Morgan Stanley Fends Off JPMorgan to Stay on Top in Japan

(Bloomberg) -- Morgan Stanley cemented its spot as the most profitable foreign securities company in Japan last year, as trading for hedge funds helped it fend off a challenge by JPMorgan Chase & Co.

Net income at Morgan Stanley’s majority-owned venture with Mitsubishi UFJ Financial Group Inc. grew 5% to 22.4 billion yen ($211 million) in the year ended March, beating global rivals for the fourth straight year. The U.S. bank is upbeat about keeping the momentum even as the coronavirus pandemic takes its toll on the economy.

“We are confident about the growth outlook for the Japanese market,” Alberto Tamura, chief executive officer of Morgan Stanley MUFG Securities Co., said by email. “Despite the impact of the Covid-19 outbreak, Japanese companies and institutional investors remain active players in the global capital markets.”

Trading revenue almost tripled to 22 billion yen, according to regulatory filings recently made public. Tamura said there was strong demand from hedge funds for its prime brokerage services.

The results indicate that the alliance with MUFG -- its largest shareholder -- is paying off a decade after the companies formed two securities ventures in Japan. Morgan Stanley’s global reach and MUFG’s local client base have combined to help them land deals such as international stock offerings by Japanese firms, according to Jefferies analyst Hideyasu Ban.

“There are complementary aspects to their relationship,” Ban said. “They’re uniquely positioned to capture global deal flows.”

Together, the banks were ranked second among underwriters of Japanese corporate bond offerings in the year ended March and fifth on share sales, based on transaction values, according to data compiled by Bloomberg.

Recruit Sale

Among the deals Morgan Stanley coordinated was a 37 billion yen initial public offering by accounting software maker Freee KK, and a 374 billion yen share sale by human resources firm Recruit Holdings Co., the country’s largest equity offering in the period.

The earnings preceded the worst of the pandemic, which initially cooled deals in Japan while fueling trading activity. With the outbreak upending many industries, transactions are likely to pick up as companies seek help from brokerages to raise capital or undertake mergers, according to Morningstar Inc. analyst Michael Makdad.

This year shouldn’t be bad for foreign brokers operating in Japan, Makdad said. The coronavirus “seems to have led to just as many positive changes as negative developments.”

Other Highlights

• JPMorgan took second place, replacing BNP Paribas SA, as lower costs helped profit almost triple to 17.4 billion yen, filings show.
• Deutsche Bank AG, the struggling German lender that’s been retrenching globally, shed about a quarter of its Japan staff, the biggest reduction among the foreign banks, to 326 workers.
• Goldman Sachs Group Inc.’s Japan unit saw employee numbers decrease by 59 to 740 in the year ended Dec. 31. Net income dropped by more than half.
• Bank of America Corp.’s Merrill Lynch Japan unit -- to be renamed BofA Securities Japan Co. in November -- took third place after seeing profit climb eight times from a year earlier to 10.8 billion yen.

©2020 Bloomberg L.P.