May 16, 2018 / 3:01 AM / a year ago

Breakingviews - Morgan Stanley has paid off smartly for MUFG

A man walks past a signboard of MUFG Bank in Tokyo, Japan April 3, 2018. REUTERS/Toru Hanai

HONG KONG (Reuters Breakingviews) - Backing Morgan Stanley has paid off smartly for Mitsubishi UFJ Financial Group. Supporting the Wall Street stalwart at the height of the financial crisis has proved a welcome counterweight to the difficulties besetting Japanese finance.

Nearly a decade ago, MUFG ponied up $9 billion, buying both convertible and non-convertible preferred shares each yielding 10 percent. That was a bold move just weeks after Lehman Brothers collapsed. MUFG swapped some of the latter for standard shares in 2009, and bought $440 million more of common stock. The convertibles turned into ordinary equity in 2011.

Fast forward, and today MUFG owns 432 million shares, or a roughly 24 percent stake, worth nearly $24 billion, plus a little over $500 million of non-convertible securities. Japan’s biggest bank by market value has also probably pocketed nearly $4 billion more in dividends, a back-of-the-envelope Breakingviews estimate suggests – and so, all told, has roughly tripled its money.

The affiliate is also a major contributor to MUFG’s bottom line. Annual results on Tuesday showed Morgan Stanley accounted for about 17 percent of MUFG’s overall 990 billion yen ($9 billion) of earnings for the financial year ending in March.

That is a solid outcome without considering the other benefits of this partnership. Unlike broad-based European rivals such as Deutsche Bank or Barclays, or domestic investment banking champion Nomura, the $89 billion MUFG has avoided the pain and expense of fighting the U.S. bulge bracket. Yet it still gets to connect clients with investment bankers worldwide, and lend to companies pursuing mega-deals. Meanwhile, the duo’s Tokyo-based joint ventures ranked first for completed mergers and acquisitions involving Japanese firms in both 2017 and 2016, Thomson Reuters data shows.

All in all, this is welcome, considering the intense competition, rock-bottom interest rates and slow economic growth that hamper all Japanese banks. MUFG’s 6.8 percent increase in earnings was helped by the fact last year was marred by large one-off charges. Return on equity was a lacklustre 7.5 percent, below its 8.5 to 9 percent target. MUFG has made some smart choices, but the lender is still not having an easy time.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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