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Merrill Lynch: renewed hope with the rising sun

4th March 2005
By IB Staff Writer

Merrill Lynch and MTFG are reportedly in talks over a private banking joint venture in Japan.

Merrill Lynch [MER] and Mitsubishi Tokyo Financial Group (MTFG) are in the latter stages of negotiations to establish a private banking and brokerage joint venture in Japan. If the deal goes through it will represent a compelling combination, and provide Merrill with unprecedented access to the enormous Japanese wealth market.

According to a report in the Nihon Keizai business newspaper, the new venture would be staffed by 150 private banking professionals and take on some Y1 trillion ($9.5 billion) in financial assets managed by Merrill Lynch's Japanese unit, as well as some assets held by MTFG.

Although both banks have stated that a final decision has not yet been made, the deal certainly looks good on paper. Merrill would be able to combine its strong product capabilities with access to MTFG's huge customer base and distribution network. With an arranged takeover of fourth-ranked lender UFJ Holdings in October set to make it the world's largest bank, MTFG is clearly the partner of choice for any western player targeting the Japanese market.

The move is clearly a better thought-out concept than MLHSBC - Merrill's previous online wealth management/brokerage joint venture that was formed in 2000 with grand plans but failed miserably.

Overall Merrill Global Private Clients (GPC), the division that houses most of the bank's wealth management interests, has a poor track record on international expansion. Having shut down several of its international offices since 2001 the business remains heavily weighted to the US. However, access to the huge Japanese market, which is second only to the US market in size, could clearly change this. According to Datamonitor's Global Wealth Model, there are some 2.7 million high net worth individuals in Japan (defined as holding over $300,000 in liquid assets).

Indeed, with all the attention piled on Japan after regulators unceremoniously booted Citigroup's [C] private bank out of the country for several regulatory breaches, it seems western private banks are finally waking up to the fact that Japan is where the big money is in Asia. They must ensure they take all the practical steps necessary to capture this wealth in a traditionally difficult market.

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