Morgan Stanley has agreed to settle claims regarding the sale of toxic mortgage-backed securities for US$ 63 million last Tuesday.
Reuters reports that Morgan Stanley sold toxic mortgage-backed securities to banks that eventually failed. As of last Tuesday, the Federal Deposit Insurance Corp. (FDIC) confirmed that Morgan Stanley has agreed to pay US$ 63 million worth of claims arising from sale of said securities.
This is the latest step by the Wall Street financial institution to resolve US government claims arising from the sale of mortgage bonds before the 2008 financial crisis. It has reached an agreement in principle with the Justice US Department to pay US$ 2.6 billion as part of a settlement over mortgage bonds.
This latest settlement followed an earlier one which Morgan Stanley agreed to fork over US$ 24 million stemming from mortgage-backed securities sold to a fourth failed bank, the Franklin Bank of Houston.
The FDIC, who initiated the lawsuits and has filed a total of 19, said that Morgan Stanley's settlement was coordinated with the Justice Department with a total recovery of US$ 86.95 million.
According to Bloomberg Business, the settlement does not mean an admission of guilt or evidence of liability from Morgan Stanley and the money will cover the losses the smaller banks incurred in their failures.
The lawsuit by the FDIC was for Morgan Stanley's take over of three banks that had failed following the financial crisis in 2008. The FDIC accused the financial institution of violating laws in the sale of 14 residential-backed securities to banks in Alabama, Nevada and Colorado.
The Wall Street Journal has identified the three banks in question as the Colonial Bank of Montgomery, Alabama; Security Savings Bank of Henderson, Nevada; and United Western Bank of Denver, Colorado.
These 3 banks were sold specific kinds of bonds which are known as Residential Mortgage Backed Securities or RMBS. These bonds are usually backed by home mortgages.
As of press time, Morgan Stanley has declined to comment on their US$ 63 million settlement of the mortgage-bond suit.
