Royal Bank of Scotland tentatively settles US claims for $4.9B

Posted May 11, 2018

In a statement, the FTSE 100-listed lender - which was rescued by the United Kingdom taxpayer after the 2008 crisis - said that US$3.46bn of the proposed civil settlement will be covered by existing provisions and it will take a US$1.44bn incremental charge in 2018's second quarter to cover the rest.

The bank past year settled a similar case with the U.S. Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, for $5.5 billion.

When the bank reported its first profit in a decade in February 2018, the extent of the US Department of Justice's punishment was still unknown hence its share price dropped at the time.

The RBS deal isn't final, of course, and negotiations can shift at the last minute.

Shares in RBS jumped 4.5 per cent to 288.5 pence in early deals on London's benchmark FTSE 100 index, which was up 0.2 per cent overall.

RBS reached a $500 million settlement with NY state in March to resolve charges it misled investors who bought the mortgage-backed bonds.

The settlement could pave the way for the British government to begin selling its stake in RBS again, which now amounts to 71 per cent of the business.

This meant that the United Kingdom government was unable to sell of any of its shares in the company.

The British government announced in November that it planned to sell off £3 billion ($4.07 billion) worth of RBS shares in the 2018-2019 fiscal year and it looks as if those plans will now go ahead.

But McEwan stressed that the timing of selling the stake is in the government's hands.

Chancellor Philip Hammond has signalled his intention to sell down the government's stake in RBS which is still around 70%. Under the terms of the deal, the bailed-out lender has agreed to pay a civil monetary cash penalty of $4.9 billion (£3.6 billion).

RBS has already paid mortgage-related penalties of $5.5 billion to the FHFA, $1.25 billion to the National Credit Union Administration, $500 million to the NY attorney general's office and $150 million to the Securities and Exchange Commission. Ongoing litigation meant the bank had been unable to pay dividends to shareholders and prevented increases in its share price.

The settlement with the Department of Justice (DoJ) still needs to be finalised, with further details to be negotiated.

Stein, the Bloomberg Intelligence analyst, said that "RBS's billions in payments to other agencies and states no doubt played a role in its less-than-expected DoJ settlement".