London (AFP) – Britain’s troubled Royal Bank of Scotland on Thursday almost doubled provisions for its role in the 2008 US subprime crisis, placing it on course for yet another annual loss.
The state-rescued lender said in a statement that it had set aside an additional £3.1 billion ($3.9 billion, 3.6 billion euros) to cover potential US fines over the alleged mis-selling of mortgage securities that precipitated the 2008 global financial meltdown.
The bank added that this took total provisions to £6.7 billion, but cautioned that it remained in talks with the US Department of Justice (DOJ) over a settlement.
RBS, based in Edinburgh, said the charges were “in relation to various investigations and litigation matters relating to RBS’s issuance and underwriting of US residential mortgage-backed securities (RMBS)”.
– Shares jump on relief –
The bank’s shares soared almost five percent in morning deals on investor relief that the sum was not even higher.
The lender, which is 73-percent owned by the British government after a huge bailout during the crisis, warned that “further substantial additional provisions and costs may be recognised”, depending on the outcome of talks.
The bank was among several implicated in the global financial crisis, including Barclays, Deutsche Bank and Credit Suisse.
“Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy,” Chief Executive Ross McEwan said in the statement.
“It is our priority to seek the best outcome for our shareholders, customers and employees.”
RBS will publish its annual earnings on February 24.
– Toxic securities –
German banking titan Deutsche Bank and the Swiss bank Credit Suisse have already agreed to settle similar claims for their role in the sale of toxic securities that led to the global financial crisis.
Deutsche and Credit Suisse agreed with US authorities this month to pay a combined $12.5 billion (11.6 billion euros).
The system-wide failure in 2008 of complex securities derived from residential mortgages caused a cascading wave of bankruptcies and crises that sparked a global recession, leading to tens of millions of job losses around the world.
News of the settlements contrasted sharply with the DOJ’s decision to take legal action against Barclays, accusing the British bank of massive fraud in the sale of mortgage-backed securities. Barclays has rejected the claim and said it will vigorously defend itself.
In late morning trade on Thursday, RBS shares climbed 4.7 percent to 238.10 pence, while Barclays added 1.6 percent to 234.45 pence on London’s rising stock market.
“On the face of it this is yet more bad news from RBS,” said ETX Capital analyst Neil Wilson.
“But RBS shares are up a touch today, perhaps as investors decide that things might not be as bad as feared, and that things can now only get better. That’s a big assumption.”
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