Royal Bank of Scotland has agreed a 4.9 billion US dollar (£3.6 billion) settlement with US regulators over claims it mis-sold toxic mortgage bonds in the run-up to the financial crisis.
The taxpayer-backed lender said the penalty with the US Department of Justice (DoJ) was a “milestone” for the group, ending a long-running probe and paving the way for the Government to relaunch plans to sell its 72% stake in the bank.
RBS said 3.46 billion US dollars (£2.5 billion) of the proposed civil settlement will be covered by existing provisions and the bank will take a 1.44 billion US dollar (£1.1 billion) hit in its second quarter results.
Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issueRBS chief executive Ross McEwan
But the settlement still needs to be finalised, with further details set to be negotiated.
RBS chief executive Ross McEwan said: “Today’s announcement is a milestone moment for the bank.
“Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis.”
The latest settlement follows a 5.5 billion US dollars (£4.1 billion) US penalty agreed with the Federal Housing Finance Agency last July.
The 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 rival Barclays, which agreed a two billion US dollar (£1.5 billion) agreement in March with the DoJ and Deutsche Bank, which struck a 7.2 billion US dollars (£5.3 billion) settlement at the end of 2016.
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.
Shares in RBS surged 4% after the overnight settlement announcement.
Mr McEwan said the deal “makes it easier for the Government to have a clean bank to sell”.
He added: “This item hanging over a stock of our nature makes it more difficult to sell.
“This will help the Government to sell a cleaner bank.”
But he stressed the decision on how and when to sell down the stake is “definitely in their (the Government’s) hands”.
Chancellor Philip Hammond said: “I welcome the agreement in principle to resolve this long-standing issue which will, when finalised, remove a major uncertainty for the UK taxpayer.
“It marks another significant milestone in RBS’s work to resolve its legacy issues, and will help pave the way to a sale of taxpayer-owned shares.”
While RBS still has to agree the final terms of the DoJ settlement, Mr McEwan said the size of the penalty will not change.
He also revealed there is still a “handful” of smaller litigation cases connected to the sale of mortgage-backed securities in the US which are still under discussion with state attorney generals, though these are “not substantial”.
The bank also hopes to resume paying dividends at some stage, however it still needs to pass upcoming bank stress tests later in the year and see performance continue to improve.
Mr McEwan said: “It’s been 10 years since this bank paid a dividend and our objective is to get it back into a strong position so it can do so.
“We’ll have conversations with the regulator in the next month or so.”
But he said the bank is “getting back into very good shape”, following a strong first quarter and after it booked a bottom-line annual profit for the first time
in a decade earlier this year.
Neil Wilson, chief market analyst at Markets.com , said: “It’s a happy day for RBS, with the DoJ settlement coming in well below what we had feared.
“Of the 4.9 billion US dollar fine, around 3.5 billion US dollars has already been provided for so the impact on future earnings appears to be at the very low end of expectations. The settlement could easily have been twice as much.
“This removes the last great barrier to the Government selling off its stake and we would envisage that the Chancellor will expedite the disposal of its shareholding.”