Royal Bank of Scot­land in $5.5B set­tle­ment over US mort­gages

Kuwait Times - - BUSINESS -

Royal Bank of Scot­land said yes­ter­day it has reached a $5.5 bil­lion set­tle­ment in the United States over the mis-sell­ing of mort­gage-backed se­cu­ri­ties be­fore the fi­nan­cial cri­sis - a key mile­stone in the in­sti­tu­tion’s ef­forts to put its past sins be­hind it.

The deal with the Fed­eral Hous­ing Fi­nance Agency - the con­ser­va­tor of Fan­nie Mae and Fred­die Mac - re­solves claims re­gard­ing the is­suance and un­der­writ­ing of ap­prox­i­mately $32 bil­lion (25 bil­lion pounds) of res­i­den­tial mort­gage-backed se­cu­ri­ties. The bank must still re­solve out­stand­ing civil and crim­i­nal claims with the Depart­ment of Jus­tice.

RBS CEO Ross McE­wan char­ac­ter­ized the set­tle­ment as a “stark re­minder” of the heavy price Bri­tish tax­payer and the bank it­self paid for the global am­bi­tions of the in­sti­tu­tion un­der dis­graced for­mer boss Fred Good­win. “It’s never a great ex­pe­ri­ence for a CEO to ef­fec­tively be writ­ing such a large check - 4.2 bil­lion pounds,” McE­wan said on a con­fer­ence call with re­porters. Nonethe­less, he said that the bank was “nearly through” with is­sues that have dogged ef­forts to re­turn to profit.

McE­wan has been at pains in re­cent months to in­sist RBS has put its legacy is­sues be­hind it. The bank was bailed out at the height of the fi­nan­cial cri­sis and is still owned by the Bri­tish tax­payer. The set­tle­ment fol­lows a deal last month with thou­sands of in­vestors who sued amid al­le­ga­tions they were mis­led into buy­ing shares in the Ed­in­burgh-based bank in a 12 bil­lion pound cash-call. The bank’s shares col­lapsed soon after it was bailed out by the gov­ern­ment.

Un­der the set­tle­ment Wed­nes­day, RBS will pay $5.5 bil­lion, but be re­im­bursed for $754 mil­lion un­der in­dem­ni­fi­ca­tion agree­ments with third par­ties. The cost is largely cov­ered by money it had al­ready set aside in an­tic­i­pa­tion of a set­tle­ment. RBS had al­ready put $8.3 bil­lion to cover U.S. mis-sell­ing claims, from which the Wed­nes­day set­tle­ment will be de­ducted. It may need to take fur­ther pro­vi­sion for the civil and crim­i­nal claims by the US jus­tice of­fi­cials. Joseph Dick­er­son, an an­a­lyst at Jef­feries, pre­dicted RBS will need to set aside an­other $2.5 bil­lion for the Depart­ment of Jus­tice deal in the fourth quar­ter. — AP

LON­DON: This is a Thurs­day, Jan 26, 2017 file photo of Peo­ple as they walk past one of the head­quar­ters build­ings show­ing the logo of the Royal Bank of Scot­land. — AP

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