morgan stanley set to collapse.....

Morgan Stanley says deal with Mitsubishi UFJ Financial Group scheduled to close on time

NEW YORK (AP) -- Morgan Stanley stock tumbled Tuesday on a rumor that Mitsubishi UFJ Financial Group Inc. would withdraw from an agreement to buy nearly a quarter of the investment bank. Morgan Stanley, however, said the deal is scheduled to close on time once a mandatory regulatory waiting period expires at the end of the week.

ADVERTISEMENT
Morgan Stanley shares fell $5.19, or 22.1 percent, to $18.31 in afternoon trading. Shares had fallen as low as $14.13 earlier in the session.

William Blair & Co. analyst Mark Lane said a rumor such as the one circulating about Morgan Stanley losing the investment could cause such a steep drop in the stock price.

On Monday, the Federal Reserve Board approved the purchase that would allow Mitsubishi, Japan's largest bank, to buy up to a 24.9 percent stake in Morgan Stanley. Once the deal was approved, a five-day waiting period must be completed before the transaction can close.

Last month, Morgan Stanley reached a deal for Mitsubishi to invest $9 billion in equity for a stake in the New York-based investment bank. Mitsubishi would buy $3 billion in common stock at a price of $25.25 per share and acquire an additional $6 billion in convertible preferred stock that carries a dividend of 10 percent and a conversion price of $31.25 per share.

Mitsubishi has $1.1 trillion in deposits.

Last month, Morgan Stanley, along with Goldman Sachs Group Inc. received approval to convert to bank holding companies. The pair were the last stand-alone investment banks left after Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. was sold to Bank of America Corp.

The changes occurred within days of each other as investors worried about the credit crisis sapping liquidity from investment banks.

Morgan Stanley and Goldman Sachs bought some time by applying to become commercial banks, said Christopher Whalen, managing director of Institutional Risk Analytics, but that "changing charters isn't sufficient for survival."

"The problem Morgan and Goldman have is that they're not big enough," Whalen said. "In today's world, Morgan Stanley and Goldman Sachs are teeny. They're little guys. People are going to say why do business with them, I'll do business with Bank of America. It's a very cruel discrimination process that operates in the markets today."