News
Email
Print
Bank to go after rivals
Morgan Stanley bold after deal
AP Photo
Japanese lender Mitsubishi UFJ has invested $9 billion for a 21 percent stake in Morgan Stanley.
ADVERTISEMENT
Published: October 14, 2008
NEW YORK
Morgan Stanley averted disaster with a $9 billion lifeline from a major Japanese bank, and said yesterday that it will use the money to pick off smaller rivals.
Just a few days ago, some on Wall Street openly questioned if the embattled investment bank would be the next to collapse amid a deepening worldwide credit crisis. Now, Morgan Stanley appears emboldened by the 21 percent stake taken by Japanese lender Mitsubishi UFJ -- and, for now, seems to have regained the market's confidence.
Investors poured back into Morgan Stanley shares, which last week plunged 60 percent. Shares recouped $8.42, or 87 percent, to close at $18.10 yesterday.
"This is Darwinism finance, literally the survival of the fittest for the banks," said Chris Johnson, the chief investment strategist at Johnson Research Group. "This is Wall Street's version of the Amazing Race where these companies are going to jump through hoops and rings of fire to rebuild their businesses as quickly as possible."
The closing of the Morgan Stanley deal, which was agreed upon last month, came as Spain's Banco Santander SA said it was in talks to acquire Pennsylvania's Sovereign Bancorp Inc. Forging ahead with similar takeovers appears to be exactly what John Mack, Morgan Stanley's chairman and chief executive, plans to do now that the nation's No. 2 investment bank is on more solid footing.
Mack, 63, laid out his plan by telling employees in a memo that he "will be looking at acquisitions that might make sense for the firm." Since Morgan Stanley has now converted its structure to a safer retail-bank model, it wants to expand its network of 500 branches and 8,500 financial advisers.
Analysts say they believe that Mack will scour the market, looking for faltering retail banks around the country. In light of the buyouts of Wachovia Corp. and Washington Mutual Inc. in recent weeks, it appears that Morgan Stanley won't have a problem finding a target.
That's not to say it is out of the woods. Its book value -- total assets minus liabilities -- still remains stunningly low.
Also, there still remains reluctance on the part of banks to do business or borrow from one another as the credit crisis deepens.
The U.S. government hopes to strengthen struggling financial companies through a $700 bailout plan, of which some of the money would be used to recapitalize hobbled U.S. banks through direct investments.
But, for the most part, analysts appeared relieved.
"Worst case, if confidence does not return, we believe Mitsubishi would likely step in to protect its investment by buying a majority stake in Morgan Stanley," said James Mitchell, an analyst with Buckingham Research Group.
He said that such a transaction would combine "Morgan Stanley with the deposit-rich balance sheet of Mitsubishi."
The government was instrumental in ushering through a deal for Morgan Stanley by assuring Japanese lender Mitsubishi UFJ that its investment would be protected. Mitsubishi, the world's second-largest bank, agreed late Sunday to amended terms that were slightly more favorable to it.
The deal came last month as the credit crisis worsened and competitor Lehman Brothers Holdings Inc. filed for bankruptcy and Merrill Lynch & Co. was sold to Bank of America. Morgan Stanley and Goldman Sachs, the last two major Wall Street investment banks standing, changed their status to bank holding companies to get the kind of large deposit base that analysts believe helps add stability.
Email
Print
