Leading Japanese financial institutions are trying to turn the current US financial turmoil triggered by subprime mortgage loans to their advantage by boosting their presence in the global market.

On Monday (Sept 22), two Japanese financial institutions separately announced their investment in and acquisition of troubled US brokerages.

Mitsubishi UFJ Financial Group Inc announced it had reached an agreement to acquire up to 20 percent of the common shares of the second-largest US brokerage firm, Morgan Stanley.

Nomura Holdings Inc meanwhile said it had won the bidding for the Asian operations of failed Lehman Brothers Holdings Inc, the fourth-largest US security firm.

Japanese financial institutions, which have lagged behind their Western competitors in the global market, are attempting to pursue a global strategy that takes advantage of the current US financial crisis.

With the acquisition of up to about 20 per cent of the shares in Morgan Stanley, MUFG plans to turn the US brokerage firm into an affiliate.

Leading Japanese banks are attempting to strengthen their operations overseas to become a pillar of growth as loans extended to leading companies domestically remain sluggish. Under these conditions, MUFG is seeking a strategic alliance with Morgan Stanley, according to company sources.

Since summer 2007, when the subprime loan crisis first triggered credit uncertainty worldwide, an increasing number of financial institutions overseas began seeking investment from their Japanese counterparts in an effort to boost capital.

Mizuho Corporate Bank provided about 130 billion yen in capital to major US brokerage firm Merrill Lynch & Co in January, while Sumitomo Mitsui Banking Corp. made an investment of about 106 billion yen in major British bank Barclays PLC in July.

Lagging behind its Japanese competitors, MUFG finally decided to make a sizable investment in Morgan Stanley.

According to market observers, MUFG's investment in the US securities firm is aimed at expediting the bank's global strategy beginning with the Asian market as it attempts to catch up with its U.S. and European rivals, which are struggling to write off losses stemming from their subprime loans.

As the domestic economy enters a recessionary phase, the amount of nonperforming loans is expected to increase.

MUFG hopes to boost its profits by strengthening its investment banking operations, which are expected to further grow, according to the company sources.

However, some observers say US and European financial institutions are simply making use of their Japanese competitors to shore up their credit and to sell off assets with a massive amount of latent losses.

Nevertheless, if Japanese financial institutions fail to take advantage of this opportunity, they may later be unable to secure a significant presence in the global market.

Nomura, which is known as a brokerage giant in the domestic market, lags far behind its Western competitors in the wider Asian market.

According to a Thomson Reuters survey, Nomura topped the merger-and-acquisition fee rankings in Japan, receiving fees of 27 billion dollars from January through Monday. However, it was ranked 21st in Asia excluding Japan, with a fee value of just US$5.5 billion. But combined with the Asian operations of Lehman Brothers, ranked ninth, Nomura would rank seventh in the market overall.

Since last year, Nomura reported a total of more than 360 billion yen in losses resulting from the subprime loan crisis. In its consolidated financial statement for the business year ending in March, the company reported an after-tax loss of 67.8 billion yen, its first loss in nine years.

The struggling firm is currently in the middle of efforts to scale down its operations in the United States and to shift to the rapidly growing Asian market.

With the acquisition of Lehman Brothers' Asian operations, the number of Nomura staff in its Asia-Oceania unit will double from a current figure of about 1,100.

However, the deal may pose some difficulties for the Japanese brokerage.

"It'll be difficult to retain employees with sufficient expertise in the firm and to overcome differences in employment conditions and corporate culture," said an employee of a rival security firm.