MUFG and Morgan Stanley Link FX Businesses
Posted by Colin Lambert. Last updated: August 9, 2023
With The Full FX View
Japanese giant MUFG and Morgan Stanley have extended their partnership, which started with the Japanese bank investing in MS in 2008, by unveiling plans to collaborate in FX, as well as Japanese research and equities.
The collaboration is a reflection of the banks’ view that competition in global FX market has intensified thanks to the electronification of markets and “new entrants to the market driving technological innovation”. They add that the increased operational and technological development challenges, coupled with increased regulation, have “further enhanced the need to enhance the FX trading business”.
The announcement has come under the banner “Alliance 2.0”, following the first announcement during the GFC in 2008 and builds on a similar collaboration in investment banking and Japanese securities, and is based upon memoranda of understanding, with a targeted implementation date of H1 2024.
The basis for the collaboration will be the existing joint venture, Morgan Stanley MUFG Securities (MSMS) and will use Morgan Stanley’s FX trading platform, Matrix, as its technological foundation. The banks say MUFG will bring its relationships with Japanese and global corporate clients to the deal. Client contacts will remain unchanged as the relative FX sales businesses will continue to be operated by each firm independently.
The Full FX View
This arrangement accurately reflects the reality for many firms in today’s FX market, where the sheer cost, in cash and resources, to remain at the top table just keeps on increasing.
The benefits for both sides are very similar to what they would be in a white label relationship, indeed this looks something like a “white label on steroids” arrangement. MUFG clearly needs to upgrade its technology stack and this is a cheaper, quicker and probably more efficient way of doing it, while Morgan Stanley gets to boost its customer base.
Perhaps more pertinently, for the US bank, it also gets the opportunity to introduce what could be naturally off-setting flow from Japanese corporates to its platform, thus boosting its internalisation rates and its attractiveness to other clients as a source of FX execution. This will inevitably lead to more business through its algo offering, and that same offering will be available to MUFG clients and is likely to be a serious upgrade on anything they have available currently.
Ultimately, this deal seems very much to be about staying in the FX game. Competition from non-bank players has no doubt eaten into market share of both banks over the past decade or so, and the costs associated with running a full-scale FX business have commensurately grown. Thus, this represents, in some fashions, a quick fix for both.
Somewhere down the line more cooperation may occur, but for now, in FX at least, both businesses have been given a new lease of life by adding something new to each of them.
On the research and equities side there will be a consolidation of Japan equity research, institutional sales, corporate access, and a part of execution services functions of both entities into MSMS.
“As part of our enhanced strategic alliance for the coming decades, we will collaborate in global FX business and Japanese research and equity businesses for institutional investors,” explains Hironori Kamezawa, MUFG’s president and CEO. “We aim to continue to provide exceptional services to each of our firm’s clients by adapting in the evolving landscape and incorporating cutting edge ideas.”
James Gorman, chair and CEO of Morgan Stanley, adds, “These initiatives are significant not only in terms of providing better services to our clients, but also as examples of ways our two firms can continue to work together and deepen our strategic alliance over the years to come.”