May 24, 2018

RBS strikes £3.6bn deal to end United States investigation

11 May 2018, 12:34 | Kenneth Drake

Positive Media Coverage Somewhat Unlikely to Impact Royal Bank of Scotland (NYSE:RBS) Share Price

RBS sign

Royal Bank of Scotland said Thursday it has agreed to pay $4.9 billion (£3.6bn) to settle USA claims that it misled investors who bought securities backed by risky mortgages in the run up to the 2008 financial crisis.

RBS said $3.46bn, £2.5bn, of the proposed civil settlement will be covered by existing provisions and the bank will take a $1.44bn USA dollar hit in its second quarter results.

An RBS deal for under $5 billion would be the first time that a mortgage settlement with the Justice Department was lower than the same bank's penalty to the Federal Housing Finance Agency, according to Bloomberg Intelligence.

"Further details remain to be negotiated, however, before a formal agreement", it said.

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 the last in a line of major banks to pay penalties to the DoJ for their activities ahead of the financial crisis.

In early trading, RBS shares were up 4.8% at 289.4p.

The proposed settlement is subject to the Department of Justice and RBS entering into a legally-binding agreement, and there can be no assurance that the parties will agree on the final terms of any proposed settlement, RBS said.

The settlement could pave the way for the British government to begin selling its stake in RBS again, which now amounts to 71 per cent of the business.

RBS reached a $500 million settlement with NY state in March to resolve charges it misled investors who bought the mortgage-backed bonds.

The absence of the Department of Justice's attentions should make the stake sell easier as the bank can now concentrate on operating its business. Barclays (LSE: BARC.L - news) agreed to a $2bn (£1.4bn) settlement with the DOJ in March.

In analysts report revealed to investors this morning, Shore Capital kept their "Hold" rating on Royal Bank of Scotland Group The PLC (LON:RBS) shares.

Chancellor Philip Hammond said he welcomed the agreement in principle, saying that, when finalised, it would remove a major uncertainty for the United Kingdom taxpayer.

"The settlement also paves the way for a quick return to annual profits after ten years of losses and dividends will once again start flowing".

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. The DOJ settlement could clear the way for the government to offload its stake.

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