On October 8, 2008, the FRB issued a statement regarding its October 6, 2008 approval of the application under section 3 of the Bank Holding Company Act and notices by Mitsubishi UFJ Financial Group, Inc. (“Mitsubishi”), a financial holding company and the largest banking organization in Japan, to acquire a noncontrolling interest in up to 24.9% of the voting shares of Morgan Stanley, New York, New York, a leading U.S. investment bank that recently became a registered bank holding company. (Statement by the Board of Governors of the Federal Reserve System Regarding the Application and Notices by Mitsubishi UFJ Financial Group, Inc., to Acquire Interests in a Bank Holding Company and Certain Nonbanking Subsidiaries By Order dated October 6, 2008 (the “FRB Statement”)).
The FRB Statement provides additional information concerning the first significant noncontrolling investment in a bank holding company under the FRB’s September 22, 2008 guidance on minority investments in banks and bank holding companies (the “Guidance”). The Guidance provides limited additional leeway for minority investments in banks and bank holding companies, including investments that may exceed 25% of total equity of the bank or bank holding company and sizeable voting investments accompanied by an interlock in certain circumstances. (For additional discussion of the Guidance, see the September 23, 2008 Alert ).
According to the FRB Statement, Mitsubishi’s investment will be passive. The investment may not exceed 24.9 % of voting shares without additional FRB approval. Mitsubishi committed not to exercise or attempt to exercise a controlling influence over the management or policies of Morgan Stanley or any of its subsidiaries. In addition, Mitsubishi committed not to have more than one representative serve on the board of directors of Morgan Stanley or its subsidiaries. (An additional Mitsubishi representative may observe board meetings.) Mitsubishi’s commitments include restrictions on the business relationships between Mitsubishi and Morgan Stanley, the details of which were not specified in the FRB Statement.The financial press reported that on October 13, 2008 Treasury officials were prepared to provide assurances to Mitsubishi that “any future government investment in Morgan Stanley wouldn’t wipe out [Mitsubishi’s] investment.” Press reports also indicate that the investment was revised over the weekend of October 11-12, 2008 to consist of convertible and nonconvertible preferred stock on terms more favorable to Mitsubishi, eliminating a common stock component contained in the original investment proposal.