Mitsubishi UFJ Financial

(MTU)

said it plans to increase the number of shares it acquires of

Morgan Stanley

(MS) - Get Report

to 29.375 million for a total of $705 million.

On Monday, Japan's largest bank said it would buy 25 million Morgan Stanley shares at $24 each for a total of $600 million. But demand was so strong for Morgan Stanley's shares that the bank exercised its overallotment option to sell more shares than initially planned, raising a total of $8 billion and requiring Mitsubishi UFJ, or MUFG, to buy more shares if it wanted to hold more than 20% of voting rights.

The transaction won't require the Japanese bank to use cash. Instead, Morgan Stanley will essentially exchange some preferred shares Mitsubishi UFJ purchased last year for the new common stock, which unlike preferred shares, come with voting rights.

Morgan Stanley said last week it would offer 167.9 million common shares for $24 each in an effort to raise about $4 billion. The news followed a government report that highlighted vulnerabilities in the banking system and called on 10 banks, including Morgan Stanley, to raise more capital. Morgan Stanley faces a $1.8 billion shortfall, the

Federal Reserve

told the bank.

Separately, media reports said Mitsubishi UFJ expected to cancel plans to buy

Citigroup's

(C) - Get Report

Japan trust banking unit.

In December, Mitsubishi UFJ Trust and Banking agreed to buy NikkoCiti Trust and Banking in an all-cash deal valued at 25 billion yen. MUFG is walking away from the deal after failing in its bid to buy another Citigroup unit in Japan, Nikko Asset Management, the

Nikkei

financial daily said without naming sources.

MUFG also had been a leading bidder for Citigroup's Japan brokerage unit, Nikko Cordial Securities, but lost out to rival

Sumitomo Mitsui Financial

earlier this month.MUFG decided that owning NikkoCiti Trust alone would bring limited benefits, the

Nikkei

said.

Copyright 2008 TheStreet.com Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed. AP contributed to this report.