Morgan Stanley gets cash lifeline

Morgan Stanley averted disaster with a $9-billion lifeline from a major Japanese bank and declared Monday that it would use the money to pick off smaller rivals.

Just a few days ago, some on Wall Street openly asked whether the beleaguered investment bank would be the next to collapse amid a deepening global credit crisis. Now, Morgan Stanley appears to have been emboldened by the 21% stake taken by Mitsubishi UFJ -- and, for now, seems to have regained the market’s confidence.

Investors poured back into Morgan Stanley shares, which plunged 60% last week. Monday they recouped $8.42, or 87%, to close at $18.10.

The closing of the deal came as Spain’s Banco Santander said it might acquire Pennsylvania’s Sovereign Bancorp Inc. Forging ahead with similar takeovers appears to be what John Mack, Morgan Stanley’s chairman and chief executive, plans to do now that the nation’s No. 2 investment bank is on more solid footing.

Mack laid out his plan by telling employees in a memo that he “will be looking at acquisitions that might make sense for the firm.” Since Morgan Stanley has now converted its structure to a safer retail bank model, the firm wants to expand its network of 500 branches and 8,500 financial advisors.

Analysts believe he will scour the market, looking for faltering retail banks around the country. That’s not to say the investment bank is out of the woods. The company’s book value, the company’s total assets minus liabilities, remains stunningly low.

The government was instrumental in ushering through the deal by assuring Mitsubishi UFJ that its investment would be protected. The Japanese lender, the world’s second-largest bank, agreed late Sunday on amended terms that were slightly more favorable to it.

Under the revised agreement, Mitsubishi will receive only preferred shares, with $7.8 billion eventually convertible to common stock.