Mitsubishi UFJ (MUFG) Reports Impressive Earnings In 1HFY18

Mitsubishi UFJ Financial Group Inc. (NYSE:MUFG) reported profits attributable to owners of parent for the first six months of fiscal 2018 (ended Sep 30), of ¥650.7 billion ($5.86 billion), up 3.8% year over year.

For the period under review, low credit costs and strong capital drove the upside, while elevated general & administrative expenses, decreased gross profits and decline in net trading profits acted as headwinds. Nevertheless, higher net fees and commissions were a positive.

Gross Profits Down, General & Administrative Expenses Escalate

Gross profits for the reported quarter were ¥1.88 trillion ($0.02 trillion), down 6.5% year over year. The decline was mainly due to reduced net gains on debt securities and decreased net interest income from debt securities, partly offset by increased net interest income from overseas loans and deposits, along with higher fees and commissions.

The first six months of fiscal 2018 reflected slight decline in net interest income, which came in at ¥970.2 billion ($8.7 billion). Further, for Mitsubishi UFJ, net trading profits came in at ¥215.5 billion ($1.9 billion), plunging 36.3% year over year. However, trust fees, along with net fees and commissions, totaled ¥696.7 billion ($6.3 billion), marginally rising year over year.

Mitsubishi UFJ’s total credit costs, at the quarter end, came in at positive ¥117.9 billion ($1.06 billion) compared with ¥3.1 billion in the prior-year period.

Net gains on equity securities jumped 54.7% year over year to ¥85.1 billion ($0.77 billion). Gains increased primarily backed by rise in sale of equity holdings.

Other non-recurring losses came in at ¥49.1 billion ($0.44 billion) compared with ¥30.5 billion incurred in the prior-year period. G&A expenses flared up slightly year over year to ¥1.31 trillion ($0.01 trillion). Escalation in overseas operation costs due to the expansion of overseas business and global financial regulatory compliance costs were mostly offset by lower costs related to domestic operations.

Strong Capital Position

As of Sep 30, 2018, Mitsubishi UFJ reported total loans of ¥109 trillion ($0.96 trillion), up from ¥108.3 trillion ($1.02 trillion) as of Mar 31, 2018. The increase can be chiefly attributed to rise in overseas loans.

However, deposits declined to ¥175.9 trillion ($1.55 trillion) from ¥177.3 trillion ($1.67 trillion) as of Mar 31, 2018, as demand for domestic corporate and overseas deposits went up.

Total assets summed ¥306.4 trillion ($2.69 trillion), down from ¥306.9 trillion ($2.89 trillion) as of Mar 31, 2018. Net unrealized gains on securities available for sale increased to ¥3.6 trillion ($0.03 trillion) from ¥3.5 trillion ($0.03 trillion) as of Mar 31, 2018.

Moreover, total net assets were ¥17.6 trillion ($0.15 trillion), up from ¥17.3 trillion ($0.16 trillion) as of Mar 31, 2018. Non-performing loan ratio contracted 26 basis points from March 2018 to 0.62%, due to reduction in non-performing loans.

As of Sep 30, 2018, total capital, Tier 1 capital and Common Equity Tier 1 capital ratio were 15.82%, 13.67% and 12.02% as compared with 16.56%, 14.32% and 12.58% as of Mar 31, 2018, respectively.

Further, the Japanese bank increased its FY18 dividend per common share projection to ¥22, up ¥2 from the previous forecast.

Outlook

Mitsubishi UFJ Financial announced its updated target of ¥950 billion of consolidated net income, up from ¥850 billion, for the fiscal ending Mar 31, 2019. Total credit costs are estimated at ¥10 billion, down from ¥120 billion and net operating profits at ¥1.05 trillion, up from ¥1.04 trillion.

Our Viewpoint

Though Mitsubishi UFJ’s robust business model and diversified product mix look encouraging, we are wary about the heightening competition and volatility in the Japanese economy, along with escalating expenses. Furthermore, decrease in profits and net interest income remains a concern.

Mitsubishi UFJ currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Itau Unibanco Holding S.A. (NYSE:ITUB) posted recurring earnings of R$6.5 billion ($1.65 billion) in third-quarter 2018, up 3.2% year over year. Including non-recurring items, net income came in at R$6.3 billion ($1.6 billion), up 3.3% year over year. Results display higher revenues, lower provisions, improved managerial financial margin and a solid balance-sheet position. However, elevated expenses were headwinds.

Deutsche Bank AG (NYSE:DB) reported net income of €229 million ($267.4 million) in the Sep-end quarter, which tanked 64.7% from year-ago quarter. Income before taxes plunged 45.8% to €506 million ($590.9 million). Lower revenues and higher expenses were the key undermining factors. Notably, net asset outflows were recorded during the quarter. Nonetheless, strong capital position and lower provisions were the main positives.

UBS Group AG (NYSE:UBS) reported third-quarter 2018 net profit attributable to shareholders of CHF 1.2 billion ($1.2 billion), up around 31.7% from the prior-year quarter. Results display rise in net fee and commission income (up 3% year over year) and lower net interest income (down 4% year over year). Further, the company’s performance in the quarter reflects lower expenses.

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