RBS to pay out £846m over toxic mortgage securities

RBS warned of further hits from toxic mortgage securities. Picture: John Devlin
RBS warned of further hits from toxic mortgage securities. Picture: John Devlin
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Royal Bank of Scotland has agreed to pay $1.1 billion (£846 million) to settle two lawsuits in the US over the sale of toxic residential mortgage-backed securities.

The state-backed lender said the settlement, over claims made on behalf of the US Central Federal Credit Union and Western Corporate Federal Credit Union, were “substantially covered” by existing provisions and would have “no material impact” on the strength of its balance sheet.

However, the Edinburgh-based group said it faces a number of other civil lawsuits and criminal investigations in the US surrounding the sale of the securities, and warned it may have to set aside yet more money in response. Announcing its half-year results last month, RBS said it had racked up more than £1.3bn of “litigation and conduct costs” during the six months to the end of June.

The bank said that litigation and investigations surrounding the sale of residential mortgage-backed securities “may require additional provisions in future periods that in aggregate could be materially in excess of the provisions existing as of 30 June 2016”.

Meanwhile, RBS chief executive Ross McEwan told a banking conference in London yesterday that the group would be in “uncharted territory” if it fails to sell its 300-branch Williams & Glyn division by the end of this year.

READ MORE: Santander abandons talks to buy 300 RBS branches

The group, which is 73 per cent owned by the UK government, has to dispose of the business by the end of 2017 to meet state aid rules over the £45bn taxpayer bailout it received at the height of the financial crisis. Spanish rival Santander has twice made moves for the unit, but walked away last week amid a disagreement about pricing.

RBS last month reported a loss of £2bn for the first half of the year, compared with a £179m loss a year earlier, after being hit by extra restructuring costs and an increased bill for mis-sold payment protection insurance. It is due to report its third-quarter results on 28 October.

The group’s shares have been under pressure after the US Department of Justice hit German rival Deutsche Bank with a $14bn penalty for mis-selling mortgage-backed securities.

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