Wednesday, November 18, 2009

Japan’s Largest Bank Plans $11.2 Billion Share Sale

. Wednesday, November 18, 2009

By stockOzone team

Japan’s largest bank, the Mitsubishi UFJ Financial Group, said Wednesday that it would press ahead with plans to raise up to $11.2 billion to bolster its financial cushion, despite results that showed a sharp jump in profit in the July-September quarter.

Mitsubishi UFJ’s planned jumbo share sale, of up to 1 trillion yen, would be the biggest ever by a financial institution in Japan. Many of the nation’s banks have issued new shares this year amid falling revenue and a drop in the value of the huge equity portfolios they hold.

Japan’s banks — like those in the rest of the Asia-Pacific region — avoided the large write-downs that brought some of their American and European counterparts to their knees. But their exposure to Japan’s anemic economy and ultralow interest rates means they are also less profitable than their global rivals and trail them in capital strength.

Mitsubishi UFJ already raised about 400 billion yen ($4.5 billion) this year. Its two main Japanese rivals, the Mizuho Financial Group and the Sumitomo Mitsui Financial Group, have each announced plans to raise large sums of capital. They, too, are motivated by the need to meet tougher capital requirements being considered by regulators after last year’s financial turmoil.

“Japanese banks aren’t being given a lot of government money. But these companies issuing their own shares is a big burden on the market,” Koichi Ogawa, chief portfolio manager, Daiwa SB Investments, told Reuters.

Many companies outside the financial industry have also tapped the market for extra cash, taking advantage of the recovery in the overall markets to bolster their finances in a difficult earnings environment.

Still, the earnings of all three of the so-called megabanks improved in recent months as Japan’s economy began to claw its way out of the deepest recession in decades.

Mitsubishi UFJ, which last year took a 20 percent stake in Morgan Stanley, said Wednesday that net income rose to 140.9 billion yen in the six months to the end of September, up 53 percent from 92 billion yen a year earlier. The company did not break down quarterly figures, but according to Reuters calculations, net income for the July-September quarter was 65 billion yen, up 59 percent from 40.8 billion yen a year earlier. The results beat the average forecast of 34.7 billion yen in a survey by Reuters of three analysts.

Mitsubishi UFJ projects a profit of 300 billion yen for the fiscal year ending in March 2010. Mizuho and Sumitomo also reported better earnings last week.

Mitsubishi UFJ said the increase was mainly a result of increases in domestic and overseas lending income, which helped offset the erosion of income from deposits because of ultralow interest rates.

Separately, Mitsubishi UFJ and Morgan Stanley said Wednesday that they would form two separate companies to operate their Japanese securities businesses, revising plans for a full-blown integration of the business. The banks said the revision was intended to “optimize the parties’ ability to leverage their respective strengths and networks.”

Disclosure: Author does not own any of the stocks discussed here.

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