RBS agrees to pay $4.9bn to US

11 May, 2018, 00:35 | Author: Terri Saunders
  • Royal Bank of Scotland chief executive Ross McEwan

The Royal Bank of Scotland has reached a tentative deal with the U.S. Department of Justice, reportedly worth $4.9 billion, to settle potential civil claims over the bank's structuring and sale of residential mortgage-backed securities before the financial crisis, the agency confirmed Wednesday.

While most of the cost will be covered by money the company already set aside, the deal will cut second-quarter earnings by US$1.44 billion, the bank said.

In March, Barclays agreed to pay US$2 billion to settle its USA probe, securing a penalty less than half of what United States authorities originally demanded.

McEwan had hoped for a settlement before the end of 2017, but changes at the DOJ following the inauguration of U.S. President Donald Trump saw negotiations slip back.

The settlements have weighed heavily on the bank amid fears over the size of the deals, with other banks having forked out mammoth sums.

Shares in RBS surged 4% after the overnight settlement announcement. Late on Wednesday it reached a $4.9 billion settlement in principle with USA prosecutors over crisis-era mortgage bond sales, one of the last banks to do so.

The pro forma impact of the settlement on RBS's 31 March 2018 common equity tier 1 ratio (a measure of a bank's financial strength) is a reduction of approximately 50 basis points and a reduction of 9p on 31 March 2018 fully diluted tangible net asset value per share.

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The absence of the Department of Justice's attentions should make the stake sell easier as the bank can now concentrate on operating its business.

United Kingdom chancellor Philip Hammond promised in last year's Budget to sell up to £3bn worth of RBS shares by 2019, but had been reluctant to do so with the unknown fine hanging over the bank.

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". It leaves it likely to pay its first dividend in a decade once it gets to the end of 2018.

The bank has paid nothing for ten years.

The proposed settlement is still subject to both sides entering a legally binding agreement, RBS said.

"This removes the last great barrier to the Government selling off its stake and we would envisage that the Chancellor will expedite the disposal of its shareholding".

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