BW20030528002056 20030528T131741Z UTC
( BW)(SUMITOMO-MITSUI-BNKG)(SBK) Final Results - Part 1
Business Editors
UK REGULATORY NEWS
TOKYO--(BUSINESS WIRE)--May 28, 2003--
Sumitomo Mitsui Financial Group, Inc. (SMFG)
Consolidated Financial Results for the Fiscal Year ended March 31, 2003
Head Office: 1-2, Yurakucho 1-chome, Chiyoda-ku, Tokyo, Japan
Date of Approval by the Board of Directors: May 26, 2003
Stock Exchange Listings: Tokyo, Osaka and Nagoya
URL: http://www.smfg.co.jp
President: Yoshifumi Nishikawa
1. Financial Results (Fiscal Year ended March 31, 2003)
(1) Operating Results
Amounts less than one million yen have been omitted.
Ordinary Profit Net Income
Ordinary Income (Loss) (Loss)
----------------------------------------------------------------------
Fiscal year Yen million % Yen million % Yen million %
ended March 31, 2003 3,506,386 - (515,749) - (465,359) -
ended March 31, 2002 - - - - - -
----------------------------------------------------------------------
Ordinary Ordinary
Net Income Net Income Return on Profit Profit
(Loss) per (Loss) Common (Loss) (Loss)
Share Per Share Stockholders' on on
(diluted) Equity Total Ordinary
Assets Income
----------------------------------------------------------------------
Fiscal year Yen Yen % % %
ended March 31,
2003 (84,324.99) - (43.0) (0.5) (14.7)
ended March 31,
2002 - - - - -
----------------------------------------------------------------------
Notes:
1. Equity in earnings of affiliates
Fiscal year ended March 31, 2003: 5,718 million yen
2. Average number of shares outstanding (consolidated)
Fiscal year ended March 31, 2003: 5,707,451 shares
3. There is no change in accounting methods.
4. Percentages shown in Ordinary Income, Ordinary Profit (Loss) and
Net Income (Loss) are the increase (decrease) from the previous
fiscal year.
(2) Financial Position
Stockholders' Stockholders' Stockholders' Capital Ratio
Total Assets Equity Equity to Equity per (BIS
Total Assets Share Guidelines)
------------------------------------------------------------------------------------------------------------------------
Yen million Yen million % Yen %
March 31, 2003
104,607,449 2,424,074 2.3 106,577.05 (Preliminary) 10.10
March 31, 2002 - - - - -
------------------------------------------------------------------------------------------------------------------------
Note: Number of shares outstanding (consolidated) as of March 31,
2003: 5,740,942 shares
(3) Cash Flows
Cash Flows from Cash Flows from Cash and Cash
Operating Cash Flows from Financing Equivalents at
Activities Investing Activities Activities year-end
------------------------------------------------------------------------------------------------------
Fiscal Year Yen million Yen million Yen million Yen million
ended March 31, 2003 5,443,200 (4,623,917) (43,919) 2,900,991
ended March 31, 2002 - - - -
------------------------------------------------------------------------------------------------------
(4) Scope of Consolidation and Application of the Equity Method
(a) Number of consolidated subsidiaries : 170
(b) Number of unconsolidated subsidiaries accounted for by the equity
method : 4
(c) Number of affiliated companies accounted for by the equity method : 43
2. Earnings Forecast (Fiscal Year ending March 31, 2004) (Millions of yen)
Ordinary Ordinary Net
Income Profit Income
------------------------------------------------------------------------------------------------------------------------
For the six months ending September 30, 2003 1,650,000 170,000 80,000
------------------------------------------------------------------------------------------------------------------------
For the fiscal year ending March 31, 2004 3,300,000 320,000 150,000
------------------------------------------------------------------------------------------------------------------------
(Reference) Forecasted net income per share for the fiscal year ending
March 31, 2004 is 21,069.80 yen.
This document 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.
Average number of shares outstanding during the year (consolidated)
For the Fiscal Year
ended March, 31, 2003
----------------------------------------------------------------------
Common stock 5,707,451
----------------------------------------------------------------------
Preferred stock (type 1)
(Preferred stock (first series type 1)) 67,000
----------------------------------------------------------------------
Preferred stock (type 2)
(Preferred stock (second series type 1)) 100,000
----------------------------------------------------------------------
Preferred stock (type 3)
(Preferred stock (type 5)) 800,000
----------------------------------------------------------------------
Preferred stock (1st to 12th series type 4) 7,138
----------------------------------------------------------------------
Preferred stock (13th series type 4) 6,301
----------------------------------------------------------------------
(Notes)
1. Number of former SMBC's stock before establishment of SMFG is
included.
2. Names of former SMBC's preferred stocks are shown in square
brackets.
Number of shares as of year-end (consolidated)
As of March, 31, 2003
----------------------------------------------------------------------
Common stock 5,740,942
----------------------------------------------------------------------
Preferred stock (type 1) 67,000
----------------------------------------------------------------------
Preferred stock (type 2) 100,000
----------------------------------------------------------------------
Preferred stock (type 3) 800,000
----------------------------------------------------------------------
Preferred stock (1st to 12th series type 4) 50,100
----------------------------------------------------------------------
Preferred stock (13th series type 4) 115,000
----------------------------------------------------------------------
Calculation for Indices
-- Return on Common Stockholders' Equity:
Net income - Preferred stock dividends
----------------------------------------------------------------- X 100
{(Stockholders' equity at beginning of year - Number of preferred
stocks outstanding at beginning of year X Issue price) +
(Stockholders' equity at year-end - Number of preferred stocks
outstanding at year-end X Issue price)} / 2
-- Forecasted Net Income Per Share:
Forecasted Net Income - Forecasted preferred stock dividends
---------------------------------------------------------------------
Number of Common stocks outstanding at year-end (excluding treasury stock)
(Note) From this fiscal year, SMFG applies 'Accounting Standard for
Earnings Per Share' (Financial Accounting Standards No.2) and
'Implementation Guidance for Accounting Standard for Earnings Per
Share' (Financial Accounting Standards Implementation Guidance
No.4).
I. Overview of SMFG Group
Sumitomo Mitsui Financial Group (SMFG) which is a holding company, was
established on December 2, 2002. Upon formation of SMFG, Sumitomo
Mitsui Banking Corporation transferred all of its shares to SMFG.
SMFG Group conducts primary banking business through the following
financial services: leasing, securities, credit card business,
investment banking, financing and venture capital.
SMFG has 170 consolidated subsidiaries and 47 companies accounted for
by the equity method.
Sumitomo Mitsui Financial Group, Inc.:
Banking Business
Principal subsidiaries
Domestic
*Sumitomo Mitsui Banking Corporation
*THE MINATO BANK, LTD.
(Listed on the First Section of Tokyo Stock Exchange and Osaka Securities Exchange)
*The Bank of Kansai, Ltd. (Listed on the First Section of Osaka Securities Exchange)
*The Japan Net Bank, Limited (Internet banking)
*SMBC Guarantee Co., Ltd. (Credit guarantee)
Overseas
*Sumitomo Mitsui Banking Corporation Europe Limited
*Manufactures Bank
*Sumitomo Mitsui Banking Corporation of Canada
*Banco Sumitomo Mitsui Brasileiro S.A.
*PT Bank Sumitomo Mitsui Indonesia
---------------------------------------------------------------------------------------------
Leasing
Principal subsidiaries
Domestic
*SMBC Leasing Company, Limited
*SMBC Auto Leasing Company, Limited
Overseas
*SMBC Leasing and Finance, Inc.
---------------------------------------------------------------------------------------------
Other
Principal subsidiaries and affiliated companies
Domestic
*Sumitomo Mitsui Card Company, Limited (Credit card services)
*SAKURA CARD CO., Ltd. (Credit card services)
*At-Loan Co., Ltd. (Consumer loans)
*SMBC Capital Co., Ltd. (Venture capital)
*SMBC Consulting Co., Ltd. (Management consulting)
*SMBC Finance Co., Ltd. (Loans and factoring) (Note 1)
*Mitsui Finance Service Co., Ltd. (Collecting agent and factoring) (Note 1)
*Financial Link Company, Limited (Data processing service and consulting)
*Sakura Friend Securities Co., Ltd. (Securities) (Note 2)
(Listed on the First Section of Tokyo Stock Exchange, Osaka Securities Exchange and
Nagoya Stock Exchange)
*Meiko National Securities Co., Ltd. (Securities) (Note 2)
(Listed on the First Section of Tokyo Stock Exchange, Osaka Securities Exchange and Nagoya
Stock Exchange)
*The Japan Research Institute, Limited (Economic research, system engineering, data processing and
management consulting)
*Sakura KCS Corporation (System engineering and data processing)
(Listed on the Second Section of Osaka Securities Exchange)
*Sakura Information Systems Co., Ltd. (System engineering and data processing)
**Daiwa Securities SMBC Co. Ltd. (Wholesale securities)
**Daiwa SB Investments Ltd. (Investment advisory and investment trust
management)
**Sumitomo Mitsui Asset Management Company, Limited
(Investment advisory and investment trust management)
**DLJ direct SFG Securities Inc. (Securities via internet)
**Japan Pension Navigator Co., Ltd. (Operational management of defined
contribution pension plans)
**QUOQ Inc. (Purchase of monetary assets and credit guarantee)
Overseas
*SMBC Capital Markets, Inc. (Investments and derivatives)
*SMBC Capital Markets Limited (Derivatives)
*Sumitomo Mitsui Finance Australia Limited (Financing)
(Notes) 1. SMBC Finance Co., Ltd., Mitsui Finance Service Co., Ltd and
Sakura Finance Service Co., Ltd. merged on April 1, 2003. (New
corporate name is SMBC Finance Service Co., Ltd.)
2. Sakura Friend Securities Co., Ltd. and Meiko National Securities
Co., Ltd. merged on April 1, 2003. (New corporate name is SMBC
Friend Securities Co., Ltd.)
3. (*) means a consolidated subsidiary and (**) means an affiliated
company accounted for by the equity method.
II. Principles and Management
1. Management Strategy
SMFG was established in December 2002 to realize a highly flexible
group structure for achieving optimal group management and substantial
reinforcement of strategic business lines headed by Sumitomo Mitsui
Banking Corporation, Sumitomo Mitsui Card Company, Ltd., SMBC Leasing
Company, Ltd., and The Japan Research Institute, Ltd.
In the banking franchise, SMFG reinforced strengthened its balance
sheet in FY2002 by drastically reducing the financial risks associated
with stockholdings and non-performing loans. SMFG sold outright over 1
trillion yen in stockholdings, used the surplus from the merger
between Sumitomo Mitsui Banking Corporation ("SMBC") and THE WAKASHIO
BANK, LTD. to write off unrealized losses on stocks. In order to
accelerate the work-out of NPLs, SMFG established Asset Restructuring
Unit for the revitalization of problem corporate borrowers, and
boosted the provisions for potential credit cost in step with the
government's "Program for Financial Revival". Moreover, with the
issuance of preferred stocks twice, SMFG has secured sufficient
capital buffer for any worse-case scenario and further fortified the
balance sheet. Underpinned by the stronger financial base, SMFG will
continue to enhance its earnings power and cost management capability,
and accelerate the fortification of its balance sheet this fiscal
year.
SMFG will also continue to boost the effectiveness of the other
strategic business lines in its effort to raise its net worth as a
"new financial services complex".
2. Dividend Policy
SMFG subscribes to a fundamental policy of distributing appropriate
dividends while enhancing SMFG group's capital to maintain sound
financial position.
3. Issues to be Addressed
Amid a very harsh business environment, SMFG has been undertaking the
following action plans to build strong operating and financial base
capable of withstanding even worse business conditions.
First, SMFG will further accelerate the reinforcement strengthening of
the balance sheet. In FY2002, SMFG disposed a substantial amount of
non-performing loans, and bolstered the provisions for potential
credit cost associated with "Borrowers Requiring Caution" including
"Substandard Borrowers". From this fiscal year, SMFG will steadily
reduce the problem asset ratio, to half within two years, by
substantially up-pacing the work-out of NPLs, including the
revitalization of problem corporate borrowers, mainly through the
newly established Asset Restructuring Unit. In FY2002, SMFG also
reduced the book value of its stockholdings substantially through
drastic write-offs of unrealized losses and impairment, and outright
sales, and will further reduce stock price fluctuation risk this
fiscal year onward.
Second, SMFG, the banking operation with the highest earnings among
Japanese banking groups, will accelerate the implementation of steps
it has been taking to improve its cost-income structure. Steps for
expanding income include optimizing risk-return profile of its loan
portfolio by increasing loan spreads; expanding credit-risk-taking in
small and middle market banking, and loan syndications in corporate
banking; and developing business models for consulting services in
consumer banking. On the cost side, SMFG will achieve an earlier
realization of targeted cost reduction by further streamlining the
workforce, consolidating branches, integrating computer systems, and
other new initiatives.
Third, SMFG will focus on substantially enhancing the profitability of
the other strategic business lines headed by Sumitomo Mitsui Card,
SMBC Leasing, and Japan Research Institute, taking advantage of the
synergy among these companies and SMBC.
By quickly realizing significant results from these actions, SMFG
should be able to recover the trust of shareholders and improve the
markets' overall evaluation.
4. Corporate Governance Policy
SMFG employs an auditor system consisting of five auditors of which
three are outside auditors. The Board of Directors also includes
outside directors to enhance management transparency and soundness by
incorporating their opinions.
The Board of Directors consists of eight directors of which two are
outside directors. SMFG has reinforced the Board's oversight functions
by setting up three subcommittees: the Risk Management Committee
(deliberates on risk management and compliance issues for the SMFG
companies in aggregate), the Compensation Committee, and the
Nominating Committee. The two outside directors, one a certified
public accountant and the other a lawyer, are members of all three
committees (one is the Chairman of the Compensation Committee) for
supervision of operations from a suitably objective perspective.
The Group Management Committee is the highest decision-making body at
the operational level. The President chairs the committee and selects
its members from the directors. The committee members debate important
management issues, and the President has the authority to make final
decisions after considering the committee's recommendations. There is
also the Group Strategy Committee, a forum for group company directors
to exchange opinions, consult, and report on their business plans.
III. Operating Results and Financial Position
Amounts for the fiscal year ended March 31, 2002 are those of former
SMBC.
1. Overview of Consolidated Operating Results and Financial Position
for the Fiscal Year Ended March 31, 2003
(1) Profit and Loss
SMFG has managed to strengthen profitability by pursuing its
efficiency and reducing expenses through business restructuring during
the fiscal year ended March 31, 2003.
In spite of these our effort, Ordinary loss and Net loss amounted
515.7 billion yen and 465.3 billion yen, respectively mainly due to
losses on stocks arising from the sluggish stock market and disposal
of non-performing loans.
Ordinary income amounted to 3,506.3 billion yen (down 7.2% from the
previous year ended March 31, 2002) and Ordinary expense amounted to
4,022.1 billion yen (down 7.8%).
(2) Assets and Liabilities
Deposits amounted to 62,931.0 billion yen (down 2,054.9 billion yen
from the previous year ended March 31, 2002) and Negotiable
certificates of deposit amounted to 4,853.0 billion yen (down 1,809.0
billion yen).
Loans and bills discounted amounted to 61,082.9 billion yen (down
2,562.6 billion yen).
Total assets amounted to 104,607.4 billion yen (down 3,397.5 billion
yen).
(3) Stockholders' Equity
SMFG increased capital of 495.3 billion yen, but stockholders' equity
decreased by 488.5 billion yen over the figures as of March 31, 2002
to 2,424.0 billion yen as of March 31, 2003 mainly due to disposition
of unrealized losses on other securities and realized losses on
stocks.
(4) Cash Flows
SMFG generated 5,443.2 billion yen of Cash flows from operating
activities, used 4,623.9 billion yen of Cash flows from investing
activities and used 43.9 billion yen of Cash flows from financing
activities.
Consequently, Cash and cash equivalents as of March 31, 2003 amounted
to 2,900.9 billion yen.
(5) Segments
As for business segments, the percentage of total assets before
elimination of internal transactions was 93% (down 0 point from the
previous year ended March 31, 2002) for banking business, 2% (up 0
point) for leasing business, and 5% (down 0 point) for other business.
The percentage of ordinary income before elimination of internal
transactions was 69% (down 1 point) for banking business, 17% (up 4
points) for leasing business, and 14% (down 3 points) for other
business.
As for geographic segments, the percentage of total assets before
elimination of internal transactions was 90% (up 3 points from the
previous year ended March 31, 2002) for Japan, 6% (down 1 point) for
the Americas, 2% (down 1 point) for Europe, and 2% (down 1 point) for
Asia and Oceania. The percentage of ordinary income before elimination
of internal transactions becomes 84% (up 10 points from the previous
year ended March 31, 2002) for Japan, 6% (down 5 point) for the
Americas, 6% (down 2 points) for Europe, and 4% (down 3 points) for
Asia and Oceania.
(6) Capital Ratio (BIS Guideline) (preliminary)
Capital ratio becomes 10.10% on a consolidated basis.
2. Earnings Forecast for the Fiscal Year Ending March 31, 2004
(1) Performance Forecast
In fiscal 2003, SMFG will continue to strengthen its financial base by
reviving debt ridden companies and disposition of problem loans and
reducing exposure to stock market risk. Furthermore, SMFG aims to
enhance profitability and achieve greater operational efficiency.
As for earnings forecast on a consolidated basis, Ordinary income,
Ordinary profit and Net income are forecasted to amount to 3,300
billion yen, 320 billion yen, and 150 billion yen, respectively. On a
nonconsolidated basis, Ordinary income, Ordinary profit and Net income
are forecasted to amount to 55 billion yen, 50 billion yen, and 50
billion yen, respectively.
(2) Dividends Forecast
SMFG will not pay the interim dividends on common stock and preferred
stock for the fiscal year ending March 31, 2004 mainly because outlook
of economic circumstances and stock market are uncertain. SMFG will
pay the year-end dividend as follows:
Common stock 3,000 yen per share
Preferred stock (type 1) 10,500 yen per share
Preferred stock (type 2) 28,500 yen per share
Preferred stock (type 3) 13,700 yen per share
Preferred stock (1st series to 12th 135,000 yen per share
series type 4)
Preferred stock (13th series type 4) 67,500 yen per share
IV. Consolidated Financial Statements
Significant Accounting Policies
1. Scope of consolidation
(1) Consolidated subsidiaries 170 companies
Principal companies
Sumitomo Mitsui Banking Corporation
THE MINATO BANK, LTD.
The Bank of Kansai, Ltd.
Sumitomo Mitsui Banking Corporation Europe Limited
Manufactures Bank
SMBC Leasing Company, Limited
Sumitomo Mitsui Card Company, Limited
SMBC Capital Co., Ltd.
SMBC Finance Co., Ltd.
Sakura Friend Securities Co., Ltd.
Meiko National Securities Co., Ltd.
The Japan Institute of Research, Limited
SMBC Capital Markets, Inc.
(2) Nonconsolidated subsidiaries
Principal company
SBCS Co., Ltd.
Ninety-nine subsidiaries including S.B.L. Mercury, Co., Ltd. are
silent partnership for lease transactions and their assets and
profits/losses do not belong to them substantially. Therefore,
pursuant to Article 5 Paragraph 1 Item 2 of Consolidated Financial
Statements Regulation, they were excluded from consolidation.
Other nonconsolidated subsidiaries' total assets, ordinary income, net
income and retained earnings have no significant impact on the
consolidated financial statements.
2. Application of the equity method
(1) Nonconsolidated subsidiaries accounted for by the equity method
4 companies
Principal company
SBCS Co., Ltd.
(2) Affiliates accounted for by the equity method 43 companies
Principal companies
Daiwa Securities SMBC Co. Ltd.
Daiwa SB Investments Ltd.
Sumitomo Mitsui Asset Management Company, Limited
QUOQ Inc.
(3) Nonconsolidated subsidiaries and affiliates that are not accounted
for by the equity method
Ninety-nine subsidiaries including S.B.L. Mercury Co., Ltd. are silent
partnership for lease transactions and their assets and profits/losses
do not belong to them substantially. Therefore, pursuant to Article 10
Paragraph 1 Item 2 of Consolidated Financial Statements Regulation,
they are not treated as affiliated companies accounted for by the
equity method.
Net income and retained earnings of other nonconsolidated subsidiaries
and affiliates that are not accounted for by the equity method have no
significant impact on the consolidated financial statements.
3. The balance sheet dates of consolidated subsidiaries
(1) The dates of year-end account closing of consolidated subsidiaries
are as follows:
September 30 5 Companies
October 31 1 Company
December 31 62 Companies
January 31 2 Companies
March 31 100 Companies
(2) As for the companies whose balance sheet dates are September 30
and October 31, the accounts were provisionally closed as of March 31
and January 31 for the purpose of consolidation, respectively. The
other companies are consolidated on the basis of their respective
balance sheet date.
As for the overseas subsidiary that was established in February 2003
and whose balance sheet date is December 31, the accounts were
provisionally closed as of March 31 for the purpose of consolidation.
Appropriate adjustments were made for significant transactions during
the periods from their respective balance sheet dates to the
consolidated closing date.
4. Application of Pooling-of-Interests Method
Sumitomo Mitsui Financial Group (SMFG) which is a holding company, was
established on December 2, 2002. Upon formation of SMFG, Sumitomo
Mitsui Banking Corporation transferred all of its shares. The accounts
were consolidated using the pooling-of-interests method, assuming that
the Group's economics were not changed, pursuant to 'Accounting for
the consolidation of the holding company established by Stock Exchange
or Stock Transfers' (JICPA Accounting Committee Report No.6).
5. Accounting policies
Please refer to the 'Notes to Consolidated Balance Sheet' and 'Notes
to Consolidated Statement of Operations.'
6. Valuation of consolidated subsidiaries' assets and liabilities
All assets and liabilities of consolidated subsidiaries including the
portion attributable to minority shareholders are valuated for
consolidation at fair value when SMFG acquires their control.
7. Amortization of goodwill
Goodwill on Sumitomo Mitsui Card Company, Limited is amortized using
the straight-line method over five years and goodwill on other
companies is charged or credited to income directly when incurred.
8. Appropriation of retained earnings
The consolidated statement of retained earnings reflects the
appropriation of retained earnings made during the consolidated fiscal
year.
9. Scope of 'Cash and cash equivalents' on Consolidated Statements of
Cash Flows
Please refer to the 'Notes to Consolidated Statement of Cash Flows.'
CONSOLIDATED BALANCE SHEET
March 31, 2003 (Millions of yen)
----------------------------------------------------------------------------------
Assets:
Cash and due from banks 3,442,523
Call loans and bills bought 187,563
Receivables under resale agreements 109,710
Receivables under securities borrowing transactions 1,981,243
Commercial paper and other debt purchased 363,981
Trading assets 4,495,396
Money held in trust 24,629
Securities 24,118,520
Loans and bills discounted 61,082,946
Foreign exchanges 749,974
Other assets 3,219,009
Premises and equipment 1,007,905
Lease assets 996,344
Deferred tax assets 1,956,103
Deferred tax assets for land revaluation 724
Goodwill 30,031
Customers' liabilities for acceptances and guarantees 3,084,383
Reserve for possible loan losses (2,243,542)
------------------------
Total assets 104,607,449
========================
Liabilities:
Deposits 62,931,007
Negotiable certificates of deposit 4,853,017
Call money and bills sold 8,953,084
Payables under repurchase agreements 4,144,735
Payables under securities lending transactions 4,807,245
Commercial paper 187,800
Trading liabilities 2,851,391
Borrowed money 2,580,135
Foreign exchanges 397,666
Bonds 3,583,754
Due to trust account 5,953
Other liabilities 2,558,956
Reserve for employee bonuses 22,079
Reserve for employee retirement benefits 101,408
Reserve for possible losses on loans sold 20,665
Other reserves 649
Deferred tax liabilities 43,930
Deferred tax liabilities for land revaluation 58,788
Acceptances and guarantees 3,084,383
------------------------
Total liabilities 101,186,654
------------------------
Minority interests 996,720
------------------------
Stockholders' equity:
Capital stock 1,247,650
Capital surplus 856,237
Retained earnings 311,664
Land revaluation excess 101,440
Net unrealized losses on other securities (24,197)
Foreign currency translation adjustments (53,515)
Treasury Stock (15,204)
------------------------
Total stockholders' equity 2,424,074
------------------------
Total liabilities, minority interests and stockholders'
equity 104,607,449
========================
Notes to Consolidated Balance Sheet
1. Amounts less than one million yen have been omitted.
2. Transactions for trading purposes (seeking gains arising from
short-term changes in interest rates, currency exchange rates, or
market prices of securities and other market related indices or
from variation among markets) are included in 'Trading assets' or
'Trading liabilities' on the consolidated balance sheet on a
contract date basis. Securities and monetary claims purchased for
trading purposes are stated at the fiscal year-end market value,
and financial derivatives such as swaps, futures and options are
stated at amounts that would be settled if the transactions were
terminated at the consolidated balance sheet date.
3. Held-to-maturity debt securities are debt securities that Sumitomo
Mitsui Financial Group, Inc. ('SMFG') or its consolidated
subsidiaries have the positive intent and ability to hold to
maturity, and are carried at amortized cost using the
moving-average method. Investments in nonconsolidated subsidiaries
and affiliates that are not accounted for by the equity method are
carried at cost using the moving-average method. Securities other
than trading purpose securities, held-to-maturity debt securities
and investments in subsidiaries and affiliates are classified as
'other securities' (available-for-sale securities). Stocks in
other securities that have market value are carried at the average
market prices during the final month of the fiscal year, and bonds
and others that have market prices are carried at their fiscal
year-end market prices (cost of securities sold is calculated
using primarily the moving-average method). Other securities with
no market prices are carried at cost or amortized cost using the
moving-average method. Net unrealized gains (losses) on other
securities, net of income taxes, are included in 'Stockholders'
equity.'
4. Securities included in 'Money held in trust' are carried in the
same way as in Notes 2 and 3.
5. Derivatives excluding those classified as trading derivatives are
carried at fair value, though some consolidated overseas
subsidiaries account for derivative transactions in accordance
with local accounting standards.
6. Premises and equipment owned by SMFG and its consolidated
subsidiary, Sumitomo Mitsui Banking Corporation ('SMBC'), are
depreciated using the straight-line method for premises and the
declining-balance method for equipment. The estimated useful lives
of major items are as follows: Buildings: 7 to 50 years Equipment:
2 to 20 years Other consolidated subsidiaries depreciate premises
and equipment, and lease assets primarily using the straight-line
method over the estimated useful lives of the respective assets
and the straight-line method over the lease term based on the
residual value of assets at the end of the lease term,
respectively.
7. Capitalized software for internal use owned by SMFG and its
consolidated domestic subsidiaries is depreciated using the
straight-line method over its estimated useful life (basically
five years).
8. SMBC's assets and liabilities denominated in foreign currencies and
overseas branches' accounts are translated into Japanese yen
primarily at the exchange rate at the balance sheet date, except
for stocks of subsidiaries and affiliates which are translated at
prevailing rates at the time of acquisition. Formerly, SMBC
applied the revised accounting standards for foreign currency
transactions ('Opinion Concerning Revision of Accounting Standard
for Foreign Currency Transactions' issued by Business Accounting
Deliberation Council on October 22, 1999), except for the
accounting treatment stipulated in 'Temporary Treatment of
Accounting and Auditing Concerning Accounting for Foreign Currency
Transactions in Banking Industry' (JICPA Industry Audit Committee
Report No.20 'Former report').
From April 1, 2002, SMBC applies the revised accounting standards
for foreign currency transactions, except for the treatment which
the Former report is applied, in accordance with the temporary
treatment regulated by 'Treatment of Accounting and Auditing
Concerning Accounting for Foreign Currency Transactions in Banking
Industry' (JICPA Industry Audit Committee Report No.25). Pursuant
to the temporary treatment, 'financial swap transactions' and
'treatment on internal contracts and transactions among
consolidated subsidiaries' were accounted for by the former
method. Also, foreign currency differences arising from futures
currency transactions are recognized on the balance sheet on a net
basis.
Fund-related swap transactions are as follows:
(1) Principal amounts of credits and debts are reported on the
balance sheet in the net amount converted at the exchange
rate at the fiscal year-end.
(2) The difference between spot and forward rates are recorded
as interest income or expenses on an accrual basis for the
period from the spot foreign exchange settlement date to
the forward foreign exchange settlement date.
(3) Accrued income or accrued expenses are recognized at the
fiscal year-end.
Fund-related swap transactions are foreign exchange transactions
that are contracted for the purpose of lending or borrowing funds
in different currencies. These transactions consist of spot
foreign exchange either bought or sold and forward foreign
exchange either bought or sold. The spot foreign exchange bought
or sold is the swap transaction for borrowing or lending the
principal amount. The forward foreign exchange bought or sold is
the swap transaction of the principal and corresponding interest
to be paid or received, the amount and due date of which are
predetermined.
Other consolidated subsidiaries' assets and liabilities
denominated in foreign currencies are translated into Japanese yen
at the exchange rate prevailing at the fiscal year-end of each
company.
9. Reserve for possible loan losses of major subsidiaries is provided
as detailed below in accordance with the internal standards for
write-offs and reserves.
For claims on borrowers who have entered into bankruptcy, special
liquidation proceedings or similar legal proceedings ('bankrupt
borrowers') or borrowers that are not legally or formally
insolvent but are regarded as substantially in the same situation
('effectively bankrupt borrowers'), a reserve is provided based on
the amount of claims, after the charge-off stated below, net of
the expected amount of recoveries from collateral and guarantees.
For claims on borrowers that are not currently in the status of
bankrupt but are likely to become bankrupt in the future, a
reserve is provided in the amount deemed necessary based on an
overall solvency assessment of the claims, net of the expected
amount of recoveries from collateral and guarantees.
Pursuant to 'Audit considerations with respect to the discounted
cash flow method used to determine allowance for credit losses by
banks and other financial institutions' (issued by JICPA on
February 24, 2003), SMBC provides reserve for possible loan losses
using the Discounted Cash Flows method as follows for loans to
large borrowers classified as 'Past due loans (3 months or more)'
or 'Restructured loans':
(1) SMBC rationally estimates the cash flows of principal and
interest, and measures their present values by discounting
the cash flows using the initial contractual interest
rate.
(2) SMBC recognizes the difference between the present value
and its book value as estimated losses and provides
reserve for possible loan losses.
For other claims, a reserve is provided based on the historical
loan-loss ratio.
For claims originated in specific countries, an additional reserve
is provided for by the amount deemed necessary based on the
assessment of political and economic conditions.
Branches and credit supervision departments assess all claims in
accordance with the internal rule for self- assessment of assets,
and the Credit Review Department, independent from these operating
sections, audits their assessment. The reserves are provided based
on the results of these assessments.
Reserve for possible loan losses of other consolidated
subsidiaries for general claims is provided in the amount deemed
necessary based on the historical loan-loss ratio, and for
doubtful claims in the amount deemed uncollectible based on
assessment of each claim.
For collateralized or guaranteed claims on bankrupt borrowers and
effectively bankrupt borrowers, the amount exceeding the estimated
value of collateral and guarantees is deemed to be uncollectible
and charged off against the total outstanding amount of the
claims. The amount of charge-off was 1,324,459 million yen.
10. Reserve for employee bonuses is provided, in provision for payment
of bonuses to employees, by the amount of estimated bonuses
attributable to this fiscal year.
11. Reserve for employee retirement benefits is provided, in provision
for payment of retirement benefits to employees, by the amount
deemed accrued at fiscal year-end, based on the projected
retirement benefit obligation and fair value of plan assets at the
balance sheet date.
Prior service cost is amortized using the straight-line method
over primarily 10 years within the employees' average remaining
service period at incurrence.
Unrecognized net actuarial gain (loss) is amortized using the
straight-line method over primarily 10 years within the employees'
average remaining service period, commencing from the next fiscal
year of incurrence.
Unrecognized net transition obligation from initial application of
the new accounting standard for employee retirement benefits is
amortized using the straight-line method over five years.
Some domestic consolidated subsidiaries received an approval from
Minister of Health, Labor and Welfare for exemption from future
retirement benefit obligations with respect to the entrusted
portion of employee pension fund, in accordance with the
implementation of the 'Defined benefit enterprise pension plan
law.' They apply the temporary treatment that are regulated by
Article 47-2 of 'Practical Guidelines of Accounting for Retirement
Benefits (Interim Report)' (JICPA's Accounting Committee Report
No.13), and derecognize retirement benefit liabilities on the
entrusted portion and plan assets equivalent to the amount to be
returned. The amount of expected return of plan assets was 23,906
million yen as of the fiscal year-end.
12. Reserve for possible losses on loans sold is provided for
contingent losses arising from decline of market value of
underlying collateral for loans sold to the Cooperative Credit
Purchasing Company, Limited. This reserve is provided in
accordance with the former Article 287-2 of the Commercial Code.
13. Financing leases of SMFG and its consolidated domestic
subsidiaries, excluding those in which the ownership of the
property is transferred to the lessee, are accounted for in the
same manner as operating leases.
14. Pursuant to the temporary treatment regulated by 'Treatment for
Accounting and Auditing of Application of Accounting Standard for
Financial Instruments in Banking Industry' (JICPA Industry Audit
Committee Report No.24), SMBC applies 'the risk adjustment
approach' to hedging (Macro hedge) in accordance with the Industry
Audit Committee Report No.15 'Temporary Treatment for Accounting
and Auditing of Application of Accounting Standard for Financial
Instruments in Banking Industry' issued by JICPA, abiding by the
following requirements:
(1) Loans, deposits and other interest-earning assets and
interest-bearing liabilities as a whole shall be recognized as
the hedged portfolio.
(2) Derivatives as the hedging instruments shall effectively
reduce the interest rate exposure of the hedged portfolio.
(3) Effectiveness of hedging activities shall be evaluated on a
quarterly basis.
SMBC applies deferred hedge accounting.
In order to hedge risk arising from volatility of exchange rates
for stocks of subsidiaries and affiliates and other securities
(excluding bonds) denominated in foreign currency, SMBC applies
deferred hedge accounting or fair value hedge accounting, on the
conditions that the hedged security is specified in advance and
that enough on-balance (actual) or off-balance (forward) liability
exposure exists to cover the cost of the hedged security in
foreign currency base.
Certain interest swaps for the purpose of hedging are accrued and
added to or deducted from the interest on the assets or
liabilities in view of consistency with the risk management
policy.
Other certain consolidated subsidiaries use the deferred hedge
accounting or the special treatment for interest rate swaps. A
consolidated domestic subsidiary (a leasing company) partly
applies the accounting method that are permitted by the Industry
Audit Committee Report No.19 'Temporary Treatment for Accounting
and Auditing of Application of Accounting Standard for Financial
Instruments in Leasing Industry' issued by JICPA.
15. National and local consumption taxes of SMFG and its consolidated
domestic subsidiaries are accounted for using the tax-excluded
method.
16. Other reserves required by special laws are reserve for contingent
liabilities from financial futures transaction (18 million yen) in
accordance with Article 82 of the Financial Futures Transaction
Law, and reserve for contingent liabilities from securities
transaction (631 million yen) in accordance with Article 51 of the
Securities Exchange Law.
17. Accumulated depreciation on premises and equipment and accumulated
depreciation on lease assets were 630,121 million yen and
1,490,721 million yen, respectively.
18. Bankrupt loans and non-accrual loans were 201,392 million yen and
2,710,164 million yen, respectively. These amounts include trust
with The Resolution and Collection Corporation, a measure regarded
as off-balancing, of 40,811 million yen.
'Bankrupt loans' are loans on which SMFG or its consolidated
subsidiaries do not currently accrue interest income, as
substantial doubt is judged to exist as to the ultimate
collectability of either principal or interest as they are past
due for a considerable period of time or for other reasons, and
meet conditions defined in Article 96-1-3 and 96-1-4 of the
Enforcement Ordinance No.97 of the Japanese Corporate Tax Law,
issued in 1965. Non-accrual loans are loans on which SMFG or its
consolidated subsidiaries do not currently accrue interest income,
excluding bankrupt loans and loans for which SMFG or its
consolidated subsidiaries are forbearing interest payments to
support the borrowers' recovery from financial difficulties.
19. Past due loans (3 months or more) totaled 130,353 million yen.
Past due loans (3 months or more) are loans other than 'Bankrupt
loans' and 'Non-accrual loans' on which the principal or interest
is past due for three months or more.
20. Restructured loans totaled 2,728,791 million yen.
Restructured loans are loans other than 'Bankrupt loans,'
'Non-accrual loans' and 'Past due loans (3 months or more) for
which SMFG or its consolidated subsidiaries have relaxed lending
terms, such as reduction of the original interest rate,
forbearance of interest payments or principal repayments or has
made agreements in favor of borrowers such as debt forgiveness, to
support the borrowers' recovery from financial difficulties.
21. The total amount of bankrupt loans, non-accrual loans, past due
loans (3 months or more) and restructured loans was 5,770,700
million yen. This amount includes trust with The Resolution and
Collection Corporation, a measure regarded as off-balancing, of
40,811 million yen.
The amounts of loans presented in Notes 18 to 21 are amounts
before deduction of reserve for possible loan losses.
22. Bills discounted are accounted for as financial transactions in
accordance with 'Treatment for Accounting and Auditing of
Application of Accounting Standard for Financial Instruments in
Banking Industry' (JICPA Industry Audit Committee Report No.24)
issued by JICPA. SMFG's banking subsidiaries have rights to sell
or pledge bank acceptance bought, commercial bills discounted,
documentary bills and foreign exchanges bought without
restrictions. The total face value was 1,078,333 million yen.
23. Assets pledged as collateral were as follows:
Assets pledged (Millions of yen)
Cash and due from banks 75,268
Trading assets 990,965
Securities 11,458,018
Loans and bills discounted 4,738,320
Other assets (installment account
receivable etc.) 1,140
Premises and equipment 535
Liabilities corresponding to assets pledged
Deposits 21,038
Call money and Bills sold 7,952,599
Payables under repurchase agreements 4,107,615
Payables under securities lending
transactions 4,189,794
Trading liabilities 136,975
Borrowed money 2,885
Other liabilities 18,548
Acceptances and guarantees 41,108
In addition, cash and due from banks of 54,370 million yen, trading
assets of 13,937 million yen, securities of 4,624,346 million yen,
loans and bills discounted of 781,138 million yen were pledged as
collateral for cash settlements, variation margins of futures markets
and certain other purposes.
Premises and equipment include surety deposits and intangible of
121,725 million yen, and other assets include initial margins of
futures markets of 14,814 million yen.
24. Net amount of deferred unrealized gains (losses) on hedging
instruments to which hedge accounting is applied is reported as
deferred profit on hedge and are included in 'Other liabilities.'
Gross deferred unrealized losses and gross deferred unrealized
gains on hedging instruments were 952,712 million yen and
1,095,321 million yen, respectively.
25. SMBC revaluated its own land for business activities in accordance
with the Law Concerning Land Revaluation (the Law) effective March
31, 1998 and the law concerning amendment of the Law effective
March 31, 2001. The income taxes corresponded to the net
unrealized gains are deferred and reported in 'Liabilities' as
'Deferred tax liabilities for land revaluation,' and the net
unrealized gains, net of deferred taxes, are reported as 'Land
revaluation excess' in 'Stockholders' equity.'
Other certain consolidated subsidiaries revaluated their own land
for business activities in accordance with the Law. The income
taxes corresponded to the net unrealized gains (losses) are
deferred and reported in 'Liabilities' or 'Assets' as 'Deferred
tax liabilities for land revaluation' or 'Deferred tax assets for
land revaluation,' and the net unrealized gains (losses), net of
deferred taxes, are reported as 'Land revaluation excess' in
'Stockholders' equity.'
Date of the revaluation
SMBC March 31,1998 and March 31, 2002
Other certain consolidated subsidiaries March 31,1999 and March 31, 2002
Method of revaluation (provided in Article 3-3 of the Law)
SMBC: Fair values were determined by applying appropriate
adjustments for land shape and timing of appraisal to the
values specified in Article 2-3, 2-4 or 2-5 of the
Enforcement Ordinance of the Law concerning Land
Revaluation (the Enforcement Ordinance No.119) effective
March 31, 1998.
Other certain consolidated subsidiaries: Fair values were
determined based on the values specified in Article 2-3 and
2-5 of the Enforcement Ordinance No.119.
26. The balance of subordinated debt included in 'Borrowed money' was
877,609 million yen.
27. The balance of subordinated bonds included in 'Bonds' was
1,403,028 million yen.
28. Stockholders' equity per share was 106,577.05 yen.
29. Market value and unrealized gains (losses) on securities are shown
as below: In addition to 'Securities,' the amounts below also
include trading securities, negotiable certificates of deposit
bought and commercial paper classified as 'Trading assets,'
negotiable certificates of deposit bought classified as 'Cash and
due from banks', and commercial paper and beneficiary claim on
loan trust classified as 'Commercial paper and other debt
purchased.' This definition is applied up to Notes 32.
(1) Securities classified as trading purposes (Millions of yen)
Consolidated balance sheet amount 1,434,190
Valuations gains (losses) included in profit/loss during the
fiscal year (1,096)
(2) Bonds classified as held-to-maturity
that have market value (Millions of yen)
Consolidated Market Net unrealized
balance sheet value gains
amount (losses) Gains Losses
--------------------------------------------------------------------------------------------
Japanese government bonds 311,391 315,414 4,023 4,023 -
Japanese local government
bonds 23,091 23,920 828 828 -
Other 42,413 43,444 1,030 1,136 105
--------------------------------------------------------------------------------------------
Total 376,896 382,779 5,882 5,988 105
(3) Other securities that have market value (Millions of yen)
Acquisition Consolidated Net unrealized
cost balance sheet gains
amount (losses) Gains Losses
---------------------------------------------------------------------------------------------
Stocks 3,167,955 3,002,513 (165,442) 112,952 278,395
Bonds 14,024,014 14,135,179 111,164 117,093 5,928
Japanese government bonds 12,516,061 12,590,255 74,193 79,479 5,286
Japanese local government
bonds 342,798 352,112 9,314 9,415 101
Japanese corporate bonds 1,165,153 1,192,811 27,657 28,197 540
Other 4,479,136 4,502,770 23,634 42,897 19,263
---------------------------------------------------------------------------------------------
Total 21,671,106 21,640,463 (30,643) 272,943 303,587
The amount of net unrealized losses on other securities recorded in
'Stockholders' equity' includes net unrealized losses of 24,082
million yen which is the sum of the followings.
Net unrealized losses (a) (30,643) million yen
(+) Deferred tax assets (b) 2,004 million yen
-----------------------------------------------------------------------------------------
(c) = (a) + (b) (28,639) million yen
( - ) Minority interests corresponding to (c) (4,557) million yen
(+) SMFG's interests of net unrealized gains (losses) on other
securities held by affiliates accounted for by the equity method (1) million yen
-----------------------------------------------------------------------------------------
Total (24,802) million yen
Other securities with no market value are considered as impaired if
the market value decreases significantly below the acquisition cost
and such decline is not considered as recoverable. The market value is
recognized as the consolidated balance sheet amount and the amount of
write-down is accounted for as valuation loss (impaired) for the
current fiscal year. Valuation loss for this fiscal year was 494,815
million yen. The rule for determining 'significant decline' is as
follows and is based on the classification of issuing company under
self-assessment of assets.
Bankrupt/ Effectively bankrupt/ Potentially Market value is lower than acquisition cost
bankrupt issuers
Issuers requiring caution Market value is 30% or more lower than acquisition cost
Normal issuers Market value is 50% or more lower than acquisition cost
Bankrupt issuers: issuers that are legally bankrupt or formally
declared bankrupt
Effectively bankrupt issuers: issuers that are not
legally bankrupt but regarded as substantially bankrupt
Potentially bankrupt issuers: issuers that are not bankrupt now, but
are perceived to have a high risk of falling into bankruptcy
Issuers requiring caution: issuers that are identified for close
monitoring
Normal issuers: issuers other than the above four categories of
issuers
30. The amount of other securities sold during the fiscal year is as
follows:
(Millions of yen)
Sales amount Gains on sales Losses on sales
------------------------------------------------------------
37,709,925 231,862 190,364
31. Summary information on securities that do not have market value is
as follows:
(Millions of yen)
Consolidated
balance sheet
amount
--------------------------------------------------------
Bonds classified as held-to-maturity
Unlisted foreign securities 4,105
Other 6,463
Other securities
Unlisted bonds 1,176,885
Unlisted foreign securities 363,282
Unlisted stocks (except for OTC
stocks) 281,888
Other 137,050
32. Redemption schedule of other securities that have maturities and
bonds classified as held-to-maturity is as follows:
(Millions of yen)
1 year or less More than 1 year More than 5 Over
to 5 years years 10 years
to 10 years
---------------------------------------------------------------------------------------------
Bonds 3,482,943 8,134,230 3,769,404 260,826
Japanese government bonds 3,303,635 6,306,161 3,034,984 256,865
Japanese local government
bonds 11,935 138,933 223,723 612
Japanese corporate bonds 167,372 1,689,135 510,695 3,349
Other 355,161 2,886,041 765,581 880,974
---------------------------------------------------------------------------------------------
Total 3,838,104 11,020,271 4,534,985 1,141,800
33. Information on money held in trust is as follows:
Money held in trust classified as trading purposes
(Millions of yen)
Consolidated balance sheet amount 1,629
Valuation gains included in profit/loss during the
fiscal year 12
Other money held in trust
(Millions of yen)
Acquisition Consolidated balance Net unrealized
cost sheet amount gains (loss) Gains Losses
-----------------------------------------------------------------------
23,044 23,000 (44) 510 555
Net unrealized losses on other money held in trust of 44 million yen
shown above are included in 'Net unrealized losses on other
securities.'
34. 'Japanese Government Bonds' include 999 million yen of unsecured
loans of securities for which borrowers have the rights to sell or
pledge. 'Japanese Government Bonds' include 140 million yen of
loaned securities for which borrowers only have the rights to
pledge and not to sell.
As for the unsecured borrowed securities by cash for which SMFG's
subsidiaries have the rights to sell or pledge and for the
securities which the subsidiaries purchased under resale
agreements, that are permitted to sell or pledge without
restrictions, 2,084,632 million yen of securities are pledged,
99,624 million yen of securities are held in hand as of the
balance sheet date.
35. Commitment line contracts on overdrafts and loans are agreements
to lend to customers to prescribed amount as long as there is no
violation of any condition established in the contracts. The
amount of unused commitments was 31,475,362 million yen, and the
amount of unused commitments whose original contract terms are
within one year or unconditionally cancelable at any time was
28,769,561 million yen. Since many of these commitments are
expected to expire without being drawn upon, the total amount of
unused commitments does not necessarily represent actual future
cash flow. Many of these commitments have clauses that SMFG or its
consolidated subsidiaries can reject the application from
customers or reduce the contract amounts in the case of change in
economic conditions, SMFG or its consolidated subsidiaries need to
secure claims, or other circumstances. In addition, SMFG or its
consolidated subsidiaries request the customers to pledge
collateral such as premises and securities, and take necessary
measures such as reviewing the customers' financial positions
during the contract period, revising contracts when need arises,
and securing claims.
36. Information on projected benefit obligation and others at this
fiscal year-end is shown as follows:
(Millions of yen)
Projected benefit obligation (1,164,570)
Fair value of plan assets 723,175
----------------------------------------------------------
Unfunded projected benefit obligation (441,395)
Unrecognized net transition obligation 44,087
Unrecognized net actuarial differences 349,118
Unrecognized prior service cost (net) (53,218)
----------------------------------------------------------
Net amount recorded on the consolidated
balance sheet (101,408)
Reserve for employee retirement benefits (101,408)
37. With the implementation of the 'Metropolitan ordinance regarding
the imposition of enterprise taxes through external standards
taxation on banks in Tokyo' (Tokyo Metropolitan Ordinance No.145,
April 1, 2000) ('the metropolitan ordinance'), enterprise taxes
that were hitherto levied on income are now levied on gross
banking profit.
On October 18, 2000, Sakura Bank and Sumitomo Bank filed a lawsuit
with the Tokyo District Court against the Tokyo metropolitan
government and the Governor of Tokyo seeking to void the
metropolitan ordinance. They won the case eventually entirely on
March 26, 2002 with a decision of the Tokyo District Court in the
Bank's favor, on the grounds that the metropolitan ordinance was
illegal. The District Court ordered the metropolitan government to
return to the Banks advance tax payments of 16,633 million yen and
also awarded to the Banks damages of 200 million yen. On March 29,
2002 the metropolitan government lodged an appeal with the Tokyo
High Court against the decision, and on April 9, 2002 the
plaintiff banks at the first trial including former SMBC also
lodged an appeal. Former SMBC won the second-trial case eventually
on January 30, 2003 with a decision of the Tokyo High Court in
SMBC's favor, on the grounds that the metropolitan ordinance was
illegal. The High Court ordered the metropolitan government to
return to SMBC advance tax payments of 36,175 million yen. On
February 10, 2003 the metropolitan government lodged a final
appeal with the Supreme Court against the decision, and on
February 13, 2003 the plaintiff banks at the first trial including
SMBC also lodged a final appeal.
It is the opinion of SMBC that the metropolitan ordinance is both
unconstitutional and illegal. SMBC has asserted this opinion in
the courts and the matter is still in litigation. The fact that
during this fiscal year SMBC has applied the same treatment as in
the previous year, accounting for enterprise taxes through
external standards taxation on banks in Tokyo in accordance with
the metropolitan ordinance, is because SMBC has deemed it
appropriate at this stage to continue with the same accounting
treatment as before. This accounting treatment does not constitute
in any way an admission on the part of SMBC either of the
constitutionality or of the legality of the metropolitan
ordinance.
With the implementation of the metropolitan ordinance, enterprise
taxes relating to banks in Tokyo were recorded in 'Other expenses'
in the amounts of 16,833 million yen for the year ended March 31,
2001 (sum of Sakura Bank and Sumitomo Bank), 19,862 million yen
for the year ended March 31, 2002 and 18,269 million yen for the
year ended March 31, 2003. As a result, 'Ordinary profit' for the
each fiscal year decreased by the corresponding amount as compared
with the previous standards under which enterprise taxes were
levied on income. There is no impact on 'Income tax, current' as
compared with the previous standards under which enterprise taxes
were levied on income. Consequently, stockholders' equity
decreased by 32,495 million yen. Since the enterprise taxes in
question are not included in the calculations for accounting for
tax effects, there was a decrease in 'Deferred tax assets' of
98,703 million yen as compared with the amount that it would have
been had the enterprise taxes been levied on income instead of
gross profits. There was also a decrease in 'Deferred tax
liabilities for land revaluation' of 3,236 million yen, and
consequently stockholders' equity decreased by 95,467 million yen.
With the implementation of the 'Municipal Ordinance regarding the
imposition of enterprise taxes through external standards taxation
on banks in Osaka' (Osaka Municipal Ordinance No.131, June 9,
2000) ('the municipal ordinance'), enterprise taxes which were
hitherto levied on income are now levied on gross banking profit.
On April 4, 2002, SMBC filed a lawsuit with the Osaka District
Court against the Osaka municipal government and the Governor of
Osaka seeking to void the municipal ordinance. With the
implementation of the 'Revision of Municipal Ordinance regarding
the imposition of enterprise taxes through external standards
taxation on banks in Osaka' (Osaka Municipal Ordinance No.77,
2002) ('the revised municipal ordinance 2002') on May 30, 2002,
and the implementation of the 'Revision of Municipal Ordinance
regarding the imposition of enterprise taxes through external
standards taxation on banks in Osaka' (Osaka Municipal Ordinance
No.14, 2003) ('the revised municipal ordinance 2003') on April 1,
2003, the special treatment regarding the tax basis is to be
applicable from the fiscal year starting on April 1, 2003. The
enterprise taxes which the banks should pay to Osaka municipal
government this term are subject to the supplementary provision 2
of the revised municipal ordinance 2003, which provides the banks
shall pay the enterprise taxes based on the lesser of gross
banking profit or income. SMBC, therefore, filed and paid the
enterprise taxes based on income. The fact that SMBC filed and
paid the enterprise taxes according to the revised municipal
ordinance does not constitute in any way an admission on the part
of SMBC either of the constitutionality or of the legality of the
revised municipal ordinance 2002 and 2003 as well as the municipal
ordinance. Since the enterprise taxes in question are not included
in the calculations for accounting for tax effects, there was a
decrease in 'Deferred tax assets' of 48,699 million yen as
compared with the amount that it would have been had the
enterprise taxes been levied on income instead of gross profits.
There was also a decrease in 'Deferred tax liabilities for land
revaluation' of 1,575 million yen, and consequently stockholders'
equity decreased by 47,124 million yen.
38. With the implementation of the 'Revision of the Local Tax Law'
(Legislation No.9, 2003) on March 31, 2003, the tax basis of
enterprise taxes, which was stipulated as 'income and liquidation
income' by the 12th paragraph of Article 72 of the Local Tax Law
before the revision, is to be a combination of 'amount of added
value,' 'amount of capital' and 'income and liquidation income'
from the fiscal year starting April 1, 2004. The enterprise taxes
that have tax bases of the 'amount of added value' and the 'amount
of capital' are not pertinent to the enterprise taxes that have
tax bases of income-related amounts. The 'Revision of the Local
Tax Law' also stipulates that the metropolitan ordinance and the
municipal ordinance are to be abolished from the fiscal year
starting April 1, 2004.
In connection with the 'Revision of the Local Tax Law,' the
effective statutory tax rate used in the calculations of domestic
subsidiaries' deferred tax assets and liabilities from the fiscal
year starting April 1, 2004 was changed, and thus, there were an
increase in 'Deferred tax assets' of 63,905 million yen and a
decrease in 'Income taxes, deferred' of 64,127 million yen. There
were also an increase in 'Deferred tax liabilities for land
revaluation' of 2,609 million yen and a decrease in 'Land
revaluation excess' of 2,618 million yen.
As for SMBC, the effective statutory tax rate used in the
calculations of deferred tax assets and liabilities was changed
from 38.62% to 40.46%. As a result, there were an increase in
'Deferred tax assets' of 67,657 million yen and a decrease in
'Income taxes, deferred' of the same amount. There were also an
increase in 'Deferred tax liabilities for land revaluation' of
2,634 million yen and a decrease in 'Land revaluation excess' of
the same amount.
39. 'Accounting Standard for Treasury Stock and Reversal of Legal
Reserves' (Financial Accounting Standards No.1) was applied from
this fiscal year and 'Parent company's stocks held by
subsidiaries' are included in 'Treasury stock.'
In accordance with the accounting standard, when 'parent company's
stocks held by subsidiaries' are deducted from stockholders'
equity, the equivalent to SMFG's equity and minority shareholders'
equity are deducted from 'Stockholders' equity' and 'Minority
interests,' respectively.
(MORE TO FOLLOW)
Short Name: Sumitomo Mitsui Bnkg
Category Code: FR
Sequence Number: 00005203
Time of Receipt (offset from UTC): 20030527T142640+0100
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CONTACT: Sumitomo Mitsui Bnkg
KEYWORD: UNITED KINGDOM JAPAN INTERNATIONAL EUROPE ASIA PACIFIC
INDUSTRY KEYWORD: BANKING
SOURCE: Sumitomo Mitsui Bnkg
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