I had wondered when the Japanese would step to the fore. Japanese banks and trading companies are cash rich and undamaged by the financial crisis, having for the most part steered clear of of subprime assets.
Note that the Mitsubishi group has long been close to Morgan Stanley. Indeed, it was a surprise to many when the son of the chairman of Mitsubishi Corporation, the head of the Mistubishi keiretsu, joined Goldman in the early 1980s rather than Morgan Stanley (he went on to become a partern at Goldman, so it turned out to be a good career move).
While the Japanese groups are far less cohesive than they were 20 years ago (the post-bubble ere led financial firms to sell their stakes in group companies), they still attach considerable importance to their long-standing foreign relationships. Note the unusual procedure: a deal in principle has been agreed upon, but the price had not yet been determined (a range has been set instead).
From Bloomberg:
Mitsubishi UFJ, Japan’s largest bank, agreed to buy 10 percent to 20 percent of Morgan Stanley, the bank said in a statement today. The Japanese firm said it will start due diligence on Morgan Stanley before determining a final price.
The deal marks an about-face for Mitsubishi UFJ Chairman Ryosuke Tamakoshi, who last week said he would avoid any immediate investments in U.S. banks following the Wall Street upheaval of the past 10 days. Mitsubishi UFJ’s backing will help shore up Morgan Stanley’s capital after the credit market meltdown eroded investor confidence in its ability to remain independent…..
Mitsubishi UFJ will appoint to representative to Morgan Stanley’s board as part of the investment, New York-based based Morgan Stanley said in a separate statement…..
“The purpose for the investment is to strengthen the investment banking business globally,” said Hirokazu Ushio, a Tokyo-based spokesman at Mitsubishi UFJ.
Like Nomura, Mitsubishi UFJ has struggled to expand outside Japan, leaving it vulnerable to a slowing domestic economy. The bank was formed in October 2005 after a merger between Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc.
Morgan Stanley ranks sixth globally in advising on mergers and acquisitions, 47 slots above Mitsubishi UFJ, according to Bloomberg data. In equity underwriting, Morgan Stanley is fifth while the Japanese bank is No. 100.
Mitsubishi UFJ agreed last month to pay $3.5 billion in cash to take full control of UnionBanCal Corp., California’s second-biggest bank. The Tokyo-based bank is also raising its stake in Japanese consumer lender Acom Co. to 40 percent from 16 percent for about $1.4 billion.
A 20 percent stake would make Mitsubishi UFJ the biggest shareholder in Morgan Stanley, followed by State Street Corp. with 16.4 percent, Bloomberg data shows. Morgan Stanley approached Mitsubishi UFJ on Sept. 19, the Japanese company said.
Last week’s market turmoil reshaped Wall Street and provided Asian and European firms with an opportunity to grab market share in trading, underwriting stock sales and advising companies on takeover
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Matthew Dubuque
Yves-
When the story notes a “range” has been set for the ultimate price, we need to read between the lines.
What is likely is that a “range” has been tentatively set based on several factors, but the Japanese seem likely to insist on a “reset” clause six months to a year down the road to ensure them against further dramatic downturns in Morgan’s share price and “unexpected” drops in the value of Morgan’s book.
Matthew Dubuque
Got to agree with Matt. This is like the MER deal — more window dressing with an option to buy if by some miracle things get better in the near term.
With all due respect, I ran the mergers and acquisitions department for Sumitomo Bank, which at that time was the second largest bank in Japan, so this is a beat I know personally.
The Japanese would not have let this become public if they were not prepared to proceed. Morgan Stanley is too important a business relationship to Mitsubishi for Mitsubishi to damage them by saying they’d do a deal and then back out, or merely sign up for an option.
Please forgive me for posting less-related opinion here. I would appreciate your thoughts.
Here it goes:
I used to think that US faces serious default risk, but I wonder whether “now” is too early to bet on it. I just can’t see who benefits if US defaults because it cannot roll over the debt and US$ plunges. I thought that closest it will get to default is a couple of point higher interest rate for T-bonds, but even for that I am not sure if I will see it within 5 years. Because
– Who benefits if US defaults because it cannot roll over the debt and US$ plunges?
China holds c.$900B of treasury and gse debt. I don’t know what % of China’s wealth is in US treasury and GSE debt, but it is roughly 27% of 2007 GDP and 50% of foreign exchange reserve. Do they really want their asset value to decline? Plus, when US$ loses its reserve currency or trade currency status, which other currency can stably replace US$? I think the time CNY (RMB) will take that role will come but it is not 2009 and not 2010. China does not want to and cannot afford to float its currency. I believe China has already has upper hand in negotiating with US (look at the influence Chinese gov made to US to bail out Fannie and Freddie), but it is not yet ready to take the world leadership.
I would greatly appreciate your thoughts.
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Yves –
Given that it is difficult for me to be timely for posting opinions and questions (I am in Asia) what would you recommend the best way for me to participate will be?
It is my least intention to interfere your blog, which I love to read every late night or early morning.
cash risk or cash rich?
Thanks for the catch. Have made the correction.
Wonder if that was a Freudian typo. Save the Sumitomo Bank investment in Goldman, Japanese minority investments in western financial firms have not fared too well.