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RBS agrees $4.9bn to settle U.S. subprime case
11 May 2018, 01:29 | Cedric Leonard
Royal Bank of Scotland chief executive Ross Mc Ewan
The Edinburgh-based lender expects to reach a final agreement with the USA over an investigation into the packaging and sale of mortgage-backed securities in coming weeks.
Michael Hewson, chief market analyst at CMC Markets UK, said: "This morning's news that the bank had reached a provisional settlement of $4.9bn has seen the share price surge higher, as the prospect of a significant obstacle that had been hanging over the bank looks finally to have been cleared". Bank of America Corp., for example, paid $12 billion even though its FHFA penalty was about the same size as RBS's.
"The number is a firm number", Stevenson said.
The tentative agreement means the government-owned bank would need to take a $1.44bn charge in the second quarter to pay the penalty.
This goes some way to show how long RBS investors have been suffering and perhaps an indication of the relief felt on a line being drawn under the misconduct today. Last year, Attorney General Jeff Sessions instructed USA attorneys to no longer include third-party consumer relief in corporate penalties, which had been an Obama administration practice that contributed to the headline-grabbing penalty sizes for Bank of America, Credit Suisse, Deutsche Bank and Citigroup.
The latest settlement follows a $5.5bn U.S. penalty agreed with the Federal Housing Finance Agency last July.
Commenting on the agreement, Ross McEwan, chief executive of RBS, described the settlement as a "milestone moment" for the bank.
RBS a year ago posted its first annual bottom-line profit since 2007, the eve of the global financial crisis, following a huge drop in litigation costs.
"That's the last really big milestone before the bank can be seen to be fully normalized", Hester, who is now CEO of RSA, said during a conference call on the insurer's results.
"The settlement also paves the way for a quick return to annual profits after ten years of losses and dividends will once again start flowing". It had already paid just over $7 billion in other settlements with various US authorities.
With (Other OTC: WWTH - news) the penalty paid, RBS can now open talks with United Kingdom regulators about the resumption of dividend payments.
"This is hardly a Silicon Valley company".
The RBS deal isn't final, of course, and negotiations can shift at the last minute.
RBS may have benefited from settling under Trump's administration, which has been softer on banks than that of his predecessor Barack Obama.
RBS stated it had already set aside $3.46bn (£2.55bn) towards the fine but the bank warned the fine would reduce its common equity tier one ratio - which measures a bank's capital strength - by 50 basis points to 15.1 per cent.
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