Morgan Stanley deflects bond blame

MORGAN Stanley has moved to deflect responsibility over a bond deal, which has resulted in a number of Irish investors – including two orders of nuns – taking legal action against the US investment bank.

The ongoing legal row – which dates back about six months – relates to the purchase of almost €6 million worth of bonds five years ago and the resultant loss of return.

Nearly 90 Irish-based investors apparently invested in the bonds, including the Sisters of Charity of Jesus and Mary; the Holy Faith Sisters, the Irish Veterinary Benevolent Fund and a number of credit unions.

It is understood the investors were expecting a guaranteed annual return of 6.25% on their investment, for the following four years.

The move towards legal action followed the timing of the bonds being sold, once they lost their value.

The investors have, reportedly, claimed Morgan Stanley said they would sell the bonds, immediately, if they were downgraded in value. They lost over 90% of their value last year and were re-categorised to junk bond status. However, they were allegedly not sold for five months after their dive in value.

Morgan Stanley is, however, seemingly claiming the issue is the responsibility of Bloxham Stockbrokers – the Dublin-headquartered brokerage which bought the bonds, called Saturn Investment Europe bonds from the investment bank and then re-sold them to the Irish investors.

A spokesperson for the US bank said: “Morgan Stanley sold the Saturns notes to Bloxham, a regulated counterparty, who we understand then sold the notes to its own clients.

“Questions about the suitability of these notes for Bloxham’s clients is a matter for Bloxham. Separately, due to a downgrade of the underlying collateral in January 2009, the value of the notes was significantly impaired, with no return to noteholders. There was no additional loss to noteholders as a result of the delay in terminating the notes.

“In fact, noteholders were able to realise some value when the notes were terminated in June 2009. We believe this entire claim is misplaced.”

A lawsuit has been filed with the High Court in London, on behalf of the Irish-based investors; who are looking for the value of their original combined investment and additional compensation. The two orders of nuns are understood to have each invested €500,000.

Morgan Stanley – Bloxham are not listed as a defendant in the case and made no comment yesterday – will have a period of one month to file a response to the claim, before any case begins sometime next year.