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The following is an excerpt from a 20-F SEC Filing, filed by BANK OF TOKYO - MITSUBISHI UFJ, LTD on 9/19/2008.
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Item 4. Information on the Company


A.    History and Development of the Company


The Bank of Tokyo-Mitsubishi UFJ, or BTMU, is a major commercial banking organization in Japan that provides a broad range of domestic and international banking services from its offices in Japan and around the world. Our registered head office is located at 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8388, Japan, and our telephone number is 81-3-3240-1111. BTMU is a joint stock company ( kabushiki kaisha ) incorporated in Japan under the Company Law of Japan (Law No. 86 of 2005, also known as the Companies Act or the Corporation Act).


BTMU was formed through the merger, on January 1, 2006, of Bank of Tokyo-Mitsubishi and UFJ Bank Limited, after their respective parent companies, Mitsubishi Tokyo Financial Group, Inc. and UFJ Holdings, Inc., had merged to form Mitsubishi UFJ Financial Group, Inc. on October 1, 2005.


Bank of Tokyo-Mitsubishi was formed through the merger, on April 1, 1996, of The Mitsubishi Bank, Limited and The Bank of Tokyo, Ltd.


The origins of Mitsubishi Bank can be traced to the Mitsubishi Exchange Office, a money exchange house established in 1880 by Yataro Iwasaki, the founder of the Mitsubishi industrial, commercial and financial group. In 1895, the Mitsubishi Exchange Office was succeeded by the Banking Division of the Mitsubishi Goshi Kaisha, the holding company of the “Mitsubishi group” of companies. Mitsubishi Bank had been a principal bank to many of the Mitsubishi group companies but broadened its relationships to cover a wide range of Japanese industries, small and medium-sized companies and individuals.


Bank of Tokyo was established in 1946 as a successor to The Yokohama Specie Bank, Ltd., a special foreign exchange bank established in 1880. When the government of Japan promulgated the Foreign Exchange Bank Law in 1954, Bank of Tokyo became the only bank licensed under that law. Because of its license, Bank of Tokyo received special consideration from the Ministry of Finance in establishing its offices abroad and in many other aspects relating to foreign exchange and international finance.


UFJ Bank was formed through the merger, on January 15, 2002, of The Sanwa Bank, Limited and The Tokai Bank, Limited.


Sanwa Bank was established in 1933 when the three Osaka-based banks, the Konoike Bank, the Yamaguchi Bank, and the Sanjyushi Bank merged. Sanwa Bank was known as a city bank having the longest history in Japan, since the foundation of Konoike Bank can be traced back to the Konoike Exchange Office established in 1656. The origin of Yamaguchi Bank was also a money exchange house, established in 1863. Sanjyushi Bank was founded by influential fiber wholesalers in 1878. The corporate philosophy of Sanwa Bank had been the creation of premier banking services especially for small and medium-sized companies and individuals.


Tokai Bank was established in 1941 when the three Nagoya-based banks, the Aichi Bank, the Ito Bank, and the Nagoya Bank merged. In 1896, Aichi Bank took over businesses of the Jyuichi Bank established by wholesalers in 1877 and the Hyakusanjyushi Bank established in 1878. Ito Bank and Nagoya Bank were established in 1881 and 1882, respectively. Tokai Bank had expanded the commercial banking business to contribute to economic growth mainly of the Chubu area in Japan, which is known for the manufacturing industry, especially automobiles.


For a discussion of the merger between Bank of Tokyo-Mitsubishi and UFJ Bank and other recent developments, see “Item 4.B. Business Overview” and “Item 5. Operating and Financial Review and Prospects—Recent Developments.”



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B.    Business Overview


We are a major Japanese commercial banking organization. We provide a broad range of domestic and international banking services in Japan and around the world. As of June 30, 2008, our network in Japan included 665 branches, 118 sub-branches, 1,885 branch ATMs and 26,572 convenience store-based, non-exclusive ATMs. We organize our operations based on customer and product segmentation, as follows:



retail banking;



corporate banking;



corporate and investment banking;



commercial banking; and



transaction banking;



global business;



global markets;



operations and systems; and



other, including trust and asset management, custody and eBusiness & IT initiatives.


For a detailed analysis of financial results by business segments, which is based mainly on our business organizations, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Business Segment Analysis.” For a detailed analysis of financial results by geographic segment, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Geographic Segment Analysis.”


BTMU conducts business activities in a variety of areas, including:






trust banking;






investment trusts;



credit cards and consumer finance;



leasing; and



international banking.


Retail Banking Business Unit


Our retail banking business unit offers a full range of banking products and services, including financial consulting services to individual customers in Japan through its branch offices and other direct distribution channels.





The unit offers a full range of bank deposit products to its customers.


BTMU is implementing a wide variety of preferential interest rate measures which include a campaign designed to appeal to fixed term deposit needs of our customers who are nearing the attainment of their retirement bonus.


In January 2007, BTMU launched a membership club, the Quality Life Club, aimed chiefly at senior citizens of the baby-boom generation which provides a combination of financial and non-financial services. In addition to financial services such as consultation with experts on asset management, the club offers privileges such as high value-added services in areas of interest to senior citizens including travel and health.



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In May 2007, in a joint initiative with Walt Disney Japan, BTMU launched a new type of online banking service for individuals called “Disney Osaihu Plus” using the Internet and mobile phones. The Disney Osaihu Plus service aims to provide a solution for customers who are unfamiliar with banking services and find banking services difficult to understand, or find it hard to adapt to online banking. This service aims to be easy-to-use and to encourage customers to feel comfortable with online banking services.



Investment Trust


We offer a varied line-up of products allowing our customers to choose products according to their investment needs. In the fiscal year ended March 31, 2008, BTMU introduced a total of seven investment trusts. As of the end of March 2008, BTMU offered our clients a total of 94 investment trust products.


In April 2007, BTMU began offering the “Global Sovereign Open (monthly closing type)”, largest asset holding fund in Japan and one of our most popular investment products.


In July 2007, BTMU began offering the “Bond Fund Denominated in Currency of Emerging Countries (monthly closing type)”. BTMU also began offering the “World High-Interest Rate Currencies Fund (course1, course2)” in December 2007 and “Global Bond basic (monthly closing type)” in March 2008. These funds were developed to strengthen BTMU’s line-up of investment trusts in order to meet the needs of those customers seeking investment opportunities in emerging countries that provide increased growth potential and those in high-interest currency countries.


Furthermore, BTMU began offering the “World Three Area’s REIT Fund (monthly closing type)” in August 2007 and “Nomura Japan Bond Index Fund” in February 2008. In order to meet the customers’ wide variety of investment needs, BTMU strengthened its investment products from high-end products to basic products.


In addition to these investment trust products, BTMU has been offering the Welcome Selection Campaign, which provides preferential interest rates on fixed term deposits for customers who simultaneously open a fixed term deposit account and purchase an investment trust product. BTMU has also been offering gift cards to customers who purchase investment trust products. These offers aim to enhance the attractiveness of our investment trust products.


Moreover, BTMU has placed significant importance on ensuring that aftercare is provided to all of its customers who have purchased its investment trust products. For instance, after the market plunge in last August caused by the collapse of the residential mortgage market, BTMU held approximately 150 seminars to explain the potential effects of such decline over the market and asset management businesses. These seminars were held mainly in the Tokyo, Nagoya and Osaka metropolitan areas.





Since the Japanese government lifted the prohibition against sales of annuity insurance products by banks in October 2002, we have been actively offering individual annuities in an effort to meet the needs of our customers as agents of insurance companies. Our current line-up of insurance products consists of investment-type individual annuities, foreign currency denominated insurance annuities and yen denominated fixed-amount annuity insurance. BTMU has been offering Insurance for Death Benefit/Health-related/Cancer since December 2007 and Nursing Insurance since April 2008.


BTMU began offering “Kantan Jizoku Seichou Plus”, a single premium term insurance underwritten by Meiji Yasuda Life Insurance, in November 2007, and “Kibou no Tamago”, an investment-type individual annuity underwritten by Meiji Yasuda Life Insurance in January 2008. In addition, we began offering “Core Value”, an investment-type individual annuity underwritten by Daiichi Frontier Life, in April 2008, and “Ijigen Hatsu”, an investment-type individual annuity underwritten by Tokyo Marine Nichido Financial Life, in June 2008.



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Since the deregulation in December 2007 of over the counter sales of life insurance products by banks, BTMU has introduced seven varieties of life insurance products (four life insurance, two medical insurance, one cancer insurance). Between December 31, 2007 and June 30, 2008, the number of branches through which BTMU offers insurance products increased from 173 to 319. Professional insurance sales representatives, called “Insurance Planner”, have been assigned to each branch where these insurance products are sold in order to ensure that the branch accurately responds to our customers’ insurance needs. BTMU has plans to further strengthen its lineup of life insurance products in addition to increasing the number of branches at which life insurance products are sold.



Financial Products Intermediation Services


BTMU initiated financial products intermediation business in December 2004 following the lifting of the ban on securities intermediation by banks. It currently acts as a financial products intermediary for Mitsubishi UFJ Securities Co., Ltd., or MUS, and kabu.com Securities Co., Ltd. In addition, in May 2006, the unit started providing financial products intermediation services with Mitsubishi UFJ Merrill Lynch PB Securities Co., Ltd., a joint-venture company between Mitsubishi UFJ Financial Group, Inc. and Merrill Lynch & Co., Inc. that provides private banking services.


As of the end of March 2008, BTMU employed approximately 500 employees seconded from MUS for the purpose of providing financial product intermediation services to our clients. Approximately 360 of these employees who hold the necessary skills in investment consulting have been assigned to branches in Japan as sales representatives. Forty of the personnel have been assigned to assist the branches as Retail Money Desk representatives who specialize in the sale of investment products with enhanced sales skills and possess more sophisticated understanding and background in the field of compliance. They are working to further strengthen the branch sales force. The remaining secondees were given various other assignments relating to corporate management.


Additionally, in order to continuously strengthen our product lineup, BTMU has been providing Japanese Government Bonds For Individual Investors, Domestic Industrial Bonds, Foreign Bonds, Domestic/Foreign Investment Trusts, Stocks (Both IPOs and offerings of public companies) and Public Offered -Structured Bonds.





BTMU provides loans such as housing loans and card loans to its retail clients.


To meet a wide variety of customer needs, BTMU offers a variety of housing loan products such as ultra-long term fixed rate housing loans, housing loans incorporating health insurance for seven major illnesses, and the Flat 35 guaranteed housing loan in a tie-up with Japan Housing Finance Agency. Additionally, to help counteract the ever-rising customer concerns regarding loan guarantee fees, BTMU has been offering the “Zero Guarantee Fee Campaign” for customers who meet certain conditions since October 2007.


In November 2007, BTMU launched “BANQUIC”, a new convenient and accessible card loan product guaranteed by ACOM CO., LTD, an equity method affiliate of MUFG in the consumer finance business. Customers can apply for BANQUIC card loans through internet, telephone, fax etc., and make or repay loans at BTMU ATMs or convenience store ATMs (including E-net ATMs, Seven Bank’s ATMs, LAWSON ATMs). BTMU will continue to aim to meet the wide variety of our customers’ needs through strengthening our product lineup and increasing convenience.



Credit Cards


In October 2004, BTMU began to issue a multi-functional “IC cards”, which combine ATM card, credit card and electronic money functions that enhance customer convenience. For example, BTMU currently offers an “alliance credit card”, which is an integrated IC commuter pass compatible with the ticketing systems of Japanese railway companies, East Japan Railway Company (since February 2007) and Kintetsu Corporation (since February 2008), with “VISA touch”, a contact-less IC function, which can be used as a credit card.



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Domestic Network


BTMU offers products and services through a wide range of channels, including branches, ATMs (including convenience store ATMs shared by multiple banks), Tokyo-Mitsubishi UFJ Direct (telephone, internet and mobile phone banking), the BTMU “Telebank” service video conferencing counters (counters that allow face-to-face contact with operators through the use of broadband internet video conferencing) and by mail.


The Mitsubishi UFJ Financial Group’s integrated financial services are provided at MUFG Plaza branches that combine banking, trust banking and securities services and offer retail customers unified and flexible services at one-stop outlets. As of March 31, 2008, 51 MUFG Plaza branches existed.


To provide exclusive membership services for high net worth customers, private banking offices have been established since December 2006 featuring lounges and private rooms where customers can receive wealth management advice and other services in a relaxing and comfortable setting. As of March 31 2008, 19 private banking offices existed in the Tokyo metropolitan area, Nagoya and Osaka.


To increase customer convenience, BTMU has enhanced its ATM network and ATM related services. For example, BTMU has ceased to charge ATM usage charges from those who are customers at both BTMU and Mitsubishi UFJ Trust and Banking Corporation, or MUTB. In addition, commission fees have been reduced for transactions conducted at convenience stores ATMs shared by multiple banks on week days between 8:45 am and 6 pm as BTMU and other eight local banks have mutually opened ATM networks to provide ATM services partially free of charge.


Furthermore, in October 2007, BTMU made an ATM alliance with AEON bank. As a result, BTMU customers can currently make withdrawals from approximately 40,000 ATMs in Japan free of charge on weekdays between 8:45 am and 6:00 pm.


“Jibun Bank Corporation”, a joint venture company between BTMU and KDDI CORPORATION, started its banking business in July 2008, Jibun Bank Corporation offers comprehensive retail banking services through mobile phone network. For example, account holders can transfer funds to another account holder using the recipient’s mobile phone number as the identification code and the “mobile phone pass book” acts as both a bank pass book and a simplified housekeeping book on the account holder’s mobile phone.



Strategic Alliances


To strengthen the retail online securities business and offer more comprehensive Internet-based financial services, we acquired additional shares of common stock of kabu.com Securities Co., Ltd. through two tender offers conducted in April and December 2007. Moreover, we acquired additional shares of kabu.com Securities, which had been held by the MUFG Group, resulting in our ownership to approximately 41%. We aim to strengthen our alliance with kabu.com Securities by, among other things, launching a bank agency business, jointly promoting kabu.com Securities’ PTS business and promoting kabu.com Securities’ financial product intermediation business.


In July 2008, BTMU acquired 49.375% of the shares of JALCARD, Inc. a wholly owned subsidiary of Japan Airline International Co., Ltd. As a result, JALCARD became an equity-method affiliate of both BTMU and MUFG.


As a result of this business alliance, JALI plans to grant BTMU certain priority rights relating to the issuance of JALCARD, which is a frequent flyer program card with a credit function. We aim to enhance customer service and increase our profit through the synergy effects of increasing our customer base, by capitalizing on the collective products and services and brand of MUFG and the JAL group.



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In November 2007, MUFG acquired newly issued shares of Mitsubishi UFJ NICOS common stock. In May 2008, MUFG entered into a share exchange agreement with Mitsubishi UFJ NICOS. Through a share exchange that became effective on August 1, 2008, pursuant to this agreement, Mitsubishi UFJ NICOS became a wholly owned subsidiary of MUFG.



Trust Agency Operations.


As of the end of July 2007, BTMU is conducting the following eight businesses as the trust banking agent for MUTB: testamentary trusts, inheritance management, asset succession planning, inheritance management agency operations , business management financial clinic, lifetime gift trusts, share disposal trusts, and marketable securities administration trusts.


In October 2006 BTMU accepted approximately 30 financial consultants (sales managers specializing in inheritance business) from MUTB. Because of Japan’s increasingly aging society, customer demand for inheritance-related advice is increasing and we aim to significantly strengthen our ability to collect the relevant information from the banking market.


Corporate Banking Business Unit


As part of Mitsubishi UFJ Financial Group’s Integrated Corporate Banking Business Group, our corporate banking business unit provides banking products and services to a wide range of business customers, from large corporations to medium-sized and small businesses, and is also responsible for customer relationships. We provide services through 324 offices in Japan, and also directly from our headquarters. The unit provides traditional commercial banking services, such as deposits, settlement, foreign exchange and loans, as well as investment banking services, electronic banking and highly sophisticated consultancy services to meet our customers’ needs. The unit works closely with our other business units, such as the global business unit and the global markets unit.



CIB (Corporate and Investment Banking)


The unit provides CIB solutions mainly to large corporations, financial institutions and public sector organizations. Product specialists in our unit globally provide capital markets, derivatives, securitization, syndicated loans, structured finance and other services. Customers with the needs in M&A transactions and debt and equity capital markets are referred to MUS, the securities arm of the Mitsubishi UFJ Financial Group; therefore we can fully meet our customers’ needs in CIB services as a whole.


Capital Markets .    The unit provides arrangement services relating to private placements for mainly medium-sized enterprise issuers and institutional investors. During the fiscal year ended March 31, 2008, we arranged 4,318 issuances totaling ¥948.0 billion.


Derivatives .    The unit develops and offers derivatives products for risk management and other financial needs. The unit has trading desks and sales teams specializing in derivatives.


Securitization .    In the securitization area, the unit is primarily engaged in asset-backed commercial paper programs and has securitization teams based in Tokyo, New York and London. The unit continues to develop and structure new types of transactions.


Syndicated loans .    The unit structures and syndicates many types of loan transactions, including term loans, revolving credit and structured transactions. The unit has loan syndication operations in Tokyo, New York, London, Hong Kong and Singapore. We arranged syndicated loans with an aggregate principal amount totaling $109.4 billion in the fiscal year ended March 31, 2008.


Structured finance.     The unit engages in project finance, real estate finance, lease related finance, leveraged finance, and other types of non-recourse or limited-recourse and structured financings. The unit provides customers with financial advisory services, loan arrangements and agency services. The unit has teams located in Tokyo, Hong Kong, Singapore, London, New York and Boston.



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Other services.     In the United States, the unit offers leasing services through two subsidiaries, BTMU Capital Corporation and BTMU Leasing & Finance. BTMU Capital Corporation offers a wide range of leasing services to non-Japanese customers, while BTMU Leasing & Finance focuses on providing services to subsidiaries and affiliates of Japanese corporations in the United States.



Commercial Banking


Financing and fund management .    The unit advises on financing methods to meet various financing needs, including loans with derivatives, corporate bonds, commercial paper, asset backed securities, securitization programs and syndicated loans. The unit also offers a wide range of products to meet fund management needs, such as deposits with derivatives, government bonds, debenture notes and investment funds.


Advice on business expansion overseas .    The unit provides advisory services to clients launching businesses overseas, particularly for Japanese companies expanding into other Asian countries.


Risk management .    The unit offers swaps, options and other types of risk-hedge programs for customers seeking to reduce various business risks such as interest rate risks and exchange rate risks.


Corporate management/financial strategies .    The unit provides advisory services to customers in the areas of mergers and acquisitions, inheritance-related business transfers and stock listings. The unit also helps customers develop financial strategies to restructure their balance sheets. These strategies include the use of credit lines, factoring services and securitization of real estate.


Corporate welfare facilities .    The unit offers products and administrative services to help customers with employee benefit plans. As a service to customers, the unit often provides housing loans to their employees. The unit also provides company-sponsored employee savings plans and defined contribution plans.



Transaction Banking


Settlement services .    The unit provides online banking services that allow customers to electronically conduct financial transactions such as domestic and overseas remittances. The unit’s settlement and cash management services include global settlement services, Global Cash Management Services, a global pooling/netting service, and Treasury Station, a fund management system for group companies. These services are particularly useful to customers who do business worldwide.


Global Business Unit


Our global business unit provides a full range of banking services not only to the overseas operations of Japanese corporations but also to non-Japanese corporations. The unit serves these customers through a global network of 59 overseas branches and sub-branches, 15 representative offices and overseas subsidiary banks.


Overseas business support.     The unit provides a full range of financial services to support customers’ overseas activities, including financing, settlement and custody services, in cooperation with other business units, divisions and groups such as the global markets unit, the corporate banking business unit and the trust business division. These financial services are also offered through subsidiaries such as MUS, Mitsubishi UFJ Securities International plc and BTMU Capital Corporation.


Global Cash Management Service.     The unit offers the Global Cash Management Service through its foreign branches in corporation with the eBusiness & IT initiatives division. This service allows customers to monitor their foreign accounts and make remittances through their personal computers.


Banking Operation in the United States.     With a particular focus on California, the unit provides a wide range of financial services to consumers, small businesses, middle-market companies and major corporations through UnionBanCal Corporation, or UNBC, a publicly traded U.S. commercial bank holding company listed



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on the NYSE. As of March 31, 2008, we owned 65% of UNBC and UNBC comprised, and continues to comprise, a significant portion of our global business unit. Union Bank of California, N.A., or UBOC, UNBC’s subsidiary, is one of the largest commercial banks in California based on total assets and total deposits. On August 29, 2008, BTMU commenced a cash tender offer for all of the outstanding common shares of UNBC not held by us to make UNBC our wholly owned subsidiary. For more information on the tender offer and the planned second-step merger, see “Item 5. Operating and Financial Review and Prospects—Recent Developments.”


Global Markets Unit


The global markets unit is active in international financial markets, with global markets divisions in Tokyo, New York, London, Singapore and Hong Kong. The three primary functions of the global markets unit are sales and trading, Asset and Liability Management (ALM) and strategic portfolio investment. Additionally, the global markets unit manages our overall credit portfolio with the corporate banking business unit.


The three main functions of the global markets unit are as follows:


Sales and Trading .    The global markets unit is a leading market maker for derivatives and foreign exchange markets in Tokyo. It has a large market share in the US dollar-Japanese yen foreign exchange and currency options markets, as well as in other major cross-yen currency pairs. The unit also actively trades in the Japanese government bonds secondary market. In addition, it works with our other business units to provide various financial products for customers, such as interest rate derivatives, foreign currency forward agreements, currency options and commercial paper.


ALM: Asset Liability Management .    The global markets unit is responsible for our asset and liability management, and centrally monitors and manages all interest rate and liquidity risks by utilizing U.S. and Japanese government securities, asset-backed securities, interest rate swaps, futures and options. We are a leader in yen-dominated markets. The global markets unit is also globally active in the international money markets.


Strategic Portfolio Investment .    The global markets unit also manages our strategic investment portfolio. In order to enhance returns, we manage the portfolio utilizing well-diversified investment tools, including exchange traded funds and commodity funds.


In addition to the three functions above, the global markets unit also provides the following function:


Credit Portfolio Management .    The global markets unit and the corporate banking business unit manage credit risks, utilizing credit derivatives or distributing loans to investors, in order to optimize the return/risk of our overall credit portfolio.


Operations and Systems Unit


Through the operations and systems unit, we provide operations and settlement services to our other business units. The unit also earns fee income by providing settlement and remittance services, including correspondent banking services, to our customers and yen custody services to international institutional investors. In addition, the unit also offers competitive operations and settlement services to other financial institutions to meet their outsourcing needs.


Operations services .    The operations services planning division of our operations and systems unit provides operations services for the commercial banking activities of the retail banking, corporate banking and global business units. We have expanded centralized processes at our operations centers, which increases the efficiency of our branch offices.


The retail operations planning division controls operational procedures at our branch offices, and provides guidance, assistance, education, and training for them. Our retail operations planning division is under a joint supervision by the operations and systems unit as well as the retail banking business unit.



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The trade business division offers outsourcing services in foreign remittance, export and import operations for Japanese financial institutions. As of March 31, 2008, 90 Japanese banks utilized our foreign remittance services offered under our Global Operation Automatic Link (GOAL) service, and 69 Japanese banks outsourced their export and import operations to us.


Correspondent banking and settlement .    The transaction services division (formerly named the payment and clearing services division) of our operations and systems unit maintains financial institutions’ accounts with correspondent arrangements. As of March 31, 2008, we had correspondent arrangements with 3,008 foreign banks and other financial institutions, of which 1,771 had yen settlement accounts with us. We also had correspondent arrangements with 133 Japanese financial institutions, for which we held 185 yen and foreign currency accounts.


The Foreign Exchange Yen Clearing System (FXYCS) in Japan introduced an entrustment procedure for yen clearing through which banks may entrust other banks to conduct yen clearing for them. As of March 31, 2008, 63 regional and foreign banks in Japan outsourced their yen clearing operations to us. We handled approximately 31% of these transactions based on transaction amounts and are a market leader in the yen settlement business.


Our transaction services division is also taking the initiative in the global implementation of the Continuous Linked Settlement (CLS) operation, which is intended to eliminate settlement risks when foreign exchange deals are settled. Further, since December 2006, the division is responsible for the custody business for international institutional investors who invest in Japanese yen securities.


Indirect interface channels .    The retail banking customer center, the retail banking video counter center and the corporate banking customer service center conduct retail & corporate banking operations through indirect interface channels such as internet, television, telephone and mobile phones. The direct channel services division is in charge of supervising the operations of the three centers.


The systems division is responsible for our computer systems.


Other Business Division


In addition to the above, we also have other divisions, including:



trust and asset management business promotion for companies, including defined contribution plans;



eBusiness & IT initiatives, which is responsible for developing and overseeing our information technology as well as related business opportunities; and



the corporate center, which retains functions such as our strategic planning, overall risk management, internal auditing and compliance.




We face strong competition in all of our principal areas of operation. The deregulation of the Japanese financial markets as well as structural reforms in the regulation of the financial industry have resulted in dramatic changes in the Japanese financial system. Structural reforms have prompted Japanese banks to merge or reorganize their operations, thus changing the nature of the competition from other financial institutions as well as from other types of businesses.




Deregulation .    Competition in Japan has intensified as a result of the relaxation of regulations relating to Japanese financial institutions. Most of the restrictions that served to limit competition were lifted before 2000. Deregulation has eliminated barriers between different types of Japanese financial institutions, which are now able to compete directly against one another. Deregulation and market factors have also facilitated the entry of various large foreign financial institutions into the Japanese domestic market.



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The Banking Law, as amended, now permits banks to engage in the securities business by establishing or otherwise owning domestic and overseas securities subsidiaries with the approval of the Financial Services Agency, an agency of the Cabinet Office. The Banking Law is expected to be further amended in the fall of 2008 to expand the range of permitted business. Further increases in competition among financial institutions are expected in these new areas of permissible activities.


In terms of recent market entrants, other financial institutions, such as Orix Corporation, and non-financial companies have also begun to offer various banking services, often through non-traditional distribution channels. Also, in recent years, various large foreign financial institutions have significantly expanded their presence in the Japanese domestic market. Citigroup, for example, has expanded its banking activities and moved aggressively to provide investment banking and other financial services, including retail services, and, through its recent acquisition of Nikko Cordial Corporation, securities brokerage services. The privatization of Japan Post, a government-run public services corporation that is the world’s largest holder of deposits, and the establishment of Japan Post Bank Co., Ltd. that followed in October 2007, as well as the planned privatization of other governmental financial institutions, could also substantially increase competition within the financial services industry.


In the corporate banking sector, the principal effect of these reforms has been the increase in competition as two structural features of Japan’s highly specialized and segmented financial system have eroded:



the separation of banking and securities businesses in Japan; and



the distinctions among the permissible activities of Japan’s two principal types of private banking institutions. For a discussion of the two principal types of private banking institutions, see “—The Japanese Financial System.”


In addition, in recent years, Japanese corporations are increasingly raising funds by accessing the capital markets, both within Japan and overseas, resulting in a decline in demand for loan financing. Furthermore, as foreign exchange controls have been generally eliminated, customers can now have direct access to foreign financial institutions, with which we must also compete.


In the consumer banking sector, deregulation has enabled banks to offer customers an increasingly attractive and diversified range of products. For example, banks may now sell investment trusts and insurance products. We will face competition in this sector from other private financial institutions including Japan Post Group companies. Recently, competition has also increased due to the development of new products and distribution channels. For example, Japanese banks have started competing with one another by developing innovative proprietary computer technologies that allow them to deliver basic banking services in a more efficient manner and to create sophisticated new products in response to customer demand.


The trust assets business is a promising growth area that is competitive and becoming more so because of changes in the industry. In addition, there is growing corporate demand for change in the trust regulatory environment, such as reform of the pension system and related accounting regulations under Japanese GAAP. However, competition may increase in the future as regulatory barriers to entry are lowered. The amendment to the trust business law that came into effect on December 30, 2004 expanded the types of property that can be entrusted and allowed non-financial companies to conduct trust business upon approval, among other things. The amended trust business law also adopted a type of registration for companies that wish to conduct only the administration type trust business. These regulatory developments have facilitated the expansion of the trust business, but competition in this area has also intensified.


Integration .    Another major reason for heightened competition in Japan is the integration and reorganization of Japanese financial institutions. In 1998, amendments were made to the Banking Law to allow the establishment of bank holding companies, and this development together with various factors, such as the decline of institutional strength caused by the bad loan crisis and intensifying global competition, resulted in a number of integrations involving major banks in recent years.



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In the United States, we face substantial competition in all aspects of our business. We face competition from other large US and foreign-owned money-center banks, as well as from similar institutions that provide financial services. Through Union Bank of California N.A., or UBOC, we currently compete principally with US and foreign-owned money-center and regional banks, thrift institutions, insurance companies, asset management companies, investment advisory companies, consumer finance companies, credit unions and other financial institutions.


In other international markets, we face competition from commercial banks and similar financial institutions, particularly major international banks and the leading domestic banks in the local financial markets in which we conduct business.


The Japanese Financial System


Japanese financial institutions may be categorized into three types:



the central bank, namely the Bank of Japan;



private banking institutions; and



government financial institutions.


The Bank of Japan


The Bank of Japan’s role is to maintain price stability and the stability of the financial system to ensure a solid foundation for sound economic development.


Private Banking Institutions


Private banking institutions in Japan are commonly classified into two categories (the following numbers are based on available information published by the Financial Services Agency as of August 19, 2008):



ordinary banks (130 ordinary banks and 63 foreign commercial banks with ordinary banking operations); and



trust banks (20 trust banks).


Ordinary banks in turn are classified as city banks, of which there are five, including us, and regional banks, of which there are 110 and other banks, of which there are 15. In general, the operations of ordinary banks correspond to commercial banking operations in the United States. City banks and regional banks are distinguished based on head office location as well as the size and scope of their operations.


The city banks are generally considered to constitute the largest and most influential group of banks in Japan. Generally, these banks are based in large cities, such as Tokyo, Osaka and Nagoya, and operate nationally through networks of branch offices. City banks have traditionally emphasized their business with large corporate clients, including the major industrial companies in Japan. However, in light of deregulation and other competitive factors, many of these banks, including us, in recent years have increased their emphasis on other markets, such as small and medium-sized companies and retail banking.


With some exceptions, the regional banks tend to be much smaller in terms of total assets than the city banks. Each of the regional banks is based in one of the Japanese prefectures and extends its operations into neighboring prefectures. Their clients are mostly regional enterprises and local public utilities, although the regional banks also lend to large corporations. In line with the recent trend among financial institutions toward mergers or business tie-ups, various regional banks have announced or are currently negotiating or pursuing integration transactions, in many cases in order to be able to undertake the large investments required in information technology.



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Trust banks provide various trust services relating to money trusts, pension trusts and investment trusts and offer other services relating to real estate, stock transfer agency and testamentary services as well as banking services.


In recent years, almost all of the city banks have consolidated with other city banks and also, in some cases, with trust banks. Integration among these banks was achieved, in most cases, through the use of a bank holding company.


In addition to ordinary banks and trust banks, other private financial institutions in Japan, including shinkin banks or credit associations, and credit cooperatives, are engaged primarily in making loans to small businesses and individuals.


Government Financial Institutions


Since World War II, a number of government financial institutions have been established. These corporations are wholly owned by the government and operate under its supervision. Their funds are provided mainly from government sources. Certain types of operations currently undertaken by these institutions are planned to be assumed by, or integrated with the operations of, private corporations through privatization and other measures.


Among them are the following:



The Development Bank of Japan, whose purpose is to contribute to the economic development of Japan by extending long-term loans, mainly to primary and secondary sector industries, which is scheduled to be privatized on October 1, 2008;



Japan Bank for International Cooperation, whose purpose is to supplement and encourage the private financing of exports, imports, overseas investments and overseas economic cooperation;



Japan Finance Corporation for Small and Medium Enterprise, National Life Finance Corporation, and The Agriculture, Forestry and Fisheries Finance Corporation, the purpose of each of which is to supplement private financing in its relevant field of activity; and



The Postal Service Agency, which was reorganized in April 2003 into Japan Post Bank Co., Ltd., a government-run public services corporation which was privatized on October 1, 2007.


Supervision and Regulation




Supervision .    As a result of the deregulation and structural reforms in the Japanese financial industry, Japanese financial institutions gained the opportunity to provide a wider range of financial products and options to their clients, while at the same time becoming subject to stricter control and supervision.


After several reorganizations of Japanese governmental agencies, the Financial Services Agency was established as an agency of the Cabinet Office in 1998. It is responsible for supervising and inspecting financial institutions, making policy for the overall Japanese financial system and conducting insolvency proceedings with respect to financial institutions. The Bank of Japan, as the central bank for financial institutions, conducts “on-site inspections,” in which its staff visits financial institutions and inspects the assets and risk management systems of those institutions.


The Banking Law .    Among the various laws that regulate financial institutions, the Banking Law and its subordinated orders and ordinances are regarded as the fundamental law for ordinary banks and other private financial institutions. The Banking Law addresses bank holding companies, capital adequacy, inspections and reporting, as well as the scope of business activities, disclosure, accounting, limitation on granting credit and standards for arm’s length transactions. In addition, the amendment to the Banking Law which came into effect



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in April 2006 relaxed the standards relating to bank-agent eligibility, which encourages to encourage banks to expand their operations through the use of bank agents. Banks and other financial institutions will be required to establish an internal control system to cope with conflicts of interest as a result of the recent amendments to the Financial Instruments and Exchange Law, Banking Law and Insurance Business Law which are to take effect by June 2009.


Bank holding company regulations .    A bank holding company is prohibited from carrying on any business other than the management of its subsidiaries and other incidental businesses. A bank holding company may have any of the following as a subsidiary: a bank, a securities company, an insurance company and a foreign subsidiary that is engaged in the banking, securities or insurance business. In addition, a bank holding company may have as a subsidiary any company that is engaged in a finance-related business, such as a credit card company, a leasing company or an investment advisory company. Certain companies that are designated by a ministerial ordinance at those that cultivate new business fields may also become the subsidiary of a bank holding company. The recent amendment to the Banking Law which is to take effect by June 2009 will expand a range of permitted subsidiaries. Particularly this amendment will permit a bank holding company which satisfies certain requirement on financial soundness and appropriate risk control to have a subsidiary engaging in commodity transactions.


Capital adequacy .    The capital adequacy guidelines adopted by the Financial Services Agency that are applicable to Japanese bank holding companies and banks with international operations closely follow the risk-weighted approach introduced by the Basel Committee on Banking Supervision of the Bank for International Settlements, or BIS. In June 2004, the Basel Committee released revised standards called “International Convergence of Capital Measurement and Capital Standards: A Revised Framework,” or Basel II, which has become applicable to Japanese banks since the end of March 2007. Basel II has three core elements, or “pillars”: requiring minimum regulatory capital, the self-regulation of financial institutions based on supervisory review, and market discipline through the disclosure of information. Basel II is based on the belief that these three “pillars” will collectively ensure the stability and soundness of financial systems, and also reflect the nature of risks at each bank more closely. These amendments do not change the minimum capital requirements applicable to internationally active banks.


Basel II provides more risk-sensitive approaches and a range of options for measuring risks and determining the capital requirements. As a result, Basel II also reflects the nature of risks at each bank more closely. Under Basel II, MUFG and its subsidiary banks, including us, adopted the Foundation Internal Ratings-Based Approach, or IRB approach, to calculate capital requirements for credit risk. The Standardised Approach is used for some subsidiaries that are considered to be immaterial to the overall MUFG capital requirements and a few subsidiaries adopted a phased rollout of the IRB approach. MUFG and its subsidiary banks adopted the Standardised Approach to calculate capital requirements for operational risk. As for market risk, MUFG and its subsidiary banks, including us, adopted the Internal Models Approach mainly to calculate general market risk and adopted the Standardised Methodology to calculate specific risk.


The capital adequacy guidelines are in accordance with the standards of the Bank for International Settlement for a target minimum standard ratio of capital to modified risk-weighted assets of 8.0% on both consolidated and non-consolidated bases for banks with international operations, including us and MUTB or on a consolidated basis for bank holding companies with international operations, such as MUFG. Modified risk-weighted assets is the sum of risk-weighted assets compiled for credit risk purposes, market risks equivalent amount divided by 8% and operational risks equivalent amount divided by 8%. The capital adequacy guidelines place considerable emphasis on tangible common stockholders’ equity as the core element of the capital base, with appropriate recognition of other components of capital.


Capital is classified into three tiers, referred to as Tier I, Tier II and Tier III. Tier I capital generally consists of stockholders’ equity items, including common stock, preferred stock, capital surplus, retained earnings (which includes deferred tax assets) and minority interests, but recorded goodwill and other items, such as treasury stock, are deducted from Tier I capital. Tier II capital generally consists of:



The amount (up to a maximum of 0.6% of credit risk-weighted assets) that eligible reserves for credit losses exceed expected losses in the IRB approach, and general reserves for credit losses, subject to a



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limit of 1.25% of modified risk-weighted assets in the partial use of the Standardised Approach (including a phased rollout of the IRB approach);



45% of the unrealized gains on investment securities classified as “other securities” under Japanese accounting rules;



45% of the land revaluation excess;



the balance of perpetual subordinated debt; and



the balance of subordinated term debt with an original maturity of over five years and preferred stock with a maturity up to 50% of Tier I capital.


Tier III capital generally consists of short-term subordinated debt with an original maturity of at least two years and which is subject to a “lock-in” provision, which stipulates that neither interest nor principal may be paid if such payment would cause the bank’s overall capital amount to be less than its minimum capital requirement. At least 50% of the minimum total capital requirements must be maintained in the form of Tier I capital.


Amendments to the capital adequacy guidelines limiting the portion of Tier I capital consisting of deferred tax assets became effective on March 31, 2006. The restrictions are targeted at major Japanese banks and their holding companies, which include Mitsubishi UFJ Financial Group, Inc. and its subsidiary banks. The cap was initially set at 40% for the fiscal year ended March 31, 2006 and 30% for the fiscal year ended March 31, 2007. It has been lowered to 20% since the fiscal year ending March 31, 2008. The banks subject to the restrictions will not be able to reflect any deferred tax assets that exceed the relevant limit in their capital adequacy ratios.


Inspection and reporting .    By evaluating banks’ systems of self-assessment, auditing their accounts and reviewing their compliance with laws and regulations, the Financial Services Agency monitors the financial soundness of banks, including the status and performance of their control systems for business activities. The Financial Services Agency implemented the Financial Inspection Rating System (“FIRST”) for deposit-taking financial institutions which has become applicable since April 1, 2007. By providing inspection results in the form of graded evaluations (i.e., ratings), the Financial Services Agency expects this rating system to motivate financial institutions to voluntarily improve their management and operations. Additionally, the Financial Services Agency currently takes the “better regulation” approach in its financial regulation and supervision. This consists of four pillars: optimal combination of rules-based and principles-based supervisory approaches; timely recognition of priority issues and effective response; encouraging voluntary efforts by financial firms and placing greater emphasis on providing them with incentives; improving the transparency and predictability of regulatory actions, in pursuit of improvement of the quality of financial regulation and supervision.


The Financial Services Agency, if necessary to secure the sound and appropriate operation of a bank’s business, may request the submission of reports or materials from, or conduct an on-site inspection of, the bank or the bank holding company. If a bank’s capital adequacy ratio falls below a specified level, the Financial Services Agency may request the bank to submit an improvement plan and may restrict or suspend the bank’s operations when it determines that action is necessary.


The Bank of Japan also conducts inspections of banks similar to those undertaken by the Financial Services Agency. The Bank of Japan Law provides that the Bank of Japan and financial institutions may agree as to the form of inspection to be conducted by the Bank of Japan.


Laws limiting shareholdings of banks .    The provisions of the Anti-Monopoly Law that prohibit a bank from holding more than 5% of another company’s voting rights do not apply to a bank holding company. However, the Banking Law prohibits a bank holding company and its subsidiaries from holding, on an aggregated basis, more than 15% of the voting rights of companies other than those which can legally become subsidiaries of bank holding companies.


On September 30, 2006, a law which imposes a limitation on a bank’s shareholding of up to the amount equivalent to its Tier I capital took effect.



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Financial Instruments and Exchange Law.     The Financial Instruments and Exchange Law amending the Securities and Exchange Law in its most parts became effective on September 30, 2007. The new law not only preserves the basic concepts of the Securities and Exchange Law, but is also intended to further protect investors. The new law also regulates sales of a wide range of financial instruments and services, requiring financial institutions to revise their sales rules and strengthen compliance frameworks and procedures accordingly. Among the instruments that the Japanese banks deal with, derivatives, foreign currency denominated deposits, and variable insurance and annuity products are subject to regulations that are applicable to securities covered by sales-related rules of conduct.


Article 33 of the Financial Instruments and Exchange Law generally prohibits banks from engaging in the securities business, as it was provided in Article 65 of the Securities and Exchange Law. Under certain circumstances, registered banks are allowed to provide securities intermediation services and certain types of securities business.


The recent amendment to the Banking Law which is to take effect by June 2009 will require a bank to implement an internal system to appropriately control and monitor conflict of interest issues among a bank and its affiliated financial institutions, including a securities company and an insurance company.


Anti-money laundering laws .    Under the Law for Punishment of Transfer of Criminal Proceeds, banks and other financial institutions are required to report to the competent minister, in the case of banks, the Commissioner of the Financial Services Agency, any assets which they receive while conducting their businesses that are suspected of being illicit profits from criminal activity.


Law concerning trust business conducted by financial institutions .    Under the Trust Business Law, joint stock companies that are licensed by the Prime Minister as trust companies are allowed to conduct trust business. In addition, under the Law Concerning Concurrent Operation for Trust Business by Financial Institutions, banks and other financial institutions, as permitted by the Prime Minister, are able to conduct trust business. The Trust Business Law was amended in December 2004 to expand the types of property that can be entrusted, to allow non-financial companies to conduct trust business and to allow a new type of registration for trustees who conduct only administration type trust business. The trust business Law was further amended in December 2006, in order to cope with new types of trust and to amend the duties imposed on the trustee in accordance with the sweeping amendment to the Trust Law.


Deposit insurance system and government investment in financial institutions .    The Deposit Insurance Law is intended to protect depositors if a financial institution fails to meet its obligations. The Deposit Insurance Corporation was established in accordance with that law.


City banks, regional banks, trust banks, and various other credit institutions participate in the deposit insurance system on a compulsory basis.


Under the Deposit Insurance Law, the maximum amount of protection is ¥10 million per customer within one bank. Since April 1, 2005, all deposits are subject to the ¥10 million maximum, except non-interest bearing deposits that are redeemable on demand and used by the depositor primarily for payment and settlement functions or, the settlement accounts, which are fully protected without a maximum amount limitation. Currently, the Deposit Insurance Corporation charges insurance premiums equal to 0.108% on the deposits in current accounts, ordinary accounts and other similar accounts, which are fully protected as mentioned above, and premiums equal to 0.081% on the deposits in other accounts.


Starting in April 2001, amendments to the Deposit Insurance Law established a new framework which enables the Deposit Insurance Corporation to inject capital into a bank if the Commissioner of the Financial Services Agency recognizes that it must do so to guard against financial systemic risk.


On June 14, 2004, the Strengthening Financial Functions Law was enacted to establish a new framework for injecting public funds into financial institutions. The Strengthening Financial Functions Law broadens the range of financial institutions eligible to receive public funds and facilitates the preventive injection of public funds



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into troubled or potentially troubled financial institutions in order to avert financial crises. However, due date for this applications for public-funds injection under the Strengthening Financial Functions Law was March 31, 2008, and was not extended.


Personal Information Protection Law .    With regards to protection of personal information, current Personal Information Protection Law became fully effective on April 1, 2005. Among other matters, the law requires Japanese banking institutions to limit the use of personal information to the stated purpose and to properly manage the personal information in their possession, and forbids them from providing personal information to third parties without consent. If a bank violates certain provisions of the law, the Financial Services Agency may advise or order the bank to take proper action. The Financial Services Agency announced related guidelines for the financial services sector in December 2004.


Law concerning Protection of Depositors from Illegal Withdrawals Made by Counterfeit or Stolen Cards.     This law became effective in February 2006, and requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits made using counterfeit or stolen bank cards. The law also requires financial institutions to compensate depositors for any amount illegally withdrawn using counterfeit bank cards, unless the financial institution can verify that it acted in good faith without negligence, and there is gross negligence on the part of the relevant account holder.


Recent Regulatory Actions.     In February 2007, BTMU received an administrative order from the Financial Services Agency of Japan in respect of compliance management at certain of its operations regarding the occurrence of certain inappropriate transactions. The administrative order required, among other things, temporary suspensions of credit extensions to new corporate customers, training of all staff and directors regarding compliance, temporary suspension of the establishment of new domestic corporate business locations, strengthening of the management and internal control framework, presentation and implementation of a business improvement plan, and reports on the progress of such business improvement plan. Further, in June 2007, BTMU received separate administrative orders from the Financial Services Agency of Japan in respect of its overseas business and its investment trust sales and related business. The administrative orders require BTMU to make improvements of its compliance structure and related internal control functions in its overseas business and its domestic investment trust sales and related business, presentation and implementation of a business improvement plan, and reports on the progress of such business improvement plan.


Proposed government reforms to restrict maximum interest rates on consumer lending business.     The Japanese government is implementing regulatory reforms affecting the consumer lending industry. In December 2006, the Diet passed legislation to reduce the maximum permissible interest rate under the Law Concerning Acceptance of Investment, Cash Deposit and Interest Rate etc., which is currently 29.2% per annum, to 20% per annum. Currently, consumer finance companies are able to charge interest rates exceeding the limits stipulated by the Interest Rate Restriction Law provided that they satisfy certain conditions set forth in the Law Concerning Lending Business. Accordingly, BTMU’s consumer finance subsidiaries and equity method investees offer loans at interest rates above the Interest Rate Restriction Law. This so-called “gray-zone interest” will be abolished as well. Such reduction in the maximum permissible interest rate will be implemented before mid-2010. Under the reforms, all interest rates will be subject to the lower limits (15-20% per annum) imposed by the Interest Rate Restriction Law, which will compel, or has already compelled lending institutions to lower the interest rates they charge borrowers.


In addition, currently, consumer finance companies that satisfy certain conditions are able to charge interest rates exceeding the limits stipulated by the Interest Rate Restriction Law. Recently, the Supreme Court of Japan passed decisions concerning interest exceeding the limits stipulated by the Interest Rate Restriction Law, and the business environment for consumer finance companies in Japan has been altered in favor of borrowers. Due to such environmental changes, borrowers’ demands for reimbursement of such excess interest that they have once paid to the consumer finance companies have continued to be significantly high. Furthermore, new regulations that are scheduled to be effective before mid-2010 are expected to require, among other things, consumer finance companies to review the repayment capability of borrowers before lending, thereby limiting the amount of borrowing available to individual borrowers.



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United States


As a result of our operations in the United States, we are subject to extensive US federal and state supervision and regulation.


Overall supervision and regulation .    We are subject to supervision, regulation and examination with respect to our US operations, by the Board of Governors of the Federal Reserve System, or FRB, pursuant to the US Bank Holding Company Act of 1956, as amended, or BHCA, because we are a bank holding company, or BHC, and the International Banking Act of 1978, or IBA, because we are a foreign banking organization, or FBO.


The FRB functions as our “umbrella” supervisor under amendments to the BHCA effected by the Gramm-Leach-Bliley Act of 1999, or GLBA, which among other things:



prohibited further expansion of the types of activities in which bank holding companies, acting directly or through nonbank subsidiaries, may engage;



authorized qualifying bank holding companies to opt to become “financial holding companies,” (each a “FHC”) and thereby acquire the authority to engage in an expanded list of activities, including merchant banking, insurance underwriting and a full range of securities activities; and



modified the role of the Federal Reserve Board by specifying new relationships between the Federal Reserve Board and the functional regulators of nonbank subsidiaries of both bank holding companies and financial holding companies.


We have not elected to become a financial holding company.


Applicable U.S. banking laws generally prohibit a BHC or FBO that maintains branches or agencies in the United States from, directly or indirectly, acquiring more than 5% of the voting shares of any company engaged in nonbanking activities in the United States unless that BHC or FBO has elected to become a FHC or the FRB has determined, by order or regulation, that such nonbanking activities are so closely related to banking as to be a proper incident thereto and has granted its approval to the BHC or FBO for such an acquisition. These laws also require such BHC or FBO to obtain the prior approval of an appropriate federal banking authority before acquiring, directly or indirectly, the ownership of more than 5% of the voting shares or control of any US bank or BHC. In addition, under the BHCA, a US bank or a US branch or agency of a FBO is prohibited from engaging in various tying arrangements involving it or its affiliates in connection with any extension of credit, sale or lease of any property or provision of any services.


U.S. branches and agencies of subsidiary Japanese banks .    Under the authority of the IBA, we operate six branches, two agencies and five representative offices in the United States. We operate branches in Los Angeles and San Francisco, California; Chicago, Illinois; New York, New York; Portland, Oregon; and Seattle, Washington; agencies in Atlanta, Georgia and Houston, Texas; and representative offices in Washington, D.C; Minneapolis, Minnesota; Dallas, Texas; Jersey City, New Jersey; and Florence, Kentucky.


The IBA provides, among other things, that the FRB may examine US branches and agencies of foreign banks, and that each such branch and agency shall be subject to on-site examination by the appropriate federal or state bank supervisor as frequently as would a U.S. bank. The IBA also provides that if the FRB determines the FBO is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country, or if there is reasonable cause to believe that the FBO or its affiliate has committed a violation of law or engaged in an unsafe or unsound banking practice in the United States, the Federal Reserve Board may order the foreign bank to terminate activities conducted at a branch or agency in the United States.


FBO US branches and agencies must be licensed, and are also supervised and regulated by a state or by the Office of the Comptroller of the Currency, or OCC, the federal regulator of national banks. All of our branches and agencies in the United States are state-licensed. Under US federal banking laws, state-licensed branches and



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agencies of foreign banks may engage only in activities that would be permissible for their federally-licensed counterparts, unless the FRB determines that the additional activity is consistent with sound practices. US federal banking laws also subject state-licensed branches and agencies to the single-borrower lending limits that apply to federal branches and agencies, which generally are the same as the lending limits applicable to national banks. However, local lending limit laws of the state in which an office is located will control, if they are more restrictive. In all cases, these limits are calculated based on the entire bank’s capital.


As an example of state supervision, our branch in New York is licensed by the New York State Superintendent of Banks, or the Superintendent, pursuant to the New York Banking Law. Under the New York Banking Law and the Superintendent’s Regulations, we must maintain with banks in the State of New York eligible assets as defined and in amounts determined by the Superintendent. The New York branch must also submit written reports concerning its assets and liabilities and other matters, to the extent required by the Superintendent, and is examined at periodic intervals by the New York State Banking Department. In addition, the Superintendent is authorized to take possession of our business and property located in New York whenever events specified in the New York Banking Law occur.


US subsidiary banks .    We own and control two US banks.



Bank of Tokyo-Mitsubishi UFJ Trust Company, New York, New York, or BTMUT.



UBOC through our subsidiary, UNBC, which is a registered bank holding company.


BTMUT is chartered by the State of New York and is subject to the supervision, examination and regulatory authority of the Superintendent pursuant to the New York Banking Law. UBOC is a national bank chartered by, and subject to the supervision, examination and regulatory authority of, the OCC pursuant to the National Bank Act.


The Federal Deposit Insurance Corporation, or FDIC, is the primary federal agency responsible for the supervision, examination and regulation of BTMUT. The FDIC may take enforcement action, including the issuance of prohibitive and affirmative orders, if it determines that a financial institution under its supervision has engaged in unsafe or unsound banking practices, or has committed violations of applicable laws or regulations. The FDIC insures the deposits of both BTMUT and UBOC. In the event of the irreparable financial degradation of an FDIC-insured bank or the occurrence of certain other substantial adverse events impacting such bank, the FDIC is virtually certain to be appointed as receiver, and would resolve the bank’s affairs consistent with the powers conferred under the Federal Deposit Insurance Act. Moreover, an FDIC-insured institution that is affiliated with a bank subject to FDIC receivership can be required to indemnify the FDIC for losses resulting from that receivership, even if this causes the affiliated FDIC-insured bank to also become subject to FDIC receivership. In the liquidation or other resolution of a failed FDIC-insured bank, the repayment of claims arising from deposits in its US offices, and other claims for administrative expenses and employee compensation, are afforded priority over other general unsecured claims, including claims arising from deposits in the same bank’s offices located outside the US, non-deposit obligations relating to all bank offices’ conduct of business and obligations to a parent company. Moreover, under longstanding FRB policy, a BHC is expected to act as a source of financial strength for its subsidiary banks and, to the extent it is able to do so, commit resources necessary to support the ongoing conduct of business by those banks.


Bank capital requirements and capital distributions .    Our US banking subsidiaries, BTMUT and UBOC, and UNBC, our US subsidiary bank holding company, are subject to applicable risk-based and leverage capital guidelines issued by US regulators for banks and bank holding companies. All of our US subsidiary banks are “well capitalized” under those guidelines as they apply to banks, and our US subsidiary bank holding company exceeds all minimum regulatory capital requirements applicable to domestic bank holding companies. The Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA, provides, among other things, for expanded regulation of insured depository institutions, including banks, and their parent holding companies. As required by FDICIA, the federal banking agencies have established five capital tiers ranging from “well capitalized” to “critically undercapitalized” for each entity. As an entity’s capital position deteriorates, the



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federal banking regulators may take progressively stronger actions, such as further restricting affiliate transactions, activities, asset growth or interest payments. In addition, FDICIA generally prohibits an insured depository institution from making capital distributions, including the payment of dividends, or the payment of any management fee to its holding company if the insured depository institution would subsequently become “undercapitalized”.


The availability of dividends from insured depository institutions in the United States is limited by various other statutes and regulations. The National Bank Act and other federal laws prohibit the payment of dividends by a national bank under various circumstances and limit the amount a national bank can pay without the prior approval of the OCC. In addition, state-chartered banking institutions are subject to dividend limitations imposed by applicable federal and state laws.


Other regulated US subsidiaries .    Our non-bank subsidiaries that engage in securities-related activities in the United States are regulated by appropriate functional regulators, such as the Securities and Exchange Commission (“SEC”), any self-regulatory organizations of which they are members, and the appropriate state regulatory agencies. These non-bank subsidiaries are required to meet separate minimum capital standards as imposed by those regulatory authorities.


The GLBA removed almost all of the pre-existing statutory barriers to affiliations between commercial banks and securities firms by repealing Sections 20 and 32 of the Glass-Steagall Act. At the same time, however, the so-called GLBA “push-out” provisions narrowed the exclusion of banks, including the US branches of foreign banks, from the definitions of “broker” and “dealer” under the Securities Exchange Act of 1934, potentially requiring all such banks to transfer some formerly excluded securities activities they conducted to broker-dealers. The SEC has issued rules regarding the push-out of “dealer” functions that became effective on September 30, 2003 has issued rules regarding the push-out requirements for “broker” functions that became effective on September 28, 2007. The rules must be complied with on the first day of each banks’ fiscal year commencing after September 30, 2008. At this time, we do not believe that these push-out rules as adopted will have a significant impact on our business as currently conducted in the United States.


Anti-Money Laundering Initiatives and the USA PATRIOT Act.     A major focus of US governmental policy relating to financial institutions in recent years has been aimed at preventing money laundering and terrorist financing. The USA PATRIOT Act of 2001 substantially broadened the scope of US anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties, and expanding the extra-territorial application of those legal authorities. The US Department of the Treasury has issued a number of implementing regulations that impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing, and to verify the identity of their customers. In addition, the bank regulatory agencies carefully scrutinize the adequacy of an institution’s policies, procedures and controls. As a result, there has been an increased number of regulatory sanctions and law enforcement authorities have been taking a more active role. Failure of a financial institution to maintain and implement adequate policies, procedures and controls to prevent money laundering and terrorist financing could in some cases have serious legal and reputational consequences for the institution, including the incurring of expenses to enhance the relevant programs, the imposition of limitations on the scope of their operations, and the imposition of fines and other monetary penalties.


Recent Regulatory Actions.     In December 2006, MUFG and BTMU entered into a written agreement with the Federal Reserve Banks of San Francisco and New York and the New York State Banking Department, and BTMUT consented to an Order to Cease and Desist issued by the FDIC and the New York State Banking Department, to strengthen the compliance framework of BTMU, its New York Branch and BTMUT, respectively, for preventing anti-money laundering. As a result of the written agreement and the consent to the Order to Cease and Desist, we are required, among other things, to implement corrective measures, submit periodic progress reports to the authorities, and take other actions.



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Separately, on September 14, 2007, UBOC agreed to a Consent Order and payment of a civil money penalty of $10.0 million assessed concurrently by the OCC and US Financial Crimes Enforcement Network relating to its Bank Secrecy Act Anti-Money Laundering compliance controls and processes. On September 17, 2007, UBOC also entered into a deferred prosecution agreement with the US Department of Justice under which UBOC agreed to a payment of $21.6 million and the government agreed to defer prosecution of a Bank Secrecy Act Program violation primarily related to UBOC’s discontinued international banking business and to dismiss prosecution if UBOC meets the conditions of the deferred prosecution agreement, including complying with the OCC Consent Order for one year.


In October 2004, Union Bank of California International, or UBOCI, a UNBC subsidiary, entered into a written agreement with the Federal Reserve Bank of New York relating to its anti-money laundering controls and processes. With the liquidation of UBOCI in March 2007, the written agreement is no longer effective.


The SEC is also currently conducting an inquiry regarding marketing and distribution practices of mutual funds managed by a UBOC subsidiary. Neither we nor UNBC can be certain at this time as to the final results of that inquiry.


C.    Organizational Structure


MUFG is a holding company for BTMU, MUTB, MUS and other subsidiaries. Through its subsidiaries and affiliated companies, MUFG engages in a broad range of financial operations, including commercial banking, investment management, trust banking and asset management services, and securities business and provide related services to individual and corporate customers.


BTMU is a consolidated subsidiary of MUFG and, together with MUTB and MUS, is one of the core companies of the MUFG Group. Together with its subsidiaries and affiliated companies, BTMU engages in a broad range of financial operations, including commercial banking, credit card-related services and provides other financial services, including securities businesses and leasing services.



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Set forth below is a list of our principal consolidated subsidiaries at March 31, 2008:



   Country of
   Proportion of
interest (%)
   Proportion of
interest (%)

Mitsubishi UFJ NICOS Co., Ltd. (1)

   Japan    47.25    47.29

The Senshu Bank, Ltd.

   Japan    67.87    68.03

NBL Co., Ltd.

   Japan    89.74    89.74

Kabu.com Securities Co., Ltd.

   Japan    41.14    41.14

BOT Lease Co., Ltd.

   Japan    17.57    17.57

Mitsubishi UFJ Factors Limited

   Japan    82.65    82.65

Mitsubishi UFJ Research and Consulting Ltd.

   Japan    49.56    49.56

MU Frontier Servicer Co., Ltd.

   Japan    94.44    94.44

Tokyo Associates Finance Corporation

   Japan    100.00    100.00

MU Business Engineering, Ltd.

   Japan    100.00    100.00

Tokyo Credit Services, Ltd.

   Japan    72.00    72.00

UnionBanCal Corporation (2)

   USA    65.40    65.40

Bank of Tokyo-Mitsubishi UFJ Trust Company (3)

   USA    100.00    100.00

BTMU Capital Corporation

   USA    100.00    100.00

BTMU Leasing & Finance, Inc.

   USA    100.00    100.00

Bank of Tokyo-Mitsubishi UFJ (Mexico) S.A.

   Mexico    100.00    100.00

Bank of Tokyo-Mitsubishi UFJ (Canada)

   Canada    100.00    100.00

Banco de Tokyo-Mitsubishi UFJ Brasil S/A

   Brazil    98.97    98.97

Bank of Tokyo-Mitsubishi UFJ (Holland) N.V.

   Netherlands    100.00    100.00

BTMU Lease (Deutschland) GmbH.

   Germany    100.00    100.00

Bank of Tokyo-Mitsubishi UFJ (Polska) S.A.

   Poland    100.00    100.00

ZAO Bank of Tokyo-Mitsubishi UFJ (Eurasia)

   Russia    100.00    100.00

Bank of Tokyo-Mitsubishi UFJ (China), Ltd.

   China    100.00    100.00

BTMU Participation (Thailand) Co., Ltd.

   Thailand    24.49    24.49

Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad

   Malaysia    100.00    100.00

PT U Finance Indonesia

   Indonesia    95.00    95.00

PT UFJ-BRI Finance

   Indonesia    55.00    55.00


(1)   Mitsubishi UFJ NICOS Co., Ltd. became a wholly owned subsidiary of MUFG, through a share exchange that became effective on August 1, 2008.
(2)   On August 29, 2008, we commenced a cash tender offer for the all of the outstanding common stock of UnionBanCal Corporation not held by us. For further information, see Item 5. Operating and Financial Review and Prospects – Recent Developments.
(3)   The U.S. custody related business and securities lending related business that were performed by Bank of Tokyo-Mitsubishi UFJ Trust Company are being transferred to Mitsubishi UFJ Trust & Banking Corporation (U.S.A.) and Mitsubishi UFJ Trust International Limited, which are wholly owned subsidiaries of MUTB. This transfer is expected to be completed during the second quarter of the fiscal year ending March 31, 2009.



Table of Contents

D.    Property, Plants and Equipment


The following table presents our premises and equipment at cost as of March 31, 2007 and 2008:


     At March 31
     2007    2008
     (in millions)


   312,708    296,775


   418,571    431,874

Equipment and furniture

   542,939    555,239

Leasehold improvements

   304,918    312,932

Construction in progress

   12,204    6,496


   1,591,340    1,603,316

Less accumulated depreciation

   695,460    774,555

Premises and equipment—net

   895,880    828,761


Our head office is located at 7-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo, and comprises 1,308,675 square feet of office space. At March 31, 2008, we conducted our banking operations either in our owned premises or in leased properties.


The following table presents the areas and book values of our material office and other properties at March 31, 2008:


     Area    Book value
     (in thousands of square feet)    (in millions)

Owned land

   17,613    ¥ 296,775

Leased land

   1,856      —  

Owned buildings

   23,994      195,600

Leased buildings

   12,373      —  


Our owned buildings and land are primarily used by our branches. Most of the buildings and land owned by us are free from material encumbrances, except as described below.


In March 1999, we sold to Mitsubishi Estate, Co., Ltd., or Mitsubishi Estate, a 50% undivided interest in the buildings and land comprising our head office and Nihonbashi office and at the same time, entered into an agreement to lease back from the buyer the 50% undivided interests of the buildings sold for a period of seven years. We accounted for these transactions as financing agreements. On August 31, 2005, we bought back the aforementioned buildings and land from Mitsubishi Estate. For further information, see note 9 to our consolidated financial statements.


During the fiscal year ended March 31, 2008, we invested approximately ¥162.8 billion primarily for office renovations and purchases of furniture and equipment.