Mitsubishi UFJ Financial Group (MUFG), Japan`s largest banking group and the world`s second largest bank holding company, has agreed to acquire 20 per cent in the troubled US securities firm Morgan Stanley for $8.4 billion (900 billion yen).

Morgan Stanley today announced that it has entered into a letter of intent to pursue a strategic alliance with the Japanese bank, which has $1.1 trillion in deposits.

Tokyo-based MUFG said it will invest between 400 and 900 billion yen in Morgan Stanley, eventually taking a 20 per cent stake.

The acquisition would be based on Morgan Stanley`s book value, which would be agreed upon on completion of a due diligence. Once the acquisition is completed, a representative of MUFG will join the Morgan Stanley board.

Japan`s largest securities firm, Nomura Holdings, is also close to acquiring European and Asian assets of another bankrupt US investment bank Lehman Brothers as Japanese firms pick up pieces of ailing Wall Street banks

The conservative Japanese banks have shied away from high-risk subprime assets lent by US banks to high-risk American customers, sparing themselves of the worst of the subprime crisis.

Morgan Stanley, which has more than 50,000 employees worldwide, has been looking for help through a tie-up with another bank as part of a major realignment after the US authorities allowed the group to function as a holding company.

The deal was announced hours after Morgan Stanley and Goldman Sachs said they were both giving up their investment banking status to become holding banks under a $700 billion US government bailout package. The two have also submitted themselves to be under increased regulation.

Morgan Stanley was formed in 1935 in the wake of the Great Depression and the other Wall street investment bank is 150 years old.