RBS (Royal Bank of Scotland)’s share price jumps as it agrees to pay $4.9bn to the US Department of Justice to settle mortgage mis-selling case
Royal Bank of Scotland (RBS) announced today that it has finally agreed to settle a mortgage mis-selling scandal by paying the US Department of Justice (DoJ) $4.9bn (£3.6bn).
The agreement of the civil, rather than criminal, penalty will finally allow RBS to move forward and potentially resume paying a dividend for the first time since its £45.5bn taxpayer bailout during the financial crisis.
This should also pave the way for the government, which still owns a 71 per cent majority of RBS, to begin selling down its stake. The bank’s share price jumped by more than four per cent on the news.
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“Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer,” said the bank’s chief executive Ross McEwan.
“Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis.”
UK chancellor Philip Hammond promised in last year’s Budget to sell up to £3bn worth of RBS shares by 2019, but had been reluctant to do so with the unknown fine hanging over the bank.
“I welcome the agreement in principle to resolve this long-standing issue which will, when finalised, remove a major uncertainty for the UK taxpayer,” he said this morning.
“It marks another significant milestone in RBS’s work to resolve its legacy issues, and will help pave the way to a sale of taxpayer-owned shares.”
RBS had previously set aside roughly $3.5bn for the fine, but many analysts had feared it could be even larger than the $4.9bn provisionally agreed today.
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The proposed settlement now depends on the DoJ and RBS entering into a legally binding agreement.
RBS’s tangible net asset value per share will be reduced by 9p after paying the hefty sum. Its CET1 ratio, a measure of how much capital the bank has set aside to deal with a financial crisis, would be reduced by 50 basis points (0.5 per cent) to 15.1 per cent – still well above its target of 14 per cent.
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