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Mitsubishi UFJ's Acquisitions Aid Growth Amid Rising Costs

Zacks Equity Research

Despite elevated expenses, negative interest rates in Japan, uncertain global economy and a stringent regulatory landscape, Mitsubishi UFJ Financial Group, Inc. MUFG has been consistently growing through acquisitions backed by its strong liquidity position. Further, the bank remains focused on its business upgradation plan.

This Japanese investment banking firm has been continuously expanding inorganically. Since 2016, the bank has completed a number of acquisitions to expand its global footprint. Further, it remains focused on its Medium-term Business Plan (2018 to 2021) that includes upgradation and reformation of business model and exploration of new business areas.

Notably, in this regard, the company has implemented “Eleven Transformation Initiatives” — specific strategic initiatives designed to enable the bank to cope with adverse changes in the domestic or overseas business environment, and register sustainable growth. Also, it enjoys a solid liquidity position owing to its robust customer base in Japan and depositors’ preference for large financial institutions for the safety of deposits.

However, with the Bank of Japan's negative interest rate policy, Mitsubishi UFG’s revenues have been under pressure. Though it aims to deliver ¥900 billion of profits attributable to shareholders for the fiscal year ending Mar 31, 2020, it would be difficult for the company to run its business profitably in a slowly-growing economy. Notably, the company failed to achieve its target for fiscal 2018.

Further, escalating expenses are a major concern for Mitsubishi UFG. The company has been witnessing a persistent rise in expenses, mainly due to higher salaries and employee-benefit expenses. Higher regulatory costs in overseas businesses have contributed to this upswing.

The Zacks Consensus Estimate remained unrevised for fiscal 2019 and 2020, over the last 90 days. Hence, the company carries a Zacks Rank #3 (Hold). Further, Mitsubishi UFG has gained 11.7%, year to date, compared with 7.2% growth recorded by the industry.



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