Mumbai: Mitsubishi UFJ Financial Group, Japan's largest bank, has closed a deal to buy a stake in battered Morgan Stanley, though at more favorable terms than earlier agreed, amidst reports that the deal may fall through without backing from the US government.
 
The Japanese securities firm amended the terms of its 29 September agreement and bought preferred stock convertible into a 21 per cent stake in Morgan for $9 billion in cash, with the entire investment now consisting only of preferred stock.

While the exact details of the deal have not been disclosed, the new terms will allow Mitsubishi UFJ to buy preferred shares that will convert into common stock at a price range of $20 to $25, the source said.

Under the earlier agreement, MUFJ was to acquire $6 billion in convertibles and $3 billion in common stock at $31.25 a share, but Mitsubishi pushed for new terms after Morgan Stanley stock plunged 58 per cent last week to $9.28 and eroded its total market value to just $10.3 billion.

MUFJ's move to seek convertible shares instead of all stock avoids a near-term loss, while still letting it benefit when the shares recover.

In the meantime, MUFJ will also earn high-yielding 10 percent interest on the preferred shares.

As part of the deal, the company will also provide letters of credit and a credit line to support Morgan Stanley in a move that would reassure investors worried about the US bank's liquidity.

The US government will not invest alongside MUFJ. But the deal was finalised after US officials assured MUFJ that its investment in Morgan Stanley would be protected, sources said.