RBS agrees £4.2bn US settlement as 'heavy price' paid for past mistakes
Royal Bank of Scotland has said it paid a "heavy price" for past mistakes as it agreed a £4.2 billion US settlement over claims it mis-sold toxic mortgage bonds in the run-up to the financial crisis.
The taxpayer-backed lender struck the deal with the Federal Housing Finance Agency (FHFA), seeing it resolve one of two major US investigations into mis-selling allegations.
It is yet to reach a settlement with the Department of Justice (DoJ), which is expected later in the year.
Ross McEwan, chief executive of RBS, said it was " an important step forward in resolving one of the most significant legacy matters facing RBS".
"This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions," he added.
While the bank will pay 5.5 billion US dollars (£4.2 billion) in total to the FHFA, 754 million US dollars (£581 million) will be repaid to RBS by other parties under a so-called indemnification agreement.
RBS said the net £3.65 billion cost of the settlement with the FHFA would be largely covered by funds set aside.
But it will take a 196 million US dollar (£151 million) charge in its second quarter results for the deal.
RBS had already put by £6.6 billion to cover US mis-selling claims.
The expected US settlements have weighed heavily on the bank amid fears over the size of the deals, with other banks having forked out mammoth sums.
RBS is one of the last to settle with US regulators, following rivals such as Deutsche Bank, which agreed to pay 7.2 billion US dollars (£5.6 billion).
It has also been a major hurdle to the bank's return to private hands, with the Government having said the US mis-selling claims need to be resolved before it can start to sell its shares in the lender.
RBS finance chief Ewen Stevenson said the FHFA settlement was "in the region of what we'd been anticipating", but analysts said it was higher than forecast in the City.
RBS said it had not yet started discussions with the DoJ.
Mr McEwan cautioned the bank may need to set aside more cash to settle outstanding claims.
"We have always been very open about the fact there could be further provisions," he said.
Analyst Joseph Dickerson, at Jefferies, said the US mis-selling settlement was around 1 billion US dollars (£776 million) higher than he had expected.
He predicts RBS will need to set aside another 2.5 billion US dollars (£1.9 billion) for the DoJ deal in the fourth quarter.
He said: "This settlement clears a major hurdle for the bank, though there remain further significant RMBS (mortgage-backed security) related costs, such as the DoJ."
Mr McEwan is seeking to draw a line under legacy issues for RBS, which is still 71% owned by the Government following its £45.5 billion bailout at the height of the financial crisis.
RBS last month reached a deal with thousands of UK investors to avoid a high-profile court trial.
Investors were planning to take RBS to court amid claims they were left nursing hefty losses following a £12 billion cash-call, with the lender's shares collapsing soon after as a result of its part-nationalisation.