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Mitsubishi UFG's Acquisitions Fuel Growth, Costs a Concern

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On Aug 22, 2016, we issued an updated research report on Mitsubishi UFJ Financial Group, Inc. . Despite facing challenges in controlling costs, negative interest rates in Japan, global headwinds and a stringent regulatory landscape, this Japanese investment banking firm has been consistently growing through acquisitions, given its strong liquidity position. Further, the company remains focused on its business upgradation plan.

Mitsubishi UFG has been consistently expanding inorganically. The company entered into a business alliance with Hitachi in May 2016, to expand its operations. Earlier in Apr 2016, the company acquired a 20% stake in Security Bank Corporation to expand its business in Southeast Asia.

Moreover, the company remains focused on its Medium-term Business Plan (2015 to 2017) that includes upgradation and reformation of its business model and exploration of new business areas. Also, Mitsubishi UFG enjoys a strong liquidity position due to its strong customer base in Japan and depositors’ preference for large financial institutions for the safety of deposits.

However, escalating expenses remain a concern, primarily due to the impact from of higher salaries and employee-benefit expenses along with increased regulatory costs.

Additionally, due the slow growing economicgrowth and the Bank of Japan’s negative interest rate policy, the company’s revenues are expected to remain under pressure. Hence, considering these headwinds, Mitsubishi UFG reaffirmed its target of ¥850 billion of consolidated net income for the fiscal year ending Mar 31, 2017, reflecting a decline of 11% year over year.

Over the past 30 days, the Zacks Consensus Estimate has remained constant at 64 cents for both 2016 and 2017.

Currently, Mitsubishi UFG carries a Zacks Rank #3 (Hold).

Other Foreign Bank Stocks That Warrant a Look

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