Morgan Stanley Settles MBS Lawsuit; Agrees to Pay $225M

Yet another Wall Street bank – Morgan Stanley MS – has settled a lawsuit pertaining to sale of mortgage-backed securities (“MBS”). The company will pay $225 million to the credit union regulator, the National Credit Union Administration (“NCUA”), for resolving allegations related to the sale of faulty MBS to five corporate credit unions.

Also, as part of the settlement deal, the NCUA has agreed to dismiss the pending cases against Morgan Stanley in federal district courts of New York and Kansas. Notably, the company did not admit to any wrongdoings.

The cases, filed in 2013, alleged that corporate credit unions – U.S. Central Federal Credit Union, Western Corporate Federal Credit Union, Members United Corporate Federal Credit Union, and Southwest Corporate Federal Credit Union – collapsed during the 2008 financial crisis as a result of purchasing toxic MBS.

The NCUA had filed lawsuits against 10 major banks over their sale of MBS worth $2.4 billion. Notably, the regulator has already settled the case with Bank of America Corp BAC, Barclays PLC BCS, Citigroup Inc. and JPMorgan Chase & Co. JPM, among others. Therefore, the total amount recouped (including that from Morgan Stanley) stands at nearly $2.43 billion.

Nonetheless, cases against banks including Credit Suisse Group AG, The Goldman Sachs Group Inc. and UBS Group AG are still being pursued by the regulator in the federal courts of New York, Kansas and California. Debbie Matz, the NCUA Board Chairman, stated, “NCUA continues to pursue recoveries on behalf of the corporate credit unions against the financial firms we maintain contributed to the corporates' losses.”

For Morgan Stanley, resolution of the above-mentioned case is a step in the right direction. The company has been trying to move past its legal headwinds and focus on improving profitability for quite some time now.

Currently, Morgan Stanley holds a Zacks Rank #5 (Strong Sell).

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