September 26, 2008 / 6:57 AM / 10 years ago

DEALTALK-How "strategic" is Mitsubishi-Morgan deal?

HONG KONG/TOKYO, Sept 26 (Reuters) - Morgan Stanley (MS.N) and Mitsubishi UFJ Financial Group (8306.T) are stressing the strategic and collaborative benefits of their planned equity tie-up, but if history is a guide, Japan’s largest bank could end up with a decent investment and little else.

Japan Inc is on an acquisition hot streak to expand its global reach, with banks — unburdened by subprime losses and faced with stagnating growth at home — among the buyers.

On Monday, Mitsubishi UFJ said it will take a 10-20 percent stake in Morgan Stanley, and will pay as much as $8.5 billion.

The details of the deal are still being hammered out, meaning it may take some time before investors see evidence of how far the alliance will go in terms of cooperation.

“I think it will more likely be an investment,” said Kristine Li, banking analyst at KBC Securities in Tokyo.

“Putting in the capital, Mitsubishi can get higher ROE (return on equity) to compensate for the low growth of their domestic business.”

Their deal could very well form a true global franchise, sharing people and products from Tokyo to Times Square.

But history is not on their side.

When the forerunner of Sumitomo Mitsui Financial Group (8316.T) invested $500 million into Goldman Sachs (GS.N) in 1986, the idea was to form a global alliance. That never really happened.

The Japanese bank benefitted financially from its Goldman deal, but “not necessarily in terms of strategic initiative,” John Ehara, a partner at Tokyo-based Unison Capital, said at a Hong Kong conference panel on Wednesday.

While the two banks worked together on various loans, they were never able to achieve a broad linkage.


Likewise, it remains to be seen whether or not Mizuho Financial Group’s (8411.T) investment in Merrill Lynch MER.N will lead to a stronger relationship abroad.

Since the January deal, Merrill shares plunged until Bank of America agreed to buy it. Japanese media reported last week that Mizuho plans to boost it’s business ties with BofA and Merrill.

Time will tell.

Morgan Stanley says its deal with MUFG is every bit a partnership.

“This alliance also would build on Morgan Stanley’s deep ties and market leadership in Japan and throughout Asia,” CEO John Mack said in Monday’s statement.

The resurgence of activity by Japanese banks is reminiscent of an aggressive push into the U.S. in the 1980s, which was later derailed by the collapse of Japan’s asset bubble.

While Japanese banks have long sought to boost revenues from abroad, they have so far not been very successful in establishing a sustained presence overseas.

“It gives MUFG a footprint in the U.S. How effectively they can leverage that, and various other synergies, remains to be seen,” said Jason Rogers, credit analyst at Barclays Capital.

The Morgan Stanley-Mitsubishi link-up came as the U.S. investment bank was pulled into the financial market panic, sending its stock plummeting and forcing it to consider its options.

“My guess is that Mitsubishi UFJ would regard it as a bit of an option,” said Rob Morrison, Chairman of Hong Kong-based brokerage CLSA. “They’ll say ‘we’ll invest this money and see how the relationship pans out.’ It’s not every day you get to invest in a franchise like Morgan at that sort of entry level.”

Nomura Holdings (8604.T), Japan’s biggest brokerage, has also taken the oppportunity of Wall Street’s meltdown to swoop, buying the operations of failed Morgan rival Lehman Brothers in Europe, the Middle East and Asia.

When asked for comment for this story, a Morgan Stanley spokesman said: “This deal is a strategic alliance with numerous opportunities for global collaboration and both sides are moving ahead quickly to close the transaction”.

Mitsubishi UFJ will receive a board seat at Morgan Stanley.

“The point of this is to strengthen our alliance with Morgan Stanley. This is completely a strategic investment,” said a spokesman for Mitsubishi UFJ.

Fair enough. But as history has indicated, it’s going to take time, and it’s not going to be easy — if it ever happens at all.

“I think that without majority control it is very hard for them to really do anything on the business side, to really change the business,” said KBC’s Li. (Editing by Lincoln Feast)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below