RBS agrees to pay £846m over toxic mortgage bonds

● Sum ‘substantially covered’ by existing provisions, taxpayer-backed lender says

Royal Bank of Scotland (RBS) has agreed to pay a US regulator $1.1 billion (£846 million) to settle two claims regarding the sale of toxic residential mortgage-backed securities (RMBS) in the run-up to the financial crisis.

The lender said the settlements, involving its subsidiary RBS Securities Inc and relating to claims made on behalf of the US Central Federal Credit Union and Western Corporate Federal Credit Union, were “substantially covered” by existing provisions and would have “no material impact” on the strength of its balance sheet.

The Edinburgh-based bank said it reached an agreement with the National Credit Union Administration (NCUA), which regulates credit unions in America.

However, RBS gave warning that it may have to set aside further funds, regarding litigation and investigations surand rounding the sale of the securities.

Commenting on the $1.1bn payout news, analyst Gary Greenwood of Shore Capital said it “had already largely been provided for and so should not have a material impact on our profit estimates or the group’s capital position”.

However, he added that settlements relating to claims by the Federal Housing Finance Association and investigations by the US Department of Justice (DOJ) “remain outstanding, both of which could be substantially larger and have yet to be provided for”.

RBS shares have been under pressure after the DOJ earlier this month hit German banking giant Deutsche Bank with a $14bn penalty for mis-selling mortgage-backed securities.

The Scottish bank last month reported a loss of £2bn for the first half of the year, accruing more than £1.3bn of “litigation and conduct costs” in the period.

It said regarding its outlook then: “We continue to deal with a range of uncertainties in the external environment we will also have to manage conduct-related investigations and litigation, including US RMBS, throughout 2016, and substantial related incremental provisions may be recognised during the remainder of the year.”

Additionally, RBS chief executive Ross Mcewan said earlier this week that the group was working to resolve outstanding claims this year and into 2017, but warned it could create “substantial additional conduct provisions and noise”.

He also said the lender would be in “uncharted territory” if it failed to sell its 300-branch Williams & Glyn division by the end of this year.

The group, 73 per cent owned by the UK government, has to dispose of the business by the end of 2017 to meet state aid rules over its bailout.

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RBS shares closed yesterday up 1 per cent at 176.4p. The group is due to report its thirdquarter results on 28 October.