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RBS Agrees To Pay $5.5bn To Settle U.S. Mortgages-Related Selling Charges

British banking major Royal Bank of Scotland (RBS) has agreed to pay a fine of $5.5 billion (£4.2 billion) to the U.S. Federal Housing Finance Agency (FHFA) to settle charges of mis-selling mortgages in the days leading to the 2008 financial crisis.

This payment will settle charges that it had adopted misleading tactics for selling mortgage- backed securities to U.S. loan firms Fannie Mae and Freddie Mac.

RBS however still has outstanding cases with the U.S. Department of Justice regarding the same issue.

The FHFA sued around 18 U.S–based and foreign banks in 2011 for their involvement in selling mortgage securities to Fannie and Freddie. The value of total securities sold to the two institutions was $196 billion.

The deal with RBS was the 17th in terms of FHFA’s settlements with financial institutions regarding improper securities sales. Two other UK banks, namely Barclays and HSBC who were also charged in the case, agreed to pay fines of $280 million and $550 million respectively.

RBS said in a statement that it had made roughly sufficient provision in its books for the settlement but said that it will be making an additional provision of £151 million to cover the cost in full.

In a statement Ross McEwan, RBS Chief Executive said

Today's announcement is an important step forward in resolving one of the most significant legacy matters facing RBS and is further evidence of the determination of the bank's leadership to put our remaining issues behind us.This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions

McEwan stated that the bank was now nearly done with all the issues that have affected its chances to return to profit.

More than 70 percent of RBS is now owned by the government as a result of the government bailout post the crisis. British Chancellor, Philip Hammond has hinted that any share sale of the bank would start only after a majority of its legacy issues have been addressed. The latest settlement comes after the bank agreed to pay thousands of investors who had sued the bank for misrepresentation during a rights issue in 2008.

So far RBS has put aside $8.3 billion to handle U.S-related claims regarding the mis-selling of securities. However, it will now need to make fresh provision for the civil and criminal cases pending with the U.S. Department of Justice. According to Joseph Dickerson, an analyst at Jefferies, an additional provision of $2.5 billion will be needed in the fourth quarter to deal with it.


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