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Mitsubishi UFJ's Acquisitions Aid Growth Amid Negative Rates

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Mitsubishi UFJ Financial Group, Inc.’s efforts to expand through acquisitions will continue to support profitability. However, negative interest rates in Japan and mounting expenses remain major headwinds.

Mitsubishi UFG has been steadily expanding inorganically. With an aim to boost operations, the company closed its business alliance deal with Hitachi, Ltd. in October 2016. In April 2016, it acquired a 20% stake in Security Bank Corporation to expand its business in Southeast Asia. In addition, in December 2015, the company acquired the Alternative Fund Services business of UBS Global Asset Management.

Additionally, Mitsubishi UFG remains focused on its Medium-term Business Plan (2016-2018) that includes upgradation and reformation of its business model and exploration of new business areas. The bank enjoys a solid liquidity position due to its robust customer base in Japan and depositors’ preference for large financial institutions for the safety of deposits.

However, the Bank of Japan's negative interest rate policy is expected to hurt Mitsubishi UFG’s revenues. Despite targeting 2.5% year-over-year consolidated net income growth for the fiscal year ending Mar 31, 2018, it would be difficult for the company to run business profitably in a slowly growing economy.

Further, escalating expenses remain a major concern for Mitsubishi UFG. The company has been witnessing a persistent increase in expenses mainly due to higher salaries and employee-benefit expenses. Higher regulatory costs in overseas businesses have contributed to rising expenses.

Over the last 30 days, the Zacks Consensus Estimate has remained stable at 65 cents and 70 cents for fiscal 2018 and 2019, respectively.

Shares of this Zacks Rank #3 (Hold) stock have gained 14.4% over the past year compared with 24.2% rally recorded by the industry it belongs to.



Stocks Worth a Look

Some better-ranked stocks in the same space are KB Financial Group Inc. (KB - Free Report) , Shinhan Financial Group Co., Ltd. (SHG - Free Report) and The Bank of N.T. Butterfield & Son Limited (NTB - Free Report) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

KB Financial’s earnings estimates have been revised 11.1% upward for 2017, in the past 60 days. Also, its share price on the NYSE has surged 48.5% over the past year.

Shinhan Financial’s earnings estimates for 2017 have been revised 8.5% upward, over the last 60 days. Further, in a year’s time, the company’s shares have jumped 18.6%.

The Bank of N.T. Butterfield & Son witnessed a 2.2% upward earnings estimates revision for the current year in the past 60 days. Moreover, in the past year, its shares have gained 35.8%.

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