Royal Bank of Scotland Group PLC (LON:RBS) has confirmed it will take further £3.1bn (US$3.8bn) provision in relation to various investigations and litigation matters regarding its issuance and underwriting of US residential mortgage-backed securities (RMBS).
The taxpayer-owned bank said this charge, to be taken in its fourth-quarter results, takes the total aggregate of such provisions to £6.7bn (US$8.3bn).
RBS said it continues to cooperate with the US Department of Justice (DoJ) in its civil and criminal investigations of RMBS matters, and RBS considers it appropriate to take this provision now in relation to those investigations as well as other RMBS litigation matters.
It added that the duration and outcome of these investigations and other RMBS litigation matters remain uncertain, including in respect of whether settlements for all or any of such matters may be reached.
RBS emphasised that further substantial additional provisions and costs may be recognised and, depending on the final outcome, other adverse consequences may occur.
Ross McEwan, RBS's chief executive officer, said: "Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees."
RBS will announce its full-year 2016 results on February 24.
Not as bad as feared? ...
Neil Wilson, senior market analyst at ETX Capital, said: “On the face of it this is yet more bad news from RBS.”
“But”, he added, “RBS shares are up a touch today, perhaps as investors decide that things might not be as bad as feared (the fines coming its way could be less than the $12bn expected), and that things can now only get better.”
In early trading, RBS shares were up over 1.5%, or 3.6p at 231.1p.
Gary Greenwood, analyst at Shore Capital, said: “It is no surprise to see the group set aside another substantial provision in this respect as management had already guided that this would be a likely outcome.
“However, it does not draw a line under the matter and, until there is a firm conclusion of the DOJ's investigation, significant uncertainty remains as to the ultimate cost.”
In a note to clients, he added: “All this has really done is take part of a cost that should already have been reflected in the stock valuation and place it on the balance sheet. As such, the investment case remains unchanged, in our view.”
Past misconduct …
RBS is in the middle of a restructuring, which includes asset sales, job cuts and multi-billion dollar charges to settle litigation and pay regulatory fines for past misconduct.
Guesses on the final RMBS litigation settlement bill from the US vary widely from US$12bn-US$20bn.
The head of UK Financial Investments, which looks after the taxpayer's 72% stake in the bank, told MPs last year that it could be anything up to US$12bn.
It remains to be seen whether newly-inaugurated US president Donald Trump takes a tougher or more lenient approach to misconduct by European banks.
Other action …
RBS’s peer Barclays PLC (LON:BARC) recently walked away from negotiations, preferring to fight the top US lawman in court, rather than pay what the bank considered a fine that was disproportionate to its involvement in the subprime market.
Last month, the DoJ sued Barclays and two of its executives over alleged fraud issuing mortgage-backed securities during the 2008-2009 financial crisis.
Meanwhile, European giants Deutsche Bank and Credit Suisse reached a US$7.2bn and US$5.28bn settlement respectively as part of the same probe last month.
-- Adds broker comment, share price --