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Mitsubishi UFJ (MUFG) Records Dismal Earnings in Nine Months

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Mitsubishi UFJ Financial Group Inc. MUFG reported profits attributable to owners of parent for the first nine months of fiscal 2019 (ended Dec 31), of ¥584.2 billion ($5.4 billion), down 33% year over year. Results included impact of net extraordinary losses, which resulted from one???time amortization of goodwill, along with decreases in net gains on equity securities and equity in earnings of equity method investees.

For the reported period, lower net gains on equity securities and net interest income, along with reduced net fees and commissions, were negatives. Further, elevated general & administrative expenses and high credit costs acted as headwinds. However, elevated gross profits, higher net trading profits and solid capital were driving factors.

Gross Profits Up, General & Administrative Expenses Escalate

Gross profits for the reported period were ¥2.94 trillion ($0.03 trillion), up 3.9% year over year. This upsurge mainly resulted from higher net gains on debt securities, partly offset by lower net interest income due to fall in interest rates.

The results reflect a decline of around 4.8% in net interest income, which came in at ¥1.38 trillion ($0.01 trillion). Further, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥1.05 trillion ($0.01 trillion), down around 1% year over year. However, net trading profits came in at ¥512.1 billion ($4.7 billion), surging 60% year over year.

Mitsubishi UFJ’s total credit costs, at the period end, came in at ¥84.2 billion ($0.8 billion) compared with the positive ¥67.3 billion ($0.6 billion) recorded in the prior-year period, due to absence of reversal of allowance.

Net gains on equity securities plunged 36.8% year over year to ¥53.5 billion ($0.5 billion).

Other non-recurring gains came in at ¥5.2 billion ($0.05 billion), as against losses of ¥50 billion ($0.46 billion) incurred in the prior-year period.

G&A expenses flared up 3.5% year over year to ¥2.06 trillion ($0.02 trillion). Rise in expenses for overseas operations due to the expansion of overseas business and elevated expenses for global financial regulatory compliance purposes resulted in this upswing.

Strong Capital Position

As of Dec 31, 2019, Mitsubishi UFJ reported total loans of ¥106.6 trillion ($0.98 trillion), down from ¥107.8 trillion ($0.97 trillion) as of Mar 31, 2019. This downside chiefly resulted from fall in overseas, government, domestic corporate and housing loans.

Deposits escalated to ¥183.2 trillion ($1.68 trillion) from ¥180.2 trillion ($1.62 trillion) as of Mar 31, 2019, as demand for domestic individuals and overseas deposits increased.

Total assets summed ¥314.4 trillion ($2.89 trillion), up from ¥311.2 trillion ($2.8 trillion) as of Mar 31, 2019. Net unrealized gains on securities available for sale increased to ¥3.8 trillion ($0.03 trillion) from ¥2.7 trillion ($0.02 trillion) as of Mar 31, 2019.

Moreover, total net assets were ¥17.7 trillion ($0.16 trillion), up from ¥17.3 trillion ($0.16 trillion) as of Mar 31, 2019. Non-performing loan ratio expanded 4 basis points from March 2019 to 0.67%, due to increase in non-performing loans.


Mitsubishi UFJ Financial revised its target to ¥750 billion from ¥900 billion of consolidated profits attributable to owners of parent for fiscal 2019 (ending Mar 31, 2020), adversely impacted by extraordinary losses due to one???time amortization of goodwill recorded in the fiscal third quarter.

The company expects to deliver net operating profits, before credit costs for trust accounts and provision for general allowance for credit losses, of ¥1,130 billion for fiscal 2019, up ¥50 billion from the previous target.

Total credit costs are estimated to be ¥170 billion as of Mar 31, 2020.

Our Viewpoint

Though Mitsubishi UFJ’s robust business model and diversified product mix look encouraging, along with increase in gross profits, we are wary about the heightening competition and volatility in the Japanese economy, along with escalating expenses.

Mitsubishi UFJ currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

UBS Group AG UBS reported fourth-quarter and 2019 net profit attributable to shareholders of $722 million compared with the prior-year quarter’s $315 million. The company’s performance was supported by higher net interest income (up 3% year over year) along with rise in net fee and commission income (up 3%). Further, decline in expenses was a tailwind.

Marred by significant restructuring costs, Deutsche Bank (DB - Free Report) reported fourth-quarter 2019 net loss of €1.48 billion ($1.64 billion) compared with net loss of €409 million posted in the year-ago quarter. Also, the German lender incurred loss before taxes of €1.29 billion ($1.43 billion). The quarterly results were majorly affected by transformation charges and restructuring and severance expenses. Additionally, lower revenues and higher expenses were undermining factors. However, strong capital position and lower provisions were tailwinds.

Among other foreign banks, Itau Unibanco Holding S.A. ITUB will report on Feb 10.

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