Mitsubishi UFJ, the Japanese banking giant that had planned to sink $9 billion (£5.3 billion) into Morgan Stanley on Monday, is understood to have begun an eleventh-hour internal review of the deal and may seek to renegotiate some of the terms.

Facing massive paper losses on its Wall Street stakebuilding play, the Japanese bank was mulling yesterday whether to reduce the value of its cash injection - possibly by as much as 30 per cent — or use the same amount to secure a bigger stake in the American investment house,sources said.

After the market carnage of last week, the capital infusion being offered by the Japanese could buy about 90 per cent of Morgan Stanley's common stock at its present value, rather than the 21 per cent stake that it was going to secure under the existing terms of the deal.

Although Mitsubishi was clear last week that it remained committed to the deal that it negotiated last month — before both American and Japanese stocks lost more than a quarter of their value — sources close to the Japanese bank told The Times that a series of internal meetings had taken place in Tokyo and New York over the weekend and that management thinking on the size and nature of the investment was now “in flux”.

A Mitsubishi official said on Friday that the bank expected to close the deal on Tuesday but declined to comment on whether it would seek to renegotiate on price. The weekend was expected to give Mitsubishi management time to establish the extent of Morgan Stanley's exposure to the Lehman Brothers collapse — before the $9 billion was scheduled to leave the Japanese bank.

The same sources said that management was considering renegotiating either the price that it would pay for the 21 per cent stake previously agreed or the size of the stake in Morgan Stanley that it would control. What remained unchanged, a senior figure at the Japanese bank said, was Mitsubishi's plans to establish closer ties between itself and the Wall Street giant, particularly on the brokerage side of the business.

Morgan Stanley has become the latest high-profile Wall Street entity to suffer the effects of a precipitous collapse in investor confidence. The investment bank's shares fell by 22 per cent on Friday as the market judged that even Mitsubishi's billions might not provide enough capital to weather the financial meltdown.

Several analysts in Tokyo told clients that, at $25.25 a Morgan Stanley share, Mitsubishi was already paying above the odds for a 21 per cent holding. Observers suggested that, even after its internal deliberations, Mitsubishi may press ahead as planned, despite the paper loss on its Morgan Stanley stake. “They actually may relish the role of white knight in this crisis, even if that means taking a hit,” one Nomura broker said.

A large foreign shareholder in Mitsubishi predicted that such an outcome would prompt heavy selling of the Japanese financial group's shares this week and added that the bank “owes it to its own investors to renegotiate this deal in light of what has changed since September 22, when it was announced”.

Mitsubishi is the second big Japanese financial institution to exploit the global financial turmoil — and its own relatively flush balance sheet — as an investment opportunity. Last month Nomura swooped on the Asian and European assets of Lehman Brothers in a deal that is understood to have increased significantly the pressure on Mitsubishi to seize its chance with Morgan Stanley.

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