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Morgan Stanley Settles RMBS Woes

Phil Hall
Feb 11, 2016
The U.S. Department of Justice (DOJ) has announced that Morgan Stanley will pay a $2.6 billion settlement

The U.S. Department of Justice (DOJ) has announced that Morgan Stanley will pay a $2.6 billion settlement to resolve federal charges over the problems stemming from its residential mortgage-backed securities (RMBS) backed by sub-prime mortgages in the period leading up to the 2008 recession.

Under the terms of the settlement, Morgan Stanley acknowledged in writing that it did not provide important information to prospective investors about the quality of the sub-prime mortgage underlying its RMBS and about the due diligence practices that enabled these loans to be securitized. The settlement involved the Wall Street firm reaching an agreement with members of the federal RMBS Working Group, which was created in the aftermath of the recession to investigate the circumstances leading to the financial meltdown.

Morgan Stanley has also reached settlements with the attorneys general of New York and Illinois for $550 million and $22.5 million, respectively, in connection to its problematic RMBS activities.

“Those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “This resolution demonstrates once again that the Financial Institutions Reform, Recovery and Enforcement Act is a powerful weapon for combatting financial fraud and that the department will not hesitate to use it to hold accountable those who violate the law.”

"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 New York State Attorney General Eric T. 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."

In a statement, Morgan Stanley said it set aside legal reserves to cover the settlement and would not require any further charges in its upcoming financial results.

“We are pleased to have finalized these settlements involving legacy residential mortgage-backed securities matters,” said Mark Lake, a company spokesperson.

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