Mitsubishi UFJ Earnings Disappoint

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Mitsubishi UFJ Financial Group Inc. (MTU) reported net income of ¥852.6 billion ($10.3 billion) for the fiscal year ended Mar 31, 2013, down from net income of ¥981.3 billion ($12.5 billion) in the year-ago period.

Results reflect a rise in G&A expenses and decline in net interest income. Yet, the key positives for the quarter were growth in deposits and loans along with decreased credit costs. Increased gross profits were a tailwind.

Performance in Detail

Gross profits for the year ended were ¥3,634.2 billion ($44.0 billion), up 3.8% year over year. Gross profits improved mainly due to net fees and commissions, rise in income from sales and trading, as well as net gains on debt securities.

The period under review reflected a decline of 1.3% in net interest income, which came in at ¥1,816.9 billion ($22.0 billion). The year-over-year decline in net interest income reflects tighter domestic deposit-loan margin, reduced interest income in the Global Markets segment and low consumer-finance income. These declines were partially offset by an upsurge in loan income from the overseas business.

For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥1,137.4 billion ($13.8 billion), up 7.2% year over year. Net business profits stood at ¥1,554.4 billion ($18.8 billion), up 1.7% year over year.

The balance of securitized products and related investments as of Mar 2013 increased to ¥2.44 trillion ($0.03 trillion) in total, an escalation of ¥0.78 trillion ($0.01 trillion) compared with the balance of ¥1.66 trillion ($0.02 trillion) as of Mar 2012. The increase was mainly due to a rise in highly rated collateralized debt obligations (CLOs) and commercial mortgages asset-backed securities (CMBS).

Mitsubishi UFJ reported total credit costs of ¥115.6 billion ($1.4 billion), which decreased 40% year over year and includes gains on loans written-off. The decline was mainly due to a dip in losses on loan write-offs and provision for specific allowance for credit losses.

Net losses on equity securities were ¥53.7 billion ($0.6 billion), down 39.5% year over year, mainly due to a decline in the losses on write-down of equity securities.

For fiscal year 2013, other non-recurring gains were ¥25 billion ($0.3 billion) compared with ¥310.7 billion ($3.9 billion) recorded in the prior-year period. The substantial decline was primarily due to a decrease in profits from investments in affiliates.  G&A expenses climbed 5% year over year to ¥2,095 billion ($25.3 billion).

Capital Position

As of Mar 31, 2013, Mitsubishi UFJ reported total loans of ¥91.3 trillion ($0.97 trillion), up from ¥84.5 trillion ($1.0 trillion) as of Mar 31, 2012. The increases were primarily due to higher demand in domestic corporate loans and overseas loans. Moreover, deposits climbed to ¥131.7 trillion ($1.4 trillion), up 5.5% year over year.
 
Total assets stood at ¥234.5 trillion ($2.5 trillion), up 7.1% year over year. Total net assets were ¥13.5 trillion ($0.14 trillion), up 15.8% year over year, reflecting a rise in retained earnings and net unrealized gains on other securities.

Net unrealized gains on other securities surged to ¥1.2 trillion ($0.01 trillion), from ¥440.9 billion ($5.4 billion) as of Mar 31, 2012.

Outlook

Mitsubishi UFJ Financial is targeting ¥760 billion ($8.1 billion) of consolidated net income for the fiscal year ending Mar 31, 2014.

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 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.

However, we are concerned about the heightening competition and volatility in the Japanese economy.

Shares of Mitsubishi UFJ currently carry a Zacks Rank #2 (Buy). Some other foreign banks worth considering include UBS AG (UBS) with a Zacks Rank #1 (Strong Buy) and Credit Suisse Group (CS), which carries a Zacks Rank #2.

Read the Full Research Report on CS

Read the Full Research Report on UBS

Read the Full Research Report on MS

Read the Full Research Report on MTU

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