Morgan Stanley gets $5 billion investment from China Investment Corp.

  • taken $9.4 billion in writedowns on mortgage-related investments.
NEW YORK: Investment bank Morgan Stanley said Wednesday it sold a portion of itself to China Investment Corp., an investment arm of the Chinese government, for $5 billion to raise capital after taking $9.4 billion in writedowns on mortgage-related investments.

Morgan Stanley said the investment will help bolster its capital position and allow it to continue growing its Chinese operations.

China Investment will receive equity units that convert into as much as 9.9 percent of Morgan Stanley common stock. The equity units carry a fixed annual payment of 9 percent before converting to shares of common stock Aug. 17, 2010.

The Chinese government's sovereign wealth fund will have no special rights of ownership or any role in management of Morgan Stanley.

Morgan Stanley is the latest bank to receive a cash infusion from a foreign investor. In October, Bear Stearns Cos. agreed to a $1 billion cross-investment from China's government-controlled Citic Securities Co., while Citigroup Inc. received a $7.5 billion capital infusion from the investment arm of the Abu Dhabi government last month.

Banks have been looking for new sources of capital as earnings in recent months have been hampered by writedowns among debt and bonds backed by mortgages, especially subprime loans given to customers with poor credit history. The value of the debt has plummeted as the underlying mortgages have increasingly gone delinquent.

Morgan Stanley said it was forced to take $9.4 billion in writedowns during its fourth fiscal quarter, which ended Nov. 30. That writedown led the bank to report losses of $3.61 billion , or $3.61 per share, during the period.

Shares of Morgan Stanley rose 5.8 percent to $50.81 in Wednesday morning trading.

(The Associated Press)

No comments: