How 'strategic' is Mitsubishi-Morgan deal?

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Hong Kong, September 26:: Morgan Stanley and Mitsubishi UFJ Financial Group are stressing the strategic and collaborative benefits of their planned equity tie-up, but if history is a guide, Japan's largest bank could end up with a decent investment and little else.

Japan Inc is on an acquisition hot streak to expand its global reach, with banks -- unburdened by subprime losses and faced with stagnating growth at home -- among the buyers.

On Monday, Mitsubishi UFJ said it will take a 10-20 per cent stake in Morgan Stanley, and will pay as much as $8.5 billion.

The details of the deal are still being hammered out, meaning it may take some time before investors see evidence of how far the alliance will go in terms of cooperation.

"I think it will more likely be an investment," said Kristine Li, banking analyst at KBC Securities in Tokyo.

"Putting in the capital, Mitsubishi can get higher ROE (return on equity) to compensate for the low growth of their domestic business."

Their deal could very well form a true global franchise, sharing people and products from Tokyo to Times Square.

But history is not on their side.

When the forerunner of Sumitomo Mitsui Financial Group invested $500 million into Goldman Sachs in 1986, the idea was to form a global alliance. That never really happened.

The Japanese bank benefitted financially from its Goldman deal, but "not necessarily in terms of strategic initiative," John Ehara, a partner at Tokyo-based Unison Capital, said at a Hong Kong conference panel on Wednesday.

While the two banks worked together on various loans, they were never able to achieve a broad linkage.

BOOSTING BUSINESS TIES

Likewise, it remains to be seen whether or not Mizuho Financial Group's investment in Merrill Lynch will lead to a stronger relationship abroad.

Since the January deal, Merrill shares plunged until Bank of America agreed to buy it. Japanese media reported last week that Mizuho plans to boost it's business ties with BofA and Merrill.

Time will tell.

Morgan Stanley says its deal with MUFG is every bit a partnership.

"This alliance also would build on Morgan Stanley's deep ties and market leadership in Japan and throughout Asia," CEO John Mack said in Monday's statement. The resurgence of activity by Japanese banks is reminiscent of an aggressive push into the US in the 1980s, which was later derailed by the collapse of Japan's asset bubble.