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16th December 2011

Morgan Stanley $1.8bn writedown

Morgan Stanley and MBIA have settled their legal dispute over Credit Default Swaps relating to Mortgage Backed Securities. Morgan Stanley sought to claim $4bn from MBIA relating to a restructure linked to the failure to pay out on the insurance held and the MBIA counter suit that Morgan Stanley misrepresented the quality of the mortgages contained within the MBS, seeking $1.2bn. Morgan Stanley was also suing The New York Department of Financial Services for having agreed to the MBIA restructure. All suits are dropped and the MBS written off.


Morgan Stanley had reserved for the MBIA suit in full but not made any writedowns against the MBS. Accordingly it is forced to writedown in the current quarter the net amount of the two sums, $1.8bn, equal to approximately $1.2bn after tax. CEO James Gorman made the point that one advantage of the settlement was that it removed $4bn of the balance sheet hence boosting the capital rations.


MBIA has reached settlements with 13 of the 18 banks suing it to date.