RBS agrees to $5bn settlement with U.S. over sale of toxic mortgages

Javier Stokes
May 11, 2018

Royal Bank of Scotland said Thursday it has agreed to pay $4.9 billion (£3.6bn) to settle USA claims that it misled investors who bought securities backed by risky mortgages in the run up to the 2008 financial crisis. The British government insisted that the USA claims had to be resolved before it could sell its 72 percent stake in RBS. The Edinburgh-based lender expects to reach a final agreement with the USA over an investigation into the packaging and sale of mortgage-backed securities in coming weeks.

"The number is a firm number", Stevenson said. The group has already booked $3.46 billion for the settlement, noting that it would take a $1.44-billion charge in its second-quarter results. The Justice Department originally wanted a fine of about US$5 billion, but the British lender refused to pay any more than US$2 billion, Bloomberg had reported in 2016.

The latest settlement follows a £5.5bn (£4.1bn) United States penalty agreed with the Federal Housing Finance Agency last July.

The UK government spent £45.5 billion (S$82.7 billion) rescuing the Edinburgh-based firm, then the biggest bank bailout in the world.

Commenting on the agreement, Ross McEwan, chief executive of RBS, described the settlement as a "milestone moment" for the bank.

It has also been a major hurdle to the bank's return to private hands, with the government having said the USA mis-selling claims need to be resolved before it can start to sell its shares in the lender.

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The proposed settlement is still subject to both sides entering a legally binding agreement, RBS said. He described a new policy in which US prosecutors will work closely with their counterparts in other enforcement agencies to coordinate penalties, with the Justice Department adjusting its assessments to account for other fines.

The letter said the bank had only received one such claim so far, but expected it could face some very large claims once the claims process gets further underway.

"We need to consider the impact on innocent employees, customers and investors who seek to resolve problems and move on", he said.

McEwan had hoped for a settlement before the end of 2017, but changes at the DOJ following the inauguration of U.S. President Donald Trump saw negotiations slip back.

RBS however appears to have benefited from settling under the Trump administration, which has been less hostile towards the banking sector than that of his predecessor Barack Obama.

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