Class of 2019: MUFG
A successful international strategy offers relief from stagnant domestic markets.
New leader faces old problems
Last year brought a new chief executive and president to MUFG Group, with Kanetsugu Mike stepping into the roles while long-standing and iconic leader Nobuyuki Hirano moved into the chairman’s office.
What could have been disruptive instead feels like continuity. Mike is, like Hirano, an internationalist with overseas experience, one who has worked on the ground in the bank’s two key international franchises of North America and Asean, and who has been willing to learn from experiences gained in foreign offices.
Also like Hirano, he wants to change things in Japanese banking: not just the long-established priorities of international expansion and reinventing domestic wealth management in order to earn fees from advice but the whole culture of the place.
Since taking the top job he has tried to encourage debate and reduce formality, paying particular attention to listening to younger members of staff and affording them whatever entrepreneurial opportunities are possible within the bank.
“I consider that making a challenge and failing is a very important experience,” he says. “We have to provide the opportunity to challenge and fail – and also a second opportunity to succeed.”
None of this gets away from the fact that MUFG, like every Japanese bank, faces considerable challenges. MUFG delivered a ¥609.9 billion ($5.62 billion) profit attributable to owners of the parent, basically the closest thing to a net profit figure. It was down 6.3% year on year, yet represented two thirds of the full-year target, which tells you how ambitions have been tempered.
That result was amplified by a mighty 64.4% year-on-year jump in net operating profits from the global markets business. Almost every other segment – retail and commercial banking, Japanese corporate and investment banking, global corporate and investment banking, asset management and investor services – declined, with global commercial banking flat.
There’s no lack of effort. A section called ‘Major Initiatives’ took up 15 pages of the half-year result presentation, and that’s not counting a whole separate deck on digitalization. MUFG is trying everything: cost cutting, adding flexibility to portfolio management in the treasury division and slashing equity holdings to gain greater control of risk-weighted assets.
But all these lifeboats bump up against the icebergs of Japanese ageing demographics, negative interest rates and the tough global macroeconomic environment. It is, as Mike says, “unprecedentedly tough for the financial industry,” although he insists that the gravity of the challenge means that banks will come out stronger for having met it. “We have to adapt ourselves to the new environment or become a dinosaur.”
It would help MUFG’s case if its vast customer base would embrace digital innovation. Japan has an odd love of cash, but there are at least some signs of progress here: these days at MUFG only 2% of customers use a branch for fund transfers, with 56% using ATMs or similar kiosks and 42% internet or mobile banking. Two thirds of customers now use their phone or computer to pay tax and utility bills. Yet still 53% of people will visit a branch just to change their address and 74% to replace an unusable card, both functions that can be done online.
Mike intends to push the issue somewhat by reducing MUFG’s 500 branches by more than 35%. There were 22 million counter transactions in those branches in fiscal 2017 and he would like to see that halved by 2023. He notes the lunacy of a system in which the branches are open from nine to three five days a week – no convenience store would last five minutes like that – but he does believe that branches have a future, ideally for wealth management and advisory services. Here, he is taking useful insights from what he sees in MUFG’s partner, Morgan Stanley, in the US.
Progress in reinventing wealth management has been slow, Mike concedes, and not helped by global markets. But the international strategy is looking good: MUFG now has full control of Danamon in Indonesia, with a 94.1% stake, and can set about trying to make the same success of it as it did with Bank of Ayudhya in Thailand. It is important that it succeeds: these are the markets where the GDP growth is, and therefore the growth for group earnings.
What next? MUFG would jump on any chance to increase its shareholdings in Security Bank in the Philippines or VietInBank in Vietnam, although there’s no sign of that in the near term. In the meantime a bigger priority is revamping the US operations under Steve Cummings. The US accounts for half of global revenues and 20% of overall group revenue. Getting that business firing on all cylinders is key.