Following the settlement of certain mortgage-related issues,
) restated its second-quarter 2014 earnings, per its latest
quarterly filing. The company's earnings per share from continuing
operations now stand at 92 cents, down from 94 cents reported on
Notably, Morgan Stanley's adjusted earnings per share from
continuing operations declined by 2 cents per share to settle at 58
cents. Yet, it still remains above the Zacks Consensus Estimate of
Morgan Stanley recorded an additional $53 million of other expenses
owing to the settlement of certain mortgage-related issues. These
included settlement of three class-action lawsuits (requiring court
approvals) and approval of mortgage accord with the Securities and
Exchange Commission (SEC).
Morgan Stanley will be paying $275 million to resolve the SEC's
allegations of misleading investors about the quality of underlying
loans while selling residential mortgage-backed securities (RMBS).
This amount will be duly returned to the aggrieved investors.
Separately, Morgan Stanley also revealed a possibility of getting
sued by California's Attorney General (AG) for allegedly selling
risky MBS to the California Public Employees Retirement System
(CalPERS) by misrepresenting facts. The MBS worth $1.3 billion were
purchased by the CalPERS through Cheyne Finance LLC, a structured
investment vehicle. Notably, Cheyne Finance went bankrupt in 2007
and the CalPERS lost its money.
In spite of Morgan Stanley denying the facts, the AG may sue it for
seeking damages and fines. If the AG files the case against the
company, it would add to the already burgeoning litigation
Nonetheless, Morgan Stanley has a trend of restating quarterly
results. Since 2013, the company had restated its results twice -
May 2013 and Feb 2014 - on account of litigation settlements.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold). Some
better-ranked finance stocks worth considering include The Goldman
Sachs Group, Inc. (
), JMP Group Inc. (
) and Raymond James Financial, Inc. (
). All these stocks carry a Zacks Rank #2 (Buy).
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