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Analyst Blog

On Feb 17, 2014, we issued an updated research report on Mitsubishi UFJ Financial Group Inc. (MTU - Analyst Report). The company recently reported encouraging results for the first nine months of fiscal 2014 (ended Dec 31, 2013). Growth in deposits and loans along with a rise in net interest income and fee revenues were the tailwinds. Further, increased gross profits were a positive. Yet, results reflect a rise in G&A expenses depicting undisciplined expense management.

Mitsubishi UFJ reported net income of ¥785.4 billion ($7.9 billion), up from net income of ¥532.5 billion ($6.7 billion) in the year-ago period. Moreover, gross profits for the period were ¥2,774.6 billion ($28.0 billion), up 3.6% year over year, mainly due to higher net fees and commissions, rise in income from sales and trading, as well as elevated overseas net interest income.

Due to its broad customer base in Japan and the depositors’ preference to seek the safety of deposits at large financial institutions, the balance of deposits for Mitsubishi UFJ stands at ¥142.9 trillion ($1.36 trillion) as of Dec 31, 2013, up from ¥131.7 trillion ($1.40 trillion) as of Mar 31, 2013.

However, escalating G&A expenses remain a major cause of concern for Mitsubishi UFJ. Since the last few quarters, the company has been continuously witnessing a rise in these expenses related to the overseas business. Notably, G&A expenses surged 10.6% year over year for the nine months ended fiscal 2014.

Following the results, the Zacks Consensus Estimate remained stable at 63 cents and 59 cents per share, respectively, for FY14 and FY15, over the last 30 days. Currently, Mitsubishi UFJ carries a Zacks Rank #2 (Buy).

Key Picks from the Sector

Some other foreign stocks worth considering include Shinhan Financial Group Company Ltd. (SHG) with a Zacks Rank #1 (Strong Buy), while The Royal Bank of Scotland Group plc (RBS - Snapshot Report) and Lloyds Banking Group plc (LYG - Snapshot Report) carry a Zacks Rank #2.

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