M&A

Wachovia, Morgan Deals Ease Worries

Wells Fargo's acquisition, along with Mitsubishi UFJ's 21-percent investment in Morgan Stanley, solidify U.S. financial-services infrastruture for ...
Stephen TaubOctober 13, 2008

Two high-profile banking transactions became official, with the Fed’s Sunday approval of Wells Fargo’s acquisition of Wachovia Corp., and Mitsubishi UFJ Financial Group’s closing of a $9 billion equity investment in Morgan Stanley.

Completion of the deals eases concerns about the the U.S. financial-services infrastructure as the nation faces tough times ahead.

The Wells Fargo-Wachovia deal creates the largest bank branch network in the U.S., according to the Associated Press.

“In light of the unusual and exigent circumstances affecting the financial markets, the weakened financial condition of Wachovia, and all other facts and circumstances, the Board has shortened to 10 days the notice period to the primary regulators of the banks and savings associations involved in, and waived public notice of, this proposal, in accordance with the provisions of the BHC Act and the Board’s regulations,” the Federal Reserve Board said in a statement.

The Fed noted that, in addition to buying Wachovia’s subsidiary banks, Wells Fargo requested approval to acquire nonbanking subsidiaries of Wachovia, including its two subsidiary savings associations. Wells Fargo also proposed to acquire the agreement corporation and Edge Act subsidiaries and foreign operations of Wachovia. Citigroup initially had made a deal with the Federal Deposit Insurance Corp. to acquire Wachovia’s banking assets. The Wells-Wachovia deal replaced it earlier this month.

Wachovia’s shares rose more than 5 percent in trading early Monday morning on the news.

Meanwhile, the Mitsubishi investment in Morgan Stanley gives the Japanese financial services concern a 21 percent ownership interest in Morgan Stanley on a fully diluted basis. The investment is part of a previously announced global strategic alliance. Morgan Stanley’s stock rose 44 percent in early morning.

Under revised terms of the transaction, Mitsubishi acquired $7.8 billion of perpetual noncumulative convertible preferred stock with a 10 percent dividend and a conversion price of $25.25 per share, and $1.2 billion of perpetual noncumulative nonconvertible preferred stock with a 10 percent dividend.

According to the announcement, Mitsubishi and Morgan Stanley identified numerous areas of potential collaboration for their global strategic alliance, including corporate and investment banking, certain areas of retail banking and asset management, as well as lending activities such as corporate and project related loans.

Under the deal, half of the convertible preferred stock automatically converts after one year into common stock when Morgan Stanley’s stock trades above 150 percent of the conversion price for a certain period and the other half converts on the same basis after year two. The non-convertible preferred stock is callable after year three at 110 percent of the purchase price.

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