Morgan Stanley to pay $3.2B for role in ’08 crisis

ALBANY, N.Y. — Morgan Stanley will pay $3.2 billion in a settlement over bank practices that contributed to the 2008 financial crisis, including misrepresentations about the value of mortgagebacked securities, authorities announced Thursday.

The nationwide settlement, negotiated by the working group appointed by President Barack Obama in 2012, says the bank acknowledges that it increased the acceptable risk levels for mortgage loans pooled and sold to investors without telling them. Loans with material defects were included, packaged into the securities and sold.

“Those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct,” Benjamin Mizer, head of the Justice Department’s Civil Division, said in a statement.

Morgan Stanley said it previously reserved funds for all related amounts. The bank acknowledged an agreement in principle for the federal

settlement of $2.6 billion in a regulatory filing a year ago.

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

The Justice Department said the $2.6 billion federal penalty to resolve claims about the bank’s marketing, sale and issuance of those securities is the largest piece of settlements with the working group that have totaled approximately $5 billion. Illinois will get $22.5 million in the settlements announced Thursday.

“Our work is far from over,” said New York Attorney General Eric Schneiderman, who co-chairs the group. “Communities across the country have not gotten back to where they were before the crash.”

Total settlements so far are about $64 billion, Schneiderman said.

The working group previously reached settlements with Citigroup for $7 billion, JPMorgan Chase & Co. for $13 billion and Bank of America for $16.65 billion.

A settlement with Goldman Sachs is likely in the coming months. The investment bank said last month in a statement that it had agreed to pay the $5.1 billion or so as part of a deal with the U.S. task force, though the terms aren’t final.

Massachusetts Sen. Elizabeth Warren, on her Facebook page, last month denounced the proposed settlement with Goldman Sachs, saying it doesn’t go far enough to make up for billions of dollars in losses to investors.

“Seven years later. No admission of guilt. No individuals are going to jail,” she said in a post dated Jan. 15. “That’s not justice – it’s a white flag of surrender.”

Morgan Stanley reported a fourth-quarter profit of $908 million. It recorded $3.1 billion in legal expenses in 2014 for settlements with state and federal regulators over its role in the housing bubble and subsequent financial crisis.