Asian Banks Invest in Morgan Stanley, Lehman

Asian banks yesterday invested billions of dollars in one U.S. investment bank and gobbled up the remains of another, as U.S. policymakers took steps to bolster a range of companies with exposure to the financial crisis.

Morgan Stanley said it would receive a capital infusion from the largest bank in Japan as it continued to scramble for survival. Morgan Stanley plans to sell 10 to 20 percent of its shares to Mitsubishi UFJ, which will invest up to $8.4 billion in it.

The investment came less than 12 hours after Morgan Stanley and rival Goldman Sachs received permission from the Federal Reserve to become bank-holding companies, transitioning from their traditional business as investment banks.

The change gives the two banks access to the federal safety net that protects commercial banks, including the ability to offer insured bank accounts, but it places them under stricter regulations, one of which requires them to hold more capital relative to their portfolio of investments. The Mitsubishi deal gives Morgan Stanley an immediate boost in its efforts to raise that capital. It may also ease pressure on the Wall Street bank to immediately buy or merge with a commercial bank.

Meanwhile, the largest investment bank in Japan, Nomura Holdings, saw an opportunity to capitalize on the collapse of Lehman Brothers. Nomura said it would buy Lehman's Asia subsidiary for $190 million. It also signaled that it would seek to buy two of the company's European divisions. Lehman filed for bankruptcy protection last Monday after the U.S. government and private sources declined to bail it out.

In the United States, federal and state policymakers announced several initiatives to help struggling financial firms and protect others against more setbacks.

· The Fed released guidance that might make it easier for private-equity firms to invest in banks. Strict rules govern entities that acquire controlling interests in banks, and there have been ambiguities in the rules that have made it hard for private-equity funds to take large stakes in banks.

A Fed document released yesterday clarified some of those ambiguities, potentially making private-equity investors able to invest in cash-starved U.S. banks.

· The Securities and Exchange Commission added 137 companies -- including General Electric, Ford and General Motors -- to the list of 799 companies in which it banned short selling last week.

Short selling lets investors bet on the decline of a firm's shares -- a practice that has been blamed in part for the downfall of Fannie Mae, Freddie Mac, Lehman and American International Group.

· New York state announced it would begin to regulate parts of the massive market for credit default swaps, complex financial securities that have contributed to the financial crisis. When financial firms loan money, they often buy credit default swaps to protect them against the possibility that the loan may not be paid back.

"The absence of regulatory oversight is the principal cause of the Wall Street meltdown we are currently witnessing," New York Gov. David A. Paterson (D) said.

Staff writer Neil Irwin contributed to this report.