UPDATE 2-MUFG, Morgan Stanley to merge Japan brokerages

*MUFG to own 60 percent of venture with Morgan Stanley

*MUFG to send chief executive and Morgan Stanley chairman

*Venture to be formed by March 2010

By Taiga Uranaka

TOKYO, March 26 (Reuters) - Mitsubishi UFJ Financial Group (8306.T) and Morgan Stanley (MS.N) said they would merge their Japanese brokerage units, a move to chase industry leaders Nomura Holdings (8604.T) and Daiwa Securities Group (8601.T).

MUFG will take a 60 percent stake in the venture, to be formed by March 2010, and seat one of its own as chief executive, the two banks said in a joint release.

MUFG, Japan's biggest lender, in October bought $9 billion of preferred stock in struggling Morgan Stanley. The two said they were still in talks about global alliances in other areas.

"Mitsubishi UFJ's client base is huge but it has failed to take advantage of it to do international deals," said Nana Otsuki, a senior analyst at UBS Securities Japan. "I expect the tie-up will narrow the gap and make MUFG a truly global firm."

The venture, to be named later, will have its chairman from Morgan Stanley. Its retail business will be led by an MUFG official, while the institutional business will be led by a Morgan Stanley official, the two firms said.

"We will be able to offer our newly combined client base in Japan a large domestic retail brokerage network, full range of institutional businesses and significant global platform," Morgan Stanley Co-President Walid Chammah told a news conference.

Together, MUFG and Morgan Stanley would have ranked first last year in advising on mergers and acquisitions in Japan, outranking powerhouse Nomura, Thomson Reuters data shows.

Nomura, Japan's largest brokerage, will remain hard to beat in equity underwriting, where it has topped the chart in Japan for six straight years. The MUFG-Morgan Stanley venture will rank third in this area based on Thomson Reuters figures.

"Demand from customers for fundraising and strategic advisory will still be there even under these tough market conditions," said MUFG President Nobuo Kuroyanagi.

The union comes as Citigroup (C.N) looks to sell its brokerage arm, Nikko Cordial Securities, to raise cash. Mitsubishi UFJ has been named as one of the potential buyers of that business. [ID:nT127749]

Kuroyanagi declined to comment on a possible purchase of Nikko Cordial.

Separately, Mitsubishi UFJ Trust & Banking, MUFG's trust banking unit, said on Thursday it would delay its planned acquisition of Citigroup's Japanese trust bank. Mitsubishi UFJ said in December it would buy NikkoCiti Trust & Banking for about 25 billion yen ($256 million). [ID:nT7947] (Additional reporting by Junko Fujita and Mayumi Negishi; Editing by Chris Gallagher)