RBS to Pay $5.5 Billion to Settle Mortgage-Backed Securities Probe--Update
July 12 2017 - 11:08AM
Dow Jones News
By Max Colchester
LONDON -- Royal Bank of Scotland Group PLC on Wednesday agreed
to pay $5.5 billion to the Federal Housing Finance Agency to settle
a probe into its sale of toxic mortgage-backed securities in the
run up to the financial crisis.
The settlement clears one of several obstacles the U.K.
government-controlled bank faces before it can resume dividend
payments and continue its return to private hands. RBS said in a
statement that it had already set aside funds to cover most of the
cost of the settlement. The bank will have to take an additional
charge of $196 million, which will be realized in its coming
results in August.
In settling, RBS becomes the 17th bank to strike a deal with the
FHFA over the sale of subprime mortgages to Fannie Mae and Freddie
Mac. The settlement came in higher than investors expected,
tempering the idea that U.S. agencies would soften their approach
to foreign banks under the Trump administration.
More pain could still be ahead. RBS had set aside $8.3 billion
to cover a range of allegations linked to its role in packaging and
selling on subprime mortgages in the lead up to the financial
crisis. The bank still faces probes from several U.S. agencies
including criminal and civil investigations by the U.S. Department
of Justice. RBS warned Wednesday that "further substantial
provisions and costs may be recognized...depending upon the final
outcomes." Analysts at Jefferies estimate RBS will set aside a
further $2.5 billion by the end of the year to cover future Justice
Department settlements. So far, the bank hasn't had meaningful
discussions with the Justice Department over any settlement, said
RBS Chief Financial Officer Ewen Stevenson.
That could slow the grinding process of returning RBS to private
hands. U.K. Treasury officials have said they would not sell the
government's 71% stake until they have clarity on the size of the
fines RBS may face.
Under the FHFA settlement, RBS will pay the $5.5 billion, but is
eligible for a $754 million reimbursement under indemnification
agreements. Mr. Stevenson admitted the deal was "at the high end of
the other settlements" but said there should be no read across to
potential settlements with the Justice Department. RBS paid more
per mortgage bond sold than any other bank that has settled with
the FHFA to date.
RBS is involved in another case with the FHFA where they are
named co-defendant with Japanese bank Nomura. This is still ongoing
following an appeal.
The FHFA 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 Chief Executive Ross McEwan
said.
The bank has shed a large chunk of its bond trading operations
in the U.S. and is in the process of retreating to its U.K.
base.
Razak Musah Baba contributed to this article
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
July 12, 2017 10:53 ET (14:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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