It will pay $2.6 billion to resolve the case, but the deal has not been finalized, the company said in an SEC filing on Wednesday.
Morgan Stanley boosted its legal reserves by some $2.8 billion to a cover services related to the matter. The expense also ate into the full-year, adjusted earnings per share for 2014, dropping the diluted figure by $1.35 a share, according to the filing.
In September, the wealth management firm agreed to pay $95 million to resolve a lawsuit that accused it of misleading investors in mortgage-backed securities in the run up to the 2008 financial crisis.
The settlement, disclosed in court papers filed Monday in New York federal court, follows years of litigation by investors over allegedly false and misleading statements over the soured securities, according to Reuters.