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RBS reaches US$5.5bn settlement with US regulators over mortgage mis-selling scandal

Last updated: 16:00 12 Jul 2017 BST, First published: 14:58 12 Jul 2017 BST

RBS
RBS has been posting annual losses since its 2008 bailout

Royal Bank of Scotland Group plc (LON:RBS) has agreed a US$5.5bn settlement with US regulators over the mis-selling of residential mortgage-backed securities.

The bank’s chief executive, Ross McEwan, said the settlement with the US Federal Housing Finance Agency (FHFA) was a “stark reminder” of what happened to RBS before the financial crisis and the “heavy price paid for its pursuit of global ambitions”.

"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,” he said in a statement.

The penalty with the FHFA will cost RBS US$4.7bn since US$754mln will be reimbursed to the bank over indemnification agreements with third parties.

RBS is also facing a fine from the US Department of Justice, with a settlement expected later this year.

Earlier this year the bank set aside a provision of US$8.3bn to settle cases related to its role in the mis-selling of risky mortgage products in the US in the lead up to the financial crisis. 

RBS said an incremental charge of US$196mln will be recorded in its second quarter results in August.

The bank is one of 17 financial institutions to have settled with the FHFA over residential mortgage-backed securities in the US.

RBS continues to tackle fines for misconduct 

Fines for historical misconduct have meant the lender has been unable to turn a full year profit since its £45bn government bailout in 2008.

The government still owns 72% of RBS and Chancellor Philip Hammond has warned that the shares may be sold at a loss to the taxpayer.

Shares in RBS seemed to be unaffected by the news, rising 0.19% to 256.90p in afternoon trading. 

Laith Khalaf, senior analyst at Hargreaves Lansdown said: "Ten years on from the financial crisis, RBS and the UK taxpayer are still counting the cost of the bank’s former misdemeanours. 

"The coming year isn’t going to be pretty for the bank, as it works through the costs of outstanding US litigation for mortgage-backed securities sold in the run up to the credit crunch." 

EU reviews RBS's proposed fund for challenger banks

The bank also has to resolve European competition issues, Khalaf said, referring to the company's plans to create a £750mln fund for the small business lending market.

The European Commission is reviewing the proposal, which would come instead of RBS divesting from Williams & Glyn under rules for receiving a bailout.

But Khalaf said "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".

"RBS has already braced itself for this and other costs by setting aside £3bn, but until the precise figure is known, shareholders are exposed to a potentially nasty surprise."

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