UPDATE 4-Top Japan bank MUFG posts Q4 rise, sees no growth

Tue May 20, 2008 1:34pm BST

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By David Dolan

TOKYO May 20 (Reuters) - Mitsubishi UFJ Financial Group (8306.T), Japan's largest bank, posted a bigger-than-expected 71 percent rise in fourth-quarter profit on a rebound at its consumer credit unit, but forecast virtually no growth this year as it copes with a sluggish economy and more subprime losses.

The bank, with a market value of about $113 billion, said losses related to subprime investments and other securitised products totalled 123 billion yen ($1.18 billion) in the year to March 31, and said it could lose $480 million this year.

MUFG also said it was sitting on unrealised losses of 313 billion yen from a 3.3 trillion yen portfolio of securitised products.

As the value of that portfolio is down less than 10 percent, it is not required by accounting standards to book the decline as a loss.

"Subprime had a very broad effect on us," MUFG President and Chief Executive Officer Nobuo Kuroyanagi told a news briefing.

"When you start talking about the related impact, the Japanese stock market has fallen a lot and that sparked losses on our stock portfolio," he said.

While the bank has factored in subprime-related losses of about 20 billion yen for the year to March 2009, Kuroyanagi said that could go as high as 50 billion yen ($480 million).

MUFG has not been hurt as badly as Mizuho Financial (8411.T) on bets on risky U.S. subprime mortgages. Mizuho, Japan's No.2 bank, lost 645 billion yen on subprime investments in the year to March, becoming one of Asia's biggest subprime casualties.

But Mitsubishi UFJ has been dragged down by its consumer finance business after tighter government regulation squeezed profits, and is faced with sluggish lending growth and higher provisions against bad loans as Japan's economy slows.

Future growth depends on MUFG's ability to take advantage of opportunities overseas as Western banks, which have been hit much harder than Japanese banks by the credit crisis, become more cautious in extending loans, one investor said.

"Japanese banks have to expand their overseas businesses since it's hard to expect lending growth at home," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

"It depends how much risk they are willing to take in overseas markets when their Western rivals curb lending."

Q4 REBOUND

MUFG's January-March group net profit came to 325.3 billion yen, up from 190.4 billion yen a year earlier and much higher than the market consensus of 239.7 billion yen implied from the average full-year forecast of 12 analysts polled by Reuters.

Reuters calculated MUFG's quarterly figures from full-year and nine-month earnings statements filed with the Tokyo Stock Exchange.

The results represent a rebound from the previous year, when earnings were waylaid by a net loss at consumer finance arm Mitsubishi UFJ Nicos Co 8583.T.

Although it remained in the red for the full year, the unit's results implied a return to group net profit for the fourth quarter.

For the year ended March 31, MUFG's group net profit totalled 636.6 billion yen. It forecast this will rise 0.5 percent to 640 billion for the year to March 2009, short of the market consensus for 774 billion.

SLOW GROWTH

The bank said its forecast was hampered by an expected increase in provisions for bad loans.

"The relatively low projection is a reflection of (MUFG's) expectations of a rise in credit costs," said Jason Rogers, a credit analyst at Barclays Capital, in a note to clients.

Japanese corporate bankruptcies hit their highest in four years in the year to March, according to data from research firm Tokyo Shoko, as manufacturers and wholesalers struggled with higher costs of materials.

Tokyo banks have been hurt by slow lending in the world's second-largest economy. Many Japanese companies now shun loans after recovering from a 1990s asset bubble and cleaning up their balance sheets.

Net interest income, a key gauge of earnings from lending, fell 3.3 percent for the year to March 2008, despite growth in the bank's overseas lending.

MUFG's shares lost 18 percent in the January-March quarter, but have recouped this in a global market rebound. Tokyo's index of bank stocks .IBNKS.T fell 19 percent in the same period.

The shares closed down 2.7 percent at 1,055 yen before the earnings were released on Tuesday, compared with a 1.8 percent fall in the bank index. (Additional reporting by Taiga Uranaka; editing by David Hulmes)

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