Mitsubishi UFJ Financial Group (ADR: MTF) to Establish Joint Venture with Merrill Lynch (MER) in Japan

Mitsubishi UFJ Financial Group (ADR: MTF) and Merrill Lynch (ticker: MER) have finalized their plans to establish a joint-venture brokerage. The brokerage will be based in Japan and exclusively target high-income clients. The announcement made Wednesday, came on the eve of the formation of the largest bank in the world between the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings on Saturday (now known as Mitsubishi UFJ Financial Group). Let's take a look at some of the details behind the alliance per a Merrill Lynch press release:

• The joint-venture will be 50:50 and subject to normal regulatory approvals.
• In addition to high-income clients, the JV will also target small and midsize enterprises.
• Operations are expected to begin in the first half of ’06.
• The JV will share mutual staff and management and work closely at both levels.
• JV capitalization will be at 10 billion yen (approx. US$88.1 million at Y113.5/US$1 rate).
• Regional offices are planned to open in Osaka and Fukuoka.
• Merrill Lynch research shows that nearly 1.4 million people in Japan had assets of at least US$ 1 million in 2004. Only the United States has more millionaires. (Source: Japan Times)

Author’s comments: Both parties are reacting to the rapid increase in the number of retirees and seeking to capitalize on their high amount of savings. The Japanese baby boom generation is entering retirement and this group is largely seen as critical in helping to stimulate the Japanese economy by spending more of its large accumulated assets. The Japanese economy is seen as improving and close to exiting an extended period of deflation. The investment environment has been quite favorable, especially in the past two months behind P.M. Koizumi’s call for a snap election, Koizumi winning a 3rd term, and his determination to move forward with reforms – most notably the privatization of Japan Post. The alliance will face increasing competition in what to-date has been a neglected client segment. According to the Japan Times, domestic rival Mizuho Financial Group (Tokyo Stock Exchange ticker: 8411) will launch a wholly owned private banking unit, Mizuho Private Wealth Management Co., for wealthy clients with 500 million yen (US$ 4.4 million) or more.

Click here for a link to the Merrill Lynch press release.