Bloomberg News

Morgan Stanley Tops Deutsche Bank With Most Japan Profit

August 06, 2014

Morgan Stanley

Morgan Stanley was ranked second among managers of Japanese share sales in the year ended March, trailing only Nomura Holdings Inc. Photographer: Victor J. Blue/Bloomberg

Morgan Stanley beat Deutsche Bank (DBK) AG to become the most profitable foreign securities firm in Japan last fiscal year as the country’s stock-market rally boosted brokerage commissions and underwriting fees.

The U.S. firm’s Japanese unit reported net income of 30.6 billion yen ($298 million) in the year ended March as revenue jumped 20 percent from a year earlier to 127.2 billion yen, the highest among 11 global banks operating in the country, regulatory filings show. Deutsche Bank’s Japan profit surged more than four times to 30.3 billion yen, driven by structured-product sales and cost cuts.

Combined revenue at the 11 foreign firms rose 23 percent as overseas investors flocked to Japanese stocks after Prime Minister Shinzo Abe pledged to revive the economy with stimulus measures and deregulation. At the same time, the rally wasn’t enough to persuade the banks to add employees, with staff levels falling 6.4 percent to the lowest in at least three years, according to the filings.

“Foreign brokerages reaped the benefits of Abenomics last year, thanks to overseas hedge funds that aggressively bought Japan stocks,” said Katsunobu Komizo, president of Tokyo-based Executive Search Partners Co., Japan’s biggest banking recruitment firm.

Despite posting higher revenue, Morgan Stanley (MS:US)’s net income from Japan fell 7.8 percent in the fiscal year as personnel costs rose and it moved into new headquarters in Tokyo.

Higher Revenue

Combined revenue climbed to 719.3 billion yen, according to the filings from Bank of America Corp. (BAC:US), Barclays Plc, BNP Paribas SA, Citigroup Inc. (C:US), Credit Suisse Group AG, Deutsche Bank, Goldman Sachs Group Inc. (GS:US), JPMorgan Chase & Co. (JPM:US), Morgan Stanley, Royal Bank of Scotland Group Plc and UBS AG. (UBSN) Total net income more than tripled to 98 billion yen.

The banks’ headcount fell by 428 to 6,258, the statements to the Financial Services Agency showed. New York-based Morgan Stanley was the only firm to increase staff, boosting the number by five to 680.

Komizo said global firms in Tokyo focused on reducing senior banker and management positions last year to shed a costly top-heavy structure. They are now seeking to add junior staff for investment banking, including mergers advice, he said.

Morgan Stanley, which operates in Japan through ventures with its largest shareholder, Mitsubishi UFJ Financial Group Inc. (8306), was ranked second among managers of Japanese share sales in the year ended March, trailing only Nomura Holdings Inc. after arranging transactions including the global initial public offering of Suntory Beverage & Food Ltd. (2587) Morgan Stanley was the top adviser of Japanese mergers and acquisitions.

Bearing Fruit

The alliance with Mitsubishi UFJ “continues to bear fruit,” Jonathan Kindred, chief executive officer of Morgan Stanley MUFG Securities Co., said in an e-mailed statement. “As Japanese corporations and institutional investors become more globally minded, we see substantial opportunities to serve our clients as well as grow our businesses.”

Revenue at Frankfurt-based Deutsche Bank’s Japan brokerage climbed 21 percent to 93.9 billion yen, the second highest of the 11 firms. Operating expenses including personnel costs fell 8.1 percent, its filing showed. Sales in both fixed income and equities businesses were strong, the unit said in a statement.

“We see increasingly strong interest from Japanese institutional investors in foreign assets,” Makoto Kuwahara, CEO of Deutsche Securities Inc., said in an e-mailed statement.

Goldman Sachs’s Japan unit posted a 9 percent increase in revenue to 84.7 billion yen, its filing showed. Net income more than doubled to 9.8 billion yen.

Investment Banking

Bank of America’s revenue advanced 37 percent to 71.9 billion yen. Net income dropped 84 percent to 7.3 billion yen after the sale of a stake in a private bank bolstered the previous year’s earnings.

Foreign investors who traded through brokerages accounted for 58 percent of transactions on the Tokyo Stock Exchange last year, according to the bourse. While the Nikkei 225 (NKY) Stock Average jumped 57 percent to a six-year high in 2013, it has since lost about 7 percent as investors grow wary that Abe’s economic agenda will deliver a sustainable recovery.

Investment banking remains promising for foreign firms as Japanese companies look to expand abroad, said Komizo at Executive Search Partners. Japan stock and bond sales rose last fiscal year, while M&A fell, data compiled by Bloomberg show.

“There’s more room for activity to increase,” Komizo said. Companies “need the expertise of foreign firms to help them make global acquisitions and raise funds.”


Revenue (Billions of yen)    3/2014   3/2013   % Change
=======================================================
Morgan Stanley               127.2    106.2    19.8
Deutsche Bank                 93.9     77.9    20.5
Goldman Sachs                 84.7     77.7     9.0
Bank of America               71.9     52.6    36.7
JPMorgan                      71.6     52      37.7
Barclays                      71.2     57.1    24.7
BNP Paribas                   58.3     39.8    46.5
Credit Suisse                 52.4     37.5    39.7
Citigroup                     39.9     48     -16.9
UBS                           35.2     23      53.0
RBS                           13       11.4    14.0
-------------------------------------------------------
Total                        719.3    583.2    23.3


Net Income (Billions of yen) 3/2014   3/2013   % Change
=======================================================
Morgan Stanley                30.6     33.2    -7.8
Deutsche Bank                 30.3      6.4   373.4
JPMorgan                      13.5      4.7   187.2
Credit Suisse                 10.1     -3.2    n.a.
Goldman Sachs                  9.8      4.2   133.3
Barclays                       9.5      5.8    63.8
Bank of America                7.3     44.8   -83.7
BNP Paribas                    0.3     -8.2    n.a.
Citigroup                     -3.5      1      n.a.
UBS                           -4.2    -55.9   -92.5
RBS                           -5.7     -3.2    78.1
-------------------------------------------------------
Total                         98.0     29.6   231.2


Employees                    3/2014   3/2013   % Change
=======================================================
Bank of America                810     842     -3.8
JPMorgan                       793     820     -3.3
Goldman Sachs                  731     766     -4.6
Morgan Stanley                 680     675      0.7
Citigroup                      620     648     -4.3
Barclays                       616     645     -4.5
Deutsche Bank                  556     630    -11.7
UBS                            503     638    -21.2
Credit Suisse                  439     466     -5.8
BNP Paribas                    399     414     -3.6
RBS                            111     142    -21.8
-------------------------------------------------------
Total                        6,258   6,686     -6.4

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net Russell Ward, Paul Panckhurst


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Companies Mentioned

  • MS
    (Morgan Stanley)
    • $35.02 USD
    • -0.16
    • -0.46%
  • BAC
    (Bank of America Corp)
    • $17.05 USD
    • 0.02
    • 0.12%
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