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Foreign participation in Japanese domestic brokerage: Can Morgan Stanley/MUFG venture crack the securities market?

Lending opportunities open up for Japan’s banks

One contender leaves, and another enters. The revolving door of foreign participation in Japanese domestic brokerage has taken a few more turns this year, with Citi selling its Nikko Cordial retail brokerage to Sumitomo Mitsui Banking Corp, and Morgan Stanley striking a joint venture deal with Mitsubishi UFJ Financial Group.

Forming a judgement on Citi’s enterprise is tricky. It is tempting to add it to the file marked "failed foreign attempts to penetrate Japanese retail", alongside Merrill Lynch’s venture with Yamaichi. But we will never know whether Citi really could have made a success of it as it was still work in progress after just two years, and the imperative to sell the brokerage was driven by problems at head office, not in Japan.

But as Citi departs retail, another foreign house moves in. In March, Mitsubishi UFJ followed up the $9 billion investment it made in Morgan Stanley in October 2008 – which, with hindsight, one could argue was one of the true turning points of the financial crisis – with a joint venture combining Mitsubishi UFJ Securities with Morgan Stanley Japan Securities. This creates a single venture including Mitsubishi’s domestic retail brokerage network, the full range of institutional businesses offered in Japan by both sides, and the international reach for Japanese clients offered by Morgan Stanley.