Morgan Stanley Inks Mitsubishi Deal

Morgan Stanley (MS) has reached a deal with Mitsubishi UFJ Financial Group (MTU), under which Japan's largest bank will invest $9 billion for a 21% stake in the storied but struggling U.S. company.

The investment comes as Morgan Stanley scrambles to stabilize its shares, which have fallen more than 60% in the last year amid the global credit crisis.

Morgan Stanley Chairman and CEO John Mack says the investment is "a strong endorsement of Morgan Stanley's world-class global franchise."

As investors shun any type of risk, especially related to financial companies, even Morgan Stanley's seemingly flawless rival Goldman Sachs (GS) has been forced to sell equity stakes in itself on terms that would have been unthinkable even a month ago.

In a further effort to restore market confidence in their businesses, both Morgan Stanley and Goldman on Sept. 22 became bank holding companies.

Those moves came after much more dire consequences for other financial companies in the preceding two weeks. Already this month, Lehman Brothers filed for bankruptcy, Fannie Mae (FNM), Freddie Mac (FRE) and American International Group (AIG) were bailed out by the government and Washington Mutual (WM) was seized by federal regulators and its deposits sold to JPMorgan Chase (JPM).

Morgan Stanley had a week ago been talking to Wachovia Bank (WB) about a possible merger but abandoned those discussions after becoming a bank holding company. Wachovia on Monday sold its banking operations to Citigroup (C).

Morgan shares have swung wildly up and down in the last two weeks, reaching a low of $11.70 on Sept. 18 and a high of $31.65 just two trading days later on Sept. 22.