Falling (Mack the) knife

7 October 2008 By Richard Beales Follow @richardbeales1

The former investment bank’s shares fell 40% on Tuesday before paring losses. Rumours apparently untrue about the fate of the $9bn injection from Mitsubishi UFJ were partly to blame. Until the company gets a big chunk of new capital, it will be prone to illiquidity fears.

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Morgan Stanley shares fell 40% intraday on October 7 after rumours subsequently denied that the bank's deal to sell a $9bn stake in itself to Mitsubishi UFJ was in trouble. Morgan Stanley said the rumours were untrue and that it had received US, European and Japanese regulatory approvals and is seeing out a fiveday mandatory waiting period before closing the deal. The shares closed down 25% at $17.65.

MUFJ agreed to buy $3bn of shares at $25.25 a share, against the closing price on September 26 of $24.75, for a 9.9% stake. The Japanese bank will also buy $6bn of perpetual noncumulative preferred stock with a 10% dividend and a conversion price of $31.25 a share. Full conversion could give MUFJ a 21% stake in Morgan Stanley.

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