- Summary: Two of Japan's three mega-banks, Mitsubishi UFJ Financial Group and Mizuho Financial Group have already reported earnings and both posted increases in earnings in areas such as investment banking and sales of financial products, representing successful expansions outside of the traditional banking business. This is a positive shift towards diversifying revenue sources since corporate lending tends to be characterized by thin margins. Overall Mizuho fared better with a 33% increase in net income to 230.84 billion yen ($2b) while Mitsubishi UFJ's net fell 16% to 219.54 billion yen ($1.9b) due to losses in bond trading. Japanese banks have been reducing their large exposure to government bonds in anticipation of further rate hikes. The Bank of Japan ended its five year zero-interest-rate-policy by raising rates by a quarter percentage point on July 14th. Retail sales of financial products and investment banking commissions jumped 24% for Mitsubishi UFJ to 260.9 billion yen ($2.26b) while Mizuho's income grew 12% to 116 billion yen ($1b).
- Comment on related stocks/ETFs: Mitsubishi UFJ Financial Group (NYSE:MTU) is listed on the NYSE and rival Mizuho Financial Group (Tokyo: 8411) plans to list on the NYSE by the end of September. In Steven Towns' coverage of Mitsubishi UFJ's Q1 earnings yesterday he said the following, "I wouldn't exactly call Mitsubishi UFJ's Q1 financials disappointing despite coming in lower than Q1 in the year prior. Actually on a comparative basis the earnings are kind of misleading since Mitsubishi and UFJ had not even merged yet (not until October). And Mitsubishi incurred heavier NPL obligations from the acquisition. On the positive side, net income at nearly 220 billion yen is nothing to complain about and overall the merger seems to be going well. One concern is the losses in bond trading. I wonder why Mitsubishi UFJ didn't reduce its exposure earlier on. There is also a concern about baby boomers shifting funds out of very low-yield savings deposit accounts into securities. In this respect I think MUFG has done well with its securities arm and has a lot of potential via its tie-up with Merrill Lynch (MER). Its interest spread and corporate lending should improve with time and future Bank of Japan rate hikes."
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