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3RD LD: MUFG, Morgan Stanley to merge Japan brokerage units by spring 2010.

TOKYO, March 26 Kyodo

(EDS: ADDING ANALYST COMMENTS)

Mitsubishi UFJ Financial Group Inc. and U.S. investment bank Morgan Stanley said Thursday they will aim to create a new securities company by merging their Japanese units by the end of March 2010 as the nation's top financial group seeks an aggressive expansion despite the global financial slump.

The merger of Mitsubishi UFJ Securities Co. with Morgan Stanley Japan Securities Co. would create Japan's second-largest securities firm by unconsolidated net revenue behind industry leader Nomura Holdings Inc., according to latest figures compiled by Morgan Stanley.

MUFG, which made a $9 billion investment in the struggling U.S. investment bank last October, will take a 60 percent stake in the integrated entity while Morgan Stanley will take the remaining 40 percent interest.

The new company, to be named by the end of June, will be headed by a group of five representative directors, including the president and chief executive officer from MUFG and chairman from Morgan Stanley.

''Our goal in this joint venture is to become the preeminent investment bank in Japan in terms of domestic market presence, global reach and profitability,'' Morgan Stanley Japan Securities President Jonathan Kindred said at a joint press conference in Tokyo.

Despite the deepening global economic and financial turmoil, MUFG President Nobuo Kuroyanagi emphasized that ''client needs with regard to fundamental investment banking'' businesses -- in cases of mergers and acquisitions and cross-border fund management -- have not changed.

''The new securities company will aim to provide higher-quality and more sophisticated financial services to address the further diversification and globalization of financial needs,'' he said.

MUFG's brokerage unit is known for its strength in underwriting domestic bonds while Morgan Stanley is active in investment banking businesses including mergers and acquisitions.

But officials of both companies admitted that many challenges lie ahead for a successful integration between the units of a domestically oriented Japanese banking giant and U.S.-centric investment bank.

''Since the corporate cultures between Japan and the West are still different, this integration will be extremely ambitious and challenging for us,'' Mitsubishi UFJ Securities President Fumiyuki Akikusa said.

Morgan Stanley's Co-President Walid Chammah emphasized that the merger will create a bigger retail domestic brokerage network and a wider global platform that will be more attractive to the clients of both firms.

''We know it's a challenge. (But) we are focused on the gain,'' Chammah said.

Some analysts have warned that MUFG may be overextending at a time when the banking group is in the red due to rising loan-loss provisions and other credit costs caused by the stressed global financial system.

''If the trading value continues to be this low, it's hard to survive whatever brokerage firm you create,'' said Shinichi Ina, banking analyst at Credit Suisse in Japan. ''This is a problem for the entire Japanese securities industry.''

Ina also said the new firm needs to create incentives in order to avoid a drain of talented personnel, adding MUFG's conventional ways would not work under a different corporate culture.

Noting the tough market conditions, MUFG's Kuroyanagi said he sees rationalization and efficiency as key management goals for the joint venture while refraining to disclose details on the scale of job cuts that will be implemented in the future.

But Kuroyanagi and Chammah said they will continue to keep their eyes open for further opportunities to expand as speculation is spreading that MUFG is keen on acquiring Nikko Cordial Securities Inc. from cash-strapped U.S. financial giant Citigroup Inc.

''Not only on Nikko Cordial, we will take whatever actions are necessary and appropriate to address the various changes in environment,'' Kuroyanagi said.

He added the two companies are working on further areas of cooperation including in overseas corporate finance particularly in Asia.
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Publication:Japan Weekly Monitor
Article Type:Company overview
Date:Mar 30, 2009
Words:626
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