Royal Bank of Scotland reaches $5.5bn settlement over US mortgage securities mis-selling

 
William Turvill
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RBS boss Ross McEwan said the settlement is an "important step forward in resolving one of the most significant legacy matters facing RBS" (Source: Getty)

Royal Bank of Scotland today reached a mammoth $5.5bn (£4.2bn) settlement with US regulators over the mis-selling of mortgage securities.

A decade on from the financial crisis, the state-owned lender’s troubles are still not over, with another residential mortgage-backed securities (RMBS) mega fine from the Department of Justice (DoJ) waiting around the corner.

The settlement with the Federal Housing Finance Agency (FHFA) was described by the bank’s chief executive, Ross McEwan, as “an important step forward in resolving one of the most significant legacy matters facing RBS”.

The $5.5bn payout marks the FHFA’s 17th settlement since filing lawsuits against banks in 2011. It accused them of misleading Fannie Mae and Freddie Mac into buying risky mortgage-backed securities in the run-up to the 2008 financial crisis.

Nearly $30bn has now been paid to the FHFA. The RBS settlement is the second largest ever payout to the regulator, behind Bank of America, which agreed a $9.5bn deal in 2014.

“The elephant in the room is the US Department of Justice fine, which is likely to be sizeable, and is subject to a high degree of uncertainty,” Hargreaves Lansdown senior analyst Laith Khalaf said.

He noted that “until the precise figure is known, shareholders are exposed to a potentially nasty surprise”.

However, he added: “RBS has to swallow this medicine in order to return to good health, and this latest settlement represents a major milestone in what has turned out to be a very long journey.”

The FHFA settlement was anticipated – RBS set aside a provision of $8.3bn in January to settle RMBS cases, including $4.55bn relating to this case – and shares in the lender closed just two per cent lower at 251.5p.

“Today’s announcement is an important step forward in resolving one of the most significant legacy matters facing RBS and is further evidence of the determination of the bank's leadership to put our remaining issues behind us,” McEwan said.

The cost to the bank will be $4.75bn, with the rest being reimbursed “under indemnification agreements with third parties”. The lender said that an “incremental charge of $196m will be recorded” in its second quarter figures.

Read more: RBS spends £1bn in bid to avoid High Court trial over 2008 rights issue

A long list of RMBS mega-fines

Bank of America: $16.7bn, settled with DOJ and others in 2014; $9.5bn, settled with FHFA in 2014

JP Morgan: $13bn, settled in 2013, including $4bn to FHFA

Deutsche Bank: $7.2bn, settled with DOJ 2016; $1.9bn settled with FHFA in 2013

Citigroup: $7bn, settled with DOJ in 2014; $250m, settled with FHFA in 2013

Credit Suisse: $5.3bn, settled with DOJ in 2016; $885m, settled with FHFA in 2014

Goldman Sachs: $5.1bn, settled with DOJ in 2016; $3.15bn, agreed with FHFA in 2014

Morgan Stanley: $3.2bn, settled with DOJ and others in 2016; $1.25bn, settled with FHFA in 2014

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