Japan’s megabanks resist buybacks after predicting bumper profit

BLOOMBERG 

Japan’s biggest banks are predicting their highest profits in years, though a cautious outlook is holding them back from returning surplus capital to shareholders.
Net income at Mitsubishi UFJ Financial Group (MUFJ) Inc, the nation’s biggest lender, is poised to surge to 1.3 trillion yen ($9.6 billion) for the year ending in March 2024, according to a filing, which will be a record. Sumitomo Mitsui Financial Group Inc’s profit is likely to rise to 820 billion yen, the most in 10 years, while Mizuho Financial Group Inc sees profit rising to 610 billion yen, the most in eight years.
Even with these strong numbers, the lenders are refraining from undertaking share buybacks. The banks cite uncertainty in the financial sector, which has been rocked by recent collapses of a handful of US regional lenders. Paired with a gloomy global growth outlook amid rising interest rates and lingering inflation, the lenders have been seeking ways of growth from overseas expansion to acquisitions.
MUFG and Sumitomo Mitsui, Japan’s second-largest lender, said they will hold off deciding on share buybacks until their first-half results. “We are making ourselves resilient for any contingencies,” MUFG’s Chief Executive Officer Hironori Kamezawa said at a briefing.
The banks’ decision to forgo buybacks contrasts with the trend among Japanese companies this earnings season to boost shareholder returns. Dai-Ichi Life Holdings Inc shares jumped after it announced plans to repurchase as much as 120 billion yen of its stock, while Japan Post Holdings Co said it will buy back up to 10% of its shares.
Sumitomo Mitsui’s CEO Jun Ohta expects solid loan demand in Japan as well as overseas this year. Some credit quality in the US might worsen on higher interest rates, and the lender is getting more cautious on commercial real estate there, Ohta said in an earnings briefing.
In the US, he is expecting continued growth helped by a recent deal to triple the lender’s stake in New York-based investment bank Jefferies Financial Group Inc Mizuho CEO Masahiro Kihara said he sees big potential in the US debt capital markets business.
Kihara said the lender is also strengthening advisory services in equity capital markets and M&A. “It’s important to boost our capacity there,” he said at a briefing.