Mitsubishi UFJ Financial Group Inc. has 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 fiscal third-quarter, covering October to December, 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, results showed Tuesday.
Japan’s biggest bank had already flagged the ¥207.4 billion ($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 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, down from the ¥900 billion targeted previously. Investors shrugged off the loss, with the shares rising 0.9 percent Wednesday morning in Tokyo, paring this year’s decline to less than 4 percent.
“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 percent 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 (about ¥37.5) per share. Danamon traded at 3,440 rupiah on Tuesday afternoon in Jakarta.