In its latest efforts to save itself from this
year’s credit crisis, Morgan Stanley has completed an agreement to sell a chunk
of the troubled firm to Japanese holding company Mitsubishi UFJ.
The deal, which was announced on Tuesday, is
thought to be worth nearly $10 billion and will be encouraging news for
investors who will be hoping the US financial giant can make it through the
most turbulent year in its prestigious history.
After the news hit the trading floors, Morgan Stanley
shares staged a monumental rally, increasing nearly 90 percent. They had
previously fallen substantially amid rumours the deal may not go through.
There was even a danger that the company could
suffer a Lehman Brothers type total collapse if the agreement fell apart, which
was a possibility up until only a few days ago.
“I’m sure investors will be relieved at a $10
billion funds injection,” said Stuart Poulson, Head of
Corporate trading at Nikko-Desjardins Asset Management in a comment on his
blog.
“At the moment it’s the only available move
for the Americans, it’s all about survival at the moment and the investors need
to know they are covered.”
Morgan, headquartered in New York, were
involved in lengthy talks with Mitsubishi over the last few days,
going through the terms of the deal which was first made public nearly a month
ago.
According to insiders, Mitsubishi were trying to
bargain a cheaper deal as Morgan’s stock fell dramatically since the proposal
was announced. The original offer by the Japanese firm was for a mixture of
common and preferred stocks.
After a new deal was hammered out, Mitsubishi will
end up with a 20 percent ownership stake in the New York firm for a $10 billion
stock payment, 10 percent of which comes back to Mitsubishi in the form of
dividends.
It’s thought the US authorities themselves got
involved with the talks, offering the Tokyo bank assurances that their
investment would be a safe one. The government have a vested interest in the
deal as it would calm the anxious mood in the markets and raise sentiment,
vital factors if the country’s economy is to claw itself out of the current crisis.
Morgan Stanley boss John Mack said in a press
release on Tuesday that the deal had “strengthened our position and brought
about a critical alliance between two great companies looking to move forward
in these most difficult and challenging times.”
