Mitsubishi UFJ Financial Group Inc. (MTU) reported net income of ¥785.4 billion ($7.9 billion) for the first nine months of fiscal 2014 (ended Dec 31, 2013), up from net income of ¥532.5 billion ($6.7 billion) in the year-ago period.
For the period under review, growth in deposits and loans along with a rise in net interest income and fee revenues were the tailwinds. Further, increased gross profits were a positive. Yet, results reflect a rise in G&A expenses depicting undisciplined expense management.
Prescience Partners returned 6.75% for the second quarter, underperforming the S&P 500's 8.55% return but coming out ahead of the Barclay Equity Long/ Short Index's 2.62% return. However, for the first six months of the year, Prescience is up 30.66%, doubling the S&P's 15.25% return and smashing the Barclay Equity Long/ Short Index's 9.27% return. Read More
Performance in Detail
Gross profits for the quarter ended were ¥2,774.6 billion ($28.0 billion), up 3.6% year over year. Gross profits improved mainly due to higher net fees and commissions, rise in income from sales and trading, as well as elevated overseas net interest income. These increases were partially offset by reduced net gains on debt securities.
The period under review reflected a rise of 6.4% in net interest income, which came in at ¥1,393.9 billion ($14.1 billion). For Mitsubishi UFJ, trust fees along with net fees and commissions totaled ¥921.8 billion ($9.3 billion), up 17.5% year over year. However, net business profits stood at ¥1,088.6 billion ($11.0 billion), down 5.7% year over year.
The balance of securitized products and related investments as of Dec 31, 2013 increased to ¥2.92 trillion ($0.028 trillion) in total, reflecting an escalation of ¥0.47 trillion compared with the balance of ¥2.45 trillion ($0.026 trillion) as of Mar 31, 2013. The increase was mainly due to a rise in highly rated collateralized debt obligations (CLOs) and commercial mortgages asset-backed securities (CMBS).
Mitsubishi UFJ’s total credit costs amounted to a net reversal of ¥40.7 billion ($0.4 billion) by recording reversal of provision for general allowance for credit losses. The company recorded costs of $103.5 billion ($1.3 billion) in the prior-year period.
Net gains on equity securities were ¥62.7 billion ($0.6 billion) compared with losses of ¥90.9 billion ($1.1 billion) in the prior-year period. Gains were mainly due to an increase in gains on sales of equity securities and reduced losses on write-down of equity securities.
Other non-recurring losses were ¥19.0 billion ($0.2 billion) compared with ¥43.4 billion ($0.5 billion) recorded in the prior-year period. G&A expenses climbed 10.6% year over year to ¥1,686.0 billion ($17.0 billion), mainly due to higher costs in overseas businesses.
As of Dec 31, 2013, Mitsubishi UFJ reported total loans of ¥100.2 trillion ($0.95 trillion), up from ¥91.4 trillion ($0.97 trillion) as of Mar 31, 2013. The increases were primarily due to higher demand in overseas and domestic corporate loans.
Moreover, deposits climbed to ¥142.9 trillion ($1.36 trillion), up from ¥131.7 trillion ($1.40 trillion) as of Mar 31, 2013, mainly driven by higher individual and overseas deposits.
Total assets stood at ¥258.4 trillion ($2.45 trillion), up from ¥234.5 trillion ($2.49 trillion) as of Mar 31, 2013. Total net assets were ¥14.6 trillion ($0.14 trillion), up from ¥13.5 trillion ($0.14 trillion) as of Mar 31, 2013. Net unrealized gains on other securities increased to ¥2.0 trillion ($0.019 billion) from ¥1.9 trillion ($0.02 trillion) as of Mar 31, 2013.
Mitsubishi UFJ Financial reiterated the target of ¥910 billion ($8.74 billion) of consolidated net income for the fiscal year ending Mar 31, 2014.
Going forward, we expect Mitsubishi UFJ’s strong business model, diversified product mix and higher gross profits to boost its bottom line. Additionally, the company expanded its scope of engaging in a global strategic alliance with Morgan Stanley (MS) into new geographies and businesses. This includes a loan marketing joint venture that will provide clients in the United States an opportunity to expand the world-class lending and capital market services of both companies.
However, we are concerned about the heightening competition, increasing expenses and volatility in the Japanese economy.
Shares of Mitsubishi UFJ currently carry a Zacks Rank #3 (Hold). Some better-ranked foreign banks include Shinhan Financial Group Company Limited (SHG) and Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) with a Zacks Rank #1 (Strong Buy).