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Thursday, June 13, 2024 | Back issues
Courthouse News Service Courthouse News Service

Morgan Stanley Pays|$63 Million to FDIC

(CN) - Morgan Stanley will pay $63 million to settle FDIC claims that it misrepresented residential mortgage-backed securities during the financial meltdown.

The settlement resolves claims springing from offering documents for 14 residential mortgage-backed securities purchased by three banks that collapsed during the financial crisis. It brings Morgan Stanley's total settlements with regulators to $362 million.

Morgan Stanley and other issuers did not comply with underwriting standards and regularly represented to investors that the mortgage loans underlying its securities were safe, when in fact many of them were at a high risk of default, the FDIC said.

In 2008, the real value of these toxic assets became apparent, and many banks were too heavily invested to survive.

The Federal Deposit Insurance Corporation, as receiver for Colonial Bank of Montgomery, Ala.; Security Savings Bank of Henderson, Nev.; and United Western Bank of Denver, will split the $62.95 million settlement between three receiverships.

Morgan Stanley paid $24 million last year to settle FDIC claims related to a fourth failed bank, Franklin Bank of Houston.

It paid $275 million in 2014 to settle an SEC complaint accusing it of misleading investors about the risk of subprime mortgage delinquencies.

Morgan Stanley issued subprime residential mortgage-backed securities worth a total of $2.5 billion, according to the SEC.

So far, related litigation and regulatory penalties have cost U.S. banks more than $110 billion, with Bank of America taking the biggest hit, paying $65.5 billion, followed by JPMorgan Chase at $42.4 billion.

Morgan Stanley did not admit to wrongdoing in the settlement.

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