MUFG Profit Falls More Than Expected as Negative Rates Bite

  • Bank’s shares have rallied on speculation BOJ won’t cut more
  • MUFG posted lower gains from sales of cross-shareholdings

Mitsubishi UFJ Financial Group Inc.’s first-quarter profit fell more than analysts estimated as the central bank’s negative interest-rate policy sapped lending income and the company slowed sales of its shareholdings.

Net income dropped 32 percent from a year earlier to 188.9 billion yen ($1.8 billion) in the three months ended June 30, Japan’s largest lender said in a statement on Monday. That missed the 225 billion-yen average estimate of five analysts surveyed by Bloomberg.

MUFG’s result comes after the Bank of Japan provided relief to the nation’s embattled banks last week by refraining from expanding negative rates, a policy that has put pressure on lending and investment income throughout the industry. Analysts at Credit Suisse Group AG and BNP Paribas SA said Friday’s decision reduces the chance of the minus 0.1 percent rate being taken further below zero.

“The market will now likely judge that it will be politically difficult to cut rates further,” BNP Paribas economist Ryutaro Kono wrote in a note on Friday. Keeping the rate unchanged “suggests that this policy has also hit its limits after a mere six months.”

Shares Jump

Shares of MUFG have climbed 12 percent since the BOJ’s announcement, the biggest two-day gain since March, paring this year’s decline to 28 percent. That’s in line with the Topix Banks Index, which remains one of the worst-performing industry groups in Japan in 2016.

Here are key figures from MUFG’s results:

  • Lending profit decreased 7.9 percent to 502.1 billion yen.
  • Fees and commissions fell 3.3 percent to 295.9 billion yen.
  • Bond and securities trading profit dropped 3.8 percent to 103.9 billion yen.
  • Gains on stock holdings slumped 95 percent to 1.7 billion yen.
  • Credit-related costs rose to 55.5 billion yen from 39.6 billion yen a year earlier.

MUFG left unchanged its full-year target for net income of 850 billion yen. Its first-quarter profit represented 22 percent progress toward the goal.

The company is the last of Japan’s three so-called megabanks to report first-quarter earnings. Sumitomo Mitsui Financial Group Inc.’s net income fell 31 percent to 184.3 billion yen. Mizuho Financial Group Inc.’s profit dropped 16 percent to 132.6 billion yen.

Trimming Shareholdings

MUFG’s gains from sales of shareholdings fell as the bank joined its rivals in slowing the pace at which it’s been trimming its stakes in client companies amid a stock-market slump. Japan’s biggest banks pledged last year to cut so-called cross-shareholdings as part of Prime Minister Shinzo Abe’s efforts to improve corporate governance.

The BOJ started charging banks 0.1 percent on some of their reserves in February so that they would use spare cash more productively and help to revive the economy. MUFG President Nobuyuki Hirano criticized the policy in an April speech, saying it is crimping interest income and denting confidence.

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