The bank said it had reached a preliminary agreement with the Justice Department today.
Morgan Stanley, one of two remaining large independent investment banks, said today that it had reached a preliminary $2.6 billion settlement with the Justice Department over its dealings with mortgage-backed securities before the financial crisis.
The company said in a filing today that the civil division of the Justice Department and the U.S. Attorney for the Northern District of California had intended to bring civil charges against the bank, and it has increased its reserves for legal losses by $2.8 billion. The bank said that while an agreement had been reached, "there can be no assurance that the Company and the Civil Division will agree on the final documentation of the settlement."
Morgan Stanley is the latest bank to shell out for a large settlement to resolve a Justice Department civil investigation of its pre-financial crisis creation and marketing of mortgage-backed securities. The bundles of home loans packaged into bonds and sold to investors were central to the financial meltdown and recession that followed. Bank of America paid $16.65 billion to settle with the Justice Department and other regulators, JPMorgan Chase paid $13 billion, and Citigroup paid $7 billion.
The Wall Street Journal reported earlier this week that Goldman Sachs was "inching closer to resolving U.S. claims" that it had "misled investors in mortgage bonds that plummeted in value during the financial crisis."
Goldman said in a regulatory filing that it had raised its estimate for legal losses from $2.5 billion to $3 billion. Goldman said in the filing that the U.S. Attorney for the Eastern District of California had sent the bank a letter "stating in connection with potentially bringing a civil action that it had preliminarily concluded that the firm had violated federal law in connection with its underwriting, securitization and sale of residential mortgage-backed securities."
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