- The Washington Times - Tuesday, September 30, 2008

Morgan Stanley agreed to sell a 21 percent stake to Japan’s Mitsubishi UFJ Financial Group Inc. for $9 billion, seeking to shore up investor confidence after borrowing costs climbed and its stock fell by half.

Mitsubishi UFJ, Japan’s biggest lender, will buy $3 billion of common stock and $6 billion of convertible preferred stock that pays a 10 percent dividend, the two companies said Monday in a statement. Morgan Stanley shares fell 15 percent amid a collapse in bank stocks after a $700 billion financial-rescue bill failed to pass in Congress Monday and Wachovia Corp. sold most of its assets to Citigroup Inc.

Morgan Stanley Chief Executive Officer John Mack is raising capital, seeking to boost deposits and transforming the second-biggest U.S. securities firm into the fifth-biggest bank-holding company after investors lost confidence in firms that depend on bond markets for financing. Mitsubishi UFJ has reported about $1.3 billion in credit-market losses and write-downs since last year, compared with $15.7 billion at Morgan Stanley.

“I don’t know if they really need the capital now, it’s more perception in the market that they should get that capital,” said Peter Kovalski, who helps oversee $12 billion at Alpine Woods Capital Investors LLC and owns Morgan Stanley stock.

Even with the new capital, Morgan Stanley dropped $3.76 to $20.99 in New York Stock Exchange composite trading, extending its decline this year to 60 percent.

Mitsubishi UFJ agreed to buy 9.9 percent of Morgan Stanley’s common stock for $25.25 per share, 2 percent more than Morgan Stanley’s closing price of $24.75 on Sept. 26. Mitsubishi UFJ’s $6 billion of preferred stock will convert at a price of $31.25 a share, according to the statement.

At Monday’s closing price of $20.99, Mitsubishi UFJ has already lost $4.26 on each Morgan Stanley common share it’s acquiring, or about $506 million in total.

Mitsubishi UFJ will get a seat on Morgan Stanley’s board. After one year, half of the preferred stock automatically converts into common shares when Morgan Stanley trades above 150 percent of the conversion price for a certain period. The other half converts on the same basis after two years.


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