Mitsubishi closes $9bn investment in Morgan Stanley

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Mitsubishi UFJ said today it bought a stake in beaten-down Morgan Stanley, as the US government reportedly offered to support the Japanese bank's investment.

Mitsubishi UFJ, Japan's largest bank, purchased a 21 per cent stake in Morgan Stanley for $9bn in cash, but amended the terms of a 29 September agreement so that the entire stake is in preferred stock.

Previously $3bn of the stake was to be in common stock purchased for $31.25 a share, but Mitsubishi pushed for new terms after Morgan's stock plunged 58 per cent last week and eroded its total market value to just $10.3bn.

In early electronic trading, Morgan's stock rose more than 28 per cent to $12.42 a share.

About $7.8bn of the Mitsubishi investment is in perpetual noncumulative preferred shares with a conversion price of $25.25 per common share. The other $1.2bn is in perpetual noncumulative preferred stock that is not convertible.

MUFG said it retains the right to maintain a 20 per cent stake in Morgan Stanley and, providing that its stake remains above 10 per cent, the right to one seat on Morgan Stanley's board of directors.

The Wall Street Journal earlier reported that the US government would express its support for the deal and work to structure any potential future investment in Morgan Stanley in a way that wouldn't wipe out MUFG's investment.

Separately, the New York Times reported that federal officials assured MUFG late Sunday that its planned investment in the embattled Wall Street giant would be protected.

After two days of tense negotiations, Treasury officials urged a hesitant MUFG to proceed with its investment, the paper said on its website, citing people involved in the talks.