Morgan Stanley will pay $3.2bn to settle federal and state charges that it misled investors in residential mortgage-backed securities during the financial crisis, New York’s attorney general announced on Thursday.
The deal comes a month after Goldman Sachs agreed to pay $5.06bn to resolve civil claims related to the firm’s securitization, underwriting and sale of residential mortgage-backed securities from 2005 to 2007. The Goldman Sachs settlement included $875m in cash payments and $1.8bn in consumer relief.
Goldman Sachs and Morgan Stanley are two of the last big banks to pay up for their role in the 2008 economic crisis. Bank of America agreed to pay the largest of the settlements, at $16.6bn, in 2014. A year prior, JPMorgan Chase paid about $13bn.
“Today’s agreement is another victory in our efforts to help New Yorkers rebuild in the wake of the financial devastation caused by major banks,” said attorney general Eric Schneiderman. “Today’s settlement will 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 units statewide.”
Schneiderman said the resolution would require Morgan Stanley to provide significant relief to New Yorkers, including loan reductions to help residents avoid foreclosure, and funds to spur the construction of more affordable housing.
New York will receive $550m of the $3.2bn settlement- $400m worth of consumer relief and $150m in cash.
The Department of Justice also announced on Wednesday its $2.6bn portion of the settlement. As part of the DOJ settlement agreement, Morgan Stanley acknowledged in writing that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its residential mortgage-backed securities and about its due diligence practices.
On Thursday, Morgan Stanley stock was down almost 40% over the last three months.
In January, the Wall Street bank reported a fourth quarter net revenue of $7.7bn, exceeding expectation. Its earnings were $753m, compared to a loss of $1.75bn the year before.
“We are pleased to have finalized these settlements involving legacy residential mortgage-backed securities matters. The firm has previously reserved for all amounts related to these settlements,” Mark Lake, a Morgan Stanley spokesman, said in a statement.
During the press conference announcing the settlement, Schneiderman implied that there might be more settlements in the works. The settlements with the banks have stemmed from investigations by the residential mortgage-backed securities group, a joint federal and state task force.
“The focus of our working group continues to be investigating and pursuing financial institutions that contributed to the crash and working as smartly as we can and try and see that the resources are directed from those institutions to help the people who are still suffering,” he said. “Our work is far from done.”
This article was written by Jana Kasperkevic in New York, for theguardian.com on Thursday 11th February 2016 15.38 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010