Why a China Deal Didn’t Work Out for Morgan Stanley

After days of speculation about a possible deal with China, decided today to sell a large stake to Japanese bank Mitsubishi UFJ Financial Group. The Wall Street Journal blog discusses why a deal with China didn’t come to pass:

The deal with China Investment Corp. foundered on a number of issues, says a person close to the deal, including an inability to agree on terms and concerns over regulatory approval in both China and the U.S. At a time when Morgan Stanley and other institutions may not have the luxury of waiting another day to escape spooked investors, waiting around for approvals from Beijing is a deal breaker.

A big deal like that would need approval from China’s highest administrative body, the State Council. Getting such approvals requires a substantial amount of effort and consensus building in the halls of Beijing and Chinese institutions are ill-suited to provide rapid reactions, especially when Beijing has been burned on past deals with Wall Street firms seeking its money. Bureaucrats in Beijing have withheld approval for government infrastructure lender China Development Bank to cut two major deals this year: a capital infusion for Citigroup and a takeover of Germany’s Dresdner Bank.

China Investment Corp. already owns a nearly 10% chunk of Morgan Stanley and would need the U.S. Federal Reserve and Treasury Department to back a plan to take more. The value of that stake has dropped markedly since paid $5.6 billion dollars for it in December last year. A further investment would certainly face criticism for throwing good money after bad and helping prop up Wall Street, while ignoring pressing problems at home.

September 22, 2008, 11:32 AM
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