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2ND LD: MUFG mulls merging security unit with Morgan Stanley's Japan unit.

TOKYO, Oct. 3 Kyodo


Mitsubishi UFJ Financial Group Inc. is mulling merging its securities unit, Mitsubishi UFJ Securities Co., with U.S. investment bank Morgan Stanley's Japanese securities unit, sources familiar with the matter said Friday.

Mitsubishi UFJ Securities' merger with Morgan Stanley Japan Securities Co., if realized, will make one of the largest wholesale securities service firms in Japan, whose business includes mergers and acquisitions as well as bond underwriting.

Further negotiations between the two firms are expected to map out the method and timing of the merger as well as strategies to boost their overseas presence, the sources said.

The move came after MUFG, Japan's largest banking group, said earlier this week that it will acquire a 21 percent stake in Morgan Stanley, the second-largest U.S. investment bank, on a voting rights basis for $9 billion.

The capital injection deal will make MUFG the top shareholder in Morgan Stanley. MUFG will seek to make Morgan Stanley a group company to whose financial results it can apply the equity method.

Observers say a sweeping realignment in the global financial sector sparked by the U.S. subprime mortgage crisis is making its way into Japan's brokerage industry and reshuffling is likely to intensify as faltering stock prices chip away the earnings of the domestic securities firms.

Morgan Stanley Japan Securities, which obtained a securities business license in 1984, is active in asset management and real estate business for corporate customers and institutional investors.

In the business year to March, the company posted a net profit of 3.2 billion yen on operating revenues of 213.9 billion yen. It has a group workforce of 1,600 people.

Mitsubishi UFJ Securities, established in 2005 through the merger of Mitsubishi Securities Co. and UFJ Tsubasa Securities Co., is promoting bond underwriting and other wholesale business under the aegis of MUFG.

According to figures released by Thomson Reuters, MUFG already holds the largest share of yen bond issues, including straight bonds, for the January-September period. Combined with Morgan Stanley, the total transaction value in mergers and acquisitions will total over 4 trillion yen, beating current top player Nomura Securities Co.

Mitsubishi UFJ Securities registered a net profit of 8.1 billion yen on operating revenues of 534 billion yen in the year to March. The company, with some 6,500 workers, has about 130 branches and offices at home and abroad.

By the end of next June, MUFG plans to draw up a specific business strategy, such as cooperation on investment banking, with which it will be able to cash in on the new capital tie-up with Morgan Stanley.
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Publication:Japan Weekly Monitor
Date:Oct 6, 2008
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