Morgan Stanley is close to settling a investor lawsuit brought by several religious organisations that allege the global investment bank cost them a significant amount in losses linked to a complicated bond sale.
Andrew Sutcliffe QC, the lawyer who represents the investors, which include the Sisters of Charity of Jesus and Mary, the Holy Faith Sisters, the Irish Veterinary Benevolent Fund and 85 Irish individuals, told High Court judge Mr Justice Walker that "the action has not yet settled but terms have been provisionally agreed."
Morgan Stanley's lawyer Laurence Rabinowitz QC said that "it is likely this matter will be disposed of." A further hearing is expected in the near future.
The plaintiffs are suing Morgan Stanley for failing to redeem an investment linked to the German financial group Dresdner Bank's debt that they bought in 2005, which they say, as a result, caused them a loss and Morgan Stanley a gain.
In addition, the nuns and other Irish investors launched legal action in August 2010 relating to the purchase of the euro-denominated notes worth €5.88m (£4.8m) linked to Dresdner Bank bonds, the investment bank failed to deliver on a contractual pledge to redeem the debt after the German group's credit rating was slashed below an agreed level.
They are also seeking €10m in damages from Morgan Stanley Co International, Morgan Stanley Capital Services, Saturns Investments Europe and Deutsche Trustee Company Ltd.
Morgan Stanley declined to comment.
The lawsuit follows the theme of small-to-medium enterprises (SME) and individuals claiming that they have been locked into complicated financial contracts that have lost them money or being "mis-sold" derivatives products from the outset.
Earlier this year, IBTimes UK reported that hundreds of SMEs are turning to specialist lawyers from overseas to help them wrangle their way out of what they believe are mis-sold complicated financial contracts, sold as loan protection products, that are now suffocating them financially.
"Derivatives are a totally different kettle of fish and it is a dubious business to start, especially if you don't fully understand the products. If the client doesn't understand the contract, at best, they are gambling blind," said Professor Julian Roberts, partner at law firm Wolfsteiner Roberts. "Derivatives don't work like normal investments such as stocks, shares or savings accounts. As the German courts now recognise, they are more akin to bets. Unless customers clearly understand that, and all the consequences that follow, they are definitely not in a position to make an informed judgment about the bank's offer. Clearly the banks discovered a market opportunity by selling these types of instruments to individuals and SME's as a protection or loan enhancing method, but which are in fact excessive and risky for the individual who does not stand to gain a benefit from these massive bets."