Mitsubishi UFJ Financial Group, Inc.(ADR) (MTU)

Mitsubishi UFJ Financial Group (MFUG) was formed in 2005, as a result of merger between Mitsubishi Tokyo and UFG Financial. The company has one of the largest asset bases that now hovers around $1.2 trillion. It is the holding company of Bank of Tokyo; Mitsubishi UFJ Trust and Banking Corporation; and Mitsubishi UFJ Securities. MFUG offers gamut of services primarily for the domestic Japanese market that generates over 75% of its interest earning assets.

The Japanese economy has seen a dramatic turnaround from the rapid growing phase in 60’s and 70’s. High leverage and slower growth has led the economy into a deflationary mode. The ballooning non performing assets and mammoth public debt, which has reached over one and half times the GDP, are dissuading the economic development. However recently there are signs of some respite, with interest rate increased to 0.25% from the earlier zero levels and positive GDP growth and inflation.

The changing economic environment has created some positives for the company; as revenue witnessed a hike, while non performing assets were down to manageable levels of about 1.33%. Still net income margin is lingering just over half a percent and deposits have actually declined by almost one percent. Looking ahead company might be able to improve its deposits in 2007; still the low interest spread will continue to cause worries. Adding to it, the low proportion of fee based revenue, makes it very difficult for the bank to generate healthy returns. Consequently taking into account the slow pace of Japanese economic improvement and MFUG’s low return on asset of about 0.23%, it will be better to stay away from the stock at current levels.