Prometheus 6

The Treasury’s assurances amount to another extraordinary move by the government and could serve as a model for future deals. The tense, weekend talks were so critical to the financial markets that they drew in both the Treasury and the Japanese government.

Mitsubishi and the Japanese government pressed the Treasury Department over the weekend to guarantee that if the United States were to inject money into Morgan Stanley at a later time — a step the Treasury has ruled out for now — the move would not wipe out Mitsubishi’s investment.

U.S. Officials Said to Offer Protection to Japan Investors
By ANDREW ROSS SORKIN

In what could set an important precedent, federal officials assured a big Japanese bank late Sunday that its planned investment in the embattled Wall Street giant Morgan Stanley would be protected, according to people involved in the talks.

After two days of tense negotiations, Treasury officials urged a hesitant Mitsubishi UFJ Financial Group to proceed with its $9 billion investment in Morgan Stanley, which has sought the capital infusion to reassure investors and customers about its stability.

The deal is considered a crucial step in the government’s strategy for revitalizing the financial system by luring outside investment while it considers buying stock in banks directly. The transaction’s failure would deal a blow to that effort and potentially unnerve the financial markets.

The Treasury’s assurances amount to another extraordinary move by the government and could serve as a model for future deals. The tense, weekend talks were so critical to the financial markets that they drew in both the Treasury and the Japanese government.

Mitsubishi and the Japanese government pressed the Treasury Department over the weekend to guarantee that if the United States were to inject money into Morgan Stanley at a later time — a step the Treasury has ruled out for now — the move would not wipe out Mitsubishi’s investment.

Investors suffered deep losses when the government effectively nationalized the nation’s largest mortgage finance companies, Fannie Mae and Freddie Mac. The Treasury has said it might use some of the $700 billion bailout package authorized by Congress to take direct stakes in banks, but it has not spelled out how it would do so. Many prospective investors, like sovereign wealth funds, have been sitting on the sidelines, reluctant to invest in financial services companies while the government’s plans remain uncertain.

Officials from the Treasury Department declined to comment Sunday night.

A deal between Morgan Stanley and Mitsubishi might help calm markets worldwide, which sank last week because of escalating concerns about the fate of financial institutions. Investors might read the investment as a sign of confidence in the bank’s future.