Lower-than-expected US fine lifts cloud over RBS’s future

The share price of Royal Bank of Scotland rose as much as 6% on Thursday after it secured a far lower than expected settlement with US authorities, paving the way for a long-awaited return of cash to British taxpayers who provided support in the 2008 financial crisis.

The $4.9bn fine resolves a US department of justice investigation into the bank’s sale of mis-priced mortgage-backed securities before the financial crisis and clears one of the most debilitating hangovers for the bank from that era.

“It’s very humbling to have to announce a settlement of this magnitude,” said bank finance director Ewen Stevenson.

While the agreement is only in principle, its arrival clears the way for taxpayer-backed RBS to restore its dividend and for the government to start selling down its 70% stake in the bank.

RBS executives said that while it would take a few weeks to finish the paperwork, the total penalty was unlikely to increase. Analysts had estimated the department of justice could impose a fine of up to $12bn. “The number is a firm number,” Stevenson said.

RBS said it would be able to cover the bulk of the penalty out of existing provisions alongside a $1.44bn charge it will take in the second quarter of 2018.

“This marks a watershed for RBS — for as long as this investigation cast a pall over earnings and forecasts there was nowhere for investors to really go,” said Neil Wilson, chief analyst for Markets.com.

The department previously settled with banks including Citigroup, Deutsche Bank, JPMorgan Chase, Credit Suisse, Morgan Stanley, Goldman Sachs, Bank of America and Barclays for a total of $60bn.

Bank of America paid the highest sum of $16.7bn, while Barclays, which settled in March, paid the least at $2bn.

Once the world’s largest bank by assets, RBS was one of the biggest casualties of the financial crisis, which crippled credit, stock and housing markets and upended the global economy. It narrowly avoided insolvency in 2008 after the government agreed a £45bn bailout, just six months after the bank raised £12bn of emergency cash from shareholders.

CE Ross McEwan’s predecessor, Stephen Hester, said he had texted McEwan on Thursday to congratulate his team.

“That’s the last really big milestone before the bank can be seen to be fully normalised... It’s taken an awfully long time to achieve but I think it’s good news,” said Hester.