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Morgan Stanley shares soar as MUFG deal closes
(Agencies)
Updated: 2008-10-14 09:02 NEW YORK -- Morgan Stanley stock nearly doubled after Japan's Mitsubishi UFJ Financial Group Inc (MUFG) completed its $9 billion investment in the bank on Monday.
Morgan Stanley shares soared as much as 97 percent after Japan's largest bank bought a 21 percent stake one day earlier than expected. Last week, the New York bank's stock plunged by more than half amid fears that Morgan, forced to wait five days before completing the deal, might not survive the crisis. "It's different terms, but it's done, and I think people should breathe a sigh of relief that it's done," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. Merrill Lynch analyst Guy Moszkowski raised his rating on Morgan Stanley to "buy," citing the capital infusion and saying the shares were "cheap" at 50 percent of book value. But Fitch Ratings on Monday cut its long-term issuer default rating on Morgan Stanley by two notches to "A," or sixth-highest investment grade. It also downgraded the long-term senior debt to "A" and the subordinated debt to "A-minus," or seventh-highest investment grade. Fitch said it expects the current stresses on the bank's core business to continue for some time. Amending the terms of a September 29 agreement, Mitsubishi bought only preferred stock in Morgan Stanley, in contrast with the initial deal under which it had agreed to buy $3 billion of common stock at $31.25 a share, Morgan's book value. About $7.8 billion of MUFG's investment was in preferred shares with a conversion price of $25.25 a common share and with no maturity date. The other $1.2 billion is in preferred stock that is not convertible and also has no maturity date. Both preferred series pay a 10 percent interest rate, unchanged from the original pact. The Japanese bank pushed for new terms after Morgan's stock price plunged last week to $9.28. Morgan's total value had fallen to $10 billion and customers were starting to lose confidence. For MUFG, owning convertible shares helps it avoid any immediate paper loss on the common stock, ensures a generous $900 million in interest payments per year, and lets MUFG benefit from a recovery in Morgan Stanley. The US government did not invest in Morgan Stanley, as had been speculated, but federal officials were involved in the talks and assured MUFG over the weekend that its investment would be protected, a person familiar with the matter said. After two days of talks this weekend, Treasury officials urged a hesitant MUFG to proceed. The Japanese government and MUFG pressed the US Treasury to guarantee that if the United States were to inject money into Morgan, it would ensure that MUFG's investment would not be diluted, the source said. Morgan Stanley stock closed at $18.10, up $8.42, or 87 percent, on the New York Stock Exchange. Tokyo markets were closed. New Deal "This investment further strengthens our capital position and gives us a powerful strategic partner going forward," Morgan Chief Executive John Mack told employees in a memo. |
