Mitsubishi UFJ Financial Group, Japan's largest bank, reported a $2.2 billion quarterly loss, its second in a row, hit by a damaging recession and hefty losses on its stockholdings, but forecast a return to profit.
MUFG and its rivals have lost billions of dollars from rising bad loans and a slide in the value of their massive stock portfolios. Japanese banks traditionally buy stakes in their clients to seal business ties, making them sensitive to equity prices.
Credit costs, which include provisions to cover bad loans, have increased sharply as the world's second-largest economy is battered by its worst recession since World War Two.
But Mitsubishi UFJ, like its rivals, is expecting a recovery this year, even as analysts warn that Japan's stagnating economy will continue to crimp profits.
Mitsubishi UFJ, which last year paid $9 billion for a 21 per cent stake in US investment bank Morgan Stanley, reported a January-March group net loss of 214.9 billion yen ($2.23 billion). The bank made 322 billion yen a year earlier.
For the full year, MUFG lost 256.95 billion yen, its first annual loss since forming in a 2005 merger. Mitsubishi UFJ said it expected a net profit of 300 billion yen this financial year.
Japan's top three “mega-banks”, which together lost about 1.2 trillion yen in the year just ended, will continue to grapple with a high level of sour loans given the sluggish outlook for the economy and corporate profits.
As bad loan rise, banks must set aside bigger provisions to cover future losses, which dents their profits.
“If last year was all about higher equity losses, this year will be about higher provisions, but the provisions will not be sufficiently high enough to push them into the red,” said Ismael Pili, analyst at Macquarie Capital Securities in Tokyo.
Mitsubishi UFJ expects group credit costs to rise to 730 billion yen in the current year, Senior Managing Director Hiroshi Saito told a news conference. That would be up 21 per cent from the 608 billion yen in such costs in the year that ended on March 31st.
Reuters