

See Morgan Stanley shares Morgan Stanley shares surged after Japanese banking giant Mitsubishi UFJ Financial Group said it would buy a stake in the bruised Wall Street bank. The Japanese group said the stake will account for 10% to 20% of Morgan Stanley's common shares. A price has not yet been decided. Further details will be revealed after the group has completed due diligence. Morgan Stanley has been humbled by the credit crisis tearing through the world's financial system. A tie-up with Mitsubishi UFJ - the world's second largest bank holding company with $1.1 trillion (£595bn) in deposits - would allow New York-based Morgan Stanley to shore up its capital base. "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," said John J. Mack, Morgan Stanley's chairman and chief executive. Morgan Stanley shares shot up as much as 16% on the news and were trading up almost $3, or 10.7%, at $30.13 in early New York trade. But they are still much lower than their 2007 peak of $74 last June, shortly before the credit crisis unfolded. Collapse of confidence The deal, estimated to be worth around $8.5bn, comes shortly after Morgan Stanley was granted approval by the Federal Reserve to change its status to become a bank holding company, which allows it to grow its deposits to raise funds. The radical move, which was taken by Goldman Sachs too, marks the end of the independent investment bank on Wall Street, which aggressively grew profits using money borrowed from the bond market - a model which is now in tatters. It follows a collapse of confidence in the world's financial institutions, which saw the sudden demise of US investment bank Lehman Brothers and forced Merrill Lynch to agree to a takeover by Bank of America. Last week's events also saw the biggest insurer in the US, American International Group (AIG), effectively nationalised by the US government after it failed to access enough cash to run its business. In the UK, a run on the shares of HBOS - the owner of Halifax and Bank of Scotland - drove it to shelter in the wings of Lloyds TSB amid fears for the future of the UK's top mortgage lender. Strategic alliance It was widely reported last week that Morgan Stanley was seeking a tie-up to reassure investors worried about its financial health. Potential partners included US bank Wachovia and a Chinese sovereign wealth fund. Mitsubishi UFJ Financial said in a statement that the deal was dependent on due diligence and the approval of the necessary regulatory authorities. The investment is a sign that Japanese banks have rebuilt their balance sheets after a decade of struggling with crippling bad loans. They are now keen to take advantage of victims of the credit crisis to expand abroad. On the same day, Nomura swooped on the Asia-Pacific assets of the defunct US investment bank Lehman Brothers.



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