Morgan Stanley agrees to pay $275m in fines

Bank of America reveals inquiry on subprime loans

NEW YORK — Morgan Stanley said Tuesday it had reached a preliminary agreement with the Securities and Exchange Commission to settle an investigation into the bank’s subprime mortgage business.

Morgan Stanley agreed to pay $275 million in fines to settle the investigation, according to a regulatory filing made late Tuesday. The SEC’s commissioners have not agreed to the settlement yet, and the bank said it had no assurances the deal would be approved.

An SEC spokesman declined to comment.


The bank reached the preliminary agreement on Jan. 30, it said, and would not admit or deny wrongdoing as part of the deal. It said the $275 million payment would be charged to the firm’s 2013 results.

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The SEC has been investigating Morgan Stanley, like many other Wall St. firms, for their practices leading up to the subprime mortgage crisis. The products in question, in Morgan Stanley’s case, are residential mortgage bond products sponsored and underwritten by Morgan Stanley in 2007.

The $275 million would be a combination of giving up profits from the sale of the bonds as well as fines and penalties .

Another institution, Bank of America, revealed it is facing new investigations into its mortgage practices as well as its foreign exchange business.

The bank, which has paid out billions of dollars to settle legal claims resulting from the housing and financial crisis, said in its regulatory filing late Tuesday it is cooperating with government authorities in North America, Europe, and Asia.


The authorities are investigating participants in the foreign exchange markets for their conduct over several years.

Bank of America also said the US Attorney’s office for the Eastern District of New York is conducting an investigation concerning its compliance with the requirements of the Federal Housing Administration’s Direct Endorsement Program and the quality of mortgages it passed along to the government-backed mortgage agencies Fannie Mae and Freddie Mac.

The bank increased its estimate of possible losses from legal actions against it from $5.1 billion to $6.1 billion for the end of the third quarter.

Such action will also likely be taken at Morgan Stanley. In the regulatory filing, the company said its future litigation expenses will be elevated for the foreseeable future as it continues to reach settlements with state and federal agencies as well as private investors.

Morgan Stanley paid $1.95 billion in litigation expenses in 2013, more than triple what it paid in 2012.