MITSBUISHI UFJ Financial Group Inc, Japan's largest bank by market value, posted an unexpected gain in fourth-quarter profit as reserves for bad loans declined and trading income rose.

Net income rose 69 percent to 322 billion yen (US$3.1 billion) in the three months ended March 31, based on subtracting nine-month results from full-year figures announced in a statement to the Tokyo Stock Exchange yesterday.

Full-year profit exceeded the company's own forecast of 600 billion yen, making Mitsubishi UFJ the only one among Japan's three largest banks not to miss earnings targets. Mitsubishi UFJ forecast profit in the year ending March 2009 will be little changed, suggesting it expects weakening economic growth in Japan to hamper lending expansion.

"I wouldn't say it's going to be a great year for the banks," Masafumi Oshiden, a Tokyo-based fund manager at BlackRock Inc, which manages more than US$1.1 trillion in assets, told Bloomberg News. "Mitsubishi UFJ is relatively well-positioned, because their balance sheet is the soundest and they have the most room to invest."

The Tokyo-based bank said it booked 313 billion yen in valuation losses on investments in securitized products, leaving it with a balance of 3.32 trillion yen in such investments. It didn't book the shortfall in its income statement.

Mitsubishi UFJ recorded 66 billion yen in subprime-linked losses against profit in the fourth quarter, bringing the total for the year to 123 billion yen.

"We can't be positive on the result," said Nana Otsuki, an analyst at UBS AG in Tokyo. "The valuation loss in securitization products was bigger than we expected."