NEW YORK — Investment bank Morgan Stanley said Monday it signed a letter of intent to sell up to 20 percent of the company to Mitsubishi UFJ Financial Group Inc.

Financial terms of the deal were not disclosed. If the deal is completed, the price would be based on Morgan Stanley's book value after Japan's largest bank completes a due diligence review. The letter of intent signed by both banks is nonbinding.

The framework for a deal comes just hours after Morgan Stanley, one of Wall Street's biggest investment banks, received regulatory approval from the Federal Reserve to become a bank holding company — making it a commercial bank and allowing it to receive deposits. Morgan Stanley will also now be regulated by the Fed instead of the Securities and Exchange Commission.

The partnership would allow both banks to expand their global footprint and help Morgan Stanley transition to a commercial bank, John Mack, Morgan Stanley's chairman and chief executive, said in a statement. The deal also provides further financial support to help Morgan Stanley shore up its capital base during the ongoing credit crisis.

Over the past week, as fellow investment banks Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. sold itself to Bank of America Corp., reports centered on Morgan Stanley selling itself to Wachovia Corp. or another commercial bank.

The changes come as investors were worried that Morgan Stanley, like Lehman and Merrill, would face liquidity problems and need to find a new parent with access to deposits and steady funding, or face failure. The change in regulatory status and sale of a portion of the company could provide Morgan Stanley with the capital needed to avoid a similar fate.

Mitsubishi, which has $1.1 trillion in deposits, will be able to add one member to Morgan Stanley's board of directors.

Shares of Morgan Stanley rose $2.79, or 10.3 percent, to $30 in morning trading. Shares have traded between $11.70 and $69.23 during the past year.