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Mitsubishi UFJ (MUFG) Nine-Month Earnings Up Y/Y on Low Costs

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Mitsubishi UFJ Financial (MUFG - Free Report) reported profits attributable to owners of parent for the first nine months of fiscal 2020 (ended Dec 31) of ¥607 billion ($3.7 billion), up 3.3% year over year.

In the reported period, lower general & administrative (G&A) expenses and higher deposits balance were tailwinds. Increased gross profits, higher net trading profits and a strong capital drove the upside. However, rise in credit costs and decline in loans balance acted as headwinds.

Gross Profits Up, G&A Expenses Fall

Gross profits for the period being reported were ¥3 trillion ($0.02 trillion), up 1.6% year over year. The upsurge was mainly due to increase in market related gains along with higher net interest income reflecting consolidation of Bank Danamon.

The results reflect marginal increase in net interest income, which came in at ¥1.4 trillion ($9.1 billion). Net trading profits were ¥278.4 billion ($1.8 billion), surging 30.6% year over year. Also, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥1.1 trillion ($6.5 billion), up slightly.

Mitsubishi UFJ’s total credit costs, at the period end, were ¥343.6 billion ($2.4 billion) compared with ¥84.2 billion witnessed a year ago. This was on account of rise in credit risk globally due to the pandemic and adoption of new accounting methodology in overseas subsidiaries.

Net gains on equity securities increased 35.9% year over year to ¥72.7 billion ($0.23 billion). Other non-recurring losses totaled ¥97.2 billion ($0.65 billion) against gains of ¥5.2 billion ($0.14 billion) recorded in the prior-year period.

G&A expenses declined 1.7% year over year to ¥1.35 trillion ($0.01 trillion). The fall was primarily due to a decline in domestic expense.

Expense ratio was 67.5%, down from 69.7% in the prior-year period. A decrease in ratio indicates an increase in profitability.

Strong Capital Position

As of Dec 31, 2020, Mitsubishi UFJ reported total loans of ¥106.8 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 ¥205.1 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 ¥351.7 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 ¥3.9 trillion ($0.03 trillion) from ¥2.9 trillion ($0.03 trillion) as of Mar 31, 2020.

Moreover, total net assets were ¥17.5 trillion ($0.16 trillion), up from ¥16.9 trillion ($0.16 trillion) as of Mar 31, 2020. Non-performing loan ratio expanded 15 basis points from March 2020 to 0.8%, on rise in non-performing loans.

Our Viewpoint

Though we are wary about the heightening competition, high credit costs, volatility in the Japanese economy and 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).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

UBS Group AG (UBS - Free Report) reported fourth-quarter 2020 net profit attributable to shareholders of $1.71 billion, up significantly from $722 million in the prior-year quarter.

Deutsche Bank (DB - Free Report) reported fourth-quarter 2020 net income of €189 million ($225.4 million) against the year-ago quarter’s net loss of €1.5 billion. Also, the German lender reported profit before taxes of €175 million ($208.7 million) against a loss of $1.3 billion in the year-ago quarter.

Itau Unibanco Holding S.A. (ITUB - Free Report) posted recurring earnings of R$5.4 billion ($1 billion) in fourth-quarter 2020, significantly down 26.2% year over year. Including non-recurring items, net income came in at R$7.6 billion ($1.4 billion), up 1.5%.

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