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Mitsubishi UFJ Financial Group Inc. (8306) will hire 50 currency and interest-rate derivatives traders globally in the next three years to help more than double annual profit in the business to 500 billion yen ($6.1 billion).
Lending unit Bank of Tokyo-Mitsubishi UFJ Ltd. will also add 150 sales and research staff in Asia, Europe and the U.S., taking headcount for the derivatives business to 1,700 by March 2015, global markets head Hitoshi Suzuki said in an April 20 interview. The bank plans to meet the profit goal by March 2017.
Japan’s biggest bank is betting that the market for over- the-counter currency and interest-rate derivatives, valued at $15.5 trillion as of last June, will help to spur earnings as the economy fails to grow enough to fuel lending and lessen its dependence on government bond trading. The hiring plans contrast with the global banking industry’s more than 130,000 job cuts announced last year.
“The key would be whether or not Mitsubishi UFJ will be able to spend decent money to hire talented traders, marketers and product developers worldwide,” Shinichiro Nakamura, a Tokyo-based banking analyst at SMBC Nikko Securities Inc., said. “This risk hedging-type of business may be the one that can help them gradually reduce their dependence on profit from the Japanese government bond trading.”
Mitsubishi UFJ fell 2.3 percent to 383 yen at the 3 p.m. close of Tokyo Stock Exchange trading. They have risen 17 percent this year, outpacing the Topix Index’s 10 percent gain.
Mitsubishi UFJ may use its business alliance with Morgan Stanley (MS) to help achieve the profit target, said Suzuki, 58. It owns 21.8 percent of New York-based Morgan Stanley, according to data compiled by Bloomberg.
The Japanese bank is also considering acquiring derivatives trading assets overseas, Suzuki said, without elaborating.
Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities. Airlines, utilities, oil refiners, manufacturers and trading companies buy such instruments to buffer against risk related to fluctuating costs for production, fuel, material and overseas sales.
“In addition to China, India and Thailand, we would like to add personnel in Australia, Malaysia and Indonesia in the coming years,” Suzuki said. “Our traditional hubs for this trading business have been in New York, London, Singapore and Hong Kong.”
Mitsubishi UFJ aims to boost gross profit from the sales and trading business by at least 30 percent in the next three years to 260 billion yen annually from 200 billion yen now, competing with global banks including Citigroup Inc. (C) and HSBC Holdings Plc (HSBA), he said.
The Bank for International Settlements estimates the gross market value of over-the-counter derivatives contracts outstanding in 11 developed countries including the U.S., Germany and Japan fell 21 percent to $19.5 trillion in June 2011 from a year earlier, according to its latest report.
Foreign-exchange contracts such as forwards and currency swaps dropped 7.9 percent to $2.3 trillion last June, while interest-rate contracts including rate swaps fell 25 percent to $13.2 trillion, the report shows.
In the foreign-exchange derivatives market, Mitsubishi UFJ aims to handle most currencies, including those of developing countries such as China and Turkey, Suzuki said.
Mitsubishi UFJ increased profit from JGB and other securities trading by 28 percent in the nine months ended Dec. 31 to help offset a 7.9 percent decline in lending income, according to its earnings statement on Feb. 1. Japanese banks held a record 167.8 trillion yen of the country’s sovereign debt in February, according to Bank of Japan (8301) data.
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