The proposed deal with the US department of justice (DoJ) over allegations of mortgage bond mis-selling would settle the last major claim related to the bank’s conduct ahead of the financial crisis.
It also means the bank can look at resuming dividends and paves the way for the UK government to re-ignite plans to sell its 72 per cent stake in the bank.
RBS said $3.46bn of the proposed civil settlement will be covered by existing provisions and the bank will take a $1.44bn hit in its second-quarter results. But the settlement still needs to be finalised, with further details set to be negotiated.
RBS chief executive Ross McEwan described the announcement as a “milestone” for the group.
“Reaching this settlement in principle with the US department of justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis,” he said.
The latest settlement follows a $5.5bn US penalty agreed with the Federal Housing Finance Agency last July. The settlements have weighed heavily on the bank amid fears over the size of the deals, with other banks having forked out mammoth sums.
Donald Brown, head of private clients at Brewin Dolphin in Edinburgh, said: “The cost of RBS’s settlement with US regulators is better than analysts had been expecting and removes a major hurdle to the Chancellor’s long-stated aim of off-loading part of the taxpayer’s stake in the bank.
“It also allows the bank to focus once more on restoring dividend distributions to long-suffering shareholders – but that remains an aspiration in the near term.”
However, Brown said that, although the shares have responded well, “we remain cautious short term in the knowledge that the government remains a seller”.
RBS is one of the last to settle with US regulators following rival Barclays, which agreed a $2bn agreement in March with the DoJ and Deutsche Bank, which struck a $7.2bn agreement.
It has also been a major hurdle to the bank’s return to private hands, with the UK government having said the US mis-selling claims need to be resolved before it can start to sell its shares in the lender.
McEwan said the deal “makes it easier for the government to have a clean bank to sell”, but he stressed the decision on how and when to sell down the stake is “definitely in their [the government’s] hands”.
Chancellor Philip Hammond said the agreement, when finalised, will “remove a major uncertainty for the UK taxpayer”.
Shares in RBS closed up 10.4p, or 3.8 per cent, at 286.5p.