MUFG Weighs More Share Buybacks to Boost Returns as Cash Grows

Taiga Uranaka and Komaki Ito

December 23, 2022 2:36 PM

Japan’s biggest bank sees value in further share buybacks as its $7.5 billion deal to sell a US regional lender adds to a growing cash pile.

“We are always looking for growth investment opportunities,” Hironori Kamezawa, chief executive officer of Mitsubishi UFJ Financial Group Inc., said in an interview on Dec. 16, adding that the lender will consider acquisitions in Asia and the US. “Unfortunately, buying our own shares is a very good investment, because they are cheap.” 

Kamezawa’s comments underscore the challenges facing Japan’s biggest banks as they weigh how to invest billions of dollars in profits amid ultra-low interest rates and tepid loan demand at home. MUFG has said it will spend around half of its expected ¥2 trillion ($15.2 billion) or more in net income over two years on buybacks or investing for growth. That number includes additional capital created by the sale of MUFG Union Bank to U.S. Bancorp, which closed earlier this month.

Profitability could get an unexpected boost from the Bank of Japan, which tweaked its yield curve control program earlier this week, raising hopes of further changes that would benefit financial firms, which have seen their interest income crushed by years of rock-bottom rates. 

While MUFG’s roughly 39% share gain this year outperforms the benchmark Topix index, it still trades at 0.64 times book value, a valuation gap that is common to Japanese financial firms.   

In November, MUFG said it will buy back up to ¥150 billion of shares, on top of ¥300 billion announced earlier this year. Still, buybacks and cost reductions alone won’t be able to boost returns and the bank needs to secure growth by investing, Kamezawa said. He cited Asia, technology and asset management as priority areas. 

As part of that push, MUFG’s Thai banking unit agreed to acquire the consumer finance businesses of Netherlands-based Home Credit NV in Indonesia and the Philippines last month for about 474 million euros ($504 million) to expand its operations in the Southeast Asian region. That followed an agreement to to buy Nomura Holdings Inc.’s securities unit in Thailand.

“In Thailand and Indonesia, there are those with bank accounts and the unbanked,” he said, adding that it is important to also focus on the latter. “The unbanked customers will eventually become the banked.”

In a second phase of Asia expansion after buying commercial banks in the region, MUFG is looking at opportunities for deals that can expand its reach to retail customers and fit with business and services offered by its other units, he said.

In technology, Kamezawa said the bank is investing in tech startups in Asia, including a $300 million fund it set up earlier this year to target companies in India. He also said the bank wants to launch a fund that provides financing to Japanese startups sometime in the next fiscal year.

“Capitalism is designed very well in that it’s not good enough just to earn good money,” he said of the bank’s approach to deploying capital. “Unless you make the next investment, return on equity is set to fall.”