Mitsubishi UFJ Financial Group Inc. MTU reported net income of ¥277.7 billion ($2.28 billion) for the first-quarter (ended Jun 30) of fiscal year ended Mar 31, 2016, up 15.5% year over year.
For the period under review, rise in net interest income and fee revenues were the tailwinds. Further, increased gross profits along with strong loan and deposit growth were the positives. However, increase in G&A expenses negatively impacted the results.
Performance in Detail
Gross profits for the period ended were ¥1.07 trillion ($0.009 trillion), up 10.6% year over year. The rise was mainly due to elevated overseas net interest income, increased fees from securities-related businesses and profits from sales and trading businesses.
The period under review reflected a rise of 11.1% in net interest income, which came in at ¥545.3 billion ($4.47 billion). For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥333.1 billion ($2.73 billion), up 7.7% year over year. Further, net business profits stood at ¥416.8 billion ($3.42 billion), up 22.9% year over year.
The balance of securitized products and related investments as of Jun 30, 2015 increased to ¥3.32 trillion ($0.027 trillion) in total, reflecting a fall of ¥0.07 trillion compared with the balance as of Mar 31, 2015. The decrease was mainly due to reduced highly rated collateralized debt obligations (CLOs).
Mitsubishi UFJ’s total credit costs increased significantly to ¥39.6 billion ($0.32 billion) from ¥7.4 billion ($0.07 billion) in the prior-year quarter. The rise in credit costs was mainly attributed to elevated credit costs in commercial and trust banking subsidiaries.
Net gains on equity securities more than doubled to ¥37.9 billion ($0.31 billion) on a year-over-year basis. Gains increased mainly due to higher gains on sale of equity securities.
Other non-recurring losses were ¥9.4 billion ($0.08 billion) compared with gains of ¥0.3 billion ($0.003 billion) in the prior-year period. G&A expenses climbed 4% year over year to ¥653.1 billion ($5.36 billion), mainly due to higher costs in the overseas businesses, which was attributed to the depreciation in Japanese Yen.
Capital Position
As of Jun 30, 2015, Mitsubishi UFJ reported total loans of ¥111.3 trillion ($0.91 trillion), widening from ¥109.5 trillion ($0.92 trillion) as of Mar 31, 2015. The increase was primarily due to higher demand in overseas loans and government and governmental institutions loans.
Further, deposits climbed to ¥155.4 trillion ($1.27 trillion), up from ¥153.4 trillion ($1.28 trillion) as of Mar 31, 2015, mainly driven by higher domestic corporate and overseas deposits.
Total assets stood at ¥285 trillion ($2.32 trillion), down from ¥286.1 trillion ($2.39 trillion) as of Mar 31, 2015. Net unrealized gains on securities available for sale decreased to ¥3.80 trillion ($0.03 billion) from ¥4.13 trillion ($0.035 trillion) as of Mar 31, 2015. The decline stemmed from decreases in net unrealized gains on foreign bonds and Japanese government bonds, partially offset by increased unrealized gains on domestic equity securities.
Moreover, total net assets were ¥17.1 trillion ($0.14 trillion), down from ¥17.3 trillion ($0.14 trillion) as of Mar 31, 2015. Non-performing loan ratio declined 2 basis points from Mar 2015 to 1.13%, primarily due to reduction in special attention loans.
Outlook
Mitsubishi UFJ Financial reiterated the target of ¥950 billion ($7.79 billion) of consolidated net income for the fiscal year ending Mar 31, 2016.
Our Viewpoint
Going forward, we expect Mitsubishi UFJ’s strong business model, diversified product mix and higher gross profits to boost its bottom line. Additionally, the company is set to benefit from its expansion moves. We also remain encouraged owing to the company’s steady capital deployment activities.
However, we are concerned about the heightening competition, increasing expenses and volatility in the Japanese economy.
Shares of Mitsubishi UFJ currently carry a Zacks Rank #4 (Sell).
Competitive Landscape
The Royal Bank of Scotland Group plc RBS reported second-quarter 2015 earnings attributable to shareholders of £293 million ($448.6 million) compared with £230 million ($387.3 million) in the prior-year comparable period. Results were driven by profit from discontinued operations, reflecting an upswing in the market value of Citizens’ shares and elevated impairment releases. However, higher restructuring, litigation and conduct costs and reduced non-interest income were on the downside.
Deutsche Bank AG DB reported net income of €818 million ($904.5 million) in the second quarter of 2015, rising over twofold from the prior-year quarter. The bank reported profit before income taxes of €1.2 billion ($1.3 billion), up 34% year over year. Lower provision for credit losses along with higher revenues were the positives. However, higher non-interest expenses due to litigation provisions were a concern.
Among other foreign banks, Itau Unibanco Holding S.A. ITUB is scheduled to report June quarter-end results on Aug 4.
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