"US in talks on Morgan Stanley" by Andrew Ross Sorkin, New York Times News Service | October 13, 2008
NEW YORK - In what could set an important precedent, federal officials assured a big Japanese bank late last night that its planned investment in the embattled Wall Street giant Morgan Stanley would be protected, according to people involved in the talks.
After two days of tense negotiations, Treasury officials urged a hesitant Mitsubishi UFJ Financial Group to proceed with its $9 billion investment in Morgan Stanley, which has sought the capital infusion to reassure investors about its stability.
Also see: Mitsubishi Buys Morgan Stanley
The Treasury's assurances amount to another extraordinary move by government and could serve as a model for future deals. Mitsubishi and the Japanese government pressed the Treasury Department to guarantee that if the United States were to inject money into Morgan Stanley at a later time - a step the Treasury has ruled out for now - the move would not wipe out Mitsubishi's investment.
Investors suffered deep losses when the government effectively nationalized the nation's largest mortgage finance companies, Fannie Mae and Freddie Mac. The Treasury has said it might use some of the $700 billion bailout package authorized by Congress to take direct stakes in banks, but it has not spelled out how it would do so. Many prospective investors, such as sovereign wealth funds, have been reluctant to invest in financial services companies while the government's plans remain uncertain.
A deal between Morgan Stanley and Mitsubishi might help calm markets worldwide, which have sunk because of escalating concerns about the fate of financial institutions. Investors might read the investment as a sign of confidence in the bank's future. --more--"Nice to know the financial system lives or dies off "confidence," not numbers, huh? I mean, you can have confidence in a rip-off scheme, but that doesn't mean it will work.
