Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - CHAD BRAY THE NEW YORK TIMES

“This set­tle­ment is a stark re­minder of what hap­pened to [Royal Bank of Scot­land] be­fore the fi­nan­cial cri­sis, and the heavy price paid for its pur­suit of global am­bi­tions.” Ross McEwan, Royal Bank of Scot­land chief ex­ec­u­tive

LONDON — Royal Bank of Scot­land said Wed­nes­day that it had agreed to pay $5.5 bil­lion to U.S. author­i­ties to re­solve claims re­lated to its un­der­writ­ing and sale of toxic mort­gage se­cu­ri­ties.

The set­tle­ment with the Fed­eral Hous­ing Fi­nance Agency — reg­u­la­tor of the mort­gage- fi­nance giants Fan­nie Mae, the Fed­eral Na­tional Mort­gage As­so­ci­a­tion, and Fred­die Mac, the Fed­eral Home Loan Mort­gage Corp. — par­tially re­moves a long­time cloud from over the bank, which has tried to re­solve on­go­ing lit­i­ga­tion as part of its ef­forts to engi­neer a turn­around.

Royal Bank of Scot­land, based in Ed­in­burgh, Scot­land, is re­struc­tur­ing as it sells busi­nesses and dis­man­tles its global in­vest­ment bank to fo­cus on re­tail and cor­po­rate bank­ing in Bri­tain and Ireland. But it is still 72 per­cent owned by the Bri­tish gov­ern­ment af­ter a bailout dur­ing the fi­nan­cial cri­sis.

The bank said it con­tin­ued to co­op­er­ate with in­ves­ti­ga­tions by the U.S. Jus­tice Depart­ment and other U.S. reg­u­la­tors into the sale of mort­gage­backed

se­cu­ri­ties, which could lead to fur­ther set­tle­ments or penal­ties. Ewen Steven­son, the bank’s chief fi­nan­cial of­fi­cer, said dur­ing a con­fer­ence call Wed­nes­day that he could not pro­vide an up­date on talks with the Jus­tice Depart­ment but that he re­mained hope­ful that the in­quiry could be re­solved this year.

The lat­est set­tle­ment re­lates to $32 bil­lion in res­i­den­tial mort­gage-backed se­cu­ri­ties.

“To­day’s an­nounce­ment is an im­por­tant step for­ward in re­solv­ing one of the most sig­nif­i­cant legacy mat­ters fac­ing RBS and is fur­ther ev­i­dence of

the de­ter­mi­na­tion of the bank’s lead­er­ship to put our re­main­ing is­sues be­hind us,” Ross McEwan, the bank’s chief ex­ec­u­tive, said in a news re­lease. “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.”

In the fourth quar­ter, Royal Bank of Scot­land set aside an ad­di­tional $3.8 bil­lion for in­ves­ti­ga­tions and lit­i­ga­tion re­lated to the sale of res­i­den­tial mort­gage-backed se­cu­ri­ties as its ri­vals reached set­tle­ments with U.S. author­i­ties.

Deutsche Bank and Credit Suisse reached multi­bil­lion­dol­lar set­tle­ments with U.S. author­i­ties in De­cem­ber over sales of the same type of se­cu­ri­ties. The Jus­tice Depart­ment also sep­a­rately sued the Bri­tish bank Bar­clays over the sale of toxic mort­gage se­cu­ri­ties.

The Fed­eral Hous­ing Fi­nance Agency sued Royal Bank of Scot­land and 17 other fi­nan­cial in­sti­tu­tions in 2011, ac­cus­ing them of vi­o­lat­ing fed­eral and state se­cu­ri­ties laws in the sale and un­der­writ­ing of res­i­den­tial mort­gage-backed se­cu­ri­ties that were pur­chased by Fan­nie Mae and Fred­die Mac

from 2005 to 2007.

Un­der the terms of the agree­ment an­nounced Wed­nes­day, Royal Bank of Scot­land would pay $ 4.52 bil­lion to Fred­die Mac and about $975 mil­lion to Fan­nie Mae, the Fed­eral Hous­ing Fi­nance Agency said in a news re­lease.

Royal Bank of Scot­land said it would be re­im­bursed $754 mil­lion of the set­tle­ment amount un­der in­dem­ni­fi­ca­tion agree­ments with third par­ties. The hous­ing agency would then drop its lit­i­ga­tion against the bank, the lender said. The bank said the set­tle­ment was

largely cov­ered by its ex­ist­ing lit­i­ga­tion pro­vi­sions but that it would take an ad­di­tional charge of $196 mil­lion in the sec­ond quar­ter.

The bank said it still had un­re­solved res­i­den­tial mort­gage­backed se­cu­ri­ties lit­i­ga­tion mat­ters re­lated to is­suance of less than $1 bil­lion of the se­cu­ri­ties from 2005 to 2007.

That amount does not in­clude a sep­a­rate case by the Fed­eral Hous­ing Fi­nance Agency in­volv­ing se­cu­ri­ties is­sued by No­mura, for which Royal Bank of Scot­land said it in­tended to pur­sue in­dem­ni­fi­ca­tion.

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