Belfast Telegraph

RBS pays 'heavy price' for past errors with £4bn US settlements

By Holly Williams

Ulster Bank parent Royal Bank of Scotland has said it paid a 'heavy price' for past mistakes as it agreed a £4.2bn US resolution 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 settle 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 price paid for its pursuit of global ambitions," he added.

While the bank will pay $5.5bn (£4.2bn) in total to the FHFA, $754m (£581m) will be repaid to RBS by other parties under a so-called indemnification agreement.

RBS said the net £3.65bn cost of the settlement with the FHFA would be largely covered by funds set aside. But it will take a $196m (£151m) charge in its second quarter results. RBS had put by £6.6bn 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 $7.2bn (£5.6bn). 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 talks 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 $1bn (£776m) higher than expected. He predicts RBS will need another $2.5bn (£1.9bn) for the DoJ deal.

Belfast Telegraph