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Royal Bank of Scotland agrees £4.2bn settlement over ‘mis-selling’ in US

Chief executive Ross McEwan said it was “an important step forward in resolving one of the most significant legacy matters facing RBS”.

Royal Bank of Scotland has agreed a 5.5 billion US dollar (£4.2 billion) settlement over mis-selling claims in the US as it looks to move on from legacy woes.

The taxpayer-backed lender agreed the deal with the Federal Housing Finance Agency (FHFA), seeing it take a major step towards drawing a line under the mis-selling claims from the run-up to the financial crisis.

While the bank has agreed to pay £4.2 billion in total, 754 million US dollars (£581 million) of the settlement will be paid under indemnification agreements with third parties.

RBS chief executive Ross McEwan 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.

The agreement with the FHFA sees RBS resolve one of the two major long-awaited settlements with US regulators over its selling practices of toxic mortgage-backed securities.

It is still to agree a settlement with the Department of Justice, as well other smaller claims related to mortgage-backed security mis-selling.

The expected fines have weighed heavy on the bank amid fears over the size of the settlements.

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. It had already put £6.6 billion by to cover US mis-selling claims.

RBS finance chief Ewen Stevenson said the FHFA settlement was “in the region of what we’d been anticipating”.

Shares lifted more than 1% after the settlement was announced.

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RBS chief executive Ross McEwan (Andrew Milligan/PA)

RBS said it had not started discussions with the Department of Justice (DoJ).

Mr McEwan cautioned that 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 against the DoJ,” he said.

He added it is “never a great experience for a chief executive to be writing such a large cheque”.

The settlement came after it reached a deal with thousands of investors last month to avoid a high-profile court trial.

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(Philip Toscano/PA)

Investors were planning to take RBS to court amid claims they were left with hefty losses following a £12 billion cash-call, with the lender’s shares collapsing soon after when it was bailed out by the Government.

Joseph Dickerson, an analyst at Jefferies, said the net US mis-selling settlement was around 1 billion US dollars (£776 million) higher than he expected.

He predicted that 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.”

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