Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank by market value, has announced its first quarterly profit in the past nine months as the recession abates. According to the Tokyo-based bank, net income rose from 51.2 billion yen in 2008 to 75.9 billion yen ($797 million) in the second quarter of 2009. The company’s profit was assisted by the increase in lending income and gain in stockholdings after investing $9 billion in Morgan Stanley in October 2008. Five of the largest banks in Japan announced improved results from the first to second quarter, boosted by rising stock markets and smaller bad-debt charges. Together, Mtisubishi UFJ, Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc have raised more than $30 billion of capital this year alone, which allows them to compete with foreign banks like Citigroup Inc. Michael Wood-Martin from Henderson Global Investors in London, who helps oversee an estimated $1 billion, says that there is hope for a global return to “normality” in banks. Mitsubishi UFJ shares rose 4.4 percent in July 31 in Tokyo. The Topix Banks Index gained 2.4 percent. Japan’s two largest brokerages, Nomura Holdings Inc and Daiwa Securities Group Inc. also returned to profit in the second quarter, along with overseas firms like Goldman Sachs Group Inc., Deutsche Bank AG and Credit Suisse Group AG that reported profits that surpassed analysts’ estimates. The improvements triggered optimism that the world economy is actually recovering. It is estimated that Japan’s gross domestic product grew 2.4 percent by the end of the second quarter in 2009, a significant pick up from the first quarter’s 14.2 percent decline. In May 2009 Mizuho said that the government’s loan guarantees of up to 30 trillion yen in the previous 12 months would curtail bankruptcies. Mitsubishi UFJ had a 23 percent gain in Japan’s Nikkei 225 Stock Average in the quarter after a 409 billion yen loss on its shareholdings in 2008. Its 21 percent stake in Morgan Stanley also rose as the U.S bank’s stock climbed 25 percent. “Mitsubishi UFJ has the best asset quality of the big banks,” Ismael Pili, a Tokyo-based analyst at Macquarie Group Ltd., said before yesterday’s announcement. “If the banks decide to crank up equity gains or come in with lower provisions, we see scope for higher profits.” Japan’s second largest bank, Sumitomo Mitsui reported a 72.8 billion yen profit at the end of the second quarter as income from bond trading increased and losses on stock investments fell. The bank is purchasing brokerage operations from Citigroup in Japan after raising an estimated 860 billion yen in a stock sale. Mizuho Financial, however, posted an unexpected first-quarter loss of 4.5 billion yen, despite being ranked number three, due to higher credit costs and losses in derivatives contracts. Bad-loan costs increased 189.8 billion yen from 141.7 billion yen a year earlier, after Mitsubishi UFJ made Acom Co, a consumer lender, a unit in October 2008. From the previous quarter, credit costs at the group’s banking units fell by 26 percent to 73.3 billion yen.

Brain Capital LLC will buy $233 million of convertible bonds from Gome Electrical Appliances Ltd.The transaction will increased over $417 million.

 

In this deal, Bain will buy $233 million of convertible bonds and underwrite an offering of new shares to existing shareholders. The deal will make the private-equity group the second-largest shareholder in Gome, with a stake of at least 9.8%, depending of the offers.

 

Bain Capital Managing Director Jonathan Zhu said the company has carefully considered the risks and would seek to influence rather exert control over Gome, The Wall Street Journal reported Tuesday. "I know just about as much as you do," Gome Chief Executive Chen Xiao said. "Mr. Huang is entitled to subscribe to the new shares as a common shareholder. But I can't answer for him right now as to whether he'll actually do so." As part of the offer, existing stockholders will receive the right to purchase 18 shares for every 100 shares they own at a price of 0.672 Hong Kong dollars each.

 

 Total of 2.3 billion to 2.48 billion shares will be available under the rights offering, the company said. Xiao said also said Monday he expects the Gome's 2009 financial results to improve significantly from last year, helped by a general rebound in China's economy.

 

The Bain investment and comments from Chinese officials suggest Beijing is confident the company is not involved in any malfeasance, says Chen Xiao, Gome's new chairman and president. The investigation of the company's former chairman is "a personal matter of Huang Guangyu's," says Chen, 50, with "no connection to the company."

 

Under Bain's investment plan, it will get three board seats in GOME, one of the people knowledgeable about the situation said. Details of the deal will be announced as soon as Tuesday, another said. GOME has been seeking fresh capital, through a stake sale to private-equity funds, to shore up its balance sheet at a time operations have been hit by the financial crisis and a falling appetite for consumption goods.

 

The company, which has more than 800 retail outlets throughout China, had 3.05 billion yuan in cash and cash equivalents at the end of last year. But the retailer has to repay 4.7 billion yuan as convertible bonds that it has issued will mature next year. First strategical move: boosting profitability at Gome's stores. That helped the company win leading market share, but sometimes came at the expense of profitability.

 

The company plans to shut some 100 more stores, reorganize others, and open new ones, with a target of zero growth overall in outlets this year and single-digit growth in new stores in 2010. "We have become too accustomed to a rapid growth pattern in the past and have neglected management," says Chen. "Gome's future success depends on more careful management," he says, adding that Gome aims to reach $36.8 billion in sales by 2014.

 

 

The Bank of Japan reported that they are planning on extending its emergency-credit programs to December 2009 as the economic revival remains weak but shows signs of improvement.

 

“We decided to extend the measures by three months this time, rather than six months, because financial conditions are improving and we expect this improvement to continue,” Shirakawa said in Tokyo after the decision. “If this situation develops further, we will end” the programs, he said.

 

The Bank of Japan began its efforts to channel cash to companies amid the country’s recession and they were expected to expire in September 30, 2009. However, the economy’s weak progress has led economists to believe it is too soon to let the companies survive on their own. The timing is good: “Extending the credit programs more than two months before their expiry would also quell speculation that the central bank is willing to unwind them before Japan emerges from its worst postwar.”

 

“Announcing the extension of the measures this month would provide relief” to investors and companies, said, a senior economist at Mizuho Securities Co. in Tokyo. “A new government won’t be able to get settled until mid- September,” leaving political uncertainty until then, he said.

 

Despite the signs of a global recovery, banks are still reluctant to lend to companies, since downside risks for the economy are still possible. Falling profits make businesses cut jobs and investment.

 

“Downside risks for the economy linger,” said Akio Makabe, an economics professor at Shinshu University in Nagano, central Japan. “Policy makers are well aware that they could spark another economic decline if they end the credit-support measures.”

 

The country’s central bank has taken measures such as purchasing commercial paper, corporate bonds, and lowering the key lending rate to 0.1 percent in December 2008. The policy board decided to keep the benchmark overnight lending rate at 0.1 percent at yesterday’s meeting.

 

The goal of the central bank is to send the message that it is “trying to prevent the credit market mechanism from being distorted.” Examples of the threat to the health of credit markets were lower yields on corporate debt and government securities.

 

Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo believes that the central bank is doing its best to reach an “exit policy” but in a timely manner since a sudden implement would “spur unneeded speculation that the central ban will raise interest rates”.

 

Japan’s economy is expected to fully recover by March 2010.