By Taiga Uranaka and Denny Thomas
TOKYO/HONG KONG Jan 16 A joint venture between
U.S. investment bank Morgan Stanley and Japan's
Mitsubishi UFJ Financial Group, which suffered from a
culture clash in its early stages, looks to have found its
The venture, spawned from MUFG's $9 billion investment in
the Wall Street firm during the financial crisis, is a big
winner from Suntory Holdings Ltd's $13.6 billion deal this week
to buy U.S. whiskey maker Beam Inc.
That deal involves a bridge loan of up to 1.4 trillion yen
($13.5 billion) by MUFG, say people familiar with the matter -
one of the biggest such loans in Asia - and will earn the two
banks almost $34 million in advisory fees alone, according to
Thomson Reuters/Freeman Consulting Co estimates.
Teaming up with MUFG - just before Japanese companies
embarked on a series of overseas deals - helped Morgan Stanley
take the top spot on Japan's M&A league table last year for the
first time in more than a decade.
When the venture was born in 2010, skeptics warned it would
be a messy clash of Japanese and Western corporate cultures and
a difficult marriage of commercial and investment banking.
People involved with the venture said at the time that the U.S.
bank's style of deal-hungry investment banking clashed with
MUFG's conservative, commercial lending practices.
Others, however, said Morgan Stanley's investment banking
prowess, coupled with MUFG's sizeable lending book, would be a
The pairing did struggle from the start, and had to ditch
plans to merge their investment operations into a single entity
in Japan due in part to regulatory reasons.
As a result, there are two joint ventures: Mitsubishi UFJ
Morgan Stanley Securities and Morgan Stanley MUFG Securities -
the names alone point to the complicated structure of the
partnership. Questions were raised about how efficiently they
could work. Plans to share each other's trading book also fell
by the wayside.
In its first year, Mitsubishi UFJ Morgan Stanley Securities
reported a 144.9 billion yen ($1.4 billion) net loss due to
trading losses on positions held by Mitsubishi before the
venture started, stoking tensions within the tie-up.
Those look to have eased, say people familiar with the
venture, helped in part by a resurgence in Japanese overseas
The venture has succeeded in large part because MUFG, aware
of its limitations, has conceded some control to Morgan Stanley
bankers in managing investment banking operations, say people at
the banks and those who watch them closely.
"We're commercial bankers. We don't delude ourselves that we
can do investment banking business," said a senior MUFG
TIES THAT BIND
The companies bring complementing strengths to the venture:
Morgan Stanley's global network helps those seeking overseas
acquisitions and deals, while MUFG has a strong balance sheet
and deep-rooted ties with Japanese companies.
Before the Suntory/Beam coup, the venture advised on
advertising agency Dentsu Inc's 395.5 billion yen
acquisition of Britain's Aegis Group in 2012, with MUFG again
providing finance. That deal, in particular, registered with
bankers as Dentsu had historical ties with MUFG's rival Mizuho
"It's thanks to Morgan Stanley. We're not even the main
lender for Dentsu," an MUFG executive told Reuters at the time.
A string of debt-funded overseas acquisitions from Asia
underscores the importance for Wall Street banks in having a
strong local partner in the region.
Japan was Asia's biggest investment banking market last
year, generating $4.6 billion in fees, Thomson Reuters data
show. Mergers and acquisitions contributed $881 million to that
fee pool, though its share of the total dipped to below a fifth
from 26 percent in 2012 as Japanese outbound deals slowed.
The tie-up still has room to improve. MUFG officials say
they want the venture to have a bigger M&A advisory role for
smaller companies - a notion that could run counter to Morgan
Stanley's hunger for big deals.
"Nomura dominates in medium- and small-sized
business advisory," said one MUFG official. "We would want to
have a bigger presence there."