Mitsubishi UFJ Financial Group <8306.T> posted a 59 percent rise in quarterly profit helped by stronger lending, becoming the third major Japanese bank to post market-beating results, in a sign that Tokyo's lenders may now be on the mend.

Japan's biggest bank also confirmed earlier reports that it would raise up to 1 trillion yen ($11.2 billion) by issuing new shares in order to meet stricter global capital rules. The fundraising is a record for a Japanese financial firm and the country's biggest in nine years.

The bank also said it would rejig its plan to integrate its brokerage with Morgan Stanley's Tokyo operation. Instead of a full integration of their Japanese brokerages, the firms will now form two separate companies, one controlled by Mitsubishi UFJ and one controlled by the U.S. investment bank.

Mitsubishi UFJ's results highlighted the banks' relatively sound footing, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

When it comes down to comparing MUFG to U.S. or European banks, MUFG isn't really in such bad shape, he said.

Japanese banks aren't being given a lot of government money.

Mitsubishi UFJ will become one of scores of Japanese firms to tap a modest rebound in share prices for much-needed cash.

Japanese companies have so far raised about $40 billion this year by issuing common stock and convertible bonds to shore up balance sheets depleted by the economic downturn.

Almost three-quarters of the fundraising has been by financial firms, and analysts say that Mizuho Financial Group <8411.T> and Sumitomo Mitsui Financial Group <8316.T>, Japan's other big banks, will also need to raise more funds.

All three banks have completed a round of fundraising, but only Mitsubishi UFJ is out of the lock-period, meaning it is the only one able to issue new shares now. The timing may be a critical advantage, analysts have said, if Japan's stock market slides again.

INTEREST INCOME HIGHER

The bank was aided by a rebound in income from domestic and overseas loans.

Mitsubishi UFJ said group net profit for the July-September quarter was 65.0 billion yen ($728 million) against 40.8 billion yen a year earlier. The results beat the average forecast of 34.7 billion yen in a survey of three analysts by Reuters.

The bank stuck to its forecast for a full-year profit of 300 billion yen. That compares with an average estimate for a net profit of 280.6 billion yen in a poll of 11 analysts by Thomson Reuters I/B/E/S.

Net interest income, a gauge of earnings from lending, rose nearly 12 percent from the same period a year earlier. Losses on its stock portfolio fell by nearly three-quarters.

Mizuho and Sumitomo Mitsui, Tokyo's other two megabanks, posted consensus-beating results last week, with Mizuho returning to profit for the first time in five quarters and Sumitomo Mitsui doubling its quarterly profit.

But shares of all three banks have been hit by concern about fundraising. Mitsubishi UFJ's move will increase speculation that other lenders will follow suit, Daiwa's Ogawa said.

Now you have to wonder if Mizuho will do it, and how big, as well as a lot of smaller banks, he said.

Mitsubishi UFJ has also been hurt by weakness at some of its group companies. In September it injected $2 billion into wholly owned subsidiary UnionBanCal Corp, to shore up the California-based lender's balance sheet.

It also plans to write down 28 billion yen worth of goodwill for the year to March 2010, hit by a fall in the shares of Aiful Corp <8515.T>. It owns about 40 percent of the consumer lender.

Mitsubishi UFJ's shares finished down 0.6 percent ahead of the results on Wednesday. The shares have fallen 11 percent so far this year, outperforming a 17 percent slide in Tokyo's index of bank stocks.

(Additional reporting by Elaine Lies; Editing by Muralikumar Anantharaman)

Japan Investment Morgan Stanley