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Morgan Stanley in 20% stake sale Morgan Stanley in 20% stake sale
(about 2 hours later)
Japanese banking giant Mitsubishi UFJ Financial Group has said it will buy a stake in its bruised Wall Street rival Morgan Stanley. Morgan Stanley shares surged after Japanese banking giant Mitsubishi UFJ Financial Group said it would buy a stake in the bruised Wall Street bank.
The firm said the stake will account for 10% to 20% of Morgan Stanley's common shares. The Japanese group said the stake will account for 10% to 20% of Morgan Stanley's common shares.
A price has not yet been decided. Further details will be revealed after the group has completed due diligence.A price has not yet been decided. Further details will be revealed after the group has completed due diligence.
Morgan Stanley has been humbled by the credit crisis tearing through the world's financial system.Morgan Stanley has been humbled by the credit crisis tearing through the world's financial system.
It was widely reported last week that Morgan Stanley was looking for a tie-up to reassure investors worried about its financial health. A tie-up with Mitsubishi UFJ - the world's second largest bank holding company with $1.1 trillion (£595bn) in deposits - would allow New York-based Morgan Stanley to shore up its capital base.
The Reuters news agency had reported that Morgan Stanley had been holding talks with US bank Wachovia and a Chinese sovereign wealth fund about a takeover or investment opportunity. "As one of the largest commercial banks in the world, Mitsubishi UFJ would be a valuable partner as we transition to a bank holding company and build our bank services and deposit base," said John J. Mack, Morgan Stanley's chairman and chief executive.
Mitsubishi UFJ Financial said in a statement that the deal was dependent on due diligence and the approval of the necessary regulatory authorities. Morgan Stanley shares shot up as much as 16% on the news and were trading up almost $3, or 10.7%, at $30.13 in early New York trade.
Continued uncertainty But they are still much lower than their 2007 peak of $74 last June, shortly before the credit crisis unfolded.
The scramble to find a partner came after a dramatic collapse in confidence in the world's financial institutions, which saw the sudden demise of US investment bank Lehman Brothers and forced Merrill Lynch to agree to a takeover by Bank of America. Collapse of confidence
The deal, estimated to be worth around $8.5bn, comes shortly after it was granted approval by the Federal Reserve to change its status to become a bank holding company, which allows it to grow its deposits to raise funds.
The radical move, which was taken by Goldman Sachs too, marks the end of the independent investment bank on Wall Street, which aggressively grew profits using money borrowed from the bond market - a model which is now in tatters.
It follows a collapse of confidence in the world's financial institutions, which saw the sudden demise of US investment bank Lehman Brothers and forced Merrill Lynch to agree to a takeover by Bank of America.
Last week's events also saw the biggest insurer in the US, American International Group (AIG), effectively nationalised by the US government after it failed to access enough cash to run its business.Last week's events also saw the biggest insurer in the US, American International Group (AIG), effectively nationalised by the US government after it failed to access enough cash to run its business.
In the UK, a run on the shares of HBOS - the owner of Halifax and Bank of Scotland - drove it to shelter in the wings of Lloyds TSB amid fears for the future of the UK's top mortgage lender.In the UK, a run on the shares of HBOS - the owner of Halifax and Bank of Scotland - drove it to shelter in the wings of Lloyds TSB amid fears for the future of the UK's top mortgage lender.
Morgan Stanley and Goldman Sachs - the two last major investment banks on Wall Street - have been forced to change their status to take deposits from investors to raise funds. Strategic alliance
The move to become bank holding companies means agreeing to much tighter regulation and supervision by the Federal Reserve, creating more certainty about the strength of their finances. It was widely reported last week that Morgan Stanley was seeking a tie-up to reassure investors worried about its financial health.
It also means greater access to Federal Reserve funds. Potential partners included US bank Wachovia and a Chinese sovereign wealth fund.
Mitsubishi UFJ Financial said in a statement that the deal was dependent on due diligence and the approval of the necessary regulatory authorities.
The investment is a sign that Japanese banks have rebuilt their balance sheets after a decade of struggling with crippling bad loans.
They are now keen to take advantage of victims of the credit crisis to expand abroad.
On the same day, Nomura swooped on the Asia-Pacific assets of the defunct US investment bank Lehman Brothers.