Much changed between Sept. 22, when Mitsubishi UFJ Financial Group Inc. signed a letter of intent to take a 20% common equity stake in Morgan Stanley, and Oct. 13, when the deal was finally completed. The Japanese bank ended up with a 21% stake in Morgan Stanley for $9 billion.

"The final transaction had a lot more teeth," says one source who worked on the deal, noting that Mitsubishi, by gaining convertible preferreds that yield 10%, gave itself some downside protection in case Morgan Stanley's stock falls further in a rough market. The yield, incidentally, is the same as the one Warren Buffett's Berkshire Hathaway Inc. negotiated for his $5 billion investment in Goldman, Sachs & Co.

Goldman's deal was announced after Morgan unveiled its first agreement with Mitsubishi as an already difficult situation for U.S. banking was becoming dire. As Washington Mutual Inc. failed and was bought by J.P. Morgan Chase & Co., and Wachovia Corp., seeking to avoid a similar fate, used government help to sell itself to Wells Fargo & Co., Morgan Stanley found itself again targeted by the market, which pushed its market capitalization below the value of Mitsubishi's investment.

After the Sept. 22 letter of intent was signed, Mitsubishi hired the Lazard team of Gary Parr, Yasu Hatakeyama, Tetsuya Kawano, Joseph Maybank, Tim Dana, Michael Wilkerson, Evan Russo and Robert Berger for advice. Mitsubishi is Hatakeyama's relationship, and the banker advised the Bank of Tokyo-Mitsubishi Ltd. when it merged with Japanese competitor UFJ Holdings Inc. in October 2005, in a $38 billion deal that created Japan's largest bank by assets.

Legal advice for the Japanese behemoth came from Sullivan & Cromwell LLP. Sullivan advised Mitsubishi most recently in August, when the bank bid $3 billion for the 35% of UnionBanCal Corp.. that it did not already own. Also advising Mitsubishi on that deal was Morgan Stanley.

For this investment, Morgan Stanley's negotiating team was led by CEO John Mack and included head of investment banking Paul J. Taubman. Other senior bankers on the deal included Rob Kindler, Ji-Yeun Lee, Ted Pick and Dan Simkowitz. A Japanese team consisted of Jonathan Kindred, Kohei Yuki, Takeshi Wakamatsu and Yoichiro Ito.

A source says that Morgan Stanley was initially resistant to the idea of including a high-yielding preferred in the capital raising but the firm ultimately relented, given the difficult market it faced.

"They were fighting their corner," the source says. "For any of these companies, 10% is a fairly steep yield."

Morgan Stanley's legal adviser was Wachtell, Lipton, Rosen & Katz, whose team was led by Edward Herlihy and included Steven Rosenblum.

For Mitsubishi, the key feature of the transaction, according to one source, is a "global strategic alliance" that will allow the banks to collaborate in investment banking, retail banking and asset management. The source says that Mitsubishi has wanted to expand in investment banking for more than a year but felt that only now had valuations fallen low enough for it to buy its way into the business.

"In 2006, there is no way they could have bought into Morgan Stanley," the source says.