MUFG Launches AUD AT1 Perpetual Bond at 7.375%

Introduction

Japan's largest banking group by total assets and by profit is returning to the Kangaroo capital market with an AUD Additional Tier 1 (AT1) perpetual, with initial price guidance at 7.75% area.

Mitsubishi UFJ Financial Group (MUFG) is one of the world's 29 global systemically important banks (G-SIBs). Its main operating units are MUFG Bank, Mitsubishi UFJ Trust and Banking and Mitsubishi UFJ Securities.

It also holds a strategic stake of about 24% in Morgan Stanley and controls Krungsri (Thailand) and Bank Danamon (Indonesia). At end-June 2026 the group had about ¥434tn in total assets, ¥136tn in loans and ¥237tn in deposits.

Compared with Japan's other two megabanks, MUFG's balance sheet is about 1.3x SMFG's. Its FY2025 profit was 1.5x SMFG's and 1.9x Mizuho's.

Table 1: Peers comparison between the megabanks

Financials: record earnings on higher yen rates

MUFG is earning more than ever. For FY2025 (Apr 2025–Mar 2026), net income attributable to owners reached ¥2,427.2bn, up ¥586.3bn year on year. Net operating profit rose to ¥2,377.2bn.

Momentum picked up in 1Q26 (Apr–Jun 2026) where net profit rose 48% to a record ¥809.4bn, driven by higher net interest income as the Bank of Japan raises rates and loan books grow, strong fee income and ¥222.2bn of equity-method income from Morgan Stanley.

Table 2: Selected profitability indicators of MUFG

Capital and asset quality: wide buffer to the trigger

CET1 sits 7.8% above the AT1's 5.125% write-down trigger. That is about ¥9.8tn of CET1 the group would need to lose before the trigger is hit, about 3.6 years of targeted FY2026 net income.

MUFG reports two CET1 ratios, and they tell different stories:

•             The regulatory ratio was 12.95% at June 2026. This is the official figure, and it is the one the AT1's 5.125% trigger is tested against.

•             Management's stricter in-house ratio applies the final Basel III rules in full and leaves out paper gains on the group's investment portfolio. It fell to 9.2% in March 2026, below MUFG's own target of 9.5–10.5%. The causes were its investment in India's Shriram Finance and a jump in lending near year-end.

For bondholders, the lower ratio is not a sign of distress as the trigger is still far away. It does mean MUFG wants to rebuild capital, and it has capped share buybacks at ¥100bn for April–September 2026.

The bond: key terms

Why the first coupon is short. Coupon dates are set at 15 January and 15 July so that they line up with the first call and reset date, 15 January 2032. The bond settles on 19 October 2026, partway through a coupon period. The first coupon therefore covers only 88 of the period's 184 days (19 Oct 2026 – 15 Jan 2027). Full semi-annual coupons start from 15 July 2027.

If not called, the coupon resets on 15 January 2032, and every five years after, to the 5-year AUD swap rate plus a fixed spread. This reset spread is locked in on pricing day (expected as early as 8 October 2026) and equals the final coupon minus the 5-year swap rate on that day.

On top of that, these three features matter most for investors:

•             Holdco structure. Holders are structurally subordinated to MUFG Bank's creditors. This is because bondholders lend to the parent company, not to MUFG Bank. If MUFG Bank ran into trouble, its depositors and other creditors would be paid from the bank's assets first, and the parent would only receive what is left. That puts these bondholders behind MUFG Bank's own creditors.

•             Low trigger. The 5.125% trigger is the regulatory minimum and sits far below today's CET1.

•             Non-viability write-down. This is the main risk to understand. If MUFG's CET1 ratio falls below 5.125% or if MUFG is deemed non-viable, the bond can be written down.

Our view

On the positive side, the issuer is strong. MUFG has record profits, a 0.80% NPL ratio, and a CET1 ratio about 7.8 percentage points above the 5.125% write-down trigger. Japanese megabanks have generally redeemed their AT1s at the first call date, so a call in January 2032 is likely, though not guaranteed.

At the 7.375% guidance, the reset spread would be about 2.33%. Demand also looks supportive as APRA is phasing out AT1 for Australian banks from 2027, which shrinks the local supply of bank hybrids while demand remains. This may let MUFG price the deal tighter, but a tighter price also means less compensation for investors.

On the flip side, theoretically, coupons can be cancelled at any time at MUFG's discretion and a skipped coupon is lost for good (non-cumulative). The bond also can be written down if CET1 falls below 5.125%. If it isn't called in 2032, the coupon resets to the prevailing swap rate plus the reset spread, which could be well below 7.375%.

Overall, the deal is attractive to investors who understand AT1 risks and want exposure to a top-tier Japanese bank, along with today's higher AUD yields and AUD currency exposure.