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Mitsubishi UFJ (MUFG) Records Dismal Earnings in Fiscal 2019

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Mitsubishi UFJ Financial Group Inc. (MUFG - Free Report) reported profits attributable to owners of parent for fiscal year 2019 (ended Mar 31) of ¥528.1 billion ($4.9 billion), down 39% year over year. Results included the impact of net extraordinary losses, which resulted from one-time amortization of goodwill of overseas consolidated subsidiaries.

Lower net gains on equity securities and net interest income were negatives for the reported period. Further, elevated general & administrative expenses and high credit costs on coronavirus concerns acted as headwinds. However, elevated gross profits, higher net fees and commissions and solid capital were driving factors.

Gross Profits Up, General & Administrative Expenses Escalate

Gross profits for the reported period were ¥4 trillion ($0.04 trillion), up 7% year over year. This upsurge mainly resulted from higher net gains on debt securities, along with net fees and commissions, owing to the consolidation of Bank Danamon and FSI, partly offset by lower net interest income on the decline in U.S. interest rates.

The results reflect a decline of 1.5% in net interest income, which came in at ¥1.89 trillion ($0.02 trillion). Yet, for Mitsubishi UFJ, trust fees, along with net fees and commissions, totaled ¥1.47 trillion ($0.01 trillion), up 2.8% year over year. Also, net operating profits came in at ¥1.18 trillion ($0.01 trillion), climbing 10% year over year.

Mitsubishi UFJ’s total credit costs, at the period end, came in at ¥222.9 billion ($2.05 billion) compared with the ¥5.8 billion ($0.05 billion) recorded in the prior-year period, due to the absence of reversal of allowance recorded last year and increased provisions on the coronavirus pandemic.

Net gains on equity securities plunged 72.2% year over year to ¥31.3 billion ($0.29 billion).

Other non-recurring losses came in at ¥34.2 billion ($0.31 billion) compared with losses of ¥121.7 billion ($1.1 billion) incurred in the prior-year period.

G&A expenses flared up 5.8% year over year to ¥2.8 trillion ($0.03 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 Mar 31, 2020, Mitsubishi UFJ reported total loans of ¥109.5 trillion ($1.02 trillion), up from ¥107.8 trillion ($0.97 trillion) as of Mar 31, 2019. This upside chiefly resulted from rise in domestic corporate and housing loans.

Deposits escalated to ¥187.6 trillion ($1.74 trillion) from ¥180.2 trillion ($1.62 trillion) as of Mar 31, 2019, as demand for domestic individuals, corporates and overseas deposits increased.   

Total assets summed ¥336.6 trillion ($3.13 trillion), up from ¥311.2 trillion ($2.8 trillion) as of Mar 31, 2019. Net unrealized gains on securities available for sale decreased to ¥2.9 trillion ($0.03 trillion) from ¥2.7 trillion ($0.02 trillion) as of Mar 31, 2019.

Moreover, total net assets were ¥16.9 trillion ($0.16 trillion), down from ¥17.3 trillion ($0.16 trillion) as of Mar 31, 2019. Non-performing loan ratio expanded 2 basis points from March 2019 to 0.65% on increase in non-performing loans.

Common Equity Tier 1 capital ratio, Tier 1 capital ratio and Total capital ratio came in at 11.90%, 13.56% and 15.87% as compared with 12.23%, 13.90% and 16.03%, respectively, as of Mar 31, 2019. Also, leverage ratio came in at 4.42% compared with 4.94% as of Mar 31, 2019.

Outlook

Mitsubishi UFJ Financial targets ¥550 billion of consolidated profits attributable to owners of parent for fiscal year 2020 (ending Mar 31, 2021).

The company expects to deliver net operating profits (before credit costs for trust accounts and provision for general allowance for credit losses) and ordinary profits of ¥1,050 billion and ¥850 billion, respectively, for fiscal 2020.

Total credit costs are estimated to be ¥450 billion as of Mar 31, 2021.

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. Furthermore, the impact of global the coronavirus pandemic is a concern.
 

 

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.

Other Foreign Banks

Deutsche Bank (DB - Free Report) delivered first-quarter 2020 net income of €66 million ($72.8 million) compared with the year-ago quarter’s €201 million. Also, the German lender reported adjusted profit before taxes of €303 million ($334.3 million), up 13% year over year.

HSBC Holdings’ (HSBC - Free Report) first-quarter 2020 pre-tax profit of $3.2 billion represents a decline of 48% from the prior-year quarter’s reported number. The reduction primarily reflects the adverse impact of the coronavirus outbreak and weakening oil prices.

UBS Group AG (UBS - Free Report) recorded first-quarter 2020 net profit attributable to shareholders of $1.6 billion compared with $1.14 billion in the prior-year quarter. The company’s performance was supported by higher net interest income (up 18% year over year) along with rise in net fee and commission income (up 22%). However, higher expenses were deterrents.

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