I had wondered when the Japanese would step to the fore. Japanese banks and trading companies are cash rich and undamaged by the financial crisis, having for the most part steered clear of of subprime assets.
Note that the Mitsubishi group has long been close to Morgan Stanley. Indeed, it was a surprise to many when the son of the chairman of Mitsubishi Corporation, the head of the Mistubishi keiretsu, joined Goldman in the early 1980s rather than Morgan Stanley (he went on to become a partern at Goldman, so it turned out to be a good career move).
While the Japanese groups are far less cohesive than they were 20 years ago (the post-bubble ere led financial firms to sell their stakes in group companies), they still attach considerable importance to their long-standing foreign relationships. Note the unusual procedure: a deal in principle has been agreed upon, but the price had not yet been determined (a range has been set instead).
From Bloomberg:
Mitsubishi UFJ, Japan’s largest bank, agreed to buy 10 percent to 20 percent of Morgan Stanley, the bank said in a statement today. The Japanese firm said it will start due diligence on Morgan Stanley before determining a final price.The deal marks an about-face for Mitsubishi UFJ Chairman Ryosuke Tamakoshi, who last week said he would avoid any immediate investments in U.S. banks following the Wall Street upheaval of the past 10 days. Mitsubishi UFJ’s backing will help shore up Morgan Stanley’s capital after the credit market meltdown eroded investor confidence in its ability to remain independent…..
Mitsubishi UFJ will appoint to representative to Morgan Stanley’s board as part of the investment, New York-based based Morgan Stanley said in a separate statement…..
“The purpose for the investment is to strengthen the investment banking business globally,” said Hirokazu Ushio, a Tokyo-based spokesman at Mitsubishi UFJ.
Like Nomura, Mitsubishi UFJ has struggled to expand outside Japan, leaving it vulnerable to a slowing domestic economy. The bank was formed in October 2005 after a merger between Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc.
Morgan Stanley ranks sixth globally in advising on mergers and acquisitions, 47 slots above Mitsubishi UFJ, according to Bloomberg data. In equity underwriting, Morgan Stanley is fifth while the Japanese bank is No. 100.
Mitsubishi UFJ agreed last month to pay $3.5 billion in cash to take full control of UnionBanCal Corp., California’s second-biggest bank. The Tokyo-based bank is also raising its stake in Japanese consumer lender Acom Co. to 40 percent from 16 percent for about $1.4 billion.
A 20 percent stake would make Mitsubishi UFJ the biggest shareholder in Morgan Stanley, followed by State Street Corp. with 16.4 percent, Bloomberg data shows. Morgan Stanley approached Mitsubishi UFJ on Sept. 19, the Japanese company said.
Last week’s market turmoil reshaped Wall Street and provided Asian and European firms with an opportunity to grab market share in trading, underwriting stock sales and advising companies on takeover
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Matthew Dubuque
Yves-
When the story notes a “range” has been set for the ultimate price, we need to read between the lines.
What is likely is that a “range” has been tentatively set based on several factors, but the Japanese seem likely to insist on a “reset” clause six months to a year down the road to ensure them against further dramatic downturns in Morgan’s share price and “unexpected” drops in the value of Morgan’s book.
Matthew Dubuque