RBS reaches $4.9 billion settlement over toxic bonds


Royal Bank of Scotland has agreed to pay $4.9 billion to resolve a US Department of Justice probe into its structuring and sale of mortgage-backed securities ahead of the 2008 financial crisis.

RBS said $3.46bn, £2.5bn, of the proposed civil settlement will be covered by existing provisions and the bank will take a $1.44bn U.S. dollar hit in its second quarter results.

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

But the settlement still needs to be finalised, with further details set to be negotiated.

State-backed bank Royal Bank of Scotland (RBS) has been fined £3.6bn ($4.9bn) by USA regulators over its subprime lending in the lead up to the financial crisis.

As of 08:36 BST, RBS' share price had added 4.49 percent to 288.50p, outperforming the broader United Kingdom market, with the benchmark FTSE 100 index now standing 0.11 percent higher at 7,671.13 points.

The settling of the outstanding penalty for RBS' role in the financial crisis was the last obstacle standing in the way of selling the government's enormous 71% stake back to the private sector in what will be the biggest privatisation in United Kingdom history.

This meant that the United Kingdom government was unable to sell of any of its shares in the company.

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RBS is the latest bank to settle claims of mis-selling in the run-up to the financial crisis.

"Our policy remains to return the bank to private hands as soon as we can achieve fair value for the shares, recognizing that fair value could well be below what the previous government paid for them", UK Treasury chief Philip Hammond said in April.

The $4.9bn civil settlement with the DoJ - which is lower than analysts predicted and includes $3.46bn that has already been covered - will mean the government is able sell more shares in the bank, the Financial Times reports.

Those remaining banks could now expect to pay less than had been estimated - in UBS's case, less than half of the top-end forecast of $5 billion, Elliott Stein, a Bloomberg Intelligence analyst, wrote in a note on Thursday.

Neil Wilson, chief market analyst at Markets.com commented: "It's a happy day for RBS, with the DoJ settlement coming in well below what we had feared".

"Adjusting for the combined impact of both the RMBS settlement and the pension deficit contribution of ú2 billion announced on 17 April, the Q1 2018 pro forma CET1 is 15.1 percent and fully diluted TNAV is 274p", the RBS statement said.

RBS said earlier this year that it earned £752 million ($1 billion) in 2017, its first profit after nine consecutive years of losses totaling £58 billion ($79 billion).

"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".