By Avaneesh Pandey -
Morgan Stanley (NYSE:MS) is pictured on the company's world headquarters in the Manhattan borough of New York City, January 20, 2015." title="© Reuters/Mike Segar. The corporate logo of financial firm Morgan Stanley is pictured on the company's world headquarters in the Manhattan borough of New York City, January 20, 2015." rel="external-image">
American investment bank Morgan Stanley said on Wednesday that it had reached a $2.6 billion settlement with the U.S. Department of Justice over claims stemming from the sale of subprime mortgage-backed securities in the run-up to the 2008 financial crisis, according to media reports. The settlement adds to the $130 billion U.S. banks have already shelled out over their role in the worst economic crisis in decades.
The bank said, late on Wednesday, that the $2.6 billion will go to “resolve certain claims” over its sale of residential mortgage-backed securities. On Wednesday, the bank also said that it had increased its legal reserves related to subprime mortgage issues by about $2.8 billion, according to media reports.
The settlement is likely to reduce the bank’s projected profits by 46 percent --cutting its income by $2.7 billion -- according to media reports. The $2.6 billion settlement comes in the form of a cash penalty, The Wall Street Journal reported, citing people familiar with the matter.
Morgan Stanley is the latest bank, after Citigroup (NYSE:C), JPMorgan Chase and Bank of America (NYSE:BAC), to pay fines to resolve claims over the sale of financial instruments. The banks were accused of deceiving investors by misrepresenting the quality of home loans, which were packaged into an asset-backed security known as Collateralized Debt Obligation (CDO).