turn in your ADSs at the Corporate Trust Office of The Bank of New
York's office. Upon payment of its fees and expenses and of any taxes or
charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New
York will deliver (1) the underlying shares to an account designated by you and
(2) any other deposited securities underlying the ADS at the office of the
custodian. Or, at your request, risk and expense, The Bank of New York will
deliver the deposited securities at its corporate trust office.
The ADSs may only be presented for cancellation and release of the
underlying shares of common stock or other deposited securities in multiples of
1,000 ADSs. Holders of ADRs evidencing less than 1,000 ADSs will not be
entitled to delivery of any underlying shares or other deposited securities
unless such ADRs, together with other ADRs presented by the same holder at the
same time, represent in the aggregate at least 1,000 ADSs. If any ADSs are
surrendered but not cancelled pursuant to the preceding sentence, The Bank of
New York will execute and deliver an ADR or ADRs evidencing the balance of ADSs
not so cancelled to the person or persons surrendering the same.
Voting Rights
If you are an ADS holder on a record date fixed by The Bank of New York, you
may instruct The Bank of New York to vote the shares underlying your ADSs at a
meeting of our shareholders in accordance with the procedures set forth in the
deposit agreement.
The Bank of New York will notify you of the upcoming meeting and arrange to
deliver our voting materials to you. The notice shall contain (a) such
information as is contained in such notice of meeting, (b) a statement that as
of the close of business on a specified record date you will be entitled,
subject to any applicable provision of Japanese law and our articles of
incorporation, to instruct The Bank of New York as to the exercise of the
voting rights, if any, pertaining to the amount of shares or other deposited
securities represented by your ADSs, and (c) a brief statement as to the manner
in which such instructions may be given, including an express indication that
instructions may be given to The Bank of New York to give a discretionary proxy
to a person designated by us. Upon your written request, received on or before
the date established by The Bank of New York for such purpose, The Bank of New
York shall endeavor in so far as practicable to vote or cause to be
26
voted the amount of shares or other deposited securities represented by your
ADSs in accordance with the instructions set forth in your request. So long as
Japanese law provides that votes may only be cast with respect to one or more
whole shares or other deposited securities, The Bank of New York will aggregate
voting instructions to the extent such instructions are the same and vote such
whole shares or other deposited securities in accordance with your
instructions. If, after aggregation of all instructions to vote received by The
Bank of New York, any portion of the aggregated instructions constitutes
instructions with respect to less than a whole share or other deposited
security, The Bank of New York will not vote or cause to be voted the shares or
other deposited securities to which such portion of the instructions apply. The
Bank of New York will not vote or attempt to exercise the right to vote that
attaches to the shares or other deposited securities, other than in accordance
with the instructions of the ADS holders.
We cannot assure you that you will receive the voting materials in time to
ensure that you can instruct The Bank of New York to vote your shares. In
addition, The Bank of New York is not responsible for failing to carry out
voting instructions or for the manner of carrying out voting instructions as
long as it has acted in good faith. This means that you may not be able to
exercise your right to vote and there may be nothing you can do if your shares
are not voted as you requested.
Fees and Expenses
ADR holders must pay: For:
--------------------------------------------------- -------------------------------------------------------
$5.00 (or less) per 100 ADSs (or portion thereof).. Each issuance of an ADS, including as a result of a
distribution of shares or rights or other property
Each cancellation of an ADS, including if the
agreement terminates
$0.02 (or less) per ADSs........................... To the extent permitted by securities exchange on
which the ADSs may be listed for trading any cash
payment
Registration or transfer fees...................... Transfer and registration of shares on the share
register of the foreign registrar from your name to the
name of The Bank of New York or its agent when
you deposit or withdraw shares
Expenses of The Bank of New York................... Conversion of foreign currency to U.S. dollars Cable,
telex and facsimile transmission expenses
Taxes and other governmental charges The Bank of
New York or Bank of Tokyo-Mitsubishi, as custodian,
have to pay on any ADS or share underlying an ADS,
for example, stock transfer taxes, stamp duty or
withholding taxes.................................. As necessary
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable
on your ADSs or on the deposited securities underlying your ADSs. The Bank of
New York may refuse to transfer your ADSs or allow you to withdraw the
deposited securities underlying your ADSs until those taxes or other charges
are paid. It may apply payments owed to you or sell deposited securities
underlying your ADSs to pay any taxes owed and you will remain liable for any
deficiency. If it sells deposited securities, it will, if appropriate, reduce
the number of ADSs to reflect the sale and pay to you any property, remaining
after it has paid the taxes.
Reclassifications, Recapitalizations And Mergers
If we:
.. reclassify, split up or consolidate any of our shares or the deposited
securities,
27
.. recapitalize, reorganize, merge, liquidate, consolidate or sell all or
substantially all of our assets or take any similar action, or
.. distribute securities on the shares that are not distributed to you,
then,
(1) the cash, shares or other securities received by The Bank of New York
will become deposited securities and each ADS will automatically
represent its equal share of the new deposited securities unless
additional ADSs are issued; and
(2) The Bank of New York may, and will if we request, issue new ADSs or ask
you to surrender your outstanding ADSs in exchange for new ADSs,
identifying the new deposited securities.
Amendment and Termination
We may agree with The Bank of New York to amend the deposit agreement and
the ADSs without your consent for any reason. If the amendment adds or
increases fees or charges, except for taxes and other governmental charges,
registration fees, cable, telex or facsimile transmission costs, delivery costs
or other such expenses, or prejudices an important right of ADS holders, it
will only become effective three months after The Bank of New York notifies you
of the amendment. At the time an amendment becomes effective, you are
considered, by continuing to hold your ADS, to agree to the amendment and to be
bound by the ADSs and the deposit agreement as amended. However, no amendment
will impair your right to receive the deposited securities in exchange for your
ADSs.
The Bank of New York will terminate the deposit agreement if we ask it to do
so, in which case it must notify you at least 30 days before termination. The
Bank of New York may also terminate the deposit agreement if The Bank of New
York has told us that it would like to resign and we have not appointed a new
depositary bank within 60 days.
If any ADSs remain outstanding after termination, The Bank of New York will
stop registering the transfers of ADSs, will stop distributing dividends to ADS
holders and will not give any further notices or do anything else under the
deposit agreement other than:
(1) collect dividends and distributions on the deposited securities,
(2) sell rights and other property offered to holders of deposited
securities, and
(3) deliver shares and other deposited securities in exchange for ADSs
surrendered to The Bank of New York.
At any time after one year following termination, The Bank of New York may
sell any remaining deposited securities. After that, The Bank of New York will
hold the money it received on the sale, as well as any other cash it is holding
under the deposit agreement for the pro rata benefit of the ADS holders that
have not surrendered their ADSs. It will not invest the money and has no
liability for interest. The Bank of New York's only obligations will be to
account for the money and other cash and with respect to indemnification and to
retain depositary documents. After termination, our only obligations will be
with respect to indemnification and to pay certain amounts to The Bank of New
York.
Limitations on Obligations and Liability to ADS Holders
The deposit agreement expressly limits our obligations and the obligations
of The Bank of New York. It also limits our liability and the liability of The
Bank of New York. We and The Bank of New York:
.. are only obligated to take the actions specifically set forth in the deposit
agreement without negligence or bad faith;
.. are not liable if either is prevented or delayed by law, any provision of
our articles of incorporation or circumstances beyond their control from
performing their obligations under the deposit agreement;
28
.. are not liable if either exercises or fails to exercise discretion permitted
under the deposit agreement;
.. have no obligation to become involved in a lawsuit or other proceeding
related to the ADSs or the deposit agreement on your behalf or on behalf of
any other party unless indemnified to their satisfaction; and
.. may rely upon any advice of or information from legal counsel, accountants,
any person depositing shares, any ADS holder or any other person believed in
good faith to be competent to give them that advice or information.
In the deposit agreement, we and The Bank of New York agree to indemnify
each other for liabilities arising out of acts performed or omitted by the
other party in accordance with the deposit agreement.
Requirements for Depositary Actions
Before The Bank of New York will issue or register transfer of an ADS, make
a distribution on an ADS, or permit withdrawal of shares, it may require:
.. payment of stock transfer or other taxes or other governmental charges and
transfer or registration fees charged by third parties for the transfer of
any shares or other deposited securities,
.. production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary, and
.. compliance with regulations it may establish, from time to time, consistent
with the deposit agreement, including presentation of transfer documents.
The Bank of New York may refuse to deliver, transfer, or register transfers
of ADSs generally when its transfer books are closed, when our transfer books
are closed or at any time if it or we think it advisable to do so.
You have the right to cancel your ADSs and withdraw the underlying shares at
any time except:
.. when temporary delays arise because: (1) The Bank of New York has closed its
transfer books or we have closed our transfer books; (2) the transfer of
shares is blocked to permit voting at a shareholders' meeting; or (3) we are
paying a dividend on the shares;
.. when you or other ADS holders seeking to withdraw shares owe money to pay
fees, taxes and similar charges; or
.. when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to ADSs or to the withdrawal of
shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
deposit agreement.
Reports and Other Communications
The Bank of New York will make available for your inspection at its
corporate trust office any reports and communications, including any proxy
soliciting material, that it receives from us, if those reports and
communications are both (a) received by The Bank of New York as the holder of
the deposited securities and (b) made generally available by us to the holders
of the deposited securities. If we ask it to, The Bank of New York will also
send you copies of those reports it receives from us.
Inspection of Transfer Books
The Bank of New York will keep books for the registration and transfer of
ADSs, which will be open for your inspection at all reasonable times. You will
only have the right to inspect those books if the inspection is for the purpose
of communicating with other owners of ADSs in connection with our business or a
matter related to the deposit agreement or the ADSs.
29
Debt Securities
The debt securities offered by this prospectus will be our unsecured
obligations. Senior debt will be issued under a senior debt indenture.
Subordinated debt will be issued under a subordinated debt indenture. Debt
securities may be issued as convertible debt securities which are classified
under the Japanese Commercial Code as bonds with stock acquisition rights. The
senior debt indenture and the subordinated debt indenture are sometimes
referred to in this prospectus individually as an "indenture" and collectively
as the "indentures." The forms of indentures are filed as exhibits to the
registration statement, of which this prospectus forms a part.
The following briefly summarizes the material provisions of the indentures
and the debt securities. You should read the more detailed provisions of the
applicable indenture, including the defined terms, for provisions that may be
important to you. You should also read the particular terms of a series of debt
securities, which will be described in more detail in the applicable prospectus
supplement. Copies of the indentures may be obtained from us or the applicable
trustee. So that you may easily locate the more detailed provisions, the
numbers in parentheses below refer to sections in the applicable indenture or,
if no indenture is specified, to sections in each of the indentures. Wherever
particular sections or defined terms of the applicable indenture are referred
to, these sections or defined terms are incorporated into this prospectus by
reference, and the statement in this prospectus is qualified by that reference.
Unless otherwise provided in the applicable prospectus supplement, the
trustee under the senior debt indenture will be The Bank of New York and the
trustee under the subordinated debt indenture will be JPMorgan Chase Bank.
We are a holding company that conducts substantially all of our operations
through subsidiaries and our obligations under the debt securities will not be
guaranteed by any of our subsidiaries. As a result, claims of the holders of
the debt securities will generally have a junior position to claims of
creditors of our subsidiaries, except to the extent that Mitsubishi Tokyo
Financial Group is recognized, and receives payment, as a creditor of those
subsidiaries. Claims of our subsidiaries' creditors other than Mitsubishi Tokyo
Financial Group include, among other things, substantial amounts of long-term
borrowings, deposit liabilities, securities sold under repurchase agreements,
commercial paper and other short-term borrowings.
Neither of the indentures limits our ability to enter into a highly
leveraged transaction or provides you with any special protection in the event
of such a transaction. In addition, neither of the indentures provides special
protection in the event of a sudden and dramatic decline in our credit quality
resulting from a takeover, recapitalization or similar restructuring.
General
The indentures provide that our debt securities may be issued in one or more
series, with different terms, in each case as authorized from time to time by
us. Neither of the indentures limits the amount of debt securities that we may
issue. We have the right to "reopen" a previous issue of a series of debt
securities by issuing additional debt securities of that series.
Subordinated debt securities may be:
.. senior subordinated securities with a fixed stated maturity or date of
redemption; or
.. junior subordinated securities with no fixed stated maturity or date of
redemption.
Specific Japanese and U.S. federal income tax consequences and other special
considerations applicable to any series of debt securities issued by us will be
described in the applicable prospectus supplement.
The applicable prospectus supplement relating to any series of debt
securities will describe, among other things, the following terms, where
applicable:
.. the title of the debt securities;
.. whether the debt securities will be senior, senior subordinated or junior
subordinated debt;
30
.. the total principal amount of the debt securities;
.. any limit on the aggregate principal amount or aggregate initial offering
price of the debt securities;
.. the percentage of the principal amount at which the debt securities will be
sold and, if applicable, the method of determining the price;
.. the date or dates on which the principal of the debt securities will be
payable, if any, and the amount payable upon acceleration;
.. the interest rate or the method of computing the interest rate;
.. the date or dates from which any interest will accrue, or how the date or
dates will be determined, and the interest payment date or dates and any
related record dates;
.. if other than in U.S. dollars, the currency or currency unit in which
payment will be made;
.. if any payments may be made at our election or at the election of a holder
of debt securities in a currency or currency unit other than that in which
the debt securities are stated to be payable, the periods within which and
the terms upon which the election may be made;
.. any provisions for the payment of additional amounts for taxes in addition
to those set forth below;
.. the denominations in which the currency or currency unit of any debt
securities will be issuable;
.. the location where payments on the debt securities will be made;
.. the terms and conditions on which the debt securities may be redeemed at our
option;
.. any obligation of ours to redeem, purchase or repay the debt securities at
the option of a holder upon the happening of any event and the terms and
conditions of redemption, purchase or repayment;
.. the conversion provisions, if any;
.. any provisions for the discharge of our obligations relating to the debt
securities by deposit of funds or government obligations;
.. whether the debt securities are to trade in book-entry form and the terms
and any conditions for exchanging the global security in whole or in part
for paper certificates;
.. the date of any global security if other than the original issuance of the
first debt security to be issued;
.. any covenants or agreements relating to the debt securities;
.. any events of default applicable to the debt securities not described in
this prospectus;
.. any material provisions of the applicable indenture described in this
prospectus that do not apply to the debt securities; and
.. any other specific terms of the debt securities.
We may issue some of the debt securities as original issue discount debt
securities. Original issue discount debt securities will bear no interest or
will bear interest at a below-market rate and will be sold at a discount below
their stated principal amount. The prospectus supplement will contain any
special tax, accounting or other information relating to original issue
discount debt securities. If we offer other kinds of debt securities, including
debt securities linked to an index or payable in currencies other than U.S.
dollars, the prospectus supplement relating to those debt securities will also
contain any special tax, accounting or other information relating to those debt
securities.
The debt securities, other than convertible debt securities, will be issued
only in registered form. As currently anticipated, debt securities of a series
will trade in book-entry form, and global notes will be issued in physical
(paper) form, as described below under "--Global Securities." Unless otherwise
provided in the accompanying prospectus supplement, debt securities denominated
in U.S. dollars will be issued only in denominations of $1,000 and whole
multiples of $1,000. (Section 302.) The prospectus supplement relating to
offered securities denominated in a foreign or composite currency will specify
the denomination of the offered securities.
The debt securities may be presented for exchange, and debt securities other
than a global security may be presented for registration of transfer, at the
principal corporate trust office of the relevant trustee in New York City.
Holders will not have to pay any service charge for any registration of
transfer or exchange of debt securities, but you may have to pay an amount to
cover any tax or other governmental charge payable in connection with the
registration of transfer. (Section 305.)
31
Payment and Paying Agents
Distributions on the debt securities other than those represented by global
notes will be made in the designated currency against surrender of the debt
securities at the principal corporate trust office of the relevant trustee in
New York City. Payment of interest will be made on the relevant payment date to
the registered holder at the close of business on the record date for the
payment. Interest payments will be made at the principal corporate trust office
of the relevant trustee in New York City, or by a check mailed to the holder at
his registered address. (Section 307.) Interest payments on debt securities
that are not denominated in U.S. dollars may be made by paying agents outside
of New York City. Payments in any other manner will be specified in the
prospectus supplement.
Payment of Additional Amounts
All payments of the principal of, premium, if any, and interest, including
discount, if any, on our debt securities will be made without deduction or
withholding for or on account of any present or future taxes, duties,
assessments or other governmental charges of whatever nature imposed or levied
by or on behalf of Japan or the jurisdiction of organization of any successor
entity or any of their political subdivisions or taxing authorities, unless the
withholding or deduction of the taxes, duties, assessments or other
governmental charges is required by law or regulation or by the official
interpretation of the relevant law or regulation. In that event, we will pay to
each holder of debt securities such additional amounts as may be necessary in
order that each net payment on the applicable debt security after the deduction
or withholding will not be less than the amount provided for in the applicable
debt security to be then due and payable. The obligations to pay these
additional amounts, however, will not apply to:
.. any taxes, duties, assessments or other governmental charges that would not
have been imposed but for
(1) the existence of any present or former connection between the holder
or the beneficial owner of the applicable debt security, or between a
fiduciary, settlor, beneficiary or partner, if the holder or
beneficial owner is an estate, trust or partnership, and the
applicable taxing jurisdiction imposing the taxes, duties,
assessments or other governmental charges other than the mere receipt
of payments in respect of a debt security or the holding or ownership
of a debt security or beneficial interest therein or the enforcement
of rights with respect thereto; or
(2) the presentation of a debt security, where presentation is required,
for payment on a date more than 30 days after the date on which the
payment became due and payable or the date on which payment of the
debt security is duly provided for, whichever occurs later, except to
the extent the holder or beneficial owner of the debt security would
have been entitled to the additional amounts if it had presented the
debt security for payment on any date within the 30-day period;
.. any estate, inheritance, gift, sales, transfer, personal property or similar
tax, duty, assessment or other governmental charge;
.. any tax, duty, assessment or other governmental charge which is payable
otherwise than by withholding from payments of, or in respect of, principal
of, or any interest on, the debt securities;
.. any tax, duty, assessment or other governmental charge that is imposed or
withheld by reason of the failure to comply by the holder or the beneficial
owner of the debt securities with our request addressed to the holder:
(1) to provide information concerning the nationality, residence,
identity or connection with a taxing jurisdiction of the holder or
the beneficial owner, or
(2) to make any declaration or other similar claim to satisfy any
information or reporting requirement, which is required or imposed by
a statute, treaty, regulation or administrative practice of the
taxing jurisdiction as a precondition to exemption from all or part
of the tax, assessment or other governmental charge;
32
.. any withholding or deduction imposed on a payment to an individual and
required to be made pursuant to any European Union Directive on the taxation
of savings implementing the conclusions of the ECOFIN Council meeting of
November 26-27, 2000, or any law implementing or complying with, or
introduced in order to conform to, such directive;
.. any withholding or deduction that is imposed on any debt security that is
presented for payment by or on behalf of a holder who would have been able
to avoid such withholding or deduction by presenting the relevant debt
security to another paying agent in a member state of the European Union; or
.. any combination of items listed above.
Additional amounts will not be paid with respect to any payment of principal
or any interest on any debt security to any holder or beneficial owner that is
a fiduciary or partnership or other than the sole beneficial owner of the
applicable debt security to the extent the payment would be required by the
laws of a taxing jurisdiction to be included in the income for tax purposes of
a beneficiary or settlor with respect to the fiduciary or a member of the
partnership or a beneficial owner who would not have been entitled to these
additional amounts had it been a holder.
Whenever the payment of principal of, or any premium or interest on, any
debt security is mentioned in an indenture in any context, the mention will be
deemed to include the payment of additional amounts to the extent that, in the
context of the discussion, additional amounts are, were or would be payable
with respect to the applicable debt security.
Redemption for Taxation Reasons
The debt securities may be redeemed for cash, at our option, as a whole but
not in part, at any time, at a redemption price equal to the principal amount
(or accreted value) of the applicable debt security, together with accrued
interest to the date fixed by us for redemption and additional amounts, if as a
result of any change in, or amendment to, the laws or treaties (or any
regulations or rulings promulgated thereunder) of Japan or the jurisdiction of
organization of any successor entity (or any political subdivision or taxing
authority of such jurisdiction) affecting taxation, or any change in official
position regarding the application or interpretation of these laws, treaties,
regulations or rulings (including a holding, judgment, or order by a court of
competent jurisdiction), which change, amendment, application or interpretation
becomes effective on or after the date of the issuance of the applicable debt
security, in the case of ourselves, or on or after the date a successor assumes
our obligations under the applicable debt security, in the case of any
successor, we are, or on the next interest payment date would be, required to
pay any additional amounts for the applicable debt security which cannot be
avoided by measures reasonably available to us. We shall give not less than 30
nor more than 60 days' irrevocable notice to the holders of the applicable debt
securities being redeemed for taxation reasons, provided that we may not give a
notice of redemption earlier than 90 days prior to the earliest date on which
we would be obligated to make the withholding if a payment in respect of the
applicable debt securities were then due.
Prior to the publication and mailing of any notice of redemption of the debt
securities pursuant to the foregoing, we will (a) certify to the applicable
trustee that the conditions precedent to the right to redeem the debt
securities have occurred and (b) deliver to the applicable trustee an opinion
of an independent counsel or tax consultant of recognized standing to the
effect that the circumstances referred to above exist. The applicable trustee
shall accept the opinion as sufficient evidence of the satisfaction of the
conditions precedent described above, in which event it shall be conclusive and
binding on the holders.
Senior Debt
The senior debt securities will be issued under the senior debt indenture
and will rank on an equal basis with all of our other unsecured debt except
subordinated debt.
33
Senior Subordinated Debt
The senior subordinated debt securities will be issued under the
subordinated debt indenture. Upon the occurrence of any of the following
subordination events, the senior subordinated debt securities will be
subordinated to the extent described below.
.. If a Japanese court has adjudicated us to be bankrupt pursuant to the
provisions of the Japanese Bankruptcy Law (Law No. 71 of 1922), and so long
as the bankruptcy proceedings are continuing, any amounts payable under the
senior subordinated debt securities, except for the amounts which have
become due and payable prior to the occurrence of the event described in
this paragraph, shall only become due if the total amount of any and all of
our senior indebtedness, as described below, which is listed on the final
distribution list prepared by the administrator, as defined below, for the
final distribution of bankruptcy assets pursuant to the Bankruptcy Law is
paid in full or provision has been made for the payment in full of the
listed senior indebtedness pursuant to the Bankruptcy Law.
.. If a Japanese court has commenced corporate reorganization proceedings with
respect to us pursuant to the Japanese Corporate Reorganization Law (Law No.
172 of 1952), and so long as the corporate reorganization proceedings are
continuing, any amounts payable under the senior subordinated debt
securities, except for the amounts which have become due and payable prior
to the occurrence of the event described in this paragraph, shall only
become due if the total amount of any and all of our senior indebtedness
which is listed on our reorganization plan at the date the plan has become
final and conclusive after approval by a court of competent jurisdiction in
Japan, as our indebtedness subject to modification in the plan, is paid in
full to the extent of the original amount of the indebtedness without regard
to the modification.
.. If a Japanese court has commenced civil rehabilitation proceedings with
respect to us pursuant to the provisions of the Japanese Civil
Rehabilitation Law (Law No. 225 of 1999), and so long as the civil
rehabilitation proceedings are continuing, any amounts payable under the
senior subordinated debt securities, except for the amounts which have
become due and payable prior to the occurrence of the event described in
this paragraph, shall only become due if the total amount of any and all of
our senior indebtedness which is listed on the our rehabilitation plan at
the date the plan has become final and conclusive after approval of a court
of competent jurisdiction in Japan, as our indebtedness subject to
modification in the plan, is paid in full to the extent of the original
amount of the indebtedness without regard to the modification.
Holders of senior subordinated debt securities must return and deliver any
payments received by them after an occurrence of one of the events described
above in excess of what they are entitled to under the applicable paragraph.
Holders of senior subordinated debt securities also agree by the acceptance of
those securities that, upon an occurrence of one of the events described above,
and so long as the event shall continue, the holders shall not be entitled to
exercise any right to set off any of our liabilities under the applicable
securities, except for those amounts which have become due and payable prior to
the date on which the event shall have occurred, against any liabilities of the
relevant holder owed to us unless and until the holder shall have become
entitled to payment of our liabilities under the applicable securities under
the restrictions of the relevant paragraph. (Subordinated Debt Indenture,
Section 1303.)
As used above,
.. "administrator" means the person or persons appointed pursuant to the
Japanese Bankruptcy Law in our bankruptcy whose purpose is to realize our
assets and pay, insofar as possible, our debts; and
.. "senior indebtedness" means all of our liabilities (including those in
respect of bonds, notes and debentures) other than
- liabilities under senior subordinated securities and senior
subordinated guarantees issued by us which have not become due and
payable prior to the occurrence of a subordination event, and
- other liabilities ranking equal in right of payment with or junior to
the senior subordinated securities.
34
Junior Subordinated Debt
The junior subordinated debt securities will be issued under the
subordinated debt indenture. Each series of junior subordinated debt securities
will be issued as perpetual securities with no fixed date of maturity.
Deferral of Interest. If, on any interest payment date for a series of
junior subordinated debt securities, all of the following conditions are met:
.. the amount of the profits we may distribute to shareholders in any fiscal
year pursuant to Article 290 of the Commercial Code of Japan and Japanese
banking regulations, as derived from our audited non-consolidated financial
statements prepared in accordance with Japanese law and approved at our
general meeting of the shareholders immediately prior to the interest
payment date, exceeds zero;
.. our total risk-based capital ratio calculated either on a consolidated basis
and reported to Japanese regulatory authorities in our most recent operation
report is equal to or more than half of the minimum total risk-based capital
ratio required under the Japanese Banking Law (Law No. 59 of 1981); and
.. we are not insolvent at the time of the payment of interest in respect of
the junior subordinated debt securities and the payment of interest in
respect of the junior subordinated debt securities would not cause us to
become insolvent,
then any interest that has accrued on the applicable junior subordinated debt
securities but has not yet been paid will be due and payable on the applicable
interest payment date. Any interest arrears in respect of junior subordinated
debt securities will become due and payable on the earlier of
.. the first interest payment date on which all of the conditions listed above
are met; and
.. the date upon which the principal of the junior subordinated debt securities
becomes due and payable, subject to the subordination provisions described
below.
If payment of interest is deferred as described above, no additional
interest will accrue on the deferred amounts. However, where we otherwise
default in the payment of any interest due and payable on our junior
subordinated debt securities and the default continues for a period of 30 days
or more, interest shall accrue on any defaulted amount from and including the
due date for payment to but excluding the date of full payment of that amount
at the rate of interest applicable to the relevant series of junior
subordinated debt securities.
In determining whether we are insolvent at the time of the payment in
respect of the junior subordinated debt securities, we will be insolvent if our
total liabilities exceed our total assets. For purposes of this paragraph,
total assets and total liabilities are each calculated on a non-consolidated
basis as shown by our latest audited non-consolidated balance sheet prepared in
accordance with Japanese law but adjusted for subsequent events, and valued in
a manner as may be determined by our representative director, auditor or the
liquidator, as the case may be.
Redemption. Junior subordinated debt securities have no maturity and will
only be redeemable or repayable in accordance with the paragraphs under
"--Redemption for Taxation Reasons" or as specified in the applicable
prospectus supplement or if one of the following three conditions for
liquidation payment occurs:
.. in the event of our liquidation, all priority indebtedness held by our
creditors entitled to payment or satisfaction prior to commencement of
distribution of residual assets to shareholders is paid or otherwise
satisfied in full pursuant to the provisions of the Japanese Commercial Code;
.. in the event of our reorganization where a decree of approbation of a
corporate reorganization plan for our liquidation becomes final and
conclusive, all of our priority indebtedness appearing in the plan at the
date the decree becomes final and conclusive is paid or otherwise satisfied
in full without giving effect to any modification or reduction stipulated in
the plan; or
35
.. in the event of our civil rehabilitation where a decree of approbation of a
rehabilitation plan for our liquidation becomes final and conclusive, all of
our priority indebtedness appearing in the plan at the date the decree
becomes final and conclusive is paid or otherwise satisfied in full without
giving effect to any modification or reduction stipulated in the plan.
Following the occurrence of any condition listed above, junior subordinated
securities will only be redeemable or repayable to the extent that the
aggregate of:
. the amount of any payment of principal on the junior subordinated debt
securities, except for amounts which shall have become due and payable
prior to the occurrence of such condition for liquidation payment,
.. the amount of any payment of interest on the junior subordinated debt
securities, except for amounts which shall have become due and payable prior
to the occurrence of such condition for liquidation payment, and
.. the liquidation distribution in respect of all other securities with the
same liquidation preference as the junior subordinated debt securities,
does not exceed the liquidation distributions that would have been paid from
our assets had the principal amount and interest amount on the junior
subordinated debt securities and the other securities with the same liquidation
preference as the junior subordinated debt securities been our preference
shares ranking most senior in priority of payment as to liquidation
distributions.
Securities with the same liquidation preference as the junior debt
securities are:
.. any of our preference shares ranking most senior in priority of payment as
to liquidation distributions,
.. any preferred or preference shares of any affiliate of ours which are
entitled to the benefits of our guarantee ranking equal in priority of
payments as to liquidation distributions with the junior subordinated debt
securities, and
.. any other of our liabilities with terms and conditions substantially
equivalent or subordinate in priority of payment as to liquidation
distributions to the junior subordinated debt securities.
Priority indebtedness for these purposes means all of our liabilities,
including those in respect of bonds, notes and debentures, and including senior
subordinated securities and any guarantees ranking equal in priority of payment
with senior subordinated securities, other than
.. liabilities under junior subordinated securities and junior subordinated
guarantees issued by us which have not become due and payable prior to the
occurrence of a subordination event; and
.. other liabilities with terms and conditions substantially equivalent or
subordinate in priority of payment as to liquidation distributions to the
junior subordinated securities.
The effect of using this method to calculate the amount payable with respect
to junior subordinated debt securities is that, in the event of a liquidation,
reorganization or civil rehabilitation, the claims of the holders of junior
subordinated debt securities will be subordinate to, and subject in right of
payment to the prior payment in full of, all claims of holders of senior
subordinated securities and any claims ranking equally in right of payment with
senior subordinated securities, including our senior subordinated guarantees.
Terms of Subordination. Upon the occurrence of any of the following
subordination events:
.. a Japanese court having adjudicated us to be bankrupt pursuant to the
provisions of the Japanese Bankruptcy Law;
.. a Japanese court having commenced corporate reorganization proceedings with
respect to us pursuant to the provisions of the Japanese Corporate
Reorganization Law; or
.. a Japanese court having commenced civil rehabilitation proceedings with
respect to us pursuant to the provisions of the Japanese Civil
Rehabilitation Law,
36
and for so long as such event is continuing, we will not be permitted to make
any payment of principal of or interest on any series of junior subordinated
debt securities, except for amounts which became due and payable prior to the
occurrence of the event, unless and until such payments are made in accordance
with the provisions described under "--Redemption" above.
Holders of junior subordinated debt securities must return and deliver any
payments received by them after an occurrence of one of the events described
above in excess of what they are entitled to under the applicable paragraph.
Holders of junior subordinated debt securities also agree by the acceptance of
the securities that, upon an occurrence of one of the events described above,
and so long as the event shall continue, the holders shall not be entitled to
exercise any right to set off any of our liabilities under the applicable
securities, except for those amounts which have become due and payable prior to
the date on which the event shall have occurred, against any liabilities of the
relevant holder owed to us. (Subordinated Debt Indenture, Section 1303.)
Covenants
Our covenants and agreements relating to a series of debt securities will be
set forth in the applicable prospectus supplement.
Consolidation, Merger, Conveyance or Transfer
The indentures contain provisions permitting us, without the consent of the
holders of debt securities, to consolidate with or merge into any other
corporation or convey or transfer our assets substantially as an entirety to
any person or persons, provided that the successor corporation or corporations,
if an entity other than ourselves, assumes our obligations on the debt
securities and under the indentures and certain other conditions are met.
(Section 801.)
Indemnification of Judgment Currency
We will indemnify each holder of debt securities against any loss incurred
as a result of a judgment or order being made for any amount due under the
applicable debt securities if the judgment or order is expressed and paid in a
currency other than the currency in which the applicable debt securities are
denominated and there is a difference between
.. the rate of exchange at which the currency in which the securities are
denominated is converted into the other currency for the purpose of the
judgment or order, and
.. the spot rate of exchange at which the holder on the date that payment is
made pursuant to the judgment or order is able to purchase the currency in
which the securities are denominated with the amount of the other currency
actually received by the holder.
Modification of the Indentures
Under the indentures, we and the relevant trustee can enter into
supplemental indentures to establish the form and terms of any new series of
debt securities without obtaining the consent of any holder of debt securities.
(Section 901.)
We and the trustee may, with the consent of the holders of at least 66 2/3%
in aggregate principal amount of the debt securities of a series, modify the
applicable indenture or the rights of the holders of the securities of the
series to be affected.
No modification may, without the consent of the holder of each outstanding
security so affected:
.. change the stated maturity of any such securities or of any installment of
principal of any such securities;
.. reduce the rate or change the time of payment of interest on such securities;
37
.. reduce the principal amount of the securities or the premium, if any, on the
securities;
.. change any of our obligations to pay additional amounts;
.. reduce the amount of the principal of any securities issued originally at a
discount;
.. change the currency or currency unit in which any securities are payable or
the right of selection thereof;
.. impair the right to sue for the enforcement of any of the payments listed
above on or after the maturity of the securities;
.. reduce the percentage of securities referred to above whose holders need to
consent to the modification or a waiver; or
.. change any of our obligations to maintain an office or agency. (Section
1002.)
In addition, the subordination provisions of the subordinated debt indenture
may not be amended in any respect if the amendment would in any way be
prejudicial to or impair the benefits of the subordination provision extending
to any present or future creditor in respect of, in the case of the senior
subordinated debt, any senior indebtedness or, in the case of the junior
subordinated debt, any priority indebtedness. (Subordinated Debt Indenture,
Section 1304.)
Defaults
Senior Debt Events of Default. The senior debt indenture provides that
events of default regarding any series of senior debt securities will be:
.. failure to pay interest on any debt security of the series for 30 days or
more after it becomes due and payable;
.. failure to pay principal or premium, if any, on any debt security of the
series when due;
.. acceleration by or on behalf of the holder of any indebtedness for external
borrowings by the issuer, if not cured within a specified period of time;
.. failure to perform for 90 days after notice any other covenant in the
relevant indenture other than a covenant included in the relevant indenture
solely for the benefit of a series of debt securities other than the series;
.. certain events of bankruptcy or insolvency, whether voluntary or not
(Section 501.); and
.. any other event of default provided in the applicable debt security.
If an event of default regarding debt securities of any series issued under
the senior debt indenture should occur and be continuing, either the trustee or
the holders of 25% in the principal amount of outstanding debt securities of
the series may declare each debt security of that series to be due and payable.
(Section 502.)
Limited Rights to Accelerate Subordinated Debt Securities. The trustee or
holders of 25% of the principal amount of the senior subordinated debt
securities outstanding in a series will only be able to demand immediate
payment of principal of the series after the beginning of bankruptcy, corporate
reorganization proceedings or civil rehabilitation proceedings described under
"--Senior Subordinated Debt" above. If a court of competent jurisdiction with
respect to us (1) rescinds a declaration of bankruptcy without a distribution
of assets pursuant to the Japanese Bankruptcy Law, (2) rescinds or terminates a
reorganization proceeding without approving the plan of reorganization under
the Japanese Corporate Reorganization Law or (3) rescinds or terminates a civil
rehabilitation proceeding without approving the plan of rehabilitation under
the Japanese Civil Rehabilitation Law, then the commencement of the bankruptcy,
corporate reorganization proceeding or civil rehabilitation proceeding shall
have the same effect as if it had not occurred. Junior subordinated debt
securities will only become due and payable upon the occurrence of a condition
for liquidation payment and subject to the restrictions described under
"--Junior Subordinated Debt" above.
38
Other Provisions
We are required to file annually with the trustee a statement of an officer
as to our fulfillment of our obligations under the indenture during the
preceding year. (Section 1005.)
No event of default regarding one series of debt securities issued under an
indenture is necessarily an event of default regarding any other series of debt
securities. (Section 501.)
Holders of a majority in principal amount of the outstanding debt securities
of any series will be entitled to control certain actions of the trustee under
the indentures and to waive past defaults regarding the series. (Sections 512
and 513.) The trustee generally will not be required to comply with requests,
orders or directions by any of the holders of debt securities, unless one or
more of the holders shall have offered to the trustee security or indemnity
satisfactory to the trustee. (Section 603.)
If an event of default or acceleration event occurs and is continuing
regarding a series of debt securities, the trustee may use any sums that it
holds under the relevant indenture for its own reasonable compensation and
expenses incurred prior to paying the holders of debt securities of the series.
(Section 506.)
Before any holder of any series of debt securities may institute action for
any remedy, except payment on the holder's debt security when due, the holders
of not less than 25% in principal amount of the debt securities of that series
outstanding must request the trustee to take action. Holders must also offer
reasonable indemnity satisfactory to the trustee against liabilities which may
be incurred by the trustee for taking the action. (Sections 507.)
Defeasance of Senior Debt Securities
Except as may otherwise be set forth in an accompanying prospectus
supplement, after we have deposited with the trustee, cash or government
securities, in trust for the benefit of the holders sufficient to pay the
principal of, premium, if any, and interest on the senior debt securities of a
series when due, then:
.. if the terms of the senior debt securities so provide, we will be deemed to
have paid and satisfied our obligations on all outstanding debt securities
of that series, which is known as "defeasance and discharge" (Section 1302);
or
.. we will cease to be under any obligation, other than to pay when due the
principal of, premium, if any, and interest on that senior debt securities,
relating to the senior debt securities of that series, which is known as
"covenant defeasance." (Section 1303.)
When there is a defeasance and discharge, (1) the applicable indenture will
no longer govern the debt securities of that series, (2) we will no longer be
liable for payment and (3) the holders of the senior debt securities will be
entitled only to the deposited funds. When there is a covenant defeasance,
however, we will continue to be obligated to make payments when due if the
deposited funds are not sufficient.
The obligations and rights under the senior debt indenture regarding
compensation, reimbursement and indemnification of the trustee, optional
redemption, mandatory and optional scheduled installment payments, if any,
registration of transfer and exchange of the senior debt securities of the
series, replacement of mutilated, destroyed, lost or stolen senior debt
securities and certain other administrative provisions will continue even if we
exercise our defeasance and discharge or covenant defeasance options. (Senior
Debt Indenture, Sections 1302 and 1303.)
Tax Condition to any Defeasance. We must deliver to the trustee an opinion
of counsel to the effect that the holders of the debt securities will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of the deposit and defeasance and discharge or covenant defeasance and that
U.S. federal income tax would be imposed on the holders in the same manner as
if the defeasance and discharge had not occurred. In the case of a defeasance
and discharge, the opinion must be based upon a ruling or administrative
pronouncement of the U.S. Internal Revenue Service.
39
Global Securities
The debt securities offered by this prospectus may be issued in the form of
one or more global certificates that will be deposited with a depositary
identified in a prospectus supplement. Unless a global certificate is exchanged
in whole or in part for debt securities in definitive form, a global
certificate may generally be transferred only as a whole and only to the
depositary or to a nominee of the depositary or to a successor depositary or
its nominee.
Unless otherwise indicated in any prospectus supplement, The Depositary
Trust Company, or DTC, will act as depositary. In that case, the debt
securities will be issued as fully-registered securities registered in the name
of Cede & Co., acting as nominee for DTC, or such other name as may be
requested by an authorized representative of DTC. Beneficial interests in
global certificates will be shown on records maintained by DTC and its
participants, and transfers of beneficial interests in global certificates will
be effected only through these records.
DTC has provided us the following information, and we take no responsibility
for its accuracy. DTC is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the United States Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered under Section 17A of the Exchange Act.
DTC holds debt securities that its participants deposit with DTC. DTC also
facilitates the clearance and recording of the settlement among its
participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts. This eliminates the need for physical exchange of
certificates. Direct participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
DTC is owned by a number of its participants and by the New York Stock
Exchange, Inc., the American Stock Exchange LLC, and the National Association
of Securities Dealers, Inc. Other organizations such as securities brokers and
dealers, banks and trust companies that work through a participant, either
directly or indirectly use DTC's book-entry system. The rules that apply to DTC
and its participants are on file with the SEC.
Pursuant to DTC's procedures, upon the sale of debt securities represented
by a global certificate to underwriters, DTC will credit the accounts of the
participants designated by the underwriters with the principal amount of the
debt securities purchased by the underwriters. Ownership of beneficial
interests in a global certificate will be shown on DTC's records (with respect
to participants), by the participants (with respect to indirect participants
and certain beneficial owners) and by the indirect participants (with respect
to all other beneficial owners). The laws of some states require that certain
persons take physical delivery in definitive form of the debt securities that
they own. Consequently, the ability to transfer beneficial interests in a
global certificate may be limited.
We will wire to DTC's nominee principal and interest payments with respect
to any debt securities offered under this prospectus that are issued in the
form of global certificates. We and any trustee under the indentures will treat
DTC's nominee as the owner of the global certificates for all purposes.
Accordingly, we and the trustees and the paying agents will have no direct
responsibility or liability to pay amounts due on the global certificates to
owners of beneficial interests in the global certificates.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit participants' accounts on the payment date according to
their beneficial interests in the global certificates as shown on DTC's
records. Payments by participants to owners of beneficial interests in the
global certificates will be governed by standing instructions and customary
practices between the participants and the owners of beneficial interests in
the global certificates, as is the case with debt securities held for the
account of customers registered in "street name." Owners of beneficial
interests in the global certificates may have to provide information relating
to their jurisdiction of residency for Japanese withholding tax purposes, as
described under "Taxation--Japanese Taxation" below. However, payments will be
the responsibility of the participants and not of DTC, the trustees or us.
Debt securities of any series represented by a global certificate will be
exchangeable for securities in definitive form with the same terms in
authorized denominations only if:
.. DTC notifies us that it is unwilling or unable to continue as depositary, or
DTC is no longer eligible to act as depositary, and we do not appoint a
successor depositary within 90 days; or
.. We determine not to have the securities represented by global certificates
and notify the applicable trustee of our decision.
40
Concerning the Trustees
We have had, and may continue to have, various business relationships with
the trustees in the ordinary course of business.
Governing Law
The debt securities and the indentures will be governed by and construed in
accordance with the laws of the State of New York, except with respect to their
authorization and execution by us, which will be governed by the laws of Japan.
Consent to Service of Process and Submission to Jurisdiction
Under the indentures, we irrevocably designate The Bank of Tokyo-Mitsubishi,
Ltd., Headquarters for the Americas, 1251 Avenue of the Americas, New York, New
York, 10020 (Attention: General Counsel) as our authorized agent for service of
process in any legal action or proceeding arising out of or relating to the
indentures or any debt securities brought in any federal or state court in The
City of New York, New York, and we irrevocably submit to the jurisdiction of
those courts.
41
TAXATION
Japanese Taxation
Common Stock and American Depositary Shares
The following sets forth the material Japanese tax consequences to owners of
shares or ADSs who are non-resident individuals or non-Japanese corporations
without a permanent establishment in Japan to which the relevant income is
attributable, which we refer to as "non-resident holders" in this section. The
statements regarding Japanese tax laws below are based on the laws in force and
as interpreted by the Japanese taxation authorities as at the date of this
prospectus and are subject to changes in the applicable Japanese laws or double
taxation treaties, conventions or agreements, or interpretations occurring
after that date. This summary is not exhaustive of all possible tax
considerations which may apply to a particular investor and potential investors
are advised to satisfy themselves as to the overall tax consequences of the
acquisition, ownership and disposition of shares or ADSs, including
specifically the tax consequences under Japanese law, the laws of the
jurisdiction of which they are resident, and any tax treaty between Japan and
their country of residence, by consulting their own tax advisers.
For the purpose of Japanese tax law and the Tax Convention (as defined
below), a U.S. holder of ADSs will be treated as the owner of the shares
underlying the ADSs evidenced by the ADRs.
Generally, a non-resident holder of shares or ADSs is subject to Japanese
withholding tax on dividends paid by us. In the absence of any applicable tax
treaty, convention or agreement reducing the maximum rate of withholding tax,
the rate of Japanese withholding tax applicable to dividends paid by us to
non-resident holders is 20%. Japan has income tax treaties, conventions or
agreements whereby this withholding tax rate is reduced to, in most cases, 15%
for portfolio investors, with, among other countries, Australia, Belgium,
Canada, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the
United Kingdom and the United States.
The Convention between the United States of America and Japan for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income, which we refer to as the Tax Convention, established the
maximum rate of Japanese withholding tax which may be imposed on dividends paid
to a United States resident not having a permanent establishment in Japan.
Under the Tax Convention, the maximum withholding rate for U.S. shareholders
and U.S. holders of ADSs is generally limited to 15% of the gross amount
distributed. However, the maximum rate is 10% of the gross amount distributed
if the recipient is a corporation and (1) during the part of the paying
corporation's taxable year, which precedes the date of payment of the dividend
and during the whole of its prior taxable year, if any, at least 10% of the
voting shares of paying corporation were owned by the recipient corporation,
and (2) not more than 25% of the gross income of the paying corporation for
such prior taxable year, if any, consisted of interest or dividends as defined
in the Tax Convention.
Non-resident holders of shares who are entitled to a reduced rate of
Japanese withholding tax on payments of dividends on the shares by us are
required to submit an Application Form for the Income Tax Convention regarding
Relief from Japanese Income Tax on Dividends in advance through us to the
relevant tax authority before the payment of dividends. A standing proxy for
non-resident holders may provide this application service for the non-resident
holders. Non-resident holders who do not submit an application in advance will
generally be entitled to claim a refund from the relevant Japanese tax
authority of withholding taxes withheld in excess of the rate of an applicable
tax treaty.
Gains derived from the sale or other disposition of shares or ADSs by a
non-resident holder are not subject to Japanese income or corporation taxes or
other Japanese taxes.
Any deposits or withdrawals of shares by a non-resident holder in exchange
for ADSs are not subject to Japanese income or corporation tax.
42
Japanese inheritance and gift taxes, at progressive rates, may be payable by
an individual who has acquired shares or ADSs as legatee, heir or donee, even
if the individual is not a Japanese resident.
Debt Securities
Payment of interest of debt securities issued from April 1, 1998 to March
31, 2004 outside Japan by us or our paying agents to non-resident holders of
debt securities will be exempt from Japanese withholding tax. In order to be
exempt from Japanese withholding tax, each non-resident holder must comply with
procedures for establishing its status in accordance with the requirements of
Japanese law.
Under current Japanese practice, we and our paying agents may determine our
withholding obligations in respect of debt securities held through a qualified
clearing organization in reliance on certifications we received from the
qualified clearing organization. In these cases, we do not need to obtain
certifications directly from the ultimate beneficial owners of the debt
securities. As part of the procedures under which these certifications are
given, a beneficial owner may be required to establish that it is a
non-resident holder to the person or entity through which it holds the debt
securities. If a non-resident holder does not hold its debt securities through
a qualified clearing organization, the non-resident holder will be required to
deliver to our paying agents a claim for exemption from Japanese withholding
tax and documentation concerning its identity and residence in order to receive
interest payments on the debt securities free of Japanese withholding tax. We
or our paying agents may adopt modified or supplemental certification
procedures to the extent necessary to comply with changes in Japanese law or
administrative practice.
Gains derived from the sale of debt securities within or outside Japan by a
non-resident holder are, in general, not subject to Japanese income or
corporation taxes.
Japanese inheritance and gift taxes at progressive rates may be payable by
an individual, regardless of his or her place of residence, who has acquired
debt securities as a legatee, heir or donee, even if neither the individual nor
the decent nor the donor is a Japanese resident. No stamp, issue, registration
or similar taxes or duties, will, under present Japanese law, be payable by
holders of debt securities in connection with the issue of the debt securities.
There are no Japanese taxes payable on the conversion of convertible debt
securities.
U.S. Taxation
The following sets forth the material United States federal income tax
consequences of the ownership of shares, ADSs or debt securities by a U.S.
holder, as defined below. This summary is based on United States federal income
tax laws, including the United States Internal Revenue Code of 1986, its
legislative history, existing and proposed regulations thereunder, published
rulings and court decisions, and on the Tax Convention, all of which are
subject to change, possibly with retroactive effect.
The following summary is not a complete analysis or description of all
potential United States federal income tax consequences to a particular U.S.
holder. It does not address all United States federal income tax considerations
that may be relevant to all categories of potential purchasers, certain of
which (such as banks, insurance companies, dealers, tax-exempt entities,
non-U.S. persons, persons holding a share, an ADS or a debt security as part of
a straddle, hedging, conversion or integrated transaction, holders whose
"functional currency" is not the U.S. dollar, holders liable for alternative
minimum tax and holders of 10% or more of our voting shares) are subject to
special tax treatment. It does not address any state or local tax consequences
of an investment in shares, ADSs or debt securities.
This summary addresses only shares, ADSs or debt securities held as capital
assets.
43
As used herein, a "U.S. holder" is a beneficial owner of shares, ADSs or
debt securities, as the case may be, that is, for United States federal income
tax purposes:
.. a citizen or resident of the United States,
.. a corporation, or other entity taxable as a corporation, organized in or
under the laws of the United States or of any political subdivision thereof,
or
. an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
Common Stock and American Depositary Shares
This summary is based in part on representations by the depositary and
assumes that each obligation under the deposit agreement and any related
agreement will be performed in accordance with their respective terms. For
United States federal income tax purposes, holders of ADSs will be treated as
the owners of the shares represented by the ADSs. The U.S. Treasury has
expressed concerns that parties to whom ADSs are pre-released may be taking
actions that are inconsistent with the claiming of foreign tax credits by U.S.
holders of ADSs. Accordingly, the discussion on the creditability of Japanese
taxes described below could be affected by future actions that may be taken by
the U.S. Treasury.
Special adverse United States federal income tax rules apply if a U.S.
holder holds shares or ADSs of a company that is treated as a "passive foreign
investment company" (a "PFIC") for any taxable year during which the U.S.
holder held shares or ADSs. Based upon proposed Treasury Regulations which are
not yet in effect but are proposed to become effective for taxable years
beginning after December 31, 1994 or, for electing taxpayers, for taxable years
beginning after December 31, 1986, and upon certain management estimates, we do
not expect Mitsubishi Tokyo Financial Group, Inc. to be a PFIC for United
States federal income tax purposes in the current year or in future years.
However, there can be no assurance that the described proposed regulations will
be finalized in their current form, and the determination of whether Mitsubishi
Tokyo Financial Group, Inc. is a PFIC is based upon, among other things, the
composition of our income and assets and the value of our assets from time to
time.
Taxation of Dividends. U.S. holders will include the gross amount of any
dividends received with respect to shares or ADSs (before reduction for
Japanese withholding taxes), to the extent paid out of the current or
accumulated earnings and profits (as determined for United States federal
income tax purposes) of Mitsubishi Tokyo Financial Group, Inc., as ordinary
income in their gross income. The dividend will not be eligible for the
"dividends-received deduction" allowed to United States corporations in respect
of dividends received from other United States corporations. The amount of the
dividend will be the U.S. dollar value of the Japanese yen payments received.
This value will be determined at the spot Japanese yen/U.S. dollar rate on the
date the dividend is received by the depositary in the case of U.S. holders of
ADSs, or by the shareholder in the case of U.S. holders of shares, regardless
of whether the dividend payment is in fact converted into U.S. dollars at that
time. If a U.S. holder realizes gain or loss on a sale or other disposition of
Japanese yen, it will generally be U.S. source ordinary income or loss.
Subject to certain limitations, the Japanese tax withheld in accordance with
the Tax Convention will be creditable against the U.S. holder's United States
federal income tax liability. For foreign tax credit limitation purposes, the
dividend will be income from sources outside the United States. The limitation
on foreign taxes eligible for credit is calculated separately with respect to
specific classes of income. For this purpose, dividends we pay will constitute
"passive income" or, in the case of certain U.S. holders, "financial services
income."
Taxation of Capital Gains. Upon a sale or other disposition of shares or
ADSs, a U.S. holder will recognize a gain or loss in an amount equal to the
difference between the U.S. dollar value of the amount realized and the U.S.
holder's tax basis, determined in U.S. dollars, in such shares or ADSs. Such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if the U.S. holder's holding period for such shares or ADSs exceeds one
year. Any such gain or loss will be income or loss from sources within the
United States for foreign tax credit limitation purposes.
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Any deposits and/or withdrawals of shares made with respect to ADSs are not
subject to United States federal income tax.
Information Reporting and Backup Withholding. Dividends paid on shares or
ADSs to a U.S. holder, or proceeds from a U.S. holder's sale or other
disposition of shares or ADS, may be subject to information reporting
requirements. Those dividends or proceeds from sale or disposition may also be
subject to backup withholding unless the U.S. holder:
.. is a corporation or comes within certain other categories of exempt
recipients, and, when required, demonstrates this fact, or
. provides a correct taxpayer identification number on a properly
completed U.S. Internal Revenue Service, or the "IRS," Form W-9 or
substitute form, certifies that that the U.S. holder is not subject to
backup withholding, and otherwise complies with applicable requirements
of the backup withholding rules.
Any amount withheld under these rules will be creditable against the U.S.
holder's United States federal income tax liability or refundable to the extent
that it exceeds such liability if the U.S. holder provides the required
information to the IRS. If a U.S. holder is required to and does not provide a
correct taxpayer identification number, the U.S. holder may be subject to
penalties imposed by the IRS.
Debt Securities
The following discussion addresses only original investors who purchase debt
securities at their original offering price, which will be the first price to
the public (not including bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers) at which a substantial amount of the debt securities in a
particular issue is sold for money, and it assumes that debt securities are not
offered at a discount. Rules under the Code relating to original issue
discount, amortizable bond premium or market discount may, under specified
circumstances, apply to investors who purchase debt securities at a time other
than their initial offering or at a price other than the initial offering
price. These investors should consult their own tax advisors as to the possible
applicability of such rules.
A prospectus supplement provided in connection with the offering of debt
securities may contain further discussion of the tax considerations relevant to
particular debt securities. A prospectus supplement provided in connection with
any offering of convertible securities or exchangeable securities will contain
further information on the United States federal income tax considerations with
respect to such securities.
Interest. Interest paid on debt securities (including any additional
amounts) will be taxable as ordinary income at the time it is received or
accrued, depending on the U.S. holder's regular method of accounting for tax
purposes. For foreign tax credit limitation purposes, interest paid on debt
securities will be income from sources outside the United States. However, this
generally will be treated separately, together with other items of "passive
income" or, in the case of certain U.S. holders, "financial services income."
Sales or other dispositions. A U.S. holder will recognize capital gain or
loss on the sale, retirement or other disposition of debt securities in an
amount equal to the difference between the amount realized (other than amounts
attributable to accrued but unpaid interest, which will be taxed in the manner
discussed under "-- Interest" above) and the U.S. holder's tax basis in the
debt securities. Such gain or loss will be long-term capital gain or loss if
the holding period for the debt securities exceeds one year at the time of
disposition. The ability to deduct capital losses may be limited. Gain
generally will be income from sources within the United States for foreign tax
credit limitation purposes.
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Information Reporting and Backup Withholding. Proceeds from the sale,
retirement or other disposition of debt securities, or interest paid on debt
securities, may be subject to information reporting requirements. Those
proceeds or interest may also be subject to backup withholding unless the U.S.
holder:
.. is a corporation or comes within certain other categories of exempt
recipients, and, when required, demonstrates this fact, or
.. provides a correct taxpayer identification number on a properly completed
IRS Form W-9 or substitute form, certifies that the U.S. holder is not
subject to backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules.
Any amount withheld under these rules will be creditable against the U.S.
holder's United States federal income tax liability or refundable to the extent
that it exceeds such liability if the U.S. holder provides the required
information to the IRS. If a U.S. holder is required to and does not provide a
correct taxpayer identification number, the U.S. holder may be subject to
penalties imposed by the IRS.
We urge U.S. holders to consult their own tax advisors concerning the United
States federal, state and local and other tax consequences to them of the
purchase, ownership and disposition of shares, ADSs or debt securities.
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PLAN OF DISTRIBUTION
We may offer the securities described in this prospectus, and Bank of
Tokyo-Mitsubishi and Mitsubishi Trust Bank, as selling shareholders, may offer
shares of our common stock that they hold, in one or more of the following ways
from time to time:
.. to or through underwriters or dealers;
.. by ourselves or by them directly;
.. through agents;
.. through one or more special purpose entities;
.. by entering into securities loan agreements with underwriters or dealers;
.. through an exchange distribution in accordance with the rules of the
applicable exchange;
.. through the issuance of subscription rights to shareholders; or
.. through a combination of any of these methods of sale.
The prospectus supplement relating to an offering of securities will set
forth the terms of the offering, including:
.. a description of the transaction and the securities to be offered;
.. the name or names of any underwriters, dealers or agents;
.. the names of selling shareholders, if any;
.. the number of shares of common stock held by each of the selling
shareholders immediately before the offering;
.. the number of shares of common stock to be sold by each of the selling
shareholders, if any;
.. the percentage of the common stock held by each of the selling shareholders
after the offering;
.. the purchase price of the securities and the proceeds we or the selling
shareholders will receive from the sale;
.. any underwriting discounts and commissions or agency fees and other items
constituting underwriters' or agents' compensation;
.. the initial public offering price;
.. any discounts or concessions to be allowed or reallowed or paid to dealers;
and
.. any securities exchanges, if any, on which the securities may be listed.
Any initial public offering prices, discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If underwriters are used in an offering of the securities, the securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. The securities may be either offered to the public through
underwriting syndicates represented by one or more managing underwriters or by
one or more underwriters without a syndicate. Unless otherwise set forth in the
prospectus supplement, the underwriters will not be obligated to purchase
securities that are offered unless specified conditions are satisfied, and if
the underwriters do purchase any securities, they will purchase all securities
that are offered.
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In connection with underwritten offerings of the securities offered by this
prospectus and in accordance with applicable law and industry practice,
underwriters may over-allot or effect transactions that stabilize, maintain or
otherwise affect the market price of the securities offered by this prospectus
at levels above those that might otherwise prevail in the open market,
including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids, each of which is described below.
.. A stabilizing bid means the placing of any bid, or the effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of a
security.
.. A syndicate covering transaction means the placing of any bid on behalf of
the underwriting syndicate or the effecting of any purchase to reduce a
short position created in connection with the offering.
.. A penalty bid means an arrangement that permits the managing underwriter to
reclaim a selling concession from a syndicate member in connection with the
offering when offered securities originally sold by the syndicate member are
purchased in syndicate covering transactions.
These transactions may be effected on the New York Stock Exchange, the Tokyo
Stock Exchange, the Osaka Securities Exchange or the London Stock Exchange, in
the over-the-counter market, or otherwise. Underwriters are not required to
engage in any of these activities, or to continue these activities if commenced.
If dealers are utilized in the sale of securities offered by this
prospectus, we or the selling shareholders will sell the securities to the
dealers as principals. The dealers may then resell the securities to the public
at varying prices to be determined by the dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in the
prospectus supplement relating to that transaction.
In the event an NASD member participates in a public offering of the
securities: (a) the actual price and selling terms will be disclosed in
post-effective amendments or prospectus supplements; (b) maximum compensation
to be received by any NASD member in this distribution will be disclosed and
submitted for approval with the Department; and (c) prior to the commencement
of the distribution, underwriting documents proposed for use will be submitted
to the Department for review. The maximum commission or discount to be received
by any NASD member or independent broker-dealer will not be greater than 8% for
the sale of any securities registered hereby.
Securities may be sold directly by us or the selling shareholders to one or
more institutional purchasers, or through agents designated by us or the
selling shareholders from time to time, at a fixed price or prices, which may
be changed, or at varying prices determined at the time of sale. Any agent
involved in the offer or sale of the securities in respect of which this
prospectus is delivered will be named, and any commissions payable by us or the
selling shareholders to the agent will be set forth, in the prospectus
supplement relating to that offering. Unless otherwise indicated in the
applicable prospectus supplement, any agent will be acting on a best efforts
basis for the period of its appointment.
If so indicated in the applicable prospectus supplement, we or the selling
shareholders will authorize agents, underwriters or dealers to solicit offers
from certain types of institutions to purchase offered securities from us or
the selling shareholders or both, at the public offering price set forth in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. These contracts will be
subject only to those conditions set forth in the prospectus supplement, and
the prospectus supplement will set forth the commission payable for
solicitation of the contracts.
Underwriters, dealers and agents may be entitled, under agreements with us
and/or the selling shareholders, to indemnification by us and/or the selling
shareholders relating to material misstatements or omissions. In addition, we
may indemnify the selling shareholders against losses, claims, damages and
liabilities, including liabilities under the Securities Act. Underwriters,
dealers and agents may be customers of, engage in transactions with, or perform
services for, us and our subsidiaries or affiliates in the ordinary course of
business.
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Each series of debt securities offered by this prospectus will be a new
issue of securities and will have no established trading market. Any
underwriters to whom offered securities are sold for public offering and sale
may make a market in the offered securities, but the underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. The securities offered by this prospectus may or may not be listed on a
national securities exchange. No assurance can be given that there will be a
market for any debt securities offered by this prospectus.
The selling shareholders and any dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with those sales. In that event, any commissions
received by the dealers or agents and any profit on the resale of the shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
Because the selling shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the selling shareholders
will be subject to the prospectus delivery requirements of the Securities Act.
We have informed the selling shareholders that the anti-manipulative provisions
of Regulation M under the Exchange Act may apply to their sales in the market.
Mitsubishi Tokyo Financial Group will not directly receive any proceeds from
the sale of shares of common stock or any other securities by the selling
shareholders. Mitsubishi Tokyo Financial Group may, however, bear certain
expenses in connection with the registration of the securities being offered
under this prospectus by the selling shareholders, including all costs incident
to the offering and sale of the securities to the public other than any
commissions and discounts of underwriters, dealers or agents and any transfer
taxes.
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LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, our U.S. counsel, will pass for us
upon the validity of the debt securities under New York law and upon certain
U.S. federal income tax matters. The address of Paul, Weiss, Rifkind, Wharton &
Garrison is 1285 Avenue of the Americas, New York, New York 10019-6064. Hamada
and Matsumoto, our Japanese counsel, will pass upon the validity of the shares
of common stock and upon certain Japanese tax matters. The address of Hamada
and Matsumoto is Kasumigaseki Building 25/th/ Floor, 2-5, Kasumigaseki 3-chome,
Chiyoda-ku, Tokyo 160-6025, Japan.
EXPERTS
The consolidated financial statements incorporated by reference in the
registration statement and this prospectus from our Annual Report on Form 20-F
have been audited by Deloitte Touche Tohmatsu, independent auditors, as stated
in their report, being incorporated herein by reference (which report expresses
an unqualified opinion and includes an explanatory paragraph referring to the
change in method of accounting for derivative financial instruments and hedging
activities), and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
Deloitte Touche Tohmatsu's address is MS Shibaura Building, 13-23, Shibaura
4-chome, Minato-ku, Tokyo, 108-8530, Japan.
WHERE YOU CAN OBTAIN MORE INFORMATION
We file annual reports, special reports and other information with the SEC.
You may read and copy any document filed with the SEC at the SEC's public
reference rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices. Please call the SEC
at (800) SEC-0330 for further information on the public reference rooms. The
SEC also maintains a web site that contains reports, proxy and information
statements, and other information regarding registrants that file
electronically with the SEC (http://www.sec.gov).
We are currently exempt from the rules under the U.S. Securities Exchange
Act of 1934 that prescribe the furnishing and content of proxy statements, and
our officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16 of
the Exchange Act. We are not required under the Exchange Act to publish
financial statements as frequently or as promptly as are U.S. companies subject
to the Exchange Act. We will, however, continue to furnish our shareholders
with annual reports containing audited financial statements and will issue
interim press releases containing unaudited results of operations as well as
such other reports as may from time to time be authorized by our board of
directors or as may be otherwise required.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" in this prospectus some or
all of the documents we file with the SEC. This means that we can disclose
important information to you by referring you to those documents. The
information in a document that is incorporated by reference is considered to be
a part of this prospectus. We incorporate by reference our Annual Report on
Form 20-F for the fiscal year ended March 31, 2002, filed on August 12, 2002.
In addition, the description of common stock and ADSs set forth in our
predecessor's registration statement on Form 20-F, dated June 30, 1989,
registering the ADSs and common stock under the Exchange Act, as the
description has been amended by our Annual Report on Form 20-F dated August 12,
2002, is incorporated by reference.
In addition, all documents that we file with the SEC on Forms 10-Q and 8-K
in the future pursuant to the Exchange Act, any future reports on Form 6-K that
indicate they are incorporated into this registration statement and any future
Annual Reports on Form 20-F, Form 40-F or Form 10-K after the date of this
prospectus and prior to the termination of an offering shall be deemed to be
incorporated by reference in this prospectus.
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Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for the purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document which also
is or is deemed to be incorporated by reference in this prospectus modifies or
supersedes that statement. The modifying or superseding statement need not
state that it has modified or superseded a prior statement or include any other
information set forth in the document that it modifies or supersedes. The
making of a modifying or superseding statement shall not be deemed an admission
for any purposes that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material fact or an
omission to state a material fact that is required to be stated or that is
necessary to make a statement not misleading in light of the circumstances in
which it was made. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
We will provide you without charge upon written or oral request a copy of
any of the documents that are incorporated by reference in this prospectus,
other than exhibits that are specifically incorporated by reference into these
documents. If you would like us to provide you with any of these documents,
please contact us at the following address or telephone number: 4-1, Marunouchi
2-chome, Chiyoda-ku, Tokyo 100-6326, Japan, Attention: Public Relations Office,
telephone: 81-3-3240-8136.
Except as described above, no other information is incorporated by reference
in this prospectus, including, without limitation, information on our website.
LIMITATIONS ON ENFORCEMENT OF U.S. LAWS
We are a joint stock company incorporated in Japan. All of our directors,
corporate auditors and executive officers are residents of countries other than
the United States. As a result, you should note that it may be difficult or
impossible to serve legal process on us or our directors, corporate auditors
and executive officers, or to force us or them to appear in a U.S. court. Our
legal counsel in Japan has advised us that there is doubt as to the
enforceability in Japan, in original actions or in actions to enforce judgments
of U.S. courts, of civil liabilities based solely on U.S. securities laws. A
Japanese court may refuse to allow an original action based on U.S. securities
laws.
Our legal counsel has further advised that the United States and Japan do
not currently have a treaty providing for reciprocal recognition and
enforcement of judgments, other than arbitration awards, in civil and
commercial matters. Therefore, if you obtain a civil judgment by a U.S. court,
you will not necessarily be able to enforce it directly in Japan. Our agent for
service of process is The Bank of Tokyo-Mitsubishi, Ltd., Headquarters for the
Americas, located at 1251 Avenue of the Americas, New York, New York
10020-1104, Attention: Robert E. Hand, Esq., General Counsel and Director of
Public Affairs, Legal and Compliance Office for the Americas.
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