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Mitsubishi UFJ (MUFG) H1 Earnings Rise, Profit Outlook Raised
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Shares of Mitsubishi UFJ Financial (MUFG - Free Report) gained 1.4% in response to solid first-half fiscal 2021 (ended Sep 30) results. Profits attributable to owners of parent totaled ¥781.4 billion ($7.1 billion), up 95% 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 during the reported period. 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 ¥1.98 trillion ($0.02 trillion), down 3.7% year over year. The decline was mainly due to the absence of net gains on debt securities earned in the previous year.
Net interest income was ¥992.8 billion ($9.02 billion), up 2.7%. Net trading profits were ¥117.7 billion ($1.07 billion), down 39.7%. For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥744.7 billion ($6.76 billion), up 13.7%.
Total credit costs, at the period end, were ¥17.9 billion ($0.16 billion) against a credit benefit of ¥258.4 billion in 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 ¥126 billion ($1.14 billion). Other non-recurring losses totaled ¥13.9 billion ($0.13 billion), down 79.9%.
G&A expenses rose 2% year over year to ¥1.34 trillion ($0.01 trillion).
Expense ratio was 67.8%, up from 64% in the prior-year period. A rise in the ratio indicates a deterioration in profitability.
Non-performing loan ratio was 0.84% as of Sep 30, 2021, stable year over year.
Strong Balance Sheet
As of Sep 30, 2021, total loans were ¥104.7 trillion ($0.94 trillion), down 2.6% from the Mar 31, 2021 level. Deposits were ¥212.3 trillion ($1.9 trillion), up marginally.
Total assets summed ¥360.4 trillion ($3.23 trillion), up slightly from the end of March 2021.
Total net assets were ¥18.7 trillion ($0.17 trillion), up 5.8% from Mar 31, 2021.
Outlook Raised
Mitsubishi UFJ now expects consolidated profits attributable to owners of parent of ¥1,050 billion for fiscal 2021 (ending Mar 31, 2022). This is revised upward from the prior guidance of ¥850 billion. The revision is mainly driven by strong performance in customer segments in the first half of the year.
Our Take
Mitsubishi UFJ has a robust business model and diversified product mix. Also, in September, the bank inked an agreement to sell its U.S. banking business – MUFG Union Bank – to U.S. Bancorp (USB - Free Report) for $8 billion.
The cash-and-stock transaction will fortify U.S. Bancorp’s presence in California, Washington and Oregon. Still subject to the satisfaction of customary closing conditions and regulatory approvals, the deal is expected to close in the first half of 2022.
Supported by a strong liquidity position, Mitsubishi UFJ remains poised for inorganic expansion efforts. However, the company has been facing challenges in controlling costs, which is adversely impacting its bottom line. Also, Japan’s strict regulations and negative interest rates are likely to keep its financials under pressure.
Mitsubishi UFJ Financial Group, Inc. Price, Consensus and EPS Surprise
Itau Unibanco Holding S.A. (ITUB - Free Report) recorded recurring earnings of R$6.8 billion ($1.3 billion) in third-quarter 2021, which jumped 34.7% year over year. Including non-recurring items, net income came in at R$5.8 billion ($1.11 billion), up substantially.
Itau Unibanco’s results benefited from higher revenues, a rise in the credit portfolio, and a fall in the cost of credit. However, an increase in non-interest expenses and non-performing loan ratio acted as headwinds.
HSBC Holdings (HSBC - Free Report) reported second-quarter 2021 pre-tax profit of $5.1 billion, up significantly from $1.1 billion recorded in the prior-year quarter.
HSBC’s quarterly performance benefited from net reserve releases. However, lower adjusted revenues and a rise in expenses were the undermining factors.
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Mitsubishi UFJ (MUFG) H1 Earnings Rise, Profit Outlook Raised
Shares of Mitsubishi UFJ Financial (MUFG - Free Report) gained 1.4% in response to solid first-half fiscal 2021 (ended Sep 30) results. Profits attributable to owners of parent totaled ¥781.4 billion ($7.1 billion), up 95% 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 during the reported period. 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 ¥1.98 trillion ($0.02 trillion), down 3.7% year over year. The decline was mainly due to the absence of net gains on debt securities earned in the previous year.
Net interest income was ¥992.8 billion ($9.02 billion), up 2.7%. Net trading profits were ¥117.7 billion ($1.07 billion), down 39.7%. For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥744.7 billion ($6.76 billion), up 13.7%.
Total credit costs, at the period end, were ¥17.9 billion ($0.16 billion) against a credit benefit of ¥258.4 billion in 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 ¥126 billion ($1.14 billion). Other non-recurring losses totaled ¥13.9 billion ($0.13 billion), down 79.9%.
G&A expenses rose 2% year over year to ¥1.34 trillion ($0.01 trillion).
Expense ratio was 67.8%, up from 64% in the prior-year period. A rise in the ratio indicates a deterioration in profitability.
Non-performing loan ratio was 0.84% as of Sep 30, 2021, stable year over year.
Strong Balance Sheet
As of Sep 30, 2021, total loans were ¥104.7 trillion ($0.94 trillion), down 2.6% from the Mar 31, 2021 level. Deposits were ¥212.3 trillion ($1.9 trillion), up marginally.
Total assets summed ¥360.4 trillion ($3.23 trillion), up slightly from the end of March 2021.
Total net assets were ¥18.7 trillion ($0.17 trillion), up 5.8% from Mar 31, 2021.
Outlook Raised
Mitsubishi UFJ now expects consolidated profits attributable to owners of parent of ¥1,050 billion for fiscal 2021 (ending Mar 31, 2022). This is revised upward from the prior guidance of ¥850 billion. The revision is mainly driven by strong performance in customer segments in the first half of the year.
Our Take
Mitsubishi UFJ has a robust business model and diversified product mix. Also, in September, the bank inked an agreement to sell its U.S. banking business – MUFG Union Bank – to U.S. Bancorp (USB - Free Report) for $8 billion.
The cash-and-stock transaction will fortify U.S. Bancorp’s presence in California, Washington and Oregon. Still subject to the satisfaction of customary closing conditions and regulatory approvals, the deal is expected to close in the first half of 2022.
Supported by a strong liquidity position, Mitsubishi UFJ remains poised for inorganic expansion efforts. However, the company has been facing challenges in controlling costs, which is adversely impacting its bottom line. Also, Japan’s strict regulations and negative interest rates 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
Itau Unibanco Holding S.A. (ITUB - Free Report) recorded recurring earnings of R$6.8 billion ($1.3 billion) in third-quarter 2021, which jumped 34.7% year over year. Including non-recurring items, net income came in at R$5.8 billion ($1.11 billion), up substantially.
Itau Unibanco’s results benefited from higher revenues, a rise in the credit portfolio, and a fall in the cost of credit. However, an increase in non-interest expenses and non-performing loan ratio acted as headwinds.
HSBC Holdings (HSBC - Free Report) reported second-quarter 2021 pre-tax profit of $5.1 billion, up significantly from $1.1 billion recorded in the prior-year quarter.
HSBC’s quarterly performance benefited from net reserve releases. However, lower adjusted revenues and a rise in expenses were the undermining factors.