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Morgan Stanley Says It Might Settle MBS Suit With Deutsche Bank for $292 Million

cutting-money [1]Morgan Stanley [2] reported in its quarterly filing that it might take a $292 million loss as a result of a potential settlement with Deutsche Bank over the misrepresentation of mortgage-backed securities.

Deutsche Bank sued Morgan Stanley in April 2014, claiming that the New York-based investment firm breached a contract by misrepresenting the quality of about $735 million worth of loans held in a trust in in which Deutsche Bank was the trustee and Morgan Stanley was the sponsor.

In April, a judge in the Southern District of New York denied Morgan Stanley's motion to have the bank's complaint dismissed.

The announcement of a possible settlement with Deutsche Bank is the latest in a series of ongoing legal troubles Morgan Stanley has experienced with regards to its handling of mortgage-backed securities in the run-up to the financial crisis. In late April, reports surfaced [3] that the investment firm was in talks with the office of New York Attorney General Eric Schneiderman over a possible $500 million settlement to resolve claims that Morgan Stanley omitted certain material information on 30 subprime loans sold to investors, calling into question Morgan Stanley's due diligence, underwriting, and valuation processes.

Morgan Stanley settled with the Justice Department in late February 2015 to pay $2.6 billion [4] to resolve similar claims, and in February 2014, the firm settled with the FHFA [4] for $1.25 billion to resolve claims that it sold faulty MBS to Fannie Mae and Freddie Mac before the crisis. Also, in mid-February 2015, Morgan Stanley made a motion [5] in the New York Supreme Court to have two FHFA lawsuits dismissed that accused the firm of failing to buy back $2.5 billion worth of faulty securities.