Bank of America Merrill Lynch Japan Conference 2009
SMFG’s Strategy under Changing Landscape
Teisuke KITAYAMA, President Sumitomo Mitsui Financial Group, Inc.
September 15, 2009 Agenda
1. Changing Landscape
2. SMFG’s Approach to Current Environment
3. Initiatives in Targeted Growth Business Areas
4. Capital Policy
1 1. Changing Landscape Though we see some signs of macro-economic recovery, we are not optimistic enough to revise the assumptions for FY3/2010 Earnings forecast of minus 3.5% nominal GDP growth rate 20072007 2008 - 2009 After 2010
Adjustment of Asset Prices / De-leveraging “New Financial Regime” Further Deterioration of Macro Economy Lehman Sub-prime Governmental Support to Economy Brothers’ Crisis bankruptcy Initiatives to Tighten Capital Adequacy Requirements
Initiatives for Convergence in Accounting Standard
Root causes of current crisis*1 Nominal GDP Growth Rate (YOY change) Agreement of the oversight body of Basel Committee Sep. 09
*2 z Lack of adequate appreciation Assumption Agreed: of risks 3.0 % z The predominant form of the Tier I z Vulnerabilities in the system 0.0 % capital must be common shares and retained earnings Weak underwriting standards (3.0)% z Introduction of a leverage ratio Unsound risk management (6.0)% Actual Estimate*3 as a supplementary measure Increasingly complex and (9.0)% z Introduction of a framework for opaque financial products 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q countercyclical capital buffer Excessive leverage etc. etc. FY3/08A FY3/09A FY3/10E FY3/11E
*1 Source: “Declaration of the Summit on Financial Markets and the World Economy,” November 15, 08, G20 *2 Assumption in SMFG’s medium-term management plan 2 *3 On and after 2Q, FY3/10: Estimate by the Japan Research Institute in Aug. 09 1. Changing Landscape
20072007 2008 - 2009 After 2010
Adjustment of Asset Prices / De-leveraging “New Financial Regime” Further Deterioration of Macro Economy Lehman Sub-prime Governmental Support to Economy Brothers’ Crisis bankruptcy Initiatives to Tighten Capital Adequacy Requirements
Initiatives for Convergence in Accounting Standard
Our Approach: Core Strategies remain Unchanged FormingForming ourour StrategiesStrategies aroundaround ourour StrengthStrength inin “Core“Core CommercialCommercial Strengthen Focus on BankingBanking Business”Business” Corporate Platform Growth Areas
z Solid customer base z Improved risk management system z Financial consulting for Individuals z Strong relationship z Reduced downside financial risk z Solution providing for corporations / Investment banking, Trust business z Huge core deposit base z Enhanced capital base z Targeted overseas business z Operational efficiency z Credit card, consumer finance
Raised JPY 1.2 tn* Preferred Securities/ Nikko Acquisition/ “Follow the Basics” JPY 861 bn Common Equities Exit from JV with Daiwa
* Since Jan. 08 3 2. SMFG’s Approach to Current Environment - SMFG’s Group Structure*1 -
SumitomoSumitomo MitsuiMitsui FinancialFinancial GroupGroup 60% Sumitomo Mitsui Finance 40% *2 and Leasing Consolidated Total assets JPY 120 tn 3rd 100% Japan Research Institute Consolidated Tier I ratio 9.69% 40% *2 Daiwa Securities SMBC Market capitalization JPY 4.1 tn 2nd Corporate business 100% Nikko Cordial Securities*3 100% 100% Consumer business SMBC Friend Securities
100% SumitomoSumitomo MitsuiMitsui BankingBanking CorporationCorporation SMFG Card & Credit One of the leading commercial banks in Japan 66% Sumitomo Mitsui 34% Card Total assets JPY 107 tn 49%*4 Cedyna Financial Deposits JPY 69 tn 22% 100% PROMISE Sanyo Shinpan Loans JPY 60 tn
51% Consumer customer deposit ORIX Credit accounts approx. 26 mn
*1 Figures are as of Mar. 31, 09, except for Tier I ratio (Jun. 30, 09) and Market capitalization (Aug. 31, 09). *2 Among Japanese banks *3 The name of the new company that will succeed all operations of Nikko Cordial Securities Inc. (excluding selected assets and liabilities) and a part of the business of Nikko Citigroup Ltd., including its domestic debt and equity underwriting business through a demerger, pursuant to approval of relevant authorities, is “Nikko Cordial Securities Inc.” *4 Total shares held by SMFG group (as of Apr. 1, 09) 4 2. SMFG’s Approach to Current Environment - Management Policy for FY3/2010 -
Establishing the next foundation for future growth, while continuing to strengthen businesses consistent with our philosophy of ‘follow the basics’
Managing credit costs, risk-adjusted assets and expenses
1 Control on credit costs and risk-adjusted assets
2 Control on expenses
Fortifying targeted growth business areas
Financial consulting for individuals 3 / Payment & settlement services, Consumer finance Solution providing for corporations 4 / Investment banking, Trust business
5 Focused business areas in global markets
5 Reference P. 29 2. SMFG’s Approach to Current Environment - Key Achievements in 1Q, FY3/2010 Results -
Management policy “Establishing the next foundation for future growth, while continuing to for FY3/2010 strengthen businesses consisteconsistentnt with our philosophy of ‘follow the basics’”
Steady income growth Managing credit costs & expenses
Banking profit SMBC non-consolidated Total credit cost SMBC non-consolidated
YOY change YOY change IncreasedIncreased +52% JPYJPY 195.4 195.4 bnbn DecreasedDecreased (17) % JPYJPY 69369.3 bn bn
Consolidated net income Overhead ratio SMBC non-consolidated
YOY change JPY 72.8 bn YOY change IncreasedIncreased ImprovedImproved 47.3%47.3% +25% (consolidated ROE 9.3%) (11.0) %
Initiatives in growth business areas Realizing a solid capital base as a global player Acquisition of Nikko Cordial Securities Inc. & Equity capital raising (resolved in May) other related businesses Total amount CompletedCompleted to be paid JPY 861.0* bn Joint Business Development of ORIX Credit Corporation * Including JPY 33.6 bn of third party allotment paid in Jul. 27, 09 Mutual business co-operation with Bank Central Asia (Indonesia) 6 2. SMFG’s Approach to Current Environment - Total Credit Cost - Progress ratio of SMBC’s total credit cost in 1Q, FY3/2010 was about 18% to annual forecast. We did not revise our forecast for 1st half and full-year, under expected continuation of the severe environment Balance of non-performing loans Total credit cost
(SMBC non-consolidated) （JPY tn） (SMBC non-consolidated) （JPY bn） Coverage Mar. 08 Mar. 09 1,000 955 ratio 80.60％ 86.11％ 173 bp Full-year results 5.0% 4 1Q results Total credit cost/Total claims Substandard loans 800 Doubtful assets Bankrupt / quasi-bankrupt assets 3 Problem asset ratio 600 FY3/10 550 Full-year Precautionary forecast: 1.91% reserve: 380 2 1.78% JPY 110 bn 400 82 bp 1.21% 1.27 1.19
1 41 bp 200 148 90 23 bp 69
15 bp 0 0 Mar. 04 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Jun. 09 FY3/05 3/06 3/07 3/08 3/09 3/10 （JPY tn） （JPY bn） Claims to Total borrowers 4.3 2.4 2.2 2.4 2.6 3.7 3.7 credit cost 1,197 302 145 249 768 requiring (SMFG 120 caution*1 consolidated) *1 Excluding claims to substandard borrowers Of which, Group 242 71 55 101 218 companies’ 51 7 2. SMFG’s Approach to Current Environment - Expenses - Aiming to reduce SMBC’s expenses by controlling and reviewing business promotion expenses and by reducing ordinary expenses etc. Overhead ratio*1 Expense Plan in FY3/2010 (comparison with peers*2)
(JPY bn) (SMBC non-consolidated）
730 Initiatives to reduce/control expenses 65% IT equipment/Investment in channels etc. HR related (incl. pension expenses) 720 60.5% 60.3% 60%
710
55% 700
690 50%
By controlling and reviewing 46.0% 680 business promotion expenses, and by reducing ordinary 45% expenses etc. 670
40% 660
650 35%0% FY3/09 Results FY3/10 Plan SMFG MUFG Mizuho FG
*1 Expenses divided by Gross banking profit *2 Based on each company’s disclosure (financial results for FY3/09) . Non-consolidated figures of SMBC for SMFG, non-consolidated figures of The Bank of Tokyo-Mitsubishi UFJ for MUFG and calculated figures by simple aggregation of the figures of Mizuho Bank and Mizuho Corporate Bank for Mizuho FG.
8 Reference P. 30 2. SMFG’s Approach to Current Environment - Efficiency and Profitability - High earnings generation capacity protects capital base, especially amid uncertain business environment
Loan spread ProfitabilityProfitability andand TierTier II Ratio*Ratio*11 (FY3/09)(FY3/09)
Loan to deposit spread (comparison with peers*1, 2) 1.00%
1.80% 1.76%
SMFG 1.60% 1.52% 0.80% 2
1.40% 1.30%
1.20% 0.60% MUFG 1.00%0% SMFG MUFG Mizuho Mizuho FG By business unit (managerial accounting basis) 0.40% (SMBC non-consolidated) 1.30%0.80
0.75 Pre-provision Profit / Total Assets*
1.20%0.70 0.20% 0.65 0.60% Small- and medium-sized enterprises 0.55 (Middle Market Banking Unit*3) 0.50% Large corporations (Corporate Banking Unit) 0.00% Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. 5% 6% 7% 8% 9% 10% 4 08 09 Tier I Ratio*
*1 Based on each company’s disclosure (financial results for FY3/09) *2 Non-consolidated figures of SMBC for SMFG, non-consolidated figures of The Bank of Tokyo-Mitsubishi UFJ for MUFG and calculated figures by simple aggregation of non-consolidated figures of Mizuho Bank and Mizuho Corporate Bank for Mizuho FG. *3 Excluding loans to Japanese government, etc. *4 Group consolidated 9 3. Initiatives in Targeted Growth Business Areas
Establishing the next foundation for future growth, while continuing to strengthen businesses consistent with our philosophy of ‘follow the basics’
Managing credit costs, risk-adjusted assets and expenses
1 Control on credit costs and risk-adjusted assets
2 Control on expenses
Fortifying targeted growth business areas
Financial consulting for individuals 3 / Payment & settlement services, Consumer finance Solution providing for corporations 4 / Investment banking, Trust business
5 Focused business areas in global markets
10 3.1. Growth Opportunities through Nikko Acquisition - SMFG’s Strategy for Securities Business - In order to optimally cope with changes in the external environment and to provide clients with convenient and high-quality services, we will promote business model based on the integration of banking and securities TerminationTermination ofof JVJV NewNew structurestructure ofof wholewholesalesale securitiessecurities businessbusiness withwith DaiwaDaiwa SecuritiesSecurities GroupGroup
Changes in external environment:
z Worldwide trend to combine banking and Goldman securities activities Sachs z Amendment of firewall regulations 100% in Jun. 09 *1 Barclays
100% SMFG’s strategy for securities business: Cooperative Daiwa Promoting business model based on Securities relationship integration of banking and securities Group
Daiwa Securities Group and SMFG agreed
to terminate the Joint Venture, while confirming 2 the continuation of the amicable trust relationship *
*1 To be renamed as Citigroup Global Markets Japan *2 The name of the new company that will succeed all operations of Nikko Cordial Securities Inc. (excluding selected assets and liabilities) and a part of the business of Nikko Citigroup Ltd., including its domestic debt and equity underwriting business through a demerger, pursuant to approval of relevant authorities.11 3.1. Growth Opportunities through Nikko Acquisition - Creation of a New Comprehensive Financial Services Model - Nikko acquisition will enable us to enhance capability of financial consulting for individuals
EmpoweredEmpowered distributiondistribution channelchannel SynergisticSynergistic businessbusiness modelmodel
Branches Nikko Nikko brings: 500 Cordial z Consulting 109 z Affluent Customers z Online Trading Channel Total 609 SMBC brings: Both branches z Business Owners Only SMBC's or SMBC SMBC
Investable Assets/Wealth Investable z Mass Customers Friend’s branches z Online Banking Only Nikko's branches Channel Number of Customers
EnhancedEnhanced salessales forceforce CustomerCustomer assetsassets andand crcross-sellingoss-selling opportunityopportunity z Deposits, Insurance, etc Approx. z Total Consulting 6,800 JPY 40tn + Approx. JPY 24tn 3,000 z Equity z Investment Consulting Total Approx. 9,800 Total JPY 64tn 12 3.2. Payment & Settlement, Consumer Finance - Settlement Businesses and Stable Deposit Base - Continuous efforts to strengthen payment & settlement services has contributed to our stable funding source
“SMBC Direct” customers # of internet transactions DepositsDeposits (domestic)(domestic)
(mn of customers) (mn of transactions) (JPY tn) 166 Individual Corporate 9.3 151 70 64.5 66.2 8.4 60.6 63.1 62.7 129 7.0 60 6.6 108 50 31.3 5.8 28.5 30.3 29.1 30.5 4.8 82 40 3.3 60 30 *1 *1 +19% 38 +28% 20 32.1 32.8 33.6 34.0 34.9 10 0 Mar. Mar. Mar. Mar. Mar. Mar. Mar. FY3/03 3/04 3/05 3/06 3/07 3/08 3/09 Mar.05 Mar.06 Mar.07 Mar.08 Mar.09 03 04 05 06 07 08 09
PC bank Web21 Global e-Trade service 2 (number of contracts) (number of contracts) LoanLoan toto depositdeposit ratio*ratio*2
(thousands of contracts) (thousands of contracts) (%) 160 141 149 16 137 138 15 140 125 14 119 105 12 120 103 10 100 82 84 86 82 78 72 80 +16%*1 +13%*1 60 40 20 0 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 Mar. 05 Mar. 06 Mar. 07 Mar. 08 Mar. 09 SMFG MUFG Mizuho HSBC Citi BOA BNP RBS Barclays FG *1 Compound annual growth rate. *2 Based on each company’s disclosure. As of Mar. 31, 09 for SMFG, MUFG, Mizuho FG, Citi, BOA (Bank of America) and RBS, as of Dec. 31, 08 for others. (SMBC non-consolidated) 13 3.2. Payment & Settlement, Consumer Finance - Credit Card Business - In growing credit card business, we aim to expand our market share while promoting business efficiency Market size of Organizational structure to credit card business*1 promote credit card business
(JPY tn) Japanese household consumption excluding 250 25% SMFG imputed rent (left scale) Proportion of credit card settlement (right scale) 100% 23% Intermediate holding company: SMFG Card & Credit 240 21% 66% 49%*2
19% Cedyna Financial
Sumitomo Mitsui Card Merged in 230 17% Apr. 09
15% Central OMC QUOQ Finance Card 220 13%
11%
210 9% Integrate mission-critical system and peripheral systems of Cedyna Financial into the next- generation system of Sumitomo Mitsui Card 7% Promoting alliance with: 200 5% z NTT Docomo z China UnionPay 1994 1998 2002 2006 z Leading financial institutions in Asia
*1 “SNA,” Cabinet Office of Japan, “Statistics on Japanese Consumer Credit,” Japan Consumer Industry Association. Amount of credit card settlement is based on card sales amount handled. *2 Total shares held by SMFG group 14 3.2. Payment & Settlement, Consumer Finance - Consumer Finance - Healthy demand to unsecured consumer loan would exist as long as timing gaps between payment for consumption and revenue of monthly salary and seasonal bonus remain in the world Overview of consumer finance business Collaboration with Promise in SMFG (image) (balance of loan) (JPY bn) Started in Apr. 05 (Clients’ borrowing limit, Promise *1 JPY mn) 400 At-Loan*2 6 SMBC 300
200
100
0 4 Mar. 06 Mar. 07 Mar. 08 Mar. 09 ORIX Credit Consumer loans provided by monoline consumer companies*3
(JPY tn) Sanyo Shinpan 10 2 8
6
4
2
0 0 0% 20% 1994 1998 2002 2006 (Interest rate)
*1 Stopped origination in Feb. 07 *2 Including loans which At-loan provided before collaboration *3 Source: “Statistics on Japanese Consumer Credit (2009)” by Japan Consumer Industry Association 15 3.3. Overseas Strategy Expanding service line-up through alliance with financial institutions in Asia and in global markets
Alliance with Channel expansion/establishment/strategic alliances in Asia global financial institutions
Recent channel expansion/establishment
Equity investments and business alliances Kookmin Bank (Korea) Outline of capital Investment Acquired approx. 0.5% of z SMBC invested Barclays’ common shares common shares of KB (approx. GBP 500 mn) Financial Group, the holding Jul. 08 company Basic Subsidiary bank in China (Dec. 08) Strategic cooperation agreement: Jun. 08 Established: Apr. 09 z Complement global network including First Commercial emerging markets Bank (Taiwan) e.g. Exploring cooperation in business Industrial and Commercial in South Africa Bank of China Collaboration in businesses with Taiwanese corporations z Leverage Barclays’ expertise and products to Ship finance and support for Japanese strengthen growth businesses (Mar. 08) ） corporations (Dec. 07 e.g. Exploring cooperation in wealth management SMBC Capital India Bank of East Asia Private Limited z Trainee program Established: (Hong Kong) Jul. 08 Other development Collaboration in businesses with z SMBC started to sell Barclays’ bonds through Vietnam Eximbank Hong Kong corporations and support for Japanese corporations (Nov. 08） SMBC’s franchise (securities intermediary). Acquired 15% stake Sep. 09 Retail banking and support for Japanese corporations (Nov. 07) Bank Central Asia Products with competitive edge (Indonesia) (league tables in 08, global) Support for Japanese Loan syndication*1 Project finance*2 corporations (Jul. 09) 5th 4th
*1 Bookrunner. Source: Thomson Reuters *2 Mandated arranger. Source: Dealogic 16 3.3. Overseas Strategy - Focused Business Areas in Global Markets - While controlling loan balance, we strive to improve risk-return profile. Also, we enhanced credit risk management on a global basis through Credit Management Dept. within International Banking Unit (IBU) Overseas loans Improving credit risk management platform
Loan balance*1
Loan spread*2 CreditCredit ManagementManagement ¾ Conduct planning for credit risk Dept.,Dept., IBUIBU management on a global basis 1.10% ¾ Screen global financial institutions
0.90% CreditCredit Dept., Dept., CreditCredit Dept., Dept., AsiaAsia Credit Credit Dept., Dept., Americas Div. Europe Div. 0.70% Americas Div. Europe Div. IBUIBU In-depth screening approach 0.50% based on trends by regions Apr. Jul. Oct.07 Jan. Apr. Jul. Oct.08 Jan. Apr.09
*1 Managerial accounting basis. Sum of SMBC, SMBC Europe and SMBC China *2 Managerial accounting basis. Sum of SMBC, SMBC Europe and SMBC China, average on contracted overseas loans outstanding. 17 4. Capital Policy Total amount to be paid through equity capital raising: JPY 861.0 bn Successfully completed the largest-ever common equity offering among Japanese financial institutions
Tier I capital / Tier I ratio*1 Tier I capital raising and redemption since 2008
Preferred securities Feb. 08 JPY 135.0 bn Domestic market (JPY tn) (Non step-up) Preferred securities Overseas market Preferred stocks 6 May 08 USD 1,800 mn (Non step-up) Preferred securities (Asian retail) Other Tier I capital Preferred securities 5.0 Jun. 08 USD (1,800) mn Redemption of “OPCO” refinanced (Step-up) (SB Treasury Company LLC) 0.3 4.4 4.3 USD 1,350 mn Preferred securities Jul. 08 Overseas market 0.4 0.3 / GBP 250 mn (Step-up) 4 approx. 1.4 Dec. 08 – Preferred securities JPY 698.9 bn Domestic market 1.2 Jan. 09 (Step-up/Non step-up) 1.8 Preferred securities Jan. 09 JPY (283.8) bn Redemption of SPCL refinanced (Non step-up) (Sakura Preferred Capital (Cayman) Limited) to be Preferred securities 2 Jun. 09 JPY (340.0) bn Redemption of SBES refinanced (SB Equity Securities (Cayman), Limited) approx. 3.2 (Non step-up) 2.8 Jun. 09 – 2.3 JPY 861.0bn*3 Common stocks Domestic and Jul. 09 overseas market Announced [to be determined] Preferred securities Domestic market 0 in Aug. 09 Mar. 08 Mar. 09 Jun. 09 *3 Including JPY 33.6 bn of third party allotment paid in Jul. 27, 09 Factors of increase in Risk-adjusted assets Tier I ratio 6.94% 8.22% 9.69% (original plan for FY3/2010) Domestic Marketing Reference approx. Others “Core Tier I*2 4.5% 4.3% 6.3% International Banking ratio” +approx. Risk-adjusted JPY 7 assets 63 53 51 Consolidation of trillion (JPY tn) New Nikko Cordial Securities PD/LGD Impact*4 *1 Based on Basel II standard (Credit risk: FIRB for Mar. 08, AIRB from Mar. 09, Operational risk: AMA) *4 Expected increase in risk-adjusted assets due to *2 While “Core Tier I” is not defined in international agreements, changes in probability of default and loss given default. we estimated “Core Tier I capital = Tier I capital – Preferred stocks PD: Probability of Default, LGD: Loss Given Default (SMFG consolidated) 18 – Preferred securities” (Reference) BIS Capital Ratio, June 2009 SMFG’s consolidated Tier I ratio as of Jun. 30, 09 improved by 1.47% compared with Mar. 31, 09 to 9.69%, due mainly to increase of Tier I capital led by equity capital raising and Consolidated net income
(JPY bn) Mar. 08 Mar. 09 Jun. 09 Tier I 4,381.5 4,335.1 4,974.4 Capital stock & Capital surplus 1,478.7 1,478.1
(Reference) Net deferred tax assets 933.5 830.4 745.8 *1 Excluding planned distribution outside the SMFG *2 Based on Basel II standard (Credit risk: Mar. 08 FIRB, from Mar. 09 AIRB, Operational risk: AMA) (SMFG consolidated) 19 4. In Closing - Management Approach for Sustainable Growth - Aiming for sustainable growth of corporate value through well-balanced growth cycle of profitability, capital base, risk-adjusted assets and investment for growth
Total assets
Leverage ratio? Risk-adjusted assets / Investment for growth
Improve risk return, Allocate / invest risk-adjusted assets cost return RORA to growth business areas “around 1％” Tier I ratio “around 8%” Overhead ratio “less than 50%”
Dividend payout ratio Consolidated “more than 20%” Tier I Capital net income “Core Tier I” Capital surcharge?
Countercyclical capital buffer?
Increase returns to shareholders and enhance capital base through accumulation of retained earnings 20 (Appendix 1) Pre-emptive Actions in FY3/2009
FinancialFinancial highlihighlightsghts (FY3/09)(FY3/09) ActionsActions takentaken
Change FY3/08 FY3/09 z Adopted conservative approach to credit costs in 3/08-3/09 (JPY bn) Total credit FY3/09 costs z Established well-managed loan portfolio with Gross banking profit1,484.8 1,524.9 +2.7% limited downside risk
Expenses (665.1) (701.5) (5.5)% Deferred tax z Improved capital quality and decreased future assets downside risk by taking conservative approach to Banking profit*1 819.7 823.4 +0.5% (“DTA”) DTA recognition in FY3/09 SMBC (non- consolidated) Total credit cost (147.8) (550.1) (272.2)% Devaluation z We estimate that even with Nikkei 225 at 6,500, losses on additional impairment loss on stocks would be Gains (losses) on stocks (141.0) (220.4) (56.3)% stocks limited to approximately JPY 35bn*2
Net income 205.7 (301.1) NM
Securitized z Limited exposure to securitized products, only products 0.03% of total assets*3 SMFG Net income 461.5 (373.5) NM (consolidated)
*1 Before provision for general reserve for possible loan losses *2 SMBC non-consolidated basis. Estimate is based on SMBC’s stock holdings as of Mar. 31, 09. *3 SMFG consolidated basis. 21 (Appendix 2) Performance by Business Unit (FY3/2009)
YOY MajorMajor factorsfactors forfor YOYYOY changechange FY3/08 FY3/09 * in Gross banking profit (JPY bn) change in Gross banking profit (JPY bn) Gross banking profit 440.7 429.4 (11.3) (1) Income on deposits +24.0 Consumer Consumer Expenses (271.4) (290.7) (19.3) Investment trusts (21.0) Banking Unit (1) Banking Unit: Banking profit 169.3 138.7 (30.6) Securitization of housing loans (7.0) (11.3) Pension-type insurance (5.0) Gross banking profit 624.3 539.8 (84.5) (2) Middle Market Expenses (203.1) (222.7) (19.6) Income on deposits +4.0 Banking Unit Middle Market Income on loans (33.0) Banking profit 421.2 317.1 (104.1) (2) Banking Unit: Derivatives (22.0) Gross banking profit 186.7 196.7 +10.0 (3) (84.5) Income on foreign exchanges (8.0) Corporate Securities intermediary (6.0) Expenses (31.1) (31.5) (0.4) Banking Unit Corporate Banking profit 155.6 165.2 + 9.6 Income on loans +5.0 (3) Banking Unit： Loan syndication + 4.0 Gross banking profit 137.5 175.0 + 37.5 (4) + 10.0 International International Expenses (56.0) (64.8) (8.8) Income on loans and deposits + 26.0 Banking Unit (4) Banking Unit： Banking profit 81.5 110.2 + 28.7 Fee income related to loans + 6.0 + 37.5 Gross banking profit 1,389.2 1,340.9 (48.3) Treasury Unit： ALM operations (including gains (5) +102.0 Marketing Units Expenses (561.6) (609.7) (48.1) + 101.4 (losses) on bond portfolio) Banking profit 827.6 731.2 (96.4) AverageAverage loanloan balancebalance andand spreadspread byby businessbusiness unitunit Gross banking profit 145.4 246.8 + 101.4 (5) (managerial(managerial accountingaccounting basis)basis) Treasury Unit Expenses (17.6) (17.9) (0.3) Average balance Average spread Banking profit 127.8 228.9 + 101.1 YOY YOY FY3/08 FY3/09 Gross banking profit (49.8) (62.8) (13.0) (JPY tn, %) change change Headquarters Expenses (85.9) (73.9) + 12.0 Domestic Loans 49.3 + 1.9 1.11 (0.09) Consumer Banking profit (135.7) (136.7) (1.0) 14.8 + 0.2 1.63 (0.01) Banking Unit Gross banking profit 1,484.8 1,524.9 + 40.1 Middle Market 20.4 (0.7) 1.20 (0.09) Total Expenses (665.1) (701.5) (36.4) Banking Unit Corporate Banking profit 819.7 823.4 + 3.7 11.1 + 1.3 0.57 (0.02) Banking Unit * Before adjustment of interest rates and foreign exchange rates (SMBC non-consolidated) 22 (Appendix 3) Non-Interest Income
Profits related to investment trust *2*2 and pension-type insurance Profits related to investment banking business
Pension-type insurance *2 （JPY bn） Securities intermediary （JPY bn） Investment trusts Real estate finance Structured finance Securitization of monetary claims 12 Loan syndication 13 33 12 5 25 2 25 20 17 15 22 12
36 22 28 35 38 26 0 7 17 25 17 0 25 22 6 20 26 20 52 54 48 0 17 16 3 32 4 24 26 12 12 49 46 46 40 44 12 15 6 28 19 11
FY3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 FY3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 Outstanding balance*1 1.6 1.7 2.3 2.8 4.5 5.6 5.6 4.9 (JPY tn)
* 1 *1 Amount of investment trusts under SMBC account + accumulated sales *2 Profits of securities intermediary business: fees and commissions from the of pension-type insurance as of fiscal year end transactions with both individual and corporate clients. Profits of the other businesses: managerial accounting basis including fees, commissions, interest income, etc.
(SMBC non-consolidated) 23 (Appendix 4) Contribution of Affiliates to Consolidated Profit (FY3/2009)
SMFG SMBC non- Difference (JPY bn) consolidated consolidated MajorMajor factorsfactors inin differencedifference
Consolidated gross profit FY3/09 YOY change / non-consolidated gross profit 2,165.9 1,524.9 641.0 (JPY bn) Kansai Urban Banking 60.0 +1.0 Net interest income 1,338.5 1,018.4 320.1 (1) Corporation Sumitomo Mitsui 58.0 +74.0 Finance and Leasing* Trust fees 2.1 2.1 0.0 (1) MINATO BANK 47.0 +0.0
Net fees and commissions 557.2 293.8 263.4 (2) SMBC Europe 35.0 +4.0
Net trading income 211.7 175.1 36.6 Sumitomo Mitsui Card 143.0 +13.0
Net other operating income 56.4 35.5 20.9 (2) SMBC Guarantee 33.0 (1.0) SMBC Friend Securities 22.0 (16.0) General and administrative (3) expenses (1,063.4) (701.5) (361.9) Sumitomo Mitsui Card (133.0) (3.0) Total credit cost (767.8) (550.1) (217.7) (4) Sumitomo Mitsui (43.0) (12.0) Finance and Leasing Equity in earnings (losses) of (3) affiliates (94.9) - (94.9) SMBC Friend Securities (40.0) +1.0 Kansai Urban Banking (37.0) (2.0) Ordinary profit 45.3 36.1 9.3 Corporation
Kansai Urban Banking Extraordinary gains (losses) (15.8) (8.3) (7.5) (66.0) (49.0) Corporation
Net income (loss) (373.5) (301.1) (72.3) MINATO BANK (32.0) (14.0) (4) SMBC Europe (26.0) (26.0) Consolidated/non-consolidated 728.7 823.4 (94.7) Sumitomo Mitsui net business profit* (25.0) (18.0) Finance and Leasing * Due to the change in Japanese accounting standard, a part of Gross profit which had been recorded in Net other operating income was recorded Net interest income. 24 (Appendix 5) Domestic Equity Portfolio Impairment risk on listed stocks has been diminished through recognition of devaluation losses on stocks in FY3/09, in addition to steady reduction of stock holding since FY3/02
Balance of stocks* (acquisition cost) Balance of stocks* (acquisition cost) Unrealized gains (losses) on other securities andand SalesSales amountamount ofof stockholdingsstockholdings
(JPY tn) (SMBC non-consolidated） (JPY tn) (Group consolidated) Stocks Bonds Stocks (acquisition cost) 3.0 Others Total Ratio to SMBC consolidated Tier I 6 5.9 1.9 1.5 2.0 1.0 5 145% 0.7 0.6 0.7 Devaluation losses on (0.0) 0.2 4 100% stocks in FY3/09 ：JPY 223.1 bn 0.0 0.0 3.1 (0.5) 3 (0.9) (2.0) SMFG MUFG Mizuho FG 2.0 2 Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. Sep. Mar. 1.8 07 08 08 09 07 08 08 09 07 08 08 09 44% 1 Balance of stocks (acquisition cost)* / 0 Tier I capital (as of Mar. 31, 09) (Consolidated) Apr. 01 Mar. Mar. Mar. Mar. Mar. Mar. Mar. Mar. (Group consolidated) 02 03 04 05 06 07 08 09 80% 74.1% FY3/02 3/03 3/04 3/05 3/06 3/07 3/08 3/09 0 60% 51.6% 45.6%
1 40% Sales amount （JPY tn） 2 Merger with Wakashio bank and SMBC 20% * Domestic stocks which has market value included in other securities SMFG MUFG Mizuho FG 25 (Appendix 6) Gains (Losses) on Bonds
Gains (Losses) on bonds Yen-dominatedYen-dominated bondbond portfolioportfolio
Balance (JPY tn) (Total balance of bonds with maturities among Other securities and bonds YOY 20 1 year or less FY3/08 FY3/09 More than 1 year to 5 years classified as Held-to-maturity) (JPY bn) change More than 5 years to 10 years 17.8 More than 10 years Gains (Losses) on bonds (30.1) 26.1 + 56.2 15 Losses due to subprime (70.4) (4.6) + 65.8 12.6 related exposure 11.3 11.6 10.5 10 Massive decrease Recorded Gains on sale in losses from of bonds responding to subprime loan trends of declining related products interest rate 5
Interest and dividend on securities, 0 Reference and yield on securities Mar. 07 Sep. 07 Mar. 08 Sep. 08 Mar. 09 15 years Floating rate JGBs： JPY 1.8 tn (JPY bn) 196.4 213.9 177.1 Average 164.0 158.3 * 155.1 Duration 1.7 2.7 2.3 1.7 1.8
120.7 ） 116.9 (Years
Unrealized gains / losses (151.4) (157.7) (129.5) (56.5) (1.2) (JPY bn) 1H 2H 1H 2H 1H 2H 1H 2H 15-years floating rate JGBs have been carried at their FY3/06 FY3/07 FY3/08 FY3/09 reasonably estimated amounts on and after 1H, FY3/09 1.43％ 1.76％ 1.73％ 1.31％ * Excluding bonds classified as held-to-maturity, bonds for which hedge accounting is applied, and private placement bonds. Duration of 15 year floating rate JGBs is calculated zero.
(SMBC non-consolidated) 26 (Appendix 7) Securitized Products, etc. Our group’s exposure to securitized products is limited, and associated risks are at manageable level CDS transactions with Securitized products monoline insurance companies
Exposure of sub-prime related products Mar. 09
Net YOY Change Mar. 08 Mar. 09 Net JPY132.0bn exposureexposure + JPY 100.9 bn
BalancesBalances ReserveReserve forfor There was no new origination, (after(after provisions provisions JPY 5.5 bn JPY 0.3 bn possible loan JPY 5.0 bn possible loan while mark-to-market value of and write-offs) losses and write-offs) losses CDS transactions increased. Reference assets of these CDS transactions are rated investment grade or equivalent Exposure of securitized products Small exposure with limited risks other than sub-prime related* Leveraged loans (Related losses Breakdown by areas Mar. 08 Mar. 09 in FY3/09: Mar. 09 Breakdown by areas JPY 8.8 bn) (as(as ofof Mar.Mar. 09)09) Asia Balances Balances LoansLoans JPY 743.7 bn 11% (after(after provisionsprovisions JPY 48.3 bn JPY 36.6 bn andand write-offs)write-offs) Americas Europe 24% 41% UndrawnUndrawn JPY 137.3 bn commitmentscommitments Japan NetNet unrealizedunrealized 24% gains/lossesgains/losses JPY (3.6) bn JPY (1.7) bn Reserve for (after(after write-offs)write-offs) Reserve for possiblepossible loanloan JPY 22.6 bn We diversify the exposure to losseslosses reduce concentration risk. The * Not including RMBS issued/guaranteed by Government Sponsored Enterprises etc. amount to be sold is limited to be approx. JPY 9.0 bn
(SMFG consolidated) 27 (Appendix 8) Deferred Tax Assets We calculate SMBC’s Deferred tax assets conservatively by assuming stronger stress on estimated future earnings for sharp economic downturns in order to further enhance its sound financial base Reason for recognition of Deferred tax assets Amount of deferred tax assets （Mar. 09）
(JPY bn) 1. Recognition criteria: Practical Guideline, examples (4) proviso Subtotal of deferred tax assets 1,776.0 2. Period for future taxable income to be estimated: 5 years Reserve for possible loan 299.9 3. Accumulated amount of estimated future taxable income losses, Write-off of loans before adjustments for the next 5 years Taxable write-off of (JPY bn) securities 588.5 Banking profit（before provision for general Net operating loss reserve for possible loan losses） 3,746.5 carryforwards 676.5
Income before income taxes (A) 1,253.0 Others 211.1
Adjustments to taxable income Valuation allowance 1,015.5 (excluding reversal of temporary differences as of Mar. 31, 09) (B) 755.2 Total deferred tax assets (a) 760.5 Taxable income before adjustments (A) + (B) 2,008.2 Total deferred tax liabilities (b) 92.2
Effective income tax rate Net deferred tax assets (a) – (b) 668.3 40.63% Net deferred tax assets （Excluding deferred tax assets on net deferred loss on 664.1 Deferred tax assets corresponding to taxable hedges and deferred tax liabilities on net unrealized income before adjustments 815.9 gain on other securities）
We calculated Deferred tax assets ReducedReduced financialfinancial risksrisks conservatively by assuming stronger stress associatedassociated withwith Decreased by JPY 305.4 billion on estimated future earnings centered on DeferredDeferred taxtax assetsassets compared with Mar. 08 credit costs
(SMBC non-consolidated) 28 (Appendix 9) 1Q, FY3/2010 Results SMFG’s consolidated net income was JPY 72.8 bn, an increase of JPY 14.7 bn year over year, approx. 80% for first-half forecast and approx. 33% for full-year forecast, led mainly by SMBC’s favorable performance
Reference 1Q, FY3/10 FY3/10 Macro economic indices YOY 1H 3/10 Results Forecast change Forecast (JPY bn) Assumption 1Q, FY3/10 for FY3/10 Gross banking Results 371.0 + 62.7 700.0 1,445.0 Forecast profit Nominal growth rate of (3.6) ％*2 (3.5)％*3 Expenses (175.6) + 4.2 (350.0) (695.0) GDP
3 month JPY Overhead ratio 47.3% (11.0)% 50.0% 48.1% TIBOR 0.57% 0.65% Banking 195.4 + 66.9 350.0 750.0 0.00 - 0.00 - profit*1 FF target rate 0.25% 0.25% SMBC
Ordinary profit 109.3 + 67.5 110.0 310.0 Nikkei Stock Average 9,810 7,765 (JPY)*4 Net income 107.9 + 51.7 70.0 180.0 *2 Estimate for FY3/10 by Japan Research Institute announced in Aug. 09 *3 Initial assumption for FY3/10 forecast *4 Average of term-end month Ordinary profit 115.2 + 41.6 200.0 510.0 SMFG
*1 Before provision for general reserve for possible loan losses 29 (Appendix 10) Gross Banking Profit (Net Interest Income) Net interest income: Increased by JPY 9.4 bn y-o-y to JPY 261.3 bn in 1Q, FY3/10 Yield of domestic loans and deposits Net interest income (managerial accounting basis)
(JPY bn) 1H, FY3/07 2H, FY3/07 1H, FY3/08 2H, FY3/08 1H, FY3/09 2H, FY3/09 1H, FY3/10
Full year 1Q Yield on loans (right scale) 1,018.4 0.50% Yield on deposits (left scale) 2.05% 970.8 937.5
0.40% 1.95%
0.30% 1.85%
0.20% 1.75%
251.8 261.3 0.10% 1.65%
0.00% 1.55% FY3/07 3/08 3/09 3/10 Apr. Jul. Oct. Jan. Apr. Jul. Oct. Jan. Apr. Jul. Oct. Jan. Apr. 06 07 08 09 BOJ’s policy BOJ’s policy BOJ’s policy BOJ’s policy interest rate interest rate interest rate interest rate change +0.25％ change +0.25％ change (0.2％) change (0.2％)
z Short term prime rate： 1.375％→1.625％（ + 0.250％, 2006/8/21 - ）→1.875％（ + 0.250％, 2007/3/26 - ）→1.675％（ -0.200％, 2008/11/17 - ）→1.475％（ -0.200％, 2009/1/13 - ） z Yield on ordinary deposit： 0.001％→0.100％（ + 0.099％, 2006/7/18 - ）→0.200％（ + 0.100％, 2007/2/26 - ）→0.120％（ -0.080％, 2008/11/4 - ）→0.040％（ -0.080％, 2008/12/22 - ） z Yield on 1year time deposit： 0.150％→0.300％（ + 0.150％, 2006/7/18 - ）→0.400％（ + 0.100％, 2007/2/26 - ）→0.300％（ -0.100％, 2008/11/12 - ）→0.250％（ -0.050%, 2009/5/1 - ) → (over-the-counter) 0.200％（ - 0.030％, 2009/7/13 - ）→0.170％（ - 0.030％, 2009/9/7 - ） (SMBC non-consolidated) 30 (Appendix 11) Gross Banking Profit (Net Fees and Commissions, Net Trading Income + Net Other Operating Income) 1Q, FY3/10 – Net fees and commissions + Trust fees: Fee income related to loans, etc. decreased due to cautious allocation for overseas operation. Meanwhile, sales of investment trusts is recovering Net trading income + Net other operating income: Gains (losses) on bonds improved due to proper management quickly responding to fluctuation in market interest rates Net fees and commissions Net trading income + Trust fees + Net other operating income
(JPY bn) (JPY bn) Full Year 1Q Full Year 1Q Reference Gains (losses) on bonds 356.9
336.1 (JPY bn) 1Q 295.9 210.6 40.5 177.9
FY3/09 3/10
(30.3) 50.1 49.3 65.5 60.4
(9.1)
FY3/07 3/08 3/09 3/10 FY3/07 3/08 3/09 3/10
(SMBC non-consolidated) 31 (Appendix 12) 1Q, FY3/2010 - Loan Balance -
Loan balance Reference Balance of non-recourse loans
(JPY tn) (JPY tn) Overseas offices and offshore banking accounts Domestic offices (excluding Offshore banking accounts) 2.0
59.2 58.5 61.2 60.2 59.9 9.5 1.5 9.6 10.2 9.0 8.4
1.0
49.6 48.3 51.7 51.2 51.5 0.5
0.0 Jun. Sep. Dec. 08 Mar. Jun. 09 Mar. 07 Sep. 07 Mar. 08 Sep. 08 Mar. 09 Loans, classified by Reference business unit and coverage Reference Housing Loans （Managerial accounting basis, （JPY tn） (JPY tn) as of Mar. 31, 09) Securitization (term-end) Term-end balance 2.1 Consumer 16 1.9 2.0 Guaranteed 21 1.6 1.8
Middle Market 20 Collateralized 9
9.9 9.9 10.0 10.2 10.5 Corporate 12 Unsecured 30 International 9 Headquarters 3 Total 60 Total 60 Mar. 07 Sep. 07 Mar. 08 Sep. 08 Mar. 09
(SMBC non-consolidated) 32 (Appendix 13) Financial Consulting for Individuals Establishing “total consulting” business model – proposing products and services which optimally respond to customers’ needs and consistently providing follow-up information – makes SMFG’s business less sensitive to changes in market conditions Generations 20s 30s 40s 50s 60s 70s -
ExampleExample ofof lifelife eventsevents andand minimumminimum amountamount ofof cashcash Retire 1st child 2nd child requiredrequired inin casecase 2nd child Get married Get gets married Get employed Get Have 1st child Have gets employed gets Have 2nd child
ofof deathdeath enters university
Purchase a house Minimum amount
Investment trusts, foreign currency deposits, foreign bonds, stocks Testamentary trusts, ProductsProducts Credit card, etc. Housing loan procedures related line-upline-up Pension-type insurance, services single premium whole life insurance
Death benefit insurance ProductsProducts newlynewly deregulatedderegulated Medical insurance, etc.
Review preparation for future life events Review ProposalProposal timingtiming cashflows (example)(example) Home purchase Preparation for old age Estate planning (household (after borrowing) ＋ expenses) Insurance consulting Insurance consulting
33 (Appendix 14) Acquisition of Nikko Cordial Securities & Other Related Businesses Promote the creation of a new leading financial services group through combining the stability and reliability of a commercial bank with high-quality customer services of New Nikko Cordial Securities
AcquiredAcquired Business/AssetsBusiness/Assets PurchasePurchase PricePrice NotesNotes
z Nikko Cordial Securities’
(all operations excluding selected assets and liabilities*1) average net income z The third largest full-line retail brokerage z JPY 28 bn (ave. last 5 years) New Nikko firm among Japan z JPY 35 bn (ave. last 5 years Cordial excl. FY3/09) Wholesale securities business Securities (Some businesses of Nikko Citigroup Limited*1) z Goodwill and other intangible assets: z Equity and debt underwriting business z Certain industry coverage teams mid range of JPY 200-300 bn z To be amortized over Nikko trademark and certain *2 20 years other assets JPY 545.0 bn z Tier I impact: approx.(0.7)% 12 Affiliates including: z Deduction of goodwill and z Nikko Cordial Alternative increased risk-adjusted Affiliates Investment Partnership assets, etc. z Nikko System Solution z Tax benefits z Nikko Global Wrap (Total book value: approx. JPY 60 bn) z Record Deferred tax assets Shares held for strategic reasons Stocks JPY 28.5 bn*3 (Listed stocks)
*1 Through demergers (an absorption-type demergers), the operations will be transferred to New Nikko Cordial Securities whose stock will be acquired by ※ SMBC, pursuant to approval of relevant authorities. JPY 201.0 bn in cash will be excluded from the scope of this *2 This figure will be adjusted based on net assets, etc. at New Nikko Cordial Securities and Affiliates, etc. at the point in time on the effective date transaction, and will be retained by former Nikko Cordial *3 Estimate based on market price as of Mar. 31, 09. Will be an amount equal to 95% of the market price as of 4 days prior to the closing date. Securities instead of being succeeded by New Nikko Cordial Securities
34 This material contains certain forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may materially differ from those contained in the forward-looking statements as a result of various factors. The following items are among the factors that could cause actual results to differ materially from the forward-looking statements in this material: business conditions in the banking industry, the regulatory environment, new legislation, competition with other financial services companies, changing technology and evolving banking industry standards and similar matters.
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