Morgan Stanley (MS) Settles with MBIA, to Record $1.8B Pre-Tax Loss
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Morgan Stanley (NYSE: MS) entered a comprehensive settlement with MBIA that better positions the Firm for Basel III by resolving outstanding legacy exposures and releases capital to reinvest in our client-focused businesses.
The comprehensive settlement terminates outstanding credit default swap (CDS) protection purchased from MBIA on commercial mortgage-backed securities (CMBS) and resolves pending litigation between the two parties for consideration of a net cash payment to Morgan Stanley.
MBIA will withdraw its residential mortgage backed securities related suit against Morgan Stanley and Morgan Stanley will withdraw from suits challenging MBIA’s restructuring. The pre-tax loss on the settlement will approximate $1.8 billion ($1.2 billion after-tax) in the current quarter. Importantly, the settlement has the effect of significantly reducing risk-weighted assets and releasing the equivalent of approximately $5 billion of capital under the Basel Committee’s proposed Basel III framework, thereby increasing the pro forma Tier 1 Common ratio under Basel III by approximately 75 basis points by the end of 2012. Under current Basel I standards, the Tier 1 Common ratio will be reduced by approximately 30 basis points.
The comprehensive settlement terminates outstanding credit default swap (CDS) protection purchased from MBIA on commercial mortgage-backed securities (CMBS) and resolves pending litigation between the two parties for consideration of a net cash payment to Morgan Stanley.
MBIA will withdraw its residential mortgage backed securities related suit against Morgan Stanley and Morgan Stanley will withdraw from suits challenging MBIA’s restructuring. The pre-tax loss on the settlement will approximate $1.8 billion ($1.2 billion after-tax) in the current quarter. Importantly, the settlement has the effect of significantly reducing risk-weighted assets and releasing the equivalent of approximately $5 billion of capital under the Basel Committee’s proposed Basel III framework, thereby increasing the pro forma Tier 1 Common ratio under Basel III by approximately 75 basis points by the end of 2012. Under current Basel I standards, the Tier 1 Common ratio will be reduced by approximately 30 basis points.
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