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Mitsubishi UFJ Set to Close Branches, Book Yen 50B Charge

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In order to save costs, Mitsubishi UFJ Financial Group, Inc. MUFG is expected to close or merge unprofitable domestic branches. Per a Reuters report, the company will likely book ¥50 billion or $470 million write-down on such closures for the fiscal year ended Mar 31, 2018.

The negative interest rates in Japan and global growth concerns have been weighing on Mitsubishi UFJ’s profits for a long time. As the Bank of Japan continues with negative interest-rate policy, Mitsubishi’s revenues are expected to remain under pressure.

In fact, along with Mitsubishi, other rival companies in Japan have also started to review their domestic operations as Bank of Japan’s massive monetary stimulus is putting pressure on the banks' profitability.

For these banks, operating nationwide branches has become costly and hence these are under constant pressure to take certain cost-cutting actions.

However, some of these banks, fearing complaints from customers, are not willing to close even the unprofitable branches. Thus, the companies are introducing certain facilities for customers like offering services on smartphones and other electronic devices so as to reduce people’s reliance on bank branches, and thereby saving costs.

A Mitsubishi official, who did not want to be identified, informed, "Important thing is, customers do not have to visit physical branches, then we can smoothly reduce branches."

Notably, Mitsubishi, with 500 branches in the country, is scheduled to release results for the fiscal year (ended Mar 31, 2018) in May. It set a target of ¥950 billion of consolidated net income for the year, reflecting rise of 2.5% year over year. While it can be difficult for the company to run the business profitably in a slowly growing economy, it already achieved 90% of the above-mentioned target during the first nine months of the year.

Also, in order to become more efficient domestically and elsewhere, the company decided to set up a back-office in the Philippines while targeting to reduce headcount by 6,000, by the fiscal year starting in April 2023.

While Japan’s low interest-rate policy and strict regulations are headwinds for Mitsubishi, its strong capital ratios and organic growth are likely to drive bottom-line growth.

Shares of the company have gained 9.7% in the past year, underperforming 13.3% growth of the industry.

Currently, the stock has a Zacks Rank #3 (Hold).

A few better-ranked stocks from the same space are Canadian Imperial Bank of Commerce CM, Itaú Unibanco Holding S.A. ITUB and KB Financial Group Inc. KB.

Canadian Imperial has witnessed an upward earnings estimate revision of 5.2% for the current fiscal year over the past 60 days. Its share price has increased 4% in a year’s time. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Itaú Unibanco’s Zacks Consensus Estimate for the current year has increased 6% over the past 60 days. Its shares have gained 23.7% in the past 12 months. It carries a Zacks Rank #2 (Buy).

KB Financial also carries a Zacks Rank #2. The stock has witnessed an upward earnings estimate revision of 3.8% for the current year over the past 60 days and rallied 34.5% in a year.

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Itau Unibanco Holding S.A. (ITUB) : Free Stock Analysis Report
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Mitsubishi UFJ Financial Group, Inc. (MUFG) : Free Stock Analysis Report
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