Sumitomo Mitsui Financial Group, Inc.

 

 

Revision of Earnings Forecasts for Fiscal 2007

 

 

TOKYO, October 26, 2007 --- Sumitomo Mitsui Financial Group, Inc. (“SMFG”) 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 (“previous forecast”), as shown below.

 

1. Earnings forecast on a consolidated basis

(Billions of ブックメーカー野球, 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	1,950	400	220	4,100	980	540
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 ブックメーカー野球, 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	24	22	17	14	105	100	90	85
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 ブックメーカー野球)

	Six months ended Sept. 30, 2007	Change from the previous forecast	Fiscal year ending Mar. 31, 2008	Change from the previous forecast
Ordinary profit	353	(47)	940	(40)
Net income	170	(50)	570	30
Total credit cost	(143)

 

 

<First Half> As described hereinbelow, Sumitomo Mitsui Banking Corporation (“ブックメーカー野球”), a major consolidated subsidiary of SMFG, expects banking profit (before provision for general reserve for possible loan losses) to be 25 billion ブックメーカー野球 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 ブックメーカー野球, 47 billion ブックメーカー野球 below the previous forecast. Net income will be approximately 170 billion ブックメーカー野球, a decrease from the previous forecast of 50 billion ブックメーカー野球.   <Full Year> Ordinary profit is expected to be 940 billion ブックメーカー野球, 40 billion ブックメーカー野球 below the previous forecast, due mainly to the profit decline in the first half. However, net income will be approximately 570 billion ブックメーカー野球, 30 billion ブックメーカー野球 above the previous forecast, due mainly to recording of extraordinary gains (“gains on change in equity”) of 100 billion ブックメーカー野球 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 ブックメーカー野球)

	Six months ended Sept. 30, 2007	Change from the previous forecast	Fiscal year ending Mar. 31, 2008	Change from the previous forecast
Ordinary profit	11	(6)	90	–
Net income	9	(5)	80	(5)

 

<First Half> Ordinary profit is expected to be approximately 11 billion ブックメーカー野球, 6 billion ブックメーカー野球 below the previous forecast. Net income is expected to be approximately 9 billion ブックメーカー野球, a shortfall of 5 billion ブックメーカー野球. This is mainly attributable to impairment on shares of an affiliated company.   <Full Year> Net income will be 80 billion ブックメーカー野球, due mainly to the profit decline in the first half.

 

III. Revision of earnings forecast (ブックメーカー野球, Non-consolidated)

(Billions of ブックメーカー野球)

	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)	390	25	830	−
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): ブックメーカー野球 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’ hedging needs under the sharp appreciation of the Japanese ブックメーカー野球 since this summer.   Total credit cost: ブックメーカー野球 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 ブックメーカー野球 and an unanticipated loss provision for loans to certain borrowers.   Ordinary profit: ブックメーカー野球 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: ブックメーカー野球 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, ブックメーカー野球 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 ブックメーカー野球, 100 billion ブックメーカー野球 below the previous forecast. Net income will be 315 billion ブックメーカー野球, a 95 billion ブックメーカー野球 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 (ブックメーカー野球, Non-consolidated)

(Billions of ブックメーカー野球, except percentages)

		September 30, 2007 (Estimate)	March 31, 2007 (Result)	Change
Problem assets based on the Financial Reconstruction Law		774.0	738.7	35.3
	Problem asset ratio	1.2 %	1.2 %	−

 

Problem assets are expected to be 774 billion ブックメーカー野球 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 (ブックメーカー野球, Non-consolidated)

(Billions of ブックメーカー野球)

		September 30, 2007 (Estimate)	March 31, 2007 (Result)	Change
Net unrealized gains (losses) on　other securities		1,517.0	1,833.2	(316.2)
	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. ブックメーカー野球 had approximately 95 billion ブックメーカー野球 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. ブックメーカー野球 sold securitized products such as RMBSsandABSCDOs 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. ブックメーカー野球 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.

ブックメーカー野球 provided warehousing loans of approximately 40 billion yen in the United States as of September 30, 2007, and 25 billion ブックメーカー野球 of this amount is collateralized with subprime loan related assets. Consequently, ブックメーカー野球 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 ブックメーカー野球 was offset by an increase in Treasury Unit’s profits including bond related gains amid declining interest rates in domestic and overseas markets arising from the subprime loans issues.

ブックメーカー野球 held net unrealized losses on RMBSsandABSCDOs, etc. of 18 billion ブックメーカー野球 as of September 30, 2007, against book value of 70 billion ブックメーカー野球.

 

3. Subsidiaries other than ブックメーカー野球 had no subprime-related exposure as of September 30, 2007.

Most of the assets held by ABCP programs which ブックメーカー野球 sponsors are receivables of corporate clients and do not include subprime loan related assets.

 

 

 

 

 

(Appendix 2)

Outline of “Gains on change in equity”

 

As announced on July 30, 2007 in the press release, “Final Agreement concerning Strategic Joint Business in Leasing and Auto Leasing Businesses and Merger Agreement of the Two Businesses,” SMFG will apply the purchase method stipulated in the “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestures (Accounting Standards Board of Japan’s Guidance No. 10) to the merger between ブックメーカー野球 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 ブックメーカー野球 Leasing, equivalent in value to the acquired Sumisho Lease shares. Consequently, the difference between the transfer price of the shares of ブックメーカー野球 Leasing and 45% of ブックメーカー野球 Leasing’s stockholders’ equity is recognized as “Gains on change in equity” 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’s 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’ 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 ブックメーカー野球 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 ブックメーカー野球.

** 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.