Back from the dead, Tokyo banks buy into Wall Street

By David Dolan and Nathan Layne - Analysis

TOKYO (Reuters) - Just a few years ago, Japan's big banks teetered on the brink of collapse and came to symbolize the moribund state of the world's No.2 economy.

Now, those same financial firms are helping reshape the global banking landscape.

Nomura Holdings (8604.T), Japan's biggest brokerage, is snapping up the Asian arm of failed U.S. investment bank Lehman Brothers (LEHMQ.PK) for up to $525 million, and Mitsubishi UFJ Financial (8306.T), the country's biggest bank, is buying up to 20 percent of Morgan Stanley (MS.N) for as much as $8.5 billion.

Those deals have fueled speculation that Goldman Sachs (GS.N), which like Morgan Stanley is transforming into a commercial bank, might turn to Sumitomo Mitsui Financial Group (SMFG) (8316.T), Japan's third-largest bank, with which it has a long relationship.

Once considered too naive and cautious for the high-risk, high-return world of investment banking, cash-rich Japanese firms are once again aggressively pushing abroad.

"The balance of power in the global financial industry has changed dramatically over the past one to two weeks," said Shinichi Ina, banking analyst at Credit Suisse in Tokyo.

"I don't think anyone imagined a few months ago that Mitsubishi would be making Morgan Stanley into a group firm. I don't think they could have imagined it themselves."

Japanese financial firms have largely avoided the massive credit losses that tore through Wall Street. Unlike Western rivals, Mitsubishi UFJ and others have largely shied away from riskier investments since their near-death several years ago, when they needed massive injections of public funds to stay afloat.

Now, the upheaval on Wall Street has changed everything.

While Lehman Brothers has filed for bankruptcy, Merrill Lynch & Co MER.N is to merge with Bank of America Corp (BAC.N), and the U.S. Federal Reserve has turned Morgan Stanley and Goldman into bank holding companies, killing off the investment banking model that dominated Wall Street for more than 20 years.

DEPOSITS NEEDED

Morgan Stanley's deal with Mitsubishi UFJ will speed the U.S. firm's transformation into a commercial bank, improving its chances for survival. The deal will give Morgan Stanley access to Mitsubishi UFJ's $1.1 trillion in bank deposits.

"In this new environment I think people have recognized the importance of having stable investors and affiliations with large deposit-taking institutions, and MUFG ranks up there," said Jason Rogers, credit analyst at Barclays Capital.

In turn, Mitsubishi UFJ will get a seat on Morgan Stanley's board and potential for future business tie-ups.

Saddled with a faltering economy and a declining population at home, Japanese financial firms are increasingly looking for growth opportunities abroad.