Morgan Stanley has finally agreed a much-needed $9 billion capital injection from Mitsubishi UFJ Financial today, with the two parties renegotiating the preliminary deal they had struck to account for Morgan’s recent share price collapse.

Japan’s largest bank will receive a 21 per cent stake in Morgan Stanley in return for $9 billion in cash, as originally agreed on September 29.

However, to account for the 58 per cent dive in Morgan Stanley’s share price last week, amid mounting panic about the implications of the credit crunch and rumours that the Japanese bank might pull out of the deal altogether, Mitsubishi’s entire stake will comprise preferred stock.

Some $7.8 billion of this will be in convertible preferred stock that will convert at $25.25 a share, down from the $31.25 previously agreed. The rest of the investment will be $1.2 billion of non-convertible preferred stock. Both classes of shares pay a 10 per cent dividend.

Previously, $3 billion of the stake was to be in common stock purchased for $31.25 a share. Under the old terms of the deal, Mitsubishi UFJ would have suffered an immediate paper loss of about $1.5 billion on the common stock. Sources close to the Japanese bank told The Times that efforts to renegotiate the deal had in part been spurred by complaints from investors about potential losses on the deal.

Morgan Stanley’s shares rose by more than 28 per cent to $12.42 a share in pre-market trading, following the announcement of the deal, which many investors had feared could fall through in the wake of Morgan’s recent stock declines.

Nobuo Kuroyanagi, Mitsuibish UFJ’s president and Chief executive, said: "Despite a very challenging environment, MUFG and Morgan Stanley have demonstrated our mutual commitment to this strategic alliance and have revised the terms of our investment in the best interests of both companies and our shareholders."

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