Fitch Assigns MUFG's Senior Unsecured Notes 'A (EXP)'
The notes are expected to count towards MUFG's total loss-absorption capacity (TLAC) requirements, which have been set by the Financial Stability Board at 16% of its risk-weighted assets, effective 1 January 2019.
Fitch believes MUFG will meet its minimum requirement for TLAC by the 2019 deadline through managed growth, earnings retention and/or issuance of TLAC-eligible securities.
The senior bonds will constitute direct, unconditional, unsecured and unsubordinated general obligations of MUFG and rank pari passu without any preference among themselves and with all of the group's other unsecured indebtedness, other than subordinated indebtedness and except for statutorily preferred indebtedness. The notes will be structurally subordinated to the liabilities of MUFG's subsidiaries, including Bank of Tokyo-Mitsubishi UFJ, Ltd. (BTMU; A/Negative) and Mitsubishi UFJ Trust & Banking Corporation (MUTB; A/Negative).
The proceeds will be downstreamed in full to the operating subsidiaries as obligations that rank pari passu with other senior unsecured obligations of the operating subsidiaries. The final rating is contingent upon receipt of final documents conforming to information already received.
KEY RATING DRIVERS
The rating on the notes is aligned with the Long-Term Issuer Default Rating (IDR) of MUFG, in line with Fitch's criteria.
MUFG's IDR is based upon its Viability Rating (VR) and reflects the banking group's strong and very sound domestic franchises, solid liquidity profiles in yen, sound asset quality and adequate capital positions, which Fitch expects will continue improving through consistent retained earnings. The rating also considers MUFG's improved capital position, which counters a rising appetite for risk outside Japan, although modest earnings and market risks still expose the group to volatility. The Negative Outlook reflects the similar Outlook on the Japan sovereign's ratings.
The rating on the senior unsecured notes issued by MUFG would be directly affected by a change in MUFG's IDRs, which would stem from a change in its VR. However, the rating would also then be underpinned by its 'A-' Support Rating Floor.
Negative action could also stem from an unexpected change in the regulatory framework that clearly and materially increases the loss severity of the notes relative to other senior unsecured debt.