Mitsubishi UFJ Financial Group Inc. (MTU - Analyst Report) reported net income of ¥984.8 billion ($9.8 billion) for the fiscal year ended Mar 31, 2014, up from net income of ¥852.6 billion ($10.3 billion) in the year-ago period. Notably, the reported results achieved the company’s net income target of ¥910 billion.
For the period under review, growth in deposits and loans along with a rise in net interest income and fee revenues were the tailwinds. Further, increased gross profits were a positive. Yet, results reflect a rise in G&A expenses, depicting undisciplined expense management.
Performance in Detail
Gross profits for the year ended were ¥3.75 trillion ($0.04 trillion), up 3.3% year over year. Gross profits improved mainly due to higher net fees and commissions, rise in income from sales and trading, as well as elevated overseas net interest income. These increases were partially offset by reduced net gains on debt securities.
The period under review reflected a rise of 3.4% in net interest income, which came in at ¥1.88 trillion ($0.02 trillion). For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥1.27 trillion ($0.013 trillion), up 11.4% year over year. However, net business profits stood at ¥1.46 trillion ($0.015 trillion), down 5.2% year over year.
The balance of securitized products and related investments as of Mar 31, 2014 increased to ¥2.93 trillion ($0.029 trillion) in total, reflecting an escalation of ¥0.49 trillion compared with the balance of ¥2.44 trillion ($0.026 trillion) as of Mar 31, 2013. The increase was mainly due to a rise in highly rated collateralized debt obligations (CLOs) and commercial mortgages asset-backed securities (CMBS).
Mitsubishi UFJ’s total credit costs amounted to a net reversal of ¥11.8 billion ($0.12 billion) mainly by recording reversal of provision for general allowance for credit losses. The company recorded costs of $115.6 billion ($1.16 billion) in the prior-year period.
Net gains on equity securities were ¥144.5 billion ($1.45 billion) compared with losses of ¥53.6 billion ($0.65 billion) in the prior-year period. Gains were mainly due to an increase in gains on sales of equity securities and reduced losses on write-down of equity securities.
Other non-recurring losses were ¥38.2 billion ($0.38 billion) compared with ¥77.7 billion ($0.94 billion) recorded in the prior-year period. G&A expenses climbed 9.0% year over year to ¥2.29 trillion ($0.023 trillion), mainly due to higher costs in overseas businesses.
As of Mar 31, 2014, Mitsubishi UFJ reported total loans of ¥102 trillion ($0.99 trillion), widening from ¥91.4 trillion ($0.97 trillion) as of Mar 31, 2013. The increases were primarily due to higher demand in overseas and domestic corporate loans.
Moreover, deposits climbed to ¥144.8 trillion ($1.41 trillion), up from ¥131.7 trillion ($1.40 trillion) as of Mar 31, 2013, mainly driven by higher individual, corporate and overseas deposits.
Total assets stood at ¥258.1 trillion ($2.51 trillion), up from ¥234.5 trillion ($2.49 trillion) as of Mar 31, 2013. Total net assets were ¥15.1 trillion ($0.15 trillion), up from ¥13.5 trillion ($0.14 trillion) as of Mar 31, 2013. However, net unrealized gains on securities available for sale decreased to ¥1.87 trillion ($0.018 billion) from ¥1.89 trillion ($0.02 trillion) as of Mar 31, 2013.
As of Mar 31, 2014, common equity Tier 1 ratio came in at 11.25% compared with 11.77% as of Sep 30, 2013. Tier 1 and total capital ratio was 12.45% and 15.53%, respectively, as compared with 13.12% and 16.84%, as of Sep 30, 2013. Leverage ratio on a transitional basis was 4.4%.
Mitsubishi UFJ Financial reiterated the target of ¥950 billion ($9.22 billion) of consolidated net income for the fiscal year ending Mar 31, 2015.
Going forward, we expect Mitsubishi UFJ’s strong business model, diversified product mix and higher gross profits to boost its bottom line. Additionally, the company expanded its scope of engaging in a global strategic alliance with Morgan Stanley (MS - Analyst Report) into new geographies and businesses. This includes a loan marketing joint venture that will provide clients in the United States an opportunity to expand the world-class lending and capital market services of both companies.
However, we are concerned about the heightening competition, increasing expenses and volatility in the Japanese economy.
Shares of Mitsubishi UFJ currently carry a Zacks Rank #3 (Hold). Some better-ranked foreign banks include Banco Macro S.A. (BMA - Snapshot Report) with a Zacks Rank #1 (Strong Buy) and Banco Bilbao Vizcaya Argentaria, S.A. (BBVA - Snapshot Report) with a Zacks Rank #2 (Buy).