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Mitsubishi UFJ (MUFG) Reports Encouraging Earnings in Q1

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Mitsubishi UFJ Financial Group Inc. (MUFG - Free Report) reported profits attributable to owners of parent for first-quarter fiscal 2018 (ended Jun 30), of ¥315 billion ($2.9 billion), up 9% year over year.

For the period under review, low credit costs and strong capital drove the upside, while elevated general & administrative expenses, decreased gross profits and decline in net trading profits acted as headwinds. Nevertheless, higher net interest income, along with net fees and commissions were positives.

Gross Profits Down, General & Administrative Expenses Escalate

Gross profits for the quarter being reported were ¥942.9 billion ($8.6 billion), down 6.1% year over year. The decline was mainly due to reduced net gains on debt securities associated with domestic bonds, partly offset by increased net interest income from overseas loans and deposits, along with higher fees and commissions.

The fiscal first quarter reflected growth of around 3.9% in net interest income, which came in at ¥480.5 billion ($4.4 billion). Further, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥343.3 billion ($3.1 billion), rising 4.8% year over year. However, net trading profits came in at ¥119 billion ($1.1 billion), plunging 44.4% year over year.

Mitsubishi UFJ’s total credit costs, at the quarter end, came in at positive ¥24.5 billion ($0.22 billion) compared with costs of ¥20 billion ($0.18 billion) in the prior-year quarter.

Net gains on equity securities jumped significantly year over year to ¥62.3 billion ($0.57 billion). Gains increased primarily owing to rise in sale of equity holdings.

Other non-recurring losses came in at ¥38 billion ($0.35 billion) compared with ¥23.8 billion incurred in the prior-year period. G&A expenses flared up slightly year over year to ¥656.5 billion ($0.21 billion).

Strong Capital Position

As of Jun 30, 2018, Mitsubishi UFJ reported total loans of ¥108.7 trillion ($0.98 trillion), up from ¥108.4 trillion ($1.02 trillion) as of Mar 31, 2018. The increase can be chiefly attributed to rise in overseas loans.

However, deposits declined to ¥175.7 trillion ($1.59 trillion) from ¥177.3 trillion ($1.67 trillion) as of Mar 31, 2018, as demand for domestic corporate and overseas deposits increased.

Total assets summed ¥299.1 trillion ($2.7 trillion), down from ¥306.9 trillion ($2.89 trillion) as of Mar 31, 2018. Net unrealized gains on securities available for sale decreased to ¥3.4 trillion ($0.03 trillion) from ¥3.5 trillion ($0.03 trillion) as of Mar 31, 2018. The decline was due to decreased net unrealized gains (losses) for foreign equity securities and foreign bonds.

Moreover, total net assets were ¥17.1 trillion ($0.15 trillion), down from ¥17.3 trillion ($0.16 trillion) as of Mar 31, 2018. Non-performing loan ratio contracted 9 basis points from March 2018 to 0.79%, due to reduction in non-performing loans.

Outlook

Mitsubishi UFJ Financial announced its target of ¥850 billion of consolidated net income for the fiscal ending Mar 31, 2019. Total credit costs are estimated at ¥120 billion and net operating profits at ¥1.04 trillion.

Our Viewpoint

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. Furthermore, increase in profits and low credit costs remain tailwinds.
 

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) posted recurring earnings of R$6.4 billion ($1.78 billion) in second-quarter 2018, up 3.2% year over year. Including non-recurring items, net income came in at R$6.2 billion ($1.72 billion), up 3.3% year over year. Results displayed higher revenues, lower provisions and a solid balance-sheet position. Nevertheless, elevated expenses and reduced managerial financial margin were headwinds.

UBS Group AG (UBS - Free Report) reported second-quarter 2018 net profit attributable to shareholders of CHF 1.28 billion ($1.30 billion), up around 9% from the prior-year quarter. Results marked rise in net fee and commission income (up 2% year over year) and strong capital position. However, the quarter reflected elevated expenses and lower net interest income (down 30%).

Deutsche Bank AG (DB - Free Report) reported net income of €401 million ($467 million) in second-quarter 2018, which tanked 13.7% from year-ago quarter. Income before income taxes plunged 13.5% year over year to €711 million ($828.1 million). Lower revenues and higher expenses were the key undermining factors. Also, provisions for credit losses increased. Notably, net asset outflows were recorded during the quarter. Nonetheless, strong capital position was a positive.

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