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Analyst Blog

On Aug 14, 2014, we issued an updated research report on Mitsubishi UFJ Financial Group Inc. (MTU - Analyst Report). The company recently reported disappointing results for first-quarter (ended Jun 30) fiscal year 2014. Increase in G&A expenses negatively impacted the results.

However, for the period under review, rise in net interest income and fee revenues were the tailwinds. Increased gross profits and lower credit costs were the positives.

Mitsubishi UFJ reported net income of ¥240.4 billion ($2.4 billion) for the first quarter, down from net income of ¥255.2 billion ($2.6 billion) in the year-ago period. G&A expenses climbed 10.9% year over year to ¥628.2 billion ($6.2 billion), mainly due to higher costs in overseas businesses and consolidation of Krungsri.

Escalating non-interest expenses remain a major cause of concern for MUFG. For the last couple of years, the company has been witnessing a continuous rise in these expenses due to higher salaries and employee-benefits expenses, reflecting an increase in the employee strength of commercial banking subsidiaries and higher performance-based compensation in securities subsidiaries. Continuation of such a trend will impact bottom-line expansion.

On the flip side, the primary source of liquidity for MUFG is its large balance of deposits, primarily ordinary deposits, certificates of deposits and time deposits. Due to its broad customer base in Japan and the depositors’ preference to seek safety of deposits at large financial institutions, its deposit balance stands at ¥144.3 trillion ($1.42 trillion) as of Jun 30, 2014.

Following the results, the Zacks Consensus Estimate remained stable at 66 cents and 67 cents per share, respectively, for FY14 and FY15, over the last 30 days. Hence, Mitsubishi UFJ carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better ranked foreign stocks worth considering include Shinhan Financial Group Company Ltd (SHG) with a Zacks Rank #1 (Strong Buy), while Itau Unibanco Holding S.A. (ITUB - Analyst Report) and Banco Santander, S.A. (SAN - Snapshot Report) carry a Zacks Rank #2 (Buy).

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