Mitsubishi UFJ Financial Group Inc. reported profits attributable to owners of parent of ¥289 billion ($2.6 billion) for the first quarter of fiscal year ended Mar 31, 2018, up 53% year over year.
For the period under review, increased gross profits and low credit costs drove the results, while elevated general & administrative expenses and decline in net interest income acted as headwinds.
Gross Profits Escalate, General & Administrative Expenses Up
Gross profits for the period being reported were ¥1.0 trillion ($0.009 trillion), up around 1% year over year. The upswing was mainly due to increase in net trading profits and net other operating profits, mostly offset by decreased net interest income from domestic loans and deposits, along with bond portfolio.
The period under review reflected a decline of around 7.9% in net interest income, which came in at ¥462.5 billion ($4.2 billion). For Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥327.6 billion ($2.9 billion), almost stable year over year. However, net trading profits came in at ¥214.1 billion ($1.9 billion), up 27.8% year over year.
Mitsubishi UFJ’s total credit costs, at quarter end, came in at ¥20 billion ($0.18 billion), plunging 64% year over year. The credit costs declined on a consolidated basis, while reported net reversal on a non-consolidated basis.
Net gains on equity securities jumped 52.5% year over year to ¥27.6 billion ($0.25 billion). Gains increased primarily owing to increase in sale of equity holdings, along with decline in losses on write-down of equity securities.
Other non-recurring losses were ¥23.8 billion ($0.21 billion) compared with ¥20.7 billion incurred in the prior-year period. G&A expenses escalated 1.8% year over year to ¥655.2 billion ($5.89 billion), mainly on the account of depreciation of the Japanese yen against other currencies, along with elevated expenses in overseas.
Strong Capital Position
As of Jun 30, 2017, Mitsubishi UFJ reported total loans of ¥108.7 trillion ($0.97 trillion), down from ¥109.2 trillion ($0.98 trillion) as of Mar 31, 2017. The decrease was chiefly attributed to decline in loans to domestic corporate and governmental institutions.
In addition, deposits climbed to ¥171.5 trillion ($1.53 trillion) from ¥170.7 trillion ($1.53 trillion) as of Mar 31, 2017, as demand for individual and overseas deposits increased.
Total assets summed ¥304.2 trillion ($2.71 trillion), up from ¥303.3 trillion ($2.73 trillion) as of Mar 31, 2017. Net unrealized gains on securities available for sale increased to ¥3.4 trillion ($0.03 trillion) from ¥3.2 trillion ($0.029 trillion) as of Mar 31, 2017. The rise stemmed from increases in domestic equities, partially offset by decreases in Japanese government bonds.
Moreover, total net assets were ¥16.7 trillion ($0.15 trillion), up from ¥16.6 trillion ($0.15 trillion) as of Mar 31, 2017. Non-performing loan ratio contracted 3 basis points from Mar 2017 to 1.07%, on account of reduction in non-performing loans.
Mitsubishi UFJ Financial announced its target of ¥950 billion of consolidated net income for the fiscal year ending Mar 31, 2018. Total credit costs are estimated at ¥160 billion.
Though we are wary about the heightening competition and volatility in the Japanese economy, along with escalating expenses, Mitsubishi UFJ’s robust business model and diversified product mix look encouraging. Further, increase in gross profits and low credit costs are tailwinds.
Mitsubishi UFJ currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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