Hundreds of Irish nuns are alleging in a lawsuit that Morgan Stanley failed to properly dispose of "so-called Hybrid Structured euro constant maturity swap notes," causing losses of at least $6.4 million.
The name of the lawsuit: The Sisters of Jesus and Mary v Morgan Stanley. Other plaintiffs suing Morgan include the Sisters of Charity of Jesus and Mary, the Holy Faith Sisters and the Irish Veterinary Benevolent Fund.
According to the lawsuit, first reported by Financial News, the swaps promised returns of 6.25 percent for at least four years and included a mandatory redemption clause that would force the sale of the notes if the underlying collateral bonds were downgraded to sub-investment grade.
But when the bonds plummeted in the second half of 2008 -- the depths of the financial crisis -- Standard & Poor's downgraded them to junk status, which the nuns say should have required Morgan Stanley to sell them immediately. Instead, the lawsuit alleges, Morgan Stanley waited until June 3, 2010 before acting. By that point, the bonds had rallied in value, but only enough to cover Morgan Stanley's fees. The nuns were still stuck with a big loss, according to the lawsuit.
Morgan Stanley has declined to comment and has two weeks to respond to the lawsuit, which was filed in the High Court in Ireland.
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