Japan's Mitsubishi UFJ Financial Group (MUFG) is renegotiating its $9 billion (£5.3 billion) deal to inject funds to Morgan Stanley after a week in which the US investment bank's share price has plunged.

Insiders say Morgan Stanley, headed by John Mack, will still sell a 21% stake to MUFG for $9 billion but the amount will be entirely in convertible preferred shares. The original terms included $6 billion in convertibles and $3 billion in common equity.

The deal was due to complete this week but the Japanese firm came under pressure from its own shareholders after a 58% fall in Morgan's shares last week left it with a market value of $10.3 billion little more than the Japanese bank was set to pay for a 21% stake.

Exact details of the new agreement have not been disclosed, but it is understood the terms will allow MUFG to buy preferred shares that will convert into common stock at between $20 and $25.

MUFG's move to seek convertible shares instead of all stock avoids a short-term loss while still letting it benefit when the shares recover.

MUFG will also earn 10% interest on the preferred shares, similar terms to those wrung out of Goldman Sachs and General Electric by billionaire investor Warren Buffett.

It will also provide letters of credit and a credit line to support Morgan Stanley in a bid to reassure investors about the US firm's liquidity.

Rating agency Moody's put Morgan Stanley's long-term debt on watch for a downgrade last week. In August, it cut Morgan's long-term rating from Aa3. At A1, the firm now has the fifth-highest investment grade rating.

Investor George Soros has urged the US Treasury to save the Morgan Stanley-MUFG deal by buying an equivalent amount of preferred shares in the bank at a higher conversion price.

The Treasury has reportedly bowed to Japanese requests to guarantee that MUFG's investment would not be devalued if the US government injects funds into Morgan Stanley in the future.

MUFG is the second overseas investor to take a significant stake in Morgan Stanley. In December, China Investment Corp paid $5.58 billion for a stake that pays 9% a year and converts to common stock in 2010, giving CIC about 10% of Morgan.