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Mitsubishi UFJ Financial (MUFG - Free Report) reported first-quarter fiscal 2021 (ended Jun 30) profits attributable to owners of parent of ¥383.1 billion ($3.5 billion), up significantly year over year.
A decline in total credit costs was a major tailwind for the company. Also, it witnessed a rise in net interest income, higher deposit balances and an increase in net gains on equity securities in the reported quarter. However, higher general & administrative (G&A) expenses, lower gross profits and net trading profits hurt results to some extent.
Gross Profits Decline, G&A Expenses Rise
Gross profits were ¥957.1 billion ($8.7 billion), down 9.8% year over year. The decline was mainly due to the lack of net gains on debt securities earned in the previous year.
Net interest income was ¥496.9 billion ($4.5 billion), up 5.9% year over year. Net trading profits were ¥54.3 billion ($0.5 billion), down 52.9% year over year. For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥365.3 billion ($3.3 billion), up 16.9%.
Total credit costs, at the period end, were ¥5.1 billion ($0.05 billion), down 96.5% from the year-ago period. The decline was due to improved portfolio quality and reversal of the allowance, reflecting economic environment recovery, mainly in the United States.
Net gains on equity securities increased substantially year over year to ¥66 billion ($0.6 billion). Other non-recurring losses totaled ¥3.5 billion ($0.03 billion), down 91% year over year.
G&A expenses increased 1.8% year over year to ¥673.7 billion ($6.2 billion).
Expense ratio was 70.3%, up from 62.3% in the prior-year period. A rise in the ratio indicates deterioration in profitability.
Capital Position Strong
As of Jun 30, 2021, total loans were ¥105.3 trillion ($0.95 trillion), down 2.2% from the Mar 31, 2021 level. Deposits were ¥213.9 trillion ($1.93 trillion), up 1.1% sequentially.
Total assets summed ¥362.1 trillion ($3.27 trillion), up marginally from the end of March 2021.
Total net assets were ¥18.3 trillion ($0.17 trillion), up 3.3% from Mar 31, 2021. Non-performing loan ratio was 0.83% as of Jun 30, 2021, which contracted 2 basis points from the end of the previous quarter.
Outlook
Mitsubishi UFJ expects consolidated profits attributable to owners of parent of ¥850 billion for fiscal 2021 (ending Mar 31, 2022).
Our Viewpoint
The company has a robust business model, diversified product mix and solid capital ratios. Supported by a strong liquidity position, it remains poised for inorganic growth. However, the company has been facing challenges in controlling costs, which is impacting its bottom line. Also, Japan’s strict regulations are likely to keep its financials under pressure.
Mitsubishi UFJ Financial Group, Inc. Price, Consensus and EPS Surprise
Barclays (BCS - Free Report) reported second-quarter 2021 net income attributable to ordinary equity holders of £2.11 billion ($2.95 billion), up significantly from the prior-year quarter.
Deutsche Bank’s (DB - Free Report) second-quarter 2021 net income of €828 million ($997.5million) increased substantially from the year-ago quarter’s €66 million. Also, the German lender reported profit before taxes of €1.17 billion ($1.4 billion) compared with the year-ago quarter’s €158 million.
UBS Group AG (UBS - Free Report) reported second-quarter 2021 net profit attributable to shareholders of $2 billion, up 63% from the prior-year quarter.
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Mitsubishi UFJ (MUFG) Q1 Earnings Improve, G&A Expenses Rise
Mitsubishi UFJ Financial (MUFG - Free Report) reported first-quarter fiscal 2021 (ended Jun 30) profits attributable to owners of parent of ¥383.1 billion ($3.5 billion), up significantly year over year.
A decline in total credit costs was a major tailwind for the company. Also, it witnessed a rise in net interest income, higher deposit balances and an increase in net gains on equity securities in the reported quarter. However, higher general & administrative (G&A) expenses, lower gross profits and net trading profits hurt results to some extent.
Gross Profits Decline, G&A Expenses Rise
Gross profits were ¥957.1 billion ($8.7 billion), down 9.8% year over year. The decline was mainly due to the lack of net gains on debt securities earned in the previous year.
Net interest income was ¥496.9 billion ($4.5 billion), up 5.9% year over year. Net trading profits were ¥54.3 billion ($0.5 billion), down 52.9% year over year. For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥365.3 billion ($3.3 billion), up 16.9%.
Total credit costs, at the period end, were ¥5.1 billion ($0.05 billion), down 96.5% from the year-ago period. The decline was due to improved portfolio quality and reversal of the allowance, reflecting economic environment recovery, mainly in the United States.
Net gains on equity securities increased substantially year over year to ¥66 billion ($0.6 billion). Other non-recurring losses totaled ¥3.5 billion ($0.03 billion), down 91% year over year.
G&A expenses increased 1.8% year over year to ¥673.7 billion ($6.2 billion).
Expense ratio was 70.3%, up from 62.3% in the prior-year period. A rise in the ratio indicates deterioration in profitability.
Capital Position Strong
As of Jun 30, 2021, total loans were ¥105.3 trillion ($0.95 trillion), down 2.2% from the Mar 31, 2021 level. Deposits were ¥213.9 trillion ($1.93 trillion), up 1.1% sequentially.
Total assets summed ¥362.1 trillion ($3.27 trillion), up marginally from the end of March 2021.
Total net assets were ¥18.3 trillion ($0.17 trillion), up 3.3% from Mar 31, 2021. Non-performing loan ratio was 0.83% as of Jun 30, 2021, which contracted 2 basis points from the end of the previous quarter.
Outlook
Mitsubishi UFJ expects consolidated profits attributable to owners of parent of ¥850 billion for fiscal 2021 (ending Mar 31, 2022).
Our Viewpoint
The company has a robust business model, diversified product mix and solid capital ratios. Supported by a strong liquidity position, it remains poised for inorganic growth. However, the company has been facing challenges in controlling costs, which is impacting its bottom line. Also, Japan’s strict regulations are likely to keep its financials under pressure.
Mitsubishi UFJ Financial Group, Inc. Price, Consensus and EPS Surprise
Mitsubishi UFJ Financial Group, Inc. price-consensus-eps-surprise-chart | Mitsubishi UFJ Financial Group, Inc. Quote
Mitsubishi UFJ currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Competitive Landscape
Barclays (BCS - Free Report) reported second-quarter 2021 net income attributable to ordinary equity holders of £2.11 billion ($2.95 billion), up significantly from the prior-year quarter.
Deutsche Bank’s (DB - Free Report) second-quarter 2021 net income of €828 million ($997.5million) increased substantially from the year-ago quarter’s €66 million. Also, the German lender reported profit before taxes of €1.17 billion ($1.4 billion) compared with the year-ago quarter’s €158 million.
UBS Group AG (UBS - Free Report) reported second-quarter 2021 net profit attributable to shareholders of $2 billion, up 63% from the prior-year quarter.