Shares of Morgan Stanley tumbled on Tuesday on a rumor that Mitsubishi UFJ Financial Group Inc. would pull out of a deal to buy nearly a quarter of the investment bank. Morgan Stanley, however, said the deal is scheduled to close at the end of the mandatory regulatory period which expires at the end of the week.
Shares of Morgan Stanley fell $5.19, or 22.1 percent, to $18.31 in afternoon trading. After an intraday low of $14.13. William Blair & Co analyst Mark Lane said a rumor such as the one circulating about Morgan Stanley losing the investment could cause a big drop in the stock price.
On Monday, the Federal Reserve board approved the purchase that would see Mitsubishi, Japan’s largest bank, buy 24.9% of Morgan Stanley. Once the deal is approved, a five-day waiting period must be observed before the transaction can be closed.
Last month, Morgan Stanley agreed for Mitsubishi to invest $9 billion in the New York-based investment bank. Mitsubishi would purchase $3 billion of common stock at a price of $25.25 each and acquire an additional $6 billion of convertible preferred stock for a 10% dividend and a conversion price of $31.25 per share. $1 trillion1.1
Last month, Morgan Stanley and Goldman Sachs Group Inc. received approval to become holding companies of banking companies. They were the last stand-alone merchant banks after Lehman Brothers Holdings Inc. filed for Chapter 11 and sold Merrill Lynch to Bank of America Corp.
The changes came during days when both investors worried about the credit crunch threatening merchant bank liquidity.
Morgan Stanley and Goldman Sachs gave each other a break by changing status to become commercial banks, says Christopher Whalen, managing director of institutional risk analytics, but this “change in status is not enough to ensure survival. »
“The problem with Morgan and Goldman is that they’re not big enough,” Whalen said. “In today’s world, Morgan Stanley and Goldman Sachs are tiny. They are small strikes. People will say why do business with them, I would rather do business with Bank of America. It is a very cruel process of discrimination that takes place in the markets today. »