Mitsubishi UFJ Financial ( MUFG Quick Quote MUFG - Free Report) reported profits attributable to owners of parent for the first half of fiscal 2020 (ended Sep 30) of ¥400.8 billion ($3.7 billion), down 34% year over year.
For the reported period, elevated general & administrative (G&A) expenses and credit costs acted as headwinds. Also, decline in loans balance was a negative factor. However, increased gross profits, higher net trading profits and a strong capital drove the upside. Also, high net interest income acted as a positive.
Gross Profits Up, G&A Expenses Escalate
Gross profits for the period being reported were ¥2.09 trillion ($0.02 trillion), up 6% year over year. The upsurge was mainly due to increase in market related gains along with higher net interest income reflecting consolidation of overseas subsidiaries.
The fiscal first half reflected a 3.5% increase in net interest income, which came in at ¥966.5 billion ($9.1 billion). Net trading profits were ¥195.2 billion ($1.8 billion), surging 63.5% year over year. Also, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥690.4 billion ($6.5 billion), up nearly 1%.
Mitsubishi UFJ’s total credit costs, at the period end, were ¥258.4 billion ($2.4 billion) compared with ¥18 billion witnessed a year ago. This was on account of rise in credit cost globally due to the pandemic and adoption of new accounting methodology in overseas subsidiaries.
Net gains on equity securities increased 36.7% year over year to ¥24.2 billion ($0.23 billion). Other non-recurring losses totaled ¥69.2 billion ($0.65 billion) against gains of ¥14.7 billion ($0.14 billion) recorded in the prior-year period.
G&A expenses increased slightly year over year to ¥1.35 trillion ($0.01 trillion). The rise was primarily due to consolidation of Bank Danamon and FSI, partly offset by a decrease in domestic expense.
Expense ratio came in at 64.6%, down from 68.1% in the prior-year quarter. A decrease in ratio indicates an increase in profitability.
Strong Capital Position
As of Sep 30, 2020, Mitsubishi UFJ reported total loans of ¥108.8 trillion ($1.03 trillion), down from ¥109.5 trillion ($1.02 trillion) as of Mar 31, 2020. This decline can be chiefly attributed to fall in overseas loans.
Deposits escalated to ¥201.7 trillion ($1.91 trillion) from ¥187.6 trillion ($1.74 trillion) as of Mar 31, 2020, as demand for domestic individuals, corporate and overseas deposits increased.
Total assets summed ¥348.4 trillion ($3.3 trillion), up from ¥336.6 trillion ($3.13 trillion) as of Mar 31, 2020. Net unrealized gains on securities available for sale increased to ¥3.55 trillion ($0.03 trillion) from ¥2.9 trillion ($0.03 trillion) as of Mar 31, 2020.
Moreover, total net assets were ¥17.3 trillion ($0.16 trillion), up from ¥16.9 trillion ($0.16 trillion) as of Mar 31, 2020. Non-performing loan ratio expanded 11 basis points from March 2020 to 0.76%, on rise in non-performing loans.
Mitsubishi UFJ Financial targets ¥600 billion of consolidated profits attributable to owners of parent for fiscal 2020 (ending Mar 31, 2021).
The company expects to deliver net operating profits (before credit costs for trust accounts and provision for general allowance for credit losses) and ordinary profits of ¥1,150 billion and ¥920 billion, respectively, for this fiscal year.
Total credit costs are estimated to be ¥500 billion as of Mar 31, 2021.
Though we are wary about the heightening competition, high credit costs 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 profits is a tailwind.
Mitsubishi UFJ currently carries a Zacks Rank #4 (Sell).
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