Mitsubishi Agrees Revised Terms on $9 Billion Investment in Morgan Stanley

The revised terms are similar to those discussed last night, with the Japanese bank investing the same amount but receiving an increased ownership stake (21%) and receiving more in preferred stock. Note confusion in the Journal article: the news alert, says, “MUFG Closes Morgan Stanley Investment With Revised Terms” when the story itself says both that the deal has closed (first sentence of the extract) and will close tomorrow (last sentence). Reuters similarly indicated in headlines that he announcement was of revised terms (and they were expecting them to be announced by 8:00 AM EDT, yet they were not up as of 8:20 AM), yet the headline now (this section tweaked at of 9:30 AM) uses the word “buys”. BusinessWire says the deal has closed, so one presumes it has, but normally one cannot close a deal within mere hours of revising terms, particularly on a bank holiday in the US and Japan. They would have needed to close in locale where banks were open. Anything is possible, and if nothing else, this shows a keen desire not to have the deal buffeted by another day of stock trading.

From the Wall Street Journal:

Mitsubishi UFJ Financial Group Inc. closed a $9 billion investment in Morgan Stanley that gives the Japanese company a 21% interest.

Under revised terms, MUFG has acquired $7.8 billion of convertible preferred stock with a 10% dividend and a conversion price of $25.25 a share, and $1.2 billion of non-convertible preferred stock with a 10% dividend. Previously, MUFG was getting a mix of preferred and common shares.

Morgan and MUFG had worked Sunday to finish the pact, as both sides pushed to keep the general terms of the deal intact and the U.S. government signaled it was prepared to protect the Japanese investment, people familiar with the matter said.

The U.S. government was involved with the talks but isn’t contemplating a direct investment alongside MUFG, one person familiar with the talks said.

This could show the government believes Morgan Stanley is strong enough to survive on its own. Still, to help protect MUFG, the U.S. government was contemplating a structure in which any possible future government investment in Morgan Stanley wouldn’t wipe out MUFG’s investment.

The new wrinkles make the deal more expensive for Morgan Stanley and possibly could fall below some investors’ expectations for a dramatic weekend rescue of the firm. But Morgan Stanley is hoping that finishing the investment on schedule by Tuesday will boost confidence among investors who worried the entire deal could fall through.

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  1. Anonymous

    MUFG probably wants something in writing that says the pref won’t get diluted when the Paulson puts in the taxpayer money.

    Essentially, MUFG wants a putable prefered where the U. S. govt. guarantees the put.

    While the Japanese are quite correct in not trusting the word of the Bush Admin, not sure that a written guarantee is worth much either.

    Putable prefereds are usually refered to as ‘debt’ rather than equity.

  2. Yves Smith

    Anon of 9:00 AM,

    I believe this form of preferred nevertheless counts as equity for regulatory purposes, particularly since that is the whole point of this fundraising, but your point is well taken. And despite the nominal put feature, do you think MUFG would ever be able to exercise it?

  3. eh

    Looks like Buffett may have established a sort of benchmark for this sort of deal, and potential investors in troubled financial institutions won’t want to accept anything less than what Buffett got from GS.

    I really wonder about bank earnings going forward, and therefore the impact of new preferred on common shareholders. I mean so much has changed in the last months, and investment banks like MS just will not be able to make the kind of money they did previously. But I expect MS to rally strongly on the news anyway.

  4. Anonymous

    The put protects MUFG from getting ‘Beared’ where all equity (including pref) is wipedout in some forced merger and all debt is protected.

    That they need to ask for such protection speaks volumes about their outlook for the bailout plan and their confidence in MS

  5. Anonymous


    The MS business model for fixed income seems kaput — slicing and dicing mortgages, loans and reselling for an arb profit.

    They can go back to an older model of underwriting debt and equity. But that is oh so 1978

  6. Anonymous

    The British banking meltdown is threatening the planned $35-billion takeover of BCE Inc. A crisis yesterday at Royal Bank of Scotland, one of four lenders on the buyout, sent shares of Canada’s largest company tumbling.

    There are widespread fears these troubles will force RBS to renege on its pledge to lend to BCE’s buyers, led by the Ontario Teachers’ Pension Plan. RBS executives declined comment on the BCE buyout, or the possibility of a bailout.

  7. Anonymous

    That’s it. Game over bears. Yves will have to close out this blog!

    We’re on a gravy train with biscuit wheels!

  8. Anonymous

    A one day rally does not an economic recovery make. Paul Kedrosly had a chart showing that the long term trend line of the Dow since 1982 would put the proper value at …….7000.

    Mr. Stock Market hopes banking crisis over, we get back to consumer borrow and spend party. First, Roubini is not convinced the crisis is over. Second, even if it is, banks are cutting back on consumer lending of every kind, both via pricing and via slashing credit lines. We will still have deleveraging, and still have a bad recession, even if no depression.

    The Dow had multiple double digit rallies during its 90% decline. The Japanese stock market never recovered to its bubble year peak.

    And I further submit that if we do, it might not be for good reasons. Zimbabwe with its hyperinflation has the best nominal stock market performance on offer…

    Way too early to declare victory.

  9. Anonymous

    4:21, I love “First, Roubini is not convinced this crisis is over.” Is that the state of things these days? It’s not over until Roubini says its over?

    What is your investment advice, pray tell? Not stocks, obviously. Bonds? Gold? Canned soup and ammunition?

    All of the governments of the major countries of the world are bringing everything they have to bear to solve what basically boils down to a crisis of confidence. You want to bet that a multi-trillion dollar global effort to keep the banking system functioning won’t succeed? The odds are just a bit against you and your idol Nouriel.

  10. Anonymous

    This is 4:21, So tell me who has been more accurate in calling this? You’d rather rely on the cheerleaders who have been wrong the last two years?

    I’ve been up considerably more than cash the last two years, and that with a low risk strategy and little trading. I’ll put my record against any one, particularly on a risk-adjusted basis.

  11. Ja

    Roubini has a clue. When you post very large daily percentage gains, you’re officially in a bear market. Or so suggests history and intuition.

    It may not be so bad, but better fasten your seat belts, at least this month.

    Largest daily percentage gains, DOW
    Rank – Date – Close – Net Change – % Change


    1 1933-03-15 62.10 +8.26 +15.34
    2 1931-10-06 99.34 +12.86 +14.87
    3 1929-10-30 258.47 +28.40 +12.34
    4 1932-09-21 75.16 +7.67 +11.36
    5 2008-10-13 9,387.61 +936.42 +11.08
    6 1987-10-21 2,027.85 +186.84 +10.15
    7 1932-08-03 58.22 +5.06 +9.52
    8 1932-02-11 78.60 +6.80 +9.47
    9 1929-11-14 217.28 +18.59 +9.36
    10 1931-12-18 80.69 +6.90 +9.35
    11 1932-02-13 85.82 +7.22 +9.19
    12 1932-05-06 59.01 +4.91 +9.08
    13 1933-04-19 68.31 +5.66 +9.03
    14 1931-10-08 105.79 +8.47 +8.70
    15 1932-06-10 48.94 +3.62 +7.99
    16 1939-09-05 148.12 +10.03 +7.26
    17 1931-06-03 130.37 +8.67 +7.12
    18 1932-01-06 76.31 +5.07 +7.12
    19 1932-10-14 63.84 +4.08 +6.83
    20 1907-03-15 81.33 +5.10 +6.69

  12. Anonymous

    I see where the next four largest percentage gains came during the First Great Depression.

    “Fasten your selt belts and make sure your tray tables are in their upright and locked positions…”

  13. Anonymous

    4:21, we didn’t quite catch your answer to the question of what your investment strategy is. Since your investment success has been so overwhelming, we are longing for your advice.

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