Morgan Stanley cemented its spot as the most profitable foreign securities company in Japan last year, with trading for hedge funds helping 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 percent to ¥22.4 billion ($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 novel coronavirus pandemic takes its toll on the economy.
“We are confident about the growth outlook for the Japanese market,” said Alberto Tamura, chief executive officer of Morgan Stanley MUFG Securities Co., 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, 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.
Among the deals Morgan Stanley coordinated was a ¥37 billion initial public offering by accounting software maker Freee KK and a ¥374 billion share sale by human resources firm Recruit Holdings Co., the nation’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 virus “seems to have led to just as many positive changes as negative developments.”
JPMorgan took second place, replacing BNP Paribas SA, as lower costs helped profit almost triple to ¥17.4 billion, 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 — retaining 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.