Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank by market capitalization, is in talks to buy Morgan Stanley’s trust-banking assets, said two people with knowledge of the matter.
The assets are valued at about $4 billion, according to the people, who asked not to be identified while talks continue. UnionBanCal Corp., the Japanese bank’s San Francisco-based unit, plans to acquire the business, the people said. Nikkei newspaper, which Sunday reported the negotiations, said the deal would need approval from the U.S.
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 AG.
“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 Mitsubishi UFJ in the city, both declined to comment. The Japanese bank owns a 22 percent stake in Morgan Stanley, according to data compiled by Bloomberg.
Shares of Mitsubishi UFJ 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 benchmark Nikkei 225 Stock Average has advanced 57 percent in that period. Japan’s exchanges are closed Monday.
Mitsubishi UFJ has stepped up acquisitions in the U.S., buying UnionBanCal in 2008 and Santa Barbara-based 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. Mitsubishi UFJ’s trust banking 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 a month earlier.
The Japanese bank 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 2011, 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 Japanese lender the biggest common shareholder in the U.S. investment bank.
In the current year, Mitsubishi UFJ may increase dividends for the first time in six years, raising payouts to 14 yen a share, as government stimulus measures improve earnings prospects, according to seven of nine analysts surveyed by Bloomberg earlier this month.
The Japanese bank probably had net income of 726.2 billion yen ($7.4 billion) for the year ended March 31, surpassing the company’s 670 billion yen target, according to the median estimate of 16 analysts in a Bloomberg survey. Japan’s megabanks are scheduled to report earnings in mid-May.
Rising capital buffers at Mitsubishi UFJ may encourage it to buy back its stock to return gains to shareholders, the survey showed. Five of the nine analysts said Japan’s largest bank will probably repurchase shares as well as increase dividend payouts during the current fiscal year.
The bank has built up capital by accumulating retained earnings and from share sales in the aftermath of the 2008-2009 global financial crisis. It’s also expanding abroad to make up for shrinking profitability on domestic loans amid record-low interest rates.
Shares of Morgan Stanley have gained 24 percent in the past year. Its first-quarter net income was $984 million, compared with a loss of $94 million a year earlier. Excluding an accounting charge, profit was 61 cents a share, topping the 56- cent average estimate of 20 analysts surveyed by Bloomberg.
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