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Why Mitsubishi UFJ's Shares (MTU) Rose on Low Earnings?
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Mitsubishi UFJ Financial Group Inc. reported profits attributable to owners of parent of ¥786.9 billion ($7.4 billion) for the nine-month period (ended Dec 31) of the fiscal year ended Mar 31, 2017, down 7.7% year over year.
For the period under review, decreased gross profits and fall in net interest income hurt results; while fall in general & administrative expenses and low credit costs served as tailwinds. Therefore, investors’ optimism was instilled on expense management as shares on the NYSE rose 4.3% following the release.
Gross Profits Down; General & Administrative Expenses Fall
Gross profits for the period being reported were ¥2.9 trillion ($0.03 trillion), down 6.5% year over year. The decline was mainly due to decreased net interest income from domestic loan and deposit, appreciation of the Japanese Yen, along with fall in fee income from sale of investment products. These were partially mitigated by rise in net interest income from overseas loans and deposits, corporate and investment banking fees from domestic and overseas business and net gains on debt securities.
The period under review reflected a fall of around 7.9% in net interest income, which came in at ¥1.5 trillion ($.014 trillion). For Mitsubishi UFJ, trust fees, along with net fees and commissions totaled ¥1.0 trillion ($.009 trillion), down 3.8% year over year. Further, net trading profits came in at ¥449.8 billion ($4.23 billion), down 2.4% year over year.
Mitsubishi UFJ’s total credit costs, at December end, came in at ¥50.9 billion ($0.48 billion), down 13.9% year over year. The credit costs declined on a consolidated basis, while reported net reversal on a consolidated basis.
Net gains on equity securities jumped 51.1% year over year to ¥96.1 billion ($0.9 billion). Gains increased primarily owing to increase in sale of equity holdings.
Other non-recurring losses were ¥64.8 billion ($0.61 billion) compared with ¥24 billion in the prior-year period. G&A expenses descended 3.2% year over year to ¥1.87 trillion ($.018 trillion), mainly on the account of appreciation of the Japanese yen against other currencies.
Strong Capital Position
As of Dec 31, 2016, Mitsubishi UFJ reported total loans of ¥109.1 trillion ($0.93 trillion), up from ¥105.1 trillion ($1.04 trillion) as of Sep 30, 2016. The increase was chiefly due to rise in demand of domestic corporate and overseas loans, and decreased translated Japanese yen value of overseas loans as it appreciated against the other currencies.
Further, deposits increased to ¥166.4 trillion ($1.43 trillion) from ¥161.6 trillion ($1.59 trillion) as of Sep 30, 2016, as demand for domestic deposits increased, along with overseas deposits and others attributed to the depreciation of Japanese yen against other currencies.
Total assets summed ¥302.1 trillion ($2.59 trillion), up from ¥293.7 trillion ($2.90 trillion) as of Sep 30, 2016. Net unrealized gains on securities available for sale decreased to ¥3.2 trillion ($0.027 trillion) from ¥3.4 trillion ($0.034 trillion) as of Sep 30, 2016. The fall stemmed from decreases in those of foreign bonds and Japanese government bonds, partially offset by increases in domestic equities.
Moreover, total net assets were ¥16.2 trillion ($0.14 trillion), down from ¥16.5 trillion ($0.16 trillion) as of Sep 30, 2016. Non-performing loan ratio contracted 10 basis points from Sep 2016 to 1.07%, on account of reduction in non-performing loans and a rise in total loans.
Outlook
Mitsubishi UFJ Financial reiterated its target of ¥850 billion of consolidated net income for the fiscal year ending Mar 31, 2017.
Our Viewpoint
Though Mitsubishi UFJ’s robust business model and diversified product mix is encouraging, a lower gross profit poses concern. Moreover, we are wary about the heightening competition and volatility in the Japanese economy.
Deutsche Bank AG (DB - Free Report) reported net loss of €1.9 billion ($2.05 billion) in fourth-quarter 2016 compared with the loss of €2.1 billion in the prior-year quarter. Loss before income taxes came in at €2.4billion ($2.6 billion), compared with the loss of €2.7 billion in the year-earlier quarter.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter. While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company’s consistent focus on expense management.
Another foreign bank – The Royal Bank of Scotland Group plc – is expected to release results around Feb 24.
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Why Mitsubishi UFJ's Shares (MTU) Rose on Low Earnings?
Mitsubishi UFJ Financial Group Inc. reported profits attributable to owners of parent of ¥786.9 billion ($7.4 billion) for the nine-month period (ended Dec 31) of the fiscal year ended Mar 31, 2017, down 7.7% year over year.
For the period under review, decreased gross profits and fall in net interest income hurt results; while fall in general & administrative expenses and low credit costs served as tailwinds. Therefore, investors’ optimism was instilled on expense management as shares on the NYSE rose 4.3% following the release.
Gross Profits Down; General & Administrative Expenses Fall
Gross profits for the period being reported were ¥2.9 trillion ($0.03 trillion), down 6.5% year over year. The decline was mainly due to decreased net interest income from domestic loan and deposit, appreciation of the Japanese Yen, along with fall in fee income from sale of investment products. These were partially mitigated by rise in net interest income from overseas loans and deposits, corporate and investment banking fees from domestic and overseas business and net gains on debt securities.
The period under review reflected a fall of around 7.9% in net interest income, which came in at ¥1.5 trillion ($.014 trillion). For Mitsubishi UFJ, trust fees, along with net fees and commissions totaled ¥1.0 trillion ($.009 trillion), down 3.8% year over year. Further, net trading profits came in at ¥449.8 billion ($4.23 billion), down 2.4% year over year.
Mitsubishi UFJ’s total credit costs, at December end, came in at ¥50.9 billion ($0.48 billion), down 13.9% year over year. The credit costs declined on a consolidated basis, while reported net reversal on a consolidated basis.
Net gains on equity securities jumped 51.1% year over year to ¥96.1 billion ($0.9 billion). Gains increased primarily owing to increase in sale of equity holdings.
Other non-recurring losses were ¥64.8 billion ($0.61 billion) compared with ¥24 billion in the prior-year period. G&A expenses descended 3.2% year over year to ¥1.87 trillion ($.018 trillion), mainly on the account of appreciation of the Japanese yen against other currencies.
Strong Capital Position
As of Dec 31, 2016, Mitsubishi UFJ reported total loans of ¥109.1 trillion ($0.93 trillion), up from ¥105.1 trillion ($1.04 trillion) as of Sep 30, 2016. The increase was chiefly due to rise in demand of domestic corporate and overseas loans, and decreased translated Japanese yen value of overseas loans as it appreciated against the other currencies.
Further, deposits increased to ¥166.4 trillion ($1.43 trillion) from ¥161.6 trillion ($1.59 trillion) as of Sep 30, 2016, as demand for domestic deposits increased, along with overseas deposits and others attributed to the depreciation of Japanese yen against other currencies.
Total assets summed ¥302.1 trillion ($2.59 trillion), up from ¥293.7 trillion ($2.90 trillion) as of Sep 30, 2016. Net unrealized gains on securities available for sale decreased to ¥3.2 trillion ($0.027 trillion) from ¥3.4 trillion ($0.034 trillion) as of Sep 30, 2016. The fall stemmed from decreases in those of foreign bonds and Japanese government bonds, partially offset by increases in domestic equities.
Moreover, total net assets were ¥16.2 trillion ($0.14 trillion), down from ¥16.5 trillion ($0.16 trillion) as of Sep 30, 2016. Non-performing loan ratio contracted 10 basis points from Sep 2016 to 1.07%, on account of reduction in non-performing loans and a rise in total loans.
Outlook
Mitsubishi UFJ Financial reiterated its target of ¥850 billion of consolidated net income for the fiscal year ending Mar 31, 2017.
Our Viewpoint
Though Mitsubishi UFJ’s robust business model and diversified product mix is encouraging, a lower gross profit poses concern. Moreover, we are wary about the heightening competition and volatility in the Japanese economy.
Mitsubishi UFJ Financial Group Inc Price
Mitsubishi UFJ Financial Group Inc Price | Mitsubishi UFJ Financial Group Inc Quote
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
Deutsche Bank AG (DB - Free Report) reported net loss of €1.9 billion ($2.05 billion) in fourth-quarter 2016 compared with the loss of €2.1 billion in the prior-year quarter. Loss before income taxes came in at €2.4billion ($2.6 billion), compared with the loss of €2.7 billion in the year-earlier quarter.
UBS Group AG (UBS - Free Report) reported fourth-quarter 2016 pre-tax operating profit of CHF 1.11 billion ($1.11 billion) on an adjusted basis, up 46.6% from the prior-year quarter. While results reflected increase in net trading income, they recorded a decline in net fee and commission income. Notably, the quarter benefited from the company’s consistent focus on expense management.
Another foreign bank – The Royal Bank of Scotland Group plc – is expected to release results around Feb 24.
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>