Royal Bank of Scotland may be forced to pay much higher fines than anticipated in America to cover involvement in the mis-selling of US mortgage-backed securities – the “sub-prime” lending bubble that paved the way for the financial crash.
RBS has earmarked some £1.9 billion to deal with the claims, but its shares fell by as much as 2 per cent yesterday following reports that it could be fined the equivalent of more than £5bn by the Federal Housing Finance Agency (FHFA) and the US Department of Justice. The litigation relates to the sale of about $32bn (£21bn) of mortgage-backed debt in the US.
The bank – 81 per cent-owned by the UK government after its £45bn taxpayer bailout during the global financial crash – agreed in June to pay a $99.5 million fine to settle claims it misrepresented more than $2bn of mortgage-backed bonds during the housing bubble between 2005 and 2007.
Leigh Goodwin, banking analyst at RBC Capital Markets, said: “We believe that a £5bn settlement would be towards the top-end of market expectations … and slightly above the levels where other banks have settled in relation to the assets involved, but it’s not inconceivable.
“The FHFA settlement is likely to be the largest of the outstanding litigation and conduct hits that RBS still faces, but there are many others, and they are likely to drag on for many years.
“It is clear that investors need to factor these costs into their earnings and dividend expectations.”
An RBS spokesman was unavailable for comment.
In London, the bank’s shares closed down 5.3p or 1.3 per cent at 389.1p. RBS is said not to have yet started final negotiations with the US authorities.
Chief executive Ross McEwan said in October that the bank would not pay a dividend until it had strengthened its capital position and had more clarity over future misconduct charges.
City banking analysts have produced a range of forecasts of the size of any eventual RBS settlement with the US authorities, some putting the cost as high as $10bn.
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