MUFG Just Posted Its First Quarterly Loss in a Decade

(Bloomberg) --

Mitsubishi UFJ Financial Group Inc. posted its first quarterly loss in a decade and cut its annual profit forecast after booking a hefty charge on its stake in an Indonesian bank.

Core lending business slumped in the quarter, underscoring the challenge for Hironori Kamezawa when he takes over from Kanetsugu Mike as chief executive officer in April. Gains from sales of shareholdings and bonds weren’t enough to prop up earnings, and bad-loan costs ticked higher, fiscal third-quarter results showed Tuesday.

Japan’s biggest bank had already flagged the 207.4 billion yen ($1.9 billion) charge on its stake in PT Bank Danamon Indonesia, which reflects a drop in the share price of the recently acquired lender. Adding to the pain, it logged a 26.7 billion yen impairment on its U.S. banking operations, where it has had to refinance mortgages after the Federal Reserve cut interest rates.

MUFG now expects full-year profit of 750 billion yen, down from 900 billion yen targeted previously. Investors shrugged off the loss, with the shares rising 0.9% on Wednesday morning in Tokyo, paring this year’s decline to less than 4%.

“There were no major surprises,” Masahiko Sato, an analyst at SMBC Nikko Securities Inc., wrote in a note. MUFG could book profits from sales of foreign bonds in coming quarters, especially because U.S. long-term interest rates have been falling recently, he said.

MUFG has relied on gains from overseas bond sales to drive earnings this fiscal year. Net operating profit climbed 5.5% in the nine months ended December, thanks to its global markets business which houses such transactions. Its customer segment, which includes banking and asset management, suffered declines in net operating profit.

Lending profitability is under pressure as Japan heads into its fifth year of negative interest rates. Even so, MUFG’s rivals Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. eked out higher profit last quarter after seeing gains from lending income, results showed last week.

MUFG said in December that it would book the writedown on its stake in Danamon during the quarter. The need for a charge has been looming ever since it completed its takeover in April, which triggered a sharp retreat in the small portion of Danamon shares still traded on the open market as they were removed from MSCI Inc.’s indexes.

The bank said it could cancel the charge at the end of March if Danamon shares recover. It hasn’t disclosed the level at which a reversal would apply, but analysts estimate it at around 4,700 rupiah per share. Danamon traded at 3,440 Tuesday afternoon in Jakarta.

Result Highlights

• The 25.7 billion yen net loss for the three months ended Dec. 31 compared with profit of 221.4 billion yen a year earlier, according to Bloomberg calculations based on nine-month figures released by the bank.
• Nine-month net income totaled 584.3 billion yen, about 78% of the revised goal.
• Gains on stock holdings totaled 35.8 billion yen in the quarter, compared with a loss a year earlier.

To contact the reporters on this story: Taiga Uranaka in Tokyo at turanaka@bloomberg.net;Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward

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