Japan’s three biggest banks, led by Mizuho Financial Group Inc., forecast profit for this year that exceeded analysts’ estimates as lending rebounds.
Mizuho said net income will climb 3.2 percent to 500 billion yen ($6.3 billion) in the year ending March, beating the 378 billion yen average estimate compiled by Bloomberg. Sumitomo Mitsui Financial Group Inc. said profit will fall 7.4 percent to 480 billion yen. Analysts expected 441 billion yen. Mitsubishi UFJ Financial Group Inc. targeted profit of 670 billion yen versus an estimated 655 billion yen.
The projections released yesterday reflect seven months of rising lending in Japan following a 22-month slump, as well as the banks’ push to gain market share abroad from European competitors. Japanese lenders are looking to higher-yielding markets to make up for a decline in profitability on domestic loans as interest rates tumble.
“Megabanks’ strategy centers on boosting lending abroad to counter a tough business environment at home,” said Shinichi Ina, a Tokyo-based analyst at UBS AG. “The three banks may take a larger chunk of the overseas market while their European rivals pull back amid the region’s debt crisis.”
Mizuho shares rose 0.9 percent to 115 yen at 12:37 p.m. in Tokyo. Sumitomo Mitsui slipped 0.2 percent to 2,346 yen. Mitsubishi UFJ declined 1.4 percent to 344 yen. The benchmark Topix Index dropped 1.3 percent on concern that fresh elections in Greece may lead it to exit the euro.
Earnings at Mizuho will also be bolstered by a return to profit at its brokerage business, which lost about 95 billion yen in the year ended March, Chief Executive Officer Yasuhiro Sato said at a news conference. Tokyo-based Mizuho, Japan’s third-biggest bank by market value, is merging two securities arms in January, it said yesterday.
The company has announced 1,000 job cuts at the brokerage business since October. It’s also eliminating 3,000 positions by March 2016 through a separate merger of its corporate and retail banking units.
“Mizuho’s profit outlook should have a positive impact on its shares,” said Shinichiro Nakamura, a Tokyo-based banking analyst at SMBC Nikko Securities Inc. “Market players will discern whether the 500 billion yen profit forecast is achievable because the level is a bit ambitious.”
The bank’s 17 percent increase in net income in the year ended March was driven in part by a 57 percent surge in trading profit, offsetting a 1.9 percent decline in lending income.
The extra yield that investors demand to hold Mizuho Corporate Bank Ltd.’s five-year, 1.11 percent bond issued in January 2008 instead of similar-maturity Japanese government bonds, widened to 18.4 basis points today from 16.9 on May 1. Credit-default swaps insuring Mizuho Corporate Bank bonds rose nine basis points yesterday to 175.
Sumitomo Mitsui’s net income rose 9 percent to 518.5 billion yen in the year ended March, propelled by a 1.8 percent increase in lending profit, Japan’s second-biggest bank by market value said. Profit from securities trading, including government bonds, grew 27 percent.
At Mitsubishi UFJ, the country’s largest lender, this year’s 670 billion yen net income target represents a 32 percent decline from the 981.3 billion yen it earned in the year ended March, when it had a 291 billion yen gain from converting its Morgan Stanley shares into common stock.
Seize Demand Abroad
“Lending demand in Japan will perhaps continue to show year-on-year gains, but we’re not going to see substantial growth,” Katsunori Nagayasu, president of Mitsubishi UFJ, said at a news briefing. “Abroad, we’re going to selectively seize lending demand and solidly expand businesses.”
Net interest margins at home are being squeezed as monetary easing designed to spur the economy and end deflation pushes government borrowing costs close to a nine-year low. Average interest rates on new loans in Japan sank to a record-low 0.92 percent in February, according to central bank data.
“Megabanks may be able to bolster their lending income this year as they’re boosting their overseas loans,” said Yoshinobu Yamada, a Tokyo-based analyst at Deutsche Bank AG.
Mitsubishi UFJ boosted lending abroad 26 percent to 16.6 trillion yen as of March 31 from a year earlier, it said. Sumitomo Mitsui’s banking unit increased overseas loans by 20 percent to 9.9 trillion yen, while Mizuho’s loans abroad rose 17 percent to 11.7 trillion yen, according to their statements.
Ready to Spend
The lenders are looking to build on their global expansions. Mitsubishi UFJ, which owns 22 percent of Morgan Stanley, may spend “several billion” dollars to buy U.S. regional banks, lending unit President Nobuyuki Hirano said in April. The Tokyo-based company which already owns San Francisco-based UnionBanCal Corp., bought Santa Barbara, California-based Pacific Capital Bancorp for $1.5 billion in March.
Sumitomo Mitsui clinched a $93 million deal in January to buy about 5 percent of U.S. investment bank Moelis & Co., a day after the Tokyo-based lender announced its $7.3 billion purchase of Royal Bank of Scotland Group Plc’s aviation division.
Mizuho bought 15 percent of Joint-Stock Commercial Bank for Foreign Trade of Vietnam for about $570 million last year.
“Mitsubishi UFJ has deeper pockets than its rivals and can step up acquisitions abroad in the coming years, whereas Sumitomo Mitsui will probably focus on investment rather than acquisitions,” said Yamada at Deutsche Bank. “Mizuho seems to be less aggressive on buyouts, but is attempting to expand overseas lending on its own.”