Mitsubishi UFJ Financial Group and Morgan Stanley announced that they have reached a definitive agreement under which MUFG is investing US$9 billion in equity in Morgan Stanley for a 21% stake.

Under the terms of the deal, MUFG will acquire 9.9% of Morgan Stanley’s common stock on a primary basis at a price of US$25.25 per share, for a total of US$3 billion, and US$6 billion of perpetual non-cumulative convertible preferred stock with a 10% dividend and a conversion price of US$31.25 per share.

MUFG and Morgan Stanley have also agreed to pursue a global strategic alliance, with particular focus on corporate and investment banking. The firms have already identified numerous areas of collaboration, including corporate and investment banking, retail banking and asset management.

The US$9 billion investment will bolster Morgan Stanley’s capital and liquidity positions. It reports that it has significantly reduced its balance sheet exposure since the end of the third quarter, and it expects to continue to do so in the months ahead. The investment will also provide Morgan Stanley with additional capital to pursue mutually attractive strategic investment opportunities.

Nobuo Kuroyanagi, MUFG’s president and CEO, says: “We are delighted to enter into this significant relationship with Morgan Stanley, a firm which has a long standing tradition of providing world-class financial services to a diversified clientele, including governments, corporations and individuals. Our two companies share common values of serving the best interests of our clients. I am confident that this powerful alliance will dramatically strengthen our capabilities to provide diverse and high quality financial services.”

Adds John Mack, Morgan Stanley’s chairman and CEO: “MUFG has deep commercial banking expertise, a strong global platform and a talented management team. This strategic alliance offers a powerful opportunity to accelerate Morgan Stanley’s transition as a bank holding company. Indeed, since beginning to work together, we have become even more enthusiastic about the opportunities our two companies have to collaborate around the world. MUFG’s investment is also a strong endorsement of Morgan Stanley’s world-class global franchise and future potential. I am confident this strategic alliance will help Morgan Stanley build on its unique market position to realize the many opportunities we see to further enhance our business in the rapidly changing financial marketplace.”

The closing of MUFG’s investment is subject to customary conditions, including the receipt of regulatory approvals. Upon closing of the investment, a representative of MUFG will join Morgan Stanley’s board.