Morgan Stanley is joining forces with Japan's Mitsubishi UFJ Financial Group in a US corporate lending venture that will give the Wall Street bank extra firepower to compete with rivals such as Citigroup and JPMorgan Chase.
Under a deal announced on Tuesday and first reported on FT.com, Morgan Stanley and MUFG, which is the US group's largest investor through its holding of preferred shares, will pool their lending resources in an effort to gain a stronger position when dealing with American companies.
The new venture, set to be extended to Latin America and Canada, will draw on MUFG's existing US loans of about $70bn and Morgan Stanley's $30bn.
The new alliance aims to build on that $100bn lending capacity and improve Morgan Stanley's chances of winning investment banking business on the back of its lending.
The move, which has been under discussion since October, when MUFG spent $9bn for convertible preferred shares equivalent to a stake of about 20 per cent in Morgan Stanley, is part of the US bank's plans to reshape its strategy after the crisis.
Commercial lenders with big balance sheets, such as Citi and JPMorgan, have traditionally claimed they had an edge over investment firms such as Morgan Stanley and Goldman Sachs in corporate loans.
Big lenders argue that long-term relationships they have developed through loans have made it easier for them to win investment banking deals as companies tend to be more favourably disposed to their lenders.
Morgan Stanley and Goldman Sachs had maintained they did not need a large balance sheet to compete with commercial banks because of their superior advisory capabilities and the ability to fund themselves on capital markets.
But the credit crunch that destroyed investment banks such as Bear Stearns and Lehman Brothers led investors to question the business model and funding sources of Morgan Stanley and Goldman Sachs.