US-based financial services firm Morgan Stanley has reached a settlement with insurance company MBIA over disputes involving mortgage-backed investments.
The settlement terminates outstanding credit default swap protection purchased from MBIA on commercial mortgage-backed securities and resolves pending litigation between the two parties for consideration of a net cash payment to Morgan Stanley.
As the result of the settlement, Morgan Stanley will take a pretax $1.8bn charge in the fourth quarter for the deal.
The deal will reduce Morgan Stanley’s earnings by $1.2bn after accounting for tax benefits.
As part of the agreement, both sides have withdrawn lawsuits against each other.
The deal will also allow Morgan Stanley to release about $5bn worth of capital that is now being held against risk-weighted assets related to the settlement.
Morgan Stanley says the settlement cut its risk-weighted assets.