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Categorized | Banks

RBS in $1bn US mortgage mis-selling deal

Posted on September 27, 2016

Morning commuters rush past a branch of RBS in London...Morning commuters rush past a branch of the Royal Bank of Scotland (RBS) in London November 4, 2011. The bank is to further shrink its investment bank arm and cut more jobs after the euro zone debt crisis saw third quarter profits slump, hampering its turnaround. RBS, which is 83 percent-owned by the UK government after it was bailed out during the 2008 financial crisis, said on Friday it expects a tough fourth quarter after it took a further hit on its Greek government bonds and sold most of its Italian bonds. REUTERS/Andrew Winning (BRITAIN - Tags: BUSINESS LOGO TPX IMAGES OF THE DAY) - RTR2TLRO©Reuters

Royal Bank of Scotland has agreed to pay $1.1bn to settle some of the legal claims against it in the US for allegedly mis-selling mortgage securities in the run-up to the financial crisis.

The settlement with the National Credit Union Administration Board resolves two of the civil lawsuits against RBS but leaves suits by the Department of Justice and the Federal Housing Finance Agency outstanding. 

    Coming only days after Deutsche Bank confirmed that it had received an initial claim for $14bn from the DoJ to settle its investigation into mis-selling of mortgage securities by the German bank, the move by the UK-owned bank underlines how the focus of US authorities has switched to European lenders. 

    RBS said the $1.1bn settlement was “substantially covered by existing provisions”, which totalled £3.8bn at the end of June, adding that it would have no material impact on the bank’s core capital ratio. A person briefed on the matter said the settlement had no bearing on the timing of its other expected US mortgage security settlements.  

    The bank is defending about 15 civil lawsuits in the US, though it has not yet entered formal discussions with the DoJ. Ross McEwan, chief executive of RBS, said at a conference in London on Tuesday that the bank continued “to work towards resolution” of its various US mortgage security exposures “over the remainder of this year and next”. He added: “These are going to result in substantial additional conduct provisions and noise but we remain focused on the task at hand of continuing to build a really good bank for customers and investors.”

    RBS agreed to pay $129.6m to settle a separate case last year with the NCUA, which oversees federal credit unions. As part of the latest settlement, the NCUA will dismiss its pending civil lawsuits against the bank. RBS will not admit any fault as part of the agreement. 

    Future settlements with the DoJ and FHFA are likely to cost RBS much more — one US agency has estimated it could face $13bn of total outlay — and the bank said on Tuesday it “may require additional provisions in future periods that in aggregate could be materially in excess of the provisions”. It is due to report third-quarter results on October 28. 


    One US agency’s estimate of RBS’s potential mortgage mis-selling liabilities

    Rick Metsger, NCUA chairman, said: “NCUA is pleased with today’s settlement and fully intends to stay the course in fulfilling its statutory responsibilities to protect the credit union system and to pursue recoveries against financial firms that we maintain contributed to the corporate crisis.” 

    The NCUA said it had litigation pending against the two big Swiss banks, Credit Suisse and UBS, for selling “faulty mortgage-backed securities to corporate credit unions” in the three years before the 2008 financial crisis. 

    The body has collected $4.3bn in settlement of various civil lawsuits over mis-sold mortgage securities, which it said would be used to pay claims against five failed corporate credit unions.