zacks.com | March 4, 2015
By Zacks Equity Research
Last month, Morgan Stanley (MS - Analyst Report) disclosed a $2.6 billion settlement with the U.S. Department of Justice (DOJ) to resolve claims concerning the sale of mortgage-backed securities (MBS), indicating the end of a multi-year probe. However, the relief was short lived as the Wall Street giant revealed a potential lawsuit by the New York Attorney General (AG) in its annual filing yesterday.
About the Potential Lawsuit
Per the regulatory filing, New York AG Eric Schneiderman may sue Morgan Stanley under the Martin Act regarding around 30 subprime securitizations. The New York AG’s office, which is part of the RMBS Working Group, revealed its intention to file a complaint against the company on Jan 13 earlier this year.
Morgan Stanley stated its disagreement with the allegations that accuse the company of violating federal law regarding underwriting, securitization and sale of subprime mortgage bonds by misrepresenting or omitting material information.
The negotiations to end probes into the shoddy mortgage practices of the banking giants have been going on for quite some time. Banks including JPMorgan Chase & Co. (JPM - Analyst Report), Bank of America Corp. (BAC - Analyst Report) and Citigroup Inc. (C - Analyst Report) along with Morgan Stanley have been consistently under the DOJ radar for allegedly providing mortgages to ineligible customers and selling MBS to investors without disclosing the associated risks.
The major U.S. banks have already shelled out billions of dollars in settlements, which put considerable pressure on their earnings last year. Though the resolution of such cases will help these companies focus on core enterprises and revive profitability, resurgence of the same will adversely impact the financials as well as reputation of the banks.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
Back to March 2015 Archive
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