Mitsubishi UFJ Morgan Stanley lost ¥145B on proprietary derivatives — and cut 750 jobs

Mitsubishi UFJ Morgan Stanley Securities was a securities joint venture formed in 2010 between Mitsubishi UFJ Financial Group, Japan's largest bank, and Morgan Stanley, the American investment bank. The venture combined MUFJ's domestic brokerage with Morgan Stanley's investment banking capabilities, and was expected to compete with Japan's top securities firms.

In the fiscal year ending March 2011, the company recorded a net loss of ¥145 billion (approximately $1.8 billion), with nearly ¥100 billion of that coming from proprietary derivatives trading losses in the January-March quarter alone. Executive officer Koji Nishimoto explained that the firm had misjudged market conditions and that losses expanded as it tried to unwind the positions. The scale of the loss was staggering for a newly formed joint venture — it wiped out the firm's capital base.

The aftermath was severe. The company announced a business improvement plan that included sharply reducing proprietary trading, cutting 750 jobs, and receiving a ¥30 billion capital injection from parent Mitsubishi UFJ Securities Holdings. The joint venture's reputation was damaged from the start, and the loss demonstrated that combining two powerful institutions did not guarantee competent risk management.