Morgan Stanley (MS) said it would pay $1.25 billion to the U.S. regulator for Fannie Mae and Freddie Mac to settle a lawsuit related to the sale of mortgage-backed securities.
The Wall Street bank will add $150 million to its legal reserves as a result of the settlement with the Federal Housing Finance Agency, Morgan Stanley disclosed in a regulatory filing on Tuesday.
Several large U.S. banks have set aside extra money to pay for potential legal costs in the aftermath of JPMorgan Chase & Co's <JPM.N> massive $13 billion settlement with U.S. authorities over bad mortgages.
Morgan Stanley added $1.2 billion in the fourth quarter to its litigation reserves, and cited investigations "related to residential mortgage-backed securities and the credit crisis" as the motivation for doing so.
Chief Executive James Gorman had said the legal charges were a "significant progress" towards resolution of matters.
Morgan Stanley did not disclose specific details about the litigation in Tuesday's filing.
The addition to reserves will reduce Morgan Stanley's earnings from continuing operations by 5 cents for the fourth quarter.
Morgan Stanley reported stronger-than-expected fourth quarter results on January 17.
(Reporting by Aman Shah in Bangalore; Editing by Don Sebastian)