AIG could sue Morgan Stanley over pre-financial crisis deals

Morgan Stanley sponsored or underwrote $3.7 billion mortgage pass-through certificates bought between AIG between 2005 and 2007.

Financial services firm Morgan Stanley may have had one of the toughest storms to weather during the 2008 financial crisis, reportedly losing about 80 percent of its value. In the wake of the crisis, though, the firm hasn’t had nearly the legal trouble of, say, Bank of America or J.P. Morgan Chase.

However, Morgan Stanley expects that to change. In its quarterly securities filing on Nov. 4, the firm says that insurer American International Group Inc. (AIG) may file a lawsuit against Morgan Stanley over deals worked on before the financial crisis.

According to the Morgan Stanley filing, the firm sponsored or underwrote $3.7 billion mortgage pass-through certificates bought between AIG between 2005 and 2007.

In the time since the crisis, The Wall Street Journal reports, AIG and Morgan Stanley had a tolling agreement, which the two parties signed to extend a statute of limitations on a potential legal matter. AIG has terminated that agreement, effective Nov. 7. After that point, AIG is free to file suit against Morgan Stanley.

The WSJ says this announcement comes in the midst of a bounce back for Morgan Stanley stock. In its filing, the company reported losses for its traders on seven days during the third quarter, down from 12 days during the third quarter of 2012. However, the company still has far to go; J.P. Morgan reported losses on zero days during the third quarter for its traders.

As a result of the financial crisis, AIG received a $182 billion bailout from the U.S. government, in part because of sour deals like those with Morgan Stanley. AIG has not been extremely litigious in recent days connected to the financial crisis, especially since it elected not to join former CEO Hank Greenberg’s suit against the U.S. government in January 2013.


For more on financial services firms still feeling the effects of the financial crisis, check out these InsideCounsel stories:

Federal Reserve reveals new stress tests for nation’s largest banks

BofA raises estimate from potential legal, regulatory losses to $5.1B

J.P. Morgan settlement talks could still stall

Dodd-Frank Act making compliance tough for some international banks

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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