You’d have to dig pretty deep in the mainstream financial media to find out that Japanese financial powerhouses Mitsubishi Tokyo Financial Group (MTF) and UFJ Holdings merged recently to create the biggest financial group in the world — a financial Godzilla with over $1.68 trillion in assets.
The creation of Mitsubishi UFJ also provides the best single opportunity to invest in Japan — one of today’s hottest Global Bull Markets. After over 15 years in the doldrums, the sun is rising again in Japan. The Japanese Nikkei index is up over 20% since May.
Here’s why Mitsubishi UFJ will yield rich profits for investors in the next great Japanese Bull Market…
First, the market cap of the merged entity is only about 35% of Citigroup’s: $82 billion versus $230 billion. This kind of imbalance doesn’t last long in today’s global financial markets.
Second, as S&P analyst (and London Junto member) Sho Matsubara pointed out to me, MTF and UFJ recently posted first-half results respectively with a combined profit of JPY560 billion (nearly $5 billion ).
That number is comparable to Toyota’s JPY550 billion — and it also means Mitsubishi UFJ is a lot cheaper than analysts had thought based on previous earnings estimates.
Third, the bad loan problem in the Japanese banking system is yesterday’s news.
As a Japanese central banker revealed to me at last month’s Junto, the largest Japanese banks are now actually adding back provisions for bad loans to their balance sheets to the tune of over JPY400 billion. The bottom line: the banking sector is in better shape than ever.
Finally, with Tokyo property recording its first price increases since 1990, the recovery in Japanese real estate will ensure hefty profits for Mistubishi UFJ for many years to come.
Master investor Prince Alaweed, the world’s fifth richest man, made a good chunk of his fortune in the same way by betting on the recovery in real estate in the US (and buying Citigroup) in the early 1980s.
MTU has also offered a haven of relative stability in jittery October markets, rarely dipping below $12.00. And as a leader in the recovering Japanese banking sector, MTU should outperform the broad Japanese market for several years to come.
So let’s buy Mitsubishi UFJ (NYSE: MTU) at market today and place a protective stop at $9.75. And if you want to play MTU more aggressively, buy May 06 call options with a strike price of $15 (MTUEC.X).