8-KOther Events

MORGAN STANLEY 8-K Report, Corporate Update (Feb 4, 2014)

Filed February 4, 2014For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley has announced an agreement in principle to settle mortgage-backed securities litigation with the Federal Housing Finance Agency (FHFA), acting as conservator for Freddie Mac and Fannie Mae. The proposed settlement amount is $1.25 billion, which is subject to final approvals from all parties involved. This development is significant as it aims to resolve a long-standing legal dispute that could have carried substantial financial implications. The company will record an addition of $150 million to its legal reserves in connection with this settlement. This reserve increase will result in a downward revision of $97 million (after tax) to reported and non-GAAP (excluding DVA) income from continuing operations for both the fourth quarter and the full fiscal year ended December 31, 2013. Consequently, earnings per diluted share will also be reduced by $0.05 for the same periods.

Key Highlights

  • 1Agreement in principle reached to settle mortgage-backed securities litigation with FHFA (for Freddie Mac & Fannie Mae).
  • 2Total settlement amount agreed upon is $1.25 billion.
  • 3The settlement is contingent upon final approvals from the parties involved.
  • 4Morgan Stanley will add $150 million to its legal reserves to cover the settlement.
  • 5The settlement will reduce reported income from continuing operations by $97 million (after-tax) for Q4 and FY 2013.
  • 6Earnings per diluted share will be reduced by $0.05 for Q4 and FY 2013.
  • 7The filing includes a standard forward-looking statements disclaimer regarding risks and uncertainties.

Frequently Asked Questions

The main purpose of this 8-K filing is to announce Morgan Stanley's agreement in principle to settle significant mortgage-backed securities litigation with the Federal Housing Finance Agency (FHFA) acting on behalf of Freddie Mac and Fannie Mae.

The settlement is for $1.25 billion. Morgan Stanley will record an additional $150 million in legal reserves. This will reduce reported income from continuing operations by $97 million (after tax) and earnings per diluted share by $0.05 for the fourth quarter and full fiscal year 2013, compared to previously reported figures.

The filing states that the agreement is an 'agreement in principle,' meaning it is subject to final approvals by all the parties involved. Therefore, the settlement is not yet finalized.

DVA stands for Debt Valuation Adjustment. It represents changes in the fair value of Morgan Stanley's borrowings due to fluctuations in its credit spreads. The company provides supplemental financial measures excluding DVA to offer investors a clearer view of operating performance by removing the impact of these credit spread fluctuations on its debt.