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Units to merge into new firm

MORGAN Stanley and Mitsubishi UFJ Financial Group will establish a new securities company in Japan by merging their local brokerage units by next spring, the two companies said yesterday.

As widely expected, Mitsubishi UFJ Financial Group Inc, Japan's biggest banking group known as MUFG, will take a 60 percent stake in the new entity. The United States investment firm will own the remaining 40 percent.

Since MUFG gave Morgan Stanley a US$9-billion lifeline in October in the wake of Lehman Brothers' collapse, the two companies have brainstormed ways to capitalize on their new alliance.

The combined entity, which does not yet have a name, will be the country's second-largest securities firm by non-consolidated net revenue behind industry leader Nomura Holdings Inc.

Executives of both companies said they aim to create the "pre-eminent investment bank in Japan in terms of domestic market presence, global reach and profitability."

Morgan Stanley Co-President Walid Chammah said his firm knew it needed to partner with a top-tier Japanese financial institution to expand its reach in Japan, the world's second-largest economy and a key financial market.

Rare chance

"We consider this to be a unique opportunity to create an organization which will transform the securities industry in Japan, and we look forward to working with our partners to ensure success," Chammah said at a joint press conference.

Established in 1984, Morgan Stanley Japan Securities Co employed about 1,400 people by last March. Mitsubishi UFJ Securities Co has around 6,500 employees.

Banking analyst David Threadgold at Fox-Pitt Kelton in Tokyo said that while the agreement is a strategically good idea on paper, it may be a lot trickier to execute on the ground.

"If there is an Achilles' heel in the plan, it's that you've got this rather patrician, deeply conservative Japanese bank and a much more aggressive, bonus-culture-driven hired guns of Morgan Stanley," he said, citing the human resource headaches faced by Nomura when it bought Lehman's Japan operations last fall.

The cultural divide between Morgan Stanley and MUFG may in fact be even bigger than Lehman and Nomura, he said.


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