MUFG’s Brokerage at Risk of Losing More Bond Underwriting Deals

(Bloomberg) -- Mitsubishi UFJ Financial Group Inc.’s investment banking venture with Morgan Stanley is at risk of losing more bond underwriting deals as the financial regulators may consider penalizing the unit for sharing non-public information on client companies.

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Mitsubishi UFJ Morgan Stanley Securities Co. lost at least three yen debt deals in Japan ahead of a possible decision from the Securities and Exchange Surveillance Commission. Aeon Co. dropped MUMSS on Friday, following Kanagawa Prefecture and Japan Housing Finance Agency the day before.

Scandals have a history of resulting in bond underwriters losing deals in Japan. SMBC Nikko Securities Inc., the brokerage unit of Sumitomo Mitsui Banking Corp., also lost business in 2022, following allegations of market manipulation. NEC Corp. said it is discussing the option of dropping MUMSS as underwriter for a planned yen bond sale, which may be followed by other issuers planning bond deals including Tokai Carbon Co. and Macromill Inc.

“As a company with a strong public profile, MUFG may suffer an impact on its underwriting and trade businesses,” according to Tetsuo Seshimo, head of the multi-manager investment division at Saison Asset Management Co. “There may be a short-term impact on its business performance for about a year.”

The SESC is considering recommending administrative action against MUFG Bank, Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities on Friday, according to a Kyodo report. If that happens the Financial Services Agency will consider action such as a business improvement order.

“We made a comprehensive judgment in light of the situation where stable bond management may not be possible,” said Takuya Matsumoto, an official at Aeon’s finance department.

The group’s units are facing potential penalties for sharing non-public information on client companies without their permission.

Also read: SMBC Nikko’s Issues Let Small Firms Grab Credit Market Share (1)

Japanese law prohibits the sharing of customer information between banks and securities firms without consent. In 2022, regulators found firewall violations as part of a probe into market manipulation at SMFG’s securities arm.

MUFG’s shares were little changed at 1,595.5 yen as of 11:28 am in Tokyo.

--With assistance from Toshiro Hasegawa.

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