Summary
Morgan Stanley announced on February 25, 2015, that it has reached an agreement in principle with the U.S. Department of Justice and the U.S. Attorney's Office for the Northern District of California to resolve certain claims for $2.6 billion. This settlement primarily relates to legacy residential mortgage-backed securities (RMBS) matters. In conjunction with this agreement, Morgan Stanley increased its legal reserves by approximately $2.8 billion in the fourth quarter of 2014. This reserve increase, impacting the Institutional Securities business segment, resulted in a $2.7 billion decrease in income from continuing operations and a $1.35 reduction in diluted Earnings Per Share (EPS) for the fiscal year ended December 31, 2014. While an agreement in principle has been reached, the final documentation is still pending.
Key Highlights
- 1Agreement in principle reached with U.S. Department of Justice to resolve claims for $2.6 billion.
- 2Settlement primarily concerns legacy residential mortgage-backed securities (RMBS) matters.
- 3Morgan Stanley increased legal reserves by approximately $2.8 billion in Q4 2014 for this settlement and other RMBS issues.
- 4The increased reserves led to a $2.7 billion reduction in reported income from continuing operations for FY 2014.
- 5Diluted EPS from continuing operations for FY 2014 was reduced by $1.35 due to the reserve increase.
- 6The settlement is subject to the finalization of documentation between Morgan Stanley and the Civil Division.