Sept. 22 (Bloomberg) -- Mitsubishi UFJ Financial Group Inc. will invest up to 900 billion yen ($8.4 billion) for as much as a fifth of Morgan Stanley, the U.S. securities firm seeking capital following the collapse of Lehman Brothers Holdings Inc.

Mitsubishi UFJ, Japan's largest bank, agreed to buy 10 percent to 20 percent of Morgan Stanley, the bank said in a statement today. The Japanese firm said it will start due diligence on Morgan Stanley before determining a final price.

The deal marks an about-face for Mitsubishi UFJ Chairman Ryosuke Tamakoshi, who last week said he would avoid any immediate investments in U.S. banks following the Wall Street upheaval of the past 10 days. Mitsubishi UFJ's backing will help shore up Morgan Stanley's capital after the credit market meltdown eroded investor confidence in its ability to remain independent.

Morgan Stanley rose $3.23, or 12 percent, to $30.44 at 9:40 a.m. in New York Stock Exchange composite trading.

Mitsubishi UFJ will appoint to representative to Morgan Stanley's board as part of the investment, New York-based based Morgan Stanley said in a separate statement.

The deal may mark the biggest overseas acquisition by a Japanese financial company, according to data compiled by Bloomberg. Nomura Holdings Inc., the nation's largest securities firm, is close to acquiring European and Asian assets of Lehman, three people familiar with the matter said today.

Overseas Efforts

``The purpose for the investment is to strengthen the investment banking business globally,'' said Hirokazu Ushio, a Tokyo-based spokesman at Mitsubishi UFJ.

Like Nomura, Mitsubishi UFJ has struggled to expand outside Japan, leaving it vulnerable to a slowing domestic economy. The bank was formed in October 2005 after a merger between Mitsubishi Tokyo Financial Group Inc. and UFJ Holdings Inc.

Morgan Stanley ranks sixth globally in advising on mergers and acquisitions, 47 slots above Mitsubishi UFJ, according to Bloomberg data. In equity underwriting, Morgan Stanley is fifth while the Japanese bank is No. 100.

Mitsubishi UFJ agreed last month to pay $3.5 billion in cash to take full control of UnionBanCal Corp., California's second-biggest bank. The Tokyo-based bank is also raising its stake in Japanese consumer lender Acom Co. to 40 percent from 16 percent for about $1.4 billion.

Largest Shareholder?

A 20 percent stake would make Mitsubishi UFJ the biggest shareholder in Morgan Stanley, followed by State Street Corp. with 16.4 percent, Bloomberg data shows. Morgan Stanley approached Mitsubishi UFJ on Sept. 19, the Japanese company said.

Last week's market turmoil reshaped Wall Street and provided Asian and European firms with an opportunity to grab market share in trading, underwriting stock sales and advising companies on takeovers.

Morgan Stanley and Goldman Sachs Group Inc. won approval yesterday from the Federal Reserve to become banks, effectively ending the era of the Wall Street investment bank and capping a week that saw Lehman file for bankruptcy and Merrill Lynch & Co. rush to sell itself to Bank of America Corp.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga@bloomberg.net

Last Updated: September 22, 2008 09:56 EDT