MUFG Q1 profit surges on sales of equity holdings, lower bad loan costs

Mitsubishi UFJ Financial Group (MUFG), Japan's biggest lender, reported a 53 percent rise in quarterly profit on gains from sales of its equity holdings and smaller bad loan costs, even as its lending business weakened. In doing so, it joined the country's other megabanks, Mizuho Financial Group and Sumitomo Mitsui Financial Group in booking hefty stock-related gains.
Net profit for MUFG came in at 289 billion yen ($2.6 billion) for the first quarter ended June, its strongest profit in two quarters. Stock-related gains, including profits from sales of its equity holdings, jumped to 24.2 billion yen from a mere 1.7 billion yen a year earlier. Japanese banks typically buy shares of corporate clients in a gesture aimed at cementing ties, but the practice has come under pressure from investors and regulators who want lenders to trim such holdings worth billions of dollars' to reduce their exposure to market swings.
The practice has also been criticised by corporate governance advocates who argue that banks are serving as friendly shareholders in their relationship with management of client companies. But the three megabanks' core lending business remained weak as the central bank has been aggressively driving down interest rates as part of its fight against deflation. The monetary easing has, however, not led to strong growth in borrowing and spending.
MUFG's net interest income, or profits from lending and bond coupons, fell 8 percent to 462.6 billion yen during the quarter. A decrease in large-scale loans to some corporate borrowers, however, led to lower provisions for bad loans. MUFG and domestic peers are shifting their focus to asset management as part of broader push to diversify from traditional lending business.
The head of MUFG's trust banking unit told Reuters the group is ready to spend up to 1 trillion yen ($9 billion) to acquire global asset management firms to double the amount of clients' money that it handles. For the full year through March, MUFG kept its net profit forecast of 950 billion yen, below an average estimate of 974.9 billion yen in a poll of 17 analysts by Thomson Reuters I/B/E/S.