(Adds analyst comment and details)
By David Dolan
TOKYO May 20 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
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."
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
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
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.
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
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