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Morgan Stanley Stake Sale to Mitsubishi
Following the Fed’s approval of Morgan Stanley and Goldman Sachs’ proposal to transition into bank holding companies, Morgan sold 20% to the Japanese holding company, citing “opportunities in rapidly changing financial marketplace.”
September 22, 2008
Morgan Stanley has signed a nonbinding agreement with Mitsubishi UFJ Financial Group, Inc. to sell a 20 percent stake in the company to the Japanese banking holding company. Terms of the agreement were not disclosed.
The letter of intent signed by both banks is nonbinding.
Morgan Stanley chairman and chief executive officer John J. Mack said, “This strategic alliance with Mitsubishi UFJ can put Morgan Stanley in an even stronger position as we look to realize the opportunities we see in the rapidly changing financial marketplace. 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. This alliance also would build on Morgan Stanley’s deep ties and market leadership in Japan and throughout Asia, and help us to continue growing our business in this critically important region.”
On Sunday, Morgan Stanley and Goldman Sachs Group Inc. received approval from the U.S. Federal Reserve Board of Governors to become bank holding companies. This decision will allow the two investment banks to become commercial banks and may receive commercial deposits from clients. In addition, the institutions will come under closer federal regulation.
In an analyst report obtained by Thomson ONE Analytics, Bank of America analyst Michael Hecht expects the Fed’s oversight will lead Morgan Stanley and Goldman Sachs to see a decreased appetite for risk, and resulting diminished returns. He noted, “Good news is that increased diversity in funding and lower leverage should help restore investor confidence and diminish liquidity… Bad news is structurally lower ROEs.”
In noting the stake sale of Morgan Stanley to Mitsubishi UFJ, the analyst made a similar projection, asserting that the acquisition “may mean dilution to earning and lower ROE,” but believes that investors will support the transaction, given that it “reduces survivability concerns.”
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