Mitsubishi UFJ boosts swap of Morgan Stanley stock

TOKYO - Japan's biggest bank, Mitsubishi UFJ Financial Group Inc., said Wednesday it will swap a larger amount of its preferred shares in Morgan Stanley for common stock to keep its voting rights stake of the U.S. bank above 20 percent.

The Tokyo-based lender known as MUFG said it has increased the common stock it will acquire by 17.5 percent to $705 million.

MUFG had originally said it would acquire 25 million shares worth $600 million as part of Morgan Stanley's new share and debt offering announced last week after the U.S. government called on 10 banks to raise more capital.

Demand was so strong, however, that Morgan Stanley exercised its overallotment option to sell more shares than initially planned, raising a total of $8 billion and requiring MUFG to purchase more shares if it wanted to hold more than 20 percent of voting rights.

The transaction will not require MUFG to use cash. Instead, Morgan Stanley will essentially exchange some preferred shares MUFG purchased last year for the new common stock, which unlike preferred shares, come with voting rights.

Since Mitsubishi UFJ gave Morgan Stanley a $9 billion lifeline in October in the wake of Lehman Brothers' collapse, the two companies have been examining ways to propel their alliance forward even as the world economy fell on hard times. In March, Morgan Stanley and MUFG set plans to merge their Japanese brokerage units into a new securities company.

Separately, media reports said MUFG is expected to cancel plans to buy Citigroup Inc.'s Japan trust banking unit.

In December, Mitsubishi UFJ Trust and Banking Corp. agreed to buy NikkoCiti Trust and Banking Corp. 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 Co., the Nikkei financial daily said without naming sources.

MUFG had also been a leading bidder for Citigroup's Japan brokerage unit, Nikko Cordial Securities Inc., but lost out to rival Sumitomo Mitsui Financial Group Inc. earlier this month.

MUFG decided that owning NikkoCiti Trust alone would bring limited benefits, the Nikkei said.

In trading Wednesday, shares of MUFG fell 2.7 percent on the Tokyo Stock Exchange. The benchmark Nikkei 225 index was up 0.1 percent.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.