Japan's Mega Banks' Profits Drop Double Digits

Japan's 3 mega banks reported 20-plus percent drops in Q3 earnings (per Bloomberg calculations), led by Mitsubishi UFJ Financial Group down 42%, as the lending interest rate environment remains unfavorable and weakness in consumer spending persists. Mizuho Financial Group, the second biggest of the three reported a 23% drop in earnings, while Sumitomo Mitsui Financial Group's net fell 26%. A Tokyo-based Fitch Ratings analyst comments, "The banking business reflects the wider economy, which isn't too healthy. The banks are suffering from low interest rates and little demand for loans." It is increasingly unlikely the Bank of Japan will raise rates next month due to weak consumption data, which could keep downward pressure on bank stocks. Mitsubishi UFJ said it was particularly hurt by a reversal in allowances for loan losses. However, it cited strength in its investment-trust business. Mizuho was actually able to grow its net interest income, but was hurt by losses in its bond portfolio. Ahead of their after-hours earnings releases, Mitsubishi UFJ and Sumitomo Mitsui closed flat at ¥1.46m ($12.02 ADR equiv. at ¥121.5/$1) and ¥1.23m ($10.12) respectively and Mizuho lost 0.91% to ¥870k ($14.32).

• Sources: Earnings releases: Mitsubishi UFJ, Mizuho [pdf], Sumitomo Mitsui [pdf], Bloomberg, Forbes-AP
• Commentary: Still No Love for Japan's Mega Banks

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• Stocks and ETFs to watch: Mitsubishi UFJ Fin. Grp. (MTU), Mizuho Fin. Grp. (MFG), Sumitomo Mitsui Fin. Grp. (SMFJY.PK). ETFs: iShares MSCI Japan Index (EWJ), iShares S&P/TOPIX 150 (ITF), BLDRS Asia 50 ADR Index (ADRA), BLDRS Developed Markets 100 ADR Index (ADRD)

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