MUFG in bid for Morgan Stanley's trust-banking assets

Mitsubishi UFJ Financial Group Inc. is in talks to buy Morgan Stanley’s trust-banking assets, according to two sources with knowledge of the matter.

The assets are valued at about $4 billion, according to the sources, who asked not to be identified while talks are ongoing. UnionBanCal Corp., MUFG’s San Francisco-based unit, plans to acquire the business, the they said. The Nikkei financial newspaper, which reported the negotiations on Sunday, said the deal will need approval from U.S. regulators.

The potential purchase by Morgan Stanley’s largest shareholder underscores Japanese banks’ interest in acquiring assets to expand as demographic changes, including a shrinking and aging population, slow lending demand at home. Also through UnionBanCal, Mitsubishi UFJ this month agreed to pay $3.7 billion for U.S. property lending assets from Deutsche Bank.

“They have made a point of cementing their footprint in the United States,” Christopher Wheeler, a banking analyst with Mediobanca Spa in London, said of Mitsubishi UFJ. “We are going back to where we were in the ’80s, with Japanese banks buying up U.S. banking assets, particularly in California.”

Mika Watanabe, a Morgan Stanley spokeswoman in Tokyo, and Yuji Okumura, a spokesman for MUFG, both declined to comment. MUFG owns a 22 percent stake in the bank, data compiled by Bloomberg show.

Shares of MUFG have gained about 85 percent since mid-November, when an election campaign began that ushered Prime Minister Shinzo Abe into office on a pledge to stoke inflation. The Nikkei 225 stock average has advanced 57 percent in the same period. Exchanges were closed Monday for Showa Day.

MUFG has stepped up acquisitions in the U.S., buying UnionBanCal in 2008 and Pacific Capital Bancorp last year as persistent deflation inhibits loan demand at home. The purchase of U.S. real estate loan assets from Deutsche Bank will boost its commercial lending business, mainly on the East Coast.

Other acquisitions in recent years include its purchase of Bank of America Corp.’s stake in their private banking venture in Japan in December. MUFG’s trust unit also agreed to buy a 15 percent stake in AMP Ltd.’s Australian asset management business in December 2011, after purchasing project financing assets from Royal Bank of Scotland Group PLC just a month ago.

MUFG has been deepening its ties with Morgan Stanley since acquiring a stake in the New York-based bank by investing $9 billion in October 2008 as the U.S. firm’s stock price collapsed in the wake of Lehman Brothers Holdings Inc.’s bankruptcy.

The firms in 2010 set up two Japan investment banking ventures. In April of the following year, they reached a deal to convert most of Mitsubishi UFJ’s preferred stock in Morgan Stanley, paving the way to eliminate annual dividend payments of $784 million and making the lender the biggest common shareholder in the U.S. bank.

MUFG may increase dividends this year for the first time in six years, raising payouts to ¥14 a share, as government stimulus steps improve earnings prospects, seven of nine analysts surveyed by Bloomberg said this month.

MUFG probably had net income of ¥726.2 billion for the year ended March 31, surpassing its ¥670 billion target, according to the median estimate of 16 analysts in a Bloomberg survey. Japan’s megabanks are scheduled to report earnings in mid-May.