Japanese brokerages to merge

March 26, 2009

, TOKYO, Mar 26 – Japanese megabank Mitsubishi UFJ Financial Group (MUFG) and troubled Wall Street giant Morgan Stanley announced plans on Thursday to merge their securities firms in Japan to weather the credit crunch.

The two companies described the move as "a first step" in a broader alliance after MUFG, Japan\’s biggest bank, threw Morgan Stanley a nine-billion-dollar lifeline last year in the midst of the global financial crisis.

Under the deal, which they aim to close by March 2010, MUFG will take a 60 percent stake in the joint venture and Morgan Stanley will own the remainder.

The merger of Mitsubishi UFJ Securities Co. and Morgan Stanley Japan Securities Co. will create one of Japan\’s top brokerage firms, with more muscle to challenge industry leader Nomura Holdings.

"We believe this will be a chance for both organisations to grow together and to be a pre-eminent investment bank in Japan," Morgan Stanley co-president Walid Chammah told a news conference here.

Japanese banks and securities firms are facing a difficult outlook because of the shrinking population and a deepening recession.

"Financial institutions in general in Japan are going to have a pretty tough time given the extent of the economic contraction that we\’re going to see this year," said Jason Rogers, a credit analyst at Barclays Capital in Singapore.

How they perform will depend largely on their efforts to cut costs and sharpen their business focus, he said.

"There are plenty of new opportunities out there. It\’s just a matter of putting their resources in the right places," Rogers said.

The banks said the joint venture would benefit from Morgan Stanley\’s global platform and MUFG\’s strong brand in Japan.

"Morgan Stanley is very strong in China. MUFG, on the other hand, has a very broad base of Japanese clients, particularly for our banking operations," said MUFG president Nobuo Kuroyanagi.

The two firms will streamline overlapping operations, he added, but declined to say whether there would be job cuts or office closures.

The Japanese bank will pick the president and chief executive of the joint venture while Morgan Stanley will choose the chairman.

Japanese banks, once criticised for being too timid, have been less hard hit by the subprime loan crisis than many peers in North American and Europe, and have taken the opportunity to buy a slice of struggling Wall Street giants.

But MUFG, which bought a 21 percent stake in Morgan Stanley, has not escaped unscathed from global markets turmoil, posting a net loss of 42.07 billion yen (430 million dollars) for the nine months to December.

MUFG said earlier this week that it would slash 1,000 jobs and close 50 retail banking branches over three years in a bid to cut costs.

The Japanese bank is reportedly considering a bid for ailing Wall Street giant Citigroup\’s Japanese brokerage firm, Nikko Cordial Securities.

Morgan Stanley, which lost 2.29 billion dollars in the quarter to November, announced in January a deal to merge its global wealth management business with that of troubled rival Citigroup.

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