Woes in Europe fail to derail Mitsubishi UFJ, Mizuho

Bloomberg

Profits at Mitsubishi UFJ Financial Group Inc. and Mizuho Financial Group Inc. beat analysts’ first-quarter estimates, showing the 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 from a year earlier, when it posted a gain from conversion of Morgan Stanley preferred shares. Mizuho, the nation’s third-biggest bank by market value, almost doubled net income to ¥183.9 billion as higher bond-trading income offset a decline in lending.

The country’s economy is proving resilient to Europe’s debt crisis, posting data Tuesday 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 Tuesday.

“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.”

Mizuho beat the ¥120 billion average of five analyst estimates compiled by Bloomberg, while Mitsubishi UFJ beat analysts’ estimate of ¥164 billion. The nation’s second-biggest lender, Sumitomo Mitsui Financial Group Inc., said Monday first-quarter net income fell 43 percent to ¥117.8 billion, beating analysts’ average estimate of ¥112 billion.

“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 in 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.

Nomura penalty advised

Nomura Holdings Inc.’s domestic securities unit should be penalized after employees leaked information about clients’ share sales, the nation’s financial watchdog said following a probe into insider trading.

The Securities and Exchange Surveillance Commission, which is the investigative arm of the Financial Services Agency, recommended the regulator take unspecified disciplinary action against the country’s biggest brokerage, the SESC said in a statement in Tokyo on Tuesday.

The announcement comes less than a week after the domestic unit’s head was named to replace Chief Executive Officer Kenichi Watanabe following Nomura’s acknowledgment that staff leaked information on at least three share sales in 2010. The scandal cost Nomura business managing bond and equity sales, adding pressure on the bank after profit plunged last quarter.

Nomura Securities Co. solicited clients by offering them privileged information on companies, and failed to prevent unfair trading before public offerings it managed, the commission said.

Koji Nagai, who oversees the division, was poised to become CEO of the parent company Wednesday.

Financial services minister Tadahiro Matsushita said Friday the regulator will consider administrative action against Nomura based on the SESC’s inspection and the company’s internal review.

Watanabe and Chief Operating Officer Takumi Shibata were to exit Thursday, the bank said July 26. Atsushi Yoshikawa, chief of U.S. operations, becomes COO.

Nomura said in June that employees provided information on share sales it managed for Mizuho Financial Group Inc., Inpex Corp. and Tokyo Electric Power Co. to traders who short-sold the stocks before the offerings were announced in 2010.

The bank may have given tips in more than the three cases identified, an SESC official told reporters Wednesday, speaking on condition of anonymity due to the commission’s policy. The remarks echo Nomura’s statement last week that there are “high possibilities” employees leaked other details to clients.

Incoming CEO Nagai faces the challenge of reviving profit and restoring confidence after clients dropped the company from deals in the wake of the probe.