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Mitsubishi UFJ Bank Unit May Quit as JGB Primary Dealer
The core lending unit of Mitsubishi UFJ Financial Group, Inc. is contemplating withdrawal from its role as a primary dealer for Japanese government bonds (JGB).
The Japanese banking giant’s unit – Bank of Tokyo-Mitsubishi UFJ (BTMU) – which is listed among the 22 primary dealers will be the first bank to quit. According to a company spokesperson, "We are not sure about the wisdom of keeping our primary dealer status when we are reducing JGB holdings."
As the negative interest rates in Japan have pushed yields on most JGBs below zero, lenders are finding sovereign debt less appealing. Hence, the latest plans of BTMU do not come as a surprise.
MUFG has two brokerage units that are also primary dealers – Mitsubishi UFJ Morgan Stanley Securities and Morgan Stanley MUFG Securities. These two units will continue to retain their status.
Japan introduced “JGB Market Special Participants Scheme” in Oct 2004. This scheme is based on “Primary Dealer System” in order to facilitate stable issuance and to maintain the liquidity of government bond market. Primary dealers are allowed to participate in meetings with the Finance Ministry over bond issuance and are required to bid for at least 4% of a planned JGB issuance.
Apart from BTMU, other JGB primary dealers include Barclays Securities Japan Limited, Goldman Sachs Japan Co., Ltd., Citigroup Global Markets Japan lnc., JPMorgan Securities Japan Co., Ltd. and Deutsche Securities lnc.
While BTMU’s potential move is not likely to have any immediate impact on the JGB market, other JGB primary dealers may follow suit.
Currently, Mitsubishi UFJ carries a Zack Rank #3 (Hold). Some favorably placed stocks in the foreign banks include Canadian Imperial Bank of Commerce (CM - Free Report) , Bank of Montreal (BMO - Free Report) and Royal Bank of Canada (RY - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).
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