new york: Morgan Stanley is in talks with the US to resolve an investigation into the bank’s creation and sale of mortgage-backed bonds, the latest in a string of Wall Street cases tied to the 2008 financial crisis, a person familiar with the matter said.
An agreement could be reached within the first few months of 2015, said the person, who asked not to be named because the negotiations are private. The amount of a possible settlement isn’t clear.
A settlement would add Morgan Stanley to a growing list of banks to face federal sanctions over mortgage practices in the run-up to the collapse in housing prices. In August, Bank of America Corp. agreed to pay $16.7bn for misrepresenting the quality of bonds backed by home loans. Citigroup Inc. reached a $7bn deal in July, while JPMorgan Chase & Co. struck a $13bn accord last year.
Morgan Stanley has said for years that it faces government inquiries into how it handled home loans and related investment products.
In a November regulatory filing, the firm said that some cases had reached “advanced stages.” The investigations focus in part on the firm’s due diligence on loans it bought and disclosures to investors.
The Justice Department’s case follows other regulatory actions against Morgan Stanley over similar allegations. The firm in February agreed to pay $1.25 billion after the Federal Housing Finance Agency accused it of selling faulty mortgage- backed securities to Fannie Mae and Freddie Mac.
About six months later, Morgan Stanley reached a $275m settlement with the Securities and Exchange Commission over claims it understated the number of delinquent loans backing subprime mortgage securities.
In its November disclosure, Morgan Stanley said the Illinois Attorney General’s Office has demanded $88m, claiming the firm misled pension funds. Morgan Stanley said in the filing it disagrees with the office’s claims.
Mary Claire Delaney, a spokeswoman for New York-based Morgan Stanley, and Patrick Rodenbush, a Justice Department spokesman, declined to comment.
The negotiations with the Justice Department were reported earlier by the New York Times. The department has been examining the relationship between the bank and New Century Financial Corp., a subprime lender that collapsed in the housing bust, according to the newspaper. bloomberg
