Morgan Stanley Reaches $1 Billion-Plus MBS Agreement With MBIA
Morgan Stanley has reached a settlement with MBIA Inc. regarding mortgage-backed securities (MBS). Morgan Stanley purchased insurance protection from MBIA on commercial mortgage-backed securities (CMBS) as Morgan Stanley believed it was misled about the quality of the loans that were written prior to the housing and economic meltdown. The agreement is believed to include a payment in excess of $1 billion from MBIA to Morgan Stanley and the withdrawal of legal action from both firms. The $1 billion figure is assumed to make up for an estimated $1.2 billion loss by Morgan Stanley this quarter related to the deal with MBIA. "It's critical that we reposition for the new regulatory environment and do so quickly," said James P. Gorman, president and CEO of Morgan Stanley. "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."