John Mack, Morgan Stanley’s top guy, is meeting with the executives from Mitsubishi UFJ right now in London. That conversation is probably a bit awkward now that word is spreading Morgan Stanley is probably going to have to massively dilute their stake sometime very soon.
In its 10-Q filing, the financial services concern admitted that if it can’t access debt markets in the future, it may have to seek to raise capital and funding through a common-share issuance. Wonder what the folks at Mitsubishi UFJ, which is expected to close on a $9 billion investment in the bank on Tuesday, thought about the prospective dilution? Following Thursday’s selloff, Morgan Stanley shares traded at a nearly 50% discount to the $25.25 a share Mitsubishi agreed to pay for its $3 billion purchase of MS equity. According to Egan-Jones Rating, Morgan Stanley – with $1 trillion of assets, but only $16 billion of market valuation – probably needs as much as $30 billion in new capital to address its funding concerns. Every $2 increase in funding costs boosts its costs by $20 billion a year, Egan-Jones added.