Mitsubishi UFJ Profit Falls 66% on Bad-Loan Costs
Aug. 5 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc., Japan's biggest bank by market value, posted a bigger-than- forecast 66 percent drop in first-quarter profit as bad-loan costs soared and fee income fell.
Net income declined to 51.2 billion yen ($475 million) in the three months ended June 30 from 151.3 billion yen a year earlier, the bank said in a statement to the Tokyo Stock Exchange today. Profit trailed the average estimate of 127.8 billion yen by four analysts surveyed by Bloomberg News.
Bad loans and provisions for possible defaults cost Mitsubishi UFJ 141.7 billion yen in the quarter as corporate bankruptcies in Japan rose. The government said last month the economy may have peaked, ending the nation's longest postwar expansion.
``These are extremely bad results,'' said Shinichi Ina, a Tokyo-based analyst at Credit Suisse Group. ``It'll be difficult for the bank to make its full-year target.''
The Tokyo-based company, which joins Sumitomo Mitsui Financial Group Inc. and Sumitomo Trust & Banking Co. in reporting lower profit, left its 640 billion yen full-year net income forecast unchanged.
Fee income declined 10 percent to 239.2 billion yen. The bank had 10.1 billion yen of losses and writedowns on equity holdings, compared with a 41.7 billion yen gain a year ago.
The stock rose 1.6 percent to 915 yen on the Tokyo Stock Exchange before the earnings announcement. It's dropped 13 percent this year, in line with a 13 percent decline in the 84- company Topix Banks Index.
Mortgage Assets
The bank booked a 16 billion yen loss on securitized investments, mainly related to residential mortgage-backed products. It had a total of 3.41 trillion yen in securitized investments as of the end of June.
Mitsubishi UFJ has reported the equivalent of $1.3 billion in subprime and credit-market losses since April last year, compared with global losses of more than $480 billion.
The bank also flagged a 51 billion yen reduction in the carrying value of mortgage-backed securities arranged by Fannie Mae, Freddie Mac and Ginnie Mae. The bank held 3.1 trillion yen in these securities at the end of the period.
Corporate bankruptcies in Japan rose in five of the first six months this year and were up 12 percent in June from a year earlier, according to Tokyo Shoko Research Ltd. Industrial production has fallen for two consecutive quarters, something that has coincided with each of Japan's last three recessions.
Economic Decline
``You can't deny the fact that the deteriorating state of the domestic economy will inevitably affect financial firms, weighing down on their bad-loan costs,'' said Naoki Fujiwara, who oversees the equivalent of $720 million as chief fund manager at Tokyo-based Shinkin Asset Management Co. ``It's hard to justify buying the bank stocks right now, given their earnings prospects.''
Declining financial markets wiped more than $11.8 trillion off global stocks this year.
Sumitomo Mitsui reported a 51 percent decline in first- quarter profit on July 31 as bad-loan costs climbed and fee and trading revenue fell.
Special tax gains helped Mizuho Financial Group Inc., the second-largest Japanese bank by assets, boost profit by 14 percent to 133 billion yen, masking ``what was effectively was a sharp drop in earnings'' according to Ina at Credit Suisse.
``The credit cycle has turned in Japan after several years of a very benign environment,'' Brett Hemsley, an analyst at HSBC Holdings Plc in Tokyo, said before the announcement.
Net interest income rose to 470 billion yen from 465.7 billion yen a year earlier.
Expansion Overseas
Chief Executive Officer Nobuo Kuroyanagi, 66, is expanding lending and investment abroad, taking advantage of falling stock prices and a need for capital at foreign financial firms such as Merrill Lynch & Co. and UBS AG. Banks and brokerages have recorded at least $480 billion in writedowns and credit losses globally since the U.S. subprime mortgage market collapsed.
Mitsubishi UFJ led a group of banks including Barclays Plc and BNP Paribas SA in setting up a $3 billion credit line to the Abu Dhabi National Energy Co., the bank said last week. Sumitomo Mitsui, Japan's second-biggest bank by market value, has boosted its overseas lending balance by 46 percent to 9.6 trillion yen in the past year, adding 1.5 trillion yen in loans in the quarter ended June 30.
Source: http://www.bloomberg.com/apps/news?pid=20601101&sid=aHAARSB5xAP8