Morgan Stanley’s $2.6 Billion Fine Not Enough

 

Morgan Stanley (MS) is now one step closer to closing the chapter on the financial crisis of 2008. In a settlement with the U.S. Department of Justice, the investment banking firm agreed to pay $2.6 billion in fines for its involvement in the sale of toxic mortgage-backed securities. According to the Wall Street Journal, the fines were because Morgan Stanley “deceived investors by misrepresenting the quality of the home loans the firm packaged into bonds.”

The settlement carved a huge piece of the bank’s 2014 earnings, shaving off $1.35 per share, or 46% of total profits. It comes on the back of two settlements last year—one for $1.25 billion with the Federal Housing Finance Agency for “selling faulty mortgage-backed securities to Fannie Mae and Freddie Mac,” and one with the Securities and Exchange Commission for understating “the number of delinquent loans backing subprime mortgages.”

Not quite out of the woods yet

Even though this latest settlement is the largest to date, the bank is expecting another lawsuit from the next regulatory agency in line: New York’s Attorney General. While the big bank has disputed the charges, it also announced it would increase its legal reserves by about $2.8 billion in anticipation of this and possibly yet even more lawsuits.

As I’ve digested the timeline of this whole process, I have to wonder whether enough is enough. And it isn’t just Morgan Stanley, it’s all the big banks. It could be argued that the industry won’t reach a full recovery until it can actually focus on the future rather than waiting to get to the light at the end of the tunnel. It also makes me wonder whether these regulatory agencies are actually interested in bringing justice to the banking industry, or simply trying to get their slice of the pie. Either way, shareholders are still in for a long year.

Passing the first stage of the stress test