RBS reaches $4.9 billion deal to settle US mortgage bond probe

The Royal Bank of Scotland said on Wednesday it had reached an agreement in principle with the U.S. Department of Justice that includes a $4.9 billion civil penalty to resolve potential claims over mortgage-backed securities issued from 2005 to 2008.

The bank said in a statement that $3.46 billion of the proposed penalty will be covered by existing provisions, with the rest to come from an incremental charge of $1.44 billion in 2018’s second quarter.

Both the bank and the U.S. Attorney’s office in Massachusetts, which first announced the deal, said more negotiations were needed before a formal agreement could be reached.

The implosion of markets for risky residential mortgage-backed securities and related derivatives contributed to the 2008 global financial crisis and the recession that followed.

RBS said the proforma impact of the proposed settlement on the bank’s March 31, 2018 Common Equity Tier 1 ratio is a reduction of about 50 basis points and a reduction of 9p on March 31 2018 fully diluted TNAV per share.

“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 Chief Executive Ross McEwan said in the statement that when the agreement is finalised, it would allow RBS “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.”

A conference call for investors and analysts is planned for 8:00 a.m. (0700 GMT) in London on Thursday, the statement said.

RBS reached a $500 million settlement with New York state in March to resolve charges it misled investors who bought the mortgage-backed bonds.

Last December, it also agreed to pay $125 million to resolve claims that it made misrepresentations while selling mortgage-backed securities to two large California pension funds.

RBS was one of the last banks to reach a settlement with the U.S. government to resolve investigations into its marketing and sale of residential mortgage-backed securities in the run-up to the 2008 financial crisis.

The investigation had been led by the U.S. Attorney’s Office in Massachusetts, which had also been conducting a criminal probe into the company and former employees.

But the settlement that RBS and the office disclosed on Thursday was only civil in nature, signaling no criminal charges were likely to result from the probe.

The Justice Department had previously settled with banks including Citigroup, Deutsche Bank, JPMorgan, Credit Suisse, Morgan Stanley, Goldman Sachs, Bank of America and Barclays.

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