• Bloomberg


Mitsubishi UFJ Financial Group Inc. raised its full-year profit target by 50 percent as a gain from a conversion of shares in Morgan Stanley offset a lending slump.

The ¥900 billion goal for the 12 months ending in March compares with ¥600 billion predicted previously, Mitsubishi UFJ said Monday in a statement.

Sumitomo Mitsui Financial Group Inc., MUFG’s closest domestic rival, boosted its profit forecast to ¥500 billion as bad loans fell.

Mizuho Financial Group Inc. kept its ¥460 billion projection.

The improved earnings outlook was dimmed by figures that showed lending income declined at all three banks last quarter. Spending by companies is “persistently sluggish and loan demand remains weak,” Mizuho Chief Executive Officer Yasuhiro Sato said Monday after announcing 3,000 job cuts.

“Without the gains from the Morgan Stanley share conversion, Mitsubishi UFJ’s earnings signal that the banks can’t count on a recovery in local loan demand,” said Katsuhito Sasajima, an analyst at JPMorgan Chase & Co. “Japanese banks should look to aggressively expand lending and acquisitions overseas to make their profit growth sustainable.”

Profit has been muffled by a lending slump that ended in October when loans rose 0.1 percent, the first gain in 23 months, according to Bank of Japan data. The economy grew for the first time in a year last quarter as exports recovered from the March 11 catastrophe, an expansion that is already slowing because of weakening overseas demand.

“We expect in the very short term there will be some upward movement in the banking sector,” Brian Waterhouse, senior banking analyst at CLSA Asia-Pacific Markets in Tokyo, said Tuesday. “But overall those sustainable earnings drivers are looking very iffy at the moment.”

Mitsubishi UFJ’s net income rose 2.7 percent to ¥195.5 billion in the three months that ended Sept. 30 from a year earlier, according to figures derived by subtracting quarterly results from first-half earnings. Lending income dropped 14 percent to ¥436.9 billion. Fees and commissions slipped 0.2 percent, while trading profit gained 57 percent.

In the first quarter, Mitsubishi UFJ had a ¥291 billion gain related to the conversion of the Morgan Stanley shares into common stock. The bank exchanged $7.8 billion in convertible preferred stock in Morgan Stanley for common shares, giving it a 22 percent stake that makes it the biggest common shareholder of the New York-based lender.

Sumitomo Mitsui’s net income declined 48 percent to ¥107.1 billion last quarter, according to figures derived from first-half earnings. Lending profit fell 4.5 percent to ¥335.5 billion. Fees and commissions gained 3.8 percent and trading profit slipped 1 percent.

Mizuho’s net income fell 18 percent to ¥158.3 billion in the fiscal second quarter, led by a 3.7 percent drop in lending profit.

The bank said it will cut 3,000 jobs by March 2016 through a planned merger of its corporate and retail lending units that is set to be completed by September 2013.

The integration of Mizuho Corporate Bank Ltd. and Mizuho Bank Ltd. is part of efforts to improve operations after a computer systems failure delayed retail transactions in the wake of the March 11 disaster.

Another risk facing the three banks is their investments in Olympus Corp., the camera and medical equipment maker that concealed losses. The banks had a combined ¥235.2 billion in long-term loans outstanding to Olympus as of March 31, according to the endoscope maker’s June 29 financial statement.

Olympus has called on its main banks to take part in a meeting Wednesday, Sumitomo Mitsui President Koichi Miyata told reporters Monday.

Mizuho has lowered its classification of loans outstanding to Olympus to an undisclosed level, CEO Sato said, citing the manufacturer’s loss coverup revealed last week.

The lenders may look to open more branches in Asia and clinch buyout deals in North America next year as borrowing at home remains too weak to spur profit, said Yoshinobu Yamada, an analyst at Deutsche Bank AG in Tokyo.

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