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Sumitomo Mitsui Raises Profit Forecast After Record Earnings

Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-biggest bank by market value, raised its full-year profit forecast 29 percent after the country’s stock market rally helped first-half earnings climb to a record.

Net income will probably total 750 billion yen ($7.5 billion) in the year ending March 31, the Tokyo-based company said in a statement yesterday. That compares with the 580 billion yen previously forecast and the 696.7 billion-yen average estimate of 19 analysts surveyed by Bloomberg. Sumitomo Mitsui stock rose to a three-week high today.

Japan’s equity rebound, while moderating in recent months, has spurred Sumitomo Mitsui’s fee income and increased the value of its shareholdings. Lending at major banks has climbed for 11 months and corporate bankruptcies have fallen for 12 as the world’s third-largest economy recovers on the back of Prime Minister Shinzo Abe’s stimulus measures.

“The upward revision was bigger than I expected,” Miki Murakami, a Tokyo-based analyst at Fitch Ratings Ltd., said by phone yesterday. “I don’t think the bank will have any problem achieving the target unless there is a shock in the markets.”

The bank led by President Koichi Miyata joins Toyota Motor Corp. (7203) and Panasonic Corp. in raising profit forecasts in a mixed earnings season that also saw companies from Nissan Motor Co. to Sony Corp. lower projections. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, and Mizuho Financial Group Inc. (8411), the bank that’s being probed for lending to crime groups, are scheduled to report tomorrow.

Quarterly Gain

Net income jumped 53 percent in the six months ended Sept. 30 from a year earlier to 505.7 billion yen, the highest half-year earnings in Sumitomo Mitsui’s 11-year history. Second-quarter profit rose 2 percent from a year earlier to 217.4 billion yen, according to Bloomberg calculations based on the six-month data, which were reported after Japan’s stock market closed yesterday.

Shares of Sumitomo Mitsui rose 1.5 percent to 4,940 yen, the highest intraday level since Oct. 21, as of 10:40 a.m. Tokyo time. The benchmark Topix Index lost 0.2 percent. The lender’s 59 percent gain this year is the best performance among the three so-called megabanks and compares with the Topix’s 40 percent climb.

Sumitomo Mitsui raised its planned full-year dividend to 120 yen from 110 yen.

Miyata stressed the importance of severing ties with crime groups, after Japan’s financial regulator ordered Mizuho to bolster compliance in September for failing to end loans to gangsters through a consumer-credit affiliate.

Lawmaker Questions

“I don’t think our bank needs a big overhaul in measures to block anti-social groups, but this requires continued efforts,” Miyata said at a news briefing yesterday. The Financial Services Agency began inspecting the three megabanks this month following the probe into Mizuho.

Mizuho President Yasuhiro Sato reiterated his apology for the crime-loan issue in parliament today. In testimony to the lower house financial affairs committee, he said the company’s punishments of officials, including pay cuts, were regarded by some observers as “light.”

In the same session, Japanese Bankers Association Chairman Takeshi Kunibe said the lobby will develop additional measures to combat crime groups this month. The association is considering sharing more information on criminal organizations with consumer credit firms, Takeshi Kunibe, who is also Sumitomo Mitsui’s banking unit chief, said last month.

Fees, Commissions

Prime Minister Abe’s campaign to end deflation with fiscal spending and monetary easing helped Japanese stocks become the best performers in the developed world this year even after declining from a peak in May.

Fees and commissions rose 22 percent in the April-September period from a year earlier to 490.1 billion yen, Sumitomo Mitsui said. Its SMBC Nikko Securities Inc. unit contributed by posting a more than sixfold profit increase, the brokerage’s earnings data showed last month.

Sumitomo Mitsui had a 60.4 billion-yen gain from equity-related investments in the first half, compared with a loss of 132.9 billion yen a year earlier, its earnings statement showed. Lending income increased 15 percent to 780.3 billion yen.

Resona Holdings Inc. (8308), Japan’s fifth-biggest bank by market value, also raised its full-year profit forecast yesterday to 185 billion yen from 145 billion yen. That’s higher than the 164.3 billion-yen average estimate of 16 analysts surveyed.

Lower Bankruptcies

Loans at major banks increased 1.7 percent in October, the 11th consecutive advance, Bank of Japan data show. That’s helping to offset the lowest loan profitability in Asia as asset purchases by Japan’s central bank depress interest rates. Net interest margins at the megabanks average 0.99 percent, data compiled by Bloomberg show.

Japan’s economy probably grew at an annual 1.7 percent rate in the three months ended Sept. 30, the fourth quarter of expansion, according to economists surveyed before government figures scheduled for release tomorrow. As well as spur lending, the rebound has led to a drop in bankruptcies, allowing banks to reduce cash set aside for bad loans.

Sumitomo Mitsui had 39.6 billion yen of credit-related revenue in the first half, compared with 48 billion yen in costs a year earlier, yesterday’s statement showed. Business failures fell 7.3 percent in October, a 12th straight decline, Tokyo Shoko Research Ltd. data showed this week.

Still, with net income growth slowing in the second quarter, the profit windfall may be losing momentum as the stock rebound cools. The Topix has slid 5.7 percent since May 22 as investors examine whether Abe will succeed in pushing through policies to make Japan more competitive -- the so-called third arrow of his economic strategy.

“We’re likely to see a slowdown in the second-half earnings,” Rie Nishihara, a Tokyo-based senior analyst at Mizuho Securities Co., a unit of Japan’s third-biggest bank by market value. “I have a sense that Abe’s third arrow may be falling short of market expectations.”

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Shingo Kawamoto in Tokyo at skawamoto2@bloomberg.net

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

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