Mitsubishi UFJ Sees 2.9% Profit Boost on Acom, Morgan Stanley Conversion

Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest publicly traded bank, targeted a 2.9 percent profit increase this year after a recovery at its consumer lending unit and the slated conversion of Morgan Stanley shares.

Net income will climb to 600 billion yen ($7.4 billion) in the year ending March 2012 from 583.1 billion yen last year, the Tokyo-based bank said in a statement today. That compares with the median 585.2 billion yen profit estimate of 14 analysts surveyed by Bloomberg.

Mitsubishi UFJ is set to reap income from its Acom Co. consumer-lending unit this year and a $2 billion premium related to the conversion of Morgan Stanley preferred stock, making up for waning bank loans. Still, the profit outlook for the bank and its rivals has clouded over remarks last week by a government official signaling that they should consider forgiving loans to the operator of a stricken nuclear plant.

“A swing to profit at Acom as well as the Morgan Stanley (MS) shareholding increase will perhaps be drivers for a better profit scenario at Mitsubishi UFJ,” Takehito Yamanaka, a Tokyo- based analyst at MF Global FXA Securities Ltd., said before today’s announcement. The risk of writing off loans to Tokyo Electric Power Co. presents a “a new risk to megabanks,” he said.

Moody’s Investors Service said today that it may cut the debt ratings of Tokyo Electric creditors including Mitsubishi UFJ should they forgive loans made to the utility before a record earthquake and tsunami crippled its Fukushima Dai-Ichi nuclear plant.

Tepco Loans

“About 2 trillion yen of loans to Tepco from megabanks and life insurance companies offered before the March quake would virtually fall to a default status if the financial institutions were to write them off,” Moody’s analysts led by Tetsuya Yamamoto, Tokyo-based vice president of the financial institutions group, wrote in a report.

Chief Cabinet Secretary Yukio Edano told reporters on May 13 “people won’t support” using taxpayer money for Tokyo Electric unless banks waive some loans made before the crisis. Mitsubishi UFJ and rivals Sumitomo Mitsui Financial Group Inc. (8316) and Mizuho Financial Group Inc. (8411) had combined loans of at least 381 billion yen to Tokyo Electric as of March 31 last year.

“Mr. Edano’s comments came out of the blue and seem unreasonable,” Mitsubishi UFJ Chief Executive Officer Katsunori Nagayasu told reporters in Tokyo today. “It seems that the government stepped into relations between private businesses.”

Photographer: Kimimasa Mayama/Bloomberg

Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded bank, targeted net income of 600 billion yen for the year ending March 2012, compared with 583.1 billion yen posted last fiscal year. Close

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Photographer: Kimimasa Mayama/Bloomberg

Mitsubishi UFJ Financial Group Inc., Japan’s largest publicly traded bank, targeted net income of 600 billion yen for the year ending March 2012, compared with 583.1 billion yen posted last fiscal year.

Rivals’ Forecasts

Sumitomo Mitsui, Japan’s second-largest bank by market value, last week forecast profit will drop 16 percent to 400 billion yen this fiscal year on higher costs for soured loans. Mizuho, the third biggest, said profit will gain 11 percent to 460 billion yen as higher fees and demand for brokerage services help offset an increase in bad-loan provisions.

Shares of Mitsubishi UFJ have lost 15 percent since the March 11 quake. They declined 1.6 percent to 377 yen today before the earnings were released.

Mitsubishi UFJ’s net income declined 82 percent to 31.3 billion yen in the three months ended March from a year earlier, according to Bloomberg calculations derived from today’s report. Lending profit fell 0.5 percent to 523.6 billion yen, while income from trading bonds and other securities surged 51 percent to 34.7 billion yen.

Acom, the country’s biggest consumer lender and more than 35 percent owned by Mitsubishi UFJ, said last week it will post 42.9 billion yen profit this year after overcharged interest repayments led to a 202.6 billion yen loss a year earlier. A law change in 2010 forced Japanese consumer lenders to set aside cash to refund customers for overcharged interest.

Morgan Stanley Stake

Mitsubishi UFJ last month agreed to exchange $7.8 billion of convertible preferred stock in Morgan Stanley for common shares that will give it a 22 percent stake in the U.S. investment bank, making it the biggest common shareholder.

The Japanese bank is set to get a $2 billion premium on the share sale in return for giving up a 10 percent dividend on the preferred shares. Mitsubishi UFJ acquired the stake when it invested $9 billion in Morgan Stanley in October 2008.

Demand for bank loans in Japan rose in the month after the March 11 earthquake for the first time in two years, a central bank survey showed last month. Businesses sought 7.5 trillion yen in loans from the three biggest banks.

Still, a 17-month lending slump is likely to continue as companies and households hoard cash, said analysts including Yamanaka at MF Global. Consumer confidence tumbled to a two-year low in April, Cabinet Office figures showed today.

“Megabanks will face sluggish corporate lending demand at home,” Yamanaka said.

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net.

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net.

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