Mitsubishi UFJ Financial Group, Inc. (MUFG Quick QuoteMUFG - Free Report) reported profits, attributable to owners of the parent for first-quarter fiscal 2023 (ended Jun 30), of ¥113.7 billion ($0.877 billion), down 70.3% year over year.

Lower net profit in the quarter was attributable to one-time losses related to the sale of MUFG Union Bank. Nonetheless, in the reported period, the demand for overseas loans accelerated.

Higher trust fees and lower general and administrative (G&A) expenses aided the results. However, higher credit costs and net trading losses were headwinds.

Gross Profits Rise, G&A Expenses Escalate

Gross profits (before credit costs for trust accounts) for the quarter under review were ¥1.124 trillion ($8.67 billion), up 17.5% year over year. The upsurge was mainly on higher net interest income (“NII”) and trust fees.

Results reflect a 98% increase in NII, which was ¥986.8 billion ($7.61 billion). Trust fees, along with net fees and commissions, totaled ¥369.1 billion ($2.84 billion), up 1.1%. However, for Mitsubishi UFJ, net trading losses (including net other operating profits) were ¥231.2 billion ($1.78 billion) against a profit of ¥94.8 billion in the prior year.

Mitsubishi UFJ’s total credit costs at the period end were ¥73.9 billion ($570 million), up from ¥5.1 billion witnessed a year ago.

G&A expenses decreased year over year from ¥673.6 billion to ¥699.6 billion ($5.4 billion).

The expense ratio was 62.1%, up from 70.3% in the prior-year period. A decrease in this ratio indicates a rise in profitability.

Balance Sheet Position Strong

As of Jun 30, 2022, Mitsubishi UFJ reported period-end loans of ¥111.5 trillion ($819.2 billion), marginally up sequentially. The rise can be primarily attributed to an increase in overseas loans.

Deposits sequentially rose to ¥220.1 trillion ($1.61 trillion) from ¥215.4 trillion, as demand for domestic individuals, and overseas and other deposits increased.

Total assets summed ¥386.9 trillion ($2.84 trillion), up 3.5% sequentially.

Capital Deployment

The company announced a program to buy back up to 600 million of MUFG’s common stock valid from May 17 to Nov 11, 2022.

Our Viewpoint

MUFG has a robust business model, a diversified product mix and solid capital ratios. Supported by a strong liquidity position, Mitsubishi UFJ remains poised for inorganic growth. However, MUFG continues to face challenges in controlling costs, which are hurting its bottom line. Also, Japan’s strict regulations are likely to keep its financials under pressure.

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.

Performance of Other Foreign Banks

Deutsche Bank (DB Quick QuoteDB - Free Report) reported a second-quarter 2022 net income of €1.21 billion ($1.14 billion) compared with the year-ago quarter’s €828 million. Also, DB reported a profit before taxes of €1.55 billion ($1.45 billion), up 33% from the year-ago quarter.

Deutsche Bank’s second-quarter results were supported by higher net revenues and lower expenses. However, declining capital position was an offsetting factor.

ICICI Bank’s (IBN Quick QuoteIBN - Free Report) first-quarter fiscal 2023 (ended Jun 30) net income was INR69.05 billion ($874 million), jumping 50% from the prior-year quarter.

ICICI Bank’s results were driven by a rise in net interest income, non-interest income, and growth in loans and deposits. Provisions also declined in the reported quarter. However, higher operating expenses posed as headwinds.