Morgan Stanley (MS) has agreed to pay $3.2 billion to settle civil allegations the New York-based bank misled customers about the quality of mortgage-backed securities that soured during the nation’s financial crisis, federal and state officials said Thursday. The settlements mark the latest in a string of penalties against major banks as the U.S. Department of Justice and state attorneys general complete investigations into evidence the financial institutions’ marketing and sales practices helped fuel the crisis.
“Morgan Stanley touted the quality of the lenders with which it did business and the due diligence process it used to screen out bad loans. All the while, Morgan Stanley knew that in reality, many of the loans backing its securities were toxic,” said acting U.S. Attorney Brian Stretch of California’s northern federal district. Morgan Stanley said its previous financial set-asides for the settlements would prevent the payments from affecting the bank’s 2016 earnings. “We are pleased to have finalized these settlements involving legacy residential mortgage-backed securities matters,” the bank said.
The bank in February 2015 said it had reached agreement in principle on a $2.6 billion settlement resolving mortgage-related claims by DOJ’s Civil Division and federal prosecutors in California. But the settlement, which affected the bank’s fourth-quarter 2014 earnings, wasn’t immediately finalized amid negotiations on documentation outlining the bank’s conduct. The settlement includes $550 million for New York, $400 million worth of consumer relief and $150 million in cash, said New York Attorney General Eric Schneiderman. He said the penalties would “deliver resources to the families and communities that need them the most, while helping New Yorkers avoid foreclosure, and spurring the construction of more affordable housing.”
Other major U.S. banks that negotiated settlements over similar mortgage-related misconduct paid even higher penalties in recent years. Bank of America in 2014 paid a record $16.65 billion to resolve allegations it marketed and sold toxic mortgage securities. JPMorgan Chase in 2013 paid $13 billion in settlements where the bank acknowledged that some mortgages it marketed had not been fit for sale.