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Rating Action:

Moody's downgrades Mitsubishi UFJ Morgan Stanley Securities to Aa3

29 Sep 2010

Downgrade concludes review of ratings of Japanese bank subsidiaries supported by keep well letters

Tokyo, September 29, 2010 -- Moody's Investors Service has today downgraded Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.'s (MUMSS) long-term issuer rating to Aa3 from Aa2.

At the same time, Moody's has downgraded Mitsubishi UFJ Securities International plc's (MUSI) and Mitsubishi UFJ Securities (HK) Capital, Ltd.'s (MUSHK) senior unsecured/certificate of deposit ratings to Aa3 from Aa2, and subordinated debt ratings to A1 from Aa3.

The issuer rating of Mitsubishi UFJ Securities Holdings Co., Ltd. (MUSHD) was downgraded to A1 from Aa2 to reflect structural subordination.

The outlook for all ratings is stable. Their short-term ratings of Prime-1 are not affected.

This rating action concludes the rating review for possible downgrade commenced on March 19, 2010, and which was prompted by Moody's reevaluation of the appropriateness of rating the financial subsidiaries of Japanese banks at the same levels as their parent banks, even when these subsidiaries are supported by keep well letters.

The downgrade of MUMSS' rating by one notch reflects Moody's view that the credit enhancement effect of a keep well letter is not the same as that of a guarantee.

As a result, Moody's rating of MUMSS is a combination of its own unique standalone risk profile as well as the likelihood of support from its sister bank, the Bank of Tokyo Mitsubishi UFJ, Ltd. (BTMU) (rated C/Aa2).

Accordingly, MUMSS' Aa3 rating incorporates the firm's stand-alone strength, which includes its franchise as one of Japan's major domestic securities companies, the growth in its retail customer assets -- particularly from its distribution of investment funds -- its good liquidity, and its adequate capital.

But this standalone assessment also reflects the challenges MUMSS faces, such as the need to reduce its vulnerability to capital markets fluctuations and to mitigate the volatile performance in its wholesale business, and the weaker nature of its franchise in the equity-related business when compared to its larger domestic peers.

In addition, a conservative assessment was incorporated into its ratings with regard to any possible contributions from the joint-venture with Morgan Stanley that started in May 2010. Moody's considers that it will require some time for MUMSS to establish a good cooperative franchise which brings in stable profits.

The Aa3 rating also reflects Moody's view of the significant likelihood of parental support in the event of stress, given the integration of MUMSS' wholesale business with and its strategic importance to BTMU's investment bank.

The provision of the keep well agreement and commitments in it by the bank to majority ownership and liquidity support are further significant factors underpinning Moody's assessment of the strength of that support.

However, Moody's notes that the enforceability of a keep well agreement remains untested under Japanese law and -- as a result -- Moody's does not regard it as having the same degree of certainty for support as a guarantee. Nevertheless, Moody's has uplifted substantially from the standalone rating of MUMSS to reflect the high likelihood of support being provided in a stress situation.

The Aa3 ratings of MUSI and MUSHK -- MUMSS' two overseas operating entities -- reflect their important and comprehensive roles in the global value chain network for MUMSS and/or BTMU in the provision to customers of a full range of services, as well as the probability of parental support, including credit enhancement from the keep well letter. Moody's considers these entities as highly integrated into MUMSS.

MUSHD's A1 rating reflects the stand-alone strength of its operating subsidiaries, especially that of MUMSS, and its role as the intermediate holding company which serves as a central control of the securities group for Mitsubishi UFJ Financial Group, the parent holding company. The one-notch difference between MUMSS and MUSHD derives from the structural subordination of the holding company.

The stable ratings outlook reflects Moody's expectation that BTMU will continue to provide a high level of support over the medium term, as well as the consideration that MUMSS' operating profile will remain stable.

Positive rating pressure could arise for all of those entities in the event of (1) an upgrade to BTMU's rating, or (2) BTMU's provision of a stronger level of credit enhancement, or 3) an improvement in MUMSS' standalone credit profile.

Conversely, negative rating pressure could emerge if there is a (1) reduction in those operating entities' strategic importance to BTMU, or (2) a termination of the keep well letter, or (3) a downgrade of BTMU's ratings, or 4) a decline in MUMSS's standalone credit profile.

The following ratings have been downgraded:

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. -- long-term issuer rating to Aa3 from Aa2

Mitsubishi UFJ Securities Holdings Co., Ltd. -- long-term issuer rating to A1 from Aa2

Mitsubishi UFJ Securities International plc -- EMTN Program rating to (P)Aa3 from (P)Aa2, long-term senior unsecured and issuer ratings to Aa3 from Aa2, and EMTN Program subordinated rating to (P)A1 from (P)Aa3

Mitsubishi UFJ Securities (HK) Capital, Ltd. -- long-term certificate of deposit rating to Aa3 from Aa2

Moody's last rating action on MUMSS, MUSHD, MUSHK, and MUSI was on March 19, 2010, when it placed their ratings under review for possible downgrade.

The principal methodology used in rating MUMSS, MUSHD, MUSI, and MUSHK was "Global Securities Industry Methodology" (December 2006), which can be found at www.moodys.com. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Rating Methodologies subdirectory.

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., headquartered in Tokyo, is one of the major securities companies in Japan. It is 60% indirectly owned by Mitsubishi UFJ Financial Group Inc., one of the largest banking group holding companies in Japan and is 40% indirectly owned by Morgan Stanley.

Mitsubishi UFJ Securities Holdings Co., Ltd., headquartered in Tokyo, is an intermediate holding company wholly owned by Mitsubishi UFJ Financial Group. Its major subsidiaries include Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Mitsubishi UFJ Securities International plc and Mitsubishi UFJ Securities (HK) Capital, Ltd.

REGULATORY DISCLOSURES

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Tokyo
Natsuko Ishida
Analyst
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Minoru Kubota
MD - Financial Institutions
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan

Moody's downgrades Mitsubishi UFJ Morgan Stanley Securities to Aa3
No Related Data.
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