Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, said profit more than doubled and announced plans to buy project-finance assets from Royal Bank of Scotland Group Plc valued at about 3.8 billion pounds ($6.1 billion).
Net income for the six months ended Sept. 30 rose to 357 billion yen ($4.3 billion) from 141 billion yen a year earlier, the Tokyo-based lender said in a statement today. It raised a full-year profit target to 500 billion yen from 400 billion yen.
First-half profit at Japan’s biggest banks, including Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc., was boosted by a drop in bad-debt costs as corporate bankruptcies declined. With domestic demand for loans sagging, Mitsubishi UFJ Chief Executive Officer Katsunori Nagayasu and his rivals are under pressure to expand overseas.
“It’s hard to write a rosy and bright story about Japanese megabanks’ profit growth in the next few years,” Takehito Yamanaka, a Tokyo-based analyst at MF Global FXA Securities Ltd., said before today’s announcement. “Going abroad for future sustainable growth would take years before the banks start reaping decent returns.”
Mitsubishi UFJ agreed to buy RBS assets including loans for electricity, natural-resource and infrastructure projects in Europe, the Middle East and Africa, the two lenders said in statements today. RBS is selling assets receiving a taxpayer-funded bailout in 2008.
Nagayasu told reporters in Tokyo today that the purchase will help his bank double its project financing workforce in London. He declined to comment on the purchase price. The banks said they will sign an agreement by the year’s end.
The purchase adds to Mitsubishi UFJ’s cross-border acquisitions including UnionBanCal Corp. in 2008 and this year’s takeover of two smaller U.S. lenders. Smaller rival Mizuho said on Nov. 12 that it will buy a stake in BlackRock Inc., the world’s biggest asset manager, for $500 million.
The drop in bad-loan costs made up for declining interest income in the fiscal first half, today’s earnings statement from Mitsubishi UFJ showed.
Net interest income, a measure of how much the bank earns from lending, slid to 1 trillion yen in the six months from 1.1 trillion yen a year earlier. Bad-loan expenses including provisions decreased to 186.7 billion yen from 444.2 billion yen, helped by 15 months of falling corporate bankruptcies.
The Topix Banks Index has slid 13 percent this year, more than twice the pace of Japan’s benchmark stock gauge. Mitsubishi UFJ has lost 14 percent, and slipped 0.3 percent to 391 yen at the close today before the earnings were published.
Bank lending has declined for 11 months even as the Bank of Japan eases monetary policy. Slowing exports, a stronger yen and falling prices are dissuading companies from investing, and businesses are sitting on near-record amounts of cash.
While a government report today showed Japan’s economy expanded at an annual 3.9 percent pace last quarter, the gains were led by consumer incentives that have since ended. Growth is likely to slow to 0.3 percent this quarter, according to the median estimate of economists surveyed by Bloomberg News.
Sumitomo Mitsui Chief Executive Officer Teisuke Kitayama and Mizuho President Takashi Tsukamoto both said after their Nov. 12 earnings reports that an economic slowdown will weigh on their businesses in the second half.
“Megabanks are facing high hurdles to overcome these severe macroeconomic conditions and strengthen their bottom lines next year,” Yamanaka of MF Global said.
Another risk for Japan’s largest banks is the prospect that they may have to raise additional capital ahead of stricter Basel banking rules, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management Co. in Tokyo.
“That’s the biggest reason behind them struggling to boost their stock prices,” said Akino, who oversees about $450 million. “There are too many uncertain elements for them to picture a convincing outlook for their underlying businesses.”
Leaders of the Group of 20 nations last week endorsed rules that require global banks to hold more capital, while postponing a decision on extra measures for lenders deemed too big to fail. The Financial Stability Board said it will identify the firms that should be subject to stricter rules by the middle of next year. National regulators will be able to select standards from a menu of alternatives, the board said.
Mitsubishi UFJ, Sumitomo Mitsui and Mizuho raised a combined 4.5 trillion yen from share sales in the past two years to bolster capital ahead of the stricter global requirements.