Mitsubishi UFJ (MUFG) Records Disappointing Earnings in 1H

Mitsubishi UFJ Financial Group Inc. MUFG reported profits attributable to owners of parent for the first half of fiscal 2019 (ended Sep 30), of ¥609.9 billion ($5.6 billion), down 6.3% year over year.

For the reported period, lower net gains on equity securities and net interest income, along with reduced net fees and commissions, were negatives. Further, elevated general & administrative expenses and high credit costs acted as headwinds. However, elevated gross profits, higher net trading profits and solid capital were driving factors.

Gross Profits Up, General & Administrative Expenses Escalate

Gross profits for the quarter being reported were ¥1.97 trillion ($0.02 trillion), up 4.8% year over year. This upsurge mainly resulted from higher net gains on debt securities, partly offset by lower net interest income due to fall in interest rates.

The first-half results reflect a decline of around 3.7% in net interest income, which came in at ¥934.1 billion ($8.6 billion). Further, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥684.6 billion ($6.3 billion), down 1.7% year over year. However, net trading profits came in at ¥354.5 billion ($3.3 billion), surging 64.5% year over year.

Mitsubishi UFJ’s total credit costs, at the period end, came in at ¥18 billion ($0.2 billion) compared with the positive $117.9 billion ($1.1 billion) recorded in the prior-year period, due to absence of reversal of allowance.

Net gains on equity securities declined significantly year over year to ¥17.7 billion ($0.16 billion).

Other non-recurring gains came in at ¥14.7 billion ($0.14 billion) as against losses of ¥49.1 billion ($0.44 billion) incurred in the prior-year period.

G&A expenses flared up 2.3% year over year to ¥1.34 trillion ($0.01 trillion). Rise in expenses for overseas operations due to the expansion of overseas business and elevated expenses for global financial regulatory compliance purposes led to this upswing.

Strong Capital Position

As of Sep 30, 2019, Mitsubishi UFJ reported total loans of ¥106.6 trillion ($0.99 trillion), down from ¥107.8 trillion ($0.97 trillion) as of Mar 31, 2019. This downside can be chiefly attributed to fall in overseas, domestic corporate and housing loans.

Deposits escalated to ¥180.7 trillion ($1.67 trillion) from ¥180.2 trillion ($1.62 trillion) as of Mar 31, 2019, as demand for domestic individuals and overseas deposits increased.

Total assets summed ¥314.5 trillion ($2.91 trillion), up from ¥311.2 trillion ($2.8 trillion) as of Mar 31, 2019. Net unrealized gains on securities available for sale increased to ¥3.7 trillion ($0.03 trillion) from ¥2.7 trillion ($0.02 trillion) as of Mar 31, 2019.

Moreover, total net assets were ¥17.9 trillion ($0.17 trillion), up from ¥17.3 trillion ($0.16 trillion) as of Mar 31, 2019. Non-performing loan ratio expanded 3 basis points from March 2019 to 0.66%, due to increase in non-performing loans.

As of Sep 30, 2019, total capital, Tier 1 capital and Common Equity Tier 1 capital ratio were 16.64%, 14.33% and 12.68% as compared with 16.03%, 13.90% and 12.23% as of Mar 31, 2019, respectively.

Outlook

Mitsubishi UFJ Financial disclosed its target of ¥900 billion of consolidated profits attributable to owners of parent for fiscal 2019 (ending Mar 31, 2020).

The company expects to deliver net operating profits, before credit costs for trust accounts and provision for general allowance for credit losses, of ¥1,080 billion for fiscal 2019.

Total credit costs are estimated to be ¥180 billion as of Mar 31, 2020, respectively.

Our Viewpoint

Though we are wary about the heightening competition and volatility in the Japanese economy, along with escalating expenses, Mitsubishi UFJ’s robust business model and diversified product mix look encouraging. Furthermore, increase in gross profits and low credit costs are other tailwinds.

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

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

Mitsubishi UFJ Financial Group, Inc. price-consensus-eps-surprise-chart | Mitsubishi UFJ Financial Group, Inc. Quote

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

UBS Group AG UBS recorded third-quarter 2019 net profit attributable to shareholders of $1.05 billion, down nearly 16% from the prior-year quarter. Marginal rise in expenses affected the company’s performance. Also, results were negatively impacted by fall in net fee and commission income (down 1% year over year) and lower net interest income (down 8%).

Barclays BCS reported third-quarter 2019 net loss attributable to ordinary equity holders of £292 million ($360 million). This reflected a decline from net income attributable to ordinary equity holders of £1.05 billion ($1.37 billion) recorded in the year-ago quarter. Results were affected by a substantial rise in credit impairment charges. Nonetheless, a decline in operating expenses, along with higher revenues, aided the company.

Marred by significant restructuring costs, Deutsche Bank DB reported third-quarter 2019 net loss of €832 million ($925.8 million) against net income of €229 million in the year-ago quarter. Also, the German lender incurred loss before taxes of €687 million ($764.4 million). Third-quarter results were affected by rise in expenses. Lower revenues and higher provisions were other undermining factors. Nonetheless, a strong capital position and net inflows were positives.

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