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RBS to pay US$4.9bn to US DoJ to settle mortgage-backed securities mis-selling claims

The penalty is the largest ever imposed on a bank for misconduct leading up to the financial crisis, according to the US Department of Justice

RBS sign
The FTSE 100-listed UK lender announced in May that it had reached a settlement in principle with the DoJ

Royal Bank of Scotland Group PLC (LON:RBS) is to pay US$4.9bn to settle US claims that it misled investors over the sale of residential mortgage-backed securities between 2005 and 2008, the US Department of Justice (DoJ) said on Tuesday.

The penalty is the largest ever imposed on a bank for misconduct leading up to the financial crisis, the DoJ added.

READ: RBS shares rise as it looks to pay first dividend since financial crisis, posts first-half profit

The FTSE 100-listed UK lender announced in May that it had reached a settlement in principle with the DoJ.

RBS disputed the allegations and did not admit wrongdoing, the DoJ said, although the bank said in a statement it was happy to move on.

In a statement on the DoJ’s website, Andrew E. Lelling, US Attorney for the District of Massachusetts said: “Despite assurances by RBS to its investors, RBS’s deals were backed by mortgage loans with a high risk of default.

“Our settlement today makes clear that institutions like RBS cannot evade responsibility for the damage caused by their illicit conduct, and it serves as a reminder that the Justice Department, and this Office, will hold those who engage in fraudulent conduct accountable.”

In a statement released after the London close on Tuesday, Ross McEwan, RBS’s chief executive, said: “There is no place for the sort of unacceptable behaviour alleged by the DoJ at the bank we are building today."

Dividend resumption confirmed

In conjunction with the settlement, the bank also confirmed it would be paying out an interim dividend of 2p per share on October 12 to shareholders.

The payout is the lender’s first since its near-collapse and £45.5bn bailout by the UK taxpayer in 2008.

Tuesday's DoJ announcement marks the latest in a long-running series of massive settlements struck between the US government and global banking giants over conduct leading up to the financial crisis.

On August 1, Wells Fargo & Co. (NYSE:WFC) agreed to pay US$2.09bn to settle similar claims.

By late morning trading, RBS shares had edged 0.2% lower at 241.80p, reversing an earlier tick higher.

Neil Wilson, chief market analyst at Markets.com commented: “The fine was already announced but nevertheless today is an important turning point for RBS as it seeks to build on the strong cash generation it is now delivering.

“Dividends resumed, DoJ case settled, it’s time to rejoice on Bishopsgate. Or is it?”

He added: “RBS has also come bottom of the CMA’s quality of service standings announced today. There is still clearly a lot of work to be done in shaking off the past, but the strong free cash and potential for a rather attractive dividend yield would suggest a more bullish case for RBS.

“Customer service can always be improved, although as previously noted, the process of slashing costs, jobs and branches back to the bone and continued underinvestment in IT could come back to haunt the current management. The government’s selling of stock over the coming months will also act as a residual drag on shares.”

 -- Adds analyst comment, updates share price --

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