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Royal Bank of Scotland to pay $4.9bn US subprime fine

Royal Bank of Scotland is one of the last major banks to settle with US regulators over the global financial crisis
AFP

London (AFP) – Britain’s state-rescued Royal Bank of Scotland said Thursday it had been fined $4.9 billion by the US Justice Department over its role in the subprime crisis.

The huge sum, the equivalent of 4.1 billion euros, was however less than feared and resulted in a sharp share price gain for the government-owned lender.

RBS said in a statement that it reached a preliminary deal “with the US Department of Justice (DoJ) to resolve its investigation into RBS’s issuance and underwriting of US residential mortgage-backed securities between 2005 and 2007”. 

It follows a separate fine of $5.5 billion agreed in July 2017 with the Federal Housing Finance Agency over the same matter.

Edinburgh-based RBS, which remains 71 percent owned by the British government after receiving the world’s biggest banking bailout at the height of the subsequent 2008 global financial crisis, described the news as a “milestone”.

“Today’s announcement is a milestone moment for the bank,” said chief executive Ross McEwan.

“Reaching this settlement in principle with the US Department of Justice will, when finalised, allow us to deal with this significant remaining legacy issue and is the price we have to pay for the global ambitions pursued by this bank before the crisis.

“Removing the uncertainty over the scale of this settlement means that the investment case for this bank is much clearer,” McEwan added.

The lender added that $3.46 billion of the settlement will be covered by existing provisions, while it will take another $1.44 billion charge for the second quarter of 2018.

Shares in RBS jumped 4.5 percent to 288.5 pence in early deals on London’s benchmark FTSE 100 index, which was up 0.2 percent overall.

That “a significant obstacle that had been hanging over the bank looks finally to have been cleared”, noted analyst Michael Hewson at CMC Markets UK.

– Resurgence – 

Britain’s Conservative government is meanwhile planning to return RBS to private ownership with the aim of selling £15 billion of its stake by 2023.

However, it had stressed that the subprime claims needed to be resolved before it could start selling down its holding.

RBS last year posted its first annual bottom-line profit since 2007, the eve of the global financial crisis, following a huge drop in litigation costs.

And the bank recently revealed that this year’s first-quarter net profits more than tripled on lower restructuring costs and rising income.

Earnings after tax surged to £792 million ($1.1 billion, 911 million euros) in the first three months of this year.

That easily beat analysts’ consensus forecasts and compared to a £259-million profit in the same period of 2017.

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