In late October, Mitsubishi UFJ upped its H1 guidance for net income to ¥520 billion. Maybe MUFG should have left its guidance alone. [Due to the Tokyo Mitsubishi-UFJ merger being completed late last year, there's no direct comparison of first-half results.] Comparing net income for H1 against the earnings of the two firms separately in the same period last year, shows that net income fell 29% to ¥507.3b ($4.3b), against ¥711.8b. That means it also missed its estimate. In a positive light, earnings coverage by IHT-AP shows the drop was due to a ¥212b "loss for a decline in a special gain for the recovery of bad loans that had inflated profits the previous year."
MUFG has decided to raise guidance again, this time for its full fiscal year ending March 2007. Net income is projected to increase 16% to ¥870b ($7.4b), against the prior forecast of ¥750b, but still significantly less than last year's full-year net income of ¥1.18t. I am beginning to wonder if this is merely a misguided effort by management to keep MUFG's share price from falling any further. Perhaps, investors will see through this, as they seem to have with the interim revision. Nonetheless, MUFG said it will raise its dividend for its shares of common stock by 43% to ¥10,000/share (annually; ¥5,000/share each in the interim and at year-end).
Bloomberg notes MUFG's bad loans declined to 1.74% as of Sept. 30, compared to 2.3% at the start of the year. Its capital adequacy ratio fell slightly to 12.15%, from 12.48% in March. Also, mentioned is an area where Japanese banks are particularly struggling, return on assets, where MUFG's 0.51% widely trails Citigroup's (C) 1.65% and HSBC's (HBC) 1.09%, but beats Mizuho's 0.42%.
Mitsubishi UFJ's ordinary shares (Tokyo: 8306) lost 2.82% ahead of its after-hours earnings announcement to close at ¥1.38m ($11.70 ADR equiv. at ¥118/1). Mizuho (Tokyo: 8411) fell 3.06% to close at ¥832,000 ($14.10 ADR equiv). So far in morning trading their ADRs are down, but not as much as their ordinary shares lost. I expect Japanese investors to buy shares of both banks tomorrow due to the announced dividend hikes. That said, slowing lending growth will likely be reason enough for limited upside in their shares, at least in the near-term over the next couple of months.
Reference: Mizuho's H1 earnings and Mitsubishi UFJ Investor Relations
Mitsubishi UFJ Financial Group (MTU) 1-year chart:
iShares MSCI Japan Index ETF (EWJ), Mitsubishi UFJ Fin Grp (JP: 8306) and Mizuho Fin Grp (JP: 8411) 1-year chart:
Disclosure: The author does not own shares of any companies mentioned in this article.
