August 23, 2011 / 6:09 PM / 7 years ago

MUFG's Morgan Stanley stake now worth $1.8 billion less

NEW YORK (Reuters) - Mitsubishi UFJ Financial Group (8306.T) has lost $1.8 billion from its common stock investment in Morgan Stanley (MS.N) so far, at least on paper, according to a regulatory filing on Tuesday.

The entrance to the Morgan Stanley headquarters is seen in New York, May 12, 2010. REUTERS/Shannon Stapleton

MUFG’s paper losses show how treacherous investments in the financial sector can be as financial markets whipsaw.

MUFG converted 7.8 million Morgan Stanley preferred shares into 385.5 million shares of common stock at a price of $20.34 per share on June 30. On Monday, the company’s shares closed at $15.67, but on Tuesday afternoon the bank’s shares were 11 cents higher at $15.78.

The conversion was previously announced, but specific pricing details were released in MUFG’s filing with the U.S. Securities and Exchange Commission on Tuesday.

Morgan Stanley said in April it would offer MUFG an additional 75 million common shares to convert MUFG’s preferred stake earlier than scheduled. MUFG said Tuesday that it still holds 519,882 shares of Series C non-voting perpetual preferred stock.

Morgan Stanley took a $1.7 billion non-cash charge to second-quarter earnings to reflect the cost of issuing additional stock. Not having to pay preferred dividends saves the bank $800 million per year for the securities.

Morgan Stanley issued the preferred stock at the height of the financial crisis in 2008 in exchange for a $9 billion lifeline from MUFG. The securities were scheduled to be converted or repurchased in 2013.

The early conversion helped lift Morgan Stanley’s common equity, as it works to comply with tougher global capital rules. The bank’s Tier 1 common ratio rose to 14.6 percent at June 30 from 11.8 percent three months earlier.

Since the time of the MUFG conversion, Morgan Stanley shares, like those of other large banks, have been pummeled by broad concerns about the markets and global economy.

MUFG’s 385.5 million common shares have taken a paper loss of $1.8 billion since June 30, even though they were issued at a 13 percent discount to the previous day’s closing price.

    Reporting by Lauren Tara LaCapra; Editing by Dan Wilchins and Matthew Lewis

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