RBS sets aside £3.1bn for US mortgage scandal
Royal Bank of Scotland (RBS) confirmed on Thursday that it will set aside £3.1bn ($3.9bn) to cover the potential cost of a settlement with the US Department of Justice relating to a bond mis-selling scandal prior to the 2008 financial crisis. The announcement suggests that RBS is now on course for its ninth consecutive annual loss. RBS is the final major bank to attempt to conclude a settlement in the US with regards to the sale of residential mortgage-backed securities.

The chancellor has ruled out reducing the government’s stake in Royal Bank of Scotland after it took a £3.1bn hit towards the cost of a bond mis-selling scandal in the US.

The charge for the latest regulatory failure will push RBS to its ninth consecutive annual loss and was blamed by Ross McEwan, the bank’s chief executive, on the bank having “lost its way” into the run-up to the 2008 crisis. RBS has already incurred £50bn of cumulative annual losses since taxpayers pumped in £45bn to keep it afloat.

Speaking during a visit to Microsoft’s headquarters in Reading after RBS published an unscheduled trading update on Thursday, Philip Hammond said the government regarded the 73% stake as a “long-term asset” and quashed any hopes that tackling the long-running bond mis-selling scandal might facilitate a stake sell-off.

The bank’s shares are trading around the 230p level, below the 502p average price that taxpayers paid during the crisis.



The bank has set aside £6.7bn to tackle up to 15 investigations related to the way it packaged up mortgages and sold them on to investors before the financial crisis. These so-called residential mortgage backed securities (RMBS) were a lucrative business for the industry but have proved costly as the US authorities seek to punish the sector for investors’ losses.

McEwan said: “Putting our legacy litigation issues behind us, including those relating to RMBS, remains a key part of our strategy. It is our priority to seek the best outcome for our shareholders, customers and employees.

“This is a very large number. However, it reflects the legacy of the time when RBS lost its way as it embarked on a quest to build a global bank.”

McEwan, who took the helm in 2013, described that global ambition as misguided and admitted that the RMBS operation – which was a major moneyspinner for the US operations of Fred Goodwin’s RBS before the banking crisis – had only been shut down in 2015.

The bank refused to say how much of the £3.1bn was to cover a settlement with the US Department of Justice, which has already reached deals with a range of US banks. On 23 December, the DoJ secured its first agreement with European lenders when it extracted $12.5bn (£9.8bn) from Deutsche Bank and Credit Suisse over the same scandal.

McEwan would not comment on suggestions that the US penalty represented a transfer of wealth from the UK across the Atlantic or entertain any discussion about following the route taken by Barclays to refuse to settle with the justice department.

Analysts questioned the impact of any consumer compensation that RBS would be required to pay to US mortgage customers, which finance director Ewen Stevenson said was “highly speculative”. However, he provided a “health warning” that the bill may yet rise and that no formal discussions were under way with the justice department.

Ian Gordon, an analyst at Investec, noted Theresa May was meeting Donald Trump on Friday. “It would be nice to think that the recent improvement in UK/US relations could be harnessed to expedite an RBS regulatory settlement on equitable terms. Time will tell.”

RBS losses since the 2008 bailout. Photograph: RBS

Sandy Chen, an analyst at stockbroker Cenkos, said: “Weird, maybe, but taking £3.1bn in further provisions against US RMBS investigations and lawsuits should probably be regarded as good news; it implies that RBS must have convinced its auditors that it had reasonable grounds to take further provisions, and that a deal with the US authorities is within sight.”

Hammond last year cited the RMBS settlement as one reason for not selling of any more shares along with the struggle to sell off 300 branches which was demanded by Brussels under the terms of state aid.

Labour MP John Mann, who sits on the Treasury select committee, urged the government to break up RBS. “This latest admission of failure is just another sign that RBS in its current form isn’t fit for purpose,” said Mann.