In an embarrassing setback for a joint venture that has become fraught with problems, a brokerage set up by Mitsubishi UFJ Financial Group and Morgan Stanley said Thursday it stumbled to a loss of $1.75bn in its first year of operation after a series of poorly hedged bets on derivative products racked up $1.2bn in trading losses for the January-March period.

Speaking at a news conference in Tokyo just hours before Morgan Stanley unveils its results for the January-March quarter, Mitsubishi UFJ Morgan Stanley Securities said it will book a loss of Y145bn for the fiscal year ended March, citing improperly handled risk management of derivatives trading related to interest-rate and foreign-exchange swaps.