Morgan Stanley sued for £1bn

INVESTMENT bank Morgan Stanley faces a damages bill of up to $2bn (£1.04bn) after admitting it hid evidence in a lawsuit brought by billionaire financier Ronald Perelman over failed appliances maker Sunbeam.

The case compounded a horror day for the bank, which earlier was accused of complicity in the Parmalat scandal, overshadowing a buoyant earnings report.

Lawyers for Morgan Stanley have apologised to the court in Florida for not producing emails pertaining to the bank's role as an adviser to Sunbeam at the time it was buying a Perelman company, camping goods maker Coleman.

Nevertheless, Circuit Court Judge Elizabeth Maass said she would take the weekend to decide whether to declare Morgan Stanley in default on its defence and award the case to Perelman. Even if she decides to let the trial continue, Maass has ruled that Morgan Stanley must prove to the jury that it is innocent of commercial fraud, reversing the onus of proof which usually lies with the plaintiff.

Maass said she did so to 'level the playing field' because Morgan Stanley hid the emails the court ordered the firm to turn over to Perelman's attorneys. 'I'm very disturbed about some of the things I've seen,' Maass said.

Perelman is suing the bank, which was an adviser to Sunbeam at the time of the $485m Coleman purchase in 1998, claiming it did not tell him of the company's declining fortunes. He is suing to recover his losses and is asking for punitive damages of $1.5bn. The judge will announce her decision on the default issue on Monday.

The bank is likely to plead that it too was hit hard by the fall of Sunbeam - it claims losses of $300m - and did not know the perilous state of its finances.

Morgan Stanley earlier announced that first-quarter net profit rose 20% to $1.47bn, the highest for five years. Revenue grew 10% from a year earlier to $6.8bn. The news was marred by an earlier accusation by prosecutors investigating the Parmalat scandal that Morgan Stanley helped the dairy foods giant mislead investors.

Citigroup, Deutsche Bank, UBS and Nextra, the asset management arm of Italy's Banca Intesa, were also named. The banks deny wrongdoing. Prosecutors also accused 13 bank executives, including an employee of Credit Suisse First Boston, of the Italian crime of market rigging.

Parmalat collapsed under e14bn (£9.7bn) of debt in late 2003, triggering one of the world's biggest financial scandals.