SMFG posts big rebound, forecasts modest growth

TOKYO (Reuters) - Sumitomo Mitsui Financial Group (8316.T) reported a threefold increase in fourth-quarter profit, rebounding from massive losses at its consumer finance unit a year earlier, and it forecast modest growth ahead.

Sumitomo Mitsui said investments related to risky subprime investments cost it 93 billion yen ($889 million) in the year to March, and estimated its subprime exposure had been whittled down to just 5.5 billion yen.

That's only a sliver of the 645 billion yen that rival Mizuho Financial Group (8411.T) lost on subprime-related investments.

But while SMFG has little subprime exposure, it has taken greater hits from its ties to the consumer finance industry, where stricter regulations have dented profits.

Faced with a weak domestic economy, it has seen sluggish lending growth and been forced to raise provisions against bad loans. The market downturn has also sparked losses on its stock holdings.

January-March group net profit was 142.05 billion yen, according to Reuters calculations, versus 45.3 billion yen a year earlier.

Rather than strong growth, the results represent a rebound from the previous year, when earnings were sliced by massive losses at money lending affiliate Promise Co (8574.T).

Reuters calculated the quarterly figures from SMFG's full-year and nine-month earnings statements filed with the Tokyo Stock Exchange.

A poll of seven analysts by Reuters Estimates had implied an average estimate for a 137 billion yen net profit for the January-March fiscal fourth quarter.

For the year ended March 31, group net profit totaled 461.54 billion yen. The results were largely expected after the bank cut its estimate to 460 billion yen last month to reflect stock losses and higher bad loan provisions.

For the year to March 2009, SMFG forecast a profit of 480 billion yen, well below the market consensus of 547.8 billion yen.

Tokyo banks have also been hurt by slow lending in the world's second-largest economy. Many Japanese corporates now shun loans after recovering from a 1990s asset bubble and cleaning up their balance sheets.

Data released this week by the Bank of Japan showed lending in April grew at its fastest pace in a year, but even that was just a lean 1.2 percent, and some economists doubt demand will continue.

Analysts are also watching a recent spike in bankruptcies, a sign that banks will need to continue raising provisions for bad loans.

SMFG shares lost 22 percent in January-March quarter, underperforming a 19 percent drop in Tokyo's banking index

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The stock closed up 1.4 percent at 876,000 yen before the earnings were released on Friday, compared with a 0.7 percent gain in the bank index.

(Reporting by David Dolan; Editing by Ian Geoghegan and Chris Gallagher)