Morgan Stanley announced Monday that it had completed a previously announced deal to raise capital from Mitsubishi UFJ Financial Group, a large commercial bank in Japan.
Mitsubishi will pay $9 billion – or on average, $29 a share – for 21 percent ownership of Morgan Stanley. That is a premium over the investment bank's share price at the end of last week, when it closed at $24.75.
The two companies also announced a strategic alliance with a focus on corporate and investment banking. The arrangement remains subject to regulatory approvals.
Morgan Stanley had been reported to have been talking with Charlotte-based Wachovia about a merger – presumably with Wachovia as the buyer – until Mitsubishi rode to the rescue a week ago. The Japanese giant has $1.1 trillion in bank deposits, and the deal is meant to reassure Morgan's investors that it is on firm financial footing.
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Last week, Morgan received permission from the Federal Reserve to convert itself into a bank holding company. The change in business model means that Morgan will have stricter capital and leverage rules as well as permanent oversight from the Federal Reserve. But it also gives the investment bank access to Reserve's lending programs.
Morgan Stanley and Goldman Sachs remain the only two former investment banks left standing after months of turmoil in the markets, and they are now both becoming bank holding companies. Bear Stearns and Merrill Lynch were sold to commercial banks, and Lehman Brothers filed for bankruptcy.
Last week, Morgan Stanley announced that it was working on a deal with Mitsubishi. Negotiations took a full week, and there was some investor concern that Mitsubishi might be backing out. John Mack, the chairman and CEO of Morgan Stanley, wrote to all of the investment bank's employees Friday to let them know the deal was moving forward.
Now that the deal is finalized, Morgan Stanley still faces large challenges to reinvent itself as a bank holding company.
“This strategic alliance offers a powerful opportunity to accelerate Morgan Stanley's transition as a bank holding company,” Mack said in a statement about the deal.
Mitsubishi's investment, he said, “is also a strong endorsement of Morgan Stanley's world-class franchise and future potential.”