Bloomberg News

Mitsubishi UFJ Pledges Commitment to Morgan Stanley Alliance

October 04, 2011

(Updates with Morgan Stanley CEO’s comments in sixth paragraph.)

Oct. 4 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc. said it’s “firmly committed” to its strategic alliance with Morgan Stanley, as shares of the U.S. bank tumbled to their lowest level since December 2008.

Japan’s biggest banking group repeated its commitment to Morgan Stanley “in response to recent market volatility,” Mitsubishi UFJ said in a statement yesterday. “The special relationship we have formed remains core to our global business strategy.”

Shares of Morgan Stanley have fallen 54 percent this year as concern intensified that Europe’s debt crisis will infect U.S. bank balance sheets. Mitsubishi UFJ invested $9 billion in Morgan Stanley in October 2008 as the New York-based firm’s stock price collapsed after the bankruptcy of Lehman Brothers Holdings Inc.

Confirming the partnership “is not surprising, but positive,” said Yoshinobu Yamada, a Tokyo-based banking analyst at Deutsche Bank AG. “The alliance will enable MUFG to raise its profit from the U.S. bank through the equity method, and it has merit for Morgan Stanley to have a steady and loyal shareholder.”

The banks agreed in April to convert $7.8 billion of preferred shares into common stock and completed the conversion in June, making the Tokyo-based bank Morgan Stanley’s largest common shareholder with a 22.4 percent stake.

Gorman Memo

Morgan Stanley Chief Executive Officer James Gorman, 53, sent a memo to employees yesterday, encouraging them to remain focused on their jobs and clients instead of responding to “the rumor of the day.”

“There has been an enormous amount of confusion and misinformation about Morgan Stanley and others in our peer group,” he wrote in the memo, which was obtained today by Bloomberg News. “In fragile markets, where fear triumphs over common sense, these things are bound to happen.”

Gorman attached analyst reports from Credit Suisse Group AG’s Howard Chen and Wells Fargo & Co.’s Matthew Burnell that note the firm’s improved financial strength and manageable exposure to “the euro zone and France.” Jeanmarie McFadden, a spokeswoman for the firm, confirmed the memo’s contents.

Shares Fall

Morgan Stanley dropped $1.04, or 7.7 percent, to $12.47 yesterday in New York Stock Exchange composite trading, the lowest closing price since Dec. 2, 2008. The shares have fallen 54 percent this year through yesterday.

Mitsubishi UFJ fell 3.8 percent to 331 yen at the close of trading today in Tokyo, extending this year’s decline to 25 percent. Japan’s Topix Banks Index slid 2.1 percent as discord among European policy makers fueled concern the region won’t resolve its debt crisis.

Mitsubishi UFJ still holds about $500 million of non- convertible preferred stock with a 10 percent dividend. Morgan Stanley can buy back that stake for about $572 million beginning on Oct. 15, according to the firm’s annual 10-K filing.

The Japanese bank declared its support for Morgan Stanley as the cost to protect the U.S. firm’s debt surged to the highest level since the weeks after Lehman collapsed. Traders pushed the cost of credit-default swaps on U.S. companies higher after German Finance Minister Wolfgang Schaeuble opposed moves to increase the scale of the euro rescue fund, complicating efforts to prevent a Greek default.

Contracts on Morgan Stanley, the owner of the world’s largest retail brokerage, soared 92 basis points to a mid-price of 583 basis points yesterday in New York, the highest since October 2008, according to London-based data provider CMA.

--Editors: Russell Ward, William Ahearn

To contact the reporters on this story: Michael J. Moore in New York at mmoore55@bloomberg.net; Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net


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