By Lauren Tara LaCapra
NEW YORK Feb 25 Morgan Stanley has
reached a $275 million proposed settlement with the U.S.
Securities and Exchange Commission that would allow the Wall
Street bank to move past a substantial legal overhang from the
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.
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.