Morgan Stanley said in an annual filing on Tuesday that it has
reached an "agreement in principle" with SEC enforcement staff that
would not require it to admit any wrongdoing.
The SEC has been investigating Morgan Stanley's role as a sponsor
and underwriter of subprime mortgage-backed bonds that lost money
soon after being issued in 2007. Its investigation is part of a
broader probe of such deals across Wall Street in the run-up to the
2007-2009 financial crisis.
Morgan Stanley's settlement would follow similar deals reached
between the agency and rivals including Goldman Sachs Group Inc,
Citigroup Inc and JPMorgan Chase & Co. Earlier this month, Morgan
Stanley also said it would pay $1.25 billion to settle a lawsuit by
a U.S. housing regulator over mortgage-backed bonds.
The SEC agreement is not final, and may not be approved by the
commission, Morgan Stanley said. Other SEC settlements with banks
that did not include an admission of wrongdoing have been lambasted
by critics including U.S. District Judge Jed Rakoff, who rejected
one such settlement.
Morgan Stanley still faces a host of litigation from private parties
and government entities, much of which pertains to mortgage bonds
and derivatives that were constructed in the run-up to the mortgage
crisis. Its legal issues took up 11 pages of its 300-plus page 10-K
filing, and dented earnings last year.
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Morgan Stanley's litigation costs soared to $1.95 billion in 2013
from $513 million the prior year, and $151 million in 2011, the
company said in its filing. Last year, legal costs represented 16.7
percent of Morgan Stanley's operating expenses excluding
compensation, up from 5.1 percent in 2012 and 1.5 percent in 2011.
Additional legal reserves reduced the earnings per share Morgan
Stanley reported in January by 5 cents. Full-year earnings per share
fell from $1.41 to $1.36, and fourth-quarter earnings per share fell
from 7 cents to 2 cents.
(Reporting by Lauren Tara LaCapra;
editing by Richard Chang and Lisa Shumaker)
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