TOKYO - JAPANESE megabank Mitsubishi UFJ Financial Group Inc. said on Monday it will buy up to 20 per cent of US banking giant Morgan Stanley in a deal worth up to US$8.5 billion (S$12 billion).

'MUFG will obtain between 10 and 20 percent of common shares in Morgan Stanley based on book value of the shares,' the Japanese bank, the world's largest by assets, said in a statement.

An MUFG official said the deal would likely total between 400 to 900 billion yen (S$5.3 billion to S$12.1 billion).

The Japanese bank will also send at least one official to sit on Morgan Stanley's executive board, subject to approval by regulatory authorities.

Morgan Stanley has been looking for help through a tie-up with another bank as part of a major realignment on Wall Street, which has been hit hard by the subprime loan crisis.

The announcement came hours after Morgan Stanley and Goldman Sachs said they were both agreeing to become holding companies, submitting themselves to more regulation to be part of a massive US government bailout.

Earlier reports said that Morgan Stanley was in talks with Wachovia Corporation and Chinese sovereign wealth fund China Investment Corporation (CIC).

MUFG was born through a merger in 2005 to become the world's largest bank in asset terms.

Japanese banks, recently recovered from their own crisis of bad loans, have been comparatively less hit by the subprime loan crisis than their peers in North American and Europe.

Sources said on Monday that top Japanese brokerage group Nomura Holdings had won a deal to buy the entire Asian operations of failed US investment firm Lehman Brothers Holdings.