Japan's largest bank MUFG boosts annual profit outlook to record level

By Makiko Yamazaki

TOKYO (Reuters) - Mitsubishi UFJ (NYSE:MUFG) Financial Group Inc (MUFG) on Monday predicted net profit would hit a record this financial year, thanks to the release of cash from pandemic-related provisions as well as a drop in other credit-related costs.

Japan's largest lender has also benefited from "strong stock markets and Morgan Stanley (NYSE:MS)", MUFG Chief Executive Hironori Kamezawa told an earnings briefing after the Wall Street bank in which it has a 20% stake had a stellar quarter.

MUFG hiked its profit estimate for the year to end-March by nearly a quarter to 1.05 trillion yen ($9.2 billion), ahead of a Refinitiv consensus estimate of 982 billion.

Kamezawa stressed, however, that the bank needed to "boost its earnings power in its main businesses" if it is to achieve in a more normal business environment its goal of more than 1 trillion yen in net profit by the year ending March 2024.

Shunsaku Sato, a senior credit officer at Moody's (NYSE:MCO) Investors Service, said if the impact of equity-method gains - primarily Morgan Stanley's stake - was excluded, MUFG's pre-provision income during the first-half of the year declined 7%.

"This reflects the profitability challenges faced by MUFG and other Japanese banks in the current ultralow domestic interest rate environment," he wrote in a note to clients.

FEW BANKRUPTCIES

Like a many other banks worldwide, this quarter's earnings were inflated by the release of cash from provisions that had been set aside last year to deal with a potential flood of pandemic-related bad loans.

Corporate bankruptcies in Japan, however, fell to their lowest ever for an April-September period after the government provided small businesses with cash to cushion them from the worst effects of lockdowns, according to Tokyo Shoko Research.

For the July-September quarter, MUFG's net profit surged 83% to 398.4 billion yen. The two other Japanese megabanks, Sumitomo Mitsui (NYSE:SMFG) Financial Group Inc (SMFG) and Mizuho Financial Group Inc also lifted their full-year profit forecasts when they reported last week.

MUFG added it would buy back up to 150 billion yen or 2.33% of its outstanding shares by the end of March.

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Though the Japanese bank has pulled back from U.S. retail banking with the $8 billion sale of MUFG Union Bank to U.S. Bancorp, it has said the United States remains a key market.

($1 = 113.92 yen)