Japanese Banks Post Solid Results
EARNINGS JULY 30, 2010, 9:34 A.M. ET
By ATSUKO FUKASE
TOKYO—Japan's leading banks saw solid net profits gains in the first quarter of their fiscal year as the number of bad loans stemming from the economic downturn decreased significantly, signalling that the domestic corporate sector is starting to recover and bankruptcy filings are on the decline.
Mitsubishi UFJ Financial Group Inc., Japan's largest bank by assets, said Friday that net profit in the April-June quarter more than doubled from a year earlier due to strong gains from bond trading and lower credit costs.
The bank, which owns more than 20% of Morgan Stanley, posted a 166.35 billion yen ($1.92 billion) group net profit for the three-month period, compared with a 75.94 billion yen profit in the same quarter of the previous year.
Also reaping the benefits of solid bond-trading gains, Mizuho Financial Group Inc. said that it swung back into a net profit in its first quarter of the fiscal year, which ends in March 2011. Japan's second-largest bank posted a 149.85 billion yen group net profit for the three-month period, compared with a net loss of 4.49 billion yen in the same period of the previous year, when losses on derivatives trading pushed down its earnings. The bank said its bottom line was helped greatly by the recovery of bad-loan reserves.
Rounding out the trifecta of top domestic banks reporting strong earnings, Sumitomo Mitsui Financial Group Inc. said earlier this week that it posted its biggest quarterly profit in six years in the April-June period.
These results epitomize how Japan's banks are regaining their foothold after the economic downturn caused by the global financial crisis weighed on their profitability.
But the results aren't all rosy: Japan's banks are still having a tough time generating profits at their mainline business of lending, which they rely heavily on. Lenders have struggled to boost earnings in these segments amid sluggish demand from Japanese companies.
This has prompted major banks to seek further growth overseas, particularly in Asia, one of the world's fastest growing regions.
Since the outbreak of the financial crisis, concerns about tighter capital requirements by the global regulators have been swirling around among bank executives, making business decisions difficult as they would prefer to build up capital buffers instead of expanding their businesses aggressively.
The three top banks have raised more than $44 billion in capital over the past two years in part in order to strengthen their financial bases.
But such concerns about the capital rules appear to be subsiding.
This week, international regulators and central bankers reached an agreement on changes to rules regarding capital and liquidity. That agreement, while more stringent than current rules, is less demanding for banks than rules proposed in December.
Like its much-larger peers, Tokyo-based midsized lender Aozora Bank Ltd. also reported strong earnings on Friday. The bank said it recorded a 35% gain in its first quarter profit, citing cost-cutting measures and a reduction in funding costs.
The Japanese commercial bank, in which U.S. investment firm Cerberus Capital Management LP nearly owns a majority stake, reported a net profit of 7.30 billion yen in the April-June quarter, compared with 5.42 billion yen a year earlier.
All the earnings figures are based on Japanese accounting standards.
—Kana Inagaki contributed to this article.