U.S. Bank Settles Suit Against Morgan Stanley

U.S. Bank sued Morgan Stanley in 2009 over a breach of contract relating to swap agreements for a collateralized debt obligation for which U.S. Bank was the trustee.

Minneapolis-based U.S. Bank has reached a settlement with New York-based Morgan Stanley in a 2009 lawsuit over credit default swaps.

Morgan Stanley announced the settlement on Monday in its quarterly filing with the U.S. Securities and Exchange Commission (SEC). Terms of the settlement, which was reached on April 20, were not disclosed. However, Morgan Stanley said that the loss from the settlement is “substantially less” than the $273 million that it previously predicted.

U.S. Bank sued Morgan Stanley in January 2009 over credit default swaps between Morgan Stanley and Tourmaline CDO I, Ltd.-a collateralized debt obligation (CDO) for which U.S. Bank served as the trustee.

CDOs are investment-grade securities backed by a pool of bonds, loans, and other assets.

According to Morgan Stanley's annual filing with the SEC, the issue that initiated the suit was whether Morgan Stanley was required to post collateral to Tourmaline after Morgan Stanley's credit ratings were downgraded in 2008 by certain ratings agencies.

U.S. Bancorp, the parent company of U.S. Bank, is Minnesota's largest bank-holding company with $308 billion in assets as of the end of 2010. U.S. Bank-which operates 3,069 banking offices in 25 states-is the fifth-largest commercial bank in the country.