U.S. financial giant Morgan Stanley agreed to pay a $3.2 billion slap-on-the-wrist fine over its deceptive banking practices that contributed to the subprime mortgage meltdown and subsequent 2008 financial crisis, the New York attorney general's office announced Thursday.
Under the deal, negotiated by a state and federal working group appointed by President Barack Obama in 2012, Morgan Stanley admits that it repeatedly lied about the quality and value of residential mortgage-backed securities it sold to investors, reported the Associated Press. The bank knew that the securities had "material defects" and that some loans were "underwater," meaning that the loan was larger than the value of the house.
The New York attorney general's office said investigators uncovered an email from May 2006 showing that "the head of Morgan Stanley's team tasked with doing due diligence on 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.'"
The attorney general's office added: "In another email on Nov. 21, 2006, a member of the Morgan Stanley due diligence team forwarded a list of questionable loans, seeking review and approval to purchase them, and adding 'I assume you will want to do your 'magic' on this one?'"
Morgan Stanley initially agreed to pay $2.6 billion last year, but the new deal includes an additional $550 million for New York state - $400 million in mortgage reductions for struggling homeowners and other consumer relief, along with $150 million in cash for the state.
"Today's agreement is another victory in our efforts to help New Yorkers rebuild in the wake of the financial devastation caused by major banks," said New York Attorney General Eric Schneiderman in a statement released Thursday. "Today's settlement will deliver resources to the families and communities that need them the most, while helping New Yorkers avoid foreclosure, and spurring the construction of more affordable housing units statewide."
Schneiderman said that the working group has secured about $64 billion in settlements, including $16.65 billion from Bank of America, $13 billion from JPMorgan Chase and $7 billion from Citigroup, according to International Business Times.
"Our work is far from over," said Schneiderman, who co-chairs the group. "Communities across the country have not gotten back to where they were before the crash."
No one involved with the deceptive practices has been charged with a crime or served jail time.
