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December 13, 2011 at 08:38 AM
Morgan Stanley (MS), which had sought a court order to block Singaporean investors from bringing suit outside the country for losses of about $155 million on synthetic collateralized debt obligations, was told by a New York judge Monday that it cannot do so, according to Bloomberg. In a separate case, the investment bank said Tuesday that it had reached a settlement regarding credit default swap protection purchased from MBIA.
As a result of the settlement, Morgan Stanley will record a pre-tax loss this quarter of about $1.2 billion after-tax. The bank also will reduce its level of risk-weighted assets, which should free up some $5 billion of capital as stipulated by the proposed Basel III regulatory framework.
“It’s critical that we reposition for the new regulatory environment and do so quickly,” said Morgan Stanley President and CEO James Gorman (left) in a statement. “A top priority for 2011 was to address this large outstanding legacy exposure and this settlement is consistent with our efforts to build capital and de-risk the balance sheet. Putting this behind us removes earnings volatility and meaningfully improves our pro forma Tier 1 Common ratio under Basel III.”
In the other matter, U.S. District Judge Leonard Sand called the New York-based bank’s attempt to stop investors harassment, according to Bloomberg, and granted the request by investors, including the Singapore Government Staff Credit Cooperative Society Ltd., to stop Morgan Stanley from seeking a Singapore High Court order.
According to the lawsuit, filed in October 2010, several Morgan Stanley units created a “classic bait and switch scheme secretly designed to benefit Morgan Stanley” at customers’ expense. The investors say Morgan Stanley didn’t tell them it was a counterparty to the agreements—which meant that for every dollar the investors lost, Morgan Stanley gained a dollar. The plaintiffs seek to represent a class of all investors who bought Pinnacle Notes from Aug. 1, 2006, to the end of 2007.
