BANK SPANK
Morgan Stanley coughs up $3B for meltdown
MORGAN STANLEY can bank on this deal being sweet.
In what amounted to a slap on the wrist, the financial giant agreed Thursday to pay $3.2 billion for its role in the 2008 financial crisis.
The settlement brokered by the Justice Department includes an admission by the bank, headed at the time by CEO John Mack, that it misled investors about the quality of residential mortgage backed securities, which are bundled mortgage loans.
As part of the deal, $550 million is going to New York, state Attorney General Eric Schneiderman announced Thursday.
In a May 31, 2006, email, the head of Morgan Stanley’s team tasked with assessing the value of properties underlying the mortgage loans asked a colleague, “Please do not mention the ‘slightly higher risk tolerance’ in these communications. We are running under the radar and do not want to document these types of things.”
In a Nov. 21, 2006, email, a member of the Morgan Stanley due diligence team forwarded a list of sketchy loans to a supervisor and asked for approval to purchase them, adding, “I assume you will want to do your ‘magic’ on this one?”
When the housing bubble burst in the leadup to the 2008 financial crisis, those securities became toxic and the global economic system ground to a halt.
Similar deals have been reached with other big banks. JPMorgan Chase paid $13 billion, Bank of America paid $16.65 billion and Citigroup paid $7 billion.
The settlement figures are a reflection of the number of securities the banks sold to investors.
The relief for the Empire State includes $400 million for affordable rental housing, community purchases of distressed properties, mortgage principal reduction and other measures, according to Schneiderman’s office, which conducted the investigation with the Justice Department.
“This does represent a significant milestone. . . . Our focus in this area really relates to the horror done, damage done by banks including Morgan Stanley,” Schneiderman said, noting the bank sold “bad mortgage backed securities they knew or should’ve known were going to fail.”
Schneiderman said the bank’s tactics “drained trillions of dollars of wealth from homeowners.”
The deal does not guarantee Morgan Stanley officials will avoid criminal charges, though Manhattan U.S. Attorney Preet Bharara has said he has been unable to build cases against Wall Street execs for the financial crisis.
“We are pleased to have finalized these settlements involving legacy residential mortgagebacked securities matters,” said Morgan Stanley spokesman
Mark Lake.