Mitsubishi UFJ's Profit Falls 27% on Bond Trading, Lending

  • Lower gains on sale of shareholdings also crimped net income
  • Bank earnings now face pressure from negative interest rates

Mitsubishi UFJ Financial Group Inc.’s third-quarter profit fell 27 percent, led by a drop in bond trading and lending income and lower gains from the sale of its shareholdings.

Net income at Japan’s biggest bank slid to 253 billion yen ($2.1 billion) in the three months ended Dec. 31 from 348.3 billion yen a year earlier, figures derived from a nine-month statement showed Monday. That compared with the 249.8 billion-yen average estimate of four analysts surveyed by Bloomberg.

The result came after another day of declines in bank shares following the Bank of Japan’s surprise decision Friday to start charging lenders 0.1 percent for some of their deposits, a move that may crimp earnings. MUFG and its peers also face headwinds from the recent global market turmoil that risks damping fee business and gains from shareholdings they pledged to sell as part of a corporate governance overhaul.

Nine-month profit fell 8.1 percent to 852.3 billion yen, representing 90 percent progress toward the Tokyo-based bank’s full-year target of 950 billion yen.

Interest Income

Net interest income, or revenue from lending minus payments on deposits, declined 6 percent last quarter from a year earlier. Profit from trading government bonds and other securities dropped 30 percent and income from fees and commissions decreased 4 percent. Credit-related costs grew to 28.1 billion yen from 10.3 billion yen a year earlier.

Gains on sales of stock holdings fell 60 percent to 22.6 billion yen in the third quarter, the results showed. MUFG, among banks that have pledged to sell shares held in corporate clients, booked 63.6 billion yen from offloading equities in the nine months, trailing the 78.9 billion yen it made a year earlier.

Shares of MUFG fell 5.5 percent before the results were released, the biggest decline in four months. The Topix Banks Index lost 8.5 percent in the past two sessions, the worst performance on the benchmark Topix, which climbed 5.1 percent in the same period.

The introduction of 0.1 percent negative interest rates could shave 1.5 percent off profits at Japanese banks, Goldman Sachs Group Inc. analysts including Katsunori Tanaka wrote in a note on Jan. 29. The nation’s lenders already have among the lowest loan profitability in the world after years of shrinking interest rates and weak loan demand squeezed margins.

The negative rate will apply to additional cash that banks deposit at the BOJ, removing the incentive to park money that they are unable or unwilling to put to use elsewhere. The central bank will continue to pay 0.1 percent on existing deposits and offer zero interest on required reserves. Governor Haruhiko Kuroda’s policy board said the three-tiered system will minimize any impact on lenders’ earnings and beating deflation will benefit them in the long run.

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