Fitch: Morgan Stanley's FHFA Settlement Neutral for Credit

Wed Feb 5, 2014 12:06pm EST

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(The following statement was released by the rating agency) CHICAGO, February 05 (Fitch) The $1.25 billion mortgage settlement between Morgan Stanley and the Federal Housing Finance Agency (FHFA) conforms to the recent pattern of lawsuit settlements made by large global banks, and Fitch Ratings says the payment will have no impact on Morgan Stanley's ratings. The size of the Morgan Stanley settlement, at 11.8% of the original face value of affected mortgage-backed securities, is largely in line with the 12.1% paid by JP Morgan Chase, though slightly lower than Deutsche Bank's 13.6%. Morgan Stanley had already largely reserved for the payment in the fourth quarter. Though the FHFA settlement puts a key source of legal uncertainty behind Morgan Stanley, there are some remaining private-label securities lawsuits that remain unsettled. Half of the FHFA's suits against 18 large institutions have now been settled, but this amounts to only 35% of the securities' face value. This is not surprising, as most of the banks that have settled had lower exposure and were looking to settle more quickly. The remainder of FHFA lawsuit exposure is concentrated in four institutions -- Bank of America, the Royal Bank of Scotland, Credit Suisse and Goldman Sachs. Fannie Mae and Freddie Mac have booked sizable litigation gains related to the FHFA suits in second-half 2013, and we expect more in 2014. The gains are effectively remitted to the U.S. Treasury under the terms of the net worth sweep agreement between Treasury and GSEs. Contact: Ilya Ivashkov, CFA Director Financial Institutions +1-212-908-0769 Bill Warlick Senior Director Fitch Wire +1-312-368-3141 Fitch Ratings 70 W. Madison Chicago, IL 60062 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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