Morgan Stanley has agreed to pay US$3.2 billion to settle civil charges that it misled US investors about the quality of mortgage bonds it sold in the run-up to the 2008 financial crisis.
The agreement, which had been expected, is the latest as federal and state officials work to finish their investigations into banks’ contributions to the crisis, the Wall Street Journal reports.
Last year, Morgan Stanley said it had agreed to pay US$2.6 billion to end the Justice Department probe but the final accord had been held up as negotiators hammered out a factual statement to accompany the deal and determine how to structure help to homeowners.
The final settlement all but ends Morgan Stanley’s legal entanglements with the US government over its actions during the crisis.
The litany of investigations into banks’ behavior in the mortgage market and the multibillion-dollar fines that followed have crimped profits at each of the biggest banks.
Morgan Stanley accounted for the lion’s share of its litigation costs related to the mortgage probes in its 2014 results, and has “previously reserved for all amounts related to these settlements,” a spokesman said Thursday.
According to a copy of the settlement, the bank admitted its employees received information that certain loans being packaged into bonds did not comply with underwriting guidelines but it failed to disclose that to investors.
The bank also admitted some of its due diligence practices didn’t match with how it described those practices in presentation materials to potential investors.
“Today’s settlement holds Morgan Stanley appropriately accountable for misleading investors about the subprime mortgage loans underlying the securities it sold,” said Stuart Delery, the Justice Department’s No. 3 official.
The pact includes a US$550 million deal with New York, US$400 million of which is in the form of help to homeowners in the state.
Morgan Stanley is expected to provide grants to local governments to support housing programs, and help nonprofits acquire troubled mortgages to reduce balances for struggling homeowners, among other programs.
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