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McEwan says it is 'price to pay' to repair bank

RBS hit with £4.2 billion fine for mis-selling in US

Ross McEwan

McEwan: big cheque (photo by Terry Murden)


Royal Bank of Scotland today reached a key milestone in settling damaging legacy issues by agreeing a £4.2 billion fine with the US authorities.

It announced that it has reached a settlement with the Federal Housing Finance Agency to resolve claims in relation to RBS’s issuance and underwriting of approximately £25 billion of residential mortgage-backed securities.  As part of the settlement, FHFA’s outstanding litigation against RBS will be withdrawn.  

The bank is still facing punishment from the US Department of Justice, which could cost another £9bn.

Ross McEwan, RBS chief executive, said: “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.

“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 a conference call with the media he said he did not like having to write such a large cheque. “Unfortunately it is the price we are paying to get this organisation in better shape.”

Under the settlement, RBS will be reimbursed £581 million under indemnification agreements with third parties.

The net cost to RBS of £3.65bn is largely covered by existing provisions. An incremental charge of £151m will be recorded in the RBS Q2 2017 results which will be published on 4 August.

As at end Q1 2017, RBS held a provision of £6.6bn against RMBS, of which £3.6bn related to FHFA and the remainder principally relates to a number of other matters.  

RBS is one of 17 financial institutions to have settled RMBS claims filed by FHFA. Following this settlement, RBS’s unresolved RMBS litigation matters involve the issuance of less than $1 billion of RMBS issued primarily from 2005 to 2007, assuming court approval of an agreed and provided for settlement. 

This unresolved amount does not include the FHFA case involving RMBS issued by Nomura, which RBS estimates its net exposure as approximately £295m and intends to pursue indemnification for.  This net exposure was also included within RMBS related provisions as at Q1 2017. 

As previously disclosed, RBS continues to cooperate with RMBS related investigations and proceedings, both formal and informal, by federal and state governmental law enforcement and other agencies including the US Department of Justice and various other members of the RMBS Working Group of the US Financial Fraud Enforcement Task Force.

The duration and outcome of these investigations, including in particular the DOJ’s civil and criminal investigations, and other RMBS litigation matters remain uncertain, including in respect of whether settlements for all or any of such matters may be reached.  

RBS is not making any other adjustments to existing provisions relating to RMBS matters as a result of today’s settlement but continues to advise that further substantial provisions and  costs may be recognised and, depending upon the final outcomes, other adverse consequences may occur. 

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