£4bn mortgage mis-selling fine hammers RBS
Royal Bank of Scotland has been hit with a £4.2bn penalty for selling toxic mortgages in the United States in the runup to the financial crisis.
In another blow to its tarnished reputation, the taxpayer-backed lender will hand the cash over to american regulators, to draw a line under past misdemeanours.
The payment relates to the mis-selling of bundles of risky home loans to investors between 2005 and 2007 as the once- safe British bank expanded overseas.
But this is not the end of the issue for RBS, which is still 70pc-owned by British taxpayers following its £46bn bailout in 2008. It is feared a separate investigation by the US Department of Justice into the mis-selling of toxic mortgage products could land the bank with a £9bn bill.
RBS chief executive Ross McEwan, who took over in 2013, laid the blame firmly at the door of former boss Fred Goodwin who quit in 2008. He said: ‘It’s never a great experience for a chief executive to be effectively writing such a large cheque but that is the price we are paying to get this organisation in a much better shape.’
Since 2008, staff numbers have fallen from 200,000 to 76,000 as it racked up losses of £58bn, closed divisions, pulled out of more than 20 countries and shut branches in the Uk.
The bank has also set aside nearly £19bn to cover the cost of other wrongdoings, from mis- selling payment protection insurance to ripping off small businesses.
The latest payment – to set- tle its case with the Federal Housing Finance agency – relates to £25bn of home loans bundled together by RBS and sold to US mortgage groups Fannie Mae and Freddie Mac.
When the sub-prime mortgage market imploded, bonds seen as safe bets in fact turned out to be made up of low grade home loans to borrowers unable to meet their repayments.
The investors were left sitting on huge losses.
RBS will pay a total of £4.2bn to the agency but said the net cost, after an indemnification agreement, would be £3.65bn, to be covered by funds it had already set aside.