UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)
x		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from            to
OR
o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		Date of event requiring this shell company report

Commission file number:

Kabushiki Kaisha Mitsui Sumitomo Financial Group

(Exact name of registrant as specified in its charter)

Hisayoshi Masawaki
1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan
Telephone: +81-3-3282-8111     Facsimile: +81-3-4333-9954

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Copies to:
Theodore A. Paradise, Esq.
Michael T. Dunn, Esq.
Davis Polk & Wardwell LLP
Izumi Garden Tower 33F, 1-6-1 Roppongi, Minato-ku, Tokyo 106-6033, Japan
Telephone: +81-3-5561-4421 Facsimile: +81-3-5561-4425

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on which Registered
Common stock, without par value		The New York Stock Exchange*

* Not for trading, but only in connection with the listing of the American Depositary Shares, each American Depositary Share representing 1/5th of the registrant’s common
stock.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
At March 31, 2010, the following shares of capital stock were outstanding: (1) 1,414,055,625 shares of common stock (including
17,070,300 shares of common stock held by the registrant and its consolidated subsidiaries and equity-method associates as treasury stock),
and (2) 70,001 shares of first series Type 6 preferred stock.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.						Yes o		No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.						Yes o		No o
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.						Yes o		No x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).						Yes o		No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):				Large Accelerated Filer o      Accelerated Filer o      Non-Accelerated Filer x
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
		U.S. GAAP o      International Financial Reporting Standards as issued by the International Accounting Standards Board x						Other o
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.						Item 17 o		Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).						Yes o		No o

 

 

TABLE OF CONTENTS

				Page
Certain Defined Terms, Conventions and Presentation of Financial Information					1
Cautionary Statement Regarding Forward-Looking Statements					2
PART I					3
Item 1.		Identity of Directors, Senior Management and Advisers			3
1.A.		Directors and Senior Management			3
1.B.		Advisers			3
1.C.		Auditors			3
Item 2.		Offer Statistics and Expected Timetable			3
Item 3.		Key Information			4
3.A.		Selected Financial Data			4
3.B.		Capitalization and Indebtedness			7
3.C.		Reasons for the Offer and Use of Proceeds			7
3.D.		Risk Factors			7
Item 4.		Information on the Company			20
4.A.		History and Development of the Company			20
4.B.		Business Overview			21
4.C.		Organizational Structure			50
4.D.		Property, Plant and Equipment			51
Item 4A.		Unresolved Staff Comments			51
Item 5.		Operating and Financial Review and Prospects			51
5.A.		Operating Results			63
5.B.		Liquidity and Capital Resources			92
5.C.		Research, Development, Patents and Licenses			97
5.D.		Trend Information			98
5.E.		Off-balance Sheet Arrangements			98
5.F.		Tabular Disclosure of Contractual Obligations			102
Item 6.		Directors, Senior Management and Employees			102
6.A.		Directors and Senior Management			102
6.B.		Compensation			108
6.C.		Board Practices			109
6.D.		Employees			113
6.E.		Share Ownership			114
Item 7.		Major Shareholders and Related Party Transactions			118
7.A.		Major Shareholders			118
7.B.		Related Party Transactions			119
7.C.		Interests of Experts and Counsel			119
Item 8.		Financial Information			119
8.A.		Consolidated Statements and Other Financial Information			119
8.B.		Significant Changes			120
Item 9.		The Offer and Listing			120
9.A.		Listing and Details			120
9.B.		Plan of Distribution			121
9.C.		Markets			122
9.D.		Selling Shareholders			122
9.E.		Dilution			122
9.F.		Expenses of the Issue			122
Item 10.		Additional Information			122
10.A.		Share Capital			122
10.B.		Memorandum and Articles of Incorporation			123
10.C.		Material Contracts			133
10.D.		Exchange Controls			133

10.E.		Taxation			134
10.F.		Dividends and Paying Agents			138
10.G.		Statement by Experts			138
10.H.		Documents on Display			138
10.I.		Subsidiary Information			138
Item 11.		Quantitative and Qualitative Disclosures about Credit, Market and Other Risk			139
Item 12.		Description of Securities Other than Equity Securities			149
12.A		Debt Securities			149
12.B		Warrants and Rights			149
12.C		Other Securities			149
12.D		American Depositary Shares			150
PART II					157
Item 13.		Defaults, Dividend Arrearages and Delinquencies			157
Item 14.		Material Modifications to the Rights of Security Holders and Use of Proceeds			157
Item 15.		Controls and Procedures			157
Item 16A.		Audit Committee Financial Expert			157
Item 16B.		Code of Ethics			157
Item 16C.		Principal Accountant Fees and Services			157
Item 16D.		Exemptions from the Listing Standards for the Audit Committee			157
Item 16E.		Purchases of Equity Securities by the Issuer and Affiliated Purchasers			157
Item 16F.		Change in Registrant’s Certifying Accountant			158
Item 16G.		Corporate Governance			158
PART III					158
Item 17.		Financial Statements			158
Item 18.		Financial Statements			158
Item 19.		Exhibits			158
SIGNATURES					159
SELECTED STATISTICAL DATA					A-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS					F-1
ANNEX A. CONSOLIDATED FINANCIAL INFORMATION FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2010					S-1

CERTAIN DEFINED TERMS, CONVENTIONS AND
PRESENTATION OF FINANCIAL INFORMATION

       As used in this registration statement, unless the context otherwise requires, “SMFG”, the “Company”, “we”, “us”, “our” and similar terms refer to Sumitomo Mitsui Financial Group, Inc. as well as to its subsidiaries, as the context requires. References to the “Group” are to us and our subsidiaries and affiliates taken as a whole. “SMBC” and the “Bank” refer to Sumitomo Mitsui Banking Corporation or to Sumitomo Mitsui Banking Corporation and its consolidated subsidiaries taken as a whole, depending on the context. The Bank is our main subsidiary.

       In this registration statement, all of our financial information is presented on a consolidated basis, unless we state otherwise. As used in this registration statement, “IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Boards or “IASB”, and “Japanese GAAP” means accounting principles generally accepted in Japan. Our consolidated financial information in this registration statement has been prepared in accordance with IFRS, except for the risk-weighted capital ratios, the segment results of operation and some other specifically identified information, which are prepared in accordance with Japanese banking regulations or Japanese GAAP. Unless otherwise stated or the context otherwise requires, all amounts in the financial statements contained in this registration statement are expressed in Japanese yen.

       Our fiscal year ends on March 31.

       Unless otherwise specified or required by the context: references to “days” are to calendar days; references to “years” are to calendar years and to “fiscal years” are to our fiscal years ending on March 31; references to “$”, “dollars” and “U.S. dollars” are to United States dollars; references to “euros” and “€” are to the currency of those member states of the European Union which are participating in the European Economic and Monetary Union pursuant to the Treaty on European Union; references to “£” and “British pound sterling” are to the currency of the United Kingdom; and references to “yen” and “¥” are to Japanese yen. Unless otherwise specified, we use the median exchange rates for buying and selling spot dollars, or other currencies, by telegraphic transfer against yen as determined by the Bank on March 31, 2010 when converting currencies into yen.

       Unless otherwise indicated, in this registration statement, where information is presented in millions, billions or trillions of yen or thousands, millions or billions of dollars, amounts of less than one thousand, one million, one billion or one trillion, as the case may be, have been rounded. Accordingly, the total of figures presented in columns or otherwise may not equal the total of the individual items. All percentages have been rounded to the nearest percent, one-tenth of one percent or one-hundredth of one percent, as the case may be, except for capital ratios, which have been truncated.

       We implemented a 100-for-1 stock split of shares of our common stock and adopted a unit share system effective on January 4, 2009, pursuant to which one hundred shares constitutes one unit of shares. The total number of authorized shares of our common stock increased from 15,000,000 shares to 1,500,000,000 shares, and the total number of shares of our common stock issued increased from 7,890,804.77 shares to 789,080,477 shares. The 100-for-1 stock split and the adoption of the unit share system does not apply to shares of our preferred stock. Numbers of shares of our common stock and per share information for our common stock, for example historical dividend information, in this registration statement have been retroactively adjusted to reflect the 100-for-1 stock split effective on January 4, 2009.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

       When included in this registration statement, the words, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “probability”, “risk”, “project”, “should”, “seek”, “target”, “will” and similar expressions, among others, identify forward-looking statements. You can also identify forward-looking statements in the discussions of strategy, plans or intentions. Such statements, which include, but are not limited to, statements contained in “Item 3. Key Information—Risk Factors”, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk”, reflect our current views with respect to future events and are inherently subject to risks, uncertainties and assumptions, including the risk factors described in this registration statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described here as anticipated, believed, estimated, expected or intended.

       Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ from those in the forward-looking statements as a result of various factors, and the differences may be material. Potential risks and uncertainties include, without limitation, the following:

•

the fragility of any economic recovery, both globally and in Japan;

•

declines in the value of our securities portfolio;

•

insufficient liquidity;

•

problems of other financial institutions;

•

constraints on our operations due to capital adequacy requirements;

•

changes in capital adequacy requirements and in laws and regulations affecting our business;

•

regulatory limits on the amount of deferred tax assets which may be included in our and the Bank’s regulatory capital;

•

a significant downgrade of the Bank’s credit rating;

•

incurrence of significant credit-related costs;

•

our ability to successfully implement our business and capital strategy;

•

changes in interest rates and exchange rates;

•

exposure to new risks as we expand the scope of our business;

•

the success of our business alliances including those in the consumer finance industry;

•

failure to hire and retain qualified employees;

•

failure to protect or properly control personal information;

•

regulatory sanctions; and

•

suspension or limitation of dividends on the shares, depending on our financial condition.

       Given these and other risks and uncertainties, you should not place undue reliance on forward-looking statements, which speak only as of the date of the filing of this registration statement. We expressly disclaim any obligation to update or to announce publicly any revision to any of the forward-looking statements contained in this registration statement to reflect any changes in events, conditions, circumstances or other developments upon which any such statement is based. The information contained in this registration statement identifies important factors in addition to those referred to above that could cause differences in our actual results.

PART I

Item 3. Key Information

         3.A. SELECTED FINANCIAL DATA

Selected Financial Data

       The following selected financial data as of and for each of the two fiscal years ended March 31, 2010 and 2009 have been derived from our consolidated financial statements included in this registration statement. You should read these data together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements included in this registration statement.

		For the fiscal year ended and at March 31,
		2010				2009
		(In millions, except per share data)
Consolidated income statement data:
Interest income		¥	1,766,047			¥	2,164,048
Interest expense			346,810				676,293
Net interest income			1,419,237				1,487,755
Fee and commission income			650,437				570,603
Fee and commission expense			121,716				116,240
Net fee and commission income			528,721				454,363
Net trading income			330,130				134,298
Net income (loss) from financial assets at fair value through profit or loss			75,579				(17,951	)
Net investment income			178,552				159,511
Other income			232,334				193,119
Total operating income			2,764,553				2,411,095
Impairment charges on financial assets			258,641				1,240,710
Net operating income			2,505,912				1,170,385
General and administrative expenses			1,096,957				992,487
Other expenses			236,760				261,770
Operating expenses			1,333,717				1,254,257
Share of post-tax loss in associates and joint ventures			37,461				54,318
Profit (loss) before tax			1,134,734				(138,190	)
Income tax expense (benefit)			488,041				(56,166	)
Net profit (loss) for the fiscal year		¥	646,693			¥	(82,024	)
Profit (loss) attributable to:
Shareholders of Sumitomo Mitsui Financial Group, Inc.		¥	528,692			¥	(154,954	)
Non-controlling interests			118,001				72,930
Earnings per share:
Basic		¥	512			¥	(214	)
Diluted			482				(260	)
Weighted average number of common stocks in issue (in thousands of shares)			1,017,066				772,349
Dividends per share in respect of each fiscal year:
Common stock		¥	65			¥	140
		$	0.70			$	1.43

       The median exchange rate quotation by the Bank for buying and selling spot dollars by telegraphic transfer against yen on October 15, 2010 was ¥81.59 = $1.00.

       These exchange rates are reference rates and are neither necessarily the rates used to calculate ratios nor the rates used to convert dollars to yen in the consolidated financial statements contained in this registration statement.

         3.B. CAPITALIZATION AND INDEBTEDNESS

       The following table sets forth our capitalization and indebtedness at March 31, 2010. This table should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements, including the Notes thereto, included in this registration statement.

         3.C. REASONS FOR THE OFFER AND USE OF PROCEEDS

       Not applicable.

         3.D. RISK FACTORS

        Investing in our securities involves risks. You should carefully consider the risks described below as well as all the other information in this registration statement, including, but not limited to, our consolidated financial statements and related Notes and “Item 11. Quantitative and Qualitative Disclosures about Credit, Market and Other Risk”. Our

business, operating results and financial condition could be adversely affected by any of the factors discussed below or other factors. The trading prices of our securities could also decline due to any of these factors or other factors. This registration statement also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, the risks faced by us described below and elsewhere in this registration statement. See “Cautionary Statement Regarding Forward-Looking Statements”. Forward-looking statements in this section are made only as of the filing date of this registration statement.

Risks Related to the Current Financial Environment

Recent economic recovery may be fragile and may not be sustainable.

       The global economy is emerging from the sharp deterioration triggered by the financial crisis and has been on a recovery trend since the latter half of 2009. However, this recovery may be fragile and partially attributable to the effects of various government economic stimulus efforts. The sustainability of the recovery is uncertain, particularly after the effects of these various government stimulus programs subside. Without further government action, deflationary pressures and other negative factors may prevent the recovery from continuing. In Japan, a persistently strong yen against currencies such as the U.S. dollar has begun to produce deflation and may negatively affect corporate earnings and exports, all of which could hamper economic growth. Unemployment in Japan has remained at a relatively high level since spring 2009; chronic unemployment could negatively affect consumer confidence, private consumption and economic activity. The global economic recovery may also be harmed by the potential inability of emerging countries, such as Dubai, and companies based there, to repay debt obligations, the sovereign debt crises in Greece and other parts of Europe as well as recent volatility in global capital markets.

       Although the Government of Japan has taken measures to lift the economy further and to mitigate the negative effects of a strong yen, the content and possible effects of any economic stimulus measures are difficult to predict. Any such government efforts may be different from those passed by the formerly governing Liberal Democratic Party.

       The outlook for the Japanese and global economies is uncertain. While some emerging countries show signs of recovery and some developed countries are implementing measures to stimulate their economies, nominal GDP growth in Japan may remain near zero percent in the near future. The resulting economic pressure on Japanese consumers and businesses, including increases in delinquencies and default rates, a general lack of confidence in the financial markets and fears of a further worsening could adversely affect our business, financial condition and operating results.

We have recently experienced and may experience further impairment losses and unrealized losses on the Bank’s equity securities portfolio, which could negatively affect our financial condition and operating results.

       Declines in market prices for domestic and foreign securities in recent periods have resulted in impairment losses as well as unrealized losses on investment securities. The reported value of our investment securities, including our holdings of Japanese equity securities, depends on the prices of the securities or similar instruments in the market. In the case of a listed equity security, we determine whether it is impaired primarily based on its market price. If we conclude that a particular security is impaired, we calculate impairment loss based on the market price of that security at the end of the fiscal period. Declines in the Japanese equity markets could result in further losses from impairment of the securities in our equity securities portfolio or sales of these securities, adversely affecting our results of operations and financial condition.

       Our regulatory capital position and that of the Bank depend in part on the fair value of our equity securities portfolio, since 45% of unrealized gains are counted as Tier II capital while unrealized losses reduce net assets and Tier I capital. Substantial declines in the Japanese equity markets would negatively affect our capital position and the capital position of the Bank, and limit the Bank’s distributable amounts.

       We may further reduce our holdings of equity securities in order to reduce financial risks. Any disposal of equity holdings in our customers’ shares could adversely affect our relationships with those customers.

       Our exposure to equity market volatility may increase as a result of our strategic investments in and outside Japan including additional investments in our subsidiaries and other investees. From time to time, we have made and may

continue to make strategic investments and provide financial assistance to financially distressed companies and companies otherwise unable to readily raise funds through the capital markets, such as in the form of debt for equity swaps and the acquisition of equity, including new securities. Our strategic investments could result in losses. Our strategic investments may not be successful.

Our liquidity, financial and capital conditions may be adversely affected by market and economic conditions.

       Adverse market and economic conditions in the domestic and global economy may limit or adversely affect our access to capital required to operate our business. Adverse conditions may also limit or adversely affect our ability to replace maturing liabilities in a timely manner and satisfy statutory capital requirements. We need liquidity to pay our operating expenses, pay interest on debt and dividends on capital stock, maintain our lending activities and meet deposit withdrawals. Without sufficient liquidity, we will be forced to curtail our operations, and our business will suffer.

       We depend on our ability to continue to attract deposits and to refinance our debt and capital security obligations at commercially acceptable rates, and we continue to finance a portion of our operations with short-term funds. Deposits at the Bank and other internal sources of liquidity may prove to be insufficient, and, in that event, we may be unable to obtain additional financing on favorable terms, or at all.

       We partially finance our global operations in local currencies, and may consequently face exposure to instability in local markets. If local markets experience volatility, we may be unable to access external funding sources on favorable terms or at all, which could adversely affect our financial condition and results of operations.

The problems of other financial institutions could adversely affect us.

       We regularly execute transactions with counterparties in the financial services industry. Many of these transactions expose us to credit risk in the event of default of a counterparty or client. With respect to secured transactions, our credit risk may be exacerbated when the collateral cannot be foreclosed on or is liquidated at prices not sufficient to recover the full amount of the loan or other exposure due to us. Losses from or impairments to the carrying value of our investments in and loans to financial institutions could materially and adversely affect our business, financial condition and results of operations. In addition, if the funds collected by the Deposit Insurance Corporation of Japan, or DIC, are insufficient to insure the deposits of failed Japanese banks, the insurance premiums we pay to DIC will likely be increased, which could adversely affect our business and operating results.

Governmental policy to stabilize the financial markets may not achieve the intended effects.

       In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, governments, including the Government of Japan, have been implementing a broad array of emergency measures to stabilize the domestic and global financial markets and stimulate renewed economic growth. However, despite these measures, the recent improvements in economic and financial market conditions may not continue if government efforts do not lead to sustainable growth after the effects of government stimulus efforts subside, which could adversely affect our business and operating results.

Risks Related to Our Business

Capital requirements could constrain our and the Bank’s operations.

       We and the Bank are subject to capital adequacy requirements established by the Financial Services Agency of Japan, or the FSA. These requirements provide for a minimum target ratio of capital to risk-weighted assets of 8.0% on a consolidated basis for us, and both on a consolidated and non-consolidated basis for the Bank. At least half of the required capital must be maintained in the form of Tier I capital. Our and the Bank’s capital ratios could decline as a result of decreases in Tier I and Tier II capital or increases in risk-weighted assets. The following circumstances, among others, would reduce the risk-weighted capital ratio of us and the Bank:

•

net losses;

	•		increase of risk-weighted assets as a result of expansion of the business, strategic investments or rise in parameters including probability of defaults;
	•		declines in the value of securities; and
	•		an inability to refinance subordinated debt obligations.

       If our Tier I capital is reduced, then amounts that may be credited as Tier II capital may be reduced as well because at least half of our capital must consist of Tier I capital. Failure by us or the Bank to maintain the minimum risk-weighted capital ratios may result in administrative actions or sanctions, which may indirectly affect our or the Bank’s ability to fulfill our and the Bank’s contractual obligations or may result in restrictions on our and the Bank’s businesses.

       We and the Bank have adopted the advanced internal ratings-based, or IRB, approach for measuring exposure to credit risk and the advanced measurement approach to measure exposure to operational risk. If the FSA revokes its approval of such implementation or otherwise changes its approach to measure the capital adequacy ratios, our and the Bank’s ability to maintain capital at the required levels may be adversely affected. Some of the Bank’s domestic and overseas subsidiaries are also subject to the local capital ratio requirements. Failure of those subsidiaries to meet local requirements may result in administrative actions or sanctions imposed by local regulatory authorities.

Potential changes in capital adequacy requirements and other regulations could adversely affect our capital ratios and operating results.

       We endeavor to increase our capital stock, capital surplus and retained earnings in order to improve the quality and quantity of our regulatory capital. However, the recent financial and economic turmoil is prompting authorities to review and revise capital adequacy guidelines, particularly in relation to quality of capital and accounting standards, and such revisions could adversely affect our capital ratios.

       In light of the recent financial crisis, the Basel Committee on Banking Supervision, or the Basel Committee, issued a package of measures to enhance the Basel II framework in July 2009. An increase in the risk weights of resecuritization instruments and reconsideration of regulations on trading books will be implemented from the end of 2011. The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee, considered an agreement on establishment of new standards to strengthen regulation of the banking sector following the statement at the Pittsburgh summit in September 2009, and the Basel Committee issued a consultative document entitled “Strengthening the resilience of the banking sector” in December 2009. The Basel Committee proposals focus on raising the quality of the capital base, enhancing risk coverage, inhibiting leverage, reducing procyclicality and the introduction of liquidity regulation. In accordance with comments on the consultative document, and results on the quantitative impact study and on the economic impact assessment analyses, the Group of Central Bank Governors and Heads of Supervision reached broad agreement on capital and liquidity reform package in July 2010, and published higher global minimum capital standards in September 2010. The minimum common equity and Tier 1 requirements under the new standards will be phased in between January 1, 2013 and January 1, 2015, and the capital conservation buffer will be phased in between January 1, 2016 and year end 2018 becoming fully effective on January 1, 2019. The countercyclical buffer will be implemented according to national circumstances and, when in effect, it would be introduced as an extension of the conservation buffer range. On August 19, 2010, the Basel Committee released the consultative document outlining a proposal to ensure the loss absorbency of regulatory capital at the point of non-viability (gone concern contingent capital). In addition, the discussion on going concern contingent capital are now in progress. Furthermore, the Basel Committee and the Financial Stability Board are developing an integrated approach to systematically important financial institutions which could include combinations of capital surcharges, contingent capital and bail-in debt. These and further similar developments could adversely affect our capital ratios and operating results.

       With respect to these financial regulations, we have been preparing for the possible future implementation of stricter guidelines through various measures. For example, we have issued our common stock, and repurchased and cancelled preferred securities issued by our overseas special purpose subsidiaries and perpetual subordinated debt issued by the Bank. However, our capital policy strategy may not be successful. Such implementation could cause our

capital ratios to be insufficient for regulatory purposes and could lead us to engage in capital conservation measures or may require us to raise more common equity, which may lead to dilution of earnings and lower returns on equity.

There are regulatory limits on the amount of deferred tax assets which may be included in our and the Bank’s regulatory capital and these limits may become tighter under the new regulatory framework.

       Under the FSA’s capital adequacy guidelines effective from March 31, 2007, the amount of net deferred tax assets established pursuant to Japanese GAAP that major banks and their holding companies may include in regulatory capital for capital ratio purposes is limited to 20% of Tier I capital. Where the net deferred tax assets of a bank or bank holding company exceed this 20% limit, its Tier I capital for capital ratio purposes must be adjusted by deducting the amount in excess of the limit. If the percentages of our capital and the capital of the Bank that consist of net deferred tax assets increase, or if the limits are further decreased, these limits could adversely affect our and the Bank’s capital ratios. Furthermore, under the agreement of July 26, 2010, deferred tax assets that arise from timing differences will be recognized as part of the common equity component of Tier I, with recognition capped at 10% of the bank’s common equity component, while deferred tax assets that arise from net loss carry-forwards will be deducted from the common equity component of Tier I. We anticipate that the FSA will change its capital adequacy guidelines to reflect the Basel Committee’s package of reforms, which would adversely affect our capital ratios.

A significant downgrade of our credit ratings could have a negative effect on us.

       Our credit ratings may not be maintained. In particular, a material downgrade of our credit ratings may have the following effects:

	•		we may have to accept less favorable terms in our transactions with counterparties, including capital raising activities, or may be unable to enter into certain transactions;
	•		our hybrid securities procurement cost may increase;
	•		foreign regulatory bodies may impose restrictions on our overseas operations;
	•		existing agreements or transactions may be cancelled; and
	•		we may be required to provide additional collateral in connection with derivatives transactions.

       Any of these effects could have a negative impact on our profitability and other operations and could adversely affect our capital position, financial condition and results of operations.

Credit costs related to non-performing loans could increase.

       Our non-performing loans may increase significantly above the current level if economic conditions worsen or do not improve. Furthermore, our credit costs could increase if changes in law or government policies have an adverse impact on the rights of creditors. Our allowance for loan losses is based on past experience, evaluations, assumptions and estimates about our borrowers, valuation of collateral and guarantees, general economic and business conditions and other factors, many of which we cannot control and which are inherently uncertain and may fail to provide an accurate representation of actual future incurred losses.

       We have significant exposure to small and mid-sized enterprises, or SMEs. For example, three of our consolidated subsidiaries, the Bank, Kansai Urban Banking Corporation and The Minato Bank, Ltd., continued incurring certain credit costs during the fiscal year ended March 31, 2010. If the economy worsens, it could adversely affect our credit costs.

       We have exposure to housing loans both on the Bank’s account and through other subsidiaries. The continuation of the difficult employment environment or a further decline in residential property values could cause us to incur increased credit costs due to rising defaults by individual borrowers or deterioration in the credit profile of borrowers.

We face significant challenges in achieving the goals of our business strategy and our business may not be successful.

       Although we believe we have targeted appropriate business areas, our initiatives to offer new products and services and to increase sales of our existing products and services may not succeed if current market conditions do not stabilize, market opportunities develop more slowly than expected, our initiatives have less potential than we envisioned originally, or the profitability of these products and services is undermined by competitive pressures. Consequently, we may be unable to achieve or maintain profitability in our targeted business areas.

Our trading and investment activities expose us to interest rate, exchange rate and other risks.

       We undertake significant trading and investment activities involving a variety of financial instruments. Our income from these activities is subject to volatility caused by, among other things, changes in interest rates, exchange rates and market prices of investment securities. Increases in interest rates could substantially decrease the value of our fixed income portfolio mainly represented by Japanese government bonds, and any unexpected change in yield curves could adversely affect the value of our bond and interest rate derivative positions, resulting in lower-than-expected revenues from trading and investment activities. In addition, extreme market volatility, like that which prevailed during the turmoil in the global financial markets, could make it difficult, or in some cases impossible, to value some of the financial instruments that we hold. Market volatility may also result in significant unrealized losses or impairment losses on such instruments. Furthermore, ratings downgrades of other investment securities by major rating agencies may also cause declines in the value of our securities portfolio.

We are exposed to new or increased risks as we expand the range of our products and services and the geographic scope of our business.

       We are expanding distribution channels and our range of products and services beyond our traditional commercial banking business to other services as part of our business strategy. Accordingly, we will need to develop, invest in and implement systems to manage new products and services and distribution channels. We may incur expenses necessary to address regulatory developments that enhance consumer protections, including improvements to information technology systems and employee training. Some of the risks associated with our new services and businesses will be types with which we have no or only limited experience. As a result, our risk management systems may prove to be insufficient and may not be effective in all cases or to the degree required.

       In particular, the Bank’s acquisition of Nikko Cordial Securities Inc. has significantly expanded our exposure to the domestic retail securities business and the risks that such business entails, including high levels of competition and regulatory and compliance risks. Through the acquisition, we obtained: (i) the entire business of the former Nikko Cordial Securities, including the domestic retail and M&A advisory businesses; (ii) certain businesses of the former Nikko Citigroup, including the domestic debt and equity underwriting businesses; (iii) other subsidiaries and affiliates related to the target businesses; (iv) strategic shareholdings; and (v) other assets including the “Nikko” brand and related trademarks. Along with strengthening Nikko Cordial Securities’ position as a securities and investment banking company that can provide both retail and full-line wholesale securities services, including overseas operations, we are further exposed to the risks associated with the securities business.

       As we expand the scale of our overseas assets and businesses, we have entered into several investments and alliances with commercial banking institutions, particularly in Asia. This expansion of our overseas business, and our strategy to further improve our presence in the international markets may further increase our exposure to adverse developments in foreign economies and markets including interest rate and foreign exchange rate risk and regulatory and political risk. Our overseas expansion also exposes us to the compliance risk and the specific credit and market risks inherent to the countries and regions in which we operate, including the risk of deteriorating conditions in specific national or regional economies or in the credit profile of overseas borrowers.

Our business alliances may adversely affect our financial condition and results of operations.

       We have entered into a number of business alliances with related companies and other financial institutions, including with entities involved in the securities, consumer finance, credit card, leasing and asset management businesses, and we may enter into additional business alliances and make additional investments and acquisitions in the

future. It is uncertain whether we will receive the expected benefits from our business alliances. If our strategy with respect to an existing or future alliance changes or is unsuccessful, we may decide or be required to terminate that alliance. For example, the Bank acquired the operations of the former Nikko Cordial Securities and related businesses based in part upon certain assumptions regarding their business potential and possible synergies with other operations. To the extent our assumptions prove wrong, we may be unable to achieve the benefits envisioned from the transaction. The securities industry in Japan is highly competitive and was adversely affected by decreased trading and investment by individuals in light of the global economic crisis. If these trends continue or worsen, the results of the businesses acquired may deteriorate and we may be unable to achieve the targeted synergies.

       Some of our alliance investments are accounted for under the equity method. For the fiscal year ended March 31, 2010, we recognized net losses under the equity method in connection with some of these alliance investments. Net losses by equity method investees may occur which might cause us to recognize further losses in the future. Furthermore, we may lose the capital we have invested in business alliances or may incur impairment losses on securities acquired in such alliances, and we may incur credit costs resulting from our credit exposure to business alliance partners if they fail or do not perform as expected. In addition, due to some difficulties, such as increased regulation, some business alliance partners, including those engaged in the consumer finance or credit card businesses, engage in activities that are more volatile and have a higher risk profile than our core commercial banking business.

       We may also be required under contractual or other arrangements to provide financial support, including credit support and equity instruments, to business alliance partners in the future. Furthermore, we may incur unanticipated costs and liabilities in connection with business alliances including claims by customers or personnel of the businesses acquired prior to business alliances, and actions by regulatory authorities.

       In addition, in connection with acquisitions an impairment charge must be recognized when the recoverable amount of the goodwill or intangible assets of the business is lower than the carrying amount at the time of impairment testing, which is performed annually or whenever there is an indication that the goodwill or intangible assets may be impaired.

Our consumer finance strategy exposes us to risks in that industry.

       We have strategic alliances with companies engaging in the consumer finance business and have substantial and increasing exposure to the Japanese consumer finance industry through their businesses, some of which are our consolidated subsidiaries. We have substantial loans outstanding to consumer finance companies, including Promise Co., Ltd., in which the Bank holds a 22% stake, and its subsidiary At-Loan Co., Ltd. In addition to our exposure through loans, we have an equity investment in Promise and direct investments in other consumer finance companies, including the Bank’s 51% stake in ORIX Credit Corporation, a consumer finance provider with a high market share among premium card loan providers, which we acquired in July 2009.

       Our strategic alliances and joint businesses with credit card and consumer finance companies have been and will continue to be adversely affected by changes in regulations in the consumer finance industry.

       Changes in market conditions affecting, and the regulation of, consumer finance companies have caused market prices for shares of consumer finance companies to decline and have severely adversely affected the business performance of consumer finance companies. As a result of unfavorable court decisions, claims for refunds of so-called “gray zone” interest on loans in excess of the maximum rate prescribed by the Interest Rate Restriction Act (ranging from 15% to 20%) up to the 29.2% maximum rate permitted under the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates, or the Contributions Act have increased substantially. While Promise and other major companies in the consumer finance industry have recorded provisions for interest repayment, these provisions may be insufficient. December 2006 amendments to laws regulating moneylenders increased the authority of government regulators, eliminated gray zone interest and introduced an upper limit on aggregate credit extensions to an individual by moneylenders at one-third of the borrower’s annual income effective from June 2010. After the promulgation of such amendments, Promise and other consumer finance companies reduced their interest rates on loans in preparation for the prohibition of gray zone interest. As a consequence, margins earned by consumer finance companies, as well as the amounts of loans extended, have decreased. As a result, Promise and our other consumer finance affiliates are engaged in efforts to restructure their consumer finance businesses and diversify their profit structure and we may be required to provide financial support through additional loans or equity investments. However,

such efforts may not be successful and could adversely affect their operations and may cause us to recognize additional losses.

Our strategic alliances with and investments in credit card companies expose us to risks in that industry.

       Economic and regulatory trends in Japan have adversely affected the profitability of credit card companies that operate in Japan. The uncertain economic environment has increased caution among consumers and contributed to a reduction in the volume of credit card transactions. Recent regulatory changes in Japan have also affected the operations and profitability of companies in the credit card industry.

       We have an investment in Cedyna Financial Corporation, or Cedyna, a credit card company created in April 2009 through the merger of Central Finance Co., Ltd., OMC Card, Inc. and QUOQ Inc. Cedyna recorded a large net loss for the fiscal year ended March 31, 2010 due in part to provision for interest repayment, increased severance payments and increase in reserve for possible loan losses. The net loss was also partially due to factors that are negatively affecting companies in the consumer finance industry. For example, Cedyna is exposed to liabilities related to the repayment of gray zone interest funds and a substantial increase on claims for repayment could result in further losses.

       Moreover, the December 2006 amendments to laws regulating moneylenders, which introduced interest and credit extension limits effective from June 2010, could also have a negative effect on the profitability of credit card companies. Revisions to the Installment Sales Act enacted in June 2008 which, except for certain provisions, took effect in December 2009, impose more stringent regulations on credit card companies, including an expanded scope of regulation, measures to prevent inappropriate extensions of credit and measures to prevent excessive lending. These revisions have had and continue to have an adverse impact on companies in the credit card industry, including Cedyna.

       If these economic and regulatory trends continue or accelerate, our investments in credit card companies could materially and adversely affect our capital adequacy ratio, financial condition and results of operations. In addition, we may be required to provide financial support through additional loans or equity investments. However, such actions may not be successful and may cause us to recognize additional losses.

Deferred tax assets may decrease due to a reduction of our expected future taxable income.

       We recognize deferred tax assets relating to tax losses carried forward and deductible temporary differences only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the temporary differences can be utilized. If the current or future economic situation indicates it is no longer probable that our deferred tax assets will be utilized, we will assess them for realizability and may reduce them as necessary. This reduction could have an adverse effect on our financial condition and results of operations.

Declines in actual returns on our plan assets or revised actuarial assumptions for retirement benefits may adversely affect our financial condition and results of operations.

       We have incurred in the past, and may incur in the future, declines in actual returns on plan assets and changes in the discount rates and other actuarial assumptions. If actual returns on plan assets are lower than expected returns on plan assets or if we revise the discount rates and other assumptions, we may incur actuarial losses which may have an adverse effect on our financial condition and our results of operations. Unrecognized actuarial losses may be recognized as losses in future periods. In addition, we may experience past service costs in the future resulting from amendments to the plans.

Failure to protect or properly control personal information held by us may adversely affect our business.

       We keep and manage personal information obtained from customers in relation to our banking, securities, credit card, consumer finance and other businesses. An institution like ours that possesses personal information may be required to provide compensation for economic loss and emotional distress arising out of a failure to protect such information in accordance with the Act Concerning Protection of Personal Information. Although we have implemented controls to protect the confidentiality of personal information, unauthorized disclosures of personal information could subject us to complaints and lawsuits for damages from adversely affected customers. In addition, we may be subject to administrative actions or sanctions or could incur additional expenses associated with making

necessary changes to our security systems. Damage to our reputation could lead to a decline in new customers and the loss of existing customers.

We must hire and retain qualified employees to succeed in implementing our business strategy.

       Our success in executing our business strategy depends in part on our ability to attract and retain employees with professional experience and specialized product knowledge. As we expand our businesses into new areas, we need to hire additional personnel to build these businesses, including financial consultants to staff our non-interest income retail banking products business and employees for the domestic retail business. We face competition in hiring highly skilled business, technical and other personnel not only from other commercial banks, but also from investment banks, consumer finance companies and other financial services providers. There can be no assurance that we will succeed in attracting, integrating and retaining appropriately qualified personnel.

We rely on our information technology systems, and their failure could harm our relationships with customers or adversely affect our provision of services to customers and our internal operations.

       In all aspects of our business, we use information systems to deliver services to and perform transactions on behalf of our customers as well as for back-office operations. We therefore depend on the capacity and reliability of the electronic and information systems supporting our operations. We may encounter service disruptions in the future, owing to failures of these information systems. Our information systems are subject to damage or incapacitation as a result of quality problems, human error, natural disasters, power loss, sabotage, computer viruses, acts of terrorism and similar events. Our information technology centers are subject to earthquake risk. While we have taken steps to protect our information in the information technology centers from earthquake risk, including by establishing data recovery capability and functionality, these measures may not be sufficient. In addition, we may not be prepared to address all contingencies that could arise in the event of a major disruption of services.

Our risk management policies and procedures may not adequately address unidentified or unanticipated risks.

       We have devoted significant resources to strengthening our risk management policies and procedures and expect to continue doing so in the future. Nevertheless, particularly in light of the continuing evolution of our operations and expansion into new areas, our policies and procedures designed to identify, monitor and manage risks may not be fully effective. Some of our methods of managing risks are based upon our use of observed historical market behavior and thus may not accurately predict future risks.

       We are exposed to a variety of operational, legal and regulatory risks throughout our organization. Management of these risks requires, among other things, policies and procedures to properly record and verify large numbers of transactions and events. However, these policies and procedures may not be fully effective or sufficient. Violation of laws, including the Japanese antitrust and fair trade laws by us or by the Bank, may result in administrative sanctions under the Banking Act. Furthermore, investigations, administrative actions or litigation could commence in relation to violations, which may involve costs, including possible deterioration of our reputation.

We may incur significant additional costs for implementing and maintaining adequate effective internal controls.

       In order to operate as a global financial institution, it is essential for us to have effective internal controls, corporate compliance functions, and accounting systems to manage our assets and operations.

       The Financial Instruments and Exchange Act, or FIEA, requires listed companies to file, together with their annual securities reports, audited internal control reports assessing the effectiveness of their internal controls over financial reporting. We have established internal controls over financial reporting, as well as rules for evaluating those controls, in order to provide reasonable assurance of the reliability of our financial reporting and the preparation of financial statements. However, these controls may not prevent or detect errors. If we are unable to identify and resolve any significant defects or material weaknesses by the end of a particular fiscal year, we will need to report that fact in our annual securities report. If this occurs, our reputation may be damaged, which could lead to a decline in investor confidence in us.

       Moreover, under section 404 of the U.S. Sarbanes-Oxley Act of 2002, which will apply by reason of our status as a reporting company of the U.S. Securities and Exchange Commission, or SEC, our management will be required to assess the effectiveness of our internal control over financial reporting and disclose whether such internal controls are effective. Our accounting auditor also will have to conduct an audit to evaluate and then render an opinion on the effectiveness of our internal control over financial reporting. The requirements of section 404 will first apply to our annual report on Form 20-F for the fiscal year ending March 31, 2012.

       Designing and implementing an effective system of internal control capable of monitoring and managing our business and operations requires significant management and human resources and considerable costs. If we identify any material weaknesses in our internal control system, we may incur significant additional costs for remediating such weaknesses. In addition, if we adopt a new accounting system, we may be required to incur significant additional costs, which may materially adversely affect our financial condition and results of operations.

Our business operations are exposed to risks of natural disasters, terrorism, pandemic and calamities.

       Our business operations are subject to the risks of earthquakes and other natural disasters, pandemics, blackouts, terrorism and other calamities and geopolitical risks, all of which could impair our business operations. Despite our preparation of operation manuals and other backup measures and procedures, a calamity could cause us to suspend operations and could adversely affect our operations and financial condition.

Fraud or other misconduct by employees or others could subject us to losses and regulatory sanctions.

       We are exposed to potential losses resulting from fraud, negligence and other misconduct by our employees and other people. Employees may bind us to transactions that exceed authorized limits or present unacceptable risks, hide from us and our customers unauthorized or unsuccessful activities, improperly use confidential information, or otherwise abuse customer confidences. Individuals may engage in fraudulent activities, including fraudulent use of bank accounts or the use of false identities to open accounts for money laundering, tax evasion or other illegal purposes. Other people could use stolen or forged ATM cards or engage in credit card fraud, and we may be required to indemnify victims of such fraud for related losses. Due to the broad range of businesses in which we engage and our large number of employees, fraud and other misconduct are difficult to prevent or detect, and we may not be able to recover the losses caused by these activities. Our reputation may also be damaged as a result of these activities.

Transactions with counterparties in Iran and other countries designated by the U.S. Department of State as state sponsors of terrorism or that are subject to other U.S. economic sanctions may lead some potential customers and investors to avoid doing business with us or investing in our securities or have other adverse effects.

       U.S. law generally prohibits or substantially restricts U.S. persons from doing business with countries designated by the U.S. Department of State as state sponsors of terrorism, or the Designated Countries, which currently are Cuba, Iran, Sudan and Syria or with countries that are subject to other U.S. economic sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC or other agencies, collectively with the Designated Countries the Restricted Countries, and we maintain policies and procedures designed to ensure compliance with relevant U.S. laws and regulations applicable to U.S. persons. In addition, these policies include an internal credit policy which prohibits new extensions of credit to Iranian entities. Our non-U.S. offices engage in transactions relating to the Restricted Countries on a limited basis and in compliance with applicable laws and regulations, including trade financing with respect to our customers’ export or import transactions, maintenance of correspondent banking accounts and inter-bank money market transactions with Iranian banks, including those that OFAC identifies as “Specially Designated Nationals”. In addition, we maintain a representative office in Iran and provide financing to entities in Iran.

       We do not believe our operations relating to the Restricted Countries materially affect our business, financial condition or results of operations. A limited number of the Bank’s transactions with Cuba, Iran, Sudan and certain other countries that are subject to U.S. economic sanctions were identified and voluntarily disclosed to OFAC as potential violations of U.S. economic sanctions. These transactions resulted from inadvertent operational errors or the lack of familiarity of some Bank personnel with the requirements of the relevant regulations in the past. Since the discovery of these potential violations we have further strengthened our group-wide OFAC compliance program in an effort to prevent the reoccurrence of such potential violations. We settled some of the disclosed potential violations with OFAC

while others remain unsettled. However, in light of the inadvertent nature of such potential violations and the degree to which our strengthened OFAC compliance program aims to mitigate the risk of potential violations, we do not believe that our settlement with OFAC or any possible penalties that OFAC may impose with respect to the other potential violations that remain unsettled will have a material impact on our reputation, financial condition, results of operations or market prices for our securities.

       We are aware of initiatives by U.S. governmental entities and U.S. institutional investors, such as pension funds, to adopt laws, regulations or policies prohibiting transactions with or investment in, or requiring divestment from, entities doing business with Iran and other Designated Countries. It is possible that such initiatives may result in our being unable to enter into transactions involving, retain or acquire entities that are subject to such prohibitions as customers or investors in our securities. In addition, depending on socio-political developments, our reputation may suffer due to our association with the Designated Countries. The above circumstances could have a significant adverse effect on our business or the price of our securities. In addition, the U.S. government has recently enacted legislation designed to restrict economic and financial transactions with Iran. This or similar legislative developments may further limit our business operations.

Our business could be adversely affected by litigation and regulatory proceedings globally.

       We conduct business in many locations in and outside of Japan. We face the risk of litigation and regulatory proceedings in connection with our operations in the jurisdictions in which we operate. For example, if we fail to comply with the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010, which is recently enacted U.S. legislation designed to limit financial transactions with Iran, such failure to comply could result in action against us. Lawsuits and regulatory actions may seek recovery of very large indeterminate amounts or limit our operations, and costs to defend either could be substantial. An adverse judgment or ruling could have a material adverse effect on our business, operating results, financial condition, cash flows and reputation.

Risks Related to Our Industry

Adverse regulatory developments or changes in government policies, economic controls or accounting rules could have a negative impact on our results of operations.

       Our businesses are subject to extensive regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations in Japan and the other jurisdictions in which we operate. Future changes in regulation or fiscal or other policies and their effects are unpredictable and beyond our control.

       Changes in the regulatory environment may adversely affect our financial condition and results of operations. The FSA and regulatory authorities in the United States and other jurisdictions, along with the United Nations, have in recent years made sanctions as a means to promote the prevention of money laundering and terrorism financing a focus of governmental policy relating to financial institutions. Any regulatory action or change in regulatory focus, whether as a result of inspections or regulatory developments, may negatively affect our banking operations in the relevant market and may require expensive remediation. The effects of government initiatives to encourage financial institutions to renegotiate loan terms with troubled SME borrowers are difficult to predict, such as the recently enacted Act Concerning Temporary Measures to Facilitate Financing for SMEs, etc. (Act No. 96 of 2009), which requires, among other things, that financial institutions make efforts to revise loan terms with respect to SMEs and mortgage borrowers.

       Moreover, the FSA’s inspection manual for financial institutions and related guidelines are revised or amended from time to time. Our implementation of any such changes could result in an increase in our administrative expenses, which could have an adverse effect on the results of operations and financial condition of us and the Bank.

We operate in the highly competitive financial services industry.

       Deregulation, consolidation among financial institutions, financial institution diversification and the expanded presence of foreign financial institutions and investors have made the Japanese market for financial services highly competitive. Moreover, competition in overseas markets has intensified due to global consolidation, convergence and alliances among financial institutions. We compete with various types of financial services companies, including:

	•		banking groups, including Japan’s other major banking groups;
	•		government-controlled and government-affiliated entities;
	•		regional banking institutions;
	•		major investment banks;
	•		non-bank finance companies; and
	•		other financial services providers.

       Government actions, such as those taken to stabilize the market and to alter the regulatory framework, may affect our competitive position. In response to the recent financial crisis, the Government of Japan has taken and may adopt policies, including providing fiscal stimulus or extending credit support to other Japanese financial institutions, that adversely affect our competitive position. For example, the Government of Japan recently announced that it would allow the Japan Post Bank Co., Ltd., Japan’s largest deposit-taking institution, to expand its business upon notification to and without future approval of the government. Internationally, various forms of financial support provided by foreign governments to foreign banks and other financial institutions during the current financial crisis may reduce the cost of capital to those institutions and otherwise give them competitive advantages.

       There can be no assurance that we will be able to respond effectively to current or future competition.

        Negative media coverage of Japan’s banking industry or us may have a materially adverse effect on our image and undermine depositor confidence.

       Negative media coverage of Japan’s banking industry or us, even if inaccurate or not applicable to us, may have a materially adverse effect on our image and may undermine depositor confidence, thereby affecting our businesses and results of operations.

Risks Related to Our Shares

Sales of shares by us or the Bank may have an adverse effect on the market value of our shares and may dilute existing shareholders.

       We may issue shares within the unissued portion of our authorized share capital and sell shares held as treasury stock, generally without shareholder vote. In addition, the Bank may sell any of our shares that it holds. Sales of shares in the future may be at prices below prevailing market prices and may be dilutive.

Our ability to pay dividends depends primarily on the financial performance of our principal operating subsidiary, the Bank.

       We are permitted to pay dividends only if we have distributable amounts as of the effective date of the dividend payment, as calculated under the Companies Act of Japan (Act No. 86 of 2005), or the Companies Act. Additionally, as a holding company, our ability to pay dividends depends primarily on our receipt of sufficient dividends from our operating subsidiaries. Statutory provisions regulate the ability of our operating subsidiaries, including the Bank, to pay dividends. If our operating subsidiaries are unable to pay dividends to us in a timely manner and in amounts sufficient to pay our operating and other expenses, as well as dividends to preferred stockholders or to meet our other obligations, then we may not be able to pay dividends to our common stockholders.

Rights of shareholders under Japanese law may be more limited than under the law of other jurisdictions.

       Our corporate affairs are governed by our articles of incorporation, the regulations of our board of directors, our share handling regulations and the provisions of the Companies Act relating to joint stock corporations. Legal principles relating to the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights may be different from or less clearly defined than those that would apply if we were incorporated in another jurisdiction. Shareholders’ rights under Japanese law may not be as extensive as shareholders’ rights under the laws of

other countries. For a more detailed discussion of the relevant provisions under the Companies Act and our Articles of Incorporation, see “Item 10.B. Additional Information—Memorandum and Articles of Incorporation”. In addition, Japanese courts may be unwilling to enforce liabilities against us in actions brought in Japan, including those based upon the securities laws of the United States or any U.S. state.

Because of daily price range limitations under Japanese stock exchange rules, the sale of the shares at a particular price on any particular trading day, or at all, may not be possible.

       Stock prices on Japanese stock exchanges are determined on a real-time basis by the balance between bids and offers. Japanese stock exchanges are order-driven markets without specialists or market makers to guide price formation. To prevent excessive volatility, the exchanges set daily upward and downward price range limitations for each listed stock, based on the previous day’s closing price. Although transactions may continue at the upward or downward limit price if the limit price is reached on a particular trading day, no transactions may take place outside these limits. Consequently, if you wish to sell at a price above or below the relevant daily limit on Japanese stock exchanges, you may not be able to effect a sale at that price on a particular trading day, or at all.

Any suspension of trading on the Tokyo Stock Exchange or other Japanese stock exchange could disrupt the market for our shares and prevent investors from trading our shares.

       In recent periods, the Tokyo Stock Exchange has experienced trading suspensions related to its trading system. Although the Tokyo Stock Exchange has subsequently announced improvements to its trading system, if trading of our shares on the Tokyo Stock Exchange is halted because of suspensions, system malfunctions or other reasons, you may not be able to trade our shares at the time or price you desire, or at all.

It may not be possible for investors to effect service of process within the United States upon us or our directors, corporate auditors or other management members, or to enforce against us or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States.

       We are a joint stock corporation incorporated under the laws of Japan. Almost all of our directors, corporate auditors or other management members reside outside the United States. Many of our assets and the assets of these persons are located in Japan and elsewhere outside the United States. It may not be possible, therefore, for U.S. investors to effect service of process within the United States upon us or these persons or to enforce, against us or these persons, judgments obtained in the U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. We believe that there is doubt as to the enforceability in Japan, in original actions or in actions to enforce judgments of U.S. courts, of claims predicated solely upon the federal securities laws of the United States.

Risks Related to Owning Our American Depositary Shares

As a holder of American Depositary Shares, or ADSs, you have fewer rights than a shareholder and you must act through the depositary to exercise these rights.

       The rights of our shareholders under Japanese law to take actions such as voting their shares, receiving dividends and distributions, bringing derivative actions, examining our accounting books and records and exercising appraisal rights are available only to shareholders of record. Because the depositary, through its custodian, is the record holder of the shares underlying the ADSs, a holder of ADSs will not be entitled to the same rights as a shareholder. In your capacity as an ADS holder, you are not able to bring a derivative action, examine our accounting books and records or exercise appraisal rights, except through the depositary.

Foreign exchange rate fluctuations may affect the U.S. dollar value of our ADSs and dividends payable to holders of our ADSs.

       Market prices for our ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the U.S. dollar amount of cash dividends and other cash payments made to holders of our ADSs would be reduced if the value of the yen declines against the U.S. dollar.

Item 4. Information on the Company

        4.A. HISTORY AND DEVELOPMENT OF THE COMPANY

Legal and Commercial Name

       Our legal name is Sumitomo Mitsui Financial Group, Inc. Our commercial name is Sumitomo Mitsui Financial Group, or SMFG.

Date of Incorporation

       We were established in December 2002.

Domicile and Legal Form

       We are a joint stock corporation incorporated with limited liability under the laws of Japan. Our address is: Sumitomo Mitsui Financial Group, Inc., 1-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan. Our telephone number is : +81-3-3282-8111.

History and Development

       We were established in December 2002 as a holding company for the SMFG Group through a statutory share transfer ( kabushiki-iten ) of all of the outstanding equity securities of the former SMBC in exchange for our newly

issued securities. Upon our formation and completion of the statutory share transfer, the former SMBC became our direct, wholly owned subsidiary. The Bank was established in March 2003 through the merger of the former SMBC with Wakashio Bank, which was established in 1996 as a subsidiary of Sakura Bank. The former SMBC was established in April 2001 through the merger of Sumitomo Bank and Sakura Bank, which was established through the merger of Taiyo Kobe Bank and Mitsui Bank in 1990. Mitsui and Sumitomo started their banking businesses in 1876 and 1895, respectively. The origins of both banking businesses can be traced back to the seventeenth century.

Information Concerning the Principal Capital Expenditures and Divestitures

       On October 14, 2008, we subscribed to approximately 67 million shares of OMC Card common shares at approximately ¥16 billion in aggregate which represented approximately 48.8% of the voting rights in OMC Card and also subscribed to ¥13 billion of OMC Card’s convertible bonds with stock acquisition rights.

       On January 5, 2009, we sold 100,000 shares which represented 50% of the shares in JRI Solutions, Limited, now JSOL, to NTT Data Corporation for an undisclosed sum and JSOL became an associate of The Japan Research Institute, Limited.

       On July 1, 2009, the Bank invested ¥27 billion to acquire a 51% interest in ORIX Credit, a consumer finance provider with a high market share among premium card loan providers, as part of a collaborative initiative with ORIX Corporation. As a result of the transaction, ORIX Credit became a consolidated subsidiary of the Bank.

       On October 1, 2009, we acquired all the operations of the former Nikko Cordial Securities and a part of the operations of the former Nikko Citigroup Ltd. for ¥565 billion.

       On December 31, 2009, we terminated a joint business with Daiwa Securities Group Inc. and sold to Daiwa Securities Group our 40% equity interest in the former Daiwa Securities SMBC Co. Ltd., now known as Daiwa Securities Capital Markets Co. Ltd.

       On January 6, 2010, our wholly owned subsidiary SMFG Card & Credit, Inc. signed a subscription agreement for a third-party share allotment with our equity-method associate Cedyna, pursuant to which Cedyna became our consolidated subsidiary from May 2010.

Public Takeover Offers

       Not applicable.

        4.B. BUSINESS OVERVIEW

Overview

       We are a holding company that directly owns 100% of the issued and outstanding shares of the Bank, one of the largest commercial banks in Japan with more than ¥100 trillion in non-consolidated total assets calculated as of March 31, 2010. We are one of the three largest banking groups in Japan with an established presence across all of the consumer and corporate banking sectors. Our subsidiaries in our commercial banking business include, in addition to SMBC, Kansai Urban Banking Corporation, The Minato Bank, Sumitomo Mitsui Banking Corporation Europe, Sumitomo Mitsui Banking Corporation (China). Our subsidiaries also include Sumitomo Mitsui Card Company, Limited and Cedyna in our credit card services business, Sumitomo Mitsui Finance and Leasing Company, Limited in our leasing business, and Nikko Cordial Securities and SMBC Friend Securities Co., Ltd. in our securities business. See “Item 4.C. Organizational Structure”.

Management Philosophy

       Our Group-wide management philosophy is as follows:

	•		to provide optimum added value to our customers and together with them achieve growth;
	•		to create sustainable shareholder value through business growth; and

•

to provide a challenging and professionally rewarding work environment for our dedicated employees.

       In addition to our Group-wide management philosophy, we have also set a code of conduct. Our code of conduct is designed to be a guideline for the conduct of our directors, officers and other employees in the realization of our Group-wide management philosophy in all areas. Our code of conduct is as follows:

	•		to strive to increase shareholder value and simultaneously maintain healthy relationships with our customers, employees and other important stakeholders;
	•		to give utmost consideration to people’s trust in our company, abide by laws and regulations, maintain a high ethical standard, and act fairly and sincerely;
	•		to acquire and continuously enhance our knowledge, ability and intelligence, increase productivity in all areas of our business and provide superior financial services at competitive prices;
	•		to establish a top-brand company on a global basis by understanding the needs of each customer and providing valuable services according to the changing needs of our customers;
	•		to efficiently implement the goals of our business strategy in order to become a leader in selected markets by strategically allocating managerial resources;
	•		to proactively promote innovation and creativity in all business areas in order to stay ahead of our competitors;
	•		to build a strong organization based on market principles and rational thinking which reflect diverse values and delegate internal authority under a strict risk management system so as to enable rapid decisions and efficient business execution; and
	•		to promote the growth of our business through the development of our employees by setting high targets and using objective evaluation and compensation systems which emphasize ability and achievement of good results.

Environment

       The Group recognizes preservation of the environment as one of its most important management issues and strives to achieve harmony with the natural environment in its corporate activities.

Basic Philosophy Regarding the Group’s Environmental Activities

       Recognizing the importance of realizing a sustainable society as one of its most important tasks, the Group makes continuous efforts to harmonize environmental preservation and corporate activities in order to support the economy and contribute to the general well-being of society as a whole.

       SMFG and its principal group companies have obtained ISO 14001 certification, the international standard for environmental management systems. Every year we set environmental objectives which we systematically pursue through environmental activities based on a PDCA (Plan, Do, Check, and Act) cycle. SMFG is also a signatory to the “Statement by Financial Institutions on the Environment and Sustainable Development” of the United Nations Environment Programme (UNEP).

       The Bank made its Head Office “carbon neutral” and requires land pledged as collateral to undergo soil contamination and asbestos risk assessment. In addition, we also apply the “Equator Principles”, a set of guidelines for financial institutions to conduct assessment and management of social and environmental impacts related to the financing of large-scale development projects, when we finance such projects.

Description of Operations and Principal Activities

Commercial Banking

       Our commercial banking business consists mainly of the Bank. The Bank has solid franchises in both corporate and consumer banking in Japan. The Bank has long standing and close business relationships with many listed companies on the First Section of the Tokyo Stock Exchange and long historical relationships with the so-called Sumitomo Group and the Mitsui Group companies.

       The Bank provides an extensive range of consumer and corporate banking services in Japan, and wholesale banking services overseas. In Japan, the Bank accepts deposits from, makes loans to, extends guarantees to and provides other products and services to corporations, individuals, governments and governmental entities. The Bank offers financing solutions through loan syndication, structured finance and project finance to large corporate customers in the domestic and overseas markets, as well as a variety of lending options to domestic SMEs and to individuals. The Bank also underwrites and deals in bonds issued by or guaranteed by the Government of Japan and local government authorities, and acts in various administrative and advisory capacities for select types of corporate and government bonds. Internationally, the Bank operates through a network of branches, representative offices, subsidiaries and affiliates to provide loan syndication, project finance and cash management services while participating in international securities markets.

       The Bank conducts its primary banking business through its five business units: (1) the Consumer Banking Unit, (2) the Middle Market Banking Unit, (3) the Corporate Banking Unit, (4) the International Banking Unit and (5) the Treasury Unit. The Bank’s Investment Banking Unit, Corporate Advisory Division, Private Advisory Division and Global Advisory Department operate across these business units. Further, the Bank has a Corporate Staff Unit, a Corporate Services Unit, a Compliance Unit, a Risk Management Unit and an Internal Audit Unit.

        SMBC’s Consumer Banking Unit

       SMBC’s Consumer Banking Unit provides financial services to individual consumers residing in Japan. It offers a wide array of financial services including, but not limited to, personal bank accounts, investment trusts, pension-type insurance products, life insurance products and housing loans.

       Consumer Banking Unit operations are mainly conducted through a large and well-developed branch network. The Bank had a domestic network consisting of 437 branch offices as of March 31, 2010, most of which were located in the Tokyo and the Osaka regions and managed by the Consumer Banking Unit. Through the fiscal years ended March 31, 2010 and 2009, the Bank increased the number of full-service branches in its network by twelve.

       The Bank has been strengthening this network by transforming branches from transaction centers into marketing bases. The transformation process involves a review of each branch’s infrastructure, based on location and market size, to determine the most suitable functions and physical layout. As of March 31, 2010, consulting services were available

at 73 SMBC Consulting Plazas that provide financial consulting services at convenient locations. SMBC Consulting Plazas provide services during extended hours, including weekday evenings, weekends and national holidays, for the convenience of customers. The Bank has broadened its investment product offerings at branches and SMBC Consulting Plazas to include foreign currency bonds, structured bonds and other products.

       The Bank also operates an extensive network of ATMs in Japan, which allows its customers to conduct self-service banking transactions during extended hours. As of March 31, 2010, the Bank’s ATM network included 6,829 full-service ATMs. In addition, the Bank offers its customers ready access to 31,826 ATMs through arrangements with other ATM providers, including convenience stores.

       The Consumer Banking Unit also offers internet banking services through “SMBC Direct”. As of March 31, 2010, SMBC Direct had approximately 10 million registered users. SMBC Direct users are able to transfer funds, perform balance inquiries, make time deposits, and conduct foreign currency, deposit and investment trust transactions over the telephone, Internet or mobile phone Internet service.

       The Consumer Banking Unit offers the following products and services through various channels:

	•		Housing Loans. Housing loans, which are principally secured by collateral or supported by guarantees, are one of the primary products offered by the Consumer Banking Unit. Housing loans are an important product for banks because demand is stable while credit costs tend to be low. The Bank employs a credit assessment model based on credit data amassed and analyzed by the Bank over many years. Even amid generally adverse economic conditions, the Bank increased its amounts of housing loans in the fiscal year ended March 31, 2010. The Bank provides housing loans with a variety of terms and interest rates, including 10- to 35-year term, fixed-rate loans, to meet diversified customer needs. For instance, the Bank offers a housing loan combined with an insurance policy that covers the repayment of the outstanding loan balance in the event the borrower is diagnosed with certain serious diseases, or a housing loan with a special feature that exempts borrowers from a portion of their loan payments in the event of natural disasters.
	•		Investment Trust. The Bank provides a variety of investment trust products with varying degrees and types of risk-return profiles that are developed and managed by experienced investment management companies within Japan and overseas. The Consumer Banking Unit generally focuses on the distribution, rather than the development or management, of investment trust products. As of October 1, 2009, the Bank and its consolidated subsidiary Nikko Cordial Securities began providing new investment trust products that were designed to capitalize on new global economic trends.
	•		Insurance Products. The Bank, as an agent, offers pension-type insurance, whereby customers make payments of fixed amounts until they reach a certain age, at which time fixed amounts are paid to the customers at specified intervals. In addition, the Bank also sells a wide range of insurance products, including life insurance, medical insurance, insurance focusing on major diseases, nursing care insurance and juvenile insurance, home fire insurance, single-premium whole life insurance and annuities.
	•		Securities Intermediary Services for Individuals. The Bank offers a variety of products, including foreign currency bonds and structured bonds, to its individual customers to complement its lineup of investment trusts together with SMBC Friend Securities and launch such services with Nikko Cordial Securities from April 19, 2010. Going forward, the Bank intends to integrate its collaborative business with SMBC Friend Securities regarding individual customers, including securities intermediary business and fund wrap to Nikko Cordial Securities by the end of January 2011.
	•		Settlement and Consumer Finance Services. The Bank offers a variety of settlement related and personal credit products, including the issuance of the “SMBC First Pack” credit card, in collaboration with our group companies Sumitomo Mitsui Card and Cedyna. As part of our business alliance with Promise, the Bank offers consumer loan products. Promise guarantees loans made by the Bank under this alliance.

        SMBC’s Middle Market Banking Unit

       The Middle Market Banking Unit focuses on building a solutions business where it quickly responds to various issues being faced by mid-sized companies and SMEs, and provides financial solutions to them. The Middle Market Banking Unit offers customers lending, cash management, settlement, leasing, factoring, management information systems consulting, collection and investment banking services, some of which are offered in cooperation with our Group companies.

       As of March 31, 2010, the Bank maintained 266 sales channels, including 165 channels which deal with unsecured loans to SMEs, namely “Business Select Loans.”

       Loans to mid-sized companies and SMEs are generated mainly through the Bank’s corporate business offices. Loans originated by corporate business offices can be approved by the general managers of the offices up to a limit which varies depending upon the amount and duration of the loan, the type and amount of collateral and other factors. Loans exceeding this limit are approved by the credit department. Larger loans require the approval of one or more executive officers of the Bank.

       The majority of the Bank’s domestic loans to mid-sized companies and SMEs are secured by collateral or supported by guarantees, such as real estate collateral or guarantees by representatives of borrowers or surety companies.

       The Middle Market Banking Unit also provides the following products and services to mid-sized companies and SMEs:

	•		Business Select Loan. In 2002, the Middle Market Banking Unit began offering business select loans, or BSLs, an unsecured loan product focused on small corporate customers with annual sales of less than ¥1 billion. For SMEs, BSLs are offered for a maximum amount of ¥50 million per transaction, and employ highly sophisticated credit scoring models in the origination process. Loans to SMEs generally have higher credit risks than loans to larger corporate borrowers. The Bank continues to revise lending practices by, for example, modifying terms and conditions of its loans as well as adjusting interest rates based on the risk profile of borrowers. In addition, the Bank has improved its credit analysis, procedures and cash flow analysis for loan applications.
	•		Business Promotion Services. In light of the recent trend among mid-sized companies and SMEs of expanding their businesses into overseas markets, this business unit focuses on offering products and services that help its customers to enter into new markets especially in China and other Asian countries, and accommodate an increase in international trade operations with the Global Advisory Department.
	•		Services to Promote B-to-B Transactions. “Value Door” is a gateway to various settlement services of the Bank and its subsidiaries and affiliates that meet our customers’ needs through the Internet. The Bank has promoted products and services provided through Value Door to stimulate greater demand for its solutions business for SMEs. The Value Door website includes such services as Web 21, an Internet-based service that offers corporate customers means to transfer money easily and effectively, and Global e-Trade Service, an Internet-based foreign exchange service for smooth transfer of funds to and from foreign banks.

        SMBC’s Corporate Banking Unit

       The Bank’s Corporate Banking Unit provides a wide range of financing services such as loans, deposits, and settlement services, targeting large Japanese corporations and listed companies. This unit also offers business solutions required for the increasingly complex and diverse management issues which large Japanese corporations are currently facing and supports their active business expansion plans. Loans for the Corporate Banking Unit are approved in the same manner as for the Middle Market Banking Unit.

       This unit provides products and services through the Bank’s Investment Banking Unit such as loan syndication, structured finance, commitment lines and non-recourse loans. As part of its solutions services, the Bank intends to

promote opportunities for the capital markets to respond to these customers’ funding and corporate restructuring needs, particularly through the Bank’s subsidiary Nikko Cordial Securities.

        SMBC’s International Banking Unit

       The International Banking Unit helps Japanese corporate customers develop their businesses in overseas markets and helps multinational companies develop their businesses in Japan. The Bank’s international network consisted of 15 branches, 6 sub-branches and 13 representative offices as of March 31, 2010, creating a presence for the Bank around the world, together with other subsidiaries such as SMBC Europe and SMBC (China). The International Banking Unit offers a variety of services and products to its global clients, for example, project finance, loan syndication, securitization, shipping finance, global cash management services and yen custody services.

       Our overseas lending business has been principally focused on loans to large, highly-rated corporations, as well as to sovereign and quasi-sovereign credits, most of which are unsecured. The Bank also makes substantial secured loans overseas, including for project finance, equipment financing and margin lending for securities and commodities. Our overseas loans are generally extended at floating rates based on the London inter-bank offered rate and denominated in currencies other than Japanese yen.

       Loans originated by an overseas branch can be approved by the general manager of the branch up to a limit which varies depending upon the amount and duration of the loan, the type and collateral and other factors. Loans exceeding this limit require approval from the credit department of regional headquarters or the Bank’s head office in Tokyo. Larger international loans require the approval of one or more executive officers of the Bank.

       As part of the Bank’s efforts to strengthen its competitive position in Asia, in April 2008 the Bank established an Asia-Pacific Division in addition to its existing Europe and Americas Divisions.

       Recently, the Bank has expanded its presence mainly in Asia and other emerging regions by establishing new locations and enhancing existing locations across such regions, including:

	•		establishing a Tianjin Binhai sub-branch in March 2007;
	•		establishing a Suzhou Industrial Park sub-branch in April 2007;
	•		establishing a Beijing branch in February 2008;
	•		establishing a Hanoi branch in December 2008, which replaced the Hanoi representative office established in 2004;
	•		establishing Sumitomo Mitsui Banking Corporation (China) Limited, which began operations in April 2009;
	•		establishing ZAO Sumitomo Mitsui Rus Bank, a Russian corporation in Moscow, which began operations in December 2009;
	•		enhancing the functions of its Johannesburg Representative Office in March 2010; and
	•		establishing a Bogota representative office in the Republic of Colombia in September 2010.

       Recently, the Bank has entered into the following business alliances:

	•		entering into a business and capital alliance agreement with Vietnam Export Import Commercial Joint Stock Bank, or Vietnam Eximbank, one of the leading commercial banks in Vietnam, in November 2007;
	•		entering into a business alliance with First Commercial Bank, one of the largest commercial banks in Taiwan, in December 2007;
	•		entering into a strategic alliance agreement for shipping finance with Industrial and Commercial Bank of China in March 2008;

	•		entering into a business and capital alliance with Barclays PLC in June 2008;
	•		entering into a business alliance agreement with Kookmin Bank, the largest Korean commercial bank based on asset size in March 2007, as well as the Bank’s acquisition of 0.5% of the shares of Kookmin Bank’s parent, KB Financial Group, in October 2008;
	•		entering into a memorandum of mutual understanding on a strategic alliance with The Bank of East Asia, a major independent local bank in Hong Kong, in November 2008;
	•		entering into a memorandum of understanding on local currency funding in Indonesia, collaboration in cash management services, corporate finance and other new business areas with PT Bank Central Asia, Tbk, the largest privately owned commercial bank in Indonesia, in July 2009;
	•		entering into a technical service agreement with Vietnam Eximbank in August 2009 to strengthen the technical services provided by the Bank;
	•		entering into an agreement with The Bank of East Asia in December 2009 under which the Bank agreed to subscribe for 2.5% of the total issued shares of The Bank of East Asia in January 2010, increasing the Bank’s holdings to 4.05% of the total issued shares of The Bank of East Asia;
	•		launching collection services in China in collaboration with Industrial and Commercial Bank of China in April 2010;
	•		entering into agreement on a business alliance with Absa Bank Limited, a group company of Barclays Bank PLC, in May 2010;

	•		entering into a business cooperation agreement with Kotak Mahindra Bank Limited in June 2010;
	•		entering into a memorandum of understanding on structured finance with The Export-Import Bank of Korea in July 2010; and
	•		entering into a memorandum of understanding on business cooperation with Banco de Bogota in September 2010.

        SMBC’s Treasury Unit

       The Treasury Unit operates in the domestic and international money, foreign exchange, securities and derivatives markets to serve customer needs and the Bank’s own asset liability management requirements. To expand the Bank’s customer base further and to respond to its customers’ increasingly diverse and complex needs, the Bank’s treasury marketing department seeks to enhance the Treasury Unit’s capabilities to serve the Bank’s customers further as a one-stop solutions provider specializing in market transactions.

       The Treasury Unit also offers the following services:

	•		Government Bond Underwriting. The Bank acts as an underwriter of Japanese government bonds, government-guaranteed bonds and Japanese municipal bonds.
	•		Commercial Paper Placement. The Bank acts as a placement agent for commercial paper programs for qualified corporate issuers.

       The Treasury Unit also engages in proprietary trading in a variety of financial products for the Bank’s own account.

        Others

       The Bank, through the business units mentioned above, also engages in the following business activities:

	•		Payment Services . The Bank handles money remittances for municipalities, public and private corporations and individuals both within Japan and overseas. Domestic remittance services are significant in Japan, where checks are rarely used and money remittance is a major means of payment. The Bank also handles the presentation and collection for its customers of promissory notes, bills of exchange and checks.
	•		Foreign Exchange . The Bank engages in a variety of foreign exchange transactions for its clients and for its own account, including foreign currency exchange, overseas transfers and trade finance for export and import activities.

       In cooperation with the Bank’s marketing departments, the Bank also engages in the following business activities:

•

Investment Banking Unit . In cooperation with marketing departments, the Investment Banking Unit provides a broad range of sophisticated financial products and services as follows:

	•		Customized Financial Services and Financing Solutions. The Bank provides a wide range of innovative financial services and financing solutions to its corporate clients, including loan syndication, structured finance, LBO and MBO financing, M&A advisory, securitization, non-recourse real estate finance and derivatives.
	•		Securities Intermediary Services for Corporate Clients. The Banks provides corporate clients with securities intermediary services, and offers structured bonds, subordinated bonds and other products to corporate clients in cooperation with its subsidiary Nikko Cordial Securities.
	•		Corporate Bond Trust Services. The Bank serves as a trustee or co-trustee of corporate mortgage bonds. The Bank also serves as a commissioned company for bondholders and as a paying and fiscal agent for unsecured bonds that are issued and publicly offered by domestic and foreign customers. In this role, the Bank also advises the issuer of market conditions and provides administrative services on behalf of the issuer.

	•		Asset Securitization Trust Services. The Bank has been offering other trust services to its customers since October 2002, including monetary claims trusts for asset securitizations.
	•		Restructuring Advisory Services. The Bank offers its restructuring advisory services through the use of private equity funds or direct capital investments in corporate customers seeking to restructure.
	•		Environmental Products . The Bank arranges carbon credit transactions through its Environmental Products Department within the Structured Finance Department. Through this department, the Bank coordinates collaboration among overseas offices and the Bank headquarters in order to provide a wide range of solutions to customers’ environmental concerns.

	•		Corporate Advisory Division . In April 2006, the Bank established the Corporate Advisory Division in order to strengthen its service lineup for listed and non-listed companies to provide solutions required for the increasingly sophisticated and diverse management issues faced by corporate clients. The division provides a centralized information platform that maintains the Bank’s accumulated information and knowledge concerning a wide range of industries. Leveraging this centralized information platform, the Corporate Advisory Division provides the Bank’s customers with proposals for strategic actions to help enhance their corporate value. The Corporate Advisory Division establishes a separate team for each project and works in cooperation with the Bank’s other departments and SMFG Group companies, including Nikko Cordial Securities and Sumitomo Mitsui Finance and Leasing. The division aims to offer comprehensive solutions for M&A, strategic investment, business alliances and other management issues.
	•		Private Advisory Division . In April 2007, the Bank established the Private Advisory Division in order to address areas where the needs of individuals and corporate clients overlap, such as private banking, workplace banking, business succession consulting and other areas.
	•		Global Advisory Department . In April 2008, the Bank established the Global Advisory Department in order to enhance its information gathering and solution providing capabilities and fortify its platform for providing

high quality financial services to corporate clients who plan to enter or have entered overseas markets. The department is based in Tokyo, with staff members also assigned overseas, mainly in Asia.

       In addition to the Bank, our banking subsidiaries include local financial institutions, such as Kansai Urban Banking Corporation and The Minato Bank, and Internet Bank, The Japan Net Bank, Limited, and foreign subsidiaries, such as Manufacturers Bank.

       On March 1, 2010, Kansai Urban Banking Corporation merged with The Biwako Bank, Limited. Biwako Bank operated a retail banking business in the Kansai area. As a result of this merger, the Group holds a 56.1% in Kansai Urban Banking Corporation, the surviving company. The merger strengthens Kansai Urban Banking Corporation’s service capabilities and enhances its strategic position in the Kansai area through the expansion of a stable customer base.

Credit Card

        Sumitomo Mitsui Card

       Sumitomo Mitsui Card is a leading company in Japan’s credit card industry, having introduced the Visa brand into the Japanese market. Sumitomo Mitsui Card has a strong brand and a comprehensive credit card business, and offers a variety of settlement and finance services to meet diverse customer needs.

       In 2005, we, Sumitomo Mitsui Card, the Bank and NTT DoCoMo, Inc. formed a strategic business and capital alliance for the launch of a highly innovative credit payment service using NTT DoCoMo’s Mobile Wallet, or Osaifu-Keitai , phones equipped with smart-card functions for cashless payments. NTT DoCoMo issues a branded credit card that can be used in conjunction with the Sumitomo Mitsui Card. Sumitomo Mitsui Card established an infrastructure for mobile credit card payments, including the installation of terminals at retail shops enabling customers to make payments with mobile wallet handsets. As part of the alliance, NTT DoCoMo acquired 34% of Sumitomo Mitsui Card’s common stock for approximately ¥98 billion, including new shares issued by Sumitomo Mitsui Card in July 2005. Pursuant to the alliance, Sumitomo Mitsui Card began offering a credit card payment service using NTT DoCoMo’s Osaifu-Keitai phones under the “Mitsui Sumitomo Card iD” brand in December 2005.

       In payment and settlement services for electronic money, we are promoting “SMBC First Pack”, a set of packaged deposit, internet banking and credit card services. We plan to enhance new businesses through initiatives like the October 2008 issuance of the SMBC Card Suica with credit, e-money and ATM card functions, under our alliance with JR East, a large Japanese railway company.

        Cedyna

       On April 1, 2009, Central Finance and QUOQ merged into OMC Card, resulting in the creation of Cedyna. As of March 31, 2010, Cedyna, a credit card company, had approximately 25 million cardholders. Cedyna became a subsidiary after SMFG Card & Credit subscribed Cedyna’s third party share allotment in May 2010 as described below.

       Sumitomo Mitsui Card and Cedyna are subsidiaries of SMFG Card & Credit, which was established in October 2008 as our wholly owned subsidiary to be an intermediate holding company. On May 31, 2010, SMFG Card & Credit acquired 324,675,300 common shares of Cedyna at a price of ¥154 per common share, for a total price of approximately ¥50 billion. Upon completion of the transaction, SMFG Card & Credit held a total of 548,178,700 common shares or 68.16% of the voting rights in Cedyna, and Cedyna became our consolidated subsidiary. Our voting rights in Cedyna are 68.87%, nearly all of which is held through SMFG Card & Credit.

       In addition to the above companies, our subsidiary Sakura Card Co., Ltd. also engages in the credit card business.

Leasing

        Sumitomo Mitsui Finance and Leasing

       In October 2006, we and the Sumitomo Corporation Group, a non-affiliate, agreed to pursue strategic joint businesses in the leasing and auto leasing businesses. In pursuit of these objectives, in October 2007, SMBC Leasing

merged with Sumisho Lease to form Sumitomo Mitsui Finance and Leasing, and SMBC Auto Leasing Company, Limited merged with Sumisho Auto Leasing Corporation to form Sumitomo Mitsui Auto Service Company, Limited. The purpose of the merger was to integrate SMBC Leasing’s finance expertise with Sumisho Lease’s expertise in commercial distribution and logistics in order to meet sophisticated clients’ needs and become the preeminent domestic leasing company. The combined companies aim to leverage their know-how and customer bases to provide customers with value-added products and services.

       In December 2008, Sumitomo Mitsui Finance and Leasing and Sumitomo Corporation established SMFL Aircraft Capital Corporation B.V., an aircraft operating lease company, in order to develop and expand their aircraft operating lease businesses.

       In addition to the above companies, our U.S. subsidiary SMBC Leasing and Finance, Inc. is a major subsidiary in the leasing business.

Securities

        SMBC Friend Securities

       SMBC Friend Securities is our full-line securities company focusing on retail business. In September 2006, SMBC Friend Securities became our wholly-owned subsidiary. SMBC Friend Securities has strengthened collaboration with our Group companies including the Bank. In January 2007, the Bank started to provide fund wrap services mainly to individual customers in collaboration with SMBC Friend Securities. In March 2010, SMBC Friend Securities announced that businesses conducted in cooperation with the Bank such as fund wrap services be transferred to Nikko Cordial Securities by the end of January 2011.

        Nikko Cordial Securities

       On October 1, 2009, the Bank acquired all the shares of Nikko Cordial Securities, making it a wholly owned subsidiary of the Bank.

       The core of our acquisition was the domestic retail securities business of the former Nikko Cordial Securities. As one of the “Big 3” Japanese securities brokers, the business had nearly ¥28 trillion of financial assets under account, approximately 6,500 employees, 109 domestic branches, approximately 2.5 million customer accounts and a widely used online trading channel. Nikko Cordial Securities offers a wide range of financial products and investment consultation and administrative services to its individual and corporate customers in Japan. Its offerings include stocks, bonds, investment trusts and variable annuity insurance products.

       We acquired the domestic debt and equity underwriting businesses of the former Nikko Citigroup. This business underwrites Japanese offerings of a wide range of products, including stocks, convertible and exchangeable securities, investment grade, sovereign and high-yield debt and structured securities and also arranges private placements and engages in other capital raising activities. Under the agreement with the former Nikko Citi Holdings, relationship managers whose industry coverage activities complement the underwriting business (excluding those covering financial institutions and private equity funds) have also been transferred to Nikko Cordial Securities.

       We also acquired shares and partnership interests in other related entities, including Nikko Systems Solutions Ltd., Nikko Business Systems Co., Ltd. and Nikko Global Wrap Ltd. These entities are engaged in various businesses, including fund management, consulting and other securities-related businesses, as well as systems solutions.

       Nikko Cordial Securities will change its trade name to SMBC Nikko Securities Inc. on April 1, 2011.

        Business Alliance with Citigroup

       In 2009, we entered into a strategic business alliance with Citigroup Inc. centering on a variety of collaborative activities between Nikko Cordial Securities and Citigroup. As part of this alliance, Citigroup has agreed to provide us with access to its global corporate and investment banking networks, including sales and trading services and mergers and acquisitions. The long-standing relationship between Citigroup and the former Nikko Cordial Securities in the

origination and distribution of financial products in Japan and globally will remain with respect to Nikko Cordial Securities.

        Termination of Our Alliance with Daiwa Securities Group

       On December 31, 2009, we terminated our Daiwa Securities SMBC joint business with the Daiwa Securities Group. We sold our 40% equity investment in the former Daiwa Securities SMBC to Daiwa Securities Group, which held the remaining 60%. Through the joint business, which lasted ten years, we engaged in the wholesale investment banking business and provided certain financial services to the Bank’s corporate customers. Going forward, we expect to offer many of these services through Nikko Cordial Securities. Upon the termination, we and Daiwa Securities Group agreed that Daiwa Securities SMBC Principal Investments Co. Ltd., which was a wholly owned subsidiary of Daiwa Securities SMBC, will continue as a joint venture between Daiwa Securities Group (which will own 60% of the shares) and the Bank (which will own the remaining 40%).

       On July 1, 2010, we also terminated our Daiwa SMBC Capital joint business with the Daiwa Securities Group and executed a company split to form SMBC Venture Capital Co., Ltd., which became our consolidated subsidiary, of which we own 40%.

       We and Daiwa Securities Group have confirmed that our longstanding amicable relationship, including the Bank’s status as the “main bank” of the Daiwa Securities Group, will remain unchanged.

Other Major Group Companies and Alliances

        The Japan Research Institute

       The Japan Research Institute is a wholly-owned subsidiary that designs and develops information services, provides outsourcing and consulting services in the fields of management innovation and information technology and conducts economic research. In July 2006, The Japan Research Institute spun off part of its operations to establish JRI Solutions, now JSOL, which offers information technology solutions to customers in the general industrial, financial and public sectors. In January 2009, The Japan Research Institute sold 50% of the shares in JSOL to NTT DoCoMo and JSOL became an associate of The Japan Research Institute.

        Promise

       In September 2004, we entered into a basic agreement with Promise on a strategic alliance in the consumer finance business. Under the alliance, the Bank and Promise each own a 50% interest in At-Loan. As part of the business alliance, the Bank and Promise offered, through the Bank’s marketing channels, a variety of products with different interest rates linked to the credit standing of the customer. Promise guarantees loans made by the Bank and At-Loan.

       In January 2010, Promise announced its “Business Structural Reform Plan”. The plan includes:

	•		restructuring of cost structure;
	•		restructuring of non-core businesses;
	•		reorganizing group companies, including, merger with Sanyo Shinpan Finance Co., Ltd. in October 2010; and
	•		ensuring revenue base in response to a new regulation on aggregate loan amounts and loan interest rates introduced by an amendment to the Money Lending Business Act, which is expected to lead to a shrinking unsecured loan market and interest rate decrease.

       In March 2010, Promise announced that it will acquire At-Loan shares which the Bank owns and merge with At-Loan in April 2011 for the purpose of restructuring and streamlining our consumer finance operations.

        ORIX Credit

       In July 2009, the Bank acquired a 51% interest in ORIX Credit, a consumer finance provider and consolidated subsidiary of the Bank with ORIX owning the remaining 49%.

        Alliance with Barclays

       In June 2008, Barclays and the Bank entered into an agreement to explore joint business development opportunities. In July 2008, the Bank acquired newly issued shares of Barclays common stock for approximately £500 million, which at that time represented approximately a 2% interest in Barclays. In 2009, we sold euro-yen bonds issued by Barclays Bank through our securities intermediary services. Discussions with Barclays with respect to collaboration on services to Japanese companies in South Africa through Barclays’ group company Absa were successfully completed in May 2010. In July 2010, Barclays, the Bank and Nikko Cordial Securities agreed the signing of a joint venture agreement to provide wealth management services to high net worth individuals in Japan. We have intensified our management-level communications with Barclays regarding, for example, strengthened regulation of the global banking industry. The Bank believes these initiatives will yield mutual benefits and will facilitate business expansion for us in targeted growth business areas, both foreign and domestic.

Management Policies

       Our management policy for fiscal 2010 is focused on transforming our business model to grow steadily under a new regulatory and competitive environment through a forward-looking approach and emphasizing return on risks and costs in order to improve asset quality and control expenses and credit costs. We will also continue to promote initiatives to secure a resilient capital base and reinforce our portfolio to achieve sustainable growth.

        Securing a Resilient Capital Base

       We completed an ¥861.0 billion common equity offering in July 2009 and another ¥973.0 billion offering in February 2010, and repurchased and cancelled preferred securities issued by overseas special purpose companies and perpetual subordinated bonds issued by the Bank through overseas tender offers to optimize the capital structure and enhance capital quality. We further improved our capital quality in January 2010 by issuing common shares to The Goldman Sachs Inc. in exchange for all the preferred shares held by Goldman Sachs and its subsidiary. Going forward, we aim to maintain a greater than 10% consolidated Tier I ratio while taking measures to reduce risks to our capital posed by volatility in equity holdings.

        Reinforcing Our Business Portfolio to Achieve Sustainable Growth

       We plan to reinforce our bottom-line profit by reviewing our current businesses as well as to pursue profitability by focusing on targeted growth business areas. We will also strive to enhance customer responsiveness by leveraging advisory functions and further increase productivity by improving our business processes.

        Fortifying Bottom-line Profit by Reviewing Current Businesses

       Meeting financial needs of customers is a financial institution’s social responsibility and we work to fulfill our function as a financial intermediary optimally and actively. The Bank has proactively delivered what are designed to be optimal products and services based on our understanding of customers’ needs and issues. However, taking into account the enactment of the Act Concerning Temporary Measures to Facilitate Financing to SMEs, Etc., we are intensifying our customer responsiveness by establishing a framework for handling requests for facilitating financing from SMEs and individual customers.

       At the same time, we will fortify our bottom-line profit by focusing on control and reduction of credit costs and improve risk-return profile by rebalancing our asset portfolio towards assets with high growth potential from assets with low yields.

        Pursuing Profitability by Focusing on Targeted Growth Business Areas

        Nikko Cordial Securities. In March 2010, Nikko Cordial Securities, which became a wholly-owned subsidiary of the Bank in October 2009, launched its medium-term management plan, spanning the three years until March 31, 2013, with the view to becoming the number one general securities company in Japan, excelling in both quality and quantity and being globally competitive. While maintaining low-cost operations, Nikko Cordial Securities will promote sustainable expansion of existing business centering on the retail business, create new business centering on the wholesale business, enhance personnel development programs, increase system investment, and improve the organizational structure of the head office in response to full-line business operations.

        Overseas Business Focused on Asia. In the Asia Pacific region, we have been responding flexibly and quickly to local business requirements through the Bank’s Asia Pacific Division. Additionally, for the purpose of enabling a more flexible and quick response to the diversified and sophisticated needs of corporate customers, the Bank established the Financial Products Marketing Department in May 2010 by integrating certain functions of its Investment Banking Unit in Australia and Asia. In China, we have been developing business through Sumitomo Mitsui Banking Corporation (China) Limited, which was established in April 2009. In April 2010, in order to deliver cross-border services and products more tailored to the individual needs of these customers, we established a framework to facilitate support for Japanese corporate customers in a globally integrated manner by transferring functions related to business with Japanese corporate customers, including planning and management, from the Bank’s Planning Department, International Banking Unit to its Planning Department, Corporate Banking Unit & Middle Market Banking Unit. In addition, we have been taking steps to further strengthen our business in Asia by leveraging the Bank’s business and capital alliances with leading financial institutions in the region, such as Kookmin Bank of South Korea, First Commercial Bank of Taiwan, Vietnam Eximbank of Vietnam, The Bank of East Asia of Hong Kong, and Bank Central Asia of Indonesia.

       In Europe and the Americas, we are continuing to bolster our financial products with a competitive edge, including in project finance. In addition, leveraging the Bank’s alliance with a South African subsidiary of a leading U.K. financial institution, Barclays, we will proactively support our clients in the region, such as Japanese corporate customers.

        Credit Card and Consumer Finance Businesses . In the credit card business, we have been taking various measures to establish the number one credit card business entity in Japan based on a two-company system consisting of Sumitomo Mitsui Card and Cedyna by striving to realize economies of scale for the Group as a whole and to maximize top-line synergies by drawing on the strengths of each company.

       Cedyna issued new shares by third-party allotment in May 2010, which were subscribed by the intermediary holding company SMFG Card & Credit, in order to (a) accelerate and ensure implementation of management restructuring including investing in new businesses and IT systems and cost restructuring to increase its enterprise value, (b) further clarify the positioning of Cedyna as a core entity in the credit card business together with Sumitomo Mitsui Card, and (c) further enhance Cedyna’s capital base. As a result of the allotment, Cedyna became a consolidated subsidiary of SMFG.

       In the consumer finance business, our goal is to create an even better foundation for meeting the financing needs of individual consumers, capitalizing on the strategic alliances of Group companies to capture market share and enhance efficiency. As part of this strategy, the Bank acquired 51% of ORIX Credit in July 2009. The Bank also reached a basic agreement in March 2010 regarding revision of the business model under the cascade scheme among the Bank, Promise and At-Loan and a merger of At-Loan and Promise. Through these initiatives, we believe we will be able to further enhance our market presence in the changing consumer finance market and respond to the needs of a wider range of customers.

        Further Enhancing Customer Responsiveness by Leveraging Advisory Functions

        Solutions for Corporations, Investment Banking and Trust Businesses . We continue to commit ourselves to delivering our corporate clients high-quality solutions that precisely address a broad range of management issues. The Bank’s Corporate Advisory Division, Private Advisory Division and Global Advisory Department are three specialized

sections that operate across our consumer, corporate and overseas business segments. We try to deliver tailored support to corporate clients and upgrade our ability to provide outstanding solutions.

       Sumitomo Mitsui Finance and Leasing is promoting an aircraft operating lease business as well as a variety of other leasing services that offer financial and sales solutions for both users and suppliers.

        Financial Consulting for Individuals . For individual customers, we are gaining the level of sophistication of our financial consulting services, aiming to offer customers one-stop services for various financial products and services. Specifically, the Bank offers investment trusts, pension-type insurance, discretionary asset management services and started to market level-premium insurance at all its branches in August 2009. Further, since October 2009, it has been offering products and services jointly with Nikko Cordial Securities, including a jointly developed investment trust, holding joint seminars and established a customer referral service between the two. Moreover, the Bank launched a securities intermediary business with Nikko Cordial Securities for individual customers in April 2010. Leveraging the products lineup and fundamental strength in the securities business of Nikko Cordial Securities, we will deliver products and services that meet individual customers’ needs. In addition, we will promote collaboration between securities companies within our group, such as Nikko Cordial Securities providing products to SMBC Friend Securities Co., Ltd. Furthermore, in July 2010, the Bank and Nikko Cordial Securities agreed the signing of a joint venture agreement with Barclays to provide wealth management services to high net worth individuals in Japan.

        Further Increasing Productivity by Improving Business Processes

       We prioritize expenditures based on their amount, timing and impact in order to better allocate limited resources to targeted growth business areas. We consistently maintain an overhead ratio of less than 50% for the Bank on a non-consolidated basis by pursuing business efficiency.

Transactions with Goldman Sachs

       In February 2003, we and the Bank entered into a series of related transactions with Goldman Sachs. The transactions have three primary components: (1) Goldman Sachs bought our Type 4 preferred stock with a liquidation preference equal to ¥150.3 billion; (2) the Bank provided Goldman Sachs’ affiliates with first loss credit protection up to an aggregate of $1 billion and second loss credit protection of up to $1.125 billion, by which Goldman Sachs can mitigate a part of the credit risk associated with certain credit extensions to its investment grade clients; and (3) the enhancement and development of business cooperation between the Bank and Goldman Sachs in Japan.

       Subsequently, on April 30, 2008 and January 28, 2010, Goldman Sachs exercised its conversion rights to all of the Type 4 preferred stock.

        Preferred Stock Purchase

       In February 2003, SMFG issued First to Twelfth series Type 4 preferred stock to Goldman Sachs at a purchase price, and with a liquidation preference, equal to ¥150.3 billion. The purpose of this issuance was to strengthen SMFG’s capital by ¥150.3 billion. Annual non-cumulative cash dividends were paid at 4.5% of the liquidation preference. The Type 4 preferred stock ranked equally with our other preferred stocks and was senior to our common stock.

       On April 30, 2008, Goldman Sachs exercised its conversion rights with respect to four series of the Type 4 preferred stock, totaling 16,700 preferred shares, at a conversion price per share of ¥3,188. Upon the conversion, we issued 15,715,100 shares of our common stock.

       On January 28, 2010, Goldman Sachs exercised its conversion rights with respect to the remaining eight series of the Type 4 preferred stock, totaling 33,400 preferred shares, at a conversion price of ¥2,757. Upon the conversion, we issued 36,343,200 shares of our common stock. As a result of the conversion, no shares of Type 4 preferred stock remain outstanding.

       The arrangement between Goldman Sachs and us in connection with the first and second loss credit protections described under “Credit Loss Protection” below was not affected by the conversion of all the shares of the Type 4 preferred stock.

        Credit Loss Protection

       To expand its overseas portfolio and revenue, the Bank entered into agreements with Goldman Sachs to provide credit protection to Goldman Sachs’ extension of credit to their investment grade clients in exchange for receiving a proportion of the fees and interest income from the borrowers. In connection with the agreements, Goldman Sachs established certain wholly owned subsidiaries, or the William Street Entities, that might make credit commitments and extensions. Goldman Sachs entered into credit loss protection arrangements with the Bank in order to hedge in part the credit risk to its investment in the William Street Entities. The Bank, through its Cayman Islands branch, would issue letters of credit in exchange for fees equal to a portion of the fees and interest to be paid by the borrowers to the William Street Entities. The first letter of credit, or FLC, was issued in February 2003 in a maximum available amount of $1 billion, and is available over a 20-year period, subject to early termination or extension. Also, from time to time over a 20-year period, subject to early termination or extension and other conditions, upon the request of Goldman Sachs, the Bank issued and will issue one or more additional five-year letters of credit (each a second letter of credit, or SLC Series, rated BBB/Baa2 or higher in an aggregate maximum available amount of $1.125 billion). Goldman Sachs may draw on the letters of credit in the event that Goldman Sachs realizes certain losses, or Specified Losses, with respect to loan commitments or loans extended thereunder that Goldman Sachs has entered into with specified borrowers approved by the Bank and Goldman Sachs.

       Under the FLC, Goldman Sachs is entitled to draw from time to time amounts equal to approximately 95% of Specified Losses, up to an aggregate stated amount of $1 billion. Under the SLC Series, Goldman Sachs is entitled, subject to certain conditions, to draw from time to time amounts equal to approximately 70% of Specified Losses above specified loss thresholds, up to an aggregate stated amount of $1.125 billion. Goldman Sachs has made a draw down under the FLC in accordance with its terms.

       In connection with these credit arrangements, the Bank pays Goldman Sachs an administration fee based on the aggregate amount of commitments covered by the FLC.

       The credit loss protection arrangements contain a number of provisions that give the Bank some control over the determination of borrowers to which it has potential exposure under the FLC and any SLC Series:

•

Goldman Sachs may make credit commitments covered by the arrangements only to borrowers approved by the Bank.

	•		Unless the Bank and Goldman Sachs agree otherwise, the borrowers covered by the FLC and any SLC Series that are rated by both of the two major rating agencies must be rated investment grade by both, and borrowers that are rated only by one of the two major rating agencies must be rated investment grade by that rating agency. If neither of the two major rating agencies rates a borrower, then the borrower shall no longer be covered by the FLC or any SLC Series, if the Bank and Goldman Sachs determine the borrower’s credit conditions are lower than investment grade.
	•		If the ratings of an approved borrower fall below investment grade in the judgment of both major rating agencies (or, if a borrower is rated investment grade by only one agency, and that agency downgrades the borrower below investment grade), further credit to that borrower will no longer be covered by these arrangements, unless the Bank and Goldman Sachs otherwise agree.
	•		On the fifth, tenth and fifteenth anniversaries of the transaction, the Bank has the right to cause Goldman Sachs to stop extending new credit to borrowers the Bank deems to have become “unbankable”. Unbankable borrowers are those who have investment grade ratings from the two major rating agencies but are deemed by the Bank to be below BB- and below Ba3 based on the Bank’s application of rating agency methodologies and criteria. If Goldman Sachs disagrees with the Bank, the matter is to be referred to arbitration, and the suspension is effective unless and until an arbitrator rules in favor of Goldman Sachs.

       The Bank, through a separate bankruptcy-remote Cayman Islands subsidiary, has collateralized the obligations on the FLC and a portion of the SLC Series by buying $1.330 billion of Goldman Sachs demand notes and pledging those demand notes to Goldman Sachs. If Goldman Sachs activates an SLC Series that is not collateralized, the Bank through its Cayman Islands subsidiary will be required to purchase and pledge additional Goldman Sachs demand notes in a

principal amount equal to the stated amount of that SLC Series. Subject to certain conditions, the Bank has the right to substitute as collateral high quality liquid securities for the Goldman Sachs demand notes.

       These arrangements are designed to collateralize the Bank’s obligations in the event the Bank’s Cayman Island branch fails to perform on the FLC or any SLC Series, including as a result of our insolvency or the insolvency of the Bank or the Bank’s Cayman Island branch.

       If Goldman Sachs’ credit rating, as determined by either of the two major credit rating agencies, falls below investment grade, Goldman Sachs has to provide collateral to the Bank to support Goldman Sachs’ obligations under the Goldman Sachs demand notes. After an initial 15-year period under the letters of credit, the Bank and Goldman Sachs will negotiate in good faith to extend the terms of the letter of credit arrangements for one additional five-year term. Following the expiration of the initial 20-year term, in certain circumstances, the letter of credit arrangements with the Bank may be terminated by the Bank or Goldman Sachs, in which event Goldman Sachs would have to prepay any outstanding demand notes. In circumstances related primarily to the creditworthiness of the Bank or a breach of its representations or covenants, Goldman Sachs may draw on the letters of credit for early termination amounts of up to the remaining undrawn or available amount on the letters of credit. In connection with draws on the letters of credit of early termination amounts, Goldman Sachs would have to prepay any outstanding demand notes. Goldman Sachs also would have to pay the Bank on the originally scheduled expiration date of the letter of credit arrangements an amount equal to the early termination amounts minus the Losses that would have been reimbursed under the letters of credit had they not terminated early.

        Business Cooperation

       In January 2003, we and the Bank entered into a business cooperation agreement with Goldman Sachs to further develop the business relationship in Japan. The agreement affords the Bank certain rights with respect to:

	•		the provision of commercial banking services by the Bank in Japan to customers of Goldman Sachs; and
	•		participation by the Bank as a syndicate lender in Goldman Sachs-led syndicated loans for Japan-related credits;

       On the other hand, the agreement affords Goldman Sachs certain rights with respect to:

	•		asset sales of the Bank and its affiliates and debtors;
	•		the Bank’s Japan-related equity offerings;
	•		investment banking services for the Bank and its affiliates and customers;
	•		investments in merchant banking transactions in Japan; and
	•		access to the Bank’s retail distribution network in Japan for investment trust products.

       Some of Goldman Sachs’ rights under this agreement are subject to priorities of affiliates of the Bank and are generally applicable only where practical, legal and economically reasonable.

       When Goldman Sachs converted the remainder of its Type 4 preferred stock in January 2010, we and the Bank agreed with Goldman Sachs that the expiration of the agreement would be January 2011, except for certain rights which would expire in January 2014. We and the Bank are negotiating a new business cooperation agreement with Goldman Sachs.

Revenues by Region

       The following table sets forth the percentage of our total income for each indicated period, based on the total income of our offices in the indicated regions. Approximately 86% of total revenue was earned in Japan, where we compete with other major Japanese banking groups and financial service providers, for the fiscal years ended March 31,

2010 and 2009. We earn the remainder in the Americas, Europe and Middle East, and Asia and Oceania, where we mainly compete with global financial institutions.

		Fiscal year ended March 31,
		2010				2009
Region:
Japan			86	%			86	%
Foreign:
Americas			7	%			4	%
Europe and Middle East			4	%			5	%
Asia and Oceania (excluding Japan)			3	%			5	%
Total			100	%			100	%

Seasonality

       Our business is not materially affected by seasonality.

Sources and Availability of Raw Materials

       We are not reliant on any particular source of raw materials.

Marketing Channels

       Please see “Item 4.B. Business Overview—Description of Operations and Principal Activities” for a discussion of our marketing channels.

Regulation

       Deregulation of banking activities in Japan, and more generally of the Japanese financial system, has accelerated over the past several years. This deregulation is altering two structural features of Japan’s financial system: (1) the separation of banking and securities businesses and (2) distinctions among the permissible activities of Japan’s two principal types of private banking institutions: ordinary banks ( futsu-ginko ; including both city banks, of which the Bank is one, and regional banks) and trust banks. We also face competition from some government entities, including Japan Post Bank Co., Ltd. The Government of Japan has begun to privatize or eliminate several government institutions, in connection with which Japan Post in October 2007 became a joint stock corporation, holding shares of four operating companies. However, the new Japanese administration has passed new legislation to freeze the postal privatization scheme.

       Article 65 of the former Securities and Exchange Act separated the commercial banking business from the securities business in Japan. However, the Bank and other banks in Japan, like their counterparts in the United States, have been seeking authorization to combine traditional commercial and investment banking activities in order to offer customers a wider range of services. Conversely, securities firms are seeking the authority to engage in activities considered banking activities, which existing regulations prevent them from engaging in. The Development, Etc. of Relevant Acts for the Financial System Reform (Act No. 107 of 1998) and the subsequent amendment to the Banking Act now permit banks with FSA approval to establish or otherwise own domestic and overseas subsidiary securities companies to engage in securities businesses. Also, the amendment to the Securities and Exchange Act enacted in June 2004 lifted the ban on banks engaging in securities intermediation. Due to the amendment made as of December 2004 and subsequent amendments, banks have been allowed to solicit customers for securities trades and act as an intermediary with respect to the resulting trades for securities companies.

       As a result of the deregulation of the banking sector, companies without prior banking operations have formed new banks. For example, in 2001, the respective banking subsidiaries of Sony Corporation and Seven & i Holdings Co., Ltd. commenced operations to offer consumer banking services. Sony Bank Inc. is an internet-based bank focusing on fund-management services, and its holding company, Sony Financial Holdings Inc., listed its shares on the first section of the

Tokyo Stock Exchange in early October 2007. Seven Bank, Ltd. uses ATMs installed primarily in Ito-Yokado Co., Ltd. superstores and in convenience stores operated by Seven-Eleven Japan Co., Ltd. as its main service access point. Also, in October 2007, AEON Corporation began operations of a banking subsidiary, AEON Bank, Ltd., which offers retail banking services through in-store branches located in AEON shopping centers.

       Within the Japanese consumer banking sector, the deregulation of interest rates on yen deposits has enabled banks to offer customers an increasingly attractive and diversified range of new products. We face competition in this sector from the other city and regional banks as well as from Japan Post Bank, one of the world’s largest deposit-taking financial institutions. Japanese banks have been competing with one another by developing innovative proprietary computer technologies that allow them to deliver basic banking services in a more efficient manner and to create sophisticated new products in response to customer demand. In connection with a significant restructuring of its domestic network, the Bank is replacing many of its retail branch offices with specialized distribution facilities and incorporating advanced technologies to offer new services to its retail customers, for example telephone banking and Internet banking.

       Competition in the Japanese banking industry has been heightened by the integration and restructuring of Japanese financial institutions that resulted in larger and more integrated financial institutions. There are a number of other major Japanese banking groups, many of which were created through this process, and we view them as our principal competitors.

       In international markets, we face competition from other commercial banks and similar financial institutions, particularly major international banks and the leading domestic banks in those financial markets in which we conduct business.

Japan

       Pursuant to the Banking Act, the FSA has the authority in Japan to supervise banks, bank holding companies and banks’ principal shareholders (i.e., bank shareholders having 20% (or 15% in some cases) or more of the voting rights of a bank). The Bank of Japan, or BOJ, also has supervisory authority over banks in Japan based primarily on its contractual agreements and transactions with Japanese banks. Only companies licensed by the Prime Minister are defined as banks under the Banking Act, and licenses may be granted only to a kabushiki kaisha (a joint-stock corporation) with paid-up capital of ¥2 billion or more.

        The Financial Services Agency

        Scope of Supervision . The Prime Minister has supervisory authority over banks in Japan, which is generally delegated to the FSA except for matters prescribed by cabinet order. The Minister for Financial Services has the power to direct the FSA. Under the Banking Act, the FSA has supervisory control over banks, bank holding companies and banks’ principal shareholders in Japan except for matters to which the Prime Minister retains authority.

       The FSA’s authority includes approving applications for licenses to operate a bank or bank holding company and revoking those licenses, becoming a principal shareholder, approving reductions in capital, approving changes of corporate name, approving the establishment or closure of overseas offices, approving establishment or acquisition of certain subsidiaries and acquisition of more than 5% of the voting rights in Japanese companies other than subsidiaries, approving mergers, corporate splits or business transfers, and approving dissolutions or discontinuations of business by existing banks.

       The FSA may also instruct Japanese banks to suspend their business or to remove directors if the banks violate laws, other regulations or their articles of incorporation or commit acts contrary to public policy and, in the case Japanese banks in financial difficulties to direct these banks to hold certain property in Japan for the protection of depositors and to issue other orders as it may deem necessary. Under the prompt corrective action, or PCA, system, the FSA may take corrective actions in the case of capital deterioration of financial institutions. These actions include (1) requiring a financial institution to formulate and implement reform measures, (2) requiring it to reduce its assets or take other specific actions and (3) issuing an order suspending all or part of its business operations.

       The Ministry of Finance and the FSA have introduced a number of regulatory measures into the banking sector in Japan to secure sound management of banks, as well as measures to increase the transparency of the regulatory process, including the following:

        Bank Holding Company Regulations . A bank holding company is prohibited from carrying on any business other than the management of its subsidiaries and other incidental businesses. A bank holding company may have any of the following as a subsidiary: a bank, a securities company, an insurance company or a foreign subsidiary that is engaged in the banking, securities or insurance business. In addition, a bank holding company may have as a subsidiary, any company that is engaged in a finance-related business, such as a credit card company, a leasing company or an investment advisory company. Certain companies that are designated by a ministerial ordinance as those that cultivate new business fields may also become the subsidiary of a bank holding company.

        Single Customer Credit Limit. The Banking Act restricts the aggregate amount of loans, guarantees and capital investments to any single customer in order to avoid excessive concentration of credit risks and promote fair and extensive use of bank credit. An ordinary bank’s aggregate exposure to any single customer is limited by the Banking Act and the related cabinet order. The limit is 40% (or 25% if the customer is a principal shareholder of the bank) of an ordinary bank’s total qualifying capital based on aggregate exposure to any single customer including certain of the customer’s affiliates, or 25% (or 15% if the customer is a principal shareholder of the bank) of the bank’s total qualifying capital based on aggregate exposures to any single customer not including the customer’s affiliates. The same restriction applies to a bank group (the bank, its subsidiaries and certain affiliates) on a consolidated basis. Aggregate exposure by a bank group to a single customer is 25% (or 15% if the customer is a principal shareholder of the bank) and to a customer including certain of the customer’s affiliates is 40% (or 25% if the customer is a principal shareholder of the bank), of the total qualifying capital of the group companies.

        Disclosure. Under the Banking Act, banks and bank holding companies must disclose their non- and under-performing loans (consolidated and non-consolidated) as risk-monitored loans. Risk-monitored loans are classified into four categories: (1) bankrupt loans, (2) non-accrual loans, (3) past due loans (three months or more) and (4) restructured loans. Banks and bank holding companies are required to submit annual reports to the FSA on their business including the amount of risk-monitored loans. Banks and bank holding companies must disclose on an annual basis their financial statements. The financial statements consist of the balance sheet and income statement, and explanatory documents regarding business and asset conditions, each prepared under the Banking Act both on a non-consolidated and consolidated basis.

       Independent of the Banking Act disclosure regulations, the Act Concerning Emergency Measures for the Revitalization of Financial Functions requires banks to disclose their loans and their other problem assets. Under this law, assets are classified into four categories: (1) bankrupt and quasi-bankrupt assets, (2) doubtful assets, (3) substandard assets and (4) normal assets. Generally, bankrupt and quasi-bankrupt assets correspond to the total of bankrupt loans and the lower tier of the non-accrual loans (the borrowers of which are effectively bankrupt) under the Banking Act disclosure. Doubtful assets generally correspond to the higher tier portion of the non-accrual loans (the borrowers of which are not, but have the potential to become, bankrupt). The substandard loans generally correspond to the total of the restructured loans and past due loans (three months or more). Bankrupt and quasi-bankrupt assets and doubtful assets also include non-loan assets, for example, securities lending, foreign exchange, accrued interest, advanced payments and customers’ liabilities for acceptances and guarantees.

        Net Deferred Tax Assets. Under FSA guidelines, the amount of net deferred tax assets that can be recorded without diminishing the Tier I capital of major Japanese banks and their holding companies (including us and the Bank) is limited to 20% of the level of their Tier I capital as of March 31, 2008, which represents a 20% decrease from the permissible level as of March 31, 2006.

        Reserves for Loan Losses. Based on the Accounting Standards for Banks issued by the Japanese Bankers Association, the Bank, for statutory purposes, establishes three categories of reserves: (1) a general reserve, (2) a specific reserve and (3) a reserve for specific overseas loan losses.

       The general reserve is a set fraction of the total of certain outstanding loans of the Bank at each balance sheet date. For Japanese taxation purposes, the amount credited to the general reserve recognized as an expense is generally treated as a tax-deductive reserve, if it is not more than the amount based on the Bank’s average loan loss ratio for the previous

three fiscal years. The specific reserve is established for specific loans, the repayment of which is considered materially doubtful, in the same amounts as the amount of the expected losses on these loans. The reserve for specific overseas loan losses is for possible losses on loans to certain countries classified as restructuring countries.

       The self-assessment rule for the credit quality of the assets of financial institutions, including the Bank, as well as the PCA system, let the Bank establish the amount of any reserve for its loan portfolio as the Bank considers adequate at a balance sheet date.

       The FSA has issued operating guidelines, called the Financial Inspection Manual, on inspection of financial institutions that include credit-risk management and the standards for write-offs and reserves. The Financial Inspection Manual itself does not have the force of law, but FSA inspection of banks is based on the Manual. As a result of an inspection, the FSA may exercise its authority over banks under the Banking Act to suspend or terminate their banking business.

       The FSA has also issued non-binding guidelines to clarify its interpretation and enforcement policies of the Banking Act and related regulations.

        Inspection of Banks. The Banking Act authorizes the FSA to inspect banks and bank holding companies in Japan at any time with any frequency. Such inspections are conducted by officials from the FSA’s Inspection Department. The FSA monitors the financial soundness of banks and the status and performance of their control systems for business activities by evaluating banks’ systems of self-assessment, auditing their accounts and reviewing their compliance with laws and regulations. Bank inspection is performed pursuant to the Financial Inspection Manual, which emphasizes the need for: (1) bank self-assessment rather than assessment based on the advice of the government authority; and (2) risk management by each bank instead of a mere assessment of its assets. In July 2005, the FSA announced that it would change its approach in inspections and shift its emphasis from the normalizing of the non-performing loans problem to the protection of consumer interests and the strengthening of the Japanese financial system through private sector initiatives. Under this framework, which took effect in April 2007, FSA inspections emphasize dialogue between inspectors and financial institutions and enhanced verification of risk management and compliance systems. The current framework also introduces a financial inspection ratings system, which provides inspection results in the form of graded evaluations intended to offer an incentive for management action as well as an indication of the FSA’s subsequent regulatory stance with respect to the financial institution in terms of, among other things, frequency and scope of inspections.

        The Ministry of Finance

       The Ministry of Finance conducts examinations of banks in relation to foreign exchange transactions under the Foreign Exchange and Foreign Trade Act.

        The Bank of Japan

       The BOJ is the central bank of Japan and serves as the principal instrument for the execution of Japan’s monetary policy. The BOJ implements monetary policy mainly by adjusting its basic loan rate, open market operations and imposing deposit reserve requirements. All banks in Japan maintain deposits with the BOJ and rely substantially upon obtaining borrowings from and rediscounting bills by the BOJ. Moreover, all banks in Japan maintain current accounts under agreements with the BOJ pursuant to which the BOJ can conclude a contract with the Bank concerning on-site examinations. The BOJ’s supervisory functions let it seek to execute monetary policy effectively, while the FSA’s supervisory practices aim to maintain the sound operations of banks in Japan and promote the security of depositors. Through its examinations, the BOJ seeks to identify problems at an early stage and give corrective guidance where necessary.

        Capital Adequacy

       In 1988, the Basel Committee, comprised of representatives of the Group of Ten, or G-10, (including Japan) and Luxembourg, issued the Basel Capital Accord. The Basel Capital Accord, which was endorsed by the G-10 central bank governors, established a risk-weighted capital ratio as the principal measure of capital adequacy. The Basel Capital Accord sets minimum risk-weighted capital ratios for the purpose of maintaining a sound management of banks

which have international operations. The minimum risk-weighted capital ratio required is 8% on both a consolidated and non-consolidated basis.

       Banks and bank holding companies are required to measure and apply capital charges in respect of their market risks in addition to their credit risks. Market risk is defined as the risk of losses in on- and off-balance sheet positions arising from movements in market prices. The risks subject to this requirement are:

	•		those pertaining to interest rate-related instruments and equities in the trading book; and
	•		foreign exchange risk and commodities risk throughout the bank.

       In June 2004, the Basel Committee issued the amended Basel Capital Accord, or Basel II, which includes detailed measurement of credit risk, the addition of operational risk, a supervisory review process and market discipline through disclosure. These amendments do not change the minimum risk-weighted capital ratio of 8% applicable to banks with international operations (including the Bank). These new rules took effect in Japan from March 31, 2007, and banks could apply the introduction of the advanced Internal Ratings-Based (IRB) approach for credit risk, and the Advanced Measurement Approach (AMA) for operational risk from March 31, 2008.

       The FSA’s capital adequacy guidelines follow the Basel Capital Accord proposed by the Basel Committee and are intended to further strengthen the soundness and stability of Japanese banks.

       Capital is classified into three elements, referred to as core capital (Tier I), supplementary capital (Tier II) and junior supplementary capital (Tier III). Core capital generally consists of stockholders’ equity less any recorded goodwill and other intangible assets acquired by business combinations. Supplementary capital generally consists of (1) the general reserve for possible loan losses (subject to a limit of 1.25% of total risk-weighted assets and off-balance sheet exposures), (2) 45% of (a) the unrealized gains on investments in “other securities” (i.e., securities that are not those held for trading purposes, held-to-maturity bonds or shares in subsidiaries or certain affiliates) and (b) the unrealized appreciation on land, (3) the balance of subordinated perpetual debt and (4) the balance of subordinated term debt with original maturity of over five years and limited life preferred equity (up to a maximum of 50% of core capital). Junior supplementary capital consists of the balance of subordinated term debt with original maturity of at least two years. Junior supplementary capital may be counted, subject to certain conditions, according to the amount of market risk or the amount of core capital. Supplementary capital may be counted up to the amount equivalent to core capital (less junior supplementary capital in case market risk is counted in the risk-weighted capital ratio calculation).

       The FSA capital adequacy guidelines also require Japanese banks and bank holding companies to expand their disclosure regarding the risk-weighed capital ratio data. Banks and bank holding companies are required to include detailed disclosure in their annual and semiannual Japanese language disclosure reports (disclosure-shi) . The required disclosure includes detailed information regarding their risk-weighted capital ratio data and its breakdown, calculation methods and quantitative information for respective risk. Under the Banking Act and its related regulations, banks and bank holding companies are required to publish their annual disclosure reports within four months of the end of the most recent annual fiscal period and to publish semiannual disclosure reports within four months of the end of the most recent interim fiscal period.

       The Basel Committee and other international organizations investigated new standards to strengthen regulation of the banking sector in light of the recent financial crisis. In connection with this investigation, on September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee, announced a substantial strengthening of existing capital requirements. These capital reforms will increase the minimum common equity requirement from 2% to 4.5% and require banks to hold a capital conservation buffer of 2.5% to withstand future periods of stress, bringing the total common equity requirement to 7%. The Tier I capital requirement will also be increased from 4% to 6% (with the above capital conservation buffer, to 8.5%.). The total capital requirement will remain at the existing level of 8%, but will be increased to 10.5% with the above capital conservation buffer. In addition, a countercyclical buffer within a range of 0% to 2.5% of common equity or other fully loss-absorbing capital will be implemented according to national circumstances. The Group of Governors and Heads of Supervision also agreed on transitional arrangements for implementing the new standards. Under the transitional arrangements, these new capital requirements will be phased in between January 1, 2013 and January 1, 2019. According to the announcement dated September 12, 2010, systemically important banks should have loss-absorbing capacity beyond

the standards described above and work continues on this issue at the Financial Stability Board and the Basel Committee.

        Capital Injection by the Government

       On October 24, 2008, in response to the recent financial turmoil, amendments to the Special Measures Act for Strengthening Financial Functions and the Special Measures Act Concerning Facilitation of Reorganization by Financial Institutions, and other related legislation were enacted by the Diet in order to authorize capital contributions to financial institutions by the Government of Japan. The amendments include extension to March 31, 2012 of a previously expired deadline for financial institutions to apply to the government for capital contributions, other revisions of the government requirements associated with capital contributions intended to facilitate the financing of SMEs, and amendments which permit the government to make capital contributions to credit cooperatives, credit unions and other types of cooperative financial institutions.

        PCA and Self-Assessment

       The PCA system has been in effect since April 1998. Under the PCA system, the FSA may take corrective actions depending upon the extent of capital deterioration of a financial institution. The PCA system also requires financial institutions to establish self-assessment programs. Financial institutions, including the Bank, are required to analyze their assets giving due consideration to accounting principles and other applicable rules and to classify their assets into categories taking into account the likelihood of repayment and the risk of impairment to the value of the assets. These classifications determine whether an addition to or reduction in reserves or write-offs is necessary.

       Pursuant to the Japanese Institute of Certified Public Accountants, or JICPA, guidelines, the outcome of each financial institution’s self-assessment leads to substantially all of a bank’s loans and other claims on customers being analyzed by classifying obligors into five categories: (1) normal borrowers; (2) borrowers requiring caution; (3) potentially bankrupt borrowers; (4) effectively bankrupt borrowers; and (5) bankrupt borrowers. The reserve for possible loan losses is then calculated based on the obligor categories. FSA guidelines require banks to classify their assets not only by the five categories of obligor but also by four categories of quality. The Bank has adopted its own internal guidelines for self-assessment which conform to guidelines currently in effect and comply with the PCA system requirements.

       Under the PCA system, if the risk-weighted capital ratio of a bank or a bank holding company with international operations becomes less than 8% but not less than 4%, the FSA may require a bank or a bank holding company to submit and implement a capital reform plan.

       If the risk-weighted capital ratio of a bank with international operations declines to less than 4% but not less than 2%, the FSA may order a bank to (1) submit and implement a plan for improving its capital; (2) prohibit or restrict the payment of dividends to shareholders or bonuses to officers; (3) reduce its assets or restrict the increase of its assets; (4) prohibit or restrict the acceptance of deposits under terms less advantageous than ordinary terms; (5) reduce the business of some offices; (6) eliminate some offices other than the head office; (7) reduce or prevent the launching of non-banking businesses; or (8) take certain other actions.

       If the risk-weighted capital ratio of a bank with international operations declines to less than 2% but not less than 0%, the FSA may order a bank to conduct any one of the following: (1) a capital increase; (2) a substantial reduction in its business; (3) a merger; or (4) abolishment of its banking business.

       If the risk-weighted capital ratio of a bank with international operations declines below 0%, the FSA may order a bank to suspend all or part of its business.

       If the risk-weighted capital ratio of a bank holding company that holds a bank with international operations declines to less than 8%, the FSA may take actions similar to the action the FSA would take with respect to a bank.

        Prompt Warning System

       The prompt warning system introduced in 2002 lets the FSA take precautionary measures to maintain and promote the sound operations of financial institutions even before those financial institutions become subject to the PCA system.

These measures require a financial institution to reform: (1) profitability, if deemed necessary to improve profitability based upon a fundamental profit index; (2) credit risk management, if deemed necessary to reform management of credit risk based upon the degree of large credit concentration and other situations; (3) stability, if deemed necessary to reform management of market and other risks based upon, in particular, the effect of securities price fluctuations; and (4) cash flow management, if deemed necessary to reform management of liquidity risks based upon deposit trends and level of reserve for liquidity.

        Deposit Insurance System

       In 1971, the Deposit Insurance Act was enacted in order to protect depositors when financial institutions fail to meet their obligations. DIC was established to implement the law and is supervised by the Prime Minister and the Minister of Finance. Subject to limited exceptions, the Prime Minister’s authority is delegated to the FSA Commissioner.

       Since April 2010, the DIC receives annual insurance premiums from insured banks equivalent to 0.107% of deposits that bear no interest, are redeemable upon demand and are used by depositors primarily for payment and settlement purposes, and premiums equivalent to 0.082% of other deposits. Premiums held by the DIC may be either deposited at financial institutions or used to purchase marketable securities. The insurance money may be paid out in case of a suspension of repayments of deposits, banking license revocation, dissolution or bankruptcy of a bank. Payouts are generally limited to a maximum of ¥10 million of principal amount together with any interest accrued with respect to each depositor. After April 1, 2005, only non-interest-bearing deposits that are redeemable upon demand and used by depositors primarily for payment and settlement functions are protected in full.

       City banks (including the Bank), regional banks (including member banks of the second association of regional banks), trust banks, credit associations, credit cooperatives, labor banks and Japan Post Bank participate in the deposit insurance system on a compulsory basis.

        Resolutions of Failed Financial Institutions

       Amendments to the Deposit Insurance Act effective in April 2001 created a permanent system for resolving failed financial institutions.

       The basic method of resolution for a failed financial institution under the Deposit Insurance Act is cessation of the business by paying insurance money to the depositors up to the principal amount of ¥10 million plus accrued interest per depositor, or pay-off or transfer of the business to another financial institution with financial aid provided within the cost of pay-off. Under the Deposit Insurance Act, transfer of business is regarded as the primary method. In order to effect a prompt transfer of business, the following framework has been established:

	•		a Financial Reorganization Administrator will be appointed by the FSA Commissioner and take control of the management and assets of the failed financial institution. The administrator is expected to efficiently search for a financial institution which will succeed the business of the failed institution;
	•		if no successor financial institution can be immediately found, a “bridge bank” will be established by the DIC for the purpose of temporarily maintaining the operations of the failed financial institution, and the bridge bank will seek to transfer the failed financial institution’s assets to another financial institution or dissolve the failed financial institution; and
	•		in order to facilitate or encourage a financial institution to succeed a failed business, financial aid may be provided by the DIC to any successor financial institution to enhance its capital after succession or to indemnify the loss incurred by the succession.

       Where it is anticipated that the failure of a financial institution may cause an extremely grave problem in maintaining the financial order in Japan or the region where the financial institution is operating, the following exceptional measures may be taken after consulting with the Conference for Financial Crisis Countermeasures:

•

the DIC may subscribe for shares or other instruments issued by the relevant financial institution and require the institution to submit a plan to regain soundness in its management to the DIC;

	•		once the financial institution fails, financial aid exceeding the cost for pay-off may be available to the institution; and
	•		if the failed institution is a bank and the problem cannot be avoided by other measures then the DIC may acquire all of the shares of the bank.

       In order to fund the above-mentioned activities, the DIC may borrow from financial institutions or issue bonds which may be guaranteed by the government.

        The Resolution and Collection Corporation

       The Resolution and Collection Corporation, or RCC, was established in 1999 as a wholly owned subsidiary of the DIC through the merger of the Housing Loan Administration Corporation, which had managed mortgages assigned from mortgage lending institutions corporations called “ jusen ”, and the Resolution and Collection Bank, which had collected loan receivables assigned from failed financial institutions. The RCC is permitted to purchase under-performing loan receivables not only from the failed financial institutions but also from healthy financial institutions in order to secure a stable Japanese financial system. The DIC provides guarantees to the RCC to finance the RCC’s business and to compensate RCC for losses that it incurs.

        Restriction on Aggregate Shareholdings by a Bank

       The Act Concerning Restriction on Shareholdings by Banks requires Japanese banks and their qualified subsidiaries to limit the aggregate market value (excluding unrealized gains, if any) of their equity securities holdings to an amount equal to 100% of their consolidated Tier I capital, with adjustments, in order to reduce exposure to stock price fluctuations. Treasury stocks, shares issued by subsidiaries, shares not listed on any stock exchange or not registered with any over-the-counter market, shares held as trust assets, and shares acquired through debt-for-equity swaps in restructuring transactions are excluded from this limitation.

       For the purposes of the above requirement, a bank’s “holdings of equity securities” is defined as the sum of (1) the amount of equity securities owned by the bank and its consolidated subsidiaries and (2) with regard to the equity securities owned by non-consolidated subsidiaries, the product of (x) the amount of equity securities owned by the bank’s non-consolidated subsidiaries, multiplied by the product of (y) the bank’s minority interests in the non-consolidated subsidiaries’ profits and losses calculated according to the equity method, divided by (z) the total amount of those profits and losses.

        Shareholding Restrictions Applicable to a Bank Holding Company and a Bank

       The Act on Prohibition of Private Monopolization and Maintenance of Fair Trade provision which prohibits banks from holding more than 5% of voting rights of other companies does not apply to bank holding companies. However, the Banking Act generally prohibits a bank holding company and its subsidiary, on an aggregated basis, from holding more than 15% of the voting rights of certain types of companies which are not permitted to become subsidiaries of bank holding companies. Also, the Banking Act generally prohibits a bank and its subsidiary, on an aggregated basis, from holding more than 5% of the voting rights of certain types of companies which are not permitted to become subsidiaries of banks.

        Banks’ Shareholdings Purchase Corporation

       In March 2009, in order to facilitate the disposition of shares of listed stocks held by banks while preventing adverse effects caused by sales of large amounts of shares in a short period of time, legislation restarting share purchases by the Banks’ Shareholdings Purchase Corporation of listed shares from banks and certain other financial institutions under certain conditions was enacted and became effective.

        Examination and Reporting Applicable to Shareholders of a Bank

       The FSA may request the submission of reports or other materials from a bank and/or its bank holding company, or inspect the bank and/or the bank holding company, if necessary, in order to secure the sound and appropriate operation of the business of a bank.

       Under the Banking Act, a person who desires to hold 20% (in some exceptional cases, 15%) or more of the voting rights of a bank is required to obtain advance approval of the FSA Commissioner. In addition, the FSA may request the submission of reports or materials from, or may conduct an inspection of, any principal shareholder who holds 20% (in some exceptional cases, 15%) or more of the voting rights of a bank if the FSA deems the action necessary in order to secure the sound and appropriate operation of the business of the bank. Under limited circumstances, the FSA may order the principal shareholder to take such measures as the FSA deems necessary.

       Furthermore, any person who becomes a holder of more than 5% of the voting rights of a bank holding company or a bank must report the ownership of the voting rights to the Director of the relevant local finance bureau within five business days. This requirement is separate from the significant shareholdings report required under the FIEA. In addition, a similar report must be made in respect of any subsequent change of 1% or more in any previously reported holding or in respect of any change in material matters set out in reports previously filed, with some exceptions. If the description contained in the report is inappropriate in any material respect, the FSA may request the submission of a report or other materials from, or may conduct an inspection of, the holder of the voting rights.

        Special Measures Act Concerning Facilitation of Reorganization by Financial Institutions, Etc.

       Under the Special Measures Act Concerning Facilitation of Reorganization by Financial Institutions, Etc.: (1) for one year after the merger or transfer of the entire business of a financial institution the maximum amount to be covered by the deposit insurance will be ¥10 million multiplied by the number of parties to the merger or business transfer; and (2) a financial institution will be entitled to enjoy the benefit of certain simplified procedures for the forms of reorganization described above.

        Deregulation of the Securities Business by a Bank

       Before the deregulation described below, Article 65 of the former Securities and Exchange Act separated the commercial banking business from the securities business in Japan, which was defined to include dealing, brokerage, underwriting and distribution of securities. Under this law, banks, including the Bank, could not engage in any securities business except for approved activities. Due to gradual deregulation, the Securities and Exchange Act allowed banks to underwrite and deal in Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, commercial paper and certain bonds issued by special purpose companies; to sell beneficiary certificates of investment trusts and securities issued by an investment company; and to engage in listed or OTC securities derivatives transactions as well as in the securities intermediary business, each subject to registration with the FSA.

       In addition, some amendments to the FIEA and the Banking Act, that became effective on June 1, 2009, abolished restrictions on directors and officers holding concurrent offices in banks, securities companies and insurance companies and introduced a system to manage conflicts of interest between banks, securities companies and insurance companies. The amendments provide for (1) revised firewall regulations between banks, securities companies and insurance companies; and (2) the development of a system to manage conflicts of interest between banks, securities companies and insurance companies. The amendment referred to in (1) above abolished the ban on certain officers and employees from holding concurrent posts in banks, securities companies and insurance companies, and relaxed restrictions on the transfer of non-public customer information. On the other hand, the amendment mentioned in (2) above requires those financial institutions, including banks, to implement proper information management procedures and to develop appropriate internal systems whereby they will prevent customer interests from being unfairly harmed through trading by a financial institution or by other companies within its group. For example, a financial institution may need to create information barriers between departments and review how it executes transactions with customers.

        Protection of Personal Information

       The Act on Protection of Personal Information became fully effective in April 2005. The Act on Protection of Personal Information and related rules, regulations and guidelines impose requirements on businesses that use databases containing personal information, including appropriate custody of personal information and restrictions on information sharing with third parties.

        Act on Sales, Etc. of Financial Products

       Due to deregulatory measures in the banking and finance industry, more financial products, including highly structured and other complicated products, may now be marketed to a broad base of customers. The Act on Sales, Etc. of Financial Products was enacted to better protect customers from incurring unexpected losses as a result of purchasing these financial products. Under this law, sellers of financial products have a duty to their potential customers to explain important matters (i.e., the nature and magnitude of risk involved) regarding the financial products that they sell. If a seller fails to comply with the duty, the loss in value of the purchased investment product due to the failure to explain is refutably presumed to be the amount of the customer’s loss. An amendment to this law, together with other related laws including the FIEA, became effective on September 30, 2007. The amended law enlarges the scope of duty of financial services providers to inform customers of important matters related to the financial products that they offer.

        Act on Prevention of Transfer of Criminal Proceeds

       Under the Act on Prevention of Transfer of Criminal Proceeds (Act No. 22 of 2007), which addresses money laundering and terrorism concerns, financial institutions and certain other entities, for example credit card companies, are required to perform customer identification, submit suspicious transaction reports and keep records of their transactions.

        Act Concerning Protection of Depositors and Relief for Victims of Certain Types of Fraud

       The Act Concerning Protection of Depositors from Illegal Withdrawals Made by Forged or Stolen Cards became effective in February 2006. This law requires financial institutions to establish internal systems to prevent illegal withdrawals of deposits made using forged or stolen bank cards. The law also requires financial institutions to compensate depositors for any amount illegally withdrawn using forged or stolen bankcards, subject to conditions.

       The Act Concerning Payment of Dividends for Relief of Damages from Funds in Account used in connection with Crimes (Act No. 133 of 2007) became effective in June 2008. This law requires that financial institutions take appropriate measures against various crimes including the closing of accounts used in connection with fraud and other crimes. The law also requires financial institutions to make, in accordance with specified procedures, payments from funds collected from the closed accounts to victims of certain crimes.

        FIEA

       The FIEA regulates the securities industry and most aspects of securities transactions in Japan, including public offerings, private placements and secondary trading of securities, ongoing disclosure by securities issuers, tender offers for securities, organization and operation of securities exchanges and self-regulatory organizations and registration of securities companies. The Prime Minister has the authority to regulate the securities industry and securities companies, which authority is delegated to the FSA Commissioner under the FIEA. The Securities and Exchange Surveillance Commission, an external agency of the FSA, is independent from the Agency’s other bureaus and is vested with authority to conduct day-to-day monitoring of the securities markets and to investigate irregular activities that hinder fair trading of securities, including inspection of securities companies as well as banks in connection with their securities business. Furthermore, the FSA Commissioner delegates certain authority to the Director General of the Local Finance Bureau to inspect local securities companies and their branches. A violation of applicable laws and regulations may result in various administrative sanctions, including revocation of registration or authorization, suspension of business or an order to discharge any Director or Executive Officer who has failed to comply with applicable laws and regulations. Securities companies are also subject to the rules and regulations of the Japanese stock exchanges and the Japan Securities Dealers Association, a self-regulatory organization of securities companies.

       The regime under the FIEA, which replaced the Securities and Exchange Act in September 2007 in order to broaden and strengthen investor protection and reduce trading costs through deregulation and the easing or elimination of certain excessive regulatory restrictions, includes, among other measures, (1) the development of comprehensive and cross-sectoral regulations covering a wide range of financial instruments; (2) the enhancement of corporate disclosure, requiring listed companies to file quarterly reports, audited internal control reports assessing the effectiveness of internal control structures for financial reporting, and confirmation of the content of annual reports; (3) the expansion

of the duties of financial institutions to provide customers with detailed disclosure regarding the financial products that they offer and other measures to protect investors; and (4) the easing of regulations through flexible application depending on the type of investor (professional or general public).

        Deregulation of Insurance Products

       Deregulation in the financial services industry has gradually permitted banks in Japan to offer a variety of insurance products including pension-type insurance. Further deregulation, starting from December 22, 2007, permits banks in Japan to offer a full range of insurance products as an agent in over-the-counter transactions.

        Regulation of the Consumer Finance Business

       In order to resolve the problems of heavily indebted borrowers and to effect proper regulation of the consumer finance business, amendments to the Interest Rate Restriction Act, and the Contributions Act were promulgated in December 2006. As a result, in June 2010, maximum legal interest rates were reduced to the levels prescribed by the Interest Rate Restriction Act (ranging from 15% to 20%), and gray zone interest, which is interest on loans in excess of rates prescribed by the Interest Rate Restriction Act up to the 29.2% maximum rate permitted under the Contributions Act, was abolished. Judicial decisions have strictly interpreted the conditions under which consumer finance companies may retain gray zone interest. As a result, claims for refunds of gray zone interest have increased substantially. The amendments to the Money Lending Business Act also include the introduction of an upper limit on aggregate borrowings from all moneylenders by an individual over which moneylenders may not extend further loans, as well as stricter regulation and supervision of moneylender activities.

        Installment Sales Act

       In order to ensure the fairness of transactions with respect to installment sales and others, prevent damage to consumers and manage credit card numbers, the Installment Sales Act imposes requirements on those who conduct installment sales businesses. In June 2008, revisions to the Installment Sales Act were enacted and, except for certain provisions, took effect in December 2009. The revisions impose more stringent and expanded requirements for credit card companies, including, among others: (1) wider coverage of installment sales under the regulations; (2) measures to prevent inappropriate extensions of credit for a certain type of credit transactions; (3) measures to prevent excessive lending for certain types of credit transactions that include requirements to investigate the payment ability of consumers by use of designated credit information organizations and prohibition of execution of credit agreements that exceed the payment ability of consumers; and (4) measures to protect certain information, such as credit numbers.

        The Act Concerning Temporary Measures to Facilitate Financing for SMEs, etc.

       The Act Concerning Temporary Measures to Facilitate Financing for SMEs, etc., took effect on December 4, 2009 and requires financial institutions to, among other things, make an effort to reduce their customers’ burden of loan payments by employing such methods as term modification at the request of eligible borrowers, including SMEs and individual home loan borrowers. The legislation also requires financial institutions to internally establish a system to implement the requirements of the legislation and periodically make disclosure regarding and report to the relevant authority the status of implementation. Following the issuance of the legislation, the FSA altered its approach toward inspections and shifted its emphasis to facilitation of finance. These measures are effective until March 2011.

United States

       As a result of its operations in the United States, the Bank is subject to extensive federal and state banking and securities supervision and regulation. The Bank engages in U.S. banking activities directly through its branches in Los Angeles, San Francisco and New York and through its representative office in Houston. The Bank also controls a U.S. banking subsidiary, Manufacturers Bank, and a U.S. broker-dealer, SMBC Securities, Inc.

       The Bank is a qualifying foreign banking organization under the U.S. International Banking Act of 1978 as amended, or International Banking Act, and as such is subject to regulation as a bank holding company under the U.S. Bank Holding Company Act of 1956, as amended, or the Bank Holding Company Act. Additionally, the Bank is a bank holding company by virtue of its ownership of Manufacturers Bank. As a result, the Bank and its U.S. operations are

subject to regulation, supervision and examination by the Federal Reserve Board as Manufacturers Bank’s U.S. “umbrella supervisor”.

       Manufacturers Bank is a California state-chartered bank, which is not a member of the Federal Reserve System. As a state non-member bank the deposits of which are insured by the Federal Deposit Insurance Corporation, or the FDIC, Manufacturers Bank is subject to regulation, supervision and examination by the FDIC and the California Department of Financial Institutions.

       The Bank’s New York branch is supervised by the Federal Reserve Bank of New York and the New York State Banking Department, but its deposits are not insured (or eligible to be insured) by the FDIC. The Bank’s Los Angeles and San Francisco branches are supervised by the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions, but their deposits are not insured (or eligible to be insured) by the FDIC. The Bank’s representative offices are subject to regulation and examination by the state banking authority of the state in which they are located as well as the Federal Reserve Bank for the District in which they are located.

        Restrictions on Activities

       As described below, federal and state banking laws and regulations restrict the Bank’s ability to engage, directly or indirectly through subsidiaries, in certain activities in the United States.

       The Bank is required to obtain the prior approval of the Federal Reserve Board before directly or indirectly acquiring the ownership or control of more than 5% of any class of voting shares of U.S. banks, certain other depository institutions, and bank or depository institution holding companies. Under current Federal Reserve Board policy, the Bank is expected to serve as a source of financial strength to Manufacturers Bank. Under the Bank Holding Company Act and Federal Reserve Board regulations, the Bank’s U.S. banking operations (including Manufacturers Bank and the Bank’s U.S. branches) are also restricted from engaging in certain “tying” arrangements involving products and services. In addition, the activities of the Bank’s non-bank subsidiaries are generally limited to those activities that the Federal Reserve Board has determined to be a proper incident to banking or managing and controlling banks, and the Bank Holding Company Act generally prohibits the Bank from acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting shares of any company engaged in the United States in activities other than banking or activities deemed a proper incident to banking or managing and controlling banks.

Federal Reserve Board approval is generally required for the Bank to acquire more than 5% of any class of voting shares of a U.S. company engaged in permissible non-banking activities.

       The Bank’s New York Branch and Manufacturers Bank are subject to requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be made and (with respect to the Bank’s New York Branch only) the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of Manufacturers Bank, and to a limited extent, the Bank’s New York and California branches.

       The Gramm Leach Bliley Act of 1999, or the GLB Act, and Federal Reserve Board regulations contain other provisions that could affect the operations of Manufacturers Bank and the Bank’s New York and California branches. One of these provisions requires the Bank’s consumer operations and Manufacturers Bank to disclose their respective privacy policies to consumers and to offer them the ability to opt out of having their non-public information disclosed to third parties. In addition, individual states are permitted to adopt more extensive privacy protections through legislation or regulation. The so-called “push-out” provisions of the GLB Act also narrow the exclusion of banks (including U.S. branches of foreign banks, such as the Bank’s New York branch) from the definitions of “broker” and “dealer” under the Securities Exchange Act of 1934.

       In addition, under U.S. federal banking laws, state-chartered banks (such as Manufacturers Bank) and state-licensed branches and agencies of foreign banks (such as the Bank’s New York branch) may not, as a general matter, engage as a principal in any type of activity not permissible for their federally chartered or licensed counterparts, unless (i) in the case of state-chartered banks (such as Manufacturers Bank), the FDIC determines that the additional activity would pose no significant risk to the FDIC’s Deposit Insurance Fund and is consistent with sound banking practices, and (ii) in the case of state-licensed branches and agencies of foreign banks (such as the Bank’s New York branch), the

Federal Reserve Board determines that the additional activity is consistent with sound banking practices. United States federal banking laws also subject state branches and agencies of foreign banks to the same single-borrower lending limits that apply to federal branches or agencies, which are substantially similar to the lending limits applicable to national banks. These single-borrower lending limits are based on the worldwide capital of the entire foreign bank (i.e., the Bank in the case of the Bank’s New York branch).

       Under the International Banking Act, the Federal Reserve Board may terminate the activities of any U.S. office of a foreign bank if it determines that the foreign bank is not subject to comprehensive supervision on a consolidated basis in its home country (unless the home country is making demonstrable progress toward establishing such supervision), or that there is reasonable cause to believe that such foreign bank or its affiliate has violated the law or engaged in an unsafe or unsound banking practice in the United States and, as a result of such violation or practice, the continued operation of the U.S. office would be inconsistent with the public interest or with the purposes of federal banking laws.

       There are various legal restrictions on the extent to which the Bank and its non-bank subsidiaries can borrow or otherwise obtain credit from its U.S. bank subsidiary, Manufacturers Bank, or engage in certain other transactions involving that subsidiary. In general, these transactions must be on terms that would ordinarily be offered by Manufacturers Bank to unaffiliated entities, and credit transactions must be secured by designated amounts of specified collateral. In addition, certain transactions, such as certain purchases by Manufacturers Bank from the Bank or its non-bank subsidiaries are subject to volume limitations.

        USA PATRIOT Act

       The USA PATRIOT Act of 2001, or the PATRIOT Act, contains measures to prevent, detect and prosecute terrorism and international money laundering by imposing significant compliance and due diligence obligations, creating crimes and penalties and expanding the extraterritorial jurisdiction of the United States. Many of the anti-money laundering compliance requirements are consistent with the anti-money laundering compliance obligations previously imposed on U.S. financial institutions, including the U.S. offices of foreign banks, under the Bank Secrecy Act. The passage of the PATRIOT Act and other events have resulted in heightened scrutiny of compliance with the Bank Secrecy Act and anti-money laundering rules by federal and state regulatory and law enforcement authorities, including the OFAC.

        Other

       In the United States, the Bank’s U.S.-registered broker-dealer, SMBC Securities, is regulated by the Securities and Exchange Commission. Broker-dealers are subject to regulations that cover all aspects of the securities business, including:

	•		sales methods;
	•		trade practices among broker-dealers;
	•		use and safekeeping of customers’ funds and securities;
	•		capital structure;
	•		record-keeping;
	•		the financing of customers’ purchases; and
	•		the conduct of directors, officers and employees.

       In addition, SMBC Securities is a member of and regulated by the Financial Industry Regulatory Authority and is regulated by the individual state securities authorities in the states in which it operates. The U.S. government agencies and self-regulatory organizations, as well as state securities authorities in the United States having jurisdiction over the Bank’s U.S. broker-dealer affiliates, are empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or its directors, officers or employees.

Other Jurisdictions

       Elsewhere in the world, our operations are subject to regulation and control by local central banks and monetary authorities.

        4.C. ORGANIZATIONAL STRUCTURE

       The following chart presents our corporate structure summary as at March 31, 2010:

Sumitomo Mitsui Financial Group, Inc
					(Domestic)	SMBC’s Consumer Banking Unit
		Commercial Banking			Sumitomo Mitsui Banking Corporation (SMBC) ———————————	SMBC’s Middle Market Banking Unit
					Kansai Urban Banking Corporation	SMBC’s Corporate Banking Unit
					The Minato Bank, Ltd.	SMBC’s International Banking Unit
					The Japan Net Bank, Limited	SMBC’s Treasury Unit
					SMBC Guarantee Co., Ltd.
					(Overseas)
					Sumitomo Mitsui Banking Corporation Europe Limited
					Manufacturers Bank
					Sumitomo Mitsui Banking Corporation (China)
					Sumitomo Mitsui Banking Corporation of Canada
					Banco Sumitomo Mitsui Brasileiro S.A.
					PT Bank Sumitomo Mitsui Indonesia
					(Domestic)
		Securities			Nikko Cordial Securities Inc
					SMBC Friend Securities Co., Ltd.
					(Overseas)
					SMBC Securities, Inc.
					(Domestic)
		Leasing			Sumitomo Mitsui Finance and Leasing Company, Limited
					Sumitomo Mitsui Auto Service Company, Limited
					(Overseas)
					SMBC Leasing and Finance, Inc.
					(Domestic)
		Credit Card			Sumitomo Mitsui Card Company, Limited
					Cedyna Financial Corporation
					Sakura Card Co., Ltd.
					(Domestic)
		Others			The Japan Research Institute, Limited
					JSOL Corporation
					ORIX Credit Corporation
					Promise Co., Ltd.
					At-Loan Co., Ltd.
					(Overseas)
					SMBC Capital Markets, Inc.

       As the ultimate holding company of the Group, we are responsible for:

	•		group strategy and management;
	•		group resource allocation;
	•		group financial accounting;
	•		investor relations;

	•		capital strategy;
	•		group IT strategy;
	•		HR management for group executives;
	•		group risk management and compliance;
	•		compensation schemes; and
	•		efficiently harmonizing our operations on a Group-wide basis.

Principal Subsidiaries

       Our principal subsidiaries are listed in Note 47 “Principal Subsidiaries” to our consolidated financial statements.

        4.D. PROPERTY, PLANT AND EQUIPMENT

       We own or lease the land and buildings in which we conduct our business. Most of the property that we operate in Japan is owned by us to be used by our branches. In contrast, our international operations are conducted out of leased premises. Our headquarters building in Marunouchi is leased from a third party. Our largest property is SMBC’s head office in Otemachi, which had a net carrying value of ¥123 billion, including the land and building, at March 31, 2010. The following table shows the net carrying amount of our tangible fixed assets as of March 31, 2010:

       For more information, see Note 12 “Property, Plant and Equipment” and Note 38 “Assets Pledged and Received as Collateral” to our consolidated financial statements.

       The total area of land related to our material office and other properties at March 31, 2010 was approximately 779,000 square meters for owned land and approximately 17,000 square meters for leased land.

       We are not aware of any environmental issues that may affect our utilization of the assets.

Item 4A. Unresolved Staff Comments

       None.

OVERVIEW

Operating Environment

       The global economy is emerging from the sharp deterioration triggered by the financial crisis and has been on a recovery trend since the latter half of 2009. Supported by supplemental government spending and BOJ efforts to keep interest rates low and increase production against a backdrop of progress in inventory adjustments, Japan’s GDP increased in the fiscal year ended March 31, 2010. Similar efforts abroad to keep interest rates low and to boost consumer spending, such as through incentive schemes to promote auto purchases in the United States and Germany, helped the United States and Euro-zone economies expand in the previous fiscal year. Recovery was also visible in emerging economies. The Chinese economy, in particular, continued to grow at a relatively rapid pace, led mainly by domestic demand, and economic conditions in the ASEAN countries were recovering.

       Our financial condition and results of operations are significantly affected by the general business environment in Japan and other major economies, many of which have recently been recovering. This recent global economic recovery may be fragile and attributable in part to the effects of various government economic stimulus efforts and may turn into another downturn. In Europe, sovereign debt crises in Greece and other European countries emerged in late 2009 and are continuing. Surrounding European Union countries are poised to aid such countries, but such relief measures may not be successful and such countries might not reestablish fiscal strength. If such sovereign debt crises cannot be resolved, they may adversely affect the global economy. Accordingly, the aforementioned government stimulus efforts may not be self-sustaining, particularly once the effects of those stimulus efforts subside. Additionally, the euro has recently weakened and may further adversely affect the global economy.

       In December 2009, the Government of Japan established emergency economic measures to support the fragile economy, and has been continuing its efforts to boost the economy. However, it is difficult to predict whether such economic measures are effective or how such measures will affect us in the long term.

       A persistently strong yen has begun to produce deflation in Japan and negatively affect corporate earnings and exports, all of which could hamper Japanese economic recovery. Unemployment in Japan has been at a relatively high level since the spring of 2009 and private consumption and economic activity have lessened. In addition, there have been a number of corporate bankruptcies in Japan, particularly by companies directly affected by recession. According to Teikoku Databank, a Japanese research institution, there were approximately 11,300 corporate bankruptcies involving approximately ¥5.5 trillion in total liabilities in the fiscal year ended March 31, 2008, approximately 13,200 corporate bankruptcies involving approximately ¥13.7 trillion in total liabilities in the fiscal year ended March 31, 2009 and approximately 12,900 corporate bankruptcies involving approximately ¥7.0 trillion in total liabilities in the fiscal year ended March 31, 2010.

       Though the total liabilities involved in bankruptcies decreased and the number of bankruptcies also decreased, the total liabilities and number of bankruptcies remain at a relatively high level. Furthermore, SMEs and other industry segments might be affected in the future.

Regulatory Environment

       We expect that our financial condition and operating results will be significantly affected by regulatory trends.

       To address perceived weaknesses in financial regulation revealed by the global financial crisis, regulatory authorities in Japan and abroad are taking significant steps to enhance soundness regulation. The Basel Committee and other international bodies are leading efforts to formulate regulatory enhancements, including in the area of capital regulation. These enhancements include an increase of the risk weights for resecuritization instruments and reconsideration of regulations on the trading book as well as enhancements in the quality of capital and introduction of liquidity requirements. Furthermore, a capital surcharge may be required for systemically important financial institutions.

       Japanese banks are facing increased scrutiny over their credit policies relating to SMEs and residential mortgage loans. The Act Concerning Temporary Measures to Facilitate Financing for SMEs, etc., which took effect on December 4, 2009, requires financial institutions, among other things, to make an effort to reduce their customers’ burden of loan

repayments by employing such methods as term modification at the request of eligible borrowers, including SMEs and individual housing loan borrowers.

       Japanese credit card and consumer finance businesses have been and may continue to be adversely affected by changes in legal conditions. December 2006 amendments to laws regulating moneylenders increased the authority of government regulators and eliminated gray zone interest and introduced an upper limit on aggregate credit extensions to an individual by all moneylenders of one-third of the borrower’s annual income in June 2010. Also, revisions to the Installment Sales Act enacted in June 2008, which took effect, except for certain provisions, in December 2009, imposed more stringent regulations on credit card companies, including an expanded scope of regulation, measures to prevent inappropriate extensions of credit and measures to prevent excessive lending.

       On the other hand, deregulation of banking activities in Japan has accelerated over the past several years. This enables banks to offer customers an increasingly attractive and diversified range of products and services, such as pension-type insurance and securities intermediary services.

       For a more detailed description of regulations to which we are subject, risks associated with regulatory development and our management policy under these environment, see “Item 3.D. Risk Factors—Risks Related Our Business, and Risks Related to Our Industry” and “Item 4.B. Business Overview—Regulation”.

Factors Affecting Results of Operation

Income (Loss)

       We have three principal sources of operating income: net interest income, net fee and commission income, and net trading/investment income. Income other than these three principal sources is included in “other income”.

        Net Interest Income. Net interest income, or the difference between interest income and interest expense, is determined by:

	•		the amount of interest-earning assets and interest-bearing liabilities;
	•		the interest spread;
	•		the general level of interest rates; and
	•		the proportion of interest-earning assets to interest-bearing liabilities.

       Our principal interest-earning assets consist of loans and advances, investment securities, and deposits with banks. Our principal interest-bearing liabilities consist of deposits, borrowings, and debt securities in issue. The interest income or expense on trading assets or liabilities is not included in net interest income. Our net interest income is earned mainly by the Bank. The Bank controls its exposure to interest rate fluctuations through asset liability management operations.

       The Bank, like other banks in Japan, makes most domestic loans based on a short-term interest rate, Tokyo inter-bank offered rate, or the TIBOR, and a short-term prime rate, which are generally intended to reflect the cost of funds. The Bank establishes a short-term prime rate based principally on its cost of short-term yen funding. The Bank’s short-term prime rate is affected mainly by changes in the policy interest rates set by the BOJ, which is an uncollateralized overnight call rate.

       Prime rates in Japan have been relatively stable since 2000. This is mainly because short-term interest rates, for example, the three-month TIBOR, have declined to nearly zero, and prime rates, which are adjusted according to changes in short-term interest rates, had little room for further decline. The BOJ encouraged the uncollateralized overnight call rate, which is the policy interest rate for the BOJ, to raise from approximately 0.0% to 0.25% on July 14, 2006 and from 0.25% to 0.5% on February 21, 2007. Following these interest rate changes, we raised our short-term prime rate by 0.5% from 1.375% to 1.875% and our ordinary deposit rate by 0.199% from 0.001% to 0.2% during the substantially same period. However, the BOJ lowered its target for the uncollateralized overnight call rates from 0.5% to 0.3% on October 31, 2008 and by an additional 0.2% to 0.1% on December 19, 2008 in order to address market

conditions. Again, following these policy interest rate changes, we lowered our short-term prime rate by 0.4% from 1.875% to 1.475% and our ordinary deposit rate by 0.16% from 0.2% to 0.04% during the substantially same period.

       The following table sets forth the Bank’s short-term prime rate, three-month TIBOR, ordinary deposit rate, long-term prime rate and ten-year swap rate, as of the dates indicated:

       On September 13, 2010 we lowered our ordinary deposit rate by 0.02% from 0.04% to 0.02%. Also, on October 5, 2010, the BOJ lowered its target for the uncollateralized overnight call rate to around 0% to 0.1% in order to enhance monetary easing, making clear that it is pursuing a virtually zero interest rate policy.

       It is difficult to earn a wide interest spread when interest rates are at a low level, as they currently are in Japan. When interest rates rise from extremely low levels, interest spreads at commercial banks generally increase. However, interest spreads may temporarily decrease immediately after an increase in interest rates because it may take time for banks to increase lending rates correspondingly, in contrast to their funding rates. After an adjustment period, lending rates generally also increase and banks are able to secure a wider interest spread than in a low interest rate environment. Conversely, interest spreads may temporarily increase immediately after a decrease in interest rates because it may take time for banks to decrease lending rates correspondingly, in contrast to their funding rates. After an adjustment period, lending rates generally also decrease and banks generally are not able to maintain a wide interest spread. While various factors may affect the level of net interest income, generally the loan-to-deposit interest spread increases when short-term interest rates rise, particularly in the current low interest-rate environment.

        Net Fee and Commission Income. We earn fees and commissions from a variety of services. The primary component of the Bank’s net fee and commission income is fees from money remittances and transfers. Net fee and commission income also includes fees and commissions related to investment trusts, deposits and loans (such as loan commitment fees, loan arrangement fees), securities transactions (such as bond trustee fees and bond recording agency fees) and guarantees and acceptances. Other fees and commissions include fees from investment banking and electronic banking.

       In addition, we earn a significant amount of fees and commissions from our securities business and credit card business, conducted primarily through Nikko Cordial Securities and Sumitomo Mitsui Card, respectively. The principal components of Nikko Cordial Securities’ fees and commissions are subscription and agent commissions from investment trusts and underwriting commissions, while those of Sumitomo Mitsui Card’s fees and commissions are membership fees from retailers and annual cardholder membership fees.

       The principal factors affecting fees and commissions are the demand for the services provided, the fees charged for those services and fees charged by competitors for similar services. The volume of services provided also affects profitability, as our fee businesses have significant economies of scale. In order to diversify sources of revenue and enhance return on assets, we are expanding our fees and commissions businesses, including sales of investment trusts and pension-type insurance, and investment banking businesses.

        Net Trading/Investment Income . We undertake significant trading activities involving a variety of financial instruments, including derivatives. Our income from these activities is subject to volatility caused by, among other things, changes in interest rates, exchange rates, equity prices or other market variables. Any unexpected change in interest rates could affect the fair value of our interest rate derivative positions and our net income from trading activities. Net trading income consists of margins made on market-making and our customer business as well as changes in fair value of trading assets and liabilities and derivative financial instruments. It also includes net interest and dividend income on these instruments.

       We have hybrid instruments classified as financial assets at fair value through profit or loss in our consolidated financial statements. Net income from financial assets at fair value through profit or loss includes gains and losses arising from sales and the change in the fair value of these instruments. It also includes interest and dividend income on these instruments.

       We have substantial investments in debt securities as available-for-sale financial assets. In particular, Japanese government bonds represent a significant part of our bond portfolio. We also own debt securities denominated in foreign currencies, principally the U.S. dollar and the euro. We also have investments in equity securities as available-for-sale financial assets, which include our strategic investments in stocks issued by our customers. Net investment income includes the gains and losses arising from the sales or redemptions of available-for-sale financial assets and the dividend income earned from available-for-sale equity instruments. Increases in interest rates or declines in equity prices could substantially decrease the fair value of our available-for-sale financial assets.

        Other Income. Other income consists primarily of income from operating leases conducted by Sumitomo Mitsui Finance and Leasing and income related to IT solution services.

Expenses

        Impairment Charges on Financial Assets. Our impairment charges are recorded mainly due to losses relating to loans and advances recorded by banking subsidiaries and impairment charges on investment securities in connection with deteriorating market prices.

       Impairment charges on loans and advances are affected by the economy. During periods of economic slowdown, corporate and individual borrowers are generally more likely to suffer credit rating downgrades, or become delinquent or default on their borrowings. The slowdown in the domestic or global economy may increase credit costs relating to a wide range of industries.

       Declines in market prices for domestic and foreign securities result in our recording impairment charges. We assess at each fiscal year end whether there is any objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity instruments classified as available-for-sale, a significant or prolonged decline in the fair value of the instrument below its cost is also considered to be such evidence in determining whether the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the cost and the current fair value less any impairment charges on that financial asset previously recognized in profit or loss, is removed from equity and recognized in the income statement.

        General and Administrative Expenses. General and administrative expenses consist primarily of personnel expenses (salaries and related expenses), depreciation and amortization expenses, and other expenses (premiums for deposit insurance, advertising and marketing expenses, rental and lease expenses and communication expenses).

        Other Expenses. Other expenses consist primarily of cost of operating leases, losses on disposal of property, plant and equipment, impairment losses of property, plant and equipment and costs related to IT solution services.

Unrealized Losses on Securities Investment Portfolio

       Declines in market prices for domestic and foreign securities result in an increase in unrealized losses on available-for-sale securities. Unrealized gains or losses arising from changes in the fair value of these securities are recognized directly in equity, until they are derecognized or impaired. The Nikkei 225 Index decreased by 27.5% to 12,525.54 during the fiscal year ended March 31, 2008, and by another 35.3% to 8,109.53 during the fiscal year ended March 31, 2009. However, the Nikkei 225 Index increased by 36.8% to 11,089.94 during the fiscal year ended March 31, 2010. As of March 31, 2010, we had net unrealized gains on domestic equity securities of ¥1,020,321 million, an increase of ¥484,591 million from ¥535,730 million as of March 31, 2009. For more information, see “Item 5.A. Operating Results—Investment Securities”.

Strengthening of Equity Capital

       In response to more stringent regulatory capital requirements, we have been taking a proactive approach to manage our risk-weighted capital ratio by focusing on increasing our qualifying capital, including through measures such as the

global common stock offering, and identifying and controlling our risk-weighted assets. As a result of global offerings of common stock completed in July 2009 and February 2010, we increased our equity in our consolidated statement of financial position by ¥1,836 billion. In September and October 2009 we issued into the domestic market ¥388 billion of preferred securities via a consolidated subsidiary, the proceeds of which were used to improve our capital. In addition, on February 8, 2010, we announced the successful completion of cash tender offers whereby we repurchased the majority of the outstanding series of certain non-cumulative perpetual preferred securities and the Bank purchased the majority of the outstanding series of our fixed to floating rate perpetual subordinated bonds. The successful tender offers reduced our interest and dividend payment obligations with respect to those securities, and together with associated gains, have improved the quantity and quality of our capital.

       We have also been managing our regulatory capital ratios by focusing on controlling our risk-weighted assets. As part of this effort, we have increased our emphasis on identifying risks by introducing more sophisticated risk management systems, including an advanced measurement approach to operational risk, as of the end of March 2008, and adopted an advanced internal ratings-based approach to credit risk as of the end of March 2009. While our risk-weighted assets increased in the fiscal year ended March 31, 2008, due mainly to our increase in overseas lending aimed at strengthening targeted business areas, in the fiscal year ended March 31, 2009, the implementation of the advanced internal ratings-based approach as well as the issuance of preferred securities and the increase of retained earnings, enabled us to increase our Tier I ratio. In addition, in the fiscal year ended March 31, 2010, we further increased our Tier I ratio through common equity offerings, while our risk-weighted assets were largely unchanged compared with the previous fiscal year, reflecting weak demand from domestic corporate customers.

       Our approach to risk-weighted assets involves both balancing risks and potential returns and identifying and classifying risks across our operations. For risk-weighted assets, we are endeavoring to secure what we believe are appropriate returns for various levels of risk. We are simultaneously strengthening our management of exposure to overseas credit risk and enhancing our cross-sectional risk review process to enable us to better identify specific market, liquidity, credit and operational risk in the current uncertain economic environment. Through these initiatives, we aim to conservatively manage the level of our risk-weighted assets while increasing our profitability.

       In our three year medium-term management plan started from April 2007, we had targeted a Tier I ratio of 8% but in response to the shifts in the business environment for banks as a result of increasingly stringent regulatory capital requirements, including the Basel Committee proposals announced in December 2009, we have revised our goal to that of aiming to maintain our consolidated Tier I ratio above 10%. We are striving to create a foundation for long-term growth through the combination of this enhanced capital base and the continued pursuit of efficiency in our operations.

       We adopted the foundation IRB approach for credit risk and the basic indicator approach (BIA) for operational risk at March 31, 2007 when Basel II was implemented. We have been trying to upgrade our risk management systems and adopted AMA to operational risk from March 31, 2008, and the advanced IRB approach for credit risk from March 31, 2009.

       The business environment of financial institutions is changing radically as regulators discuss the global reform of financial regulations in order to prevent another financial crisis. A development of the global framework for strengthening the capital ratios is seen in announcements such as “Enhancements to the Basel II framework” in July 2009, and “Strengthening the resilience of the banking sector” in December 2009. We will proactively implement initiatives to secure a resilient capital base and reinforce our business portfolio to achieve sustainable growth, in order to remain competitive under new regulatory and competitive environments and for early capture of growth opportunities. By the fiscal year ending March 31, 2013 when the new standard is deem to be fully implemented, we aim to maintain over 10% of consolidated Tier I ratio while taking measures to further strengthen the capital base through stable accumulation of profit and reduce risks to our capital posed by volatility in equity holdings.

Foreign Currency Fluctuations

       The average exchange rate used to convert dollars to yen in the consolidated financial statements contained in this registration statement for the fiscal year ended March 31, 2010 was ¥92.90 per $1.00, compared to the prior fiscal year’s average exchange rate of ¥100.68 per $1.00. We earned 14% of our revenue from our foreign operations for the fiscal years ended March 31, 2010 and March 31, 2009. For more information, please see “Item 4.B. Business Overview—Revenues by Region”.

Critical Accounting Estimates and Judgments

       Our financial position and operating results are influenced by estimates and judgments that management employs in the course of preparation of our consolidated financial statements. We identified the following areas of significant accounting policies to be particularly sensitive in terms of estimates and judgments made by management. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable.

Allowance for Loan Losses

       Allowance for loan losses represents management’s estimate of the losses incurred in the loan portfolios at the end of each reporting period. Management exercises judgments in making assumptions and estimations when calculating the allowance for loan losses on both individually and collectively assessed loans.

       The allowance for loan losses for individually significant impaired loans is estimated by management based on the expected future cash flows taking into account factors such as historical loss information, the appropriateness of the borrower’s business plan or operational improvement plan, the status of progress of its plan, the overall support from financial institutions, and realizable value of any collateral held. The allowance for loan losses is the difference between the carrying amount of a loan and the discounted present value of expected future cash flows that are estimated by management. The actual future cash flows may differ from the estimates by management and consequently may cause actual loan losses to differ from the reported allowance for loan losses.

       The allowance for loan losses for the remaining loans is collectively calculated based on the historical loss experience for loans which have similar credit risk characteristics to those in the current loan portfolio using statistical methods. These statistical methods are subject to estimation uncertainty. In normal circumstances, the use of statistical methods evidenced by historical information provides the most objective methodology in assessing inherent losses on loans with similar credit risk characteristics. However, in certain circumstances, the use of historical loss experience alone may not be representative of current loss experiences and as a result it may provide less relevant information about the loss incurred in a given portfolio at the end of the reporting period, particularly in a situation where there have been changes in economic conditions. In these circumstances, we make judgment to update the historical loss experience based on the most recent loss information, taking into account, among others, the effect of the current economic environment.

       Additionally, we recognize the allowance for loan losses when it is probable that a loss has been incurred but not yet reported to us. To assess the losses on the loan portfolios where loss events have occurred but not yet been reported, management develops assumptions and methodologies.

       Management estimates and judgments may change from time to time as the economic environment changes or new information becomes available. Changes in these estimates and judgments will result in a different allowance for loan losses and may have a direct impact on impairment charges. The impairment charges for loan losses totaled ¥215,886 million and ¥849,495 million for the fiscal years ended March 31, 2010 and 2009, respectively.

Fair Value of Financial Instruments

       Some of our financial instruments are measured at fair value with changes in fair value recognized in profit or loss, such as trading assets and liabilities, financial assets at fair value through profit or loss, and derivative financial instruments. Available-for-sale financial assets are also measured at fair value with changes in fair value reported in a separate component of equity as other comprehensive income.

       The fair value of a financial instrument is the amount for which the instrument could be exchanged or settled between knowledgeable and willing parties in an arm’s length transaction. Our financial assets and liabilities measured at fair value are mostly valued based on observable market data that are readily available in active markets, or using valuation techniques that incorporate inputs, other than quoted market prices, that are observable either directly or indirectly in the market, including dealers’ quotes. We principally use valuation techniques that are commonly used by market participants to price the instrument. To the extent practical, the valuation models make maximum use of observable data. However, for certain financial assets and liabilities, the fair values are measured by using valuation

techniques with significant unobservable inputs. In such cases, significant management estimates are made, resulting in a less objective measurement of fair value.

       The risk management departments in each subsidiary also regularly review significant valuation methodologies and recalibrate model parameters and inputs, both observable and unobservable, in an effort to ensure an appropriate estimation of fair value has been made. Where significant management judgments are required in valuation, we establish a valuation control framework to validate the valuation models and fair values calculated based on such valuation models. Under the framework, the accounting department is responsible for ensuring that the accounting policies and procedures to determine the fair values are in compliance with the relevant accounting standards.

       If there are significant unobservable inputs used in the valuation technique as of the trade date or when financial assets and liabilities are not recognized at their respective transaction prices, any profit or loss on the trade date is deferred. Management judgment is required to determine whether significant unobservable inputs exist in the valuation technique.

       Upon adoption of the amendment to IFRS 7 “Financial Instruments: Disclosures”, the financial assets and liabilities carried at fair value at March 31, 2010 were categorized under the three levels of the IFRS fair value hierarchy as follows:

	•		Level 1 . Quoted prices (unadjusted) in active markets for identical assets or liabilities;
	•		Level 2 . Inputs other than quoted prices included within Level 1 that are observable for the asset or liability , either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
	•		Level 3 . Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

       Management judgment is involved in determining the level of hierarchy to which each financial instrument should be categorized and in periodical assessments of market liquidity for inputs and price transparency.

       In addition to the fair value hierarchy disclosure, we provide a sensitivity analysis of the impact on the level 3 financial instruments of using reasonably possible alternatives for the unobservable parameters in Note 44 “Fair Value of Financial Assets and Liabilities” to our consolidated financial statements. The determination of reasonably possible alternatives requires significant management judgment.

       The financial assets measured at fair value categorized in level 3 were ¥1,037,825 million and ¥1,005,092 million at March 31, 2010 and 2009, respectively. The financial liabilities measured at fair value categorized in level 3 were ¥7,387 million and ¥159,148 million at March 31, 2010 and 2009, respectively.

Impairment of Available-for-sale Financial Assets

       Available-for-sale financial assets are measured at fair value with changes in fair value reported in a component of equity until the financial assets are either derecognized or become impaired. If there is objective evidence of impairment as a result of loss events which have an impact on the estimated future cash flows of the financial assets that can be reliably estimated, the cumulative loss previously recognized in equity is removed and recognized in profit or loss as an impairment charge.

       We exercise judgment in determining whether there is objective evidence of occurrence of loss events which result in a decrease in estimated future cash flows. The estimation of future cash flows also requires judgment. In the assessment of impairment of available-for-sale equity instruments, we also consider whether there has been a significant or prolonged decline in fair value below their cost. The determination of what is a significant or prolonged decline requires management judgment.

       Impairment may occur when there is objective evidence of deterioration in the financial conditions of the investee, industry and sector performance, or changes in operating and financing cash flows. The determination of impairment in this respect also includes significant management judgment.

       Management estimates and judgments may change from time to time upon future events that may or may not occur and changes in these estimates and judgments could adversely affect the carrying amounts of available-for-sale financial assets. The gain in the fair value of available-for-sale financial assets for the fiscal year ended March 31, 2010 was ¥616,762 million and the loss in the fair value of available for-sale financial assets for the fiscal year ended March 31, 2009 was ¥1,134,743 million. Impairment charges on available-for-sale financial assets reclassified from equity to profit or loss totaled ¥42,755 million and ¥391,215 million for the fiscal years ended March 31, 2010 and 2009, respectively.

Impairment of Goodwill

       Goodwill is tested for impairment at least annually and whenever events or changes in circumstances indicate that it may be impaired. The first step of the impairment test is identifying the cash-generating units, or CGUs, which represent the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill is then allocated to the CGUs, considering how the goodwill is recognized and other relevant factors.

       In the impairment test, the carrying amount of the CGU to which goodwill is allocated is compared against its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Such recoverable amounts are determined based on significant management judgments and assumptions.

       We determine the recoverable amount using the estimated future cash flows, pre-tax discount rates, growth rates, and other factors. The estimation of future cash flows inherently reflects management judgments, even though such forecasts are prepared taking into account actual past performance and external economic data. The pre-tax discount rates and growth rates may be significantly affected by market interest rates or other market conditions, which are beyond management’s control, and therefore significant management judgments are made to determine these assumptions.

       These management judgments are made based on the facts and circumstances at the time of the impairment test, and may vary depending on the situation and time. Changes in management judgments may result in different impairment test results and different impairment losses recognized. For the fiscal years ended March 31, 2010 and 2009, impairment losses on goodwill totaled ¥3,918 million and ¥10,141 million, respectively.

Retirement Benefits

       We have defined benefit plans such as defined benefit pension plans and lump-sum severance indemnity plans. The present value of the defined benefit obligation is calculated based on actuarial valuations that are dependent upon a number of assumptions, including discount rates, mortality rates and future salary (benefit) increases. The discount rates are equivalent to market yields of AA credit-rated corporate bonds that have terms to maturity approximating those of the related obligations. Future mortality rates are based on the official mortality table generally used for actuarial assumptions in Japan. Other assumptions used for the calculation of the defined benefit obligation are based on historical records. The expected return on plan assets is developed separately for each plan, typically using a building block approach recognizing the plan’s specific asset allocation and the assumed return on assets for each asset category. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. While we believe that these assumptions are appropriate, any change in these assumptions will impact actuarial gains and losses, as well as the present value of the defined benefit obligations and the net retirement benefit expense for each period. Actuarial gains and losses in excess of the greater of 10% of the fair value of plan assets and 10% of the present value of the defined benefit obligation are recognized in the consolidated income statement over the employees’ expected average remaining working lives. The amounts of cumulative unrecognized actuarial losses, net of gains, at March 31, 2010 and 2009 were ¥142,359 million and ¥243,364 million, respectively.

       The difference between the fair value of the plans assets and the present value of the defined benefit obligation at the end of the reporting period, adjusted for any cumulative unrecognized actuarial gains and losses and past service costs for each plan, is recognized as liabilities and assets in the consolidated statement of financial position. (When this calculation for each plan results in a benefit to us, the recognized asset is limited to the net total of any cumulative unrecognized actuarial losses and past service costs and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. An economic benefit is available to us, if

it is realizable during the life of the plan or on settlement of the plan obligation.) Our cumulative deficit at March 31, 2010 and 2009 was ¥108,710 million and ¥236,420 million, respectively, while the net total of assets and liabilities in the consolidated statement of financial position amounted to net assets of ¥33,077 million and ¥7,075 million at March 31, 2010 and 2009, respectively.

Deferred Tax Assets

       We recognize deferred tax assets relating to tax losses carried forward and deductible temporary differences, only to the extent that it is probable that future taxable profit will be available against which the tax losses carried forward and the deductible temporary differences can be utilized. This assessment requires significant management judgments and assumptions. Future taxable profit is estimated based on, among other relevant factors, forecasted operating results, which are based on historical financial performance and the business plans that management believes to be prudent and feasible. While we carefully assess the realization of tax losses carried forward and deductible temporary differences, the actual taxable profit in the future may be less than the forecast. The net deferred tax assets amounted to ¥1,097,351 million, ¥1,686,251 million, and ¥1,208,550 million at March 31, 2010 and 2009, and April 1, 2008, respectively.

Special Purpose Entities

       In the ordinary course of business, we are involved in a number of transactions using vehicles which may be deemed as special purpose entities, or SPEs, in areas including the securitization of financial assets.

       We consolidate SPEs, if our control is considered substantive in respect to the SPEs as required by IFRS. In assessing and determining whether we control SPEs, judgment is made to determine whether (a) the activities of the SPE are being conducted on our behalf according to our specific business needs so that we obtain benefits from the SPE’s operations, (b) we have the decision-making powers to obtain the majority of the benefits of the activities of the SPE or we have delegated these decision-making powers by setting up an autopilot mechanism, (c) we have rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities of the SPE, or (d) we retain the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities. In many instances, the indicators of control of an SPE are clear in which case less management judgment is required. In some cases, however, several different indicators of control that would support different conclusions may exist, in which case more management judgment is required to form an overall conclusion on control.

First-time Adoption of IFRS

       Until the fiscal year ended March 31, 2009, we prepared our consolidated financial statements solely in accordance with Japanese GAAP. From the fiscal year ended March 31, 2010 we have begun to additionally prepare our consolidated financial statements in accordance with IFRS.

       The accounting policies set out in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements have been applied in preparing the consolidated financial statements for the fiscal year ended March 31, 2010, the comparative information presented in these financial statements for the fiscal year ended March 31, 2009 and in the preparation of an opening IFRS statement of financial position at April 1, 2008, our date of transition to IFRS.

       We followed the provisions of IFRS 1 in preparing our opening IFRS statement of financial position at the date of transition, April 1, 2008. Certain accounting policies used for the opening statement of our financial position differed from those used in the Japanese GAAP balance sheet at March 31, 2008. The resulting adjustments arose from events and transactions before the date of transition to IFRS. Therefore, as required by IFRS 1, those adjustments were recognized directly through retained earnings (or another category of equity where appropriate) at April 1, 2008.

       We were required to apply IFRS retrospectively. There were some mandatory exceptions required and some voluntary exemptions permitted by IFRS 1. For additional information regarding our first-time adoption decisions regarding these exemptions, see Note 51 “Reconciliation of IFRS Comparables from Previous GAAP” to our consolidated financial statements.

Early Adopted Accounting Pronouncements

       Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopter”: Limited Exemption from Comparative IFRS 7 Disclosure for First-time Adopters (Amendment to IFRS 1), issued in January 2010, added paragraph E3. This amendment is effective for annual periods beginning on or after July 1, 2010, but earlier application is permitted. We have early adopted this amendment and therefore does not present the comparative information required by IFRS 7.

       Improvements to IFRS (2009) - Amendment to IFRS 8 Operating Segments; Disclosure. For periods prior to January 1, 2010, a measure of total segment assets was required to be disclosed for all segments regardless of whether those measures were reviewed by the chief operating decision maker. In December 2007, the IASB concluded that IFRS 8 should be changed to state that a measure of segment assets should only be disclosed when such information is provided to the chief operating decision maker. This change was included as part of the IASB’s 2009 annual improvement project issued in April 2009. This amendment is effective for periods beginning on or after January 1, 2010 with early adoption permitted. We have early adopted this amendment not to present asset information for each segment as we do not report such information to the management.

Recent Accounting Pronouncements

       We are currently assessing the impact of the following standards, amendments, and interpretations that are not yet effective and have not been early adopted:

        IFRS 3 (revised) “Business Combinations” (“IFRS 3 R”) and IAS 27 (revised) “Consolidated and Separate Financial Statements” (“IAS 27 R”). IFRS 3 R reconsiders the application of acquisition accounting for business combinations and IAS 27 R mainly relates to changes in the accounting for non-controlling interests and the loss of control of a subsidiary. The main changes under IFRS 3 R include: (a) acquisition-related costs are recognized as expenses as incurred; (b) equity interests held prior to control being obtained are remeasured to fair value at the time control is obtained and any gain or loss is recognized in profit or loss; (c) changes in a parent’s ownership interest in a subsidiary that do not result in a change of control are treated as transactions between owners and reported in equity; and (d) an option is available, on a transaction-by-transaction basis, to measure any non-controlling interests in the equity acquired either at fair value, or at the non-controlling interests’ proportionate share of the net identifiable assets of the entity acquired. IAS 27 R requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains or losses. It also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognized in profit or loss. IFRS 3 R and IAS 27 R are effective for annual periods beginning on or after July 1, 2009 and they will be applied prospectively. The impact of the adoption of IFRS 3 R and IAS 27 R will depend on the scale of future acquisitions and disposals of subsidiaries. We are currently evaluating the potential impact that the adoption of the revised standards will have on our consolidated financial statements for an acquisition discussed in Note 48 “Acquisitions” to our consolidated financial statements.

        IFRS 9 “Financial Instruments”. The standard introduces new requirements for classifying and measuring financial assets. The standard requires all financial assets to be classified as fair value or amortized cost. A financial asset is measured at amortized cost if the asset is held within a business model whose objective is to hold the asset in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All other financial assets are measured at fair value. For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election, on initial recognition, on an instrument-by-instrument basis, to present all fair value changes from the investment in other comprehensive income. Investments in equity instruments in respect of which an entity does not elect to present fair value changes in other comprehensive income are measured at fair value with changes in fair value recognized in profit or loss. The standard also requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirely as to whether it should be measured at fair value or amortized cost. The standard is effective for annual periods beginning on or after January 1, 2013. We are currently evaluating the potential impact that the adoption of the standard will have on our consolidated financial statements.

        IAS 39 (amendment) “Financial Instruments: Recognition and Measurement - Eligible Hedged Items”. The amendments introduce additional application guidance in the context of hedge accounting regarding the designation of inflation in a financial hedged item and the designation in a hedged item of a one-side risk. The amendments are effective for annual periods beginning on or after July 1, 2009 and are not expected to have a material impact on our consolidated financial statements.

        IFRS 2 (amendment) “Share-based Payment – Group Cash-settled Share-based Payments”. The amendments require that an entity that receives goods or services in a share-based payment arrangement must account for those goods or services, no matter which entity in the group settles the transaction and no matter whether the transaction is settled in shares or cash. The amendments are effective for annual periods beginning on or after January 1, 2010 and are not expected to have a material impact on our consolidated financial statements.

        IAS 32 (amendment) “Financial Instruments: Presentation on Classification of Rights Issues”. The amendments require a financial instrument that gives the holder the right to acquire a fixed number of the entity’s instruments for a fixed amount of any currency to be classified as an equity instrument if, and only if, the entity offers the financial instrument pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. The amendments are effective for annual periods beginning on or after February 1, 2010 and are not expected to have a material impact on our consolidated financial statements.

        IAS 24 (amendment) “Related Party Disclosures”. The amendments provide a partial exemption from the related party disclosure requirement for government-related entities, clarify the definition of a related party, and include an explicit requirement to disclose commitments involving related parties. The amendments are effective for annual periods beginning on or after January 1, 2011 and are not expected to have a material impact on our consolidated financial statements.

        IFRIC 14 (amendment) “Pre-payments of a Minimum Funding Requirement”. The amendments apply when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements, permitting the benefit of such an early payment to be recognized as an asset. The amendments are effective for annual periods beginning on or after January 1, 2011 and are not expected to have a material impact on our consolidated financial statements.

        IFRIC 17 “Distributions of Non-cash Assets to Owners”. The Interpretation deals with the recognition and measurements of dividends payable and also addresses the question of how to account for any difference between carrying amount of the assets distributed and the carrying amount of the dividend payable. The Interpretation is effective for annual periods beginning on or after July 1, 2009 and is not expected to have a material impact on our consolidated financial statements.

        IFRIC 18 “Transfer of Assets from Customers”. The Interpretation clarifies the accounting for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services. The Interpretation is effective for annual periods beginning on or after July 1, 2009 and is not expected to have a material impact on our consolidated financial statements.

        IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”. The Interpretation requires the extinguishment of a financial liability by the issue of equity instruments to be measured at fair value with the difference between the fair value of the instrument issued and the carrying value of the liability extinguished being recognized in profit or loss. The Interpretation is effective for annual periods beginning on or after July 1, 2010 and is not expected to have a material impact on our consolidated financial statements.

        Improvements to IFRS (2008) . The improvements amend twenty IFRS standards and are part of the IASB’s annual improvements under which the IASB makes necessary, but not-urgent, amendments. The amendments are already effective for us, except for the amendment to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”. The amendment to IFRS 5 is effective for annual periods beginning on or after July 1, 2009 and is not expected to have a material impact on our consolidated financial statements.

        Improvements to IFRS (2009) . The improvements amend twelve IFRS standards and are part of the IASB’s annual improvements under which the IASB makes necessary, but not-urgent, amendments. The amendments are largely clarifications of existing requirements and guidance, and several of the amendments could result in changes to existing practice. The amendments are effective for annual periods beginning on or after January 1, 2010 and are not expected to have a material impact on our consolidated financial statements. The amendment to IFRS 8 has been early adopted by us.

        Improvements to IFRS (2010) . The improvements amend seven IFRS standards and are part of the IASB’s annual improvements under which the IASB makes necessary, but not-urgent, amendments. Key amendments include: IFRS 3/IAS 27 - clarification of transition requirements, measurement of non-controlling interests, unreplaced and voluntarily replaced share-based payment awards that are part of a business combination; IFRS 7 - clarifications related to the disclosure of financial instruments; and IAS 1 - clarification of content of statement of changes in equity. The amendments are generally effective for annual periods beginning on or after January 1, 2011 and are not expected to have a material impact on our consolidated financial statements.

        5.A. OPERATING RESULTS

       Our net profit increased by ¥728,717 million from a net loss of ¥82,024 million for the fiscal year ended March 31, 2009 to ¥646,693 million for the fiscal year ended March 31, 2010 due mainly to a decrease in impairment charges on financial assets, a general improvement of our corporate customers’ financial conditions in the healthier domestic economy resulting from economic stimulus measures by the Government of Japan and an improvement in the domestic and overseas stock markets reflecting a general expectation of economic recovery.

       Our deposits increased by ¥2,466,739 million from ¥83,231,234 million at March 31, 2009 to ¥85,697,973 million at March 31, 2010. Our loans and advances decreased by ¥3,035,166 million from March 31, 2009 to ¥71,634,128 million at March 31, 2010, which is substantially similar to the level at April 1, 2008 although we made efforts to ensure the smooth flow of funds to borrowers. Our total assets increased by ¥3,658,053 million from March 31, 2009 to ¥122,992,929 million at March 31, 2010 which is an increase of ¥12,456,399 million compared to April 1, 2008.

       Our total equity increased by ¥2,645,655 million from ¥4,916,015 million at March 31, 2009 to ¥7,561,670 million at March 31, 2010, due to the issuance of new shares and increased net profit of ¥646,693 million for the fiscal year ended March 31, 2010. Our risk-weighted consolidated capital ratio was 15.02% at March 31, 2010.

Operating Results

       Total operating income increased by ¥353,458 million, or 15%, from ¥2,411,095 million in the fiscal year ended March 31, 2009 to ¥2,764,553 million in the fiscal year ended March 31, 2010. The principal reason for this increase was a significant increase in net trading income and net income from financial assets at fair value through profit or loss of ¥289,362 million due to an improvement of domestic and foreign financial markets. This was partially offset by the Bank’s net interest income which decreased due to a decline in market interest rates. The increase is also the result of an increase in net fee and commission income of ¥74,358 million due to the acquisition of Nikko Cordial Securities, which is a wholly-owned subsidiary of the Bank, and an increase in the Bank’s commissions for investment trusts.

       Net operating income, after deducting impairment charges of financial assets, improved by ¥1,335,527 million from ¥1,170,385 million for the fiscal year ended March 31, 2009 to ¥2,505,912 million for the fiscal year ended March 31, 2010. The main driver of this increase was a decrease in impairment charges on financial assets due to the improved performance of borrowers as a result of recovering economic conditions in the domestic and overseas markets and government economic stimulus measures, as well as the recovering global stock markets.

       The net profit, after deducting general and administrative expenses, share of post-tax loss in associates and joint ventures and income tax expense (benefit), improved from a net loss of ¥82,024 million in the fiscal year ended March 31, 2009 to a net profit of ¥646,693 million in the fiscal year ended March 31, 2010 as a result of the significant increase in net operating income described above.

       The following table presents information as to our income, expenses and net profit (loss) for the fiscal years ended March 31, 2010 and 2009:

       Our interest income decreased by ¥398,001 million, or 18%, from ¥2,164,048 million in the fiscal year ended March 31, 2009 to ¥1,766,047 million in the fiscal year ended March 31, 2010. This decrease principally reflected decreases in interest on loans and advances and investment securities. Our interest on loans and advances decreased by ¥340,218 million, or 18%, from ¥1,923,924 million in the fiscal year ended March 31, 2009 to ¥1,583,706 million in the fiscal year ended March 31, 2010, primarily due to a decline in market interest rates. In addition, interest on

investment securities decreased by ¥19,879 million, or 12%, to ¥150,857 million in the fiscal year ended March 31, 2010 also primarily as a result of a decline in market interest rates.

        Interest Expense

       Our interest expense decreased by ¥329,483 million, or 49%, from ¥676,293 million in the fiscal year ended March 31, 2009 to ¥346,810 million in the fiscal year ended March 31, 2010, due primarily to a decline in domestic and foreign interest rates. Our interest expense on deposits decreased by ¥206,723 million, or 54%, from ¥380,097 million in the fiscal year ended March 31, 2009 to ¥173,374 million in the fiscal year ended March 31, 2010, due primarily to falling interest rates on ordinary yen deposits in the latter half of the fiscal year ended March 31, 2009 and declines in various deposit yields subject to domestic and foreign market rates.

       The following table shows the average balances of our statements of financial position items and related interest and average interest rates for the fiscal years ended March 31, 2010 and 2009.