Mitsubishi UFJ Financial Group Inc. (NYSE:MTU) reported six months ended September 30, 2011 net income of ¥696.1 billion (US$8.8 billion) versus ¥356.8 billion (US$4.0 billion) net earnings in the year-ago period. Diluted net income per common stock was ¥48.51 (61 cents) versus ¥24.53 (27 cents) in the prior-year period.
Results reflected decrease in G&A expenses and significant decline in consolidated credit costs driven by decrease in losses on loan write-off and a reversal of provision for credit losses.
Gross profits for the period were ¥1,789.9 billion (US$22.6 billion), down ¥80.8 billion (US$1.0 billion), or 4.3% from ¥1,870.7 billion (US$21.0 billion) reported in the period ending September 30, 2010. Gross profits declined primarily due to lower deposit spread, consumer-finance income and dividend on preferred stock, partially offset by an increase in net gains on sales of debt securities.
Moreover, the period reflected ¥22.1 billion (US$0.30 billion) increase in trading income and other business profits and ¥101.5 billion (US$1.3 billion) decrease in net interest income. For Mitsubishi UFJ, net fees and commissions were ¥474.0 billion (US$6.0 billion) compared with ¥474.2 billion (US$5.3 billion) as of September 30, 2010.
The balance of securitized products and related investments at the end of June 2011 increased to ¥1.52 trillion (US$0.02 trillion) in total, an increase of ¥0.06 trillion (US$0.76 billion) compared with the balance of ¥1.46 trillion (US$0.02 trillion) as of March 2011, mainly due to an increase in highly rated collateralized debt obligations (CLOs) and commercial mortgages asset-backed securities (CMBS).
Mitsubishi UFJ reported total credit costs of ¥28.6 billion (US$0.36 billion), down 81%, from ¥153.0 billion (US$1.71 billion) in the year-ago period, largely due to a decline in losses on loan write-off and a reversal of provision for credit losses. Net losses on equity securities were ¥96.7 billion (US$1.22 billion), up from ¥27.3 billion (US$0.31 billion) in the prior-year period, mainly due to higher losses on write-down of equity securities reflecting weak stock performance in general stock market.
G&A expenses fell ¥28.6 billion (US$0.36 billion), or 2.8% year over year to ¥990.1 billion (US$12.48 billion), due to an ongoing intensive corporate-wide cost reduction.
As of September 30, 2011, Mitsubishi UFJ reported total loans of ¥79.7 trillion ($1.04 trillion) compared with ¥80.1 trillion (US$1.00 trillion) as of March 31, 2011, primarily due to lower domestic corporate loans, partially offset by an increase in overseas loans.
Deposits plummeted to ¥121.6 trillion (US$1.59 trillion) from ¥124.1 trillion (US$1.5 trillion), mainly due to lower deposits from corporate, partially offset by an increase in individual and overseas branch deposits.
For the six months ended September 30, 2011, total net assets were ¥11.3 trillion (US$0.15 trillion), up from ¥10.8 trillion (US$0.13 trillion) as of March 31, 2011, principally due to an increase in retained earnings. Net unrealized gains on securities available for sale improved to ¥390.2 billion (US$5.09 billion), up from ¥327.6 billion (US$3.95 billion) in March 2011, aided by increases in net unrealized gains on Japanese government bonds and foreign bonds.
As of September 30, 2011, Risk-adjusted capital ratio for Mitsubishi UFJ was 15.42%, up from 14.89% as of March 31, 2011. Tier 1 Capital ratio improved to 13.04% from 11.33% as of March 31, 2011. Risk-adjusted assets for the quarter declined to ¥80.3 trillion (US$1.05 trillion) from ¥87.8 trillion (US$1.06 trillion) as of March 31, 2011.
Mitsubishi UFJ Financial has the target of ¥900 billion (US$11.34 billion) of consolidated net income for the fiscal year ending March 31, 2012.
Mitsubishi UFJ expanded the scope of global strategic alliance with Morgan Stanley (NYSE:MS) into new geographies and businesses, including a loan marketing joint venture that will provide clients in the United States with access to expand the world-class lending and capital markets services from both companies.
Going forward, we expect Mitsubishi UFJ’s strong business model, diversified product mix and lower credit costs to support its bottom line. However, we are concerned about the increasing competition and the volatility of the Japanese economy.
Currently, Mitsubishi UFJ retains a Zacks #3 Rank, which translates into a short-term "Hold" rating.