MercoPress. South Atlantic News Agency

Wall Street purge: Mitsubishi buys stake in Morgan Stanley

Japanese banking giant Mitsubishi UFJ Financial Group announced Monday it will buy a stake in troubled Wall Street investment bank Morgan Stanley. The firm said the stake will account for 10% to 20% of Morgan Stanley's common shares.

A price has not yet been decided. Further details will be revealed after the group has completed due diligence. Morgan Stanley has been humbled by the credit crisis tearing through the world's financial system. It was widely reported last week that Morgan Stanley was looking for a tie-up to reassure investors worried about its financial health. US media reported that Morgan Stanley had been holding talks with US bank Wachovia and a Chinese sovereign wealth fund about a takeover or investment opportunity. Mitsubishi UFJ Financial said in a statement that the deal was dependent on due diligence and the approval of the necessary regulatory authorities. The scramble to find a partner came after a dramatic collapse in confidence in the world's financial institutions, which saw the sudden demise of US investment bank Lehman Brothers and forced Merrill Lynch to agree to a takeover by Bank of America. Last week's events also saw the biggest insurer in the US, American International Group (AIG), effectively nationalized by the US government after it failed to access enough cash to run its business. In the UK, a run on the shares of HBOS - the owner of Halifax and Bank of Scotland - drove it to shelter in the wings of Lloyds TSB amid fears for the future of the UK's top mortgage lender. Over the weekend it was revealed that Morgan Stanley and Goldman Sachs - the two last major investment banks on Wall Street - have been forced to change their status to take deposits from investors to raise funds. The move to become bank holding companies means agreeing to much tighter regulation and supervision by the Federal Reserve, creating more certainty about the strength of their finances. But it also means greater access to Federal Reserve funds. The move is also part of a huge restructuring effort on Wall Street including the US government announcement of a 700 billion US dollars package to tackle the worst financial crisis for decades. Congress is considering the plan, drawn up by Treasury Secretary Henry Paulson, which would set up a fund to buy back much of the bad ("toxic") debt held by financial institutions, which had triggered the credit crisis. The BBC's business editor Robert Peston said transforming these investment giants into licensed, deposit-taking banks marked the end of an era for Wall Street. "Now that the US taxpayer is in a formal sense underwriting Goldman Sachs and Morgan Stanley, their days of buckling the swash on the worldwide high seas of finance are over, possibly for good". Both banks had filed requests with the Federal Reserve to change their status, and late on Sunday, the Fed announced it had granted the requests. The last few weeks have seen dramatic and unexpected changes among banks, with Merrill Lynch being bought by Bank of America and Lehman Brothers filing for bankruptcy protection. Earlier this year in May, Bear Stearns was acquired by JP Morgan Chase. Goldman Sachs said it already had two existing deposit insitutions, Goldman Sachs Bank US and Goldman Sachs Bank Europe into which it is transferring assets from other parts of the business. "With over 150 billion US dollars in assets, GS Bank USA will be one of the ten largest banks in the US," the bank said. (BBC).