Morgan Stanley (MS) today announced that Mitsubishi UFJ Financial Group (MTU), Japan’s largest financial group and the world’s second largest bank holding company with $1.1 trillion in bank deposits, had closed on a $9 billion equity investment in Morgan Stanley (MS) that gives MUFG a 21 percent ownership interest in Morgan Stanley (MS) on a fully-diluted basis.

The deal was first announced back on September 22nd, but an expected announcement of the closing had not been forthcoming, causing the investment community to speculate on whether MUFG was backing out.

The stock closed at $27.09 on September 22nd when the deal was first announced. On October 7th when the deal received regulatory clearances both in the U.S and abroad, the stock opened at $24.28. On Friday 10/10/08, it closed at $9.68.

With Mitsubishi buying preferred stock with a conversion price of $25.25 per share as part of the deal, Wall Street was left wondering whether Mitsubishi would go forward with the deal under the same terms, with the stock having lost over half its value since the deal was announced.

The deal was revised, and under the revised terms of the transaction, MUFG has acquired $7.8 billion of perpetual non-cumulative convertible preferred stock with a 10 percent dividend and a conversion price of $25.25 per share, and $1.2 billion of perpetual non-cumulative non-convertible preferred stock with a 10 percent dividend.

Tags: Morgan Stanley  Mitsubishi UFJ Financial Group

Stocks posted among their best one day gain today, on word that the government is putting together a plan to buy stakes in some banks, as a way of help instilling confidence again into the banking system.

This follows a similar but more concentrated U.K. government plan to buy equity stakes to the tune of $37 billion, in Royal Bank of Scotland in which it will take a more than 50% stake, and Lloyds TSB and HBOS which are in the process of merging. The U.K government will take a 40% stake in the combined Lloyds TSB and HBOS. European Union central bankers also announced similar plans to inject capital into their banking systems.

The Dow Jones industrial average was up 936 points (11.08%) finishing the day at 936.42. This was the largest point gain ever for the Dow and the fourth largest percentage gain.

The Nasdaq was up 194.74 for 11.81%, closing at 1,844.25 and the S&P 500 closed at 1,003.35 or 11.58%, for a gain of 104.13. This was the largest point gain ever for the index, and the largest percentage gain since 1933.

Stocks were also up on news that Morgan Stanley (MS) closed its deal with Mitsubishi UFJ Financial (MTU), in which Mitsubishi (MTU) took a 21% stake in Morgan Stanley (MS). Wall Street was worried the deal might not go through, after Morgan Stanley’s stock fell over 60% since the deal was first announced on September 22nd, 2008.

Tags: Dow Jones  Nasdaq  S&P 500  Morgan Stanley

Morgan Stanley (MS) and Mitsubishi UFJ Financial Group (MTU) of Japan today confirmed that the Mitsubishi UFJ Financial Group (MTU) will be investing $9 billion in Morgan Stanley (MS) and in return, will receive a 21% stake in the company.

Mitsubishi UFJ (MTU) will pay $3 billion, or $25.25 a share, for a 9.9% stake. MTU will also buy $6 billion of convertible preferred stock at a conversion price of $31.25. The preferred stock will pay a 10% dividend. Also, a Mitsubishi UFJ representative will join Morgan Stanley’s board once the deal closes.

Mitsubishi UFJ (MTU) is Japan’s largest financial group and the world’s second largest bank holding company with $1.1 trillion in bank deposits and $1.8 trillion in assets.

According to Morgan Stanley, “After one year, half of the preferred stock automatically converts 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.”

Tags: Morgan Stanley  Mitsubishi Financial

Goldman Sachs (GS) shares are surging in after hours trading on Monday 09/22/08, up $15 or 12% from the closing price on Monday 09/23/08, on word that Warren Buffet through Berkshire Hathaway (BRK-A), is buying $5 billion in Goldman Sachs preferred shares. The shares closed at $125.05 in regular trading.

The shares will pay a 10% dividend. Berkshire Hathaway will also purchase $5 billion of Goldman Sachs (GS) common shares at a strike price of $115. Goldman Sachs (GS) in a separate deal will also raise $2.5 billion in a common stock offering.

In addition to Goldman Sachs (GS), the news is sending shares of Morgan Stanley (MS) higher, as well as S&P 500 (SPY) futures, which if holds, could mean a higher stock market at the open. Morgan Stanley (MS) shares are up $4 or 14% in after hours trading, to $32

If the stock market does open higher, traders might want to be careful not to get caught up in a bear trap. We will be getting Crude Inventories numbers for last week as well as Existing Home Sales numbers. These could possibly lead the market lower. So it might be prudent to wait until after 10 AM when those number come out, before initiating trades on Tuesday 09/24/08.

In addition to Goldman Sachs (GS), the news is sending shares of Morgan Stanley (MS) higher, as well as S&P 500 (SPY) futures, which if holds, could mean a higher stock market at the open.

If the stock market does open higher, traders might want to be careful not to get caught up in a bear trap. We will be getting Crude Inventories numbers for last week as well as Existing Home Sales numbers. These could possibly lead the market lower. So it might be prudent to wait until after 10 AM when those number come out, before jumping into the market on Tuesday 09/24/08

Tags: Goldman Sachs  Morgan Stanley  Berkshire Hathaway

In what is being termed a strategic alliance by Morgan Stanley (MS), Mitsubishi UFJ (MTU) on Monday 09/22/08, announced that it will purchase a 10-20% stake in Morgan Stanley (MS). Mitsubishi UFJ (MTU) will make the investment after completion of its due diligence and upon the closing, will elect a representative to sit on the Morgan Stanley board.

According  to Morgan Stanley, the investment “in addition to further strengthening the Firm’s capital position, this alliance would benefit Morgan Stanley and MUFG by providing each with a valuable strategic partner as it seeks to enhance its global footprint and capture financial services opportunities around the world.  Morgan Stanley was granted approval yesterday by the U.S. Federal Reserve Board of Governors to become a Federal Bank Holding Company.”

Morgan Stanley’s (MS) stock which closed on Friday 09/19/08 at $27.21, opened at $30.76 on Monday, reached a high of $31.65, but ended up closing at $27.09, down $0.12.

 
Tags: Morgan Stanley  Mitsubishi UFJ

With no major economic or earnings news expected today, the focus of investors will be on the continuing melt down of the financial industry and its aftermath. We got news Sunday night, that Goldman Sachs (GS) and Morgan Stanley (MS), which now operate as investment banks, will become bank holding companies.

While both already have subsidiaries that will speed their entry into their new status, it probably is also very likely that they will be looking to purchase existing banks, especially now that those banks can be had for cheap.

Traders should look for which bank stocks, especially the regionals, are showing very heavy volume on Monday and possibly take positions. Washington Mutual (WM) was already being mentioned as an acquisition candidate over the past week and Morgan Stanley (MS) was in merger discussions with Wachovia (WB), although this might end with Morgan Stanley’s (MS) new status. So we might see some bullish actions in those stocks although with the incredible rebound in stocks from last week’s lows, we could see some profit taking today.

Tags: Goldman Sachs  Morgan Stanley  Washington Mutual  Wachovia

The Federal Reserve on Sunday 09/21/08, announced that it has approved the applications of Morgan Stanley (MS) and Goldman Sachs (GS) to become bank holding companies, pending a five-day waiting period. As a result, both firms will become financial holding companies under the Bank Holding Company Act.

Both currently operate as investments banks and are less regulated than deposit taking retail banks. However, since the credit crisis has all but decimated Wall Street’s income generating model, with revenues from taking companies public and securitizations for instance, down drastically, the investments banks need to look for new ways to secure sources of capital and they’ve determined that the easiest way would be as deposit taking institutions. This would provide them with a stable and low cost capital base.

Morgan Stanley will convert its Utah industrial bank to a national bank and Goldman Sachs will create GS Bank.

Tags: Goldman Sachs  Morgan Stanley  Federal Reserve

While financials will continue to be the focus of the investment community today, we will also be getting Initial Jobless Claims numbers for the week ending 09/13/08. This piece of economic news has the potential to rattle the markets today. If more filers than the 440,000 that forecasters are expecting, applied for benefits, stocks could take a beating.

And considering the state of the economy, if the number of filers is less than expected by a significant amount, the stock market will get a significant boost that is if the overhang on the market does not dominate the trading day.

The numbers will be reported at 8:30 AM, which will give Wall Street time to digest the news and maybe move on to concentrating on the crisis going on in the financial sector.

Something else that Wall Street will have to focus on, is that Wachovia (WB) is reportedly in merger talks with Morgan Stanley, while Wachovia has put itself up for auction and also pursuing other capital raising opportunities.

We may see a bounce in stocks over the next few days and weeks, but these will be nothing but bear market rallies, and traders should look to profit by shorting the market. A good way to do so will be by buying puts on the Ultra S&P 500 Proshares (SSO).

Word of caution, the October 50 puts have an ask price of $4.90, while the bid is only $4.10. This is a very wide spread and the underlying index will have to move a bit to cover this spread. Those looking to purchase the options can put in a lower bid, say $4.50, but if you believe the stock market is headed much lower, then bite the bullet and enter into the trade if placing a lower bid does not work.

Morgan Stanley  Wachovia  Lehman  S&P 500  Options  Puts

According to the New York Times, Morgan Stanley (MS) is considering a merger with Wachovia Bank (WB). The paper is reporting that Wachovia (WB) approached Morgan Stanley’s (MS) CEO John Mack, and very preliminary talks are now underway.

Both companies are under tremendous pressure, as their stocks have been beaten down in the wake of the credit crisis, the Lehman (LEH) bankruptcy and the takeover of AIG (AIG) by the government.

Companies typically worry about their stock price as a general course of business, but this time there is an added sense of concern. The meltdown of Bear Stearns started with a rapid decline of that company’s stock. Then credit default swaps, which are used to insure against default of a company’s debt, for Bear Stearns debt rose dramatically in price and this is seen as a sign that a company is now very risky and has diminishing chances of paying off those debts. A company in that position is also seen as having little chance of survival. The same is now happening to other banks and Wall Street firms.

When this happens, it has a tendency to become a self-fulfilling prophecy. As concerns as to whether a company can pay of its debt grows, customers may start pulling money while trading partners stop doing business with the company so as not to take on undue risks. This then leads to failure. With Morgan Stanley (MS) and Wachovia (WB) now in that boat, they are looking for ways to stay alive and shore up investor confidence.

Morgan Stanley (MS) shares are down a further 8% in after hours trading on the news, while Wachovia (WB) is up 3%.

Tags: Morgan Stanley  Wachovia  Merger

This morning, we suggested that readers of the Navivest Stocks and Options blog buy the Capital One Financial (COF) September 50 puts and the Morgan Stanley (MS) October 42. We did not believe in the Fannie (FNM) and Freddie (FRE) induced rally.

The COF puts now have a bid price of $4.30, They opened at $3.10 this morning, that is a gain of 38% in a day, and the Morgan Stanley (MS) October 42 puts are now bidding at $3.8. The opening price was $3.10 on those as well. That is a gain of 22%.

Our rational for both trading ideas was the fact that we have economic news being released later on this week, that will probably drag the markets down. However, we have enough one day gains in the shares so we are suggesting that those who entered the trades exit today.

Navivest has a subscription based service, The Options Capitalist. Twice a week, we send out winning trading ideas such as these, with a target profit of 15-20% on each trade.

Yesterday, as stocks were rallying, we emailed our subscribers and told them to buy Goldman Sachs (GS) September 165 puts. We closed them out yesterday for a 36% gain. We also bought puts on Morgan Stanley (MS), Zions Bancorp (ZION) and Morgan Stanley (MS) and entered in the GS Sep 165 puts again and with the exception of the GS Sep 165 puts which we closed out for a gain of 22%, those trades are all up over 30% today.

If you’d like a free two week trial subscription to The Options Capitalist so you can get winning trades such as these, click here.

Tags: Options  Goldman Sachs  Zions Bancorp  Morgan Stanley