Morgan Stanley agreed today to pay USD 3.2 billion to settle US accusations it hid high risks in mortgage securities in actions that contributed to the 2008 financial crisis.
New York Attorney General Eric Schneiderman said his state and the US Justice Department had reached agreement with the large US bank in the longstanding probe on abuses in residential mortgage backed securities (RMBS) that suffered trillions of dollars in losses in the crisis.
Schneiderman's office said in a statement that Morgan Stanley had misrepresented the strength of the RMBS it sold investors, pitching them as higher quality when it knew the securities carried substantial risks from the low-quality home loans which underpinned them.
Contrary to its upbeat marketing of the mortgage bonds, "Morgan Stanley securitized and sold RMBS with underlying mortgage loans that it knew had material defects," the New York attorney general's office said.
The announcement cited internal Morgan Stanley communications which showed the staff knew of the deep risks in the securities and deliberately masked and misreported them.
In the settlement, Morgan Stanley acknowledged that it had misrepresented the quality of the products it sold to RMBS investors.
The collapse of the market for RMBS and other mortgage-based securities exacerbated the collapse of housing prices that began in 2006, leading directly to the crisis that devastated the financial industry in 2008 and plunged the United States into deep recession.
The USD 3.2 billion includes USD 550 million specifically for New York state, including USD 400 million worth of consumer relief and USD 150 million in cash.
"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," Schneiderman said in the statement.
"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." Morgan Stanley shares fell 4.6 percent to USD 21.66 in morning trade.
Three large US banks, JPMorgan Chase, Bank of America and Citigroup, have already agreed to pay nearly USD 37 billion dollars to resolve probes into their abuses of mortgage-related bonds and other toxic securities that led to the crisis.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
