Morgan Stanley in talks to pay $500M to settle mortgage bond probe

The deal is likely to include cash, as well as a chunk of consumer relief and contribute to the $130 billion legal tab rung up by the big banks for their actions during the crisis.

Morgan Stanley is reportedly in talks with the Attorney General of New York to pay about $500 million to settle claims of misleading investors into shoddy mortgage bonds during the run-up to the financial crisis.

A deal with New York AG, Eric Schneiderman, would likely include some cash from Morgan Stanley as well as a chunk of consumer relief and add to the $130 billion legal tab rung up by the largest U.S. banks for their actions during the crisis, according to Wall Street Journal.

The agreement isn't imminent, however, and the terms under discussion have changed, the report said. Aid to struggling homeowners will account for more than half of the total value of the settlement, but the form of the consumer relief isn't clear.

The report did not state whether or not Morgan Stanley will need to increase its legal reserves to account for a likely settlement with Schneiderman's office.

Morgan Stanley also faces lawsuits or potential actions from state officials in California, Virginia and Illinois. Some of the states have held discussions with the bank to resolve their cases, and a joint announcement is expected once states and the Justice Department reach final accords, according to the WSJ.