RBS Bolsters Funds to Cover U.S. Legal Settlements -- WSJ
January 27 2017 - 3:02AM
Dow Jones News
U.K. bank sets aside $3.8 billion more for potential U.S. costs
tied to crisis era
By Max Colchester
Royal Bank of Scotland Group PLC on Thursday put aside an extra
$3.8 billion to cover future settlements with U.S. authorities over
the sale of toxic mortgage-backed securities before the financial
crisis, offering investors hope that the British bank is getting
closer to resolving one of its last major crisis-era litigation
headaches.
The provision will likely push the 72% U.K. government-owned
bank to one of its largest annual losses since its taxpayer bailout
in 2008, further denting the bank's prospects for paying dividends
in the medium term.
RBS said the timing of any settlement with U.S. authorities
remained "uncertain." The extra provision, which will be taken as
part of the bank's full-year earnings next month, will take the
total the bank has put aside to cover the potential penalties to
$8.3 billion and will reduce its Tier 1 capital ratio to 13.6%.
Shares in the bank traded 3% higher in afternoon trading in
London.
The Justice Department is probing criminal and civil issues
related to RBS's sale of mortgage bonds at the height of the U.S.
housing boom. The additional provision is mostly to cover that
investigation, RBS added. The bank had previously set aside $5.6
billion, in large part to cover settlements with the Federal
Housing Finance Agency and other U.S. authorities.
Late last year Deutsche Bank AG and Credit Suisse Group AG
settled with the Justice Department over their role in the sale of
mortgage-backed securities. Barclays refused to do so and was sued
by the Justice Department.
"You do take some guidance out of that when you make your own
provisions, " RBS Chief Executive Ross McEwan said. However, the
bank has yet to start active negotiations with the Justice
Department. Analysts have estimated RBS's final bill could go as
high as $12 billion.
The settlement with U.S. authorities is one of the remaining
hurdles RBS must clear before the U.K. government can consider
privatizing the bank. The threat of the vast fine has been weighing
on RBS's share price for over a year. The bank's management has
repeated its desire to settle. However, on Thursday the bank said
in a statement there was no guarantee it would do so.
When RBS presents its annual results on Feb. 24. the bank will
also outline further cost-cutting measures as its executive team
continue to battle to reshape RBS amid low interest rates and a
laundry list of litigation issues.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
January 27, 2017 02:47 ET (07:47 GMT)
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