RBS pays £4.2bn to settle US case – but could still face massive fines

● Department of Justice fine is ‘elephant in the room’ for bank

Royal Bank of Scotland has agreed a multi-billion-dollar settlement for its role in the sale of risky mortgage products in the run-up to the financial crisis – but still faces the prospect of hefty fines from US authorities.

The taxpayer-backed banking giant struck the deal yesterday with the US Federal Housing Finance Agency (FHFA), seeing it resolve one of two major US inquiries into mis-selling allegations.

The Edinburgh-based lender said it had paid a “heavy price” for past mistakes as it agreed to pay $5.5 billion (£4.2bn) in total to the FHFA. Some $754 million will be repaid to RBS by other parties under an indemnification agreement.

However, City analysts warned that RBS faced an “elephant in the room” as it works towards a separate settlement with the US Department of Justice, which is expected later in the year.

Ross Mcewan, chief executive of RBS, said the deal with the FHFA was “an important step forward in resolving one of the most significant legacy matters facing RBS”.

Alluding to the expansion undertaken by disgraced former boss Fred Goodwin, Mr Mcewan added: “This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions.”

RBS said the net £3.65bn cost of the settlement with the FHFA would be largely covered by funds set aside. But it will take a $196m (£152m) charge in its second quarter results for the deal.

The bank had already put aside more than £6.5bn to cover US mis-selling claims.

The expected US settlements have weighed heavily on RBS

0 RBS was told that the US mis-selling claims had to be resolved before the UK government would start selling its shares in the bank