Mitsubishi UFJ Financial Group Inc.'s plan to take a stake in Morgan Stanley of as much as 24.9 percent won Federal Reserve approval, paving the way for a planned conversion of its preferred shares.
MUFG is raising its stake in the firm to 22 percent by converting $7.8 billion in preferred stock into 385 million common shares, and may make additional purchases from "time to time," the Fed said in an order Tuesday. The Fed also approved the Japanese bank getting a second seat on Morgan Stanley's board after MUFG agreed in 2008 that it would have no more than one representative.
"MUFG has stated that it does not propose to control or exercise a controlling influence over Morgan Stanley and that its investment in Morgan Stanley will continue to be a passive investment," the Fed said in its order.
Morgan Stanley agreed in April to increase the number of common shares MUFG will receive by 75 million to speed up the conversion and eliminate $784 million in annual dividend payments.
The conversion will increase Morgan Stanley's Tier 1 common ratio to about 14 percent and will help its fixed-income trading business as the firm will be viewed as a stronger counterparty, Chief Financial Officer Ruth Porat said in a presentation last week.
Following the conversion, Morgan Stanley will be about one-third owned by two Asian firms. China Investment Corp. last year won Fed approval to take as much as a 10 percent stake through the conversion of premium equity units it purchased in 2007.