Japanese megabank Mitsubishi UFJ Financial Group (MUFG) said Tuesday its annual net profits fell by almost 28 percent, hit by subprime losses, and forecast a sluggish performance this year.
The earnings slump at Japan's biggest banking group caps a difficult past year for the sector, which had finally been emerging from a bad debts crisis stretching back over a decade caused by recession in the 1990s.
MUFG posted net earnings of 636.6 billion yen (6.1 billion dollars) for the fiscal year to March against 881 billion yen the year before.
It reported losses of 81 billion yen on subprime-related investments, which have slumped in value due to a wave of defaults of risky US mortgages.
Earnings were also hit by writedowns for its struggling credit card business.
"We suffered losses in securitised products and our equity shares following a deterioration in domestic and overseas financial markets, triggered by subprime related problems," group president Nobuo Kuroyanagi told reporters.
Pretax profit fell 29.4 percent to 1.03 trillion yen. Revenue rose 4.9 percent to 6.39 trillion yen.
For the current fiscal year to March 2009, MUFJ forecasts net profit will rise just 0.5 percent to 640 billion yen. Pretax profit is seen increasing 17.6 percent to 1.21 trillion yen on revenue of 6.40 trillion yen, up 0.1 percent.
Other Japanese banks have also reported exposure to problems in the US subprime loan market for borrowers with patchy credit histories.
Japan's second-largest bank Mizuho Financial Group said last week its annual net profit had roughly halved amid the credit turmoil, with subprime-related losses soaring to 645.0 billion yen.
Others Japanese banks have been less severely affected, particularly compared with some of their foreign peers, as they tend to be more conservative due to their past bad debt problems.
Leading US and European banks have been hit with heavy losses after a wave of US defaults and home foreclosures undermined the value of billions of dollars' worth of mortgage-backed securities.
On top of the 81 billion yen subprime hit, Mitsubishi UFJ booked a 42 billion yen loss on other securitised products, Kuroyanagi said.
For the current financial year, MUFG expects up to 50 billion yen in losses on securitised products if their value continues to fall at the same pace, although that is unlikely, he said.
It expects an increase in retail banking revenues while the corporate division "is likely to keep struggling" due to the higher yen against the dollar and weak domestic demand for credit, he added.
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