Fed agrees to shrink Morgan Stanley's 'stress capital buffer'

By Pete Schroeder

WASHINGTON (Reuters) -The U.S. Federal Reserve announced on Tuesday it had agreed to reduce how much capital Morgan Stanley must hold as a result of its most recent "stress test" results, lowering the required buffer from 5.1% to 4.3% for the upcoming year.

In a statement, the Fed said further analysis showed that the central bank may have been too conservative in making some estimations under the test, and other unique characteristics of the bank contributed to the reconsideration. Morgan Stanley announced it would appeal the results of the June test in August, when the Fed announced new capital levels for all the large banks examined.

Specifically, the Fed said new information presented by the bank showed the regulator may have been too conservative in estimating losses in the bank's fair value option loan portfolio, due in part to the unique composition of that portfolio.

In a statement, Morgan Stanley CFO Sharon Yeshaya said the bank appreciated the result, and looked forward to continue engagement with the Fed as it reconsiders its stress testing framework.

"Morgan Stanley remains focused on ensuring we have long-term capacity to support global client engagement, invest in our core businesses and consistently grow our quarterly dividend," she said.

(Reporting by Pete Schroeder, Editing by Franklin Paul and David Gregorio)

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