#1Merrill Lynch Japan Conference September 7, 2004 Accelerating Value Creation for Shareholders Yoshifumi Nishikawa President & Chief Executive Officer Sumitomo Mitsui Financial Group, Inc. SUMITOMO MITSUI SMFG FINANCIAL GROUP I am Yoshifumi Nishikawa, President & Chief Executive Officer of Sumitomo Mitsui Financial Group. I am grateful for today's opportunity to give a presentation and would like to thank Merrill Lynch who hosts the conference.#2Agenda Keywords for accelerating value creation for shareholders Further reinforcement of competitive advantages Expansion of marketing channels & customer base - Marketing channels for SMEs and individuals Establishment of new business model - Consumer finance ✓ Further strengthening of group synergies ✓ Proposal for integration with UFJ Group ✓ Closing SMIFG 2 Today, I would like to explain how SMFG will accelerate value creation for shareholders hereafter, introducing its present strategies and actions. The agenda is as shown.#3Keywords for accelerating value creation for shareholders Reinforcement & establishment of Expansion of business franchise SMFG strategic business ✔Further reinforcement of competitive advantages - New type unsecured loans to SMEs - Investment banking business - Financial consulting business for individuals SMFG SMFG's competitive advantage Spirit of innovation and transformation Speed in taking actions ✓ Establishment of ✓Expansion of marketing channels & customer base High efficiency ✓ Further strengthening of new business model - Consumer finance (Further risk-taking in mass segment for individuals) Integration with UFJ Group group synergies Collaboration among group companies - Strategic alliance 3 I am always mindful of following four points as keywords for accelerating value creation for shareholders. They are: -Further reinforcement of competitive advantages -Establishment of new business model -Expansion of marketing channels & customer base -Further strengthening of group synergies And, we have implemented various measures leveraging the sources of SMFG's competitive advantage which are: -Spirit of innovation and transformation -Speed in taking actions -High efficiency#4Further reinforcement of competitive advantages Business for corporate clients New type unsecured loans to SMEs Origination of "Business Select Loan" Investment banking business Profits related to loan syndication (Billions of yen) 1,500 1,000 (Billions of yen) 40 Profit (left scale) Origination Term-end balance -Ж - Origination (right scale) 30 500 733.7 455.3 0 FY02 result FY03 result FY04 plan 220 10 0 FY02 result FY03 result SMFG 700 500 300 FY04 plan Peer comparison (Origination of new type unsecured loans to SMEs) (Billions of yen) 800 733.7 (FY03) Profits through collaboration with Daiwa Securities SMBC* (Billions of yen) 600 400 200 SMBC: Business Select Loan Tokyo-Mitsubishi: Yukatsuryoku Mizuho: Mizuho Advance Partner UFJ: UFJ Business Loan 180 200 100 40 ㅎ 상영 중 엉 20 30 0 0 FY01 result FY02 result FY03 result SMBC Tokyo-Mitsubishi Mizuho UFJ (Note) Peer companies' figure: the Nikkan Kogyo Shimbun dated Apr. 30, 04. *SMBC's managerial accounting basis (Sum of the profits of SMBC and Daiwa SMBC) 4 Let me show specifically the results so far. First, in business for corporate clients, as can be seen, new type unsecured loans to SMEs and investment banking business have been growing steadily. Particularly in new type unsecured loans to SMEs, we have an overwhelming leading position over the other mega banks.#5Further reinforcement of competitive advantages Financial consulting business for individuals SMFG Related Profits (Investment trusts and pension-type insurances) Mortgage loans (Billions of yen) (Trillions of yen) 2.5 (Trillions of yen) 60 Origination (left scale) 10 Total balance of residential mortgage (right scale) 40 20 12.4 15.4 0 FY01 result FY02 result Pension-type insurances 2.0 17.1 Investment trusts 1.5 1.0 23.8 9 0.5 7 FY03 result FY04 plan FY01 result FY02 result FY03 result FY04 plan Peer comparison (investment trusts and pension-type insurances) (Trillions of yen) Peer comparison (balance of mortgage loans***) (Billions of yen) (Trillions of yen) Balance of investment trusts* 2.01 2.0 Accumulated sales amount of pension-type insurances** 12.7 00 13 600 12.3 12.1 482.9 02/3 03/3 04/3 1.5 1.0 0.5 0.0 SMBC MTFG Mizuho UFJ 500 11 400 9 300 200 7 100 5 0 SMBC BTM Mizuho SMBC UFJ Mizuho UFJ *Source: the Nikkin Toushin Nenkin Jouhou **Source: company estimate based on newspapers, etc. ***Source: each company's financial reports, etc. MTFG 5 Second, in business for individuals, we have several competitive business models based on the concept of consulting. The business models are sales of investment trusts and pension-type insurances, and mortgage loans, and these businesses have been growing steadily, as you can see. Especially, profit from sales of investment trusts and pension type insurances exceeded JPY40 billion in fiscal 2003, becoming one of the core businesses of our profit base. In each of these businesses, you can see our high competitive advantage if you compare to our peers. Moreover, further deregulation in Japan will enable us to expand our business lines even more. For example, we will be able to handle securities related products after lifting of the ban on securities intermediation which is scheduled in this December. We intend to firmly grasp this business opportunity, for example by utilizing our platform for consulting business for individuals, and are now making preparations to enter the business as soon as the ban is lifted.#6Expansion of marketing channels & Customer base Marketing channels for SMEs Corporate Business Offices for SMEs opened in FY03 +5 Business Support Offices & sub-offices Corporate Sales Offices 04/3 opened in FY03 04/3 76 +8 8 opened in FY03 +31 SME channels: 164 04/3 80 Client segments| Upper Middle Middle Lower Middle Small Channels Internal HR SME channels: 164 Corporate Business Offices 108 Corporate Business Offices for SMEs Corporate Sales Offices 8 76 External HR Business Support Offices & sub-offices 80 Product Departments (Investment Banking Unit etc.) Business offices and Product Departments both commit to profit target: "Double-front system" *Business Support Offices: Mainly deal with Business Select Loan. Number of channels in the figures is as of March 2004. SMFG We are increasing our business volume through enhancement of business franchise, such as marketing channels and customer base, to further reinforce our strategic businesses with competitive advantage. Let me explain specifically our actions to expand marketing channels. With regard to marketing channels for corporate clients, last fiscal year, we changed our policy of streamlining channels and intensively expanded small and specialized channels targeting SMEs. We are proactively utilizing external human resources, and efficiently expanding channels with thorough cost control. As a result, origination of new type unsecured loans to SMEs substantially exceeded the original target. 6#7Expansion of marketing channels & customer base Marketing channels for individuals SMBC Consulting Plaza (# of channels) 03/3A 0 04/3A 6 04/8A 40 06/3P 100 (Note) New marketing channels specialized in consulting for individuals Loan Plaza (# of channels) 03/3A 75 04/3A 109 →Increase sales staff in FY04 Private banking Client segments segment (including company owners) Asset management segment Asset building segment Mass segment Private banker Financial consultant Loan planner "Money-Life" Consultant & Low-counter teller* "One's Channels Loan Plaza Block Station Consulting Plaza 6 Direct" Private Banking Dept. & ATM 109 Branch 435 36 "Low-counter teller" is a teller who serves customers at low counters in branches to provide more personal services. Number of channels in the figures is as of March 2004. SMFG 7 In marketing to individual clients, the greatest characteristic of SMBC is that we were early in implementing a more refined market segmentation based on customer attributes. We have expanded marketing channels and human allocation corresponding to each client segment. Especially, we have been expanding the number of SMBC Consulting Plaza, the new channel specialized in consulting business for individuals, at a fast clip since its first opening in March. There are currently 40 Consulting Plazas and we intend to increase the number to 100 in the next fiscal year.#8Establishment of new business model Consumer finance: Further risk-taking Corporate client segments "Upper-middle" "Middle" "Lower-middle" Core business in corporate business market Investment banking business SMFG Core business in consumer business market Financial consulting business Individual client segments "Private banking" "Asset management" (150 thousand clients) "Asset building" (8 million clients) "N fund" New type unsecured loans Consumer finance "Small" "Business Select Loan" "Mass" (18 million clients) Further risk-taking Established strategic business by introducing new type unsecured loans to small corporate segment Started to establish new revenue base by further risk-taking in mass segment 8 Next, I would like to explain how we will strengthen consumer finance business as "establishment of business model". In "small" corporate segment, we were early in successfully establishing a business model in which we manage diversified unsecured loans on a portfolio basis called "Business Select Loan". This time, we intend to establish a new revenue base in mass consumer segments by expanding risk taking to dramatically strengthening our consumer finance business. The consumer finance business is expected to grow further as it changes significantly, and we have been promoting our initiatives for this business by strengthening the collaboration among four group companies: SMBC, Sumitomo Mitsui Card, At-Loan, and QUOQ. Furthermore, we entered into a strategic alliance with Promise, one of the leaders in the industry, in order to dramatically accelerate the development of consumer finance as a new strategic business.#9Establishment of new business model Consumer finance: Creation of new business markets high Create new business markets by thoroughly utilizing SMBC's business franchise Size of existing market: JPY 35 trillion (FY02) New markets Customer base Asset building segment + Mass segment SMFG =26 million clients (more than 40% of Japan's working population) Return low SMBC JV Promise Number of customers who visit branches: 3 million per month Number of transactions through ATM: 1 million per day Number of transactions in remote banking: 7 million per month Business infrastructure Existing markets Number of domestic branches: (As of 04/3) 435 Number of ATM locations: 2,438 (Bank's own ATM locations. The biggest ATM network among 4 mega banks) low Risk high Online-bank ranking: (Ranked by Gomez, 03 Winter) No. 1 9 The basic concept of the business alliance is to utilize Promise's expertise to fully leverage SMBC's franchise to create new consumer finance markets. SMBC's franchise is very strong, as you can see on the slide, consisting of a customer base with 26 million individual customers, 1 million transactions per day through ATMs, 7 million transactions per month through remote banking, and of a business infrastructure with sufficient ATM locations and a top-ranked online banking. By leveraging the customer base and the business infrastructure, we will dramatically strengthen our existing business for low risk segment of instant cash needs in small amount. In addition, we will capture the potential needs in middle risk segment, which so far has been captured only by credit sales, and credit card companies.#10Establishment of new business model Consumer finance: Overview of strategic alliance with Promise SMFG Capital Alliance Capital investment: (% of outstanding shares) 15% (done) 20%* (plan) Business Alliance Provide loan products through SMBC's marketing channels Establish a new JV (SMBC Consumer Finance Co., Ltd.**) Marketing, credit monitoring, and collection provided by Promise Jointly develop loan products for small corporations Business alliance between SMFG's subsidiaries & affiliates and Promise PROMISE * Plans to acquire additional Promise shares in appropriate ways, up to 20% of total outstanding shares. **Tentative name SMFG Now, I would like to explain the outline of our strategic alliance with Promise. This is a full-scale alliance comprising both capital and business alliances. In capital alliance, we have already acquired 15% of Promise's shares, and we plan to increase our share to up to around 20%. In business alliance, we will complete the design of our action plan by the end of this September and lay the groundwork, including the establishment of a new JV, for starting up a new business model at a fast pitch as we initially planned. 10#11Establishment of new business model Consumer finance: Loan business model by alliance with Promise SMBC's business franchise + Promise's expertise Target loan balance of approx. 500 billion yen* after 3 years Interest rate 8% Channel 15% 18% SMBC marketing channels → Install loan processing machines developed by Promise SMIFG FY04: Book SMBC SMBC Consumer Finance** Promise <<Cascade Method>> <<Cascade Method>> Approx. 100 channels FY05: Marketing Promise's expertise in marketing Guarantee Collection Credit monitoring Promise's expertise in credit monitoring and collection Target loan balance after 3 years ¥200 bn ¥200 bn ¥100 bn * Jointly by SMFG and Promise. ** Tentative name. Expand sequentially 11 Next, I would like to explain the structure of the new consumer loan business model. The basic concept is to merge and leverage SMFG's franchise and Promise's expertise. The three entities - SMBC, the joint venture "SMBC Consumer Finance Company", and Promise - will cover the different range of interest rates and seamlessly capture customers' loan needs utilizing so-called Cascade Method. An example of our marketing channel strategy is the installment of a loan. processing machine developed by Promise at approximately 100 branches by the end of this fiscal year. We will expand the network further next fiscal year. By taking advantage of the business structure as I have explained, SMFG and Promise aim to expand the combined loan balance of both groups by JPY500 billion after 3 years.#12Further strengthening of group synergies Sumitomo Mitsui Card SIBITIONO MESIN CARD COMPANY LIMITED SMBC Leasing SMBC LEASING COMPANY, LIMITED Japan Research Institute The Japan Research Institute, Limited Sumitomo Mitsui Financial Group SMFG SUMITOMO MITSUI FINANCIAL GROUP Sumitomo Mitsui Banking Corporation Daiwa Securities SMBC Daiwa SB Investments | 大和配樂 SMBC SMFG Corporate Recovery Servicer SMBC Consumer Finance (tentative name) グループ SMFG Daiwa Securities Group Goldman Sachs Promote collaboration among group companies Promote strategic alliance PROMISE 12 As can be seen from the strategic alliance with Promise, we will accelerate value creation for shareholders by promoting collaborations among group companies and strategic alliances with outside companies in addition to strengthening our own competitiveness. In strategic alliance, in particular, we will not stress doing things in our own way but will proactively use the expertise of leading companies in other industries and quickly realize synergies.#13Proposal for integration with UFJ Group Strategic significance Dominant revenue base and business franchise through the integration - Realize dominant market share & competitiveness in the strategic businesses SMFG Impact on further value creation To reinforce revenue base through the dominant market share in the focused high-growth business areas To steadily realize rationalization effects (¥200bn) at an early date Most profitable bank in Japan with banking profit reaching ¥2 tn and net income reaching ¥1 tn Integration ratio = 1:1 EPS accretion Further value creation for SMFG shareholders 13 Lastly, I would like to touch on the purpose of our proposal for integration with the UFJ Group. We have made a proposal to the UFJ Group on the integration ratio and terms & condition of capital enhancement in a transparent manner. Significance of the integration with UFJ Group is not only merely the pursuit of asset scale but also the realization of dominant market shares and competitiveness in the strategic businesses through significant strengthening of the business franchise, such as customer base and marketing channels. Moreover, together with solid and speedy realization of the rationalization effects, we are confident that this integration is the best choice in terms of enhancing both group's shareholders value. By realizing the top-line synergy through strengthening of the earnings power through dominant market shares in the strategic businesses and solid and early realization of JPY200 billion benefit of rationalization, we are confident of achieving the highest profitability among all Japanese banking groups, with JPY2.0 trillion in annual banking profit and JPY1.0 trillion in net income. We have presented the integration ratio of 1 SMFG share per 1 UFJ share. We believe this integration ratio is very attractive to shareholders of UFJ and will contribute to value creation for our shareholders, given the integration synergies.#14Proposal for integration with UFJ Group Outline Basic Concepts of the Integration Integration with spirit of equals Smooth and speedy integration Emphasis on economic rationales Equal and fair human resources policy Reinforcement of the focused business areas Establishment of tripolar franchise in Tokyo, Tokai, Osaka metropolitan districts Collaboration with a top tier trust bank* Integration ratio, Capital enhancement ■Integration ratio UFJ SMFG = 1 share 1 share ¥200bn average annual pre-tax benefit from rationalization ■Capital enhancement to UFJ by 04/9 - Willing to provide capital even if capital requirement reaches ¥700bn Able to maintain adequate capital ratio without capital raising Assuming that the trust business of UFJ Trust Bank be integrated to Sumitomo Trust & Banking SMFG Here is the outline of our proposal to the UFJ Group. Let me make a supplementary explanation. We can firmly achieve the rationalization effects of JPY200 billion on an average annual base, calculated base on our past merger experience. With regard to capital enhancement to UFJ by the end of September, we can provide capital even if it reaches JPY700 billion, or slightly more, without requiring any capital raising. 14#15Closing Strategic businesses New type unsecured loans to SMEs Investment banking business Financial consulting for individuals Consumer finance Business Franchise Marketing channels Customer base Establishment of new business models Reinforcement of business franchise Group-wide strategy for further acceleration SMFG Accelerating value creation for shareholders 15 I have explained SMFG's strategies and actions for accelerating value creation for shareholders. I can say without hesitation that the strategic businesses in which we have established competitive advantage will grow to become our core drivers of earnings growth; thereby creating value for shareholders. However, under the current highly competitive business environment, we must continue to establish new business models and reinforce our business franchises on a group basis if we are to accelerate value creation for shareholders. Today, I have explained SMFG's strategies and actions centered on the rigorous strengthening of the consumer finance business. Let me state that we are firmly committed to continuing to take a variety of initiatives to accelerate group-wide value creation for shareholders. Furthermore, it is our hope to successfully integrate with the UFJ Group and establish a dominant presence and competitiveness in the strategic businesses. This concludes my presentation. I would be pleased to answer any questions you may have. Thank you for your attention.#16Appendices Proposal for Integration with UFJ Group Rationalization effect of overlapping operation Breakdown of rationalization effect Source of top-line synergy SMFG 16#17(Appendix) Proposal for Integration with UFJ Group Rationalization effect of overlapping operation ■¥200bn average annual pre-tax benefit from rationalization ■Track record of achieving cost reduction from the integration of former Sakura and former Sumitomo - Reduced expenses from ¥700.1bn in FY2000 to ¥584.0bn in FY2003 (-17%) SMFG Branch Integration Approx. ¥60bn UFJ SMFG 366 branches 435 branches ■Approx. 200 overlapping branches Workforce Integration Approx. ¥90bn ■Natural attrition plus restraining recruiting ■Reallocation of human resources from overlapping functions to strategic business areas Systems Integration /Others Approx. ¥50bn Experience of systems integration of former Sakura and former Sumitomo Notes: As of March 2004. 17#18(Appendix) Proposal for Integration with UFJ Group Breakdown of rationalization effect Branch Integration Approx. ¥60bn UFJ 366 branches SMFG 435 branches Approx. 200 overlapping branches Tokyo: 100 branches Osaka: 80 branches Other areas: 20 branches Expenses: ¥0.3 bn reduction per branch 200 branches x (-\0.3 bn) = -Approx. ¥60 bn Workforce Integration Approx. ¥90bn ■Natural attrition plus restraining recruiting -Approx. 8,500 workforce (Total workforce after integration: Approx. 40,000) ◉Reallocation of human resources (Overlapping functions Strategic business areas) Reallocation to Business for SMEs, financial consulting business for individuals Effect of cost reduction in personnel expenses for Approx. 8,500 workforce =-Approx. ¥90 bn SMFG Systems Integration & Others Approx. ¥50bn Achievement of systems integration of former Sakura and former Sumitomo Rationalization effect: -25% Approx. ¥60 bn x 2 x (-25%) = (Annual system-related expenses...Estimated) -Approx. ¥30 bn Others: -Approx. \20 bn (-¥30 bn)+(-¥20 bn) = -Approx. ¥50 bn 18#19(Appendix) Proposal for Integration with UFJ group Source of top-line synergy Overwhelming business franchise in number of Corporate customers, new type unsecured loans to SMEs, sales of investment trusts & pension-type insurances, and mortgage loans SMEs Financial Consulting for Individuals # of Corporate Customers New Type Unsecured Loans to SMEs Balance of Annual Sales of Investment Pension-Type Balance of Mortgage Trusts Insurances Loans* 177,000 ¥733.7bn ¥1.9tn ¥380bn ¥12.7tn SMIG 147,000 ¥200.0bn ¥0.7tn ¥110bn ¥9.7tn UFJ MTFG 104,000 ¥180.0bn ¥0.7tn ¥200bn ¥7.9tn UFJ+SMFG 324,000 ¥933.7bn ¥2.6tn ¥490bn ¥22.4tn UFJ+MTFG 251,000 ¥380.0bn ¥1.4tn ¥310bn ¥17.6tn Source: Company estimate based on IR presentation material * Sum of subsidiary banks' figures. SMFG 19#20•Special Note Regarding Forward-Looking Statements •Information on this material contains forward-looking statements that are subject to various known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contained in or suggested by any forward-looking statement. SMFG cannot promise that its assumptions, expectations, projections, anticipated estimates or other information expressed in these forward-looking statement will turn out to be correct. Potential risks and uncertainties which may affect such projections include, but are not limited to, those which explicitly provided herein. Factors that could cause actual results to differ materially include, but are not limited to: (1) the businesses of SMFG and UFJ may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected combination benefits from the SMFG/UFJ transaction may not be fully realized or realized within the expected time frame; (3) revenues following the SMFG/UFJ transaction may be lower than expected; (4) operating costs, customer loss and business disruption may be greater than expected following the SMFG/UFJ transaction; (5) the regulatory approvals required for the SMFG/UFJ transaction may not be obtained on the proposed terms or on the anticipated schedule; (6) the effects of legislative and regulatory changes on the banking industry; (7) future levels of non-performing loans; (8) technological changes; (9) Japanese and global economies; (10) changes in labor, programming, equipment and capital costs or availability; (11) changes in interest rate; and (12) general business and economic conditions. SMFG does not undertake any duty to update any forward-looking statements. •When reviewing this information please note that the information was created as of the date listed, reflected views as of that date, should be considered in the context of the circumstances prevailing at that time and has not been updated since that date. SMFG assumes no obligation to update the information therein to reflect developments which may have occurred after the date of this information SMFG 20