Best M&A adviser
When Morgan Stanley and Mitsubishi UFJ Financial Group (MUFG) tied their joint venture knot in Tokyo in 2010, they had high hopes that the US investment bank’s renown as a mergers and acquisition (M&A) adviser would translate into a bountiful harvest of big Japanese deals.
Rivals were gleeful when the anticipated cornucopia initially failed to materialise, but they are unlikely to be smiling now.
Mitsubishi UFJ Morgan Stanley last year leapfrogged rival Nomura to the head of the league table for completed M&A deals, advising on 55 worth US$55 billion, or 28.6% of total activity, according to Dealogic.
It’s an important badge to wear, because M&A has become the most dynamic area of Japanese investment banking.
“The mature state of the Japanese economy, together with the favourable conjunction of the strong yen with an ultra-low interest rate, has made Japanese companies very aggressive in doing outbound M&A to seek growth overseas,” Kensaku Bessho, head of M&A at Mitsubishi UFJ Morgan Stanley, tells Asiamoney.
Cynics will attribute the joint venture’s good fortune to being lead adviser to Nippon Steel in its takeover of Sumitomo Metals, a ¥1.7 trillion (US$18.7 billion) deal from which Nomura was excluded. They will also point to the fact that for deals announced but not yet completed, Mizuho rocketed to the top of the Japan M&A league, thanks to its lead berth in advising Softbank on its planned US$20.1 billion acquisition of Sprint.
While both points have merit, they ignore the depth and diversity that Mitsubishi UFJ Morgan Stanley’s M&A business has attained after a rocky start in almost every sector of Japanese industry.
The deals being most closely watched in Tokyo are those where Morgan Stanley’s brains as financial adviser combine with the financial muscle of Bank of Tokyo-Mitsubishi (BTMU).
A telling example is the announced acquisition by Dentsu, Japan’s largest advertising company, of the UK’s Aegis Group for £3.2 billion (US$5 billion). The deal, announced in July, is awaiting regulatory approval.
Dentsu made the first newspaper advertisements and television commercials in Japan, and has more than twice the sales of its nearest domestic competitor, Hakuhodo. As with so many large Japanese companies, it is trying to escape the growth confines of its home market, which accounted for about 84% of its revenue in 2011.
Mitsubishi UFJ Morgan Stanley is sole adviser to Dentsu on buying Aegis, by far its biggest and boldest overseas acquisition so far. And BTMU is providing bridge financing for the acquisition cost, despite the fact that Mizuho is Dentsu’s traditional main bank.
Similar chemistry was evident in the government bailout of Tokyo Electric Power (Tepco) in May 2012. Compensation payments in the wake of the Fukushima nuclear power plant disaster threatened to sink Asia’s biggest utility. While Nomura advised the government on buying ¥1 trillion of preferred shares from Tepco, giving the state more than 50% ownership, Mitsubishi UFJ Morgan Stanley advised Tepco itself, having been brought in by BTMU as one of Tepco’s core senior loan providers.
“It is a perfect example of cooperation between commercial banking, which is BTMU, and investment banking, which is the joint-venture,” Bessho says.
Best equity arranger
Some may question the propriety of granting this award to Nomura after an insider-trading scandal prompted both its chief executive officer Kenichi Watanabe and chief operating officer Takumi Shibata to resign.
But Asiamoney takes the view that the punishments meted out to Nomura prove the resilience of its equity franchise.
These were no token slaps on the wrist. For leaking confidential information about equity offerings in 2010 by Inpex, Tepco and Mizuho Financial Group, Nomura was deprived of some highly prestigious and lucrative government mandates.
The Enterprise Turnaround Initiative of Japan, which had injected ¥350 billion (US$3.8 billion) into bankrupt Japan Airlines, dropped Nomura as joint global coordinator along with Daiwa for the company’s initial public offering (IPO), which was the world’s second-biggest last year after Facebook.
The finance ministry then excluded Nomura from the planned sale of US$6 billion worth of government shares in Japan Tobacco. (The offering was postponed in November owing to poor market conditions.)
And in October the Japan Securities Dealers Association fined Nomura ¥300 million, its biggest penalty in 12 years, saying its internal controls failed to safeguard information.
This has shaken Nomura. While its underwriting share of Japanese equity offerings in the five years to 2011 was 41%, this tumbled to 21.71% between December 2011 and November 2012.
Yet despite this the bank remained the most prolific bookrunner, having conducted 40 deals valued at US$5.6 million. Nomura was a bookrunner for the two largest equity follow-ons in the review period, All Nippon Airways and Mazda Motors, as well as Sony’s ¥154 billion convertible bond issue, Asiamoney’s choice for Best Equity-linked Offering.
The bank was the most active bookrunner for convertible bonds too with a commanding 35% share. It has a lucrative niche as bookrunner for real-estate investment trust (Reit) offerings.
But Nomura has undoubtedly lost ground, and needs to recapture it. Questions abound. Have Japan’s authorities learned from last year’s scandal, or will they issue further sanctions? Will banks and corporates that shunned Nomura show it favour once again?
Japan’s biggest investment bank will discover over the coming months whether it can once more bask in the sun, or end up shivering in the cold.
Best debt arranger
Morgan Stanley and Mitsubishi UFJ Financial Group (MUFG) compete for awards and roll up league table credits together under the name ‘Morgan Stanley’.
But in Japan’s debt markets there is no real doubt as to which partner calls the shots, and it isn't the Wall Street bank that nearly went bust in 2008.
The institutions’ two Japanese joint ventures, one led by Morgan Stanley, and the other by Mitsubishi UFJ Financial Group, top the Dealogic bookrunner for domestic corporate bonds between December 2011 and November 2012, with 25% of the underwriting market, or US$27.2 billion in deals.
That is almost entirely due to the debt capital markets (DCM) team seconded by MUFG, which fully leverages the close ties to leading Japanese borrowers formed by BTMU, the group’s core bank and Japan’s biggest in size of assets.
A similar strategy is pursued by Mizuho, which again tops overall Japan DCM rankings with US$84.3 billion a 27% share of the market. Mitsubishi-Morgan Stanley’s market share of US$54.8 billion or 18% is a distant second.
Mizuho is the leading underwriter of Samurai issues, or yen bonds conducted by overseas issuers, while Mitsubishi UFJ Morgan Stanley ranked sixth, down from third in 2011, second in 2010 and first in 2009.
Additionally Mizuho has a commanding lead in unglamorous zaito government bonds and municipal bonds, while Mitsubishi UFJ Morgan Stanley trails far behind in second place.
But while Mizuho is strong domestically it’s off the map for foreign-currency bonds, the fastest-growing corner of Japanese DCM. Shifts in the basis swap market mean that highly rated Japanese corporates such as NTT have been issuing US dollar bonds and swapping the proceeds into yen for even cheaper rates than the micro-thin yields on Japanese government bonds.
“Morgan Stanley is one of the top bookrunners for all the large dollar-funding deals last year, such as the Takeda, NTT, Mitsubishi and BTMU issues,” notes Haruo Nakamura, head of investment banking at Mitsubishi UFJ Morgan Stanley.
It’s not the best at this. Bank of America-Merrill Lynch, J.P. Morgan, Citigroup, Barclays and Deutsche Bank, lack local DCM heft but all are ahead of Morgan Stanley for foreign currency Japanese bonds.
But combine strong local activity with a decent presence in foreign currency Japanese bonds, and Morgan Stanley’s cooperation with MUFG is a worthy winner.
Best investment bank
In 2008, Mitsubishi UFJ Financial Group (MUFG) bought a 21% stake in Morgan Stanley for US$9 billion, sparing the Wall Street bank the embarrassment of possible bankruptcy.
Two years later, MUFG and Morgan Stanley set up a pair of joint-ventures in Tokyo, to marry MUFG’s money and peerless Japanese client list to Morgan Stanley’s pedigree in global investment banking.
It didn’t work at first. In April 2011, Mitsubishi UFJ Morgan Stanley, the Japanese-led joint-venture, said it had lost US$1.75 billion in its first year of operation after bankers seconded from MUFG racked up US$1.2 billion in losses from trading complex derivatives.
Not long after, Morgan Stanley’s M&A bankers, seconded to the same MUFG-led joint venture, expressed apologies to Asiamoney for their team’s lacklustre performance.
But the partnership between the two banks finally appears to be firing on most cylinders, offering much of the potential it promised.
Mizuho may still reign at the top of the Japanese debt league for overall underwriting volumes, but the two Mitsubishi-Morgan Stanley joint ventures are hot on its heels, due in large part to MUFG’s formidable strength in domestic corporate bonds and determination to wrest back the leadership in Samurai bonds from Mizuho.
Moreover, MUFG boasts Morgan Stanley’s distribution capabilities in the US, which helped it conduct our joint-winners for the Best International Bond category, NTT’s US$750 million deal and Takeda’s US$3 billion dual tranche transaction.
Equally impressive is the combined operation’s progress to the top of the M&A advisory league table for completed deals. This could change if Mitsubishi UFJ Morgan Stanley, the joint venture with seconded M&A bankers from Morgan Stanley, misses out on just one or two big transactions, such as Softbank’s US$20.1 billion acquisition of Sprint announced last year.
But what is so impressive with the tally of 55 deals advised by Mitsubishi UFJ Morgan Stanley last year is the range and quality.
As a standalone investment bank, Nomura in particular must be concerned by Morgan Stanley’s ready access to bridge financing from BTMU to help clinch an advisory deal, as happened with Dentsu’s announced acquisition of Aegis for £3.2 billion (US$5 billion).
“We can help Japanese clients at home as well as overseas. That’s true for ECM, DCM and M&A,” Haruo Nakamura, head of investment banking at Mitsubishi UFJ Morgan Stanley tells Asiamoney. “Foreign investment banks are not fully capable of providing domestic services, including debt financing and retail equity distribution, here in Japan. On the other hand, domestic securities firms are not fully capable of providing services underpinned by a global network and track record. We are uniquely positioned.”
Even Nomura’s last remaining fortress may not hold out for long against the combined strengths of Mitsubishi and Morgan Stanley, Nakamura claims. “The gap with Nomura in ECM is narrowing,” he insists.
Asiamoney did not choose a best loans arranger due to a lack of submissions.