$9bn Mack nugget

13 October 2008 By Richard Beales Follow @richardbeales1

John Mack had to give ground to get his lifeline from Japan. The Morgan Stanley boss may yet need more: loans from MUFJ or even US government cash. But the deal rescues his credibility and, helped by rising government intervention, could mark a turning point.

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Mitsubishi UFJ closed its $9bn investment in Morgan Stanley on revised terms on October 13. The renegotiated deal abandons the previous $3bn common stock element, instead involving only preferred stock.

MUFJ will invest $7.8bn in perpetual convertible preferred stock with a 10% dividend and a conversion price of $25.25 a share. The other $1.2bn will come as perpetual preferred stock with a 10% dividend. The original deal involved $6bn of convertible preferred stock with a $31.25 conversion price and $3bn of common stock at $25.25 a share.

After the original deal was announced on September 29, Morgan Stanley's share price fell by more than half from above $20 a share to $9.68 on October 10. The shares jumped 87% on October 13 to close at $18.10.

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