Mitsubishi UFJ's (MUFG) Q3 Earnings Report Shows Improvement

Mitsubishi UFJ Financial Group (NYSE:MUFG) reported profits attributable to owners of parent for the first nine months of fiscal 2018 (ended Dec 31) of ¥872.2 billion ($7.9 billion), up 1% year over year.

For the period under review, higher net interest income and rise in net trading profits drove the upside while elevated general & administrative expenses, decreased gross profits and higher credit costs acted as headwinds. Further, lower net fees and commissions were another undermining factor.

Gross Profits Down, General & Administrative Expenses Rise

Gross profits for the period under review were ¥2.83 trillion ($0.03 trillion), down 3.4% year over year. The decline was mainly due to reduced net gains on debt securities along with lower fees and commissions, partly offset by increased net interest income from overseas loans and deposits.

The first nine months of fiscal 2018 reflected 1.1% rise in net interest income, which came in at ¥1.45 trillion ($0.01 trillion). Further, for Mitsubishi UFJ, net trading profits came in at ¥175.3 billion ($1.6 billion), falling 23.1% year over year. However, trust fees, along with net fees and commissions, totaled ¥1.06 trillion ($0.01 trillion), marginally down year over year.

Mitsubishi UFJ’s total credit costs, at the period, came in at ¥67.3 billion ($0.6 billion) compared with credit benefit of ¥34.2 billion in the prior-year period.

Net gains on equity securities plunged 37.3% year over year to ¥84.6 billion ($0.76 billion). Gains declined primarily due to lower gain on sale of equity holdings and higher write-downs.

Other non-recurring losses came in at ¥50 billion ($0.45 billion) compared with ¥54.1 billion incurred in the prior-year period. G&A expenses rose slightly year over year to ¥1.99 trillion ($0.02 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 Balance Sheet Position

As of Dec 31, 2018, Mitsubishi UFJ reported total loans of ¥108.4 trillion ($0.98 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 decreased to ¥176.8 trillion ($1.59 trillion) from ¥177.3 trillion ($1.67 trillion) as of Mar 31, 2018, due to decline in domestic corporate and overseas deposits.

Total assets summed ¥307.2 trillion ($2.76 trillion), up from ¥306.9 trillion ($2.89 trillion) as of Mar 31, 2018. Net unrealized gains on securities available for sale decreased to ¥2.6 trillion ($0.02 trillion) from ¥3.5 trillion ($0.03 trillion) as of Mar 31, 2018.

Moreover, total net assets were ¥17.1 trillion ($0.15 trillion), down from ¥17.3 trillion ($0.23 trillion) as of Mar 31, 2018. Non-performing loan ratio contracted 27 basis points to 0.61%, due to reduction in non-performing loans.

Outlook

Mitsubishi UFJ Financial reaffirmed its target of ¥950 billion of consolidated net income for the fiscal ending Mar 31, 2019.

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. Furthermore, rise in expenses and credit costs are key concerns.

Mitsubishi UFJ Financial Group, Inc. Price, Consensus and EPS Surprise

Mitsubishi UFJ currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Deutsche Bank (NYSE:DB) reported net loss of €409 million ($467.1 million) in fourth-quarter 2018 compared with a loss of €2.4 billion in the year-ago quarter. The bank incurred loss before taxes of €319 million ($364.3 million). Lower revenues and higher provisions were the key undermining factors. Notably, net asset outflows were recorded during the quarter. However, strong capital position and lower expenses were the main positives.

UBS Group AG (NYSE:UBS) reported fourth-quarter 2018 net profit attributable to shareholders of $696 million against loss of $2.4 billion in the prior-year quarter. Notably, the company’s performance in the quarter reflects lower expenses. However, results were affected by fall in net fee and commission income and lower net interest income.

Itau Unibanco Holding S.A. (NYSE:ITUB) posted recurring earnings of R$6.5 billion ($1.7 billion) in fourth-quarter 2018, up 3.2% year over year. Including non-recurring items, net income came in at R$6.2 billion ($1.6 billion), up 6.6%. Results were aided by higher revenues, decline in provisions and improved managerial financial margin. However, slight rise in expenses was an undermining factor.

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