Chillin' out till it needs to be funded
In 2005, after his triumphant return to Morgan Stanley – the bank he had left four years before after losing a power struggle – John Mack got a call from the Tokyo office.
The senior banker on the other end of the line urged the new chief executive to strike a joint venture with one of the large Japanese banks to take advantage of their large deposit base and unparalleled corporate connections.
Four years and a devastating financial crisis later, the Tokyo office has had its way.
Morgan Stanley and Mitsubishi UFJ Financial Group (MUFG), one of the world’s largest banks by assets, on Tuesday announced a new $100bn-plus alliance to boost lending to American companies.
The circumstances that led to the partnership, which is part of a wider strategic tie-up between the two companies, are not what Mr Mack might have envisaged in 2005.
MUFG and Morgan Stanley found each in the midst of the most virulent financial storm in decades.
In October, as panicky investors targeted Morgan Stanley’s shares amid fears its business model was doomed and the bank might soon follow Bear Stearns and Lehman Brothers on the industry’s scrapheap, MUFG came to the rescue.
The Japanese’s investment in $9bn of preferred shares, which convert into a stake of about 20 per cent, helped steady the market’s nerves and offered Mr Mack a chance to tap into MUFG’s vast resources.
Tuesday’s lending joint venture, which will pool the two companies’ loans to US companies, is an admission by Morgan Stanley that having a strong balance sheet – and a willingness to use it – is crucial to winning business in the post-crisis world.
(Goldman Sachs has a similar balance-sheet sharing alliance with SMFG)