Profits at Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. beat analysts’ first-quarter estimates, showing Japan’s megabanks are withstanding a slump in Europe that hurt income at Deutsche Bank AG and UBS AG.
Profit at Mitsubishi UFJ, the country’s biggest lender, fell 64 percent to 182.9 billion yen ($2.34 billion) from a year earlier, when it posted a gain from conversion of Morgan Stanley preferred shares. Mizuho, Japan’s third biggest bank by market value, almost doubled net income to 183.9 billion yen as higher bond-trading income offset a decline in lending.
Japan’s economy is proving resilient to Europe’s debt crisis, posting data yesterday showing the nation’s jobless rate unexpectedly dropped to 4.3 percent as services hiring countered a decline in manufacturing jobs. Mizuho shares have risen 25 percent this year and Mitsubishi UFJ has advanced 14 percent, compared with declines at Deutsche Bank and UBS, both of which reported earnings that missed analyst estimates yesterday.
“While Europe’s debt crisis persists, Japanese lenders look relatively solid and should catch a tailwind and further boost lending abroad,” said Shinichiro Nakamura, a Tokyo-based analyst at SMBC Nikko Securities Inc. “How fast they can expand loans in Asia will be key for the megabanks to make their future growth more promising.”
Mitsubishi UFJ shares fell 2.4 percent to 372 yen as of 11:10 a.m. in Tokyo, while Mizuho rose as much as 0.8 percent to 130 yen. The Topix Banks Index dropped 0.7 percent, paring this year’s gain to 6.9 percent. By contrast, Europe’s Stoxx 600 Banks Index has lost about 2 percent this year.
Mizuho beat the 120 billion yen average of five analyst estimates compiled by Bloomberg, while Mitsubishi UFJ beat analysts’ estimate of 164 billion yen. Japan’s second-biggest lender, Sumitomo Mitsui Financial Group Inc., July 30 said first-quarter net income fell 43 percent to 117.8 billion yen, beating analysts’ average estimate of 112 billion yen.
“Japanese banks’ earnings will grow as they make progress in expanding their business overseas. We shouldn’t be pessimistic about the Japanese banking sector,” Kenji Abe, an equity strategist at Citigroup Global Markets Japan Inc., said in a Bloomberg Television interview. “I expect the government to make a stimulus package that will boost economic growth from late this fiscal year or next year, so I’m not bearish on Japanese domestic demand.”
Sumitomo Mitsui has said it seeks to add 6 trillion yen of overseas assets in the next three years to help offset sluggish Japanese loan demand. Mizuho plans to boost overseas lending by as much as 30 percent a year, targeting Asian companies unable to borrow from European banks.
Syndicated loans in Japan jumped 12 percent to the highest in four years in the first half, aided by demand for acquisition funds as companies sought to take advantage of the yen near postwar highs to expand overseas.
Lending increased to 15.1 trillion yen in the six months ended June 30 from the same period a year earlier, the highest since 15.8 trillion yen in the first half of 2008, according to figures released yesterday on the Japanese Bankers Association’s website.
“Europe’s debt crisis has forced eurozone banks to reduce their assets” in Asia, Standard & Poor’s credit analysts led by Naoko Nemoto wrote in a report dated July 30 detailing Japanese banks’ hunt for lending growth overseas. “The retreat has given banks new business opportunities, particularly in syndicated loans, project finance and trade finance.”
Deutsche Bank, Germany’s biggest bank, posted a second-quarter profit decline of 46 percent to 650 million euros ($688 million). The lender said the euro’s decline against the U.S. dollar and British pound drove up costs in those regions relative to Germany.
Earnings at its investment bank slid 63 percent to 357 million euros as revenue from trading and issuing securities shrank amid Europe’s debt crisis, it said in a statement. That missed the 835 million-euro average estimate of eight analysts surveyed by Bloomberg.
Deutsche Bank said it will eliminate 1,900 jobs by the end of the year, including 1,500 at the investment bank and support areas, as part of an effort to save 3 billion euros.
The shares fell 0.5 percent to 24.78 euros yesterday in Frankfurt. That extended the stock’s decline to 18 percent this year.
UBS, Switzerland’s biggest bank, said profit fell 58 percent to 425 million Swiss francs ($434 million), missing analysts’ estimates, as the company’s investment bank lost money on the Facebook Inc. stock sale. That fell short of the 1.09 billion-franc mean estimate of 11 analysts surveyed by Bloomberg.
UBS fell 5.9 percent to 10.29 francs yesterday in Zurich trading, extending its decline this year to 8 percent.
In Japan bank lending rose 0.8 percent in June, the ninth straight month of year-on-year gains that were less than 1 percent, according to central bank data. Companies have horded cash and are reluctant to borrow as the world’s third-biggest economy slows. Industrial production declined for a third month in June, according to government figures.
Mizuho’s lending profit fell 2 percent to 259 billion yen last quarter from a year earlier, according to yesterday’s statement. Bond and securities trading income more than tripled to 143 billion yen from 43.2 billion yen.
Lending profit at Mitsubishi UFJ declined 11 percent to 419 billion yen in the April-June quarter from a year earlier, while securities trading income more than doubled to 215 billion yen from 82.9 billion yen, yesterday’s report showed.
Mitsubishi UFJ maintained its full-year profit target of 670 billion yen for the year through March, while Mizuho kept its forecast of 500 billion.