Morgan Stanley (NYSE:MS) is expecting a lawsuit to be filed against it by American International Group Inc (NYSE:AIG) in connection with the mortgage securities transactions entered by both companies before the 2008 financial crisis.
In its regulatory filing with the Securities and Exchange Commission (SEC), Morgan Stanley (NYSE:MS) revealed that the potential complaint is related to the $3.7 billion worth of mortgage pass-through certificates it sponsored or underwrote that were purchased by the insurance giant.
According to the Morgan Stanley (NYSE:MS), its tolling agreement with American International Group Inc (NYSE:AIG) will be terminated on November 7. The investment bank and the insurance giant previously signed the tolling agreement to extend the statute of limitations on a possible legal issue.
Aside from the potential legal issue with American International Group Inc (NYSE:AIG), the investment bank also provided updates regarding its several legal problems involving different companies.
The traders of Morgan Stanley incurred losses
During the third quarter, the traders of Morgan Stanley (NYSE:MS) incurred losses in seven different days compared with the 12 days of trading losses they endured in the second quarter. The investment bank is set to disclose its trading number by the end of the week.
Based on its regulatory filing, Morgan Stanley (NYSE:MS) said its primary risk categories reported nine trading closes. The investment bank endured two days of at least $25 million net negative revenue during the period. The primary risk categories exclude non-trading revenue, as well as those connected to its own credit risk.
Morgan Stanley (NYSE:MS) allocated lesser money for legal expenses. The bank said the accumulated amount for its litigation costs was $549 million, an increase of 44% from its $381 million accrued litigation costs in the first nine months last year.
Since the financial crisis in 2008, the investment bank had been urging its traders to take lesser risks.
AIG filed a complaint against Bank of America
Meanwhile, American International Group Inc (NYSE:AIG) filed a complaint against Bank of America Corp (NYSE:BAC) on allegations that the bank conducted massive fraud related to mortgages in 2011. The bank denied the allegations.
In terms of quarterly performance of the third quarter, the insurance giant generated $2.2 billion net income or $1.46 earnings per share. Its book value increased by 8% to $62.68 per share by the end of 2012 excluding accumulated other comprehensive income (AOCI).