Mitsubishi UFJ Financial Group Inc. (MTU) reported net income of ¥240.4 billion ($2.4 billion) for first-quarter (ended Jun 30) of fiscal year ended Mar 31, 2015, down from net income of ¥255.2 billion ($2.6 billion) in the year-ago period.
Increase in G&A expenses negatively impacted the results. However, for the period under review, rise in net interest income and fee revenues were the tailwinds. Further, increased gross profits and lower credit costs were positives.
Performance in Detail
Gross profits for the year ended were ¥967.4 billion ($9.5 billion), up 1.9% year over year. The rise was mainly due to elevated overseas net interest income and positive impact of the consolidation of Bank of Ayudhya (Krungsri). These increases were partially offset by reduced net trading profits and net other business profits.
The period under review reflected a rise of 11.2% in net interest income, which came in at ¥490.7 billion ($4.8 billion). For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥309.4 billion ($3.0 billion), up 4.6% year over year. However, net business profits stood at ¥339.2 billion ($3.3 billion), down 11.3% year over year.
The balance of securitized products and related investments as of Jun 30, 2014 decreased to ¥2.91 trillion ($0.03 trillion) in total, reflecting a decline of ¥0.03 trillion compared with the balance as of Mar 31, 2014. The decrease was mainly due to reduction in highly rated collateralized debt obligations (CLOs) and commercial mortgages asset-backed securities (CMBS).
Mitsubishi UFJ’s total credit costs amounted to ¥7.4 billion ($0.07 billion), down 51.9% year over year. The decrease was mainly attributed to reduction in provision for specific allowance for credit losses, partially offset by reduced reversal of provision for general allowance for credit losses.
Net gains on equity securities were ¥17.9 billion ($0.18 billion), up 39.8% year over year. Gains were mainly due to reduced losses on write-down of equity securities.
Other non-recurring gains were ¥0.3 billion ($0.003 billion), down 75% year over year. G&A expenses climbed 10.9% year over year to ¥628.2 billion ($6.2 billion), mainly due to higher costs in overseas businesses and consolidation of Krungsri.
Capital Position
As of Jun 30, 2014, Mitsubishi UFJ reported total loans of ¥102.2 trillion ($1.0 trillion), widening from ¥102 trillion ($0.99 trillion) as of Mar 31, 2014. The increases were primarily due to higher demand in domestic corporate loans.
Yet, deposits declined to ¥144.3 trillion ($1.42 trillion), down from ¥144.8 trillion ($1.41 trillion) as of Mar 31, 2014, mainly driven by lower domestic corporate and overseas deposits, partially offset by higher demand in domestic individual deposits.
Total assets stood at ¥259.4 trillion ($2.56 trillion), up from ¥258.1 trillion ($2.51 trillion) as of Mar 31, 2014. Net unrealized gains on securities available for sale increased to ¥2.34 trillion ($0.023 billion) from ¥1.87 trillion ($0.018 trillion) as of Mar 31, 2014. The upsurge stemmed from increases in net unrealized gains on domestic equity securities and foreign bonds.
However, total net assets were ¥14.8 trillion ($0.146 trillion), down from ¥15.1 trillion ($0.147 trillion) as of Mar 31, 2014.
Non-performing loan ratio declined 5 basis points from Mar 2014 to 1.35%, primarily due to reduction in doubtful loans.
Outlook
Mitsubishi UFJ Financial reiterated the target of ¥950 billion ($9.31 billion) of consolidated net income for the fiscal year ending Mar 31, 2015.
Our Viewpoint
Though we are concerned about the heightening competition, increasing expenses and volatility in the Japanese economy, 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 expanded its scope of engaging in a global strategic alliance with Morgan Stanley (MS) into new geographies and businesses. This includes a loan marketing joint venture that will provide clients in the United States an opportunity to expand the world-class lending and capital market services of both companies.
Shares of Mitsubishi UFJ currently carry a Zacks Rank #1 (Strong Buy).
Competitive Landscape
Impacted by a disappointing top-line performance, Deutsche Bank AG (DB) reported net income of €238 million ($326.4 million) in the second quarter of 2014, down from €335 million ($437.4 million) in the prior-year quarter. However, decreased expenses, lower provision for credit losses and a strong capital position were the positives.
UBS AG (UBS) reported second-quarter 2014 net income attributable to shareholders of CHF 792 million ($890.8 million), which compared favorably with the prior-year quarter earnings of CHF 690 million ($731.8 million). The results were driven by prudent expense management.
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