News Release


[Sumitomo Mitsui Financial Group, Inc.]Revision of Earnings Forecasts for Fiscal 2007(1/1)

 

 

 

 

Sumitomo Mitsui Financial Group, Inc.

 

 

Revision of Earnings Forecasts for Fiscal 2007

 

 

TOKYO , October 26, 2007 --- Sumitomo Mitsui Financial Group, Inc. (gSMFGh) today announced a revision of its earnings forecasts for the first half and full year 2007 announced in May 2007.

 

 

SMFG hereby revises its earnings forecasts for the first half and full year 2007, which were previously announced in May 2007 (gprevious forecasth), as shown below.

 

1. Earnings forecast on a consolidated basis

(Billions of yen, except percentages)

 

Six months ended September 30, 2007

Fiscal year ending March 31, 2008

Ordinary income

Ordinary profit

Net income

Ordinary income

Ordinary profit

Net income

Previous forecast

 1,950yen

 400 yen

 220 yen

4,100 yen

980 yen

540 yen

Revised forecast

2,075

353

170

4,300

940

570

Change

125

(47)

(50)

200

(40)

30

Percentage change

6.4%

(11.8)%

(22.7)%

4.9%

(4.1)%

5.6%

 

2. Earnings forecast on a non-consolidated basis

(Billions of yen, except percentages)

 

Six months ended September 30, 2007

Fiscal year ending March 31, 2008

Ordinary income

Operating profit

Ordinary profit

Net income

Ordinary income

Operating profit

Ordinary profit

Net income

Previous forecast

24yen

22yen

17yen

14yen

105yen

100yen

90yen

85yen

Revised forecast

24

20

11

9

110

105

90

80

Change

(2)

(6)

(5)

5

5

(5)

Percentage change

(9.1)%

(35.3)%

(35.7)%

4.8%

5.0%

(5.9)%

 

 


 

Reference

 
 


I. Revision of earnings forecast (SMFG, Consolidated)

(Billions of yen)

 

 

 

 

 

 

Six months ended

Sept. 30, 2007

Change from the previous forecast

Fiscal year ending

Mar. 31, 2008

Change from the previous forecast

Ordinary profit

353yen

(47)yen

940yen

(40)yen

Net income

170

(50)

570

30

 

 

 

 

 

Total credit cost

(143)

 

 

 

 

 

 

<First Half>

As described hereinbelow, Sumitomo Mitsui Banking Corporation (gSMBCh), a major consolidated subsidiary of SMFG, expects banking profit (before provision for general reserve for possible loan losses) to be 25 billion yen above the previous forecast, and credit cost and write-downs on shares to be higher than previously expected. As a result, SMFG expects ordinary profit to be approximately 353 billion yen, 47 billion yen below the previous forecast. Net income will be approximately 170 billion yen, a decrease from the previous forecast of 50 billion yen.

 

<Full Year>

Ordinary profit is expected to be 940 billion yen, 40 billion yen below the previous forecast, due mainly to the profit decline in the first half. However, net income will be approximately 570 billion yen, 30 billion yen above the previous forecast, due mainly to recording of extraordinary gains (ggains on change in equityh) of 100 billion yen as a result of mergers of leasing subsidiaries in the second half of fiscal 2007.

(For more details, please refer to Appendix 2.)

 

 

 

II. Revision of earnings forecast (SMFG, Non-consolidated)

(Billions of yen)

 

 

 

 

 

 

Six months ended

Sept. 30, 2007

Change from the previous forecast

Fiscal year ending

Mar. 31, 2008

Change from the previous forecast

Ordinary profit

 11yen

 (6)yen

 90yen

  – yen

Net income

9

(5)

80

(5)

 

 

<First Half>

Ordinary profit is expected to be approximately 11 billion yen, 6 billion yen below the previous forecast. Net income is expected to be approximately 9 billion yen, a shortfall of 5 billion yen. This is mainly attributable to impairment on shares of an affiliated company.

 

<Full Year>

Net income will be 80 billion yen, due mainly to the profit decline in the first half.

 

 


III. Revision of earnings forecast (SMBC, Non-consolidated)

(Billions of yen)

 

 

 

 

 

 

Six months ended

Sept. 30, 2007

Change from the previous forecast

Fiscal year ending

Mar. 31, 2008

Change from the previous forecast

Banking profit (before provision for general reserve for possible loan losses)

390yen

25yen

830yen

|yen

Ordinary profit

157

(103)

600

(100)

Net income

63

   (87)

315

  (95)

 

 

 

 

 

Total credit cost

 (115)

  (45)

(110)

(20)

 

 

 

 

 

Losses on stocks, net

 (104)

 

 

 

* Earnings forecast for the fiscal year ending March 31, 2008 is calculated based on the stock prices as of September 30, 2007.

 

 

<First Half>

Banking profit (before provision for general reserve for possible loan losses):

SMBC expects banking profit to be approximately 390 billion yen, 25 billion yen above the previous forecast. This increase is mainly attributable to recording of gains on bond-related transactions of the Treasury Unit amid declining interest rates in domestic and overseas markets and an increase in revenue from foreign currency-related transactions reflecting customersf hedging needs under the sharp appreciation of the Japanese yen since this summer.

 

Total credit cost:

SMBC expects total credit cost to be approximately 115 billion yen, 45 billion yen above the previous forecast, due mainly to a loss provision for U.S. subprime loan related exposure of approximately 11 billion yen and an unanticipated loss provision for loans to certain borrowers.

 

Ordinary profit:

SMBC expects ordinary profit to be approximately 157 billion yen, 103 billion yen below the previous forecast. This shortfall is mainly attributable to losses on stocks of 104 billion yen as a result of impairment on shares of equity method affiliates reflecting the decline in stock markets, as well as the factors mentioned above.

 

Net income:

SMBC expects net income to be approximately 63 billion yen, 87 billion yen below the previous forecast, due mainly to the lower-than-expected ordinary profit.

 

<Full Year>

Total credit cost:

For the second half of fiscal 2007, SMBC expects to record a gain on reversal of provisions for credit losses of approximately 100 billion yen due mainly to a decrease in the historical loan loss ratio. As a result, total credit cost for the full year 2007 is expected to be 110 billion yen, 20 billion yen above the previous forecast. Ratio of total credit cost to total claims will be less than 0.2%.

 

Ordinary profit and Net income:

Ordinary profit will be 600 billion yen, 100 billion yen below the previous forecast. Net income will be 315 billion yen, a 95 billion yen decrease from the previous forecast. This is attributable mainly to impairment on shares of affiliated companies.

 


IV. Estimate of problem assets based on the Financial Reconstruction Law (SMBC, Non-consolidated)

(Billions of yen, except percentages)

 

September 30, 2007 (Estimate)

March 31, 2007(Result)

Change

Problem assets based on

the Financial Reconstruction Law

774.0yen

738.7yen

35.3yen

 

Problem asset ratio

1.2 %

1.2 %

|

 

 

 

 

 

 

 

Problem assets are expected to be 774 billion yen as of September 30, 2007. Problem asset ratio will remain at a low-level of 1.2%.

 

 

 

V. Estimate of net unrealized gains on other securities (SMBC, Non-consolidated)

(Billions of yen)

 

September 30, 2007 (Estimate)

March 31, 2007(Result)

Change

Net unrealized gains (losses) on other securities

1,517.0yen

1,833.2yen

(316.2)yen

 

Stocks

1,716.0

1,978.7

(262.7)

 

Bonds

(158.0)

(151.4)

(6.6)

 

Others

(41.0)

5.9

(46.9)

 

 


(Appendix 1)

Subprime-related exposure and its impact on the business results for the first half of fiscal 2007

 

1.  SMBC had approximately 95 billion yen in exposure related to subprime mortgage loans in the United States as of September 30, 2007, about 0.1% of total investments and loans.

 

2.  SMBC sold securitized products such as RMBSs and ABSCDOs of approximately 350 billion yen and recorded a loss on sale of these products of around 4 billion yen in the first half of fiscal 2007. SMBC wrote off some of the remaining products with fair value below 50% of face value as of September 30, 2007. Write-offs totaled approximately 17 billion yen and the book value after the write-offs was about 70 billion yen as of September 30, 2007.

SMBC provided warehousing loans of approximately 40 billion yen in the United States as of September 30, 2007, and 25 billion yen of this amount is collateralized with subprime loan related assets. Consequently, SMBC has established loss provisions for such loans in the amount of approximately 11 billion yen, using the discounted cash flow method.

However, the above loss on sale and credit cost totaling 32 billion yen was offset by an increase in Treasury Unitfs profits including bond related gains amid declining interest rates in domestic and overseas markets arising from the subprime loans issues.

SMBC held net unrealized losses on RMBSs and ABSCDOs, etc. of 18 billion yen as of September 30, 2007, against book value of 70 billion yen.

 

3.  Subsidiaries other than SMBC had no subprime-related exposure as of September 30, 2007.

Most of the assets held by ABCP programs which SMBC sponsors are receivables of corporate clients and do not include subprime loan related assets.

 

 

 

 

 


(Appendix 2)

Outline of gGains on change in equityh

 

As announced on July 30, 2007 in the press release, gFinal Agreement concerning Strategic Joint Business in Leasing and Auto Leasing Businesses and Merger Agreement of the Two Businesses,h SMFG will apply the purchase method stipulated in the gGuidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestures (Accounting Standards Board of Japanfs Guidance No. 10) to the merger between SMBC Leasing Company, Limited and Sumisho Lease Co., Ltd. (October 1, 2007), and the assets and liabilities that will be succeeded are valuated at their fair values.

As a result, SMFG acquired 55% of the fair value of Sumisho Lease and transferred 45% of the shares of SMBC Leasing, equivalent in value to the acquired Sumisho Lease shares. Consequently, the difference between the transfer price of the shares of SMBC Leasing and 45% of SMBC Leasingfs stockholdersf equity is recognized as gGains on change in equityh and recorded as extraordinary gains. In addition, the difference between the acquisition cost of shares of Sumisho Lease and the amount of 55% of Sumisho Leasefs assets less liabilities, for which fair value is estimated individually, is recognized as goodwill and will be amortized on a straight-line method over 20 years from the second half of fiscal 2007.

 

<< Concept of Gains on Change in Equity >>

Shareholding ratios after the merger are 55% for SMFG and 45% for Sumitomo Corporation.

 

(Notes) 1. Stockholdersf equity (consolidated)

= Net assets Valuation and translation adjustments Stock acquisition rights Minority interests

2. The difference between assets and liabilities which fair values can be individually estimated.

 

Gains on change in equity (*) and goodwill (**) will be recognized also for the merger between Sumisho Auto Leasing Corporation and SMBC Auto Leasing Company Limited on October 1, 2007 in accordance with the ASBJ Guidance No. 10.

 

* Total amount of gains on change in equity on the two mergers is expected to be approximately \100 billion.

** Amount of goodwill will be determined based on the consolidated net assets at fair value.

 

 

 

 

This press release contains certain forward-looking statements.  Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may materially differ from those contained in the forward-looking statements as a result of various factors.

The following items are among the factors that could cause actual results to differ materially from the forward-looking statements in this material: business conditions in the banking industry, the regulatory environment, new legislation, competition with other financial services companies, changing technology and evolving banking industry standards and similar matters.

 




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