Royal Bank of Scotland strikes €3.6bn US mortgage settlement

Royal Bank of Scotland Group rose the most in two months in London trading after the bank took a £3.1bn (€3.6bn) charge in a step toward resolving a US probe into sales of mortgage securities.
Royal Bank of Scotland strikes €3.6bn US mortgage settlement

The lender is continuing to co-operate with the US Department of Justice (DOJ) on its investigation, though timing of a settlement remains uncertain, the bank said yesterday.

RBS has taken £6.7bn of provisions related to as many as 15 mortgage investigations and lawsuits, and may face further charges.

RBS is one of the few global lenders that has yet to settle in a years-long probe that’s garnered more than $50bn (€46.6bn) in penalties for the DOJ since it began investigating the pre-crisis sale of mortgage bonds.

The UK taxpayer-owned lender was considering taking a provision based partly on Deutsche Bank’s $7.2bn settlement and Credit Suisse’s $5.3bn accord, both announced in December.

RBS investors, including the UK government, are paying a “heavy price for decisions made by RBS before the crisis. It’s another painful example of that legacy,” CEO Ross McEwan said. The charge “reflects the legacy of time when RBS lost its way on its quest to build a global bank”. The shares rose as much as 6.7%, the most since November 10.

Although the lender’s board was able to make the fresh provision based on other European banks’ settlements, chief financial officer Ewen Stevenson said RBS isn’t yet in any active negotiations with the Justice Department.

Drawing a line under the US investigations would clear a significant barrier for Mr McEwan in his task to return RBS to profit and restore dividends. While he must also divest its Williams & Glyn consumer division, settling the probes could make it easier for the UK government to sell its majority stake in the lender.

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