Morgan Stanley 2015 Annual Report Download - page 211

MORGAN STANLEY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
On April 28, 2014, Deutsche Bank National Trust Company, in its capacity as trustee for Morgan Stanley Structured Trust I
2007-1, filed a complaint against the Company styled Deutsche Bank National Trust Company v. Morgan Stanley Mortgage
Capital Holdings LLC, pending in the United States District Court for the Southern District of New York. The complaint
asserts claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original
principal balance of approximately $735 million, breached various representations and warranties. The complaint seeks,
among other relief, specific performance of the loan breach remedy procedures in the transaction documents, unspecified
compensatory and/or rescissory damages, interest and costs. On April 3, 2015, the court granted in part and denied in part the
Company’s motion to dismiss the complaint. Based on currently available information, the Company believes that it could
incur a loss in this action of up to approximately $292 million, the total original unpaid balance of the mortgage loans for
which the Company received repurchase demands that it did not repurchase, plus pre- and post-judgment interest, fees and
costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
On January 23, 2015, Deutsche Bank National Trust Company, in its capacity as trustee, filed a complaint against the
Company styled Deutsche Bank National Trust Company solely in its capacity as Trustee of the Morgan Stanley ABS Capital
I Inc. Trust 2007-NC4 v. Morgan Stanley Mortgage Capital Holdings LLC as Successor-by-Merger to Morgan Stanley
Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc., pending in the Supreme Court of NY. The complaint asserts
claims for breach of contract and alleges, among other things, that the loans in the trust, which had an original principal
balance of approximately $1.05 billion, breached various representations and warranties. The complaint seeks, among other
relief, specific performance of the loan breach remedy procedures in the transaction documents, compensatory,
consequential, rescissory, equitable and punitive damages, attorneys’ fees, costs and other related expenses, and interest. On
October 20, 2015, the court granted in part and denied in part the Company’s motion to dismiss the complaint. Based on
currently available information, the Company believes that it could incur a loss in this action of up to approximately $277
million, the total original unpaid balance of the mortgage loans for which the Company received repurchase demands from a
certificate holder and a monoline insurer that the Company did not repurchase, plus pre- and post-judgment interest, fees and
costs, but plaintiff is seeking to expand the number of loans at issue and the possible range of loss could increase.
13. Variable Interest Entities and Securitization Activities.
Overview.
The Company is involved with various SPEs in the normal course of business. In most cases, these entities are deemed to be
VIEs.
The Company’s variable interests in VIEs include debt and equity interests, commitments, guarantees, derivative instruments
and certain fees. The Company’s involvement with VIEs arises primarily from:
• Interests purchased in connection with market-making activities, securities held in its Investment securities portfolio
and retained interests held as a result of securitization activities, including re-securitization transactions.
• Guarantees issued and residual interests retained in connection with municipal bond securitizations.
• Loans made to and investments in VIEs that hold debt, equity, real estate or other assets.
• Derivatives entered into with VIEs.
• Structuring of CLNs or other asset-repackaged notes designed to meet the investment objectives of clients.
• Other structured transactions designed to provide tax-efficient yields to the Company or its clients.
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