On Aug 22, 2013, we downgraded our long-term recommendation on
Mitsubishi UFJ Financial Group Inc.
) to Neutral from Outperform based on the company's undisciplined
expense management, which led to elevated G&A expenses and
higher credit costs.
BARCLAY PLC-ADR (BCS): Free Stock Analysis
BANK OF NOVA SC (BNS): Free Stock Analysis
MITSUBISHI-UFJ (MTU): Free Stock Analysis
SUMITOMO-MITSUI (SMFG): Free Stock Analysis
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Why the Downgrade?
Escalating G&A expenses remain a major cause of concern for
Mitsubishi UFJ. Since the last few quarters, the company has been
continuously witnessing a rise in these expenses related to the
overseas business. Notably, G&A expenses surged 9.4% year
over year in the reported quarter.
Mitsubishi UFJ is a geographically diversified company with
presence in almost all the major markets of the world. Its
dependence on overseas revenue has gradually increased over the
last couple of years. In fiscal 2013, the overseas revenue was
nearly 33% of the total revenue compared with 27% in 2012 and 30%
in 2011. Although this is a positive, a plethora of risks
stemming from the regulatory and political environment, foreign
exchange fluctuations and performance of the regional economy can
negatively affect its top line.
However, Mitsubishi UFJ reported net income of ¥255.2 billion
($2.6 billion) for fiscal first-quarter 2014 (ended Jun 30,
2013), up from net income of ¥182.9 billion ($2.3 billion) in the
year-ago period. The key positives for the quarter were growth in
deposits and loans along with a rise in net interest income and
fee revenues. Further, increased gross profits were a tailwind.
Following fiscal first-quarter 2014 results, the Zacks Consensus
Estimate for fiscal 2014 has gone up 23.5% to 63 cents per share.
For fiscal 2015, the Zacks Consensus Estimate surged 12.7% to 62
cents per share. Currently, the company carries a Zacks Rank #2
Other Major Foreign Banks to Consider
Foreign banks that are currently performing well include
Sumitomo Mitsui Financial Group Inc.
) with a Zacks Rank #1 (Strong Buy), while
The Bank of Nova Scotia
) carry a Zacks Rank #2 (Buy).