The U.S. decided it could not allow another investment bank to fail. And if it had allowed Morgan Stanley (NYSE: MS). to file for bankruptcy -- as it did with Lehman Brothers -- that would not have happened. Why not? Because Morgan Stanley is now a commercial bank. But thanks to a guarantee from the Treasury and a change in the structure of its deal, Morgan Stanley has skated away from bankruptcy.
That's because Mitsubishi UFJ negotiated a new deal with Morgan Stanley. Instead of buying a mixture of common and preferred stock, Mitsubishi will acquire a 21% stake in Morgan Stanley by purchasing $9 billion worth of its preferred stock yielding 10%. More specifically, $7.8 billion of the Mitsubishi investment is in preferred shares which its can convert into Morgan Stanley common at $25.25 per common share. The other $1.2 billion is in perpetual noncumulative preferred stock that is not convertible into Morgan Stanley stock.
Why the change? Previously $3 billion of Mitsubishi's stake was to be in common stock purchased for $31.25 a share, but after Morgan Stanley's stock fell 58% last week -- this deal would have been embarrassing to complete. This weekend I was thinking about buying Morgan Stanley stock but I held back because I thought that the Treasury might inject senior preferred capital into Morgan Stanley which would drive down the value of its common.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned
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Reader Comments (Page 1 of 1)
10-15-2008 @ 8:46AM
danfog said...
Any comments form the gang of 8?