UPDATE 1-M.Stanley names Japan prime broking head in Asia push

* Japan equities distribution head to lead Japan prime broking

* To increase regional prime broking headcount to about 90

* Assets under management back at 75 pct of pre-crisis level

By Parvathy Ullatil

HONG KONG, Dec 18 (Reuters) - Morgan Stanley (MS.N) has appointed a new head for its prime brokerage business in Japan as the bank aims to increase the unit's head count in Asia by about a third in 2010, a senior bank official said.

The Wall Street bank expects to take the headcount in its prime brokerage business in Asia to about 90 next year, seeking to build back its past dominance after its position was shaken by the financial crisis.

The bank has made a number of key hires in its prime broking division in the second half of this year, following rounds of cutbacks in the worst months of 2008 and early 2009.

Chris Duffy, who has run the Japanese equities distribution team since 2006, will head the prime brokerage sales team in Tokyo, Richard Webb, Morgan Stanley's regional co-head of equity financing products said on Friday.

"Some of the bigger funds launched this year have significant exposure to Japan, so its very important from a global perspective," said Edward Sisterson, co-head of equity financing products for Morgan Stanley in Asia.

The lucrative business of prime broking -- the industry of lending to and servicing hedge funds -- was dominated for years in Asia by Goldman Sachs and Morgan Stanley which controlled nearly 70 percent of the market in early 2008.

That changed quickly this year, with Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE) seizing an opportunity to win over hedge fund clients in Hong Kong and Singapore while the Wall Street giants grappled with the financial crisis back home.

BUILDING BACK

Credit Suisse and Deutsche Bank more than doubled their market share in a year as hedge fund managers sought to spread their risk around by signing on multiple prime brokers.

But counterparty risk is seen as less of a concern now with major U.S. and European banks mostly backed by implicit or explicit government guarantees and hedge fund managers are more comfortable going back to old relationships.

"While prime broking revenues are significant by themselves, the business is also seen as a portal to the firm. These relationships bring meaningful incremental connectivity and business," said Webb.

The account balances in the Morgan Stanley's prime broking business in Asia is back at 75 percent of its pre-crisis levels, said Webb. The balances were estimated to be cut by half over the fourth quarter of 2008 and the first quarter of 2009.

Webb said Morgan Stanley has been signed on as the sole prime broker to about eight new funds this year, six of which are from Chinese fund managers. The bank said it has won mandates to about a third of nearly 60 new fund launches in the region this year.

"Lessons were learnt last year but we feel very comfortable in a normalised environment and have been winning a disproportionately large amount of the new business," said Webb.

Competition in the prime broking business heated up further in the second half as hedge funds made a strong comeback after last year's dismal showing.

Hedge fund managers across Asia excluding Japan have achieved average gains of 34 percent through November, according to data from Eurekahedge, which also showed that total assets under management in the region had swelled to $103.3 billion. (Editing by Anshuman Daga)