Tokyo: Japan’s biggest bank, Mitsubishi UFJ Financial Group Inc., said Monday it will swap $600 million of its preferred shares in Morgan Stanley for common stock to keep its voting rights stake of the US bank above 20%.
Its purchase of 25 million shares is part of Morgan Stanley’s new share offering announced Friday after the US government called on 10 banks to raise more capital. Morgan Stanley faces a $1.8 billion shortfall, according to the report. The US bank said it will offer 167.9 million common shares for $24 each in an effort to raise gross proceeds of $4 billion.
The transaction will not require Mitsubishi UFJ, or MUFG, to pay additional cash. Instead, Morgan Stanley will buy back some preferred shares MUFG purchased last year in exchange for the new common stock, which unlike preferred shares, come with voting rights.
MUFG currently holds a mixture of preferred shares and common stock. It decided to swap its preffered holdings for common stock to ensure that its voting rights do not fall below 20% after Morgan Stanley’s new share offering, said MUFG spokesman Takashi Takeuchi.
Since Mitsubishi UFJ gave Morgan Stanley a $9 billion lifeline in October in the wake of Lehman Brothers’ collapse, the two companies have been examining ways to propel their alliance forward even as the world economy fell on hard times. In March, Morgan Stanley and MUFG set plans to merge their Japanese brokerage units into a new securities company.
“The purpose of this investment by MUFG is to maintain and strengthen the strategic alliance between MUFG and Morgan Stanley,” the Japanese bank said in a statement.
In trading Monday, MUFG jumped 4.7% on the Tokyo Stock Exchange in line with big gains among financial issues. The benchmark Nikkei index was down 0.7%.