NEW YORK (Reuters) - China agreed to pump $5 billion into Morgan Stanley (MS.N: Quote, Profile, Research) as the U.S. investment bank reported a stunning fourth-quarter loss fueled by a bigger-than-expected $9.4 billion of write-downs in mortgages and other assets.
China's investment, which could translate into as much as a 9.9 percent stake in Morgan Stanley, marks the latest capital infusion by a sovereign wealth fund into a major U.S. bank hurt by this year's credit crunch.
Morgan Stanley's shares rose more than 3 percent as investors hoped the large write-downs may be a sign of the beginning of the end of the subprime mess.
"A lot of people feel maybe the worst is behind us, and there is going to be tremendous value to obtain in this sector. I think a lot of that feeling is misguided. No one truly knows how much risk they have left," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati, which does not own Morgan Stanley shares.
Last month, Morgan Stanley said that traders betting the bank's own capital had incurred $3.7 billion in losses on U.S. subprime mortgages. On Wednesday the bank disclosed it took an additional $5.7 billion in write-downs, reflecting further deterioration in mortgages and losses on other debt.
To restore its capital, Morgan agreed to sell about $5 billion of equity units that pay a 9 percent coupon and are convertible into as much as 9.9 percent of Morgan's shares. China Investment will be a passive investor and have no role on the board or its management.
With the write-downs knocking down earnings by $5.80 a share, the second-largest investment bank posted a net loss from continuing operations of $3.59 billion, or $3.61 a share, in the quarter ended November 30. A year earlier Morgan had income from continuing operations of $1.98 billion, or $1.87 a share.
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