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Morgan Stanley to pay $1.25bn lawsuit settlement

US banking institution Morgan Stanley has agreed to settle a lawsuit concerning the sale of mortgage-backed securities, paying out $1.25 billion.

The settlement will be paid to the Federal Housing Finance Agency, a US regulator that oversees the Fannie Mae and Freddie Mac mortgage guarantee firms, which were bailed out by US taxpayers in 2008.

Morgan Stanley has also agreed to add an extra $150 million to its legal reserves as a result of the settlement with the US regulator.

The US government filed lawsuits against 17 financial institutions in 2011 concerning the sale of residential mortgage-backed securities, with JP Morgan Chase and Deutsche Bank also involved in the procedures.

Both have previously settled with the regulator, with German lender Deutsche Bank paying out $1.9 billion, while JP Morgan Chase agreed to a $13 billion settlement after admitting it misled investors during the housing crisis. However the company said it did not violate US laws.

By Asim Shah