CIMB stake sale credit positive for MUFG, says Moody’s

It notes the divestment is also in line with MUFG’s strategy to improve its capital ef ciency

by NG MIN SHEN / pic by TMR filepic

Mitsubishi UFJ Financial Group Inc’s (MUFG) disposal of its 4.6% stake in CIMB Group Holdings Bhd is credit positive for MUFG as it frees up capital, said Moody’s Investors Service Inc.

MUFG last Wednesday announced that its subsidiary, Bank of Tokyo-Mitsubishi UFJ Ltd (BTMU), had disposed of its entire holding of 412 million shares in CIMB — equivalent to a 4.6% stake — for some ¥68 billion (approximately RM2.56 billion) via an overnight block trade.

Aside from liberalising MUFG’s capital, the credit rating agency said the divestment is also in line with the Japanese bank holding and financial services group’s strategy to improve its capital efficiency.

Prior to the stake sale, BTMU was the fourth-largest shareholder in CIMB, Malaysia’s second-largest banking group by assets.

“However, as a minority shareholder, BTMU was unable to exercise influence on management decisions — which made its stake in CIMB a drag on MUFG’s capital ratios without much benefit,” Moody’s said in its recent credit outlook report.

It said Japan’s largest bank by assets has a standalone subsidiary in Malaysia that has generated solid returns for the group.

The banking group has also said it will maintain its relationship with CIMB as an alliance partner, positioning MUFG as the most prominent Japanese bank that can offer Islamic finance.

“These attributes make more strategic sense for MUFG, rather than keeping the CIMB stake,” Moody’s said, adding that the stake in CIMB would have been a more worthwhile investment if Malaysia’s large banks had consolidated as expected.

“But large bank mergers have yet to take place, and it is not clear if they will in the foreseeable future,” it said.

RHB Bank Bhd and AMMB Hold ings Bhd, the country’s fourth-largest and sixth-largest banks respectively, had in June this year announced their intention to merge. However, the merger was called off less than three months later as the two parties were unable to agree on the terms and conditions.

Moody’s said MUFG will likely remain committed to expansion in Asean countries through its main Asean vehicle, Bank of Ayudhya pcl in Thailand.

“With a stake of about 77% in Bank of Ayudhya, MUFG can exert management control and significant influence on the bank. It can also use the Thai bank to expand into other Asean countries.

“The Philippines is another key market for MUFG, which controls 20% in Security Bank Corp, a leading commercial bank there,” it said.

The bond credit rating firm said although MUFG’s ratio of tangible common equity (TCE) to riskweighted assets (RWAs) stood at 9.69% on a Basel III transitional phase-in basis as at March 31, 2017, it expects the bank to raise this ratio to around 10%.

“We expect that this transaction will allow MUFG to both reduce its RWAs and increase its TCE. We forecast that MUFG’s TCE/RWA ratio will improve by one to seven basis points on a pro forma basis, depending on the investment’s book value,” it said.