TOKYO -- Japanese megabank Mitsubishi UFJ Financial Group will introduce a standard for return on risk assets to reduce cross-shareholdings.
The benchmark returns, calculated by dividing earnings such as loan interest and stock dividends by the amount of risk assets, will be included in a corporate governance report to be released Friday. The financial group will urge underperforming companies to improve returns and will consider selling the shares if the standard is not met in a given time.
At the end of March, MUFG held 3.8 trillion yen ($30.5 billion) in shares of corporate customers with the aim of maintaining stable business relations. Around 20%, or over 700 million yen, do not meet the return standard. Many of its client companies also own shares in MUFG.
The report will highlight MUFG's policy to reduce shares held for business relations. Based on this, even the 80% that meet the return standard may be considered for sale depending on market conditions and if deemed appropriate for the group's financial strategy. MUFG will consult with affected companies before selling.
MUFG has been shedding shareholdings in business partners for some time, but the pace has slowed in recent years due to resistance from companies that prefer to keep stable shareholders.
The group held 9.2 trillion yen in shares of other companies including business partners and those undergoing corporate rehabilitation at the end of fiscal 2001, based on purchase prices. This had shrunk to 2.7 trillion yen by the end of March. The market value of the shareholdings totaled 5.8 trillion yen at the end of fiscal 2014, including the 3.8 trillion yen in the bank's customers and business allies.
Many Japanese banks including the other megabanks, Mizuho Financial Group and Sumitomo Mitsui Financial Group, are moving in this direction, driven by demands from foreign investors to bolster corporate governance as well as the need to shed volatile stocks. MUFG is the first megabank to present specific criteria.