Morgan Stanley in talks to reach $500m settlement with New York's attorney general

Morgan Stanley American multinational financial services corporation is in discussions to settle a probe by the state's attorney general.

The investigation is based on whether the firm misled investors in mortgage bonds that lost value during the 2008 financial crisis. On Sunday, the Wall Street Journal reported that the bank is trying to reach a $500m settlement with New York's top litigator, Eric Schneiderman.

The settlement with Schneiderman will include some cash from Morgan Stanley. According to the sources, more than half of the settlement amount will go as aid to struggling homeowners.

However, the agreement between the New York-based financial institution and Schneiderman's office isn't imminent and the terms under discussion have changed. Although the struggling homeowners will account for more than half of the total value of the settlement, the consumer relief isn't clear.

It's also unclear whether Morgan Stanley will need to boost its legal reserves to account for a likely settlement with Schneiderman's office.

Earlier, the attorney's office has alleged the firm for misrepresenting and neglecting key details on the health of the loans that underpinned the securities it sold. Although Morgan Stanley didn't agree with the allegations, in March the firm was in settlement talks.

Morgan Stanley is among the big banks that have paid mortgage-related fines, in part as it never held an extensive home-lending business like Bank of America Corp and J. P. Morgan Chase & Co.

The Wall Street Journal reported that costs related to the financial crisis and mortgages paid by two banks were $73 billion and $26 billion respectively, compared with a $4.5 billion tab for Morgan Stanley.

The firm is scheduled to report first-quarter results Monday and might update its legal situation.