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Mitsubishi UFJ's (MTU) Q1 Earnings Fall on Low Gross profits
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Mitsubishi UFJ Financial Group Inc. reported profits attributable to owners of parent of ¥188.9 billion ($1.75 billion) for the first quarter (ended Jun 30) of fiscal year ended Mar 31, 2017, down 32% year over year.
For the period under review, decreased gross profits, high credit costs and fall in net interest income negatively impacted the results while fall in general & administrative expenses served as a tailwind.
Gross Profits Down; General & Administrative Expenses Fall
Gross profits for the period being reported were ¥997.6 billion ($9.24 billion), down 6.8% year over year. The decline was mainly due to decreased net interest income from domestic loan and deposit, due to persistent low interest rates in domestic market along with fall in fee income from sale of investment products.
The period under review reflected a fall of around 7.9% in net interest income, which came in at ¥502 billion ($4.65 billion). For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥327.9 billion ($3.04 billion), down 1.6% year over year. Further, net business profits came in at ¥354.2 billion ($3.28 billion), down 15% year over year.
Mitsubishi UFJ’s total credit costs at June-end came in at ¥55.5 billion ($0.51 billion), up 40.2% year over year. The credit costs resulted from decline in reversal of allowance for doubtful account and increased allowance for credit losses.
Net gains on equity securities decreased 94.6% year over year to ¥1.7 billion ($0.02 billion). Gains decreased primarily owing to lower benefits on sale of equity securities along with a rise in write-down losses of equity securities.
Other non-recurring losses were ¥20.7 billion ($0.19 billion) compared with ¥9.4 billion in the prior-year period. G&A expenses decreased 1.5% year over year to ¥643.3 billion ($5.96 billion), mainly on the account of appreciation of the Japanese yen against the other currencies.
Strong Capital Position
As of Jun 30, 2016, Mitsubishi UFJ reported total loans of ¥108.6 trillion ($1.06 trillion), decreased from ¥113.9 trillion ($1.01 trillion) as of Mar 31, 2016. The decrease was chiefly due to decline in demand to governmental institutions loans and decreased translated Japanese yen value of overseas loans as it appreciated against the other currencies.
Further, deposits declined to ¥160.9 trillion ($1.57 trillion) from ¥161.0 trillion ($1.43 trillion) as of Mar 31, 2016, as demand for domestic deposits increased, while overseas deposits and others decreased attributed to the appreciation of Japanese yen against the other currencies.
Total assets stood at ¥298.2 trillion ($2.91 trillion), down from ¥298.3 trillion ($2.65 trillion) as of Mar 31, 2016. Net unrealized gains on securities available for sale decreased to ¥3.4 trillion ($0.033 trillion) from ¥3.5 trillion ($0.031 trillion) as of Mar 31, 2016. The fall stemmed from decreases in unrealized gains on domestic equity securities as equity markets plummeted.
Moreover, total net assets were ¥17.1 trillion ($0.17 trillion), down from ¥17.4 trillion ($0.15 trillion) as of Mar 31, 2016. Non-performing loan ratio increased 3 basis points from Mar 2016 to 1.22%, on account of reduction in total loan exposure.
Outlook
Mitsubishi UFJ Financial reiterated its target of ¥850 billion of consolidated net income for the fiscal year ending Mar 31, 2017.
Our Viewpoint
Though Mitsubishi UFJ’s strong business model and diversified product mix is encouraging, a lower gross profit poses concern. Moreover, we are wary about the heightening competition and volatility in the Japanese economy.
Mitsubishi UFJ currently carries a Zacks Rank #4 (Sell).
Competitive Landscape
Deutsche Bank AG (DB - Free Report) reported net income of €20 million ($22.6 million) in the second quarter of 2016, significantly down on a year-over-year basis. Income before income taxes came in at €408 million ($460.7 million), down 66.8% year over year. Lower revenues and higher provisions hurt the results. However, the reduction in non-interest expenses was a positive factor.
UBS Group AG (UBS - Free Report) reported second quarter of 2016 net profit attributable to its shareholders of CHF 1.03 billion ($1.06 million), down 14% year over year. The results were impacted by a 22% year-over-year decrease in net interest income and a 7% drop in net fee and commission income, partially neutralized by a 15% increase in net trading income.
Another foreign bank – The Royal Bank of Scotland Group plc -- is expected to release results on Aug 5.
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Mitsubishi UFJ's (MTU) Q1 Earnings Fall on Low Gross profits
Mitsubishi UFJ Financial Group Inc. reported profits attributable to owners of parent of ¥188.9 billion ($1.75 billion) for the first quarter (ended Jun 30) of fiscal year ended Mar 31, 2017, down 32% year over year.
For the period under review, decreased gross profits, high credit costs and fall in net interest income negatively impacted the results while fall in general & administrative expenses served as a tailwind.
Gross Profits Down; General & Administrative Expenses Fall
Gross profits for the period being reported were ¥997.6 billion ($9.24 billion), down 6.8% year over year. The decline was mainly due to decreased net interest income from domestic loan and deposit, due to persistent low interest rates in domestic market along with fall in fee income from sale of investment products.
The period under review reflected a fall of around 7.9% in net interest income, which came in at ¥502 billion ($4.65 billion). For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥327.9 billion ($3.04 billion), down 1.6% year over year. Further, net business profits came in at ¥354.2 billion ($3.28 billion), down 15% year over year.
Mitsubishi UFJ’s total credit costs at June-end came in at ¥55.5 billion ($0.51 billion), up 40.2% year over year. The credit costs resulted from decline in reversal of allowance for doubtful account and increased allowance for credit losses.
Net gains on equity securities decreased 94.6% year over year to ¥1.7 billion ($0.02 billion). Gains decreased primarily owing to lower benefits on sale of equity securities along with a rise in write-down losses of equity securities.
Other non-recurring losses were ¥20.7 billion ($0.19 billion) compared with ¥9.4 billion in the prior-year period. G&A expenses decreased 1.5% year over year to ¥643.3 billion ($5.96 billion), mainly on the account of appreciation of the Japanese yen against the other currencies.
Strong Capital Position
As of Jun 30, 2016, Mitsubishi UFJ reported total loans of ¥108.6 trillion ($1.06 trillion), decreased from ¥113.9 trillion ($1.01 trillion) as of Mar 31, 2016. The decrease was chiefly due to decline in demand to governmental institutions loans and decreased translated Japanese yen value of overseas loans as it appreciated against the other currencies.
Further, deposits declined to ¥160.9 trillion ($1.57 trillion) from ¥161.0 trillion ($1.43 trillion) as of Mar 31, 2016, as demand for domestic deposits increased, while overseas deposits and others decreased attributed to the appreciation of Japanese yen against the other currencies.
Total assets stood at ¥298.2 trillion ($2.91 trillion), down from ¥298.3 trillion ($2.65 trillion) as of Mar 31, 2016. Net unrealized gains on securities available for sale decreased to ¥3.4 trillion ($0.033 trillion) from ¥3.5 trillion ($0.031 trillion) as of Mar 31, 2016. The fall stemmed from decreases in unrealized gains on domestic equity securities as equity markets plummeted.
Moreover, total net assets were ¥17.1 trillion ($0.17 trillion), down from ¥17.4 trillion ($0.15 trillion) as of Mar 31, 2016. Non-performing loan ratio increased 3 basis points from Mar 2016 to 1.22%, on account of reduction in total loan exposure.
Outlook
Mitsubishi UFJ Financial reiterated its target of ¥850 billion of consolidated net income for the fiscal year ending Mar 31, 2017.
Our Viewpoint
Though Mitsubishi UFJ’s strong business model and diversified product mix is encouraging, a lower gross profit poses concern. Moreover, we are wary about the heightening competition and volatility in the Japanese economy.
MITSUBISHI-UFJ Price
MITSUBISHI-UFJ Price | MITSUBISHI-UFJ Quote
Mitsubishi UFJ currently carries a Zacks Rank #4 (Sell).
Competitive Landscape
Deutsche Bank AG (DB - Free Report) reported net income of €20 million ($22.6 million) in the second quarter of 2016, significantly down on a year-over-year basis. Income before income taxes came in at €408 million ($460.7 million), down 66.8% year over year. Lower revenues and higher provisions hurt the results. However, the reduction in non-interest expenses was a positive factor.
UBS Group AG (UBS - Free Report) reported second quarter of 2016 net profit attributable to its shareholders of CHF 1.03 billion ($1.06 million), down 14% year over year. The results were impacted by a 22% year-over-year decrease in net interest income and a 7% drop in net fee and commission income, partially neutralized by a 15% increase in net trading income.
Another foreign bank – The Royal Bank of Scotland Group plc -- is expected to release results on Aug 5.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>