Bloomberg News

Morgan Stanley Sued Over $1.2 Billion in Mortgage Securities

January 26, 2012

(Updates with claims in fourth paragraph.)

Jan. 26 (Bloomberg) -- Morgan Stanley was sued over about $1.2 billion worth of residential mortgage-backed securities by Bayerische Landesbank and Dexia SA in New York state court.

Bayerische Landesbank, based in Munich and the second- biggest German state-owned lender, asserts claims on almost $486 million in residential mortgage-backed securities purchased in 22 offerings in 2006 and 2007.

Dexia asserts claims on more than $680 million worth of the securities bought in 21 offerings in 2006 and 2007. Belgium and France are dismantling Brussels-based Dexia, once the world’s leading lender to municipalities, after the company could no longer fund itself as the sovereign-debt crisis dried up short- term financing.

Both banks say in their complaints that the loans underlying the securities were riskier than promised and that Morgan Stanley “knew or recklessly disregarded” that the loans didn’t conform to underwriting standards.

Mark Lake, a spokesman for New York-based Morgan Stanley, declined to comment on the lawsuits, which were both filed yesterday in New York State Supreme Court in Manhattan, because the company hadn’t received them yet.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

The cases are Bayerische Landesbank, New York branch v. Morgan Stanley, 650230/2012; and Dexia SA/NV v. Morgan Stanley, 650231/2012, New York State Supreme Court (Manhattan).

--Editors: Andrew Dunn, Fred Strasser

To contact the reporters on this story: Chris Dolmetsch in New York at cdolmetsch@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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