The $9 billion stake in Morgan Stanley that Mitsubishi UFJ Financial Group bought earlier this month was a risky bet for a Japanese bank. Often leaning heavily on state support, banks in Japan aren’t known for taking chances. Perhaps betting with house money is going to their heads.
MUFG bought just over a fifth of Morgan Stanley for more than the whole bank was worth back on Oct. 13. Now it is raising up to $10.6 billion by selling new shares — 18 percent more than it paid for the Morgan Stanley stake, not even counting the huge run-up in the value of the yen that makes any local share issuance pricier than anywhere else on the planet. Meanwhile, back in the United States, shares of Morgan Stanley have fallen 9 percent since revised terms of the MUFJ deal were announced on Oct. 13, and the dollar has fallen another 8.6 percent against the yen.
MUFG’s fund-raising helped convince investors to dump Japanese shares today, sending the Tokyo market to its lowest level in 26 years. This prodded the Japanese government into action. Japan’s banks are heavily exposed to the local equity markets, and were bailed out less than a decade ago. The government says it wants to set up a state body to buy shares from banks, and limit bank recapitalizations.
Japan is the best versed industrialized economy when it comes to zero interest rates and deflation over the past two decades, though all that practice has not made it very adept at stimulating growth. With the yen soaring toward 90 to the dollar, U.S. assets are going to look mighty cheap again, and if Japan’s newly risk-embracing banks are looking for entry points, it could well be the Bank of Japan that takes on the mantle of global lender of last resort.
Deals of the day:
* Porsche plans to gain control of more than 75 percent of Volkswagen in order to pass a domination and profit transfer agreement that would grant it full control of VW’s cash flows, Porsche said on Sunday.
* General Motors and Chrysler have moved closer to offloading two niche vehicle brands associated with the era of cheap gasoline and big profits for Detroit, even as both sides intensified talks on a merger that would combine the struggling automakers. The two auto makers are discussing a merger that would keep some of Chrysler’s operations intact and save jobs with the aim of securing the U.S. government financial aid the high-stakes deal would require, people familiar with the talks said on Sunday.
* CenturyTel plans to buy Embarq for $5.8 billion in stock, in an effort to cut costs and stay competitive amid a decline in the traditional phone business.
* India’s Mahindra & Mahindra repeated it was not interested in General Motors‘ Hummer brand, which the cash-hungry U.S. automaker has put up for sale.