Mitsubishi UFJ Financial Group Inc. (8306) may lead Japan’s biggest banks in raising dividends by increasing its payouts for the first time in six years as government stimulus measures improve earnings prospects.
Mitsubishi UFJ will boost its dividend for the year ending March 2014 to 14 yen a share from 12 yen previously, according to seven of nine analysts surveyed by Bloomberg. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-biggest lender, is expected to set payouts ranging from 110 yen to 120 yen, after keeping them at 100 yen since the year ended March 2010.
The banks’ shares have gained more than 80 percent since November on speculation that loan demand will pick up as the government and central bank intensify efforts to end deflation and revive the world’s third-largest economy. This month’s unprecedented Bank of Japan stimulus fanned a market rally that has boosted the value of lenders’ stock and bond holdings.
“Earnings have been stabilizing at the two banks,” said Yoshinobu Yamada, a Tokyo-based analyst at Deutsche Bank AG. “They need to increase shareholder return to some extent,” said Yamada, who sees Mitsubishi UFJ increasing dividends to 14 yen this year and Sumitomo Mitsui raising payouts to 110 yen.
Mitsubishi UFJ probably posted net income of 726.2 billion yen ($7.5 billion) for the year ended March, surpassing the company’s 670 billion yen target, according to the median estimate of 16 analysts in a separate survey. Sumitomo Mitsui’s profit probably rose to a record 688 billion yen, more than its 540 billion yen forecast. The Tokyo-based banks are scheduled to report earnings in mid-May.
Japanese banks’ dividend yields trail those of their U.S. peers. The average yield of the 85 lenders on Japan’s Topix Banks Index (TPNBNK) has fallen to 1.25 percent from 1.74 percent a year ago, data compiled by Bloomberg show. Among the 24 large U.S. banking companies tracked by the KBW Bank Index (BKX), the average is little changed at 2.35 percent.
Rising capital buffers at Mitsubishi UFJ may encourage it to buy back its stock to return gains to shareholders, the survey showed. Five of the nine analysts said Japan’s largest bank will probably repurchase shares as well as increase dividend payouts during the current fiscal year.
“There is no doubt that giving back to shareholders is becoming more important,” Mitsubishi UFJ president Nobuyuki Hirano said in an interview on April 8. “We will review plans based on last fiscal year’s earnings and those of the current fiscal year,” he said, without elaborating.
Sohei Nishimaki, a Tokyo-based spokesman at Sumitomo Mitsui, declined to comment on plans for dividend payouts and buybacks.
Shares of Mitsubishi UFJ fell 3.6 percent to 639 yen at the close in Tokyo today as Asian stocks declined on concern growth in the U.S. and China is losing momentum. The stock has advanced 85 percent since Nov. 14, when an election campaign began that ushered Prime Minister Shinzo Abe into office on a pledge to stoke inflation. Sumitomo Mitsui dropped 3.4 percent to 4,355 yen today and has gained 84 percent in the same period.
The two banks have built capital by accumulating retained earnings and raising about 3 trillion yen from share sales in the aftermath of the 2008-2009 global financial crisis. They are expanding abroad to make up for shrinking profitability on domestic loans amid record-low interest rates.
Mitsubishi UFJ had a common equity capital ratio of about 10 percent at the end of December, higher than its 8.5 percent requirement under the Basel III regime developed since the crisis, according to figures on its website. Sumitomo Mitsui’s ratio was about 8 percent, while smaller Mizuho Financial Group Inc. (8411)’s was the lowest at around 6 percent, bank data show.
None of the nine respondents expect buybacks by Sumitomo Mitsui, and Mizuho won’t raise dividends either, the results showed. In addition to the seven analysts who see Mitsubishi UFJ boosting payouts to 14 yen, one sees an increase to 13 yen, while another estimates no change.
“Mitsubishi UFJ’s capital level is high enough to repurchase shares even after the bank carries out mergers and acquisitions,” said Katsunori Tanaka, a Tokyo-based analyst at Goldman Sachs Group Inc. “It’s ready for more purchases overseas,” said Tanaka, who expects the lender to buy back 100 billion yen of shares by March 31, 2014.
Mitsubishi UFJ said on April 8 that its San Francisco-based UnionBanCal Corp. unit will buy $3.7 billion of U.S. real-estate loan assets from Deutsche Bank to boost commercial lending, mainly on the east coast.
Combined losses from shares held by the two banks narrowed to 158.2 billion yen in the nine months through Dec. 31 from 306.5 billion yen in the six months ended Sept. 30, based on their earnings data.
The value of their government bond holdings is also rising following Bank of Japan (8301) Governor Haruhiko Kuroda’s decision to expand purchases of the securities. Japanese sovereign debt returned 1.4 percent this year, Bank of America Merrill Lynch index data show.
“Recent declines in bond yields will allow banks to generate trading income from JGBs, and together with a stocks rally, the investments will also boost unrealized gains,” said Chikako Horiuchi, a Hong Kong-based analyst at Fitch Ratings Ltd. “This is a favorable environment for Japanese banks at the moment.”
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