Mitsubishi UFJ Financial Group (MUFG), Japan’s biggest lender, said first-quarter profit skidded nearly a third as the Bank of Japan’s negative interest rates slashed returns on loans without coaxing firms to ramp up new borrowing and stoke growth.
Reiterating a downbeat annual forecast for its lowest net profit in six years, MUFG said yesterday its April-June net profit fell 32% from a year earlier to ¥188.9bn ($1.84bn). That trailed an average estimate of ¥234.5bn from two analysts polled by Thomson Reuters.
Three years into BoJ Governor Haruhiko Kuroda’s aggressive campaign to end deflation, MUFG’s weaker earnings echoed those reported last week by Japan’s second-biggest bank, Mizuho Financial Group, and No 3-ranked Sumitomo Mitsui Financial Group.
Underlining the headache faced by Kuroda and Prime Minister Shinzo Abe as they seek to shake Japan out of economic torpor, central bank data shows average outstanding loans of major banks grew only 0.8% year-on-year during the first quarter, while deposits grew 4.7%.
Monetary easing moves by major central banks, including the Bank of Japan’s negative interest rate policy, are hurting global lenders by driving down returns from loans and bond investments.
MUFG’s net interest income, a core measure of profits from lending, dropped 8% year-on-year in the first quarter to ¥502.1bn.
For the full-year through March, MUFG kept its net profit forecast unchanged at ¥850bn, down 11% from the previous year, and its lowest since the ¥583.1bn it posted in the 12 months ended March 2011.
The bank’s own forecast is well below an average estimate of ¥930bn in a poll by Thomson Reuters of 18 analysts’ forecasts.
While the first quarter was weaker for bank earnings than some had predicted, the three biggest lenders all left full-year forecasts unchanged from previous estimate as some indicators suggest better news ahead on costs as a pickup in oil prices reduces the potential for loans to that sector going sour.
“I expect credit costs to improve in coming quarters,” said Takashi Miura, banking analyst at Credit Suisse Securities in Tokyo.
In May, MUFG said it expected bad energy loan costs to be around ¥75bn for the current financial year, based on assumption of US West Texas Intermediate (WTI) crude at $35 a barrel.

Diamond Offshore
Diamond Offshore Drilling said there were “next to zero” contracts for deepwater rigs, highlighting the contrast between subdued offshore drilling activity and a recent resurgence in shale drilling.
The company’s shares fell as much as 7.4% yesterday as the outlook overshadowed a better-than-expected quarterly profit.
Oil producers — especially those operating in North American shale fields — are putting rigs back to work as global oil prices recover from 13-year lows hit in January.
But offshore drilling activity is not expected to pick up anytime soon, given the formidably higher costs of operating fields in deep waters.
Diamond Offshore reported a net loss of $589.9mn, or $4.30 per share, for the quarter ended June 30.
A year earlier, it had a profit of $87.4mn, or 64 cents per share.
Excluding items, the company earned 16 cents per share, well above the average analyst estimate of 3 cents, according to Thomson Reuters I/B/E/S.
Revenue fell 17.4% to $388.7mn, but beat the average estimate of $373.5mn.
Diamond Offshore, which has scrapped dividend and retired rigs to cope with falling demand, took a $612mn write-down for eight offshore rigs in the second quarter.
“Some of the larger diversified oilfield service providers have declared a bottom in activity and are suggesting that a recovery is imminent,” Chief Executive Marc Edwards said on a conference call.”While this may be the case for certain onshore basins, it is not so for deepwater drilling.”
Schlumberger, the world’s No 1 oilfield services provider, said last month the oil downturn appeared to have bottomed out.
Halliburton Co forecast a “modest uptick” in North American rig count in the second half of the year.
New offshore rigs continue to hit the seas even as older rigs roll off contracts and customer spending falls, creating a “perfect storm” for drillers, Edwards said.
Separately, Diamond Offshore’s rival Transocean said yesterday it would take full control of its master limited partnership Transocean Partners — a move aimed at reducing costs and improving liquidity.
The deal, with an enterprise value of about $1.6bn, will eliminate $29mn in payments to Transocean Partners unitholders and about $10mn in other costs, Tudor, Pickering, Holt & Co analysts wrote in a note.

Intertek Group
British testing company Intertek Group said yesterday it was on track to deliver full-year revenue growth at constant currency and that it did not expect Britain’s decision to leave the EU to impact its growth opportunities.
Intertek, which tests anything from oil to children’s toys to check they comply with regulatory standards, said adjusted pretax profit grew 15.1% to £172.5mn ($228mn), helped by strong demand, deals and control on costs.

Veolia
Waste management firm Veolia said yesterday a restructuring charge bit into first-half net profit but had already improved its operational performance in a challenging economic climate.
Net profits at the French company, which also specialises in water distribution, energy, recycling and operating public transportation systems, fell by 28.8% to €251.2mn ($280mn), almost entirely due to the €95mn charge to restructure its French water management unit where 430 jobs are to be cut.
However current net income, which strips out one-off charges, rose by 6.4% to €341.7mn, beating the average of €291mn expected by analysts surveyed by FactSet financial data reporting service.
Chief executive Antoine Frerot expressed satisfaction with the results.
“We continue to see the benefits of strict management, with savings ahead of our plan, which translated into further margin improvement and an increase in all our results,” he said.
Sales slid 2.9% to €11.95bn due to adverse changes in currency exchange rates and a fall in energy prices.
With stable exchange rates, the decline in activity was limited to 1.0%.
However EBITDA, a measure of operating profit, increased by 3.2% of €1.58bn due to ongoing efforts to cut costs.
At constant exchange rates, it rose by 5.6%.
Veolia confirmed its annual target of an increase in revenue and EBITDA when measured in constant exchange rates, and current net income of €600mn.

Novo Banco
Portugal’s Novo Banco, which the state is trying to sell after a 2014 rescue, swung deeper into the red in the first half but operating income rose and it said the overall result was in line with its restructuring plan.
Novo Banco is the “good bank” of viable assets rescued from Banco Espirito Santo (BES), which collapsed under the weight of its founding family’s debts in 2014.
It reported a net loss of €363mn for the first half, 44% wider than a year ago, on higher provisions for bad loans and restructuring costs, it said in a statement.
The loss in the second quarter showed an improving trend over the previous three-month period, it added.
Operating income was €142mn, as its net interest income increased 22% while operating costs fell 23%, but new provisions more than doubled to €577mn. The share of overdue loans in the total loan portfolio rose to 17% in June from 15.5% at the end of last year.
The Portuguese government is attempting to sell Novo Banco for a second time to try to recover as much as possible of the €4.9bn injected in to the lender in 2014. The first attempt failed last year as bids came in too low.
In late June, the bank of Portugal received four offers for the bank.
Novo Banco’s outgoing CEO has said Portugal is unlikely to recover more than a fraction of the loans.
Some analysts say litigation risks are deterring bidders and many doubt Novo Banco will be sold. In April, a group of asset managers started legal action against the central bank over losses on €2bn of Novo Banco bonds that were moved back to BES’s “bad bank”.